-----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, Np/yk1HX6ilmJqFoEKACVCxEsn86oNZQz33lzjSzTg0P7KBTov2QsNqm66Wb41vZ dPHs7H+lkTPAz8HXL87/dA== 0000950129-06-000098.txt : 20060106 0000950129-06-000098.hdr.sgml : 20060106 20060106151703 ACCESSION NUMBER: 0000950129-06-000098 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20051031 FILED AS OF DATE: 20060106 DATE AS OF CHANGE: 20060106 EFFECTIVENESS DATE: 20060106 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: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-07577 FILM NUMBER: 06516319 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 N-CSR 1 v15796ncnvcsr.txt WM SAM UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-07577 WM Strategic Asset Management Portfolios, LLC (Exact name of registrant as specified in charter) 1201 Third Avenue, 22nd Floor, Seattle, WA 98101 (Address of principal executive offices) (Zip code) Jeffrey L. Lunzer 1201 Third Avenue, 22nd Floor, Seattle, WA 98101 (Name and address of agent for service) Registrant's telephone number, including area code: (206) 461-3800 Date of fiscal year end: October 31, 2005 Date of reporting period: October 31, 2005 ITEM 1. REPORTS TO STOCKHOLDERS (WM GROUP OF FUNDS LOGO) WM STRATEGIC ASSET MANAGEMENT PORTFOLIOS (GRAPHIC) ANNUAL REPORT October 31, 2005 WM STRATEGIC ASSET MANAGEMENT PORTFOLIOS At the WM Group of Funds, our passion is piecing individual investments together into comprehensive portfolios to make your financial plan more effective. (GRAPHIC) Table of Contents 1 Letter from the President 2 Economy & Financial Markets: Review & Outlook 4 Asset Allocation: A Key to Successful Investing 6 Our SAM Process and Asset Allocation Team WM SAM Portfolio Performance and Investment Strategy: 8 Flexible Income Portfolio 10 Conservative Balanced Portfolio 12 Balanced Portfolio 14 Conservative Growth Portfolio 16 Strategic Growth Portfolio 18 Glossary 19 Expense Information 21 Financial Statements 36 Notes to Financial Statements 41 Report of Independent Registered Public Accounting Firm 42 Supplemental Information NEW LOWER MANAGEMENT FEE SCHEDULE APPROVED FOR THE WM SAM PORTFOLIOS The WM Group of Funds Board of Trustees approved a new management fee schedule for the WM SAM Portfolios on November 9, 2005, retroactive to November 1, 2005. This very significant reduction averages approximately 30 basis points, or about half of our existing management fee based on fiscal year-end asset levels. The WM SAM Portfolios have been innovators since they were launched nearly 10 years ago, and we believe that our active asset allocation process continues to set the quality standard within the mutual fund industry. As asset allocation products have proliferated in recent years, however, it has become increasingly clear that reducing our fees will help ensure we remain a leader. We believe that the WM SAM Portfolios have always delivered excellent value to our shareholders through a rigorous, disciplined, and highly successful process. We are truly excited to now make the WM SAM Portfolios an even better value for you. Please visit our Web site at wmgroupoffunds.com for a complete fee schedule. NOT FDIC INSURED MAY LOSE VALUE - NOT A DEPOSIT - NO BANK GUARANTEE NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY Dear Shareholder, (PHOTO OF WILLIAM G. PAPESH) During the past fiscal year, our nation and the world endured much uncertainty--and unfortunately, much tragedy. From the Asian tsunami and Hurricane Katrina to the recent deadly earthquake in Pakistan and the threat of the avian flu virus, Mother Nature has once again proven that her fury can rise at any time, and with deadly effect. Meanwhile, the ongoing wars in Iraq and Afghanistan offer us a sobering reminder of the sacrifices made by our men and women in uniform. Still, our nation and financial markets remain strong--testaments to the American character, and to the character of folks like you. Despite recent adversities, both the equity and fixed-income markets provided positive returns for the fiscal year ended October 31, 2005, with the S&P 500 rising 8.72% and the Lehman Brothers Aggregate Bond Index adding 1.14%.(1) We are proud to note that against this backdrop, the WM Group of Funds continues to grow. Over the last five years, our assets under management have increased by 122%, while industry assets have increased by 18%.(2) During this same period, the stock market (as measured by the S&P 500) declined 8.39%. THE VALUE OF STAYING ACTIVE In today's uncertain markets, some investors may try to limit their risk by taking a passive investment approach--that is, building a portfolio based on funds that track the performance of various indices. While passive investing may be beneficial in some cases, we continue to believe strongly in the value of active management in our WM Strategic Asset Management (SAM) Portfolios. In our view, the power of active security selection can never be replaced by indexing, pure and simple. Our SAM Portfolios also utilize tactical reallocation, rather than quarterly rebalancing, because to us, reallocating based on changing market conditions makes more sense than rebalancing to static allocation targets. We believe active investing also offers several other potential advantages, such as superior risk management and more flexible portfolio construction. At the end of the day, we firmly believe that the combined talents of our portfolio managers and analysts--along with our disciplined investment philosophy and processes--can add value to an investor's portfolio. A PROUD HERITAGE At the WM Group of Funds, we continue to take pride in our firm's core values of honesty, trust, and integrity. We're proud that for 66 years, we've served our shareholders with the principles that we believe have made the WM Group of Funds as successful as it is today. Now more than ever, we remain committed to bringing you the utmost in value and quality of service. And as always, we thank you for your support. Sincerely, /s/ William G. Papesh - ------------------------------------- William G. Papesh President (1) The S&P 500 is a broad-based index intended to represent the U.S. equity market. 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. (2) Source: WM Group of Funds, ICI, and Ibbotson Associates. Figures are for the five-year period ended 10/31/05 and reflect both net shareholder purchases and fund performance. They are based on long-term assets only and do not include money market funds. (GRAPHIC) Economy & Financial Markets: Review & Outlook ECONOMIC EXPANSION CONTINUES The U.S. economy remained relatively strong during our 2005 fiscal year--the twelve months between November 1, 2004, and October 31, 2005--as low interest rates and improving corporate profits helped maintain positive economic momentum. Real estate activity, including construction and home sales, was especially robust with low mortgage and refinancing rates continuing to spur demand. Consumer confidence was relatively stable for much of the fiscal year, but it plummeted late in the period due to the combined shocks of Hurricane Katrina, soaring oil prices, and a weakening labor market. Consumer spending fell in tandem as low approval ratings for the Bush administration and the ongoing wars in Iraq and Afghanistan took their toll on the American psyche. Still, consumer spending generally improved during the fiscal year, adding fuel to the growing economy. As the economic expansion continued and oil prices rose sharply, consumer prices (as measured by the Consumer Price Index) crept up, gaining 4.32% on a year-over-year basis. In an effort to contain inflation, the Federal Reserve (the Fed) raised the federal funds target rate to 3.75% during the period, an increase of two full percentage points from the close of fiscal 2004. Against this backdrop, short-term interest rates rose dramatically, while long-term rates rose more modestly. As a result, the yield curve (the difference in yields between 2- and 10-year Treasury issues) flattened substantially--often an indication that economic activity may slow in the nearto mid-term. BONDS GAIN SLIGHTLY Within this environment, the bond market (as measured by the Lehman Brothers Aggregate Bond Index) gained slightly, rising 1.14% for the fiscal period.* Yields on 10-year Treasury notes hovered within a tight range, rising from 4.07% following the re-election of President Bush in November 2004 to close the period at 4.56%. Generally, Treasuries outperformed investment-grade corporate issues, though both sectors returned less than 1% for the period. High-yield issues did much better, gaining 4.08% (as measured by the Lehman Brothers High Yield Index).* Despite the increase in short-term rates, many investors This economic and financial market analysis represents the opinions of WM Advisors. It should not be considered as investment advice. No forecast based on the opinions expressed can be guaranteed, and they may be subject to change without notice. * Indices are unmanaged, and individuals cannot invest directly in an index. MAJOR MARKET EVENTS GRAPH Source: Bloomberg L.P. (S&P 500 data). 2 (GRAPHIC) were willing to take on additional credit risk given the strength of corporate balance sheets and the general economic recovery. STOCKS RISE DESPITE FED TIGHTENING, OIL PRICES In spite of the twin headwinds of rising shortterm interest rates and high energy costs, stocks gained nicely for the fiscal year, with the S&P 500 rising 8.72%.* In the two months following the presidential election, stocks added more than 7% on optimism that Republican-backed tax cuts and generous government spending would continue to spark the economy. By mid-2005, however, the S&P 500 had lost approximately half of that advance before rebounding late in the year (see chart below). Within S&P 500 sectors, energy and utilities were the clear winners, advancing 33.72% and 23.86%, respectively, on the back of high oil and natural gas prices. Lagging sectors included telecommunication services (-0.46%) and consumer discretionaries (-1.07%). INVESTMENT OUTLOOK Looking forward, we anticipate moderate, weaker-than-consensus economic growth and subdued, lower-than-consensus inflation over the next fiscal year. The housing market appears set for a slowdown, and consumer spending may be adversely affected by higher rates for home equity loans. We believe that long-term interest rates will fall to the 3%-4% range, while the Fed will likely stop its monetary tightening campaign relatively early in 2006. In this scenario, we would expect mortgage-backed securities to offer a better relative value than corporate bonds, and that high-yield issues will continue to outperform. Equities appear fairly valued, with international stocks more attractive than U.S. holdings. We expect large-cap equities to outperform smallcap equities and growth to outperform value. Importantly, we anticipate an alignment between cyclical (short-term) and secular (long-term) economic trends over the coming fiscal year. On the cyclical side, we believe that Fed policy will put pressure on consumer and business confidence, as will ongoing high energy prices. On the secular side, we believe that the aging of U.S., European, and Japanese populations will continue to temper global demand, while excess supply will limit pricing power. While we expect that these forces will combine to produce slower economic growth, we believe that the likely halt in Fed tightening will ultimately offer investors reasonably strong buying opportunities, particularly in the equity space. MAJOR MARKET EVENTS GRAPH 3 (GRAPHIC) Asset Allocation: A Key to Successful Investing Asset allocation is widely recognized as being a critical element in the financial planning process. Investment representatives generally use asset allocation to help cushion client portfolios from market volatility and reduce overall risk levels. Studies have also shown that historically, asset allocation has been responsible for more than 90% of the variability of a portfolio's return.* In other words, the asset class you choose--for example, stocks, bonds, or cash--can be more important than the individual securities you select. WHAT IS ASSET ALLOCATION? When many people hear the term "asset allocation," they think of an efficient frontier diagram and the work of a pioneering economist, Harry Markowitz. As a 25-year-old student at the University of Chicago in the early 1950s, Markowitz needed a thesis topic. In a chance meeting, a stock broker suggested that he investigate the stock market. Conventional wisdom at that time suggested that investors should select stocks with the highest expected return without taking risk into account. Markowitz recognized that this approach neglected a key part of the investment equation. The concept of risk was identified as early as 1654 in the work of French mathematician Blaise Pascal, who worked on a system to determine probabilities related to gambling. The concept of risk probability was then studied by British astronomer Edmund Halley, who in 1690 applied it to mortality tables. Halley's work was later used to help sell annuities and insure sailing vessels and their cargoes, which eventually led to the founding of Lloyd's of London. But it was Markowitz who first rigorously applied the concept of risk to stock portfolios in his 1952 essay "Portfolio Selection." His research found that diversification is measurably beneficial, and that pairing risky and less risky assets can actually lower portfolio volatility while simultaneously enhancing potential returns. Markowitz's early work laid the foundation for more sophisticated statistical concepts such as mean variance optimization, which became integral to modern portfolio theory. THE ALLOCATION PROCESS While the term "asset allocation" is widely used to describe an investment strategy, we believe it is actually a process. Most investment representatives today use asset allocation as part of an overall approach that involves identifying A HISTORICAL PERSPECTIVE ON ASSET ALLOCATION GRAPH 4 (GRAPHIC) a client's current investments, risk tolerance, portfolio construction, and asset selection, as well as measuring performance. IN PRACTICE, ASSET ALLOCATION IS OFTEN A MULTISTEP PROCESS: - - Classifying an investor's current investments into their respective asset classes. - - Creating forecasts for each asset class and building a set of model portfolios arranged along a spectrum of risk, often from conservative to aggressive. - - Determining important specific information about the client including their risk tolerance, time horizon, and tax situation. - - Recommending the actual asset class allocation to the client, primarily based on their risk tolerance. LOOKING AHEAD The most time-consuming and analytical element of this process centers on asset allocation modeling. This process involves analyzing hundreds of variables, such as long- and short-term economic forecasts; expected returns for different equity styles, sectors, and capitalizations; standard deviations; as well as bond ratings and maturity structures. Each portfolio combination is then tested for risk and return characteristics. But that is not the end of the process. These multi-asset portfolios are then monitored and adjusted in response to market conditions. Some asset allocation programs make adjustments at specific intervals (monthly or quarterly) back to a predetermined static allocation. At WM Advisors, we reevaluate asset allocations and reallocate assets daily using a forward-looking process based on a longer-term allocation target. WM uses this strategy to construct and monitor its Strategic Asset Management (SAM) Portfolios for investors on a daily basis. Yet even as this new work continues, one thing remains clear: asset allocation will continue to be the foundation for many successful investment portfolios. Note: Asset allocation does not guarantee a profit or protect against a loss. * Gary P. Brinson, Brian D. Singer, and Gilbert L. Beebower, "Determinants of Portfolio Performance II: An Update," Financial Analysts Journal, May/June, 1991. See also Gary P. Brinson, L. Randolph Hood, and Gilbert L. Beebower, "Determinants of Portfolio Performance," Financial Analysts Journal, July/August, 1986. A HISTORICAL PERSPECTIVE ON ASSET ALLOCATION GRAPH 5 (GRAPHIC) Our SAM Process and Asset Allocation Team OUR 3-STEP PROCESS FOR ACTIVE ASSET ALLOCATION THE WM STRATEGIC ASSET MANAGEMENT (SAM) PORTFOLIOS ARE FUND-OF-FUNDS INVESTMENTS--MUTUAL FUNDS THAT INVEST IN OTHER MUTUAL FUNDS WITHIN THE WM GROUP OF FUNDS FAMILY. THE PORTFOLIOS ARE CONSTRUCTED AND MANAGED ACCORDING TO A HIGHLY DISCIPLINED AND DYNAMIC PROCESS: Step 1: SETTING LONG-TERM ASSET ALLOCATION TARGETS FOR EACH PORTFOLIO. Extensive research into risk and asset classes forms the basis for strategic decisions about each Portfolio's long-term asset allocation policies. This research involves analyzing historical and projected risk, return, and correlation between asset classes. The results help position the Portfolios to maximize the potential for returns at their assigned risk level. WM ADVISORS Asset Allocation Team (PHOTO OF RANDALL L. YOAKUM, CFA) Chief Investment Strategist and Senior Co-Portfolio Manager of the SAM Portfolios Randy currently serves as chairman of the Asset Allocation Team and works closely with Mike Meighan and Gary Pokrzywinski to establish economic strategy. He was instrumental in developing the investment policies at WM Advisors from 1987 to 1994, as well as after rejoining the company in 1999. His investment management experience dates back to 1984. He holds the Chartered Financial Analyst designation and has a B.B.A. from Pacific Lutheran University and an M.B.A. from Arizona State University. (PHOTO OF MICHAEL D. MEIGHAN, CFA) Co-Portfolio Manager of the SAM Portfolios Mike oversees the Team analysts and works collaboratively with Randy and Gary to develop the asset allocation and investment outlook for the Portfolios as well as to formulate economic strategy. Mike has been instrumental in developing the current investment policies for the Portfolios since joining WM Advisors in 1999. His investment management experience dates back to 1993. He holds the Chartered Financial Analyst designation and has a B.S. from Santa Clara University and an M.B.A. from Gonzaga University. (PHOTO OF GARY J. POKRZYWINSKI, CFA) Head of Investments and Senior Portfolio Manager Gary helps develop the outlook and policy for the fixed-income assets within the Portfolios. He is also instrumental in developing economic strategy with Randy and Mike. Gary joined WM Advisors in 1992 and currently manages the WM High Yield Fund and co-manages the WM Income Fund. He holds the Chartered Financial Analyst designation and has a B.B.A. from the University of Wisconsin. 6 (GRAPHIC) Step 2: DEVELOPING A NEAR-TERM INVESTMENT OUTLOOK THAT DETERMINES HOW MUCH RISK EACH PORTFOLIO SHOULD TAKE. Research into dozens of global and domestic market forces shapes the Asset Allocation Team's outlook for the economy and capital markets. This view of investment conditions determines the Team's tactical decisions about each Portfolio's exact equity and fixed-income allocations. Here are just some of the criteria tracked for this step: 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 Step 3: CONSTRUCTING EACH PORTFOLIO'S SPECIFIC MIX OF ASSET CLASSES. The Team refines its tactical decisions by examining hundreds of possible Portfolio compositions. Combinations of equity styles, sectors, and capitalizations, as well as bond ratings and maturity structures, are analyzed before each Portfolio is built. CONTINUOUS ACTIVE MANAGEMENT Once the Portfolios are constructed, the Team continually monitors and reallocates them to take advantage of changing investment conditions--unlike many funds of funds that are only periodically rebalanced to static models. We also repeatedly test the Portfolios' structure by assessing how fund allocations and holdings affect performance. This dynamic process works toward optimizing the Portfolios for building long-term investment value. (PHOTO OF CHARLES D. AVERILL, CFA) Senior Quantitative Analyst Charlie is dedicated to the Asset Allocation Team as a Senior Quantitative Analyst. His responsibilities include the ongoing analysis of both the current and potential fund holdings, as well as the structural model underlying the asset allocation process. To help examine the performance of the SAM Portfolios' holdings, he also develops performance attribution procedures. Charlie holds the Chartered Financial Analyst designation and has been with WM Advisors since 1990. Before joining the firm, he taught economics at Gonzaga University and worked as a newspaper editor. He holds a B.A. in Economics from Reed College and an M.A. in Economics from Princeton University. (PHOTO OF NICOLE VERBRUGGHE, CFA) Quantitative Analyst Nicole works with the Asset Allocation Team as a Quantitative Analyst. She gathers and analyzes economic data in order to track indicators that specifically affect the SAM Portfolios. She continually reviews holdings and performance characteristics of the underlying funds and assesses how the weighting of each fund influences the Portfolios' investment policies and goals. Nicole joined WM Advisors in 2001 and holds the Chartered Financial Analyst designation. Before joining the Asset Allocation Team, Nicole worked for 12 years in financial accounting and analysis. She holds a B.A. in Mathematics from Whitman College. (PHOTO OF BRAD N. STEWART) Quantitative Analyst As a Quantitative Analyst with the Asset Allocation Team, Brad is responsible for gathering and analyzing economic data. He focuses on tracking indicators that specifically affect the SAM Portfolios. Brad joined WM Advisors in 2005 and began his investment management career in 2002. He is a Level III Candidate for the Chartered Financial Analyst designation. He holds a B.B.A. in Finance from the University of Portland. 7 (GRAPHIC) Flexible Income Portfolio ANNUAL TOTAL RETURNS(1) Class a Shares At Net Asset Value(2) (Calendar Year) 2004 5.73% 2003 12.08% 2002 1.03% 2001 4.33% 2000 5.10% 1999 8.64% 1998 9.24% 1997 10.25%
INVESTMENT STRATEGY As of October 31, 2005, the WM Strategic Asset Management (SAM) Flexible Income Portfolio was diversified among 12 funds representing 13 major asset classes. The Portfolio held a 26%/74% equity-to-fixed income ratio during most of the fiscal year. Among all underlying WM fixed-income funds, the WM High Yield Fund made the greatest overall contribution to Portfolio performance for the period. The Fund's holdings in domestic corporate bonds and real estate investment trusts (REITs) were the primary drivers of performance. The Portfolio also gained from the contribution of the WM U.S. Government Securities Fund, which advanced primarily due to its holdings in mortgage agency bonds, while its allocation to U.S. Treasuries lagged on a relative basis. On the equity side, the Portfolio benefited primarily from the WM Equity Income Fund. The Fund's holdings in the energy, financial, and health care sectors were particularly helpful. On the downside, the Fund's holdings Data shown is past performance and does not guarantee future results. Current performance, including the most recent month-end results, which may be higher or lower than the data shown, can be obtained by calling 800-222-5852. Your investment's return and principal value will fluctuate, so it may be worth more or less upon redemption. A sales charge may apply as follows: Class A shares: maximum up-front sales charge of 4.5%; Class B shares: contingent deferred sales charge of 5%, which declines over 5 years (5-5-4-3-2-0%); Class C shares: contingent deferred sales charge of 1% on redemptions made during the first 12 months. See the prospectus for details. Performance listed with sales charge reflects the maximum sales charge noted above. Equity investments involve greater risk, including heightened volatility, than fixed-income investments. Fixed-income investments are subject to interest rate risk, and their value will decline as interest rates rise. AVERAGE ANNUAL TOTAL RETURNS(1) AS OF OCTOBER 31, 2005
1-Year 5-Year Since Inception Inception Date ------ ------ --------------- -------------- CLASS A SHARES Net Asset Value(2) 2.79% 4.72% 6.85% 7/25/96 With Sales Charge -1.83% 3.76% 6.32% CLASS B SHARES Net Asset Value(2) 1.99% 3.92% 6.17% 7/25/96 With Sales Charge -3.01% 3.58% 6.17% CLASS C SHARES Net Asset Value(2) 2.06% -- 4.39% 3/1/02 With Sales Charge 1.06% -- 4.39% Lehman Brothers Aggregate Bond Index(3) 1.14% 6.32% 6.63% S&P 500(3) 8.72% -1.74% 8.80% Capital Market Benchmark(3) 2.69% 4.90% 7.30%
VALUE OF A $10,000 INVESTMENT(1) JULY 25, 1996 - OCTOBER 31, 2005 AS OF 10/31/05 $21,825 Total Value $19,190 Total Value $18,488 Total Value $18,111 Total Value $17,656 Total Value
(PERFORMANCE GRAPH)
Class A shares Lehman Brothers Class A shares at with maximum Aggregate Bond Capital Market Date net asset value(2) sales charge Index(3) S&P 500(3) Benchmark(3) - ------ ------------------ -------------- --------------- ---------- -------------- Jul-96 10,018 9,567 10,000 10,000 10,000 Aug-96 10,046 9,594 9,983 10,212 10,029 Sep-96 10,266 9,804 10,157 10,786 10,282 Oct-96 10,446 9,976 10,382 11,081 10,520 Nov-96 10,748 10,264 10,560 11,923 10,824 Dec-96 10,690 10,209 10,462 11,689 10,701 Jan-97 10,836 10,348 10,494 12,415 10,860 Feb-97 10,866 10,377 10,520 12,515 10,899 Mar-97 10,711 10,229 10,403 11,995 10,712 Apr-97 10,857 10,369 10,559 12,711 10,968 May-97 11,035 10,539 10,660 13,491 11,186 Jun-97 11,161 10,659 10,787 14,093 11,392 Jul-97 11,529 11,011 11,078 15,212 11,819 Aug-97 11,399 10,886 10,984 14,366 11,608 Sep-97 11,598 11,076 11,146 15,153 11,872 Oct-97 11,606 11,083 11,308 14,647 11,931 Nov-97 11,667 11,142 11,360 15,325 12,084 Dec-97 11,790 11,259 11,475 15,589 12,223 Jan-98 11,896 11,360 11,622 15,762 12,376 Feb-98 12,067 11,524 11,612 16,898 12,547 Mar-98 12,211 11,661 11,652 17,764 12,710 Apr-98 12,272 11,719 11,712 17,943 12,789 May-98 12,266 11,714 11,824 17,634 12,843 Jun-98 12,397 11,839 11,924 18,350 13,034 Jul-98 12,322 11,768 11,949 18,156 13,027 Aug-98 11,853 11,320 12,144 15,531 12,820 Sep-98 12,169 11,622 12,428 16,526 13,224 Oct-98 12,365 11,809 12,362 17,870 13,383 Nov-98 12,635 12,066 12,433 18,953 13,606 Dec-98 12,891 12,311 12,470 20,044 13,795 Jan-99 13,136 12,545 12,558 20,882 13,989 Feb-99 12,948 12,366 12,339 20,233 13,706 Mar-99 13,169 12,576 12,407 21,042 13,876 Apr-99 13,439 12,834 12,446 21,856 14,019 May-99 13,331 12,731 12,337 21,340 13,854 Jun-99 13,470 12,864 12,297 22,525 13,971 Jul-99 13,359 12,758 12,246 21,822 13,837 Aug-99 13,280 12,683 12,239 21,713 13,818 Sep-99 13,335 12,735 12,381 21,118 13,870 Oct-99 13,527 12,918 12,427 22,455 14,087 Nov-99 13,708 13,091 12,426 22,911 14,143 Dec-99 13,992 13,362 12,366 24,260 14,255 Jan-00 13,834 13,211 12,326 23,042 14,074 Feb-00 13,985 13,355 12,475 22,607 14,157 Mar-00 14,343 13,697 12,639 24,818 14,583 Apr-00 14,214 13,574 12,603 24,071 14,462 May-00 14,134 13,498 12,596 23,577 14,397 Jun-00 14,367 13,721 12,858 24,157 14,708 Jul-00 14,382 13,734 12,975 23,780 14,769 Aug-00 14,780 14,115 13,164 25,257 15,124 Sep-00 14,699 14,037 13,246 23,923 15,041 Oct-00 14,685 14,025 13,334 23,823 15,107 Nov-00 14,436 13,786 13,553 21,946 15,068 Dec-00 14,706 14,044 13,805 22,053 15,307 Jan-01 15,226 14,541 14,030 22,836 15,615 Feb-01 14,978 14,304 14,152 20,754 15,438 Mar-01 14,758 14,094 14,223 19,440 15,304 Apr-01 14,951 14,278 14,163 20,950 15,491 May-01 15,077 14,398 14,248 21,091 15,585 Jun-01 15,102 14,423 14,302 20,578 15,557 Jul-01 15,255 14,568 14,622 20,376 15,806 Aug-01 15,228 14,542 14,790 19,101 15,754 Sep-01 14,943 14,270 14,962 17,558 15,645 Oct-01 15,225 14,540 15,275 17,893 15,966 Nov-01 15,318 14,629 15,064 19,265 16,035 Dec-01 15,338 14,648 14,967 19,435 15,980 Jan-02 15,349 14,658 15,089 19,151 16,038 Feb-02 15,358 14,667 15,235 18,781 16,100 Mar-02 15,427 14,733 14,982 19,488 16,007 Apr-02 15,441 14,746 15,273 18,307 16,061 May-02 15,484 14,787 15,403 18,171 16,146 Jun-02 15,263 14,576 15,537 16,877 16,029 Jul-02 14,982 14,308 15,725 15,561 15,934 Aug-02 15,144 14,462 15,990 15,664 16,170 Sep-02 14,956 14,283 16,249 13,961 16,028 Oct-02 15,165 14,483 16,175 15,190 16,250 Nov-02 15,478 14,781 16,170 16,084 16,437 Dec-02 15,496 14,799 16,505 15,139 16,516 Jan-03 15,512 14,814 16,519 14,742 16,442 Feb-03 15,572 14,871 16,747 14,521 16,573 Mar-03 15,617 14,915 16,734 14,662 16,595 Apr-03 16,044 15,322 16,873 15,870 16,978 May-03 16,501 15,758 17,187 16,706 17,409 Jun-03 16,575 15,829 17,152 16,920 17,427 Jul-03 16,345 15,609 16,576 17,218 17,019 Aug-03 16,467 15,726 16,685 17,553 17,176 Sep-03 16,705 15,953 17,128 17,367 17,504 Oct-03 16,905 16,144 16,968 18,350 17,572 Nov-03 17,044 16,277 17,009 18,512 17,637 Dec-03 17,367 16,586 17,183 19,482 17,965 Jan-04 17,586 16,795 17,320 19,840 18,146 Feb-04 17,743 16,944 17,507 20,116 18,353 Mar-04 17,806 17,005 17,638 19,812 18,408 Apr-04 17,412 16,629 17,180 19,501 17,968 May-04 17,381 16,599 17,111 19,769 17,959 Jun-04 17,571 16,780 17,209 20,152 18,110 Jul-04 17,492 16,704 17,379 19,485 18,134 Aug-04 17,714 16,917 17,711 19,563 18,426 Sep-04 17,809 17,008 17,759 19,774 18,505 Oct-04 17,985 17,176 17,908 20,077 18,686 Nov-04 18,113 17,298 17,765 20,890 18,718 Dec-04 18,363 17,536 17,928 21,600 18,984 Jan-05 18,265 17,443 18,041 21,073 18,988 Feb-05 18,298 17,475 17,935 21,516 18,978 Mar-05 18,137 17,321 17,843 21,135 18,834 Apr-05 18,170 17,352 18,084 20,733 18,966 May-05 18,446 17,616 18,279 21,393 19,250 Jun-05 18,566 17,730 18,380 21,422 19,341 Jul-05 18,681 17,840 18,213 22,219 19,345 Aug-05 18,763 17,919 18,446 22,017 19,507 Sep-05 18,637 17,799 18,256 22,196 19,378 Oct-05 18,488 17,656 18,111 21,825 19,190
Performance of Class B shares and C shares will differ. See Glossary on page 18 for definitions of indices and terms. (1) Performance reflects ongoing expenses and assumes reinvestment of all dividends and capital gains. It also reflects ongoing fund expenses paid by the Portfolio's applicable Funds, which include the effects of expense reimbursement. Performance does not reflect the impact of federal, state, or municipal taxes. If it did, performance would be lower. The Portfolio's performance between 1996 and 1999 benefited from the agreement of WM Advisors and its affiliates to limit the Portfolio's expenses. (2) Net asset value is not adjusted for sales charge. (3) Returns shown for the indices assume reinvestment of all dividends and distributions, and since-inception returns shown for the indices are calculated from 7/31/96. Indices are unmanaged, and individuals cannot invest directly in an index. 8 (GRAPHIC) PORTFOLIO MANAGER Asset Allocation Team WM Advisors, Inc. in the telecommunication services and consumer discretionary sectors detracted from returns. The WM Growth & Income Fund also contributed strongly to the Portfolio's performance during the period. The Fund benefited from its holdings in financials, information technology, and energy, while its holdings in consumer discretionaries and materials lagged on a relative basis. During the fiscal year, the Portfolio significantly increased its allocations to U.S. growth stocks in anticipation that they may outperform over the next market cycle. The Portfolio also increased its allocation to mortgage and asset-backed bonds, while it reduced its exposure to corporate and high-yield bonds. Looking forward, we anticipate that economic growth for fiscal 2006 will be weaker than current consensus projections. We also believe that inflation will be more muted than expected. The housing market appears to be slowing, which may make it more difficult for consumers to secure low-interest home equity loans. This in turn may negatively impact consumer spending. Given this combination of factors, we believe the Federal Reserve will likely halt its monetary tightening campaign relatively early in 2006. In this scenario, we believe that long-term interest rates will fall to the 3%-4% range, but then stabilize. If long-term rates stabilize, we would expect mortgage-backed securities to offer a better relative value than corporate bonds, and that high-yield issues will continue to outperform. Equities appear fairly valued, with growth stocks more attractive than value holdings. PORTFOLIO CHARACTERISTICS AS OF OCTOBER 31, 2005 Equity/Fixed-Income Allocation:(4) 26% Equity/74% Fixed-Income Weighted Average Market Capitalization (equities): $61.9 billion Weighted Average P/E (equities):(5) 16.2 Beta: 0.24 Portfolio Standard Deviation: 3.61 S&P 500 Standard Deviation: 11.57 Portfolio Turnover (for fiscal year):(6) 3% Aggregate Portfolio Turnover (for fiscal year):(7) 38% Number of Securities:(8) 1,585 Total Net Assets: $989.5 million
PORTFOLIO COMPOSITION(4)
As of As of Asset Class 10/31/05 10/31/04 Change - ----------- -------- -------- ------ Mortgage- & Asset-Backed Bonds 38% 37% +1% Investment-Grade Corporate Bonds 17% 19% -2% High-Yield Corporate Bonds 8% 9% -1% U.S. Large-Cap Value Stocks 7% 7% 0% U.S. Large-Cap Growth Stocks 7% 6% +1% U.S. Government Securities 6% 6% 0% U.S. Mid-Cap Growth Stocks 3% 2% +1% U.S. Mid-Cap Value Stocks 2% 3% -1% Convertible Securities 2% 2% 0% REITs 2% 2% 0% U.S. Small-Cap Growth Stocks 2% 1% +1% U.S. Small-Cap Value Stocks 1% 1% 0% Cash Equivalents 5% 5% 0%
Note: Pages 48 and 49 provide information about those WM Funds in which the Flexible Income Portfolio invests a significant portion of its assets. For additional information about these and other WM Funds, please see the WM Group of Funds annual report, which is available online at wmgroupoffunds.com or by calling 800-222-5852. (4) May not reflect the current portfolio composition. (5) Based on estimated earnings. (6) Does not reflect portfolio turnover of the underlying WM Funds. (7) Aggregate portfolio turnover of the Portfolio and its underlying WM Funds assumes a constant allocation by the Portfolio of its assets among the underlying Funds identical to the actual allocation of the Portfolio on 10/31/05. The Portfolio's actual aggregate portfolio turnover may be different as a result of changes in the allocation of its assets among the underlying Funds, the portfolio turnover of the underlying Funds, and/or the Portfolio's own portfolio turnover. (8) Represents the sum of securities held by the underlying WM Funds. Some securities may be held by more than one WM Fund. 9 (GRAPHIC) Conservative Balanced Portfolio* ANNUAL TOTAL RETURNS(1) Class a Shares At Net Asset Value(2) (Calendar Year) 2004 7.38% 2003 15.98% 2002 -2.98% 2001 2.20% 2000 3.97% 1999 1.97% 1998 5.28% 1997 8.29%
* As of 8/1/00, the Income Portfolio became the Conservative Balanced Portfolio, and the Portfolio's objectives and strategies changed. This information should be considered when reviewing past performance. Please see the prospectus for detailed information. INVESTMENT STRATEGY As of October 31, 2005, the WM Strategic Asset Management (SAM) Conservative Balanced Portfolio was diversified among 13 funds representing 14 major asset classes. The Portfolio held a 42%/58% equity-to-fixed income ratio at the end of the fiscal year. Among all underlying WM Funds, the WM Equity Income Fund made the greatest overall contribution to Portfolio performance for the period. The Fund's holdings in the energy, financial, and health care sectors were particularly helpful. On the downside, the Fund's holdings in the telecommunication services and consumer discretionary sectors detracted from returns. The WM Growth & Income Fund also contributed strongly to the Portfolio's performance during the period. The Fund benefited from its holdings in financials, information technology, and energy, while its holdings in consumer discretionaries and materials lagged on a relative basis. On the fixed-income side, the Portfolio benefited primarily from the WM High Yield Fund. The Fund's holdings in domestic corporate Data shown is past performance and does not guarantee future results. Current performance, including the most recent month-end results, which may be higher or lower than the data shown, can be obtained by calling 800-222-5852. Your investment's return and principal value will fluctuate, so it may be worth more or less upon redemption. A sales charge may apply as follows: Class A shares: maximum up-front sales charge of 5.5%; Class B shares: contingent deferred sales charge of 5%, which declines over 5 years (5-5-4-3-2-0%); Class C shares: contingent deferred sales charge of 1% on redemptions made during the first 12 months. See the prospectus for details. Performance listed with sales charge reflects the maximum sales charge noted above. Equity investments involve greater risk, including heightened volatility, than fixed-income investments. Fixed-income investments are subject to interest rate risk, and their value will decline as interest rates rise. AVERAGE ANNUAL TOTAL RETURNS(1) AS OF OCTOBER 31, 2005
1-Year 5-Year Since Inception Inception Date ------ ------ --------------- -------------- CLASS A SHARES Net Asset Value(2) 4.82% 4.30% 5.05% 7/25/96 With Sales Charge -0.97% 3.13% 4.42% CLASS B SHARES Net Asset Value(2) 4.02% 3.51% 4.37% 7/25/96 With Sales Charge -0.98% 3.16% 4.37% CLASS C SHARES Net Asset Value(2) 4.00% -- 5.07% 3/1/02 With Sales Charge 3.00% -- 5.07% Lehman Brothers Aggregate Bond Index(3) 1.14% 6.32% 6.63% S&P 500(3) 8.72% -1.74% 8.80% Capital Market Benchmark(3) 4.22% 3.39% 7.86%
VALUE OF A $10,000 INVESTMENT(1) JULY 25, 1996 - OCTOBER 31, 2005 AS OF 10/31/05 $21,825 Total Value $20,147 Total Value $18,111 Total Value $15,792 Total Value $14,923 Total Value
(PERFORMANCE GRAPH)
Class A shares Lehman Brothers Class A shares at with maximum Aggregate Bond Capital Market Date net asset value(2) sales charge Index(3) S&P 500(3) Benchmark(3) - ------ ------------------ -------------- --------------- ---------- -------------- Jul-96 10,041 9,489 10,000 10,000 10,000 Aug-96 9,994 9,445 9,983 10,212 10,075 Sep-96 10,144 9,586 10,157 10,786 10,406 Oct-96 10,368 9,798 10,382 11,081 10,659 Nov-96 10,529 9,950 10,560 11,923 11,092 Dec-96 10,462 9,886 10,462 11,689 10,943 Jan-97 10,467 9,891 10,494 12,415 11,236 Feb-97 10,519 9,941 10,520 12,515 11,288 Mar-97 10,407 9,834 10,403 11,995 11,025 Apr-97 10,522 9,944 10,559 12,711 11,388 May-97 10,617 10,033 10,660 13,491 11,733 Jun-97 10,733 10,142 10,787 14,093 12,027 Jul-97 11,009 10,403 11,078 15,212 12,604 Aug-97 10,913 10,313 10,984 14,366 12,260 Sep-97 11,051 10,444 11,146 15,153 12,637 Oct-97 11,192 10,576 11,308 14,647 12,578 Nov-97 11,224 10,607 11,360 15,325 12,846 Dec-97 11,324 10,701 11,475 15,589 13,012 Jan-98 11,442 10,813 11,622 15,762 13,169 Feb-98 11,434 10,805 11,612 16,898 13,543 Mar-98 11,461 10,831 11,652 17,764 13,848 Apr-98 11,511 10,878 11,712 17,943 13,946 May-98 11,595 10,957 11,824 17,634 13,929 Jun-98 11,668 11,026 11,924 18,350 14,226 Jul-98 11,685 11,043 11,949 18,156 14,183 Aug-98 11,718 11,073 12,144 15,531 13,501 Sep-98 11,850 11,199 12,428 16,526 14,037 Oct-98 11,779 11,131 12,362 17,870 14,450 Nov-98 11,915 11,259 12,433 18,953 14,850 Dec-98 11,922 11,266 12,470 20,044 15,218 Jan-99 12,014 11,353 12,558 20,882 15,538 Feb-99 11,883 11,229 12,339 20,233 15,182 Mar-99 11,962 11,304 12,407 21,042 15,475 Apr-99 12,075 11,411 12,446 21,856 15,744 May-99 12,024 11,363 12,337 21,340 15,513 Jun-99 12,008 11,348 12,297 22,525 15,828 Jul-99 11,995 11,335 12,246 21,822 15,590 Aug-99 11,986 11,326 12,239 21,713 15,555 Sep-99 12,102 11,436 12,381 21,118 15,492 Oct-99 12,121 11,455 12,427 22,455 15,918 Nov-99 12,155 11,487 12,426 22,911 16,047 Dec-99 12,159 11,490 12,366 24,260 16,380 Jan-00 12,145 11,477 12,326 23,042 16,018 Feb-00 12,241 11,568 12,475 22,607 16,013 Mar-00 12,350 11,671 12,639 24,818 16,767 Apr-00 12,331 11,652 12,603 24,071 16,536 May-00 12,286 11,610 12,596 23,577 16,395 Jun-00 12,496 11,809 12,858 24,157 16,761 Jul-00 12,582 11,890 12,975 23,780 16,747 Aug-00 13,013 12,297 13,164 25,257 17,308 Sep-00 12,851 12,145 13,246 23,923 17,009 Oct-00 12,792 12,089 13,334 23,823 17,048 Nov-00 12,389 11,708 13,553 21,946 16,678 Dec-00 12,643 11,948 13,805 22,053 16,896 Jan-01 13,160 12,437 14,030 22,836 17,302 Feb-01 12,776 12,074 14,152 20,754 16,760 Mar-01 12,498 11,810 14,223 19,440 16,387 Apr-01 12,796 12,093 14,163 20,950 16,855 May-01 12,924 12,213 14,248 21,091 16,962 Jun-01 12,932 12,221 14,302 20,578 16,834 Jul-01 12,981 12,267 14,622 20,376 16,994 Aug-01 12,859 12,152 14,790 19,101 16,687 Sep-01 12,414 11,731 14,962 17,558 16,264 Oct-01 12,666 11,970 15,275 17,893 16,593 Nov-01 12,874 12,166 15,064 19,265 16,965 Dec-01 12,920 12,210 14,967 19,435 16,960 Jan-02 12,861 12,154 15,089 19,151 16,943 Feb-02 12,815 12,110 15,235 18,781 16,910 Mar-02 12,980 12,266 14,982 19,488 16,997 Apr-02 12,884 12,175 15,273 18,307 16,783 May-02 12,898 12,189 15,403 18,171 16,819 Jun-02 12,594 11,901 15,537 16,877 16,428 Jul-02 12,221 11,549 15,725 15,561 16,035 Aug-02 12,331 11,653 15,990 15,664 16,240 Sep-02 11,984 11,325 16,249 13,961 15,691 Oct-02 12,277 11,602 16,175 15,190 16,200 Nov-02 12,638 11,943 16,170 16,084 16,579 Dec-02 12,534 11,845 16,505 15,139 16,395 Jan-03 12,507 11,819 16,519 14,742 16,232 Feb-03 12,507 11,819 16,747 14,521 16,270 Mar-03 12,543 11,853 16,734 14,662 16,325 Apr-03 12,982 12,268 16,873 15,870 16,944 May-03 13,462 12,722 17,187 16,706 17,489 Jun-03 13,546 12,801 17,152 16,920 17,558 Jul-03 13,445 12,706 16,576 17,218 17,328 Aug-03 13,588 12,841 16,685 17,553 17,532 Sep-03 13,755 12,998 17,128 17,367 17,737 Oct-03 14,041 13,269 16,968 18,350 18,041 Nov-03 14,184 13,404 17,009 18,512 18,131 Dec-03 14,536 13,737 17,183 19,482 18,622 Jan-04 14,738 13,928 17,320 19,840 18,849 Feb-04 14,883 14,064 17,507 20,116 19,075 Mar-04 14,920 14,099 17,638 19,812 19,047 Apr-04 14,557 13,757 17,180 19,501 18,630 May-04 14,586 13,784 17,111 19,769 18,687 Jun-04 14,782 13,969 17,209 20,152 18,897 Jul-04 14,607 13,804 17,379 19,485 18,759 Aug-04 14,768 13,956 17,711 19,563 19,005 Sep-04 14,905 14,086 17,759 19,774 19,117 Oct-04 15,067 14,238 17,908 20,077 19,331 Nov-04 15,317 14,474 17,765 20,890 19,551 Dec-04 15,612 14,754 17,928 21,600 19,925 Jan-05 15,434 14,586 18,041 21,073 19,805 Feb-05 15,538 14,683 17,935 21,516 19,902 Mar-05 15,372 14,526 17,843 21,135 19,701 Apr-05 15,342 14,499 18,084 20,733 19,711 May-05 15,625 14,765 18,279 21,393 20,089 Jun-05 15,739 14,873 18,380 21,422 20,168 Jul-05 15,948 15,071 18,213 22,219 20,357 Aug-05 15,993 15,113 18,446 22,017 20,439 Sep-05 15,942 15,065 18,256 22,196 20,379 Oct-05 15,792 14,923 18,111 21,825 20,147
Performance of Class B shares and C shares will differ. See Glossary on page 18 for definitions of indices and terms. (1) Performance reflects ongoing expenses and assumes reinvestment of all dividends and capital gains. It also reflects ongoing fund expenses paid by the Portfolio's applicable Funds, which include the effects of expense reimbursement. Performance does not reflect the impact of federal, state, or municipal taxes. If it did, performance would be lower. The Portfolio's performance between 1996 and 2003 benefited from the agreement of WM Advisors and its affiliates to limit the Portfolio's expenses. (2) Net asset value is not adjusted for sales charge. (3) Returns shown for the indices assume reinvestment of all dividends and distributions, and since-inception returns shown for the indices are calculated from 7/31/96. Indices are unmanaged, and individuals cannot invest directly in an index. 10 (GRAPHIC) PORTFOLIO MANAGER Asset Allocation Team WM Advisors, Inc. bonds and real estate investment trusts (REITs) were the primary drivers of performance. The Portfolio also gained from the contribution of the WM U.S. Government Securities Fund, which advanced primarily due to its holdings in mortgage agency bonds. During the fiscal year, the Portfolio significantly increased its allocations to U.S. mid- and large-cap growth stocks in anticipation that these asset classes may outperform over the next market cycle. The Portfolio also increased its allocation to mortgage- and asset-backed bonds, while it reduced its exposure to corporate bonds. Looking forward, we anticipate that economic growth for fiscal 2006 will be weaker than current consensus projections. We also believe that inflation will be more muted than expected. The housing market appears to be slowing, which may make it more difficult for consumers to secure low-interest home equity loans. This in turn may negatively impact consumer spending. Given this combination of factors, we believe the Federal Reserve will likely halt its monetary tightening campaign relatively early in 2006. In this scenario, we believe that long-term interest rates will fall to the 3%-4% range, but then stabilize. If long-term rates stabilize, we would expect mortgage-backed securities to offer a better relative value than corporate bonds, and that high-yield issues will continue to outperform. Equities appear fairly valued, with international stocks more attractive than U.S. holdings. PORTFOLIO CHARACTERISTICS AS OF OCTOBER 31, 2005 Equity/Fixed-Income Allocation:(4) 42% Equity/58% Fixed-Income Weighted Average Market Capitalization (equities): $62.5 billion Weighted Average P/E (equities):(5) 16.2 Beta: 0.39 Portfolio Standard Deviation: 4.61 S&P 500 Standard Deviation: 11.57 Portfolio Turnover (for fiscal year):(6) 2% Aggregate Portfolio Turnover (for fiscal year):(7) 37% Number of Securities:(8) 1,838 Total Net Assets: $613.9 million
PORTFOLIO COMPOSITION(4)
As of As of Asset Class 10/31/05 10/31/04 Change - ----------- -------- -------- ------ Mortgage- & Asset-Backed Bonds 31% 30% +1% U.S. Large-Cap Value Stocks 12% 10% +2% Investment-Grade Corporate Bonds 11% 13% -2% U.S. Large-Cap Growth Stocks 11% 9% +2% High-Yield Corporate Bonds 6% 7% -1% U.S. Government Securities 5% 5% 0% U.S. Mid-Cap Growth Stocks 5% 3% +2% Foreign Stocks 4% 4% 0% U.S. Mid-Cap Value Stocks 3% 5% -2% REITs 3% 3% 0% Convertible Securities 2% 2% 0% U.S. Small-Cap Growth Stocks 2% 2% 0% U.S. Small-Cap Value Stocks 1% 2% -1% Cash Equivalents 4% 5% -1%
Note: Page 48 provides information about a WM Fund in which the Conservative Balanced Portfolio invests a significant portion of its assets. For additional information about this and other WM Funds, please see the WM Group of Funds annual report, which is available online at wmgroupoffunds.com or by calling 800-222-5852. (4) May not reflect the current portfolio composition. (5) Based on estimated earnings. (6) Does not reflect portfolio turnover of the underlying WM Funds. (7) Aggregate portfolio turnover of the Portfolio and its underlying WM Funds assumes a constant allocation by the Portfolio of its assets among the underlying Funds identical to the actual allocation of the Portfolio on 10/31/05. The Portfolio's actual aggregate portfolio turnover may be different as a result of changes in the allocation of its assets among the underlying Funds, the portfolio turnover of the underlying Funds, and/or the Portfolio's own portfolio turnover. (8) Represents the sum of securities held by the underlying WM Funds. Some securities may be held by more than one WM Fund. 11 (GRAPHIC) Balanced Portfolio ANNUAL TOTAL RETURNS(1) Class A shares at net asset value(2) (Calendar Year) 2004 9.23% 2003 21.34% 2002 -9.41% 2001 -0.51% 2000 0.13% 1999 26.97% 1998 16.27% 1997 10.22%
INVESTMENT STRATEGY As of October 31, 2005, the WM Strategic Asset Management (SAM) Balanced Portfolio was diversified among 13 funds representing 14 major asset classes. The Portfolio held a 62%/38% equity-to-fixed-income ratio during most of the fiscal year. Among all underlying WM Funds, the WM Equity Income Fund made the greatest overall contribution to Portfolio performance for the period. The Fund's holdings in the energy, financial, and health care sectors were particularly helpful. On the downside, the Fund's holdings in the telecommunication services and consumer discretionary sectors detracted from returns. The WM Mid Cap Stock Fund also contributed strongly to the Portfolio's performance during the period. The Fund benefited from its holdings in financials, energy, and utilities, while its holdings in consumer discretionaries and materials lagged on a relative basis. On the fixed-income side, the Portfolio benefited primarily from the WM High Yield Fund. The Fund's holdings in domestic corporate Data shown is past performance and does not guarantee future results. Current performance, including the most recent month-end results, which may be higher or lower than the data shown, can be obtained by calling 800-222-5852. Your investment's return and principal value will fluctuate, so it may be worth more or less upon redemption. A sales charge may apply as follows: Class A shares: maximum up-front sales charge of 5.5%; Class B shares: contingent deferred sales charge of 5%, which declines over 5 years (5-5-4-3-2-0%); Class C shares: contingent deferred sales charge of 1% on redemptions made during the first 12 months. See the prospectus for details. Performance listed with sales charge reflects the maximum sales charge noted above. Equity investments involve greater risk, including heightened volatility, than fixed-income investments. Fixed-income investments are subject to interest rate risk, and their value will decline as interest rates rise. AVERAGE ANNUAL TOTAL RETURNS (1) AS OF OCTOBER 31, 2005
1-Year 5-Year Since Inception Inception Date ------ ------ --------------- -------------- CLASS A SHARES Net Asset Value(2) 7.20% 3.37% 8.48% 7/25/96 With Sales Charge 1.27% 2.20% 7.82% CLASS B SHARES Net Asset Value(2) 6.32% 2.56% 7.77% 7/25/96 With Sales Charge 1.32% 2.20% 7.77% CLASS C SHARES Net Asset Value(2) 6.41% -- 5.59% 3/1/02 With Sales Charge 5.41% -- 5.59% S&P 500(3) 8.72% -1.74% 8.80% Lehman Brothers Aggregate Bond Index(3) 1.14% 6.32% 6.63% Capital Market Benchmark(3) 5.74% 1.77% 8.30% Russell 3000(R) Index(3) 10.60% -0.81% 9.04%
VALUE OF A $10,000 INVESTMENT(1) JULY 25, 1996 - OCTOBER 31, 2005 AS OF 10/31/05 $22,271 Total Value $21,825 Total Value $21,277 Total Value $20,899 Total Value $20,107 Total Value $18,111 Total Value
(PERFORMANCE GRAPH)
Class A shares Lehman Brothers Class A shares at with maximum Aggregate Bond Capital Market Russell Date net asset value(2) sales charge S&P 500(3) Index(3) Benchmark(3) 3000(R) Index(3) - ------ ------------------ -------------- ---------- --------------- -------------- ---------------- Jul-96 10,074 9,520 10,000 10,000 10,000 10,000 Aug-96 10,162 9,604 10,212 9,983 10,120 10,303 Sep-96 10,432 9,858 10,786 10,157 10,532 10,863 Oct-96 10,462 9,886 11,081 10,382 10,798 11,062 Nov-96 10,813 10,218 11,923 10,560 11,364 11,842 Dec-96 10,740 10,150 11,689 10,462 11,188 11,700 Jan-97 10,912 10,312 12,415 10,494 11,619 12,347 Feb-97 10,868 10,271 12,515 10,520 11,687 12,361 Mar-97 10,585 10,003 11,995 10,403 11,344 11,802 Apr-97 10,792 10,199 12,711 10,559 11,818 12,384 May-97 11,245 10,627 13,491 10,660 12,298 13,230 Jun-97 11,501 10,868 14,093 10,787 12,685 13,780 Jul-97 12,082 11,417 15,212 11,078 13,426 14,860 Aug-97 11,696 11,053 14,366 10,984 12,932 14,257 Sep-97 12,089 11,424 15,153 11,146 13,434 15,065 Oct-97 11,735 11,090 14,647 11,308 13,243 14,559 Nov-97 11,750 11,104 15,325 11,360 13,635 15,117 Dec-97 11,831 11,181 15,589 11,475 13,831 15,419 Jan-98 11,979 11,320 15,762 11,622 13,994 15,499 Feb-98 12,542 11,852 16,898 11,612 14,596 16,607 Mar-98 12,942 12,230 17,764 11,652 15,065 17,431 Apr-98 13,089 12,369 17,943 11,712 15,187 17,602 May-98 12,920 12,209 17,634 11,824 15,088 17,167 Jun-98 13,146 12,423 18,350 11,924 15,507 17,748 Jul-98 13,010 12,295 18,156 11,949 15,422 17,425 Aug-98 11,653 11,012 15,531 12,144 14,185 14,755 Sep-98 12,033 11,371 16,526 12,428 14,863 15,761 Oct-98 12,510 11,822 17,870 12,362 15,557 16,958 Nov-98 13,040 12,323 18,953 12,433 16,158 17,995 Dec-98 13,757 13,001 20,044 12,470 16,736 19,140 Jan-99 14,260 13,475 20,882 12,558 17,203 19,791 Feb-99 13,930 13,164 20,233 12,339 16,763 19,090 Mar-99 14,496 13,698 21,042 12,407 17,202 19,791 Apr-99 15,019 14,193 21,856 12,446 17,624 20,683 May-99 14,659 13,852 21,340 12,337 17,312 20,290 Jun-99 15,245 14,406 22,525 12,297 17,866 21,315 Jul-99 15,039 14,212 21,822 12,246 17,501 20,669 Aug-99 15,008 14,182 21,713 12,239 17,445 20,434 Sep-99 15,140 14,307 21,118 12,381 17,239 19,910 Oct-99 15,657 14,796 22,455 12,427 17,918 21,159 Nov-99 16,292 15,395 22,911 12,426 18,137 21,751 Dec-99 17,468 16,507 24,260 12,366 18,743 23,139 Jan-00 17,096 16,155 23,042 12,326 18,152 22,232 Feb-00 17,697 16,724 22,607 12,475 18,034 22,439 Mar-00 18,366 17,356 24,818 12,639 19,189 24,196 Apr-00 17,852 16,870 24,071 12,603 18,820 23,344 May-00 17,563 16,597 23,577 12,596 18,585 22,688 Jun-00 17,934 16,947 24,157 12,858 19,014 23,360 Jul-00 17,738 16,762 23,780 12,975 18,906 22,946 Aug-00 18,552 17,532 25,257 13,164 19,721 24,649 Sep-00 18,140 17,143 23,923 13,246 19,145 23,532 Oct-00 18,024 17,033 23,823 13,334 19,147 23,198 Nov-00 17,098 16,157 21,946 13,553 18,368 21,059 Dec-00 17,491 16,529 22,053 13,805 18,559 21,413 Jan-01 18,369 17,359 22,836 14,030 19,075 22,145 Feb-01 17,482 16,520 20,754 14,152 18,098 20,121 Mar-01 16,863 15,936 19,440 14,223 17,446 18,809 Apr-01 17,504 16,541 20,950 14,163 18,230 20,318 May-01 17,735 16,759 21,091 14,248 18,346 20,480 Jun-01 17,765 16,788 20,578 14,302 18,106 20,103 Jul-01 17,653 16,682 20,376 14,622 18,162 19,772 Aug-01 17,284 16,334 19,101 14,790 17,563 18,605 Sep-01 16,354 15,455 17,558 14,962 16,794 16,964 Oct-01 16,714 15,795 17,893 15,275 17,126 17,360 Nov-01 17,216 16,269 19,265 15,064 17,820 18,696 Dec-01 17,403 16,446 19,435 14,967 17,868 18,960 Jan-02 17,149 16,206 19,151 15,089 17,770 18,723 Feb-02 16,942 16,010 18,781 15,235 17,633 18,341 Mar-02 17,387 16,431 19,488 14,982 17,913 19,144 Apr-02 17,013 16,078 18,307 15,273 17,401 18,139 May-02 16,969 16,036 18,171 15,403 17,383 17,929 Jun-02 16,351 15,452 16,877 15,537 16,700 16,638 Jul-02 15,555 14,700 15,561 15,725 16,000 15,315 Aug-02 15,675 14,813 15,664 15,990 16,172 15,387 Sep-02 14,915 14,094 13,961 16,249 15,222 13,770 Oct-02 15,489 14,637 15,190 16,175 15,999 14,866 Nov-02 16,108 15,222 16,084 16,170 16,562 15,765 Dec-02 15,764 14,897 15,139 16,505 16,115 14,875 Jan-03 15,626 14,767 14,742 16,519 15,867 14,510 Feb-03 15,535 14,680 14,521 16,747 15,811 14,271 Mar-03 15,554 14,698 14,662 16,734 15,898 14,421 Apr-03 16,305 15,408 15,870 16,873 16,737 15,599 May-03 17,086 16,146 16,706 17,187 17,392 16,541 Jun-03 17,250 16,301 16,920 17,152 17,512 16,764 Jul-03 17,297 16,345 17,218 16,576 17,461 17,148 Aug-03 17,574 16,607 17,553 16,685 17,711 17,529 Sep-03 17,700 16,727 17,367 17,128 17,785 17,338 Oct-03 18,288 17,282 18,350 16,968 18,322 18,387 Nov-03 18,535 17,515 18,512 17,009 18,436 18,641 Dec-03 19,130 18,077 19,482 17,183 19,090 19,492 Jan-04 19,472 18,401 19,840 17,320 19,361 19,900 Feb-04 19,674 18,592 20,116 17,507 19,607 20,168 Mar-04 19,676 18,594 19,812 17,638 19,488 19,928 Apr-04 19,177 18,122 19,501 17,180 19,102 19,516 May-04 19,286 18,225 19,769 17,111 19,228 19,799 Jun-04 19,627 18,548 20,152 17,209 19,495 20,193 Jul-04 19,190 18,134 19,485 17,379 19,185 19,430 Aug-04 19,362 18,297 19,563 17,711 19,377 19,509 Sep-04 19,595 18,517 19,774 17,759 19,524 19,810 Oct-04 19,846 18,754 20,077 17,908 19,768 20,135 Nov-04 20,396 19,274 20,890 17,765 20,185 21,071 Dec-04 20,899 19,750 21,600 17,928 20,672 21,821 Jan-05 20,536 19,406 21,073 18,041 20,422 21,241 Feb-05 20,774 19,631 21,516 17,935 20,630 21,708 Mar-05 20,525 19,396 21,135 17,843 20,368 21,341 Apr-05 20,367 19,246 20,733 18,084 20,246 20,878 May-05 20,874 19,726 21,393 18,279 20,720 21,669 Jun-05 21,037 19,880 21,422 18,380 20,784 21,821 Jul-05 21,531 20,347 22,219 18,213 21,173 22,715 Aug-05 21,531 20,347 22,017 18,446 21,164 22,500 Sep-05 21,516 20,332 22,196 18,256 21,179 22,695 Oct-05 21,277 20,107 21,825 18,111 20,899 22,271
Performance of Class B shares and C shares will differ. See Glossary on page 18 for definitions of indices and terms. (1) Performance reflects ongoing expenses and assumes reinvestment of all dividends and capital gains. It also reflects ongoing fund expenses paid by the Portfolio's applicable Funds, which include the effects of expense reimbursement. Performance does not reflect the impact of federal, state, or municipal taxes. If it did, performance would be lower. The Portfolio's performance between 1996 and 1999 benefited from the agreement of WM Advisors and its affiliates to limit the Portfolio's expenses. (2) Net asset value is not adjusted for sales charge. 12 (GRAPHIC) PORTFOLIO MANAGER Asset Allocation Team WM Advisors, Inc. bonds and real estate investment trusts (REITs) were the primary drivers of performance. The WM Income Fund also contributed modestly to Portfolio returns, as its holdings in domestic corporate bonds and mortgage-backed securities gained for the period. During the fiscal year, the Portfolio significantly increased its allocations to U.S. mid- and large-cap growth stocks in anticipation that these asset classes may outperform U.S. small- and mid-cap value stocks over the next market cycle. In contrast, the Portfolio slightly reduced its allocation to investment-grade corporate bonds, while its exposures to mortgage- and asset-backed and high-yield securities were unchanged. Looking forward, we anticipate that economic growth for fiscal 2006 will be weaker than current consensus projections. We also believe that inflation will be more muted than expected. The housing market appears to be slowing, which may make it more difficult for consumers to secure low-interest home equity loans. This in turn may negatively impact consumer spending. Given this combination of factors, we believe the Federal Reserve will likely halt its monetary tightening campaign relatively early in 2006. In this scenario, we believe that long-term interest rates will fall to the 3%-4% range, but then stabilize. If long-term rates stabilize, we would expect mortgage-backed securities to offer a better relative value than corporate bonds, and that high-yield issues will continue to outperform. Equities appear fairly valued, with international stocks more attractive than U.S. holdings. PORTFOLIO CHARACTERISTICS AS OF OCTOBER 31, 2005 Equity/Fixed-Income Allocation:(4) 62% Equity/38% Fixed-Income Weighted Average Market Capitalization (equities): $60.8 billion Weighted Average P/E (equities):(5) 16.3 Beta: 0.59 Portfolio Standard Deviation: 6.39 S&P 500 Standard Deviation: 11.57 Portfolio Turnover (for fiscal year):(6) 0.47% Aggregate Portfolio Turnover (for fiscal year):(7) 39% Number of Securities:(8) 1,838 Total Net Assets: $4.3 billion
PORTFOLIO COMPOSITION(4)
As of As of Asset Class 10/31/05 10/31/04 Change - ----------- -------- -------- ------ Mortgage- & Asset-Backed Bonds 19% 19% 0% U.S. Large-Cap Value Stocks 17% 16% +1% U.S. Large-Cap Growth Stocks 16% 14% +2% U.S. Mid-Cap Growth Stocks 7% 5% +2% Investment-Grade Corporate Bonds 6% 7% -1% Foreign Stocks 6% 5% +1% U.S. Mid-Cap Value Stocks 5% 8% -3% High-Yield Corporate Bonds 5% 5% 0% REITs 4% 5% -1% U.S. Small-Cap Growth Stocks 3% 3% 0% U.S. Government Securities 3% 2% +1% U.S. Small-Cap Value Stocks 2% 3% -1% Convertible Securities 1% 1% 0% Cash Equivalents 6% 7% -1%
Note: For information about the underlying WM Funds of the SAM Portfolios, please see the WM Group of Funds annual report, which is available online at wmgroupoffunds.com or by calling 800-222-5852. (3) Returns shown for the indices assume reinvestment of all dividends and distributions, and since-inception returns shown for the indices are calculated from 7/31/96. Indices are unmanaged, and individuals cannot invest directly in an index. Effective 3/1/05, the S&P 500 replaced the Russell 3000(R) Index because WM Advisors believes the new benchmark more accurately reflects the Portfolio's performance characteristics. (4) May not reflect the current portfolio composition. (5) Based on estimated earnings. (6) Does not reflect portfolio turnover of the underlying WM Funds. (7) Aggregate portfolio turnover of the Portfolio and its underlying WM Funds assumes a constant allocation by the Portfolio of its assets among the underlying Funds identical to the actual allocation of the Portfolio on 10/31/05. The Portfolio's actual aggregate portfolio turnover may be different as a result of changes in the allocation of its assets among the underlying Funds, the portfolio turnover of the underlying Funds, and/or the Portfolio's own portfolio turnover. (8) Represents the sum of securities held by the underlying WM Funds. Some securities may be held by more than one WM Fund. 13 (GRAPHIC) Conservative Growth Portfolio ANNUAL TOTAL RETURNS(1) Class A shares at net asset value(2) (Calendar Year) 2004 10.88% 2003 26.97% 2002 -15.70% 2001 -4.20% 2000 -2.96% 1999 40.28% 1998 18.82% 1997 8.65%
INVESTMENT STRATEGY As of October 31, 2005, the WM Strategic Asset Management (SAM) Conservative Growth Portfolio was diversified among 12 funds representing 14 major asset classes. The Portfolio held an 81%/19% equity-to-fixed-income ratio during most of the fiscal year. Among all underlying WM Funds, the WM Equity Income Fund made the greatest overall contribution to Portfolio performance for the period. The Fund's holdings in the energy, financial, and health care sectors were particularly helpful. On the downside, the Fund's holdings in the telecommunication services and consumer discretionary sectors detracted from returns. The WM Growth Fund also contributed strongly to the Portfolio's performance during the period. The Fund benefited from its holdings in information technology, health care, and financials, while its holdings in consumer discretionaries and telecommunication services lagged. On the fixed-income side, the Portfolio benefited primarily from the WM High Yield Fund, which dramatically outperformed all other Data shown is past performance and does not guarantee future results. Current performance, including the most recent month-end results, which may be higher or lower than the data shown, can be obtained by calling 800-222-5852. Your investment's return and principal value will fluctuate, so it may be worth more or less upon redemption. A sales charge may apply as follows: Class A shares: maximum up-front sales charge of 5.5%; Class B shares: contingent deferred sales charge of 5%, which declines over 5 years (5-5-4-3-2-0%); Class C shares: contingent deferred sales charge of 1% on redemptions made during the first 12 months. See the prospectus for details. Performance listed with sales charge reflects the maximum sales charge noted above. Equity investments involve greater risk, including heightened volatility, than fixed-income investments. Fixed-income investments are subject to interest rate risk, and their value will decline as interest rates rise. AVERAGE ANNUAL TOTAL RETURNS(1) AS OF OCTOBER 31, 2005
1-Year 5-Year Since Inception Inception Date ------ ------ --------------- -------------- CLASS A SHARES Net Asset Value(2) 9.19% 1.99% 8.81% 7/25/96 With Sales Charge 3.18% 0.85% 8.15% CLASS B SHARES Net Asset Value(2) 8.42% 1.22% 8.07% 7/25/96 With Sales Charge 3.42% 0.83% 8.07% CLASS C SHARES Net Asset Value(2) 8.40% -- 5.86% 3/1/02 With Sales Charge 7.40% -- 5.86% S&P 500(3) 8.72% -1.74% 8.80% Lehman Brothers Aggregate Bond Index(3) 1.14% 6.32% 6.63% Capital Market Benchmark(3) 7.24% 0.06% 8.61% Russell 3000(R) Index(3) 10.60% -0.81% 9.04%
VALUE OF A $10,000 INVESTMENT(1) JULY 25, 1996 - OCTOBER 31, 2005 AS OF 10/31/05 $22,271 Total Value $21,874 Total Value $21,825 Total Value $21,463 Total Value $20,671 Total Value $18,111 Total Value
(PERFORMANCE GRAPH)
Class A shares Lehman Brothers Class A shares at with maximum Aggregate Bond Capital Market Russell Date net asset value(2) sales charge S&P 500(3) Index(3) Benchmark(3) 3000(R) Index(3) - ------ ------------------ -------------- ---------- --------------- -------------- ---------------- Jul-96 10,130 9,573 10,000 10,000 10,000 10,000 Aug-96 10,281 9,715 10,212 9,983 10,166 10,303 Sep-96 10,592 10,009 10,786 10,157 10,658 10,863 Oct-96 10,462 9,886 11,081 10,382 10,939 11,062 Nov-96 10,782 10,189 11,923 10,560 11,641 11,842 Dec-96 10,725 10,135 11,689 10,462 11,437 11,700 Jan-97 10,849 10,252 12,415 10,494 12,012 12,347 Feb-97 10,690 10,102 12,515 10,520 12,096 12,361 Mar-97 10,258 9,694 11,995 10,403 11,667 11,802 Apr-97 10,427 9,853 12,711 10,559 12,260 12,384 May-97 11,079 10,470 13,491 10,660 12,885 13,230 Jun-97 11,437 10,808 14,093 10,787 13,376 13,780 Jul-97 12,016 11,355 15,212 11,078 14,297 14,860 Aug-97 11,563 10,927 14,366 10,984 13,637 14,257 Sep-97 12,099 11,434 15,153 11,146 14,275 15,065 Oct-97 11,615 10,977 14,647 11,308 13,935 14,559 Nov-97 11,605 10,967 15,325 11,360 14,465 15,117 Dec-97 11,648 11,007 15,589 11,475 14,693 15,419 Jan-98 11,782 11,134 15,762 11,622 14,861 15,499 Feb-98 12,528 11,839 16,898 11,612 15,715 16,607 Mar-98 13,040 12,323 17,764 11,652 16,369 17,431 Apr-98 13,207 12,481 17,943 11,712 16,518 17,602 May-98 12,885 12,176 17,634 11,824 16,321 17,167 Jun-98 13,175 12,450 18,350 11,924 16,880 17,748 Jul-98 12,919 12,208 18,156 11,949 16,743 17,425 Aug-98 11,050 10,442 15,531 12,144 14,861 14,755 Sep-98 11,594 10,957 16,526 12,428 15,692 15,761 Oct-98 12,207 11,535 17,870 12,362 16,696 16,958 Nov-98 12,907 12,197 18,953 12,433 17,524 17,995 Dec-98 13,843 13,082 20,044 12,470 18,342 19,140 Jan-99 14,543 13,744 20,882 12,558 18,983 19,791 Feb-99 14,162 13,383 20,233 12,339 18,444 19,090 Mar-99 15,009 14,184 21,042 12,407 19,054 19,791 Apr-99 15,722 14,858 21,856 12,446 19,656 20,683 May-99 15,255 14,416 21,340 12,337 19,251 20,290 Jun-99 16,078 15,193 22,525 12,297 20,094 21,315 Jul-99 15,785 14,917 21,822 12,246 19,576 20,669 Aug-99 15,747 14,881 21,713 12,239 19,496 20,434 Sep-99 15,897 15,022 21,118 12,381 19,114 19,910 Oct-99 16,666 15,749 22,455 12,427 20,096 21,159 Nov-99 17,609 16,641 22,911 12,426 20,422 21,751 Dec-99 19,420 18,352 24,260 12,366 21,365 23,139 Jan-00 18,959 17,917 23,042 12,326 20,491 22,232 Feb-00 19,904 18,809 22,607 12,475 20,231 22,439 Mar-00 20,809 19,665 24,818 12,639 21,868 24,196 Apr-00 19,941 18,845 24,071 12,603 21,328 23,344 May-00 19,431 18,362 23,577 12,596 20,976 22,688 Jun-00 19,891 18,797 24,157 12,858 21,477 23,360 Jul-00 19,559 18,483 23,780 12,975 21,247 22,946 Aug-00 20,670 19,533 25,257 13,164 22,365 24,649 Sep-00 20,031 18,930 23,923 13,246 21,448 23,532 Oct-00 19,815 18,725 23,823 13,334 21,403 23,198 Nov-00 18,359 17,349 21,946 13,553 20,123 21,059 Dec-00 18,843 17,807 22,053 13,805 20,276 21,413 Jan-01 19,961 18,863 22,836 14,030 20,917 22,145 Feb-01 18,597 17,575 20,754 14,152 19,427 20,121 Mar-01 17,643 16,673 19,440 14,223 18,462 18,809 Apr-01 18,693 17,665 20,950 14,163 19,593 20,318 May-01 18,966 17,923 21,091 14,248 19,723 20,480 Jun-01 18,974 17,930 20,578 14,302 19,354 20,103 Jul-01 18,645 17,620 20,376 14,622 19,288 19,772 Aug-01 17,987 16,998 19,101 14,790 18,366 18,605 Sep-01 16,566 15,655 17,558 14,962 17,222 16,964 Oct-01 16,979 16,045 17,893 15,275 17,556 17,360 Nov-01 17,777 16,799 19,265 15,064 18,585 18,696 Dec-01 18,052 17,059 19,435 14,967 18,691 18,960 Jan-02 17,637 16,667 19,151 15,089 18,502 18,723 Feb-02 17,265 16,315 18,781 15,235 18,252 18,341 Mar-02 17,950 16,963 19,488 14,982 18,741 19,144 Apr-02 17,290 16,339 18,307 15,273 17,906 18,139 May-02 17,203 16,257 18,171 15,403 17,830 17,929 Jun-02 16,307 15,410 16,877 15,537 16,844 16,638 Jul-02 15,198 14,362 15,561 15,725 15,835 15,315 Aug-02 15,285 14,444 15,664 15,990 15,971 15,387 Sep-02 14,238 13,455 13,961 16,249 14,635 13,770 Oct-02 14,990 14,165 15,190 16,175 15,652 14,866 Nov-02 15,756 14,889 16,084 16,170 16,387 15,765 Dec-02 15,218 14,381 15,139 16,505 15,684 14,875 Jan-03 15,014 14,189 14,742 16,519 15,358 14,510 Feb-03 14,824 14,008 14,521 16,747 15,217 14,271 Mar-03 14,840 14,024 14,662 16,734 15,333 14,421 Apr-03 15,762 14,895 15,870 16,873 16,369 15,599 May-03 16,698 15,779 16,706 17,187 17,120 16,541 Jun-03 16,908 15,978 16,920 17,152 17,288 16,764 Jul-03 17,113 16,172 17,218 16,576 17,416 17,148 Aug-03 17,450 16,490 17,553 16,685 17,710 17,529 Sep-03 17,509 16,546 17,367 17,128 17,654 17,338 Oct-03 18,302 17,296 18,350 16,968 18,420 18,387 Nov-03 18,597 17,574 18,512 17,009 18,558 18,641 Dec-03 19,322 18,260 19,482 17,183 19,375 19,492 Jan-04 19,722 18,638 19,840 17,320 19,690 19,900 Feb-04 19,973 18,874 20,116 17,507 19,952 20,168 Mar-04 19,929 18,833 19,812 17,638 19,741 19,928 Apr-04 19,383 18,317 19,501 17,180 19,389 19,516 May-04 19,561 18,485 19,769 17,111 19,587 19,799 Jun-04 19,976 18,877 20,152 17,209 19,914 20,193 Jul-04 19,325 18,262 19,485 17,379 19,426 19,430 Aug-04 19,458 18,388 19,563 17,711 19,562 19,509 Sep-04 19,754 18,667 19,774 17,759 19,742 19,810 Oct-04 20,034 18,933 20,077 17,908 20,017 20,135 Nov-04 20,802 19,658 20,890 17,765 20,633 21,071 Dec-04 21,428 20,249 21,600 17,928 21,232 21,821 Jan-05 20,920 19,769 21,073 18,041 20,845 21,241 Feb-05 21,263 20,094 21,516 17,935 21,170 21,708 Mar-05 20,965 19,812 21,135 17,843 20,849 21,341 Apr-05 20,682 19,545 20,733 18,084 20,588 20,878 May-05 21,309 20,137 21,393 18,279 21,156 21,669 Jun-05 21,503 20,320 21,422 18,380 21,203 21,821 Jul-05 22,189 20,969 22,219 18,213 21,794 22,715 Aug-05 22,129 20,912 22,017 18,446 21,692 22,500 Sep-05 22,173 20,954 22,196 18,256 21,787 22,695 Oct-05 21,874 20,671 21,825 18,111 21,463 22,271
Performance of Class B shares and C shares will differ. See Glossary on page 18 for definitions of indices and terms. (1) Performance reflects ongoing expenses and assumes reinvestment of all dividends and capital gains. It also reflects ongoing fund expenses paid by the Portfolio's applicable Funds, which include the effects of expense reimbursement. Performance does not reflect the impact of federal, state, or municipal taxes. If it did, performance would be lower. The Portfolio's performance between 1996 and 1999 benefited from the agreement of WM Advisors and its affiliates to limit the Portfolio's expenses. (2) Net asset value is not adjusted for sales charge. 14 (GRAPHIC) PORTFOLIO MANAGER Asset Allocation Team WM Advisors, Inc. WM fixed-income funds. The Fund's holdings in domestic corporate bonds and real estate investment trusts (REITs) were the primary drivers of performance. The WM Income Fund also contributed modestly to Portfolio returns, as its holdings in domestic corporate bonds and mortgage-backed securities gained for the period. During the fiscal year, the Portfolio significantly increased its allocations to U.S. mid- and large-cap growth stocks in anticipation that these asset classes may outperform U.S. small- and mid-cap value stocks over the next market cycle. In contrast, the Portfolio slightly reduced its allocation to REITs, while its exposures to investment-grade corporate and high-yield bonds were unchanged. Looking forward, we anticipate that economic growth for fiscal 2006 will be weaker than current consensus projections. We also believe that inflation will be more muted than expected. The housing market appears to be slowing, which may make it more difficult for consumers to secure low-interest home equity loans. This in turn may negatively impact consumer spending. Given this combination of factors, we believe the Federal Reserve will likely halt its monetary tightening campaign relatively early in 2006. In this scenario, we believe that long-term interest rates will fall to the 3%-4% range, but then stabilize. If long-term rates stabilize, we would expect mortgage-backed securities to offer a better relative value than corporate bonds, and that high-yield issues will continue to outperform. Equities appear fairly valued, with international stocks more attractive than U.S. holdings. PORTFOLIO CHARACTERISTICS AS OF OCTOBER 31, 2005 Equity/Fixed-Income Allocation:(4) 81% Equity/19% Fixed-Income Weighted Average Market Capitalization (equities): $60.5 billion Weighted Average P/E (equities):(5) 16.4 Beta: 0.80 Portfolio Standard Deviation: 8.37 S&P 500 Standard Deviation: 11.57 Portfolio Turnover (for fiscal year):(6) 1% Aggregate Portfolio Turnover (for fiscal year):(7) 42% Number of Securities:(8) 1,745 Total Net Assets: $3.3 billion
PORTFOLIO COMPOSITION(4)
As of As of Asset Class 10/31/05 10/31/04 Change - ----------- -------- -------- ------ U.S. Large-Cap Value Stocks 22% 21% +1% U.S. Large-Cap Growth Stocks 21% 19% +2% U.S. Mid-Cap Growth Stocks 10% 7% +3% Mortgage- & Asset-Backed Bonds 9% 9% 0% Foreign Stocks 8% 7% +1% U.S. Mid-Cap Value Stocks 7% 11% -4% REITs 5% 6% -1% U.S. Small-Cap Growth Stocks 4% 4% 0% U.S. Small-Cap Value Stocks 3% 4% -1% High-Yield Corporate Bonds 3% 3% 0% Investment-Grade Corporate Bonds 2% 2% 0% Convertible Securities 1% 1% 0% U.S. Government Securities 1% 1% 0% Cash Equivalents 4% 5% -1%
Note: For information about the underlying WM Funds of the SAM Portfolios, please see the WM Group of Funds annual report, which is available online at wmgroupoffunds.com or by calling 800-222-5852. (3) Returns shown for the indices assume reinvestment of all dividends and distributions, and since-inception returns shown for the indices are calculated from 7/31/96. Indices are unmanaged, and individuals cannot invest directly in an index. Effective 3/1/05, the S&P 500 replaced the Russell 3000(R) Index because WM Advisors believes the new benchmark more accurately reflects the Portfolio's performance characteristics. (4) May not reflect the current portfolio composition. (5) Based on estimated earnings. (6) Does not reflect portfolio turnover of the underlying WM Funds. (7) Aggregate portfolio turnover of the Portfolio and its underlying WM Funds assumes a constant allocation by the Portfolio of its assets among the underlying Funds identical to the actual allocation of the Portfolio on 10/31/05. The Portfolio's actual aggregate portfolio turnover may be different as a result of changes in the allocation of its assets among the underlying Funds, the portfolio turnover of the underlying Funds, and/or the Portfolio's own portfolio turnover. (8) Represents the sum of securities held by the underlying WM Funds. Some securities may be held by more than one WM Fund. 15 (GRAPHIC) Strategic Growth Portfolio ANNUAL TOTAL RETURNS(1) Class A shares at net asset value(2) (Calendar Year) 2004 11.92% 2003 31.27% 2002 -20.85% 2001 -6.69% 2000 -4.43% 1999 44.48% 1998 22.63% 1997 12.38%
INVESTMENT STRATEGY As of October 31, 2005, the WM Strategic Asset Management (SAM) Strategic Growth Portfolio was diversified among 10 funds representing 11 major asset classes. The Portfolio held a 92%/8% equity-to-fixed-income ratio during most of the fiscal year. Among all underlying WM Funds, the WM Equity Income Fund made the greatest overall contribution to Portfolio performance for the period. The Fund's holdings in the energy, financial, and health care sectors were particularly helpful. On the downside, the Fund's holdings in the telecommunication services and consumer discretionary sectors detracted from returns. The WM Mid Cap Stock Fund also contributed strongly to the Portfolio's performance during the period. The Fund benefited from its holdings in financials, energy, and utilities, while its holdings in consumer discretionaries and materials lagged on a relative basis. Data shown is past performance and does not guarantee future results. Current performance, including the most recent month-end results, which may be higher or lower than the data shown, can be obtained by calling 800-222-5852. Your investment's return and principal value will fluctuate, so it may be worth more or less upon redemption. A sales charge may apply as follows: Class A shares: maximum up-front sales charge of 5.5%; Class B shares: contingent deferred sales charge of 5%, which declines over 5 years (5-5-4-3-2-0%); Class C shares: contingent deferred sales charge of 1% on redemptions made during the first 12 months. See the prospectus for details. Performance listed with sales charge reflects the maximum sales charge noted above. Equity investments involve greater risk, including heightened volatility, than fixed-income investments. AVERAGE ANNUAL TOTAL RETURNS(1) AS OF OCTOBER 31, 2005
1-Year 5-Year Since Inception Inception Date ------ ------ --------------- -------------- CLASS A SHARES Net Asset Value(2) 10.61% 0.87% 9.54% 7/25/96 With Sales Charge 4.55% -0.27% 8.87% CLASS B SHARES Net Asset Value(2) 9.71% 0.09% 8.83% 7/25/96 With Sales Charge 4.71% -0.32% 8.83% CLASS C SHARES Net Asset Value(2) 9.76% -- 5.87% 3/1/02 With Sales Charge 8.76% -- 5.87% S&P 500(3) 8.72% -1.74% 8.80% Russell 3000(R) Index(3) 10.60% -0.81% 9.04%
VALUE OF A $10,000 INVESTMENT(1) JULY 25, 1996 - OCTOBER 31, 2005 AS OF 10/31/05: $23,264 Total Value $22,271 Total Value $21,984 Total Value $21,825 Total Value
(PERFORMANCE GRAPH)
Class A shares Class A shares at with maximum Russell Date net asset value(2) sales charge S&P 500(3) 3000(R) Index(3) - ------ ------------------ -------------- ---------- ---------------- Jul-96 10,110 9,554 10,000 10,000 Aug-96 10,300 9,734 10,212 10,303 Sep-96 10,690 10,102 10,786 10,863 Oct-96 10,560 9,979 11,081 11,062 Nov-96 11,080 10,471 11,923 11,842 Dec-96 11,001 10,396 11,689 11,700 Jan-97 11,308 10,686 12,415 12,347 Feb-97 11,148 10,535 12,515 12,361 Mar-97 10,640 10,055 11,995 11,802 Apr-97 10,852 10,255 12,711 12,384 May-97 11,561 10,925 13,491 13,230 Jun-97 11,932 11,276 14,093 13,780 Jul-97 12,716 12,017 15,212 14,860 Aug-97 12,240 11,566 14,366 14,257 Sep-97 12,822 12,117 15,153 15,065 Oct-97 12,282 11,607 14,647 14,559 Nov-97 12,325 11,647 15,325 15,117 Dec-97 12,362 11,682 15,589 15,419 Jan-98 12,509 11,821 15,762 15,499 Feb-98 13,471 12,730 16,898 16,607 Mar-98 14,106 13,330 17,764 17,431 Apr-98 14,298 13,511 17,943 17,602 May-98 13,879 13,115 17,634 17,167 Jun-98 14,331 13,543 18,350 17,748 Jul-98 13,992 13,222 18,156 17,425 Aug-98 11,773 11,125 15,531 14,755 Sep-98 12,508 11,820 16,526 15,761 Oct-98 13,210 12,483 17,870 16,958 Nov-98 13,980 13,211 18,953 17,995 Dec-98 15,159 14,325 20,044 19,140 Jan-99 16,068 15,184 20,882 19,791 Feb-99 15,594 14,737 20,233 19,090 Mar-99 16,530 15,621 21,042 19,791 Apr-99 17,365 16,410 21,856 20,683 May-99 16,792 15,868 21,340 20,290 Jun-99 17,789 16,811 22,525 21,315 Jul-99 17,337 16,384 21,822 20,669 Aug-99 17,325 16,372 21,713 20,434 Sep-99 17,490 16,528 21,118 19,910 Oct-99 18,436 17,422 22,455 21,159 Nov-99 19,621 18,542 22,911 21,751 Dec-99 21,901 20,697 24,260 23,139 Jan-00 21,446 20,266 23,042 22,232 Feb-00 22,799 21,545 22,607 22,439 Mar-00 23,802 22,493 24,818 24,196 Apr-00 22,552 21,312 24,071 23,344 May-00 21,901 20,696 23,577 22,688 Jun-00 22,551 21,311 24,157 23,360 Jul-00 22,057 20,844 23,780 22,946 Aug-00 23,502 22,209 25,257 24,649 Sep-00 22,604 21,361 23,923 23,532 Oct-00 22,279 21,053 23,823 23,198 Nov-00 20,325 19,207 21,946 21,059 Dec-00 20,931 19,779 22,053 21,413 Jan-01 22,320 21,093 22,836 22,145 Feb-01 20,448 19,323 20,754 20,121 Mar-01 19,180 18,125 19,440 18,809 Apr-01 20,666 19,530 20,950 20,318 May-01 21,011 19,856 21,091 20,480 Jun-01 21,066 19,907 20,578 20,103 Jul-01 20,459 19,334 20,376 19,772 Aug-01 19,537 18,462 19,101 18,605 Sep-01 17,540 16,575 17,558 16,964 Oct-01 18,036 17,044 17,893 17,360 Nov-01 19,097 18,047 19,265 18,696 Dec-01 19,527 18,453 19,435 18,960 Jan-02 18,908 17,868 19,151 18,723 Feb-02 18,374 17,364 18,781 18,341 Mar-02 19,339 18,275 19,488 19,144 Apr-02 18,432 17,418 18,307 18,139 May-02 18,274 17,269 18,171 17,929 Jun-02 17,108 16,167 16,877 16,638 Jul-02 15,638 14,778 15,561 15,315 Aug-02 15,696 14,833 15,664 15,387 Sep-02 14,327 13,539 13,961 13,770 Oct-02 15,249 14,410 15,190 14,866 Nov-02 16,185 15,295 16,084 15,765 Dec-02 15,455 14,605 15,139 14,875 Jan-03 15,180 14,345 14,742 14,510 Feb-03 14,890 14,071 14,521 14,271 Mar-03 14,905 14,085 14,662 14,421 Apr-03 15,965 15,086 15,870 15,599 May-03 17,068 16,129 16,706 16,541 Jun-03 17,329 16,376 16,920 16,764 Jul-03 17,691 16,718 17,218 17,148 Aug-03 18,098 17,102 17,553 17,529 Sep-03 18,083 17,089 17,367 17,338 Oct-03 19,100 18,049 18,350 18,387 Nov-03 19,434 18,365 18,512 18,641 Dec-03 20,291 19,175 19,482 19,492 Jan-04 20,770 19,627 19,840 19,900 Feb-04 21,032 19,875 20,116 20,168 Mar-04 20,944 19,793 19,812 19,928 Apr-04 20,379 19,258 19,501 19,516 May-04 20,611 19,478 19,769 19,799 Jun-04 21,106 19,945 20,152 20,193 Jul-04 20,293 19,177 19,485 19,430 Aug-04 20,381 19,260 19,563 19,509 Sep-04 20,743 19,603 19,774 19,810 Oct-04 21,034 19,877 20,077 20,135 Nov-04 21,993 20,783 20,890 21,071 Dec-04 22,712 21,463 21,600 21,821 Jan-05 22,101 20,886 21,073 21,241 Feb-05 22,523 21,285 21,516 21,708 Mar-05 22,188 20,967 21,135 21,341 Apr-05 21,795 20,596 20,733 20,878 May-05 22,538 21,299 21,393 21,669 Jun-05 22,770 21,518 21,422 21,821 Jul-05 23,599 22,301 22,219 22,715 Aug-05 23,512 22,219 22,017 22,500 Sep-05 23,585 22,288 22,196 22,695 Oct-05 23,264 21,984 21,825 22,271
Performance of Class B shares and C shares will differ. See Glossary on page 18 for definitions of indices and terms. (1) Performance reflects ongoing expenses and assumes reinvestment of all dividends and capital gains. It also reflects ongoing fund expenses paid by the Portfolio's applicable Funds, which include the effects of expense reimbursement. Performance does not reflect the impact of federal, state, or municipal taxes. If it did, performance would be lower. The Portfolio's performance between 1996 and 1999 benefited from the agreement of WM Advisors and its affiliates to limit the Portfolio's expenses. (2) Net asset value is not adjusted for sales charge. (3) Returns shown for the indices assume reinvestment of all dividends and distributions, and since-inception returns shown for the indices are calculated from 7/31/96. Indices are unmanaged, and individuals cannot invest directly in an index. 16 (GRAPHIC) PORTFOLIO MANAGER Asset Allocation Team WM Advisors, Inc. The Portfolio also benefited from its allocation to the WM High Yield Fund, which dramatically outperformed all other WM fixed-income funds. The Fund's holdings in domestic corporate bonds and real estate investment trusts (REITs) were the primary drivers of performance. During the fiscal year, the Portfolio significantly increased its allocations to U.S. mid- and large-cap growth stocks in anticipation that these asset classes may outperform U.S. mid-cap value stocks over the next market cycle. The Portfolio also slightly increased its allocation to foreign stocks, while its exposures to REITs, high-yield bonds, and convertible securities were unchanged. Looking forward, we anticipate that economic growth for fiscal 2006 will be weaker than current consensus projections. We also believe that inflation will be more muted than expected. The housing market appears to be slowing, which may make it more difficult for consumers to secure low-interest home equity loans. This in turn may negatively impact consumer spending. Given this combination of factors, we believe the Federal Reserve will likely halt its monetary tightening campaign relatively early in 2006. In this scenario, we believe that long-term interest rates will fall to the 3%-4% range, but then stabilize. If long-term rates stabilize, we would expect high-yield issues to continue to outperform. Equities appear fairly valued, with international stocks more attractive than U.S. holdings. PORTFOLIO CHARACTERISTICS AS OF OCTOBER 31, 2005 Equity/Fixed-Income Allocation:(4) 92% Equity/8% Fixed-Income Weighted Average Market Capitalization (equities): $59.4 billion Weighted Average P/E (equities):(5) 16.3 Beta: 0.95 Portfolio Standard Deviation: 9.88 S&P 500 Standard Deviation: 11.57 Portfolio Turnover (for fiscal year):(6) 1% Aggregate Portfolio Turnover (for fiscal year):(7) 43% Number of Securities:(8) 1,172 Total Net Assets: $2.0 billion
PORTFOLIO COMPOSITION(4)
As of As of Asset Class 10/31/05 10/31/04 Change - ----------- -------- -------- ------ U.S. Large-Cap Value Stocks 25% 24% +1% U.S. Large-Cap Growth Stocks 23% 21% +2% U.S. Mid-Cap Growth Stocks 11% 8% +3% Foreign Stocks 10% 9% +1% U.S. Mid-Cap Value Stocks 8% 13% -5% REITs 6% 6% 0% U.S. Small-Cap Growth Stocks 5% 5% 0% U.S. Small-Cap Value Stocks 4% 4% 0% High-Yield Corporate Bonds 3% 3% 0% Convertible Securities 1% 1% 0% Cash Equivalents 4% 6% -2%
Note: Page 47 provides information about a WM Fund in which the Strategic Growth Portfolio invests a significant portion of its assets. For additional information about this and other WM Funds, please see the WM Group of Funds annual report, which is available online at wmgroupoffunds.com or by calling 800-222-5852. (4) May not reflect the current portfolio composition. (5) Based on estimated earnings. (6) Does not reflect portfolio turnover of the underlying WM Funds. (7) Aggregate portfolio turnover of the Portfolio and its underlying WM Funds assumes a constant allocation by the Portfolio of its assets among the underlying Funds identical to the actual allocation of the Portfolio on 10/31/05. The Portfolio's actual aggregate portfolio turnover may be different as a result of changes in the allocation of its assets among the underlying Funds, the portfolio turnover of the underlying Funds, and/or the Portfolio's own portfolio turnover. (8) Represents the sum of securities held by the underlying WM Funds. Some securities may be held by more than one WM Fund. 17 (GRAPHIC) Glossary DEFINITIONS OF INDICES CAPITAL MARKET BENCHMARK: A benchmark intended to represent a relevant proxy for market and Portfolio performance. It is allocated as follows: Flexible Income Portfolio: 20% S&P 500 and 80% Lehman Brothers Aggregate Bond Index; Conservative Balanced Portfolio: 40% S&P 500 and 60% Lehman Brothers Aggregate Bond Index; Balanced Portfolio: 60% S&P 500 and 40% Lehman Brothers Aggregate Bond Index; and Conservative Growth Portfolio:80% S&P 500 and 20% Lehman Brothers Aggregate Bond Index. 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. It includes institutionally traded U.S. Treasury, government-sponsored, mortgage, asset-backed, and investment-grade securities. 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 (GNMA, FNMA, and FHLMC) pass-through securities as well as FNMA and FHLMC balloon mortgages. LEHMAN BROTHERS AGGREGATE BOND INDEX: A broad-based index intended to represent the U.S. fixed-income market. 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. S&P 500: A broad-based index intended to represent the U.S. equity market. DEFINITIONS OF TERMS BETA: A quantitative measure of a Portfolio's historical volatility relative to the overall market (S&P 500). A beta above 1 indicates more volatility than the market, and a beta below 1 indicates less volatility. Results are calculated using three-month rolling returns for Class A shares for the three-year period ended 10/31/05. Source: Lipper,Inc. STANDARD DEVIATION: Measures the historical fluctuation of returns around the arithmetic average return of the investment. The higher the standard deviation (as one measure of risk), the greater the variability of the investment returns. Results are calculated for the three-year period ended 10/31/05,and Portfolio results are for Class A shares. Source: Ibbotson Associates and Lipper, Inc. 18 Expense Information As a shareholder of the Flexible Income Portfolio, Conservative Balanced Portfolio, Balanced Portfolio, Conservative Growth Portfolio or Strategic Growth Portfolio (collectively, "the Portfolios"), you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase of Class A shares and, if applicable, contingent deferred sales charges on redemption of shares and (2) ongoing costs, including management fees, distribution and/or service fees, and other Portfolio expenses. The example below is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolios and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period May 1, 2005 to October 31, 2005. ACTUAL EXPENSES: The first section of the table below provides information about actual account values and actual expenses. You may use the information in these columns, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = $8.6), then multiply the result by the number in the third column under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES: The second section of the table below provides information about hypothetical account values and hypothetical expenses based on each Portfolio's actual expense ratios and an assumed rate of return of 5% per year before expenses (rather than each Portfolio's actual rate of return). The hypothetical account values and expenses may not be used to estimate the actual ending balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Portfolios and other mutual funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other mutual funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads). Therefore, the hypothetical section of the table is useful in comparing ongoing costs only, and will not help you compare the relative total costs of owning different mutual funds. In addition, if these transactional costs were included, the cost shown would have been higher.
HYPOTHETICAL ACTUAL EXPENSES (5% RETURN BEFORE EXPENSES) ---------------------------------- ---------------------------------- EXPENSES EXPENSES BEGINNING ENDING PAID DURING BEGINNING ENDING PAID DURING ACCOUNT ACCOUNT PERIOD* ACCOUNT ACCOUNT PERIOD* VALUE VALUE 5/1/05- VALUE VALUE 5/1/05- EXPENSE 5/1/05 10/31/05 10/31/05 5/1/05 10/31/05 10/31/05 RATIO --------- -------- ----------- --------- -------- ----------- ------- Flexible Income Portfolio Class A ....................... $1,000 $1,017 $5.03 $1,000 $1,020 $5.04 0.99% Class B ....................... 1,000 1,013 8.93 1,000 1,016 8.94 1.76% Class C ....................... 1,000 1,013 8.88 1,000 1,016 8.89 1.75% Conservative Balanced Portfolio Class A ....................... $1,000 $1,029 $5.17 $1,000 $1,020 $5.14 1.01% Class B ....................... 1,000 1,026 9.09 1,000 1,016 9.05 1.78% Class C ....................... 1,000 1,025 8.98 1,000 1,016 8.94 1.76% Balanced Portfolio Class A ....................... $1,000 $1,045 $4.90 $1,000 $1,020 $4.84 0.95% Class B ....................... 1,000 1,040 8.79 1,000 1,017 8.69 1.71% Class C ....................... 1,000 1,040 8.74 1,000 1,017 8.64 1.70% Conservative Growth Portfolio Class A ....................... $1,000 $1,058 $5.08 $1,000 $1,020 $4.99 0.98% Class B ....................... 1,000 1,053 9.00 1,000 1,016 8.84 1.74% Class C ....................... 1,000 1,054 8.95 1,000 1,016 8.79 1.73% Strategic Growth Portfolio Class A ....................... $1,000 $1,067 $5.37 $1,000 $1,020 $5.24 1.03% Class B ....................... 1,000 1,063 9.36 1,000 1,016 9.15 1.80% Class C ....................... 1,000 1,063 9.26 1,000 1,016 9.05 1.78%
* Expenses are equal to each Portfolio's annualized expense ratio, multiplied by the average account value over the period, multiplied by the 184 days in the most recent fiscal half-year, divided by 365 days in the year (to reflect the one-half year period). 19 Expense Information (continued) The following table sets forth the estimated ongoing aggregate expenses of the Portfolios, including expenses of Class I shares of various funds in the WM Group of Funds (collectively, the "Underlying Funds"), based upon expenses shown in the table on the prior page for each Portfolio and corresponding expenses for each Underlying Fund's Class I shares. 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 aggregate 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.
HYPOTHETICAL ACTUAL EXPENSES (5% RETURN BEFORE EXPENSES) ---------------------------------- ---------------------------------- ESTIMATED ESTIMATED AGGREGATE AGGREGATE EXPENSES EXPENSES BEGINNING ENDING PAID DURING BEGINNING ENDING PAID DURING ESTIMATED ACCOUNT ACCOUNT PERIOD* ACCOUNT ACCOUNT PERIOD* AGGREGATE VALUE VALUE 5/1/05- VALUE VALUE 5/1/05- EXPENSE 5/1/05 10/31/05 10/31/05 5/1/05 10/31/05 10/31/05 RATIO --------- -------- ----------- --------- -------- ----------- --------- Flexible Income Portfolio Class A ....................... $1,000 $1,017 $ 7.93 $1,000 $1,017 $ 7.93 1.56% Class B ....................... 1,000 1,013 11.82 1,000 1,013 11.82 2.33% Class C ....................... 1,000 1,013 11.77 1,000 1,014 11.77 2.32% Conservative Balanced Portfolio Class A ....................... $1,000 $1,029 $ 8.29 $1,000 $1,017 $ 8.24 1.62% Class B ....................... 1,000 1,026 12.20 1,000 1,013 12.13 2.39% Class C ....................... 1,000 1,025 12.10 1,000 1,013 12.03 2.37% Balanced Portfolio Class A ....................... $1,000 $1,045 $ 8.40 $1,000 $1,017 $ 8.29 1.63% Class B ....................... 1,000 1,040 12.29 1,000 1,013 12.13 2.39% Class C ....................... 1,000 1,040 12.24 1,000 1,013 12.08 2.38% Conservative Growth Portfolio Class A ....................... $1,000 $1,058 $ 8.71 $1,000 $1,017 $ 8.54 1.68% Class B ....................... 1,000 1,053 12.63 1,000 1,013 12.38 2.44% Class C ....................... 1,000 1,054 12.58 1,000 1,013 12.33 2.43% Strategic Growth Portfolio Class A ....................... $1,000 $1,067 $ 9.12 $1,000 $1,016 $ 8.89 1.75% Class B ....................... 1,000 1,063 13.10 1,000 1,013 12.78 2.52% Class C ....................... 1,000 1,063 13.00 1,000 1,013 12.68 2.50%
* Expenses are equal to each Portfolio's estimated aggregate annualized expense ratio, multiplied by the average account value over the period, multiplied by the 184 days in the most recent fiscal half-year, divided by 365 days in the year (to reflect the one-half year period). 20 Financial Statements: Portfolios of Investments FLEXIBLE INCOME PORTFOLIO October 31, 2005
VALUE SHARES (000S) - ------ -------- INVESTMENT COMPANY SECURITIES - 100.0% EQUITY FUNDS - 24.1% 2,029,300 WM Equity Income Fund ............................... $ 40,728 3,128,017 WM Growth & Income Fund ............................. 77,418 3,023,008 WM Growth Fund ...................................... 49,668 1,508,897 WM Mid Cap Stock Fund ............................... 29,378 606,165 WM REIT Fund ........................................ 10,469 711,396 WM Small Cap Growth Fund+ ........................... 10,265 893,922 WM Small Cap Value Fund ............................. 10,495 265,817 WM West Coast Equity Fund ........................... 10,471 -------- Total Equity Funds (Cost $182,875) .................. 238,892 -------- FIXED-INCOME FUNDS - 75.9% 7,848,488 WM High Yield Fund .................................. 64,514 25,190,927 WM Income Fund ...................................... 228,482 51,625,486 WM Short Term Income Fund ........................... 119,255 32,121,479 WM U.S. Government Securities Fund .................. 338,239 -------- Total Fixed-Income Funds (Cost $762,389) ............ 750,490 -------- Total Investment Company Securities (Cost $945,264) .................................. 989,382 --------
PRINCIPAL AMOUNT (000S) - --------- REPURCHASE AGREEMENT - 0.2% (Cost $1,682) $1,682 Agreement with Credit Suisse First Boston Corporation, 3.930% dated 10/31/2005, to be repurchased at $1,682,000 on 11/01/2005 (Collateralized by U.S. Treasury Obligations, having various interest rates and maturities, market value $1,717,000) ....................... 1,682 -------- TOTAL INVESTMENTS (Cost $946,946*) ......................... 100.2% 991,064 OTHER ASSETS (LIABILITIES) (NET) ........................... (0.2) (1,527) ----- -------- NET ASSETS ................................................. 100.0% $989,537 ===== ========
- ---------- * Aggregate cost for federal tax purposes is $953,534. + Non-income producing security. CONSERVATIVE BALANCED PORTFOLIO October 31, 2005
VALUE SHARES (000S) - ------ -------- INVESTMENT COMPANY SECURITIES - 99.7% EQUITY FUNDS - 41.6% 2,347,274 WM Equity Income Fund ............................... $ 47,110 2,765,595 WM Growth & Income Fund ............................. 68,448 2,740,382 WM Growth Fund ...................................... 45,025 2,546,358 WM International Growth Fund ........................ 27,526 1,122,542 WM Mid Cap Stock Fund ............................... 21,856 724,801 WM REIT Fund ........................................ 12,517 443,134 WM Small Cap Growth Fund+ ........................... 6,394 785,867 WM Small Cap Value Fund ............................. 9,226 433,993 WM West Coast Equity Fund ........................... 17,095 -------- Total Equity Funds (Cost $209,967) .................. 255,197 -------- FIXED-INCOME FUNDS - 58.1% 3,869,145 WM High Yield Fund .................................. 31,804 11,964,384 WM Income Fund ...................................... 108,517 15,089,448 WM Short Term Income Fund ........................... 34,857 17,249,460 WM U.S. Government Securities Fund .................. 181,637 -------- Total Fixed-Income Funds (Cost $363,743) ............ 356,815 -------- Total Investment Company Securities (Cost $573,710) .................................. 612,012 --------
PRINCIPAL AMOUNT (000S) - --------- REPURCHASE AGREEMENT - 0.2% (Cost $1,028) $1,028 Agreement with Credit Suisse First Boston Corporation, 3.930% dated 10/31/2005, to be repurchased at $1,028,000 on 11/01/2005 (Collateralized by U.S. Treasury Obligations, having various interest rates and maturities, market value $1,049,000) ........................ 1,028 -------- TOTAL INVESTMENTS (Cost $574,738*) .......................... 99.9% 613,040 OTHER ASSETS (LIABILITIES) (NET) ............................ 0.1 833 ----- -------- NET ASSETS .................................................. 100.0% $613,873 ===== ========
- ---------- * Aggregate cost for federal tax purposes is $577,728. + Non-income producing security. See Notes to Financial Statements. 21 Portfolios of Investments BALANCED PORTFOLIO October 31, 2005
VALUE SHARES (000S) - ------ ---------- INVESTMENT COMPANY SECURITIES - 98.5% EQUITY FUNDS - 63.4% 24,045,754 WM Equity Income Fund ............................. $ 482,598 26,430,881 WM Growth & Income Fund ........................... 654,164 31,940,509 WM Growth Fund .................................... 524,783 25,402,464 WM International Growth Fund ...................... 274,601 12,777,806 WM Mid Cap Stock Fund ............................. 248,784 8,162,013 WM REIT Fund ...................................... 140,958 5,302,944 WM Small Cap Growth Fund+ ......................... 76,522 9,109,574 WM Small Cap Value Fund ........................... 106,946 5,173,783 WM West Coast Equity Fund ......................... 203,795 ---------- Total Equity Funds (Cost $2,240,892) .............. 2,713,151 ---------- FIXED-INCOME FUNDS - 35.1% 24,068,191 WM High Yield Fund ................................ 197,840 48,527,195 WM Income Fund .................................... 440,142 17,822,579 WM Short Term Income Fund ......................... 41,170 78,037,959 WM U.S. Government Securities Fund ................ 821,740 ---------- Total Fixed-Income Funds (Cost $1,518,929) ........ 1,500,892 ---------- Total Investment Company Securities (Cost $3,759,821) .............................. 4,214,043 ----------
PRINCIPAL AMOUNT (000S) - --------- REPURCHASE AGREEMENT - 1.5% (Cost $65,443) $65,443 Agreement with Credit Suisse First Boston Corporation, 3.930% dated 10/31/2005, to be repurchased at $65,450,000 on 11/01/2005 (Collateralized by U.S. Treasury Obligations, having various interest rates and maturities, market value $66,809,000) ..................... 65,443 ---------- TOTAL INVESTMENTS (Cost $3,825,264*) ...................... 100.0% 4,279,486 OTHER ASSETS (LIABILITIES) (NET) .......................... 0.0 352 ----- ---------- NET ASSETS ................................................ 100.0% $4,279,838 ===== ==========
- ---------- * Aggregate cost for federal tax purposes is $3,859,670. + Non-income producing security. CONSERVATIVE GROWTH PORTFOLIO October 31, 2005
VALUE SHARES (000S) - ------ ---------- INVESTMENT COMPANY SECURITIES - 99.9% EQUITY FUNDS - 83.5% 22,245,677 WM Equity Income Fund ............................. $ 446,471 27,671,262 WM Growth & Income Fund ........................... 684,864 33,597,282 WM Growth Fund .................................... 552,003 26,453,079 WM International Growth Fund ...................... 285,958 13,356,123 WM Mid Cap Stock Fund ............................. 260,044 8,178,351 WM REIT Fund ...................................... 141,240 5,933,384 WM Small Cap Growth Fund+ ......................... 85,619 9,925,306 WM Small Cap Value Fund ........................... 116,523 5,670,846 WM West Coast Equity Fund ......................... 223,374 ---------- Total Equity Funds (Cost $2,349,743) .............. 2,796,096 ---------- FIXED-INCOME FUNDS - 16.4% 15,037,620 WM High Yield Fund ................................ 123,609 14,006,949 WM Income Fund .................................... 127,043 28,527,325 WM U.S. Government Securities Fund ................ 300,393 ---------- Total Fixed-Income Funds (Cost $549,945) .......... 551,045 ---------- Total Investment Company Securities (Cost $2,899,688) .............................. 3,347,141 ----------
PRINCIPAL AMOUNT (000S) - --------- REPURCHASE AGREEMENT - 0.1% (Cost $3,047) $3,047 Agreement with Credit Suisse First Boston Corporation, 3.930% dated 10/31/2005, to be repurchased at $3,047,000 on 11/01/2005 (Collateralized by U.S. Treasury Obligations, having various interest rates and maturities, market value $3,111,000) ...................... 3,047 ---------- TOTAL INVESTMENTS (Cost $2,902,735*) ...................... 100.0% 3,350,188 OTHER ASSETS (LIABILITIES) (NET) .......................... 0.0 (1,394) ----- ---------- NET ASSETS ................................................ 100.0% $3,348,794 ===== ==========
- ---------- * Aggregate cost for federal tax purposes is $2,921,612. + Non-income producing security. See Notes to Financial Statements. 22 Portfolio of Investments STRATEGIC GROWTH PORTFOLIO October 31, 2005
VALUE SHARES (000S) - ------ ---------- INVESTMENT COMPANY SECURITIES - 100.0% EQUITY FUNDS - 95.1% 13,851,570 WM Equity Income Fund ............................. $ 278,001 19,354,547 WM Growth & Income Fund ........................... 479,025 20,384,920 WM Growth Fund .................................... 334,924 17,814,971 WM International Growth Fund ...................... 192,580 10,620,862 WM Mid Cap Stock Fund ............................. 206,788 4,850,016 WM REIT Fund ...................................... 83,760 4,198,844 WM Small Cap Growth Fund+ ......................... 60,589 6,504,602 WM Small Cap Value Fund ........................... 76,364 4,246,809 WM West Coast Equity Fund ......................... 167,282 ---------- Total Equity Funds (Cost $1,623,237) .............. 1,879,313 ---------- FIXED-INCOME FUND - 4.9% (Cost $92,302) 11,620,094 WM High Yield Fund ................................ 95,517 ---------- Total Investment Company Securities (Cost $1,715,539) .............................. 1,974,830 ----------
PRINCIPAL AMOUNT (000S) - --------- REPURCHASE AGREEMENT - 0.3% (Cost $6,483) $6,483 Agreement with Credit Suisse First Boston Corporation, 3.930% dated 10/31/2005, to be repurchased at $6,484,000 on 11/01/2005 (Collateralized by U.S. Treasury Obligations, having various interest rates and maturities, market value $6,618,000) ...................... 6,483 ---------- TOTAL INVESTMENTS (Cost $1,722,022*) ...................... 100.3% 1,981,313 OTHER ASSETS (LIABILITIES) (NET) .......................... (0.3) (5,457) ----- ---------- NET ASSETS ................................................ 100.0% $1,975,856 ===== ==========
- ---------- * Aggregate cost for federal tax purposes is $1,741,235. + Non-income producing security. See Notes to Financial Statements. 23 Statements of Assets and Liabilities October 31, 2005 (In thousands)
FLEXIBLE CONSERVATIVE CONSERVATIVE STRATEGIC INCOME BALANCED BALANCED GROWTH GROWTH PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO --------- ------------ ---------- ------------ ---------- ASSETS: Investments, at cost ......................... $946,946 $574,738 $3,825,264 $2,902,735 $1,722,022 ======== ======== ========== ========== ========== Investments, at value ........................ $991,064 $613,040 $4,279,486 $3,350,188 $1,981,313 Dividends and/or interest receivable ......... -- -- 7 -- 1 Receivable for Portfolio shares sold ......... 2,283 2,939 10,593 7,423 4,166 Prepaid expenses and other assets ............ 4 3 17 14 8 -------- -------- ---------- ---------- ---------- Total Assets .............................. 993,351 615,982 4,290,103 3,357,625 1,985,488 -------- -------- ---------- ---------- ---------- LIABILITIES: Payable for Portfolio shares redeemed ........ 2,505 1,325 5,012 3,524 1,997 Payable for investment securities purchased .. -- -- -- 1,047 4,983 Investment advisory fee payable .............. 533 326 2,093 1,669 1,006 Shareholder servicing and distribution fees payable .............................. 558 331 2,264 1,828 1,099 Transfer agent fees payable .................. 53 29 210 199 159 Accrued printing and postage expenses ........ 97 36 437 353 230 Accrued legal and audit fees ................. 30 28 45 41 34 Accrued expenses and other payables .......... 38 34 204 170 124 -------- -------- ---------- ---------- ---------- Total Liabilities ......................... 3,814 2,109 10,265 8,831 9,632 -------- -------- ---------- ---------- ---------- NET ASSETS ................................... $989,537 $613,873 $4,279,838 $3,348,794 $1,975,856 ======== ======== ========== ========== ========== NET ASSETS CONSIST OF: Undistributed net investment income .......... $ 2,173 $ 799 $ 2,073 $ 107 $ 166 Accumulated net realized loss on investment transactions ................... (3,978) (2,034) (59,736) (73,385) (59,667) Net unrealized appreciation of investments ... 44,118 38,302 454,222 447,453 259,291 Paid-in capital .............................. 947,224 576,806 3,883,279 2,974,619 1,776,066 -------- -------- ---------- ---------- ---------- Total Net Assets .......................... $989,537 $613,873 $4,279,838 $3,348,794 $1,975,856 ======== ======== ========== ========== ========== NET ASSETS: Class A Shares ............................... $443,361 $291,796 $2,125,167 $1,561,310 $ 885,165 ======== ======== ========== ========== ========== Class B Shares ............................... $384,036 $169,869 $1,419,870 $1,059,655 $ 672,826 ======== ======== ========== ========== ========== Class C Shares ............................... $162,140 $152,208 $ 734,801 $ 727,829 $ 417,865 ======== ======== ========== ========== ========== SHARES OUTSTANDING: Class A Shares ............................... 39,624 27,828 159,595 106,403 55,368 ======== ======== ========== ========== ========== Class B Shares ............................... 34,377 16,227 106,890 74,356 44,117 ======== ======== ========== ========== ========== Class C Shares ............................... 14,583 14,597 55,586 51,427 27,333 ======== ======== ========== ========== ========== CLASS A SHARES:** Net asset value per share of beneficial interest outstanding* ..................... $ 11.19 $ 10.49 $ 13.32 $ 14.67 $ 15.99 ======== ======== ========== ========== ========== Maximum sales charge ......................... 4.50% 5.50% 5.50% 5.50% 5.50% ======== ======== ========== ========== ========== Maximum offering price per share of beneficial interest outstanding ........ $ 11.72 $ 11.10 $ 14.10 $ 15.52 $ 16.92 ======== ======== ========== ========== ========== CLASS B SHARES:** Net asset value and offering price per share of beneficial interest outstanding* ....... $ 11.17 $ 10.47 $ 13.28 $ 14.25 $ 15.25 ======== ======== ========== ========== ========== CLASS C SHARES:** Net asset value and offering price per share of beneficial interest outstanding* ....... $ 11.12 $ 10.43 $ 13.22 $ 14.15 $ 15.29 ======== ======== ========== ========== ==========
- ---------- * Redemption price per share is equal to net asset value per share less any applicable contingent deferred sales charge. ** Net asset values and maximum offering prices are not shown in thousands. See Notes to Financial Statements. 24 Statements of Operations For the Year Ended October 31, 2005 (In thousands)
FLEXIBLE CONSERVATIVE CONSERVATIVE STRATEGIC INCOME BALANCED BALANCED GROWTH GROWTH PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO --------- ------------ ---------- ------------ ---------- INVESTMENT INCOME: Dividends from investment company securities ...................... $39,319 $18,913 $100,801 $ 57,089 $ 25,205 Interest ................................... 47 33 1,997 88 67 ------- ------- -------- -------- -------- Total investment income ................. 39,366 18,946 102,798 57,177 25,272 ------- ------- -------- -------- -------- EXPENSES: Investment advisory fee .................... 6,115 3,474 22,944 18,482 11,040 Custodian fees ............................. 9 4 3 4 4 Legal and audit fees ....................... 42 34 102 86 59 Registration and filing fees ............... 81 85 206 162 137 Printing and postage expenses .............. 256 122 1,116 945 665 Other ...................................... 145 89 578 490 320 Shareholder servicing and distribution fees: Class A Shares .......................... 1,029 636 4,670 3,500 1,940 Class B Shares .......................... 4,051 1,681 14,187 10,557 6,604 Class C Shares .......................... 1,444 1,236 6,203 6,229 3,620 Transfer agent fees: Class A Shares .......................... 222 143 1,012 961 725 Class B Shares .......................... 307 139 1,138 966 754 Class C Shares .......................... 93 78 394 466 341 ------- ------- -------- -------- -------- Total expenses ....................... 13,794 7,721 52,553 42,848 26,209 Fees reduced by custodian credits .......... --* --* --* --* --* ------- ------- -------- -------- -------- Net expenses ......................... 13,794 7,721 52,553 42,848 26,209 ------- ------- -------- -------- -------- NET INVESTMENT INCOME/(LOSS) ............... 25,572 11,225 50,245 14,329 (937) ------- ------- -------- -------- -------- NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS: Net realized gain/(loss) on investment transactions ............................ (294) 24 (671) (2,370) (2,613) Capital gain distributions received ........ 1,239 1,041 11,568 12,156 8,964 Net change in unrealized appreciation/ depreciation of investments ............. (4,746) 9,351 179,183 220,107 155,476 ------- ------- -------- -------- -------- Net realized and unrealized gain/(loss) on investments ............................. (3,801) 10,416 190,080 229,893 161,827 ------- ------- -------- -------- -------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ............... $21,771 $21,641 $240,325 $244,222 $160,890 ======= ======= ======== ======== ========
- ---------- * Amount represents less than $500. See Notes to Financial Statements. 25 Statements of Changes in Net Assets (In thousands)
FLEXIBLE CONSERVATIVE INCOME PORTFOLIO BALANCED PORTFOLIO BALANCED PORTFOLIO ----------------------- ----------------------- ----------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 10/31/05 10/31/04 10/31/05 10/31/04 10/31/05 10/31/04 ---------- ---------- ---------- ---------- ---------- ---------- Net investment income/(loss) ............ $ 25,572 $ 20,738 $ 11,225 $ 7,342 $ 50,245 $ 31,455 Net realized gain/(loss) on investment transactions ......................... (294) 2,394 24 646 (671) (21,358) Capital gain distributions received ..... 1,239 81 1,041 53 11,568 619 Net change in unrealized appreciation/ depreciation of investments .......... (4,746) 19,948 9,351 14,620 179,183 184,763 -------- -------- -------- -------- ---------- ---------- Net increase in net assets resulting from operations ...................... 21,771 43,161 21,641 22,661 240,325 195,479 Distributions to shareholders from: Net investment income: Class A Shares .................... (12,642) (9,197) (6,169) (3,698) (31,381) (18,617) Class B Shares .................... (9,207) (9,486) (2,814) (2,374) (13,452) (10,238) Class C Shares .................... (3,397) (2,379) (2,133) (1,260) (5,984) (3,132) Net realized gains on investments: Class AShares ..................... (1,159) -- (307) -- -- -- Class B Shares .................... (1,306) -- (231) -- -- -- Class C Shares .................... (401) -- (146) -- -- -- Net increase in net assets from Portfolio share transactions: Class A Shares .................... 88,792 125,662 79,532 107,648 511,715 665,510 Class B Shares .................... (33,003) 35,707 4,826 38,752 (7,480) 203,662 Class C Shares .................... 35,589 56,455 52,920 42,994 223,780 228,227 -------- -------- -------- -------- ---------- ---------- Net increase in net assets .............. 85,037 239,923 147,119 204,723 917,523 1,260,891 NET ASSETS: Beginning of year ....................... 904,500 664,577 466,754 262,031 3,362,315 2,101,424 -------- -------- -------- -------- ---------- ---------- End of year ............................. $989,537 $904,500 $613,873 $466,754 $4,279,838 $3,362,315 ======== ======== ======== ======== ========== ========== Undistributed net investment income/ (accumulated net investment loss) at end of year ....................... $ 2,173 $ 1,673 $ 799 $ 582 $ 2,073 $ 1,467 ======== ======== ======== ======== ========== ========== TAX CHARACTER OF DISTRIBUTIONS PAID: Ordinary income ......................... $ 26,279 $ 21,062 $ 11,703 $ 7,332 $ 50,817 $ 31,987 Long-term capital gains ................. 1,833 -- 97 -- -- -- -------- -------- -------- -------- ---------- ---------- Total ................................... $ 28,112 $ 21,062 $ 11,800 $ 7,332 $ 50,817 $ 31,987 ======== ======== ======== ======== ========== ==========
See Notes to Financial Statements. 26
CONSERVATIVE STRATEGIC GROWTH PORTFOLIO GROWTH PORTFOLIO - ----------------------- ----------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 10/31/05 10/31/04 10/31/05 10/31/04 - ---------- ---------- ---------- ---------- $ 14,329 $ 6,607 $ (937) $ (5,054) (2,370) (33,528) (2,613) (25,066) 12,156 633 8,964 435 220,107 192,878 155,476 127,779 - ---------- ---------- ---------- ---------- 244,222 166,590 160,890 98,094 (11,899) (3,971) (1,610) -- (2,201) (3,187) -- -- (2,378) (1,027) -- -- -- -- -- -- -- -- -- -- -- -- -- -- 300,718 474,242 206,269 272,782 (22,833) 104,834 535 81,770 203,027 264,288 110,472 155,320 - ---------- ---------- ---------- ---------- 708,656 1,001,769 476,556 607,966 2,640,138 1,638,369 1,499,300 891,334 - ---------- ---------- ---------- ---------- $3,348,794 $2,640,138 $1,975,856 $1,499,300 ========== ========== ========== ========== $ 107 $ (1,722) $ 166 $ (9,034) ========== ========== ========== ========== $ 16,478 $ 8,185 $ 1,610 $ -- -- -- -- -- - ---------- ---------- ---------- ---------- $ 16,478 $ 8,185 $ 1,610 $ -- ========== ========== ========== ==========
See Notes to Financial Statements. 27 Statements of Changes in Net Assets -- Capital Stock Activity (In thousands)
FLEXIBLE CONSERVATIVE INCOME PORTFOLIO BALANCED PORTFOLIO BALANCED PORTFOLIO ----------------------- ----------------------- ----------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 10/31/05 10/31/04 10/31/05 10/31/04 10/31/05 10/31/04 ---------- ---------- ---------- ---------- ---------- ---------- AMOUNT CLASS A: Sold ................................. $ 209,417 $ 205,718 $143,665 $146,926 $ 793,211 $ 833,154 Issued as reinvestment of dividends .. 11,907 8,244 5,799 3,374 28,968 17,690 Redeemed ............................. (132,532) (88,300) (69,932) (42,652) (310,464) (185,334) --------- --------- -------- -------- --------- --------- Net increase ......................... $ 88,792 $ 125,662 $ 79,532 $107,648 $ 511,715 $ 665,510 ========= ========= ======== ======== ========= ========= CLASS B: Sold ................................. $ 60,992 $ 131,911 $ 34,134 $ 70,538 $ 195,378 $ 384,734 Issued as reinvestment of dividends .. 9,136 8,441 2,710 2,179 12,481 9,770 Redeemed ............................. (103,131) (104,645) (32,018) (33,965) (215,339) (190,842) --------- --------- -------- -------- --------- --------- Net increase/(decrease) .............. $ (33,003) $ 35,707 $ 4,826 $ 38,752 $ (7,480) $ 203,662 ========= ========= ======== ======== ========= ========= CLASS C: Sold ................................. $ 81,325 $ 79,388 $ 73,937 $ 58,347 $ 325,240 $ 276,378 Issued as reinvestment of dividends .. 3,329 2,086 2,045 1,151 5,544 2,947 Redeemed ............................. (49,065) (25,019) (23,062) (16,504) (107,004) (51,098) --------- --------- -------- -------- --------- --------- Net increase ......................... $ 35,589 $ 56,455 $ 52,920 $ 42,994 $ 223,780 $ 228,227 ========= ========= ======== ======== ========= ========= SHARES CLASS A: Sold ................................. 18,516 18,450 13,693 14,538 60,281 67,334 Issued as reinvestment of dividends .. 1,055 741 553 334 2,194 1,433 Redeemed ............................. (11,727) (7,941) (6,655) (4,219) (23,564) (14,979) --------- --------- -------- -------- --------- --------- Net increase ......................... 7,844 11,250 7,591 10,653 38,911 53,788 ========= ========= ======== ======== ========= ========= CLASS B: Sold ................................. 5,423 11,851 3,265 6,992 14,915 31,147 Issued as reinvestment of dividends .. 810 760 258 216 948 797 Redeemed ............................. (9,139) (9,420) (3,061) (3,366) (16,412) (15,466) --------- --------- -------- -------- --------- --------- Net increase/(decrease) .............. (2,906) 3,191 462 3,842 (549) 16,478 ========= ========= ======== ======== ========= ========= CLASS C: Sold ................................. 7,239 7,161 7,088 5,800 24,889 22,496 Issued as reinvestment of dividends .. 297 189 196 115 423 241 Redeemed ............................. (4,370) (2,261) (2,211) (1,644) (8,188) (4,153) --------- --------- -------- -------- --------- --------- Net increase ......................... 3,166 5,089 5,073 4,271 17,124 18,584 ========= ========= ======== ======== ========= =========
See Notes to Financial Statements. 28
CONSERVATIVE STRATEGIC GROWTH PORTFOLIO GROWTH PORTFOLIO - ----------------------- ----------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 10/31/05 10/31/04 10/31/05 10/31/04 - ---------- ---------- ---------- --------- $ 511,183 $ 597,373 $ 337,997 $348,227 11,340 3,856 1,537 -- (221,805) (126,987) (133,265) (75,445) - --------- --------- --------- -------- $ 300,718 $ 474,242 $ 206,269 $272,782 ========= ========= ========= ======== $ 157,022 $ 249,220 $ 112,864 $160,387 2,100 3,092 -- -- (181,955) (147,478) (112,329) (78,617) - --------- --------- --------- -------- $ (22,833) $ 104,834 $ 535 $ 81,770 ========= ========= ========= ======== $ 295,161 $ 306,396 $ 167,135 $177,989 2,203 960 -- -- (94,337) (43,068) (56,663) (22,669) - --------- --------- --------- -------- $ 203,027 $ 264,288 $ 110,472 $155,320 ========= ========= ========= ======== 35,691 45,316 21,789 24,697 790 301 99 -- (15,434) (9,635) (8,553) (5,365) - --------- --------- --------- -------- 21,047 35,982 13,335 19,332 ========= ========= ========= ======== 11,277 19,332 7,597 11,813 150 246 -- -- (13,063) (11,484) (7,568) (5,796) - --------- --------- --------- -------- (1,636) 8,094 29 6,017 ========= ========= ========= ======== 21,286 23,937 11,236 13,091 158 77 -- -- (6,788) (3,368) (3,794) (1,664) - --------- --------- --------- -------- 14,656 20,646 7,442 11,427 ========= ========= ========= ========
See Notes to Financial Statements. 29 Financial Highlights For a Portfolio share outstanding throughout each period. FLEXIBLE INCOME PORTFOLIO
CLASS A ---------------------------------------------------------- YEARS ENDED OCTOBER 31 2005 2004 2003 2002 2001 - ---------------------- -------- -------- -------- -------- -------- NET ASSET VALUE, BEGINNING OF PERIOD .............................. $ 11.26 $ 10.92 $ 10.17 $ 10.71 $ 11.06 -------- -------- -------- -------- -------- INCOME FROM INVESTMENT OPERATIONS: Net investment income ....................................... 0.35 0.34(6) 0.38(6) 0.45(6) 0.50(6) Net realized and unrealized gain/(loss) on investments ...... (0.03) 0.35 0.77 (0.48) (0.04) -------- -------- -------- -------- -------- Total from investment operations ............................ 0.32 0.69 1.15 (0.03) 0.46 -------- -------- -------- -------- -------- LESS DISTRIBUTIONS: Dividends from net investment income(1) ..................... (0.35) (0.35) (0.38) (0.43) (0.61) Distributions from net realized capital gains ............... (0.04) -- (0.02) (0.08) (0.20) -------- -------- -------- -------- -------- Total distributions ......................................... (0.39) (0.35) (0.40) (0.51) (0.81) -------- -------- -------- -------- -------- NET ASSET VALUE, END OF PERIOD .................................... $ 11.19 $ 11.26 $ 10.92 $ 10.17 $ 10.71 ======== ======== ======== ======== ======== TOTAL RETURN(2) ................................................... 2.79% 6.38% 11.49% (0.37)% 3.67% RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000s) ......................... $443,361 $357,735 $224,192 $144,710 $110,680 Ratio of operating expenses to average net assets(3) ........ 1.00% 1.02% 1.04% 1.06% 1.06% Ratio of net investment income to average net assets ........ 3.10% 3.07% 3.64% 4.41% 4.61% Portfolio turnover rate ..................................... 3% 3% 3% 9% 7% Ratio of operating expenses to average net assets without fee waivers, expenses reimbursed and/or fees reduced by credits allowed by the custodian(3)(4) ... 1.00% 1.02% 1.04% 1.06% 1.06%
CONSERVATIVE BALANCED PORTFOLIO
CLASS A ------------------------------------------------------ YEARS ENDED OCTOBER 31 2005 2004 2003 2002 2001 - ---------------------- -------- -------- ------- ------- ------- NET ASSET VALUE, BEGINNING OF PERIOD .............................. $ 10.27 $ 9.81 $ 8.83 $ 9.43 $ 9.96 -------- -------- ------- ------- ------- INCOME FROM INVESTMENT OPERATIONS: Net investment income ....................................... 0.26(6) 0.24 0.28(6) 0.33 0.34(6) Net realized and unrealized gain/(loss) on investments ...... 0.23 0.47 0.97 (0.61) (0.44) -------- -------- ------- ------- ------- Total from investment operations ............................ 0.49 0.71 1.25 (0.28) (0.10) -------- -------- ------- ------- ------- LESS DISTRIBUTIONS: Dividends from net investment income(1) ..................... (0.26) (0.25) (0.27) (0.32) (0.43) Distributions from net realized capital gains ............... (0.01) -- -- -- -- -------- -------- ------- ------- ------- Total distributions ......................................... (0.27) (0.25) (0.27) (0.32) (0.43) -------- -------- ------- ------- ------- NET ASSET VALUE, END OF PERIOD .................................... $ 10.49 $ 10.27 $ 9.81 $ 8.83 $ 9.43 ======== ======== ======= ======= ======= TOTAL RETURN(2) ................................................... 4.82% 7.29% 14.38% (3.06)% (0.99)% RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000s) ......................... $291,796 $207,816 $94,005 $31,070 $12,257 Ratio of operating expenses to average net assets(3) ........ 1.00% 1.04% 1.05% 1.05% 1.16% Ratio of net investment income to average net assets ........ 2.47% 2.42% 2.99% 3.67% 3.65% Portfolio turnover rate ..................................... 2% 2% 4% 9% 18% Ratio of operating expenses to average net assets without fee waivers, expenses reimbursed and/or fees reduced by credits allowed by the custodian(3)(4) ................... 1.00% 1.04% 1.09% 1.17% 1.30%
- ---------- (1) Includes dividends paid from the short-term portion of capital gain distributions received from the Underlying Funds. (2) Total return is not annualized for periods of less than one year and does not reflect any applicable sales charges. The total return would have been lower if certain fees had not been waived and/or expenses reimbursed by the investment advisor or if fees had not been reduced by credits allowed by the custodian. (3) The Portfolio also will indirectly bear its prorated share of expenses of the Underlying Funds. (4) Ratio of operating expenses to average net assets includes expenses paid indirectly. (5) The Portfolios commenced selling Class C shares on March 1, 2002. (6) Per share numbers have been calculated using the average shares method. (7) Annualized. See Notes to Financial Statements. 30
CLASS B CLASS C - ---------------------------------------------------------- ------------------------------------------- 2005 2004 2003 2002 2001 2005 2004 2003 2002(5) - -------- -------- -------- -------- -------- -------- -------- ------- ------- $ 11.24 $ 10.90 $ 10.15 $ 10.71 $ 11.06 $ 11.19 $ 10.86 $ 10.13 $ 10.54 - -------- -------- -------- -------- -------- -------- -------- ------- ------- 0.26 0.26(6) 0.30(6) 0.38(6) 0.42(6) 0.26 0.26(6) 0.30(6) 0.24(6) (0.03) 0.34 0.77 (0.50) (0.04) (0.03) 0.34 0.76 (0.43) - -------- -------- -------- -------- -------- -------- -------- ------- ------- 0.23 0.60 1.07 (0.12) 0.38 0.23 0.60 1.06 (0.19) - -------- -------- -------- -------- -------- -------- -------- ------- ------- (0.26) (0.26) (0.30) (0.36) (0.53) (0.26) (0.27) (0.31) (0.22) (0.04) -- (0.02) (0.08) (0.20) (0.04) -- (0.02) -- - -------- -------- -------- -------- -------- -------- -------- ------- ------- (0.30) (0.26) (0.32) (0.44) (0.73) (0.30) (0.27) (0.33) (0.22) - -------- -------- -------- -------- -------- -------- -------- ------- ------- $ 11.17 $ 11.24 $ 10.90 $ 10.15 $ 10.71 $ 11.12 $ 11.19 $ 10.86 $ 10.13 ======== ======== ======== ======== ======== ======== ======== ======= ======= 1.99% 5.56% 10.60% (1.08)% 2.92% 2.06% 5.57% 10.63% (1.78)% $384,036 $418,994 $371,639 $244,999 $146,555 $162,140 $127,771 $68,746 $20,677 1.77% 1.79% 1.79% 1.81% 1.79% 1.76% 1.78% 1.79% 1.81%(7) 2.33% 2.30% 2.89% 3.66% 3.88% 2.34% 2.31% 2.89% 3.66%(7) 3% 3% 3% 9% 7% 3% 3% 3% 9% 1.77% 1.79% 1.79% 1.81% 1.79% 1.76% 1.78% 1.79% 1.81%(7)
CLASS B CLASS C - ------------------------------------------------------- ------------------------------------------ 2005 2004 2003 2002 2001 2005 2004 2003 2002(5) - -------- -------- -------- ------- ------- -------- ------- ------- ------- $ 10.25 $ 9.79 $ 8.82 $ 9.43 $ 9.96 $ 10.22 $ 9.76 $ 8.80 $ 9.39 - -------- -------- -------- ------- ------- -------- ------- ------- ------- 0.18(6) 0.17 0.21(6) 0.27 0.27(6) 0.18(6) 0.16 0.21(6) 0.16 0.23 0.46 0.96 (0.62) (0.44) 0.22 0.48 0.97 (0.60) - -------- -------- -------- ------- ------- -------- ------- ------- ------- 0.41 0.63 1.17 (0.35) (0.17) 0.40 0.64 1.18 (0.44) - -------- -------- -------- ------- ------- -------- ------- ------- ------- (0.18) (0.17) (0.20) (0.26) (0.36) (0.18) (0.18) (0.22) (0.15) (0.01) -- -- -- -- (0.01) -- -- -- - -------- -------- -------- ------- ------- -------- ------- ------- ------- (0.19) (0.17) (0.20) (0.26) (0.36) (0.19) (0.18) (0.22) (0.15) - -------- -------- -------- ------- ------- -------- ------- ------- ------- $ 10.47 $ 10.25 $ 9.79 $ 8.82 $ 9.43 $ 10.43 $ 10.22 $ 9.76 $ 8.80 ======== ======== ======== ======= ======= ======== ======= ======= ======= 4.02% 6.47% 13.46% (3.77)% (1.71)% 4.00% 6.55% 13.53% (4.70)% $169,869 $161,623 $116,742 $58,054 $30,554 $152,208 $97,315 $51,284 $10,505 1.78% 1.81% 1.82% 1.80% 1.89% 1.76% 1.79% 1.80% 1.78%(7) 1.69% 1.65% 2.22% 2.92% 2.92% 1.71% 1.67% 2.24% 2.94%(7) 2% 2% 4% 9% 18% 2% 2% 4% 9% 1.78% 1.81% 1.86% 1.92% 2.03% 1.76% 1.79% 1.84% 1.90%(7)
See Notes to Financial Statements. 31 Financial Highlights For a Portfolio share outstanding throughout each period. BALANCED PORTFOLIO
CLASS A --------------------------------------------------------- YEARS ENDED OCTOBER 31 2005 2004 2003 2002 2001 - ---------------------- ---------- ---------- -------- -------- -------- NET ASSET VALUE, BEGINNING OF PERIOD ............................. $ 12.64 $ 11.85 $ 10.24 $ 11.63 $ 13.55 ---------- ---------- -------- -------- -------- INCOME FROM INVESTMENT OPERATIONS: Net investment income ...................................... 0.23 0.20 0.22 0.28 0.33(6) Net realized and unrealized gain/(loss) on investments ..... 0.68 0.79 1.62 (1.08) (1.27) ---------- ---------- -------- -------- -------- Total from investment operations ........................... 0.91 0.99 1.84 (0.80) (0.94) ---------- ---------- -------- -------- -------- LESS DISTRIBUTIONS: Dividends from net investment income(1) .................... (0.23) (0.20) (0.23) (0.33) (0.51) Distributions from net realized capital gains .............. -- -- -- (0.26) (0.47) ---------- ---------- -------- -------- -------- Total distributions ........................................ (0.23) (0.20) (0.23) (0.59) (0.98) ---------- ---------- -------- -------- -------- NET ASSET VALUE, END OF PERIOD ................................... $ 13.32 $ 12.64 $ 11.85 $ 10.24 $ 11.63 ========== ========== ======== ======== ======== TOTAL RETURN(2) .................................................. 7.20% 8.51% 18.07% (7.32)% (7.28)% RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000s) ........................ $2,125,167 $1,524,988 $792,423 $423,478 $380,681 Ratio of operating expenses to average net assets(3) ....... 0.94% 0.98% 1.02% 1.04% 1.02% Ratio of net investment income to average net assets ....... 1.69% 1.56% 2.03% 2.55% 2.63% Portfolio turnover rate .................................... 0% 2% 5% 19% 6% Ratio of operating expenses to average net assets without fee waivers, expenses reimbursed and/or fees reduced by credits allowed by the custodian(3)(4) ............... 0.94% 0.98% 1.02% 1.04% 1.02%
CONSERVATIVE GROWTH PORTFOLIO
CLASS A ---------------------------------------------------------------- YEARS ENDED OCTOBER 31 2005 2004 2003 2002 2001 - ---------------------- ---------- ---------- -------- -------- -------- NET ASSET VALUE, BEGINNING OF PERIOD ......................... $ 13.56 $ 12.47 $ 10.37 $ 12.35 $ 15.52 INCOME FROM INVESTMENT OPERATIONS: Net investment income/(loss) ........................... 0.13(6) 0.10(6) 0.14(6) 0.16(6) 0.20(6) Net realized and unrealized gain/(loss) on investments 1.11 1.06 2.14 (1.52) (2.34) ---------- ---------- -------- -------- -------- Total from investment operations ....................... 1.24 1.16 2.28 (1.36) (2.14) ---------- ---------- -------- -------- -------- LESS DISTRIBUTIONS: Dividends from net investment income(1) ................ (0.13) (0.07) (0.14) (0.22) (0.58) Distributions from net realized capital gains .......... -- -- (0.04) (0.40) (0.45) ---------- ---------- -------- -------- -------- Total distributions .................................... (0.13) (0.07) (0.18) (0.62) (1.03) ---------- ---------- -------- -------- -------- NET ASSET VALUE, END OF PERIOD ............................... $ 14.67 $ 13.56 $ 12.47 $ 10.37 $ 12.35 ========== ========== ======== ======== ======== TOTAL RETURN(2) .............................................. 9.19% 9.44% 22.12% (11.72)% (14.31)% RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000s) .................... $1,561,310 $1,157,038 $615,501 $347,297 $319,583 Ratio of operating expenses to average net assets(3) ... 0.97% 1.01% 1.05% 1.06% 1.03% Ratio of net investment income/(loss) to average net assets .............................................. 0.89% 0.74% 1.24% 1.41% 1.45% Portfolio turnover rate ................................ 1% 5% 7% 14% 5% Ratio of operating expenses to average net assets without fee waivers, expenses reimbursed and/or fees reduced by credits allowed by the custodian(3)(4) ... 0.97% 1.01% 1.05% 1.06% 1.03%
- ---------- (1) Includes dividends paid from the short-term portion of capital gain distributions received from the Underlying Funds. (2) Total return is not annualized for periods of less than one year and does not reflect any applicable sales charges. The total return would have been lower if certain fees had not been waived and/or expenses reimbursed by the investment advisor or if fees had not been reduced by credits allowed by the custodian. (3) The Portfolio also will indirectly bear its prorated share of expenses of the Underlying Funds. (4) Ratio of operating expenses to average net assets includes expenses paid indirectly. (5) The Portfolios commenced selling Class C shares on March 1, 2002. (6) Per share numbers have been calculated using the average shares method. (7) Annualized. (8) Amount represents less than $0.01 per share. See Notes to Financial Statements. 32
CLASS B CLASS C - ----------------------------------------------------------- ---------------------------------------- 2005 2004 2003 2002 2001 2005 2004 2003 2002(5) - ---------- ---------- ---------- -------- -------- -------- -------- -------- ------- $ 12.61 $ 11.82 $ 10.22 $ 11.62 $ 13.54 $ 12.55 $ 11.78 $ 10.20 $ 11.35 - ---------- ---------- ---------- -------- -------- -------- -------- -------- ------- 0.12 0.10 0.14 0.20 0.23(6) 0.13 0.10 0.14 0.13 0.67 0.79 1.61 (1.09) (1.27) 0.67 0.78 1.60 (1.15) - ---------- ---------- ---------- -------- -------- -------- -------- -------- ------- 0.79 0.89 1.75 (0.89) (1.04) 0.80 0.88 1.74 (1.02) - ---------- ---------- ---------- -------- -------- -------- -------- -------- ------- (0.12) (0.10) (0.15) (0.25) (0.41) (0.13) (0.11) (0.16) (0.13) -- -- -- (0.26) (0.47) -- -- -- -- - ---------- ---------- ---------- -------- -------- -------- -------- -------- ------- (0.12) (0.10) (0.15) (0.51) (0.88) (0.13) (0.11) (0.16) (0.13) - ---------- ---------- ---------- -------- -------- -------- -------- -------- ------- $ 13.28 $ 12.61 $ 11.82 $ 10.22 $ 11.62 $ 13.22 $ 12.55 $ 11.78 $ 10.20 ========== ========== ========== ======== ======== ======== ======== ======== ======= 6.32% 7.59% 17.25% (8.03)% (7.98)% 6.41% 7.64% 17.15% (9.00)% $1,419,870 $1,354,528 $1,074,925 $743,953 $670,318 $734,801 $482,799 $234,076 $54,745 1.72% 1.75% 1.78% 1.80% 1.78% 1.70% 1.74% 1.76% 1.80%(7) 0.91% 0.79% 1.27% 1.79% 1.87% 0.93% 0.80% 1.29% 1.79%(7) 0% 2% 5% 19% 6% 0% 2% 5% 19% 1.72% 1.75% 1.78% 1.80% 1.78% 1.70% 1.74% 1.76% 1.80%(7)
CLASS B CLASS C - ------------------------------------------------------------------- ------------------------------------------------- 2005 2004 2003 2002 2001 2005 2004 2003 2002(5) - ---------- ---------- -------- -------- -------- -------- -------- -------- ------- $ 13.17 $ 12.18 $ 10.14 $ 12.10 $ 15.17 $ 13.11 $ 12.13 $ 10.10 $ 11.79 - ---------- ---------- -------- -------- -------- -------- -------- -------- ------- 0.02(6) (0.00)(6)(8) 0.05(6) 0.08(6) 0.09(6) 0.02(6) (0.00)(6)(8) 0.06(6) 0.05(6) 1.09 1.04 2.09 (1.50) (2.28) 1.08 1.03 2.08 (1.66) - ---------- ---------- -------- -------- -------- -------- -------- -------- ------- 1.11 1.04 2.14 (1.42) (2.19) 1.10 1.03 2.14 (1.61) - ---------- ---------- -------- -------- -------- -------- -------- -------- ------- (0.03) (0.05) (0.06) (0.14) (0.43) (0.06) (0.05) (0.07) (0.08) -- -- (0.04) (0.40) (0.45) -- -- (0.04) -- - ---------- ---------- -------- -------- -------- -------- -------- -------- ------- (0.03) (0.05) (0.10) (0.54) (0.88) (0.06) (0.05) (0.11) (0.08) - ---------- ---------- -------- -------- -------- -------- -------- -------- ------- $ 14.25 $ 13.17 $ 12.18 $ 10.14 $ 12.10 $ 14.15 $ 13.11 $ 12.13 $ 10.10 ========== ========== ======== ======== ======== ======== ======== ======== ======= 8.42% 8.53% 21.24% (12.46)% (14.93)% 8.40% 8.53% 21.41% (13.72)% $1,059,655 $1,001,081 $827,312 $623,852 $636,145 $727,829 $482,019 $195,556 $48,424 1.75% 1.78% 1.81% 1.82% 1.79% 1.73% 1.76% 1.79% 1.82%(7) 0.11% (0.03)% 0.48% 0.65% 0.69% 0.13% (0.01)% 0.50% 0.65%(7) 1% 5% 7% 14% 5% 1% 5% 7% 14% 1.75% 1.78% 1.81% 1.82% 1.79% 1.73% 1.76% 1.79% 1.82%(7)
See Notes to Financial Statements. 33 Financial Highlights For a Portfolio share outstanding throughout each period. STRATEGIC GROWTH PORTFOLIO
CLASS A ------------------------------------------------------------ YEARS ENDED OCTOBER 31 2005 2004 2003 2002 2001 - ---------------------- -------- -------- -------- -------- -------- NET ASSET VALUE, BEGINNING OF PERIOD ......................... $ 14.49 $ 13.16 $ 10.59 $ 13.10 $ 17.11 -------- -------- -------- -------- -------- INCOME FROM INVESTMENT OPERATIONS: Net investment income/(loss) ........................... 0.06(6) 0.01(6) 0.03(6) 0.03(6) 0.05(6) Net realized and unrealized gain/(loss) on investments ......................................... 1.48 1.32 2.63 (1.92) (3.21) -------- -------- -------- -------- -------- Total from investment operations ....................... 1.54 1.33 2.66 (1.89) (3.16) -------- -------- -------- -------- -------- LESS DISTRIBUTIONS: Dividends from net investment income(1) ................ (0.04) -- -- (0.14) (0.47) Distributions from net realized capital gains .......... -- -- (0.09) (0.48) (0.38) -------- -------- -------- -------- -------- Total distributions .................................... (0.04) -- (0.09) (0.62) (0.85) -------- -------- -------- -------- -------- NET ASSET VALUE, END OF PERIOD ............................... $ 15.99 $ 14.49 $ 13.16 $ 10.59 $ 13.10 ======== ======== ======== ======== ======== TOTAL RETURN(2) .............................................. 10.61% 10.11% 25.24% (15.45)% (19.03)% RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000s) .................... $885,165 $609,250 $298,852 $166,354 $153,857 Ratio of operating expenses to average net assets(3) ... 1.02% 1.07% 1.13% 1.13% 1.08% Ratio of net investment income/(loss) to average net assets .............................................. 0.38% 0.07% 0.30% 0.23% 0.34% Portfolio turnover rate ................................ 1% 3% 7% 10% 2% Ratio of operating expenses to average net assets without fee waivers, expenses reimbursed and/or fees reduced by credits allowed by the custodian(3)(4) ... 1.02% 1.07% 1.13% 1.13% 1.08%
- ---------- (1) Includes dividends paid from the short-term portion of capital gain distributions received from the Underlying Funds. (2) Total return is not annualized for periods of less than one year and does not reflect any applicable sales charges. The total return would have been lower if certain fees had not been waived and/or expenses reimbursed by the investment advisor and/or distributor or if fees had not been reduced by credits allowed by the custodian. (3) The Portfolio also will indirectly bear its prorated share of expenses of the Underlying Funds. (4) Ratio of operating expenses to average net assets includes expenses paid indirectly. (5) The Portfolio commenced selling Class C shares on March 1, 2002. (6) Per share numbers have been calculated using the average shares method. (7) Annualized. See Notes to Financial Statements. 34
CLASS B CLASS C - ---------------------------------------------------------------- ------------------------------------------------- 2005 2004 2003 2002 2001 2005 2004 2003 2002(5) - -------- -------- -------- -------- -------- --------- -------- -------- ------- $ 13.90 $ 12.73 $ 10.32 $ 12.78 $ 16.75 $ 13.93 $ 12.74 $ 10.32 $ 12.50 - -------- -------- -------- -------- -------- -------- -------- -------- ------- (0.06)(6) (0.09)(6) (0.05)(6) (0.06)(6) (0.06)(6) (0.06)(6) (0.09)(6) (0.05)(6) (0.04)(6) 1.41 1.26 2.55 (1.88) (3.14) 1.42 1.28 2.56 (2.14) - -------- -------- -------- -------- -------- -------- -------- -------- ------- 1.35 1.17 2.50 (1.94) (3.20) 1.36 1.19 2.51 (2.18) - -------- -------- -------- -------- -------- -------- -------- -------- ------- -- -- -- (0.04) (0.39) -- -- -- -- -- -- (0.09) (0.48) (0.38) -- -- (0.09) -- - -------- -------- -------- -------- -------- -------- -------- -------- ------- -- -- (0.09) (0.52) (0.77) -- -- (0.09) -- - -------- -------- -------- -------- -------- -------- -------- -------- ------- $ 15.25 $ 13.90 $ 12.73 $ 10.32 $ 12.78 $ 15.29 $ 13.93 $ 12.74 $ 10.32 ======== ======== ======== ======== ======== ======== ======== ======== ======= 9.71% 9.19% 24.35% (16.04)% (19.70)% 9.76% 9.34% 24.44% (17.44)% $672,826 $612,914 $484,656 $350,982 $384,566 $417,865 $277,136 $107,826 $26,645 1.79% 1.83% 1.88% 1.87% 1.84% 1.77% 1.81% 1.84% 1.85%(7) (0.39)% (0.69)% (0.45)% (0.51)% (0.42)% (0.37)% (0.67)% (0.41)% (0.49)%(7) 1% 3% 7% 10% 2% 1% 3% 7% 10% 1.79% 1.83% 1.88% 1.87% 1.84% 1.77% 1.81% 1.84% 1.85%(7)
See Notes to Financial Statements. 35 Notes to Financial Statements 1. ORGANIZATION AND BUSINESS WM Strategic Asset Management Portfolios, LLC (the "LLC") was organized under the laws of the Commonwealth of Massachusetts on March 12, 1999, as a limited liability company. The LLC is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end management investment company. The LLC offers five portfolios: Flexible Income, Conservative Balanced, Balanced, Conservative Growth and Strategic Growth Portfolios (each a "Portfolio" and collectively, the "Portfolios"). The LLC is authorized to issue an unlimited number of shares of beneficial interest, each without par value. Each Portfolio offers three classes of shares: Class A shares, Class B shares and Class C shares. Class A shares are generally subject to an initial sales charge at the time of purchase. Certain Class A shares purchased without an initial sales charge may be subject to a contingent deferred sales charge ("CDSC") if redeemed within eighteen months from the date of purchase. Class B shares are not subject to an initial sales charge although they are generally subject to a CDSC if redeemed within five years from the date of purchase. Class C shares are not subject to an initial sales charge although they are subject to a CDSC if redeemed within one year from the date of purchase. Each of the Portfolios invests, within certain percentage ranges, in the Underlying Funds. WM Advisors, Inc. (the "Advisor"), a wholly owned subsidiary of Washington Mutual, Inc. ("Washington Mutual"), a publicly owned financial services company, serves as investment advisor to the Portfolios and the Underlying Funds. The Advisor may alter these percentage ranges when it deems appropriate. The assets of each Portfolio will be allocated among the Underlying Funds in accordance with its investment objective based on the Advisor's outlook for the economy, the financial markets and the relative market valuations of the Underlying Funds. In addition, in order to meet liquidity needs or for temporary defensive purposes, each Portfolio may invest its assets directly in cash, stock or bond index futures, options, money market securities and certain short-term debt instruments, including repurchase agreements. 2. SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies, in conformity with accounting principles generally accepted in the United States of America ("generally accepted accounting principles"), which are consistently followed by the Portfolios and Underlying Funds in the preparation of their financial statements. PORTFOLIO VALUATION: Investments in the Underlying Funds are valued at net asset value per Class I share of the respective Underlying Funds determined as of the close of the New York Stock Exchange on each valuation date. Short-term debt securities that mature in 60 days or less are valued at amortized cost, which approximates market value. REPURCHASE AGREEMENTS: Each Portfolio may enter into repurchase agreement transactions. A repurchase agreement is a purchase of an underlying debt obligation subject to an agreement by the seller to repurchase the obligation at an agreed upon price and time. It is each Portfolio's policy that its custodian take possession of the underlying collateral securities. The fair value of the collateral is at all times at least equal to the total amount of the repurchase obligation. In the event of counterparty default, the Portfolio would seek to use the collateral to offset losses incurred. There is potential loss to the Portfolio in the event the Portfolio is delayed or prevented from exercising its right to dispose of the collateral securities, including the risk of a possible decline in the value of the underlying securities during the period while the Portfolio seeks to assert its rights. The Advisor, acting under the supervision of the Board of Trustees, reviews the value of the collateral and the creditworthiness of those banks and broker-dealers with whom each Portfolio enters into repurchase agreements. SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are recorded on a trade date basis. Realized gains and losses from securities sold are recorded on the identified cost basis. Interest income on debt securities is accrued daily. Dividend income and capital gain distributions received from the Underlying Funds are recorded on the ex-dividend date. Each Portfolio's investment income and realized and unrealized gains and losses are allocated among the classes of that Portfolio based upon the relative average net assets of each class. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: Dividends from net investment income of the Flexible Income, Conservative Balanced, Balanced and Conservative Growth Portfolios are declared and paid quarterly. Dividends from any net investment income of the Strategic Growth Portfolio are declared and paid annually. Distributions of any net capital gains earned by a Portfolio are distributed no less frequently than annually at the discretion of the Board of Trustees. Additional distributions of net investment income and capital gains for each Portfolio may be made at the discretion of the Board of Trustees of the LLC in accordance with federal income tax regulations. 36 Notes to Financial Statements (continued) Distributions from income and capital gains are determined in accordance with federal income tax regulations, which may differ from generally accepted accounting principles. These differences are primarily due to differing treatments of income and gains on various investments held by the Portfolios, redesignated distributions and differing characterization of distributions made by each Portfolio. At October 31, 2005, the following adjustments have been reflected in the components of net assets on the "Statements of Assets and Liabilities" to present these balances on an income tax basis, excluding certain temporary differences:
INCREASE/ INCREASE (DECREASE) INCREASE/ UNDISTRIBUTED ACCUMULATED (DECREASE) NET INVESTMENT NET REALIZED PAID-IN CAPITAL INCOME/(LOSS) LOSS (000S) (000S) (000S) --------------- -------------- ------------ Flexible Income Portfolio .................. $ (1,287) $ 174 $ 1,113 Conservative Balanced Portfolio ............ -- 108 (108) Balanced Portfolio ......................... 4 1,178 (1,182) Conservative Growth Portfolio .............. (2,766) 3,978 (1,212) Strategic Growth Portfolio ................. (11,288) 11,747 (459)
The above adjustments are not reflected in the calculation of net investment income per share presented in the Financial Highlights. FEDERAL INCOME TAXES: It is each Portfolio's policy to qualify as a regulated investment company by complying with the requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies and by distributing substantially all of its earnings to its shareholders. Therefore, no federal income or excise tax provision is required. EXPENSES: General expenses of the LLC are allocated to all the Portfolios based upon the relative average net assets of each Portfolio except printing and postage expenses, which are allocated to all the Portfolios based upon the relative number of shareholder accounts of each Portfolio. In addition, the Portfolios will indirectly bear their prorated share of expenses of the Underlying Funds. Operating expenses directly attributable to a class of shares are charged to the operations of that class of shares. Expenses of each Portfolio not directly attributable to the operations of any class of shares are prorated among the classes to which the expenses relate based on the relative average net assets of each class of shares. USE OF ESTIMATES: The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. 3. INVESTMENT ADVISORY AND OTHER TRANSACTIONS The Advisor provides its proprietary asset allocation services to the Portfolios, formulates the Portfolios' investment policies, analyzes economic and market trends, exercises investment discretion over the assets of the Portfolios and monitors the allocation of each Portfolio's assets and each Portfolio's performance. For its investment advisory services to the Portfolios, the Advisor is entitled to a monthly fee at an annual rate of 0.650% of each Portfolio's average daily net assets up to $1 billion, 0.600% of the next $2 billion of each Portfolio's average daily net assets and 0.550% of each Portfolio's average daily net assets over $3 billion. The Advisor discounts its monthly fee based upon aggregate average daily net assets ("aggregate net assets") of the LLC. Each Portfolio receives a monthly discount at an annual rate of 0.025% of average daily net assets for aggregate net assets from $5 to $10 billion; 0.050% of average daily net assets for aggregate net assets from $10 to $15 billion; 0.075% of average daily net assets for aggregate net assets from $15 to $20 billion; 0.100% of average daily net assets from aggregate net assets from $20 to $25 billion; and 0.125% of average daily net assets for aggregate net assets over $25 billion. Effective November 1, 2005, the Advisor's monthly fee based upon average daily net assets for each Portfolio changed to a monthly fee based upon aggregate net assets of the LLC of 0.550% of aggregate net assets up to $500 million, 0.500% of the next $500 million of aggregate net assets, 0.450% of the next $1 billion of aggregate net assets, 0.400% of the next $1 billion of aggregate net assets, 0.350% of the next $1 billion of aggregate net assets, 0.300% of the next $1 billion of aggregate net assets and 0.250% of aggregate net assets over $5 billion. In addition, the Advisor will discontinue the discount for its monthly fee based upon aggregate average daily net assets. WM Shareholder Services, Inc. (the "Transfer Agent"), a wholly owned subsidiary of Washington Mutual, serves as the transfer agent of the Portfolios. Fees are paid to the Transfer Agent for services related to the issuance and transfer of shares, maintaining shareholder lists, and issuing and mailing distributions and reports. For such services, the Transfer Agent receives a fee per open and closed account, in addition to reimbursement for certain out-of-pocket expenses. The Transfer Agent is entitled to a monthly 37 Notes to Financial Statements (continued) fee based upon an annual rate of $20.00 per open account for all Class A, Class B and Class C shareholder accounts. Prior to June 1, 2005, the Transfer Agent was entitled to a monthly fee based upon an annual rate of $20.40 per open account for Class A, Class B and Class C shareholder accounts, with the exception of the Flexible Income Portfolio, for which the fee was $21.15. Custodian fees for certain Portfolios have been reduced by credits allowed by the Portfolio's custodian for uninvested cash balances. The Portfolios could have invested this cash in income producing investments. Fees reduced by credits allowed by the custodian for the year ended October 31, 2005, are shown separately in the "Statements of Operations". 4. TRUSTEES' FEES No officer or employee of Washington Mutual or its subsidiaries receives any compensation from the LLC for serving as an officer or Trustee of the LLC. The LLC, together with other mutual funds advised by the Advisor, pays each Trustee who is not an officer or employee of Washington Mutual or its subsidiaries, a per annum retainer plus attendance fees for each meeting at which they are present. The Lead Trustee, Committee Chairs and Committee Members receive additional remuneration for these services to the LLC. Trustees are also reimbursed for travel and out-of-pocket expenses. Each Trustee serves in the same capacity for all 42 funds within the WM Group of Funds. 5. DISTRIBUTION PLANS WM Funds Distributor, Inc. (the "Distributor"), a registered broker/dealer and a wholly owned subsidiary of Washington Mutual, serves as distributor for Class A, Class B and Class C shares of each Portfolio. For the year ended October 31, 2005, the Distributor received $12,775,675 representing commissions (front end sales charges) on Class A shares and $2,022,558 representing CDSCs from Class A, Class B and Class C shares. Each of the Portfolios has adopted three distribution plans, pursuant to Rule 12b-1 under the 1940 Act, applicable to Class A, Class B and Class C shares of each Portfolio (each, a "Rule 12b-1 Plan"), respectively. Under the applicable Rule 12b-1 Plans, the Distributor may receive 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 fee as compensation in connection with the offering and sale of Class B and Class C shares at an annual rate of 0.75% of the average daily net assets of each class. 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. The service fee is paid by the Portfolio to the Distributor, which in turn, pays service fees to broker/dealers that provide services, such as accepting telephone inquiries, transaction requests, processing correspondence, new account applications and subsequent purchases 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, including a majority of those Trustees who are not "interested persons" of the LLC, as defined in the 1940 Act, and who have no direct or indirect financial interest in the operation of such distribution plans, or any agreements related to such plans, respectively. 6. PURCHASES AND SALES OF INVESTMENTS The aggregate cost of purchases and proceeds from sales of Underlying Funds for the year ended October 31, 2005, are as follows:
PURCHASES SALES NAME OF PORTFOLIO (000S) (000S) - ----------------- --------- ------- Flexible Income Portfolio ......... $117,179 $29,050 Conservative Balanced Portfolio ... 149,655 9,250 Balanced Portfolio ................ 757,357 18,000 Conservative Growth Portfolio ..... 517,206 24,600 Strategic Growth Portfolio ........ 338,762 13,750
7. CAPITAL LOSS CARRYFORWARDS At October 31, 2005, the following Portfolios have available for federal income tax purposes unused capital losses as follows:
(IN THOUSANDS) ------------------------------------------------------------------- EXPIRING IN EXPIRING IN EXPIRING IN EXPIRING IN EXPIRING IN NAME OF PORTFOLIO 2009 2010 2011 2012 2013 - ----------------- ----------- ----------- ----------- ----------- ----------- Balanced Portfolio .............. $4,005 $2,892 $ 7,703 $10,095 $ 635 Conservative Growth Portfolio ... -- 6,370 24,246 19,285 4,608 Strategic Growth Portfolio ...... -- 8,026 15,146 15,086 2,197
38 Notes to Financial Statements (continued) 8. COMPONENTS OF DISTRIBUTABLE EARNINGS At October 31, 2005, the components of distributable earnings on a tax basis are as follows:
(IN THOUSANDS) --------------------------------------------------------------- FLEXIBLE CONSERVATIVE CONSERVATIVE STRATEGIC INCOME BALANCED BALANCED GROWTH GROWTH PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO --------- ------------ --------- ------------ --------- Gross tax unrealized appreciation .. $ 53,965 $44,517 $445,299 $435,834 $240,078 Gross tax unrealized depreciation .. (16,435) (9,205) (25,483) (7,258) -- --------- ------- -------- -------- -------- Net tax unrealized appreciation .... $ 37,530 $35,312 $419,816 $428,576 $240,078 ========= ======= ======== ======== ======== Undistributed ordinary income ...... $ 2,173 $ 940 $ 2,073 $ 107 $ 166 Undistributed long-term gains ...... $ 2,610 $ 814 $ -- $ -- $ --
9. UNDERLYING FUNDS The following is a summary of investment objectives and risk factors of the Underlying Funds, and Portfolio ownership in the Underlying Funds. The WM Group of Funds annual report, which is available online at wmgroupoffunds.com or by calling 800-222-5852, contains more information regarding the Underlying Funds. INVESTMENT OBJECTIVES OF UNDERLYING FUNDS: The investment objectives of the Underlying Funds are as follows: WM REIT Fund Seeks to provide a high level of current income and intermediate- to long-term capital appreciation. WM Equity Income Fund Seeks to provide a relatively high level of current income and long-term growth of income and capital. WM Growth & Income Fund Seeks to provide long-term capital growth. Current income is a secondary consideration. WM West Coast Equity Fund Seeks to provide long-term growth of capital. WM Mid Cap Stock Fund Seeks to provide long-term capital appreciation. WM Growth Fund Seeks to provide long-term capital appreciation. WM Small Cap Value Fund Seeks to provide long-term capital appreciation. WM Small Cap Growth Fund Seeks to provide long-term capital appreciation. WM International Growth Fund Seeks to provide long-term capital appreciation. WM Short Term Income Fund Seeks to provide as high a level of current income as is consistent with prudent investment management and stability of principal. WM U.S. Government Securities Fund Seeks to provide a high level of current income consistent with safety and liquidity. WM Income Fund Seeks to provide a high level of current income consistent with preservation of capital. WM High Yield Fund Seeks to provide a high level of current income.
RISK FACTORS OF UNDERLYING FUNDS: While no individual fund is intended as a complete investment program, this is especially true for funds that concentrate their investments such as those investing in particular industries or regions. The REIT Fund concentrates its investments in real estate investment trust ("REIT") securities or debt securities of issuers that are principally engaged in the U.S. real estate or related industries. The REIT Fund could be adversely impacted by economic trends within this industry. The West Coast Equity 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. The High Yield Fund concentrates its investments in lower rated debt securities, which may be more susceptible to adverse economic conditions than investment grade holdings. These securities are often subordinated to the prior claims of other senior lenders, and uncertainties exist as to an issuer's ability to meet principal and interest payments. 39 Notes to Financial Statements (continued) Certain Underlying Funds may invest a portion of their assets in foreign securities of developing or emerging markets countries; enter into forward foreign currency transactions; lend their portfolio securities; enter into a stock index, interest rate and currency futures contracts, and options on such contracts; enter into interest rate swaps or purchase or sell interest rate caps or floors; enter into other types of options transactions; make short sales; purchase zero coupon and payment-in-kind bonds; enter into repurchase or reverse repurchase agreements; purchase and sell "when-issued" securities and engage in "delayed-delivery" transactions; and enter into various other investment practices, each with inherent risks. The risks involved in investing in foreign securities include those resulting from future adverse political and economic developments and the possible imposition of currency exchange restrictions or other foreign laws or restrictions. The risks involved in investing in a high concentration of a single sector include those resulting from future adverse political and economic developments or regulatory occurrences and the potential for adverse effects to the financial conditions of the industries within the sector due to market fluctuations. PORTFOLIO OWNERSHIP IN THE UNDERLYING FUNDS: At October 31, 2005, the LLC holds investments in a number of the Underlying Funds. The figures presented below represent the percentage of shares outstanding of each underlying Fund owned by the Portfolios:
PORTFOLIOS ----------------------------------------------------------------------- FLEXIBLE CONSERVATIVE CONSERVATIVE STRATEGIC INCOME BALANCED BALANCED GROWTH GROWTH NAME OF UNDERLYING 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%
- ---------- * Does not include approximately 9.3% of the High Yield Fund held by the WM Variable Trust Portfolios, which are managed in a style substantially identical to that of the Portfolios. OTHER FACTORS: Investing in the Underlying Funds through the Portfolios involves certain additional expenses and tax results that would not be present in a direct investment in the Underlying Funds. For example, under certain circumstances, an Underlying Fund may determine to make payment of a redemption request by a Portfolio wholly or partly by a distribution in kind of securities from its portfolio, instead of cash, in accordance with the rules of the Securities and Exchange Commission. In such cases, the Portfolios may hold securities distributed by an Underlying Fund until the Advisor determines that it is appropriate to dispose of such securities. The officers and Trustees, the Advisor, the Distributor and Transfer Agent of the Portfolios serve in the same capacity for the Underlying Funds. Conflicts may arise as these persons and companies seek to fulfill their fiduciary responsibilities to both the Portfolios and the Underlying Funds. From time to time, one or more of the Underlying Funds used for investment by a Portfolio may experience relatively large investments or redemptions due to reallocations or rebalancings by the Portfolios as recommended by the Advisor. These transactions will affect the Underlying Funds, since the Underlying Funds that experience redemptions as a result of the reallocations or rebalancings may have to sell portfolio securities and since the Underlying 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 portfolio management to the extent that the Underlying Funds may be required to sell securities or invest cash at times when they would not otherwise do so. These transactions could also have tax consequences if sales of securities resulted in gains and could also increase transaction costs. The Advisor is committed to minimizing such impact on the Underlying Funds to the extent it is consistent with pursuing the investment objectives of the Portfolios. The Advisor may nevertheless face conflicts in fulfilling its dual responsibilities for the Portfolios and the Underlying Funds. The Advisor will, at all times, monitor the impact on the Underlying Funds of transactions by the Portfolios. 40 Report of Independent Registered Public Accounting Firm TO THE TRUSTEES AND SHAREHOLDERS OF WM STRATEGIC ASSET MANAGEMENT PORTFOLIOS LLC: We have audited the accompanying statements of assets and liabilities, including the portfolios of investments, of WM Flexible Income Portfolio, WM Conservative Balanced Portfolio, WM Balanced Portfolio, WM Conservative Growth Portfolio and WM Strategic Growth Portfolio (collectively, the "Portfolios") as of October 31, 2005, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Portfolios' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Portfolios are not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Portfolios' internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2005, by correspondence with the custodian. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Portfolios as of October 31, 2005, the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended, and their financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. Deloitte & Touche LLP Boston, Massachusetts December 22, 2005 41 Supplemental Information (unaudited) BOARD APPROVAL OF INVESTMENT ADVISORY AGREEMENT Each year, the Board of Trustees of the LLC (the "Board"), including a majority of the Trustees who are not interested persons of the LLC (the "Independent Trustees"), is required to determine whether to continue the LLC's advisory agreement. The Investment Company Act of 1940, as amended, requires that the Board request and evaluate, and that the investment manager furnish, such information as may reasonably be necessary to evaluate the terms of the LLC's advisory agreement. In May 2005, the Board and the Independent Trustees approved the continuation of the LLC Amended and Restated Investment Management Agreement with the Advisor (the "Agreement") for an additional one-year term beginning July 1, 2005, following the recommendation of the Investment Committee (the "Committee"), a majority of the members of which are Independent Trustees, and the recommendation of the Independent Trustees as a whole. The material factors and conclusions that formed the basis for the Committee's recommendation and the subsequent approval by the Board and the Independent Trustees are required to be in this report and are discussed below. REVIEW PROCESS: The Independent Trustees received assistance and advice, including a written memorandum, regarding the legal standards applicable to the consideration of advisory arrangements from independent counsel to the LLC and the Independent Trustees. The Independent Trustees discussed the continuation of the Agreement with representatives of the Advisor and in private session with independent legal counsel at which no representatives of the Advisor were present. The Committee, in deciding to recommend continuation of the Agreement, and the Board and the Independent Trustees, in approving such continuation, did not identify any particular information that was all-important or controlling, and each Trustee attributed different weights to the various factors. The Trustees evaluated all information available to them on a Portfolio-by-Portfolio basis, and their deliberations were made separately in respect of each Portfolio. This summary describes the most important, but not all, of the factors considered by the Board, the Independent Trustees and the Committee. The Board, the Independent Trustees and the Committee considered the fact that each of the Portfolios is managed in a style substantially identical to that of a corresponding series of WM Variable Trust (each, a "SAM Portfolio"), and reviewed the Portfolios simultaneously with their review of the corresponding SAM Portfolios. MATERIALS REVIEWED: During the course of each year, the Board receives a wide variety of materials relating to the services provided by the Advisor and its affiliates, including reports on: each Portfolio's investment results; portfolio construction; portfolio composition; performance attribution; shareholder services; the Advisor's views on the economy and capital markets; and other information relating to the nature, extent and quality of services provided by the Advisor and its affiliates to the Portfolios. With respect to performance attribution, the Board, the Independent Trustees and the Committee focused in particular on the Balanced Portfolio, as the corresponding performance attribution for the other Portfolios typically varies in proportion to the greater or lesser risk profiles of those Portfolios. In addition, in connection with its annual consideration of the LLC's advisory arrangements, the Board requests and reviews supplementary information regarding the terms of the Agreement, performance and expense information for other investment companies derived from data compiled by Lipper Inc., a third-party data provider ("Lipper"), and materials prepared by Cerulli Associates, a research and consulting firm ("Cerulli"), with respect to the costs of mutual fund wrap accounts, as well as additional information prepared by the Advisor, including financial and profitability information regarding the Advisor and its affiliates, descriptions of various functions undertaken by the Advisor, such as compliance monitoring practices, and information about the personnel providing investment management to the Portfolios. The Board, the Independent Trustees and the Committee also considered information regarding "revenue sharing" arrangements that the Advisor and its affiliates have entered into with various intermediaries that sell shares of the Portfolios. The Board also requested and reviewed information relating to other services provided to the Portfolios by the Advisor and its affiliates under other agreements, including information regarding so-called "fall-out" benefits to the Advisor and its affiliates due to their other relationships with the Portfolios, such as the administrative services contract with the Advisor described below. The Board and the Committee also received and reviewed comparative performance information regarding the SAM Portfolios at each of the quarterly Board and Committee meetings. NATURE, EXTENT AND QUALITY OF SERVICES: Nature and Extent of Services -- In considering the continuation of the Agreement for the current year, the Board, the Independent Trustees and the Committee evaluated the nature and extent of the services provided by the Advisor and its affiliates. The Advisor formulates each Portfolio's investment policies (subject to the terms of the prospectus), analyzes economic trends and capital market developments with a view to optimizing asset allocations, evaluates the consistency, style and quality of the investment services provided to the Underlying Funds in which the Portfolios invest, evaluates the risk/return characteristics of each of the Underlying Funds by reference to the specific security holdings of each Underlying Fund, constructs each Portfolio, monitors each Portfolio's investment performance and reports to the Board and the Committee. The Board, the Independent Trustees and the Committee considered information concerning the investment philosophy and investment process used by the Advisor in managing the Portfolios. In this context, the Board, the Independent Trustees and the Committee considered the in-house research capabilities of the Advisor as well as other resources available to the Advisor, including research services available to the Advisor as a result of securities transactions effected for the Underlying Funds. The Board, the Independent Trustees and the Committee considered the managerial and financial resources available to the Advisor and concluded that they would be 42 Supplemental Information (unaudited) (continued) sufficient to meet any reasonably foreseeable obligations under the Agreement. The Board, the Independent Trustees and the Committee noted that the standard of care under the Agreement was comparable to that found in many investment advisory agreements, and considered the record of the Advisor in resolving potential disputes arising under its investment advisory agreements with the WM Group of Funds in the best interests of shareholders. Quality of Services -- The Board, the Independent Trustees and the Committee considered the quality of the services provided by the Advisor and the quality of the Advisor's resources that are available to the Portfolios. The Board, the Independent Trustees and the Committee considered the investment experience and professional qualifications of the personnel of the Advisor and its affiliates and the size and functions of their staffs, as well as the reputation of the Advisor. The Board, the Independent Trustees and the Committee considered the complexity of managing the Portfolios relative to other types of funds including both other funds that pursue their objectives through investments in mutual funds (so-called "funds-of-funds") that simply rebalance their portfolios on a periodic basis and mutual fund wrap accounts that offer asset allocation services. In evaluating the scope and quality of the services provided by the Advisor to the Portfolios, the Board, the Independent Trustees and the Committee members also drew on their experiences as directors or trustees of the Underlying Funds and, for certain Trustees, other funds. The Board, the Independent Trustees and the Committee also received and reviewed information regarding the quality of non-investment advisory services provided to the Portfolios by the Advisor and its affiliates under other agreements. The Board, the Independent Trustees and the Committee concluded that the services provided by the Advisor have benefited and should continue to benefit the Portfolios and their shareholders. The Board, the Independent Trustees and the Committee concluded that the investment philosophy, process, and research capabilities of the Advisor were well suited to the Portfolios, given their investment objectives and policies. The Board, the Independent Trustees and the Committee concluded that the scope of the services provided to the Portfolios by the Advisor and its affiliates under the Agreement and the administrative services agreement was consistent with the Portfolios' operational requirements, including, in addition to their investment objectives, compliance with the Portfolios' investment restrictions, tax and reporting requirements and related shareholder services. The Board, the Independent Trustees and the Committee concluded that the nature, scope and quality of the services provided by the Advisor were sufficient, in light of the resources dedicated by the Advisor and its integrity, personnel, systems and financial resources, to merit approval of the continuation of the Agreement. PORTFOLIO MANAGEMENT SERVICES AND PERFORMANCE: In their evaluation of the quality of the portfolio management services provided by the Advisor, the Board, the Independent Trustees and the Committee considered the professional credentials and investment experience of the Portfolios' portfolio managers. The Board, the Independent Trustees and the Committee considered whether the Portfolios operated within their investment objectives and their record of compliance with investment restrictions. The Board, the Independent Trustees and the Committee reviewed information comparing the Portfolios' historical performance to relevant market indices for the 1-, 3- and 5-year periods ended March 31, 2005 and to performance information for other investment companies with similar investment objectives over the 1-, 3-, 5-, 10-year and since inception periods ended January 31, 2005 derived from data compiled by Lipper. The Board, the Independent Trustees and the Committee focused, in particular, on the performance comparisons of the Balanced Portfolio as compared to other mutual funds categorized by Lipper as "balanced funds." The Board, the Independent Trustees and the Committee considered the difficulty in identifying peer groups for the Portfolios other than the Balanced Portfolio. The Board, the Independent Trustees and the Committee determined that those Portfolios that did not have as readily identifiable peer groups performed consistently with their risk profiles relative to the Balanced Portfolio and that such Portfolios' performance should be and was symmetrically arrayed around the performance of the Balanced Portfolio. The Board, the Independent Trustees and the Committee noted that the Portfolios, other than the Flexible Income Portfolio, had performed well relative to their index benchmarks over the 3- and 5-year periods and that the Balanced Portfolio had outperformed its peers for the 3- and 5-year periods, though it had underperformed its peers during the most recent year. The Board, the Independent Trustees and the Committee discussed with the Advisor the reasons for this recent underperformance and the Advisor's plans to monitor and address performance issues. The Board, the Independent Trustees and the Committee noted the Flexible Income Portfolio's exposure to equities accounted for its recent underperformance, its relatively good longer term performance and short-term volatility, in each case, relative to funds that invested exclusively in debt securities. The Board, the Independent Trustees and the Committee considered the "core" allocations for the Portfolios and reviewed the performance attribution analysis prepared by the Advisor. The Board, the Independent Trustees and the Committee concluded that the Advisor's performance record and investment process used in managing the Portfolios were sufficient to merit approval of the continuation of the Agreement. MANAGEMENT FEES AND EXPENSES: The Board, the Independent Trustees and the Committee reviewed information, including comparative information provided by Lipper, regarding the advisory, transfer agent, and service and distribution fees paid to the Advisor and its affiliates and the total expenses borne by the Portfolios. The Board, the Independent Trustees and the Committee considered both the total expenses borne directly by the Portfolios and the total expenses borne on an aggregate basis, including the expenses borne indirectly through the Portfolios' investments in the Underlying Funds. They discussed the general downward trend in total expense ratios for the Portfolios. The Board, the Independent Trustees and the Committee reviewed the administrative and transfer agency fees paid by the Portfolios to the Administrator, as well as the distribution (12b-1) fees paid to the Distributor. The Board, the Independent Trustees and the Committee considered the peer groups identified by Lipper for the Portfolios, including Lipper peer groups comprised of funds with similar investment objectives that invest directly in portfolio securities, and Lipper peer 43 Supplemental Information (unaudited) (continued) groups comprised exclusively of funds-of-funds. The Board, the Independent Trustees and the Committee noted that there were relatively few funds-of-funds identified by Lipper. The Board, the Independent Trustees and the Committee concluded that the Lipper peer groups comprised of funds with similar investment objectives that invest directly in portfolio securities represented the best mutual fund analogue to the Portfolios, particularly the Balanced Portfolio. The Board, the Independent Trustees and the Committee considered the similarity of the Portfolios to mutual fund wrap accounts, and reviewed and considered a report provided by Cerulli on mutual fund wrap accounts, including data on average annual advisory fees. The Board, the Independent Trustees and the Committee considered information provided by Lipper comparing the aggregate total expenses of funds-of-funds (including underlying fund expenses) identified by Lipper relative to the Portfolios. The Committee considered the anticipated effect on the Portfolios' expense ratios of proposed management fee reductions for the Growth Fund, an Underlying Fund. The Board, the Independent Trustees and the Committee concluded that the fees to be charged under the Agreement bore a reasonable relationship to the scope and quality of the services provided. PROFITABILITY AND ECONOMIES OF SCALE: Profitability -- The Board, the Independent Trustees and the Committee reviewed information regarding the cost of services provided by the Advisor and its affiliates and the profitability (before and after distribution expenses and prior to taxes) of their relationships with the Portfolios. The Board, the Independent Trustees and the Committee considered trends in the profitability of the Advisor and its affiliates, and information provided by Lipper regarding the pre- and post-marketing profitability of other investment advisers with publicly-traded parent companies. The Board, the Independent Trustees and the Committee considered that the Advisor must be able to pay and retain experienced professional personnel at competitive rates to provide services to the Portfolios (and in connection therewith reviewed and considered changes in the structure of compensation of the Advisor's investment professionals, including a change in the performance-based component of the compensation and the introduction of options and restricted stock rather than vesting periods for cash bonuses) and that maintaining the financial viability of the Advisor is important in order for it to continue to provide significant services to the Portfolios and their shareholders. The Board, the Independent Trustees and the Committee considered the impact of previously-negotiated fee reductions on the profitability of the Advisor and the year-to-year trends in pre-distribution margins for the Advisor, over a four-year period in which complex-wide assets more than doubled. The Board, the Independent Trustees and the Committee also considered that new breakpoints for an Underlying Fund would reduce revenues to the Advisor at current asset levels. In addition, the Board, the Independent Trustees and the Committee considered information regarding the direct and indirect benefits the Advisor receives as a result of its relationship with the Portfolios, including compensation paid to the Advisor and its affiliates under other agreements, such as administrative fees to the Advisor, transfer agency fees to the Administrator, and 12b-1 fees and sales charges to the Distributor, as well as research provided to the Advisor in connection with portfolio transactions effected on behalf of the Underlying Funds (soft dollar arrangements) and reputational benefits. Economies of Scale -- The Board, the Independent Trustees and the Committee reviewed the extent to which the Advisor may realize economies of scale in managing and supporting the Portfolios and the current level of Portfolio assets in relation to the breakpoints in each Portfolio's advisory fees. The Board, the Independent Trustees and the Committee considered the savings for the Portfolios that had been achieved due to breakpoints previously implemented as a result of negotiations between the Advisor and the Board. The Board, the Independent Trustees and the Committee considered the extent to which any economies of scale might be realized (if at all) by the Advisor across a variety of products and services, including the SAM Portfolios, and not only in respect of a single Portfolio, and took into account the fact that the Advisor had agreed to advisory fee breakpoints on assets based in part on the combined assets of all the Portfolios. The Board, the Independent Trustees and the Committee concluded that the Portfolios' cost structure was reasonable given the scope and quality of the services provided to the Portfolios and that the Advisor was sharing any economies of scale with the Portfolios and their shareholders. ADDITIONAL CONSIDERATIONS: The Board, the Independent Trustees and the Committee also considered possible conflicts of interest associated with the provision of investment advisory services by the Advisor to other clients and the fact that such clients of the Advisor were then limited to those affiliated with AIG Asset Management and Transamerica Life Insurance Company (representing approximately $5.5 billion and $2.5 million in assets under management as of October 31, 2005, respectively). The Trustees considered the procedures of the Advisor designed to fulfill its fiduciary duties to its advisory clients with respect to possible conflicts of interest, including the codes of ethics, the integrity of the systems in place to ensure compliance with the foregoing, and the record of the Advisor in these matters. CONCLUSIONS: Based on their review, including their consideration of each of the factors referred to above, the Board, the Independent Trustees and the Committee concluded that the Agreement, including the fees payable to the Advisor, is fair and reasonable to the Portfolios and their shareholders given the scope and quality of the services provided to the Portfolios and such other considerations as the Trustees considered relevant in the exercise of their reasonable business judgment and that the continuation of the Agreement was in the best interests of the Portfolios and their shareholders. The Board and the Independent Trustees unanimously approved the continuation of the Agreement. 44 Supplemental Information (unaudited) (continued) OTHER FUND INFORMATION TAX INFORMATION: The following tax information for the fiscal year ended October 31, 2005 is provided pursuant to provisions of the Internal Revenue Code. The amounts of long term capital gains designated are as follows (in thousands):
NAME OF PORTFOLIO - ----------------- Flexible Income Portfolio ......... $2,254 Conservative Balanced Portfolio ... 818
Of the distributions made by the following Portfolios, the corresponding percentages represent the amount of each distribution which may qualify for the dividends received deduction available to corporate shareholders.
NAME OF PORTFOLIO - ----------------- Flexible Income Portfolio ......... 9.28% Conservative Balanced Portfolio ... 17.51% Balanced Portfolio ................ 51.05% Conservative Growth Portfolio ..... 100.00% Strategic Growth Portfolio ........ 100.00%
Of the distributions made by the following Portfolios, the corresponding percentages represent the amount of each distribution which qualifies for the 15% dividend income tax rate.
NAME OF PORTFOLIO - ----------------- Flexible Income Portfolio ................... 9.18% Conservative Balanced Portfolio ............. 18.86% Balanced Portfolio .......................... 49.95% Conservative Growth Portfolio ............... 100.00% Strategic Growth Portfolio .................. 100.00%
The above percentages may differ from those cited elsewhere in this report due to differences in the calculation of income and capital gains for generally accepted accounting principles (book) purposes and federal income tax (tax) purposes. SCHEDULES OF INVESTMENTS: The LLC files its complete schedules of portfolio holdings with the Securities and Exchange Commission ("SEC") for the first and third quarters of each fiscal year on Form N-Q. The LLC's Form N-Q is available at http://www.sec.gov and also may be reviewed and copied at the SEC's Public Reference Room ("PRR") in Washington, DC. Information regarding the operation of the PRR may be obtained by calling 800-SEC-0330. PROXY VOTING INFORMATION: The policies and procedures that the LLC uses to determine how to vote proxies relating to portfolio securities held by the Fund are included in the LLC's Statement of Additional Information which is available, without charge and upon request, by calling 800-222-5852. Information regarding how the Portfolio voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available at http://www.wmgroupoffunds.com. This information is also available at http://www.sec.gov. 45 Supplemental Information (unaudited) (continued) TRUSTEES AND OFFICERS INFORMATION
NAME, AGE, AND ADDRESS(1) OF NON- PRINCIPAL OCCUPATION(S) INTERESTED TRUSTEE(4) LENGTH OF TIME SERVED(2) DURING PAST 5 YEARS OTHER DIRECTORSHIPS HELD BY TRUSTEE --------------------- ------------------------ ----------------------- ----------------------------------- Wayne L. Attwood, M.D. Composite Funds-11 years Retired doctor of internal medicine None. Age 76 WM Group of Funds-7 years and gastroenterology. (Retired February 2005) Kristianne Blake Composite Funds-3 years CPA specializing in personal financial Avista Corporation; Frank Russell Age 51 WM Group of Funds-7 years and tax planning. Investment Company; Russell Investment Funds. Edmond R. Davis, Esq. Sierra Funds-8 years Partner at the law firm of Davis & Braille Institute of America, Inc; Age 77 WM Group of Funds-7 years Whalen LLP. Prior thereto, partner at Children's the law firm of Brobeck, Phlegar & Bureau of Southern California, Harrison, LLP. Children's Bureau Foundation; Fifield Manors, Inc. Carrol R. McGinnis Griffin Funds-3 years Private investor since 1994. Prior Baptist Foundation of Texas; Concord Age 62 WM Group of Funds-6 years thereto, President and Chief Operating Trust Company. Officer of Transamerica Fund Management Company. Alfred E. Osborne, Jr., Sierra Funds-7 years Senior Associate Dean, University of Nordstrom Inc.; K2, Inc.; First Pacific Ph.D. WM Group of Funds-7 years California at Los Angeles Anderson Advisors'Funds, EMAK Worldwide, Inc.; Age 60 Graduate School of Management, and Member of Investment Company Faculty Director of the Harold Price Institute National Board of Directors; Center for Entrepreneurial Studies, Director of Independent Directors University of California at Los Council and Member of Communication Angeles. & Education Committees. Daniel L. Pavelich Composite Funds-1 year Retired Chairman and CEO of BDO Catalytic, Inc.; Vaagen Bros. Age 61 WM Group of Funds-7 years Seidman. Lumber, Inc. Jay Rockey Composite Funds-3 years Founder and Senior Counsel of The Downtown Seattle Association; Age 77 WM Group of Funds-7 years Rockey Company, now Rockey, Hill & WSU Foundation Knowlton. Richard C. Yancey Composite Funds-23 years Retired Managing Director of Dillon AdMedia Partners Inc.; Czech and (Lead Trustee) WM Group of Funds-7 years Read & Co., an investment bank now Slovak American Enterprise Fund Age 79 part of UBS.
NAME, AGE, AND ADDRESS(1) OF INTERESTED TRUSTEE PRINCIPAL OCCUPATION(S) (3)(4) LENGTH OF TIME SERVED(2) DURING PAST 5 YEARS OTHER DIRECTORSHIPS HELD BY TRUSTEE ------------------ ------------------------ ----------------------- ----------------------------------- Anne V. Farrell Composite Funds-4 years President Emeritus of the Seattle Washington Mutual, Inc.; Age 70 Foundation. WM Group of Funds-7 years Recreational Equipment Inc. Michael K. Murphy Composite Funds-3 years Chairman of CPM Development Washington Mutual, Inc. Age 68 WM Group of Funds-7 years Corporation. (Retired November 2005) William G. Papesh Composite Funds-9 years President and Director of the Advisor, Member of Investment Company (President and CEO) WM Group of Funds-7 years Transfer Agent and Distributor. Institute Board of Governors. Age 62
NAME, AGE, AND ADDRESS(1) POSITION(S) HELD WITH REGISTRANT & OF OFFICER(4) LENGTH OF TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS - ------------------------- ---------------------------------- ------------------------------------------- Wendi B. Bernard Assistant Vice President and Assistant Secretary Assistant Vice President of the Advisor. Age 37 since 2003. Jeffrey L. Lunzer, CPA First Vice President, Chief Financial Officer First Vice President of the Advisor, Transfer Age 44 and Treasurer since 2003. Agent and Distributor. Prior to 2003, senior level positions at the Columbia Funds and Columbia Management Company. William G. Papesh President and CEO since 1987. President and Director of the Advisor, Transfer Age 62 Prior to 1987, other officer positions since 1972. Agent and Distributor. Gary Pokrzywinski Senior Vice President since 2004. First Vice Senior Vice President and Director of the Age 44 President since 2001. Prior to 2001, Vice President Advisor, Transfer Agent and Distributor. since 1999. Debra Ramsey Senior Vice President since 2004. Senior Vice President and Director of the Age 52 Advisor, Transfer Agent and Distributor. John T. West First Vice President, Secretary, Chief Compliance First Vice President of the Advisor, Transfer Age 50 Officer and Anti-Money Laundering Compliance Officer Agent and Distributor. since 2004. Prior to 2004, various other officer positions since 1993. Randall L. Yoakum Senior Vice President since 2001. Senior Vice President and Chief Investment Age 45 Prior to 2001, First Vice President since 1999. Strategist of the Advisor
Note: The Statement of Additional Information includes additional information about Fund Trustees and Officers and is available, without charge, upon request by calling 800-222-5852. (1) The address for all Trustees and Officers is 1201 Third Avenue, 22nd Floor, Seattle, WA, 98101. (2) 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. (3) Trustees are considered interested due to their affiliation with Washington Mutual, Inc. (4) The Trustees and Officers serve in these capacities for the 42 Portfolios and Funds in the Fund Complex. Each Trustee and officer shall hold the indicated positions until his or her resignation, retirement or removal. 46 Supplemental Information (unaudited) (continued) PORTFOLIO MANAGER Growth & Income Fund Stephen Q. Spencer, CFA WM Advisors, Inc. Note: Pages 47-49 provide information about certain WM Funds in which the SAM Portfolios invest a significant portion of their assets. For additional information about these and other WM Funds, please see the WM Group of Funds annual report, which is available online at wmgroupoffunds.com or by calling 800-222-5852. Data shown is past performance and does not guarantee future results. Current per-formance, including the most recent month-end results, which may be higher or lower than the data shown, can be obtained by calling 800-222-5852. Your investment's return and principal value will fluctuate, so it may be worth more or less upon redemption. A sales charge may apply as follows: Class A shares: maximum up-front sales charge of 5.5%; Class B shares: contingent deferred sales charge of 5%, which declines over 5 years (5-5-4-3-2-0%); Class C shares: contingent deferred sales charge of 1% on redemptions made during the first 12 months. See the prospectus for details. Performance listed with sales charge reflects the maximum sales charge. AVERAGE ANNUAL TOTAL RETURNS(1) AS OF OCTOBER 31, 2005
1-Year 5-Year 10-Year Since Inception Inception Date ------ ------ ------- --------------- -------------- CLASS A SHARES Net Asset Value(2) 6.34% -0.01% 9.38% 10.06% 10/31/49 With Sales Charge 0.50% -1.14% 8.77% 9.95% CLASS B SHARES Net Asset Value(2) 5.28% -0.99% 8.62% 9.81% 3/30/94 With Sales Charge 0.28% -1.41% 8.62% 9.81% CLASS C SHARES Net Asset Value(2) 5.30% -- -- 2.88% 3/1/02 With Sales Charge 4.30% -- -- 2.88% S&P 500(3) 8.72% -1.74% 9.35% 11.98%
PORTFOLIO COMPOSITION(4) As of 10/31/05 (PIE CHART)
As of As of Asset Class 10/31/05 10/31/04 Change - ----------- -------- -------- ------ Financials 22% 24% -2% Information Technology 13% 13% 0% Health Care 11% 13% -2% Industrials 11% 10% +1% Consumer Discretionary 10% 12% -2% Consumer Staples 10% 10% 0% Energy 9% 8% +1% Utilities 5% 3% +2% Materials 2% 0% +2% Telecommunication Services 1% 1% 0% Cash Equivalents 6% 6% 0%
(1) Performance reflects ongoing fund expenses, which may have been waived, and assumes reinvestment of all dividends and capital gains. Performance does not reflect the impact of federal, state, or municipal taxes. If it did, performance would be lower. (2) Net asset value is not adjusted for sales charge. (3) See page 18 for definitions of indices. Returns shown for the index assume reinvestment of all dividends and distributions, and the since-inception return shown for the index is calculated from 10/31/49. Indices are unmanaged, and individuals cannot invest directly in an index. (4) May not reflect the current portfolio composition. 47 Supplemental Information (unaudited) (continued) U.S. Government Securities Fund PORTFOLIO MANAGER Craig V. Sosey WM Advisors, Inc. (GRAPHIC) Data shown is past performance and does not guarantee future results. Current performance, including the most recent month-end results, which may be higher or lower than the data shown, can be obtained by calling 800-222-5852. Your investment's return and principal value will fluctuate, so it may be worth more or less upon redemption. A sales charge may apply as follows: Class A shares: maximum up-front sales charge of 4.5%; Class B shares: contingent deferred sales charge of 5%, which declines over 5 years AVERAGE ANNUAL TOTAL RETURNS(1) AS OF OCTOBER 31, 2005
1-Year 5-Year 10-Year Since Inception Inception Date ------ ------ ------- --------------- -------------- CLASS A SHARES Net Asset Value(2) 1.02% 4.92% 5.42% 7.60% 5/4/84 With Sales Charge -3.51% 3.95% 4.93% 7.37% CLASS B SHARES Net Asset Value(2) 0.28% 4.16% 4.75% 5.31% 3/30/94 With Sales Charge -4.72% 3.82% 4.75% 5.31% CLASS C SHARES Net Asset Value(2) 0.29% -- -- 2.62% 3/1/02 With Sales Charge -0.71% -- -- 2.62% Citigroup Mortgage Index(3) 1.80% 5.86% 6.31% 9.15%
PORTFOLIO COMPOSITION(4) As of 10/31/05 (PIE CHART)
As of As of Asset Class 10/31/05 10/31/04 Change - ----------- -------- -------- ------ FHLMC 33% 34% -1% FNMA 29% 27% +2% CMOs 18% 17% +1% GNMA 7% 10% -3% U.S. Treasuries 5% 6% -1% U.S. Government Agency 4% 3% +1% Cash Equivalents 4% 3% +1%
(1) Performance reflects ongoing fund expenses, which may have been waived, and assumes reinvestment of all dividends and capital gains. Performance does not reflect the impact of federal, state, or municipal taxes. If it did, performance would be lower. The U.S. Government Securities Fund's performance between 1998 and 2000 benefited from the agreement of WM Advisors and its affiliates to limit the Fund's expenses. On 3/1/04, 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. The Income Fund's performance in 1999 benefited from the agreement of WM Advisors and its affiliates to limit the Fund's expenses. (2) Net asset value is not adjusted for sales charge. 48 PORTFOLIO MANAGERS John R. Friedl, CFA and Gary J. Pokrzywinski, CFA WM Advisors, Inc. Income Fund (5-5-4-3-2-0%); Class C shares: contingent deferred sales charge of 1% on redemptions made during the first 12 months. See the prospectus for details. Performance listed with sales charge reflects the maximum sales charge. Fixed-income investments are subject to interest rate risk, and their value will decline as interest rates rise. U.S. Government Securities Fund: Neither the principal of government bond funds nor their yields are guaranteed by the U.S. government. Income Fund: Lower-rated securities are subject to additional credit and default risks. AVERAGE ANNUAL TOTAL RETURNS(1) AS OF OCTOBER 31, 2005
1-Year 5-Year 10-Year Since Inception Inception Date ------ ------ ------- --------------- -------------- CLASS A SHARES Net Asset Value(2) 0.75% 6.59% 6.37% 8.41% 12/15/75 With Sales Charge -3.83% 5.61% 5.89% 8.24% CLASS B SHARES Net Asset Value(2) 0.02% 5.85% 5.73% 6.28% 3/30/94 With Sales Charge -4.98% 5.53% 5.73% 6.28% CLASS C SHARES Net Asset Value(2) 0.01% -- -- 4.74% 3/1/02 With Sales Charge -0.99% -- -- 4.74% Citigroup Broad Investment-Grade Bond Index(3) 1.24% 6.37% 6.35% --
PORTFOLIO COMPOSITION(4) As of 10/31/05 (PIE CHART)
As of As of Asset Class 10/31/05 10/31/04 Change - ----------- -------- -------- ------ Domestic Corporate Bonds 57% 57% 0% Mortgage-Backed Bonds 23% 23% 0% U.S. Treasuries 7% 6% +1% Foreign Corporate 6% 6% 0% Bonds (U.S.$) Equities 1% 0% +1% Foreign Government Bonds (U.S.$) 1% 2% -1% Cash Equivalents 5% 6% -1%
(3) See page 18 for definitions of indices. Returns shown for the indices assume reinvestment of all dividends and distributions. The since-inception return shown for the Citigroup Mortgage Index is calculated from 4/30/84. Indices are unmanaged, and individuals cannot invest directly in an index. (4) May not reflect the current portfolio composition. 49 (WM GROUP of FUNDS LOGO) A mutual fund's share price and investment return will vary with market conditions, and the principal value of an investment when you sell your shares may be more or less than the original cost. This annual report is published as general information for the shareholders of the WM Group of Funds. This material is not authorized for distribution unless preceded or accompanied by a current prospectus that includes more information regarding the risk factors, expenses, policies, and objectives of the funds. Investors should read the prospectus carefully before investing. To obtain an additional prospectus, please contact your Investment Representative or call 800-222-5852. The WM Group of mutual funds is advised by WM Advisors, Inc., distributed by WM Funds Distributor, Inc., and sold through WM Financial Services, Inc. (all affiliates of Washington Mutual, Inc.) and independent broker/dealers. Distributed by: WM Funds Distributor, Inc. Member NASD (WM GROUP of FUNDS LOGO) P.O. Box 8024 Boston, MA 02266-8024 PRESORTED STANDARD US POSTAGE PAID LOS ANGELES, CA PERMIT #1631 ITEM 2. CODE OF ETHICS The registrant has adopted a code of ethics that applies to the registrant's principal executive officer, principal financial officer and principal accounting officer, a copy of which is attached hereto. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT The Board of Trustees of the registrant has determined that there is at least one Trustee who is an audit committee financial expert serving on its Audit Committee and has designated Daniel L. Pavelich as an "audit committee financial expert." Mr. Pavelich is "independent," as such term has been defined by the Securities and Exchange Commission (the "SEC") for purposes of implementing Section 407 of the Sarbanes Oxley Act of 2002. The SEC has stated that the designation or identification of a person as an audit committee financial expert pursuant to this Item 3 of Form N-CSR does not impose on such person any duties, obligations or liability that are greater than the duties, obligations and liability imposed on such person as a member of the Audit Committee and the Board of Trustees in the absence of such designation or identification. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES (a) Audit Fees
2004 2005 - ------- -------- $99,500 $103,000
(b) Audit-Related Fees
2004 2005 - ---- ---- None None
For the last two fiscal years, no audit-related fees were required to be approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X. (c) Tax Fees
2004 2005 - ------- ------- $11,665 $11,920
The tax fees consist of fees billed in connection with reviewing the federal regulated investment company income tax returns for WM Strategic Asset Management Portfolios, LLC for the tax years ended October 31, 2004 and October 31, 2005. (d) All Other Fees For the last two fiscal years, no other fees were required to be approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X. (e) (1) Pre-approval Policies and Procedures Pursuant to the Audit Committee charter, the Audit Committee of the registrant will review and pre-approve or disapprove its principal accountant's engagement for all services with the registrant and its principal accountant's engagement for non-audit services with the registrant's investment advisor (not including a sub-advisor whose role is primarily portfolio management and is sub-contracted or overseen by another investment advisor) and any entity controlling, controlled by or under common control with the investment advisor that provides ongoing services to the funds in accordance with paragraph (c)(7)(i) of Rule 2-01 of Regulation S-X, if the engagement relates directly to the operations and financial reporting of the registrant. (2) None of the services described in paragraphs (b) through (d) of this Item 4 were approved by the Audit Committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. (f) Not applicable. (g) For the fiscal year ended October 31, 2005, the registrant's principal accountant billed aggregate non-audit fees in the amount of $11,920 for services rendered to the registrant, WM Advisors, Inc., WM Funds Distributor, Inc., WM Shareholder Services, Inc. and WM Financial Services, Inc. For the fiscal year ended October 31, 2004, the registrant's principal accountant billed aggregate non-audit fees in the amount of $50,665 for services rendered to the registrant, WM Advisors, Inc., WM Funds Distributor, Inc., WM Shareholder Services, Inc. and WM Financial Services, Inc. (h) The Audit Committee has considered whether the provision of non-audit services that were rendered to the registrant's investment advisor (not including any subadvisor whose role is primarily portfolio management and is subcontracted with or overseen by another investment advisor), and any entity controlling, controlled by, or under common control with the investment advisor that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant's independence. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS Not Applicable. ITEM 6. SCHEDULE OF INVESTMENTS Not Applicable. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES Not Applicable. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES Not Applicable. ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANIES AND AFFILIATED PURCHASERS Not Applicable. ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable. ITEM 11. CONTROLS AND PROCEDURES: (a) The registrant's principal executive officer and principal financial officer have concluded, based on their evaluation of the effectiveness of the design and operation of the registrant's disclosure controls and procedures as of a date within 90 days of the filing date of this report on Form N-CSR, that the design and operation of such procedures are effective to provide reasonable assurance that information required to be disclosed by the registrant in the reports that it files or submits on Form N-CSR is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms. (b) There have been no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940, as amended) that occurred during the registrant's second fiscal half-year that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting. ITEM 12. EXHIBITS (a) Registrant's Code of Ethics. The registrant's code of ethics required to be disclosed under Item 2 of Form N-CSR attached hereto at Exhibit 99.CODE ETH. (b) A separate certification for each principal executive officer and principal financial officer of the registrant as required by Rule 30a-2 of the Investment Company Act of 1940 attached hereto as Exhibit 99.CERT. (c) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 attached hereto as Exhibit 99.906 CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. WM Strategic Asset Management Portfolios, LLC By: /s/William G. Papesh -------------------- William G. Papesh President and Chief Executive Officer Date: January 6, 2006 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities an on the dates indicated. By: /s/Jeffrey L. Lunzer -------------------- Jeffrey L. Lunzer Treasurer and Chief Financial Officer Date: January 6, 2006 By: /s/William G. Papesh -------------------- William G. Papesh President and Chief Executive Officer Date: January 6, 2006 EX-99.CODE ETH 2 v15796ncexv99wcodeeth.txt EX-99.CODE ETH Exhibit 99.CODE ETH THE WM GROUP OF FUNDS CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS This Code of Ethics ("Code") has been adopted by WM Trust I, WM Trust II, WM Strategic Asset Management Portfolios, LLC and WM Variable Trust (the "Trusts") on behalf of each constituent series of the Trusts (each a "Fund" and collectively, the "Funds") on August 12, 2003. The Funds' code of ethics under Rule 17j-1 under the Investment Company Act of 1940, as amended (the "Investment Company Act"), contains separate requirements for persons covered by this Code and other persons and is not part of this Code. I. COVERED OFFICERS/PURPOSE OF THE CODE This Code applies to the Trusts' President and Principal Financial Officer (the "Covered Officers" each of whom is set forth in Exhibit A) for the purpose of promoting: - honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; - full, fair, accurate, timely and understandable disclosure in reports and documents that a Trust files with, or submits to, the Securities and Exchange Commission (the "SEC") and in other public communications made by the Trusts; - compliance with applicable laws and governmental rules and regulations; - the prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and - accountability for adherence to the Code. Each Covered Officer should adhere to a high standard of business ethics and should be sensitive to situations that may give rise to actual as well as apparent conflicts of interest. II. COVERED OFFICERS SHOULD HANDLE ETHICALLY ANY ACTUAL OR APPARENT CONFLICTS OF INTEREST OVERVIEW. A "conflict of interest" occurs when a Covered Officer's private interest interferes with the interests of, or his or her service to, the Trusts. For example, a conflict of interest would arise if a Covered Officer, or a member of his or her family, receives improper personal benefits as a result of the Covered Officer's position with the Trusts. Certain conflicts of interest arise out of the relationships between Covered Officers and the Trusts and already are subject to conflict of interest provisions in the Investment Company Act and the Investment Advisers Act of 1940 (the "Investment Advisers Act"). For example, Covered Officers may not individually engage in certain transactions (such as the purchase or sale of securities or other property) with the Trusts because of their status as "affiliated persons" of the Trusts. The compliance programs and procedures of WM Advisors, Inc., the Trusts' sub-advisers, WM Funds Distributor, Inc. and WM Shareholder Services, Inc. (each a "Service Provider" and, collectively, the "Service Providers") and the Trusts are reasonably designed to prevent, or identify and correct, violations of many of those provisions. This Code does not, and is not intended to, repeat or replace these programs and procedures, and such conflicts fall outside of the parameters of this Code. Although typically not presenting an opportunity for improper personal benefit, conflicts arise from, or as a result of, the contractual relationship between the Trusts and its Service Providers of which the Covered Officers are also officers or employees. As a result, this Code recognizes that the Covered Officers will, in the normal course of their duties (whether formally for the Trusts or for a Service Provider or for both), be involved in establishing policies and implementing decisions that will have different effects on the Service Providers and the Trusts. The participation of the Covered Officers in such activities is inherent in the contractual relationship between the Trusts and the Service Providers and is consistent with the performance by the Covered Officers of their duties as officers of the Trusts. Thus, if performed in conformity with the provisions of the Investment Company Act, the Investment Advisers Act, other applicable law and each Trust's organizational documents, such activities will be deemed to have been handled ethically. In addition, it is recognized by the Trusts' Trustees (the "Trustees") that the Covered Officers may also be officers or employees of one or more other investment companies covered by this or other codes. Other conflicts of interest are covered by the Code, even if such conflicts of interest are not subject to provisions in the Investment Company Act and the Investment Advisers Act. The following list provides examples of conflicts of interest under the Code, but Covered Officers should keep in mind that these examples are not exhaustive. The overarching principle is that the personal interest of a Covered Officer should not be placed improperly before the interest of the Trusts, unless the personal interest has been disclosed to and approved by the Audit Committee (the "Committee"). Each Covered Officer must: - not use his or her personal influence or personal relationships improperly to influence investment decisions or financial reporting by the Trusts whereby the Covered Officer would benefit personally to the detriment of the Trusts; - not cause the Trusts to take action, or fail to take action, for the individual personal benefit of the Covered Officer rather than benefit the Trusts; - not use material non-public knowledge of portfolio transactions made or contemplated for the Trusts to trade personally or cause others to trade personally in contemplation of the market effect of such transactions; and - complete any Trustee and Officer Questionnaire provided by the Trusts. There are some conflict of interest situations that should always be subject to approval by the Committee if material. Examples of these include: - service as a director on the board of any company; - the receipt of any non-nominal gifts valued in excess of $100; - the receipt of any entertainment from any company with which the Trusts have current or prospective business dealings unless such entertainment is business-related, reasonable in cost, appropriate as to time and place, and not so frequent as to raise any question of impropriety; - any ownership interest in, or any consulting or employment relationship with, any of the Trusts' service providers, other than a Service Provider or an affiliate of a Service Provider; and - a direct or indirect financial interest in commissions, transaction charges or spreads paid by the Trusts for effecting portfolio transactions or for selling or redeeming shares other than an interest arising from the Covered Officer's employment, such as compensation or equity ownership. III. DISCLOSURE AND COMPLIANCE - No Covered Officer should knowingly misrepresent, or cause others to misrepresent, facts about the Funds to others, whether within or outside the Trusts, including to the Trustees and auditors, and to governmental regulators and self-regulatory organizations; - each Covered Officer should, to the extent appropriate within his or her area of responsibility, consult with other officers and employees of the Trusts and the Service Providers or with counsel to the Trusts with the goal of promoting full, fair, accurate, timely and understandable disclosure in the reports and documents the Funds file with, or submit to, the SEC and in other public communications made by the Funds; and - it is the responsibility of each Covered Officer to promote compliance with the standards and restrictions imposed by applicable laws, rules and regulations. IV. REPORTING AND ACCOUNTABILITY Each Covered Officer must: - upon adoption of the Code (or thereafter as applicable, upon becoming a Covered Officer), affirm in writing to the Committee that he or she has received, read, and understands the Code; - not retaliate against any other Covered Officer or any employee of the Trusts or their affiliated persons for reports of potential violations that are made in good faith; and - notify the Lead Trustee promptly if he or she knows of any violation of this Code. Failure to do so is itself a violation of this Code. The Lead Trustee has the authority to interpret this Code in any particular situation. However, any approvals or waivers sought by a Covered Officer will be considered by the Committee. The Trusts will follow these procedures in investigating and enforcing this Code: - the Lead Trustee will take all appropriate action to investigate any potential material violations reported to him; - if, after such investigation, the Lead Trustee believes that no material violation has occurred, the Lead Trustee is not required to take any further action; - any matter that the Lead Trustee believes is a material violation will be reported to the Committee; - if the Committee concurs that a material violation has occurred, it will consider appropriate action, which may include review of, and appropriate modifications to, applicable policies and procedures; notification to appropriate personnel of a Service Provider or its board; or a recommendation to dismiss the Covered Officer; - the Committee will be responsible for granting waivers, as appropriate; and - any changes to or waivers of this Code will, to the extent required, be disclosed as provided by SEC rules. V. OTHER POLICIES ANDS PROCEDURES This Code shall be the sole code of ethics adopted by the Trusts for purposes of Section 406 of the Sarbanes-Oxley Act and the rules and forms applicable to registered investment companies thereunder. Insofar as other policies or procedures of the Trusts, Funds, or their Service Providers' govern or purport to govern the behavior or activities of the Covered Officers who are subject to this Code, they are superseded by this Code to the extent that they overlap or conflict with the provisions of this Code. The Trusts' and the Service Providers' codes of ethics under Rule 17j-1 under the Investment Company Act and the more detailed policies and procedures set forth in the Code of Ethics of the WM Group of Funds, WM Advisors, Inc., WM Funds Distributor, Inc. and Selected Employees of WM Shareholder Services, Inc. are separate requirements applying to the Covered Officers and others, and are not part of this Code. VI. AMENDMENTS Any amendments to this Code, other than amendments to Exhibit A, must be approved or ratified by a majority vote of the Trustees. VII. CONFIDENTIALITY All reports and records prepared or maintained pursuant to this Code will be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this Code, such matters shall not be disclosed to anyone other than the Board of Trustees and its counsel. VIII. INTERNAL USE The Code is intended solely for the internal use by the Trusts and does not constitute an admission, by or on behalf of any Fund, as to any fact, circumstance, or legal conclusion. Date: _______________ EXHIBIT A Persons Covered by this Code of Ethics William G. Papesh, President and Chief Executive Officer Jeffrey L. Lunzer, Chief Financial Officer and Principal Accounting Officer John T. West, Chief Compliance Officer and Secretary EX-99.CERT 3 v15796ncexv99wcert.txt EX-99.CERT Exhibit 99.CERT CERTIFICATIONS I, William G. Papesh, certify that: 1. I have reviewed this report on Form N-CSR of WM Strategic Asset Management Portfolios, LLC (the "Portfolios"); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: January 6, 2006 /s/William G. Papesh -------------------- William G. Papesh President and Chief Executive Officer CERTIFICATIONS I, Jeffrey L. Lunzer, certify that: 1. I have reviewed this report on Form N-CSR of WM Strategic Asset Management Portfolios, LLC (the "Portfolios"); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: January 6, 2006 /s/ Jeffrey L. Lunzer --------------------- Jeffrey L. Lunzer Treasurer and Chief Financial Officer EX-99.906CERT 4 v15796ncexv99w906cert.txt EX-99.906CERT Exhibit 99.906 CERT I, William G. Papesh, principal executive officer of the WM Strategic Asset Management Portfolios, LLC (the "Portfolios"), certify that: 1. The Form N-CSR of the Funds for the period ended October 31, 2005 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Form N-CSR of the Funds for the period ended October 31, 2005 fairly presents, in all material respects, the financial condition and results of operations of the Funds. By: /s/ William G. Papesh --------------------- William G. Papesh President and Chief Executive Officer Principal Executive Officer Date: January 6, 2006 I, Jeffrey L. Lunzer, principal financial officer of the WM Strategic Asset Management Portfolios, LLC (the "Portfolios"), certify that: 1. The Form N-CSR of the Funds for the period ended October 31, 2005 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Form N-CSR of the Funds for the period ended October 31, 2005 fairly presents, in all material respects, the financial condition and results of operations of the Funds. By: /s/ Jeffrey L. Lunzer --------------------- Jeffrey L. Lunzer Treasurer and Chief Financial Officer Principal Financial Officer Date: January 6, 2006 -----END PRIVACY-ENHANCED MESSAGE-----