-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, V1C/L3xf3dmk9oq3eyW/HrADWcQTo/bSqOzMGFHeAilXE5sUwqd2NMTE2FrgKq/L dW7PqZOf4YGh5LV9NYrXQw== 0000950129-05-012378.txt : 20051230 0000950129-05-012378.hdr.sgml : 20051230 20051230145200 ACCESSION NUMBER: 0000950129-05-012378 CONFORMED SUBMISSION TYPE: 485APOS PUBLIC DOCUMENT COUNT: 23 FILED AS OF DATE: 20051230 DATE AS OF CHANGE: 20051230 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WM TRUST I CENTRAL INDEX KEY: 0000200159 IRS NUMBER: 910627393 STATE OF INCORPORATION: MA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 485APOS SEC ACT: 1933 Act SEC FILE NUMBER: 002-10766 FILM NUMBER: 051294263 BUSINESS ADDRESS: STREET 1: WM GROUP OF FUNDS STREET 2: 1201 THIRD AVENUE, 22ND FLOOR CITY: SEATTLE STATE: WA ZIP: 98101 BUSINESS PHONE: 206-461-2413 MAIL ADDRESS: STREET 1: WM GROUP OF FUNDS STREET 2: 1201 THIRD AVENUE, 22ND FLOOR CITY: SEATTLE STATE: WA ZIP: 98101 FORMER COMPANY: FORMER CONFORMED NAME: COMPOSITE BOND & STOCK FUND INC DATE OF NAME CHANGE: 19920703 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WM TRUST I CENTRAL INDEX KEY: 0000200159 IRS NUMBER: 910627393 STATE OF INCORPORATION: MA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 485APOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-00123 FILM NUMBER: 051294264 BUSINESS ADDRESS: STREET 1: WM GROUP OF FUNDS STREET 2: 1201 THIRD AVENUE, 22ND FLOOR CITY: SEATTLE STATE: WA ZIP: 98101 BUSINESS PHONE: 206-461-2413 MAIL ADDRESS: STREET 1: WM GROUP OF FUNDS STREET 2: 1201 THIRD AVENUE, 22ND FLOOR CITY: SEATTLE STATE: WA ZIP: 98101 FORMER COMPANY: FORMER CONFORMED NAME: COMPOSITE BOND & STOCK FUND INC DATE OF NAME CHANGE: 19920703 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WM TRUST II CENTRAL INDEX KEY: 0000846883 IRS NUMBER: 000000000 STATE OF INCORPORATION: MA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 485APOS SEC ACT: 1933 Act SEC FILE NUMBER: 033-27489 FILM NUMBER: 051294259 BUSINESS ADDRESS: STREET 1: WM GROUP OF FUNDS STREET 2: 1201 THIRD AVENUE, 22ND FLOOR CITY: SEATTLE STATE: WA ZIP: 98101 BUSINESS PHONE: 206-461-2413 MAIL ADDRESS: STREET 1: WM GROUP OF FUNDS STREET 2: 1201 THIRD AVENUE, 22ND FLOOR CITY: SEATTLE STATE: WA ZIP: 98101 FORMER COMPANY: FORMER CONFORMED NAME: SIERRA TRUST FUNDS DATE OF NAME CHANGE: 19931206 FORMER COMPANY: FORMER CONFORMED NAME: GW SIERRA TRUST FUNDS DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: GW INVESTMENT FUNDS DATE OF NAME CHANGE: 19890514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WM TRUST II CENTRAL INDEX KEY: 0000846883 IRS NUMBER: 000000000 STATE OF INCORPORATION: MA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 485APOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-05775 FILM NUMBER: 051294260 BUSINESS ADDRESS: STREET 1: WM GROUP OF FUNDS STREET 2: 1201 THIRD AVENUE, 22ND FLOOR CITY: SEATTLE STATE: WA ZIP: 98101 BUSINESS PHONE: 206-461-2413 MAIL ADDRESS: STREET 1: WM GROUP OF FUNDS STREET 2: 1201 THIRD AVENUE, 22ND FLOOR CITY: SEATTLE STATE: WA ZIP: 98101 FORMER COMPANY: FORMER CONFORMED NAME: SIERRA TRUST FUNDS DATE OF NAME CHANGE: 19931206 FORMER COMPANY: FORMER CONFORMED NAME: GW SIERRA TRUST FUNDS DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: GW INVESTMENT FUNDS DATE OF NAME CHANGE: 19890514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WM STRATEGIC ASSET MANAGEMENT PORTFOLIOS CENTRAL INDEX KEY: 0001011114 IRS NUMBER: 954584965 STATE OF INCORPORATION: MA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 485APOS SEC ACT: 1933 Act SEC FILE NUMBER: 333-01999 FILM NUMBER: 051294261 BUSINESS ADDRESS: STREET 1: WM GROUP OF FUNDS STREET 2: 1201 THIRD AVENUE, 22ND FLOOR CITY: SEATTLE STATE: WA ZIP: 98101 BUSINESS PHONE: 206-461-2413 MAIL ADDRESS: STREET 1: WM GROUP OF FUNDS STREET 2: 1201 THIRD AVENUE, 22ND FLOOR CITY: SEATTLE STATE: WA ZIP: 98101 FORMER COMPANY: FORMER CONFORMED NAME: SIERRA ASSET MANAGEMENT PORTFOLIOS DATE OF NAME CHANGE: 19960726 FORMER COMPANY: FORMER CONFORMED NAME: SIERRA ASSET MANAGEMENT TRUST DATE OF NAME CHANGE: 19960322 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WM STRATEGIC ASSET MANAGEMENT PORTFOLIOS CENTRAL INDEX KEY: 0001011114 IRS NUMBER: 954584965 STATE OF INCORPORATION: MA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 485APOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-07577 FILM NUMBER: 051294262 BUSINESS ADDRESS: STREET 1: WM GROUP OF FUNDS STREET 2: 1201 THIRD AVENUE, 22ND FLOOR CITY: SEATTLE STATE: WA ZIP: 98101 BUSINESS PHONE: 206-461-2413 MAIL ADDRESS: STREET 1: WM GROUP OF FUNDS STREET 2: 1201 THIRD AVENUE, 22ND FLOOR CITY: SEATTLE STATE: WA ZIP: 98101 FORMER COMPANY: FORMER CONFORMED NAME: SIERRA ASSET MANAGEMENT PORTFOLIOS DATE OF NAME CHANGE: 19960726 FORMER COMPANY: FORMER CONFORMED NAME: SIERRA ASSET MANAGEMENT TRUST DATE OF NAME CHANGE: 19960322 485APOS 1 v15673e485apos.txt WM TRUST II AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 30, 2005 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Securities Act of 1933 File #33-27489 Investment Company Act of 1940 File #811-5775 FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X] PRE-EFFECTIVE AMENDMENT NO. POST-EFFECTIVE AMENDMENT NO. 45 REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X] AMENDMENT NO. 46 WM TRUST II (Exact name of Registrant as specified in Charter) AND Securities Act of 1933 File #333-01999 Investment Company Act of 1940 File #811-07577 FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X] PRE-EFFECTIVE AMENDMENT NO. POST-EFFECTIVE AMENDMENT NO. 21 REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X] AMENDMENT NO. 22 WM STRATEGIC ASSET MANAGEMENT PORTFOLIOS, LLC (Exact name of Registrant as specified in Charter) AND Securities Act of 1933 File #002-10766 Investment Company Act of 1940 File #811-00123 FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X] PRE-EFFECTIVE AMENDMENT NO. POST-EFFECTIVE AMENDMENT NO. 90 REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X] AMENDMENT NO. 87 WM TRUST I (Exact name of Registrant as specified in Charter) 1201 Third Avenue, 22nd Floor, Seattle, WA 98101 (Address of principal executive offices) Registrant's telephone number, including area code (206) 461-3800 John T. West 1201 Third Avenue, 22nd Floor, Seattle, WA 98101 (Name and address of agent for service) With a copy to: Brian D. McCabe, Esq. Ropes & Gray LLP One International Place Boston, MA 02110 It is proposed that this filing will become effective: [ ] immediately upon filing pursuant to paragraph (b) of Rule 485 [ ] on [date] pursuant to paragraph (b) of Rule 485 [ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485 [X] on March 1, 2006 pursuant to paragraph (a)(1) of Rule 485 [ ] 75 days after filing pursuant to paragraph (a)(2) of Rule 485 [ ] on [date] pursuant to paragraph (a)(2) of Rule 485 [ ] this post-effective amendment designated a new effective date for a previously filed post-effective amendment. WM GROUP OF FUNDS PROSPECTUS MARCH 1, 2006 EQUITY FUNDS - REIT Fund - Equity Income Fund - Growth & Income Fund - West Coast Equity Fund - Mid Cap Stock Fund - Growth Fund - Small Cap Value Fund - Small Cap Growth Fund - International Growth Fund FIXED-INCOME FUNDS - Short Term Income Fund - U.S. Government Securities Fund - Income Fund - High Yield Fund MUNICIPAL FUNDS - Tax-Exempt Bond Fund - California Municipal Fund - California Insured Intermediate Municipal Fund MONEY MARKET FUND The WM Group of Funds provides a broad selection of investment choices. The Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a crime. TABLE OF CONTENTS
PAGE Risk/Return Summary Equity Funds Fixed-Income Funds Municipal Funds Money Market Fund Summary of Principal Risks Principal Risks by Fund Fees and Expenses of the Funds Fund Investment Strategies and Risks Equity Funds Fixed-Income Funds Municipal Funds Money Market Fund Common Investment Practices Investing in the Funds Choosing a Share Class CDSC Calculation and Waivers Redemptions and Exchanges of Shares Distribution Plan, Plan Recordkeeping/Administration Fees, and Additional Information Regarding Intermediary Compensation Other Policies and Practices of the WM Group of Funds Tax Considerations How Net Asset Value Is Determined Management of the Funds Fund Managers Management Fees Financial Highlights Appendix A
RISK/RETURN SUMMARY The WM Group of Funds provides a broad selection of investment choices. This summary identifies the investment objective, principal investment strategies, and principal risks of the mutual funds listed on the first page of this prospectus (each a "Fund", collectively the "Funds"). The principal investment strategies identified in this summary are not the only investment strategies available to the Funds, and some of the principal investment strategies may not be available at any given time. For a discussion of other investment strategies available to the Funds, please see the Statement of Additional Information (the "SAI"). STRATEGIES AND RISKS The principal investment strategies identified in this summary provide specific information about each of the Funds, but there are some general principles WM Advisors, Inc. ("WM Advisors") and the sub-advisors apply in making investment decisions. When making decisions about whether to buy or sell equity securities, WM Advisors and the sub-advisors will consider, among other things, a company's strength in fundamentals, its potential for earnings growth over time, and the current price of its securities relative to their perceived worth. When making decisions about whether to buy or sell fixed-income investments, WM Advisors and the sub-advisors will generally consider, among other things, the strength of certain sectors of the fixed-income market relative to others, interest rates and other general market conditions, and the credit quality of individual issuers. The discussion of each Fund's principal investment strategies includes some of the principal risks of investing in such a fund. You can find a more detailed description of these and other principal risks of an investment in each Fund under "Summary of Principal Risks." Investments mentioned in the summary and described in greater detail under "Common Investment Practices" below appear in BOLD TYPE. Please be sure to read the more complete descriptions of the Funds, and the related risks, before you invest. PERFORMANCE Below the description of each Fund is a bar chart showing the investment returns of its Class A shares for each of the past ten years (or for the life of the Fund if less than ten years). The bar chart is intended to provide some indication of the volatility of the Fund's past returns. The performance table following each bar chart shows how, for each applicable class of shares, average annual total returns of the Fund or Class compare to returns of one or more broad-based securities market indices for the last one, five, and ten years (or, in the case of a newer Fund or Class, since the inception of the Fund or Class). Performance shown in the table reflects the maximum applicable sales charge, but performance shown in the bar chart does not reflect any sales charge. PAST PERFORMANCE (BEFORE AND AFTER TAXES) DOES NOT GUARANTEE FUTURE RESULTS. There can be no assurance that any Fund will achieve its investment objective. It is possible to lose money by investing in the Funds. An investment in a Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Money Market Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Money Market Fund. REIT FUND OBJECTIVE: This Fund seeks to provide a high level of current income and intermediate- to long-term capital appreciation. PRINCIPAL INVESTMENT STRATEGIES AND RISKS: The Fund invests primarily in REAL ESTATE INVESTMENT TRUST ("REIT") SECURITIES and FIXED-INCOME SECURITIES of issuers that are principally engaged in United States ("U.S.") real estate or related industries. The Fund's investments may also include convertible securities, MORTGAGE-BACKED SECURITIES, U.S. GOVERNMENT SECURITIES, AMERICAN DEPOSITARY RECEIPTS ("ADRS") and EUROPEAN DEPOSITARY RECEIPTS ("EDRS"), REPURCHASE AGREEMENTS and ZERO-COUPON SECURITIES. WM Advisors seeks investments for the Fund that represent a variety of sectors in the real estate industry. In selecting investments for the Fund, WM Advisors looks for high-quality REITs at attractive valuations that have fundamental indicators of dividend growth potential, capital appreciation, a strong financial position, and solid management demonstrating consistency in adding value and generating cash flow. Among the principal risks of investing in the Fund are: - - Market Risk - Credit Risk - Currency Risk - Foreign Investment Risk - - Leveraging Risk - Real Estate Risk - Derivatives Risk - Liquidity Risk - - Management Risk - Smaller Company Risk - Fund-of-Funds Risk
CALENDAR YEAR TOTAL RETURNS (Class A Shares)(1) [BAR CHART] 2004 31.14% 2005
Sales charges are not included in the returns shown above. If those charges were included, the returns shown would be lower. During the periods shown above, the highest quarterly return was [%] (for the quarter ended [ ]) and the lowest was [%] (for the quarter ended [ ]). AVERAGE ANNUAL TOTAL RETURNS (with Maximum Sales Charge)(1)
SINCE INCEPTION FOR PERIODS ENDED DECEMBER 31, 2005 PAST YEAR (3/1/03) - --------------------------------------------------------- --------- --------- CLASS A SHARES Before Taxes [ ] [ ] After Taxes on Distributions(2) [ ] [ ] After Taxes on Distributions and Sale of Fund Shares (2) [ ] [ ] CLASS B SHARES (BEFORE TAXES) [ ] [ ] CLASS C SHARES (BEFORE TAXES) [ ] [ ] NAREIT ALL REIT INDEX(3) [ ] [ ]
- ---------- 1 Performance information is not provided for Class R-1 and R-2 shares because they had not been offered prior to the date of this prospectus. 2 After-tax returns are calculated using the highest historical individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation, may differ from those shown, and are not relevant to investors who hold fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts ("IRAs"). After-tax returns are shown for only one share class offered by this prospectus. After-tax returns for other share classes will vary. 3 The National Association of Real Estate Investment Trust ("NAREIT") ALL REIT Index reflects the aggregate performance of all publicly traded REITs that own, develop and manage properties. Indices are unmanaged and individuals cannot invest directly in an index. Index performance information reflects no deduction for fees, expenses, or taxes. EQUITY INCOME FUND OBJECTIVE: This Fund seeks to provide a relatively high level of current income and long-term growth of income and capital. PRINCIPAL INVESTMENT STRATEGIES AND RISKS: The Fund invests primarily in dividend-paying common stocks and preferred stocks. The Fund's investments may also include bonds, convertible securities, U.S. GOVERNMENT SECURITIES, ADRS and EDRS, MORTGAGE-BACKED SECURITIES, REPURCHASE AGREEMENTS, and REIT SECURITIES. In selecting investments for the Fund, WM Advisors looks for investments that provide regular income in addition to some opportunity for capital appreciation. Equity investments are typically made in "value" stocks currently selling for less than WM Advisors believes they are worth. Among the principal risks of investing in the Fund are: - - Market Risk - Credit Risk - Currency Risk - Foreign Investment Risk - - Leveraging Risk - Real Estate Risk - Derivatives Risk - Liquidity Risk - - Management - Smaller Company Risk - Fund-of-Funds Risk
CALENDAR YEAR TOTAL RETURNS (Class A Shares)(1) [BAR CHART] 1996 13.60% 1997 19.89% 1998 6.93% 1999 4.83% 2000 14.64% 2001 7.41% 2002 -12.82% 2003 29.22 2004 18.72% 2005
Sales charges are not included in the returns shown above. If those charges were included, the returns shown would be lower. During the periods shown above, the highest quarterly return was [%] (for the quarter ended [ ]) and the lowest was [%] (for the quarter ended [ ]). AVERAGE ANNUAL TOTAL RETURNS (with Maximum Sales Charge)(1)
SINCE CLASS C INCEPTION FOR PERIODS ENDED DECEMBER 31, 2005 PAST YEAR PAST 5 YEARS PAST 10 YEARS (3/1/02) - ----------------------------------- --------- ------------ ------------- ----------- CLASS A SHARES Before Taxes [ ] [ ] [ ] N/A After Taxes on Distributions(2) [ ] [ ] [ ] N/A After Taxes on Distributions and Sale of Fund Shares (2) [ ] [ ] [ ] N/A CLASS B SHARES (BEFORE TAXES) [ ] [ ] [ ] N/A CLASS C SHARES (BEFORE TAXES) [ ] N/A N/A [ ] S&P 500(3) [ ] [ ] [ ] [ ] S&P 500/BARRA VALUE INDEX(4) [ ] [ ] [ ] [ ] [NEW INDEX TBD] (4) [ ] [ ] [ ] [ ]
- ---------- 1 Performance information is not provided for Class R-1 and R-2 shares because they had not been offered prior to the date of this prospectus. 2 After-tax returns are calculated using the highest historical individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation, may differ from those shown, and are not relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or IRAs. After-tax returns are shown for only one share class offered by this prospectus. After-tax returns for other share classes will vary. 3 The S&P 500 is a broad-based index intended to represent the U.S. equity market. Indices are unmanaged and individuals cannot invest directly in an index. Index performance information reflects no deduction for fees, expenses, or taxes. 4 Effective March 1, 2006, the [new index] replaced the S&P 500/Barra Value Index because WM Advisors believes the new benchmark more accurately reflects the Fund's performance characteristics. The [new index..... ]. GROWTH & INCOME FUND OBJECTIVE: This Fund seeks to provide long-term capital growth. Current income is a secondary consideration. PRINCIPAL INVESTMENT STRATEGIES AND RISKS: The Fund invests primarily in common stocks. In selecting investments for the Fund, WM Advisors looks for common stocks that it believes are currently undervalued and whose issuers WM Advisors believes have the potential to increase earnings over time. WM Advisors seeks companies that it believes have solid management, a competitive advantage, and the resources to maintain superior cash flow and profitability over the long term. Among the principal risks of investing in the Fund are: - - Market Risk - Credit Risk - Currency Risk - Foreign Investment Risk - - Leveraging Risk - Real Estate Risk - Derivatives Risk - Liquidity Risk - - Management Risk - Smaller Company Risk - Fund-of-Funds Risk
CALENDAR YEAR TOTAL RETURNS (Class A Shares)(1) [BAR CHART] 1996 22.28% 1997 29.52% 1998 14.41% 1999 18.26% 2000 1.53% 2001 -3.28% 2002 -20.37% 2003 26.15% 2004 8.63% 2005
Sales charges are not included in the returns shown above. If those charges were included, the returns shown would be lower. During the periods shown above, the highest quarterly return was [%] (for the quarter ended []) and the lowest was [%] (for the quarter ended []). AVERAGE ANNUAL TOTAL RETURNS (with Maximum Sales Charge)(1)
SINCE CLASS C INCEPTION FOR PERIODS ENDED DECEMBER 31, 2005 PAST YEAR PAST 5 YEARS PAST 10 YEARS (3/1/02) - ----------------------------------- --------- ------------ ------------- ----------- CLASS A SHARES Before Taxes [ ] [ ] [ ] N/A After Taxes on Distributions(2) [ ] [ ] [ ] N/A After Taxes on Distributions and Sale of Fund Shares(2) [ ] [ ] [ ] N/A CLASS B SHARES (BEFORE TAXES) [ ] [ ] [ ] N/A CLASS C SHARES (BEFORE TAXES) [ ] N/A N/A [ ] S&P 500(3) [ ] [ ] [ ] [ ]
- ---------- 1 Performance information is not provided for Class R-1 and R-2 shares because they had not been offered prior to the date of this prospectus. 2 After-tax returns are calculated using the highest historical individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation, may differ from those shown, and are not relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or IRAs. After-tax returns are shown for only one share class offered by this prospectus. After-tax returns for other share classes will vary. 3 The S&P 500 is a broad-based index intended to represent the U.S. equity market. Indices are unmanaged and individuals cannot invest directly in an index. Index performance information reflects no deduction for fees, expenses, or taxes. WEST COAST EQUITY FUND OBJECTIVE: This Fund seeks to provide long-term growth of capital. PRINCIPAL INVESTMENT STRATEGIES AND RISKS: The Fund invests primarily in common stocks of companies located or doing business in Alaska, California, Oregon, and Washington. The Fund's investments may include REIT SECURITIES. In selecting investments for the Fund, WM Advisors looks for equity securities that it believes are undervalued, yet well-managed, with excellent long-term growth possibilities. Among the principal risks of investing in the Fund are: - - Market Risk - Credit Risk - Currency Risk - Foreign Investment Risk - - Geographic Concentration Risk - Leveraging Risk - Real Estate Risk - Derivatives Risk - - Liquidity Risk - Management Risk - Smaller Company Risk - Fund-of-Funds Risk
CALENDAR YEAR TOTAL RETURNS (Class A Shares)(1) [BAR CHART] 1996 22.56% 1997 32.88% 1998 22.98% 1999 42.27% 2000 6.65% 2001 6.34% 2002 -22.45% 2003 41.36% 2004 13.23% 2005
Sales charges are not included in the returns shown above. If those charges were included, the returns shown would be lower. During the periods shown above, the highest quarterly return was [%] (for the quarter ended [ ]) and the lowest was [ %] (for the quarter ended [ ]). AVERAGE ANNUAL TOTAL RETURNS (with Maximum Sales Charge)(1)
SINCE CLASS C INCEPTION FOR PERIODS ENDED DECEMBER 31, 2005 PAST YEAR PAST 5 YEARS PAST 10 YEARS (3/1/02) - ----------------------------------- --------- ------------ ------------- ------------- CLASS A SHARES Before Taxes [ ] [ ] [ ] N/A After Taxes on Distributions(2) [ ] [ ] [ ] N/A After Taxes on Distributions and Sale of Fund Shares(2) [ ] [ ] [ ] N/A CLASS B SHARES (BEFORE TAXES) [ ] [ ] [ ] N/A CLASS C SHARES (BEFORE TAXES) [ ] N/A N/A [ ] RUSSELL 3000(R) INDEX(3) [ ] [ ] [ ] [ ]
- ---------- 1 The Fund's performance in 1997 benefited from the agreement of WM Advisors and its affiliates to limit the Fund's expenses. Performance information is not provided for Class R-1 and R-2 shares because they had not been offered prior to the date of this prospectus. 2 After-tax returns are calculated using the highest historical individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation, may differ from those shown, and are not relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or IRAs. After-tax returns are shown for only one share class offered by this prospectus. After-tax returns for other share classes will vary. 3 The Russell 3000(R) Index measures the performance of the 3,000 largest U.S. companies based on total market capitalization, representing approximately 98% of the investable U.S. equity market. Indices are unmanaged and individuals cannot invest directly in an index. Index performance information reflects no deduction for fees, expenses, or taxes. MID CAP STOCK FUND OBJECTIVE: This Fund seeks to provide long-term capital appreciation. PRINCIPAL INVESTMENT STRATEGIES AND RISKS: The Fund invests primarily in common stocks of companies having market capitalizations in the range of companies included in the S&P MidCap 400 at the time of purchase (as of December 31, 2005, the S&P MidCap 400 included companies with market capitalizations ranging from [ ] billion to [ ] billion). In selecting investments for the Fund, WM Advisors looks for equity investments in companies that have solid management, a competitive advantage, and the resources to maintain superior cash flow and profitability over the long term. In determining whether securities should be sold, WM Advisors considers factors such as high valuations relative to other investment opportunities and deteriorating short- or long-term business fundamentals or future growth prospects. The Fund will not necessarily dispose of a security merely because its issuer's market capitalization is no longer in the range represented by the S&P MidCap 400. Among the principal risks of investing in the Fund are: - - Market Risk - Credit Risk - Currency Risk - Foreign Investment Risk - - Leveraging Risk - Management Risk - Smaller Company Risk - Real Estate Risk - - Derivatives Risk - Liquidity Risk - Fund-of-Funds Risk
CALENDAR YEAR TOTAL RETURNS (Class A Shares)(1) [BAR CHART]
YEAR ANNUAL RETURN - ---- ------------- 2001 10.69% 2002 -10.48% 2003 26.78% 2004 13.87% 2005
Sales charges are not included in the returns shown above. If those charges were included, the returns shown would be lower. During the periods shown above, the highest quarterly return was [%] (for the quarter ended [ ]) and the lowest was [%] (for the quarter ended [ ]). AVERAGE ANNUAL TOTAL RETURNS (with Maximum Sales Charge)(1)
SINCE CLASS C INCEPTION FOR PERIODS ENDED DECEMBER 31, 2005 PAST YEAR PAST 5 YEARS (3/1/02) - ----------------------------------- --------- ------------ ------------- CLASS A SHARES Before Taxes [ ] [ ] N/A After Taxes on Distributions(2) [ ] [ ] N/A After Taxes on Distributions and Sale of Fund Shares (2) [ ] [ ] N/A CLASS B SHARES (BEFORE TAXES) [ ] [ ] N/A CLASS C SHARES (BEFORE TAXES) [ ] N/A [ ] S&P MIDCAP 400(3) [ ] [ ] [ ]
- ---------- 1 Performance information is not provided for Class R-1 and R-2 shares because they had not been offered prior to the date of this prospectus. 2 After-tax returns are calculated using the highest historical individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation, may differ from those shown, and are not relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or IRAs. After-tax returns are shown for only one share class offered by this prospectus. After-tax returns for other share classes will vary. 3 The S&P MidCap 400 is a weighted index of the common stocks of 400 mid-sized companies. Indices are unmanaged and individuals cannot invest directly in an index. Index performance information reflects no deduction for fees, expenses, or taxes. GROWTH FUND OBJECTIVE: This Fund seeks to provide long-term capital appreciation. PRINCIPAL INVESTMENT STRATEGIES AND RISKS: The Fund invests primarily in common stocks, including FOREIGN INVESTMENTS, that, in the opinion of WM Advisors or a sub-advisor, offer potential for growth. The Fund may also invest in commercial paper and preferred stock. In selecting investments for the Fund, the Fund's three sub-advisors look for individual companies that they believe have exceptional potential for growth. WM Advisors will determine the portion of the Fund's assets to be managed by each sub-advisor. Companies are evaluated on their individual merit, their ability to generate earnings growth, and their superior management teams. In addition, the sub-advisors may consider broad macroeconomic indicators in making investment decisions for the Fund. Among the principal risks of investing in the Fund are: - - Market Risk - Credit Risk - Currency Risk - Foreign Investment Risk - - Leveraging Risk - Derivatives Risk - Liquidity Risk - Management Risk - - Smaller Company Risk - Fund-of-Funds Risk
CALENDAR YEAR TOTAL RETURNS (Class A Shares)(1) [BAR CHART]
YEAR ANNUAL RETURN - ----- ------------- 1996 16.92% 1997 9.78% 1998 57.10% 1999 94.42% 2000 -22.00% 2001 -29.45% 2002 -31.82% 2003 27.68% 2004 7.46% 2005
Sales charges are not included in the returns shown above. If those charges were included, the returns shown would be lower. During the periods shown above, the highest quarterly return was [ %] (for the quarter ended [ ]) and the lowest was [ %] (for the quarter ended [ ]). AVERAGE ANNUAL TOTAL RETURNS (with Maximum Sales Charge)(1)
SINCE CLASS C INCEPTION FOR PERIODS ENDED DECEMBER 31, 2005 PAST YEAR PAST 5 YEARS PAST 10 YEARS (3/1/02) - ----------------------------------- --------- ------------ ------------- ------------- CLASS A SHARES Before Taxes [ ] [ ] [ ] N/A After Taxes on Distributions(2) [ ] [ ] [ ] N/A After Taxes on Distributions and Sale of Fund Shares(2) [ ] [ ] [ ] N/A CLASS B SHARES (BEFORE TAXES) [ ] [ ] [ ] N/A CLASS C SHARES (BEFORE TAXES) [ ] N/A N/A [ ] RUSSELL 1000(R) GROWTH INDEX(3) [ ] [ ] [ ] [ ]
- ---------- 1 The Fund's performance between 1999 and 2000 benefited from the agreement of WM Advisors and its affiliates to limit the Fund's expenses. Performance information is not provided for Class R-1 and R-2 shares because they had not been offered prior to the date of this prospectus. 2 After-tax returns are calculated using the highest historical individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation, may differ from those shown, and are not relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or IRAs. After-tax returns are shown for only one share class offered by this prospectus. After-tax returns for other share classes will vary. 3 The Russell 1000(R) Growth Index measures the performance of those Russell 1000(R) Index securities with higher price-to-book ratios and higher forecasted growth values. Indices are unmanaged and individuals cannot invest directly in an index. Index performance information reflects no deduction for fees, expenses, or taxes. SMALL CAP VALUE FUND OBJECTIVE: This Fund seeks to provide long-term capital appreciation. PRINCIPAL INVESTMENT STRATEGIES AND RISKS: The Fund invests primarily in equity securities. The Fund invests primarily in equity securities of companies with market capitalizations in the range represented by the Russell 2000(R) Value Index at the time of purchase (as of December 31, 2005, the Russell 2000(R) Value Index included companies with market capitalizations ranging from [$] billion to [$] billion). In selecting investments for the Fund, WM Advisors uses a value approach that focuses on securities of companies that WM Advisors believes are trading at a meaningful discount from the value of the companies' assets and ongoing operations. WM Advisors generally uses a long-term investment approach and will sell a security when it believes that the full value of the business entity is reflected in the security's price. The Fund will not necessarily dispose of a security merely because its issuer's market capitalization is no longer in the range represented by the Russell 2000(R) Value Index. Among the principal risks of investing in the Fund are: - - Market Risk - Credit Risk - Currency Risk - Foreign Investment Risk - - Leveraging Risk - Real Estate Risk - Derivatives Risk - Liquidity Risk - - Management Risk - Smaller Company Risk - Fund-of-Fund Risk
CALENDAR YEAR TOTAL RETURNS (Class A Shares)(1)
YEAR ANNUAL RETURN ---- ------------- 2005 [ ]
Sales charges are not included in the returns shown above. If those charges were included, the returns shown would be lower. During the periods shown above, the highest quarterly return was [%] (for the quarter ended [ ]) and the lowest was [%] (for the quarter ended [ ]). AVERAGE ANNUAL TOTAL RETURNS (with Maximum Sales Charge)(1)
SINCE INCEPTION FOR PERIODS ENDED DECEMBER 31, 2005 PAST YEAR (3/1/04) - ----------------------------------- --------- --------- CLASS A SHARES Before Taxes [ ] [ ] After Taxes on Distributions(2) [ ] [ ] After Taxes on Distributions and Sale of Fund Shares(2) [ ] [ ] CLASS B SHARES (BEFORE TAXES) [ ] [ ] CLASS C SHARES (BEFORE TAXES [ ] [ ] RUSSELL 2000(R) VALUE INDEX(3) [ ] [ ]
- ---------- 1 Performance information is not provided for R-1 and R-2 shares because they had not been offered prior to the date of this prospectus. 2 After-tax returns are calculated using the highest historical individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation, may differ from those shown, and are not relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or IRAs. After-tax returns are shown for only one share class offered by this prospectus. After-tax returns for other share classes will vary. 3 The Russell 2000(R) Value Index measures the performance of those Russell 2000(R) Index securities with lower price-to-book ratios and lower forecasted growth values. Indices are unmanaged, and individuals cannot invest directly in an index. Index performance information reflects no deduction for fees, expenses, or taxes. SMALL CAP GROWTH FUND OBJECTIVE: This Fund seeks to provide long-term capital appreciation. PRINCIPAL INVESTMENT STRATEGIES AND RISKS: The Fund invests primarily in publicly traded small-cap equity securities. The Fund invests primarily in equity securities of companies with market capitalizations in the range represented by the Russell 2000(R) Growth Index at the time of purchase (as of December 31, 2005, the Russell 2000(R) Growth Index included companies with market capitalizations ranging from [$ ] billion to [$ ] billion). In selecting investments for the Fund, WM Advisors, or the Fund's sub-advisors, look for individual companies that they believe offer potential for organic growth. Companies are evaluated on their individual merit, their ability to generate earnings growth, and their superior management teams, products and services. The broad evaluation of a particular sector and market trends are also considered in the analysis of a company's potential. The Fund will not necessarily dispose of a security merely because its issuer's market capitalization is no longer in the range represented by the Russell 2000(R) Value Index. Among the principal risks of investing in the Fund are: - - Market Risk - Credit Risk - Currency Risk - Foreign Investment Risk - - Leveraging Risk - Derivatives Risk - Liquidity Risk - Management Risk - - Smaller Company Risk - Fund-of-Funds Risk
CALENDAR YEAR TOTAL RETURNS (Class A Shares)(1) [BAR CHART]
YEAR ANNUAL RETURN - ---- ------------- 1996 8.50% 1997 12.63% 1998 4.94% 1999 71.61% 2000 -11.53% 2001 -13.15% 2002 -47.41% 2003 69.47% 2004 4.18% 2005
Sales charges are not included in the returns shown above. If those charges were included, the returns shown would be lower. During the periods shown above, the highest quarterly return was [%] (for the quarter ended [ ]) and the lowest was [%] (for the quarter ended [ ]). AVERAGE ANNUAL TOTAL RETURNS (with Maximum Sales Charge)(1)
SINCE CLASS C INCEPTION FOR PERIODS ENDED DECEMBER 31, 2005 PAST YEAR PAST 5 YEARS PAST 10 YEARS (3/1/02) - ----------------------------------- --------- ------------ ------------- ------------- CLASS A SHARES Before Taxes [ ] [ ] [ ] N/A After Taxes on Distributions(2) [ ] [ ] [ ] N/A After Taxes on Distributions and Sale of Fund Shares(2) [ ] [ ] [ ] N/A CLASS B SHARES (BEFORE TAXES) [ ] [ ] [ ] N/A CLASS C SHARES (BEFORE TAXES) [ ] N/A N/A [ ] RUSSELL 2000(R) GROWTH INDEX3 [ ] [ ] [ ] [ ]
- ---------- 1 The Fund's performance between 1998 and 1999 benefited from the agreement of WM Advisors and its affiliates to limit the Fund's expenses. Performance information is not provided for Class R-1 and R-2 shares because they had not been offered prior to the date of this prospectus. 2 After-tax returns are calculated using the highest historical individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation, may differ from those shown, and are not relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or IRAs. After-tax returns are shown for only one share class offered by this prospectus. After-tax returns for other share classes will vary. 3 The Russell 2000(R) Growth Index measures the performance of those companies in the Russell 2000(R) Index securities with higher price-to-book ratios and higher forecasted growth values. Indices are unmanaged and individuals cannot invest directly in an index. Index performance information reflects no deduction for fees, expenses, or taxes. INTERNATIONAL GROWTH FUND OBJECTIVE: This Fund seeks to provide long-term capital appreciation. PRINCIPAL INVESTMENT STRATEGIES AND RISKS: The Fund invests primarily in equity securities of foreign issuers, including issuers located in developing or emerging market countries. The Fund may also use STRATEGIC TRANSACTIONS (derivatives) such as FOREIGN CURRENCY EXCHANGE TRANSACTIONS. In selecting investments for the Fund, the "developed market team" and the "emerging market equity team" at Capital Guardian Trust Company ("Capital Guardian"), the Fund's sub-advisor, seek to identify foreign stocks that have an attractive valuation, high return on invested capital, excellent cash flow, strong balance sheets, and strong management. WM Advisors will determine the portion of the Fund's assets to be managed by each team. Capital Guardian utilizes a research-driven, "bottom-up" approach in which decisions are based upon extensive field research and direct company contacts. Capital Guardian blends its basic value-oriented approach with macroeconomic and political judgments on the outlook for economies, industries, currencies, and markets. Among the principal risks of investing in the Fund are: - - Market Risk - Credit Risk - Currency Risk - Foreign Investment Risk - - Leveraging Risk - Derivatives Risk - Liquidity Risk - Management Risk - - Smaller Company Risk - Fund-of-Funds Risk
CALENDAR YEAR TOTAL RETURNS (Class A Shares)(1) [BAR CHART]
YEAR ANNUAL RETURN - ---- ------------- 1996 8.02% 1997 -2.49% 1998 4.08% 1999 49.91% 2000 -21.15% 2001 -18.72% 2002 -15.61% 2003 33.33% 2004 12.78% 2005
Sales charges are not included in the returns shown above. If those charges were included, the returns shown would be lower. During the periods shown above, the highest quarterly return was [%] (for the quarter ended []) and the lowest was [%] (for the quarter ended []). AVERAGE ANNUAL TOTAL RETURNS (with Maximum Sales Charge)(1)
SINCE CLASS C INCEPTION FOR PERIODS ENDED DECEMBER 31, 2005 PAST YEAR PAST 5 YEARS PAST 10 YEARS (3/1/02) - ----------------------------------- --------- ------------ ------------- ------------- CLASS A SHARES Before Taxes [ ] [ ] [ ] N/A After Taxes on Distributions(2) [ ] [ ] [ ] N/A After Taxes on Distributions and Sale of Fund Shares(2) [ ] [ ] [ ] N/A CLASS B SHARES (BEFORE TAXES) [ ] [ ] [ ] N/A CLASS C SHARES (BEFORE TAXES) [ ] N/A N/A [ ] MORGAN STANLEY CAPITAL INTERNATIONAL EAFE INDEX(3) [ ] [ ] [ ] [ ]
- ----------- 1 Performance information is not provided for Class R-1 and R-2 shares because they had not been offered prior to the date of this prospectus. 2 After-tax returns are calculated using the highest historical individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation, may differ from those shown, and are not relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or IRAs. After-tax returns are shown for only one share class offered by this prospectus. After-tax returns for other share classes will vary. 3 The Morgan Stanley Capital International EAFE Index is a broad-based, market-capitalization weighted index that includes the stock markets of 21 countries in Europe, Australasia and the Far East. Indices are unmanaged and individuals cannot invest directly in an index. Index performance information reflects no deduction for fees, expenses, or taxes. SHORT TERM INCOME FUND OBJECTIVE: This Fund seeks to provide as high a level of current income as is consistent with prudent investment management and stability of principal. PRINCIPAL INVESTMENT STRATEGIES AND RISKS: The Fund invests in high quality, short-term bonds and other FIXED-INCOME SECURITIES that are rated in the top four categories by a nationally recognized statistical rating organization ("NRSRO") or are of comparable quality ("investment-grade"). Under normal circumstances, the Fund maintains a dollar-weighted average duration of three years or less. Duration measures the sensitivity of a bond's price to changes in the general level of interest rates. The Fund's investments may also include corporate securities, U.S. and FOREIGN GOVERNMENT SECURITIES, REPURCHASE AGREEMENTS, MORTGAGE-BACKED and ASSET-BACKED SECURITIES, and REITS. Among the principal risks of investing in the Fund are: - - Market Risk - Credit Risk - Currency Risk - Foreign Investment Risk - - Leveraging Risk - Real Estate Risk - Derivatives Risk - Liquidity Risk - - Management Risk - Fund-of-Funds Risk
CALENDAR YEAR TOTAL RETURNS (Class A Shares)(1) [BAR CHART]
YEAR ANNUAL RETURN - ---- ------------- 1996 4.09% 1997 5.77% 1998 6.30% 1999 2.92% 2000 7.61% 2001 7.96% 2002 5.63% 2003 4.60% 2004 1.62% 2005
Sales charges are not included in the returns shown above. If those charges were included, the returns shown would be lower. During the periods shown above, the highest quarterly return was [%] (for the quarter ended [ ]) and the lowest was [%] (for the quarter ended [ ]). AVERAGE ANNUAL TOTAL RETURNS (with Maximum Sales Charge)(1)
SINCE CLASS C INCEPTION FOR PERIODS ENDED DECEMBER 31, 2005 PAST YEAR PAST 5 YEARS PAST 10 YEARS (3/1/02) - ----------------------------------- --------- ------------ ------------- ------------- CLASS A SHARES Before Taxes [ ] [ ] [ ] N/A After Taxes on Distributions(2) [ ] [ ] [ ] N/A After Taxes on Distributions and Sale of Fund Shares(2) [ ] [ ] [ ] N/A CLASS B SHARES (BEFORE TAXES) [ ] [ ] [ ] N/A CLASS C SHARES (BEFORE TAXES) [ ] N/A N/A [ ] CITIGROUP BROAD INVESTMENT-GRADE CREDIT 1-3 YEARS INDEX(3) [ ] [ ] [ ] [ ]
- -------------- 1 The Fund's performance between 1996 and 2005 benefited from the agreement of WM Advisors and its affiliates to limit the Fund's expenses. Performance information is not provided for Class R-1 and R-2 shares because they had not been offered prior to the date of this prospectus. 2 After-tax returns are calculated using the highest historical individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation, may differ from those shown, and are not relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or IRAs. After-tax returns are shown for only one share class offered by this prospectus. After-tax returns for other share classes will vary. 3 The Citigroup Broad Investment-Grade Credit 1-3 Year Index measures the performance of bonds, including U.S. and non-U.S. corporate securities and non-U.S. sovereign and provincial securities with maturities between 1 and 3 years. Indices are unmanaged and individuals cannot invest directly in an index. Index performance information reflects no deduction for fees, expenses, or taxes. U.S. GOVERNMENT SECURITIES FUND OBJECTIVE: This Fund seeks to provide a high level of current income consistent with safety and liquidity. PRINCIPAL INVESTMENT STRATEGIES AND RISKS: The Fund invests primarily in U.S. GOVERNMENT SECURITIES, including collateralized mortgage obligations and other MORTGAGE-BACKED SECURITIES. The Fund may also invest in DOLLAR ROLLS, which may involve leverage. The Fund invests without limit in obligations of U.S. government agencies or instrumentalities that are not backed by the full faith and credit of the U.S. government, but only by the right of the issuer to borrow from the U.S. Treasury (such as securities of Federal Home Loan Banks) or by the credit of the instrumentality (such as Federal National Mortgage Association ("FNMA") and Federal Home Loan Mortgage Corporation ("FHLMC")). The Fund may invest up to 20% of its assets in mortgage-backed and other securities that are not U.S. government securities. These obligations may receive ratings that are lower than the AAA rating typically associated with obligations of the U.S. Treasury, reflecting increased credit risk. Among the principal risks of investing in the Fund are: - - Market Risk - Credit Risk - Leveraging Risk - Derivatives Risk - - Liquidity Risk - Management Risk - Fund-of-Funds Risk
CALENDAR YEAR TOTAL RETURNS (Class A Shares)(1) [BAR CHART]
YEAR ANNUAL RETURN - ---- ------------- 1996 2.48% 1997 9.92% 1998 7.21% 1999 0.13% 2000 10.27% 2001 7.16% 2002 8.37% 2003 1.83% 2004 3.56% 2005
Sales charges are not included in the returns shown above. If those charges were included, the returns shown would be lower. During the periods shown above, the highest quarterly return was [%] (for the quarter ended [ ]) and the lowest was [%] (for the quarter ended [ ]). AVERAGE ANNUAL TOTAL RETURNS (with Maximum Sales Charge)(2)
SINCE CLASS C INCEPTION FOR PERIODS ENDED DECEMBER 31, 2005 PAST YEAR PAST 5 YEARS PAST 10 YEARS (3/1/02) - ----------------------------------- --------- ------------ ------------- ------------- CLASS A SHARES Before Taxes [ ] [ ] [ ] N/A After Taxes on Distributions(2) [ ] [ ] [ ] N/A After Taxes on Distributions and Sale of Fund Shares(2) [ ] [ ] [ ] N/A CLASS B SHARES (BEFORE TAXES) [ ] [ ] [ ] N/A CLASS C SHARES (BEFORE TAXES) [ ] N/A N/A [ ] CITIGROUP MORTGAGE INDEX(3) [ ] [ ] [ ] [ ]
- -------------- 1 The Fund's performance between 1998 and 2000 benefited from the agreement of WM Advisors and its affiliates to limit the Fund's expenses. On March 1, 2004, the investment policies of the Fund were modified. As a result, the Fund's performance for periods prior to that date may not be representative of the performance it would have achieved had its current investment policies been in place. Performance information is not provided for Class R-1 and R-2 shares because they had not been offered prior to the date of this prospectus. 2 After-tax returns are calculated using the highest historical individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation, may differ from those shown, and are not relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or IRAs. After-tax returns are shown for only one share class offered by this prospectus. After-tax returns for other share classes will vary. 3 The Citigroup Mortgage Index represents the mortgage-backed securities component of Citigroup's Broad Investment-Grade Bond Index. It consists of 30and 15-year agency-issued (Government National Mortgage Association ("GNMA"), FNMA, and FHLMC) pass-through securities as well as FNMA and FHLMC balloon mortgages. Indices are unmanaged and individuals cannot invest directly in an index. Index performance information reflects no deduction for fees, expenses, or taxes. INCOME FUND OBJECTIVE: This Fund seeks to provide a high level of current income consistent with preservation of capital. PRINCIPAL INVESTMENT STRATEGIES AND RISKS: The Fund invests primarily in a diversified pool of FIXED-INCOME SECURITIES, including corporate securities, U.S. GOVERNMENT SECURITIES, and MORTGAGE-BACKED SECURITIES (including collateralized mortgage obligations), up to 35% of which may be in BELOW-INVESTMENT-GRADE SECURITIES (sometimes called "junk bonds"). The Fund may also invest in convertible securities and REITS. Among the principal risks of investing in the Fund are: - - Market Risk - Credit Risk - Currency Risk - Foreign Investment Risk - - Leveraging Risk - Real Estate Risk - Derivatives Risk - Liquidity Risk - - Management Risk - Fund-of-Funds Risk
CALENDAR YEAR TOTAL RETURNS (Class A Shares)(1) [BAR CHART]
YEAR ANNUAL RETURN - ---- ------------- 1996 3.46% 1997 10.51% 1998 7.15% 1999 0.09% 2000 9.05% 2001 8.09% 2002 8.11% 2003 8.95% 2004 5.14% 2005
Sales charges are not included in the returns shown above. If those charges were included, the returns shown would be lower. During the periods shown above, the highest quarterly return was [ % ](for the quarter ended[ ]) and the lowest was [ %] (for the quarter ended []). AVERAGE ANNUAL TOTAL RETURNS (with Maximum Sales Charge)(1)
SINCE CLASS C INCEPTION FOR PERIODS ENDED DECEMBER 31, 2005 PAST YEAR PAST 5 YEARS PAST 10 YEARS (3/1/02) - ----------------------------------- --------- ------------ ------------- ------------- CLASS A SHARES Before Taxes [ ] [ ] [ ] N/A After Taxes on Distributions(2) [ ] [ ] [ ] N/A After Taxes on Distributions and Sale of Fund Shares(2) [ ] [ ] [ ] N/A CLASS B SHARES (BEFORE TAXES) [ ] [ ] [ ] N/A CLASS C SHARES (BEFORE TAXES) [ ] N/A N/A [ ] CITIGROUP BROAD INVESTMENT-GRADE BOND INDEX(3) [ ] [ ] [ ] [ ]
- ---------- 1 The Fund's performance in 1999 benefited from the agreement of WM Advisors and its affiliates to limit the Fund's expenses. Performance information is not provided for Class R-1 and R-2 shares because they had not been offered prior to the date of this prospectus. 2 After-tax returns are calculated using the highest historical individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation, may differ from those shown, and are not relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or IRAs. After-tax returns are shown for only one share class offered by this prospectus. After-tax returns for other share classes will vary. 3 The Citigroup Broad Investment-Grade Bond Index measures the performance of bonds, including U.S. and non-U.S. corporate securities and non-U.S. sovereign and provincial securities, and includes institutionally traded U.S. Treasury, government-sponsored, mortgage-backed, asset-backed and investment-grade securities. Indices are unmanaged and individuals cannot invest directly in an index. Index performance information reflects no deduction for fees, expenses, or taxes. \ HIGH YIELD FUND OBJECTIVE: This Fund seeks to provide a high level of current income. PRINCIPAL INVESTMENT STRATEGIES AND RISKS: The Fund invests primarily in high-yielding, high-risk BELOW-INVESTMENT-GRADE FIXED-INCOME SECURITIES (sometimes called "junk bonds"), which may include FOREIGN INVESTMENTS. The Fund may also invest in higher-rated FIXED-INCOME SECURITIES, preferred stocks, and convertible securities. Among the principal risks of investing in the Fund are: - - Market Risk - Credit Risk - Currency Risk - Foreign Investment Risk - - Leveraging Risk - Derivatives Risk - Liquidity Risk - Management Risk - - Smaller Company Risk - Fund-of-Funds Risk - Real Estate Risk
CALENDAR YEAR TOTAL RETURNS (Class A Shares)(1) [BAR CHART]
YEAR ANNUAL RETURN - ---- ------------- 1999 12.02% 2000 -1.53% 2001 3.14% 2002 3.66% 2003 28.10% 2004 11.43% 2005
Sales charges are not included in the returns shown above. If those charges were included, the returns shown would be lower. During the period shown above, the highest quarterly return was [%] (for the quarter ended []) and the lowest was [-%] (for the quarter ended []). AVERAGE ANNUAL TOTAL RETURNS (with Maximum Sales Charge)(1)
SINCE CLASS A SINCE CLASS SINCE CLASS C INCEPTION B INCEPTION INCEPTION FOR PERIODS ENDED DECEMBER 31, 2005 PAST YEAR PAST 5 YEARS (4/8/98) (5/5/98) (3/1/02) - ------------------------------------------------- --------- ------------ ------------- ----------- ------------- CLASS A SHARES Before Taxes [ ] [ ] [ ] N/A N/A After Taxes on Distributions(2) [ ] [ ] [ ] N/A N/A After Taxes on Distributions and Sale of Fund Shares(2) [ ] [ ] [ ] N/A N/A CLASS B SHARES (BEFORE TAXES) [ ] [ ] N/A [ ] N/A CLASS C SHARES (BEFORE TAXES) [ ] N/A N/A N/A [ ] CITIGROUP HIGH YIELD MARKET INDEX(3) [ ] [ ] [ ] [ ] [ ]
- -------------- 1 The Fund's performance between 1998 and 1999 benefited from the agreement of WM Advisors and its affiliates to limit the Fund's expenses. Performance information is not provided for Class R-1 and R-2 shares because they had not been offered prior to the date of this prospectus. 2 After-tax returns are calculated using the highest historical individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation, may differ from those shown, and are not relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or IRAs. After-tax returns are shown for only one share class offered by this prospectus. After-tax returns for other share classes will vary. 3 The Citigroup High Yield Market Index measures the performance of below-investment-grade debt issued by corporations domiciled in the U.S. or Canada. Indices are unmanaged and individuals cannot invest directly in an index. Index performance information reflects no deduction for fees, expenses, or taxes. TAX-EXEMPT BOND FUND OBJECTIVE: This Fund seeks to provide a high level of income that is exempt from federal income tax while protecting investors' capital. PRINCIPAL INVESTMENT STRATEGIES AND RISKS: The Fund invests primarily in MUNICIPAL OBLIGATIONS issued by states, counties, cities or other governmental entities, including MUNICIPAL LEASES, ALTERNATIVE MINIMUM TAX ("AMT")-SUBJECT BONDS, and INVERSE FLOATING RATE OBLIGATIONS, that generate income exempt from federal income tax other than the federal alternative minimum tax. The Fund may also invest in taxable FIXED-INCOME SECURITIES (including junk bonds) and utilize STRATEGIC TRANSACTIONS (derivatives) such as interest rate futures and options. Among the principal risks of investing in the Fund are: - - Market Risk - Credit Risk - Leveraging Risk - Derivatives Risk - - Liquidity Risk - Management Risk - Tax Risk
CALENDAR YEAR TOTAL RETURNS (Class A Shares)(1) [BAR CHART]
YEAR ANNUAL RETURN - ---- ------------- 1996 2.52% 1997 8.59% 1998 5.08% 1999 -4.40% 2000 11.49% 2001 3.92% 2002 9.81% 2003 5.19% 2004 3.89% 2005 [ ]
Sales charges are not included in the returns shown above. If those charges were included, the returns shown would be lower. During the periods shown above, the highest quarterly return was [%] (for the quarter ended []) and the lowest was [%] (for the quarter ended []). AVERAGE ANNUAL TOTAL RETURNS (with Maximum Sales Charge)(1)
SINCE CLASS C INCEPTION FOR PERIODS ENDED DECEMBER 31, 2005 PAST YEAR PAST 5 YEARS PAST 10 YEARS (3/1/02) - ------------------------------------------------------------ --------- ------------ ------------- ----------- CLASS A SHARES Before Taxes [ ] [ ] [ ] N/A After Taxes on Distributions(2) [ ] [ ] [ ] N/A After Taxes on Distributions and Sales of Fund Shares(2) [ ] [ ] [ ] N/A CLASS B SHARES (BEFORE TAXES) [ ] [ ] [ ] N/A CLASS C SHARES (BEFORE TAXES) [ ] N/A N/A [ ] LEHMAN BROTHERS MUNICIPAL BOND INDEX(3) [ ] [ ] [ ] [ ]
- ----------- 1 The Fund's performance in 2000 benefited from the agreement of WM Advisors and its affiliates to limit the Fund's expenses. 2 After-tax returns are calculated using the highest historical individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation, may differ from those shown. After-tax returns are shown for only one share class offered by this prospectus. After-tax returns for other share classes will vary. 3 The Lehman Brothers Municipal Bond Index is a total return performance benchmark for the long-term, investment-grade, tax-exempt bond market. Indices are unmanaged and individuals cannot invest directly in an index. Index performance information reflects no deduction for fees, expenses, or taxes. CALIFORNIA MUNICIPAL FUND OBJECTIVE: This Fund seeks to provide as high a level of current income that is exempt from federal and California state personal income tax as is consistent with prudent investment management and preservation of capital. PRINCIPAL INVESTMENT STRATEGIES AND RISKS: The Fund invests primarily in intermediate and long-term California MUNICIPAL OBLIGATIONS, including MUNICIPAL LEASES and AMT-SUBJECT BONDS. The Fund may also invest in other MUNICIPAL OBLIGATIONS and utilize STRATEGIC TRANSACTIONS (derivatives) such as interest rate futures and options. Among the principal risks of investing in the Fund are: - - Market Risk - Credit Risk - Geographic Concentration Risk - Leveraging Risk - - Derivatives Risk - Liquidity Risk - Management Risk - Tax Risk
The Fund is also "non-diversified," which means it may invest more of its assets in the securities of fewer issuers than other mutual funds. Thus, the Fund is also subject to non-diversification risk. CALENDAR YEAR TOTAL RETURNS (Class A Shares)(1) [BAR CHART]
YEAR ANNUAL RETURN - ---- ------------- 1996 4.42% 1997 10.30% 1998 6.09% 1999 -4.53% 2000 12.97% 2001 4.05% 2002 8.87% 2003 3.70% 2004 4.76% 2005 [ ]
Sales charges are not included in the returns shown above. If those charges were included, the returns shown would be lower. During the periods shown above, the highest quarterly return was [%] (for the quarter ended [ ]) and the lowest was [%] (for the quarter ended [ ]). AVERAGE ANNUAL TOTAL RETURNS (with Maximum Sales Charge)(1)
SINCE CLASS C INCEPTION FOR PERIODS ENDED DECEMBER 31, 2005 PAST YEAR PAST 5 YEARS PAST 10 YEARS (3/1/02) - ------------------------------------------------------------ --------- ------------ ------------- ------------ CLASS A SHARES Before Taxes [ ] [ ] [ ] N/A After Taxes on Distributions(2) [ ] [ ] [ ] N/A After Taxes on Distributions and Sales of Fund Shares(2) [ ] [ ] [ ] N/A CLASS B SHARES (BEFORE TAXES) [ ] [ ] [ ] N/A CLASS C SHARES (BEFORE TAXES) [ ] N/A N/A [ ] LEHMAN BROTHERS MUNICIPAL BOND INDEX(3) [ ] [ ] [ ] [ ]
- ----------- 1 The Fund's performance between 1996 and 1999 benefited from the agreement of WM Advisors and its affiliates to limit the Fund's expenses. 2 After-tax returns are calculated using the highest historical individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns are shown for only one share class offered by this prospectus. After-tax returns for other share classes will vary. 3 The Lehman Brothers Municipal Bond Index is a total return performance benchmark for the long-term, investment-grade, tax-exempt bond market. Indices are unmanaged and individuals cannot invest directly in an index. Index performance information reflects no deduction for fees, expenses, or taxes. CALIFORNIA INSURED INTERMEDIATE MUNICIPAL FUND OBJECTIVE: This Fund seeks to provide as high a level of current income that is exempt from federal and California state personal income tax as is consistent with prudent investment management and preservation of capital. PRINCIPAL INVESTMENT STRATEGIES AND RISKS: The Fund invests primarily in intermediate-term insured California MUNICIPAL OBLIGATIONS, including MUNICIPAL LEASES and AMT-SUBJECT BONDS. The weighted average effective maturity of the Fund's investments is ten years or less, and the maximum effective maturity of any of its investments is fifteen years. The Fund may also invest in other MUNICIPAL OBLIGATIONS and utilize STRATEGIC TRANSACTIONS (derivatives) such as interest rate futures and options. Among the principal risks of investing in the Fund are: - - Market Risk - Credit Risk - Geographic Concentration Risk - Leveraging Risk - - Derivatives Risk - Liquidity Risk - Management Risk - Tax Risk
The Fund is also "non-diversified," which means that it may invest more of its assets in the securities of fewer issuers than other mutual funds. Thus, the Fund is also subject to non-diversification risk. CALENDAR YEAR TOTAL RETURNS (Class A Shares)(1) [BAR CHART]
YEAR ANNUAL RETURN - ---- ------------- 1996 3.91% 1997 7.14% 1998 5.26% 1999 -0.83% 2000 9.46% 2001 4.79% 2002 9.28% 2003 3.58% 2004 2.65% 2005 [ ]
Sales charges are not included in the returns shown above. If those charges were included, the returns shown would be lower. During the periods shown above, the highest quarterly return was [%] (for the quarter ended [ ]) and the lowest was [% ](for the quarter ended [ ]). AVERAGE ANNUAL TOTAL RETURNS (with Maximum Sales Charge)(1)
SINCE CLASS C INCEPTION FOR PERIODS ENDED DECEMBER 31, 2005 PAST YEAR PAST 5 YEARS PAST 10 YEARS (3/1/02) - ------------------------------------------------------------- --------- ------------ ------------- ------------ CLASS A SHARES Before Taxes [ ] [ ] [ ] N/A After Taxes on Distributions(2) [ ] [ ] [ ] N/A After Taxes on Distributions and Sales of Fund Shares(2) [ ] [ ] [ ] N/A CLASS B SHARES (BEFORE TAXES) [ ] [ ] [ ] N/A CLASS C SHARES (BEFORE TAXES) [ ] N/A N/A [ ] LEHMAN BROTHERS MUNICIPAL BOND INDEX(3) [ ] [ ] [ ] [ ]
- ------------ 1 The Fund's performance between 1996 and 2003 benefited from the agreement of WM Advisors and its affiliates to limit the Fund's expenses. 2 After-tax returns are calculated using the highest historical individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns are shown for only one share class offered by this prospectus. After-tax returns for other share classes will vary. 3 The Lehman Brothers Municipal Bond Index is a total return performance benchmark for the long-term, investment-grade, tax-exempt bond market. Indices are unmanaged and individuals cannot invest directly in an index. Index performance information reflects no deduction for fees, expenses, or taxes. MONEY MARKET FUND OBJECTIVE: This Fund seeks to maximize current income while preserving capital and maintaining liquidity. PRINCIPAL INVESTMENT STRATEGIES AND RISKS: The Fund invests in high-quality money market instruments, which may include U.S. GOVERNMENT SECURITIES, corporate obligations, FLOATING and VARIABLE RATE SECURITIES, MUNICIPAL OBLIGATIONS, U.S. dollar-denominated FOREIGN INVESTMENTS, ASSET-BACKED SECURITIES, REPURCHASE AGREEMENTS and WHEN-ISSUED and DELAYED-DELIVERY TRANSACTIONS. Among the principal risks of investing in the Fund are: - - Market Risk - Credit Risk - Foreign Investment Risk - Liquidity Risk - - Management Risk - Money Market Risk - Fund-of-Funds Risk - Leveraging Risk
CALENDAR YEAR TOTAL RETURNS (Class A Shares)(1) [BAR CHART]
YEAR ANNUAL RETURN - ---- ------------- 1996 4.88% 1997 5.04% 1998 5.00% 1999 4.56% 2000 6.01% 2001 3.65% 2002 1.31% 2003 0.70% 2004 0.88% 2005 [ ]
During the periods shown above, the highest quarterly return was [ %] (for the quarter ended [ ]) and the lowest was [ %] (for the quarter ended [ ]). AVERAGE ANNUAL TOTAL RETURNS (with Maximum Contingent Deferred Sales Charge)(1)
SINCE CLASS C INCEPTION FOR PERIODS ENDED DECEMBER 31, 2005 PAST YEAR PAST 5 YEARS PAST 10 YEARS (3/1/02) - ----------------------------------------------- --------- ------------ ------------- ------------ CLASS A SHARES [ ] [ ] [ ] N/A CLASS B SHARES [ ] [ ] [ ] N/A CLASS C SHARES [ ] N/A N/A [ ] CITIGROUP 3-MONTH U.S. TREASURY BILL INDEX(2) [ ] [ ] [ ] [ ]
- ------------ 1 The Fund's performance between 1996 and 2004 benefited from the agreement of WM Advisors and its affiliates to limit the Fund's expenses. Performance information is not provided for Class R-1 and Class R-2 shares because they had not been offered prior to the date of this prospectus. 2 The Citigroup 3-Month U.S. Treasury Bill Index measures the performance of 3-month U.S. Treasury bills currently available in the market-place. Indices are unmanaged and individuals cannot invest directly in an index. Index performance information reflects no deduction for fees, expenses, or taxes. SUMMARY OF PRINCIPAL RISKS The value of your investment in a Fund changes with the value of the investments held by that Fund. Many factors can affect that value, and it is possible that you may lose money by investing in the Funds. Factors that may adversely affect a particular Fund as a whole are called "principal risks." They are summarized in this section. The chart at the end of this section displays similar information. All Funds are subject to principal risks. These risks can change over time, because the types of investments made by the Funds can change over time. Investments mentioned in this summary and described in greater detail under "Common Investment Practices" appear in BOLD TYPE. Additional information about the Funds, their investments, and the related risks is located in the "Fund Investment Strategies and Risks" section. CREDIT RISK. Each of the Funds is subject to credit risk to the extent that it invests, directly or indirectly, in FIXED-INCOME SECURITIES, REITS, and STRATEGIC TRANSACTIONS. This is the risk that the issuer or the guarantor of a FIXED-INCOME SECURITY or other obligation, or the counterparty to any of a Fund's portfolio transactions (including, without limitation, REPURCHASE AGREEMENTS, REVERSE REPURCHASE AGREEMENTS, LENDING OF SECURITIES, STRATEGIC TRANSACTIONS, and other over-the-counter transactions), will be unable or unwilling to make timely principal and/or interest payments or to otherwise honor its obligations. Varying degrees of credit risk, often reflected in credit ratings, apply. Credit risk is particularly significant for funds such as the Equity Income, Growth & Income, Mid Cap Stock, Growth, Small Cap Value, Small Cap Growth, Income, High Yield, and Tax-Exempt Bond Funds that may invest significantly in BELOW-INVESTMENT-GRADE SECURITIES. These securities and similar unrated securities (commonly known as "junk bonds") have speculative elements or are predominantly speculative credit risks. The REIT, Equity Income, Growth & Income, West Coast Equity, Mid Cap Stock, Growth, Small Cap Value, Small Cap Growth, International Growth, Short Term Income, Income, High Yield, and Money Market Funds, which make FOREIGN INVESTMENTS denominated in U.S. dollars, are also subject to increased credit risk because of the added difficulties associated with requiring foreign entities to honor their contractual commitments, and because a number of foreign governments and other issuers are already in default. LEVERAGING RISK. When a Fund is BORROWING money or otherwise leveraging its portfolio, the value of an investment in that Fund will be more volatile and all other risks will tend to be compounded. All of the Funds are subject to leveraging risk. The REIT, Mid Cap Stock, Growth, Small Cap Value, Small Cap Growth, International Growth, Short Term Income, U.S. Government Securities, Income, High Yield, California Municipal, and California Insured Intermediate Municipal Funds may achieve leverage by using REVERSE REPURCHASE AGREEMENTS and/or DOLLAR ROLLS. The REIT, Equity Income, and Growth & Income Funds and the Fixed-Income and Municipal Funds may achieve leverage through the use of INVERSE FLOATING RATE INVESTMENTS. With the exception of the Money Market Fund, each Fund may also take on leveraging risk by investing collateral from securities loans, by using STRATEGIC TRANSACTIONS (derivatives), or by BORROWING money to meet redemption requests. The Money Market Fund may take on leveraging risk by investing collateral from securities loans and by BORROWING money to meet redemption requests. LIQUIDITY RISK. Liquidity risk exists when particular investments are difficult to purchase or sell, possibly preventing a fund from selling out of these ILLIQUID SECURITIES at an advantageous price. All of the Funds are subject to liquidity risk. Funds that engage in STRATEGIC TRANSACTIONS, make FOREIGN INVESTMENTS, or invest in securities involving substantial market and/or credit risk tend to be subject to greater liquidity risk. In addition, liquidity risk increases for funds that hold RESTRICTED SECURITIES. MARKET RISK. Each of the Funds is subject to market risk, which is the general risk of unfavorable changes in the market value of a fund's portfolio of securities. In addition, Funds that focus investments in "value" or "growth" stocks are subject to the risk that the market may not favor the particular securities in which the Funds may invest. Growth stocks also generally trade at higher multiples of current earnings than other stocks and may therefore be more sensitive to changes in current or expected earnings. One aspect of market risk is interest rate risk. As interest rates rise, the value of your investment in a Fund is likely to decline because its income-producing equity or FIXED-INCOME SECURITIES are likely to be worth less. Even funds such as the Short Term Income and U.S. Government Securities Funds are subject to interest rate risk, even though they generally invest substantial portions of their assets in the highest quality FIXED-INCOME SECURITIES, such as U.S. GOVERNMENT SECURITIES. Interest rate risk is generally greater for funds that invest in FIXED-INCOME SECURITIES with longer maturities. This risk may be compounded for funds such as the U.S. Government Securities, Income, Tax-Exempt Bond, and California Municipal Funds that invest in MORTGAGE-BACKED or other ASSET-BACKED SECURITIES which may be prepaid. These securities have variable maturities that tend to lengthen when it is least desirable -- when interest rates are rising. Increased market risk is also likely for funds such as the Short Term Income and Income Funds that invest in debt securities paying no interest, such as ZERO-COUPON and payment-in-kind securities. Except for the REIT Fund with respect to real estate, none of the Funds concentrates its assets in any particular industry. However, any of the Funds may concentrate its assets in a broad economic sector or geographic region. To the extent such investments are affected by common economic forces and other factors, this may increase a fund's vulnerability to such factors. The Equity Funds, by investing in equity securities such as common stock, preferred stock, and convertible securities, are exposed to a separate set of market risks. These risks include the risk of broader equity market declines as well as more specific risks affecting the issuer, such as management performance, financial leverage, industry problems and reduced demand for the issuer's goods or services. MANAGEMENT RISK. Each Fund is subject to management risk because it is an actively managed investment portfolio. WM Advisors, or the sub-advisor if applicable, will apply its investment techniques and risk analyses in making investment decisions for the Funds, but there can be no guarantee that they will meet stated objectives or produce desired results. In some cases, derivatives and other investments may be unavailable or WM Advisors or the sub-advisor may choose not to use them under market conditions when their use, in hindsight, may be determined to have been beneficial to the Funds. CURRENCY RISK. Funds such as the REIT, Equity Income, Growth & Income, West Coast Equity, Mid Cap Stock, Growth, Small Cap Value, Small Cap Growth, International Growth, Short Term Income, Income, and High Yield Funds that invest in securities denominated in, and/or receive revenues in, FOREIGN CURRENCIES will be subject to currency risk. This is the risk that those currencies will decline in value relative to the U.S. dollar, or, in the case of hedging positions, that the U.S. dollar will decline in value relative to the currency hedged. DERIVATIVES RISK. Each of the Funds, except the Money Market Fund, may, subject to the limitations and restrictions stated elsewhere in this prospectus and the SAI, use STRATEGIC TRANSACTIONS involving derivatives such as forward contracts, futures contracts, options, swaps, caps, floors and collars, which are financial contracts whose value depends on, or is derived from, the value of something else, such as an underlying asset, reference rate, or index. In addition to other risks, such as the credit risk of the counterparty, derivatives involve the risk of mispricing or improper valuation and the risk that changes in the value of the derivative may not correlate perfectly with relevant assets, rates, and indices. FOREIGN INVESTMENT RISK. Each of the Funds that can make FOREIGN INVESTMENTS, such as the REIT, Equity Income, Growth & Income, West Coast Equity, Mid Cap Stock, Growth, Small Cap Value, Small Cap Growth, International Growth, Short Term Income, Income, High Yield, and Money Market Funds, may experience more rapid and extreme changes in value than Funds with investments solely in securities of U.S. companies. This is because the securities markets of many foreign countries are relatively small, with a limited number of companies representing a small number of industries. Additionally, foreign securities issuers are usually not subject to the same degree of regulation as U.S. issuers. Reporting, accounting, and auditing standards of foreign countries differ, in some cases significantly, from U.S. standards. Also, nationalization, expropriation or confiscatory taxation, currency blockage, political changes, or diplomatic developments could adversely affect a fund's investments in a foreign country. In the event of nationalization, expropriation, or other confiscation, a fund could lose its entire investment. Adverse developments in certain regions, such as Southeast Asia, may adversely affect the markets of other countries whose economies appear to be unrelated. Investments in emerging market countries are generally subject to these risks to a greater extent. FUND-OF-FUNDS RISK. The WM Strategic Asset Management Portfolios, LLC (the "Portfolios") invest in shares of the Equity and Fixed-Income Funds and the Money Market Fund. From time to time, one or more of a Portfolio's underlying Funds may experience relatively large investments or redemptions due to reallocations or rebalancings by the Portfolios as recommended by WM Advisors. These transactions will affect such Funds, since Funds that experience redemptions as a result of reallocations or rebalancings may have to sell portfolio securities and since Funds that receive additional cash will have to invest such cash. This may be particularly important when one or more Portfolios owns a substantial portion of any underlying Fund. While it is impossible to predict the overall impact of these transactions over time, there could be adverse effects on fund performance to the extent that the Funds may be required to sell securities or invest cash at times when they would not otherwise do so. These transactions could also accelerate the realization of taxable income if sales of securities resulted in gains and could also increase transaction costs. Because the Portfolios own substantial portions of some Funds, a redemption or reallocation by the Portfolios away from a Fund could cause the Fund's expenses to increase, and may result in a Fund becoming too small to be economically viable. WM Advisors is committed to minimizing such impact on the Funds to the extent it is consistent with pursuing the investment objectives of the Portfolios. WM Advisors may nevertheless face conflicts in fulfilling its dual responsibilities to the Portfolios and the Funds. WM Advisors will at all times monitor the impact on the Funds of transactions by the Portfolios. The table below shows the percentage of outstanding Fund shares owned by the Portfolios as of October 31, 2005:
PORTFOLIOS ------------------------------------------------------- FLEXIBLE CONSERVATIVE CONSERVATIVE STRATEGIC INCOME BALANCED BALANCED GROWTH GROWTH FUND PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO TOTAL - ------------------------------- --------- ------------ --------- ------------ --------- ------- REIT Fund 2.5% 3.0% 33.5% 33.5% 19.9% 92.4% Equity Income Fund 1.6% 1.9% 19.0% 17.6% 10.9% 51.0% Growth & Income Fund 2.9% 2.6% 24.9% 26.1% 18.2% 74.7% West Coast Equity Fund 0.7% 1.1% 13.0% 14.2% 10.7% 39.7% Mid Cap Stock Fund 3.3% 2.5% 27.9% 29.2% 23.2% 86.1% Growth Fund 2.8% 2.6% 29.9% 31.5% 19.1% 85.9% Small Cap Value Fund 3.1% 2.7% 31.5% 34.3% 22.5% 94.1% Small Cap Growth Fund 3.0% 1.9% 22.3% 25.0% 17.7% 69.9% International Growth Fund --- 3.3% 32.6% 33.9% 22.8% 92.6% Short Term Income Fund 44.4% 13.0% 15.3% --- --- 72.7% U.S. Government Securities Fund 17.9% 9.6% 43.4% 15.9% --- 86.8% Income Fund 19.2% 9.1% 37.0% 10.7% --- 76.0% High Yield Fund 8.0% 3.9% 24.4% 15.2% 11.8% 63.3%
GEOGRAPHIC CONCENTRATION RISK. Funds such as the West Coast Equity, California Municipal and California Insured Intermediate Municipal Funds that invest significant portions of their assets in concentrated geographic areas like the northwestern United States and/or California generally have more exposure to regional economic risks than funds making investments more broadly. MONEY MARKET RISK. Although the Money Market Fund is designed to be a relatively low-risk investment, it is not entirely free of risk. The Money Market Fund may not be able to maintain a net asset value ("NAV") of $1.00 per share as a result of a deterioration in the credit quality of issuers whose securities the Fund holds, or an increase in interest rates. In addition, investments in the Money Market Fund are subject to the risk that inflation may erode the investment's purchasing power over time. NON-DIVERSIFICATION RISK. Most analysts believe that overall risk can be reduced through diversification and that concentration of investments in a small number of securities increases risk. The California Municipal and California Insured Intermediate Municipal Funds are NON-DIVERSIFIED. This means they can invest a greater portion of their assets in a relatively small number of issuers and will have a greater concentration of risk. Some of those issuers may present substantial credit or other risks. REAL ESTATE RISK. Funds such as the REIT, Equity Income, Growth & Income, West Coast Equity, Mid Cap Stock, Small Cap Growth, Small Cap Value, Short Term Income, Income, and High Yield Funds, which may invest a significant portion of their assets in REITS, are subject to risks affecting real estate investments. Investments in the real estate industry, even though representing interests in different companies and sectors within the industry, may be affected by common economic forces and other factors. This increases a fund's vulnerability to factors affecting the real estate industry. This risk is significantly greater than for a fund that invests in a range of industries and may result in greater losses and volatility. Securities of companies in the real estate industry, including REITS, are sensitive to factors such as changes in real estate values, property taxes, interest rates, cash flow of underlying real estate assets, occupancy rates, government regulations affecting zoning, land use and rents, and management skill and creditworthiness of the issuer. Companies in the real estate industry may also be subject to liabilities under environmental and hazardous waste laws. A fund investing in REITS will indirectly bear its proportionate share of expenses, including management fees, paid by each REIT in which it invests in addition to the expenses of the fund. A fund is also subject to the risk that the REITS in which it invests will fail to qualify for special tax treatment accorded REITs under the Internal Revenue Code of 1986, as amended (the "Code"), and/or fail to qualify for an exemption from registration as an investment company under the Investment Company Act of 1940, as amended (the "1940 Act"). The REIT Fund is especially sensitive to these risks because it normally invests at least 80% of its net assets plus any borrowings for investment purposes in REIT securities. SMALLER COMPANY RISK. Market risk and liquidity risk are particularly pronounced for stocks of companies with relatively small market capitalizations. These companies may have limited product lines, markets or financial resources, or they may depend on a few key employees. The Equity Funds and the High Yield Fund generally have the greatest exposure to this risk. TAX RISK. The Municipal Funds are subject to the risk that some or all of the interest they receive might become taxable by law or be determined by the Internal Revenue Service (or the relevant state tax authority) to be taxable. In this event, the value of the Funds' investments would likely fall, and some or all of the income distributions paid by the Funds might become taxable. In addition, some or all of the income distributions paid by these Funds may be subject to federal alternative minimum income tax. PRINCIPAL RISKS BY FUND The following chart summarizes the principal risks of each Fund other than credit risk, leveraging risk, liquidity risk, market risk, and management risk, which apply to all of the Funds. Risks not marked for a particular Fund may, however, still apply to some extent to that Fund at various times.
FUND- FOREIGN OF- GEOGRAPHIC MONEY NON REAL SMALLER CURRENCY DERIVATIVES INVESTMENT FUNDS CONCENTRATION MARKET DIVERSIFICATION ESTATE COMPANY FUND RISK RISK RISK RISK RISK RISK RISK RISK RISK TAX RISK - --------------------------- -------- ----------- ---------- ----- ------------- ------ --------------- ------ ------- -------- REIT FUND X X X X X X EQUITY INCOME FUND X X X X X X GROWTH & INCOME FUND X X X X X X WEST COAST EQUITY FUND X X X X X X X MID CAP STOCK FUND X X X X X X GROWTH FUND X X X X X SMALL CAP VALUE FUND X X X X X X SMALL CAP GROWTH FUND X X X X X X INTERNATIONAL GROWTH FUND X X X X X SHORT TERM INCOME FUND X X X X X U.S. GOVERNMENT SECURITIES FUND X X INCOME FUND X X X X X HIGH YIELD FUND X X X X X X TAX-EXEMPT BOND FUND X X CALIFORNIA MUNICIPAL FUND X X X X CALIFORNIA INSURED INTERMEDIATE MUNICIPAL FUND X X X X MONEY MARKET FUND X X X
FEES AND EXPENSES OF THE FUNDS This section describes the fees and expenses that you may pay if you invest in Class A, B, C, R-1 or R-2 shares of a Fund. Generally, Class R-1 and R-2 shares are available for purchase only through qualified employer-sponsored retirement or benefit plans. The table below describes the maximum sales charges that may be assessed if you invest in Class A, B, C, R-1 or R-2 shares. The examples on the following pages are intended to help you compare the cost of investing in the Funds with the costs of investing in other mutual funds. The examples assume that your investment has a 5% return each year, as required for illustration purposes by the Securities and Exchange Commission, and that the Funds' operating expenses remain the same. Your actual costs may be higher or lower than those in the examples.
SHAREHOLDER FEES(1) CLASS A CLASS B CLASS C CLASS R-1 CLASS R-2 (FEES PAID DIRECTLY FROM YOUR INVESTMENT) SHARES SHARES SHARES SHARES SHARES - ------------------------------------------------ ------- ------- ------- --------- --------- Maximum sales charge (load) imposed on purchases (as a percentage of offering price) Equity Funds 5.50% 0.00% 0.00% 0.00% 0.00% Fixed-Income Funds and Municipal Funds 4.50%(2) 0.00% 0.00% 0.00% 0.00% Money Market Fund 0.00%(3) 0.00% 0.00% 0.00% 0.00% Maximum deferred sales charge (load) 0.00%(6) 5.00%(7) 1.00%(8) 0.00% 0.00% (as a percentage of original purchase price)(4,5)
- --------------- (1) An annual fee of up to $12 may be imposed on accounts that fall below $1,000. See "Other Policies and Practices of the WM Group of Funds -- Small Accounts" in this prospectus. (2) 3.50% for the Short Term Income Fund. (3) Sales charges apply when Class A shares of the Money Market Fund (on which no sales charge was paid at the time of purchase) are exchanged for shares of any other Fund. (4) A $10 fee may be charged for redemptions made by wire transfer. Contingent deferred sales charges for shares purchased prior to April 1, 2003, are described in the SAI. (5) Redemptions of shares of the International Growth Fund, including exchange redemptions, within 90 days of purchase will be subject to a redemption fee equal to 2.00% of redemption proceeds (in addition to any applicable CDSC), which will be retained by the Fund. With respect to Class B and C shares, the redemption fee applies only to shares purchased on or after March 1, 2005. (6) Certain investors who purchase Class A shares without paying an initial sales charge may be subject to a deferred sales charge of 1.00% on redemptions within the first 18 months. (7) The maximum deferred sales charge is imposed on shares redeemed in the first and second years. For shares held longer than two years, the deferred sales charge declines according to the schedules set forth under "Choosing a Share Class -- Class B Shares -- Contingent Deferred Sales Charge on Class B Shares" in this prospectus. The maximum deferred sales charge for Class B shares of the Short Term Income Fund is 4.00%. (8) Class C shares redeemed within the first 12 months are subject to a 1.00% contingent deferred sales charge.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) EXAMPLES: YOU WOULD PAY TOTAL THE FOLLOWING EXPENSES ON A $10,000 DISTRIBUTION ANNUAL FUND INVESTMENT ASSUMING A 5% ANNUAL RETURN AND MANAGEMENT AND SERVICE OTHER OPERATING REDEMPTION AT THE END OF EACH PERIOD: CLASS A SHARES FEES (12b-1)FEES(1) EXPENSES EXPENSES 1 YEAR 3 YEARS 5 YEARS 10 YEARS ---------- ------------- -------- ------------- ------- ------- ------- --------- REIT Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Equity Income Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Growth & Income Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] West Coast Equity Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Mid Cap Stock Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Growth Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Small Cap Value Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Small Cap Growth Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] International Growth Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Short Term Income Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] U.S. Government Securities Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Income Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] High Yield Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Tax-Exempt Bond Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] California Municipal Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] California Insured Intermediate Municipal Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Money Market Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ]
- -------- 1 12b-1 fees represent service fees that are paid to WM Funds Distributor, Inc. (the "Distributor "). See "Distribution Plan and Additional Information Regarding Dealer Compensation."
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) DISTRIBUTION TOTAL AND SERVICE ANNUAL FUND MANAGEMENT (12b-1) OTHER OPERATING CLASS B SHARES FEES FEES(1) EXPENSES EXPENSES - ------------------------------- ---------- ----------- -------- ----------- REIT Fund [ ] [ ] [ ] [ ] Equity Income Fund [ ] [ ] [ ] [ ] Growth & Income Fund [ ] [ ] [ ] [ ] West Coast Equity Fund [ ] [ ] [ ] [ ] Mid Cap Stock Fund [ ] [ ] [ ] [ ] Growth Fund [ ] [ ] [ ] [ ] Small Cap Value Fund [ ] [ ] [ ] [ ] Small Cap Growth Fund [ ] [ ] [ ] [ ] International Growth Fund [ ] [ ] [ ] [ ] Short Term Income Fund [ ] [ ] [ ] [ ] U.S. Government Securities Fund [ ] [ ] [ ] [ ] Income Fund [ ] [ ] [ ] [ ] High Yield Fund [ ] [ ] [ ] [ ] Tax-Exempt Bond Fund [ ] [ ] [ ] [ ] California Municipal Fund [ ] [ ] [ ] [ ] California Insured Intermediate Municipal Fund [ ] [ ] [ ] [ ] Money Market Fund [ ] [ ] [ ] [ ]
EXAMPLES: YOU WOULD PAY THE FOLLOWING EXPENSES ON A $10,000 INVESTMENT ASSUMING A 5% ANNUAL RETURN AND EITHER (A) REDEMPTION AT THE END OF EACH PERIOD OR (B) NO REDEMPTION A B CLASS B SHARES 1 YEAR 3 YEARS 5 YEARS 10 YEARS(2) 1 YEAR 3 YEARS 5 YEARS 10 YEARS(2) - ---------------------------------------------- --------- --------- ---------- ---------- ------ ------- -------- ---------- REIT Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Equity Income Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Growth & Income Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] West Coast Equity Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Mid Cap Stock Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Growth Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Small Cap Value Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Small Cap Growth Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] International Growth Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Short Term Income Fund3 [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] U.S. Government Securities Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Income Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] High Yield Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Tax-Exempt Bond Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] California Municipal Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] California Insured Intermediate Municipal Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Money Market Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ]
- --------- 1 0.25% of the 12b-1 fees shown represent service fees that are paid to the Distributor. Long-term Class B shareholders may pay more than the sales charge paid by Class A shareholders. See "Distribution Plan and Additional Information Regarding Dealer Compensation." 2 Class B shares convert to Class A shares after eight years; accordingly, the expense amounts for years nine and ten are based on Class A share expenses.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) DISTRIBUTION TOTAL AND SERVICE ANNUAL FUND MANAGEMENT (12b-1) OTHER OPERATING CLASS C SHARES FEES FEES(1) EXPENSES EXPENSES - ----------------------------------------- ---------- ------------ -------- ----------- REIT Fund [ ] [ ] [ ] [ ] Equity Income Fund [ ] [ ] [ ] [ ] Growth & Income Fund [ ] [ ] [ ] [ ] West Coast Equity Fund [ ] [ ] [ ] [ ] Mid Cap Stock Fund [ ] [ ] [ ] [ ] Growth Fund [ ] [ ] [ ] [ ] Small Cap Value Fund [ ] [ ] [ ] [ ] Small Cap Growth Fund [ ] [ ] [ ] [ ] International Growth Fund [ ] [ ] [ ] [ ] Short Term Income Fund [ ] [ ] [ ] [ ] U.S. Government Securities Fund [ ] [ ] [ ] [ ] Income Fund [ ] [ ] [ ] [ ] High Yield Fund [ ] [ ] [ ] [ ] Tax-Exempt Bond Fund [ ] [ ] [ ] [ ] California Municipal Fund [ ] [ ] [ ] [ ] California Insured Intermediate Municipal Fund [ ] [ ] [ ] [ ] Money Market Fund [ ] [ ] [ ] [ ]
EXAMPLES: YOU WOULD PAY THE FOLLOWING EXPENSES ON A $10,000 INVESTMENT ASSUMING A 5% ANNUAL RETURN AND EITHER (A) REDEMPTION AT THE END OF EACH PERIOD OR (B) NO REDEMPTION A B CLASS C SHARES 1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS - ----------------------------------------- ------ ------- ------- -------- ------ ------- ------- -------- REIT Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Equity Income Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Growth & Income Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] West Coast Equity Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Mid Cap Stock Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Growth Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Small Cap Value Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Small Cap Growth Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] International Growth Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Short Term Income Fund2 [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] U.S. Government Securities Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Income Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] High Yield Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Tax-Exempt Bond Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] California Municipal Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] California Insured Intermediate Municipal Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Money Market Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ]
- ----------- 1 0.25% of the 12b-1 fees represent service fees that are paid to the Distributor. Long-term Class C shareholders may pay more than the sales charge paid by Class A shareholders. See "Distribution Plan and Additional Information Regarding Dealer Compensation."
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) EXAMPLES: YOU WOULD PAY ------------------------------------------- THE FOLLOWING EXPENSES ON A $10,000 TOTAL INVESTMENT ASSUMING A 5% ANNUAL RETURN AND DISTRIBUTION ANNUAL FUND REDEMPTION AT THE END OF EACH PERIOD: MANAGEMENT AND SERVICE OTHER OPERATING ------------------------------------------ CLASS R-1 SHARES FEES (12b-1) FEES(1) EXPENSES EXPENSES 1 YEAR 3 YEARS 5 YEARS 10 YEARS - ------------------------------- ---------- --------------- -------- --------- ------ ------- ------- -------- REIT Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Equity Income Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Growth & Income Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] West Coast Equity Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Mid Cap Stock Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Growth Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Small Cap Value Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Small Cap Growth Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] International Growth Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Short Term Income Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] U.S. Government Securities Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Income Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] High Yield Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Money Market Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ]
- --------- 1 12b-1 fees represent service fees that are paid to the Distributor. See "Distribution Plan and Additional Information Regarding Dealer Compensation."
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) EXAMPLES: YOU WOULD PAY -------------------------------------------- THE FOLLOWING EXPENSES ON A $10,000 TOTAL INVESTMENT ASSUMING A 5% ANNUAL RETURN AND DISTRIBUTION ANNUAL FUND REDEMPTION AT THE END OF EACH PERIOD: MANAGEMENT AND SERVICE OTHER OPERATING ------------------------------------------ CLASS R-2 SHARES FEES FEES(1) EXPENSES EXPENSES 1 YEAR 3 YEARS 5 YEARS 10 YEARS ---------- ------------- -------- ------------ ------ ------- ------- -------- REIT Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Equity Income Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Growth & Income Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] West Coast Equity Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Mid Cap Stock Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Growth Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Small Cap Value Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Small Cap Growth Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] International Growth Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Short Term Income Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] U.S. Government Securities Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Income Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] High Yield Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Money Market Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ]
- --------- 1 12b-1 fees represent service fees that are paid to the Distributor. See "Distribution Plan and Additional Information Regarding Dealer Compensation." FUND INVESTMENT STRATEGIES AND RISKS This section provides a more complete description of the principal investment strategies and risks of each Fund. The "Common Investment Practices" section that follows provides additional information about the principal investment strategies of the Funds and identifies the Funds that may engage in such practices to a significant extent. The Funds may undertake other strategies for temporary defensive purposes. These strategies may cause the Funds to miss out on investment opportunities and may prevent the Funds from achieving their goals. You can find additional descriptions of the Funds' strategies and risks in the SAI. Except for policies explicitly identified as "fundamental" in this prospectus or the SAI, the investment objectives and investment policies set forth in this prospectus and the SAI are not fundamental and may be changed at any time without shareholder consent. Except as otherwise indicated, all policies and limitations are considered at the time of purchase; the sale of securities is not required in the event of a subsequent change in valuation or other circumstances. EQUITY FUNDS REIT FUND. Under normal market conditions, the REIT Fund will invest at least 80% of its net assets plus any borrowings for investment purposes in REIT securities. The Fund may also invest in U.S. government obligations, convertible securities and preferred stocks, exchange traded funds, mortgage-backed securities, collateralized mortgage obligations and asset-backed securities. The Fund may also enter into futures contracts and options on futures contracts that are traded on a U.S. exchange or board of trade. The Fund may invest up to 20% of its net assets in below-investment-grade fixed-income securities (sometimes called "junk bonds"). The Fund may invest in money market instruments for temporary or defensive purposes and may invest in fixed-income securities of any maturity including mortgage-backed securities, U.S. government securities and asset-backed securities. The Fund may purchase or sell U.S. government securities or collateralized mortgage obligations on a "when-issued" or "delayed-delivery" basis in an aggregate of up to 20% of the market value of its total net assets. While no individual fund is intended as a complete investment program, this is particularly true of the REIT Fund, which could be adversely impacted by economic trends within the real estate industry. EQUITY INCOME FUND. The Equity Income Fund invests primarily (normally at least 80% of its net assets plus any borrowings for investment purposes) in dividend-paying common stocks and preferred stocks. The Fund may invest in money market instruments for temporary or defensive purposes. The Fund may invest in fixed-income securities of any maturity, including mortgage-backed securities, U.S. government securities and asset-backed securities, and may also invest up to 20% of its assets in below-investment-grade bonds (sometimes called "junk bonds"). The Fund may purchase or sell U.S. government securities or collateralized mortgage obligations on a "when-issued" or "delayed-delivery" basis in an aggregate of up to 20% of the market value of its total net assets. The Fund may invest up to 20% of its assets in REITs. The Fund may write (sell) covered call options. The Fund may invest up to 25% of its assets in U.S. dollar-denominated securities of foreign issuers. GROWTH & INCOME FUND. The Growth & Income Fund invests primarily in common stocks. The Fund may also invest in money market instruments for temporary or defensive purposes. The Fund may invest up to 25% of its assets in REITs. The Fund may invest in preferred stocks and fixed-income securities of any maturity, including mortgage-backed securities and convertible securities, and may invest up to 35% (limited to 20% unless authorized by the Trusts' Board of Trustees) of its assets in below-investment-grade fixed-income securities (sometimes called "junk bonds"). WEST COAST EQUITY FUND. Under normal circumstances, at least 80% of the Fund's net assets (plus any borrowings for investment purposes) will be invested in the common stocks of West Coast companies. WM Advisors defines West Coast companies to include those with: (i) principal executive offices located in the region, which includes Alaska, California, Oregon, and Washington; (ii) over 50% of their work force employed in the region, or (iii) over 50% of their sales within the region. While no individual fund is intended as a complete investment program, this is particularly true of the West Coast Equity Fund, which could be adversely impacted by economic trends within this four state area. The Fund is permitted to invest in money market instruments for temporary defensive purposes. The Fund may invest up to 20% of its assets in REITs and below-investment-grade fixed-income securities (sometimes called "junk bonds"). MID CAP STOCK FUND. The Mid Cap Stock Fund invests primarily (normally at least 80% of its net assets plus any borrowings for investment purposes) plus any borrowings for investment purposes) in common stocks of companies with market capitalizations in the range represented by companies included in the S&P MidCap 400 (as of December 31, 2005, the S&P MidCap 400 included companies with market capitalizations ranging from [] billion to [] billion). The Fund may also invest in money market instruments for temporary or defensive purposes. The Fund may invest up to 20% of its assets in REITs. The Fund may invest in fixed-income securities of any maturity, including mortgage-backed securities, and may invest up to 20% of its assets in below-investment-grade fixed-income securities (sometimes called "junk bonds"). The Fund may purchase or sell U.S. government securities or collateralized mortgage obligations on a "when-issued" or "delayed-delivery" basis in an aggregate of up to 20% of the market value of its total net assets. The Fund may invest up to 25% of its assets in U.S. dollar-denominated securities of foreign issuers. GROWTH FUND. The Growth Fund invests primarily in common stocks believed to have significant appreciation potential. The Fund also may invest in fixed-income securities, bonds, convertible bonds, preferred stock and convertible preferred stock, including up to 35% (limited to 20% unless authorized by the Trusts' Board of Trustees) of its assets in below-investment-grade fixed-income securities (sometimes called "junk bonds"). The Fund may invest up to 25% of its assets in foreign securities, usually foreign common stocks, provided that no more than 5% of its assets are invested in securities of companies in (or governments of) developing or emerging countries (sometimes referred to as "emerging markets"). The Fund may also engage in certain options transactions, enter into financial futures contracts and related options for the purpose of portfolio hedging, and enter into currency forwards or futures contracts and related options for the purpose of currency hedging. The Fund's portfolio is managed by three sub-advisors: Janus Capital Management LLC, Salomon Brothers Asset Management, Inc, and OppenheimerFunds, Inc. WM Advisors determines the portion of the Fund's assets to be managed by each of the Fund's three sub-advisors. Because WM Advisors earns different fees on the amounts allocated to each of the Fund's sub-advisors, there may be a conflict between the interests of the Fund and the economic interests of WM Advisors. SMALL CAP VALUE FUND. The Small Cap Value Fund invests primarily (normally at least 80% of its net assets plus any borrowings for investment purposes) in equity securities of companies with market capitalizations in the range represented by the Russell 2000(R) Value Index at the time of purchase (as of December 31, 2005, the Russell 2000(R) Value Index included companies with market capitalizations ranging from [$ ] billion to [$ ] billion). In addition to common stock, the Fund's equity securities may include convertible bonds, convertible preferred stock and warrants to purchase common stock. The Fund may also invest in money market instruments for temporary or defensive purposes. The Fund may invest up to 25% of its assets in securities of foreign issuers, provided that no more than 5% of its total assets may be invested in securities of issuers located in developing or emerging countries. The Fund may invest up to 20% of its assets in below-investment-grade fixed-income securities (sometimes called "junk bonds") if WM Advisors believes that doing so will be consistent with the goal of capital appreciation. SMALL CAP GROWTH FUND. The Small Cap Growth Fund invests primarily (normally at least 80% of its net assets plus any borrowings for investment purposes) in equity securities of companies with market capitalizations in the range represented by the Russell 2000(R) Growth Index at the time of purchase (as of December 31, 2005, the Russell 2000(R) Growth Index included companies with market capitalizations ranging from [$ ] billion to [$ ] billion). In addition to common stock, the Fund's equity securities may include convertible bonds, convertible preferred stock, and warrants to purchase common stock. The Fund may also invest in money market instruments for temporary or defensive purposes. The Fund may invest up to 25% of its assets in securities of foreign issuers provided that no more than 5% of its total assets are to be invested in securities of issuers located in developing or emerging market countries. The Fund may invest up to 20% of its assets in below-investment-grade fixed-income securities (sometimes called "junk bonds") if WM Advisors or the Fund's sub-advisors believe that doing so will be consistent with the goal of capital appreciation. The Fund's portfolio is managed by two sub-advisors: Delaware Management Company and Oberweis Asset Management, Inc. WM Advisors determines the portion of the Fund's assets to be managed by each of the Fund's sub-advisors. INTERNATIONAL GROWTH FUND. The International Growth Fund invests primarily in equity securities of issuers located in foreign countries that Capital Guardian, the Fund's sub-advisor, believes present attractive investment opportunities. In selecting investments for the Fund, Capital Guardian seeks to identify foreign stocks that have an attractive valuation, high return on invested capital, excellent cash flow, strong balance sheets and strong management. Capital Guardian utilizes a research driven "bottom-up" approach in that decisions are made based upon extensive field research and direct company contacts. Capital Guardian blends this approach with macroeconomics and political judgments on the outlook for economies, industries, currencies, and markets. The Fund will emphasize established companies, although it may invest in companies of varying sizes as measured by assets, sales, and capitalization. The Fund's portfolio is managed by two different teams at Capital Guardian: the "developed market team" and the "emerging market equity team". WM Advisors determines the portion of the Fund's assets to be managed by each team. The Fund invests in common stock and may invest in other securities with equity characteristics, such as trust or limited partnership interests, preferred stock, rights, and warrants. The Fund may also invest in convertible securities. The Fund invests in securities listed on foreign or domestic securities exchanges and securities traded in foreign or domestic over-the-counter markets, and may invest in restricted or unlisted securities. The Fund intends to stay fully invested in the securities described above to the extent practical. Fund assets may be invested in short-term fixed-income instruments to meet anticipated day-to-day operating expenses, and for temporary defensive purposes. In addition, when the Fund experiences large cash inflows, it may hold short-term investments until desirable equity securities become available. These short-term instruments are generally rated A or higher by Moody's, S&P or Fitch or, if unrated, are of comparable quality in the opinion of the Fund's sub-advisor. The Fund may invest up to 30% of its assets in the securities of companies in, or governments of, developing or emerging markets, provided that no more than 5% of the Fund's total assets are invested in any one emerging market country. For temporary defensive purposes, the Fund may invest a major portion of its assets in securities of U.S. issuers. Furthermore, the Fund may invest up to 5% of its total assets in investment-grade corporate fixed-income securities having maturities longer than one year, including euro-currency instruments and securities. FIXED-INCOME FUNDS SHORT TERM INCOME FUND. The Short Term Income Fund maintains a weighted average duration of three years or less and a weighted average maturity of five years or less. Duration measures the sensitivity of a bond's price to changes in the general level of interest rates. The duration of a fixed-income security is the weighted average term to maturity of the present value of future cash flows, including interest and principal payments. Thus, duration involves WM Advisors' judgment with respect to both interest rates and expected cash flows. The Fund will invest substantially all of its assets in fixed-income securities that, at the time of purchase, are rated in one of the top four rating categories by one or more nationally recognized statistical rating organizations ("NRSROs") or, if unrated, are judged to be of comparable quality by WM Advisors. All fixed-income securities purchased by the Fund will be investment-grade at the time of purchase. The Fund may invest in securities issued or guaranteed by domestic and foreign governments and government agencies and instrumentalities and in high-grade corporate fixed-income securities, such as bonds, debentures, notes, equipment lease and trust certificates, mortgage-backed securities, collateralized mortgage obligations and asset-backed securities. The Fund may invest in fixed-income securities issued by REITs. The Fund may invest up to 10% of its assets in foreign fixed-income securities, primarily bonds of foreign governments or their political subdivisions, foreign companies and supranational organizations, including non-U.S. dollar-denominated securities and U.S. dollar-denominated fixed-income securities issued by foreign issuers and foreign branches of U.S. banks. Investments in foreign securities are subject to special risks. The Fund may invest up to 5% of its assets in preferred stock. The Fund may engage in certain options transactions, enter into financial futures contracts and related options for the purpose of portfolio hedging, and enter into currency forwards or futures contracts and related options for the purpose of currency hedging. The Fund may invest in certain illiquid investments, such as privately placed securities, including restricted securities. The Fund may invest up to 10% of its assets in securities of unaffiliated mutual funds. The Fund may borrow money or enter into reverse repurchase agreements or dollar roll transactions in the aggregate of up to 33 1/3% of its total assets. The Fund may invest up to 25% of its total assets in asset-backed securities, which represent a participation in, or are secured by and payable from, a stream of payments generated by particular assets, most often a pool of similar assets. U.S. GOVERNMENT SECURITIES FUND. The U.S. Government Securities Fund invests primarily in a selection of obligations of the U.S. government and its agencies. The Fund may also invest in collateralized mortgage obligations and repurchase agreements. The Fund may not invest less than 80% of its net assets (plus any borrowings for investment purposes) in obligations issued or guaranteed by the U.S. government, its agencies and/or instrumentalities or in repurchase agreements or collateralized mortgage obligations secured by these obligations. The Fund may borrow up to 5% of its total net assets for emergency, non-investment purposes. The Fund may also enter into dollar roll transactions limited in aggregate to no more than 25% of its total net assets. INCOME FUND. The Income Fund invests most of its assets in: - fixed-income and convertible securities; - U.S. government securities, including mortgage-backed securities issued by the Government National Mortgage Association ( "GNMA "), FNMA, and FHLMC or similar government agencies or government-sponsored entities; - commercial mortgage-backed securities; - obligations of U.S. banks that belong to the Federal Reserve System; - preferred stocks and convertible preferred stocks; - the highest grade commercial paper as rated by S&P, Fitch or Moody's; and - deposits in U.S. banks. The Fund may also invest in securities denominated in foreign currencies and receive interest, dividends, and sale proceeds in foreign currencies. The Fund may engage in foreign currency exchange transactions for hedging or non-hedging purposes and may purchase and sell currencies on a spot (i.e. cash) basis, enter into forward contracts to purchase or sell foreign currencies at a future date, and buy and sell foreign currency futures contracts. The Fund may borrow up to 5% of its total net assets for emergency, non-investment purposes, and may enter into dollar roll transactions limited in the aggregate to no more than 25% of its total net assets. The Fund may purchase securities of issuers that deal in real estate or securities that are secured by interests in real estate, and it may acquire and dispose of real estate or interests in real estate acquired through the exercise of its rights as a holder of fixed-income securities secured by real estate or interests therein. The Fund may also purchase and sell interest rate futures and options. The Fund may invest up to 35% (limited to 20% unless authorized by the Trusts' Board of Trustees)of its assets in below-investment-grade fixed-income securities (sometimes called "junk bonds"). HIGH YIELD FUND. The High Yield Fund invests, under normal market conditions, at least 80% of its net assets (plus any borrowings for investment purposes) in a diversified portfolio of fixed-income securities (including convertible securities and preferred stocks) rated lower than BBB by S&P or Fitch or rated lower than Baa by Moody's or of equivalent quality as determined by WM Advisors. The remainder of the Fund's assets may be invested in any other securities WM Advisors believes are consistent with the Fund's objective, including higher rated fixed-income securities, common stocks, and other equity securities. The Fund may also invest in securities of foreign issuers, including those located in developing or emerging countries, and engage in hedging strategies involving options. MUNICIPAL FUNDS Each of the Municipal Funds invests most of its assets in fixed-income obligations issued by states, counties, cities, and other governmental bodies that generate income that is exempt from federal income tax other than the federal alternative minimum tax ("municipal obligations"). Current federal income tax laws limit the types and volume of bonds qualifying for the federal income tax exemption of interest, which may affect the ability of a Fund to purchase sufficient amounts of tax-exempt securities. TAX-EXEMPT BOND FUND. The Tax-Exempt Bond Fund will invest at least 80% of its assets in municipal obligations, including inverse floating rate obligations, under normal market conditions. The Fund specifically limits these investments to municipal bonds, municipal notes, and securities of unaffiliated tax-exempt mutual funds. The Fund also may invest up to 35% (limited to 20% unless authorized by the Trusts' Board of Trustees) of its assets in below-investment-grade securities (sometimes called "junk bonds"). In adverse markets, the Fund may seek to protect its investment position by investing up to 50% of its portfolio in taxable short-term investments such as: - U.S. government securities; - commercial paper rated in the highest grade by either S&P, Moody's or Fitch; - obligations of U.S. banks; - time or demand deposits in U.S. banks; and - repurchase agreements relating to municipal securities or any of the foregoing taxable instruments. Interest income from these investments that is distributed to you by the Fund may be taxable. The Fund may also purchase and sell interest rate futures and options. The Fund may invest up to 20% of its total assets in AMT-subject bonds. For temporary defensive purposes, the Fund may invest more than 20% of its assets in instruments that are not municipal obligations and that are eligible for purchase by the Money Market Fund, which may produce income that is not exempt from federal income taxes. CALIFORNIA MUNICIPAL FUND. The California Municipal Fund invests primarily in intermediate- and long-term California municipal obligations (municipal obligations that generate interest which is exempt from California State personal income tax). It is a fundamental policy of the Fund that, under normal market conditions, at least 80% of its assets will be invested in these obligations. These obligations may include AMT-subject bonds. The Fund will invest primarily in investment-grade municipal obligations. The Fund may also invest in inverse floating rate obligations, which are generally more volatile than other types of municipal obligations. The Fund may, under normal circumstances, invest up to 20% of its assets in: - municipal obligations that are not exempt from California personal income tax; - short-term municipal obligations; - taxable cash equivalents, including short-term U.S. government securities, certificates of deposit and bankers' acceptances, commercial paper rated Prime-1 by Moody's or A-1+ or A-1 by S&P, or equivalent rating by Fitch, and repurchase agreements (collectively "short-term instruments"); and - securities of money market mutual funds (subject to the limitations set forth under "Common Investment Practices "). The Fund may, for temporary defensive purposes, invest in the securities mentioned above without limitation. Also, as a non-diversified investment company under the 1940 Act, the Fund may invest a larger portion of its assets in the securities of a small number of issuers relative to other mutual funds. CALIFORNIA INSURED INTERMEDIATE MUNICIPAL FUND. The California Insured Intermediate Municipal Fund will invest primarily in insured intermediate-term California municipal obligations. It is a fundamental policy of the Fund that it will invest at least 80% of its assets in insured California municipal obligations (except when maintaining a temporary defensive position). Under normal market conditions, the dollar-weighted average maturity of the securities in which the Fund invests will be more than three years but less than ten years. The maximum effective maturity (the maturity date without regard to call provisions, except that for pooled single family mortgage securities, effective maturity is the average life of the underlying mortgage obligations) of any municipal obligation in which the Fund invests will be fifteen years. All of the municipal obligations in which the Fund invests, taking into account any insurance, are investment-grade securities. The Fund may invest without limitation in AMT-subject bonds. Under normal market conditions, the Fund may invest up to 20% of its assets in: - uninsured municipal obligations; - municipal obligations that are not exempt from California personal income tax; - short-term municipal obligations and taxable cash equivalents, including short-term instruments; and - securities of unaffiliated money market mutual funds (subject to the limitations set forth under "Common Investment Practices"). The Fund may, for temporary defensive purposes, invest in these securities without limitation, which may produce income that is not exempt from federal income taxes or California personal income tax. In addition, the Fund may invest in inverse floating rate obligations. The Fund may engage in hedging transactions through the use of financial futures and options thereon. It may also purchase and sell securities on a when-issued or forward commitment basis, invest in mortgage-backed securities, enter into repurchase agreements, invest in stand-by commitments and lend portfolio securities. The Fund may invest in floating rate and variable rate obligations, including participation interests therein (referred to collectively as "hedging transactions"). The insured municipal obligations in which the California Insured Intermediate Municipal Fund will invest and the other Municipal Funds may invest are insured under insurance policies that relate to the specific municipal obligation in question and that are issued by an insurer having a claims-paying ability rated AAA by S&P or Aaa by Moody's. This insurance is generally non-cancelable and will continue in force so long as the municipal obligations are outstanding and the insurer remains in business. The insured municipal obligations are generally insured as to the scheduled payment of all installments of principal and interest as they fall due. The insurance covers only credit risk and therefore does not guarantee the market value of the obligations in a Fund's investment portfolio or a Fund's NAV. The Fund's NAV will continue to fluctuate in response to fluctuations in interest rates. A Fund's investment policy requiring investment in insured municipal obligations will not affect the Fund's ability to hold its assets in cash or to invest in escrow-secured and defeased bonds or in certain short-term tax-exempt obligations, or affect its ability to invest in uninsured taxable obligations for temporary or liquidity purposes or on a defensive basis. MONEY MARKET FUND The Money Market Fund invests only in U.S. dollar-denominated short-term money market securities. The Fund will only purchase securities issued or guaranteed by the U.S. government, its agencies, sponsored entities or instrumentalities or securities that are, or have issuers that are: - rated by at least two NRSROs, such as S&P, Fitch or Moody's, in one of the two highest rating categories for short-term fixed-income securities; - rated in one of the two highest categories for short-term debt by the only NRSRO that has issued a rating; or - if not so rated, are determined to be of comparable quality. In pursuing its objective, the Money Market Fund invests solely in money market instruments that may be included in the following six general categories: - U.S. government securities; - short-term commercial notes (including asset-backed securities) issued directly by U.S. and foreign businesses, banking institutions, financial institutions (including brokerage, finance and insurance companies) and state and local governments and municipalities to finance short-term cash needs; - obligations of U.S. and foreign banks with assets of more than $500 million; - U.S. dollar-denominated securities issued by foreign governments, their agencies or instrumentalities or by supranational entities; - short-term corporate securities rated in one of the two highest rating categories by an NRSRO; and - repurchase agreements. A description of the rating systems of S&P, Fitch and Moody's is contained in Appendix A to this prospectus and in the SAI. At the time of investment, no security (except U.S. government securities subject to repurchase agreements and variable rate demand notes) purchased by the Fund will have a maturity exceeding 397 days, and the Fund's average portfolio maturity will not exceed 90 days. The Fund will attempt to maintain a stable NAV of $1.00, but there can be no assurance that the Fund will be able to do so. COMMON INVESTMENT PRACTICES The next several pages contain more detailed information about types of securities in which the Funds may invest, and strategies that WM Advisors or the respective sub-advisors may employ in pursuit of that Fund's investment objective. This section also includes a summary of risks and restrictions associated with these securities and investment practices. For more information, please see the SAI. BELOW-INVESTMENT-GRADE SECURITIES. The Growth & Income, Growth, Income, and Tax-Exempt Bond Funds each may invest up to 35% of its total assets, and the REIT, Equity Income, West Coast Equity, Mid Cap Stock, Small Cap Value, and Small Cap Growth Funds each may invest up to 20% of its total assets in BELOW-INVESTMENT-GRADE FIXED-INCOME SECURITIES, sometimes referred to as "junk bonds." The High Yield Fund may invest all of its assets in these securities, and will generally invest at least 80% of its assets in such securities. BELOW-INVESTMENT-GRADE FIXED-INCOME SECURITIES usually entail greater risk (including the possibility of default or bankruptcy of the issuers), generally involve greater price volatility and risk of principal and income, and may be less liquid than higher-rated securities. Both price volatility and illiquidity may make it difficult for a Fund to value or to sell certain of these securities under certain market conditions. These securities are often considered to be speculative and involve greater risk of default or price changes due to changes in the issuer's creditworthiness. The market prices of these securities may fluctuate more than higher-rated securities and may decline significantly in periods of general economic difficulty, which may follow periods of rising interest rates. For further information, see Appendix A to this prospectus. BORROWING. The Funds may borrow money from banks solely for temporary or emergency purposes, subject to various limitations. If a Fund borrows money, its share price and yield may be subject to greater fluctuation until the borrowing is paid off. For the Growth, Small Cap Growth, International Growth, Short Term Income, California Municipal, and California Insured Intermediate Municipal Funds, such borrowings may not exceed 30% of total assets. The REIT, Equity Income, Growth & Income, West Coast Equity, Mid Cap Stock, Small Cap Value, U.S. Government Securities, Income, High Yield, Tax-Exempt Bond, and Money Market Funds may borrow up to 5% of their total assets for emergency, non-investment purposes. In addition, the Money Market Fund may borrow up to 33 1/3% of its total assets to meet redemption requests. Each of the foregoing percentage limitations on borrowing is a fundamental policy of the respective Funds. The Short Term Income, U.S. Government Securities, Income, and High Yield Funds may enter into DOLLAR ROLLS. A Fund enters into a DOLLAR ROLL by selling securities for delivery in the current month and simultaneously contracting to repurchase, typically in 30 or 60 days, substantially similar (same type, coupon and maturity) securities on a specified future date. This may be considered borrowing from the counterparty and may produce similar leveraging effects. The proceeds of the initial sale of securities in the DOLLAR ROLL transactions, for example, may be used to purchase long-term securities which will be held during the roll period. To the extent that the proceeds of the initial sale of securities are invested, the Fund will be subject to market risk on those securities as well as similar risk with respect to the securities the Fund is required to repurchase. Each of the REIT, Mid Cap Stock, Growth, Small Cap Value, Small Cap Growth, International Growth, Short Term Income, U.S. Government Securities, Income, High Yield, California Municipal, and California Insured Intermediate Municipal Funds may engage in REVERSE REPURCHASE AGREEMENTS. REVERSE REPURCHASE AGREEMENTS involve the risk that the market value of the securities sold by a fund may decline below the repurchase price of the securities and, if the proceeds from the REVERSE REPURCHASE AGREEMENT are invested in securities, that the market value of the securities bought may decline at the same time there is a decline in the market value of the securities sold (and required to be repurchased). FIXED-INCOME SECURITIES. The market value of FIXED-INCOME SECURITIES held by a Fund and, consequently, the value of the Fund's shares can be expected to vary inversely with changes in prevailing interest rates. You should recognize that, in periods of declining interest rates, the Fund's yield will tend to be somewhat higher than prevailing market rates and, in periods of rising interest rates, the Fund's yield will tend to be somewhat lower. Also, when interest rates are falling, any net inflow of money to the Fund will likely be invested in instruments producing lower yields than the balance of its assets, thereby reducing current yield. In periods of rising interest rates, the opposite can be expected to occur. The prices of longer maturity securities are also subject to greater market fluctuations as a result of changes in interest rates. In addition, securities purchased by a Fund may be subject to the risk of default. FIXED-INCOME SECURITIES, including MUNICIPAL OBLIGATIONS, rated in the lower end of the investment-grade category (Baa or BBB) and BELOW-INVESTMENT-GRADE FIXED-INCOME SECURITIES may have speculative characteristics and may be more sensitive to economic changes and changes in the financial condition of their issuers. The FIXED-INCOME SECURITIES in which the Funds may invest include ZERO-COUPON SECURITIES, which make no payments of interest or principal until maturity. Because these securities avoid the need to make current interest payments, they may involve greater credit risks than other FIXED-INCOME SECURITIES. FLOATING RATE, INVERSE FLOATING RATE, AND VARIABLE RATE INVESTMENTS. The REIT, Equity Income, and Growth & Income Funds and the Fixed-Income Funds and Municipal Funds may purchase FLOATING RATE, INVERSE FLOATING RATE, and VARIABLE RATE SECURITIES, including participation interests therein and assignments thereof. The Money Market Fund may purchase FLOATING RATE and VARIABLE RATE OBLIGATIONS, including participation interests therein. The Fixed-Income Funds may purchase MORTGAGE-BACKED SECURITIES that are FLOATING RATE, INVERSE FLOATING RATE, and VARIABLE RATE OBLIGATIONS. MUNICIPAL OBLIGATIONS purchased by the Municipal Funds may include FLOATING RATE, INVERSE FLOATING RATE and VARIABLE RATE OBLIGATIONS, including variable rate demand notes issued by industrial development authorities and other governmental entities, as well as participation interests therein. Although variable rate demand notes are frequently not rated by credit rating agencies, a Fund may purchase unrated notes that are determined by WM Advisors or the Fund's sub-advisors to be of comparable quality at the time of purchase to rated instruments that may be purchased by the Fund. The absence of an active secondary market could make it difficult for a Fund to dispose of these securities in the event the issuer of the note were to default on its payment obligations, and the Fund could, for this or other reasons, suffer a loss as a result of the default. Each of the REIT, Equity Income, and Growth & Income Funds, Fixed-Income Funds, and Municipal Funds may also invest in securities representing interests in tax-exempt securities, known as INVERSE FLOATING OBLIGATIONS or "residual interest bonds," which pay interest rates that vary inversely with changes in the interest rates of specified short-term tax-exempt securities or an index of short-term tax-exempt securities. The interest rates on INVERSE FLOATING RATE OBLIGATIONS or residual interest bonds will typically decline as short-term market interest rates increase and increase as short-term market rates decline. These securities have the effect of providing a degree of investment leverage. They will generally respond to changes in market interest rates more rapidly than fixed-rate long-term securities (typically twice as fast). As a result, the market values of INVERSE FLOATING RATE OBLIGATIONS and residual interest bonds will generally be more volatile than the market values of fixed-rate tax-exempt securities. FOREIGN CURRENCY EXCHANGE TRANSACTIONS AND CURRENCY MANAGEMENT. The REIT, Mid Cap Stock, Growth, Small Cap Value, Small Cap Growth, International Growth, Short Term Income, Income, High Yield and California Insured Intermediate Municipal Funds may, subject to the investment limitations stated elsewhere in this prospectus and the SAI, engage in FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Funds that buy and sell securities denominated in currencies other than the U.S. dollar, and receive interest, dividends, and sale proceeds in currencies other than the U.S. dollar, may enter into FOREIGN CURRENCY EXCHANGE TRANSACTIONS to convert to and from different foreign currencies and to convert foreign currencies to and from the U.S. dollar. These Funds either enter into these transactions on a spot (i.e. cash) basis at the spot rate prevailing in the foreign currency exchange market, or use forward contracts to purchase or sell foreign currencies. These Funds also may enter into foreign currency hedging transactions in an attempt to protect against changes in foreign currency exchange rates between the trade and settlement dates of specific securities transactions or changes in foreign currency exchange rates that would adversely affect a portfolio position or an anticipated portfolio position. These transactions tend to limit any potential gain that might be realized should the value of the hedged currency increase. The precise matching of the forward contract amounts and the value of the securities involved will not generally be possible because the future value of these securities in foreign currencies will change as a consequence of market movements in the value of those securities between the date the forward contract is entered into and the date it matures. The projection of currency market movements is extremely difficult, and the successful execution of a hedging strategy is highly uncertain. The Fund may also enter into a forward contract to sell a currency that is linked to a currency or currencies in which some or all of the Fund's portfolio securities are or could be denominated, and to buy U.S. dollars. These practices are referred to as "cross hedging" and "proxy hedging." Forward currency exchange contracts are agreements to exchange one currency for another -- for example, to exchange a certain amount of U.S. dollars for a certain amount of Japanese yen -- at a future date and specified price. Because there is a risk of loss to the Fund if the other party does not complete the transaction, WM Advisors or the Fund's sub-advisor will enter into forward currency exchange contracts only with parties approved by the Trust's Board of Trustees or persons acting pursuant to their direction. Each of the Funds, other than the Equity Income, Growth & Income, West Coast Equity, U.S. Government Securities, and Money Market Funds, may invest in securities that are indexed to certain specific foreign currency exchange rates. These securities expose the Funds to the risk of significant changes in rates of exchange between the U.S. dollar and any foreign currency to which an exchange rate-related security is linked. In addition, there is no assurance that sufficient trading interest to create a liquid secondary market will exist for a particular exchange rate-related security due to conditions in the fixed-income and foreign currency markets. Illiquidity in the forward foreign exchange market and the high volatility of the foreign exchange market may from time to time combine to make it difficult to sell an exchange rate-related security prior to maturity without incurring a significant loss. In addition, these Funds may enter into foreign currency forward contracts for non-hedging purposes. When WM Advisors or a Fund's sub-advisor believes that the currency of a specific country may deteriorate against another currency, the Fund may enter into a forward contract to sell the less attractive currency and buy the more attractive one. The amount in question could be less than or equal to the value of the Fund's securities denominated in the less attractive currency. For example, a Fund could enter into a foreign currency forward contract to sell U.S. dollars and buy a foreign currency when the value of the foreign currency is expected to rise in relation to the U.S. dollar. While the foregoing actions are intended to protect a Fund from adverse currency movements or allow a Fund to profit from favorable currency movements, there is a risk that currency movements involved will not be properly anticipated, and there can be no assurance that such transactions will be available or that a Fund will use such transactions even if they are available. Use of currency hedging techniques may also be limited by the need to protect the status of the Fund as a regulated investment company under the Code. FOREIGN INVESTMENTS. The Equity Income, Growth & Income, West Coast Equity, and Money Market Funds may invest in securities of foreign issuers only if such securities are denominated in U.S. dollars. The REIT, Mid Cap Stock, Growth, Small Cap Value, Small Cap Growth, International Growth, Short Term Income, Income, and High Yield Funds may invest in both U.S. dollar-denominated and non-U.S. dollar-denominated foreign securities. There are certain risks involved in investing in foreign securities, including those resulting from: - fluctuations in currency exchange rates; - devaluation of currencies; - future political or economic developments and the possible imposition of currency exchange blockages or other foreign governmental laws or restrictions; - reduced availability of public information concerning issuers; - and the fact that foreign companies are not generally subject to uniform accounting, auditing and financial reporting standards or to other regulatory practices and requirements comparable to those applicable to domestic companies. Moreover, securities of many foreign companies may be less liquid and their prices more volatile than those of securities of comparable domestic companies. In addition, there is the possibility of expropriation, nationalization, confiscatory taxation and limitations on the use or removal of funds or other assets of the Funds, including the withholding of dividends. The risks associated with foreign securities are generally greater for securities of issuers in emerging markets. In addition, while the volume of transactions effected on foreign stock exchanges has increased in recent years, in most cases it remains well below that of the New York Stock Exchange. Accordingly, the Funds' foreign investments may be less liquid and their prices may be more volatile than comparable investments in securities of U.S. companies. Moreover, the settlement periods for foreign securities, which are often longer than those for securities of U.S. issuers, may affect portfolio liquidity. In buying and selling securities on foreign exchanges, the Funds normally pay fixed commissions that are generally higher than the negotiated commissions charged in the United States. In addition, there is generally less governmental supervision and regulation of securities exchanges, brokers and issuers in foreign countries than in the United States. Foreign securities generally are denominated and pay dividends or interest in foreign currencies, and the value of the Funds' net assets as measured in U.S. dollars will be affected favorably or unfavorably by changes in exchange rates. The Equity Funds and the Short Term Income, Income and High Yield Funds may invest in securities of foreign issuers directly or in the form of AMERICAN DEPOSITARY RECEIPTS ("ADRS"), EUROPEAN DEPOSITARY RECEIPTS ("EDRS"), GLOBAL DEPOSITARY RECEIPTS ("GDRs") or other similar securities representing securities of foreign issuers. These securities may not be denominated in the same currency as the securities they represent. ADRS are receipts typically issued by a United States bank or trust company evidencing ownership of the underlying foreign securities. EDRS, which are sometimes referred to as Continental Depositary Receipts ("CDRs"), are receipts issued by a European financial institution evidencing a similar arrangement. Generally, ADRS, in registered form, are designed for use in the United States securities markets, and EDRS, in bearer form, are designed for use in European securities markets. GEOGRAPHIC CONCENTRATION. Potential investors in the West Coast Equity Fund and the Municipal Funds (other than the Tax-Exempt Bond Fund) should consider the possibility of greater risk arising from the geographic concentration of their investments, as well as the current and past financial condition of California municipal issuers in the case of the Municipal Funds (other than the Tax-Exempt Bond Fund). In addition to factors affecting the state or regional economy, certain California constitutional amendments, legislative measures, executive orders, administrative regulations, court decisions, and voter initiatives could result in certain adverse consequences affecting California municipal obligations. See the SAI for a more detailed description of these risks. HOLDINGS IN OTHER INVESTMENT COMPANIES. When WM Advisors or a Fund's sub-advisor believes that it would be beneficial to the Fund, each of the REIT, Mid Cap Stock, Growth, Small Cap Value, Small Cap Growth, International Growth, Short Term Income, U.S. Government Securities, High Yield, Tax-Exempt Bond, California Municipal, and California Insured Intermediate Municipal Funds may, subject to any limitations imposed by the 1940 Act, invest up to 10% of its assets in securities of mutual funds or other registered investment companies that are not affiliated with WM Advisors or the Fund's sub-advisor. As a shareholder in any such mutual fund, the Fund will bear its ratable share of the mutual fund's expenses, including management fees, and will remain subject to the Fund's advisory fees with respect to the assets so invested. In addition, the Growth Fund may invest Fund assets in money market funds affiliated with Janus (one of the Fund's sub-advisors), provided that Janus remits to the Fund the amount of any investment advisory and administrative services fees paid to Janus as the investment manager of the money market fund. ILLIQUID SECURITIES AND RESTRICTED SECURITIES. Up to 10% of the net assets of the Money Market Fund and up to 15% of the net assets of every other Fund may be invested in securities that are not readily marketable. Such ILLIQUID SECURITIES may include: - repurchase agreements with maturities greater than seven calendar days; - time deposits maturing in more than seven calendar days; - to the extent a liquid secondary market does not exist for the instruments, futures contracts and options thereon; - certain over-the-counter options, as described in the SAI; - certain variable rate demand notes having a demand period of more than seven calendar days; and - securities that are restricted under federal securities laws with respect to disposition (excluding certain Rule 144A securities, as described below). Securities which may be resold pursuant to Rule 144A under the Securities Act of 1933, as amended, will not be included for the purposes of these restrictions, provided that such securities meet liquidity guidelines established by the Board of Trustees of the Trusts. Each of the Funds may purchase RESTRICTED SECURITIES (provided such securities are, in the case of the Equity Income, Growth & Income, West Coast Equity, U.S. Government Securities, Income, Tax-Exempt Bond, and Money Market Funds, eligible for resale pursuant to Rule 144A under the Securities Act of 1933, as amended). Although recent and ongoing developments in the securities markets have resulted in greater trading of RESTRICTED SECURITIES (making restricted securities, in many instances, more liquid than they once were considered to be), investing in RESTRICTED SECURITIES could increase the level of illiquidity of the portfolio securities of a Fund. This could make it more difficult for a Fund to fulfill shareholder redemption orders on a timely basis. If a Fund were required to sell these securities on short notice, it might be unable to obtain fair market value. LENDING OF SECURITIES. Certain of the Funds may lend portfolio securities to brokers and other financial organizations. The Growth, Small Cap Growth, International Growth, and Short Term Income Funds each may lend portfolio securities up to 20% of total assets. The REIT, Equity Income, Growth & Income, West Coast Equity, Mid Cap Stock, Small Cap Value, U.S. Government Securities, Income, High Yield, and Money Market Funds each may lend portfolio securities up to 33% of its total assets. These transactions involve a risk of loss to the Fund if the counterparty should fail to return such securities to the Fund upon demand or if the counterparty's collateral invested by the Fund declines in value as a result of investment losses. MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. The REIT, Equity Income, Growth & Income, Mid Cap Stock, Small Cap Value, Small Cap Growth, International Growth, Short Term Income, U.S. Government Securities, Income, High Yield, California Municipal and California Insured Intermediate Municipal Funds may invest in GOVERNMENT MORTGAGE-BACKED SECURITIES issued or guaranteed by GNMA, FNMA or FHLMC. To the extent that a Fund purchases MORTGAGE-BACKED SECURITIES at a premium, mortgage foreclosures and payments and prepayments of principal (which may be made at any time without penalty) will tend to result in the loss of that premium. The yield of a Fund may be affected by reinvestments of prepayments at higher or lower rates than the original investment. In addition, like other FIXED-INCOME SECURITIES, the value of MORTGAGE-BACKED SECURITIES will generally fluctuate in response to market interest rates. The U.S. government guarantees the timely payment of interest and principal for GNMA certificates. However, the guarantees do not extend to the securities' yield or value, which are likely to vary inversely with fluctuations in interest rates, nor do the guarantees extend to the yield or value of the Fund's shares. Government stripped mortgage-based securities represent beneficial ownership interests in either principal distributions (principal-only securities or "PO strips") or interest distributions (interest-only securities or "IO strips") from GOVERNMENT MORTGAGE-BACKED SECURITIES. Investing in government stripped mortgage-backed securities involves the risks normally associated with investing in MORTGAGE-BACKED SECURITIES issued by government entities. In addition, the yields on PO and IO strips are extremely sensitive to prepayments on the underlying mortgage loans. If a decline in the level of prevailing interest rates results in a higher than anticipated rate of principal prepayment, distributions of principal will be accelerated, thereby reducing the yield to maturity on IO strips and increasing the yield to maturity on PO strips. Conversely, if an increase in the level of prevailing interest rates results in a rate of principal prepayments that is lower than anticipated, distributions of principal will be deferred, thereby increasing the yield to maturity on IO strips and decreasing the yield to maturity on PO strips. Sufficiently high prepayment rates could result in the Fund losing some or all of its initial investment in an IO strip. The Funds will acquire government stripped mortgage-backed securities only if a liquid secondary market for the securities exists at the time of acquisition and the purchase of principal-only and interest-only securities will be limited to 5% of total assets for each Fund unless authorized by the Funds' Board of Trustees. However, there can be no assurance that the Funds will be able to effect a trade of a government stripped mortgage-backed security at a time when they wish to do so. In addition, the REIT, Equity Income, Growth & Income, Mid Cap Stock, Small Cap Value, Short Term Income, U.S. Government Securities, and Income Funds may invest in non-agency mortgage-backed securities, which are similar to GOVERNMENT MORTGAGE-BACKED SECURITIES, except that they are not issued or guaranteed by governmental entities. Non-agency mortgage-backed securities include collateralized mortgage obligations and real estate mortgage investment conduits ("REMICs"). While non-agency mortgage-backed securities are generally structured with one or more types of credit enhancement, and often have high credit ratings, they lack the credit status of a governmental agency or instrumentality. The REIT, Equity Income, Mid Cap Stock, Small Cap Value, Small Cap Growth, Short Term Income, U.S. Government Securities, Income, High Yield, and Money Market Funds may purchase ASSET-BACKED SECURITIES. ASSET-BACKED SECURITIES are structured like MORTGAGE-BACKED SECURITIES, but instead of mortgage loans or interests in mortgage loans, the underlying assets may include such items as motor vehicle installment sales or installment loan contracts, leases of various types of real and personal property, home equity loans, and receivables from credit card agreements. The ability of an issuer of asset-backed securities to enforce its security interest in the underlying assets may be limited. MUNICIPAL OBLIGATIONS, LEASES, AND AMT-SUBJECT BONDS. The two principal classifications of municipal bonds are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith and credit, with either limited or unlimited taxing power for the payment of principal and interest. Revenue bonds are not supported by the issuer's full taxing authority. Generally, they are payable only from the revenues of a particular facility, a class of facilities, or the proceeds of another specific revenue source. The California Insured Intermediate Municipal Fund may acquire participations in lease obligations or installment purchase contract obligations (collectively, "lease obligations") of municipal authorities or entities. Lease obligations do not constitute general obligations of the municipality for which the municipality's taxing power is pledged. Certain of these lease obligations contain "non-appropriation" clauses, which provide that the municipality has no obligation to make lease or installment purchase payments in future years unless money is appropriated for such purpose on a yearly basis. In addition to the "non-appropriation" risk, these securities represent a relatively new type of financing that has not yet developed the depth of marketability associated with more conventional bonds. In the case of a "non-appropriation" lease, the Fund's ability to recover under the lease in the event of non-appropriation or default will be limited solely to the repossession of the leased property, and in any event, foreclosure of that property might prove difficult. "AMT-SUBJECT BONDS" are MUNICIPAL OBLIGATIONS issued to finance certain "private activities," such as bonds used to finance airports, housing projects, student loan programs, and water and sewer projects. Interest on AMT-SUBJECT BONDS is an item of tax preference for purposes of the federal individual alternative minimum tax ("AMT") and will also give rise to corporate alternative minimum taxes. See "Tax Considerations" for a discussion of the tax consequences of investing in the Municipal Funds. Current federal income tax laws limit the types and volume of bonds qualifying for the federal income tax exemption of interest, which may have an effect upon the ability of the Fund to purchase sufficient amounts of tax-exempt securities. REAL ESTATE INVESTMENT TRUSTS. The REIT, Equity Income, Growth & Income, West Coast Equity, Mid Cap Stock, Growth, Small Cap Value, Small Cap Growth, International Growth, Short Term Income, Income, and High Yield Funds may invest in real estate investment trusts, known as "REITS." In addition, the REIT Fund typically invests at least 80% of its net assets plus borrowings for investment purposes in REITS. REITS involve certain unique risks in addition to those risks associated with investing in the real estate industry in general (such as possible declines in the value of real estate, lack of availability of mortgage funds, or extended vacancies of property). Equity REITS may be affected by changes in the value of the underlying property owned by the REITS, while mortgage REITS may be affected by the quality of any credit extended. REITS are dependent upon management skills, are not diversified, and are subject to heavy cash flow dependency, risks of default by borrowers, and self-liquidation. As an investor in a REIT, the Fund will be subject to the REIT'S expenses, including management fees, and will remain subject to the Fund's advisory fees with respect to the assets so invested. REITS are also subject to the possibilities of failing to qualify for the special tax treatment accorded REITs under the Code, and failing to maintain their exemptions from registration under the 1940 Act. Investment in REITS involves risks similar to those associated with investing in small capitalization companies. REITS may have limited financial resources, may trade less frequently and in a limited volume, and may be subject to more abrupt or erratic price movements than larger company securities. REPURCHASE AGREEMENTS. All of the Funds may invest in REPURCHASE AGREEMENTS, which are purchases of underlying FIXED-INCOME SECURITIES from financial institutions, such as banks and broker/dealers, subject to the seller's agreement to repurchase the securities at an established time and price. REPURCHASE AGREEMENTS can be regarded as loans to the seller, collateralized by the securities that are the subject of the agreement. Default by the seller would expose the Fund to possible loss because of adverse market action or delay in connection with the disposition of the underlying securities. In addition, if bankruptcy proceedings are commenced with respect to the seller of the obligations, the Fund may be delayed or limited in its ability to sell the collateral. Pursuant to an exemptive order granted by the Securities and Exchange Commission, the Funds may transfer daily uninvested cash balances into one or more joint trading accounts. Assets in the joint trading accounts are invested in repurchase agreements or other money market instruments, and the proceeds are allocated to the participating Funds on a pro rata basis. STAND-BY COMMITMENTS. The Municipal Funds may acquire "stand-by commitments" with respect to MUNICIPAL OBLIGATIONS held in their portfolios. Under a stand-by commitment, a dealer agrees to purchase, at a Fund's option, specified municipal obligations at a specified price. A Fund may pay for stand-by commitments either separately in cash or by paying a higher price for the securities acquired with the commitment, thus increasing the cost of the securities and reducing the yield otherwise available from them. The Funds will acquire stand-by commitments solely to facilitate portfolio liquidity and do not intend to exercise their rights thereunder for trading purposes. STRATEGIC TRANSACTIONS. Subject to the investment limitations and restrictions stated elsewhere in this prospectus and the SAI, each Fund, except the Money Market Fund, may utilize various investment strategies as described below to hedge various market risks, to manage the effective maturity or duration of FIXED-INCOME SECURITIES, or for other bona fide hedging purposes. Utilizing these investment strategies, the Fund may purchase and sell exchange-listed and over-the-counter put and call options on securities, equity and fixed-income indices and other financial instruments. It may also purchase and sell financial futures contracts and options thereon; enter into various interest rate transactions such as swaps, caps, floors or collars; and enter into various currency transactions such as currency forward contracts, currency futures contracts, currency swaps or options on currencies or currency futures. The Funds may write (sell) covered call options as well. A call option is "covered" if the Fund owns the security underlying the option it has written or if it maintains enough cash, cash equivalents or liquid securities to purchase the underlying security. Subject to the investment limitations and restrictions stated elsewhere in this prospectus and in the SAI, the Fixed-Income Funds may enter into credit default swaps. The seller of a credit default swap contract is required to pay the par (or other agreed-upon) value of a referenced debt obligation to the counterparty in the event of a default or similar triggering event by a third party, such as a U.S. or foreign corporate issuer, on the debt obligation. In return, the seller of a credit default swap receives from the buyer a periodic stream of payments over the term of the contract provided that no event of default or similar triggering event has occurred. If no default or other triggering event occurs, the seller would keep the stream of payments and would have no payment obligations. Credit default swaps are subject to the risks associated with derivative instruments including, among others, credit risk, default or similar event risk, interest rate risk, leverage risk, and management risk. All of the above are collectively referred to as "STRATEGIC TRANSACTIONS." STRATEGIC TRANSACTIONS may be used: - to attempt to protect against possible changes in the market value of securities held in, or to be purchased for, the Fund's portfolio resulting from securities markets or currency exchange rate fluctuations; - to protect the Fund's unrealized gains in the value of its portfolio securities; - to facilitate the sale of such securities for investment purposes; - to manage the effective maturity or duration of the Fund's portfolio; or - to establish a position in the derivatives markets as a substitute for purchasing or selling particular securities. Some STRATEGIC TRANSACTIONS may also be used to seek potentially higher returns, rather than for hedging purposes. Any or all of these investment techniques may be used at any time, as the use of any STRATEGIC TRANSACTION is a function of numerous variables including market conditions. The use of STRATEGIC TRANSACTIONS involves special considerations and risks, such as: - the ability of the Fund to utilize STRATEGIC TRANSACTIONS successfully will depend on the ability of WM Advisors or the sub-advisor to predict pertinent market movements; - the risk that the other party to a STRATEGIC TRANSACTION will fail to meet its obligations to the Fund; - the risk that the Fund will be unable to close out a STRATEGIC TRANSACTION at a time when it would otherwise do so, due to the illiquidity of the STRATEGIC TRANSACTION; and - the risk of imperfect correlation, or even no correlation, between price movements of STRATEGIC TRANSACTIONS and price movements of any related portfolio positions. STRATEGIC TRANSACTIONS can reduce opportunity for gain by offsetting the positive effect of favorable price movements in the related portfolio positions. U.S. GOVERNMENT SECURITIES. All of the Funds may invest in U.S. government securities, which include direct obligations of the U.S. Treasury (such as U.S. Treasury bills, notes and bonds) and obligations issued or guaranteed by U.S. government agencies or instrumentalities. Some obligations issued or guaranteed by agencies or instrumentalities of the U.S. government are backed by the full faith and credit of the U.S. government (such as GNMA bonds); others are backed only by the right of the issuer to borrow from the U.S. Treasury (such as securities of Federal Home Loan Banks) and still others are backed only by the credit of the government-sponsored entity (such as FNMA and FHLMC bonds). Certain of these obligations may receive ratings that are lower than the AAA rating typically associated with obligations of the U.S. Treasury, reflecting increased credit risk. WHEN-ISSUED SECURITIES, FORWARD COMMITMENTS, AND DELAYED-DELIVERY TRANSACTIONS. In order to secure yields or prices deemed advantageous at the time, the Funds may purchase or sell securities on a WHEN-ISSUED or a DELAYED-DELIVERY BASIS. Due to fluctuations in the value of securities purchased on a WHEN-ISSUED or a DELAYED-DELIVERY BASIS, the yields obtained on such securities may be higher or lower than the yields available in the market on the dates when the securities are actually delivered to the Funds. Similarly, the sale of securities for DELAYED-DELIVERY can involve the risk that the prices available in the market when delivery is made may actually be higher than those obtained in the transaction itself. The Municipal Funds may purchase municipal obligations offered on a "FORWARD COMMITMENT" basis. When-issued municipal obligations may include bonds purchased on a "when, as, and if issued" basis, under which the issuance of the securities depends on the occurrence of a subsequent event, such as approval of a proposed financing by appropriate municipal authorities. No WHEN-ISSUED or FORWARD COMMITMENTS will be made by any Municipal Fund if, as a result, more than 20% of the value of the Fund's total assets would be committed to such transactions. A significant commitment of a Fund's assets to the purchase of securities on a "when, as, and if issued" basis may increase the volatility of the Fund's NAV. PORTFOLIO TRANSACTIONS AND TURNOVER. Each Fund's turnover rate varies from year to year, depending on market conditions and investment strategies. High turnover rates increase transaction costs and may increase taxable capital gains. With the exception of the Money Market Fund, historical portfolio turnover rates for each of the Funds are shown under "Financial Highlights" in this prospectus. WM Advisors and the sub-advisors will not consider a Fund's portfolio turnover rate to be a limiting factor in making investment decisions consistent with the Fund's investment objectives and policies. INVESTING IN THE FUNDS Shares of the Funds are generally purchased through persons employed by or affiliated with broker/dealer firms ("Investment Representatives"). Investment Representatives may establish shareholder accounts according to their procedures or they may establish shareholder accounts directly with the WM Group of Funds by contacting the Funds at 1-800-222-5852 or visiting wmgroupoffunds.com to obtain the appropriate forms. An investment in the WM Group of Funds may be held in various types of accounts, including individual, joint ownership, trust and business accounts. We also offer a range of custodial accounts for those who wish to invest for retirement and/or education expenses. Prospective shareholders should consult with their Investment Representative prior to making decisions about the account and type of investment that are appropriate for them. The WM Group of Funds reserves the right to refuse any order for the purchase of shares, including those by exchange. MAKING AN INVESTMENT The WM Group of Funds has a minimum initial investment amount of $1,000 and a minimum subsequent investment amount of $100. Initial and subsequent investment minimums apply on a per-fund basis for each Fund or Portfolio in which a shareholder invests. Shareholders must meet the minimum initial investment amount of $1,000 unless an Automatic Investment Plan ("AIP") is established. With an AIP, the minimum initial investment is $100; subsequent automatic investment amounts must be at least $100 per investment. Accounts established with an AIP that do not meet the minimum initial investment must maintain subsequent automatic investments that total at least $1,200 annually. Investors who have established an AIP prior to January 1, 2005, will be able to continue existing plans, however any revisions made to an AIP after January 1, 2005, will need to comply with the minimum amounts stated above. - Fund and share class selection(s) must be made at the time of purchase. If a Fund is not selected, Class A shares of the Money Market Fund will be purchased. If a class of shares is not selected, then Class A shares will be purchased. - Automatic payroll deduction plans are not subject to the minimum initial investment requirement if they meet the subsequent investment minimums on a monthly basis. IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING A NEW ACCOUNT. To help the government fight the funding of terrorism and money laundering activities, federal law requires financial institutions to obtain, verify, and record information that identifies each person who opens an account. This means that when you open an account, we will ask for your name, legal street address, date of birth, Social Security number, and/or other information that will allow us to identify you. If we are unable to verify your customer information on a timely basis, we may close your account or take such other steps as we deem appropriate. CHOOSING A SHARE CLASS The WM Group of Funds offers Class A, B, C, R-1 and R-2 shares of the Funds. Generally, Class R-1 and R-2 shares are available for purchase only through qualified employer-sponsored retirement or benefit plans (see "Class R-1 and R-2 Shares" section for more detailed information). Sales charges may be reduced or waived as outlined in this prospectus or the SAI. Listed below are highlights of each of our share classes and information regarding sales charges and dealer re-allowances. It is the responsibility of the shareholder or Investment Representative to notify the WM Group of Funds at the time of purchase or reinvestment if the initial sales charge should be reduced or eliminated. Each Fund offers Class A, B, C, R-1, and R-2 shares, except for the Municipal Funds, which offer only Class A, B, and C shares. Each class has different costs associated with buying, redeeming and holding shares. Which class is best for you depends upon the size of your investment and how long you intend to hold the shares. Please consult with your Investment Representative before choosing the class of shares that is most appropriate for you. CLASS A SHARES INITIAL SALES CHARGE. - Initial sales charge of up to 5.50% may apply (see "Purchase of Class A Shares"). - Initial sales charge varies based on the amount invested and the Fund selected. - Initial sales charge is subject to rights of accumulation and letter of intent discounts as described under "Rights of Accumulation" and "Letter of Intent." - Purchases at net asset value ("NAV") (without initial sales charge): - No initial sales charge on purchases of $1 million or more, although a 1.00% contingent deferred sales charge may apply to redemptions made within 18 months after purchase. - No initial sales charge on shares purchased with the proceeds of redemptions of Class A shares of the Funds (other than the Money Market Fund, unless such shares were obtained by exchange of shares of a Fund that imposes an initial sales charge) within 120 days of redemption. - No initial sales charge will apply to purchases of Class A shares by certain individuals, groups and/or entities as follows: - Current and retired Trustees of the WM Group of Funds; - Officers, directors and employees of WM Advisors and certain of its affiliates; - Employees (and their spouses, domestic partners, children, step-children, grandchildren, and parents, as defined in the SAI) of companies that have entered into a selling agreement with the Distributor; - Current and retired Washington Mutual employees (and their spouses, domestic partners, children, step-children, grandchildren, and parents, as defined in the SAI); and - Rollovers by current or former Washington Mutual employees into IRAs involving assets from a Washington Mutual retirement plan and subsequent investments into such accounts. - Participants in qualified retirement or benefit plans with total assets in excess of $5,000,000. (A minimum initial investment of $500,000 is required. The WM Group of Funds, at its sole discretion, may waive these minimum dollar requirements.)(1) - Clients of registered investment advisors that have entered into arrangements with the Distributor providing for the shares to be used in particular investment products made available to such clients and for which such registered investment advisors may charge a separate fee. - Initial sales charge waivers or reductions are also described in the SAI and at wmgroupoffunds.com. (1) The Distributor may pay a finders fee on purchases in qualified retirement plans invested in the Funds. Unless the dealer has waived the commission, a CDSC (as described on page [ ]) may apply: (1) for omnibus accounts, to a redemption of all shares held by the plan's participants within 18 months after the plan's initial investment in the Fund; or (2) for non-omnibus accounts, to any redemptions by a plan participant within 18 months of the plan participant's purchase of such Class A shares. RIGHTS OF ACCUMULATION ("ROA"). A shareholder may qualify to purchase Class A shares at a reduced sales charge or at NAV based on existing investments in the Funds. It is the responsibility of the shareholder or Investment Representative to notify the WM Group of Funds at the time of investment of any existing investments that should be counted towards ROA. Current purchases and the market value of existing investments in the WM Group of Funds, including Class A, B, C, R-1, and R-2 shares, are combined to determine the applicable sales charge. Purchases of Class A shares of the Money Market Fund will not be applied towards ROA if a sales charge has not been paid. To receive a reduced Class A sales charge, investments by an individual, his or her spouse, domestic partner, children, grandchildren (as defined in the SAI), and dependents for whom they serve as legal guardian may be aggregated for these purposes if made by them for their own accounts and/or certain other accounts, such as: - Trust accounts established by the above individuals. If the person(s) who established the trust is deceased, the trust may be aggregated with accounts of the primary beneficiary of the trust; - Solely controlled business accounts; and - Single-participant retirement accounts. LETTER OF INTENT ("LOI"). A shareholder may qualify to purchase Class A shares at a reduced sales charge or at NAV by entering into an LOI agreement with the WM Group of Funds. The LOI expresses the shareholder's intent to buy a stated dollar amount of any share class of the Funds (other than the Money Market Fund) or Portfolios of WM Strategic Asset Management Portfolios, LLC over a 13-month period. At the shareholder's request, the LOI may apply to shares purchased up to 90 days prior to the receipt of the LOI by the WM Group of Funds. The sales charge applicable to all Class A shares purchased under the LOI will be the sales charge that would have been applicable had the value of shares specified in the LOI been purchased simultaneously. - A portion of shares will be held in escrow until the LOI is completed. If the LOI is not completed, escrowed shares will be redeemed in order to pay the Distributor for the difference between the sales charge actually paid and the sales charge that would have been paid absent the LOI. - Any redemption of escrow shares will invalidate the LOI. - An LOI is to be completed based on amounts purchased, not on current market value. PURCHASE OF CLASS A SHARES. The offering price for Class A shares is the NAV next calculated after receipt of an investor's order in proper form by WM Group of Funds or its servicing agent, plus any applicable initial sales charge (except for the Money Market Fund) as shown in the tables below. The right-hand column in each table indicates what portion of the sales charge is paid to Investment Representatives and their brokerage firms ("dealers") for selling Class A shares. For more information regarding compensation paid to dealers, see "Distribution Plan and Additional Information Regarding Dealer Compensation."
EQUITY FUNDS SALES CHARGE REALLOWED TO DEALERS PERCENTAGE PERCENTAGE OF PERCENTAGE OF OFFERING NET AMOUNT OF OFFERING PURCHASE OF CLASS A SHARES PRICE INVESTED PRICE - --------------------------------- ----------- ------------- ----------- Less than $50,000 5.5% 5.82% 4.75% $50,000 but less than $100,000 4.75% 4.99% 4.00% $100,000 but less than $250,000 3.75% 3.90% 3.00% $250,000 but less than $500,000 3.00% 3.09% 2.50% $500,000 but less than $1,000,000 2.00% 2.04% 1.75% $1,000,000 or more 0.00% 0.00% 0.00%*
FIXED-INCOME FUNDS (OTHER THAN THE SHORT TERM INCOME FUND) MUNICIPAL FUNDS SALES CHARGE REALLOWED TO DEALERS PERCENTAGE PERCENTAGE OF PERCENTAGE OF OFFERING NET AMOUNT OF OFFERING PURCHASE OF CLASS A SHARES PRICE INVESTED PRICE - --------------------------------- ----------- ------------- ----------- Less than $50,000 4.50% 4.71% 4.00% $50,000 but less than $100,000 4.00% 4.17% 3.50% $100,000 but less than $250,000 3.50% 3.63% 3.00% $250,000 but less than $500,000 2.50% 2.56% 2.00% $500,000 but less than $1,000,000 2.00% 2.04% 1.75% $1,000,000 or more 0.00% 0.00% 0.00%*
SHORT TERM INCOME FUND SALES CHARGE REALLOWED TO DEALERS PERCENTAGE PERCENTAGE OF PERCENTAGE OF OFFERING NET AMOUNT OF OFFERING PURCHASE OF CLASS A SHARES PRICE INVESTED PRICE - --------------------------------- ----------- ------------- ----------- Less than $50,000 3.50% 3.63% 3.00% $50,000 but less than $100,000 3.00% 3.09% 2.50% $100,000 but less than $250,000 2.50% 2.56% 2.00% $250,000 but less than $500,000 2.25% 2.30% 2.00% $500,000 but less than $1,000,000 2.00% 2.04% 1.75% $1,000,000 or more 0.00% 0.00% 0.00%*
- ----------- * The Distributor may pay authorized dealers commissions on purchases of Class A shares over $1 million calculated as follows: 1.00% on purchases between $1 million and $3 million; 0.50% on amounts over $3 million but less than $5 million; 0.35% on amounts over $5 million but less than $10 million; 0.25% on amounts over $10 million. Commissions are based on cumulative investments. CONTINGENT DEFERRED SALES CHARGE ("CDSC") ON CLASS A SHARES. Class A shares purchased in amounts of $1 million or more (other than shares of the Money Market Fund) are generally subject to a CDSC of 1.00% if the shares are redeemed during the first 18 months after purchase, unless the dealer, at its discretion, has waived the commission. The Distributor may pay authorized dealers commissions up to 1.00% of the price of such purchases. The CDSC may be waived for redemptions of Class A shares as described under "CDSC Calculation and Waivers" in this prospectus. CLASS B SHARES Class B shares may not be suitable for large investments. Due to the higher expenses associated with Class B shares, it may be more advantageous for investors currently purchasing, intending to purchase, or with existing assets in amounts that may qualify for a reduced sales charge on Class A shares, including through ROA and/or an LOI, to purchase Class A shares. The WM Group of Funds seeks to prevent investments in Class B shares by shareholders with at least $100,000 of investments in the WM Group of Funds eligible for inclusion pursuant to rights of accumulation. The Funds will seek to reject such investments, except for investments by qualified retirement plans and IRAs, which will be treated as orders for Class A shares of the Money Market Fund. The offering price for Class B shares is the NAV next calculated after receipt of an investor's order in proper form by the WM Group of Funds or its servicing agent, with no initial sales charge. A CDSC of up to 5.00% may apply depending on the Fund and time in the investment (see schedules below). - Shares purchased through reinvestment of dividends or capital gain distributions are not subject to a CDSC. - No CDSC on redemptions of Class B shares held for 6 years or longer. - Class B shares have higher annual expenses than Class A shares because they are subject to distribution fees for the first eight years. - After the eighth year, Class B shares convert automatically to Class A shares of the same Fund, typically without income tax impact. - Within 120 days of a redemption of Class B shares, the proceeds may be reinvested in Class A shares at NAV, if a CDSC was paid. The Distributor currently pays authorized dealers commissions of up to 4.00% of the price of Class B shares sold by them (3.00% for Class B shares of the Short Term Income Fund). Note: It is the responsibility of the shareholder or Investment Representative to notify the WM Group of Funds at the time of repurchase if the CDSC is to be credited in full or in part. CONTINGENT DEFERRED SALES CHARGE ("CDSC") ON CLASS B SHARES. Each new and subsequent purchase of Class B shares may be subject to a CDSC based upon the schedule below. A CDSC may be applied to Class B shares of all Funds (except for the Short Term Income Fund) according to the following schedule:
CONTINGENT DEFERRED SALES YEAR OF REDEMPTION AFTER PURCHASE CHARGE(1) - --------------------------------- -------------- First 5.00% Second 5.00% Third 4.00% Fourth 3.00% Fifth 2.00% Sixth and following 0.00%
A CDSC may be applied to Class B shares of the Short Term Income Fund according to the following schedule:
CONTINGENT DEFERRED SALES YEAR OF REDEMPTION AFTER PURCHASE CHARGE(1) - --------------------------------- -------------- First 4.00% Second 4.00% Third 3.00% Fourth 2.00% Fifth and following 0.00%
(1) Shares purchased prior to April 1, 2003, are subject to different CDSC schedules as described in the SAI. CLASS C SHARES Class C shares may not be suitable for large investments. Due to the higher expenses associated with Class C shares, it may be more advantageous for investors currently purchasing, intending to purchase, or with existing assets in amounts that may qualify for a reduced sales charge on Class A shares, including through ROA and/or an LOI, to purchase Class A shares. The WM Group of Funds seeks to prevent investments in Class C shares by shareholders with at least $1,000,000 of investments in the WM Group of Funds eligible for inclusion pursuant to rights of accumulation. The Funds will seek to reject such investments, except for investments by qualified retirement plans and IRAs, which will be treated as orders for Class A shares of the Money Market Fund. The offering price for Class C shares is the NAV next calculated after receipt of an investor's order in proper form by WM Group of Funds or its servicing agent, with no initial sales charge. - A CDSC of 1.00% may apply if withdrawn during the first 12 months after purchase. Unlike Class B shares, Class C shares do not convert to Class A shares, so future distribution and service fees do not decrease. - Class C shares have higher annual expenses than Class A shares because they are subject to distribution fees. Within 120 days of a redemption of Class C shares, the proceeds may be used to repurchase Class C shares and the shareholder's account will be credited with the amount of the CDSC, if any, paid on the redemption, except that if the amount of the repurchase is less than the amount previously redeemed, a portion of the CDSC credited will be in the same ratio that the amount repurchased bears to the amount redeemed. The Distributor currently pays authorized dealers commissions of up to 1.00% of the price of Class C shares sold by them. CONTINGENT DEFERRED SALES CHARGE ("CDSC") ON CLASS C SHARES. Each new and subsequent purchase of Class C shares is subject to a CDSC of 1.00% for a period of 12 months from the date of purchase. Shares will be redeemed first from shares purchased through reinvested dividends and capital gain distributions and then in order of purchase. CDSC CALCULATION AND WAIVERS The CDSC is determined as a percentage of the NAV of the shares at the time of purchase. Shares will be redeemed first from shares purchased through reinvested dividends or capital gain distributions and then from shares that have been owned the longest. The CDSC may be waived for redemptions of Class A, B and C shares under any of the following circumstances: - Following the death of the shareholder and within 90 days of re-registration of the account (or, for a beneficiary IRA, as defined by the IRS, for redemptions made to deplete the account according to IRS requirements). - Following the post-purchase disability (as defined in Section 72(m)(7) of the Code) of a shareholder. - In connection with the Required Minimum Distribution ("RMD") from an IRA or other qualified retirement account made to a shareholder who is age 70 1/2 or older. The waiver is limited to the minimum amount of CDSC that would apply to Fund shares necessary to be redeemed in order to equal the account owner's RMD based solely on Class B or C share assets of the Funds held in the account. - According to a systematic withdrawal plan limited to no more than 1.00% per month (measured cumulatively with respect to non-monthly plans) of the value of the Fund account at the time, and beginning on the date, the systematic withdrawal plan is established. - In connection with the involuntary redemption of a shareholder's account by a Fund. Additional information relating to waivers is contained in the SAI. The Funds make sales charge information, including hyperlinks, available free of charge at wmgroupoffunds.com. Note: It is the responsibility of the shareholder or Investment Representative to notify the WM Group of Funds, at the time of redemption, and to provide additional documentation as required to substantiate qualification for waiver whenever the shareholder is entitled to a CDSC waiver. CLASS R-1 AND R-2 SHARES Class R-1 and R-2 shares are generally available only to 401(k) plans (including solo 401(k) plans), 457 plans, employer-sponsored 403(b) plans, profit sharing and money purchase pension plans, defined benefit plans, and non-qualified deferred compensation plans. Class R-1 and R-2 shares are generally available only to retirement plans where plan level or omnibus accounts are held on the books of the WM Group of Funds. Class R-1 and R-2 shares are generally not available to retail non-retirement accounts, traditional and Roth IRAs, Coverdell Education Savings Accounts, Simplified Employee Pension Plans ("SEPS"), Salary-Reduction Simplified Employee Pension Plans ("SAR-SEPS"), SIMPLE IRAs, or individual 403(b) plans. Prospective shareholders should consult their Investment Representative or retirement plan administrator to determine if Class R-1 and R-2 shares may be purchased under their respective retirement plan. Class R-1 shares are generally available through retirement plans with assets less than or equal to $1,000,000. Class R-2 shares are generally available through retirement plans with assets in excess of $1,000,000 but less than or equal to $5,000,000. Retirement plans with assets in excess of $5,000,000 may purchase Class A shares at NAV without a sales charge. WM Funds Distributor, Inc., in its sole discretion, may permit purchases of Class R-1 or R-2 shares by retirement plans that do not meet these asset-based requirements. The offering price for Class R-1 and R-2 shares is the NAV next calculated after receipt of an investor's order in proper form by WM Group of Funds. Class R-1 and R-2 shares are not subject to a front-end sales charge or CDSC. - Class R-1 shares have higher annual expenses than Class R-2 shares because they are subject to higher distribution fees. - Unlike Class B shares, Class R-1 and R-2 shares do not convert to Class A shares, so future distribution and service fees do not decrease. - Class R-1 and R-2 shares have higher annual expenses than Class A shares because they are subject to higher distribution and plan recordkeeping/administration fees. REDEMPTIONS AND EXCHANGES OF SHARES REDEMPTIONS. Shareholders may contact their Investment Representative or the WM Group of Funds to redeem their shares. Redemptions are effected at the NAV next calculated after receipt, by the WM Group of Funds or its agent, of a properly completed request, less any applicable CDSC. Shares that are registered in the shareholder's name with the transfer agent may be redeemed at any time in the following ways: - Shareholders may authorize telephone or Internet transactions* when their account is established or in writing at a later time. Provided the shareholder has pre-authorized these transactions, shares may be redeemed by contacting the WM Group of Funds at 800-222-5852. Telephone transaction privileges may be restricted and generally, redemptions will not be allowed for amounts totaling more than $50,000 per Fund per day. - The Investment Representative may request telephone or Internet transactions* on the shareholder's behalf. Proceeds must be directed to a pre-authorized bank or brokerage account or to the address of record for the account. Investment Representatives may request redemptions in excess of the $50,000 per Fund per day limit. - Shareholders may redeem shares by submitting a written request to the WM Group of Funds. Written requests, including requests for redemptions exceeding $50,000, redemptions due to death, and redemptions payable to an alternate payee, address or bank, may require a Medallion Signature Guarantee. Please contact the WM Group of Funds for additional information. SYSTEMATIC WITHDRAWAL PLAN. Shareholders or their Investment Representatives may initiate systematic withdrawals by telephone or in writing. Requirements to establish and maintain a systematic withdrawal plan are as follows. - $5,000 minimum balance in the applicable Fund at the time the systematic withdrawal plan is established. ** - Automatic cash redemptions of at least $50.*** - Shares of the applicable Fund will be redeemed to provide the requested payment. - Redemptions that exceed dividend income and capital gains may eventually exhaust the account. EXCHANGES. Shareholders may contact their Investment Representative or the WM Group of Funds to exchange or arrange for automatic monthly exchanges of their shares. Shareholders may exchange shares of any of the Funds for shares of the same class of any of the other Funds in the WM Group of Funds or any of the Portfolios within the WM Strategic Asset Management Portfolios, LLC. Exchanges of shares are sales and may result in a gain or loss for income tax purposes. - All exchanges are subject to the minimum investment requirements of the Fund being acquired and to its availability for sale in the shareholder's state of residence. - Exchanges are made at the relative NAVs of the shares being exchanged next determined after receipt of a properly completed exchange request. - No additional sales charge will be incurred when exchanging shares, except that Class A shares exchanged from the Money Market Fund will be subject to the acquired Fund's sales charge unless the shares exchanged had previously been obtained by exchange of shares of a Fund that imposes an initial charge on Class A shares. - Any CDSC on the subsequent sale of shares acquired by exchange will be based on the CDSC schedule of the Fund in which the shares were initially purchased. - Class A shares of the Money Market Fund may be exchanged for Class B or C shares of a Fund. Following such an exchange, the shares will be subject to the CDSC schedule applicable to the Class B or Class C shares purchased. Also, it may be disadvantageous to exchange Class A shares of the Money Market Fund for Class B or C shares of another Fund, where the Class A shares were originally subject to an initial sales charge. - Class B or C shares of the Funds may not be exchanged for Class A shares of another Fund. - Class R-1 or R-2 shares of the Funds may not be exchanged for Class A, B, or C shares of another Fund. * Note: The WM Group of Funds' telephone representatives are available Monday-Friday, 8:00 a.m.-9:00 p.m. (Eastern Time) to assist both Investment Representatives and shareholders. During holidays or days when the NYSE closes early, the offices of the Funds may be closed or may close early as well. The Funds also maintain a voice response unit ( "VRU "), which provides account access 24 hours a day. It may be difficult to reach the WM Group of Funds by telephone during periods of unusual economic or market activity. Please be persistent during these times. For your protection, all telephone instructions are verified by requesting personal shareholder information, providing written confirmations of each telephone transaction, and recording telephone instructions. If these or other reasonable procedures are used, neither the transfer agent nor the Funds will be liable for following telephone instructions which they reasonably believe to be genuine. Shareholders assume the risk of any losses in such cases. However, the transfer agent or the Funds may be liable for any losses because of unauthorized or fraudulent telephone instructions if they fail to follow reasonable procedures. ** The minimum balance and minimum dollar requirement is waived for IRA or other qualified retirement accounts to the extent necessary to meet a Required Minimum Distribution as defined by the Internal Revenue Service. *** Note: Exceptions may apply. Please contact the WM Group of Funds for additional information. REDEMPTION/EXCHANGE FEE -- INTERNATIONAL GROWTH FUND. Shares of the International Growth Fund that are redeemed or exchanged within 90 days of their purchase will be subject to a 2.00% redemption fee on the proceeds (in addition to any applicable CDSC) (with respect to Class B and C shares, the redemption fee applies only to shares purchased on or after March 1, 2005). The redemption fee will be retained by the Fund. In determining whether a redemption fee is payable, it is assumed that the purchase from which the redemption is made is the earliest purchase for shares of the Fund by the shareholder from which a redemption or exchange has not already been effected. The redemption fee does not apply to shares acquired through reinvestment of dividends, distributions, and redemption proceeds, and to investments made by WM Strategic Asset Management Portfolios, LLC. The redemption fee may be waived by the Funds' chief compliance officer upon a determination that the redemption did not harm the Fund. MARKET TIMING. The Funds are not intended for "market timing" or other forms of abusive short-term trading. If the Funds are used for short-term trading, shareholders could suffer adverse effects, including increased transaction costs and dilution of investment returns to the detriment of all Fund shareholders. Frequent trading can cause a portfolio manager to maintain larger cash positions than desired, unplanned portfolio turnover and increased broker/dealer commissions or other transaction costs and can trigger taxable capital gains. In addition, some frequent traders attempt to exploit perceived valuation inefficiencies that can occur if the valuation of a Fund's portfolio securities does not reflect conditions as of the close of the New York Stock Exchange, which is the time that the Funds' net asset value per share is determined. For example, the closing price of securities primarily trading in markets that close prior to the New York Stock Exchange may not reflect events that occurred after the close of that market. This type of arbitrage activity can dilute a Fund's net asset value per share for long-term investors. Frequent traders wishing to engage in market timing should not purchase the Funds. The Trusts' Boards of Trustees has adopted policies and procedures intended to discourage market timing with respect to each Fund other than the Money Market Fund. The procedures include the use of "fair value" pricing, redemption fees and the refusal of purchase transactions. These procedures are applied uniformly, although the redemption fee does not apply to shares acquired through reinvestment of dividends, distributions, and redemption proceeds, and to investments made by WM Strategic Asset Management Portfolios, LLC. The redemption fee may be waived by the Funds' chief compliance officer upon a determination that the redemption did not harm the Fund. Fair value pricing is applied when reliable market quotations are not readily available including when the closing prices of portfolio securities primarily traded in foreign markets are deemed to be substantially inaccurate at the close of the New York Stock Exchange. The International Growth Fund currently charges a 2.00% redemption fee for redemptions within 90 days of the purchase date. The Funds' transfer agent will attempt to identify shareholders who engage in market timing and will restrict the trading activity of shareholders who are identified as market timers. The Funds reserve the right to reject any purchases, including purchases by exchange. Although it is the policy of the WM Group of Funds to seek to prevent market timing and other excessive trading practices in each Fund other than the Money Market Fund, which is intended for short-term investment horizons, there is no assurance that short-term trading will not occur. In addition, the Funds may not have sufficient information to prevent market timing, especially with respect to accounts held in the names of financial intermediaries ("omnibus accounts"). DISCLOSURE OF PORTFOLIO HOLDINGS. The Funds disclose their month-end portfolio holdings on the Distributor's Web site, wmgroupoffunds.com, on the last business day of the following month. Third parties who need portfolio holdings information to provide services to the Funds may be provided such information prior to its posting on the Web site, solely for legitimate business purposes and subject to confidentiality agreements. A description of the Funds' policies and procedures with respect to the disclosure of the portfolio securities is available in the Funds' SAI and at wmgroupoffunds.com. DISTRIBUTION PLAN, PLAN RECORDKEEPING/ADMINISTRATION FEES, AND ADDITIONAL INFORMATION REGARDING INTERMEDIARY COMPENSATION Each of the Funds has adopted distribution plans, pursuant to Rule 12b-1 under the 1940 Act, applicable to each share class described in this prospectus (each, a "Rule 12b-1 Plan"), respectively. Under the applicable Rule 12b-1 Plans, the Distributor receives a service fee at an annual rate of 0.25% of the average daily net assets of each class. In addition, the Distributor is paid a distribution fee as compensation in connection with the offering and sale of Class B, C, R-1 and R-2 shares. The distribution fee for Class B and C shares is paid to the Distributor at annual rates of 0.75% of the average daily net assets of such shares. The distribution fee for Class R-1 and R-2 shares is paid to the Distributor at annual rates of 0.55% and 0.30%, respectively, of the average daily net assets of such shares. Because these fees are paid out of fund assets on an ongoing basis, over time these fees will increase the cost of your investment and may cost more than paying other types of sales charges. The amounts payable by the Funds under the Rule 12b-1 Plans need not be directly related to expenses. If the Distributor's actual expenses are less than the fees it receives, the Distributor will keep the full amount of the fees. Service Fees. The Distributor may pay service fees to dealers and other intermediaries at the annual rate of 0.25% of the average daily net assets of such shares for which they are the dealers of record. These fees are not paid until after such shares have been held for three months (for Class A shares) or thirteen months (for Class B and C shares) and the average daily net assets of all shares for which such dealer is the dealer of record is at least $100,000. Distribution Fees. The proceeds from the distribution fees paid by Class B, C, R-1 and R-2 shareholders, together with any applicable sales charge, are paid to the Distributor. The Distributor generally uses distribution fees to finance any activity that is primarily intended to result in the sale of shares. Examples of such expenses include compensation to salespeople and selected dealers (including financing the commission paid to the dealer at the time of the sale), printing of prospectuses and statements of additional information and reports for other than existing shareholders, and preparing and conducting sales seminars. Plan Recordkeeping/administration Fees. Class R-1 and R-2 shares may be purchased through retirement plans only. Class R-1 and R-2 shares are subject to a Plan Recordkeeping/administration Fee at an annual rate of 0.25% of the average daily net assets. This fee is paid to the Distributor for services provided to retirement plans investing in Class R-1 and R-2 shares and their participants. Typically, the Distributor sub-contracts with plan recordkeepers and administrators for such services. A portion of this fee may be retained by the Distributor for additional service support and related expenses. Plan fiduciaries may wish to consider the fees paid by the Distributor for such services in evaluating the services provided by, and fees paid to, plan recordkeepers and administrators. PAYMENTS TO INVESTMENT REPRESENTATIVES AND THEIR FIRMS. Financial intermediaries market and sell shares of the Funds. These financial intermediaries receive compensation from the Distributor and its affiliates for selling shares of the Funds and/or providing services to the Funds' shareholders. Financial intermediaries may include, among others, broker-dealers, registered investment advisors, banks, pension plan consultants and insurance companies. Investment Representatives who deal with investors on an individual basis are typically associated with a financial intermediary. The Distributor and its affiliates may fund this compensation from various sources, including any sales charge and/or Rule 12b-1 Plan fee that the shareholder or the Funds pay to the Distributor. Individual Investment Representatives may receive some or all of the amounts paid to the financial intermediary with which he or she is associated. COMMISSIONS AND ONGOING PAYMENTS. In the case of Class A shares, all or a portion of the initial sales charge that you pay may be paid by the Distributor to financial intermediaries selling Class A shares. The Distributor may also pay these financial intermediaries a fee of up to 1.00% on purchases of $1,000,000 or more. Please see page [] for more details. Additionally, the Distributor generally makes ongoing payments to your financial intermediary for services provided to you at an annual rate of 0.25% of average net assets attributable to your investment in Class A shares. In the case of Class B shares, the Distributor will pay, at the time of your purchase, a commission to your financial intermediary in an amount equal to 4% of your investment (3% for Class B shares of the Short Term Income Fund). Additionally, the Distributor generally makes ongoing payments to your financial intermediary for services provided to you at an annual rate of 0.25% of average net assets attributable to your investment in Class B shares. In the case of Class C shares, the Distributor will pay, at the time of your purchase, a commission to your financial intermediary in an amount equal to 1% of your investment. Additionally, the Distributor generally makes ongoing payments to your financial intermediary for distribution and services provided to you at an annual rate of 1.00% of average net assets attributable to your investment in Class C shares. In the case of Class R-1 and R-2 shares, the Distributor will not pay a commission to your financial intermediary at the time of your investment. However, the Distributor generally makes ongoing payments to your financial intermediary for services provided to you at annual rates of 0.75% and 0.50% of average daily net assets attributable to your investment in Class R-1 or R-2 shares, respectively. OTHER PAYMENTS TO INTERMEDIARIES. In addition to the commissions paid at the time of sale, ongoing payments, and the reimbursement of costs associated with education, training and marketing efforts, conferences, ticket charges, and other general marketing expenses, some or all of which may be paid to financial intermediaries (and, in turn, to your Investment Representative), the Distributor and its affiliates, at their expense, currently provide additional payments to financial intermediaries that sell shares of the Funds for distribution services. Although payments made to each qualifying financial intermediary in any given year may vary, such payments will generally not exceed (a) 0.25% of the current year's sales of Fund shares by that financial intermediary and/or (b) 0.25% of average daily net assets of Fund shares serviced by that financial intermediary over the year. For 2005, the Distributor's total additional payments to these firms for distribution services related to the WM Group of Funds represented approximately [%] of the average daily net assets of the WM Group of Funds, or approximately [] million. A number of factors are considered in determining the amount of these additional payments, including each financial intermediary's WM Group of Funds sales, assets, and redemption rates and the willingness and ability of the financial intermediary to give the Distributor access to its Investment Representatives for educational and marketing purposes. In some cases, financial intermediaries will include the WM Group of Funds on a "preferred list." The Distributor's goals include making the Investment Representatives who interact with current and prospective investors and shareholders more knowledgeable about the WM Group of Funds so that they can provide suitable information and advice about the Funds and related investor services. Additionally, the Distributor may provide payments to reimburse directly or indirectly the costs incurred by these financial intermediaries and their associated Investment Representatives in connection with educational seminars and training and marketing efforts related to the WM Group of Funds for the firms' employees and/or their clients and potential clients. The costs and expenses associated with these efforts may include travel, lodging, entertainment and meals. The Distributor may also provide payment or reimbursement for expenses associated with qualifying dealers' conferences, transactions ("ticket") charges and general marketing expenses. IF ONE MUTUAL FUND SPONSOR MAKES GREATER DISTRIBUTION ASSISTANCE PAYMENTS THAN ANOTHER, YOUR INVESTMENT REPRESENTATIVE AND HIS OR HER FINANCIAL INTERMEDIARY MAY HAVE AN INCENTIVE TO RECOMMEND ONE FUND COMPLEX OVER ANOTHER. SIMILARLY, IF YOUR INVESTMENT REPRESENTATIVE OR HIS OR HER FINANCIAL INTERMEDIARY RECEIVES MORE DISTRIBUTION ASSISTANCE FOR ONE SHARE CLASS VERSUS ANOTHER, THEN THEY MAY HAVE AN INCENTIVE TO RECOMMEND THAT CLASS. Please speak with your Investment Representative to learn more about the total amounts paid to your Investment Representative and his or her financial intermediary by the Funds, the Distributor, WM Advisors and by sponsors of other mutual funds he or she may recommend to you. You should also carefully review disclosures made by your Investment Representative at the time of purchase. As of the date of the prospectus, the Distributor anticipates that the firms that will receive additional payments for distribution of the Funds (other than commissions paid at the time of sale, ongoing payments, and the reimbursement of cost associated with education, training and marketing efforts; conferences; ticket charges; and other general marketing expenses) include: Advantage Capital Corporation Merrill Lynch, Pierce, Fenner & Smith Advest, Inc. Inc. A.G. Edwards & Sons, Inc. M.L. Stern & Co. AIG Advisors, Inc. Morgan Stanley Dean Witter, Inc. American Portfolios Financial Services, Mutual Service Corporation Inc. National Planning Corporation Associated Financial Group Associated Securities Corp. NFP Securities, Inc. AXA Advisors, LLC Oppenheimer & Co., Inc. Cadaret, Grant & Co., Inc. Pacific Select Distributors, Inc. Charles Schwab & Co., Inc. Piper Jaffray & Co. Citigroup Global Markets, Inc. ProEquities, Inc. Commonwealth Financial Network Prospera Financial Services, Inc. Farmers Financial Solutions, LLC Prudential Investment Management FFP Securities, Inc. Services, LLC FSC Securities Corporation Raymond James Financial Services, Inc. G.A. Repple & Company RBC Dain Rauscher, Inc. H. Beck, Inc. Royal Alliance Associates, Inc. INVEST Financial Corporation Securities America, Inc. Investacorp, Inc. Sentra Securities Corp./Spelman and Investment Advisors & Consultants, Inc. Co., Inc. Investment Centers of America, Inc. SII Investments, Inc. Janney Montgomery Scott, LLC Sorrento Pacific Financial, LLC Jefferson Pilot Securities Corporation SunAmerica Securities, Inc. Linsco/Private Ledger Corp. Triad Advisors, Inc. McDonald Investments, Inc. UBS Financial Services, Inc. Wachovia Securities, LLC WM Financial Services, Inc. United Planners' Financial Services of America Waterstone Financial Group, Inc. To obtain a current list of such firms, call 1-800-222-5852. Although the Advisor and/or a Fund's sub-advisor may use brokers who sell shares of the Funds to effect portfolio transactions, the sale of Fund shares is not considered as a factor when selecting brokers to effect portfolio transactions and the Funds have adopted procedures to ensure that the sale of Fund shares is not considered when selecting brokers to effect portfolio transactions. Your financial intermediary may charge fees and commissions, including processing fees, in addition to those described in this prospectus. The amount and applicability of any such fee is determined and disclosed separately by the financial intermediary. You should ask your Investment Representative for information about any fees and/or commissions he or she charges. TRANSFER AGENCY AND RETIREMENT PLAN SERVICES. WM Shareholder Services, Inc. acts as the transfer agent for the Funds. As such, it registers the transfer, issuance, and redemption of Fund shares and disburses dividends and other distributions to Fund shareholders. Many Fund shares are owned by financial intermediaries for the benefit of their customers. In those cases, the Funds often do not maintain an account for individual investors. Thus, some or all of the transfer agency functions for these accounts are performed by the financial intermediaries. WM Shareholder Services, Inc. pays these financial intermediaries fees for sub-transfer agency and related recordkeeping services in amounts generally ranging from $3 to $6 per customer Fund account per annum and, as of the date of this prospectus, no intermediary receives more than $12 per customer Fund account per annum. Retirement plans may also hold Fund shares in the name of the plan, rather than the participant. Plan recordkeepers, who may have affiliated financial intermediaries that sell shares of the Funds, may be paid up to 0.25% per annum of the average daily net assets held in the plan by WM Shareholder Services, Inc. In addition, financial intermediaries may be affiliates of entities that receive compensation from the Distributor as discussed in the prior section for maintaining retirement plan "platforms" that facilitate trading by affiliated and non-affiliated financial intermediaries and recordkeeping for retirement plans. THE AMOUNTS PAID TO FINANCIAL INTERMEDIARIES AND PLAN RECORDKEEPERS FOR SUB-TRANSFER AGENCY AND RECORDKEEPING SERVICES, AND THEIR RELATED SERVICE REQUIREMENTS, MAY VARY ACROSS FUND GROUPS AND SHARE CLASSES. THIS MAY CREATE INCENTIVE FOR FINANCIAL INTERMEDIARIES AND THEIR INVESTMENT REPRESENTATIVES TO RECOMMEND ONE FUND COMPLEX OVER ANOTHER OR ONE CLASS OF SHARES OVER ANOTHER. OTHER POLICIES AND PRACTICES OF THE WM GROUP OF FUNDS CHECK WRITING PRIVILEGE. The WM Group of Funds offers a check writing privilege, as discussed below. - Available only for Class A shares of the Money Market Fund. - A $250 per check minimum applies. - The WM Group of Funds may charge a fee for checks presented for an amount in excess of the then-current value of the money market shares held in the account. In addition, the shareholder may be subject to fees and charges by the payee of the check. The Funds are not responsible for these fees and charges. - A shareholder's failure to maintain a balance in his or her account sufficient to meet obligations (checks written) may result in the revocation of the check writing privilege and/or account closure. DISTRIBUTION OF INCOME AND CAPITAL GAINS. The Funds distribute dividends from net investment income (which is essentially interest and dividends, if any, earned from securities, minus expenses). They also make capital gain distributions if realized gains from the sale of securities exceed realized losses. The amount of dividends of net investment income, qualified dividend income, and distributions of net realized long-and short-term capital gains payable to shareholders will be determined separately for each Fund. For more information, please see the section entitled "Tax Considerations" in this prospectus. - Dividends from the net investment income of the Fixed-Income, Municipal, and Money Market Funds will normally be declared daily and paid monthly. - Dividends from the net investment income of the Equity Income and REIT Funds will normally be declared and paid quarterly. - Dividends from the net investment income of the Growth & Income, West Coast Equity, Mid Cap Stock, Growth, Small Cap Value, Small Cap Growth, and International Growth Funds will normally be declared and paid annually. - Each of the Funds reserves the right to declare and pay dividends less frequently than as disclosed above, provided that net realized capital gains and net investment income, if any, are paid at least annually. - The Funds distribute net realized capital gains, if any, at least annually, normally in December. Dividends and capital gain distributions may be reinvested or paid directly to the shareholder; however, the Funds will automatically reinvest dividends or distributions of $10 or less. Automatic reinvestments of dividends and capital gain distributions are made at the NAV determined on the day the dividends or distributions are deducted from the Fund's NAV. Shareholders may indicate their choice at the time of account establishment or at a later time by contacting their Investment Representative or the Funds' offices. Options include: - Automatic reinvestment: Unless the shareholder chooses another option, all dividends and capital gain distributions are reinvested in additional shares of the same class of the Fund, without an initial sales charge or being subject to a CDSC. - Reinvestment in another fund: Income dividends and capital gain distributions may be automatically invested in the same class of shares of another fund, provided that fund is available for sale in the shareholder's state of residence AND THE MINIMUM INITIAL INVESTMENT IS MET. - Cash payments: All dividends and capital gain distributions will be deposited in the shareholder's pre-authorized bank account or paid by check and mailed to the address of record. MEDALLION SIGNATURE GUARANTEE. For the protection of our shareholders, the WM Group of Funds requires the Medallion Signature Guarantee on certain requests and documents. A Medallion Signature Guarantee may be obtained from a domestic bank or trust company, broker, dealer, clearing agency, savings association, or other financial institution which participates in a Medallion program recognized by the Securities Transfer Association. The three recognized Medallion programs are Securities Transfer Agents Medallion Program 2000 New Technology (STAMP/2000), Stock Exchanges Medallion Program (SEMP) and New York Stock Exchange, Inc. Medallion Signature Program (NYSE MSP). Medallion Signature Guarantees from financial institutions that do not participate in one of these programs or that use pre-STAMP 2000 Medallion will not be accepted. Contact the WM Group of Funds for more information. PROMPT PAYMENT. Payment normally will be made on the next business day after redemption, but no later than seven days after the transaction, unless the shareholder recently purchased shares by check or Automated Clearing House ("ACH") transfer. In that case, redemption proceeds may be delayed up to 10 business days after the purchase transaction to allow for the collection of funds. Under unusual circumstances, the Fund may suspend redemptions or postpone payment for seven days as permitted by federal securities laws. Redemption proceeds will be sent by check or ACH transfer to the shareholder's address or bank account of record, without charge. Redemption proceeds sent via overnight service or wire may be subject to a fee (and the receiving institution may also charge a fee to receive a wire transmission). SMALL ACCOUNTS. It is costly to maintain small accounts. Accordingly, the Funds reserve the right to close or impose a fee on accounts below the minimum initial investment of $1,000. The fees would be deducted from the account and would be retained by the respective Fund. Alternatively, an account may be closed after 60 days written notice. Accounts will not be closed if they fall below the minimum amount solely because of declines in market value. Shares would be redeemed at the next calculated NAV, less any applicable CDSC, on the day the fee is charged or the account is closed. DUPLICATE MAILINGS. To reduce expenses to the Funds, the WM Group of Funds attempts to eliminate duplicate mailings to the same address. The Funds deliver a single copy of certain shareholder documents to investors who share an address, even if the accounts are registered under different names. These documents, such as prospectuses, shareholder reports, and annual privacy notices, will be delivered in this manner indefinitely unless the shareholder instructs the WM Group of Funds otherwise. Shareholders or their Investment Representatives may request multiple copies of documents by contacting the WM Group of Funds at 800-222-5852. TAX CONSIDERATIONS Shareholders are responsible for federal income tax (and any other taxes, including state and local income taxes, if applicable) on dividends and capital gains distributions whether such dividends or distributions are paid in cash or reinvested in additional shares. Generally, dividends paid by the Funds from interest, dividends or net short-term capital gains will be taxed as ordinary income. Distributions properly designated by the Fund as deriving from net gains on securities held for more than one year are taxable as such (generally at a 15% tax rate), regardless of how long you have held your shares. For taxable years beginning before January 1, 2009, distributions of investment income properly designated by the Fund as derived from "qualified dividend income" will be taxed at the rates applicable to long-term capital gains. A dividend or distribution made shortly after the purchase of shares of a Fund by a shareholder, although in effect a return of capital to that shareholder, would be taxable to that shareholder as described above. Because of tax law requirements, you must provide the Funds with an accurate and certified taxpayer identification number (for individuals, generally a Social Security number) to avoid "back-up" withholding, which is currently imposed at a rate of 28%. Early in each calendar year, each Fund will notify you of the amount and tax status of distributions paid to you for the preceding year. Any gain resulting from the sale, redemption or exchange of your shares will generally also be subject to tax. You should consult your tax advisor for more information on your own tax situation, including possible foreign, state and local taxes. Investments by a Fund in foreign securities may be subject to foreign withholding taxes. In that case, the Fund's yield on those securities would be decreased. Shareholders of the International Growth Fund may be entitled to claim a credit or deduction with respect to foreign taxes. In addition, the Fund's investments in foreign securities or foreign currencies may increase or accelerate the Fund's recognition of ordinary income and may affect the timing or amount of the Fund's distributions. Investments by a Fund in certain debt instruments or derivatives may cause the Fund to recognize taxable income in excess of the cash generated by such instruments. As a result, the Fund could be required at times to liquidate other investments in order to satisfy its distribution requirements under the Code. The Fund's use of derivatives will also affect the amount, timing, and character of the Fund's distributions. ADDITIONAL CONSIDERATIONS FOR SHAREHOLDERS OF THE MUNICIPAL FUNDS. Distributions designated as "exempt-interest dividends" by any of the Municipal Funds are generally not subject to federal income tax. However, if you receive Social Security or railroad retirement benefits, you should consult your tax advisor to determine what effect, if any, an investment in one of these Funds may have on the federal taxation of your benefits. In addition, an investment in one of these Funds may result in liability for federal alternative minimum tax, both for individual and corporate shareholders. Each of the Municipal Funds may invest a portion of its assets in securities that generate income that is not exempt from federal (or state and local) income tax. Income exempt from federal tax may be subject to state and local income tax. In addition, any capital gains distributed by these Funds will be taxable as described above. ADDITIONAL CONSIDERATIONS FOR SHAREHOLDERS OF THE CALIFORNIA MUNICIPAL AND CALIFORNIA INSURED INTERMEDIATE MUNICIPAL FUNDS. A portion of the dividends paid by the California Municipal and California Insured Intermediate Municipal Funds will be exempt from California State personal income tax, but not from California State franchise tax or California State corporate income tax. Corporate taxpayers should consult their tax advisor concerning the California state tax treatment of investments in these Funds. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT A COMPLETE DESCRIPTION OF THE FEDERAL, STATE, LOCAL OR FOREIGN TAX CONSEQUENCES OF INVESTING IN THE FUNDS. YOU SHOULD CONSULT YOUR TAX ADVISOR BEFORE INVESTING IN THE FUNDS. HOW NET ASSET VALUE IS DETERMINED Investment securities and other assets are valued primarily on the basis of market quotations or, if quotations are not readily available, by a method that the Board of Trustees believes accurately reflects fair value. Foreign securities are valued on the basis of quotations from the primary market in which they are traded, and are translated from the local currency into U.S. dollars using current exchange rates. As a result, changes in the value of those currencies in relation to the U.S. dollar may affect the Funds' NAV. Because foreign markets may be open at different times than the New York Stock Exchange, the value of the Funds' shares may change on days when shareholders are not able to buy or sell them. If events materially affecting the values of the Funds' foreign investments occur between the closed foreign markets and the close of regular trading on the New York Stock Exchange, those investments may be valued at their fair value. The NAVs are determined at the end of each business day of the New York Stock Exchange or at 1:00 p.m. Pacific Time, whichever is earlier. Under unusual circumstances, the Money Market Fund may determine its NAV on days on which the New York Stock Exchange is not open for regular trading. In addition, the Funds have adopted fair value pricing procedures and methodologies, which, among other things, generally require the Funds to fair value foreign securities if there has been movement in the U.S. market and/or other economic indicators that exceeds a specified threshold. Although the threshold may be revised from time to time and the number of days on which fair value prices will be used will depend on market activity, it is possible that fair value prices will be used to a significant extent by the Funds. MANAGEMENT OF THE FUNDS The Funds are managed by WM Advisors, Inc., which is referred to as "WM Advisors" in this prospectus. WM Advisors' address is 1201 Third Avenue, 22nd Floor, Seattle, Washington 98101. WM Advisors has delegated portfolio management responsibilities with respect to the Growth, Small Cap Growth, International Growth, Tax-Exempt Bond, California Municipal, and California Insured Intermediate Municipal Funds to sub-advisors. Each Fund may, to the extent permitted under the 1940 Act, place portfolio transactions with (and pay brokerage commissions to) affiliates of WM Advisors and the sub-advisors to the Funds indicated below. For more information, see the SAI. WM Advisors has been in the business of investment management since 1944. Its responsibilities include formulating each Fund's investment policies (subject to the terms of this prospectus), analyzing economic trends, directing and evaluating the investment services provided by the sub-advisors, monitoring each Fund's investment performance and reporting to the Board of Trustees, as well as providing certain administrative services to the Funds. In connection with its service as investment advisor to each Fund, WM Advisors may engage one or more sub-advisors to provide investment advisory services to any of the Funds and may remove or, subject to shareholder approval, replace any such sub-advisor if it deems such action to be in the best interests of a Fund and its shareholders. Where WM Advisors has not delegated such duties to a sub-advisor, it is responsible for managing the investment and reinvestment of the Fund's assets. WM Advisors is a wholly owned, indirect subsidiary of Washington Mutual, Inc. ("Washington Mutual"), a publicly owned financial services company. The following organizations, under the supervision of WM Advisors, act as sub-advisors to the Funds indicated and are responsible for continuously reviewing, supervising, and administering those Fund's respective investment programs: CAPITAL GUARDIAN TRUST COMPANY ("Capital Guardian"), 333 South Hope Street, Los Angeles, California 90071, acts as sub-advisor to the INTERNATIONAL GROWTH FUND. Capital Guardian is a wholly owned subsidiary of Capital Group International, Inc., which is in turn owned by The Capital Group Companies, Inc. ("CGC"). CGC is also the parent company of several other subsidiaries, all of which directly or indirectly provide investment management services. Capital Guardian had aggregate assets under management of approximately [] billion as of December 31, 2005. SALOMON BROTHERS ASSET MANAGEMENT, INC ("Salomon"), 399 Park Avenue, New York, New York 10022, is an indirect, wholly owned subsidiary of Legg Mason, Inc. and acts as one of the three sub-advisors to the GROWTH FUND. Salomon was established in 1987 and together with its affiliates in London, Tokyo and Hong Kong, provides a broad range of fixed income and equity investment services to individuals and institutional clients throughout the world. As of December 31, 2005, Salomon had approximately [$ ] billion in assets under management. JANUS CAPITAL MANAGEMENT LLC ("Janus"), 151 Detroit Street, Denver, Colorado 80206, acts as one of three sub-advisors to the GROWTH FUND. Janus is a direct subsidiary of Janus Capital Group Inc. ("JCG"), a publicly traded company with principal operations in financial asset management businesses. JCG owns approximately 95% of Janus, with the remaining 5% held by Janus Management Holdings Corporation. Janus has been providing investment advice to mutual funds or other large institutional clients since 1969. As of December 31, 2005, JCG's assets under management were approximately [$ ] billion. OPPENHEIMERFUNDS, INC. ("Oppenheimer"), Two World Financial Center, 225 Liberty Street, 11th Floor, New York, New York 10281-1008, acts as one of three sub-advisors to the GROWTH FUND. Oppenheimer has been in the investment management business since 1960. Oppenheimer and its subsidiaries and affiliates managed more than [$ ] billion in assets as of December 31, 2005, including Oppenheimer funds with more than [7] million shareholder accounts. Oppenheimer is a wholly owned subsidiary of Oppenheimer Acquisition Corporation, a holding company controlled by Massachusetts Mutual Life Insurance Company. VAN KAMPEN ASSET MANAGEMENT ("Van Kampen"), 1221 Avenue of the Americas, New York, New York 10020, acts as sub-advisor to the CALIFORNIA MUNICIPAL, CALIFORNIA INSURED INTERMEDIATE MUNICIPAL, and TAX-EXEMPT BOND FUNDS. Van Kampen is an indirect wholly owned subsidiary of Morgan Stanley, a publicly held global financial services company. Van Kampen provides investment advice to a wide variety of individual, institutional, and investment company clients and, together with its affiliates, had aggregate assets under management or supervision, as of December 31, 2005, of approximately [$ ]billion. DELAWARE MANAGEMENT COMPANY ("Delaware"), 2005 Market Street, Philadelphia, Pennsylvania 19103 , acts as one of two sub-advisors to the SMALL CAP GROWTH FUND. Delaware is a series of Delaware Management Business Trust, which is an indirect, wholly owned subsidiary of Delaware Management Holdings, Inc. ("DMH"). DMH and its subsidiaries provide a broad range of investment services to both institutional and individual clients. As of September 30, 2005, DMH and its subsidiaries had approximately $107.6 billion in assets under management. DMH and Delaware are indirect, wholly owned subsidiaries, and are subject to the ultimate control of Lincoln National Corporation. OBERWEIS ASSET MANAGEMENT, INC. ("Oberweis"), 3333 Warrenville Road, Suite 500, Lisle, Illinois 60532, acts as one of two sub-advisors to the SMALL CAP GROWTH FUND. Oberweis is a specialty investment firm that focuses on investments in rapidly growing firms. Established in 1989, Oberweis provides investment advisory advice to funds, institutions, and individual investors on a broad range of investment products. As of December 31, 2005, Oberweis had approximately [$ ] million in assets under management. FUND MANAGERS WM Advisors' portfolio managers are compensated through a combination of base salary and incentive compensation. Incentive compensation is based on investment performance relative to a peer group of mutual funds and other measures of performance. The SAI provides additional information about the portfolio manager's compensation, other accounts managed by the portfolio managers, and the portfolio managers' ownership of Fund shares. GARY J. POKRZYWINSKI, CFA, Senior Vice President, Head of Investments and Senior Portfolio Manager of WM Advisors, leads a team of investment professionals in managing the Fixed-Income Funds and has been primarily responsible for the day-to-day management of the HIGH YIELD FUND since April 1998. He has been responsible for co-managing the INCOME FUND with John Friedl since March 2005. Between 1992 and March 2005 he was primarily responsible for the day-to-day management of the Income Fund. Mr. Pokrzywinski has been employed by WM Advisors since July 1992. STEPHEN Q. SPENCER, CFA, First Vice President and Senior Portfolio Manager of WM Advisors, has had primary responsibility for the day-to-day management of the GROWTH & INCOME FUND since March 2003. From March 2005 to April 2005 he also co-managed the Small Cap Growth Fund with Dave W. Simpson. Previously, he co-managed the Growth & Income Fund from January 2000 to March 2003. Mr. Spencer has been employed by WM Advisors since September 1999. Prior to that, Mr. Spencer was a Portfolio Manager and Senior Equity Analyst for Smoot, Miller, Cheney & Co. from 1985 to 1999. DANIEL R. COLEMAN, Vice President, Head of Equity Research and Senior Portfolio Manager of WM Advisors, leads a team of investment professionals that is responsible for the management of the Equity Funds that are not sub-advised. Mr. Coleman has had primary responsibility for the day-to-day management of the MID CAP STOCK FUND since December 2001. Mr. Coleman joined WM Advisors in October 2001. Prior to that, he was Vice President and Senior Manager of Business Development at InfoSpace, Inc./Go2Net from 2000 until 2001, and Member and General Partner of Brookhaven Capital Management LLC/ Clyde Hill Research from 1989 until 2000. PHILIP M. FOREMAN, CFA, Vice President and Senior Portfolio Manager of WM Advisors, has been responsible for the day-to-day management of the WEST COAST EQUITY FUND since 2002. Mr. Foreman has been employed by WM Advisors since January of 2002. Prior to that, Mr. Foreman was Senior Vice President and Equity Mutual Fund Manager at Evergreen Asset Management Co. from 1999 until 2002, and Vice President and Senior Portfolio Manager at WM Advisors from 1991 until 1999. JOHN R. FRIEDL, CFA, Vice President and Portfolio Manager, has been co-manager of the INCOME FUND with Gary J. Pokrzywinski since March 2005. He has been employed as an investment professional at WM Advisors since August 1998. DAVID W. SIMPSON, CFA, Vice President and Senior Portfolio Manager of WM Advisors, has been responsible for the day-to-day management of the SMALL CAP VALUE FUND and REIT FUND since March 2004 and August 2005, respectively. Previously, he co-managed the Small Cap Growth Fund with Stephen Q. Spencer from March 2005 to April 2005. From 2001 to 2002, Mr. Simpson was Chief Investment Officer and Managing Director of Summit Capital Management, LLC. Prior to that, Mr. Simpson was Vice President and Senior Portfolio Manager of WM Advisors for eight years. CRAIG V. SOSEY, Vice President and Senior Portfolio Manager of WM Advisors, has been primarily responsible for the day-to-day management of the SHORT TERM INCOME and U.S. GOVERNMENT SECURITIES FUNDS since January 2000 and November 1998, respectively. He has been employed by WM Advisors since May 1998. Prior to that, he was the Assistant Treasurer of California Federal Bank, where he worked for over eight years. JOSEPH T. SUTY, CFA, Vice President and Senior Portfolio Manager of WM Advisors, has been responsible for the day-to-day management of the EQUITY INCOME FUND since October 2005. Prior to joining WM Advisors in September 2005, Mr. Suty managed personal and foundation portfolios from January 2005 until August 2005. From December 1991 until December 2004, Mr. Suty was a portfolio manager of large-cap value stocks at Washington Capital Management, Inc., where was a principal and director of the firm. CAPITAL GUARDIAN has been sub-advisor for the INTERNATIONAL GROWTH FUND since June 1999. Effective March 1, 2006, there will be two separate investment management teams of Capital Guardian, the existing "developed market team" and the new "emerging market equity team" that will share in the investment management of the International Growth Fund. For the "developed market team", Capital Guardian employs a team of portfolio managers each of whom has primary responsibility for the day-to-day management of that portion of the Fund assigned to him or her. They are: DAVID I. FISHER, ARTHUR J. GROMADZKI, RICHARD N. HAVAS, NANCY J. KYLE, CHRISTOPHER A. REED, LIONEL M. SAUVAGE, NILLY SIKORSKY, RUDOLF M. STAEHELIN, SEUNG KWAK, and JOHN M. N. MANT. MR. FISHER is Chairman of the Board of Capital Group International, Inc. and Capital Guardian as well as Vice Chairman of Capital International, Inc., Emerging Markets Growth Fund, Inc. and also a director of the Capital Group Companies, Inc. He has been employed by the Capital Group organization since 1969. MR. GROMADZKI is a Vice President of Capital International Research, Inc. with European equity portfolio management and investment analyst responsibilities. Mr. Gromadzki has been employed by the Capital Group organization since 1987. MR. HAVAS, who has been with the Capital Group organization since 1986, is a Senior Vice President and Portfolio Manager for Capital Guardian and Capital International Limited as well as a Senior Vice President and Director of Capital Guardian (Canada), Inc. MS. KYLE, who has been with the Capital Group organization since 1991, is a Senior Vice President, Vice Chairman and Director of Capital Guardian. Ms. Kyle is also President and a Director of Capital Guardian (Canada), Inc. and a Senior Vice President of Emerging Markets Growth Fund. MR. REED is a Director and a Vice President of Capital International Research, Inc. with portfolio management responsibilities for Japan, Pacific Basin and non-U.S. equity portfolios and research responsibilities for the Japanese financial sector. Mr. Reed has been employed by the Capital Group organization since 1994. MR. SAUVAGE is a Senior Vice President and Portfolio Manager for Capital Guardian and a Vice President for Capital International Research, Inc. Mr. Sauvage has been employed by the Capital Group organization since 1987. MS. SIKORSKY is President and Managing Director of Capital International S.A., Chairman of Capital International Perspective, S.A., Managing Director-Europe and a Director of Capital Group International, Inc., and serves as a Director of the Capital Group, Capital International Limited and Capital International K.K. Ms. Sikorsky has been employed by the Capital Group organization since 1962. MR. STAEHELIN is a Senior Vice President and Director of Capital International Research, Inc. and Capital International S.A., and has been employed by the Capital Group organization since 1981. MR. KWAK is a Senior Vice President for Capital International K.K. (CIKK) and a portfolio manager for non-U.S. (Japan only) assets. He joined CIKK in 2002, after serving as the Chief Investment Officer-Japan and Managing Director for Zurich Scudder Investments. He holds the Chartered Financial Analyst designation. MR. MANT is an Executive Vice President, a Director and the European Research Manager of Capital International Research, Inc. He is also a Director and Senior Vice President with portfolio management responsibilities for Capital International Limited and has been with the organization since 1990. For the "emerging market equity team", Capital Guardian employs a team of portfolio managers each of whom has primary responsibility for the day-to-day management of that portion of the Fund assigned to him or her. They are: OSMAN Y. AKIMAN, CHRISTOPHER CHOE, DAVID I. FISHER, VICTOR D. KOHN, NANCY J. KYLE, LUIS FREITAS DE OLIVEIRA AND SHAW B. WAGENER. Note that MR. FISHER and MS. KYLE are also members of the developed market team and their experience is noted above. MR. AKIMAN is Director of Capital International Research Inc. and Vice President of Capital International Ltd. with Portfolio Management responsibilities in Global Emerging Markets and Asia Pacific ex. Japan mandates and has been employed by the organization since 1994. MR. CHOE is Senior Vice President and portfolio manager of Capital International, Inc. and has been employed by the organization since 1990. MR. KOHN, a member of the organization since 1986, is President of Capital International, Inc., a Senior Vice President and a Director of Capital International Research, Inc., Chairman of Capital International, Inc.'s Emerging Markets Investment Committee, and an emerging markets equity portfolio manager. He is also an Executive Vice President of Capital International, Inc.'s Emerging Markets Growth Fund and he holds the Chartered Financial Analyst designation. MR. DE OLIVEIRA is Senior Vice President and Director of Capital International S.A. A member of the organization since 1994, he also serves on the board of several of Capital International's Luxembourg-based mutual funds. MR. WAGENER is Chairman of Capital International, Inc. (CII), a Senior Vice President and Director of Capital Group International, Inc. (CGII), and serves as a Director of Capital Guardian Trust Company (CGTC), and The Capital Group Companies, Inc. (CGC). He is an emerging markets equity portfolio manager and the Vice Chairman of the Investment Committee for emerging markets. He also is on Capital International, Inc.'s Private Equity Investment Committee. Mr. Wagener joined the organization in 1981 and has also served as the head of equity trading for Capital Research and Management Company and he holds the Chartered Financial Analyst designation. ALAN BLAKE, CFA, Managing Director and Senior Portfolio Manager of Salomon, is primarily responsible for the day-to-day management of the portion of the GROWTH FUND's portfolio managed by Salomon since March 2005. Mr. Blake has more than 24 years of securities business experience. Mr. Blake has been employed by Salomon since August 1991. E. MARC PINTO, CFA, is primarily responsible for the day-to-day management of the portion of the GROWTH FUND's portfolio that is managed by Janus. Mr. Pinto, Portfolio Manager and Vice President, has been employed by Janus since 1994, where his duties include the management of institutional separate accounts in the Large Cap Growth discipline. WILLIAM L. WILBY, CFA, and MARC L. BAYLIN, CFA, are the co-portfolio managers of the portion of the GROWTH FUND's portfolio managed by Oppenheimer and are principally responsible for the day-to-day management of that portion's investments. Mr. Wilby has been a Senior Vice President of Oppenheimer since July 1994 and Senior Investment Officer and Director of Equities of Oppenheimer since July 2004. Mr. Wilby was Director of International Equities of Oppenheimer from May 2000 through July 2004. Mr. Baylin is a Vice President of Oppenheimer and a member of the Growth Equity Investment Team. He was Managing Director and Lead Portfolio Manager at JP Morgan Fleming Investment Management from June 2002 to August 2005 and was a Vice President of T. Rowe Price, where he was an analyst from June 1993 and a portfolio manager from March 1999 to June 2002. Messrs. Wilby and Baylin are portfolio managers of other Oppenheimer funds. JOSEPH A. PIRARO, Executive Director of Van Kampen, has had primary responsibility for the day-to-day management of the CALIFORNIA MUNICIPAL FUND since May 1992. Mr. Piraro has also had primary responsibility for the day-to-day management of the CALIFORNIA INSURED INTERMEDIATE MUNICIPAL FUND since the Fund's inception in April 1994. Mr. Piraro has been employed by Van Kampen since 1992. THOMAS M. BYRON, Vice President of Van Kampen, has had primary responsibility for the day-to-day management of the TAX-EXEMPT BOND FUND since January 1999. Mr. Byron has been at Van Kampen since 1981 and, prior to taking over responsibility for managing the Fund, Mr. Byron was Head Buyer and Manager of Van Kampen's Unit Investment Trust desk. JAMES W. OBERWEIS, CFA, President and Portfolio Manager of Oberweis, is primarily responsible for the day-to-day management of the portion of the SMALL CAP GROWTH FUND's assets managed by Oberweis. He specializes exclusively in managing portfolios of high-growth small-cap companies. Mr. Oberweis has been Director since 2003, President since 2001, and a Portfolio Manager since 1995. Mr. Oberweis was Vice President from 1995 to 2001. MARSHALL T. BASSETT has primary responsibility for making day-to-day investment decisions of the portion of the SMALL CAP GROWTH Fund's portfolio that is managed by Delaware. When making decisions, Mr. Bassett regularly consults with STEVEN G. CATRICKS, BARRY S. GLADSTEIN, CHRISTOPHER M. HOLLAND, STEVEN T. LAMPE, MATTHEW TODOROW, RUDY D. TORRIJOS III and LORI P. WACHS. MR. BASSETT assumed responsibility for the portion of the Small Cap Growth Fund's portfolio that is managed by Delaware in April 2005. Mr. Bassett, Senior Vice President/Chief Investment Officer - Emerging Growth, joined Delaware Investments in 1997. MR. CATRICKS, Vice President/Portfolio Manager, joined Delaware Investments in 2001. Before joining Delaware Investments, Mr. Catricks was an equity analyst at BlackRock Financial, where he specialized in small-capitalization growth stocks. MR. GLADSTEIN, Vice President/Portfolio Manager, joined Delaware Investments in 1995. MR. HOLLAND, Vice President/Portfolio Manager, joined Delaware Investments in 2001. Before joining Delaware Investments, Mr. Holland was a municipal fixed income analyst at BlackRock Financial and in private client services at J.P. Morgan Chase & Company. MR. LAMPE, Vice President/Portfolio Manager, joined Delaware Investments in 1995. MR. TODOROW, Vice President/Portfolio Manager, joined Delaware Investments in 2003. Prior to that, Mr. Todorow served as Executive Director for Morgan Stanley Investment Management and as Portfolio Manager for the Small/Mid Cap Group. Prior to that, he held positions at Keeton Capital Management. MR. TORRIJOS, Vice President/Portfolio Manager, joined Delaware Investments in July 2005. Before joining Delaware Investments, Mr. Torrijos was a technology analyst at Fiduciary Trust Co., International. Previously, he worked at Neuberger Berman Growth Group as an analyst and, later, as a fund manager. MS. WACHS, Vice President/Portfolio Manager, joined Delaware Investments in 1992. MANAGEMENT FEES During their most recent fiscal years, each of the Funds paid management fees to WM Advisors at the following rates (not reflecting any expense waivers or reimbursements):
FEES PAID AS A PERCENTAGE FUND OF NET ASSETS - ---------------------------------------------- -------------- REIT Fund [ ] Equity Income Fund [ ] Growth & Income Fund [ ] West Coast Equity Fund [ ] Mid Cap Stock Fund [ ] Growth Fund [ ] * Small Cap Value Fund [ ] Small Cap Growth Fund [ ] International Growth Fund [ ] * Short Term Income Fund [ ] U.S. Government Securities Fund [ ] Income Fund [ ] High Yield Fund [ ] Tax-Exempt Bond Fund [ ] * California Municipal Fund [ ] * California Insured Intermediate Municipal Fund [ ] * Money Market Fund [ ]
- ------------ * Including amounts paid to sub-advisor(s). A discussion of the material factors considered by the Trustees of the Trusts in approving investment advisory contract(s) for each Fund is available in the Fund's most recent Annual or Semiannual report to shareholders (for periods ending October 31 and April 30, respectively). NO DEALER, SALESPERSON, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND YOU SHOULD NOT RELY ON SUCH OTHER INFORMATION OR REPRESENTATIONS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER MAY NOT LAWFULLY BE MADE. FINANCIAL HIGHLIGHTS FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD. The financial highlights tables are intended to help you understand the Funds' financial performance for the past 5 years (or, in the case of a newer Fund or Class, since the inception of the Fund or Class). Performance information is provided for all share classes except Class R-1 and R-2 shares, which were not offered prior to the date of this prospectus. Certain information reflects financial results for a single Fund share. The total returns in the tables represent the rate that an investor would have earned on an investment in the Fund (assuming reinvestment of all dividends and distributions). The information provided below is excerpted from financial statements audited by Deloitte & Touche LLP. The Report of Independent Registered Public Accounting Firm, along with the Funds' financial statements, are included in their Annual Report to Shareholders, which is available upon request. [FINANCIAL INFORMATION TO BE PROVIDED] APPENDIX A DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC. BOND RATINGS: - - Aaa, Aa -- Bonds which are rated Aaa or Aa are judged to be of the highest quality and high quality, respectively. Together, they comprise what is generally known as high-grade bonds. Bonds rated Aa are rated lower than Aaa securities because margins of protection may not be as large as in the latter or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities. - - A -- Bonds which are rated A possess many favorable investment attributes and are to be considered as upper-medium-grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future. - - Baa -- Bonds which are rated Baa are considered medium-grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present, but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. - - Ba -- Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well-assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. - - B -- Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. - - Caa -- Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. - - Ca -- Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. - - C -- Bonds which are rated C are the lowest rated class of bonds and can be regarded as having extremely poor prospects of ever attaining any real investment standing. DESCRIPTION OF STANDARD & POOR'S BOND RATINGS: - - AAA, AA, A -- Bonds rated AAA have the highest rating assigned by S&P to a debt obligation. Capacity to pay interest and repay principal is extremely strong. Bonds rated AA have a very strong capacity to pay interest and repay principal and differ from the highest rated issues only in small degree. Bonds rated A have a strong capacity to pay interest and repay principal although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than bonds in higher rated categories. - - BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay interest and repay principal. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to repay principal and pay interest for bonds in this category than for bonds in higher rated categories. - - BB, B, CCC, CC, C -- Bonds rated BB, B, CCC, CC and C are regarded, on balance, as predominantly speculative with respect to the issuer's capacity to pay interest and repay principal in accordance with the terms of the obligation. BB indicates the lowest degree of speculation and C the highest degree of speculation. While such bonds will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse business, economic and financial conditions. - - D -- Bonds rated D are in payment default, meaning payment of interest and/or repayment of principal is in arrears. DESCRIPTION OF FITCH CORPORATE BOND RATINGS: INVESTMENT-GRADE - - AAA -- Highest credit quality. AAA ratings denote the lowest expectation of credit risk. They are assigned only in case of exceptionally strong capacity for timely payment of financial commitments. This capacity is highly unlikely to be adversely affected by foreseeable events. - - AA -- Very high credit quality. AA ratings denote a very low expectation of credit risk. They indicate very strong capacity for timely payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events. - - A -- High credit quality. A ratings denote a low expectation of credit risk. The capacity for timely payment of financial commitments is considered strong. This capacity may, nevertheless, be more vulnerable to changes in circumstances or in economic conditions than is the case for higher ratings. - - BBB -- Good credit quality. BBB ratings indicate that there is currently a low expectation of credit risk. The capacity for timely payment of financial commitments is considered adequate, but adverse changes in circumstances and in economic conditions are more likely to impair this capacity. This is the lowest investment-grade category. SPECULATIVE-GRADE - - BB -- Speculative. BB ratings indicate that there is a possibility of credit risk developing, particularly as the result of adverse economic change over time; however, business or financial alternatives may be available to allow financial commitments to be met. Securities rated in this category are not investment grade. - - B -- Highly speculative. B ratings indicate that significant credit risk is present, but a limited margin of safety remains. Financial commitments are currently being met; however, capacity for continued payment is contingent upon a sustained, favorable business and economic environment. - - CCC, CC, C -- High default risk. Default risk is a real possibility. Capacity for meeting financial commitments is solely reliant upon sustained, favorable business or economic developments. A CC rating indicates that default of some kind appears probable. C ratings signal imminent default. - - DDD, DD, D -- Default. The ratings of obligations in this category are based on their prospects for achieving partial or full recovery in a reorganization or liquidation of the obligor. While expected recovery values are highly speculative and cannot be estimated with any precision, the following serve as general guidelines. DDD obligations have the highest potential for recovery, around 90% -- 100% of outstanding amounts and accrued interest. DD indicates potential recoveries in the range of 50% -- 90% and D the lowest recovery potential, i.e., below 50%. Entities rated in this category have defaulted on some or all of their obligations. Entities rated DDD have the highest prospect for resumption of performance or continued operation with or without a formal reorganization process. Entities rated DD and D are generally undergoing a formal reorganization or liquidation process; those rated DD are likely to satisfy a higher portion of their outstanding obligations, while entities rated D have a poor prospect of repaying all obligations. FOR MORE INFORMATION ABOUT THE WM GROUP OF FUNDS The Statement of Additional Information (SAI) and Annual and Semiannual Reports to shareholders include additional information about the Funds. The SAI and the Report of Independent Registered Public Accounting Firm along with the financial statements, included in the Funds' most recent Annual Reports, are incorporated by reference into this prospectus, which means that they are part of this prospectus for legal purposes. The Funds' Annual Reports discuss the market conditions and investment strategies that significantly affected performance during the last fiscal year. You may obtain free copies of these materials, request other information about the WM Group of Funds, and make shareholder inquiries by contacting your financial advisor, by calling toll-free 1-800-222-5852, or by visiting wmgroupoffunds.com. You may review and copy information about the Funds, including the SAI, at the Securities and Exchange Commission's public reference room in Washington, D.C. You may call the Commission at 1-202-942-8090 for information about the operation of the public reference room. You may also access reports and other information about the Funds on the EDGAR database or the Commission's Web site at http://www.sec.gov. You may obtain copies of this information, with payment of a duplication fee, by electronic request at the following e-mail address: publicinfo@sec.gov or by writing the Public Reference Section of the Commission, Washington, D.C. 20549-0102. You may need to refer to the following file numbers: FILE NO. 811-00123 Money Market Fund U.S. Government Securities Fund Income Fund High Yield Fund Tax-Exempt Bond Fund REIT Fund Equity Income Fund Growth & Income Fund Mid Cap Stock Fund West Coast Equity Fund Small Cap Value Fund FILE NO. 811-05775 Short Term Income Fund California Municipal Fund California Insured Intermediate Municipal Fund Growth Fund Small Cap Growth Fund International Growth Fund WM GROUP OF FUNDS PROSPECTUS MARCH 1, 2006 STRATEGIC ASSET MANAGEMENT PORTFOLIOS - Flexible Income Portfolio - Conservative Balanced Portfolio - Balanced Portfolio - Conservative Growth Portfolio - Strategic Growth Portfolio MONEY MARKET FUND The WM Group of Funds provides a broad selection of investment choices. The Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a crime. TABLE OF CONTENTS
PAGE Risk/Return Summary Flexible Income Portfolio Conservative Balanced Portfolio Balanced Portfolio Conservative Growth Portfolio Strategic Growth Portfolio Money Market Fund Summary of Principal Risks Principal Risks by Fund Fees and Expenses of the Portfolios and the Money Market Fund Estimated Aggregate Portfolio Expenses Portfolio and Fund Investment Strategies and Risks Strategic Asset Management Portfolios Equity Funds Fixed-Income Funds Money Market Fund Common Investment Practices Investing in the Portfolios and the Money Market Fund Choosing a Share Class CDSC Calculation and Waivers Redemptions and Exchanges of Shares Distribution Plan, Plan Recordkeeping/Administration and Additional Information Regarding Intermediary Compensation Other Policies and Practices of the WM Group of Funds Tax Considerations How Net Asset Value Is Determined Management of the Portfolios Portfolio Managers Management Fees Financial Highlights Appendix A
RISK/RETURN SUMMARY The WM Group of Funds provides a broad selection of investment choices, including asset allocation strategies available through the WM Strategic Asset Management Portfolios, LLC (the "Trust"). The Flexible Income, Conservative Balanced, Balanced, Conservative Growth, and Strategic Growth Portfolios (each a "Portfolio", collectively the "Portfolios") invest principally in shares of the Equity Funds and Fixed-Income Funds, as defined below, and the Money Market Fund (each a "Fund", collectively the "Funds"). For more information about the Funds, call the WM Group of Funds at 1-800-222-5852 to receive a prospectus. The "Equity Funds" include the REIT, Equity Income, Growth & Income, West Coast Equity, Mid Cap Stock, Growth, Small Cap Value, Small Cap Growth, and International Growth Funds. The "Fixed-Income Funds" include the Short Term Income, U.S. Government Securities, Income, and High Yield Funds. This summary identifies the investment objective, principal investment strategies, and principal risks of each Portfolio and the Money Market Fund. The principal investment strategies identified in this summary are not the only investment strategies available to the Portfolios and the Money Market Fund, and some of the principal investment strategies may not be available at any given time. For a discussion of other investment strategies available to the Portfolios and the Money Market Fund, please see the Statement of Additional Information (the "SAI"). STRATEGIES AND RISKS The principal investment strategies identified in this summary provide specific information about each of the Portfolios and the Money Market Fund, but there are some general principles WM Advisors, Inc. ("WM Advisors") applies in making investment decisions. When making decisions about how to allocate a Portfolio's assets, WM Advisors will generally consider, among other things, the following factors: Federal Reserve monetary policy Consumer debt Corporate profits Elections Employment trends Consumer spending Currency flows Commodity prices Yield spreads Stock market volume Capital goods expenditures Historical asset class returns Cyclical and secular economic trends Volatility analysis Consumer confidence Government budget deficits Tax policy Demographic trends Mortgage demand Business spending Inflationary pressures Housing trends GDP growth Historical financial market returns Inventories Investor psychology Technology trends Risk/return characteristics Stock valuations State and federal fiscal policy Trade pacts Interest rate changes Business confidence Geopolitical risks Wage and payroll trends Investment flows Import prices Factory capacity utilization Market capitalization relative values Productivity growth Asset class correlations Business activity Performance attribution by allocation and sector The discussion of each Portfolio's and Fund's principal investment strategies includes some of the principal risks of investing in such a Portfolio or Fund. You can find a more detailed description of these and other principal risks of an investment in each Portfolio or Fund under "Summary of Principal Risks." Investments mentioned in the summary and described in greater detail under "Common Investment Practices" below appear in BOLD TYPE. Please be sure to read the more complete descriptions of the Portfolios and the Money Market Fund and their related risks before you invest. PERFORMANCE Below the description of each Portfolio and the Money Market Fund is a bar chart showing the investment returns of its Class A shares for each of the past ten years (or for the life of the Portfolio if it has been in operation for less than ten years). The bar chart is intended to provide some indication of the volatility of the Portfolio's and Money Market Fund's returns. The performance table following each bar chart shows how, for each applicable class of shares, average annual total returns of the Portfolio or class compare to returns of one or more broad-based securities market indices for the last one, five and ten years (or, in the case of a newer Portfolio or class, since the inception of the Portfolio or class). Performance shown in the table reflects the maximum applicable sales charge, but performance shown in the bar chart does not reflect any sales charge. PAST PERFORMANCE (BEFORE AND AFTER TAXES) DOES NOT GUARANTEE FUTURE RESULTS. There can be no assurance that any Portfolio or the Money Market Fund will achieve its investment objective. It is possible to lose money by investing in the Portfolios or the Money Market Fund. An investment in a Portfolio or the Money Market Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Money Market Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Money Market Fund. FLEXIBLE INCOME PORTFOLIO OBJECTIVE: This Portfolio seeks to provide a high level of total return (consisting of reinvestment of income with some capital appreciation). In general, relative to the other Portfolios, the Flexible Income Portfolio should offer you the potential for a high level of income and a low level of capital growth, while exposing you to a low level of principal risk. PRINCIPAL INVESTMENT STRATEGIES AND RISKS: All of the Portfolios allocate their assets among certain of the Funds in pursuing their objectives. This Portfolio generally invests no more than 30% of its net assets in the Equity Funds. The Portfolio may invest up to 40% of its assets in each of the Short Term Income, U.S. Government Securities, Income, High Yield, and Money Market Funds. It may also invest up to 30% of its assets in each of the REIT, Equity Income, Growth & Income, West Coast Equity, Mid Cap Stock, Growth, Small Cap Value, and Small Cap Growth Funds. The Portfolio may also invest in U.S. GOVERNMENT SECURITIES, short-term debt rated A or higher, commercial paper (including master notes), bank obligations, REPURCHASE AGREEMENTS, and STRATEGIC TRANSACTIONS (derivatives) such as futures contracts and options. The Portfolio shares the principal risks of each Fund in which it invests as well as the risks associated with direct investments in the instruments listed in the foregoing paragraph, including derivatives risk and portfolio risk. CALENDAR YEAR TOTAL RETURNS (Class A Shares)(1)
YEAR ANNUAL RETURN 1997 10.25% 1998 9.24% 1999 8.64% 2000 5.10% 2001 4.33% 2002 1.03% 2003 12.08% 2004 5.73% 2005
Sales charges are not included in the returns shown above. If those charges were included, the returns shown would be lower. During the periods shown above, the highest quarterly return was [%] (for the quarter ended []) and the lowest was - [%] (for the quarter ended []). AVERAGE ANNUAL TOTAL RETURNS (with Maximum Sales Charge)(1)
SINCE SINCE CLASS C INCEPTION INCEPTION FOR PERIODS ENDED DECEMBER 31, 2005 PAST 1 YEAR PAST 5 YEARS (7/25/96) (3/1/02) - ----------------------------------- ----------- ------------ ---------- ------------- CLASS A SHARES Before Taxes [ ] [ ] [ ] N/A After Taxes on Distributions(2) [ ] [ ] [ ] N/A After Taxes on Distributions and Sale of Fund Shares(2) [ ] [ ] [ ] N/A CLASS B SHARES (BEFORE TAXES) [ ] [ ] [ ] N/A CLASS C SHARES (BEFORE TAXES) [ ] N/A N/A [ ] LEHMAN BROTHERS AGGREGATE BOND INDEX(3) [ ] [ ] [ ] [ ] S&P 500(4) [ ] [ ] [ ] [ ] CAPITAL MARKET BENCHMARK(5) [ ] [ ] [ ] [ ]
(1) The Portfolio's performance between 1996 and 1999 benefited from the agreement of WM Advisors and its affiliates to limit the Portfolio's expenses. Performance information is not provided for Class R-1 and R-2 shares because they had not been offered prior to the date of this prospectus. (2) After-tax returns are calculated using the highest historical individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation, may differ from those shown, and are not relevant to investors who hold Portfolio shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts ("IRAs"). After-tax returns are shown for only one share class offered by this prospectus. After-tax returns for other share classes will vary. (3) The Lehman Brothers Aggregate Bond Index is a broad-based index intended to represent the U.S. fixed-income market. Indices are unmanaged and individuals cannot invest directly in an index. Index performance information reflects no deduction for fees, expenses, or taxes. (4) The S&P 500 is a broad-based index intended to represent the U.S. equity market. Indices are unmanaged and individuals cannot invest directly in an index. Index performance information reflects no deduction for fees, expenses, or taxes. (5) The Capital Market Benchmark is intended to represent a relevant proxy for market and Portfolio performance. It is allocated as follows: 20% S&P 500 and 80% Lehman Brothers Aggregate Bond Index. Indices are unmanaged and individuals cannot invest directly in an index. Index performance information reflects no deduction for fees, expenses, or taxes. CONSERVATIVE BALANCED PORTFOLIO OBJECTIVE: This Portfolio seeks to provide a high level of total return (consisting of reinvestment of income and capital appreciation), consistent with a moderate degree of principal risk. In general, relative to the other Portfolios, the Conservative Balanced Portfolio should offer you the potential for a medium to high level of income and a medium to low level of capital growth, while exposing you to a medium to low level of principal risk. PRINCIPAL INVESTMENT STRATEGIES AND RISKS: All of the Portfolios allocate their assets among certain of the Funds in pursuing their objectives. This Portfolio invests between 40% and 80% of its net assets in a combination of the Fixed-Income Funds and the Money Market Fund and between 20% and 60% of its net assets in the Equity Funds. The Portfolio may invest up to 40% of its assets in each of the Short Term Income, U.S. Government Securities, Income, High Yield, and Money Market Funds. It may also invest up to 30% of its assets in each of the REIT, Equity Income, Growth & Income, West Coast Equity, Mid Cap Stock, Growth, Small Cap Value, Small Cap Growth, and International Growth Funds. The Portfolio may also invest in U.S. GOVERNMENT SECURITIES, short-term debt rated A or higher, commercial paper (including master notes), bank obligations, REPURCHASE AGREEMENTS, and STRATEGIC TRANSACTIONS (derivatives) such as futures contracts and options. The Portfolio shares the principal risks of each Fund in which it invests as well as the risks associated with direct investments in the instruments listed in the foregoing paragraph, including derivatives risk and portfolio risk. CALENDAR YEAR TOTAL RETURNS (Class A Shares)(1)
YEAR ANNUAL RETURN 1997 8.29% 1998 5.28% 1999 1.97% 2000 3.97% 2001 2.20% 2002 -2.98% 2003 15.98% 2004 7.38% 2005
Sales charges are not included in the returns shown above. If those charges were included, the returns shown would be lower. During the periods shown above, the highest quarterly return was [%] (for the quarter ended []) and the lowest was [%] (for the quarter ended []). AVERAGE ANNUAL TOTAL RETURNS (with Maximum Sales Charge)(1)
SINCE SINCE CLASS C INCEPTION INCEPTION FOR PERIODS ENDED DECEMBER 31, 2005 PAST 1 YEAR PAST 5 YEARS (7/25/96) (3/1/02) - ----------------------------------- ----------- ------------ --------- ------------- CLASS A SHARES Before Taxes [ ] [ ] [ ] N/A After Taxes on Distributions(2) [ ] [ ] [ ] N/A After Taxes on Distributions and Sale of Fund Shares(2) [ ] [ ] [ ] N/A CLASS B SHARES (BEFORE TAXES) [ ] [ ] [ ] N/A CLASS C SHARES (BEFORE TAXES) [ ] N/A N/A [ ] LEHMAN BROTHERS AGGREGATE BOND INDEX(3) [ ] [ ] [ ] [ ] S&P 500(4) [ ] [ ] [ ] [ ] CAPITAL MARKET BENCHMARK(5) [ ] [ ] [ ] [ ]
(1) Effective August 1, 2000, the investment objective and policies of the Portfolio changed. Accordingly, the performance of the Portfolio shown above may not reflect what the Portfolio's performance would have been under its current investment objective and policies. The Portfolio's performance between 1996 and 2003 benefited from the agreement of WM Advisors and its affiliates to limit the Portfolio's expenses. Performance information is not provided for Class R-1 and R-2 shares because they had not been offered prior to the date of this prospectus. (2) After-tax returns are calculated using the highest historical individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation, may differ from those shown, and are not relevant to investors who hold Portfolio shares through tax-deferred arrangements, such as 401(k) plans or IRAs. After-tax returns are shown for only one share class offered by this prospectus. After-tax returns for other share classes will vary. (3) The Lehman Brothers Aggregate Bond Index is a broad-based index intended to represent the U.S. fixed-income market. Indices are unmanaged and individuals cannot invest directly in an index. Index performance information reflects no deduction for fees, expenses, or taxes. (4) The S&P 500 is a broad-based index intended to represent the U.S. equity market. Indices are unmanaged and individuals cannot invest directly in an index. Index performance information reflects no deduction for fees, expenses, or taxes. (5) The Capital Market Benchmark is intended to represent a relevant proxy for market and Portfolio performance. It is allocated as follows: 40% S&P 500 and 60% Lehman Brothers Aggregate Bond Index. Indices are unmanaged and individuals cannot invest directly in an index. Index performance information reflects no deduction for fees, expenses, or taxes. BALANCED PORTFOLIO OBJECTIVE: This Portfolio seeks to provide as high a level of total return (consisting of reinvested income and capital appreciation) as is consistent with reasonable risk. In general, relative to the other Portfolios, the Balanced Portfolio should offer you the potential for a medium level of income and a medium level of capital growth, while exposing you to a medium level of principal risk. PRINCIPAL INVESTMENT STRATEGIES AND RISKS: All of the Portfolios allocate their investments among certain of the Funds in pursuing their objectives. This Portfolio invests at least 30% and no more than 70% of its net assets in the Equity Funds and at least 30% and no more than 70% of its net assets in the Fixed-Income Funds. The Portfolio may invest up to 40% of its assets in each of the Short Term Income, U.S. Government Securities, Income, High Yield, and Money Market Funds. It may also invest up to 30% of its assets in each of the REIT, Equity Income, Growth & Income, West Coast Equity, Mid Cap Stock, Growth, Small Cap Value, Small Cap Growth, and International Growth Funds. The Portfolio may also invest in U.S. GOVERNMENT SECURITIES, short-term debt rated A or higher, commercial paper (including master notes), bank obligations, REPURCHASE AGREEMENTS, and STRATEGIC TRANSACTIONS (derivatives) such as futures contracts and options. The Portfolio shares the principal risks of each Fund in which it invests as well as the risks associated with direct investments in the instruments listed in the foregoing paragraph, including derivatives risk and portfolio risk. CALENDAR YEAR TOTAL RETURNS (Class A Shares)(1)
YEAR ANNUAL RETURN - ---- ------------- 1997 10.22% 1998 16.27% 1999 26.97% 2000 0.13% 2001 -0.51% 2002 -9.41% 2003 21.34% 2004 9.23% 2005
Sales charges are not included in the returns shown above. If those charges were included, the returns shown would be lower. During the periods shown above, the highest quarterly return was [%] (for the quarter ended []) and the lowest was [%] (for the quarter ended []). AVERAGE ANNUAL TOTAL RETURNS (with Maximum Sales Charge)(1)
SINCE SINCE CLASS C INCEPTION INCEPTION FOR PERIODS ENDED DECEMBER 31, 2005 PAST 1 YEAR PAST 5 YEARS (7/25/96) (3/1/02) - ----------------------------------- ----------- ------------ --------- ------------- CLASS A SHARES Before Taxes [ ] [ ] [ ] N/A After Taxes on Distributions(2) [ ] [ ] [ ] N/A After Taxes on Distributions and Sale of Fund Shares(2) [ ] [ ] [ ] N/A CLASS B SHARES (BEFORE TAXES) [ ] [ ] [ ] N/A CLASS C SHARES (BEFORE TAXES) [ ] N/A N/A [ ] LEHMAN BROTHERS AGGREGATE BOND INDEX(3) [ ] [ ] [ ] [ ] S&P 500(4) [ ] [ ] [ ] [ ] CAPITAL MARKET BENCHMARK(5) [ ] [ ] [ ] [ ]
(1) The Portfolio's performance between 1996 and 1999 benefited from the agreement of WM Advisors and its affiliates to limit the Portfolio's expenses. Performance information is not provided for Class R-1 and R-2 shares because they had not been offered prior to the date of this prospectus. (2) After-tax returns are calculated using the highest historical individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation, may differ from those shown, and are not relevant to investors who hold Portfolio shares through tax-deferred arrangements, such as 401(k) plans or IRAs. After-tax returns are shown for only one class offered by this prospectus. After-tax returns for other classes will vary. (3) The Lehman Brothers Aggregate Bond Index is a broad-based index intended to represent the U.S. fixed-income market. Indices are unmanaged and individuals cannot invest directly in an index. Index performance information reflects no deduction for fees, expenses, or taxes. (4) The S&P 500 is a broad-based index intended to represent the U.S. equity market. Indices are unmanaged and individuals cannot invest directly in an index. Index performance information reflects no deduction for fees, expenses, or taxes. (5) The Capital Market Benchmark is intended to represent a relevant proxy for market and Portfolio performance. It is allocated as follows: 60% S&P 500 and 40% Lehman Brothers Aggregate Bond Index. Indices are unmanaged and individuals cannot invest directly in an index. Index performance information reflects no deduction for fees, expenses, or taxes. CONSERVATIVE GROWTH PORTFOLIO OBJECTIVE: This Portfolio seeks to provide long-term capital appreciation. In general, relative to the other Portfolios, the Conservative Growth Portfolio should offer you the potential for a low to medium level of income and a medium to high level of capital growth, while exposing you to a medium to high level of principal risk. PRINCIPAL INVESTMENT STRATEGIES AND RISKS: All of the Portfolios allocate their assets among certain of the Funds in pursuing their objectives. This Portfolio generally invests at least 60% of its net assets in the Equity Funds. The Portfolio may invest up to 30% of its assets in each of the Short Term Income, U.S. Government Securities, Income, High Yield, and Money Market Funds. It may also invest up to 40% of its assets in each of the REIT, Equity Income, Growth & Income, West Coast Equity, Mid Cap Stock, Growth, Small Cap Value, Small Cap Growth, and International Growth Funds. The Portfolio may also invest in U.S. GOVERNMENT SECURITIES, short-term debt rated A or higher, commercial paper (including master notes), bank obligations, REPURCHASE AGREEMENTS, and STRATEGIC TRANSACTIONS (derivatives) such as futures contracts and options. The Portfolio shares the principal risks of each Fund in which it invests as well as the risks associated with direct investments in the instruments listed in the foregoing paragraph, including derivatives risk and portfolio risk. CALENDAR YEAR TOTAL RETURNS (Class A Shares)(1)
YEAR ANNUAL RETURN 1997 8.65% 1998 18.82% 1999 40.28% 2000 -2.96% 2001 -4.20% 2002 -15.70% 2003 26.97% 2004 10.88% 2005
Sales charges are not included in the returns shown above. If those charges were included, the returns shown would be lower. During the periods shown above, the highest quarterly return was [%] (for the quarter ended []) and the lowest was [%] (for the quarters ended [] and []). AVERAGE ANNUAL TOTAL RETURNS (with Maximum Sales Charge)(1)
SINCE SINCE CLASS C INCEPTION INCEPTION FOR PERIODS ENDED DECEMBER 31, 2005 PAST 1 YEAR PAST 5 YEARS (7/25/96) (3/1/02) - ----------------------------------- ----------- ------------ --------- ------------- CLASS A SHARES Before Taxes [ ] [ ] [ ] N/A After Taxes on Distributions(2) [ ] [ ] [ ] N/A After Taxes on Distributions and Sale of Fund Shares(2) [ ] [ ] [ ] N/A CLASS B SHARES (BEFORE TAXES) [ ] [ ] [ ] N/A CLASS C SHARES (BEFORE TAXES) [ ] N/A N/A [ ] LEHMAN BROTHERS AGGREGATE BOND INDEX(3) [ ] [ ] [ ] [ ] S&P 500(4) [ ] [ ] [ ] [ ] CAPITAL MARKET BENCHMARK(5) [ ] [ ] [ ] [ ]
(1) The Portfolio's performance between 1996 and 1999 benefited from the agreement of WM Advisors and its affiliates to limit the Portfolio's expenses. Performance information is not provided for Class R-1 and R-2 shares because they had not been offered prior to the date of this prospectus. (2) After-tax returns are calculated using the highest historical individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation, may differ from those shown, and are not relevant to investors who hold Portfolio shares through tax-deferred arrangements, such as 401(k) plans or IRAs. After-tax returns are shown for only one share class offered by this prospectus. After-tax returns for other share classes will vary. (3) The Lehman Brothers Aggregate Bond Index is a broad-based index intended to represent the U.S. fixed-income market. Indices are unmanaged and individuals cannot invest directly in an index. Index performance information reflects no deduction for fees, expenses, or taxes. (4) The S&P 500 is a broad-based index intended to represent the U.S. equity market. Indices are unmanaged and individuals cannot invest directly in an index. Index performance information reflects no deduction for fees, expenses, or taxes. (5) The Capital Market Benchmark is intended to represent a relevant proxy for market and Portfolio performance. It is allocated as follows: 80% S&P 500 and 20% Lehman Brothers Aggregate Bond Index. Indices are unmanaged and individuals cannot invest directly in an index. Index performance information reflects no deduction for fees, expenses, or taxes. STRATEGIC GROWTH PORTFOLIO OBJECTIVE: This Portfolio seeks to provide long-term capital appreciation. In general, relative to the other Portfolios, the Strategic Growth Portfolio should offer you the potential for a high level of capital growth, and a corresponding level of principal risk. PRINCIPAL INVESTMENT STRATEGIES AND RISKS: All of the Portfolios allocate their assets among certain of the Funds in pursuing their objectives. This Portfolio generally invests at least 75% of its net assets in the Equity Funds. The Portfolio may invest up to 25% of its assets in each of the Short Term Income, High Yield, and Money Market Funds. It may also invest up to 50% of its assets in each of the REIT, Equity Income, Growth & Income, West Coast Equity, Mid Cap Stock, Growth, Small Cap Value, Small Cap Growth, and International Growth Funds. The Portfolio may also invest in U.S. GOVERNMENT SECURITIES, short-term debt rated A or higher, commercial paper (including master notes), bank obligations, REPURCHASE AGREEMENTS, and STRATEGIC TRANSACTIONS (derivatives) such as futures contracts and options. The Portfolio shares the principal risks of each Fund in which it invests as well as the risks associated with direct investments in the instruments listed in the foregoing paragraph, including derivatives risk and portfolio risk. CALENDAR YEAR TOTAL RETURNS (Class A Shares)1
YEAR ANNUAL RETURN 1997 12.38% 1998 22.63% 1999 44.48% 2000 -4.43% 2001 -6.69% 2002 -20.85% 2003 31.27% 2004 11.92% 2005
Sales charges are not included in the returns shown above. If those charges were included, the returns shown would be lower. During the periods shown above, the highest quarterly return was [%] (for the quarter ended []) and the lowest was [%] (for the quarter ended []). AVERAGE ANNUAL TOTAL RETURNS (with Maximum Sales Charge)(1)
SINCE SINCE CLASS C INCEPTION INCEPTION FOR PERIODS ENDED DECEMBER 31, 2005 PAST 1 YEAR PAST 5 YEARS (7/25/96) (3/1/02) - ----------------------------------- ----------- ------------ --------- ------------- CLASS A SHARES Before Taxes [ ] [ ] [ ] N/A After Taxes on Distributions(2) [ ] [ ] [ ] N/A After Taxes on Distributions and Sale of Fund Shares(2) [ ] [ ] [ ] N/A CLASS B SHARES (BEFORE TAXES) [ ] [ ] [ ] N/A CLASS C SHARES (BEFORE TAXES) [ ] N/A N/A [ ] S&P 500(3) [ ] [ ] [ ] [ ] RUSSELL 3000(R) INDEX(4) [ ] [ ] [ ] [ ]
(1) The Portfolio's performance between 1996 and 1999 benefited from the agreement of WM Advisors and its affiliates to limit the Portfolio's expenses. Performance information is not provided for Class R-1 and R-2 shares because they had not been offered prior to the date of this prospectus. (2) After-tax returns are calculated using the highest historical individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation, may differ from those shown, and are not relevant to investors who hold Portfolio shares through tax-deferred arrangements, such as 401(k) plans or IRAs. After-tax returns are shown for only one share class offered by this prospectus. After-tax returns for other share classes will vary. (3) The S&P 500 is a broad-based index intended to represent the U.S. equity market. Indices are unmanaged and individuals cannot invest directly in an index. Index performance information reflects no deduction for fees, expenses, or taxes. (4) The Russell 3000(R) Index measures the performance of the 3,000 largest U.S. companies based on total market capitalization, which represents approximately 98% of the investable U.S. equity market. Indices are unmanaged and individuals cannot invest directly in an index. Index performance information reflects no deduction for fees, expenses, or taxes. MONEY MARKET FUND OBJECTIVE: This Fund seeks to maximize current income while preserving capital and maintaining liquidity. PRINCIPAL INVESTMENT STRATEGIES AND RISKS: The Fund invests in high-quality money market instruments, which may include U.S. GOVERNMENT SECURITIES, corporate obligations, FLOATING AND VARIABLE RATE SECURITIES, MUNICIPAL OBLIGATIONS, U.S. dollar-denominated FOREIGN INVESTMENTS, ASSET-BACKED SECURITIES, REPURCHASE AGREEMENTS, and WHEN-ISSUED and DELAYED-DELIVERY TRANSACTIONS. Among the principal risks of investing in the Fund are: - - Market Risk - Credit Risk - Foreign Investment Risk - - Liquidity Risk - Management Risk - Money Market Risk - - Fund-of-Funds Risk - Leveraging Risk CALENDAR YEAR TOTAL RETURNS (Class A Shares)(1)
YEAR ANNUAL RETURN 1996 4.88% 1997 5.04% 1998 5.00% 1999 4.56% 2000 6.01% 2001 3.65% 2002 1.31% 2003 0.70% 2004 0.88% 2005 [ ]
During the periods shown above, the highest quarterly return was [%] (for the quarter ended []) and the lowest was [%] (for the quarter ended []). AVERAGE ANNUAL TOTAL RETURNS (with Maximum Contingent Deferred Sales Charges)(1)
SINCE CLASS C INCEPTION FOR PERIODS ENDED DECEMBER 31, 2005 PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS (3/1/02) - ----------------------------------- ----------- ------------ ------------- ------------ CLASS A SHARES [ ] [ ] [ ] N/A CLASS B SHARES [ ] [ ] [ ] N/A CLASS C SHARES [ ] N/A N/A [ ] CITIGROUP 3-MONTH U.S. TREASURY BILL INDEX(2) [ ] [ ] [ ] [ ]
(1) The Fund's performance between 1996 and 2004 benefited from the agreement of WM Advisors and its affiliates to limit the Fund's expenses. Performance information is not provided for Class R-1 and R-2 shares because they had not been offered prior to the date of this prospectus. (2) The Citigroup 3-Month U.S. Treasury Bill Index measures the performance of 3-month U.S. Treasury bills currently available in the marketplace. Indices are unmanaged and individuals cannot invest directly in an index. Index performance information reflects no deduction for fees, expenses, or taxes. SUMMARY OF PRINCIPAL RISKS The value of your investment in a Portfolio changes with the value of the investments held by that Portfolio. Many factors can affect that value, and it is possible that you may lose money by investing in the Portfolios. Factors that may adversely affect a particular Portfolio or Fund as a whole are called "principal risks." They are summarized in this section. The chart at the end of this section displays similar information. All Portfolios and Funds are subject to principal risks. These risks can change over time, because the types of investments made by the Portfolios and Funds can change over time. Investments mentioned in this summary and described in greater detail under "Common Investment Practices" appear in BOLD TYPE. Additional information about the Portfolios and Funds, their investments, and the related risks is located in the "Portfolio and Fund Investment Strategies and Risks" section. CREDIT RISK. Each of the Portfolios and Funds are subject to credit risk to the extent that it invests, directly or indirectly, in FIXED-INCOME SECURITIES, REITS, and STRATEGIC TRANSACTIONS. This is the risk that the issuer or the guarantor of a FIXED-INCOME SECURITY or other obligation, or the counterparty to any of a Fund's portfolio transactions (including, without limitation, REPURCHASE AGREEMENTS, REVERSE REPURCHASE AGREEMENTS, LENDING OF SECURITIES, STRATEGIC TRANSACTIONS, and other over-the-counter transactions), will be unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. Varying degrees of credit risk, often reflected in credit ratings, apply. Credit risk is particularly significant for funds such as the Equity Income, Growth & Income, Mid Cap Stock, Growth, Small Cap Value, Small Cap Growth, Income, and High Yield Funds that may invest significantly in BELOW-INVESTMENT-GRADE SECURITIES. These securities and similar unrated securities (commonly known as "junk bonds") have speculative elements or are predominantly speculative credit risks. The REIT, Equity Income, Growth & Income, West Coast Equity, Mid Cap Stock, Growth, Small Cap Value, Small Cap Growth, International Growth, Short Term Income, Income, and High Yield Funds, as well as the Money Market Fund, which make FOREIGN INVESTMENTS denominated in U.S. dollars, are also subject to increased credit risk because of the added difficulties associated with requiring foreign entities to honor their contractual commitments and because a number of foreign governments and other issuers are already in default. FUND-OF-FUNDS RISK. From time to time, one or more of a Portfolio's underlying Funds may experience relatively large investments or redemptions due to reallocations or rebalancings by the Portfolios as recommended by WM Advisors. These transactions will affect such Funds, since the Funds that experience redemptions as a result of reallocations or rebalancings may have to sell portfolio securities and since Funds that receive additional cash will have to invest such cash. This may be particularly important when one or more Portfolios owns a substantial portion of any underlying Fund. While it is impossible to predict the overall impact of these transactions over time, there could be adverse effects on fund performance to the extent that the Funds may be required to sell securities or invest cash at times when they would not otherwise do so. These transactions could also accelerate the realization of taxable income if sales of securities resulted in gains and could also increase transaction costs. Because the Portfolios own substantial portions of some Funds, a redemption or reallocation by the Portfolios away from a Fund could cause the Fund's expenses to increase, and may result in a Fund becoming too small to be economically viable. WM Advisors is committed to minimizing such impact on the Funds to the extent it is consistent with pursuing the investment objectives of the Portfolios. WM Advisors may nevertheless face conflicts in fulfilling its dual responsibilities to the Portfolios and the Funds. WM Advisors will at all times monitor the impact on the Funds of transactions by the Portfolios. The table below shows the percentage of outstanding Fund shares owned by the Portfolios as of October 31, 2005:
PORTFOLIOS ----------------------------------------------------------------------- FLEXIBLE CONSERVATIVE CONSERVATIVE STRATEGIC INCOME BALANCED BALANCED GROWTH GROWTH NAME OF FUND PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO TOTAL - ------------ --------- --------- -------- ------------ --------- ----- REIT Fund 2.5% 3.0% 33.5% 33.5% 19.9% 92.4% Equity Income Fund 1.6% 1.9% 19.0% 17.6% 10.9% 51.0% Growth & Income Fund 2.9% 2.6% 24.9% 26.1% 18.2% 74.7% West Coast Equity Fund 0.7% 1.1% 13.0% 14.2% 10.7% 39.7% Mid Cap Stock Fund 3.3% 2.5% 27.9% 29.2% 23.2% 86.1% Growth Fund 2.8% 2.6% 29.9% 31.5% 19.1% 85.9% Small Cap Value Fund 3.1% 2.7% 31.5% 34.3% 22.5% 94.1% Small Cap Growth Fund 3.0% 1.9% 22.3% 25.0% 17.7% 69.9% International Growth Fund --- 3.3% 32.6% 33.9% 22.8% 92.6% Short Term Income Fund 44.4% 13.0% 15.3% --- --- 72.7% U.S. Government Securities Fund 17.9% 9.6% 43.4% 15.9% --- 86.8% Income Fund 19.2% 9.1% 37.0% 10.7% --- 76.0% High Yield Fund 8.0% 3.9% 24.4% 15.2% 11.8% 63.3%
LEVERAGING RISK. When a Fund is BORROWING money or otherwise leveraging its portfolio, the value of an investment in that Fund will be more volatile and all other risks will tend to be compounded. Each Portfolio and Fund is subject to leveraging Risk. The REIT, Mid Cap Stock, Growth, Small Cap Value, Small Cap Growth, International Growth, Short Term Income, U.S. Government Securities, Income, and High Yield Funds may achieve leverage by using REVERSE REPURCHASE AGREEMENTS and/or DOLLAR ROLLS. The REIT, Equity Income, Growth & Income, Short Term Income, U.S. Government Securities, Income, and High Yield Funds may achieve leverage through the use of INVERSE FLOATING RATE INVESTMENTS. With the exception of the Money Market Fund, each Portfolio or Fund may also take on leveraging risk by investing collateral from securities loans, by using STRATEGIC TRANSACTIONS (derivatives) or by BORROWING money to meet redemption requests. The Money Market Fund may take on leveraging risk by investing collateral from securities loans and by BORROWING money to meet redemption requests. LIQUIDITY RISK. Liquidity risk exists when particular investments are difficult to purchase or sell, possibly preventing a fund from selling out of these ILLIQUID SECURITIES at an advantageous price. All of the Portfolios and Funds are subject to liquidity risk. Funds that engage in STRATEGIC TRANSACTIONS, make FOREIGN INVESTMENTS, or invest in securities involving substantial market and/or credit risk tend to be subject to greater liquidity risk. In addition, liquidity risk increases for funds that hold RESTRICTED SECURITIES. MANAGEMENT RISK. Each Portfolio and Fund is subject to management risk because it is an actively managed investment portfolio. WM Advisors, or the sub-advisor if applicable, will apply its investment techniques and risk analyses in making investment decisions for the Portfolios or Funds, but there can be no guarantee that they will meet stated objectives or produce desired results. In some cases, derivatives and other investments may be unavailable or WM Advisors or the sub-advisor may choose not to use them under market conditions when their use, in hindsight, may be determined to have been beneficial to the Portfolios or Funds. MARKET RISK. Each of the Portfolios and Funds is subject to market risk, which is the general risk of unfavorable changes in the market value of a fund's portfolio of securities. One aspect of market risk is interest rate risk. As interest rates rise, the value of your investment in a Portfolio or Fund is likely to decline to the extent the Portfolio or Fund holds income-producing equity or FIXED-INCOME SECURITIES because such investments are likely to be worth less. Funds such as the Short Term Income and U.S. Government Securities Funds are also subject to interest rate risk, even though they generally invest substantial portions of their assets in the highest quality FIXED-INCOME SECURITIES, such as U.S. GOVERNMENT SECURITIES. Interest rate risk is generally greater for funds that invest in FIXED-INCOME SECURITIES with longer maturities. This risk may be compounded for funds such as the U.S. Government Securities and Income Funds that invest in MORTGAGE-BACKED or other ASSET-BACKED SECURITIES that may be prepaid. These securities have variable maturities that tend to lengthen when it is least desirable -- when interest rates are rising. Increased market risk is also likely for funds such as the Short Term Income and Income Funds that invest in debt securities paying no interest, such as ZERO-COUPON and payment-in-kind securities. Except for the REIT Fund with respect to real estate, none of the Funds concentrates its assets in any particular industry. However, any of the Funds may concentrate its assets in a broad economic sector or geographic region. To the extent such investments are affected by common economic forces and other factors, this may increase a fund's vulnerability to such factors. The Equity Funds, by investing in equity securities such as common stock, preferred stock, and convertible securities, are exposed to a separate set of market risks. Those risks include the risk of broader equity market declines as well as more specific risks affecting the issuer, such as management performance, financial leverage, industry problems, and reduced demand for the issuer's goods or services. CURRENCY RISK. Portfolios that invest in Funds such as the REIT, Equity Income, Growth & Income, West Coast Equity, Mid Cap Stock, Growth, Small Cap Value, Small Cap Growth, International Growth, Short Term Income, Income, and High Yield Funds may be subject to currency risk. These Funds may invest in securities denominated in, and/or receive revenues in, FOREIGN INCOME CURRENCIES. Currency risk is the risk that those currencies will decline in value relative to the U.S. dollar or, in the case of hedging positions, that the U.S. dollar will decline in value relative to the currency hedged. DERIVATIVES RISK. Each of the Portfolios and Funds, except the Money Market Fund, may, subject to the limitations and restrictions stated elsewhere in this prospectus and the SAI, use STRATEGIC TRANSACTIONS involving derivatives such as forward contracts, futures contracts, options, swaps, caps, floors and collars, which are financial contracts whose value depends on, or is derived from, the value of something else such as an underlying asset, reference rate, or index. In addition to other risks, such as the credit risk of the counterparty, derivatives involve the risk of mispricing or improper valuation and the risk that changes in the value of the derivative may not correlate perfectly with relevant assets, rates, and indices. FOREIGN INVESTMENT RISK. Each of the Funds that can make FOREIGN INVESTMENTS, such as the REIT, Equity Income, Growth & Income, West Coast Equity, Mid Cap Stock, Growth, Small Cap Value, Small Cap Growth, International Growth, Short Term Income, Income, and High Yield Funds, as well as the Money Market Fund, may experience more rapid and extreme changes in value than funds with investments solely in securities of U.S. companies. This is because the securities markets of many foreign countries are relatively small, with a limited number of companies representing a small number of industries. Additionally, foreign securities issuers are usually not subject to the same degree of regulation as U.S. issuers. Reporting, accounting, and auditing standards of foreign countries differ, in some cases significantly, from U.S. standards. Also, nationalization, expropriation or confiscatory taxation, currency blockage, political changes, or diplomatic developments could adversely affect a fund's investments in a foreign country. In the event of nationalization, expropriation, or other confiscation, a fund could lose its entire investment. Adverse developments in certain regions, such as Southeast Asia, may adversely affect the markets of other countries whose economies appear to be unrelated. Investments in emerging market countries are generally subject to these risks to a greater extent. Portfolios that invest in Funds that make FOREIGN INVESTMENTS will be subject to foreign investment risk. GEOGRAPHIC CONCENTRATION RISK. Portfolios that invest in the West Coast Equity Fund are subject to geographic concentration risk. The Fund, which invests significant portions of its assets in Alaska, California, Oregon, and Washington, generally has more exposure to regional economic risks than a fund making investments more broadly. MONEY MARKET RISK. Although the Money Market Fund is designed to be a relatively low risk investment, it is not entirely free of risk. The Money Market Fund may not be able to maintain a net asset value ("NAV") of $1.00 per share as a result of deterioration in the credit quality of issuers whose securities the Fund holds, or an increase in interest rates. In addition, investments in the Money Market Fund are subject to the risk that inflation may erode the investments' purchasing power over time. Portfolios that invest in the Money Market Fund will be subject to money market risk. PORTFOLIO RISK. Each of the Portfolios allocates its assets among the Funds as determined by WM Advisors and in accordance with the investment restrictions discussed previously. As a result, the Portfolios share the risks of each of the Funds in which they invest, which are described above. In particular, the Portfolios may be subject to credit risk. For instance, the Strategic Growth Portfolio can invest up to 50% of its assets in each of the REIT, Equity Income, Growth & Income, West Coast Equity, Mid Cap Stock, Growth, Small Cap Value, and Small Cap Growth Funds and up to 25% of its assets in the High Yield Fund. Each of these Funds may invest significant amounts of its assets in BELOW-INVESTMENT-GRADE SECURITIES ("junk bonds"). The Portfolios may also be exposed to foreign investment risk through their investments in the Mid Cap Stock, Growth, Small Cap Value, Small Cap Growth, International Growth, Short Term Income, Income, or High Yield Funds. In choosing among the Portfolios, investors should understand the risks of each of the Funds and the extent to which each Portfolio invests in each Fund. Investing in Funds through the Portfolios involves certain additional expenses and tax results that would not be present in a direct investment in the Funds. See "Tax Considerations" for additional information about the tax implications of investing in the Portfolios. Under certain circumstances, a Fund may determine to pay a redemption request by a Portfolio wholly or partly by a distribution in kind of securities from its portfolio, instead of cash. In such cases, the Portfolios may hold portfolio securities until WM Advisors determines that it is appropriate to dispose of such securities. The officers, trustees, advisor, distributor and transfer agent of the Portfolios serve in the same capacities for the Funds. Conflicts may arise as these persons and companies seek to fulfill their fiduciary responsibilities to the Portfolios and the Funds. Because WM Advisors earns different fees from the Funds in which the Portfolios invest, there may be a conflict between the interests of the Portfolios and the economic interests of WM Advisors. REAL ESTATE RISK. Funds such as the REIT, Equity Income, Growth & Income, West Coast Equity, Mid Cap Stock, Small Cap Value, Short Term Income, Income, and High Yield Funds, which may invest a significant portion of their assets in REITS, are subject to risks affecting real estate investments. Investments in the real estate industry, even though representing interests in different companies and sectors within the industry, may be affected by common economic forces and other factors. This increases a fund's vulnerability to factors affecting the real estate industry. This risk is significantly greater than for a fund that invests in a range of industries and may result in greater losses and volatility. Securities of companies in the real estate industry, including REITS, are sensitive to factors such as changes in real estate values, property taxes, interest rates, cash flow of underlying real estate assets, occupancy rates, government regulations affecting zoning, land use and rents, and management skill and creditworthiness of the issuer. Companies in the real estate industry may also be subject to liabilities under environmental and hazardous waste laws. A fund investing in REITS will indirectly bear its proportionate share of expenses, including management fees, paid by each REIT in which it invests in addition to the expenses of the fund. A fund is also subject to the risk that the REITS in which it invests will fail to qualify for the special tax treatment accorded REITs under the Internal Revenue Code of 1986, as amended (the "Code"), and/or fail to qualify for an exemption from registration as an investment company under the Investment Company Act of 1940, as amended (the "1940 Act"). The REIT Fund is especially sensitive to these risks because it normally invests at least 80% of its net assets plus any borrowings for investment purposes in REIT securities. SMALLER COMPANY RISK. Market risk and liquidity risk are particularly pronounced for stocks of companies with relatively small market capitalizations. These companies may have limited product lines, markets or financial resources or they may depend on a few key employees. The Equity Funds and High Yield Fund generally have the greatest exposure to this risk. PRINCIPAL RISKS BY FUND The following chart summarizes the principal risks of each Fund other than credit risk, fund-of-funds risk, leveraging risk, liquidity risk, management risk and market risk., which apply to all of the Funds. The Portfolios share in the risks of each of the Funds in which they invest. Risks not marked for a particular Fund may, however, still apply to some extent to that Fund at various times.
FOREIGN GEOGRAPHIC MONEY REAL SMALLER CURRENCY DERIVATIVES INVESTMENT CONCENTRATION MARKET ESTATE COMPANY FUND RISK RISK RISK RISK RISK RISK RISK - ------------------------- -------- ----------- ---------- ------------- ------ ------ -------- REIT FUND X X X X X EQUITY INCOME FUND X X X X X GROWTH & INCOME FUND X X X X X WEST COAST EQUITY FUND X X X X X X MID CAP STOCK FUND X X X X X GROWTH FUND X X X X SMALL CAP VALUE FUND X X X X X SMALL CAP GROWTH FUND X X X X X INTERNATIONAL GROWTH FUND X X X X SHORT TERM INCOME FUND X X X X U.S. GOVERNMENT X SECURITIES FUND INCOME FUND X X X X HIGH YIELD FUND X X X X MONEY MARKET FUND X X
FEES AND EXPENSES OF THE PORTFOLIOS AND THE MONEY MARKET FUND This section describes the fees and expenses that you may pay if you invest in Class A, B, C, R-1 or R-2 shares of a Portfolio or the Money Market Fund. Class R-1 and R-2 are available for purchase only through employer-sponsored qualified retirement or benefit plans. The table below describes the maximum sales charges that may be assessed if you invest in Class A, B, C, R-1, or R-2 shares. The examples on the following pages are intended to help you compare the cost of investing in the Portfolios and the Money Market Fund with the costs of investing in other mutual funds. The examples assume that your investment has a 5.00% return each year, as required for illustration purposes by the Securities and Exchange Commission, and that each Portfolio's and the Money Market Fund's operating expenses remain the same. Your actual costs may be higher or lower than those in the examples.
SHAREHOLDER FEES(1) (FEES PAID DIRECTLY FROM YOUR INVESTMENT CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS R-1 SHARES CLASS R-2 SHARES - ------------------------------------------------ -------------- -------------- -------------- ---------------- ---------------- Maximum sales charge (load) imposed on purchases (as a percentage of offering price) Conservative Balanced, Balanced, Conservative Growth and Strategic Growth 5.50% 0.00% 0.00% 0.00% 0.00% Portfolios Flexible Income Portfolio 4.50% 0.00% 0.00% 0.00% 0.00% Money Market Fund 0.00%(3) 0.00% 0.00% 0.00% 0.00% Maximum deferred sales charge (load) 0.00%(4) 5.00%(5) 1.00%(6) 0.00% 0.00% (as a percentage of offering price)(2)
1 An annual fee of up to $12 may be imposed on accounts that fall below $1,000. See "Other Policies and Practices of the WM Group of Funds -- Small Accounts." 2 A $10 fee may be charged for redemptions made by wire transfer. Contingent deferred sales charges for shares purchased prior to April 1, 2003 are described in the SAI. 3 Sales charges apply when Class A shares of the Money Market Fund (on which no sales charge was paid at the time of purchase) are exchanged for shares of any other Fund. 4 Certain investors who purchase Class A shares without paying an initial sales charge may be subject to a deferred sales charge of 1.00% on redemptions within the first 18 months. 5 The maximum deferred sales charge is imposed on shares redeemed in the first and second years. For shares held longer than two years, the deferred sales charge declines according to the schedules set forth under "Choosing a Share Class -- Class B Shares -- Contingent Deferred Sales Charge on Class B Shares" in this prospectus. 6 Class C shares redeemed within the first 12 months are subject to a 1.00% contingent deferred sales charge.
EXAMPLES: YOU WOULD PAY ANNUAL PORTFOLIO OPERATING EXPENSES THE FOLLOWING EXPENSES ON A $10,000 (EXPENSES THAT ARE INVESTMENT ASSUMING A 5% ANNUAL RETURN AND CLASS A SHARES DEDUCTED FROM PORTFOLIO ASSETS) REDEMPTION AT THE END OF EACH PERIOD: - -------------------------------- ----------------------------------------- ------------------------------------------ TOTAL ANNUAL SERVICE PORTFOLIO MANAGEMENT (12b-1) OTHER OPERATING FEES FEES(1) EXPENSES EXPENSES 1 YEAR 3 YEARS 5 YEARS 10 YEARS ---------- -------- -------- --------- ------ ------- ------- -------- Flexible Income Portfolio(2) [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Conservative Balanced Portfolio(2) [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Balanced Portfolio(2) [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Conservative Growth Portfolio(2) [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Strategic Growth Portfolio(2) [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Money Market Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ]
1 12b-1 fees represent service fees that are paid to WM Funds Distributor, Inc. (the "Distributor "). See "Distribution Plan and Additional Information Regarding Dealer Compensation." 2 Does not include underlying Fund expenses that the Portfolios bear indirectly.
ANNUAL PORTFOLIO OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM PORTFOLIO ASSETS) TOTAL ANNUAL DISTRIBUTION PORTFOLIO MANAGEMENT AND SERVICE OTHER OPERATING CLASS B SHARES FEES (12b-1) FEES(1) EXPENSES EXPENSES - ---------------------------------- ---------- -------------- -------- --------- Flexible Income Portfolio(2) [ ] [ ] [ ] [ ] Conservative Balanced Portfolio(2) [ ] [ ] [ ] [ ] Balanced Portfolio(2) [ ] [ ] [ ] [ ] Conservative Growth Portfolio(2) [ ] [ ] [ ] [ ] Strategic Growth Portfolio(2) [ ] [ ] [ ] [ ] Money Market Fund [ ] [ ] [ ] [ ]
EXAMPLES: YOU WOULD PAY THE FOLLOWING EXPENSES ON A $10,000 INVESTMENT ASSUMING A 5% ANNUAL RETURN AND EITHER (A) REDEMPTION AT THE END OF EACH PERIOD OR (B) NO REDEMPTION A B CLASS B SHARES 1 YEAR 3 YEARS 5 YEARS 10 YEARS(3) 1 YEAR 3 YEARS 5 YEARS 10 YEARS(3) - ---------------------------------- ------ ------- ------- ----------- ------ ------- ------- ----------- Flexible Income Portfolio(2) [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Conservative Balanced Portfolio(2) [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Balanced Portfolio(2) [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Conservative Growth Portfolio(2) [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Strategic Growth Portfolio(2) [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Money Market Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ]
1 0.25% of the 12b-1 fees shown represent service fees that are paid to the Distributor. Long-term Class B shareholders may pay more than the sales charge paid by Class A shareholders. See "Distribution Plan and Additional Information Regarding Dealer Compensation." 2 Does not include underlying Fund expenses that the Portfolios bear indirectly. 3 Class B shares convert to Class A shares after eight years; accordingly, the expense amounts for years nine and ten are based on Class A share expenses.
ANNUAL PORTFOLIO OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM PORTFOLIO ASSETS) TOTAL DISTRIBUTION ANNUAL PORTFOLIO MANAGEMENT AND SERVICE OTHER OPERATING CLASS C SHARES FEES (12b-1) FEES(1) EXPENSES EXPENSES - ---------------------------------- ---------- --------------- -------- ---------------- Flexible Income Portfolio(2) [ ] [ ] [ ] [ ] Conservative Balanced Portfolio(2) [ ] [ ] [ ] [ ] Balanced Portfolio(2) [ ] [ ] [ ] [ ] Conservative Growth Portfolio(2) [ ] [ ] [ ] [ ] Strategic Growth Portfolio(2) [ ] [ ] [ ] [ ] Money Market Fund [ ] [ ] [ ] [ ]
EXAMPLES: YOU WOULD PAY THE FOLLOWING EXPENSES ON A $10,000 INVESTMENT ASSUMING A 5% ANNUAL RETURN AND EITHER (A) REDEMPTION AT THE END OF EACH PERIOD OR (B) NO REDEMPTION A B CLASS C SHARES YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS - ---------------------------------- ----- ------- ------- -------- ------ ------- ------- -------- Flexible Income Portfolio(2) [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Conservative Balanced Portfolio(2) [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Balanced Portfolio(2) [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Conservative Growth Portfolio(2) [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Strategic Growth Portfolio(2) [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Money Market Fund(3) [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ]
1 0.25% of the 12b-1 fees represent service fees that are paid to the Distributor. Long-term Class C shareholders may pay more than the sales charge paid by Class A shareholders. See "Distribution Plan and Additional Information Regarding Dealer Compensation." 2 Does not include underlying Fund expenses that the Portfolios bear indirectly. 3 Does not reflect upon the Distributor's agreement to waive a portion of the Fund's distribution fee for the current fiscal year.
EXAMPLES: YOU WOULD PAY ANNUAL PORTFOLIO OPERATING EXPENSES THE FOLLOWING EXPENSES ON A $10,000 (EXPENSES THAT ARE INVESTMENT ASSUMING A 5% ANNUAL RETURN AND CLASS R-1 SHARES DEDUCTED FROM PORTFOLIO ASSETS) REDEMPTION AT THE END OF EACH PERIOD: - ---------------------------------- -------------------------------------------------- ------------------------------------------ TOTAL ANNUAL SERVICE PORTFOLIO MANAGEMENT (12b-1) OTHER OPERATING FEES FEES1 EXPENSES EXPENSES 1 YEAR 3 YEARS 5 YEARS 10 YEARS - ---------------------------------- ---------- -------- -------- --------- ------ ------- ------- -------- Flexible Income Portfolio(2) [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Conservative Balanced Portfolio(2) [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Balanced Portfolio(2) [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Conservative Growth Portfolio(2) [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Strategic Growth Portfolio(2) [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Money Market Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ]
1 12b-1 fees represent service fees that are paid to the Distributor. See "Distribution Plan and Additional Information Regarding Dealer Compensation." 2 Does not include underlying Fund expenses that the Portfolios bear indirectly.
EXAMPLES: YOU WOULD PAY ANNUAL PORTFOLIO OPERATING EXPENSES THE FOLLOWING EXPENSES ON A $10,000 (EXPENSES THAT ARE INVESTMENT ASSUMING A 5% ANNUAL RETURN AND CLASS R-2 SHARES DEDUCTED FROM PORTFOLIO ASSETS) REDEMPTION AT THE END OF EACH PERIOD: - ---------------------------------- -------------------------------------------------- ------------------------------------------ TOTAL ANNUAL SERVICE PORTFOLIO MANAGEMENT (12b-1) OTHER OPERATING FEES FEES(1) EXPENSES EXPENSES 1 YEAR 3 YEARS 5 YEARS 10 YEARS - ---------------------------------- ---------- -------- -------- --------- ------ ------- ------- -------- Flexible Income Portfolio(2) [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Conservative Balanced Portfolio(2) [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Balanced Portfolio(2) [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Conservative Growth Portfolio(2) [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Strategic Growth Portfolio(2) [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Money Market Fund [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ]
1 12b-1 fees represent service fees that are paid to the Distributor. See "Distribution Plan and Additional Information Regarding Dealer Compensation." 2 Does not include underlying Fund expenses that the Portfolios bear indirectly. ESTIMATED AGGREGATE PORTFOLIO EXPENSES The following table sets forth the estimated aggregate expenses of the Portfolios, including expenses of the underlying Funds, based upon expenses shown in the table under "Fees and Expenses of the Portfolios and the Money Market Fund" for each Portfolio and corresponding expenses for each underlying Fund's Class I shares, which are not offered through this prospectus. These estimates assume a constant allocation by each Portfolio of its assets among the underlying Funds identical to the actual allocation of the Portfolio at October 31, 2005. A Portfolio's actual expenses may be higher as a result of changes in the allocation of the Portfolio's assets among the underlying Funds, the expenses of the underlying Funds, and/or the Portfolio's own expenses.
EXAMPLES: YOU WOULD PAY THE FOLLOWING EXAMPLES: YOU WOULD PAY THE FOLLOWING COMBINED EXPENSES ON A $10,000 COMBINED EXPENSES ON A $10,000 INVESTMENT ASSUMING A 5% ANNUAL RETURN INVESTMENT ASSUMING A 5% ANNUAL RETURN PORTFOLIO AND REDEMPTION AT THE END OF EACH PERIOD AND NO REDEMPTION AT THE END OF EACH PERIOD - ------------------------------- ---------------------------------------- ------------------------------------------- TOTAL ANNUAL COMBINED OPERATING EXPENSES 1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS ------------ ------ ------- ------- -------- ------ ------- ------- -------- CLASS A SHARES Flexible Income Portfolio [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Conservative Balanced Portfolio [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Balanced Portfolio [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Conservative Growth Portfolio [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Strategic Growth Portfolio [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] CLASS B SHARES Flexible Income Portfolio [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Conservative Balanced Portfolio [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Balanced Portfolio [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Conservative Growth Portfolio [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Strategic Growth Portfolio [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] CLASS C SHARES Flexible Income Portfolio [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Conservative Balanced Portfolio [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Balanced Portfolio [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Conservative Growth Portfolio [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Strategic Growth Portfolio [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] CLASS R-1 SHARES Flexible Income Portfolio [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Conservative Balanced Portfolio [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Balanced Portfolio [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Conservative Growth Portfolio [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Strategic Growth Portfolio [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] CLASS R-2 SHARES Flexible Income Portfolio [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Conservative Balanced Portfolio [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Balanced Portfolio [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Conservative Growth Portfolio [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Strategic Growth Portfolio [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ]
As of October 31, 2005, the Portfolios' assets were allocated as follows:
FLEXIBLE CONSERVATIVE CONSERVATIVE STRATEGIC INCOME BALANCED BALANCED GROWTH GROWTH FUND PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO - ------------------------------- --------- ------------ --------- ------------ --------- REIT Fund 1.1% 2.0% 3.4% 4.2% 4.2% Equity Income Fund 4.1% 7.7% 11.2% 13.3% 14.0% Growth & Income Fund 7.8% 11.2% 15.4% 20.4% 24.2% West Coast Equity Fund 1.1% 2.8% 4.9% 6.7% 8.5% Mid Cap Stock Fund 3.0% 3.6% 5.9% 7.8% 10.5% Growth Fund 5.0% 7.3% 12.4% 16.4% 17.0% Small Cap Value Fund 1.1% 1.5% 2.5% 3.5% 3.9% Small Cap Growth Fund 1.0% 1.0% 1.9% 2.6% 3.1% International Growth Fund 0.0% 4.5% 6.5% 8.6% 9.7% Short Term Income Fund 12.1% 5.7% 1.0% 0.0% 0.0% U.S. Government Securities Fund 34.1% 29.8% 20.0% 9.0% 0.0% Income Fund 23.1% 17.7% 10.3% 3.8% 0.0% High Yield Fund 6.5% 5.2% 4.6% 3.7% 4.9%
PORTFOLIO AND FUND INVESTMENT STRATEGIES AND RISKS This section provides a more complete description of the principal investment strategies and risks of each Portfolio and the Funds in which the Portfolios may invest. The "Common Investment Practices" section that follows provides additional information about the principal investment strategies of the Funds and identifies the Portfolios and Funds that may engage in such practices to a significant extent. Risks are described in greater detail under "Summary of Principal Risks." The Funds may undertake other strategies for temporary defensive purposes. These strategies may cause the Funds to miss out on investment opportunities and may prevent the Funds from achieving their goals. You can find additional descriptions of the Portfolios' and Funds' strategies and risks in the SAI. Except for policies explicitly identified as "fundamental" in this prospectus or the SAI, the investment objectives and investment policies set forth in this prospectus and the SAI are not fundamental and may be changed at any time without shareholder consent. Except as otherwise indicated, all policies and limitations are considered at the time of purchase; the sale of securities is not required in the event of a subsequent change in valuation or other circumstances. STRATEGIC ASSET MANAGEMENT PORTFOLIOS The Portfolios offer you the opportunity to pursue a variety of specially constructed asset allocation strategies. The Portfolios are designed for long-term investors seeking total return. In pursuing its investment objective, each Portfolio typically allocates its assets, within predetermined percentage ranges, among certain of the Funds listed in this prospectus. Even so, the Portfolios may temporarily exceed one or more of the applicable percentage limits for short periods. The percentages reflect the extent to which each Portfolio will normally invest in the particular market segment represented by each underlying Fund, and the varying degrees of potential investment risk and reward represented by each Portfolio's investments in those market segments and their corresponding Funds. WM Advisors may alter these percentage ranges when it deems appropriate. The assets of each Portfolio will be allocated among the Funds in accordance with its investment objective, WM Advisors' outlook for the economy and the financial markets, and the relative market valuations of the Funds. In addition, in order to meet liquidity needs or for temporary defensive purposes, each Portfolio may invest, without limit, directly in stock or bond index futures and options thereon and the following short-term instruments: - short-term securities issued by the U.S. government, its agencies, instrumentalities, authorities or political subdivisions; - other short-term fixed-income securities rated A or higher by Moody's Investors Services, Inc. ("Moody's"), Fitch Ratings ("Fitch") or Standard & Poor's ("S&P"), or if unrated, of comparable quality in the opinion of WM Advisors; - commercial paper, including master notes; - bank obligations, including negotiable certificates of deposit, time deposits and bankers' acceptances; and - repurchase agreements. At the time a Portfolio invests in any commercial paper, bank obligations, or repurchase agreements, the issuer must have outstanding debt rated A or higher by Moody's or the issuer's parent corporation, if any, must have outstanding commercial paper rated Prime-1 by Moody's or A-1 by S&P or equivalent ratings by Fitch; if no such ratings are available, the investment must be of comparable quality in the opinion of WM Advisors. In addition to purchasing shares of the Funds, a Portfolio may use futures contracts and options in order to remain effectively fully invested in proportions consistent with WM Advisors' current asset allocation strategy for the Portfolio. Specifically, each Portfolio may enter into futures contracts and options thereon, provided that the aggregate deposits required on these contracts do not exceed 5% of the Portfolio's total assets. A Portfolio may also use futures contracts and options for bona fide hedging purposes. Futures contracts and options may also be used to reallocate the Portfolio's assets among asset categories while minimizing transaction costs, to maintain cash reserves while simulating full investment, to facilitate trading, to seek higher investment returns, or to simulate full investment when a futures contract is priced attractively or is otherwise considered more advantageous than the underlying security or index. As a fundamental policy, which may not be changed without shareholder approval, each Portfolio will concentrate its investments in shares of the Funds. EQUITY FUNDS REIT FUND. Among the principal risks of investing in the REIT Fund are: market risk, credit risk, currency risk, foreign investment risk, real estate risk, derivatives risk, liquidity risk, leveraging risk, management risk, smaller company risk and fund-of-funds risk. Under normal market conditions, the REIT Fund will invest at least 80% of its net assets plus any borrowings for investment purposes in real estate investment trust ("REIT") securities. The Fund may also invest in U.S. government obligations, convertible securities and preferred stocks, exchange traded funds, mortgage-backed securities, collateralized mortgage obligations, and asset-backed securities and may also enter into futures contracts and options on futures contracts that are traded on a U.S. exchange or board of trade. The Fund may invest up to 20% of its assets in below-investment-grade fixed-income securities (sometimes called "junk bonds"). The Fund may invest in money market instruments for temporary or defensive purposes and may invest in fixed-income securities of any maturity including mortgage-backed securities, U.S. government securities and asset-backed securities. The Fund may purchase or sell U.S. government securities or collateralized mortgage obligations on a "when-issued" or "delayed-delivery" basis in an aggregate of up to 20% of the market value of its total net assets. While no individual fund is intended as a complete investment program, this is particularly true of the REIT Fund, which could be adversely impacted by economic trends within the real estate industry. EQUITY INCOME FUND. Among the principal risks of investing in the Equity Income Fund are: market risk, credit risk, currency risk, foreign investment risk, real estate risk, derivatives risk, liquidity risk, leveraging risk, management risk, smaller company risk and fund-of-funds risk. The Equity Income Fund invests primarily (normally at least 80% of its net assets plus any borrowings for investment purposes) in dividend-paying common stocks and preferred stocks. The Fund may invest in money market instruments for temporary or defensive purposes. The Fund may invest in fixed-income securities of any maturity, including mortgage-backed securities, U.S. government securities, and asset-backed securities and may also invest up to 20% of its assets in below-investment-grade bonds (sometimes called "junk bonds"). The Fund may purchase or sell U.S. government securities or collateralized mortgage obligations on a "when-issued" or "delayed-delivery" basis in an aggregate of up to 20% of the market value of its total net assets. The Fund may invest up to 20% of its assets in REITs. The Fund may write (sell) covered call options. The Fund may invest up to 25% of its assets in U.S. dollar-denominated securities of foreign issuers. GROWTH & INCOME FUND. Among the principal risks of investing in the Growth & Income Fund are: market risk, credit risk, currency risk, foreign investment risk, real estate risk, derivatives risk, liquidity risk, leveraging risk, management risk, smaller company risk, and fund-of-funds risk. The Growth & Income Fund invests primarily in common stocks. The Fund may also invest in money market instruments for temporary or defensive purposes. The Fund may invest up to 25% of its assets in REITs. The Fund may invest in preferred stocks and fixed-income securities of any maturity, including mortgage-backed securities and convertible securities, and may invest up to 35% (limited to 20% unless authorized by the Trusts' Board of Trustees) of its assets in below-investment-grade fixed-income securities. WEST COAST EQUITY FUND. Among the principal risks of investing in the West Coast Equity Fund are: market risk, credit risk, currency risk, foreign investment risk, real estate risk, derivatives risk, liquidity risk, geographic concentration risk, management risk, leveraging risk, smaller company risk, and fund-of-funds risk. Under normal circumstances, at least 80% of the Fund's net assets (plus any borrowings for investment purposes) will be invested in the common stocks of West Coast companies. WM Advisors defines West Coast companies to include those with: (i) principal executive offices located in the region, which includes Alaska, California, Oregon, and Washington; (ii) over 50% of their work force employed in the region, or (iii) over 50% of their sales within the region. While no individual fund is intended as a complete investment program, this is particularly true of the West Coast Equity Fund, which could be adversely impacted by economic trends within this four state area. The Fund is permitted to invest in money market instruments for temporary defensive purposes. The Fund may invest up to 20% of its assets in REITs and below-investment-grade fixed-income securities (sometimes called "junk bonds"). MID CAP STOCK FUND. Among the principal risks of investing in the Mid Cap Stock Fund are: market risk, credit risk, currency risk, foreign investment risk, real estate risk, derivatives risk, liquidity risk, leveraging risk, management risk, smaller company risk, and fund-of-funds risk. The Mid Cap Stock Fund invests primarily (normally at least 80% of its net assets plus any borrowings for investment purposes) in common stocks of companies with market capitalizations in the range represented by companies included in the S&P MidCap 400 (as of December 31, 2005, the S&P MidCap 400 included companies with market capitalizations ranging from [$] billion to [$] billion). The Fund may also invest in money market instruments for temporary or defensive purposes. The Fund may invest up to 20% of its assets in REITs. The Fund may invest in fixed-income securities of any maturity, including mortgage-backed securities, and may invest up to 20% of its assets in below-investment-grade fixed-income securities (sometimes called "junk bonds"). The Fund may purchase or sell U.S. government securities or collateralized mortgage obligations on a "when-issued" or "delayed-delivery" basis in an aggregate of up to 20% of the market value of its total net assets. The Fund may invest up to 25% of its assets in U.S. dollar-denominated securities of foreign issuers. GROWTH FUND. Among the principal risks of investing in the Growth Fund are: market risk, credit risk, currency risk, foreign investment risk, derivatives risk, liquidity risk, leveraging risk, management risk, smaller company risk and fund-of-funds risk. The Growth Fund invests primarily in common stocks believed to have significant appreciation potential. The Fund also may invest in fixed-income securities, bonds, convertible bonds, preferred stock, and convertible preferred stock, including up to 35% (limited to 20% unless authorized by the Funds' Board of Trustees) of its assets in below-investment-grade fixed-income securities (sometimes called "junk bonds"). The Fund may invest up to 25% of its assets in foreign securities, usually foreign common stocks, provided that no more than 5% of its assets are invested in securities of companies in (or governments of) developing or emerging countries (sometimes referred to as "emerging markets"). The Fund may also engage in certain options transactions, enter into financial futures contracts and related options for the purpose of portfolio hedging, and enter into currency forwards or futures contracts and related options for the purpose of currency hedging. The Fund's portfolio is managed by three sub-advisors: Janus Capital Management LLC, Salomon Brothers Asset Management, Inc, and OppenheimerFunds, Inc. WM Advisors determines the portion of the Fund's assets to be managed by each of the Fund's three sub-advisors. Because WM Advisors earns different fees on the amounts allocated to each of the Fund's sub-advisors, there may be a conflict between the interests of the Fund and the economic interests of WM Advisors. SMALL CAP VALUE FUND. Among the principal risks of investing in the Small Cap Value Fund are: market risk, credit risk, currency risk, foreign investment risk, real estate risk, derivatives risk, liquidity risk, leveraging risk, management risk, smaller company risk, and fund-of-funds risk. The Small Cap Value Fund invests primarily (normally at least 80% of its net assets plus any borrowings for investment purposes) in equity securities of companies with market capitalizations in the range represented by the Russell 2000(R) Value Index at the time of purchase (as of December 31, 2005, the Russell 2000(R) Value Index included companies with market capitalizations ranging from [$] billion to [$] billion). In addition to common stock, the Fund's equity securities may include convertible bonds, convertible preferred stock, and warrants to purchase common stock. The Fund may also invest in money market instruments for temporary or defensive purposes. The Fund may invest up to 25% of its assets in securities of foreign issuers, provided that no more than 5% of its total assets may be invested in securities of issuers located in developing or emerging countries. The Fund may invest up to 20% of its assets in below-investment-grade fixed-income securities (sometimes called "junk bonds") if WM Advisors believes that doing so will be consistent with the goal of capital appreciation. SMALL CAP GROWTH FUND. Among the principal risks of investing in the Small Cap Growth Fund are: market risk, credit risk, currency risk, foreign investment risk, derivatives risk, liquidity risk, leveraging risk, management risk, smaller company risk, and fund-of-funds risk. The Small Cap Growth Fund invests primarily (normally at least 80% of its net assets plus any borrowings for investment purposes) in equity securities of companies with market capitalizations in the range represented by the Russell 2000(R) Growth Index at the time of purchase (as of December 31, 2004, the Russell 2000(R) Growth Index included companies with market capitalizations ranging from [$] billion to [$] billion). In addition to common stock, the Fund's equity securities may include convertible bonds, convertible preferred stock, and warrants to purchase common stock. The Fund may also invest in money market instruments for temporary or defensive purposes. The Fund may invest up to 25% of its assets in securities of foreign issuers provided that no more than 5% of its total assets are to be invested in securities of issuers located in developing or emerging market countries. The Fund may invest up to 20% of its assets in below-investment-grade fixed-income securities (sometimes called "junk bonds") if WM Advisors or one of its sub-advisors believes that doing so will be consistent with the goal of capital appreciation. The Fund's portfolio is managed by two sub-advisors: Delaware Management Company and Oberweis Asset Management, Inc. WM Advisors will determine the portion of the Fund's assets to be managed by each of the Fund's sub-advisors. INTERNATIONAL GROWTH FUND. Among the principal risks of investing in the International Growth Fund are: market risk, credit risk, currency risk, foreign investment risk, derivatives risk, liquidity risk, leveraging risk, management risk, smaller company risk, and fund-of-funds risk. The International Growth Fund invests primarily in equity securities of issuers located in foreign countries that Capital Guardian, the Fund's sub-advisor, believes present attractive investment opportunities. In selecting investments for the Fund, Capital Guardian seeks to identify foreign stocks that have an attractive valuation, high return on invested capital, excellent cash flow, strong balance sheets, and strong management. Capital Guardian utilizes a research-driven "bottom-up" approach in that decisions are made based upon extensive field research and direct company contacts. Capital Guardian blends this approach with macroeconomics and political judgments on the outlook for economies, industries, currencies, and markets. The Fund will emphasize established companies, although it may invest in companies of varying sizes as measured by assets, sales, and capitalization. The Fund's portfolio is managed by two different teams at Capital Guardian: the "developed market team: and the "emerging market equity team." WM Advisors determines the portion of the portion of the Fund's assets to be managed by each team. The Fund invests in common stock and may invest in other securities with equity characteristics, such as trust or limited partnership interests, preferred stock, rights, and warrants. The Fund may also invest in convertible securities. The Fund invests in securities listed on foreign or domestic securities exchanges and securities traded in foreign or domestic over-the-counter markets, and may invest in restricted or unlisted securities. The Fund intends to stay fully invested in the securities described above to the extent practical. Fund assets may be invested in short-term fixed-income instruments to meet anticipated day-to-day operating expenses, and for temporary defensive purposes. In addition, when the Fund experiences large cash inflows, it may hold short-term investments until desirable equity securities become available. These short-term instruments are generally rated A or higher by Moody's, S&P or Fitch, or, if unrated, are of comparable quality in the opinion of the Fund's sub-advisor. The Fund may invest up to 30% of its assets in the securities of companies in, or governments of, developing or emerging markets, provided that no more than 5% of the Fund's total assets are invested in any one emerging market country. For temporary defensive purposes, the Fund may invest a major portion of its assets in securities of U.S. issuers. Furthermore, the Fund may invest up to 5% of its total assets in investment-grade corporate fixed-income securities having maturities longer than one year, including Euro-currency instruments and securities. FIXED-INCOME FUNDS SHORT TERM INCOME FUND. Among the principal risks of investing in the Short Term Income Fund are: market risk, credit risk, currency risk, foreign investment risk, derivatives risk, liquidity risk, leveraging risk, real estate risk, management risk, and fund-of-funds risk. The Short Term Income Fund maintains a weighted average duration of three years or less and a weighted average maturity of five years or less. Duration is a measure that relates the price volatility of a security to changes in interest rates. The duration of a fixed-income security is the weighted average term to maturity of the present value of future cash flows, including interest and principal payments. Thus, duration involves WM Advisors' judgment with respect to both interest rates and expected cash flows. The Fund will invest substantially all of its assets in fixed-income securities that, at the time of purchase, are rated in one of the top four rating categories by one or more Nationally Recognized Statistical Rating Organizations ("NRSROs") or, if unrated, are judged to be of comparable quality by WM Advisors. All fixed-income securities purchased by the Fund will be investment-grade at the time of purchase. The Fund may invest in securities issued or guaranteed by domestic and foreign governments and government agencies and instrumentalities and in high-grade corporate fixed-income securities, such as bonds, debentures, notes, equipment lease and trust certificates, mortgage-backed securities, collateralized mortgage obligations, and asset-backed securities. The Fund may invest in fixed-income securities issued by REITs. The Fund may invest up to 10% of its assets in foreign fixed-income securities, primarily bonds of foreign governments or their political subdivisions, foreign companies and supranational organizations, including non-U.S. dollar-denominated securities and U.S. dollar-denominated fixed-income securities issued by foreign issuers and foreign branches of U.S. banks. Investments in foreign securities are subject to special risks. The Fund may invest up to 5% of its assets in preferred stock. The Fund may engage in certain options transactions, enter into financial futures contracts and related options for the purpose of portfolio hedging, and enter into currency forwards or futures contracts and related options for the purpose of currency hedging. The Fund may invest in certain illiquid investments, such as privately placed securities, including restricted securities. The Fund may invest up to 10% of its assets in securities of unaffiliated mutual funds. The Fund may borrow money or enter into reverse repurchase agreements or dollar roll transactions in the aggregate of up to 33 1/3% of its total assets. The Fund may invest up to 25% of its total assets in asset-backed securities, which represent a participation in, or are secured by and payable from, a stream of payments generated by particular assets, most often a pool of similar assets. U.S. GOVERNMENT SECURITIES FUND. Among the principal risks of investing in the U.S. Government Securities Fund are: market risk, credit risk, derivatives risk, liquidity risk, leveraging risk, management risk and fund-of-funds risk. The U.S. Government Securities Fund invests primarily in a selection of obligations of the U.S. government and its agencies. The Fund may also invest in collateralized mortgage obligations, and repurchase agreements. The Fund may not invest less than 80% of its net assets (plus any borrowings for investment purposes) in obligations issued or guaranteed by the U.S. government, its agencies and/or instrumentalities or in repurchase agreements or collateralized mortgage obligations secured by these obligations. The Fund may borrow up to 5% of its total net assets for emergency, non-investment purposes. The Fund may also enter into dollar roll transactions limited in aggregate to no more than 25% of its total net assets. INCOME FUND. Among the principal risks of investing in the Income Fund are: market risk, credit risk, currency risk, foreign investment risk, derivatives risk, liquidity risk, leveraging risk, real estate risk, management risk, and fund-of-funds risk. The Income Fund invests most of its assets in: - fixed-income and convertible securities; - U.S. government securities, including mortgage-backed securities issued by the Government National Mortgage Association ( "GNMA "), FNMA, and FHLMC or similar government agencies or government-sponsored entities; - commercial mortgage-backed securities; - obligations of U.S. banks that belong to the Federal Reserve System; - preferred stocks and convertible preferred stocks; - the highest grade commercial paper as rated by S&P, Fitch or Moody's; and - deposits in U.S. banks. The Fund may also invest in securities denominated in foreign currencies and receive interest, dividends, and sale proceeds in foreign currencies. The Fund may engage in foreign currency exchange transactions for hedging or non-hedging purposes and may purchase and sell currencies on a spot (i.e. cash) basis, enter into forward contracts to purchase or sell foreign currencies at a future date, and buy and sell foreign currency futures contracts. The Fund may borrow up to 5% of its total net assets for emergency, non-investment purposes, and may enter into dollar roll transactions limited in the aggregate to no more than 25% of its total net assets. The Fund may purchase securities of issuers that deal in real estate or securities that are secured by interests in real estate, and it may acquire and dispose of real estate or interests in real estate acquired through the exercise of its rights as a holder of fixed-income securities secured by real estate or interests therein. The Fund may also purchase and sell interest rate futures and options. The Fund may invest up to 35% (limited to 20% unless authorized by the Trusts' Board of Trustees) of its assets in below-investment-grade fixed-income securities (sometimes called "junk bonds"). HIGH YIELD FUND. Among the principal risks of investing in the High Yield Fund are: market risk, credit risk, currency risk, foreign investment risk, derivatives risk, liquidity risk, leveraging risk, management risk, smaller company risk, and fund-of-funds risk. The High Yield Fund invests, under normal market conditions, at least 80% of its net assets (plus any borrowings for investment purposes) in a diversified portfolio of fixed-income securities (including convertible securities and preferred stocks) rated lower than BBB by S&P or Fitch or rated lower than Baa by Moody's or of equivalent quality as determined by WM Advisors. The remainder of the Fund's assets may be invested in any other securities WM Advisors believes are consistent with the Fund's objective, including higher rated fixed-income securities, common stocks and other equity securities. The Fund may also invest in securities of foreign issuers including those located in developing or emerging countries, and engage in hedging strategies involving options. MONEY MARKET FUND Among the principal risks of investing in the Money Market Fund are: market risk, credit risk, foreign investment risk, leveraging risk, liquidity risk, management risk, money market risk, and fund-of-funds risk. The Money Market Fund invests only in U.S. dollar-denominated short-term money market securities. The Fund will only purchase securities issued or guaranteed by the U.S. government, its agencies, sponsored entities or instrumentalities or securities that are, or have issuers that are: - rated by at least two NRSROs, such as S&P, Fitch, or Moody's, in one of the two highest rating categories for short-term fixed-income securities; - rated in one of the two highest categories for short-term debt by the only NRSRO that has issued a rating; or - if not so rated, determined to be of comparable quality. In pursuing its objective, the Money Market Fund invests solely in money market instruments that may be included in the following six general categories: - U.S. government securities; - short-term commercial notes (including asset-backed securities) issued directly by U.S. and foreign businesses, banking institutions, financial institutions (including brokerage, finance and insurance companies) and state and local governments and municipalities to finance short-term cash needs; - obligations of U.S. and foreign banks with assets of more than $500 million; - U.S. dollar-denominated securities issued by foreign governments, their agencies or instrumentalities or by supranational entities; - short-term corporate securities rated in one of the two highest rating categories by an NRSRO; and - repurchase agreements. A description of the rating systems of S&P, Fitch, and Moody's is contained in Appendix A to this prospectus and in the SAI. At the time of investment, no security (except U.S. government securities subject to repurchase agreements and variable rate demand notes) purchased by the Money Market Fund will have a maturity exceeding 397 days, and the Money Market Fund's average portfolio maturity will not exceed 90 days. The Money Market Fund will attempt to maintain a stable NAV of $1.00, but there can be no assurance that it will be able to do so. COMMON INVESTMENT PRACTICES The next several pages contain more detailed information about types of securities in which the Portfolios and Funds may invest, and strategies that WM Advisors or the respective sub-advisors may employ in pursuit of that Portfolio's or Fund's investment objective. This section also includes a summary of risks and restrictions associated with these securities and investment practices. For more information, please see the SAI. BELOW-INVESTMENT-GRADE SECURITIES. The Growth & Income, Growth, and Income Funds each may invest up to 35% of its total assets and the REIT, Equity Income, West Coast Equity, Mid Cap Stock, Small Cap Value, and Small Cap Growth Funds each may invest up to 20% of its total assets in BELOW-INVESTMENT-GRADE FIXED-INCOME SECURITIES, sometimes referred to as "junk bonds". The High Yield Fund may invest all of its assets in these securities and will generally invest at least 80% of its assets in such securities. BELOW-INVESTMENT-GRADE FIXED-INCOME SECURITIES usually entail greater risk (including the possibility of default or bankruptcy of the issuers), generally involve greater price volatility and risk of principal and income, and may be less liquid than higher-rated securities. Both price volatility and illiquidity may make it difficult for a Fund to value or to sell certain of these securities under certain market conditions. These securities are often considered to be speculative and involve greater risk of default or price changes due to changes in the issuer's creditworthiness. The market prices of these securities may fluctuate more than higher-rated securities and may decline significantly in periods of general economic difficulty, which may follow periods of rising interest rates. For further information, see Appendix A of this prospectus. BORROWING. The Portfolios and Funds may borrow money from banks solely for temporary or emergency purposes, subject to various limitations. If a Portfolio or Fund borrows money, its share price and yield may be subject to greater fluctuation until the borrowing is paid off. For the Growth, Small Cap Growth, International Growth, and Short Term Income Funds, and for the Portfolios, such BORROWINGS may not exceed 30% of total assets. The REIT, Equity Income, Growth & Income, West Coast Equity, Mid Cap Stock, Small Cap Value, U.S. Government Securities, Income, High Yield, and Money Market Funds may borrow up to 5% of their total assets for emergency, non-investment purposes. In addition, the Money Market Fund may borrow up to 33 1/3% of its total assets to meet redemption requests. Each of the foregoing percentage limitations on borrowing is a fundamental policy of the respective Portfolios and Funds. The Short Term Income, U.S. Government Securities, Income, and High Yield Funds may enter into DOLLAR ROLLS. A Fund enters into a DOLLAR ROLL by selling securities for delivery in the current month and simultaneously contracting to repurchase, typically in 30 or 60 days, substantially similar (same type, coupon and maturity) securities on a specified future date. This may be considered borrowing from the counterparty and may produce similar leveraging effects. The proceeds of the initial sale of securities in the dollar roll transactions, for example, may be used to purchase long-term securities that will be held during the roll period. To the extent that the proceeds of the initial sale of securities are invested, the Fund will be subject to market risk on those securities as well as similar risk with respect to the securities the Fund is required to repurchase. Each of the REIT, Mid Cap Stock, Growth, Small Cap Value, Small Cap Growth, International Growth, Short Term Income, U.S. Government Securities, Income, and High Yield Funds may engage in REVERSE REPURCHASE AGREEMENTS. REVERSE REPURCHASE AGREEMENTS involve the risk that the market value of the securities sold by a fund may decline below the repurchase price of the securities and, if the proceeds from the reverse repurchase agreement are invested in securities, that the market value of the securities bought may decline at the same time there is a decline in the market value of the securities sold (and required to be repurchased). FIXED-INCOME SECURITIES. The market value of FIXED-INCOME SECURITIES held by a Fund and, consequently, the value of the Fund's shares can be expected to vary inversely with changes in prevailing interest rates. You should recognize that, in periods of declining interest rates, the Fund's yield will tend to be somewhat higher than prevailing market rates and, in periods of rising interest rates, the Fund's yield will tend to be somewhat lower. Also, when interest rates are falling, any net inflow of money to the Fund will likely be invested in instruments producing lower yields than the balance of its assets, thereby reducing current yield. In periods of rising interest rates, the opposite can be expected to occur. The prices of longer maturity securities are also subject to greater market fluctuations as a result of changes in interest rates. In addition, securities purchased by a Fund may be subject to the risk of default. FIXED-INCOME SECURITIES, including MUNICIPAL OBLIGATIONS, rated in the lower end of the investment-grade category (Baa or BBB) and BELOW-INVESTMENT-GRADE FIXED-INCOME SECURITIES may have speculative characteristics and may be more sensitive to economic changes and changes in the financial condition of their issuers. The FIXED-INCOME SECURITIES in which the Funds may invest include ZERO-COUPON SECURITIES, which make no payments of interest or principal until maturity. Because these securities avoid the need to make current interest payments, they may involve greater credit risks than other FIXED-INCOME SECURITIES. FLOATING RATE, INVERSE FLOATING RATE, AND VARIABLE RATE INVESTMENTS. The REIT, Equity Income, and Growth & Income Funds and the Fixed-Income Funds may purchase FLOATING RATE, INVERSE FLOATING RATE, and VARIABLE RATE SECURITIES, including participation interests therein and assignments thereof. The Money Market Fund may purchase FLOATING RATE and VARIABLE RATE OBLIGATIONS, including participation interests therein. The Fixed-Income Funds may purchase MORTGAGE-BACKED SECURITIES that are FLOATING RATE, INVERSE FLOATING RATE, and VARIABLE RATE OBLIGATIONS. Although variable rate demand notes are frequently not rated by credit rating agencies, a Fund may purchase unrated notes that are determined by WM Advisors or the Fund's sub-advisors to be of comparable quality at the time of purchase to rated instruments that may be purchased by the Fund. The absence of an active secondary market could make it difficult for a Fund to dispose of these securities in the event the issuer of the note were to default on its payment obligations, and the Fund could, for this or other reasons, suffer a loss as a result of the default. Each of the REIT, Equity Income, and Growth & Income Funds, as well as the Fixed-Income Funds, may also invest in securities representing interests in tax-exempt securities, known as INVERSE FLOATING OBLIGATIONS or "residual interest bonds," which pay interest rates that vary inversely with changes in the interest rates of specified short-term tax-exempt securities or an index of short-term tax-exempt securities. The interest rates on INVERSE FLOATING RATE OBLIGATIONS or residual interest bonds will typically decline as short-term market interest rates increase and increase as short-term market rates decline. These securities have the effect of providing a degree of investment leverage. They will generally respond to changes in market interest rates more rapidly than fixed-rate long-term securities (typically twice as fast). As a result, the market values of INVERSE FLOATING RATE OBLIGATIONS and residual interest bonds will generally be more volatile than the market values of fixed-rate tax-exempt securities. FOREIGN CURRENCY EXCHANGE TRANSACTIONS AND CURRENCY MANAGEMENT. The REIT, Mid Cap Stock, Growth, Small Cap Value, Small Cap Growth, International Growth, Short Term Income, Income, and High Yield Funds may, subject to the investment limitations stated elsewhere in this prospectus and the SAI, engage in FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Funds that buy and sell securities denominated in currencies other than the U.S. dollar, and receive interest, dividends, and sale proceeds in currencies other than the U.S. dollar, may enter into FOREIGN CURRENCY EXCHANGE TRANSACTIONS to convert to and from different foreign currencies and to convert foreign currencies to and from the U.S. dollar. These Funds either enter into these transactions on a spot (i.e. cash) basis at the spot rate prevailing in the foreign currency exchange market, or use forward contracts to purchase or sell foreign currencies. These Funds also may enter into foreign currency hedging transactions in an attempt to protect against changes in foreign currency exchange rates between the trade and settlement dates of specific securities transactions or changes in foreign currency exchange rates that would adversely affect a portfolio position or an anticipated portfolio position. These transactions tend to limit any potential gain that might be realized should the value of the hedged currency increase. The precise matching of the forward contract amounts and the value of the securities involved will not generally be possible because the future value of these securities in foreign currencies will change as a consequence of market movements in the value of those securities between the date the forward contract is entered into and the date it matures. The projection of currency market movements is extremely difficult, and the successful execution of a hedging strategy is highly uncertain. The Fund may also enter into a forward contract to sell a currency that is linked to a currency or currencies in which some or all of the Fund's portfolio securities are or could be denominated, and to buy U.S. dollars. These practices are referred to as "cross hedging" and "proxy hedging." Forward currency exchange contracts are agreements to exchange one currency for another -- for example, to exchange a certain amount of U.S. dollars for a certain amount of Japanese yen -- at a future date and specified price. Because there is a risk of loss to the Fund if the other party does not complete the transaction, WM Advisors or the Fund's sub-advisor will enter into forward currency exchange contracts only with parties approved by the Trust's Board of Trustees or persons acting pursuant to their direction. Each of the Funds, other than the Equity Income, Growth & Income, West Coast Equity, U.S. Government Securities, and Money Market Funds, may invest in securities that are indexed to certain specific foreign currency exchange rates. These securities expose the Funds to the risk of significant changes in rates of exchange between the U.S. dollar and any foreign currency to which an exchange rate-related security is linked. In addition, there is no assurance that sufficient trading interest to create a liquid secondary market will exist for a particular exchange rate-related security due to conditions in the fixed-income and foreign currency markets. Illiquidity in the forward foreign exchange market and the high volatility of the foreign exchange market may from time to time combine to make it difficult to sell an exchange rate-related security prior to maturity without incurring a significant loss. In addition, these Funds may enter into foreign currency forward contracts for non-hedging purposes. When WM Advisors or a Fund's sub-advisor believes that the currency of a specific country may deteriorate against another currency, the Fund may enter into a forward contract to sell the less attractive currency and buy the more attractive one. The amount in question could be less than or equal to the value of the Fund's securities denominated in the less attractive currency. For example, a Fund could enter into a foreign currency forward contract to sell U.S. dollars and buy a foreign currency when the value of the foreign currency is expected to rise in relation to the U.S. dollar. While the foregoing actions are intended to protect a Fund from adverse currency movements or allow a Fund to profit from favorable currency movements, there is a risk that currency movements involved will not be properly anticipated, and there can be no assurance that such transactions will be available or that a Fund will use such transactions even if they are available. Use of currency hedging techniques may also be limited by the need to protect the status of the Fund as a regulated investment company under the Code. FOREIGN INVESTMENTS. The Equity Income, Growth & Income, West Coast Equity, and Money Market Funds may invest in securities of foreign issuers if such securities are denominated in U.S. dollars. The REIT, Mid Cap Stock, Growth, Small Cap Value, Small Cap Growth, International Growth, Short Term Income, Income, and High Yield Funds may invest in both U.S. dollar-denominated and non-U.S. dollar-denominated foreign securities. There are certain risks involved in investing in foreign securities, including those resulting from: - fluctuations in currency exchange rates; - devaluation of currencies; - future political or economic developments and the possible imposition of currency exchange blockages or other foreign governmental laws or restrictions; - reduced availability of public information concerning issuers; and - the fact that foreign companies are not generally subject to uniform accounting, auditing and financial reporting standards or to other regulatory practices and requirements comparable to those applicable to domestic companies. Moreover, securities of many foreign companies may be less liquid and their prices more volatile than those of securities of comparable domestic companies. In addition, there is the possibility of expropriation, nationalization, confiscatory taxation and limitations on the use or removal of funds or other assets of the Funds, including the withholding of dividends. The risks associated with foreign securities are generally greater for securities of issuers in emerging markets. In addition, while the volume of transactions effected on foreign stock exchanges has increased in recent years, in most cases it remains well below that of the New York Stock Exchange. Accordingly, the Funds' foreign investments may be less liquid and their prices may be more volatile than comparable investments in securities of U.S. companies. Moreover, the settlement periods for foreign securities, which are often longer than those for securities of U.S. issuers, may affect portfolio liquidity. In buying and selling securities on foreign exchanges, the Funds normally pay fixed commissions that are generally higher than the negotiated commissions charged in the United States. In addition, there is generally less governmental supervision and regulation of securities exchanges, brokers and issuers in foreign countries than in the United States. Foreign securities generally are denominated and pay dividends or interest in foreign currencies, and the value of the Funds' net assets as measured in U.S. dollars will be affected favorably or unfavorably by changes in exchange rates. The Equity Funds and the Short Term Income, Income, and High Yield Funds may invest in securities of foreign issuers directly or in the form of AMERICAN DEPOSITARY RECEIPTS ("ADRS"), EUROPEAN DEPOSITARY RECEIPTS ("EDRS"), GLOBAL DEPOSITARY RECEIPTS ("GDRS") or other similar securities representing securities of foreign issuers. These securities may not be denominated in the same currency as the securities they represent. ADRS are receipts typically issued by a United States bank or trust company evidencing ownership of the underlying foreign securities. EDRS, which are sometimes referred to as Continental Depositary Receipts ("CDRs"), are receipts issued by a European financial institution evidencing a similar arrangement. Generally, ADRS, in registered form, are designed for use in the United States securities markets, and EDRS, in bearer form, are designed for use in European securities markets. GEOGRAPHIC CONCENTRATION. Potential investors in the West Coast Equity Fund should consider the possibility of greater risk arising from the geographic concentration of the Fund's investments, as well as the current and past financial conditions of Alaska, California, Oregon, and Washington. HOLDINGS IN OTHER INVESTMENT COMPANIES. When WM Advisors or a Fund's sub-advisor believes that it would be beneficial to the Fund, each of the REIT, Mid Cap Stock, Growth, Small Cap Value, Small Cap Growth, International Growth, Short Term Income, U.S. Government Securities, and High Yield Funds may, subject to any limitations imposed by the 1940 Act, invest up to 10% of its assets in securities of mutual funds or other registered investment companies that are not affiliated with WM Advisors or the Fund's sub-advisor. As a shareholder in any such mutual fund, the Fund will bear its ratable share of the mutual fund's expenses, including management fees, and will remain subject to the Fund's advisory fees with respect to the assets so invested. In addition, the Growth Fund may invest Fund assets in money market funds affiliated with Janus (one of the Fund's sub-advisors), provided that Janus remits to the Fund the amount of any investment advisory and administrative services fees paid to Janus as the investment manager of the money market fund. ILLIQUID SECURITIES AND RESTRICTED SECURITIES. Up to 10% of the net assets of the Money Market Fund and up to 15% of the net assets of every other Fund may be invested in securities that are not readily marketable. Such ILLIQUID SECURITIES may include: - REPURCHASE AGREEMENTS with maturities greater than seven calendar days; - time deposits maturing in more than seven calendar days; - to the extent a liquid secondary market does not exist for the instruments, futures contracts and options thereon; - certain over-the-counter options, as described in the SAI; - certain variable rate demand notes having a demand period of more than seven calendar days; and - securities that are restricted under federal securities laws with respect to disposition (excluding certain Rule 144A securities, as described below). Securities which may be resold pursuant to Rule 144A under the Securities Act of 1933, as amended, will not be included for the purposes of these restrictions, provided that such securities meet liquidity guidelines established by the Board of Trustees of the Trusts. Each of the Funds may purchase RESTRICTED SECURITIES (provided such securities are, in the case of the Equity Income, Growth & Income, West Coast Equity, U.S. Government Securities, Income, and Money Market Funds, eligible for resale pursuant to Rule 144A under the Securities Act of 1933, as amended). Although recent and ongoing developments in the securities markets have resulted in greater trading of RESTRICTED SECURITIES (making restricted securities, in many instances, more liquid than they once were considered to be), investing in RESTRICTED SECURITIES could increase the level of illiquidity of the portfolio securities of a Fund. This could make it more difficult for a Fund to fulfill shareholder redemption orders on a timely basis. If a Fund were required to sell these securities on short notice, it might be unable to obtain fair market value. LENDING OF SECURITIES. Certain of the Funds may lend portfolio securities to brokers and other financial organizations. The Growth, Small Cap Growth, International Growth, and Short Term Income Funds each may lend portfolio securities up to 20% of total assets. The REIT, Equity Income, Growth & Income, West Coast Equity, Mid Cap Stock, Small Cap Value, U.S. Government Securities, Income, High Yield, and Money Market Funds each may lend portfolio securities up to 33% of its total assets. These transactions involve a risk of loss to the Fund if the counterparty should fail to return such securities to the Fund upon demand or if the counterparty's collateral invested by the Fund declines in value as a result of investment losses. MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. The REIT, Equity Income, Growth & Income, Mid Cap Stock, Small Cap Value, Small Cap Growth, International Growth, Short Term Income, U.S. Government Securities, Income, and High Yield Funds may invest in GOVERNMENT MORTGAGE-BACKED SECURITIES issued or guaranteed by GNMA, FNMA or FHLMC. To the extent that a Fund purchases MORTGAGE-BACKED SECURITIES at a premium, mortgage foreclosures and payments and prepayments of principal (which may be made at any time without penalty) will tend to result in the loss of that premium. The yield of a Fund may be affected by reinvestments of prepayments at higher or lower rates than the original investment. In addition, like other fixed-income securities, the value of MORTGAGE-BACKED SECURITIES will generally fluctuate in response to market interest rates. The U.S. government guarantees the timely payment of interest and principal for GNMA certificates. However, the guarantees do not extend to the securities' yield or value, which are likely to vary inversely with fluctuations in interest rates, nor do the guarantees extend to the yield or value of the Fund's shares. Government stripped mortgage-based securities represent beneficial ownership interests in either principal distributions (principal-only securities or "PO strips") or interest distributions (interest-only securities or "IO strips") from GOVERNMENT MORTGAGE-BACKED SECURITIES. Investing in government stripped mortgage-backed securities involves the risks normally associated with investing in MORTGAGE-BACKED SECURITIES issued by government entities. In addition, the yields on PO and IO strips are extremely sensitive to prepayments on the underlying mortgage loans. If a decline in the level of prevailing interest rates results in a higher than anticipated rate of principal prepayment, distributions of principal will be accelerated, thereby reducing the yield to maturity on IO strips and increasing the yield to maturity on PO strips. Conversely, if an increase in the level of prevailing interest rates results in a rate of principal prepayments that is lower than anticipated, distributions of principal will be deferred, thereby increasing the yield to maturity on IO strips and decreasing the yield to maturity on PO strips. Sufficiently high prepayment rates could result in the Fund losing some or all of its initial investment in an IO strip. The Funds will acquire government stripped mortgage-backed securities only if a liquid secondary market for the securities exists at the time of acquisition and the purchase of principal-only and interest-only securities will be limited to 5% of total assets for each Fund unless authorized by the Funds' Board of Trustees. However, there can be no assurance that the Funds will be able to effect a trade of a government stripped mortgage-backed security at a time when they wish to do so. In addition, the REIT, Equity Income, Growth & Income, Mid Cap Stock, Small Cap Value, Short Term Income, U.S. Government Securities, and Income Funds may invest in non-agency mortgage-backed securities, which are similar to GOVERNMENT MORTGAGE-BACKED SECURITIES, except that they are not issued or guaranteed by governmental entities. Non-agency mortgage-backed securities include collateralized mortgage obligations and real estate mortgage investment conduits ("REMICs"). While non-agency mortgage-backed securities are generally structured with one or more types of credit enhancement, and often have high credit ratings, they lack the credit status of a governmental agency or instrumentality. The REIT, Equity Income, Mid Cap Stock, Small Cap Value, Small Cap Growth, Short Term Income, U.S. Government Securities, Income, High Yield, and Money Market Funds may purchase ASSET-BACKED SECURITIES. ASSET-BACKED SECURITIES are structured like MORTGAGE-BACKED SECURITIES, but instead of mortgage loans or interests in mortgage loans, the underlying assets may include such items as motor vehicle installment sales or installment loan contracts, leases of various types of real and personal property, home equity loans, and receivables from credit card agreements. The ability of an issuer of ASSET-BACKED SECURITIES to enforce its security interest in the underlying assets may be limited. REAL ESTATE INVESTMENT TRUSTS. The REIT, Equity Income, Growth & Income, West Coast Equity, Mid Cap Stock, Growth, Small Cap Value, Small Cap Growth, International Growth, Short Term Income, Income, and High Yield Funds may invest in real estate investment trusts, known as "REITS." In addition, the REIT Fund typically invests at least 80% of its net assets plus any borrowings for investment purposes in REITS. REITS involve certain unique risks in addition to those risks associated with investing in the real estate industry in general (such as possible declines in the value of real estate, lack of availability of mortgage funds or extended vacancies of property). Equity REITS may be affected by changes in the value of the underlying property owned by the REITS, while mortgage REITS may be affected by the quality of any credit extended. REITS are dependent upon management skills, are not diversified, and are subject to heavy cash flow dependency, risks of default by borrowers, and self-liquidation. As an investor in a REIT, the Fund will be subject to the REIT'S expenses, including management fees, and will remain subject to the Fund's advisory fees with respect to the assets so invested. REITS are also subject to the possibilities of failing to qualify for the special tax treatment accorded REITs under the Code, and failing to maintain their exemptions from registration under the 1940 Act. Investment in REITS involves risks similar to those associated with investing in small capitalization companies. REITS may have limited financial resources, may trade less frequently and in a limited volume, and may be subject to more abrupt or erratic price movements than larger company securities. REPURCHASE AGREEMENTS. All of the Portfolios and Funds may invest in REPURCHASE AGREEMENTS, which are purchases of underlying FIXED-INCOME SECURITIES from financial institutions, such as banks and broker/dealers, subject to the seller's agreement to repurchase the securities at an established time and price. REPURCHASE AGREEMENTS can be regarded as loans to the seller, collateralized by the securities that are the subject of the agreement. Default by the seller would expose the Fund to possible loss because of adverse market action or delay in connection with the disposition of the underlying securities. In addition, if bankruptcy proceedings are commenced with respect to the seller of the obligations, the Fund may be delayed or limited in its ability to sell the collateral. Pursuant to an exemptive order granted by the Securities and Exchange Commission, the Funds may transfer daily uninvested cash balances into one or more joint trading accounts. Assets in the joint trading accounts are invested in REPURCHASE AGREEMENTS or other money market instruments, and the proceeds are allocated to the participating Funds on a pro rata basis. STRATEGIC TRANSACTIONS. Subject to the investment limitations and restrictions stated elsewhere in this prospectus and the SAI, each Portfolio and Fund, except the Money Market Fund, may utilize various investment strategies as described below to hedge various market risks, to manage the effective maturity or duration of FIXED-INCOME SECURITIES, or for other bona fide hedging purposes. Utilizing these investment strategies, the Portfolio or Fund may purchase and sell exchange-listed and over-the-counter put and call options on securities, equity and fixed-income indices; and other financial instruments. It may also purchase and sell financial futures contracts and options thereon; enter into various interest rate transactions such as swaps, caps, floors or collars; and enter into various currency transactions such as currency forward contracts, currency futures contracts, currency swaps or options on currencies, or currency futures. The Funds may write (sell) covered call options as well. A call option is "covered" if the Fund owns the security underlying the option it has written or if it maintains enough cash, cash equivalents or liquid securities to purchase the underlying security. Subject to the investment limitations and restrictions stated elsewhere in this prospectus and in the SAI, the Fixed-Income Funds may enter into credit default swaps. The seller of a credit default swap contract is required to pay the par (or other agreed-upon) value of a referenced debt obligation to the counterparty in the event of a default or similar triggering event by a third party, such as a U.S. or foreign corporate issuer, on the debt obligation. In return, the seller of a credit default swap receives from the buyer a periodic stream of payments over the term of the contract provided that no event of default or similar triggering event has occurred. If no default or other triggering event occurs, the seller would keep the stream of payments and would have no payment obligations. Credit default swaps are subject to the risks associated with derivative instruments including, among others, credit risk, default or similar event risk, interest rate risk, leverage risk, and management risk. All of the above are collectively referred to as "STRATEGIC TRANSACTIONS." STRATEGIC TRANSACTIONS may be used: - to attempt to protect against possible changes in the market value of securities held in, or to be purchased for, the Fund's portfolio resulting from securities markets or currency exchange rate fluctuations; - to protect the Fund's unrealized gains in the value of its portfolio securities; - to facilitate the sale of such securities for investment purposes; - to manage the effective maturity or duration of the Fund's portfolio; or - to establish a position in the derivatives markets as a substitute for purchasing or selling particular securities. Some STRATEGIC TRANSACTIONS may also be used to seek potentially higher returns, rather than for hedging purposes. Any or all of these investment techniques may be used at any time, as the use of any strategic transaction is a function of numerous variables including market conditions. The use of STRATEGIC TRANSACTIONS involves special considerations and risks, such as: - the ability of the Portfolio or Fund to utilize STRATEGIC TRANSACTIONS successfully will depend on the ability of WM Advisors or the sub-advisor to predict pertinent market movements; - the risk that the other party to a STRATEGIC TRANSACTION will fail to meet its obligations to the Portfolio or Fund; - the risk that the Portfolio or Fund will be unable to close out a STRATEGIC TRANSACTION at a time when it would otherwise do so, due to the illiquidity of the strategic transaction; and - the risk of imperfect correlation, or even no correlation, between price movements of STRATEGIC TRANSACTIONS and price movements of any related portfolio positions. STRATEGIC TRANSACTIONS can reduce opportunity for gain by offsetting the positive effect of favorable price movements in the related portfolio positions. U.S. GOVERNMENT SECURITIES. All of the Portfolios and Funds may invest in U.S. GOVERNMENT SECURITIES, which include direct obligations of the U.S. Treasury (such as U.S. Treasury bills, notes and bonds) and obligations issued or guaranteed by U.S. government agencies or instrumentalities. Some obligations issued or guaranteed by agencies or instrumentalities of the U.S. government are backed by the full faith and credit of the U.S. government (such as GNMA bonds); others are backed only by the right of the issuer to borrow from the U.S. Treasury (such as securities of Federal Home Loan Banks) and still others are backed only by the credit of the government-sponsored entity (such as FNMA and FHLMC bonds). Certain of these obligations may receive ratings that are lower than the AAA rating typically associated with obligations of the U.S. Treasury, reflecting increased credit risk. WHEN-ISSUED SECURITIES AND DELAYED-DELIVERY TRANSACTIONS. In order to secure yields or prices deemed advantageous at the time, the Funds may purchase or sell securities on a WHEN-ISSUED or a DELAYED-DELIVERY BASIS. Due to fluctuations in the value of securities purchased on a WHEN-ISSUED or a DELAYED-DELIVERY BASIS, the yields obtained on such securities may be higher or lower than the yields available in the market on the dates when the securities are actually delivered to the Funds. Similarly, the sale of securities for delayed-delivery can involve the risk that the prices available in the market when delivery is made may actually be higher than those obtained in the transaction itself. WHEN-ISSUED SECURITIES may include bonds purchased on a "when-, as-, and if-issued" basis, under which the issuance of securities depends on the occurrence of a subsequent event, such as approval of a proposed financing by appropriate authorities. A significant commitment of a Fund's assets to the purchase of securities on a "when-, as-, and if-issued" basis may increase the volatility of a Fund's NAV. PORTFOLIO TRANSACTIONS AND TURNOVER. Each Portfolio's and Fund's turnover rate varies from year to year, depending on market conditions and investment strategies. High turnover rates increase transaction costs and may increase taxable capital gains. Each Portfolio's historical portfolio turnover rates are shown under "Financial Highlights" in this prospectus. WM Advisors and the sub-advisors will not consider a Portfolio's or Fund's portfolio turnover rate to be a limiting factor in making investment decisions consistent with the Portfolio's or Fund's investment objectives and policies. INVESTING IN THE PORTFOLIOS AND THE MONEY MARKET FUND Shares of the Portfolios and the Money Market Fund are generally purchased through persons employed by or affiliated with broker/dealer firms ("Investment Representatives"). Investment Representatives may establish shareholder accounts according to their procedures or they may establish shareholder accounts directly with the WM Group of Funds by contacting the Funds at 1-800-222-5852 or visiting wmgroupoffunds.com to obtain the appropriate forms. An investment in the WM Group of Funds may be held in various types of accounts, including individual, joint ownership, trust, and business accounts. We also offer a range of custodial accounts for those who wish to invest for retirement and/or education expenses. Prospective shareholders should consult with their Investment Representative prior to making decisions about the account and type of investment that are appropriate for them. The WM Group of Funds reserves the right to refuse any order for the purchase of shares, including those by exchange. MAKING AN INVESTMENT The WM Group of Funds has a minimum initial investment amount of $1,000 and a minimum subsequent investment amount of $100. Initial and subsequent investment minimums apply on a per-Portfolio basis, for each Portfolio in which a shareholder invests. Shareholders must meet the minimum initial investment amount of $1,000 unless an Automatic Investment Plan ("AIP") is established. With an AIP, the minimum initial investment is $100; subsequent automatic investment amounts must be at least $100 per investment. Accounts established with an AIP that do not meet the minimum initial investment must maintain subsequent automatic investments that total at least $1,200 annually. Investors who have established an AIP prior to January 1, 2005, will be able to continue existing plans; however, any revisions made to an AIP after January 1, 2005, will need to comply with the minimum amounts stated above. - Portfolio and share class selection(s) must be made at the time of purchase. If a Portfolio is not selected, Class A shares of the Money Market Fund will be purchased. If a class of shares is not selected, then Class A shares will be purchased. - Automatic payroll deduction plans are not subject to the minimum initial investment requirement if they meet the subsequent investment minimums on a monthly basis. IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING A NEW ACCOUNT. To help the government fight the funding of terrorism and money laundering activities, federal law requires financial institutions to obtain, verify, and record information that identifies each person who opens an account. This means that when you open an account, we will ask for your name, legal street address, date of birth, Social Security number, and/or other information that will allow us to identify you. If we are unable to verify your customer information on a timely basis, we may close your account or take such other steps as we deem appropriate. CHOOSING A SHARE CLASS The WM Group of Funds offers Class A, B, C, R-1, and R-2 shares of the Portfolios and the Money Market Fund. Generally, Class R-1 and R-2 shares are available for purchase only through qualified employer-sponsored retirement or benefit plans (see "Class R-1 and R-2 Shares" section for more detailed information). Sales charges may be reduced or waived as outlined in this prospectus or the SAI. Listed below are highlights of each of our share classes and information regarding sales charges and dealer re-allowances. It is the responsibility of the shareholder or Investment Representative to notify the WM Group of Funds at the time of purchase or reinvestment if the initial sales charge should be reduced or eliminated. Each class has different costs associated with buying, redeeming, and holding shares. Which class is best for you depends upon the size of your investment and how long you intend to hold the shares. Please consult with your Investment Representative before choosing the class of shares that is most appropriate for you. CLASS A SHARES INITIAL SALES CHARGE. - Initial sales charge of up to 5.50% may apply (see "Purchase of Class A Shares"). - Initial sales charge varies based on the amount invested and the Portfolio selected. - Initial sales charge is subject to rights of accumulation and letter of intent discounts as described under "Rights of Accumulation" and "Letter of Intent. " - Purchases at net asset value ( "NAV ") (without initial sales charges): - No initial sales charge on purchases of $1 million or more, although a 1.00% contingent deferred sales charge may apply to redemptions made within 18 months after purchase. - No initial sales charge on shares purchased with the proceeds of redemptions of Class A shares of the Portfolios (other than the Money Market Fund, unless such shares were obtained by exchange of shares of a Portfolio or Fund that imposes an initial sales charge) within 120 days of redemption. - No initial sales charge will apply to purchases of Class A shares by certain individuals, groups and/or entities as follows: - Current and retired Trustees of the WM Group of Funds; - Officers, directors and employees of WM Advisors and certain of its affiliates; - Employees (and their spouses, domestic partners, children, step-children, grandchildren, and parents, as defined in the SAI) of companies that have entered into a selling agreement with the Distributor; - Current and retired Washington Mutual employees (and their spouses, domestic partners, children, step-children, grandchildren, and parents, as defined in the SAI); and - Rollovers by current or former Washington Mutual employees into Individual Retirement Accounts involving assets from a Washington Mutual retirement plan and subsequent investments into such accounts. - Participants in qualified retirement or benefit plans with total assets in excess of $5,000,000. (A minimum initial investment of $500,000 is required. The WM Group of Funds, at its sole discretion, may waive these minimum dollar requirements.)(1) - Clients of registered investment advisors that have entered into arrangements with the Distributor providing for the shares to be used in particular investment products made available to such clients and for which such registered investment advisors may charge a separate fee. - Initial sales charge waivers or reductions are also described in the SAI and at wmgroupoffunds.com. (1) The Distributor may pay a finders fee on purchases in qualified retirement plans invested in the Portfolios or Funds. Unless the dealer has waived the commission, a CDSC (as described on page 36) may apply: (1) for omnibus accounts, to a redemption of all shares held by the plan's participants within 18 months after the plan's initial investment in the Portfolio or Fund; or (2) for non-omnibus accounts, to any redemptions by a plan participant within 18 months of the plan participant's purchase of such Class A shares. RIGHTS OF ACCUMULATION ("ROA"). A shareholder may qualify to purchase Class A shares at a reduced sales charge or at NAV based on existing investments in the Portfolios. It is the responsibility of the shareholder or Investment Representative to notify the WM Group of Funds at the time of investment of any existing investments that should be counted towards ROA. Current purchases and the market value of existing investments in the WM Group of Funds, including Class A, B, C, R-1, and R-2 shares, are combined to determine the applicable sales charge. Sales charges are set forth in the schedules below. Purchases of Class A shares of the Money Market Fund will not be applied towards ROA if a sales charge has not been paid. To receive a reduced Class A sales charge, investments by an individual, his or her spouse, domestic partner, children, grandchildren (as defined in the SAI), and dependents for whom they serve as legal guardian may be aggregated for these purposes if made by them for their own accounts and/or certain other accounts, such as: - Trust accounts established by the above individuals. If the person(s) who established the trust is deceased, the trust may be aggregated with accounts of the primary beneficiary of the trust; - Solely controlled business accounts; and - Single-participant retirement accounts. LETTER OF INTENT ("LOI"). A shareholder may qualify to purchase Class A shares at a reduced sales charge or at NAV by entering into an LOI agreement with the WM Group of Funds. The LOI expresses the shareholder's intent to buy a stated dollar amount of any share class of the Portfolios or Funds (other than the Money Market Fund) over a 13-month period. At the shareholder's request, the LOI may apply to shares purchased up to 90 days prior to the receipt of the LOI by the WM Group of Funds to include prior purchases. The sales charge applicable to all Class A shares purchased under the LOI will be the sales charge that would have been applicable had the value of shares specified in the LOI been purchased simultaneously. - A portion of shares will be held in escrow until the LOI is completed. If the LOI is not completed, escrow shares will be redeemed in order to pay the Distributor for the difference between the sales charge actually paid and the sales charge that would have been paid absent the LOI. - Any redemption of escrow shares will invalidate the LOI. - An LOI is to be completed based on amounts purchased, not on current market value. PURCHASE OF CLASS A SHARES. The offering price for Class A shares is the NAV next calculated after receipt of an investor's order in proper form by WM Group of Funds or its servicing agent, plus any applicable initial sales charge (except for the Money Market Fund) as shown in the tables below. The right-hand column in each table indicates what portion of the sales charge is paid to Investment Representatives and their brokerage firms ("dealers") for selling Class A shares. For more information regarding compensation paid to dealers, see "Distribution Plan and Additional Information Regarding Dealer Compensation."
CONSERVATIVE BALANCED, BALANCED, CONSERVATIVE GROWTH AND STRATEGIC GROWTH PORTFOLIOS SALES CHARGE REALLOWED TO DEALERS PERCENTAGE PERCENTAGE OF PERCENTAGE OF OFFERING NET AMOUNT OF OFFERING PURCHASE OF CLASS A SHARES PRICE INVESTED PRICE - --------------------------------- ----------- ------------- ------------- Less than $50,000 5.50% 5.82% 4.75% $50,000 but less than $100,000 4.75% 4.99% 4.00% $100,000 but less than $250,000 3.75% 3.90% 3.00% $250,000 but less than $500,000 3.00% 3.09% 2.50% $500,000 but less than $1,000,000 2.00% 2.04% 1.75% $1,000,000 or more 0.00% 0.00% 0.00%*
FLEXIBLE INCOME PORTFOLIO SALES CHARGE REALLOWED TO DEALERS PERCENTAGE PERCENTAGE OF PERCENTAGE OF OFFERING NET AMOUNT OF OFFERING PURCHASE OF CLASS A SHARES PRICE INVESTED PRICE - --------------------------------- ----------- ------------- -------------- Less than $50,000 4.50% 4.71% 4.00% $50,000 but less than $100,000 4.00% 4.17% 3.50% $100,000 but less than $250,000 3.50% 3.63% 3.00% $250,000 but less than $500,000 2.50% 2.56% 2.00% $500,000 but less than $1,000,000 2.00% 2.04% 1.75% $1,000,000 or more 0.00% 0.00% 0.00%*
- ---------- * The Distributor may pay authorized dealers commissions on purchases of Class A shares over $1 million calculated as follows: 1.00% on purchases between $1 million and $3 million; 0.50% on amounts over $3 million but less than $5 million; 0.35% on amounts over $5 million but less than $10 million; and 0.25% on amounts over $10 million. Commissions are based on cumulative investments. CONTINGENT DEFERRED SALES CHARGE ("CDSC") ON CLASS A SHARES. Class A shares purchased in amounts of $1 million or more (other than shares of the Money Market Fund) are generally subject to a CDSC of 1.00% if the shares are redeemed during the first 18 months after purchase, unless the dealer, at its discretion, has waived the commission. The Distributor may pay authorized dealers commissions up to 1.00% of the price of such purchases. The CDSC may be waived for redemptions of Class A shares as described under "CDSC Calculation and Waivers" in this prospectus. CLASS B SHARES Class B shares may not be suitable for large investments. Due to the higher expenses associated with Class B shares, it may be more advantageous for investors currently purchasing, intending to purchase, or with existing assets in amounts that may qualify for a reduced sales charge on Class A shares, including through ROA and/or an LOI, to purchase Class A shares. The WM Group of Funds seeks to prevent investments in Class B shares by shareholders with at least $100,000 of investments in the WM Group of Funds eligible for inclusion pursuant to rights of accumulation. The Portfolios will seek to reject such investments, except for investments by qualified retirement plans and IRAs, which will be treated as orders for Class A shares of the Money Market Fund. The offering price for Class B shares is the NAV next calculated after receipt of an investor's order in proper form by the WM Group of Funds or its servicing agent, with no initial sales charge. A CDSC of up to 5.00% may apply depending on the Portfolio and time in the investment (see schedule below). - Shares purchased through reinvestment of dividends or capital gain distributions are not subject to a CDSC. - No CDSC on redemptions of Class B shares held for 6 years or longer. - Class B shares have higher annual expenses than Class A shares because they are subject to distribution fees for the first eight years. - After the eighth year, Class B shares convert automatically to Class A shares of the same Portfolio, typically without income tax impact. - Within 120 days of a redemption of Class B shares, the proceeds may be reinvested in Class A shares at NAV, if a CDSC was paid. The Distributor currently pays authorized dealers commissions of up to 4.00% of the price of Class B shares sold by them. Note: It is the responsibility of the shareholder or Investment Representative to notify the WM Group of Funds at the time of repurchase if the CDSC is to be credited in full or in part. CONTINGENT DEFERRED SALES CHARGE ("CDSC") ON CLASS B SHARES. Each new and subsequent purchase of Class B shares may be subject to a CDSC based upon the schedule below. A CDSC may be applied to Class B shares of all Portfolios and the Money Market Fund according to the following schedule:
CONTINGENT DEFERRED SALES YEAR OF REDEMPTION AFTER PURCHASE CHARGE(1) - --------------------------------- -------------- First 5.00% Second 5.00% Third 4.00% Fourth 3.00% Fifth 2.00% Sixth and following 0.00%
- ---------- (1) Shares purchased prior to April 1, 2003 are subject to different CDSC schedules as described in the SAI. CLASS C SHARES Class C shares may not be suitable for large investments. Due to the higher expenses associated with Class C shares, it may be more advantageous for investors currently purchasing, intending to purchase, or with existing assets in amounts that may qualify for a reduced sales charge on Class A shares, including through ROA and/or an LOI, to purchase Class A shares. The WM Group of Funds seeks to prevent investments in Class C shares by shareholders with at least $1,000,000 of investments in the WM Group of Funds eligible for inclusion pursuant to rights of accumulation. The Portfolios will seek to reject such investments, except for investments by qualified retirement plans and IRAs, which will be treated as orders for Class A shares of the Money Market Fund. The offering price for Class C shares is the NAV next calculated after receipt of an investor's order in proper form by WM Group of Funds or its servicing agent, with no initial sales charge. - A CDSC of 1.00% may apply if withdrawn during the first 12 months after purchase. Unlike Class B shares, Class C shares do not convert to Class A shares, so future distribution and service fees do not decrease. - Class C shares have higher annual expenses than Class A shares because they are subject to distribution fees. Within 120 days of a redemption of Class C shares, the proceeds may be used to repurchase Class C shares and the shareholder's account will be credited with the amount of the CDSC, if any, paid on the redemption, except that if the amount of the repurchase is less than the amount previously redeemed, a portion of the CDSC credited will be in the same ratio that the amount repurchased bears to the amount redeemed. The Distributor currently pays authorized dealers commissions of up to 1.00% of the price of Class C shares sold by them. CONTINGENT DEFERRED SALES CHARGE ("CDSC") ON CLASS C SHARES. Each new and subsequent purchase of Class C shares is subject to a CDSC of 1.00% for a period of 12 months from the date of purchase. Shares will be redeemed first from shares purchased through reinvested dividends or capital gain distributions and then in order of purchase. The CDSC may be waived for redemptions of Class C shares as described under "CDSC Calculation and Waivers." CDSC CALCULATION AND WAIVERS The CDSC is determined as a percentage of the NAV of the shares at the time of purchase. Shares will be redeemed first from shares purchased through reinvested dividends or capital gain distributions and then from shares that have been owned the longest. The CDSC may be waived for redemptions of Class A, B and C shares under any of the following circumstances: - Following the death of the shareholder and within 90 days of re-registration of the account (or, for a beneficiary IRA, as defined by the IRS, for redemptions made to deplete the account according to IRS requirements). - Following the post-purchase disability (as defined in Section 72(m)(7) of the Code) of a shareholder. - In connection with the Required Minimum Distribution ("RMD") from an IRA or other qualified retirement account made to a shareholder who is age 70 1/2 or older. The waiver is limited to the minimum amount of CDSC that would apply to Portfolio shares necessary to be redeemed in order to equal the account owner's RMD based solely on Class B or C share assets of the Portfolios held in the account. - According to a systematic withdrawal plan limited to no more than 1.00% per month (measured cumulatively with respect to non-monthly plans) of the value of the Portfolio account at the time, and beginning on the date, the systematic withdrawal plan is established. - In connection with the involuntary redemption by the Portfolio of a shareholder's account. Additional information relating to waivers is contained in the SAI. The Funds make available sales charge information, including hyperlinks, available free of charge at wmgroupoffunds.com Note: It is the responsibility of the shareholder or Investment Representative to notify the WM Group of Funds, at the time of redemption, whenever the shareholder is entitled to a CDSC waiver. CLASS R-1 AND R-2 SHARES Class R-1 and R-2 shares are generally available only to 401(k) plans (including solo 401(k) plans), 457 plans, employer-sponsored 403(b) plans, profit sharing and money purchase pension plans, defined benefit plans, and non-qualified deferred compensation plans. Class R-1 and R-2 shares are generally available only to retirement plans where plan level or omnibus accounts are held on the books of the WM Group of Funds. Class R-1 and R-2 shares are generally not available to retail non-retirement accounts, traditional and Roth IRAs, Coverdell Education Savings Accounts, Simplified Employee Pension Plans ("SEPs"), Salary-Reduction Simplified Employee Pension Plans ("SAR-SEPs"), SIMPLE IRAs, or individual 403(b) plans. Prospective shareholders should consult their Investment Representative or retirement plan administrator to determine if Class R-1 and R-2 shares may be purchased under their respective retirement plan. Class R-1 shares are generally available through retirement plans with assets less than or equal to $1,000,000. Class R-2 shares are generally available through retirement plans with assets in excess of $1,000,000 but less than or equal to $5,000,000. Retirement plans with assets in excess of $5,000,000 may purchase Class A shares at NAV without a sales charge. WM Funds Distributor, Inc. in its sole discretion, may permit purchases of Class R-1 or R-2 shares by retirement plans that do not meet these asset-based requirements. The offering price for Class R-1 and R-2 shares is the NAV next calculated after receipt of an investor's order in proper form by the WM Group of Funds. Class R-1 and R-2 shares are not subject to a front-end sales charge or CDSC. - Class R-1 shares have higher annual expenses than Class R-2 shares because they are subject to higher distribution fees. - Unlike Class B shares, Class R-1 and R-2 shares do not convert to Class A shares, so future distribution and service fees do not decrease. - Class R-1 and R-2 shares have higher annual expenses than Class A shares because they are subject to higher distribution and plan recordkeeping/administration fees. REDEMPTIONS AND EXCHANGES OF SHARES REDEMPTIONS. Shareholders may contact their Investment Representative or the WM Group of Funds to redeem their shares. Redemptions are effected at the NAV next calculated after receipt, by the WM Group of Funds or its agent, of a properly completed request, less any applicable CDSC. Shares that are registered in the shareholder's name with the transfer agent may be redeemed at any time in the following ways: - Shareholders may authorize telephone or Internet transactions* when their account is established or in writing at a later time. Provided the shareholder has pre-authorized these transactions, shares may be redeemed by contacting the WM Group of Funds at 1-800-222-5852. Telephone transaction privileges may be restricted and generally, redemptions will not be allowed for amounts totaling more than $50,000 per Portfolio per day. - The Investment Representative may request telephone or Internet transactions* on the shareholder's behalf. Proceeds must be directed to a pre-authorized bank or brokerage account or to the address of record for the account. Investment Representatives may request redemptions in excess of the $50,000 per Portfolio per day limit. - Shareholders may redeem shares by submitting a written request to the WM Group of Funds. Written requests, including requests for redemptions exceeding $50,000, redemptions due to death, and redemptions payable to an alternate payee, address or bank, may require a Medallion Signature Guarantee. Please contact the WM Group of Funds for additional information. * Note: The WM Group of Funds' telephone representatives are available Monday - Friday, 8:00 a.m. - 9:00 p.m. (Eastern Time) to assist both Investment Representatives and shareholders. During holidays or days when the NYSE closes early, the offices of the Portfolios may be closed or may close early as well. The Portfolios also maintain a voice response unit ("VRU"), which provides account access 24 hours a day. It may be difficult to reach the WM Group of Funds by telephone during periods of unusual economic or market activity. Please be persistent during these times. For your protection, all telephone instructions are verified by requesting personal shareholder information, providing written confirmations of each telephone transaction, and recording telephone instructions. If these or other reasonable procedures are used, neither the transfer agent nor the Funds will be liable for following telephone instructions which they reasonably believe to be genuine. Shareholders assume the risk of any losses in such cases. However, the transfer agent or the Portfolios may be liable for any losses because of unauthorized or fraudulent telephone instructions if they fail to follow reasonable procedures. SYSTEMATIC WITHDRAWAL PLAN. Shareholders or their Investment Representatives may initiate systematic withdrawals by telephone or in writing. Requirements to establish and maintain a systematic withdrawal plan are as follows: - $5,000 minimum balance in the applicable Portfolio at the time the systematic withdrawal plan is established.** - Automatic cash redemptions of at least $50.*** - Shares of the applicable Portfolio will be redeemed to provide the requested payment. - Redemptions that exceed dividend income and capital gains may eventually exhaust the account. ** Note: The minimum balance and minimum dollar requirement is waived for IRA or other qualified retirement accounts to the extent necessary to meet the Required Minimum Distribution as defined by the Internal Revenue Service. *** Note: Exceptions may apply. Please contact the WM Group of Funds for additional information. EXCHANGES. Shareholders may contact their Investment Representative or the WM Group of Funds to exchange or arrange for automatic monthly exchanges of their shares. Shareholders may exchange shares of any of the Portfolios for shares of the same class of any of the other Funds or any of the Portfolios within the WM Strategic Asset Management Portfolios, LLC. Exchanges of shares are sales and may result in a gain or loss for income tax purposes. - All exchanges are subject to the minimum investment requirements of the Portfolio being acquired and to its availability for sale in the shareholder's state of residence. - Exchanges are made at the relative NAVs of the shares being exchanged, next determined after receipt of a properly completed exchange request. - No additional sales charge will be incurred when exchanging shares, except that Class A shares exchanged from the Money Market Fund will be subject to the acquired Portfolio's or Fund's sales charge unless the shares exchanged had previously been obtained by exchange of shares of a Portfolio that imposes an initial charge on Class A shares. - Any CDSC on the subsequent sale of shares acquired by exchange will be based on the CDSC schedule of the Portfolio in which the shares were initially purchased. - Class A shares of the Money Market Fund may be exchanged for Class B or C shares of a Portfolio or Fund. Following such an exchange, the shares will be subject to the CDSC schedule applicable to the Class B or C shares purchased. Also, it may be disadvantageous to exchange Class A shares of the Money Market Fund for Class B or C shares of a Portfolio, where the Class A shares were originally subject to an initial sales charge. - Class B or C shares of the Portfolios may not be exchanged for Class A shares of a Portfolio or Fund. - Class R-1 and R-2 shares of the Portfolios may not be exchanged for Class A, B, or C shares of another Portfolio or Fund. MARKET TIMING. The Portfolios are not intended for "market timing" or other forms of abusive short-term trading. If the Portfolios are used for short-term trading, shareholders could suffer adverse effects, including increased transaction costs and dilution of investment returns to the detriment of all Portfolio and Fund shareholders. Frequent trading can cause a portfolio manager to maintain larger cash positions than desired, unplanned portfolio turnover, increased broker/dealer commissions or other transaction costs and can trigger taxable capital gains. In addition, some frequent traders attempt to exploit perceived valuation inefficiencies which can occur if the valuation of the Portfolios' or the Funds' portfolio securities does not reflect conditions as of the close of the New York Stock Exchange, which is the time that the Portfolios' and Funds' net asset values per share are determined. For example, the closing price of securities primarily trading in markets that close prior to the New York Stock Exchange may not reflect events that occurred after the close of that market. This type of arbitrage activity can dilute a Fund's net asset value per share for long-term investors. Frequent traders wishing to engage in market timing should not purchase the Portfolios. The Trusts' Board of Trustees has adopted policies and procedures intended to discourage market timing with respect to each Portfolio. The procedures include the use of "fair value" pricing and the refusal of purchase transactions. These procedures are applied uniformly. Fair value pricing is applied when the valuation of portfolio securities is deemed to be substantially inaccurate at the close of the New York Stock Exchange. The Portfolios' transfer agent will attempt to identify shareholders who engage in market timing and will restrict the trading activity of shareholders that are identified as market timers. The Portfolios reserve the right to reject and or reverse any purchases, including purchases by exchange. Although it is the policy of the WM Group of Funds to seek to prevent market timing and other excessive trading practices in each Portfolio and Fund, other than the Money Market Fund, which is intended for short-term investment horizons, there is no assurance that short-term trading will not occur. In addition, the Portfolios and Funds may not have sufficient information to prevent market timing, especially with respect to accounts held in the names of financial intermediaries ("omnibus accounts"). DISCLOSURE OF PORTFOLIO HOLDINGS. The Portfolios disclose their month-end portfolio holdings on the Distributor's Web site, wmgroupoffunds.com, on the last business day of the following month. Third parties who need portfolio holdings information to provide services to the Portfolios may be provided such information prior to its posting on the Web site, solely for legitimate business purposes and subject to confidentiality agreements. A description of the Portfolios' policies and procedures with respect to the disclosure of the Portfolios' portfolio securities is available in the Portfolios' SAI and at wmgroupoffunds.com. DISTRIBUTION PLAN, PLAN RECORDKEEPING/ADMINISTRATION FEES, AND ADDITIONAL INFORMATION REGARDING INTERMEDIARY COMPENSATION Each of the Portfolios and the Money Market Fund has adopted distribution plans, pursuant to Rule 12b-1 under the 1940 Act, applicable to each share class described in this prospectus (each, a "Rule 12b-1 Plan"), respectively. Under the applicable Rule 12b-1 Plans, the Distributor receives a service fee at an annual rate of 0.25% of the average daily net assets of each class. In addition, the Distributor is paid a distribution fee as compensation in connection with the offering and sale of Class B, C, R-1, and R-2 shares. The distribution fee for Class B and C shares is paid to the Distributor at annual rates of 0.75% of the average daily net assets of such shares. The distribution fee for Class R-1 and R-2 shares is paid to the Distributor at annual rates of 0.55% and 0.30%, respectively, of the average daily net assets of such shares. Because these fees are paid out of the Portfolios' assets on an ongoing basis, over time these fees will increase the cost of your investment and may cost more than paying other types of sales charges. The amounts payable by the Portfolios and the Money Market Fund under the Rule 12b-1 Plans need not be directly related to expenses. If the Distributor's actual expenses are less than the fees it receives, the Distributor will keep the full amount of the fees. Service Fees. The Distributor may pay service fees to dealers and other intermediaries at the annual rate of 0.25% of the average daily net assets of such shares for which they are the dealers of record. These fees are not paid until after such shares have been held for three months (for Class A shares) or thirteen months (for Class B and Class C shares) and the average daily net assets of all shares for which such dealer is the dealer of record is at least $100,000. Distribution Fees. The proceeds from the distribution fees paid by Class B, C, R-1, and R-2 shareholders, together with any applicable sales charge, are paid to the Distributor. The Distributor generally uses distribution fees to finance any activity that is primarily intended to result in the sale of shares. Examples of such expenses include compensation to salespeople and selected dealers (including financing the commission paid to the dealer at the time of the sale), printing of prospectuses and statements of additional information and reports for other than existing shareholders, and preparing and conducting sales seminars. Plan Recordkeeping/administration Fees. Class R-1 and R-2 shares may be purchased only through retirement plans only. Class R-1 and R-2 shares are subject to a Plan Recordkeeping/administration Fee at an annual rate of 0.25% of the average daily net assets. This fee is paid to the Distributor for services provided to retirement plans investing in Class R-1 and R-2 shares and their participants. Typically, the Distributor sub-contracts with plan recordkeepers and administrators for such services. A portion of this fee may be retained by the Distributor for additional service support and related expenses. Plan fiduciaries may wish to consider the fees paid by the Distributor for such services in evaluating the services provided by, and fees paid to, plan recordkeepers and administrators. PAYMENTS TO INVESTMENT REPRESENTATIVES AND THEIR FIRMS. Financial intermediaries market and sell shares of the Portfolios and the Money Market Fund. These financial intermediaries receive compensation from the Distributor and its affiliates for selling shares of the Portfolios and the Money Market Fund and/or providing services to the Portfolios' and the Money Market Funds' shareholders. Financial intermediaries may include, among others, broker-dealers, registered investment advisors, banks, pension plan consultants and insurance companies. Investment Representatives who deal with investors on an individual basis are typically associated with a financial intermediary. The Distributor and its affiliates may fund this compensation from various sources, including any sales charge and/or Rule 12b-1 Plan fee that the shareholder, the Portfolios, or the Money Market Fund pay to the Distributor. Individual Investment Representatives may receive some or all of the amounts paid to the financial intermediary with which he or she is associated. COMMISSIONS AND ONGOING PAYMENTS. In the case of Class A shares, all or a portion of the initial sales charge that you pay may be paid by the Distributor to financial intermediaries selling Class A shares. The Distributor may also pay these financial intermediaries a fee of up to 1.00% on purchases of $1,000,000 or more. Please see page [ ] for more details. Additionally, the Distributor generally makes ongoing payments to your financial intermediary for services provided to you at an annual rate of 0.25% of average net assets attributable to your investment in Class A shares. In the case of Class B shares, the Distributor will pay, at the time of your purchase, a commission to your financial intermediary in an amount equal to 4% of your investment (3% for Class B shares of the Short Term Income Fund). Additionally, the Distributor generally makes ongoing payments to your financial intermediary for services provided to you at an annual rate of 0.25% of average net assets attributable to your investment in Class B shares. In the case of Class C shares, the Distributor will pay, at the time of your purchase, a commission to your financial intermediary in an amount equal to 1.00% of your investment. Additionally, the Distributor generally makes ongoing payments to your financial intermediary for distribution and services provided to you at an annual rate of 1.00% of average net assets attributable to your investment in Class C shares. In the case of Class R-1 and R-2 shares, the Distributor will not pay a commission to your financial intermediary at the time of your investment. However, the Distributor generally makes ongoing payments to your financial intermediary for services provided to you at annual rates of 0.75% and 0.50% of average daily net assets attributable to your investment in Class R-1 or R-2 shares, respectively. OTHER PAYMENTS TO INTERMEDIARIES. WM ADVISORS ALSO OFFERS REVENUE SHARING PAYMENTS, REFERRED TO AS "ADVISOR PAID FEES," TO ALL FINANCIAL INTERMEDIARIES WITH ACTIVE SELLING AGREEMENTS WITH THE DISTRIBUTOR. THE ADVISOR PAID FEES ARE PAID AT AN ANNUAL RATE OF UP TO 0.50% OF THE AVERAGE NET ASSETS OF CLASS A AND CLASS B SHARES OF THE PORTFOLIOS SERVICED BY SUCH INTERMEDIARIES AND AN ANNUAL RATE OF UP TO 0.25% OF THE AVERAGE NET ASSETS OF CLASS C SHARES OF THE PORTFOLIOS SERVICED BY SUCH INTERMEDIARIES. THESE PAYMENTS ARE MADE FROM WM ADVISORS' PROFITS AND MAY BE PASSED ON TO YOUR INVESTMENT REPRESENTATIVE AT THE DISCRETION OF HIS OR HER FINANCIAL INTERMEDIARY FIRM. THESE PAYMENTS MAY CREATE AN INCENTIVE FOR THE FINANCIAL INTERMEDIARIES AND/OR INVESTMENT REPRESENTATIVES TO RECOMMEND OR OFFER SHARES OF THE PORTFOLIOS OVER OTHER INVESTMENT ALTERNATIVES. In addition to the commissions paid at the time of sale, ongoing payments, [the Advisor Paid Fees] and the reimbursement of costs associated with education, training and marketing efforts, conferences, ticket charges, and other general marketing expenses, some or all of which may be paid to financial intermediaries (and, in turn, to your Investment Representative), the Distributor and its affiliates, at their expense, currently provide additional payments to financial intermediaries that sell shares of the Portfolios and Money Market Fund for distribution services. Although payments made to each qualifying financial intermediary in any given year may vary, such payments will generally not exceed (a) 0.25% of the current year's sales of Portfolio or Money Market Fund shares by that financial intermediary and/or (b) 0.25% of average daily net assets of Portfolio or Money Market Fund shares serviced by that financial intermediary over the year. For 2005, the Distributor's total additional payments to these firms for distribution services related to the WM Group of Funds represented approximately [ %] of the average daily net assets of the WM Group of Funds, or approximately [$ ] million. A number of factors are considered in determining the amount of these additional payments, including each financial intermediary's WM Group of Funds sales, assets and redemption rates, and the willingness and ability of the financial intermediary to give the Distributor access to its Investment Representatives for educational and marketing purposes. In some cases, financial intermediaries will include the WM Group of Funds on a "preferred list." The Distributor's goals include making the Investment Representatives who interact with current and prospective investors and shareholders more knowledgeable about the WM Group of Funds so that they can provide suitable information and advice about the Portfolios and related investor services. Additionally, the Distributor may provide payments to reimburse directly or indirectly the costs incurred by these financial intermediaries and their associated Investment Representatives in connection with educational seminars and training and marketing efforts related to the WM Group of Funds for the firms' employees and/or their clients and potential clients. The costs and expenses associated with these efforts may include travel, lodging, entertainment and meals. The Distributor may also provide payment or reimbursement for expenses associated with qualifying dealers' conferences, transactions ("ticket") charges and general marketing expenses. IF ONE MUTUAL FUND SPONSOR MAKES GREATER DISTRIBUTION ASSISTANCE PAYMENTS THAN ANOTHER, YOUR INVESTMENT REPRESENTATIVE AND HIS OR HER FINANCIAL INTERMEDIARY MAY HAVE AN INCENTIVE TO RECOMMEND ONE FUND COMPLEX OVER ANOTHER. SIMILARLY, IF YOUR INVESTMENT REPRESENTATIVE OR HIS OR HER FINANCIAL INTERMEDIARY RECEIVES MORE DISTRIBUTION ASSISTANCE FOR ONE SHARE CLASS VERSUS ANOTHER, THEN THEY MAY HAVE AN INCENTIVE TO RECOMMEND THAT CLASS. Please speak with your Investment Representative to learn more about the total amounts paid to your Investment Representative and his or her financial intermediary by the Funds, the Portfolios, the Distributor, WM Advisors and by sponsors of other mutual funds he or she may recommend to you. You should also carefully review disclosures made by your Investment Representative at the time of purchase. As of the date of the prospectus, the Distributor anticipates that the firms that will receive additional payments for distribution of the Portfolios and the Money Market Fund (other than commissions paid at the time of sale, ongoing payments, and the reimbursement of cost associated with education, training and marketing efforts, conferences, ticket charges, and other general marketing expenses) include: Advantage Capital Corporation Advest, Inc. A.G. Edwards & Sons, Inc. AIG Advisors, Inc. American Portfolios Financial Services, Inc. Associated Financial Group Associated Securities Corp. AXA Advisors, LLC Cadaret, Grant & Co., Inc. Charles Schwab & Co., Inc. Citigroup Global Markets, Inc. Commonwealth Financial Network Farmers Financial Solutions, LLC FFP Securities, Inc. FSC Securities Corporation G.A. Repple & Company H. Beck, Inc. INVEST Financial Corporation Investacorp, Inc. Investment Advisors & Consultants, Inc. Investment Centers of America, Inc. Janney Montgomery Scott, LLC Jefferson Pilot Securities Corporation Linsco/Private Ledger Corp. McDonald Investments, Inc. Merrill Lynch, Pierce, Fenner & Smith Inc. M.L. Stern & Co. Morgan Stanley Dean Witter Mutual Service Corporation National Planning Corporation NFP Securities, Inc. Oppenheimer & Co., Inc. Pacific Select Distributors, Inc. Piper Jaffray & Co. ProEquities, Inc. Prospera Financial Services, Inc. Prudential Investment Management Services, LLC Raymond James Financial Services, Inc. RBC Dain Rauscher, Inc. Royal Alliance Associates, Inc. Securities America, Inc. Sentra Securities Corp./Spelman and Co., Inc. SII Investments, Inc. Sorrento Pacific Financial, LLC SunAmerica Securities, Inc. Triad Advisors, Inc. UBS Financial Services, Inc. Wachovia Securities, LLC WM Financial Services, Inc. United Planners' Financial Services of America Waterstone Financial Group, Inc. To obtain a current list of such firms, call 1-800-222-5852. Although the Advisor and/or a Fund's sub-advisor may use brokers who sell shares of the Portfolios or Funds to effect portfolio transactions, the sale of Portfolio or Fund shares is not considered as a factor when selecting brokers to effect portfolio transactions and the Portfolios have adopted procedures to ensure that the sale of Portfolio or Fund shares is not considered when selecting brokers to effect portfolio transactions. Your financial intermediary may charge fees and commissions, including processing fees, in addition to those described in this prospectus. The amount and applicability of any such fee is determined and disclosed separately by the financial intermediary. You should ask your Investment Representative for information about any fees and/or commissions that are charged. TRANSFER AGENCY AND RETIREMENT PLAN SERVICES. WM Shareholder Services, Inc. acts as the transfer agent for the Portfolios and the Money Market Fund. As such, it registers the transfer, issuance, and redemption of Portfolio or Money Market Fund shares and disburses dividends and other distributions to Portfolio or Money Market Fund shareholders. Many Portfolio and Money Market Fund shares are owned by financial intermediaries for the benefit of their customers. In those cases, the Portfolios and the Money Market Fund often do not maintain an account for individual investors. Thus, some or all of the transfer agency functions for these accounts are performed by the financial intermediaries. WM Shareholder Services, Inc. pays these financial intermediaries fees for sub-transfer agency and related recordkeeping services in amounts generally ranging from $3 to $6 per customer account per annum and, as of the date of this prospectus, no intermediary receives more than $12 per customer account per annum. Retirement plans may also hold Portfolio or Money Market Fund shares in the name of the plan, rather than the participant. Plan recordkeepers, who may have affiliated financial intermediaries that sell shares of the Portfolios and Money Market Fund, may be paid up to 0.25% per annum of the average daily net assets held in the plan by WM Shareholder Services, Inc. In addition, financial intermediaries may be affiliates of entities that receive compensation from the Distributor as discussed in the prior section for maintaining retirement plan "platforms" that facilitate trading by affiliated and non-affiliated financial intermediaries and recordkeeping for retirement plans. THE AMOUNTS PAID TO FINANCIAL INTERMEDIARIES AND PLAN RECORDKEEPERS FOR SUB-TRANSFER AGENCY AND RECORDKEEPING SERVICES, AND THEIR RELATED SERVICE REQUIREMENTS MAY VARY ACROSS FUND GROUPS AND SHARES CLASSES. THIS MAY CREATE AN INCENTIVE FOR FINANCIAL INTERMEDIARIES AND THEIR INVESTMENT REPRESENTATIVES TO RECOMMEND ONE FUND COMPLEX OVER ANOTHER OR ONE CLASS OF SHARES OVER ANOTHER. OTHER POLICIES AND PRACTICES OF THE WM GROUP OF FUNDS CHECK WRITING PRIVILEGE. The WM Group of Funds offers a check writing privilege, as discussed below. - Available only for Class A shares of the Money Market Fund. - $250 per check minimum applies. - The WM Group of Funds may charge a fee for checks presented for an amount in excess of the then-current value of the money market shares held in the account. In addition, the shareholder may be subject to fees and charges by the payee of the check. The Portfolios are not responsible for these fees and charges. - Failure to maintain a balance in the Money Market Fund sufficient to meet obligations (checks written) may result in the revocation of the check writing privilege and/or account closure. DISTRIBUTION OF INCOME AND CAPITAL GAINS. The Portfolios and the Money Market Fund distribute dividends from net investment income (which is essentially interest and dividends, if any, earned from securities, minus expenses). They also make capital gain distributions if realized gains from the sale of securities exceed realized losses. The amount of dividends of net investment income, qualified dividend income and distributions of net realized long- and short-term capital gains payable to shareholders will be determined separately for each Portfolio. For more information, please see the section entitled "Tax Considerations" in this prospectus. - Dividends from the net investment income of the Money Market Fund will normally be declared daily and paid monthly. - Dividends from the net investment income of the Flexible Income, Conservative Balanced, Balanced, and Conservative Growth Portfolios will normally be declared and paid quarterly. - Dividends from the net investment income of the Strategic Growth Portfolio will normally be declared and paid annually. - Each of the Portfolios and the Money Market Fund reserves the right to declare and pay dividends less frequently than as disclosed above, provided that net realized capital gains and net investment income, if any, are paid at least annually. - The Portfolios and the Money Market Fund distribute net realized capital gains, if any, at least annually, normally in December. Dividends and capital gain distributions may be reinvested or paid directly to the shareholder; however, the Portfolios will automatically reinvest dividends or distributions of $10 or less. Automatic reinvestments of dividends and capital gain distributions are made at the NAV determined on the day the dividends or distributions are deducted from the Portfolio's NAV. Shareholders may indicate their choice at the time of account establishment or at a later time by contacting their Investment Representative or the Portfolios' offices. Options include: - Automatic reinvestment: Unless the shareholder chooses another option, all dividends and capital gain distributions are reinvested in additional shares of the same class of the Portfolio or the Money Market Fund, without an initial sales charge or being subject to a CDSC. - Reinvestment in another Portfolio or the Money Market Fund: Income dividends and capital gain distributions may be automatically invested in the same class of shares of another Portfolio or the Money Market Fund, provided that Portfolio and the Money Market Fund are available for sale in the shareholder's state of residence AND THE MINIMUM INITIAL INVESTMENT IS MET. - Cash payments: All dividends and capital gain distributions will be deposited in the shareholder's pre-authorized bank account or paid by check and mailed to the address of record. MEDALLION SIGNATURE GUARANTEE. For the protection of our shareholders, the WM Group of Funds requires the Medallion Signature Guarantee on certain requests and documents. A Medallion Signature Guarantee may be obtained from a domestic bank or trust company, broker, dealer, clearing agency, savings association, or other financial institution which participates in a Medallion program recognized by the Securities Transfer Association. The three recognized Medallion programs are Securities Transfer Agents Medallion Program 2000 New Technology (STAMP/2000), Stock Exchanges Medallion Program (SEMP) and New York Stock Exchange, Inc. Medallion Signature Program (NYSE MSP). Medallion Signature Guarantees from financial institutions that do not participate in one of these programs or that use pre-STAMP 2000 Medallion will not be accepted. Contact the WM Group of Funds for more information. PROMPT PAYMENT. Payment normally will be made on the next business day after redemption, but no later than seven days after the transaction, unless the shareholder recently purchased shares by check or Automated Clearing House ("ACH") transfer. In that case, redemption proceeds may be delayed up to 10 business days after the purchase transaction, to allow for the collection of funds. Under unusual circumstances, the Portfolio or Money Market Fund may suspend redemptions or postpone payment for seven days as permitted by federal securities laws. Redemption proceeds will be sent by check or ACH transfer to the shareholder's address or bank account of record, without charge. Redemption proceeds sent via overnight service or wire may be subject to a fee (and the receiving institution may also charge a fee to receive a wire transmission). SMALL ACCOUNTS. It is costly to maintain small accounts. Accordingly, the Portfolios and the Money Market Fund reserve the right to close or impose a fee on accounts below the minimum initial investment of $1,000. The fees would be deducted from the account and would be retained by the respective Portfolio or the Money Market Fund. Alternatively, an account may be closed after 60 days written notice. Accounts will not be closed if they fall below the minimum amount solely because of declines in market value. Shares would be redeemed at the next calculated NAV, less any applicable CDSC, on the day the fee is charged or the account is closed. DUPLICATE MAILINGS. To reduce expenses to the Portfolios and the Money Market Fund, the WM Group of Funds attempts to eliminate duplicate mailings to the same address. The Portfolios and the Money Market Fund deliver a single copy of certain shareholder documents to investors who share an address, even if the accounts are registered under different names. These documents, such as prospectuses, shareholder reports, and annual privacy notices, will be delivered in this manner indefinitely unless the shareholder instructs the WM Group of Funds otherwise. Shareholders or their Investment Representatives may request multiple copies of documents by contacting the WM Group of Funds at 1-800-222-5852. TAX CONSIDERATIONS Shareholders are responsible for federal income tax (and any other taxes, including state and local income taxes, if applicable) on dividends and capital gain distributions whether such dividends or distributions are paid in cash or reinvested in additional shares. Generally, dividends paid by the Portfolio and the Money Market Fund from interest, dividends, or net short-term capital gains will be taxed as ordinary income. Distributions properly designated by the Portfolios and the Money Market Fund as deriving from net gains on securities held for more than one year are taxable as such (generally at a 15% tax rate), regardless of how long you have held your shares. For taxable years beginning before January 1, 2009, distributions of investment income properly designated by the Portfolios and the Money Market Fund as derived from "qualified dividend income" will be taxed at the rates applicable to long-term capital gain. A dividend or distribution made shortly after the purchase of shares of a Portfolio or the Money Market Fund by a shareholder, although in effect a return of capital to that particular shareholder, would be taxable to that shareholder as described above. Because of tax law requirements, you must provide the Portfolio or Money Market Fund with an accurate and certified taxpayer identification number (for individuals, generally a Social Security number) to avoid the "back-up" withholding, which is currently imposed at a rate of 28%. Early in each calendar year, each Portfolio and the Money Market Fund will notify you of the amount and tax status of distributions paid to you for the preceding year. The use of a fund-of-funds structure could affect the amount, timing, and character of distributions from the Portfolios, and, therefore, may increase the amount of taxes payable by shareholders. Any gain resulting from the sale, redemption, or exchange of your shares will generally also be subject to tax. You should consult your tax advisor for more information on your own tax situation, including possible foreign, state and local taxes. Investments in foreign securities may be subject to foreign withholding taxes. In that case, the Portfolios' and the Money Market Fund's yields on those securities would be decreased. In addition, the Portfolios' and the Money Market Fund's investments in foreign securities or foreign currencies may increase or accelerate the Portfolios' and the Money Market Fund's recognition of ordinary income and may affect the timing or amount of the Portfolios' and the Money Market Fund's distributions. Investments by a Fund in certain debt instruments or derivatives may cause the Fund to recognize taxable income in excess of the cash generated by such instruments. As a result, the Fund could be required at times to liquidate other investments in order to satisfy its distribution requirements under the Code. The Fund's use of derivatives will also affect the amount, timing, and character of the Fund's distributions. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT A COMPLETE DESCRIPTION OF THE FEDERAL, STATE, LOCAL OR FOREIGN TAX CONSEQUENCES OF INVESTING IN THE PORTFOLIOS OR THE MONEY MARKET FUND. YOU SHOULD CONSULT YOUR TAX ADVISOR BEFORE INVESTING IN THE PORTFOLIOS OR THE MONEY MARKET FUND. HOW NET ASSET VALUE IS DETERMINED Investment securities and other assets are valued primarily on the basis of market quotations or, if quotations are not readily available, by a method that the Board of Trustees believes accurately reflects fair value. Foreign securities are valued on the basis of quotations from the primary market in which they are traded, and are translated from the local currency into U.S. dollars using current exchange rates. As a result, changes in the value of those currencies in relation to the U.S. dollar may affect the Portfolios' and the Money Market Fund's NAV. Because foreign markets may be open at different times than the New York Stock Exchange, the value of the Money Market Fund's shares may change on days when shareholders are not able to buy or sell them. If events materially affecting the values of the Portfolios' and the Money Market Fund's foreign investments occur between the closed foreign markets and the close of regular trading on the New York Stock Exchange, those investments may be valued at their fair value. The NAVs are determined at the end of each business day of the New York Stock Exchange or at 1:00 p.m. Pacific Time, whichever is earlier. Generally, shares will not be priced on the days on which the New York Stock Exchange is closed for trading. Under unusual circumstances, the Money Market Fund may determine its NAV on days which the New York Stock Exchange is not open for regular trading. In addition, the Portfolios and the Money Market Fund have adopted fair value pricing procedures and methodologies, which, among other things, generally require the Portfolios and the Money Market Fund to fair value foreign securities if there has been movement in the U.S. market and/or other economic indicators that exceeds a specified threshold. Although the threshold may be revised from time to time and the number of days on which fair value prices will be used will depend on market activity, it is possible that fair value prices will be used to a significant extent by the Portfolios and the Money Market Fund. MANAGEMENT OF THE PORTFOLIOS The Portfolios and the Money Market Fund are managed by WM Advisors, Inc., which is referred to as "WM Advisors" in this prospectus. WM Advisors' address is 1201 Third Avenue, 22nd Floor, Seattle, Washington 98101. WM Advisors has delegated portfolio management responsibilities with respect to the Growth, Small Cap Growth, and International Growth Funds to sub-advisors. Each Portfolio and Fund may, to the extent permitted under the 1940 Act, place portfolio transactions with (and pay brokerage commissions to) affiliates of WM Advisors and the sub-advisors to the Funds indicated below. For more information, see the SAI. WM Advisors has been in the business of investment management since 1944. Its responsibilities include formulating each Portfolio's and each Fund's investment policies (subject to the terms of the relevant prospectus), analyzing economic trends, directing and evaluating the investment services provided by the sub-advisors, monitoring each Portfolio's or Fund's investment performance and reporting to the Board of Trustees, as well as providing certain administrative services to the Portfolios and Funds. In connection with its service as investment advisor to each Portfolio and Fund, WM Advisors may engage one or more sub-advisors to provide investment advisory services to any of the Portfolios or Funds and may remove or, subject to shareholder approval, replace any such sub-advisor if it deems such action to be in the best interests of a Portfolio or Fund and its shareholders. Where WM Advisors has not delegated such duties to a sub-advisor, it is responsible for managing the investment and reinvestment of the Portfolio's or Fund's assets. WM Advisors is a wholly owned indirect subsidiary of Washington Mutual, Inc. ("Washington Mutual"), a publicly owned financial services company. PORTFOLIO MANAGERS WM Advisors' portfolio managers are compensated through a combination of base salary and incentive compensation. Incentive compensation is based on investment performance relative to a peer group of mutual funds and other measures of performance. The SAI provides additional information about the portfolio managers' compensation, other accounts managed by the portfolio manager, and the portfolio managers' ownership of Portfolio shares. RANDALL L. YOAKUM, CFA, Senior Vice President and Chief Investment Strategist of WM Advisors, has led a team of investment professionals in managing the Portfolios since January 1999. Between 1997 and 1999, Mr. Yoakum was Chief Investment Officer for D.A. Davidson & Co. (DADCO). Between 1994 and 1997, Mr. Yoakum was the Senior Vice President and Managing Director of Portfolio Management for Boatmen's Trust Company, and, prior to that, Mr. Yoakum was Senior Vice President and Chief Equity Officer for Composite Research & Management Co. (the predecessor to WM Advisors) for eight years. MICHAEL D. MEIGHAN, CFA, Vice President and Portfolio Manager of WM Advisors, has been responsible for co-managing the Portfolios with Mr. Yoakum since March 2003. Mr. Meighan joined WM Advisors in 1999. Between 1993 and 1999, he was employed with Mr. Yoakum at DADCO as a Portfolio Manager and Senior Analyst for its asset allocation product. MANAGEMENT FEES During their most recent fiscal years, each of the Portfolios and the Money Market Fund paid management fees to WM Advisors at the following rates (not reflecting any expense waivers or reimbursements):
FEES PAID AS A PERCENTAGE FUND OF NET ASSETS - ------------------------------- ------------------------- Flexible Income Portfolio 0.32% Conservative Balanced Portfolio 0.32% Balanced Portfolio 0.32% Conservative Growth Portfolio 0.32% Strategic Growth Portfolio 0.32% Money Market Fund 0.45%
A discussion of the material factors considered by the Trustees of the Trust in approving investment advisory contract(s) for each Fund is available in the Fund's most recent Annual or Semiannual report to shareholders (for periods ending October 31 and April 30, respectively). NO DEALER, SALESPERSON, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND YOU SHOULD NOT RELY ON SUCH OTHER INFORMATION OR REPRESENTATIONS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER MAY NOT LAWFULLY BE MADE. FINANCIAL HIGHLIGHTS FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT EACH PERIOD. The financial highlights tables are intended to help you understand the Portfolios' and the Money Market Fund's financial performance for the past 5 years (or, in the case of a newer Portfolio or Class, since the inception of the Portfolio or Class). Performance information is provided for all share classes except Class R-1 and R-2 shares, which were not offered prior to the date of this prospectus. Certain information reflects financial results for a single share. The total returns in the tables represent the rate that an investor would have earned on an investment in the Portfolio or the Fund (assuming reinvestment of all dividends and distributions). The information provided below is excerpted from financial statements audited by Deloitte & Touche LLP. The Report of Independent Registered Public Accounting Firm, along with the Portfolios' and Fund's financial statements, are included in their Annual Report to Shareholders, which is available upon request. [FINANCIAL INFORMATION TO BE PROVIDED] APPENDIX A DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC. BOND RATINGS: - - Aaa, Aa -- Bonds which are rated Aaa or Aa are judged to be of the highest quality and high quality, respectively. Together, they comprise what is generally known as high-grade bonds. Bonds rated Aa are rated lower than Aaa securities because margins of protection may not be as large as in the latter or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities. - - A -- Bonds which are rated A possess many favorable investment attributes and are to be considered as upper-medium-grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future. - - Baa -- Bonds which are rated Baa are considered medium-grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present, but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. - - Ba -- Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well-assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. - - B -- Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. - - Caa -- Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. - - Ca -- Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. - - C -- Bonds which are rated C are the lowest rated class of bonds and can be regarded as having extremely poor prospects of ever attaining any real investment standing. DESCRIPTION OF STANDARD & POOR'S BOND RATINGS: - - AAA, AA, A -- Bonds rated AAA have the highest rating assigned by S&P to a debt obligation. Capacity to pay interest and repay principal is extremely strong. Bonds rated AA have a very strong capacity to pay interest and repay principal and differ from the highest rated issues only in small degree. Bonds rated A have a strong capacity to pay interest and repay principal although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than bonds in higher rated categories. - - BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay interest and repay principal. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to repay principal and pay interest for bonds in this category than for bonds in higher rated categories. - - BB, B, CCC, CC, C -- Bonds rated BB, B, CCC, CC and C are regarded, on balance, as predominantly speculative with respect to the issuer's capacity to pay interest and repay principal in accordance with the terms of the obligation. BB indicates the lowest degree of speculation and C the highest degree of speculation. While such bonds will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse business, economic and financial conditions. - - D -- Bonds rated D are in payment default, meaning payment of interest and/or repayment of principal is in arrears. DESCRIPTION OF FITCH CORPORATE BOND RATINGS: INVESTMENT-GRADE - - AAA -- Highest credit quality. AAA ratings denote the lowest expectation of credit risk. They are assigned only in case of exceptionally strong capacity for timely payment of financial commitments. This capacity is highly unlikely to be adversely affected by foreseeable events. - - AA -- Very high credit quality. AA ratings denote a very low expectation of credit risk. They indicate very strong capacity for timely payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events. - - A -- High credit quality. A ratings denote a low expectation of credit risk. The capacity for timely payment of financial commitments is considered strong. This capacity may, nevertheless, be more vulnerable to changes in circumstances or in economic conditions than is the case for higher ratings. - - BBB -- Good credit quality. BBB ratings indicate that there is currently a low expectation of credit risk. The capacity for timely payment of financial commitments is considered adequate, but adverse changes in circumstances and in economic conditions are more likely to impair this capacity. This is the lowest investment-grade category. SPECULATIVE-GRADE - - BB -- Speculative. BB ratings indicate that there is a possibility of credit risk developing, particularly as the result of adverse economic change over time; however, business or financial alternatives may be available to allow financial commitments to be met. Securities rated in this category are not investment grade. - - B -- Highly speculative. B ratings indicate that significant credit risk is present, but a limited margin of safety remains. Financial commitments are currently being met; however, capacity for continued payment is contingent upon a sustained, favorable business and economic environment. - - CCC, CC, C -- High default risk. Default risk is a real possibility. Capacity for meeting financial commitments is solely reliant upon sustained, favorable business or economic developments. A CC rating indicates that default of some kind appears probable. C ratings signal imminent default. - - DDD, DD, D -- Default. The ratings of obligations in this category are based on their prospects for achieving partial or full recovery in a reorganization or liquidation of the obligor. While expected recovery values are highly speculative and cannot be estimated with any precision, the following serve as general guidelines. DDD obligations have the highest potential for recovery, around 90% -- 100% of outstanding amounts and accrued interest. DD indicates potential recoveries in the range of 50% -- 90% and D the lowest recovery potential, i.e., below 50%. Entities rated in this category have defaulted on some or all of their obligations. Entities rated DDD have the highest prospect for resumption of performance or continued operation with or without a formal reorganization process. Entities rated DD and D are generally undergoing a formal reorganization or liquidation process; those rated DD are likely to satisfy a higher portion of their outstanding obligations, while entities rated D have a poor prospect of repaying all obligations. FOR MORE INFORMATION ABOUT THE WM GROUP OF FUNDS The Statement of Additional Information (SAI) and Annual and Semiannual Reports to shareholders include additional information about the Portfolios and the Money Market Fund. The SAI and the Report of Independent Registered Public Accounting Firm, along with the financial statements included in the Portfolios' and the Money Market Fund's most recent Annual Reports, are incorporated by reference into this prospectus, which means that they are part of this prospectus for legal purposes. The Portfolios' and Fund's Annual Reports discuss the market conditions and investment strategies that significantly affected performance during the last fiscal year. You may obtain free copies of these materials, request other information about the WM Group of Funds, and make shareholder inquiries by contacting your financial advisor, by calling toll-free 1-800-222-5852, or by visiting wmgroupoffunds.com. You may review and copy information about the Portfolios and the Fund, including the SAI, at the Securities and Exchange Commission's public reference room in Washington, D.C. You may call the Commission at 1-202-942-8090 for information about the operation of the public reference room. You may also access reports and other information about the Portfolios on the EDGAR database or the Commission's Web site at http://www.sec.gov. You may obtain copies of this information, with payment of a duplication fee, by electronic request at the following e-mail address: publicinfo@sec.gov or by writing the Public Reference Section of the Commission, Washington, D.C. 20549-0102. You may need to refer to the following file numbers: FILE NO. 811-07577 Strategic Growth Portfolio Conservative Growth Portfolio Balanced Portfolio Conservative Balanced Portfolio Flexible Income Portfolio FILE NO. 811-00123 Money Market Fund WM GROUP OF FUNDS I SHARE PROSPECTUS MARCH 1, 2006 EQUITY FUNDS -REIT FUND -EQUITY INCOME FUND -GROWTH & INCOME FUND -WEST COAST EQUITY FUND -MID CAP STOCK FUND -GROWTH FUND -SMALL CAP VALUE FUND -SMALL CAP GROWTH FUND -INTERNATIONAL GROWTH FUND FIXED-INCOME FUNDS -SHORT TERM INCOME FUND -U.S. GOVERNMENT SECURITIES FUND -INCOME FUND -HIGH YIELD FUND MONEY MARKET FUND The WM Group of Funds provides a broad selection of investment choices. The Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a crime. WM GROUP OF FUNDS MARCH 1, 2006 TABLE OF CONTENTS
PAGE ---- Risk/Return Summary Equity Funds Fixed-Income Funds Money Market Fund Summary of Principal Risks Fees and Expenses of the Funds Fund Investment Strategies Equity Funds Fixed-Income Funds Money Market Fund Common Investment Practices Investing in the Funds Distribution Plan and Additional Information Regarding Intermediary Compensation Redemptions and Exchanges of Shares Tax Considerations How Net Asset Value is Determined Management of the Funds Fund Managers Management Fees Financial Highlights Appendix A
RISK/RETURN SUMMARY The WM Group of Funds provides a broad selection of investment choices. This summary identifies the investment objective, principal investment strategies and principal risks of the mutual funds listed on the first page of this prospectus (each a "Fund", collectively the "Funds"). The principal investment strategies identified in this summary are not the only investment strategies available to the Funds, and some of the principal investment strategies may not be available at any given time. For a discussion of other investment strategies available to the Funds, please see the Statement of Additional Information (the "SAI"). STRATEGIES AND RISKS The principal investment strategies identified in this summary provide specific information about each of the Funds, but there are some general principles WM Advisors, Inc. ("WM Advisors") and the sub-advisors apply in making investment decisions. When making decisions about whether to buy or sell equity securities, WM Advisors and the sub-advisors will consider, among other things, a company's strength in fundamentals, its potential for earnings growth over time, and the current price of its securities relative to their perceived worth. When making decisions about whether to buy or sell fixed-income investments, WM Advisors and the sub-advisors will generally consider, among other things, the strength of certain sectors of the fixed-income market relative to others, interest rates and other general market conditions, and the credit quality of individual issuers. The discussion of each Fund's principal investment strategies includes some of the principal risks of investing in such a Fund. You can find a more detailed description of these and other principal risks of an investment in each Fund under "Summary of Principal Risks." Investments mentioned in the summary and described in greater detail under "Common Investment Practices" below appear in BOLD TYPE. Please be sure to read the more complete descriptions of the Funds, and the related risks, before you invest. PERFORMANCE Below the description of each Fund is a bar chart showing the investment returns of each Fund's Class I Shares for each of the past ten years (or for the life of the Fund if it is less than ten years old). The bar chart is intended to provide some indication of the volatility of the Funds' past returns. The performance table following each bar chart shows how average annual total returns of the Class I shares Fund, compare to returns of a broad-based securities market index for the last one, five, and ten years (or, in the case of a newer Fund or Class, since the inception of the Fund or Class). Past performance (before and after taxes) does not guarantee future results. There can be no assurance that any Fund will achieve its investment objective. It is possible to lose money by investing in the Funds. An investment in a Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Money Market Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Money Market Fund. EQUITY FUNDS REIT FUND OBJECTIVE This Fund seeks to provide a high level of current income and intermediate-term to long-term capital appreciation. PRINCIPAL INVESTMENT STRATEGIES AND RISKS The Fund invests primarily in REAL ESTATE INVESTMENT TRUST ("REIT") SECURITIES and fixed-income securities of issuers that are principally engaged in United States ("U.S.") real estate or related industries. The Fund's investments may also include convertible securities, MORTGAGE-BACKED SECURITIES, U.S. GOVERNMENT SECURITIES, AMERICAN DEPOSITARY RECEIPTS ("ADRs") and EUROPEAN DEPOSITARY RECEIPTS ("EDRs"), REPURCHASE AGREEMENTS, and ZERO-COUPON SECURITIES. WM Advisors seeks investments for the Fund that represent a variety of sectors in the real estate industry. In selecting investments for the Fund, WM Advisors looks for high-quality REITs at attractive valuations that have fundamental indicators of dividend growth potential, capital appreciation, a strong financial position, and solid management demonstrating consistency in adding value and generating cash flow. Among the principal risks of investing in the Fund are: - -Market risk -Real Estate risk - -Credit risk -Derivatives risk - -Currency risk -Liquidity risk - -Foreign Investment risk -Management risk - -Leveraging risk -Smaller Company risk - -Fund-of-Funds risk CALENDAR YEAR TOTAL RETURNS (CLASS I SHARES) ANNUAL RETURN 2005 [__________%] During the periods shown above, the highest quarterly return was [______%] (for the quarter ended [_______]), and the lowest was [_____%] (for the quarter ended [_______]). AVERAGE ANNUAL TOTAL RETURNS(With Maximum Sales Charges)
Since Class I FOR PERIODS ENDED DECEMBER 31, 2005 Past One Year Inception (3/1/03) - ----------------------------------- ------------- ------------------ CLASS I Shares [___] [___] NAREIT ALL REIT Index(1) [___] [___]
(1) The National Association of Real Estate Investment Trust (NAREIT) ALL REIT Index reflects the aggregate performance of all publicly traded REIT's that own, develop, and manage properties. Indices are unmanaged and individuals cannot invest directly in an index. Index performance information reflects no deduction for fees, expenses, or taxes. EQUITY INCOME FUND OBJECTIVE This Fund seeks to provide a relatively high level of current income and long-term growth of income and capital. PRINCIPAL INVESTMENT STRATEGIES AND RISKS The Fund invests primarily in dividend-paying common stocks and preferred stocks. The Fund's investments may also include bonds, convertible securities, U.S. GOVERNMENT SECURITIES, ADRs and EDRs, MORTGAGE-BACKED SECURITIES, REPURCHASE AGREEMENTS, and REIT SECURITIES. In selecting investments for the Fund, WM Advisors looks for investments that provide regular income in addition to some opportunity for capital appreciation. Equity investments are typically made in "value" stocks currently selling for less than WM Advisors believes they are worth. Among the principal risks of investing in the Fund are: - -Market risk -Real Estate risk - -Credit risk -Derivatives risk - -Currency risk -Liquidity risk - -Foreign Investment risk -Management risk - -Leveraging risk -Smaller Company risk - -Fund-of-Funds risk CALENDAR YEAR TOTAL RETURNS (CLASS I SHARES)
ANNUAL RETURN ------------- 2001 7.78% 2002 -12.53% 2003 29.66% 2004 19.09% 2005 [______%]
During the periods shown above, the highest quarterly return was [_____%] (for the quarter ended [______]), and the lowest was [_____%] (for the quarter ended [_____]). AVERAGE ANNUAL TOTAL RETURNS(With Maximum Sales Charges)
Since Class I Inception FOR PERIODS ENDED DECEMBER 31, 2005 Past One Year Past Five Years (8/1/00) - ----------------------------------- ------------- --------------- ------------- CLASS I Shares [______] [_______] [______] S&P 500(1) [______] [_______] [______] S&P 500/BARRA VALUE INDEX(2) [______] [_______] [______]
(1) The S&P 500 is a broad-based index intended to represent the U.S. equity market. Indices are unmanaged and individuals cannot invest directly in an index. Index performance information reflects no deduction for fees, expenses, or taxes. (2) Effective March 1, 2006, the [new index] replaced the S&P 500/Barra Value Index because WM Advisors believes the new benchmark more accurately reflects the Fund's performance characteristics. The [update new index]. Index performance information reflects no deduction for fees, expenses, or taxes. GROWTH & INCOME FUND OBJECTIVE This Fund seeks to provide long-term capital growth. Current income is a secondary consideration. PRINCIPAL INVESTMENT STRATEGIES AND RISKS The Fund invests primarily in common stocks. In selecting investments for the Fund, WM Advisors looks for common stocks that it believes are currently undervalued and whose issuers WM Advisors believes have the potential to increase earnings over time. WM Advisors seeks companies that it believes have solid management, a competitive advantage, and the resources to maintain superior cash flow and profitability over the long term. Among the principal risks of investing in the Fund are: - -Market risk -Real Estate risk - -Credit risk -Derivatives risk - -Currency risk -Liquidity risk - -Foreign Investment risk -Management risk - -Leveraging risk -Smaller Company risk - -Fund-of-Funds risk CALENDAR YEAR TOTAL RETURNS (CLASS I SHARES)
ANNUAL RETURN ------------- 1999 18.56% 2000 1.86% 2001 -2.91% 2002 -20.11% 2003 26.56% 2004 9.00% 2005 [______%]
During the periods shown above, the highest quarterly return was [_____%] (for the quarter ended [_______]), and the lowest was [_____%] (for the quarter ended [_____]). AVERAGE ANNUAL TOTAL RETURNS(With Maximum Sales Charges)
Since Class I Inception FOR PERIODS ENDED DECEMBER 31, 2005 Past One Year Past Five Years (3/23/98) - ----------------------------------- ------------- --------------- ------------- CLASS I Shares [_____] [_______] [______] S&P 500(1) [_____] [_______] [______]
(1) The S&P 500 is a broad-based index intended to represent the U.S. equity market. Indices are unmanaged and individuals cannot invest directly in an index. Index performance information reflects no deduction for fees, expenses, or taxes. WEST COAST EQUITY FUND OBJECTIVE This Fund seeks to provide long-term growth of capital. PRINCIPAL INVESTMENT STRATEGIES AND RISKS The Fund invests primarily in common stocks of companies located or doing business in Alaska, California, Oregon, and Washington. The Fund's investments may include REIT SECURITIES. In selecting investments for the Fund, WM Advisors looks for equity securities that it believes are undervalued, yet well-managed, with excellent long-term growth possibilities. Among the principal risks of investing in the Fund are: - -Market risk -Real Estate risk - -Credit risk -Derivatives risk - -Currency risk -Liquidity risk - -Foreign Investment risk -Management risk - -Geographic Concentration risk -Smaller Company risk - -Leveraging risk -Fund-of-Funds risk CALENDAR YEAR TOTAL RETURNS (CLASS I SHARES)(1)
ANNUAL RETURN ------------- 2000 6.99% 2001 6.69% 2002 -22.19% 2003 41.87% 2004 13.63% 2005 [______%]
During the periods shown above, the highest quarterly return was [_____%] (for the quarter ended [________]), and the lowest was [_____%] (for the quarter ended [______]). AVERAGE ANNUAL TOTAL RETURNS(With Maximum Sales Charges)(1)
Since Class I Inception FOR PERIODS ENDED DECEMBER 31, 2005 Past One Year Past Five Years (6/7/99) - ----------------------------------- ------------- --------------- ------------- CLASS I Shares [_____] [_______] [______] RUSSELL 3000(R) GROWTH INDEX(2) [_____] [_______] [______]
(1) The Fund's performance in 1997 benefited from the agreement of WM Advisors and its affiliates to limit the Fund's expenses. (2) The Russell 3000(R) Growth Index measures the performance of the 3,000 largest U.S. companies based on total market capitalization, representing approximately 98% of the investable U.S. equity market. Indices are unmanaged and individuals cannot invest directly in an index. Index performance information reflects no deduction for fees, expenses, or taxes. MID CAP STOCK FUND OBJECTIVE This Fund seeks to provide long-term capital appreciation. PRINCIPAL INVESTMENT STRATEGIES AND RISKS The Fund invests primarily in common stocks of companies having market capitalizations in the range of companies included in the S&P MidCap 400 at the time of purchase (as of December 31, 2005, the S&P MidCap included companies with market capitalizations ranging from [$_______] billion to [$__________] billion). In selecting investments for the Fund, WM Advisors looks for equity investments in companies that have solid management, a competitive advantage, and the resources to maintain superior cash flow and profitability over the long term. In determining whether securities should be sold, WM Advisors considers factors such as high valuations relative to other investment opportunities and deteriorating short- or long-term business fundamentals or future growth prospects. The Fund will not necessarily dispose of a security merely because its issuer's market capitalization is no longer in the range represented by the S&P MidCap 400. Among the principal risks of investing in the Fund are: - -Market risk -Management risk - -Credit risk -Smaller Company risk - -Currency risk -Real Estate risk - -Foreign Investment risk -Derivatives risk - -Leveraging risk -Liquidity risk - -Fund-of-Funds risk CALENDAR YEAR TOTAL RETURNS (CLASS I SHARES)
ANNUAL RETURN ------------- 2001 11.38% 2002 -10.07% 2003 27.23% 2004 14.24% 2005 [______%]
During the periods shown above, the highest quarterly return was [_______%] (for the quarter ended [________]), and the lowest was [__________%] (for the quarter ended [_______]). AVERAGE ANNUAL TOTAL RETURNS(With Maximum Sales Charges)
Since Class I Inception FOR PERIODS ENDED DECEMBER 31, 2005 Past One Year Past Five Years (3/1/00) - ----------------------------------- ------------- --------------- ------------- CLASS I Shares [______] [______] [______] S&P MIDCAP 400(1) [______] [______] [______]
(1) The S&P MidCap 400 is a weighted index of the common stocks of 400 mid-size companies. Indices are unmanaged and individuals cannot invest directly in an index. Index performance information reflects no deduction for fees, expenses, or taxes. GROWTH FUND OBJECTIVE This Fund seeks to provide long-term capital appreciation. PRINCIPAL INVESTMENT STRATEGIES AND RISKS The Fund invests primarily in common stocks, including FOREIGN INVESTMENTS that, in the opinion of WM Advisors or a sub-advisor, offer potential for growth. The Fund may also invest in commercial paper and preferred stock. In selecting investments for the Fund, the Fund's three sub-advisors look for individual companies that they believe have exceptional potential for growth. WM Advisors will determine the portion of the Fund's assets to be managed by each sub-advisor. Companies are evaluated on their individual merit, their ability to generate earnings growth, and their superior management teams. In addition, the sub-advisors may consider broad macroeconomic indicators in making investment decisions for the Fund. Among the principal risks of investing in the Fund are: - -Market risk -Derivatives risk - -Credit risk -Liquidity risk - -Currency risk -Management risk - -Foreign Investment risk -Smaller Company risk - -Leveraging risk -Fund-of-Funds risk CALENDAR YEAR TOTAL RETURNS (CLASS I SHARES)(1)
ANNUAL RETURN ------------- 1997 50.01% 1998 75.08% 1999 94.67% 2000 -21.68% 2001 -29.02% 2002 -31.37% 2003 28.49% 2004 8.15% 2005 [________%]
During the periods shown above, the highest quarterly return was [_____%] (for the quarter ended [__________]), and the lowest was [_____%] (for the quarter ended [____________]). AVERAGE ANNUAL TOTAL RETURNS (With Maximum Sales Charges) (1)
Since Class I Inception FOR PERIODS ENDED DECEMBER 31, 2005 Past One Year Past Five Years (7/25/96) - ----------------------------------- ------------- --------------- ------------- CLASS I Shares [_____] [_______] [______] CLASS I Shares [_____] [_______] [______] RUSSELL 1000(R) GROWTH INDEX(2) [_____] [_______] [______]
(1) The Fund's performance between 1999 and 2000 benefited from the agreement of WM Advisors and its affiliates to limit the Fund's expenses. (2) The Russell 1000(R) Growth Index measures the performance of those Russell 1000(R) Index securities with higher price-to-book ratios and higher forecasted growth values. Indices are unmanaged and individuals cannot invest directly in an index. Index performance information reflects no deduction for fees, expenses, or taxes. SMALL CAP VALUE FUND OBJECTIVE This Fund seeks to provide long-term capital appreciation. PRINCIPAL INVESTMENT STRATEGIES AND RISKS The Fund invests primarily in publicly traded small-cap equity securities. The Fund invests primarily in equity securities of companies with market capitalizations in the range represented by the Russell 2000(R) Value Index at the time of purchase (as of December 31, 2005, the Russell 2000(R) Value Index included companies with market capitalizations ranging from [$] billion to [$] billion). In selecting investments for the Fund, WM Advisors uses a value approach that focuses on securities of companies that WM Advisors believes are trading at a meaningful discount from the value of the companies' assets and ongoing operations. WM Advisors generally uses a long-term investment approach and will sell a security when it believes that the full value of the business entity is reflected in the security's price. The Fund will not necessarily dispose of a security merely because its issuer's market capitalization is no longer in the range represented by the Russell 2000(R) Value Index. Among the principal risks of investing in the Fund are: - -Market risk -Real Estate risk - -Credit risk -Derivatives risk - -Currency risk -Liquidity risk - -Foreign Investment risk -Management risk - -Leveraging risk -Smaller Company risk - -Fund-of-Funds risk CALENDAR YEAR TOTAL RETURNS (CLASS I SHARES) 2005 [___________%] During the periods shown above, the highest quarterly return was [_______%] (for the quarter ended [______]), and the lowest was [________%] (for the quarter ended [_____]). AVERAGE ANNUAL TOTAL RETURNS(With Maximum Sales Charges)
Since Class I Inception FOR PERIODS ENDED DECEMBER 31, 2005 Past One Year (3/1/04) - ----------------------------------- ------------- ------------- CLASS I Shares [_____] [______] RUSSELL 2000(R) VALUE INDEX (1) [_____] [______]
(1) The Russell 2000(R) Value Index measures the performance of those Russell 2000(R) Index securities with lower price-to-book ratios and lower forecasted growth values. Indices are unmanaged and individuals cannot invest directly in an index. Index performance information reflects no deduction for fees, expenses, or taxes. SMALL CAP GROWTH FUND OBJECTIVE This Fund seeks to provide long-term capital appreciation. PRINCIPAL INVESTMENT STRATEGIES AND RISKS The Fund invests primarily in equity securities of companies with market capitalizations in the range represented by the Russell 2000(R) Growth Index at the time of purchase (as of December 31, 2005, the Russell 2000(R) Growth Index included companies with market capitalizations ranging from [$_________] billion to [$___________] billion). In selecting investments for the Fund, WM Advisors or the Fund's sub-advisor look for individual companies that they believe offer potential for organic growth. Companies are evaluated on their individual merit, their ability to generate earnings growth, and their superior management teams, products and services. The broad evaluation of a particular sector and market trends are also considered in the analysis of a company's potential. The Fund will not necessarily dispose of a security merely because its issuer's market capitalization is no longer in the range represented by the Russell 2000(R) Growth Index. Among the principal risks of investing in the Fund are: - -Market risk -Derivatives risk - -Credit risk -Liquidity risk - -Currency risk -Management risk - -Foreign Investment risk -Smaller Company risk - -Leveraging risk -Fund-of-Funds risk - -Real Estate risk CALENDAR YEAR TOTAL RETURNS (CLASS I SHARES) (1)
ANNUAL RETURN ------------- 1997 16.36% 1998 5.24% 1999 71.61% 2000 -11.53% 2001 -13.15% 2002 -47.00% 2003 70.52% 2004 4.70% 2005 [______%]
During the periods shown above, the highest quarterly return was [______%] (for the quarter ended [________]), and the lowest was [_________%] (for the quarter ended [_____]). CLASS I AVERAGE ANNUAL TOTAL RETURNS(With Maximum Sales Charges)(1)
Since Class I Inception FOR PERIODS ENDED DECEMBER 31, 2005 Past One Year Past Five Years (7/25/96) - ----------------------------------- ------------- --------------- ------------- CLASS I Shares [_____] [_______] [______] RUSSELL 2000(R) GROWTH INDEX(2) [_____] [_______] [______]
(1) There were no Class I shares outstanding from April 13, 1999 to January 5, 2000. Yearly performance for 1999 and Average Annual Returns for periods including the period from April 13, 1999 to January 5, 2000 reflect the performance of the Fund's Class I shares, which have higher expenses and, therefore, lower performance. The Fund's performance between 1998 and 1999 benefited from the agreement of WM Advisors and its affiliates to limit the Fund's expenses. (2) The Russell 2000(R) Growth Index measures the performance of those Russell 2000(R) Index securities with higher price-to-book ratios and higher forecasted growth values. Indices are unmanaged and individuals cannot invest directly in an index. Index performance information reflects no deduction for fees, expenses, or taxes. INTERNATIONAL GROWTH FUND OBJECTIVE This Fund seeks to provide long-term capital appreciation. PRINCIPAL INVESTMENT STRATEGIES AND RISKS The Fund invests primarily in equity securities of foreign issuers, including issuers located in developing or emerging market countries. The Fund may also use STRATEGIC TRANSACTIONS (derivatives) such as FOREIGN CURRENCY EXCHANGE TRANSACTIONS. In selecting investments for the Fund, the "developed market team" and the "emerging market equity team" at Capital Guardian Trust Company ("Capital Guardian"), the Fund's sub-advisor, seeks to identify foreign stocks that have an attractive valuation, high return on invested capital, excellent cash flow, strong balance sheets, and strong management. WM Advisors will determine the portion of the Fund's assets to be managed by each team. Capital Guardian utilizes a research driven "bottom-up" approach in which decisions are based upon extensive field research and direct company contacts. Capital Guardian blends its basic value-oriented approach with macroeconomic and political judgments on the outlook for economies, industries, currencies, and markets. Among the principal risks of investing in the Fund are: - -Market risk -Derivatives risk - -Credit risk -Liquidity risk - -Currency risk -Management risk - -Foreign Investment risk -Smaller Company risk - -Leveraging risk -Fund-of-Funds risk CALENDAR YEAR TOTAL RETURNS (CLASS I SHARES)
ANNUAL RETURN ------------- 1997 15.45% 1998 25.44% 1999 50.84% 2000 -20.61% 2001 -18.20% 2002 -14.83% 2003 34.10% 2004 13.31% 2005 [______%]
During the periods shown above, the highest quarterly return was [_____%] (for the quarter ended [_______]), and the lowest was [-%] (for the quarter ended [______]). AVERAGE ANNUAL TOTAL RETURNS (With Maximum Sales Charges)
Since Class I Inception FOR PERIODS ENDED DECEMBER 31, 2005 Past One Year Past Five Years (7/25/96) - ----------------------------------- ------------- --------------- ------------- CLASS I Shares [_____] [_______] [______] MORGAN STANLEY CAPITAL INTERNATIONAL EAFE INDEX(1) [_____] [_______] [______]
(1) The Morgan Stanley Capital International EAFE Index is a broad-based, market-capitalization weighted index includes the stock markets of 21 countries in Europe, Australasia and the Far East. Indices are unmanaged and individuals cannot invest directly in an index. Index performance information reflects no deduction for fees, expenses, or taxes. FIXED-INCOME FUNDS SHORT TERM INCOME FUND OBJECTIVE This Fund seeks to provide as high a level of current income as is consistent with prudent investment management and stability of principal. PRINCIPAL INVESTMENT STRATEGIES AND RISKS The Fund invests in high quality, short-term bonds and other FIXED-INCOME SECURITIES that are rated in the top four categories by a nationally recognized statistical rating organization ("NRSRO") or are of comparable quality ("investment grade"). Under normal circumstances, the Fund maintains a dollar-weighted average duration of three years or less. Duration measures the sensitivity of a bond's price to changes in the general level of interest rates. The Fund's investments may also include corporate securities, U.S. and FOREIGN GOVERNMENT SECURITIES, REPURCHASE AGREEMENTS, MORTGAGE-BACKED and ASSET-BACKED SECURITIES and REITs. Among the principal risks of investing in the Fund are: - -Market risk -Real Estate risk - -Credit risk -Derivatives risk - -Currency risk -Liquidity risk - -Foreign Investment risk -Management risk - -Leveraging risk -Fund-of-Funds risk CALENDAR YEAR TOTAL RETURNS (CLASS I SHARES)(1)
ANNUAL RETURN ------------- 1997 5.21% 1998 4.80% 1999 3.08% 2000 8.33% 2001 8.52% 2002 5.98% 2003 4.87% 2004 1.87% 2005 [______%]
During the periods shown above, the highest quarterly return was [_______%] (for the quarter ended [________]), and the lowest was [_______%] (for the quarter ended [________]). AVERAGE ANNUAL TOTAL RETURNS (With Maximum Sales Charges)(1)
Since Class I Inception FOR PERIODS ENDED DECEMBER 31, 2005 Past One Year Past Five Years (7/25/96) - ----------------------------------- ------------- --------------- ------------- CLASS I Shares [_____] [_______] [______] CITIGROUP BROAD INVESTMENT-GRADE CREDIT 1-3 YEARS INDEX(1) [_____] [_______] [______]
(1) The Fund's performance between 1996 and 2005 benefited from the agreement of WM Advisors and its affiliates to limit the Fund's expenses. (2) The Citigroup Broad Investment-Grade Credit 1-3 Years Index measures the performance of bonds, including U.S. and non-U.S. corporate securities and non-U.S. sovereign and provincial securities, with maturities between 1 and 3 years. Indices are unmanaged and individuals cannot invest directly in an index. Index performance information reflects no deduction for fees, expenses, or taxes. U.S. GOVERNMENT SECURITIES FUND OBJECTIVE This Fund seeks to provide a high level of current income consistent with safety and liquidity. PRINCIPAL INVESTMENT STRATEGIES AND RISKS The Fund invests primarily in U.S. GOVERNMENT SECURITIES, including collateralized mortgage obligations and other MORTGAGE-BACKED SECURITIES. The Fund may also invest in DOLLAR ROLLS, which may involve leverage. The Fund invests without limit in obligations of U.S. government agencies or instrumentalities including obligations that are not backed by the full faith and credit of the U.S. government, but only by the right of the issuer to borrow from the U.S. Treasury (such as securities of Federal Home Loan Banks) or by the credit of the instrumentality (such as Federal National Mortgage Association ("FNMA") and Federal Home Loan Mortgage Corporation ("FHLMC")). The Fund may invest up to 20% of its assets in mortgage-backed and other securities that are not U.S. government securities. These obligations may receive ratings that are lower than the AAA rating typically associated with obligations of the U.S. Treasury, reflecting increased credit risk. Among the principal risks of investing in the Fund are: - -Market risk -Derivatives risk - -Credit risk -Liquidity risk - -Leveraging risk -Management risk - -Fund-of-Funds risk CALENDAR YEAR TOTAL RETURNS (CLASS I SHARES)(1)
ANNUAL RETURN ------------- 1999 0.13% 2000 10.27% 2001 7.16% 2002 8.37% 2003 1.83% 2004 3.95% 2005 [________%]
During the periods shown above, the highest quarterly return was [________%] (for the quarter ended [__________]), and the lowest was [________%] (for the quarter ended [_________]). AVERAGE ANNUAL TOTAL RETURNS (With Maximum Sales Charges) (1)
Since Class I Inception FOR PERIODS ENDED DECEMBER 31, 2005 Past One Year Past Five Years (3/23/98) - ----------------------------------- ------------- --------------- ------------- CLASS I Shares [_____] [_______] [______] CITIGROUP MORTGAGE INDEX(2) [_____] [_______] [______]
(1) The Fund's performance between 1998 and 2000 benefited from the agreement of WM Advisors and its affiliates to limit the Fund's expenses. On March 1, 2004, the investment policies of the Fund were modified. As a result, the Fund's performance for periods prior to that date may not be representative of the performance it would have achieved had its current investment policies been in place. (2) The Citigroup Mortgage Index represents the mortgage-backed securities component of Citigroup's Broad Investment-Grade Bond Index. It consists of 30-and 15-year agency-issued (Government National Mortgage Association ("GNMA"), FNMA, and FHLMC) pass-through-securities as well as FNMA and FHLMC balloon mortgages. Indices are unmanaged and individuals cannot invest directly in an index. Index performance information reflects no deduction for fees, expenses, or taxes. INCOME FUND OBJECTIVE This Fund seeks to provide a high level of current income consistent with preservation of capital. PRINCIPAL INVESTMENT STRATEGIES AND RISKS The Fund invests primarily in a diversified pool of FIXED-INCOME SECURITIES, including corporate securities, U.S. GOVERNMENT SECURITIES and MORTGAGE-BACKED SECURITIES (including collateralized mortgage obligations), up to 35% of which may be in BELOW-INVESTMENT-GRADE SECURITIES (sometimes called "junk bonds"). The Fund may also invest in convertible securities and REITS. Among the principal risks of investing in the Fund are: - -Market risk -Real Estate risk - -Credit risk -Derivatives risk - -Currency risk -Liquidity risk - -Foreign Investment risk -Management risk - -Leveraging risk -Fund-of-Funds risk CALENDAR YEAR TOTAL RETURNS (CLASS I SHARES)(1)
ANNUAL RETURN ------------- 1999 0.09% 2000 9.05% 2001 8.09% 2002 8.11% 2003 8.95% 2004 5.53% 2005 [________%]
During the periods shown above, the highest quarterly return was [_______%] (for the quarter ended [_________]), and the lowest was [__________%] (for the quarter ended [_______]). ANNUAL TOTAL RETURNS (With Maximum Sales Charges)(1)
Since Class I Inception FOR PERIODS ENDED DECEMBER 31, 2005 Past One Year Past Five Years (3/23/98) - ----------------------------------- ------------- --------------- ------------- CLASS I Shares [_____] [_______] [______] CITIGROUP BROAD INVESTMENT-GRADE BOND INDEX(2) [_____] [_______] [______]
(1) The Fund's performance in 1999 benefited from the agreement of WM Advisors and its affiliates to limit the Fund's expenses. (2) The Citigroup Broad Investment-Grade Bond Index measures the performance of bonds, including U.S. and non-U.S. corporate securities and non-U.S. sovereign and provincial securities, and includes institutionally traded U.S. Treasury, government-sponsored, mortgage-backed, asset-backed and investment-grade securities. Indices are unmanaged and individuals cannot invest directly in an index. Index performance information reflects no deduction for fees, expenses, or taxes. HIGH YIELD FUND OBJECTIVE This Fund seeks to provide a high level of current income. PRINCIPAL INVESTMENT STRATEGIES AND RISKS The Fund invests primarily in high-yielding, high risk BELOW-INVESTMENT-GRADE FIXED-INCOME SECURITIES (sometimes called "junk bonds"), which may include FOREIGN INVESTMENTS. The Fund may also invest in higher-rated FIXED-INCOME SECURITIES, preferred stocks and convertible securities. Among the principal risks of investing in the Fund are: - -Market risk -Derivatives risk - -Credit risk -Liquidity risk - -Currency risk -Management risk - -Foreign Investment risk -Smaller Company risk - -Leveraging risk -Real Estate Risk - -Fund-of-Funds risk CALENDAR YEAR TOTAL RETURNS (CLASS I SHARES)(1)
ANNUAL RETURN ------------- 1999 12.02% 2000 -1.53% 2001 3.14% 2002 3.66% 2003 28.10% 2004 11.92% 2005 [_______%]
During the period shown above, the highest quarterly return was [_______%] (for the quarter ended [_______]), and the lowest was [_________%] (for the quarter ended [________]). ANNUAL TOTAL RETURNS(1) (With Maximum Sales Charges)(1)
Since Class I Inception FOR PERIODS ENDED DECEMBER 31, 2005 Past One Year Past Five Years (7/28/98) - ----------------------------------- ------------- --------------- ------------- CLASS I Shares [_____] [_______] [______] CITIGROUP HIGH YIELD MARKET INDEX(2) [_____] [_______] [______]
(1) The Fund's performance between 1998 and 1999 benefited from the agreement of WM Advisors and its affiliates to limit the Fund's expenses. (2) The Citigroup High Yield Market Index measures the performance of below-investment-grade debt issued by corporations domiciled in the U.S. or Canada. Indices are unmanaged and individuals cannot invest directly in an index. Index performance information reflects no deduction for fees, expenses, or taxes. MONEY MARKET FUND OBJECTIVE This Fund seeks to maximize current income while preserving capital and maintaining liquidity. PRINCIPAL INVESTMENT STRATEGIES AND RISKS The Fund invests in high-quality money market instruments, which may include U.S. GOVERNMENT SECURITIES, corporate obligations, FLOATING AND VARIABLE RATE SECURITIES, MUNICIPAL OBLIGATIONS, U.S. dollar-denominated FOREIGN INVESTMENTS, ASSET-BACKED SECURITIES, REPURCHASE AGREEMENTS, and WHEN-ISSUED and DELAYED-DELIVERY TRANSACTIONS. Among the principal risks of investing in the Fund are: - -Market risk -Liquidity risk - -Credit risk -Management risk - -Foreign Investment risk -Money Market risk - -Leveraging Risk -Fund-of-Funds risk CALENDAR YEAR TOTAL RETURNS (CLASS I SHARES)(1)
ANNUAL RETURN ------------- 1999 4.56% 2000 6.01% 2001 3.65% 2002 1.31% 2003 0.70% 2004 0.93% 2005 [___%]
During the periods shown above the highest quarterly return was [_____%] (for the quarter ended [______]), and the lowest was [_____%] (for the quarters ended [______]). ANNUAL TOTAL RETURNS(1) (With Maximum Sales Charges)(1)
Since Class I Past One Inception FOR PERIODS ENDED DECEMBER 31, 2005 Year Past Five Years (3/23/98) - ----------------------------------- -------- --------------- ------------- CLASS I Shares [____] [____] [____] CITIGROUP 3-MONTH U.S. TREASURY BILL INDEX(2) [____] [____] [____]
(1) The Fund's performance between 1995 and 2004 benefited from the agreement of WM Advisors and its affiliates to limit the Fund's expenses. (2) The Citigroup 3-Month U.S. Treasury Bill Index is an unmanaged index that measures the performance of 3-month U.S. Treasury bills currently available in the marketplace. Indices are unmanaged and individuals cannot invest directly in an index. Index performance information reflects no deduction for fees, expenses, or taxes. SUMMARY OF PRINCIPAL RISKS The value of your investment in a Fund changes with the value of the investments held by that Fund. Many factors can affect that value, and it is possible that you may lose money by investing in the Funds. Factors that may adversely affect a particular Fund as a whole are called "principal risks." They are summarized in this section. The chart at the end of this section displays similar information. All Funds are subject to principal risks. These risks can changeover time, because the types of investments made by the Funds can change overtime. Investments mentioned in this summary and described in greater detail under "Common Investment Practices" appear in BOLD TYPE. Additional information about the Funds, their investments and the related risks is located in the "Fund Investment Strategies and Risks" section of this prospectus. CREDIT RISK. Each of the Funds may be subject to credit risk to the extent that it invests, directly or indirectly, in FIXED-INCOME SECURITIES, REITs or STRATEGIC TRANSACTIONS. This is the risk that the issuer or the guarantor of a FIXED-INCOME SECURITY or other obligation, or the counterparty to any of a Fund's portfolio transactions (including, without limitation, REPURCHASE AGREEMENTS, REVERSE REPURCHASE AGREEMENTS, LENDING OF SECURITIES, STRATEGIC TRANSACTIONS, and other over-the-counter transactions), will be unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. Varying degrees of credit risk, often reflected in credit ratings, apply. Credit risk is particularly significant for funds such as the Equity Income, Growth & Income, Mid Cap Stock, Growth, Small Cap Value, Small Cap Growth, Income, and High Yield Funds that may invest significantly in BELOW-INVESTMENT-GRADE SECURITIES. These securities and similar unrated securities (commonly known as "junk bonds") have speculative elements or are predominantly speculative credit risks. The REIT, Equity Income, Growth & Income, West Coast Equity, Mid Cap Stock, Growth, Small Cap Value, Small Cap Growth, International Growth, Short Term Income, Income, High Yield, and Money Market Funds, which make FOREIGN INVESTMENTS denominated in U.S. dollars, are also subject to increased credit risk because of the added difficulties associated with requiring foreign entities to honor their contractual commitments, and because a number of foreign governments and other issuers are already in default. LEVERAGING RISK. When a fund is BORROWING money or otherwise leveraging its portfolio, the value of an investment in that fund will be more volatile and all other risks will tend to be compounded. All of the Funds are subject to leveraging risk. The REIT, Mid Cap Stock, Growth, Small Cap Value, Small Cap Growth, International Growth, Short Term Income, U.S. Government Securities, Income, and High Yield Funds may achieve leverage by using REVERSE REPURCHASE AGREEMENTS and/or DOLLAR ROLLS. The REIT, Equity Income and Growth & Income Funds and the Fixed-Income Funds may achieve leverage through the use of INVERSE FLOATING RATE INVESTMENTS. With the exception of the Money Market Fund, each Fund may also take on leveraging risk by investing collateral from securities loans, by using STRATEGIC TRANSACTIONS (derivatives), or by BORROWING money to meet redemption requests. The Money Market Fund may take on leveraging risk by investing collateral from securities loans and by BORROWING money to meet redemption requests. LIQUIDITY RISK. Liquidity risk exists when particular investments are difficult to purchase or sell, possibly preventing a fund from selling out of these ILLIQUID SECURITIES at an advantageous price. All of the Portfolios and Funds may be subject to liquidity risk. Funds that engage in STRATEGIC TRANSACTIONS, make FOREIGN INVESTMENTS, or invest in securities involving substantial market and/or credit risk tend to be subject to greater liquidity risk. In addition, liquidity risk increases for Funds that hold RESTRICTED SECURITIES. MARKET RISK. Each of the Funds is subject to market risk, which is the general risk of unfavorable changes in the market value of a fund's portfolio of securities. In addition, Funds that focus investments in "value" or "growth" stocks are subject to the risk that the market may not favor the particular securities in which the Funds may invest. Growth stocks also generally trade at higher multiples of current earnings than other stocks and may therefore be more sensitive to changes in current or expected earnings. One aspect of market risk is interest rate risk. As interest rates rise, the value of your investment in a Fund is likely to decline because its income-producing equity or fixed-income investments are likely to be worth less. Even funds such as the Short Term Income and U.S. Government Securities Funds are subject to interest rate risk, even though they generally invest substantial portions of their assets in the highest quality FIXED-INCOME SECURITIES, such as U.S. GOVERNMENT SECURITIES. Interest rate risk is generally greater for funds that invest in FIXED-INCOME SECURITIES with longer maturities. This risk may be compounded for funds such as the U.S. Government Securities and Income Funds that invest in MORTGAGE-BACKED or other ASSET-BACKED SECURITIES which may be prepaid. These securities have variable maturities that tend to lengthen when it is least desirable - when interest rates are rising. Increased market risk is also likely for funds such as the Short Term Income and Income Funds that invest in debt securities paying no interest, such as ZERO-COUPON and payment in kind securities. Except for the REIT Fund with respect to real estate, none of the Funds concentrates its assets in any particular industry. However, any of the Funds may concentrate its assets in a broad economic sector or geographic region. To the extent such investments are affected by common economic forces and other factors, this may increase a fund's vulnerability to such factors. The Equity Funds, by investing in equity securities such as common stock, preferred stock and convertible securities, are exposed to a separate set of market risks. These risks include the risk of broader equity market declines as well as more specific risks affecting the issuer, such as management performance, financial leverage, industry problems and reduced demand for the issuer's goods or services. MANAGEMENT RISK. Each Fund is subject to management risk because it is an actively managed investment portfolio. WM Advisors, or the sub-advisor if applicable, will apply its investment techniques and risk analyses in making investment decisions for the Funds, but there can be no guarantee that they will meet stated objectives or produce desired results. In some cases derivatives and other investments may be unavailable or WM Advisors or the sub-advisor may choose not to use them under market conditions when their use, in hindsight, may be determined to have been beneficial to the Funds. CURRENCY RISK. Funds such as the REIT, Equity Income, Growth & Income, West Coast Equity, Mid Cap Stock, Growth, Small Cap Value, Small Cap Growth, International Growth, Short Term Income, Income and High Yield Funds that invest in securities denominated in, and/or receive revenues in, FOREIGN CURRENCIES will be subject to currency risk. This is the risk that those currencies will decline in value relative to the U.S. dollar, or, in the case of hedging positions, that the U.S. dollar will decline in value relative to the currency hedged. DERIVATIVES RISK. Each of the Funds, except the Money Market Fund, may, subject to the limitations and restrictions stated elsewhere in this Prospectus and the SAI, use STRATEGIC TRANSACTIONS involving derivatives such as forward contracts, futures contracts, options, swaps, caps, floors and collars, which are financial contracts whose value depends on, or is derived from, the value of something else, such as an underlying asset, reference rate, or index. In addition to other risks, such as the credit risk of the counterparty, derivatives involve the risk of mis-pricing or improper valuation and the risk that changes in the value of the derivative may not correlate perfectly with relevant assets, rates and indices. FOREIGN INVESTMENT RISK. Each of the Funds that can make FOREIGN INVESTMENTS, such as the REIT, Equity Income, Growth & Income, West Coast Equity, Mid Cap Stock, Growth, Small Cap Value, Small Cap Growth, International Growth, Short Term Income, Income, High Yield and Money Market Funds, may experience more rapid and extreme changes in value than Funds with investments solely in securities of U.S. companies. This is because the securities markets of many foreign countries are relatively small, with a limited number of companies representing a small number of industries. Additionally, foreign securities issuers are usually not subject to the same degree of regulation as U.S. issuers. Reporting, accounting and auditing standards of foreign countries differ, in some cases significantly, from U.S. standards. Also, nationalization, expropriation or confiscatory taxation, currency blockage, political changes or diplomatic developments could adversely affect a fund's investments in a foreign country. In the event of nationalization, expropriation or other confiscation, a fund could lose its entire investment. Adverse developments in certain regions, such as Southeast Asia, may adversely affect the markets of other countries whose economies appear to be unrelated. Investments in emerging market countries are generally subject to these risks to a greater extent. FUND-OF-FUNDS RISK. The WM Strategic Asset Management Portfolios, LLC (the "Portfolios") invest in shares of the Equity and Fixed-Income Funds and the Money Market Fund. From time to time, one or more of a Portfolio's underlying funds may experience relatively large investments or redemptions due to reallocations or rebalancings by the Portfolios as recommended by WM Advisors. These transactions will affect such Funds, since Funds that experience redemptions as a result of reallocations or rebalancings may have to sell portfolio securities and since Funds that receive additional cash will have to invest such cash. While it is impossible to predict the overall impact of these transactions over time, there could be adverse effects on fund performance to the extent that the Funds may be required to sell securities or invest cash at times when they would not otherwise do so. These transactions could also accelerate the realization of taxable income if sales of securities resulted in gains and could also increase transaction costs. Because the Portfolios own substantial portions of some Funds, a redemption reallocation by the Portfolios away from a Fund could cause the Fund's expenses to increase, and may result in a Fund becoming too small to be economically viable. WM Advisors is committed to minimizing such impact on the Funds to the extent it is consistent with pursuing the investment objectives of the Portfolios. WM Advisors may nevertheless face conflicts in fulfilling its dual responsibilities to the Portfolios and the Funds. WM Advisors will at all times monitor the impact on the Funds of transactions by the Portfolios. At October 31, 2005, the WM Strategic Asset Management Portfolios, LLC hold investments in a number of the Funds. The figures presented below represent the percentage of shares outstanding of each Fund owned by the Portfolios:
PORTFOLIOS ----------------------------------------------------------------------- FLEXIBLE CONSERVATIVE CONSERVATIVE STRATEGIC INCOME BALANCED BALANCED GROWTH GROWTH NAME OF FUND PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO TOTAL - ------------ --------- ------------ --------- ------------ --------- ----- REIT Fund 2.5 3.0 33.5 33.5 19.9 92.4 Equity Income Fund 1.6 1.9 19.0 17.6 10.9 51.0 Growth & Income Fund 2.9 2.6 24.9 26.1 18.2 74.7 West Coast Equity Fund 0.7 1.1 13.0 14.2 10.7 39.7 Mid Cap Stock Fund 3.3 2.5 27.9 29.2 23.2 86.1 Growth Fund 2.8 2.6 29.9 31.5 19.1 85.9 Small Cap Value Fund 3.1 2.7 31.5 34.3 22.5 94.1 Small Cap Growth Fund 3.0 1.9 22.3 25.0 17.7 69.9 International Growth Fund -- 3.3 32.6 33.9 22.8 92.6 Short Term Income Fund 44.4 13.0 15.3 -- -- 72.7 U.S. Government Securities Fund 17.9 9.6 43.4 15.9 -- 86.8 Income Fund 19.2 9.1 37.0 10.7 -- 76.0 High Yield Fund 8.0 3.9 24.4 15.2 11.8 63.3
GEOGRAPHIC CONCENTRATION RISK. Funds such as the West Coast Equity Fund that invest significant portions of their assets in concentrated geographic areas like the northwestern United States and/or California generally have more exposure to regional economic risks than funds making investments more broadly. MONEY MARKET RISK. Although the Money Market Fund is designed to be a relatively low-risk investment, it is not entirely free of risk. The Money Market Fund may not be able to maintain a net asset value ("NAV") of $1.00 per share as a result of deterioration in the credit quality of issuers whose securities the Fund holds, or an increase in interest rates. In addition, investments in the Money Market Fund are subject to the risk that inflation may erode the investments' purchasing power over time. REAL ESTATE RISK. Funds such as the REIT, Equity Income, Growth & Income, West Coast Equity, Mid Cap Stock, Small Cap Growth, Small Cap Value, Short Term Income and Income Funds, which may invest a significant portion of their assets in REITs, are subject to risks affecting real estate investments. Investments in the real estate industry, even though representing interests in different companies and sectors within the industry, may be affected by common economic forces and other factors. This increases a fund's vulnerability to factors affecting the real estate industry. This risk is significantly greater than for a fund that invests in a range of industries, and may result in greater losses and volatility. Securities of companies in the real estate industry, including REITs, are sensitive to factors such as changes in real estate values, property taxes, interest rates, cash flow of underlying real estate assets, occupancy rates, government regulations affecting zoning, land use and rents, and management skill and creditworthiness of the issuer. Companies in the real estate industry may also be subject to liabilities under environmental and hazardous waste laws. A fund investing in REITs will indirectly bear its proportionate share of expenses, including management fees, paid by each REIT in which it invests in addition to the expenses of the fund. A fund is also subject to the risk that the REITs in which it invests will fail to qualify for the special tax treatment accorded REITs under the Internal Revenue Code of 1986, as amended (the "Code"), and/or fail to qualify for an exemption from registration as an investment company under the Investment Company Act of 1940, as amended (the "1940 Act"). The REIT Fund is especially sensitive to these risks because it normally invests at least 80% of its net assets plus borrowings for investment purposes in REIT securities. SMALLER COMPANY RISK. Market risk and liquidity risk are particularly pronounced for stocks of companies with relatively small market capitalizations. These companies may have limited product lines, markets or financial resources, or they may depend on a few key employees. The Equity Funds and the High Yield Fund generally have the greatest exposure to this risk. PRINCIPAL RISKS BY FUND The following chart summarizes the principal risks of each Fund other than credit risk, fund-of-funds risk, leveraging risk, liquidity risk, management risk, and market risk, which apply to all of the Funds. Risks not marked for a particular Fund may, however, still apply to some extent to that Fund at various times.
Foreign Geographic Real Currency Derivatives Investment Concentration Money Market Estate Small Risk Risk Risk Risk Risk Risk Company Risk -------- ----------- ---------- ------------- ------------ ------ ------------ REIT Fund X X X X X Equity Income Fund X X X X X Growth & Income Fund X X X X X West Coast Equity Fund X X X X X X Mid Cap Stock Fund X X X X X Growth Fund X X X X Small Cap Value Fund X X X X X Small Cap Growth Fund X X X X X International Growth X X X Fund Short Term Income Fund X X X U.S. Government X X X Securities Fund Income Fund X X X High Yield Fund X X X Money Market X X Fund
FEES AND EXPENSES OF THE FUNDS This section describes the fees and expenses that you may pay if you invest in Class I shares of a Fund. Each of the Funds may offer other classes of shares that are subject to different fees and expenses. For information about other classes of shares offered by the Funds, please contact WM Shareholder Services at 1-800-222-5852. The examples on the following pages are intended to help you compare the cost of investing in the Funds with the costs of investing in other mutual funds. The examples assume that your investment has a 5% return each year, as required for illustration purposes by the Securities and Exchange Commission, and that the Fund's operating expenses remain the same. Your actual costs may be higher or lower than those in the examples.
SHAREHOLDER FEES CLASS I (fees paid directly from your investment) SHARES - ----------------------------------------- ------------- Maximum sales charge (load) imposed on purchases (as a percentage of offering price) 0.00% Maximum deferred sales charge ("load") (as a percentage of original purchase price or redemption proceeds, as applicable) 0.00%
Annual Fund Operating Expenses (expenses that are deducted from Fund assets) ------------------------------------------ Management Other Total Annual Fund CLASS I SHARES Fees Expenses Operating Expenses - -------------- ---------- -------- ------------------ REIT Fund [_____] [_____] [_____] Equity Income Fund [_____] [_____] [_____] Growth & Income Fund [_____] [_____] [_____] West Coast Equity Fund [_____] [_____] [_____] Mid Cap Stock Fund [_____] [_____] [_____] Growth Fund [_____] [_____] [_____] Small Cap Value Fund [_____] [_____] [_____] Small Cap Growth Fund [_____] [_____] [_____] International Growth Fund [_____] [_____] [_____] Short Term Income Fund [_____] [_____] [_____] U.S. Government Securities Fund [_____] [_____] [_____] Income Fund [_____] [_____] [_____] High Yield Fund [_____] [_____] [_____] Money Market Fund [_____] [_____] [_____]
FUND INVESTMENT STRATEGIES AND RISKS This section provides a more complete description of the principal investment strategies and risks of each Fund. The "Common Investment Practices" section that follows provides additional information about the principal investment strategies of the Funds and identifies the Funds that may engage in such practices to a significant extent. The Funds may undertake other strategies for temporary defensive purposes. These strategies may cause the Funds to miss out on investment opportunities and may prevent the Funds from achieving their goals. You can find additional descriptions of the Funds' strategies and risks in the SAI. Except for policies explicitly identified as "fundamental" in this prospectus or the SAI, the investment objectives and investment policies set forth in this prospectus and the SAI are not fundamental and may be changed at any time without shareholder consent. Except as otherwise indicated, all policies and limitations are considered at the time of purchase; the sale of securities is not required in the event of a subsequent change in valuation or other circumstances. EQUITY FUNDS REIT FUND. Under normal market conditions, the REIT Fund will invest at least 80% of its net assets plus any borrowings for investment purposes in REITs securities. The Fund may also invest in U.S. government obligations, convertible securities and preferred stocks, mortgage-backed securities, collateralized mortgage obligations, and asset-backed securities. The Fund may also enter into futures contracts and options on futures contracts that are traded on a U.S. exchange or board of trade. The Fund may invest up to 20% of its net assets in below-investment-grade fixed-income securities (sometimes called "junk bonds"). The Fund may invest in money market instruments for temporary or defensive purposes and may invest in fixed-income securities of any maturity including mortgage-backed securities, U.S. government securities and asset-backed securities. The Fund may purchase or sell U.S. government securities or collateralized mortgage obligations on a "when-issued" or "delayed-delivery" basis in an aggregate of up to 20% of the market value of its total net assets. While no individual fund is intended as a complete investment program, this is particularly true of the REIT Fund, which could be adversely impacted by economic trends within the real estate industry. EQUITY INCOME FUND. The Equity Income Fund invests primarily (normally at least 80% of its net assets plus any borrowings for investment purposes) in dividend-paying common stocks and preferred stocks. The Fund may invest in money market instruments for temporary or defensive purposes. The Fund may invest in fixed-income securities of any maturity, including mortgage-backed securities, U.S. government securities and asset-backed securities, and may also invest up to 20% of its assets in below-investment-grade bonds (sometimes called "junk bonds"). The Fund may purchase or sell U.S. government securities or collateralized mortgage obligations on a "when-issued" or "delayed-delivery" basis in an aggregate of up to 20% of the market value of its total net assets. The Fund may invest up to 20% of its assets in REITs. The Fund may write (sell) covered call options. The Fund may invest up to 25% of its assets in U.S. dollar-denominated securities of foreign issuers. GROWTH & INCOME FUND. The Growth & Income Fund invests primarily in common stocks. The Fund may also invest in money market instruments for temporary or defensive purposes. The Fund may invest up to 25% of its assets in REITs. The Fund may invest in preferred stocks and fixed-income securities of any maturity, including mortgage-backed securities and convertible securities, and may invest up to 35% (limited to 20% unless authorized by the Trusts' Board of Trustees) of its assets in below-investment-grade fixed-income securities (sometimes called "junk bonds"). WEST COAST EQUITY FUND. Under normal circumstances, at least 80% of the Fund's net assets (plus any borrowings for investment purposes) will be invested in the common stocks of West Coast companies. WM Advisors defines West Coast companies to include those with: (i) principal executive offices located in the region, which includes Alaska, California, Oregon, and Washington, (ii) over 50% of their work force employed in the region, or (iii) over 50% of their sales within the region. While no individual fund is intended as a complete investment program, this is particularly true of the West Coast Equity Fund, which could be adversely impacted by economic trends within this six state area. The Fund is permitted to invest in money market instruments for temporary defensive purposes. The Fund may invest up to 20% of its assets in REITs and below-investment-grade fixed-income securities (sometimes called "junk bonds"). MID CAP STOCK FUND. The Mid Cap Stock Fund invests primarily (normally at least 80% of its net assets plus any borrowings for investment purposes) in common stocks of companies with market capitalizations in the range represented by companies included in the S&P MidCap 400 (as of December 31, 2005, the S&P MidCap 400 included companies with market capitalizations ranging from [$] billion to [$] billion). The Fund may also invest in money market instruments for temporary or defensive purposes. The Fund may invest up to 20% of its assets in REITs. The Fund may invest in fixed-income securities of any maturity, including mortgage-backed securities, and may invest up to 20% of its assets in below-investment-grade fixed-income securities (sometimes called "junk bonds"). The Fund may purchase or sell U.S. government securities or collateralized mortgage obligations on a "when-issued" or "delayed-delivery" basis in an aggregate of up to 20% of the market value of its total net assets. The Fund may invest up to 25% of its assets in U.S. dollar-denominated securities of foreign issuers. GROWTH FUND. The Growth Fund invests primarily in common stocks believed to have significant appreciation potential. The Fund also may invest in fixed-income securities, bonds, convertible bonds, preferred stock and convertible preferred stock, including up to 35% (limited to 20% unless authorized by the Trusts' Board of Trustees) of its assets in below-investment-grade fixed-income securities (sometimes called "junk bonds"). The Fund may invest up to 25% of its assets in foreign securities, usually foreign common stocks, provided that no more than 5% of its assets are invested in securities of companies in (or governments of) developing or emerging countries (sometimes referred to as "emerging markets"). The Fund may also engage in certain options transactions, enter into financial futures contracts and related options for the purpose of portfolio hedging and enter into currency forwards or futures contracts and related options for the purpose of currency hedging. The Fund's portfolio is managed by three sub-advisors: Janus Capital Management, LLC, Salomon Brothers Asset Management, Inc, and OppenheimerFunds, Inc. WM Advisors will determine the portion of the Fund's assets to be managed by each of the Fund's three sub-advisors. Because WM Advisors earns different fees on the amounts allocated to each of the Fund's sub-advisors, there may be a conflict between the interests of the Fund and the economic interests of WM Advisors. SMALL CAP VALUE FUND. The Small Cap Value Fund invests primarily (normally at least 80% of its net assets plus any borrowings for investment purposes) in equity securities of companies with market capitalizations in the range represented by the Russell 2000(R) Value Index at the time of purchase (as of December 31, 2005, the Russell 2000(R) Value Index included companies with market capitalizations ranging from [$] billion to [$] billion). In addition to common stock, the Fund's equity securities may include convertible bonds, convertible preferred stock and warrants to purchase common stock. The Fund may also invest in money market instruments for temporary or defensive purposes. The Fund may invest up to 25% of its assets in securities of foreign issuers, provided that no more than 5% of its total assets may be invested in securities of issuers located in developing or emerging countries. The Fund may invest up to 20% of its assets in below-investment-grade fixed-income securities (sometimes called "junk bonds") if WM Advisors believes that doing so will be consistent with the goal of capital appreciation. SMALL CAP GROWTH FUND. The Small Cap Growth Fund invests primarily (normally at least 80% of its net assets plus any borrowings for investment purposes) in equity securities of companies with market capitalizations in the range represented by the Russell 2000(R) Growth Index at the time of purchase (as of December 31, 2005, the Russell 2000(R) Growth Index included companies with market capitalizations ranging from [$] billion to [$] billion). In addition to common stock, the Fund's equity securities may include convertible bonds, convertible preferred stock, and warrants to purchase common stock. The Fund may also invest in money market instruments for temporary or defensive purposes. The Fund may invest up to 25% of its assets in securities of foreign issuers provided that no more than 5% of its total assets are to be invested in securities of issuers located in developing or emerging market countries. The Fund may invest up to 20% of its assets in below-investment-grade fixed-income securities (sometimes called "junk bonds") if WM Advisors or the Fund's sub-advisors believes that doing so will be consistent with the goal of capital appreciation. The Fund's portfolio is managed by two sub-advisors: Delaware Management Company and Oberweis Asset Management, Inc. WM Advisors will determine the portion of the Fund's assets to be managed by each of the Fund's sub-advisors. INTERNATIONAL GROWTH FUND. The International Growth Fund invests primarily in equity securities of issuers located in foreign countries that Capital Guardian, the Fund's sub-advisor, believes present attractive investment opportunities. In selecting investments for the Fund, Capital Guardian seeks to identify foreign stocks that have an attractive valuation, high return on invested capital, excellent cash flow, strong balance sheets and strong management. Capital Guardian utilizes a research driven "bottom-up" approach in that decisions are made based upon extensive field research and direct company contacts. Capital Guardian blends its basic value-oriented approach with macroeconomics and political judgments on the outlook for economies, industries, currencies and markets. The Fund will emphasize established companies, although it may invest in companies of varying sizes as measured by assets, sales and capitalization. The Fund's portfolio is managed by two different teams at Capital Guardian: the "developed market team" and the "emerging market equity team." WM Advisors determines the portion of the Fund's assets to be managed by each team. The Fund invests in common stock and may invest in other securities with equity characteristics, such as trust or limited partnership interests, preferred stock, rights, and warrants. The Fund may also invest in convertible securities. The Fund invests in securities listed on foreign or domestic securities exchanges and securities traded in foreign or domestic over-the-counter markets, and may invest in restricted or unlisted securities. The Fund intends to stay fully invested in the securities described above to the extent practical. Fund assets may be invested in short-term fixed-income instruments to meet anticipated day-to-day operating expenses, and for temporary defensive purposes. In addition, when the Fund experiences large cash inflows, it may hold short-term investments until desirable equity securities become available. These short-term instruments are generally rated A or higher by Moody's, S&P or Fitch, or if unrated, are of comparable quality in the opinion of the Fund's sub-advisor. The Fund may invest up to 30% of its assets in the securities of companies in or governments of developing or emerging markets, provided that no more than 5% of the Fund's total assets are invested in any one emerging market country. For temporary defensive purposes, the Fund may invest a major portion of its assets in securities of U.S. issuers. Furthermore, the Fund may invest up to 5% of its total assets in investment-grade corporate fixed-income securities having maturities longer than one year, including euro-currency instruments and securities. FIXED-INCOME FUNDS SHORT TERM INCOME FUND. The Short Term Income Fund maintains a weighted average duration of three years or less and a weighted average maturity of five years or less. Duration measures the sensitivity of a bond's price to changes in the general level of interest rates. The duration of a fixed-income security is the weighted average term to maturity of the present value of future cash flows, including interest and principal payments. Thus, duration involves WM Advisors' judgment with respect to both interest rates and expected cash flows. The Fund will invest substantially all of its assets in fixed-income securities that, at the time of purchase, are rated in one of the top four rating categories by one or more nationally recognized statistical rating organizations ("NRSROs") or, if unrated, are judged to be of comparable quality by WM Advisors. All fixed-income securities purchased by the Fund will be investment-grade at the time of purchase. The Fund may invest in securities issued or guaranteed by domestic and foreign governments and government agencies and instrumentalities and in high-grade corporate fixed-income securities, such as bonds, debentures, notes, equipment lease and trust certificates, mortgage-backed securities, collateralized mortgage obligations and asset-backed securities. The Fund may invest in fixed-income securities issued by REITs. The Fund may invest up to 10% of its assets in foreign fixed-income securities, primarily bonds of foreign governments or their political subdivisions, foreign companies and supranational organizations, including non-U.S. dollar-denominated securities and U.S. dollar-denominated fixed-income securities issued by foreign issuers and foreign branches of U.S. banks. Investments in foreign securities are subject to special risks. The Fund may invest up to 5% of its assets in preferred stock. The Fund may engage in certain options transactions, enter into financial futures contracts and related options for the purpose of portfolio hedging and enter into currency forwards or futures contracts and related options for the purpose of currency hedging. The Fund may invest in certain illiquid investments, such as privately placed securities, including restricted securities. The Fund may invest up to 10% of its assets in securities of unaffiliated mutual funds. The Fund may borrow money or enter into reverse repurchase agreements or dollar roll transactions in the aggregate of up to 33 1/3% of its total assets. The Fund may invest up to 25% of its total assets in asset-backed securities, which represent a participation in, or are secured by and payable from, a stream of payments generated by particular assets, most often a pool of similar assets. U.S. GOVERNMENT SECURITIES FUND. The U.S. Government Securities Fund invests primarily in a selection of obligations of the U.S. government and its agencies. The Fund may also invest in collateralized mortgage obligations and repurchase agreements. The Fund may not invest less than 80% of its net assets (plus any borrowings for investment purposes) in obligations issued or guaranteed by the U.S. government, its agencies and/or instrumentalities or in repurchase agreements or collateralized mortgage obligations secured by these obligations. The Fund may borrow up to 5% of its total net assets for emergency, non-investment purposes. The Fund may also enter into dollar roll transactions limited in aggregate to no more than 25% of its total net assets. INCOME FUND. The Income Fund invests most of its assets in: - - fixed-income and convertible securities; - - U.S. government securities, including mortgage-backed securities issued by the GNMA, FNMA, and FHLMC or similar government agencies or government- sponsored entities; - - commercial mortgage-backed securities; - - obligations of U.S. banks that belong to the Federal Reserve System; - - preferred stocks and convertible preferred stocks; - - the highest grade commercial paper as rated by S&P, Fitch or Moody's; and - - deposits in U.S. banks. The Fund may also invest in securities denominated in foreign currencies and receive interest, dividends and sale proceeds in foreign currencies. The Fund may engage in foreign currency exchange transactions for hedging or non-hedging purposes and may purchase and sell currencies on a spot (i.e. cash) basis, enter into forward contracts to purchase or sell foreign currencies at a future date, and buy and sell foreign currency futures contracts. The Fund may borrow up to 5% of its total net assets for emergency, non-investment purposes, and may enter into dollar roll transactions limited in aggregate to no more than 25% of its total net assets. The Fund may purchase securities of issuers that deal in real estate or securities that are secured by interests in real estate, and it may acquire and dispose of real estate or interests in real estate acquired through the exercise of its rights as a holder of fixed-income securities secured by real estate or interests therein. The Fund may also purchase and sell interest rate futures and options. The Fund may invest up to 35% (limited to 20% unless authorized by the Trusts' Board of Trustees) of its assets in below-investment-grade fixed-income securities (sometimes called "junk bonds"). HIGH YIELD FUND. The High Yield Fund invests, under normal market conditions, at least 80% of its net assets (plus any borrowings for investment purposes) in a diversified portfolio of fixed income securities (including fixed-income securities, convertible securities and preferred stocks) rated lower than BBB by S&P or Fitch or rated lower than Baa by Moody's or of equivalent quality as determined by WM Advisors. The remainder of the Fund's assets may be invested in any other securities WM Advisors believes are consistent with the Fund's objective, including higher rated fixed-income securities, common stocks and other equity securities. The Fund may also invest in securities of foreign issuers including those located in developing or emerging countries, and engage in hedging strategies involving options. MONEY MARKET FUND MONEY MARKET FUND. The Money Market Fund invests only in U.S. dollar-denominated short-term, money market securities. The Fund will only purchase securities issued or guaranteed by the U.S. government, its agencies, sponsored entities or instrumentalities or securities that are, or have issuers that are: - - rated by at least two NRSROs, such as S&P, Fitch or Moody's, in one of the two highest rating categories for short-term fixed-income securities; - - rated in one of the two highest categories for short-term debt by the only NRSRO that has issued a rating; or - - if not so rated, are determined to be of comparable quality. In pursuing its objective, the Money Market Fund invests solely in money market instruments that may be included in the following six general categories: - - U.S. government securities; - - short-term commercial notes (including asset-backed securities) issued directly by U.S. and foreign businesses, banking institutions, financial institutions (including brokerage, finance and insurance companies) and state and local governments and municipalities to finance short-term cash needs; - - obligations of U.S. and foreign banks with assets of more than $500 million; - - U.S. dollar denominated securities issued by foreign governments, their agencies or instrumentalities or by supranational entities; - - short-term corporate securities rated in one of the two highest rating categories by an NRSRO; and - - repurchase agreements. A description of the rating systems of S&P, Fitch and Moody's is contained in Appendix A to this prospectus and in the SAI. At the time of investment, no security (except U.S. government securities subject to repurchase agreements and variable rate demand notes) purchased by the Fund will have a maturity exceeding 397 days, and the Fund's average portfolio maturity will not exceed 90 days. The Fund will attempt to maintain a stable NAV of $1.00, but there can be no assurance that the Fund will be able to do so. COMMON INVESTMENT PRACTICES The next several pages contain more detailed information about types of securities in which the Funds may invest, and strategies which WM Advisors or the respective sub-advisor may employ in pursuit of that Fund's investment objective. This section also includes a summary of risks and restrictions associated with these securities and investment practices. For more information, please see the SAI. BELOW-INVESTMENT-GRADE SECURITIES. The Growth & Income, Growth, and Income Funds may invest up to 35% of its total assets, and the REIT, Equity Income, West Coast Equity, Mid Cap Stock, Small Cap Value and Small Cap Growth Funds each may invest up to 20% of its total assets in below- investment-grade fixed-income securities, sometimes referred to as "junk bonds." The High Yield Fund may invest all of its assets in these securities, and will generally invest at least 80% of its assets in such securities. Below-investment-grade fixed-income securities usually entail greater risk (including the possibility of default or bankruptcy of the issuers), generally involve greater price volatility and risk of principal and income, and may be less liquid than higher-rated securities. Both price volatility and illiquidity may make it difficult for a Fund to value or to sell certain of these securities under certain market conditions. These securities are often considered to be speculative and involve greater risk of default or price changes due to changes in the issuer's creditworthiness. The market prices of these securities may fluctuate more than higher-rated securities and may decline significantly in periods of general economic difficulty, which may follow periods of rising interest rates. For further information, see Appendix A to this prospectus. BORROWING. The Funds may borrow money from banks solely for temporary or emergency purposes, subject to various limitations. If a Fund borrows money, its share price and yield may be subject to greater fluctuation until the borrowing is paid off. For the Growth, Small Cap Growth, International Growth, and Short Term Income Funds, such borrowings may not exceed 30% of total assets. The REIT, Equity Income, Growth & Income, West Coast Equity, Mid Cap Stock, Small Cap Value, U.S. Government Securities, Income, High Yield, and Money Market Funds may borrow up to 5% of their total assets for emergency, non-investment purposes. In addition, the Money Market Fund may borrow up to 33 1/3% of its total assets to meet redemption requests. Each of the foregoing percentage limitations on borrowings is a fundamental policy of the respective Funds. The Short Term Income, U.S. Government Securities, Income and High Yield Funds may enter into DOLLAR ROLLS. A Fund enters into a DOLLAR ROLL by selling securities for delivery in the current month and simultaneously contracting to repurchase, typically in 30 or 60 days, substantially similar (same type, coupon and maturity) securities on a specified future date. This may be considered borrowing from the counterparty and may produce similar leveraging effects. The proceeds of the initial sale of securities in the DOLLAR ROLL transactions, for example, may be used to purchase long-term securities which will be held during the roll period. To the extent that the proceeds of the initial sale of securities are invested, the Fund will be subject to market risk on those securities as well as similar risk with respect to the securities the Fund is required to repurchase. Each of the REIT, Mid Cap Stock, Growth, Small Cap Value, Small Cap Growth, International Growth, Short Term Income, U.S. Government Securities, Income, and High Yield Funds may engage in REVERSE REPURCHASE AGREEMENTS. REVERSE REPURCHASE AGREEMENTS involve the risk that the market value of the securities sold by a fund may decline below the repurchase price of the securities and, if the proceeds from the REVERSE REPURCHASE AGREEMENT are invested in securities, that the market value of the securities bought may decline at the same time there is a decline in the market value of the securities sold (and required to be repurchased). FIXED-INCOME SECURITIES. The market value of FIXED-INCOME SECURITIES held by a Fund and, consequently, the value of the Fund's shares can be expected to vary inversely with changes in prevailing interest rates. You should recognize that, in periods of declining interest rates, the Fund's yield will tend to be somewhat higher than prevailing market rates and, in periods of rising interest rates, the Fund's yield will tend to be somewhat lower. Also, when interest rates are falling, any net inflow of money to the Fund will likely be invested in instruments producing lower yields than the balance of its assets, thereby reducing current yield. In periods of rising interest rates, the opposite can be expected to occur. The prices of longer maturity securities are also subject to greater market fluctuations as a result of changes in interest rates. In addition, securities purchased by a Fund may be subject to the risk of default. FIXED-INCOME SECURITIES, including MUNICIPAL OBLIGATIONS, rated in the lower end of the investment-grade category (Baa or BBB) and BELOW-INVESTMENT-GRADE FIXED-INCOME SECURITIES may have speculative characteristics and may be more sensitive to economic changes and changes in the financial condition of their issuers. The FIXED-INCOME SECURITIES in which the Funds may invest include ZERO-COUPON SECURITIES, which make no payments of interest or principal until maturity. Because these securities avoid the need to make current interest payments, they may involve greater credit risks than other FIXED-INCOME SECURITIES. FLOATING RATE, INVERSE FLOATING RATE AND VARIABLE RATE INVESTMENTS. The REIT, Equity Income and Growth & Income Funds, and the Fixed-Income Funds may purchase FLOATING RATE, INVERSE FLOATING RATE and VARIABLE RATE SECURITIES, including participation interests therein and assignments thereof. The Money Market Fund may purchase FLOATING RATE and VARIABLE RATE OBLIGATIONS, including participation interests therein. The Fixed-Income Funds may purchase mortgage-backed securities that are FLOATING RATE, INVERSE FLOATING RATE and VARIABLE RATE OBLIGATIONS. Each of the REIT, Equity Income, and Growth & Income Funds, as well as the Fixed-Income Funds, may also invest in securities representing interests in tax-exempt securities, known as INVERSE FLOATING OBLIGATIONS or "residual interest bonds," which pay interest rates that vary inversely with changes in the interest rates of specified short-term tax-exempt securities or an index of short-term tax-exempt securities. The interest rates on INVERSE FLOATING-RATE OBLIGATIONS or residual interest bonds will typically decline as short-term market interest rates increase and increase as short-term market rates decline. These securities have the effect of providing a degree of investment leverage. They will generally respond to changes in market interest rates more rapidly than fixed-rate long-term securities (typically twice as fast). As a result, the market values of INVERSE FLOATING-RATE OBLIGATIONS and residual interest bonds will generally be more volatile than the market values of fixed-rate tax-exempt securities. FOREIGN CURRENCY EXCHANGE TRANSACTIONS AND CURRENCY MANAGEMENT. The REIT, Mid Cap Stock, Growth, Small Cap Value, Small Cap Growth, International Growth, Short Term Income,, Income and High Yield Funds may, subject to the investment limitations stated elsewhere in this prospectus and the SAI, engage in FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Funds that buy and sell securities denominated in currencies other than the U.S. dollar, and receive interest, dividends and sale proceeds in currencies other than the U.S. dollar, may enter into FOREIGN CURRENCY EXCHANGE TRANSACTIONS to convert to and from different foreign currencies and to convert foreign currencies to and from the U.S. dollar. These funds either enter into these transactions on a spot (i.e. cash) basis at the spot rate prevailing in the foreign currency exchange market, or use forward contracts to purchase or sell foreign currencies. These funds also may enter into foreign currency hedging transactions in an attempt to protect against changes in foreign currency exchange rates between the trade and settlement dates of specific securities transactions or changes in foreign currency exchange rates that would adversely affect a portfolio position or an anticipated portfolio position. These transactions tend to limit any potential gain that might be realized should the value of the hedged currency increase. The precise matching of the forward contract amounts and the value of the securities involved will not generally be possible because the future value of these securities in foreign currencies will change as a consequence of market movements in the value of those securities between the date the forward contract is entered into and the date it matures. The projection of currency market movements is extremely difficult, and the successful execution of a hedging strategy is highly uncertain. The Fund may also enter into a forward contract to sell a currency that is linked to a currency or currencies in which some or all of the Fund's portfolio securities are or could be denominated, and to buy U.S. dollars. These practices are referred to as "cross hedging" and "proxy hedging." Forward currency exchange contracts are agreements to exchange one currency for another -- for example, to exchange a certain amount of U.S. dollars for a certain amount of Japanese yen -- at a future date and specified price. Because there is a risk of loss to the Fund if the other party does not complete the transaction, WM Advisors or the Fund's sub-advisor will enter into forward currency exchange contracts only with parties approved by the Trusts' Board of Trustees or persons acting pursuant to their direction. Each of the Funds, other than the Equity Income, Growth & Income, West Coast Equity, U.S. Government Securities, and Money Market Funds may invest in securities which are indexed to certain specific foreign currency exchange rates. These securities expose the Funds to the risk of significant changes in rates of exchange between the U.S. dollar and any foreign currency to which an exchange rate-related security is linked. In addition, there is no assurance that sufficient trading interest to create a liquid secondary market will exist for a particular exchange rate-related security due to conditions in the fixed-income and foreign currency markets. Illiquidity in the forward foreign exchange market and the high volatility of the foreign exchange market may from time to time combine to make it difficult to sell an exchange rate-related security prior to maturity without incurring a significant loss. In addition, these Funds may enter into foreign currency forward contracts for non-hedging purposes. When WM Advisors or a Fund's sub-advisor believes that the currency of a specific country may deteriorate against another currency, the Fund may enter into a forward contract to sell the less attractive currency and buy the more attractive one. The amount in question could be less than or equal to the value of the Fund's securities denominated in the less attractive currency. For example, a Fund could enter into a foreign currency forward contract to sell U.S. dollars and buy a foreign currency when the value of the foreign currency is expected to rise in relation to the U.S. dollar. While the foregoing actions are intended to protect a Fund from adverse currency movements or allow a Fund to profit from favorable currency movements, there is a risk that currency movements involved will not be properly anticipated, and there can be no assurance that such transactions will be available or that a Fund will use such transactions even if they are available. Use of currency hedging techniques may also be limited by the need to protect the status of the Fund as a regulated investment company under the Code. FOREIGN INVESTMENTS. The Equity Income, Growth & Income, West Coast Equity and Money Market Funds may invest in securities of foreign issuers if such securities are denominated in U.S. dollars. The REIT, Mid Cap Stock, Growth, Small Cap Value, Small Cap Growth, International Growth, Short Term Income, Income and High Yield Funds may invest in both U.S. dollar-denominated and non-U.S. dollar-denominated foreign securities. There are certain risks involved in investing in foreign securities, including those resulting from: - - fluctuations in currency exchange rates; - - devaluation of currencies; - - future political or economic developments and the possible imposition of currency exchange blockages or other foreign governmental laws or restrictions; - - reduced availability of public information concerning issuers; and - - the fact that foreign companies are not generally subject to uniform accounting, auditing and financial reporting standards or to other regulatory practices and requirements comparable to those applicable to domestic companies. Moreover, securities of many foreign companies may be less liquid and their prices more volatile than those of securities of comparable domestic companies. In addition, there is the possibility of expropriation, nationalization, confiscatory taxation and limitations on the use or removal of funds or other assets of the Funds, including the withholding of dividends. The risks associated with foreign securities are generally greater for securities of issuers in emerging markets. In addition, while the volume of transactions effected on foreign stock exchanges has increased in recent years, in most cases it remains well below that of the New York Stock Exchange. Accordingly, the Funds' foreign investments may be less liquid and their prices may be more volatile than comparable investments in securities of U.S. companies. Moreover, the settlement periods for foreign securities, which are often longer than those for securities of U.S. issuers, may affect portfolio liquidity. In buying and selling securities on foreign exchanges, the Funds normally pay fixed commissions that are generally higher than the negotiated commissions charged in the United States. In addition, there is generally less governmental supervision and regulation of securities exchanges, brokers and issuers in foreign countries than in the United States. Foreign securities generally are denominated and pay dividends or interest in foreign currencies, and the value of the Funds' net assets as measured in U.S. dollars will be affected favorably or unfavorably by changes in exchange rates. The Equity Funds and the Short Term Income, Income and High Yield Funds may invest in securities of foreign issuers directly or in the form of AMERICAN DEPOSITARY RECEIPTS ("ADRs"), EUROPEAN DEPOSITARY RECEIPTS ("EDRs"), GLOBAL DEPOSITARY RECEIPTS ("GDRs") or other similar securities representing securities of foreign issuers. These securities may not be denominated in the same currency as the securities they represent. ADRs are receipts typically issued by a United States bank or trust company evidencing ownership of the underlying foreign securities. EDRs, which are sometimes referred to as Continental Depositary Receipts ("CDRs"), are receipts issued by a European financial institution evidencing a similar arrangement. Generally, ADRs, in registered form, are designed for use in the United States securities markets, and EDRs, in bearer form, are designed for use in European securities markets. GEOGRAPHIC CONCENTRATION. Potential investors in the West Coast Equity Fund should consider the possibility of greater risk arising from the geographic concentration of their investments. HOLDINGS IN OTHER INVESTMENT COMPANIES. When WM Advisors or a Fund's sub-advisor believes that it would be beneficial to the Fund, each of the REIT, Mid Cap Stock, Growth, Small Cap Value, Small Cap Growth, International Growth, Short Term Income, U.S. Government Securities, and High Yield Funds may, subject to any limitations imposed by the 1940 Act, invest up to 10% of its assets in securities of mutual funds or other registered investment companies that are not affiliated with WM Advisors or the Fund's sub-advisor. As a shareholder in any such mutual fund, the Fund will bear its ratable share of the mutual fund's expenses, including management fees, and will remain subject to the Fund's advisory fees with respect to the assets so invested. In addition, the Growth Fund may invest Fund assets in money market funds affiliated with Janus (one of the Fund's sub-advisors), provided that Janus remits to the Fund the amount of any investment advisory and administrative services fees paid to Janus as the investment manager of the money market fund. ILLIQUID SECURITIES AND RESTRICTED SECURITIES. Up to 15% of the net assets of each Fund except the Equity Income, Growth & income, West Coast Equity and U.S. Government Securities Funds, and up to 10% of the net assets of the Money Market Fund may be invested in securities that are not readily marketable. Such ILLIQUID SECURITIES may include: - - repurchase agreements with maturities greater than seven calendar days; - - time deposits maturing in more than seven calendar days; - - to the extent a liquid secondary market does not exist for the instruments, futures contracts and options thereon; - - certain over-the-counter options, as described in the SAI; - - certain variable rate demand notes having a demand period of more than seven calendar days; and - - securities that are restricted under federal securities laws with respect to disposition (excluding certain Rule 144A securities, as described below). Securities which may be resold pursuant to Rule 144A under the Securities Act of 1933, as amended, will not be included for the purposes of these restrictions, provided that such securities meet liquidity guidelines established by the Board of Trustees of the Funds. Each of the Funds may purchase RESTRICTED SECURITIES (provided such securities are, in the case of the Equity Income, Growth & Income, West Coast Equity, U.S. Government Securities, Income, and Money Market Funds eligible for resale pursuant to Rule 144A under the Securities Act of 1933, as amended). Although recent and ongoing developments in the securities markets have resulted in greater trading of RESTRICTED SECURITIES (making restricted securities, in many instances, more liquid than they once were considered to be), investing in RESTRICTED SECURITIES could increase the level of illiquidity of the portfolio securities of a Fund. This could make it more difficult for a Fund to fulfill LENDING OF SECURITIES. Certain of the Funds may lend portfolio securities to brokers and other financial organizations. The Growth, Small Cap Growth, International Growth and Short Term Income Funds each may lend portfolio securities up to 20% of total assets. The REIT, Equity Income, Growth & Income, West Coast Equity, Mid Cap Stock, Small Cap Value, U.S. Government Securities, Income, High Yield and Money Market Funds each may lend portfolio securities up to 33% of its total assets. These transactions involve a risk of loss to the Fund if the counterparty should fail to return such securities to the Fund upon demand or if the counterparty's collateral invested by the Fund declines in value as a result of investment losses. MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. The REIT, Equity Income, Growth & Income, Mid Cap Stock, Small Cap Value, Small Cap Growth, International Growth, Short Term Income, U.S. Government Securities, Income, and High Yield Funds may invest in GOVERNMENT MORTGAGE-BACKED SECURITIES issued or guaranteed by GNMA, FNMA or FHLMC. To the extent that a Fund purchases MORTGAGE-BACKED SECURITIES at a premium, mortgage foreclosures and payments and prepayments of principal (which may be made at any time without penalty) will tend to result in the loss of that premium. The yield of a Fund may be affected by reinvestments of prepayments at higher or lower rates than the original investment. In addition, like other FIXED-INCOME SECURITIES, the value of MORTGAGE-BACKED SECURITIES will generally fluctuate in response to market interest rates. The U.S. government guarantees the timely payment of interest and principal for GNMA certificates. However, the guarantees do not extend to the securities' yield or value, which are likely to vary inversely with fluctuations in interest rates, nor do the guarantees extend to the yield or value of the Fund's shares. Government stripped mortgage-based securities represent beneficial ownership interests in either principal distributions (principal-only securities or "PO strips") or interest distributions (interest-only securities or "IO strips") from GOVERNMENT MORTGAGE-BACKED SECURITIES. Investing in government stripped mortgage-backed securities involves the risks normally associated with investing in MORTGAGE-BACKED SECURITIES issued by government entities. In addition, the yields on PO and IO strips are extremely sensitive to prepayments on the underlying mortgage loans. If a decline in the level of prevailing interest rates results in a higher than anticipated rate of principal prepayment, distributions of principal will be accelerated, thereby reducing the yield to maturity on IO strips and increasing the yield to maturity on PO strips. Conversely, if an increase in the level of prevailing interest rates results in a rate of principal prepayments that is lower than anticipated, distributions of principal will be deferred, thereby increasing the yield to maturity on IO strips and decreasing the yield to maturity on PO strips. Sufficiently high prepayment rates could result in the Fund losing some or all of its initial investment in an IO strip. The Funds will acquire government stripped mortgage-backed securities only if a liquid secondary market for the securities exists at the time of acquisition and the purchase of principal-only and interest-only securities will be limited to 5% of total assets for each Fund unless authorized by the Trusts' Board of Trustees. However, there can be no assurance that the Funds will be able to effect a trade of a government stripped mortgage-backed security at a time when they wish to do so. In addition, the REIT, Equity Income, Growth & Income, Mid Cap Stock, Small Cap Value, Short Term Income, U.S. Government Securities, and Income Funds may invest in non-agency mortgage-backed securities, which are similar to GOVERNMENT MORTGAGE-BACKED SECURITIES, except that they are not issued or guaranteed by governmental entities. Non-agency mortgage-backed securities include collateralized mortgage obligations and real estate mortgage investment conduits ("REMICs"). While non-agency mortgage-backed securities are generally structured with one or more types of credit enhancement, and often have high credit ratings, they lack the credit status of a governmental agency or instrumentality. The REIT, Equity Income, Mid Cap Stock, Small Cap Value, Small Cap Growth, Short Term Income, U.S. Government Securities, Income, High Yield, and Money Market Funds may purchase ASSET-BACKED SECURITIES. ASSET-BACKED SECURITIES are structured like MORTGAGE-BACKED SECURITIES, but instead of mortgage loans or interests in mortgage loans, the underlying assets may include such items as motor vehicle installment sales or installment loan contracts, leases of various types of real and personal property, home equity loans, and receivables from credit card agreements. The ability of an issuer of asset-backed securities to enforce its security interest in the underlying assets may be limited. MUNICIPAL OBLIGATIONS, LEASES, AND AMT-SUBJECT BONDS. The two principal classifications of municipal bonds are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith and credit, with either limited or unlimited taxing power for the payment of principal and interest. Revenue bonds are not supported by the issuer's full taxing authority. Generally, they are payable only from the revenues of a particular facility, a class of facilities, or the proceeds of another specific revenue source. The Money Market Fund may acquire participations in lease obligations or installment purchase contract obligations (collectively, "lease obligations") of municipal authorities or entities. Lease obligations do not constitute general obligations of the municipality for which the municipality's taxing power is pledged. Certain of these lease obligations contain "non-appropriation" clauses, which provide that the municipality has no obligation to make lease or installment purchase payments in future years unless money is appropriated for such purpose on a yearly basis. In addition to the "non-appropriation" risk, these securities represent a relatively new type of financing that has not yet developed the depth of marketability associated with more conventional bonds. In the case of a "non-appropriation" lease, the Fund's ability to recover under the lease in the event of non-appropriation or default will be limited solely to the repossession of the leased property, and in any event, foreclosure of that property might prove difficult. "AMT-SUBJECT BONDS" are MUNICIPAL OBLIGATIONS issued to finance certain "private activities," such as bonds used to finance airports, housing projects, student loan programs and water and sewer projects. Interest on AMT-SUBJECT BONDS is an item of tax preference for purposes of the federal individual alternative minimum tax ("AMT") and will give rise to corporate alternative minimum taxes. See "Tax Considerations" for a discussion of the tax consequences of investing in AMT-SUBJECT BONDS. Current federal income tax laws limit the types and volume of bonds qualifying for the federal income tax exemption of interest, which may have an effect upon the ability of the Fund to purchase sufficient amounts of tax-exempt securities. REAL ESTATE INVESTMENT TRUSTS. The REIT, Equity Income, Growth & Income, West Coast Equity, Mid Cap Stock, Growth, Small Cap Value, Small Cap Growth, International Growth, Short Term Income, Income and High Yield Funds may invest in real estate investment trusts, known as "REITs." In addition, the REIT Fund typically invests at least 80% of its net assets plus borrowings for investment purposes in REITs. REITs involve certain unique risks in addition to those risks associated with investing in the real estate industry in general (such as possible declines in the value of real estate, lack of availability of mortgage funds or extended vacancies of property). Equity REITs may be affected by changes in the value of the underlying property owned by the REITs, while mortgage REITs may be affected by the quality of any credit extended. REITs are dependent upon management skills, are not diversified, and are subject to heavy cash flow dependency, risks of default by borrowers, and self-liquidation. As an investor in a REIT, the Fund will be subject to the REIT's expenses, including management fees and will remain subject to the Fund's advisory fees with respect to the assets so invested. REITs are also subject to the possibilities of failing to qualify for the special tax treatment accorded REITs under the Code, and failing to maintain their exemptions from registration under the 1940 Act. Investment in REITs involves risks similar to those associated with investing in small capitalization companies. REITs may have limited financial resources, may trade less frequently and in a limited volume and may be subject to more abrupt or erratic price movements than larger company securities. REPURCHASE AGREEMENTS. All of the Funds may invest in REPURCHASE AGREEMENTS, which are purchases of underlying FIXED-INCOME SECURITIES from financial institutions, such as banks and broker/dealers, subject to the seller's agreement to repurchase the securities at an established time and price. REPURCHASE AGREEMENTS can be regarded as loans to the seller, collateralized by the securities that are the subject of the agreement. Default by the seller would expose the Fund to possible loss because of adverse market action or delay in connection with the disposition of the underlying securities. In addition, if bankruptcy proceedings are commenced with respect to the seller of the obligations, the Fund may be delayed or limited in its ability to sell the collateral. Pursuant to an exemptive order granted by the Securities and Exchange Commission, the Funds may transfer daily uninvested cash balances into one or more joint trading accounts. Assets in the joint trading accounts are invested in repurchase agreements or other money market instruments, and the proceeds are allocated to the participating funds on a pro rata basis. STRATEGIC TRANSACTIONS. Subject to the investment limitations and restrictions stated elsewhere in this prospectus and the SAI, each Fund, except the Money Market Fund may utilize various investment strategies as described below to hedge various market risks, to manage the effective maturity or duration of FIXED-INCOME SECURITIES or for other bona fide hedging purposes. Utilizing these investment strategies, the Fund may purchase and sell, exchange-listed and over-the-counter put and call options on securities, equity and fixed-income indices and other financial instruments. It may also purchase and sell financial futures contracts and options thereon, enter into various interest rate transactions such as swaps, caps, floors or collars; and enter into various currency transactions such as currency forward contracts, currency futures contracts, currency swaps or options on currencies or currency futures. The Funds may write (sell) covered call options as well. A call option is "covered" if the Fund owns the security underlying the option it has written or if it maintains enough cash, cash equivalents or liquid securities to purchase the underlying security. Subject to the investment limitations and restrictions stated elsewhere in this prospectus and in the SAI, the Fixed-Income Funds may enter into credit default swaps. The seller of a credit default swap contract is required to pay the par (or other agreed-upon) value of a referenced debt obligation to the counterparty in the event of a default or similar triggering event by a third party, such as a U.S. or foreign corporate issuer, on the debt obligation. In return, the seller of a credit default swap receives from the buyer a periodic stream of payments over the term of the contract provided that no event of default or similar triggering event has occurred. If no default or other triggering event occurs, the seller would keep the stream of payments and would have no payment obligations. Credit default swaps are subject to the risks associated with derivative instruments including, among others, credit risk, default or similar event risk, interest rate risk, leverage risk and management risk. All of the above are collectively referred to as "STRATEGIC TRANSACTIONS." STRATEGIC TRANSACTIONS may be used: - - to attempt to protect against possible changes in the market value of securities held in, or to be purchased for, the Fund's portfolio resulting from securities markets or currency exchange rate fluctuations; - - to protect the Fund's unrealized gains in the value of its portfolio securities; - - to facilitate the sale of such securities for investment purposes; - - to manage the effective maturity or duration of the Fund's portfolio; or - - to establish a position in the derivatives markets as a substitute for purchasing or selling particular securities. Some STRATEGIC TRANSACTIONS may also be used to seek potentially higher returns, rather than for hedging purposes. Any or all of these investment techniques may be used at any time, as the use of any STRATEGIC TRANSACTION is a function of numerous variables including market conditions. The use of strategic transactions involves special considerations and risks; for example: - - the ability of the Fund to utilize STRATEGIC TRANSACTIONS successfully will depend on the ability of WM Advisors or the sub-advisor to predict pertinent market movements; - - the risk that the other party to a STRATEGIC TRANSACTION will fail to meet its obligations to the Fund; - - the risk that the Fund will be unable to close out a STRATEGIC TRANSACTION at a time when it would otherwise do so, due to the illiquidity of the STRATEGIC TRANSACTION; and - - the risk of imperfect correlation, or even no correlation, between price movements of STRATEGIC TRANSACTIONS and price movements of any related portfolio positions. STRATEGIC TRANSACTIONS can reduce opportunity for gain by offsetting the positive effect of favorable price movements in the related portfolio positions. U.S. GOVERNMENT SECURITIES. All of the Funds may invest in U.S. GOVERNMENT SECURITIES, which include direct obligations of the U.S. Treasury (such as U.S. Treasury bills, notes and bonds) and obligations issued or guaranteed by U.S. government agencies or instrumentalities. Some obligations issued or guaranteed by agencies or instrumentalities of the U.S. government are backed by the full faith and credit of the U.S. government (such as GNMA bonds); others are backed only by the right of the issuer to borrow from the U.S. Treasury (such as securities of Federal Home Loan Banks) and still others are backed only by the credit of the government-sponsored entity (such as FNMA and FHLMC bonds). Certain of these obligations may receive ratings that are lower than the AAA rating typically associated with obligations of the U.S. Treasury, reflecting increased credit risk. WHEN-ISSUED SECURITIES AND DELAYED-DELIVERY TRANSACTIONS. In order to secure yields or prices deemed advantageous at the time, the Funds may purchase or sell securities on a WHEN-ISSUED or a DELAYED- DELIVERY BASIS. Due to fluctuations in the value of securities purchased on a WHEN-ISSUED or a DELAYED-DELIVERY BASIS, the yields obtained on such securities may be higher or lower than the yields available in the market on the dates when the securities are actually delivered to the Funds. Similarly, the sale of securities for DELAYED-DELIVERY can involve the risk that the prices available in the market when delivery is made may actually be higher than those obtained in the transaction itself. PORTFOLIO TRANSACTIONS AND TURNOVER. Each Fund's turnover rate varies from year to year, depending on market conditions and investment strategies. High turnover rates increase transaction costs and may increase taxable capital gains. With the exception of the Money Market Fund, historical portfolio turnover rates for each of the funds are shown under "Financial Highlights" in this prospectus. WM Advisors and the sub-advisors will not consider a Fund's portfolio turnover rate to be a limiting factor in making investment decisions consistent with the Fund's investment objectives and policies. INVESTING IN THE FUNDS CLASS I SHARES Class I shares are available for purchase only by the various series of WM Strategic Asset Management Portfolios, LLC, except that WM Advisors and its affiliates may purchase Class I shares of the Money Market Fund. They are sold at the net asset value next determined after receipt of a properly completed purchase order, and are not subject to a contingent deferred sales charge. EACH FUND RESERVES THE RIGHT TO SUSPEND THE OFFERING OF SHARES OF ANY CLASS AT ANY TIME. Each Fund also reserves the right to reject any specific purchase order, including purchases by exchange. MARKET TIMING. The Funds are not intended for "market timing" or other forms of abusive short-term trading. If the Funds are used for short-term trading, shareholders could suffer adverse effects, including increased transaction costs and dilution of investment returns to the detriment of all Fund shareholders. Frequent trading can cause a portfolio manager to maintain larger cash positions than desired, unplanned portfolio turnover and increased broker/dealer commissions or other transaction costs and can trigger taxable capital gains. In addition, some frequent traders attempt to exploit perceived valuation inefficiencies that can occur if the valuation of a Fund's portfolio securities does not reflect conditions as of the close of the New York Stock Exchange, which is the time that the Funds' net asset value per share is determined. For example, the closing price of securities primarily trading in markets that close prior to the New York Stock Exchange may not reflect events that occurred after the close of that market. This type of arbitrage activity can dilute a Fund's net asset value per share for long-term investors. Frequent traders wishing to engage in market timing should not purchase the Funds. The Trusts' Board of Trustees has adopted policies and procedures intended to discourage market timing with respect to each Fund other than the Money Market Fund. The procedures include the use of "fair value" pricing, redemption fees and the refusal of purchase transactions. These procedures are applied uniformly, although the redemption fee does not apply to shares acquired through reinvestment of dividends, distributions, and redemption proceeds, and to investments made by WM Strategic Asset Management Portfolios, LLC. The redemption fee may be waived by the Funds' chief compliance officer upon a determination that the redemption did not harm the Fund. Fair value pricing is applied when reliable market quotations are not readily available including when the closing prices of portfolio securities primarily traded in foreign markets are deemed to be substantially inaccurate at the close of the New York Stock Exchange. The International Growth Fund currently charges a 2.00% redemption fee for redemptions within 90 days of the purchase date. The Funds' transfer agent will attempt to identify shareholders who engage in market timing and will restrict the trading activity of shareholders who are identified as market timers. The Funds reserve the right to reject and/or reverse any purchases, including purchases by exchange. Although it is the policy of the WM Group of Funds to seek to prevent market timing and other excessive trading practices in each Fund other than the Money Market Fund, which is intended for short-term investment horizons, there is no assurance that short-term trading will not occur. In addition, the Funds may not have sufficient information to prevent market timing, especially with respect to accounts held in the names of financial intermediaries ("omnibus accounts"). DISCLOSURE OF PORTFOLIO HOLDINGS. The Funds disclose their month-end portfolio holdings on the Distributor's website for the Funds at wmgroupoffunds.com on the last business day of the following month. The Funds also will disclose their largest ten holdings as of month end on the first business day following the 15th day of the following month earlier than 15 days after the end of each month. Selected third parties may be provided portfolio holdings information solely for legitimate business purposes and subject to confidentiality agreements. A description of the Fund's policies and procedures with respect to the disclosure of the Fund's portfolio securities is available in the Fund's SAI and at wmgroupoffunds.com. TRANSFER AGENCY AND RETIREMENT PLAN SERVICES. WM Shareholder Services, Inc. acts as the transfer agent for the Funds. As such, it registers the transfer, issuance, and redemption of Fund shares and disburses dividends and other distributions to Fund shareholders. Many Fund shares are owned by financial intermediaries for the benefit of their customers. In those cases, the Funds often do not maintain an account for individual investors. Thus, some or all of the transfer agency functions for these accounts are performed by the financial intermediaries. WM Shareholder Services, Inc. pays these financial intermediaries fees for sub-transfer agency and related recordkeeping services in amounts generally ranging from $3 to $6 per customer Fund account per annum, and no intermediary currently receives more than $12 per customer Fund account per annum. Retirement plans may also hold Fund shares in the name of the plan, rather than the participant. Plan record keepers, who may have affiliated financial intermediaries that sell shares of the Funds, may be paid up to 0.25% per annum of the average daily net assets held in the plan by WM Shareholder Services, Inc. In addition, financial intermediaries may be affiliates of entities that receive compensation from the Distributor as discussed in the prior section for maintaining retirement plan "platforms" that facilitate trading by affiliated and non-affiliated financial intermediaries and recordkeeping for retirement plans. THE AMOUNTS PAID TO FINANCIAL INTERMEDIARIES AND PLAN RECORDKEEPERS FOR SUB-TRANSFER AGENCY AND RECORDKEEPING SERVICES, AND THEIR RELATED SERVICE REQUIREMENTS, MAY VARY ACROSS FUND GROUPS AND SHARE CLASSES. THIS MAY CREATE INCENTIVE FOR FINANCIAL INTERMEDIARIES AND THEIR INVESTMENT REPRESENTATIVES TO RECOMMEND ONE FUND COMPLEX OVER ANOTHER OR ONE CLASS OF SHARES OVER ANOTHER. DISTRIBUTION OF INCOME AND CAPITAL GAINS. The Funds distribute dividends from net investment income (which is essentially interest and dividends from securities minus expenses). They also make capital gain distributions if realized gains from the sale of securities exceed realized losses. The amount of dividends of net investment income, qualified dividend income, and distributions of net realized long- and short-term capital gains payable to shareholders will be determined separately for each Fund. For more information, please see the section entitled "Tax Considerations" in this prospectus. - - Dividends from the net investment income of the Fixed-Income and Money Market Fund will normally be declared daily and paid monthly. - - Dividends from the net investment income of the Equity Income and REIT Funds will normally be declared and paid quarterly. - - Dividends from the net investment income of the Growth & Income, West Coast Equity, Mid Cap Stock, Growth, Small Cap Stock, Small Cap Growth, and International Growth Funds will normally be declared and paid annually. - - Each of the Funds reserves the right to declare and pay dividends less frequently than as disclosed above, provided that net realized capital gains and net investment income, if any, are paid at least annually. - - The Funds distribute net realized capital gains, if any, at least annually, normally in December. Dividends and capital gain distributions may be reinvested or paid directly to the shareholder; however, the Funds will automatically reinvest dividends or distributions of $10 or less. Automatic reinvestments of dividends and capital gain distributions are made at the NAV determined on the day the dividends or distributions are deducted from the Fund's NAV. Shareholders may indicate their choice at the time of account establishment or at a later time by contacting their Investment Representative or the Funds' offices. Options include: - - Automatic reinvestment: Unless the shareholder chooses another option, all dividends and capital gain distributions are reinvested in additional shares of the same class of the Fund, without an initial sales charge or being subject to a CDSC. - - Reinvestment in another fund: Income dividends and capital gain distributions may be automatically invested in the same class of shares of another fund, provided that fund is available for sale in the shareholder's state of residence and the minimum initial investment is met. - - Cash payments: All dividends and capital gain distributions will be deposited in the shareholder's pre-authorized bank account or paid by check and mailed to the address of record. REDEMPTIONS AND EXCHANGES OF SHARES REDEMPTIONS. Shareholders may contact their Investment Representative or the WM Group of Funds to redeem their shares. Redemptions are effected at the NAV next calculated after receipt, by the WM Group of Funds or its agent, of a properly completed request, less any applicable CDSC. Shares that are registered in the shareholder's name with the transfer agent may be redeemed at any time in the following ways: - - Shareholders may authorize telephone or Internet transactions when their account is established or in writing at a later time. Provided the shareholder has pre-authorized these transactions, shares may be redeemed by contacting the WM Group of Funds at 1-800-222-5852. Telephone transaction privileges may be restricted and generally, redemptions will not be allowed for amounts totaling more than $50,000 per Fund per day.(1) - - The Investment Representative may request telephone or Internet transactions on the shareholder's behalf. Proceeds must be directed to a pre-authorized bank or brokerage account or to the address of record for the account. Investment Representatives may request redemptions in excess of the $50,000 per Fund per day limit.(1) - - Shareholders may redeem shares by submitting a written request to the WM Group of Funds. Written requests, including requests for redemptions exceeding $50,000, redemptions due to death, and redemptions payable to an alternate payee, address or bank, may require a Medallion Signature Guarantee. Please contact the WM Group of Funds for additional information. SYSTEMATIC WITHDRAWAL PLAN. Shareholders or their Investment Representatives may initiate systematic withdrawals by telephone or in writing. Requirements to establish and maintain a systematic withdrawal plan are as follows. - - $5,000 minimum balance in the applicable Fund at the time the systematic withdrawal plan is established.(2) - - Automatic cash redemptions of at least $50.(3) - - Shares of the applicable Fund will be redeemed to provide the requested payment. (1) Note: The WM Group of Funds' telephone representatives are available Monday-Friday, 8:00 a.m.-9:00 p.m. (Eastern Time) to assist both Investment Representatives and shareholders. During holidays or days when the NYSE closes early, the offices of the Funds may be closed or may close early as well. The Funds also maintain a voice response unit ("VRU"), which provides account access 24 hours a day. It may be difficult to reach the WM Group of Funds by telephone during periods of unusual economic or market activity. Please be persistent during these times. For your protection, all telephone instructions are verified by requesting personal shareholder information, providing written confirmations of each telephone transaction, and recording telephone instructions. If these or other reasonable procedures are used, neither the transfer agent nor the Funds will be liable for following telephone instructions which they reasonably believe to be genuine. Shareholders assume the risk of any losses in such cases. However, the transfer agent or the Funds may be liable for any losses because of unauthorized or fraudulent telephone instructions if they fail to follow reasonable procedures. (2) The minimum balance and minimum dollar requirement is waived for IRA or other qualified retirement accounts to the extent necessary to meet a Required Minimum Distribution as defined by the Internal Revenue Service. (3) Note: Exceptions may apply. Please contact the WM Group of Funds for additional information. EXCHANGES. Shareholders may contact their Investment Representative or the WM Group of Funds to exchange or arrange for automatic monthly exchanges of their shares. Shareholders may exchange shares of any of the Funds for shares of the same class of any of the other Funds in the WM Group of Funds or any of the Portfolios within the WM Strategic Asset Management Portfolios, LLC. Exchanges of shares are sales and may result in a gain or loss for income tax purposes. - - All exchanges are subject to the minimum investment requirements of the Fund being acquired and to its availability for sale in the shareholder's state of residence. - - Exchanges are made at the relative NAVs of the shares being exchanged next determined after receipt of a properly completed exchange request. PROMPT PAYMENT. Payment normally will be made on the next business day after redemption, but no later than seven days after the transaction, unless you recently purchased Fund shares by check or Automated Clearing House ("ACH") transfer. In that case, redemption proceeds may be delayed for up to 10 business days after the purchase transaction, to allow for collection of funds. Under unusual circumstances, the Fund may suspend redemptions or postpone payment for seven days as permitted by federal securities laws. Redemption proceeds will be sent by check or ACH transfer to the shareholder's address or bank account of record, without charge. Redemption proceeds may be subject to a fee (and the receiving institution may also charge a fee to receive a wire transmission). MEDALLION SIGNATURE GUARANTEE. For the protection of our shareholders, the WM Group of Funds requires the Medallion Signature Guarantee on certain requests and documents. A Medallion Signature Guarantee may be obtained from a domestic bank or trust company, broker, dealer, clearing agency, savings association, or other financial institution which participates in a Medallion program recognized by the Securities Transfer Association. The three recognized Medallion programs are Securities Transfer Agents Medallion Program 2000 New Technology (STAMP/2000), Stock Exchanges Medallion Program (SEMP) and New York Stock Exchange, Inc. Medallion Signature Program (NYSE MSP). Medallion Signature Guarantees from financial institutions that do not participate in one of these programs or that use pre-STAMP 2000 Medallion will not be accepted. Contact the WM Group of Funds for more information. SMALL ACCOUNTS. It is costly to maintain small accounts. Accordingly, the Funds reserve the right to close or impose a fee on accounts below the minimum initial investment of $1,000. The fees would be deducted from the account and would be retained by the respective Fund. Alternatively, an account may be closed after 60 days written notice. Accounts will not be closed if they fall below the minimum amount solely because of declines in market value. Shares would be redeemed at the next calculated NAV, less any applicable CDSC, on the day the fee is charged or the account is closed. DUPLICATIVE MAILINGS. To reduce expenses to the Funds, the WM Group of Funds attempts to eliminate duplicate mailings to the same address. The Funds deliver a single copy of certain shareholder documents to investors who share an address, even if the accounts are registered under different names. These prospectus and shareholder reports, including the annual privacy notice, will be delivered in this manner indefinitely unless the shareholder instructs the WM Group of Funds otherwise. Shareholders or their Investment Representatives may request multiple copies of documents by contacting the WM Group of Funds at 1-800-222-5852. TAX CONSIDERATIONS Shareholders are responsible for federal income tax (and any other taxes, including state and local income taxes, if applicable) on dividends and capital gain distributions whether such dividends or distributions are paid in cash or reinvested in additional shares. Generally, dividends paid by the Funds from interest, dividends or net short-term capital gains will be taxed as ordinary income. Distributions properly designated by the Fund as deriving from net gains on securities held for more than one year are taxable as such (generally at a 15% tax rate), regardless of how long you have held your shares. For the taxable years beginning before January 1, 2009, distributions of investment income properly designated by the Fund as derived from "qualified dividend income" will be taxed at the rates applicable to long-term capital gains. A dividend or distribution made shortly after the purchase of shares of a Fund by a shareholder, although in effect a return of capital to that shareholder, would be taxable to that shareholder as described above. Because of tax law requirements, you must provide the Funds with an accurate and certified taxpayer identification number (for individuals, generally a Social Security Number) to avoid "back-up" withholding, which is currently imposed at a rate of 28%. Early in each calendar year each Fund will notify you of the amount and tax status of distributions paid to you for the preceding year. Any gain resulting from the sale, redemption or exchange of your shares will generally also be subject to tax. You should consult your tax advisor for more information on your own tax situation, including possible foreign, state and local taxes. Investments by a Fund in foreign securities may be subject to foreign withholding taxes. In that case, the Fund's yield on those securities would be decreased. Shareholders of the International Growth Fund may be entitled to claim a creditor deduction with respect to foreign taxes. In addition, the Fund's investments in foreign securities or foreign currencies may increase or accelerate the Fund's recognition of ordinary income and may affect the timing or amount of the Fund's distributions. Investments by a Fund in certain debt instruments or derivatives may cause the Fund to recognize taxable income in excess of the cash generated by such instruments. As a result, the Fund could be required at times to liquidate other investments in order to satisfy its distribution requirements under the Code. The Fund's use of derivatives will also affect the amount, timing, and character of the Fund's distributions. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT A COMPLETE DESCRIPTION OF THE FEDERAL, STATE, LOCAL OR FOREIGN TAX CONSEQUENCES OF INVESTING IN THE FUNDS. YOU SHOULD CONSULT YOUR TAX ADVISOR BEFORE INVESTING IN THE FUNDS. HOW NET ASSET VALUE IS DETERMINED Investment securities and other assets are valued primarily on the basis of market quotations or, if quotations are not readily available, by a method that the Board of Trustees believes accurately reflects fair value. Foreign securities are valued on the basis of quotations from the primary market in which they are traded, and are translated from the local currency into U.S. dollars using current exchange rates. As a result, changes in the value of those currencies in relation to the U.S. dollar may affect the Funds' NAV. Because foreign markets may be open at different times than the New York Stock Exchange, the value of the Funds' shares may change on days when shareholders are not able to buy or sell them. If events materially affecting the values of the Funds' foreign investments occur between the close of foreign markets and the close of regular trading on the New York Stock Exchange, those investments may be valued at their fair value. The NAVs are determined at the end of each business day of the New York Stock Exchange or at 1:00 p.m. Pacific Time, whichever is earlier. Under unusual circumstances, the Money Market Fund may determine its NAV on days which the New York Stock Exchange is not open for regular trading. In addition, the Funds have adopted fair value pricing procedures and methodologies, which, among other things, generally require the Funds to fair value foreign securities if there has been movement in the U.S. market and/or other economic indicators that exceeds a specified threshold. Although the threshold may be revised from time to time and the number of days on which fair value prices will be used will depend on market activity, it is possible that fair value prices will be used to a significant extent by the Funds. MANAGEMENT OF THE FUNDS The Funds are managed by WM Advisors, Inc., which is referred to as "WM Advisors" in this prospectus. WM Advisors' address is 1201 Third Avenue, 22nd Floor, Seattle, Washington 98101. WM Advisors has delegated portfolio management responsibilities with respect to the Growth, Small Cap Growth and International Growth Funds to sub-advisors. Each Fund may, to the extent permitted under the 1940 Act, place portfolio transactions with (and pay brokerage commissions to) affiliates of WM Advisors and the sub-advisors to the Funds indicated below. For more information see the SAI. WM Advisors has been in the business of investment management since 1944. Its responsibilities include formulating each Fund's investment policies (subject to the terms of this prospectus), analyzing economic trends, directing and evaluating the investment services provided by the sub-advisors, monitoring each Fund's investment performance and reporting to the Board of Trustees, as well as providing certain administrative services to the Funds. In connection with its service as investment advisor to each Fund, WM Advisors may engage one or more sub-advisors to provide investment advisory services to any of the Funds and may remove or, subject to shareholder approval, replace any such sub-advisor if it deems such action to be in the best interests of a Fund and its shareholders. Where WM Advisors has not delegated such duties to a sub-advisor, it is responsible for managing the investment and reinvestment of the Fund's assets. WM Advisors is a wholly owned indirect subsidiary of Washington Mutual, Inc. ("Washington Mutual"), a publicly owned financial services company. The following organizations, under the supervision of WM Advisors, act as sub-advisors to the Funds indicated below and are responsible for continuously reviewing, supervising and administering those Funds' respective investment programs: CAPITAL GUARDIAN TRUST COMPANY ("Capital Guardian"), 333 South Hope Street, Los Angeles, California 90071, acts as sub-advisor to the INTERNATIONAL GROWTH FUND. Capital Guardian is a wholly owned subsidiary of Capital Group International, Inc., which is in turn owned by The Capital Group Companies, Inc. ("CGC"). CGC is also the parent company of several other subsidiaries, all of which directly or indirectly provide investment management services. Capital Guardian had aggregate assets under management of approximately [$] billion as of December 31, 2005. SALOMON BROTHERS ASSET MANAGEMENT, INC ("Salomon"), 399 Park Avenue, New York, New York 10022, which acts as sub-advisor to the GROWTH FUND, is an indirect, wholly-owned subsidiary of Legg Mason, Inc. Salomon was established in 1987 and together with its affiliates in London, Tokyo and Hong Kong, provides a broad range of fixed income and equity investment services to individuals and institutional clients throughout the world. As of December 31, 2005, Salomon had approximately [$] billion in assets under management. JANUS CAPITAL MANAGEMENT LLC ("Janus"), 151 Detroit Street, Denver, Colorado 80206, acts as one of three sub-advisors to the GROWTH FUND. Janus is a direct subsidiary of Janus Capital Group Inc. ("JCG"), a publicly traded company with principal operations in financial asset management businesses. JCG owns approximately 95% of Janus, with the remaining 5% held by Janus Management Holdings Corporation. Janus has been providing investment advice to mutual funds or other large institutional clients since 1969. As of December 31, 2005, JCG's assets under management were approximately [$] billion. OPPENHEIMERFUNDS, INC. ("Oppenheimer"), Two World Financial Center, 225 Liberty Street, 11th Floor, New York, New York 10281-1008, acts as one of three sub-advisors to the GROWTH FUND. Oppenheimer has been in the investment management business since 1960. Oppenheimer and its subsidiaries and affiliates managed more than [$] billion in assets as of December 31, 2005, including Oppenheimer funds with more than [] million shareholder accounts. Oppenheimer is a wholly owned subsidiary of Oppenheimer Acquisition Corporation, a holding company controlled by Massachusetts Mutual Life Insurance Company. DELAWARE MANAGEMENT COMPANY ("Delaware"), 2005 Market Street, Philadelphia, Pennsylvania 19103, acts as one of two sub-advisors to the SMALL CAP GROWTH FUND. Delaware is a series of Delaware Management Business Trust, which is an indirect, wholly-owned subsidiary of Delaware Management Holdings, Inc. ("DMH"). DMH and its subsidiaries provide a broad range of investment services to both institutional and individual clients. As of September 30, 2005, DMH and it subsidiaries had approximately [$] billion in assets under management. DMH and Delaware are indirect, wholly-owned subsidiaries, and are subject to the ultimate control of Lincoln National Corporation. OBERWEIS ASSET MANAGEMENT, INC. ("Oberweis"), 951 Ice Cream Drive, North Aurora, Illinois 60542, acts as one of two sub-advisors to the SMALL CAP GROWTH FUND. Oberweis is a boutique investment firm that focuses on investments in rapidly growing firms. Established in 1989, Oberweis provides investment advisory advice to funds, institutions, and individual investors on a broad range of investment products. As of December 31, 2005, Oberweis had approximately [$] million in assets under management. FUND MANAGERS WM Advisors' portfolio managers are compensated through a combination of base salary and incentive compensation. Incentive compensation is based on investment performance relative to a peer group of mutual funds and other measures of performance. The SAI provides additional information about the portfolio manager's compensation, other accounts managed by the portfolio managers and the portfolio managers' ownership of Fund shares. GARY J. POKRZYWINSKI, CFA, Senior Vice President, Head of Investments and Senior Portfolio Manager of WM Advisors, leads a team of investment professionals in managing the Fixed-Income Funds and has been primarily responsible for the day-to-day management of the HIGH YIELD FUND since April 1998. He has been responsible for co-managing the INCOME FUND with John Friedl since March 2005. Between 1992 and March 2005, he was primarily responsible for the day-to-day management of the Income Fund. Mr. Pokrzywinski has been employed by WM Advisors since 1992. STEPHEN Q. SPENCER, CFA, First Vice President and Senior Portfolio Manager of WM Advisors has had primary responsibility for the day-to-day management of the GROWTH & INCOME FUND since March 2003. Previously, Mr. Spencer co-managed the Small Cap Growth Fund with Dave W. Simpson from March 2005 to April 2005. Previously, he co-managed the Growth & Income Fund from January 2000 to March 2003. Mr. Spencer has been employed by WM Advisors since September 1999. Prior to that, Mr. Spencer was a Portfolio Manager and Senior Equity Analyst for Smoot, Miller, Cheney & Co. from 1985 to 1999. DANIEL R. COLEMAN, Vice President, Head of Equity Research and Senior Portfolio Manager of WM Advisors, leads a team of investment professionals that is responsible for the management of the Equity Funds that are not sub-advised. Mr. Coleman has had primary responsibility for the day-to-day management of the MID CAP STOCK FUND since December 2001. Mr. Coleman joined WM Advisors in October 2001. Prior to that, he was Vice President and Senior Manager of Business Development at InfoSpace, Inc./Go2Net from 2000 until 2001, and Member and General Partner of Brookhaven Capital Management LLC/ Clyde Hill Research from 1989 until 2000. PHILIP M. FOREMAN, CFA, Vice President and Senior Portfolio Manager of WM Advisors, has been responsible for the day-to-day management of the WEST COAST EQUITY FUND since 2002. Mr. Foreman has been employed by WM Advisors since January of 2002. Prior to that, Mr. Foreman was Senior Vice President and Equity Mutual Fund Manager at Evergreen Asset Management Co. from 1999 until 2002, and Vice President and Senior Portfolio Manager at WM Advisors, Inc. from 1991 until 1999. JOHN R. FRIEDL, CFA, Vice President and Portfolio Manager, has been co-manager of the INCOME FUND with Gary J. Pokrzywinski since March 2005. He has been employed as an investment professional at WM Advisors since August 1998. DAVID W. SIMPSON, CFA, Vice President and Senior Portfolio Manager of WM Advisors, has been responsible for the day-to-day management of the SMALL CAP VALUE FUND and REIT FUND since March 2004 and August 2005, respectively. Previously, he co-managed the Small Cap Growth Fund with Stephen Q. Spencer from March 2005 to April 2005. From 2001 to 2002, Mr. Simpson was Chief Investment Officer and Managing Director of Summit Capital Management, LLC. Prior to that, Mr. Simpson was Vice President and Senior Portfolio Manager of WM Advisors for eight years. CRAIG V. SOSEY, Vice President and Senior Portfolio Manager of WM Advisors, has been primarily responsible for the day-to-day management of the SHORT TERM INCOME and U.S. GOVERNMENT SECURITIES FUNDS since January 2000 and November 1998, respectively. He has been employed by WM Advisors since May 1998. Prior to that, he was the Assistant Treasurer of California Federal Bank, where he worked for over eight years. JOSEPH T. SUTY, CFA, Vice President and Senior Portfolio Manager of WM Advisors, has been responsible for the day-to-day management of the EQUITY INCOME FUND since October 1, 2005. Prior to joining WM Advisors in September 2005, Mr. Suty managed personal and foundation portfolios from January 2005 until August 2005. From December 1991 until December 2004, Mr. Suty was a portfolio manager of large-cap value stocks at Washington Capital Management, Inc., where was a principal and director of the firm. CAPITAL GUARDIAN has been sub-advisor for the INTERNATIONAL GROWTH FUND since June 1999. Effective March 1, 2006, there will be two separate investment management teams of Capital Guardian, the existing developed market team and the new emerging market equity team that will share in the investment management of the International Growth Fund. For the "developed market team," Capital Guardian employs a team of portfolio managers each of whom has primary responsibility for the day-to-day management of that portion of the Fund assigned to him or her. They are: David I. Fisher, Arthur J. Gromadzki, Richard N. Havas, Nancy J. Kyle, Christopher A. Reed, Lionel M. Sauvage, Nilly Sikorsky, Rudolf M. Staehelin, Seung Kwak, and John M. N. Mant. MR. FISHER is Chairman of the Board of Capital Group International, Inc. and Capital Guardian as well as Vice Chairman of Capital International, Inc., Emerging Markets Growth Fund, Inc. and also a director of the Capital Group Companies, Inc. He has been employed by the Capital Group organization since 1969. MR. GROMADZKI is a Vice President of Capital International Research, Inc. with European equity portfolio management and investment analyst responsibilities. Mr. Gromadzki has been employed by the Capital Group organization since 1987. MR. HAVAS, who has been with the Capital Group organization since 1986, is a Senior Vice President and Portfolio Manager for Capital Guardian and Capital International Limited as well as a Senior Vice President and Director of Capital Guardian (Canada), Inc. MS. KYLE, who has been with the Capital Group organization since 1991, is a Senior Vice President, Vice Chairman and Director of Capital Guardian. Ms. Kyle is also President and a Director of Capital Guardian (Canada), Inc. and a Vice President of Emerging Markets Growth Fund. MR. REED is a Director and a Senior Vice President of Capital International Research, Inc. with portfolio management responsibilities for Japan, Pacific Basin and non-U.S. equity portfolios and research responsibilities for the Japanese financial sector. Mr. Reed has been employed by the Capital Group organization since 1994. MR. SAUVAGE is a Senior Vice President and Portfolio Manager for Capital Guardian and a Vice President for Capital International Research, Inc. Mr. Sauvage has been employed by the Capital Group organization since 1987. MS. SIKORSKY is President and Managing Director of Capital International S.A., Chairman of Capital International Perspective, S.A., Managing Director -- Europe and a Director of Capital Group International, Inc., and serves as a Director of the Capital Group, Capital International Limited and Capital International K.K. Ms. Sikorsky has been employed by the Capital Group organization since 1962. MR. STAEHELIN is a Senior Vice President and Director of Capital International Research, Inc. and Capital International S.A., and has been employed by the Capital Group organization since 1981. MR. KWAK is a Senior Vice President for Capital International K.K. (CIKK) and a portfolio manager for non-U.S. (Japan only) assets. He joined CIKK in 2002, after serving as the Chief Investment Officer-Japan and Managing Director for Zurich Scudder Investments and he holds the Chartered Financial Analyst Designation. MR. MANT is an Executive Vice President, a Director and the European Research Manager of Capital International Research, Inc. He is also a Director and Senior Vice President with portfolio management responsibilities for Capital International Limited and has been with the organization since 1990. For the "emerging market equity team", Capital Guardian employs a team of portfolio managers each of whom has primary responsibility for the day-to-day management of that portion of the Fund assigned to him or her. They are: OSMAN Y. AKIMAN, CHRISTOPHER CHOE, DAVID I. FISHER, VICTOR D. KOHN, NANCY J. KYLE, LUIS FREITAS DE OLIVEIRA and SHAW B. WAGENER. Note that Mr. Fisher and Ms. Kyle are also members of the developed market team and their experience is noted above. MR. AKIMAN is Director of Capital International Research Inc. and Vice President of Capital International Ltd. with Portfolio Management responsibilities in Global Emerging Markets and Asia Pacific ex. Japan mandates and has been employed by the organization since 1994. MR. CHOE is Senior Vice President and portfolio manager of Capital International, Inc. and has been employed by the organization since 1990. MR. KOHN, a member of the organization since 1986, is President of Capital International, Inc., a Senior Vice President and a Director of Capital International Research, Inc., Chairman of Capital International, Inc.'s Emerging Markets Investment Committee, and an emerging markets equity portfolio manager. He is also an Executive Vice President of Capital International, Inc.'s Emerging Markets Growth Fund and he holds the Chartered Financial Analyst designation. MR. DE OLIVEIRA is Senior Vice President and Director of Capital International S.A. A member of the organization since 1994, he also serves on the board of several of Capital International's Luxembourg-based mutual funds. MR. WAGENER is Chairman of Capital International, Inc. (CII), a Senior Vice President and Director of Capital Group International, Inc. (CGII), and serves as a Director of Capital Guardian Trust Company (CGTC), and The Capital Group Companies, Inc. (CGC). He is an emerging markets equity portfolio manager and the Vice Chairman of the Investment Committee for emerging markets. He also is on Capital International, Inc.'s Private Equity Investment Committee. MR. WAGENER joined the organization in 1981 and has also served as the head of equity trading for Capital Research and Management Company and he holds the Chartered Financial Analyst designation. ALAN BLAKE, CFA, Managing Director and Senior Portfolio Manager of Salomon, is primarily responsible for the day-to-day management of the portion of the GROWTH FUND's portfolio managed by Salomon since March 2005. Mr. Blake has more than 24 years of securities business experience. Mr. Blake has been employed by Salomon since August 1991. E. MARC PINTO, CFA, is primarily responsible for the day-to-day management of the portion of the GROWTH FUND's portfolio that is managed by Janus. Mr. Pinto, Portfolio Manager and Vice President, has been employed by Janus since 1994, where his duties include the management of institutional separate accounts in the Large Cap Growth discipline. WILLIAM L. WILBY, CFA, and MARC L. BAYLIN, CFA, are the co-portfolio managers of the portion of the GROWTH FUND's portfolio managed by Oppenheimer and are principally responsible for the day-to-day management of that portion's investments. Mr. Wilby has been a Senior Vice President of Oppenheimer since July 1994 and Senior Investment Officer and Director of Equities of Oppenheimer since July 2004. Mr. Wilby was Director of International Equities of Oppenheimer from May 2000 through July 2004. Mr. Baylin is a Vice President of Oppenheimer and a member of the Growth Equity Investment Team. He was Managing Director and Lead Portfolio Manager at JP Morgan Fleming Investment Management from June 2002 to August 2005 and was a Vice President of T. Rowe Price, where he was an analyst from June 1993 and a portfolio manager from March 1999 to June 2002. Messrs. Wilby and Baylin are portfolio managers of other Oppenheimer funds. JAMES W. OBERWEIS, CFA, President and Portfolio Manager of Oberweis, is primarily responsible for the day-to-day management of the portion of the SMALL CAP GROWTH Fund's assets managed by Oberweis. He specializes exclusively in managing portfolios of high growth small cap companies. Mr. Oberweis has been Director since 2003, President since 2001,and a Portfolio Manager since 1995. Mr. Oberweis was Vice President from 1995 to 2001. MARSHALL T. BASSETT has primary responsibility for making day-to-day investment decisions of the portion of the SMALL CAP GROWTH FUND's portfolio that is managed by Delaware. When making decisions, Mr. Bassett regularly consults with STEVEN G. CATRICKS, BARRY S. GLADSTEIN, CHRISTOPHER M. HOLLAND, STEVEN T. LAMPE, MATTHEW TODOROW, RUDY D. TORRIJOS III and LORI P. WACHS. MR. BASSETT assumed responsibility for the portion of the Small Cap Growth Fund's portfolio that is managed by Delaware in April 2005. Mr. Bassett, Senior Vice President/Chief Investment Officer - Emerging Growth, joined Delaware Investments in 1997. MR. CATRICKS, Vice President/Portfolio Manager, joined Delaware Investments in 2001. Before joining Delaware Investments, Mr. Catricks was an equity analyst at BlackRock Financial, where he specialized in small-capitalization growth stocks. MR. GLADSTEIN, Vice President/Portfolio Manager, joined Delaware Investments in 1995. MR. HOLLAND, Vice President/Portfolio Manager, joined Delaware Investments in 2001. Before joining Delaware Investments, MR. HOLLAND was a municipal fixed income analyst at BlackRock Financial and in private client services at J.P. Morgan Chase & Company. MR. LAMPE, Vice President/Portfolio Manager, joined Delaware Investments in 1995. Mr. Todorow, Vice President/Portfolio Manager, joined Delaware Investments in 2003. Prior to that, MR. TODOROW served as Executive Director for Morgan Stanley Investment Management and as Portfolio Manager for the Small/Mid Cap Group. Prior to that, he held positions at Keeton Capital Management. MR. TORRIJOS, Vice President/Portfolio Manager, joined Delaware Investments in July 2005. Before joining Delaware Investments, Mr. Torrijos was a technology analyst at Fiduciary Trust Co., International. Previously, he worked at Neuberger Berman Growth Group as an analyst and, later, as a fund manager. MS. WACHS, Vice President/Portfolio Manager, joined Delaware Investments in 1992. MANAGEMENT FEES During their most recent fiscal years, each of the Funds paid management fees to WM Advisors at the following rates (not reflecting any expense waivers or reimbursements):
Fees Paid as a Percentage FUNDS of Net Assets - ----- ------------------------- REIT Fund ................................ [_____] Equity Income Fund ....................... [_____] Growth & Income Fund ..................... [_____] West Coast Equity Fund ................... [_____] Mid Cap Stock Fund ....................... [_____] Growth Fund .............................. [_____] Small Cap Value Fund ..................... [_____] Small Cap Growth Fund .................... [_____] International Growth Fund ................ [_____] Short Term Income Fund ................... [_____] U.S. Government Securities Fund .......... [_____] Income Fund .............................. [_____] Money Market Fund ........................ [_____]
* Including amounts paid to sub-advisor(s). A discussion of the material factors considered by the Trustees of the Trusts in approving investment advisory contract(s) for each Fund is available in the Fund's most recent Annual or Semiannual report to shareholders (for periods ending October 31 and April 30, respectively). NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND YOU SHOULD NOT RELY ON SUCH OTHER INFORMATION OR REPRESENTATIONS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER MAY NOT LAWFULLY BE MADE. FINANCIAL HIGHLIGHTS FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD The financial highlights tables are intended to help you understand the Funds' financial performance for the past 5 years (or in the case of a newer Fund or Class, since the inception of the Fund or Class). Performance information is provided for Class I shares only. Certain information reflects financial results for a single Fund share. The total returns in the tables represent the rate that an investor would have earned on an investment in the Fund (assuming reinvestment of all dividends and distributions). The information provided below is excerpted from financial statements audited by Deloitte & Touche LLP. The Report of Independent Registered Public Accounting Firm, along with the Funds' financial statements, are included in their Annual Reports to Shareholders, which are available upon request. [FINANCIAL INFORMATION TO BE PROVIDED] APPENDIX A DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC. BOND RATINGS: + Aaa, Aa -- Bonds which are rated Aaa or Aa are judged to be of the highest quality and high quality, respectively. Together, they comprise what is generally known as high grade bonds. Bonds rated Aa are rated lower than Aaa securities because margins of protection may not be as large as in the latter or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities. + A -- Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium-grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future. + Baa -- Bonds which are rated Baa are considered medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present, but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. + Ba -- Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well-assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. + B -- Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. + Caa -- Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. + Ca -- Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. + C -- Bonds which are rated C are the lowest rated class of bonds and can be regarded as having extremely poor prospects of ever attaining any real investment standing. DESCRIPTION OF STANDARD & POOR'S BOND RATINGS: + AAA, AA, A -- Bonds rated AAA have the highest rating assigned by S&P to a debt obligation. Capacity to pay interest and repay principal is extremely strong. Bonds rated AA have a very strong capacity to pay interest and repay principal and differ from the highest rated issues only in small degree. Bonds rated A have a strong capacity to pay interest and repay principal although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than bonds in higher rated categories. + BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay interest and repay principal. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to repay principal and pay interest for bonds in this category than for bonds in higher rated categories. + BB, B, CCC, CC, C -- Bonds rated BB, B, CCC, CC and C are regarded, on balance, as predominantly speculative with respect to the issuer's capacity to pay interest and repay principal in accordance with the terms of the obligation. BB indicates the lowest degree of speculation and C the highest degree of speculation. While such bonds will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse business, economic and financial conditions. + D -- Bonds rated D are in payment default, meaning payment of interest and/or repayment of principal is in arrears. DESCRIPTION OF FITCH CORPORATE BOND RATINGS INVESTMENT-GRADE + AAA -- Highest credit quality. AAA ratings denote the lowest expectation of credit risk. They are assigned only in case of exceptionally strong capacity for timely payment of financial commitments. This capacity is highly unlikely to be adversely affected by foreseeable events. + AA -- Very high credit quality. AA ratings denote a very low expectation of credit risk. They indicate very strong capacity for timely payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events. + A -- High credit quality. A ratings denote a low expectation of credit risk. The capacity for timely payment of financial commitments is considered strong. This capacity may, nevertheless, be more vulnerable to changes in circumstances or in economic conditions than is the case for higher ratings. + BBB -- Good credit quality. BBB ratings indicate that there is currently a low expectation of credit risk. The capacity for timely payment of financial commitments is considered adequate, but adverse changes in circumstances and in economic conditions are more likely to impair this capacity. This is the lowest investment-grade category. SPECULATIVE-GRADE + BB -- Speculative. BB ratings indicate that there is a possibility of credit risk developing, particularly as the result of adverse economic change over time; however, business or financial alternatives may be available to allow financial commitments to be met. Securities rated in this category are not investment grade. + B -- Highly speculative. B ratings indicate that significant credit risk is present, but a limited margin of safety remains. Financial commitments are currently being met; however, capacity for continued payment is contingent upon a sustained, favorable business and economic environment. + CCC, CC, C -- High default risk. Default risk is a real possibility. Capacity for meeting financial commitments is solely reliant upon sustained, favorable business or economic developments. A CC rating indicates that default of some kind appears probable. C ratings signal imminent default. + DDD, DD, D -- Default. The ratings of obligations in this category are based on their prospects for achieving partial or full recovery in a reorganization or liquidation of the obligor. While expected recovery values are highly speculative and cannot be estimated with any precision, the following serve as general guidelines. DDD obligations have the highest potential for recovery, around 90% -- 100% of outstanding amounts and accrued interest. DD indicates potential recoveries in the range of 50% -- 90% and D the lowest recovery potential, i.e., below 50%. Entities rated in this category have defaulted on some or all of their obligations. Entities rated DDD have the highest prospect for resumption of performance or continued operation with or without a formal reorganization process. Entities rated DD and D are generally undergoing a formal reorganization or liquidation process; those rated DD are likely to satisfy a higher portion of their outstanding obligations, while entities rated D have a poor prospect of repaying all obligations. FOR MORE INFORMATION ABOUT THE WM GROUP OF FUNDS The Statement of Additional Information (SAI) and Annual and Semiannual Reports to shareholders include additional information about the Funds. The SAI and The Report of Independent Registered Public Accounting Firm, along with the financial statements included in the Funds' recent Annual Reports, are incorporated by reference into this prospectus, which means that they are part of this prospectus for legal purposes. The Funds' Annual Reports discuss the market conditions and investment strategies that significantly affected performance during the last fiscal year. You may obtain free copies of these materials, request other information about the WM Group of Funds, and make shareholder inquiries by contacting your financial advisor, by calling toll-free 1-800-222-5852, or by visiting wmgroupoffunds.com. You may review and copy information about the Funds, including the SAI, at the Securities and Exchange Commission's public reference room in Washington, D.C. You may call the Commission at 1-202-942-8090 for information about the operation of the public reference room. You may also access reports and other information about the Funds on the EDGAR database or the Commission's Web site at http://www.sec.gov. You may obtain copies of this information, with payment of a duplication fee, by electronic request at the following email address: publicinfo@sec.gov or by writing the Public Reference Section of the Commission, Washington, D.C. 20549-0102. You may need to refer to the following file numbers: FILE NO. 811-00123 REIT FUND EQUITY INCOME FUND GROWTH & INCOME FUND WEST COAST EQUITY FUND MID CAP STOCK FUND SMALL CAP VALUE FUND U.S. GOVERNMENT SECURITIES FUND INCOME FUND HIGH YIELD FUND MONEY MARKET FUND FILE NO. 811-05775 GROWTH FUND SMALL CAP GROWTH FUND INTERNATIONAL GROWTH FUND SHORT TERM INCOME FUND WM TRUST I WM TRUST II WM STRATEGIC ASSET MANAGEMENT PORTFOLIOS, LLC 1201 THIRD AVENUE, 22ND FLOOR SEATTLE, WASHINGTON 98101 800-222-5852 STATEMENT OF ADDITIONAL INFORMATION MARCH 1, 2006 STRATEGIC ASSET MANAGEMENT PORTFOLIOS - Flexible Income Portfolio - Conservative Balanced Portfolio - Balanced Portfolio - Conservative Growth Portfolio - Strategic Growth Portfolio EQUITY FUNDS - REIT Fund - Equity Income Fund - Growth & Income Fund - West Coast Equity Fund - Mid Cap Stock Fund - Growth Fund - Small Cap Value Fund - Small Cap Growth Fund - International Growth Fund FIXED-INCOME FUNDS - Short Term Income Fund - U.S. Government Securities Fund - Income Fund - High Yield Fund MUNICIPAL FUNDS - Tax-Exempt Bond Fund - California Municipal Fund - California Insured Intermediate Municipal Fund MONEY MARKET FUND This Statement of Additional Information (the "SAI") is not a prospectus but supplements the information contained in the current prospectuses of the WM Group of Funds dated March 1, 2006 (collectively, the "prospectus"), and should be read in conjunction with such prospectus. The Annual Report of the Portfolios and the Funds for the fiscal period ended October 31, 2005 is incorporated by reference in this SAI. The Prospectus may be obtained without charge by writing to WM Shareholder Services, Inc. ("Shareholder Services"), by accessing wmgroupoffunds.com or by calling Shareholder Services at 1-800-222-5852. CONTENTS
PAGE Organization Management Investment Restrictions Disclosure of Portfolio Holdings Portfolio Turnover Securities Transactions Net Asset Value How to Buy and Redeem Shares Taxes Distributor Appendix
ORGANIZATION The Money Market, U.S. Government Securities, Income, High Yield, Tax-Exempt Bond, REIT, Equity Income, Growth & Income, West Coast Equity, Mid Cap Stock, and Small Cap Value Funds (the "WM Trust I Funds") are each series of WM Trust I. The Short Term Income, California Municipal, California Insured Intermediate Municipal, Growth, International Growth, and Small Cap Growth Funds (the "WM Trust II Funds") are each series of WM Trust II. The WM Trust I Funds and WM Trust II Funds are collectively referred to in this SAI as the "Funds." The Strategic Growth, Conservative Growth, Balanced, Conservative Balanced, and Flexible Income Portfolios (collectively referred to in this SAI as the "Portfolios") are each series of WM Strategic Asset Management Portfolios, LLC. WM Trust I, WM Trust II, and WM Strategic Asset Management Portfolios, LLC are collectively referred to in this SAI as the "Trusts." The Trusts are governed by a common Board of Trustees (the "Trustees"). Each of the Portfolios and Funds of the Trusts, with the exception of the California Municipal Fund and California Insured Intermediate Municipal Fund, is "diversified" within the meaning of the Investment Company Act of 1940, as amended (the "1940 Act"). The WM Trust I Funds other than the REIT, Mid Cap Stock, Small Cap Value, and High Yield Funds are successors to the following Washington corporations, or series thereof, which commenced operations in the years indicated, which made up the group of mutual funds, known as the "Composite Funds": COMPOSITE U.S. GOVERNMENT SECURITIES, INC. (predecessor to the U.S. Government Securities Fund) (1982); COMPOSITE INCOME FUND, INC. (predecessor to the Income Fund) (1975); COMPOSITE GROWTH & INCOME FUND, A SERIES OF COMPOSITE EQUITY SERIES, INC. (predecessor to the Growth & Income Fund) (1949); COMPOSITE MONEY MARKET PORTFOLIO, A SERIES OF COMPOSITE CASH MANAGEMENT COMPANY (predecessor to the Money Market Fund) (1979); COMPOSITE TAX-EXEMPT BOND FUND, INC. (predecessor to the Tax-Exempt Bond Fund) (1976); COMPOSITE NORTHWEST FUND, INC. (predecessor to the West Coast Equity Fund) (1986); and COMPOSITE BOND & STOCK FUND, INC. (predecessor to the Equity Income Fund) (1939). Each of the Composite Funds was reorganized as a series of WM Trust I on March 20, 1998. In connection with this reorganization, the Trust, which conducted no operations prior to that date, changed its name to its current name. The High Yield Fund was organized on March 23, 1998, the Mid Cap Stock Fund was organized on March 1, 2000, the REIT Fund was organized on March 1, 2003, and the Small Cap Value Fund was organized on March 1, 2004. Prior to March 20, 1998, the name of WM Trust II was "Sierra Trust Funds" and the name of the Portfolios was "Sierra Asset Management Portfolios." (On July 16, 1999, each Portfolio succeeded to a corresponding fund of the same name that was a series of WM Strategic Asset Management Portfolios. Where appropriate, the term "Portfolio" shall mean or include the predecessor to such Portfolio.) These Trusts were part of a family of mutual funds known as the "Sierra Funds." Prior to March 1, 2004, the Small Cap Growth Fund was known as the Small Cap Stock Fund and prior to March 1, 2000, it was known as the Emerging Growth Fund. Prior to March 1, 2002, the West Coast Equity Fund was known as Growth Fund of the Northwest and prior to March 1, 2000, it was known as the Northwest Fund. Prior to August 1, 2000, the Conservative Balanced Portfolio was known as the Income Portfolio and the Equity Income Fund was known as the Bond & Stock Fund. Prior to March 1, 2000, the Short Term Income Fund was known as the Short Term High Quality Bond Fund. Prior to March 20, 1998, the Flexible Income Portfolio was known as the Sierra Value Portfolio, the Conservative Balanced Portfolio was known as the Sierra Income Portfolio, the Balanced Portfolio was known as the Sierra Balanced Portfolio, the Conservative Growth Portfolio was known as the Sierra Growth Portfolio, and the Strategic Growth Portfolio was known as the Sierra Capital Growth Portfolio. WM Trust I is an open-end management investment company, organized as a Massachusetts business trust pursuant to an Agreement and Declaration of Trust dated September 19, 1997, as amended from time to time (the "WM Trust I Agreement"). WM Trust II is also an open-end management investment company organized as a Massachusetts business trust pursuant to a Master Trust Agreement dated February 22, 1989, as amended from time to time (the "WM Trust II Agreement"). The WM Trust I Agreement and WM Trust II Agreement are collectively referred to herein as the "Trust Agreements." WM Strategic Asset Management Portfolios, LLC is an open-end management investment company, organized as a Massachusetts limited liability company pursuant to a Limited Liability Company Agreement dated March 12, 1999, as amended from time to time (the "LLC Agreement"). In the interest of economy and convenience, certificates representing shares in the Trusts are not physically issued. Mellon Trust of New England, National Association ("Mellon") (formerly known as Boston Safe Deposit and Trust Co.), the Trusts' Custodian, and Shareholder Services, the Trusts' "Transfer Agent", maintain a record of each shareholder's ownership of Trust shares. Shares do not have cumulative voting rights, which means that holders of more than 50% of the shares voting for the election of Trustees can elect all Trustees. Shares are transferable but have no preemptive, conversion or subscription rights. Shareholders generally vote by Portfolio, Fund or Class, except with respect to the election of Trustees and the selection of independent accountants, for which shareholders of each Trust as a whole vote together. Under normal circumstances, there will be no meetings of shareholders for the purpose of electing Trustees unless and until such time as less than a majority of the Trustees holding office have been elected by shareholders, at that time, the Trustees then in office promptly will call a shareholders' meeting for the election of Trustees. Under the 1940 Act, shareholders of record of no less than two-thirds of the outstanding shares of the Trust may remove a Trustee through a declaration in writing or by vote cast in person or by proxy at a meeting called for that purpose. Under the Trust Agreements and the LLC Agreement, the Trustees are required to call a meeting of shareholders for the purpose of voting upon the question of removal of any such Trustee when requested in writing to do so by the shareholders of record of not less than 10% of any of a Trust's outstanding shares. Massachusetts law provides that shareholders, under certain circumstances, could be held personally liable for the obligations of a business trust, such as WM Trust I or WM Trust II. However, each Trust Agreement disclaims shareholder liability for acts or obligations of the Trusts and requires that notice of such disclaimer be given in each agreement, obligation or instrument entered into or executed by the Trust or a Trustee. Each Trust Agreement provides for indemnification from the Trust's property for all losses and expenses of any shareholder held personally liable for the obligations of the Trust. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which the Trust would be unable to meet its obligations, a possibility that the Trusts' management believes is remote. The Trustees intend to conduct the operations of each Trust in such a way so as to avoid, to the extent possible, ultimate liability of the shareholders for the liabilities of the Trust. Massachusetts law provides that shareholders of limited liability companies, such as WM Strategic Asset Management Portfolios, LLC, may not be held personally liable for the obligations of the Portfolios. MANAGEMENT TRUSTEES AND OFFICERS The Trusts are governed by a common Board of Trustees which oversees the Trusts' activities and is responsible for protecting the interests of shareholders. The names, addresses and ages of the Trustees and executive officers of the Trusts, together with information as to their principal business occupations, are set forth in the following table. The table also identifies those Trustees who are "interested persons" of the Trusts, as defined in the 1940 Act. The officers of the Trusts are employees of organizations that provide services to the Portfolios and Funds offered by the Trusts. TRUSTEES AND OFFICERS (UNAUDITED):
NUMBER OF PORTFOLIOS AND FUNDS IN FUND NAME, AGE, AND ADDRESS OF LENGTH OF PRINCIPAL OCCUPATIONS COMPLEX OVERSEEN OTHER DIRECTORSHIPS INDEPENDENT TRUSTEE(1,2) TIME SERVED(3) DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE - --------------------------- ------------------------- ------------------------- -------------------- -------------------------- Kristianne Blake Composite Funds-3 years CPA specializing in 40 Avista Corporation, Age 51 WM Group of Funds-7 personal financial and Frank Russell Investment years tax planning. Company, Russell Investment Funds Edmond R. Davis, Esq. Sierra Funds-8 years Partner at the law firm 40 Braille Institute of Age 77 WM Group of Funds-7 of Davis & Whalen LLP. America, Inc., years Prior thereto, partner at Children's Bureau of the law firm of Brobeck, Southern California, Phlegar & Harrison, LLP. Children's Bureau Foundation, Fifield Manors, Inc.
Carrol R. McGinnis Griffin Funds-3 years Private Investor since 40 Baptist Foundation of Age 62 WM Group of Funds-6 1994. Prior thereto, Texas, Concord Trust years President and Chief Company Operating Officer of Transamerica Fund Management Company Alfred E. Osborne, Jr. Sierra Funds-7 years Senior Associate Dean, 40 Nordstrom Inc.; K2, Ph.D. WM Group of Funds-7 University of California Inc.; First Pacific Age 61 years at Los Angeles Anderson Advisors' Funds, EMAK Graduate School Worldwide, Inc.; Member Management, and Faculty of Investment Company Director of the Harold Institute National Board Price Center for of Directors; Director Entrepreneurial Studies, of Independent Directors University of California Council and Member of at Los Angeles. Communication and Education Committees. Daniel L. Pavelich Composite Funds-1 year Retired Chairman and CEO 40 Catalytic Inc., Vaagen Age 61 WM Group of Funds-7 of BDO Seidman. Bros. Lumber, Inc. years Jay Rockey Composite Funds-3 years Founder and Senior 40 Downtown Seattle Age 77 WM Group of Funds-7 Counsel of The Rockey Association, WSU years Company, now Rockey Hill Foundation & Knowlton Richard C. Yancey Composite Funds-23 Retired Managing Director 40 AdMedia Partners, Inc., (Chairman of the Trustees) years WM Group of of Dillon Reed & Co., an Czech and Slovak Age 79 Funds-7 years investment bank now part American Enterprise Fund. of UBS.
NUMBER OF PORTFOLIOS AND FUNDS IN FUND NAME, AGE, AND ADDRESS OF LENGTH OF PRINCIPAL OCCUPATIONS COMPLEX OVERSEEN OTHER DIRECTORSHIPS INTERESTED TRUSTEE(1,4) TIME SERVED(3) DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE - --------------------------- ------------------------- -------------------------- -------------------- -------------------------- Anne V. Farrell Composite Funds- 4 years President Emeritus of the 40 Washington Mutual, Inc., Age 70 WM Group of Funds-7 Seattle Foundation. Recreational Equipment, years Inc. William G. Papesh Composite Funds-9 years President and Director of 40 Member of the Investment (President and CEO) WM Group of Funds-7 the Advisor; Director of Company Institute Board Age 62 years Transfer Agent and of Governors Distributor.
NAME, AGE, AND ADDRESS POSITIONS HELD WITH REGISTRANT & PRINCIPAL OCCUPATIONS OF OFFICER LENGTH OF TIME SERVED DURING PAST 5 YEARS - ---------------------------- ----------------------------------------- ------------------------------------------------ Wendi B. Bernard Assistant Vice President and Assistant Assistant Vice President of the Advisor. Age 37 Secretary since 2003. Jeffrey J. Lunzer, CPA First Vice President, Chief Financial First Vice President of the Advisor, Age 44 Officer and Treasurer since 2003. Distributor, and Transfer Agent. Prior to 2003, senior level positions at the Columbia Funds and Columbia Co. William G. Papesh, President and CEO since 1987. Prior to President and Director of the Advisor; Age 62 1987, other officer positions since 1972. Director of Transfer Agent and Distributor. Gary J. Pokrzywinski, Senior Vice President since 2004. First Senior Vice President and Director of the Age 44 Vice President since 2001. Prior 2001, Advisor, Distributor, and Transfer Agent. Vice President since 1999. Debra Ramsey, Senior Vice President since 2004. Senior Vice President and Director of the Age 52 Advisor. President and Director of the Distributor and Transfer Agent. John T. West, First Vice President, Secretary, Chief First Vice President of the Advisor, Age 50 Compliance Officer and Anti-Money Distributor, and Transfer Agent. Laundering Compliance Officer since 2004. Prior to 2004, various other officer positions since 1993. Randall L. Yoakum, Senior Vice President since 2001. First Senior Vice President and Chief Investment Age 45 Vice President from 1999 to 2001. Strategist of the Advisor. Director of the Advisor, Distributor, and Transfer Agent since 1999.
- ---------------- (1) The term "Independent Trustee" means those Trustees who are not "interested persons" of the Funds as defined by the 1940 Act. (2) The address for all Trustees and Officers is 1201 Third Avenue, 22nd Floor, Seattle, WA 98101. (3) The Sierra Funds merged with the Composite Funds on March 23, 1998 to form the WM Group of Funds. The Griffin Funds merged with the WM Group of Funds on March 5, 1999. (4) Trustees are considered interested due to their affiliation with Washington Mutual, Inc., WM Advisors, Inc., WM Funds Distributor, Inc., and WM Shareholder Services, Inc. EQUITY SECURITIES OWNERSHIP TABLE (DOLLAR RANGES) (As of December 31, 2004) [TO BE UPDATED]
GROWTH WEST FLEXIBLE CONSERVATIVE CONSERVATIVE STRATEGIC EQUITY & COAST INCOME BALANCED BALANCED GROWTH GROWTH REIT INCOME INCOME EQUITY PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO FUND FUND FUND FUND --------- ------------ --------- ------------ ---------- ---- ------ ------ ----- INDEPENDENT TRUSTEES Kristianne Blake None None None None E None None None D Edmond R. Davis, Esq. None None C None None None None A B Carrol R. McGinnis None None None None None None E D D Alfred E. Osborne, Jr., Ph.D. None None None B None None B A None Daniel L. Pavelich None None None None None None D D None Jay Rockey None None None None None None E C E Richard C. Yancey None None None None None None E E D INTERESTED TRUSTEES Anne V. Farrell None None None None None None None None D William G. Papesh D None None None None None E C D
MID CAP STOCK GROWTH SMALL CAP SMALL CAP INTERNATIONAL SHORT TERM U.S. GOVERNMENT INCOME FUND FUND VALUE FUND GROWTH FUND GROWTH FUND INCOME FUND SECURITIES FUND FUND ------------- ------ ---------- ----------- ------------- ----------- --------------- ------ INDEPENDENT TRUSTEES Kristianne Blake None None None None None None None None Edmond R. Davis, Esq. None A None None A None None None Carrol R. McGinnis D None None None None None None None Alfred E. Osborne, Jr., Ph.D. None None None None A A None B Daniel L. Pavelich None B None None None None None None Jay Rockey None None None None None None None None Richard C. Yancey None None None D None None None None INTERESTED TRUSTEES Anne V. Farrell None None None None None None None William G. Papesh None None D None None None None C
AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES IN ALL CALIFORNIA REGISTERED INVESTMENT CALIFORNIA INSURED COMPANIES OVERSEEN BY HIGH YIELD TAX-EXEMPT MUNICIPAL INTERMEDIATE MONEY MARKET DIRECTOR IN FAMILY OF FUND BOND FUND FUND MUNICIPAL FUND FUND INVESTMENT COMPANIES ---------- ---------- ---------- -------------- ------------ ------------------------ INDEPENDENT TRUSTEES Kristianne Blake None None None None A E Edmond R. Davis, Esq. None None None None A E Carrol R. McGinnis None None None None None E Alfred E. Osborne, Jr., Ph.D. None None None None A C Daniel L. Pavelich None None None None None E Jay Rockey None None None None None E Richard C. Yancey None None None None None E INTERESTED TRUSTEES Anne V. Farrell None None None None B E William G. Papesh None None None None E E A - $1 to $10,000 B - $10,001 to $50,000 C- $50,001 to $100,000 D - $100,001 to $250,000 E - over $250,000
Each of the Trustees and officers of the Trusts listed above holds the same position(s) within all three Trusts and is also a trustee or officer of WM Variable Trust (the "Variable Trust"). Together, the Trusts and the Variable Trust form the "Fund Complex." There are currently forty portfolios within the Fund Complex that are overseen by each of the Trustees and all are investment companies advised by WM Advisors, Inc. (the "Advisor" or "WM Advisors"). Each of the Trustees and officers of the Trusts listed above who is also an officer of WM Advisors, WM Funds Distributor, Inc. (the "Distributor") or Shareholder Services, as a result, is an affiliated person, for purposes of the 1940 Act, of the Advisor, the Distributor or Shareholder Services, as the case may be. Each Trustee and executive officer shall hold the indicated positions until his or her resignation or removal. REMUNERATION. No Trustee who is an officer or employee of the Advisor or its affiliates receives any compensation from the Trusts for serving as Trustee of the Trusts. The Trusts, together with the Variable Trust, pay each Trustee who is not a director, officer or employee of the Advisor or its affiliates a fee of $50,000 per annum plus $4,000 per Board meeting attended in person and $2,000 per Board meeting attended by telephone, and reimburses each such Trustee for travel and out-of-pocket expenses. Committee members each receive $2,000 per committee meeting attended in person and $1,000 per committee meeting attended by telephone. The Chairman of the Trustees receives an additional $25,000 per annum. The Chairperson of the Audit Committee receives an additional $5,000 per annum and the Chairperson of each committee receives an additional fee of $2,000 per committee meeting. Officers of the Trusts receive no direct remuneration in such capacity from the Trusts. Officers and Trustees of the Trusts who are employees of the Advisor or its affiliates may be considered to have received remuneration indirectly. See "Compensation" below for more information regarding compensation. COMMITTEES. The Trusts have established a Governance Committee, an Investment Committee, an Operations /Distribution Committee, a Valuation Committee and an Audit Committee. The duties of the Governance Committee of the Trusts include oversight of the Trusts' legal counsel, review of the Trustees' compensation, oversight of regulatory compliance and review of assignments to each of the Trusts' other committees. The members of the Governance Committee are Richard C. Yancey (chair), Daniel L. Pavelich and Kristianne Blake. The Governance Committee held three meetings during the fiscal year ended 10/31/05. The duties of the Investment Committee include the review of and oversight of compliance with the investment restrictions of the Funds and the Portfolios, the review of advisory contracts and contracts with custodians and Sub-advisors, the review of the pricing, valuation and performance of the Funds and the Portfolios, the review of brokerage policies and the review of transactions with affiliates. The members of the Investment Committee are Richard C. Yancey (chair), Carrol R. McGinnis and William G. Papesh. The Investment Committee held four meetings during the fiscal year ended 10/31/05. The duties of the Operations /Distribution Committee include monitoring the activities of the Distributor, Transfer Agent and Advisor and considering new funds, review of possible termination of funds and/or merging small funds. The members of the Operations /Distribution Committee are Kristianne Blake (chair), Edmond R. Davis, and Anne V. Farrell. The Operations /Distribution Committee held four meetings during the fiscal year ended 10/31/05. The duties of the Valuation Committee include the review of the pricing and valuation of the Funds and Portfolios. The members of the Valuation Committee consist of William G. Papesh or his designee (chair) and Richard C. Yancey or any other Trustee. The Valuation Committee held fifteen meetings during the fiscal year ended 10/31/05. The duties of the Audit Committee include oversight of each Fund's financial reporting policies and practices (including review of annual audit plans and the results of each Fund's annual independent audit), oversight of the quality and objectivity of each Fund's financial statements and the independent public accountant (including the appointment, compensation and retention of the independent public accountant), oversight of the adequacy of the Fund's overall system of internal controls (including the responsibility to receive and address complaints on accounting, auditing and internal control matters) and acting as a liaison between the Fund's independent public accountants and the Board of Trustees. The members of the Audit Committee are Daniel L. Pavelich (chair), Alfred E. Osborne, Jr., and Jay Rockey. The Audit Committee held four meetings during the fiscal year ended 10/31/05. CODES OF ETHICS. The Trusts, the Advisor, the Distributor and each of the Sub-advisors to the Funds have adopted codes of ethics in accordance with Rule 17j-1 under the for 1940 Act. These codes of ethics permit personnel subject to the codes to invest in securities, including securities that may be purchased or held by the Portfolios or the Funds. The Codes of Ethics are on file with and are available from the Securities and Exchange Commission ("SEC"). PROXY VOTING POLICIES The Board of Trustees has delegated to the Advisor, or, where applicable, the Sub-advisor responsible for the management of a particular Fund (or, for the Growth Fund and Small Cap Growth Fund, the relevant portion of the Fund), responsibility for voting any proxies relating to portfolio securities held by the Fund in accordance with the Advisor's or Sub-advisor's proxy voting policies and procedures. A copy of the proxy voting policies and procedures to be followed by the Advisor and each Sub-advisor, including procedures to be used when a vote presents a conflict of interest, are attached. Information regarding how the Fund voted proxies relating to Portfolio securities during the most recent 12 month period ended June 30 is available (1) without charge at wmgroupoffunds.com, and (2) on the SEC's Web site at http://www.sec.gov. COMPENSATION The following table shows the aggregate compensation paid to each of the Trusts' Trustees by each Portfolio or Fund for the most recent fiscal year and by the "Fund Complex" for calendar 2005. The Fund Complex consists of the Portfolios and Funds, together with the Funds within the Variable Trust. None of the Trusts has any plan that would pay pension or retirement benefits to any Trustee. WM GROUP OF FUNDS COMPENSATION TABLE
WEST SMALL EQUITY GROWTH & COAST MID CAP CAP REIT INCOME INCOME EQUITY STOCK GROWTH VALUE FUND FUND FUND FUND FUND FUND FUND ---- ------ -------- ------ ------- ------ ----- INDEPENDENT TRUSTEES Wayne L. Attwood, M.D.(1) [_] [_] [_] [_] [_] [_] [_] Kristianne Blake [_] [_] [_] [_] [_] [_] [_] Edmond R. Davis, Esq. [_] [_] [_] [_] [_] [_] [_] Carrol R. McGinnis [_] [_] [_] [_] [_] [_] [_] Alfred E. Osborne, Jr., Ph.D. [_] [_] [_] [_] [_] [_] [_] Daniel L. Pavelich [_] [_] [_] [_] [_] [_] [_] Jay Rockey [_] [_] [_] [_] [_] [_] [_] Richard C. Yancey [_] [_] [_] [_] [_] [_] [_] INTERESTED TRUSTEES Anne V. Farrell [_] [_] [_] [_] [_] [_] [_] Michael K. Murphy(2) [_] [_] [_] [_] [_] [_] [_] William G. Papesh $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
- ---------------- (1) Retired February 17, 2005 (2) Retired November 8, 2005
SMALL CAP SHORT TERM HIGH TAX- GROWTH INTERNATIONAL INCOME U.S. GOVERNMENT INCOME YIELD EXEMPT FUND GROWTH FUND FUND SECURITIES FUND FUND FUND BOND FUND --------- ------------- ---------- --------------- ------ ----- --------- INDEPENDENT TRUSTEES Wayne L. Attwood, M.D.(1) [_] [_] [_] [_] [_] [_] [_] Kristianne Blake [_] [_] [_] [_] [_] [_] [_] Edmond R. Davis, Esq. [_] [_] [_] [_] [_] [_] [_] Carrol R. McGinnis [_] [_] [_] [_] [_] [_] [_] Alfred E. Osborne, Jr., Ph.D. [_] [_] [_] [_] [_] [_] [_] Daniel L. Pavelich [_] [_] [_] [_] [_] [_] [_] Jay Rockey [_] [_] [_] [_] [_] [_] [_] Richard C. Yancey [_] [_] [_] [_] [_] [_] [_] INTERESTED TRUSTEES Anne V. Farrell [_] [_] [_] [_] [_] [_] [_] Michael K. Murphy(2) [_] [_] [_] [_] [_] [_] [_] William G. Papesh $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
- ---------------- (1) Retired February 17, 2005 (2) Retired November 8, 2005
CALIFORNIA INSURED TAX-EXEMPT CALIFORNIA INTERMEDIATE MONEY CALIFORNIA FLEXIBLE CONSERVATIVE MUNICIPAL MUNICIPAL MONEY MARKET MONEY INCOME BALANCED FUND FUND MARKET FUND FUND(3) FUND(3) PORTFOLIO PORTFOLIO --------- ------------ ----------- ---------- ---------- --------- ------------ INDEPENDENT TRUSTEES Wayne L. Attwood, M.D.(1) [_] [_] [_] [_] [_] [_] [_] Kristianne Blake [_] [_] [_] [_] [_] [_] [_] Edmond R. Davis, Esq. [_] [_] [_] [_] [_] [_] [_] Carrol R. McGinnis [_] [_] [_] [_] [_] [_] [_] Alfred E. Osborne, Jr., Ph.D. [_] [_] [_] [_] [_] [_] [_] Daniel L. Pavelich [_] [_] [_] [_] [_] [_] [_] Jay Rockey [_] [_] [_] [_] [_] [_] [_] Richard C. Yancey [_] [_] [_] [_] [_] [_] [_] INTERESTED TRUSTEES Anne V. Farrell [_] [_] [_] [_] [_] [_] [_] Michael K. Murphy(2) [_] [_] [_] [_] [_] [_] [_] William G. Papesh $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
- ---------------- (1) Retired February 17, 2005 (2) Retired November 8, 2005 (3) Liquidated November 8, 2005
TOTAL COMPENSATION TOTAL FOR FISCAL COMPENSATION CONSERVATIVE STRATEGIC YEAR FROM THE FUND BALANCED GROWTH GROWTH ENDED COMPLEX FOR PORTFOLIO PORTFOLIO PORTFOLIO 10/31/05 CALENDAR 2005 --------- -------------- ---------- -------------- ---------------- INDEPENDENT TRUSTEES Wayne L. Attwood, M.D.(1) [_] [_] [_] [_] [_] Kristianne Blake [_] [_] [_] [_] [_] Edmond R. Davis, Esq. [_] [_] [_] [_] [_] Carrol R. McGinnis [_] [_] [_] [_] [_] Alfred E. Osborne, Jr., Ph.D. [_] [_] [_] [_] [_] Daniel L. Pavelich [_] [_] [_] [_] [_] Jay Rockey [_] [_] [_] [_] [_] Richard C. Yancey [_] [_] [_] [_] [_] INTERESTED TRUSTEES Anne V. Farrell [_] [_] [_] [_] [_] Michael K. Murphy (2) [_] [_] [_] [_] [_] William G. Papesh $ 0 $ 0 $ 0 $ 0 $ 0
- ---------------- (1) Retired February 17, 2005 (2) Retired November 8, 2005 CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES As of [ ], except as noted, to the knowledge of the Trusts, no shareholders owned of record 5% or more of, and the officers and trustees of the Portfolios and Funds as a group owned, of record or beneficially, less than 1% of the outstanding shares of the indicated classes of the Portfolios or Funds:
PERCENTAGE PRINCIPAL HOLDER ADDRESS OWNERSHIP - ---------------- ------- ----------- [_] [_] [_]
The Portfolios and Funds have no knowledge as to the beneficial ownership of their shares. To the extent any shareholder beneficially owns more than 25% of a Portfolio or Fund, it may be deemed to control such Portfolio or Fund, within the meaning of the 1940 Act. As shown above, the Portfolios own more than 25% of several of the Funds and, as a result, may be deemed to control such Funds. The effect of such control may be to reduce the ability of other shareholders of the Fund to take actions requiring the affirmative vote of holders of a plurality or majority of the Fund's shares without the approval of the controlling shareholder. THE PORTFOLIOS' AND FUNDS' SERVICE PROVIDERS The Portfolios and Funds are managed by the Advisor. The Advisor is a wholly owned indirect subsidiary of Washington Mutual, Inc., a publicly owned financial services company. The Advisor has delegated portfolio management responsibilities with respect to the Growth, International Growth, Small Cap Growth, Tax-Exempt Bond, California Municipal and California Insured Intermediate Municipal Funds to Sub-advisors. In determining to approve the most recent annual extension of the Trusts' investment advisory agreements with the Advisor (the "Advisory Agreement") and the investment sub-advisory agreements among the Trusts, the Advisor and certain sub-advisors (the "Sub-advisors") with respect to the Growth, International Growth, Small Cap Growth, Tax-Exempt Bond, California Municipal and California Insured Intermediate Municipal Funds (the "Sub-advisory Agreements"), the Trustees met over the course of the Trusts' last fiscal year with the relevant investment advisory personnel and considered information provided by the Advisor and the Sub-advisors relating to the education, experience and number of investment professionals and other personnel providing services under the Advisory Agreement and each Sub-advisory Agreement. For more information on these personnel, see the Sections entitled "Advisor and Sub-Advisors" and "Individual Fund Managers" in the Prospectus. The Trustees also took into account the time and attention devoted by senior management to the Portfolios and Funds. The Trustees evaluated the level of skill required to manage the Portfolios and Funds and concluded that the human resources devoted by the Advisor and the Sub-advisors were appropriate to fulfill effectively their respective duties under the Advisory Agreement and Sub-advisory Agreements. The Trustees also considered the business reputation of the Advisor, the Sub-advisors, their financial resources, and their professional liability insurance coverage and concluded that they would be able to meet any reasonably foreseeable obligations under the respective agreements. The Trustees received information concerning the investment philosophies and investment processes applied by the Advisor and the Sub-advisors in managing the Portfolios and Funds, as disclosed in the Prospectus. In this connection, the Trustees considered the in-house research capabilities of the Advisor and the Sub-advisors as well as other sources available to the Advisor's and each Sub-advisor's personnel, including research services available to the Advisor and the Sub-advisors as a result of securities transactions effected for the Portfolios, the Funds, and other investment advisory clients. (For more information, see the description under "Securities Transactions" below.) The Trustees concluded that the investment processes, research capabilities and philosophies of the Advisor and the Sub-advisors were well suited to the respective Portfolios and Funds, given their respective investment objectives and policies. The Trustees considered the scope of the services provided by the Advisor to the Portfolios and Funds under the Advisory Agreement, and those provided by the Sub-advisors under the Sub-advisory Agreements, relative to services provided by other third parties to other mutual funds. The Trustees noted that the standard of care applicable to the Advisor and the Sub-advisors under the respective agreements was comparable to that found in most mutual fund investment advisory agreements. The Trustees concluded that the scope of the services provided to the Portfolios and the Funds by the Advisor and the Sub-advisors was consistent with the Portfolios' and Funds' operational requirements, including, in addition to their investment objectives, compliance with the Portfolios' and Funds' investment restrictions, tax and reporting requirements and related shareholder services. The Trustees considered the quality of the services provided by the Advisor and the Sub-advisors to the Portfolios and Funds. The Trustees evaluated the records of the Advisor and Sub-advisors with respect to regulatory compliance and compliance with the investment policies of the Portfolios and Funds. The Trustees also evaluated the procedures of the Advisor and each Sub-advisor designed to fulfill their fiduciary duties to the Portfolios and Funds with respect to possible conflicts of interest, including the codes of ethics of the Advisor and each of the Sub-advisors (regulating the personal trading of its officers and employees (see "Codes of Ethics" above under "Management")) the procedures by which the Advisor and sub-advisors allocate trades among their various investment advisory clients, the integrity of the systems in place to ensure compliance with the foregoing and the record of the Advisor and the Sub-advisors in these matters. The Trustees also received information concerning standards of the Advisor with respect to the execution of portfolio transactions. See "Securities Transactions" below. The Trustees considered oversight by the Advisor of non-advisory services provided by persons other than the Advisor, including the Sub-advisors, by reference, among other things, to the Portfolios' and Funds' total expenses and the reputation of the Trusts' other service providers, as described below. The Trustees also considered information relating to the investment performance of the Portfolios and Funds relative to their respective performance benchmark(s), relative to other similar accounts managed by the Advisor and the relevant Sub-advisors and relative to funds managed similarly by other advisers. The Trustees reviewed performance over various periods, including one-, five- and ten-year calendar year periods (as disclosed in the Prospectus), performance under different market conditions and during different phases of a market cycle, the volatility of each Portfolio's and Fund's returns, as well as factors identified by the Advisor or the Sub-advisor as contributing to performance. See the "Performance and Investment Strategy" section in the Trusts' most recent Annual Reports. The Trustees concluded that the scope and quality of the services provided by the Advisor and the Sub-advisors, as well as the investment performance of the Portfolios and Funds, were sufficient, in light of market conditions, performance attribution, the resources dedicated by the Advisor and the Sub-advisors and their integrity, their personnel and systems and their respective financial resources, to merit reapproval of the Advisory Agreement and each Sub-advisory Agreement for another year. In reaching that conclusion, the Trustees also gave substantial consideration to the fees payable under the Advisory Agreement and each Sub-advisory Agreement. The Trustees reviewed information, including information supplied by other third parties, concerning fees paid to investment advisors of similarly-managed funds. The Trustees also considered the fees of each Portfolio and Fund as a percentage of assets at different asset levels and possible economies of scale to the Advisor and/or the relevant Sub-advisor. In particular, the Trustees evaluated the profitability of the Advisor with respect to the Portfolios and Funds, concluding that such profitability was not inconsistent with levels of profitability that had been determined by courts not to be "excessive." For these purposes, the Trustees not only took into account the actual dollar amount of fees paid by each Portfolio and Fund directly to the Advisor and the applicable Sub-advisors, but also took into account so-called "fallout benefits" to the Advisor and the Sub-advisors such as reputational value derived from serving as investment advisor to one or more of the Portfolios and Funds. In evaluating the Portfolios' and Funds' advisory and sub-advisory fees, the Trustees also took into account the complexity of investment management for each Portfolio and Fund relative to other types of funds. Based on challenges associated with less readily available market information about foreign issuers and smaller capitalization companies, limited liquidity of certain securities and the specialization required for focused funds, the Trustees concluded that generally greater research intensity and trading acumen is required for equity funds and for international or global funds, as compared to funds investing, respectively, in debt obligations or in U.S. issuers. Similarly, the Trustees concluded that, generally, small capitalization equity funds and focused funds, including state-specific municipal funds require greater intensity of research and trading acumen than larger capitalization or more diversified funds. Based on the foregoing, the Trustees concluded that the fees to be paid the Advisor and the Sub-advisors under the Advisory Agreement and each Sub-advisory Agreement were fair and reasonable, given the scope and quality of the services rendered by the Advisor and the Sub-advisors. In determining to approve the Sub-Advisory Agreements, with respect to the Small Cap Growth Fund, the Trustees considered the same information and made the same determinations, except considerations and determinations related to prior experience with respect to such Fund. Where applicable, considerations and determinations with respect to the Small Cap Growth Fund were made on a prospective basis. MANAGEMENT FEES. Each Portfolio and Fund pays a management fee to the Advisor. The management fee is calculated and paid to the Advisor every month. The management fee for each Portfolio and Fund is based upon a percentage of the average net assets of such Portfolio or Fund. Absent fee waivers, the management fee for each Portfolio and Fund, as provided in the investment advisory agreement of the Portfolio or Fund, is as follows:
FUNDS AND PORTFOLIOS FEES - ------------------------------------------------------------------------------------------ --------------------------------- Each of the Portfolios ................................................................... 0.55% of the first $500 million 0.50% of the next $500 million 0.45% of the next $1 billion 0.35% of the next $1 billion 0.30% of the next $1 billion 0.25% thereafter* REIT Fund ................................................................................ 0.80% of the first $500 million, 0.75% of the next $1.5 billion, 0.70% of the next $1 billion, 0.65% thereafter High Yield, Equity Income and Growth & Income Funds ...................................... 0.625% of the first $250 million, 0.50% thereafter Small Cap Value Fund & Small Cap Growth** ................................................ 0.85% of the first $500 million, 0.75% of the next $2.5 billion, 0.70% thereafter West Coast Equity Fund ................................................................... 0.625% of the first $500 million, 0.50% of the next $500 million, 0.375% thereafter Mid Cap Stock Fund ....................................................................... 0.75% of the first $1 billion, 0.70% of the next $1 billion, 0.65% of the next $1 billion, 0.60% thereafter Growth Fund*** ........................................................................... 0.80% of the first $500 million, 0.75% of the next $1.5 billion, 0.70% of the next $1.0 billion, 0.65% thereafter International Growth Fund**** ............................................................ 0.25% of the first $25 million,
0.40% of the next $25 million, 0.575% of the next $75 million, 0.375% of the next $125 million, 0.425% of the next $750 million 0.375% of the next $2 billion 0.325% thereafter**** Short Term Income Fund ................................................................... 0.50% of the first $200 million, 0.45% of the next $300 million, 0.40% thereafter U.S. Government Securities and Income Funds .............................................. 0.50% of the first $2 billion,, 0.45% thereafter Tax-Exempt Bond Fund*** .................................................................. 0.40% of the first $250 million, 0.30% thereafter California Municipal Fund*** ............................................................. 0.30% of the first $150 million, 0.35% of the next $850 million, 0.325% thereafter California Insured Intermediate Municipal Fund*** ........................................ 0.30% of the first $75 million, 0.375% of the next $925 million, 0.325% thereafter Money Market Fund ........................................................................ 0.45% of the first $1 billion, 0.40% thereafter
- ------------- * Based on the aggregate average daily net assets of all the Portfolios. ** The Advisory Agreement was amended effective April [ ], 2005 to provide for direct payment of the Sub-advisors by the Fund. The fee shown will be reduced by the sub-advisory fees, which will fluctuate depending upon the allocation of assets among the sub-advisors. *** The Advisory Agreement was amended effective January 1, 2000 to provide for direct payment of the Sub-advisors by the Fund. The fee shown will be reduced by the sub-advisory fees, which will fluctuate depending on the allocation of assets among the three Sub-advisors. **** The Advisory and Sub-Advisory Agreements for the Funds were amended effective January 1, 2000 to provide for the direct payment of the Sub-advisors by the Funds. The fee rates shown above reflect this amendment (i.e., they are net of sub-advisory fees). Sub-advisory fees are disclosed under "Sub-advisory Fee" below. For the three most recent fiscal years, the Portfolios and Funds paid the Advisor or its affiliates the following advisory fees:
FISCAL YEAR ENDED OCTOBER 31, 2005 FEES BEFORE EXPENSES WAIVER FEES WAIVED REIMBURSED ----------- ----------- ---------- Flexible Income Portfolio [ ] [ ] [ ] Conservative Balanced Portfolio [ ] [ ] [ ] Balanced Portfolio [ ] [ ] [ ] Conservative Growth Portfolio [ ] [ ] [ ] Strategic Growth Portfolio [ ] [ ] [ ] REIT Fund [ ] [ ] [ ] Equity Income Fund [ ] [ ] [ ] Growth & Income Fund [ ] [ ] [ ] West Coast Equity Fund [ ] [ ] [ ] Mid Cap Stock Fund [ ] [ ] [ ] Growth Fund* [ ] [ ] [ ] Small Cap Value Fund [ ] [ ] [ ] Small Cap Growth Fund [ ] [ ] [ ] International Growth Fund* [ ] [ ] [ ] Short Term Income Fund [ ] [ ] [ ] U.S. Government Securities Fund [ ] [ ] [ ] Income Fund [ ] [ ] [ ] High Yield Fund [ ] [ ] [ ] Tax-Exempt Bond Fund* [ ] [ ] [ ] California Municipal Fund* [ ] [ ] [ ] California Insured Intermediate Municipal Fund* [ ] [ ] [ ] Money Market Fund [ ] [ ] [ ]
Tax-Exempt Money Market Fund** [ ] [ ] [ ] California Money Fund** [ ] [ ] [ ]
FISCAL YEAR ENDED OCTOBER 31, 2004 FEES BEFORE EXPENSES WAIVER FEES WAIVED REIMBURSED ----------- ------------ ---------- Flexible Income Portfolio $ 5,205,986 Conservative Balanced Portfolio $ 2,416,230 Balanced Portfolio $17,411,691 Conservative Growth Portfolio $13,878,166 Strategic Growth Portfolio $ 8,045,722 REIT Fund $ 2,117,088 Equity Income Fund $ 6,494,421 Growth & Income Fund $ 9,882,329 West Coast Equity Fund $ 6,264,888 Mid Cap Stock Fund $ 4,418,962 Growth Fund* $ 9,671,698 Small Cap Value Fund $ 1,299,532 Small Cap Growth Fund $ 3,032,930 International Growth Fund* $ 4,095,854 Short Term Income Fund $ 1,297,592 U.S. Government Securities Fund $ 6,850,427 Income Fund $ 5,564,174 High Yield Fund $ 3,656,109 Tax-Exempt Bond Fund* $ 1,200,519 California Municipal Fund* $ 2,357,821 California Insured Intermediate Municipal Fund* $ 811,881 Money Market Fund $ 3,575,430 Tax-Exempt Money Market Fund** $ 121,241 California Money Fund** $ 159,813 $ 55,469
FISCAL YEAR ENDED OCTOBER 31, 2003 FEES BEFORE EXPENSES WAIVER FEES WAIVED REIMBURSED ----------- ----------- ---------- Flexible Income Portfolio $3,520,912 Conservative Balanced Portfolio $1,080,121 $ 73,786 Balanced Portfolio $9,728,401 Conservative Growth Portfolio $7,824,738 Strategic Growth Portfolio $4,225,785 REIT Fund $ 774,209 Equity Income Fund $3,889,096 Growth & Income Fund $6,922,245 West Coast Equity Fund $4,482,819 Mid Cap Stock Fund $2,392,456 Growth Fund* $5,504,828 Small Cap Growth Fund $2,298,990 International Growth Fund* $2,247,490 Short Term Income Fund $ 979,549 $ 103,826 U.S. Government Securities Fund $4,968,838 Income Fund $4,657,296 High Yield Fund $2,470,360 Tax-Exempt Bond Fund* $1,313,476 California Municipal Fund* $2,887,230 California Insured Intermediate Municipal Fund* $ 923,026 $ 167,066 Money Market Fund $3,964,174 Tax-Exempt Money Market Fund** $ 136,560 $ 36,725 California Money Fund** $ 118,186 $ 44,654
- --------- * The Advisory and Sub-Advisory Agreements for the Funds provide for the direct payment to the Sub-advisors by the Funds. The fees shown above reflect this amendment (i.e., they are net of sub-advisory fees). ** Liquidated November 8, 2005. SUB-ADVISORY FEES The Funds listed below pay to their Sub-advisors a monthly fee at an annual rate of the following percentages of the average net assets of each such Fund:
SUB-ADVISORS/FUNDS FEES - ----------------------------------------------------------------------- ------------------------------- Van Kampen Asset Management California Municipal Fund ............................................. 0.20% of the first $150 million, 0.15% of the next $850 million, 0.125% thereafter California Insured Intermediate Municipal Fund ........................ 0.20% of the first $75 million, 0.125% thereafter Tax-Exempt Bond Fund .................................................. 0.10% of average daily net assets Salomon Brothers Asset Management, Inc. Growth Fund .......................................................... 0.40% of the first $250 million, 0.35% of the next $250 million, 0.30% thereafter* Janus Capital Management LLC Growth Fund ........................................................... 0.40% of the first $250 million, 0.35% of the next $500 million, 0.30% of the next $750 million, 0.25% thereafter* Oppenheimerfunds, Inc. Growth Fund ........................................................... 0.40% of the first $150 million, 0.375% of the next $150 million, 0.35% of the next $200 million, 0.30% thereafter** Capital Guardian Trust Company International Growth Fund ............................................. [ ]
Delaware Management Company Small Cap Growth Fund ................................................. 0.60% of the first $250 million, 0.50% of the next $250 million, 0.40% thereafter** Oberweis Asset Management, Inc. Small Cap Growth Fund ................................................. 0.60% of the first $250 million, 0.50% of the next $250 million, 0.40% thereafter**
- ------------- * Assets of the WM Variable Trust Growth Fund are included with the assets of the Growth Fund for purposes of determining fees. ** Assets of the WM Variable Trust Small Cap Growth Fund are included with the assets of the Small Cap Growth Fund for determining fees. *** Subject to the following fee aggregation policies: For fee purposes, asset aggregation will apply to all accounts of (i) the Fund, (ii) any other investment company advised by WM Advisors or any of its affiliates, (iii) any pension or employee benefit plan sponsored by WM Advisors or any of its affiliates or (iv) WM Advisors or its affiliates that are managed by Capital Guardian Trust Company or its affiliates for emerging markets equity investments and investments in other funds with internally charged fees ("Eligible Accounts"). In order to achieve the benefit of asset aggregation, the combined actual fees must exceed the combined total of the minimum fee applicable to each Eligible Accounts. For Eligible Accounts with the same investment objectives and guidelines, all assets for these Eligible Accounts will be aggregated for fee calculation purposes. For Eligible Accounts with different investment objectives and guidelines: 1. Each Eligible Account will be charged on the first $10 million at the initial breakpoint rate for the appropriate mandate. Any incremental assets over $10 million will be aggregated and charged at the incremental rate for the appropriate mandate. 2. Assets invested in commingled funds will be aggregated and charged at the incremental rate for the appropriate mandate. 3. The first additional account within a new country will be charged on the first $15 million at the initial breakpoint rate for the appropriate mandate. Any incremental assets over $15 million will be aggregated and charged at the incremental rate for the appropriate mandate. For asset aggregation purposes, Eligible Accounts will be aggregated in the following order: balanced, equity-developed markets, convertible, fixed-income - -- high yield, fixed-income -- emerging markets, and fixed-income -- developed markets. The benefit from asset aggregation, if any, will be calculated by comparing total aggregated fees to total unaggregated fees for all Eligible Accounts. The resulting percentage discount will be applied to each Eligible Account's unaggregated fees. If all Eligible Accounts are not denominated in the same currency, the local currency assets of each Eligible Account and the related fees calculated on an unaggregated basis will be converted to U.S. dollars using the applicable foreign exchange rate. The total of such fees will be compared to the Eligible Accounts' total aggregated fees. The resulting percentage discount will then be applied to each Eligible Account's unaggregated fee as determined in U.S. dollars. The following fee discount will be applied based upon the total aggregated fees paid by all accounts of (i) the Fund, (ii) any other investment company advised by WM Advisors or any of its affiliates, (iii) any pension or employee benefit plan sponsored by WM Advisors or any of its affiliates or (iv) WM Advisors or its affiliates that are managed by Capital Guardian Trust Company or its affiliates: Aggregate Fees between $1.25 million to $4 million .................... 5% discount Aggregate Fees between $4 million to $8 million ....................... 7.5% discount Aggregate Fees between $8 million to $12 million ...................... 10% discount Aggregate Fees over $12 million ....................................... 12.5% discount
For this purpose, aggregated fees will include all fees from separate accounts, commingled funds, and funds internally charged fees managed by Capital Guardian Trust Company and its affiliates, except for investments in American Funds' mutual funds. The resulting fee discount percentage will be applied to each account's fees (excluding fees related to investments in funds with internally charged fees). For clients whose total aggregated fees (before discounts) exceed $3 million, fee breakpoints will be eliminated and each account will be charged at the lowest marginal fee rate applicable to the account's fee schedule. To determine the applicable fee discount level and breakpoint elimination threshold, the total aggregated fees for the quarter will be annualized. For this purpose, all local currency fees will be converted to a designated base currency. Fees related to investments in funds with internally charged fees will be estimated by multiplying the quarter end value of the account (adjusted on a prorated basis for any contributions or withdrawals during the quarter) by the fund's effective fee. For this purpose, the effective fee will be based on the value of the fund's quarter end assets and the fund's current fee schedule. Applicable discount levels and the elimination of fee breakpoints will be effective beginning with the first quarter a discount threshold is exceeded and will remain in effect unless the total fees fall below the discount threshold due to a significant withdrawal of assets. A decline in market value alone will not cause the reinstatement of a lower discount level or fee breakpoints. For the three most recent fiscal years, the Sub-advisors were paid the following sub-advisory fees:
FEES PAID FISCAL YEAR ENDED OCTOBER 31, 2005 2004 2003 ------- --------- ----------- Growth Fund ........................................................... [ ] $4,666,633 $2,720,528 International Growth Fund ............................................. [ ] $1,835,791 $1,052,152 Tax-Exempt Bond Fund .................................................. [ ] $ 240,727 $ 266,054 California Municipal Fund ............................................. [ ] $ 782,346 $ 943,289 California Insured Intermediate Municipal Fund ........................ [ ] $ 259,220 $ 287,743
The Investment Advisory Fees are allocated among the classes of shares proportionately based on relative net assets. ADDITIONAL INFORMATION REGARDING THE ADVISOR [TO BE UPDATED] The table below identifies, as of October 31, 2004, (i) the Funds (other than the Money Market Fund) or Portfolios managed by each of WM Advisors' portfolio managers; (ii) the number of other registered investment companies managed by WM Advisors' portfolio managers, the total assets of such companies, and the number and total assets of such companies with respect to which the advisory fee is based on performance; (iii) the number of other pooled investment vehicles managed by WM Advisors' portfolio managers, the total assets of such vehicles, and the number and total assets of such vehicles with respect of which the advisory fee is based on performance; and (iv) the number of other accounts managed by WM Advisors' portfolio managers, the number and total assets of such accounts, and the number and total assets of such accounts with respect to which the advisory fee is based on performance. The following information represents the number and total assets of all accounts managed by each portfolio manager as of October 31, 2004, other than the Portfolios and Funds included in this statement of additional information. None of the accounts pay performance-based advisory fees.
OTHER REGISTERED OTHER INVESTMENT COMPANIES POOLED ACCOUNTS TOTAL TOTAL PORTFOLIO MANAGER/ ASSETS ASSETS OTHER PORTFOLIO OR FUND NUMBER ($MILLIONS) NUMBER ($MILLIONS) ACCOUNTS - ----------------------------------------------------------------- ------ ------------ ----- ------------ -------- Daniel R. Coleman/ .............................................. Mid Cap Stock Fund 1 99.2 0 0 None Philip M. Foreman/ .............................................. 1 108.2 0 0 None West Coast Equity Fund John Freidl/ .................................................... 0 0 2 4,606.8 None Income Fund Michael Meighan/ ................................................ 7 2.173.6 0 0 None Each of the Portfolios Gary J. Pokrzywinski/ ........................................... 3 812.4 0 0 None Income Fund High Yield Fund David W. Simpson/ ............................................... 1 38.2 0 0 None REIT Fund Small Cap Value Fund Craig V. Sosey/ ................................................. 2 311.3 0 0 None Short Term Income Fund U.S. Government Securities Fund Stephen Q. Spencer/ ............................................. 1 252.4 0 0 None Growth & Income Fund Joseph T. Suty/ ................................................. Equity Income Fund Randall Yoakum/ ................................................. 7 2,173.6 0 0 None Each of the Portfolios
COMPENSATION OF PORTFOLIO MANAGERS WM Advisors believes that its portfolio managers should be compensated primarily based on their success in helping investors achieve their goals. Portfolio managers employed by WM Advisors receive a fixed salary as well as incentive-based compensation. Salary is based on a variety of factors, including seniority. All portfolio managers are eligible to participate in the firm's standard health and welfare programs, including retirement plans. A national survey of compensation for investment advisers is used as reference when determining salary. The incentive-based portion of the portfolio managers' compensation is determined by an evaluation of their professional performance and investment performance. Professional performance is assessed by reference to a portfolio manager's satisfaction of goals related to compliance, team contribution, quality and intensity of research, distribution support and annuity asset management, and is inherently subjective. Investment performance is based on a comparison of the portfolio managers' investment performance with the performance of peer groups as determined by Lipper, Inc. Each portfolio manager's investment performance is based on the percentile rankings of the Funds or Portfolios for which the manager is primarily responsible as well as the Funds or Portfolios to whose management the manager contributes, with the performance of the primary Funds or Portfolios being weighted more heavily. Twenty-five percent of the incentive-based compensation is credited to a deferred compensation account with a three-year vesting schedule. The value of this account is adjusted as though the account had been invested directly in the Funds or Portfolios for which the portfolio manager is primarily responsible as well as the Funds or Portfolios to whose management the portfolio manager contributes, with the primary Funds or Portfolios being weighted more heavily. This is intended to help align the portfolio manager's economic interests with those of the shareholders of the applicable Fund or Portfolio. In addition, certain portfolio managers receive an additional amount that is placed in a deferred compensation account identical to the previously described deferred compensation account except that the amount in the account vests after three years instead of one-third vesting each year. OWNERSHIP OF SHARES BY PORTFOLIO MANAGERS [TO BE UPDATED] The table below shows the dollar range of equity securities of the Funds (other than the Money Market Fund) or Portfolios beneficially owned as of October 31, 2004, by each portfolio manager of such Funds or Portfolios. As described above, portfolio managers employed by WM Advisors earn deferred compensation that is deposited in an account the value of which is adjusted as though the account had been invested in the relevant Funds or Portfolios. The last column shows the dollar range of this account for each portfolio manager with respect to the particular Funds or Portfolios as of October 31, 2004.
DOLLAR RANGE OF NOTIONAL DOLLAR RANGE INVESTMENT THROUGH PORTFOLIO MANAGER/ OF SHARES DEFERRED COMPENSATION PORTFOLIO OR FUND OWEND ACCOUNT - ------------------------------------------------------------------ ------------ ----------------------- Daniel R. Coleman/ Mid Cap Stock Fund .......................................... B D Philip M. Foreman/ West Coast Equity Fund ...................................... C C John Freidl/ Income Fund ................................................. None None Michael Meighan/ Flexible Income Portfolio ................................... None None Conservative Balanced Portfolio ............................. None None Balanced Portfolio. ......................................... A D Conservative Growth Portfolio ............................... B None Strategic Growth Portfolio .................................. None None Gary J. Pokrzywinski/ Income Fund ................................................. None C High Yield Fund ............................................................. C None David W. Simpson/ REIT Fund ................................................... Small Cap Value Fund ........................................ B B Craig V. Sosey/ Short Term Income Fund ...................................... None B U.S. Government Securities Fund ............................. None B Stephen Q. Spencer/ Growth & Income Fund ........................................ B D Joseph T. Suty/ Equity Income Fund .......................................... Randall Yoakum/ Flexible Income Portfolio ................................... None None Conservative Balanced Portfolio ............................. None None Balanced Portfolio .......................................... D D Conservative Growth Portfolio ............................... None None Strategic Growth Portfolio .................................. None None A -$1-$10,000 B -$10,001-$50,000 C -$50,001-$100,000 D -$100,001-$500,000 E -$500,001-$1,000,000 over $1,000,000
ADDITIONAL INFORMATION REGARDING THE SUB-ADVISORS CAPITAL GUARDIAN TRUST COMPANY: As of October 31, 2004 [TO BE UPDATED] Accounts Managed by Portfolio Managers
REGISTERED INVESTMENT OTHER POOLED INVESTMENT COMPANIES VEHICLES TOTAL TOTAL OTHER ACCOUNTS NUMBER OF ASSETS NUMBER OF ASSETS NUMBER OF TOTALS ASSETS PORTFOLIO MANAGERS ACCOUNTS (IN BILLIONS) ACCOUNTS (IN BILLIONS) ACCOUNTS (IN BILLIONS) - ------------------ --------- ------------- --------- ------------- --------- ------------- Fisher, David [ ] [ ] [ ] [ ] [ ] [ ] Gromadzki, Arthur [ ] [ ] [ ] [ ] [ ] [ ] Havas, Richard [ ] [ ] [ ] [ ] [ ] [ ] Kwak, Seung [ ] [ ] [ ] [ ] [ ] [ ] Kyle, Nancy [ ] [ ] [ ] [ ] [ ] [ ] Mant, John [ ] [ ] [ ] [ ] [ ] [ ] Reed, Chris [ ] [ ] [ ] [ ] [ ] [ ] Sauvage, Lionel [ ] [ ] [ ] [ ] [ ] [ ] Sikorsky, Nilly [ ] [ ] [ ] [ ] [ ] [ ] Staehelin, Rudolf [ ] [ ] [ ] [ ] [ ] [ ]
1 Assets noted represent the total net assets of registered investment companies and are not indicative of the total assets managed. 2 Assets noted represent the total net assets of other pooled investment vehicles and are not indicative of the total assets managed. 3 Assets noted represent the total net assets of other accounts and are not indicative of the total assets managed. WM TRUST II, INTERNATIONAL GROWTH FUND CAPITAL GUARDIAN TRUST COMPANY As of October 31, 2004 [TO BE UPDATED] Accounts with Performance-based Fees Managed by Portfolio Managers
REGISTERED INVESTMENT OTHER POOLED INVESTMENT COMPANIES VEHICLES TOTAL TOTAL OTHER ACCOUNTS NUMBER OF ASSETS NUMBER OF ASSETS NUMBER OF TOTALS ASSETS PORTFOLIO MANAGERS ACCOUNTS (IN BILLIONS) ACCOUNTS (IN BILLIONS) ACCOUNTS (IN BILLIONS) - ------------------ --------- ------------- --------- ------------- --------- ------------- Fisher, David [ ] [ ] [ ] [ ] [ ] [ ] Gromadzki, Arthur [ ] [ ] [ ] [ ] [ ] [ ] Havas, Richard [ ] [ ] [ ] [ ] [ ] [ ] Kwak, Seung [ ] [ ] [ ] [ ] [ ] [ ] Kyle, Nancy [ ] [ ] [ ] [ ] [ ] [ ] Mant, John [ ] [ ] [ ] [ ] [ ] [ ] Reed, Chris [ ] [ ] [ ] [ ] [ ] [ ] Sauvage, Lionel [ ] [ ] [ ] [ ] [ ] [ ] Sikorsky, Nilly [ ] [ ] [ ] [ ] [ ] [ ] Staehelin, Rudolf [ ] [ ] [ ] [ ] [ ] [ ]
1 Assets noted represent the total net assets of registered investment companies and are not indicative of the total assets managed. 2 Assets noted represent the total net assets of other pooled investment vehicles and are not indicative of the total assets managed. 3 Assets noted represent the total net assets of other accounts and are not indicative of the total assets managed. COMPENSATION Capital Guardian Trust Company ("CGTC") uses a system of multiple portfolio managers in managing the International Growth Fund's assets. (In addition, CGTC's investment analysts may make investment decisions with respect to a portion of a fund's portfolio within their research coverage). Portfolio managers and investment analysts are paid competitive salaries. In addition, they receive bonuses based on their individual portfolio results. In order to encourage a long-term focus, bonuses based on investment results are calculated by comparing pretax total returns over a four-year period to relevant benchmarks. For portfolio managers, benchmarks include both measures of the marketplaces in which the relevant fund invests and measures of the results of comparable mutual funds. For investment analysts, benchmarks include both relevant market measures and appropriate industry indexes reflecting their areas of expertise. Analysts are also separately compensated for the quality of their research efforts. The benchmarks used to measure performance of the portfolio managers for the International Growth Fund include, as applicable, an adjusted Morgan Stanley Capital International ("MSCI") EAFE Index, an adjusted Lipper International Index, an adjusted MSCI Europe Index, a customized index based on the median results with respect to Europe from Callan Associates, Evaluation Associates and Frank Russell, an adjusted MSCI Japan Index and a customized index based on the median results with respect to Japan from InterSEC. Investment professionals may also participate in profit-sharing plans and ownership of The Capital Group Companies, CGTC's ultimate parent company. As of October 31, 2004, none of CGTC's portfolio managers for the International Growth Fund owned shares of the International Growth Fund. DELAWARE MANAGEMENT COMPANY: The following chart lists certain information about types of other accounts for which the portfolio manager is primarily responsible as of December 31, 2005. [TO BE UPDATED]
NO. OF TOTAL ASSETS ACCOUNTS IN WITH ACCOUNTS WITH NO. OF PERFORMANCE PERFORMANCE ACCOUNTS TOTAL ASSETS BASED FEES BASED FEES -------- ------------ ----------- ------------- Marshall T. Bassett Registered ...................................................... [ ] [ ] [ ] [ ] Investment Companies Other Pooled ............................... [ ] [ ] [ ] [ ] Investment Vehicles Other Accounts* ............................. [ ] [ ] [ ] [ ] Steven T. Lampe Registered ...................................................... [ ] [ ] [ ] [ ] Investment Companies Other Pooled ............................... [ ] [ ] [ ] [ ] Investment Vehicles Other Accounts * ............................ [ ] [ ] [ ] [ ] Matthew Todorow Registered ...................................................... [ ] [ ] [ ] [ ] Investment Companies Other Pooled ............................... [ ] [ ] [ ] [ ] Investment Vehicles Other Accounts * ............................ [ ] [ ] [ ] [ ] Lori P. Wachs Registered ...................................................... [ ] [ ] [ ] [ ] Investment Companies Other Pooled ............................... [ ] [ ] [ ] [ ] Investment Vehicles Other Accounts* ............................. [ ] [ ] [ ] [ ]
- ---------- * These accounts include managed accounts, representing a total of 1,952 underlying accounts. COMPENSATION STRUCTURE The compensation of each of Delaware's portfolio managers consists of the following: BASE SALARY. Each named portfolio manager receives a fixed base salary. Salaries are determined by a comparison to industry benchmarking data prepared by third parties to ensure that portfolio manager salaries are in line with salaries paid at peer investment advisory firms. BONUS. Each named portfolio manager is eligible to receive an annual bonus. The amount available in the bonus pool is based on the management team's assets under management minus any direct expenses (expenses associated with product and investment management team). Certain portfolio managers may receive a guaranteed quarterly payment of a portion of this bonus. The distribution of the bonus pool to individual team members is determined within the discretion of Delaware. DEFERRED COMPENSATION. Each named portfolio manager is eligible to participate in the Lincoln National Corporation Executive Deferred Compensation Plan, which is available to all employees whose income exceeds a designated threshold. The Plan is a non-qualified unfunded deferred compensation plan that permits participating employees to defer the receipt of a portion of their cash compensation. STOCK OPTION INCENTIVE PLAN/PERFORMANCE SHARE INCENTIVE PLAN. Portfolio managers may be awarded options to purchase common shares of Delaware Investments U.S., Inc. pursuant to the terms the Delaware Investments U.S., Inc. Stock Option Plan, an unqualified plan, or may be awarded performance shares in Lincoln National Corporation. Delaware Investments U.S., Inc., is an indirect, wholly-owned subsidiary of Delaware Management Holdings, Inc. Delaware Management Holdings, Inc., is in turn a wholly-owned, indirect subsidiary of Lincoln National Corporation. The Delaware Investments U.S., Inc. Stock Option Plan was established in 2001 in order to provide certain Delaware investment personnel with a more direct means of participating in the growth of the investment manager. Under the terms of the plan, stock options typically vest in 25% increments on a four-year schedule and expire ten years after issuance. Options are awarded from time to time by Delaware in its full discretion. Option awards may be based in part on seniority. In 1997, Lincoln National Corporation established an equity compensation plan under which certain employees were awarded options to purchase common shares in Lincoln National Corporation and other similar equity-based compensation, including performance shares. Employees participating in the equity compensation plan were required to forfeit the right to participate in the Delaware Investments U.S., Inc., stock option plan. Under the plan, managers are required to allocate equity compensation awards among employees according to certain limited percentages. The performance shares have a three-year vesting schedule and the amount received under the performance shares is a function of Lincoln's share price at the time of vesting relative to the target price set at the time of issuance of the shares. Equity compensation awards are issued from time to time by Delaware in its full discretion. OTHER COMPENSATION. Portfolio managers may also participate in benefit plans and programs available generally to all employees. OWNERSHIP OF SECURITIES As of December 31, 2004, none of Delaware's portfolio managers for the Small Cap Growth Fund owned shares of the Small Cap Growth Fund. JANUS CAPITAL MANAGEMENT LLC: [TO BE UPDATED] ACCOUNTS/FUNDS MANAGED. As of December 31, 2004, Mr. Pinto managed [ ] mutual funds with a total of [$] in assets; [ ] pooled investment vehicles other than mutual funds with a total of [$] in assets; and 30 other accounts with a total of [$] in assets ([ ] of which other accounts, with [$] in assets, pay performance-based fees). SHARE OWNERSHIP. As of December 31, 2004, Mr. Pinto did not own shares of the Growth Fund. COMPENSATION The following describes the structure and method of calculating Mr. Pinto's compensation as of [January 1, 2005]. Mr. Pinto is compensated by Janus Capital for managing the Fund and any other funds, portfolios or accounts managed by the portfolio manager (collectively, the "Managed Funds ") through two components: fixed compensation and variable compensation. FIXED COMPENSATION. Fixed compensation is paid in cash and is comprised of an annual base salary and an additional amount calculated based on factors such as the complexity of managing funds and other accounts, scope of responsibility (including assets under management), tenure and long-term performance as a portfolio manager. VARIABLE COMPENSATION. Variable compensation is paid in the form of cash and long-term incentive awards (consisting of Janus Capital Group Inc. restricted stock, stock options and a cash deferred award aligned with Janus fund shares). Variable compensation is structured to pay the portfolio manager primarily on individual performance, with additional compensation available for team performance and a lesser component based on net asset flows in the Managed Funds. Variable compensation is based on pre-tax performance of the Managed Funds. The portfolio manager's individual performance compensation is determined by applying a multiplier tied to the Managed Funds' aggregate asset-weighted Lipper peer group performance ranking for one- and three-year performance periods, if applicable, with a greater emphasis on three year results. The multiplier is applied against the portfolio manager's fixed compensation. The portfolio manager is also eligible to receive additional individual performance compensation if the Managed Funds achieve a certain rank in their Lipper peer performance groups in each of three, four, or five consecutive years. Mr. Pinto's compensation is also subject to reduction in the event that the Managed Funds incur material negative absolute performance, and he will not be eligible to earn any individual performance compensation if the Managed Funds' performance does not meet or exceed a certain ranking in their Lipper peer performance group. Mr. Pinto is also eligible to participate with other Janus equity portfolio managers in a team performance compensation pool which is derived from a formula tied to the team's aggregate asset-weighted Lipper peer group performance ranking for the one-year performance period. Such compensation is then allocated among eligible individual equity portfolio managers at the discretion of Janus Capital. No team performance compensation is paid to any equity portfolio manager if the aggregate asset-weighted team performance for the one-year period does not meet or exceed a certain rank in the relevant Lipper peer group. Mr. Pinto may elect to defer payment of a designated percentage of fixed compensation and/or up to all variable compensation in accordance with the Janus Executive Income Deferral Program. The Growth Fund's Lipper peer group for compensation purposes is the Large-Cap Growth Funds. OBERWEIS ASSET MANAGEMENT, INC.: [TO BE UPDATED] As of December 31, 2004, Mr. Oberweis managed [ ] mutual funds with a total of [$] in assets; [ ] pooled investment vehicles other than mutual funds with a total of [$] in assets; and [ ] other accounts with a total of [$] in assets ([ ] of which other accounts, with [$] in assets, pay performance-based fees). OBERWEIS ASSET MANAGEMENT, INC. (OAM) offers its investment professionals a competitive compensation package consisting of a base, an incentive-based fee, and equity ownership. Typically, the base comprises the smallest component of the overall compensation package. Incentive fees are computed based on product composite results compared to their appropriate benchmarks based on rolling 1-year and 3-year returns relative to the appropriate benchmarks (i.e. Russell 2000(R) Growth Index for Small-Cap Growth Equity), with a heavier weighting on 3-year returns. Most of the incentive reward is quantitatively defined in advance. A smaller percentage of the incentive program includes a subjectively evaluated bonus for team spirit, mentoring of less experienced team members, and outstanding client service. To ensure long-term commitment, a significant portion of Mr. Oberweis' compensation is linked to equity ownership in OAM. Senior executives and key investment professionals are also equity investors in OAM. Investment professional bonuses are based on the OAM Composite results relative to their respective benchmarks. SHARE OWNERSHIP. Mr. Oberweis does not own shares of the Small Cap Growth Fund. OPPENHEIMERFUNDS, INC.: [TO BE UPDATED] William L. Wilby and Marc L. Baylin are the portfolio managers primarily responsible for the day-to-day management of the portion of the Growth Fund's portfolio that is managed by OppenheimerFunds, Inc. ( "Oppenheimer "). OTHER ACCOUNTS MANAGED. The following table provides information relating to other accounts managed by Messrs. Wilby and Baylin as of October 31, 2004. None of these accounts has a performance-based advisory fee:
REGISTERED OTHER POOLED INVESTMENT INVESTMENT OTHER COMPANIES VEHICLES ACCOUNTS ----------- ------------ --------- William L. Wilby Other Accounts Managed [ ] [ ] [ ] Total Assets Managed [ ] [ ] [ ] Marc L. Baylin Other Accounts Managed [ ] [ ] [ ] Total Assets Managed [ ] [ ] [ ]
- ---------------- * In thousands. Messrs. Wilby and Baylin are also responsible for the management of other funds. At times, those responsibilities could potentially conflict with the interests of the Fund. This may occur whether the Fund and the other funds have the same or different investment objectives and strategies. For example the portfolio managers may need to allocate favorable investment opportunities between funds with similar objectives. Or they may need to execute transactions for another fund that could have a negative impact on the value of securities held by the Fund. Not all funds advised by the Oppenheimer have the same advisory fee. If the advisory fee structure of another fund is more advantageous than the fee structure of the Fund, it could potentially influence fund management to favor the other fund. The Fund's and Oppenheimer's compliance procedures and code of ethics are designed to preclude any such conflict from affecting the Fund's investments or performance, but may not always be adequate to do so. At the current time, Messrs. Wilby and Baylin only manage other funds with investment objectives and strategies that are similar to those of the Fund. However, they may manage funds or accounts with different investment objectives and strategies in the future. SHARE OWNERSHIP. As of October 31, 2004, Messrs. Wilby and Baylin did not beneficially own any shares of the Fund. COMPENSATION. As of October 31, 2004, Messrs. Wilby and Baylin's compensation consisted of three elements: base salary, an annual bonus and long-term awards of options and appreciation rights in regard to the Manager's common stock. The Oppenheimer compensation structure is designed to attract and retain highly qualified investment management professionals and to reward individual and team contributions toward creating shareholder value. The base pay level of each Oppenheimer portfolio manager is regularly reviewed to ensure that it reflects the requirements of the particular portfolio, any specific competence or specialty of the individual manager, and is in line with other comparable positions. Each Oppenheimer portfolio manager's annual bonus is based on a number of factors, including: pre-tax fund performance, for periods of up to five years, against the Lipper benchmark applicable to the fund; management quality (such as style consistency, risk management, sector coverage, team leadership and coaching); and organizational development. The compensation structure is also intended to be internally equitable, which serves to reduce potential conflicts of interest between the Fund and other funds managed by the portfolio manager. The compensation structure of the other funds managed by Messrs. Wilby and Baylin is the same as the compensation structure of the Fund. The Lipper index used to calculate their annual bonus is the Lipper Large-Cap Core index. SALOMON BROTHERS ASSET MANAGEMENT, INC.: [TO BE UPDATED] The table below identifies the number of accounts (other than the Fund with respect to which information is provided) for which Alan Blake has day-to-day management responsibilities and the total assets in such accounts, within each of the following categories: registered investment companies, other pooled investment vehicles, and other accounts. None of the accounts pay performance-based advisory fees. Unless noted otherwise, all information is provided as of December 31, 2004.
REGISTERED OTHER POOLED PORTFOLIO INVESTMENT INVESTMENT FUND MANAGER(S) COMPANIES VEHICLES OTHER ACCOUNTS - ---- ---------- ------------- ------------- --------------- Growth Fund .......................................... Alan Blake [ ] Registered None [ ] other accounts investment with [$] billion in companies with total assets under [$] billion in management total assets under management.
Citigroup Asset Management ("CAM") controls Salomon Brothers Asset Management, Inc. CAM investment professionals, including Mr. Blake, receive base salary and other employee benefits and are eligible to receive incentive compensation. Base salary is typically determined based on market factors and the skill and experience of individual investment personnel. CAM has recently implemented an investment management incentive and deferred compensation plan (the "Plan") for its investment professionals, including Mr. Blake. Each investment professional works as a part of an investment team. The Plan is designed to align the objectives of CAM investment professionals with those of fund shareholders and other CAM clients. Under the Plan a "base incentive pool" is established for each team each year as a percentage of CAM's revenue attributable to the team (largely management and related fees generated by funds and other accounts). A team's revenues are typically expected to increase or decrease depending in part on the effect that the team's investment performance has on the level of assets in the investment products managed by the team. The "base incentive pool" of a team is reduced by base salaries paid to members of the team and employee benefits expenses attributable to the team. The investment team's incentive pool is then adjusted to reflect the team's investment performance against the applicable product benchmark (e.g., a securities index) and its ranking among a "peer group" of non-CAM investment managers. Longer-term performance will be more heavily weighted than shorter-term performance in the calculation of the performance adjustment factor. The incentive pool for a team may also be adjusted to reflect other factors (e.g., severance pay to departing members of the team, and discretionary allocations by the applicable CAM chief investment officer from one investment team to another). The incentive pool will be allocated by the applicable CAM chief investment officer to the team leader and, based on the recommendations of the team leader, to the other members of the team. Up to 40% of an investment professional's annual incentive compensation is subject to deferral. Amounts deferred will accrue a return based on the hypothetical returns of a composite of CAM's investment products (where deemed appropriate, approximately half of the deferred amount will accrue a return based on the return of products managed by the applicable investment team). An additional portion of awarded incentive compensation may be received in the form of Citigroup stock or options to purchase common stock. Citigroup may from time to time offer other stock purchase or option programs to investment personnel. PORTFOLIO MANAGER SECURITIES OWNERSHIP. As of 12/31/04, Mr. Blake did not own shares of the Growth Fund. VAN KAMPEN ASSET MANAGEMENT: [TO BE UPDATED] OTHER ACCOUNTS MANAGED BY THE PORTFOLIO MANAGERS As of December 31, 2004, Thomas Byron managed [ ] mutual funds with a total of [$] in assets; no pooled investment vehicles other than mutual funds; and no other accounts. As of December 31, 2004, Joseph Piraro managed [ ] mutual funds with a total of [$] in assets; no pooled investment vehicles other than mutual funds; and no other accounts. None of the mutual funds managed by Messrs. Byron and Piraro pay performance-based fees to Van Kampen. PORTFOLIO MANAGER COMPENSATION STRUCTURE Portfolio managers receive a combination of base compensation and discretionary compensation, comprising a cash bonus and several deferred compensation programs described below. The methodology used to determine portfolio manager compensation is applied across all accounts managed by the portfolio manager. BASE SALARY COMPENSATION. Generally, portfolio managers receive base salary compensation based on the level of their position with Van Kampen. DISCRETIONARY COMPENSATION. In addition to base compensation, portfolio managers may receive discretionary compensation. Discretionary compensation can include: - Cash Bonus; - Morgan Stanley's Equity Incentive Compensation Program (EICP) awards -- a mandatory program that defers a portion of discretionary year-end compensation into restricted stock units or other awards based on Morgan Stanley common stock that are subject to vesting and other conditions; - Investment Management Deferred Compensation Plan (IMDCP) awards -- a mandatory program that defers a portion of discretionary year-end compensation and notionally invests it in designated funds advised by Van Kampen or its affiliates. The award is subject to vesting and other conditions. Portfolio managers must notionally invest a minimum of 25% to a maximum of 50% of the IMDCP deferral into a combination of the designated funds they manage that are included in the IMDCP fund menu, which may or may not include the Funds; - Select Employees' Capital Accumulation Program (SECAP) awards -- a voluntary program that permits employees to elect to defer a portion of their discretionary compensation and notionally invest the deferred amount across a range of designated investment funds, including funds advised by Van Kampen or its affiliates; and - Voluntary Equity Incentive Compensation Program (VEICP) awards -- a voluntary program that permits employees to elect to defer a portion of their discretionary compensation to invest in Morgan Stanley stock units. Several factors determine discretionary compensation, which can vary by portfolio management team and circumstances. In order of relative importance, these factors include: - Investment performance. A portfolio manager's compensation is linked to the pre-tax investment performance of the accounts managed by the portfolio manager. Investment performance is calculated for one-, three- and five-year periods measured against a fund's primary benchmark (as set forth in the fund's prospectus), indices and/or peer groups. Generally, the greatest weight is placed on the three- and five-year periods. - Revenues generated by the investment companies, pooled investment vehicles and other accounts managed by the portfolio manager. - Contribution to the business objectives of Van Kampen. - The dollar amount of assets managed by the portfolio manager. - Market compensation survey research by independent third parties. - Other qualitative factors, such as contributions to client objectives. - Performance of Morgan Stanley and Morgan Stanley Investment Management, and the overall performance of the Global Investor Group, a department within Morgan Stanley Investment Management that includes all investment professionals. Occasionally, to attract new hires or to retain key employees, the total amount of compensation will be guaranteed in advance of the fiscal year end based on current market levels. In limited circumstances, the guarantee may continue for more than one year. The guaranteed compensation is based on the same factors as those comprising overall compensation described above. SECURITIES OWNERSHIP OF PORTFOLIO MANAGERS As of December 31, 2004, Thomas Byron and Joseph Piraro did not own any shares of the California Municipal, California Insured intermediate Municipal and Tax-Exempt Bond Funds. DESCRIPTION OF MATERIAL CONFLICTS OF INTEREST Material conflicts of interest may arise when a Fund's portfolio manager also has day-to-day management responsibilities with respect to one or more other funds or other accounts, as is the case for certain of the portfolio managers listed in the table above. These potential conflicts include: ALLOCATION OF LIMITED TIME AND ATTENTION. A portfolio manager who is responsible for managing multiple funds and/or accounts may devote unequal time and attention to the management of those funds and/or accounts. As a result, the portfolio manager may not be able to formulate as complete a strategy or identify equally attractive investment opportunities for each of those accounts as might be the case if he or she were to devote substantially more attention to the management of a single fund. The effects of this potential conflict may be more pronounced where funds and/or accounts overseen by a particular portfolio manager have different investment strategies. ALLOCATION OF LIMITED INVESTMENT OPPORTUNITIES. If a portfolio manager identifies a limited investment opportunity that may be suitable for multiple funds and/or accounts, the opportunity may be allocated among these several funds or accounts, which may limit a fund's ability to take full advantage of the investment opportunity. PURSUIT OF DIFFERING STRATEGIES. At times, a portfolio manager may determine that an investment opportunity may be appropriate for only some of the funds and/or accounts for which he or she exercises investment responsibility, or may decide that certain of the funds and/or accounts should take differing positions with respect to a particular security. In these cases, the portfolio manager may place separate transactions for one or more funds or accounts which may affect the market price of the security or the execution of the transaction, or both, to the detriment or benefit of one or more other funds and/or accounts. SELECTION OF BROKERS/DEALERS. Portfolio managers may be able to select or influence the selection of the brokers and dealers that are used to execute securities transactions for the funds and/or account that they supervise. In addition to executing trades, some brokers and dealers provide portfolio managers with brokerage and research services (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934), which may result in the payment of higher brokerage fees than might have otherwise been available. These services may be more beneficial to certain funds or accounts than to others. Although the payment of brokerage commissions is subject to the requirement that the portfolio manager determine in good faith that the commissions are reasonable in relation to the value of the brokerage and research services provided to the fund, a portfolio manager's decision as to the selection of brokers and dealers could yield disproportionate costs and benefits among the funds and/or accounts that he or she manages. VARIATION IN COMPENSATION. A conflict of interest may arise where the financial or other benefits available to the portfolio manager differ among the funds and/or accounts that he or she manages. If the structure of the investment adviser's management fee and/or the portfolio manager's compensation differs among funds and/or accounts (such as where certain funds or accounts pay higher management fees or performance-based management fees), the portfolio manager might be motivated to help certain funds and/or accounts over others. The portfolio manager might be motivated to favor funds and/or accounts in which he or she has an interest or in which the investment advisor and/or its affiliates have interests. Similarly, the desire to maintain assets under management or to enhance the portfolio manager's performance record or to derive other rewards, financial or otherwise, could influence the portfolio manager in affording preferential treatment to those funds and/or accounts that could most significantly benefit the portfolio manager. RELATED BUSINESS OPPORTUNITIES. WM Advisors, a Sub-Advisor or an affiliate of either may provide more services (such as distribution or recordkeeping) for some types of funds or accounts than for others. In such cases, a portfolio manager may benefit, either directly or indirectly, by devoting disproportionate attention to the management of fund and/or accounts that provide greater overall returns to the investment manager and its affiliates. WM Advisors and each Sub-Adviser have adopted trade allocation and other policies and procedures that it believes are reasonably designed to address these and other conflicts of interest. TRANSFER AGENT FEES. Shareholder Services has provided transfer agency and other shareholder services to each of the Portfolios and Funds since March 20, 1998. Shareholder Services provides transfer agency and other services incidental to issuance and transfer of shares, maintenance of shareholder lists, and issuance and mailing distributions and reports. In its capacity as transfer agent, Shareholder Services may charge a fee for special services, such as providing historical account documents, that are beyond the normal scope of its services. Shareholder Services is a wholly owned subsidiary of Washington Mutual, Inc. and is located at 1201 Third Avenue, 22nd Floor, Seattle, Washington 98101. For the three most recent fiscal years, the Trusts paid Shareholder Services the following administration and/or transfer agent fees: [TO BE UPDATED]
FISCAL YEAR ENDED OCTOBER 31, 2005 2004 2003 ---- ---- ---- Flexible Income Portfolio [ ] $ 483,452 $ 364,879 Conservative Balanced Portfolio [ ] $ 240,964 $ 134,258 Balanced Portfolio [ ] $1,776,387 $1,182,605 Conservative Growth Portfolio [ ] $1,700,134 $1,148,617 Strategic Growth Portfolio [ ] $1,298,056 $ 891,721 REIT Fund [ ] $ 24,429 $ 4,892 Equity Income Fund [ ] $ 539,839 $ 447,042 Growth & Income Fund [ ] $ 806,359 $ 893,894 West Coast Equity Fund [ ] $ 836,531 $ 810,534 Mid Cap Stock Fund [ ] $ 106,174 $ 94,686 Growth Fund [ ] $1,026,151 $1,212,867 Small Cap Value Fund [ ] $ 2,628 N/A Small Cap Growth Fund [ ] $ 342,285 $ 361,978 International Growth Fund [ ] $ 110,68 $ 119,708 Short Term Income Fund [ ] $ 117,232 $ 103,826 U.S. Government Securities Fund [ ] $ 401,649 $ 532,533 Income Fund [ ] $ 348,665 $ 375,679 High Yield Fund [ ] $ 137,975 $ 95,069 Tax-Exempt Bond Fund [ ] $ 102,680 $ 123,215 California Municipal Fund [ ] $ 160,468 $ 204,546 California Insured Intermediate Municipal Fund [ ] $ 50,555 $ 60,572 Money Market Fund [ ] $ 432,573 $ 538,231 Tax-Exempt Money Market Fund [ ] $ 18,033 $ 23,457 California Money Fund [ ] $ 21,221 $ 24,701
* Shareholder Services waived the entire amount of its fee in 2003 and 2004. In 2005, Shareholder Services engaged Boston Financial Data Services ("BFDS") to perform certain sub-administrative services for the Portfolios and the Funds. For the three most recent fiscal years, Shareholder Services paid the following amounts to PFPC for sub-administrative services to the Portfolios and Funds. [TO BE UPDATED]
FISCAL YEAR ENDED OCTOBER 31, 2005 2004 2003 ---- ---- ---- Flexible Income Portfolio [ ] $ 24,873 $182,630 Conservative Balanced Portfolio [ ] $118,219 $ 55,817 Balanced Portfolio [ ] $898,389 $518,516 Conservative Growth Portfolio [ ] $709,285 $411,848 Strategic Growth Portfolio [ ] $400,183 $219,296 REIT Fund [ ] $ 84,176 $ 32,130 Equity Income Fund [ ] $393,264 $241,537 Growth & Income Fund [ ] $609,136 $446,897 West Coast Equity Fund [ ] $372,618 $260,427 Mid Cap Stock Fund [ ] $187,418 $107,656 Growth Fund [ ] $399,537 $236,320 Small Cap Value Fund [ ] $ 48,388 N/A Small Cap Growth Fund [ ] $113,759 $ 90,911 International Growth Fund [ ] $152,918 $ 84,206 Short Term Income Fund [ ] $ 84,753 $ 66,500 U.S. Government Securities Fund [ ] $435,899 $335,651 Income Fund [ ] $354,380 $314,509 High Yield Fund [ ] $212,915 $145,363 Tax-Exempt Bond Fund [ ] $ 76,704 $ 89,995 California Municipal Fund [ ] $150,271 $195,629 California Insured Intermediate Municipal Fund [ ] $ 51,750 $ 62,369 Money Market Fund [ ] $253,096 $298,280 Tax-Exempt Money Market Fund [ ] $ 8,581 $ 10,282 California Money Fund [ ] $ 7,388 $ 8,898
CUSTODIAN The Custodian for the Portfolios and Funds is Mellon Trust of New England, National Association, which is located at One Boston Place, Boston, Massachusetts 02108. COUNSEL Ropes & Gray LLP, located at One International Place, Boston, Massachusetts 02110, serves as counsel to the Trusts and the Independent Trustees of the Trusts. INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM AND FINANCIAL STATEMENTS Deloitte & Touche LLP, 200 Berkeley St., Boston, MA 02116, serves as Independent Registered Public Accounting Firm to each of the Portfolios and Funds, providing audit services, tax return review and other tax consulting services and assistance and consultation in connection with the review of various filings with the Securities and Exchange Commission. The financial statements, financial highlights and the Reports of Independent Registered Public Accounting Firm of Deloitte & Touche LLP for each of the Portfolios and Funds contained in the Portfolios' and the Funds' Annual Report for the fiscal period ended October 31, 2005 are hereby incorporated by reference. The financial statements incorporated by reference into this SAI have been audited by Deloitte & Touche LLP and have been so included in reliance on such Reports, given on the authority of Deloitte & Touche LLP as experts in accounting and auditing. INVESTMENT OBJECTIVES AND POLICIES The prospectus discusses the investment objective or objectives of each of the Portfolios and Funds and the policies to be employed to achieve such objectives. The following section contains supplemental information to the prospectus concerning the types of securities and other instruments in which the Portfolios and Funds may invest, the investment policies and portfolio strategies that the Portfolios and Funds may utilize and certain risks attendant to such investments, policies and strategies. RATINGS AS INVESTMENT CRITERIA. In general, the ratings of nationally recognized statistical rating organizations ("NRSROs"), such as Moody's Investors Services, Inc. ("Moody's"), Standard & Poor's ("S&P") and Fitch Ratings ("Fitch"), represent the opinions of these agencies as to the quality of securities which they rate. It should be emphasized, however, that such ratings are relative and subjective and are not absolute standards of quality. These ratings will be used as initial criteria for the selection of applicable portfolio securities, but the Funds will also rely upon the independent advice of the Advisor or their respective Sub-advisors. Appendix A to this SAI contains further information concerning the ratings of these services and their significance. To the extent that the rating given by Moody's, S&P or Fitch for securities may change as a result of changes in such organizations or their rating systems, the Advisor will attempt to use comparable ratings as standards for its investments in accordance with each Fund's investment policies contained in the Prospectus and in this SAI. U.S. GOVERNMENT SECURITIES. U.S. government securities include debt obligations of varying maturities issued or guaranteed by the U.S. government, its agencies or instrumentalities. U.S. government securities include, but are not necessarily limited to, direct obligations of the U.S. Treasury, and securities issued or guaranteed by the Federal Housing Administration, Farmers Home Administration, Export-Import Bank of the United States, Small Business Administration, Government National Mortgage Association ("GNMA"), General Services Administration, Central Bank for Cooperatives, Federal Farm Credit Banks, Federal Home Loan Banks, Federal Home Loan Mortgage Corporation ("FHLMC"), Federal Intermediate Credit Banks, Resolution Trust Corporation, Federal Land Banks, Federal National Mortgage Association ("FNMA"), Maritime Administration, Tennessee Valley Authority, District of Columbia Armory Board and Student Loan Marketing Association. Direct obligations of the U.S. Treasury include a variety of securities that differ in their interest rates, maturities and dates of issuance. Because the U.S. government is not obligated by law to provide support to an instrumentality it sponsors, a Fund will invest in obligations issued by such an instrumentality only if the Advisor or the Fund's Sub-advisor determines that the credit risk with respect to the instrumentality does not make its securities unsuitable for investment by the Fund. ILLIQUID SECURITIES AND RESTRICTED SECURITIES. These securities generally cannot be sold or disposed of in the ordinary course of business at approximately the value at which the Fund has valued the investments within seven days. This may have an adverse effect upon the Fund's ability to dispose of the particular securities at fair market value and may limit the Fund's ability to obtain accurate market quotations for purposes of valuing the securities and calculating the net asset value of shares of the Fund. The Funds may also purchase securities that are not registered under the Securities Act of 1933, as amended (the "Securities Act"), but that can be sold to qualified institutional buyers in accordance with Rule 144A under the Securities Act ("Rule 144A securities"). Rule 144A securities generally must be sold to other qualified institutional buyers. If a particular investment in Rule 144A securities is not determined to be liquid either upon acquisition or due to subsequent lack of institutional buyers, that investment will be treated as an illiquid security. BANK OBLIGATIONS. Domestic commercial banks organized under federal law are supervised and examined by the Comptroller of the Currency and are required to be members of the Federal Reserve System and to be insured by the Federal Deposit Insurance Corporation (the "FDIC"). Domestic banks organized under state law are supervised and examined by state banking authorities but are members of the Federal Reserve System only if they elect to join. Most state banks are insured by the FDIC (although such insurance may not be of material benefit to a Fund, depending upon the principal amount of certificates of deposit ("CDs") of each state bank held by a Fund) and are subject to federal examination and to a substantial body of federal law and regulation. As a result of federal and state laws and regulations, domestic branches of domestic banks are, among other things, generally required to maintain specific levels of reserves, and are subject to other supervision and regulation designed to promote financial soundness. Obligations of foreign branches of U.S. banks and of foreign branches of foreign banks, such as CDs and time deposits ("TDs"), may be general obligations of the parent bank in addition to the issuing branch, or may be limited by the terms of a specific obligation and governmental regulation. Obligations of foreign branches of U.S. banks and foreign banks are subject to the risks associated with investing in foreign securities generally. Foreign branches of U.S. banks and foreign branches of foreign banks are not necessarily subject to the same or similar regulatory requirements that apply to U.S. banks, such as mandatory reserve requirements, loan limitations and accounting, auditing and financial recordkeeping requirements. In addition, less information may be publicly available about a foreign branch of a U.S. bank or about a foreign bank than about a U.S. bank. Obligations of U.S. branches of foreign banks may be general obligations of the parent bank in addition to the issuing branch, or may be limited by the terms of a specific obligation and by federal and state regulation as well as governmental action in the country in which the foreign bank has its head office. A U.S. branch of a foreign bank may or may not be subject to reserve requirements imposed by the Federal Reserve System or by the state in which the branch is located if the branch is licensed in that state. The deposits of branches licensed by certain states may not necessarily be insured by the FDIC. In addition, there may be less publicly available information about a U.S. branch of a foreign bank than about a U.S. bank. In view of the foregoing factors associated with the purchase of CDs and TDs issued by foreign banks and foreign branches of U.S. banks, the Advisor or the Funds' respective Sub-advisors will carefully evaluate such investments on a case-by-case basis. A Fund may purchase a CD, TD or bankers' acceptance issued by a bank, savings and loan association or other banking institution with less than $1 billion in assets (a "Small Issuer Bank Obligation") only so long as the issuer is a member of the FDIC or supervised by the Office of Thrift Supervision (the "OTS") and so long as the principal amount of the Small Issuer Bank Obligation is fully insured by the FDIC and is no more than $100,000. Each of the Funds will at any one time hold only one Small Issuer Bank Obligation from any one issuer. Savings and loan associations whose CDs, TDs and bankers' acceptances may be purchased by the Funds are supervised by the OTS and insured by the Savings Association Insurance Fund, which is administered by the FDIC and is backed by the full faith and credit of the United States government. As a result, such savings and loan associations are subject to regulation and examination. MORTGAGE-BACKED SECURITIES. The mortgage-backed securities in which the Funds may invest include those classified as governmental or government-related. Governmental mortgage-backed securities are backed by the full faith and credit of the United States. GNMA, the principal U.S. guarantor of such securities, is a wholly-owned U.S. government corporation within the Department of Housing and Urban Development. Government-related mortgage-backed securities which are not backed by the full faith and credit of the United States include those issued by FNMA and FHLMC. FNMA is a government-sponsored corporation owned entirely by private stockholders, which is subject to general regulation by the Secretary of Housing and Urban Development. Pass-through securities issued by FNMA are guaranteed as to timely payment of principal and interest by FNMA. FHLMC is a corporate instrumentality of the U.S., the stock of which is owned by the Federal Home Loan Banks. Participation certificates representing interests in mortgages from FHLMC's national portfolio are guaranteed as to the timely payment of interest and ultimate collection of principal by FHLMC. Entities may create mortgage loan pools offering pass-through investments in addition to those described above. The mortgages underlying these securities may be alternative mortgage instruments, that is, mortgage instruments in which principal or interest payments may vary or terms to maturity may be shorter than previously customary. As new types of mortgage-backed securities are developed and offered to investors, the Funds will, consistent with their respective investment objectives and policies, consider making investments in such securities. Subject to the investment restrictions and policies stated elsewhere in the Prospectus and this SAI, Funds may invest in collateralized mortgage obligations. A collateralized mortgage obligation ("CMO") is a hybrid between a mortgage-backed bond and a mortgage pass-through security. Similar to a bond, interest and prepaid principal is paid, in most cases, on a monthly basis. CMOs may be collateralized by whole mortgage loans, but are more typically collateralized by portfolios of mortgage pass-through securities guaranteed by GNMA, FHLMC, or FNMA, and their income streams. CMOs are structured into multiple classes, each bearing a different stated maturity. Actual maturity and average life will depend upon the prepayment experience of the collateral. CMOs provide for a modified form of call protection through a de facto breakdown of the underlying pool of mortgages according to how quickly the loans are repaid. Monthly payment of principal received from the pool of underlying mortgages, including prepayments, is first returned to investors holding the shortest maturity class. Investors holding the longer maturity classes receive principal only after the first class has been retired. An investor is partially guarded against a sooner than desired return of principal because of the sequential payments. The average maturity of pass-through pools of mortgage-backed securities varies with the maturities of the underlying mortgage instruments. In addition, a pool's stated maturity may be shortened by unscheduled payments on the underlying mortgages. Factors affecting mortgage prepayments include the level of interest rates, general economic and social conditions, the location of the mortgaged property and the age of the mortgage. Because prepayment rates of individual mortgage pools vary widely, it is not possible to accurately predict the average life of a particular pool. Common industry practice, for example, is to assume that prepayments will result in a 5- to 8-year average life for pools of current coupon fixed rate 30-year mortgages. Pools of mortgages with other maturities or different characteristics will have varying average life assumptions. REPURCHASE AGREEMENTS. The Funds may invest in repurchase agreements. The California Municipal Fund may invest no more than 20%, in the aggregate, of its assets in repurchase agreements and certain other securities or instruments, but this 20% limit does not apply to investments for temporary defensive purposes. The Equity Income, Growth & Income, West Coast Equity, Income, Tax-Exempt Bond, Money and Money Market Funds may enter into repurchase agreements with brokers, dealers and banks to temporarily invest cash reserves, provided that repurchase agreements maturing in greater than 7 days do not exceed 10% of each Fund's total assets. WHEN-ISSUED SECURITIES, FORWARD COMMITMENTS AND DELAYED DELIVERY TRANSACTIONS. A segregated account in the name of the Fund consisting of cash or other liquid assets equal to the amount of when-issued or delayed-delivery commitments will be established at the Trusts' Custodian. For the purpose of determining the adequacy of the securities in the accounts, the deposited securities will be valued at market or fair value. If the market or fair value of the securities declines, additional cash or securities will be placed in the account daily so that the value of the account will equal the amount of such commitments by the Fund. On the settlement date, the Fund will meet its obligations from then-available cash flow, the sale of securities held in the segregated account, the sale of other securities or, although it would not normally expect to do so, from the sale of securities purchased on a when-issued or delayed-delivery basis themselves (which may have a greater or lesser value than the Fund's payment obligations). STRATEGIC TRANSACTIONS. Subject to the investment limitations and restrictions for each of the Funds stated elsewhere in this SAI and in the Prospectus, each of the Portfolios and Funds, except for the Money Market Fund, may utilize various investment strategies as described below to hedge various market risks, to manage the effective maturity or duration of fixed-income securities or for other bona fide hedging purposes and may also use such investment strategies to seek potentially higher returns. No Portfolio or Fund currently intends to enter into strategic transactions, excluding strategic transactions that are "covered" or entered into for bona fide hedging purposes, that are in the aggregate principal amount in excess of 15% of the Fund's net assets. The Portfolios and Funds may enter into multiple transactions, including multiple options transactions, multiple futures transactions, multiple foreign currency transactions (including forward foreign currency exchange contracts) and any combination of futures, options and foreign currency transactions (each separately, a "component" transaction), instead of a single transaction, as part of a single strategy when, in the opinion of the Advisor or the Sub-advisor, it is in the best interest of the Portfolio or Fund to do so. A combined transaction may contain elements of risk that are present in each of its component transactions. The use of strategic transactions involves special considerations and risks. Additional risks pertaining to particular strategies that make up strategic transactions are described below. Successful use of most strategic transactions depends upon the Advisor or the Sub-advisor's ability to predict movements of the overall securities and interest rate markets, which requires different skills than predicting changes in the prices of individual securities. There can be no assurance that any particular strategy adopted will succeed. There may be imperfect correlation, or even no correlation, between price movements of strategic transactions and price movements of the related portfolio or currency positions. Such a lack of correlation might occur due to factors unrelated to the value of the related portfolio or currency positions, such as speculative or other pressures on the markets in which strategic transactions are traded. In addition, a Portfolio or Fund might be required to maintain assets as "cover," maintain segregated accounts or make margin payments when it takes positions in strategic transactions involving obligations to third parties (i.e., strategic transactions other than purchased options). These requirements might impair the Fund's ability to sell a portfolio security or currency position or make an investment at a time when it would otherwise be favorable to do so, or require that the Fund sell a portfolio security or currency position at a disadvantageous time. SWAPS, CAPS, FLOORS AND COLLARS. Subject to the investment limitations and restrictions for each of the Funds stated elsewhere in the SAI and in the Prospectus, each of the Portfolios and Fixed-Income Funds, except for the Money Market Fund, may enter into interest rate, currency, credit default and index swaps and the purchase or sale of related caps, floors and collars. A Fund may enter into these transactions primarily to preserve a return or spread on a particular investment or portion of its portfolio, to protect against currency fluctuations, as a duration management technique, to protect against any increase in the price of securities the Fund anticipates purchasing at a later date or to seek potentially higher returns. A Fund will use these transactions as hedges or for investment purposes and will not sell interest rate caps or floors where it does not own securities or other instruments providing the income stream the Fund may be obligated to pay. Interest rate swaps involve the exchange by a Fund with another party of their respective commitments to pay or receive interest, e.g., an exchange of floating rate payments for fixed rate payments with respect to a notional amount of principal. A currency swap is an agreement to exchange cash flows on a notional amount of two or more currencies based on the relative value differential among them and an index swap is an agreement to swap cash flows on a notional amount based on changes in the values of the reference indices. In a credit default swap, the seller agrees to pay the par (or other agreed-upon) value of a referenced debt obligation to the counterparty in the event of a default or similar triggering event. In return, the seller of a credit default swap receives from the buyer a periodic stream of payments over the term of the contract provided that no event of default or similar triggering event has occurred. The purchase of a cap entitles the purchaser to receive payments on a notional principal amount from the party selling such cap to the extent that a specified index exceeds a predetermined interest rate or amount. The purchase of a floor entitles the purchaser to receive payments on a notional principal amount from the party selling such floor to the extent that a specified index falls below a predetermined interest rate or amount. A collar is a combination of a cap and a floor that preserves a certain return within a predetermined range of interest rates or value. A Fund will usually enter into swaps on a net basis, i.e., the two payment streams are netted out in a cash settlement on the payment date or dates specified in the instrument, with the Fund receiving or paying, as the case may be, only the net amount of the two payments. Inasmuch as these swaps, caps, floors and collars are entered into for good faith hedging purposes or are offset by a "covering" position or the Fund has segregated liquid assets sufficient to meet its obligations under such transactions, the Advisor and the Trusts believe that such obligations do not constitute senior securities under the 1940 Act and, accordingly, will not treat them as being subject to the Fund's borrowing restrictions. If there is a default by the counterparty, a Fund may have contractual remedies pursuant to the agreements related to the transaction. Caps, floors and collars are relatively recent innovations for which standardized documentation has not yet been fully developed and, accordingly, they may be less liquid. FUTURES ACTIVITIES. Each of the Funds permitted to engage in strategic transactions within WM Trust II, and the REIT, Mid Cap Stock, Small Cap Value, High Yield, and U.S. Government Securities Funds and each of the Portfolios may enter into futures contracts and options on futures contracts that are traded on a U.S. exchange or board of trade. The Income and Tax-Exempt Bond Funds may purchase and sell interest rate futures and options. These investments may be made by the Fund involved for the purpose of hedging against changes in the value of its portfolio securities due to anticipated changes in interest rates and market conditions, and for otherwise permitted strategic transactions. In the case of the California Municipal and the California Insured Intermediate Municipal Funds, such investments will be made only in unusual circumstances, such as when that Funds' Advisor or Sub-advisor anticipates an extreme change in interest rates or market conditions. The ability of a Fund to trade in futures contracts and options on futures contracts may be materially limited by the requirement of the Internal Revenue Code of 1986, as amended (the "Code"), applicable to a regulated investment company. See "Taxes" below. FUTURES CONTRACTS. An interest rate futures contract provides for the future sale by one party and the purchase by the other party of a certain amount of a specific financial instrument (debt security) at a specified price, date, time and place. A bond index futures contract is an agreement pursuant to which two parties agree to take or make delivery of an amount of cash equal to the difference between the value of the index at the close of the last trading day of the contract and the price at which the index contract was originally written. No physical delivery of the underlying securities in the index is made. The purpose of entering into a futures contract by a Portfolio or Fund is to protect the Portfolio or Fund from fluctuations in the value of its securities caused by anticipated changes in interest rates or market conditions without necessarily buying or selling the securities. For example, if the California Municipal Fund or the California Insured Intermediate Municipal Fund owns long-term bonds and tax-exempt rates are expected to increase, these Funds might enter into futures contracts to sell a municipal bond index. Such a transaction would have much the same effect as a Fund's selling some of the long-term bonds in its portfolio. If tax-exempt rates increase as anticipated, the value of certain long-term municipal obligations in the portfolio would decline, but the value of the Fund's futures contracts would increase at approximately the same rate, thereby keeping the net asset value of the Fund from declining as much as it otherwise would have. Because the value of portfolio securities will far exceed the value of the futures contracts entered into by a Fund, an increase in the value of the futures contract would only mitigate -- but not totally offset - -- the decline in the value of the portfolio. No consideration is paid or received by a Fund upon entering into a futures contract. Initially, a Portfolio or Fund would be required to deposit with the broker an amount of cash or cash equivalents equal to approximately 1% to 10% of the contract amount (this amount is subject to change by the board of trade on which the contract is traded and members of such board of trade may charge a higher amount). This amount is known as "initial margin" and is in its nature the equivalent of a performance bond or good faith deposit on the contract, which is returned to a Portfolio or Fund upon termination of the futures contract, assuming all contractual obligations have been satisfied. Subsequent payments, known as "variation margins," to and from the broker will be made daily as the price of the index or securities underlying the futures contract fluctuates. This makes the long and short positions in the futures contract more or less valuable, a process known as "marking-to-market." At any time prior to the expiration of a futures contract, a Portfolio or Fund may elect to close the position by taking an opposite position, which will operate to terminate the Portfolio's or Fund's existing position in the contract. There are several associated risks with using futures contracts as a hedging device. Successful use of futures contracts by a Fund is subject to the ability of the Advisor or the Sub-advisor to correctly predict movements in the direction of interest rates or changes in market conditions. These predictions involve skills and techniques that may be different from those involved in the management of the portfolio being hedged. In addition, there can be no assurance that there will be a correlation between movements in the price of the underlying index or securities and movements in the price of the securities which are the subject of the hedge. A decision of whether, when and how to hedge involves the exercise of skill and judgment, and even a well-conceived hedge may be unsuccessful to some degree because of market behavior or unexpected trends in interest rates. Although the Portfolios and the Funds intend to enter into futures contracts only if there is an active market for such contracts, there is no assurance that an active market will exist for the contracts at any particular time. Most U.S. 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. It is possible that futures contract prices would move to the daily limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of futures positions and subjecting some futures traders to substantial losses. In such event, and in the event of adverse price movements, a Portfolio or Fund would be required to make daily cash payments of variation margin. In such circumstances, an increase in the value of the portion of the portfolio being hedged, if any, may partially or completely offset losses on the futures contract. However, as described above, there is no guarantee that the price of the securities being hedged will, in fact, correlate with the price movements in a futures contract and thus provide an offset to losses on the futures contract. To ensure that transactions constitute bona fide hedges in instances involving the purchase or sale of a futures contract, the Portfolios or Funds will be required to either (1) segregate sufficient cash or liquid assets to cover the outstanding position or (2) cover the futures contract by either owning the instruments underlying the futures contract or by holding a portfolio of securities with characteristics substantially similar to the underlying index or stock index comprising the futures contract or by holding a separate option permitting it to purchase or sell the same futures contract. Because of the imperfect correlation between the movements in the price of underlying indexes or stock indexes of various futures contracts and the movement of the price of securities in the Portfolios' or Funds' assets, the Portfolios and Funds will periodically make adjustments to its index futures contracts positions to appropriately reflect the relationship between the underlying portfolio and the indexes. The Portfolios and Funds will not maintain short positions in index or stock index futures contracts, options written on index or stock index futures contracts and options written on indexes or stock indexes, if in the aggregate, the value of these positions exceeds the current market value of its securities portfolio plus or minus the unrealized gain or loss on those positions, adjusted for the historical volatility relationship between the portfolio and the index contracts. OPTIONS ON FUTURES CONTRACTS. An option on a futures contract, as contrasted with the direct investment in such a contract, gives the purchaser the right, in return for the premium paid, to assume a position in the futures contract at a specified exercise price at any time prior to the expiration date of the option. Upon exercise of an option, the delivery of the futures position by the writer of the option to the holder of the option will be accompanied by delivery of the accumulated balance in the writer's futures margin account, which represents the amount by which the market price of the futures contract exceeds, in the case of a call, or is less than, in the case of a put, the exercise price of the option on the futures contract. The value of the option can change daily and that change would be reflected in the net asset value of the Fund or Portfolio holding the option. When engaging in strategic transactions, the Portfolios and the Funds may purchase and write put and call options on futures contracts that are traded on a U.S. exchange or board of trade as a hedge against changes in the value of its portfolio securities, and may enter into closing transactions with respect to such options to terminate existing positions. There is no guarantee that such closing transactions can be effected. There are several risks relating to options on futures contracts. The ability to establish and close out positions on such options will be subject to the existence of a liquid market. In addition, the purchase of put or call options will be based upon predictions as to anticipated interest rate and market trends by the Advisor or the Sub-advisors, which could prove to be inaccurate. Even if the expectations of the Advisor or the Sub-advisors are correct, there may be an imperfect correlation between the change in the value of the options and the portfolio securities hedged. OPTIONS ON SECURITIES. The REIT, Equity Income, Growth & Income, West Coast Equity, Mid Cap Stock, Growth, Small Cap Value, Small Cap Growth, International Growth, Short Term Income and California Insured Intermediate Municipal Funds may buy and sell covered put (except for the Equity Income, Growth & Income and West Coast Equity Funds) and call options on securities. Options written by a Fund will normally have expiration dates between one and nine months from the date written. The exercise price of the options may be below, equal to or above the market values of the underlying securities at the times the options are written. In the case of call options, these exercise prices are referred to as "in-the-money," "at-the-money" and "out-of-the-money," respectively. A Fund may write (1) in-the-money call options when the Advisor or its Sub-advisor expects that the price of the underlying security will remain flat or decline moderately during the option period, (2) at-the-money call options when the Advisor or its Sub-advisor expects that the price of the underlying security will remain flat or advance moderately during the option period and (3) out-of-the-money call options when the Advisor or its Sub-advisor expects that the premiums received from writing the call option plus the appreciation in the market price of the underlying security up to the exercise price will be greater than the appreciation in the price of the underlying security alone. In any of the preceding situations, if the market price of the underlying security declines and the security is sold at this lower price, the amount of any realized loss will be offset wholly or in part by the premium received. Out-of-the-money, at-the-money and in-the- money put options (the reverse of call options as to the relation of exercise price to market price) may be utilized in the same market environments as such call options described above. So long as the obligation of the Fund as the writer of an option continues, the Fund may be assigned an exercise notice by the broker-dealer through which the option was sold, requiring the Fund to deliver, in the case of a call, or take delivery of, in the case of a put, the underlying security against payment of the exercise price. This obligation terminates when the option expires or the Fund effects a closing purchase transaction. The Fund can no longer effect a closing purchase transaction with respect to an option once it has been assigned an exercise notice. To secure its obligation to deliver the underlying security when it writes a call option, or to pay for the underlying security when it writes a put option, the Fund will be required to deposit in escrow the underlying security or other assets in accordance with the rules of the Options Clearing Corporation (the "OCC") and of the securities exchange on which the option is written. An option may be closed out only when there exists a secondary market for an option of the same series on a recognized securities exchange or in the over-the-counter market. In light of this fact and because of current trading conditions, the Fund expects to purchase or write call or put options issued by the OCC, except that options on U.S. government securities may be purchased or written in the over-the-counter market. Over-the-counter options can be closed out only by agreement with the primary dealer in the transaction. Any over-the-counter option written by a Fund will be with a qualified dealer pursuant to an Agreement under which the Fund may repurchase the option at a formula price at which the Fund would have the absolute right to repurchase an over-the-counter option it has sold. Such options will generally be considered illiquid in an amount equal to the formula price, less the amount by which the option is "in-the-money." In the event of the insolvency of the primary dealer, the Fund may not be able to liquidate its position in over-the-counter options, and the inability of the Fund to enter into closing purchase transactions on options written by the Fund may result in a material loss to the Fund. A Fund may realize a profit or loss upon entering into closing transactions. In cases where the Fund has written an option, it will realize a profit if the cost of the closing purchase transaction is less than the premium received upon writing the original option, and will incur a loss if the cost of the closing purchase transaction exceeds the premium received upon writing the original option. Similarly, when the Fund has purchased an option and engages in a closing sale transaction, the Fund will realize a profit or loss to the extent that the amount received in the closing sale transaction is more or less than the premium the Fund initially paid for the original option plus the related transaction costs. To facilitate closing transactions, a Fund will generally purchase or write only those options for which the Advisor or its Sub-advisor believes there is an active secondary market although there is no assurance that sufficient trading interest to create a liquid secondary market on a securities exchange will exist for any particular option or at any particular time, and for some options no such secondary market may exist. A liquid secondary market in an option may cease to exist for a variety of reasons. In the past, for example, higher than anticipated trading activity or order flow, or other unforeseen events, have at times rendered certain of the facilities of the OCC and the securities exchanges inadequate and resulted in the institution of special procedures, such as trading rotations, restrictions on certain types of orders or trading halts or suspensions in one or more options. There can be no assurance that similar events, or events that may otherwise interfere with the timely execution of customers' orders, will not recur. In such events, it might not be possible to effect closing transactions in particular options. If, as a covered call option writer the Fund is unable to effect a closing purchase transaction in a secondary market, it will not be able to sell the underlying security until the option expires or it delivers the underlying security upon exercise. Securities exchanges have established limitations governing the maximum number of calls and puts of each class which may be held or written, or exercised within certain time periods, by an investor or group of investors acting in concert (regardless of whether the options are written on the same or different securities exchanges or are held, written or exercised in one or more accounts or through one or more brokers). It is possible that the particular Fund and other clients of the Advisor and its Sub-advisors and certain of their affiliates may be considered to be such a group. A securities exchange may order the liquidation of positions found to be in violation of these limits and it may impose certain other sanctions. In the case of options written by a Fund that are deemed covered by virtue of the Fund's holding convertible or exchangeable preferred stock or debt securities, the time required to convert or exchange and obtain physical delivery of the underlying security with respect to which the Fund has written options may exceed the time within which the Fund must make delivery in accordance with an exercise notice. In these instances, the Fund may purchase or temporarily borrow the underlying securities for purposes of physical delivery. By so doing, the Fund will not bear any market risk, since the Fund will have the absolute right to receive from the issuer of the underlying security an equal number of shares to replace the borrowed stock. The Fund may however, incur additional transaction costs or interest expenses in connection with any such purchase or borrowing. Additional risks exist with respect to mortgage-backed U.S. government securities for which the Fund may write covered call options. If a Fund writes covered call options on a mortgage-backed security, the security that it holds as cover may, because of scheduled amortization of unscheduled prepayments, cease to be sufficient cover. In such an instance, the Fund will compensate by purchasing an appropriate additional amount of mortgage-backed securities. OPTIONS ON SECURITIES INDEXES. The REIT, Mid Cap Stock, Growth, Small Cap Value, Small Cap Growth, International Growth, Short Term Income and California Insured Intermediate Municipal Funds may also purchase and sell call and put options on securities indexes. Such options give the holder the right to receive a cash settlement during the term of the option based upon the difference between the exercise price and the value of the index. Options on securities indexes entail risks in addition to the risks of options on securities. Because exchange trading of options on securities indexes is relatively new, the absence of a liquid secondary market to close out an option position is more likely to occur, although the Fund generally will purchase or write such an option only if the Advisor or its Sub-advisor believes the option can be closed out. Use of options on securities indexes also entails the risk that trading in such options may be interrupted if trading in certain securities included in the index is interrupted. The Fund will not purchase such options unless the Advisor or its Sub-advisor believes the market is sufficiently developed for the risk of trading in such options to be no greater than the risk of trading in options on securities. Price movements in the Fund's portfolio may not correlate precisely with movements in the level of an index and, therefore, the use of options on securities indexes cannot serve as a complete hedge. Because options on securities indexes require settlement in cash, the Fund may be forced to liquidate portfolio securities to meet settlement obligations. FOREIGN CURRENCY EXCHANGE TRANSACTIONS. The REIT, Mid Cap Stock, Growth, Small Cap Value, Small Cap Growth, International Growth, Short Term Income, Income and High Yield Funds may engage in currency exchange transactions to protect against uncertainty in the level of future exchange rates. The Funds may use forward currency exchange contracts to hedge either specific transactions or portfolio positions. Transaction hedging is the purchase or sale of forward foreign currency with respect to specific receivables or payables of the Fund generally arising in connection with the purchase or sale of its portfolio securities. Position hedging is the sale of forward foreign currency with respect to portfolio security positions denominated or quoted in such foreign currency. A Fund may not position a hedge with respect to a particular currency to an extent greater than the aggregate market value (at the time of making such sale) of the securities held in its portfolio denominated or quoted in or currently convertible into that particular currency. In addition, the Funds may use foreign currency forward contracts in an effort to profit from favorable currency movements. If a Fund enters into a position hedging transaction, the Trusts' Custodian will, except in circumstances where segregated accounts are not required by the 1940 Act and the rules adopted thereunder, place cash or other liquid assets in a segregated account for the Fund in an amount at least equal to the value of the Fund's total assets committed to the consummation of the forward contract. For each forward foreign currency exchange contract that is used to hedge a securities position denominated in a foreign currency, but for which the hedging position no longer provides, in the opinion of the Advisor or the Sub-advisor, sufficient protection to consider the contract to be a hedge, the Fund maintains with the Custodian a segregated account of cash or other liquid assets in an amount at least equal to the portion of the contract that is no longer sufficiently covered by such hedge. If the value of the securities placed in the segregated account declines, additional cash or securities will be placed in the account so that the value of the account will equal the amount of the Fund's unhedged exposure (in the case of securities denominated in a foreign currency) or commitment with respect to the contract. Hedging transactions may be made from any foreign currency into U.S. dollars or into other appropriate currencies. At or before the maturity of a forward contract, a Fund may either sell a portfolio security and make delivery of the currency, or retain the security and offset its contractual obligation to deliver the currency by purchasing a second contract pursuant to which the Fund will obtain, on the same maturity date, the amount of the currency that it is obligated to deliver. If the Fund retains the portfolio security and engages in an offsetting transaction, the Fund, at the time of execution of the offsetting transaction, will incur a gain or a loss to the extent that movement has occurred in forward contract prices. Should forward prices decline during the period between the Fund's entering into a forward contract for the sale of currency and the date it enters into an offsetting contract for the purchase of the currency, the Fund will realize a gain to the extent the price of the currency it has agreed to sell exceeds the price of the currency it has agreed to purchase. Should forward prices increase, the Fund will suffer a loss to the extent the price of the currency it has agreed to purchase exceeds the price of the currency it has agreed to sell. The cost to a Fund of engaging in currency transactions with factors such as the currency involved, the length of the contract period and the prevailing market conditions. Because transactions in currency exchange are usually conducted on a principal basis, no fees or commissions are involved. The use of forward currency contracts does not eliminate fluctuations in the underlying prices of the securities. If a devaluation of a currency is generally anticipated, a Fund may not be able to contract to sell the currency at a price above the devaluation level it anticipates. The Funds, in addition, may combine forward currency exchange contracts with investments in U.S. securities in an attempt to create a combined investment position, the overall performance of which will be similar to that of a security denominated in the foreign currency. For instance, a Fund could purchase a U.S. government security and at the same time enter into a forward currency exchange contract to exchange U.S. dollars for a foreign currency at a future date. By matching the amount of U.S. dollars to be exchanged with the anticipated value of the foreign currency, the Fund may be able to adopt a synthetic investment position whereby the Fund's overall investment return from the combined position is similar to the return from purchasing a foreign currency-denominated instrument. There is a risk in adopting a synthetic investment position. It is impossible to forecast with absolute precision what the market value of a particular security will be at any given time. If the value of a security denominated in the U.S. dollar or other foreign currency is not exactly matched with a Fund's obligation under a forward currency exchange contract on the date of maturity, the Fund may be exposed to some risk of loss from fluctuations in that currency. Although the Advisor and each Sub-advisor will attempt to hold such mismatching to a minimum, there can be no assurance that the Advisor or the Fund's Sub-advisor will be able to do so. There is less protection against defaults in the forward trading to currencies than there is in trading such currencies on an exchange because such forward contracts are not guaranteed by an exchange or clearing house. The Commodity Futures Trading Commission has indicated that it may assert jurisdiction over forward contracts in foreign currencies and attempt to prohibit certain entities from engaging in such transactions. In the event that such prohibition included the Fund, it would cease trading such contracts. Cessation of trading might adversely affect the performance of a Fund. OPTIONS ON FOREIGN CURRENCIES. The REIT, Mid Cap Stock, Small Cap Value, Growth, International Growth, Short Term Income, Income, High Yield and California Insured Intermediate Municipal Funds may purchase and write put and call options on foreign currencies for the purpose of hedging against declines in the U.S. dollar value of foreign currency-denominated portfolio securities and against increases in the U.S. dollar cost of such securities to be acquired. Such hedging includes cross hedging and proxy hedging where the options to buy or sell currencies involve other currencies besides the U.S. dollar. As one example, a decline in the U.S. dollar value of a foreign currency in which securities are denominated in or exposed to will reduce the U.S. dollar value of the securities, even if their value in the foreign currency remains constant. To protect against diminutions in the value of securities held by a Fund in a particular foreign currency, the Fund may purchase put options on the foreign currency. If the value of the currency does decline, the Fund will have the right to sell the currency for a fixed amount in U.S. dollars and may thereby offset, in whole or in part, the adverse effect on its portfolio that otherwise would have resulted. When an increase in the U.S. dollar value of a currency in which securities to be acquired are denominated in or exposed to is projected, thereby increasing the cost of the securities, the Fund conversely may purchase call options on the currency. The purchase of such options could offset, at least partially, the effects of the adverse movements in exchange rates. As in the case of other types of options, however, the benefit to the Fund deriving from purchases of foreign currency options will be reduced by the amount of the premium and related transaction costs. In addition, if currency exchange rates do not move in the direction or to the extent anticipated, the Fund could sustain losses on transactions in foreign currency options that would require it to forego a portion or all of the benefits of advantageous changes in the rates. The Funds may also write covered call options on foreign currencies for the types of hedging purposes described above. As one example, when the Advisor or Fund's Sub-advisor anticipates a decline in the U.S. dollar value of foreign currency-denominated securities due to adverse fluctuations in exchange rates it could, instead of purchasing a put option, write a covered call option on the relevant currency. If the expected decline occurs, the option will most likely not be exercised, and the diminution in value of portfolio securities will be offset by the amount of the premium received. As in the case of other types of options, however, the writing of a foreign currency option will constitute only a partial hedge up to the amount of the premium, and only if rates move in the expected direction. If this does not occur, the option may be exercised and the Fund would be required to purchase or sell the underlying currency at a loss that may not be offset by the amount of the premium. Through the writing of options on foreign currencies, the Fund may also be required to forego all or a portion of the benefits that might otherwise have been obtained from favorable movements in exchange rates. A call option written on a foreign currency by a Fund is "covered" if the Fund owns the underlying foreign currency covered by the call or has an absolute and immediate right to acquire the foreign currency without additional cash consideration (or for additional cash consideration held in a segregated account by the Fund's Custodian upon conversion or exchange of other foreign currency held by the Fund). A call option also is covered if the Fund has a call on the same foreign currency and in the same principal amount as the call written when the exercise price of the call held (1) is equal to or less than the exercise price of the call written or (2) is greater than the exercise price of the call written if the difference is maintained by the Fund in cash, U.S. Government Securities and other liquid debt securities in a segregated account with the Custodian. Options on foreign currencies traded on national securities exchanges are within the jurisdiction of the SEC, as are other securities traded on those exchanges. As a result, many of the projections provided to traders on organized exchanges will be available with respect to those transactions. In particular, all foreign currency option positions entered into on a national securities exchange are cleared and guaranteed by the OCC, thereby reducing the risk of counterparty default. Further, a liquid secondary market in options traded on a national securities exchange may exist, potentially permitting the Fund to liquidate open positions at a profit prior to their exercise or expiration, or to limit losses in the event of adverse market movements. The purchase and sale of exchange-traded foreign currency options are subject to the risks of the availability of a liquid secondary market described above, as well as the risks regarding adverse market movements, margining of options written, the nature of the foreign currency market, possible intervention by governmental authorities and the effects of other political and economic events. In addition, exercise and settlement of exchange-traded foreign currency options must be made exclusively through the OCC, which has established banking relationships in applicable foreign countries for this purpose. As a result, the OCC may, if it determines that foreign governmental restrictions or taxes would prevent the orderly settlement of foreign currency option exercises, or would result in undue burdens on the OCC or its clearing member, impose special procedures on exercise and settlement, such as technical changes in the mechanics of delivery of currency, the fixing of dollar settlement prices or prohibitions on exercise. SECURITIES IN DEVELOPING COUNTRIES. Although most of the investments of the REIT, Equity Income, Mid Cap Stock, Growth, Small Cap Value, Small Cap Growth, International Growth, Income and High Yield Funds are made in securities of companies in (or governments of) developed countries, the Funds set forth above may also invest in securities of companies in (or governments of) developing or emerging countries (sometimes referred to as "emerging markets"). A developing or emerging country is generally considered to be a country that is in the initial stages of its industrialization cycle. "Developing or Emerging Markets," for the WM Group of Funds, include all countries in Latin America and the Caribbean, all countries in Asia (except Australia, Hong Kong, Japan, New Zealand and Singapore), all countries in Africa and the Middle East, all former Eastern bloc countries, Russia and the Commonwealth of Independent States, and Turkey. Investing in the equity and fixed-income markets of developing or emerging countries involves exposure to economic structures that are generally less diverse and mature, and to political systems that can be expected to have less stability than those of developed countries. Historical experience indicates that the markets of developing or emerging countries have been more volatile than the markets of the more mature economies of developed countries. Price movements in the Fund's portfolio may not correlate precisely with movements in the level of an index and, therefore, the use of options on securities indexes cannot serve as a complete hedge. Because options on securities indexes require settlement in cash, the Fund may be forced to liquidate portfolio securities to meet settlement obligations. LENDING OF PORTFOLIO SECURITIES. Certain of the Funds may lend portfolio securities to brokers and other financial organizations. The Growth, Small Cap Growth, International Growth and Short Term Income Funds each may lend portfolio securities up to 20% of total assets. The REIT, Equity Income, Growth & Income, West Coast Equity, Mid Cap Stock, Small Cap Value, U.S. Government Securities, Income, High Yield and Money Market Funds may lend portfolio securities up to 33% of total assets. Each of these Funds will adhere to the following conditions whenever its portfolio securities are loaned: (1) the Fund must receive at least 100% cash collateral or equivalent securities from the borrower; (2) the borrower must increase the collateral whenever the market value of the securities rises above the level of the collateral; (3) the Fund must be able to terminate the loan at any time; (4) the Fund must receive reasonable interest on the loan, as well as any dividends, interest or other distributions on the loaned securities and any increase in market value; (5) the Fund may pay only reasonable custodian fees in connection with the loan; and (6) voting rights on the loaned securities may pass to the borrower, provided that if a material event adversely affecting the investment occurs, the Trusts' Board of Trustees must terminate the loan and regain the right to vote the securities. From time to time, the Funds may pay a part of the interest earned from the investment of the collateral received for securities loaned to the borrower and/or a third party that is unaffiliated with the Trust and that is acting as a "finder." MUNICIPAL OBLIGATIONS. Municipal obligations are securities, the interest on which qualifies for exclusion from gross income for federal income tax purposes in the opinion of bond counsel to the issuer. The three principal classifications of municipal obligations are municipal bonds, municipal commercial paper and municipal notes. MUNICIPAL BONDS, which generally have a maturity of more than one year when issued, have two principal classifications: general obligation bonds and revenue bonds. An AMT-subject bond is a particular kind of revenue bond. The classifications of municipal bonds and AMT-subject bonds are discussed below. 1. GENERAL OBLIGATION BONDS. The proceeds of these obligations are used to finance a wide range of public projects, including construction or improvement of schools, highways and roads and water and sewer systems. General obligation bonds are secured by the issuer's pledge of its faith, credit and taxing power for the payment of principal and interest. 2. REVENUE BONDS. Revenue bonds are issued to finance a wide variety of capital projects, including: electric, gas, water and sewer systems; highways, bridges and tunnels; port and airport facilities; colleges and universities; and hospitals. The principal security for a revenue bond is generally the net revenues derived from a particular facility, group of facilities, or, in some cases, the proceeds of a special excise or other specific revenue source. Although the principal security behind these bonds may vary, many provide additional security in the form of a debt service reserve fund which may be used to make principal and interest payments on the issuer's obligations. Some authorities provide further security in the form of a state's ability (without obligation) to make up deficiencies in the debt service reserve fund. 3. AMT-SUBJECT BONDS. AMT-subject bonds are considered municipal bonds if the interest paid on them is excluded from gross income for federal income tax purposes and if they are issued by or on behalf of public authorities to raise money to finance, for example, privately operated manufacturing or housing facilities, publicly operated airport, dock, wharf, or mass-commuting facilities. The payment of the principal and interest on these bonds is dependent solely on the ability of the facility's user to meet its financial obligations and the pledge, if any, of real and personal property so financed as security for such payment. MUNICIPAL COMMERCIAL PAPER issues typically represent short-term, unsecured, negotiable promissory notes. These obligations are issued by agencies of state and local governments to finance seasonal working capital needs of municipalities or to provide interim construction financing and are paid from general revenues of municipalities or are refinanced with long-term debt. In most cases, municipal commercial paper is backed by letters of credit, lending agreements, note repurchase agreements or other credit facility agreements offered by banks or other institutions. MUNICIPAL NOTES generally are used to provide for short-term capital needs and generally have maturities of one year or less. Municipal Notes include: 1. TAX ANTICIPATION NOTES. Tax anticipation notes are issued to finance working capital needs of municipalities. Generally, they are issued in anticipation of various seasonal tax revenues, such as income, sales, use and business taxes and are payable from these specific future taxes. 2. REVENUE ANTICIPATION NOTES. Revenue anticipation notes are issued in expectation of receipt of other kinds of revenue, such as federal revenues available under the Federal Revenue Sharing Program. 3. BOND ANTICIPATION NOTES. Bond anticipation notes are issued to provide interim financing until long-term financing can be arranged. In most cases, the long-term bonds provide the money for the repayment of the notes. 4. CONSTRUCTION LOAN NOTES. Construction loan notes are sold to provide construction financing. Permanent financing, the proceeds of which are applied to the payment of construction loan notes, is sometimes provided by a commitment by GNMA to purchase the loan, accompanied by a commitment by the Federal Housing Administration to insure mortgage advances thereunder. In other instances, permanent financing is provided by commitments of banks to purchase the loan. The Tax-Exempt Bond, California Municipal, and California Insured Intermediate Municipal Funds(the "Municipal Funds") will only purchase construction loan notes that are subject to GNMA or bank purchase commitments. From time to time, proposals to restrict or eliminate the federal income tax exemption for interest on municipal obligations have been introduced before Congress. Similar proposals may be introduced in the future. If a proposal to restrict or eliminate the federal tax exemption for interest on municipal obligations were enacted, the availability of municipal obligations for investment by the Municipal Funds would be adversely affected. In such event, the Municipal Funds would reevaluate their respective investment objectives and policies and submit possible changes in the structure of the Funds for the consideration of shareholders. PARTICIPATION INTERESTS. The Municipal Funds may invest in participation interests purchased from banks in floating rate or variable rate municipal obligations (such as AMT-subject bonds) owned by banks. A participation interest gives the purchaser an undivided interest in the municipal security in the proportion that the relevant Fund's participation interest bears to the total principal amount of the municipal security and provides a demand repurchase feature. Each participation is backed by an irrevocable letter of credit or guarantee of a bank that meets the prescribed quality standards of the Fund. A Fund has the right to sell the instrument back to the issuing bank or draw on the letter of credit on demand for all or any part of the Fund's participation interest in the municipal security, plus accrued interest. Banks will retain or receive a service fee, letter of credit fee and a fee for issuing repurchase commitments in an amount equal to the excess of the interest paid on the municipal obligations over the negotiated yield at which the instruments were purchased by the Fund. Participation interests in the form to be purchased by the Fund are new instruments, and no ruling of the Internal Revenue Service has been secured relating to their tax-exempt status. The Funds intend to purchase participation interests based upon opinions of counsel to the issuer to the effect that such derived income is tax-exempt to the Fund. STAND-BY COMMITMENTS. The Municipal Funds may acquire stand-by commitments with respect to municipal obligations held in their respective portfolios. Under a stand-by commitment, a broker-dealer, dealer or bank would agree to purchase, at the relevant Funds' option, a specified municipal security at a specified price. Thus, a stand-by commitment may be viewed as the equivalent of a put option acquired by a Fund with respect to a particular municipal security held in the Fund's portfolio. The amount payable to a Fund upon its exercise of a stand-by commitment normally would be (1) the acquisition cost of the municipal security (excluding any accrued interest that the Fund paid on the acquisition), less any amortized market premium or plus any amortized market or original issue discount during the period the Fund owned the security, plus, (2) all interest accrued on the security since the last interest payment date during the period the security was owned by the Fund. Absent unusual circumstances, the Fund would value the underlying municipal security at amortized cost. As a result, the amount payable by the broker-dealer, dealer or bank during the time a stand-by commitment is exercisable would be substantially the same as the value of the underlying municipal obligation. A Fund's right to exercise a stand-by commitment would be unconditional and unqualified. Although a Fund could not transfer a stand-by commitment, it could sell the underlying municipal security to a third party at any time. It is expected that stand-by commitments generally will be available to the Funds without the payment of any direct or indirect consideration. The Funds may, however, pay for stand-by commitments if such action is deemed necessary. In any event, the total amount paid for outstanding stand-by commitments held in a Fund's portfolio would not exceed 0.50% of the value of a Fund's total assets calculated immediately after each stand-by commitment is acquired. The Funds intend to enter into stand-by commitments only with broker-dealers, dealers or banks that the Advisor or their Sub-advisor believes present minimum credit risks. A Fund's ability to exercise a stand-by commitment will depend upon the ability of the issuing institution to pay for the underlying securities at the time the stand-by commitment is exercised. The credit of each institution issuing a stand-by commitment to a Fund will be evaluated on an ongoing basis by the Advisor or its Sub-advisor in accordance with procedures established by the Board of Trustees. A Fund intends to acquire stand-by commitments solely to facilitate portfolio liquidity and does not intend to exercise its right thereunder for trading purposes. The acquisition of a stand-by commitment would not affect the valuation of the underlying municipal security. Each stand-by commitment will be valued at zero in determining net asset value. Should a Fund pay directly or indirectly for a stand-by commitment, its costs will be reflected in realized gain or loss when the commitment is exercised or expires. The maturity of a municipal security purchased by a Fund will not be considered shortened by any stand-by commitment to which the obligation is subject. Thus, stand-by commitments will not affect the dollar-weighted average maturity of a Fund's portfolio. SPECIAL CONSIDERATIONS RELATING TO CALIFORNIA MUNICIPAL OBLIGATIONS The ability of issuers to pay interest on, and repay principal of, California municipal obligations may be affected by (1) amendments to the California Constitution and related statutes that limit the taxing and spending authority of California government entities, (2) voter initiatives, (3) a wide variety of California laws and regulations, including laws related to the operation of health care institutions and laws related to secured interests in real property and (4) the general financial condition of the State of California and the California economy. LOWER-RATED SECURITIES. The Growth, Growth & Income, Income Funds and Tax-Exempt Bond Funds may each invest up to 35% of their total assets (limited to 20% unless authorized by the Funds' Board of Trustees), and the REIT, Equity Income, West Coast Equity, Mid Cap Stock, Small Cap Value, Small Cap Growth Funds may invest up to 20% of their total assets in below-investment-grade securities (rated Ba and lower by Moody's and BB and lower by S&P) or unrated securities determined to be of comparable quality by the Advisor. The High Yield Fund may invest entirely in such securities and will generally invest at least 80% of its assets in such securities. Such securities carry a high degree of risk (including the possibility of default or bankruptcy of the issuer of such securities), generally involve greater volatility of price and risk of principal and income, and may be less liquid than securities in the higher rating categories and are considered speculative. See Appendix A to this SAI for a more detailed description of the ratings assigned by ratings organizations and their respective characteristics. Historically, economic downturns have disrupted the high yield market and impaired the ability of issuers to repay principal and interest. Also, an increase in interest rates could adversely affect the value of such obligations held by any of the Funds set forth above. Prices and yields of high yield securities will fluctuate over time and may affect a Fund's net asset value. In addition, investments in high yield zero coupon or pay-in-kind bonds, rather than income-bearing high yield securities, may be more speculative and may be subject to greater fluctuations in value due to changes in interest rates. The trading market for high yield securities may be thin to the extent that there is no established retail secondary market or because of a decline in the value of such securities. A thin trading market may limit the ability of the Trustees to accurately value high yield securities in the Fund's portfolio and to dispose of those securities. Adverse publicity and investor perceptions may decrease the value and liquidity of high yield securities. These securities may also involve special registration responsibilities, liabilities and costs. Credit quality in the high yield securities market can change suddenly and unexpectedly, and even recently-issued credit ratings may not fully reflect the actual risks posed by a particular high yield security. For these reasons, it is the policy of the Advisor and the Sub-advisor of each of the Funds not to rely exclusively on ratings issued by established credit rating agencies, but to supplement such ratings with its own independent and ongoing review of credit quality. The achievement of a Fund's investment objectives by investment in such securities may be more dependent on the Advisor or its Sub-advisor's credit analysis than is the case for higher quality bonds. Should the rating of a portfolio security be downgraded the Advisor or the Fund's Sub-advisor will determine whether it is in the best interest of the Fund to retain or dispose of the security. Prices for below-investment-grade securities may be affected by legislative and regulatory developments. For example, new federal rules require savings and loan institutions to gradually reduce their holdings of this type of security. Also, Congress from time to time has considered legislation which would restrict or eliminate the corporate tax deduction for interest payments on these securities and would regulate corporate restructurings. Such legislation may significantly depress the prices of outstanding securities of this type. INVESTMENT RESTRICTIONS Certain of the Portfolios' and Funds' investment restrictions set forth below, and in the case of the West Coast Equity Fund, the Fund's investment objective, are fundamental policies. A fundamental policy may not be changed without the vote of a majority of the outstanding voting securities of the Portfolio or Fund, as defined in the 1940 Act. Such a majority is defined in the 1940 Act as the lesser of (a) 67% or more of the shares present at a meeting of shareholders of the Portfolio or Fund, if the holders of more than 50% of the outstanding shares of the Portfolio or Fund are present or represented by proxy, or (b) more than 50% of the outstanding shares of the Portfolio or Fund. Unless otherwise stated, percentage limitations apply at the time the investment is made, and restrictions will not be considered violated unless an excess or deficiency occurs immediately after and as a result of a purchase. RESTRICTIONS APPLICABLE TO WM TRUST II FUNDS (THE GROWTH, SMALL CAP GROWTH, INTERNATIONAL GROWTH, SHORT TERM INCOME, CALIFORNIA MUNICIPAL, AND CALIFORNIA INSURED INTERMEDIATE MUNICIPAL FUNDS). Investment Restrictions 1 through 16 are fundamental policies of the Funds. Investment restrictions 17 through 26 may be changed by WM Trust II's Board of Trustees at any time, without shareholder approval. The above listed Funds are prohibited from: 1. Purchasing the securities of any issuer (other than U.S. government securities) if as a result more than 5% of the value of the Fund's total assets would be invested in the securities of the issuer (the "5% limitation"), except that up to 25% of the value of the Fund's total assets may be invested without regard to the 5% limitation; provided that this restriction shall not apply to the California Municipal and California Insured Intermediate Municipal Funds. 2. Purchasing more than 10% of the securities of any class of any one issuer; provided that this limitation shall not apply to investments in U.S. government securities; provided further that this restriction shall not apply to the Growth, California Municipal, and California Insured Intermediate Municipal Funds; and provided further that the Growth Fund may not own more than 10% of the outstanding voting securities of a single issuer. 3. Purchasing securities on margin, except that a Fund may obtain any short-term credits necessary for the clearance of purchases and sales of securities. For purposes of this restriction, the deposit or payment of initial or variation margin in connection with futures contracts or related options will not be deemed to be a purchase of securities on margin. 4. Making short sales of securities or maintaining a short position; provided that this restriction shall not apply to the Growth and International Growth Funds. 5. Borrowing money, except that (a) the Funds may (i) enter into reverse repurchase agreements or (ii) borrow from banks for temporary or emergency (not leveraging) purposes including the meeting of redemption requests that might otherwise require the untimely disposition of securities in an aggregate amount not exceeding 30% of the value of a Fund's total assets (including the amount borrowed) valued at market less liabilities (not including the amount borrowed) at the time the borrowing is made, (b) the Growth, Small Cap Growth, International Growth, Short Term Income, California Municipal and California Insured Intermediate Municipal Funds may enter into futures contracts, and (c) the Short Term Income Fund may engage in dollar roll transactions; provided that whenever borrowings pursuant to (a) above (except that whenever borrowings pursuant to (a)(ii) above) exceed 5% of the value of a Fund's total assets, the Fund will not purchase any securities; and provided further that the Short Term Income Fund is prohibited from borrowing money or entering into reverse repurchase agreements or dollar roll transactions in the aggregate in excess of 331/3% of the Fund's total assets (after giving effect to any such borrowing). 6. Pledging, hypothecating, mortgaging or otherwise encumbering more than 30% of the value of the Fund's total assets. For purposes of this restriction, (a) the deposit of assets in escrow in connection with the writing of covered put or call options and the purchase of securities on a when-issued or delayed-delivery basis and (b) collateral arrangements with respect to (i) the purchase and sale of options on securities, options on indexes and options on foreign currencies, and (ii) initial or variation margin for futures contracts will not be deemed to be pledges of a Fund's assets. 7. Underwriting the securities of other issuers, except insofar as the Fund may be deemed an underwriter under the Securities Act of 1933, as amended, by virtue of disposing of portfolio securities. 8. Purchasing or selling real estate or interests in real estate, except that a Fund may purchase and sell securities that are secured, directly or indirectly, by real estate and may purchase securities issued by companies that invest or deal in real estate. 9. Investing in commodities, except that the Growth, Small Cap Growth, International Growth, Short Term Income, California Municipal and California Insured Intermediate Municipal Funds may invest in futures contracts and options on futures contracts. The entry into forward foreign currency exchange contracts is not and shall not be deemed to involve investing in commodities. 10. Investing in oil, gas or other mineral exploration or development programs. 11. Making loans, except through the purchase of qualified debt obligations, loans of portfolio securities (except in the case of the California Municipal Fund) and the entry into repurchase agreements. 12. Investing in securities of other investment companies registered or required to be registered under the 1940 Act, except as they may be acquired as part of a consolidation, reorganization, acquisition of assets or an offer of exchange or as otherwise permitted by law, including the 1940 Act. 13. Purchasing any securities that would cause more than 25% of the value of the Fund's total assets at the time of purchase to be invested in the securities of issuers conducting their principal business activities in the same industry provided that this limitation shall not apply to the purchase of (a) U.S. government securities, or (b) municipal obligations issued by governments or political subdivisions of governmentsfi. 14. Purchasing, writing or selling puts, calls, straddles, spreads or combinations thereof; provided that this restriction shall not apply to the Growth, Short Term Income and California Insured Intermediate Municipal Funds; and provided further that (a) the Small Cap Growth and International Growth Funds may purchase, write and sell covered put and call options on securities, (b) the Small Cap Growth, International Growth and California Municipal Funds may purchase, write and sell futures contracts and options on futures contracts, (c) the California Municipal Fund may acquire stand-by commitments, (d) the Small Cap Growth and International Growth Funds may purchase and write put and call options on stock indexes, and (e) the International Growth Fund may purchase put and call options and write covered call options on foreign currency contracts. 15. With respect to the Growth Fund, investing more than 35% of the Fund's assets in non-investment grade debt securities. 16. With respect to the Short Term Income Fund, having a dollar-weighted average portfolio maturity in excess of five years. 17. With respect to the Growth Fund, investing more than 25% of the Fund's assets in foreign securities. 18. Purchasing securities that are not readily marketable if more than 15% of the net assets of a Fund would be invested in such securities, including, but not limited to: (1) repurchase agreements with maturities greater than seven calendar days; (2) time deposits maturing in more than seven calendar days; provided that the Funds may not invest more than 10% of its total assets in such securities, except the Growth and Short Term Income Funds (3) to the extent a liquid secondary market does not exist for the instruments, futures contracts and options thereon; (4) certain over-the-counter options, as described in this SAI; (5) certain variable rate demand notes having a demand period of more than seven days; and (6) certain Rule 144A restricted securities that are deemed to be illiquid. 19. Purchasing any security if as a result the Fund would then have more than 5% of its total assets invested in securities of companies (including predecessors) that have been in continuous operation for less than three years; provided that in the case of industrial revenue bonds purchased for the Municipal Funds, this restriction shall apply to the entity supplying the revenues from which the issue is to be paid. 20. Making investments for the purpose of exercising control or management. 21. Purchasing or retaining securities of any company if, to the knowledge of the Fund, any of the Fund's officers or Trustees or any officer or director of the Advisor or a Sub-advisor individually owns more than 0.50% of the outstanding securities of such company and together they own beneficially more than 5% of the securities. 22. Investing in warrants, (other than warrants acquired by the Fund as part of a unit or attached to securities at the time of purchase) if, as a result, the investments (valued at the lower of cost or market) would exceed 5% of the value of the Fund's net assets or if, as a result, more than 2% of the Fund's net assets would be invested in warrants not listed on a recognized United States or foreign stock exchange, to the extent permitted by applicable state securities laws. 23. Purchasing or selling interests in real estate limited partnerships. 24. Investing in mineral leases. 25. Entering into strategic transactions otherwise prohibited by the Fund's investment restrictions or in the aggregate in excess of 25% of the Fund's net assets, for purposes other than bona fide hedging positions or that are not "covered," subject to such greater percentage limitations as may be imposed by the Advisor from time to time. 26. With respect to the Small Cap Growth Fund, investing, under normal circumstances, less than 80% of the Fund's net assets (plus any borrowings for investment purposes) in equity securities of companies with market capitalizations in the range represented by the Russell 2000 Index at the time of purchase. Restriction 26 may not be changed without at least 60 days prior notice to shareholders. For purposes of the investment restrictions described above, the issuer of a municipal security is deemed to be the entity (public or private) ultimately responsible for the payment of the principal of and interest on the security. For purposes of investment restriction 13 above, AMT-subject bonds and revenue bonds, the payment of principal and interest on which is the ultimate responsibility of companies within the same industry, are grouped together as an "industry." THE INVESTMENT RESTRICTIONS SET FORTH BELOW HAVE BEEN ADOPTED BY WM TRUST I WITH RESPECT TO THE WM TRUST I FUNDS AS FUNDAMENTAL POLICIES, EXCEPT WHERE OTHERWISE INDICATED. THE MONEY MARKET FUND MAY NOT: 1. invest in common stocks or other equity securities; 2. borrow money for investment purposes, except that each Fund may borrow up to 5% of its total assets in emergencies, and may borrow up to 33 1/3% of such assets to meet redemption requests that would otherwise result in the untimely liquidation of vital parts of its portfolio; 3. buy securities on margin, mortgage or pledge its securities, or engage in "short" sales; 4. buy or sell options; 5. act as underwriter of securities issued by others; 6. buy securities restricted as to resale under federal securities laws (other than securities eligible for resale pursuant to Rule 144A under the Securities Act of 1933, as amended, and except in connection with repurchase agreements); 7. buy or sell real estate, real estate investment trust securities, commodities, or oil, gas and mineral interests; 8. lend money, except in connection with repurchase agreements and for investments made in accordance with Fund policies discussed in the Prospectus; 9. issue senior securities; 10. invest more than 5% of its total assets in the securities of any single issuer (except for the United States government, its agencies or instrumentalities); 11. invest more than 25% of its total assets in securities of issuers in any single industry; 12. invest more than 10% of its net assets in illiquid securities; or 13. invest in companies for the purpose of exercising control. 14. invest in other investment companies (except as part of a merger). EACH OF THE U.S. GOVERNMENT SECURITIES, INCOME AND TAX-EXEMPT BOND FUNDS MAY NOT: 1. invest more than 5% of its total assets in any single issuer other than U.S. government securities, except that up to 25% of a Fund's assets may be invested without regard to this 5% limitation; 2. acquire more than 10% of the voting securities of any one company; 3. invest in any company for the purpose of management or exercising control; 4. invest in real estate or commodities*, although the Income Fund may purchase securities of issuers which deal in real estate, securities which are secured by interests in real estate, and/or securities which represent interests in real estate, and it may acquire and dispose of real estate or interests in real estate acquired through the exercise of its rights as a holder of debt obligations secured by real estate interests therein, the Income and Tax-Exempt Bond Funds may purchase and sell interest rate futures and options and the U.S. Government Securities Fund may invest without limit in financial futures contracts; 5. invest in oil, gas or other mineral leases; 6. invest in securities restricted under federal securities laws other than securities eligible for resale pursuant to Rule 144A under the Securities Act of 1933, as amended; 7. invest more than 20% of its assets in forward commitments; 8. invest more than 25% of its assets in any single industry;** 9. invest more than 15% of its net assets in illiquid securities; 10. buy foreign securities not payable in U.S. dollars (not applicable to the Income Fund); 11. buy securities on margin, mortgage or pledge its securities, or engage in "short" sales; 12. invest more than 5% of its net assets in warrants including not more than 2% of such net assets in warrants that are not listed on either the New York Stock Exchange or American Stock Exchange; however, warrants acquired in units or attached to securities may be deemed to be without value for the purpose of this restriction; 13. act as underwriter of securities issued by others; 14. borrow money for investment purposes, although it may borrow up to 5% of its total net assets for emergency, non-investment purposes and, except for the Tax-Exempt Bond Fund, may enter into transactions in which the Fund sells securities for delivery in the current month and simultaneously contracts to repurchase substantially similar securities on a specified future date; 15. lend money (except for the execution of repurchase agreements); 16. buy or sell put or call options; or 17. issue senior securities. In addition, * For purposes of this restriction, instruments are not treated as commodities unless they are traded on a commodities exchange. ** It is a policy of the Income Fund to consider electric utilities, electric and gas utilities, gas utilities, and telephone utilities to be separate industries. The Fund also considers foreign issues to be a separate industry. It is a policy of the Tax-Exempt Bond Fund to apply this restriction only to its assets in non-municipal bond holdings, pollution control revenue bonds and industrial development revenue bonds. These policies may result in increased risk. THE TAX-EXEMPT BOND FUND MAY NOT: 1. buy or hold securities which directors or officers of the Fund or the Advisor hold more than 50% of the outstanding securities. 2. buy common stocks or other equity securities, except that the Fund may invest in other investment companies. THE INCOME FUND MAY NOT: 1. invest in other investment companies (except as part of a merger). The U.S. Government Securities Fund, as a matter of non-fundamental policy, under normal market conditions, invests at least 80% of its net assets (plus any borrowings for investment purposes) in obligations issued or guaranteed by the U.S. government, its agencies and/or instrumentalities or in repurchase agreements or collateralized mortgage obligations secured by these obligations. This policy may not be changed without at least 60 days prior notice to shareholders. EACH OF THE REIT, MID CAP STOCK, SMALL CAP VALUE AND HIGH YIELD FUNDS MAY NOT: 1. invest more than 5% of its total assets in any single issuer other than U.S. government securities, except that up to 25% of the Fund's assets may be invested without regard to this 5% limitation; 2. acquire more than 10% of the voting securities of any one company; 3. invest in real estate* or commodities;** 4. invest in oil, gas or other mineral leases; 5. invest more than 25% or more of its assets in any single industry, except that the REIT Fund will, under normal circumstances invest at least 80% of its assets in the real estate industry; 6. buy securities on margin, mortgage or pledge its securities; 7. act as underwriter of securities issued by others; 8. borrow money for investment purposes (it may borrow up to 5% of its total assets for emergency, non- investment purposes); 9. lend money (except for the execution of repurchase agreements); or 10. issue senior securities. For purposes of restriction 7, to the extent a Fund is considered an underwriter within the meaning of the Securities Act in the disposition of restricted securities, the Fund will not be deemed to violate this restriction. The REIT Fund, as a matter of non-fundamental policy, under normal circumstances, invests at least 80% of its net assets (plus borrowings for investment purposes) in REIT securities. This policy may not be changed without at least 60 days prior notice to shareholders. * This restriction will not prevent the Fund from purchasing and selling securities that are secured, directly or indirectly, by real estate or purchasing securities issued by companies that invest or deal in real estate. The REIT Fund intends to invest primarily in REIT securities. ** For purposes of this restriction, instruments are not treated as commodities unless they are traded on a commodities exchange. The Mid Cap Stock Fund, as a matter of non-fundamental policy, under normal circumstances, invests at least 80% of its net assets (plus any borrowings for investment purposes) in common stocks of companies with market capitalizations in the range represented by companies included in the S&P MidCap 400 Index at the time of purchase. This policy may not be changed without at least 60 days prior notice to shareholders. The Small Cap Value Fund, as a matter of non-fundamental policy, under normal circumstances, invests at least 80% of its net assets (plus any borrowings for investment purposes) in equity securities of companies with market capitalizations in the range represented by the Russell 2000 Index at the time of purchase. This policy may not be changed without at least 60 days prior notice to shareholders. EACH OF THE EQUITY INCOME, GROWTH & INCOME AND WEST COAST EQUITY FUNDS MAY NOT: 1. invest more than 5% of its total assets in securities of any single issuer other than U.S. Government securities, except that up to 25% of a Fund's assets may be invested without regard to this 5% limitation; 2. acquire more than 10% of the voting securities of any one company; 3. invest in any company for the purpose of management or exercising control; 4. invest in real estate (except publicly traded real estate investment trusts); 5. invest in commodities; 6. invest in oil, gas or other mineral leases; 7. invest in other investment companies (except as part of a merger); 8. invest more than 20% of its total assets in forward commitments or repurchase agreements; 9. invest more than 25% of its total assets in any single industry; 10. act as underwriter of securities issued by others; 11. borrow money for investment purposes (it may borrow up to 5% of its total net assets for emergency, non-investment purposes); 12. lend money (except for the execution of repurchase agreements); 13. issue senior securities; 14. buy or sell options, with the exception of covered call options which must be limited to 20% of total assets; 15. buy or sell futures-related securities; 16. invest in securities restricted under federal securities laws (other than securities eligible for resale under Rule 144A under the Securities Act of 1933, as amended); 17. invest more than 15% of its net assets in illiquid securities; 18. buy securities on margin, mortgage or pledge its securities, or engage in "short" sales; 19. invest more than 5% of its net assets in warrants including not more than 2% of such net assets in warrants that are not listed on either the New York Stock Exchange or American Stock Exchange; however, warrants acquired in units or attached to securities may be deemed to be without value for the purpose of this restriction; or 20. invest more than 25% of its total assets in foreign securities and then only in U.S. dollar-denominated foreign securities. The Equity Income Fund, as a matter of non-fundamental policy, under normal circumstances invests at least 80% of its net assets (plus any borrowings for investment purposes) in dividend-paying common stocks and preferred stocks. This policy may not be changed without at least 60 days prior notice to shareholders. The West Coast Equity Fund, as a matter of non-fundamental policy, under normal circumstances invests at least 80% of its net assets (plus any borrowings for investment purposes) in the common stocks of West Coast Companies, which are defined by WM Advisors to include companies with (i) principal executive offices located in the region, (ii) over 50% of their work force employed in the region or (iii) over 50% of their sales within the region. This policy will not be changed without at least 60 days' prior notice. Any notice required to be delivered to shareholders of a Fund in connection with an intended change in a non-fundamental policy of the Fund (as described in this SAI or in the Fund's Prospectus) will be provided in accordance with Rule 35d-1 under the 1940 Act, as such rule is in effect and interpreted from time to time. THE INVESTMENT RESTRICTIONS SET FORTH BELOW HAVE BEEN ADOPTED BY THE PORTFOLIOS AS FUNDAMENTAL POLICIES. Each of the Flexible Income, Conservative Balanced, Balanced, Conservative Growth and Strategic Growth Portfolios may not: 1. purchase or sell physical commodities unless acquired as a result of ownership of securities or other instruments (except this shall not prevent the Portfolio from purchasing or selling options or futures contracts or from investing in securities or other instruments backed by physical commodities); 2. purchase or sell real estate including limited partnership interests, although it may purchase and sell securities of companies that deal in real estate and may purchase and sell securities that are secured by interests in real estate; 3. make loans to any person, except loans of portfolio securities to the extent that no more than 33 1/3% of its total assets would be lent to other parties, but this limitation does not apply to purchases of debt securities or repurchase agreements; 4. (i) purchase more than 10% of any class of the outstanding voting securities of any issuer (except other investment companies as defined in the 1940 Act) and (ii) purchase securities of an issuer (except obligations of the U.S. government and its agencies and instrumentalities and securities of other investment companies as defined in the 1940 Act) if as a result, with respect to 75% of its total assets, more than 5% of the Portfolio's total assets, at market value, would be invested in the securities of such issuer; 5. issue senior securities (as defined in the 1940 Act) except as permitted by rule, regulation or order of the SEC; 6. borrow, except from banks for temporary or emergency (not leveraging) purposes including the meeting of redemption requests that might otherwise require the untimely disposition of securities in an aggregate amount not exceeding 30% of the value of the Portfolio's total assets (including the amount borrowed) at the time the borrowing is made; and whenever borrowings by a Portfolio, including reverse repurchase agreements, exceed 5% of the value of a Portfolio's total assets, the Portfolio will not purchase any securities; 7. underwrite securities issued by others, except to the extent that the Portfolio may be considered an underwriter within the meaning of the 1933 Act in the disposition of restricted securities; or 8. write or acquire options or interests in oil, gas or other mineral exploration or development programs. As a matter of non-fundamental investment policy, none of the Portfolios or Funds may invest in securities issued by Washington Mutual, Inc. or its affiliates. DISCLOSURE OF PORTFOLIO HOLDINGS The Portfolios and Funds disclose their month-end portfolio holdings on the Distributor's Web site at wmgroupoffunds.com on the last business day of the following month. Third parties who need portfolio holdings information to provide services to the Portfolios and Funds may be provided such information prior to its posting on the Web site, solely for legitimate business purposes and subject to confidentiality agreements. After a Portfolios' or Fund's portfolio holdings information has been posted to the Web site, it may be disclosed without limitation except that no such information may be provided pursuant to an ongoing arrangement until the business day after such information has been posted to the Web site in accordance with the Portfolio's or Fund's prospectus and statement of additional information, or the relevant Portfolio's or Fund's Form N-CSR or Form N-Q containing such information has been filed with the SEC. To the extent permitted under applicable law, the Advisor and Sub-advisors may distribute (or authorize the relevant Portfolio's or Fund's fund accounting agent or principal underwriter to distribute) information regarding a Portfolio's or Fund's portfolio holdings information ("Confidential Portfolio Information") more frequently than provided above or in advance of the Web site posting to the Portfolio's or Fund's service providers who require access to such information in order to fulfill their contractual duties with respect to the Portfolio or Fund, such as the Portfolio's or Fund's custodian, securities lending agents, auditors, pricing service vendors and other persons who provide systems or software support in connection with Portfolio or Fund operations, including accounting, compliance support and pricing. Portfolio holdings may also be disclosed to persons assisting a Portfolio or Fund in the voting of proxies and to bank lenders, to third parties providing research and trading services, and to mutual fund analysts and rating agencies, such as Morningstar and Lipper Analytical Services. In connection with managing the Portfolios and Funds, the Advisor or Sub-advisors may use analytical systems provided by third parties who may have access to the Portfolios' or Funds' portfolio holdings. Portfolio holdings may also be disclosed to certain third party industry information vendors, institutional investment consultants, and asset allocation platform providers. However, these service providers may not provide portfolio holdings information to their subscribers in advance of the public dissemination dates. Such disclosure may be made in advance of the Web site posting only if the recipients of such information are subject to a confidentiality agreement, which includes a duty not to trade on the nonpublic information, and if the Portfolios' and Funds' Chief Compliance Officer determines that, under the circumstances, disclosure is in or not opposed to the best interests of the relevant Portfolio's or Fund's shareholders. Additionally, when purchasing and selling its securities through broker-dealers, requesting bids on securities, obtaining price quotations on securities as well as in connection with litigation involving the Portfolio's or Funds' portfolio securities, the Portfolios and Funds may disclose one or more of their securities. The Portfolios and Funds will not enter into formal confidentiality agreements in connection with these situations, however, the Portfolios and Funds will not continue to disclose portfolio holdings information to a person who the Portfolios or Funds or their Investment Managers believe is misusing the disclosed information. The Confidential Portfolio Information that may be distributed under this policy is limited to the information that the Advisor and Sub-advisors believe is reasonably necessary in connection with the services to be provided by the service provider receiving the information. In no event will WM Group of Funds, the Advisor or its sub-advisors or any affiliate thereof be permitted to receive compensation or capitalize consideration in connection with the disclosure of Portfolio or Fund portfolio holdings. A list of all persons who receive Confidential Portfolio Information under this policy will be available upon request to the Portfolios' and Funds' Chief Compliance Officer. The Advisor and Sub-advisors, if any, shall have primary responsibility for compliance with the Portfolios' and Funds' procedures regarding disclosure of portfolio holdings information. As part of this responsibility, the Advisor and Sub-advisors, if any, shall be responsible for maintaining such internal informational barriers (e.g., "Chinese walls") as it believes are reasonably necessary for preventing the unauthorized disclosure of Confidential Portfolio information. The Portfolios' and Funds' Chief Compliance Officer is responsible for monitoring for conflicts of interest between the interests of Portfolio and Fund shareholders and the interests of the Advisor, investment Sub-advisors, principal underwriter, or any affiliated person of the Portfolio or Fund, their investment manager, investment sub-advisors, or their principal underwriter. The Boards of Trustees of the Trusts review and approve the Portfolios' and Funds' policy on disclosure of portfolio holdings. Exceptions to and violations of this policy are reported to the Boards of Trustees of the Trusts. PORTFOLIO TURNOVER The Money Market Fund attempts to increase yields by trading to take advantage of short-term market variations, which results in high portfolio turnover and high transaction costs. The REIT, Equity Income, Growth & Income, West Coast Equity, Growth, Mid Cap Stock, Small Cap Value, Small Cap Growth, International Growth, Short Term Income, U.S. Government Securities, Income, High Yield, Tax-Exempt Bond, California Municipal and California Insured Intermediate Municipal Funds do not intend to seek profits through short-term trading. Nevertheless, the Funds will not consider portfolio turnover rate a limiting factor in making investment decisions. Under certain market conditions, the REIT, Mid Cap Stock, Growth, Small Cap Value, Small Cap Growth, International Growth, Short Term Income or California Insured Intermediate Municipal Funds may experience increased portfolio turnover as a result of such Funds' options activities. For instance, the exercise of a substantial number of options written by a Fund (due to appreciation of the underlying security in the case of call options or depreciation of the underlying security in the case of put options) could result in a turnover rate in excess of 100%. A portfolio turnover rate of 100% would occur if all of a Fund's securities that are included in the computation of turnover were replaced once during a period of one year. The portfolio turnover rate is calculated by dividing the lesser of purchases or sales of portfolio securities for the year by the monthly average value of portfolio securities. Securities with remaining maturities of one year or less at the date of acquisition are excluded from the calculation. Certain other practices that may be employed by the Funds could result in high portfolio turnover. For example, portfolio securities may be sold in anticipation of a rise in interest rates (market decline) or purchased in anticipation of a decline in interest rates (market rise) and later sold. In addition, a security may be sold and another of comparable quality purchased at approximately the same time to take advantage of what the Advisor or a Fund's Sub-advisor believes to be a temporary disparity in the normal yield relationship between the two securities. These yield disparities may occur for reasons not directly related to the investment quality of particular issues or the general movement of interest rates, such as changes in the overall demand for, or supply of, various types of securities. The turnover rate for the Growth Fund was [%] for the fiscal year ended October 31, 2004 and [%] for the fiscal year ended October 31, 2005.fi [The turnover rate for the Small Cap Growth Fund was [ %] for the fiscal year ended October 31, 2004 and [ %] for the fiscal year ended October 31, 2005. SECURITIES TRANSACTIONS Most of the purchases and sales of securities for a Fund, whether transacted on a securities exchange or over-the-counter, will be effected in the primary trading market for the securities. Decisions to buy and sell securities for a Fund are made by WM Advisors or the relevant Sub-advisor, which also is responsible for placing these transactions, subject to the overall review of the Trusts' Board of Trustees. Although investment decisions for each Fund are made independently from those of the other accounts managed by WM Advisors or the Sub-advisor, investments of the type the Fund may make may also be made by those other accounts. When a Fund and one or more other accounts managed by WM Advisors or the Sub-advisor are prepared to invest in, or desire to dispose of, the same security, available investments or opportunities for sales will be allocated in a manner believed by WM Advisors or the Sub-advisor to be equitable to each. In some cases, this procedure may adversely affect the price paid or received by a Fund or the size of the position obtained or disposed of by the Fund. In other cases, however, it is believed that coordination and the ability to participate in volume transactions will be to the benefit of the Fund. Transactions on U.S. exchanges involve the payment of negotiated brokerage commissions. With respect to exchanges on which commissions are negotiated, the cost of transactions may vary among different brokers. There is generally no stated commission in the case of securities traded in the over-the-counter markets, but the prices of those securities include undisclosed commissions or concessions, and the prices at which securities are purchased from and sold to dealers include a dealer's mark-up or mark-down. U.S. government securities may be purchased directly from the U.S. Treasury or from the issuing agency or instrumentality. In selecting brokers or dealers to execute portfolio transactions on behalf of a Fund, WM Advisors or the Fund's Sub-advisors seeks the best overall terms available. In assessing the best overall terms available for any transaction, WM Advisors and each Sub-advisor will consider the factors that WM Advisors or the Sub-advisors deems relevant, including the breadth of the market in the security, the price of the security, the financial condition and execution capability of the broker or dealer and the reasonableness of the commission, if any, for the specific transaction and on a continuing basis. In addition, each advisory agreement among the Trusts authorizes WM Advisors, and a sub-advisory agreement authorizes the Sub-advisor, in selecting brokers or dealers to execute a particular transaction and in evaluating the best overall terms available, to consider the brokerage and research services (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934, as amended) provided to the Trusts, the other Funds and/or other accounts over which WM Advisors, the Sub-advisor or their affiliates exercise investment discretion. The fees under the advisory agreements between the Trusts, WM Advisors and the Sub-advisors are not reduced by reason of their receiving such brokerage and research services. The Trusts' Board of Trustees will periodically review the commissions paid by the Funds to determine if the commissions paid over representative periods of time were reasonable in relation to the benefits received by the Trusts. Consistent with applicable provisions of the 1940 Act, the rules and exemptions adopted by the Commission thereunder, and relevant interpretive and "no-action" positions taken by the Commission's staff, the Trusts' Board of Trustees has adopted procedures pursuant to Rule 17e-1 under the 1940 Act to ensure that all portfolio transactions with affiliates will be fair and reasonable. Under the procedures adopted, portfolio transactions for a Fund may be executed through any affiliated broker (other than affiliated persons of the Trust solely because the broker is an affiliated person of a Sub-advisor of another Fund) if, subject to other conditions in the Rule 17e-1 procedures, in the judgment of WM Advisors or the Fund's Sub-advisor, the use of an affiliated broker is likely to result in price and execution at least as favorable as those of other qualified broker-dealers, and if, in the transaction an affiliated broker charges the Fund a rate consistent with those charged for comparable transactions in comparable accounts of the broker's most favored unaffiliated clients. Over-the-counter purchases and sales are transacted directly with principal market makers except in those cases in which better prices and executions may be obtained elsewhere. For the years set forth below, the WM Trust I and WM Trust II Funds paid the following brokerage commissions: TOTAL BROKERAGE COMMISSIONS PAID [TO BE UPDATED]
FISCAL YEAR ENDED OCTOBER 31, OCTOBER 31, OCTOBER 31, FUND 2004 2003 2002 - ----------------------------------------------------- --------------- ------------- ----------- REIT Fund $ 148,289 $ 281,937 - Equity Income Fund 1,196,447 487,582 $ 505,453 Growth & Income Fund 850,493 703,432 899,288 West Coast Equity Fund 826,502 659,050 502,813 Mid Cap Stock Fund 683,290 349,259 186,930 Growth Fund 2,072,010 1,771,607 3,048,625 Small Cap Growth Fund 1,743,417 1,475,540 373,453 Small Cap Value Fund 9,162 N/A N/A International Growth Fund 582,802 258,881 289,973 Short Term Income Fund 3,500 4,900 5,600 U.S. Government Securities Fund - - - Income Fund - 1,775 5,000 High Yield Fund 16,450 24,714 17,250 Tax-Exempt Bond Fund 3,795 56,94 1,105 California Municipal Fund 2,748 30,203 3,736 California Insured Intermediate Municipal Fund 6,110 12,272 1,471 Money Market Fund - - - Tax-Exempt Money Market Fund* - - - California Money Fund* - - -
TOTAL AMOUNT OF TRANSACTIONS TOTAL BROKERAGE COMMISSIONS WHERE BROKERAGE COMMISSIONS WERE PAID TO BROKERS THAT PAID TO BROKERS THAT PROVIDED PROVIDED RESEARCH RESEARCH FISCAL YEAR ENDED FISCAL YEAR ENDED FUND OCTOBER 31, 2004 OCTOBER 31, 2004 - ----------------------------------------------------- ------------------------------ --------------------------------- REIT Fund - - Equity Income Fund $ 250,145 $ 165,510,035 Growth & Income Fund 164,810 116,117,512 West Coast Equity Fund 191,356 119,693,353 Mid Cap Stock Fund 74,665 54,450,573 Growth Fund - - Small Cap Growth Fund 54,408 15,089,971 Small Cap Value Fund - - International Growth Fund - - Short Term Income Fund - - U.S. Government Securities Fund - - Income Fund - - High Yield Fund 2,100 1,420,293 Tax-Exempt Bond Fund - - California Municipal Fund - - California Insured Intermediate Municipal Fund - - Money Market Fund - - Tax-Exempt Money Market Fund* - - California Money Fund* - -
* Liquidated November 8, 2005. The Trusts are required to identify any securities of their "regular brokers or dealers" (as defined in the 1940 Act), which the Trusts have acquired during their most recent fiscal year. As of October 31, 2004, these Portfolios and Funds had the following holdings fitting the above descriptions (in thousands of dollars):
CREDIT SUISEE FIRST J.P.MORGAN GENERAL BANK OF BOSTON MERRILL GOLDMAN CHASE & ELECTRIC AMERICA HS BC JEFFRIES FUND CORPORATION LYNCH SACHS COMPANY COMPANY CORPORATION HOLDINGS GROUP - ------------------------------------ ------------- ------- ------- ------------ ------- ----------- -------- --------- REIT Fund [_] [_] [_] [_] [_] [_] [_] [_] Equity Income Fund [_] [_] [_] [_] [_] [_] [_] [_] Growth & Income Fund [_] [_] [_] [_] [_] [_] [_] [_] West Coast Equity Fund [_] [_] [_] [_] [_] [_] [_] [_] Mid Cap Stock Fund [_] [_] [_] [_] [_] [_] [_] [_] Growth Fund [_] [_] [_] [_] [_] [_] [_] [_] Small Cap Growth Fund [_] [_] [_] [_] [_] [_] [_] [_] Small Cap Value Fund [_] [_] [_] [_] [_] [_] [_] [_] International Growth Fund [_] [_] [_] [_] [_] [_] [_] [_] Short Term Income Fund [_] [_] [_] [_] [_] [_] [_] [_] U.S. Government Securities Fund [_] [_] [_] [_] [_] [_] [_] [_] Income Fund [_] [_] [_] [_] [_] [_] [_] [_] High Yield Fund [_] [_] [_] [_] [_] [_] [_] [_] Tax-Exempt Bond Fund [_] [_] [_] [_] [_] [_] [_] [_] California Municipal Fund [_] [_] [_] [_] [_] [_] [_] [_] California Insured Intermediate [_] [_] [_] [_] [_] [_] [_] [_] Municipal Fund [_] [_] [_] [_] [_] [_] [_] [_] Money Market Fund [_] [_] [_] [_] [_] [_] [_] [_] Tax-Exempt Money Market Fund* [_] [_] [_] [_] [_] [_] [_] [_] California Money Fund* [_] [_] [_] [_] [_] [_] [_] [_]
MORGAN SALOMON STANLEY FIRST SMITH DEAN FREDDIE WELLS BEAR ALBANY FUND BARNEY WITTER PRUDENTIAL UBS AG CITIGROUP MAC FARGO STEARNS COMPANIES - --------------------------------- ------- ------- ---------- ------ --------- ------- ----- ------- --------- REIT Fund [_] [_] [_] [_] [_] [_] [_] [_] [_] Equity Income Fund [_] [_] [_] [_] [_] [_] [_] [_] [_] Growth & Income Fund [_] [_] [_] [_] [_] [_] [_] [_] [_] West Coast Equity Fund [_] [_] [_] [_] [_] [_] [_] [_] [_] Mid Cap Stock Fund [_] [_] [_] [_] [_] [_] [_] [_] [_] Growth Fund [_] [_] [_] [_] [_] [_] [_] [_] [_] Small Cap Growth Fund [_] [_] [_] [_] [_] [_] [_] [_] [_] Small Cap Value Fund [_] [_] [_] [_] [_] [_] [_] [_] [_] International Growth Fund [_] [_] [_] [_] [_] [_] [_] [_] [_] Short Term Income Fund [_] [_] [_] [_] [_] [_] [_] [_] [_] U.S. Government Securities Fund [_] [_] [_] [_] [_] [_] [_] [_] [_] Income Fund [_] [_] [_] [_] [_] [_] [_] [_] [_] High Yield Fund [_] [_] [_] [_] [_] [_] [_] [_] [_] Tax-Exempt Bond Fund [_] [_] [_] [_] [_] [_] [_] [_] [_] California Municipal Fund [_] [_] [_] [_] [_] [_] [_] [_] [_] California Insured Intermediate [_] [_] [_] [_] [_] [_] [_] [_] [_] Municipal Fund [_] [_] [_] [_] [_] [_] [_] [_] [_] Money Market Fund [_] [_] [_] [_] [_] [_] [_] [_] [_] Tax-Exempt Money Market Fund* [_] [_] [_] [_] [_] [_] [_] [_] [_] California Money Fund* [_] [_] [_] [_] [_] [_] [_] [_] [_]
* Liquidated November 8, 2005. NET ASSET VALUE The Trusts will calculate the net asset value (or "NAV") of the Funds' and Portfolios' Class A, B, C, I, R-1, and R-2 shares as of the close of regular trading on the New York Stock Exchange or at 1:00 p.m. Pacific time, whichever is earlier, Monday through Friday, exclusive of national business holidays. The Trusts will be closed on the following national holidays: New Year's Day, Martin Luther King Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas. Under unusual circumstances, the Money Market Fund may determine its NAV on days when the New York Stock Exchange is not open for regular trading. A security that is primarily traded on a U.S. exchange (excluding securities traded through the NASDAQ National Market System) is valued at the last reported sale price (for securities traded through the NASDAQ National Market System, the official closing price) on that exchange or, if there were no sales during the day (and no official closing price on such day), at the mean of the current day's bid and asked prices. Over-the-counter securities that are not traded through the NASDAQ National Market System and U.S. government securities are valued at the mean of the current day's bid and asked prices. An option is generally valued at the last sale price or, in the absence of a last sale price, at the mean of the current day's bid and asked prices. Short term debt securities that mature in 60 days or less are valued at amortized cost; assets of the Money Market Fund is also valued at amortized cost. Securities and other assets initially valued in currencies other than the U.S. Dollar are converted to U.S. Dollars using exchange rates obtained from pricing securities (normally determined at 4 P.M. Eastern Time).The value of a futures contract equals the unrealized gain or loss on the contract, which is determined by marking the contract to the current settlement price for a like contract acquired on the day on which the futures contract is being valued. If the market makes a limit move with respect to the security or index underlying the futures contract, the futures contract will be valued at a fair market value as determined by or under the direction of the Board of Trustees. Debt securities of U.S. issuers (other than short-term investments), including municipal obligations, are valued by one or more independent pricing services (each a "pricing service") retained by the Trusts. When, in the judgment of a pricing service, market quotations for these securities are readily available, they are valued at the mean between the quoted bid and asked prices. The procedures of each pricing service are reviewed periodically by the officers of the Trusts under the general supervision and responsibility of the Board of Trustees. Securities for which market quotations are not readily available are valued at fair value as determined by, or under the direction of, the Board of Trustees, which may rely on the assistance of one or more pricing services. VALUATION OF THE MONEY MARKET FUND. The valuation of the portfolio securities of the Money Market Fund is based upon its amortized cost, which does not take into account unrealized capital gains or losses. Amortized cost valuation involves initially valuing an instrument at its cost and thereafter assuming a constant amortization to maturity of any discount or premium, regardless of the impact of fluctuating interest rates on the market value of the instrument. While this method provides certainty in valuation, it may result in periods during which value, as determined by amortized cost, is higher or lower than the price a Fund would receive if it sold the instrument. The use by the Money Market Fund of the amortized cost method of valuing its respective portfolio securities is permitted by a rule adopted by the SEC. Under this rule, the Money Market Fund must maintain dollar-weighted average portfolio maturities of 90 days or less, purchase only instruments having remaining maturities of 397 days or less and invest only in securities determined by the Board of Trustees of the Trusts to present minimal credit risks. Pursuant to the rule, the Board of Trustees also has established procedures designed to stabilize, to the extent reasonably possible, the Money Market Fund's price per share as computed for the purpose of sales and redemptions at $1.00. Such procedures include review of the Money Market Fund's portfolio holdings by the Board of Trustees or its delegate, at such intervals as the Board of Trustees may deem appropriate, to determine whether the Funds' net asset values calculated by using available market quotations or market equivalents deviates from $1.00 per share based on amortized cost. In the event the Board of Trustees determines that a deviation exists which may result in material dilution or other unfair results to investors or existing shareholders, the Board of Trustees will cause the Trusts to take such corrective action as the Board deems necessary and appropriate including: selling portfolio instruments prior to maturity to realize capital gains or losses or to shorten average portfolio maturity; withholding dividends or paying distributions from capital or capital gains; redeeming shares in kind; or establishing a net asset value per share by using available market quotations. HOW TO BUY AND REDEEM SHARES Class A, B, C, I, R-1, and R-2 shares of the Portfolios and Funds may be purchased and redeemed in the manner described in the Prospectuses and in this SAI. Class I shares are currently offered and sold only to the Portfolios. Each Portfolio and Fund may sell Class A shares at net asset value to current and retired (defined as being 55 years of age and having at least 10 years of service) employees of Washington Mutual, Inc. and its affiliates. Each Portfolio and Fund may sell Class A shares at net asset value to brokers, dealers and registered investment advisers who have entered into arrangements with the Distributor providing specifically for the shares to be used in particular investment products or programs made available to their clients for which they may charge a separate fee. This includes investment products or programs that are available only with respect to the proceeds of redemptions of shares of other mutual funds on which the client had paid an initial or contingent deferred sales charge. COMPUTATION OF PUBLIC OFFERING PRICES The Portfolios and Funds offer their shares to the public on a continuous basis. The public offering price per Class A share of the Portfolios and Funds is equal to the net asset value next computed after receipt of a purchase order, plus the applicable front-end sales charge, if any, as set forth in the Prospectus. Class A shares may be purchased at net asset value (without initial sales charges) with the proceeds of redemptions of non-WM Group mutual funds when all of the following conditions are met: (i) the purchase is made within 45 days of the redemption; (ii) the redeemed shares were subject to an initial or contingent deferred sales charge, provided, however, that for this purpose shares that were subject to an initial or contingent deferred sales charge of 2.00% or less shall be deemed not to have been subject to a sales charge and therefore are not eligible for this waiver; and (iii) both the redemption of the existing shares and the purchase of new shares are made through the same broker/dealer. The public offering price per Class B, C, I, R-1, or R-2 shares of the Portfolios and Funds is equal to the net asset value next computed after receipt of a purchase order. An illustration of the computation of the public offering price per share of each Portfolio and Fund is contained in the financial statements incorporated herein by reference. PAYMENT IN SECURITIES In addition to cash, the Portfolios and Funds may accept securities as payment for Portfolio or Fund shares at the applicable net asset value. Generally, the Portfolios and Funds will only consider accepting securities to increase their holding in a portfolio security or if the Advisor determines that the offered securities are a suitable investment for the Portfolio or Fund and in a sufficient amount for efficient management. While no minimum has been established, the Portfolios and Funds may decide not to accept securities as payment for shares at their discretion. The Portfolios and Funds may reject in whole or in part any or all offers to pay for purchases of shares with securities, may require partial payment in cash for such purchases to provide funds for applicable sales charges, and may discontinue accepting securities as payment for shares at any time without notice. The Portfolios and Funds will value accepted securities in the manner described in the section "Net Asset Value" for valuing shares of the Portfolios and Funds. The Portfolios and Funds will only accept securities which are delivered in proper form. The acceptance of securities by certain of the Portfolios or Funds in exchange for shares is subject to additional requirements. For federal income tax purposes, a purchase of shares with securities will be treated as a sale or exchange of such securities on which the investor will generally realize a taxable gain or loss. The processing of a purchase of Portfolio or Fund shares with securities involves certain delays while the fund considers the suitability of such securities and while other requirements are satisfied. For information regarding procedures for payment in securities, contact Shareholder Services at 800-222-5852. Investors should not send securities to the Portfolios and Funds except when authorized to do so and in accordance with specific instructions received from Shareholder Services. ARCHER MEDICAL SAVINGS ACCOUNT. The Funds administer existing Archer Medical Savings Accounts ("MSA"). New accounts may only be opened by participants employed by a firm offering, as of December 31, 2003, an MSA through the WM Group of Funds. The MSA is a specialized product with its own specific account investment requirements, privileges and policies. MSAs may purchase only Class A shares of the Portfolios and Money Market Fund. Investment minimums for the Portfolios and Money Market Fund are: either the lesser of $2,000 or the shareholder's HDHP-provided maximum; OR at least $100 monthly systematic purchases. Sales charges and dealer re-allowances are as stated in the Prospectus. Certain provisions apply to the check writing privilege for MSAs, as follows: (1) Checks may be drafted from the Money Market Fund Class A shares only; (2) The Money Market Fund must be funded as stated above; (3) there is no minimum check amount; and (4) a check presented for an amount in excess of the then current value of the Money Market Fund shares held in the account will be considered an instruction to redeem all shares of the Money Market Fund held in the account, with the excess being applied to shares of the Portfolios held in the account in the following order, in each case redeeming shares of the Portfolios to the extent necessary to cover the remaining amount of the check: Flexible Income Portfolio, Conservative Balanced Portfolio, Balanced Portfolio, Conservative Growth Portfolio and Strategic Growth Portfolio. MSA investments in the Portfolios may be counted towards Rights of Accumulation (ROA) and Letter of Intent (LOI) options. The Funds may close an MSA after 60 days written notice if the account balance is less than $2,000 and the account owner has failed to make monthly investments of at least $100 for each of the preceding six months. REDEMPTIONS The procedures for redemption of Class A, B, and C shares of each Portfolio and Fund are summarized in the Prospectus under "Choosing a Share Class -- Redemptions and Exchanges of Shares." The right to redeem may be suspended or the date of payment postponed (1) for any periods during which the New York Stock Exchange is closed (other than for customary weekend and holiday closings), (2) when trading in the markets the Fund normally utilizes is restricted, or an emergency, as defined by the rules and regulations of the SEC, exists making disposal of a Portfolio's or Fund's investments or determination of its net asset value not reasonably practicable or (3) for such other periods as the SEC by order may permit for protection of shareholders. REDEMPTION FEE -- INTERNATIONAL GROWTH FUND CLASS A SHARES ONLY. A redemption from the International Growth Fund, including a redemption by way of exchange, made within 90 days of any purchase by the shareholders of Class A shares of the International Growth Fund will be subject to a redemption fee equal to 2.00% of the redemption proceeds (in addition to any applicable CDSC). The redemption fee will be retained by the Fund. In determining whether a redemption fee is payable it is assumed that the purchase from which the redemption is made is the earliest purchase for shares of the Fund by the shareholder from which a redemption or exchange has not already been effected. CONTINGENT DEFERRED SALES CHARGES Contingent deferred sales charges (each, a "CDSC") imposed upon redemptions of Class A, B, and C shares will be retained by the Distributor, and may be waived in certain instances, as described in the current Prospectus and below. APPLICATION OF CLASS A SHARES CDSC. The Class A CDSC of 1.00% may be imposed on certain redemptions within 18 months of purchase, respectively, with respect to Class A shares (i) purchased at NAV without a sales charge at time of purchase due to being a purchase of $1 million or more, or (ii) acquired, including Class A shares of the Money Market Fund acquired, through an exchange for Class A shares of a Fund purchased at NAV without a sales charge at the time of purchase due to being a purchase of $1 million or more. The CDSCs for Class A shares are calculated on the shares' cost in determining whether the CDSC is payable, and the Funds will first redeem shares not subject to any CDSC. With respect to certain investors who purchase Class A shares through an authorized dealer and who receive a waiver of the entire initial sales charge on Class A shares because the Class A shares were purchased through a plan qualified under Section 401(k) of the Code ("401(k) Plan") or who hold Class A shares of the Money Market Fund that were acquired through an exchange for non-Money Market Fund Class A shares that were purchased at NAV through one of such plans, a CDSC of 1.00% may be imposed on the amount that was invested through the plan in such Class A shares and that is redeemed (i) if, within the first 18 months after the plan's initial investment in the Funds, the named fiduciary of the plan withdraws the plan from investing in the Funds in a manner that causes all shares held by the plan's participants to be redeemed; or (ii) by a plan participant within two years of the plan participant's purchase of such Class A shares. This CDSC will be waived on redemptions in connection with certain involuntary distributions, including distributions arising out of the death or disability of a shareholder (including one who owns the shares as joint tenant). WAIVERS OF CLASS A SHARES CDSC. The Class A CDSC is waived for redemptions of Class A shares (i) that are part of exchanges for Class A shares of other WM Funds; (ii) for distributions to pay benefits to participants from a retirement plan qualified under Section 401(a) or 401(k) of the Code, including distributions due to the death or disability of the participant (including one who owns the shares as a joint tenant); (iii) for distributions from a 403(b) Plan or an IRA due to death, disability, or attainment of age 70 1/2, including certain involuntary distributions; (iv) for tax-free returns of excess contributions to an IRA; (v) for distributions by other employee benefit plans to pay benefits; (vi) in connection with certain involuntary distributions; (vii) for systematic withdrawals in amounts of 1.00% or less per month; and (viii) by a 401(k) Plan participant so long as the shares were purchased through the 401(k) Plan and the 401(k) Plan continues in effect with investments in Class A shares of the Fund. See "How to Buy and Redeem Shares" in the SAI. For purposes of the waivers described in such section of the Prospectus, a person will be deemed "disabled" only if the person is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or be of long-continued and indefinite duration. DEFERRED SALES CHARGE ALTERNATIVE: CLASS B AND CLASS C SHARES. If you choose the deferred sales charge alternative, you will purchase Class B or C shares at their NAV per share without the imposition of a sales charge at the time of purchase. Class B shares of the Short Term Income Fund that are redeemed within four years of purchase, and Class B shares of the remaining Portfolios and Funds that are redeemed within five years of purchase, however, will be subject to a CDSC as described below. Class C shares redeemed during the first 12 months after purchase are subject to a 1.00% CDSC. CDSC payments and distribution fees on Class B and C shares may be used to fund commissions payable to Authorized Dealers. For Class B shares, no charge will be imposed with respect to shares having a value equal to any net increase in the value of shares purchased during the preceding four or five years and shares acquired by reinvestment of net investment income and capital gain distributions. The amount of the charge is determined as a percentage of the NAV of the shares at the time of purchase. The percentage used to calculate the CDSC will depend on the number of years since you invested the dollar amount being redeemed, according to the following tables: Class B shares of all Portfolios and Funds (except for the Short Term Income Fund) purchased after March 20, 1998 (other than shares of the Funds received in connection with the merger of other mutual funds into certain Funds).
CONTINGENT DEFERRED YEAR OF REDEMPTION AFTER PURCHASE SALES CHARGE - --------------------------------- ------------ First ................................................ 5.00% Second ............................................... 4.00% Third ................................................ 3.00% Fourth ............................................... 2.00% Fifth ................................................ 1.00% Six and following .................................... 0.00%
Class B shares of all Portfolios and WM Trust II Funds (except for the Short Term Income Fund) purchased before March 20, 1998, and shares of the Funds received in connection with the merger of other mutual funds into certain Funds.
CONTINGENT DEFERRED YEAR OF REDEMPTION AFTER PURCHASE SALES CHARGE - --------------------------------- ------------ First ................................................ 5.00% Second ............................................... 4.00% Third ................................................ 3.00% Fourth ............................................... 3.00% Fifth ................................................ 2.00% Six .................................................. 1.00% Seventh and following ................................ 0.00%
Class B shares of all WM Trust I Funds purchased before March 20, 1998 and the Short Term Income Fund.
CONTINGENT DEFERRED YEAR OF REDEMPTION AFTER PURCHASE SALES CHARGE - --------------------------------- ------------ First ................................................ 4.00% Second ............................................... 3.00% Third ................................................ 2.00% Fourth ............................................... 1.00% Fifth and following .................................. 0.00%
Class B shares of all Portfolios and Funds (except for Short Term Income Fund) purchased after April 1, 2003 (other than shares of the Funds received in connection with the merger of other mutual funds into certain Funds).
CONTINGENT DEFERRED YEAR OF REDEMPTION AFTER PURCHASE SALES CHARGE - --------------------------------- ------------ First ................................................ 5.00% Second ............................................... 5.00% Third ................................................ 4.00% Fourth ............................................... 3.00% Fifth ................................................ 2.00% Six and following .................................... 0.00%
Class B shares of the Short Term Income Fund purchased after April 1, 2003.
CONTINGENT DEFERRED YEAR OF REDEMPTION AFTER PURCHASE SALES CHARGE - --------------------------------- ------------ First ................................................ 4.00% Second ............................................... 4.00% Third ................................................ 3.00% Fourth ............................................... 2.00% Fifth and following .................................. 0.00%
For these purposes, all purchases are considered made on the last day of the month of purchase. To determine the CDSC payable on a redemption of Class B or C shares, a Fund will first redeem Class B or C shares not subject to a CDSC. Thereafter, to determine the applicability and rate of any CDSC, it will be assumed that shares representing the reinvestment of dividends and capital gain distributions are redeemed first and shares held for the longest period of time are redeemed next. Using this method, your sales charge, if any, will be at the lowest possible CDSC rate. The Trusts have adopted procedures to convert Class B shares, without payment of any sales charges, into Class A shares, which have lower distribution fees, after the passage of approximately eight years after purchase. Those shares of the former Griffin Funds purchased prior to the merger with the WM Group of Funds convert in approximately six years after purchase. The conversion of Class B shares to Class A shares is subject to the availability of a favorable ruling from the Internal Revenue Service or a determination by the Board of Trustees, after consultation with legal counsel, that such conversion will not be subject to federal income tax. There cannot be any assurance that a ruling or determination will be available. If they should not be available, the conversion of Class B shares to Class A shares would not occur and those shares would continue to be subject to higher expenses than Class A shares for an indefinite period. WAIVERS OF CLASS B CDSCS. Redemptions of Class B shares from Portfolio or Fund accounts opened prior to April 1, 2002 will not be subject to CDSCs if made in connection with distributions from IRAs or other retirement accounts to shareholders over age 591/2, except that the qualifying age shall be 701/2 with respect to Class B shares of WM Trust II Funds purchased prior to March 1, 1998. This does not apply to a transfer of assets. See the Prospectus for other CDSC waivers that may apply. WAIVERS OF CLASS C CDSCS. For Class C shares purchased prior to March 1, 2003, waivers of the 1.00% CDSC applied to Class C shares of the Portfolios and Funds redeemed within 12 months of purchase will be granted under the same conditions as generally apply to waivers of CDSCs on Class B shares, as described in the Prospectus. DISTRIBUTIONS IN KIND. If the Board of Trustees determines that it would be detrimental to the best interests of the remaining shareholders of a Fund to make a redemption payment wholly in cash, the Trusts may, in accordance with SEC rules, pay any portion of a redemption in excess of the lesser of $250,000 or 1.00% of the Fund's net assets by distribution in kind of portfolio securities in lieu of cash. Securities issued in a distribution in kind will be readily marketable, although shareholders receiving distributions in kind may incur brokerage commissions when subsequently redeeming shares of those securities. DEFINITIONS SPOUSE. The person to whom one is legally married. PARENT. The biological or adoptive mother or father of a child. LEGAL GUARDIAN. A person legally placed in charge of the affairs of a minor or an incompetent person. CHILD. A biological or adopted son or daughter; a stepchild; a legal ward; or a child of a person standing in loco parentis. MINOR CHILD. A child under the age of 21, regardless of the age of majority recognized by the law of the state in which the child resides. GRANDCHILD. A child of one's child under the age of 21. DOMESTIC PARTNER. Generally, a domestic partner is someone who lives with you full-time and shares your life much like a married spouse would. Domestic partners can be either same-sex or opposite-sex. To qualify, you and your domestic partner must have satisfied all of the following requirements for at least six months before signing an affidavit: - you have a committed, exclusive relationship and intend to remain partners indefinitely - you live together/share the same permanent residence - you share financial responsibility for basic living expenses - you are both at least 18 years old and mentally competent - you are not related to each other by blood so as to preclude marriage in your state of residence - neither of you is married to anyone else, legally separated or is anyone else's domestic partner TAXES The following discussion of federal income tax consequences is based on the Code and the regulations issued thereunder as in effect on the date of this SAI and all references to the Funds in this discussion include the Portfolios. New legislation, as well as administrative changes or court decisions, may significantly alter the conclusions expressed herein, and may have a retroactive effect with respect to the transactions contemplated herein. Each Fund is treated as a separate entity for federal income tax purposes and is not combined with the other funds within a Trust. Each of the Funds intends to elect to be treated and to qualify each year as a regulated investment company (a "RIC") under Subchapter M of the Code. In order to qualify for the special tax treatment accorded RICs and their shareholders, the Fund must, among other things: (a) derive at least 90% of its gross income for each taxable year from dividends, interest, payments with respect to certain securities loans, and gains from the sale or other disposition of stock, 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 stock, securities, or currencies; (b) distribute with respect to each taxable year at least 90% of the sum of its investment company taxable income (as that term is defined in the Code without regard to the deduction for dividends paid -- generally, taxable ordinary income and the excess, if any, of net short-term capital gains over net long-term capital losses) and net tax-exempt interest income, for such year; and (c) diversify its holdings so that, at the end of each quarter of the Fund's taxable year, (i) at least 50% of the market value of the Fund's total assets is represented by cash and cash items, U.S. Government securities, securities of other RICs, and other securities limited in respect of any one issuer to a value not greater than 5% of the value of the Fund's total assets and not more than 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of the Fund's total assets is invested (x) in the securities (other than those of the U.S. Government or other RICs) of any one issuer or of two or more issuers which the Fund controls and which are engaged in the same, similar, or related trades or businesses, or (y) in the securities of one or more qualified publicly traded partnerships (as defined below). In the case of the Fund's investments in loan participations, the Fund shall treat a financial intermediary as an issuer for the purposes of meeting this diversification requirement. In general, for purposes of the 90% gross income requirement described in paragraph (a) above, income derived from a partnership will be treated as qualifying income only to the extent such income is attributable to items of income of the partnership which would be qualifying income if realized by the RIC. However, 100% of the net income derived from an interest in a "qualified publicly traded partnership" (defined as a partnership (i) interests in which are traded on an established securities market or readily tradable on a secondary market or the substantial equivalent thereof and (ii) that derives less than 90% of its income from the qualifying income described in paragraph (a) above) will be treated as qualifying income. In addition, although in general the passive loss rules of the Code do not apply to RICs, such rules do apply to a RIC with respect to items attributable to an interest in a qualified publicly traded partnership. Finally, for purposes of paragraph (c) above, the term "outstanding voting securities of such issuer" will include the equity securities of a qualified publicly traded partnership. If the Fund qualifies as a RIC that is accorded special tax treatment, the Fund will not be subject to federal income tax on income distributed in a timely manner to its shareholders in the form of dividends (including Capital Gain Dividends, defined below). If a Fund were to fail to qualify as a RIC for any year, all of its income would be subject to tax at corporate rates, and its distributions (including Capital Gains Dividends) would generally be taxable as ordinary income dividends to its shareholders, subject to the dividends received deduction for corporate shareholders. In addition, in order to requalify for taxation as a RIC, the Fund may be required to recognize unrealized gains, pay substantial taxes and interest, and make certain distributions. Notwithstanding the distribution requirement described above, which only requires a Fund to distribute at least 90% of its annual investment company taxable income and tax-exempt interest income and does not require any minimum distribution of net capital gain (the excess of net long-term capital gain over net short-term capital loss), a Fund will be subject to a nondeductible 4% federal excise tax to the extent it fails to distribute by the end of any calendar year (i) at least 98% of its ordinary income for that year, (ii) at least 98% of its capital gain net income (the excess of short- and long-term capital gains over short- and long-term capital losses) for the one-year period generally ending on October 31 of that year, and (iii) certain other amounts. Each Fund intends to make distributions sufficient to avoid imposition of the 4% excise tax. For taxable years beginning before January 1, 2009, "qualified dividend income" received by an individual will be taxed at the rates applicable to long-term capital gain. In order for some portion of the dividends received by a Fund shareholder to be qualified dividend income, the Fund must meet holding period and other requirements with respect to some portion of the dividend-paying stocks in its portfolio and the shareholder must meet holding period and other requirements with respect to the Fund's shares. A dividend will not be treated as qualified dividend income (at either the Fund or shareholder level) (1) if the dividend is received with respect to any share of stock held for fewer than 61 days during the 121-day period beginning on the date which is 60 days before the date on which such share becomes ex-dividend with respect to such dividend (or, in the case of certain preferred stock, 91 days during the 181-day period beginning 90 days before such date), (2) to the extent that the recipient is under an obligation (whether pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property, (3) if the recipient elects to have the dividend income treated as investment interest, or (4) if the dividend is received from a foreign corporation that is (a) not eligible for the benefits of a comprehensive income tax treaty with the United States (with the exception of dividends paid on stock of such a foreign corporation readily tradable on an established securities market in the United States) or (b) treated as a passive foreign investment company. In general, distributions of investment income designated by the Fund as derived from qualified dividend income will be treated as qualified dividend income by a shareholder taxed as an individual provided the shareholder meets the holding period and other requirements described above with respect to the Fund's shares. In any event, if the qualified dividend income received by the Fund during any taxable year is 95% or more of its gross income, then 100% of the Fund's dividends (other than properly designated capital gain dividends) will be eligible to be treated as qualified dividend income. For this purpose, the only gain included in the term "gross income" is the excess of net short-term capital gain over net long-term capital loss. The Tax-Exempt Bond, California Municipal, and California Insured Intermediate Municipal Funds will qualify to pay exempt-interest dividends to their shareholders only if, at the close of each quarter of a Fund's taxable year, at least 50% of the total value of a Fund's assets consist of obligations the interest on which is exempt from federal income tax. Shareholders of a Fund are required to report tax-exempt interest on their federal income tax returns. Part or all of the interest on indebtedness incurred or continued by a shareholder to purchase or carry shares of these funds will not be deductible for federal income tax purposes or, in the case of the California Municipal and California Insured Intermediate Funds, for California income tax purposes. Any loss on the sale or exchange of shares in these Funds held for six months or less will be disallowed to the extent of any exempt-interest dividend received by the shareholders with respect to such shares. In addition, the Code may require a shareholder who receives exempt-interest dividends to treat as taxable income a portion of certain otherwise non-taxable social security and railroad retirement benefit payments. Moreover, as noted in the Prospectus, some or all of these Funds' dividends may be a specific preference item, or a component of an adjustment item, for purposes of the federal individual and corporate alternative minimum taxes. Similar rules apply for California state personal income tax purposes. Issuers of bonds purchased by the Tax-Exempt Bond, California Municipal and California Insured Intermediate Municipal Funds (or the beneficiary of such bonds) may have made certain representations or covenants in connection with the issuance of such bonds to satisfy certain requirements of the Code that must be satisfied subsequent to the issuance of such bonds. Shareholders should be aware that exempt-interest dividends may become subject to federal income taxation retroactively to the date of issuance of the bonds to which such dividends are attributable if such representations are determined to have been inaccurate or if the issuers (or the beneficiary) of the bonds fail to comply with certain covenants made at that time. Each shareholder of a Municipal Fund is advised to consult his, her, or its tax advisor to determine the suitability of shares of the Fund as an investment and the precise effect of an investment in the Fund on their particular tax situation. The portion of distributions made by any Fund to its corporate shareholders which are derived from dividends received by such Fund from U.S. domestic corporations may qualify for the dividends received deduction for corporations (reduced to the extent shares of such Fund are treated as debt-financed) if certain holding period requirements with respect to the Fund shares (generally 46 days without protection from risk of loss during the 91-day period beginning on the day 45 days before the ex-dividend date) and certain other requirements are met and if such Fund could have taken such deduction if it were a regular corporation. Receipt of certain distributions qualifying for the deduction may result in reduction of the tax basis of the corporate shareholder's shares and require current income recognition to the extent it is in excess of such basis. Distributions made by the Fixed-Income Funds generally will not be eligible for the dividends received deduction otherwise available to corporate taxpayers. A Fund's investments, if any, in securities issued at a discount (for example, zero-coupon bonds) and certain other obligations will (and investments in securities purchased at a discount may) require this Fund to accrue and distribute income not yet received. In order to generate sufficient cash to make the requisite distributions, the Fund may be required to sell securities that it otherwise would have continued to hold. As described above and in the Prospectus, certain of the Funds may invest in certain types of derivative transactions (including futures contracts, swaps, and options). The Funds anticipate that these investment activities will not prevent the Funds from qualifying as RICs. As a general rule, these investment activities may accelerate, increase or decrease the amount of long-term and short-term capital gains or losses realized by a Fund and, accordingly, will affect the amount of capital gains distributed to a Fund's shareholders. A Fund's transactions in foreign currencies, foreign currency-denominated debt securities and certain foreign currency options, futures contracts and forward contracts (and similar instruments) may give rise to ordinary income or loss to the extent such income or loss results from fluctuations in the value of the foreign currency concerned. In addition, if a Fund engages in hedging transactions, including hedging transactions in options, futures contracts and straddles (or other similar transactions), it will be subject to special tax rules (including mark-to-market, straddle, wash sale, short sale and constructive sale rules), the effect of which may be to accelerate income to a Fund, defer losses to a Fund, cause adjustments in the holding periods of a Fund's securities, convert capital gains into ordinary income, or convert short-term capital losses into long-term capital losses. These rules could therefore affect the amount, timing and character of distributions to shareholders. Each Fund will endeavor to make any available elections pertaining to such transactions in a manner believed to be in the best interests of the Fund. In addition, investment by a Fund in an entity that qualified as a "passive foreign investment company" under the Code could subject the Fund to a U.S. federal income tax or other charge on certain "excess distributions" with respect to the investment. This tax or charge may be avoided, however, by making an election to mark such investments to market annually or to treat the passive foreign investment company as a "qualified electing fund." A "passive foreign investment company" is any foreign corporation: (i) 75% or more of the income of which, for the taxable year, is passive income, or (ii) the average percentage of the assets of which (generally by value, but by adjusted tax basis in certain cases) produce or are held for the production of passive income is at least 50%. Generally, passive income for this purpose means dividends, interest (including income equivalent to interest), royalties, rents, annuities, the excess of gains over losses from certain property transactions and commodities transactions, foreign currency gains and certain income from notional principal contracts. Passive income for this purpose does not include rents and royalties received by the foreign corporation from active business, certain income received from related persons and certain other income. Distributions of net capital gains (i.e., the excess of net gains from capital assets held for more than one year over net losses from capital assets held for not more than one year) that are properly designated by a Fund as capital gain dividends will generally be taxable to a shareholder receiving such distributions as long-term capital gain (generally taxed at a 15% tax rate for individual shareholders) regardless of how long the shareholder has held Fund shares. If a shareholder held shares six months or less and during that period received a distribution of net capital gains, any loss realized on the sale of such shares during such six-month period would be a long-term capital loss to the extent of such distribution (and to the extent not disallowed by virtue of exempt-interest dividend distributions, if any, as described above). In addition, all or a portion of any loss realized upon a taxable disposition of Fund shares will be disallowed if other shares of the same Fund are purchased (whether through reinvestment of distributions or otherwise) within 30 days before or after the disposition. In such a case, the basis of the newly purchased shares will be adjusted to reflect the disallowed loss. While only the Equity Funds expect to realize a significant amount of net long-term capital gains, any such realized gains will be distributed as described in the Prospectus and will be designated as such in a written notice mailed to the shareholder after the close of the Fund's taxable year. Sales charges paid upon a purchase of shares subject to a front-end sales charge cannot be taken into account for purposes of determining gain or loss on a redemption or exchange of the shares before the 91st day after their purchase to the extent a sales charge is reduced or eliminated in a subsequent acquisition of shares of the Fund (or of another Fund) pursuant to the reinvestment or exchange privilege. Any disregarded amounts will result in an adjustment to the shareholder's basis in some or all of any other shares acquired. Dividends and distributions on a Fund's shares are generally subject to federal income tax as described herein to the extent they do not exceed the Fund's realized income and gains, even though such dividends and distributions may economically represent a return of a particular shareholder's investment. Such distributions are likely to occur in respect of shares purchased at a time when a Fund's net asset value reflects gains that are either unrealized, or realized but not distributed. Such realized gains may be required to be distributed, even when a Fund's net asset value also reflects unrealized losses. Certain distributions declared in October, November or December and paid in the following January will be taxed to shareholders as if received on December 31 of the year in which they were declared. ADDITIONAL CONSIDERATIONS FOR SHAREHOLDERS OF THE STRATEGIC ASSET MANAGEMENT PORTFOLIOS A Portfolio will not be able to offset gains realized by one Fund in which such Portfolio invests against losses realized by another Fund in which such Portfolio invests. The Portfolio's use of a fund-of-funds structure could therefore affect the amount, timing and character of distributions to shareholders. If a Portfolio receives dividends from an underlying Fund that qualifies as a regulated investment company, and the underlying Fund designates such dividends as "qualified dividend income," then the Portfolio may in turn designate a portion of its distributions as "qualified dividend income" as well, provided the Portfolio meets the holding period and other requirements with respect to shares of the underlying Fund. Depending on a Portfolio's percentage ownership in an underlying Fund both before and after a redemption, a Portfolio's redemption of shares of such Fund may cause the Portfolio to be treated as not receiving capital gain income on the amount by which the distribution exceeds the Portfolio's tax basis in the shares of the underlying Fund, but instead to be treated as receiving a dividend taxable as ordinary income on the full amounts of the distribution. This could cause shareholders of the Portfolio to recognize higher amounts of ordinary income than if the shareholders had held the shares of the underlying Funds directly. Although a Portfolio may itself be entitled to a deduction for foreign taxes paid by the International Growth Fund, the Portfolio will not be able to pass any such credit or deduction through to its own shareholders. ADDITIONAL CONSIDERATIONS FOR SHAREHOLDERS OF THE INTERNATIONAL GROWTH FUND If at the end of the International Growth Fund's fiscal year more than 50% of the value of its total assets represents securities of foreign corporations, the Fund intends to make an election permitted by the Code to treat any foreign taxes paid by it on securities it has held for at least the minimum period specified in the Code as having been paid directly by the Fund's shareholders in connection with the Fund's dividends received by them. In this case, shareholders generally will be required to include in their gross income their pro rata share of such taxes. Shareholders may then deduct such pro rata portion of such taxes or, alternatively, such shareholders who hold Fund shares (without protection from risk of loss) on the ex-dividend date and for at least 15 other days during the 30-day period surrounding the ex-dividend date will be entitled to claim a foreign tax credit for their share of these taxes. ADDITIONAL CONSIDERATIONS FOR SHAREHOLDERS OF THE CALIFORNIA MUNICIPAL FUND AND CALIFORNIA INSURED INTERMEDIATE MUNICIPAL FUNDS If, at the close of each quarter of its taxable year, at least 50% of the value of the total assets of each of the California Municipal Fund and California Insured Intermediate Municipal Fund (the "California Funds") consist of obligations the interest on which would be exempt from California personal income tax if the obligations were held by an individual ("California Tax-Exempt Obligations"), and if each of the California Funds continues to qualify as a regulated investment company for federal income tax purposes, then each respective California Fund will be qualified to pay dividends, subject to certain limitations, to its shareholders that are exempt from California state personal income tax, but not from California state franchise tax or California state corporate income tax ("California Exempt-Interest Dividends"). However, the total amount of California Exempt-Interest Dividends paid by each of the California Funds to each of the California Fund's non-corporate shareholders with respect to any taxable year cannot exceed the amount of interest received by such California Fund during such year on California Tax-Exempt Obligations less any expenses and expenditures (including any dividends paid to corporate shareholders) deemed to have been paid from such interest. If the aggregate dividends designated as California Exempt-Interest Dividends exceed the amount that may be treated as California Exempt-Interest Dividends, only that percentage of each dividend distribution equal to the ratio of the aggregate amount that may be so treated to aggregate dividends so designated will be treated as a California Exempt-Interest Dividend. Dividend distributions that do not qualify for treatment as California Exempt-Interest Dividends will be taxable to shareholders at ordinary tax rates for California personal income tax purposes. In addition, shareholders who receive social security or railroad retirement benefits should consult their tax advisors to determine what effect, if any, an investment in one of these Funds may have on the taxation of these benefits. SHAREHOLDER STATEMENTS Each shareholder will receive after the close of the calendar year an annual statement and such other written notices as are appropriate as to the federal income and California state personal income tax status of the shareholder's dividends and distributions received from the Fund for the prior calendar year. These statements will also inform shareholders as to the amount of exempt-interest dividends that is a specific preference item for purposes of the federal individual and corporate alternative minimum taxes for the current tax year. Shareholders should consult their tax advisors as to any other state and local taxes that may apply to these dividends and distributions. The dollar amount of dividends excluded or exempt from federal income taxation or California State personal income taxation and the dollar amount of dividends subject to federal income taxation or California State personal income taxation, if any, will vary for each shareholder depending upon the size and duration of each shareholder's investment in a Fund. To the extent that the Tax-Exempt Bond, California Municipal, and California Insured Intermediate Municipal Funds earn taxable net investment income, they intend to designate as taxable dividends the same percentage of each day's dividend (or of each day's taxable net investment income) as its taxable net investment income bears to its total net investment income earned on that day. Therefore, the percentage of each day's dividend designated as taxable, if any, may vary from day to day. Each fund generally is required to withhold and remit to the U.S. Treasury a percentage of the taxable dividends and other distributions paid to and proceeds of share sales, exchanges, or redemptions made by any individual shareholder (including any foreign individual) who fails to furnish the Fund with a correct taxpayer identification number, who has under-reported dividends or interest income, or who fails to certify to the Fund that he or she is a United States person and is not subject to such withholding. The backup withholding tax rate is 28% for amounts paid through 2010. The backup withholding tax rate will be 31% for amounts paid after December 31, 2010. Distributions will not be subject to backup withholding to the extent they are subject to the withholding tax on foreign persons described in the next paragraph. Any tax withheld as a result of backup withholding does not constitute an additional tax imposed on the record owner of the account, and may be claimed as a credit on the record owner's Federal income tax return. If a shareholder realizes a loss on disposition of a Fund's shares of $2 million or more for an individual shareholder or $10 million or more for a corporate shareholder, the shareholder must file with the Internal Revenue Service a disclosure statement on Form 8886. Direct shareholders of portfolio securities are in many cases excepted from this reporting requirement, but under current guidance, shareholders of a regulated investment company are not excepted. Future guidance may extend the current exception from this reporting requirement to shareholders of most or all regulated investment companies. ADDITIONAL CONSIDERATIONS FOR NON-U.S. SHAREHOLDERS. In general, dividends (other than Capital Gain Dividends) paid by the Fund to a shareholder that is not a "U.S. person" within the meaning of the Code (a "foreign person") are subject to withholding of U.S. federal income tax at a rate of 30% (or lower applicable treaty rate) even if they are funded by income or gains (such as portfolio interest, short-term capital gains, or foreign-source dividend and interest income) that, if paid to a foreign person directly, would not be subject to withholding. However, under the American Jobs Creation Act of 2004 (the "2004 Act"), effective for taxable years of the Fund beginning after December 31, 2004 and before January 1, 2008, the Fund will not be required to withhold any amounts (i) with respect to distributions (other than distributions to a foreign person (w) that has not provided a satisfactory statement that the beneficial owner is not a U.S. person, (x) to the extent that the dividend is attributable to certain interest on an obligation if the foreign person is the issuer or is a 10% shareholder of the issuer, (y) that is within certain foreign countries that have inadequate information exchange with the United States, or (z) to the extent the dividend is attributable to interest paid by a person that is a related person of the foreign person and the foreign person is a controlled foreign corporation) from U.S.-source interest income that would not be subject to U.S. federal income tax if earned directly by an individual foreign person, to the extent such distributions are properly designated by the Fund (the "interest-related dividend"), and (ii) with respect to distributions (other than distributions to an individual foreign person who is present in the United States for a period or periods aggregating 183 days or more during the year of the distribution) of net short-term capital gains in excess of net long-term capital losses, to the extent such distributions are properly designated by the Fund (the "short-term capital gain dividends"). In addition, as indicated above, Capital Gain Dividends will not be subject to withholding of U.S. federal income tax. The fact that a Portfolio achieves its investment objectives by investing in the Funds will generally not adversely affect the Portfolio's ability to pass on to foreign shareholders the full benefit of the interest-related dividends and short-term capital gain dividends that it receives from its underlying investments in the Funds, except possibly to the extent that (1) interest-related dividends received by the Portfolio are offset by deductions allocable to the Portfolio's qualified interest income or (2) short-term capital gain dividends received by the Portfolio are offset by the Portfolio's net short- or long-term capital losses, in which case the amount of a distribution from the Portfolio to a foreign shareholder that is properly designated as either an interest-related dividend or a short-term capital gain dividend, respectively, may be less than the amount that such shareholder would have received had they invested directly in the underlying Fund. If a beneficial holder who is a foreign person has a trade or business in the United States, and the dividends are effectively connected with the conduct by the beneficial holder of a trade or business in the United States, the dividend will be subject to U.S. federal net income taxation at regular income tax rates. The 2004 Act modifies the tax treatment of distributions from a Fund that are paid to a foreign person and are attributable to gain from "U.S. real property interests" ("USRPIs"), which the Code defines to include direct holdings of U.S. real property and interests (other than solely as a creditor) in "U.S. real property holding corporations" such as REITs. The Code deems any corporation that holds (or held during the previous five-year period) USRPIs with a fair market value equal to 50% or more of the fair market value of the corporation's U.S. and foreign real property assets and other assets used or held for use in a trade or business to be a U.S. real property holding corporation; however, if any class of stock of a corporation is traded on an established securities market, stock of such class shall be treated as a USRPI only in the case of a person who holds more than 5% of such class of stock at any time during the previous five-year period. Under the 2004 Act, which is generally effective for taxable years of RICs beginning after December 31, 2004 and which applies to dividends paid or deemed paid on or before December 31, 2007, distributions to foreign persons attributable to gains from the sale or exchange of USRPIs ("FIRPTA Distributions") will give rise to an obligation for those foreign persons to file a U.S. tax return and pay tax, and may well be subject to withholding under future regulations. Under current law, a distribution from a Portfolio to a foreign person is not anticipated to be characterized as a FIRPTA Distribution. Under U.S. federal tax law, a beneficial holder of shares who is a foreign person is not, in general, subject to U.S. federal income tax on gains (and is not allowed a deduction for losses) realized on the sale of shares of the Fund or on Capital Gain Dividends unless (i) such gain or Capital Gain Dividend is effectively connected with the conduct of a trade or business carried on by such holder within the United States, (ii) in the case of an individual holder, the holder is present in the United States for a period or periods aggregating 183 days or more during the year of the sale or Capital Gain Dividend and certain other conditions are met, or (iii) the shares constitute USRPIs or (effective for taxable years of the Fund beginning after December 31, 2004) the Capital Gain Dividends are paid or deemed paid on or before December 31, 2007 and are attributable to gains from the sale or exchange of USRPIs. THE FOREGOING IS ONLY A SUMMARY OF CERTAIN INCOME TAX CONSIDERATIONS GENERALLY AFFECTING A FUND AND ITS SHAREHOLDERS AND IS NOT INTENDED AS A SUBSTITUTE FOR CAREFUL TAX PLANNING. SHAREHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS WITH SPECIFIC REFERENCE TO THEIR OWN TAX SITUATIONS, INCLUDING THEIR FEDERAL, STATE, LOCAL AND FOREIGN, IF ANY, TAX LIABILITIES. DISTRIBUTOR/UNDERWRITER [TO BE UPDATED] WM Funds Distributor, Inc. (the "Distributor"), a registered broker-dealer and a wholly-owned subsidiary of Washington Mutual, Inc., serves as distributor for Class A, B, C, R-1, and R-2 shares of the Funds. The principal place of business of the Distributor is 1100 Investment Blvd., Suite 200, El Dorado Hills, CA 95762. For the fiscal year ended October 31, 2004, the Distributor received: (i) $1,217,678 representing commissions (front-end sales charges) on the sale of Class A shares; (ii) ($3,423) representing commissions on the sale of Class C shares; (iii) $186,288 representing CDSC fees from the redemption of Class A shares; (iv) $3,634,902 representing CDSC fees from the redemption of Class B shares; and (v) $72,168 representing CDSC fees from the redemption of Class C Shares. Class R-1 and R-2 shares are not subject to front-end sales charges or CDSD fees. Amounts per Fund are as follows:
FRONT-END SALES CHARGES CLASS A CLASS C ------- ------- REIT Fund [ ] [ ] Equity Income Fund [ ] [ ] Growth & Income Fund [ ] [ ] West Coast Equity Fund [ ] [ ] Mid Cap Stock Fund [ ] [ ] Growth Fund [ ] [ ] Small Cap Growth Fund [ ] [ ] Small Cap Value Fund [ ] [ ] International Growth Fund [ ] [ ] Short Term Income Fund [ ] [ ] U.S. Government Securities Fund [ ] [ ] Income Fund [ ] [ ] High Yield Fund [ ] [ ] Tax-Exempt Bond Fund [ ] [ ] California Municipal Fund [ ] [ ] California Insured Intermediate Municipal Fund [ ] [ ]
CDSC FEES CLASS A CLASS B CLASS C ------- ------- ------- REIT Fund [ ] [ ] [ ] Equity Income Fund [ ] [ ] [ ] Growth & Income Fund [ ] [ ] [ ] West Coast Equity Fund [ ] [ ] [ ] Mid Cap Stock Fund [ ] [ ] [ ] Growth Fund [ ] [ ] [ ] Small Cap Growth Fund [ ] [ ] [ ] Small Cap Value Fund [ ] [ ] [ ] International Growth Fund [ ] [ ] [ ] Short Term Income Fund [ ] [ ] [ ] U.S. Government Securities Fund [ ] [ ] [ ] Income Fund [ ] [ ] [ ] High Yield Fund [ ] [ ] [ ] Tax-Exempt Bond Fund [ ] [ ] [ ] California Municipal Fund [ ] [ ] [ ] California Insured Intermediate Municipal Fund [ ] [ ] [ ] Money Market Fund [ ] [ ] [ ]
Additionally, the Distributor serves as distributor for Class A, B, C, R-1, and R-2 shares of the Portfolios. For the fiscal year ended October 31, 2004, WM Funds Distributor, Inc. received $7,626,856 representing commissions on the sale of Class A shares and ($3,881) representing commissions on the sale of Class C shares. In addition, the Distributor received $73,149, representing CDSC fees on the redemption of Class A shares, $5,927,341 on the redemption of Class B shares and $402,068 representing CDSC fees on the redemption of Class C shares. Class R-1 and R-2 shares are not subject to front-end sales charges or CDSD fees. Amounts per Portfolio are as follows:
FRONT END SALES CHARGES CLASS A CLASS C ------- ------- Flexible Income Portfolio [ ] [ ] Conservative Balanced Portfolio [ ] [ ] Balanced Portfolio [ ] [ ] Conservative Growth Portfolio [ ] [ ] Stategic Growth Portfolio [ ] [ ]
CDSC FEES CLASS A CLASS B CLASS C ------- ------- ------- Flexible Income Portfolio [ ] [ ] [ ] Conservative Balanced Portfolio [ ] [ ] [ ] Balanced Portfolio [ ] [ ] [ ] Conservative Growth Portfolio [ ] [ ] [ ] Stategic Growth Portfolio [ ] [ ] [ ]
Each of the Funds has adopted distribution plans, pursuant to Rule 12b-1 under the 1940 Act, applicable to Class A, B, C, R-1 and R-2 shares of the Fund. Under the applicable Rule 12b-1 Plans, the Distributor receives a service fee at an annual rate of 0.25% of the average daily net assets of the classes. For the fiscal year ended October 31, 2005, this fee amounted to [$] for Class A shares, [$] for Class B shares and [$] with respect to Class C shares. In addition, the Distributor is paid a fee as compensation in connection with the offering and sale of Class B shares and Class C shares at an annual rate of 0.75% of the average daily net assets of such shares, which amounted to [$] for the fiscal year ended October 31, 2005 with respect to Class B shares and [$] with respect to Class C shares. The Distributor is paid a fee as compensation in connection with the offering and sale of Class R-1 and R-2 shares at an annual rate of 0.30% and 0.55%, respectively. Class R-1 and R-2 shares were not offered prior to the date of this SAI. These fees may be used to cover the expenses of the Distributor primarily intended to result in the sale of such shares, including payments to the Distributor's representatives or others for selling shares. Amounts per Fund are as follows:
SERVICE FEES CLASS A CLASS B CLASS C ------- ------- ------- REIT Fund [ ] [ ] [ ] Equity Income Fund [ ] [ ] [ ] Growth & Income Fund [ ] [ ] [ ] West Coast Equity Fund [ ] [ ] [ ] Mid Cap Stock Fund [ ] [ ] [ ] Growth Fund [ ] [ ] [ ] Small Cap Growth Fund [ ] [ ] [ ] Small Cap Value Fund [ ] [ ] [ ] International Growth Fund [ ] [ ] [ ] Short Term Income Fund [ ] [ ] [ ] U.S. Government Securities Fund [ ] [ ] [ ] Income Fund [ ] [ ] [ ] High Yield Fund [ ] [ ] [ ] Tax-Exempt Bond Fund [ ] [ ] [ ] California Municipal Fund [ ] [ ] [ ] California Insured Intermediate Municipal Fund [ ] [ ] [ ] Money Market Fund [ ] [ ] [ ]
DISTRIBUTOR FEES CLASS B FEES WAIVED CLASS C FEES WAIVED ------- ----------- ------- ----------- REIT Fund [ ] [ ] [ ] [ ] Equity Income Fund [ ] [ ] [ ] [ ] Growth & Income Fund [ ] [ ] [ ] [ ] West Coast Equity Fund [ ] [ ] [ ] [ ] Mid Cap Stock Fund [ ] [ ] [ ] [ ]
Growth Fund [ ] [ ] [ ] [ ] Small Cap Growth Fund [ ] [ ] [ ] [ ] Small Cap Value Fund [ ] [ ] [ ] [ ] International Growth Fund [ ] [ ] [ ] [ ] Short Term Income Fund [ ] [ ] [ ] [ ] U.S. Government Securities Fund [ ] [ ] [ ] [ ] Income Fund [ ] [ ] [ ] [ ] High Yield Fund [ ] [ ] [ ] [ ] Tax-Exempt Bond Fund [ ] [ ] [ ] [ ] California Municipal Fund [ ] [ ] [ ] [ ] California Insured Intermediate Municipal Fund [ ] [ ] [ ] [ ] Money Market Fund [ ] [ ] [ ] [ ]
Additionally, each of the Portfolios has adopted distribution plans, pursuant to Rule 12b-1 under the 1940 Act, applicable to Class A, B, C, R-1, and R-2 shares of the Portfolios. Under the applicable Rule 12b-1 Plans, the Distributor is paid a shareholder service fee at an annual rate of 0.25% of the average daily net assets of each class of shares. For the year ended October 31, 2005, this fee amounted to [$] for Class A shares, [$] for Class B shares and [$] for Class C shares. Additionally, under the Class B and the Class C Plans, the Distributor is to be paid an annual distribution fee of up to 0.75% of the average daily net assets of the Class B shares of each Portfolio for activities primarily intended to result in the sale of Class B and C shares for the Portfolios, which amounted to [$] for fiscal year ended October 31, 2005 with respect to Class B shares and [$] with respect to Class C shares. The distribution fee for Class R-1 and R-2 shares is to be paid to the Distributor at an annual rate of 0.30% and 0.55%, respectively. Class R-1 and R-2 shares were not offered prior to the date of this SAI. Amounts per Portfolio are as follows:
SERVICE FEES CLASS A CLASS B CLASS C ------- ------- ------- Flexible Income Portfolio [ ] [ ] [ ] Conservative Balanced Portfolio [ ] [ ] [ ] Balanced Portfolio [ ] [ ] [ ] Conservative Growth Portfolio [ ] [ ] [ ] Stategic Growth Portfolio [ ] [ ] [ ]
DISTRIBUTOR FEES CLASS B CLASS C ------- ------- Flexible Income Portfolio [ ] [ ] Conservative Balanced Portfolio [ ] [ ] Balanced Portfolio [ ] [ ] Conservative Growth Portfolio [ ] [ ] Stategic Growth Portfolio [ ] [ ]
Because the Distributor may retain any amount of its fee that is not so expended, the Rule 12b-1 Plans are characterized by the SEC as "compensation-type" plans. Accordingly, the Rule 12b-1 Plans require all fees be paid to the Distributor as compensation. The service fee is paid by the Fund or Portfolio to the Distributor, who in turn, pays a portion of the service fee to broker/dealers that provide services, such as accepting telephone inquiries and transaction requests and processing correspondences, new account applications and subsequent purchases by check for the shareholders. Under their terms, each Rule 12b-1 Plan shall remain in effect from year to year, provided such continuance is approved annually by vote of the Board of Trustees. FINANCIAL STATEMENTS The financial statements and schedules required by Regulation S-X are included in the Portfolios' and Funds' most recent Annual Report to shareholders for the fiscal period ended October 31, 2005, and are incorporated by reference to this SAI. The Portfolios' and Funds' Annual Report and Prospectus may be obtained free of charge by contacting the WM Group of Funds at 1-800-222-5852 or by visiting www.wmgroupoffunds.com. APPENDIX A DESCRIPTION OF BOND, NOTES AND COMMERCIAL PAPER RATINGS DESCRIPTION OF S&P CORPORATE BOND RATINGS - - AAA -- An obligation rated AAA has the highest rating assigned by Standard & Poor's. The obligor's capacity to meet its financial commitment on the obligation is extremely strong. - - AA -- An obligation rated AA differs from the highest rated obligations only in small degree. The obligor's capacity to meet its financial commitment on the obligation is very strong. - - A -- An obligation rated A is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rated categories. However, the obligor's capacity to meet its financial commitment on the obligation is still strong. - - BBB -- An obligation rated BBB exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation. Obligations rated BB, B, CCC, CC, and C are regarded as having significant speculative characteristics. BB indicates the least degree of speculation and C the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions. - - BB -- An obligation rated BB is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation. - - B -- An obligation rated B is more vulnerable to nonpayment than obligations rated BB, but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation. - - CCC -- An obligation rated CCC is currently vulnerable to nonpayments, and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation. - - CC -- An obligation rated CC is currently highly vulnerable to nonpayment. - - C -- A subordinated debt or preferred stock obligation rated C is currently highly vulnerable to nonpayment. The C rating may be used to cover a situation where a bankruptcy petition has been filed or similar action taken, but payments on this obligations are being continued. A C will be assigned to a preferred stock issue in arrears on dividends or sinking fund payments, but that is currently paying. - - D -- An obligation rated D is in payment default. The D rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired. Standard & Poor's believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized. - - Plus (+) or minus (-) -- The ratings from AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. DESCRIPTION OF MOODY'S CORPORATE AND MUNICIPAL BOND RATINGS - - Aaa -- Bonds which are rated Aaa are judged to be the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt-edged." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. - - Aa -- Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as for Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities. - - A -- Bonds which are rated A possess many favorable investment attributes and are to be considered as upper-medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future. - - Baa -- Bonds which are related Baa are considered as medium-grade obligations (i.e., they are neither highly protected nor poorly secured). Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. - - Ba -- Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well-assured. Often the protection of interest and principal payments may be very moderate, and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. - - B -- Bonds, which are rated B generally, lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. - - Caa -- Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. - - Ca -- Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. - - C -- Bonds which are rated C are the lowest rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. Moody's applies the numerical modifiers 1, 2 and 3 to each generic rating classification from Aa through Caa. The modifier 1 indicates that the issue ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks in the lower end of its generic rating category. DESCRIPTION OF FITCH CORPORATE BOND RATINGS INVESTMENT GRADE - - AAA -- Highest credit quality. AAA ratings denote the lowest expectation of credit risk. They are assigned only in case of exceptionally strong capacity for timely payment of financial commitments. This capacity is highly unlikely to be adversely affected by foreseeable events. - - AA -- Very high credit quality. AA ratings denote a very low expectation of credit risk. They indicate very strong capacity for timely payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events. - - A -- High credit quality. A ratings denote a low expectation of credit risk. The capacity for timely payment of financial commitments is considered strong. This capacity may, nevertheless, be more vulnerable to changes in circumstances or in economic conditions than is the case for higher ratings. - - BBB -- Good credit quality. BBB ratings indicate that there is currently a low expectation of credit risk. The capacity for timely payment of financial commitments is considered adequate, but adverse changes in circumstances and in economic conditions are more likely to impair this capacity. This is the lowest investment-grade category. SPECULATIVE GRADE - - BB -- Speculative. BB ratings indicate that there is a possibility of credit risk developing, particularly as the result of adverse economic change over time; however, business or financial alternatives may be available to allow financial commitments to be met. Securities rated in this category are not investment grade. - - B -- Highly speculative. B ratings indicate that significant credit risk is present, but a limited margin of safety remains. Financial commitments are currently being met; however, capacity for continued payment is contingent upon a sustained, favorable business and economic environment. - - CCC, CC, and C -- High default risk. Default risk is a real possibility. Capacity for meeting financial commitments is solely reliant upon sustained, favorable business or economic developments. A CC rating indicates that default of some kind appears probably. C ratings signal imminent default. - - DDD, DD, and D -- Default. The ratings of obligations in this category are based on their prospects for achieving partial or full recovery in a reorganization or liquidation of the obligor. While expected recovery values are highly speculative and cannot be estimated with any precision, the following serve as general guidelines. DDD obligations have the highest potential for recovery, around 90% -- 100% of outstanding amounts and accrued interest. DD indicated potential recoveries in the range of 50% -- 90% and D the lowest recovery potential, i.e., below 50%. Entities rated in this category have defaulted on some or all of their obligations. Entities rated "DDD" have the highest prospect for resumption of performance or continued operation with or without a formal reorganization process. Entities rated DD and D are generally undergoing a formal reorganization or liquidation process; those rated DD are likely to satisfy a higher portion of their outstanding obligations, while entities rated D have a poor prospect of repaying all obligations. DESCRIPTION OF S&P MUNICIPAL NOTE RATINGS Municipal notes with maturities of three years or less are usually given note ratings (designated SP-1, -2 or -3) to distinguish more clearly the credit quality of notes as compared to bonds. Notes rated SP-1 have a strong capacity to pay principal and interest. Those issues determined to possess a very strong capacity to pay debt service are given the designation of SP-1+. Notes rated SP-1 have a satisfactory capacity to pay principal and interest, with some vulnerability to adverse financial and economic changes over the term of the notes. Notes rated SP-3 have a speculative capacity to pay principle and interest. DESCRIPTION OF MOODY'S MUNICIPAL NOTE RATINGS In municipal debt issuance, there are three rating categories for short-term obligations that are considered investment grade. These ratings are designated as Moody's Investment Grade (MIG) and are divided into three levels -- MIG 1 through MIG 3. In addition, those short-term obligations that are of speculative quality are designated SG, or speculative grade. In the case of variable rate demand obligations (VRDOs), a two-component rating is assigned. The first element represents Moody's evaluation of the degree of risk associated with scheduled principal and interest payments. The second element represents Moody's evaluation of the degree of risk associated with the demand feature, using the MIG rating scale. The short-term rating assigned to the demand feature of VRDOs is designated as VMIG. When either the long-or short-term aspect of a VRDO is not rated, that piece is designated NR, e.g., Aaa/NR or NR/ VMIG 1. MIG ratings expire at note maturity. By contrast, VMIG rating expirations will be a function of each issue's specific structural or credit features. - - MIG 1/VMIG 1 -- This designation denotes superior credit quality. Excellent protection is afforded by established cash flows, highly reliable liquidity support, or demonstrated broad-based access to the market for refinancing. - - MIG 2/VMIG 2 -- This designation denotes strong credit quality. Margins of protection are ample, although not as large as in the preceding group. - - MIG 3/VMIG 3 -- This designation denotes acceptable credit quality. Liquidity and cash-flow protection may be narrow, and market access for refinancing is likely to be less well-established. - - SG -- This designation denotes speculative-grade credit quality. Debt instruments in this category may lack sufficient margins of protection. DESCRIPTION OF S&P COMMERCIAL PAPER RATINGS - - A-1 -- A short-term obligation rated A-1 is rated in the highest category by Standard & Poor's. The obligor's capacity to meet its financial commitment on the obligation is strong. Within this category, certain obligations are designated with a plus sign (+). This indicates that the obligor's capacity to meet its financial commitment on these obligations is extremely strong. - - A-2 -- A short-term obligation rated A-2 is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rating categories. However, the obligor's capacity to meet its financial commitment on the obligation is satisfactory. - - A-3 -- A short-term obligation rated A-3 exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation. - - B -- A short-term obligation rated B is regarded as having significant speculative characteristics. The obligor currently has the capacity to meet its financial commitment on the obligation; however, it faces major ongoing uncertainties, which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation. - - C -- A short-term obligation rated C is currently vulnerable to nonpayment and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. - - D -- A short-term obligation rated D is in payment default. The D rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless Standard & Poor's believes that such payments will be made during such grace period. The "D" rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized. DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS Issuers rated Prime-1 (or supporting institutions) have a superior ability for repayment of short-term debt obligations. Prime-1 repayment ability will often be evidenced by many of the following characteristics: 1) leading market positions in well-established industries, 2) high rates of return on funds employed, 3) conservative capitalization structure with moderate reliance on debt and ample asset protection, 4) broad margins in earnings coverage of fixed financial charges and high internal cash generation and 5) well-established access to a range of financial markets and assured sources of alternate liquidity. Issuers rated Prime-2 (or supporting institutions) have a strong ability for repayment of senior short-term debt obligations. This will normally be evidenced by many of the characteristics cited above but to a lesser degree. Earnings trends and coverage ratios, while sound, may be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. Issuers rated Prime-3 (or supporting institutions) have an acceptable ability for repayment of senior short-term obligations. The effect of industry characteristics and market compositions may be more pronounced. Variability in earnings and profitability may result in changes in the level of debt protection measurements and may require relatively high financial leverage. Adequate alternate liquidity is maintained. DESCRIPTION OF FITCH'S COMMERCIAL PAPER RATINGS The rating F1+ (Exceptionally Strong Credit Quality) is the highest commercial rating assigned by Fitch and is assigned to issues regarded as having the strongest degree of assurance for timely payment. Paper rated F1 (Highest Credit Quality) is regarded as having an assurance of timely payment only slightly less in degree than issues rated F1+. The rating F2 (Good Credit Quality) reflects an assurance of timely payment, but the margin of safety is not as great as for issues assigned F1+ or F1 ratings. The F3 rating (Fair Credit Quality) denotes that the capacity for timely payment of financial commitments is adequate; however, near-term adverse changes could result in a reduction to non-investment grade, whereas, B is a Speculative rating meaning that there is minimal capacity for timely payment of financial commitments, plus vulnerability to near-term adverse changes in financial and economic conditions. A rating of C (High Default Risk) shows that default is a real possibility. It also shows that the capacity for meeting financial commitments is solely reliant upon a sustained, favorable business and economic environment. D stands for Default and denotes actual or imminent payment default. APPENDIX B PROXY VOTING POLICIES The Board of Trustees has delegated to the Advisor, or, where applicable, the Sub-advisor responsible for the management of a particular Fund (or, for the Growth Fund, the relevant portion of the Fund), responsibility for voting any proxies relating to portfolio securities held by the Fund in accordance with the Advisor's or Sub-advisor's proxy voting policies and procedures. A copy of the proxy voting policies and procedures to be followed by the Advisor and each Sub-advisor, including procedures to be used when a vote presents a conflict of interest, are attached. PROXY VOTING PROCEDURES OF WM ADVISORS, INC. THE ROLE OF WM ADVISORS, INC. In its capacity as an investment adviser for each of its clients, WM Advisors, Inc. ("WMA") shall, except where WMA and the client have otherwise agreed, assist the client in voting proxies with respect to its portfolio securities to the extent that such proxies relate to matters involving investment judgment. In addition, the client may authorize WMA, in its capacity as adviser, to vote the client's proxies. In such cases, WMA is responsible for casting the proxy votes in a manner consistent with the best interests of the client. WMA may delegate its responsibilities with respect to proxy voting for any client to one or more sub-advisers approved by the client. THE ROLE OF THE PROXY VOTING SERVICE WMA has engaged Institutional Shareholder Services ("ISS") to assist in the voting of proxies. ISS is responsible for coordinating with the client's custodian to ensure that all proxy materials received by the custodian relating to the client's portfolio securities are processed in a timely fashion. Subject to the right of the client, WMA and any applicable sub-adviser to instruct ISS to vote a specific proxy in a specific manner (an "Exception"), ISS will vote all proxies in accordance with its proxy voting guidelines. (Where those guidelines call for a determination to be made on a case-by-case basis, ISS is responsible for obtaining such information as is reasonably necessary for it to determine how to vote such proxies in the best interests of the client, and for so voting such proxies.) ISS will notify WMA and any applicable sub-adviser as to how it intends to vote each proxy no later than 3 business days prior to voting such proxy. In the event WMA or a sub-adviser wishes to create an Exception for a proxy vote, it will notify ISS at least 1 business day before the last day on which the proxy could be voted. Except as may otherwise be agreed by a client, WMA will provide a report (including both the basis and rationale for the Exception and a certification as to the absence of any conflict of interest (as described below under "Conflicts of Interest") relating to such proxy) with respect to each Exception to the client at least quarterly. ISS will identify to WMA any proxy with respect to which it may be deemed to have a conflict of interest at least 5 business days prior to the last day such proxy could be voted. WMA will determine how any such proxy will be voted, unless it may also be deemed to have a conflict, in which case WMA will make a recommendation to the client with respect to the proxy, and the client will determine how the proxy should be voted. CONFLICTS OF INTEREST Occasions may arise where a person or organization involved in the proxy voting process for a client may have a conflict of interest in voting the client's proxy. A conflict of interest may exist, for example, if WMA has a business relationship with (or is actively soliciting business from) either the company soliciting the proxy or a third party that has a material interest in the outcome of a proxy vote or that is actively lobbying for a particular outcome of a proxy vote. Any individual with knowledge of a personal conflict of interest (e.g., a familial relationship with company management) relating to a particular proxy shall disclose that conflict to WMA and otherwise remove himself or herself from the proxy voting process. WMA will review each proxy with respect to which it wishes to create an Exception to determine if a conflict of interest exists and will provide the client with a Conflicts Report for each proxy that (1) describes any conflict of interest; (2) discusses the procedures used to address such conflict of interest; and (3) discloses any contacts from parties outside WMA (other than routine communications from proxy solicitors) with respect to the proxy. PROXY VOTING GUIDELINES OF WM ADVISORS, INC. The proxy voting guidelines below give a general indication of how WM Advisors, Inc. ("WMA") will vote a client's portfolio securities on proposals dealing with a particular issue. WMA may delegate its responsibilities with respect to proxy voting for any client to one or more sub-advisers approved by the client. In cases where WMA has engaged a proxy voting service, the proxy voting service will vote all proxies relating to client's portfolio securities in accordance with its guidelines, except as otherwise instructed by the client, WMA or any relevant sub-adviser. If a portfolio security is currently being loaned by a client but is the subject of a vote that WMA determines is material to the value of the security, WMA will seek to recall that portfolio security and vote the proxy in accordance with these guidelines. Votes with respect to portfolio securities on loan will otherwise be voted in the discretion of the borrower. The proxy voting guidelines are just that -- guidelines. The guidelines are not exhaustive and do not include all potential voting issues. Because proxy issues and the circumstances of individual companies are so varied, there may be instances when WMA may not vote in strict adherence to these guidelines. WMA, as part of its ongoing review and analysis of all client portfolio holdings, is responsible for monitoring significant corporate developments, including proxy proposals submitted to shareholders, and notifying the client and/or any proxy voting service of circumstances where the client's interests warrant a vote contrary to these guidelines. The vast majority of matters presented to shareholders for a vote involve proposals made by a company itself (sometimes referred to as "management proposals"), which have been approved and recommended by its board of directors. In view of the enhanced corporate governance practices currently being implemented in public companies and WMA's intent to hold corporate boards accountable for their actions in promoting shareholder interests, the client's proxies generally will be voted in support of decisions reached by independent boards of directors. Accordingly, the client's proxies will be voted FOR board-approved proposals, except as indicated below. DOMESTIC (U.S.) PROXIES 1. AUDITORS a. Vote FOR proposals to ratify auditors, unless any of the following apply: - An auditor has a financial interest in or association with the company, and is therefore not independent; - Fees for non-audit services are excessive, or - There is reason to believe that the independent auditor has rendered an opinion which is neither accurate - nor indicative of the company's financial position. 2. BOARD OF DIRECTORS a. Voting on Director Nominees in Uncontested Elections - Votes on director nominees should be made on a CASE-BY-CASE basis, examining the following factors: independence of the board and key board committees, attendance at board meetings, corporate governance provisions and takeover activity, long-term company performance, responsiveness to shareholder proposals, any egregious board actions, and any excessive non-audit fees or other potential auditor conflicts. b. Classification/Declassification of the Board - Vote AGAINST proposals to classify the board. - Vote FOR proposals to repeal classified boards and to elect all directors annually. c. Independent Chairman (Separate Chairman/CEO) - Vote on a CASE-BY-CASE basis shareholder proposals requiring that the positions of chairman and CEO be held separately. Because some companies have governance structures in place that counterbalance a combined position, certain factors should be taken into account in determining whether the proposal warrants support. These factors include the presence of a lead director, board and committee independence, governance guidelines, company performance, and annual review by outside directors of CEO pay. d. Majority of Independent Directors /Establishment of Committees - Vote FOR shareholder proposals asking that a majority or more of directors be independent unless the board composition already meets the proposed threshold by ISS's definition of independence. - Vote FOR shareholder proposals asking that board audit, compensation, and/or nominating committees be composed exclusively of independent directors if they currently do not meet that standard. 3. SHAREHOLDER RIGHTS a. Shareholder Ability to Act by Written Consent - Vote AGAINST proposals to restrict or prohibit shareholder ability to take action by written consent. - Vote FOR proposals to allow or make easier shareholder action by written consent. b. Shareholder Ability to Call Special Meetings - Vote AGAINST proposals to restrict or prohibit shareholder ability to call special meetings. - Vote FOR proposals that remove restrictions on the right of shareholders to act independently of management. c. Supermajority Vote Requirements - Vote AGAINST proposals to require a supermajority shareholder vote. - Vote FOR proposals to lower supermajority vote requirements. d. Cumulative Voting - Vote AGAINST proposals to eliminate cumulative voting. - Vote proposals to restore or permit cumulative voting on a CASE-BY-CASE basis relative to the company's other governance provisions. e. Confidential Voting - Vote FOR shareholder proposals requesting that corporations adopt confidential voting, use independent vote tabulators and use independent inspectors of election, as long as the proposal includes a provision for proxy contests as follows: In the case of a contested election, management should be permitted to request that the dissident group honor its confidential voting policy. If the dissidents agree, the policy remains in place. If the dissidents will not agree, the confidential voting policy is waived. - Vote FOR management proposals to adopt confidential voting. 4. PROXY CONTESTS a. Voting for Director Nominees in Contested Elections - Votes in a contested election of directors must be evaluated on a CASE-BY-CASE basis, considering the factors that include the long-term financial performance, management's track record, qualifications of director nominees (both slates), and an evaluation of what each side is offering shareholders. b. Reimbursing Proxy Solicitation Expenses - Vote CASE-BY-CASE. Where ISS recommends in favor of the dissidents, ISS also recommends voting for reimbursing proxy solicitation expenses. 5. POISON PILLS - Vote FOR shareholder proposals that ask a company to submit its poison pill for shareholder ratification. Review on a CASE-BY-CASE basis shareholder proposals to redeem a company's poison pill and management proposals to ratify a poison pill. 6. MERGERS AND CORPORATE RESTRUCTURINGS - Vote CASE-BY-CASE on mergers and corporate restructurings based on such features as the fairness opinion, pricing, strategic rationale, and the negotiating process. 7. REINCORPORATION PROPOSALS - Proposals to change a company's state of incorporation should be evaluated on a CASE-BY-CASE basis, giving consideration to both financial and corporate governance concerns, including the reasons for reincorporating, a comparison of the governance provisions, and a comparison of the jurisdictional laws. Vote FOR reincorporation when the economic factors outweigh any neutral or negative governance changes. 8. CAPITAL STRUCTURE a. Common Stock Authorization - Votes on proposals to increase the number of shares of common stock authorized for issuance are determined on a CASE-BY-CASE basis using a model developed by ISS. - Vote AGAINST proposals at companies with dual-class capital structures to increase the number of authorized shares of the class of stock that has superior voting rights. - Vote FOR proposals to approve increases beyond the allowable increase when a company's shares are in danger of being delisted or if a company's ability to continue to operate as a going concern is uncertain. b. Dual-class Stock - Vote AGAINST proposals to create a new class of common stock with superior voting rights. - Vote FOR proposals to create a new class of nonvoting or subvoting common stock if: - It is intended for financing purposes with minimal or no dilution to current shareholders; or - It is not designed to preserve the voting power of an insider or significant shareholder. 9. EXECUTIVE AND DIRECTOR COMPENSATION a. - Votes with respect to compensation plans should be determined on a CASE-BY-CASE basis. ISS's methodology for reviewing compensation plans primarily focuses on the transfer of shareholder wealth (the dollar cost of pay plans to shareholders instead of simply focusing on voting power dilution). Using the expanded compensation data disclosed under the SEC's rules, ISS will value every award type. ISS will include in its analyses an estimated dollar cost for the proposed plan and all continuing plans. This cost, dilution to shareholders' equity, will also be expressed as a percentage figure for the transfer of shareholder wealth, and will be considered long with dilution to voting power. Once ISS determines the estimated cost of the plan, ISS compares it to a company-specific dilution cap. - Vote AGAINST equity plans that explicitly permit repricing or where the company has a history of repricing without shareholder approval. b. Management Proposals Seeking Approval to Reprice Options - Votes on management proposals seeking approval to reprice options are evaluated on a CASE-BY-CASE basis giving consideration to the following: - Historic trading patterns - Rationale for the repricing - Value-for-value exchange - Option vesting - Term of the option - Exercise price - Participation c. Employee Stock Purchase Plans - Votes on employee stock purchase plans should be determined on a CASE-BY-CASE basis. - Vote FOR employee stock purchase plans where all of the following apply: - Purchase price is at least 85 percent of fair market value; - Offering period is 27 months or less; and - Potential voting power dilution (VPD) is ten percent or less. - Vote AGAINST employee stock purchase plans where any of the opposite conditions obtain. d. Shareholder Proposals on Compensation - Vote on a CASE-BY-CASE basis for all other shareholder proposals regarding executive and director pay, taking into account company performance, pay level versus peers, pay level versus industry, and long term corporate outlook. 10. SOCIAL AND ENVIRONMENTAL ISSUES - These issues cover a wide range of topics, including consumer and public safety, environment and energy, general corporate issues, labor standards and human rights, military business, and workplace diversity. In general, vote CASE-BY-CASE. While a wide variety of factors goes into each analysis, the overall principal guiding all vote recommendations focuses on how the proposal will enhance the economic value of the company. FOREIGN (NON-U.S.) PROXIES 1. FINANCIAL RESULTS/DIRECTOR AND AUDITOR REPORTS - Vote FOR approval of financial statements and director and auditor reports, unless: - there are concerns about the accounts presented or audit procedures used; or - the company is not responsive to shareholder questions about specific items that should be publicly disclosed. 2. APPOINTMENT OF AUDITORS AND AUDITOR COMPENSATION - Vote FOR the reelection of auditors and proposals authorizing the board to fix auditor fees, unless: - there are serious concerns about the accounts presented or the audit procedures used; - the auditors are being changed without explanation; or - non-audit-related fees are substantial or are routinely in excess of standard annual audit fees. - Vote AGAINST the appointment of external auditors if they have previously served the company in an executive capacity or can otherwise be considered affiliated with the company. - ABSTAIN if a company changes its auditor and fails to provide shareholders with an explanation for the change. 3. APPOINTMENT OF INTERNAL STATUTORY AUDITORS - Vote FOR the appointment or reelection of statutory auditors, unless: - there are serious concerns about the statutory reports presented or the audit procedures used; - questions exist concerning any of the statutory auditors being appointed; or - the auditors have previously served the company in an executive capacity or can otherwise be considered affiliated with the company. 4. ALLOCATION OF INCOME - Vote FOR approval of the allocation of income, unless: - the dividend payout ratio has been consistently below 30 percent without adequate explanation; or - the payout is excessive given the company's financial position. 5. STOCK (SCRIP) DIVIDEND ALTERNATIVE - Vote FOR most stock (scrip) dividend proposals. - Vote AGAINST proposals that do not allow for a cash option unless management demonstrates that the cash option is harmful to shareholder value. 6. AMENDMENTS TO ARTICLES OF ASSOCIATION - Vote amendments to the articles of association on a CASE-BY-CASE basis. 7. CHANGE IN COMPANY FISCAL TERM - Vote FOR resolutions to change a company's fiscal term unless a company's motivation for the change is to postpone its AGM. 8. LOWER DISCLOSURE THRESHOLD FOR STOCK OWNERSHIP - Vote AGAINST resolutions to lower the stock ownership disclosure threshold below five percent unless specific reasons exist to implement a lower threshold. 9. AMEND QUORUM REQUIREMENTS - Vote proposals to amend quorum requirements for shareholder meetings on a CASE-BY-CASE basis. 10. TRANSACT OTHER BUSINESS - Vote AGAINST other business when it appears as a voting item. 11. DIRECTOR ELECTIONS - Vote FOR management nominees in the election of directors, unless: - there are clear concerns about the past performance of the company or the board; or - the board fails to meet minimum corporate governance standards. - Vote FOR individual nominees unless there are specific concerns about the individual, such as criminal wrongdoing or breach of fiduciary responsibilities. - Vote AGAINST shareholder nominees unless they demonstrate a clear ability to contribute positively to board deliberations. - Vote AGAINST individual directors if they cannot provide an explanation for repeated absences at board meetings (in countries where this information is disclosed). 12. DIRECTOR COMPENSATION - Vote FOR proposals to award cash fees to nonexecutive directors unless the amounts are excessive relative to other companies in the country or industry. - Vote nonexecutive director compensation proposals that include both cash and share-based components on a CASE-BY-CASE basis. - Vote proposals that bundle compensation for both nonexecutive and executive directors into a single resolution on a CASE-BY-CASE basis. - Vote AGAINST proposals to introduce retirement benefits for nonexecutive directors. 13. DISCHARGE OF BOARD AND MANAGEMENT - Vote FOR discharge of the board and management, unless: - there are serious questions about actions of the board or management for the year in question; or - legal action is being taken against the board by other shareholders. 14. DIRECTOR, OFFICER, AND AUDITOR INDEMNIFICATION AND LIABILITY PROVISIONS - Vote proposals seeking indemnification and liability protection for directors and officers on a CASE-BY-CASE basis. - Vote AGAINST proposals to indemnify auditors. 15. BOARD STRUCTURE - Vote FOR proposals to fix board size. - Vote AGAINST the introduction of classified boards and mandatory retirement ages for directors. - Vote AGAINST proposals to alter board structure or size in the context of a fight for control of the company or the board. 16. SHARE ISSUANCE REQUESTS a. General Issuances - Vote FOR issuance requests with preemptive rights to a maximum of 100 percent over currently issued capital. - Vote FOR issuance requests without preemptive rights to a maximum of 20 percent of currently issued capital. b. Specific Issuances - Vote on a CASE-BY-CASE basis on all requests, with or without preemptive rights. 17. INCREASES IN AUTHORIZED CAPITAL - Vote FOR nonspecific proposals to increase authorized capital up to 100 percent over the current authorization unless the increase would leave the company with less than 30 percent of its new authorization outstanding. - Vote FOR specific proposals to increase authorized capital to any amount, unless: - the specific purpose of the increase (such as a share-based acquisition or merger) does not meet ISS guidelines for the purpose being proposed; or - the increase would leave the company with less than 30 percent of its new authorization outstanding after adjusting for all proposed issuances (and less than 25 percent for companies in Japan). - Vote AGAINST proposals to adopt unlimited capital authorizations. 18. REDUCTION OF CAPITAL - Vote FOR proposals to reduce capital for routine accounting purposes unless the terms are unfavorable to shareholders. - Vote proposals to reduce capital in connection with corporate restructuring on a CASE-BY-CASE basis. 19. CAPITAL STRUCTURES - Vote FOR resolutions that seek to maintain or convert to a one share, one vote capital structure. - Vote AGAINST requests for the creation or continuation of dual class capital structures or the creation of new or additional supervoting shares. 20. PREFERRED STOCK - Vote FOR the creation of a new class of preferred stock or for issuances of preferred stock up to 50 percent of issued capital unless the terms of the preferred stock would adversely affect the rights of existing shareholders. - Vote FOR the creation/issuance of convertible preferred stock as long as the maximum number of common shares that could be issued upon conversion meets ISS's guidelines on equity issuance requests. - Vote AGAINST the creation of a new class of preference shares that would carry superior voting rights to the common shares. - Vote AGAINST the creation of blank check preferred stock unless the board clearly states that the authorization will not be used to thwart a takeover bid. - Vote proposals to increase blank check preferred authorizations on a CASE-BY-CASE basis. 21. DEBT ISSUANCE REQUESTS - Vote nonconvertible debt issuance requests on a CASE-BY-CASE basis, with or without preemptive rights. - Vote FOR the creation/issuance of convertible debt instruments as long as the maximum number of common shares that could be issued upon conversion meets ISS's guidelines on equity issuance requests. - Vote FOR proposals to restructure existing debt arrangements unless the terms of the restructuring would adversely affect the rights of shareholders. 22. PLEDGING OF ASSETS FOR DEBT - Vote proposals to approve the pledging of assets for debt on a CASE-BY-CASE basis. 23. INCREASE IN BORROWING POWERS - Vote proposals to approve increases in a company's borrowing powers on a CASE-BY-CASE basis. 24. SHARE REPURCHASE PLANS: - Vote FOR share repurchase plans, unless: - clear evidence of past abuse of the authority is available; or - the plan contains no safeguards against selective buybacks. 25. REISSUANCE OF SHARES REPURCHASED: - Vote FOR requests to reissue any repurchased shares unless there is clear evidence of abuse of this authority in the past. 26. CAPITALIZATION OF RESERVES FOR BONUS ISSUES/INCREASE IN PAR VALUE: - Vote FOR requests to capitalize reserves for bonus issues of shares or to increase par value. 27. REORGANIZATIONS/RESTRUCTURINGS: - Vote reorganizations and restructurings on a CASE-BY-CASE basis. 28. MERGERS AND ACQUISITIONS: - Vote FOR mergers and acquisitions, unless: - the impact on earnings or voting rights for one class of shareholders is disproportionate to the relative contributions of the group; or - the company's structure following the acquisition or merger does not reflect good corporate governance. - Vote AGAINST if the companies do not provide sufficient information upon request to make an informed voting decision. - ABSTAIN if there is insufficient information available to make an informed voting decision. 29. MANDATORY TAKEOVER BID WAIVERS: - Vote proposals to waive mandatory takeover bid requirements on a CASE-BY-CASE basis. 30. REINCORPORATION PROPOSALS: - Vote reincorporation proposals on a CASE-BY-CASE basis. 31. EXPANSION OF BUSINESS ACTIVITIES: - Vote FOR resolutions to expand business activities unless the new business takes the company into risky areas. 32. RELATED-PARTY TRANSACTIONS: - Vote related-party transactions on a CASE-BY-CASE basis. 33. COMPENSATION PLANS: - Vote compensation plans on a CASE-BY-CASE basis. 34. ANTI-TAKEOVER MECHANISMS: - Vote AGAINST all anti-takeover proposals unless they are structured in such a way that they give shareholders the ultimate decision on any proposal or offer. 35. SHAREHOLDER PROPOSALS: - Vote all shareholder proposals on a CASE-BY-CASE basis. - Vote FOR proposals that would improve the company's corporate governance or business profile at a reasonable cost. - Vote AGAINST proposals that limit the company's business activities or capabilities or result in significant costs being incurred with little or no benefit. Adopted on July 22, 2003 CAPITAL GUARDIAN TRUST COMPANY PROXY VOTING POLICY AND PROCEDURES POLICY Capital Guardian Trust Company ("CGTC") provides investment management services to clients that include, among others, corporate and public pension plans, foundations and endowments and unaffiliated registered investment companies. CGTC's Personal Investment Management Division ("PIM") provides investment management and fiduciary services, including trust and estate administration, primarily to high net-worth individuals and families. CGTC considers proxy voting an important part of those management services, and as such, CGTC seeks to vote the proxies of securities held by clients in accounts for which it has proxy voting authority in the best interest of those clients. The procedures that govern this activity are reasonably designed to ensure that proxies are voted in the best interest of CGTC's clients. FIDUCIARY RESPONSIBILITY AND LONG-TERM SHAREHOLDER VALUE CGTC's fiduciary obligation to manage its accounts in the best interest of its clients extends to proxy voting. When voting proxies, CGTC considers those factors which would affect the value of its clients' investment and acts solely in the interest of, and for the exclusive purpose of providing benefits to, its clients. As required by ERISA, CGTC votes proxies solely in the interest of the participants and beneficiaries of retirement plans and does not subordinate the interest of participants and beneficiaries in their retirement income to unrelated objectives. CGTC believes the best interests of clients are served by voting proxies in a way that maximizes long-term shareholder value. Therefore, the investment professionals responsible for voting proxies have the discretion to make the best decision given the individual facts and circumstances of each issue. Proxy issues are evaluated on their merits and considered in the context of the analyst's knowledge of a company, its current management, management's past record, and CGTC's general position on the issue. In addition, many proxy issues are reviewed and voted on by a proxy voting committee comprised primarily of investment professionals, bringing a wide range of experience and views to bear on each decision. As the management of a portfolio company is responsible for its day-to-day operations, CGTC believes that management, subject to the oversight of the relevant board of directors, is often in the best position to make decisions that serve the interests of shareholders. However, CGTC votes against management on proposals where it perceives a conflict may exist between management and client interests, such as those that may insulate management or diminish shareholder rights. CGTC also votes against management in other cases where the facts and circumstances indicate that the proposal is not in its clients' best interests. SPECIAL REVIEW From time to time CGTC may vote a) on proxies of portfolio companies that are also clients of CGTC or its affiliates, b) on shareholder proposals submitted by clients, or c) on proxies for which clients have publicly supported or actively solicited CGTC or its affiliates to support a particular position. When voting these proxies, CGTC analyzes the issues on their merits and does not consider any client relationship in a way that interferes with its responsibility to vote proxies in the best interest of its clients. The CGTC Special Review Committee reviews certain of these proxy decisions for improper influences on the decision-making process and takes appropriate action, if necessary. PROCEDURES PROXY REVIEW PROCESS Associates in CGTC's proxy voting department are responsible for coordinating the voting of proxies. These associates work with outside proxy voting service providers and custodian banks and are responsible for coordinating and documenting the internal review of proxies. The proxy voting department reviews each proxy ballot for standard and non-standard items. Standard proxy items are typically voted with management unless the research analyst who follows the company or a member of an investment or proxy voting committee requests additional review. Standard items currently include the uncontested election of directors, ratifying auditors, adopting reports and accounts, setting dividends and allocating profits for the prior year and certain other administrative items. All other items are sent by the proxy voting department to the research analyst who follows the company. The analyst reviews the proxy statement and makes a recommendation about how to vote on the issues based on his or her in-depth knowledge of the company. Recommendations to vote with management on certain limited issues are voted accordingly. All other non- standard issues receive further consideration by a proxy voting committee, which reviews the issue and the analyst's recommendation, and decides how to vote. A proxy voting committee may escalate to the full investment committee(s) those issues for which it believes a broader review is warranted. Four proxy voting committees specialize in regional mandates and review the proxies of portfolio companies within their mandates. The proxy voting committees are comprised primarily of members of CGTC's and its institutional affiliates' investment committees and their activity is subject to oversight by those committees. For securities held only in PIM accounts, non-standard items are sent to those associates to whom the CGTC Investment Committee has delegated the review and voting of proxies. These associates may forward certain proposals to the appropriate investment committee for discussion and a formal vote if they believe a broader review is warranted. CGTC seeks to vote all of its clients' proxies. In certain circumstances, CGTC may decide not to vote a proxy because the costs of voting outweigh the benefits to its clients (e.g., when voting could lead to share blocking where CGTC wishes to retain flexibility to trade shares). In addition, proxies with respect to securities on loan through client directed lending programs are not available to CGTC to vote and therefore are not voted. PROXY VOTING GUIDELINES CGTC has developed proxy voting guidelines that reflect its general position and practice on various issues. To preserve the ability of decision makers to make the best decision in each case, these guidelines are intended only to provide context and are not intended to dictate how the issue must be voted. The guidelines are reviewed and updated as necessary, but at least annually, by the appropriate proxy voting and investment committees. CGTC's general positions related to corporate governance, capital structure, stock option and compensation plans and social and corporate responsibility issues are reflected below. - CORPORATE GOVERNANCE. CGTC supports strong corporate governance practices. It generally votes against proposals that serve as anti-takeover devices or diminish shareholder rights, such as poison pill plans and supermajority vote requirements, and generally supports proposals that encourage responsiveness to shareholders, such as initiatives to declassify the board. Mergers and acquisitions, reincorporations and other corporate restructurings are considered on a case-by-case basis, based on the investment merits of the proposal. - CAPITAL STRUCTURE. CGTC generally supports increases to capital stock for legitimate financing needs. It generally does not support changes in capital stock that can be used as anti-takeover devices, such as the creation of or increase in blank-check preferred stock or of a dual class capital structure with different voting rights. - STOCK-RELATED COMPENSATION PLANS. CGTC supports the concept of stock-related compensation plans as a way to align employee and shareholder interests. However, plans that include features which undermine the connection between employee and shareholder interests generally are not supported. When voting on proposals related to new plans or changes to existing plans, CGTC considers, among other things, the following information, to the extent it is available: the exercise price of the options, the size of the overall plan and/or the size of the increase, the historical dilution rate, whether the plan permits option repricing, the duration of the plan, and the needs of the company. Additionally, CGTC supports option expensing in theory and will generally support shareholder proposals on option expensing if such proposal language is non-binding and does not require the company to adopt a specific expensing methodology. - CORPORATE SOCIAL RESPONSIBILITY. CGTC votes on these issues based on the potential impact to the value of its clients' investment in the portfolio company. SPECIAL REVIEW PROCEDURES If a research analyst has a personal conflict in making a voting recommendation on a proxy issue, he or she must disclose such conflict, along with his or her recommendation. If a member of the proxy voting committee has a personal conflict in voting the proxy, he or she must disclose such conflict to the appropriate proxy voting committee and must not vote on the issue. Clients representing 0.0025 or more of assets under investment management across all affiliates owned by The Capital Group Companies, Inc. (CGTC's parent company), are deemed to be "Interested Clients". Each proxy is reviewed to determine whether the portfolio company, a proponent of a shareholder proposal, or a known supporter of a particular proposal is an Interested Client. If the voting decision for a proxy involving an Interested Client is against such client, then it is presumed that there was no undue influence in favor of the Interested Client. If the decision is in favor of the Interested Client, then the decision, the rationale for such decision, information about the client relationship and all other relevant information is reviewed by the Special Review Committee ("SRC"). The SRC reviews such information in order to identify whether there were improper influences on the decision-making process so that it may determine whether the decision was in the best interest of CGTC's clients. Based on its review, the SRC may accept or override the decision, or determine another course of action. The SRC is comprised of senior representatives from CGTC's and its institutional affiliates' investment and legal groups and does not include representatives from the marketing department. Any other proxy will be referred to the SRC if facts or circumstances warrant further review. CGTC'S PROXY VOTING RECORD Upon client request, CGTC will provide reports of its proxy voting record as it relates to the securities held in the client's account(s) for which CGTC has proxy voting authority. ANNUAL ASSESSMENT CGTC will conduct an annual assessment of this proxy voting policy and related procedures and will notify clients for which it has proxy voting authority of any material changes to the policy and procedures EFFECTIVE DATE This policy is effective as of April 1, 2005. CITIGROUP ASSET MANAGEMENT (CAM) NORTH AMERICA REGION PROXY VOTING POLICIES AND PROCEDURES AMENDED AND RESTATED AS OF JULY 2004 I. TYPES OF ACCOUNTS FOR WHICH CAM VOTES PROXIES II. GENERAL GUIDELINES III. HOW CAM VOTES IV. CONFLICTS OF INTEREST V. VOTING POLICY (1) ELECTION OF DIRECTORS (2) PROXY CONTESTS (3) AUDITORS (4) PROXY CONTEST DEFENSES (5) TENDER OFFER DEFENSES (6) MISCELLANEOUS GOVERNANCE PROVISIONS (7) CAPITAL STRUCTURE (8) EXECUTIVE AND DIRECTOR COMPENSATION (9) STATE OF INCORPORATION (10) MERGERS AND CORPORATE RESTRUCTURING (11) SOCIAL AND ENVIRONMENTAL ISSUES (12) MISCELLANEOUS VI. DISCLOSURE OF PROXY VOTING VII. RECORDKEEPING AND OVERSIGHT CITIGROUP ASSET MANAGEMENT1(CAM) NORTH AMERICA REGION PROXY VOTING POLICIES AND PROCEDURES I. TYPES OF ACCOUNTS TO WHICH CAM VOTES PROXIES Citigroup Asset Management (CAM) votes proxies for each client that has specifically authorized us to vote them in the investment management contract or otherwise; votes proxies for each United States Registered Investment Company (mutual fund) for which we act as adviser or sub-adviser with the power to vote proxies; and votes proxies for each ERISA account unless the plan document or investment advisory agreement specifically reserves the responsibility to vote proxies to the plan trustees or other named fiduciary. These policies and procedures are intended to fulfill applicable requirements imposed on CAM by the Investment Advisers Act of 1940, as amended, the Investment Company Act of 1940, as amended, and the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulations adopted under these laws. II. GENERAL GUIDELINES In voting proxies, CAM is guided by general fiduciary principles. CAM's goal is to act prudently, solely in the best interest of the beneficial owners of the accounts it manages, and, in the case of ERISA accounts, for the exclusive purpose of providing economic benefits to such persons. CAM attempts to consider all factors of its vote that could affect the value of the investment and will vote proxies in the manner that it believes will be consistent with efforts to maximize shareholder values. CAM may utilize an external service provider to provide it with information and/or a recommendation with regard to proxy votes. However, such recommendations do not relieve the CAM adviser (business unit) of its responsibility for the proxy vote. III. HOW CAM VOTES In the case of a proxy issue for which there is a stated position set forth in Section V, CAM generally votes in accordance with such stated position. In the case of a proxy issue for which there is a list of factors set forth in Section V that CAM considers in voting on such issue, CAM votes on a case-by-case basis in accordance with the general principles set forth above and considering such enumerated factors. In the case of a proxy issue for which there is no stated position or list of factors that CAM considers in voting on such issue, CAM votes on a case-by-case basis in accordance with the general principles set forth above. CAM divides issues into eleven categories listed in Section V below. IV. CONFLICTS OF INTEREST In furtherance of CAM's goal to vote proxies in the best interests of clients, CAM follows procedures designed to identify and address material conflicts that may arise between CAM's interests and those of its clients before voting proxies on behalf of such clients. (1) Procedures for Identifying Conflicts of Interest CAM relies on the following to seek to identify conflicts of interest with respect to proxy voting: A. The policy memorandum attached hereto as Appendix A will be distributed periodically to CAM employees. The policy memorandum alerts CAM employees that they are under an obligation (i) to be aware of the potential for conflicts of interest on the part of CAM with respect to voting proxies on behalf of client accounts both as a result of their personal relationships and due to special circumstances that may arise during the conduct of CAM's business, and (ii) to bring conflicts of interest of which they become aware to the attention of CAM Compliance. Citigroup Asset Management comprises Salomon Brothers Asset Management Inc, Smith Barney Asset Management (a division of Citigroup Global Markets Inc.), Citibank Global Asset Management (a unit of Citibank, N.A.), Smith Barney Fund Management LLC, Citi Fund Management Inc. and other investment adviser affiliates. B. CAM Financial Control shall maintain and make available to CAM Compliance and proxy voting personnel an up to date list of all client relationships that have historically accounted for or are projected to account for greater than 1% of CAM's annual revenues. CAM relies on the policy memorandum directive described in Section IV. (1) A. to identify conflicts of interest arising due to potential client relationships with proxy issuers. C. As a general matter, CAM takes the position that non-CAM relationships between Citigroup and an issuer (e.g. investment banking or banking) do not present a conflict of interest for CAM in voting proxies with respect to such issuer. Such position is based on the fact that CAM is operated as an independent business unit from other Citigroup business units as well as on the existence of information barriers between CAM and certain other Citigroup business units. Special circumstances, such as contact between CAM and non-CAM personnel, may cause CAM to consider whether non-CAM relationships between Citigroup and an issuer present a conflict of interest for CAM with respect to such issuer. As noted in Section IV. (1) A., CAM employees are under an obligation to be aware of the potential for conflicts of interest in voting proxies and to bring such conflicts of interest, including conflicts of interest which may arise because of such special circumstances (such as any attempt by a Citigroup business unit or Citigroup officer or employee to influence proxy voting by CAM) to the attention of CAM Compliance. Also, CAM is sensitive to the fact that a significant, publicized relationship between an issuer and a non-CAM affiliate might appear to the public to influence the manner in which CAM decides to vote a proxy with respect to such issuer. For prudential reasons, CAM treats such significant, publicized relationships as creating a potential conflict of interest for CAM in voting proxies D. Based on information furnished by CAM employees or maintained by CAM Compliance pursuant to Section IV. (1) A. and C. and by CAM Financial Control pursuant to Section IV. (1) B., CAM Compliance shall maintain an up to date list of issuers with respect to which CAM has a potential conflict of interest in voting proxies on behalf of client accounts. CAM shall not vote proxies relating to issuers on such list on behalf of client accounts until it has been determined that the conflict of interest is not material or a method for resolving such conflict of interest has been agreed upon and implemented, as described in this Section IV below. Exceptions apply: (i) with respect to a proxy issue that will be voted in accordance with a stated CAM position on such issue, and (ii) with respect to a proxy issue that will be voted in accordance with the recommendation of an independent third party based on application of the policies set forth herein. Such issues generally are not brought to the attention of the Proxy Voting Committee described in Section IV. (2) because CAM's position is that any conflict of interest issues are resolved by voting in accordance with a pre-determined policy or in accordance with the recommendation of an independent third party based on application of the policies set forth herein. (2) Procedures for Assessing Materiality of Conflicts of Interest and for Addressing Material Conflicts of Interest A. CAM shall maintain a Proxy Voting Committee to review and address conflicts of interest brought to its attention. The Proxy Voting Committee shall be comprised of such CAM personnel as are designated from time to time by CAM's Office of the CIO, CAM's General Counsel and CAM's Chief Compliance Officer. The initial members of the Proxy Voting Committee are set forth on Appendix B hereto. B. All conflicts of interest identified pursuant to the procedures outlined in Section IV.(1) must be brought to the attention of the Proxy Voting Committee by CAM Compliance for resolution. As noted above, a proxy issue that will be voted in accordance with a stated CAM position on such issue or in accordance with the recommendation of an independent third party generally is not brought to the attention of the Proxy Voting Committee for a conflict of interest review because CAM's position is that any conflict of interest issues are resolved by voting in accordance with a pre-determined policy or in accordance with the recommendation of an independent third party. C. The Proxy Voting Committee shall determine whether a conflict of interest is material. A conflict of interest will be considered material to the extent that it is determined that such conflict is likely to influence, or appear to influence, CAM's decision-making in voting the proxy. All materiality determinations will be based on an assessment of the particular facts and circumstances. CAM Compliance shall maintain a written record of all materiality determinations made by the Proxy Voting Committee. D. If it is determined by the Proxy Voting Committee that a conflict of interest is not material, CAM may vote proxies notwithstanding the existence of the conflict. E. If it is determined by the Proxy Voting Committee that a conflict of interest is material, the Proxy Voting Committee shall determine an appropriate method to resolve such conflict of interest before the proxy affected by the conflict of interest is voted. Such determination shall be based on the particular facts and circumstances, including the importance of the proxy issue, the nature of the conflict of interest, etc. Such methods may include: i. disclosing the conflict to clients and obtaining their consent before voting; ii. suggesting to clients that they engage another party to vote the proxy on their behalf; iii. in the case of a conflict of interest resulting from a particular employee's personal relationships, removing iv. such other method as is deemed appropriate given the particular facts and circumstances, including the importance of the proxy issue, the nature of the conflict of interest, etc.* CAM Compliance shall maintain a written record of the method used to resolve a material conflict of interest. (3) Third Party Proxy Voting Firm -- Conflicts of Interests With respect to a third party proxy voting firm described herein, CAM will periodically review such firm's policies, procedures and practices with respect to the disclosure and handling of conflicts of interest. V. VOTING POLICY These are policy guidelines that can always be superseded, subject to the duty to act solely in the best interest of the beneficial owners of accounts, by the investment management professionals responsible for the account holding the shares being voted. As a result of the independent investment advisory services provided by distinct business units, there may be occasions when different business units or different portfolio managers within the same business unit vote differently on the same issue. A CAM business unit or investment team (e.g. CAM's Social Awareness Investment team) may adopt proxy voting policies that supplement these policies and procedures. In addition, in the case of Taft-Hartley clients, CAM will comply with a client direction to vote proxies in accordance with Institutional Shareholder Services' (ISS) PVS Proxy Voting Guidelines, which ISS represents to be fully consistent with AFL-CIO guidelines. (1) Election of Directors A. Voting on Director Nominees in Uncontested Elections. 1. We vote for director nominees. B. Chairman and CEO is the Same Person. 1. We vote on a case-by-case basis on shareholder proposals that would require the positions of the Chairman and CEO to be held by different persons. We would generally vote FOR such a proposal unless there are compelling reasons to vote against the proposal, including: - Designation of a lead director - Majority of independent directors (supermajority) - All independent key committees - Size of the company (based on market capitalization) - Established governance guidelines - Company performance - ---------- * Especially in the case of an apparent, as opposed to actual, conflict of interest, the Proxy Voting Committee may resolve such conflict to interest by satisfying itself that CAM's proposed vote on a proxy issue is in the best interest of client accounts and is not being influenced by the conflict of interest. C. Majority of Independent Directors 1. We vote for shareholder proposals that request that the board be comprised of a majority of independent directors. Generally that would require that the director have no connection to the company other than the board seat. In determining whether an independent director is truly independent (e.g. when voting on a slate of director candidates), we consider certain factors including, but not necessarily limited to, the following: whether the director or his /her company provided professional services to the company or its affiliates either currently or in the past year; whether the director has any transactional relationship with the company; whether the director is a significant customer or supplier of the company; whether the director is employed by a foundation or university that received significant grants or endowments from the company or its affiliates; and whether there are interlocking directorships. 2. We vote for shareholder proposals that request that the board audit, compensation and/or nominating committees include independent directors exclusively. D. Stock Ownership Requirements 1. We vote against shareholder proposals requiring directors to own a minimum amount of company stock in order to qualify as a director, or to remain on the board. E. Term of Office 1. We vote against shareholder proposals to limit the tenure of independent directors. F. Director and Officer Indemnification and Liability Protection 1. Subject to subparagraphs 2, 3, and 4 below, we vote for proposals concerning director and officer indemnification and liability protection. 2. We vote for proposals to limit and against proposals to eliminate entirely director and officer liability for monetary damages for violating the duty of care. 3. We vote against indemnification proposals that would expand coverage beyond just legal expenses to acts, such as negligence, that are more serious violations of fiduciary obligations than mere carelessness. 4. We vote for only those proposals that provide such expanded coverage noted in subparagraph 3 above in cases when a director's or officer's legal defense was unsuccessful if: (1) the director was found to have acted in good faith and in a manner that he reasonably believed was in the best interests of the company, and (2) if only the director's legal expenses would be covered. G. Director Qualifications 1. We vote case-by-case on proposals that establish or amend director qualifications. Considerations include how reasonable the criteria are and to what degree they may preclude dissident nominees from joining the board. 2. We vote against shareholder proposals requiring two candidates per board seat. (2) Proxy Contests A. Voting for Director Nominees in Contested Elections 1. We vote on a case-by-case basis in contested elections of directors. Considerations include: chronology of events leading up to the proxy contest; qualifications of director nominees (incumbents and dissidents); for incumbents, whether the board is comprised of a majority of outside directors; whether key committees (ie: nominating, audit, compensation) comprise solely of independent outsiders; discussion with the respective portfolio manager(s). B. Reimburse Proxy Solicitation Expenses 1. We vote on a case-by-case basis on proposals to provide full reimbursement for dissidents waging a proxy contest. Considerations include: identity of persons who will pay solicitation expenses; cost of solicitation; percentage that will be paid to proxy solicitation firms. (3) Auditors A. Ratifying Auditors 1. We vote for proposals to ratify auditors, unless an auditor has a financial interest in or association with the company, and is therefore not independent; or there is reason to believe that the independent auditor has rendered an opinion that is neither accurate nor indicative of the company's financial position or there is reason to believe the independent auditor has not followed the highest level of ethical conduct. Specifically, we will vote to ratify auditors if the auditors only provide the company audit services and such other audit-related and non-audit services the provision of which will not cause such auditors to lose their independence under applicable laws, rules and regulations. B. Financial Statements and Director and Auditor Reports 1. We generally vote for management proposals seeking approval of financial accounts and reports and the discharge of management and supervisory board members, unless there is concern about the past actions of the company's auditors or directors. C. Remuneration of Auditors 1. We vote for proposals to authorize the board or an audit committee of the board to determine the remuneration of auditors, unless there is evidence of excessive compensation relative to the size and nature of the company. D. Indemnification of Auditors 1. We vote against proposals to indemnify auditors. (4) Proxy Contest Defenses A. Board Structure: Staggered vs. Annual Elections 1. We vote against proposals to classify the board. 2. We vote for proposals to repeal classified boards and to elect all directors annually. B. Shareholder Ability to Remove Directors 1. We vote against proposals that provide that directors may be removed only for cause. 2. We vote for proposals to restore shareholder ability to remove directors with or without cause. 3. We vote against proposals that provide that only continuing directors may elect replacements to fill board vacancies. 4. We vote for proposals that permit shareholders to elect directors to fill board vacancies. C. Cumulative Voting 1. We vote against proposals to eliminate cumulative voting. 2. We vote for proposals to permit cumulative voting. D. Shareholder Ability to Call Special Meetings 1. We vote against proposals to restrict or prohibit shareholder ability to call special meetings. 2. We vote for proposals that remove restrictions on the right of shareholders to act independently of management. E. Shareholder Ability to Act by Written Consent 1. We vote against proposals to restrict or prohibit shareholder ability to take action by written consent. 2. We vote for proposals to allow or make easier shareholder action by written consent. F. Shareholder Ability to Alter the Size of the Board 1. We vote for proposals that seek to fix the size of the board. 2. We vote against proposals that give management the ability to alter the size of the board without shareholder approval. G. Advance Notice Proposals 1. We vote on advance notice proposals on a case-by-case basis, giving support to those proposals which allow shareholders to submit proposals as close to the meeting date as reasonably possible and within the broadest window possible. H. Amendment of By-Laws 1. We vote against proposals giving the board exclusive authority to amend the by-laws. 2. We vote for proposals giving the board the ability to amend the by-laws in addition to shareholders. I. Article Amendments (not otherwise covered by CAM Proxy Voting Policies and Procedures). We review on a case-by-case basis all proposals seeking amendments to the articles of association. We vote for article amendments if: - shareholder rights are protected; - there is negligible or positive impact on shareholder value; - management provides adequate reasons for the amendments; and - the company is required to do so by law (if applicable). (5) Tender Offer Defenses A. Poison Pills 1. We vote for shareholder proposals that ask a company to submit its poison pill for shareholder ratification. 2. We vote on a case-by-case basis on shareholder proposals to redeem a company's poison pill. Considerations include: when the plan was originally adopted; financial condition of the company; terms of the poison pill. 3. We vote on a case-by-case basis on management proposals to ratify a poison pill. Considerations include: sunset provision -- poison pill is submitted to shareholders for ratification or rejection every 2 to 3 years; shareholder redemption feature -- 10% of the shares may call a special meeting or seek a written consent to vote on rescinding the rights plan. B. Fair Price Provisions 1. We vote for fair price proposals, as long as the shareholder vote requirement embedded in the provision is no more than a majority of disinterested shares. 2. We vote for shareholder proposals to lower the shareholder vote requirement in existing fair price provisions. C. Greenmail 1. We vote for proposals to adopt anti-greenmail charter or bylaw amendments or otherwise restrict a company's ability to make greenmail payments. 2. We vote on a case-by-case basis on anti-greenmail proposals when they are bundled with other charter or bylaw amendments. D. Unequal Voting Rights 1. We vote against dual class exchange offers. 2. We vote against dual class re-capitalization. E. Supermajority Shareholder Vote Requirement to Amend the Charter or Bylaws 1. We vote against management proposals to require a supermajority shareholder vote to approve charter and bylaw amendments. 2. We vote for shareholder proposals to lower supermajority shareholder vote requirements for charter and bylaw amendments. F. Supermajority Shareholder Vote Requirement to Approve Mergers 1. We vote against management proposals to require a supermajority shareholder vote to approve mergers and other significant business combinations. 2. We vote for shareholder proposals to lower supermajority shareholder vote requirements for mergers and other significant business combinations. G. White Squire Placements 1. We vote for shareholder proposals to require approval of blank check preferred stock issues. (6) Miscellaneous Governance Provisions A. Confidential Voting 1. We vote for shareholder proposals that request corporations to adopt confidential voting, use independent tabulators and use independent inspectors of election as long as the proposals include clauses for proxy contests as follows: in the case of a contested election, management is permitted to request that the dissident group honor its confidential voting policy. If the dissidents agree, the policy remains in place. If the dissidents do not agree, the confidential voting policy is waived. 2. We vote for management proposals to adopt confidential voting subject to the proviso for contested elections set forth in sub-paragraph A.1 above. B. Equal Access 1. We vote for shareholder proposals that would allow significant company shareholders equal access to management's proxy material in order to evaluate and propose voting recommendations on proxy proposals and director nominees, and in order to nominate their own candidates to the board. C. Bundled Proposals 1. We vote on a case-by-case basis on bundled or "conditioned" proxy proposals. In the case of items that are conditioned upon each other, we examine the benefits and costs of the packaged items. In instances when the joint effect of the conditioned items is not in shareholders' best interests and therefore not in the best interests of the beneficial owners of accounts, we vote against the proposals. If the combined effect is positive, we support such proposals. D. Shareholder Advisory Committees 1. We vote on a case-by-case basis on proposals to establish a shareholder advisory committee. Considerations include: rationale and cost to the firm to form such a committee. We generally vote against such proposals if the board and key nominating committees are comprised solely of independent/outside directors. E. Other Business We vote for proposals that seek to bring forth other business matters. F. Adjourn Meeting We vote on a case-by-case basis on proposals that seek to adjourn a shareholder meeting in order to solicit additional votes. G. Lack of Information We vote against proposals if a company fails to provide shareholders with adequate information upon which to base their voting decision. (7) Capital Structure A. Common Stock Authorization 1. We vote on a case-by-case basis on proposals to increase the number of shares of common stock authorized for issue, except as described in paragraph 2 below. 2. Subject to paragraph 3, below we vote for the approval requesting increases in authorized shares if the company meets certain criteria: a) Company has already issued a certain percentage (i.e. greater than 50%) of the company's allotment. b) The proposed increase is reasonable (i.e. less than 150% of current inventory) based on an analysis of the company's historical stock management or future growth outlook of the company. 3. We vote on a case-by-case basis, based on the input of affected portfolio managers, if holding is greater than 1% of an account. B. Stock Distributions: Splits and Dividends 1. We vote on a case-by-case basis on management proposals to increase common share authorization for a stock split, provided that the split does not result in an increase of authorized but unissued shares of more than 100% after giving effect to the shares needed for the split. C. Reverse Stock Splits 1. We vote for management proposals to implement a reverse stock split, provided that the reverse split does not result in an increase of authorized but unissued shares of more than 100% after giving effect to the shares needed for the reverse split. D. Blank Check Preferred Stock 1. We vote against proposals to create, authorize or increase the number of shares with regard to blank check preferred stock with unspecified voting, conversion, dividend distribution and other rights. 2. We vote for proposals to create "declawed" blank check preferred stock (stock that cannot be used as a takeover defense). 3. We vote for proposals to authorize preferred stock in cases where the company specifies the voting, dividend, conversion, and other rights of such stock and the terms of the preferred stock appear reasonable. 4. We vote for proposals requiring a shareholder vote for blank check preferred stock issues. E. Adjust Par Value of Common Stock 1. We vote for management proposals to reduce the par value of common stock. F. Preemptive Rights 1. We vote on a case-by-case basis for shareholder proposals seeking to establish them and consider the following factors: a) Size of the Company. b) Characteristics of the size of the holding (holder owning more than 1% of the outstanding shares). c) Percentage of the rights offering (rule of thumb less than 5%). 2. We vote on a case-by-case basis for shareholder proposals seeking the elimination of pre-emptive rights. G. Debt Restructuring 1. We vote on a case-by-case basis for proposals to increase common and/or preferred shares and to issue shares as part of a debt-restructuring plan. Generally, we approve proposals that facilitate debt restructuring. H. Share Repurchase Programs 1. We vote for management proposals to institute open-market share repurchase plans in which all shareholders may participate on equal terms. I. Dual-Class Stock 1. We vote for proposals to create a new class of nonvoting or subvoting common stock if: - It is intended for financing purposes with minimal or no dilution to current shareholders - It is not designed to preserve the voting power of an insider or significant shareholder J. Issue Stock for Use with Rights Plan 1. We vote against proposals that increase authorized common stock for the explicit purpose of implementing a shareholder rights plan (poison pill). K. Debt Issuance Requests When evaluating a debt issuance request, the issuing company's present financial situation is examined. The main factor for analysis is the company's current debt-to-equity ratio, or gearing level. A high gearing level may incline markets and financial analysts to downgrade the company's bond rating, increasing its investment risk factor in the process. A gearing level up to 100 percent is considered acceptable. We vote for debt issuances for companies when the gearing level is between zero and 100 percent. We view on a case-by-case basis proposals where the issuance of debt will result in the gearing level being greater than 100 percent. Any proposed debt issuance is compared to industry and market standards. L. Financing Plans We generally vote for the adopting of financing plans if we believe they are in the best economic interests of shareholders. (8) Executive and Director Compensation In general, we vote for executive and director compensation plans, with the view that viable compensation programs reward the creation of stockholder wealth by having high payout sensitivity to increases in shareholder value. Certain factors, however, such as repricing underwater stock options without shareholder approval, would cause us to vote against a plan. Additionally, in some cases we would vote against a plan deemed unnecessary. A. OBRA-Related Compensation Proposals 1. Amendments that Place a Cap on Annual Grant or Amend Administrative Features a) We vote for plans that simply amend shareholder-approved plans to include administrative features or place a cap on the annual grants any one participant may receive to comply with the provisions of Section 162(m) of the Internal Revenue Code. 2. Amendments to Added Performance-Based Goals a) We vote for amendments to add performance goals to existing compensation plans to comply with the provisions of Section 162(m) of the Internal Revenue Code. 3. Amendments to Increase Shares and Retain Tax Deductions Under OBRA a) We vote for amendments to existing plans to increase shares reserved and to qualify the plan for favorable tax treatment under the provisions of Section 162(m) the Internal Revenue Code. 4. Approval of Cash or Cash-and-Stock Bonus Plans a) We vote for cash or cash-and-stock bonus plans to exempt the compensation from taxes under the provisions of Section 162(m) of the Internal Revenue Code. B. Expensing of Options We vote for proposals to expense stock options on financial statements. C. Index Stock Options We vote on a case by case basis with respect to proposals seeking to index stock options. Considerations include whether the issuer expenses stock options on its financial statements and whether the issuer's compensation committee is comprised solely of independent directors. D. Shareholder Proposals to Limit Executive and Director Pay 1. We vote on a case-by-case basis on all shareholder proposals that seek additional disclosure of executive and director pay information. Considerations include: cost and form of disclosure. We vote for such proposals if additional disclosure is relevant to shareholder's needs and would not put the company at a competitive disadvantage relative to its industry. 2. We vote on a case-by-case basis on all other shareholder proposals that seek to limit executive and director pay. We have a policy of voting to reasonably limit the level of options and other equity-based compensation arrangements available to management to reasonably limit shareholder dilution and management compensation. For options and equity-based compensation arrangements, we vote FOR proposals or amendments that would result in the available awards being less than 10% of fully diluted outstanding shares (i.e. if the combined total of shares, common share equivalents and options available to be awarded under all current and proposed compensation plans is less than 10% of fully diluted shares). In the event the available awards exceed the 10% threshold, we would also consider the % relative to the common practice of its specific industry (e.g. technology firms). Other considerations would include, without limitation, the following: - Compensation committee comprised of independent outside directors - Maximum award limits - Repricing without shareholder approval prohibited E. Golden Parachutes 1. We vote for shareholder proposals to have golden parachutes submitted for shareholder ratification. 2. We vote on a case-by-case basis on all proposals to ratify or cancel golden parachutes. Considerations include: the amount should not exceed 3 times average base salary plus guaranteed benefits; golden parachute should be less attractive than an ongoing employment opportunity with the firm. F. Employee Stock Ownership Plans (ESOPs) 1. We vote for proposals that request shareholder approval in order to implement an ESOP or to increase authorized shares for existing ESOPs, except in cases when the number of shares allocated to the ESOP is "excessive" (i.e., generally greater than five percent of outstanding shares). G. 401(k) Employee Benefit Plans 1. We vote for proposals to implement a 401(k) savings plan for employees. H. Stock Compensation Plans 1. We vote for stock compensation plans which provide a dollar-for-dollar cash for stock exchange. 2. We vote on a case-by-case basis for stock compensation plans which do not provide a dollar-for-dollar cash for stock exchange using a quantitative model. I. Directors Retirement Plans 1. We vote against retirement plans for non-employee directors. 2. We vote for shareholder proposals to eliminate retirement plans for non-employee directors. J. Management Proposals to Reprice Options 1. We vote on a case-by-case basis on management proposals seeking approval to reprice options. Considerations include the following: - Historic trading patterns - Rationale for the repricing - Value-for-value exchange - Option vesting - Term of the option - Exercise price - Participation K. Shareholder Proposals Recording Executive and Director Pay 1. We vote against shareholder proposals seeking to set absolute levels on compensation or otherwise dictate the amount or form of compensation. 2. We vote against shareholder proposals requiring director fees be paid in stock only. 3. We vote for shareholder proposals to put option repricing to a shareholder vote. 4. We vote on a case-by-case basis for all other shareholder proposals regarding executive and director pay, taking unto account company performance, pay level versus peers, pay level versus industry, and long term corporate outlook. (9) State/Country of Incorporation A. Voting on State Takeover Statutes 1. We vote for proposals to opt out of state freeze out provisions. 2. We vote for proposals to opt out of state disgorgement provisions. B. Voting on Re-incorporation Proposals 1. We vote on a case-by-case basis on proposals to change a company's state or country of incorporation. Considerations include: reasons for re-incorporation (i.e. financial, restructuring, etc); advantages / benefits for change (i.e. lower taxes); compare the differences in state/country laws governing the corporation. C. Control Share Acquisition Provisions 1. We vote against proposals to amend the charter to include control share acquisition provisions. 2. We vote for proposals to opt out of control share acquisition statutes unless doing so would enable the completion of a takeover that would be detrimental to shareholders. 3. We vote for proposals to restore voting rights to the control shares. 4. We vote for proposals to opt out of control share cash-out statutes. (10) Mergers and Corporate Restructuring A. Mergers and Acquisitions 1. We vote on a case-by-case basis on mergers and acquisitions. Considerations include: benefits / advantages of the combined companies (i.e. economies of scale, operating synergies, increase in market power/share, etc...); offer price (premium or discount); change in the capital structure; impact on shareholder rights. B. Corporate Restructuring 1. We vote on a case-by-case basis on corporate restructuring proposals involving minority squeeze outs and leveraged buyouts. Considerations include: offer price, other alternatives /offers considered and review of fairness opinions. C. Spin-offs 1. We vote on a case-by-case basis on spin-offs. Considerations include the tax and regulatory advantages, planned use of sale proceeds, market focus, and managerial incentives. D. Asset Sales 1. We vote on a case-by-case basis on asset sales. Considerations include the impact on the balance sheet/working capital, value received for the asset, and potential elimination of diseconomies. E. Liquidations 1. We vote on a case-by-case basis on liquidations after reviewing management's efforts to pursue other alternatives, appraisal value of assets, and the compensation plan for executives managing the liquidation. F. Appraisal Rights 1. We vote for proposals to restore, or provide shareholders with, rights of appraisal. G. Changing Corporate Name 1. We vote for proposals to change the "corporate name", unless the proposed name change bears a negative connotation. H. Conversion of Securities 1. We vote on a case-by-case basis on proposals regarding conversion of securities. Considerations include the dilution to existing shareholders, the conversion price relative to market value, financial issues, control issues, termination penalties, and conflicts of interest. I. Stakeholder Provisions 1. We vote against proposals that ask the board to consider nonshareholder constituencies or other nonfinancial effects when evaluating a merger or business combination. (11) Social and Environmental Issues A. In general we vote on a case-by-case basis on shareholder social and environmental proposals, on the basis that their impact on share value can rarely be anticipated with any high degree of confidence. In most cases, however, we vote for disclosure reports that seek additional information, particularly when it appears the company has not adequately addressed shareholders' social and environmental concerns. In determining our vote on shareholder social and environmental proposals, we also analyze the following factors: 1. whether adoption of the proposal would have either a positive or negative impact on the company's short-term or long-term share value; 2. the percentage of sales, assets and earnings affected; 3. the degree to which the company's stated position on the issues could affect its reputation or sales, or leave it vulnerable to boycott or selective purchasing; 4. whether the issues presented should be dealt with through government or company-specific action; 5. whether the company has already responded in some appropriate manner to the request embodied in a proposal; 6. whether the company's analysis and voting recommendation to shareholders is persuasive; 7. what other companies have done in response to the issue; 8. whether the proposal itself is well framed and reasonable; 9. whether implementation of the proposal would achieve the objectives sought in the proposal; and 10. whether the subject of the proposal is best left to the discretion of the board. B. Among the social and environmental issues to which we apply this analysis are the following: 1. Energy and Environment 2. Equal Employment Opportunity and Discrimination 3. Product Integrity and Marketing 4. Human Resources Issues (12) Miscellaneous A. Charitable Contributions 1. We vote against proposals to eliminate, direct or otherwise restrict charitable contributions. B. Operational Items 1. We vote against proposals to provide management with the authority to adjourn an annual or special meeting absent compelling reasons to support the proposal. 2. We vote against proposals to reduce quorum requirements for shareholder meetings below a majority of the shares outstanding unless there are compelling reasons to support the proposal. 3. We vote for by-law or charter changes that are of a housekeeping nature (updates or corrections). 4. We vote for management proposals to change the date/time/location of the annual meeting unless the proposed change is unreasonable. 5. We vote against shareholder proposals to change the date/time/location of the annual meeting unless the current scheduling or location is unreasonable. 6. We vote against proposals to approve other business when it appears as voting item. C. Route Agenda Items In some markets, shareholders are routinely asked to approve: - the opening of the shareholder meeting - that the meeting has been convened under local regulatory requirements - the presence of a quorum - the agenda for the shareholder meeting - the election of the chair of the meeting - regulatory filings - the allowance of questions - the publication of minutes - the closing of the shareholder meeting We generally vote for these and similar routine management proposals. D. Allocation of Income and Dividends We generally vote for management proposals concerning allocation of income and the distribution of dividends, unless the amount of the distribution is consistently and unusually small or large. E. Stock (Scrip) Dividend Alternatives 1. We vote for most stock (scrip) dividend proposals. 2. We vote against proposals that do not allow for a cash option unless management demonstrates that the cash option is harmful to shareholder value. (13) CAM has determined that registered investment companies, particularly closed end investment companies, raise special policy issues making specific voting guidelines frequently inapplicable. To the extent that CAM has proxy voting authority with respect to shares of registered investment companies, CAM shall vote such shares in the best interest of client accounts and subject to the general fiduciary principles set forth herein without regard to the specific voting guidelines set forth in Section V. (1) through (12). The voting policy guidelines set forth in this Section V may be changed from time to time by CAM in its sole discretion. VI. DISCLOSURE OF PROXY VOTING CAM employees may not disclose to others outside of CAM (including employees of other Citigroup business units) how CAM intents to vote a proxy absent prior approval from CAM Legal/Compliance, except that a CAM investment professional may disclose to a non-Citigroup employee how it intends to vote without obtaining prior approval from CAM Legal/Compliance if (1) the disclosure is intended to facilitate a discussion of publicly available information by CAM personnel with a representative of a company whose securities are the subject of the proxy, (2) the company's market capitalization exceeds $1 billion and (3) CAM has voting power with respect to less than 5% of the outstanding common stock of the company. If a CAM employee receives a request to disclose CAM's proxy voting intentions to, or is otherwise contacted by, another person outside of CAM (including an employee of another Citigroup business unit) in connection with an upcoming proxy voting matter, he/she should immediately notify CAM Legal/Compliance. VII. RECORD KEEPING AND OVERSIGHT CAM shall maintain the following records relating to proxy voting: - a copy of these policies and procedures; - a copy of each proxy form (as voted); - a copy of each proxy solicitation (including proxy statements) and related materials with regard to each vote; - documentation relating to the identification and resolution of conflicts of interest; - any documents created by CAM that were material to a proxy voting decision or that memorialized the basis for that decision; and - a copy of each written client request for information on how CAM voted proxies on behalf of the client, and a copy of any written response by CAM to any (written or oral) client request for information on how CAM voted proxies on behalf of the requesting client. Such records shall be maintained and preserved in an easily accessible place for a period of not less than five years from the end of the fiscal year during which the last entry was made on such record, the first two years in an appropriate office of the CAM adviser. Each adviser to a United States Registered Investment Company shall maintain such records as are necessary to allow such fund to comply with its recordkeeping, reporting and disclosure obligations under applicable laws, rules and regulations. In lieu of keeping copies of proxy statements, CAM may rely on proxy statements filed on the EDGAR system as well as on third party records of proxy statements and votes cast if the third party provides an undertaking to provide the documents promptly upon request. CAM Compliance will review the proxy voting process, record retention and related matters on a periodic basis. APPENDIX A Citigroup Asset Management (CAM) currently has in place proxy voting policies and procedures designed to ensure that CAM votes proxies in the best interest of client accounts. Attached to this memorandum is a copy of CAM North America Region Proxy Voting Policies and Procedures that have been updated, effective as of July 2003, to comply with a new SEC rule under the Investment Advisers Act that addresses an investment adviser's fiduciary obligation to its clients when voting proxies. AS DISCUSSED IN MORE DETAIL BELOW, CAM EMPLOYEES ARE UNDER AN OBLIGATION (i) TO BE AWARE OF THE POTENTIAL FOR CONFLICTS OF INTEREST ON THE PART OF CAM IN VOTING PROXIES ON BEHALF OF CLIENT ACCOUNTS BOTH AS A RESULT OF AN EMPLOYEE'S PERSONAL RELATIONSHIPS AND DUE TO SPECIAL CIRCUMSTANCES THAT MAY ARISE DURING THE CONDUCT OF CAM'S BUSINESS, AND (II) TO BRING CONFLICTS OF INTEREST OF WHICH THEY BECOME AWARE TO THE ATTENTION OF CAM COMPLIANCE. The updated proxy voting policies and procedures are substantially similar to the policies and procedures currently in effect in terms of CAM's stated position on certain types of proxy issues and the factors and considerations taken into account by CAM in voting on certain other types of proxy issues. The updated proxy voting policies and procedures reflect two major changes. First, Section VI (Recordkeeping and Oversight) of the updated policies and procedures sets forth detailed recordkeeping requirements relating to the proxy voting process, as required by the new SEC rule. CAM Compliance will be working with affected groups to make sure that we are complying with the new record retention requirements. Second, Section IV (Conflicts of Interest) of the updated policies and procedures sets forth procedures designed to identify and address material conflicts of interest that may arise between CAM's interests and those of its clients before proxies are voted on behalf of such clients, as required by the new SEC rule. While, as described in Section IV of the updated policies and procedures, CAM will seek to identify significant CAM client relationships and significant, publicized non-CAM affiliate client relationships1 which could present CAM with a conflict of interest in voting proxies, all CAM employees must play an important role in helping our organization identify potential conflicts of interest that could impact CAM's proxy voting. CAM employees need to (i) be aware of the potential for conflicts of interest on the part of CAM in voting proxies on behalf of client accounts both as a result of an employee's personal relationships and due to special circumstances that may arise during the conduct of CAM's business, and (ii) bring conflicts of interest of which they become aware to the attention of a CAM compliance officer. A conflict of interest arises when the existence of a personal or business relationship on the part of CAM or one of its employees or special circumstances that arise during the conduct of CAM's business might influence, or appear to influence, the manner in which CAM decides to vote a proxy. An example of a personal relationship that creates a potential conflict of interest would be a situation in which a CAM employee (such as a portfolio manager or senior level executive) has a spouse or other close relative who serves as a director or senior executive of a company. An example of "special circumstances" would be explicit or implicit pressure exerted by a CAM relationship to try to influence CAM's vote on a proxy with respect to which the CAM relationship is the issuer. Another example would be a situation in which there was contact between CAM and non-CAM personnel in which the non-CAM personnel, on their own initiative or at the prompting of a client of a non-CAM unit of Citigroup, tried to exert pressure to influence CAM's proxy vote2. Of course, the foregoing examples are not exhaustive, and a variety of situations may arise that raise conflict of interest questions for CAM. You are encouraged to raise and discuss with CAM Compliance particular facts and circumstances that you believe may raise conflict of interest issues for CAM. As described in Section IV of the updated policies and procedures, CAM has established a Proxy Voting Committee to assess the materiality of conflicts of interest brought to its attention by CAM Compliance as well as to agree upon appropriate methods to resolve material conflicts of interest before proxies affected by the conflicts of interest are voted3. As described in the updated policies and procedures, there are a variety of methods and approaches that the Proxy Voting Committee may utilize to resolve material conflicts of interest. Please note that CAM employees should report all conflicts of interest of which they become aware to CAM Compliance. It is up to the Proxy Voting Committee to assess the materiality of conflicts of interest brought to its attention and to agree upon an appropriate resolution with respect to conflicts of interest determined to be material. The obligation of CAM employees to be sensitive to the issue of conflicts of interest and to bring conflicts of interest to the attention of CAM Compliance is a serious one. Failure to do so can lead to negative legal, regulatory, and reputational consequences for the firm as well as to negative regulatory and disciplinary consequences for the CAM employee. Please consult with a CAM Compliance officer if you have any questions concerning your obligations with respect to conflicts of interest under the updated proxy voting policies and procedures. 1,2 As a general matter, CAM takes the position that non-CAM relationships between Citigroup and an issuer (e.g. investment banking or banking) do not present a conflict of interest for CAM in voting proxies with respect to such issuer. Such position is based on the fact that CAM is operated as an independent business unit from other Citigroup business units as well as on the existence of information barriers between CAM and certain other Citigroup business units. CAM is sensitive to the fact that a significant, publicized relationship between an issuer and a non-CAM affiliate might appear to the public to influence the manner in which CAM decides to vote a proxy with respect to such issuer. As noted, CAM seeks to identify such significant, publicized relationships, and for prudential reasons brings such identified situations to the attention of the Proxy Voting Committee, as described herein. Special circumstances, such as those described in the noted examples, also could cause CAM to consider whether non-CAM relationships between Citigroup and an issuer present a conflict of interest for CAM with respect to such issuer. 3 Exceptions apply: (i) with respect to a proxy issue that will be voted in accordance with a stated CAM position on such issue, and (ii) with respect to a proxy issue that will be voted in accordance with the recommendation of an independent third party. Such issues are not brought to the attention of the Proxy Voting Committee because CAM's position is that to the extent a conflict of interest issue exists, it is resolved by voting in accordance with a pre-determined policy or in accordance with the recommendation of an independent third party. APPENDIX B PROXY VOTING COMMITTEE MEMBERS INVESTMENT MANAGEMENT REPRESENTATIVES Wayne Lin Amanda Suss LEGAL REPRESENTATIVES George Shively Leonard Larrabee Thomas Mandia COMPLIANCE REPRESENTATIVES Andrew Beagley Jeffrey Scott At least one representative from each of Investment Management, Legal and Compliance must participate in any deliberations and decisions of the Proxy Voting Committee. JANUS CAPITAL MANAGEMENT LLC PROXY VOTING Janus seeks to vote proxies in the best interests of if its clients. For any mutual fund advised or subadvised by Janus and for which Janus has proxy voting authority, Janus will vote all proxies pursuant to the Janus Proxy Voting Guidelines (the "Janus Guidelines"). With respect to Janus' non-mutual fund clients, Janus will not accept direction as to how to vote individual proxies for which it has voting responsibility from any other person or organization (other than the research and information provided by the Proxy Voting Service). Janus will only accept direction from its non-mutual fund clients to vote proxies for a client's account pursuant to 1) Janus' Proxy Voting Guidelines (the "Janus Guidelines") 2) the recommendations of Institutional Shareholder Services or 3) the recommendations of Institutional Shareholder Services under their Proxy Voter Services program. PROXY VOTING PROCEDURES Janus developed the Janus Guidelines to influence how Janus portfolio managers vote proxies on securities held by the portfolios Janus manages. The Janus Guidelines, which include recommendations on most major corporate issues, have been developed by the Janus Proxy Voting Committee (the "Proxy Voting Committee") in consultation with Janus portfolio managers and Janus Capital's Office of the Chief Investment Officer. In creating proxy voting recommendations, the Proxy Voting Committee analyzes proxy proposals from the prior year and evaluates whether those proposals would adversely affect shareholders' interests. Once the Proxy Voting Committee establishes its recommendations, they are distributed to Janus' portfolio managers and Janus Capital's Chief Investment Officer for input. Once agreed upon, the recommendations are implemented as the Janus Guidelines. Janus portfolio managers are responsible for proxy votes on securities they own in the portfolios they manage. Most portfolio managers vote consistently with the Janus Guidelines, however, a portfolio manager may choose to vote differently than the Janus Guidelines. The role of the Proxy Voting Committee is to work with Janus portfolio management and Janus Capital's Chief Investment Officer to develop the Janus Guidelines. The Proxy Voting Committee also serves as a resource to portfolio management with respect to proxy voting and oversees the proxy voting process. The Proxy Voting Committee's oversight responsibilities include monitoring for and resolving material conflicts of interest with respect to proxy voting. Janus believes that application of the Janus Guidelines to vote mutual fund proxies should, in most cases, adequately address any possible conflicts of interest since the Janus Guidelines are predetermined. However, for proxy votes that are inconsistent with the Janus Guidelines, the Proxy Voting Committee will review the proxy votes in order to determine whether the portfolio manager's voting rationale appears reasonable and no material conflicts exist. If the Proxy Voting Committee does not agree that the portfolio manager's rationale is reasonable, the Proxy Voting Committee will refer the matter to the Chief Investment Officer (or the Director of Research) to vote the proxy. Janus has engaged an independent Proxy Voting Service to assist in the voting of proxies The Proxy Voting Service also provides research and recommendations on proxy issues Currently, the Proxy Voting Service is Institutional Shareholder Services (ISS), an industry expert in proxy voting issues and corporate governance matters. While Janus attempts to apply the Janus Guidelines to proxy proposals, Janus reserves the right to use ISS' in-depth analysis on more complex issues, including: executive compensation, foreign issuer proxies, and proposals that may not otherwise be addressed by the Guidelines. ISS is instructed to vote all proxies relating to portfolio securities accordance with the Janus Guidelines, except as otherwise instructed by Janus. Each Janus fund's proxy voting record for the one-year period ending each June 30th provided through Janus Capital's website. The proxy voting record for any mutual funds which are subadvised by Janus may be obtained from that fund's adviser. The proxy voting record for non-mutual fund clients is available on an annual basis and only upon request from a client's account representative. Copies of the complete Janus Guidelines and Procedures are also available upon request from a client's account representative and as otherwise displayed on Janus Capital's website (Janus.com). PROXY VOTING POLICY SUMMARY As discussed above, the Proxy Voting Committee has developed the Janus Guidelines for use in voting proxies. Below is a summary of some of the more significant Janus Guidelines. BOARD OF DIRECTORS ISSUES. Janus will generally vote in favor of slates of director candidates that are comprised of a majority of independent directors. Janus will generally vote in favor of proposals to increase the minimum number of independent directors. Janus will generally oppose non-independent directors who serve on the audit, compensation and/or nominating committees of the board. AUDITOR ISSUES. Janus will generally oppose proposals asking for approval of auditors which have a substantial non-audit relationship with a company. EXECUTIVE COMPENSATION ISSUES. Janus reviews executive compensation plans on a case by case basis using research provided by the Proxy Voting Service Provider. Janus will generally oppose proposed equity-based compensation plans which contain stock option plans that are excessively dilutive. In addition, Janus will generally oppose proposals regarding the issuance of options with an exercise price below market price and the issuance of reload options (stock option that is automatically granted if an outstanding stock option is exercised during a window period). Janus will also generally oppose proposals regarding the repricing of underwater options. GENERAL CORPORATE ISSUES. Janus will generally oppose proposals regarding supermajority voting rights. Janus will generally oppose proposals for different classes of stock with different voting rights. Janus will generally oppose proposals seeking to implement measures designed to prevent or obstruct corporate takeovers. Janus will also review proposals relating to mergers, acquisitions, tender offers and other similar actions on a case by case basis. SHAREHOLDER PROPOSALS. If a shareholder proposal is specifically addressed by the Janus Guidelines, Janus will generally vote pursuant to that Janus Guideline. Janus will generally abstain from voting on shareholder proposals that are moral or ethical in nature or place arbitrary constraints on the board or management of a company. Janus will solicit additional research from its proxy voting service provider for proposals outside the scope of the Janus Guidelines. MORGAN STANLEY INVESTMENT MANAGEMENT PROXY VOTING POLICY AND PROCEDURES [DATED?] I. POLICY STATEMENT Introduction - Morgan Stanley Investment Management's ("MSIM") policy and procedures for voting proxies ("Policy") with respect to securities held in the accounts of clients applies to those MSIM entities that provide discretionary investment management services and for which a MSIM entity has authority to vote proxies. The Policy will be reviewed and, updated, as necessary, to address new or revised proxy voting issues. The MSIM entities covered by the Policy currently include the following: Morgan Stanley Investment Advisors Inc., Morgan Stanley AIP GP LP, Morgan Stanley Investment Management Inc., Morgan Stanley Investment Management Limited, Morgan Stanley Investment Management Company, Morgan Stanley Asset & Investment Trust Management Co., Limited, Morgan Stanley Investment Management Private Limited, Morgan Stanley Hedge Fund Partners GP LP, Morgan Stanley Hedge Fund Partners LP, Van Kampen Asset Management, and Van Kampen Advisors Inc. (each an "MSIM Affiliate" and collectively referred to as the "MSIM Affiliates"). Each MSIM Affiliate will use its best efforts to vote proxies as part of its authority to manage, acquire and dispose of account assets. With respect to the MSIM registered management investment companies (Van Kampen, Institutional and Advisor Funds)(collectively referred to herein as the "MSIM Funds"), each MSIM Affiliate will vote proxies pursuant to authority granted under its applicable investment advisory agreement or, in the absence of such authority, as authorized by the Board of Directors or Trustees of the MSIM Funds. A MSIM Affiliate will not vote proxies if the "named fiduciary" for an ERISA account has reserved the authority for itself, or in the case of an account not governed by ERISA, the investment management or investment advisory agreement does not authorize the MSIM Affiliate to vote proxies. MSIM Affiliates will, in a prudent and diligent manner, vote proxies in the best interests of clients, including beneficiaries of and participants in a client's benefit plan(s) for which the MSIM Affiliates manage assets, consistent with the objective of maximizing long-term investment returns ("Client Proxy Standard"). In certain situations, a client or its fiduciary may provide a MSIM Affiliate with a proxy voting policy. In these situations, the MSIM Affiliate will comply with the client's policy unless to do so would be inconsistent with applicable laws or regulations or the MSIM Affiliate's fiduciary responsibility. Proxy Research Services - Institutional Shareholder Services ("ISS") and Glass Lewis (together with other proxy research providers as MSIM Affiliates may retain from time to time, the "Research Providers") are independent advisers that specialize in providing a variety of fiduciary-level proxy-related services to institutional investment managers, plan sponsors, custodians, consultants, and other institutional investors. The services provided include in-depth research, global issuer analysis, and voting recommendations. While the MSIM Affiliates may review and utilize the recommendations of the Research Providers in making proxy voting decisions, they are in no way obligated to follow such recommendations. In addition to research, ISS provides vote execution, reporting, and recordkeeping. MSIM's Proxy Review Committee (see Section IV.A. below) will carefully monitor and supervise the services provided by the Research Providers. Voting Proxies for Certain Non-U.S. Companies - While the proxy voting process is well established in the United States and other developed markets with a number of tools and services available to assist an investment manager, voting proxies of non-U.S. companies located in certain jurisdictions, particularly emerging markets, may involve a number of problems that may restrict or prevent a MSIM Affiliate's ability to vote such proxies. These problems include, but are not limited to: (i) proxy statements and ballots being written in a language other than English; (ii) untimely and/or inadequate notice of shareholder meetings; (iii) restrictions on the ability of holders outside the issuer's jurisdiction of organization to exercise votes; (iv) requirements to vote proxies in person, (v) the imposition of restrictions on the sale of the securities for a period of time in proximity to the shareholder meeting; and (vi) requirements to provide local agents with power of attorney to facilitate the MSIM Affiliate's voting instructions. As a result, clients' non-U.S. proxies will be voted on a best efforts basis only, after weighing the costs and benefits to MSIM's clients of voting such proxies, consistent with the Client Proxy Standard. ISS has been retained to provide assistance to the MSIM Affiliates in connection with voting their clients' non-U.S. proxies. II. GENERAL PROXY VOTING GUIDELINES To ensure consistency in voting proxies on behalf of its clients, MSIM Affiliates will follow (subject to any exception set forth herein) this Policy, including the guidelines set forth below. These guidelines address a broad range of issues, including board size and composition, executive compensation, anti-takeover proposals, capital structure proposals and social responsibility issues and are meant to be general voting parameters on issues that arise most frequently. The MSIM Affiliates, however, may, pursuant to the procedures set forth in Section IV. below, vote in a manner that is not in accordance with the following general guidelines, provided the vote is approved by the Proxy Review Committee and is consistent with the Client Proxy Standard. A MSIM Affiliate will not generally vote a proxy if it has sold the affected security between the record date and the meeting date. III. GUIDELINES A. Corporate Governance Matters. The following proposals will generally be voted as indicated below, unless otherwise determined by the Proxy Review Committee. i. General. 1. Generally, routine management proposals will be supported. The following are examples of routine management proposals: - Approval of financial statements, director and auditor reports. - General updating/corrective amendments to the charter. - Proposals related to the conduct of the annual meeting, except those proposals that relate to the "transaction of such other business which may come before the meeting." 2. Proposals to eliminate cumulative voting generally will be supported; proposals to establish cumulative voting in the election of directors will not be supported. 3. Proposals requiring confidential voting and independent tabulation of voting results will be supported. 4. Proposals requiring a U.S. company to have a separate Chairman and CEO will not be supported. Proposals requiring non-U.S. companies to have a separate Chairman and CEO will be supported. 5. Proposals by management of non-U.S. companies regarding items that are clearly related to the regular course of business will be supported. 6. Proposals to require the company to expense stock options will be supported. 7. Open-ended requests for adjournment generally will not be supported. However, where management specifically states the reason for requesting an adjournment and the requested adjournment is necessary to permit a proposal that would otherwise be supported under this Policy to be carried out (i.e. an uncontested corporate transaction), the adjournment request will be supported. 8. Proposals to declassify the Board of Directors (if management supports a classified board) generally will not be supported. 9. Proposal requiring that the company prepare reports that are costly to provide or that would require duplicative efforts or expenditures that are of a non-business nature or would provide no pertinent information from the perspective of institutional shareholders generally will not be supported. ii. Election of Directors. In situations where no conflict exists and where no specific governance deficiency has been noted, unless otherwise determined by the Proxy Review Committee, proxies will be voted in support of nominees of management. 1. The following proposals generally will be supported: - Proposals requiring that a certain percentage (up to 66 2/3%) of the company's board members be independent directors. - Proposals requiring that members of the company's compensation, nominating and audit committees be comprised of independent or unaffiliated directors. 2. Unless otherwise determined by the Proxy Review Committee, a withhold vote will be made in the following circumstances: (a) If a company's board is not comprised of a majority of disinsterested directors, a withhold vote will be made for interested directors. A director nominee may be deemed to be interested if the nominee has, or any time during the previous five years had, a relationship with the issuer (e.g., investment banker, counsel or other professional service provider, or familial relationship with a senior officer of the issuer) that may impair his or her independence; (b) If a nominee who is interested is standing for election as a member of the company's compensation, nominating or audit committees; (c) A direct conflict exists between the interests of the nominee and the public shareholders; (d) Where the nominees standing for election have not taken action to implement generally accepted governance practices for which there is a "bright line" test. These would include elimination of dead hand or slow hand poison pills, requiring audit, compensation or nominating committees to be composed of independent directors and requiring a majority independent board; (e) A nominee has failed to attend at least 75% of board meetings within a given year without a reasonable excuse; or (f) A nominee serves on the board of directors for more than six companies (excluding investment companies). (iii) Auditors 1. Generally, management proposals for selection or ratification of auditors will be supported. However, such proposals may not be supported if the audit fees are excessive. Generally, to determine if audit fees are excessive, a 50% test will be applied for audit fees in excess of $1 million: if audit fees are $1 million or more, non-audit fees should less than 50% of the total fees paid to the auditor. If audit fees are less than $1 million, the fees will be reviewed case by case by the Proxy Review Committee. 2. Proposals requiring auditors to attend the annual meeting of shareholders will be supported. 3. Proposals to indemnify auditors will not be supported. (iv.) Anti-Takeover Matters 1. Proposals to modify or rescind existing supermajority vote requirements to amend the charter or bylaws will be supported; proposals to amend by-laws to require a supermajority shareholder vote to pass or repeal certain provisions will not be supported. 2. Proposals relating to the adoption of anti-greenmail provisions will be supported, provided that the proposal: (i) defines greenmail; (ii) prohibits buyback offers to large block holders (holders of at least 1% of the outstanding shares and in certain cases, a greater amount, as determined by the Proxy Review Committee) not made to all shareholders or not approved by disinterested shareholders; and (iii) contains no anti-takeover measures or other provisions restricting the rights of shareholders. 3. Proposals requiring shareholder approval or ratification of a shareholder rights plan or poison pill will be supported. B. Capitalization changes. The following proposals generally will be voted as indicated below, unless otherwise determined by the Proxy Review Committee. 1. The following proposals generally will be supported: - Proposals relating to capitalization changes that eliminate other classes of stock and/or eliminate unequal voting rights. - Proposals to increase the authorization of existing classes of common stock (or securities convertible into common stock) if: (i) a clear and legitimate business purpose is stated; (ii) the number of shares requested is reasonable in relation to the purpose for which authorization is requested; and (iii) the authorization does not exceed 100% of shares currently authorized and at least 30% of the new authorization will be outstanding. - Proposals to create a new class of preferred stock or for issuances of preferred stock up to 50% of issued capital. - Proposals for share repurchase plans. - Proposals to reduce the number of authorized shares of common or preferred stock, or to eliminate classes of preferred stock. - Proposals to effect stock splits. - Proposals to effect reverse stock splits if management proportionately reduces the authorized share amount set forth in the corporate charter. Reverse stock splits that do not adjust proportionately to the authorized share amount generally will be approved if the resulting increase in authorized shares coincides with the proxy guidelines set forth above for common stock increases. 2. The following proposals generally will not be supported (notwithstanding management support). - Proposals relating to capitalization changes that add classes of stock which substantially dilute the voting interests of existing shareholders. - Proposals to increase the authorized number of shares of existing classes of stock that carry preemptive rights or supervoting rights. - Proposals to create "blank check" preferred stock. |X| Proposals relating to changes in capitalization by 100% or more. C. Compensation. The following proposals generally will be voted as indicated below, unless otherwise determined by the Proxy Review Committee. 1. The following proposals generally will be supported: - Proposals relating to director fees, provided the amounts are not excessive relative to other companies in the country or industry. - Proposals for employee stock purchase plans that permit discounts up to 15%, but only for grants that are part of a broad-based employee plan, including all non-executive employees. - Proposals for the establishment of employee stock option plans and other employee ownership plans, provided that our research does not indicate that approval of the plan would be against shareholder interest. - Proposals for the establishment of employee retirement and severance plans, provided that our research does not indicate that approval of the plan would be against shareholder interest. 2. Blanket proposals requiring shareholder approval of all severance agreements will not be supported, however, proposals that require shareholder approval for agreements in excess of three times the annual compensation (salary and bonus) generally will be supported. 3. Blanket proposals requiring shareholder approval of executive compensation generally will not be supported. 4. Proposals that request or require disclosure of executive compensation in addition to the disclosure required by the Securities and Exchange Commission ("SEC") regulations generally will not be supported. D. Other Recurring Items. The following proposals generally will be voted as indicated below, unless otherwise determined by the Proxy Review Committee. 1. Proposals to add restrictions related to social, political, environmental or special interest issues that do not relate directly to the business of the company and which do not appear to be directed specifically to the business or financial interest of the company generally will not be supported. 2. Proposals requiring adherence to workplace standards that are not required or customary in market(s) to which the proposals relate will not be supported. E. Items to be reviewed by the Proxy Review Committee The following types of non-routine proposals, which potentially may have a substantive financial or best interest impact on an issuer, will be voted as determined by the Proxy Review Committee. i. Corporate Transactions - Proposals relating to mergers, acquisitions and other special corporate transactions (i.e., takeovers, spin-offs, sales of assets, reorganizations, restructurings and recapitalizations) will be examined on a case-by-case basis. In all cases, Research Providers' research and analysis will be used along with MSIM Affiliates' research and analysis, including, among other things, MSIM internal company-specific knowledge. Proposals for mergers or other significant transactions that are friendly, approved by the Research Providers, and where there is no portfolio manager objection, generally will be supported. ii. Compensation - Proposals relating to change-in-control provisions in non-salary compensation plans, employment contracts, and severance agreements that benefit management and would be costly to shareholders if triggered. With respect to proposals related to severance and change of control situations, MSIM Affiliates will support a maximum of three times salary and bonus. - Proposals relating to Executive/Director stock option plans. Generally, stock option plans should be incentive based. The Proxy Review Committee will evaluate the quantitative criteria used by a Research Provider when considering such Research Provider's recommendation. If the Proxy Review Committee determines that the criteria used by the Research Provider is reasonable, the proposal will be supported if it falls within a 5% band above the Research Provider's threshold. - Compensation proposals that allow for discounted stock options that have not been offered to employees in general. iii. Other - Proposals for higher dividend payouts. - Proposals recommending set retirement ages or requiring specific levels of stock ownership by directors. - Proposals for election of directors, where a director nominee is related to MSIM (i.e. on an MSIM Fund's Board of Directors/Trustees or part of MSIM senior management) must be considered by the Proxy Review Committee. If the proposal relates to a director nominee who is on a Van Kampen Fund's Board of Directors/Trustees, to the extent that the shares of the relevant company are held by a Van Kampen Fund, the Van Kampen Board shall vote the proxies with respect to those shares, to the extent practicable. In the event that the Committee cannot contact the Van Kampen Board in advance of the shareholder meeting, the Committee will vote such shares pursuant to the Proxy Voting Policy. - Proposals requiring diversity of board membership relating to broad based social, religious or ethnic groups. - Proposals to limit directors' liability and/or broaden indemnification of directors. Generally, the Proxy Review Committee will support such proposals provided that the officers and directors are eligible for indemnification and liability protection if they have acted in good faith on company business and were found innocent of any civil or criminal charges for duties performed on behalf of the company. IV. ADMINISTRATION OF POLICY A. Proxy Review Committee 1. The MSIM Proxy Review Committee ("Committee") is responsible for creating and implementing the Policy and, in this regard, has expressly adopted it. (a) The Committee, which is appointed by MSIM's Chief Investment Officer ("CIO"), consists of senior investment professionals who represent the different investment disciplines and geographic locations of the firm. The Committee is responsible for establishing MSIM's Policy and determining how MSIM will vote proxies on an ongoing basis. (b) The Committee will periodically review and have the authority to amend, as necessary, the Policy and establish and direct voting positions consistent with the Client Proxy Standard. (c) The Committee will meet at least monthly to (among other matters): (1) address any outstanding issues relating to the Policy and (2) review proposals at upcoming shareholder meetings of MSIM portfolio companies in accordance with this Policy including, as appropriate, the voting results of prior shareholder meetings of the same issuer where a similar proposal was presented to shareholders. The Committee, or its designee, will timely communicate to ISS MSIM's Policy (and any amendments to them and/or any additional guidelines or procedures it may adopt). (d) The Committee will meet on an ad hoc basis to (among other matters): (1) authorize "split voting" (i.e., allowing certain shares of the same issuer that are the subject of the same proxy solicitation and held by one or more MSIM portfolios to be voted differently than other shares) and/or "override voting" (i.e., voting all MSIM portfolio shares in a manner contrary to the Policy); (2) review and approve upcoming votes, as appropriate, for matters for which specific direction has been provided in this Policy; and (3) determine how to vote matters for which specific direction has not been provided in this Policy. Split votes generally will not be approved within a single Global Investor Group investment team. The Committee may take into account Research Providers' recommendations and research as well as any other relevant information they may request or receive, including portfolio manager and/or analyst research, as applicable. Generally, proxies related to securities held in accounts that are managed pursuant to quantitative, index or index-like strategies ("Index Strategies") will be voted in the same manner as those held in actively managed accounts. Because accounts managed using Index Strategies are passively managed accounts, research from portfolio managers and/or analysts related to securities held in these accounts may not be available. If the affected securities are held only in accounts that are managed pursuant to Index Strategies, and the proxy relates to a matter that is not described in this Policy, the Committee will consider all available information from the Research Providers, and to the extent that the holdings are significant, from the portfolio managers and/or analysts. (e) In addition to the procedures discussed above, if the Committee determines that an issue raises a potential material conflict of interest, or gives rise to the appearance of a potential material conflict of interest, the Committee will request a special committee to review, and recommend a course of action with respect to, the conflict(s) in question ("Special Committee"). The Special Committee shall be comprised of the Chairperson of the Proxy Review Committee, the Compliance Director for the area of the firm involved or his/her designee, a senior portfolio manager (if practicable, one who is a member of the Proxy Review Committee) designated by the Proxy Review Committee, and MSIM's Chief Investment Officer or his/her designee. The Special Committee may request the assistance of MSIM's General Counsel or his/her designee and will have sole discretion to cast a vote. In addition to the research provided by Research Providers, the Special Committee may request analysis from MSIM Affiliate investment professionals and outside sources to the extent it deems appropriate. (f) The Committee and the Special Committee, or their designee(s), will document in writing all of their decisions and actions, which documentation will be maintained by the Committee and the Special Committee, or their designee(s), for a period of at least 6 years. To the extent these decisions relate to a security held by a MSIM U.S. registered investment company, the Committee and Special Committee, or their designee(s), will report their decisions to each applicable Board of Trustees/Directors of those investment companies at each Board's next regularly scheduled Board meeting. The report will contain information concerning decisions made by the Committee and Special Committee during the most recently ended calendar quarter immediately preceding the Board meeting. (g) The Committee and Special Committee, or their designee(s), will timely communicate to applicable portfolio managers, the Compliance Departments and, as necessary, to ISS, decisions of the Committee and Special Committee so that, among other things, ISS will vote proxies consistent with their decisions. B. Identification of Material Conflicts of Interest 1. If there is a possibility that a vote may involve a material conflict of interest, the vote must be decided by the Special Committee in consultation with MSIM's General Counsel or his/her designee. 2. A material conflict of interest could exist in the following situations, among others: (a) The issuer soliciting the vote is a client of MSIM or an affiliate of MSIM and the vote is on a material matter affecting the issuer; (b) The proxy relates to Morgan Stanley common stock or any other security issued by Morgan Stanley or its affiliates; or (c) Morgan Stanley has a material pecuniary interest in the matter submitted for a vote (e.g., acting as a financial advisor to a party to a merger or acquisition for which Morgan Stanley will be paid a success fee if completed). C. Proxy Voting Reports (a) MSIM will promptly provide a copy of this Policy to any client requesting them. MSIM will also, upon client request, promptly provide a report indicating how each proxy was voted with respect to securities held in that client's account. (b) MSIM's legal department is responsible for filing an annual Form N-PX on behalf of each registered management investment company for which such filing is required, indicating how all proxies were voted with respect to such investment company's holdings. OPPENHEIMER FUNDS 498 SEVENTH AVENUE NEW YORK, NEW YORK 10018 PORTFOLIO PROXY VOTING POLICIES AND PROCEDURES DECEMBER 5, 2005 These Portfolio Proxy Voting Policies and Procedures, which include the attached "OppenheimerFunds Proxy Voting Guidelines" (the "Guidelines"), set forth the proxy voting policies, procedures and guidelines to be followed by OppenheimerFunds, Inc. ("OFI") in voting portfolio proxies relating to securities held by clients, including registered investment companies advised or sub-advised by OFI ("Fund(s)"). A. Funds for which OFI has Proxy Voting Responsibility OFI Funds. Each Board of Directors/Trustees of the Funds advised by OFI (the "OFI Fund Board(s)") has delegated to OFI the authority to vote portfolio proxies pursuant to these Policies and Procedures and subject to Board supervision. Sub-Advised Funds. OFI also serves as an investment sub-adviser for a number of other non-OFI funds not overseen by the OFI Fund Boards ("Sub-Advised Funds"). Pursuant to contractual arrangements between OFI and many of those Sub-Advised Funds' managers, OFI is responsible for portfolio proxy voting of the portfolio proxies held by those Sub-Advised Funds. Tremont Funds (Funds-of-Hedge Funds) Certain OFI Funds are structured as funds-of-hedge funds (the "Tremont Funds") and invest their assets primarily in underlying private investment partnerships and similar investment vehicles ("portfolio funds"). These Tremont Funds have delegated voting of portfolio proxies (if any) for their portfolio holdings to OFI. OFI, in turn, has delegated the proxy voting responsibility to Tremont Partners, Inc., the investment manager of the Tremont Funds. The underlying portfolio funds, however, typically do not solicit votes from their interest holders (such as the Tremont Funds). Therefore, the Tremont Funds' interests (or shares) in those underlying portfolio funds are not considered to be "voting securities" and generally would not be subject to these Policies and Procedures. However, in the unlikely event that an underlying portfolio fund does solicit the vote or consent of its interest holders, the Tremont Funds and Tremont Partners, Inc. have adopted these Policies and Procedures and will vote in accordance with these Policies and Procedures. B. Proxy Voting Committee OFI's internal proxy voting committee (the "Committee") is responsible for overseeing the proxy voting process and ensuring that OFI and the Funds meet their regulatory and corporate governance obligations for voting of portfolio proxies. The Committee shall adopt a written charter that outlines its responsibilities and any amendments to the charter shall be provided to the Boards at the Boards' next regularly scheduled meetings. The Committee also shall receive and review periodic reports prepared by the proxy voting agent regarding portfolio proxies and related votes cast. The Committee shall oversee the proxy voting agent's compliance with these Policies and Procedures and the Guidelines, including any deviations by the proxy voting agent from the Guidelines. The Committee will meet on a regular basis and may act at the direction of two or more of its voting members provided one of those members is the Legal Department or Compliance Department representative. The Committee will maintain minutes of Committee meetings and provide regular reports to the OFI Fund Boards. C. Administration and Voting of Portfolio Proxies 1. Fiduciary Duty and Objective As an investment adviser that has been granted the authority to vote portfolio proxies, OFI owes a fiduciary duty to the Funds to monitor corporate events and to vote portfolio proxies consistent with the best interests of the Funds and their shareholders. In this regard, OFI seeks to ensure that all votes are free from unwarranted and inappropriate influences. Accordingly, OFI generally votes portfolio proxies in a uniform manner for the Funds and in accordance with these Policies and Procedures and the Guidelines. In meeting its fiduciary duty, OFI generally undertakes to vote portfolio proxies with a view to enhancing the value of the company's stock held by the Funds. Similarly, when voting on matters for which the Guidelines dictate a vote be decided on a case-by-case basis, OFI's primary consideration is the economic interests of the Funds and their shareholders. 2. Proxy Voting Agent On behalf of the Funds, OFI retains an independent, third party proxy voting agent to assist OFI in its proxy voting responsibilities in accordance with these Policies and Procedures and, in particular, with the Guidelines. As discussed above, the Committee is responsible for monitoring the proxy voting agent. In general, OFI may consider the proxy voting agent's research and analysis as part of OFI's own review of a proxy proposal in which the Guidelines recommend that the vote be considered on a case-by-case basis. OFI bears ultimate responsibility for how portfolio proxies are voted. Unless instructed otherwise by OFI, the proxy voting agent will vote each portfolio proxy in accordance with the Guidelines. The proxy voting agent also will assist OFI in maintaining records of OFI's and the Funds' portfolio proxy votes, including the appropriate records necessary for the Funds' to meet their regulatory obligations regarding the annual filing of proxy voting records on Form N-PX with the SEC. 3. Material Conflicts of Interest OFI votes portfolio proxies without regard to any other business relationship between OFI (or its affiliates) and the company to which the portfolio proxy relates. To this end, OFI must identify material conflicts of interest that may arise between the interests of a Fund and its shareholders and OFI, its affiliates or their business relationships. A material conflict of interest may arise from a business relationship between a portfolio company or its affiliates (together the "company"), on one hand, and OFI or any of its affiliates (together "OFI"), on the other, including, but not limited to, the following relationships: |X| OFI provides significant investment advisory or other services to a company whose management is soliciting proxies or OFI is seeking to provide such services; - an officer of OFI serves on the board of a charitable organization that receives charitable contributions from the company and the charitable organization is a client of OFI; - a company that is a significant selling agent of OFI's products and services solicits proxies; - OFI serves as an investment adviser to the pension or other investment account of the portfolio company or OFI is seeking to serve in that capacity; or - OFI and the company have a lending or other financial-related relationship. In each of these situations, voting against company management's recommendation may cause OFI a loss of revenue or other benefit. OFI and its affiliates generally seek to avoid such material conflicts of interest by maintaining separate investment decision making processes to prevent the sharing of business objectives with respect to proposed or actual actions regarding portfolio proxy voting decisions. This arrangement alone, however, is insufficient to assure that material conflicts of interest do not influence OFI's voting of portfolio proxies. To minimize this possibility, OFI and the Committee employ the following procedures: - If the proposal that gives rise to a material conflict is specifically addressed in the Guidelines, OFI will vote the portfolio proxy in accordance with the Guidelines, provided that the Guidelines do not provide discretion to OFI on how to vote on the matter (i.e., case-by-case); - If the proposal that gives rise to a potential conflict is not specifically addressed in the Guidelines or provides discretion to OFI on how to vote, OFI will vote in accordance with its proxy voting agent's general recommended guidelines on the proposal provided that OFI has reasonably determined there is no conflict of interest on the part of the proxy voting agent; - If neither of the previous two procedures provides an appropriate voting recommendation, OFI may retain an independent fiduciary to advise OFI on how to vote the proposal; or the Committee may determine that voting on the particular proposal is impracticable and/or is outweighed by the cost of voting and direct OFI to abstain from voting. 4. Certain Foreign Securities Portfolio proxies relating to foreign securities held by the Funds are subject to these Policies and Procedures. In certain foreign jurisdictions, however, the voting of portfolio proxies can result in additional restrictions that have an economic impact or cost to the security, such as "share-blocking." Share-blocking would prevent OFI from selling the shares of the foreign security for a period of time if OFI votes the portfolio proxy relating to the foreign security. In determining whether to vote portfolio proxies subject to such restrictions, OFI, in consultation with the Committee, considers whether the vote, either itself or together with the votes of other shareholders, is expected to have an effect on the value of the investment that will outweigh the cost of voting. Accordingly, OFI may determine not to vote such securities. If OFI determines to vote a portfolio proxy and during the "share-blocking period" OFI would like to sell an affected foreign security for one or more Funds, OFI, in consultation with the Committee, will attempt to recall the shares (as allowable within the market time-frame and practices). 5. Securities Lending Programs The Funds may participate in securities lending programs with various counterparties. Under most securities lending arrangements, proxy voting rights during the lending period generally are transferred to the borrower, and thus proxies received in connection with the securities on loan may not be voted by the lender (i.e., the Fund) unless the loan is recalled. Alternatively, some securities lending programs use contractual arrangements among the lender, borrower and counterparty to arrange for the borrower to vote the proxies in accordance with instructions from the lending Fund. If a Fund participates in a securities lending program, OFI will attempt to recall the recall the Funds' portfolio securities on loan and vote proxies relating to such securities if OFI determines that the votes involve matters that would have a material effect on the Fund's investment in such loaned securities. 6. Shares of Registered Investment Companies (Fund of Funds) Certain OFI Funds are structured as funds of funds and invest their assets primarily in other underlying OFI Funds (the "Fund of Funds"). Accordingly, the Fund of Fund is a shareholder in the underlying OFI Funds and may be requested to vote on a matter pertaining to those underlying OFI Funds. With respect to any such matter, the Fund of Funds will vote its shares in the underlying OFI Fund in the same proportion as the vote of all other shareholders in that underlying OFI Fund (sometimes called "mirror" or "echo" voting). D. Fund Board Reports and Recordkeeping OFI will prepare periodic reports for submission to the Board describing: - any issues arising under these Policies and Procedures since the last report to the Board and the resolution of such issues, including but not limited to, information about conflicts of interest not addressed in the Policies and Procedures; and - any proxy votes taken by OFI on behalf of the Funds since the last report to the Board which were deviations from the Policies and Procedures and the reasons for any such deviations. In addition, no less frequently than annually, OFI will provide the Boards a written report identifying any recommended changes in existing policies based upon OFI's experience under these Policies and Procedures, evolving industry practices and developments in applicable laws or regulations. OFI will maintain all records required to be maintained under, and in accordance with, the Investment Company Act of 1940 and the Investment Advisers Act of 1940 with respect to OFI's voting of portfolio proxies, including, but not limited to: these Policies and Procedures, as amended from time to time; - Records of votes cast with respect to portfolio proxies, reflecting the information required to be included in Form N-PX; - Records of written client requests for proxy voting information and any written responses of OFI to such requests; and - Any written materials prepared by OFI that were material to making a decision in how to vote, or that memorialized the basis for the decision. E. Amendments to these Procedures In addition to the Committee's responsibilities as set forth in the Committee's Charter, the Committee shall periodically review and update these Policies and Procedures as necessary. Any amendments to these Procedures and Policies (including the Guidelines) shall be provided to the Boards for review, approval and ratification at the Boards' next regularly scheduled meetings. F. Proxy Voting Guidelines The Guidelines adopted by the Boards of the Funds are attached as Appendix A. The importance of various issues shifts as political, economic and corporate governance issues come to the forefront and then recede. Accordingly, the Guidelines address the issues OFI has most frequently encountered in the past several years. APPENDIX A OPPENHEIMER FUNDS PORTFOLIO PROXY VOTING GUIDELINES 1. OPERATIONAL ITEMS 1.1 Amend Quorum Requirements. - Vote AGAINST proposals to reduce quorum requirements for shareholder meetings below a majority of the shares outstanding unless there are compelling reasons to support the proposal. 1.2 Amend Minor Bylaws. - Vote FOR bylaw or charter changes that are of a housekeeping nature (updates or corrections). 1.3 Change Company Name. - Vote WITH Management 1.4 Change Date, Time, or Location of Annual Meeting. - Vote FOR management proposals to change the date/time/location of the annual meeting unless the proposed change is unreasonable. - Vote AGAINST shareholder proposals to change the date/time/location of the annual meeting unless the current scheduling or location is unreasonable. 1.5 Transact Other Business. - Vote AGAINST proposals to approve other business when it appears as voting item. AUDITORS 1.6 Ratifying Auditors - Vote FOR Proposals to ratify auditors, unless any of the following apply: - An auditor has a financial interest in or association with the company, and is therefore not independent. - Fees for non-audit services are excessive. - There is reason to believe that the independent auditor has rendered an opinion which is neither accurate nor indicative of the company's financial position. - Vote AGAINST shareholder proposals asking companies to prohibit or limit their auditors from engaging in non-audit services. - Vote AGAINST shareholder proposals asking for audit firm rotation. - Vote on a CASE-BY-CASE basis on shareholder proposals asking the company to discharge the auditor(s). - Proposals are adequately covered under applicable provisions of Sarbanes-Oxley Act or NYSE or SEC regulations. 2.0 THE BOARD OF DIRECTORS 2.1 Voting on Director Nominees - Vote on director nominees should be made on a CASE-BY-CASE basis, examining the following factors: - Composition of the board and key board committees - Attendance at board meetings - Corporate governance provisions and takeover activity - Long-term company performance relative to a market index - Directors' investment in the company - Whether the chairman is also serving as CEO - Whether a retired CEO sits on the board - WITHHOLD VOTES: However, there are some actions by directors that should result in votes being WITHHELD. These instances include directors who: - Attend less than 75% of the board and committee meetings without a valid excuse. - Implement or renew a dead-hand or modified dead-hand poison pill - Ignore a shareholder proposal that is approved by a majority of the shares outstanding. - Ignore a shareholder proposal that is approved by a majority of the votes cast for two consecutive years. - Failed to act on takeover offers where the majority of the shareholders tendered their shares. - Are inside directors or affiliated outsiders; and sit on the audit, compensation, or nominating committees or the company does not have one of these committees. - Are audit committee members; and the non-audit fees paid to the auditor are excessive. - Enacted egregious corporate governance policies or failed to replace management as appropriate. - Are inside directors or affiliated outside directors; and the full board is less than majority independent. - Are CEOs of publicly-traded companies who serve on more than three public boards, i.e., more than two public boards other than their own board - Sit on more than six public company boards. - Additionally, the following should result in votes being WITHHELD (except from new nominees): - If the director(s) receive more than 50% withhold votes out of those cast and the issue that was the underlying cause of the high level of withhold votes in the prior election has not been addressed. - If the company has adopted or renewed a poison pill without shareholder approval since the company's last annual meeting, does not put the pill to a vote at the current annual meeting, and there is no requirement to put the pill to shareholder vote within 12 months of its adoption. If a company that triggers this policy commits to putting its pill to a shareholder vote within 12 months of its adoption, OFI will not recommend a WITHHOLD vote. 2.2 Board Size - Vote on a CASE-BY-CASE basis on shareholder proposals to maintain or improve ratio of independent versus non-independent directors. - Vote FOR proposals seeking to fix the board size or designate a range for the board size. - Vote on a CASE-BY-CASE basis on proposals that give management the ability to alter the size of the board outside of a specified range without shareholder approval. 2.3 Classification/Declassification of the Board - Vote AGAINST proposals to classify the board. - Vote FOR proposals to repeal classified boards and to elect all directors annually. In addition, if 50% of shareholders request repeal of the classified board and the board remains classified, withhold votes for those directors at the next meeting at which directors are elected. 2.4 Cumulative Voting - Vote FOR proposal to eliminate cumulative voting. 2.5 Require Majority Vote for Approval of Directors - Vote AGAINST proposal to require majority vote approval for election of directors 2.6 Director and Officer Indemnification and Liability Protection - Proposals on director and officer indemnification and liability protection should be evaluated on a CASE-BY-CASE basis, using Delaware law as the standard. - Vote FOR proposals to eliminate entirely directors' and officers' liability for monetary damages for violating the duty of care, provided the liability for gross negligence is not eliminated. - Vote FOR indemnification proposals that would expand coverage beyond just legal expenses to acts, such as negligence, that are more serious violations of fiduciary obligation than mere carelessness, provided coverage is not provided for gross negligence acts. - Vote FOR only those proposals providing such expanded coverage in cases when a director's or officer's legal defense was unsuccessful if both of the following apply: - The director was found to have acted in good faith and in a manner that he reasonable believed was in the best interests of the company, and - Only if the director's legal expenses would be covered. 2.7 Establish/Amend Nominee Qualifications - Vote on a CASE-BY-CASE basis on proposals that establish or amend director qualifications. - Votes should be based on how reasonable the criteria are and to what degree they may preclude dissident nominees from joining the board. - Vote AGAINST shareholder proposals requiring two candidates per board seat. 2.8 Filling Vacancies/Removal of Directors. - Vote AGAINST proposals that provide that directors may be removed only for cause. - Vote FOR proposals to restore shareholder ability to remove directors with or without cause. - Vote AGAINST proposals that provide that only continuing directors may elect replacements to fill board vacancies. - Vote FOR proposals that permit shareholders to elect directors to fill board vacancies. 2.9 Independent Chairman (Separate Chairman/CEO) - Generally vote FOR shareholder proposals requiring the position of chairman to be filled by an independent director unless there are compelling reasons to recommend against the proposal such as a counterbalancing governance structure. This should include all of the following: - Designated lead director, elected by and from the independent board members with clearly delineated and comprehensive duties - Two-thirds independent board - All-independent key committees - Established governance guidelines - The company should not have underperformed its peers and index on a one-year and three-year basis, unless there has been a change in the Chairman/CEO position within that time. Performance will be measured according to shareholder returns against index and peers from the performance summary table. 2.10 Majority of Independent Directors/Establishment of Committees - Vote FOR shareholder proposals asking that a majority of directors be independent but vote CASE-BY-CASE on proposals that more than a majority of directors be independent. NYSE and NASDAQ already require that listed companies have a majority of independent directors. - Vote FOR shareholder proposals asking that board audit, compensation, and/or nominating committees be composed exclusively of independent directors if they currently do not meet that standard. 2.11 Open Access - Vote CASE-BY-CASE on shareholder proposals asking for open access taking into account the ownership threshold specified in the proposal and the proponent's rationale for targeting the company in terms of board and director conduct. (At the time of these policies, the SEC's proposed rule in 2003 on Security Holder Director Nominations remained outstanding.) 2.12 Stock Ownership Requirements - Vote WITH Management on shareholder proposals that mandate a minimum amount of stock that directors must own in order to qualify as a director or to remain on the board. While stock ownership on the part of directors is favored, the company should determine the appropriate ownership requirement. - Vote WITH Management on shareholder proposals asking that the company adopt a holding or retention period for its executives (for holding stock after the vesting or exercise of equity awards), taking into account any stock ownership requirements or holding period/retention ratio already in place and the actual ownership level of executives. 2.13 Age or Term Limits - Vote AGAINST shareholder or management proposals to limit the tenure of directors either through term limits or mandatory retirement ages. OFI views as management decision. 3.0 PROXY CONTESTS 3.1 Voting for Director Nominees in Contested Elections - Votes in a contested election of directors must be evaluated on a CASE-BY-CASE basis considering the following factors: - Long-term financial performance of the target company relative to its industry - Management's track record - Background to the proxy contest - Qualifications of director nominees (both slates) - Evaluation of what each side is offering shareholders as well as the likelihood that the proposed objectives and goals can be met - Stock ownership position 3.2 Reimbursing Proxy Solicitation Expenses - Voting to reimburse proxy solicitation expenses should be analyzed on a CASE-BY-CASE basis. In cases, which OFI recommends in favor of the dissidents, OFI also recommends voting for reimbursing proxy solicitation expenses. 3.3 Confidential Voting - Vote AGAINST shareholder proposals requesting that corporations adopt confidential voting, use independent vote tabulators and use independent inspectors of election. - If a proxy solicitor loses the right to inspect individual proxy cards in advance of a meeting, this could result in many cards being voted improperly (wrong signatures, for example) or not at all, with the result that companies fail to reach a quorum count at their annual meetings, and therefore these companies to incur the expense of second meetings or votes. 4.0 ANTITAKEOVER DEFENSES AND VOTING RELATED ISSUES 4.1 Advance Notice Requirements for Shareholder Proposals/Nominations. - Votes on advance notice proposals are determined on a CASE-BY-CASE basis, generally giving support to those proposals which allow shareholders to submit proposals as close to the meeting date as reasonably possible and within the broadest window possible. 4.2 Amend Bylaws without Shareholder Consent - Vote AGAINST proposals giving the board exclusive authority to amend the bylaws. - Vote FOR proposals giving the board the ability to amend the bylaws in addition to shareholders. 4.3 Poison Pills - Generally vote FOR shareholder proposals requesting to put extraordinary benefits contained in Supplemental Executive Retirement Plan agreements to a shareholder vote unless the company's executive pension plans do not contain excessive benefits beyond what is offered under employee-wide plans. - Vote AGAINST proposals that increase authorized common stock fro the explicit purpose of implementing a shareholder rights plan (poison pill). - Vote FOR share holder proposals requesting that the company submit its poison pill to a shareholder vote or redeem it. - Vote FOR shareholder proposals asking that any future pill be put to a shareholder vote. 4.4 Shareholder Ability to Act by Written Consent - Vote AGAINST proposals to restrict or prohibit shareholder ability to take action by written consent. - Vote FOR proposals to allow or make easier shareholder action by written consent. 4.5 Shareholder Ability to Call Special Meetings - Vote AGAINST proposals to restrict or prohibit shareholder ability to call special meetings. - Vote FOR proposals that remove restrictions on the right of shareholders to act independently of management. 4.6 Establish Shareholder Advisory Committee - Vote WITH Management 4.7 Supermajority Vote Requirements - Vote AGAINST proposals to require a supermajority shareholder vote. - Vote FOR proposals to lower supermajority vote requirements. 5.0 MERGERS AND CORPORATE RESTRUCTURINGS 5.1 Appraisal Rights - Vote FOR proposals to restore, or provide shareholders with, rights of appraisal. 5.2 Asset Purchases - Vote CASE-BY-CASE on asset purchase proposals, considering the following factors: - Purchase price - Fairness opinion - Financial and strategic benefits - How the deal was negotiated - Conflicts of interest - Other alternatives for the business - Non-completion risk 5.3 Asset Sales - Vote CASE-BY-CASE on asset sale proposals, considering the following factors: - Impact on the balance sheet/working capital - Potential elimination of diseconomies - Anticipated financial and operating benefits - Anticipated use of funds - Value received for the asset - Fairness opinion - How the deal was negotiated - Conflicts of interest 5.4 Bundled Proposals - Review on a CASE-BY-CASE basis on bundled or "conditioned" proxy proposals. In the case of items that are conditioned upon each other, examine the benefits and costs of the packaged items. In instances when the joint effect of the conditioned items is not in shareholders' best interests, vote against the proposals. If the combined effect is positive, support such proposals. 5.5 Conversion of Securities - Votes on proposals regarding conversion of securities are determined on a CASE-BY-CASE basis. When evaluating these proposals, the investor should review the dilution to existing shareholders, the conversion price relative to the market value, financial issues, control issues, termination penalties, and conflicts of interest. 5.6 Corporate Reorganization/Debt Restructuring/Prepackaged Bankruptcy Plans/Reverse Leveraged Buyouts/Wrap Plans - Votes on proposals to increase common and/or preferred shares and to issue shares as part of a debt restructuring plan are determined on a CASE-BY-CASE basis, taking into consideration the following: - Dilution to existing shareholders' position - Terms of the offer - Financial issues - Management's efforts to pursue other alternatives - Control issues - Conflicts of interest - Vote CASE-BY-CASE on the debt restructuring if it is expected that the company will file for bankruptcy if the transaction is not approved. 5.7 Formation of Holding Company - Votes on proposals regarding the formation of a holding company should be determined on a CASE-BY-CASE basis, taking into consideration the following: - The reasons for the change - Any financial or tax benefits - Regulatory benefits - Increases in capital structure - Changes to the articles of incorporation or bylaws of the company. - Absent compelling financial reasons to recommend the transaction, vote AGAINST the formation of a holding company if the transaction would include either of the following: - Increases in common or preferred stock in excess of the allowable maximum as calculated by the ISS Capital Structure Model. - Adverse changes in shareholder rights. 5.8 Going Private Transactions (LBOs and Minority Squeezeouts) - Votes on going private transactions on a CASE-BY-CASE basis, taking into account the following: - Offer price/premium - Fairness opinion - How the deal was negotiated - Conflicts of interests - Other alternatives/offers considered - Non-completion risk 5.9 Joint Venture - Votes on a CASE-BY-CASE basis on proposals to form joint ventures, taking into account the following: - Percentage of assets/business contributed - Percentage of ownership - Financial and strategic benefits - Governance structure - Conflicts of interest - Other alternatives - Non-completion risk 5.10 Liquidations - Votes on liquidations should be made on a CASE-BY-CASE basis after reviewing management's efforts to pursue other alternatives, appraisal value of assets, and the compensation plan for executives managing the liquidation. - Vote on a CASE-BY-CASE basis, if the company will file for bankruptcy if the proposal is not approved. 5.11 Mergers and Acquisitions/Issuance of Shares to Facilitate Merger or Acquisition - Votes on mergers and acquisitions should be considered on a CASE-BY-CASE basis, determining whether the transaction enhances shareholder value by giving consideration to the following: - Prospects of the combined company, anticipated financial and operating benefits - Offer price (premium or discount) - Fairness opinion - How the deal was negotiated - Changes in corporate governance - Change in the capital structure - Conflicts of interest 5.12 Private Placements/Warrants/Convertible Debenture - Votes on proposals regarding private placements should be determined on a CASE-BY-CASE basis. When evaluating these proposals the invest should review: - Dilution to existing shareholders' position - Terms of the offer - Financial issues - Management's efforts to pursue other alternatives - Control issues - Conflicts of interest 5.13 Spinoffs - Votes on spinoffs should be considered on a CASE-BY-CASE basis depending on: - Tax and regulatory advantages - Planned use of the sale proceeds - Valuation of spinoff - Fairness opinion - Benefits to the parent company - Conflicts of interest - Managerial incentives - Corporate governance changes - Changes in the capital structure 5.14 Value Maximization Proposals - Votes on a CASE-BY-CASE basis on shareholder proposals seeking to maximize shareholder value by hiring a financial advisor to explore strategic alternatives, selling the company or liquidating the company and distributing the proceeds to shareholders. These proposals should be evaluated based on the following factors: prolonged poor performance with no turnaround in sight, signs of entrenched board and management, strategic plan in place for improving value, likelihood of receiving reasonable value in a sale or dissolution and whether the company is actively exploring its strategic options, including retaining a financial advisor. 5.15 Severance Agreements that are Operative in Event of Change in Control - Review CASE-BY-CASE, with consideration give to ISS "transfer-of-wealth" analysis. (See section 8.2) 6.0 STATE OF INCORPORATION 6.1 Control Share Acquisition Provisions - Vote FOR proposals to opt out of control share acquisition statutes unless doing so would enable the completion of a takeover that would be detrimental to shareholders. - Vote AGAINST proposals to amend the charter to include control share acquisition provisions. - Vote FOR proposals to restore voting rights to the control shares. 6.2 Control Share Cashout Provisions - Vote FOR proposals to opt out of control share cashout statutes. 6.3 Disgorgement Provisions - Vote FOR proposals to opt out of state disgorgement provisions. 6.4 Fair Price Provisions - Vote proposals to adopt fair price provisions on a CASE-BY-CASE basis, evaluating factors such as the vote required to approve the proposed acquisition, the vote required to repeal the fair price provision, and the mechanism for determining the fair price. - Generally vote AGAINST fair price provisions with shareholder vote requirements greater than a majority of disinterested shares. 6.5 Freezeout Provisions - Vote FOR proposals to opt out of state freezeout provisions. 6.6 Greenmail - Vote FOR proposals to adopt anti-greenmail charter of bylaw amendments or otherwise restrict a company's ability to make greenmail payments. - Review on a CASE-BY-CASE basis on anti-greenmail proposals when they are bundled with other charter or bylaw amendments. 6.7 Reincorporation Proposals - Proposals to change a company's state of incorporation should be evaluated on a CASE-BY-CASE basis, giving consideration to both financial and corporate governance concerns, including the reasons for reincorporating, a comparison of the governance provisions, and a comparison of the jurisdictional laws. - Vote FOR reincorporation when the economic factors outweigh any neutral or negative governance changes. 6.8 Stakeholder Provisions - Vote AGAINST proposals that ask the board to consider non-shareholder constituencies or other non-financial effects when evaluating a merger or business combination. 6.9 State Anti-takeover Statutes - Review on a CASE-BY-CASE basis proposals to opt in or out of state takeover statutes (including control share acquisition statutes, control share cash-out statutes, freezeout provisions, fair price provisions, stakeholder laws, poison pill endorsements, severance pay and labor contract provisions, anti-greenmail provisions, and disgorgement provisions). 7.0 CAPITAL STRUCTURE 7.1 Adjustments to Par Value of Common Stock - Vote FOR management proposals to reduce the par value of common stock. 7.2 Common Stock Authorization - Votes on proposals to increase the number of shares of common stock authorized for issuance are determined on a CASE-BY-CASE basis using a model developed by ISS. - Vote AGAINST proposals at companies with dual-class capital structures to increase the number of authorized shares of the class of stock that has superior voting rights. - Vote FOR proposals to approve increases beyond the allowable increase when a company's shares are in danger of being delisted or if a company's ability to continue to operate as a going concern is uncertain. 7.3 Dual-Class Stock - Vote AGAINST proposals to create a new class of common stock with superior voting rights. - Vote FOR proposals to create a new class of non-voting or sub-voting common stock if: - It is intended for financing purposes with minimal or no dilution to current shareholders - It is not designed to preserve the voting power of an insider or significant shareholder 7.4 Issue Stock for Use with Rights Plan - Vote AGAINST proposals that increase authorized common stock for the explicit purpose of implementing a shareholder rights plan (poison pill). 7.5 Preemptive Rights - Review on a CASE-BY-CASE basis on shareholder proposals that seek preemptive rights. In evaluating proposals on preemptive right, consider the size of a company, the characteristics of its shareholder base, and the liquidity of the stock. 7.6 Preferred Stock - Vote FOR shareholder proposals to submit preferred stock issuance to shareholder vote. - Vote AGAINST proposals authorizing the creation of new classes of preferred stock with unspecified voting, conversion, dividend distribution, and other rights ("blank check" preferred stock). - Vote FOR proposals to create "declawed" blank check preferred stock (stock that cannot be used as a takeover defense) - Vote FOR proposals to authorize preferred stock in cases where the company specifies the voting, dividend, conversion, and other rights of such stock and the terms of the preferred stock appear reasonable. - Vote AGAINST proposals to increase the number of blank check preferred stock authorized for issuance when no shares have been issued or reserved for a specific purpose. - Vote AGAINST proposals to increase the number of blank check preferred shares unless, (i) class of stock has already been approved by shareholders and (ii) the company has a record of issuing preferred stock for legitimate financing purposes. 7.7 Pledge of Assets for Debt (Generally Foreign Issuers) - OFI will consider these proposals on a CASE-BY-CASE basis. Generally, OFI will support increasing the debt-to-equity ratio to 100%. Any increase beyond 100% will require further assessment, with a comparison of the company to its industry peers or country of origin. In certain foreign markets, such as France, Latin America and India, companies often propose to pledge assets for debt, or seek to issue bonds which increase debt-to-equity ratios up to 300%. 7.8 Recapitalization - Votes CASE-BY-CASE on recapitalizations (reclassification of securities), taking into account the following: - More simplified capital structure - Enhanced liquidity - Fairness of conversion terms - Impact on voting power and dividends - Reasons for the reclassification - Conflicts of interest - Other alternatives considered 7.9 Reverse Stock Splits - Vote FOR management proposals to implement a reverse stock split when the number of authorized shares will be proportionately reduced. - Vote FOR management proposals to implement a reverse stock split to avoid delisting. - Votes on proposals to implement a reverse stock split that do not proportionately reduce the number of shares authorized for issue should be determined on a CASE-BY-CASE basis using a model developed by ISS. 7.10 Share Purchase Programs - Vote FOR management proposals to institute open-market share repurchase plans in which all shareholders may participate on equal terms. 7.11 Stock Distributions: Splits and Dividends - Vote FOR management proposals to increase the common share authorization for a stock split or share dividend, provided that the increase in authorized shares would not result in an excessive number of shares available for issuance as determined using a model developed by ISS. 7.12 Tracking Stock - Votes on the creation of tracking stock are determined on a CASE-BY-CASE basis, weighing the strategic value of the transaction against such factors as: adverse governance changes, excessive increases in authorized capital stock, unfair method of distribution, diminution of voting rights, adverse conversion features, negative impact on stock option plans, and other alternatives such as spinoff. 8.0 EXECUTIVE AND DIRECTOR COMPENSATION 8.1 Equity-based Compensation Plans - Vote compensation proposals on a CASE-BY-CASE basis. - In general, OFI considers compensation questions such as stock option plans and bonus plans to be ordinary business activity. OFI analyzes stock option plans, paying particular attention to their dilutive effect. While OFI generally supports management proposals, OFI opposes compensation proposals that OFI believes to be excessive, with consideration of factors including the company's industry, market capitalization, revenues and cash flow. - Vote AGAINST plans that expressly permit the repricing of underwater stock options without shareholder approval. Generally vote AGAINST plans in which the CEO participates if there is a disconnect between the CEO's pay and company performance (an increase in pay and a decrease in performance) and the main source of the pay increase (over half) is equity-based. A decrease in performance is based on negative one- and three-year total shareholder returns. An increase in pay is based on the CEO's total direct compensation (salary, cash bonus, present value of stock options, face value of restricted stock, face value of long-term incentive plan payouts, and all other compensation) increasing over the previous year. Also WITHHOLD votes from the Compensation Committee members. 8.2 Director Compensation Examine compensation proposals on a CASE-BY-CASE basis. In general, OFI considers compensation questions such as stock option plans and bonus plans to be ordinary business activity. We analyze stock option plans, paying particular attention to their dilutive effect. While we generally support management proposals, we oppose compensation proposals we believe are excessive, with consideration of factors including the company's industry, market capitalization, revenues and cash flow. 8.3 Bonus for Retiring Director - Examine on a CASE-BY CASE basis. Factors we consider typically include length of service, company's accomplishments during the Director's tenure, and whether we believe the bonus is commensurate with the Director's contribution to the company. 8.4 Cash Bonus Plan - Consider on a CASE-BY-CASE basis. In general, OFI considers compensation questions such as cash bonus plans to be ordinary business activity. While we generally support management proposals, we oppose compensation proposals we believe are excessive. 8.5 Stock Plans in Lieu of Cash - Generally vote FOR management proposals, unless OFI believe the proposal is excessive. In casting its vote, OFI reviews the ISS recommendation per a "transfer of wealth" binomial formula that determines an appropriate cap for the wealth transfer based upon the company's industry peers. - Vote FOR plans which provide participants with the option of taking all or a portion of their cash compensation in the form of stock are determined on a CASE-BY-CASE basis. - Vote FOR plans which provide a dollar-for-dollar cash for stock exchange. - Vote FOR plans which do not 8.6 Director Retirement Plans - Vote FOR retirement plans for non-employee directors if the number of shares reserve is less than 3% of outstanding shares and the exercise price is 100% of fair market value. - Vote AGAINST shareholder proposals to eliminate retirement plans for non-employee directors, if the number of shares is less than 3% of outstanding shares and exercise price is 100% of fair market value. 8.7 Management Proposals Seeking Approval to Reprice Options - Votes on management proposals seeking approval to reprice options are evaluated on a CASE-BY-CASE basis giving consideration to the following: - Historic trading patterns - Rationale for the repricing - Value-for-value exchange - Option vesting - Term of the option - Exercise price - Participation 8.8 Employee Stock Purchase Plans - Votes on employee stock purchase plans should be determined on a CASE-BY-CASE basis. - Votes FOR employee stock purchase plans where all of the following apply: - Purchase price is at least 85% of fair market value - Offering period is 27 months or less - The number of shares allocated to the plan is 10% or less of the outstanding shares - Votes AGAINST employee stock purchase plans where any of the following apply: - Purchase price is at least 85% of fair market value - Offering period is greater than 27 months - The number of shares allocated to the plan is more than 10% of the outstanding shares 8.9 Incentive Bonus Plans and Tax Deductibility Proposals (OBRA-Related Compensation Proposals) - Vote FOR proposals that simply amend shareholder-approved compensation plans to include administrative features or place a cap on the annual grants any one participant may receive to comply with the provisions of Section 162(m). - Vote FOR proposals to add performance goals to existing compensation plans to comply with the provisions of Section 162(m) unless they are clearly inappropriate. - Votes to amend existing plans to increase shares reserved and to qualify for favorable tax treatment under the provisions of Section 162(m) should be considered on a CASE-BY-CASE basis using a proprietary, quantitative model developed by ISS. - Generally vote FOR cash or cash and stock bonus plans that are submitted to shareholders for the purpose of exempting compensation from taxes under the provisions of Section 162(m) if no increase in shares is requested. 8.10 Employee Stock Ownership Plans (ESOPs) - Vote FOR proposals to implement an ESOP or increase authorized shares for existing ESOPs, unless the number of shares allocated to the ESOP is excessive (more than 5% of outstanding shares.) 8.11 Shareholder Proposal to Submit Executive Compensation to Shareholder Vote - Vote WITH MANAGEMENT 8.12 401(k) Employee Benefit Plans - Vote FOR proposals to implement a 401(k) savings plan for employees. 8.13 Shareholder Proposals Regarding Executive and Director Pay - Vote WITH MANAGEMENT on shareholder proposals seeking additional disclosure of executive and director pay information. - Vote WITH MANAGEMENT on shareholder proposals requiring director fees be paid in stock only. - Vote WITH MANAGEMENT on shareholder proposals to put option repricings to a shareholder vote. - Vote WITH MANAGEMENT for all other shareholder proposals regarding executive and director pay. 8.14 Performance-Based Stock Options - Generally vote FOR shareholder proposals advocating the use of performance-based stock options (indexed, premium-priced, and performance-vested options), unless: - The proposal is overly restrictive (e.g., it mandates that awards to all employees must be performance-based or all awards to top executives must be a particular type, such as indexed options), or - The company demonstrates that it is using a substantial portion of performance-based awards for its top executives 8.15 Golden Parachutes and Executive Severance Agreements - Vote FOR shareholder proposals to require golden parachutes or executive severance agreements to be submitted for shareholder ratification, unless the proposal requires shareholder approval prior to entering into employment contracts. - Vote on a CASE-BY-CASE basis on proposals to ratify or cancel golden parachutes. An acceptable parachute should include the following: - The parachute should be less attractive than an ongoing employment opportunity with the firm - The triggering mechanism should be beyond the control management - The amount should not exceed three times base salary plus guaranteed benefits 8.16 Pension Plan Income Accounting - Generally vote FOR shareholder proposals to exclude pension plan income in the calculation of earnings used in determining executive bonuses/compensation. 8.17 Supplemental Executive Retirement Plans (SERPs) - Generally vote FOR shareholder proposals requesting to put extraordinary benefits contained in SERP agreement to a shareholder vote unless the company's executive pension plans do not contain excessive benefits beyond what it offered under employee-wide plans. SOCIAL AND ENVIRONMENTAL ISSUES In the case of social, political and environmental responsibility issues, OFI believes the issues do not primarily involve financial considerations and OFI ABSTAINS from voting on those issues. OBERWEIS ASSET MANAGEMENT, INC. PROXY VOTING POLICIES AND PROCEDURES POLICY Oberweis Asset Management, Inc. (the "Adviser") acts as discretionary investment adviser to various clients, including The Oberweis Funds (the "Fund"). The Adviser will not exercise voting authority with respect to client securities, unless a client has authorized the Adviser to exercise such discretion pursuant to the client's advisory contract with the Adviser. The Adviser will exercise voting authority with respect to securities held by the Fund. The Adviser's policy is to vote proxies in the best economic interests of clients. The principles which guide the voting policy of the Adviser are maximizing the value of client assets and promoting the rights of clients as beneficial owners of the companies in whose securities they invest. The Adviser's investment strategies are predicated on the belief that the quality of management is often the key to ultimate success or failure of a business. Because the Adviser generally makes investments in companies in which the Adviser has confidence in the management, proxies generally are voted in accord with management's recommendation. The Adviser may vote a proxy in a manner contrary to management's recommendation if, in the judgment of the Adviser, the proposal would not enhance shareholder value. The Adviser has retained Institutional Shareholder Services ("ISS"), a proxy voting and consulting firm, to receive proxy voting statements, provide information and research, make proxy vote recommendations, and handle various administrative functions associated with the voting of client proxies. The proxy voting guidelines are set forth in the ISS Proxy Voting Guidelines Summary, a copy of which is attached, and the ISS Proxy Voting Manual. The Summary is a condensed version of all proxy voting recommendations contained in the ISS Proxy Voting Manual. While ISS makes the proxy voting recommendations, the Adviser retains the ultimate authority on how to vote. In general, based on its review of ISS' proxy voting recommendations, it is anticipated that the Adviser will be in agreement with ISS recommendations and no other action will be required by the Adviser. PROCEDURES Eric V. Hannemann, Secretary, is responsible for monitoring corporate actions. Eric V. Hannemann, Secretary, is also responsible for ensuring that all proxies are voted in a timely manner and, except where a conflict exists, are voted consistently across client accounts. Eric V. Hannemann, Secretary, is responsible for monitoring for conflicts of interest between the Adviser (and/or its affiliated persons) and its clients, including the Fund and its shareholders. Such a conflict may arise, for example, when the Adviser has a business relationship with (or is actively soliciting business from) the company soliciting proxies or a third party that has a material interest in the outcome of a proxy vote or that is actively lobbying for a particular outcome of a proxy vote. All employees are responsible for notifying Eric V. Hannemann, Secretary, with respect to any conflict of interest of which they become aware. Upon receipt of proxy statements on behalf of the Adviser's clients, ISS will vote the proxies in accordance with its recommendations and no action is required by the Adviser unless it disagrees with ISS' recommendation. If the Adviser disagrees with ISS' vote recommendation, it will override the vote and communicate to ISS how to mark and process the vote. In such case, James W. Oberweis, President, or other officer of the Adviser as designated by James W. Oberweis, will vote the proxy. The following matters will be referred to the Adviser's Proxy Committee for instructions: (1) matters where ISS indicates that the application of the recommendations is unclear; (2) matters which ISS indicates are not covered by the recommendations; (3) any other unique matters that may require review by the committee, and (4) if applicable as described under "Conflicts of Interest" below, matters where there is a potential or actual conflict of interest. The Proxy Committee will formulate a recommendation on such matters in accordance with the Adviser's goal to maximize the value of client assets. The Proxy Committee will provide voting instructions on such matters to James W. Oberweis, President, who will vote in accordance with those instructions. The members of the Proxy Committee are identified on Schedule A, which may be amended from time to time. CONFLICTS OF INTEREST If the Adviser determines that, through reasonable inquiry or otherwise, an issue raises a potential material conflict of interest, the Adviser will follow the recommendations of ISS except as follows. If the Adviser and/or the Proxy Committee believes that it would be in the interest of the Adviser's clients to vote a proxy other than according to the recommendation of ISS, the Proxy Committee will prepare a report that (1) describes the conflict of interest; (2) discusses procedures used to address such conflict of interest; and (3) confirms that the recommendation was made solely on the investment merits and without regard to any other consideration. In any event, the Adviser will report to the Board of the Fund regarding any conflicts of interest with respect to the Fund, including how the conflict was resolved, at the next regularly scheduled Board meeting. RECORDKEEPING GENERAL The Adviser will maintain the following records: - these Policies and Procedures, including any amendments; - proxy statements received regarding client securities (provided, however, that the Adviser may rely on the Securities and Exchange Commission's (the "SEC") EDGAR system if the company filed its proxy statements via EDGAR or may rely on ISS; - a record of each vote cast on behalf of a client (provided, however, that the Adviser may rely on ISS; - a copy of any document prepared by the Adviser that was material to making a voting decision or that memorialized the basis for the decision; and - a copy of each written client request for information on how the Adviser voted proxies on behalf of that client and the Adviser's written response to any client request (whether written or oral) on how the Adviser voted proxies on behalf of that client. The Adviser will maintain these records in an easily accessible place for at least five years from the end of the fiscal year during which the last entry was made on such record, the first two years in an appropriate office of the Adviser. THE FUND With respect to proxies voted on behalf of the Fund, the Adviser will coordinate with ISS to compile for each portfolio of the Fund for each matter with respect to which the portfolio was entitled to vote, the information required to be included in Form N-PX for each 12-month period ending June 30 in order to assist the Fund in filing Form N-PX with the SEC by August 31 of each year. DISCLOSURE The Adviser will describe in Part II of its Form ADV these Policies and Procedures and indicate that these Policies and Procedures are available to clients upon request. The Adviser will also advise clients in Part II of its Form ADV how a client may obtain information on how the Adviser voted with respect to that client's securities. AMENDMENTS These Policies and Procedures may be amended by the Adviser from time to time. However, such amendments must be reported to the Board of the Fund at the next regularly scheduled Board meeting. Dated August 1, 2003, as amended May 20, 2004 and further amended January 27, 2005 and November 1, 2005. SCHEDULE A MEMBERS OF PROXY COMMITTEE (as of August 1, 2003) Patrick B. Joyce James W. Oberweis Martin L. Yokosawa DELAWARE MANAGEMENT BUSINESS TRUST PROXY VOTING POLICIES AND PROCEDURES (MARCH 2004) INTRODUCTION Delaware Management Business Trust ("DMBT") is a registered investment adviser with the U.S. Securities and Exchange Commission ("SEC") pursuant to the Investment Advisers Act of 1940, as amended, (the "Advisers Act"). DMBT consists of the following series of entities: Delaware Management Company, Delaware Investment Advisers, Delaware Capital Management and Delaware Lincoln Cash Management (each an "Adviser", and together with DMBT, the "Advisers"). The Advisers provide investment advisory services to various types of clients such as registered and unregistered commingled funds, defined benefit plans, defined contribution plans, private and public pension funds, foundations, endowment funds and other types of institutional investors. Pursuant to the terms of an investment management agreement between an Adviser and its client or as a result of some other type of specific delegation by the client, the Advisers are often given the authority and discretion to vote proxy statements relating to the underlying securities which are held on behalf of such client. Also, clients sometimes ask the Advisers to give voting advice on certain proxies without delegating full responsibility to the Advisers to vote proxies on behalf of the client. DMBT has developed the following Proxy Voting Policies and Procedures (the "Procedures") in order to ensure that each Adviser votes proxies or gives proxy voting advice that is in the best interests of its clients. PROCEDURES FOR VOTING PROXIES To help make sure that the Advisers vote client proxies in accordance with the Procedures and in the best interests of clients, DMBT has established a Proxy Voting Committee (the "Committee") which is responsible for overseeing each Adviser's proxy voting process. The Committee consists of the following persons in DMBT: (i) one representative from the legal department; (ii) one representative from the compliance department; (iii) two representatives from the client services department; and (iv) one representative from the portfolio management department. The person(s) representing each department on the Committee may change from time to time. The Committee will meet as necessary to help DMBT fulfill its duties to vote proxies for clients, but in any event, will meet at least quarterly to discuss various proxy voting issues. One of the main responsibilities of the Committee is to review and approve the Procedures on a yearly basis. The Procedures are usually reviewed during the first quarter of the calendar year before the beginning of the "proxy voting season" and may also be reviewed at other times of the year, as necessary. When reviewing the Procedures, the Committee looks to see if the Procedures are designed to allow the Adviser to vote proxies in a manner consistent with the goals of voting in the best interests of clients and maximizing the value of the underlying shares being voted on by the Adviser. The Committee will also review the Procedures to make sure that they comply with any new rules promulgated by the SEC or other relevant regulatory bodies. After the Procedures are approved by the Committee, DMBT will vote proxies or give advice on voting proxies generally in accordance with such Procedures. In order to facilitate the actual process of voting proxies, DMBT has contracted with Institutional Shareholder Services ("ISS"), a Delaware corporation. Both ISS and the client's custodian monitor corporate events for DMBT. DMBT gives an authorization and letter of instruction to the client's custodian who then forwards proxy materials it receives to ISS so that ISS may vote the proxies. On approximately a monthly basis, DMBT will send ISS an updated list of client accounts and security holdings in those accounts, so that ISS can update its database and is aware of which proxies it will need to vote on behalf of DMBT's clients. If needed, the Committee has access to these records. DMBT provides ISS with the Procedures to use to analyze proxy statements on behalf of DMBT and its clients, and ISS is instructed to vote those proxy statements in accordance with the Procedures. After receiving the proxy statements, ISS will review the proxy issues and vote them in accordance with DMBT's Procedures. When the Procedures state that a proxy issue will be decided on a case-by-case basis, ISS will look at the relevant facts and circumstances and research the issue to determine how the proxy should be voted, so that the proxy is voted in the best interests of the client and in accordance with the parameters described in these Procedures generally and specifically with the Proxy Voting Guidelines (the "Guidelines") below. If the Procedures do not address a particular proxy issue, ISS will similarly look at the relevant facts and circumstances and research the issue to determine how the proxy should be voted, so that the proxy is voted in the best interests of the client and pursuant to the spirit of the Procedures provided by DMBT. After a proxy has been voted, ISS will create a record of the vote in order to help the Advisers comply with their duties listed under "Availability of Proxy Voting Records and Recordkeeping" below. If a client provides DMBT with its own proxy voting guidelines, DMBT will forward the client's guidelines to ISS who will follow the steps above to vote the client's proxies pursuant to the client's guidelines. The Committee is responsible for overseeing ISS's proxy voting activities for DMBT's clients and will attempt to ensure that ISS is voting proxies pursuant to the Procedures. There may be times when one of the Advisers believes that the best interests of the client will be better served if the Adviser votes a proxy counter to ISS's recommended vote on that proxy. In those cases, the Committee will generally review the research provided by ISS on the particular issue, and it may also conduct its own research or solicit additional research from another third party on the issue. After gathering this information and possibly discussing the issue with other relevant parties, the Committee will use the information gathered to determine how to vote on the issue in a manner which the Committee believes is consistent with DMBT's Procedures and in the best interests of the client. The Advisers will attempt to vote every proxy which they or their agents receive when a client has given the Adviser the authority and direction to vote such proxies. However, there are situations in which the Adviser may not be able to process a proxy. For example, an Adviser may not have sufficient time to process a vote because the Adviser or its agents received a proxy statement in an untimely manner. Use of a third party service, such as ISS, and relationships with multiple custodians help avoid a situation where an Adviser is unable to vote a proxy. COMPANY MANAGEMENT RECOMMENDATIONS When determining whether to invest in a particular company, one of the factors the Advisers may consider is the quality and depth of the company's management. As a result, DMBT believes that recommendations of management on any issue (particularly routine issues) should be given a fair amount of weight in determining how proxy issues should be voted. Thus, on many issues, DMBT's votes are cast in accordance with the recommendations of the company's management. However, DMBT will normally vote against management's position when it runs counter to the Guidelines, and DMBT will also vote against management's recommendation when such position is not in the best interests of DMBT's clients. CONFLICTS OF INTEREST As a matter of policy, the Committee and any other officers, directors, employees and affiliated persons of DMBT may not be influenced by outside sources who have interests which conflict with the interests of DMBT's clients when voting proxies for such clients. However, in order to ensure that DMBT votes proxies in the best interests of the client, DMBT has established various systems described below to properly deal with a material conflict of interest. Most of the proxies which DMBT receives on behalf of its clients are voted by ISS in accordance with these predetermined, pre-approved Procedures. As stated above, these Procedures are reviewed and approved by the Committee at least annually normally during the first quarter of the calendar year and at other necessary times. The Procedures are then utilized by ISS going forward to vote client proxies. The Committee approves the Procedures only after it has determined that the Procedures are designed to help DMBT vote proxies in a manner consistent with the goal of voting in the best interests of its clients. Because the majority of client proxies are voted by ISS pursuant to the pre-determined Procedures, it normally will not be necessary for DMBT to make a real-time determination of how to vote a particular proxy, thereby largely eliminating conflicts of interest for DMBT from the proxy voting process. In the limited instances where DMBT is considering voting a proxy contrary to ISS's recommendation, the Committee will first assess the issue to see if there is any possible conflict of interest involving DMBT or affiliated persons of DMBT. If there is no perceived conflict of interest, the Committee will then vote the proxy according to the process described in "Procedures for Voting Proxies" above. If at least one member of the Committee has actual knowledge of a conflict of interest, the Committee will normally use another independent third party to do additional research on the particular issue in order to make a recommendation to the Committee on how to vote the proxy in the best interests of the client. The Committee will then review the proxy voting materials and recommendation provided by ISS and the independent third party to determine how to vote the issue in a manner which the Committee believes is consistent with DMBT's Procedures and in the best interests of the client. In these instances, the Committee must come to a unanimous decision regarding how to vote the proxy or they will be required to vote the proxy in accordance with ISS's original recommendation. Documentation of the reasons for voting contrary to ISS's recommendation will generally be retained by DMBT. AVAILABILITY OF PROXY VOTING INFORMATION AND RECORDKEEPING Clients of DMBT will be directed to their client service representative to obtain information from DMBT on how their securities were voted. At the beginning of a new relationship with a client, DMBT will provide clients with a concise summary of DMBT's proxy voting process and will inform clients that they can obtain a copy of the complete Procedures upon request. The information described in the preceding two sentences will be included in Part II of DMBT's Form ADV which is delivered to each new client prior to the commencement of investment management services. Existing clients will also be provided with the above information. DMBT will also retain extensive records regarding proxy voting on behalf of clients. DMBT will keep records of the following items: (i) the Procedures; (ii) proxy statements received regarding client securities (via hard copies held by ISS or electronic filings from the SEC's EDGAR filing system); (iii) records of votes cast on behalf of DMBT's clients (via ISS); (iv) records of a client's written request for information on how DMBT voted proxies for the client, and any DMBT written response to an oral or written client request for information on how DMBT voted proxies for the client; and (v) any documents prepared by DMBT that were material to making a decision how to vote or that memorialized the basis for that decision. These records will be maintained in an easily accessible place for at least five years from the end of the fiscal year during which the last entry was made on such record. For the first two years, such records will be stored at the offices of DMBT. PROXY VOTING GUIDELINES The following Guidelines summarize DMBT's positions on various issues and give a general indication as to how the Advisers will vote shares on each issue. The Proxy Committee has reviewed the Guidelines and determined that voting proxies pursuant to the Guidelines should be in the best interests of the client and should facilitate the goal of maximizing the value of the client's investments. Although the Advisers will usually vote proxies in accordance with these Guidelines, the Advisers reserve the right to vote certain issues counter to the Guidelines if, after a thorough review of the matter, the Adviser determines that a client's best interests would be served by such a vote. Moreover, the list of Guidelines below may not include all potential voting issues. To the extent that the Guidelines do not cover potential voting issues, the Advisers will vote on such issues in a manner that is consistent with the spirit of the Guidelines below and that promotes the best interests of the client. DMBT's Guidelines are listed immediately below and are organized by the types of issues that could potentially be brought up in a proxy statement: 1. OPERATIONAL ITEMS ADJOURN MEETING Generally vote AGAINST proposals to provide management with the authority to adjourn an annual or special meeting absent compelling reasons to support the proposal. AMEND QUORUM REQUIREMENTS Generally vote AGAINST proposals to reduce quorum requirements for shareholder meetings below a majority of the shares outstanding unless there are compelling reasons to support the proposal. AMEND MINOR BYLAWS Generally vote FOR bylaw or charter changes that are of a housekeeping nature (updates or corrections). CHANGE COMPANY NAME Generally vote FOR proposals to change the corporate name. CHANGE DATE, TIME, OR LOCATION OF ANNUAL MEETING Generally vote FOR management proposals to change the date/time/location of the annual meeting unless the proposed change is unreasonable. Generally vote AGAINST shareholder proposals to change the date/time/location of the annual meeting unless the current scheduling or location is unreasonable. RATIFYING AUDITORS Generally vote FOR proposals to ratify auditors, unless any of the following apply: - An auditor has a financial interest in or association with the company, and is therefore not independent - Fees for non-audit services are excessive, or - There is reason to believe that the independent auditor has rendered an opinion which is neither accurate nor indicative of the company's financial position. Vote CASE-BY-CASE on shareholder proposals asking companies to prohibit or limit their auditors from engaging in non-audit services. Vote CASE-BY-CASE on shareholder proposals asking for audit firm rotation, taking into account the tenure of the audit firm, the length of rotation specified in the proposal, any significant audit-related issues at the company, and whether the company has a periodic renewal process where the auditor is evaluated for both audit quality and competitive price. TRANSACT OTHER BUSINESS Generally vote AGAINST proposals to approve other business when it appears as voting item. 2. BOARD OF DIRECTORS VOTING ON DIRECTOR NOMINEES IN UNCONTESTED ELECTIONS Votes on director nominees should be made on a case-by-case basis, examining factors such as: composition of the board and key board committees, attendance at board meetings, corporate governance provisions and takeover activity, long-term company performance relative to a market index, directors' investment in the company, whether the chairman is also serving as CEO, and whether a retired CEO sits on the board. However, there are some actions by directors that should result in votes being withheld. These instances include directors who: - Attend less than 75 percent of the board and committee meetings without a valid excuse - Implement or renew a dead-hand or modified dead-hand poison pill - Ignore a shareholder proposal that is approved by a majority of the shares outstanding - Ignore a shareholder proposal that is approved by a majority of the votes cast for two consecutive years - Failed to act on takeover offers where the majority of the shareholders tendered their shares - Are inside directors or affiliated outsiders and sit on the audit, compensation, or nominating committees - Are inside directors or affiliated outsiders and the full board serves as the audit, compensation, or nominating committee or the company does not have one of these committees - Are audit committee members and the non-audit fees paid to the auditor are excessive. - Are inside directors or affiliated outside directors and the full board is less than majority independent - Sit on more than six public company boards In addition, directors who enacted egregious corporate governance policies or failed to replace management as appropriate would be subject to recommendations to withhold votes. AGE LIMITS Generally vote AGAINST shareholder or management proposals to limit the tenure of outside directors either through term limits or mandatory retirement ages. BOARD SIZE Generally vote FOR proposals seeking to fix the board size or designate a range for the board size. Generally vote AGAINST proposals that give management the ability to alter the size of the board outside of a specified range without shareholder approval. CLASSIFICATION/DECLASSIFICATION OF THE BOARD Generally vote AGAINST proposals to classify the board. Generally vote FOR proposals to repeal classified boards and to elect all directors annually. CUMULATIVE VOTING Generally vote against proposals to eliminate cumulative voting. Generally vote proposals to restore or permit cumulative voting on a CASE-BY-CASE basis based on the extent that shareholders have access to the board through their own nominations. DIRECTOR AND OFFICER INDEMNIFICATION AND LIABILITY PROTECTION Proposals on director and officer indemnification and liability protection should be evaluated on a case-by-case basis, using Delaware law as the standard. Generally vote AGAINST proposals to eliminate entirely directors' and officers' liability for monetary damages for violating the duty of care. Generally vote AGAINST indemnification proposals that would expand coverage beyond just legal expenses to acts, such as negligence, that are more serious violations of fiduciary obligation than mere carelessness. Generally vote FOR only those proposals providing such expanded coverage in cases when a director's or officer's legal defense was unsuccessful if both of the following apply: - The director was found to have acted in good faith and in a manner that he reasonably believed was in the best interests of the company, and - Only if the director's legal expenses would be covered. ESTABLISH/AMEND NOMINEE QUALIFICATIONS Vote CASE-BY-CASE on proposals that establish or amend director qualifications. Votes should be based on how reasonable the criteria are and to what degree they may preclude dissident nominees from joining the board. Generally vote AGAINST shareholder proposals requiring two candidates per board seat. FILLING VACANCIES/REMOVAL OF DIRECTORS Generally vote AGAINST proposals that provide that directors may be removed only for cause. Generally vote FOR proposals to restore shareholder ability to remove directors with or without cause. Generally vote AGAINST proposals that provide that only continuing directors may elect replacements to fill board vacancies. Generally vote FOR proposals that permit shareholders to elect directors to fill board vacancies. INDEPENDENT CHAIRMAN (SEPARATE CHAIRMAN/CEO) Generally vote FOR shareholder proposals requiring the position of chairman be filled by an independent director unless there are compelling reasons to recommend against the proposal, such as a counterbalancing governance structure. This should include all of the following: - Designated lead director, elected by and from the independent board members with clearly delineated and comprehensive duties. (The role may alternatively reside with a presiding director, vice chairman, or rotating lead director). - Two-thirds independent board - All-independent key committees - Established governance guidelines MAJORITY OF INDEPENDENT DIRECTORS/ESTABLISHMENT OF COMMITTEES Generally vote FOR shareholder proposals asking that a majority or more of directors be independent unless the board composition already meets the proposed threshold by ISS's definition of independence. Generally vote FOR shareholder proposals asking that board audit, compensation, and/or nominating committees be composed exclusively of independent directors if they currently do not meet that standard. OPEN ACCESS Vote CASE-BY-CASE on shareholder proposals asking for open access taking into account the ownership threshold specified in the proposal and the proponent's rationale for targeting the company in terms of board and director conduct. STOCK OWNERSHIP REQUIREMENTS Generally vote against shareholder proposals that mandate a minimum amount of stock that directors must own in order to qualify as a director or to remain on the board. While DMBT favors stock ownership on the part of directors, the company should determine the appropriate ownership requirement. Vote CASE-BY-CASE shareholder proposals asking that the company adopt a holding or retention period for its executives (for holding stock after the vesting or exercise of equity awards), taking into account any stock ownership requirements or holding period/retention ratio already in place and the actual ownership level of executives. TERM LIMITS Generally vote AGAINST shareholder or management proposals to limit the tenure of outside directors either through term limits or mandatory retirement ages. 3. PROXY CONTESTS VOTING FOR DIRECTOR NOMINEES IN CONTESTED ELECTIONS Votes in a contested election of directors must be evaluated on a case-by-case basis, considering the following factors: - Long-term financial performance of the target company relative to its industry; management's track record - Background to the proxy contest - Qualifications of director nominees (both slates) - Evaluation of what each side is offering shareholders as well as the likelihood that the proposed objectives and goals can be met; and stock ownership positions. REIMBURSING PROXY SOLICITATION EXPENSES Voting to reimburse proxy solicitation expenses should be analyzed on a case-by-case basis. In cases where DMBT votes in favor of the dissidents, we also recommend voting for reimbursing proxy solicitation expenses. CONFIDENTIAL VOTING Generally vote FOR shareholder proposals requesting that corporations adopt confidential voting, use independent vote tabulators and use independent inspectors of election, as long as the proposal includes a provision for proxy contests as follows: In the case of a contested election, management should be permitted to request that the dissident group honor its confidential voting policy. If the dissidents agree, the policy remains in place. If the dissidents will not agree, the confidential voting policy is waived. Generally vote FOR management proposals to adopt confidential voting. 4. ANTITAKEOVER DEFENSES AND VOTING RELATED ISSUES ADVANCE NOTICE REQUIREMENTS FOR SHAREHOLDER PROPOSALS/NOMINATIONS Votes on advance notice proposals are determined on a CASE-BY-CASE basis, giving support to those proposals which allow shareholders to submit proposals as close to the meeting date as reasonably possible and within the broadest window possible. AMEND BYLAWS WITHOUT SHAREHOLDER CONSENT Generally vote AGAINST proposals giving the board exclusive authority to amend the bylaws. Generally vote FOR proposals giving the board the ability to amend the bylaws in addition to shareholders. POISON PILLS Generally vote FOR shareholder proposals requesting that the company submit its poison pill to a shareholder vote or redeem it. Generally vote FOR shareholder proposals asking that any future pill be put to a shareholder vote. SHAREHOLDER ABILITY TO ACT BY WRITTEN CONSENT Generally vote against proposals to restrict or prohibit shareholder ability to take action by written consent. Generally vote for proposals to allow or make easier shareholder action by written consent. SHAREHOLDER ABILITY TO CALL SPECIAL MEETINGS Generally vote against proposals to restrict or prohibit shareholder ability to call special meetings. Generally vote for proposals that remove restrictions on the right of shareholders to act independently of management. SUPERMAJORITY VOTE REQUIREMENTS Generally vote AGAINST proposals to require a supermajority shareholder vote. Generally vote FOR proposals to lower supermajority vote requirements. 5. MERGERS AND CORPORATE RESTRUCTURINGS APPRAISAL RIGHTS Generally vote for proposals to restore, or provide shareholders with, rights of appraisal. ASSET PURCHASES Vote CASE-BY-CASE on asset purchase proposals, considering the following factors: - Purchase price - Fairness opinion - Financial and strategic benefits - How the deal was negotiated - Conflicts of interest - Other alternatives for the business - No completion risk. ASSET SALES Votes on asset sales should be determined on a CASE-BY-CASE basis, considering the following factors: - Impact on the balance sheet/working capital - Potential elimination of diseconomies - Anticipated financial and operating benefits - Anticipated use of funds - Value received for the asset - Fairness opinion - How the deal was negotiated - Conflicts of interest. BUNDLED PROPOSALS Review on a case-by-case basis bundled or "conditioned" proxy proposals. In the case of items that are conditioned upon each other, examine the benefits and costs of the packaged items. In instances when the joint effect of the conditioned items is not in shareholders' best interests, vote against the proposals. If the combined effect is positive, support such proposals. CONVERSION OF SECURITIES Votes on proposals regarding conversion of securities are determined on a CASE-BY-CASE basis. When evaluating these proposals the investor should review the dilution to existing shareholders, the conversion price relative to market value, financial issues, control issues, termination penalties, and conflicts of interest. Generally vote FOR the conversion if it is expected that the company will be subject to onerous penalties or will be forced to file for bankruptcy if the transaction is not approved. CORPORATE REORGANIZATION/DEBT RESTRUCTURING/PREPACKAGED BANKRUPTCY PLANS/REVERSE LEVERAGED BUYOUTS/WRAP PLANS Votes on proposals to increase common and/or preferred shares and to issue shares as part of a debt restructuring plan are determined on a CASE-BY-CASE basis, taking into consideration the following: - Dilution to existing shareholders' position - Terms of the offer - Financial issues - Management's efforts to pursue other alternatives - Control issues - Conflicts of interest. Generally vote FOR the debt restructuring if it is expected that the company will file for bankruptcy if the transaction is not approved. FORMATION OF HOLDING COMPANY Votes on proposals regarding the formation of a holding company should be determined on a CASE-BY-CASE basis, taking into consideration the following: |X| The reasons for the change - Any financial or tax benefits - Regulatory benefits - Increases in capital structure - Changes to the articles of incorporation or bylaws of the company. Absent compelling financial reasons to recommend the transaction, generally vote AGAINST the formation of a holding company if the transaction would include either of the following: - Increases in common or preferred stock in excess of the allowable maximum as calculated by the ISS Capital Structure model - Adverse changes in shareholder rights GOING PRIVATE TRANSACTIONS (LBOS AND MINORITY SQUEEZEOUTS) Vote going private transactions on a CASE-BY-CASE basis, taking into account the following: offer price/premium, fairness opinion, how the deal was negotiated, conflicts of interest, other alternatives /offers considered, and noncompletion risk. JOINT VENTURES Votes CASE-BY-CASE on proposals to form joint ventures, taking into account the following: percentage of assets /business contributed, percentage ownership, financial and strategic benefits, governance structure, conflicts of interest, other alternatives, and noncompletion risk. LIQUIDATIONS Votes on liquidations should be made on a case-by-case basis after reviewing management's efforts to pursue other alternatives, appraisal value of assets, and the compensation plan for executives managing the liquidation. Generally vote FOR the liquidation if the company will file for bankruptcy if the proposal is not approved. MERGERS AND ACQUISITIONS/ ISSUANCE OF SHARES TO FACILITATE MERGER OR ACQUISITION Votes on mergers and acquisitions should be considered on a CASE-BY-CASE basis, determining whether the transaction enhances shareholder value by giving consideration to the following: - Prospects of the combined company, anticipated financial and operating benefits - Offer price - Fairness opinion - How the deal was negotiated - Changes in corporate governance - Change in the capital structure - Conflicts of interest. PRIVATE PLACEMENTS/WARRANTS/CONVERTIBLE DEBENTURES Votes on proposals regarding private placements should be determined on a CASE-BY-CASE basis. When evaluating these proposals the investor should review: dilution to existing shareholders' position, terms of the offer, financial issues, management's efforts to pursue other alternatives, control issues, and conflicts of interest. Generally vote FOR the private placement if it is expected that the company will file for bankruptcy if the transaction is not approved. SPINOFFS Votes on spinoffs should be considered on a CASE-BY-CASE basis depending on: - Tax and regulatory advantages - Planned use of the sale proceeds - Valuation of spinoff - Fairness opinion - Benefits to the parent company - Conflicts of interest - Managerial incentives - Corporate governance changes - Changes in the capital structure. VALUE MAXIMIZATION PROPOSALS Vote CASE-BY-CASE on shareholder proposals seeking to maximize shareholder value by hiring a financial advisor to explore strategic alternatives, selling the company or liquidating the company and distributing the proceeds to shareholders. These proposals should be evaluated based on the following factors: prolonged poor performance with no turnaround in sight, signs of entrenched board and management, strategic plan in place for improving value, likelihood of receiving reasonable value in a sale or dissolution, and whether company is actively exploring its strategic options, including retaining a financial advisor. 6. STATE OF INCORPORATION CONTROL SHARE ACQUISITION PROVISIONS Generally vote FOR proposals to opt out of control share acquisition statutes unless doing so would enable the completion of a takeover that would be detrimental to shareholders. Generally vote AGAINST proposals to amend the charter to include control share acquisition provisions. Generally vote FOR proposals to restore voting rights to the control shares. CONTROL SHARE CASHOUT PROVISIONS Generally vote FOR proposals to opt out of control share cashout statutes. DISGORGEMENT PROVISIONS Generally vote FOR proposals to opt out of state disgorgement provisions. FAIR PRICE PROVISIONS Vote proposals to adopt fair price provisions on a CASE-BY-CASE basis, evaluating factors such as the vote required to approve the proposed acquisition, the vote required to repeal the fair price provision, and the mechanism for determining the fair price. Generally vote AGAINST fair price provisions with shareholder vote requirements greater than a majority of disinterested shares. FREEZEOUT PROVISIONS Generally vote FOR proposals to opt out of state freezeout provisions. GREENMAIL Generally vote for proposals to adopt antigreenmail charter of bylaw amendments or otherwise restrict a company's ability to make greenmail payments. Review on a CASE-BY-CASE basis antigreenmail proposals when they are bundled with other charter or bylaw amendments. REINCORPORATION PROPOSALS Proposals to change a company's state of incorporation should be evaluated on a CASE-BY-CASE basis, giving consideration to both financial and corporate governance concerns, including the reasons for reincorporating, a comparison of the governance provisions, and a comparison of the jurisdictional laws. Generally vote FOR reincorporation when the economic factors outweigh any neutral or negative governance changes. STAKEHOLDER PROVISIONS Generally vote AGAINST proposals that ask the board to consider nonshareholder constituencies or other nonfinancial effects when evaluating a merger or business combination. STATE ANTITAKEOVER STATUTES Review on a CASE-BY-CASE basis proposals to opt in or out of state takeover statutes (including control share acquisition statutes, control share cash-out statutes, freezeout provisions, fair price provisions, stakeholder laws, poison pill endorsements, severance pay and labor contract provisions, antigreenmail provisions, and disgorgement provisions). 7. CAPITAL STRUCTURE ADJUSTMENTS TO PAR VALUE OF COMMON STOCK Generally vote for management proposals to reduce the par value of common stock. COMMON STOCK AUTHORIZATION Votes on proposals to increase the number of shares of common stock authorized for issuance are determined on a CASE-BY-CASE basis using a model developed by ISS. Generally vote AGAINST proposals at companies with dual-class capital structures to increase the number of authorized shares of the class of stock that has superior voting rights. Generally vote FOR proposals to approve increases beyond the allowable increase when a company's shares are in danger of being delisted or if a company's ability to continue to operate as a going concern is uncertain. DUAL-CLASS STOCK Generally vote AGAINST proposals to create a new class of common stock with superior voting rights. Generally vote FOR proposals to create a new class of nonvoting or subvoting common stock if: - It is intended for financing purposes with minimal or no dilution to current shareholders - It is not designed to preserve the voting power of an insider or significant shareholder ISSUE STOCK FOR USE WITH RIGHTS PLAN Generally vote AGAINST proposals that increase authorized common stock for the explicit purpose of implementing a shareholder rights plan (poison pill). PREEMPTIVE RIGHTS Review on a CASE-BY-CASE basis shareholder proposals that seek preemptive rights. In evaluating proposals on preemptive rights, consider the size of a company, the characteristics of its shareholder base, and the liquidity of the stock. PREFERRED STOCK Generally vote AGAINST proposals authorizing the creation of new classes of preferred stock with unspecified voting, conversion, dividend distribution, and other rights ("blank check" preferred stock). Generally vote FOR proposals to create "declawed" blank check preferred stock (stock that cannot be used as a takeover defense). Generally vote FOR proposals to authorize preferred stock in cases where the company specifies the voting, dividend, conversion, and other rights of such stock and the terms of the preferred stock appear reasonable. Generally vote AGAINST proposals to increase the number of blank check preferred stock authorized for issuance when no shares have been issued or reserved for a specific purpose. Vote CASE-BY-CASE on proposals to increase the number of blank check preferred shares after analyzing the number of preferred shares available for issue given a company's industry and performance in terms of shareholder returns. RECAPITALIZATION Votes CASE-BY-CASE on recapitalizations (reclassifications of securities), taking into account the following: more simplified capital structure, enhanced liquidity, fairness of conversion terms, impact on voting power and dividends, reasons for the reclassification, conflicts of interest, and other alternatives considered. REVERSE STOCK SPLITS Generally vote FOR management proposals to implement a reverse stock split when the number of authorized shares will be proportionately reduced. Generally vote FOR management proposals to implement a reverse stock split to avoid delisting. Votes on proposals to implement a reverse stock split that do not proportionately reduce the number of shares authorized for issue should be determined on a CASE-BY-CASE basis using a model developed by ISS. SHARE REPURCHASE PROGRAMS Generally vote FOR management proposals to institute open-market share repurchase plans in which all shareholders may participate on equal terms. STOCK DISTRIBUTIONS: SPLITS AND DIVIDENDS Generally vote FOR management proposals to increase the common share authorization for a stock split or share dividend, provided that the increase in authorized shares would not result in an excessive number of shares available for issuance as determined using a model developed by ISS. TRACKING STOCK Votes on the creation of tracking stock are determined on a CASE-BY-CASE basis, weighing the strategic value of the transaction against such factors as: adverse governance changes, excessive increases in authorized capital stock, unfair method of distribution, diminution of voting rights, adverse conversion features, negative impact on stock option plans, and other alternatives such as spinoff. 8. EXECUTIVE AND DIRECTOR COMPENSATION Votes with respect to equity-based compensation plans should be determined on a CASE-BY-CASE basis. Our methodology for reviewing compensation plans primarily focuses on the transfer of shareholder wealth (the dollar cost of pay plans to shareholders instead of simply focusing on voting power dilution). Using the expanded compensation data disclosed under the SEC's rules, ISS will value every award type. ISS will include in its analyses an estimated dollar cost for the proposed plan and all continuing plans. This cost, dilution to shareholders' equity, will also be expressed as a percentage figure for the transfer of shareholder wealth, and will be considered along with dilution to voting power. Once ISS determines the estimated cost of the plan, we compare it to a company-specific dilution cap. Our model determines a company-specific allowable pool of shareholder wealth that may be transferred from the company to plan participants, adjusted for: - Long-term corporate performance (on an absolute basis and relative to a standard industry peer group and an appropriate market index), - Cash compensation, and - Categorization of the company as emerging, growth, or mature. These adjustments are pegged to market capitalization. Generally vote AGAINST plans that expressly permit the repricing of underwater stock options without shareholder approval. Generally vote AGAINST plans in which the CEO participates if there is a disconnect between the CEO's pay and company performance (an increase in pay and a decrease in performance) and the main source of the pay increase (over half) is equity-based. A decrease in performance is based on negative one- and three-year total shareholder returns. An increase in pay is based on the CEO's total direct compensation (salary, cash bonus, present value of stock options, face value of restricted stock, face value of long-term incentive plan payouts, and all other compensation) increasing over the previous year. Also generally WITHHOLD votes from the Compensation Committee members. DIRECTOR COMPENSATION Votes on compensation plans for directors are determined on a CASE-BY-CASE basis, using a proprietary, quantitative model developed by ISS. STOCK PLANS IN LIEU OF CASH Votes for plans which provide participants with the option of taking all or a portion of their cash compensation in the form of stock are determined on a CASE-BY-CASE basis. Generally vote FOR plans which provide a dollar-for-dollar cash for stock exchange. Votes for plans which do not provide a dollar-for-dollar cash for stock exchange should be determined on a CASE-BY-CASE basis using a proprietary, quantitative model developed by ISS. DIRECTOR RETIREMENT PLANS Generally vote AGAINST retirement plans for nonemployee directors. Generally vote FOR shareholder proposals to eliminate retirement plans for nonemployee directors. MANAGEMENT PROPOSALS SEEKING APPROVAL TO REPRICE OPTIONS Votes on management proposals seeking approval to reprice options are evaluated on a CASE-BY-CASE basis giving consideration to the following: - Historic trading patterns - Rationale for the repricing - Value-for-value exchange - Option vesting - Term of the option - Exercise price - Participation. EMPLOYEE STOCK PURCHASE PLANS Votes on employee stock purchase plans should be determined on a CASE-BY-CASE basis. Generally vote FOR employee stock purchase plans where all of the following apply: - Purchase price is at least 85 percent of fair market value - Offering period is 27 months or less, and - The number of shares allocated to the plan is ten percent or less of the outstanding shares Generally vote AGAINST employee stock purchase plans where any of the following apply: - Purchase price is less than 85 percent of fair market value, or - Offering period is greater than 27 months, or - The number of shares allocated to the plan is more than ten percent of the outstanding shares INCENTIVE BONUS PLANS AND TAX DEDUCTIBILITY PROPOSALS (OBRA-RELATED COMPENSATION PROPOSALS) Generally vote FOR proposals that simply amend shareholder-approved compensation plans to include administrative features or place a cap on the annual grants any one participant may receive to comply with the provisions of Section 162(m). Generally vote FOR proposals to add performance goals to existing compensation plans to comply with the provisions of Section 162(m) unless they are clearly inappropriate. Votes to amend existing plans to increase shares reserved and to qualify for favorable tax treatment under the provisions of Section 162(m) should be considered on a CASE-BY-CASE basis using a proprietary, quantitative model developed by ISS. Generally vote FOR cash or cash and stock bonus plans that are submitted to shareholders for the purpose of exempting compensation from taxes under the provisions of Section 162(m) if no increase in shares is requested. EMPLOYEE STOCK OWNERSHIP PLANS (ESOPS) Generally vote FOR proposals to implement an ESOP or increase authorized shares for existing ESOPs, unless the number of shares allocated to the ESOP is excessive (more than five percent of outstanding shares.) 401(K) EMPLOYEE BENEFIT PLANS Generally vote FOR proposals to implement a 401(k) savings plan for employees. SHAREHOLDER PROPOSALS REGARDING EXECUTIVE AND DIRECTOR PAY Generally vote FOR shareholder proposals seeking additional disclosure of executive and director pay information, provided the information requested is relevant to shareholders' needs, would not put the company at a competitive disadvantage relative to its industry, and is not unduly burdensome to the company. Generally vote AGAINST shareholder proposals seeking to set absolute levels on compensation or otherwise dictate the amount or form of compensation. Generally vote AGAINST shareholder proposals requiring director fees be paid in stock only. Generally vote FOR shareholder proposals to put option repricings to a shareholder vote. Vote on a CASE-BY-CASE basis for all other shareholder proposals regarding executive and director pay, taking into account company performance, pay level versus peers, pay level versus industry, and long term corporate outlook. OPTION EXPENSING Generally vote FOR shareholder proposals asking the company to expense stock options, unless the company has already publicly committed to expensing options by a specific date. PERFORMANCE-BASED STOCK OPTIONS Generally vote FOR shareholder proposals advocating the use of performance-based stock options (indexed, premium-priced, and performance-vested options), unless: - The proposal is overly restrictive (e.g., it mandates that awards to all employees must be performance-based or all awards to top executives must be a particular type, such as indexed options) - The company demonstrates that it is using a substantial portion of performance-based awards for its top executives GOLDEN PARACHUTES AND EXECUTIVE SEVERANCE AGREEMENTS Generally vote FOR shareholder proposals to require golden parachutes or executive severance agreements to be submitted for shareholder ratification, unless the proposal requires shareholder approval prior to entering into employment contracts. Vote on a CASE-BY-CASE basis on proposals to ratify or cancel golden parachutes. An acceptable parachute should generally include the following: - The parachute should be less attractive than an ongoing employment opportunity with the firm - The triggering mechanism should be beyond the control of management - The amount should not exceed three times base salary plus guaranteed benefits PENSION PLAN INCOME ACCOUNTING Generally vote FOR shareholder proposals to exclude pension plan income in the calculation of earnings used in determining executive bonuses /compensation. SUPPLEMENTAL EXECUTIVE RETIREMENT PLANS (SERPs) Generally vote FOR shareholder proposals requesting to put extraordinary benefits contained in SERP agreements to a shareholder vote unless the company's executive pension plans do not contain excessive benefits beyond what is offered under employee-wide plans. 9. SOCIAL AND ENVIRONMENTAL ISSUES CONSUMER ISSUES AND PUBLIC SAFETY ANIMAL RIGHTS Vote CASE-BY-CASE on proposals to phase out the use of animals in product testing, taking into account: - The nature of the product and the degree that animal testing is necessary or federally mandated (such as medical products), - The availability and feasibility of alternatives to animal testing to ensure product safety, and - The degree that competitors are using animal-free testing. Generally vote FOR proposals seeking a report on the company's animal welfare standards unless: - The company has already published a set of animal welfare standards and monitors compliance - The company's standards are comparable to or better than those of peer firms, and - There are no serious controversies surrounding the company's treatment of animals DRUG PRICING Vote CASE-BY-CASE on proposals asking the company to implement price restraints on pharmaceutical products, taking into account: - Whether the proposal focuses on a specific drug and region - Whether the economic benefits of providing subsidized drugs (e.g., public goodwill) outweigh the costs in terms of reduced profits, lower R&D spending, and harm to competitiveness - The extent that reduced prices can be offset through the company's marketing budget without affecting R&D spending - Whether the company already limits price increases of its products - Whether the company already contributes life-saving pharmaceuticals to the needy and Third World countries - The extent that peer companies implement price restraints GENETICALLY MODIFIED FOODS Generally vote AGAINST proposals asking companies to voluntarily label genetically engineered (GE) ingredients in their products or alternatively to provide interim labeling and eventually eliminate GE ingredients due to the costs and feasibility of labeling and/or phasing out the use of GE ingredients. Vote CASE-BY-CASE on proposals asking for a report on the feasibility of labeling products containing GE ingredients taking into account: - The relevance of the proposal in terms of the company's business and the proportion of it affected by the resolution - The quality of the company's disclosure on GE product labeling and related voluntary initiatives and how this disclosure compares with peer company disclosure - Company's current disclosure on the feasibility of GE product labeling, including information on the related costs - Any voluntary labeling initiatives undertaken or considered by the company. Vote CASE-BY-CASE on proposals asking for the preparation of a report on the financial, legal, and environmental impact of continued use of GE ingredients /seeds. - The relevance of the proposal in terms of the company's business and the proportion of it affected by the resolution - The quality of the company's disclosure on risks related to GE product use and how this disclosure compares with peer company disclosure - The percentage of revenue derived from international operations, particularly in Europe, where GE products are more regulated and consumer backlash is more pronounced. Generally vote AGAINST proposals seeking a report on the health and environmental effects of genetically modified organisms (GMOs). Health studies of this sort are better undertaken by regulators and the scientific community. Generally vote AGAINST proposals to completely phase out GE ingredients from the company's products or proposals asking for reports outlining the steps necessary to eliminate GE ingredients from the company's products. Such resolutions presuppose that there are proven health risks to GE ingredients (an issue better left to federal regulators) that outweigh the economic benefits derived from biotechnology. HANDGUNS Generally vote AGAINST requests for reports on a company's policies aimed at curtailing gun violence in the United States unless the report is confined to product safety information. Criminal misuse of firearms is beyond company control and instead falls within the purview of law enforcement agencies. HIV/AIDS Vote CASE-BY-CASE on requests for reports outlining the impact of the health pandemic (HIV/AIDS, malaria and tuberculosis) on the company's Sub-Saharan operations and how the company is responding to it, taking into account: - The nature and size of the company's operations in Sub-Saharan Africa and the number of local employees - The company's existing healthcare policies, including benefits and healthcare access for local workers - Company donations to healthcare providers operating in the region Vote CASE-BY-CASE on proposals asking companies to establish, implement, and report on a standard of response to the HIV/AIDS, tuberculosis and malaria health pandemic in Africa and other developing countries, taking into account: - The company's actions in developing countries to address HIV/AIDS, tuberculosis and malaria, including donations of pharmaceuticals and work with public health organizations - The company's initiatives in this regard compared to those of peer companies PREDATORY LENDING Vote CASE-BY CASE on requests for reports on the company's procedures for preventing predatory lending, including the establishment of a board committee for oversight, taking into account: |X| Whether the company has adequately disclosed mechanisms in place to prevent abusive lending practices - Whether the company has adequately disclosed the financial risks of its subprime business - Whether the company has been subject to violations of lending laws or serious lending controversies - Peer companies' policies to prevent abusive lending practices. TOBACCO Most tobacco-related proposals should be evaluated on a CASE-BY-CASE basis, taking into account the following factors: Second-hand smoke: - Whether the company complies with all local ordinances and regulations - The degree that voluntary restrictions beyond those mandated by law might hurt the company's competitiveness The risk of any health-related liabilities. Advertising to youth: - Whether the company complies with federal, state, and local laws on the marketing of tobacco or if it has been fined for violations - Whether the company has gone as far as peers in restricting advertising - Whether the company entered into the Master Settlement Agreement, which restricts marketing of tobacco to youth - Whether restrictions on marketing to youth extend to foreign countries Cease production of tobacco-related products or avoid selling products to tobacco companies: - The percentage of the company's business affected - The economic loss of eliminating the business versus any potential tobacco-related liabilities. Spinoff tobacco-related businesses: - The percentage of the company's business affected - The feasibility of a spinoff - Potential future liabilities related to the company's tobacco business. Stronger product warnings: Generally vote AGAINST proposals seeking stronger product warnings. Such decisions are better left to public health authorities. Investment in tobacco stocks: Generally vote AGAINST proposals prohibiting investment in tobacco equities. Such decisions are better left to portfolio managers. ENVIRONMENT AND ENERGY ARCTIC NATIONAL WILDLIFE REFUGE Vote CASE-BY-CASE on reports outlining potential environmental damage from drilling in the Arctic National Wildlife Refuge (ANWR), taking into account: - Whether there are publicly available environmental impact reports; - Whether the company has a poor environmental track record, such as violations of federal and state regulations or accidental spills; and - The current status of legislation regarding drilling in ANWR. CERES PRINCIPLES Vote CASE-BY-CASE on proposals to adopt the CERES Principles, taking into account: - The company's current environmental disclosure beyond legal requirements, including environmental health and safety (EHS) audits and reports that may duplicate CERES - The company's environmental performance record, including violations of federal and state regulations, level of toxic emissions, and accidental spills - Environmentally conscious practices of peer companies, including endorsement of CERES - Costs of membership and implementation. ENVIRONMENTAL-ECONOMIC RISK REPORT Vote CASE-by-CASE on proposals requesting reports assessing economic risks of environmental pollution or climate change, taking into account whether the company has clearly disclosed the following in its public documents: - Approximate costs of complying with current or proposed environmental laws - Steps company is taking to reduce greenhouse gasses or other environmental pollutants - Measurements of the company's emissions levels - Reduction targets or goals for environmental pollutants including greenhouse gasses ENVIRONMENTAL REPORTS Generally vote FOR requests for reports disclosing the company's environmental policies unless it already has well-documented environmental management systems that are available to the public. GLOBAL WARMING Generally vote FOR reports on the level of greenhouse gas emissions from the company's operations and products, unless the report is duplicative of the company's current environmental disclosure and reporting or is not integral to the company's line of business. However, additional reporting may be warranted if: - The company's level of disclosure lags that of its competitors, or - The company has a poor environmental track record, such as violations of federal and state regulations. RECYCLING Vote CASE-BY-CASE on proposals to adopt a comprehensive recycling strategy, taking into account: - The nature of the company's business and the percentage affected - The extent that peer companies are recycling - The timetable prescribed by the proposal - The costs and methods of implementation - Whether the company has a poor environmental track record, such as violations of federal and state regulations. RENEWABLE ENERGY Vote CASE-BY-CASE on proposals to invest in renewable energy sources, taking into account: - The nature of the company's business and the percentage affected - The extent that peer companies are switching from fossil fuels to cleaner sources - The timetable and specific action prescribed by the proposal - The costs of implementation - The company's initiatives to address climate change Generally vote FOR requests for reports on the feasibility of developing renewable energy sources, unless the report is duplicative of the company's current environmental disclosure and reporting or is not integral to the company's line of business. SUSTAINABILITY REPORT Generally vote FOR proposals requesting the company to report on its policies and practices related to social, environmental, and economic sustainability, unless the company is already reporting on its sustainability initiatives through existing reports such as: - A combination of an EHS or other environmental report, code of conduct, and/or supplier/vendor standards, and equal opportunity and diversity data and programs, all of which are publicly available, or - A report based on Global Reporting Initiative (GRI) or similar guidelines. Generally vote FOR shareholder proposals asking companies to provide a sustainability report applying the GRI guidelines unless: - The company already has a comprehensive sustainability report or equivalent addressing the essential elements of the GRI guidelines or - The company has publicly committed to using the GRI format by a specific date GENERAL CORPORATE ISSUES LINK EXECUTIVE COMPENSATION TO SOCIAL PERFORMANCE Vote CASE-BY-CASE on proposals to review ways of linking executive compensation to social factors, such as corporate downsizings, customer or employee satisfaction, community involvement, human rights, environmental performance, predatory lending, and executive/employee pay disparities. Such resolutions should be evaluated in the context of: - The relevance of the issue to be linked to pay - The degree that social performance is already included in the company's pay structure and disclosed - The degree that social performance is used by peer companies in setting pay - Violations or complaints filed against the company relating to the particular social performance measure - Artificial limits sought by the proposal, such as freezing or capping executive pay - Independence of the compensation committee - Current company pay levels. CHARITABLE/POLITICAL CONTRIBUTIONS Generally vote AGAINST proposals asking the company to affirm political nonpartisanship in the workplace so long as: - The company is in compliance with laws governing corporate political activities, and - The company has procedures in place to ensure that employee contributions to company-sponsored political action committees (PACs) are strictly voluntary and not coercive. Generally vote AGAINST proposals to report or publish in newspapers the company's political contributions. Federal and state laws restrict the amount of corporate contributions and include reporting requirements. Generally vote AGAINST proposals disallowing the company from making political contributions. Businesses are affected by legislation at the federal, state, and local level and barring contributions can put the company at a competitive disadvantage. Generally vote AGAINST proposals restricting the company from making charitable contributions. Charitable contributions are generally useful for assisting worthwhile causes and for creating goodwill in the community. In the absence of bad faith, self-dealing, or gross negligence, management should determine which contributions are in the best interests of the company. Generally vote AGAINST proposals asking for a list of company executives, directors, consultants, legal counsels, lobbyists, or investment bankers that have prior government service and whether such service had a bearing on the business of the company. Such a list would be burdensome to prepare without providing any meaningful information to shareholders. LABOR STANDARDS AND HUMAN RIGHTS CHINA PRINCIPLES Generally vote AGAINST proposals to implement the China Principles unless: - There are serious controversies surrounding the company's China operations, and - The company does not have a code of conduct with standards similar to those promulgated by the International Labor Organization (ILO). COUNTRY-SPECIFIC HUMAN RIGHTS REPORTS Vote CASE-BY-CASE on requests for reports detailing the company's operations in a particular country and steps to protect human rights, based on: - The nature and amount of company business in that country - The company's workplace code of conduct - Proprietary and confidential information involved - Company compliance with U.S. regulations on investing in the country - Level of peer company involvement in the country. INTERNATIONAL CODES OF CONDUCT/VENDOR STANDARDS Vote CASE-BY-CASE on proposals to implement certain human rights standards at company facilities or those of its suppliers and to commit to outside, independent monitoring. In evaluating these proposals, the following should be considered: - The company's current workplace code of conduct or adherence to other global standards and the degree they - meet the standards promulgated by the proponent - Agreements with foreign suppliers to meet certain workplace standards - Whether company and vendor facilities are monitored and how - Company participation in fair labor organizations - Type of business - Proportion of business conducted overseas - Countries of operation with known human rights abuses - Whether the company has been recently involved in significant labor and human rights controversies or violations - Peer company standards and practices - Union presence in company's international factories - Generally vote FOR reports outlining vendor standards compliance unless any of the following apply: - The company does not operate in countries with significant human rights violations - The company has no recent human rights controversies or violations, or - The company already publicly discloses information on its vendor standards compliance. MACBRIDE PRINCIPLES Vote CASE-BY-CASE on proposals to endorse or increase activity on the MacBride Principles, taking into account: - Company compliance with or violations of the Fair Employment Act of 1989 - Company antidiscrimination policies that already exceed the legal requirements - The cost and feasibility of adopting all nine principles - The cost of duplicating efforts to follow two sets of standards (Fair Employment and the MacBride Principles) - The potential for charges of reverse discrimination - The potential that any company sales or contracts in the rest of the United Kingdom could be negatively impacted - The level of the company's investment in Northern Ireland - The number of company employees in Northern Ireland - The degree that industry peers have adopted the MacBride Principles - Applicable state and municipal laws that limit contracts with companies that have not adopted the MacBride Principles. MILITARY BUSINESS FOREIGN MILITARY SALES/OFFSETS Generally vote AGAINST reports on foreign military sales or offsets. Such disclosures may involve sensitive and confidential information. Moreover, companies must comply with government controls and reporting on foreign military sales. LANDMINES AND CLUSTER BOMBS Vote CASE-BY-CASE on proposals asking a company to renounce future involvement in antipersonnel landmine production, taking into account: - Whether the company has in the past manufactured landmine components - Whether the company's peers have renounced future production - Vote CASE-BY-CASE on proposals asking a company to renounce future involvement in cluster bomb production, taking into account: - What weapons classifications the proponent views as cluster bombs - Whether the company currently or in the past has manufactured cluster bombs or their components - The percentage of revenue derived from cluster bomb manufacture - Whether the company's peers have renounced future production NUCLEAR WEAPONS Generally vote AGAINST proposals asking a company to cease production of nuclear weapons components and delivery systems, including disengaging from current and proposed contracts. Components and delivery systems serve multiple military and non-military uses, and withdrawal from these contracts could have a negative impact on the company's business. OPERATIONS IN NATIONS SPONSORING TERRORISM (IRAN) Vote CASE-BY-CASE on requests for a board committee review and report outlining the company's financial and reputational risks from its operations in Iran, taking into account current disclosure on: - The nature and purpose of the Iranian operations and the amount of business involved (direct and indirect revenues and expenses) that could be affected by political disruption - Compliance with U.S. sanctions and laws SPACED-BASED WEAPONIZATION Generally vote FOR reports on a company's involvement in spaced-based weaponization unless: - The information is already publicly available or - The disclosures sought could compromise proprietary information. WORKPLACE DIVERSITY BOARD DIVERSITY Generally vote FOR reports on the company's efforts to diversify the board, unless: - The board composition is reasonably inclusive in relation to companies of similar size and business or - The board already reports on its nominating procedures and diversity initiatives. Vote CASE-BY-CASE on proposals asking the company to increase the representation of women and minorities on the board, taking into account: - The degree of board diversity - Comparison with peer companies - Established process for improving board diversity - Existence of independent nominating committee - Use of outside search firm - History of EEO violations. EQUAL EMPLOYMENT OPPORTUNITY (EEO) Generally vote FOR reports outlining the company's affirmative action initiatives unless all of the following apply: - The company has well-documented equal opportunity programs - The company already publicly reports on its company-wide affirmative initiatives and provides data on its workforce diversity, and - The company has no recent EEO-related violations or litigation. Generally vote AGAINST proposals seeking information on the diversity efforts of suppliers and service providers, which can pose a significant cost and administration burden on the company. GLASS CEILING GENERALLY VOTE FOR REPORTS OUTLINING THE COMPANY'S PROGRESS TOWARDS THE GLASS CEILING COMMISSION'S BUSINESS RECOMMENDATIONS, UNLESS: - The composition of senior management and the board is fairly inclusive - The company has well-documented programs addressing diversity initiatives and leadership development - The company already issues public reports on its company-wide affirmative initiatives and provides data on its workforce diversity, and - The company has had no recent, significant EEO-related violations or litigation SEXUAL ORIENTATION Generally vote FOR proposals seeking to amend a company's EEO statement in order to prohibit discrimination based on sexual orientation, unless the change would result in excessive costs for the company. Generally vote AGAINST proposals to extend company benefits to or eliminate benefits from domestic partners. Benefit decisions should be left to the discretion of the company. 10. MUTUAL FUND PROXIES ELECTION OF DIRECTORS Vote to elect directors on a CASE-BY-CASE basis, considering the following factors: - Board structure - Director independence and qualifications - Attendance at board and committee meetings. Votes should be withheld from directors who: - Attend less than 75 percent of the board and committee meetings without a valid excuse for the absences. Valid reasons include illness or absence due to company business. Participation via telephone is acceptable. In addition, if the director missed only one meeting or one day's meetings, votes should not be withheld even if such absence dropped the director's attendance below 75 percent. - Ignore a shareholder proposal that is approved by a majority of shares outstanding - Ignore a shareholder proposal that is approved by a majority of the votes cast for two consecutive years - Are interested directors and sit on the audit or nominating committee, or - Are interested directors and the full board serves as the audit or nominating committee or the company does not have one of these committees. CONVERT CLOSED-END FUND TO OPEN-END FUND Vote conversion proposals on a case-by-case basis, considering the following factors: - Past performance as a closed-end fund |X| Market in which the fund invests - Measures taken by the board to address the discount - Past shareholder activism, board activity - Votes on related proposals. PROXY CONTESTS Votes on proxy contests should be determined on a CASE-BY-CASE basis, considering the following factors: - Past performance relative to its peers - Market in which fund invests - Measures taken by the board to address the issues - Past shareholder activism, board activity, and votes on related proposals - Strategy of the incumbents versus the dissidents - Independence of directors - Experience and skills of director candidates - Governance profile of the company - Evidence of management entrenchment INVESTMENT ADVISORY AGREEMENTS Votes on investment advisory agreements should be determined on a CASE-BY-CASE basis, considering the following factors: - Proposed and current fee schedules - Fund category/investment objective - Performance benchmarks - Share price performance compared to peers - Resulting fees relative to peers - Assignments (where the advisor undergoes a change of control). APPROVE NEW CLASSES OR SERIES OF SHARES Generally vote FOR the establishment of new classes or series of shares. PREFERRED STOCK PROPOSALS Votes on the authorization for or increase in preferred shares should be determined on a CASE-BY-CASE basis, considering the following factors: - Stated specific financing purpose - Possible dilution for common shares - Whether the shares can be used for anti takeover purposes. 1940 ACT POLICIES Votes on 1940 Act policies should be determined on a CASE-BY-CASE basis, considering the following factors: - Potential competitiveness - Regulatory developments - Current and potential returns - Current and potential risk. Generally vote FOR these amendments as long as the proposed changes do not fundamentally alter the investment focus of the fund and do comply with the current SEC interpretation. CHANGE FUNDAMENTAL RESTRICTION TO NONFUNDAMENTAL RESTRICTION Proposals to change a fundamental restriction to a nonfundamental restriction should be evaluated on a CASE-BY-CASE basis, considering the following factors: - The fund's target investments - The reasons given by the fund for the change - The projected impact of the change on the portfolio. CHANGE FUNDAMENTAL INVESTMENT OBJECTIVE TO NONFUNDAMENTAL Proposals to change a fund's fundamental investment objective to nonfundamental should be evaluated on a CASE-BY-CASE basis. NAME CHANGE PROPOSALS Votes on name change proposals should be determined on a CASE-BY-CASE basis, considering the following factors: - Political/economic changes in the target market - Consolidation in the target market - Current asset composition CHANGE IN FUND'S SUBCLASSIFICATION Votes on changes in a fund's subclassification should be determined on a CASE-BY-CASE basis, considering the following factors: - Potential competitiveness - Current and potential returns - Risk of concentration - Consolidation in target industry DISPOSITION OF ASSETS/TERMINATION/LIQUIDATION Vote these proposals on a CASE-BY-CASE basis, considering the following factors: - Strategies employed to salvage the company - The fund's past performance - Terms of the liquidation. CHANGES TO THE CHARTER DOCUMENT Votes on changes to the charter document should be determined on a CASE-BY-CASE basis, considering the following factors: - The degree of change implied by the proposal - The efficiencies that could result - The state of incorporation - Regulatory standards and implications. - Generally vote AGAINST any of the following changes: - Removal of shareholder approval requirement to reorganize or terminate the trust or any of its series - Removal of shareholder approval requirement for amendments to the new declaration of trust - Removal of shareholder approval requirement to amend the fund's management contract, allowing the contract to be modified by the investment manager and the trust management, as permitted by the 1940 Act - Allow the trustees to impose other fees in addition to sales charges on investment in a fund, such as deferred sales charges and redemption fees that may be imposed upon redemption of a fund's shares - Removal of shareholder approval requirement to engage in and terminate sub advisory arrangements - Removal of shareholder approval requirement to change the domicile of the fund CHANGE THE FUND'S DOMICILE Vote reincorporations on a CASE-BY-CASE basis, considering the following factors: - Regulations of both states - Required fundamental policies of both states - Increased flexibility available. AUTHORIZE THE BOARD TO HIRE AND TERMINATE SUBADVISORS WITHOUT SHAREHOLDER APPROVAL Generally vote AGAINST proposals authorizing the board to hire/terminate subadvisors without shareholder approval. DISTRIBUTION AGREEMENTS Vote these proposals on a CASE-BY-CASE basis, considering the following factors: - Fees charged to comparably sized funds with similar objectives - The proposed distributor's reputation and past performance - The competitiveness of the fund in the industry - Terms of the agreement. MASTER-FEEDER STRUCTURE Generally vote FOR the establishment of a master-feeder structure. MERGERS Vote merger proposals on a CASE-BY-CASE basis, considering the following factors: - Resulting fee structure - Performance of both funds - Continuity of management personnel - Changes in corporate governance and their impact on shareholder rights. SHAREHOLDER PROPOSALS TO ESTABLISH DIRECTOR OWNERSHIP REQUIREMENT Generally vote AGAINST shareholder proposals that mandate a specific minimum amount of stock that directors must own in order to qualify as a director or to remain on the board. While DMBT favors stock ownership on the part of directors, the company should determine the appropriate ownership requirement. SHAREHOLDER PROPOSALS TO REIMBURSE PROXY SOLICITATION EXPENSES Voting to reimburse proxy solicitation expenses should be analyzed on a CASE-BY-CASE basis. In cases where DMBT recommends in favor of the dissidents, we also recommend voting for reimbursing proxy solicitation expenses. SHAREHOLDER PROPOSALS TO TERMINATE INVESTMENT ADVISOR Vote to terminate the investment advisor on a CASE-BY-CASE basis, considering the following factors: - Performance of the fund's NAV - The fund's history of shareholder relations - The performance of other funds under the advisor's management. WM TRUST I WM TRUST II WM STRATEGIC ASSET MANAGEMENT PORTFOLIOS, LLC FORM N-1A PART C OTHER INFORMATION ITEM 23. EXHIBITS (a) Charter (1) WM Trust I (A) Form of Amended and Restated Agreement and Declaration of Trust dated September 19, 1997 -- incorporated by reference to Post-Effective Amendment ("PEA") No. 67 to the Registrant's Registration Statement filed with the SEC on September 30, 1997. (B) Amendment No. 1 to Amended and Restated Agreement and Declaration of Trust dated March 20, 1998 -- incorporated by reference to PEA No. 74 to the Registrant's Registration Statement filed with the SEC on March 27, 1998. (C) Amendment No. 2 to Amended and Restated Agreement and Declaration of Trust dated March 20, 1998 -- incorporated by reference to PEA No. 74 to the Registrant's Registration Statement filed with the SEC on March 27, 1998. (D) Amendment No. 3 to Amended and Restated Agreement and Declaration of Trust dated February 23, 2003 -- incorporated by reference to PEA No. 84 to the Registrant's Registration Statement filed with the SEC on February 27, 2003. (2) WM Trust II (A) Master Trust Agreement of the Registrant dated February 22, 1989 -- incorporated by reference to PEA No. 26 to the Registrant's Registration Statement filed with the SEC on August 28, 1997. (B) Amendment No. 1 to Master Trust Agreement dated May 10, 1989 -- incorporated by reference to PEA No. 26 to the Registrant's Registration Statement filed with the SEC on August 28, 1997. (C) Amendment No. 2 to Master Trust Agreement dated May 22, 1989 -- incorporated by reference to PEA No. 26 to the Registrant's Registration Statement filed with the SEC on August 28, 1997. (D) Amendment No. 3 to Master Trust Agreement dated May 24, 1989 -- incorporated by reference to PEA No. 26 to the Registrant's Registration Statement filed with the SEC on August 28, 1997. 1 (E) Amendment No. 4 to Master Trust Agreement dated May 7, 1990 -- incorporated by reference to PEA No. 26 to the Registrant's Registration Statement filed with the SEC on August 28, 1997. (F) Amendment No. 5 to Master Trust Agreement dated December 4, 1991 -- incorporated by reference to PEA No. 26 to the Registrant's Registration Statement filed with the SEC on August 28, 1997. (G) Amendment No. 6 to Master Trust Agreement dated January 30, 1992 -- incorporated by reference to PEA No. 26 to the Registrant's Registration Statement filed with the SEC on August 28, 1997. (H) Amendment No. 7 to Master Trust Agreement dated September 12, 1992 -incorporated by reference to PEA No. 26 to the Registrant's Registration Statement filed with the SEC on August 28, 1997. (I) Amendment No. 8 to Master Trust Agreement dated September 22, 1993 -incorporated by reference to PEA No. 26 to the Registrant's Registration Statement filed with the SEC on August 28, 1997. (J) Amendment No. 9 to Master Trust Agreement dated March 13, 1994 -- incorporated by reference to PEA No. 26 to the Registrant's Registration Statement filed with the SEC on August 28, 1997. (K) Amendment No. 10 to Master Trust Agreement dated January 20, 1995 -incorporated by reference to PEA No. 26 to the Registrant's Registration Statement filed with the SEC on August 28, 1997. (L) Amendment No. 11 to Master Trust Agreement dated July 19, 1996 -- incorporated by reference to PEA No. 23 to the Registrant's Registration Statement filed with the SEC on August 30, 1996. (M) Amendment No. 12 to Master Trust Agreement dated March 20, 1998 -- incorporated by reference to PEA No. 28 to the Registrant's Registration Statement filed with the SEC on March 27, 1998. (3) WM Strategic Asset Management Portfolios, LLC - LLC Operating Agreement dated March 12, 1999 -- incorporated by reference to PEA No. 8 to the Registrant's Registration Statement filed with the SEC on April 30, 1999. (b) Bylaws (1) WM Trust I -- incorporated by reference to PEA No. 67 to the Registrant's Registration Statement filed with the SEC on September 30, 1997. 2 (A) Amendment to Bylaws dated February 20, 2002 -- incorporated by reference to PEA No. 82 to the Registrant's Registration Statement filed with the SEC on February 28, 2002. (B) Amendment to Bylaws dated October 20, 2005 - filed herewith. (2) WM Trust II -- incorporated by reference to PEA No. 26 to the Registrant's Registration Statement filed with the SEC on August 28, 1997. (A) Amendment to Bylaws dated February 20, 2002 -- incorporated by reference to PEA No. 37 to the Registrant's Registration Statement filed with the SEC on February 28, 2002. (B) Amendment to Bylaws dated October 20, 2005 - filed herewith. (3) WM Strategic Asset Management Portfolios, LLC -- incorporated by reference to PEA No. 8 to the Registrant's Registration Statement filed with the SEC on April 30, 1999. (A) Amendment to Bylaws dated February 20, 2002 -- incorporated by reference to PEA No. 13 to the Registrant's Registration Statement filed with the SEC on February 28, 2002. (B) Amendment to Bylaws dated October 20, 2005 - filed herewith. (c) Instruments defining the Rights of Shareholders -- See (a) and (b) above. (d) Investment Advisory Contracts (1) WM Trust I (A) Amended and Restated Investment Management Agreement dated November 1, 2004- filed herewith. (B) Amended and Restated Investment Sub-Advisory Agreement with Van Kampen Investment Advisory Corporation dated November 30, 2003 with respect to the Tax-Exempt Bond Fund - filed herewith. (2) WM Trust II (A) Amended and Restated Investment Management Agreement dated November 1, 2005 - filed herewith. 3 (B) Investment Sub-Advisory Agreement with Capital Guardian Trust Company dated June 23, 1999 with respect to the International Growth Fund -- incorporated by reference to PEA No. 33 to the Registrant's Registration Statement filed with the SEC on February 29, 2000. (C) Investment Sub-Advisory Agreement with OppenheimerFunds, Inc. dated March 1, 2002 -- incorporated by reference to PEA No. 38 to the Registrant's Registration Statement filed with the SEC on December 16, 2002. (D) Investment Sub-Advisory Agreement with Salomon Brothers Asset Management, Inc. dated December 1, 2005 - filed herewith. (E) Investment Sub-Advisory Agreement with Delaware Management Company dated April 1, 2005 -- incorporated by reference to PEA No. 43 to the Registrant's Registration Statement filed with the SEC on February 28, 2005. (F) Investment Sub-Advisory Agreement with Oberweis Asset Management, Inc. dated March 1, 2005 -- incorporated by reference to PEA No. 43 to the Registrant's Registration Statement filed with the SEC on February 28, 2005. (G) Amended and Restated Investment Sub-Advisory Agreement with Van Kampen Investment Advisory Corporation dated November 30, 2003 with respect to the California Municipal and California Insured Intermediate Municipal Funds - filed herewith. (H) Amended and Restated Investment Sub-Advisory Agreement with Janus Capital Management LLC dated November 9, 2004 - filed herewith. (I) Second Amendment to Investment Sub-Advisory Agreement with Capital Guardian Trust Company with respect to the International Growth Fund - filed herewith. (3) WM Strategic Asset Management Portfolios, LLC - Amended and Restated Investment Management Agreement dated November 1, 2005 - filed herewith. (e) Underwriting Contracts (1) Amended and Restated Distribution Agreement dated November 9, 2005 with respect to WM Trust I, WM Trust II and WM Strategic Asset Management Portfolios, LLC - filed herewith. 4 (2) Form of Dealer Agreement -- incorporated by reference to PEA No. 86 to WM Trust I's Registration Statement, PEA No. 41 to WM Trust II's Registration Statement and PEA No. 17 to WM Strategic Asset Management Portfolios LLC's Registration Statement filed with the SEC on February 27, 2004. (f) Bonus or Profit Sharing Contracts -- Not Applicable. (g) Custodian Agreements (1) Mutual Funds Custody and Service Agreement effective July 1, 2001 for WM Trust I, WM Trust II and WM Strategic Asset Management Portfolios, LLC -incorporated by reference to PEA No. 81 to WM Trust I's Registration Statement, PEA No. 36 to WM Trust II's Registration Statement and PEA No. 12 to WM Strategic Asset Management Portfolios, LLC's Registration Statement filed with the SEC on December 28, 2001. (h) Other Material Contracts (1) Transfer Agent and Shareholder Services Agreement with respect to WM Trust I, WM Trust II and WM Strategic Asset Management Portfolios, LLC dated February 17, 2005 - filed herewith. (i) Legal Opinion (1) WM Trust I (A) Opinion and Consent of Counsel -- incorporated by reference to PEA No. 74 to the Registrant's Registration Statement filed with the SEC on March 27, 1998. (B) Opinion and Consent of Counsel dated February 27, 2003 for the REIT Fund -- incorporated by reference to PEA No. 84 to the Registrant's Registration Statement filed with the SEC on February 27, 2003. (C) Opinion and Consent of Counsel dated February 25, 2005 for the Small Cap Growth Fund -- incorporated by reference to PEA No. 88 to the Registrant's Registration Statement filed with the SEC on February 28, 2005. (2) WM Trust II - Consent and Opinion of Counsel dated June 20, 1997 -- incorporated by reference to PEA No. 26 to the Registrant's Registration Statement filed with the SEC on August 28, 1997. 5 (3) WM Strategic Asset Management Portfolios, LLC - Opinion and Consent of Counsel dated June 25, 1999 -- incorporated by reference to PEA No. 9 of the Registrant's Registration Statement filed with the SEC on June 25, 1999. (j) Other Opinions (1) Consent of Independent Auditors -- incorporated by reference to PEA No. 85 to WM Trust I's Registration Statement, PEA No. 44 to WM Trust II's Registration Statement and PEA No. 20 to WM Strategic Asset Management, LLC's Registration Statement filed with the SEC on February 28, 2005. (k) Omitted Financial Statements -- Not Applicable. (l) Initial Capital Agreements -- Not Applicable. (m) Rule 12b-1 Plan (A) Class A Distribution Plan dated March 7, 2000 -- incorporated by reference to PEA No. 79 to WM Trust I's Registration Statement, PEA No. 34 to WM Trust II's Registration Statement and PEA No. 10 to WM Strategic Asset Management, LLC's Registration Statement filed with the SEC on December 28, 2000. (B) Class B Distribution Plan dated March 7, 2000 -- incorporated by reference to PEA No. 79 to WM Trust I's Registration Statement, PEA No. 34 to WM Trust II's Registration Statement and PEA No. 10 to WM Strategic Asset Management, LLC's Registration Statement filed with the SEC on December 28, 2000. (C) Class C Distribution Plan dated as of February 20, 2002 -- incorporated by reference to PEA No. 81 to WM Trust I's Registration Statement, PEA No. 36 to WM Trust II' s Registration Statement and PEA No. 12 to WM Strategic Asset Management Portfolios, LLC's Registration Statement filed with the SEC on December 28, 2001. (D) Class R-1 Distribution Plan dated as of November 9, 2005 - filed herewith. (E) Class R-2 Distribution Plan dated as of November 9, 2005 - filed herewith. (n) Rule 18f-3 Plan (1) Amended and Restated Rule 18f-3 Multiple Class Plan with respect to WM Trust I, WM Trust II and WM Strategic Asset Management Portfolios, LLC effective as of March 1, 2006 - filed herewith. (o) Reserved (p) Codes of Ethics (1) WM Trust I, WM Trust II, WM Strategic Asset Management Portfolios, LLC, WM Advisors, Inc. and WM Funds Distributor, Inc. Code of Ethics dated July 21, 2005 - filed herewith. (2) Van Kampen Asset Management Code of Ethics dated December 31, 2004 - incorporated by reference to PEA No. 88 to WM Trust I's Registration Statement PEA No. 46 to WM Trust II's Registration Statement filed with the SEC on February 28, 2005. (3) Capital Guardian Trust Company Code of Ethics dated July 2005 - filed herewith. (4) Janus Capital Management LLC Personal Trading Code of Ethics dated September 20, 2005 - filed herewith. (5) OppenheimerFunds, Inc. Amended and Restated Code of Ethics dated February 1, 2005 - filed herewith. (6) Salomon Brothers Asset Management, Inc. Code of Ethics dated September 13, 2005 -- filed herewith. (7) Delaware Management Company Code of Ethics as amended December 21, 2004 -- incorporated by reference to PEA No. 43 to WM Trust II's Registration Statement filed with the SEC on February 28, 2005. (8) Oberweis Asset Management, Inc. Code of Ethics dated November 2, 2005 - filed herewith. 6 ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANTS Not applicable. ITEM 25. INDEMNIFICATION (a) WM Trust I -- Under Article VIII, Section 1 of the Amended and Restated Agreement and Declaration of Trust of the Registrant (the "Agreement and Declaration of Trust"), each of the Registrant's Trustees and officers (including persons who serve at the Registrant's request as directors, officers or trustees of another organization in which the Registrant has any interest as a shareholder, creditor or otherwise) (each such person being a "Covered Person"), is indemnified against all liabilities and expenses, including amounts paid in satisfaction of judgments or settlements or as reasonable attorneys' fees, incurred by a Covered Person in any civil or criminal proceeding by virtue of such person's being a Covered Person. This provision does not authorize indemnification of a Covered Person if it is determined as a final adjudication that the Covered Person is liable to the Registrant or its shareholders by reason of such Covered Person's willful 7 misfeasance, bad faith, gross negligence or reckless disregard of such Covered Person's duties in such office. Expenses may be paid by the Registrant in advance of the final disposition of any such action provided that the Covered Person delivers an undertaking that expenses so advanced will be repaid by the Covered Person to the Registrant if it is ultimately determined that indemnification of such expenses is not authorized under the Agreement and Declaration of Trust and the Covered Person either provides security for such undertaking or insures Registrant against losses from such advances or a majority of the disinterested Trustees or independent legal counsel determines, in the manner specified in the Agreement and Declaration of Trust, that there is reason to believe the Covered Person will be found to be entitled to indemnification. Under Article IX Section 9 of the Bylaws of the Registrant, as amended, for purposes of the determination or opinion with respect to the Registrant paying expenses in advance, as referred to above, the determination by the majority of disinterested Trustees acting on the matter or independent legal counsel, as the case may be, shall afford the Covered Person a rebuttable presumption that the Covered Person has not engaged in willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such Covered Person's office. (b) WM Trust II - Under Section 6.4 of Registrant's Master Trust Agreement, as amended, any past or present Trustee or officer of Registrant, including persons who serve at the Registrant's request as directors, officers or trustees of another organization in which Registrant has any interest as a shareholder, creditor or otherwise (hereinafter referred to as a "Covered Person"), is indemnified to the fullest extent permitted by law against liability and all expenses reasonably incurred by him in connection with any action, suit or proceeding to which he may be a party or otherwise involved by reason of his being or having been a Covered Person. This provision does not authorize indemnification when it is determined, in the manner specified in the Master Trust Agreement, that a Covered Person has not acted in good faith in the reasonable belief that his actions were in or not opposed to the best interests of the Registrant. Moreover, this provision does not authorize indemnification when it is determined, in the manner specified in the Master Trust Agreement, that the Covered Person would otherwise be liable to the Registrant or its shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of his duties. Expenses may be paid by the Registrant in advance of the final disposition of any action, suit or proceeding upon receipt of an undertaking by a Covered Person to repay those expenses to the Registrant in the event that it is ultimately determined that indemnification of the expenses is not authorized under the Master Trust Agreement and the Covered Person either provides security for such undertaking or insures the Registrant against losses from such advances or the disinterested Trustees or independent legal counsel determines, in the manner specified in the Master Trust Agreement, that there is reason to believe the Covered Person will be found to be entitled to indemnification. Under Article XIV, Section 1 of the Bylaws of the Registrant, as amended, for purposes of the determination or opinion with respect to the Registrant paying expenses in advance, as referred to above, the determination by the majority of disinterested Trustees 8 acting on the matter or independent legal counsel, as the case may be, shall afford the Covered Person a rebuttable presumption that the Covered Person has not engaged in willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such Covered Person's office. (c) WM Strategic Asset Management Portfolios, LLC - Under Article 8, Section 1 of the Registrant's Limited Liability Company Agreement (the "LLC Agreement"), any past or present Trustee or officer of the Registrant, including persons who serve at the Registrant's request as directors, officers or trustees of another organization in which Registrant has any interest as a shareholder, creditor or otherwise (hereinafter referred to as a "Covered Person"), is indemnified to the fullest extent permitted by law against liability and all expenses reasonably incurred by him in connection with any action, suit or proceeding to which he may be a party or otherwise involved by reason of his being or having been a Covered Person. This provision does not authorize indemnification when it is determined, in the manner specified in the LLC Agreement, that a Covered Person has not acted in good faith in the reasonable belief that his actions were in or not opposed to the best interests of the Registrant. Moreover, this provision does not authorize indemnification when it is determined, in the manner specified in the LLC Agreement, that the Covered Person would otherwise be liable to the Registrant or its shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of his duties. Expenses may be paid by the Registrant in advance of the final disposition of any action, suit or proceeding upon receipt of an undertaking by a Covered Person to repay those expenses to the Registrant in the event that it is ultimately determined that indemnification of the expenses is not authorized under the LLC Agreement and the Covered Person either provides security for such undertaking or insures the Registrant against losses from such advances or the disinterested Trustees or independent legal counsel determines, in the manner specified in the LLC Agreement, that there is reason to believe the Covered Person will be found to be entitled to indemnification. Under Article XIII, Section 1 of the Bylaws of the Registrant, as amended, for purposes of the determination or opinion with respect to the Registrant paying expenses in advance, as referred to above, the determination by the majority of disinterested Trustees acting on the matter or independent legal counsel, as the case may be, shall afford the Covered Person a rebuttable presumption that the Covered Person has not engaged in willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such Covered Person's office. **************** Insofar as indemnification for liability arising under the Securities Act of 1933, as amended (the "1933 Act"), may be permitted to Trustees, officers and controlling persons of each of WM Trust I, WM Trust II and WM Strategic Asset Management Portfolios, LLC pursuant to the foregoing provisions, or otherwise, Registrant has been advised that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the 1933 Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by 9 the Registrant of expenses incurred or paid by a Trustee, officer or controlling person of the above-named Registrants in the successful defense of any action, suit or proceeding) is asserted by such Trustee, officer or controlling person in connection with the securities being registered, such Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the 1933 Act and will be governed by the final adjudication of such issue. ITEM 26: BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR (a) WM Advisors, Inc. WM Advisors, Inc. is a wholly-owned, indirect subsidiary of Washington Mutual, Inc., a publicly-owned financial services company. The list of officers and directors required by this Item 26, together with information as to any other business, profession, vocation or employment of a substantial nature engaged in by such persons during the past two years, is incorporated by reference to Schedules A and D of Form ADV filed by WM Advisors, Inc. pursuant to the Advisors Act (SEC File No. 801-4855). (b) Van Kampen Asset Management ("Van Kampen") Van Kampen is a wholly-owned subsidiary of VK/AC Holding, Inc. VK/AC Holding, Inc. is a wholly-owned subsidiary of Morgan Stanley, Dean Witter, Discover & Co. Van Kampen provides investment advice to a wide variety of individual, institutional and investment company clients. The list as required by this Item 26 of officers and directors of Van Kampen, together with information as to any other business, profession, vocation or employment of a substantial nature engaged in by such officers and directors during the past two years, is incorporated by reference to Schedules A and D of Form ADV filed by Van Kampen pursuant to the Advisers Act (SEC File No. 801-18161). (c) Janus Capital Management LLC ("Janus") Janus is an investment advisor registered under the Advisers Act, and acts as investment advisor for registered investment companies, foreign investment companies and for individual, charitable, corporate and retirement accounts. Janus and its affiliates provide a variety of trust, investment management and investment advisory services. The list as required by this Item 26 of officers and directors of Janus, together with information as to any other business, profession, vocation or employment of a substantial nature engaged in by such officers and directors during the past two years, is incorporated 10 by reference to Schedules A and D of Form ADV filed by Janus pursuant to the Advisers Act (SEC File No. 801-13991). (d) OppenheimerFunds, Inc. (Oppenheimer") Oppenheimer is a wholly-owned subsidiary of Oppenheimer Acquisition Corporation, a holding company controlled by Massachusetts Mutual Life Insurance Company. The list as required by this Item 26 of officers and directors of Oppenheimer, together with information as to any other business, profession, vocation or employment of a substantial nature engaged in by such officers and directors during the past two years, is incorporated by reference to Schedules A and D of Form ADV filed by Oppenheimer pursuant to the Advisers Act (SEC File No. 801-8253). (e) Capital Guardian Trust Company ("Capital Guardian") Capital Guardian is a wholly-owned subsidiary of Capital Group International, Inc. ("CGI"), which is in turn owned by The Capital Group Companies, Inc. ("CGC"). CGC is also the parent company of several other subsidiaries, all of which directly or indirectly provided investment management services. The list as required by this Item 26 of officers and directors of Capital Guardian, together with information as to any other business, profession, vocation or employment of a substantial nature engaged in by such officers and directors during the past two years, is incorporated by reference to Schedules A and D of Form ADV filed by Capital Guardian pursuant to the Advisers Act (SEC File No. 801-60145). (f) Salomon Asset Management, Inc. ("Salomon") Salomon is a wholly-owned subsidiary of Citigroup Inc. The list as required by this Item 26 of officers and directors of Citigroup, together with information as to any other business, profession, vocation or employment of a substantial nature engaged in by such officers and directors during the past two years, is incorporated by reference to Schedules A and D of Form ADV filed by Citigroup pursuant to the Advisers Act (SEC File No. 801-32046). (g) Delaware Management Company ("Delaware") Delaware is a series of Delaware Business Management Trust, an indirect, wholly-owned subsidiary of Delaware Management Holdings, Inc. The list as required by this Item 26 of officers and directors of Delaware, together with information as to any other business, profession, vocation or employment of a substantial nature engaged in by such officers and directors during the past two years, is incorporated 11 by reference to Schedules A and D of Form ADV filed by Delaware pursuant to the Advisers Act (SEC File No. 801-32108). (h) Oberweis Asset Management, Inc. ("Oberweis") Oberweis is a specialty asset management firm that provides investment advisory advice to funds, institutions, and individual investors on a broad range of products. The list as required by this Item 26 of officers and directors of Oberweis, together with information as to any other business, profession, vocation or employment of a substantial nature engaged in by such officers and directors during the past two years, is incorporated by reference to Schedules A and D of Form ADV filed by Oberweis pursuant to the Advisers Act (SEC File No. 801-35657). ITEM 27: PRINCIPAL UNDERWRITERS (a) The principal underwriter for each Registrant is WM Funds Distributor, Inc. ("WMFD"). WMFD also acts as the principal underwriter for WM Variable Trust. (b) The information required by this Item 27 with respect to each Director and Officer of WMFD is incorporated by reference to Schedule A of Form BD filed by WMFD with the Securities and Exchange Commission pursuant to the Securities Act of 1934 (SEC File No. 8-050200) (c) Not applicable. ITEM 28. LOCATION OF ACCOUNTS AND RECORDS All accounts, books and other documents required to be maintained by Section 31 (a) of the Investment Company Act of 1940 and the rules thereunder will be maintained at the offices of the Registrants at 1201 Third Avenue, 22nd Floor, Seattle, WA 98101; the offices of the Registrants' custodian, Mellon Trust of New England, National Association, One Boston Place, Boston, MA 02108; the offices of the Registrants' sub-advisors: Van Kampen, 1221 Avenue of the Americas, New York, New York 10020; Janus, 151 Detroit Street, Denver, Colorado 80206; Capital Guardian, Investment Office, 333 South Hope St., Los Angeles, CA 90071; Oppenheimer, Two World Financial Center, 225 Liberty Street, 11th Floor, New York, New York 10281; Salomon, 399 Park Avenue, New York, New York 10022; Delaware, 2005 Market Street, Philadelphia, Pennsylvania 19103; and Oberweis, 3333 Warrenville Road, Suite 500, Lisle, Illinois 60532; the offices of the Registrants' transfer agent, WM Shareholder Services, Inc., 1201 Third Ave, 22nd Floor, Seattle, Washington 98101 and the offices of the Registrants' sub-transfer agent, Boston Financial Data Services, 330 W. 9th Street, Kansas City, Missouri 64105. 12 ITEM 29. MANAGEMENT SERVICES None of the Registrants is a party to any management related contract other than as set forth in the Prospectus. ITEM 30. UNDERTAKINGS (a) Each Registrant undertakes to furnish each person to whom a prospectus is delivered with a copy of the Registrant's latest annual report to shareholders upon request and without charge. (b) Each of the Registrants has undertaken to call a meeting of its shareholders for the purpose of voting upon the question of removal of a trustee or trustees of the Registrant when requested to do so by the holders of at least 10% of the Registrant's outstanding shares. Each Registrant has undertaken further, in connection with the meeting, to comply with the provisions of Section 16 (c) of the Investment Company Act of 1940, as amended, relating to communications with the shareholders of certain common-law trusts. 13 SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, each Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, duly authorized in the City of Seattle, and State of Washington on the 30th day of December, 2005. WM TRUST I WM TRUST II WM STRATEGIC ASSET MANAGEMENT PORTFOLIOS, LLC /s/ WILLIAM G. PAPESH WILLIAM G. PAPESH, PRESIDENT Pursuant to the requirement of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the date indicated.
SIGNATURE TITLE DATE /s/ WILLIAM G. PAPESH President and Trustee December 30, 2005 - ------------------------------ William G. Papesh /s/ JEFFERY L. LUNZER Chief Financial Officer December 30, 2005 - ------------------------------ (and principal accounting officer) Jeffery L. Lunzer KRISTIANNE BLAKE* Trustee December 30, 2005 - ------------------------------ Kristianne Blake EDMOND R. DAVIS* Trustee December 30, 2005 - ------------------------------ Edmond R. Davis ANNE V. FARRELL* Trustee December 30, 2005 - ------------------------------ Anne V. Farrell
14 CARROL R. MCGINNIS* Trustee December 30, 2005 - ------------------------------ Carrol R. McGinnis ALFRED E. OSBORNE, JR.* Trustee December 30, 2005 - ------------------------------ Alfred E. Osborne, Jr. DANIEL L. PAVELICH* Trustee December 30, 2005 - ------------------------------ Daniel L. Pavelich JAY ROCKEY* Trustee December 30, 2005 - ------------------------------ Jay Rockey RICHARD C. YANCEY* Trustee December 30, 2005 - ------------------------------ Richard C. Yancey /s/ WILLIAM G. PAPESH - ------------------------------ WILLIAM G. PAPESH * Pursuant to Powers of Attorney previously filed.
15 EXHIBIT INDEX (b)(1)(B) WM Trust 1 - Amendement to Bylaws (b)(2)(B) WM Trust II- Amendment to Bylaws (b)(3)(B) WM Strategic Asset Management Portfolios, LLC - Amendment to Bylaws (d)(1)(A) WM Trust I - Amended and Restated Investment Management Agreement (d)(1)(B) WM Trust I - Amended and Restated Investment Sub-Advisory Agreement with Van Kampen (d)(2)(A) WM Trust II - Amended and Restated Investment Management Agreement (d)(2)(D) Investment Sub-Advisory Agreement with Salomon Brothers Asset Management, Inc (d)(2)(G) WM Trust II - Amended and Restated Investment Sub-Advisory Agreement with Van Kampen (d)(2)(H) Amended and Restated Investment Sub-Advisory Agreement with Janus Capital Management, LLC (d)(2)(I) Second Amendment to Investment Sub-Advisory Agreement with Capital Guardian (d)(3) WM Strategic Asset Management Portfolios, LLC - Amended and Restated Investment Management Agreement (e)(1) Amended and Restated Distribution Agreement (h)(1) Transfer Agent and Shareholder Services Agreement (m)(D) Class R-1 Distribution Plan (m)(E) Class R-2 Distribution Plan (n)(1) Amended and Restated Rule 18f-3 Multiple Class Plan (p)(1) WM Trust I, WM Trust II, WM Strategic Asset Management Portfolios, LLC, WM Advisors, Inc. and WM Funds Distributor, Inc. Code of Ethics (p)(3) Capital Guardian Trust Company Code of Ethics (p)(4) Janus Capital Management LLC Code of Ethics 16 (p)(5) OppenheimerFunds, Inc. Code of Ethics (p)(6) Salomon Brothers Asset Management, Inc Code of Ethics (p)(8) Oberweis Asset Management, Inc. Code of Ethics 17 EX-99.B1.B 2 v15673exv99wb1wb.txt EXHIBIT 99.(B)(1)(B) (b)(1)(B) AMENDMENT TO BY-LAWS FOR WM TRUST I October 20, 2005 Paragraph 3.1 of Article 3 of the Bylaws of WM Trust I is hereby replaced with the following: 3.1 Enumeration; Qualification. The officers of the Trust shall be a President, a Treasurer, a Secretary, and such other officers, including a Controller, if any, as the Trustees from time to time may in their discretion elect. The officers of the Board shall be a Chairman of the Trustees and such other officers, if any, as the Trustees from time to time may in their discretion elect. The Trust or the Board may also have such agents as the Trustees from time to time may in their discretion appoint. The Chairman of the Trustees shall be a Trustee and may but need not be a Shareholder; and any other officer may but need not be a Trustee or a Shareholder. Any two or more offices may be held by the same person. A new Paragraph 3.9 of Article 3 is hereby added to the Bylaws of WM Trust I, as follows: 3.9 No Additional Duty or Liability. For the sake of clarification and without limiting the foregoing, neither the appointment, designation or identification of a Trustee as the Chairman of the Trustees, a member or chairman of a committee of the Board, an expert on any topic or in any area (including an audit committee financial expert) or as having any other special appointment, designation or identification, nor any action taken, nor any failure to act, in such capacity, shall (a) impose on that person any duty, obligation or liability that is greater than the duties, obligations and liabilities imposed on that person as a Trustee in the absence of the appointment, designation or identification or (b) affect in any way such Trustee's rights or entitlement to indemnification, and no Trustee who has special skills or expertise, or is appointed, designated or identified as aforesaid, shall (x) be held to a higher standard of care by virtue thereof or (y) be limited with respect to any indemnification to which such Trustee would otherwise. 18 EX-99.B2.B 3 v15673exv99wb2wb.txt EXHIBIT 99.(B)(2)(B) (b)(2)(B) AMENDMENT TO BY-LAWS FOR WM TRUST II October 20, 2005 Paragraph 3.1 of Article 3 of the Bylaws of WM Trust II is hereby replaced with the following: 3.1 Enumeration; Qualification. The officers of the Trust shall be a President, a Treasurer, a Secretary, and such other officers, including a Controller, if any, as the Trustees from time to time may in their discretion elect. The officers of the Board shall be a Chairman of the Trustees and such other officers, if any, as the Trustees from time to time may in their discretion elect. The Trust or the Board may also have such agents as the Trustees from time to time may in their discretion appoint. The Chairman of the Trustees shall be a Trustee and may but need not be a Shareholder; and any other officer may but need not be a Trustee or a Shareholder. Any two or more offices may be held by the same person. A new Paragraph 3.9 of Article 3 is hereby added to the Bylaws of WM Trust II, as follows: 3.9 No Additional Duty or Liability. For the sake of clarification and without limiting the foregoing, neither the appointment, designation or identification of a Trustee as the Chairman of the Trustees, a member or chairman of a committee of the Board, an expert on any topic or in any area (including an audit committee financial expert) or as having any other special appointment, designation or identification, nor any action taken, nor any failure to act, in such capacity, shall (a) impose on that person any duty, obligation or liability that is greater than the duties, obligations and liabilities imposed on that person as a Trustee in the absence of the appointment, designation or identification or (b) affect in any way such Trustee's rights or entitlement to indemnification, and no Trustee who has special skills or expertise, or is appointed, designated or identified as aforesaid, shall (x) be held to a higher standard of care by virtue thereof or (y) be limited with respect to any indemnification to which such Trustee would otherwise be entitled. 19 EX-99.B3.B 4 v15673exv99wb3wb.txt EXHIBIT 99.(B)(3)(B) (b)(3)(B) AMENDMENT TO BY-LAWS FOR WM STRATEGIC ASSET MANAGEMENT PORTFOLIOS, LLC October 20, 2005 Paragraph 3.1 of Article 3 of the Bylaws of WM Strategic Asset Management Portfolios, LLC is hereby replaced with the following: 3.1 Enumeration; Qualification. The officers of the Company shall be a President, a Treasurer, a Secretary, and such other officers, including a Controller, if any, as the Trustees from time to time may in their discretion elect. The officers of the Board shall be a Chairman of the Trustees and such other officers, if any, as the Trustees from time to time may in their discretion elect. The Company or the Board may also have such agents as the Trustees from time to time may in their discretion appoint. The Chairman of the Trustees shall be a Trustee and may but need not be a Shareholder; and any other officer may but need not be a Trustee or a Shareholder. Any two or more offices may be held by the same person. A new Paragraph 3.10 of Article 3 is hereby added to the Bylaws of WM Strategic Asset Management Portfolios, LLC, as follows: 3.10 No Additional Duty or Liability. For the sake of clarification and without limiting the foregoing, neither the appointment, designation or identification of a Trustee as the Chairman of the Trustees, a member or chairman of a committee of the Board, an expert on any topic or in any area (including an audit committee financial expert) or as having any other special appointment, designation or identification, nor any action taken, nor any failure to act, in such capacity, shall (a) impose on that person any duty, obligation or liability that is greater than the duties, obligations and liabilities imposed on that person as a Trustee in the absence of the appointment, designation or identification or (b) affect in any way such Trustee's rights or entitlement to indemnification, and no Trustee who has special skills or expertise, or is appointed, designated or identified as aforesaid, shall (x) be held to a higher standard of care by virtue thereof or (y) be limited with respect to any indemnification to which such Trustee would otherwise be entitled. 20 EX-99.D1.A 5 v15673exv99wd1wa.txt EXHIBIT 99.(D)(1)(A) (D)(1)(A) WM TRUST I AMENDED AND RESTATED INVESTMENT MANAGEMENT AGREEMENT AMENDED AND RESTATED INVESTMENT MANAGEMENT AGREEMENT (this "Agreement"), dated as of November 1, 2004, amending an restating in its entirety the Amended and Restated Investment Management Agreement dated May 14, 2002, as amended February 20, 2003, between WM TRUST I, a Massachusetts business trust, (the "Trust"), on behalf of each of its series which are listed on the signature page of this Agreement (each referred to herein as a "Fund") and WM Advisors, Inc., a Washington corporation (the "Manager"). WITNESSETH WHEREAS, the Trust is an open-end series management investment company, registered under the Investment Company Act of 1940, as amended (the "1940 Act"); and WHEREAS, each Fund, as a separate series of the Trust, desires to retain the Manager to render investment management services to the Fund, and the Manager is willing to render such services; NOW, THEREFORE, in consideration of the premises and the mutual agreements herein contained, the parties hereto agree as follows: 1. Appointment. The Fund hereby appoints the Manager to act as investment manager to the Fund for the period and on the terms set forth in this Agreement. The Manager accepts such appointment and agrees to render the services herein described, for the compensation herein provided. 2. Management. Subject to the supervision of the Board of Trustees of the Trust, the Manager shall manage the investment operations of the Fund and the composition of the Fund's portfolio, including the purchase, retention and disposition of securities therefor, in accordance with the Fund's investment objectives, policies and restrictions as stated in the Prospectus and Statement of Additional Information (as such terms are hereinafter defined) and resolutions of the Trust's Board of Trustees and subject to the following understandings: (a) The Manager shall provide supervision of the Fund's investments, furnish a continuous investment program for the Fund's portfolio and determine from time to time what securities will be purchased, retained, or sold by the Fund, and what portion of the assets will be invested or held as cash. (b) The Manager, in the performance of its duties and obligations under this Agreement, shall act in conformity with the Declaration of Trust (as hereinafter defined) of the Trust and the investment policies of the Fund as determined by the Board of Trustees of the Trust. (c) The Manager shall determine the securities to be purchased or sold by the Fund and shall place orders for the purchase and sale of portfolio securities pursuant to its determinations with brokers or 21 dealers selected by the Manager. In executing portfolio transactions and selecting brokers or dealers, the Manager shall use its best efforts to seek on behalf of the Fund the best overall terms available. In assessing the best overall terms available for any transaction, the Manager may consider all factors it deems relevant, including the breadth of the market in the security, the price of the security, the size of the transaction, the timing of the transaction, the reputation, financial condition, experience, and execution capability of a broker or dealer, the amount of commission, and the value of any brokerage and research services (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934, as amended) provided by a broker or dealer. The Manager is authorized to pay to a broker or dealer who provides such brokerage and research services a commission for executing a portfolio transaction for the Fund which is in excess of the amount of commission another broker or dealer would have charged for effecting the transaction if the Manager determines in good faith that such commission was reasonable in relation to the value of the brokerage and research services provided by such broker or dealer, viewed in terms of that particular transaction or in terms of the overall responsibilities of the Manager to the Fund and/or other accounts over which the Manager exercises investment discretion. (d) On occasions when the Manager deems the purchase or sale of a security to be in the best interest of the Fund as well as other fiduciary accounts for which it has investment responsibility, the Manager, to the extent permitted by applicable laws and regulations, may aggregate the securities to be so sold or purchased in order to obtain the best execution, most favorable net price or lower brokerage commissions. (e) Subject to the provisions of the Agreement and Declaration of Trust of the Trust and the Investment Company Act of 1940, as amended (the "1940) Act"), the Manager, at its expense, may select and contract with one or more investment advisers (the "Subadviser") for the Fund to perform some or all of the services for which it is responsible pursuant to this Section 2. In particular, for so long as a Subadviser meets the standard of care set forth in the relevant subadvisory agreement, which shall have been approved by the vote of the Trust's Board of Trustees including a majority of those members of the Board of Trustees who are not parties to such agreement or "interested persons" of any such party, cast in person at a meeting called for that purpose, and by vote of a majority of the outstanding voting securities of the Fund (each a "Subadvisory Agreement"), the Manager shall have no obligation to (i) furnish a continuous investment program for the Fund, (ii) determine from time to time what securities will be purchased, retained or sold by the Fund, and what portion of the Fund's assets will be held as cash, or (iii) place orders for the purchase and sale of portfolio securities for the Fund with brokers or dealers selected by the Manager; provided, however, that the Manager shall remain authorized to determine what securities or other property shall be purchased or sold by or for the Funds. The Manager may terminate the services of any Subadviser at any time in its sole discretion, and shall at such time assume the responsibilities of such Subadviser unless and until a successor Subadviser is selected. To the extent that more than one Subadviser is selected, the Manager shall, in its sole discretion, determine the amount of the Fund's assets allocated to each such Subadviser. The Manager agrees to indemnify and hold the Trust harmless from and against any and all claims, costs, expenses (including attorneys' fees), losses, damages, charges, payments and liabilities of any sort or kind which may be asserted against the Trust or for which the Trust may be liable arising out of or attributable to any actual or alleged failure of a Subadviser to meet the standard of care set forth in the relevant Subadvisory Agreement. 22 3. Services Not Exclusive. The investment management services rendered by the Manager hereunder to the Fund are not to be deemed exclusive, and the Manager shall have the right to render similar services to others, including, without limitation, other investment companies. 4. Expenses. During the term of this Agreement, the Manager shall pay all expenses incurred by it in connection with its activities under this Agreement including the salaries and expenses of any of the officers or employees of the Manager who act as officers, Trustees or employees of the Trust but excluding the cost of securities purchased for the Fund and the amount of any brokerage fees and commissions incurred in executing portfolio transactions for the Fund, and shall provide the Fund with suitable office space. Other expenses to be incurred in the operation of the Fund (other than those borne by any third party), including without limitation, taxes, interest, brokerage fees and commissions, fees of Trustees who are not officers, directors, or employees of the Manager, federal registration fees and state Blue Sky qualification fees, administration fees, bookkeeping, charges of custodians, transfer and dividend disbursing agents' fees, certain insurance premiums, industry association fees, outside auditing and legal expenses, costs of maintaining the Fund's or the Trust's existence, costs of independent pricing services, costs attributable to investor services (including, without limitation, telephone and personnel expenses), costs of preparing, printing and distributing prospectuses to existing shareholders, costs of stockholders' reports and meetings of shareholders and Trustees of the Fund or the Trust, as applicable, and any extraordinary expenses will be borne by the Fund. 5. Compensation. For the services provided pursuant to this Agreement, each Fund shall pay to the Manager as full compensation therefor a monthly fee computed on the average daily net assets of the Fund as stated in Schedule A attached hereto minus the monthly fee payable by the Fund directly to its Subadviser or Subadvisers pursuant to the relevant Subadvisory Agreement(s), as applicable. The Fund acknowledges that the Manager, as agent for the Fund, will allocate a portion of the fee to WM Shareholder Services, Inc. for administrative services, portfolio accounting and regulatory compliance systems. The Manager also from time to time and in such amounts as it shall determine in its sole discretion may allocate a portion of the fee to WM Funds Distributor, Inc. for facilitating distribution of the Fund. This payment would be made from revenue which otherwise would be considered profit to the Manager for its services. This disclosure is being made to the Fund solely for the purpose of conforming with requirements of the Washington Department of Revenue for exclusion of revenue from the Washington Business and Occupation Tax. 6. Limitation of Liability. The Manager shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Fund in connection with the matters to which this Agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on its part in the performance of its duties or from reckless disregard by it of its obligations and duties under this Agreement. 7. Delivery of Documents. The Trust has heretofore delivered to the Manager true and complete copies of each of the following documents and shall promptly deliver to it all future amendments and supplements thereto, if any: Agreement and Declaration of Trust (such Agreement and Declaration as presently in effect and as amended from time to time, the "Declaration of Trust"); Bylaws of the Trust; 23 Registration Statement under the Securities Act of 1933 and under the 1940 Act of the Trust on Form N-1A, and all amendments thereto, as filed with the Securities and Exchange Commission (the "Registration Statement") relating to the Fund and the shares of the Fund; Notification of Registration of the Trust under the 1940 Act on Form N-8A; Prospectuses of the Fund (such prospectuses as presently in effect and/or as amended or supplemented from time to time, the "Prospectus"); and Statement of Additional Information of the Fund (such statement as presently in effect and/or as amended or supplemented from time to time, the "Statement of Additional Information"). 8. Duration and Termination. This Agreement shall become effective as of the date first above-written for an initial period of two years following May 14, 2002 and shall continue thereafter so long as such continuance is specifically approved at least annually (a) by the vote of the Board of Trustees including a majority of those members of the Trust's Board of Trustees who are not parties to this Agreement or "interested persons" of any such party, cast in person at a meeting called for that purpose, or by vote of a majority of the outstanding voting securities of the Fund. Notwithstanding the foregoing, (a) this Agreement may be terminated at any time, without the payment of any penalty, by either the Fund (by vote of the Trust's Board of Trustees or by vote of a majority of the outstanding voting securities of the Fund) or the Manager, on sixty (60) days prior written notice to the other and (b) shall automatically terminate in the event of its assignment. As used in this Agreement, the terms "majority of the outstanding voting securities, "interested persons" and "assignment" shall have the meanings assigned to such terms in the 1940 Act. 9. Amendments. No provision of this Agreement may be amended, modified, waived or supplemented except by a written instrument signed by the party against which enforcement is sought. No amendment of this Agreement shall be effective until approved in accordance with any applicable provisions of the 1940 Act. 10. Use of Name and Logo. The Fund agrees that it shall furnish to the Manager, prior to any use or distribution thereof, copies of all prospectuses, statements of additional information, proxy statements, reports to stockholders, sales literature, advertisements, and other material prepared for distribution to stockholders of the Fund or to the public, which in any way refer to or describe the Manager or which include any trade names, trademarks or logos of the Manager or of any affiliate of the Manager. The Fund further agrees that it shall not use or distribute any such material if the Manager reasonably objects in writing to such use or distribution within five (5) business days after the date such material is furnished to the Manager. The Manager and/or its affiliates own the names "Sierra", "Composite", "WM", "WM Group" and derivations thereof and any other names which may be listed from time to time on a Schedule B to be attached hereto that they may develop for use in connection with the Fund, which names may be used by the Fund or the Trust only with the consent of the Manager and/or its affiliates. The Manager, on behalf of itself and/or its affiliates, consents to the use by the Trust and by the Fund of such names or any other names embodying such names, but only on condition and so long as (i) this Agreement shall remain in full force, (ii) the Fund and the Trust shall fully perform, fulfill and comply with all provisions of this Agreement expressed herein to be performed, fulfilled or complied with by it, and (iii) the Manager is the manager of the Fund and the Trust. No such name shall be used by the Fund or the Trust at any time or in any place or for any purposes or under any conditions except as provided in this section. The foregoing 24 authorization by the Manager, on behalf of itself and/or its affiliates, to the Fund and the Trust to use such names as part of a business or name is not exclusive of the right of the Manager and/or its affiliates themselves to use, or to authorize others to use, the same; the Fund and the Trust acknowledge and agree that as between the Manager and/or its affiliates and the Fund or the Trust, the Manager and/or its affiliates have the exclusive right so to use, or authorize others to use, such names, and the Fund and the Trust agree to take such action as may reasonably be requested by the Manager, on behalf of itself and/or its affiliates, to give full effect to the provisions of this section (including, without limitation, consenting to such use of such names). Without limiting the generality of the foregoing, the Fund and the Trust agree that, upon (i) any violation of the provisions of this Agreement by the Fund or the Trust or (ii) any termination of this Agreement, by either party or otherwise, the Fund and the Trust will, at the request of the Manager, on behalf of itself and/or its affiliates, made within six months after such violation or termination, use its best efforts to change the name of the Fund and the Trust so as to eliminate all reference, if any, to such names and will not thereafter transact any business in a name containing such names in any form or combination whatsoever, or designate itself as the same entity as or successor to an entity of such names, or otherwise use such names or any other reference to the Manager and/or its affiliates, except as may be required by law. Such covenants on the part of the Fund and the Trust shall be binding upon it, its Trustees, officers, shareholders, creditors and all other persons claiming under or through it. The provisions of this section shall survive termination of this Agreement. 11. Notices. Any notice or other communication required to be given pursuant to this Agreement shall be deemed duly given if delivered or mailed by registered mail, postage prepaid, if to the Fund: 1201 Third Avenue, 22nd Floor, Seattle, Washington 98101; or if to the Manager: 1201 Third Avenue, 22nd Floor, Seattle, Washington 98101; or to either party at such other address as such party shall designate to the other by a notice given in accordance with the provisions of this section. 12. Miscellaneous. Except as otherwise expressly provided herein or authorized by the Board of Trustees of the Trust from time to time, the Manager for all purposes herein shall be deemed to be an independent contractor and shall have no authority to act for or represent the Fund in any way or otherwise be deemed an agent of the Fund. The Trust shall furnish or otherwise make available to the Manager such information relating to the business affairs of the Fund as the Manager at any time or from time to time reasonably requests in order to discharge its obligations hereunder. This Agreement shall be governed by and construed in accordance with the laws of The Commonwealth of Massachusetts and shall inure to the benefit of the parties hereto and their respective successors. If any provision of this Agreement shall be held or made invalid or by any court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. 13. Declaration of Trust and Limitation of Liability. A copy of the Declaration of Trust of the Trust is on file with the Secretary of State of The Commonwealth of Massachusetts, and notice is hereby given that this Agreement is executed by an officer of the Trust on behalf of the Trustees of the Trust, as trustees and not individually, on 25 further behalf of the Fund, and that the obligations of this Agreement shall be binding upon the assets and properties of the Fund only and shall not be binding upon the assets and properties of any other series of the Trust or upon any of the Trustees, officers, employees, agents or shareholders of the Fund or the Trust individually. [The remainder of this page has intentionally been left blank.] 26 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their officers designated below as of the date first above-written. WM TRUST I, on behalf of its series EQUITY INCOME FUND, GROWTH & INCOME FUND, U.S. GOVERNMENT SECURITIES FUND, INCOME FUND, TAX-EXEMPT BOND FUND, MONEY MARKET FUND, TAX-EXEMPT MONEY MARKET FUND, WEST COAST EQUITY FUND HIGH YIELD FUND MID CAP STOCK FUND REIT FUND SMALL CAP VALUE FUND By: ------------------------------------ William G. Papesh President Attest: By: ------------------------------------ John T. West Secretary WM ADVISORS, INC. By: ------------------------------------ Gary Pokrzywinski Senior Vice President Attest: By: ------------------------------------ Sharon L. Howells Secretary 27 SCHEDULE A - WM TRUST I SECOND AMENDED AND RESTATED INVESTMENT MANAGEMENT AGREEMENT
FUND FEE ---- --- Equity Income Fund Monthly fee equal to .625% per annum computed on Growth & Income Fund the average daily net assets of the Fund; on assets High Yield Fund in excess of $250 million, the fee decreases to .50% per annum. Income Fund Monthly fee computed on the average daily net U.S. Government Securities assets of the Fund equal to .50% per annum on the Fund first $2 billion of assets and .45% per annum on assets in excess of $2 billion. Tax-Exempt Bond Fund Monthly fee equal to .50% per annum computed on the average daily net assets of the Fund; on assets in excess of $250 million, the fee decreases to .40% per annum. Money Market Fund Monthly fee computed on the average daily net assets of the Fund equal to .45% per annum on the first $1 billion of assets; .40% per annum on assets in excess of $1 billion. West Coast Equity Fund Monthly fee computed on the average daily net assets of the Fund equal to .625% per annum on the first $500 million of assets; .50% per annum on the next $500 million; .375% per annum on assets in excess of $1 billion. Mid Cap Stock Fund Monthly fee computed on the average daily net assets of the Fund equal to .75% per annum on the first $1 billion of assets; .70% on the next $1 billion of assets; .65% on the next $1 billion of assets and .60% per annum on assets in excess of $3 billion. REIT Fund Monthly fee computed on the average daily net assets of the Fund equal to .80% per annum on the first $500 million of assets; .75% per annum on the next $1.5 billion; .70% per annum on the next $1 billion; .65% per annum on the assets in excess of $3 billion.
28 Small Cap Value Fund Monthly fee computed on the average daily net assets of the Fund equal to .85% per annum on the first $500 million of assets; .75% on the next $2.5 billion of assets; and .70% per annum on assets in excess of $3 billion.
29 EX-99.D1.B 6 v15673exv99wd1wb.txt EXHIBIT 99.(D)(1)(B) (D)(1)(B) AMENDED AND RESTATED INVESTMENT SUB-ADVISORY AGREEMENT Effective as of November 30, 2003 Van Kampen Asset Management One Parkview Plaza Oakbrook Terrace, Illinois 60181 Ladies and Gentlemen: WM Trust I (the "Trust"), a Massachusetts business trust, WM Advisors, Inc. ("WM Advisors"), a corporation organized under the laws of the state of Washington, and Van Kampen Asset Management (the "Sub-Advisor"), a corporation organized under the laws of the state of Delaware, hereby agree as follows: 1. INVESTMENT DESCRIPTION; APPOINTMENT WM Advisors desires to employ the capital of the investment funds of the Trust listed on Annex A to this Agreement (individually, each a "Fund" and collectively, the "Funds") by investing and reinvesting in investments of the kind and in accordance with the limitations specified in the Trust's Agreement and Declaration of Trust, as amended, and in the Prospectus and Statement of Additional Information relating to the Funds as in effect and which may be amended from time to time, and in such manner and to such extent as may from time to time be approved by the Board of Trustees of the Trust. Copies of the Funds' Prospectus and Statement of Additional Information and the Trust's Declaration of Trust, as amended, have been or will be submitted to the Sub-Advisor. WM Advisors agrees to provide copies of all amendments to the Funds' Prospectus and Statement of Additional Information and the Trust's Declaration of Trust to the Sub-Advisor on an on-going basis. WM Advisors desires to employ and hereby appoints the Sub-Advisor to act as investment sub-advisor to the Funds. The Sub-Advisor accepts the appointment and agrees to furnish the services described in this Agreement for the compensation set forth below. 2. SERVICES AS INVESTMENT SUB-ADVISOR Subject to the supervision of the Board of Trustees of the Trust and of WM Advisors, the Funds' investment adviser, the Sub-Advisor will (a) act in conformity with the Trust's Declaration of Trust, the Investment Company Act of 1940 (the "1940 Act"), the Investment Advisers Act of 1940 and the Internal Revenue Code of 1986, as the same may from time to time be amended; (b) make investment decisions for the Funds in accordance with the Funds' investment objectives and policies as stated in the Funds' Prospectus and Statement of Additional Information as in effect and, after notice to the Sub-Advisor, and which may be amended from time to time; (c) place purchase and sale orders on behalf of the Funds to effectuate the investment decisions made; (d) maintain books and records with respect to the securities transactions of the Funds; (e) furnish to the Trust's Board of Trustees such periodic, regular and special reports as the Board may request; and (f) treat confidentially, and as proprietary information of the Trust, all records and other information relative to the Trust and prior, present or potential shareholders, and refrain from using such records and information for any purpose other than performance of its responsibilities and duties under this Agreement, except after prior notification to and approval in writing by the Trust, which approval shall not be unreasonably withheld, provided that the Sub-Advisor may divulge the information contained in or provide such records if the Sub-Advisor's withholding such information or records will expose the Sub-Advisor to civil or criminal contempt proceedings for failure to comply with a request to divulge such information from duly constituted 30 authorities, or when so requested by the Trust. In providing services in accordance with this paragraph 2, the Sub-Advisor will supervise the Funds' investments and conduct a continual program of investment, evaluation and, if appropriate, sale and reinvestment of the Funds' assets. In addition, the Sub-Advisor will furnish the Funds or WM Advisors with whatever statistical information the Funds or WM Advisors may reasonably request with respect to the instruments that the Funds may hold or contemplate purchasing. 3. BROKERAGE In executing transactions for the Funds and selecting brokers or dealers, the Sub-Advisor will use its best efforts to seek the best overall terms available and shall execute or direct the execution of all such transactions in a manner permitted by law and in a manner that is in the best interest of the Funds and their shareholders. In assessing the best overall terms available for any Fund transactions, the Sub-Advisor will consider all factors it deems relevant including, but not limited to, breadth of the market in the security, the price of the security, the financial condition and execution capability of the broker or dealer and the reasonableness of any commission for the specific transaction and on a continuing basis. Pursuant to its investment determinations for the Funds, in placing orders with brokers and dealers, the Sub-Advisor will attempt to obtain the best net price and the most favorable execution of its orders. Consistent with this obligation, when the execution and price offered by two or more brokers or dealers are comparable, the Sub-Advisor may, in its discretion, purchase and sell portfolio securities to and from brokers and dealers who provide the Trust with research advice and other services. 4. INFORMATION PROVIDED TO THE TRUST The Sub-Advisor will keep the Trust and WM Advisors informed of developments the Sub-Advisor determines may materially affect the Funds, and will on its own initiative, furnish the Trust and WM Advisors on at least a quarterly basis with whatever information the Sub-Advisor believes is appropriate for this purpose. 5. STANDARD OF CARE The Sub-Advisor shall exercise its best judgment in rendering the services described in paragraphs 2 through 4 above. The Sub-Advisor shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Funds in connection with the matters to which this Agreement relates, except (a) a loss resulting from a breach of fiduciary duty with respect to the receipt of compensation for services (in which case any award of damages shall be limited to the period and the amount set forth in Section 36(b)(3) of the 1940 Act), or (b) a loss resulting from willful misfeasance, bad faith or negligence on its part in the performance of its duties or from reckless disregard by it of its obligations and duties under this Agreement (each such breach, act or omission described in (a) or (b) of this paragraph 5 shall be referred to as "Disqualifying Conduct"). 6. COMPENSATION In consideration of the services rendered pursuant to this Agreement, the Trust will pay the Sub-Advisor on the first business day of each month a fee for the previous month according to the schedule of the fees detailed in Annex A attached to this Agreement. Upon any termination of this Agreement before the end of a month, the fee for such part of that month shall be prorated according to the proportion that such period bears to the full monthly period and shall be payable upon the date of termination of this Agreement. For the purpose of determining fees payable to the Sub-Advisor, the value of the Funds' net assets shall be computed at the times and in the manner specified in the 31 Funds' Prospectus or Statement of Additional Information relating to the Funds as from time to time in effect. The Sub-Advisor shall not be entitled to any other fees other than as set forth in this paragraph 6. 7. EXPENSES The Sub-Advisor will bear all expenses in connection with the performance of its services under this Agreement, which expenses shall not include brokerage fees or commissions in connection with the effectuation of securities transactions. The Trust will bear certain other expenses to be incurred in its operation, including but not limited to: organizational expenses, taxes, interest, brokerage fees and commissions, if any; fees of trustees of the Trust who are not officers, directors or employees of the Sub-Advisor, WM Advisors, or any of their affiliates; Securities and Exchange Commission fees and state Blue Sky qualification fees; out-of-pocket expenses of custodians, transfer and dividend disbursing agents and transaction charges of custodians; insurance premiums; outside auditing and legal expenses; costs of maintenance of the Trust's existence; costs attributable to investor services, including without limitation, telephone and personnel expenses; costs of preparing and printing prospectuses and statements of additional information for regulatory purposes and for distribution to existing shareholders; costs of shareholders' reports and meetings of the shareholders of the Funds and of the officers or Board of Trustees of the Trust; and any extraordinary expenses. In addition, the Funds pay a distribution fee pursuant to the terms of a Distribution Plan adopted under Rule 12b-1 of the 1940 Act. 8. SERVICES TO OTHER COMPANIES OR ACCOUNTS WM Advisors understands that the Sub-Advisor now acts, will continue to act and may act in the future as investment adviser to fiduciary and other managed accounts and as investment adviser to one or more other investment companies or series investment companies, and WM Advisors has no objection to the Sub-Advisor so acting, provided that whenever the Funds and one or more other accounts or investment companies advised by the Sub-Advisor have available funds for investment, investments suitable and appropriate for each will be allocated in accordance with procedures believed to be equitable to each entity. Similarly, opportunities to sell securities will be allocated in an equitable manner. WM Advisors recognizes that in some cases this procedure may limit the size of the position that may be acquired or disposed of for the Funds. In addition, WM Advisors understands that the persons employed by the Sub-Advisor to assist in the performance of the Sub-Advisor's duties under this Agreement will not devote their full time to such service and nothing contained herein shall be deemed to limit or restrict the right of the Sub-Advisor or any affiliate of the Sub-Advisor to engage in and devote time and attention to other business or to render services of whatever kind or nature. 9. TERM OF AGREEMENT This Agreement shall become effective as of the date first written above, shall continue for a period of one year thereafter, and shall continue in effect for a period of more than one year thereafter with respect to a Fund only so long as such continuance is specifically approved at least annually by (a) the Board of Trustees of the Trust or (b) a vote of a "Majority of the outstanding voting securities" (as defined in the 1940 Act) of the Fund, provided that in either event the continuance is also approved by a majority of the Board of Trustees who are not "interested persons" (as defined in the 1940 Act) of any party to this Agreement, by vote cast in person at a meeting called for the purpose of voting on such approval. This Agreement is terminable with respect to a Fund, without penalty, on 30 days' written notice, by WM Advisors, the Board of Trustees of the Trust or by vote of holders of a majority of the Fund's shares, or upon 90 days' written notice, by the Sub-Advisor and will terminate automatically upon any termination of the advisory agreement between the Trust and WM Advisors. In addition, this Agreement will also terminate 32 automatically in the event of its assignment (as defined in the 1940 Act). The Sub-Advisor agrees to notify the Trust of any circumstances that might result in this Agreement being deemed to be assigned. 10. REPRESENTATIONS OF THE TRUST, WM ADVISORS AND THE SUB-ADVISOR The Trust and WM Advisors represent that (a) a copy of the Trust's Agreement and Declaration of Trust, dated September 19, 1997, together with all amendments thereto, is on file in the office of the Secretary of the Commonwealth of Massachusetts, (b) the appointment of the Sub-Advisor has been duly authorized, (c) WM Advisors is authorized to perform the services in this Agreement and has acted and will continue to act in conformity with the 1940 Act and other applicable laws, and (d) the Trust is authorized to make the payments described in this Agreement. The Sub-Advisor represents that it is authorized to perform the services described in this Agreement. 11. INDEMNIFICATION WM Advisors shall indemnify and hold harmless the Sub-Advisor from and against any and all claims, losses, liabilities or damages (including reasonable attorneys' fees and other related expenses), howsoever arising from or in connection with this Agreement or the performance by the Sub-Advisor of its duties under this Agreement; provided, however, that nothing contained in this Agreement shall require that the Sub-Advisor be indemnified for Disqualifying Conduct. 12. AMENDMENT OF THIS AGREEMENT No provision of this Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought. 13. ENTIRE AGREEMENT This Agreement constitutes the entire agreement between the parties to this Agreement. 14. GOVERNING LAW This Agreement shall be governed in accordance with the laws of The Commonwealth of Massachusetts. 15. AGREEMENT AND DECLARATION OF TRUST AND LIMITATION OF LIABILITY A copy of the Agreement and Declaration of Trust of the Trust is on file with the Secretary of State of The Commonwealth of Massachusetts, and notice is hereby given that this Agreement is executed by an officer of the Trust on behalf of the Trustees of the Trust, as trustees and not individually, and on further behalf of the Funds, that the obligations of this Agreement shall be binding upon the assets and properties of a Fund only and shall not be binding upon the assets and properties of any other series of the Trust or upon any of the Trustees, officers, employees, agents or shareholders of the Fund or the Trust individually. * * * * * [The remainder of this page has intentionally been left blank.] 33 If the foregoing accurately sets forth our agreement, kindly indicate your acceptance of the terms and conditions of this Agreement by signing and returning the enclosed copy of this Agreement. Very truly yours, WM TRUST I Dated: 11/30/2003 By: ------------------------------------ Name: William Papesh Title: President WM ADVISORS, INC. Dated: 11/30/2003 By: ------------------------------------ Name: William Papesh Title: President Accepted: VAN KAMPEN ASSET MANAGEMENT Dated: 11/30/2003 By: ------------------------------------ Name: Ed Wood Title: Managing Director ANNEX A For the services provided and expenses assumed pursuant to the Agreement, the Sub-Advisor will be paid a monthly fee, absent fee waivers, based upon each Fund's average daily net assets, at an annual rate as follows: Tax-Exempt Bond Fund............................................... 0.10% 34 EX-99.D2.A 7 v15673exv99wd2wa.txt EXHIBIT 99.(D)(2)(A) (D)(2)(A) WM TRUST II AMENDED AND RESTATED INVESTMENT MANAGEMENT AGREEMENT AMENDED AND RESTATED INVESTMENT MANAGEMENT AGREEMENT (this "Agreement"), dated as of November 1, 2005, amending and restating in its entirety the Investment Management Agreement dated March 20, 1998, as amended as of January 1, 1999 and May 11, 2004, between the WM Trust II, a Massachusetts business trust, (the "Trust"), on behalf of each of its series which are listed on the signature page of this Agreement (each referred to herein as a "Fund" and, collectively, the "Funds") and WM Advisors, Inc., a Washington corporation (the "Manager"). WITNESSETH WHEREAS, the Trust is an open-end series management investment company, registered under the Investment Company Act of 1940 (the "1940 Act"); and WHEREAS, the Trust, desires to retain the Manager to render investment management services to each Fund, and the Manager is willing to render such services; NOW, THEREFORE, in consideration of the premises and the mutual agreements herein contained, the parties hereto agree as follows: 1. Appointment. The Trust hereby appoints the Manager to act as investment manager to each Fund for the period and on the terms set forth in this Agreement. The Manager accepts such appointment and agrees to render the services herein described, for the compensation herein provided. 2. Management. Subject to the supervision of the Board of Trustees of the Trust, the Manager shall manage the investment operations of each Fund and the composition of each Fund's portfolio, including the purchase, retention and disposition of securities therefor, in accordance with the Fund's investment objectives, policies and restrictions as stated in the Prospectus and Statement of Additional Information (as such terms are hereinafter defined) and resolutions of the Trust's Board of Trustees and subject to the following understandings: (a) The Manager shall provide supervision of each Fund's investments, furnish a continuous investment program for each Fund's portfolio and determine from time to time what securities will be purchased, retained, or sold by each Fund, and what portion of the assets will be invested or held as cash. 35 (b) The Manager, in the performance of its duties and obligations under this Agreement, shall act in conformity with the Master Trust Agreement of the Trust and the investment policies of the Funds as determined by the Bo and of Trustees of the Trust. (c) The Manager shall determine the securities to be purchased or sold by each Fund and shall place orders for the purchase and sale of portfolio securities pursuant to its determinations with brokers or dealers selected by the Manager. In executing portfolio transactions and selecting brokers or dealers, the Manager shall use its best efforts to seek on behalf of each Fund the best overall terms available. In assessing the best overall terms available for any transaction, the Manager may consider all factors it deems relevant, including the breadth of the market in the security, the price of the security, the size of the transaction, the timing of the transaction, the reputation, financial condition, experience, and execution capability of a broker or dealer, the amount of commission, and the value of any brokerage and research services (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934, provide d by a broker or dealer. The Manager is authorized to pay to a broker or dealer who provides such brokerage and research services a commission for executing a portfolio transaction for a Fund which is in excess of the amount of commission another broker or dealer would have charged f or effecting the transaction if the Manager determines in good faith that such commission was reasonable in relation to the value of the brokerage and research services provided by such broker or dealer, viewed in terms of that particular transaction or in terms of the overall responsibilities of the Manager to the Fund and/or other accounts over which the Manager exercises investment discretion. (d) On occasions when the Manager deems the purchase or sale of a security to be in the best interest of a Fund as well as other fiduciary accounts for which it has investment responsibility, the Manager, to the extent permitted by applicable laws and regulations, may aggregate the securities to be so sold or purchased in order to obtain the best execution, most favorable net price or lower brokerage commissions. (e) Subject to the provisions of the Master Trust Agreement of the Trust and the 1940 Act, the Manager, a t its expense, may select and contract with one or more investment advisers (the "Subadviser") for each Fund to perform some or all of the ser vices for which it is responsible pursuant to this Section 2. In particular, for so long as a Subadviser meets the standard of care set forth in the relevant subadvisory agreement, which shall have been approved by the vote of the Trust's Board of Trustees including a majority of those members of the Board of Trustees who are not parties to such agreement or "interested persons" of any such party, cast in person at a meeting called for that purpose, and by vote of a majority of the outstanding voting securities of the Fund (each a "Subadvisory Agreement"), the Manager shall have no obligation to (i) furnish a continuous investment program for the Fund, (ii) determine from time to time what securities will be purchased, retained or sold by the Fund, and what portion of the Fund's 36 assets will be held as cash, or (iii) place orders for the purchase and sale of portfolio securities for the Fund with brokers or dealers selected by the Manager; provided, however, that the Manager shall remain authorized to determine what securities or other property shall be purchased or sold by or for the Funds. The Manager may terminate the services of any Subadviser at any time in its sole discretion, and shall at such time assume the responsibilities of such Subadviser unless and until a successor Subadviser is selected. To the extent that more than one Subadviser is selected, the Manager shall, in its sole discretion, determine the amount of the Fund's assets allocated to each such Subadviser. The Manager agrees to indemnify and hold the Trust harmless from and against any and all claims, costs, expenses (including attorneys' fees), losses, damages, charges, payments and liabilities of any sort or kind which may be asserted against the Trust or for which the Trust may be liable arising out of or attributable to any actual or alleged failure of a Subadviser to meet the standard of care set forth in the relevant Subadvisory Agreement. 3. Services Not Exclusive. The investment management services rendered by the Manager hereunder to the Funds are not to be deemed exclusive, and the Manager shall have the right to render similar services to others, including, without limitation, other investment companies. 4. Expenses. During the term of this Agreement, the Manager shall pay all expenses incurred by it in connection with its activities under this Agreement including the salaries and expenses of any of the officers or employees of the Manager who act as officers, Trustees or employees of the Trust but excluding the cost of securities purchased for the Funds and the amount of any brokerage fees and commissions incurred in executing portfolio transactions for the Funds, and shall provide the Funds with suitable office space. Other expenses to be incurred in the operation of the Funds (other than those borne by any third party), including without limitation, taxes, interest, brokerage fees and commissions, fees of Trustees who are not officers, directors, or employees of the Manager, federal registration fees and state Blue Sky qualification fees, administration fees, bookkeeping, charges of custodians, transfer and dividend disbursing agents' fees, certain insurance premiums, industry association fees, outside auditing and legal expenses, costs of maintaining the Funds' or the Trust's existence, costs of independent pricing services, costs attributable to investor services (including, without limitation, telephone and personnel expenses), costs of preparing, printing and distributing prospectuses to existing shareholders, costs of stockholders' reports and meetings of shareholders and Trustees of the Funds or the Trust, as applicable, and any extraordinary expenses will be borne by the Fund. 5. Compensation. For the services provided pursuant to this Agreement, the Trust shall pay to the Manager as full compensation therefor a monthly fee computed on the average daily net assets at the annual rate f or each Fund as stated in Schedule A attached hereto minus the monthly fee payable by the Fund directly to its Subadviser or Subadvisers pursuant to the relevant Subadvisory Agreement(s), as applicable. The Trust acknowledges that the Manager, as agent for the Funds, will allocate a portion of the fee to WM Shareholder Services, Inc. for administrative services, portfolio accounting and 37 regulatory compliance systems. The Manager also from time to time and in such amounts as it shall determine in its sole discretion may allocate a portion of the fee to WM Funds Distributor, Inc. for facilitating distribution of the Fund. This payment would b e made from revenue which otherwise would be considered profit to the Manager for its ser vices. This disclosure is being ma de to the Trust solely for the purpose of conforming with requirements of the Washington Department of Revenue for exclusion of revenue from the Washington Business and Occupation Tax. 6. Limitation of Liability. The Manager shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Trust in connection with the matters to which this Agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on its part in the performance of its duties or from reckless disregard by it of its obligations and duties under this Agreement. 7. Delivery of Documents. The Trust has heretofore delivered to the Manager true and complete copies of each of the following documents and shall promptly deliver t o it all future amendments and supplements thereto, if any: (a) Master Trust Agreement as presently in effect and as amended from time to time; (b) Bylaws of the Trust; (c) Registration Statement under the Securities Act of 1933 and under the 1940 Act of the Trust on Form N-lA, and all amendments thereto, as filed with the Securities and Exchange Commission (the "Registration Statement") relating to the Trust and the shares of the Funds; (d) Notification of Registration of the Trust under the 1940 Act on Form N-8A; (e) Prospectuses of the Trust relating to shares of the Funds (such prospectuses as presently in effect an d/or as amended or supplemented from time to time, the "Prospectus"); and (f) Statement of Additional Information of the Trust relating to shares of the Funds (such statement as presently in effect and/or as amended or supplemented from time to time, the "Statement of Additional Information"). 8. Duration and Termination. This Agreement shall become effective as of the date first above-written f or an initial period of two years and shall continue thereafter so long as such continuance is specifically approved at least annually (a) by the vote of the Board of Trustees including a majority of those members of the Trust's Boa rd of Trustees who are not parties to this Agreement or "interested persons" of any such party, cast in person at a meeting called for that purpose, or by vote of a majority of the outstanding voting securities of each Fund. Notwithstanding the foregoing, (a) this Agreement may be terminated with respect to any Fund at any time, without the payment of any penalty, by either the Trust (by vote of the Trust's Board of Trustees or by vote of a majority of the 38 outstanding voting securities of the Fund) or the Manager, on sixty (60) days prior written notice to the other and (b) shall automatically terminate in the event of its assignment. As used in this Agreement, the terms "majority of the outstanding voting securities," "interested persons" and "assignment" shall have the meanings assigned to such terms in the 1940 Act. 9. Amendments. No provision of this Agreement may be amended, modified, waived or supplemented except by a written instrument signed by the party against which enforcement is sought. No amendment of this Agreement shall be effective until approved in accordance with any applicable provisions of the 1940 Act. 10. Use of Name and Logo. The Trust agrees that it shall furnish to the Manager, prior to any use or distribution thereof, copies of all prospectuses, statements of additional information, proxy statements, reports to stockholders, sales literature, advertisements, and other material prepared for distribution to stockholders of the Trust or to the public, which in any way refer to or describe the Manager or which include any trade names, trademarks or logos of the Manager or of any affiliate of the Manager. The Trust further agrees that it shall not use or distribute any such material if the Manager reasonably objects in writing to such use or distribution within five (5) business days after the date such material is furnished to the Manager. The Manager and/or its affiliates own the names "WM" and "WM Group of Funds" and any other names which may be listed from time to time on a Schedule B to be attached hereto that they may develop for use in connection with the Trust, which names may be used by the Trust only with the consent of the Manager and/or its affiliates. The Manager, on behalf of itself and/or its affiliates, consents to the use by the Trust of such names or any other names embodying such names, but only on condition and so long as (i) this Agreement shall remain in full force, (ii) the Fund and the Trust shall fully perform, fulfill and comply with all provisions of this Agreement expressed herein to be performed, fulfilled or complied with by it, and (iii) the Manager is the manager of each Fund of the Trust. No such name shall be used by the Trust at any time or in any place or for any purposes or under any conditions except as provided in this section. The foregoing authorization by the Manager, on behalf of itself and/or its affiliates, the Trust to use such names as part of a business or name is not exclusive of the right of the Manager and/or its affiliates themselves to use, or to authorize others to use, the same; each Fund and the Trust acknowledges and agrees that as between the Manager and/or its affiliates and a Fund or the Trust, the Manager and/or its affiliates have the exclusive right so to use, or authorize others to use, such names, and the Trust agrees to take such action as may reasonably be requested by the Manager, on behalf of itself and/or its affiliates, to give full effect to the provisions of this section (including, without limitation, consenting to such use of such names). Without limiting the generality of the foregoing, the Trust agrees that, upon (i) any violation of the provisions of this Agreement by the Trust or (ii) any termination of this Agreement, by either party or otherwise, the Trust will, at the request of the Manager, on behalf of itself and/or its affiliates, made within six months after such violation or termination, use its best efforts to change the name of the Trust so as to eliminate all reference, if any, to such names and will not thereafter transact any business in a name containing such names in any form or 39 combination whatsoever, or designate itself as the same entity as or successor to an entity of such names, or otherwise use such names or any other reference to the Manager and/or its affiliates, except as may be required by law. Such covenants on the part of the Trust shall be binding upon it, its Trustees, officers, shareholders, creditors and all of her persons claiming under or through it. The provisions of this section shall survive termination of this Agreement. 11. Notices. Any notice or other communication required to be given pursuant to this Agreement shall be deemed duly given if delivered or mailed by registered mail, postage prepaid, if to the Trust: 1201 Third Avenue, Suite 1220, Seattle, Washington 98101; or if to the Manager: 1201 Third Avenue, Suite 1220, Seattle, Washington 98101; or to either party at such other address as such party shall designate to the other by a notice given in accordance with the provisions of this section. 12. Miscellaneous. (a) Except as otherwise expressly provided herein or authorized by the Board of Trustees of the Trust from time to time, the Manager for all purposes herein shall be deemed to be an independent contractor and shall have no authority to act for or represent the Trust in any way or otherwise be deemed an agent of the Trust. (b) The Trust shall furnish or otherwise make available to the Manager such information relating to the business affairs of the Trust as the Manager at any time or from time to time reasonably requests in order to discharge its obligations hereunder. (c) This Agreement shall be governed by and construed in accordance with the laws of The Common wealth of Massachusetts and shall inure to the benefit of the parties hereto and their respective successors. (d) If any provision of this Agreement shall be held or made invalid or by any court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected there by. 13. Declaration of Trust and Limitation of Liability. A copy of the Master Trust Agreement of the Trust is on file with the Secretary of State of The Commonwealth of Massachusetts, and notice is hereby given that this Agreement is executed by an officer of the Trust on behalf of the Trustees of the Trust, as trustees and not individually, on further be half of the Funds, and that the obligations of this Agreement with respect to a Fund shall be binding upon the assets and properties of that Fund only and shall not be binding upon the assets and properties of any other Fund or series of the Trust or up on any of the Trustees, officers, employees, agents or shareholders of the Funds or the Trust individually. [The remainder of this page has intentionally been left blank.] 40 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their officers designated below as of the date first above-written. WM TRUST II, on behalf of its series GROWTH FUND, SHORT TERM INCOME FUND, INTERNATIONAL GROWTH FUND, CALIFORNIA MUNICIPAL FUND, CALIFORNIA INSURED INTERM EDIATE MUNICIPAL FUND, CALIFORNIA MONEY FUND, and SMALL CAP STOCK FUND By: ------------------------------------ Name: William G. Papesh Title: President Attest: By: --------------------------------- Name: John T. West Title: Secretary WM ADVISORS, INC. By: ------------------------------------ Name: William G. Papesh Title: President Attest: By: --------------------------------- Name: Sharon L. Howells Title: Secretary 41 SCHEDULE A - WM TRUST II AMENDED AND RESTATED INVESTMENT MANAGEMENT AGREEMENT The fees to be charged to WM Trust II for services provided under this Agreement (including any sub-advisory fees) are as follows:
FUND FEE ---- --- California Municipal Fund Monthly fee equal to .50% per annum computed California Insured Intermediate on the average daily net assets of the Fund; Municipal Fund on assets in excess of $1 billion, the fee decreases to .45% per annum. Growth Fund Monthly fee computed on the average daily net assets of the Fund equal to .75% per annum on the first $500 million of assets; .70% per annum on the next $1.5 billion of assets; .65% per annum on the next $1 billion of assets and .60% per annum on assets in excess of $3 billion. Small Cap Growth Fund Monthly fee computed on the average daily net assets of the Fund equal to .85% per annum on the first $500 million of assets; .75% on the next $2.5 billion of assets and .70% on assets in excess of $3 billion. International Growth Fund Monthly fee computed on the average daily net assets of the Fund equal to 1.00% per annum on the first $125 million of assets; .80% per annum on the next $875 million; .75% per annum on the next $2 billion and .70% per annum on assets in excess of $3 billion. Short Term Income Fund Monthly fee computed on the average daily net assets of the Fund equal to .50% per annum on the first $200 million of assets; .45% per annum on the next $300 million; .40% per annum on assets in excess of $500 million and above.
42 EX-99.D2.D 8 v15673exv99wd2wd.txt EXHIBIT 99.(D)(2)(D) (d)(2)(D) INVESTMENT SUB-ADVISORY AGREEMENT THE GROWTH FUND OF WM TRUST II EFFECTIVE AS OF DECEMBER 1, 2005 This Agreement is made and entered into as of this first day of December, 2005, among WM Advisors, Inc. ("WM Advisors"), a corporation organized under the laws of the state of Washington, WM Trust II, a business trust formed under the laws of the Commonwealth of Massachusetts (the "Trust"), on behalf of its Growth Fund series (the "Fund"), and Salomon Brothers Asset Management (the "Sub-Advisor"), a corporation organized under the laws of the state of Delaware. Whereas, the Trust is engaged in business as an open-end, management investment company and is so registered under the Investment Company Act of 1940, as amended (the "1940 Act"); Whereas, the Trust offers a number of investment portfolios, each with its own investment objective and strategies, and of which one investment portfolio is the Fund; Whereas, WM Advisors is engaged in the business of rendering investment advisory and management services, is registered as an investment adviser under the Investment Advisers Act of 1940, as amended (the "Advisers Act"), and is the investment advisor of the Fund; Whereas, the Sub-Advisor is engaged in the business of rendering investment advisory and management services and is registered as an investment adviser under the Advisers Act; and Whereas, WM Advisors desires to retain the Sub-Advisor to furnish investment advisory and management services to the Fund and the Sub-Advisor is willing to furnish such services; NOW, THEREFORE, in consideration of the mutual agreements herein contained, it is hereby agreed by and between the parties hereto as follows: 1. Investment Description; Appointment WM Advisors desires to employ such portion of the capital of the Fund as may from time to time be determined by WM Advisors by investing and reinvesting in investments of the kind and in accordance with the limitations specified in the Trust's Master Trust Agreement, as amended, and in the Prospectus and Statement of Additional Information relating to the Fund as in effect and which may be amended from time to 43 time, and in such manner and to such extent as may from time to time be approved by the Board of Trustees of the Trust. Copies of the Fund's Prospectus and Statement of Additional Information and the Trust's Master Trust Agreement, as amended, have been or will be submitted to the Sub-Advisor. WM Advisors agrees to provide copies of all amendments or supplements to the Fund's Prospectus and Statement of Additional Information and the Trust's Master Trust Agreement to the Sub-Advisor during the continuance of this Agreement before or at the time such amendments or supplements become effective. Until WM Advisors delivers any such amendment or supplement to the Sub-Advisor, the Sub-Advisor shall be fully protected in relying on the Prospectus and Statement of Additional information and any supplements thereto previously furnished to the Sub-Advisor. WM Advisors agrees to furnish the Sub-Advisor with minutes of meetings of the Board of Trustees of the Trust to the extent they may affect the duties of the Sub-Advisor, a certified copy of any financial statements or reports prepared for the Fund by certified or independent public accountants, and with copies of any financial statements or reports made by the Fund to its shareholders or to any governmental body or securities exchange, and any further materials or information which the Sub-Advisor may reasonably request to enable it to perform its functions under this Agreement. WM Advisors desires to employ and hereby appoints the Sub-Advisor to act as investment sub-advisor to the Fund. The Sub-Advisor accepts the appointment and agrees to furnish the services described herein for the compensation set forth below. 2. Services as Investment Sub-Advisor Subject to the supervision of the Board of Trustees of the Trust and of WM Advisors, the Fund's investment adviser, the Sub-Advisor will, with respect to the portion of the Fund allocated to the Sub-Advisor by WM Advisors, (a) maintain compliance procedures that the Sub-Advisor believes are adequate to ensure its compliance with the applicable provisions of the 1940 Act, and the Advisers Act, as the same may from time to time be amended; (b) comply with the applicable provisions of the Trust's Master Trust Agreement; (c) make investment decisions in accordance with the Fund's investment objectives and policies as stated in the Fund's Prospectus and Statement of Additional Information as in effect and, after notice to the Sub-Advisor, and which may be amended from time to time; (d) place purchase and sale orders on behalf of the Fund to effectuate the investment decisions made; (e) maintain books and records with respect to the securities transactions of the Fund in accordance with the 1940 Act and the Advisers Act and the rules adopted thereunder and will furnish to the Trust's Board of Trustees or WM Advisors such quarterly, annual and special reports as the Board or WM Advisors may reasonably request; and (f) treat confidentially and as proprietary information of the Trust, all records and other information relative to the Trust and prior, present or potential shareholders; and will not knowingly use such records and information for any purpose other than performance of its responsibilities and duties hereunder, except after prior notification to and approval in writing by the Trust, which approval shall not be unreasonably withheld and such records may not be withheld where the Sub-Advisor may be exposed to civil or criminal contempt proceedings for 44 failure to comply, when requested to divulge such information by duly constituted authorities, or when so requested by the Trust. In providing those services, the Sub-Advisor will supervise the Fund's investments and conduct a continuous program of investment, evaluation and, if appropriate, sale and reinvestment of the Fund's assets. The Sub-Advisor has responsibility for providing investment services and advice only with respect to such discrete portion of the Fund as may from time to time be allocated to the Sub-Advisor by WM Advisors. Subject to the supervision of WM Advisors and in accordance with the investment objectives and policies as stated in the Fund's Prospectus and Statement of Additional Information, the Sub-Advisor is authorized, in its discretion and without prior consultation with WM Advisors, to buy, sell, lend and otherwise trade in any stocks, bonds, and other securities and investment instruments on behalf of the Fund, without regard to the length of time the securities have been held and the resulting rate of portfolio turnover or any tax considerations, and so long as consistent with the foregoing, the majority or the whole of the Fund may be invested in such proportions of stocks, bonds, other securities or investment instruments, or cash as the Sub-Advisor shall determine. In addition, the Sub-Advisor will furnish the Fund or WM Advisors with whatever statistical information the Fund or WM Advisors may reasonably request with respect to the investments that the Fund may hold or contemplate purchasing. The Sub-Advisor will not consult with any other sub-advisors of any other funds within the Trust (or any sub-advisors with respect to any other portion of the Fund) concerning the transactions in securities or other assets of the Fund or any other funds of the Trust other than for purposes of complying with the conditions of paragraphs (a) and (b) of Rule 12d3-1 under the 1940 Act. 3. Brokerage Subject to (i) the over-riding objective of obtaining the best possible execution of orders; and (ii) review and approval of WM Advisors and/or the Board of Trustees of the Trust, which may be conducted as often as quarterly, the Sub-Advisor shall place all orders for the purchase and sale of securities for the Fund with brokers or dealers selected by the Sub-Advisor, which may include brokers or dealers affiliated with the Sub-Advisor. All transactions with any affiliated person of the Trust, or where any such affiliated person acts as broker or agent in connection with any such transaction, shall be accomplished in compliance with the 1940 Act, the Advisers Act, the Securities Exchange Act of 1934, as amended, the rules adopted thereunder and the procedures adopted thereunder by the Trust. Purchase or sell orders for the Fund may be aggregated with contemporaneous purchase or sell orders of other clients of the Sub-Advisor; provided that (i) no advisory account will be favored by the Sub-Advisor over any other account; (ii) each client of the Sub-Advisor who participates in such an aggregated order will participate at the average share price, with all transaction costs shared on a pro rata basis; (iii) only advisory clients' transactions will be aggregated for such an aggregated order; and (iv) the accounts of clients whose orders are aggregated will be segregated on the Sub-Advisor's books and records so as to identify the particular client who has the beneficial interest therein. The Sub-Advisor shall use its best efforts to obtain execution of Fund transactions at prices which are advantageous to the Fund and at commission rates that are reasonable in relation to the benefits received. However, the Sub-Advisor 45 may select brokers or dealers on the basis that they provide brokerage, research, or other services or products to the Fund and/or other accounts serviced by the Sub-Advisor. The Sub-Advisor may pay a broker or dealer an amount of commission for effecting a securities transaction in excess of the amount of commission or dealer spread another broker or dealer would have charged for effecting that transaction if the Sub-Advisor determines in good faith that such amount of commission was reasonable in relation to the value of the brokerage and research products and/or services provided by such broker or dealer. This determination, with respect to brokerage and research services or products, may be viewed in terms of either that particular transaction or the overall responsibilities which the Sub-Advisor and its affiliates have with respect to the Fund and to accounts over which they exercise investment discretion, and not all such services or products may be used by the Sub-Advisor in managing the Fund; provided that with respect to such transaction and such determination the affiliates of the Sub-Advisor shall have the same responsibilities to the Fund as the Sub-Advisor has under this Agreement. 4. Information Provided to WM Advisors and the Trust The Sub-Advisor will keep the Trust and WM Advisors informed of developments materially affecting the Fund of which the Sub-Advisor becomes aware and will, on its own initiative, furnish the Trust and WM Advisors on at least a quarterly basis with whatever information the Sub-Advisor believes is appropriate for this purpose. 5. Standard of Care The Sub-Advisor shall exercise its best judgment in rendering the services described in paragraphs 2 and 3 above. Except as may otherwise be provided by federal securities laws, the Sub-Advisor shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Fund in connection with the matters to which this Agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on its part in the performance of its duties or from reckless disregard by it of its obligations and duties under this Agreement (the conduct excepted in this sentence shall be referred to as "Disqualifying Conduct"). 46 6. Compensation In consideration of the services rendered pursuant to this Agreement, the Trust, on behalf of the Fund, will pay the Sub-Advisor on the first business day of each month a fee for the previous month according to the schedule of fees detailed in Annex A attached to this Agreement. Upon any termination of this Agreement before the end of a month, the fee for such part of that month shall be prorated according to the proportion that such period bears to the full monthly period and shall be payable upon the date of termination of this Agreement. For the purpose of determining fees payable to the Sub-Advisor, the value of the Fund's net assets under management by the Sub-Advisor shall be computed at the times and in the manner specified in the Fund's Prospectus or Statement of Additional Information relating to the Fund as from time to time in effect. 7. Expenses The Sub-Advisor will bear all of its expenses in performing its services under this Agreement, which expenses shall not include brokerage fees or commissions in connection with the effectuation of securities transactions. The Sub-Advisor shall not be required to bear any expenses of the Trust, the Fund or WM Advisors. The Trust will bear certain other expenses to be incurred in its operation, including but not limited to: organizational expenses, taxes, interest, brokerage fees and commissions, if any; fees of trustees of the Trust who are not officers, directors or employees of the Sub-Advisor, WM Advisors, or any of their affiliates; Securities and Exchange Commission fees and state Blue Sky qualification fees; all fees, including out-of-pocket expenses of custodians, transfer and dividend disbursing agents and transaction charges of custodians; insurance premiums; outside auditing and legal expenses; costs of maintenance of the Trust's existence; costs attributable to investor services, including without limitation, telephone and personnel expenses; costs of preparing and printing prospectuses and statements of additional information for regulatory purposes and for distribution to existing shareholders; costs of shareholders' reports and meetings of the shareholders of the Fund and of the officers or Board of Trustees of the Trust; and any extraordinary expenses. In addition, the Fund pays a distribution fee pursuant to the terms of a Distribution Plan adopted under Rule 12b-1 of the 1940 Act. Any reimbursement of advisory fees required by any expense limitation provision shall be the sole responsibility of WM Advisors. 8. Services to Other Companies or Accounts WM Advisors understands that the Sub-Advisor now acts, will continue to act and may act in the future as investment adviser to fiduciary and other managed accounts and as investment adviser to one or more other investment companies or series of investment companies, and WM Advisors has no objection to the Sub-Advisor so acting, provided that whenever the Fund and one or more other accounts or investment companies advised by the Sub-Advisor have available funds for investment, investments suitable and appropriate for each will be allocated in accordance with procedures reasonably believed to be equitable to each entity. Similarly, opportunities to sell securities will be allocated in an equitable manner. WM Advisors recognizes that in some cases this procedure may 47 limit the size of the position that may be acquired or disposed of for the Fund. In addition, WM Advisors understands that the persons employed by the Sub-Advisor to assist in the performance of the Sub-Advisor's duties hereunder will not devote their full time to such service and nothing contained herein shall be deemed to limit or restrict the right of the Sub-Advisor or any affiliate of the Sub-Advisor to engage in and devote time and attention to other business or to render services of whatever kind or nature. WM Advisors recognizes and agrees that the Sub-Advisor may provide advice to other clients which may differ from or be identical to advice given with respect to the Fund. 9. Term of Agreement Except as otherwise provided below, this Agreement shall become effective as of the date first written above, shall continue for a period of two years thereafter, and shall continue in effect for a period of more than two years thereafter only so long as such continuance is specifically approved at least annually by (a) the Board of Trustees of the Trust or (b) a vote of a "majority" (as defined in the 1940 Act) of the Fund's outstanding voting securities, provided that in either event the continuance is also approved by a majority of the Board of Trustees who are not "interested persons" (as defined in the 1940 Act) of any party to this Agreement, by vote cast in person at a meeting called for the purpose of voting on such approval. This Agreement is terminable, without penalty, on 30 days' written notice, by WM Advisors, the Board of Trustees for the Trust or by vote of holders of a majority of the Fund's shares, or upon 60 days' written notice by the Sub-Advisor and will terminate automatically upon any termination of the advisory agreement between the Trust and WM Advisors. In addition, this Agreement will also terminate automatically in the event of its assignment (as defined in the 1940 Act). The Sub-Advisor agrees to notify the Trust of any circumstances that, to its best knowledge and belief, might result in this Agreement being deemed to be assigned. 10. Representations of the Trust, WM Advisors and the Sub-Advisor The Trust represents that (a) a copy of the Trust's Master Trust Agreement, dated February 22, 1989, together with all amendments thereto, is on file in the office of the Secretary of the Commonwealth of Massachusetts, and (b) it has acted and will continue to act in conformity with the 1940 Act and other applicable laws. WM Advisors represents that (a) the appointment of the Sub-Advisor has been duly authorized; (b) it has acted and will continue to act in conformity with the 1940 Act and other applicable laws, and (c) it is authorized to perform the services herein. The Sub-Advisor represents that (a) it is authorized to perform the services described herein, and (b) it has acted and will continue to act in conformity with the 1940 Act and other applicable laws. 48 11. Indemnification WM Advisors shall indemnify and hold harmless the Sub-Advisor from and against any and all claims, losses, liabilities or damages (including reasonable attorneys' fees and other related expenses), howsoever arising from or in connection with this Agreement or the performance by the Sub-Advisor of its duties hereunder; provided, however, that nothing contained herein shall require that the Sub-Advisor be indemnified for Disqualifying Conduct. Sub-Advisor shall indemnify and hold harmless WM Advisors and the Fund from and against any and all claims, losses, liabilities or damages (including reasonable attorneys' fees and other related expenses), howsoever arising from or in connection with this Agreement attributable to Disqualifying Conduct. 12. Amendment of this Agreement No provision of this Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought. 13. Use of Names The parties agree and acknowledge that the Sub-Advisor is the sole owner of the name and mark " Salomon Brothers Asset Management Inc " and that all use of any designation comprised in whole or part of Salomon Brothers Asset Management Inc and use of any logos, trademarks, service marks or trade names (a "Sub-Advisor Mark") under this Agreement shall inure to the benefit of the Sub-Advisor. The use by the Trust on its own behalf or on behalf of the Fund of any Sub-Advisor Mark in any advertisement or sales literature or other materials promoting the Fund shall be with the written consent of the Sub-Advisor. The Trust and WM Advisors shall not, without the consent of the Sub-Advisor, make representations regarding the Sub-Advisor intended to be disseminated to the investing public in any disclosure document, advertisement or sales literature or other materials promoting the Fund. Such consent shall not be required for any documents or other materials intended for use by the Trust's trustees and for internal use by the Trust and WM Advisors or its affiliates. WM Advisors agrees that it will review with the Sub-Advisor any advertisement, sales literature, or notice (collectively, "Sales Material") prepared by WM Advisors or any affiliate prior to its use that makes reference to the Sub-Advisor or its affiliates or any such name(s), derivatives, logos, trademarks, service marks or trade names, it being understood that the Sub-Advisor shall have no responsibility to ensure the adequacy of the form or content of such materials for purposes of the 1940 Act or other applicable laws and regulations. Notwithstanding the foregoing, Sub-Advisor shall be responsible for ensuring the adequacy and accuracy of information about Sub-Advisor provided to WM Advisors or its affiliates for use in Sales Material prepared by WM Advisors or its affiliates. Consent by the Sub-Advisor to such use of any Sub-Advisor Mark and any such representation shall not be unreasonably withheld and shall be deemed to be given if no written objection is received by the Trust, 49 the Fund or WM Advisors within 5 business days after the request is made by the Trust, the Fund or WM Advisors for such use of any Sub-Advisor Mark or any such representation. Upon termination of this Agreement for any reason, the Trust and WM Advisors shall cease all use of any Sub-Advisor Mark(s) as soon as reasonably practicable. If WM Advisors or the Fund makes an unauthorized use of the Sub-Advisor's names, derivatives, logos, trademarks, service marks or trade names, the parties acknowledge that the Sub-Advisor shall suffer irreparable hardship for which monetary damages are inadequate and thus, the Sub-Advisor will be entitled to injunctive relief. The Sub-Advisor agrees and acknowledges that (i) the Trust is the sole owner of the corporate name, associated good will and other rights in various jurisdictions of the name "WM Trust II" and (ii) WM Advisors is the sole owner of the name, associated good will and other rights in various jurisdictions of the name "WM Advisors, Inc." and that any and all use of any designation comprised in whole or in part of "WM Trust II" or "WM Advisors, Inc." (each a "WM Mark") under this Agreement shall inure to the benefit of the Trust or WM Advisors, respectively. The use by the Sub-Advisor on its own behalf of any WM Mark in any advertisement or sales literature or other materials promoting the Sub-Advisor shall be with the written consent of the Trust or WM Advisors, respectively. The Sub-Advisor shall not, without the consent of the Trust or WM Advisors, as applicable, make representations regarding the Trust, the Fund or WM Advisors in any disclosure document, advertisement or sales literature or other materials promoting the Sub-Advisor. Sub-Advisor agrees it will review with the Trust or WM Advisors, as applicable, any advertisement, sales literature, or other material prior to its use that makes reference to the Trust, WM Advisors, or any affiliates or any name(s), derivatives, logos, trademarks, service marks or trade names thereof, it being understood that neither the Trust nor WM Advisors shall have any responsibility to ensure the adequacy of the form or content of such materials for purposes of the 1940 Act or other applicable laws and regulations. Notwithstanding the foregoing, WM Advisors shall be responsible for ensuring the adequacy and accuracy of information about WM Advisors, its affiliates, the Trust or the Funds provided to Sub-Advisor for use in Sales Material prepared by Sub-Advisor. Consent by the Trust and WM Advisors to such use of any WM Mark and any such representations shall not be unreasonably withheld and shall be deemed to be given if no written objection is received by the Sub-Advisor within 5 business days after the request by the Sub-Advisor is made for such use of any WM Mark or any such representations. Upon termination of this Agreement for any reason, the Sub- Advisor shall cease any and all use of any WM Mark as soon as reasonably practicable. If Sub-Advisor makes an unauthorized use of the Trust's or WM Advisor's names, derivatives, logos, trademarks, service marks or trade names, the parties acknowledge that the Trust or WM Advisors, as applicable, shall suffer irreparable hardship for which monetary damages are inadequate and thus, the Trust or WM Advisors, as applicable, will be entitled to injunctive relief. 50 14. Declaration of Trust and Limitation of Liability A copy of the Master Trust Agreement of the Trust is on file with the Secretary of State of The Commonwealth of Massachusetts, and notice is hereby given that this Agreement is executed by an officer of the Trust on behalf of the Trustees of the Trust, as trustees and not individually, on further behalf of the Fund, and that the obligations of this Agreement with respect to the Fund shall be binding upon the assets and properties of the Fund only and shall not be binding upon the assets and properties of any other series of the Trust or upon any of the Trustees, officers, employees, agents or shareholders of the Fund or the Trust individually. 15. Entire Agreement; Amendment of Management Agreement This Agreement constitutes the entire agreement among the parties hereto, except that WM Advisors and the Trust are also parties to an Investment Management Agreement relating to the Fund dated May 11, 2004 as Amended and Restated (the "Management Agreement"). The Trust and WM Advisors hereby amend the Management Agreement, for so long as this Agreement shall remain in effect, to provide that: (a) The Trust, on behalf of the Fund, shall pay to WM Advisors a monthly fee equal to the excess, if any, of (i) the fee set forth in Section 5 of the Management Agreement (the "Management Fee") over (ii) the fee paid by the Fund under this Agreement or any other sub-advisory agreement with respect to the Fund; (b) WM Advisors shall not be entitled to any other fees under the Management Agreement with respect to the Fund; (c) The Trust acknowledges and agrees that, for so long as Sub-Advisor meets the standard of care set forth in this Agreement, WM Advisors shall have no obligation to (i) furnish a continuous investment program for the Fund, (ii) determine from time to time what securities will be purchased, retained or sold by the Fund, and what portion of the Fund's assets will be held as cash, or (iii) place orders for the purchase and sale of portfolio securities for the Fund with brokers or dealers selected by WM Advisors; (d) Notwithstanding this Agreement, WM Advisors remains authorized to determine what securities or other property shall be purchased or sold by or for the Fund; (e) In exchange for the fee paid by the Fund under the Management Agreement and in recognition of its obligation to select and monitor the Sub-Advisor, and not for the services provided by the Sub-Advisor pursuant to the Sub-Advisory Agreement, WM Advisors shall indemnify and hold the Trust harmless from and against any and all claims, costs, expenses (including attorneys' fees), losses, damages, charges, payments and liabilities of any sort or kind which may be asserted against the Trust or for which the Trust may be held liable arising out of or attributable to any actual or alleged failure of Sub-Advisor to meet the standard of care set forth in this Agreement. 51 16. Governing Law This Agreement shall be governed in accordance with the laws of The Commonwealth of Massachusetts. 17. Miscellaneous (a) Unless WM Advisors or the Trust gives the Sub-Advisor written instructions to the contrary, the Sub-Advisor shall vote all proxies solicited by or with respect to the issuers of securities in which assets of the Fund may be invested in accordance with the Sub-Advisor's policies and procedures. The Sub-Advisor shall use its best good faith judgment to vote such proxies in a manner which best serves the interests of the Fund's shareholders. (b) WM Advisors shall provide the Sub-Advisor with a copy of the Fund's agreement (the "Custody Agreement") with the Custodian (the "Custodian") designated to hold the assets of the Fund and any modification thereto in advance. The Fund's assets shall be maintained in the custody of the Custodian identified in, and in accordance with the terms and conditions of, the Custody Agreement. The Sub-Advisor shall have no liability for the acts or omissions of the Custodian. Any assets added to the portion of the Fund to be managed by the Sub-Advisor shall be delivered directly to the Custodian. (c) The Sub-Advisor may perform its services through any employee, officer or agent of the Sub-Advisor, and the Trust and the Fund shall not be entitled to the advice, recommendation, or judgment of any specific person. (d) Notwithstanding any other provision of this agreement to the contrary, if the shareholders of the Fund fail to approve this Agreement prior to the termination of the Investment Sub-Advisory Agreement dated as of March 1, 2005 among the Trust, on behalf of the Fund, WM Advisors and the Sub-Advisor (the "Existing Agreement"), the Sub-Advisor will continue to act as investment subadviser with respect to the Fund pending the required approval of this Agreement or of any contract with the Sub-Advisor for up to 150 days following the termination of the Existing Agreement; provided, that during such period (1) this Agreement shall be terminable without penalty by the Trust's Trustees or by a majority of the Fund's outstanding voting securities on 10 calendar days written notice to Sub-Advisor and (2) the compensation to be earned under this Agreement shall be held in an interest-bearing escrow account with the Fund's custodian or a bank and (i) if a majority of the Fund's outstanding voting securities approve a contract with the Sub-Advisor by the end of such period, the amount in the escrow account (including interest earned) will be paid to the Sub-Advisor, and (ii) if a majority of the Fund's outstanding voting securities do not approve a contract with the Sub-Advisor by the end of such period, the Sub-Advisor will be paid, out of the escrow account, the lesser of (x) any costs incurred in performing this Agreement (plus interest earned on that amount while in escrow) and (y) the total amount in the escrow account (plus interest earned). 52 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first written above. WM ADVISORS, INC. WM TRUST II, on behalf of its Growth Fund series By By ---------------------------------- ------------------------------------- Name: William G. Papesh Name: John T. West Title: President Title: First Vice President SALOMON BROTHERS ASSET MANAGEMENT INC By Dated: December 1, 2005 ---------------------------------- Name: Joel Sauber Title: Managing Director 53 ANNEX A 1. For purposes of calculating the fee to be paid to the Sub-Advisor under this Agreement: "Fund Assets" shall mean the net assets of the portion of the Fund managed by the Sub-Advisor; "Other Assets" shall mean the net assets of the portion of the Growth Fund series of WM Variable Trust managed by the Sub-Advisor. "Combined Assets" shall mean the sum of Fund Assets and Other Assets; and "Average Daily Net Fund Assets," "Average Daily Net Other Assets" and "Average Daily Net Combined Assets" shall mean the average of the value of the Fund Assets, Other Assets or Combined Assets, as the case may be, on each business day. 2. The Sub-Advisor fee shall be paid in arrears (within 10 days of month end) based upon the Average Daily Net Combined Assets during the preceding month. The fee payable for the month shall be calculated by applying the annual rate, as set forth in the fee schedule below, to the Average Daily Net Combined Assets, and dividing by twelve. The portion of the monthly fee to be paid by the Fund shall be prorated based upon the Average Daily Net Fund Assets as compared to the Average Daily Net Combined Assets. For a month in which this Agreement becomes effective or terminates, the portion of the Sub-Advisor fee due hereunder shall be prorated on the basis of the number of days that the Agreement is in effect during the month. 3. The following fee schedule shall be used to calculate the fee to be paid to the Sub-Advisor under this Agreement:
First Next Over $250 $250 $500 Million Million Million - ------- ------- ------- 0.400% 0.350% 0.300%
54 EX-99.D2.G 9 v15673exv99wd2wg.txt EXHIBIT 99.(D)(2)(G) (d)(2)(G) AMENDED AND RESTATED INVESTMENT SUB-ADVISORY AGREEMENT Effective as of November 30, 2003 Van Kampen Asset Management One Parkview Plaza Oakbrook Terrace, Illinois 60181 Ladies and Gentlemen: WM Trust II (the "Trust"), a Massachusetts business trust, WM Advisors, Inc. ("WM Advisors"), a corporation organized under the laws of the state of Washington, and Van Kampen Asset Management (the "Sub-Advisor"), a corporation organized under the laws of the state of Delaware, hereby agree as follows: 1. INVESTMENT DESCRIPTION; APPOINTMENT WM Advisors desires to employ the capital of the investment funds of the Trust listed on Annex A to this Agreement (individually, each a "Fund" and collectively, the "Funds") by investing and reinvesting in investments of the kind and in accordance with the limitations specified in the Trust's Master Trust Agreement, as amended, and in the Prospectus and Statement of Additional Information relating to the Funds as in effect and which may be amended from time to time, and in such manner and to such extent as may from time to time be approved by the Board of Trustees of the Trust. Copies of the Funds' Prospectus and Statement of Additional Information and the Trust's Master Trust Agreement, as amended, have been or will be submitted to the Sub-Advisor. WM Advisors agrees to provide copies of all amendments to the Funds' Prospectus and Statement of Additional Information and the Trust's Master Trust Agreement to the Sub-Advisor on an on-going basis. WM Advisors desires to employ and hereby appoints the Sub-Advisor to act as investment sub-advisor to the Funds. The Sub-Advisor accepts the appointment and agrees to furnish the services described in this Agreement for the compensation set forth below. 2. SERVICES AS INVESTMENT SUB-ADVISOR Subject to the supervision of the Board of Trustees of the Trust and of WM Advisors, the Funds' investment adviser, the Sub-Advisor will (a) act in conformity with the Trust's Master Trust Agreement, the Investment Company Act of 1940 (the "1940 Act"), the Investment Advisers Act of 1940 and the Internal Revenue Code of 1986, as the same may from time to time be amended; (b) make investment decisions for the Funds in accordance with the Funds' investment objectives and policies as stated in the Funds' Prospectus and Statement of Additional Information as in effect and, after notice to the Sub-Advisor, and which may be amended from time to time; (c) place purchase and sale orders on behalf of the Funds to effectuate the investment decisions made; (d) maintain books and records with respect to the securities transactions of the Funds and 55 will furnish to the Trust's Board of Trustees such periodic, regular and special reports as the Board may request; and (e) treat confidentially, and as proprietary information of the Trust, all records and other information relative to the Trust and prior, present or potential shareholders, and refrain from using such records and information for any purpose other than performance of its responsibilities and duties under this Agreement, except after prior notification to and approval in writing by the Trust, which approval shall not be unreasonably withheld, provided that the Sub-Advisor may divulge the information contained in or provide such records if the Sub-Advisor's withholding such information or records will expose the Sub-Advisor to civil or criminal contempt proceedings for failure to comply with a request to divulge such information from duly constituted authorities, or when so requested by the Trust. In providing services in accordance with this paragraph 2, the Sub-Advisor will supervise the Funds' investments and conduct a continual program of investment, evaluation and, if appropriate, sale and reinvestment of the Funds' assets. In addition, the Sub-Advisor will furnish the Funds or WM Advisors with whatever statistical information the Funds or WM Advisors may reasonably request with respect to the instruments that the Funds may hold or contemplate purchasing. 3. BROKERAGE In executing transactions for the Funds and selecting brokers or dealers, the Sub-Advisor will use its best efforts to seek the best overall terms available and shall execute or direct the execution of all such transactions in a manner permitted by law and in a manner that is in the best interest of the Funds and their shareholders. In assessing the best overall terms available for any Fund transactions, the Sub-Advisor will consider all factors it deems relevant including, but not limited to, breadth of the market in the security, the price of the security, the financial condition and execution capability of the broker or dealer and the reasonableness of any commission for the specific transaction and on a continuing basis. Pursuant to its investment determinations for the Funds, in placing orders with brokers and dealers, the Sub-Advisor will attempt to obtain the best net price and the most favorable execution of its orders. Consistent with this obligation, when the execution and price offered by two or more brokers or dealers are comparable, the Sub-Advisor may, in its discretion, purchase and sell portfolio securities to and from brokers and dealers who provide the Trust with research advice and other services. 4. INFORMATION PROVIDED TO THE TRUST The Sub-Advisor will keep the Trust and WM Advisors informed of developments the Sub-Advisor determines may materially affect the Funds, and will on its own initiative, furnish the Trust and WM Advisors on at least a quarterly basis with whatever information the Sub-Advisor believes is appropriate for this purpose. 5. STANDARD OF CARE The Sub-Advisor shall exercise its best judgment in rendering the services described in paragraphs 2 through 4 above. The Sub-Advisor shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Funds in connection 56 with the matters to which this Agreement relates, except (a) a loss resulting from a breach of fiduciary duty with respect to the receipt of compensation for services (in which case any award of damages shall be limited to the period and the amount set forth in Section 36(b)(3) of the 1940 Act), or (b) a loss resulting from willful misfeasance, bad faith or negligence on its part in the performance of its duties or from reckless disregard by it of its obligations and duties under this Agreement (each such breach, act or omission described in (a) or (b) of this paragraph 5 shall be referred to as "Disqualifying Conduct"). 6. COMPENSATION In consideration of the services rendered pursuant to this Agreement, the Trust will pay the Sub-Advisor on the first business day of each month a fee for the previous month according to the schedule of the fees detailed in Annex A attached to this Agreement. Upon any termination of this Agreement before the end of a month, the fee for such part of that month shall be prorated according to the proportion that such period bears to the full monthly period and shall be payable upon the date of termination of this Agreement. For the purpose of determining fees payable to the Sub-Advisor, the value of the Funds' net assets shall be computed at the times and in the manner specified in the Funds' Prospectus or Statement of Additional Information relating to the Funds as from time to time in effect. The Sub-Advisor shall not be entitled to any other fees other than as set forth in this paragraph 6. 7. EXPENSES The Sub-Advisor will bear all expenses in connection with the performance of its services under this Agreement, which expenses shall not include brokerage fees or commissions in connection with the effectuation of securities transactions. The Trust will bear certain other expenses to be incurred in its operation, including but not limited to: organizational expenses, taxes, interest, brokerage fees and commissions, if any; fees of trustees of the Trust who are not officers, directors or employees of the Sub-Advisor, WM Advisors, the Funds' sub-administrator or any of their affiliates; Securities and Exchange Commission fees and state Blue Sky qualification fees; out-of-pocket expenses of custodians, transfer and dividend disbursing agents and the Trust's sub-administrator and transaction charges of custodians; insurance premiums; outside auditing and legal expenses; costs of maintenance of the Trust's existence; costs attributable to investor services, including without limitation, telephone and personnel expenses; costs of preparing and printing prospectuses and statements of additional information for regulatory purposes and for distribution to existing shareholders; costs of shareholders' reports and meetings of the shareholders of the Funds and of the officers or Board of Trustees of the Trust; and any extraordinary expenses. In addition, the Funds pay a distribution fee pursuant to the terms of a Distribution Plan adopted under Rule 12b-1 of the 1940 Act. 8. SERVICES TO OTHER COMPANIES OR ACCOUNTS 57 WM Advisors understands that the Sub-Advisor now acts, will continue to act and may act in the future as investment adviser to fiduciary and other managed accounts and as investment adviser to one or more other investment companies or series investment companies, and WM Advisors has no objection to the Sub-Advisor so acting, provided that whenever the Funds and one or more other accounts or investment companies advised by the Sub-Advisor have available funds for investment, investments suitable and appropriate for each will be allocated in accordance with procedures believed to be equitable to each entity. Similarly, opportunities to sell securities will be allocated in an equitable manner. WM Advisors recognizes that in some cases this procedure may limit the size of the position that may be acquired or disposed of for the Funds. In addition, WM Advisors understands that the persons employed by the Sub-Advisor to assist in the performance of the Sub-Advisor's duties under this Agreement will not devote their full time to such service and nothing contained herein shall be deemed to limit or restrict the right of the Sub-Advisor or any affiliate of the Sub-Advisor to engage in and devote time and attention to other business or to render services of whatever kind or nature. 9. TERM OF AGREEMENT This Agreement shall become effective as of the date first written above, shall continue for a period of one year thereafter, and shall continue in effect for a period of more than one year thereafter with respect to a Fund only so long as such continuance is specifically approved at least annually by (a) the Board of Trustees of the Trust or (b) a vote of a "Majority of the outstanding voting securities" (as defined in the 1940 Act) of the Fund, provided that in either event the continuance is also approved by a majority of the Board of Trustees who are not "interested persons" (as defined in the 1940 Act) of any party to this Agreement, by vote cast in person at a meeting called for the purpose of voting on such approval. This Agreement is terminable with respect to a Fund, without penalty, on 30 days' written notice, by WM Advisors, the Board of Trustees of the Trust or by vote of holders of a majority of the Fund's shares, or upon 90 days' written notice, by the Sub-Advisor and will terminate automatically upon any termination of the advisory agreement between the Trust and WM Advisors. In addition, this Agreement will also terminate automatically in the event of its assignment (as defined in the 1940 Act). The Sub-Advisor agrees to notify the Trust of any circumstances that might result in this Agreement being deemed to be assigned. 10. REPRESENTATIONS OF THE TRUST, WM ADVISORS AND THE SUB-ADVISOR The Trust and WM Advisors represent that (a) a copy of the Trust's Master Trust Agreement, dated February 22, 1989, together with all amendments thereto, is on file in the office of the Secretary of the Commonwealth of Massachusetts, (b) the appointment of the Sub-Advisor has been duly authorized, (c) WM Advisors is authorized to perform the services in this Agreement and has acted and will continue to act in conformity with the 1940 Act and other applicable laws, and (d) the Trust is authorized to make the payments described in this Agreement. 58 The Sub-Advisor represents that it is authorized to perform the services described in this Agreement. 59 11. INDEMNIFICATION WM Advisors shall indemnify and hold harmless the Sub-Advisor from and against any and all claims, losses, liabilities or damages (including reasonable attorneys' fees and other related expenses), howsoever arising from or in connection with this Agreement or the performance by the Sub-Advisor of its duties under this Agreement; provided, however, that nothing contained in this Agreement shall require that the Sub-Advisor be indemnified for Disqualifying Conduct. 12. AMENDMENT OF THIS AGREEMENT No provision of this Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought. 13. ENTIRE AGREEMENT This Agreement constitutes the entire agreement between the parties to this Agreement. 14. GOVERNING LAW This Agreement shall be governed in accordance with the laws of The Commonwealth of Massachusetts. 15. MASTER TRUST AGREEMENT AND LIMITATION OF LIABILITY A copy of the Master Trust Agreement of the Trust is on file with the Secretary of State of The Commonwealth of Massachusetts, and notice is hereby given that this Agreement is executed by an officer of the Trust on behalf of the Trustees of the Trust, as trustees and not individually, and on further behalf of the Funds, that the obligations of this Agreement shall be binding upon the assets and properties of a Fund only and shall not be binding upon the assets and properties of any other series of the Trust or upon any of the Trustees, officers, employees, agents or shareholders of the Fund or the Trust individually. * * * * * [The remainder of this page has intentionally been left blank.] 60 If the foregoing accurately sets forth our agreement, kindly indicate your acceptance of the terms and conditions of this Agreement by signing and returning the enclosed copy of this Agreement. Very truly yours, WM TRUST II Dated: 11/30/2003 By: ------------------------------------ Name: William Papesh Title: President WM ADVISORS, INC. Dated: 11/30/2003 By: ------------------------------------ Name: William Papesh Title: President Accepted: VAN KAMPEN ASSET MANAGEMENT Dated: 11/30/2003 By: ------------------------------------ Name: Ed Wood Title: Managing Director ANNEX A For the services provided and expenses assumed pursuant to the Agreement, the Sub-Advisor will be paid a monthly fee, absent fee waivers, based upon each Fund's average daily net assets, at an annual rate as follows: AMOUNT OF ASSETS ($ MILLIONS)
FIRST AFTER 75; AFTER 150; OVER 75 NEXT 75 NEXT 850 1000 ----- --------- ---------- ---- California Municipal Fund .20% .20% .15% .125% California Insured Intermediate Municipal Fund .20% .125% .125% .125%
61 EX-99.D2.H 10 v15673exv99wd2wh.txt EXHIBIT 99.(D)(2)(H) (D)(2)(H) AMENDED AND RESTATED INVESTMENT SUB-ADVISORY AGREEMENT THE GROWTH FUND OF WM TRUST II EFFECTIVE AS OF NOVEMBER 9, 2004 This Amended and Restated Investment Sub-Advisory Agreement is made and entered into as of this ninth day of November, 2004, among WM Advisors, Inc. ("WM Advisors"), a corporation organized under the laws of the state of Washington, WM Trust II, a business trust formed under the laws of the Commonwealth of Massachusetts (the "Trust"), on behalf of its Growth Fund series (the "Fund"), and Janus Capital Management LLC, (the "Sub-Advisor"), a corporation organized under the laws of the state of Colorado. This Agreement supersedes the terms of the Agreement among WM Advisors, the Trust, and the Sub-Advisor dated April 3, 2002, as amended. Whereas, the Trust is engaged in business as an open-end, management investment company and is so registered under the Investment Company Act of 1940, as amended (the "1940 Act"); Whereas, the Trust offers a number of investment portfolios, each with its own investment objective and strategies, and of which one investment portfolio is the Fund; Whereas, WM Advisors is engaged in the business of rendering investment advisory and management services, is registered as an investment adviser under the Investment Advisers Act of 1940, as amended (the "Advisers Act"), and is the investment advisor of the Fund; Whereas, the Sub-Advisor is engaged in the business of rendering investment advisory and management services and is registered as an investment adviser under the Advisers Act; and Whereas, WM Advisors desires to retain the Sub-Advisor to furnish investment advisory and management services to the Fund and the Sub-Advisor is willing to furnish such services; NOW, THEREFORE, in consideration of the mutual agreements herein contained, it is hereby agreed by and between the parties hereto as follows: 1. Investment Description; Appointment WM Advisors desires to employ such portion of the capital of the Fund as may from time to time be determined by WM Advisors by investing and reinvesting in investments of the kind and in accordance with the limitations specified in the Trust's Master Trust Agreement, as amended, and in the Prospectus and Statement of Additional Information relating to the Fund as in effect and which may be amended from time to time, and in such manner and to such extent as may from time to time be approved by the Board of Trustees of the Trust. Copies of the Fund's Prospectus and Statement of Additional Information and the Trust's Master Trust Agreement, as amended, -62- have been or will be submitted to the Sub-Advisor. WM Advisors agrees to provide copies of all amendments or supplements to the Fund's Prospectus and Statement of Additional Information and the Trust's Master Trust Agreement to the Sub-Advisor during the continuance of this Agreement before or at the time such amendments or supplements become effective. WM Advisors agrees to furnish the Sub-Advisor with minutes of meetings of the Board of Trustees of the Trust to the extent they may affect the duties of the Sub-Advisor, a certified copy of any financial statements or reports prepared for the Fund by certified or independent public accountants, and with copies of any financial statements or reports made by the Fund to its shareholders or to any governmental body or securities exchange, and any further materials or information which the Sub-Advisor may reasonably request to enable it to perform its functions under this Agreement. WM Advisors desires to employ and hereby appoints the Sub-Advisor to act as investment sub-adviser to the Fund. The Sub-Advisor accepts the appointment and agrees to furnish the services described herein for the compensation set forth below. 2. Services as Investment Sub-Advisor Subject to the supervision of the Board of Trustees of the Trust and of WM Advisors, the Fund's investment adviser, the Sub-Advisor will, with respect to the portion of the Fund allocated to the Sub-Advisor by WM Advisors, (a) maintain compliance procedures for the Fund that the Sub-Advisor believes are adequate to ensure its compliance with the applicable provisions of the Trust's Master Trust Agreement, the 1940 Act, and the Advisers Act, as the same may from time to time be amended; (b) make investment decisions in accordance with the Fund's investment objectives and policies as stated in the Fund's Prospectus and Statement of Additional Information as in effect and, after notice to the Sub-Advisor, and which may be amended from time to time; (c) place purchase and sale orders on behalf of the Fund to effectuate the investment decisions made; (d) maintain books and records with respect to the securities transactions of the Fund in accordance with the 1940 Act and the Advisers Act and the rules adopted thereunder and will furnish to the Trust's Board of Trustees such quarterly, annual and special reports as the Board may reasonably request; and (e) treat confidentially and as proprietary information of the Trust, all records and other information relative to the Trust and prior, present or potential shareholders; and will not knowingly use such records and information for any purpose other than performance of its responsibilities and duties hereunder, except after prior notification to and approval in writing by the Trust, which approval shall not be unreasonably withheld and such records may not be withheld where the Sub-Advisor may be exposed to civil or criminal contempt proceedings for failure to comply, when requested to divulge such information by duly constituted authorities, or when so requested by the Trust. In providing those services, the Sub-Advisor will supervise the Fund's investments and conduct a continuous program of investment, evaluation and, if appropriate, sale and reinvestment of the Fund's assets. The Sub-Advisor has responsibility for providing investment services and advice only with respect to such discrete portion of the Fund as may from time to time be allocated to the Sub-Advisor by WM Advisors. Subject to the supervision of WM Advisors and in accordance with the investment objectives and policies as stated in the Fund's Prospectus and Statement of Additional Information, the Sub-Advisor is authorized, in its discretion and without prior consultation with WM Advisors, to buy, sell, lend and otherwise trade in any stocks, bonds, and other securities and investment instruments on behalf of the Fund, without regard to the length of time the securities have been held and the resulting rate of portfolio turnover or any tax considerations, and so long as consistent with the foregoing, the majority or the whole of the Fund may be invested in such proportions of stocks, bonds, other securities or investment instruments, or cash as the Sub-Advisor shall determine. In addition, the Sub-Advisor will furnish -63- the Fund or WM Advisors with whatever statistical information the Fund or WM Advisors may reasonably request with respect to the investments that the Fund may hold or contemplate purchasing. The Sub-Advisor will not consult with any other sub-advisors of any other funds within the Trust (or any sub-advisors with respect to any other portion of the Fund) concerning the transactions in securities or other assets of the Fund or any other funds of the Trust other than for purposes of complying with the conditions of paragraphs (a) and (b) of Rule 12d3-1 under the 1940 Act. 3. Brokerage Subject to (i) the over-riding objective of obtaining the best possible execution of orders; and (ii) review and approval of the Board of Trustees of the Trust, which may be conducted as often as quarterly, the Sub-Advisor shall place all orders for the purchase and sale of securities for the Fund with brokers or dealers selected by the Sub-Advisor, which may include brokers or dealers affiliated with the Sub-Advisor. All transactions with any affiliated person of the Trust, or where any such affiliated person acts as broker or agent in connection with any such transaction, shall be accomplished in compliance with the 1940 Act, the Advisers Act, the Securities Exchange Act of 1934, as amended, the rules adopted thereunder and the procedures adopted thereunder by the Trust. Purchase or sell orders for the Fund may be aggregated with contemporaneous purchase or sell orders of other clients of the Sub-Advisor; provided that (i) no advisory account will be favored by the Sub-Advisor over any other account; (ii) each client of the Sub-Advisor who participates in such an aggregated order will participate at the average share price, with all transaction costs shared on a pro rata basis; (iii) only advisory clients' transactions will be aggregated for such an aggregated order; and (iv) the accounts of clients whose orders are aggregated will be segregated on the Sub-Advisor's books and records so as to identify the particular client who has the beneficial interest therein. The Sub-Advisor shall use its best efforts to obtain execution of Fund transactions at prices which are advantageous to the Fund and at commission rates that are reasonable in relation to the benefits received. However, the Sub-Advisor may select brokers or dealers on the basis that they provide brokerage, research, or other services or products to the Fund and/or other accounts serviced by the Sub-Advisor. The Sub-Advisor may pay a broker or dealer an amount of commission for effecting a securities transaction in excess of the amount of commission or dealer spread another broker or dealer would have charged for effecting that transaction if the Sub-Advisor determines in good faith that such amount of commission was reasonable in relation to the value of the brokerage and research products and/or services provided by such broker or dealer. This determination, with respect to brokerage and research services or products, may be viewed in terms of either that particular transaction or the overall responsibilities which the Sub-Advisor and its affiliates have with respect to the Fund and to accounts over which they exercise investment discretion, and not all such services or products may be used by the Sub-Advisor in managing the Fund; provided that with respect to such transaction and such determination the affiliates of the Sub-Advisor shall have the same responsibilities to the Fund as the Sub-Advisor has under this Agreement. 4. Information Provided to the Trust The Sub-Advisor will keep the Trust and WM Advisors informed of developments materially affecting the Fund of which the Sub-Advisor becomes aware and will, on its own initiative, furnish the Trust and WM Advisors on at least a quarterly basis with whatever information the Sub-Advisor believes is appropriate for this purpose. -64- 5. Standard of Care The Sub-Advisor shall exercise its best judgment in rendering the services described in paragraphs 2 and 3 above. Except as may otherwise be provided by federal securities laws, the Sub-Advisor shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Fund in connection with the matters to which this Agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on its part in the performance of its duties or from reckless disregard by it of its obligations and duties under this Agreement (the conduct excepted in this sentence shall be referred to as "Disqualifying Conduct"). 6. Compensation In consideration of the services rendered pursuant to this Agreement, the Trust, on behalf of the Fund, will pay the Sub-Advisor on the first business day of each month a fee for the previous month according to the schedule of fees detailed in Annex A attached to this Agreement. Upon any termination of this Agreement before the end of a month, the fee for such part of that month shall be prorated according to the proportion that such period bears to the full monthly period and shall be payable upon the date of termination of this Agreement. For the purpose of determining fees payable to the Sub-Advisor, the value of the Fund's net assets under management by the Sub-Advisor shall be computed at the times and in the manner specified in the Fund's Prospectus or Statement of Additional Information relating to the Fund as from time to time in effect. 7. Expenses The Sub-Advisor will bear all of its expenses in performing its services under this Agreement, which expenses shall not include brokerage fees or commissions in connection with the effectuation of securities transactions. The Sub-Advisor shall not be required to bear any expenses of the Trust, the Fund or WM Advisors. The Trust will bear certain other expenses to be incurred in its operation, including but not limited to: organizational expenses, taxes, interest, brokerage fees and commissions, if any; fees of trustees of the Trust who are not officers, directors or employees of the Sub-Advisor, WM Advisors, or any of their affiliates; Securities and Exchange Commission fees and state Blue Sky qualification fees; all fees, including out-of-pocket expenses of custodians, transfer and dividend disbursing agents and transaction charges of custodians; insurance premiums; outside auditing and legal expenses; costs of maintenance of the Trust's existence; costs attributable to investor services, including without limitation, telephone and personnel expenses; costs of preparing and printing prospectuses and statements of additional information for regulatory purposes and for distribution to existing shareholders; costs of shareholders' reports and meetings of the shareholders of the Fund and of the officers or Board of Trustees of the Trust; and any extraordinary expenses. In addition, the Fund pays a distribution fee pursuant to the terms of a Distribution Plan adopted under Rule 12b-1 of the 1940 Act. Any reimbursement of advisory fees required by any expense limitation provision shall be the sole responsibility of WM Advisors. 8. Services to Other Companies or Accounts WM Advisors understands that the Sub-Advisor now acts, will continue to act and may act in the future as investment adviser to fiduciary and other managed accounts and as investment adviser to one or more other investment companies or series of investment companies, and WM -65- Advisors has no objection to the Sub-Advisor so acting, provided that whenever the Fund and one or more other accounts or investment companies advised by the Sub-Advisor have available funds for investment, investments suitable and appropriate for each will be allocated in accordance with procedures reasonably believed to be equitable to each entity. Similarly, opportunities to sell securities will be allocated in an equitable manner. WM Advisors recognizes that in some cases this procedure may limit the size of the position that may be acquired or disposed of for the Fund. In addition, WM Advisors understands that the persons employed by the Sub-Advisor to assist in the performance of the Sub-Advisor's duties hereunder will not devote their full time to such service and nothing contained herein shall be deemed to limit or restrict the right of the Sub-Advisor or any affiliate of the Sub-Advisor to engage in and devote time and attention to other business or to render services of whatever kind or nature. WM Advisors recognizes and agrees that the Sub-Advisor may provide advice to other clients which may differ from or be identical to advice given with respect to the Fund. 9. Term of Agreement This Agreement shall become effective as of the date first written above, shall continue for a period of two years thereafter, and shall continue in effect for a period of more than two years thereafter only so long as such continuance is specifically approved at least annually by (a) the Board of Trustees of the Trust or (b) a vote of a "majority" (as defined in the 1940 Act) of the Fund's outstanding voting securities, provided that in either event the continuance is also approved by a majority of the Board of Trustees who are not "interested persons" (as defined in the 1940 Act) of any party to this Agreement, by vote cast in person at a meeting called for the purpose of voting on such approval. This Agreement is terminable, without penalty, on 30 days' written notice, by WM Advisors, the Board of Trustees for the Trust or by vote of holders of a majority of the Fund's shares, or upon 60 days' written notice by the Sub-Advisor and will terminate automatically upon any termination of the advisory agreement between the Trust and WM Advisors. In addition, this Agreement will also terminate automatically in the event of its assignment (as defined in the 1940 Act). The Sub-Advisor agrees to notify the Trust of any circumstances that, to its best knowledge and belief, might result in this Agreement being deemed to be assigned. 10. Representations of WM Advisors and the Sub-Advisor WM Advisors represents that (a) a copy of the Trust's Master Trust Agreement, dated February 22, 1989, together with all amendments thereto, is on file in the office of the Secretary of the Commonwealth of Massachusetts, (b) the appointment of the Sub-Advisor has been duly authorized, (c) it has acted and will continue to act in conformity with the 1940 Act and other applicable laws, and (d) it is authorized to perform the services herein. The Sub-Advisor represents that it is authorized to perform the services described herein. 11. Indemnification WM Advisors shall indemnify and hold harmless the Sub-Advisor from and against any and all claims, losses, liabilities or damages (including reasonable attorneys' fees and other related expenses), howsoever arising from or in connection with this Agreement or the performance by the Sub-Advisor of its duties hereunder; provided, however, that nothing contained herein shall require that the Sub-Advisor be indemnified for Disqualifying Conduct. -66- 12. Amendment of this Agreement No provision of this Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought. 13. Use of Names The parties agree and acknowledge that the Sub-Advisor is the sole owner of the name and mark "Janus Capital Management LLC" and that all use of any designation comprised in whole or part of Janus Capital Management LLC (a "Sub-Advisor Mark") under this Agreement shall inure to the benefit of the Sub-Advisor. The use by the Trust on its own behalf or on behalf of the Fund of any Sub-Advisor Mark in any advertisement or sales literature or other materials promoting the Fund shall be with the consent of the Sub-Advisor. The Trust and WM Advisors shall not, without the consent of the Sub-Advisor, make representations regarding the Sub-Advisor intended to be disseminated to the investing public in any disclosure document, advertisement or sales literature or other materials promoting the Fund. Such consent shall not be required for any documents or other materials intended for broker-dealer use only, for use by the Trust's trustees and for internal use by the Trust and WM Advisors. Consent by the Sub-Advisor to such use of any Sub-Advisor Mark and any such representation shall not be unreasonably withheld and shall be deemed to be given if no written objection is received by the Trust, the Fund or WM Advisors within 3 business days after the request is made by the Trust, the Fund or WM Advisors for such use of any Sub-Advisor Mark or any such representation. Upon termination of this Agreement for any reason, the Trust and WM Advisors shall cease all use of any Sub-Advisor Mark(s) as soon as reasonably practicable. The Sub-Advisor agrees and acknowledges that the Trust is the sole owner of the name and mark "WM Trust II" and WM Advisors is the sole owner of the name and mark "WM Advisors, Inc." and that any and all use of any designation comprised in whole or in part of "WM Trust II" or "WM Advisors, Inc." (each a "WM Mark") under this Agreement shall inure to the benefit of the Trust or WM Advisors, respectively. The use by the Sub-Advisor on its own behalf of any WM Mark in any advertisement or sales literature or other materials promoting the Sub-Advisor shall be with the consent of the Trust or WM Advisors, respectively. The Sub-Advisor shall not, without the consent of the Trust or WM Advisors, as applicable, make representations regarding the Trust, the Fund or WM Advisors in any disclosure document, advertisement or sales literature or other materials promoting the Sub-Advisor. Consent by the Trust and WM Advisors to such use of any WM Mark and any such representations shall not be unreasonably withheld and shall be deemed to be given if no written objection is received by the Sub-Advisor within 5 business days after the request by the Sub-Advisor is made for such use of any WM Mark or any such representations. Upon termination of this Agreement for any reason, the Sub- Advisor shall cease any and all use of any WM Mark as soon as reasonably practicable. 14. Declaration of Trust and Limitation of Liability A copy of the Master Trust Agreement of the Trust is on file with the Secretary of State of The Commonwealth of Massachusetts, and notice is hereby given that this Agreement is executed by an officer of the Trust on behalf of the Trustees of the Trust, as trustees and not individually, on further behalf of the Fund, and that the obligations of this Agreement with respect to the Fund shall -67- be binding upon the assets and properties of the Fund only and shall not be binding upon the assets and properties of any other series of the Trust or upon any of the Trustees, officers, employees, agents or shareholders of the Fund or the Trust individually. 15. Entire Agreement; Amendment of Management Agreement This Agreement constitutes the entire agreement among the parties hereto, except that WM Advisors and the Trust are also parties to an Investment Management Agreement relating to the Fund dated March 20, 1998, as amended as of January 1, 1999 (the "Management Agreement"). The Trust and WM Advisors hereby amend the Management Agreement, for so long as this Agreement shall remain in effect, to provide that: (a) The Trust, on behalf of the Fund, shall pay to WM Advisors a monthly fee equal to the excess, if any, of (i) the fee set forth in Section 5 of the Management Agreement (the "Management Fee") over (ii) the fee paid by the Fund under this Agreement or any other sub-advisory agreement with respect to the Fund; (b) WM Advisors shall not be entitled to any other fees under the Management Agreement; (c) The Trust acknowledges and agrees that, for so long as Sub-Adviser meets the standard of care set forth in this Agreement, WM Advisors shall have no obligation to (i) furnish a continuous investment program for the Fund, (ii) determine from time to time what securities will be purchased, retained or sold by the Fund, and what portion of the Fund's assets will be held as cash, or (iii) place orders for the purchase and sale of portfolio securities for the Fund with brokers or dealers selected by WM Advisors; (d) Notwithstanding this Agreement, WM Advisors remains authorized to determine what securities or other property shall be purchased or sold by or for the Fund; (e) In exchange for the fee paid by the Fund under the Management Agreement and in recognition of its obligation to select and monitor the Sub-Advisor, and not for the services provided by the Sub-Advisor pursuant to the Sub-Advisory Agreement, WM Advisors shall indemnify and hold the Trust harmless from and against any and all claims, costs, expenses (including attorneys' fees), losses, damages, charges, payments and liabilities of any sort or kind which may be asserted against the Trust or for which the Trust may be held liable arising out of or attributable to any actual or alleged failure of Sub-Advisor to meet the standard of care set forth in this Agreement. 16. Governing Law This Agreement shall be governed in accordance with the laws of The Commonwealth of Massachusetts. 17. Miscellaneous (a) Unless WM Advisors or the Trust gives the Sub-Advisor written instructions to the contrary, the Sub-Advisor shall vote all proxies solicited by or with respect to the issuers of securities in which assets of the Fund may be invested. The Sub-Advisor shall use its best good faith judgment to vote such proxies in a manner which best serves the interests of the Fund's shareholders. (b) WM Advisors shall provide the Sub-Advisor with a copy of the Fund's agreement (the "Custody Agreement") with the Custodian (the "Custodian") designated to hold the assets of the Fund and any modification thereto in advance. The Fund's assets shall be maintained in the custody of the Custodian identified in, and in accordance with the terms and conditions of, the -68- Custody Agreement. The Sub-Advisor shall have no liability for the acts or omissions of the Custodian. Any assets added to the portion of the Fund to be managed by the Sub-Advisor shall be delivered directly to the Custodian. (c) The Sub-Advisor may perform its services through any employee, officer or agent of the Sub-Advisor, and the Trust and the Fund shall not be entitled to the advice, recommendation, or judgment of any specific person. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first written above. WM ADVISORS, INC. WM TRUST II, on behalf of its Growth Fund series By By ---------------------------------- ------------------------------------- Name: William G. Papesh Name: John T. West Title: President Title: First Vice President JANUS CAPITAL MANAGEMENT LLC By Dated: November 9, 2004 ---------------------------------- Name: ------------------------------- Title: ------------------------------ -69- ANNEX A 1. For purposes of calculating the fee to be paid to the Sub-Advisor under this Agreement: "Fund Assets" shall mean the net assets of the portion of the Fund managed by the Sub-Advisor; "Other Assets" shall mean the net assets of the portion of the Growth Fund series of WM Variable Trust managed by the Sub-Advisor. "Combined Assets" shall mean the sum of Fund Assets and Other Assets; and "Average Daily Net Fund Assets," "Average Daily Net Other Assets" and "Average Daily Net Combined Assets" shall mean the average of the value of the Fund Assets, Other Assets or Combined Assets, as the case may be, on each business day. 2. The Sub-Advisor fee shall be paid in arrears (within 10 days of receipt by WM Advisors of an invoice from the Sub-Advisor) based upon the Average Daily Net Combined Assets during the preceding month. The fee payable for the month shall be calculated by applying the annual rate, as set forth in the fee schedule below, to the Average Daily Net Combined Assets, and dividing by twelve. The portion of the monthly fee to be paid by the Fund shall be prorated based upon the Average Daily Net Fund Assets as compared to the Average Daily Net Combined Assets. For a month in which this Agreement becomes effective or terminates, the portion of the Sub-Advisor fee due hereunder shall be prorated on the basis of the number of days that the Agreement is in effect during the month. In addition, the aggregate prorated fee paid for November 2004 will be reduced by an amount equal to the difference between (i) the fee paid to the Sub-Advisor under the Investment Sub-Advisory Agreement between the Fund and the Sub-Advisor dated as of April 3, 2002 for the period beginning November 1, 2004 and ending on the date this Agreement becomes effective (the "Period") and (ii) the fee that would have been paid for the Period had the fee schedule set forth in paragraph 3 of this Annex I been in effect. 3. The following fee schedule shall be used to calculate the fee to be paid to the Sub-Advisor under this Agreement:
First Next Next Over - ------- ------- ------- ------- $250 $500 $750 $1.5 Million Million Million Billion 0.40% 0.35% 0.30% 0.25%
-70- EX-99.D2.I 11 v15673exv99wd2wi.txt EXHIBIT 99.(D)(2)(I) (d)(2)(I) SECOND AMENDMENT TO INVESTMENT SUB-ADVISORY AGREEMENTS (THE "SUB-ADVISORY AGREEMENTS") DATED AS OF JUNE 23, 1999, BETWEEN WM ADVISORS AND CAPITAL GUARDIAN TRUST COMPANY ("SUB-ADVISER") WITH RESPECT TO THE INTERNATIONAL GROWTH FUND SERIES OF WM TRUST II AND WM VARIABLE TRUST Section 1 of Annex A to each Sub-Advisory Agreement is hereby amended to provide as follows: 1. STANDARD FEE The minimum annual fee payable under this Agreement shall be $1,250,000 combined with respect to the International Growth Fund series of WM Trust II and WM Variable Trust. The fees payable under this Agreement shall be determined by reference to the following schedule based upon the average daily net assets of the Fund and any other investment company advised by WM Advisors or any of its affiliates (as determined by the Trust's accounting agent pursuant to the Fund's pricing procedures) subject to reduction as described below: On the first $25 million........................................... .80 of 1% $25 million to $50 million......................................... .65 of 1% $50 million to $250 million........................................ .525 of 1% Over $250 million*................................................. .475 of 1%
- ---------- * This breakpoint will be applied to the extent the aggregate non-U.S./global, regional, single country (excluding U.S.) equity, and fixed-income (emerging markets) assets of (i) the Fund, (ii) any other investment company advised by WM Advisors or any of its affiliates, (iii) any pension or employee benefit plan sponsored by WM Advisors or any of its affiliates or (iv) WM Advisors or its affiliates that are managed by Sub-Advisor or its affiliates exceed $250 million. Except as otherwise amended by this Second Amendment and the Amendment Agreement dated as of January 1, 2000, the provisions of each Sub-Advisory Agreement are ratified and confirmed by the parties thereto. WM Advisors, Inc. Capital Guardian Trust Company - ------------------------------------- ---------------------------------------- By: By: ---------------------------------- ------------------------------------ Title: Title: ------------------------------- --------------------------------- Dated: As of [March 1, 2006] -71- EX-99.D3 12 v15673exv99wd3.txt EXHIBIT 99.(D)(3) (d)(3) WM STRATEGIC ASSET MANAGEMENT PORTFOLIOS, LLC AMENDED AND RESTATED INVESTMENT MANAGEMENT AGREEMENT AMENDED AND RESTATED INVESTMENT MANAGEMENT AGREEMENT (this "Agreement"), dated as of November 1, 2005, amending and restating in its entirety the Investment Management Agreement dated September 1, 2000, as amended as of May 14, 2002 and May 11, 2004, between the WM Strategic Asset Management Portfolios, LLC, a Massachusetts limited liability company (the "LLC"), on behalf of each of its investment portfolios, which are listed on the signature page of this Agreement (each referred to herein as a "Portfolio" and, collectively, as the "Portfolios") and WM Advisors, Inc., a Washington corporation (the "Manager"). WITNESSETH WHEREAS, the LLC is an open-end management investment company, registered under the Investment Company Act of 1940, as amended (the "1940 Act"); and WHEREAS, the LLC desires to retain the Manager to render investment management services to each Portfolio, and the Manager is willing to render such services; NOW, THEREFORE, in consideration of the premises and the mutual agreements herein contained, the parties hereto agree as follows: 1. Appointment. The LLC hereby appoints the Manager to act as investment manager to each Portfolio for the period and on the terms set forth in this Agreement. The Manager accepts such appointment and agrees to render the services herein described, for the compensation herein provided. 2. Management. Subject to the supervision of the Board of Trustees of the LLC, the Manager shall manage the investment operations of each Portfolio and the composition of each Portfolio's portfolio, including the purchase, retention and disposition of securities therefore, in accordance with such Portfolio's investment objectives, policies and restrictions as stated in the Prospectus and Statement of Additional Information (as such terms are hereinafter defined) and resolutions of the LLC's Board of Trustees and subject to the following understandings: A. The Manager shall provide supervision of each Portfolio's investments, furnish a continuous investment program for each Portfolio's portfolio and determine from time to time what securities will be purchased, retained, or sold by each Portfolio, and what portion of the assets will be invested or held as cash. -72- B. The Manager, in the performance of its duties and obligations under this Agreement, shall act in conformity with the Limited Liability Company Agreement of the LLC and the investment policies of the Portfolios as determined by the Board of Trustees of the LLC. C. The Manager shall determine the securities to be purchased or sold by each Portfolio and shall place orders for the purchase and sale of portfolio securities pursuant to its determinations with brokers or dealers selected by the Manager. In executing portfolio transactions and selecting brokers or dealers, the Manager shall use its best efforts to seek on behalf of each Portfolio the best overall terms available. In assessing the best overall terms available for any transaction, the Manager may consider all factors it deems relevant, including the breadth of the market in the security, the price of the security, the size of the transaction, the timing of the transaction, the reputation, financial condition, experience, and execution capability of a broker or dealer, the amount of commission, and the value of any brokerage and research services (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934, as amended) provided by a broker or dealer. The Manager is authorized to pay to a broker or dealer who provides such brokerage and research services a commission for executing a portfolio transaction for a Portfolio which is in excess of the amount of commission another broker or dealer would have charged for effecting the transaction if the Manager determines in good faith that such commission was reasonable in relation to the value of the brokerage and research services provided by such broker or dealer, viewed in terms of that particular transaction or in terms of the overall responsibilities of the Manager to the Portfolio and/or other accounts over which the Manager exercises investment discretion. D. On occasions when the Manager deems the purchase or sale of a security to be in the best interest of a Portfolio as well as other fiduciary accounts for which it has investment responsibility, the Manager, to the extent permitted by applicable laws and regulations, may aggregate the securities to be so sold or purchased in order to obtain the best execution, most favorable net price or lower brokerage commissions. E. Subject to the provisions of the Limited Liability Company Agreement of the LLC and the 1940 Act, the Manager, at its expense, may select and contract with one or more investment advisers (the "Sub-adviser") for a Portfolio to perform some or all of the services for which it is responsible pursuant to this Section 2. The Manager shall be solely responsible for the compensation of any Sub-adviser of a Portfolio for its services to a Portfolio. The Manager may terminate the services of any Sub-adviser at any time in its sole discretion, and shall at such time assume the responsibilities of such Sub-adviser unless and until a successor Sub-adviser is selected. To the extent that more than one Sub-adviser is selected, the Manager shall, in its sole discretion, determine the amount of a Portfolio's assets allocated to each such Sub-adviser. 3. Administrative. Subject to the supervision and direction of the Board of Trustees of the LLC, the Manager is also responsible for all administrative functions with respect to the LLC and will (a) supervise all aspects of the operations of the LLC; (b) supply the LLC with office -73- facilities (which may be in the Manager's own offices), statistical and research data, data processing services, clerical, accounting and bookkeeping services (including, but not limited to, the calculation of (i) the net asset values of shares of the LLC, and (ii) distribution fees), internal auditing and legal services, internal executive and administrative services, and stationery and office (c) prepare reports to the LLC's shareholders and materials for the Board of Trustees of the LLC; (d) prepare tax returns and reports to and filings with the Securities and Exchange Commission and state Blue Sky authorities; (e) cooperate with the LLC's transfer agent for the purpose of establishing the implementing procedures to ensure that the LLC's transfer agency and shareholder relations functions are efficiently carried out; and (f) provide such other similar services as the LLC may reasonably request to the extent permitted under application statutes, rules and regulations. The services to be performed by the Manager hereunder may be delegated by it, in whole or in part, to one or more sub-administrators provided that any delegation of duties to a sub-administrator shall not relieve the Manager of its responsibilities hereunder. Notwithstanding anything to the contrary in this Agreement, the Manger shall not be responsible for the performance of any duties which are required to be performed by the LLC's transfer agent. 4. Services Not Exclusive. The services rendered by the Manager hereunder to each Portfolio are not to be deemed exclusive, and the Manager shall have the right to render similar services to others, including, without limitation, other investment companies. 5. Expenses. During the term of this Agreement, the Manager shall pay all expenses incurred by it in connection with its activities under this Agreement, including the salaries and expenses of any of the officers or employees of the Manager who act as officers, Trustees or employees of the LLC, but excluding the cost of securities purchased for a Portfolio and the amount of any brokerage fees and commissions incurred in executing portfolio transactions for a Portfolio, and shall provide the Portfolios with suitable office space. Other expenses to be incurred in the operation of the Portfolios (other than those borne by any third party), including without limitation, taxes, interest, brokerage fees and commissions, fees of Trustees who are not officers, directors, or employees of the Manager, federal registration fees and state Blue Sky qualification fees, bookkeeping, charges of custodians, transfer and dividend disbursing agents' fees, certain insurance premiums, industry association fees, outside auditing and legal expenses, costs of maintaining the Fund's or the LLC's existence, costs of independent pricing services, costs attributable to investor services (including, without limitation, telephone and personnel expenses), costs of preparing, printing and distributing prospectuses to existing shareholders, costs of stockholders' reports and meetings of shareholders and Trustees, as applicable, and any extraordinary expenses will be borne by the Portfolios. 6. Compensation. For the services provided pursuant to this Agreement, each Portfolio shall pay to the Manager as full compensation therefor a monthly fee computed on the average daily net assets at the annual rate for each Portfolio as stated in Schedule A attached hereto. The LLC acknowledges that the Manager, as agent for the Portfolios, will allocate a portion of the fee equal to the sub-advisory fee payable to the sub-advisor, if any, under its sub-advisory agreement to the sub-advisor for sub-advisory services. The LLC acknowledges that the Manager, as agent for the Portfolios, may allocate a portion of the fee to WM Shareholder Services, Inc. for administrative services, portfolio accounting and regulatory compliance systems. The Manager also from time to time and in such amounts -74- as it shall determine in its sole discretion may allocate a portion of the fee to WM Funds Distributor, Inc. for facilitating distribution of the Portfolios. This payment would be made from revenue which otherwise would be considered profit to the Manager for its services. This disclosure is being made to the LLC solely for the purpose of conforming with requirements of the Washington Department of Revenue for exclusion of revenue from the Washington Business and Occupation Tax. 7. Limitation of Liability. The Manager shall not be liable for any error of judgment or mistake of law or for any loss suffered by a Portfolio in connection with the matters to which this Agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on its part in the performance of its duties or from reckless disregard by it of its obligations and duties under this Agreement. 8. Delivery of Documents. The LLC has heretofore delivered to the Manager true and complete copies of each of the following documents and shall promptly deliver to it all future amendments and supplements thereto, if any: A. Limited Liability Company Agreement (as presently in effect and as amended from time to time); B. Bylaws of the LLC; C. Registration Statement under the Securities Act of 1933 and under the 1940 Act of the LLC on Form N-1A, and all amendments thereto, as filed with the Securities and Exchange Commission (the "Registration Statement") relating to the Portfolios and the shares of the Portfolios; D. Notification of Registration of the LLC under the 1940 Act on Form N-8A; E. Prospectuses of the Portfolios (such prospectuses as presently in effect and/or as amended or supplemented from time to time, the "Prospectus"); and STATEMENTOF ADDITIONAL INFORMATION OF THE PORTFOLIOS (SUCH STATEMENT AS PRESENTLY IN EFFECT AND/OR AS AMENDED OR SUPPLEMENTED FROM TIME TO TIME, THE "STATEMENT OF ADDITIONAL INFORMATION"). 9. Duration and Termination. This Agreement shall become effective as of the date first above-written for an initial period of two years and shall continue thereafter so long as such continuance is specifically approved at least annually (a) by the vote of the Board of Trustees, including a majority of those members of the LLC's Board of Trustees who are not parties to this Agreement or "interested persons" of any such party, cast in person at a meeting called for that purpose, or (b) by vote of a majority of the outstanding voting securities of the Portfolios. Notwithstanding the foregoing, this Agreement (a) may be terminated at any time, without the payment of any penalty, by either the LLC (by vote of the LLC's Board of Trustees or by vote of a majority of the outstanding voting securities of the Portfolios) or the Manager, on sixty (60) days prior written notice to the other, and (b) shall automatically terminate in the event of its assignment. As used in this Agreement, the -75- terms "majority of the outstanding voting securities", "interested persons" and "assignment" shall have the meanings assigned to such terms in the 1940 Act. 10. Amendments. No provision of this Agreement may be amended, modified, waived or supplemented, except by a written instrument signed by the party against which enforcement is sought. No amendment of this Agreement shall be effective until approved in accordance with any applicable provisions of the 1940 Act. 11. Use of Name and Logo. The LLC agrees that it shall furnish to the Manager, prior to any use or distribution thereof, copies of all prospectuses, statements of additional information, proxy statements, reports to stockholders, sales literature, advertisements, and other material prepared for distribution to stockholders of the LLC or to the public, which in any way refer to or describe the Manager or which include any trade names, trademarks or logos of the Manager or of any affiliate of the Manager. The LLC further agrees that it shall not use or distribute any such material if the Manager reasonably objects in writing to such use or distribution within five (5) business days after the date such material is furnished to the Manager. The Manager and/or its affiliates own the names "WM," "WM Group of Funds" and any other names which may be listed from time to time on a Schedule B to be attached hereto that they may develop for use in connection with the LLC, which names may be used by the LLC only with the consent of the Manager and/or its affiliates. The Manager, on behalf of itself and/or its affiliates, consents to the use by the LLC of such names or any other names embodying such names, but only on condition and so long as (i) this Agreement shall remain in full force, (ii) the LLC shall fully perform, fulfill and comply with all provisions of this Agreement expressed herein to be performed, fulfilled or complied with by it, and (iii) the Manager is the manager of each Portfolio of the LLC. No such name shall be used by the LLC at any time or in any place or for any purposes or under any conditions except as provided in this section. The foregoing authorization by the Manager, on behalf of itself and/or its affiliates, to the LLC to use such names as part of a business or name is not exclusive of the right of the Manager and/or its affiliates themselves to use, or to authorize others to use, the same; the LLC acknowledges and agrees that as between the Manager and/or its affiliates and the LLC, the Manager and/or its affiliates have the exclusive right so to use, or authorize others to use, such names, and the LLC agrees to take such action as may reasonably be requested by the Manager, on behalf of itself and/or its affiliates, to give full effect to the provisions of this section (including, without limitation, consenting to such use of such names). Without limiting the generality of the foregoing, the LLC agrees that, upon (i) any violation of the provisions of this Agreement by the LLC or (ii) any termination of this Agreement, by either party or otherwise, the LLC will, at the request of the Manager, on behalf of itself and/or its affiliates, made within six months after such violation or termination, use its best efforts to change the name of the LLC and/or the Portfolios so as to eliminate all reference, if any, to such names and will not thereafter transact any business in a name containing such names in any form or combination whatsoever, or designate itself as the same entity as or successor to an entity of such names, or otherwise use such names or any other reference to the Manager and/or its affiliates, except as may be required by law. Such covenants on the part of the LLC shall be binding upon it, its Trustees, officers, shareholders, creditors and all other persons claiming under or through it. -76- The provisions of this section shall survive termination of this Agreement. 12. Notices. Any notice or other communication required to be given pursuant to this Agreement shall be deemed duly given if delivered or mailed by registered mail, postage prepaid, if to the LLC: 1201 Third Avenue, 22nd Floor, Seattle, Washington 98101; or if to the Manager: 1201 Third Avenue, 22nd Floor, Seattle, Washington 98101; or to either party at such other address as such party shall designate to the other by a notice given in accordance with the provisions of this section. 13. Miscellaneous. A. Except as otherwise expressly provided herein or authorized by the Board of Trustees of the LLC from time to time, the Manager for all purposes herein shall be deemed to be an independent contractor and shall have no authority to act for or represent the LLC or the Portfolios in any way or otherwise be deemed an agent of the LLC or the Portfolios. B. The LLC shall furnish or otherwise make available to the Manager such information relating to the business affairs of the Portfolios as the Manager at any time or from time to time reasonably requests in order to discharge its obligations hereunder. C. This Agreement shall be governed by and construed in accordance with the laws of The Commonwealth of Massachusetts and shall inure to the benefit of the parties hereto and their respective successors. D. If any provision of this Agreement shall be held or made invalid or by any court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. 14. Limitation of Liability. A copy of the Certificate of Organization of the LLC is on file with the Secretary of the Commonwealth of Massachusetts, and notice is hereby given that this Agreement is executed by an officer of the LLC on behalf of the Trustees of the LLC, as trustees and not individually, on further behalf of each Portfolio, and that the obligations of this Agreement with respect to a Portfolio shall be binding upon the assets and properties of that Portfolio only and shall not be binding upon the assets and properties of any other Portfolio or series of the LLC or upon any of the Trustees, officers, employees, agents or shareholders of the Portfolios or the LLC individually. [The remainder of this page has intentionally been left blank.] -77- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their officers designated below as of the date first above-written. WM STRATEGIC ASSET MANAGEMENT PORTFOLIOS, LLC, on behalf of its portfolios INCOME PORTFOLIO, FLEXIBLE INCOME PORTFOLIO, BALANCED PORTFOLIO, CONSERVATIVE GROWTH PORTFOLIO, and STRATEGIC GROWTH PORTFOLIO By: ------------------------------------ William G. Papesh, President Attest: By: --------------------------------- John T. West, Secretary WM ADVISORS, INC. By: ------------------------------------ William G. Papesh, President Attest: By: --------------------------------- Sharon L. Howells, Secretary -78- Schedule A WM STRATEGIC ASSET MANAGEMENT PORTFOLIOS, LLC The management fee to be charged for advisory services (including sub-advisory fees, if any) for each Portfolio is based upon a percentage of the average daily net assets of such Portfolio. The total management fee to be paid monthly for each Portfolio is as follows:
PORTFOLIO FEE --------- --- Conservative Balanced Portfolio Monthly fee computed on the aggregate average Balanced Portfolio Conservative daily net assets of the all of the Portfolios Growth Portfolio Strategic (with each Portfolio paying a proportionate Growth Portfolio Flexible Income share based on its average daily net assets) Portfolio at a rate equal to .550% per annum on the first $500 million of assets; .500% on the next $500 million of assets; .450% on the next $1 billion of assets; .400% on the next $1 billion of assets; .350% on the next $1 billion of assets; .300% on the next $1 billion of assets and .250% per annum on assets in excess of $5 billion.
-79- EX-99.E1 13 v15673exv99we1.txt EXHIBIT 99.(E)(1) (e)(1) WM GROUP OF FUNDS AMENDED AND RESTATED DISTRIBUTION AGREEMENT THIS DISTRIBUTION AGREEMENT (this "Agreement"), dated as of this 9th day of NOVEMBER, 2005 between WM Trust I, WM Trust II, and WM Strategic Asset Management Portfolios, LLC, (each referred to hereinafter as a "Trust"), on behalf of each constituent series of each respective Trust (each a "Fund"), and WM Funds Distributor, Inc., a Washington corporation doing business at Irvine, California, herein sometimes referred to as the "Distributor." RECITALS WHEREAS, each Trust is registered as an open-end, management investment company under the Investment Company Act of 1940, as amended (the "1940 Act") and the Funds are separate series of each respective Trust; WHEREAS, each Fund and the Distributor desire to enter into an agreement that sets forth standard terms and conditions for the distribution of shares of each Fund; NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration the receipt of which is hereby acknowledged, the parties hereto agree as follows: -80- APPOINTMENT. EACH TRUST HEREBY AFFIRMS THE APPOINTMENT OF WM FUNDS DISTRIBUTOR, INC. AS THE AGENT FOR THE DISTRIBUTION OF SHARES OF EACH FUND (THE "SHARES") AND GRANTS DISTRIBUTOR THE RIGHT TO SELL THE SHARES ON BEHALF OF EACH FUND AT SUCH SHARES' PUBLIC OFFERING PRICE AND ON THE TERMS SET FORTH IN THIS AGREEMENT. THE DISTRIBUTOR ACCEPTS SUCH APPOINTMENT AND AGREES TO RENDER THE SERVICES HEREIN SET FORTH FOR THE PAYMENTS HEREIN PROVIDED (INCLUDING REIMBURSEMENT OF EXPENSES). DELIVERY OF DOCUMENTS. EACH TRUST AND/OR EACH FUND HAS FURNISHED THE DISTRIBUTOR WITH COPIES OF: AGREEMENT AND DECLARATION OF TRUST OF EACH OF WM TRUST I AND WM TRUST II OR LLC OPERATING AGREEMENT OF WM STRATEGIC ASSET MANAGEMENT PORTFOLIOS, LLC, AS APPLICABLE, AND ALL AMENDMENTS THERETO (AS AMENDED FROM TIME TO TIME, THE "CHARTER DOCUMENT"); BYLAWS AND ALL AMENDMENTS THERETO FOR THE TRUST (AS AMENDED FROM TIME TO TIME, THE "BYLAWS"); AND EACH FUND'S REGISTRATION STATEMENT, PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION, THEN IN EFFECT (THE "REGISTRATION STATEMENT") UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT") AND THE 1940 ACT. FROM TIME TO TIME, EACH TRUST WILL FURNISH THE DISTRIBUTOR WITH CURRENT COPIES OF ALL AMENDMENTS OR SUPPLEMENTS TO THE FOREGOING, IF ANY, AND ALL DOCUMENTS, NOTICES AND REPORTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC") AND WILL MAKE AVAILABLE, UPON REQUEST, EVIDENCE OF PAYMENT OF REGISTRATION FEES IMPOSED FROM TIME TO TIME BY THE STATES IN WHICH THE SHARES OF EACH FUND ARE SOLD BY THE DISTRIBUTOR. DUTIES OF THE DISTRIBUTOR. -81- THE DISTRIBUTOR SHALL PROVIDE EACH FUND WITH THE BENEFIT OF ITS BEST JUDGMENT, EFFORTS AND FACILITIES IN RENDERING ITS SERVICES AS DISTRIBUTOR. THE DISTRIBUTOR WILL ACT AS THE EXCLUSIVE DISTRIBUTOR OF THE SHARES OF EACH FUND, SUBJECT TO THE SUPERVISION OF EACH TRUST'S BOARD OF TRUSTEES AND THE FOLLOWING UNDERSTANDINGS: EACH TRUST'S BOARD OF TRUSTEES SHALL BE RESPONSIBLE FOR AND CONTROL THE CONDUCT OF EACH FUND'S AFFAIRS; IN ALL MATTERS RELATING TO THE PERFORMANCE OF THIS AGREEMENT, THE DISTRIBUTOR WILL ACT IN CONFORMITY WITH THE CHARTER DOCUMENT AND BYLAWS OF EACH TRUST AND THE REGISTRATION STATEMENT OF EACH FUND AND WITH THE INSTRUCTIONS AND DIRECTIONS OF EACH TRUST'S BOARD OF TRUSTEES; AND THE DISTRIBUTOR WILL CONFORM TO AND COMPLY WITH APPLICABLE REQUIREMENTS OF THE 1940 ACT, THE 1933 ACT AND ALL OTHER APPLICABLE FEDERAL OR STATE LAWS AND REGULATIONS. IN CARRYING OUT ITS OBLIGATIONS HEREUNDER, THE DISTRIBUTOR SHALL: PROVIDE TO EACH TRUST'S BOARD OF TRUSTEES, AT LEAST QUARTERLY, A WRITTEN REPORT OF THE AMOUNTS EXPENDED IN CONNECTION WITH ALL DISTRIBUTION SERVICES RENDERED PURSUANT TO THIS AGREEMENT, INCLUDING THE PURPOSES FOR WHICH SUCH EXPENDITURES WERE MADE; AND TAKE, ON BEHALF OF EACH FUND, ALL ACTIONS WHICH APPEAR TO BE NECESSARY TO CARRY INTO EFFECT THE DISTRIBUTION OF EACH FUND'S SHARES AS PROVIDED IN SECTION 4. DISTRIBUTION OF SHARES. IT IS MUTUALLY UNDERSTOOD AND AGREED THAT THE DISTRIBUTOR DOES NOT UNDERTAKE TO SELL ALL OR ANY SPECIFIC PORTION OF THE SHARES OF ANY FUND. DISTRIBUTOR SHALL HAVE THE RIGHT TO ENTER INTO SALES AGREEMENTS WITH DEALERS OF ITS CHOICE ON SUCH TERMS AND CONDITIONS AS DISTRIBUTOR DETERMINES ARE NOT INCONSISTENT WITH THIS AGREEMENT. DISTRIBUTOR SHALL SET FORTH IN SUCH AGREEMENTS THE PORTION OF THE SALES CHARGE WHICH MAY BE RETAINED BY SUCH DEALERS. -82- IF ANY FUND DETERMINES THAT IT IS NECESSARY TO FILE THE FORM OF DEALER AGREEMENT AND AMENDMENTS THERETO AS AN EXHIBIT TO ITS CURRENTLY EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 ACT, THEN THE DISTRIBUTOR SHALL PROVIDE THE FUND WITH CURRENTLY EFFECTIVE DOCUMENTS. A FUND SHALL NOT SELL ANY OF ITS SHARES EXCEPT THROUGH THE DISTRIBUTOR. NOTWITHSTANDING THE PROVISIONS OF THE FOREGOING SENTENCE: A FUND MAY ISSUE ITS SHARES AT THEIR NET ASSET VALUE TO ANY SHAREHOLDER OF THE FUND PURCHASING SUCH SHARES WITH DIVIDENDS OR OTHER CASH DISTRIBUTIONS RECEIVED FROM THE FUND PURSUANT TO ANY SPECIAL OR CONTINUING OFFER MADE TO SHAREHOLDERS; THE DISTRIBUTOR MAY, AND WHEN REQUESTED BY A FUND, SHALL, SUSPEND ITS EFFORTS TO EFFECTUATE SALES OF THE SHARES OF A FUND AT ANY TIME WHEN IN THE OPINION OF THE DISTRIBUTOR OR OF THE FUND NO SALES SHOULD BE MADE BECAUSE OF A NEED TO REVISE A REGISTRATION STATEMENT, OR BECAUSE OF MARKET OR OTHER ECONOMIC CONSIDERATIONS OR ABNORMAL CIRCUMSTANCES OF ANY KIND. EITHER PARTY IN ITS SOLE DISCRETION MAY REJECT ORDERS FOR THE PURCHASE OF SHARES; A FUND MAY WITHDRAW THE OFFERING OF ITS SHARES (I) AT ANY TIME WITH THE CONSENT OF THE DISTRIBUTOR OR (II) WITHOUT SUCH CONSENT WHEN SO REQUIRED BY THE PROVISIONS OF ANY STATUTE OR OF ANY ORDER, RULE OR REGULATION OF ANY GOVERNMENTAL BODY HAVING JURISDICTION; THE PRICE AT WHICH THE SHARES WILL BE SOLD TO INVESTORS (THE "PUBLIC OFFERING PRICE") SHALL BE THE NET ASSET VALUE PER SHARE, DETERMINED IN ACCORDANCE WITH THE PROVISIONS OF THE FUND'S CURRENT REGISTRATION STATEMENT, PLUS A SALES CHARGE DETERMINED IN THE AMOUNT AND MANNER ESTABLISHED FROM TIME TO TIME BY THE DISTRIBUTOR AND SET FORTH IN A FUND'S CURRENT PROSPECTUS. THE FUND SHALL RECEIVE THE NET ASSET VALUE PER SHARE FOR THE SALE OF ITS SHARES; AND THE DISTRIBUTOR IS NOT AUTHORIZED BY ANY FUND TO PROVIDE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THE APPROPRIATE REGISTRATION STATEMENTS, OR CONTAINED IN SHAREHOLDER REPORTS OR OTHER MATERIAL THAT MAY BE PREPARED BY OR ON BEHALF OF A FUND FOR DISTRIBUTOR'S USE. THIS SHALL NOT BE CONSTRUED TO PREVENT THE DISTRIBUTOR FROM PREPARING AND DISTRIBUTING SALES LITERATURE OR OTHER MATERIAL AS IT MAY DEEM APPROPRIATE. COMPENSATION -83- CLASS B DISTRIBUTION FEE. EACH TRUST WILL PAY DISTRIBUTOR IN CONSIDERATION OF ITS SERVICES IN CONNECTION WITH THE DISTRIBUTION OF CLASS B SHARES OF EACH FUND ITS "ALLOCABLE PORTION," AS DEFINED IN SCHEDULE 1 TO THIS AGREEMENT, OF THE DISTRIBUTION FEE ALLOWABLE UNDER THE CONDUCT RULES OF THE NATIONAL ASSOCIATION OF SECURITIES DEALERS (THE "NASD") (THE "CONDUCT RULES") IN RESPECT OF SUCH CLASS B SHARES OF SUCH FUND, WHICH FEE SHALL ACCRUE DAILY AND BE PAID MONTHLY AS PROMPTLY AS POSSIBLE AFTER THE LAST DAY OF EACH MONTH BUT IN ANY EVENT PRIOR TO THE TENTH DAY OF THE FOLLOWING CALENDAR MONTH, AT AN ANNUAL RATE OF 0.75% OF THE AVERAGE DAILY NET ASSET VALUE OF SUCH CLASS B SHARES OF SUCH FUND, SUBJECT TO THE AGGREGATE MAXIMUM LIMITATION ON THE DISTRIBUTION FEE ALLOWABLE UNDER THE CONDUCT RULES AND THE DISTRIBUTION PLAN IN RESPECT OF SUCH CLASS B SHARES, IN ACCORDANCE WITH RULE 12B-1 UNDER THE 1940 ACT ("DISTRIBUTION FEE"). The Distributor will be deemed to have fully earned its Allocable Portion of the Distribution Fee payable in respect of Class B Shares of each Fund upon the sale of the "Commission Shares" (as defined in Schedule 1 to this Agreement) of such Fund taken into account in determining such Distributor's Allocable Portion of such Distribution Fee. CONTINGENT DEFERRED SALES CHARGES. EACH TRUST SHALL CAUSE ITS TRANSFER AGENT (THE "TRANSFER AGENT") TO WITHHOLD, FROM REDEMPTION PROCEEDS PAYABLE TO HOLDERS OF CLASS B SHARES, ALL CONTINGENT DEFERRED SALES CHARGES ("CDSCS") PROPERLY PAYABLE BY SUCH HOLDERS IN ACCORDANCE WITH THE TERMS OF THE PROSPECTUSES RELATING TO SUCH CLASS B SHARES AND SHALL CAUSE THE TRANSFER AGENT TO PAY SUCH AMOUNTS OVER AS PROMPTLY AS POSSIBLE AFTER THE SETTLEMENT DATE FOR EACH REDEMPTION OF SUCH CLASS B SHARES. THE DISTRIBUTOR'S ALLOCABLE PORTION (AS DEFINED IN SCHEDULE 1 TO THIS AGREEMENT) OF SUCH CDSC AMOUNTS SHALL BE PAYABLE TO THE DISTRIBUTOR (OR TO PERSONS TO WHOM THE DISTRIBUTOR DIRECTS THE TRUST TO MAKE PAYMENTS). SERVICE FEES. EACH TRUST IS AUTHORIZED TO PAY TO THE DISTRIBUTOR A FEE, CALCULATED DAILY AND PAID MONTHLY IN ARREARS, FOR THE SHAREHOLDER SERVICES THAT ARE DESCRIBED IN PARAGRAPH (B) OF THIS SECTION 5.3 AND THAT ARE PROVIDED BY SUCH DISTRIBUTOR TO ONE OR MORE OF THE FUNDS. THE AGGREGATE FEE PAID TO THE DISTRIBUTOR FOR -84- SHAREHOLDER SERVICES TO ANY FUND SHALL NOT BE GREATER THAN THE ANNUAL RATE OF ..25% OF THE AVERAGE DAILY NET ASSETS ATTRIBUTABLE TO THE SHARES OF SUCH FUND. IN ADDITION TO THE DISTRIBUTION SERVICES SET FORTH IN SECTION 3 ABOVE, THE DISTRIBUTOR MAY PROVIDE SHAREHOLDER SERVICES TO ACCOUNTS OF THE SHARES OF ONE OR MORE OF THE FUNDS, INCLUDING BUT NOT LIMITED TO THE FOLLOWING: TELEPHONE SERVICE TO SHAREHOLDERS, INCLUDING THE ACCEPTANCE OF TELEPHONE INQUIRIES AND TRANSACTION REQUESTS; ACCEPTANCE AND PROCESSING OF WRITTEN CORRESPONDENCE, NEW ACCOUNT APPLICATIONS AND SUBSEQUENT PURCHASES BY CHECK; MAILING OF CONFIRMATIONS, STATEMENTS AND TAX FORMS DIRECTLY TO SHAREHOLDERS; AND ACCEPTANCE OF PAYMENT FOR TRADES BY CHECK, FEDERAL RESERVE WIRE OR AUTOMATED CLEARING HOUSE PAYMENT. IN ADDITION, THE DISTRIBUTOR MAY PERFORM OR SUPERVISE THE PERFORMANCE BY OTHERS OF SHAREHOLDER SERVICES IN CONNECTION WITH THE OPERATIONS OF SUCH FUND(S) WITH RESPECT TO ITS SHARES, AS AGREED FROM TIME TO TIME. THE DISTRIBUTION FEE PAYABLE PURSUANT TO THIS AGREEMENT SHALL NOT BE DEEMED TO COMPENSATE THE DISTRIBUTOR FOR ANY SHAREHOLDER SERVICES IT MAY PROVIDE TO ANY TRUST OR FUND PURSUANT TO THE RELEVANT DISTRIBUTION PLAN, WHICH SERVICES MAY INCLUDE PROCESSING OF SHAREHOLDER TRANSACTIONS, RESPONDING TO INQUIRIES FROM SHAREHOLDERS CONCERNING THE STATUS OF THEIR ACCOUNTS AND THE OPERATIONS OF THE TRUST OR ANY FUND, COMMUNICATING WITH THE TRUST AND ITS TRANSFER AGENT ON BEHALF OF SUCH SHAREHOLDERS, OR PROVIDING OTHER SHAREHOLDER SERVICES, NOR FOR ANY EXPENSES ASSOCIATED WITH THE PROVISION OF SUCH SHAREHOLDER SERVICES, INCLUDING OFFICE SPACE AND EQUIPMENT, AND TELEPHONE FACILITIES. DIRECTED PAYMENT: ALLOCABLE PORTION CALCULATIONS. THE DISTRIBUTOR MAY DIRECT THE TRUST TO PAY ANY PART OR ALL OF THE DISTRIBUTION FEE OR CDSCS PAYABLE TO THE DISTRIBUTOR IN RESPECT OF ANY CLASS B SHARES OF ANY FUND DIRECTLY TO PERSONS PROVIDING FUNDS TO THE DISTRIBUTOR TO COVER OR OTHERWISE ENABLE THE INCURRING OF EXPENSES ASSOCIATED WITH DISTRIBUTION SERVICES, AND EACH TRUST AGREES TO ACCEPT AND TO COMPLY WITH SUCH DIRECTION. THE DISTRIBUTOR SHALL, AT ITS OWN EXPENSE AND NOT AT THE EXPENSE OF ANY TRUST OR FUND, PROVIDE EACH TRUST WITH ANY NECESSARY CALCULATIONS OF THE DISTRIBUTOR'S ALLOCABLE PORTION OF ANY DISTRIBUTION FEE OR CDSCS, AND EACH TRUST SHALL BE ENTITLED TO RELY CONCLUSIVELY ON SUCH CALCULATIONS, WITHOUT PREJUDICE TO ANY CLAIM IT MAY HAVE CONCERNING THE ACCURACY OF SUCH CALCULATIONS. -85- MAXIMUM CHARGES. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS AGREEMENT OR IN ANY RELEVANT DISTRIBUTION PLAN, THE AMOUNT OF ASSET-BASED SALES CHARGES AND CDSCS PAID TO THE DISTRIBUTOR BY ANY CLASS OF SHARES OF ANY FUND SHALL NOT EXCEED THE AMOUNT PERMITTED BY THE CONDUCT RULES AS IN EFFECT FROM TIME TO TIME. CLASS A, CLASS C, CLASS R-1 AND CLASS R-2 SALES CHARGES. AS COMPENSATION FOR ITS SERVICES HEREUNDER, THE DISTRIBUTOR SHALL BE ENTITLED TO RECEIVE ALL FRONT-END LOADS AND CONTINGENT DEFERRED SALES CHARGES WITH RESPECT TO CLASS A, CLASS C, CLASS R-1 AND CLASS R-2 SHARES AS MAY BE DESCRIBED FROM TIME TO TIME IN THE REGISTRATION STATEMENT. THE FUND ALSO SHALL PAY A DISTRIBUTION FEE TO THE DISTRIBUTOR AT AN ANNUAL RATE AS SHALL BE AUTHORIZED BY THE SHAREHOLDERS AND FURTHER SET BY THE BOARD OF TRUSTEES PURSUANT TO THE PROVISIONS OF THE CLASS A, CLASS C, CLASS R-1 AND CLASS R-2 DISTRIBUTION PLAN, AS APPLICABLE, EACH AS THEN IN EFFECT, IN ACCORDANCE WITH RULE 12B-1 UNDER THE 1940 ACT. EXPENSES. THE EXPENSES CONNECTED WITH DISTRIBUTION SHALL BE ALLOCABLE BETWEEN THE FUNDS AND THE DISTRIBUTOR AS FOLLOWS: THE DISTRIBUTOR SHALL FURNISH THE SERVICES OF PERSONNEL TO THE EXTENT THAT SUCH SERVICES ARE REQUIRED TO CARRY OUT ITS OBLIGATIONS UNDER THIS AGREEMENT. EACH FUND ASSUMES AND SHALL PAY OR CAUSE TO BE PAID THE FOLLOWING EXPENSES INCURRED ON ITS BEHALF: REGISTRATION OF SHARES INCLUDING THE EXPENSE OF PRINTING AND DISTRIBUTING PROSPECTUSES TO EXISTING SHAREHOLDERS; EXPENSES INCURRED FOR MAINTAINING EACH TRUST'S OR FUND'S EXISTENCE, TAXES AND EXPENSES RELATED TO PORTFOLIO TRANSACTIONS; CHARGES AND EXPENSES OF ANY REGISTRAR, CUSTODIAN OR DEPOSITORY FOR PORTFOLIO SECURITIES AND OTHER PROPERTY, AND ANY STOCK TRANSFER, DIVIDEND OR ACCOUNT AGENT OR AGENTS; ALL TAXES, INCLUDING SECURITIES ISSUANCE AND TRANSFER TAXES, AND FEES PAYABLE TO FEDERAL, STATE OR OTHER GOVERNMENTAL AGENCIES; COSTS AND EXPENSES IN CONNECTION WITH THE REGISTRATION, MAINTENANCE OF REGISTRATION AND QUALIFICATION FOR SALE OF A FUND AND ITS SHARES WITH THE SEC AND VARIOUS STATES AND OTHER JURISDICTIONS (INCLUDING FILING FEES, LEGAL FEES AND -86- DISBURSEMENTS OF COUNSEL); EXPENSES OF SHAREHOLDERS' AND DIRECTORS' MEETINGS AND PREPARING, PRINTING, AND MAILING OF PROXY STATEMENTS AND REPORTS TO SHAREHOLDERS; FEES AND TRAVEL EXPENSES OF DIRECTORS WHO ARE NOT "INTERESTED PERSONS" AS THAT TERM IS DEFINED IN THE 1940 ACT; EXPENSES INCIDENT TO THE PAYMENT OF ANY DIVIDEND, DISTRIBUTION, WITHDRAWAL OR REDEMPTION, WHETHER IN SHARES OR IN CASH; CHARGES AND EXPENSES OF ANY OUTSIDE SERVICE USED FOR PRICING OF A FUND'S SHARES; FEES AND EXPENSES OF LEGAL COUNSEL AND OF INDEPENDENT ACCOUNTANTS; MEMBERSHIP DUES OF INDUSTRY ASSOCIATIONS; POSTAGE (EXCLUDING POSTAGE FOR PROMOTIONAL AND SALES LITERATURE); INSURANCE PREMIUMS ON PROPERTY OF PERSONNEL (INCLUDING, BUT NOT LIMITED TO LEGAL CLAIMS AND LIABILITIES AND LITIGATION COSTS AND ANY INDEMNIFICATION RELATED THERETO); AND ALL OTHER CHARGES AND COSTS OF A FUND'S OPERATION UNLESS OTHERWISE EXPLICITLY PROVIDED HEREIN. THE DISTRIBUTOR WILL BEAR ALL EXPENSES INCURRED IN CONNECTION WITH ITS PERFORMANCE OF THE SERVICES DESCRIBED HEREIN AND THE INCURRING OF DISTRIBUTION EXPENSES UNDER THIS AGREEMENT. FOR PURPOSES OF THIS AGREEMENT, "DISTRIBUTION EXPENSES" OF THE DISTRIBUTOR SHALL MEAN ALL EXPENSES BORNE BY THE DISTRIBUTOR WHICH REPRESENT PAYMENT FOR ACTIVITIES PRIMARILY INTENDED TO RESULT IN THE SALE OF SHARES, INCLUDING, BUT NOT LIMITED TO, THE EXPENSES OF DISTRIBUTION THAT ARE DESCRIBED IN THE DISTRIBUTION PLANS. THE DISTRIBUTOR WILL FURNISH THE BOARD OF TRUSTEES STATEMENTS OF DISTRIBUTION REVENUES AND EXPENDITURES AT LEAST QUARTERLY WITH RESPECT TO THE SHARES OF EACH FUND AS REQUIRED BY THE DISTRIBUTION PLANS. NON-EXCLUSIVITY. THE SERVICES OF THE DISTRIBUTOR ARE NOT EXCLUSIVE AND THE DISTRIBUTOR SHALL BE ENTITLED TO RENDER DISTRIBUTION OR OTHER SERVICES TO OTHERS (INCLUDING OTHER INVESTMENT COMPANIES) AND TO ENGAGE IN OTHER ACTIVITIES. IT IS UNDERSTOOD AND AGREED THAT OFFICERS AND DIRECTORS OF THE DISTRIBUTOR MAY SERVE AS OFFICERS OR TRUSTEES OF EACH TRUST, AND THAT OFFICERS OR TRUSTEES OF EACH TRUST MAY SERVE AS OFFICERS AND DIRECTORS OF THE -87- DISTRIBUTOR TO THE EXTENT PERMITTED BY LAW; AND THAT OFFICERS AND DIRECTORS OF THE DISTRIBUTOR ARE NOT PROHIBITED FROM ENGAGING IN ANY OTHER BUSINESS ACTIVITY OR FROM RENDERING SERVICES TO ANY OTHER PERSON, OR FROM SERVING AS PARTNERS, OFFICERS OR DIRECTORS OF ANY OTHER FIRM OR CORPORATION, INCLUDING OTHER INVESTMENT COMPANIES AND BROKER/DEALERS. TERM AND APPROVAL. THIS AGREEMENT SHALL BECOME EFFECTIVE AS OF THE DATE FIRST ABOVE WRITTEN FOR AN INITIAL PERIOD OF TWO YEARS, AND SHALL CONTINUE IN FORCE AND EFFECT FROM YEAR TO YEAR THEREAFTER, PROVIDED THAT, WITH RESPECT TO ANY FUND, SUCH CONTINUANCE IS SPECIFICALLY APPROVED AT LEAST ANNUALLY: BY EACH TRUST'S BOARD OF TRUSTEES, INCLUDING THE AFFIRMATIVE VOTE OF A MAJORITY OF THE BOARD OF TRUSTEES OF THE RESPECTIVE TRUST WHO ARE NOT (I) PARTIES TO THIS AGREEMENT, (II) INTERESTED PERSONS OF ANY SUCH PARTY (AS DEFINED IN SECTION 2(A)(19) OF THE 1940 ACT), OR (III) PERSONS HAVING A DIRECT OR INDIRECT FINANCIAL INTEREST IN THE OPERATION OF THIS AGREEMENT OR ANY AGREEMENT RELATED TO THIS AGREEMENT (THE "QUALIFIED TRUSTEES") BY VOTES CAST IN PERSON AT A MEETING CALLED FOR THE PURPOSE OF VOTING ON SUCH APPROVAL, OR BY THE VOTE OF A MAJORITY OF THE OUTSTANDING VOTING SECURITIES OF THE FUND (AS SUCH VOTE IS DEFINED IN SECTION 2(A)(42) OF THE 1940 ACT). TERMINATION. TERMINATION ON ASSIGNMENT. THIS AGREEMENT SHALL TERMINATE AUTOMATICALLY IN THE EVENT OF ITS "ASSIGNMENT" (AS DEFINED IN THE 1940 ACT), IT BEING UNDERSTOOD THAT THIS AGREEMENT HAS BEEN APPROVED BY THE TRUSTEES, INCLUDING THE QUALIFIED TRUSTEES IN CONTEMPLATION OF AN AMENDED AND RESTATED PURCHASE AND SALE AGREEMENT TO BE ENTERED INTO BY THE DISTRIBUTOR, CITIBANK, N.A. AND CITICORP NORTH AMERICA, INC., WHICH PROVIDES FOR A TRANSFER OF RECEIVABLES RELATING TO THE DISTRIBUTION FEES AND CDSCS PAYABLE TO THE DISTRIBUTOR UNDER THIS AGREEMENT. THE DISTRIBUTOR AGREES TO NOTIFY THE RESPECTIVE TRUST OF ANY CIRCUMSTANCES THAT MIGHT RESULT IN THIS AGREEMENT BEING DEEMED TO BE ASSIGNED. -88- VOLUNTARY TERMINATION. EACH TRUST MAY TERMINATE THIS AGREEMENT WITH RESPECT TO ANY FUND OR CLASS, OR IN ITS ENTIRETY, WITHOUT PENALTY, ON 60 DAYS' WRITTEN NOTICE TO THE DISTRIBUTOR BY VOTE OF THE BOARD OF TRUSTEES OF THE RESPECTIVE TRUST, OR BY VOTE OF A MAJORITY OF THE QUALIFIED TRUSTEES OR BY VOTE OF A MAJORITY OF THE OUTSTANDING VOTING SHARES OF SUCH FUND, AS THE CASE MAY BE. THE DISTRIBUTOR MAY TERMINATE THIS AGREEMENT WITH RESPECT TO ANY FUND, OR IN ITS ENTIRETY, ON 60 DAYS' WRITTEN NOTICE TO THE FUND OR TRUST AS THE CASE MAY BE. TERMINATION OF THIS AGREEMENT WITH RESPECT TO ANY CLASS OF SHARES OF ANY FUND SHALL NOT CAUSE THIS AGREEMENT TO TERMINATE WITH RESPECT TO THE OTHER CLASS OF SHARES OF SUCH FUND OR ANY SHARES OF ANY OTHER FUND. NOTICE OF TERMINATION AS PROVIDED FOR IN THIS SECTION MAY BE WAIVED BY EITHER PARTY, SUCH WAIVER TO BE IN WRITING. CONTINUED PAYMENT. WITH RESPECT TO CLASS B SHARES OF ANY FUND SOLD PURSUANT TO THIS AGREEMENT, THE RESPECTIVE TRUST SHALL CONTINUE PAYMENT TO THE DISTRIBUTOR OF (A) THE DISTRIBUTOR'S ALLOCABLE PORTION, AS DEFINED IN SCHEDULE 1 TO THIS AGREEMENT, OF THE CONTINGENT DEFERRED SALES CHARGES ATTRIBUTABLE TO SUCH SHARES OF SUCH FUND, AND (B) SO LONG AS THERE HAS BEEN NO COMPLETE TERMINATION (AS DEFINED IN THE APPLICABLE DISTRIBUTION PLAN), THE DISTRIBUTOR'S ALLOCABLE PORTION OF THE DISTRIBUTION FEE ATTRIBUTABLE TO SUCH CLASS B SHARES OF SUCH FUND, IN EITHER CASE NOTWITHSTANDING TERMINATION OF THIS AGREEMENT ACCORDING TO ITS TERMS. REPRESENTATIONS AND WARRANTIES. EACH TRUST REPRESENTS AND WARRANTS TO THE DISTRIBUTOR THAT ANY REGISTRATION STATEMENT, PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION, WHEN SUCH REGISTRATION STATEMENT BECOMES EFFECTIVE, WILL INCLUDE ALL STATEMENTS REQUIRED TO BE CONTAINED THEREIN IN CONFORMITY WITH THE 1933 ACT, THE 1940 ACT AND THE RULES AND REGULATIONS OF THE SEC; THAT ALL STATEMENTS OF FACT CONTAINED IN ANY REGISTRATION STATEMENT, PROSPECTUS OR STATEMENT OF ADDITIONAL INFORMATION WILL BE TRUE AND CORRECT WHEN SUCH REGISTRATION STATEMENT BECOMES EFFECTIVE; AND THAT NEITHER ANY REGISTRATION STATEMENT NOR ANY PROSPECTUS OR STATEMENT OF ADDITIONAL INFORMATION WHEN SUCH REGISTRATION STATEMENT BECOMES EFFECTIVE WILL INCLUDE AN UNTRUE STATEMENT OF A MATERIAL FACT OR OMIT TO -89- STATE A MATERIAL FACT REQUIRED TO BE STATED THEREIN OR NECESSARY TO MAKE THE STATEMENTS THEREIN NOT MISLEADING TO A PURCHASER OF SHARES. THE DISTRIBUTOR MAY, BUT SHALL NOT BE OBLIGATED TO, PROPOSE FROM TIME TO TIME SUCH AMENDMENT OR AMENDMENTS TO ANY REGISTRATION STATEMENT AND SUCH SUPPLEMENT OR SUPPLEMENTS TO ANY PROSPECTUS OR STATEMENT OF ADDITIONAL INFORMATION AS, IN THE LIGHT OF FUTURE DEVELOPMENTS, MAY, IN THE OPINION OF THE DISTRIBUTOR'S COUNSEL, BE NECESSARY OR ADVISABLE. IF THE RESPECTIVE TRUST SHALL NOT PROPOSE SUCH AMENDMENT OR AMENDMENTS AND/OR SUPPLEMENT OR SUPPLEMENTS WITHIN FIFTEEN (15) DAYS AFTER RECEIPT BY THE RESPECTIVE TRUST OF A WRITTEN REQUEST FROM THE DISTRIBUTOR TO DO SO, THE DISTRIBUTOR MAY, AT ITS OPTION, TERMINATE THIS AGREEMENT. NO TRUST SHALL FILE ANY AMENDMENT TO ANY REGISTRATION STATEMENT OR SUPPLEMENT TO ANY PROSPECTUS OR STATEMENT OF ADDITIONAL INFORMATION WITHOUT GIVING THE DISTRIBUTOR REASONABLE NOTICE THEREOF IN ADVANCE; PROVIDED, HOWEVER, THAT NOTHING CONTAINED IN THIS AGREEMENT SHALL IN ANY WAY LIMIT A TRUST'S RIGHT TO FILE AT ANY TIME SUCH AMENDMENTS TO ANY REGISTRATION STATEMENT AND/OR SUPPLEMENTS TO ANY PROSPECTUS OR STATEMENT OF ADDITIONAL INFORMATION, OF WHATEVER CHARACTER, AS SUCH TRUST MAY DEEM ADVISABLE, SUCH RIGHT BEING IN ALL RESPECTS ABSOLUTE AND UNCONDITIONAL. EACH TRUST REPRESENTS AND WARRANTS TO THE DISTRIBUTOR THAT THE PAYMENT BY THE RESPECTIVE TRUST OF FEES UNDER THIS AGREEMENT FOR DISTRIBUTION SERVICES RENDERED WITH RESPECT TO ANY CLASS B SHARES OF ANY FUND IS AUTHORIZED PURSUANT TO SUCH TRUST'S CLASS B DISTRIBUTION PLAN, AS AMENDED, PERTAINING TO SUCH CLASS B SHARES OF SUCH FUND, ADOPTED IN ACCORDANCE WITH RULE 12B-1 UNDER THE 1940 ACT (A "PLAN"). AMENDMENTS. THIS AGREEMENT MAY BE AMENDED, WITH RESPECT TO ANY FUND, BY THE PARTIES HERETO ONLY IF SUCH AMENDMENT IS SPECIFICALLY APPROVED (I) BY THE BOARD OF TRUSTEES OF THE RESPECTIVE TRUST OR BY THE VOTE OF MAJORITY OF OUTSTANDING VOTING SECURITIES OF THE FUND, AND (II) BY A MAJORITY OF THE QUALIFIED TRUSTEES, WHICH VOTE MUST BE CAST IN PERSON AT A MEETING CALLED FOR THE PURPOSE OF VOTING ON SUCH APPROVAL; PROVIDED, HOWEVER, THAT ANY SUCH AMENDMENT THAT CONSTITUTES -90- AN AMENDMENT OF THE DISTRIBUTION PLAN FOR ANY CLASS OF SHARES OF A FUND SHALL BE APPROVED BY SHAREHOLDERS PURSUANT TO RULE 12B-1 TO THE EXTENT REQUIRED BY APPLICABLE LAW. INDEMNIFICATION. EACH TRUST AUTHORIZES THE DISTRIBUTOR AND ANY DEALERS WITH WHOM DISTRIBUTOR HAS ENTERED INTO DEALER AGREEMENTS TO USE ANY PROSPECTUS OR STATEMENT OF ADDITIONAL INFORMATION FURNISHED BY THE RESPECTIVE TRUST FROM TIME TO TIME, IN CONNECTION WITH THE SALE OF SHARES OF EACH FUND. EACH TRUST AGREES TO INDEMNIFY, DEFEND AND HOLD DISTRIBUTOR, ITS SEVERAL OFFICERS AND DIRECTORS, AND ANY PERSON WHO CONTROLS DISTRIBUTOR WITHIN THE MEANING OF SECTION 15 OF THE 1933 ACT, FREE AND HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS, DEMANDS, LIABILITIES AND EXPENSES (INCLUDING THE COST OF INVESTIGATING OR DEFENDING SUCH CLAIMS, DEMANDS OR LIABILITIES AND ANY COUNSEL FEES INCURRED IN CONNECTION THEREWITH) WHICH DISTRIBUTOR, ITS OFFICERS AND DIRECTORS, OR ANY SUCH CONTROLLING PERSON, MAY INCUR UNDER THE 1933 ACT, THE 1940 ACT OR COMMON LAW OR OTHERWISE, ARISING OUT OF OR BASED UPON ANY UNTRUE STATEMENT OR ALLEGED UNTRUE STATEMENT OF A MATERIAL FACT CONTAINED IN ANY REGISTRATION STATEMENT, ANY PROSPECTUS OR ANY STATEMENT OF ADDITIONAL INFORMATION, OR ARISING OUT OF OR BASED UPON ANY OMISSION OR ALLEGED OMISSION TO STATE A MATERIAL FACT REQUIRED TO BE STATED IN ANY REGISTRATION STATEMENT, ANY PROSPECTUS OR ANY STATEMENT OF ADDITIONAL INFORMATION, OR NECESSARY TO MAKE THE STATEMENTS IN ANY OF THEM NOT MISLEADING; PROVIDED, HOWEVER, THAT EACH TRUST'S AGREEMENT TO INDEMNIFY THE DISTRIBUTOR, ITS OFFICERS OR DIRECTORS, AND ANY SUCH CONTROLLING PERSON SHALL NOT BE DEEMED TO COVER ANY CLAIMS, DEMANDS, LIABILITIES OR EXPENSES ARISING OUT OF OR BASED UPON ANY STATEMENTS OR REPRESENTATIONS MADE BY DISTRIBUTOR OR ITS REPRESENTATIVES OR AGENTS OTHER THAN SUCH STATEMENTS AND REPRESENTATIONS AS ARE CONTAINED IN ANY REGISTRATION STATEMENT, PROSPECTUS OR STATEMENT OF ADDITIONAL INFORMATION AND IN SUCH FINANCIAL AND OTHER STATEMENTS AS ARE FURNISHED TO THE DISTRIBUTOR PURSUANT TO SECTION 2 HEREOF; AND FURTHER PROVIDED THAT EACH TRUST'S AGREEMENT TO INDEMNIFY THE DISTRIBUTOR AND EACH TRUST'S REPRESENTATIONS AND WARRANTIES SHALL NOT BE DEEMED TO COVER ANY LIABILITY TO THE TRUST OR ITS SHAREHOLDERS TO WHICH DISTRIBUTOR WOULD OTHERWISE BE SUBJECT BY REASON -91- OF WILLFUL MISFEASANCE, BAD FAITH OR GROSS NEGLIGENCE IN THE PERFORMANCE OF ITS DUTIES, OR BY REASON OF DISTRIBUTOR'S RECKLESS DISREGARD OF ITS OBLIGATIONS AND DUTIES UNDER THIS AGREEMENT. EACH TRUST'S AGREEMENT TO INDEMNIFY DISTRIBUTOR, ITS OFFICERS AND DIRECTORS, AND ANY SUCH CONTROLLING PERSON, AS AFORESAID, IS EXPRESSLY CONDITIONED UPON THE RESPECTIVE TRUST BEING NOTIFIED OF ANY ACTION BROUGHT AGAINST DISTRIBUTOR, ITS OFFICERS OR DIRECTORS, OR ANY SUCH CONTROLLING PERSON, SUCH NOTIFICATION TO BE GIVEN BY LETTER OR BY TELEGRAM ADDRESSED TO THE RESPECTIVE TRUST AT ITS PRINCIPAL OFFICE STATED HEREIN AND SENT TO SUCH TRUST BY THE PERSON AGAINST WHOM SUCH ACTION IS BROUGHT, WITHIN TEN (10) DAYS AFTER THE SUMMONS OR OTHER FIRST LEGAL PROCESS SHALL HAVE BEEN SERVED. THE FAILURE SO TO NOTIFY SUCH TRUST OF ANY SUCH ACTION SHALL NOT RELIEVE THE TRUST FROM ANY LIABILITY THAT THE TRUST MAY HAVE TO THE PERSON AGAINST WHOM SUCH ACTION IS BROUGHT BY REASON OF ANY SUCH UNTRUE OR ALLEGED UNTRUE STATEMENT OR OMISSION OR ALLEGED OMISSION OTHERWISE THAN ON ACCOUNT OF THE TRUST'S INDEMNITY AGREEMENT CONTAINED IN THIS SUB-SECTION 12.1. EACH TRUST'S INDEMNIFICATION AGREEMENT CONTAINED IN THIS SUB-SECTION 12.1 AND EACH TRUST'S REPRESENTATIONS AND WARRANTIES IN THIS AGREEMENT SHALL REMAIN OPERATIVE AND IN FULL FORCE AND EFFECT REGARDLESS OF ANY INVESTIGATION MADE BY OR ON BEHALF OF DISTRIBUTOR, ITS OFFICERS AND DIRECTORS, OR ANY CONTROLLING PERSON, AND SHALL SURVIVE THE DELIVERY OF ANY SHARES. THIS AGREEMENT OF INDEMNITY WILL INURE EXCLUSIVELY TO DISTRIBUTOR'S BENEFIT, TO THE BENEFIT OF ITS SEVERAL OFFICERS AND DIRECTORS AND THEIR RESPECTIVE ESTATES, AND TO THE BENEFIT OF THE CONTROLLING PERSONS AND THEIR SUCCESSORS. EACH TRUST AGREES TO NOTIFY DISTRIBUTOR PROMPTLY OF THE COMMENCEMENT OF ANY LITIGATION OR PROCEEDINGS AGAINST THE RESPECTIVE TRUST OR ANY OF ITS OFFICERS OR TRUSTEES IN CONNECTION WITH THE ISSUANCE AND SALE OF ANY SHARES. DISTRIBUTOR AGREES TO INDEMNIFY, DEFEND AND HOLD EACH TRUST, ITS SEVERAL OFFICERS AND TRUSTEES, AND ANY PERSON WHO CONTROLS SUCH TRUST WITHIN THE MEANING OF SECTION 15 OF THE 1933 ACT, FREE AND HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS, DEMANDS, LIABILITIES AND EXPENSES (INCLUDING THE COSTS OF INVESTIGATING OR DEFENDING SUCH CLAIMS, DEMANDS OR LIABILITIES AND ANY COUNSEL FEES INCURRED IN CONNECTION THEREWITH) THAT THE RESPECTIVE TRUST, ITS OFFICERS OR TRUSTEES OR ANY SUCH CONTROLLING PERSON MAY INCUR UNDER THE 1933 ACT, THE 1940 ACT OR COMMON LAW OR OTHERWISE, BUT ONLY TO THE EXTENT THAT SUCH LIABILITY OR EXPENSE INCURRED -92- BY THE RESPECTIVE TRUST, ITS OFFICERS OR TRUSTEES OR SUCH CONTROLLING PERSON RESULTING FROM SUCH CLAIMS OR DEMANDS SHALL ARISE OUT OF OR BE BASED UPON (A) ANY UNAUTHORIZED SALES LITERATURE, ADVERTISEMENTS, INFORMATION, STATEMENTS OR REPRESENTATIONS OR (B) ANY UNTRUE OR ALLEGEDLY UNTRUE STATEMENT OF A MATERIAL FACT CONTAINED IN INFORMATION FURNISHED IN WRITING BY THE DISTRIBUTOR TO THE RESPECTIVE TRUST AND USED IN THE ANSWERS TO ANY OF THE ITEMS OF THE REGISTRATION STATEMENT OR IN THE CORRESPONDING STATEMENTS MADE IN THE PROSPECTUS OR STATEMENT OF ADDITIONAL INFORMATION, OR SHALL ARISE OUT OF OR BE BASED UPON ANY OMISSION OR ALLEGED OMISSION TO STATE A MATERIAL FACT IN CONNECTION WITH SUCH INFORMATION FURNISHED IN WRITING BY DISTRIBUTOR TO THE RESPECTIVE TRUST AND REQUIRED TO BE STATED IN SUCH ANSWERS OR NECESSARY TO MAKE SUCH INFORMATION NOT MISLEADING. DISTRIBUTOR'S AGREEMENT TO INDEMNIFY THE TRUST, ITS OFFICERS AND TRUSTEES, AND ANY SUCH CONTROLLING PERSON, AS AFORESAID, IS EXPRESSLY CONDITIONED UPON DISTRIBUTOR BEING NOTIFIED OF ANY ACTION BROUGHT AGAINST THE TRUST, ITS OFFICERS OR TRUSTEES, AND ANY SUCH CONTROLLING PERSON, SUCH NOTIFICATION TO BE GIVEN BY LETTER OR TELEGRAM ADDRESSED TO DISTRIBUTOR AT ITS PRINCIPAL OFFICE AS STATED HEREIN AND SENT TO DISTRIBUTOR BY THE PERSON AGAINST WHOM SUCH ACTION IS BROUGHT, WITHIN TEN DAYS AFTER THE SUMMONS OR OTHER FIRST LEGAL PROCESS SHALL HAVE BEEN SERVED. THE FAILURE SO TO NOTIFY THE DISTRIBUTOR OF ANY SUCH ACTION SHALL NOT RELIEVE DISTRIBUTOR FROM ANY LIABILITY THAT THE DISTRIBUTOR MAY HAVE TO THE TRUST, ITS OFFICERS OR TRUSTEES, OR TO SUCH CONTROLLING PERSON BY REASON OF ANY SUCH UNTRUE OR ALLEGED UNTRUE STATEMENT OR OMISSION OR ALLEGED OMISSION OTHERWISE THAN ON ACCOUNT OF DISTRIBUTOR'S INDEMNITY AGREEMENT CONTAINED IN THIS SUB-SECTION 12.2. THE DISTRIBUTOR AGREES TO NOTIFY THE TRUST PROMPTLY OF THE COMMENCEMENT OF ANY LITIGATION OR PROCEEDINGS AGAINST DISTRIBUTOR OR ANY OF ITS OFFICERS OR DIRECTORS IN CONNECTION WITH THE ISSUANCE AND SALE OF ANY SHARES. IN CASE ANY ACTION SHALL BE BROUGHT AGAINST ANY INDEMNIFIED PARTY UNDER SUB-SECTIONS 12.1 OR 12.2, AND IT SHALL NOTIFY THE INDEMNIFYING PARTY OF THE COMMENCEMENT THEREOF, THE INDEMNIFYING PARTY SHALL BE ENTITLED TO PARTICIPATE IN, AND, TO THE EXTENT THAT IT SHALL WISH TO DO SO TO ASSUME THE DEFENSE THEREOF WITH COUNSEL SATISFACTORY TO SUCH INDEMNIFIED PARTY. IF THE INDEMNIFYING PARTY OPTS TO ASSUME THE DEFENSE OF SUCH ACTION, THE INDEMNIFYING PARTY WILL NOT BE LIABLE TO THE INDEMNIFIED PARTY FOR ANY -93- LEGAL OR OTHER EXPENSES SUBSEQUENTLY INCURRED BY THE INDEMNIFIED PARTY IN CONNECTION WITH THE DEFENSE THEREOF OTHER THAN (A) REASONABLE COSTS OF INVESTIGATION OR THE FURNISHING OF DOCUMENTS OR WITNESSES AND (B) ALL REASONABLE FEES AND EXPENSES OF SEPARATE COUNSEL TO SUCH INDEMNIFIED PARTY IF (I) THE INDEMNIFYING PARTY AND THE INDEMNIFIED PARTY SHALL HAVE AGREED TO THE RETENTION OF SUCH COUNSEL OR (II) THE INDEMNIFIED PARTY SHALL HAVE CONCLUDED REASONABLY THAT REPRESENTATION OF THE INDEMNIFYING PARTY AND THE INDEMNIFIED PARTY BY THE SAME COUNSEL WOULD BE INAPPROPRIATE DUE TO ACTUAL OR POTENTIAL DIFFERING INTERESTS BETWEEN THEM IN THE CONDUCT OF THE DEFENSE OF SUCH ACTION. LIABILITY OF THE DISTRIBUTOR. IN THE PERFORMANCE OF ITS DUTIES HEREUNDER, THE DISTRIBUTOR SHALL BE OBLIGATED TO EXERCISE CARE AND DILIGENCE AND TO ACT IN GOOD FAITH AND TO USE ITS BEST EFFORTS WITHIN REASONABLE LIMITS TO INSURE THE ACCURACY OF ALL SERVICES PERFORMED UNDER THIS AGREEMENT, BUT THE DISTRIBUTOR SHALL NOT BE LIABLE FOR ANY ACT OR OMISSION WHICH DOES NOT CONSTITUTE WILLFUL MISFEASANCE, BAD FAITH OR GROSS NEGLIGENCE ON THE PART OF THE DISTRIBUTOR OR RECKLESS DISREGARD BY THE DISTRIBUTOR OF ITS DUTIES UNDER THIS AGREEMENT. NOTICES. ANY NOTICES UNDER THIS AGREEMENT SHALL BE IN WRITING, ADDRESSED AND DELIVERED OR MAILED POSTAGE PAID TO THE OTHER PARTY AT SUCH ADDRESS AS SUCH OTHER PARTY MAY DESIGNATE FOR THE RECEIPT OF SUCH NOTICE. UNTIL FURTHER NOTICE TO THE OTHER PARTY, IT IS AGREED THAT THE ADDRESS OF EACH FUND SHALL BE 1201 THIRD AVENUE, SUITE 1400, SEATTLE, WA 98101, AND THE ADDRESS OF THE DISTRIBUTOR SHALL BE 1201 THIRD AVENUE, SUITE 1400, SEATTLE, WA 98101. DECLARATION OF TRUST AND LIMITATION OF LIABILITY. A COPY OF THE CHARTER DOCUMENTS OF EACH TRUST IS ON FILE WITH THE SECRETARY OF STATE OF THE COMMONWEALTH OF MASSACHUSETTS, AND NOTICE IS HEREBY GIVEN THAT THIS AGREEMENT IS EXECUTED BY AN OFFICER OF THE TRUST ON BEHALF OF THE TRUSTEES OF THE TRUST AS -94- TRUSTEES AND NOT INDIVIDUALLY, ON FURTHER BEHALF OF EACH FUND, AND THAT THE OBLIGATIONS OF THIS AGREEMENT WITH RESPECT TO EACH FUND SHALL BE BINDING UPON THE ASSETS AND PROPERTIES OF THE FUND ONLY AND SHALL NOT BE BINDING UPON THE ASSETS AND PROPERTIES OF ANY OTHER FUND OR SERIES OF THE TRUST OR UPON ANY OF THE TRUSTEES, OFFICERS, EMPLOYEES, AGENTS OR SHAREHOLDERS OF THE FUND OR THE TRUST INDIVIDUALLY. -95- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in duplicate by their respective officers on the date and year first above written. WM TRUST I, on behalf of its WM TRUST II, on behalf of its constituent series constituent series By: By: --------------------------------- ------------------------------------ William G. Papesh, President William G. Papesh, President Attest: By: By: --------------------------------- ------------------------------------ John T. West, Secretary John T. West, Secretary WM STRATEGIC ASSET MANAGEMENT WM FUNDS DISTRIBUTOR, INC. PORTFOLIOS, LLC, on behalf of its constituent series By: By: --------------------------------- ------------------------------------ William G. Papesh, President William G. Papesh, President Attest: By: By: --------------------------------- ------------------------------------ John T. West, Secretary Sharon L. Howells, Secretary WM TRUST I, WM TRUST II, AND WM STRATEGIC ASSET MANAGEMENT PORTFOLIOS, LLC DISTRIBUTION AGREEMENT Schedule 1 Date of Agreement: NOVEMBER _9, 2005 Date of this Schedule: MARCH 9, 1999 ALLOCABLE PORTIONS The Distributor's "Allocable Portion" of the Distribution Fee payable on any class of Shares of any Fund, or of the CDSC in respect of any Class B Shares of any Fund shall be that percentage allocated to the Distributor in accordance with the allocation formulas set forth in Parts C and D below, and the rules of attribution set forth in Part B below. Capitalized terms used in this Schedule without definition and defined in the Agreement shall have the same meanings herein as therein, except that the term "Share" shall refer only to Class B shares of each Fund. PART A: DEFINITIONS "Commission Share" means, in respect of any Fund, each Share of such Fund issued under circumstances that would normally give rise to an obligation or the holder of such Share to pay a CDSC upon redemption of such Share, including, without limitation, any Share of such Fund issued in connection with a "Permitted Free Exchange" (as such term is defined in that certain Amended and Restated Purchase and Sale Agreement dated as of March 5, 1999, as amended as of August 6, 2001 by and among the Distributor, Citicorp North America, Inc. and Citibank, N.A., as the same shall be amended from time to time (the "Purchase Agreement")), provided that no such Share shall cease to be a Commission Share prior to its redemption (including a redemption in connection with a Permitted Free Exchange) or conversion even though the obligation of such holder to pay a CDSC shall have expired or the CDSC on such Share shall have been waived. "Cutoff Date" means, in respect of any class of Shares of any Fund, the date of the last sale of a Commission Share of such class of such Fund during the term of the Agreement. "Distribution Fee" has the meaning given to the term "asset-based sales charge" in Rule 2830 (b)(8)(A) of the Conduct Rules. "Free Exchange Share" means, in respect of any Fund, any Free Share of such Fund issued in connection with a Permitted Free Exchange. "Free New Share" means, in respect of any Fund, any Free Share that is not a Free Exchange Share. "Free Share" means, in respect of any Fund, each Share of such Fund other than a Commission Share, including, without limitation, any Share issued in connection with the reinvestment of dividends. "Non-Omnibus Shares" means, in respect of any Fund, all Shares of such Fund other than Omnibus Shares. "Omnibus Shares" means, in respect of any Fund, all Shares of such Fund in any Omnibus Account on the records of a Fund maintained by the Transfer Agent, for which account such broker-dealer provides subtransfer agency services for that Fund. "Sub-Transfer Agent" means, in respect of any Fund, the record owner of any Omnibus Account. PART B: ATTRIBUTION Shares of each class of Shares of each Fund, which Shares are outstanding from time to time, shall be attributed to either the Distributor or to any other person named as a distributor of Shares of such class of such Fund (such person, an "Other Distributor") in accordance with the following rules: COMMISSION SHARES: EACH COMMISSION SHARE OF FUND IS SPECIFICALLY TRACKED, ON THE RECORDS MAINTAINED BY THE TRANSFER AGENT OF SUB-TRANSFER AGENTS FOR SUCH FUND WITH REFERENCE TO AN "ORIGINAL ISSUANCE DATE" (A) OF THE COMMISSION SHARE IN QUESTION OR (B) OF THE COMMISSION SHARE FROM WHICH THE COMMISSION SHARE IN QUESTION DERIVED THROUGH ONE OR MORE PERMITTED FREE EXCHANGES. The Commission Shares of each class of Shares of each Fund outstanding from time to time attributed to the Distributor shall be: (a) all Commission Shares of such class of such Fund issued, on or prior to the Cutoff Date for such class of such Fund, other than in a Permitted Free Exchange, and (b) those Commission Shares of such class of such Fund that are (i) issued in a Permitted Free Exchange in exchange for (ii) Shares of another Fund that had been attributed to the Distributor in accordance with the preceding clause (a) of this paragraph, in each case determined in accordance with the records maintained by the Transfer Agent or Sub-Transfer Agents for such Fund. For the avoidance of doubt, all Commission Shares issued during periods in which Funds Distributor, Inc., Griffin Financial Services or WM Fund Services, Inc. served as distributor under the Agreement or any predecessor agreement together with all Commission Shares derived from such Commission Shares, whether pursuant to one or more Permitted Free Exchanges or otherwise, shall be attributed to the Distributor. The Commission Shares of each class of Shares of each Fund outstanding from time to time attributed to Other Distributor shall be: (a) those Commission Shares of such class of Shares of such Fund issued, after the Cutoff Date for such class of Shares of such Fund, other than in a Permitted Free Exchange, and (b) those Commission Shares of such class of such Fund that are (i) issued in a Permitted Free Exchange in exchange for (ii) Shares of another Fund that were attributed to an Other Distributor in accordance with the immediately preceding clause (a) of this paragraph, in each case determined in accordance with the records maintained by the Transfer Agent or Sub-Transfer Agents for such Fund. FREE SHARES. FREE SHARES OF EACH CLASS OF SHARES OF EACH FUND ARE NOT SPECIFICALLY TRACKED BY THE TRANSFER AGENT OR SUB-TRANSFER AGENTS FOR SUCH FUND. THE NUMBER OF FREE SHARES OF EACH CLASS OF SHARES OF EACH FUND OUTSTANDING FROM TIME TO TIME SHALL BE ATTRIBUTED TO EITHER THE DISTRIBUTOR OF AN OTHER DISTRIBUTOR IN ACCORDANCE WITH RECORDS MAINTAINED BY THE DISTRIBUTOR IN ACCORDANCE WITH THIS PARAGRAPH (2). THE NUMBER OF NON-OMNIBUS FREE NEW SHARES, OF A CLASS OF ANY FUND, THAT ARE ATTRIBUTED TO THE DISTRIBUTOR SHALL BE DETERMINED PURSUANT TO THE FOLLOWING FORMULA. For such Shares issued during any calendar month: FNS x [(PCS + PFS)/(TCS + TFS)] where: FNS = Non-Omnibus Free New Shares of such class of such Fund that are issued during such calendar month. PCS = Non-Omnibus Commission Shares of such class of such Fund that have been attributed to the Distributor and that were outstanding as of the close of business on the last business day of the immediately preceding calendar month. PFS = Non-Omnibus Free Shares of such class of such Fund that have been attributed to the Distributor and that were outstanding as of the close of business on the last business day of the immediately preceding calendar month. TCS = Non-Omnibus Commission Shares of such class of such Fund that were outstanding as of the close of business on the last business day of the immediately preceding calendar month. TFS = Non-Omnibus Free Shares of such class of such Fund that were outstanding as of the close of business on the last business day of the immediately preceding calendar month. The balance of such Non-Omnibus Free New Shares issued during such calendar month shall be attributed to Other Distributors. (b) The number of Omnibus Free New Shares, of a class of any Fund, that are attributed to the Distributor shall be determined pursuant to the following formula. For such Shares issued during any calendar month: OFNS x [(POCS + POFS)/(TOCS + TOFS)] where: OFS = Omnibus Free New Shares of such class of such Fund that are issued during such calendar month. POCS = Omnibus Commission Shares of such class of such Fund that have been attributed to the Distributor and that were outstanding as of the close of business on the last business day of the immediately preceding calendar month. POFS = Omnibus Free Shares of such class of such Fund that have been attributed to the Distributor and that were outstanding as of the close of business on the last business day of the immediately preceding calendar month. TOCS = Omnibus Commission Shares of such class of such Fund that were outstanding as of the close of business on the last business day of the immediately preceding calendar month. TOFS = Omnibus Free Shares of such class of such Fund that were outstanding as of the close of business on the last business day of the immediately preceding calendar month. The balance of such Omnibus Free New Shares issued during such calendar month shall be attributed to Other Distributions. (c) The number of Non-Omnibus Free Exchange Shares, of a class of any Fund (the "New Fund"), that are attributed to the Distributor shall be determined pursuant to the following formula. For such Shares issued during any calendar month in exchange for Shares of any other Fund (each, an "Old Fund"): FES x (PFS(o) / TFS(o)) where: FES = Non-Omnibus Free Exchange Shares of such class of the New Fund that are issued during such calendar month. PFS(o) = Non-Omnibus Free Shares of such class of the Old Fund that had been attributed to the Distributor and that were outstanding as of the close of business on the last business day of the immediately preceding calendar month. TFS(o) = Non-Omnibus Free Shares of such class of the Old Fund that were outstanding as of the close of business on the last business day of the immediately preceding calendar month. The balance of such Non-Omnibus Free Exchange Shares of the New Fund issued during such calendar month shall be attributed to Other Distributors. (d) The number of Omnibus Free Exchange Shares, of a class of any Fund (the "New Fund"), that are attributed to the Distributor shall be determined pursuant to the following formula. For such Shares issued during any calendar month in exchange for Shares of any other Fund (each, an "Old Fund"): OFES x (POFS(o)/TOFS(o)) where: OFES = Omnibus Free Exchange Shares of such class of the New Fund that are issued during such calendar month. POFS(o) = Omnibus Free Shares of such class of the Old Fund that had been attributed to the Distributor and that were outstanding as of the close of business on the last business day of the immediately preceding calendar month. TOFS(o) = Omnibus Free Shares of such class of the Old Fund that were outstanding as of the close of business on the last business day of the immediately preceding calendar month. The balance of such Omnibus Free Exchange Shares of the New Fund issued during such calendar month shall be attributed to Other Distributors. (e) The number of Non-Omnibus Free Shares, of a class of any Fund, that are redeemed or converted and that are attributed to the Distributor shall be determined pursuant to the following formula. For such Shares redeemed or converted during any calendar month: FSR x (PFS/TFS) where: FSR = Non-Omnibus Free Shares of such class of such Fund that are redeemed or converted during such calendar month. PFS = Non-Omnibus Free Shares of such class of such Fund that have been attributed to the Distributor and that were outstanding as of the close of business on the last business day of the immediately preceding calendar month. TFS = Non-Omnibus Free Shares of such class of such Fund that were outstanding as of the close of business on the last business day of the immediately preceding calendar month. The balance of such Non-Omnibus Free Shares redeemed or converted during such calendar month shall be attributed to Other Distributors. (f) The number of Omnibus Free Shares, of a class of any Fund, that are redeemed or converted and that are attributed to the Distributor shall be determined pursuant to the following formula. For such Shares redeemed or converted during any calendar month: OFSR x (POFS/TOFS) where: OFSR = Omnibus Free Shares of such class of such Fund that are redeemed or converted during such calendar month. POFS = Omnibus Free Shares of such class of such Fund that have been attributed to the Distributor and that were outstanding as of the close of business on the last business day of the immediately preceding calendar month. TOFS = Omnibus Free Shares of such class of such Fund that were outstanding as of the close of business on the last business day of the immediately preceding calendar month. The balance of such Omnibus Free Shares redeemed or converted during such calendar month shall be attributed to Other Distributors. (3) Timing of Attributions and Distributions. (a) The attributions of all Non-Omnibus Shares of each class of Shares of each Fund shall be made on a daily basis. The attribution of all Omnibus Shares of each class of Shares of each Fund shall be made monthly, for each calendar month no later than five (5) days following the last day of such month. (b) The parties to the Agreement acknowledge expressly that the procedures for determining the Distributor's Allocable Portion of Free Shares of any Fund implicitly assume that Free Shares issued in respect of dividends or other distributions made for any calendar month will be issued not earlier than the first business day of the following calendar month. Said parties agree that such procedures shall be modified in the event Free Shares attributable to reinvestment of such dividends or distributions are issued in the same calendar month for which such dividends are earned or distributions made. PART C: ALLOCATION OF CDSCs CDSCs will be allocated to either the Distributor or an Other Distributor depending upon whether the related redeemed Shares were attributed to, respectively, the Distributor or such Other Distributor in accordance with Part B, Paragraph (1) above. CDSCs relating to Non-Omnibus Shares will be allocated to either the Distributor or an Other Distributor on or prior to the third business day of the calendar week immediately succeeding the calendar week during which the Transfer Agent has paid such CDSC amount. CDSCs relating to Omnibus Shares shall be allocated to either the Distributor or an Other Distributor on or prior to the tenth (10th) day of the calendar month immediately succeeding the calendar month in which they are remitted by the Transfer Agent to the "Demand Deposit Account" for further credit to the "Collection Account" as such term is defined in that certain Second Amended and Restated Collection Agency Agreement dated as of March 20, 1998 among Citibank, N.A., Citicorp North America, Inc., the Distributor, and Bankers Trust Company as the same may be amended from time to time (the "Collection Agency Agreement"), unless in accordance with the Collection Agency Agreement more frequent allocations are required. PART D: ALLOCATION OF DISTRIBUTION FEE The Distribution Fee accruing in respect of each class of Shares of each Fund during any calendar month and that is allocated to the Distributor shall be determined pursuant to the following formula: A X [(B + C)/(D + E)] where: A = Distribution Fee accrued in respect of such class of Shares of such Fund during such calendar month. B = Shares of such class of such Fund attributed to the Distributor and outstanding as of the close of business on the last business day of the immediately preceding calendar month times the net asset value per share of such Shares as of such time. C = Shares of such class of such Fund attributed to the Distributor and outstanding as of the close of business on the last business day of such calendar month times the net asset value per share of such Shares as of such time. D = Total Shares of such class of such Fund outstanding as of the close of business on the last business day of the immediately preceding calendar month times the net asset value per share of such Shares as of such time. E = Total Shares of such class of such Fund outstanding as of the close of business on the last business day of such calendar month times the net asset value per share of such Shares as of such time. The balance of the Distribution Fee in respect of such class of Shares of such Fund accruing during such calendar month shall be allocated to Other Distributors. The allocations contemplated by this Part D of Distribution Fees accruing during any calendar month shall be made on or prior to the tenth (10th) day of the immediately following calendar month and in all cases prior to the payment of such Fees pursuant to the terms of the Agreement. EX-99.H1 14 v15673exv99wh1.txt EXHIBIT 99.(H)(1) (h)(1) TRANSFER AGENT AND SHAREHOLDER SERVICES AGREEMENT THIS AGREEMENT is made as of this 17 th day of Feb, 2005, by and between WM Trust I, WM Trust II and WM Variable Trust, each a Massachusetts business trust, and WM Strategic Asset Management Portfolios, LLC, a Massachusetts limited liability company (the "Trusts") and WM Shareholder Services, Inc. (the "Transfer Agent"), a Washington corporation. WHEREAS, each Trust is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act"); and WHEREAS, each Trust desires that the Transfer Agent perform certain transfer agent and shareholder services for each series of each Trust, listed on Schedule A attached hereto and made part of this Agreement, as such Schedule A may be amended from time to time (individually referred to herein as the "Portfolio" and collectively as the "Portfolios"); and WHEREAS, the Transfer Agent is willing to perform such services on the terms and conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the mutual premises and covenants herein set forth, the parties agree as follows: 1. RETENTION OF THE TRANSFER AGENT. Each Trust hereby retains the Transfer Agent to perform for the Trust transfer agent services as set forth below. The Transfer Agent also agrees to perform for each Trust such special services incidental to the performance of the services enumerated herein as agreed to by the parties from time to time. The Transfer Agent shall perform such additional services as are provided in an amendment to this Agreement hereof, in consideration of such fees, if any, as the parties hereto may agree. (a) Shareholder Transactions (i) Process shareholder purchase and redemption orders in accordance with conditions set forth in each Trust's prospectus(es) and Statement of Additional Information. (ii) Set up account information, including address, dividend option, taxpayer identification numbers and wire instructions. (iii) Issue confirmations in compliance with applicable laws and/or regulations. (iv) Issue periodic statements for shareholders. (v) Process transfers and exchanges. (vi) Act as a service agent and process dividend payments, including the purchase of new shares, through dividend reimbursement. (vii) Record the issuance of shares and maintain pursuant to Rule 17Ad-10(e) of the Securities Exchange Act of 1934, as amended (the "1934 Act") a record of the total number of shares of each Portfolio which are authorized, based upon data provided to it by the Trust, and issued and outstanding. (viii) Perform such services as are required to comply with Rules 17a-24 and 17Ad-17 of the 1934 Act (the "Lost Shareholder Rules"). (ix) Monitor short-term trading in shares of the Portfolios, and reject any exchange purchase if, in the judgment of the Transfer Agent the transaction would adversely affect the Fund or its shareholders, in accordance with the Portfolio's then-applicable market timing policy and procedures. (x) Administer and/or perform all other customary services of a transfer agent. (b) Shareholder Services (i) Respond as appropriate to all inquiries and communications from Shareholders relating to Shareholder accounts. (ii) Mail to Shareholders of the Portfolios, all reports to Shareholders, dividend and distribution notices and proxy material for the Funds' meetings of Shareholders. In connection with meetings of Shareholders, WMSS will prepare Shareholder lists, mail and certify as to the mailing of proxy materials, process and tabulate returned proxy cards, report on proxies voted prior to meetings, act as inspector of election at meetings and certify Shares voted at meetings. (iii) Maintain all shareholder records for each account in each Portfolio. (iv) Produce detailed history of transactions through duplicate or special order statements upon request. (v) Record shareholder account information changes. (vi) Record non-monetary information on shareholder accounts, including maintenance of correspondence. (vii) Prepare and distribute appropriate Internal Revenue Service forms for shareholder income and capital gains, including issuance of tax withholding reports to the Internal Revenue Service. (viii) Issue tax withholding reports to the Internal Revenue Service. (c) Compliance Reporting (i) Maintain reports for tracking rights of accumulation and purchases made under a letter of intent. (d) Dealer/Load Processing (if applicable) (i) Provide reports for tracking rights of accumulation and purchases made under a letter of intent. (ii) Account for separation of shareholder investments from transaction sale charges for purchase of Portfolio shares. (iii) Calculate fees due under 12b-1 plans for distribution and marketing expenses. (iv) Track sales and commission statistics by dealer and provide for payment of commissions on direct shareholder purchases on a load Portfolio. 2. SUBCONTRACTING. The Transfer Agent may, at its expense and upon prior approval from the Trusts, subcontract with any entity or person concerning the provision of the services contemplated hereunder; provided, however, that the Transfer Agent shall not be relieved of any of its obligations under this Agreement by the appointment of such subcontractor and provided further, that the Transfer Agent shall be responsible, to the extent provided in Section 7 hereof, for all acts and omissions of such subcontractor, including any acts or omissions of a subcontractor that would result in liability of the Transfer Agent under Section 7 hereof if taken or omitted by the Transfer Agent directly, as if such acts or omissions were its own. 3. COMPENSATION. The Trusts shall pay for the services to be provided by the Transfer Agent under this Agreement in accordance with, and in the manner set forth in, Schedule B attached hereto, as such Schedule may be amended from time to time. If this Agreement becomes effective subsequent to the first day of a month or terminates before the last day of a month, the Transfer Agent's compensation for that part of the month in which the Agreement is in effect shall be prorated in a manner consistent with the calculation of the fees as set forth above. Payment of the Transfer Agent's compensation for the preceding month shall be made promptly upon receipt of invoice from the Transfer Agent. 4. REIMBURSEMENT OF EXPENSES. In addition to paying the Transfer Agent the fees described in Schedule B attached hereto, the Trusts agree to reimburse the Transfer Agent for its reasonable out-of-pocket expenses in providing services hereunder, including without limitation the following: (a) All freight and other delivery and bonding charges incurred by the Transfer Agent in delivering materials to and from the Trust or shareholders; (b) All direct telephone, telephone transmission and telecopy or other electronic transmission expenses incurred by the Transfer Agent in communication with the Trust or shareholders (including network connectivity), the Trust's investment adviser or custodian, dealers or others as required for the Transfer Agent to perform the services to be provided hereunder; (c) The cost of microfilm or microfiche, or COOL storage of records or other materials; (d) The cost of printing and generating confirmations, statements and other documents and the cost of mailing such documents to shareholders and others; (e) All reasonable fees charged and expenses incurred by the Transfer Agent in connection with its performance, on behalf of the Trusts, of the AML Services (as defined in Section 23 hereof); (f) Any additional expenses reasonably incurred by the Transfer Agent in the performance of its duties and obligations under this Agreement other than networking fees, including, but not limited to: bank, federal wire, and ACH fees, regulatory compliance, escheatment, disaster recovery, NSCC charges, proxy solicitation, temporary staff and/or overtime, as deemed necessary by the Transfer Agent. (g) All expenses incurred in connection with any custom programming or systems modifications required to provide any special reports or services requested by the Trusts. Provided, however, that the out-of-pocket expenses payable hereunder shall not exceed $5.31 per open account per annum. 5. EFFECTIVE DATE. This Agreement shall become effective with respect to a Portfolio as of the date first written above (or, if a particular Portfolio is not in existence on that date, on the date such Portfolio commences operation) (the "Effective Date"). 6. TERM OF THIS AGREEMENT. The term of this Agreement shall continue in effect, unless earlier terminated by either party hereto as provided hereunder, for a period of one year. Thereafter, unless otherwise terminated as provided herein, this Agreement shall be renewed automatically for successive one-year periods. With respect to each Trust, this Agreement may be terminated without the payment of any penalty by either party upon (180) days' written notice thereof given by the Trust to the Transfer Agent and upon one hundred eighty (180) days' written notice thereof given by the Transfer Agent to the Trust(s). Notwithstanding the foregoing, after such termination for so long as the Transfer Agent, with the written consent of the Trust(s), in fact continues to perform any one or more of the services contemplated by this Agreement or any schedule or exhibit hereto, the provisions of this Agreement, including without limitation the provisions dealing with indemnification, shall continue in full force and effect. Compensation due the Transfer Agent and unpaid by the Trust(s) upon such termination shall be immediately due and payable upon and notwithstanding such termination. The Transfer Agent shall be entitled to collect from the Trust(s), in addition to the compensation described in Schedule B, the amount of all of the Transfer Agent's cash disbursements for services in connection with the Transfer Agent's activities in effecting such termination, including without limitation, the delivery to the Trust(s) and/or its designees of each Trust's property, records, instruments and documents. 7. STANDARD OF CARE. The duties of the Transfer Agent shall be confined to those expressly set forth herein, and no implied duties are assumed by or may be asserted against the Transfer Agent hereunder. The Transfer Agent shall be obligated to exercise care and diligence in the performance of its duties hereunder and to act in good faith in performing the services provided for under this Agreement. The Transfer Agent shall be liable for any damages arising directly or indirectly out of the Transfer Agent's failure to perform its duties under this Agreement to the extent such damages arise directly or indirectly out of the Transfer Agent's willful misfeasance, bad faith, negligence in the performance of its duties, or reckless disregard of its obligations and duties hereunder. (As used in this Article 7, the term "the Transfer Agent" shall include directors, officers, employees and other agents of the Transfer Agent as well as the Transfer Agent itself.) Without limiting the generality of the foregoing or any other provision of this Agreement, (i) the Transfer Agent shall not be liable for losses beyond its reasonable control, provided that the Transfer Agent has acted in accordance with the standard of care set forth above; and (ii) the Transfer Agent shall not be liable for the validity or invalidity or authority or lack thereof of any instruction, notice or other instrument that the Transfer Agent reasonably believes to be genuine and to have been signed or presented by a duly authorized representative of the Trust (other than an employee or other affiliated persons of the Transfer Agent who may otherwise be named as an authorized representative of the Trust for certain purposes). The Transfer Agent may apply to the Trusts at any time for instructions and may consult with counsel for the Trusts or its own counsel and with accountants and other experts with respect to any matter arising in connection with the Transfer Agent's duties hereunder, and the Transfer Agent shall not be liable or accountable for any action taken or omitted by it in good faith in accordance with such instruction or with the reasonable opinion of such counsel, accountants or other experts qualified to render such opinion. 8. INDEMNIFICATION. The Trusts agree to indemnify and hold harmless the Transfer Agent from and against any and all actions, suits, claims, losses, damages, costs, charges, reasonable counsel fees and disbursements, payments, expenses and liabilities (including reasonable investigation expenses) (collectively, "Losses") arising directly or indirectly out of any action or omission to act which the Transfer Agent takes (i) at any request or on the direction of or in reliance on the reasonable advice of the Trust, (ii) upon any instruction, notice or other instrument that the Transfer Agent reasonably believes to be genuine and to have been signed or presented by a duly authorized representative of the Trust (other than an employee or other affiliated person of the Transfer Agent who may otherwise be named as an authorized representative of the Trust for certain purposes) or (iii) on its own initiative, in good faith and in accordance with the standard of care set forth herein, in connection with the performance of its duties or obligations hereunder; provided, however that the Trust shall have no obligation to indemnify or reimburse the Transfer Agent under this Article 8 to the extent that the Transfer Agent is entitled to reimbursement or indemnification for such Losses under any liability insurance policy described in this Agreement or otherwise. The Transfer Agent shall not be indemnified against or held harmless from any Losses arising directly or indirectly out of the Transfer Agent's own willful misfeasance, bad faith, negligence in the performance of its duties, or reckless disregard of its obligations and duties hereunder. (As used in this Article 8, the term "the Transfer Agent" shall include directors, officers, employees, subcontractors and other agents of the Transfer Agent as well as the Transfer Agent itself.) The Transfer Agent further agrees to indemnify and hold harmless the Trusts against any Losses arising directly or indirectly out of (i) the Transfer Agent's own willful misfeasance, bad faith, negligence in the performance of its duties, or reckless disregard of its obligations and duties hereunder, (ii) any breach by the Transfer Agent of any material provision of this Agreement, or (iii) any breach by the Transfer Agent of a representation, warranty or covenant made in this Agreement. This indemnity agreement shall be in addition to any liability which the Transfer Agent may otherwise have. (As used in this Article 8, the term "Trusts" shall include trustees, directors, officers, employees and other agents of each Trust, respectively, as well as the Trusts themselves.) 9. RECORD RETENTION AND CONFIDENTIALITY. The Transfer Agent shall keep and maintain on behalf of the Trusts all books and records which the Trusts and the Transfer Agent are, or may be, required to keep and maintain pursuant to any applicable statutes, rules and regulations, including without limitation Rules 31a-1 and 31a-2 under the 1940 Act, relating to the maintenance of books and records in connection with the services to be provided hereunder. The Transfer Agent further agrees that all such books and records shall be the property of the Trusts and to make such books and records available for inspection by the Trusts or by the SEC at reasonable times and otherwise to keep confidential all books and records and other information relative to the Trusts and its shareholders. Without limiting the foregoing, the Transfer Agent expressly agrees that: (a) "nonpublic personal information" relating to "consumers" and "customers" of the Trust (as those terms are defined in Regulation S-P) provided by or at the direction of the Trusts to the Transfer Agent, or collected or retained by the Transfer Agent in the course of performing its duties as administrator will be kept confidential. The Transfer Agent will not use, disclose, sell or in any way transfer such nonpublic personal information to any person or entity, except as necessary to perform its obligations under this Agreement, at the direction of the Trusts or otherwise as required or permitted by law; (b) it will maintain physical, electronic and procedural safeguards reasonably designed to protect the security, confidentiality and integrity of, and to prevent unauthorized access to or use of, records and information relating to consumers and customers of the Trusts. The Transfer Agent will adhere to the privacy policy and procedures of the Trust and its respective policies and procedures governing information security. The Trusts reserve the right to audit the Transfer Agent to ensure compliance with such policies and procedures and applicable privacy laws; and (c) at the request of the Trusts, the Transfer Agent will provide the Trustees with periodic reports outlining its policies and procedures governing information security and the implementation of such policies and procedures. The Transfer Agent will promptly report to the Trusts any material changes to these policies and procedures before, or promptly after, the adoption of such changes. 10. FORCE MAJEURE. The Transfer Agent shall not be liable for any damage, loss of data, delay or any other loss caused by events beyond its reasonable control, including any power failure or machine breakdown, acts of civil or military authority, national emergencies, fire, flood, catastrophe, acts of God, insurrection, war, riots or failure of the mails, transportation, communication or power supply, except that in the event of any such power failure or machine breakdown, the Transfer Agent shall be liable for actual out-of-pocket costs caused by any such power failure or machine breakdown, and shall use commercially reasonable best efforts to recover the data in process that is assumed lost during any power failure and to limit such damages, loss of data, delays or other losses. 11. RIGHTS OF OWNERSHIP; RETURN OF RECORDS. All records and other data except computer programs and procedures developed to perform services required to be provided by the Transfer Agent are the exclusive property of the Trusts and all such records and data will be furnished to the Trusts in appropriate form as soon as practicable after termination of this Agreement for any reason. The Transfer Agent may at its option at any time, and shall promptly upon the Trusts' demand, turn over to the Trusts and cease to retain the Trusts' files, records and documents created and maintained by the Transfer Agent pursuant to this Agreement which are no longer needed by the Transfer Agent in the performance of its services or for its legal protection or as otherwise required by law. If not so turned over to the Trusts, (1) such documents and records will be copied and complete copies shall be delivered to the Trusts by the Transfer Agent as soon as reasonably practical, and (2) the original documents and records will be retained by the Transfer Agent for six years from the year of creation. At the end of such six-year period, such records and documents will be turned over to the Trusts unless the Trusts authorize in writing the destruction of such records and documents. 12. REPRESENTATIONS OF THE TRUSTS. Each Trust certifies to the Transfer Agent that: (1) as of the close of business on the Effective Date, each Portfolio that is in existence as of the Effective Date has authorized unlimited shares, and (2) this Agreement has been duly authorized by the Trust, respectively, and, when executed and delivered by each Trust, will constitute a legal, valid and binding obligation of that Trust, enforceable against the Trust in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting the rights and remedies of creditors and secured parties. 13. REPRESENTATIONS OF THE TRANSFER AGENT. The Transfer Agent represents and warrants that: (1) the various procedures and systems which the Transfer Agent has implemented with regard to safeguarding from loss or damage attributable to fire, theft, or any other cause the records, and other data of the Trusts and the Transfer Agent's records, data, equipment facilities and other property used in the performance of its obligations hereunder are adequate and that it will make such changes therein from time to time as are required for the secure performance of its obligations hereunder, (2) this Agreement has been duly authorized by the Transfer Agent and, when executed and delivered by the Transfer Agent, will constitute a legal, valid and binding obligation of the Transfer Agent, enforceable against the Transfer Agent in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting the rights and remedies of creditors and secured parties, (3) it is duly registered with the appropriate regulatory agency as a transfer agent and such registration will remain in full force and effect for the duration of this Agreement, and (4) it has and will continue to have access to the necessary facilities, equipment and personnel to perform its duties and obligations under this Agreement. 14. INSURANCE. The Transfer Agent shall furnish the Trusts with pertinent information concerning the professional liability and fidelity bond insurance coverage that it maintains. Such information shall include the identity of the insurance carrier(s), coverage levels/limits and deductible amounts. The Transfer Agent shall notify the Trust should any of its insurance coverage be canceled or reduced. Such notification shall include the date of change and the reasons therefor. The Transfer Agent shall notify the Trusts of any material claims against it with respect to services performed under this Agreement, whether or not they may be covered by insurance, and shall notify the Trusts from time to time as may be appropriate of the total outstanding claims made by the Transfer Agent under its insurance coverage. Further, the Transfer Agent shall furnish the Trusts with a Certificate of Insurance or a copy of the policy evidencing such coverage, which insurance shall name the Trust as an Insured Investment Company under the policy, and shall contain a 60-day "cancellation" clause and a "changes in exposure" clause. Such policy shall be primary coverage as between the Transfer Agent and the Trusts and such insurance coverage shall not limit the liability of the Transfer Agent to the Trusts for any damages. In the event of any payment of damages to the Trusts, the Transfer Agent hereby waives any right to be subrogated to the rights of the Trusts against any third party. 15. INFORMATION TO BE FURNISHED BY THE TRUSTS. The Trusts have furnished, or will furnish upon request, to the Transfer Agent the following: (a) Copies of the Declaration of Trust (in the case of WM Strategic Asset Management Portfolios, LLC, a Certificate of Organization) and of any amendments thereto, certified by the proper official of the state in which such document has been filed. (b) Copies of the following documents: (1) Each Trust's Bylaws and any amendments thereto; and (2) Certified copies of resolutions of the Trustees covering the approval of this Agreement, authorization of a specified officer of the Trust to execute and deliver this Agreement and authorization for specified officers of the Trust to instruct the Transfer Agent thereunder. (c) A list of all the officers of each Trust, together with specimen signatures of those officers who are authorized to instruct the Transfer Agent in all matters. (d) Copies of the Prospectus and Statement of Additional Information for each Portfolio. 16. AMENDMENTS TO AGREEMENT. This Agreement, or any term thereof, may be changed or waived only by written amendment signed by the party against whom enforcement of such change or waiver is sought. For special cases, the parties hereto may amend such procedures set forth herein as may be appropriate or practical under the circumstances, and the Transfer Agent may conclusively assume that any special procedure which has been approved by the Trusts does not conflict with or violate any requirements of its Declaration of Trust (or other organizations documents) or then current prospectuses, or any rule, regulation or requirement of any regulatory body. 17. COMPLIANCE WITH LAW. Except for the obligations of the Transfer Agent otherwise set forth herein, the Trusts assume full responsibility for the preparation, contents and distribution of each prospectus of the Trusts as to compliance with all applicable requirements of the Securities Act of 1933, as amended (the "Securities Act"), the 1940 Act and any other laws, rules and regulations of governmental authorities having jurisdiction. The Trusts represent and warrants that no shares of a Trust will be offered to the public until such Trust's registration statement under the Securities Act and the 1940 Act has been declared or becomes effective. 18. NOTICES. Any notice provided hereunder shall be sufficiently given when sent by registered or certified mail to the party required to be served with such notice, at the following address: if to the Trusts, at _____________________________; and if to the Transfer Agent, at _______________________________; or at such other address as such party may from time to time specify in writing to the other party pursuant to this Section. 19. ASSIGNMENT. This Agreement and the rights and duties hereunder shall not be assignable by either of the parties hereto except by the specific written consent of the other party, and any assignment in violation of this section will be void. This Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective successors and permitted assigns. 20. GOVERNING LAW. This Agreement shall be construed in accordance with the laws of the Commonwealth of Massachusetts without giving effect to the provisions thereof relating to conflicts of law. To the extent that the applicable laws of the Commonwealth of Massachusetts, or any of the provisions herein, conflict with the applicable provisions of the 1940 Act, the latter shall control. 21. LIMITATION OF LIABILITY. A copy of the Declaration of Trust of each Trust (in the case of WM Strategic Asset Management Portfolios, LLC, a Certificate of Organization) is on file with the Secretary of the Commonwealth of Massachusetts, and notice is hereby given that this instrument is executed on behalf of the Board of Trustees of the Trusts[, respectively,] and not individually and that the obligations of this instrument are not binding upon any of the Trustees, officers or shareholders individually but are binding only upon the assets and property of the Trusts (or if the matter relates only to a particular Portfolio, that Portfolio), and the Transfer Agent shall look only to the assets of the Trusts, or the particular Portfolio, for the satisfaction of such obligations. 22. MULTIPLE ORIGINALS. This Agreement may be executed in two or more counterparts, each of which when so executed shall be deemed to be an original, but such counterparts shall together constitute but one and the same instrument. 23. AML SERVICES. (a) The Trusts hereby delegate to the Transfer Agent the performance, on behalf of each Trust, of the anti-money laundering services (the "AML Services") set forth in Schedule C to this Agreement as concerns the shareholder accounts maintained by the Transfer Agent pursuant to the Agreement (including direct accounts; accounts maintained through FUND/SERV and Networking; and omnibus accounts). The Transfer Agent agrees to the foregoing delegation and agrees to perform the delegated services in accordance with the anti-money laundering program that has been adopted by the Trust (the "AML Program). In connection therewith, the Transfer Agent agrees to maintain policies and procedures, and related internal controls, that are consistent with the Trusts' AML Program and the requirement that the Trusts employ procedures reasonably designed to achieve compliance with the applicable anti-money laundering laws (the "Applicable AML Laws"), including the requirement to have policies and procedures that can be reasonably expected to detect and cause the reporting of transactions under Section 5318 of the Bank Secrecy Act as required by applicable laws and/or regulations. (b) The Trusts agree and acknowledge that, notwithstanding the delegation provided for in the foregoing paragraph, the Trusts maintain full responsibility for ensuring that its AML Program is, and shall continue to be, reasonably designed to ensure compliance with the Applicable AML Laws, in light of the particular business of the Trusts, taking into account factors such as its size, location, activities and risks or vulnerabilities to money laundering. (c) In connection with the foregoing delegation, the Trusts also acknowledge that the performance of the AML Services enumerated in Schedule C involves the exercise of discretion, which in certain circumstances may result in consequences to the Trusts and their shareholders, respectively, (such as in the case of the reporting of suspicious activities and the freezing of shareholder accounts). In this regard, (i) under the circumstances in which the AML Program authorizes the taking of certain actions, the Transfer Agent is granted the discretion to take any such action as may be authorized, and consultation with the Trusts shall not be required in connection therewith unless expressly required by the AML Program, and (ii) the Trusts instruct the Transfer Agent that it may rely on any safe harbor from civil liability that may be available to it under Applicable AML Laws for making a disclosure or filing a report thereunder. EX-99.MD 15 v15673exv99wmd.txt EXHIBIT 99.(M)(D) (m)(D) WM TRUST I WM TRUST II WM STRATEGIC ASSET MANAGEMENT PORTFOLIOS, LLC CLASS R-1 DISTRIBUTION PLAN Dated as of November 9, 2005 This Class R-1 Distribution Plan (the "Plan") is adopted in accordance with Rule 12b-1 (the "Rule") under the Investment Company Act of 1940, as amended (the "Act"), by WM Trust I, WM Trust II and WM Strategic Asset Management Portfolios, LLC, each of which is registered with the Securities and Exchange Commission under the Act as an open-end management investment company (together, the "Trusts"), the Trustees of the Trusts having concluded that there is a reasonable likelihood that this Plan will benefit the Trusts and their holders. Section 1. Distribution Fee. (a) Payment. Each Trust may pay to each person as may from time to time be engaged and appointed to act as the distributor of its Class R-1 Shares at such point in time (any such person, a "Distributor," and such shares, "Shares") a distribution fee for services rendered and expenses borne in connection with the offering and sale of Shares of one or more series of the Trust (each such series, a "Fund," and together, the "Funds"). The aggregate distribution fees in respect of Shares of any Fund payable to all Distributors shall not be greater than the annual rate of 0.30% of the average daily net assets attributable to the Shares of such Fund. No amount shall be paid by a Trust in contravention of any applicable exemptive order, rule or regulation issued by the Securities and Exchange Commission. (b) Receipt, Retention, Direction of Payment. Any Distributor (i) may retain all or any part of the distribution fee payable to it as compensation for distribution services it provides to the applicable Fund and/or as reimbursement for expenses associated with such services; (ii) may use all or any part of such fee to compensate or reimburse persons who provide distribution services to such Fund; and (iii) may direct the Trust to pay any part or all of such fee directly to persons providing funds to a Distributor to cover or otherwise enable the incurring of expenses associated with such services. The distribution fee shall by payable to the relevant Distributor or to persons to whom such Distributor directs the Trust to make payments. Section 2. Expenses Covered by Plan. THE ANNUAL FEE PAID TO THE DISTRIBUTOR OR AT THE DIRECTION OF THE DISTRIBUTOR TO ANY OTHER PERSON WITH WHICH THE DISTRIBUTOR HAS A WRITTEN AGREEMENT TO PROVIDE SERVICES AS PERMITTED BY THE PLAN AND THE RELEVANT DISTRIBUTION AGREEMENT (EACH A "DESIGNATED PROVIDER") UNDER SECTION 1 OF THE PLAN MAY BE USED BY THE DISTRIBUTOR OR DESIGNATED PROVIDERS TO COVER ANY EXPENSES PRIMARILY INTENDED TO RESULT IN THE SALE OF A FUND'S CLASS R-1 SHARES, INCLUDING, BUT NOT LIMITED TO: (I) PAYMENTS MADE TO, AND EXPENSES OF, THE REGISTERED REPRESENTATIVES AND OTHER EMPLOYEES OF THE DISTRIBUTOR OR DESIGNATED PROVIDERS THAT ARE REGISTERED BROKER-DEALERS AND ENGAGE IN THE DISTRIBUTION OF THE FUND'S SHARES; (II) PAYMENTS MADE TO, AND EXPENSES OF, PERSONS WHO PROVIDE SUPPORT SERVICES IN CONNECTION WITH THE SALE OF THE FUND'S CLASS R-1 SHARES, INCLUDING, BUT NOT LIMITED TO, OFFICE SPACE AND EQUIPMENT, TELEPHONE FACILITIES, ANSWERING ROUTINE INQUIRIES REGARDING THE FUND, PROCESSING SHAREHOLDER TRANSACTIONS AND PROVIDING ANY OTHER SHAREHOLDER SERVICES NOT OTHERWISE PROVIDED BY THE FUND'S TRANSFER AGENT OR ANY SHAREHOLDER SERVICING AGENT; (III) COSTS RELATING TO THE FORMULATION AND IMPLEMENTATION OF MARKETING AND PROMOTIONAL ACTIVITIES REGARDING THE FUND'S CLASS R-1 SHARES, INCLUDING, BUT NOT LIMITED TO, DIRECT MAIL PROMOTIONS AND TELEVISION, RADIO, NEWSPAPER, MAGAZINE AND OTHER MASS MEDIA ADVERTISING; (IV) COSTS OF PRINTING AND DISTRIBUTING PROSPECTUSES, STATEMENTS OF ADDITIONAL INFORMATION AND REPORTS OF THE FUND TO PROSPECTIVE CLASS R-1 SHAREHOLDERS OF THE FUND; (V) COSTS INVOLVED IN PREPARING, PRINTING AND DISTRIBUTING ADVERTISING AND SALES LITERATURE PERTAINING TO THE FUND'S CLASS R-1 SHARES; AND (VI) COSTS INVOLVED IN OBTAINING WHATEVER INFORMATION, ANALYSES AND REPORTS WITH RESPECT TO MARKETING AND PROMOTIONAL ACTIVITIES THAT THE FUND MAY, FROM TIME TO TIME, DEEM ADVISABLE REGARDING THE FUND'S CLASS R-1 SHARES. WM ADVISORS, INC., AS INVESTMENT ADVISOR TO EACH OF THE FUNDS, MAY USE ITS INVESTMENT ADVISORY FEE FOR PURPOSES THAT MAY BE DEEMED TO BE DIRECTLY OR INDIRECTLY RELATED TO THE DISTRIBUTION OF THE TRUSTS' CLASS R-1 SHARES. TO THE EXTENT THAT SUCH USES MIGHT BE CONSIDERED TO CONSTITUTE THE DIRECT OR INDIRECT FINANCING OF ACTIVITIES PRIMARILY INTENDED TO RESULT IN THE SALE OF THE TRUSTS' CLASS R-1 SHARES, SUCH USES ARE EXPRESSLY AUTHORIZED UNDER THE PLAN. THE DISTRIBUTOR MAY USE ITS FEE UNDER THE PLAN RECORDKEEPING/ADMINISTRATION AGREEMENT FOR PURPOSES THAT MAY BE DEEMED TO BE DIRECTLY OR INDIRECTLY RELATED TO THE DISTRIBUTION OF THE TRUSTS' CLASS R-1 SHARES. TO THE EXTENT THAT SUCH USES MIGHT BE CONSIDERED TO CONSTITUTE THE DIRECT OR INDIRECT FINANCING OF ACTIVITIES PRIMARILY INTENDED TO RESULT IN THE SALE OF THE TRUSTS' CLASS R-1 SHARES, SUCH USES ARE EXPRESSLY AUTHORIZED UNDER THE PLAN. SECTION 3. SHAREHOLDER SERVICES AND FEE. (A) SHAREHOLDER SERVICES ANNUAL FEE. EACH TRUST IS AUTHORIZED TO PAY TO A DISTRIBUTOR A FEE, CALCULATED DAILY AND PAID MONTHLY IN ARREARS, FOR THE SHAREHOLDER SERVICES THAT ARE DESCRIBED IN PARAGRAPH (B) OF THIS SECTION 3 AND THAT ARE PROVIDED BY SUCH DISTRIBUTOR TO ONE OR MORE OF THE FUNDS. THE AGGREGATE FEE PAID TO ALL DISTRIBUTORS UNDER THIS SECTION 3 FOR SHAREHOLDER SERVICES TO ANY FUND SHALL NOT BE GREATER THAN THE ANNUAL RATE OF 0.25% OF THE AVERAGE DAILY NET ASSETS ATTRIBUTABLE TO THE SHARES OF SUCH FUND. (B) SHAREHOLDER SERVICES. IN ADDITION TO THE DISTRIBUTION SERVICES SET FORTH IN SECTION 2(A) ABOVE, A DISTRIBUTOR MAY PROVIDE SHAREHOLDER SERVICES TO ACCOUNTS OF THE SHARES OF ONE OR MORE OF THE FUNDS, INCLUDING, BUT NOT LIMITED TO, THE FOLLOWING: TELEPHONE SERVICE TO SHAREHOLDERS, INCLUDING THE ACCEPTANCE OF TELEPHONE INQUIRIES AND TRANSACTION REQUESTS; ACCEPTANCE AND PROCESSING OF WRITTEN CORRESPONDENCE, NEW ACCOUNT APPLICATIONS AND SUBSEQUENT PURCHASES BY CHECK; MAILING OF CONFIRMATIONS, STATEMENTS AND TAX FORMS DIRECTLY TO SHAREHOLDERS; AND ACCEPTANCE OF PAYMENT FOR TRADES BY CHECK, FEDERAL RESERVE WIRE OR AUTOMATED CLEARING HOUSE PAYMENT. IN ADDITION, A DISTRIBUTOR MAY PERFORM OR SUPERVISE THE PERFORMANCE BY OTHERS OF OTHER SHAREHOLDER SERVICES IN CONNECTION WITH THE OPERATIONS OF SUCH FUND(S) WITH RESPECT TO ITS SHARES, AS AGREED FROM TIME TO TIME. SECTION 4. APPROVAL BY TRUSTEES. Neither the Plan nor any related agreements will take effect until approved by a majority vote of both (a) the full Board of Trustees of the Trusts and (b) those Trustees who are not interested persons of the Trust and who have no direct or indirect financial interest in the operation of the Plan or in any agreements related to it (the "Qualified Trustees"), cast in person at a meeting called for the purposes of voting on the Plan or the related agreements. SECTION 5. CONTINUANCE OF THE PLAN. The Plan will continue in effect for the Trusts for so long as its continuance is specifically approved at least annually by the Trusts' Board of Trustees in the manner described in Section 4 above. SECTION 6. TERMINATION. The Plan may be terminated at any time with respect to any Fund by a majority vote of the Qualified Trustees or by vote of a majority of the outstanding Class R-1 shares of the Fund. The Plan may remain in effect with respect to the Class R-1 shares of a particular Fund even if the Plan has been terminated in accordance with this Section 6 with respect to the Class R-1 shares of one or more of the other Funds. SECTION 7. AMENDMENTS. The Plan may not be amended with respect to the Class R-1 shares of a Fund so as to increase materially the amount of the fee described in Section 1 above with respect to the Class R-1 shares of the Fund, unless the amendment is approved by a vote of at least a majority of the outstanding Class R-1 shares of that Fund. No material amendment to the Plan may be made unless approved by the Trusts' Board of Trustees in the manner described in Section 4 above. SECTION 8. SELECTION OF CERTAIN TRUSTEES. While the Plan is in effect, the selection and nomination of the Trusts' Trustees who are not interested persons of the Trusts will be committed to the discretion of the Trustees then in office who are not interested persons of the Trusts. SECTION 9. WRITTEN REPORTS. In each year during which the Plan remains in effect, any person authorized to direct the disposition of monies paid or payable by the Trust pursuant to the Plan or any related agreement will prepare and furnish to the Trusts' Board of Trustees, and the Board will review, at least quarterly, written reports, complying with the requirements of the Rule, which set out the amounts expended under the Plan and the purposes for which those expenditures were made. SECTION 10. PRESERVATION OF MATERIALS. The Trusts will preserve copies of the Plan, any agreement relating to the Plan and any report made pursuant to Section 9 above, for a period of not less than six years (the first two years in an easily accessible place) from the date of the Plan, agreement or report. SECTION 11. MEANINGS OF CERTAIN TERMS. As used in the Plan, the terms "interested person" and "majority of the outstanding voting securities" will be deemed to have the same meaning that those terms have under the Act and the rules and regulations under the Act, subject to any exemption that may be granted to the Trusts under the Act by the Securities and Exchange Commission. SECTION 12. LIMITATION OF LIABILITY. The execution of the Plan by an officer of the Trusts has been authorized by both the Trusts' Board of Trustees and the shareholders of the Class R-1 shares of each Fund. A copy of the Agreement and Declaration of Trust of the Trust of each of WM Trust I and WM Trust II, and a copy of LLC Operating Agreement of WM Strategic Asset Management Portfolios, LLC, is on file with the Secretary of the Commonwealth of Massachusetts, and notice is hereby given that this Plan is executed by an officer of the Trust on behalf of the Trustees of the Trust, as trustees and not individually, on further behalf of each Fund and that the obligations of this Agreement with respect to a Fund shall be binding upon the assets and properties of that Fund only and shall not be binding upon the assets and properties of any other Fund or series of the Trust or upon any of the Trustees, officers, employees, agents or shareholders of a Fund or the Trust individually. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed all as of the day and year first above written. WM TRUST I, WM TRUST II AND WM VARIABLE TRUST, AND WM STRATEGIC ASSET MANAGEMENT PORTFOLIOS, LLC By: ------------------------------------ William G. Papesh, President [NOTE: Confirm signatory on behalf of each Trust] WM SHAREHOLDER SERVICES, INC. By: ------------------------------------ Debra C. Ramsey, Sr. Vice President SCHEDULE A TO THE TRANSFER AGENT AND SHAREHOLDER SERVICES AGREEMENT BETWEEN WM TRUST I, WM TRUST II AND WM VARIABLE TRUST, AND WM STRATEGIC ASSET MANAGEMENT PORTFOLIOS, LLC AND WM SHAREHOLDER SERVICES, INC. TRUST PORTFOLIOS WM TRUST I: Mid Cap Stock Fund High Yield Fund U.S. Government Securities Fund Income Fund Tax-Exempt Bond Fund Equity Income Fund Growth & Income Fund West Coast Equity Fund Money Market Fund Tax-Exempt Money Market Fund REIT Fund Small Cap Value Fund WM TRUST II: Short Term Income Fund California Insured Intermediate Municipal Fund California Municipal Fund Growth Fund Small Cap Growth Fund International Growth Fund California Money Fund WM VARIABLE TRUST: REIT Fund Mid Cap Stock Fund Money Market Fund Short Term Income Fund U.S. Government Securities Fund Income Fund Equity Income Fund Growth & Income Fund Growth Fund West Coast Equity Fund Small Cap Growth Fund International Growth Fund Small Cap Value Fund WM STRATEGIC ASSET MANAGEMENT PORTFOLIOS, LLC: Strategic Growth Portfolio Conservative Growth Portfolio Balanced Portfolio Flexible Income Portfolio Conservative Balanced Portfolio SCHEDULE B TO THE TRANSFER AGENT AND SHAREHOLDER SERVICES AGREEMENT BETWEEN WM TRUST I, WM TRUST II AND WM VARIABLE TRUST, AND WM STRATEGIC ASSET MANAGEMENT PORTFOLIOS, LLC AND WM SHAREHOLDER SERVICES, INC. FEES AND EXPENSES FEES: A. The Transfer Agent shall be entitled to receive a fee from the Trust on the first business day following the end of each month, or at such time(s) as the Transfer Agent shall request and the parties hereto shall agree, a fee computed with respect to each Portfolio as follows:
PER ACCOUNT PER ANNUM(1) ------------------------ Open Accounts $20.00 Closed Accounts $ 1.25
Fees include: - Shareholder and Broker Servicing - Transaction Processing, Correspondence, and Research - Settlement and Reconciliation - Corporate Actions - Tax Reporting and Compliance - NSCC Support (excluding any fees paid to NSCC) - Management Company and Broker/Dealer Support B. Retirement Account Fees In addition to the fees set forth above, the Transfer Agent shall receive an annual per account maintenance fee as follows: Fees Paid by Funds: - ---------- (1) No fees shall be payable by WM Variable Trust hereunder. Individual Retirement Accounts $10.00 Fees Paid by Shareholders:* Simple IRA Accounts $10.00 403(b) Accounts $10.00 Medical Savings Accounts $10.00
* Fees waived if account balances exceed $10,000 at the time the fee is assessed OUT-OF-POCKET EXPENSES: The fees set forth above shall be in addition to the payment of out-of-pocket expenses, as provided for in Section 4 of this Agreement. SCHEDULE C TO THE TRANSFER AGENT AND SHAREHOLDER SERVICES AGREEMENT BETWEEN WM TRUST I, WM TRUST II AND WM VARIABLE TRUST, AND WM STRATEGIC ASSET MANAGEMENT PORTFOLIOS, LLC AND WM SHAREHOLDER SERVICES, INC. AML SERVICES a. Designate an employee of the Transfer Agent to serve as AML Compliance Officer to perform such services and satisfy such requirements as are set forth in the Trusts' AML Program. b. Respond promptly to Financial Crimes Enforcement Network (FinCEN) requests about accounts or transactions by reporting to FinCEN the identity of the specified individual or organization, the account number, all identifying information provided by the account holder when the account was established, and the date and type of transaction, after providing notice to the Trusts. c. Share information with the Trusts, and other financial institutions as requested by the Trusts, regarding those suspected of terrorism and money laundering for the purposes of identifying and reporting activities that may involve terrorist acts or money laundering activities in compliance with Applicable AML Laws as permitted by applicable laws and/or regulations. d. Identify and verify the identity of all shareholders upon the opening of new accounts in compliance with Applicable AML Laws. e. Perform a risk-based analysis to determine whether to perform additional due diligence to verify the identity of shareholders with accounts that may pose a greater risk of terrorism or money laundering activity, such as foreign accounts, domestic or foreign corporate or business entity accounts, domestic or foreign trust accounts, offshore accounts, intermediary accounts, accounts in high risk and non-cooperative jurisdictions, and senior foreign government or public official accounts in compliance with Applicable AML Laws. f. Check shareholders against the Treasury's Office of Foreign Assets Control ("OFAC") list of "Specifically Designated Nationals and Blocked Persons List," and similar lists of terrorists received from governmental agencies, and place holds on transactions in shareholder accounts or freeze assets in shareholder accounts, as required by Applicable AML Laws. g. To the extent required by applicable laws and/or regulation, provide notices to shareholders, prior to the opening of an account or trading authority is granted, that the Transfer Agent will request information, from either the shareholder or a third party, to verify the identity of the shareholder in compliance with Applicable AML Laws. h. Monitor, identify and report shareholder transactions and identify and report suspicious activities that are required to be so identified and reported, and provide other required reports to the SEC, the U.S. Treasury Department, the Internal Revenue Service or each agency's designated agent, in each case consistent with the Trusts' AML Program. i. Maintain the confidentiality of any reports provided to the SEC, the U.S. Treasury Department, the Internal Revenue Service or each agency's designated agent in compliance with Applicable AML Laws. j. Maintain all records or other documentation related to shareholder accounts and transactions therein that are required to be prepared and maintained pursuant to the Trusts' AML Program, and make the same available for inspection by (i) the Trusts' AML Compliance Officer, (ii) any auditor of the Trust's AML Program or related procedures, policies or controls that has been designated by the Trust in writing, or (iii) regulatory or law enforcement authorities, and otherwise make said records or other documents available at the direction of the Trusts' AML Compliance Officer. k. Arrange for periodic reviews of the Transfer Agent operations related to the AML Services, at least annually, of the Transfer Agent operations related to the AML Services, which reviews are performed by internal auditors not involved in the day-to-day operation of the Transfer Agent anti-money laundering program or other qualified independent auditors chosen by the Transfer Agent. l. Develop and implement an ongoing employee training program providing training, at least annually, with regard to how to identify red flags and signs of terrorism or money laundering activities, what to do if such a red flag is identified, the Transfer Agent's AML record retention policies, and the consequences of not complying with the requirements of the Transfer Agent's AML policies and procedures. m. Perform such other related services as are required by the AML Program. SCHEDULE D TO THE TRANSFER AGENT AND SHAREHOLDER SERVICES AGREEMENT BETWEEN WM TRUST I, WM TRUST II AND WM VARIABLE TRUST, AND WM STRATEGIC ASSET MANAGEMENT PORTFOLIOS, LLC AND WM SHAREHOLDER SERVICES, INC. AML REPORTS Following each quarterly period, the Transfer Agent will provide a report to the Trusts to the following effect pertaining to the AML Services rendered by the Transfer Agent hereunder during such quarterly period: - - performed good order review for all new and reregistered accounts; - - performed acceptance review for all monetary instruments received; - - verified customer address changes; - - verified customer identification for all new accounts and all name changes on existing accounts; - - monitored all purchase transactions made with cash equivalents totaling in excess of $10,000, resulting in the filing of Form 8300 reports during the period. The Fund does not accept cash or currency; - - monitored all accounts for suspicious activity, resulting in the filing of Form SAR reports during the period; - - reviewed shareholder names against lists of suspected terrorist and terrorist organizations supplied by various governmental organizations, such as the Office of Foreign Asset Control, resulting in the freezing and reporting of accounts during the period; and - - maintained all records and other documentation related to shareholder accounts and transactions required to be prepared and maintained pursuant to the Fund's anti-money laundering program for all the Transfer Agent transfer agent services. The following items will be provided if the Trusts fall under the related USA PATRIOT Act provisions: - - performed the required due diligence to help prevent the opening of any accounts for foreign shell banks during the period either directly or through correspondent accounts, resulting in declined account openings; and - - performed required due diligence on any new correspondent accounts opened during the period, resulting in closed correspondent accounts. EX-99.ME 16 v15673exv99wme.txt EXHIBIT 99.(M)(E) (m)(E) WM TRUST I WM TRUST II WM STRATEGIC ASSET MANAGEMENT PORTFOLIOS, LLC CLASS R-2 DISTRIBUTION PLAN Dated as of November 9, 2005 This Class R-2 Distribution Plan (the "Plan") is adopted in accordance with Rule 12b-1 (the "Rule") under the Investment Company Act of 1940, as amended (the "Act"), by WM Trust I, WM Trust II and WM Strategic Asset Management Portfolios, LLC, each of which is registered with the Securities and Exchange Commission under the Act as an open-end management investment company (together, the "Trusts"), the Trustees of the Trusts having concluded that there is a reasonable likelihood that this Plan will benefit the Trusts and their holders. Section 1. Distribution Fee. (a) Payment. Each Trust may pay to each person as may from time to time be engaged and appointed to act as the distributor of its Class R-2 Shares at such point in time (any such person, a "Distributor," and such shares, "Shares") a distribution fee for services rendered and expenses borne in connection with the offering and sale of Shares of one or more series of the Trust (each such series, a "Fund," and together, the "Funds"). The aggregate distribution fees in respect of Shares of any Fund payable to all Distributors shall not be greater than the annual rate of 0.55% of the average daily net assets attributable to the Shares of such Fund. No amount shall be paid by a Trust in contravention of any applicable exemptive order, rule or regulation issued by the Securities and Exchange Commission. (b) Receipt, Retention, Direction of Payment. Any Distributor (i) may retain all or any part of the distribution fee payable to it as compensation for distribution services it provides to the applicable Fund and/or as reimbursement for expenses associated with such services; (ii) may use all or any part of such fee to compensate or reimburse persons who provide distribution services to such Fund; and (iii) may direct the Trust to pay any part or all of such fee directly to persons providing funds to a Distributor to cover or otherwise enable the incurring of expenses associated with such services. The distribution fee shall by payable to the relevant Distributor or to persons to whom such Distributor directs the Trust to make payments. Section 2. Expenses Covered by Plan. THE ANNUAL FEE PAID TO THE DISTRIBUTOR OR AT THE DIRECTION OF THE DISTRIBUTOR TO ANY OTHER PERSON WITH WHICH THE DISTRIBUTOR HAS A WRITTEN AGREEMENT TO PROVIDE SERVICES AS PERMITTED BY THE PLAN AND THE RELEVANT DISTRIBUTION AGREEMENT (EACH A "DESIGNATED PROVIDER") UNDER SECTION 1 OF THE PLAN MAY BE USED BY THE DISTRIBUTOR OR DESIGNATED PROVIDERS TO COVER ANY EXPENSES PRIMARILY INTENDED TO RESULT IN THE SALE OF A FUND'S CLASS R-2 SHARES, INCLUDING, BUT NOT LIMITED TO: (I) PAYMENTS MADE TO, AND EXPENSES OF, THE REGISTERED REPRESENTATIVES AND OTHER EMPLOYEES OF THE DISTRIBUTOR OR DESIGNATED PROVIDERS THAT ARE REGISTERED BROKER-DEALERS AND ENGAGE IN THE DISTRIBUTION OF THE FUND'S SHARES; (II) PAYMENTS MADE TO, AND EXPENSES OF, PERSONS WHO PROVIDE SUPPORT SERVICES IN CONNECTION WITH THE SALE OF THE FUND'S CLASS R-2 SHARES, INCLUDING, BUT NOT LIMITED TO, OFFICE SPACE AND EQUIPMENT, TELEPHONE FACILITIES, ANSWERING ROUTINE INQUIRIES REGARDING THE FUND, PROCESSING SHAREHOLDER TRANSACTIONS AND PROVIDING ANY OTHER SHAREHOLDER SERVICES NOT OTHERWISE PROVIDED BY THE FUND'S TRANSFER AGENT OR ANY SHAREHOLDER SERVICING AGENT; (III) COSTS RELATING TO THE FORMULATION AND IMPLEMENTATION OF MARKETING AND PROMOTIONAL ACTIVITIES REGARDING THE FUND'S CLASS R-2 SHARES, INCLUDING, BUT NOT LIMITED TO, DIRECT MAIL PROMOTIONS AND TELEVISION, RADIO, NEWSPAPER, MAGAZINE AND OTHER MASS MEDIA ADVERTISING; (IV) COSTS OF PRINTING AND DISTRIBUTING PROSPECTUSES, STATEMENTS OF ADDITIONAL INFORMATION AND REPORTS OF THE FUND TO PROSPECTIVE CLASS R-2 SHAREHOLDERS OF THE FUND; (V) COSTS INVOLVED IN PREPARING, PRINTING AND DISTRIBUTING ADVERTISING AND SALES LITERATURE PERTAINING TO THE FUND'S CLASS R-2 SHARES; AND (VI) COSTS INVOLVED IN OBTAINING WHATEVER INFORMATION, ANALYSES AND REPORTS WITH RESPECT TO MARKETING AND PROMOTIONAL ACTIVITIES THAT THE FUND MAY, FROM TIME TO TIME, DEEM ADVISABLE REGARDING THE FUND'S CLASS R-2 SHARES. WM ADVISORS, INC., AS INVESTMENT ADVISOR TO EACH OF THE FUNDS, MAY USE ITS INVESTMENT ADVISORY FEE FOR PURPOSES THAT MAY BE DEEMED TO BE DIRECTLY OR INDIRECTLY RELATED TO THE DISTRIBUTION OF THE TRUSTS' CLASS R-2 SHARES. TO THE EXTENT THAT SUCH USES MIGHT BE CONSIDERED TO CONSTITUTE THE DIRECT OR INDIRECT FINANCING OF ACTIVITIES PRIMARILY INTENDED TO RESULT IN THE SALE OF THE TRUSTS' CLASS R-2 SHARES, SUCH USES ARE EXPRESSLY AUTHORIZED UNDER THE PLAN. THE DISTRIBUTOR MAY USE ITS FEE UNDER THE PLAN RECORDKEEPING/ADMINISTRATION AGREEMENT FOR PURPOSES THAT MAY BE DEEMED TO BE DIRECTLY OR INDIRECTLY RELATED TO THE DISTRIBUTION OF THE TRUSTS' CLASS R-2 SHARES. TO THE EXTENT THAT SUCH USES MIGHT BE CONSIDERED TO CONSTITUTE THE DIRECT OR INDIRECT FINANCING OF ACTIVITIES PRIMARILY INTENDED TO RESULT IN THE SALE OF THE TRUSTS' CLASS R-2 SHARES, SUCH USES ARE EXPRESSLY AUTHORIZED UNDER THE PLAN. SECTION 3. SHAREHOLDER SERVICES AND FEE. (A) SHAREHOLDER SERVICES ANNUAL FEE. EACH TRUST IS AUTHORIZED TO PAY TO A DISTRIBUTOR A FEE, CALCULATED DAILY AND PAID MONTHLY IN ARREARS, FOR THE SHAREHOLDER SERVICES THAT ARE DESCRIBED IN PARAGRAPH (B) OF THIS SECTION 3 AND THAT ARE PROVIDED BY SUCH DISTRIBUTOR TO ONE OR MORE OF THE FUNDS. THE AGGREGATE FEE PAID TO ALL DISTRIBUTORS UNDER THIS SECTION 3 FOR SHAREHOLDER SERVICES TO ANY FUND SHALL NOT BE GREATER THAN THE ANNUAL RATE OF 0.25% OF THE AVERAGE DAILY NET ASSETS ATTRIBUTABLE TO THE SHARES OF SUCH FUND. (B) SHAREHOLDER SERVICES. IN ADDITION TO THE DISTRIBUTION SERVICES SET FORTH IN SECTION 2(A) ABOVE, A DISTRIBUTOR MAY PROVIDE SHAREHOLDER SERVICES TO ACCOUNTS OF THE SHARES OF ONE OR MORE OF THE FUNDS, INCLUDING, BUT NOT LIMITED TO, THE FOLLOWING: TELEPHONE SERVICE TO SHAREHOLDERS, INCLUDING THE ACCEPTANCE OF TELEPHONE INQUIRIES AND TRANSACTION REQUESTS; ACCEPTANCE AND PROCESSING OF WRITTEN CORRESPONDENCE, NEW ACCOUNT APPLICATIONS AND SUBSEQUENT PURCHASES BY CHECK; MAILING OF CONFIRMATIONS, STATEMENTS AND TAX FORMS DIRECTLY TO SHAREHOLDERS; AND ACCEPTANCE OF PAYMENT FOR TRADES BY CHECK, FEDERAL RESERVE WIRE OR AUTOMATED CLEARING HOUSE PAYMENT. IN ADDITION, A DISTRIBUTOR MAY PERFORM OR SUPERVISE THE PERFORMANCE BY OTHERS OF OTHER SHAREHOLDER SERVICES IN CONNECTION WITH THE OPERATIONS OF SUCH FUND(S) WITH RESPECT TO ITS SHARES, AS AGREED FROM TIME TO TIME. SECTION 4. APPROVAL BY TRUSTEES. Neither the Plan nor any related agreements will take effect until approved by a majority vote of both (a) the full Board of Trustees of the Trusts and (b) those Trustees who are not interested persons of the Trust and who have no direct or indirect financial interest in the operation of the Plan or in any agreements related to it (the "Qualified Trustees"), cast in person at a meeting called for the purposes of voting on the Plan or the related agreements. SECTION 5. CONTINUANCE OF THE PLAN. The Plan will continue in effect for the Trusts for so long as its continuance is specifically approved at least annually by the Trusts' Board of Trustees in the manner described in Section 4 above. SECTION 6. TERMINATION. The Plan may be terminated at any time with respect to any Fund by a majority vote of the Qualified Trustees or by vote of a majority of the outstanding Class R-2 shares of the Fund. The Plan may remain in effect with respect to the Class R-2 shares of a particular Fund even if the Plan has been terminated in accordance with this Section 6 with respect to the Class R-2 shares of one or more of the other Funds. SECTION 7. AMENDMENTS. The Plan may not be amended with respect to the Class R-2 shares of a Fund so as to increase materially the amount of the fee described in Section 1 above with respect to the Class R-2 shares of the Fund, unless the amendment is approved by a vote of at least a majority of the outstanding Class R-2 shares of that Fund. No material amendment to the Plan may be made unless approved by the Trusts' Board of Trustees in the manner described in Section 4 above. SECTION 8. SELECTION OF CERTAIN TRUSTEES. While the Plan is in effect, the selection and nomination of the Trusts' Trustees who are not interested persons of the Trusts will be committed to the discretion of the Trustees then in office who are not interested persons of the Trusts. SECTION 9. WRITTEN REPORTS. In each year during which the Plan remains in effect, any person authorized to direct the disposition of monies paid or payable by the Trust pursuant to the Plan or any related agreement will prepare and furnish to the Trusts' Board of Trustees, and the Board will review, at least quarterly, written reports, complying with the requirements of the Rule, which set out the amounts expended under the Plan and the purposes for which those expenditures were made. SECTION 10. PRESERVATION OF MATERIALS. The Trusts will preserve copies of the Plan, any agreement relating to the Plan and any report made pursuant to Section 9 above, for a period of not less than six years (the first two years in an easily accessible place) from the date of the Plan, agreement or report. SECTION 11. MEANINGS OF CERTAIN TERMS. As used in the Plan, the terms "interested person" and "majority of the outstanding voting securities" will be deemed to have the same meaning that those terms have under the Act and the rules and regulations under the Act, subject to any exemption that may be granted to the Trusts under the Act by the Securities and Exchange Commission. SECTION 12. LIMITATION OF LIABILITY. The execution of the Plan by an officer of the Trusts has been authorized by both the Trusts' Board of Trustees and the shareholders of the Class R-2 shares of each Fund. A copy of the Agreement and Declaration of Trust of the Trust of each of WM Trust I and WM Trust II, and a copy of LLC Operating Agreement of WM Strategic Asset Management Portfolios, LLC, is on file with the Secretary of the Commonwealth of Massachusetts, and notice is hereby given that this Plan is executed by an officer of the Trust on behalf of the Trustees of the Trust, as trustees and not individually, on further behalf of each Fund and that the obligations of this Agreement with respect to a Fund shall be binding upon the assets and properties of that Fund only and shall not be binding upon the assets and properties of any other Fund or series of the Trust or upon any of the Trustees, officers, employees, agents or shareholders of a Fund or the Trust individually. EX-99.N1 17 v15673exv99wn1.txt EXHIBIT 99.(N)(1) (n)(1) WM TRUST I WM TRUST II WM STRATEGIC ASSET MANAGEMENT PORTFOLIOS, LLC AMENDED AND RESTATED MULTI-CLASS PLAN (Effective Date March 1, 2006) WHEREAS, the Board of Trustees of each of (i) WM Trust I, (ii) WM Trust II and (iii) WM Strategic Asset Management Portfolios, LLC, each a Massachusetts business trust (together, the "Trusts"), has considered the following Amended and Restated Multi-Class Plan (the "Plan"), amending and restating in its entirety the plans adopted by the Trusts pursuant to Rule 18f-3 under the Investment Company Act of 1940, as amended (the "1940 Act"), under which the Trusts, respectively, may offer multiple classes of shares of their now existing and hereafter created series; and WHEREAS, a majority of the Trustees of the Trusts and a majority of the Trustees who are not interested persons of the Trusts ("Independent Trustees") have found the Plan, as proposed, including the expense allocations thereunder, to be in the best interests of each class individually and of each Fund (as defined below) and each of the Trusts as a whole; NOW, THEREFORE, each of the Trusts hereby approves and adopts the following Plan pursuant to Rule 18f-3(d) under the 1940 Act. FEATURES OF THE CLASSES Each now existing and hereafter created series (each a "Fund") of the Trusts is authorized to issue from time to time its shares of beneficial interest in six classes: Class A shares, Class B shares, Class C shares, Class I shares, Class R-1 shares, and Class R-2 shares. Each class is subject to such investment minimums and other conditions of eligibility as are set forth in the Trusts' prospectus or prospectuses as from time to time in effect (together with all relevant Statements of Additional Information, the "Prospectus"). Each Fund offers such classes of shares to such classes of persons as are set forth in the Prospectus. Shares of each class of a Fund shall represent an equal pro rata interest in such Fund and, generally, shall have identical voting, dividend, liquidation, and other rights, preferences, powers, restrictions, limitations, qualifications and terms and conditions, except that: (a) each class shall have a different designation; (b) each class of shares shall bear any Class Expenses, as defined in Section 4 below; and (c) each class 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 and shall have exclusive voting rights on any matter submitted to shareholders that relates solely to that class. In addition, Class A, Class B, Class C, Class I, Class R-1 and Class R-2 shares shall have the features described below. These features are subject to change, to the extent permitted by law and by (i) the Declaration of Trust and By-laws of WM Trust I, (ii) the Master Trust Agreement and By-laws of WM Trust II and (iii) the LLC Operating Agreement and By-laws of WM Strategic Asset Management Portfolios, LLC, each as from time to time in effect, by action of the Board of Trustees of the Trusts. SALES CHARGE STRUCTURE INITIAL SALES CHARGE. CLASS A AND CLASS C SHARES OF THE "NON-MONEY FUNDS," WHICH ARE THE FUNDS OTHER THAN THE MONEY MARKET FUND SERIES OF WM TRUST I AND THE CALIFORNIA MONEY FUND SERIES OF WM TRUST II (THE "MONEY FUNDS"), ARE OFFERED AT A PUBLIC OFFERING PRICE THAT IS EQUAL TO THEIR NET ASSET VALUE ("NAV") PLUS AN INITIAL SALES CHARGE EXPRESSED AS A PERCENTAGE OF THE NAV PER SHARE, AS DESCRIBED IN THE PROSPECTUS. CLASS A AND CLASS C SHARES OF MONEY FUNDS ARE OFFERED AT THEIR NAV, WITHOUT AN INITIAL SALES CHARGE. The initial sales charge on Class A and Class C shares is subject to reduction or waiver as permitted by Rule 22d-1 under the 1940 Act, as described in the Prospectus. The exact terms and conditions of any initial sales charge applicable to Class A and Class C shares, which may vary among Funds, will be as described in the Prospectus. Class B, Class I, Class R-1 and Class R-2 shares of the Funds are offered at their NAV, without an initial sales charge. CONTINGENT DEFERRED SALES CHARGE. A CONTINGENT DEFERRED SALES CHARGE (A "CDSC") MAY BE IMPOSED ON CLASS A, CLASS B OR CLASS C SHARES UNDER CERTAIN CIRCUMSTANCES, AS DESCRIBED IN THE PROSPECTUS. HOWEVER, NO CDSC IS IMPOSED IF THE SHARES REDEEMED HAVE BEEN ACQUIRED THROUGH THE REINVESTMENT OF NET INVESTMENT INCOME OR CAPITAL GAINS DISTRIBUTIONS OR IF THE AMOUNT REDEEMED IS DERIVED FROM INCREASES IN THE VALUE OF THE ACCOUNT ABOVE THE AMOUNT OF PURCHASE PAYMENTS SUBJECT TO A CDSC. IN DETERMINING WHETHER A CDSC IS PAYABLE, A FUND WILL FIRST REDEEM SHARES NOT SUBJECT TO A CDSC. THEREAFTER, TO DETERMINE THE APPLICABILITY AND RATE OF ANY CDSC, IT WILL BE ASSUMED THAT SHARES REPRESENTING THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS ARE REDEEMED FIRST AND SHARES HELD FOR THE LONGEST PERIOD OF TIME ARE REDEEMED NEXT. Class A shares of Non-Money Funds that are purchased without an initial sales charge or with a reduced initial sales charge and that are redeemed within two years of their purchase may, under certain circumstances, be subject to a CDSC of up to 1 % of the redemption amount to which the CDSC applies, with the percentage declining eventually to zero the longer the shares are held, as described in the Prospectus. Class B shares that are redeemed within up to six years from purchase are subject to a CDSC of up to 5 % of the redemption amount to which the CDSC applies, with the percentage declining eventually to zero the longer the shares are held, as described in the Prospectus. Class C shares that are redeemed within one year of purchase are subject to a CDSC of up to 1% of the redemption amount to which the CDSC applies, as described in the Prospectus. As permitted by Rule 6c-10 under the 1940 Act and as described in the Prospectus, the CDSC otherwise applicable to Class A, Class B and Class C shares is subject to reduction or waiver in connection with particular classes of transactions provided the conditions in Rule 22d-1 under the 1940 Act are satisfied. The exact terms and conditions of any CDSC applicable to Class A, Class B or Class C shares, which may vary among Funds, are as described in the Prospectus. Class I, Class R-1, and Class R-2 shares of each Fund are not subject to a CDSC. SERVICE, DISTRIBUTION AND ADMINISTRATIVE FEES SERVICE AND DISTRIBUTION FEES. CLASS A, CLASS B, CLASS C, CLASS R-1 AND CLASS R-2 SHARES PAY WM FUNDS DISTRIBUTOR, INC. (TOGETHER WITH ANY OTHER DISTRIBUTOR OF SHARES OF THE FUNDS FROM TIME TO TIME, THE "DISTRIBUTOR") FEES FOR SERVICES RENDERED AND EXPENSES BORNE IN CONNECTION WITH PERSONAL SERVICES RENDERED TO SHAREHOLDERS OF THAT CLASS AND THE MAINTENANCE OF SHAREHOLDER ACCOUNTS ("SERVICE FEES"). CLASS A, CLASS B, CLASS C, CLASS R-1 AND CLASS R-2 SHARES OF EACH FUND PAY SERVICE FEES OF UP TO 0.25 % PER ANNUM OF THE AVERAGE DAILY NET ASSETS OF SUCH FUND ATTRIBUTABLE TO SUCH CLASS, AS DESCRIBED IN THE PROSPECTUS. IN ADDITION, CLASS B, CLASS C, CLASS R-1 AND CLASS R-2 SHARES PAY THE DISTRIBUTOR FEES IN CONNECTION WITH THE DISTRIBUTION OF SHARES OF SUCH CLASS ("DISTRIBUTION FEES"). CLASS B AND CLASS C SHARES OF EACH FUND PAY A DISTRIBUTION FEE OF UP TO 0.75 % PER ANNUM OF THE AVERAGE DAILY NET ASSETS OF SUCH FUND ATTRIBUTABLE TO SUCH CLASS, AS DESCRIBED IN THE PROSPECTUS. CLASS R-1 AND CLASS R-2 SHARES OF EACH FUND PAY A DISTRIBUTION FEE OF UP TO 0.55 % AND 0.30% PER ANNUM OF THE AVERAGE DAILY NET ASSETS OF SUCH FUND ATTRIBUTABLE TO SUCH CLASS, RESPECTIVELY, AS DESCRIBED IN THE PROSPECTUS. ALL OF THE FEES DESCRIBED IN THIS PARAGRAPH (TOGETHER, "12B-1 FEES") ARE PAID PURSUANT TO PLANS ADOPTED FOR EACH CLASS PURSUANT TO RULE L2B-1 UNDER THE 1940 ACT. ADMINISTRATION FEES. EACH FUND PAYS WM ADVISORS, INC. FEES PURSUANT TO AN INVESTMENT MANAGEMENT AGREEMENT, WHICH MAY BE AMENDED OR REPLACED FROM TIME TO TIME, FOR INVESTMENT MANAGEMENT SERVICES; A PORTION OF THE FEE MAY BE ALLOCATED TO WM SHAREHOLDER SERVICES, INC. FOR ADMINISTRATIVE SERVICES TO PROVIDE OR PROCURE SUCH SERVICES AS CUSTODY, ACCOUNTING, LEGAL AND PRINTING SERVICES (THE PORTION OF THE FEE ALLOCATED TO SUCH ADMINISTRATIVE SERVICES, THE "ADMINISTRATION FEES"). CLASS A, CLASS B, CLASS C, CLASS I, CLASS R-1 AND CLASS R-2 SHARES OF EACH FUND WILL PAY THEIR RESPECTIVE ALLOCABLE SHARE OF ADMINISTRATION FEES INCURRED BY SUCH FUND, BASED ON THE AVERAGE DAILY NET ASSET VALUE OF SUCH FUND ATTRIBUTABLE TO SUCH CLASS. TRANSFER AGENCY FEES. EACH CLASS OF SHARES OF EACH FUND PAYS WM SHAREHOLDER SERVICES, INC. FEES PURSUANT TO A TRANSFER AGENT CONTRACT, WHICH MAY BE AMENDED OR REPLACED FROM TIME TO TIME, FOR SERVICES TO PROVIDE OR PROCURE SUCH SERVICES AS TRANSFER AGENCY SERVICES (THE "TRANSFER AGENT FEES"). CLASS A, CLASS B, CLASS C, CLASS I, CLASS R-1 AND CLASS R-2 SHARES OF EACH FUND WILL PAY THEIR RESPECTIVE TRANSFER AGENT FEES (FOR MOST SERVICES, CURRENTLY ON A PER ACCOUNT BASIS AT DIFFERENT RATES FOR DIFFERENT CLASSES OF DIFFERENT FUNDS, TOGETHER WITH CERTAIN OUT-OF-POCKET EXPENSES), BASED ON THE INCURRENCE OF TRANSFER AGENT FEES ATTRIBUTABLE IN THE AGGREGATE TO EACH SUCH CLASS OF SUCH FUND. PLAN RECORDKEEPING/ADMINISTRATION FEES. CLASS R-1 AND CLASS R-2 SHARES OF EACH FUND MAY PAY WM FUNDS DISTRIBUTOR, INC. OR ITS AFFILIATES FEES PURSUANT TO A PLAN RECORDKEEPING/ADMINISTRATION AGREEMENT, WHICH MAY BE AMENDED OR REPLACED FROM TIME TO TIME, FOR SERVICES TO PROVIDE OR PROCURE SUCH SERVICES AS RECORDKEEPING AND/OR ADMINISTRATIVE SERVICES FOR QUALIFIED RETIREMENT PLANS (THE " PLAN RECORDKEEPING/ADMINISTRATION FEES"). CLASS R-1 AND CLASS R-2 SHARES OF EACH FUND WILL PAY THEIR RESPECTIVE PLAN RECORDKEEPING/ADMINISTRATION FEES, BASED ON THE INCURRENCE OF PLAN RECORDKEEPING/ADMINISTRATION FEES ATTRIBUTABLE IN THE AGGREGATE TO EACH SUCH CLASS OF SUCH FUND. ALLOCATION OF INCOME AND EXPENSES CLASS A, CLASS B, CLASS C, CLASS I, CLASS R-1 AND CLASS R-2 SHARES PAY THE EXPENSES ASSOCIATED WITH THEIR DIFFERENT DISTRIBUTION AND SHAREHOLDER SERVICING ARRANGEMENTS. EACH CLASS PAYS ITS RESPECTIVE ALLOCABLE SHARE OF ADMINISTRATION FEES. EACH CLASS PAYS ITS RESPECTIVE TRANSFER AGENT FEES. EACH CLASS MAY, AT THE TRUSTEES' DISCRETION, ALSO PAY A DIFFERENT SHARE OF OTHER EXPENSES (TOGETHER WITH L2B-1 FEES, ADMINISTRATION FEES AND TRANSFER AGENT FEES, "CLASS EXPENSES"), NOT INCLUDING ADVISORY FEES OR OTHER EXPENSES RELATED TO THE MANAGEMENT OF THE TRUST'S ASSETS, IF THESE EXPENSES ARE ACTUALLY INCURRED IN A DIFFERENT AMOUNT BY THAT CLASS, OR IF THE CLASS RECEIVES SERVICES OF A DIFFERENT KIND OR TO A DIFFERENT DEGREE THAN OTHER CLASSES. THE GROSS INCOME OF EACH FUND GENERALLY SHALL BE ALLOCATED TO EACH CLASS ON THE BASIS OF NET ASSETS. TO THE EXTENT PRACTICABLE, CERTAIN EXPENSES (OTHER THAN CLASS EXPENSES AS DEFINED ABOVE, WHICH SHALL BE ALLOCATED MORE SPECIFICALLY) SHALL BE SUBTRACTED FROM THE GROSS INCOME ON THE BASIS OF THE NET ASSETS OF EACH CLASS OF THE FUND. THESE EXPENSES INCLUDE: EXPENSES INCURRED BY EACH OF THE TRUSTS (INCLUDING, BUT NOT LIMITED TO, FEES OF TRUSTEES, INSURANCE AND LEGAL COUNSEL) NOT ATTRIBUTABLE TO A PARTICULAR FUND OR TO A PARTICULAR CLASS OF SHARES OF A FUND ("TRUST EXPENSES"); AND EXPENSES INCURRED BY A FUND NOT ATTRIBUTABLE TO ANY PARTICULAR CLASS OF THE FUND'S SHARES (FOR EXAMPLE, ADVISORY FEES, CUSTODIAL FEES OR OTHER EXPENSES RELATING TO THE MANAGEMENT OF THE FUND'S ASSETS) ("FUND EXPENSES"). Expenses of a Fund shall be apportioned to each class of shares depending on the nature of the expense item. Trust Expenses and Fund Expenses shall be allocated among the classes of shares based on their relative net asset values in relation to the net asset value of the relevant Trust or the Fund, as appropriate. Class Expenses shall be allocated to the particular class to which they are attributable. In addition, certain expenses may be allocated differently if their method of imposition changes. Thus, if a Class Expense can no longer be attributed to a class, it shall be charged to a Fund for allocation among classes, as determined by the Board of Trustees. Any additional Class Expenses not specifically identified above which are subsequently identified and determined to be properly allocated to one class of shares shall not be so allocated until approved by the Board of Trustees of the Trusts in light of the requirements of the 1940 Act and the Internal Revenue Code of 1986, as amended (the "Code"). EXCHANGE PRIVILEGES Shareholders may exchange shares of one class of a Fund for shares of the same class offered by another Fund or by certain other mutual funds from time to time advised by WM Advisors, Inc., as described in the Prospectus and provided that the exchange is made in states where the shares being acquired upon exchange are properly registered. An exchange shall be made at net asset value without the imposition of any CDSC upon the exchange and, except as otherwise described in the Prospectus, without the imposition of any sales charge upon the exchange. The applicability and rate of any CDSC with respect to a subsequent redemption of shares acquired upon an exchange will be determined as described in the prospectus. The exact terms and conditions of an exchange, which may vary among the Funds, will be as described in the Prospectus. CONVERSION FEATURES Class B shares of each Fund will convert, after they are held for approximately eight years from purchase, at net asset value without the imposition of any CDSC or sales charge upon the conversion, into Class A shares of the same Fund, which thereafter will be subject to the fees charged to Class A shares. The exact terms and conditions of a conversion will be as described in the Prospectus. No other conversion features exist between classes of shares of the Funds. SPECIAL PROVISIONS FOR CARRY-OVER SHARES In the case of Class A and Class B shares issued in connection with the eight separate Agreements and Plans of Reorganization (the "Reorganization Plans") between (i) Composite Bond & Stock Fund, Inc., Composite Equity Series, Inc., on behalf of its sole series Composite Growth & Income Fund, Composite Northwest Fund, Inc., Composite Income Fund, Inc., Composite U.S. Government Securities, Inc., Composite Tax-Exempt Bond Fund, Inc., Composite Cash Management Company, on behalf of its series Money Market Portfolio, and Composite Cash Management Company, on behalf of its series Tax-Exempt Portfolio (the "Prior Funds"), and (ii) WM Trust I (as formerly known as The Composite Funds), on behalf of, respectively, its series Bond & Stock Fund (as formerly known as Composite Bond & Stock Fund), Growth & Income Fund (as formerly known as Composite Growth & Income Fund), Northwest Fund (as formerly known as Composite Northwest Fund, Income Fund), Income Fund (as formerly known as Composite Income Fund), U.S. Government Securities Fund (as formerly known as Composite U.S. Government Securities Fund), Tax-Exempt Bond Fund (as formerly known as Composite Tax-Exempt Bond Fund), Money Market Fund (as formerly known as Composite Money Market Fund), and Tax-Exempt Money Market Fund (as formerly known as Composite Tax-Exempt Money Market Fund), or issued upon any subsequent exchange thereof, the terms and conditions of any CDSC, exchange or conversion features applicable to such shares shall be no less favorable than the ones applicable to the Class A and Class B shares of the respective Prior Fund, as described in the prospectus or prospectuses of the Prior Funds as in effect from time to time prior to the consummation of the Reorganization Plans. In addition, for purposes of calculating any CDSC or making any conversion, shares issued in connection with the above-referenced or any other acquisition of the assets of a mutual fund shall be deemed to have been purchased on the same dates as the corresponding shares of the acquired mutual fund. EX-99.P1 18 v15673exv99wp1.txt EXHIBIT 99.(P)(1) (p)(1) CODE OF ETHICS OF THE WM GROUP OF FUNDS, WM ADVISORS, INC. (THE "ADVISOR"), AND WM FUNDS DISTRIBUTOR, INC. This Code of Ethics (the "Code") has been adopted by the companies referred to above (the "Companies") effective July 21, 2005. The principal objectives of the Code are (i) to provide policies and procedures consistent with applicable law and regulation, including Rule 17j-1 under the Investment Company Act of 1940, as amended (the "1940 Act"), and Rule 204 A-1 the Investment Advisers Act of 1940, as amended (the "Advisers Act"), and (ii) make certain that the personal trading and other business activities of Access Persons (defined in Section III. below) are conducted in a manner consistent with applicable law and regulation and the general principles set forth in the Code. TABLE OF CONTENTS I. Policy Highlights ..................................................... 4 II. General Principles ................................................... 5 A. Shareholder and Client Interests Come First ........................ 5 B. Avoid Actual and Potential Conflicts of Interest ................... 6 III Definitions .......................................................... 6 A. Access Persons ..................................................... 6 B. Affiliated Mutual Funds ............................................ 6 C. Companies .......................................................... 6 D. Covered Accounts ................................................... 6 E. Covered Securities ................................................. 6 F. Investment Personnel ............................................... 7 IV Personal Securities Transactions ...................................... 7 A. Prohibited Conduct ................................................. 7 B. Restrictions and Limitations on Personal Securities Transactions ... 7 C. Exempt Securities .................................................. 9 D. Exempt Transactions ................................................ 10 E. Pre-Clearance Requirement .......................................... 11 V Reporting Requirements ................................................. 13 A. Report of Transactions ............................................. 13 B. Responsibility to Report ........................................... 15 C. Where to File Report ............................................... 15
D. Responsibility to Review ........................................... 15 VI. Application .......................................................... 16 VII. Insider Trading ..................................................... 16 VIII. Confidentiality .................................................... 16 IX. Anti-Money Laundering ................................................ 16 X. Code of Ethics Review Committee ....................................... 16 XI. Service as a Director and Outside Business Activities ................ 17 XII. Gifts ............................................................... 17 XIII. Registered Personnel ............................................... 17 XIV. Copyright laws ...................................................... 18 XV. Media Relation ....................................................... 18 XVI. Reporting Violations ................................................ 18 XVII. Sanctions .......................................................... 18 XVIII. Report and Certification of Adequacy to the Board of Trustees and Board of Directors ................................................ 18 XIX. Board Approval ...................................................... 19 XX. Employee Training and Certification .................................. 20
I. POLICY HIGHLIGHTS The Code is designed so that all acts, practices and courses of business engaged in by Employees are conducted in accordance with the highest possible standards and to prevent abuses or even the appearance of abuses by Employees relating to their personal trading and other business activity. Compliance with the Code is a matter of understanding the basic requirements and making sure the steps the Employee takes with respect to each Personal Securities Transaction (defined herein) and his/her personal investment is in accordance with these requirements. This Section sets forth selected rules that frequently raise questions. These are by no means comprehensive and Employees must examine the specific sections of the Code for more details and are strongly urged to consult WM Advisors' Chief Compliance Officer or Compliance Manager when questions arise: - - Shares of open-end investment companies that are advised by WM Advisors, Inc. including those funds within The WM Group of Funds that have retained sub-advisors, and investment companies outside The WM Group of Funds that are sub-advised by WM Advisors, Inc. ("Affiliated Mutual Funds"), whether purchased, sold or exchanged in a brokerage account, directly through a transfer agent or in a 401(k) or other retirement plan, including the Washington Mutual Savings Plan, are exempt from pre-clearance requirements but are subject to holding and reporting requirements. Affiliated Mutual Funds may not be sold, redeemed or exchanged until at least 60 calendar days from the purchase trade date. Shares in the same Affiliated Mutual Fund may not be repurchased until at least 60 calendar days from the sale trade date. Investment Personnel, defined herein, may not sell, redeem or exchange Affiliated Mutual Funds until at least 90 calendar days from the purchase trade date and are subject to the repurchase restrictions above; - - Purchases and sales of shares in money market funds continue to be exempt from pre-clearance, holding period and reporting requirements of the Code; - - Purchases and sales of shares in securities issued by Washington Mutual, Inc., continue to be exempt from pre-clearance and holding period requirements of the Code, provided such transactions are not effected in an IPO or private placement; - - All Personal Securities Transactions must be pre-cleared through the Compliance Department, except as set forth herein; - - Covered Accounts shall include any account in which an Employee has beneficial ownership of securities held in an account in the name of: (1) the individual; (2) a husband, wife or minor child; (3) a relative sharing the same house; (4) another person if the Employee (i) obtains benefits substantially equivalent to ownership of the securities; (ii) can obtain ownership of the securities immediately or at some future time; or (iii) can have investment discretion or otherwise can exercise control; - - Exchange Traded Funds ("ETFs") and closed-end mutual funds must be pre-cleared and are subject to all other holding and reporting requirements; - - Employees are prohibited from acquiring any security in an initial public offering (IPO); - - Private offerings must be pre-approved by the WM Advisors' Compliance Manager; - - Participation on the Board of any company must be pre-approved by the Code of Ethics Review Committee; - - Employees may not sell Covered Securities, defined herein, under any circumstances unless they have been held for at least 30 days and they may not be sold at a profit until at least 60 calendar days from the purchase trade date; - - Employees may not repurchase any security sold by the Employee within the previous 30 days and may not repurchase such security within the previous 60 days if the purchase price is lower than any sale price within the 60-day period; - - Portfolio managers and research analysts may not trade in a security if accounts they manage trade in the same security within the 7 days prior to or 7 days following the Employee's transaction; - - Employees are required to submit an Initial List of Securities Beneficially Owned Report upon hire, Quarterly Securities Transactions and New Accounts Reports and an Annual Holdings Beneficially Owned Report and Certification of Compliance. II. GENERAL PRINCIPLES A. Shareholder and Client Interests Come First Employees of WM Advisors, Inc. must comply with all applicable federal securities laws. This Code is designed to assist Employees in fulfilling their regulatory and fiduciary duties. Every Employee owes a fiduciary duty to the shareholders of the Affiliated Mutual Funds and to the Separately Managed Accounts (defined as clients other than registered investment companies including unregistered investment companies, institutional clients and individuals). This means that in every decision relating to investments, every Employee must recognize the needs and interests of the Affiliated Mutual Fund shareholders and the Separately Managed Accounts, and be certain that at all times the interests of the Affiliated Mutual Fund shareholders and other Separately Managed Accounts are placed ahead of any personal interest. B. Avoid Actual and Potential Conflicts of Interest The restrictions and requirements of the Code are designed to prevent behavior which actually or potentially conflicts, or raises the appearance of an actual or potential conflict, with the interests of the Affiliated Mutual Fund shareholders or the Separately Managed Accounts. It is of the utmost importance that the Personal Securities Transactions of Employees be conducted in a manner consistent with both the letter and spirit of the Code to avoid any such conflict of interest and to prevent abuse of an Employee's position of trust and responsibility. III. DEFINITIONS A. "Access Persons" shall include all of the Advisor's supervised persons including any director, officer, partner or employee who has access to nonpublic information regarding any purchase or sale of securities by any client of the Advisor, or nonpublic information regarding the portfolio holdings of any account the Advisor manages, any person who is involved in making securities recommendations to clients or has access to such recommendations that are nonpublic, as well as any other persons falling within such definition under Rule 17j-1 under the Investment Company Act of 1940 or Rule 204A-1 under the Investment Advisers Act of 1940, and all persons who primarily work within the offices of WM Advisors, Inc. The term "Employee" includes all Access Persons of the Investment Company and the Distributor, and all supervised persons of the Advisor. Employees with questions concerning their status as Access Persons are urged to consult with WM Advisors' Chief Compliance Officer or Compliance Manager. B. "Affiliated Mutual Funds" shall include open-end investment companies that are advised by WM Advisors, Inc. including those funds within The WM Group of Funds that have retained sub-advisors, and investment companies outside The WM Group of Funds that are sub-advised by WM Advisors, Inc. C. "Companies" shall include WM Group of Funds, WM Funds Distributor, Inc., and WM Advisors, Inc. D. "Covered Accounts" shall include any account in which an Employee has, or acquires any direct or indirect beneficial ownership in a security held in the account. Generally, an employee is regarded as having beneficial ownership of securities held in an account in the name of: (1) the individual; (2) a husband, wife or minor child; (3) a relative sharing the same house; (4) another person if the Employee (i) obtains benefits substantially equivalent to ownership of the securities; (ii) can obtain ownership of the securities immediately or at some future time; or (iii) can have investment discretion or otherwise can exercise control. In addition, as described in the Code, certain circumstances constitute Beneficial Ownership, defined herein, by an Employee of securities held by a trust. E. "Covered Securities" shall include all securities, any option or future to purchase or sell, and any security convertible into or exchangeable for such securities. For example, Covered Securities also include, but are not limited to individual securities, open-end mutual funds, exchange traded funds, closed-end funds and unit investment trusts. Exemption from certain requirements of the Code may apply to designated Covered Securities, as set forth below. In addition, certain securities, such as money market funds, are exempt from the definition of "Covered Security" as explained in the Code. F. "Investment Personnel" shall mean any Employee who, in connection with his or her regular functions or duties, makes or participates in making recommendations regarding the purchase or sale of securities or anyone who, in connection with their job functions, has real-time knowledge of such recommendations or anyone who controls the Fund or the Advisor and who obtains information concerning recommendations made to the Funds or Separately Managed Accounts regarding the purchase or sale of securities by the Fund or the Separately Managed Account. This includes, but is not limited to, portfolio managers, research analysts, and personnel in the trading department, among others. IV. PERSONAL SECURITIES TRANSACTIONS A. Prohibited Conduct No Employee shall buy or sell any Covered Security (with the exception of those described in sub-section C. below) for a Covered Account (referred to herein as a "Personal Securities Transaction") unless: 1. pre-clearance of the transaction has been obtained; and 2. the transaction is reported to the Compliance Department in accordance with the requirements below. B. Restrictions and Limitations on Personal Securities Transactions Except where otherwise indicated, the following restrictions and limitations govern Personal Securities Transactions: 1. Covered Securities purchased may not be sold until at least 30 calendar days from the purchase trade date and may not be sold at a profit until at least 60 calendar days from the purchase trade date. Covered Securities sold may not be repurchased until at least 30 calendar days from the sale trade date. In addition, Covered Securities sold may not be purchased at a lower price until at least 60 calendar days from the sale trade date. Any violation may result in disgorgement of all profits from the transactions as well as other possible sanctions. 2. Affiliated Mutual Funds (excluding money market funds), whether purchased in a brokerage account, directly through a transfer agent or in a 401(k) or other retirement plan, may not be sold, redeemed or exchanged until at least 60 calendar days from the purchase trade date. They may not be repurchased until at least 60 calendar days from the sale trade date. Investment Personnel may not sell, redeem or exchange such mutual funds until at least 90 calendar days from the purchase trade date and are subject to the repurchase restrictions above. In the event of financial hardship, exceptions to this section of the Code may be granted, but only with the prior written approval of both the Chief Compliance Officer of the Advisor and the Affiliated Mutual Funds as well as the Employee's manager and the transaction is consistent with each Fund prospectus, if applicable. 3. No opening transactions in options or futures may be executed if the expiration date is less than 60 calendar days from the date the transaction was executed. No option or future position may be closed at a loss prior to 30 calendar days or at a profit less than 60 calendar days after the transaction was executed. 4. No Employee may acquire any security in an initial public offering (IPO). 5a. Investment Personnel shall obtain approval from the Compliance Manager of WM Advisors prior to the acquisition of Securities issued pursuant to a "private offering" (as that term is generally recognized as an exemption from registration under Section 4(2) of the Securities Act of 1933) ("Private Offering Security") in which they, their families (including those immediate family members sharing the same household as the Access Person) or trusts of which they are trustees or in which they have a beneficial interest are parties. The Compliance Manager shall promptly notify the person of approval or denial for the transaction. Notification of approval or denial for the transaction may be given verbally; however, it shall be confirmed in writing within 72 hours of verbal notification. Such notification must be kept strictly confidential, and the Compliance Manager shall maintain records of the approval and the rationale supporting the acquisition of such securities for at least five years after the end of the fiscal year in which the approval is granted. In reviewing the request, the Compliance Manager shall consult with both the Presidents of the Funds and Advisor and the Advisor's Chief Compliance Officer, and shall take into account, among other factors, whether the investment opportunity should be reserved for the Funds Company or Separately Managed Accounts, and whether the opportunity is being offered to such person as a result of his or her position with the Advisor. Investment Personnel who are Beneficial Owners of any Private Offering Security shall be required to disclose such ownership to the Compliance Manager prior to making any recommendation regarding the purchase or sale of the Private Offering Security by the Funds or Separately Managed Account or participating in the determination of which recommendations shall be made to the Fund or Separately Managed Account. Under such circumstances, the Advisor's decision to purchase the Private Offering Securities shall be subject to an independent review by Investment Personnel with no personal interest in the Private Offering Securities. 5b. All Investment Personnel who have acquired securities in a private offering must disclose their investment if the Advisor is considering an investment in the issuer. The decision to purchase the security of the issuer must be made by an Investment Person who does not have a beneficial interest in the issue. 6. No purchase or sale transaction may be made in any Covered Security by Investment Personnel for a period of 7 calendar days before or after that Covered Security is bought or sold by any Fund or any Separately Managed Account. Any profits realized on these trades may be subject to disgorgement. 7. No Employee shall purchase or sell any Covered Security which to their knowledge at the time of such purchase or sale: (i) is being considered for purchase or sale by a Fund or a Separately Managed Account; or (ii) is being purchased or sold by a Fund or a Separately Managed Account. 8. If a Personal Securities Transaction is not executed on the day preclearance is granted, it is required that pre-clearance be sought again on a subsequent day (i.e., open orders, such as limit orders, good until cancelled orders and stop-loss orders, must be pre-cleared each day until the transaction is effected). 9. Employees shall not participate in investment clubs. C. Exempt Securities 1) The securities listed below are exempt from: (i) the holding period and other restrictions of this Section IV., sub-sections B.1., B.2., B.7. and B.8.; (ii) the preclearance requirements; and (iii) the initial, quarterly and annual reporting requirements. Accordingly, it is not necessary to obtain pre-clearance for Personal Securities Transactions in any of the following securities, nor is it necessary to report such securities in the quarterly Securities Transaction Reports or the Initial Listing of Securities Beneficially Owned Report and Annual Compliance Certification: a) Direct obligations of the United States Government(1); b) Bank Certificates of Deposit; c) Bankers' Acceptances; d) Commercial Paper; and e) High Quality Short-Term Debt Instruments (which for these purposes are repurchase agreements and any instrument that has a maturity at issuance of fewer than 366 days that is rated in one of the two highest categories by a Nationally Recognized Statistical Rating Organization); f) Shares held in money market funds; g) Shares held in open-end Mutual Funds other than Affiliated Mutual Funds. (1) Includes securities that carry full faith and credit of the U.S. Government for the timely payment of principal and interest, such as Ginnie Maes, U.S. Savings Bonds, and U.S. Treasuries. 2) Transactions in redeemable Unit Investment Trusts are exempt from the holding period restrictions contained in this Section IV., sub-sections B.1. and the pre-clearance requirement of Section IV., sub-section A., but are subject to the initial, quarterly and annual reporting requirements reporting requirements of Section V., sub-section A. 3) Shares of Affiliated Mutual Funds are exempt from the pre-clearance requirement of this Section IV, sub-section A, but are subject to the initial, quarterly and annual reporting requirements of Section V., sub-section A., and the holding period restrictions contained in Section IV, sub-section B.2. Exchange Traded Funds ("ETFs") and closed-end funds must be pre-cleared and are subject to all other holding and reporting requirements. 4) Affiliated Mutual Fund transactions that are made through an automated systematic purchase/redemption plan are exempt from the pre-clearance requirement of this Section IV, sub-section A, and the holding period restrictions contained in Section IV, subsection B.2., but are subject to the initial, quarterly and annual reporting requirements of Section V., sub-section A.. 5) Notwithstanding anything to the contrary within the Code, securities that are not eligible for purchase or sale by the Advisor (e.g., Washington Mutual, Inc.) are exempt from pre-clearance requirement of Section IV subsection A. (except to the extent they are acquired in an IPO or private placement), and from the holding period restrictions contained in this Section IV., sub-sections B.1., but are subject to initial, quarterly and annual reporting requirements of Section V., sub-section A. D. Exempt Transactions 1) The transactions listed below are exempt from the pre-clearance requirements of this Section IV., sub-sections A., but are subject to the quarterly reporting requirements of Section V., sub-section A.2.: a) Purchases which are part of an automatic dividend reinvestment plan; b) Purchases or sales which are non-volitional on the part of the Employee; c) Purchases effected upon the exercise of rights issued by an issuer pro rata to all holders of a class of its securities, to the extent such rights were acquired from such issuer, and sales of such rights so acquired; d) Maturity of a bond. 2) All Employees wishing to participate in an automated systematic issuer's direct stock purchase plan or an employee stock purchase plan must submit a memorandum to the Compliance Manager stating the name of the security and the amount to be invested, in frequency of the transactions, the method of payment (i.e. ACH, bank wire drafts etc.) and the institution where the transaction will be processed. Please note that only automatic purchases may be approved under this provision. Upon review the Compliance Manager will approve or decline the investment plan in writing. Once approved all subsequent trades made in conjunction will be considered approved unless otherwise notified by the Compliance Manager. However with the investment plan, any change made to the security, purchase amount, or frequency will be considered a deviation from the approved investment plan and will require subsequent pre-approval. Automated systematic purchases under an issuer's direct stock purchase plan or employee stock purchase plan that adhere to the above reference provisions are exempt from the restrictions contained in this Section IV, sub-sections B.1., B.7. and B.8., but are subject to all other provisions including initial, quarterly and annual reporting requirements. Please note that these provisions are applicable to purchase only. Liquidations from a direct stock purchase plan or employee stock purchase plan must adhere to standard requirements. 3) All Employees wishing to participate in automatic company sponsored 401K stock purchase plans are exempt from the restrictions contained in this Section IV, sub-sections B.1., B.7. and B.8., but are subject to initial, quarterly and annual reporting requirements of Section V., sub-section A. All sales transactions from an automatic company sponsored 401K stock plans are subject to the pre-clearance requirement of Section IV, sub-section A. 4) All Non-Investment Personnel wishing to establish a non-controlled/non-volitional account must submit a written request to WM Advisors' Chief Compliance Officer prior to the establishment of the account. Each account request will be reviewed on a case-by-case basis and written approval will be provided by the Chief Compliance Officer. Once the account is established the Employee must fulfill the same reporting requirement as outlined in Section V., sub-section A., as well as completing, on a quarterly basis, a Non-Controlled Account/Non-Volitional Transaction Certification. E. Pre-Clearance Requirement 1) Personal Securities Transactions a) From Whom Obtained All Employees are required to obtain pre-clearance of Personal Securities Transactions in Covered Securities. Employees must complete the required Confidential Personal Securities Transaction Request Form, and submit it to the Advisor's Compliance Manager for approval. A copy of the Personal Securities Transaction Request Procedures, which may be revised from time to time, is attached as Exhibit A. b) Personal Securities Transaction Approval Process Employees obtain pre-clearance approval by completing the Confidential Personal Securities Transaction Request Form on the WMGF Server and receiving an approval email of their transaction request from the Advisor's Compliance Department. Employees are required to complete the following information on the Confidential Personal Securities Transaction Request Form, trade date, security name, trading symbol, security type, transaction type, and list any known conflicts of interest. Employees are required to have duplicate copies of their trade confirmations and Covered Account statements sent to the Advisor's Compliance Manager for each Covered Account the Employee has, or as a result of the transaction, acquires any direct or indirect beneficial ownership. c) Filing and Approval After all the daily Confidential Personal Securities Transaction Requests have been processed, they are filed with the Advisor's Compliance Manager. The Compliance Department will manage the requests daily at 8:30 AM and 10:30 AM and notify the Employee whether the request has been approved or denied. If pre-clearance of a request is approved, it is effective only for a transaction completed prior to the close of business on the day of approval. Any transaction not completed will require a new approval. 2. Factors Considered in Pre-Clearance of Personal Securities Transactions In reviewing any Personal Securities Transaction for pre-clearance, the following factors, among others, will generally be considered: - - Whether the purchase or sale transaction of the Covered Security by the Employee: (i) is being considered for purchase or sale by a Fund or a Separately Managed Account; or (ii) is being purchased or sold by a Fund or a Separately Managed Account. - - Whether the individual making the proposed purchase or sale is likely to benefit from purchases or sales being made or considered on behalf of any Fund or a Separately Managed Account. - - Whether the transaction is conducted in a manner that is consistent with the Code to avoid any appearance of impropriety. In addition to the requirements set forth in the Code, the Advisor's Compliance Manager and/or, if applicable, designated Senior Portfolio Manager in keeping with the general principles and objectives of the Code, may refuse to grant pre-clearance of a Personal Securities Transaction in their sole discretion without being required to specify any reason for the refusal. V. REPORTING REQUIREMENTS A. Report of Transactions Employees are subject to several reporting requirements including completing an Initial Listing of Securities Beneficially Owned Report upon becoming an Employee of the Companies, Quarterly Securities Transactions and New Accounts Reports and an Annual Holdings Beneficially Owned Report and Certification of Compliance. It is the responsibility of Employees to submit their reports to Compliance in a timely manner. Compliance will notify Employees of their Quarterly and Annual Reporting obligations under the Code. Employees shall immediately provide to the Compliance Manager duplicate copies of all periodic statements issued by any broker, dealer or bank that describe any Covered Security Beneficially Owned by the Employee. All officers and employees of WM Funds Distributor, Inc., not deemed to be Access Persons must certify on annual basis that they are not an Access Person as defined under Rule 17j-1 of the Investment Company Act. A Trustee of the WM Group of Funds who is not "interested person" of the Affiliated Mutual Funds (as defined in Section 2(a)19 of the Investment Company Act of 1940) need not make an Initial Listing of Securities Beneficially Owned Report or an Annual Holdings Beneficially Owned Report and need only make a quarterly report in a Security if such Trustee, at the time of that transaction, knew, or in the ordinary course of fulfilling his official duties as a trustee of the WM Group of Funds should have known, that during the 15-day period immediately before or after the date of the transaction by the Trustee, such Security was purchased or sold by the Affiliated Mutual Funds or Advisor or was being considered by the Investment Company or Advisor for purchase or sale by the Affiliated Mutual Funds or Advisor. A Trustee of the WM Group of Funds who is an "interested person" of the Affiliated Mutual Funds is subject to an Initial Listing of Securities Beneficially Owned Report, reporting quarterly transactions and an Annual Holdings Beneficially Owned Report and Certification of Compliance. Both interested and non-interested Trustees of the WM Group of Funds are exempt from all the other aspects of this Code of Ethics. 1. Initial Listing of Securities Beneficially Owned Report Not later than 10 days after the person becomes an Employee, he or she must provide an Initial Listing of Securities Beneficially Owned Report to the Advisor's Compliance Manager, (which information must be current as of a date no more than 45 days prior to the date the person becomes an Employee), disclosing: (i) all Covered Securities, including Affiliated Mutual Funds and private offerings securities beneficially owned by the Employee, listing the title and type of the security, and as applicable the exchange ticker symbol or CUSIP number, number of shares held, and principal amount of the security; (ii) the name of the broker, dealer, bank or financial institution where the Employee maintains a personal account; and (iii) the date the report is submitted by the Employee. 2. Quarterly Securities Transactions and New Accounts Reports Quarterly Securities Transactions and New Accounts Reports must be submitted by Employees within 30 calendar days after the end of each calendar quarter. Any new brokerage account, or any account opened for the purchase of Affiliated Mutual Funds must also be reported within 30 calendar days after the end of each calendar quarter. (a) All Personal Securities Transactions in Covered Securities, and all securities transactions in Affiliated Mutual Funds must be reported in the next quarterly transaction report for the quarter in which the transaction was effected. Please note there are only two exceptions, the first one is for Employees who are providing the Advisor's Compliance Manager with duplicate copies of all periodic statements issued by any broker, dealer or bank, who only need to report their sell transactions in their quarterly transaction reports. The second exception is for Non-Investment Personnel with non-controlled/non-volitional accounts who are also providing the Compliance Manager with duplicate copies of all periodic statements issued by any broker, dealer or bank, who do not have to report any of these account transactions in the quarterly transaction report after the transaction was effected. The quarterly report shall contain the following information: [ ] (i) The date of the transaction, the title and type of the security, and as applicable the exchange ticker symbol or CUSIP number, interest rate and maturity date (if applicable), number of shares and principal amount of each security involved; [ ] (ii) The nature of the transaction (i.e., purchase, sale, or any other type of acquisition or disposition); (iii) The price at which the purchase or sale was effected; [ ] (iv) The name of the broker, dealer, bank or other financial institution with, or through which, the purchase or sale was effected; and (v) The date the report was submitted to the Advisor's Compliance Manager by such person. In addition, any new brokerage account, any account opened for the purchase of Affiliated Mutual Funds during the quarter must be reported. The report must contain the following information: [ ] (i) The name of the broker, dealer, bank or other financial institution with whom the account was established; [ ] (ii) The date the account was established; and (iii) The date the report is submitted by the Employee. 3. Annual Holdings Beneficially Owned Reports and Certification of Compliance The Annual Holdings Beneficially Owned Report and Certification of Compliance requires all Employees to provide an annual listing of holdings of: (i) all Covered Securities beneficially owned including all Affiliated Mutual Funds (excluding money market accounts), listing the title and type of the security and as applicable the exchange ticker, symbol or CUSIP number, number of shares held, and principal amount of the security as of December 31 of the preceding year, (ii) the name of any broker, dealer, bank or financial institution where the account(s) in which these Covered Securities were maintained, as of December 31 of the preceding year; and (iii) the date the report is submitted. This report must be provided no later than 30 calendar days after December 31 each year. In the case of Employees personal security accounts and Washington Mutual Savings Plan statements are already received on a quarterly basis by the Advisor's Compliance Manager, an annual certification (Certification of Compliance) that the holdings information already provided to the Compliance Manager accurately reflects all such holdings will satisfy the aforementioned requirement. B. Responsibility to Report The responsibility for reporting is imposed on each Employee required to make a report. C. Where to File Report All reports must be filed by Employees with the Advisor's Compliance Manager. D. Responsibility to Review The Advisor's Compliance Manager will review all Initial Listing of Securities Beneficially Owned Reports, Quarterly Securities Transactions and New Accounts Reports, and Annual Holdings Beneficially Owned Reports and Certification of Compliance, filed by Employees, as well as all confirmations, and all statements issued by any broker, dealer, bank, Affiliated Mutual Fund, and Washington Mutual Savings Plan. VI. APPLICATION The Sub-advisers and their affiliates have their own Codes of Ethics pursuant to Rule 17j1 under the Investment Company Act. Effective September 1, 2000, any Access Person who is not subject to a Sub-adviser's Code of Ethics that has been approved by the Fund's trustees pursuant to Rule 17j-1, shall be subject to the provisions of this Code, and any person who is subject to a Sub-adviser's Code of Ethics that has been approved by the Fund's trustees pursuant to Rule 17j-1 and who complies with such Code, shall not be subject to the provisions of this Code. VII. INSIDER TRADING WM Advisors, Inc. has developed policies and procedures to detect and prevent insider trading. WM Advisors, Inc. seeks to foster a reputation for integrity and professionalism. That reputation is a vital business asset. The confidence and trust placed in us by investors in the Affiliated Mutual Funds and Separately Managed Accounts advised by WM Advisors, Inc. is something we should value and endeavor to protect. To further that goal, procedures have been implemented to deter the misuse of material, nonpublic information in securities transactions. Please see the document entitled Policies and Procedures of WM Advisors, Inc. Designed To Detect and Prevent Insider Trading for a complete explanation of our policy. VIII. CONFIDENTIALITY All information obtained from any Employee shall be kept in strict confidence, except that reports of transactions will be made available to the Securities and Exchange Commission to the extent required by law. IX. ANTI-MONEY LAUNDERING All Employees must recognize the importance of guarding against the use of our Funds or Separately Managed Accounts for money laundering activities. WM Advisors, Inc. and the WM Group of Funds have adopted a policy for each of the WM Group of Funds to conduct its business in a manner consistent with all applicable requirements of the Bank Secrecy Act and to take all steps necessary to require all service providers of the WM Group of Funds to comply with the Bank Secrecy Act in their performance of services for the Funds. WM Advisors, Inc. relies on AIG SunAmerica's AML policy for the Separately Managed Accounts. X. CODE OF ETHICS REVIEW COMMITTEE A Code of Ethics Review Committee, consisting of the WM Advisors'/WM Group of Funds' President, WM Advisors' Chief Compliance Officer, and WM Group of Funds' Chief Compliance Officer will review and consider any proper request of an Employee for relief or exemption from any restriction, limitation or procedure contained herein consistent with the principles and objectives outlined in this Code. The Committee shall meet on an ad hoc basis, as it deems necessary, upon written request by an Employee stating the basis for the requested relief. The Committee's decision is within its sole discretion and any waivers or exemptions will be reported to the next quarterly meeting of the Trustees of The WM Group of Funds. XI. SERVICE AS A DIRECTOR AND OUTSIDE BUSINESS ACTIVITIES A. Approval to Serve as a Director No Employee may serve on the board of any company without prior approval of the Code of Ethics Review Committee. If such approval is granted, it will be subject to the implementation of information barrier procedures to isolate any such person from making investment decisions for Funds or Separately Managed Accounts concerning the company in question. B. Approval to Engage in Outside Business Activities No Employee may engage in any outside business activities without prior approval of the Code of Ethics Review Committee. If such approval is granted, it is the responsibility of the Employee to notify Compliance immediately if any conflict or potential conflict of interest arises in the course of such activity. XII. GIFTS No Employee shall accept directly or indirectly anything of value, including gifts and gratuities, in excess of $100 per year from any person or entity that does business with any Fund or Separately Managed Account, not including occasional meals or tickets to theater or sporting events or other similar entertainment that is neither so excessive or frequent. Client entertainment expenses generally are not considered gifts if: (i) Firm personnel are present; (ii) a Firm client is present; and (iii) the entertainment is not so regular or frequent that it creates the appearance of impropriety. No Employee may give or accept cash gifts from a client, prospective client, or any entity that does business with WM Advisors. XIII. REGISTERED PERSONNEL All Employees who are registered with NASD must also adhere to their regulations. XIV. COPYRIGHT LAWS All Employees must adhere to all copyright laws. Copyright is a protection that covers published and unpublished articles or other forms of expression, meaning the law grants the creator the exclusive right to reproduce, and distribute. Article regarding any of our personnel or our business that have been published may not be reproduced without the creator's approval because he owns the exclusive rights which means he is the only one who can reproduce and distribute the materials. Please contact WM Advisors' Chief Compliance Officer or Compliance Manager with any questions in regards to Copyright Laws. XV. MEDIA RELATIONS Given the sensitive nature of media inquiries in general, it is necessary that Employee's manager along with the WM Advisors' Chief Compliance Officer must pre-approve all media inquiries. XVI. REPORTING VIOLATIONS All Employees are required to report all violations of the Code of Ethics they become aware of promptly to WM Advisors' Chief Compliance Officer or Compliance Manager. All reporting will be kept confidential to the extent deemed appropriate by the Ethics Committee. XVII. SANCTIONS All violations of this Code will be reported promptly to WM Advisors' Chief Compliance Officer. Both the Chief Compliance Officer of the Advisors and the Affiliated Mutual Funds along with Senior Management of both the Advisor and the Affiliated Mutual Funds may impose such sanctions as they deem appropriate, including a reprimand (orally or in writing), disgorgement, monetary fine, demotion, suspension or termination of employment and/or other possible sanctions. All material violations of this Code and any sanctions imposed with respect thereto shall be reported periodically to the board of trustees of the Affiliated Mutual Funds or board of directors of the Advisor with respect to whose securities the violation occurred. XVIII. REPORT AND CERTIFICATION OF ADEQUACY TO THE BOARD OF TRUSTEES AND BOARD OF DIRECTORS On an annual basis, the WM Group of Funds' Chief Compliance Officer shall prepare a written report to the management and the board of trustees of the WM Group of Funds and board of directors of the Advisor, Transfer Agent and Distributor setting forth the following: A. stating that the Code of Ethics procedures have been designed to prevent Employees from violating the Code; B. a summary of existing procedures concerning personal investing and any changes in procedures made during the past year; C. identifying any violations that required significant remedial action during the past year; and D. identifying any recommended changes in existing restrictions or procedures based upon the WM Group of Funds' or Advisor's experience under the Code, evolving industry practices, or developments in applicable laws or regulations. XIX. BOARD APPROVAL Following the report and certification by the WM Group of Funds' Chief Compliance Officer, the board of trustees of the Investment Company (including a majority of independent trustees) must approve this Code of Ethics. Any material change to this Code must be approved within six months. XX. EMPLOYEE TRAINING AND CERTIFICATION All new Employees will receive training on the principles and procedures of this Code. New Employees are also required to sign a copy of this Code indicating their understanding of, and their agreement to abide by the terms of this Code. In addition, Employees are required to certify annually as well as during the course of the year anytime they receive amendments of this Code that: (i) they have read and understand the terms of this Code and recognize the responsibilities and obligations incurred by their being subject to this Code; and (ii) they are in compliance with the requirements of this Code, including but not limited to the reporting of all brokerage accounts, and the preclearance of all non-exempt Personal Securities Transactions in accordance with this Code. I have read and understand the terms of the above Code. I recognize the responsibilities and obligations, including but not limited to my quarterly transaction, annual listing of holdings, and initial holdings reporting obligations (as applicable), incurred by me as a result of my being subject to this Code. I hereby agree to abide by the above Code. - ------------------------------------- ---------------------------------------- (Signature) (Date) - ------------------------------------- (Print name) CODE OF ETHICS OF THE WM GROUP OF FUNDS, WM ADVISORS, INC., AND WM FUNDS DISTRIBUTOR, INC. EX-99.P3 19 v15673exv99wp3.txt EXHIBIT 99.(P)(3) (p)(3) FOLLOWING IS THE CODE OF ETHICS FOR THE CAPITAL GROUP COMPANIES INC. (CAPITAL), WHICH INCLUDES CAPITAL RESEARCH AND MANAGEMENT COMPANY, THE INVESTMENT ADVISER TO THE AMERICAN FUNDS AND THOSE INVOLVED IN THE DISTRIBUTION OF THE FUNDS, CLIENT SUPPORT AND SERVICES; AND CAPITAL GROUP INTERNATIONAL INC. (CGII), WHICH INCLUDES CAPITAL GUARDIAN TRUST COMPANY AND CAPITAL INTERNATIONAL INC. THE CODE OF ETHICS APPLIES TO ALL ASSOCIATES. THE CAPITAL GROUP COMPANIES CODE OF ETHICS All of us within the Capital organization are responsible for maintaining the very highest ethical standards when conducting business. In keeping with these standards, we must always place the interests of clients and fund shareholders ahead of our own. Moreover, we should adhere to the spirit as well as the letter of the law and be vigilant in guarding against anything that could color our judgment. Over the years we have earned a reputation for the highest integrity. Regardless of lesser standards that may be followed through business or community custom, we must observe exemplary standards of openness, integrity, honesty and trust. Accordingly, we have adopted certain standards as described below for the purpose of deterring wrongdoing and promoting: 1) honest and ethical conduct; 2) full, fair, accurate, timely and understandable disclosure in reports and documents; 3) compliance with applicable laws (including federal securities laws), rules, and regulations; 4) the prompt internal reporting of violations of our Code of Ethics; and 5) accountability for adherence to our Code of Ethics. GENERAL GUIDELINES Although specific policies are discussed in more detail below, these are general guidelines that all Capital associates should be aware of: - It is a crime in the U.S. and many other countries to transact in a company's securities while in possession of material non-public information about the company. If there is any question as to whether you've received material information (typically from a company "insider") you should contact any member of the legal staff to discuss. - You should not knowingly misrepresent, or cause others to misrepresent, facts about Capital to clients, fund shareholders, regulators, or any other member of the public. Disclosure in reports and documents should be fair and accurate. - You should not accept extravagant gifts or entertainment from persons or companies who are trying to solicit business from any of the Capital companies. Capital's Gifts and Entertainment Policy is summarized below. - Safeguarding non-public information - - ALL ASSOCIATES are responsible for safeguarding non-public information about securities recommendations and fund and client holdings (for example, analyst research reports, investment meeting discussions or notes, current fund/client transaction information). If you have access to such information, you will likely be subject to additional personal investing limitations under Capital's Personal Investing Policy(2). Even if you are not a "covered person" under the Personal Investing Policy, certain general principles apply to you, and you should not trade based on any Capital company's confidential, proprietary investment information where fund or client trades are likely to be pending or imminent. - Other types of information (for example, marketing plans, employment issues, shareholder identities, etc.) may also be confidential and should not be shared with individuals outside the company (except those retained to provide services for the Capital companies). EXCESSIVE TRADING OF CAPITAL-MANAGED FUNDS - - YOU SHOULD NOT ENGAGE IN EXCESSIVE TRADING OF THE AMERICAN FUNDS OR ANY OTHER CAPITAL-MANAGED INVESTMENT VEHICLES WORLDWIDE TO TAKE ADVANTAGE OF SHORT-TERM MARKET MOVEMENTS. EXCESSIVE ACTIVITY, SUCH AS A FREQUENT PATTERN OF EXCHANGES, COULD INVOLVE ACTUAL OR POTENTIAL HARM TO SHAREHOLDERS OR CLIENTS. Note that this applies to your spouse and any other immediate family members. BAN ON PARTICIPATION IN IPOS - - Capital associates and their immediate family members residing in their household MAY NOT PARTICIPATE in Initial Public Offerings (IPOs). Although exceptions are rarely granted, they will be considered on a case-by-case basis, for example, where a family member is EMPLOYED by the IPO Company and IPO shares are considered part of that family member's compensation. LIMITATION ON SERVICE ON BOARDS - - ASSOCIATES ARE DISCOURAGED FROM SERVING ON THE BOARD OF DIRECTORS OR ADVISORY BOARD of any public or private company (this does not - ---------- (2) Note that if you have access to non-public information regarding securities recommendations and holdings but you are not currently considered "covered" under the Personal Investing Policy (i.e., you do not receive a reporting form each quarter), you should contact the staff of the Personal Investing Committee to discuss. apply to boards of Capital companies or funds). You must receive approval prior to serving on a board, except for boards of charitable organizations or other nonprofit organizations. In addition, certain associates will be sent a form annually and asked to disclose their board positions. FAILURE TO ADHERE TO OUR CODE OF ETHICS MAY RESULT IN DISCIPLINARY ACTION BEING TAKEN, INCLUDING TERMINATION. ANNUAL CERTIFICATION OF CODE OF ETHICS Each associate will receive a copy of the Code of Ethics annually and is responsible for certifying in writing that they have read and understood the Code. REPORTING VIOLATIONS You have a responsibility to report any violations of our Code of Ethics, including: (i) fraud or illegal acts involving any aspect of our business; (ii) noncompliance with applicable laws, rules and regulations; (iii) intentional or material misstatements in our regulatory filings, internal books and records or client records or reports; or (iv) activity that is harmful to our clients or fund shareholders. Deviations from controls or procedures that safeguard the company, including the assets of shareholders and clients, should also be reported. Reported violations of the Code of Ethics will be investigated and appropriate actions will be taken. You can report confidentially to: - Your manager or department head - Capital's Audit Committee - any other lawyer employed by the Capital organization CAPITAL GIFTS AND ENTERTAINMENT POLICY - CONFLICTS OF INTEREST A conflict of interest occurs when the private interests of associates interfere or could potentially interfere with their responsibilities at work. Associates must not place themselves or the company in a position of actual or potential conflict. Associates may not accept gifts worth more than U.S.$100.00, excessive business entertainment, loans, or anything else involving personal gain from those who conduct business with the company. In addition, a business entertainment event exceeding U.S. $250.00 in value should not be accepted unless the associate receives permission from his/her manager or supervisor and the Gifts and Entertainment Policy Committee. Gifts or entertainment that are reimbursed by Capital do not need to be reported (or pre-cleared). The expenses, however, are subject to the approval of the associate's manager. When giving a gift or extending entertainment on behalf of Capital, it is important to keep in mind that giving an extravagant gift or entertaining excessively or lavishly may create the appearance of conflict. Associates should also be aware that certain laws or rules may prohibit or limit gifts or entertainment extended to public officials -- especially those responsible for investing public funds. CHARITABLE CONTRIBUTIONS In soliciting donations from various people in the business community, associates must never allow the present or anticipated business relationships of Capital or any of its affiliates to be a factor in soliciting such contributions. REPORTING The limitations on accepting gifts applies to all associates as described above, and all associates will be asked to fill out quarterly disclosures. You must report any gift exceeding U.S. $50.00 in value and business entertainment in which an event exceeds U.S. $75.00. (although it is recommended that you report all gifts and entertainment) Gifts and Entertainment Policy Committee The Gifts and Entertainment Policy Committee oversees administration of and compliance with the Policy. POLITICAL CONTRIBUTIONS POLICY MAKING POLITICAL CONTRIBUTIONS -- One of the objectives of Capital's Code of Ethics is to ensure that conflicts of interest do not arise as a result of an associate's position at Capital. Contributions (financial or non-financial) made to certain political campaigns may raise potential conflicts of interest because of the ability of certain office holders to direct business to Capital. For example, contributions to any person currently holding a city, county or state treasurer position or any candidate running for these offices may raise concerns. As a result, associates SHOULD NOT MAKE CONTRIBUTIONS to any person currently holding these positions or running for these positions. Associates are also encouraged to seek guidance for contributions to other political offices that may have the power to influence the choice of a Capital company or the American Funds to manage public funds. THESE POLICIES ALSO APPLY TO AN ASSOCIATE'S SPOUSE. Pre-clear requests or questions may be directed to the staff of the Political Contributions Committee. The Political Contributions Committee will evaluate questions relating to potential political contributions considering, among other things: 1) an associate's relationship with the candidate (i.e., is the relationship a personal or business one) and 2) the candidate's current or potential relationship with Capital. As a general matter, contributions to candidates for U.S. President, Senate, House of Representatives and contributions to national political parties are permissible (unless the candidate currently holds an office that may raise potential conflict of interest issues as described above). Likewise, unless you are subject to the special "CollegeAmerica" requirements (described below), contributions to State Governor and State Representative positions and state political parties are permissible. SPECIAL POLITICAL CONTRIBUTION REQUIREMENTS -- COLLEGEAMERICA -- Certain associates involved with "CollegeAmerica," the American Funds 529 College Savings Plan sponsored by the Commonwealth of Virginia will receive a special reporting form. These associates are subject to additional restrictions and reporting requirements. For example, these associates generally may not contribute to Virginia political candidates or parties, must report contributions to any other state or municipal candidates or parties, and must pre-clear Political Action Committee (PAC) contributions. SOLICITING POLITICAL CONTRIBUTIONS -- In soliciting political contributions from various people in the business community, you must never allow the present or anticipated business relationships of any Capital company to be a factor in soliciting such contributions. OTHER CONSIDERATIONS -- Please keep in mind that any political contributions that you make or solicit should be viewed as personal. Therefore, you should not use Capital letterhead for correspondence regarding these contributions, and you should not hold fundraising events in Capital offices. INSIDER TRADING Antifraud provisions of U.S. securities laws as well as the laws of other countries generally prohibit persons in possession of material non-public information from trading on or communicating the information to others. Sanctions for violations can include civil injunctions, permanent bars from the securities industry, civil penalties up to three times the profits made or losses avoided, criminal fines and jail sentences. While investment research analysts are most likely to come in contact with material non-public information, the rules (and sanctions) in this area apply to all Capital associates and extend to activities both within and outside each associate's duties. ANY ASSOCIATE WHO BELIEVES THAT HE OR SHE MAY HAVE MATERIAL NON-PUBLIC INFORMATION SHOULD CONTACT A CAPITAL LAWYER. PERSONAL INVESTING POLICY As an associate of The Capital Group Companies, you may have access to confidential information. This places you in a position of special trust. You are associated with a group of companies that is responsible for the management of many billions of dollars belonging to mutual fund shareholders and other clients. The law, ethics and our own policy place a heavy burden on all of us to ensure that the highest standards of honesty and integrity are maintained at all times. There are several rules that must be followed to avoid possible conflicts of interest in personal investments. Keep in mind, however, that placing the interests of clients and fund shareholders first is the core principle of our policies and applies even if the matter is not covered by a specific provision. The following is only a summary of the Capital Personal Investing Policy. Please refer to the Capital Personal Investing Policy for more detailed information about personal investing rules. THE FOLLOWING PROVISIONS APPLY ONLY TO ASSOCIATES COVERED UNDER THE PERSONAL INVESTING POLICY. COVERED PERSONS You are a "covered person" if you have access to non-public investment information relating to current or imminent fund/client transactions. If you are a "covered person" you should be receiving quarterly personal investing disclosure forms. Covered persons must conduct their personal securities transactions in such a way that they do not conflict with the interests of the funds and client accounts. This policy also includes securities transactions of family members living in the covered person's household and any trust or custodianship for which the associate is trustee or custodian. A conflict may occur if you, or a family member in the same household, or a trust or custodianship for which you are trustee or custodian, have a transaction in a security when the funds or client accounts are considering or concluding a transaction in the same security. FOR PURPOSES OF THIS POLICY, "COVERED PERSONS" INCLUDE IMMEDIATE FAMILY MEMBERS LIVING IN THE SAME HOUSEHOLD. Additional rules apply to "investment associates" including portfolio counselors/managers, investment analysts and research associates, trading associates including trading assistants, and investment administration, portfolio control and fixed income control associates including assistants (see below). PROHIBITED TRANSACTIONS FOR COVERED PERSONS - IPO investments - Writing puts and calls on securities that are subject to pre-clearance - Short sales of securities that are subject to pre-clearance Initial and Annual Holdings Reports Any associate that becomes a covered person must submit a list of portfolio holdings and securities accounts within 10 calendar days of becoming covered. In addition, all covered associates will be required to review and update their holdings and securities account information annually. Pre-clearance of Securities Transactions Covered persons must receive approval before buying or selling securities including (but not limited to): - stocks of companies (public or private, including purchases through private placements) - bonds (except U.S. government bonds or other sovereign government bonds rated AAA or Aaa or equivalent) - investments in/capital calls of venture capital partnerships and hedge funds - options on securities subject to pre-clearance (the exercise of options must also be pre-cleared) - closed-end funds (including investment trust companies) - index funds or exchange-traded funds that are NOT on the pre-approved list of index funds/ETFs - transactions in securities subject to pre-clearance in IRAs (or company-sponsored retirement accounts) and in Personal Equity Plans (PEPs) and Individual Savings Accounts (ISAs) (available in the U.K. only) over which you have discretion Before buying or selling securities, covered persons must check with the staff of the Personal Investing Committee. Pre-clear requests will be handled during the hours the New York Stock Exchange ("NYSE") is open (generally 6:30am to 1:00pm Pacific Time). You will generally receive a response within one business day. Unless a different period is specified, clearance is good until the close of the NYSE on the day that you check. Associates from offices outside the U.S. and/or associates trading on non-U.S. exchanges are usually granted enough time to complete their transaction during the next available trading day. If you have not executed your transaction within this period, you must again pre-clear your transaction. Note that investments in private companies (e.g., private placements) and venture capital partnerships must be pre-cleared and reported and are subject to special review. In addition, opportunities to acquire a stock that is "limited" (i.e., a broker-dealer is only given a certain number of shares to sell and is offering the opportunity to buy) would be subject to the Gifts and Entertainment Policy. EXCEPTION FOR DE MINIMIS TRANSACTIONS THE DE MINIMIS EXCEPTION IS NOT AVAILABLE FOR CIKK ASSOCIATES (A CAPITAL COMPANY BASED IN TOKYO) OR ASSOCIATES CONSIDERED INVESTMENT ASSOCIATES. All other covered associates may execute ONE SINGLE TRANSACTION (EITHER A BUY OR A SELL) OF 100 SHARES OR LESS PER ISSUER PER CALENDAR MONTH without pre-clearance. You must, however, still report these trades on your quarterly form. IF YOU REQUEST PRE-CLEARANCE AND ARE DENIED PERMISSION, YOU MAY NOT EXECUTE A DE MINIMIS TRANSACTION IN THAT ISSUER WITHOUT PRE-CLEARANCE FOR A PERIOD OF SEVEN CALENDAR DAYS. LARGER OR MORE FREQUENT SHARE TRANSACTIONS MUST BE PRE-CLEARED. Reporting Transactions Covered persons must submit quarterly disclosure of certain transactions. If you are covered, you will receive reporting forms each quarter THAT ARE DUE NO LATER THAN 15 CALENDAR DAYS AFTER THE END OF THE QUARTER.(3) Reports will be reviewed by the staff of the Personal Investing Committee. Transactions of securities (including fixed-income securities) or options must be pre-cleared as described above and reported except as outlined below: REPORT ONLY (NO NEED TO PRE-CLEAR): - PURCHASES AND SALES OF CRMC MANAGED FUNDS Note that American Funds transactions in Capital's 401(k) or MRP accounts or in accounts held with American Funds Service Company (AFS)/Capital Bank & Trust (CB&T) where the account number has been previously disclosed need not be reported - PURCHASES AND SALES OF OTHER CAPITAL AFFILIATED FUNDS Note that transactions in the LDO Personal Pension Plan need not be reported if you have a signed data release form on file with LDO Legal - PURCHASES AND SALES OF GIG ADVISED/SUB-ADVISED FUNDS AND INSURANCE PRODUCTS - purchases and sales (including options and futures) of index funds or exchange traded funds that ARE on the pre-approved list of index funds/ETFs - participation in any CGII private equity fund/partnership - de minimis transactions (see above) - distributions of stock from venture capital partnerships - gifts or bequests (either receiving or giving) of securities (note that sales of securities, subject to pre-clearance, received as a gift must be both pre-cleared and reported) - sales pursuant to tender offers - ---------- (3) For compliance purposes, only those signed and dated greater than 30 days past the end of the quarter will be considered "late". DO NOT PRE-CLEAR OR REPORT: - OPEN-END INVESTMENT COMPANIES (I.E., MUTUAL FUNDS, OEICS, SICAVS, FCPS, UCITS, UNIT TRUSTS (U.K.) OR JAPANESE INVESTMENT TRUSTS AND INVESTMENT COMPANY FUNDS) EXCEPT FUNDS ADVISED OR SUB-ADVISED BY ANY CAPITAL COMPANY (Note: all other funds should be pre-cleared and reported) - money market instruments or other short-term debt instruments with maturities (at issuance) of one year or less that are rated in one of the highest two rating categories by a Nationally Recognized Statistical Rating Organization or unrated but of equivalent quality - direct obligations of the U.S. Government or bonds issued by sovereign governments outside the U.S. that are rated AAA or Aaa or equivalent - bankers' acceptances, CDs or other commercial paper - currencies (including options and futures) - commodities - transactions in accounts for which you have completely turned over investment decision-making authority to a professional money manager (see "Professionally Managed Accounts" below) Personal investing should be viewed as a privilege, not a right. As such, the Personal Investing Committee may place limitations on the number of pre-clearances and/or transactions. Securities Accounts 1. DISCLOSURE OF SECURITIES ACCOUNTS The following types of accounts must be disclosed: - accounts currently holding reportable securities (including any accounts that hold funds advised or sub-advised by a Capital company including accounts held at AFS/CB&T) - accounts that have the ability to hold reportable securities - PEP and ISA accounts that hold or have the ability to hold reportable securities - accounts where you (or an immediate family member residing with you) have completely turned over investment decision-making authority to a professional money manager You do not need to disclose accounts that CAN ONLY hold cash, cash equivalents or open-end investment companies (i.e., mutual funds, OEICs, SICAVs, FCPs, UCITs, Unit Trusts (U.K.) or Japanese investment trusts and investment company funds) other than American Funds or other funds managed by Capital Group 2. Duplicate Account Statements and Trade Confirmations Duplicate statements and trade confirmations (or other equivalent documentation) are required for accounts currently holding or have the ability to hold securities that are subject to pre-clearance and/or reporting. (This includes 401k and other retirement accounts with previous employers and excludes American Funds accounts where records are held at American Funds Service Company and the account information has been previously disclosed and the LDO Personal Pension Plan where a signed data release form is on file with LDO Legal). Covered persons should inform their investment broker-dealer, bank, securities firm or money management firm that they are employed by an investment management organization. In addition, covered persons must direct their broker-dealer, bank, securities firm or money management firm to send duplicate trade confirmations and account statements (or other equivalent documentation) for all new or existing accounts on a timely basis to the appropriate address listed below. IF THEY ARE NOT ABLE TO SEND DUPLICATES DIRECTLY, YOU SHOULD SUBMIT COPIES OF ALL TRADE CONFIRMATIONS (OR OTHER EQUIVALENT DOCUMENTATION) AND ACCOUNT STATEMENTS AS SOON AS THEY BECOME AVAILABLE. ALL DOCUMENTS RECEIVED ARE KEPT STRICTLY CONFIDENTIAL AND ARE MAINTAINED BY LAO LEGAL IN ACCORDANCE WITH APPLICABLE FEDERAL SECURITIES LAWS.(4) If your broker requires a letter requesting duplicate trade confirmations and monthly statements, please contact the staff of the Personal Investing Committee. If your broker will be sending confirmation statements for an immediate family member with a different last name than you, you should inform the staff of the Personal Investing Committee with the name of the family member and that person's relationship to you. 3. Professionally Managed Accounts If you have an account where you have COMPLETELY turned over decision-making authority to a professional money manager (who is not covered by our policy), you should have a signed "Professionally Managed Account Exception Memo" on file with the staff of the Personal Investing Committee. (This memo is not required for Personal Investment Management "PIM" accounts.) You must disclose the existence of these accounts and provide the account numbers on your personal - ---------- (4) Information about particular transactions may be provided to an associate's supervisor or appropriate Human Resources manager by Personal Investing Committee staff where the transactions are in violation of the Policy, may impact the associate's job performance, or raise conflict of interest-related issues. investing disclosure forms. You do not need to pre-clear or report securities transactions in these accounts. Additional Policies for "Investment Associates" 1. INVESTMENT ASSOCIATES Unless otherwise specified, the term "investment associates" includes: portfolio counselors/managers, investment analysts and research associates, trading associates including trading assistants, and investment administration, portfolio control and fixed income control including assistants. 2. DISCLOSURE OF PERSONAL OWNERSHIP OF RECOMMENDED SECURITIES Portfolio counselors/managers and analysts will be asked on a regular basis to disclose securities that they own both personally and professionally and, for analysts, securities that they hold personally that are within their research coverage. This disclosure will be reviewed on a periodic basis by the staff of the Personal Investing Committee and may also be reviewed by the CRMC and CGTC Executive Committees or other appropriate Capital Committees. In addition, to the extent that disclosure has not already been made to the Personal Investing Committee (by including information on the quarterly form), any associate who is in a position to recommend the purchase or sale of securities by the fund or client accounts that s/he personally owns should first disclose such ownership either in writing (in a company write-up) or verbally (when discussing the company at investment meetings) prior to making a recommendation.(5) If you have any questions, you should contact the staff of the Personal Investing Committee. 3. BLACKOUT PERIODS Investment associates may not buy or sell a security during a period beginning seven calendar days before and ending seven calendar days after a fund or client account transacts in that issuer. The blackout period applies to trades in the same management company with which the associate is affiliated. If a fund or client account transaction takes place in the seven calendar days following a pre-cleared transaction by an investment associate, the personal transaction may be reviewed by the Personal Investing Committee to determine the appropriate action, if any. For example, the Committee may recommend that the associate be subject to a price adjustment to ensure that he or she has not received a better price than the fund or client account. - ---------- (5) Note that this disclosure requirement is consistent with both AIMR standards as well as the ICI Advisory Group Guidelines. 4. BAN ON SHORT-TERM TRADING PROFITS Investment associates are generally prohibited from profiting from the purchase and sale or sale and purchase of the same (or equivalent) securities within 60 days. THIS RESTRICTION APPLIES TO THE PURCHASE OF AN OPTION AND THE EXERCISE OF THE OPTION WITHIN 60 DAYS. Other Considerations Associates may not accept negotiated commission rates or any other terms that they believe may be more favorable than the broker-dealer grants to accounts with similar characteristics. U.S. broker-dealers are subject to certain rules designed to prevent favoritism toward such accounts. In addition material outside business interests may give rise to potential conflicts of interest. Associates are asked to report if they are a senior officer of or own more than 5% of any private or public company that is or potentially may be doing business with any Capital company or with the American Funds. This reporting requirement also applies to any immediate family member residing within the associate's household. PERSONAL INVESTING COMMITTEE Any questions or hardships that result from these policies or requests for exceptions should be referred to Capital's Personal Investing Committee. EX-99.P4 20 v15673exv99wp4.txt EXHIBIT 99.(P)(4) (p)(4) JANUS ETHICS RULES "Discovering Winning Opportunities for our Investors" PERSONAL TRADING CODE OF ETHICS POLICY GIFT POLICY OUTSIDE EMPLOYMENT POLICY REVISED SEPTEMBER 20, 2005 TABLE OF CONTENTS DEFINITIONS ............................................................... 1 INTRODUCTION .............................................................. 5 PERSONAL TRADING CODE OF ETHICS ........................................... 5 OVERVIEW .................................................................. 5 GUIDING PRINCIPLES ........................................................ 6 CAUTION REGARDING PERSONAL TRADING ACTIVITIES ............................. 6 COMMUNICATIONS WITH INDEPENDENT TRUSTEES .................................. 6 GENERAL PROHIBITIONS ...................................................... 7 TRANSACTIONS IN COMPANY SECURITIES ........................................ 8 WINDOW PERIODS FOR COMPANY SECURITY TRADES ................................ 8 PRE-CLEARANCE PROCEDURES FOR COMPANY SECURITIES ........................... 8 TRANSACTIONS IN JANUS FUNDS ............................................... 9 BAN ON SHORT-TERM TRADING PROFITS ......................................... 9 TRANSACTIONS IN COVERED SECURITIES ........................................ 9 TRADING RESTRICTIONS ...................................................... 9 EXCLUDED TRANSACTIONS ..................................................... 9 DISCLOSURE OF CONFLICTS ................................................... 10 TRADING BAN ON PORTFOLIO MANAGERS ......................................... 10
BAN ON IPOS ............................................................... 11 BLACKOUT PERIOD ........................................................... 11 SEVEN-DAY BLACKOUT PERIOD ................................................. 11 PRECLEARANCE PROCEDURES FOR COVERED SECURITIES ............................ 11 PRE-CLEARANCE PROCESS FOR JNS ACCESS PERSONS .............................. 11 PRECLEARANCE PROCESS FOR INTECH ACCESS PERSONS ............................ 13 FOUR DAY EFFECTIVE PERIOD ................................................. 13 PRE-CLEARANCE OF STOCK PURCHASE PLANS ..................................... 13 SIXTY DAY RULE --PROHIBITION ON SHORT-TERM PROFITS ........................ 14 180 DAY RULE --PROHIBITION ON SHORT-TERM PROFITS .......................... 14 FIVE DAY BEST PRICE RULE .................................................. 14 THIRTY DAY BEST PRICE RULE ................................................ 14 SHORT SALES ............................................................... 14 HEDGE FUNDS, INVESTMENT CLUBS AND OTHER INVESTMENTS ....................... 14 REPORTING REQUIREMENTS .................................................... 15
ACCOUNT STATEMENTS ........................................................ 15 HOLDINGS REPORTS .......................................................... 15 PERSONAL SECURITIES TRANSACTION REPORTS ................................... 16 NON-INFLUENCE AND NON-CONTROL ACCOUNTS .................................... 16 OTHER REQUIRED FORMS ...................................................... 17 ACKNOWLEDGMENT OF RECEIPT FORM ............................................ 17 ANNUAL CERTIFICATION FORM ................................................. 17 TRUSTEE AND ADVISORY BOARD MEMBER REPRESENTATION FORM ..................... 17 GIFT POLICY ............................................................... 17 GIFT GIVING ............................................................... 18 GIFT RECEIVING ............................................................ 18 CUSTOMARY BUSINESS AMENITIES .............................................. 18 GIFT / ENTERTAINMENT POLICY FOR INVESTMENT PERSONNEL ...................... 18 REPORTING REQUIREMENTS .................................................... 19 OUTSIDE EMPLOYMENT POLICY ................................................. 19
PENALTY GUIDELINES ........................................................ 19 SUPERVISORY AND COMPLIANCE PROCEDURES ..................................... 20 SUPERVISORY PROCEDURES .................................................... 20 PREVENTION OF VIOLATIONS .................................................. 20 DETECTION OF VIOLATIONS ................................................... 21 COMPLIANCE PROCEDURES ..................................................... 21 REPORTS OF POTENTIAL DEVIATIONS OR VIOLATIONS ............................. 21 ANNUAL REPORTS............................................................. 22 RECORDS ................................................................... 22 INSPECTION ................................................................ 23 CONFIDENTIALITY ........................................................... 23 FILING OF REPORTS ......................................................... 23 THE ETHICS COMMITTEE ...................................................... 23 MEMBERSHIP OF THE COMMITTEE ............................................... 23 COMMITTEE MEETINGS ........................................................ 23 SPECIAL DISCRETION ........................................................ 24 GENERAL INFORMATION ABOUT THE ETHICS RULES ................................ 24 DESIGNEES ................................................................. 24 ENFORCEMENT ............................................................... 24 INTERNAL USE .............................................................. 25 APPENDIX A ................................................................ 26 APPENDIX B ................................................................ 30
JANUS ETHICS RULES DEFINITIONS The following definitions are used throughout this document. You are responsible for reading and being familiar with each definition. 1. "Access Person" shall mean: 1) Any Trustee, Director, Officer or Advisory Person of Janus 2) Any employee of Janus or other person who provides advice on behalf of Janus and is subject to the supervision and control of Janus who has access to nonpublic information regarding any Client's purchase or sale of securities, or nonpublic information regarding the portfolio holdings of the Janus Funds, or who is involved in making securities recommendations to Clients, or who has access to such recommendations that are nonpublic 3) Any other persons designated by the Ethics Committee as having access to current trading information. 1. 2. "Advisory Board Member" shall mean any person who serves on the Advisory Board to the Trustees of Janus Investment Fund, Janus Adviser Series or Janus Aspen Series. 2. 3. "Advisory Person" shall mean: 1) Any employee of Janus Funds or Janus who in connection with his or her regular functions or duties, makes, participates in or obtains information regarding the purchase or sale of a security by the Janus Funds or for the account of advisory Clients, or whose functions relate to the making of any recommendations with respect to such purchases and sales. 2) Any natural person in a control relationship to the Janus Funds or Janus who obtains information concerning recommendations made to the Janus Funds or for the account of Clients with regard to the purchase or sale of securities. 1. 4. "Assistant Portfolio Manager" shall mean any person who, in connection with his or her regular functions or duties, assists a Portfolio Manager with the management of a Janus Fund or advisory Client. Assistant Portfolio Managers generally do not execute any independent investment decisions nor do they have final responsibilities for determining the securities to be purchased or sold on behalf of any Janus Fund or advisory Client. If in the event an Assistant Portfolio Manager has the ability to independently make investment decisions on behalf of any Janus Fund or advisory Client, then such person will be considered a Portfolio Manager for purposes of these Rules. 2. 5. "Beneficial Ownership" shall be interpreted in the same manner as it would be under Rule 16a-1(a)(2) under the Securities Exchange Act of 1934 ("Exchange Act") in determining whether a person is subject to the provisions of Section 16 except that the determination of direct or indirect Beneficial Ownership shall apply to all Covered Securities which an Access Person has or acquires. For example, in addition to a person's own accounts the term "Beneficial Ownership" encompasses securities held in the name of a spouse or equivalent domestic partner, minor children, a relative sharing your home, or certain trusts under which you or a related party is a beneficiary, or held under other arrangements indicating a sharing of financial interest. 3. 6. "Client(s)" shall mean the Janus Funds and other individual and institutional advisory clients of Janus. 4. 7. "Company Security" is any security or option issued by Janus Capital Group Inc ("JNS"). 5. 8. "Control" shall have the same meaning as that set forth in Section 2(a)(19) of the Investment Company Act of 1940 ("1940 Act"). 6. 9. "Covered Persons" are all Trustees, Directors, Officers, and full-time, part-time or temporary employees of Janus and Enhanced Investment Technologies LLC (INTECH) and persons working for any of the foregoing on a contract basis. 7. 10. "Covered Securities" generally include all securities, whether publicly or privately traded, and any option, future, forward contract or other obligation involving securities or index thereof, including an instrument whose value is derived or based on any of the above ("derivative"). Covered Securities also include securities of the Janus Funds (other than money market funds). The term Covered Security includes any separate security, which is convertible into or exchangeable for, or which confers a right to purchase such security. The following investments are not Covered Securities: 1) Shares of registered open-end investment companies (e.g., mutual funds) other than Janus Funds (excluding money market funds) and shares of unit investment trusts that invest exclusively in registered open-end investment companies 2) Shares of offshore open-end mutual funds other than the Janus Funds 3) Direct obligations of the U.S. government (e.g., Treasury securities) or any derivative thereof 4) High-quality short-term debt instruments, such as bank certificates of deposit, banker's acceptances, repurchase agreements, and commercial paper 5) Insurance contracts, including life insurance or annuity contracts 6) Direct investments in real estate, private business franchises or similar ventures 7) Physical commodities (including foreign currencies) or any derivatives thereof 1. 11. "Designated Compliance Representatives" are David Kowalski and Ernie Overholt or their designee(s). 2. 12. "Designated Legal Representatives" are Bonnie Howe and Kelley Howes or their designee(s). 3. 13. "Director of Research" is Jim Goff. 4. 14. "Ethics Committee" is comprised of Peter Boucher, Kelley Howes, John Bluher, Andy Iseman, David Kowalski, David Martin, Susan Wold, and Andrea Young. 5. 15. "Independent Trustees" are Outside Trustees who are not "interested persons" of the Janus Funds within the meaning of Section 2(a)(19) of the 1940 Act. 6. 16. "Initial Public Offering" ("IPO") means an offering of securities registered under the Securities Act of 1933, the issuer of which, immediately before the registration, was not subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act. 7. 17. "Inside Trustees" are Trustees who are employed by Janus. 8. 18. "Interested Trustees" are Trustees who, due to special circumstances, are treated by Janus as "interested persons" of the Janus Funds. Interested Trustees are not employed by Janus. 9. 19. "Investment Personnel" shall mean a person who makes or participates in making decisions regarding the purchase or sale of securities by or on behalf of any Client and any person such as an analyst or trader who directly assists in the process. Such employees shall include, but are not limited to, Portfolio Managers, Assistant Portfolio Managers, research analysts, research associates, traders and trade operations personnel. All Investment Personnel are also deemed Access Persons. 10. 20. "Janus" is Janus Investment Fund, Janus Adviser Series, Janus Aspen Series, Janus Adviser, Janus Capital Management LLC, Janus Institutional Services LLC, Janus Services LLC, Janus Distributors LLC, Janus Capital International LLC, Janus Holding Corporation, Janus International Holding LLC, Janus International Ltd., Janus International (Asia) Ltd., Janus Capital Trust Manager Ltd., Janus Selection, Janus World Principal Protected Funds, Janus World Funds Plc, and INTECH. 11. 21. "Janus Funds" are Janus Investment Fund, Janus Adviser Series, Janus Aspen Series, Janus Adviser, Janus Global Funds SPC, Janus Selection, Janus World Principal Protected Funds, and Janus World Funds Plc and any other mutual fund to which Janus or a control affiliate is a sub-adviser. 12. 22. "Limited Offering" means an offering that is exempt from registration under the Securities Act of 1933, as amended ("1933 Act") pursuant to Section 4(2) or Section 4(6) or pursuant to Rules 504, 505 and 506 thereunder. Limited offerings are often referred to as "private placements" and many unregistered investment vehicles such as hedge funds, private equity funds and venture capital funds are offered pursuant these exemptions. 13. 23. "NASD" is the National Association of Securities Dealers, Inc. 14. 24. "Non-Access Person" is any person that is not an Access Person. If a Non-Access Person is a spouse or an equivalent domestic partner of an Access Person, then the Non-Access Person is deemed to be an Access Person. 15. 25. "Operating Council" is comprised of John Bluher, Peter Boucher, Erich Gerth, Kelley Howes, David Kowalski, Doug Laird, Frank Lao, Kevin Lindsell, John Mari, David Martin, Girard Miller, Jesper Nergaard, and Andrea Young. 16. 26. "Portfolio Manager" means any person who, in connection with his or her regular functions or duties, has primary responsibilities for determining the securities to be purchased or sold on behalf of any Janus Fund or advisory Client. 17. 27. "Registered Persons" are persons registered with the NASD by JD LLC. 18. 28. "Restricted Personnel" shall mean: 1) Any Independent Director or Officer of JNS. 2) Any employee who in the ordinary course of his or her business has access either directly or indirectly to material non-public information regarding JNS (such as certain specified members of the JNS internal audit, finance and legal staffs). 3) Any other persons determined by the Ethics Committee who potentially has access to material non-public information regarding JNS. 29. "Security Held or to be Acquired" means any Covered Security which, within the most recent fifteen (15) days (i) is or has been held by any Client; or (ii) is being or has been considered by any Client for purchase. 2. 30. "SEC" is Securities and Exchange Commission. 3. 31. "Trustees" are Trustees of Janus Investment Fund, Janus Adviser Series, Janus Adviser and Janus Aspen Series. These definitions may be updated from time to time to reflect changes in personnel. INTRODUCTION These Ethics Rules ("Rules") apply to all Covered Persons and require that Janus' business be conducted in accordance with the highest ethical and legal standards, and in such a manner as to avoid any actual or perceived conflict of interest. The Rules are intended to ensure that you (i) observe applicable legal (including compliance with applicable state and federal securities laws) and ethical standards in the performance of your duties and in pursuit of Janus' goals and objectives; (ii) at all times place the interests of the Janus Funds and their shareholders, and Clients first; (iii) disclose all actual or potential conflicts (including those between Janus Fund shareholders and JNS public stockholders), should they emerge, to the Operating Council or the Chief Compliance Officer; (iv) adhere to the highest standards of loyalty, candor and care in all matters relating to our Fund Shareholders and Clients; (v) conduct all personal trading, including transactions in Janus Funds, Company Securities and Covered Securities, consistent with the Rules and in such a manner as to avoid any actual or potential conflict of interest or any abuse of your position of trust and responsibility; and (vi) not use any material non-public information in securities trading. The Rules also establish policies regarding other matters such as outside employment and the giving or receiving of gifts. The Rules do not cover every issue that may arise, but set out basic principles to guide all personnel. Adherence to the Code is critical to maintaining the integrity, reputation and performance of Janus. You should note that certain portions of the Rules (such as the rules regarding personal trading) may also apply to others, including certain members of your family. You are required to read and retain these Rules and to sign and submit an Acknowledgment of Receipt Form to Compliance upon commencement of employment or other services. On an annual basis thereafter, you will be required to complete an Annual Certification Form. The Annual Certification Form confirms that (i) you have received, read and asked any questions necessary to understand the Rules; (ii) you agree to conduct yourself in accordance with the Rules; and (iii) you have complied with the Rules during such time as you have been associated with Janus. Depending on your status, you may be required to submit additional reports and/or obtain clearances as discussed more fully below. You are also responsible for reporting matters involving violations or potential violations of the Rules or applicable legal and regulatory requirements by JNS personnel of which you may become aware. Reports may be made to your supervisor, Compliance Representative or Legal Representative. You may also make anonymous reports of possible Code violations by calling 1-800-326-LOSS. An Employee who in good faith reports illegal or unethical behavior will not be subject to reprisal or retaliation for making the report. Retaliation is a serious violation of this policy and any concern about retaliation should be reported immediately. Any person found to have retaliated against an Employee for reporting violations will be subject to appropriate disciplinary action. Unless otherwise defined, all capitalized terms shall have the same meaning as set forth in the Definitions section. PERSONAL TRADING CODE OF ETHICS OVERVIEW In general, it is unlawful for persons affiliated with investment companies, their principal underwriters or their investment advisers to engage in personal transactions in securities held or to be acquired by a registered investment company or in the registered investment company itself if such personal transactions are made in contravention of rules the SEC has adopted to prevent fraudulent, deceptive and manipulative practices. Such rules require each registered investment company, investment adviser and principal underwriter to adopt its own written code of ethics containing provisions reasonably necessary to prevent its employees from engaging in such conduct, and to maintain records, use reasonable diligence, and institute such procedures as are reasonably necessary to prevent violations of such code. In addition, registered investment advisers are required to establish, maintain and enforce written codes of ethics that include certain minimum standards of conduct, including among other things, reporting of personal securities transactions by Access Persons. This Personal Trading Code of Ethics ("Code") and information reported hereunder will enable Janus to fulfill these requirements. The Code applies to transactions for your personal accounts and any other accounts you Beneficially Own. You may be deemed the Beneficial Owner of any account in which you have a direct or indirect financial interest. Such accounts include, among others, accounts held in the name of your spouse or equivalent domestic partner, your minor children, a relative sharing your home or certain trusts under which you or such persons are a beneficiary. GUIDING PRINCIPLES Recognizing that certain requirements are imposed on investment companies and their advisers by virtue of the 1940 Act and the Investment Advisers Act of 1940, considerable thought has been given to devising a code of ethics designed to provide legal protection to accounts for which a fiduciary relationship exists and at the same time maintain an atmosphere within which conscientious professionals may develop and maintain investment skills. It is the combined judgment of Janus that as a matter of policy a code of ethics should not inhibit responsible personal investment by professional investment personnel, within boundaries reasonably necessary to ensure that appropriate safeguards exist to protect Janus Clients. This policy is based on the belief that personal investment experience can over time lead to better performance of the individual's professional investment responsibilities. The logical extension of this line of reasoning is that such personal investment experience may, and conceivably should, involve securities, which are suitable for Janus Clients in question. This policy quite obviously increases the possibility of overlapping transactions. The provisions of the Code, therefore, are designed to foster personal investments while minimizing conflicts under these circumstances and establishing safeguards against overreaching. CAUTION REGARDING PERSONAL TRADING ACTIVITIES Certain personal trading activities may be risky not only because of the nature of the transactions, but also because action necessary to close a position may become prohibited for some Covered Persons while the position remains open. For example, you may not be able to close out short sales and transactions in derivatives. Furthermore, if Janus becomes aware of material non-public information, or if a Client is active in a given security, some Covered Persons may find themselves "frozen" in a position. Janus will not bear any losses in personal accounts resulting from the application of these Rules. COMMUNICATIONS WITH INDEPENDENT TRUSTEES As a regular business practice, Janus attempts to keep Independent Trustees informed with respect to its investment activities through reports and other information provided to them in connection with board meetings and other events. In addition, Janus personnel are encouraged to respond to inquiries from Trustees, particularly as they relate to general strategy considerations or economic or market conditions affecting Janus. However, it is Janus' policy not to communicate specific trading information and/or advice on specific issues to Independent Trustees (i.e., no information should be given on securities for which current activity is being considered for Clients). Any pattern of repeated requests by such Independent Trustees should be reported to the Chief Compliance Officer or the Director of Compliance. GENERAL PROHIBITIONS The following activities are prohibited for applicable Covered Persons (remember, if you work at Janus full-time, part-time, temporarily, on a contract basis or you are a Trustee, you are a Covered Person). Persons who violate any prohibition may be required to disgorge any profits realized in connection with such violation to a charitable organization selected by the Ethics Committee and may be subject to other sanctions imposed by the Ethics Committee, as outlined in the Penalty Guidelines. Covered Persons may not cause a Client to take action, or to fail to take action, for personal benefit, rather than to benefit such Client. For example, a Covered Person would violate this Code by causing a Client to purchase securities owned by the Covered Person for the purpose of supporting or increasing the price of that security or by causing a Client to refrain from selling securities in an attempt to protect a personal investment, such as an option on that security. 1) Covered Persons may not use knowledge of portfolio transactions made or contemplated for Clients to profit, or cause others to profit, by the market effect of such transactions. 2) Covered Persons have an obligation to safeguard material non-public information regarding Janus and its Clients. Accordingly, Covered Persons may not disclose current portfolio transactions made or contemplated for Clients or any other non-public information to anyone outside of Janus, except under Janus' Mutual Fund Holdings Portfolio Disclosure Policy (attached as Exhibit A) and Janus Capital Management LLC Portfolio Holdings Disclosure Policy for Separately Managed Accounts and Commingled Portfolios (attached as Exhibit B). 3) Covered Persons may not engage in fraudulent conduct in connection with the purchase or sale of Securities Held or to be Acquired by a Client, including without limitation: [ ] (i) Employing any device, scheme or artifice to defraud any Client. [ ] (ii) Making any untrue statement of material fact to any Client or omitting to state to any Client a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, misleading. (iii) Engaging in any act, practice or course of business which operates or would operate as a fraud or deceit upon any Client. [ ] (iv) Engaging in any manipulative practice with respect to any Client. [ ] (v) Investing in derivatives to evade the restrictions of this Code. Accordingly, individuals may not use derivatives to take positions in securities that would be otherwise prohibited by the Code if the positions were taken directly. 4) Investment Personnel may not serve on the board of directors of a publicly traded company without prior written authorization from the Ethics Committee. No such service shall be approved without a finding by the Ethics Committee that the board service would not be inconsistent with the interests of Clients. If board service is authorized by the Ethics Committee, the Investment Personnel serving as Director normally should be isolated from those making investment decisions with respect to the company involved through "Chinese Walls" or other procedures. 5) Covered Persons are also prohibited from engaging in a pattern of transactions in Covered Securities, Company Securities and Janus Funds which are excessively frequent so as to potentially: [ ] (i) Impact their ability to carry out their assigned responsibilities. [ ] (ii) Increase the possibility of actual or apparent conflicts. (iii) Violate any provision of the Rules, the Corporate Code of Conduct and Janus Funds' prospectuses. TRANSACTIONS IN COMPANY SECURITIES WINDOW PERIODS FOR COMPANY SECURITY TRADES Restricted Personnel and their related parties (your parents, spouse, minor children and other persons living in your household, as well as you) may, subject to pre-clearance and other limitations under the insider trading policy and unless informed to the contrary, only trade in Company Securities during the Window Period. The Window Period will generally open twenty-four (24) hours after JNS publicly announces its quarterly earnings and will close on the last business day of quarter end. Unless Restricted Personnel have been notified by Compliance to the contrary, no securities trades may take place outside the Window Period. Non-discretionary transactions in Company Securities (e.g., the acquisition of securities through Janus' ESPP or receiving options in Company Securities as part of a compensation or benefit plan) do not require preclearance. Covered Persons may not engage in transactions in Company Securities that are speculative in nature. These transactions include, but are not limited to: (i) the writing of a call option and the purchase of a put option if the amount of securities underlying the option exceed the amount of securities you otherwise own; (ii) "sales against the box" (i.e., selling of borrowed securities when you own sufficient shares to cover the sale); and (iii) transacting in the securities of any entity with which Janus is discussing business matters. INDEPENDENT TRUSTEES ARE PROHIBITED FROM OWNING COMPANY SECURITIES. PRE-CLEARANCE PROCEDURES FOR COMPANY SECURITIES To pre-clear a trade, Restricted Persons must submit a Company Securities Pre-Clearance Form to Compliance through Janus' web-based Personal Trading Application ("P*Trade"). The Director of Compliance or such other Compliance or Legal Representative shall discuss the transaction with Janus' General Counsel, Chief Financial Officer or Chief Compliance Officer. Compliance shall promptly notify the person of approval or denial for the transaction via email. Notification of approval or denial for the transaction may be given verbally; however, it shall be confirmed in writing within seventy-two (72) hours of verbal notification. Prior clearance is in effect for four business days from and including the day of first notification to execute the trade unless revoked by Janus prior to the expiration of the four business day period. TRANSACTIONS IN JANUS FUNDS No Covered Person (including Trustees and Advisory Board Members) shall engage in excessive trading or market timing activities with respect to any Janus Fund (excluding taxable and tax-exempt money market funds). For the purposes of the foregoing, "market timing" shall be defined as a purchase and redemption, regardless of size, in and out of the same Janus Fund in excess of four "round trips" per rolling 12-month period. A "round trip" is a redemption out of a Janus Fund (by any means) followed by a purchase back into the same Janus Fund (by any means). COVERED PERSONS are also required to notify Compliance of each Janus Fund account in which they have Beneficial Ownership (see Reporting Requirements below). Covered Persons are subject to any redemption fees charged by the Janus Funds. BAN ON SHORT-TERM TRADING PROFITS Covered Persons (including Trustees and Advisory Board Members) shall disgorge any profits realized in the purchase and sale of the same Janus Fund (excluding taxable and tax-exempt money market funds) within ninety (90) calendar days. Accordingly, if you sell a Janus Fund within ninety (90) calendar days of purchasing it, you will be required to disgorge any profit made. Transactions will be matched with any opposite transaction within the most recent ninety (90) calendar days. The ninety (90) day holding period does not apply to written systematic purchase or sale plans such as payroll deduction, automatic monthly investment, or 401(k) contributions. However, it does apply to all other non-systematic transactions such as periodic rebalancing. Any disgorgement of profits required under this provision shall be donated to a charitable organization selected by the Ethics Committee. The Ethics Committee may grant exceptions to this ninety (90) day holding period as a result of death, disability or other special circumstances. TRANSACTIONS IN COVERED SECURITIES TRADING RESTRICTIONS The trading restrictions of the Code apply to all direct and indirect acquisitions and dispositions of Covered Securities, whether by purchase, sale, stock purchase plan, gift, inheritance or otherwise. Unless otherwise noted, the following trading restrictions are applicable to any transaction in a Covered Security (excluding Janus Funds; trading restrictions for Janus Funds are noted above) Beneficially Owned by a Covered Person. Independent Trustees, Advisory Board Members and Interested Trustees are exempt from certain trading restrictions because of their limited access to current information regarding Janus Funds and Client investments. Any disgorgement of profits required under any of the following provisions shall be donated to a charitable organization selected by the Ethics Committee. However, if disgorgement is required as a result of trades by a portfolio manager that conflict with that manager's own Clients, disgorgement proceeds shall be paid directly to such Clients. If disgorgement is required under more than one provision, the Ethics Committee shall determine in its sole discretion the provision that shall control. For trading restrictions applicable to Janus Funds, please see Transactions in Janus Funds above. EXCLUDED TRANSACTIONS Some or all of the trading restrictions listed below do not apply to the following transactions; however, these transactions must be reported to Compliance (see Reporting Requirements): 1. 1. Tender offer transactions are exempt from all trading restrictions. 2. 2. The acquisition of Covered Securities through an employer retirement plan such as 401(k) Plan or stock purchase plans is exempt from all trading restrictions except pre-clearance, the trading ban on Portfolio Managers, and the seven day rule. (Note: the sales of securities acquired through a stock purchase plan are subject to all of the trading restrictions of the Code.) 3. 3. The acquisition of securities through stock dividends, automatic dividend reinvestment plans, stock splits, reverse stock splits, mergers, consolidations, spin-offs or other similar corporate reorganizations or distributions generally applicable to all holders of the same class of such securities are exempt from all trading restrictions. The acquisition of securities through the exercise of rights issued by an issuer pro rata to all holders of a class of securities, to the extent the rights were acquired in the issue, is exempt from all trading restrictions. 4. 4. An Approved Non-Influence and Non-Control Account. See Non-Influence and Non-Control Account section of this Code. PLEASE NOTE THAT THESE ACCOUNTS ARE SUBJECT TO THE REPORTING REQUIREMENTS and to the pre-clearance requirements for TRADES IN COMPANY SECURITIES FOR RESTRICTED EMPLOYEES. 5. 5. The acquisition of securities by gift or inheritance is exempt from all trading restrictions. (Note: the sales of securities acquired by gift or inheritance are subject to all trading restrictions of the Code.) 6. 6. Transactions in Covered Securities that are gifted (except for gifts intended as political contributions) to charitable organizations are exempt from all trading restrictions. Note this exception does not apply to Company Securities. DISCLOSURE OF CONFLICTS If an Investment Person is planning to invest or make a recommendation to invest in securities for a Client, and such person has a material interest in the security or issuer of the security, such person must first disclose such interest to his or her manager. The manager shall conduct an independent review of the recommendation to purchase the security for the Client. The manager may review the recommendation only if he or she has no material interest in the security or issuer of the security. A material interest is Beneficial Ownership of any security (including derivatives, options, warrants or rights), offices, directorships, significant contracts, interests or relationships that are likely to affect such person's judgment. Investment Personnel may not fail to timely recommend a suitable security to, or purchase or sell a suitable security for a Client in order to avoid an actual or apparent conflict with a personal transaction in that security. Before trading any security, a research analyst has a duty to provide to Janus any material; public information that comes from the company about such security in his or her possession. As a result, Investment Personnel should confirm that a research note regarding such information is on file prior to trading in the security, or if not, should disclose the information to his or her manager or the appropriate portfolio manager. TRADING BAN ON PORTFOLIO MANAGERS Portfolio Managers are generally prohibited from trading personally in Covered Securities. However, the following types of transactions are exempt from this policy, but are subject to all applicable provisions of the Rules, including pre-clearance: 1. 1. The purchase or sale of Non-Covered Securities, Company Securities or Janus Funds. 2. 2. The sale of any security that is not held by any Client. 3. 3. The sale of any security in order to raise capital to fund a significant life event. For example, purchasing a home or automobile or paying medical or education expenses. 4. 4. The purchase or sale of any security that is not a permissible investment for any Client. BAN ON IPOS Covered Persons (except Independent Trustees, Interested Trustees and Advisory Board Members) may not purchase securities in an IPO (excluding secondary, fixed-income and convertible securities offerings). Such securities may be purchased or received, however, when the individual has an existing right to purchase the security based on his or her status as an investor, policyholder or depositor of the issuer. In addition, securities issued in reorganizations are also outside the scope of this prohibition if the transaction involves no investment decision on the part of the Covered Person except in connection with a shareholder vote. (Note: any securities or transactions that fall outside the scope of this prohibition are subject to all applicable trading restrictions.) BLACKOUT PERIOD No Access Person may engage in a transaction in a Covered Security when such person knows or should have known at the time there to be pending, on behalf of any Client, a "buy" or "sell" order in that same security. The existence of pending orders will be checked by Compliance as part of the pre-clearance process. Preclearance may be given when any pending Client order is completely executed or withdrawn. SEVEN- DAY BLACKOUT PERIOD Investment Personnel may not trade in a Covered Security within seven (7) calendar days after a trade in that security has been made on behalf of any Janus Fund or Client. PRECLEARANCE PROCEDURES FOR COVERED SECURITIES Access Persons (except Independent Trustees, Interested Trustees and Advisory Board Members) must obtain pre-clearance prior to engaging in any personal transaction in Covered Securities, unless such transaction meets one of the Excluded Transactions provisions note above. A Personal Trading Pre-clearance Form must be submitted to Compliance through P*Trade. The Pre-clearance Form should indicate securities being purchased in a Limited Offering Compliance shall promptly notify the person of approval or denial of the transaction via email. Notification of approval or denial of the transaction may be given verbally; however, it shall be confirmed in writing within seventy-two (72) hours of verbal notification. When pre-clearance has been approved, the person then has four (4) business days from and including the day of first notification to execute the trade. Investment personnel who have been authorized to acquire securities in a Limited Offering or who hold such securities must disclose that investment to the Director of Research when they are involved in a Client's consideration of an investment in that issuer, and the Client's decision to purchase such security must be independently reviewed and approved by the Chief Investment Officer or Director of Research provided such person have no personal interest in the issuer. PRE-CLEARANCE PROCESS FOR JNS ACCESS PERSONS General pre-clearance shall be obtained by all Access Persons from an authorized person from each of the following: 1. A designated Legal or Compliance Representative will present the personal investment to the attendees of the weekly investment meeting, whereupon an opportunity will be given to orally object. An attendee of the weekly investment meeting shall object to such clearance if such person knows of a conflict with a pending Client transaction or a transaction known by such attendee to be under consideration for a Client. Objections to such clearance should also take into account, among other factors, whether the investment opportunity should be reserved for a Client. If no objections are raised, the Designated Legal or Compliance Representative shall so indicate on the Pre-clearance Form. Such approval shall not be required for sales of securities not held by any Clients. 2. 2. A designated Legal or Compliance Representative will verify via P*Trade that at the time of the request there are no pending "buy" or "sell" orders in the security on behalf of a Janus Client (excluding INTECH Clients). 3. 3. The Director of Compliance or a designated Legal or Compliance Representative may provide clearance if no legal prohibitions are known by such person to exist with respect to the proposed trade. Approvals for such clearance should take into account, among other factors, the existence of any Watch List or Restricted List, if it is determined by Compliance that the proposed trade will not have a material influence on the market for that security or will take advantage of or hinder client trading, if the Access Person has completed an Ethics Rules training session, and, to the extent reasonably practicable, recent trading activity and holdings of Clients. 4. 4. Trades by Investment Personnel employed by JNS may not be pre-cleared by presentation at the weekly investment meeting. Instead, Investment Personnel must obtain the following approvals. 1) Investment Personnel must send an email to all Portfolio Managers, Research Analysts and Traders requesting pre-clearance with a detailed analysis (i.e., describe company's business, valuation and investment rationale) as to why they are requesting the transaction AND WHY IT IS NOT APPROPRIATE FOR CLIENTS. This will start the clock for the Seven (7) Day Blackout Period. 2) If, on the seventh (7th) calendar day after the Investment Person sent the email to the group and no one objected to the trade and no trades in that security occurred on behalf of any Janus Fund or Clients, then the Investment Person must next receive WRITTEN (EMAIL) APPROVAL FROM THE DIRECTOR OF RESEARCH who will evaluate (i) whether or not there is any conflict of interest or questions of impropriety and (ii) if the Investment Person is also a research analyst and at the time of the request covers the security, the Director of Research shall ensure the analyst has it rated a "strong buy." 3) If steps one and two above clear, then the Investment Person must request pre-clearance from Compliance via P*Trade. Compliance will verify steps one and two have been completed and then check the Restricted List and trading blotter to ensure no trades are pending. If steps one, two and three above are all cleared, then pre-clearance will be granted and the Investment Person will have four (4) business days to execute the trade. In addition to the pre-clearance requirements for Investment Personnel, Assistant Portfolio Managers must obtain prior written approval from the Portfolio Manager of the Janus Fund or advisory Client for which he or she is the Assistant Portfolio Manager. Assistant Portfolio Managers are also required to note on the Preclearance Form whether or not the security was recommended to Portfolio Managers for purchase or sale on behalf of any Janus Fund or advisory Client, and the reason why the Portfolio Manager decided the transaction was not appropriate at the time. NO AUTHORIZED PERSON MAY PRE-CLEAR A TRANSACTION IN WHICH SUCH PERSON HAS BENEFICIAL OWNERSHIP. PRECLEARANCE PROCESS FOR INTECH ACCESS PERSONS General pre-clearance shall be obtained by all INTECH Access Persons from an authorized person from each of the following: 1. 1. A designated Legal or Compliance Representative will present the personal investment to Dave Hurley or Bob Garvy, whereupon they will have an opportunity to object in writing. Dave Hurley or Bob Garvy shall object to such clearance if such person knows of a conflict with a pending Client transaction or a transaction known to be under consideration for a Client. Objections to such clearance should also take into account, among other factors, whether the investment opportunity should be reserved for a Client. If no objections are raised, the Designated Legal or Compliance Representative shall so indicate on the Pre-clearance Form. 2. 2. A designated Legal or Compliance Representative will verify via P*Trade that at the time of the request there are no pending "buy" or "sell" orders in the security on behalf of an INTECH Client (excluding JNS Clients). 3. 3. The Director of Compliance, or a designated Legal or Compliance Representative may provide clearance if no legal prohibitions are known by such person to exist with respect to the proposed trade. Approvals for such clearance should take into account, among other factors, the existence of any Watch List or Restricted List, if it is determined by Compliance that the proposed trade will not have a material influence on the market for that security or will take advantage of or hinder client trading, if the Access Person has completed an Ethics Rules training session, and, to the extent reasonably practicable, recent trading activity and holdings of Clients. NO AUTHORIZED PERSON MAY PRE-CLEAR A TRANSACTION IN WHICH SUCH PERSON HAS BENEFICIAL OWNERSHIP. FOUR DAY EFFECTIVE PERIOD Clearances to trade will be in effect for four (4) trading/business days from and including the day of first notification of approval. For stock purchase plans, exercise of Company Securities and similar transactions, the date the request is submitted to the company processing the transaction will be considered the trade date for purposes of this requirement. Open orders, including stop loss orders, will generally not be allowed unless such order is expected to be completed within the four (4) day effective period. It is necessary to re-pre-clear transactions not executed within the four-day effective period. PRE-CLEARANCE OF STOCK PURCHASE PLANS Access Persons (except Independent Trustees, Interested Trustees and Advisory Board Members) who wish to participate in a stock purchase plan must pre-clear such trades via P*Trade prior to submitting notice of participation in such stock purchase plan to the applicable company. To pre-clear the trade, the Director of Compliance shall consider all material factors relevant to a potential conflict of interest between the Access Person and Clients. In addition, any increase of $100 or more to a pre-existing stock purchase plan must be pre-cleared. SIXTY DAY RULE -- PROHIBITION ON SHORT-TERM PROFITS Access Persons (except Independent Trustees, Interested Trustees and Advisory Board Members) shall disgorge any profits realized in the purchase and sale, or sale and purchase, of the same or equivalent Covered Securities within sixty (60) calendar days. 180 DAY RULE -- PROHIBITION ON SHORT-TERM PROFITS Investment Personnel shall disgorge any profits realized in the purchase and sale, or sale and purchase, of the same or equivalent Covered Securities within 180 calendar days. FIVE DAY BEST PRICE RULE Any Access Person (except Independent Trustees, Interested Trustees and Advisory Board Members) who buys or sells a Covered Security within five (5) business days before such security is bought or sold on behalf of any Client must disgorge any price advantage realized. The price advantage shall be the favorable spread, if any, between the price paid or received by such Access Person and the least favorable price paid or received by a Client during such period(1). The Ethics Committee has the authority by unanimous action to exempt any person from the five (5) day rule if such person is selling securities to raise capital to fund a significant life event. For example, purchasing a home or automobile or paying medical or education expenses. In order for the Ethics Committee to consider such exemption, the life event must occur within thirty (30) calendar days of the security transaction, and the person must provide written confirmation of the event. THIRTY DAY BEST PRICE RULE Any Investment Person who buys or sells a Covered Security within thirty (30) calendar days before such security is bought or sold on behalf of any Client must disgorge any price advantage realized. The price advantage shall be the favorable spread, if any, between the price paid or received by such person and the least favorable price paid or received by a Client during such period.(2) SHORT SALES Any Access Person (except Independent Trustees, Interested Trustees and Advisory Board Members) who sells short a Covered Security that such person knows or should have known is held long by any Client shall disgorge any profit realized on such transaction. This prohibition shall not apply, however, to securities indices or derivatives thereof (such as futures contracts on the S&P 500 index). Client ownership of Covered Securities will be checked as part of the pre-clearance process. HEDGE FUNDS, INVESTMENT CLUBS AND OTHER INVESTMENTS No Access Person (except Independent Trustees, Interested Trustees and Advisory Board Members) may participate in hedge funds, investment partnerships, investment clubs or similar investment vehicles, unless such person does not have any direct or indirect influence or control over the trading. Covered Persons wishing to rely upon this provision must submit a Certification of Non-Influence and Non-Control Form to (1) Personal purchases are matched against subsequent Client purchases and personal sales are matched against subsequent Client sales for purposes of this restriction. JNS Personnel trades will be matched against JNS Client trades and INTECH Personnel trades will be matched against INTECH Client trades. (2) Personal purchases are matched against subsequent Client purchases and personal sales are matched against subsequent Client sales for purposes of this restriction. Compliance for approval. (See Non-Influence and Non-Control Accounts section below.) Such investments are typically Limited Public Offerings and are subject to pre-clearance. REPORTING REQUIREMENTS ACCOUNT STATEMENTS All Covered Persons (except Independent Trustees, Interested Trustees and Advisory Board Members) must notify Compliance of each brokerage account and Janus Fund account in which they have Beneficial Ownership and must arrange for their brokers or financial institutions to provide to Compliance, within thirty (30) calendar days, duplicate account statements and confirmations showing all transactions in brokerage or Janus Fund accounts in which they have Beneficial Ownership. A Personal Brokerage/Janus Mutual Fund Account Disclosure Form should be completed for this purpose and submitted via P*Trade. PLEASE NOTE THAT EVEN IF SUCH PERSON DOES NOT TRADE COVERED SECURITIES IN A PARTICULAR BROKERAGE OR COMMODITIES ACCOUNT (E.G., TRADING NON-JANUS MUTUAL FUNDS IN A SCHWAB ACCOUNT), THE REPORTING OF DUPLICATE ACCOUNT STATEMENTS AND CONFIRMATIONS IS REQUIRED. Reporting of accounts that do not allow any trading in Covered Securities (e.g., a mutual fund account held directly with the fund sponsor) is not required. Independent Trustees, Interested Trustees and Advisory Board Members must notify Compliance of each Janus Fund account in which he or she has Beneficial Ownership, including any brokerage account through which Janus Fund shares are held, and must arrange for their brokers or financial institutions to provide to Compliance, on a timely basis, duplicate account statements and confirmations showing all transactions in brokerage or Janus Fund accounts in which they have Beneficial Ownership. A Personal Brokerage/Janus Mutual Fund Account Disclosure Form should be completed for this purpose and submitted via P*Trade. Covered Persons must immediately report to Compliance the opening of a reportable account, and certify annually thereafter, including the name of the firm and the name under which the account is carried. A Personal Brokerage/Janus Mutual Fund Account Disclosure Form should be completed for this purpose via P*Trade. Certain transactions might not be reported through a brokerage account, such as private placements, inheritances or gifts. In these instances, Access Persons must report these transactions within ten (10) calendar days after the transaction using a Personal Securities Transaction Report as noted below. Registered Persons of JD LLC are reminded that they must also inform any brokerage firm with which they open an account at the time the account is opened, that they are registered with JD LLC. Non-Access Persons who engage in transactions of an aggregate of $25,000 or more in Covered Securities within a calendar year must provide Compliance with an Annual Transaction Report listing all such transactions in all accounts in which such person has Beneficial Ownership. Compliance will request this information annually via P*Trade and will spot check all or a portion of such transactions or accounts. HOLDINGS REPORTS Access Persons (except Independent Trustees, Interested Trustees and Advisory Board Members) must submit to the Chief Compliance Officer or his designee via P*Trade, within ten (10) calendar days after becoming an Access Person, an Access Person Covered Securities/Janus Mutual Fund Holdings Disclosure Form which lists all Covered Securities beneficially held and any accounts through which such securities are maintained. In addition, persons designated Investment Personnel must provide a brief description of any positions held (e.g., Director, Officer, other) with for- profit entities other than Janus by submitting an Investment Person Directorship Disclosure Form. Every Access Person must submit an annual holdings report at least once each twelve month period. The reports must contain information current as of no more than forty-five (45) calendar days from the time the report is submitted. PERSONAL SECURITIES TRANSACTION REPORTS Access Persons (other than Independent Trustees and Advisory Board Members) must submit via P*Trade a Personal Securities Transaction Report to the Chief Compliance Officer or other persons designated in this Code within ten (10) calendar days after any month end showing all transactions in Covered Securities for which confirmations known by such person were not timely provided to Janus, and all such transactions that are not effected in brokerage or commodities accounts, including without limitation non-brokered private placements, and transactions in securities that are in certificate form, which may include gifts, inheritances and other transactions in Covered Securities. Independent Trustees, Interested Trustees and Advisory Board Members must report a transaction in a Covered Security if such person knew, or in the ordinary course of fulfilling his or her official duties as a Trustee or Advisory Board Member should have known, that, during the fifteen (15) day period immediately preceding the date of his or her personal transaction, such security was purchased or sold by, or was being considered for purchase or sale on behalf of any Janus Fund for which such person acts as Trustee or Advisory Board Member. Such persons must promptly comply with any request of the Director of Compliance to Provide Transaction reports regardless of whether their broker has been instructed to provide duplicate confirmations. Such reports may be requested, for example, to check that all applicable confirmations are being received or to supplement the requested confirmations when a broker is difficult to work with or otherwise fails to provide duplicate confirmations on a timely basis. NON-INFLUENCE AND NON-CONTROL ACCOUNTS The Rules shall not apply to any account, partnership or similar investment vehicle over which a Covered Person has no direct or indirect influence or control. Covered Persons wishing to rely upon this provision are required to receive prior approval from the Ethics Committee. In order to request such approval, a Certification of Non-Influence and Non-Control Form must be submitted to Compliance via P*Trade. Note: Although a Covered Person may be given an exemption from the Rules for a certain account, such accounts are prohibited from purchasing securities in an initial public offering, Limited Public Offerings Janus Funds and Company Securities except in accordance with these Rules; and he or she is required to provide Compliance with duplicate account statements and trade confirmations. Any account beneficially owned by a Covered Person that is managed by Janus in a discretionary capacity is not covered by these Rules as long as such person has no direct or indirect influence or control over the account. The employment relationship between the account-holder and the individual managing the account, in the absence of other facts indicating control will not be deemed to give such account-holder influence or control over the account. OTHER REQUIRED FORMS In addition to the Pre-clearance Form, Pre-clearance Form for Company Securities, Personal Brokerage Account Disclosure Form, Access Person Covered Securities Disclosure Form, Investment Person Directorship Disclosure Form, Report of Personal Securities Transactions, Annual Transaction Report and Certification of Non-Influence and Non-Control Form discussed above, the following forms (available through P*Trade) must be completed if applicable to you: ACKNOWLEDGMENT OF RECEIPT FORM Each Covered Person must provide Compliance with an Acknowledgment of Receipt Form within ten (10) calendar days of commencement of employment or other services certifying that he or she has received a current copy of the Rules and acknowledges, as a condition of employment, that he or she will comply with the Rules in their entirety. In addition, Compliance will provide all Covered Persons with a copy of any amendments to these Rules, and each Covered Persons must sign an acknowledgement of receipt of any material amendments. ANNUAL CERTIFICATION FORM Each Covered Person must provide Compliance annually with an Annual Certification Form certifying that he or she: 1. 1. Has received, read and understands the Rules. 2. 2. Has complied with the requirements of the Rules. 3. 3. Has disclosed or reported all open brokerage account and Janus Fund accounts, personal holdings and personal securities transactions required to be disclosed or reported pursuant to the requirements of the Rules. TRUSTEE AND ADVISORY BOARD MEMBER REPRESENTATION FORM All Trustees and Advisory Board Members must upon commencement of services and annually thereafter, provide Compliance with an Independent Trustee/Interested Trustee Representation Form. The Form declares that such persons agree to refrain from trading in any securities when they are in possession of any information regarding trading recommendations made or proposed to be made to any Client by Janus or its officers or employees. GIFT POLICY Gifts may be given (or accepted) only if they are in accordance with normally accepted business practices and do not raise any question of impropriety. A question of impropriety may be raised if a gift influences or gives the appearance of influencing the recipient. The following outlines Janus' policy on giving and receiving gifts to help us maintain those standards and is applicable to all officers, directors and employees of Janus (excluding Independent Trustees, Interested Trustees and Advisory Board Members). GIFT GIVING Neither you nor members of your immediate family may give any gift, series of gifts or other thing of value, including cash, loans, personal services or special discounts ("Gifts") in excess of $100 per year to any Client or any one person or entity that does or seeks to do business with or on behalf of Janus or any Client (collectively referred to herein as "Business Relationships"). Additionally, Covered Persons should not make charitable contributions on behalf of a Client or financial intermediary unless it is clear that the contribution has been made by Janus. Charitable contributions made on behalf of or at the request of a Client or financial intermediary must be approved in advance by Compliance. GIFT RECEIVING Neither you nor members of your immediate family may receive any Gift of material value from any single Business Relationship. A Gift will be considered material in value if it influences or gives the appearance of influencing the recipient. In the event the aggregate fair market value of all Gifts received by you from any single Business Relationship is estimated to exceed $250 in any twelve (12) month period, you must immediately notify your manager. Managers who receive such notification must report this information to the Director of Compliance if it appears that such Gifts may have improperly influenced the receiver. If the Gift is made in connection with the sale or distribution of a registered investment company or variable contract securities, the aggregate fair market value of all such Gifts received by you from any single Business Relationship may never exceed $100 in any twelve (12) month period. Occasionally, Janus employees are invited to attend or participate in conferences, tour a company's facilities or meet with representatives of a company. Such invitations may involve traveling and may require overnight lodging. Generally, Janus must pay for all travel and lodging expenses provided in connection with such activities. However, if appropriate, and with prior approval from your manager, you may accept travel related amenities if the costs are considered insubstantial and are not readily ascertainable. The solicitation of a Gift is prohibited (i.e., you may not request a Gift, such as tickets to a sporting event be given to you). CUSTOMARY BUSINESS AMENITIES Customary business amenities are not considered Gifts so long as such amenities are business related (e.g., if you are accepting tickets to a sporting event, the offerer must go with you), reasonable in cost, appropriate as to time and place and neither so frequent nor so costly as to raise any question of impropriety. Customary business amenities which you and, if appropriate, your guests, may accept (or give) include an occasional meal, a ticket to a sporting event or the theater, greens fees, an invitation to a reception or cocktail party or comparable entertainment. Note: An exception to the requirement to attend as the offerer may be granted with your supervisor's approval. This exception applies only to tickets to a sporting event or the theater and the cost of the tickets must be reasonable. GIFT / ENTERTAINMENT POLICY FOR INVESTMENT PERSONNEL Investment Personnel may not receive more than $100 in gifts over the course of a calendar year from one brokerage firm. Gifts are things of value received where there was no direct meeting with the broker, e.g., a bottle of wine. Investment Personnel may occasionally go to dinner or events (such as occasional meals, sporting events, theater/Broadway shows, golf outings, an invitation to a reception or cocktail party or comparable entertainment where the offerer is in attendance) with brokerage firms and companies (salespeople, analysts, traders etc.) subject to: 1. 1. Max $250 value per employee, and, if applicable, max $500 value for employee and employee's guest PER SINGLE OUTING. The limits apply to the total market value cost (not face value) of the outing, including meals, travel (airfare/hotels/cars), sporting events, limo rides, etc. 2. 2. Aggregate value per year of all such benefits may not exceed $1,000 per company. REPORTING REQUIREMENTS Portfolio Managers, Research Analyst and Traders are required to report at least monthly gifts and/or entertainment received with a value greater than $50 from any one company. OUTSIDE EMPLOYMENT POLICY No Covered Person (excluding Trustees and Advisory Board Members) shall accept employment or compensation as a result of any business activity (other than a passive investment), outside the scope of his relationship with Janus unless such person has provided prompt written notice of such employment or compensation to Compliance and, in the case of securities-related employment or compensation, has received the prior written approval of the Ethics Committee. All requests for approval must be submitted via P*Trade by submitting an Outside Employment Form. Registered Persons are reminded that prior approval must be given before any employment outside of Janus is accepted pursuant to JD LLC's Written Supervisory Procedures and applicable NASD rules. PENALTY GUIDELINES OVERVIEW Covered Persons who violate any of the requirements, restrictions or prohibitions of the Rules may be subject to sanctions imposed by the Ethics Committee. The following guidelines shall be used by the Director of Compliance for recommending remedial actions for Covered Persons who violate prohibitions or disregard requirements of the Rules. Deviations from the Five Day, Sixty Day, Thirty Day and 180 Day Rules are not considered to be violations under the Rules and, therefore, are not subject to the penalty guidelines. Upon learning of a potential deviation from, or violation of the Rules, the Director of Compliance will provide a written recommendation of remedial action to the Ethics Committee. The Ethics Committee has full discretion to approve such recommendation or impose other sanctions it deems appropriate. The Ethics Committee will take into consideration, among other things, whether the violation was a technical violation of the Rules or an inadvertent oversight (i.e., ill-gotten profits versus general oversight). The guidelines are designed to promote consistency and uniformity in the imposition of sanctions and disciplinary matters. PENALTY GUIDELINES Outlined below are the guidelines for the sanctions that may be imposed on Covered Persons who fail to comply with the Rules: - - First Violation: The Chief Compliance Officer will send a memorandum of reprimand to the person and copy his or her Supervisor and department Vice President. The memorandum will generally reinforce the person's responsibilities under the Rules, educate the person on the severity of personal trading violations, inform the person of the possible penalties for future violations of the Rules and require the person to re-take Rules training. - - Second Violation (IF OCCURS BEYOND 2YRS OF 1ST VIOLATION, FIRST VIOLATION GUIDELINES WILL APPLY): The Ethics Committee will impose such sanctions as it deems appropriate, including without limitation, a letter of censure, fines, withholding of bonus payments or suspension of personal trading privileges for up to sixty (60) days. In addition, the Vice President of the employee's department, or in the case of Vice Presidents and above and Investment Personnel, the Chief Operating Officer, will be required to have an in person meeting with the employee to reinforce the person's responsibilities under the Rules, educate the person on the severity of personal trading violations, inform the person of the possible penalties for future violations of the Rules and require the person to re-take Rules training. - - Third Violation (IF OCCURS BEYOND 2 YRS OF 2ND VIOLATION, SECOND VIOLATION GUIDELINES WILL APPLY): The Ethics Committee will impose such sanctions as it deems appropriate, including without limitation, a letter of censure, fines, withholding of bonus payments or suspension personal trading privileges for up to ninety (90) days or termination of employment. In addition, the Vice President of the employee's department and the Chief Operating Officer will be required to have an in person meeting with the employee to reinforce the person's responsibilities under the Rules, educate the person on the severity of personal trading violations, inform the person of the possible penalties for future violations of the Rules and require the person to re-take Rules training. In addition to the above disciplinary sanctions, such persons may be required to disgorge any profits realized in connection with such violation. All disgorgement proceeds collected will be donated to a charitable organization selected by the Ethics Committee. The Ethics Committee may determine to impose any sanctions, including termination, immediately and without notice if it determines that the severity of any violation or violations warrants such action. All sanctions imposed will be documented in such person's personal trading file maintained by Janus and will be reported to Human Resources. SUPERVISORY AND COMPLIANCE PROCEDURES The Chief Compliance Officer and Director of Compliance are responsible for implementing supervisory and compliance review procedures. Supervisory procedures can be divided into two classifications: prevention of violations and detection of violations. Compliance review procedures include preparation of special and annual reports, record maintenance and review and confidentiality preservation. SUPERVISORY PROCEDURES PREVENTION OF VIOLATIONS To prevent violations of the Rules, the Director of Compliance should, in addition to enforcing the procedures outlined in the Rules: 1. 1. Review and update the Rules as necessary, at least once annually, including but not limited to a review of the Code by the Chief Compliance Officer, the Ethics Committee and/or counsel; 2. 2. Answer questions regarding the Rules, or refer the same to the Chief Compliance Officer; 3. 3. Request from all persons upon commencement of services, and annually thereafter, any applicable forms and reports as required by the Rules; 4. 4. Identify all Access Persons and notify them of their responsibilities and reporting requirements; 5. 5. Write letters to the securities firms requesting duplicate confirmations and account statements where necessary; and 6. 6. With such assistance from the Human Resources Department as may be appropriate, maintain a continuing education program consisting of the following: 1) Orienting Covered Persons who are new to Janus and the Rules; and 2) Further educating Covered Persons by distributing memos or other materials that may be issued by outside organizations such as the Investment Company Institute which discuss the issue of insider trading and other issues raised by the Rules. DETECTION OF VIOLATIONS To detect violations of these Rules, the Director of Compliance should, in addition to enforcing the procedures outlined in the Rules: - - Implement procedures to review holding and transaction reports, confirmations, forms and statements relative to applicable restrictions, as provided under the Code; and - - Implement procedures to review the Restricted and Watch Lists relative to applicable personal and Client trading activity, as provided under the Policy. Spot checks of certain information are permitted as noted under the Code. COMPLIANCE PROCEDURES REPORTS OF POTENTIAL DEVIATIONS OR VIOLATIONS Upon learning of a potential deviation from or violation of the Rules, the Director of Compliance shall report such violation to the Chief Compliance Officer, together with all documents relating to the matter. The Chief Compliance Officer shall either present the information at the next regular meeting of the Ethics Committee or conduct a special meeting. The Ethics Committee shall thereafter take such action as it deems appropriate (see Penalty Guidelines). ANNUAL REPORTS The Chief Compliance Officer shall prepare a written report to the Ethics Committee and the Trustees at least annually. The written report to the Trustees shall include any certification required by Rule 17j-1. This report shall set forth the following information and shall be confidential: - - Copies of the Rules, as revised, including a summary of any changes made since the last report; - - Identification of any material issues arising under the Rules including material violations requiring significant remedial action since the last report; . - - Identification of any material conflicts arising since the last report; and - - Recommendations, if any, regarding changes in existing restrictions or procedures based upon Janus' experience under these Rules, evolving industry practices, or developments in applicable laws or regulations. The Trustees must initially approve these Rules within the time frame required by Rule 17j-1. Any material changes to these Rules must be approved within six months. RECORDS Compliance shall maintain the following records on behalf of each Janus entity: - - A copy of this Code and any amendment thereof which is or at any time within the past five years has been in effect; - - A record of any violation of this Code, or any amendment thereof, and any action taken as a result of such violation; - - Files for personal securities transaction confirmations and account statements, all reports and other forms submitted by Covered Persons pursuant to these Rules and any other pertinent information; - - A list of all persons who are, or have been, required to submit reports pursuant to these Rules; - - A list of persons who are, or within the last five years have been responsible for, reviewing transaction and holdings reports; and - - A copy of each report submitted to the Trustees pursuant to this Code. - - A record of any decision, and the reasons supporting the decision, to approve the acquisition by Investment Personnel of securities in Limited Public Offerings for at least five years after the end of the fiscal year in which such approval was granted. - - A record of all Acknowledgements of Receipt for each person who is, or within the past five years was, a Covered Person. INSPECTION The records and reports maintained by Compliance pursuant to the Rules shall at all times be available for inspection, without prior notice, by any member of the Ethics Committee. CONFIDENTIALITY All procedures, reports and records monitored, prepared or maintained pursuant to these Rules shall be considered confidential and proprietary to Janus and shall be maintained and protected accordingly. Except as otherwise required by law or this Policy, such matters shall not be disclosed to anyone other than to members of the Ethics Committee, as requested. FILING OF REPORTS To the extent that any report, form acknowledgment or other document is required to be in writing and signed, such documents may be submitted by e-mail or other electronic form approved by Compliance. Any report filed with the Chief Compliance Officer or Director of Compliance of Janus shall be deemed filed with the Janus Funds. THE ETHICS COMMITTEE The purpose of this Section is to describe the Ethics Committee. The Ethics Committee was created to provide an effective mechanism for monitoring compliance with the standards and procedures contained in the Rules and to take appropriate action at such times as violations or potential violations are discovered. MEMBERSHIP OF THE COMMITTEE The Committee consists of Peter Boucher, Senior Vice President of Human Resources; Kelley Howes, Vice President, General Counsel of Janus Capital Management LLC; John Bluher, Executive Vice President, General Counsel and Chief Public Affairs Officer; Andy Iseman, Senior Vice President of Operations ; David Kowalski, Senior Vice President and Chief Compliance Officer; Susan Wold, Vice President and Director of Complaince; David Martin, Executive Vice President and Chief Financial Officer; and Andrea Young, Senior Vice President of Information Technology and Chief Technology Officer. The Director of Compliance currently serves as the Chairman of the Committee. The composition of the Committee may be changed from time-to-time. COMMITTEE MEETINGS The Committee shall generally meet every four months or as often as necessary to review operation of the compliance program and to consider technical deviations from operational procedures, inadvertent oversights or any other potential violation of the Rules. Deviations alternatively may be addressed by including them in the employee's personnel records maintained by Janus. Committee meetings are primarily intended for consideration of the general operation of the compliance program and substantive or serious departures from standards and procedures in the Rules. Such other persons may attend a Committee meeting including INTECH personnel, at the discretion of the Committee, as the Committee shall deem appropriate. Any individual whose conduct has given rise to the meeting may also be called upon, but shall not have the right, to appear before the Committee. It is not required that minutes of Committee meetings be maintained; in lieu of minutes the Committee may issue a report describing any action taken. The report shall be included in the confidential file maintained by the Director of Compliance with respect to the particular employee or employees whose conduct has been the subject of the meeting. SPECIAL DISCRETION The Committee shall have the authority by unanimous action to exempt any person or class of persons or transaction or class of transactions from all or a portion of the Rules, provided that: - - The Committee determines, on advice of counsel, that the particular application of all or a portion of the Rules is not legally required; - - The Committee determines that the likelihood of any abuse of the Rules by such exempted person(s) or as a result of such exempted transaction is remote; - - The terms or conditions upon which any such exemption is granted is evidenced in writing; and - - The exempted person(s) agrees to execute and deliver to the Director of Compliance, at least annually, a signed Acknowledgment Form, which Acknowledgment shall, by operation of this provision, describe such exemptions and the terms and conditions upon which it was granted. The Committee shall also have the authority by unanimous action to impose such additional requirements or restrictions as it, in its sole discretion, determines appropriate or necessary, as outlined in the Penalty Guidelines. Any exemption, and any additional requirement or restriction, may be withdrawn by the Committee at any time (such withdrawal action is not required to be unanimous). GENERAL INFORMATION ABOUT THE ETHICS RULES DESIGNEES The Director of Compliance and the Chief Compliance Officer may appoint designees to carry out their functions pursuant to these Rules. ENFORCEMENT In addition to the penalties described in the Penalty Guidelines and elsewhere in the Rules, upon discovering a violation of the Rules, the Janus entity in which a Covered Person is associated may impose such sanctions as it deems appropriate, including without limitation, a letter of censure or suspension or termination of employment or personal trading privileges of the violator. All material violations of the Rules and any sanctions imposed with respect thereto shall be reported periodically to the Trustees. INTERNAL USE The Rules are intended solely for internal use by Janus and do not constitute an admission, by or on behalf of such companies, their controlling persons or persons they control, as to any fact, circumstance or legal conclusion. The Rules are not intended to evidence, describe or define any relationship of control between or among any persons. Further, the Rules are not intended to form the basis for describing or defining any conduct by a person that should result in such person being liable to any other person, except insofar as the conduct of such person in violation of the Rules may constitute sufficient cause for Janus to terminate or otherwise adversely affect such person's relationship with Janus. APPENDIX A JANUS CAPITAL MANAGEMENT JANUS INVESTMENT FUND JANUS ASPEN SERIES JANUS ADVISER SERIES JANUS WORLD FUNDS MUTUAL FUND HOLDINGS DISCLOSURE POLICIES AND PROCEDURES ADOPTED AND EFFECTIVE MARCH 21, 2005 LAST REVISED SEPTEMBER 20, 2005 1. APPLICABILITY AND STATEMENT OF POLICY Janus Capital Management LLC's ("Janus") and Janus Investment Fund, Janus Aspen Series, Janus Adviser Series and Janus World Funds (collectively the "Funds") Mutual Fund Holdings Disclosure Policies and Procedures ("Policies and Procedures") apply to disclosure of the Funds' portfolio holdings to all persons, including, without limitation, individual investors, intermediaries, third-party distributors, financial consultants, service providers, data aggregators and Janus' and/or the Funds' affiliates. "Portfolio holdings" consists of a complete list of names of securities held by a Fund, or any subset thereof. The Policies and Procedures are designed to be in the best interests of the Funds, protect the confidentiality of the Funds' portfolio holdings and to permit disclosure of non-public portfolio holdings where such disclosure is consistent with the antifraud provisions of the federal securities laws and a Fund's or adviser's fiduciary duties. 2. POLICIES AND PROCEDURES FOR DISCLOSURE OF PORTFOLIO HOLDINGS A. PUBLIC DISCLOSURE OF PORTFOLIO HOLDINGS ON JANUS' WEBSITE Janus generally posts on its website(s) a complete list of the equity and debt securities (excluding cash investments, derivatives and other investment positions) held in each Fund and the percentage weighting of each security on a periodic basis as described below. Janus may exclude from publication all or any portion of portfolio holdings or change the time periods of disclosure as deemed necessary to protect the interests of the Fund(s). i. Non-money market fund portfolio holdings as of month-end shall generally be available on the website(s) monthly with a 30 day lag, and shall be posted approximately two business days after month-end, except as may be permitted as described in Section 2.B.v., below. The portfolio holdings shall remain available on the website(s) until the following month's portfolio holdings are posted. Unless otherwise approved as described in Section 3., below, any dissemination of INTECH portfolio holdings information may contain only the names of portfolio securities and not number of shares and percentage weighting of the portfolio, except for top ten holdings as described in Section 2A.iii., below. ii. Money market fund portfolio holdings as of month-end shall generally be available on the website(s) monthly, and shall be posted approximately six business days after month-end. Such portfolio holdings shall remain available on the website(s) until the following month's portfolio holdings are posted. iii. Except as set forth below, the top 10 portfolio holdings of each Fund in order of position size and as a percentage of the total portfolio shall be available on the website(s) monthly with a 30 day lag and quarterly with a 15 day lag, and shall be posted approximately two business days after the end of the applicable period. Such portfolio holdings information shall generally remain available on the website(s) until the following month's or quarter's information is posted, as applicable. As to the posting of top holdings as described above, only the top 5 holdings shall be available for the following Funds: Janus Investment Fund: Janus Twenty Fund Janus Orion Fund Janus Global Technology Fund Janus Global Life Sciences Fund Janus Adviser Series: Forty Fund Orion Fund Janus Aspen Series: Forty Portfolio Global Technology Portfolio Global Life Sciences Portfolio Janus World Funds: Twenty Fund Global Technology Fund Global Life Sciences Fund [ ] iv. Security breakdowns (for example, industry, sector, regional, market capitalization and asset allocation breakdowns) for all Funds shall be available on the website(s) quarterly with a 15 day lag, and shall be posted approximately two business days after the quarter end. The information shall remain available on the website(s) until information for the following quarter is posted. [ ] v. Specific portfolio level performance attribution analysis/statistics for all Funds shall be available to any person monthly upon request with a 30 day lag. Any release of this information shall not occur prior to the next day after the posting of complete portfolio holdings to the website(s). Portfolio holdings information shall be deemed "public" on the next day after it is posted to the website or the day it is filed with the Securities and Exchange Commission (the "SEC"). B. DISCLOSURE OF NON-PUBLIC PORTFOLIO HOLDINGS The following describes circumstances in which non-public portfolio holdings information may be disclosed: i. Regulatory, Administrative and Judicial Requirements. The Funds' portfolio holdings may be disclosed in accordance with applicable securities law requirements, such as periodic disclosure in filings with the SEC. Janus may also disclose non-public portfolio holdings in response to requests from state or federal regulators, to comply with valid subpoenas or to otherwise comply with applicable law, whether or not such disclosures are required by law. ii. Certain Service Providers. Portfolio holdings may be disclosed for legitimate business purposes to certain persons, including, but not limited to: (a) persons who are subject to the Janus Ethics Rules (such as Janus personnel); (b) investment advisers, distributors, administrators, transfer agents and custodians to a Fund; and (c) accounting firms, auditing firms, or legal counsel retained by Janus, a Janus affiliate, a Fund or the Funds' Trustees. Disclosure of portfolio holdings pursuant to this section 2.B.ii. shall be subject to such persons' legal duty of confidentiality and legal duty not to trade on the basis of any material non-public information, as such duties are imposed by the Janus Ethics Rules, by written agreement, or under applicable laws, rules and regulations. iii. Other Service Providers. Janus may disclose portfolio holdings for legitimate business purposes to parties that provide services to Janus, Janus affiliates and/or the Funds. Such entities and persons include, but are not limited to, rating and ranking organizations, lenders, trade execution measurement systems providers, independent pricing services, proxy voting services, the Funds' insurers and computer systems service providers. Disclosure of portfolio holdings to a service provider shall be subject to a written agreement imposing a duty of confidentiality, including a duty not to trade on the basis of any material non-public information. [ ] iv. Broker-Dealers. Portfolio holdings information and other investment positions may be provided to broker-dealers in connection with such broker-dealers' trading of the Funds' securities on the Funds' behalf. [ ] v. Consultants and Others. Disclosure of non-public portfolio holdings may be provided to consultants, data aggregators, and asset allocation services which calculate information derived from holdings either for use by Janus or by firms that supply their analyses (but not the holdings themselves) to their clients. Disclosure of such portfolio holdings shall be subject to a written agreement imposing a duty of confidentiality, including a duty not to trade on the basis of any material non-public information. vi. Other Transactions. Disclosure of portfolio holdings may be made to certain parties in certain transactions such as mergers and acquisitions of a Fund and redemptions in kind and to newly hired investment advisers prior to the time they commence duties to a Fund. Disclosure of portfolio holdings in these types of transactions shall be subject to a written agreement imposing a duty of confidentiality, include a duty not to trade on the basis of any material non-public information. 3. APPROVAL AND REPORTING OF DISCLOSURE OF NON-PUBLIC PORTFOLIO HOLDINGS Except for categories of disclosure contemplated by Section 2.B.i.,ii. iii. and iv., above, disclosure of non-public portfolio holdings in all other cases must be pre-approved by the Chief Compliance Officer or Janus' Operating Committee and may be permitted if a Fund has a legitimate business purpose, consistent with these policies and procedures. In all cases, disclosure of portfolio holdings shall be subject to monitoring and reporting as described in Section 5, below. 4. FORM OF CONFIDENTIALITY AGREEMENT Any confidentiality agreements required or deemed appropriate pursuant to these Policies and Procedures should generally include provisions to the effect that: i. portfolio holdings are the confidential property of a Fund (and its service provider, as applicable) and may not be shared or used directly or indirectly for any purpose, including trading in Fund shares, except as provided in the confidentiality agreement; ii. the recipient of the portfolio holdings agrees to limit access to the portfolio information to its employees and agents who, on a need to know basis, are: (i) authorized to have access to the portfolio holdings; and (ii) subject to confidentiality obligations, including duties not to trade on nonpublic information; and iii. upon request, the recipient agrees to promptly return or destroy, as directed, the portfolio information. 5. MONITORING AND REPORTING i. Monitoring. The Chief Compliance Officer or designee shall monitor a list of parties authorized to receive non-public portfolio holdings. The list shall be updated any time an agreement is entered into with a client to permit non-public portfolio holdings disclosure. On a periodic basis, the Chief Compliance Officer or his designee shall monitor appropriate business practices as deemed necessary to determine compliance with these Policies and Procedures. The Chief Compliance Officer shall request certifications from service providers as deemed necessary to determine compliance with these Policies and Procedures. ii. Reporting. Any potential exceptions to, or violations of, these Policies and Procedures shall be promptly reported to the Chief Compliance Officer. If the Chief Compliance Officer deems that such matter constitutes a "material compliance matter" within the meaning of Rule 38a-1 under the 1940 Act, he shall report the matter to the Funds' Boards of Trustees in accordance with Rule 38a-1. iii. Amendments. Any changes to these Policies and Procedures shall be approved by the Janus Ethics Committee and material changes shall be approved by the Funds' Boards of Trustees. iv. Records. Janus shall maintain and preserve in an easily accessible place a copy of these Policies and Procedures (and any amendments thereto) and documentation supporting their implementation for a period of six years. 6. COMPENSATION No Fund, affiliate or any other party shall receive compensation or other consideration for disclosing a Fund's portfolio holdings. REVISION DATES: December 31, 2003 March 21, 2005 July 1, 2005 September 20, 2005 APPENDIX B JANUS CAPITAL MANAGEMENT LLC PORTFOLIO HOLDINGS DISCLOSURE POLICY FOR SEPARATELY MANAGED ACCOUNTS AND COMMINGLED PORTFOLIOS ADOPTED AND EFFECTIVE MARCH 21, 2005 LAST REVISED SEPTEMBER 20, 2005 1. APPLICABILITY AND STATEMENT OF POLICY Janus Capital Management LLC's ("Janus") Separately Managed Account and Commingled Portfolio Disclosure Policies and Procedures ("Policies and Procedures") apply to disclosure of separately managed account, commingled account, wrap-separately managed account and subadvised fund (collectively, "Account") portfolio holdings information to all persons, including, without limitation, investors, intermediaries third-party distributors, financial consultants, service providers and data aggregators. It is the policy of Janus to protect the confidentiality of Account portfolio holdings and prevent the selective disclosure of information regarding Account portfolio holdings that is not otherwise publicly available. Accordingly, Account portfolio holdings may not be disclosed except in accordance with these Policies and Procedures. 2. POLICIES AND PROCEDURES FOR DISCLOSURE OF PORTFOLIO HOLDINGS INFORMATION A. DISCLOSURE OF PORTFOLIO HOLDINGS TO CURRENT CLIENTS [ ] i. For existing Account clients (or the consultant representing an account), portfolio holding information relating to the client's Account shall be available upon request with no lag. Specific portfolio level attribution analysis shall be available to such clients or consultants upon request as of the most recent month-end with no lag. [ ] B. PUBLIC DISCLOSURE OF PORTFOLIO HOLDINGS ON JANUS' WEBSITE AND DISSEMINATION OF REPRESENTATIVE ACCOUNT PORTFOLIO HOLDINGS Representative Account portfolio holdings information must be publicly available prior to dissemination to any party. Representative Account portfolio holdings information shall be deemed "public" on the next day after full portfolio holdings information is posted to Janus' website. Janus may exclude from publication all or any portion of portfolio holdings or change the time periods of disclosure as deemed necessary. i. Unless otherwise approved as described in Section 3., below, any dissemination of portfolio holdings information related to Accounts sub-advised or advised by Enhanced Investment Technologies LCC (INTECH) may contain only the names of portfolio securities and not number of shares and percentage weighting of the portfolio, except for top ten holdings as described in Section 2.B.iii., below. ii. Full portfolio holdings for representative Accounts may be disseminated monthly with a 30 day lag to consultant databases, other "subscribed" entities and in RFPs, questionnaires, review books and finals presentations, except as may be otherwise permitted as described in Section 2.C.v., below. iii. Top 10 holdings with portfolio weightings for representative Accounts may be disseminated quarterly with a 15 day lag to consultant databases, upon client request, and in marketing materials, quarterly review books, questionnaires and RFPs. iv. Specific portfolio level performance attribution analysis/statistics for representative Accounts may be disseminated monthly with a 30 day lag to consultant databases, upon client request, and in quarterly review books, questionnaires and RFPs. [ ] v. Security breakdowns (for example, industry, sector, regional, market capitalization and asset allocation breakdowns) for representative Accounts shall be available on the website(s) quarterly with a 15 day lag, and shall be posted approximately two business days after the quarter end. The information shall remain available on the website(s) until information for the following quarter is posted. [ ] C. OTHER DISCLOSURE OF NON-PUBLIC PORTFOLIO HOLDINGS The following describes other circumstances in which non-public portfolio holdings information may be disclosed: i. Regulatory, Administrative and Judicial Requirements. Portfolio holdings may be disclosed in response to requests from state or federal regulators, to comply with valid subpoenas or to otherwise comply with applicable law, whether or not such disclosures are required by law. ii. Certain Service Providers. Portfolio holdings may be disclosed for legitimate business purposes to certain persons, including, but not limited to: (a) persons who are subject to the Janus Ethics Rules (such as Janus personnel); (b) investment advisers, distributors, administrators, transfer agents and custodians; and (c) accounting firms, auditing firms, or legal counsel retained by Janus or a Janus affiliate. Disclosure of portfolio holdings pursuant to this section 2.B.ii. shall be subject to such persons' legal duty of confidentiality and legal duty not to trade on the basis of any material non-public information, as such duties are imposed by the Janus Ethics Rules, by written agreement, or under applicable laws, rules and regulations. iii. Other Service Providers. Janus may disclose portfolio holdings for legitimate business purposes to parties that provide services to Janus or Janus affiliates. Such entities and persons include, but are not limited to, rating and ranking organizations, lenders, trade execution measurement systems providers, independent pricing services, proxy voting services, insurers and computer systems service providers. Disclosure of portfolio holdings to a service provider shall be subject to a written agreement imposing a duty of confidentiality, including a duty not to trade on the basis of any material non-public information. [ ] iv. Broker-Dealers. Portfolio holdings information and other investment positions may be provided to broker-dealers in connection with such broker-dealers' trading of portfolio securities. [ ] v. Consultants and Others. Disclosure of non-public portfolio holdings may be provided to consultants, data aggregators, and asset allocation services which calculate information derived from holdings either for use by Janus or by firms that supply their analyses (but not the holdings themselves) to their clients. Disclosure of such portfolio holdings shall be subject to a written agreement imposing a duty of confidentiality, including a duty not to trade on the basis of any 3 material non-public information. vi. Other Transactions. Disclosure of portfolio holdings may be made to certain parties in certain transactions such as redemptions in kind. Disclosure of portfolio holdings in such transactions shall be subject to a written agreement imposing a duty of confidentiality, include a duty not to trade on the basis of any material non-public information. 3. APPROVAL AND REPORTING OF DISCLOSURE OF NON-PUBLIC PORTFOLIO HOLDINGS Except for categories of disclosure contemplated by Section 2.B.i.,ii. iii and iv., above, disclosure of non-public portfolio holdings in all other cases must be pre-approved by the Chief Compliance Officer or Janus' Operating Committee and may be permitted if there exists a legitimate business purpose, consistent with these policies and procedures. In all cases, disclosure of portfolio holdings shall be subject to monitoring and reporting as described in Section 5, below. 4. FORM OF CONFIDENTIALITY AGREEMENT Any confidentiality agreements required or deemed appropriate pursuant to these Policies and Procedures should generally include provisions to the effect that: i. portfolio holdings are the confidential property of Janus (and its service provider, as applicable) and may not be shared or used directly or indirectly for any purpose, including trading in Account shares, except as provided in the confidentiality agreement; ii. the recipient of the portfolio holdings agrees to limit access to the portfolio information to its employees and agents who, on a need to know basis, are: (i) authorized to have access to the portfolio holdings; and (ii) subject to confidentiality obligations, including duties not to trade on nonpublic information; and iii. upon request, the recipient agrees to promptly return or destroy, as directed, the portfolio information. 5. MONITORING AND REPORTING i. Monitoring. The Chief Compliance Officer or designee shall monitor a list of parties authorized to receive non-public portfolio holdings. The list shall be updated any time an agreement is entered into with a client to permit non-public portfolio holdings disclosure. On a periodic basis, the Chief Compliance Officer or his designee shall monitor appropriate business practices as deemed necessary to determine compliance with these Policies and Procedures. The Chief Compliance Officer shall request certifications from service providers as deemed necessary to determine compliance with these Policies and Procedures. ii. Reporting. Any potential exceptions to, or violations of, these Policies and Procedures shall be promptly reported to the Chief Compliance Officer. iii. Amendments. Any changes to these Policies and Procedures shall be approved by the Janus Ethics Committee. iv. Records. Janus shall maintain and preserve in an easily accessible place a copy of these Policies and Procedures (and any amendments thereto) and documentation supporting their implementation for a period of six years. 6. COMPENSATION Janus, affiliates or any other party shall not receive compensation or other consideration for disclosing Account portfolio holdings. REVISION DATES: December 31, 2003 March 21, 2005 July 1, 2005 September 20, 2005 4 EX-99.P5 21 v15673exv99wp5.txt EXHIBIT 99.(P)(5) (p)(5) AMENDED AND RESTATED CODE OF ETHICS OF THE OPPENHEIMER FUNDS, OPPENHEIMERFUNDS, INC. (INCLUDING AFFILIATES AND SUBSIDIARIES) AND OPPENHEIMERFUNDS DISTRIBUTOR, INC. DATED AS OF FEBRUARY 1, 2005 5 TABLE OF CONTENTS 1. Introduction and Purpose of the Code of Ethics....................... 3 2. Statement of General Principles...................................... 4 3. Standards of Business Conduct........................................ 4 4. Definitions.......................................................... 7 5. All Employees--Restrictions on Outside Business Activities........... 12 6. All Employees--Restrictions on Gifts from Business Associates........ 12 7. All Employees--Investments in Oppenheimer Funds...................... 12 8. Requirements for Personal Accounts for Access Persons................ 13 9. Access Persons--Prohibited Transactions in Securities................ 14 10. Investment Persons--Prohibited Transactions in Securities............ 15 11. Reporting Requirements............................................... 18 12. Certifications....................................................... 20 13. Independent Directors................................................ 20 14. Penalties and Sanctions.............................................. 21 15. Duties of the Code of Ethics Oversight Committee..................... 22 16. Duties of the Code Administrator..................................... 22 17. Recordkeeping........................................................ 23 18. Amendments........................................................... 25
Introduction and Purpose of the Code of Ethics. As an investment management firm, OppenheimerFunds, Inc., its affiliates and subsidiaries (collectively defined below as "OFI"), owe a fiduciary responsibility to our clients, including the Oppenheimer funds. Accordingly, OFI and every Employee of OFI owe those clients a duty of undivided loyalty. Our clients entrust us with their financial well-being and expect us to act in their best interests at all times. OFI seeks to maintain a reputation for fair dealing, honesty, candor, objectivity and unbending integrity by conducting our business on a set of shared values and principles of trust. This Code of Ethics ("Code") establishes standards of conduct expected of all Employees and addresses conflicts that arise from Employees' personal trading and other activities. EVERY EMPLOYEE OF OFI IS EXPECTED TO FULLY UNDERSTAND AND ADHERE TO THE POLICIES AND PROCEDURES SET FORTH IN THIS CODE. As each Employee must be aware, we work in a highly regulated industry and are governed by an ever-increasing body of federal, state, and international laws and numerous rules and regulations which, if not observed, can subject OFI and/or its Employees to regulatory sanctions. The investment companies for which OFI or Centennial Asset Management Corporation ("CAMC") acts as investment adviser (collectively referred to as the "Oppenheimer Funds"); (ii) OFI, CAMC, OFI's other subsidiaries or directly controlled affiliates that are registered investment advisers(6); and (iii) OppenheimerFunds Distributor, Inc. ("OFDI"), the principal underwriter of the Oppenheimer Funds (hereinafter, these entities are collectively referred to as "OFI"), have adopted this Code of Ethics ("Code") in compliance with Rule 17j-1 under the Investment Company Act of 1940, as amended ("1940 Act"), or Rule 204A-1 under the Investment Advisers Act of 1940, as amended ("Advisers Act"). The Code is designed to establish procedures for the detection and prevention of activities by which persons having knowledge of the holdings, recommended investments and investment intentions of the Oppenheimer Funds, other investment companies and other clients for which OFI acts as adviser or sub-adviser (collectively, "Advisory Clients") may abuse their fiduciary duties, and otherwise to deal with the type of conflict of interest situations addressed by Rule 17j-1 and Rule 204A-1. Although the Code is intended to provide each Employee with guidance and certainty as to whether or not certain actions or practices are permissible, it does not cover every issue an Employee may face. In this regard, OFI also maintains other compliance-oriented policies and procedures (including among others, a separate Code of Conduct and a Policy Governing Dissemination of Fund Portfolio Holdings) that may be directly applicable to an Employee's specific responsibilities and duties. Nevertheless, this Code should be viewed as a guide for each - ---------- (6) As of the date of adoption of this Code, in addition to CAMC, the other subsidiaries and directly controlled affiliates of OFI (for purposes of this Code) include: OFI Institutional Asset Management, Inc.; HarbourView Asset Management Corporation, Trinity Investment Management Corporation; OFI Private Investments, Inc., and Oppenheimer Real Asset Management, Inc. 3 Employee and OFI with respect to how we jointly must conduct our business to live up to our guiding tenet that the interests of our clients and customers must always come first. If you have any questions about this Code, you should discuss them with the Code Administrator as soon as possible to ensure that you remain in compliance with the Code at all times. In the event that any provision of this Code conflicts with any other OFI policy or procedure, the provisions of this Code shall apply. Please understand that you are expected to adhere to all company policies at all times. ALL OFI EMPLOYEES ARE EXPECTED TO READ THE CODE CAREFULLY AND OBSERVE AND ADHERE TO ITS GUIDANCE AT ALL TIMES. All OFI Employees have an obligation to provide notice to the Code Administrator on a timely basis if there is a change to their duties, responsibilities or title which affects their reporting status under this Code. Statement of General Principles. IN GENERAL, EVERY EMPLOYEE MUST OBSERVE THE FOLLOWING FIDUCIARY PRINCIPLES WITH RESPECT TO HIS OR HER PERSONAL INVESTMENT ACTIVITIES: AT ALL TIMES, EACH EMPLOYEE MUST PLACE THE INTERESTS OF ADVISORY CLIENTS FIRST; ALL PERSONAL SECURITIES TRANSACTIONS OF EACH EMPLOYEE MUST BE CONDUCTED CONSISTENT WITH THIS CODE AND IN SUCH A MANNER AS TO AVOID ANY ACTUAL OR POTENTIAL CONFLICT OF INTEREST OR ANY ABUSE OF THE EMPLOYEE'S POSITION OF TRUST AND RESPONSIBILITY; AND NO EMPLOYEE SHOULD TAKE INAPPROPRIATE ADVANTAGE OF HIS OR HER POSITION AT OFI. Standards of Business Conduct The specific provisions and reporting requirements of this Code are concerned primarily with those investment activities of an Access Person (as defined below) who may benefit from or interfere with the purchase or sale of portfolio securities by Advisory Clients. However, all Employees are prohibited from using information concerning the investment intentions of Advisory Clients, or the Employees' ability to influence such investment intentions, for personal gain or in a manner detrimental to the interests of any Advisory Client. In this regard, each Employee also should refer to the separate Code of Conduct which governs certain other activities of Employees. In addition to this Code and the separate Code of Conduct, all Employees must comply with the following general standards of business conduct. COMPLIANCE WITH LAWS AND REGULATIONS. ALL EMPLOYEES MUST COMPLY WITH ALL FEDERAL, STATE AND LOCAL LAWS, RULES AND REGULATIONS APPLICABLE TO THE BUSINESS OR OPERATIONS OF OFI, INCLUDING, 4 BUT NOT LIMITED TO, THE FEDERAL SECURITIES LAWS.(7) IN PARTICULAR, EMPLOYEES (INCLUDING ALL ACCESS PERSONS) ARE NOT PERMITTED, IN CONNECTION WITH THE PURCHASE OR SALE, DIRECTLY OR INDIRECTLY, OF A SECURITY HELD OR TO BE ACQUIRED BY AN ADVISORY CLIENT, TO: EMPLOY ANY DEVICE, SCHEME OR ARTIFICE TO DEFRAUD SUCH ADVISORY CLIENT; MAKE TO SUCH ADVISORY CLIENT ANY UNTRUE STATEMENT OF A MATERIAL FACT OR OMIT TO STATE TO SUCH ADVISORY CLIENT A MATERIAL FACT NECESSARY IN ORDER TO MAKE THE STATEMENTS MADE, IN LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY ARE MADE, NOT MISLEADING; ENGAGE IN ANY ACT, PRACTICE, OR COURSE OF BUSINESS WHICH OPERATES OR WOULD OPERATE AS A FRAUD OR DECEIT UPON ANY SUCH ADVISORY CLIENT; OR ENGAGE IN ANY MANIPULATIVE PRACTICE WITH RESPECT TO SUCH ADVISORY CLIENT. CONFLICTS OF INTEREST. AS A FIDUCIARY, OFI HAS AN AFFIRMATIVE DUTY OF CARE, LOYALTY, HONESTY, AND GOOD FAITH TO ACT IN THE BEST INTERESTS OF ITS CLIENTS. COMPLIANCE WITH THIS DUTY CAN BE ACHIEVED BY TRYING TO AVOID CONFLICTS OF INTEREST AND BY FULLY DISCLOSING ALL MATERIAL FACTS CONCERNING ANY CONFLICT THAT DOES ARISE WITH RESPECT TO ANY CLIENT. ALL EMPLOYEES MUST TRY TO AVOID SITUATIONS THAT HAVE EVEN THE APPEARANCE OF CONFLICT OR IMPROPRIETY. (SEE ALSO THE SECTION TITLED "CONFLICTS OF INTERESTS" IN THE SEPARATE CODE OF CONDUCT.) CONFLICTS AMONG CLIENT INTERESTS. CONFLICTS OF INTEREST MAY ARISE WHEN OFI OR ITS EMPLOYEES HAVE REASON TO FAVOR THE INTERESTS OF ONE CLIENT OVER ANOTHER CLIENT (E.G., LARGER ACCOUNTS OVER SMALLER ACCOUNTS, ACCOUNTS COMPENSATED BY PERFORMANCE FEES OVER ACCOUNTS NOT SO COMPENSATED, ACCOUNTS IN WHICH EMPLOYEES HAVE MADE MATERIAL PERSONAL INVESTMENTS, ACCOUNTS OF CLOSE FRIENDS OR RELATIVES OF EMPLOYEES). SUCH INAPPROPRIATE FAVORITISM OF ONE CLIENT OVER ANOTHER CLIENT WOULD CONSTITUTE A BREACH OF FIDUCIARY DUTY AND IS - ---------- (7) For purposes of this Code, "federal securities laws" means the Securities Act of 1933, the Securities Exchange Act of 1934, the Sarbanes-Oxley Act of 2002, the 1940 Act, the Advisers Act, Title V of the Gramm-Leach-Bliley Act (privacy), any rules adopted by the Commission under any of these statutes, the Bank Secrecy Act as it applies to funds and investment advisers, and any rules adopted thereunder by the Commission or the Department of the Treasury (anti-money laundering). 5 EXPRESSLY PROHIBITED. (SEE ALSO THE SECTION TITLED "CONFLICTS OF INTERESTS" IN THE SEPARATE CODE OF CONDUCT.) COMPETING WITH CLIENT TRADES. ALL EMPLOYEES ARE PROHIBITED FROM USING KNOWLEDGE ABOUT PENDING OR CURRENTLY CONSIDERED SECURITIES TRANSACTIONS FOR CLIENTS TO PROFIT PERSONALLY, DIRECTLY OR INDIRECTLY, AS A RESULT OF SUCH TRANSACTIONS, INCLUDING BY PURCHASING OR SELLING SUCH SECURITIES. THIS MEANS THAT NO EMPLOYEE MAY PURCHASE OR SELL A SECURITY FOR HIS OR HER PERSONAL ACCOUNT WITH ACTUAL KNOWLEDGE THAT AN ORDER TO BUY OR SELL THE SAME SECURITY HAS BEEN MADE FOR AN ADVISORY CLIENT OR IS BEING CONSIDERED FOR AN ADVISORY CLIENT UNTIL SUCH INFORMATION IS MADE PUBLICLY AVAILABLE. CONFLICTS RAISED BY PERSONAL SECURITIES TRANSACTIONS ALSO ARE ADDRESSED MORE SPECIFICALLY IN SECTIONS 7-10 OF THIS CODE. CONFIDENTIALITY OF ADVISORY CLIENT TRANSACTIONS. UNTIL DISCLOSED IN A PUBLIC REPORT TO SHAREHOLDERS OR TO THE SEC IN THE NORMAL COURSE, ALL INFORMATION CONCERNING SECURITIES "BEING CONSIDERED FOR PURCHASE OR SALE" BY ANY ADVISORY CLIENT SHALL BE KEPT CONFIDENTIAL BY ALL EMPLOYEES AND DISCLOSED BY THEM ONLY ON A NEED TO KNOW BASIS IN ACCORDANCE WITH POLICY GOVERNING DISSEMINATION OF FUND PORTFOLIO HOLDINGS (AS ATTACHED IN APPENDIX A) OR ANY OTHER RELATED POLICIES ADOPTED BY OFI FROM TIME TO TIMEIMT B. (SEE ALSO THE SECTION TITLED "CONFIDENTIALITY" IN THE SEPARATE CODE OF CONDUCT.) DISCLOSURE OF OPPENHEIMER FUNDS PORTFOLIO HOLDINGS. UNTIL PUBLICLY DISCLOSED, AN OPPENHEIMER FUND'S PORTFOLIO HOLDINGS ARE PROPRIETARY, CONFIDENTIAL BUSINESS INFORMATION. ALL EMPLOYEES ARE SUBJECT TO OFI'S AND THE FUNDS' SEPARATE "POLICY GOVERNING DISSEMINATION OF FUND PORTFOLIO HOLDINGS" (ATTACHED AS APPENDIX A HERETO) WHICH SETS FORTH THE CONDITIONS UNDER WHICH AN EMPLOYEE MAY DISCLOSE INFORMATION ABOUT AN OPPENHEIMER FUND'S PORTFOLIO HOLDINGS. IN GENERAL, THE POLICY IS DESIGNED TO ASSURE THAT INFORMATION ABOUT PORTFOLIO HOLDINGS IS DISTRIBUTED IN A MANNER THAT CONFORMS TO APPLICABLE LAWS AND REGULATIONS AND TO PREVENT THAT INFORMATION FROM BEING USED IN A MANNER THAT COULD NEGATIVELY AFFECT A FUND'S INVESTMENT PROGRAM OR OTHERWISE ENABLE THIRD PARTIES TO USE THAT INFORMATION IN A MANNER THAT IS NOT IN THE BEST INTERESTS OF A FUND. GENERALLY, ANY NON-PUBLIC PORTFOLIO HOLDING INFORMATION MAY ONLY BE DISTRIBUTED PURSUANT TO A CONFIDENTIALITY AGREEMENT APPROVED BY OFI'S LEGAL DEPARTMENT. 6 INSIDER TRADING. ALL EMPLOYEES ARE SUBJECT TO OFI'S SEPARATE INSIDER TRADING POLICIES AND PROCEDURES WHICH ARE CONSIDERED AN INTEGRAL PART OF THIS CODE (ATTACHED AS APPENDIX B TO THIS CODE). IN GENERAL, ALL EMPLOYEES ARE PROHIBITED FROM TRADING, EITHER PERSONALLY OR ON BEHALF OF OTHERS, WHILE IN POSSESSION OF MATERIAL, NONPUBLIC INFORMATION. EMPLOYEES ARE ALSO PROHIBITED FROM COMMUNICATING MATERIAL NONPUBLIC INFORMATION TO OTHERS IN VIOLATION OF THE LAW. PERSONAL SECURITIES TRANSACTIONS. ALL EMPLOYEES MUST STRICTLY COMPLY WITH OFI'S POLICIES AND PROCEDURES REGARDING PERSONAL SECURITIES TRANSACTIONS. AS EXPLAINED IN FURTHER DETAIL THROUGHOUT THIS CODE, THE CODE SETS FORTH THE CERTAIN STANDARDS FOR PERSONAL TRADING BY PERSONS SUBJECT TO ITS PROVISIONS. FOR EXAMPLE, NO EMPLOYEE MAY PURCHASE OR SELL A SECURITY FOR HIS OR HER PERSONAL ACCOUNT WITH ACTUAL KNOWLEDGE THAT AN ORDER TO BUY OR SELL THE SAME SECURITY HAS BEEN MADE FOR AN ADVISORY CLIENT OR IS BEING CONSIDERED FOR AN ADVISORY CLIENT UNTIL SUCH INFORMATION IS MADE PUBLICLY AVAILABLE. IN GENERAL, PERSONS WHO MAY HAVE GREATER ACCESS TO INVESTMENT AND TRADING INFORMATION (I.E., ACCESS PERSONS AND INVESTMENT PERSONS) ARE SUBJECT TO GREATER RESTRICTIONS ON THEIR TRADING. (SEE ALSO THE SECTION TITLED "PERSONAL INVESTING" IN THE SEPARATE CODE OF CONDUCT.) Definitions - AS USED HEREIN: "ADVISORY CLIENT" MEANS ANY OPPENHEIMER FUND, OTHER INVESTMENT COMPANY OR OTHER CLIENT FOR WHICH OFI ACT AS ADVISER OR SUB-ADVISER. "ACCESS PERSON" MEANS ANY OFFICER, DIRECTOR, GENERAL PARTNER, INVESTMENT PERSON, TRUSTEE OR CERTAIN OTHER EMPLOYEES (AS DESCRIBED IMMEDIATELY BELOW) OF: OFI, OFDI, CAMC, OFI INSTITUTIONAL ASSET MANAGEMENT, INC.; HARBOURVIEW ASSET MANAGEMENT CORPORATION, TRINITY INVESTMENT MANAGEMENT CORPORATION; OFI PRIVATE INVESTMENTS, INC., OPPENHEIMER REAL ASSET MANAGEMENT, INC., ANY OF THE OPPENHEIMER FUNDS, ANY OTHER ENTITY ADOPTING THIS CODE; OR ANY PERSONS DIRECTLY CONTROLLED BY OFI WHO DIRECTLY OR INDIRECTLY CONTROL (AS DEFINED IN THE 1940 ACT) THE ACTIVITIES OF SUCH PERSONS. 7 AN ACCESS PERSON ALSO MEANS ANY NATURAL PERSON IN A CONTROL (AS DEFINED IN THE 1940 ACT) RELATIONSHIP TO ANY OPPENHEIMER FUND OR OFI (OR ANY COMPANY IN A CONTROL RELATIONSHIP TO AN OPPENHEIMER FUND OR OFI) WHO OBTAINS INFORMATION CONCERNING RECOMMENDATIONS MADE TO THE FUND WITH REGARD TO THE PURCHASE OR SALE OF SECURITIES BY THE FUND. Notwithstanding the definitions above, for purposes of the reporting requirements under Section 11 of this Code, an "Independent Director" (or a non-independent director who is not otherwise an employee of OFI or an Access Person) of an Oppenheimer Fund is NOT considered an Access Person. AN EMPLOYEE IS AN ACCESS PERSON IF: IN CONNECTION WITH HIS OR HER REGULAR FUNCTIONS OR DUTIES, THAT EMPLOYEE MAKES, PARTICIPATES, IN OR OBTAINS INFORMATION REGARDING, THE PURCHASE OR SALE OF A SECURITY BY AN ADVISORY CLIENT, OR WHOSE FUNCTIONS RELATE TO THE MAKING OF ANY RECOMMENDATIONS WITH RESPECT TO SUCH PURCHASES OR SALES. THE EMPLOYEE HAS ACCESS TO TIMELY INFORMATION RELATING TO INVESTMENT MANAGEMENT ACTIVITIES, RESEARCH AND/OR CLIENT PORTFOLIO HOLDINGS AND THOSE WHO IN THE COURSE OF THEIR EMPLOYMENT REGULARLY RECEIVE ACCESS TO TRADING ACTIVITY OF ADVISORY CLIENTS; OR THE EMPLOYEE HAS BEEN NOTIFIED IN WRITING BY THE CODE ADMINISTRATOR (OR A DESIGNEE) THAT THE EMPLOYEE HAS BEEN DESIGNATED AS AN ACCESS PERSONS BY THE CODE ADMINISTRATOR BY VIRTUE OF THE NATURE OF THE EMPLOYEE'S DUTIES AND FUNCTIONS. "BENEFICIAL INTEREST" MEANS ANY INTEREST BY WHICH AN ACCESS PERSON, OR ANY FAMILY MEMBER LIVING IN THE SAME HOUSEHOLD AS AN ACCESS PERSON, CAN DIRECTLY OR INDIRECTLY DERIVE A MONETARY BENEFIT FROM THE PURCHASE, SALE OR OWNERSHIP OF A SECURITY, EXCEPT SUCH INTERESTS AS A MAJORITY OF THE INDEPENDENT DIRECTORS OF THE AFFECTED OPPENHEIMER FUND(S) SHALL DETERMINE TO BE TOO REMOTE FOR THE PURPOSE OF THIS CODE OF ETHICS. FOR PURPOSES OF THIS DEFINITION AND THE CODE, "FAMILY MEMBER" SHALL INCLUDE: GRANDPARENTS, PARENTS, MOTHER-IN-LAW OR FATHER-IN-LAW; HUSBAND, WIFE OR DOMESTIC PARTNER (WHETHER REGISTERED OR UNREGISTERED UNDER APPLICABLE LAW); BROTHER, SISTER, BROTHER-IN-LAW, 8 SISTER-IN-LAW, SON-IN-LAW OR DAUGHTER-IN-LAW; CHILDREN (INCLUDING STEP AND ADOPTIVE RELATIONSHIPS); AND GRANDCHILDREN. IN A SITUATION IN WHICH THE STATUS OF A "FAMILY MEMBER" IS IN QUESTION, SUCH PERSON SHALL BE PRESUMED TO BE A "FAMILY MEMBER" FOR PURPOSES OF THIS CODE. IT IS THE EMPLOYEE'S BURDEN TO AFFIRMATIVELY PROVE TO THE CODE ADMINISTRATOR THAT THE OTHER PERSON AT ISSUE IS NOT A "FAMILY MEMBER" WITHIN THIS DEFINITION. "CAMC" MEANS CENTENNIAL ASSET MANAGEMENT CORPORATION. "CODE ADMINISTRATOR" IS THE PERSON APPOINTED BY OFI AS RESPONSIBLE FOR THE DAY-TO-DAY ADMINISTRATION OF THE CODE. "CODE OF CONDUCT" IS A SEPARATE SET OF GUIDELINES THAT DEFINES THE STANDARDS TO WHICH ALL EMPLOYEES OF OFI AND ITS SUBSIDIARIES AND AFFILIATES ARE EXPECTED TO ADHERE DURING THE COURSE OF THEIR EMPLOYMENT WITH, AND WHEN CONDUCTING BUSINESS ON BEHALF OF, OFI. "CODE OF ETHICS OVERSIGHT COMMITTEE" IS THE COMMITTEE OF PERSONS NOMINATED BY OFI AND HAVING THE RESPONSIBILITIES DESCRIBED IN SECTIONS 14 AND 15 OF THIS CODE. THE MEMBERSHIP OF THE CODE OF ETHICS OVERSIGHT COMMITTEE SHALL CONSIST OF THE: MEMBERS OF THE BOARD OF DIRECTORS OF OFI, GENERAL COUNSEL OF OFI, CHIEF INVESTMENT OFFICER OF OFI, AND CHIEF COMPLIANCE OFFICER (IF NOT ALSO SERVING AS THE CODE ADMINISTRATOR) OF THE OPPENHEIMER FUNDS AND OF OFI, AND/OR THEIR DESIGNEES. "EMPLOYEE" MEANS ANY PERSON DEEMED TO BE AN EMPLOYEE OR "SUPERVISED PERSON" OF OFI FOR PURPOSES OF THE ADVISERS ACT. "INDEPENDENT DIRECTOR" MEANS ANY DIRECTOR OR TRUSTEE OF AN OPPENHEIMER FUND WHO IS NOT AN "INTERESTED PERSON" (AS THAT TERM IS DEFINED BY SECTION 2(A)(19) OF THE 1940 ACT) OF THE FUND. NOTWITHSTANDING THE DEFINITION OF AN ACCESS PERSON ABOVE, FOR PURPOSES OF THIS CODE, AN INDEPENDENT DIRECTOR IS not CONSIDERED AN ACCESS PERSON. "INITIAL PUBLIC OFFERING" MEANS AN OFFERING OF SECURITIES REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("1933 ACT"), THE ISSUER OF WHICH IMMEDIATELY BEFORE THE REGISTRATION WAS NOT SUBJECT TO THE REPORTING REQUIREMENTS OF SECTIONS 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934. 9 "INVESTMENT PERSON" MEANS AN ACCESS PERSON WHO IS (1) A PORTFOLIO MANAGER, (2) A SECURITIES ANALYST OR TRADER WHO PROVIDES INFORMATION AND ADVICE TO A PORTFOLIO MANAGER OR WHO HELPS EXECUTE A PORTFOLIO MANAGER'S DECISIONS, (3) ANY OTHER PERSON WHO, IN CONNECTION WITH HIS OR HER DUTIES, MAKES OR PARTICIPATES IN MAKING RECOMMENDATIONS REGARDING AN ADVISORY CLIENT'S PURCHASE OR SALE OF SECURITIES, (4) ANY EMPLOYEE WHO WORKS DIRECTLY WITH A PORTFOLIO MANAGER OR IN THE SAME DEPARTMENT AS THE PORTFOLIO MANAGER OR (5) ANY NATURAL PERSON IN A CONTROL RELATIONSHIP TO AN OPPENHEIMER FUND OR OFI WHO OBTAINS INFORMATION CONCERNING RECOMMENDATIONS MADE TO THE OPPENHEIMER FUND WITH REGARD TO THE PURCHASE OR SALE OF SECURITIES BY THE OPPENHEIMER FUND. IN ADDITION TO THE ABOVE DEFINITIONS, AN EMPLOYEE IS AN "INVESTMENT PERSON" IF THE EMPLOYEE HAS BEEN NOTIFIED IN WRITING BY THE CODE ADMINISTRATOR (OR A DESIGNEE) THAT THE EMPLOYEE HAS BEEN DESIGNATED AS AN "INVESTMENT PERSON" BY THE CODE ADMINISTRATOR BY VIRTUE OF THE NATURE OF THE EMPLOYEE'S DUTIES AND FUNCTIONS. "OFI" MEANS ANY OPPENHEIMER FUND, OPPENHEIMER FUNDS, INC., CENTENNIAL ASSET MANAGEMENT CORPORATION ("CAMC"), OFI'S OTHER SUBSIDIARIES OR DIRECTLY CONTROLLED AFFILIATES THAT ARE REGISTERED INVESTMENT ADVISERS, INCLUDING OFI INSTITUTIONAL ASSET MANAGEMENT, INC.; HARBOURVIEW ASSET MANAGEMENT CORPORATION, TRINITY INVESTMENT MANAGEMENT CORPORATION; OFI PRIVATE INVESTMENTS, INC. TREMONT CAPITAL MANAGEMENT, INC., OPPENHEIMER REAL ASSET MANAGEMENT, INC., AND OPPENHEIMER FUNDS, DISTRIBUTOR, INC. "OPPENHEIMER FUND" MEANS ANY INVESTMENT COMPANY REGISTERED UNDER THE 1940 ACT FOR WHICH OFI OR CAMC SERVES AS THE INVESTMENT ADVISER OR FOR WHICH OFDI SERVES AS THE PRINCIPAL UNDERWRITER. "PERSONAL ACCOUNT" MEANS ANY ACCOUNT OWNED BY, OR IN WHICH A BENEFICIAL INTEREST IS OWNED, IN THE NAME OF AN OFI EMPLOYEE OR ACCESS PERSON OR ANY ACCOUNT IN WHICH AN EMPLOYEE OR ACCESS PERSON HAS ANY DIRECT OR INDIRECT BENEFICIAL INTEREST. "PORTFOLIO MANAGER" MEANS A ACCESS PERSON WHO HAS DIRECT RESPONSIBILITY AND AUTHORITY TO MAKE INVESTMENT DECISIONS AFFECTING A PARTICULAR ADVISORY CLIENT. 10 "PRIVATE PLACEMENT" MEANS AN OFFERING THAT IS EXEMPT FROM REGISTRATION PURSUANT TO SECTION 4(2) OR SECTION 4(6) OF THE 1933 ACT OR PURSUANT TO RULES 504, 505 OR 506 UNDER THE 1933 ACT. "SECURITY" MEANS GENERALLY ANY INVESTMENT, INSTRUMENT, ASSET OR HOLDING IN WHICH AN ADVISORY CLIENT INVESTS, OR MAY CONSIDER INVESTING. AMONG OTHER THINGS, A "SECURITY" INCLUDES ANY NOTE, STOCK, TREASURY STOCK, SECURITY FUTURE, FINANCIAL FUTURES CONTRACT OR OPTION THEREON, BOND, DEBENTURE, EVIDENCE OF INDEBTEDNESS, CERTIFICATE OF INTEREST OR PARTICIPATION IN ANY PROFIT-SHARING AGREEMENT, COLLATERAL-TRUST CERTIFICATE, PREORGANIZATION CERTIFICATE OR SUBSCRIPTION, TRANSFERABLE SHARE, INVESTMENT CONTRACT, VOTING-TRUST CERTIFICATE, CERTIFICATE OF DEPOSIT FOR A SECURITY, FRACTIONAL UNDIVIDED INTEREST IN OIL, GAS, OR OTHER MINERAL RIGHTS, ANY PUT, CALL, STRADDLE, OPTION, OR PRIVILEGE ON ANY SECURITY (INCLUDING A CERTIFICATE OF DEPOSIT) OR ON ANY GROUP OR INDEX OF SECURITIES (INCLUDING ANY INTEREST THEREIN OR BASED ON THE VALUE THEREOF), OR ANY PUT, CALL, STRADDLE, OPTION, OR PRIVILEGE ENTERED INTO ON A NATIONAL SECURITIES EXCHANGE RELATING TO FOREIGN CURRENCY, OR, IN GENERAL, ANY INTEREST OR INSTRUMENT COMMONLY KNOWN AS A "SECURITY," OR ANY CERTIFICATE OF INTEREST OR PARTICIPATION IN, TEMPORARY OR INTERIM CERTIFICATE FOR, RECEIPT FOR, GUARANTEE OF, OR WARRANT OR RIGHT TO SUBSCRIBE TO OR PURCHASE ANY OF THE FOREGOING. REFERENCES TO A "SECURITY" IN THE CODE SHALL INCLUDE ANY WARRANT FOR, OPTION IN, OR SECURITY OR OTHER INSTRUMENT IMMEDIATELY CONVERTIBLE INTO OR WHOSE VALUE IS DERIVED FROM THAT "SECURITY" AND ANY INSTRUMENT OR RIGHT WHICH IS EQUIVALENT TO THAT "SECURITY." THE TERM "SECURITY" SPECIFICALLY INCLUDES ANY SHARES ISSUED BY AN INVESTMENT COMPANY, BUT FOR PURPOSES OF THIS CODE, EXCLUDES SHARES ISSUED BY MONEY MARKET FUNDS THAT COMPLY WITH RULE 2A-7 UNDER THE 1940 ACT. "SECURITY HELD OR TO BE ACQUIRED" BY AN ADVISORY CLIENT MEANS ANY SECURITY THAT, WITHIN THE MOST RECENT 15 DAYS (I) IS OR HAS BEEN HELD BY THE ADVISORY CLIENT OR (II) IS BEING CONSIDERED BY THE ADVISORY CLIENT OR ITS INVESTMENT ADVISER FOR PURCHASE BY THE ADVISORY CLIENT. A "SECURITY HELD OR TO BE ACQUIRED" ALSO INCLUDES ANY OPTION TO 11 PURCHASE OR SELL, AND ANY SECURITY CONVERTIBLE INTO OR EXCHANGEABLE FOR, A SECURITY. A SECURITY IS "BEING CONSIDERED FOR PURCHASE OR SALE" FROM THE TIME AN ORDER IS GIVEN BY OR ON BEHALF OF THE PORTFOLIO MANAGER TO THE ORDER ROOM OF AN ADVISORY CLIENT UNTIL THE TIME ALL ORDERS WITH RESPECT TO THAT SECURITY ARE COMPLETED OR WITHDRAWN. "SUB-ADVISER" MEANS AN INVESTMENT ADVISER THAT ACTS AS AN INVESTMENT SUB-ADVISER TO A PORTFOLIO ADVISED BY OFI AND IS NOT AFFILIATED WITH OFI. All Employees--Restrictions on Outside Business Activities No Employee may serve as a director, trustee, officer, owner or partner of any other business organization, with or without compensation, without prior written approval of the General Counsel of OFI. An Employee may serve without compensation as a director, trustee, officer or representative of a non-profit organization (e.g., school board, hospital, professional or social organization) without prior approval if there is no conflict of interest with the Employee's duties to OFI Company. These positions should be reported to the Employee's department manager. The department manager should notify the Code Administrator of such reports no less than quarterly. (See also the section titled "Conflicts of Interests" in the separate Code of Conduct.) All Employees--Restrictions on Gifts from Business Associates All Employees are subject to OFI's separate Gift Policy which is considered an integral part of this Code (attached as Appendix C to this Code). In general, no Employee may accept gifts or anything else of more than a nominal amount in value (not exceeding $100 per individual on an annual basis) from any person or entity that does business with or on behalf of OFI or an Advisory Client. All Employees--Investments in Oppenheimer Funds. ANY EMPLOYEE WHO HOLDS SHARES OF OPPENHEIMER FUNDS MUST HOLD THOSE SHARES IN AN ACCOUNT IDENTIFIED AS AN "OFI 401(K) ACCOUNT," "OFI RETIREMENT ACCOUNT," "OFI DEFERRED COMPENSATION ACCOUNT" OR "OFI EMPLOYEES ACCOUNT." NOTWITHSTANDING THE SENTENCE ABOVE, AN EMPLOYEE WITH A PERSONAL ACCOUNT WITH A.G. EDWARDS MAY HOLD SHARES OF THE CENTENNIAL MONEY MARKET FUNDS IF SELECTED AS THE EMPLOYEE'S "SWEEP ACCOUNT" OPTION FOR THOSE SPECIFIC ACCOUNTS. 12 ANY EMPLOYEE WHO HOLDS SHARES OF OPPENHEIMER FUNDS IN OTHER TYPES OF ACCOUNTS MUST ARRANGE TO TRANSFER THOSE HOLDINGS INTO ONE OF THE ACCOUNTS DESCRIBED ABOVE. NOTWITHSTANDING THIS REQUIREMENT, AN EMPLOYEE WHO HOLDS SHARES IN OPPENHEIMER FUNDS IN A RETIREMENT ACCOUNT OR OTHER QUALIFIED RETIREMENT ACCOUNT WITH ANOTHER EMPLOYER THAT CANNOT BE TRANSFERRED TO ONE OF THE ACCOUNTS IDENTIFIED ABOVE (OR IN AN A.G. EDWARDS ACCOUNT AS DISCUSSED ABOVE) IS NOT REQUIRED TO TRANSFER THOSE SHARES TO ONE OF THE ACCOUNTS IDENTIFIED ABOVE PROVIDED THE EMPLOYEE PROVIDES A WRITTEN EXPLANATION TO THE CODE ADMINISTRATOR DESCRIBING THE CIRCUMSTANCES THAT PREVENT HIM OR HER FROM TRANSFERRING THE SHARES. OFI'S POLICY IS TO PREVENT DISRUPTIVE SHORT-TERM TRADING IN THE OPPENHEIMER FUNDS. ACCORDINGLY, WHEN PURCHASING, EXCHANGING, OR REDEEMING SHARES OF OPPENHEIMER FUNDS, ALL EMPLOYEES MUST COMPLY IN ALL RESPECTS WITH THE POLICIES AND STANDARDS SET FORTH IN THE FUNDS' PROSPECTUSES, INCLUDING SPECIFICALLY THE RESTRICTIONS ON MARKET TIMING ACTIVITIES, EXCHANGES AND REDEMPTION POLICIES. ANY EMPLOYEE WHO REDEEMS SHARES OF AN OPPENHEIMER FUND PURCHASED WITHIN THE PRECEDING 30 DAYS (A "SHORT-TERM TRADE") MUST REPORT THAT SHORT-TERM TRADE TO THE CODE ADMINISTRATOR NO MORE THAN TWO BUSINESS DAYS AFTER THE REDEMPTION. THE EMPLOYEE MAY BE REQUIRED TO RELINQUISH ANY PROFIT MADE ON A SHORT-TERM TRADE AND WILL BE SUBJECT TO DISCIPLINARY ACTION IF THE EMPLOYEE FAILS TO REPORT THE SHORT-TERM TRADE OR THE CODE ADMINISTRATOR DETERMINES THAT THE SHORT-TERM TRADE WAS DETRIMENTAL TO THE INTERESTS OF THE OPPENHEIMER FUND OR ITS SHAREHOLDERS. FOR PURPOSES OF THIS PARAGRAPH, A REDEMPTION INCLUDES A REDEMPTION BY ANY MEANS, INCLUDING AN EXCHANGE FROM THE FUND. This policy does not cover purchases, redemptions or exchanges (i) into or from money market funds, or (ii) effected on a regular periodic basis by automated means, such as 401(k) purchases or monthly redemptions to a checking or savings account. Requirements for Personal Accounts for Access Persons ACCESS PERSONS--PERSONAL TRADING ACCOUNTS. ALL ACCESS PERSONS MAY MAINTAIN PERSONAL ACCOUNTS WITH THE BROKER, DEALER OR BANK OF THEIR CHOICE, PROVIDED THE BROKER, DEALER OR BANK IS ABLE TO PROVIDE COPIES OF THE ACCESS PERSONS' ACCOUNT STATEMENTS TO THE 13 CODE ADMINISTRATOR NO LESS THAN QUARTERLY AND SUCH STATEMENTS ARE BEING PROVIDED. HOWEVER, THE CODE OF ETHICS OVERSIGHT COMMITTEE RESERVES THE RIGHT IN ITS SOLE DISCRETION TO REQUIRE SUCH ACCESS PERSONS TO MAINTAIN THEIR PERSONAL ACCOUNTS WITH BROKER-DEALERS DESIGNATED BY THE COMMITTEE OR TO PROHIBIT ACCESS PERSONS FROM MAINTAINING THEIR PERSONAL ACCOUNTS WITH SPECIFIED BROKER-DEALERS. The requirements of this section do not apply to Personal Accounts in which Access Persons hold shares of an Oppenheimer Fund. (Please see Section 7.) Access Persons--Prohibited Transactions in Securities (NOTE: Any profits realized on trades prohibited by this Section 9 shall be subject to disgorgement.) In addition to the prohibitions or restrictions imposed on all Employees as set forth in the prior sections, an Access Person is further prohibited from: PURCHASING ANY SECURITY IN AN INITIAL PUBLIC OFFERING OR PRIVATE PLACEMENT, WITHOUT PRE-APPROVAL FROM THE CODE ADMINISTRATOR. IF AN ACCESS PERSON SEEKS PRE-APPROVAL FOR THE ACQUISITION OF A SECURITY IN A PRIVATE PLACEMENT OR AN INITIAL PUBLIC OFFERING, THE ACCESS PERSON SHALL SET FORTH IN DETAIL THE RATIONALE FOR THE TRANSACTION. PURCHASING OR SELLING ANY INTEREST IN A COLLECTIVE INVESTMENT VEHICLE THAT IS EXEMPT FROM REGISTRATION UNDER THE 1933 ACT, INCLUDING, BUT NOT LIMITED TO, HEDGE FUNDS, PRIVATE FUNDS OR SIMILAR INVESTMENT LIMITED PARTNERSHIPS, WITHOUT PRE-APPROVAL FROM THE CODE ADMINISTRATOR; SELLING A SECURITY SHORT, EXCEPT A SHORT SALE AS A HEDGE AGAINST A LONG POSITION IN THE SAME SECURITY IF SUCH SHORT SALE HAS BEEN PRE-APPROVED BY THE CODE ADMINISTRATOR; AND PURCHASING OR SELLING IN HIS OR HER PERSONAL ACCOUNT OPTIONS OR FUTURES, OTHER THAN OPTIONS AND FUTURES RELATED TO BROAD-BASED INDICES, U.S. TREASURY SECURITIES, CURRENCIES AND LONG PORTFOLIO POSITIONS IN THE SAME OR A SUBSTANTIALLY SIMILAR SECURITY. TRANSACTIONS EXEMPT FROM THESE PROHIBITIONS. THE FOLLOWING TRANSACTIONS BY ACCESS PERSONS ARE EXEMPT FROM THE PROHIBITIONS OF THIS SECTION 9: 14 PURCHASES OR SALES OF SECURITIES MADE IN A PERSONAL ACCOUNT OVER WHICH AN ACCESS PERSON HAS NO DIRECT OR INDIRECT INFLUENCE OR CONTROL, SUCH AS PERSONAL ACCOUNTS MANAGED BY A THIRD PARTY OVER WHICH SUCH ACCESS PERSON HAS NO INVESTMENT DISCRETION; INVOLUNTARY PURCHASES OR SALES OF SECURITIES IN A PERSONAL ACCOUNT, SUCH AS SECURITIES RECEIVED PURSUANT TO A DIVIDEND REINVESTMENT PLAN OR A STOCK SPLIT OR THROUGH A GIFT OR BEQUEST; OR PURCHASES OF SECURITIES IN A PERSONAL ACCOUNT THAT RESULT FROM THE EXERCISE OF RIGHTS ACQUIRED FROM AN ISSUER AS PART OF A PRO RATA DISTRIBUTION TO ALL HOLDERS OF A CLASS OF SECURITIES OF SUCH ISSUER AND THE SALE OF SUCH RIGHTS. LENGTH OF PRE-APPROVALS. PRE-APPROVAL REMAINS IN EFFECT UNTIL THE END OF THE NEXT BUSINESS DAY ON WHICH SUCH PRE-APPROVAL IS GRANTED OR AS OTHERWISE SPECIFIED BY THE CODE ADMINISTRATOR. Investment Persons--Prohibited Transactions in Securities. Note: ANY PROFITS REALIZED ON TRADES PROHIBITED BY THIS SECTION 10 SHALL BE SUBJECT TO DISGORGEMENT. (NOTE: EVERY INVESTMENT PERSON ALSO IS AN ACCESS PERSON AND REMAINS SUBJECT TO THE PROHIBITIONS IN THE PREVIOUS SECTIONS.) Certain Access Persons may have greater access to Advisory Clients' information and there is an increased risk that those Access Persons may benefit from or interfere with the purchase or sale of portfolio securities by Advisory Clients. Accordingly, it is necessary to further categorize those persons as "Investment Persons" and to impose the following additional restrictions on personal trading by Investment Persons: EACH INVESTMENT PERSON MUST OBTAIN PRE-APPROVAL OF ALL SECURITIES TRANSACTIONS IN HIS OR HER PERSONAL ACCOUNT, EXCEPT THE FOLLOWING: PURCHASES OR SALES OF SECURITIES MADE IN A PERSONAL ACCOUNT OVER WHICH THE INVESTMENT PERSON HAS NO DIRECT OR INDIRECT INFLUENCE OR CONTROL, SUCH AS PERSONAL ACCOUNTS MANAGED BY A THIRD PARTY OVER WHICH SUCH INVESTMENT PERSON HAS NO INVESTMENT DISCRETION. Provided, however, that for purposes of this subsection 10(a)(i), the Investment Person claiming to have no direct or indirect influence or control over 15 such a Personal Account, must first provide a written explanation to the Code Administrator describing the circumstances of the Personal Account and reasons why the Investment Person believe he or she does not have direct or indirect influence or control (i.e., no investment discretion) over that Personal Account and that he or she does not provide any investment advice or suggestions with respect to the Personal Account. The Code Administrator, however, reserves the right to require pre-approval of such a Personal Account. (Note: Any Personal Account covered by the provisions of this subsection 10(a)(i) remains subject to the reporting requirements in Section 11.) SHARES OF ANY OPEN-END OPPENHEIMER FUND THAT THE INVESTMENT PERSON DOES NOT SERVE IN THE CAPACITY, OR PERFORM THE FUNCTIONS THAT WARRANT HIM OR HER TO BE IDENTIFIED AS AN INVESTMENT PERSON; SHARES OF ANY NON-OPPENHEIMER FUND THAT IS AN OPEN-END INVESTMENT COMPANY, EXCEPT: (A) AN OPEN-END INVESTMENT COMPANY FOR WHICH OFI SERVES AS THE INVESTMENT SUB-ADVISER AND FOR WHOM THE INVESTMENT PERSON DOES NOT SERVE IN THE CAPACITY, OR PERFORM THE FUNCTIONS, THAT WARRANT HIM OR HER TO BE IDENTIFIED AS AN INVESTMENT PERSON; AND (B) OPEN-END INVESTMENT COMPANIES THAT ARE TRADED ON AN EXCHANGE (INCLUDING SPDRS, QQQS, ISHARES AND OTHER EXCHANGE-TRADED FUNDS THAT ARE ORGANIZED AS OPEN-END INVESTMENT COMPANIES); SECURITIES ISSUED BY THE U.S. GOVERNMENT, ITS AGENCIES, INSTRUMENTALITIES AND GOVERNMENT-SPONSORED ENTERPRISES; BANKERS' ACCEPTANCES, BANK CERTIFICATES OF DEPOSIT, COMMERCIAL PAPER, AND SHORT-TERM DEBT INSTRUMENTS (INCLUDING REPURCHASE AGREEMENTS), PROVIDED SUCH DEBT INSTRUMENTS HAVE A MATURITY AT THE DATE OF ISSUANCE OF LESS THAN 366 DAYS ARE AND RATED IN ONE OF THE TWO HIGHEST RATING CATEGORIES BY A NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATION; INVOLUNTARY PURCHASES OR SALES OF SECURITIES IN A PERSONAL ACCOUNT, SUCH AS SECURITIES RECEIVED PURSUANT TO A DIVIDEND REINVESTMENT PLAN OR A STOCK SPLIT OR THROUGH A GIFT OR BEQUEST; OR PURCHASES OF SECURITIES IN A PERSONAL ACCOUNT THAT RESULT FROM THE EXERCISE OF RIGHTS ACQUIRED FROM AN ISSUER AS PART OF A PRO RATA DISTRIBUTION TO ALL HOLDERS OF A CLASS OF SECURITIES OF SUCH ISSUER AND THE SALE OF SUCH RIGHTS; OR 16 NO INVESTMENT PERSON MAY PURCHASE OR SELL ANY SECURITY FOR HIS OR HER PERSONAL ACCOUNT WITHIN FIFTEEN (15) CALENDAR DAYS BEFORE OR FIFTEEN (15) CALENDAR DAYS AFTER THE SAME SECURITY IS PURCHASED OR SOLD BY AN ADVISORY CLIENT FOR WHOM THE INVESTMENT PERSON SERVES IN THE CAPACITY, OR PERFORMS THE FUNCTIONS, THAT WARRANT HIM OR HER TO BE IDENTIFIED AS AN INVESTMENT PERSON. PROVIDED HOWEVER, THE CODE ADMINISTRATOR MAY EXCLUDE FROM THIS PROVISION TRADES FOR AN ADVISORY CLIENT THAT ARE PROGRAMMATIC IN NATURE AND DO NOT REPRESENT A SUBSTANTIVE INVESTMENT DECISION WITH RESPECT TO ANY PARTICULAR SECURITY (E.G., A PROGRAM TRADE TO SELL PRO-RATA PORTIONS OF EACH SECURITY IN AN ADVISORY CLIENT'S PORTFOLIO). THE CODE ADMINISTRATOR SHALL MAINTAIN A RECORD OF SUCH TRANSACTIONS. NO INVESTMENT PERSON MAY PURCHASE AND SELL, OR SELL AND PURCHASE, IN HIS OR HER PERSONAL ACCOUNT ANY SECURITY WITHIN ANY PERIOD OF SIXTY (60) CALENDAR DAYS, EXCEPT: THE INSTRUMENTS LISTED IN SECTION 9, PROVIDED THEY ARE USED FOR BONA FIDE HEDGING PURPOSES AND THE TRADE HAS BEEN PRE-APPROVED BY THE CODE ADMINISTRATOR; OR A SECURITY SOLD AT A LOSS, IF THE TRADE HAS BEEN PRE-APPROVED BY THE CODE ADMINISTRATOR. IF AN INVESTMENT PERSON OBTAINS PRE-APPROVAL PURSUANT TO THIS SECTION 10 FOR A TRANSACTION IN A SECURITY, AND A TRANSACTION IN THE SAME SECURITY FOR AN ADVISORY CLIENT FOR WHICH THAT INVESTMENT PERSON ACTS AS AN INVESTMENT PERSON TAKES PLACE WITHIN A PERIOD OF FIFTEEN (15) CALENDAR DAYS FOLLOWING THE INVESTMENT PERSON'S TRANSACTION, THE INVESTMENT PERSON'S TRANSACTION MAY BE REVIEWED FURTHER BY THE CODE OF ETHICS OVERSIGHT COMMITTEE TO DETERMINE THE APPROPRIATE ACTION, IF ANY. FOR EXAMPLE, THE COMMITTEE MAY RECOMMEND THAT THE INVESTMENT PERSON BE SUBJECT TO A PRICE ADJUSTMENT TO ENSURE THAT HE OR SHE DID NOT RECEIVE A BETTER PRICE THAN THE ADVISORY CLIENT. NO INVESTMENT PERSON MAY PURCHASE ANY SECURITY IN AN INITIAL PUBLIC OFFERING OR PRIVATE PLACEMENT, WITHOUT PRE-APPROVAL FROM THE CODE ADMINISTRATOR. IF AN INVESTMENT PERSON SEEKS PRE-APPROVAL FOR THE ACQUISITION OF A SECURITY IN A PRIVATE PLACEMENT OR AN INITIAL 17 PUBLIC OFFERING, THE INVESTMENT PERSON SHALL SET FORTH IN DETAIL THE RATIONALE FOR THE TRANSACTION. Any Investment Person who has purchased a Security in a Private Placement or an Initial Public Offering for his or her Personal Account must disclose that investment to the Code Administrator before he or she participates in the subsequent consideration of an investment in Securities of the same or a related issuer for an Advisory Client. An independent review of the proposed investment by the Advisory Client shall be conducted by Investment Persons who do not have an interest in the issuer and by the Code Administrator. LENGTH OF PRE-APPROVALS. PRE-APPROVAL REMAINS IN EFFECT UNTIL THE END OF THE NEXT BUSINESS DAY ON WHICH SUCH PRE-APPROVAL IS GRANTED OR AS OTHERWISE SPECIFIED BY THE CODE ADMINISTRATOR. Reporting Requirements EACH ACCESS PERSON SHALL ARRANGE FOR DUPLICATE COPIES OF CONFIRMATIONS OF ALL TRANSACTIONS AND/OR PERIODIC ACCOUNT STATEMENTS OF ALL PERSONAL ACCOUNTS TO BE SENT DIRECTLY TO THE CODE ADMINISTRATOR. QUARTERLY REPORTS. EACH ACCESS PERSON MUST REPORT IN WRITING TO THE CODE ADMINISTRATOR, WITHIN 30 DAYS AFTER THE END OF EACH CALENDAR QUARTER, ALL TRANSACTIONS IN SECURITIES OCCURRING IN THE QUARTER IN HIS OR HER PERSONAL ACCOUNT. (SEE APPENDIX D FOR A FORM OF THE REPORT.) IF THERE WERE NO SUCH TRANSACTIONS, THE REPORT SHOULD SO STATE. AN ACCESS PERSON IS DEEMED TO BE IN COMPLIANCE WITH THESE REPORTING REQUIREMENTS IF ALL THE INFORMATION SO REQUIRED IS CONTAINED IN TRADE CONFIRMATIONS AND/OR PERIODIC ACCOUNT STATEMENTS PREVIOUSLY PROVIDED TO THE CODE ADMINISTRATOR FOR THE TIME PERIOD COVERED BY THE QUARTERLY REPORT. EACH QUARTERLY REPORT MUST CONTAIN THE FOLLOWING INFORMATION WITH RESPECT TO EACH REPORTABLE TRANSACTION: NAME(S) IN WHICH THE PERSONAL ACCOUNT IS REGISTERED AND THE DATE THE PERSONAL ACCOUNT WAS ESTABLISHED; DATE AND NATURE OF THE TRANSACTION (PURCHASE, SALE OR ANY OTHER TYPE OF ACQUISITION OR DISPOSITION); 18 TITLE, NUMBER OF SHARES, PRINCIPAL AMOUNT, INTEREST RATE AND MATURITY (IF APPLICABLE) OF EACH SECURITY AND THE PRICE AT WHICH THE TRANSACTION WAS EFFECTED; NAME OF THE BROKER, DEALER OR BANK WITH OR THROUGH WHOM THE ACCOUNT WAS ESTABLISHED OR THROUGH WHICH THE TRANSACTION WAS EFFECTED; AND THE DATE THE REPORT IS SUBMITTED. INITIAL AND ANNUAL REPORTS. ALL ACCESS PERSONS SHALL, WITHIN 10 DAYS AFTER BECOMING AN ACCESS PERSON, AND AT LEAST ANNUALLY THEREAFTER, PROVIDE A WRITTEN HOLDINGS REPORT TO THE CODE ADMINISTRATOR WITH THE FOLLOWING INFORMATION (SUCH INFORMATION TO BE CURRENT AS OF A DATE NO MORE THAN 45 DAYS BEFORE THE REPORT IS SUBMITTED) (SEE APPENDIX D FOR A FORM OF THE REPORT): NAME(S) IN WHICH THE PERSONAL ACCOUNT IS REGISTERED AND THE DATE THE PERSONAL ACCOUNT WAS ESTABLISHED; TITLE, NUMBER OF SHARES, PRINCIPAL AMOUNT, INTEREST RATE AND MATURITY (AS APPLICABLE) OF EACH SECURITY HELD IN THE PERSONAL ACCOUNT; NAME OF THE BROKER, DEALER OR BANK WITH WHICH THE PERSONAL ACCOUNT IS MAINTAINED; AND THE DATE THE REPORT IS SUBMITTED. REPORTS SUBMITTED PURSUANT TO THIS CODE MAY CONTAIN A STATEMENT THAT THE REPORT IS NOT TO BE CONSTRUED AS AN ADMISSION THAT THE ACCESS PERSON HAS OR HAD ANY DIRECT OR INDIRECT BENEFICIAL INTEREST IN ANY SECURITY TO WHICH THE REPORT RELATES. SECURITIES EXEMPT FROM REPORTING REQUIREMENTS. HOLDINGS OF AND TRANSACTIONS IN THE FOLLOWING TYPES OF SECURITIES ARE EXEMPT FROM THE REPORTING REQUIREMENTS OF THE CODE, AND DUPLICATE COPIES OF CONFIRMATIONS AND PERIODIC STATEMENTS OF PERSONAL ACCOUNTS IN WHICH ONLY THE FOLLOWING TYPES OF SECURITIES MAY BE HELD DO NOT HAVE TO BE REPORTED TO THE CODE ADMINISTRATOR: INVOLUNTARY PURCHASES OR SALES OF SECURITIES IN A PERSONAL ACCOUNT, SUCH AS SECURITIES RECEIVED PURSUANT TO A DIVIDEND 19 REINVESTMENT PLAN OR A STOCK SPLIT OR THROUGH A GIFT OR BEQUEST; OR PURCHASES OF SECURITIES IN A PERSONAL ACCOUNT THAT RESULT FROM THE EXERCISE OF RIGHTS ACQUIRED FROM AN ISSUER AS PART OF A PRO RATA DISTRIBUTION TO ALL HOLDERS OF A CLASS OF SECURITIES OF SUCH ISSUER AND THE SALE OF SUCH RIGHTS. SECURITIES ISSUED BY THE U.S. GOVERNMENT, ITS AGENCIES, INSTRUMENTALITIES AND GOVERNMENT-SPONSORED ENTERPRISES; BANKERS' ACCEPTANCES, BANK CERTIFICATES OF DEPOSIT, COMMERCIAL PAPER, SHORT-TERM DEBT INSTRUMENTS (INCLUDING REPURCHASE AGREEMENTS) PROVIDED SUCH DEBT INSTRUMENTS HAVE A MATURITY AT THE DATE OF ISSUANCE OF LESS THAN 366 DAYS AND ARE RATED IN ONE OF THE TWO HIGHEST RATING CATEGORIES BY A NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATION; OR SHARES OF ANY NON-OPPENHEIMER FUND THAT IS AN OPEN-END INVESTMENT COMPANY, EXCEPT AN OPEN-END INVESTMENT COMPANY FOR WHICH OFI SERVES AS THE INVESTMENT SUB-ADVISER Certifications ALL EMPLOYEES AND ACCESS PERSONS SHALL ACKNOWLEDGE THAT THEY HAVE RECEIVED THE CODE OF ETHICS AND RECOGNIZE THAT THEY ARE SUBJECT TO ITS REQUIREMENTS. ALL ACCESS PERSONS SHALL CERTIFY AT LEAST ANNUALLY THAT THEY HAVE READ AND UNDERSTAND THE CODE OF ETHICS, RECOGNIZE THAT THEY ARE SUBJECT TO ITS REQUIREMENTS AND HAVE COMPLIED WITH THE REQUIREMENTS OF THE CODE OF ETHICS. ALL ACCESS PERSONS SHALL CERTIFY ANNUALLY THAT THEY HAVE REPORTED ALL TRANSACTIONS IN AND HOLDINGS OF SECURITIES IN PERSONAL ACCOUNTS REQUIRED TO BE REPORTED PURSUANT TO THE CODE. Independent Directors An Independent Director (or any non-Independent Director who is not otherwise an Employee of OFI or an Access Person) is required to report only those transactions in his or her Personal Account in a Security (excluding, for purposes of this subparagraph, open-end Oppenheimer Funds) that at the time such Director knew, or in the ordinary course of fulfilling his or her duties should have known, was purchased or sold or was Being Considered for 20 Purchase or Sale by an Advisory Client during the fifteen (15) calendar day period immediately before or after the date of the Independent Director's transaction. No report will be required for any quarter in which an Independent Director has only exempt transactions to report. SANCTIONS FOR ANY VIOLATION OF THIS CODE OF ETHICS BY AN INDEPENDENT DIRECTOR OF AN OPPENHEIMER FUND WILL BE DETERMINED BY A MAJORITY VOTE OF OTHER INDEPENDENT DIRECTORS OF SUCH FUND. Penalties and Sanctions ANY PROFITS REALIZED ON TRADES PROHIBITED BY SECTIONS 8-10 SHALL BE SUBJECT TO DISGORGEMENT. ANY VIOLATION OF THIS CODE SHALL BE SUBJECT TO THE IMPOSITION OF SUCH SANCTIONS BY THE CODE ADMINISTRATOR AS THE CODE ADMINISTRATOR DEEMS APPROPRIATE UNDER THE CIRCUMSTANCES TO ACHIEVE THE PURPOSES OF THIS CODE, PROVIDED, HOWEVER, IF THE SANCTIONS INCLUDES SUSPENSION OR TERMINATION OF EMPLOYMENT, SUCH SUSPENSION OR TERMINATION MUST BE APPROVED BY THE CODE OF ETHICS OVERSIGHT COMMITTEE. SUCH SANCTIONS MAY INCLUDE, BUT WILL NOT NECESSARILY BE LIMITED TO, ONE OR MORE OF THE FOLLOWING: A LETTER OF CENSURE; RESTITUTION OF AN AMOUNT EQUAL TO THE DIFFERENCE BETWEEN THE PRICE PAID OR RECEIVED BY THE AFFECTED ADVISORY CLIENT(S) AND THE MORE ADVANTAGEOUS PRICE PAID OR RECEIVED BY THE OFFENDING PERSON; THE SUSPENSION OR TERMINATION OF PERSONAL TRADING PRIVILEGES; OR THE SUSPENSION OR TERMINATION OF EMPLOYMENT. OFI RESERVES THE RIGHT TO TAKE ANY LEGAL ACTION IT DEEMS APPROPRIATE AGAINST ANY EMPLOYEE WHO VIOLATES ANY PROVISION OF THIS CODE AND TO HOLD EMPLOYEES LIABLE FOR ANY AND ALL DAMAGES (INCLUDING, BUT NOT LIMITED TO, ALL COSTS AND ATTORNEY FEES) THAT OFI MAY INCUR AS A DIRECT OR INDIRECT RESULT OF ANY SUCH EMPLOYEE'S VIOLATION OF THIS CODE OR RELATED LAW OR REGULATION. REVIEW PROCESS. AN EMPLOYEE MAY REQUEST REVIEW BY THE CODE OF ETHICS OVERSIGHT COMMITTEE OF A DECISION OR DETERMINATION MADE BY THE CODE ADMINISTRATOR PURSUANT TO THIS CODE. THE COMMITTEE, IN ITS SOLE DISCRETION, MAY ELECT TO CONSIDER OR REJECT THE REQUEST FOR REVIEW. 21 Duties of the Code of Ethics Oversight Committee The Code of Ethics Oversight Committee is responsible for establishing policies and procedures for the administration of the Code, considering and approving amendments to the Code, and reviewing and considering any decisions made by the Code Administrator upon request of an Employee or involving suspension or termination of employment. The Committee may be assisted by counsel in fulfilling its duties if deemed appropriate. Duties of the Code Administrator The Code Administrator shall have the following responsibilities: MAINTAINING A CURRENT LIST OF THE NAMES OF ALL ACCESS PERSONS AND INVESTMENT PERSONS WITH AN APPROPRIATE DESCRIPTION OF THEIR TITLE OR EMPLOYMENT; FURNISHING ALL EMPLOYEES AND ACCESS PERSONS WITH A COPY OF THIS CODE AND INITIALLY AND PERIODICALLY INFORMING THEM OF THEIR DUTIES AND OBLIGATIONS THEREUNDER; DESIGNATING, AS DESIRED, APPROPRIATE PERSONNEL TO REVIEW TRANSACTION AND HOLDINGS REPORTS SUBMITTED BY ACCESS PERSONS; REVIEWING AND CONSIDERING PRE-APPROVAL REQUESTS FROM ACCESS PERSONS AND INVESTMENT PERSONS AND SETTING FORTH IN DETAIL THE RATIONALE FOR ANY APPROVALS GRANTED TO SUCH ACCESS PERSONS OR INVESTMENT PERSONS; MAINTAINING OR SUPERVISING THE MAINTENANCE OF ALL RECORDS REQUIRED BY THIS CODE; PREPARING LISTINGS OF ALL TRANSACTIONS EFFECTED BY ANY ACCESS PERSON WITHIN FIFTEEN (15) DAYS OF THE DATE ON WHICH THE SAME SECURITY WAS HELD, PURCHASED OR SOLD BY AN ADVISORY CLIENT; ISSUING ANY INTERPRETATION OF THIS CODE THAT MAY APPEAR CONSISTENT WITH THE OBJECTIVES OF THIS CODE; CONDUCTING SUCH INVESTIGATIONS, INCLUDING SCRUTINY OF THE LISTINGS REFERRED TO IN THIS SECTION 17(F) ABOVE, AS SHALL REASONABLY BE REQUIRED TO DETECT AND REPORT ANY APPARENT VIOLATIONS OF THIS CODE TO THE CODE OF ETHICS OVERSIGHT COMMITTEE AND TO THE DIRECTORS OF THE AFFECTED OPPENHEIMER FUNDS; 22 SUBMITTING A QUARTERLY REPORT TO THE BOARD OF DIRECTORS OF EACH POTENTIALLY AFFECTED OPPENHEIMER FUND OF ANY VIOLATIONS OF THIS CODE AND THE SANCTION IMPOSED AS A RESULT; ANY TRANSACTIONS SUGGESTING THE POSSIBILITY OF A VIOLATION; ANY INTERPRETATIONS ISSUED BY AND ANY EXEMPTIONS OR WAIVERS FOUND APPROPRIATE BY THE CODE ADMINISTRATOR; AND ANY OTHER SIGNIFICANT INFORMATION CONCERNING THE APPROPRIATENESS OF THIS CODE. SUBMITTING A WRITTEN REPORT AT LEAST ANNUALLY TO THE BOARD OF DIRECTORS OF EACH OPPENHEIMER FUND THAT: DESCRIBES ANY ISSUES ARISING UNDER THE CODE SINCE THE LAST REPORT TO THE BOARD, INCLUDING, BUT NOT LIMITED TO, INFORMATION ABOUT MATERIAL VIOLATIONS OF THE CODE OR PROCEDURES AND SANCTIONS IMPOSED IN RESPONSE TO THE MATERIAL VIOLATIONS; SUMMARIZES EXISTING PROCEDURES CONCERNING PERSONAL INVESTING AND ANY CHANGES IN THE PROCEDURES MADE DURING THE PREVIOUS YEAR; IDENTIFIES ANY RECOMMENDED CHANGES IN EXISTING RESTRICTIONS OR PROCEDURES BASED UPON EXPERIENCE UNDER THE CODE, EVOLVING INDUSTRY PRACTICES OR DEVELOPMENTS IN APPLICABLE LAWS OR REGULATIONS; REPORTS WITH RESPECT TO THE IMPLEMENTATION OF THIS CODE THROUGH ORIENTATION AND TRAINING PROGRAMS AND ON-GOING REMINDERS; AND CERTIFIES THAT THE EACH OPPENHEIMER FUND, OFI, CAMC, ANY OFI SUBSIDIARY OR DIRECTLY-CONTROLLED AFFILIATE (AS APPLICABLE), AND OFDI, AS APPLICABLE, HAS ADOPTED PROCEDURES REASONABLY NECESSARY TO PREVENT ACCESS PERSONS FROM VIOLATING THE CODE. Recordkeeping The Code Administrator shall maintain and cause to be maintained in an easily accessible place, the following records: A COPY OF ANY CODE ADOPTED PURSUANT TO RULE 17J-1 UNDER THE 1940 ACT OR RULE 204A-1 UNDER THE ADVISERS ACT WHICH HAS BEEN IN EFFECT DURING THE MOST RECENT FIVE (5) YEAR PERIOD; 23 A RECORD OF ANY VIOLATION OF ANY SUCH CODE, AND OF ANY ACTION TAKEN AS A RESULT OF SUCH VIOLATION, WITHIN FIVE (5) YEARS FROM THE END OF THE FISCAL YEAR OF OFI IN WHICH SUCH VIOLATION OCCURRED; A COPY OF ALL WRITTEN ACKNOWLEDGEMENTS BY ACCESS PERSONS DURING THE MOST RECENT FIVE (5) YEAR PERIOD; A COPY OF EACH REPORT MADE BY A ACCESS PERSON, AS WELL AS TRADE CONFIRMATIONS AND/OR ACCOUNT STATEMENTS THAT CONTAIN INFORMATION NOT DUPLICATED IN SUCH REPORTS, WITHIN FIVE (5) YEARS FROM THE END OF THE FISCAL YEAR OF OFI IN WHICH SUCH REPORT IS MADE OR INFORMATION IS PROVIDED, THE FIRST TWO (2) YEARS IN AN EASILY ACCESSIBLE PLACE; A COPY OF EACH REPORT MADE BY THE CODE ADMINISTRATOR WITHIN FIVE (5) YEARS FROM THE END OF THE FISCAL YEAR OF OFI IN WHICH SUCH REPORT IS MADE OR ISSUED, THE FIRST TWO (2) YEARS IN AN EASILY ACCESSIBLE PLACE; A LIST, IN AN EASILY ACCESSIBLE PLACE, OF ALL PERSONS WHO ARE, OR WITHIN THE MOST RECENT FIVE (5) YEAR PERIOD HAVE BEEN ACCESS PERSONS OR WERE REQUIRED TO MAKE REPORTS PURSUANT TO RULES 17J-1 AND 204A-1 AND THIS CODE OR WHO ARE OR WERE RESPONSIBLE FOR REVIEWING THESE REPORTS; AND A RECORD OF ANY DECISION, AND THE REASONS SUPPORTING THE DECISION, TO PERMIT AN ACCESS PERSON OR INVESTMENT PERSON TO ACQUIRE A PRIVATE PLACEMENT OR INITIAL PUBLIC OFFERING SECURITY, FOR AT LEAST FIVE (5) YEARS AFTER THE END OF THE FISCAL YEAR IN WHICH PERMISSION WAS GRANTED. 24 Amendments The Code of Ethics Oversight Committee may amend the Code of Ethics as necessary or appropriate to achieve the purposes of Rules 17j-1 and 204A-1. Any material changes to this Code must be approved by the Board of Directors of each Oppenheimer Fund, including a majority of the Independent Directors, within six months after the change has been adopted by OFI. Dated as of: February 1, 2005 ADOPTED BY THE BOARD OF TRUSTEES/BOARD I ---------------------------------------- Robert G. Zack, Secretary ADOPTED BY THE BOARD OF TRUSTEES/BOARD II ---------------------------------------- Robert G. Zack, Secretary ADOPTED BY THE BOARD OF TRUSTEES/BOARD III ---------------------------------------- Robert G. Zack, Secretary ADOPTED BY THE BOARD OF TRUSTEES/BOARD IV ---------------------------------------- Robert G. Zack, Secretary ADOPTED BY OPPENHEIMERFUNDS, INC. ---------------------------------------- Robert G. Zack, Executive Vice President & General Counsel ADOPTED BY OPPENHEIMERFUNDS DISTRIBUTOR, INC. ---------------------------------------- Kathleen T. Ives, Vice President & Assistant Secretary 25 ADOPTED BY CENTENNIAL ASSET MANAGEMENT CORPORATION ---------------------------------------- Robert G. Zack, General Counsel ADOPTED BY OPPENHEIMER REAL ASSET MANAGEMENT, INC. ---------------------------------------- Robert G. Zack, Director ADOPTED BY OFI INSTITUTIONAL ASSET MANAGEMENT, INC. ---------------------------------------- Robert G. Zack, Senior Vice President & General Counsel ADOPTED BY HARBOURVIEW ASSET MANAGEMENT CORPORATION ---------------------------------------- Robert G. Zack, Senior Vice President & General Counsel ADOPTED BY TRINITY INVESTMENT MANAGEMENT, INC. ---------------------------------------- Charles L. McKenzie, President, Chairman and Director ADOPTED BY OFI PRIVATE INVESTMENTS, INC. ---------------------------------------- Robert G. Zack, Senior Vice President, General Counsel and Director 26 APPENDICES Appendix A: Policy Governing Dissemination of Fund Portfolio Holdings [to be inserted] Appendix B: Statement of Policy and Procedures Designed to Detect and Prevent Insider Trading [to be inserted] Appendix C: Gift Policy [to be inserted] Appendix D: Reporting Forms [to be inserted] 27 EX-99.P6 22 v15673exv99wp6.txt EXHIBIT 99.(P)(6) (p)(6) CODE OF ETHICS CITIGROUP ASSET MANAGEMENT-NORTH AMERICA AND CERTAIN REGISTERED INVESTMENT COMPANIES As Amended September 13, 2005 Pursuant to Rule 17j-1 of the Investment Company Act of 1940, and Rule 204A-1 of the Investment Advisers Act of 1940 A COMMITMENT TO INTEGRITY I. STATEMENT OF PRINCIPLES - This Code of Ethics (the "Code") is applicable to Citigroup Asset Management ("CAM")(8), and those U.S.-registered investment companies advised, managed or sponsored by CAM (the "Funds") in order to establish rules of conduct for persons who are associated with CAM and the Funds. The Code is also applicable to any of CAM's U.S. domiciled registered investment advisers and any of their employees that offer or manage products that are not registered under the Investment Company Act of 1940. The Code's purpose is (i) to minimize conflicts and potential conflicts of interest between employees of CAM and CAM's clients (including the Funds), and between Fund directors or trustees and their Funds, (ii) to provide policies and procedures consistent with applicable law and regulation, including Rule 17j-1 under the Investment Company Act of 1940 and 204A-1 under the Investment Advisers Act of 1940, and other applicable provisions of the Federal securities laws and (iii) to prevent fraudulent or manipulative practices with respect to purchases or sales of securities held or to be acquired by client accounts. ALL U.S. EMPLOYEES AND CERTAIN IMMEDIATE FAMILY MEMBERS OF CAM, INCLUDING EMPLOYEES WHO SERVE AS FUND OFFICERS, DIRECTORS OR TRUSTEES, AND ALL DIRECTORS OR TRUSTEES ("DIRECTORS") OF EACH FUND, ARE COVERED PERSONS UNDER THIS CODE. THE DEFINED TERM "COVERED PERSONS" IS DESCRIBED IN SECTION II BELOW. All CAM personnel owe a fiduciary duty to CAM's clients and must put the customer's interests first, must protect their confidentiality, must not take inappropriate advantage of their positions, must not act upon non-public information, and are required to fulfill their fiduciary obligations. Personal securities transactions by Covered Persons (including certain transactions in the firm's 401(k) plan) shall adhere to the requirements of this Code and shall be conducted in such a manner as to avoid any actual or potential conflict of interest, the appearance of such a conflict, or the abuse of the person's position of trust and responsibility. While the Code is designed to address both identified conflicts and potential conflicts, it cannot possibly be written broadly enough to cover all - ---------- (8) Investment advisory services provided by Salomon Brothers Asset Management Inc., Smith Barney Asset Management (a division of Citigroup Global Markets Inc.), Citibank Global Asset Management (a unit of Citibank N.A.) and affiliated advisory entities. -28- potential situations. In this regard, Covered Persons are expected to adhere not only to the letter, but also the spirit of the policies contained herein. All Fund directors owe a fiduciary duty to each Fund of which they are a director and to that Fund's shareholders when conducting their personal investment transactions. At all times and in all matters Fund directors shall place the interests of their Funds before their personal interests. The fundamental standard to be followed in personal securities transactions is that Covered Persons may not take inappropriate advantage of their positions. As a matter of law and of this Code, no CAM employee must ever discuss (except for those individuals who already know about such information before the conversation), trade in a security, option, or commodity (including shares of a proprietary open-end or closed-end mutual fund, or unit investment trust ("UIT")) or disseminate non-public information while in possession of material, non-public information about the issuer or the market for those securities or commodities, even if the employee has satisfied all other requirements of this Code. From time to time, the Compliance Department may notify employees who are deemed to be in possession of material non-public information that they are restricted from trading certain securities, which may include mutual funds, for a period of time determined by the Compliance Department. Where such a restriction applies to a money market fund, the restriction would extend to check writing, where such a facility is available. CAM employees are also subject to and must comply with the requirements of the Federal securities laws, certain provisions of which are addressed in other Citigroup policies including: Citigroup Code of Conduct; CAM Non-Public Information and Chinese Wall Policy; Information Barrier Policy; policies on insider trading; the purchase and sale of securities listed on any applicable Citigroup restricted list; the receipt or giving of gifts; Cash and Non-Cash Compensation; Disclosure of Open-End Mutual Fund Positions Policy; Market Timing Policy; and the Regulation FD Fair Disclosure Policy. These and other relevant CAM policies and procedures are available on CAM's Intranet WEB site. The Code is very important to CAM, our clients, and our affiliated entities. The reputation of CAM and its employees for "best practices" and integrity is a priceless asset, and all employees have the duty and obligation to support and maintain it when conducting their personal securities transactions. If you should have any questions about the Code or any procedures hereunder, please contact the Compliance or Legal Departments. II. COVERED PERSONS - This Code applies to the following persons: 1. CAM U.S. Employees: Every permanent employee, including employees who serve as Fund officers, trustees or directors and, generally, temporary workers, independent contractors, and consultants (except as provided in Section IV) working in any CAM business unit, must comply with all of the provisions of the Code applicable to CAM employees unless otherwise indicated. Certain employees (i.e., portfolio managers, traders and research analysts (and each of -29- their assistants) are subject to certain additional restrictions outlined in the Code.) All other employees of CAM are considered to be "Advisory Personnel." The policies, procedures, and restrictions referred to in this Code also apply to an employee's spouse, significant other and minor children. The Code also applies to any other account over which the employee is deemed to have beneficial ownership (This includes accounts of any immediate family members sharing the same household as the employee; accounts in which the employee otherwise has a pecuniary interest that allows the employee directly or indirectly to profit or share in any profit; a legal vehicle of which the employee is the controlling equity holder; and an entity in which the employee has an equity interest, provided the employee also has or shares investment control over the securities held by such entity); and any account over which the employee may otherwise be deemed to have control. For a more detailed description of beneficial ownership, see Exhibit A attached hereto. 2. Fund Directors: Independent Fund directors are only subject to the relevant parts contained in Section I - Summary of Principals, Section II - Covered Persons, Section III - Monitoring and Enforcement, Section V - Accounts and Transactions Covered by this Code, Section IX - Blackout Periods, Section XVI - Fund Directors, Section XVII - Handling of Disgorged Profits, Section XVIII - Confidentiality, Section XIX - Other Laws, Rules and Statements of Policy, and Section XXII - Exceptions to the Code. However, a Fund director who is also a CAM employee is subject to all provisions of this Code. Independent directors should consult with independent counsel with regard to any questions concerning their responsibilities under the Code. 3. CAM Senior Executives: Certain CAM senior executives, in addition to this Code, are also Covered Persons under the Citigroup Personal Trading Policy ("CPTP"). Additional requirements of the CPTP are described in Sections VIII and XIII of this Code. III. MONITORING AND ENFORCEMENT - It is the responsibility of each Covered Person to act in accordance with a high standard of conduct and to comply with the policies and procedures set forth in this document, and to report any violations promptly to the Compliance Department. CAM takes seriously its obligation to monitor the personal investment activities of its employees, and to review the periodic reports of all Covered Persons. Any violation of this Code by employees will be considered serious, and may result in disciplinary action, which may include the unwinding of trades, disgorgement of profits, monetary fine or censure, and suspension or termination of employment. Any violation of this Code by a CAM employee will be reported by the Compliance Department to the person's supervisor, and to the Chief Compliance Officers of the Advisers and the Funds. IV. OPENING AND MAINTAINING EMPLOYEE ACCOUNTS - All employees' brokerage accounts, including accounts maintained by a spouse or significant other, for which the employee is deemed to have beneficial ownership, any other accounts over which the employee, spouse and/or significant other exercises control, must be maintained either at Smith Barney ("SB") or at Citicorp Investment Services ("CIS"). For spouses or other persons who, by reason of their employment or exceptional circumstances, are required to conduct their securities, commodities or other financial transactions outside of SB or CIS, -30- employees may submit a written request for an exemption to the Compliance Department (See attached Exhibit B - Outside Brokerage Account Approval Request Form). If approval is granted, copies of trade confirmations and periodic (monthly or quarterly) statements must be sent to the Compliance Department. In addition, all other provisions of this Code will apply. The above policy also applies to temporary personnel, independent contractors, and consultants who have been or will be working in any CAM business unit for at least one year. It is each business unit's responsibility to identify any temporary personnel, independent contractors, and consultants subject to this provision. V. ACCOUNTS AND TRANSACTIONS COVERED BY THIS CODE - The following types of securities are covered ("Covered Securities") by this Code: 1. Stocks, notes, bonds, closed-end funds, off shore mutual funds, hedge funds, exchange traded funds ("ETFs"), debentures, and other evidences of indebtedness, including senior debt, subordinated debt, investment contracts, commodity contracts, futures and all derivative instruments such as options, warrants and indexed instruments, or, in general, any interest or instrument commonly known as a "security." All provisions of this Code cover transactions in these securities. 2. Proprietary open-end U.S. mutual funds and open-end U.S. mutual funds sub-advised by CAM (with the exception of money market funds) are subject to the provisions of this Code as follows: (i) shares beneficially owned by CAM employees must be held in an account maintained at SB or CIS (in accordance with Section IV above); and (ii) shares beneficially owned by CAM employees must be held for a period of at least 90 calendar days (in accordance with Section VII below). VI. EXCLUDED ACCOUNTS AND TRANSACTIONS - The following types of accounts and investment activities need not be maintained at SB or CIS, nor are they subject to the other restrictions of this Code: 1. Open-end U.S. mutual funds that are not managed by CAM and are purchased directly from that fund company. Note: transactions relating to closed-end funds are subject to the pre-clearance, blackout period and other restrictions of this Code; 2. Estate or trust accounts of which an employee or related person has a beneficial ownership, but no power to affect investment decisions. There must be no communication between the account(s) and the employee with regard to investment decisions prior to execution. The employee must direct the trustee/bank to furnish copies of confirmations and statements to the Compliance Department; 3. Fully discretionary accounts managed by either an internal or external registered investment adviser are permitted and may be custodied away from SB and CIS if (i) the employee receives permission from the Regional Director of Compliance or designee and the relevant Chief Investment Officer ("CIO"), and (ii) there is no communication between the manager and the employee with regard to investment decisions prior to execution. The -31- employee must designate that copies of trade confirmations and periodic (monthly or quarterly) statements be sent to the Compliance Department; 4. Employees may participate in direct investment programs that allow the purchase of securities directly from the issuer without the intermediation of a broker/dealer provided that the timing and size of the purchases are established by a pre-arranged, regularized schedule. Employees must pre-clear the transaction at the time that the dividend reinvestment program is being set up. (No provision in this Code requires a Covered Person to report or pre-clear a particular instance of dividend reinvestment once the applicable dividend reinvestment program has been properly pre-cleared); 5. In addition to the foregoing, the following types of securities are exempted from pre-clearance, blackout periods, reporting and short-term trading requirements: proprietary money market funds; U.S.-registered non-proprietary open-end mutual funds for which CAM does not serve as a sub-adviser; unit investment trusts that invest in unaffiliated mutual funds; Qualified Tuition Programs ("Section 529 plans" or "College Savings Plans"), U.S. Treasury bills, bonds and notes; mortgage pass-throughs (e.g., Ginnie Maes) that are direct obligations of the U.S. government; bankers' acceptances; bank certificates of deposit; commercial paper; and high quality short-term debt instruments (meaning any instrument that has a maturity at issuance of less than 366 days and that is rated in one of the two highest rating categories by a nationally recognized statistical rating organization, such as S&P or Moody's), including repurchase agreements; and 6. The exercise, including the "exer-sale" ("sell to cover") of Citigroup options received through any of the compensation programs, unless the employee is subject to the provisions of the CPTP (as referenced in Section II above), a member of the CAM Management Committee, or an attendee at Management Committee meetings. VII. SECURITIES HOLDING PERIOD/SHORT-TERM TRADING - Securities transactions by CAM employees must be for investment purposes rather than for speculation. Consequently, all CAM employees must adhere to the following: 1. Proprietary open-end U.S. mutual fund shares and open-end U.S mutual funds sub-advised by CAM (with the exception of money market funds), including shares held in the firm's 401(k) Plan, may not be redeemed or exchanged within 90 calendar days of purchase or prior exchange. A redemption or exchange of shares in a fund cannot be made within 90 calendar days of the latest purchase of shares from that fund, and must be held for investment purposes and not for speculation. Please note, depending upon the circumstances, the sale or exchange of shares in a proprietary open-end mutual fund or an open-end mutual fund sub-advised by CAM, even beyond the 90 calendar days, and could raise "short-term" trading concerns. The following situations are not subject to the 90 calendar day holding period: (i) redemptions or exchanges from a systematic purchase plan; (ii) dividend -32- reinvestments; and (iii) changes to investment fund options to prospective contributions into the firm's 401(k) Plan; 2. For all securities other than shares in proprietary open-end U.S. mutual funds and open-end U.S. mutual funds sub-advised by CAM, securities may not be sold within 60 calendar days, calculated on a First In, First Out ("FIFO") basis; 3. Citigroup securities received as part of an employee's compensation are not subject to the 60 calendar day holding period; and 4. All profits from short-term trades, including exchanges of proprietary open-end mutual funds or open-end mutual funds sub-advised by CAM, are subject to disgorgement. VIII. PRE-CLEARANCE/NOTIFICATION - All CAM employees and temporary workers must pre-clear all personal securities transactions as set out below (see Section VI for a listing of accounts, transactions and securities that do not require pre-clearance). See attached Exhibit C - Employee Trade Pre- Approval/Notification Form and Exhibit K - Temporary Workers/Independent Contractors Pre-Trade Approval/Notification Form. A copy of these forms and other relevant forms can be also be found by accessing CAM's Intranet WEB site. 1. For all securities other than shares in proprietary open-end U.S. mutual funds or open-end U.S. mutual funds sub-advised by CAM, a transaction must not be executed until the employee has received the necessary approval from the Compliance Department. Pre-clearance is valid only on the day it is given. If a transaction is not executed on the day pre-clearance is granted, it is required that pre-clearance be sought again on a subsequent day (i.e., open orders, such as limit orders, good until cancelled orders and stop-loss orders, must be pre-cleared each day until the transaction is effected). In connection with obtaining approval for any personal securities transaction, employees must describe in detail any factors that might be relevant to an analysis of the possibility of a conflict of interest. 2. Purchases, redemptions and exchanges of proprietary open-end U.S. mutual funds or open-end U.S. mutual funds sub-advised by CAM must not be executed until a notification has been sent to and acknowledged by the Compliance Department. A notification is valid only on the day that it is sent. 3. Contributions, redemptions (subject to the 90 calendar day holding period) and exchanges of proprietary open-end U.S. mutual funds or open-end U.S. mutual funds sub-advised by CAM in the firm's 401(k) Plan are not subject to pre-clearance or notification requirements. 4. Any trade that violates the pre-clearance/notification process may be unwound at the employee's expense, and the employee will be required to absorb any resulting loss and to disgorge any resulting profit. 5. CAM employees are prohibited from engaging in more than 20 transactions (not including purchases, redemptions or exchanges of shares in proprietary or -33- non-proprietary mutual funds) in any calendar month, except with prior written approval from their relevant CIO, or designee. The Compliance Department must receive prompt notification and a copy of any such written approval. 6. CAM employees subject to the CPTP (as referenced in Section II above) must obtain pre-clearance to make a charitable gift of securities (including a charitable gift of Citigroup securities). 7. All CAM employees must make a quarterly report to the Compliance Department within 10 calendar days after quarter-end if the CAM employee acquires any or disposes of any securities (from any account over which the employee exercises control) by gift. This report containing the details of the security, date of gift, number of shares or par value, donor/donee and account where held may be made by E-Mail to the Compliance Department. 8. In addition to the foregoing, the Senior Investment Officer for the Systematic Equity Platform, or designee, must approve all personal securities transactions for members of the CAM Research Department prior to pre-clearance from the Compliance Department as set forth in this section. Pre-approval by the Chief Investment Officer for the Systematic Equity Platform, or designee, is in addition to and does not replace the requirement for the pre-clearance of all personal securities transactions. IX. BLACKOUT PERIODS - No Covered Person shall purchase or sell, directly or indirectly, any security in which he/she has, or by reason of the transaction acquires, any direct or indirect beneficial ownership if he/she has knowledge at the time of such transaction that the security is being purchased or sold, or is being considered for purchase or sale, by a managed fund, UIT or client account or in the case of a Fund director, by the director's Fund. In addition, the following Blackout Periods apply to the categories of CAM employees listed below: 1. Portfolio Managers and Portfolio Manager Assistants - may not buy or sell any securities for personal accounts seven calendar days before or after managed funds or client accounts he/she manages trade in that security; 2. Traders and Trader Assistants - may not buy or sell any securities for personal accounts three calendar days before or seven calendar days after managed funds, UITs or client accounts he/she executes trades in that security; 3. Research Analysts and Research Assistants - may not buy or sell any securities for personal accounts: seven calendar days before or after the issuance of or a change in any recommendation; or seven calendar days before or after any managed fund, UIT or client account about which the employee is likely to have trading or portfolio information (as determined by the Compliance Department) trades in that security; 4. Advisory Personnel (see Section II for details) - may not buy or sell any securities for personal accounts on the same day that a managed fund, UIT or client account about which the employee is likely to have trading or portfolio -34- information (as determined by the Compliance Department) trades in that security; and 5. UIT Personnel - all employees assigned to the Unit Trust Department are prohibited from transacting in any security when a CAM-sponsored UIT portfolio is buying the same (or a related) security, until seven business days after the later of the completion of the accumulation period or the public announcement of the trust portfolio. Similarly, all UIT employees are prohibited from transacting in any security held in a UIT (or a related security) seven business days prior to the liquidation period of the trust. Employees in the above categories may also be considered Advisory Personnel for other accounts about which the employee is likely to have trading or portfolio information (as determined by the Compliance Department). Blackout period requirements shall not apply to any purchase or sale, or series of related transactions involving the same or related securities, involving 500 or fewer shares in the aggregate if the issuer has a market capitalization (outstanding shares multiplied by the current price per share) greater than $10 billion and is listed on a U.S. Stock Exchange or NASDAQ. Note: Pre-clearance is still required. Under certain circumstances, the Compliance Department may determine that an employee may not rely upon this "Large Cap/De Minimus" exemption. In such a case, the employee will be notified prior to or at the time the pre-clearance request is made. X. PROHIBITED TRANSACTIONS - CAM employees may not engage in the transactions listed below without the prior written approval from their supervisor, and the Compliance Director of the Adviser or designee. In addition, Portfolio Managers, and Research or Quantitative Analysts must also obtain prior written approval from the relevant CIO or designee (e.g., Senior Investment Officer) for the following transactions: 1. The purchase, direct or indirect acquisition, or investment of an interest in any private placement, limited partnership, extension of credit or commitment of capital for investment purposes including loans for investment or business purposes. (See attached Exhibit D - Outside Investment Approval Request Form); 2. The acquisition of any securities in an initial public offering (new issues of municipal debt securities, and a mutual savings bank or thrift conversion to a publicly held ownership during the community offering period, may be acquired subject to the other requirements of this Code (e.g., pre-clearance); and 3. A security appearing on any restricted list that is applicable to CAM that prohibit employees from executing a transaction in the issuer's equity, fixed income, options, equity derivatives, warrants, rights, or any other securities related to the issuer. XI. TRANSACTIONS IN OPTIONS AND FUTURES - CAM employees may buy or sell derivative instruments such as individual stock options, options and futures on indexes and options and futures on fixed-income securities, and may buy or sell physical commodities and -35- futures and forwards on such commodities. These transactions must comply with all of the policies and restrictions described in this Code, including pre-clearance, blackout periods, transactions in Citigroup securities and the 60 calendar day holding period. However, the 60 calendar day holding period does not apply to individual stock options that are part of a hedged position where the underlying stock has been held for more than 60 calendar days and the entire position (including the underlying security) is closed out. XII. CHIEF INVESTMENT OFFICER OVERSIGHT - The CIOs or their designees shall review on a periodic basis all CAM portfolio managers' and analysts' beneficial ownership of securities (excluding beneficial ownership through owning fund shares), and will compare the results of such ownership reviews with securities transactions recommended or executed by such portfolio managers and analysts during the review period on behalf of any mutual fund, UIT, off-shore fund, or client account. XIII. TRANSACTIONS IN CITIGROUP SECURITIES - Unless a CAM employee is subject to the provisions of the CPTP (as referenced in Section II above), or is otherwise notified to the contrary, the employee may trade in Citigroup securities without restriction (other than the pre-clearance and other requirements of this Code), subject to the limitations set forth below: 1. Employees whose jobs are such that they know about Citigroup's quarterly earnings prior to release may not engage in any transactions in Citigroup securities during the "blackout periods" which begin on the first day of the last month of each calendar quarter and ends 24 hours after Citigroup earnings are released to the public. CAM employees subject to the CPTP (as referenced in Section II above), members of the CAM Management Committee and certain other Management Committee attendees are subject to these blackout periods. Charitable gifts of Citigroup securities are not subject to this blackout period, but must still be pre-cleared. 2. Stock option exercises are permitted during a blackout period, unless the employee is subject to the provisions of the CPTP (as referenced in Section II above), a member of the CAM Management Committee, or an attendee at Management Committee meetings. 3. With regard to exchange-traded options, no transactions in Citigroup options are permitted except to close or roll an option position granted by Citigroup that expires during a blackout period. Charitable contributions of Citigroup securities may be made during the blackout period, but an individual's private foundation may not sell donated Citigroup common stock during the blackout period. "Good 'til cancelled" orders on Citigroup stock must be cancelled before entering a blackout period and no such orders may be entered during a blackout period. 4. No employee may engage at any time in any personal transactions in Citigroup securities while in possession of material non-public information. Investments in Citigroup securities must be made with a long-term orientation rather than for speculation or for the generation of short-term trading profits. In addition, please note that employees must not engage in the following transactions: -36- - Short sales of Citigroup securities; - Purchases or sales of options ("puts" or "calls") on Citigroup securities, except writing a covered call at a time when the securities could have been sold under this Code; - Purchases or sales of futures on Citigroup securities; or - Any transactions relating to Citigroup securities that might reasonably appear speculative. 5. The number of Citigroup shares an employee is entitled to in the Citigroup Stock Purchase Plan is not treated as a long stock position until such time as the employee has given instructions to purchase the shares of Citigroup. Thus, employees are not permitted to use options to hedge their financial interest in the Citigroup Stock Purchase Plan. 6. Contributions into the firm's 401(k) Plan are not subject to the restrictions and prohibitions described in this section. XIV. OUTSIDE AFFILIATIONS AND DIRECTORSHIPS - Employees must obtain written approval from the CAM Compliance Department before accepting or conducting outside employment (See attached Exhibit H - Outside Business Affiliations Form) or directorships (See attached Exhibit I - Outside Directorship Form). Approval of outside directorships, in addition to Compliance Department approval, is needed from the employee's supervisor and, in certain cases, from the General Counsel's office. For additional information and a copy of our policy and procedure for outside business activities, please refer to the CAM's Intranet WEB site. XV. ACKNOWLEDGEMENT AND REPORTING REQUIREMENTS - CAM EMPLOYEES - All new CAM employees must certify that they have received a copy of this Code, and have read and understood its provisions. In addition, all CAM employees must: 1. Acknowledge receipt of the Code and any modifications thereof, which CAM shall provide to each person covered by the Code; in writing (See attached Exhibit E for the Acknowledgement of the Code of Ethics Form); 2. Within 10 days of becoming a CAM employee, disclose in writing all information with respect to all securities beneficially owned and any existing personal brokerage relationships (employees must also disclose any new brokerage relationships whenever established). The holdings report must be current as of a date not more than 45 days prior to the employee becoming a Covered Person. Such information should be provided on Exhibit F - Initial Report of Securities Holdings Form; 3. Direct their brokers to supply, on a timely basis, duplicate copies of confirmations of all personal securities transactions (Note: this requirement may be satisfied through the transmission of automated feeds); 4. Within 30 days after the end of each calendar quarter, provide information relating to securities transactions executed during the previous quarter for all -37- securities accounts.(9) (Note: this requirement may be satisfied through the transmission of automated feeds, or the regular receipt of brokerage statements); 5. Submit an annual holdings report containing similar information that must be current as of a date no more than 45 days before the report is submitted, and confirm at least annually all brokerage relationships and any and all outside business affiliations. The holdings report must be current as of a date no more than 45 days prior to the date of the report submitted; and 6. Certify on an annual basis that he/she has read and understood the Code, complied with the requirements of the Code and that he/she has pre-cleared and disclosed or reported all personal securities transactions and securities accounts required to be disclosed or reported pursuant to the requirements of the Code. (See attached Exhibit G - Annual Certification Form) XVI. FUND DIRECTORS - Fund directors must comply with the provisions set forth in Section XV.2 through XV.5 (in the case of Section XV.2, within 10 days of becoming a Fund director), except as described below: 1. A Fund director who is not an "interested person" of the Fund, within the meaning of Section 2(a)(19) of the Investment Company Act of 1940, and who would be required to make reports solely by reason of being a Fund director, is not required to make the initial and annual holdings reports required by Section XV.2 and Section XV.5 above. 2. A "non-interested" Fund director need not supply duplicate copies of confirmations of personal securities transactions required by Section XV.3 above, and need only make the quarterly transactions reports required by Section XV.4 above as to any Covered Security if at the time of a transaction by the director in that Covered Security he/she knew or, in the ordinary course of fulfilling his/her official duties as a director of a Fund, should have known that, during the 15-day period immediately before or after that transaction, that security is or was purchased or sold by a Fund of which he/she was a director or was being considered for purchase or sale by such a Fund. XVII. HANDLING OF DISGORGED PROFITS - Any amounts that are paid/disgorged by an employee under this Code shall be donated by the employee to one or more charities as directed by CAM. XVIII. CONFIDENTIALITY - All information obtained from any Covered Person pursuant to this Code shall be kept in strict confidence, except that such information will be made available to the Securities and Exchange Commission or any other regulatory or self-regulatory organization or to the Fund Boards of Directors to the extent required by law, regulation or this Code. - ---------- (9) CAM employees who are subject to the securities trading policies and procedures established by the Office of the Comptroller of the Currency (12 CFR 12.7) may comply with the quarterly reporting requirements hereunder by adhering to the policies set forth in this Code of Ethics, so long as all reportable information is delivered within 10 business days after the end of each quarter. -38- XIX. OTHER LAWS, RULES AND STATEMENTS OF POLICY - Nothing contained in this Code shall be interpreted as relieving any person subject to the Code from acting in accordance with the provision of any applicable law, rule or regulation or, in the case of CAM employees, any statement of Code or procedure governing the conduct of such person adopted by Citigroup, its affiliates and subsidiaries. XX. RETENTION OF RECORDS - All records relating to personal securities transactions hereunder and other records meeting the requirements of applicable law and regulation, including a copy of this Code and any other policies covering the subject matter hereof, shall be maintained in the manner and to the extent required by applicable law and regulation, including Rule 17j-1 under the 1940 Act, and Rule 204-2 under the Investment Advisers Act of 1940. The Compliance Department shall have the responsibility for maintaining records created under this Code. XXI. MEDIA STATEMENTS - All CAM personnel owe a fiduciary duty to CAM's clients. Any CAM employee, subject to other Citigroup policies and procedures, making any statements through any media outlet (including internet online statements) must be sensitive regarding the securities being discussed. Any such statements should be consistent with the employee's professional and personal investing practices, and is subject to review by the Compliance Department. XXII. EXCEPTIONS TO THE CODE - Any exceptions to this Code must have the prior written approval of both the relevant CIO and the Regional Director of Compliance or designee. Any questions about this Code should be directed to the Compliance Department. XXIII. BOARD REVIEW - At least annually, a written report and certification meeting the requirements of Rule 17j-1 under the 1940 Act shall be prepared by the Chief Compliance Officer for the Funds and presented to the Funds' Boards of Directors. XXIV. OTHER CODES OF ETHICS - To the extent that any officer of any Fund is not a Covered Person hereunder, or an investment sub adviser of, sponsor or principal underwriter for any Fund or UIT and their respective access persons (as defined in Rule 17j-1 and 204A-1) are not Covered Persons hereunder, those persons must be covered by separate Code of Ethics which are approved in accordance with applicable law and regulation. XXV. AMENDMENTS - This Code may be amended as to CAM employees from time to time by the Compliance Department. Any material amendment of this Code shall be submitted to the Board of Directors of each Fund for approval in accordance with Rule 17j-1 of the Investment Company Act and Rule 204A-1 under the Investment Advisers Act. Any material amendment of this Code that applies to the directors of a Fund shall become effective as to the directors of that Fund only when the Fund's Board of Directors has approved the amendment in accordance with Rule 17j-1 or at such earlier date as may be required to comply with applicable law and regulation. -39- TABLE OF EXHIBITS FOR CITIGROUP CODE OF ETHICS FORMS
EXHIBIT TITLE PAGE - ------- ----- ---- A Explanation of Beneficial Ownership 12 B Outside Brokerage Account Approval Request Form 13 C Employee Trade Pre-Approval/Notification Form 14 D Outside Investment Approval Request Form 16 E Acknowledgement of Code of Ethics Form 19 F Initial Report of Securities Holdings Form 20 G Annual Compliance Certification Form 21 H Outside Business Affiliation Form 23
-40- I Outside Directorship Form 24 Temporary Personnel Only J Outside Brokerage Account Approval Request Form 25 (Temporary Worker Only) K Trade Pre-Approval/Notification Form 26 (Temporary Worker Only) L Acknowledgement of Code of Ethics Form 27 (Temporary Worker Only)
-41- EXHIBIT A EXPLANATION OF BENEFICIAL OWNERSHIP You are considered to have "Beneficial Ownership" of Securities if you have or share a direct or indirect "Pecuniary Interest" in the Securities. You have a "Pecuniary Interest" in Securities if you have the opportunity, directly or indirectly, to profit or share in any profit derived from a transaction in the Securities. The following are examples of an indirect Pecuniary Interest in Securities: 1. Securities held by members of your immediate family sharing the same household; however, this presumption may be rebutted by convincing evidence that profits derived from transactions in these Securities will not provide you with any economic benefit. "Immediate family" means any child, stepchild, grandchild, parent, significant other, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, and includes any adoptive relationship. 2. Your interest as a general partner in Securities held by a general or limited partnership. 3. Your interest as a manager-member in the Securities held by a limited liability company. 4. You are a member of an "investment club" or an organization that is formed for the purpose of investing a pool of monies in the types of securities mentioned in this Code Section V. You do not have an indirect Pecuniary Interest in Securities held by a corporation, partnership, limited liability company or other entity in which you hold an equity interest, unless you are a controlling equity holder or you have or share investment control over the Securities held by the entity. The following circumstances constitute Beneficial Ownership by you of Securities held by a trust: -42- 1. Your ownership of Securities as a trustee where either you or members of your immediate family have a vested interest in the principal or income of the trust. 2. Your ownership of a vested interest in a trust. 3. Your status as a settlor of a trust, unless the consent of all of the beneficiaries is required in order for you to revoke the trust. The foregoing is a summary of the meaning of "beneficial ownership." For purposes of the attached Code, "beneficial ownership" shall be interpreted in the same manner as it would be in determining whether a person is subject to the provisions of Section 16 of the Securities Exchange Act of 1934 and the rules and regulations there under. -43- EXHIBIT B CITIGROUP ASSET MANAGEMENT-NORTH AMERICA OUTSIDE BROKERAGE ACCOUNT APPROVAL REQUEST FORM Employee Name: ____________________________________________________________________________ Tax Identification/Social Security Number: ______________________________________________________ The following information is provided in order to obtain Compliance approval to open and/or maintain a brokerage account outside Smith Barney or Citicorp Investment Services: Outside Brokerage Firm Name: _____________________________________________ Brokerage Firm Address: (Where letter should be sent) _____________________________________________ _____________________________________________ _____________________________________________ Account Number: _____________________________________________ Full Account Title: _____________________________________________ _____________________________________________ Please indicate the reason why you are requesting to open and/or maintain a brokerage account outside of Smith Barney or Citicorp Investment Services: [ ] The account is a fully discretionary account managed by investment advisors, which are registered as such with the SEC (see investment advisor acknowledgment form, attached). [ ] The account is a joint account with my spouse who works for the brokerage firm where the account will be maintained. My title and position with CAM is__________________, and my spouse's title and position with his/her firm is _____________________________________. [ ] Estate or trust accounts of which an employee or related person has a beneficial ownership, but no power to affect investment decisions. There must be no communication between the account(s) and the employee with regard to investment decisions prior to execution. Please refer to Exhibit A for a more detailed description of beneficial ownership. [ ] Other: ___________________________________________________________________. -44- A copy of any relevant statement(s) and this completed form MUST BE PROVIDED to Citigroup Asset Management, Compliance Department, 125 Broad Street, 11th Floor, New York NY, 10004. - ------------------------------------- ---------------------------------------- Employee Signature Compliance Department ---------------------------------------- Supervisor Signature ---------------------------------------- Chief Investment Officer (if applicable) -45- EXHIBIT C CITIGROUP ASSET MANAGEMENT- NORTH AMERICA EMPLOYEE PRE-TRADE APPROVAL/NOTIFICATION FORM (PAGE 1) Instructions: All employees are required to submit this form to the Compliance Department prior to placing a trade. The Compliance Department will notify the employee as to whether or not pre-approval is granted. Pre-approval or acknowledgment of notification is effective only on the date granted. THIS COMPLETED FORM SHOULD BE FAXED TO (646) 862-8499. EMPLOYEE INFORMATION Employee Name: ________________________ Phone Number: __________________________ Account Title: _________________________________________________________________ Account Number: ________________________________________________________________ Managed Account(s)/Mutual Fund(s) for which employee is a Covered Person: ________________________________________________________________________
SECURITY INFORMATION IPO [ ] Yes [ ] No PRIVATE PLACEMENT [ ] Yes [ ] No
Security Type-e.g., If Sale/Redemption No. Large Cap equity, mutual Buy/Sell/ /Exchange, Date Shares Stock Security Name fund, debt, etc. Ticker Redeem/Exchange First Acquired(3) /Unit Exception?(4) - ------------- ------------------- ------ --------------- ------------------ ------ -------------
YOUR POSITION WITH THE FIRM: (Please check one of the following) [ ] Portfolio Manager / Portfolio Manager Assistant [ ] Research Analyst / Research Analyst Assistant [ ] Trader / Trader Assistant [ ] Unit Trust Personnel [ ] Other (Advisory Personnel)
- ---------- (10) All securities sold must have been held for at least 60 days. All shares in proprietary open-end mutual fund or open-end U.S. mutual funds sub-advised by CAM redeemed or exchanged must have been held for at least 90 calendar days. (11) For purposes of CAM's Code, a Large Cap Exemption applies to transactions involving 500 or fewer shares in aggregate and the stock is one that is listed on a U.S. stock exchange or NASDAQ and whose issuer has a market capitalization (outstanding shares multiplied by current price) of more than $10 billion. -46- NOTE: - All PORTFOLIO MANAGERS must complete page two of this form. - All FUNDAMENTAL RESEARCH ANALYSTS and THEIR ASSISTANTS (Systematic Equity Platform) MUST COMPLETE PAGE THREE OF THIS FORM and signed by THEIR SENIOR INVESTMENT OFFICER or designees. CERTIFICATION I certify that I will not effect the transaction(s) described above unless and until pre-clearance approval is obtained from the Compliance Department, or when executing transactions in proprietary open-end U.S. mutual funds or open-end U.S. mutual funds for which CAM serves as a sub-adviser notification is acknowledged by the Compliance Department. I further certify that, except as described on an attached page, to the best of my knowledge, the proposed transaction(s) will not result in a conflict of interest with any account managed by CAM (including mutual funds managed by CAM). I further certify that, to the best of my knowledge, there are no pending orders for any security listed above or any related security for any Managed Accounts and/or Mutual Funds for which I am considered a Covered Person. The proposed transaction(s) are consistent with all firm policies regarding employee personal securities transactions. - ------------------------------------- ---------------------------------------- SIGNATURE DATE FOR USE BY THE COMPLIANCE DEPARTMENT ARE SECURITIES RESTRICTED? [ ] Yes [ ] No PRE-APPROVAL GRANTED? [ ] Yes [ ] No REASON NOT GRANTED: ___________________ COMPLIANCE DEPARTMENT SIGNATURE: _______________________________________ DATE: __________ TIME: _____________
-47- EXHIBIT C CITIGROUP ASSET MANAGEMENT-NORTH AMERICA EMPLOYEE PRE-TRADE APPROVAL/NOTIFICATION FORM (Page 2- PORTFOLIO MANAGER CERTIFICATION) All portfolio managers must answer the following questions in order to obtain pre-approval. All questions must be answered or the form will be returned. If a question is not applicable, please indicate "N/A". 1. Have your client accounts purchased or sold the securities (or related securities) in the past seven calendar days? Yes [ ] No [ ] 2. Do you intend to purchase or sell the securities (or related securities) for any client accounts in the next seven calendar days? Yes[ ] No [ ] 3. Do any of your client accounts currently own the securities (or related securities)? Yes [ ] No [ ] 3a. If yes, and you are selling the securities for your personal account, please explain why the sale of the securities was rejected for client accounts but is appropriate for your personal account: ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ 4. Have you, in the past 7 calendar days, considered purchasing the securities (or related securities) for your client accounts? Yes [ ] No [ ] 4a. If yes, and you are purchasing securities for your personal account, please explain why the purchase of the securities is appropriate for your account but has been rejected for your client accounts: ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ 4b. If no, and you are purchasing securities for your personal account, please explain why the purchase of the securities has not been considered for your client accounts: -48- ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ CERTIFICATION I certify that I will not effect the transaction(s) described above unless and until pre-clearance approval is obtained from the Compliance Department. I further certify that, except as described on an attached page, to the best of my knowledge, the proposed transaction(s) will not result in a conflict of interest with any account managed by CAM (including mutual funds managed by CAM). I further certify that, to the best of my knowledge, there are no pending orders for any security listed above or any related securities for any Managed Accounts and/or Mutual Funds (including mutual funds for which CAM serves as a sub-adviser) for which I am considered a Covered Person. The proposed transaction(s) are consistent with all firm policies regarding employee personal securities transactions. - ------------------------------------- ---------------------------------------- SIGNATURE DATE FOR USE BY THE COMPLIANCE DEPARTMENT ARE SECURITIES RESTRICTED? [ ] Yes [ ] No PRE-APPROVAL GRANTED? [ ] Yes [ ] No REASON NOT GRANTED: ___________________ COMPLIANCE DEPARTMENT SIGNATURE: _______________________________________________ DATE: __________ TIME: _____________
-49- EXHIBIT C CITIGROUP ASSET MANAGEMENT-NORTH AMERICA EMPLOYEE PRE-TRADE APPROVAL/NOTIFICATION FORM (Page 3- Supplemental Personal Trade Pre-Approval Form for Research Personnel) TRADE DATE: ______________
CONFLICT WITH CONFLICT WITH MANAGED FUNDS BUY CLIENT RECOMMENDED RESEARCH OR CLIENT OR SHARES/ ACCOUNT(12) SECURITY(13) DEPARTMENT(14) ACCOUNTS(15) SELL SECURITY NAME/TICKER UNITS (Y/N) (Y/N) (Y/N) (Y/N) - ---- -------------------- ------- ----------- ------------ -------------- -------------
PLEASE READ AND CHECK TO ACKNOWLEDGE: [ ] I agree that if an investment opportunity for a client in the same security presents itself within seven (7) calendar days of my personal trade, I will break my personal trade or immediately seek a waiver from Compliance. [ ] I have not executed more than twenty (20) transactions (including the transaction(s) I am seeking pre-approval for above) during the past calendar month. [ ] Do you currently own in a personal account any securities that you cover? [ ] Yes [ ] No If "Yes", please supply the Name, Symbol and CUSIP number below: CERTIFICATION: I certify that I will not effect the transaction(s) described above unless and until pre-clearance approval is obtained from the Compliance Department. I further certify that, except as described on an attached page, to the best of my knowledge, the proposed transaction(s) will not result in a conflict of interest with any account managed by CAM (including mutual funds managed by - ---------- (12) Is this security being purchased or sold for a client or being considered for purchase or sale for a client? (13) Is this security currently a recommended security? (14) If the security is a "recommended" security, will your personal trade occur seven (7) calendar days before or after the issuance of a change or recommendation? (15) Will your personal trade occur seven (7) calendar days before or after any managed fund or client account (for which you have trading or portfolio information) trade in that security? -50- CAM). I further certify that, to the best of my knowledge, there are no pending orders for any security listed above or any related securities for any Managed Accounts and/or Mutual Funds (including mutual funds for which CAM serves as a sub-adviser) for which I am considered a Covered Person. The proposed transaction(s) are consistent with all firm policies regarding employee personal securities transactions. - ------------------------------------- ---------------------------------------- SIGNATURE DATE APPROVED(16): - ------------------------------------- ---------------------------------------- SIGNATURE DATE FOR USE BY THE COMPLIANCE DEPARTMENT ARE SECURITIES RESTRICTED? [ ] Yes [ ] No PRE-APPROVAL GRANTED? [ ] Yes [ ] No REASON NOT GRANTED: COMPLIANCE DEPARTMENT SIGNATURE: DATE: TIME: ------------------------------------ ---------- -------------
- ---------- (16) Must be signed by one of the Senior Investment Officer, or the respective CIO. -51- EXHIBIT D CITIGROUP ASSET MANAGEMENT-NORTH AMERICA OUTSIDE INVESTMENT APPROVAL REQUEST FORM Citigroup Asset Management ("CAM") policy requires employees to obtain the PRIOR WRITTEN APPROVAL of the Chief Investment Officer and the Regional Compliance Director or designee BEFORE making an outside investment. Examples of "outside investments" include, but are not limited to, Private Placements, Limited Partnerships, and any investments in securities that cannot be made through a member company of Citigroup. If the investment is a private placement or limited partnership, you must provide a copy of the prospectus, offering statement, subscription agreement or other similar document. You may also be required to obtain a letter from the issuer's General Partner or other appropriate person stating that no member company of Citigroup will have a business relationship, nor will your status as an employee of CAM be utilized to solicit interest or investment from others. Employees must not make an outside investment if such investment may present a potential conflict of interest. PRINT Name ____________________________________ Social Security Number _______________ Date ____________ Title/Position ____________________________________________ Office Telephone Number ______________________ Department Name _____________________ Location ___________________________________________________________ Name of Investment __________________ Anticipated Date of Investment ____ Amount of investment $________ Type of [ ] Private Placement [ ] Limited [ ] Other investment which cannot be made Investment Partnership through a member company of Citigroup. (specify) Does this entity have, or is it anticipated to have, [ ] No [ ] Yes If Yes, Specify Account an account or investment banking relationship with Number or Describe a member company of Citigroup? Relationship ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ Is your participation exclusively as a [ ] Yes [ ] No If No, Please explain passive investor? any other involvement. ____________________________________________________________________________________________________________ Additional Remarks: ________________________________________________________________________________________
EMPLOYEE REPRESENTATIONS: - - I understand that CAM is not recommending, soliciting interest in, or in any way commenting on the advisability or suitability of the investment. My decision to invest was made in my individual capacity independent from Citigroup Asset Management. - - I have not, and will not, receive any selling compensation from anyone in connection with this investment. - - WITH RESPECT TO MY ABOVE INVESTMENT, I ACKNOWLEDGE THAT I HAVE NOT SOLICITED AND WILL NOT SOLICIT ANY INTEREST IN THIS INVESTMENT FROM CLIENTS OR MEMBERS OF THE GENERAL PUBLIC. SEND THE COMPLETED FORM AND ALL RELEVANT DOCUMENTS TO: Compliance Department, 125 Broad Street, 11th Floor, New York NY, 10004. -52- EMPLOYEE SIGNATURE Employee's Signature Date ------------------------------------------------------------------------ ------------ SUPERVISOR APPROVAL Print Name of Supervisor Title of Supervisor Signature of Supervisor Date ------------------------ ------------------- ----------------------- ------------ CHIEF INVESTMENT OFFICER Print Name of CIO Signature of CIO Date (CIO) APPROVAL (IF APPLICABLE) ------------------------ --------------------------------------------- ------------ COMPLIANCE DEPARTMENT Print Name Signature Date REVIEW ------------------------ --------------------------------------------- ------------
-53- EXHIBIT D CITIGROUP ASSET MANAGEMENT-NORTH AMERICA OUTSIDE INVESTMENT - LETTER OF ACKNOWLEDGEMENT Date: [Insert date] Compliance Department Citigroup Asset Management 125 Broad Street, 11th Floor New York, NY 10004 Re: NAME OF INVESTMENT/PRODUCT Dear CAM Compliance Department: With respect to the investment in the above entity by Citigroup Asset Management's employee, EMPLOYEE'S NAME, I acknowledge that: EMPLOYEE'S NAME investment in NAME OF INVESTMENT/PRODUCT is his own personal investment, which has no connection with Citigroup Asset Management. The Citigroup Asset Management name or EMPLOYEE'S NAME status as an employee of Citigroup Asset Management will not be utilized to solicit any interest or investment in NAME OF INVESTMENT/PRODUCT from others. There has been and will be no relationship between NAME OF EMPLOYEE investment in NAME OF INVESTMENT/PRODUCT and any account at Citigroup Asset Management. EMPLOYEE'S NAME is a restricted person as defined under the National Association of Securities Dealers' Free-Riding and Withholding Rules. Accordingly, in the event that NAME OF INVESTMENT/PRODUCT may determine to invest in public offerings of securities, I represent that it will not purchase "hot issues" or will otherwise restrict any allocation of hot issues to the benefit of NAME OF EMPLOYEE partnership interest. Very truly yours, - ------------------------------------- [PRINCIPAL/GENERAL PARTNER] -54- EXHIBIT E CITIGROUP ASSET MANAGEMENT-NORTH AMERICA Acknowledgement of Code of Ethics Form I acknowledge that I have received and read the Code of Ethics for Citigroup Asset Management - North America and Certain Registered Investment Companies dated June 22, 2005. I understand the provisions of the Code of Ethics as described therein and agree to abide by them. Employee Name (Print): ------------------------------------ Signature: ------------------------------------ Date: ------------------------------------ Tax I.D./Social Security Number: Date of Hire: ---------- -------------------- Job Function & Title: Supervisor: --------------------- ---------------------- Location: ---------------------------------------------------------------------- Floor and/or Zone: Telephone Number: ------------------------ ---------------- NASD REGISTERED EMPLOYEE (Please check one) [ ] Yes [ ] No If REGISTERED, list Registration \ License: This Acknowledgment form must be completed and returned within 10 days of employment to the Citigroup Asset Management Compliance Department, 125 Broad Street, 11th Floor, New York NY, 10004. ORIGINAL SIGNATURE MUST BE SENT, however a fax copy may be sent to (646) 862-8499 in order to meet the ten (10) day deadline. -55- EXHIBIT F CITIGROUP ASSET MANAGEMENT-NORTH AMERICA Initial Report of Securities Holdings Form THIS REPORT MUST BE SIGNED, DATED AND RETURNED WITHIN 10 DAYS OF EMPLOYMENT AND THE HOLDINGS REPORT MUST BE CURRENT AS OF A DATE NOT MORE THAN 45 DAYS PRIOR TO THE EMPLOYEE BECOMING A COVERED PERSON. THIS REPORT MUST BE SUBMITTED TO THE CITIGROUP ASSET MANAGEMENT COMPLIANCE DEPARTMENT, 125 BROAD STREET, 11TH FLOOR, NEW YORK NY, 10004. EMPLOYEE NAME: DATE OF EMPLOYMENT: ---------------------------- -------------- BROKERAGE ACCOUNTS: [ ] I do not have a beneficial ownership of any account(s) with any financial services firm. Please refer to Exhibit "A" for definition of beneficial ownership. [ ] I maintain or have a beneficial ownership in the following account(s) with the financial services firm(s) listed below (attach additional information if necessary-e.g., a brokerage statement). Please include the information required below for any broker, dealer or bank where an account is maintained which holds securities for your direct or indirect benefit as of the date you began your employment.
Name of Financial Service(s) Account Account Firm and Address Title Number - ---------------------------- ------- -------
SECURITIES HOLDINGS: Complete the following (or attach a copy of your most recent statement(s)) listing all of the securities holdings in which you have a beneficial ownership, with the exception of non-proprietary U.S. registered open-ended mutual funds for which CAM does not serve as a sub-adviser and U.S Government securities if: - - You own securities that are held by financial services firm(s) as described above. If you submit a copy of a statement, it must include all of the information set forth below. Please be sure to include any additional securities purchased since the date of the brokerage statement that is attached. USE ADDITIONAL SHEETS IF NECESSARY. -56- - - Your securities are not held with a financial service(s) firm (e.g., stock and dividend reinvestment programs and private placements, shares held in certificate form by you or for you or shares held at a transfer agent).
Title of Ticker Symbol Number of Principal Held Financial Services Security or CUSIP No. Shares Amount Since Firm - -------- ------------- --------- --------- ----- ------------------
[ ] I have no securities holdings to report. I certify that I have received the CAM - North America Code of Ethics dated June 22, 2005 and Citigroup Code of Conduct dated April 2004 and have read them and understood their contents. I further certify that the above represents a complete and accurate description of my brokerage account(s) and securities holdings as of my date of employment. Signature: Date of Signature: -------------------------- --------------------- -57- EXHIBIT G CITIGROUP ASSET MANAGEMENT-NORTH AMERICA ANNUAL COMPLIANCE CERTIFICATION FORM (PAGE 1) Annually, Citigroup Asset Management employees must confirm details of brokerage, bank trust or other accounts used for personal securities transactions and details of outside business affiliations(17). Such affiliations include directorships, other business activities and investments in securities that cannot ordinarily be made through a Citicorp brokerage account (i.e. a private placement or a limited partnership). PLEASE NOTE THAT ANY OPEN-END U.S. MUTUAL FUNDS SUB-ADVISED BY CAM MUST TO BE TRANSFERRED TO EITHER SMITH BARNEY OR CITICORP INVESTMENT SERVICES. I. BROKERAGE ACCOUNTS: [ ] I do not have a beneficial ownership in any account(s) with any financial services firm. Please refer to Exhibit "A" for definition of beneficial ownership. [ ] I maintain or have a beneficial ownership in the following account(s) with the financial services firm(s) listed below. Please include the information required below for any broker, dealer or bank where an account is maintained which holds securities for your direct or indirect benefit as of December 31, 2004.
Name of Financial Service(s) Firm and Address Account Title Account Number - --------------------------- ------------- --------------
II. SECURITIES HOLDINGS: [ ] I have no securities holdings to report. [ ] I maintain or have a beneficial ownership in the following securities owned which may be held by a broker, dealer, transfer agent, or bank in an account other than an approved brokerage account or by an Access Person (or by another party on behalf of the Access Person) or in certificate form (e.g., a stock certificate placed in a safe deposit box) or in a stock purchase plan or dividend reinvestment plan. YOU MUST INCLUDE CAM PROPRIETARY MUTUAL FUNDS, MUTUAL FUNDS SUB-ADVISED BY CAM (SEE ATTACHED LIST OF SUB-ADVISORY U.S. MUTUAL FUND RELATIONSHIPS), AND OFF-SHORE (NON-U.S.) MUTUAL FUNDS. - ---------- (17) Rule 17j-1 under the Investment Company Act of 1940, and Rule 204A-1 under the Investment Advisers Act of 1940. -58-
Title of Ticker Number Principal Held Financial Services Security Symbol of Shares Amount Since Firm - -------- ------ --------- --------- ----- ------------------
Please proceed to page 2 -59- EXHIBIT G CITIGROUP ASSET MANAGEMENT-NORTH AMERICA ANNUAL COMPLIANCE CERTIFICATION FORM (PAGE 2) III. OUTSIDE BUSINESS AFFILIATIONS: [ ] I have no outside business affiliations to report. [ ] I maintain the following directorships, other business activities and investments in securities that cannot ordinarily be made through a Smith Barney or Citicorp Investment Services account. Include investments beneficially owned by (i) a spouse; or (ii) an immediate family member in the same household)
Firm Name/Investment (add additional lines, if necessary) Position/Activity Date Commenced - --------------------------------------------------------- ----------------- --------------
I CERTIFY THAT THE ABOVE INFORMATION IS COMPLETE AND ACCURATE AS OF DECEMBER 31, 2004. I acknowledge that I have received and read the Code of Ethics for Citigroup Asset Management, North America, dated January 28, 2005 and Citigroup Code of Conduct dated April 2004, which is included in the E-Mail together with this document. I fully understand the provisions of the Codes-INCLUDING THE NEW PROVISIONS THAT BRING ANY OPEN-END U.S. MUTUAL FUNDS SUB-ADVISED BY CAM AND ANY OFF-SHORE MUTUAL FUND WITHIN THE SCOPE OF THIS POLICY- as described therein and agree to abide by them. I also certify that I have complied with the requirements of the Code of Ethics and have pre-cleared and disclosed all securities transactions executed during calendar year 2004 pursuant to the requirements of the Code of Ethics. SIGNATURE DATE --------------------------- ----------------------------------- NAME (PRINT) DEPARTMENT ------------------------ ----------------------------- -60- If, during 2004, you failed to seek pre-clearance for a personal securities transaction or otherwise violated the Code of Ethics, you must make your certification subject to that disclosure. If so, please indicate if a member of the Compliance Department has addressed this issue with you and if you fully understand the nature of your violation. PLEASE RETURN THE COMPLETED AND SIGNED CERTIFICATION TO THE COMPLIANCE DEPARTMENT, LOCATED AT 300 FIRST STAMFORD PLACE, 4TH FLOOR, STAMFORD CT, 06902, OR FAX TO (203)-890-7102 BY FEBRUARY 7, 2004. ANY QUESTIONS RELATING TO THE FIRM'S POLICIES, INCLUDING THE REQUIREMENT TO SEEK PRE-APPROVAL FOR PERSONAL INVESTMENTS AND OUTSIDE BUSINESS AFFILIATIONS, SHOULD BE DIRECTED TO RAYMOND OTTUSCH (212-559-1121). -61- EXHIBIT H CITIGROUP ASSET MANAGEMENT-NORTH AMERICA OUTSIDE BUSINESS AFFILIATION FORM Employees must obtain prior written approval for any outside employment or other business affiliation including self-employment, ownership of or active participation in a business, fiduciary appointments, and any other position for which the employee accepts compensation. (REQUESTS FOR APPROVAL OF OUTSIDE DIRECTORSHIPS MUST BE SUBMITTED TO THE COMPLIANCE DEPARTMENT.) COMPLETE ONE COPY OF THIS FORM FOR EACH APPLICABLE AFFILIATION. PRINT Name ______________________________________________ Social Security Number ____________________ Date __________________ Title ___________________________________________________ Office Telephone Number ____________________________________________ Branch/Department Name __________________________________ Location ___________________________________________________________ Name of Outside Entity ________________________________________________________________________________________________________ [ ] Not-for-Profit [ ] Outside Employment [ ] Fiduciary Appointment [ ] Other (specify) Nature of Business ____________________________________________________________________________________________________________ Your Title or Function at Outside Entity ____________________ Date Association/Term Begins _____________ Annual Compensation $ __________________ Time Devoted DURING Business Hours per Month Time Devoted AFTER Business Hours per Month Total Amount of time ____________________________________________ ___________________________________________________________ ____________________ Description of Duties: ________________________________________________________________________________________________________
Does this entity or any principal have an If Yes, Specify Account account or other business relationship [ ] No [ ] Yes Number or Describe with CAM or affiliates? Relationship
EMPLOYEE REPRESENTATIONS: - I will not solicit others within the Firm or clients of the Firm to participate in, contribute to, or otherwise support the activities of the outside entity. - I will inform my supervisor of any material change in the nature of my affiliation with this outside entity or in the nature of the entity's activities. - I will inform my supervisor and the Compliance Department of any potential conflicts of interest between my outside affiliation and my position within the Firm. -62- EMPLOYEE SIGNATURE Employee's Signature Date ------------------------ ------------ SUPERVISOR APPROVAL Print Name of Supervisor Title of Supervisor Signature of Supervisor Date ------------------------ ------------------- ----------------------- ------------ COMPLIANCE DEPARTMENT Print Name Signature Date REVIEW ------------------------ ------------------- ------------
UPON COMPLETION OF THIS FORM, SEND IT VIA INTER-OFFICE MAIL TO: COMPLIANCE DEPARTMENT, 125 BROAD STREET, 11TH FLOOR, NEW YORK NY, 10004 -63- EXHIBIT I CITIGROUP ASSET MANAGEMENT-NORTH AMERICA OUTSIDE DIRECTORSHIP FORM Employees must obtain prior written approval from their supervisor (SVP or MD level) for any outside directorship position of a not-for-profit or charitable organization. If the entity is in the financial services industry (such as a Credit Union) or the employee will be serving on an investment committee or participating in investment related decisions, the employee must also obtain additional approvals. Any request to serve as a director of a for-profit organization must be approved by the Compliance Department and one of the Chief Investment Officers of Citigroup Asset management (CAM). EMPLOYEES SERVING AS OUTSIDE DIRECTORS ARE NOT ENTITLED TO INDEMNIFICATION OR INSURANCE COVERAGE BY CAM OR AFFILIATES UNLESS SERVICE ON THE BOARD IS AT THE SPECIFIC WRITTEN REQUEST OF CAM OR AFFILIATES. COMPLETE ONE COPY OF THIS FORM FOR EACH APPLICABLE ENTITY. PRINT Name _________________________________________________________ Social Security Number ________________________ Title ______________________________________________________________ Office Telephone Number _______________________ Branch/Department Name ___________________________ Location _______________________________________________________ 1. Name of Entity ____________________________________________________________________ Date ________________________ 2. [ ] Not-for-Profit [ ] For-Profit 3. [ ] Public [ ] Privately Owned 4. Main Activity of the Entity _______________________________________________________________________________________ 5. Your Title or Function Date Association/Term Begins Date Term Expires Annual Compensation ___________________________ ________________________________ __________________________ $____________________ 6. Time Devoted During/After Business Hours Time Devoted After Close of Market Your Financial Interest in the Entity ________________________________________ __________________________________ _____________________________________ 7. Do any affiliates of CAM make a market in any securities issued by the entity? [ ] No [ ] Yes [ ] Not Applicable 8. Is the Directorship requested by CAM or its affiliates? [ ] No [ ] Yes [ ] Attach copy of Request Letter and other details. 9. Do you know of any significant adverse information about the entity or any actual or potential conflict of interest between the entity and CAM or its affiliates [ ] No [ ] Yes [ ] Attach detail and documents. 10. For PUBLIC COMPANIES attach the most recent "10-K", "10-Q", Latest Annual Report, "8-K's", and Prospectus [ ] 10-K Attached [ ] Ann. Rpt Attached [ ] Prospectus Attached For NON-PUBLIC ENTITIES attach Audit Financial Statements [ ] 10-Q Attached [ ] 8-K's Attached [ ] Fin. Stmts. Attached 11. Does the entity or any principal have an account or other business relationship with CAM or its affiliates? If yes, specify Account No. _____________ [ ] No [ ] Yes or describe relationship ________________ 12. Additional Remarks _______________________________________________________________________________________________
EMPLOYEE REPRESENTATIONS: - - I will not solicit others within the Firm or clients of the Firm to participate in, contribute to, or otherwise support the activities of the outside entity. -64- - - I will inform my supervisor of any material change in the nature of my affiliation with this outside entity or in the nature of the entity's activities. - - I will inform my supervisor and the Compliance Department of any potential conflicts of interest between my outside affiliation and my position within the Firm. EMPLOYEE SIGNATURE Employee's Signature Date ------------------------------------------------------------------------ ------------ SUPERVISOR APPROVAL PRINT Name of Supervisor Title of Supervisor Signature of Supervisor Date ------------------------ ------------------- ----------------------- ------------ CHIEF INVESTMENT OFFICER PRINT Name of CIO Signature of CIO Date (CIO) APPROVAL (IF APPLICABLE) ------------------------ --------------------------------------------- ------------ COMPLIANCE Print Name Signature Date DEPARTMENT REVIEW ------------------------ --------------------------------------------- ------------
UPON COMPLETION OF THIS FORM, SEND THE FORM VIA INTER-OFFICE MAIL TO: COMPLIANCE DEPARTMENT, 125 BROAD STREET, 11TH FLOOR, NEW YORK NY, 10004 -65- EXHIBIT J CITIGROUP ASSET MANAGEMENT-NORTH AMERICA TEMPORARY WORKERS/INDEPENDENT CONTRACTORS OUTSIDE BROKERAGE ACCOUNT APPROVAL REQUEST FORM Temporary Workers/Independent Contractor Name: --------------------------------- Tax Identification/Social Security Number: ------------------------------------- The following information is provided in order to obtain Compliance approval to open and/or maintain a brokerage account outside Smith Barney or Citicorp Investment Services: Outside Brokerage Firm Name: ------------------------------------------- Brokerage Firm Address: (Where letter should be sent) ------------------------------------------- ------------------------------------------- ------------------------------------------- Account Number: ------------------------------------------- Full Account Title: ------------------------------------------- ------------------------------------------- Please indicate the reason why you are requesting to open and/or maintain a brokerage account outside of Smith Barney or Citicorp Investment Services (Work assignment greater than one year (Work assignment greater than one year): [ ] The account is a fully discretionary account managed by investment advisors, which are registered as such with the SEC (see investment advisor acknowledgment form, attached). [ ] The account is a joint account with my spouse who works for the brokerage firm where the account will be maintained. My title and position with CAM is __________________, and my spouse's title and position with his/her firm is _____________________________________. [ ] Estate or trust accounts in which an employee or related person has a beneficial ownership (Please refer to Exhibit "A" for a definition of beneficial ownership.), but no power to affect investment decisions. There must be no communication between the account(s) and the employee with regard to investment decisions prior to execution. A copy any relevant statement(s) and this completed form MUST BE PROVIDED to Citigroup Asset Management - Compliance Department. Mailing address is 125 Broad Street, 11th Floor, New York, NY, 10004. -66- - ------------------------------------- ---------------------------------------- Employee Signature Compliance Department ---------------------------------------- Supervisor Signature ---------------------------------------- Chief Investment Officer (if applicable) NOT FOR USE BY CAM EMPLOYEES -67- EXHIBIT K CITIGROUP ASSET MANAGEMENT-NORTH AMERICA TEMPORARY WORKERS/INDEPENDENT CONTRACTORS PRE-TRADE APPROVAL/NOTIFICATION FORM Instructions: All temporary workers and independent contractors are required to submit this form to the Compliance Department prior to placing a trade. The Compliance Department will notify the temporary worker/independent contractor as to whether or not pre-approval is granted. Pre-approval or acknowledgment of notification is effective only on the date granted. THIS COMPLETED FORM SHOULD BE FAXED TO (646) 862-8499. TEMPORARY WORKER/INDEPENDENT CONTRACTOR INFORMATION Temporary worker/independent contractor name: ---------------------------------- Account Title: ----------------------------------------------------------------- Account Number: ---------------------------------------------------------------- Managed Account(s)/Mutual Fund(s) for which temporary worker/independent contractor is a Covered Person: ------------------------------------------------ SECURITY INFORMATION IPO [ ] Yes [ ] No [ ] Yes [ ] No PRIVATE PLACEMENT
Security Type-e.g., If Sale/Redemption Large Cap equity, mutual Buy/Sell/ /Exchange, Date No. Stock Security Name fund, debt, etc. Ticker Redeem/Exchange First Acquired(18) Shares/Unit Exception?(19) - ------------- ------------------- ------ --------------- ------------------ ----------- --------------
- ---------- (18) All securities sold must have been held for at least 60 days. All shares in proprietary open-end mutual fund or open-end mutual funds sub-advised by CAM redeemed or exchanged must have been held for at least 90 calendar days. (19) For purposes of CAM's personal trading policies, a Large Cap Exemption applies to transactions involving 500 or fewer shares in aggregate and the stock is one that is listed on a U.S. stock exchange or NASDAQ and whose issuer has a market capitalization (outstanding shares multiplied by current price) of more than $10 billion. -68- YOUR ASSIGNMENT WITH THE FIRM: ------------------------------------------------- CERTIFICATION I certify that I will not effect the transaction(s) described above unless and until pre-clearance approval is obtained from the Compliance Department, or when executing transactions in proprietary open-end U.S. mutual funds or open-end U.S. mutual funds for which CAM serves as a sub-adviser notification is acknowledged by the Compliance Department. I further certify that to the best of my knowledge, the proposed transaction(s) will not result in a conflict of interest with any account managed by CAM (including mutual funds managed by CAM). I further certify that, to the best of my knowledge, there are no pending orders for any security listed above or any related security for any Managed Accounts and/or Mutual Funds for which I am considered a temporary Covered Person. The proposed transaction(s) are consistent with all firm policies regarding temporary worker/independent contractor personal securities transactions. SIGNATURE DATE ----------------------------------- --------------------------- FOR USE BY THE COMPLIANCE DEPARTMENT REASON NOT GRANTED: ARE SECURITIES PRE-APPROVAL RESTRICTED? [ ] Yes [ ] No GRANTED? [ ] Yes [ ] No --------------------
COMPLIANCE DEPARTMENT SIGNATURE: DATE: TIME: ---------------- ---------- ----- NOT FOR USE BY CAM EMPLOYEES -69- EXHIBIT L CITIGROUP ASSET MANAGEMENT-NORTH AMERICA Temporary Workers/Independent Contractors Acknowledgement of Code of Ethics Form I acknowledge that I have received and read the Code of Ethics for Citigroup Asset Management-North America and Certain Registered Investment Companies dated June 22, 2005. I understand the provisions of the Code of Ethics as described therein and agree to abide by them. Temporary Workers/ Independent Contractors Name (Print): ------------------------------------------ Signature: ----------------------------- Date: ---------------------------------- Tax I.D./Social Security Number: Date of Assignment: ------- ----------------- Job Function & Title: Supervisor: ------------------ ------------------------- Location: Telephone Number: ------------------------------ ------------------- Floor and/or Zone: --------------------- This Acknowledgment form must be completed and returned within 10 days of assignment to the Citigroup Asset Management Compliance Department, 125 Broad Street, 11th Floor, New York, NY 10004. ORIGINAL SIGNATURE MUST BE SENT, however a fax copy may be sent to (646) 862-8499 in order to meet the ten (10) day deadline. NOT FOR USE BY CAM EMPLOYEES -70- EX-99.P8 23 v15673exv99wp8.txt EXHIBIT 99.(P)(8) (p)(8) CODE OF ETHICS THE OBERWEIS FUNDS OBERWEIS ASSET MANAGEMENT, INC. OBERWEIS SECURITIES, INC. This Code of Ethics (the "Code") has been adopted by the respective Boards of Trustees or Directors of The Oberweis Funds (the "Fund"), Oberweis Asset Management, Inc. (the "Adviser") and Oberweis Securities, Inc. (the "Distributor"). The standards set forth in the Code are to be viewed as mandatory rather than as permissive. In addition, the Code is adopted to serve as the minimum standard of conduct for persons having access to information regarding the purchase and sale of portfolio securities by the Fund or other registered investment companies for which the Adviser serves as adviser or subadviser and other non-investment company clients (collectively, "Advisory Clients"). Persons subject to the Code must be mindful of the fiduciary duty which they owe to the Fund's shareholders and Advisory Clients to act, at all times, in the shareholders' and Advisory Clients' best interest and to, among other things, refrain from engaging in personal securities transactions which take unfair advantage of their relationship to the Fund and Advisory Clients. Persons subject to the Code are also subject to the fiduciary duties set by Section 36(b) of the Investment Company Act of 1940 (the "1940 Act"). The Adviser recognizes that, as a fiduciary to its clients, it owes a duty to all of its Advisory Clients to avoid conflicts of interest and act solely in the best interests of its Advisory Clients. Accordingly, each director and officer (or other person occupying a similar status or performing similar functions), and employee of the Adviser and any other person who provides advice on behalf of the Adviser and is subject to the Adviser's supervision and control (each, a "supervised person") is required to comply with all applicable federal securities laws. The Adviser will provide each supervised person with a copy of this Code of Ethics and any amendments thereto. Each supervised person will provide a written acknowledgement of his/her receipt and review of the Code of Ethics and any amendments to the Adviser's Chief Compliance Officer. Further, all other associated/affiliated persons of the Fund or Distributor that fall into the definition of an Access Person will be provided with a copy of this Code of Ethics and any amendments thereto. Each such person will provide a written acknowledgement of his/her receipt and review of the Code of Ethics and any amendments to his/her company's Chief Compliance Officer. Definitions. As used herein, the following terms have the indicated meanings: An "Access Person" is: any trustee, director, officer or Advisory Person of the Fund or the Adviser; and any officer, employee or agent of the Distributor who in the ordinary course of his/her business makes, participates in or obtains information -71- regarding the purchase or sale of a security by the Fund or for the account of an Advisory Client, or whose functions or duties as part of the ordinary course of his business relate to the making of any recommendations with respect to such purchases or sales of securities. "Adviser" shall mean Oberweis Asset Management, Inc., an Illinois corporation that acts as the investment adviser and manager for the Fund and Advisory Clients. An "Advisory Person" is: Any trustee, director, officer or employee of the Fund or the Adviser (or of any company in a control relationship to the Fund or Adviser) who in connection with his/her regular functions or duties, makes, participates in, has access to or obtains nonpublic information regarding the purchase or sale of a Security by the Fund or to or for the account of an Advisory Client, or whose functions relate to the making of any recommendations with respect to such purchases and sales, or who has access to such recommendations that are nonpublic, or who has access to nonpublic information regarding the portfolio holdings of the Fund or other registered investment companies for which the Adviser serves as adviser or subadviser; and Any natural person in a control relationship to the Fund or the Adviser who obtains information concerning recommendations made to the Fund or to or for the account of an Advisory Client with regard to the purchase or sale of a Security. An "Automatic Investment Plan" means a program in which regular periodic purchases (or withdrawals) are made automatically in (or from) investment accounts in accordance with a predetermined schedule and allocation. An Automatic Investment Plan includes a dividend reinvestment plan. A Security is "being purchased or sold" by the Fund or Advisory Client from (i) the time when the person or persons having the authority to make investment decisions for the Fund decide(s) to purchase or sell a specified amount of the Security within a specified price range until (ii) the earlier of the time when the sale or purchase has been completed or the time when the price range is first exceeded. A Security is "being considered for purchase or sale" when a recommendation to purchase or sell a Security has been made and communicated and, with respect to the person making the recommendation, when such person seriously considers making such a recommendation. The "beneficial ownership" of a Security shall be interpreted hereunder in the same manner as it would be under Rule 16a-1(a)(2) under the Securities Exchange Act of 1934 in determining whether a person is a beneficial owner of a Security for purposes of Section 16 of the Securities Exchange Act of 1934 and the rules and regulations thereunder. Specifically, a direct or indirect opportunity to profit or -72- share in any profit derived from a transaction in any class of security coupled with either the power to vote conferred by such security or the power to dispose of (or direct the disposition of) such security, will confer beneficial ownership. Such an opportunity may come about through any contract, arrangement, understanding, relationship or otherwise. Thus, a person is regarded as the beneficial owner of securities held by members of his immediate family sharing the same household (immediate family members include any child, grandchild, stepchild, spouse, sibling, parent, stepparent, grandparent, mother-in-law, father-in-law, son-in-law, daughter-in -law, brother-in-law, sister-in-law, and adoptive relationships). Similarly, a general partner's proportionate interest in the portfolio securities held by a general or limited partnership, a person's right to dividends that is separate or separable from the underlying securities, and a person's right to acquire or dispose of securities through the exercise or conversion of any derivative security (such as an option or a warrant), whether or not presently exercisable, will confer beneficial ownership, and transactions involving them should be reported. Any other indirect interest in securities including performance-related fees received for services rendered with regard to securities as well as a person's interest in securities held by a trust may confer beneficial ownership and thus require the reporting of any transactions involving them. "Companies" shall mean collectively the Fund, the Adviser, and the Distributor. "Control" shall have the same meaning as that set forth in Section 2(a)(9) of the 1940 Act. An "Independent Trustee" is any trustee of the Fund who is not an "interested person" of the Fund within the meaning of Section 2(a)(19) of the 1940 Act. "Initial Public Offering" means an offering of securities registered under the Securities Act of 1933, the issuer of which, immediately before the registration, was not subject to the reporting requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934. "Investment Personnel" shall mean (i) any employee of the Fund or the Adviser (or of any company in a control relationship to the Fund or the Adviser) who, in connection with his/her regular functions or duties, makes or participates in making recommendations regarding the purchase or sale of securities by or on behalf of the Fund or an Advisory Client, including any person such as an analyst or trader who directly assists in the process and (ii) any natural person who controls the Fund or the Adviser and who obtains information concerning recommendations made to the Fund regarding the purchase or sale of securities by the Fund or an Advisory Client. "Limited Offering" means an offering that is exempt from registration under the Securities Act of 1933 pursuant to Section 4(2) or Section 4(6) or pursuant to Rule 504, Rule 505 or Rule 506 thereunder. -73- "Person" means any trustee, director, shareholder, officer or employee of any of the Companies. The term "purchase or sale of a Security" includes, inter alia, the writing of an option to purchase or sell a Security. The term "Security" has the meaning set forth in Section 2(a)(36) of the 1940 Act and Section 202(a)(18) of the Investment Advisers Act of 1940, except that it does not include direct obligations of the Government of the United States, bankers' acceptances, bank certificates of deposit, commercial paper, high quality short-term debt instruments (including repurchase agreements), shares of unaffiliated registered open-end investment companies including exchange-traded funds (any fund for which the Adviser does not serve as an investment adviser or subadviser), shares of any money market fund, or shares of unit investment trusts invested exclusively in unaffiliated registered investment companies. A person will "indirectly" effect a transaction if, but only if, the person knowingly causes or influences another person to effect the transaction. The "Supervisory Committee" shall consist of the person or persons so designated by the Board of Directors of the Adviser. Statement of General Fiduciary Principles: While the Adviser and the Distributor each believe that individual investment activities should be encouraged, their philosophy has always been to avoid conflicts of interest (or even the appearance of conflict) between client services, investment adviser transactions, and personal investments. This inevitably places some restrictions on the freedom in investment activities of persons associated with the Adviser or the Distributor. This Code of Ethics has been adopted to meet these concerns. The general fiduciary principles governing this Code shall be that, (a) in any situation where the potential for conflict exists, transactions for Advisory Clients must take precedence over personal transactions, (b) all personal securities transactions must be conducted consistent with this Code and in such a manner as to avoid any actual or potential conflict of interest or any abuse of an individual's position of trust and responsibility, and (c) no person associated with the Adviser or Distributor shall take inappropriate advantage of his or her position. Should any situation arise not specifically governed by this Code, these general fiduciary principles shall govern the resolution of the matter. Accordingly, this Code shall be interpreted in furtherance of such general fiduciary principles and the general policies of Section 17(j) of the 1940 Act and Rule 17j-1 thereunder. Compliance with the Code of Ethics and all applicable federal securities laws is a condition of employment with the Adviser or Distributor and willful violation of its provisions may be cause for termination of employment. Taking into consideration all relevant circumstances, management of the entity employing the individual in question will determine what action is appropriate for any breach of its provisions, subject to the recommendation of the Supervisory Committee as described below. The decision of management will also govern questions of interpretation arising under this Code. -74- Exempted Transactions. The prohibitions and reporting requirements of Sections 4 and 5 of this Code do not apply to purchases or sales effected in any account over which the Access Person has no direct or indirect influence or control. The prohibitions and reporting requirements of Section 4 and 5(a) of this Code do not apply to purchases that are part of an Automatic Reinvestment Plan. The prohibitions of Section 4 of this Code do not apply to the following: Purchasesor sales of Securities that are not eligible for purchase or sale by the Fund or to or for the account of an Advisory Client, other than securities purchased or sold in Initial Public Offerings and Limited Offerings. Purchases or sales that are non-volitional on the part of the Access Person. Purchases effected on the exercise of rights issued by an issuer pro rata to all holders of a class of its securities, to the extent such rights were acquired from such issuer, and sales of such rights so acquired. Specifically with respect to Section 4(jk), the purchase or sale of shares of affiliated registered open-end investment companies. Prohibitions. Except as provided in Section 3 of this Code, no Access Person may purchase or sell, directly or indirectly, a Security in which such Access Person has, or by reason of such transaction acquires, any direct or beneficial ownership, if the Access Person knew or reasonably should have known at the time of such purchase or sale that the Security was being purchased or sold by the Fund or an Advisory Client, or was being considered for such purchase or sale. No Access Person may disclose to any person any non-public information regarding any Security being purchased or sold by the Fund or an Advisory Client, or being considered for such purchase or sale, but this prohibition will lapse when such purchase or sale has been completed. This prohibition does not apply to disclosures among Access Persons in connection with their performance of duties for the Fund or an Advisory Client. Any Access Person who specifically recommends to the Fund or an Advisory Client the purchase or sale of a Security must disclose any beneficial interest in the Security that is known to the Access Person and that the Access Person has or expects to acquire within a reasonable period of time. This requirement does not apply to delivery to the Fund of recommendations (such as brokers' reports and investment letters) that are addressed or available to parties other than the Fund or Advisory Clients. -75- No person covered by this Code of Ethics shall engage in any activity that involves inside information in violation of the Insider Trading and Securities Fraud Enforcement Act of 1988. No Access Person, other than an Independent Trustee, may seek or accept gifts, favors, preferential treatment or valuable consideration of more than a de minimus nature from a broker-dealer or other companies or persons that do business with or have proposed doing business with the Fund or any company in a control relationship with the Fund. For purposes of this subsection a de minimus gift shall include an occasional meal, a ticket to a sporting event or the theater, or comparable entertainment, or an unconditional gift of a typical item of reminder or other gifts amounting in value to not more than $100 per person per year. No Access Person, other than an Independent Trustee, may purchase, directly or indirectly, any Security in an Initial Public Offering of that Security. (A) No Access Person, other than an Independent Trustee, may purchase, directly or indirectly, any equity security of an issuer with a market capitalization of less than $5 billion. (B) No Access Person, other than an Independent Trustee, may purchase, directly or indirectly, any Security in a Limited Offering of that Security without the express prior approval of the Supervisory Committee. Any Access Person who has been authorized to acquire a Security in a Limited Offering pursuant to this subsection must disclose that investment if the Access Person participates in any subsequent consideration by the Fund of an investment in the issuer of that Security. The Fund's investment decision with respect to such a Security must be independently reviewed by Investment Personnel with no personal interest in the issuer of the Security. (C) Except as provided in Section 3 of this Code, no Access Person, other than an Independent Trustee, may execute a Securities transaction on a day during which the Fund or an Advisory Client has a pending "buy" or "sell" order in that same Security until that order is executed or withdrawn. In addition, Investment Personnel may not buy or sell a Security within seven calendar days prior to, or within seven calendar days after, the Fund or an Advisory Client trades in that Security; provided, however, the Investment Personnel may sell a Security within seven calendar days after the Fund or Advisory Client executed a sales transaction in that same Security if the Fund and Advisory Client no longer have a position in that Security. Any profits realized by an Access Person or Investment Personnel in contravention of this subsection must be disgorged. (D) No Access Person, other than an Independent Trustee, may serve on the board of directors of any publicly traded company without the prior approval of the Supervisory Committee. -76- (E) No Access Person, other than an Independent Trustee, may acquire a Security without first obtaining "preclearance" from the Supervisory Committee. The Supervisory Committee will grant "preclearance" if it appears to the Committee that the investment would not violate any provision of this Code and would not create any unacceptable conflicts. Such "preclearance" shall be valid for 2 calendar days from the date that it is granted. Reporting. Except as provided in Section 3 of this Code, each Access Person other than an Independent Trustee must report to the entity of which he or she is an Access Person the information described in Section 5(c) of this Code with respect to any transaction of which the Person is aware in any Security [or registered open-end investment company (i.e., a mutual fund) in which the Access Person has, or by reason of such transaction acquires, any beneficial ownership. Except as provided in Section 3 of this Code, each Independent Trustee must report to the Supervisory Committee the information described in Section 5(c) of this Code with respect to any transaction of which the Independent Trustee is aware in a Security in which the Independent Trustee has, or by reason of such transaction acquires, any beneficial ownership if such Independent Trustee at the time of the transaction knew, or in the ordinary course of fulfilling the Independent Trustee's official duties as a trustee of a Fund should have known, that, during the 15-day period immediately preceding or after the date of the transaction, the Security was purchased or sold by the Fund, or was being considered for such purchase or sale. Every transaction report required under Section 5(a) or 5(b) must be made no later than 20 days after the end of the calendar quarter in which the transaction with respect to which the report relates is effected or becomes known to the reporting Access Person, and must contain the following information with respect to all such transactions during the quarter: The date of the transaction, the title and type of security, the interest rate and maturity date (if applicable), the number of shares, and the principal amount of each Security involved, and as applicable, the exchange ticker symbol or CUSIP number; The nature of the transaction (i.e., purchase, sale or any other type of acquisition or disposition); The price at which the transaction was effected; The name of the broker, dealer, bank or other party with or through whom the transaction was effected; With respect to any new account established by the Access Person during the quarter in which any Security is held, the name of the broker, dealer or -77- bank with whom the account was established and the date the account was established; and The date that the report is submitted. In the event that no transactions were effected by an Access Person in a calendar quarter, the Access Person, other than an Independent Trustee, must file a report, no later than 20 days after the end of such calendar quarter, stating that no transactions subject to the reporting requirements were effected during the calendar quarter. An Access Person or Independent Trustee who would be required to file a report under Section 5(a) or (b), respectively, but for the fact that the transaction was effected for an account over which the person has no "direct or indirect influence", must certify in writing that he or she does not have "any direct or indirect influence or control" over the account in question. Such written certification must be given to the Supervisory Committee no later than 20 days after the end of the calendar quarter in which the transaction with respect to which the certification relates is effected or becomes known to the certifying Access Person or Independent Trustee. If a monthly brokerage statement or a confirmation for the reporting Access Person's transaction includes the required information and is received within the required time period, the form of report required in Sections 5(a) and 5(d) may be a copy of the brokerage statement or confirmation involved. Any report required by Section 5 of this Code may contain a statement that the report will not be construed as an admission by the Access Person making the report that the Access Person has any direct or indirect beneficial ownership interest in the Security to which the report relates. Each Access Person, other than an Independent Trustee, will at the time of his/her employment (or upon becoming an Access Person) and at least annually provide in writing to the Supervisory Committee, or to such other person or persons as the Committee may designate, his/her personal securities holdings and a report with respect to accounts that the Access Person (and the Access Person's immediate family members sharing the same household) may maintain with any broker, the name in which the account is maintained, and the number of the account. Each such holdings report shall be made within 10 days after the commencement of employment (or becoming an Access Person). Annual Reports shall be made during the fourth quarter of each calendar year. The information contained in the report must include the following information and be current as of a date within 45 days of the date of submission. The title and type of securities, and as applicable, the exchange ticker symbol or CUSIP number, number of shares, and principal amount of each reportable security in which the Access Person has any direct or indirect beneficial ownership; -78- The name of any broker, dealer, or bank or other person with which the Access Person maintains an account in which any securities are held for the Access Person's direct or indirect benefit; and The date that the report is submitted. The Companies shall identify all Access Persons who are under a duty to make reports to such entities pursuant to this Section 5 and shall inform such persons of such duty. If no accounts are maintained by an Access Person or the Access Person's immediate family members, the Access Person will so advise the Supervisory Committee in writing. The non-existence of any such account will not raise a presumption that the Access Person is acting in a manner detrimental to the Fund or an Advisory Client. The Supervisory Committee or its designee shall be responsible for implementing compliance procedures to review reports made pursuant to this Section. All Access Persons, other than Independent Trustees, shall place through Oberweis Securities, Inc., as broker-dealer affiliated with the Fund, every Securities transaction in which they, their immediate family members, and trusts of which they are trustees or in which they have a beneficial interest participate except that each Access Person that is an employee of Oberweis Securities, Inc. and/or Oberweis, Asset Management, Inc. may maintain a SIMPLE IRA brokerage account with Fidelity Brokerage Services and effect Securities transactions through such account. All Access Persons, other than Independent Trustees, must direct Oberweis Securities, Inc. and Fidelity Brokerage Services, to supply to the Supervisory Committee duplicate copies of monthly brokerage statements. Trustee Approval and Reports: The Companies will prepare an annual report to the Board of Trustees of the Fund that summarizes existing procedures concerning personal investing and any additional procedures related thereto adopted during the year; describes any material issues arising under the Code or such procedures since the last report, including but not limited to any material violations of the Code or such procedures and any sanctions imposed in response thereto; identifies material conflicts that arose during the year; and identifies any recommended changes in existing restrictions or procedures based upon the Companies' experience under the Code of Ethics, evolving industry practices, or developments in applicable laws or regulations. Such report shall include any certifications required by Rule 17j-1. The Companies shall submit this Code to the Board of Trustees of the Fund for approval within the time frames required by Rule 17j-1. Any material changes to this Code shall be submitted to such Board within six months of such change. -79- All reports required to be made hereunder shall be delivered to and preserved by the Companies in accordance with this Code and applicable regulations for the benefit of the entity for which such report is made. All information contained in the reports filed pursuant to this Code shall be deemed confidential and shall not be disclosed to any person except (i) the reporting person, (ii) the Securities and Exchange Commission or any representative thereof, (iii) as required by law or legal process, or (iv) except as may be required by this Code or as may be necessary or advisable to administer and enforce the provisions of this Code. Recordkeeping: The Companies shall maintain the following records in the manner specified: A copy of this Code and any amendment thereof which is or at any time within the past five years has been in effect shall be preserved in an easily accessible place; A record of any violation of this Code, or any amendment thereof, and of any action taken as a result of such violation, shall be preserved in an easily accessible place for a period of not less than five years following the end of the fiscal year in which the violation occurs; A copy of each report made by an Access Person pursuant to this Code shall be preserved by the entity receiving the report for a period of not less than five years from the end of the fiscal year in which it is made, the first two years in an easily accessible place; A list of all persons who are, or within the past five years have been, required to make reports pursuant to this Code shall be maintained in an easily accessible place; A list of the names of all persons who are, or within the past five years, have been, responsible for reviewing the reports filed pursuant to Section 5 of this Code shall be maintained in an easily accessible place; A record of any approvals granted pursuant to Sections 4(gh) or 4(jk) or Section 9(c) shall be preserved for a period of five years from the end of the fiscal year in which such approval is given; and A copy of each report made pursuant to Section 6 of this Code must be maintained for at least five years after the end of the fiscal year in which it was made, the first two years in an easily accessible place. The Adviser shall maintain and preserve the aforementioned records in a central location for the benefit of all Companies. Sanctions: Upon discovery of a violation of this Code, the Companies may impose such sanctions as they deem appropriate including, without limitation, a letter of censure, suspension or termination of employment. Additionally, all violations of this Code which involve the portfolio securities of the Fund or material violations of this Code which involve an officer of the -80- Fund and the sanctions imposed by the Adviser or by the Distributor, if any, shall be reported to the Board of Trustees of the Fund. The Board of Trustees of the Fund, the Board of Directors of the Adviser or the Board of Directors of the Distributor, as the case may be, may in its or their discretion delegate to the Supervisory Committee some or all of the responsibility for investigating and reviewing possible violations of this Code and determining appropriate sanctions therefore. Miscellaneous. No knowledge or information regarding the Fund's portfolio transactions will be imputed to a trustee by reason of a meeting of the Board of Trustees if the trustee did not attend the portion of the meeting at which the information was discussed. No report is required under Section 5 of this Code if the information therein would duplicate information required to be recorded under Rule 204-2(a)(13) under the Investment Advisers Act of 1940; provided that such information shall be provided to the Supervisory Committee. Securities, and transactions in Securities, may be exempted (individually or by class) from Section 4(a) hereof upon a finding that the purchase or sale involved is only remotely potentially harmful to the Fund and Advisory Clients, e.g., because the purchase or sale would be very unlikely to affect a highly institutional market. In addition, the sale of a Security by an Access Person may be exempted from Section 4(a) hereof upon a finding of unusual circumstances, e.g., a personal financial emergency. In each case, an exception may be granted only if it is determined that the transaction would be consistent with the individual's fiduciary obligations to the Fund and Advisory Clients. Any application for an exemption to make such a transaction shall be made to the Supervisory Committee, which application may be approved or denied. Prior to granting approval, the Supervisory Committee must also obtain the concurrence of an Independent Trustee, or if no Independent Trustee is available, concurrence by counsel to the Fund. Any exceptions will be reported to the Board of Trustees at the meeting of the Board immediately following the approval of the exception. The fact that a Security has been the subject of a formal or informal research report shall not, in and of itself, indicate that the Security is under consideration for purchase or sale. For purposes hereof, it shall not be considered that any Access Person knew or should have known, that a Security was under consideration for purchase or sale or that the Security had been purchased or sold solely on the basis of receipt of a research report thereon. No Security purchase or sale by an Access Person will prevent Investment Personnel from purchasing or selling the Security for the Fund and Advisory Clients. All Access Persons must certify annually that they have read and understand this Code and recognize that they are subject thereto. The certification should also state that -81- the Access Person has complied with the requirements of the Code and that all reports and disclosures required under this Code have been made. Form ADV. The Adviser shall describe this Code in Part II of its Form ADV and will furnish Advisory Clients with a copy of this Code upon request. Reporting of Violations. Any Person who becomes aware of a violation of the Code of Ethics, whether it be his or her violation, or that of another Person, must promptly report such violation to his/her respective companies' Chief Compliance Officer for further reporting to the Supervisory Committee. The Chief Compliance Officer shall document each violation and any action taken as a result of such violation. * * * * * -82- The undersigned acknowledges receipt of a copy of the Code of Ethics and agrees to comply therewith. Date Signature -------------------------------- ------------------------------ Adopted by the Fund on January 10, 2005, revised on November 1, 2005 Adopted by the Adviser on January 10, 2005, revised on November 1, 2005 Adopted by the Distributor on January 10, 2005, revised on November 1, 2005 -83- CERTIFICATION OF CODE OF ETHICS The Oberweis Funds, Oberweis Asset Management, Inc., and Oberweis Securities, Inc., each certifies that (i) the Code of Ethics contains provisions reasonably necessary to prevent its access persons from engaging in the conduct prohibited by Rule 17j-1(b) of the Investment Company Act of 1940; and (ii) it has adopted procedures reasonably necessary to prevent its access persons from violating the provisions of the Code of Ethics. THE OBERWEIS FUNDS - ------------------------------------- ---------------------------------------- Date By: Patrick B. Joyce Title: Executive Vice President OBERWEIS ASSET MANAGEMENT, INC. - ------------------------------------- ---------------------------------------- Date By: James W. Oberweis Title: President OBERWEIS SECURITIES, INC. - ------------------------------------- ---------------------------------------- Date By: James W. Oberweis Title: President -84- -----END PRIVACY-ENHANCED MESSAGE-----