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 811-05775
WM Trust II
(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
[LOGO] WM
GroupofFunds
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WM TAX-EXEMPT MONEY MARKET FUND
&
WM CALIFORNIA MONEY FUND
ANNUAL REPORT
OCTOBER 31, 2005
WM TAX-EXEMPT MONEY MARKET FUND &
WM CALIFORNIA MONEY FUND
At the WM Group of Funds, our passion is piecing individual
investments together into comprehensive portfolios to make your
financial plan more effective.
TABLE OF CONTENTS
1 Expense Information
2 Financial Statements
7 Notes to Financial Statements
10 Report of Independent Registered Public Accounting Firm
11 Supplemental Information
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NOT FDIC INSURED
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MAY LOSE VALUE o NOT A DEPOSIT o NO BANK GUARANTEE
NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY
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FC2
EXPENSE INFORMATION (UNAUDITED)
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WM GROUP OF FUNDS
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As a shareholder of the Tax-Exempt Money Market Fund or California Money Fund
(collectively, the "Funds"), you incur two types of costs: (1) transaction
costs, including, if applicable, contingent deferred sales charges on redemption
of shares and (2) ongoing costs, including management fees and other Fund
expenses. The example below is intended to help you understand your ongoing
costs (in dollars) of investing in the Funds 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 Fund's actual expense
ratios and an assumed rate of return of 5% per year before expenses (rather than
each Fund'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 Funds 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 05/01/2005- VALUE VALUE 05/01/2005- EXPENSE
05/01/2005 10/31/2005 10/31/2005 05/01/2005 10/31/2005 10/31/2005 RATIO
---------- ---------- ---------- ---------- ---------- ----------- -------
Tax-Exempt Money Market Fund
Class A ............................... $1,000 $1,009 $ 3.75 $1,000 $1,021 $ 3.77 0.74%
California Money Fund
Class A ............................... $1,000 $1,009 $ 3.39 $1,000 $1,022 $ 3.41 0.67%
* Expenses are equal to each Fund'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).
FINANCIAL STATEMENTS:
PORTFOLIOS OF INVESTMENTS
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TAX-EXEMPT MONEY MARKET FUND
October 31, 2005
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PRINCIPAL
AMOUNT VALUE
(000s) (000s)
------ ------
MUNICIPAL BONDS - 103.1%
IDAHO - 2.2%
$ 100 Idaho Health Facilities Authority, Health
Care Revenue, (St. Luke's Regional
Medical Center Project), (FSA
Insured),
2.730% due 07/01/2035+ .............................. $ 100
-------
ILLINOIS - 16.8%
750 Illinois Finance Authority, Health Care
Revenue, (Resurrection Health Care),
Series B, (LOC: JPMorgan Chase Bank),
2.770% due 05/15/2035+ .............................. 750
-------
INDIANA - 24.6%
1,100 Mt. Vernon, Industrial Pollution & Solid
Waste Disposal Revenue, (General
Electric Company Project),
2.650% due 12/01/2014+ .............................. 1,100
-------
MONTANA - 24.6%
1,100 Forsyth, PCR, (PacifiCorp Projects),
(LOC: BNP Paribas),
2.820% due 01/01/2018+ .............................. 1,100
-------
NORTH DAKOTA - 27.1%
Grand Forks, Hospital Facilities Revenue,
(The United Hospital Obligated Group
Project), (LOC: LaSalle Bank):
580 2.770% due 12/01/2016+ .............................. 580
630 2.770% due 12/01/2025+ .............................. 630
-------
1,210
-------
PENNSYLVANIA - 7.8%
350 Schuylkill County, Industrial Development
Authority, IDR, (Northeastern Power
Company Project), Series A
(LOC: Dexia Bank),
2.730% due 12/01/2022+ .............................. 350
-------
Total Municipal Bonds
(Cost $4,610) ....................................... 4,610
-------
SHARES
------
INVESTMENT COMPANY SECURITIES - 0.4%
18,709 Dreyfus Tax-Exempt Cash
Management Fund ..................................... 19
1,000 Wells Fargo Tax-Free Money
Market Fund ......................................... 1
-------
Total Investment Company Securities
(Cost $20) .......................................... 20
-------
TOTAL INVESTMENTS (Cost $4,630*) ............................ 103.5% 4,630
OTHER ASSETS (LIABILITIES) (NET) ............................ (3.5) (158)
----- -------
NET ASSETS .................................................. 100.0% $ 4,472
===== =======
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CALIFORNIA MONEY FUND
October 31, 2005
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PRINCIPAL
AMOUNT VALUE
(000s) (000s)
------ ------
MUNICIPAL BONDS - 98.6%
CALIFORNIA - 98.6%
$ 1,000 California Housing Finance Agency, Revenue
Bonds, AMT, Series J, (MBIA Insured),
2.800% due 02/01/2033+ .............................. $ 1,000
1,000 California Pollution Control Financing
Authority, Revenue Bonds,
Series F, (Pacific Gas & Electric
Corporation), (LOC: Bank One N.A.),
2.710% due 11/01/2026+ .............................. 1,000
700 California State Department of Water
Resources, Power Supply Revenue,
Series B-2, (LOC: BNP Paribas),
2.810% due 05/01/2022+ .............................. 700
1,500 California State, UTGO,
Series A-3, (LOC: Citibank N.A. &
California State Teachers Retirement Fund),
2.770% due 05/01/2034+ .............................. 1,500
1,000 Irvine, Improvement Board Act of 1915,
Special Tax Revenue,
(Assessment District No. 93-14),
(LOC: Bank of America),
2.650% due 09/02/2025+ .............................. 1,000
-------
Total Municipal Bonds
(Cost $5,200) ............................................ 5,200
-------
SHARES
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INVESTMENT COMPANY SECURITIES - 2.1%
11,607 Dreyfus Basic California Municipal
Money Market Fund . . .............................. 12
100,000 Wells Fargo California Tax-Free Money
Market Fund ........................................ 100
-------
Total Investment Company Securities
(Cost $112) ........................................ 112
-------
TOTAL INVESTMENTS (Cost $5,312*) ............................ 100.7% 5,312
OTHER ASSETS (LIABILITIES) (NET) ............................ (0.7) (37)
----- -------
NET ASSETS .................................................. 100.0% $ 5,275
===== =======
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* Aggregate cost for federal tax purposes.
+ Securities with a maturity date of more than thirteen months have
variable rates and/or demand features which qualify them as
short-term securities. Securities are secured by bank letters of
credit or guarantees by certain corporations. The interest rates
shown are those in effect at October 31, 2005. These rates change
periodically based on specified market rates or indices.
The California Money Fund has the following insurance concentration greater than
10.0% at October 31, 2005 (as a percentage of the total net assets of the Fund)
(unaudited):
MBIA 19.0%
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GLOSSARY OF TERMS
AMT -- Alternative Minimum Tax
FSA -- Financial Security Assurance
IDR -- Industrial Development Revenue
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors Assurance
PCR -- Pollution Control Revenue
UTGO -- Unlimited Tax General Obligation
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See Notes to Financial Statements.
2
STATEMENTS OF ASSETS AND LIABILITIES
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WM GROUP OF FUNDS
October 31, 2005
(In thousands)
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TAX-EXEMPT
MONEY CALIFORNIA
MARKET MONEY
FUND FUND
---------- ---------
ASSETS:
Investments, at amortized cost and value ................................. $ 4,630 $ 5,312
Interest receivable ...................................................... 10 15
Receivable for Fund shares sold .......................................... 3 3
--------- ---------
Total Assets ......................................................... 4,643 5,330
--------- ---------
LIABILITIES:
Payable for Fund shares redeemed ......................................... 131 18
Transfer agent fees payable .............................................. 1 1
Accrued legal and audit fees ............................................. 34 33
Accrued expenses and other payables ...................................... 5 3
--------- ---------
Total Liabilities .................................................... 171 55
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NET ASSETS ............................................................... $ 4,472 $ 5,275
========= =========
NET ASSETS CONSIST OF:
Accumulated net realized gain/(loss) on
investment transactions ................................................ $ -- $ 46
Paid-in capital .......................................................... 4,472 5,229
--------- ---------
Net Assets ........................................................... $ 4,472 $ 5,275
========= =========
NET ASSETS:
Class A Shares ........................................................... $ 4,472 $ 5,275
========= =========
SHARES OUTSTANDING:
Class A Shares ........................................................... 4,472 5,275
========= =========
CLASS A SHARES:**
Net asset value, offering and redemption price per share
of beneficial interest outstanding * ................................... $ 1.00 $ 1.00
========= =========
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* Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
** Net asset values are not shown in thousands.
See Notes to Financial Statements.
3
STATEMENTS OF OPERATIONS
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WM GROUP OF FUNDS
For the Year Ended October 31, 2005
(In thousands)
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TAX-EXEMPT
MONEY CALIFORNIA
MARKET MONEY
FUND FUND
---------- ----------
INVESTMENT INCOME:
Dividends .................................................... $ 9 $ 9
Interest ..................................................... 457 404
---------- ----------
Total investment income ................................. 466 413
EXPENSES:
Investment advisory fee ...................................... 99 88
Transfer agent fees .......................................... 14 17
Custodian fees ............................................... 2 1
Legal and audit fees ......................................... 31 31
Registration and filing fees ................................. 17 11
Printing and postage expenses ................................ 15 9
Other ........................................................ 7 8
---------- ----------
Total expenses .......................................... 185 165
Fees waived by the investment advisor ........................ (21) (33)
Fees reduced by custodian credits ............................ --* --*
---------- ----------
Net expenses ............................................ 164 132
---------- ----------
NET INVESTMENT INCOME ........................................ 302 281
---------- ----------
NET REALIZED GAIN/(LOSS) ON
INVESTMENTS:
Net realized loss on investment transactions ................. (1) (2)
Net increase from payment by the Advisor** ................... 1 48
---------- ----------
Net realized gain/(loss) on investments ...................... --* 46
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS .................................. $ 302 $ 327
========== ==========
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* Amount represents less than $500.
** See Note 3 in Notes to Financial Statements.
See Notes to Financial Statements.
4
STATEMENTS OF CHANGES IN NET ASSETS
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WM GROUP OF FUNDS
For the Year Ended October 31, 2005
(In thousands)
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TAX-EXEMPT CALIFORNIA
MONEY MARKET FUND MONEY FUND
------------------------ ------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
10/31/05 10/31/04 10/31/05 10/31/04
---------- ---------- ---------- ----------
Net investment income .......................................... $ 302 $ 105 $ 281 $ 130
Net realized loss on investment transactions ................... (1) -- (2) --
Net increase from payment by the Advisor* ...................... 1 -- 48 --
---------- ---------- ---------- ----------
Net increase in net assets resulting from operations ........... 302 105 327 130
Distributions to shareholders from
net investment income:
Class A Shares ........................................... (302) (105) (281) (130)
Net decrease in net assets from
Fund share transactions:
Class A Shares ........................................... (22,650) (3,040) (14,837) (4,664)
---------- ---------- ---------- ----------
Net decrease in net assets ..................................... (22,650) (3,040) (14,791) (4,664)
NET ASSETS:
Beginning of year .............................................. 27,122 30,162 20,066 24,730
---------- ---------- ---------- ----------
End of year .................................................... $ 4,472 $ 27,122 $ 5,275 $ 20,066
========== ========== ========== ==========
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TAX CHARACTER OF DISTRIBUTIONS PAID:
Tax-exempt income ........................................ $ 302 $ 105 $ 281 $ 130
========== ========== ========== ==========
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* See Note 3 in Notes to Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS -- CAPITAL STOCK ACTIVITY
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Since the Funds have sold, issued as reinvestment of dividends and redeemed
shares only at a constant net asset value of $1.00 per share, the number of
shares represented by such sales, reinvestments and redemptions is the same as
the amounts shown below for such transactions.
TAX-EXEMPT CALIFORNIA
MONEY MARKET FUND MONEY FUND
------------------------ ------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
10/31/05 10/31/04 10/31/05 10/31/04
---------- ---------- ---------- ----------
CLASS A:
Sold ......................................................... $ 23,660 $ 45,203 $ 20,717 $ 35,029
Issued as reinvestment of dividends .......................... 290 103 275 129
Redeemed ..................................................... (46,600) (48,346) (35,829) (39,822)
---------- ---------- ---------- ----------
Net decrease ................................................. $ (22,650) $ (3,040) $ (14,837) $ (4,664)
========== ========== ========== ==========
See Notes to Financial Statements.
5
FINANCIAL HIGHLIGHTS
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For a Fund share outstanding throughout each period.
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TAX-EXEMPT MONEY MARKET FUND CLASS A
------------------------------------------------------------
YEARS ENDED OCTOBER 31 2005 2004 2003 2002 2001
------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD ............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Net investment income ........................................ 0.014 0.004 0.005 0.010 0.025
Dividends from net investment income ......................... (0.014) (0.004) (0.005) (0.010) (0.025)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD ................................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
TOTAL RETURN(1) .................................................. 1.41% 0.39% 0.52% 1.00% 2.57%
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000s) .......................... $ 4,472 $ 27,122 $ 30,162 $ 33,300 $ 31,527
Ratio of operating expenses to average net assets ............ 0.75% 0.78% 0.67% 0.67% 0.74%
Ratio of net investment income to average net assets ......... 1.38% 0.39% 0.53% 0.99% 2.52%
Ratio of operating expenses to average net assets
without fee waivers, expenses reimbursed and/or
fees reduced by credits allowed by the custodian(2) ........ 0.84% 0.78% 0.79% 0.78% 0.74%
CALIFORNIA MONEY FUND CLASS A
------------------------------------------------------------
YEARS ENDED OCTOBER 31 2005 2004 2003 2002 2001
------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD ............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Net investment income ........................................ 0.015 0.006 0.005 0.009 0.023
Dividends from net investment income ......................... (0.015) (0.006) (0.005) (0.009) (0.023)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD ................................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
TOTAL RETURN(1) .................................................. 1.46% 0.57% 0.50% 0.89% 2.32%
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000s) .......................... $ 5,275 $ 20,066 $ 24,730 $ 27,673 $ 42,558
Ratio of operating expenses to average net assets ............ 0.68% 0.58% 0.63% 0.63% 0.62%
Ratio of net investment income to average net assets ......... 1.45% 0.56% 0.50% 0.89% 2.27%
Ratio of operating expenses to average net assets
without fee waivers, expenses reimbursed and/or
fees reduced by credits allowed by the custodian(2) ........ 0.85% 0.82% 0.80% 0.70% 0.70%
- ----------
(1) Total return does not reflect any applicable sales charges.
The total returns 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.
(2) Ratio of operating expenses to average net assets includes expenses paid
indirectly through custodian credits.
See Notes to Financial Statements.
6
NOTES TO FINANCIAL STATEMENTS
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WM GROUP OF FUNDS
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1. ORGANIZATION AND BUSINESS
WM Trust I ("Trust I") and WM Trust II ("Trust II") (collectively, the "Trusts")
were organized as Massachusetts business trusts on September 19, 1997 and
February 22, 1989, respectively. The Trusts are registered under the Investment
Company Act of 1940 (the "1940 Act"), as open-end management investment
companies. The Tax-Exempt Money Market Fund is a diversified series of WM Trust
I. The California Money Fund is a non-diversified series of WM Trust II.
Information presented in this report pertains only to the two named Funds (the
"Funds"). Financial statements for the other funds included in the Trusts are
presented in separate reports.
The Trusts are authorized to issue an unlimited number of shares of beneficial
interest, each without par value. Each Fund may offer four classes of shares:
Class A shares, Class B shares, Class C shares and Class I shares. Class A
shares are not subject to an initial sales charge at time of purchase. Certain
Class A shares purchased by exchange from another fund within the Trusts may be
subject to a contingent deferred sales charge ("CDSC") if redeemed within
eighteen months from the date of purchase. The Funds are not currently offering
Class B, Class C or Class I shares.
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 Funds.
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 Funds in the preparation of its financial statements.
PORTFOLIO VALUATION:
Investments of the Funds are valued on the basis of amortized cost in accordance
with Rule 2a-7 of the 1940 Act, which approximates market value and does not
take into account unrealized capital gains or losses. Amortized cost valuation
involves initially valuing an instrument at its cost and thereafter assuming a
constant amortization to maturity of any discount or premium, as long as the
amortized cost fairly reflects the market-based net asset value per share.
Certain assets may be valued by the Advisor under the supervision of the Funds'
Board of Trustees which may rely on the assistance of one or more pricing
services.
ILLIQUID INVESTMENTS:
Each Fund may invest a portion of its net assets in securities that are not
readily marketable, including: (1) repurchase agreements with maturities greater
than seven calendar days; (2) time deposits maturing in more than seven calendar
days; (3) certain futures contracts and options; (4) certain variable rate
demand notes having a demand period of more than seven calendar days; and (5)
securities, the disposition of which are restricted under Federal securities
laws, excluding certain Rule 144A securities, as defined in the following
paragraph.
Illiquid securities generally cannot be sold or disposed of in the ordinary
course of business (within seven calendar days) at approximately the value at
which each Fund has valued the investments. This may have an adverse effect on
the Fund's ability to dispose of particular illiquid securities at fair market
value and may limit the Fund's ability to obtain accurate market quotations for
purposes of valuing the securities and calculating the net asset value per share
of the Fund. The Funds may also purchase securities that are not registered
under the Securities Act of 1933, as amended (the "Act"), but that can be sold
to qualified institutional buyers in accordance with Rule 144A under the Act
("Rule 144A Securities"). Rule 144A Securities generally must be sold only to
other qualified institutional buyers. If a particular investment in Rule 144A
Securities is not determined to be liquid under the guidelines established by
the Board of Trustees, that investment will be subject to a Fund's limitation on
investment in illiquid securities as indicated above.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME:
Securities transactions are recorded on a trade date basis. Realized gains and
losses from securities sold if any, are recorded on the identified cost basis.
Securities purchased or sold on a "when-issued" or "delayed-delivery" basis may
be settled a month or more after the trade date; interest income is not accrued
until settlement date. Each Fund instructs the custodian to segregate assets of
the Fund with a current value at least equal to the amount of its when-issued
purchase commitments.
Interest income on debt securities is accrued daily. Premiums and discounts are
amortized using the interest method. Dividend income is recorded on the
ex-dividend date.
7
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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WM GROUP OF FUNDS
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income for the Funds are declared daily and paid
monthly. Distributions of any net capital gains earned by a Fund 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
Fund may be made at the discretion of the Board of Trustees in accordance with
federal income tax regulations.
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 divdends payable
and differing characterizations of distributions made by each Fund.
FEDERAL INCOME TAXES:
It is each Fund'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 Trusts are allocated to all the Funds of the Trusts
based upon the relative average net assets of each Fund except printing and
postage expenses, which are allocated to all the Funds based upon the relative
number of shareholder accounts of each Fund. Operating expenses directly
attributable to a class of shares are charged to the operations of that class of
shares. Expenses of each Fund 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 is entitled to a monthly fee at an annual rate based upon a
percentage of the average daily net assets of each Fund at the following rates:
FEES ON NET ASSETS
FEES ON NET EXCEEDING
ASSETS $500 MILLION AND FEES ON NET ASSETS
UP TO EQUAL TO OR LESS THAN EXCEEDING
NAME OF FUND $500 MILLION $1 BILLION $1 BILLION
------------ ------------ ---------- ----------
Tax-Exempt Money Market Fund ................ 0.450% 0.450% 0.400%
California Money Fund ....................... 0.450% 0.400% 0.400%
The Advisor has voluntarily waived $21,309 and $33,426 of its advisory fees for
the Tax-Exempt Money Market and California Money Funds for the year ended
October 31, 2005, respectively.
On August 11, 2005, the Advisor reimbursed $45,473 for capital losses incurred
in previous years for the California Money Fund. In addition on October 21,
2005, the Advisor reimbursed $1,164 and $1,971 for capital losses incurred
during the year for the Tax-Exempt Money Market and California Money Funds,
respectively.
WM Shareholder Services, Inc. (the "Transfer Agent"), a wholly owned subsidiary
of Washington Mutual, serves as the transfer agent of the Funds. 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 fee based upon an annual rate of
$20.00 per open account for Class A shareholder accounts. Prior to June 1, 2005,
the authorized annual transfer agent fee was $24.19 per open account for Class A
shareholder accounts.
Custodian fees for certain Funds have been reduced by credits allowed by the
Funds' custodian for uninvested cash balances. The Funds could have invested
this cash in income producing securities. Fees reduced by credits allowed by the
custodian for the year ended October 31, 2005 are shown separately in the
"Statements of Operations".
8
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
WM GROUP OF FUNDS
- --------------------------------------------------------------------------------
4. TRUSTEES' FEES
No officer or employee of Washington Mutual or its subsidiaries receives any
compensation from the Trusts for serving as an officer or Trustee of the Trusts.
The Trusts, together with other mutual funds advised by the Advisor, pay 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 Trusts. 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
shares. For the year ended October 31, 2005, the Distributor received $486
representing CDSCs from Class A shares.
Each of the Funds has adopted a distribution plan, pursuant to Rule 12b-1 under
the 1940 Act, applicable to Class A shares of each Fund (the "Rule 12b-1 Plan").
Under the Rule 12b-1 Plan, the Distributor may receive a service fee at an
annual rate of 0.25% of the average daily net assets of Class A shares. The
Trustees have not authorized, and the Funds do not currently pay, service fees
with respect to Class A shares. Under the terms, the 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 Trusts, 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. CAPITAL LOSS CARRYFORWARDS
At October 31, 2005, the Tax-Exempt Money Market Fund has $163 and $111 of
unused capital losses available for federal income tax purposes expiring on
October 31, 2006 and October 31, 2013, respectively.
7. COMPONENTS OF DISTRIBUTABLE EARNINGS
At October 31, 2005, the components of distributable earnings on a tax basis are
$314 of tax-exempt income for the Tax-Exempt Money Market Fund and $45,471 of
undistributed ordinary income and $98 of tax-exempt income for the California
Money Fund.
8. INDUSTRY AND GEOGRAPHIC CONCENTRATION AND OTHER RISK FACTORS
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 California Money Fund is more susceptible to factors adversely affecting
issuers of California municipal securities than is a municipal bond fund that is
not concentrated in these issuers. Uncertain economic conditions or governmental
developments may affect the ability of California municipal securities issuers
to meet their financial obligations.
9. SUBSEQUENT EVENTS
On August 9, 2005 the Board of Trustees adopted a plan of liquidation and
dissolution for the Funds. The Funds were liquidated on November 8, 2005 and
paid a liquidating distribution of $1.00 per share.
10. SPECIAL MEETING OF SHAREHOLDERS
A special meeting of shareholders of the California Money Fund was convened on
November 3, 2005, at which shareholders approved the liquidation and dissolution
for the Fund.
AFFIRMATIVE AGAINST ABSTAIN TOTAL
------------- ----------- ----------- -------------
Voted Shares ............................... 6,168,772.490 188,495.740 328,376.980 6,685,645.210
% of Outstanding Shares .................... 47.368% 1.447% 2.522% 51.337%
% of Shares Voted .......................... 92.269% 2.819% 4.912% 100.00%
9
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TO THE TRUSTEES OF WM TRUST I AND WM TRUST II AND SHAREHOLDERS OF WM TAX-EXEMPT
MONEY MARKET FUND AND WM CALIFORNIA MONEY FUND:
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of WM Tax-Exempt Money Fund and WM California
Money Fund (collectively, the "Funds") 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 Funds'
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 Funds
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 Funds' 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
custodians. 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
Funds 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
10
SUPPLEMENTAL INFORMATION (UNAUDITED)
- --------------------------------------------------------------------------------
BOARD APPROVAL OF INVESTMENT ADVISORY AGREEMENT
Each year, the Board of Trustees of the Trusts (the "Board"), including a
majority of the Trustees who are not interested persons of the Trusts (the
"Independent Trustees"), is required to determine whether to continue the
Trusts' advisory agreements. 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 Trust's advisory agreements. In May 2005, the Board and the Independent
Trustees approved the continuation of the Trusts' Amended and Restated
Investment Management Agreements with the Advisor (collectively, the
"Agreements") for an additional one-year term beginning July 1, 2005, in each
case following the recommendation of the Investment Committee (the "Committee"),
a majority of the members of which are Independent Trustees, and the
recommendations 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 Trusts and the Independent
Trustees. The Independent Trustees discussed the continuation of the Agreements
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 Agreements, 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 Fund-by-Fund basis, and their
deliberations were made separately in respect of each Fund. This summary
describes the most important, but not all, of the factors considered by the
Board, the Independent Trustees and the Committee.
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 Fund's investment results; portfolio construction; portfolio
composition; portfolio trading practices; 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 Funds. In addition, in connection with its
annual consideration of the Agreements, the Board requests and reviews
supplementary information regarding the terms of the Agreements, the Funds'
investment results, advisory fee and total expense comparisons, financial and
profitability information regarding the Advisor and its affiliates, descriptions
of various functions undertaken by the Advisor, such as compliance monitoring,
and information about the personnel providing investment management and
administrative services to the Funds. The Board requested and evaluated
performance and expense information for other investment companies compiled by
Lipper Inc., a third-party data provider ("Lipper"). 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 Funds. The Board also requested
and reviewed information relating to other services provided to the Fund 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 Funds. The Board, the Independent Trustees
and the Committee also received and reviewed comparative performance information
regarding the Retail Funds at each of the quarterly Board and Committee
meetings.
NATURE, EXTENT AND QUALITY OF SERVICES:
Nature and Extent of Services -- In considering the approval and continuation of
the Agreements 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 the Fund's investment
policies (subject to the terms of the prospectus), analyzes economic trends and
capital market developments, evaluates the risk/return characteristics of the
Fund, constructs the Fund's portfolio, monitors the Fund's investment
performance, and reports to the Board, the Independent Trustees and the
Committee. The Board, the Independent Trustees and the Committee considered
information concerning the investment philosophy and investment process used by
the Advisor and the sub-advisors in managing the Funds. In this context, the
Board, the Independent Trustees and the Committee considered the in-house
research capabilities of the Advisor as well as other sources available to the
Advisor including research services available to the Advisor as a result of
securities transactions effected for the Funds and other investment advisory
clients of the Advisor. The Board, the Independent Trustees and the Committee
considered the managerial and financial resources available to the Advisor and
concluded that they would be sufficient to meet any reasonably foreseeable
obligations under the Agreements. The Board, the Independent Trustees and the
Committee noted that the standard of care under the Agreements 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.
11
SUPPLEMENTAL INFORMATION (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
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 its resources that are available to the Funds. 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 Funds relative to other types of 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 Funds 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 Funds and their shareholders. The Board, the Independent Trustees and the
Committee concluded that the investment philosophies, processes, and research
capabilities of the Advisor were well suited to the Funds, given their
investment objectives and policies. The Board, the Independent Trustees and the
Committee concluded that the scope of the services provided to the Funds by the
Advisor and its affiliates were consistent with the Funds' operational
requirements, including, in addition to its investment objectives, compliance
with the Funds' 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 and its affiliates 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 Agreements.
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 Funds' portfolio
manager. The Board and the Independent Trustees considered whether the Funds
operated within their investment objectives and their record of compliance with
their investment restrictions. The Board, the Independent Trustees and the
Committee reviewed information comparing the Funds' 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 reviewed performance for the period ended
March 31, 2005 for the Funds. The Board, the Independent Trustees and the
Committee concluded that the Advisor's performance record and investment
processes used in managing the Funds were sufficient to merit approval of the
continuation of the Agreements.
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 Funds. The Board, the
Independent Trustees and the Committee reviewed the transfer agency fees paid by
the Funds to WM Shareholder Services, Inc. (the "Transfer Agent"), an affiliate
of the Advisor, as well as the distribution (12b-1) fees paid to the
Distributor. They considered the Funds' management fees relative to its
respective peer group as determined by Lipper. The Board, the Independent
Trustees and the Investment Committee considered the fees paid to the Advisor by
other clients, and the services provided to such clients relative to the fees
paid by, and services provided to, the Funds. They discussed the general
downward trend in total expense ratios for the Funds. The Board, the Independent
Trustees and the Committee concluded that the fees to be charged under the
Agreements 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 the Advisor's relationship with the Funds. 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 Funds
(and in connection therewith reviewed and considered changes in the structure of
compensation of the investment professionals of the Advisor 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 Funds and its
shareholders. The Board, the Independent Trustees and the Committee considered
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 considered various breakpoint schedules
and reviewed a graph showing the effective fees for the Advisor at different
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 relationships with the Funds, including compensation
paid to the Advisor
12
SUPPLEMENTAL INFORMATION (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
and its affiliates, including transfer agency fees to the Transfer Agent and
12b-1 fees to the Distributor as well as research provided to the Advisor in
connection with portfolio transactions effected on behalf of the 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 Funds and the current level of Funds assets in
relation to the breakpoints in the Funds' advisory fees. 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, and not only in respect of a single Fund.
The Board, the Independent Trustees and the Committee concluded that the Funds'
cost structure was reasonable given the scope and quality of the services
provided to the Funds and that the Advisor was sharing any economies of scale
with the Funds and its 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, respectively in assets under management as of October 31, 2005).
The Trustees considered the procedures of the Advisor designed to fulfill its
fiduciary duties to 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. The Board, the Independent Trustees and the Committee also received and
considered information concerning procedures of the Advisor with respect to the
execution of portfolio transactions.
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 Agreements, including the fees payable to the Advisor, are
fair and reasonable to the Fund and their shareholders given the scope and
quality of the services provided to the Funds 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 Funds and their shareholders. The Board and Independent Trustees unanimously
approved the continuation of the Agreements.
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 Service.
Of distributions made from investment income, the following percentages are
tax-exempt for regular federal income tax purposes:
Tax-Exempt Money Market Fund ......................................... 100%
California Money Fund ................................................ 100%
SCHEDULES OF INVESTMENTS:
The Trusts file their 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 Trusts' Forms N-Q are available at
http://www.sec.gov and also m
ay 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 Trusts use to determine how to vote proxies
relating to portfolio securities held by the Funds are included in the Trusts'
Statement of Additional Information which is available, without charge and upon
request, by calling 800-222-5852. Information regarding how the Funds 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.
13
SUPPLEMENTAL INFORMATION (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
TRUSTEES AND OFFICERS INFORMATION
NAME, AGE, AND ADDRESS(1) LENGTH OF PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIPS
OF NON-INTERESTED TRUSTEE(4) TIME SERVED(2) DURING PAST 5 YEARS 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
Age 51 WM Group of Funds-7 years and tax planning. Russell Investment
Company; Russell
Investment Funds.
- ------------------------------------------------------------------------------------------------------------------------------------
Edmond R. Davis, Esq. Sierra Funds-8 years Partner at the law firm of Davis & Whalen Braille Institute of
Age 77 WM Group of Funds-7 years LLP. Prior thereto, partner at the law firm of America, Inc; Children's
Brobeck, Phlegar & Harrison, LLP. Bureau of Southern
California, Children's
Bureau Foundation;
Fifield Manors, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Carrol R. McGinnis Griffin Funds-3 years Private investor since 1994. Prior Baptist Foundation of
Age 62 WM Group of Funds-6 years thereto, President and Chief Operating Officer Texas; Concord Trust
of Transamerica Fund Management Company. Company.
- ------------------------------------------------------------------------------------------------------------------------------------
Alfred E. Osborne, Jr., Ph.D. Sierra Funds-7 years Senior Associate Dean, University of Nordstrom Inc.; K2, Inc.;
Age 60 WM Group of Funds-7 years California at Los Angeles Anderson First Pacific Advisors'
Graduate School of Management, and Funds, EMAK Worldwide,
Faculty Director of the Harold Price Inc.; Member of
Center for Entrepreneurial Studies, Investment Company
University of California at Los Angeles. Institute National Board
of Directors; Director of
Independent Directors
Council and Member of
Communication & Education
Committees.
- ------------------------------------------------------------------------------------------------------------------------------------
Daniel L. Pavelich Composite Funds-1 year Retired Chairman and CEO of BDO Catalytic, Inc.; Vaagen
Age 61 WM Group of Funds-7 years Seidman. Bros. Lumber, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Jay Rockey Composite Funds-3 years Founder and Senior Counsel of The Rockey Downtown Seattle
Age 77 WM Group of Funds-7 years Company, now Rockey, Hill & Knowlton. Association; WSU
Foundation
- ------------------------------------------------------------------------------------------------------------------------------------
Richard C. Yancey Composite Funds-23 years Retired Managing Director of Dillon Read & AdMedia Partners Inc.;
(Lead Trustee) WM Group of Funds-7 years Co., an investment bank now part of UBS. Czech and Slovak American
Age 79 Enterprise Fund
- ------------------------------------------------------------------------------------------------------------------------------------
NAME, AGE, AND ADDRESS(1) LENGTH OF PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIPS
OF INTERESTED TRUSTEE(3)(4) TIME SERVED(2) DURING PAST 5 YEARS HELD BY TRUSTEE
====================================================================================================================================
Anne V. Farrell Composite Funds-4 years President Emeritus of the Seattle Foundation. Washington Mutual, Inc.;
Age 70 WM Group of Funds-7 years Recreational Equipment
Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Michael K. Murphy Composite Funds-3 years Chairman of CPM Development Corporation. Washington Mutual, Inc.
Age 68 WM Group of Funds-7 years
(Retired November 2005)
- ------------------------------------------------------------------------------------------------------------------------------------
William G. Papesh Composite Funds-9 years President and Director of the Advisor, Member of Investment
(President and CEO) WM Group of Funds-7 years Transfer Agent and Distributor. Company Institute Board
Age 62 of Governors.
- ------------------------------------------------------------------------------------------------------------------------------------
NAME, AGE, AND ADDRESS(1) POSITION(S) HELD WITH REGISTRANT & PRINCIPAL OCCUPATION(S)
OF OFFICER(4) LENGTH OF TIME SERVED 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,
Age 44 and Treasurer since 2003. Transfer 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,
Age 62 Prior to 1987, other officer positions since 1972. Transfer Agent and Distributor.
- ------------------------------------------------------------------------------------------------------------------------------------
Gary Pokrzywinski Senior Vice President since 2004. First Vice President Senior Vice President and Director of
Age 44 since 2001. Prior to 2001, Vice President since 1999. the Advisor, Transfer Agent and
Distributor.
- ------------------------------------------------------------------------------------------------------------------------------------
Debra Ramsey Senior Vice President since 2004. Senior Vice President and Director of
Age 52 the Advisor, Transfer Agent and
Distributor.
- ------------------------------------------------------------------------------------------------------------------------------------
John T. West First Vice President, Secretary, Chief Compliance Officer First Vice President of the Advisor,
Age 50 and Anti-Money Laundering Compliance Officer since 2004. Transfer Agent and Distributor.
Prior to 2004, various other officer positions since 1993.
- ------------------------------------------------------------------------------------------------------------------------------------
Randall L. Yoakum Senior Vice President since 2001. Senior Vice President and Chief
Age 45 Prior to 2001, First Vice President since 1999. Investment 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.
14
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
- ---- ----
$194,000 $200,700
(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
- ---- ----
$16,156 $16,688
The tax fees consist of fees billed in connection with reviewing the federal
regulated investment company income tax returns for WM Trust II 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 $16,688 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 $55,156 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
Schedule is included as part of the report to shareholders filed under Item 1 of
this Form.
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 Trust II
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