SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-07462
WM Variable Trust
(Exact name of registrant as specified in charter)
1201 Third Avenue, 8th Floor, Seattle, WA
98101 (Address of principal executive offices)
(Zip code)
Jeffrey L. Lunzer
1201 Third Avenue, 8th Floor, Seattle, WA 98101
(Name and address of agent for service)
Registrant's telephone number, including area code: (206) 913-5822
Date of fiscal year end: December 31, 2006
Date of reporting period: December 31, 2006
ITEM 1. REPORTS TO STOCKHOLDERS
(WM VARIABLE TRUST LOGO)
Common sense. Uncommon solutions.(R)
WM VARIABLE TRUST
Annual Report
December 31, 2006
WM Variable Trust
Table of Contents
1 Letter from the President
2 Economy & Financial Markets:
Review & Outlook
WM Variable Trust Performance and Investment Strategy:
4 VT REIT Fund
6 VT Equity Income Fund
8 VT Growth & Income Fund
10 VT West Coast Equity Fund
12 VT Mid Cap Stock Fund
14 VT Growth Fund
16 VT Small Cap Value Fund
18 VT Small Cap Growth Fund
20 VT International Growth Fund
22 VT Short Term Income Fund
24 VT U.S. Government Securities Fund
26 VT Income Fund
28 VT Money Market Fund
29 Glossary
30 Expense Information
32 Financial Statements
97 Notes to Financial Statements
105 Report of Independent Registered Public Accounting Firm
106 Supplemental Information
The WM Variable Trust (VT) Funds may not be purchased directly, but are
currently available through the WM Strategic Asset Manager and the WM Advantage
variable annuities issued by American General Life. They are also available
through the WM Diversified Strategies and WM Diversified Strategies(III)
variable annuities issued by AIG SunAmerica Life Assurance Company, the WM
Diversified Strategies(III) (New York) variable annuity issued by First
SunAmerica Life Insurance Company, and the WM LifeAccumulator variable universal
life insurance policy issued by Farmers New World Life Insurance Company. They
may also be available through other select variable insurance products and
retirement plans. The VT Funds may not have been available for sale for all
products for the time periods shown on pages 4-28.
Withdrawals made prior to age 59 1/2 may be subject to a 10% IRS tax penalty.
--------------------------------------------------------
NOT FDIC OR NCUA/NCUSIF INSURED
--------------------------------------------------------
MAY LOSE VALUE - NOT A DEPOSIT - NO BANK OR CREDIT UNION
GUARANTEE - NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY
--------------------------------------------------------
(PHOTO OF WILLIAM G. PAPESH)
Dear Investor,
The end of the 2006 fiscal year coincided with the acquisition of WM Advisors,
Inc. and its subsidiaries by the Principal Financial Group(R) (The
Principal(R)). We are extremely enthusiastic about joining a company where asset
management and accumulation form the core of its business and where the advisory
group, Principal Global Investors, shares our expertise in asset allocation.
Just as the WM Group of Funds is the 4th largest manager of target-risk asset
allocation funds, The Principal is the 4th largest manager of target-date asset
allocation funds.(1) Together, we will rank 4th in the overall management of
asset allocation funds nationally. I'd like to briefly explain below how the WM
Group of Funds will transition through this process.
EVOLUTION OF A FUND COMPLEX
To summarize, the 18 WM Variable Trust Funds will become part of the Principal
Variable Contracts Fund, Inc.(2) Other notable changes are as follows:
- - 11 funds will continue to be managed by their current portfolio management
teams.
- - 7 funds will be combined into existing Principal Variable Contract (PVC)
Accounts and thereafter will be managed by Principal Global Investors(3) or
another premier asset management firm.
After the fund mergers in January 2007, the combined PVC lineup will consist of
41 funds spanning a broad array of asset allocation, equity, and fixed-income
investments.
CONTINUITY OF MANAGEMENT AND STEWARDSHIP
The Principal Funds complex has also retained many of the people who have served
you and your investment needs over the previous years:
- - WM ADVISORS: Our investment management group has a new name--Edge Asset
Management, Inc.--but it remains in Seattle and employs all of WM
Advisors' portfolio managers.
- - WM FUNDS DISTRIBUTOR, INC. AND WM SHAREHOLDER SERVICES, INC.: These groups
form the management and staff of Principal Funds Distributor, Inc. and
Principal Shareholder Services, Inc.
- - WM GROUP OF FUNDS BOARD OF TRUSTEES: Four members of our current Board are
proposed for election to the board of Principal Variable Contracts Fund,
Inc. This group includes Dick Yancey (our Chairman and a Board member for
over 30 years), Dan Pavelich (head of the Audit Committee), Kristi Blake
(head of the Operations and Distribution Committee), and myself. I would
also like to express my deep gratitude to Ed Davis, Carrol McGinnis, Al
Osborne, Jay Rockey, and Anne Farrell for their many years of diligent
service on behalf of investors.
The Principal has embraced our management and staff, and I think you'll find the
combined fund family reflects our best qualities, plus new capabilities and
resources. On behalf of everyone at the WM Group of Funds, thank you for the
support and trust that you and other investors have honored us with for over 65
years.
Sincerely,
/s/ William G. Papesh
- ------------------------------------
William G. Papesh
President
(1) Source: FRC. Based on assets as of September 30, 2006.
(2) For more information about these funds, including their full names, please
see the Principal Variable Contract Fund, Inc. prospectus.
(3) Principal Global Investors, one of the primary asset management divisions
of Principal Financial Group(R), consists of Principal Global Investors,
LLC; Principal Real Estate Investors, LLC; Spectrum Asset Management, Inc.;
Post Advisory Group, LLC; Columbus Circle Investors; Principal Global
Investors (Europe) Limited; Principal Global Investors (Singapore) Ltd;
Principal Global Investors (Australia) Ltd; and Principal International,
Inc., its subsidiaries and affiliates.
Economy & Financial Markets: Review & Outlook
ECONOMY ENTERS MID-CYCLE SLOWDOWN
We began 2006 with the view that U.S. economic growth would be moderate but
weaker than consensus projections. Although corporate profits and consumer
spending looked healthy, a slowdown in the housing market appeared likely. We
thought when this housing pullback took hold, it would curtail consumers'
ability to maintain refinancing-fueled spending. Our 2006 outlook also
recognized that a variety of short-term and long-term forces had aligned to
indicate that growth would slow.
One cyclical measure that attracted widespread headlines during the period was
crude oil prices which, through elevated fuel costs, can act as a tax on
consumers. The U.S. benchmark price of oil ended 2005 at $61.04 per barrel,
reached a high closing price of $77.03 in July 2006, and then retreated to end
2006 at $61.05.
Like crude oil prices, the rate of economic growth climbed and peaked before
retreating during the year. Inflation-adjusted (real) growth increased 3.2% in
2005, but with a weaker 1.8% increase in the final quarter. Strong consumer and
business spending sent real growth surging 5.6% in the first quarter of 2006.
Evidence of a housing sector correction became clearer in the following months,
and real growth decelerated to 2.0% in the third quarter. (See text highlights
in chart below.)
Since housing is a lagging indicator, we believe that the full economic effects
of its pullback have yet to play out. However, we expect solid job markets to
mitigate the pain that housing causes consumers. Our 2007 outlook is for real
growth to keep to the lower end of a 2-3% range as the economy works through a
mid-cycle slowdown.
INFLATION GIVES FED PAUSE
For this kind of "soft landing" to occur, we believe that lower interest rates
courtesy of the Federal Reserve (the Fed) will be a requirement. The Fed began
steadily raising short-term interest rates in June 2004. Like many market
participants, we entered 2006 believing that a housing-led slowdown in growth
would soon spur the Fed to halt this monetary tightening campaign.
However, concerns about rising inflation dominated the Fed's mindset during the
year. A price index that measures core personal consumption1 stood at 2.0% for
January 2006, but inflation picked up steam and sent this
(1) Source: Bureau of Economic Analysis. Monthly data measures the price index
for personal consumption expenditures excluding food and energy as a
percent change from the same month one year ago.
(2) Indices are unmanaged, and individuals cannot invest directly in an index.
See page 29 for definitions of indices.
A WRAP-UP OF THE YEAR JANUARY 1, 2006 - DECEMBER 31, 2006
(PERFORMANCE GRAPH)
Source: Bloomberg L.P. (S&P 500 data).
2
gauge to 2.4% in August. Inflation fears eased somewhat after energy prices
headed downward and the housing market cooled. These developments allowed the
Fed to leave its target for the federal funds rate at 5.25% from June 29 through
the end of the year.
This rate is slightly restrictive in our view. We expect the lagging effects of
monetary tightening to contain inflation going forward by combining with
significant deflationary forces. We also believe that the economic system has
become somewhat self-regulating in recent years, alleviating the need for a
highly active Fed. However, as fears of inflation continue to subside, we think
the Fed will turn its sights on potential deflation and recession. We don't
regard either of these conditions as likely, but we would welcome Fed actions
that begin cutting interest rates early in 2007.
STOCKS RALLY FROM MID-YEAR ON
Uncertainty about inflation and interest rates often determined investor
behavior during the year. As shown in the chart below, stock markets achieved
muted gains within the early months of 2006 before retreating in May and June--a
span that was framed by the year's final two Fed rate increases. The growing
likelihood and then arrival of the Fed's pause kindled a rally in stocks and
also benefited bonds, causing yields to fall. The S&P 500 advanced 15.80% for
2006, and the Lehman Brothers Aggregate Bond Index ended the year with a total
return of 4.33%.(2)
The outlook for subdued growth and inflation described above, and the potential
for monetary easing by the Fed, lead us to expect that bond yields will continue
inching lower in 2007. Any incoming data that sparks recession fears could
create some volatility for fixed-income securities. However, we regard corporate
and mortgage issues as reasonably valued and believe that they will perform in
line with this risk.
Potentially lower bond yields are also among the factors that support the
prospects for moderate but positive gains by equities in 2007. Stocks continue
to appear attractive relative to bonds and are likely to be assisted by fair
valuations, the global flow of funds, and the generally healthy state of
corporations. Cyclical economic and valuation indicators also suggest that
large-cap stocks could outperform small caps and growth could outperform value.
A less restrictive stance by the Fed could also accommodate the appreciation of
stock prices.
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.
(PERFORMANCE GRAPH)
3
VT REIT Fund
INVESTMENT STRATEGY
Real estate investment trusts (REITs) have enjoyed enormous market enthusiasm in
recent years, and this positive trend continued during 2006. The benchmark REIT
index rose strongly over the period and ended with more than double the total
return of the broad stock market. These results were fueled, in part, by the
activity of hedge funds and institutional investors who continue to favor REITs
as a diversification tool.
Stock selection was the primary source of positive performance for the WM VT
REIT Fund during the year. The industrial/office sector advanced strongly within
the market, benefiting the Fund. Many leases that these REITs hold reset at
higher levels during the period and boosted earnings. Strong contributors
included SL Green Realty, Boston Properties, and ProLogis. The Fund also
benefited from several specialty REITs such as Entertainment Properties, which
rose on an improved valuation. The Fund's one mortgage position (sold late in
the year) and several of its residential holdings also had a positive impact on
performance.
However, the Fund's underweighting of the residential sector proved to be
problematic. As the housing sector cooled this year, the
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. Performance shown below does not account for fees,
expenses, and charges of any variable insurance contract or retirement plan. If
these fees were reflected, performance would be lower.
REIT securities are subject to risk factors associated with the real estate
industry and tax factors of REIT registration.
AVERAGE ANNUAL TOTAL RETURNS (1)
AS OF DECEMBER 31, 2006
1-Year Since Inception Inception Date
------ --------------- --------------
CLASS 1 SHARES 33.21% 28.75% 5/1/03
CLASS 2 SHARES 32.90% 26.68% 8/5/03
FTSE NAREIT All REITs Index(2) 34.35% 28.21%
VALUE OF A $10,000 INVESTMENT' MAY 1, 2003 - DECEMBER 31, 2006
(PERFORMANCE GRAPH)
VT FTSE NAREIT
DATE REIT FUND ALL REITS INDEX
- ------ --------- ---------------
Dec-96
Jan-97
Feb-97
Mar-97
Apr-97
May-97
Jun-97
Jul-97
Aug-97
Sep-97
Oct-97
Nov-97
Dec-97
Jan-98
Feb-98
Mar-98
Apr-98
May-98
Jun-98
Jul-98
Aug-98
Sep-98
Oct-98
Nov-98
Dec-98
Jan-99
Feb-99
Mar-99
Apr-99
May-99
Jun-99
Jul-99
Aug-99
Sep-99
Oct-99
Nov-99
Dec-99
Jan-00
Feb-00
Mar-00
Apr-00
May-00
Jun-00
Jul-00
Aug-00
Sep-00
Oct-00
Nov-00
Dec-00
Jan-01
Feb-01
Mar-01
Apr-01
May-01
Jun-01
Jul-01
Aug-01
Sep-01
Oct-01
Nov-01
Dec-01
Jan-02
Feb-02
Mar-02
Apr-02
May-02
Jun-02
Jul-02
Aug-02
Sep-02
Oct-02
Nov-02
Dec-02
Jan-03
Feb-03
Mar-03
Apr-03 10,000 10,000
May-03 10,510 10,612
Jun-03 10,730 10,888
Jul-03 11,340 11,458
Aug-03 11,421 11,508
Sep-03 11,791 11,870
Oct-03 12,061 12,125
Nov-03 12,571 12,673
Dec-03 13,041 13,108
Jan-04 13,631 13,672
Feb-04 13,951 13,971
Mar-04 14,740 14,754
Apr-04 12,640 12,502
May-04 13,420 13,385
Jun-04 13,915 13,785
Jul-04 13,946 13,791
Aug-04 14,927 14,877
Sep-04 14,989 14,906
Oct-04 15,756 15,584
Nov-04 16,462 16,307
Dec-04 17,352 17,093
Jan-05 15,890 15,741
Feb-05 16,309 16,095
Mar-05 15,931 15,796
Apr-05 16,770 16,535
May-05 17,466 17,127
Jun-05 18,160 17,932
Jul-05 19,462 19,110
Aug-05 18,724 18,298
Sep-05 18,801 18,279
Oct-05 18,269 17,780
Nov-05 19,040 18,552
Dec-05 18,986 18,511
Jan-06 20,376 19,807
Feb-06 20,615 20,092
Mar-06 21,582 21,097
Apr-06 20,951 20,443
May-06 20,354 19,875
Jun-06 21,134 20,866
Jul-06 21,711 21,494
Aug-06 22,642 22,229
Sep-06 22,936 22,670
Oct-06 24,420 24,102
Nov-06 25,598 25,177
Dec-06 25,290 24,870
(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) See glossary on page 29 for definitions of indices. On 3/6/06,the National
Association of Real Estate Investment Trusts (NAREIT) changed the name of
the NAREIT All REITs Index to the FTSE NAREIT All REITs Index. Returns
shown for the index assume reinvestment of all dividends and distributions,
and the since-inception return shown for the index is calculated from
4/30/03. Indices are unmanaged, and individuals cannot invest directly in
an index.
4
PORTFOLIO MANAGER
David W. Simpson, CFA
(PHOTO OF DAVID W. SIMPSON) WM Advisors, Inc.
"rent vs. buy" decision increasingly favored rentals. We underweighted the
sector, believing that the housing slowdown would result in fewer speculative
condominium sales and leading these units to eventually re-enter the supply of
rentals. We believe that the market began to price this activity into
residential REITs later in the year, but the Fund missed out on some of the
sector's earlier gains.
Relative performance was also negatively impacted by the Fund's allocation to
common stocks. In a year when REITs significantly outperformed the broad equity
markets, devoting even a small portion of the Fund to common stocks was
detrimental to relative results.
We trimmed this allocation during the year, but liquidating almost all of it was
one of several changes made to the Fund in December as preparation for a January
2007 merger. Other large allocation changes shown in the table below were
similarly directed at aligning our portfolio with that of the fund that will be
the surviving entity.
Overall,we believe that REIT fundamentals remain strong but valuations also seem
quite rich. Assessments of this market can be somewhat clouded since REIT
fundamentals and stock price appreciation have often diverged in the past. REITs
have outperformed the S&P 500 every year since 1999, and we feel that this
lengthy period of strong gains may be contributing to some market complacency.
As a result, we tend to favor higher quality holdings and anticipate that
investors may not be rewarded for moving down the quality spectrum.
PORTFOLIO COMPOSITION(3)
As of 12/31/06
(PIE CHART)
As of As of
Asset Class 12/31/06 12/31/05 Change
- ----------- -------- -------- ------
Industrial/Office 37% 24% +13%
Residential 24% 11% +13%
Retail 16% 26% -10%
Lodging/Resorts 6% 6% 0%
Diversified 5% 3% +2%
Self Storage 4% 2% +2%
Health Care 3% 6% -3%
Common Stock 2% 8% -6%
Specialty 1% 5% -4%
Hybrid 0% 1% -1%
Mortgage/Financial 0% 1% -1%
Cash Equivalents 2% 7% -5%
(3) May not reflect the current portfolio composition.
5
VT Equity Income Fund*
INVESTMENT STRATEGY
U.S. equities posted solid returns for 2006 amid economic growth and
inflationary pressures that decelerated as the year progressed. During the
first half of the period, the Federal Reserve (the Fed) continued its two-year
campaign of increases in short-term interest rates. The Fed's August decision to
suspend this campaign, coupled with a decline in energy prices, spurred a rally
in equity markets that continued through the close of the year.
The relative performance of the WM VT Equity Income Fund benefited from
overweighted allocations to financials, telecommunications, technology, consumer
discretionaries, and real estate investment trusts (REITs). Financials were led
by brokers such as Goldman Sachs and Morgan Stanley. BellSouth (which was
acquired by AT&T in December) and a turnaround at Vodafone assisted telecom
results. Technology was supported by Apple, Hewlett-Packard,and Cisco Systems.
As consumer spending bottomed out, the Fund benefited from the strong results of
Hilton Hotels, Nordstrom, and McGraw-Hill. The stellar year enjoyed by REITs
also helped the Fund through such firms as Health Care
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. Performance shown below does not account for fees,
expenses, and charges of any variable insurance contract or retirement plan. If
these fees were reflected, performance would be lower.
REIT securities are subject to risk factors associated with the real estate
industry and tax factors of REIT registration.
* As of 8/1/00, the WM VT Bond & Stock Fund became the WM VT Equity Income
Fund, and the Fund's objectives and strategies changed. This information
should be considered when reviewing past performance. Please see the
prospectus for detailed information.
AVERAGE ANNUAL TOTAL RETURNS(1)
AS OF DECEMBER 31, 2006
Since Inception
1-Year 5-Year Inception Date
------ ------ --------- ---------
CLASS 1 SHARES 18.17% 12.06% 10.40% 4/28/98
CLASS 2 SHARES 17.86% 11.77% 10.96% 5/1/01
S&P 500/Citigroup Value Index(2) 20.80% 10.43% 6.12%
S&P 500(2) 15.80% 6.19% 4.48%
VALUE OF A $10,000 INVESTMENT (1) APRIL 28, 1998 - DECEMBER 31, 2006
(PERFORMANCE GRAPH)
VT
EQUITY S&P 500/
INCOME CITIGROUP
DATE FUND VALUE INDEX S&P 500
- ---- ------ ----------- -------
DEC-96
Jan-97
Feb-97
Mar-97
Apr-97
May-97
Jun-97
Jul-97
Aug-97
Sep-97
Oct-97
Nov-97
Dec-97
Jan-98
Feb-98
Mar-98
Apr-98 10,000 10,000 10,000
May-98 9,800 9,859 9,828
Jun-98 9,821 9,934 10,227
Jul-98 9,550 9,718 10,119
Aug-98 8,777 8,156 8,655
Sep-98 9,248 8,652 9,210
Oct-98 9,850 9,329 9,959
Nov-98 10,222 9,815 10,563
Dec-98 10,302 10,159 11,171
Jan-99 10,433 10,365 11,638
Feb-99 10,172 10,142 11,276
Mar-99 10,263 10,449 11,727
Apr-99 10,554 11,350 12,181
May-99 10,605 11,149 11,893
Jun-99 10,732 11,577 12,553
Jul-99 10,571 11,221 12,162
Aug-99 10,330 10,937 12,101
Sep-99 10,099 10,509 11,769
Oct-99 10,230 11,102 12,514
Nov-99 10,422 11,036 12,768
Dec-99 10,562 11,451 13,521
Jan-00 10,240 11,087 12,842
Feb-00 10,180 10,394 12,599
Mar-00 10,804 11,478 13,831
Apr-00 10,773 11,401 13,415
May-00 10,924 11,437 13,140
Jun-00 10,824 10,985 13,463
Jul-00 10,803 11,205 13,253
Aug-00 11,079 11,956 14,076
Sep-00 11,396 11,954 13,333
Oct-00 11,856 12,178 13,277
Nov-00 11,682 11,554 12,231
Dec-00 12,377 12,149 12,291
Jan-01 12,653 12,662 12,727
Feb-01 12,581 11,822 11,566
Mar-01 12,447 11,355 10,834
Apr-01 12,918 12,125 11,676
May-01 13,205 12,253 11,754
Jun-01 13,149 11,856 11,469
Jul-01 13,408 11,650 11,356
Aug-01 13,305 10,977 10,645
Sep-01 12,672 9,934 9,785
Oct-01 12,630 9,934 9,972
Nov-01 13,159 10,565 10,737
Dec-01 13,356 10,726 10,831
Jan-02 13,304 10,432 10,673
Feb-02 13,242 10,338 10,467
Mar-02 13,853 10,867 10,861
Apr-02 13,407 10,323 10,203
May-02 13,449 10,364 10,127
Jun-02 12,736 9,710 9,406
Jul-02 11,791 8,660 8,672
Aug-02 12,025 8,720 8,730
Sep-02 10,868 7,723 7,781
Oct-02 11,345 8,365 8,465
Nov-02 12,035 8,953 8,964
Dec-02 11,684 8,488 8,437
Jan-03 11,409 8,255 8,216
Feb-03 11,207 8,031 8,093
Mar-03 11,335 8,020 8,171
Apr-03 12,130 8,813 8,845
May-03 12,873 9,462 9,311
Jun-03 13,112 9,531 9,430
Jul-03 13,233 9,743 9,596
Aug-03 13,430 9,953 9,783
Sep-03 13,551 9,773 9,679
Oct-03 14,163 10,442 10,227
Nov-03 14,415 10,536 10,317
Dec-03 15,202 11,187 10,858
Jan-04 15,585 11,385 11,057
Feb-04 15,991 11,642 11,211
Mar-04 16,024 11,562 11,042
Apr-04 15,619 11,276 10,868
May-04 15,761 11,406 11,017
Jun-04 16,216 11,653 11,231
Jul-04 15,837 11,432 10,859
Aug-04 16,049 11,555 10,903
Sep-04 16,428 11,775 11,021
Oct-04 16,673 11,953 11,189
Nov-04 17,520 12,536 11,642
Dec-04 18,110 12,945 12,038
Jan-05 17,710 12,630 11,744
Feb-05 18,378 12,859 11,991
Mar-05 18,133 12,630 11,779
Apr-05 18,055 12,372 11,555
May-05 18,590 12,763 11,922
Jun-05 18,928 12,956 11,939
Jul-05 19,551 13,364 12,383
Aug-05 19,404 13,264 12,271
Sep-05 19,552 13,402 12,370
Oct-05 19,325 13,167 12,163
Nov-05 19,924 13,659 12,623
Dec-05 19,970 13,763 12,627
Jan-06 20,750 14,173 12,962
Feb-06 20,717 14,326 12,997
Mar-06 21,057 14,570 13,158
Apr-06 21,590 14,977 13,334
May-06 21,056 14,692 12,950
Jun-06 21,090 14,742 12,968
Jul-06 21,322 14,889 13,049
Aug-06 21,651 15,117 13,359
Sep-06 22,101 15,519 13,704
Oct-06 22,733 16,036 14,151
Nov-06 23,219 16,323 14,419
Dec-06 23,598 16,717 14,621
(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 Fund's performance in 1998 benefited from
the agreement of WM Advisors and its affiliates to limit the Fund's
expenses.
(2) See glossary on page 29 for definitions of indices. On 12/16/05, Standard &
Poor's changed the name of the S&P 500/BARRA Value Index to the S&P
500/Citigroup Value Index and changed its calculation methodology. Returns
shown for the indices assume reinvestment of all dividends and
distributions, and since-inception returns shown for the indices are
calculated from 4/30/98. Indices are unmanaged, and individuals cannot
invest directly in an index.
6
PORTFOLIO MANAGER
Joseph T. Suty, CFA
(PHOTO OF JOSEPH T. SUTY) WM Advisors, Inc.
Property Investors, Vornado Realty, and Kimco Realty.
Certain allocation weightings and adjustments were more detrimental to Fund
performance. For example, we began trimming the energy sector at mid-year, but
these volatile securities declined very quickly in subsequent months. It helped
the Fund to reduce its overall energy exposure, but holdings such as
GlobalSantaFe continued to prove problematic. An under-weighting in utilities
early in the year caused the Fund to miss out on the sector's gains, and when
this sector deteriorated in the year's second half, we were a little too slow in
trimming it. Allocation decisions that favored drug stocks also hurt results.
Although we judged these holdings to be inexpensive and high yielding, market
concerns about the potential consequences of a Democrat-controlled Congress
depressed this group's results. We believe these concerns will fade in 2007.
Following the easing of inflationary pressures and the Fed's pause, we began
looking at opportunities in more economically sensitive areas of the market. We
anticipate that the slowing of economic growth will reach a trough in the near
term and then return to slightly higher, sustainable levels. However, we also
feel that interest-rate cuts by the Fed in 2007 will be necessary to avoid a
prolonged deceleration of growth. In an environment of subdued growth and
inflation, we believe larger companies that are diversified, financially strong,
and cash rich look most attractive going forward. We continue to search across
all sectors for undervalued firms that we believe demonstrate strong balance
sheets, cash flow, and dividend growth prospects.
PORTFOLIO COMPOSITION(3)
As of 12/31/06
(PIE CHART)
As of As of
Asset Class 12/31/06 12/31/05 Change
- ----------- -------- -------- ------
Financials 27% 25% +2%
Information Technology 11% 9% +2%
Consumer Discretionary 10% 6% +4%
Industrials 10% 9% +1%
Health Care 8% 9% -1%
Telecommunication Services 8% 4% +4%
Energy 7% 12% -5%
Consumer Staples 6% 6% 0%
REITs 4% 6% -2%
Materials 3% 4% -1%
Utilities 3% 3% 0%
Other 1% 2% -1%
Cash Equivalents 2% 5% -3%
(3) May not reflect the current portfolio composition.
7
VT Growth & Income Fund
INVESTMENT STRATEGY
During 2006,corporations continued to generate strong earnings growth while
economic growth slowed following a first-quarter surge. To control inflationary
pressures, the Federal Reserve (the Fed) continued its two-year streak of
increases in short-term interest rates. The Fed's August decision to pause this
tightening campaign spurred a rally in equities. Although large caps dominated
in the rally's early months, small caps rebounded in the fourth quarter.
As economic growth decelerated, we emphasized holdings that rely on business
spending and deemphasized those that rely on consumer spending. Several
industrial firms provided the WM VT Growth & Income Fund with gains during the
period. Lockheed Martin rose on increased defense spending. Honeywell
International advanced on improvements in the aviation sector. AMR and Boeing
also contributed positively to Fund performance.
Within other sectors, utilities benefited from the Fed's pause and the market's
anticipation of lower interest rates, which could improve financial conditions
for utilities that typically have high debt levels. Overweighted alloca-
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. Performance shown below does not account for fees,
expenses, and charges of any variable insurance contract or retirement plan. If
these fees were reflected, performance would be lower.
AVERAGE ANNUAL TOTAL RETURNS(1)
AS OF DECEMBER 31, 2006
1-Year 5-Year 10-Year Since Inception Inception Date
------ ------ ------- --------------- --------------
CLASS 1 SHARES 11.87% 4.73% 8.44% 10.30% 1/12/94
CLASS 2 SHARES 11.66% 4.47% -- 5.05% 11/6/01
S&P 500(2) 15.80% 6.19% 8.42% 10.92%
VALUE OF A $10,000 INVESTMENT(1) DECEMBER 31, 1996 - DECEMBER 31, 2006
(PERFORMANCE GRAPH)
VT GROWTH &
DATE INCOME FUND S&P 500
- ---- ----------- -------
DEC-96 10,000 10,000
Jan-97 10,644 10,621
Feb-97 10,679 10,707
Mar-97 10,343 10,262
Apr-97 10,735 10,874
May-97 11,463 11,542
Jun-97 11,757 12,057
Jul-97 12,859 13,014
Aug-97 12,464 12,290
Sep-97 13,034 12,964
Oct-97 12,434 12,531
Nov-97 12,662 13,111
Dec-97 12,852 13,337
Jan-98 12,912 13,485
Feb-98 13,915 14,457
Mar-98 14,440 15,197
Apr-98 14,561 15,351
May-98 14,150 15,087
Jun-98 14,561 15,699
Jul-98 13,957 15,533
Aug-98 11,578 13,287
Sep-98 12,560 14,138
Oct-98 13,713 15,288
Nov-98 14,606 16,214
Dec-98 15,291 17,148
Jan-99 15,760 17,865
Feb-99 15,418 17,309
Mar-99 15,923 18,002
Apr-99 16,986 18,698
May-99 16,796 18,257
Jun-99 17,642 19,270
Jul-99 17,078 18,669
Aug-99 16,620 18,576
Sep-99 16,203 18,067
Oct-99 16,922 19,210
Nov-99 17,390 19,600
Dec-99 18,061 20,755
Jan-00 17,196 19,713
Feb-00 16,632 19,340
Mar-00 18,401 21,232
Apr-00 18,460 20,593
May-00 18,752 20,171
Jun-00 18,517 20,667
Jul-00 17,929 20,344
Aug-00 19,135 21,608
Sep-00 18,800 20,467
Oct-00 19,327 20,381
Nov-00 18,018 18,775
Dec-00 18,485 18,867
Jan-01 20,047 19,537
Feb-01 19,155 17,755
Mar-01 18,201 16,631
Apr-01 19,113 17,923
May-01 19,579 18,043
Jun-01 19,154 17,605
Jul-01 19,124 17,432
Aug-01 18,076 16,341
Sep-01 16,581 15,021
Oct-01 16,778 15,308
Nov-01 17,693 16,482
Dec-01 17,838 16,627
Jan-02 17,224 16,384
Feb-02 16,840 16,068
Mar-02 17,722 16,672
Apr-02 16,487 15,662
May-02 16,705 15,546
Jun-02 15,547 14,439
Jul-02 14,271 13,313
Aug-02 14,490 13,401
Sep-02 12,975 11,944
Oct-02 13,947 12,995
Nov-02 14,658 13,760
Dec-02 14,061 12,951
Jan-03 13,800 12,612
Feb-03 13,475 12,423
Mar-03 13,517 12,543
Apr-03 14,615 13,577
May-03 15,451 14,292
Jun-03 15,786 14,475
Jul-03 15,775 14,730
Aug-03 15,975 15,017
Sep-03 15,964 14,858
Oct-03 16,568 15,699
Nov-03 16,780 15,837
Dec-03 17,827 16,667
Jan-04 18,144 16,974
Feb-04 18,429 17,210
Mar-04 18,121 16,950
Apr-04 18,121 16,684
May-04 18,248 16,912
Jun-04 18,664 17,240
Jul-04 17,904 16,670
Aug-04 18,085 16,736
Sep-04 18,139 16,917
Oct-04 18,150 17,176
Nov-04 18,835 17,872
Dec-04 19,445 18,479
Jan-05 19,155 18,028
Feb-05 19,477 18,407
Mar-05 19,189 18,081
Apr-05 18,910 17,738
May-05 19,370 18,302
Jun-05 19,502 18,327
Jul-05 19,782 19,009
Aug-05 19,630 18,836
Sep-05 19,467 18,989
Oct-05 19,348 18,672
Nov-05 20,159 19,377
Dec-05 20,083 19,383
Jan-06 20,396 19,897
Feb-06 20,373 19,951
Mar-06 20,557 20,198
Apr-06 20,968 20,469
May-06 20,276 19,879
Jun-06 20,114 19,907
Jul-06 20,367 20,030
Aug-06 20,752 20,507
Sep-06 21,213 21,036
Oct-06 21,807 21,722
Nov-06 22,247 22,135
Dec-06 22,468 22,444
(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 Fund's performance in 1995 benefited
from the agreement of WM Advisors and its affiliates to limit the Fund's
expenses.
(2) See glossary on page 29 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 12/31/93.
Indices are unmanaged, and individuals cannot invest directly in an index.
8
PORTFOLIO MANAGER
Stephen Q. Spencer, CFA
(PHOTO OF STEPHEN Q. SPENCER) WM Advisors, Inc.
tions to energy and technology also assisted results.
However, the lagging performance of large-and mega-cap firms for much of 2006
was detrimental to the Fund, as were certain health care holdings. Omnicare, a
provider of pharmacy services to nursing facilities, declined in the wake of
legal and business headwinds, so we exited the position. Teva and Medtronic also
endured a variety of short-term problems. As a whole, the health care sector was
negatively impacted by a change in Medicare reimbursement policies (that
subsequently was modified) and elevated market fears after Democrats won control
of Congress.
In terms of allocation changes, we reduced consumer discretionaries due to our
outlook for decelerating consumer spending. We also trimmed the health care and
energy sectors. Changing valuations led us to increase the Fund's technology
exposure in the second half of the year. Additional portfolio adjustments were
made in December as preparation for a January 2007 merger.
We believe that the market has begun to acknowledge that economic growth is
likely to continue slowing. We anticipate that this will lead investors to
reduce their risk exposure and gravitate toward large-cap companies, which
typically fare better than small firms as growth slows. Large caps tend to have
greater cash flow, stronger balance sheets, and broader market exposure that
often includes international markets. All these factors can support large-cap
firms through slower economic conditions. Should economic growth and inflation
remain subdued, we believe stocks of high-quality large- and mega-cap firms
could continue advancing.
PORTFOLIO COMPOSITION(3)
As Of 12/31/06
(PIE CHART)
As of As of
Asset Class 12/31/06 12/31/05 Change
- ----------- -------- -------- ------
Financials 21% 22% -1%
Information Technology 18% 13% +5%
Industrials 13% 12% +1%
Consumer Staples 10% 9% +1%
Health Care 10% 13% -3%
Energy 9% 10% -1%
Consumer Discretionary 7% 10% -3%
Telecommunication Services 3% 1% +2%
Utilities 3% 5% -2%
Materials 2% 2% 0%
Cash Equivalents 4% 3% +1%
(3) May not reflect the current portfolio composition.
9
VT West Coast Equity Fund
INVESTMENT STRATEGY
Speculation about interest rates and inflation dominated the financial markets
during the first half of 2006,and this served to restrain equity returns. To
combat inflationary pressures, the Federal Reserve (the Fed) continued its
two-year streak of increases in short-term interest rates before deciding in
August to hold rates steady. Economic growth slowed as the year progressed, but
the Fed's pause coupled with falling oil prices fueled a rally in stocks that
extended through the close of the year.
Challenges endured by certain holdings resulted in some of the WM VT West Coast
Equity Fund's relative underperformance for the period. The Fund received
positive contributions from Franklin Resources and PACCAR, but several other
long-term holdings had adverse results during 2006. Getty Images, Nabors
Industries, and SonoSite all performed poorly as their earnings failed to meet
lofty market expectations. However, we continue to believe that these firms
exhibit solid fundamentals, with the potential to grow faster than the overall
economy.
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. Performance shown below does not account for fees,
expenses, and charges of any variable insurance contract or retirement plan. If
these fees were reflected, performance would be lower.
Small-cap and mid-cap stocks may have additional risks, including greater price
volatility. There may be additional investment risks due to the Fund's
concentration in West Coast companies.
AVERAGE ANNUAL TOTAL RETURNS(1)
AS OF DECEMBER 31, 2006
1-Year 5-Year Since Inception Inception Date
------ ------ --------------- --------------
CLASS 1 SHARES 12.03% 8.83% 11.95% 4/28/98
CLASS 2 SHARES 11.75% 8.56% 9.84% 11/6/01
Russell 3000(R) Index(2) 15.72% 7.17% 4.97%
VALUE OF A $10,000 INVESTMENT(1) APRIL 28, 1998 - DECEMBER 31, 2006
(PERFORMANCE GRAPH)
VT WEST COAST RUSSELL 3000
DATE EQUITY FUND INDEX
- ---- ------------- ------------
DEC-96
Jan-97
Feb-97
Mar-97
Apr-97
May-97
Jun-97
Jul-97
Aug-97
Sep-97
Oct-97
Nov-97
Dec-97
Jan-98
Feb-98
Mar-98
Apr-98 10,000 10,000
May-98 9,470 9,753
Jun-98 9,290 10,083
Jul-98 8,720 9,899
Aug-98 7,019 8,383
Sep-98 7,689 8,954
Oct-98 8,499 9,634
Nov-98 9,699 10,224
Dec-98 10,938 10,874
Jan-99 11,228 11,243
Feb-99 10,539 10,845
Mar-99 10,859 11,243
Apr-99 11,469 11,751
May-99 11,989 11,527
Jun-99 12,852 12,109
Jul-99 12,902 11,742
Aug-99 12,952 11,609
Sep-99 12,496 11,311
Oct-99 13,125 12,021
Nov-99 13,621 12,357
Dec-99 15,354 13,146
Jan-00 15,232 12,630
Feb-00 17,473 12,748
Mar-00 17,961 13,746
Apr-00 16,734 13,262
May-00 16,115 12,889
Jun-00 17,576 13,271
Jul-00 17,504 13,036
Aug-00 18,992 14,003
Sep-00 17,697 13,369
Oct-00 16,748 13,179
Nov-00 15,311 11,964
Dec-00 16,320 12,165
Jan-01 17,686 12,581
Feb-01 15,983 11,431
Mar-01 15,138 10,686
Apr-01 16,708 11,543
May-01 18,064 11,635
Jun-01 19,731 11,421
Jul-01 18,279 11,233
Aug-01 17,872 10,570
Sep-01 14,612 9,638
Oct-01 15,624 9,862
Nov-01 16,931 10,622
Dec-01 17,442 10,771
Jan-02 17,254 10,637
Feb-02 16,877 10,420
Mar-02 17,870 10,876
Apr-02 17,243 10,305
May-02 16,594 10,186
Jun-02 15,784 9,452
Jul-02 14,092 8,701
Aug-02 13,581 8,742
Sep-02 12,538 7,823
Oct-02 13,347 8,446
Nov-02 14,401 8,957
Dec-02 13,507 8,451
Jan-03 13,304 8,243
Feb-03 13,176 8,107
Mar-03 12,996 8,193
Apr-03 13,976 8,862
May-03 15,380 9,397
Jun-03 15,712 9,524
Jul-03 16,300 9,742
Aug-03 17,047 9,958
Sep-03 16,834 9,850
Oct-03 18,254 10,446
Nov-03 18,681 10,590
Dec-03 19,365 11,074
Jan-04 19,803 11,305
Feb-04 19,941 11,458
Mar-04 19,760 11,322
Apr-04 19,066 11,087
May-04 19,387 11,248
Jun-04 20,133 11,472
Jul-04 19,084 11,038
Aug-04 19,019 11,084
Sep-04 19,630 11,254
Oct-04 19,962 11,439
Nov-04 21,043 11,971
Dec-04 21,889 12,397
Jan-05 21,044 12,067
Feb-05 21,505 12,333
Mar-05 21,088 12,124
Apr-05 20,264 11,861
May-05 21,259 12,311
Jun-05 21,599 12,397
Jul-05 22,741 12,905
Aug-05 22,741 12,782
Sep-05 22,891 12,894
Oct-05 22,644 12,652
Nov-05 23,948 13,145
Dec-05 23,764 13,157
Jan-06 24,745 13,596
Feb-06 24,810 13,620
Mar-06 25,457 13,856
Apr-06 25,371 14,006
May-06 24,455 13,558
Jun-06 24,621 13,582
Jul-06 24,080 13,570
Aug-06 24,501 13,902
Sep-06 24,976 14,214
Oct-06 25,795 14,725
Nov-06 26,482 15,046
Dec-06 26,625 15,227
(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 Fund's performance in 1998 benefited
from the agreement of WM Advisors and its affiliates to limit the Fund's
expenses.
(2) See glossary on page 29 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 4/30/98.
Indices are unmanaged, and individuals cannot invest directly in an index.
10
PORTFOLIO MANAGER
Philip M. Foreman, CFA
(PHOTO OF PHILIP M. FOREMAN) WM Advisors, Inc.
Certain sector allocations also had a negative impact on Fund performance. An
overweighting in health care, which typically does well as the economy
slows, hurt results as this sector lagged the broad equity market advance.
Congressional gains by Democrats may have created some uncertainty in this
sector that trumped the support of economic fundamentals and demographic trends.
Underweightings in utilities and telecommunications, both due to regulatory
concerns, also hurt performance.
Changes in sector allocations during the period were somewhat limited, and this
kept turnover low for the year. Slowing economic growth led us to add to the
consumer staples sector. However, the Fund remains underweighted in this sector
due to a lack of West Coast firms. Technology, which was an underperformer early
in 2006, was increased to take advantage of later changes in the economic
environment.
The Fund closed the year with positioning that seeks to benefit from the recent
decline in oil prices and the Fed's pause. We continue to favor large-cap
equities, particularly those that we believe demonstrate good earnings but have
lagged in the year-ending rally. We anticipate that economic growth will
continue to slow while avoiding a recession. However, we also believe that
eventual interest-rate cuts by the Fed will be necessary to achieve sustainable
growth. Over the long term, we continue to view the West Coast as the premier
hub for U.S. technology and biotech development. Accordingly, we believe we have
constructed the Fund to take advantage of these opportunities.
PORTFOLIO COMPOSITION(3)
As of 12/31/06
(PIE CHART)
As of As of
Asset Class 12/31/06 12/31/05 Change
- ----------- -------- -------- ------
Information Technology 19% 16% +3%
Financials 17% 17% 0%
Health Care 15% 17% -2%
Industrials 15% 15% 0%
Consumer Discretionary 11% 13% -2%
Energy 7% 7% 0%
Consumer Staples 6% 5% +1%
Materials 3% 3% 0%
REITs 3% 3% 0%
Telecommunication Services 1% 1% 0%
Utilities 1% 0% +1%
Cash Equivalents 2% 3% -1%
(3) May not reflect the current portfolio composition.
11
VT Mid Cap Stock Fund
INVESTMENT STRATEGY
As 2006 progressed, economic growth gradually decelerated from a strong first
quarter, while inflationary pressures followed a similar path, inching down from
earlier highs. An August decision by the Federal Reserve (the Fed) to pause its
monetary tightening campaign, plus a decline in oil prices, spurred a rally in
equity markets. Although large caps dominated the rally's early months, mid caps
outperformed large caps in the fourth quarter.
The WM VT Mid Cap Stock Fund built relative outperformance for the year through
holdings that demonstrated earnings growth, particularly among industrial
positions. Airline holdings such as Continental Airlines and AMR benefited from
improving financial conditions within the industry as airlines trimmed their
fleets and reduced overall capacity. Subsequent fare increases had a more
profoundly positive impact on earnings than the negative effects of elevated
fuel costs. Lincoln Electric Holdings advanced on greater-than-expected sales
and earnings growth. As a manufacturer of arc-welding products and welding
supplies, Lincoln Electric has benefited from industrial growth in emerging
markets. Another industrial
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. Performance shown below does not account for fees,
expenses, and charges of any variable insurance contract or retirement plan. If
these fees were reflected, performance would be lower.
Small-cap and mid-cap stocks may have additional risks, including greater price
volatility.
AVERAGE ANNUAL TOTAL RETURNS(1)
AS OF DECEMBER 31, 2006
Since Inception
1-Year 5-Year Inception Date
------ ------ --------- ---------
CLASS 1 SHARES 16.88% 11.70% 13.20% 5/1/00
CLASS 2 SHARES 16.56% 11.43% 11.22% 5/1/01
S&P MidCap 400(2) 10.32% 10.89% 9.22%
VALUE OF A $10,000 INVESTMENT(1) MAY 1, 2000 - DECEMBER 31, 2006
(PERFORMANCE GRAPH)
VT MID CAP S&P
DATE STOCK FUND MIDCAP 400
- ---- ---------- ----------
DEC-96
Jan-97
Feb-97
Mar-97
Apr-97
May-97
Jun-97
Jul-97
Aug-97
Sep-97
Oct-97
Nov-97
Dec-97
Jan-98
Feb-98
Mar-98
Apr-98
May-98
Jun-98
Jul-98
Aug-98
Sep-98
Oct-98
Nov-98
Dec-98
Jan-99
Feb-99
Mar-99
Apr-99
May-99
Jun-99
Jul-99
Aug-99
Sep-99
Oct-99
Nov-99
Dec-99
Jan-00
Feb-00
Mar-00
Apr-00 10,000 10,000
May-00 10,210 9,875
Jun-00 9,980 10,020
Jul-00 10,150 10,178
Aug-00 10,860 11,314
Sep-00 10,751 11,236
Oct-00 10,951 10,855
Nov-00 10,651 10,036
Dec-00 11,741 10,804
Jan-01 12,171 11,044
Feb-01 12,141 10,414
Mar-01 11,700 9,640
Apr-01 12,350 10,703
May-01 12,780 10,953
Jun-01 13,188 10,909
Jul-01 13,127 10,746
Aug-01 12,737 10,395
Sep-01 11,487 9,102
Oct-01 11,897 9,504
Nov-01 12,407 10,211
Dec-01 13,148 10,739
Jan-02 12,698 10,683
Feb-02 12,698 10,696
Mar-02 13,469 11,461
Apr-02 13,379 11,407
May-02 13,508 11,214
Jun-02 12,803 10,393
Jul-02 11,870 9,386
Aug-02 11,993 9,433
Sep-02 11,070 8,673
Oct-02 11,387 9,048
Nov-02 11,983 9,572
Dec-02 11,788 9,179
Jan-03 11,583 8,911
Feb-03 11,429 8,699
Mar-03 11,480 8,772
Apr-03 11,881 9,409
May-03 12,794 10,189
Jun-03 12,866 10,318
Jul-03 13,092 10,684
Aug-03 13,431 11,170
Sep-03 13,266 10,999
Oct-03 14,192 11,830
Nov-03 14,594 12,242
Dec-03 15,057 12,449
Jan-04 15,263 12,719
Feb-04 15,695 13,024
Mar-04 15,541 13,080
Apr-04 15,396 12,651
May-04 15,777 12,913
Jun-04 16,299 13,207
Jul-04 15,627 12,591
Aug-04 15,459 12,558
Sep-04 15,741 12,930
Oct-04 15,941 13,136
Nov-04 16,791 13,919
Dec-04 17,253 14,503
Jan-05 16,644 14,133
Feb-05 17,085 14,608
Mar-05 17,399 14,445
Apr-05 16,896 13,884
May-05 17,694 14,719
Jun-05 18,131 15,061
Jul-05 18,909 15,852
Aug-05 18,875 15,676
Sep-05 18,909 15,796
Oct-05 18,684 15,457
Nov-05 19,304 16,212
Dec-05 19,563 16,324
Jan-06 20,545 17,286
Feb-06 20,364 17,141
Mar-06 21,189 17,569
Apr-06 21,415 17,817
May-06 20,670 17,013
Jun-06 20,699 17,017
Jul-06 20,376 16,532
Aug-06 20,674 16,720
Sep-06 20,996 16,832
Oct-06 21,937 17,532
Nov-06 22,788 18,097
Dec-06 22,865 18,008
(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) See glossary on page 29 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 4/30/00.
Indices are unmanaged, and individuals cannot invest directly in an index.
12
PORTFOLIO MANAGER
Daniel R. Coleman
(PHOTO OF DANIEL R. COLEMAN) WM Advisors, Inc.
position, PACCAR, achieved above-consensus earnings through profitable truck
financing and aftermarket parts sales.
The Fund also benefited from a general lack of problematic positions. We
diligently monitor the portfolio's holdings, seeking to avoid earnings surprises
on the downside, and we were able to accomplish that this year.
During the period, we saw few significant over- or under-valuations in sectors,
so we did not make any dramatic adjustments to weightings. A split by Fidelity
National Financial into two companies, both of which the Fund continues to own,
created a reduction in financials and an increase in technology. However, most
portfolio adjustments consisted of trimming or building core positions based on
changing valuations. For example, the strong performance of energy holdings in
the first half of 2006 led us to pare these positions, moving the energy sector
to a moderate underweighting. Falling oil prices later in the year reduced
valuations, and we added to this sector during the year's final quarter.
Our outlook for mid-cap equities is generally positive,but we anticipate that
economic growth will continue to slow from its strong pace in early 2006. This
anticipated slowdown should produce a benign economic and interest-rate
environment. On the negative side, many companies may find it hard to sustain
strong earnings growth. Therefore, we are redoubling our research efforts to
identify companies that we believe can generate strong sales and earnings growth
without the benefit of a robust economy.
PORTFOLIO COMPOSITION(3)
As of 12/31/06
(PIE CHART)
As of As of
Asset Class 12/31/06 12/31/05 Change
- ----------- -------- -------- ------
Financials 17% 20% -3%
Industrials 17% 17% 0%
Information Technology 14% 11% +3%
Consumer Discretionary 13% 13% 0%
Health Care 11% 12% -1%
Energy 9% 8% +1%
Materials 6% 5% +1%
Utilities 5% 5% 0%
REITs 2% 2% 0%
Consumer Staples 1% 2% -1%
Telecommunication Services 1% 1% 0%
Cash Equivalents 4% 4% 0%
(3) May not reflect the current portfolio composition.
13
VT Growth Fund
INVESTMENT STRATEGY
Salomon Brothers Asset Management, Inc, Janus Capital Management LLC, and
Oppenheimer Funds, Inc. share management responsibilities for the WM VT Growth
Fund.
U.S. equities performed well during the year, and after early weakness in the
first and second quarters, large-cap stocks improved. Appreciation in the year's
second half was largely fueled by a more dovish Federal Reserve (Fed), declining
commodity prices, record share buybacks, strong merger and acquisition
activity, and record corporate profits. The Fund lagged the broader market,
however, in an investment climate that continued to favor value equities over
growth.
Salomon reported that stock selection accounted for the majority of its
portfolio's underperformance. Significant detractors included technology
holdings and, to a lesser degree, positions in health care, industrials, and
consumer discretionaries. An overweighting in technology and underweightings in
industrials and materials also had a negative impact. For the period, leading
stock detractors included Yahoo!, eBay, Amazon.com, and Genentech. Leading
contributors to performance included stock selection among
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. Performance shown below does not account for
fees, expenses, and charges of any variable insurance contract or retirement
plan. If these fees were reflected, performance would be lower.
International investing involves increased risks due to currency fluctuations,
political or social instability, and differences in accounting standards.
AVERAGE ANNUAL TOTAL RETURNS(1)
AS OF DECEMBER 31, 2006
1-Year 5-Year 10-Year Since Inception Inception Date
------ ------ ------- --------------- --------------
CLASS 1 SHARES 4.94% 1.68% 7.69% 10.37% 5/7/93
CLASS 2 SHARES 4.63% 1.44% -- 2.45% 11/6/01
Russell 1000(R) Growth Index(2) 9.07% 2.69% 5.44% 8.84%
VALUE OF A $10,000 INVESTMENT(1) DECEMBER 31, 1996 - DECEMBER 31, 2006
(PERFORMANCE GRAPH)
RUSSELL 1000
DATE VT GROWTH FUND GROWTH INDEX
- ------ -------------- ------------
Dec-96 10,000 10,000
Jan-97 10,487 10,701
Feb-97 10,012 10,628
Mar-97 9,343 10,053
Apr-97 9,506 10,721
May-97 10,174 11,495
Jun-97 10,575 11,955
Jul-97 11,469 13,011
Aug-97 10,871 12,250
Sep-97 11,506 12,853
Oct-97 11,195 12,377
Nov-97 11,151 12,903
Dec-97 11,122 13,048
Jan-98 11,490 13,438
Feb-98 12,559 14,449
Mar-98 13,158 15,025
Apr-98 13,671 15,232
May-98 13,267 14,800
Jun-98 14,526 15,706
Jul-98 14,478 15,602
Aug-98 12,032 13,260
Sep-98 13,504 14,278
Oct-98 13,971 15,426
Nov-98 14,928 16,600
Dec-98 17,690 18,098
Jan-99 20,039 19,160
Feb-99 19,390 18,285
Mar-99 21,866 19,248
Apr-99 22,996 19,273
May-99 21,732 18,681
Jun-99 23,475 19,989
Jul-99 22,552 19,353
Aug-99 23,159 19,669
Sep-99 24,307 19,256
Oct-99 26,135 20,710
Nov-99 29,057 21,826
Dec-99 34,866 24,096
Jan-00 34,939 22,966
Feb-00 39,226 24,089
Mar-00 39,822 25,814
Apr-00 36,214 24,585
May-00 32,959 23,346
Jun-00 33,924 25,115
Jul-00 33,320 24,068
Aug-00 35,876 26,246
Sep-00 34,089 23,763
Oct-00 32,562 22,639
Nov-00 27,255 19,302
Dec-00 27,184 18,692
Jan-01 28,461 19,984
Feb-01 23,022 16,591
Mar-01 20,587 14,786
Apr-01 24,348 16,656
May-01 23,686 16,411
Jun-01 22,774 16,030
Jul-01 21,489 15,630
Aug-01 19,347 14,351
Sep-01 17,491 12,919
Oct-01 17,749 13,597
Nov-01 18,920 14,904
Dec-01 19,291 14,876
Jan-02 18,691 14,612
Feb-02 17,020 14,006
Mar-02 17,547 14,490
Apr-02 16,391 13,308
May-02 16,134 12,986
Jun-02 14,564 11,785
Jul-02 13,364 11,137
Aug-02 13,550 11,170
Sep-02 12,392 10,012
Oct-02 13,535 10,930
Nov-02 14,363 11,523
Dec-02 13,306 10,727
Jan-03 13,020 10,466
Feb-03 12,805 10,418
Mar-03 12,963 10,612
Apr-03 14,048 11,396
May-03 14,833 11,965
Jun-03 14,933 12,130
Jul-03 15,333 12,432
Aug-03 15,803 12,742
Sep-03 15,475 12,605
Oct-03 16,332 13,314
Nov-03 16,531 13,453
Dec-03 17,188 13,919
Jan-04 17,530 14,203
Feb-04 17,587 14,294
Mar-04 17,431 14,028
Apr-04 17,046 13,865
May-04 17,346 14,123
Jun-04 17,674 14,300
Jul-04 16,889 13,492
Aug-04 16,745 13,426
Sep-04 17,045 13,553
Oct-04 17,331 13,765
Nov-04 17,974 14,238
Dec-04 18,603 14,796
Jan-05 18,103 14,303
Feb-05 18,246 14,455
Mar-05 17,989 14,192
Apr-05 17,717 13,922
May-05 18,660 14,596
Jun-05 18,387 14,542
Jul-05 19,450 15,253
Aug-05 19,250 15,056
Sep-05 19,336 15,126
Oct-05 19,135 14,979
Nov-05 20,054 15,625
Dec-05 19,982 15,576
Jan-06 20,369 15,850
Feb-06 20,153 15,825
Mar-06 20,411 16,059
Apr-06 20,223 16,037
May-06 19,275 15,493
Jun-06 19,227 15,433
Jul-06 18,723 15,139
Aug-06 19,513 15,612
Sep-06 20,073 16,041
Oct-06 20,505 16,606
Nov-06 20,950 16,935
Dec-06 20,964 16,992
(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) See glossary on page 29 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 4/30/93.
Indices are unmanaged, and individuals cannot invest directly in an index.
14
PORTFOLIO MANAGERS
Alan Blake E. Marc Pinto, CFA William L. Wilby, CFA &
Salomon Brothers Asset Janus Capital Management LLC Marc L. Baylin, CFA
Management Inc OppenheimerFunds, Inc.
financials, as well as an overweighting in that sector and an underweighting in
energy.
Janus noted that the two sectors which detracted most from its portfolio's
performance were technology and health care. Yahoo! was the single largest
detractor from performance. Advanced Micro Devices, UnitedHealth Group, and XM
Satellite Radio also hurt results. On the positive side, energy holdings like
Occidental Petroleum and Exxon Mobil contributed to performance. Select
technology holdings, such as Research in Motion and Apple, also performed
handsomely.
Like the other subadvisors, Oppenheimer found that individual stock performance
proved to be the primary influence, both positive and negative, on its
portfolio's returns. Among the largest contributors to performance was Cisco
Systems. Positive results also came from Goldman Sachs, Comcast, Cognizant Tech
Solutions, and Schlumberger. Conversely, Yahoo!, XM Satellite Radio, and
Medtronic proved to be among the largest detractors.
All three subadvisors are generally optimistic about the prospects for large-cap
growth stocks. Oppenheimer notes that as we head into a profit deceleration
environment and a slowing economic cycle, higher quality companies tend to
outperform lower quality companies and growth tends to outperform value. Janus
has a constructive outlook for equity prices, but it also cautions that a
rebound in energy prices and a more severe correction in the housing market
could exacerbate the economic slowdown. Salomon believes that weakness in the
housing market, an inverted yield curve, and the Fed's balancing act suggest
that 2007 could be very much like 2006.
PORTFOLIO COMPOSITION(3)
As of 12/31/06
(PIE CHART)
As of As of
Asset Class 12/31/06 12/31/05 Change
- ----------- -------- -------- ------
Information Technology 28% 28% 0%
Consumer Discretionary 17% 18% -1%
Financials 15% 10% +5%
Health Care 15% 19% -4%
Consumer Staples 11% 8% +3%
Industrials 5% 5% 0%
Energy 4% 4% 0%
Materials 3% 2% +1%
Telecommunication Services 0% 1% -1%
Cash Equivalents 2% 5% -3%
(3) May not reflect the current portfolio composition.
15
VT Small Cap Value Fund
INVESTMENT STRATEGY
Many market participants entered 2006 predicting that small-cap stocks would
rotate out of favor during the year. However, as economic growth slowed over the
period, small caps maintained their multi-year trend of outperformance, and
investors continued to favor value over growth across all capitalizations. A
brief market pullback in May and June abated as oil prices began declining and
the Federal Reserve (the Fed) halted its two-year campaign of interest-rate
increases. These factors helped ignite a rally in equity markets that continued
through the close of the year.
Individual stock performance was the primary determinant of results for the WM
VT Small Cap Value Fund. Certain problematic holdings offset the gains of strong
performers. Negative contributions came primarily from consumer discretionaries.
Movie Gallery, a video rental retailer, enjoyed a brief advance in the spring
before dropping on lower-than-expected earnings. Other poor results among
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. Performance shown below does not account for fees,
expenses, and charges of any variable insurance contract or retirement plan. If
these fees were reflected, performance would be lower.
Small-cap and mid-cap stocks may have additional risks, including greater price
volatility. International investing involves increased risks due to currency
fluctuations, political or social instability, and differences in accounting
standards.
AVERAGE ANNUAL TOTAL RETURNS(1)
AS OF DECEMBER 31, 2006
1-Year Since Inception Inception Date
------ --------------- --------------
CLASS 1 SHARES 12.22% 14.79% 5/3/04
CLASS 2 SHARES 11.87% 8.56% 7/1/05
Russell 2000(R) Value Index(2) 23.48% 18.11%
VALUE OF A $10,000 INVESTMENT(1) MAY 3, 2004 - DECEMBER 31, 2006
(PERFORMANCE GRAPH)
VT SMALL CAP RUSSELL 2000
DATE VALUE FUND VALUE INDEX
- ------ ------------ ------------
DEC-96
Jan-97
Feb-97
Mar-97
Apr-97
May-97
Jun-97
Jul-97
Aug-97
Sep-97
Oct-97
Nov-97
Dec-97
Jan-98
Feb-98
Mar-98
Apr-98
May-98
Jun-98
Jul-98
Aug-98
Sep-98
Oct-98
Nov-98
Dec-98
Jan-99
Feb-99
Mar-99
Apr-99
May-99
Jun-99
Jul-99
Aug-99
Sep-99
Oct-99
Nov-99
Dec-99
Jan-00
Feb-00
Mar-00
Apr-00
May-00
Jun-00
Jul-00
Aug-00
Sep-00
Oct-00
Nov-00
Dec-00
Jan-01
Feb-01
Mar-01
Apr-01
May-01
Jun-01
Jul-01
Aug-01
Sep-01
Oct-01
Nov-01
Dec-01
Jan-02
Feb-02
Mar-02
Apr-02
May-02
Jun-02
Jul-02
Aug-02
Sep-02
Oct-02
Nov-02
Dec-02
Jan-03
Feb-03
Mar-03
Apr-03
May-03
Jun-03
Jul-03
Aug-03
Sep-03
Oct-03
Nov-03
Dec-03
Jan-04
Feb-04
Mar-04
Apr-04 10,000 10,000
May-04 9,840 10,121
Jun-04 10,260 10,635
Jul-04 10,180 10,146
Aug-04 10,280 10,245
Sep-04 10,820 10,651
Oct-04 11,050 10,816
Nov-04 12,020 11,776
Dec-04 12,270 12,057
Jan-05 12,090 11,590
Feb-05 12,430 11,821
Mar-05 12,489 11,578
Apr-05 12,070 10,980
May-05 12,420 11,650
Jun-05 12,724 12,165
Jul-05 13,314 12,857
Aug-05 13,045 12,561
Sep-05 12,735 12,540
Oct-05 12,071 12,225
Nov-05 12,610 12,722
Dec-05 12,880 12,624
Jan-06 13,418 13,668
Feb-06 13,159 13,666
Mar-06 13,635 14,328
Apr-06 13,417 14,366
May-06 13,106 13,772
Jun-06 13,200 13,941
Jul-06 12,861 13,747
Aug-06 13,130 14,158
Sep-06 13,235 14,297
Oct-06 13,972 15,025
Nov-06 14,334 15,453
Dec-06 14,452 15,587
(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) See glossary on page 29 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
4/30/04.Indices are unmanaged, and individuals cannot invest directly in an
index.
16
PORTFOLIO MANAGER
David W. Simpson, CFA
(PHOTO OF DAVID W. SIMPSON) WM Advisors, Inc.
consumer discretionaries came from Rocky Brands and Lenox Group.
Conversely, holdings from the materials sector advanced strongly on the
widespread runup in commodity prices. The standout performer within this sector
was Minara Resources, an Australian nickel miner that benefited from a surge in
nickel prices plus production improvements. Century Aluminum, Randgold
Resources, and Metal Management also benefited Fund performance.
Airline holdings, particularly Continental Airlines and AMR, contributed to
positive Fund results. These firms benefited from improving financial conditions
within the industry as airlines trimmed their fleets and reduced overall
capacity. Subsequent fare increases had a more profoundly positive impact on
earnings than the negative effects of elevated fuel costs.
Several of the holdings highlighted in preceding paragraphs were sold in
December to prepare for the Fund's January 2007 merger.
Other large allocation changes shown in the table below were similarly directed
at aligning our portfolio with that of the fund that will be the surviving
entity.
Our outlook anticipates that the actions of the Fed, as determined by incoming
growth and inflation data, will help to set the market direction for small-cap
equities. The Fed's pause could prove beneficial for small caps in the short
term, but any mixed economic data that creates uncertainty about the Fed's next
move could provoke some volatility.
PORTFOLIO COMPOSITION(3)
As of 12/31/06
(PIE CHART)
As of As of
Asset Class 12/31/06 12/31/05 Change
- ----------- -------- -------- ------
Financials 23% 13% +10%
Industrials 15% 15% 0%
Consumer Discretionary 11% 13% -2%
REITs 10% 5% +5%
Information Technology 9% 10% -1%
Energy 6% 9% -3%
Materials 6% 12% -6%
Health Care 5% 5% 0%
Consumer Staples 4% 8% -4%
Telecommunication Services 3% 3% 0%
Utilities 1% 1% 0%
Options 0% 3% -3%
Cash Equivalents 7% 3% +4%
(3) May not reflect the current portfolio composition.
17
VT Small Cap Growth Fund
INVESTMENT STRATEGY
Delaware Management Company and Oberweis Asset Management, Inc. share management
responsibilities for the WM VT Small Cap Growth Fund.
Stocks rose strongly in 2006, with nearly all major domestic indices posting
double digit returns. Value significantly outperformed growth across all
capitalizations, and this reflected, in part, a shift in investor sentiment that
took place in the spring amid fears about continuing inflationary pressure
extending the Federal Reserve's tightening cycle. The ramifications of this
extension led investors to flee riskier assets. Growth stocks suffered the most,
especially among lower-cap stocks. Investor pessimism gave way in the third
quarter, however, as commodity prices experienced a significant drop and the
Federal Reserve finally paused its regimen of successive rate hikes. Large-cap
stocks were the initial beneficiaries, but small-cap stocks broke out and
generated the strongest returns for the fourth quarter and, as a result, for the
full year.
Delaware observed that the entirety of its portfolio's relative underperformance
occurred between late March and early August when fear of inflation and future
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. Performance shown below does not account for
fees, expenses, and charges of any variable insurance contract or retirement
plan. If these fees were reflected, performance would be lower.
Small-cap and mid-cap stocks may have additional risks, including greater price
volatility.
AVERAGE ANNUAL TOTAL RETURNS(1)
AS OF DECEMBER 31, 2006
1-Year 5-Year 10-Year Since Inception Inception Date
------ ------ ------- --------------- --------------
CLASS 1 SHARES 6.82% -0.09% 4.91% 7.16% 1/12/94
CLASS 2 SHARES 6.58% -0.34% -- -0.83% 5/1/01
Russell 2000(R) Growth Index(2) 13.35% 6.93% 4.88% 6.58%
VALUE OF A $10,000 INVESTMENT(1) DECEMBER 31, 1996 - DECEMBER 31, 2006
(PERFORMANCE GRAPH)
VT SMALL CAP RUSSELL 2000
DATE GROWTH FUND GROWTH INDEX
- ---- ------------ ------------
DEC-96 10,000 10,000
Jan-97 9,667 10,250
Feb-97 9,429 9,631
Mar-97 8,769 8,951
Apr-97 8,817 8,847
May-97 9,830 10,177
Jun-97 10,330 10,522
Jul-97 10,388 11,061
Aug-97 10,496 11,392
Sep-97 11,195 12,301
Oct-97 11,008 11,562
Nov-97 11,109 11,287
Dec-97 11,260 11,294
Jan-98 11,137 11,144
Feb-98 12,110 12,128
Mar-98 12,628 12,637
Apr-98 12,548 12,714
May-98 11,641 11,790
Jun-98 11,676 11,910
Jul-98 10,834 10,915
Aug-98 8,524 8,396
Sep-98 9,267 9,248
Oct-98 9,967 9,730
Nov-98 11,035 10,485
Dec-98 12,153 11,434
Jan-99 12,019 11,949
Feb-99 10,893 10,855
Mar-99 10,834 11,242
Apr-99 11,318 12,235
May-99 12,119 12,254
Jun-99 13,086 12,900
Jul-99 13,466 12,501
Aug-99 13,237 12,034
Sep-99 13,498 12,266
Oct-99 14,183 12,580
Nov-99 16,422 13,910
Dec-99 20,790 16,361
Jan-00 22,377 16,209
Feb-00 29,875 19,980
Mar-00 26,529 17,880
Apr-00 21,181 16,074
May-00 19,452 14,666
Jun-00 23,856 16,561
Jul-00 22,754 15,142
Aug-00 25,132 16,735
Sep-00 23,531 15,903
Oct-00 21,999 14,612
Nov-00 18,497 11,958
Dec-00 18,589 12,690
Jan-01 21,489 13,717
Feb-01 17,361 11,836
Mar-01 14,554 10,760
Apr-01 16,711 12,077
May-01 17,812 12,358
Jun-01 19,848 12,695
Jul-01 16,623 11,612
Aug-01 15,481 10,886
Sep-01 11,628 9,130
Oct-01 13,054 10,009
Nov-01 14,967 10,844
Dec-01 16,222 11,520
Jan-02 14,582 11,110
Feb-02 12,999 10,391
Mar-02 14,696 11,294
Apr-02 12,627 11,050
May-02 11,157 10,404
Jun-02 10,213 9,521
Jul-02 8,402 8,058
Aug-02 8,058 8,054
Sep-02 7,558 7,472
Oct-02 8,449 7,851
Nov-02 9,667 8,629
Dec-02 8,574 8,033
Jan-03 8,683 7,815
Feb-03 8,293 7,606
Mar-03 8,152 7,721
Apr-03 9,042 8,451
May-03 10,666 9,404
Jun-03 10,837 9,585
Jul-03 11,649 10,310
Aug-03 12,290 10,863
Sep-03 12,369 10,589
Oct-03 13,993 11,504
Nov-03 14,305 11,879
Dec-03 14,695 11,932
Jan-04 15,850 12,558
Feb-04 15,788 12,540
Mar-04 15,679 12,599
Apr-04 14,587 11,966
May-04 14,493 12,204
Jun-04 14,742 12,611
Jul-04 12,743 11,478
Aug-04 12,666 11,231
Sep-04 13,322 11,852
Oct-04 13,603 12,140
Nov-04 14,478 13,166
Dec-04 15,384 13,639
Jan-05 14,681 13,025
Feb-05 14,384 13,204
Mar-05 13,432 12,709
Apr-05 12,355 11,900
May-05 13,354 12,739
Jun-05 13,916 13,151
Jul-05 14,948 14,070
Aug-05 14,744 13,872
Sep-05 14,995 13,981
Oct-05 14,683 13,464
Nov-05 15,370 14,226
Dec-05 15,120 14,205
Jan-06 16,713 15,575
Feb-06 16,479 15,493
Mar-06 17,058 16,246
Apr-06 16,901 16,199
May-06 15,557 15,058
Jun-06 15,371 15,067
Jul-06 14,261 14,285
Aug-06 14,605 14,704
Sep-06 14,745 14,804
Oct-06 15,479 15,763
Nov-06 16,135 16,140
Dec-06 16,151 16,101
(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 Fund's performance in 1995 benefited
from the agreement of WM Advisors and its affiliates to limit the Fund's
expenses.
(2) See glossary on page 29 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
12/31/93. Indices are unmanaged, and individuals cannot invest directly in
an index.
18
PORTFOLIO MANAGERS
Emerging Growth Team James W. Oberweis, CFA
Delaware Management Company Oberweis Asset Management, Inc.
rate hikes sent investors fleeing from riskier assets. Solidly positive stock
selection in the energy, consumer services, financial, and business services
sectors was negated by weakness among technology, health care, and consumer
non-durable holdings. Positive individual contributors included Akamai
Technologies, Micrus Endovascular, and Input/Output. Detractors from Fund
performance included Telik, Ixia, and Urban Outfitters.
Oberweis noted that as the value style dominated the small-cap market in 2006,
its portfolio of high-growth companies fared poorly relative to the rest of the
small-cap marketplace. In general, its allocations tend to be overweighted in
sectors that offer rapid and ongoing change due to new technologies, patents,
and unique market positioning. Sectors that offer these characteristics include
technology, health care, and consumer discretionaries. Top performers for the
year included Focus Media Holdings, Veritas DCG, and Rackable Systems. In
contrast, the leading detractors for the year included Blue Coat Systems,
Openwave, and ASV.
Delaware anticipates that in the absence of a sudden, unexpected spike in
inflation and energy prices, consumer-related stocks should continue to do
well. Additionally, major new product launches from some of the largest
technology firms, coupled with the potential for infrastructure replacement,
should bode well for the technology sector. Oberweis expects growth stocks to
begin to outperform value and regards the relative price/earnings ratios of
value stocks (at all market capitalizations) as expensive relative to growth
stocks. That disparity increased in 2006, and Oberweis believes this portends a
rotation toward the growth style in the near future.
PORTFOLIO COMPOSITION(3)
As of 12/31/06
(PIE CHART)
As of As of
Asset Class 12/31/06 12/31/05 Change
- ----------- -------- -------- ------
Health Care 20% 25% -5%
Consumer Discretionary 16% 14% +2%
Industrials 12% 13% -1%
Energy 8% 7% +1%
Semiconductors &
Semiconductor Equipment 7% 6% +1%
Communications Equipment 6% 7% -1%
Financials 5% 5% 0%
Software 5% 5% 0%
Internet Software & Services 4% 7% -3%
Computers & Peripherals 2% 2% 0%
IT Services 2% 3% -1%
Consumer Staples 1% 2% -1%
Electronic Equipment &
Instruments 1% 0% +1%
REITs 1% 1% 0%
Other 1% 1% 0%
Cash Equivalents 9% 2% +7%
(3) May not reflect the current portfolio composition.
19
VT International Growth Fund
INVESTMENT STRATEGY
The global stock market capped off an exceptional year in which all developed
markets except Japan posted double-digit gains. Stocks benefited from strong
earnings, a supportive global economy, and a high level of liquidity. Returns
for U.S.-based investors were even stronger as European currencies gained
sharply on the dollar.
Japanese equities rose but lagged behind stronger gains in North America,
Europe, and elsewhere in the Pacific. While earnings for Japanese exporters
remained solid, the domestic economy showed little improvement. Equities were
also held back by comments from the Bank of Japan, which suggested that it might
again raise interest rates--a move seen as premature by most investors.
Emerging market stocks sustained their four-year winning streak, with strong
gains in the fourth quarter. A spurt in merger-and-acquisition activity, low
long-term interest rates in the major economies, and robust corporate earnings
growth fueled the rally.
Absolute returns were strong on the back of the global rally in equities. Stock
selection among information technology stocks was the
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. Performance shown below does not account for fees,
expenses, and charges of any variable insurance contract or retirement plan. If
these fees were reflected, performance would be lower.
International investing, especially in emerging markets, involves increased
risks due to currency fluctuations, political or social instability, and
differences in accounting standards.
AVERAGE ANNUAL TOTAL RETURNS (1)
AS OF DECEMBER 31, 2006
Since Inception
1-Year 5-Year 10-Year Inception Date
------ ------ ------- --------- ---------
CLASS 1 SHARES 20.54% 13.01% 6.58% 7.05% 5/7/93
CLASS 2 SHARES 20.27% 12.73% -- 13.27% 11/6/01
MSCI All Country World Index ex-USA(2) 27.16% 16.87% 8.59% 8.80%
MSCI EAFE Index(2) 26.86% 15.43% 8.06% 8.41%
VALUE OF A $10,000 INVESTMENT (1) DECEMBER 31, 1996 - DECEMBER 31, 2006
(PERFORMANCE GRAPH)
MORGAN STANLEY
MSCI AC WORLD CAPITAL
VT INTERNATIONAL INDEX EX INTERNATIONAL
DATE GROWTH FUND USA EAFE INDEX
- ---- ---------------- ------------- --------------
DEC-96 10,000 10,000 10,000
Jan-97 10,046 9,816 9,652
Feb-97 10,107 9,996 9,812
Mar-97 10,022 9,975 9,850
Apr-97 10,230 10,058 9,905
May-97 10,852 10,680 10,551
Jun-97 11,325 11,270 11,136
Jul-97 11,675 11,497 11,319
Aug-97 10,666 10,592 10,475
Sep-97 11,238 11,165 11,064
Oct-97 10,039 10,215 10,217
Nov-97 9,722 10,088 10,114
Dec-97 9,737 10,204 10,205
Jan-98 9,840 10,509 10,675
Feb-98 10,492 11,210 11,362
Mar-98 11,064 11,597 11,715
Apr-98 11,341 11,681 11,809
May-98 11,254 11,470 11,755
Jun-98 10,896 11,426 11,847
Jul-98 10,949 11,534 11,970
Aug-98 9,493 9,908 10,489
Sep-98 9,008 9,699 10,170
Oct-98 9,476 10,715 11,233
Nov-98 10,005 11,290 11,812
Dec-98 10,243 11,679 12,281
Jan-99 10,376 11,667 12,248
Feb-99 10,058 11,405 11,959
Mar-99 10,472 11,956 12,461
Apr-99 10,869 12,554 12,968
May-99 10,428 11,964 12,303
Jun-99 11,141 12,514 12,785
Jul-99 11,636 12,808 13,169
Aug-99 11,813 12,853 13,220
Sep-99 12,078 12,941 13,356
Oct-99 12,634 13,422 13,860
Nov-99 13,615 13,959 14,345
Dec-99 15,566 15,290 15,634
Jan-00 14,770 14,460 14,643
Feb-00 15,309 14,851 15,040
Mar-00 15,680 15,409 15,626
Apr-00 14,948 14,549 14,808
May-00 14,206 14,177 14,449
Jun-00 15,037 14,781 15,017
Jul-00 14,233 14,197 14,391
Aug-00 14,526 14,373 14,519
Sep-00 13,383 13,575 13,815
Oct-00 12,779 13,143 13,492
Nov-00 12,267 12,553 12,988
Dec-00 12,477 12,983 13,453
Jan-01 12,778 13,177 13,447
Feb-01 11,663 12,134 12,439
Mar-01 11,069 11,276 11,616
Apr-01 12,093 12,043 12,430
May-01 11,582 11,710 12,001
Jun-01 11,043 11,261 11,515
Jul-01 10,702 11,011 11,307
Aug-01 10,360 10,738 11,023
Sep-01 9,074 9,598 9,909
Oct-01 9,516 9,867 10,162
Nov-01 10,099 10,318 10,537
Dec-01 10,259 10,451 10,601
Jan-02 9,788 10,004 10,038
Feb-02 9,878 10,076 10,109
Mar-02 10,480 10,623 10,661
Apr-02 10,470 10,692 10,738
May-02 10,509 10,809 10,884
Jun-02 9,988 10,342 10,455
Jul-02 8,992 9,333 9,424
Aug-02 8,860 9,334 9,405
Sep-02 7,925 8,345 8,398
Oct-02 8,566 8,792 8,850
Nov-02 9,105 9,215 9,252
Dec-02 8,648 8,917 8,942
Jan-03 8,302 8,604 8,569
Feb-03 8,108 8,430 8,373
Mar-03 7,844 8,266 8,215
Apr-03 8,616 9,063 9,030
May-03 9,104 9,640 9,585
Jun-03 9,318 9,907 9,822
Jul-03 9,679 10,171 10,062
Aug-03 9,967 10,474 10,306
Sep-03 10,143 10,767 10,626
Oct-03 10,842 11,465 11,289
Nov-03 10,987 11,715 11,542
Dec-03 11,717 12,609 12,444
Jan-04 11,840 12,812 12,621
Feb-04 12,046 13,137 12,915
Mar-04 12,119 13,219 12,992
Apr-04 11,727 12,807 12,709
May-04 11,738 12,848 12,764
Jun-04 11,862 13,127 13,048
Jul-04 11,466 12,745 12,627
Aug-04 11,570 12,847 12,685
Sep-04 11,747 13,261 13,019
Oct-04 12,113 13,722 13,464
Nov-04 12,801 14,675 14,387
Dec-04 13,311 15,304 15,019
Jan-05 13,020 15,041 14,744
Feb-05 13,520 15,783 15,384
Mar-05 13,166 15,355 15,004
Apr-05 12,822 14,976 14,668
May-05 12,853 15,070 14,690
Jun-05 13,007 15,353 14,891
Jul-05 13,464 15,920 15,348
Aug-05 14,046 16,327 15,741
Sep-05 14,576 17,170 16,445
Oct-05 14,290 16,545 15,966
Nov-05 14,693 17,101 16,361
Dec-05 15,690 17,923 17,123
Jan-06 16,654 19,173 18,176
Feb-06 16,295 19,117 18,140
Mar-06 16,761 19,671 18,746
Apr-06 17,471 20,686 19,655
May-06 16,538 19,733 18,916
Jun-06 16,457 19,713 18,924
Jul-06 16,564 19,914 19,113
Aug-06 17,103 20,478 19,644
Sep-06 17,178 20,490 19,678
Oct-06 17,910 21,324 20,445
Nov-06 18,384 22,098 21,062
Dec-06 18,912 22,787 21,726
(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 Fund's performance in 1998 benefited from
the agreement of WM Advisors and its affiliates to limit the Fund's
expenses.
(2) See glossary on page 29 for definitions of indices. Effective 3/1/06, the
Morgan Stanley Capital International (MSCI) All Country World Index (ACWI)
ex-USA replaced the MSCI EAFE Index because WM Advisors and the Fund's
subadvisor believe the new benchmark more accurately reflects the Fund's
performance characteristics. Returns shown for the indices assume
reinvestment of all dividends and distributions, and since-inception
returns shown for the indices are calculated from 4/30/93. Indices are
unmanaged, and individuals cannot invest directly in an index.
20
PORTFOLIO MANAGERS
Non-U.S. Equity Team & Emerging Market Equity Team
Capital Guardian Trust Company
biggest detractor to relative results in 2006. Most of the portfolio's
technology holdings that provided large negative returns were Japanese firms,
such as SOFTBANK (reclassified to telecom at year-end), Nitto Denko,and Yahoo!
Japan. Stock selection within the financial sector also detracted from results.
Portfolio returns were positively impacted by stock selection in the consumer
discretionary and utility sectors and from being overweighted in
telecommunications and underweighted in energy. Looking at the portfolio by
country, allocations to Canada, Mexico, and the Netherlands were the top
contributors.
Within the emerging markets portion of the Fund, stock selection was strong in
several sectors, including consumer discretionaries, materials, information
technology, utilities, and telecommunication services. Telekomunikasi Indonesia
and Hon Hai Precision were among the top contributors.
Compared to its benchmark, the Fund was marginally underweighted in emerging
markets, which detracted from results. The portfolio was overweighted in
telecommunications and technology. We tried to avoid areas where valuations have
risen sharply due to buyout excitement rather than earnings prospects.
Japan continues to be overweighted within the portfolio. While corporate health
has improved greatly, consumer demand has yet to recover. We think corporate
profits will ultimately find their way to the consumer, and pent-up demand will
trigger a revival in consumer spending.In our view, the risk that zealous
central bank policies might trigger a cyclical downturn in Japan may be
exaggerated.
GEPGRAPHIC BREAKDOWN (3)
As of 12/31/06
(PIE CHART)
As of As of
Asset Class 12/31/06 12/31/05 Change
- ----------- -------- -------- ------
Japan 20% 33% -13%
United Kingdom 16% 16% 0%
France 9% 8% +1%
Switzerland 9% 8% +1%
Germany 6% 6% 0%
Canada 5% 4% +1%
Australia 4% 2% +2%
Belgium 3% 1% +2%
Netherlands 3% 5% -2%
Spain 3% 4% -1%
China 2% 0% +2%
Hong Kong 2% 1% +1%
Italy 2% 0% +2%
Other Countries 13% 10% +3%
Cash Equivalents 3% 2% +1%
(3) May not reflect the current portfolio composition.
21
VT Short Term Income Fund
INVESTMENT STRATEGY
Bond markets entered 2006 with a flat yield curve in which 2-year Treasury
yields stood 2 basis points higher than those of 10-year Treasuries. During the
first half of 2006, the Federal Reserve (the Fed) continued its two-year
campaign of raising short-term interest rates. The yield curve responded by
becoming more inverted as short-term yields rose. The Fed paused in August and
held its target federal funds rate at 5.25% for the remainder of the year. Bond
markets closed 2006 with 2-year Treasury yields having climbed 41 basis points
and standing 11 basis points above yields on 10-year Treasuries.
Within this environment, positioning on the yield curve drove performance. The
best-performing holdings of the WM VT Short Term Income Fund were corporate
issues with very short maturities, a feature that left little doubt that the
issuers would pay on these securities when they came due. For example, the
portfolio holds Ford Motor Credit Company notes that are due in January 2007.
These issues were heavily discounted a year ago and benefited Fund
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. Performance shown below does not account for fees,
expenses, and charges of any variable insurance contract or retirement plan. If
these fees were reflected, performance would be lower.
Fixed-income investments are subject to interest rate risk, and their value will
decline as interest rates rise. There may be additional credit and default risks
associated with lower-rated securities. REIT securities are subject to risk
factors associated with the real estate industry and tax factors of REIT
registration.
AVERAGE ANNUAL TOTAL RETURNS (1)
AS OF DECEMBER 31, 2006
Since Inception
1-Year 5-Year 10-Year Inception Date
------ ------ ------- --------- ---------
CLASS 1 SHARES 4.59% 4.00% 5.03% 4.74% 1/12/94
CLASS 2 SHARES 4.24% 3.77% -- 3.66% 11/6/01
Citigroup Broad Investment-Grade
Credit 1-3 Years Index(2) 4.88% 4.12% 5.61% 5.73%
VALUE OF A $10,000 INVESTMENT (1) DECEMBER 31, 1996 - DECEMBER 31, 2006
CITIGROUP
BROAD
INVESTMENT
VT SHORT TERM GRADE CREDIT
DATE INCOME FUND 1-3 YR INDEX
- ---- ------------- ------------
DEC-96 10,000 10,000
Jan-97 10,041 10,056
Feb-97 10,082 10,079
Mar-97 10,082 10,077
Apr-97 10,124 10,159
May-97 10,207 10,233
Jun-97 10,248 10,310
Jul-97 10,375 10,441
Aug-97 10,375 10,445
Sep-97 10,461 10,531
Oct-97 10,503 10,599
Nov-97 10,546 10,617
Dec-97 10,590 10,686
Jan-98 10,633 10,795
Feb-98 10,677 10,809
Mar-98 10,703 10,862
Apr-98 10,747 10,921
May-98 10,791 10,985
Jun-98 10,836 11,041
Jul-98 10,880 11,099
Aug-98 10,969 11,185
Sep-98 11,103 11,336
Oct-98 11,149 11,352
Nov-98 11,149 11,389
Dec-98 11,150 11,444
Jan-99 11,195 11,518
Feb-99 11,150 11,481
Mar-99 11,242 11,583
Apr-99 11,288 11,636
May-99 11,242 11,621
Jun-99 11,285 11,657
Jul-99 11,285 11,674
Aug-99 11,332 11,705
Sep-99 11,422 11,793
Oct-99 11,422 11,832
Nov-99 11,469 11,871
Dec-99 11,474 11,902
Jan-00 11,474 11,911
Feb-00 11,570 11,999
Mar-00 11,590 12,060
Apr-00 11,639 12,058
May-00 11,639 12,096
Jun-00 11,761 12,246
Jul-00 11,860 12,347
Aug-00 11,958 12,454
Sep-00 12,042 12,576
Oct-00 12,093 12,581
Nov-00 12,244 12,699
Dec-00 12,420 12,853
Jan-01 12,573 13,097
Feb-01 12,624 13,203
Mar-01 12,762 13,326
Apr-01 12,814 13,370
May-01 12,865 13,492
Jun-01 12,917 13,554
Jul-01 13,072 13,748
Aug-01 13,175 13,860
Sep-01 13,331 14,007
Oct-01 13,435 14,132
Nov-01 13,382 14,118
Dec-01 13,434 14,112
Jan-02 13,487 14,157
Feb-02 13,538 14,187
Mar-02 13,435 14,120
Apr-02 13,642 14,236
May-02 13,746 14,360
Jun-02 13,793 14,410
Jul-02 13,793 14,492
Aug-02 13,900 14,611
Sep-02 14,061 14,759
Oct-02 13,953 14,720
Nov-02 14,061 14,829
Dec-02 14,276 15,056
Jan-03 14,384 15,118
Feb-03 14,492 15,245
Mar-03 14,546 15,297
Apr-03 14,707 15,436
May-03 14,869 15,584
Jun-03 14,893 15,648
Jul-03 14,778 15,537
Aug-03 14,778 15,563
Sep-03 15,007 15,747
Oct-03 14,950 15,698
Nov-03 14,950 15,715
Dec-03 15,065 15,835
Jan-04 15,122 15,895
Feb-04 15,180 15,987
Mar-04 15,295 16,059
Apr-04 15,124 15,897
May-04 15,066 15,872
Jun-04 15,080 15,884
Jul-04 15,140 15,962
Aug-04 15,260 16,112
Sep-04 15,319 16,112
Oct-04 15,379 16,172
Nov-04 15,319 16,099
Dec-04 15,379 16,146
Jan-05 15,379 16,146
Feb-05 15,319 16,115
Mar-05 15,319 16,092
Apr-05 15,379 16,186
May-05 15,439 16,263
Jun-05 15,507 16,322
Jul-05 15,507 16,299
Aug-05 15,569 16,410
Sep-05 15,569 16,367
Oct-05 15,506 16,361
Nov-05 15,568 16,407
Dec-05 15,631 16,472
Jan-06 15,693 16,525
Feb-06 15,693 16,548
Mar-06 15,756 16,575
Apr-06 15,756 16,636
May-06 15,817 16,663
Jun-06 15,830 16,693
Jul-06 15,960 16,836
Aug-06 16,089 16,972
Sep-06 16,154 17,067
Oct-06 16,218 17,153
Nov-06 16,283 17,256
Dec-06 16,348 17,275
(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 Fund's performance between 1995 and 1998
benefited from the agreement of WM Advisors and its affiliates to limit the
Fund's expenses.
(2) See glossary on page 29 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 12/31/93.
Indices are unmanaged, and individuals cannot invest directly in an index.
22
PORTFOLIO MANAGER
Craig V. Sosey
(PHOTO OF CRAIG V. SOSEY) WM Advisors, Inc.
performance as they neared maturity. Several Fund holdings in the financial
services and banking sectors have similar positions on the yield curve, and
consequently they had a positive impact on performance during the year. A
variety of Fund holdings in the 5-year range also assisted performance as this
maturity segment outperformed 2-year and 3-year issues.
In contrast, certain corporate holdings suffered in the wake of leveraged buyout
(LBO) offers or rumors. Issues of Harrah's, a casino operator, and Univision
Communications, a U.S. Spanish-language broadcaster, detracted from Fund
performance as these companies considered LBO deals. Univision's acquisition was
approved by its shareholders in September, and Harrah's agreed to a buyout deal
in December.
Despite these difficulties, corporate issues also offered some of the more
attractive opportunities during the period. We added to the financial services,
technology, telecommunications, and building products sectors. New names
included General Electric Capital, Western Union, Cisco, KPN, and Mohawk
Industries.
Our outlook for 2007 anticipates that the Fed's next move will be to cut
short-term interest rates, although the timing of this policy change is
difficult to assess. In the interim, there is a good possibility that the front
end of the yield curve will remain inverted, with some volatility if economic
data presents mixed signals. As conditions evolve and the market gains
confidence that a Fed rate cut is imminent, we believe the investment
environment for short-term bonds, particularly 2-year and 3-year issues, could
be favorable.
PORTFOLIO COMPOSITION(3)
As of 12/31/06
(PIE CHART)
As of As of
Asset Class 12/31/06 12/31/05 Change
- ----------- -------- -------- ------
Domestic Corporate Bonds 64% 58% +6%
Mortgage-Backed
Bonds/CMOs 16% 17% -1%
U.S. Government Agency 7% 7% 0%
Foreign Corporate
Bonds (U.S. $) 7% 5% +2%
Asset-Backed Bonds 3% 5% -2%
U.S. Treasuries 1% 4% -3%
Cash Equivalents 2% 4% -2%
(3) May not reflect the current portfolio composition.
23
VT U.S. Government Securities Fund
INVESTMENT STRATEGY
Bond markets entered 2006 with a flat yield curve in which 2-year Treasury
yields stood 2 basis points higher than those of 10-year Treasuries. During the
first half of 2006, the Federal Reserve (the Fed) continued its two-year
campaign of raising short-term interest rates. The yield curve responded by
becoming more inverted. The Fed paused in August and held its target federal
funds rate at 5.25% for the remainder of the year. Bond markets closed 2006 with
10-year Treasury yields 32 basis points above the previous year, while 2-year
Treasury yields had climbed 41 basis points, leaving the yield curve inverted by
11 basis points.
Mortgage-backed securities (MBS), which comprise the majority of the WM VT U.S.
Government Securities Fund, tend to do fairly well in a rising-rate environment.
This held true during the period, particularly among issues with lower coupon
rates. The Fund's overweighting in lower coupon issues benefited performance.
A variety of other over- and underweightings also impacted the Fund during the
year. For
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. Performance shown below does not account for fees,
expenses, and charges of any variable insurance contract or retirement plan. If
these fees were reflected, performance would be lower.
Fixed-income investments are subject to interest rate risk, and their value will
decline as interest rates rise. Neither the principal of government bond funds
nor their yields are guaranteed by the U.S. government.
AVERAGE ANNUAL TOTAL RETURNS(1)
AS OF DECEMBER 31, 2006
1-Year 5-Year 10-Year Since Inception Inception Date
------ ------ ------- --------------- --------------
CLASS 1 SHARES 4.45% 4.27% 5.55% 5.37% 5/6/93
CLASS 2 SHARES 4.22% 4.03% -- 3.62% 11/6/01
Citigroup Mortgage Index(2) 5.17% 4.90% 6.18% 6.22%
VALUE OF A $10,000 INVESTMENT(1) DECEMBER 31, 1996 - DECEMBER 31, 2006
(PERFORMANCE GRAPH)
VT CITIGROUP
U.S. GOVERNMENT MORTGAGE
DATE SECURITIES FUND INDEX
- ---- --------------- ---------
DEC-96 10,000 10,000
Jan-97 10,031 10,085
Feb-97 10,072 10,096
Mar-97 9,949 10,012
Apr-97 10,074 10,164
May-97 10,177 10,259
Jun-97 10,291 10,377
Jul-97 10,556 10,569
Aug-97 10,461 10,550
Sep-97 10,620 10,675
Oct-97 10,813 10,791
Nov-97 10,824 10,827
Dec-97 10,942 10,926
Jan-98 11,084 11,028
Feb-98 11,051 11,061
Mar-98 11,061 11,104
Apr-98 11,127 11,166
May-98 11,249 11,244
Jun-98 11,349 11,294
Jul-98 11,394 11,349
Aug-98 11,597 11,452
Sep-98 11,710 11,590
Oct-98 11,768 11,577
Nov-98 11,665 11,630
Dec-98 11,712 11,688
Jan-99 11,771 11,769
Feb-99 11,655 11,725
Mar-99 11,744 11,806
Apr-99 11,791 11,864
May-99 11,697 11,785
Jun-99 11,635 11,758
Jul-99 11,599 11,678
Aug-99 11,563 11,671
Sep-99 11,755 11,869
Oct-99 11,791 11,932
Nov-99 11,815 11,942
Dec-99 11,771 11,902
Jan-00 11,698 11,810
Feb-00 11,821 11,950
Mar-00 11,933 12,078
Apr-00 11,933 12,084
May-00 11,933 12,093
Jun-00 12,160 12,355
Jul-00 12,211 12,434
Aug-00 12,376 12,618
Sep-00 12,491 12,753
Oct-00 12,568 12,847
Nov-00 12,735 13,037
Dec-00 12,921 13,246
Jan-01 13,090 13,451
Feb-01 13,195 13,525
Mar-01 13,282 13,613
Apr-01 13,269 13,628
May-01 13,322 13,712
Jun-01 13,375 13,732
Jul-01 13,613 13,987
Aug-01 13,745 14,114
Sep-01 13,942 14,322
Oct-01 14,153 14,517
Nov-01 13,995 14,383
Dec-01 13,929 14,331
Jan-02 14,035 14,472
Feb-02 14,179 14,629
Mar-02 14,008 14,482
Apr-02 14,259 14,751
May-02 14,377 14,859
Jun-02 14,491 14,979
Jul-02 14,683 15,148
Aug-02 14,834 15,282
Sep-02 14,999 15,393
Oct-02 15,013 15,452
Nov-02 14,972 15,438
Dec-02 15,164 15,600
Jan-03 15,177 15,644
Feb-03 15,287 15,750
Mar-03 15,273 15,745
Apr-03 15,328 15,805
May-03 15,424 15,813
Jun-03 15,415 15,846
Jul-03 15,055 15,559
Aug-03 15,155 15,661
Sep-03 15,429 15,928
Oct-03 15,356 15,874
Nov-03 15,370 15,920
Dec-03 15,486 16,076
Jan-04 15,572 16,179
Feb-04 15,687 16,320
Mar-04 15,760 16,392
Apr-04 15,500 16,103
May-04 15,442 16,052
Jun-04 15,561 16,191
Jul-04 15,681 16,343
Aug-04 15,907 16,612
Sep-04 15,923 16,635
Oct-04 16,028 16,778
Nov-04 15,968 16,729
Dec-04 16,074 16,853
Jan-05 16,133 16,939
Feb-05 16,074 16,866
Mar-05 16,029 16,821
Apr-05 16,224 17,019
May-05 16,330 17,157
Jun-05 16,377 17,217
Jul-05 16,298 17,136
Aug-05 16,440 17,289
Sep-05 16,346 17,193
Oct-05 16,252 17,083
Nov-05 16,299 17,136
Dec-05 16,441 17,315
Jan-06 16,457 17,358
Feb-06 16,520 17,450
Mar-06 16,409 17,291
Apr-06 16,392 17,295
May-06 16,376 17,248
Jun-06 16,412 17,294
Jul-06 16,627 17,552
Aug-06 16,842 17,807
Sep-06 16,973 17,924
Oct-06 17,071 18,059
Nov-06 17,237 18,261
Dec-06 17,172 18,208
(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 Fund's performance in 1995 and 1998
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.
(2) See glossary on page 29 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 4/30/93.
Indices are unmanaged, and individuals cannot invest directly in an index.
24
PORTFOLIO MANAGER
Craig V. Sosey
(PHOTO OF CRAIG V. SOSEY) WM Advisors, Inc.
example, an overweighting in Freddie Mac MBS compared to Fannie Mae issues
benefited the Fund, as Fannie Maes appeared relatively rich going into 2006.
This was also true of Ginnie Mae issues. As last year's strong support of Ginnie
Maes by foreign investors waned in 2006, the Fund's underweighting in them
helped it avoid some of the sector's damage. The Fund's underweighting in
15-year MBS also assisted relative performance, as these issues underperformed
longer-term bonds. Holdings among whole-loan collateralized mortgage obligations
(CMOs) also had a positive impact. These issues benefited from their position on
the long end of the yield curve.
In contrast, the Fund was negatively affected by the underperformance of
Treasury and agency issues relative to mortgages. The Fund's lack of hybrid
adjustable rate mortgages (ARMs) during most of the period also proved
problematic. The Fund missed out on gains by these issues because we waited
until December to enter this sector. However, we continue to examine
opportunities within hybrid ARMs and may expand the Fund's position in them next
year.
Looking forward, we believe mortgage securities are likely to be range-bound in
the near term while the Fed delays a change in monetary policy. These conditions
could be somewhat beneficial, since mortgages tend to perform better when
volatility is limited. However, there is also the potential for any mixed
economic data to increase uncertainty about the Fed's next course of action, and
uncertainty can be detrimental to mortgages.
PORTFOLIO COMPOSITION(3)
As of 12/31/06
(PIE CHART)
As of As of
Asset Class 12/31/06 12/31/05 Change
- ----------- -------- -------- ------
FHLMC/FGLMC 35% 34% +1%
FNMA 29% 24% +5%
CMOs 18% 22% -4%
U.S. Treasuries 8% 5% +3%
GNMA 5% 6% -1%
U.S. Government Agency 4% 6% -2%
Cash Equivalents 1% 3% -2%
(3) May not reflect the current portfolio composition.
25
VT Income Fund
INVESTMENT STRATEGY
Over the course of 2006, corporate earnings remained healthy while economic
growth slowed from a strong first-quarter pace. To rein in inflationary
pressures, the Federal Reserve (the Fed) continued its two-year campaign of
interest-rate increases before pausing at a target rate of 5.25%. Within the
overall fixed-income market, corporate, mortgage, and agency issues outperformed
Treasuries.
Security selection, particularly among corporate issues, contributed to the WM
VT Income Fund's relative outperformance for the year. TexCal, a small oil
exploration and production firm, was bought out at a premium following a runup
in energy prices. El Paso, a natural gas pipeline company, benefited from asset
sales that funded debt reduction. Mirant, an energy producer and marketer, also
advanced as it used cash flow to pay down debt and benefited from assets
positioned in advantageous locations.
Issue selection among mortgage-backed bonds also contributed to Fund
performance. The Fund's mortgage holdings generally have a higher duration, and
their prices followed the period's outperformance by longer-dated Treasuries.
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. Performance shown below does not account for
fees, expenses, and charges of any variable insurance contract or retirement
plan. If these fees were reflected, performance would be lower.
Fixed-income investments are subject to interest rate risk, and their value will
decline as interest rates rise. Lower-rated securities are subject to additional
credit and default risks. International investing involves increased risks due
to currency fluctuations, political or social instability, and differences in
accounting standards.
AVERAGE ANNUAL TOTAL RETURNS(1)
AS OF DECEMBER 31, 2006
Since Inception
1-Year 5-Year 10-Year Inception Date
------ ------ ------- --------- ---------
CLASS 1 SHARES 4.90% 6.41% 6.67% 6.37% 5/7/93
CLASS 2 SHARES 4.59% 6.13% -- 5.66% 11/6/01
Citigroup Broad Investment-Grade
Bond Index(2) 4.33% 5.10% 6.26% 6.26%
VALUE OF A $10,000 INVESTMENT(1) DECEMBER 31, 1996 - DECEMBER 31, 2006
(PERFORMANCE GRAPH)
CITIGROUP BROAD
VT INCOME INVESTMENT
DATE FUND GRADE BOND INDEX
- ------ --------- ----------------
Dec-96 10,000 10,000
Jan-97 9,980 10,039
Feb-97 10,021 10,050
Mar-97 9,858 9,949
Apr-97 10,023 10,091
May-97 10,116 10,186
Jun-97 10,271 10,307
Jul-97 10,715 10,586
Aug-97 10,524 10,495
Sep-97 10,725 10,649
Oct-97 10,929 10,803
Nov-97 10,993 10,854
Dec-97 11,133 10,964
Jan-98 11,276 11,106
Feb-98 11,243 11,098
Mar-98 11,275 11,141
Apr-98 11,319 11,199
May-98 11,486 11,307
Jun-98 11,609 11,399
Jul-98 11,586 11,423
Aug-98 11,721 11,598
Sep-98 12,062 11,872
Oct-98 11,798 11,818
Nov-98 11,948 11,883
Dec-98 11,961 11,920
Jan-99 12,078 12,008
Feb-99 11,751 11,798
Mar-99 11,864 11,866
Apr-99 11,923 11,905
May-99 11,756 11,795
Jun-99 11,657 11,755
Jul-99 11,633 11,708
Aug-99 11,608 11,700
Sep-99 11,724 11,840
Oct-99 11,774 11,876
Nov-99 11,737 11,875
Dec-99 11,703 11,820
Jan-00 11,666 11,787
Feb-00 11,779 11,925
Mar-00 11,965 12,080
Apr-00 11,876 12,044
May-00 11,812 12,033
Jun-00 12,095 12,284
Jul-00 12,211 12,396
Aug-00 12,391 12,573
Sep-00 12,451 12,659
Oct-00 12,491 12,740
Nov-00 12,674 12,946
Dec-00 12,927 13,191
Jan-01 13,207 13,408
Feb-01 13,260 13,528
Mar-01 13,308 13,598
Apr-01 13,185 13,534
May-01 13,253 13,622
Jun-01 13,294 13,667
Jul-01 13,659 13,983
Aug-01 13,849 14,137
Sep-01 13,809 14,311
Oct-01 14,147 14,600
Nov-01 14,038 14,398
Dec-01 13,971 14,313
Jan-02 14,106 14,426
Feb-02 14,242 14,565
Mar-02 14,038 14,324
Apr-02 14,309 14,597
May-02 14,404 14,721
Jun-02 14,376 14,830
Jul-02 14,347 15,006
Aug-02 14,660 15,269
Sep-02 14,845 15,511
Oct-02 14,817 15,442
Nov-02 14,916 15,439
Dec-02 15,313 15,760
Jan-03 15,455 15,772
Feb-03 15,724 15,996
Mar-03 15,767 15,982
Apr-03 16,050 16,123
May-03 16,546 16,421
Jun-03 16,555 16,391
Jul-03 15,954 15,837
Aug-03 16,029 15,946
Sep-03 16,525 16,364
Oct-03 16,466 16,214
Nov-03 16,571 16,261
Dec-03 16,812 16,423
Jan-04 16,992 16,560
Feb-04 17,143 16,737
Mar-04 17,294 16,864
Apr-04 16,813 16,426
May-04 16,677 16,355
Jun-04 16,833 16,451
Jul-04 17,010 16,614
Aug-04 17,362 16,943
Sep-04 17,458 16,987
Oct-04 17,634 17,137
Nov-04 17,539 16,993
Dec-04 17,748 17,156
Jan-05 17,827 17,266
Feb-05 17,763 17,162
Mar-05 17,587 17,068
Apr-05 17,779 17,307
May-05 17,987 17,501
Jun-05 18,122 17,600
Jul-05 18,002 17,445
Aug-05 18,240 17,669
Sep-05 18,052 17,481
Oct-05 17,883 17,347
Nov-05 17,984 17,423
Dec-05 18,172 17,596
Jan-06 18,206 17,594
Feb-06 18,292 17,657
Mar-06 18,121 17,477
Apr-06 18,121 17,442
May-06 18,087 17,421
Jun-06 18,105 17,460
Jul-06 18,304 17,704
Aug-06 18,594 17,978
Sep-06 18,774 18,131
Oct-06 18,900 18,256
Nov-06 19,170 18,468
Dec-06 19,061 18,357
(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) See glossary on page 29 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 4/30/93.
Indices are unmanaged, and individuals cannot invest directly in an index.
26
PORTFOLIO MANAGERS
John R. Friedl, CFA and
Gary J. Pokrzywinski, CFA
(PHOTO OF JOHN R. FRIEDL AND GARY J. POKRZYWINSKI) WM Advisors, Inc.
However, several corporates slightly detracted from Fund results, particularly
those that were affected by leveraged buyouts (LBOs). Issues of Harrah's, a
casino operator, and HCA, a hospital operator, declined as these companies
considered LBO deals, one of which closed during the period. Other health care
positions fell in sympathy with the HCA news.
Allocation changes were generally based on security- or industry-specific
considerations. We sold the last of the Fund's auto positions due to our
negative view of their long-term prospects. In contrast, we added a high-yield
position (Mirant) to the Fund's utilities holdings, and we continue to favor
utilities as a sector that can offer protection from LBOs.
Near the middle of the year, the economy reached an inflection point when a
pause by the Fed looked imminent. In anticipation of this change, we added to
Treasuries to help slightly extend the Fund's duration. This strategy and the
timing of it proved beneficial to the Fund. As economic conditions evolved later
in the year, we eased the Fund back to a neutral duration stance.
Our outlook anticipates that subdued economic growth and contained inflation
will permit the Fed to begin cutting short-term interest rates in 2007. Should
conditions deteriorate, with the economy edging closer to a recession, we would
look to favor corporates over mortgages as spreads widened out. However, we
believe that a recession is unlikely. For the near term, the Fund will continue
to hold an overweighted position in mortgages and a neutral weighting in
corporate issues.
PORTFOLIO COMPOSITION(3)
As of 12/31/06
(PIE CHART)
As of As of
Asset Class 12/31/06 12/31/05 Change
- ----------- -------- -------- ------
Domestic Corporate Bonds 59% 58% +1%
Mortgage-Backed Bonds 22% 22% 0%
U.S. Treasuries 10% 7% +3%
Foreign Corporate Bonds (U.S. $) 7% 8% -1%
Foreign Government Bonds (U.S. $) 1% 1% 0%
Equities 0% 1% -1%
Cash Equivalents 1% 3% -2%
(3) May not reflect the current portfolio composition.
27
VT Money Market Fund PORTFOLIO MANAGER
Scott J. Peterson, CFA
(PHOTO OF SCOTT J. PETERSON) WM Advisors, Inc.
INVESTMENT STRATEGY
Yields on money market investments closely follow monetary policy set by the
Federal Reserve (the Fed). During 2006, the Fed raised its target for the
federal funds rate four times. These moves were part of a tightening campaign
that began in June 2004, after the target rate had stood at 1.00% during the
previous year.
The Fed continued raising short-term interest rates through the first half of
2006 as it sought to rein in elevated inflation levels. The target rose from
4.25% at the start of the year to 5.25% at the end of June. At subsequent
meetings, the Fed held the target rate at 5.25% and noted that "...inflation
pressures seem likely to moderate over time..." Many market participants
anticipate that the Fed's next move will be to cut rates sometime in 2007,
although its decision to do so, and market speculation about it, will depend
upon evolving economic conditions.
Over the twelve-month period, the Fund's annualized 7-day simple yield increased
from 3.52% to 4.64%. Most of the difference between the Fund's yield and the
Fed's target rate was due to Fund expenses. The Fund's assets decreased from
$16.4 million on December 31, 2005, to $15.7 million on December 31, 2006.
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. Performance shown below does not account for fees,
expenses, and charges of any variable insurance contract or retirement plan. If
these fees were reflected, performance would be lower.
An investment in the Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. Although the Fund seeks to
preserve the value of your investment at $1.00 per share, it is possible to lose
money by investing in the Fund.
The 7-day simple yield more closely reflects current Fund earnings than the
total return data.
AVERAGE ANNUAL TOTAL RETURNS(1)
AS OF DECEMBER 31, 2006
Since Inception
1-Year 5-Year 10-Year Inception Date
------ ------ ------- --------- ---------
CLASS 1 SHARES 4.39% 1.96% 3.37% 3.62% 5/10/93
CLASS 2 SHARES 4.13% 1.71% -- 1.70% 11/6/01
FUND YIELDS AND AVERAGE MATURITY(2)
AS OF DECEMBER 31, 2006
7-Day 7-Day Weighted
Simple Yield Effective Yield Average Maturity
(Class 1 Shares) (Class 1 Shares) (Days)
---------------- ---------------- ----------------
VT MONEY
MARKET FUND 4.64% 4.75% 35
PORTFOLIO COMPOSITION(3)
AS OF DECEMBER 31, 2006
Taxable Municipal Bonds 30%
Corporate Bonds and Notes 26%
Repurchase Agreement 19%
Commercial Paper (Domestic and Yankee) 15%
Certificates of Deposit (Domestic and Yankee) 10%
(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 Fund's performance between 1995 and
1999 benefited from the agreement of WM Advisors and its affiliates to
limit the Fund's expenses.
(2) The 7-day simple yield is calculated based on the income generated by an
investment in the Fund over a 7-day period and is expressed as an annual
percentage rate. The 7-day effective yield is calculated similarly to the
7-day simple yield but assumes that income earned from the Fund's
investments is reinvested and compounded.
(3) May not reflect the current portfolio composition.
28
Glossary
DEFINITIONS OF INDICES
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 BROAD INVESTMENT-GRADE CREDIT 1-3 YEARS INDEX:
Measures the performance of bonds, including U.S. and non-U.S. corporate
securities and non-U.S. sovereign and provincial securities, with maturities
between one and three years.
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.
FTSE NAREIT ALL REITS INDEX:
Reflects the aggregate performance of all publicly traded REITs that own,
develop, and manage properties.
LEHMAN BROTHERS AGGREGATE BOND INDEX:
A broad-based index intended to represent the U.S. fixed-income market.
MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) ALL COUNTRY WORLD INDEX (ACWI)
EX-USA:
A float-adjusted market-capitalization index that is designed to measure equity
market performance in the global developed and emerging markets, excluding the
United States. The index consists of 47 developed and emerging market country
indices.
MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) EAFE INDEX:
A broad-based, capitalization-weighted index of equity markets representing 21
countries in Europe, Australasia, and the Far East.
RUSSELL 1000(R) GROWTH INDEX:
Measures the performance of those Russell 1000(R) Index securities with higher
price-to-book ratios and higher forecasted growth values.
RUSSELL 2000(R) GROWTH INDEX:
Measures the performance of those Russell 2000(R) Index securities with higher
price-to-book ratios and higher forecasted growth values.
RUSSELL 2000(R) VALUE INDEX:
Measures the performance of those Russell 2000(R) Index securities with lower
price-to-book ratios and lower forecasted growth values.
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.
S&P 500/CITIGROUP VALUE INDEX:
A float-adjusted market-capitalization-weighted index comprised of stocks
representing approximately half the market capitalization of the S&P 500 that
have been identified as being on the value end of the growth-value spectrum.
Until 12/16/05, when Standard & Poor's changed the name of the index and its
calculation methodology, the index was called the S&P 500/BARRA Value Index.
S&P MIDCAP 400:
A weighted index of the common stocks of 400 mid-size companies.
29
Expense Information
WM VARIABLE TRUST
As a shareholder of the VT REIT Fund, VT Equity Income Fund, VT Growth & Income
Fund, VT West Coast Equity Fund, VT Mid Cap Stock Fund, VT Growth Fund, VT Small
Cap Value Fund, VT Small Cap Growth Fund, VT International Growth Fund, VT Short
Term Income Fund, VT U.S. Government Securities Fund, VT Income Fund, or VT
Money Market Fund, (collectively, the "Funds"), you incur ongoing costs,
including management fees, distribution and/or service fees, and other Fund
expenses. This example 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. Expenses shown below and on the
following page do not account for fees, expenses and charges of any variable
insurance contract or retirement plan. If these fees had been reflected,
expenses would have been higher.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period July 1, 2006, to December 31, 2006.
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 = $8.60), 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
ratio 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 separate
account expenses. 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 7/1/06- VALUE VALUE 7/1/06- EXPENSE
7/1/06 12/31/06 12/31/06 7/1/06 12/31/06 12/31/06 RATIO
--------- -------- ----------- --------- -------- ----------- -------
VT REIT Fund
Class 1 .......................... $1,000 $1,197 $ 4.82 $1,000 $1,021 $ 4.43 0.87%
Class 2 .......................... 1,000 1,196 6.20 1,000 1,020 5.70 1.12%
VT Equity Income Fund
Class 1 .......................... $1,000 $1,119 $ 3.52 $1,000 $1,022 $ 3.36 0.66%
Class 2 .......................... 1,000 1,117 4.86 1,000 1,021 4.63 0.91%
VT Growth & Income Fund
Class 1 .......................... $1,000 $1,117 $ 4.06 $1,000 $1,021 $ 3.87 0.76%
Class 2 .......................... 1,000 1,116 5.39 1,000 1,020 5.14 1.01%
VT West Coast Equity Fund
Class 1 .......................... $1,000 $1,081 $ 3.51 $1,000 $1,022 $ 3.41 0.67%
Class 2 .......................... 1,000 1,080 4.82 1,000 1,021 4.69 0.92%
VT Mid Cap Stock Fund
Class 1 .......................... $1,000 $1,105 $ 4.24 $1,000 $1,021 $ 4.08 0.80%
Class 2 .......................... 1,000 1,103 5.57 1,000 1,020 5.35 1.05%
VT Growth Fund
Class 1 .......................... $1,000 $1,090 $ 4.00 $1,000 $1,021 $ 3.87 0.76%
Class 2 .......................... 1,000 1,089 5.32 1,000 1,020 5.14 1.01%
VT Small Cap Value Fund
Class 1 .......................... $1,000 $1,095 $ 5.07 $1,000 $1,020 $ 4.89 0.96%
Class 2 .......................... 1,000 1,092 6.38 1,000 1,019 6.16 1.21%
VT Small Cap Growth Fund
Class 1 .......................... $1,000 $1,051 $ 4.96 $1,000 $1,020 $ 4.89 0.96%
Class 2 .......................... 1,000 1,049 6.25 1,000 1,019 6.16 1.21%
30
Expense Information (continued)
WM VARIABLE TRUST
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 7/1/06- VALUE VALUE 7/1/06- EXPENSE
7/1/06 12/31/06 12/31/06 7/1/06 12/31/06 12/31/06 RATIO
--------- -------- ----------- --------- -------- ----------- -------
VT International Growth Fund
Class 1 .......................... $1,000 $1,149 $5.53 $1,000 $1,020 $5.19 1.02%
Class 2 .......................... 1,000 1,148 6.88 1,000 1,019 6.46 1.27%
VT Short Term Income Fund
Class 1 .......................... $1,000 $1,033 $3.13 $1,000 $1,022 $3.11 0.61%
Class 2 .......................... 1,000 1,029 4.40 1,000 1,021 4.38 0.86%
VT U.S. Government Securities Fund
Class 1 .......................... $1,000 $1,046 $2.68 $1,000 $1,023 $2.65 0.52%
Class 2 .......................... 1,000 1,046 3.97 1,000 1,021 3.92 0.77%
VT Income Fund
Class 1 .......................... $1,000 $1,053 $2.74 $1,000 $1,023 $2.70 0.53%
Class 2 .......................... 1,000 1,050 4.03 1,000 1,021 3.97 0.78%
VT Money Market Fund
Class 1 .......................... $1,000 $1,023 $3.62 $1,000 $1,022 $3.62 0.71%
Class 2 .......................... 1,000 1,022 4.89 1,000 1,020 4.89 0.96%
* 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).
31
Financial Statements:
Portfolio of Investments
VT REIT FUND
December 31, 2006
VALUE
SHARES (000S)
- --------- --------
REAL ESTATE INVESTMENT TRUSTS (REITS) - 95.3%
DIVERSIFIED - 4.8%
22,600 Vornado Realty Trust .................................... $ 2,746
--------
HEALTH CARE - 2.7%
8,000 Health Care Property Investors, Inc. .................... 294
29,200 Ventas, Inc. ............................................ 1,236
--------
Total Health Care ....................................... 1,530
--------
INDUSTRIAL/OFFICE - 37.5%
INDUSTRIAL - 10.6%
19,000 AMB Property Corporation ................................ 1,114
28,500 Brookfield Properties Corporation ....................... 1,120
16,900 DCT Industrial Trust Inc. ............................... 199
3,900 EastGroup Properties, Inc. .............................. 209
56,800 ProLogis ................................................ 3,452
--------
6,094
--------
OFFICE - 26.9%
9,500 Alexandria Real Estate Equities, Inc. ................... 954
29,100 BioMed Realty Trust, Inc. ............................... 832
31,900 Boston Properties, Inc. ................................. 3,569
23,700 Corporate Office Properties Trust ....................... 1,196
57,100 Douglas Emmett, Inc. .................................... 1,519
56,200 Equity Office Properties Trust .......................... 2,707
15,900 Kilroy Realty Corporation ............................... 1,240
25,200 SLGreen Realty Corporation .............................. 3,346
--------
15,363
--------
Total Industrial/Office ................................. 21,457
--------
LODGING/RESORTS - 5.5%
72,800 Host Hotels & Resorts, Inc. ............................. 1,787
25,100 LaSalle Hotel Properties ................................ 1,151
8,300 Sunstone Hotel Investors, Inc. .......................... 222
--------
Total Lodging/Resorts ................................... 3,160
--------
RESIDENTIAL - 23.9%
APARTMENTS - 23.9%
53,500 Archstone-Smith Trust ................................... 3,114
28,500 AvalonBay Communities, Inc. ............................. 3,707
15,600 BRE Properties, Inc. Class A ............................ 1,014
18,200 Camden Property Trust ................................... 1,344
37,900 Equity Residential ...................................... 1,923
18,700 Essex Property Trust, Inc. .............................. 2,417
2,300 Mid-America Apartment Communities, Inc. ................. 132
--------
Total Residential ....................................... 13,651
--------
RETAIL - 15.9%
REGIONAL MALLS - 6.3%
35,600 Simon Property Group, Inc. .............................. 3,606
--------
VALUE
SHARES (000S)
- --------- --------
SHOPPING CENTERS - 9.6%
25,400 Acadia Realty Trust ..................................... $ 635
22,600 Federal Realty Investment Trust ......................... 1,921
60,400 Kimco Realty Corporation ................................ 2,715
5,600 Tanger Factory Outlet Centers, Inc. ..................... 219
--------
5,490
--------
Total Retail ............................................ 9,096
--------
SELF STORAGE - 4.4%
26,000 Public Storage, Inc. .................................... 2,535
--------
SPECIALTY - 0.6%
6,100 Entertainment Properties Trust .......................... 357
--------
Total REITs
(Cost $40,712) ....................................... 54,532
--------
COMMON STOCKS - 2.0%
(Cost $1,128)
CONSUMER DISCRETIONARY - 2.0%
CONSUMER SERVICES - 2.0%
17,900 Starwood Hotels & Resorts Worldwide, Inc. ............... 1,119
--------
PRINCIPAL
AMOUNT
(000S)
- ---------
REPURCHASE AGREEMENT - 2.5%
(Cost $1,414)
$ 1,414 Agreement with Morgan Stanley, 4.750% dated
12/29/2006, to be repurchased at $1,415,000 on
01/03/2007 (collateralized by U.S.
Treasury Bond, 3.625% due on 04/15/2028,
market value $1,457,000) ..................... 1,414
--------
TOTAL INVESTMENTS (Cost $43,254*) ........................... 99.8% 57,065
OTHER ASSETS (LIABILITIES) (NET) ............................ 0.2 128
----- --------
NET ASSETS .................................................. 100.0% $ 57,193
===== ========
- ----------
* Aggregate cost for federal tax purposes is $43,254.
See Notes to Financial Statements.
32
Portfolio of Investments
VT EQUITY INCOME FUND
December 31, 2006
VALUE
SHARES (000S)
- --------- --------
COMMON STOCKS - 92.8%
CONSUMER DISCRETIONARY - 9.9%
AUTOMOBILES & COMPONENTS - 0.2%
6,600 Johnson Controls, Inc. .................................. $ 567
--------
CONSUMER DURABLES & APPAREL - 0.9%
10,000 Black & Decker Corporation** ............................ 799
27,000 NIKE Inc., Class B ...................................... 2,674
--------
3,473
--------
CONSUMER SERVICES - 1.6%
92,800 Hilton Hotels Corporation ............................... 3,239
57,500 McDonald's Corporation .................................. 2,549
--------
5,788
--------
MEDIA - 4.0%
48,300 CBS Corporation, Class B ................................ 1,506
7,520 Idearc Inc.+ ............................................ 215
97,300 McGraw-Hill Companies, Inc. ............................. 6,618
84,100 News Corporation, Class B ............................... 1,872
134,800 Time Warner Inc. ........................................ 2,936
49,400 Tribune Company ......................................... 1,521
--------
14,668
--------
RETAILING - 3.2%
140,600 Lowe's Companies, Inc. .................................. 4,380
67,800 Nordstrom, Inc. ......................................... 3,345
73,300 Target Corporation ...................................... 4,182
--------
11,907
--------
Total Consumer Discretionary ............................ 36,403
--------
CONSUMER STAPLES - 6.4%
FOOD & STAPLES RETAILING - 0.7%
71,300 Sysco Corporation ....................................... 2,621
--------
FOOD, BEVERAGE & TOBACCO - 4.4%
51,300 Altria Group, Inc. ...................................... 4,403
11,200 Anheuser-Busch Companies, Inc. .......................... 551
8,400 Cadbury Schweppes PLC, Sponsored ADR** .................. 361
37,600 Coca-Cola Company ....................................... 1,814
41,700 Diageo PLC, Sponsored ADR ............................... 3,307
25,000 Hershey Company ......................................... 1,245
40,900 Kroger Company .......................................... 943
65,400 SABMiller PLC, Sponsored ADR** .......................... 1,504
37,800 Wm. Wrigley Jr. Company** ............................... 1,955
--------
16,083
--------
HOUSEHOLD & PERSONAL PRODUCTS - 1.3%
58,300 Colgate-Palmolive Company ............................... 3,804
13,100 Kimberly-Clark Corporation .............................. 890
--------
4,694
--------
Total Consumer Staples .................................. 23,398
--------
VALUE
SHARES (000S)
- --------- --------
ENERGY - 6.7%
40,800 Baker Hughes Incorporated ............................... $ 3,046
51,284 Chevron Corporation ..................................... 3,771
14,800 Devon Energy Corporation ................................ 993
49,600 El Paso Corporation ..................................... 758
14,800 Enterprise Products Partners LP** ....................... 429
67,100 ExxonMobil Corporation .................................. 5,142
35,600 GlobalSantaFe Corporation ............................... 2,092
17,700 Hess Corporation ........................................ 877
22,400 Kinder Morgan Energy Partners LP** ...................... 1,073
29,000 Schlumberger Ltd. ....................................... 1,832
68,100 Williams Companies, Inc. ................................ 1,779
55,300 XTO Energy Inc. ......................................... 2,602
--------
Total Energy ............................................ 24,394
--------
FINANCIALS - 27.4%
BANKS - 6.3%
85,502 Bank of America Corporation ............................. 4,565
17,000 Barclays PLC, Sponsored ADR ............................. 988
96,200 Countrywide Financial Corporation ....................... 4,084
71,600 Mellon Financial Corporation ............................ 3,018
26,500 PNC Financial Services Group, Inc.** .................... 1,962
20,100 SunTrust Banks, Inc.** .................................. 1,698
52,200 U.S. Bancorp ............................................ 1,889
140,000 Wells Fargo & Company ................................... 4,978
--------
23,182
--------
DIVERSIFIED FINANCIALS - 12.0%
13,800 AllianceBernstein Holding LP** .......................... 1,110
18,000 Ameriprise Financial, Inc. .............................. 981
52,000 Bank of New York Company, Inc.** ........................ 2,047
13,771 Capital One Financial Corporation ....................... 1,058
59,800 Citigroup, Inc. ......................................... 3,331
47,400 Franklin Resources, Inc. ................................ 5,222
29,800 Freddie Mac ............................................. 2,023
25,700 Goldman Sachs Group, Inc. ............................... 5,123
67,600 ING Groep N.V., Sponsored ADR ........................... 2,986
102,800 JPMorgan Chase & Company ................................ 4,965
25,000 Legg Mason, Inc. ........................................ 2,376
38,400 Lehman Brothers Holdings Inc. ........................... 3,000
58,400 Morgan Stanley .......................................... 4,756
58,400 T. Rowe Price Group, Inc. ............................... 2,556
37,100 UBS AG .................................................. 2,238
--------
43,772
--------
INSURANCE - 9.1%
93,400 ACE Ltd. ................................................ 5,657
26,400 AFLAC, Inc.** ........................................... 1,215
48,000 Allstate Corporation .................................... 3,125
52,000 American International Group, Inc. ...................... 3,726
34,800 Chubb Corporation ....................................... 1,841
76,566 Fidelity National Financial, Inc., Class A .............. 1,828
37,100 Hartford Financial Services Group, Inc. ................. 3,462
11,850 HCC Insurance Holdings, Inc. ............................ 380
See Notes to Financial Statements.
33
Portfolio of Investments (continued)
VT EQUITY INCOME FUND
December 31, 2006
VALUE
SHARES (000S)
- --------- --------
COMMON STOCKS (CONTINUED)
FINANCIALS (CONTINUED)
INSURANCE (CONTINUED)
22,900 Lincoln National Corporation ............................ $ 1,521
43,500 Loews Corporation ....................................... 1,804
38,800 Marsh & McLennan Companies, Inc. ........................ 1,190
63,300 MetLife, Inc. ........................................... 3,735
31,700 Prudential Financial, Inc. .............................. 2,722
55,700 UnumProvident Corporation ............................... 1,158
--------
33,364
--------
Total Financials ........................................ 100,318
--------
HEALTH CARE - 7.6%
HEALTH CARE EQUIPMENT & SERVICES - 2.4%
40,000 Becton, Dickinson & Company ............................. 2,806
22,000 Caremark Rx, Inc. ....................................... 1,257
88,900 Medtronic, Inc. ......................................... 4,757
--------
8,820
--------
PHARMACEUTICALS & BIOTECHNOLOGY - 5.2%
64,200 Abbott Laboratories ..................................... 3,127
51,400 AstraZeneca PLC, Sponsored ADR .......................... 2,752
27,100 Eli Lilly & Company ..................................... 1,412
35,900 GlaxoSmithKline PLC, Sponsored ADR ...................... 1,894
48,000 Johnson & Johnson ....................................... 3,169
38,000 Novartis AG, ADR ........................................ 2,183
24,500 Roche Holding Ltd., Sponsored ADR ....................... 2,193
19,000 Sanofi-Aventis, ADR ..................................... 877
62,400 Schering-Plough Corporation ............................. 1,475
--------
19,082
--------
Total Health Care ....................................... 27,902
--------
INDUSTRIALS - 10.1%
CAPITAL GOODS - 8.2%
46,300 3M Company .............................................. 3,608
36,300 Boeing Company .......................................... 3,225
33,100 Dover Corporation ....................................... 1,623
78,000 Emerson Electric Company ................................ 3,439
12,200 General Dynamics Corporation ............................ 907
174,800 General Electric Company ................................ 6,504
41,200 Honeywell International, Inc. ........................... 1,864
71,400 ITT Corporation ......................................... 4,057
31,400 L-3 Communications Holdings, Inc. ....................... 2,568
22,500 Siemens AG, Sponsored ADR ............................... 2,217
--------
30,012
--------
COMMERCIAL SERVICES & SUPPLIES - 0.6%
56,500 Waste Management, Inc. 2,077
--------
TRANSPORTATION - 1.3%
23,700 FedEx Corporation ....................................... 2,574
141,800 Southwest Airlines Company .............................. 2,173
--------
4,747
--------
Total Industrials ....................................... 36,836
--------
VALUE
SHARES (000S)
- --------- --------
INFORMATION TECHNOLOGY - 11.2%
COMMUNICATIONS EQUIPMENT - 2.3%
116,700 Cisco Systems, Inc.+ .................................... $ 3,189
181,400 Nokia Oyj, Sponsored ADR ................................ 3,686
38,100 QUALCOMM, Inc. .......................................... 1,440
--------
8,315
--------
COMPUTERS & PERIPHERALS - 2.2%
24,300 Apple Computer, Inc.+ ................................... 2,062
92,300 Hewlett-Packard Company ................................. 3,802
--------
23,300 International Business Machines Corporation ............. 2,263
--------
8,127
--------
INTERNET SOFTWARE & SERVICES - 0.5%
72,900 Yahoo! Inc.+** .......................................... 1,862
--------
IT SERVICES - 1.5%
76,100 Automatic Data Processing, Inc. ......................... 3,748
43,530 Fidelity National Information Services, Inc. ............ 1,745
--------
5,493
--------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 3.0%
140,900 Applied Materials, Inc. ................................. 2,600
101,600 Intel Corporation ....................................... 2,057
38,900 Linear Technology Corporation** ......................... 1,179
81,000 Microchip Technology, Inc. .............................. 2,649
4,100 Samsung Electronics Company Ltd., GDR++ ................. 1,351
43,500 Texas Instruments Inc. .................................. 1,253
--------
11,089
--------
SOFTWARE - 1.7%
210,100 Microsoft Corporation ................................... 6,274
--------
Total Information Technology ............................ 41,160
--------
MATERIALS - 3.0%
24,800 Alcoa Inc................................................ 744
21,300 Allegheny Technologies, Inc. ............................ 1,931
41,600 Anglo American PLC, Unsponsored ADR ..................... 1,015
59,700 Barrick Gold Corporation (F) ............................ 1,833
15,100 E.I. du Pont de Nemours & Company ....................... 736
39,900 International Paper Company ............................. 1,361
26,800 Vulcan Materials Company ................................ 2,408
14,700 Weyerhaeuser Company .................................... 1,039
--------
Total Materials ......................................... 11,067
--------
TELECOMMUNICATION SERVICES - 7.6%
46,500 Alltel Corporation ...................................... 2,812
208,800 AT&T Inc. ............................................... 7,464
18,800 Deutsche Telekom AG, Sponsored ADR ...................... 342
14,500 Embarq Corporation ...................................... 762
22,500 France Telecom SA, Sponsored ADR ........................ 623
113,800 Sprint Nextel Corporation ............................... 2,150
5,000 Telefonica SA, Sponsored ADR ............................ 319
39,000 Telstra Corporation Ltd., ADR ........................... 639
See Notes to Financial Statements.
34
Portfolio of Investments (continued)
VT EQUITY INCOME FUND
December 31, 2006
VALUE
SHARES (000S)
- --------- --------
COMMON STOCKS (CONTINUED)
TELECOMMUNICATION SERVICES (CONTINUED)
180,200 Verizon Communications Inc. ............................. $ 6,711
89,600 Vodafone Group PLC, Sponsored ADR ....................... 2,489
236,907 Windstream Corporation** ................................ 3,369
--------
Total Telecommunication Services ........................ 27,680
--------
UTILITIES - 2.9%
12,600 Dominion Resource Inc. .................................. 1,056
62,400 FPL Group, Inc.** ....................................... 3,396
51,000 Pinnacle West Capital Corporation ....................... 2,585
38,100 Progress Energy, Inc.** ................................. 1,870
74,000 Xcel Energy Inc.** ...................................... 1,707
--------
Total Utilities ......................................... 10,614
--------
Total Common Stocks
(Cost $275,116) ...................................... 339,772
--------
REAL ESTATE INVESTMENT TRUSTS (REITS) - 4.4%
20,300 AMB Property Corporation ................................ 1,190
14,000 Archstone-Smith Trust ................................... 815
10,500 Brookfield Properties Corporation ....................... 413
12,100 Developers Diversified Realty Corporation ............... 762
12,200 Duke Realty Corporation ................................. 499
29,500 Equity Residential ...................................... 1,497
11,700 General Growth Properties, Inc. ......................... 611
26,900 Health Care Property Investors, Inc.** .................. 990
61,900 Host Hotels & Resorts, Inc. ............................. 1,520
17,300 Kimco Realty Corporation ................................ 778
7,900 Macerich Company ........................................ 684
24,000 Plum Creek Timber Company, Inc. ......................... 956
42,000 ProLogis ................................................ 2,552
12,100 Public Storage, Inc. .................................... 1,180
5,900 Simon Property Group, Inc. .............................. 597
10,000 Vornado Realty Trust .................................... 1,215
--------
Total REITs
(Cost $8,764) ........................................ 16,259
--------
PRINCIPAL
AMOUNT VALUE
(000S) (000S)
- --------- --------
CONVERTIBLE BONDS AND NOTES - 0.2%
(Cost $594)
$ 600 Echostar Communications, Conv. Sub. Note,
5.750% due 05/15/2008 ................................ $ 611
--------
FIXED-INCOME SECURITIES - 0.8%
CORPORATE BONDS AND NOTES - 0.8%
500 Aetna Inc., Sr. Note,
7.875% due 03/01/2011 ................................ 545
45 Baxter International Inc., Note,
7.125% due 02/01/2007 ................................ 45
1,000 ERAC USA Finance Company, Note,
7.350% due 06/15/2008++ .............................. 1,025
59 Raytheon Company, Sr. Note,
6.150% due 11/01/2008 ................................ 60
1,000 TELUS Corporation, Note,
8.000% due 06/01/2011 ................................ 1,094
100 Texas-New Mexico Power Company, Sr. Note,
6.250% due 01/15/2009 ................................ 101
--------
Total Corporate Bonds and Notes
(Cost $2,730) ........................................ 2,870
--------
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES - 0.0%
FEDERAL HOME LOAN MORTGAGE CORPORATION
(FHLMC) - 0.0%
38 6.500% due 09/01/2030 ................................... 39
16 7.000% due 09/01/2030 ................................... 16
--------
Total U.S. Government Agency Mortgage-
Backed Securities
(Cost $52) ........................................... 55
--------
Total Fixed-Income Securities
(Cost $2,782) ........................................ 2,925
--------
SHARES
- ---------
WARRANT - 0.0%
(Cost $0)
250 V2 Music Holdings PLC,
Expires 05/07/2008+,++ ............................... 0
--------
See Notes to Financial Statements.
35
Portfolio of Investments (continued)
VT EQUITY INCOME FUND
December 31, 2006
PRINCIPAL
AMOUNT VALUE
(000S) (000S)
- --------- --------
REPURCHASE AGREEMENT - 2.4%
(Cost $8,724)
$ 8,724 Agreement with Morgan Stanley, 4.750%
dated 12/29/2006, to be repurchased at
$8,730,000 on 01/03/2007
(collateralized by U.S. Treasury Bond,
3.625% due 04/15/2028,
market value $8,990,000) ..................... $ 8,724
--------
SHORT-TERM INVESTMENT - 5.6%
(Cost $20,666)
20,666 Mellon GSL DBT II
Collateral Fund+++ ........................... 20,666
--------
TOTAL INVESTMENTS (Cost $316,646*) .......................... 106.2% 388,957
OTHER ASSETS (LIABILITIES) (NET) ............................ (6.2) (22,681)
----- --------
NET ASSETS .................................................. 100.0% $366,276
===== ========
- ----------
* Aggregate cost for federal tax purposes is $316,776.
** Some or all of these securities are on loan at December 31, 2006, and have
an aggregate market value of $19,999,000 representing 5.5% of the total net
assets of the Fund (collateral value $20,666,000). (See Note 7 to Financial
Statements).
+ Non-income producing security.
++ Security acquired in a transaction exempt from registration under Rule
144A of the Securities Act of 1933, as amended.
+++ Represents investment purchased with cash collateral for securities loaned.
GLOSSARY OF TERMS
ADR -- American Depositary Receipt
(F) -- Foreign Shares
GDR -- Global Depositary Receipt
See Notes to Financial Statements.
36
Portfolio of Investments
VT GROWTH & INCOME FUND
December 31, 2006
VALUE
SHARES (000S)
- --------- --------
COMMON STOCKS - 96.0%
CONSUMER DISCRETIONARY - 6.6%
CONSUMER SERVICES - 1.9%
97,000 Carnival Corporation** .................................. $ 4,758
--------
MEDIA - 3.3%
65,000 CBS Corporation, Class B ................................ 2,026
94,000 Comcast Corporation, Class A+ ........................... 3,979
60,000 Viacom Inc., Class B+ ................................... 2,462
--------
8,467
--------
RETAILING - 1.4%
53,000 Kohl's Corporation+ ..................................... 3,627
--------
Total Consumer Discretionary ............................ 16,852
--------
CONSUMER STAPLES - 9.8%
FOOD & STAPLES RETAILING - 3.6%
58,000 Costco Wholesale Corporation ............................ 3,066
83,400 Kroger Company .......................................... 1,924
88,000 Wal-Mart Stores, Inc. ................................... 4,064
--------
9,054
--------
FOOD, BEVERAGE & TOBACCO - 4.2%
32,000 Altria Group, Inc. ...................................... 2,746
56,700 Hershey Company ......................................... 2,824
82,000 PepsiCo, Inc. ........................................... 5,129
--------
10,699
--------
HOUSEHOLD & PERSONAL PRODUCTS - 2.0%
80,000 Procter & Gamble Company ................................ 5,142
--------
Total Consumer Staples .................................. 24,895
--------
ENERGY - 8.8%
46,400 ENSCO International, Inc. ............................... 2,323
81,000 ExxonMobil Corporation .................................. 6,207
91,000 GlobalSantaFe Corporation ............................... 5,349
49,000 National Oilwell Varco, Inc.+ ........................... 2,998
86,000 Schlumberger Ltd. ....................................... 5,431
--------
Total Energy ............................................ 22,308
--------
FINANCIALS - 21.5%
BANKS - 5.9%
83,000 Bank of America Corporation ............................. 4,431
95,000 Wachovia Corporation .................................... 5,410
146,000 Wells Fargo & Company ................................... 5,192
--------
15,033
--------
DIVERSIFIED FINANCIALS - 8.6%
120,000 Citigroup, Inc. ......................................... 6,684
11,000 Franklin Resources, Inc. ................................ 1,212
79,000 Freddie Mac ............................................. 5,364
130,000 JPMorgan Chase & Company ................................ 6,279
109,000 Western Union Company ................................... 2,444
--------
21,983
--------
VALUE
SHARES (000S)
- --------- --------
INSURANCE - 7.0%
29,900 ACE Ltd. ................................................ $ 1,811
47,000 AFLAC, Inc. ............................................. 2,162
83,000 Allstate Corporation .................................... 5,404
66,000 American International Group, Inc. ...................... 4,730
50,565 Fidelity National Financial, Inc., Class A .............. 1,207
26,000 Hartford Financial Services Group, Inc. ................. 2,426
--------
17,740
--------
Total Financials ........................................ 54,756
--------
HEALTH CARE - 9.6%
HEALTH CARE EQUIPMENT & SERVICES - 4.9%
20,000 Becton, Dickinson & Company ............................. 1,403
39,000 Cardinal Health, Inc. ................................... 2,513
56,000 Health Net Inc.+** ...................................... 2,725
62,000 Medtronic, Inc. ......................................... 3,318
34,000 WellPoint Inc.+ ......................................... 2,675
--------
12,634
--------
PHARMACEUTICALS & BIOTECHNOLOGY - 4.7%
24,000 Eli Lilly & Company ..................................... 1,250
48,000 Johnson & Johnson ....................................... 3,169
52,000 Pfizer Inc. ............................................. 1,347
118,000 Teva Pharmaceutical Industries Ltd.,
Sponsored ADR ........................................ 3,668
49,000 Wyeth ................................................... 2,495
--------
11,929
--------
Total Health Care ....................................... 24,563
--------
INDUSTRIALS - 13.5%
CAPITAL GOODS - 11.4%
58,000 Boeing Company .......................................... 5,153
63,000 Caterpillar, Inc. ....................................... 3,864
135,000 General Electric Company ................................ 5,023
149,000 Honeywell International, Inc. ........................... 6,741
29,000 Lockheed Martin Corporation ............................. 2,670
20,000 Rockwell Automation, Inc. ............................... 1,222
146,000 Tyco International Ltd. ................................. 4,438
--------
29,111
--------
COMMERCIAL SERVICES & SUPPLIES - 0.5%
36,000 Waste Management, Inc. .................................. 1,324
--------
TRANSPORTATION - 1.6%
132,600 AMR Corporation+** ...................................... 4,008
--------
Total Industrials ....................................... 34,443
--------
INFORMATION TECHNOLOGY - 17.8%
COMMUNICATIONS EQUIPMENT - 4.9%
78,000 Cisco Systems, Inc.+ .................................... 2,132
214,000 Motorola, Inc. .......................................... 4,400
143,000 Nokia Oyj, Sponsored ADR ................................ 2,906
80,000 QUALCOMM, Inc. .......................................... 3,023
--------
12,461
--------
See Notes to Financial Statements.
37
Portfolio of Investments (continued)
VT GROWTH & INCOME FUND
December 31, 2006
VALUE
SHARES (000S)
- --------- --------
COMMON STOCKS (CONTINUED)
INFORMATION TECHNOLOGY (CONTINUED)
COMPUTERS & PERIPHERALS - 4.7%
20,000 Apple Computer, Inc.+ ................................... $ 1,697
139,000 Hewlett-Packard Company ................................. 5,725
47,000 International Business Machines Corporation ............. 4,566
--------
11,988
--------
INTERNET SOFTWARE & SERVICES - 0.9%
79,000 eBay Inc.+ .............................................. 2,375
--------
IT SERVICES - 1.7%
23,000 Electronic Data Systems Corporation ..................... 633
18,755 Fidelity National Information Services, Inc. ............ 752
109,000 First Data Corporation .................................. 2,782
--------
4,167
--------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 0.8%
64,300 Microchip Technology, Inc. .............................. 2,103
--------
SOFTWARE - 4.8%
78,000 Adobe Systems, Inc.+ .................................... 3,207
110,400 Autodesk, Inc.+ ......................................... 4,467
153,000 Microsoft Corporation ................................... 4,569
--------
12,243
--------
Total Information Technology ............................ 45,337
--------
MATERIALS - 1.8%
135,000 Alcoa Inc. .............................................. 4,051
26,300 Anglo American PLC, ADR ................................. 642
--------
Total Materials ......................................... 4,693
--------
TELECOMMUNICATION SERVICES - 3.1%
117,000 AT&T Inc. ............................................... 4,183
112,000 Sprint Nextel Corporation ............................... 2,116
43,000 Verizon Communications Inc. ............................. 1,601
--------
Total Telecommunication Services ........................ 7,900
--------
UTILITIES - 3.5%
98,000 FPL Group, Inc.** ....................................... 5,333
70,000 Pinnacle West Capital Corporation ....................... 3,549
--------
Total Utilities ......................................... 8,882
--------
Total Common Stocks
(Cost $173,471) ...................................... 244,629
--------
PRINCIPAL
AMOUNT VALUE
(000S) (000S)
- --------- --------
REPURCHASE AGREEMENT - 1.8%
(Cost $4,598)
$ 4,598 Agreement with Morgan Stanley, 4.750% dated
12/29/2006, to be repurchased at $4,601,000 on
01/03/2007 (collateralized by U.S. Treasury
Bond, 3.625% due 04/15/2028, market value
$4,738,000) .................................. $ 4,598
--------
SHORT-TERM INVESTMENT - 5.8%
(Cost $14,666)
14,666 Mellon GSL DBT II
Collateral Fund++ ............................ 14,666
--------
TOTAL INVESTMENTS (Cost $192,735*) .......................... 103.6% 263,893
OTHER ASSETS (LIABILITIES) (NET) ............................ (3.6) (9,193)
----- --------
NET ASSETS .................................................. 100.0% $254,700
===== ========
- ----------
* Aggregate cost for federal tax purposes is $194,185.
** Some or all of these securities are on loan at December 31, 2006, and have
an aggregate market value of $14,098,000, representing 5.5% of the total
net assets of the Fund (collateral value $14,666,000). (See Note 7 to
Financial Statements.)
+ Non-income producing security.
++ Represents investment purchased with cash collateral for securities loaned.
GLOSSARY OF TERMS
ADR -- American Depositary Receipt
See Notes to Financial Statements.
38
Portfolio of Investments
VT WEST COAST EQUITY FUND
December 31, 2006
VALUE
SHARES (000S)
- --------- --------
COMMON STOCKS - 94.7%
CONSUMER DISCRETIONARY - 11.0%
AUTOMOBILES & COMPONENTS - 1.8%
72,000 Monaco Coach Corporation** .............................. $ 1,019
15,900 Toyota Motor Corporation, Sponsored ADR ................. 2,136
--------
3,155
--------
CONSUMER DURABLES & APPAREL - 1.9%
11,624 Columbia Sportswear Company** ........................... 647
8,400 KB Home ................................................. 431
10,500 Mattel, Inc. ............................................ 238
19,025 NIKE Inc., Class B ...................................... 1,884
--------
3,200
--------
CONSUMER SERVICES - 4.0%
18,788 Ambassadors Group, Inc. ................................. 570
59,000 Hilton Hotels Corporation ............................... 2,059
104,960 Red Lion Hotels Corporation+ ............................ 1,337
78,240 Starbucks Corporation+ .................................. 2,772
--------
6,738
--------
MEDIA - 2.2%
21,000 Getty Images, Inc.+** ................................... 899
19,450 McClatchy Company, Class A .............................. 842
58,670 Walt Disney Company ..................................... 2,011
--------
3,752
--------
RETAILING - 1.1%
15,200 Blue Nile, Inc.+** ...................................... 561
14,270 Building Materials Holding Corporation .................. 352
18,000 Nordstrom, Inc. ......................................... 888
--------
1,801
--------
Total Consumer Discretionary ............................ 18,646
--------
CONSUMER STAPLES - 6.6%
FOOD & STAPLES RETAILING - 2.1%
54,220 Costco Wholesale Corporation ............................ 2,867
1,150 Dairy Farm International Holdings Ltd., Unsponsored
ADR .................................................. 20
29,090 Kroger Company .......................................... 671
--------
3,558
--------
FOOD, BEVERAGE & TOBACCO - 1.2%
12,200 Archer Daniels Midland Company ........................... 390
26,800 PepsiCo, Inc. ............................................ 1,676
--------
2,066
--------
HOUSEHOLD & PERSONAL PRODUCTS - 3.3%
2,700 American Oriental Bioengineering, Inc.+** ............... 31
14,200 Central Garden & Pet Company+** ......................... 688
25,870 Clorox Company .......................................... 1,660
11,100 Colgate-Palmolive Company ............................... 724
15,900 Estee Lauder Companies Inc., Class A .................... 649
27,500 Procter & Gamble Company ................................ 1,767
--------
5,519
--------
Total Consumer Staples .................................. 11,143
--------
VALUE
SHARES (000S)
- --------- --------
ENERGY - 7.0%
14,100 Apache Corporation ...................................... $ 938
40,800 Berry Petroleum Company, Class A ........................ 1,265
2,700 CARBO Ceramics Inc.** ................................... 101
50,688 Chevron Corporation ..................................... 3,727
16,000 ExxonMobil Corporation .................................. 1,226
77,200 Nabors Industries Ltd. (F)+ ............................. 2,299
47,600 Occidental Petroleum Corporation ........................ 2,324
--------
Total Energy ............................................ 11,880
--------
FINANCIALS - 16.7%
BANKS - 10.2%
13,300 Bank of America Corporation ............................. 710
11,000 Banner Corporation ...................................... 488
16,500 City National Corporation ............................... 1,175
41,000 Countrywide Financial Corporation ....................... 1,740
44,900 East West Bancorp, Inc. ................................. 1,590
2,850 First Republic Bank ..................................... 111
27,100 Greater Bay Bancorp ..................................... 714
8,600 Pacific Capital Bancorp ................................. 289
61,100 U.S. Bancorp ............................................ 2,211
17,400 UCBH Holdings, Inc.** ................................... 306
12,600 UnionBanCal Corporation ................................. 772
7,000 United PanAm Financial Corporation+ ..................... 96
80,997 Washington Federal, Inc.** .............................. 1,906
146,146 Wells Fargo & Company ................................... 5,197
--------
17,305
--------
DIVERSIFIED FINANCIALS - 5.0%
133,000 Charles Schwab Corporation .............................. 2,572
41,800 Citigroup, Inc. ......................................... 2,328
30,100 Franklin Resources, Inc. ................................ 3,316
4,155 Piper Jaffray Companies, Inc.+ .......................... 271
--------
8,487
--------
INSURANCE - 1.5%
150 eHealth, Inc.+** ........................................ 3
3,500 Safeco Corporation** .................................... 219
49,700 StanCorp Financial Group, Inc. .......................... 2,239
--------
2,461
--------
Total Financials ........................................ 28,253
--------
HEALTH CARE - 15.0%
HEALTH CARE EQUIPMENT & SERVICES - 7.6%
8,000 Affymetrix, Inc.+** ..................................... 185
25,000 AMN Healthcare Services, Inc.+ .......................... 689
21,500 Applera Corporation-Applied Biosystems Group ............ 789
4,000 C.R. Bard, Inc. ......................................... 332
10,600 Caremark Rx, Inc. ....................................... 605
20,400 DaVita, Inc.+ ........................................... 1,160
6,280 Health Net Inc.+** ...................................... 306
19,200 McKesson Corporation .................................... 973
20,400 Mentor Corporation ...................................... 997
See Notes to Financial Statements.
39
Portfolio of Investments (continued)
VT WEST COAST EQUITY FUND
December 31, 2006
VALUE
SHARES (000S)
- --------- --------
COMMON STOCKS (CONTINUED)
HEALTH CARE (CONTINUED)
HEALTH CARE EQUIPMENT & SERVICES (CONTINUED)
76,000 OraSure Technologies, Inc.+** ........................... $ 628
22,800 ResMed Inc.+** .......................................... 1,122
57,725 SonoSite, Inc.+** ....................................... 1,785
5,500 Stryker Corporation ..................................... 303
34,500 Varian Medical Systems, Inc.+ ........................... 1,641
28,000 VCA Antech, Inc.+ ....................................... 901
5,000 Zimmer Holdings, Inc.+ .................................. 392
--------
12,808
--------
PHARMACEUTICALS & BIOTECHNOLOGY - 7.4%
21,300 Abbott Laboratories ..................................... 1,037
26,312 Allergan, Inc. .......................................... 3,151
31,607 Amgen Inc.+ ............................................. 2,159
8,200 Amylin Pharmaceuticals, Inc.+** ......................... 296
27,500 CV Therapeutics, Inc.+** ................................ 384
41,000 Dendreon Corporation+** ................................. 171
14,441 Eden Bioscience Corporation+ ............................ 8
19,400 Genentech, Inc.+ ........................................ 1,574
8,100 Gilead Sciences, Inc.+ .................................. 526
26,000 Johnson & Johnson ....................................... 1,716
11,800 Martek Biosciences Corporation+** ....................... 275
23,000 Pfizer Inc. ............................................. 596
24,000 Watson Pharmaceuticals, Inc.+ ........................... 625
--------
12,518
--------
Total Health Care ....................................... 25,326
--------
INDUSTRIALS - 15.2%
CAPITAL GOODS - 10.9%
40,611 Boeing Company .......................................... 3,608
17,100 Cascade Corporation ..................................... 905
2,200 Ceradyne, Inc.+ ......................................... 124
29,500 Dionex Corporation+ ..................................... 1,673
25,803 Electro Scientific Industries, Inc.+ .................... 520
33,500 General Electric Company ................................ 1,246
33,500 Greenbrier Companies, Inc. .............................. 1,005
30,900 Jacobs Engineering Group Inc.+ .......................... 2,520
18,100 Northrop Grumman Corporation ............................ 1,225
48,200 PACCAR Inc.** ........................................... 3,128
17,100 Precision Castparts Corporation ......................... 1,339
39,000 Simpson Manufacturing Company, Inc.** ................... 1,234
--------
18,527
--------
COMMERCIAL SERVICES & SUPPLIES - 1.6%
5,500 Avery Dennison Corporation .............................. 374
24,000 Copart, Inc.+ ........................................... 720
30,000 Robert Half International Inc. .......................... 1,113
12,300 Waste Connections, Inc.+** .............................. 511
--------
2,718
--------
VALUE
SHARES (000S)
- --------- --------
TRANSPORTATION - 2.7%
37,760 Alaska Air Group, Inc.+ ................................. $ 1,492
63,100 Cathay Pacific Airways Ltd., Sponsored ADR .............. 778
57,000 Expeditors International of Washington, Inc. ............ 2,308
--------
4,578
--------
Total Industrials ....................................... 25,823
--------
INFORMATION TECHNOLOGY - 18.9%
COMMUNICATIONS EQUIPMENT - 2.4%
120,900 Cisco Systems, Inc.+ .................................... 3,304
10,300 Polycom, Inc.+** ........................................ 319
13,500 QUALCOMM, Inc. .......................................... 510
--------
4,133
--------
COMPUTERS & PERIPHERALS - 2.2%
8,300 Apple Computer, Inc.+ ................................... 704
46,900 Hewlett-Packard Company ................................. 1,932
5,700 InFocus Corporation+ .................................... 15
18,000 Intermec Inc.+** ........................................ 437
5,400 Network Appliance, Inc.+ ................................ 212
21,000 QLogic Corporation+ ..................................... 461
--------
3,761
--------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 1.1%
3,800 Itron, Inc.+** .......................................... 197
40,020 Tektronix, Inc. ......................................... 1,167
10,600 Trimble Navigation Ltd.+ ................................ 538
--------
1,902
--------
INTERNET SOFTWARE & SERVICES - 2.5%
284,340 Art Technology Group, Inc.+** ........................... 663
3,550 Google Inc., Class A+ ................................... 1,635
19,074 WebEx Communications, Inc.+ ............................. 665
47,000 Yahoo! Inc.+ ............................................ 1,200
--------
4,163
--------
IT SERVICES - 0.0%
2,100 VeriFone Holdings, Inc.+ ................................ 74
--------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 3.6%
2,500 Agere Systems Inc.+ ..................................... 48
30,725 Applied Materials, Inc.** ............................... 567
6,700 Exar Corporation+ ....................................... 87
31,460 FEI Company+** .......................................... 830
76,230 Intel Corporation ....................................... 1,544
6,700 International Rectifier Corporation+ .................... 258
11,100 KLA-Tencor Corporation .................................. 552
73,780 Lattice Semiconductor Corporation+ ...................... 478
1,700 Linear Technology Corporation ........................... 51
36,700 LSI Logic Corporation+** ................................ 330
4,800 Maxim Integrated Products, Inc. ......................... 147
10,400 Novellus Systems, Inc.+** ............................... 358
7,300 NVIDIA Corporation+ ..................................... 270
See Notes to Financial Statements.
40
Portfolio of Investments (continued)
VT WEST COAST EQUITY FUND
December 31, 2006
VALUE
SHARES (000S)
- --------- --------
COMMON STOCKS (CONTINUED)
INFORMATION TECHNOLOGY (CONTINUED)
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT (CONTINUED)
77,300 Pixelworks, Inc.+ ....................................... $ 177
12,800 SiRF Technology Holdings, Inc.+** ....................... 327
--------
6,024
--------
SOFTWARE - 7.1%
70,600 Actuate Corporation+ .................................... 420
63,940 Adobe Systems, Inc.+ .................................... 2,629
4,200 Autodesk, Inc.+ ......................................... 170
13,100 Electronic Arts, Inc.+ .................................. 660
23,000 Fair Isaac Corporation** ................................ 935
1,500 Hyperion Solutions Corporation+ ......................... 54
5,400 Mentor Graphics Corporation+ ............................ 97
172,330 Microsoft Corporation ................................... 5,146
46,000 Quest Software, Inc.+** ................................. 674
22,890 RadiSys Corporation+ .................................... 382
19,000 Sybase, Inc.+ ........................................... 469
16,800 Symantec Corporation+** ................................. 350
2,600 Websense, Inc.+ ......................................... 59
--------
12,045
--------
Total Information Technology ............................ 32,102
--------
MATERIALS - 3.0%
5,500 Cemex SA de CV, Sponsored ADR+ .......................... 187
3,000 Reliance Steel & Aluminum Company ....................... 118
43,130 Schnitzer Steel Industries, Inc., Class A ............... 1,712
15,700 Symyx Technologies, Inc.+ ............................... 339
37,635 Weyerhaeuser Company .................................... 2,659
--------
Total Materials ......................................... 5,015
--------
TELECOMMUNICATION SERVICES - 0.7%
66,100 Sprint Nextel Corporation ............................... 1,249
--------
UTILITIES - 0.6%
19,000 Sempra Energy ........................................... 1,065
--------
Total Common Stocks
(Cost $113,996) ...................................... 160,502
--------
REAL ESTATE INVESTMENT TRUSTS (REITS) - 3.4%
28,400 AMB Property Corporation ................................ 1,664
11,200 Essex Property Trust, Inc. .............................. 1,448
35,000 Health Care Property Investors, Inc. .................... 1,289
6,500 Nationwide Health Properties, Inc.** .................... 196
29,700 Plum Creek Timber Company, Inc. ......................... 1,184
--------
Total REITs
(Cost $3,913) ........................................ 5,781
--------
PRINCIPAL
AMOUNT VALUE
(000S) (000S)
- --------- --------
REPURCHASE AGREEMENT - 1.4%
(Cost $2,325)
$ 2,325 Agreement with Morgan Stanley, 4.750% dated
12/29/2006, to be repurchased at $2,327,000 on
01/03/2007 (collateralized by U.S. Treasury
Bond, 3.625% due 04/15/2028, market value
$2,396,000) .................................. $ 2,325
--------
SHORT-TERM INVESTMENT - 11.4%
(Cost $19,400)
19,400 Mellon GSL DBT II
Collateral Fund++ ............................ 19,400
--------
TOTAL INVESTMENTS (Cost $139,634*) .......................... 110.9% 188,008
OTHER ASSETS (LIABILITIES) (NET) ............................ (10.9) (18,462)
----- --------
NET ASSETS .................................................. 100.0% $169,546
===== ========
- ----------
* Aggregate cost for federal tax purposes is $140,005.
** Some or all of these securities are on loan at December 31, 2006, and have
an aggregate market value of $18,331,000, representing 10.8% of the total
net assets of the Fund (collateral value $19,400,000). (See Note 7 to
Financial Statements.)
+ Non-income producing security.
++ Represents investment purchased with cash collateral for securities loaned.
GLOSSARY OF TERMS
ADR -- American Depositary Receipt
(F) -- Foreign Shares
See Notes to Financial Statements.
41
Portfolio of Investments
VT MID CAP STOCK FUND
December 31, 2006
VALUE
SHARES (000S)
- --------- --------
COMMON STOCKS - 93.8%
CONSUMER DISCRETIONARY - 13.7%
AUTOMOBILES & COMPONENTS - 2.0%
29,200 Magna International Inc., Class A(F) .................... $ 2,352
--------
CONSUMER DURABLES & APPAREL - 1.3%
64,800 Mattel, Inc. ............................................ 1,468
--------
CONSUMER SERVICES - 2.1%
31,600 Papa John's International, Inc.+ ........................ 917
25,000 Yum! Brands, Inc. ....................................... 1,470
--------
2,387
--------
RETAILING - 8.3%
74,000 Aaron Rents, Inc. ....................................... 2,130
56,000 Nordstrom, Inc. ......................................... 2,763
54,200 Tiffany & Company ....................................... 2,127
49,500 Weight Watchers International, Inc. ..................... 2,600
--------
9,620
--------
Total Consumer Discretionary ............................ 15,827
--------
CONSUMER STAPLES - 1.3%
FOOD, BEVERAGE & TOBACCO - 0.9%
13,600 Dean Foods Company+ ..................................... 575
8,700 J.M. Smucker Company .................................... 422
--------
997
--------
HOUSEHOLD & PERSONAL PRODUCTS - 0.4%
12,700 Estee Lauder Companies Inc., Class A .................... 518
--------
Total Consumer Staples .................................. 1,515
--------
ENERGY - 8.8%
56,700 Cimarex Energy Company** ................................ 2,069
78,300 Nabors Industries Ltd. (F)+ ............................. 2,332
51,500 Noble Energy, Inc. ...................................... 2,527
11,500 Tesoro Corporation ...................................... 756
50,800 Tidewater Inc.** ........................................ 2,457
--------
Total Energy ............................................ 10,141
--------
FINANCIALS - 16.7%
BANKS - 4.0%
84,400 TCF Financial Corporation ............................... 2,314
97,750 Washington Federal, Inc. ................................ 2,300
--------
4,614
--------
DIVERSIFIED FINANCIALS - 4.2%
38,800 A.G. Edwards, Inc. ...................................... 2,456
23,500 Ambac Financial Group, Inc. ............................. 2,093
4,108 Capital One Financial Corporation ....................... 316
--------
4,865
--------
VALUE
SHARES (000S)
- --------- --------
INSURANCE - 8.5%
112,526 Fidelity National Financial, Inc., Class A .............. $ 2,687
97,500 HCC Insurance Holdings, Inc. ............................ 3,129
48,600 Max Re Capital Ltd. (F) ................................. 1,206
27,200 MGIC Investment Corporation** ........................... 1,701
24,891 PMI Group, Inc. ......................................... 1,174
--------
9,897
--------
Total Financials ........................................ 19,376
--------
HEALTH CARE - 10.9%
HEALTH CARE EQUIPMENT & SERVICES - 9.4%
16,200 AmerisourceBergen Corporation ........................... 728
36,400 Covance, Inc.+ .......................................... 2,144
45,000 Edwards Lifesciences Corporation+ ....................... 2,117
18,600 Express Scripts, Inc.+ .................................. 1,332
76,202 IMS Health Inc. ......................................... 2,094
44,300 Universal Health Services, Inc., Class B ................ 2,456
--------
10,871
--------
PHARMACEUTICALS & BIOTECHNOLOGY - 1.5%
87,625 Mylan Laboratories Inc. ................................. 1,749
--------
Total Health Care ....................................... 12,620
--------
INDUSTRIALS - 17.2%
CAPITAL GOODS - 6.3%
73,300 Federal Signal Corporation .............................. 1,176
35,400 Lincoln Electric Holdings, Inc. ......................... 2,139
33,850 PACCAR Inc.** ........................................... 2,197
27,300 Teleflex Inc. ........................................... 1,762
--------
7,274
--------
COMMERCIAL SERVICES & SUPPLIES - 4.5%
78,300 Allied Waste Industries, Inc.+** ........................ 962
48,900 HNI Corporation ......................................... 2,172
50,500 Republic Services, Inc. ................................. 2,054
--------
5,188
--------
TRANSPORTATION - 6.4%
36,800 Alaska Air Group, Inc.+ ................................. 1,453
100,900 AMR Corporation+** ...................................... 3,050
70,200 Continental Airlines, Inc., Class B+** .................. 2,896
--------
7,399
--------
Total Industrials ....................................... 19,861
--------
INFORMATION TECHNOLOGY - 14.4%
COMPUTERS & PERIPHERALS - 3.9%
72,000 Electronics for Imaging, Inc.+ .......................... 1,914
65,300 Network Appliance, Inc.+ ................................ 2,565
--------
4,479
--------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 2.4%
40,700 Arrow Electronics, Inc.+ ................................ 1,284
31,900 Diebold, Inc. ........................................... 1,487
--------
2,771
--------
See Notes to Financial Statements.
42
Portfolio of Investments (continued)
VT MID CAP STOCK FUND
December 31, 2006
VALUE
SHARES (000S)
- --------- --------
COMMON STOCKS (CONTINUED)
INFORMATION TECHNOLOGY (CONTINUED)
IT SERVICES - 3.7%
63,100 Acxiom Corporation ...................................... $ 1,619
18,900 Convergys Corporation+ .................................. 449
55,353 Fidelity National Information Services, Inc. ............ 2,219
--------
4,287
--------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 2.5%
86,650 Microchip Technology, Inc.** 2,833
--------
SOFTWARE - 1.9%
53,500 BMC Software Inc.+ ...................................... 1,723
19,600 Synopsys, Inc.+ ......................................... 524
--------
2,247
--------
Total Information Technology ............................ 16,617
--------
MATERIALS - 5.6%
26,900 Cabot Corporation** ..................................... 1,172
52,900 Lubrizol Corporation .................................... 2,652
94,900 Valspar Corporation ..................................... 2,623
--------
Total Materials ......................................... 6,447
--------
TELECOMMUNICATION SERVICES - 0.5%
8,600 United States Cellular Corporation+ ..................... 598
--------
UTILITIES - 4.7%
105,800 NiSource Inc. ........................................... 2,550
57,700 Pinnacle West Capital Corporation ....................... 2,925
--------
Total Utilities ......................................... 5,475
--------
Total Common Stocks
(Cost $70,075) ....................................... 108,477
--------
REAL ESTATE INVESTMENT TRUST (REIT) - 2.3%
(Cost $1,561)
51,000 General Growth Properties, Inc. ......................... 2,664
--------
PRINCIPAL
AMOUNT VALUE
(000S) (000S)
- --------- --------
REPURCHASE AGREEMENT - 4.2%
(Cost $4,823)
$ 4,823 Agreement with Morgan Stanley, 4.750% dated
12/29/2006, to be repurchased at $4,826,000 on
01/03/2007 (collateralized by U.S. Treasury
Bond, 3.625% due 04/15/2028, market value
$4,970,000) .................................. $ 4,823
--------
SHORT-TERM INVESTMENT - 13.3%
(Cost $15,369)
15,369 Mellon GSL DBT II
Collateral Fund++ ............................ 15,369
--------
TOTAL INVESTMENTS (Cost $91,828*) 113.6% 131,333
OTHER ASSETS (LIABILITIES) (NET) ............................ (13.6) (15,721)
----- --------
NET ASSETS .................................................. 100.0% $115,612
===== ========
- ----------
* Aggregate cost for federal tax purposes is $92,153.
** Some or all of these securities are on loan at December 31, 2006, and have
an aggregate market value of $14,739,000, representing 12.7% of the total
net assets of the Fund (collateral value $15,369,000). (See Note 7 to
Financial Statements).
+ Non-income producing security.
++ Represents investment purchased with cash collateral for securities loaned.
GLOSSARY OF TERMS
(F) -- Foreign Shares
See Notes to Financial Statements.
43
Portfolio of Investments
VT GROWTH FUND
December 31, 2006
VALUE
SHARES (000S)
- --------- --------
COMMON STOCKS - 97.7%
CONSUMER DISCRETIONARY - 16.7%
CONSUMER DURABLES & APPAREL - 2.1%
116,973 Newell Rubbermaid, Inc. ................................. $ 3,387
36,985 Polo Ralph Lauren Corporation ........................... 2,872
--------
6,259
--------
CONSUMER SERVICES - 7.1%
110,695 International Game Technology ........................... 5,114
43,225 Las Vegas Sands Corporation+ ............................ 3,868
45,506 Marriott International, Inc., Class A ................... 2,171
130,062 McDonald's Corporation .................................. 5,766
40,614 MGM Mirage+ ............................................. 2,329
63,351 Starbucks Corporation+ .................................. 2,244
--------
21,492
--------
MEDIA - 2.2%
50,090 Comcast Corporation, Special Class A+ ................... 2,098
68,599 Lamar Advertising Company, Class A+ ..................... 4,485
--------
6,583
--------
RETAILING - 5.3%
102,331 Kohl's Corporation+ ..................................... 7,003
141,153 Limited Brands, Inc. .................................... 4,085
31,671 Nordstrom, Inc. ......................................... 1,563
201,594 Saks, Inc. .............................................. 3,592
--------
16,243
--------
Total Consumer Discretionary ............................ 50,577
--------
CONSUMER STAPLES - 11.5%
FOOD & STAPLES RETAILING - 4.1%
255,629 CVS Corporation ......................................... 7,902
78,261 Sysco Corporation ....................................... 2,877
32,480 Whole Foods Market, Inc. ................................ 1,524
--------
12,303
--------
FOOD, BEVERAGE & TOBACCO - 4.8%
130,606 Coca-Cola Company ....................................... 6,302
95,040 PepsiCo, Inc. ........................................... 5,945
44,639 Wm. Wrigley Jr. Company ................................. 2,308
--------
14,555
--------
HOUSEHOLD & PERSONAL PRODUCTS - 2.6%
123,562 Procter & Gamble Company ................................ 7,941
--------
Total Consumer Staples .................................. 34,799
--------
ENERGY - 3.9%
27,767 Apache Corporation ...................................... 1,847
55,950 Devon Energy Corporation ................................ 3,753
37,763 EOG Resources, Inc. ..................................... 2,358
71,230 Halliburton Company ..................................... 2,212
26,350 Schlumberger Ltd. ....................................... 1,664
--------
Total Energy ............................................ 11,834
--------
VALUE
SHARES (000S)
- --------- --------
FINANCIALS - 14.5%
BANKS - 4.4%
63,807 Bank of America Corporation ............................. $ 3,407
63,176 PNC Financial Services Group, Inc. ...................... 4,678
75,986 State Street Corporation ................................ 5,124
--------
13,209
--------
DIVERSIFIED FINANCIALS - 9.2%
3,240 Chicago Mercantile Exchange Holdings, Inc. .............. 1,652
36,324 Fannie Mae .............................................. 2,157
48,894 Goldman Sachs Group, Inc. ............................... 9,747
37,510 Merrill Lynch & Company, Inc. ........................... 3,492
113,127 Morgan Stanley .......................................... 9,212
28,260 UBS AG .................................................. 1,705
--------
27,965
--------
INSURANCE - 0.9%
39,996 American International Group, Inc. ...................... 2,866
--------
Total Financials ........................................ 44,040
--------
HEALTH CARE - 14.5%
HEALTH CARE EQUIPMENT & SERVICES - 7.2%
82,782 Baxter International Inc. ............................... 3,840
43,215 C.R. Bard, Inc. ......................................... 3,586
77,262 Caremark Rx, Inc. ....................................... 4,413
40,977 Coventry Health Care, Inc.+ ............................. 2,051
53,783 DaVita, Inc.+ ........................................... 3,059
30,411 Intuitive Surgical, Inc.+ ............................... 2,916
36,664 Medtronic, Inc. ......................................... 1,962
--------
21,827
--------
PHARMACEUTICALS & BIOTECHNOLOGY - 7.3%
38,830 Biogen Idec, Inc.+ ...................................... 1,910
107,124 Celgene Corporation+ .................................... 6,163
77,766 Genentech, Inc.+ ........................................ 6,309
118,841 Gilead Sciences, Inc.+ .................................. 7,716
--------
22,098
--------
Total Health Care ....................................... 43,925
--------
INDUSTRIALS - 5.4%
CAPITAL GOODS - 3.3%
22,134 Danaher Corporation ..................................... 1,603
81,012 Emerson Electric Company ................................ 3,572
52,500 Textron Inc. ............................................ 4,923
--------
10,098
--------
TRANSPORTATION - 2.1%
145,283 UAL Corporation+ ........................................ 6,393
--------
Total Industrials ....................................... 16,491
--------
See Notes to Financial Statements.
44
Portfolio of Investments (continued)
VT GROWTH FUND
December 31, 2006
VALUE
SHARES (000S)
- --------- --------
COMMON STOCKS (CONTINUED)
INFORMATION TECHNOLOGY - 27.7%
COMMUNICATIONS EQUIPMENT - 7.0%
302,961 Cisco Systems, Inc.+ .................................... $ 8,280
148,373 Nokia Oyj, Sponsored ADR ................................ 3,015
158,554 QUALCOMM, Inc. .......................................... 5,992
30,555 Research In Motion Ltd.+ ................................ 3,904
--------
21,191
--------
COMPUTERS & PERIPHERALS - 8.4%
108,509 Apple Computer, Inc.+ ................................... 9,206
141,591 EMC Corporation+ ........................................ 1,869
188,643 Hewlett-Packard Company ................................. 7,770
40,985 International Business Machines Corporation ............. 3,982
64,797 Network Appliance, Inc.+ ................................ 2,545
--------
25,372
--------
INTERNET SOFTWARE & SERVICES - 3.7%
24,376 Google Inc., Class A+ ................................... 11,225
--------
IT SERVICES - 2.4%
115,292 Alliance Data Systems Corporation+ ...................... 7,202
--------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 3.7%
141,495 Broadcom Corporation, Class A+ .......................... 4,572
120,945 Intel Corporation ....................................... 2,449
116,334 NVIDIA Corporation+ ..................................... 4,305
--------
11,326
--------
SOFTWARE - 2.5%
139,953 Microsoft Corporation ................................... 4,179
194,455 Oracle Corporation+ ..................................... 3,333
--------
7,512
--------
Total Information Technology ............................ 83,828
--------
MATERIALS - 3.5%
46,927 Allegheny Technologies, Inc. ............................ 4,255
74,132 E.I. du Pont de Nemours & Company ....................... 3,611
18,327 Potash Corporation of Saskatchewan Inc. ................. 2,630
--------
Total Materials ......................................... 10,496
--------
Total Common Stocks
(Cost $274,579) ...................................... 295,990
--------
PRINCIPAL
AMOUNT VALUE
(000S) (000S)
- --------- --------
REPURCHASE AGREEMENT - 2.5%
(Cost $7,444)
$ 7,444 Agreement with Morgan Stanley, 4.750% dated
12/29/2006, to be repurchased at $7,449,000 on
01/03/2007 (collateralized by U.S. Treasury
Bond, 3.625% due 04/15/2028, market value
$7,671,000) .................................. $ 7,444
--------
TOTAL INVESTMENTS (Cost $282,023*) .......................... 100.2% 303,434
OTHER ASSETS (LIABILITIES) (NET) ............................ (0.2) (644)
----- --------
NET ASSETS .................................................. 100.0% $302,790
===== ========
- ----------
* Aggregate cost for federal tax purposes is $283,365.
+ Non-income producing security.
GLOSSARY OF TERMS
ADR -- American Depositary Receipt
(F) -- Foreign Shares
See Notes to Financial Statements.
45
Portfolio of Investments
VT SMALL CAP VALUE FUND
December 31, 2006
VALUE
SHARES (000S)
- --------- --------
COMMON STOCKS - 80.0%
CONSUMER DISCRETIONARY - 11.0%
AUTOMOBILES & COMPONENTS - 1.9%
16,859 Accuride Corporation+ ................................... $ 190
9,173 Aftermarket Technology Corporation+ ..................... 195
7,271 Tenneco, Inc.+ .......................................... 180
5,148 TRW Automotive Holdings Corporation+ .................... 133
--------
698
--------
CONSUMER DURABLES & APPAREL - 3.4%
2,808 Brown Shoe Company, Inc. ................................ 134
4,867 Carter's, Inc.+ ......................................... 124
8,144 Furniture Brands International Inc. ..................... 132
8,635 K2 Inc.+ ................................................ 114
3,557 Kellwood Company ........................................ 116
40,700 Lenox Group, Inc.+ ...................................... 260
4,587 Movado Group Inc. ....................................... 133
4,867 Oakley Inc. ............................................. 98
2,434 Phillips-Van Heusen Corporation ......................... 122
--------
1,233
--------
CONSUMER SERVICES - 1.2%
2,600 Jack in the Box Inc.+ ................................... 159
14,109 Multimedia Games Inc.+ .................................. 136
6,552 O'Charleys Inc.+ ........................................ 139
--------
434
--------
MEDIA - 0.7%
9,080 Cox Radio Inc.+ ......................................... 148
23,027 Harris Interactive Inc.+ ................................ 116
--------
264
--------
RETAILING - 3.8%
3,557 AnnTaylor Stores Corporation+ ........................... 117
20,405 Blockbuster Inc., Class A ............................... 108
6,982 Building Materials Holding Corporation .................. 172
7,208 Cato Corporation ........................................ 165
4,119 Charlotte Russe Holding, Inc.+ .......................... 127
2,307 Children's Place Retail Stores, Inc.+ ................... 147
3,487 Group 1 Automotive Inc. ................................. 180
4,830 RC2 Corporation+ ........................................ 212
5,148 Rent-A-Center Inc.+ ..................................... 152
--------
1,380
--------
Total Consumer Discretionary ............................ 4,009
--------
CONSUMER STAPLES - 3.7%
FOOD & STAPLES RETAILING - 0.9%
2,308 Longs Drug Stores Corporation ........................... 98
4,867 The Pantry, Inc.+ ....................................... 228
--------
326
--------
FOOD, BEVERAGE & TOBACCO - 1.4%
9,922 Flowers Foods Inc. ...................................... 268
2,340 Ralcorp Holdings, Inc.+ ................................. 119
4,100 TreeHouse Foods, Inc.+ .................................. 128
--------
515
--------
VALUE
SHARES (000S)
- --------- --------
HOUSEHOLD & PERSONAL PRODUCTS - 1.4%
3,141 Central Garden & Pet Company+ ........................... $ 152
10,296 Elizabeth Arden Inc.+ ................................... 196
3,880 NBTY Inc.+ .............................................. 161
--------
509
--------
Total Consumer Staples .................................. 1,350
--------
ENERGY - 4.6%
4,774 Basic Energy Services, Inc.+ ............................ 118
16,500 Cimarex Energy Company .................................. 602
6,525 Comstock Resources, Inc.+ ............................... 203
10,539 Encore Acquisition Company+ ............................. 258
7,208 RPC, Inc. ............................................... 122
5,950 St. Mary Land & Exploration Company ..................... 219
3,557 Swift Energy Company+ ................................... 159
--------
Total Energy ............................................ 1,681
--------
FINANCIALS - 22.7%
BANKS - 13.0%
9,173 BankUnited Financial Corporation, Class A ............... 256
5,223 Capital Corporation of the West ......................... 168
6,459 Corus Bankshares Inc. ................................... 149
12,000 Dime Community Bancshares ............................... 168
5,897 East West Bancorp, Inc. ................................. 209
25,200 F.N.B. Corporation ...................................... 460
4,399 First Community Bancorp Inc. ............................ 230
12,934 First Niagara Financial Group Inc. ...................... 192
2,808 FirstFed Financial Corporation+ ......................... 188
20,236 FirstMerit Corporation .................................. 489
6,108 Fremont General Corporation ............................. 99
15,258 Sterling Bancshares Inc. ................................ 199
4,680 SVB Financial Group+ .................................... 218
36,990 TrustCo Bank Corporation NY ............................. 411
16,329 U.S.B. Holding Company, Inc. ............................ 394
3,744 United Community Banks, Inc. ............................ 121
14,719 Washington Federal, Inc. ................................ 346
6,927 Whitney Holding Corporation ............................. 226
5,055 Wilmington Trust Corporation ............................ 213
--------
4,736
--------
DIVERSIFIED FINANCIALS - 2.5%
4,667 Asta Funding Inc. ....................................... 142
4,399 Calamos Asset Management Inc. ........................... 118
3,412 CompuCredit Corporation+ ................................ 136
5,484 Investment Technology Group Inc.+ ....................... 235
15,632 Knight Capital Group, Inc., Class A+ .................... 300
--------
931
--------
INSURANCE - 7.2%
6,927 Horace Mann Educators Corporation ....................... 140
1,821 LandAmerica Financial Group, Inc. ....................... 115
4,025 National Financial Partners Corporation ................. 177
7,762 Navigators Group, Inc.+ ................................. 374
8,144 Phoenix Companies, Inc. ................................. 129
6,552 ProAssurance Corporation+ ............................... 327
See Notes to Financial Statements.
46
Portfolio of Investments (continued)
VT SMALL CAP VALUE FUND
December 31, 2006
VALUE
SHARES (000S)
- --------- --------
COMMON STOCKS (CONTINUED)
FINANCIALS (CONTINUED)
INSURANCE (CONTINUED)
4,860 Safety Insurance Group, Inc. ............................ $ 247
7,976 State Auto Financial Corporation ........................ 277
4,754 Stewart Information Services Corporation ................ 206
10,104 United Fire & Casualty Company .......................... 356
5,710 Zenith National Insurance Corporation ................... 268
--------
2,616
--------
Total Financials ........................................ 8,283
--------
HEALTH CARE - 4.7%
HEALTH CARE EQUIPMENT & SERVICES - 3.1%
3,357 AMERIGROUP Corporation+ ................................. 121
6,355 Greatbatch Inc.+ ........................................ 171
3,370 Haemonetics Corporation+ ................................ 152
8,528 Kindred Healthcare, Inc.+ ............................... 215
5,137 LifePoint Hospitals, Inc.+ .............................. 173
2,808 Magellan Health Services Inc.+ .......................... 121
5,242 Sierra Health Services, Inc.+ ........................... 189
--------
1,142
--------
PHARMACEUTICALS & BIOTECHNOLOGY - 1.6%
6,876 Alpharma Inc., Class A .................................. 166
6,981 Par Pharmaceutical Companies, Inc.+ ..................... 156
5,391 PAREXEL International Corporation+ ...................... 156
5,097 Perrigo Company ......................................... 88
--------
566
--------
Total Health Care ....................................... 1,708
--------
INDUSTRIALS - 14.0%
CAPITAL GOODS - 8.0%
3,370 AO Smith Corporation .................................... 127
2,495 Belden CDT Inc. ......................................... 97
6,178 Briggs & Stratton Corporation ........................... 166
13,947 Comfort Systems USA Inc. ................................ 176
3,655 DRS Technologies, Inc. .................................. 193
9,641 EnPro Industries Inc.+ .................................. 320
9,641 Federal Signal Corporation .............................. 155
5,215 Gardner Denver, Inc.+ ................................... 195
2,995 General Cable Corporation+ .............................. 131
2,340 Granite Construction Inc. ............................... 118
4,961 Greenbrier Companies, Inc. .............................. 149
7,791 Griffon Corporation+ .................................... 199
6,216 Ladish Company, Inc.+ ................................... 230
10,203 Orbital Sciences Corporation+ ........................... 188
4,025 Shaw Group Inc.+ ........................................ 135
3,931 URS Corporation+ ........................................ 168
2,621 Washington Group International Inc.+ .................... 157
--------
2,904
--------
COMMERCIAL SERVICES & SUPPLIES - 3.1%
6,552 ABM Industries Inc. ..................................... 149
4,025 American Reprographics Company+ ......................... 134
VALUE
SHARES (000S)
- --------- --------
16,568 CBIZ, Inc.+ ............................................. $ 116
5,055 FTI Consulting, Inc.+ ................................... 141
3,370 Heidrick & Struggles International Inc.+ ................ 143
600 John H. Harland Company ................................. 30
8,363 McGrath RentCorp ........................................ 256
3,557 United Stationers Inc.+ ................................. 166
--------
1,135
--------
TRANSPORTATION - 2.9%
5,188 Alaska Air Group, Inc.+ ................................. 205
7,419 AMR Corporation+ ........................................ 224
3,557 Atlas Air Worldwide Holdings, Inc.+ ..................... 158
6,317 OMI Corporation ......................................... 134
5,562 Pacer International Inc. ................................ 165
7,276 Skywest Inc. ............................................ 186
--------
1,072
--------
Total Industrials ....................................... 5,111
--------
INFORMATION TECHNOLOGY - 9.2%
COMMUNICATIONS EQUIPMENT - 1.0%
10,765 Andrew Corporation+ ..................................... 110
7,114 Avocent Corporation+ .................................... 241
--------
351
--------
COMPUTERS & PERIPHERALS - 1.7%
16,194 Brocade Communications Systems, Inc.+ ................... 133
6,317 Electronics for Imaging, Inc.+ .......................... 168
8,144 Emulex Corporation+ ..................................... 159
6,833 Hutchinson Technology, Inc.+ ............................ 161
--------
621
--------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 2.2%
18,159 Aeroflex Inc.+ .......................................... 213
5,429 Coherent Inc.+ .......................................... 171
6,272 Insight Enterprises Inc.+ ............................... 118
2,340 Itron, Inc.+ ............................................ 121
2,808 Rofin-Sinar Technologies, Inc.+ ......................... 170
--------
793
--------
INTERNET SOFTWARE & SERVICES - 1.0%
24,244 Earthlink Inc.+ ......................................... 172
11,607 SonicWALL Inc.+ ......................................... 98
14,790 webMethods Inc.+ ........................................ 109
--------
379
--------
IT SERVICES - 0.5%
13,479 MPS Group, Inc.+ ........................................ 191
--------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 1.2%
31,135 Axcelis Technologies, Inc.+ ............................. 182
4,212 Cabot Microelectronics Corporation+ ..................... 143
7,582 OmniVision Technologies, Inc.+ .......................... 103
--------
428
--------
See Notes to Financial Statements.
47
Portfolio of Investments (continued)
VT SMALL CAP VALUE FUND
December 31, 2006
VALUE
SHARES (000S)
- --------- --------
COMMON STOCKS (CONTINUED)
INFORMATION TECHNOLOGY (CONTINUED)
SOFTWARE - 1.6%
4,680 Kronos Inc.+ ............................................ $ 172
14,141 RealNetworks, Inc.+ ..................................... 155
14,696 Secure Computing Corporation+ ........................... 96
18,440 TIBCO Software Inc.+ .................................... 174
--------
597
--------
Total Information Technology ............................ 3,360
--------
MATERIALS - 5.9%
9,375 CF Industries Holdings, Inc. ............................ 240
2,340 Chaparral Steel Company ................................. 104
3,557 Greif Inc. .............................................. 421
12,356 H.B. Fuller Company ..................................... 319
6,607 Headwaters, Inc.+ ....................................... 158
6,208 Metal Management, Inc. .................................. 235
3,557 Quanex Corporation ...................................... 123
6,431 Randgold Resources Ltd., ADR+ ........................... 151
3,744 Reliance Steel & Aluminum Company ....................... 147
5,342 Silgan Holdings, Inc. ................................... 235
--------
Total Materials ......................................... 2,133
--------
TELECOMMUNICATION SERVICES - 3.1%
27,800 Asia Satellite Telecommunications Holdings
Ltd., Sponsored ADR .................................. 509
7,582 Consolidated Communications Holdings, Inc. .............. 159
7,515 Iowa Telecommunications Services Inc. ................... 148
16,765 Premiere Global Services, Inc.+ ......................... 158
7,189 USA Mobility, Inc.+ ..................................... 161
--------
Total Telecommunication Services ........................ 1,135
--------
UTILITIES - 1.1%
5,148 Great Plains Energy Inc. ................................ 164
7,892 PNM Resources Inc. ...................................... 245
--------
Total Utilities ......................................... 409
--------
Total Common Stocks
(Cost $26,878) ....................................... 29,179
--------
CANADIAN INCOME TRUSTS - 2.8%
CONSUMER STAPLES - 0.7%
FOOD, BEVERAGE & TOBACCO - 0.7%
22,051 Arctic Glacier Income Fund (F) .......................... 237
--------
ENERGY - 0.9%
8,280 Vermilion Energy Trust (F) .............................. 249
3,547 Zargon Energy Trust (F) ................................. 75
--------
324
--------
VALUE
SHARES (000S)
- --------- --------
INDUSTRIALS - 1.2%
COMMERCIAL SERVICES & SUPPLIES - 1.2%
58,505 Versacold Income Fund (F) ............................... $ 451
--------
Total Canadian Income Trusts
(Cost $822) .......................................... 1,012
--------
REAL ESTATE INVESTMENT TRUSTS (REITS) - 9.9%
5,752 BioMed Realty Trust, Inc. ............................... 165
12,169 Cedar Shopping Centers Inc. ............................. 194
7,340 Entertainment Properties Trust .......................... 429
24,300 Equity Inns, Inc. ....................................... 388
11,233 FelCor Lodging Trust, Inc. .............................. 245
18,253 Highland Hospitality Corporation ........................ 260
12,637 Medical Properties Trust Inc. ........................... 193
8,705 National Retail Properties, Inc. ........................ 200
9,400 Nationwide Health Properties, Inc. ...................... 284
5,242 Newcastle Investment Corporation ........................ 164
17,047 OMEGA Healthcare Investors, Inc. ........................ 302
6,459 Pennsylvania Real Estate Investment Trust ............... 254
4,155 Redwood Trust, Inc. ..................................... 241
23,694 Winston Hotels, Inc. .................................... 314
--------
Total REITs
(Cost $2,883) ........................................ 3,633
--------
CONTRACTS
- ---------
PURCHASED PUT OPTIONS - 0.0%
3,950 iShares Russell 2000 Index,
Expires January 2007 @ $49 ........................... 10
400 iShares Russell 2000 Index,
Expires January 2007 @ $56 ........................... 1
--------
Total Purchased Put Options
(Cost $604) .......................................... 11
--------
PRINCIPAL
AMOUNT
- ---------
REPURCHASE AGREEMENT - 6.1%
(Cost $2,215)
$ 2,215 Agreement with Morgan Stanley, 4.750%
dated 12/29/2006, to be repurchased at
$2,216,000 on 01/03/2007
(collateralized by U.S. Treasury Bond,
3.625% due 04/15/2028,
market value $2,283,000) ..................... 2,215
--------
TOTAL INVESTMENTS (Cost $33,402*). .......................... 98.8% 36,050
OTHER ASSETS (LIABILITIES) (NET) ............................ 1.2 426
----- --------
NET ASSETS .................................................. 100.0% $ 36,476
===== ========
- ----------
* Aggregate cost for federal tax purposes is $33,436.
+ Non-income producing security.
GLOSSARY OF TERMS
ADR -- American Depositary Receipt
(F) -- Foreign Shares
See Notes to Financial Statements.
48
Portfolio of Investments
VT SMALL CAP GROWTH FUND
December 31, 2006
VALUE
SHARES (000S)
- --------- --------
COMMON STOCKS - 90.1%
CONSUMER DISCRETIONARY - 15.5%
CONSUMER DURABLES & APPAREL - 4.9%
2,800 Carter's, Inc.+ ......................................... $ 71
11,100 Coach, Inc.+ ............................................ 477
5,512 Desarrolladora Homex SA de CV, ADR+ ..................... 325
3,100 Heelys, Inc.+** ......................................... 99
15,400 Iconix Brand Group, Inc.+ ............................... 299
4,500 Steven Madden, Ltd. ..................................... 158
8,300 Under Armour, Inc., Class A+** .......................... 419
16,700 Volcom, Inc.+ ........................................... 494
--------
2,342
--------
CONSUMER SERVICES - 4.3%
12,600 BJ's Restaurants Inc.+ .................................. 255
6,700 Chipotle Mexican Grill, Inc., Class A+ .................. 382
3,500 Ctrip.com International Ltd., ADR ....................... 219
4,300 LIFE TIME FITNESS, Inc.+ ................................ 208
3,300 Nutri System, Inc.+** ................................... 209
7,400 Shuffle Master, Inc.+ ................................... 194
12,453 Sonic Corporation+ ...................................... 298
8,400 WMS Industries Inc.+ .................................... 293
--------
2,058
--------
MEDIA - 1.5%
10,944 Focus Media Holding Ltd., ADR+ .......................... 727
--------
RETAILING - 4.8%
6,800 Citi Trends Inc.+ ....................................... 270
19,500 GMARKET Inc., ADR+ ...................................... 467
5,083 Guitar Center, Inc.+ .................................... 231
9,200 Gymboree Corporation+ ................................... 351
12,622 Hibbett Sporting Goods, Inc.+ ........................... 385
4,400 Priceline.com Inc.+ ..................................... 192
3,403 Tractor Supply Company+** ............................... 152
9,100 Zumiez Inc.+ ............................................ 269
--------
2,317
--------
Total Consumer Discretionary ............................ 7,444
--------
CONSUMER STAPLES - 1.1%
FOOD & STAPLES RETAILING - 0.9%
14,400 Central European Distribution Corporation+ .............. 428
--------
FOOD, BEVERAGE & TOBACCO - 0.2%
10,500 SunOpta, Inc.+ .......................................... 92
--------
Total Consumer Staples .................................. 520
--------
ENERGY - 8.6%
8,800 Allis-Chalmers Energy Inc.+** ........................... 203
5,900 ATP Oil & Gas Corporation+ .............................. 233
13,700 Basic Energy Services, Inc.+ ............................ 338
6,200 Bronco Drilling Company, Inc.+ .......................... 107
20,300 Cal Dive International, Inc.+ ........................... 255
10,000 Canadian Solar Inc.+ .................................... 105
VALUE
SHARES (000S)
- --------- --------
6,400 CARBO Ceramics Inc. ..................................... $ 239
18,431 Carrizo Oil & Gas, Inc.+ ................................ 535
5,600 Dril-Quip, Inc.+ ........................................ 219
6,200 First Solar, Inc.+ ...................................... 185
3,000 Goodrich Petroleum Corporation+ ......................... 108
8,200 Hercules Offshore, Inc.+ ................................ 237
25,400 Input/Output, Inc.+ ..................................... 346
3,200 Lufkin Industries, Inc. ................................. 186
19,900 Petrohawk Energy Corporation+ ........................... 229
4,200 Pioneer Drilling Company+ ............................... 56
6,756 Veritas DGC, Inc.+ ...................................... 578
--------
Total Energy ............................................ 4,159
--------
FINANCIALS - 5.3%
BANKS - 1.4%
10,300 Midwest Banc Holdings, Inc.** ........................... 245
8,500 Signature Bank+ ......................................... 263
4,900 Sterling Financial Corporation .......................... 166
--------
674
--------
DIVERSIFIED FINANCIALS - 1.2%
12,800 First Cash Financial Services, Inc.+ .................... 331
16,300 TradeStation Group, Inc.+ ............................... 224
--------
555
--------
INSURANCE - 2.7%
11,000 American Equity Investment Life Holding Company** ....... 144
29,700 Amerisafe Inc.+ ......................................... 459
10,136 Delphi Financial Group, Inc., Class A ................... 410
2,500 eHealth, Inc.+ .......................................... 50
7,300 United Fire & Casualty Company .......................... 257
--------
1,320
--------
Total Financials ........................................ 2,549
--------
HEALTH CARE - 19.4%
HEALTH CARE EQUIPMENT & SERVICES - 10.9%
7,200 Abaxis, Inc.+ ........................................... 139
5,800 Advisory Board Company+ ................................. 311
10,894 Align Technology, Inc.+ ................................. 152
14,534 Allscripts Healthcare Solutions, Inc.+ .................. 392
6,994 ArthroCare Corporation+** ............................... 279
13,400 Conceptus, Inc.+ ........................................ 285
6,600 Foxhollow Technologies Inc.+ ............................ 142
11,500 HealthExtras, Inc.+ ..................................... 277
15,900 Healthspring, Inc.+ ..................................... 324
4,978 Healthways, Inc.+ ....................................... 238
7,900 Home Diagnostics, Inc.+ ................................. 84
8,800 Immucor, Inc.+ .......................................... 257
6,366 inVentiv Health, Inc.+ .................................. 225
10,748 Kyphon, Inc.+ ........................................... 434
4,400 LHC Group, Inc.+ ........................................ 125
22,300 Micrus Endovascular Corporation+ ........................ 426
12,600 Natus Medical Inc.+ ..................................... 209
See Notes to Financial Statements.
49
Portfolio of Investments (continued)
VT SMALL CAP GROWTH FUND
December 31, 2006
VALUE
SHARES (000S)
- --------- --------
COMMON STOCKS (CONTINUED)
HEALTH CARE (CONTINUED)
HEALTH CARE EQUIPMENT & SERVICES (CONTINUED)
13,600 Nighthawk Radiology Holdings, Inc.+ ..................... $ 347
3,558 Palomar Medical Technologies, Inc.+** ................... 180
12,000 Spectranetics Corporation+ .............................. 135
2,497 Syneron Medical Ltd. (F)+ ............................... 68
6,000 Vital Images, Inc.+ 209
--------
5,238
--------
PHARMACEUTICALS & BIOTECHNOLOGY - 8.5%
10,500 Adams Respiratory Therapeutics, Inc.+ ................... 428
9,300 Cardiome Pharma Corporation+ ............................ 104
7,800 Combinatorx Inc.+** ..................................... 68
16,166 CV Therapeutics, Inc.+ .................................. 226
6,100 Digene Corporation+ ..................................... 292
16,500 Keryx Biopharmaceuticals, Inc.+ ......................... 219
4,300 LifeCell Corporation+ ................................... 104
13,138 MGI Pharma, Inc.+ ....................................... 242
25,800 Nastech Pharmaceutical Company Inc.+** .................. 390
8,269 Nektar Therapeutics+ .................................... 126
9,742 Omrix Biopharmaceuticals, Inc.+ ......................... 295
16,102 PDL BioPharma, Inc.+ .................................... 324
18,000 Rigel Pharmaceuticals, Inc.+ ............................ 214
18,237 Salix Pharmaceuticals Ltd.+ ............................. 222
12,046 Sciele Pharma, Inc.+ .................................... 289
21,500 Telik, Inc.+** .......................................... 95
8,268 United Therapeutics Corporation+ ........................ 450
--------
4,088
--------
Total Health Care ....................................... 9,326
--------
INDUSTRIALS - 12.1%
CAPITAL GOODS - 8.9%
3,850 Bucyrus International, Inc.** ........................... 199
19,214 Ceradyne, Inc.+ ......................................... 1,086
21,800 Dynamic Materials Corporation ........................... 613
6,100 ESCO Technologies Inc.+ ................................. 277
14,000 Essex Corporation+ ...................................... 335
9,200 Hexcel Corporation+ ..................................... 160
6,600 Kadant Inc.+ ............................................ 161
7,500 Ladish Company, Inc.+ ................................... 278
8,433 Lincoln Electric Holdings, Inc. ......................... 509
6,800 NCI Building Systems, Inc.+ ............................. 352
8,301 TurboChef Technologies, Inc.+ ........................... 141
9,100 Williams Scotsman International Inc.+** ................. 179
--------
4,290
--------
COMMERCIAL SERVICES & SUPPLIES - 3.2%
7,700 American Ecology Corporation** .......................... 142
5,126 CRA International Inc.+ ................................. 268
10,600 Exlservice Holdings Inc.+ ............................... 223
8,900 Kenexa Corporation+ ..................................... 296
12,103 LECG Corporation+ ....................................... 224
8,200 Portfolio Recovery Associates, Inc.+** .................. 383
--------
1,536
--------
Total Industrials ....................................... 5,826
--------
VALUE
SHARES (000S)
- --------- --------
INFORMATION TECHNOLOGY - 26.8%
COMMUNICATIONS EQUIPMENT - 5.5%
18,614 Acme Packet, Inc.+ ...................................... $ 384
69,100 Finisar Corporation+** .................................. 223
7,600 Occam Networks, Inc.+ ................................... 125
16,600 Oplink Communinications, Inc.+ .......................... 341
15,000 Polycom, Inc.+ .......................................... 464
44,100 Powerwave Technologies, Inc.+** ......................... 285
18,800 Redback Networks Inc.+** ................................ 469
18,600 Sierra Wireless+ ........................................ 262
11,000 Symmetricom, Inc.+ ...................................... 98
--------
2,651
--------
COMPUTERS & PERIPHERALS - 2.4%
12,400 Cray, Inc.+ ............................................. 147
12,900 Emulex Corporation+ ..................................... 252
19,100 Rackable Systems Inc.+ .................................. 591
12,200 SimpleTech, Inc. ........................................ 155
--------
1,145
--------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 0.8%
10,800 Daktronics, Inc. ........................................ 398
--------
INTERNET SOFTWARE & SERVICES - 4.1%
7,306 Akamai Technologies, Inc.+** ............................ 388
22,689 aQuantive, Inc.+ ........................................ 560
13,500 DealerTrack Holdings Inc.+ .............................. 397
6,000 Travelzoo Inc.+ ......................................... 180
19,303 ValueClick, Inc.+ ....................................... 456
--------
1,981
--------
IT SERVICES - 2.1%
9,100 Euronet Worldwide, Inc.+ ................................ 270
6,186 Infocrossing, Inc.+ ..................................... 101
12,350 RightNow Technologies, Inc.+ ............................ 213
12,100 VeriFone Holdings, Inc.+ ................................ 428
--------
1,012
--------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 7.0%
12,700 Atheros Communications, Inc.+ ........................... 271
5,200 Cymer, Inc.+ ............................................ 228
1,900 IPG Photonics Corporation+ .............................. 46
15,700 Microsemi Corporation+ .................................. 308
13,254 PLX Technology, Inc.+ ................................... 173
8,500 Sigma Designs, Inc.+** .................................. 216
8,400 SiRF Technology Holdings, Inc.+** ....................... 214
6,900 Supertex, Inc.+ ......................................... 271
16,625 Tessera Technologies, Inc.+ ............................. 671
38,898 Trident Microsystems, Inc.+ ............................. 707
6,100 Varian Semiconductor Equipment Associates, Inc.+ ........ 278
--------
3,383
--------
See Notes to Financial Statements.
50
Portfolio of Investments (continued)
VT SMALL CAP GROWTH FUND
December 31, 2006
VALUE
SHARES (000S)
- --------- --------
COMMON STOCKS (CONTINUED)
INFORMATION TECHNOLOGY (CONTINUED)
SOFTWARE - 4.9%
18,000 Concur Technologies, Inc.+ .............................. $ 289
9,800 DivX, Inc.+** ........................................... 226
11,500 Emageon Inc.+ ........................................... 177
3,700 FactSet Research Systems Inc. ........................... 209
16,100 FalconStor Software, Inc.+ .............................. 139
11,900 Informatica Corporation+** .............................. 145
6,600 Interactive Intelligence, Inc.+ ......................... 148
18,436 Online Resources Corporation+ ........................... 188
3,800 Open Solutions Inc.+ .................................... 143
4,780 Systems Xcellence, Inc.+ ................................ 96
31,000 TIBCO Software Inc.+ .................................... 293
26,200 VASCO Data Security International, Inc.+ ................ 311
--------
2,364
--------
Total Information Technology ............................ 12,934
--------
MATERIALS - 0.4%
10,700 Zoltek Companies, Inc.+** ............................... 210
--------
TELECOMMUNICATION SERVICES - 0.9%
5,384 Atlantic Tele-Network, Inc. ............................. 158
10,800 Optium Corporation+ ..................................... 269
--------
Total Telecommunication Services ........................ 427
--------
Total Common Stocks
(Cost $34,811) ....................................... 43,395
--------
REAL ESTATE INVESTMENT TRUST (REIT) - 0.8%
(Cost $292)
10,950 RAIT Investment Trust ................................... 378
--------
PRINCIPAL
AMOUNT VALUE
(000S) (000S)
- --------- --------
REPURCHASE AGREEMENT - 9.2%
(Cost $4,428)
$ 4,428 Agreement with Morgan Stanley, 4.750% dated
12/29/2006 to be repurchased at $4,431,000 on
01/03/2007 (collateralized by U.S. Treasury
Bond, 3.625% due 04/15/2028, market value
$4,563,000) .................................. $ 4,428
--------
SHORT-TERM INVESTMENT - 9.3%
(Cost $4,462)
4,462 Mellon GSLDBT II
Collateral Fund++ ............................ 4,462
--------
TOTAL INVESTMENTS (Cost $43,993*) ........................... 109.4% 52,663
OTHER ASSETS (LIABILITIES) (NET) ............................ (9.4) (4,503)
----- --------
NET ASSETS .................................................. 100.0% $ 48,160
===== ========
- ----------
* Aggregate cost for federal tax purposes is $44,199.
** Some or all of these securities are on loan at December 31, 2006, and have
an aggregate market value of $4,241,000, representing 8.8% of the total net
assets of the Fund (collateral value $4,462,000). (See Note 7 to Financial
Statements.)
+ Non-income producing security.
++ Represents investment purchased with cash collateral for securities loaned.
GLOSSARY OF TERMS
ADR -- American Depositary Receipt
(F) -- Foreign Shares
See Notes to Financial Statements.
51
Portfolio of Investments
VT INTERNATIONAL GROWTH FUND
December 31, 2006
VALUE
SHARES (000S)
- --------- --------
COMMON STOCKS - 97.0%
JAPAN - 19.6% **
1,100 Advantest Corporation ................................... $ 63
18,600 AEON Company Ltd. ....................................... 402
100 Ahresty Corporation ..................................... 3
1,200 Aichi Corporation ....................................... 12
1,200 AOC Holdings, Inc. ...................................... 20
71 Ardepro Company, Ltd. ................................... 23
1,400 Asahi Pretec Corporation ................................ 28
12,600 Astellas Pharma, Inc. ................................... 571
400 Atrium Company Ltd.+ .................................... 11
23,100 Bank of Yokohama Ltd. ................................... 180
200 BML, Inc. ............................................... 4
100 C. Uyemura & Company, Ltd. .............................. 6
750 Canon Electronics, Inc. ................................. 26
23,900 Canon, Inc. ............................................. 1,346
15,100 Capcom Company Ltd. ..................................... 271
18,800 Casio Computer Company Ltd. ............................. 426
1,000 Daiki Aluminium Industry Company Ltd. ................... 7
3,000 Daimaru, Inc. ........................................... 41
6,000 Daiwa House Industry Company Ltd. ....................... 104
21,600 DENSO CORPORATION ....................................... 856
400 Disco Corporation ....................................... 28
900 Dodwell BMS Ltd. ........................................ 6
8,400 Eisai Company, Ltd. ..................................... 461
1,100 FANUC Ltd. .............................................. 108
300 Fujimi Inc. ............................................. 9
700 Hirose Electric Company Ltd. ............................ 79
12,000 Hitachi Construction Machinery Company, Ltd. ............ 322
2,000 Hitachi Koki Company, Ltd. .............................. 28
12,200 Hokkaido Electric Power Company, Inc. ................... 312
6,600 Honda Motor Company Ltd. ................................ 261
9,400 IBIDEN Company, Ltd. .................................... 473
1,800 Idemitsu Kosan Company Ltd.+, ++ ........................ 181
300 Information Services International-Dentsu Ltd. .......... 4
18 INPEX Holdings, Inc.+ ................................... 148
100 Iriso Electronics Company Ltd. .......................... 4
56,000 ITOCHU Corporation ...................................... 459
90 Japan Tobacco, Inc. ..................................... 435
9,600 Joint Corporation ....................................... 369
300 Kadokawa Group Holdings, Inc. ........................... 10
4,900 Kansai Electric Power Company Inc. ...................... 132
37,200 Komatsu Ltd. ............................................ 753
1,000 Kyorin Company Ltd. ..................................... 12
13,000 Makita Corporation ...................................... 398
200 Marubun Corporation ..................................... 3
400 Matsuda Sangyo Company, Ltd. ............................ 8
74,000 Meiji Dairies Corporation ............................... 582
100 Milbon Company, Ltd. .................................... 3
5,100 Millea Holdings, Inc. ................................... 181
6,700 Mitsubishi Corporation .................................. 126
8,000 Mitsubishi Estate Company Ltd. .......................... 207
53,000 Mitsubishi Gas Chemical Company, Inc. ................... 555
VALUE
SHARES (000S)
- --------- --------
36,100 Mitsubishi Heavy Industries Ltd. ........................ $ 164
4,000 Mitsubishi Steel Manufacturing Company, Ltd. ............ 20
59 Mitsubishi UFJ Financial Group, Inc. .................... 732
8,600 Mitsui & Company Ltd. ................................... 129
34,000 Mitsui Fudosan Company Ltd. ............................. 828
41,300 Mitsui O.S.K. Lines, Ltd. ............................... 408
2,800 Mitsui Sumitomo Insurance Company Ltd. .................. 31
24,500 Mitsumi Electric Company, Ltd. .......................... 538
112 Mizuho Financial Group, Inc. ............................ 799
15,400 Mori Seiki Company, Ltd. ................................ 344
200 Murata Manufacturing Company Ltd. ....................... 14
700 NEC Fielding, Ltd. ...................................... 10
2,000 Nichias Corporation ..................................... 15
600 Nihon Kohden Corporation ................................ 14
4,400 Nintendo Company Ltd. ................................... 1,139
900 Nippon Seiki Company Ltd. ............................... 21
1,000 Nippon Shinyaku Company, Ltd. ........................... 8
134,000 Nippon Steel Corporation ................................ 769
53 Nippon Telegraph & Telephone Corporation ................ 261
30,000 Nissan Motor Company Ltd. ............................... 362
2,000 Nittetsu Mining Company, Ltd. ........................... 15
200 Nitto Denko Corporation ................................. 10
6,200 Nomura Holdings, Inc. ................................... 117
2,400 Nomura Research Institute, Ltd. ......................... 348
100 NSD Company, Ltd. ....................................... 3
46,000 NSK Ltd. ................................................ 453
55 NTT Urban Development Corporation ....................... 106
200 Ohara Inc. .............................................. 9
200 Oiles Corporation ....................................... 5
11,700 Olympus Corporation ..................................... 367
400 Osaka Steel Company Ltd. ................................ 8
3,000 Pacific Metals Company Ltd. ............................. 29
1,100 Rohm Company Ltd. ....................................... 109
2,000 Ryobi Ltd. .............................................. 17
400 Santen Pharmaceutical Company Ltd. ...................... 11
7,700 Shin-Etsu Chemical Company Ltd. ......................... 514
1,400 SOFTBANK Corporation .................................... 27
4,042 Sony Corporation ........................................ 173
1,400 Star Micronics Company Ltd. ............................. 28
300 Sumco Techxiv Corporation ............................... 16
66,100 Sumitomo Corporation .................................... 990
64,000 Sumitomo Heavy Industries, Ltd. ......................... 671
60,000 Sumitomo Metal Industries, Ltd. ......................... 261
104 Sumitomo Mitsui Financial Group, Inc. ................... 1,065
21,000 Sumitomo Realty & Development Company Ltd. .............. 673
800 Sumitomo Seika Chemicals Company, Ltd. .................. 5
26,000 Suruga Bank Ltd. ........................................ 322
18,300 Suzuki Motor Corporation ................................ 516
1,200 T&D Holdings, Inc. ...................................... 79
13,400 Takeda Pharmaceutical Company Ltd. ...................... 918
400 Takeuchi Manufacturing Company, Ltd. .................... 19
900 TDK Corporation ......................................... 72
100 The Bank of Iwate, Ltd. ................................. 6
See Notes to Financial Statements.
52
Portfolio of Investments (continued)
VT INTERNATIONAL GROWTH FUND
December 31, 2006
VALUE
SHARES (000S)
- --------- --------
COMMON STOCKS (CONTINUED)
JAPAN (CONTINUED)
1,000 The Bank of Nagoya, Ltd. ................................ $ 6
1,000 The Kagoshima Bank, Ltd. ................................ 7
1,000 The San-In Godo Bank, Ltd. .............................. 9
29,000 The Shizuoka Bank, Ltd. ................................. 287
74,000 The Sumitomo Trust & Banking Company Ltd. ............... 775
200 Tocalo Company Ltd. ..................................... 7
3,000 Tokuyama Corporation .................................... 45
3,000 Tokyo Electric Power Company Inc. ....................... 97
800 Tokyo Electron Ltd. ..................................... 63
22,400 Tokyu Corporation ....................................... 143
8 Tosei Corporation ....................................... 9
8,700 Toshiba Corporation ..................................... 57
3,000 Toshiba Machine Company Ltd. ............................ 27
200 Towa Pharmaceutical Company Ltd. ........................ 7
27,600 Toyota Motor Corporation (F) ............................ 1,847
5,700 Trend Micro, Inc.+ ...................................... 167
400 Trusco Nakayama Corporation ............................. 8
2,700 USHIO Inc. .............................................. 55
214 Yahoo! Japan Corporation ................................ 85
9,200 Yakult Honsha Company Ltd. .............................. 264
--------
29,590
--------
UNITED KINGDOM - 16.1%
900 Admiral Group PLC ....................................... 19
119,000 Aegis Group PLC ......................................... 325
7,168 Aggreko PLC ............................................. 61
1,000 Anglo American PLC ...................................... 49
5,900 Anglo American PLC (F) .................................. 287
2,399 Anite Group PLC ......................................... 4
6,400 ARM Holdings PLC ........................................ 16
21,500 AstraZeneca PLC ......................................... 1,152
29,100 Aviva PLC ............................................... 467
273 Axon Group PLC .......................................... 3
81,400 Barclays PLC ............................................ 1,162
55,200 BG Group PLC ............................................ 751
44,837 BHP Billiton PLC ........................................ 821
800 Big Yellow Group PLC .................................... 11
73,300 BP PLC .................................................. 817
7,100 Bradford & Bingley PLC .................................. 65
10,500 British American Tobacco PLC ............................ 294
22,700 British Land Company PLC ................................ 759
190,600 BT Group PLC ............................................ 1,126
43 Cadbury Schweppes PLC ................................... 1
37,000 Charter PLC+ ............................................ 653
13,200 Dana Petroleum PLC+ ..................................... 323
30,800 FirstGroup PLC .......................................... 345
11,700 GlaxoSmithKline PLC ..................................... 308
68,300 Halma PLC ............................................... 308
21,300 Hammerson PLC ........................................... 656
25,400 HSBC Holdings PLC ....................................... 462
2,054 Hunting PLC ............................................. 24
1,300 IG Group Holdings PLC ................................... 7
VALUE
SHARES (000S)
- --------- --------
22,700 Inchcape PLC ............................................ $ 224
115,769 International Power PLC ................................. 862
16,963 Ishaan Real Estate PLC+ ................................. 35
11,700 Johnston Press PLC ...................................... 90
500 Kazakhmys PLC ........................................... 11
18,200 Kelda Group PLC ......................................... 329
1,200 Lonmin PLC .............................................. 71
93,100 Man Group PLC ........................................... 950
61,400 Marks & Spencer Group PLC ............................... 860
44,800 Michael Page International PLC .......................... 396
400 Micro Focus International PLC ........................... 2
30,900 Mitchells & Butlers PLC ................................. 429
900 Morgan Sindall PLC ...................................... 23
2,400 N Brown Group PLC ....................................... 13
34,500 National Grid PLC ....................................... 499
500 Nikanor PLC+ ............................................ 6
2,100 Persimmon PLC ........................................... 63
2,500 Petrofac Ltd. ........................................... 20
39,900 Punch Taverns PLC ....................................... 998
11,600 Reckitt Benckiser PLC ................................... 529
3,544 Rio Tinto PLC ........................................... 188
500 Robert Wiseman Dairies PLC .............................. 6
37,711 Royal Dutch Shell PLC, A Shares ......................... 1,329
14,400 Royal Dutch Shell PLC, B Shares ......................... 504
2,900 Royal Dutch Shell PLC, Class A, ADR ..................... 205
2,583 Savills PLC ............................................. 34
2,700 Scottish & Southern Energy PLC .......................... 82
9,800 Shire PLC ............................................... 202
2,600 Stagecoach Group PLC .................................... 8
38,000 Tate & Lyle PLC ......................................... 571
59,880 Tullow Oil PLC .......................................... 465
2,200 Unite Group PLC ......................................... 24
600,043 Vodafone Group PLC ...................................... 1,657
38,900 William Morrison Supermarkets PLC ....................... 194
21,703 Xstrata PLC ............................................. 1,080
--------
24,235
--------
FRANCE - 9.1%
3,100 Accor SA ................................................ 240
9,900 Air France-KLM .......................................... 416
972 Air Liquide ............................................. 230
499 Alten+ .................................................. 19
30,333 AXA SA .................................................. 1,223
12,716 BNP Paribas SA .......................................... 1,383
77 Bonduelle SCA ........................................... 9
7,308 Bouygues SA++ ........................................... 468
95 Carrere Group+ .......................................... 3
1,700 Cie Generale d'Optique Essilor International SA ......... 183
100 Ciments Francais SA ..................................... 19
1,000 Compagnie Generale des Etablissements Michelin,
Class B .............................................. 96
1,400 Dassault Systemes SA .................................... 74
2,100 Eutelsat Communications ................................. 40
6,864 Groupe Danone ........................................... 1,038
See Notes to Financial Statements.
53
Portfolio of Investments (continued)
VT INTERNATIONAL GROWTH FUND
December 31, 2006
VALUE
SHARES (000S)
- --------- --------
COMMON STOCKS (CONTINUED)
FRANCE (CONTINUED)
100 Groupe Steria SCA ....................................... $ 6
1,100 Haulotte Group .......................................... 29
159 IMS International Metal Service ......................... 5
200 Ingenico SA ............................................. 5
200 Kaufman & Broad SA ...................................... 12
600 L'Oreal SA .............................................. 60
5,800 Lafarge SA .............................................. 862
3,500 Neopost SA .............................................. 439
380 Nexans SA ............................................... 48
657 Nexity .................................................. 48
170 Orpea+ .................................................. 16
61 Pierre &Vacances ........................................ 7
100 Provimi SA .............................................. 4
400 Safran SA ............................................... 9
2,800 Sanofi-Aventis Group .................................... 258
6,900 Schneider Electric SA ................................... 764
6,576 Societe Generale Group .................................. 1,112
3,800 Thales SA ............................................... 189
7,257 Total SA+ ............................................... 524
12,460 Total SA ................................................ 897
363 Unibail ................................................. 89
3,287 Vallourec, SA ........................................... 950
2,900 Veolia Environnement SA ................................. 221
7,000 Vinci SA ................................................ 892
20,100 Vivendi SA .............................................. 784
--------
13,671
--------
SWITZERLAND - 8.6%
66,800 ABB Ltd. ................................................ 1,196
2,300 Actelion Ltd.+ .......................................... 505
700 Adecco SA ............................................... 48
3,600 Baloise Holding AG ...................................... 359
3,083 Compagnie Financiere Richemont AG, A Units .............. 179
19,594 Credit Suisse Group ..................................... 1,366
288 Geberit AG .............................................. 443
11,407 Holcim Ltd.++ ........................................... 1,043
368 Julius Baer Holding Ltd. ................................ 40
1,100 Logitech International SA+ .............................. 32
4,842 Nestle SA(F) ............................................ 1,717
17,865 Novartis AG (F) ......................................... 1,026
8,300 Phonak Holding AG ....................................... 659
9,779 Roche Holding AG-Genusschein (F) ........................ 1,750
177 Schmolz + Bickenbach AG ................................. 13
3,073 Swatch Group AG ......................................... 677
200 Swiss Life Holding ...................................... 50
3,282 Swiss Reinsurance Company ............................... 278
690 Swisscom AG ............................................. 260
1,200 Synthes, Inc. ........................................... 143
8,742 UBS AG .................................................. 529
362 Vontobel Holding AG ..................................... 16
2,683 Zurich Financial Services AG ............................ 720
--------
13,049
--------
VALUE
SHARES (000S)
- --------- --------
GERMANY - 5.5%
169 Aareal Bank AG+ ......................................... $ 8
3,600 Allianz SE .............................................. 733
1,500 Bayer AG ................................................ 80
7,600 Bayerische Motoren Werke (BMW) AG ....................... 437
2,900 Commerzbank AG .......................................... 110
500 Continental AG .......................................... 58
7,300 Deutsche Bank AG ........................................ 972
5,389 Deutsche Boerse AG ...................................... 992
1,875 Deutsche Lufthansa AG ................................... 51
565 Deutsche Postbank AG .................................... 48
400 Deutz AG+ ............................................... 5
10,200 E.ON AG ................................................. 1,385
69 Gerry Weber International AG ............................ 2
800 Gildemeister AG ......................................... 10
200 H&R WASAG AG ............................................ 10
300 IKB Deutsche Industriebank AG ........................... 12
1,200 IVG Immobilien AG ....................................... 52
278 Landesbank Berlin Holding AG+ ........................... 3
1,096 Lanxess AG+ ............................................. 61
692 Leoni AG ................................................ 28
100 Loewe AG+ ............................................... 2
11,100 MAN AG .................................................. 1,002
87 MVV Energie AG .......................................... 3
86 Puma AG Rudolf Dassler Sport ............................ 33
7,100 RWE AG .................................................. 781
4,300 Salzgitter AG ........................................... 561
2,000 SAPAG ................................................... 106
2,500 SAPAG, Sponsored ADR .................................... 133
300 Siemens AG .............................................. 30
286 Sixt AG ................................................. 16
171 Software AG ............................................. 13
90 Takkt AG ................................................ 2
7,893 ThyssenKrupp AG ......................................... 371
1,989 United Internet AG ...................................... 33
1,000 Volkswagen AG ........................................... 113
200 Wacker Chemie AG+ ....................................... 26
185 Wincor Nixdorf AG ....................................... 29
--------
8,311
--------
CANADA - 5.1%
7,200 Abitibi-Consolidated Inc. ............................... 18
1,400 Alcan Inc. .............................................. 68
10,400 Alimentation Couche-Tard Inc. ........................... 226
400 Aur Resources Inc. ...................................... 8
900 Banro Corporation+,++ ................................... 12
900 Barrick Gold Corporation (F) ............................ 28
100 Boardwalk Real Estate Investment Trust .................. 4
20,700 Brookfield Asset Management Inc. ........................ 1,000
700 Cameco Corporation ...................................... 28
1,400 Canadian Imperial Bank of Commerce ...................... 118
16,800 Canadian National Railway Company ....................... 721
100 Canadian Natural Resources Ltd. ......................... 5
4,000 CIC Energy Corporation+ ................................. 48
See Notes to Financial Statements.
54
Portfolio of Investments (continued)
VT INTERNATIONAL GROWTH FUND
December 31, 2006
VALUE
SHARES (000S)
- --------- --------
COMMON STOCKS (CONTINUED)
CANADA (CONTINUED)
400 Corus Entertainment Inc. ................................ $ 14
3,100 Denison Mines Corporation+ .............................. 32
13,600 EnCana Corporation ...................................... 626
400 Energy Metals Corporation+ .............................. 4
1,200 Finning International Inc. .............................. 49
10,100 Fortis, Inc. ............................................ 258
5,700 Gildan Activewear Inc.+ ................................. 266
2,500 HudBay Minerals Inc.+ ................................... 47
5,700 Husky Energy Inc. ....................................... 381
8,400 Inmet Mining Corporation (F) ............................ 450
4,400 IPSCO Inc. .............................................. 413
900 Lundin Mining Corporation+ .............................. 33
600 Magna International Inc., Class A ....................... 48
2,600 Manulife Financial Corporation .......................... 88
1,500 Methanex Corporation .................................... 41
900 Oilexco Inc.+ ........................................... 6
1,100 Potash Corporation of Saskatchewan Inc. ................. 158
1,800 Rogers Communications Inc., Class B ..................... 54
18,200 Royal Bank of Canada .................................... 866
5,400 Shoppers Drug Mart Corporation .......................... 232
7,700 Suncor Energy, Inc. ..................................... 606
6,100 Teck Cominco Ltd., Class B .............................. 460
7,000 TELUS Corporation ....................................... 321
300 Trican Well Service Ltd. ................................ 5
--------
7,742
--------
AUSTRALIA - 4.4% **
25,000 Amcor Ltd. .............................................. 143
400 Anvil Mining Ltd.+ ...................................... 4
45,787 Australia & New Zealand Banking Group Ltd. .............. 1,016
2,470 Babcock & Brown Ltd. .................................... 48
4,400 Boom Logistics Ltd. ..................................... 14
900 Bradken Ltd. ............................................ 6
5,676 Brambles Ltd.+ .......................................... 57
5,466 Challenger Financial Services Group Ltd. ................ 18
1,100 FKP Property Group ...................................... 6
6,812 Foster's Group Ltd. ..................................... 37
3,300 Healthscope Ltd. ........................................ 14
8,700 IBA Health Ltd. ......................................... 9
600 Incitec Pivot Ltd. ...................................... 17
1,200 Independence Group NL ................................... 4
80,111 Insurance Australia Group Ltd. .......................... 400
1,700 Iress Market Technology Ltd. ............................ 9
6,069 Just Group Ltd. ......................................... 18
2,972 Kagara Zinc Ltd. ........................................ 16
13,900 Leighton Holdings Ltd. .................................. 222
7,399 Macquarie Bank Ltd. ..................................... 460
3,073 MFS Ltd. ................................................ 11
6,973 Mincor Resources NL ..................................... 12
23,900 National Australia Bank Ltd. ............................ 761
69,656 Paladin Resources Ltd.+ ................................. 487
VALUE
SHARES (000S)
- --------- --------
3,100 Perilya Ltd. ............................................ $ 13
25,905 Promina Group Ltd. ...................................... 141
40,800 QBE Insurance Group Ltd. ................................ 926
6,828 Rinker Group Ltd. ....................................... 97
7,900 Rio Tinto Ltd. .......................................... 460
3,500 Sally Malay Mining Ltd.+ ................................ 6
9,500 SP Ausnet ............................................... 10
500 Sunland Group Ltd. ...................................... 1
55,121 Telstra Corporation Ltd. ................................ 180
7,377 Woolworths Ltd. ......................................... 139
18,000 WorleyParsons Ltd. ...................................... 302
35,500 Zinifex Ltd. ............................................ 523
--------
6,587
--------
NETHERLANDS - 3.4%
13,861 ABN AMRO Holding NV ..................................... 444
16,859 AEGON NV ................................................ 320
100 Draka Holding NV+ ....................................... 3
751 Efes Breweries International, GDR+,++ ................... 25
974 Endemol NV .............................................. 22
571 Euronext NV ............................................. 67
9,800 Fugro NV ................................................ 468
3,950 Heineken Holding NV ..................................... 161
15,200 Heineken NV ............................................. 722
29,131 ING Groep NV ............................................ 1,287
66,700 Koninklijke (Royal) KPN NV .............................. 947
795 Koninklijke DSM NV ...................................... 39
17,800 Reed Elsevier NV ........................................ 303
200 Sligro Food Group NV .................................... 14
188 Smit Internationale NV .................................. 10
8,200 Unilever NV ............................................. 224
--------
5,056
--------
SPAIN - 3.2%
15,000 ACS, Actividades de Construccion y Servicios, SA ........ 843
93 Adolfo Dominguez SA ..................................... 6
6,200 Altadis, SA ............................................. 324
98,700 Banco Santander Central Hispano SA ...................... 1,838
1,500 Duro Felguera, SA ....................................... 15
6,500 Fomento de Construcciones y Contratas SA ................ 661
400 Grupo Catalana Occidente, SA ............................ 14
900 Iberdrola SA ............................................ 39
1,369 Indra Sistemas, SA ...................................... 33
11,863 Industria de Diseno Textil SA(Inditex) .................. 638
300 Mecalux, SA ............................................. 12
6,300 Natraceutical SA+ ....................................... 15
865 Red Electrica de Espana ................................. 37
4,900 Repsol YPF SA ........................................... 169
1,400 Sol Melia, SA ........................................... 28
100 Telecomunicaciones y Energia, SA+ ....................... 2
7,869 Telefonica SA ........................................... 167
100 Union Fenosa, SA ........................................ 5
200 Viscofan SA ............................................. 4
--------
4,850
--------
See Notes to Financial Statements.
55
Portfolio of Investments (continued)
VT INTERNATIONAL GROWTH FUND
December 31, 2006
VALUE
SHARES (000S)
- --------- --------
COMMON STOCKS (CONTINUED)
BELGIUM - 2.5%
4,700 Belgacom SA ............................................. $ 207
100 Cumerio ................................................. 2
200 Euronav NV .............................................. 6
24,500 Fortis .................................................. 1,042
13,000 InBev NV ................................................ 855
6,200 KBC Groep NV ............................................ 759
12,000 SES GLOBAL, FDR ......................................... 209
200 Telenet Group Holding NV+ ............................... 6
2,900 UCB SA .................................................. 199
2,900 Umicore ................................................. 493
--------
3,778
--------
HONG KONG - 2.2% **
24,000 AAC Acoustic Technology Holdings Inc.+ .................. 25
73,300 Bank of East Asia, Ltd. ................................. 414
65,900 BOC Hong Kong (Holdings) Ltd. ........................... 179
36,100 Clear Media Ltd.+ ....................................... 44
54,500 CLP Holdings Ltd. ....................................... 402
73,900 CNOOC Ltd. .............................................. 70
2,400 Dah Sing Banking Group Ltd. ............................. 5
174,000 Denway Motors Ltd. ...................................... 71
53,500 Esprit Holdings Ltd. .................................... 596
39,000 Foxconn International Holdings Ltd.+ .................... 127
21,800 Guangdong Investment Ltd. ............................... 10
59,500 Hang Lung Properties Ltd. ............................... 149
8,000 Hengan International Group Company Ltd. ................. 20
2,000 Jinhui Shipping & Transportation Ltd. ................... 10
73,300 Johnson Electric Holdings Ltd. .......................... 50
11,500 Kingboard Chemical Holdings Ltd. ........................ 45
19,282 Kingboard Laminates Holdings Ltd.+ ...................... 21
6,000 Kowloon Development Company Ltd. ........................ 11
11,700 Li & Fung Ltd. .......................................... 36
1,000 Melco International Development Ltd. .................... 2
69,000 Pacific Basin Shipping Ltd. ............................. 43
9,200 Parkson Retail Group Ltd. ............................... 46
10,000 Peace Mark Holdings Ltd. ................................ 9
16,000 Prime Success International Group Ltd. .................. 15
17,100 Shangri-La Asia Ltd. .................................... 44
161,300 Shenzhen Investment Ltd. ................................ 67
23,000 Sung Hung Kai Properties Ltd.++ ......................... 264
8,300 Swire Pacific Ltd., Class A ............................. 89
121,000 The Wharf (Holdings) Ltd. ............................... 446
24,000 TPV Technology Ltd. ..................................... 15
2,000 Vtech Holdings Ltd. ..................................... 12
1,500 Wing Hang Bank Ltd. ..................................... 18
--------
3,355
--------
CHINA - 2.1% **
11,200 Agile Property Holdings Ltd. ............................ 10
76,000 Angang New Steel Company Ltd., Class H .................. 111
24,300 Anhui Conch Cement Company Ltd., Class H ................ 81
VALUE
SHARES (000S)
- --------- --------
101,000 Bank of Communications Company Ltd., Class H ............ $ 122
109,900 Beijing Capital International Airport Company Ltd.,
Class H .............................................. 86
10,000 Beijing Enterprises Holdings Ltd. ....................... 21
21,000 China Communications Construction Company Ltd.,
Class H+ ............................................. 21
12,000 China Communications Services Corporation Ltd.,
Class H+ ............................................. 7
148,000 China Construction Bank, Class H++ ...................... 94
61,700 China Life Insurance Company Ltd., Class H .............. 211
18,800 China Mengniu Dairy Company Ltd. ........................ 49
101,300 China Mobile Ltd. ....................................... 873
32,000 China Oilfield Services Ltd., Class H ................... 22
10,000 China Overseas Land & Investment Ltd. ................... 13
196,900 China Petroleum & Chemical Corporation, Class H ......... 182
21,200 China Power International Development Ltd. .............. 12
11,500 China Resources Enterprise Ltd. ......................... 33
48,000 China Resources Power Holdings Company Ltd. ............. 72
56,600 China Shenhua Energy Company Ltd., Class H .............. 136
18,000 China Ting Group Holdings Ltd. .......................... 4
27,000 China Water Affairs Group Ltd.+ ......................... 10
4,000 China Yurun Food Group Ltd. ............................. 4
300 Ctrip.com International Ltd., ADR ....................... 19
44,500 Dongfeng Motor Corporation Ltd., Class H+ ............... 21
76,594 GOME Electrical Appliances Holdings Ltd. ................ 60
18,000 Guangzhou Shipyard International Company Ltd.,
Class H+ ............................................. 30
162,100 Lenovo Group Ltd. ....................................... 66
22,900 Li Ning Company Ltd. .................................... 37
22,000 Lianhua Supermarket Holdings Company Ltd., Class H ...... 26
138,000 Maanshan Iron and Steel Company Ltd., Class H ........... 76
36,700 Nine Dragons Paper Holdings Ltd.+ ....................... 63
236,000 PetroChina Company Ltd., Class H ........................ 333
40,000 Shanghai Forte Land Company Ltd., Class H ............... 18
94,000 Shanghai Prime Machinery Company Ltd., Class H+ ......... 33
52,300 Tsingtao Brewery Company Ltd., Class H .................. 88
8,000 Weiqiao Textile Company Ltd., Class H ................... 11
68,000 Wumart Stores, Inc., Class H ............................ 51
9,800 ZTE Corporation, Class H ................................ 45
--------
3,151
--------
ITALY - 2.1%
4,900 Banca CR Firenze ........................................ 16
36,600 Banca Intesa SpA ........................................ 282
1,400 Banca Popolare di Milano Scarl .......................... 24
700 Banco di Desio e della Brianza SpA ...................... 8
854 Brembo SpA .............................................. 10
1,100 Buzzi Unicem SpA ........................................ 31
See Notes to Financial Statements.
56
Portfolio of Investments (continued)
VT INTERNATIONAL GROWTH FUND
December 31, 2006
VALUE
SHARES (000S)
- --------- --------
COMMON STOCKS (CONTINUED)
ITALY (CONTINUED)
800 Cementir SpA ............................................ $ 7
300 Danieli & C. Officine Meccaniche SpA .................... 6
43,016 Eni SpA ................................................. 1,447
1,169 Fondiaria-SAI SpA ....................................... 56
100 Italjolly - Compagnia Italiana dei Jolly Hotels SpA+ .... 3
200 MARR SpA ................................................ 2
8,000 SanPaolo IMI SpA ........................................ 186
10,900 Terna Rete Elettrica Nationale SpA ...................... 37
111,600 UniCredito Italiano SpA ................................. 976
491 Valentino Fashion Group SpA ............................. 20
--------
3,111
--------
NORWAY - 1.3%
3,000 ABG Sundal Collier ASA .................................. 6
4,500 Acta Holding ASA ........................................ 24
6,160 Aker Kvaerner ASA+ ...................................... 764
4,000 Deep Sea Supply ASA+ .................................... 12
10,600 DnB NOR ASA ............................................. 150
3,000 Ementor ASA+ ............................................ 17
2,984 Norske Skogindustrier ASA ............................... 51
24,000 Petrolia Drilling ASA+ .................................. 14
500 Sparebanken Midt-Norge .................................. 7
2,100 Tandberg ASA ............................................ 31
49,800 Telenor ASA ............................................. 933
250 Veidekke ASA ............................................ 9
--------
2,018
--------
SWEDEN - 1.3%
700 Alfa Laval AB ........................................... 32
1,200 Assa Abloy AB, B Shares ................................. 26
4,600 Atlas Copco AB, Class A+ ................................ 155
7,000 Atlas Copco AB, Class A ................................. 234
200 Bergman & Beving AB, B Shares ........................... 6
21,400 ForeningsSparbanken AB .................................. 775
2,200 JM AB ................................................... 53
800 Meda AB, A Shares ....................................... 32
7,500 Modern Times Group AB, B Shares ......................... 491
500 Protect Data AB ......................................... 14
9,100 Telefonaktiebolaget LM Ericsson, B Shares ............... 37
11,000 TeliaSonera AB .......................................... 90
--------
1,945
--------
SINGAPORE - 1.3% **
30,000 Banyan Tree Holdings Ltd.+, ++ .......................... 30
10,000 CapitaRetail China Trust+ ............................... 14
37,000 DBS Group Holdings Ltd. ................................. 543
1,000 Ezra Holdings Ltd. ...................................... 3
12,000 Ho Bee Investment Ltd. .................................. 11
12,000 K1 Ventures Ltd. ........................................ 3
20,000 Labroy Marine Ltd. ...................................... 24
25,000 MMI Holdings Ltd. ....................................... 17
91,600 Oversea-Chinese Banking Corporation Ltd. ................ 459
VALUE
SHARES (000S)
- --------- --------
6,000 Raffles Education Corporation Ltd. ...................... $ 7
11,654 Singapore Telecommunications Ltd.++ ..................... 25
211,000 StarHub Ltd. ............................................ 362
21,000 United Overseas Bank Ltd. ............................... 265
51,400 UOL Group Ltd. .......................................... 145
4,000 Wheelock Properties (Singapore) Ltd. .................... 6
13,000 Yanlord Land Group Ltd.+, ++ ............................ 21
--------
1,935
--------
IRELAND - 1.2%
26,764 Allied Irish Banks PLC .................................. 798
15,900 Bank of Ireland ......................................... 366
34,800 C&C Group PLC ........................................... 618
168 FBD Holdings PLC ........................................ 9
700 IAWS Group PLC .......................................... 18
1,455 Kingspan Group PLC ...................................... 39
--------
1,848
--------
SOUTH AFRICA - 1.2%
4,800 ABSA Group Ltd. ......................................... 85
1,200 Anglo Platinum Ltd. ..................................... 146
900 AngloGold Ashanti Ltd. .................................. 42
700 AngloGold Ashanti Ltd., Sponsored ADR ................... 33
17,700 Aveng Ltd. .............................................. 85
3,000 Bidvest Group Ltd. ...................................... 57
1,828 Cashbuild Ltd. .......................................... 13
8,400 Edgars Consolidated Stores Ltd. ......................... 47
1,400 Exxaro Resources Ltd. ................................... 11
14,700 FirstRand Ltd. .......................................... 46
4,300 Gold Fields Ltd. ........................................ 81
5,800 Harmony Gold Mining Company Ltd.+ ....................... 92
4,900 Impala Platinum Holdings Ltd. ........................... 128
9,793 Investec Ltd. ........................................... 122
2,100 Mittal Steel South Africa Ltd. .......................... 29
1,000 Mr. Price Group Ltd. .................................... 4
13,784 Murray & Roberts Holdings Ltd. .......................... 79
11,540 Mvelaphanda Resources Ltd.+ ............................. 64
1,600 Naspers Ltd., N Shares .................................. 38
3,161 Nedbank Group Ltd. ...................................... 60
27,000 Sanlam Ltd. ............................................. 70
3,000 Sappi Ltd. .............................................. 50
1,200 Sappi Ltd., Sponsored ADR ............................... 20
5,200 Sasol Ltd. .............................................. 192
16,900 Shoprite Holdings Ltd. .................................. 62
4,100 Standard Bank Group Ltd. ................................ 55
2,400 Telkom SA Ltd. .......................................... 48
2,600 Truworths International Ltd. ............................ 12
3,841 Wilson Bayly Holmes-Ovcon Ltd. .......................... 40
--------
1,811
--------
RUSSIA - 1.1%
9,200 Gazprom, Sponsored ADR .................................. 423
3,618 Gazprom, Sponsored ADR (F) .............................. 166
3,600 LUKOIL, Sponsored ADR ................................... 317
900 Mining and Metallurgical Company Norilsk
Nickel, ADR .......................................... 141
See Notes to Financial Statements.
57
Portfolio of Investments (continued)
VT INTERNATIONAL GROWTH FUND
December 31, 2006
VALUE
SHARES (000S)
- --------- --------
COMMON STOCKS (CONTINUED)
RUSSIA (CONTINUED)
2,200 Mobile TeleSystems, Sponsored ADR ....................... $ 110
100 Novolipetsk Steel, GDR++ ................................ 2
2,159 OAO TMK, GDR+ ........................................... 76
1,700 Unified Energy System of Russia, GDR .................... 184
300 Vimpel-Communications, Sponsored ADR+ ................... 24
1,700 Wimm-Bill-Dann Foods, ADR ............................... 113
1,400 X 5 Retail Group NV, GDR+ ............................... 36
--------
1,592
--------
FINLAND - 1.0%
1,500 Elisa OyJ ............................................... 41
24,700 Fortum Oyj .............................................. 701
386 HK Ruokatalo Oyj, Class A ............................... 7
1,793 KCI Konecranes Oyj+ ..................................... 53
8,800 Metso Corporation ....................................... 443
1,900 Neste Oil Oyj ........................................... 58
6,900 Nokia Oyj ............................................... 140
299 Poyry Oyj ............................................... 5
4,100 UPM-Kymmene Oyj ......................................... 103
--------
1,551
--------
MEXICO - 0.7%
2,000 Alsea SA de CV .......................................... 11
4,700 America Movil SA de CV, ADR ............................. 213
39,700 Carso Infraestructura y Construccion SA de CV+ .......... 38
60,000 Cemex SAB de CV, CPO+ ................................... 203
1,500 Coca-Cola Femsa, SA de CV ............................... 6
800 Consorcio ARA, SA de CV ................................. 5
20,900 Controladora Comercial Mexicana SA de CV ................ 54
1,200 Grupo Aeroportuario del Centro Norte, SA de CV, ADR+ .... 27
23,042 Grupo Financiero Banorte SA de CV ....................... 90
7,700 Grupo Financiero Inbursa SA de CV ....................... 15
3,200 Grupo Mexico SAB de CV .................................. 12
5,400 Grupo Televisa SA, Sponsored ADR ........................ 146
13,600 Impulsora del Desarrollo y el Empleo en America Latina,
SA de CV+ ............................................ 17
11,800 Industrias CH SA, Series B+ ............................. 50
18,800 Kimberly-Clark de Mexico, SA de CV ...................... 87
18,600 Wal-Mart de Mexico SA de CV, Series V ................... 82
--------
1,056
--------
TAIWAN - 0.6% **
11,384 AU Optronics Corporation, ADR ........................... 157
22,800 Fubon Financial Holding Company, Ltd., GDR .............. 213
31,800 Hon Hai Precision Industry Company, Ltd., GDR++ ......... 454
10,320 Taiwan Semiconductor Manufacturing Company Ltd.,
Sponsored ADR ........................................ 113
--------
937
--------
VALUE
SHARES (000S)
- --------- --------
BRAZIL - 0.5%
2,600 Cia Vale do Rio Doce, Sponsored ADR ..................... $ 77
4,000 Petroleo Brasileiro SA, Sponsored ADR ................... 412
1,400 Petroleo Brasiliero SA, Sponsored ADR ................... 130
800 Telemig Celular Participacoes SA, ADR ................... 31
400 Unibanco - Uniao de Bancos Brasileiros SA, GDR .......... 37
3,500 Votorantim Celulose e Papel SA, ADR+ .................... 69
--------
756
--------
INDONESIA - 0.4% **
52,000 PT Astra Agro Lestari Tbk ............................... 73
95,500 PT Bank Central Asia Tbk ................................ 55
219,700 PT Bank Mandiri Persero Tbk ............................. 71
239,500 PT Bank Rakyat Indonesia ................................ 138
119,000 PT Ciputra Surya Tbk .................................... 13
142,000 PT Medco Energi Internasional Tbk ....................... 56
167,000 PT Ramayana Lestari Sentosa Tbk ......................... 16
124,100 PT Telekomunikasi Indonesia Tbk ......................... 140
--------
562
--------
DENMARK - 0.3%
200 Almindelig Brand AS+ .................................... 14
8,400 Danske Bank AS .......................................... 372
300 East Asiatic Company Ltd. AS ............................ 17
80 Rockwool International AS, Class B ...................... 12
900 Sydbank AS .............................................. 43
800 TK Development AS+ ...................................... 12
--------
470
--------
AUSTRIA - 0.3%
491 Boehler-Uddeholm AG ..................................... 34
1,900 Erste Bank der Oesterreichischen Sparkassen AG .......... 146
1,000 Raiffeisen International Bank Holding AG ................ 152
180 Schoeller-Bleckmann Oilfield Equipment AG ............... 8
70 Semperit AG Holding ..................................... 3
4,200 Telekom Austria AG ...................................... 112
--------
455
--------
PORTUGAL - 0.3%
1,500 Altri, SGPS, SA ......................................... 8
21,600 Banco Espirito Santo, SA ................................ 388
2,790 Portucel Empresa Produtora de Pasta e Papel, SA ......... 9
--------
405
--------
THAILAND - 0.3% **
6,200 Advanced Info Service PCL (F) ........................... 13
3,800 Advanced Info Service PCL, NVDR ......................... 8
12,900 Banpu PCL, NVDR ......................................... 68
51,900 Bumrungrad Hospital PCL (F) ............................. 54
12,300 Electricity Generating PCL, NVDR ........................ 33
33,300 Glow Energy PCL ......................................... 31
See Notes to Financial Statements.
58
Portfolio of Investments (continued)
VT INTERNATIONAL GROWTH FUND
December 31, 2006
VALUE
SHARES (000S)
- --------- --------
COMMON STOCKS (CONTINUED)
THAILAND (CONTINUED)
17,200 Kasikornbank PCL (F) .................................... $ 31
1,600 Siam City Cement PCL (F) ................................ 12
13,600 Siam Commercial Bank PCL ................................ 23
388,600 Thai Beverage PCL++ ..................................... 68
14,000 TISCO Bank PCL (F) ...................................... 9
49,600 TISCO Bank PCL, NVDR .................................... 31
--------
381
--------
INDIA - 0.3%
2,600 Infosys Technologies Ltd., Sponsored ADR ................ 142
11,600 United Spirits Ltd., GDR ................................ 121
7,200 Wipro Ltd., ADR ......................................... 116
--------
379
--------
SOUTH KOREA - 0.2% **
1,100 Kookmin Bank, Sponsored ADR ............................. 89
600 LG.Philips LCD Company Ltd., ADR+ ....................... 9
2,000 Macquarie Korea Infrastructure Fund, GDR++ .............. 14
2,000 POSCO, ADR .............................................. 165
105,000 STX Pan Ocean Company, Ltd.+ ............................ 71
--------
348
--------
TURKEY - 0.2%
3,922 Akbank AS ............................................... 23
891 Anadolu Efes Biracilik ve Malt Sanayii AS ............... 27
600 BIM Birlesik Magazalar AS ............................... 32
13,000 Coca-Cola Icecek Uretim AS+, ++ ......................... 98
307 Dogan Yayin Holding AS+ ................................. 1
907 Migros Turk AS+ ......................................... 12
6,000 Selcuk Ecza Deposu Ticaret ve Sanayi AS+ ................ 20
5,074 Tupras-Turkiye Petrol Rafinerileri AS ................... 86
13,982 Turkiye Garanti Bankasi AS .............................. 46
--------
345
--------
ISRAEL - 0.2%
881 Bank Leumi Le-Israel BM ................................. 4
38,300 Bezeq Israeli Telecommunication
Corporation Ltd. ..................................... 62
900 Orbotech Ltd.+ .......................................... 23
2,300 Partner Communications Company Ltd. ..................... 26
4,000 Supersol Ltd.+ .......................................... 15
6,600 Teva Pharmaceutical Industries Ltd.,
Sponsored ADR ........................................ 205
--------
335
--------
UNITED STATES - 0.1%
1,900 CTC Media, Inc.+ ........................................ 46
5,432 News Corporation (F), CDI ............................... 117
1,900 Transmeridian Exploration Inc.+ ......................... 7
--------
170
--------
VALUE
SHARES (000S)
- --------- --------
HUNGARY - 0.1%
9,500 Magyar Telekom Telecommunications+ ...................... $ 53
600 MOL Hungarian Oil and Gas NyRT .......................... 68
--------
121
--------
CHILE - 0.1%
500 Banco Santander Chile SA, ADR ........................... 24
100 Cia de Telecomunicaciones de Chile SA,
ADR .................................................. 1
4,300 Embotelladora Andina SA, Class A, ADR ................... 66
24,084 Ripley Corporation SA ................................... 29
--------
120
--------
LUXEMBOURG - 0.1%
1,800 Tenaris SA, ADR ......................................... 90
--------
PHILIPPINES - 0.0% **
1,400 Philippine Long Distance Telephone
Company, Sponsored ADR ............................... 72
--------
OMAN - 0.0%
3,300 Bank Muscat SA OG, GDR++ ................................ 41
--------
UNITED ARAB EMIRATES - 0.0%
900 Kingdom Hotel Investments+ .............................. 8
3,700 Kingdom Hotel Investments, GDR+ ......................... 32
--------
40
--------
PAKISTAN - 0.0%
1,300 Oil & Gas Development Company Ltd.++ .................... 24
--------
BERMUDA - 0.0%
8,000 Golden Ocean Group Ltd.+ ................................ 14
--------
EGYPT - 0.0%
100 Orascom Construction Industries, GDR++ .................. 10
--------
Total Common Stocks
(Cost $123,803) ...................................... 146,317
--------
RIGHTS - 0.0%
(Cost $4)
GERMANY - 0.0%
200 H&R Wasag Rights ........................................ 4
--------
PREFERRED STOCKS - 0.4%
BRAZIL - 0.0%
900 Companhia de Bebidas das Americas, ADR .................. 44
--------
GERMANY - 0.4%
2,382 Fresenius AG ............................................ 512
100 Fuchs Petrolub AG ....................................... 8
1,800 ProSiebenSat.1 Media AG ................................. 58
--------
578
--------
Total Preferred Stocks
(Cost $614) .......................................... 622
--------
See Notes to Financial Statements.
59
Portfolio of Investments (continued)
VT INTERNATIONAL GROWTH FUND
December 31, 2006
PRINCIPAL
AMOUNT VALUE
(000S) (000S)
- --------- --------
REPURCHASE AGREEMENT - 3.3%
(Cost $4,993)
$ 4,993 Agreement with Morgan Stanley, 4.750%
dated 12/29/2006, to be repurchased at
$4,996,000 on 01/03/2007
(collateralized by U.S. Treasury Bond,
3.625% due 04/15/2028,
market value $5,145,000) ..................... $ 4,993
--------
TOTAL INVESTMENTS (Cost $129,414*) .......................... 100.7% 151,936
OTHER ASSETS (LIABILITIES) (NET) ............................ (0.7) (1,081)
----- --------
NET ASSETS .................................................. 100.0% $150,855
===== ========
- ----------
* Aggregate cost for federal tax purposes is $130,151.
** Investments in the areas of the Pacific Rim at December 31, 2006, are 28.9%
of the total net assets of the Fund.
+ Non-income producing security.
++ Security acquired in a transaction exempt from registration under Rule
144Aof the Securities Act of 1933, as amended.
AT DECEMBER 31, 2006, SECTOR DIVERSIFICATION WAS AS FOLLOWS:
% OF VALUE
SECTOR DIVERSIFICATION NET ASSETS (000S)
- ---------------------- ---------- --------
COMMON STOCKS:
Banks ................................................. 17.6% $ 26,545
Capital Goods ......................................... 9.7 14,577
Materials ............................................. 9.2 13,913
Energy ................................................ 8.8 13,348
Telecommunication Services ............................ 5.9 8,915
Food, Beverage & Tobacco .............................. 5.6 8,376
Diversified Financials ................................ 5.2 7,825
Pharmaceuticals & Biotechnology ....................... 5.1 7,720
Utilities ............................................. 4.3 6,524
Insurance ............................................. 4.2 6,389
Automobiles & Components .............................. 3.1 4,723
Consumer Durables & Apparel ........................... 2.8 4,211
Retailing ............................................. 2.6 3,870
Commercial Services & Supplies ........................ 2.0 3,027
Media ................................................. 1.8 2,697
Electronic Equipment & Instruments .................... 1.6 2,462
Transportation ........................................ 1.5 2,312
Real Estate Investment Trusts (REITs) ................. 1.5 2,164
Other ................................................. 4.5 6,719
----- --------
TOTAL COMMON STOCKS ................................... 97.0 146,317
RIGHTS ................................................ 0.0 4
PREFERRED STOCKS ...................................... 0.4 622
REPURCHASE AGREEMENT .................................. 3.3 4,993
----- --------
TOTAL INVESTMENTS ..................................... 100.7 151,936
OTHER ASSETS (LIABILITIES) (NET) ...................... (0.7) (1,081)
----- --------
NET ASSETS ............................................ 100.0% $150,855
===== ========
GLOSSARY OF TERMS
ADR -- American Depositary Receipt
CDI -- CHESS Depositary Interest
CPO -- Ordinary Participation Certificate
(F) -- Foreign Shares
FDR -- Fiduciary Depositary Receipt
GDR -- Global Depositary Receipt
NVDR -- Non-Voting Depositary Receipt
See Notes to Financial Statements.
60
Portfolio of Investments
VT SHORT TERM INCOME FUND
December 31, 2006
PRINCIPAL
AMOUNT VALUE
(000S) (000S)
- --------- --------
CORPORATE BONDS AND NOTES - 69.4%
FINANCIAL SERVICES - 19.7%
$ 1,000 Berkshire Hathaway Inc., Note,
3.375% due 10/15/2008 ................................ $ 969
1,000 CIT Group, Inc., Sr. Note,
7.375% due 04/02/2007 ................................ 1,005
750 Fidelity National Financial, Inc. Note,
7.300% due 08/15/2011 ................................ 788
1,000 General Electric Capital Corporation, MTN,
5.720% due 08/22/2011 ................................ 1,006
500 Goldman Sachs Group, Inc., Note,
4.125% due 01/15/2008 ................................ 494
Household Finance Corporation, Note:
1,500 5.750% due 01/30/2007 ................................ 1,500
250 7.875% due 03/01/2007 ................................ 251
500 Nuveen Investments, Inc., Sr. Note,
5.000% due 09/15/2010 ................................ 492
1,500 Rollins Truck Leasing Corporation, Deb.,
8.375% due 02/15/2007 ................................ 1,505
1,000 Western Union Company, Bond,
5.400% due 11/17/2011** .............................. 986
--------
8,996
--------
REAL ESTATE INVESTMENT TRUSTS/PROPERTY - 6.9%
1,000 CPG Partners LP, Note,
3.500% due 03/15/2009 ................................ 962
750 Developers Diversified Realty Corporation,
Sr. Note,
6.625% due 01/15/2008 ................................ 758
800 Duke-Weeks Realty Corporation, Note,
7.375% due 08/01/2007 ................................ 807
600 EOP Operating LP, Note,
7.750% due 11/15/2007 ................................ 613
--------
3,140
--------
BANKS - 6.7%
1,000 Fifth Third Bank, Note,
2.700% due 01/30/2007 ................................ 998
1,000 JPMorgan Chase & Company, Note,
5.350% due 03/01/2007 ................................ 1,000
1,000 SB Treasury Company LLC, Bond,
9.400% to 06/30/2008,
10.925% due 12/29/2049** ............................. 1,052
--------
3,050
--------
CABLE TV - 6.0%
1,250 AOL Time Warner Inc., Note,
6.150% due 05/01/2007 ................................ 1,252
1,000 Cox Enterprises, Inc., Note,
4.375% due 05/01/2008** .............................. 983
500 Univision Communications Inc., Company
Guarantee,
7.850% due 07/15/2011 ................................ 504
--------
2,739
--------
HEALTH CARE - 5.4%
1,500 Amgen Inc., Sr. Note,
4.000% due 11/18/2009 ................................ 1,456
PRINCIPAL
AMOUNT VALUE
(000S) (000S)
- --------- --------
$ 1,000 Cardinal Health, Inc., Note,
6.250% due 07/15/2008 ................................ $ 1,011
--------
2,467
--------
UTILITIES - 5.3%
1,000 Constellation Energy Group, Inc., Note,
6.350% due 04/01/2007 ................................ 1,001
350 Pacific Gas & Electric Company, First
Mortgage,
3.600% due 03/01/2009 ................................ 338
350 Sempra Energy, Note,
4.750% due 05/15/2009 ................................ 346
750 Texas-New Mexico Power
Company, Sr. Note,
6.250% due 01/15/2009 ................................ 759
--------
2,444
--------
TELECOMMUNICATIONS - 4.4%
500 Koninklijke (Royal) KPN NV, Sr. Note,
8.000% due 10/01/2010 ................................ 539
500 TELUS Corporation, Note,
7.500% due 06/01/2007 ................................ 504
1,000 Verizon Global Funding Corporation, Note,
4.000% due 01/15/2008 ................................ 987
--------
2,030
--------
AUTO MANUFACTURING & PARTS - 4.4%
1,000 Ford Motor Credit Company, Note,
6.500% due 01/25/2007 ................................ 1,000
1,000 Toyota Motor Credit Corporation, Note,
5.650% due 01/15/2007 ................................ 1,000
--------
2,000
--------
GAMING/LEISURE - 4.3%
1,000 Carnival Corporation, Company Guarantee,
3.750% due 11/15/2007 ................................ 987
1,000 Harrah's Operating Company, Inc.,
Company Guarantee,
5.500% due 07/01/2010 ................................ 980
--------
1,967
--------
SERVICES - 2.2%
1,000 PHH Corporation, Note,
6.000% due 03/01/2008 ................................ 1,001
--------
INFORMATION TECHNOLOGY - 1.6%
750 Cisco Systems, Inc., Note,
5.250% due 02/22/2011 ................................ 752
--------
BUILDING PRODUCTS - 1.4%
600 Mohawk Industries, Inc., Note,
Series D,
7.200% due 04/15/2012 ................................ 623
--------
FOOD - 1.1%
500 CVS Corporation, Note,
4.000% due 09/15/2009 ................................ 483
--------
Total Corporate Bonds and Notes
(Cost $32,024) ....................................... 31,692
--------
See Notes to Financial Statements.
61
Portfolio of Investments (continued)
VT SHORT TERM INCOME FUND
December 31, 2006
PRINCIPAL
AMOUNT VALUE
(000S) (000S)
- --------- --------
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS) - 13.7%
$ 1,000 Banc of America Mortgage Securities, Inc.,
Pass-through Certificates,
Series 2003-6, Class 1A30,
4.750% due 08/25/2033 ........................ $ 983
815 Cendant Mortgage Corporation,
Series 2003-3P, Class A1,
5.500% due 04/25/2020** ...................... 806
836 Chase Mortgage Finance Corporation,
Series 2005-S1, Class 1A8,
5.500% due 05/25/2035 ........................ 834
472 Credit Suisse First Boston Mortgage Securities
Corporation, Pass-through Certificates,
Series 2003-29, Class 4A1,
6.000% due 12/25/2033 ........................ 477
Federal Home Loan Mortgage Corporation:
326 Series 2552, Class KB,
4.250% due 06/15/2027 ........................ 323
1,000 Series 2811, Class NU,
4.500% due 05/15/2030 ........................ 970
749 Federal National Mortgage Association,
Series 2005-100, Class QA,
5.000% due 11/25/2035 ........................ 739
518 Government National Mortgage Association,
Series 2002-70, Class PA,
4.500% due 08/20/2032 ........................ 501
623 GSR Mortgage Loan Trust, Pass-through
Certificates,
Series 2005-1F, Class 2A1,
6.000% due 02/25/2035 ........................ 625
--------
Total CMOs
(Cost $6,355) ................................ 6,258
--------
U.S. GOVERNMENT AGENCY OBLIGATIONS - 7.3%
863 Federal Home Loan Bank,
Series 00-0606, Class Y,
5.270% due 12/28/2012 ........................ 862
Federal Home Loan Mortgage Corporation Note:
1,000 4.125% due 07/12/2010 ........................ 975
1,000 5.250% due 07/18/2011 ........................ 1,012
500 Federal National Mortgage Association, Note,
5.800% due 07/16/2013 ........................ 498
--------
Total U.S. Government Agency Obligations
(Cost $3,366) ................................ 3,347
--------
ASSET-BACKED SECURITIES (ABSS) - 3.4%
375 Atlantic City Electric Transition Funding LLC,
Series 2003-1, Class A1,
2.890% due 07/20/2011 ........................ 364
80 Green Tree Financial Corporation,
Series 1995-6, Class B1,
7.700% due 09/15/2026 ........................ 74
33 Green Tree Home Improvement,
Series 1995-D, Class B2,
7.450% due 09/15/2025 ........................ 33
87 Mid-State Trust, Series 4, Class A,
8.330% due 04/01/2030 ........................ 89
PRINCIPAL
AMOUNT VALUE
(000S) (000S)
- --------- --------
$ 1,000 WFS Financial Owner Trust, Series 2004-3, Class A4,
3.930% due 02/17/2012 ........................ $ 987
--------
Total ABSs
(Cost $1,573) ................................ 1,547
--------
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES - 2.1%
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) - 0.7%
139 6.500% due 01/01/2014 ........................... 142
135 8.000% due 05/01/2027 ........................... 142
18 8.500% due 11/01/2017 ........................... 19
--------
Total FNMA
(Cost $292) .................................. 303
--------
ADJUSTABLE RATE MORTGAGE-BACKED SECURITIES (ARMS) - 0.5%
15 Federal Home Loan Mortgage Corporation (FHLMC),
5.478% due 11/01/2021+ ....................... 16
Federal National Mortgage Association (FNMA):
190 4.670% due 11/01/2032+ ....................... 191
5 6.125% due 04/01/2019+ ....................... 5
14 6.132% due 11/01/2035+ ....................... 14
6 7.204% due 01/01/2019+ ....................... 6
1 7.411% due 11/01/2022+ ....................... 1
9 7.466% due 11/01/2021+ ....................... 9
--------
Total ARMs
(Cost $247) .................................. 242
--------
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) - 0.5%
200 6.000% due 05/01/2017 ........................... 203
9 9.500% due 08/01/2016 ........................... 10
--------
Total FHLMC
(Cost $211) .................................. 213
--------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) - 0.4%
12 8.000% due 06/15/2009--08/15/2012 ............... 12
17 9.000% due 12/15/2020--04/20/2025 ............... 18
134 10.000% due 02/15/2018--04/15/2025 .............. 147
10 11.000% due 12/15/2015 .......................... 12
--------
Total GNMA
(Cost $182) .................................. 189
--------
Total U.S. Government Agency Mortgage-Backed
Securities
(Cost $932) .................................. 947
--------
U.S. TREASURY NOTE - 0.6%
(Cost $268)
275 3.250% due 08/15/2008 ........................... 268
--------
COMMERCIAL MORTGAGE-BACKED SECURITIES (CMBS) - 0.3%
(Cost $153)
154 GMAC Commercial Mortgage Securities Inc.,
Series 1999-CTL1, Class A,
7.151% due 02/15/2008** ...................... 155
--------
See Notes to Financial Statements.
62
Portfolio of Investments (continued)
VT SHORT TERM INCOME FUND
December 31, 2006
PRINCIPAL
AMOUNT VALUE
(000S) (000S)
- --------- --------
REPURCHASE AGREEMENT - 1.8%
(Cost $841)
$ 841 Agreement with Morgan Stanley, 4.750% dated
12/29/2006, to be repurchased at $842,000 on
01/03/2007 (collateralized by U.S. Treasury
Bond, 3.625% due 04/15/2028, market value
$867,000) .................................... $ 841
--------
TOTAL INVESTMENTS++ (Cost $45,512*) ......................... 98.6% 45,055
OTHER ASSETS (LIABILITIES) (NET) ............................ 1.4 632
----- --------
NET ASSETS .................................................. 100.0% $ 45,687
===== ========
- ----------
* Aggregate cost for federal tax purposes is $45,516.
** Security acquired in a transaction exempt from registration under Rule
144A of the Securities Act of 1933, as amended.
+ Variable rate security. The interest rate shown reflects the rate in effect
at December 31, 2006.
++ All securities segregated as collateral for futures contracts.
GLOSSARY OF TERMS
MTN -- Medium-Term Note
UNREALIZED
NUMBER OF VALUE APPRECIATION
CONTRACTS (000S) (000S)
- --------- ------ -----------
FUTURES CONTRACTS-SHORT POSITION
35 U.S. 5 Year Treasury Note, March 2007........ $3,677 $ 31
====== ===========
See Notes to Financial Statements.
63
Portfolio of Investments
VT U.S. GOVERNMENT SECURITIES FUND
December 31, 2006
PRINCIPAL
AMOUNT VALUE
(000S) (000S)
- --------- --------
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES - 67.9%
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) - 34.0%
$ 2,680 4.000% due 08/01/2018 ........................... $ 2,528
12,530 4.500% due 04/01/2018--06/01/2035 ............... 11,937
30,883 5.000% due 04/01/2018--06/01/2036 ............... 29,854
25,619 5.500% due 12/01/2008--09/01/2035 ............... 25,413
10,584 6.000% due 01/01/2013--05/01/2034 ............... 10,690
3,074 6.500% due 11/01/2016--01/01/2032 ............... 3,157
5,905 7.000% due 04/01/2008--07/01/2036 ............... 6,060
82 7.500% due 02/01/2031 ........................... 86
29 8.000% due 12/01/2030 ........................... 30
63 8.500% due 07/01/2029 ........................... 67
7 8.750% due 01/01/2013 ........................... 7
--------
Total FHLMC
(Cost $91,828) ............................... 89,829
--------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) - 27.3%
4,330 4.500% due 12/01/2018--11/01/2019 ............... 4,185
18,486 5.000% due 04/01/2018--12/01/2035 ............... 18,044
27,972 5.500% due 01/01/2017--11/01/2035 ............... 27,698
8,343 6.000% due 12/01/2016--10/01/2035 ............... 8,419
12,047 6.500% due 09/01/2024--05/01/2036 ............... 12,309
710 7.000% due 08/01/2028--11/01/2031 ............... 731
64 7.500% due 11/01/2029 ........................... 66
277 8.000% due 05/01/2022--09/01/2027 ............... 291
138 8.500% due 02/01/2023--10/01/2027 ............... 147
61 9.000% due 09/01/2030 ........................... 67
--------
Total FNMA
(Cost $73,260) ............................... 71,957
--------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) - 4.8%
6,124 5.500% due 07/20/2033--03/20/2034 ............... 6,085
4,758 6.000% due 02/20/2029--08/15/2034 ............... 4,826
1,084 6.500% due 03/20/2031--04/20/2034 ............... 1,110
272 7.000% due 01/15/2028--06/20/2031 ............... 281
380 7.500% due 01/15/2023--11/15/2023 ............... 399
33 7.750% due 12/15/2029 ........................... 35
25 8.000% due 07/15/2026--06/15/2027 ............... 26
--------
Total GNMA
(Cost $12,970) ............................... 12,762
--------
ADJUSTABLE RATE MORTGAGE-BACKED SECURITIES (ARMS) - 1.8%
1,749 Federal Home Loan Mortgage Corporation,
5.849% due 01/01/2037+ ....................... 1,750
2,975 Federal National Mortgage Association,
5.988% due 10/01/2036+ ....................... 2,998
--------
Total Adjustable Rate Mortgage-Backed Securities
(ARMs)
(Cost $4,761) ................................ 4,748
--------
Total U.S. Government Agency Mortgage-Backed
Securities
(Cost $182,819) .............................. 179,296
--------
PRINCIPAL
AMOUNT VALUE
(000S) (000S)
- --------- --------
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS) - 18.4%
Banc of America Mortgage Securities, Inc.,
Pass-through Certificates:
$ 3,500 Series 2003-6, Class 1A30,
4.750% due 08/25/2033 ........................ $ 3,440
1,222 Series 2004-4, Class 2A1,
5.500% due 05/25/2034 ........................ 1,201
2,365 Chase Mortgage Finance Corporation,
Series 2005-S1, Class 1A15,
6.000% due 05/25/2035 ........................ 2,366
746 Countrywide Alternative Loan Trust,
Series 2003-13T1, Class A1,
4.000% due 08/25/2033 ........................ 732
Countrywide Home Loans:
2,552 Series 2003-50, Class A1,
5.000% due 11/25/2018 ........................ 2,494
4,000 Series 2004-4, Class A5,
5.250% due 05/25/2034 ........................ 3,933
Credit Suisse First Boston Mortgage Securities
Corporation, Pass-through Certificates:
1,924 Series 2003-11, Class 1A3,
4.500% due 06/25/2033 ........................ 1,893
1,992 Series 2003-8, Class 1A1,
5.750% due 04/25/2033 ........................ 1,978
Federal Home Loan Mortgage Corporation:
2,387 Series 2449, Class ND,
6.500% due 05/15/2030 ........................ 2,396
1,382 Series 2551, Class QK,
5.500% due 01/15/2033 ........................ 1,368
1,203 Series 2575, Class LM,
4.500% due 05/15/2032 ........................ 1,175
2,000 Series 2981, Class PC,
5.500% due 10/15/2031 ........................ 1,991
Federal National Mortgage Association:
3,000 Grantor Trust, Series 2000-T5, Class B,
7.300% due 05/25/2010 ........................ 3,214
1,649 Series 2002-16, Class TM,
7.000% due 04/25/2032 ........................ 1,708
2,635 Series 2002-86, Class JC,
5.500% due 02/25/2032 ........................ 2,622
3,317 Series 2003-58, Class PI,
Zero Coupon due 02/25/2027 ................... 161
Federal National Mortgage Association,
REMIC, Pass-through Certificates:
26 Series 1989-90, Class E,
8.700% due 12/25/2019 ........................ 28
477 Series 1992-55, Class DZ,
8.000% due 04/25/2022 ........................ 487
GSR Mortgage Loan Trust, Pass-through
Certificates:
1,337 Series 2003-4F, Class 2A3,
5.000% due 05/25/2033 ........................ 1,328
2,492 Series 2005-1F, Class 2A1,
6.000% due 02/25/2035 ........................ 2,499
Prime Mortgage Trust:
2,517 Series 2004-2, Class A2,
4.750% due 11/25/2019 ........................ 2,432
2,540 Series 2005-4, Class 1A1,
4.750% due 10/25/2020 ........................ 2,486
See Notes to Financial Statements.
64
Portfolio of Investments (continued)
VT U.S. GOVERNMENT SECURITIES FUND
December 31, 2006
PRINCIPAL
AMOUNT VALUE
(000S) (000S)
- --------- --------
COLLATERALIZED MORTGAGE OBLIGATIONS
(CMOS) (CONTINUED)
$ 3,000 Residential Funding Mortgage Security,
Series 2003-S20, Class 1A4,
5.500% due 12/25/2033 ........................ $ 2,938
2,400 Structured Asset Securities Corporation,
Series 2005-6, Class 4A1,
5.000% due 05/25/2035 ........................ 2,308
1,378 Vendee Mortgage Trust,
Series 2000-3, Class 2H,
7.500% due 11/15/2014 ........................ 1,378
--------
Total CMOs
(Cost $49,325) ............................... 48,556
--------
U.S. TREASURY OBLIGATIONS - 8.0%
U.S. TREASURY NOTES - 8.0%
2,000 4.000% due 02/15/2014 ........................... 1,914
2,000 4.250% due 11/15/2013 ........................... 1,947
10,000 4.500% due 02/28/2011 ........................... 9,926
1,000 4.500% due 02/15/2036 ........................... 951
5,000 4.750% due 05/15/2014 ........................... 5,013
1,000 4.875% due 08/15/2016 ........................... 1,012
350 6.250% due 02/15/2007 ........................... 351
--------
Total U.S. Treasury Obligations
(Cost $21,217) ............................... 21,114
--------
U.S. GOVERNMENT AGENCY OBLIGATIONS - 4.4%
Federal Home Loan Bank, Bond:
2,000 4.500% due 09/16/2013 ........................ 1,946
2,500 6.500% due 08/14/2009 ........................ 2,592
3,000 7.375% due 02/12/2010 ........................ 3,204
2,000 Federal National Mortgage Association, Note,
6.000% due 02/03/2020 ........................ 1,968
2,000 Housing Urban Development, Government Guarantee,
Series 99-A,
6.160% due 08/01/2011 ........................ 2,024
--------
Total U.S. Government Agency Obligations
(Cost $11,664) ............................... 11,734
--------
PRINCIPAL
AMOUNT VALUE
(000S) (000S)
- --------- --------
REPURCHASE AGREEMENT - 0.8%
(Cost $2,030)
$ 2,030 Agreement with Morgan Stanley, 4.750% dated
12/29/2006, to be repurchased at $2,031,000 on
01/03/2007 (collateralized by U.S. Treasury
Bond, 3.625% due 04/15/2028, market value
$2,091,000) .................................. $ 2,030
--------
TOTAL INVESTMENTS (Cost $267,055*) .......................... 99.5% 262,730
OTHER ASSETS (LIABILITIES) (NET) ............................ 0.5 1,365
----- --------
NETA SSETS .................................................. 100.0% $264,095
===== ========
- ----------
* Aggregate cost for federal tax purposes is $267,315.
+ Variable rate security. The interest rate shown reflects the rate in effect
at December 31, 2006.
GLOSSARY OF TERMS
REMIC -- Real Estate Mortgage Investment Conduit
See Notes to Financial Statements.
65
Portfolio of Investments
VT INCOME FUND
December 31, 2006
PRINCIPAL
AMOUNT VALUE
(000S) (000S)
- --------- --------
CORPORATE BONDS AND NOTES - 65.5%
FINANCIAL SERVICES/BANKS - 11.7%
$ 500 American General Corporation, Note,
7.500% due 07/15/2025 ........................ $ 593
1,000 American General Finance, Inc.,
MTN, Series I,
4.625% due 05/15/2009 ........................ 984
500 Aspen Insurance Holdings Ltd., Sr. Note,
6.000% due 08/15/2014 ........................ 492
400 Banc One Corporation, Sub. Note,
10.000% due 08/15/2010 ....................... 457
1,000 Bank of America Corporation,
5.420% due 03/15/2017** ...................... 985
CIT Group Inc.:
1,000 Bond,
5.400% due 01/30/2016 ........................ 982
500 Sr. Note,
7.750% due 04/02/2012 ........................ 551
3,000 Citigroup Inc., Note,
6.500% due 01/18/2011 ........................ 3,139
1,000 Farmers Insurance Exchange, Note,
6.000% due 08/01/2014** ...................... 989
2,500 Goldman Sachs Group, Inc., Bond,
6.875% due 01/15/2011 ........................ 2,646
Jefferies Group, Inc.:
500 Sr. Deb.,
6.250% due 01/15/2036 ........................ 485
1,500 Sr. Note,
7.750% due 03/15/2012 ........................ 1,633
1,000 JPMorgan Chase & Company, Sub. Note,
5.125% due 09/15/2014 ........................ 983
1,000 Legg Mason, Inc., Sr. Note,
6.750% due 07/02/2008 ........................ 1,020
2,000 Merrill Lynch & Company Inc., Note,
6.000% due 02/17/2009 ........................ 2,033
Morgan Stanley:
1,000 Sr. Note,
6.250% due 08/09/2026 ........................ 1,046
1,000 Sub. Note,
4.750% due 04/01/2014 ........................ 956
1,100 NCNB Corporation, Sub. Note,
9.375% due 09/15/2009 ........................ 1,213
2,250 Wells Fargo & Company, Sub. Note,
4.625% due 04/15/2014 ........................ 2,131
--------
23,318
--------
UTILITIES - 8.6%
1,000 Arizona Public Service Company, Note,
6.500% due 03/01/2012 ........................ 1,033
1,850 Illinois Power Company, First Mortgage,
7.500% due 06/15/2009 ........................ 1,923
1,000 Metropolitan Edison Company, Sr. Note,
4.950% due 03/15/2013 ........................ 962
2,000 Mirant Americas Generation, LLC, Sr. Note,
8.500% due 10/01/2021 ........................ 2,025
1,000 Ohio Edison Company, Sr. Note,
5.450% due 05/01/2015 ........................ 980
2,000 Oncor Electric Delivery Company, Deb.,
7.000% due 09/01/2022 ........................ 2,151
PRINCIPAL
AMOUNT VALUE
(000S) (000S)
- --------- --------
$ 2,250 Pacific Gas & Electric Company, First Mortgage,
4.200% due 03/01/2011 ........................ $ 2,154
PacifiCorp, First Mortgage:
1,500 4.950% due 08/15/2014 ........................ 1,450
1,000 5.250% due 06/15/2035 ........................ 916
500 Public Service Company of New Mexico,
Sr. Note,
4.400% due 09/15/2008 ........................ 491
1,500 Southwestern Electric Power Company, Note,
5.375% due 04/15/2015 ........................ 1,467
1,500 Texas-New Mexico Power Company, Sr. Note,
6.250% due 01/15/2009 ........................ 1,519
--------
17,071
--------
OIL & GAS - 6.9%
1,200 ANR Pipeline Company, Deb.,
9.625% due 11/01/2021 ........................ 1,593
1,750 Consolidated Natural Gas Company, Sr. Note,
6.850% due 04/15/2011 ........................ 1,841
2,500 El Paso Natural Gas Company, Deb.,
7.500% due 11/15/2026 ........................ 2,802
1,000 Enterprise Products Partners LP, Company
Guarantee,
6.375% due 02/01/2013 ........................ 1,027
1,345 Express Pipeline LP, Sub. Note,
7.390% due 12/31/2017** ...................... 1,426
775 Hanover Compressor Company,
Sr. Note,
8.625% due 12/15/2010 ........................ 810
Petro-Canada:
500 Deb.,
9.250% due 10/15/2021 ........................ 642
1,000 Note,
4.000% due 07/15/2013 ........................ 908
1,000 Southern Natural Gas Company, Sr. Note,
8.000% due 03/01/2032 ........................ 1,169
1,500 XTO Energy Inc., Sr. Note,
6.250% due 04/15/2013 ........................ 1,547
--------
13,765
--------
CONSUMER PRODUCTS/SERVICES - 5.9%
2,000 Allied Waste North America, Inc., Sr. Note,
7.250% due 03/15/2015 ........................ 2,002
1,750 Carnival Corporation, Deb.,
7.200% due 10/01/2023 ........................ 1,934
1,000 Mattel, Inc., Note,
7.300% due 06/13/2011 ........................ 1,056
1,500 Reed Elsevier Capital Inc., Company Guarantee,
6.750% due 08/01/2011 ........................ 1,571
Royal Caribbean Cruises Ltd.:
Sr. Note:
1,000 6.875% due 12/01/2013 ........................ 1,014
1,000 8.750% due 02/02/2011 ........................ 1,093
1,500 Sealed Air Corporation,
Conv. Sr. Note,
3.000% due 06/30/2033** ...................... 1,556
1,500 Waste Management Inc., Sr. Note,
7.375% due 08/01/2010 ........................ 1,596
--------
11,822
--------
See Notes to Financial Statements.
66
Portfolio of Investments (continued)
VT INCOME FUND
December 31, 2006
PRINCIPAL
AMOUNT VALUE
(000S) (000S)
- --------- --------
CORPORATE BONDS AND NOTES (CONTINUED)
TELECOMMUNICATIONS - 4.9%
$ 4,000 Deutsche Telephone Finance, Company Guarantee,
8.000% due 06/15/2010 ........................ $ 4,331
2,000 Qwest Corporation, Note,
8.875% due 03/15/2012 ........................ 2,228
1,000 TELUS Corporation, Note,
8.000% due 06/01/2011 ........................ 1,094
2,000 Vodafone Group PLC, Note,
7.750% due 02/15/2010 ........................ 2,131
--------
9,784
--------
REAL ESTATE INVESTMENT TRUSTS (REITS) - 4.9%
Arden Realty LP, Note:
1,000 5.200% due 09/01/2011 ........................ 998
1,000 5.250% due 03/01/2015 ........................ 987
1,000 Developers Diversified Realty Corporation, Note,
4.625% due 08/01/2010 ........................ 973
2,000 Health Care Property Investors, Inc., Note,
6.000% due 03/01/2015 ........................ 1,989
2,000 Health Care REIT, Inc., Sr. Note,
6.200% due 06/01/2016 ........................ 2,010
2,500 Healthcare Realty Trust, Inc., Sr. Note,
8.125% due 05/01/2011 ........................ 2,711
--------
9,668
--------
GAMING - 4.6%
1,000 155E Tropicana Hooters LLC, Sr. Note,
8.750% due 04/01/2012 ........................ 860
2,000 CCM Merger Inc., Note,
8.000% due 08/01/2013** ...................... 1,955
1,000 Harrahs Operating Company Inc., Note,
6.500% due 06/01/2016 ........................ 895
1,350 Old Evangeline Downs LLC / Diamond Jo LLC,
Company Guarantee,
8.750% due 04/15/2012 ........................ 1,337
2,000 Park Place Entertainment Corporation, Sr. Note,
7.500% due 09/01/2009 ........................ 2,075
2,000 Riviera Holdings Corporation, Company Guarantee,
11.000% due 06/15/2010 ....................... 2,120
--------
9,242
--------
HEALTH CARE - 4.4%
2,000 Cardinal Health, Inc., Note,
6.750% due 02/15/2011 ........................ 2,095
DVI, Inc., Sr. Note, (in default):
900 9.875% due 02/01/2004+ ....................... 91
400 9.875% due 02/01/2004+ ....................... 41
2,000 HCA Inc., Sr. Note,
8.750% due 09/01/2010 ........................ 2,085
1,500 HealthSouth Corporation, Sr. Note,
10.750% due 06/15/2016** ..................... 1,614
3,000 Tenet Healthcare Corporation, Sr. Note,
6.375% due 12/01/2011 ........................ 2,745
--------
8,671
--------
PRINCIPAL
AMOUNT VALUE
(000S) (000S)
- --------- --------
MEDIA - 3.8%
$ 1,500 Comcast Cable Communications Inc., Sr. Note,
7.125% due 06/15/2013 ........................ $ 1,617
2,500 Cox Communications, Inc., Note,
7.875% due 08/15/2009 ........................ 2,646
1,200 News America Holdings Inc., Sr. Deb.,
8.000% due 10/17/2016 ........................ 1,378
1,000 News America Inc, Company Guarantee,
6.400% due 12/15/2035 ........................ 993
500 Tele-Communications, Inc., Sr. Deb.,
7.875% due 08/01/2013 ........................ 556
300 Time Warner Inc., Deb.,
9.150% due 02/01/2023 ........................ 371
--------
7,561
--------
TRANSPORTATION/AUTO - 3.0%
110 Continental Airlines Inc., Pass-through
Certificates, Series 1997-4C,
6.800% due 07/02/2007 ........................ 110
2,500 Norfolk Southern Corporation, Sr. Note,
6.200% due 04/15/2009 ........................ 2,547
2,000 Southwest Airlines Company, Pass-through
Certificates, Series A-4,
9.150% due 07/01/2016 ........................ 2,336
1,000 Trailer Bridge, Inc., Sr. Sec. Note,
9.250% due 11/15/2011 ....................... 1,031
--------
6,024
--------
RETAIL - 1.8%
1,000 Fred Meyer Inc., Company Guarantee,
7.450% due 03/01/2008 ........................ 1,022
2,500 Safeway Inc., Note,
7.500% due 09/15/2009 ........................ 2,623
--------
3,645
--------
INDUSTRIAL PRODUCTS - 1.3%
2,000 Noranda Inc., Note,
6.000% due 10/15/2015 ........................ 2,040
500 Weyerhaeuser Company, Deb.,
7.375% due 03/15/2032 ........................ 522
--------
2,562
--------
INFORMATION TECHNOLOGY - 1.3%
2,500 Conexant Systems Inc., Conv. Sub. Note,
4.000% due 02/01/2007 ........................ 2,491
--------
INDEX PRODUCT - 1.0%
2,000 Dow Jones CDX High Yield Series 7 Trust 1,
Pass-through Certificates,
8.375% due 12/29/2011** ...................... 2,044
--------
FOREIGN GOVERNMENT - 0.7%
Federal Republic of Brazil:
750 Bond,
9.250% due 10/22/2010 ........................ 847
500 Note,
8.750% due 02/04/2025 ........................ 618
--------
1,465
--------
See Notes to Financial Statements.
67
Portfolio of Investments (continued)
VT INCOME FUND
December 31, 2006
PRINCIPAL
AMOUNT VALUE
(000S) (000S)
- --------- --------
CORPORATE BONDS AND NOTES (CONTINUED)
AEROSPACE/DEFENSE - 0.7%
$ 1,000 Boeing Company, Deb.,
8.750% due 08/15/2021......................... $ 1,314
--------
Total Corporate Bonds and Notes
(Cost $127,013)............................... 130,447
--------
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES - 22.2%
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) - 12.7%
2,808 4.500% due 08/01/2033............................ 2,637
11,706 5.000% due 04/01/2018--11/01/2035................ 11,391
9,900 5.500% due 11/01/2017--04/01/2036................ 9,809
854 6.000% due 03/01/2031--05/01/2032................ 862
338 6.500% due 06/01/2029--08/01/2029................ 347
182 7.000% due 01/01/2032............................ 187
16 9.000% due 01/01/2025............................ 18
--------
Total FHLMC
(Cost $25,686)................................ 25,251
--------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) - 9.2%
6,085 4.000% due 09/01/2018--10/01/2018................ 5,746
1,333 5.000% due 01/01/2018............................ 1,314
7,410 5.500% due 03/01/2033--02/01/2035................ 7,333
714 6.000% due 04/01/2032............................ 721
1,064 6.500% due 05/01/2031--05/01/2032................ 1,087
36 7.000% due 01/01/2030............................ 37
2,000 7.630% due 02/01/2010............................ 2,102
--------
Total FNMA
(Cost $18,734)................................ 18,340
--------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) - 0.3%
421 6.000% due 05/20/2032............................ 426
264 7.000% due 06/20/2031............................ 272
20 9.000% due 02/15/2025............................ 22
--------
Total GNMA
(Cost $705)................................... 720
--------
Total U.S. Government Agency Mortgage-
Backed Securities
(Cost $45,125)................................ 44,311
--------
U.S. TREASURY OBLIGATIONS - 9.7%
U.S. TREASURY BONDS - 6.1%
5,000 4.500% due 02/15/2036............................ 4,755
7,000 5.375% due 02/15/2031............................ 7,498
--------
12,253
--------
U.S. TREASURY NOTES - 3.6%
1,000 4.500% due 11/15/2015............................ 985
6,000 5.125% due 05/15/2016............................ 6,180
--------
7,165
--------
Total U.S. Treasury Obligations
(Cost $19,514)................................ 19,418
--------
PRINCIPAL
AMOUNT VALUE
(000S) (000S)
- --------- --------
REPURCHASE AGREEMENT - 1.2%
(Cost $2,310)
$ 2,310 Agreement with Morgan Stanley, 4.750% dated
12/29/2006, to be repurchased at $2,312,000 on
01/03/2007 (collateralized by U.S. Treasury
Bond, 3.625% due 04/15/2028, market value
$2,381,000)................................... $ 2,310
--------
TOTAL INVESTMENTS (Cost $193,962*)........................... 98.6% 196,486
OTHER ASSETS (LIABILITIES) (NET)............................. 1.4 2,716
----- --------
NET ASSETS................................................... 100.0% $199,202
===== ========
- ----------
* Aggregate cost for federal tax purposes is $194,955.
** Security acquired in a transaction exempt from registration under Rule
144A of the Securities Act of 1933, as amended.
+ Defaulted security is past maturity but continues to be valued in
recognition of future potential worth.
GLOSSARY OF TERMS
MTN -- Medium-Term Note
See Notes to Financial Statements.
68
Portfolio of Investments
VT MONEY MARKET FUND
December 31, 2006
PRINCIPAL
AMOUNT VALUE
(000S) (000S)
- --------- --------
COMMERCIAL PAPER (DOMESTIC) - 3.8%
(Cost $592)
$ 600 Bank of America Corp,
5.250% due 04/03/2007+++...................... $ 592
--------
COMMERCIAL PAPER (YANKEE) - 11.0%
641 BNP Paribas Finance,
5.190% due 04/11/2007+++...................... 632
500 Societe Generale,
5.200% due 03/26/2007+++...................... 494
600 UBS Finance (D.E) LLC,
5.240% due 03/08/2007+++...................... 594
--------
Total Commercial Paper (Yankee)
(Cost $1,720)................................. 1,720
--------
CERTIFICATE OF DEPOSIT (DOMESTIC) - 3.2%
(Cost $500)
500 Suntrust Bank,
5.290% due 06/28/2007++....................... 500
--------
CERTIFICATES OF DEPOSIT (YANKEE) - 6.4%
500 Canadian Imperial Bank of Commerce, NY,
5.550% due 04/27/2007++....................... 500
500 Toronto Dominion Bank,
5.300% due 04/13/2007......................... 500
--------
Total Certificates of Deposit (Yankee)
(Cost $1,000)................................. 1,000
--------
CORPORATE BONDS AND NOTES - 26.5%
800 ACF Parking Ltd., Note,
(LOC: Fifth Third Bank),
5.370% due 05/01/2022+........................ 800
710 Bank of New York Company, Inc., Sr. Note,
5.200% due 07/01/2007......................... 709
600 Branch Banking & Trust, Note,
5.461% due 06/04/2007++....................... 600
500 Citigroup Global Markets, Note, Series K,
5.739% due 05/18/2007......................... 501
700 Household Finance Corporation, Note,
5.750% due 01/30/2007......................... 700
855 Lauren Company LLC, Bond,
(LOC: Wells Fargo Bank),
5.370% due 07/01/2033+**...................... 855
--------
Total Corporate Bonds and Notes
(Cost $4,165)................................. 4,165
--------
TAXABLE MUNICIPAL BONDS - 30.2%
750 California Statewide Communities Development
Authority, MFHR, (Hallmark House Apartments),
Series ZZ-T, (FNMA Collateral),
5.420% due 12/15/2036+........................ 750
390 Michigan State Housing Development Authority,
Revenue Bonds, Series D, (FSA Insured),
5.260% due 06/01/2034+........................ 390
720 New York State Housing Finance Agency,
Housing Revenue, (West 20th Street Project),
Series B, (FNMA Collateral),
5.280% due 05/15/2033+........................ 720
PRINCIPAL
AMOUNT VALUE
(000S) (000S)
- --------- --------
$ 600 Oakland-Alameda County, California, Coliseum
Authority, Lease Revenue, (Coliseum Project),
Series D, (LOC: Wachovia Bank),
5.280% due 02/01/2011+........................ $ 600
705 Sacramento County, Pension Funding,
Revenue Bonds, Seies C,
(LOC: Bayerische Landesbank),
5.360% due 07/01/2022+........................ 705
525 San Jose, California, Redevelopment Agency,
Revenue Bonds, (Merged Area Redevelopment
Project), Series A, (LOC: JPMorgan Chase
Bank), 5.310% due 08/01/2028+................. 525
405 Washington State Housing Finance Commission,
MFHR, (Bremerton Project), Series B,
(FNMACollateral),
5.350% due 05/15/2033+........................ 405
645 Washington State Housing Finance
Commission, Nonprofit Community College
Foundation Revenue, Series B, (Community
College Spokane Foundation),
(LOC: Bank of America),
5.300% due 07/01/2030+........................ 645
--------
Total Taxable Municipal Bonds
(Cost $4,740)................................. 4,740
--------
REPURCHASE AGREEMENT - 18.6%
(Cost $2,912)
2,912 Agreement with Morgan Stanley, 4.750%
dated 12/29/2006, to be purchased at
$2,914,000 on 01/03/2007 (collateralized by
U.S. Treasury Bond, 3.625% due 04/15/2028,
market value $3,001,000)...................... 2,912
--------
TOTAL INVESTMENTS (Cost $15,629*)............................ 99.7% 15,629
OTHER ASSETS (LIABILITIES) (NET)............................. 0.3 45
----- --------
NET ASSETS................................................... 100.0% $ 15,674
===== ========
- ----------
* Aggregate cost for federal tax purposes is $15,629.
** Security acquired in a transaction exempt from registration under Rule 144A
of the Securities Act of 1933, as amended.
+ 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 rate shown are those in effect at December 31,
2006. These rates change periodically based on specified market rates or
indicies.
++ Floating rate security whose interest rate is reset periodically based on
an index.
+++ Rate represents discount rate on purchase date.
GLOSSARY OF TERMS
FNMA -- Federal National Mortgage Association
FSA -- Financial Security Assurance
LOC -- Letter of Credit
MFHR -- Multi-family Housing Revenue
See Notes to Financial Statements.
69
Statements of Assets and Liabilities
WM VARIABLE TRUST
December 31, 2006
(In thousands)
VT EQUITY VT GROWTH VT WEST VT MID VT
VT REIT INCOME & INCOME COAST EQUITY CAP STOCK GROWTH
FUND FUND FUND FUND FUND FUND
------- --------- --------- ------------ --------- --------
ASSETS:
Investments, at cost ........................ $43,254 $316,646 $192,735 $139,634 $ 91,828 $282,023
======= ======== ======== ======== ======== ========
Investments, at value:
Securities ............................... $55,651 $359,567 $244,629 $166,283 $111,141 $295,990
Repurchase agreements .................... 1,414 8,724 4,598 2,325 4,823 7,444
Investments held as collateral for
securities loaned ..................... -- 20,666 14,666 19,400 15,369 --
------- -------- -------- -------- -------- --------
Total Investments ........................ 57,065 388,957 263,893 188,008 131,333 303,434
Cash ........................................ -- -- -- 1 -- --
Dividends and/or interest receivable ........ 425 560 259 268 163 170
Receivable for Fund shares sold ............. -- 9 -- 82 22 5
Variation margin ............................ -- -- -- -- -- --
Receivable for investment securities sold ... 256 -- 5,788 1,505 53 --
------- -------- -------- -------- -------- --------
Total Assets ............................. 57,746 389,526 269,940 189,864 131,571 303,609
------- -------- -------- -------- -------- --------
LIABILITIES:
Payable upon return of securities loaned .... -- 20,666 14,666 19,400 15,369 --
Payable for Fund shares redeemed ............ 222 529 365 177 196 276
Payable for investment securities purchased . -- 1,784 -- 597 278 --
Investment advisory fee payable ............. 39 195 161 90 74 195
Distribution fees payable ................... 1 14 1 4 2 --
Due to custodian ............................ 256 -- -- -- -- 299
Accrued legal and audit fees ................ 31 35 35 34 28 35
Accrued printing and postage expenses ....... 3 24 9 13 10 12
Accrued expenses and other payables ......... 1 3 3 3 2 2
------- -------- -------- -------- -------- --------
Total Liabilities ........................ 553 23,250 15,240 20,318 15,959 819
------- -------- -------- -------- -------- --------
NET ASSETS .................................. $57,193 $366,276 $254,700 $169,546 $115,612 $302,790
======= ======== ======== ======== ======== ========
See Notes to Financial Statements.
70
VT U.S.
VT SMALL VT SMALL VT VT SHORT GOVERNMENT VT VT MONEY
CAP VALUE CAP GROWTH INTERNATIONAL TERM INCOME SECURITIES INCOME MARKET
FUND FUND GROWTH FUND FUND FUND FUND FUND
--------- ---------- ------------- ----------- ---------- -------- --------
ASSETS:
Investments, at cost ......................... $33,402 $43,993 $129,414 $45,512 $267,055 $193,962 $15,629
======= ======= ======== ======= ======== ======== =======
Investments, at value:
Securities ................................ $33,835 $43,773 $146,943 $44,214 $260,700 $194,176 $12,717
Repurchase agreements ..................... 2,215 4,428 4,993 841 2,030 2,310 2,912
Investments held as collateral for
securities loaned ...................... -- 4,462 -- -- -- -- --
------- ------- -------- ------- -------- -------- -------
Total Investments ......................... 36,050 52,663 151,936 45,055 262,730 196,486 15,629
Cash ......................................... -- 1 -- -- 1 -- 2
Dividends and/or interest receivable ......... 81 23 290 693 1,612 2,802 94
Receivable for Fund shares sold .............. -- 18 1 16 20 153 1
Variation margin ............................. -- -- -- 2 -- -- --
Receivable for investment securities sold .... 2,206 36 174 -- -- -- --
------- ------- -------- ------- -------- -------- -------
Total Assets .............................. 38,337 52,741 152,401 45,766 264,363 199,441 15,726
------- ------- -------- ------- -------- -------- -------
LIABILITIES:
Payable upon return of securities loaned ..... -- 4,462 -- -- -- -- --
Payable for Fund shares redeemed ............. 48 8 265 18 97 100 10
Payable for investment securities purchased .. 1,657 32 80 -- -- -- --
Investment advisory fee payable .............. 26 35 228 20 113 85 5
Distribution fees payable .................... -- 1 1 1 1 4 1
Due to custodian ............................. 90 -- 895 -- -- -- --
Accrued legal and audit fees ................. 35 34 36 33 34 34 31
Accrued printing and postage expenses ........ 3 4 6 6 20 15 4
Accrued expenses and other payables .......... 2 5 35 1 3 1 1
------- ------- -------- ------- -------- -------- -------
Total Liabilities ......................... 1,861 4,581 1,546 79 268 239 52
------- ------- -------- ------- -------- -------- -------
NET ASSETS ................................... $36,476 $48,160 $150,855 $45,687 $264,095 $199,202 $15,674
======= ======= ======== ======= ======== ======== =======
See Notes to Financial Statements.
71
Statements of Assets and Liabilities (continued)
WM VARIABLE TRUST
December 31, 2006
(In thousands)
VT EQUITY VT GROWTH VT WEST VT MID VT
VT REIT INCOME & INCOME COAST CAP STOCK GROWTH
FUND FUND FUND EQUITY FUND FUND FUND
------- --------- --------- ----------- --------- --------
NET ASSETS CONSIST OF:
Undistributed net investment income .......... $ 1,378 $ 5,638 $ 3,099 $ 1,033 $ 878 $ 564
Accumulated net realized gain/(loss)
on investment transactions ................ 16,992 26,829 (12,418) 4,655 5,985 (66,196)
Net unrealized appreciation/(depreciation)
of investments ............................ 13,811 72,311 71,158 48,374 39,505 21,411
Paid-in capital .............................. 25,012 261,498 192,861 115,484 69,244 347,011
------- -------- -------- -------- -------- --------
Total Net Assets .......................... $57,193 $366,276 $254,700 $169,546 $115,612 $302,790
======= ======== ======== ======== ======== ========
NET ASSETS:
Class 1 Shares ............................... $54,481 $296,113 $250,929 $152,592 $103,824 $301,607
======= ======== ======== ======== ======== ========
Class 2 Shares ............................... $ 2,712 $ 70,163 $ 3,771 $ 16,954 $ 11,788 $ 1,183
======= ======== ======== ======== ======== ========
SHARES OUTSTANDING:
Class 1 Shares ............................... 2,642 15,272 12,267 6,342 5,855 20,675
======= ======== ======== ======== ======== ========
Class 2 Shares ............................... 133 3,646 185 709 670 82
======= ======== ======== ======== ======== ========
CLASS 1 SHARES:*
Net asset value, offering and redemption price
per share of beneficial interest
outstanding ............................... $ 20.62 $ 19.39 $ 20.45 $ 24.06 $ 17.73 $ 14.59
======= ======== ======== ======== ======== ========
CLASS 2 SHARES:*
Net asset value, offering and redemption price
per share of beneficial interest
outstanding ............................... $ 20.46 $ 19.24 $ 20.34 $ 23.91 $ 17.60 $ 14.47
======= ======== ======== ======== ======== ========
- ----------
* Net asset values are not shown in thousands.
See Notes to Financial Statements.
72
VT U.S.
VT SMALL VT SMALL VT VT SHORT GOVERNMENT VT MONEY
CAP VALUE CAP GROWTH INTERNATIONAL TERM INCOME SECURITIES VT INCOME MARKET
FUND FUND GROWTH FUND FUND FUND FUND FUND
--------- ---------- ------------- ----------- ---------- --------- --------
NET ASSETS CONSIST OF:
Undistributed net investment income .......... $ 689 $ -- $ 2,328 $ 2,131 $ 13,582 $ 12,105 $ --
Accumulated net realized gain/(loss)
on investment transactions ................ 5,437 (21,731) 21,940 (500) (5,367) (889) 16
Net unrealized appreciation/(depreciation)
of investments ............................ 2,648 8,670 22,513 (426) (4,325) 2,524 --
Paid-in capital .............................. 27,702 61,221 104,074 44,482 260,205 185,462 15,658
------- -------- -------- ------- -------- -------- -------
Total Net Assets .......................... $36,476 $ 48,160 $150,855 $45,687 $264,095 $199,202 $15,674
======= ======== ======== ======= ======== ======== =======
NET ASSETS:
Class 1 Shares ............................... $36,216 $ 44,152 $145,512 $42,466 $259,054 $182,728 $12,841
======= ======== ======== ======= ======== ======== =======
Class 2 Shares ............................... $ 260 $ 4,008 $ 5,343 $ 3,221 $ 5,041 $ 16,474 $ 2,833
======= ======== ======== ======= ======== ======== =======
SHARES OUTSTANDING:
Class 1 Shares ............................... 2,930 4,268 8,297 16,865 24,883 17,317 12,841
======= ======== ======== ======= ======== ======== =======
Class 2 Shares ............................... 21 393 307 1,285 485 1,570 2,833
======= ======== ======== ======= ======== ======== =======
CLASS 1 SHARES:*
Net asset value, offering and redemption price
per share of beneficial interest
outstanding ............................... $ 12.36 $ 10.34 $ 17.54 $ 2.52 $ 10.41 $ 10.55 $ 1.00
======= ======== ======== ======= ======== ======== =======
CLASS 2 SHARES:*
Net asset value, offering and redemption price
per share of beneficial interest
outstanding ............................... $ 12.32 $ 10.20 $ 17.39 $ 2.51 $ 10.39 $ 10.49 $ 1.00
======= ======== ======== ======= ======== ======== =======
See Notes to Financial Statements.
73
Statements of Operations
WM VARIABLE TRUST
For the Year Ended December 31, 2006
(In thousands)
VT VT VT WEST VT
EQUITY GROWTH COAST MID CAP VT
VT REIT INCOME & INCOME EQUITY STOCK GROWTH
FUND FUND FUND FUND FUND FUND
------- ------- -------- ------- ------- --------
INVESTMENT INCOME:
Dividends ................................... $ 1,432 $ 6,980 $ 4,773 $ 1,833 $ 1,496 $ 2,535
Interest .................................... 117 837 293 219 262 361
Foreign withholding taxes ................... (12) (31) (9) (2) (7) (42)
Securities lending income ................... 51 77 9 45 16 16
------- ------- ------- ------- ------- --------
Total investment income .................. 1,588 7,863 5,066 2,095 1,767 2,870
------- ------- ------- ------- ------- --------
EXPENSES:
Investment advisory fee ..................... 435 2,049 1,874 981 828 2,205
Class 2 Shares distribution fees ............ 5 138 9 34 24 3
Custodian fees .............................. 4 10 9 13 6 32
Legal and audit fees ........................ 30 36 36 33 27 36
Trustees' fees .............................. 1 6 5 3 2 5
Other ....................................... 11 58 20 22 20 28
------- ------- ------- ------- ------- --------
Total expenses ........................... 486 2,297 1,953 1,086 907 2,309
Fees reduced by custodian credits ........... (1) (1) --* --* --* (12)
------- ------- ------- ------- ------- --------
Net expenses ............................. 485 2,296 1,953 1,086 907 2,297
------- ------- ------- ------- ------- --------
NET INVESTMENT INCOME/(LOSS) ................ 1,103 5,567 3,113 1,009 860 573
------- ------- ------- ------- ------- --------
NET REALIZED AND UNREALIZED
GAIN/(LOSS) ON INVESTMENTS:
Net realized gain/(loss) on:
Security transactions .................... 16,613 26,866 12,566 4,884 6,509 27,247
Forward foreign currency contracts and
foreign currency transactions ......... -- -- -- -- -- 2
Futures contracts ........................ -- -- -- -- -- --
Options contracts ........................ -- -- -- -- -- --
------- ------- ------- ------- ------- --------
Net realized gain/(loss) on investment
transactions .......................... 16,613 26,866 12,566 4,884 6,509 27,249
------- ------- ------- ------- ------- --------
Capital gain distributions received ......... 668 179 -- 116 -- --
------- ------- ------- ------- ------- --------
Net increase from payment by the Advisor** .. -- -- -- -- -- --
------- ------- ------- ------- ------- --------
Net change in unrealized appreciation/
depreciation of:
Securities ............................... (2,602) 22,207 12,784 11,800 10,059 (13,986)
Foreign currency, futures contracts and
other assets and liabilities .......... -- -- -- -- -- --
------- ------- ------- ------- ------- --------
Net change in unrealized appreciation/
depreciation of investment transactions .. (2,602) 22,207 12,784 11,800 10,059 (13,986)
------- ------- ------- ------- ------- --------
Net realized and unrealized gain/(loss) on
investments .............................. 14,679 49,252 25,350 16,800 16,568 13,263
------- ------- ------- ------- ------- --------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS ............................... $15,782 $54,819 $28,463 $17,809 $17,428 $ 13,836
======= ======= ======= ======= ======= ========
- ----------
* Amount represents less than $500.
** See Note 3 in Notes to Financial Statements.
See Notes to Financial Statements.
74
VT VT VT
SMALL SMALL VT SHORT VT U.S.
CAP CAP INTERNATIONAL TERM GOVERNMENT VT MONEY
VALUE GROWTH GROWTH INCOME SECURITIES VT INCOME MARKET
FUND FUND FUND FUND FUND FUND FUND
------- ------ ------------- ------ ---------- --------- --------
INVESTMENT INCOME:
Dividends ................................... $ 1,001 $ 77 $ 2,940 $ -- $ -- $ -- $ --
Interest .................................... 79 86 174 2,438 13,913 12,894 766
Foreign withholding taxes ................... (65) -- (264) -- -- -- --
Securities lending income ................... 44 72 68 -- -- -- --
------- ------ ------- ------ ------- ------- ----
Total investment income .................. 1,059 235 2,918 2,438 13,913 12,894 766
------- ------ ------- ------ ------- ------- ----
EXPENSES:
Investment advisory fee ..................... 300 404 1,196 248 1,372 1,019 69
Class 2 Shares distribution fees ............ -- 10 9 11 17 45 9
Custodian fees .............................. 7 22 147 6 14 7 2
Legal and audit fees ........................ 33 33 35 32 34 34 29
Trustees' fees .............................. 1 1 2 1 5 4 --
Other ....................................... 7 12 24 14 30 37 9
------- ------ ------- ------ ------- ------- ----
Total expenses ........................... 348 482 1,413 312 1,472 1,146 118
Fees reduced by custodian credits ........... --* (1) --* --* (1) (7) --*
------- ------ ------- ------ ------- ------- ----
Net expenses ............................. 348 481 1,413 312 1,471 1,139 118
------- ------ ------- ------ ------- ------- ----
NET INVESTMENT INCOME/(LOSS) ................ 711 (246) 1,505 2,126 12,442 11,755 648
------- ------ ------- ------ ------- ------- ----
NET REALIZED AND UNREALIZED
GAIN/(LOSS) ON INVESTMENTS:
Net realized gain/(loss) on:
Security transactions .................... 5,419 1,000 33,155 (42) (32) 722 --
Forward foreign currency contracts and
foreign currency transactions ......... (17) -- 405 -- -- -- --
Futures contracts ........................ -- -- -- 1 -- -- --
Options contracts ........................ (456) -- -- -- -- -- --
------- ------ ------- ------ ------- ------- ----
Net realized gain/(loss) on investment
transactions .......................... 4,946 1,000 33,560 (41) (32) 722 --
------- ------ ------- ------ ------- ------- ----
Capital gain distributions received ......... 15 1 -- -- -- -- --
------- ------ ------- ------ ------- ------- ----
Net increase from payment by the Advisor** .. -- -- -- -- -- -- 16
------- ------ ------- ------ ------- ------- ----
Net change in unrealized appreciation/
depreciation of:
Securities ............................... (1,509) 2,325 (9,819) (12) (449) (2,885) --
Foreign currency, futures contracts and
other assets and liabilities .......... -- -- 30 43 -- -- --
------- ------ ------- ------ ------- ------- ----
Net change in unrealized appreciation/
depreciation of investment transactions .. (1,509) 2,325 (9,789) 31 (449) (2,885) --
------- ------ ------- ------ ------- ------- ----
Net realized and unrealized gain/(loss) on
investments .............................. 3,452 3,326 23,771 (10) (481) (2,163) 16
------- ------ ------- ------ ------- ------- ----
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS ............................... $ 4,163 $3,080 $25,276 $2,116 $11,961 $ 9,592 $664
======= ====== ======= ====== ======= ======= ====
See Notes to Financial Statements.
75
Statements of Changes in Net Assets
WM VARIABLE TRUST
(In thousands)
VT GROWTH &
VT REIT FUND VT EQUITY INCOME FUND INCOME FUND
---------------------- ---------------------- ----------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
12/31/06 12/31/05 12/31/06 12/31/05 12/31/06 12/31/05
---------- ---------- ---------- ---------- ---------- ----------
Net investment income .............. $ 1,103 $ 1,506 $ 5,567 $ 5,563 $ 3,113 $ 3,645
Net realized gain on investment
transactions .................... 16,613 4,000 26,866 17,515 12,566 7,943
Capital gain distributions
received ........................ 668 414 179 165 -- --
Net change in unrealized
appreciation/depreciation of
investments ..................... (2,602) (917) 22,207 (306) 12,784 (2,342)
------- ------- -------- -------- -------- --------
Net increase/(decrease) in net
assets resulting from
operations ...................... 15,782 5,003 54,819 22,937 28,463 9,246
Distributions to shareholders from:
Net investment income:
Class 1 Shares ............... (1,340) (1,095) (4,715) (3,268) (3,616) (3,393)
Class 2 Shares ............... (38) (22) (838) (459) (43) (33)
Net realized gains on
investments:
Class 1 Shares ............... (4,409) (2,005) (13,881) -- -- --
Class 2 Shares ............... (135) (41) (2,700) -- -- --
Net increase/(decrease) in net
assets from Fund share
transactions:
Class 1 Shares ............... (6,590) (1,847) 31,700 31,403 (38,623) (11,414)
Class 2 Shares ............... 1,099 861 22,433 15,234 (23) (64)
------- ------- -------- -------- -------- --------
Net increase/(decrease) in net
assets .......................... 4,369 854 86,818 65,847 (13,842) (5,658)
NET ASSETS:
Beginning of year .................. 52,824 51,970 279,458 213,611 268,542 274,200
------- ------- -------- -------- -------- --------
End of year ........................ $57,193 $52,824 $366,276 $279,458 $254,700 $268,542
======= ======= ======== ======== ======== ========
Undistributed net investment income
at end of year .................. $ 1,378 $ 1,653 $ 5,638 $ 5,619 $ 3,099 $ 3,645
======= ======= ======== ======== ======== ========
TAX CHARACTER OF DISTRIBUTIONS PAID:
Ordinary income .................... $ 1,875 $ 1,622 $ 6,004 $ 3,727 $ 3,659 $ 3,426
Long-term capital gains ............ 4,047 1,541 16,130 -- -- --
------- ------- -------- -------- -------- --------
Total ........................... $ 5,922 $ 3,163 $ 22,134 $ 3,727 $ 3,659 $ 3,426
======= ======= ======== ======== ======== ========
See Notes to Financial Statements.
76
VT WEST COAST VT SMALL CAP
EQUITY FUND VT MID CAP STOCK FUND VT GROWTH FUND VALUE FUND
---------------------- ---------------------- ---------------------- ----------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
12/31/06 12/31/05 12/31/06 12/31/05 12/31/06 12/31/05 12/31/06 12/31/05
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net investment income .............. $ 1,009 $ 774 $ 860 $ 1,883 $ 573 $ 365 $ 711 $ 401
Net realized gain on investment
transactions .................... 4,884 5,774 6,509 11,521 27,249 12,221 4,946 3,772
Capital gain distributions
received ........................ 116 92 -- -- -- -- 15 1
Net change in unrealized
appreciation/depreciation of
investments ..................... 11,800 4,125 10,059 1,652 (13,986) 4,143 (1,509) (2,091)
-------- -------- -------- -------- -------- -------- ------- -------
Net increase/(decrease) in net
assets resulting from
operations ...................... 17,809 10,765 17,428 15,056 13,836 16,729 4,163 2,083
Distributions to shareholders from:
Net investment income:
Class 1 Shares ............... (725) (864) (1,711) (519) (344) (1,293) (402) (202)
Class 2 Shares ............... (42) (46) (142) (18) -- (3) (1) --
Net realized gains on
investments:
Class 1 Shares ............... (2,854) -- (10,408) (7,313) -- -- (3,463) (1,350)
Class 2 Shares ............... (254) -- (966) (431) -- -- (13) --
Net increase/(decrease) in net
assets from Fund share
transactions:
Class 1 Shares ............... 9,891 1,547 (3,553) (11,193) 16,655 10,517 (2,407) (4,853)
Class 2 Shares ............... 4,827 1,851 3,729 1,226 (136) (163) 238 15
-------- -------- -------- -------- -------- -------- ------- -------
Net increase/(decrease) in net
assets .......................... 28,652 13,253 4,377 (3,192) 30,011 25,787 (1,885) (4,307)
NET ASSETS:
Beginning of year .................. 140,894 127,641 111,235 114,427 272,779 246,992 38,361 42,668
-------- -------- -------- -------- -------- -------- ------- -------
End of year ........................ $169,546 $140,894 $115,612 $111,235 $302,790 $272,779 $36,476 $38,361
======== ======== ======== ======== ======== ======== ======= =======
Undistributed net investment income
at end of year .................. $ 1,033 $ 791 $ 878 $ 1,871 $ 564 $ 333 $ 689 $ 397
======== ======== ======== ======== ======== ======== ======= =======
TAX CHARACTER OF DISTRIBUTIONS PAID:
Ordinary income .................... $ 823 $ 910 $ 2,607 $ 1,258 $ 344 $ 1,296 $ 1,470 $ 1,552
Long-term capital gains ............ 3,052 -- 10,620 7,023 -- -- 2,409 --
-------- -------- -------- -------- -------- -------- ------- -------
Total ........................... $ 3,875 $ 910 $ 13,227 $ 8,281 $ 344 $ 1,296 $ 3,879 $ 1,552
======== ======== ======== ======== ======== ======== ======= =======
See Notes to Financial Statements.
77
Statements of Changes in Net Assets (continued)
WM VARIABLE TRUST
(In thousands)
VT SMALL CAP VT INTERNATIONAL VT SHORT TERM
GROWTH FUND GROWTH FUND INCOME FUND
----------------------- ----------------------- -----------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
12/31/06 12/31/05 12/31/06 12/31/05 12/31/06 12/31/05
---------- ---------- ---------- ---------- ---------- ----------
Net investment income/(loss) ................ $ (246) $ (294) $ 1,505 $ 1,211 $ 2,126 $ 2,149
Net realized gain/(loss) on investment
transactions ............................. 1,000 756 33,560 4,044 (41) 114
Capital gain distributions received ......... 1 189 -- -- -- --
Net increase from payment by the Advisor* ... -- -- -- -- -- --
Net change in unrealized appreciation/
depreciation of investments .............. 2,325 (2,232) (9,789) 11,434 31 (1,310)
------- -------- -------- -------- ------- -------
Net increase/(decrease) in net assets
resulting from operations ................ 3,080 (1,581) 25,276 16,689 2,116 953
Distributions to shareholders from:
Net investment income:
Class 1 Shares ........................ -- -- (2,003) (1,503) (2,030) (1,866)
Class 2 Shares ........................ -- -- (54) (9) (181) (227)
Net realized gains on investments:
Class 1 Shares ........................ -- -- -- -- -- --
Class 2 Shares ........................ -- -- -- -- -- --
Net increase/(decrease) in net assets from
Fund share transactions:
Class 1 Shares ........................ (1,371) (8,823) 13,837 2,110 (4,677) (351)
Class 2 Shares ........................ 10 170 3,682 645 (1,918) (1,802)
------- -------- -------- -------- ------- -------
Net increase/(decrease) in net assets ....... 1,719 (10,234) 40,738 17,932 (6,690) (3,293)
NET ASSETS:
Beginning of year ........................... 46,441 56,675 110,117 92,185 52,377 55,670
------- -------- -------- -------- ------- -------
End of year ................................. $48,160 $ 46,441 $150,855 $110,117 $45,687 $52,377
======= ======== ======== ======== ======= =======
Undistributed net investment income
at end of year ........................... $ -- $ -- $ 2,328 $ 575 $ 2,131 $ 2,196
======= ======== ======== ======== ======= =======
TAX CHARACTER OF DISTRIBUTIONS PAID:
Ordinary income ............................. $ -- $ -- $ 2,057 $ 1,512 $ 2,211 $ 2,093
Long-term capital gains ..................... -- -- -- -- -- --
-------- -------- -------- -------- ------- -------
Total .................................... $ -- $ -- $ 2,057 $ 1,512 $ 2,211 $ 2,093
======== ======== ======== ======== ======= =======
- ----------
* See Note 3 in Notes to Financial Statements.
See Notes to Financial Statements.
78
VT U.S. GOVERNMENT
SECURITIES FUND VT INCOME FUND VT MONEY MARKET FUND
----------------------- ----------------------- -----------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
12/31/06 12/31/05 12/31/06 12/31/05 12/31/06 12/31/05
---------- ---------- ---------- ---------- ---------- ----------
Net investment income/(loss) ................ $ 12,442 $ 12,151 $ 11,755 $ 11,358 $ 648 $ 441
Net realized gain/(loss) on investment
transactions ............................. (32) 496 722 893 -- --
Capital gain distributions received ......... -- -- -- -- -- --
Net increase from payment by the Advisor* ... -- -- -- -- 16 --
Net change in unrealized appreciation/
depreciation of investments .............. (449) (6,425) (2,885) (7,462) -- --
-------- -------- -------- -------- ------- -------
Net increase/(decrease) in net assets
resulting from operations ................ 11,961 6,222 9,592 4,789 664 441
Distributions to shareholders from:
Net investment income:
Class 1 Shares ........................ (13,081) (11,782) (10,799) (10,718) (496) (339)
Class 2 Shares ........................ (294) (436) (957) (1,267) (152) (102)
Net realized gains on investments:
Class 1 Shares ........................ -- -- (105) -- -- --
Class 2 Shares ........................ -- -- (10) -- -- --
Net increase/(decrease) in net assets from
Fund share transactions:
Class 1 Shares ........................ (6,504) 8,857 (320) 5,960 (306) (1,528)
Class 2 Shares ........................ (3,631) (3,790) (3,713) (2,178) (483) (2,089)
-------- -------- -------- -------- ------- -------
Net increase/(decrease) in net assets ....... (11,549) (929) (6,312) (3,414) (773) (3,617)
NET ASSETS:
Beginning of year ........................... 275,644 276,573 205,514 208,928 16,447 20,064
-------- -------- -------- -------- ------- -------
End of year ................................. $264,095 $275,644 $199,202 $205,514 $15,674 $16,447
======== ======== ======== ======== ======= =======
Undistributed net investment income
at end of year ........................... $ 13,582 $ 13,350 $ 12,105 $ 11,752 $ -- $ --
======== ======= = ======== ======== ======= =======
TAX CHARACTER OF DISTRIBUTIONS PAID:
Ordinary income ............................. $ 13,375 $ 12,218 $ 11,760 $ 11,985 $ 648 $ 441
Long-term capital gains ..................... -- -- 111 -- -- --
-------- -------- -------- -------- ------- -------
Total .................................... $ 13,375 $ 12,218 $ 11,871 $ 11,985 $ 648 $ 441
======== ======== ======== ======== ======= =======
See Notes to Financial Statements.
79
Statements of Changes in Net Assets -- Capital Stock Activity
WM VARIABLE TRUST
(In thousands)
VT REIT FUND
ISSUED AS
REINVESTMENT NET INCREASE/
SOLD OF DIVIDENDS REDEEMED (DECREASE)
--------------- --------------- ----------------- ----------------
AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
------ ------ ------ ------ -------- ------ ------- ------
YEAR ENDED 12/31/06:
Class 1 Shares .. $1,224 65 $5,749 343 $(13,563) (715) $(6,590) (307)
Class 2 Shares .. 1,224 66 173 10 (298) (15) 1,099 61
YEAR ENDED 12/31/05:
Class 1 Shares .. $ 819 49 $3,100 186 $ (5,766) (330) $(1,847) (95)
Class 2 Shares .. 1,393 84 63 4 (595) (36) 861 52
VT EQUITY INCOME FUND
ISSUED AS
REINVESTMENT
SOLD OF DIVIDENDS REDEEMED NET INCREASE/
---------------- ---------------- ----------------- ----------------
AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
------- ------ ------- ------ -------- ------ ------- ------
YEAR ENDED 12/31/06:
Class 1 Shares .. $42,142 2,299 $18,596 1,091 $(29,038) (1,582) $31,700 1,808
Class 2 Shares .. 23,272 1,283 3,538 209 (4,377) (241) 22,433 1,251
YEAR ENDED 12/31/05:
Class 1 Shares .. $34,607 2,002 $ 3,268 194 $ (6,472) (386) $31,403 1,810
Class 2 Shares .. 19,058 1,134 459 28 (4,283) (256) 15,234 906
VT GROWTH & INCOME FUND
ISSUED AS
REINVESTMENT
SOLD OF DIVIDENDS REDEEMED NET INCREASE/
---------------- --------------- ----------------- -----------------
AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
------- ------ ------ ------ -------- ------ -------- ------
YEAR ENDED 12/31/06:
Class 1 Shares .. $10,686 561 $3,616 199 $(52,925) (2,779) $(38,623) (2,019)
Class 2 Shares .. 1,088 58 43 2 (1,154) (61) (23) (1)
YEAR ENDED 12/31/05:
Class 1 Shares .. $13,104 724 $3,393 187 $(27,911) (1,510) $(11,414) (599)
Class 2 Shares .. 861 48 33 2 (958) (53) (64) (3)
VT WEST COAST EQUITY FUND
ISSUED AS
REINVESTMENT
SOLD OF DIVIDENDS REDEEMED NET INCREASE/
---------------- --------------- ----------------- -----------------
AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
------- ------ ------ ------ -------- ------ -------- ------
YEAR ENDED 12/31/06:
Class 1 Shares .. $17,748 773 $3,579 164 $(11,436) (497) $9,891 440
Class 2 Shares .. 6,682 296 296 14 (2,151) (95) 4,827 215
YEAR ENDED 12/31/05:
Class 1 Shares .. $ 8,492 400 $ 864 43 $ (7,809) (378) $1,547 65
Class 2 Shares .. 3,299 159 46 2 (1,494) (73) 1,851 88
See Notes to Financial Statements.
80
Statements of Changes in Net Assets -- Capital Stock Activity (continued)
WM VARIABLE TRUST
(In thousands)
VT MID CAP STOCK FUND
ISSUED AS
REINVESTMENT NET INCREASE/
SOLD OF DIVIDENDS REDEEMED (DECREASE)
---------------- ---------------- ----------------- -----------------
AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
------- ------ ------- ------ -------- ------ -------- ------
YEAR ENDED 12/31/06:
Class 1 Shares .. $4,124 231 $12,119 775 $(19,796) (1,123) $ (3,553) (117)
Class 2 Shares .. 3,976 232 1,108 72 (1,355) (80) 3,729 224
YEAR ENDED 12/31/05:
Class 1 Shares .. $1,809 110 $ 7,832 487 $(20,834) (1,214) $(11,193) (617)
Class 2 Shares .. 1,747 105 449 28 (970) (59) 1,226 74
VT GROWTH FUND
ISSUED AS
REINVESTMENT NET INCREASE/
SOLD OF DIVIDENDS REDEEMED (DECREASE)
---------------- --------------- ----------------- -----------------
AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
------- ------ ------ ------ -------- ------ -------- ------
YEAR ENDED 12/31/06:
Class 1 Shares .. $36,591 2,594 $ 344 26 $(20,280) (1,444) $ 16,655 1,176
Class 2 Shares .. 267 19 -- -- (403) (29) (136) (10)
YEAR ENDED 12/31/05:
Class 1 Shares .. $30,450 2,171 $1,293 99 $(21,226) (1,628) $ 10,517 642
Class 2 Shares .. 172 13 3 -- (338) (26) (163) (13)
VT SMALL CAP VALUE FUND
ISSUED AS
REINVESTMENT NET INCREASE/
SOLD OF DIVIDENDS REDEEMED (DECREASE)
--------------- --------------- ---------------- ----------------
AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
------ ------ ------ ------ ------- ------ ------- ------
YEAR ENDED 12/31/06:
Class 1 Shares .. $1,072 85 $3,865 350 $(7,344) (590) $(2,407) (155)
Class 2 Shares .. 251 21 14 1 (27) (2) 238 20
YEAR ENDED 12/31/05:
Class 1 Shares .. $ 310 26 $1,552 126 $(6,715) (544) $(4,853) (392)
Class 2 Shares .. 15 1 -- -- -- -- 15 1
VT SMALL CAP GROWTH FUND
ISSUED AS
REINVESTMENT NET INCREASE/
SOLD OF DIVIDENDS REDEEMED (DECREASE)
--------------- --------------- ----------------- ----------------
AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
------ ------ ------ ------ -------- ------ ------- ------
YEAR ENDED 12/31/06:
Class 1 Shares .. $2,365 228 $-- -- $ (3,736) (367) $(1,371) (139)
Class 2 Shares .. 710 71 -- -- (700) (71) 10 --
YEAR ENDED 12/31/05:
Class 1 Shares .. $1,315 145 $-- -- $(10,138) (1,122) $(8,823) (977)
Class 2 Shares .. 835 96 -- -- (665) (74) 170 22
See Notes to Financial Statements.
81
Statements of Changes in Net Assets -- Capital Stock Activity (continued)
WM VARIABLE TRUST
(In thousands)
VT INTERNATIONAL GROWTH FUND
ISSUED AS
REINVESTMENT
SOLD OF DIVIDENDS REDEEMED NET INCREASE/
---------------- --------------- ----------------- ----------------
AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
------- ------ ------ ------ -------- ------ ------- ------
YEAR ENDED 12/31/06:
Class 1 Shares .. $24,580 1,584 $2,003 137 $(12,746) (790) $13,837 931
Class 2 Shares .. 3,835 242 54 4 (207) (13) 3,682 233
YEAR ENDED 12/31/05:
Class 1 Shares .. $ 2,995 228 $1,503 123 $ (2,388) (182) $ 2,110 169
Class 2 Shares .. 694 53 9 1 (58) (4) 645 50
VT SHORT TERM INCOME FUND
ISSUED AS
REINVESTMENT
SOLD OF DIVIDENDS REDEEMED NET DECREASE/
--------------- --------------- ---------------- ----------------
AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
------ ------ ------ ------ ------- ------ ------- ------
YEAR ENDED 12/31/06:
Class 1 Shares .. $2,013 793 $2,030 832 $(8,720) (3,486) $(4,677) (1,861)
Class 2 Shares .. 609 243 181 74 (2,708) (1,088) (1,918) (771)
YEAR ENDED 12/31/05:
Class 1 Shares .. $1,650 651 $1,866 750 $(3,867) (1,525) $ (351) (124)
Class 2 Shares .. 782 308 227 91 (2,811) (1,112) (1,802) (713)
VT U. S. GOVERNMENT SECURITIES FUND
ISSUED AS
REINVESTMENT NET INCREASE/
SOLD OF DIVIDENDS REDEEMED (DECREASE)
---------------- ---------------- ----------------- ----------------
AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
------- ------ ------- ------ -------- ------ ------- ------
YEAR ENDED 12/31/06:
Class 1 Shares .. $18,790 1,800 $13,081 1,315 $(38,375) (3,730) $(6,504) (615)
Class 2 Shares .. 492 48 294 30 (4,417) (431) (3,631) (353)
YEAR ENDED 12/31/05:
Class 1 Shares .. $12,473 1,188 $11,782 1,135 $(15,398) (1,468) $ 8,857 855
Class 2 Shares .. 645 62 436 42 (4,871) (462) (3,790) (358)
VT INCOME FUND
ISSUED AS
REINVESTMENT NET INCREASE/
SOLD OF DIVIDENDS REDEEMED (DECREASE)
---------------- ---------------- ----------------- ----------------
AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
------- ------ ------- ------ -------- ------ ------- ------
YEAR ENDED 12/31/06:
Class 1 Shares .. $15,658 1,481 $10,904 1,087 $(26,882) (2,576) $ (320) (8)
Class 2 Shares .. 2,953 286 967 97 (7,633) (731) (3,713) (348)
YEAR ENDED 12/31/05:
Class 1 Shares .. $ 7,235 674 $10,718 1,015 $(11,993) (1,113) $ 5,960 576
Class 2 Shares .. 3,002 279 1,267 120 (6,447) (602) (2,178) (203)
See Notes to Financial Statements.
82
Statements of Changes in Net Assets -- Capital Stock Activity (continued)
WM VARIABLE TRUST
(In thousands)
VT MONEY MARKET FUND
ISSUED AS
REINVESTMENT OF
SOLD DIVIDENDS REDEEMED NET DECREASE
---------------- --------------- ------------------ ----------------
AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
------- ------ ------ ------ -------- ------- ------- ------
YEAR ENDED 12/31/06:
Class 1 Shares ..... $10,796 10,796 $496 496 $(11,598) (11,598) $ (306) (306)
Class 2 Shares ..... 8,845 8,845 152 152 (9,480) (9,480) (483) (483)
YEAR ENDED 12/31/05:
Class 1 Shares ..... $10,489 10,489 $339 339 $(12,356) (12,356) $(1,528) (1,528)
Class 2 Shares ..... 6,537 6,537 102 102 (8,728) (8,728) (2,089) (2,089)
See Notes to Financial Statements.
83
Financial Highlights
VT REIT FUND
For a Fund share outstanding throughout each period.
INCOME FROM
INVESTMENT OPERATIONS LESS DISTRIBUTIONS
-------------------------------------- ------------------------------------------
NET NET REALIZED
ASSET AND DIVIDENDS DISTRIBUTIONS
VALUE NET UNREALIZED TOTAL FROM FROM NET FROM NET
BEGINNING INVESTMENT GAIN ON INVESTMENT INVESTMENT REALIZED TOTAL
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME CAPITAL GAINS DISTRIBUTIONS
--------- ---------- ------------ ---------- ---------- ------------- -------------
CLASS 1 SHARES
Year Ended:
12/31/06 $17.49 $0.38(5) $4.93 $5.31 $(0.51) $(1.67) $(2.18)
12/31/05 16.96 0.47(5) 1.08 1.55 (0.36) (0.66) (1.02)
12/31/04 13.04 0.49(5) 3.74 4.23 (0.20) (0.11) (0.31)
12/31/03(3) 10.00 0.36(5) 2.68 3.04 -- -- --
CLASS 2 SHARES
Year Ended:
12/31/06 $17.38 $0.33(5) $4.90 $5.23 $(0.48) $(1.67) $(2.15)
12/31/05 16.90 0.44(5) 1.05 1.49 (0.35) (0.66) (1.01)
12/31/04 13.03 0.45(5) 3.73 4.18 (0.20) (0.11) (0.31)
12/31/03(4) 11.20 0.28(5) 1.55 1.83 -- -- --
RATIOS TO AVERAGE
NET ASSETS/SUPPLEMENTAL DATA
----------------------------------------------------------------
RATIO OF RATIO OF
EXPENSES EXPENSES
TO AVERAGE TO AVERAGE RATIO OF
NET NET ASSETS NET ASSETS NET
ASSET BEFORE AFTER INVESTMENT
VALUE NET ASSETS REIMBURSE- REIMBURSE- INCOME TO PORTFOLIO
END OF TOTAL END OF PERIOD MENTS/ MENTS/ AVERAGE TURNOVER
PERIOD RETURN(1) (IN 000S) WAIVERS WAIVERS(2) NET ASSETS RATE
------ --------- ------------- ---------- ---------- ---------- ---------
CLASS 1 SHARES
Year Ended:
12/31/06 $20.62 33.21% $54,481 0.88% 0.88% 2.04% 72%(7)
12/31/05 17.49 9.40 51,570 0.89 0.89 2.82 25
12/31/04 16.96 33.08 51,632 0.88 0.88 3.43 13
12/31/03(3) 13.04 30.40 38,593 1.00(6) 1.00(6) 4.21(6) 3
CLASS 2 SHARES
Year Ended:
12/31/06 $20.46 32.90% $ 2,712 1.13% 1.13% 1.79% 72%(7)
12/31/05 17.38 9.10 1,254 1.14 1.14 2.57 25
12/31/04 16.90 32.72 338 1.13 1.13 3.18 13
12/31/03(4) 13.03 16.34 1 1.25(6) 1.25(6) 3.96(6) 3
(1) Total return is not annualized for periods of less than one year. 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.
(2) Ratio of operating expenses to average net assets includes expenses paid
indirectly.
(3) The VT REIT Fund commenced operations on May 1, 2003.
(4) The VT REIT Fund commenced selling Class 2 shares on August 5, 2003.
See Notes to Financial Statements.
84
Financial Highlights
VT EQUITY INCOME FUND
For a Fund share outstanding throughout each period.
INCOME/(LOSS) FROM
INVESTMENT OPERATIONS LESS DISTRIBUTIONS
-------------------------------------- ------------------------------------------
NET REALIZED
NET AND
ASSET UNREALIZED DIVIDENDS DISTRIBUTIONS
VALUE NET GAIN/(LOSS) TOTAL FROM FROM NET FROM NET
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT REALIZED TOTAL
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME CAPITAL GAINS DISTRIBUTIONS
--------- ---------- ------------ ---------- ---------- ------------- -------------
CLASS 1 SHARES
Year Ended:
12/31/06 $17.64 $0.32(5) $ 2.71 $ 3.03 $(0.33) $(0.95) $(1.28)
12/31/05 16.26 0.40(5) 1.26 1.66 (0.28) -- (0.28)
12/31/04 13.90 0.32(5) 2.30 2.62 (0.26) -- (0.26)
12/31/03 11.01 0.31(5) 2.95 3.26 (0.31) (0.06) (0.37)
12/31/02 12.87 0.36(5) (1.95) (1.59) (0.25) (0.02) (0.27)
CLASS 2 SHARES
Year Ended:
12/31/06 $17.53 $0.27(5) $ 2.69 $ 2.96 $(0.30) $(0.95) $(1.25)
12/31/05 16.18 0.36(5) 1.24 1.60 (0.25) -- (0.25)
12/31/04 13.85 0.28(5) 2.30 2.58 (0.25) -- (0.25)
12/31/03 10.99 0.29(5) 2.93 3.22 (0.30) (0.06) (0.36)
12/31/02 12.87 0.32(5) (1.93) (1.61) (0.25) (0.02) (0.27)
RATIOS TO AVERAGE
NET ASSETS/SUPPLEMENTAL DATA
----------------------------------------------------------------
RATIO OF RATIO OF
EXPENSES EXPENSES
TO AVERAGE TO AVERAGE RATIO OF
NET NET ASSETS NET ASSETS NET
ASSET BEFORE AFTER INVESTMENT
VALUE NET ASSETS REIMBURSE- REIMBURSE- INCOME TO PORTFOLIO
END OF TOTAL END OF PERIOD MENTS/ MENTS/ AVERAGE TURNOVER
PERIOD RETURN(1) (IN 000S) WAIVERS WAIVERS(2) NET ASSETS RATE
------ --------- ------------- ---------- ---------- ---------- ---------
CLASS 1 SHARES
Year Ended:
12/31/06 $19.39 18.17% $296,113 0.66% 0.66% 1.74% 87%(8)
12/31/05 17.64 10.27 237,482 0.66 0.66 2.40 46
12/31/04 16.26 19.12 189,517 0.67 0.67 2.15 26
12/31/03 13.90 30.10 149,603 0.70 0.70 2.63 23
12/31/02 11.01 (12.51) 112,304 0.70 0.70 3.04 16
CLASS 2 SHARES
Year Ended:
12/31/06 $19.24 17.86% $70,163 0.91% 0.91% 1.49% 87%(8)
12/31/05 17.53 9.97 41,976 0.91 0.91 2.15 46
12/31/04 16.18 18.82 24,094 0.92 0.92 1.90 26
12/31/03 13.85 29.73 12,619 0.95 0.95 2.38 23
12/31/02 10.99 (12.67) 6,460 0.95 0.95 2.79 16
(5) Per share numbers have been calculated using the average shares method.
(6) Annualized.
(7) The VT REIT Fund had unusually high portfolio turnover due to the
transitioning of Fund holdings for a planned fund merger. See Note 1 in
Notes to Financial Statements.
(8) The VT Equity Income Fund had unusually high portfolio turnover due a
change in the portfolio manager.
See Notes to Financial Statements.
85
Financial Highlights
VT GROWTH & INCOME FUND
For a Fund share outstanding throughout each period.
INCOME/(LOSS) FROM
INVESTMENT OPERATIONS LESS DISTRIBUTIONS
-------------------------------------- ------------------------------------------
NET REALIZED
NET AND
ASSET UNREALIZED DIVIDENDS DISTRIBUTIONS
VALUE NET GAIN/(LOSS) TOTAL FROM FROM NET FROM NET
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT REALIZED TOTAL
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME CAPITAL GAINS DISTRIBUTIONS
--------- ---------- ------------ ---------- ---------- ------------- -------------
CLASS 1 SHARES
Year Ended:
12/31/06 $18.56 $0.24(3) $ 1.93 $ 2.17 $(0.28) $-- $(0.28)
12/31/05 18.19 0.25 0.35 0.60 (0.23) -- (0.23)
12/31/04 16.85 0.23(3) 1.29 1.52 (0.18) -- (0.18)
12/31/03 13.45 0.19(3) 3.39 3.58 (0.18) -- (0.18)
12/31/02 17.18 0.15(3) (3.77) (3.62) (0.11) -- (0.11)
CLASS 2 SHARES
Year Ended:
12/31/06 $18.46 $0.19(3) $ 1.92 $ 2.11 $(0.23) $-- $(0.23)
12/31/05 18.10 0.20 0.34 0.54 (0.18) -- (0.18)
12/31/04 16.79 0.19(3) 1.28 1.47 (0.16) -- (0.16)
12/31/03 13.42 0.15(3) 3.39 3.54 (0.17) -- (0.17)
12/31/02 17.18 0.11(3) (3.76) (3.65) (0.11) -- (0.11)
RATIOS TO AVERAGE
NET ASSETS/SUPPLEMENTAL DATA
----------------------------------------------------------------
RATIO OF RATIO OF
EXPENSES EXPENSES
TO AVERAGE TO AVERAGE RATIO OF
NET NET ASSETS NET ASSETS NET
ASSET BEFORE AFTER INVESTMENT
VALUE NET ASSETS REIMBURSE- REIMBURSE- INCOME TO PORTFOLIO
END OF TOTAL END OF PERIOD MENTS/ MENTS/ AVERAGE TURNOVER
PERIOD RETURN(1) (IN 000S) WAIVERS WAIVERS(2) NET ASSETS RATE
------ --------- ------------- ---------- ---------- ---------- ---------
CLASS 1 SHARES
Year Ended:
12/31/06 $20.45 11.87% $250,929 0.77% 0.77% 1.23% 34%
12/31/05 18.56 3.30 265,115 0.77 0.77 1.32 24
12/31/04 18.19 9.08 270,775 0.79 0.79 1.33 11
12/31/03 16.85 26.80 245,820 0.83 0.83 1.28 16
12/31/02 13.45 (21.16) 209,337 0.81 0.81 1.01 20
CLASS 2 SHARES
Year Ended:
12/31/06 $20.34 11.66% $ 3,771 1.02% 1.02% 0.98% 34%
12/31/05 18.46 2.97 3,427 1.02 1.02 1.07 24
12/31/04 18.10 8.78 3,425 1.04 1.04 1.08 11
12/31/03 16.79 26.49 2,712 1.08 1.08 1.03 16
12/31/02 13.42 (21.33) 1,301 1.06 1.06 0.76 20
(1) Total return is not annualized for periods of less than one year. 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.
(2) Ratio of operating expenses to average net assets includes expenses paid
indirectly.
(3) Per share numbers have been calculated using the average shares method.
See Notes to Financial Statements.
86
Financial Highlights
VT WEST COAST EQUITY FUND
For a Fund share outstanding throughout each period.
INCOME/(LOSS) FROM
INVESTMENT OPERATIONS LESS DISTRIBUTIONS
-------------------------------------- ------------------------------------------
NET REALIZED
NET AND
ASSET UNREALIZED DIVIDENDS DISTRIBUTIONS
VALUE NET GAIN/(LOSS) TOTAL FROM FROM NET FROM NET
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT REALIZED TOTAL
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME CAPITAL GAINS DISTRIBUTIONS
--------- ---------- ------------ ---------- ---------- ------------- -------------
CLASS 1 SHARES
Year Ended:
12/31/06 $22.04 $0.15(3) $ 2.45 $ 2.60 $(0.12) $(0.46) $(0.58)
12/31/05 20.45 0.13(3) 1.61 1.74 (0.15) -- (0.15)
12/31/04 18.14 0.16(3) 2.20 2.36 (0.05) -- (0.05)
12/31/03 12.69 0.06(3) 5.43 5.49 (0.04) -- (0.04)
12/31/02 16.70 0.06(3) (3.79) (3.73) (0.08) (0.20) (0.28)
CLASS 2 SHARES
Year Ended:
12/31/06 $21.92 $0.10(3) $ 2.43 $ 2.53 $(0.08) $(0.46) $(0.54)
12/31/05 20.35 0.08(3) 1.60 1.68 (0.11) -- (0.11)
12/31/04 18.08 0.11(3) 2.19 2.30 (0.03) -- (0.03)
12/31/03 12.67 0.02(3) 5.41 5.43 (0.02) -- (0.02)
12/31/02 16.70 0.02(3) (3.77) (3.75) (0.08) (0.20) (0.28)
RATIOS TO AVERAGE
NET ASSETS/SUPPLEMENTAL DATA
----------------------------------------------------------------
RATIO OF RATIO OF
EXPENSES EXPENSES
TO AVERAGE TO AVERAGE RATIO OF
NET NET ASSETS NET ASSETS NET
ASSET BEFORE AFTER INVESTMENT
VALUE NET ASSETS REIMBURSE- REIMBURSE- INCOME TO PORTFOLIO
END OF TOTAL END OF PERIOD MENTS/ MENTS/ AVERAGE TURNOVER
PERIOD RETURN(1) (IN 000S) WAIVERS WAIVERS(2) NET ASSETS RATE
------ --------- ------------- ---------- ---------- ---------- ---------
CLASS 1 SHARES
Year Ended:
12/31/06 $24.06 12.03% $152,592 0.67% 0.67% 0.66% 18%
12/31/05 22.04 8.57 130,071 0.68 0.68 0.62 18
12/31/04 20.45 13.03 119,371 0.69 0.69 0.87 17
12/31/03 18.14 43.35 105,160 0.71 0.71 0.42 16
12/31/02 12.69 (22.55) 68,227 0.71 0.71 0.42 20
CLASS 2 SHARES
Year Ended:
12/31/06 $23.91 11.75% $ 16,954 0.92% 0.92% 0.41% 18%
12/31/05 21.92 8.30 10,823 0.93 0.93 0.37 18
12/31/04 20.35 12.72 8,270 0.94 0.94 0.62 17
12/31/03 18.08 42.93 5,202 0.96 0.96 0.17 16
12/31/02 12.67 (22.67) 2,313 0.96 0.96 0.17 20
See Notes to Financial Statements.
87
Financial Highlights
VT MID CAP STOCK FUND
For a Fund share outstanding throughout each period.
INCOME/(LOSS) FROM
INVESTMENT OPERATIONS LESS DISTRIBUTIONS
-------------------------------------- ------------------------------------------
NET REALIZED
NET AND
ASSET UNREALIZED DIVIDENDS DISTRIBUTIONS
VALUE NET GAIN/(LOSS) TOTAL FROM FROM NET FROM NET
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT REALIZED TOTAL
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME CAPITAL GAINS DISTRIBUTIONS
--------- ---------- ------------ ---------- ---------- ------------- -------------
CLASS 1 SHARES
Year Ended:
12/31/06 $17.34 $0.14(3) $ 2.49 $ 2.63 $(0.32) $(1.92) $(2.24)
12/31/05 16.44 0.27(3) 1.84 2.11 (0.08) (1.13) (1.21)
12/31/04 14.63 0.08(3) 2.03 2.11 (0.05) (0.25) (0.30)
12/31/03 11.49 0.06(3) 3.12 3.18 (0.04) -- (0.04)
12/31/02 13.14 0.04(3) (1.36) (1.32) (0.03) (0.30) (0.33)
CLASS 2 SHARES
Year Ended:
12/31/06 $17.24 $0.09(3) $ 2.47 $ 2.56 $(0.28) $(1.92) $(2.20)
12/31/05 16.36 0.22(3) 1.84 2.06 (0.05) (1.13) (1.18)
12/31/04 14.58 0.04(3) 2.02 2.06 (0.03) (0.25) (0.28)
12/31/03 11.46 0.03(3) 3.11 3.14 (0.02) -- (0.02)
12/31/02 13.13 0.01(3) (1.36) (1.35) (0.02) (0.30) (0.32)
RATIOS TO AVERAGE
NET ASSETS/SUPPLEMENTAL DATA
----------------------------------------------------------------
RATIO OF RATIO OF
EXPENSES EXPENSES RATIO OF
TO AVERAGE TO AVERAGE NET
NET NET ASSETS NET ASSETS INVESTMENT
ASSET BEFORE AFTER INCOME/
VALUE NET ASSETS REIMBURSE- REIMBURSE- (LOSS) TO PORTFOLIO
END OF TOTAL END OF PERIOD MENTS/ MENTS/ AVERAGE TURNOVER
PERIOD RETURN(1) (IN 000S) WAIVERS WAIVERS(2) NET ASSETS RATE
------ --------- ------------- ---------- ---------- ---------- ---------
CLASS 1 SHARES
Year Ended:
12/31/06 $17.73 16.88% $103,824 0.80% 0.80% 0.80% 14%
12/31/05 17.34 13.39 103,543 0.81 0.81 1.62 27
12/31/04 16.44 14.59 108,347 0.81 0.81 0.54 32
12/31/03 14.63 27.73 84,408 0.83 0.83 0.47 37
12/31/02 11.49 (10.35) 63,119 0.84 0.84 0.32 28
CLASS 2 SHARES
Year Ended:
12/31/06 $17.60 16.56% $ 11,788 1.05% 1.05% 0.55% 14%
12/31/05 17.24 13.12 7,692 1.06 1.06 1.37 27
12/31/04 16.36 14.28 6,080 1.06 1.06 0.29 32
12/31/03 14.58 27.45 3,725 1.08 1.08 0.22 37
12/31/02 11.46 (10.54) 1,962 1.09 1.09 0.07 28
(1) Total return is not annualized for periods of less than one year. 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.
(2) Ratio of operating expenses to average net assets includes expenses paid
indirectly.
(3) Per share numbers have been calculated using the average shares method.
(4) Amount represents less than $0.01 per share.
See Notes to Financial Statements.
88
Financial Highlights
VT GROWTH FUND
For a Fund share outstanding throughout each period.
INCOME/(LOSS) FROM
INVESTMENT OPERATIONS LESS DISTRIBUTIONS
------------------------------------- ------------------------------------------
NET
REALIZED
NET AND
ASSET NET UNREALIZED DIVIDENDS DISTRIBUTIONS
VALUE INVESTMENT GAIN/(LOSS) TOTAL FROM FROM NET FROM NET
BEGINNING INCOME/ ON INVESTMENT INVESTMENT REALIZED TOTAL
OF PERIOD (LOSS) INVESTMENTS OPERATIONS INCOME CAPITAL GAINS DISTRIBUTIONS
--------- ---------- ----------- ---------- ---------- ------------- -------------
CLASS 1 SHARES
Year Ended:
12/31/06 $13.92 $ 0.03(3) $ 0.66 $ 0.69 $(0.02) $-- $(0.02)
12/31/05 13.03 0.02 0.94 0.96 (0.07) -- (0.07)
12/31/04 12.04 0.07 0.92 0.99 -- -- --
12/31/03 9.32 (0.00)(4) 2.72 2.72 -- -- --
12/31/02 13.51 (0.01)(3) (4.18) (4.19) -- -- --
CLASS 2 SHARES
Year Ended:
12/31/06 $13.83 $(0.01)(3) $ 0.65 $ 0.64 $ -- $-- $ --
12/31/05 12.94 (0.01) 0.94 0.93 (0.04) -- (0.04)
12/31/04 11.98 0.04 0.92 0.96 -- -- --
12/31/03 9.30 (0.03) 2.71 2.68 -- -- --
12/31/02 13.51 (0.03)(3) (4.18) (4.21) -- -- --
RATIOS TO AVERAGE
NET ASSETS/SUPPLEMENTAL DATA
----------------------------------------------------------------
RATIO OF RATIO OF
EXPENSES EXPENSES RATIO OF
TO AVERAGE TO AVERAGE NET
NET NET ASSETS NET ASSETS INVESTMENT
ASSET BEFORE AFTER INCOME/
VALUE NET ASSETS REIMBURSE- REIMBURSE- (LOSS) TO PORTFOLIO
END OF TOTAL END OF PERIOD MENTS/ MENTS/ AVERAGE TURNOVER
PERIOD RETURN(1) (IN 000S) WAIVERS WAIVERS(2) NET ASSETS RATE
------ --------- ------------- ---------- ---------- ---------- ---------
CLASS 1 SHARES
Year Ended:
12/31/06 $14.59 4.94% $301,607 0.78% 0.78% 0.20% 108%(5)
12/31/05 13.92 7.41 271,508 0.87 0.87 0.15 81
12/31/04 13.03 8.22 245,637 0.94 0.95 0.58 66
12/31/03 12.04 29.18 189,837 0.98 0.98 (0.04) 75
12/31/02 9.32 (31.01) 135,422 1.00 1.00 (0.05) 171
CLASS 2 SHARES
Year Ended:
12/31/06 $14.47 4.63% $ 1,183 1.03% 1.03% (0.05)% 108%(5)
12/31/05 13.83 7.17 1,271 1.12 1.12 (0.10) 81
12/31/04 12.94 8.01 1,355 1.19 1.20 0.33 66
12/31/03 11.98 28.82 1,274 1.23 1.23 (0.29) 75
12/31/02 9.30 (31.16) 622 1.25 1.25 (0.30) 171
(5) The VT Growth Fund had unusually high portfolio turnover due to the
transitioning of Fund holdings for a planned fund merger. See Note 1 in
Notes to Financial Statements.
See Notes to Financial Statements.
89
Financial Highlights
VT SMALL CAP VALUE FUND
For a Fund share outstanding throughout each period.
INCOME FROM
INVESTMENT OPERATIONS LESS DISTRIBUTIONS
------------------------------------- ------------------------------------------
NET
NET REALIZED
ASSET AND DIVIDENDS DISTRIBUTIONS
VALUE NET UNREALIZED TOTAL FROM FROM NET FROM NET
BEGINNING INVESTMENT GAIN ON INVESTMENT INVESTMENT REALIZED TOTAL
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME CAPITAL GAINS DISTRIBUTIONS
--------- ---------- ----------- ---------- ---------- ------------- -------------
CLASS 1 SHARES
Year Ended:
12/31/06 $12.43 $0.24(5) $1.11 $1.35 $(0.15) $(1.27) $(1.42)
12/31/05 12.27 0.11(5) 0.50 0.61 (0.06) (0.39) (0.45)
12/31/04(3) 10.00 0.06 2.21 2.27 -- -- --
CLASS 2 SHARES
Year Ended:
12/31/06 $12.41 $0.21(5) $1.12 $1.33 $(0.15) $(1.27) $(1.42)
12/31/05(4) 12.28 0.08(5) 0.05 0.13 -- -- --
RATIOS TO AVERAGE
NET ASSETS/SUPPLEMENTAL DATA
----------------------------------------------------------------
RATIO OF RATIO OF
EXPENSES EXPENSES
TO AVERAGE TO AVERAGE RATIO OF
NET NET ASSETS NET ASSETS NET
ASSET BEFORE AFTER INVESTMENT
VALUE NET ASSETS REIMBURSE- REIMBURSE- INCOME TO PORTFOLIO
END OF TOTAL END OF PERIOD MENTS/ MENTS/ AVERAGE TURNOVER
PERIOD RETURN(1) (IN 000S) WAIVERS WAIVERS(2) NET ASSETS RATE
------ --------- ------------- ---------- ---------- ---------- ---------
CLASS 1 SHARES
Year Ended:
12/31/06 $12.36 12.22% $36,216 0.98% 0.98% 2.02% 93%(7)
12/31/05 12.43 4.97 38,346 0.97 0.97 0.93 59
12/31/04(3) 12.27 22.70 42,668 1.08(6) 1.08(6) 0.83(6) 50
CLASS 2 SHARES
Year Ended:
12/31/06 $12.32 11.87% $ 260 1.23% 1.23% 1.77% 93%(7)
12/31/05(4) 12.41 1.14 15 1.22(6) 1.22(6) 0.68(6) 59
(1) Total return is not annualized for periods of less than one year. 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.
(2) Ratio of operating expenses to average net assets includes expenses paid
indirectly.
(3) The VT Small Cap Value Fund commenced operations on May 3, 2004.
(4) The VT Small Cap Value Fund commenced selling Class 2 shares on July 1,
2005.
See Notes to Financial Statements.
90
Financial Highlights
VT SMALL CAP GROWTH FUND
For a Fund share outstanding throughout each period.
INCOME/(LOSS) FROM
INVESTMENT OPERATIONS LESS DISTRIBUTIONS
------------------------------------- ------------------------------------------
NET
REALIZED
NET AND
ASSET UNREALIZED DIVIDENDS DISTRIBUTIONS
VALUE NET GAIN/(LOSS) TOTAL FROM FROM NET FROM NET
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT REALIZED TOTAL
OF PERIOD LOSS INVESTMENTS OPERATIONS INCOME CAPITAL GAINS DISTRIBUTIONS
--------- ---------- ----------- ---------- ---------- ------------- -------------
CLASS 1 SHARES
Year Ended:
12/31/06 $ 9.68 $(0.05) $ 0.71 $ 0.66 $-- $ -- $ --
12/31/05 9.85 (0.06) (0.11) (0.17) -- -- --
12/31/04 9.41 (0.05) 0.49 0.44 -- -- --
12/31/03 5.49 (0.02)(5) 3.94 3.92 -- -- --
12/31/02 11.37 (0.02)(5) (5.27) (5.29) -- (0.59) (0.59)
CLASS 2 SHARES
Year Ended:
12/31/06 $ 9.57 $(0.07) $ 0.70 $ 0.63 $-- $ -- $ --
12/31/05 9.77 (0.08) (0.12) (0.20) -- -- --
12/31/04 9.35 (0.07) 0.49 0.42 -- -- --
12/31/03 5.47 (0.04)(5) 3.92 3.88 -- -- --
12/31/02 11.36 (0.03)(5) (5.27) (5.30) -- (0.59) (0.59)
RATIOS TO AVERAGE
NET ASSETS/SUPPLEMENTAL DATA
----------------------------------------------------------------
RATIO OF RATIO OF
EXPENSES EXPENSES
TO AVERAGE TO AVERAGE RATIO OF
NET NET ASSETS NET ASSETS NET
ASSET BEFORE AFTER INVESTMENT
VALUE NET ASSETS REIMBURSE- REIMBURSE- LOSS TO PORTFOLIO
END OF TOTAL END OF PERIOD MENTS/ MENTS/ AVERAGE TURNOVER
PERIOD RETURN(1) (IN 000S) WAIVERS WAIVERS(2) NET ASSETS RATE
------ --------- ------------- ---------- ---------- ---------- ---------
CLASS 1 SHARES
Year Ended:
12/31/06 $10.34 6.82% $44,152 0.99% 0.99% (0.50)% 64%
12/31/05 9.68 (1.73) 42,679 1.11 1.11 (0.61) 172(8)
12/31/04 9.85 4.68 53,049 0.98 0.98 (0.56) 41
12/31/03 9.41 71.40 70,806 1.00 1.00 (0.31) 67
12/31/02 5.49 (47.15) 39,476 1.00 1.00 (0.31) 29
CLASS 2 SHARES
Year Ended:
12/31/06 $10.20 6.58% $ 4,008 1.24% 1.24% (0.75)% 64%
12/31/05 9.57 (2.05) 3,762 1.36 1.36 (0.86) 172(8)
12/31/04 9.77 4.49 3,626 1.23 1.23 (0.81) 41
12/31/03 9.35 70.93 2,710 1.25 1.25 (0.56) 67
12/31/02 5.47 (47.28) 1,068 1.25 1.25 (0.56) 29
(5) Per share numbers have been calculated using the average shares method.
(6) Annualized.
(7) The VT Small Cap Value Fund had unusually high portfolio turnover due to
the transitioning of Fund holdings for a planned fund merger. See Note 1 in
Notes to Financial Statements.
(8) The VT Small Cap Growth Fund had unusually high portfolio turnover due to a
change in sub-advisors.
See Notes to Financial Statements.
91
Financial Highlights
VT INTERNATIONAL GROWTH FUND
For a Fund share outstanding throughout each period.
INCOME/(LOSS) FROM
INVESTMENT OPERATIONS LESS DISTRIBUTIONS
-------------------------------------- ------------------------------------------
NET REALIZED
NET AND
ASSET UNREALIZED DIVIDENDS DISTRIBUTIONS
VALUE NET GAIN/(LOSS) TOTAL FROM FROM NET FROM NET
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT REALIZED TOTAL
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME CAPITAL GAINS DISTRIBUTIONS
--------- ---------- ------------ ---------- ---------- ------------- -------------
CLASS 1 SHARES
Year Ended:
12/31/06 $14.80 $0.18(3) $ 2.79 $ 2.97 $(0.23) $-- $(0.23)
12/31/05 12.77 0.17(3) 2.07 2.24 (0.21) -- (0.21)
12/31/04 11.38 0.12(3) 1.41 1.53 (0.14) -- (0.14)
12/31/03 8.51 0.09(3) 2.91 3.00 (0.13) -- (0.13)
12/31/02 10.21 0.04(3) (1.63) (1.59) (0.11) -- (0.11)
CLASS 2 SHARES
Year Ended:
12/31/06 $14.71 $0.14(3) $ 2.77 $ 2.91 $(0.23) $-- $(0.23)
12/31/05 12.71 0.13(3) 2.07 2.20 (0.20) -- (0.20)
12/31/04 11.34 0.09(3) 1.41 1.50 (0.13) -- (0.13)
12/31/03 8.49 0.06(3) 2.90 2.96 (0.11) -- (0.11)
12/31/02 10.21 0.02(3) (1.63) (1.61) (0.11) -- (0.11)
RATIOS TO AVERAGE
NET ASSETS/SUPPLEMENTAL DATA
----------------------------------------------------------------
RATIO OF RATIO OF
EXPENSES EXPENSES
TO AVERAGE TO AVERAGE RATIO OF
NET NET ASSETS NET ASSETS NET
ASSET BEFORE AFTER INVESTMENT
VALUE NET ASSETS REIMBURSE- REIMBURSE- INCOME TO PORTFOLIO
END OF TOTAL END OF PERIOD MENTS/ MENTS/ AVERAGE TURNOVER
PERIOD RETURN(1) (IN 000S) WAIVERS WAIVERS(2) NET ASSETS RATE
------ --------- ------------- ---------- ---------- ---------- ---------
CLASS 1 SHARES
Year Ended:
12/31/06 $17.54 20.54% $ 145,512 1.03% 1.03% 1.11% 105%(5)
12/31/05 14.80 17.87 109,029 1.11 1.11 1.27 32
12/31/04 12.77 13.60 91,875 1.16 1.16 0.99 23
12/31/03 11.38 35.51 74,138 1.21 1.21 0.94 22
12/31/02 8.51 (15.71) 50,625 1.26 1.26 0.49 30
CLASS 2 SHARES
Year Ended:
12/31/06 $17.39 20.27% $ 5,343 1.28% 1.28% 0.86% 105%(5)
12/31/05 14.71 17.59 1,088 1.36 1.36 1.02 32
12/31/04 12.71 13.33 310 1.41 1.41 0.74 23
12/31/03 11.34 35.10 182 1.46 1.46 0.69 22
12/31/02 8.49 (15.91) 93 1.51 1.51 0.24 30
(1) Total return is not annualized for periods of less than one year. 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.
(2) Ratio of operating expenses to average net assets includes expenses paid
indirectly.
(3) Per share numbers have been calculated using the average shares method.
(4) Amount represents less than $0.01 per share.
(5) The VT International Growth Fund had unusually high portfolio turnover due
to the transitioning of Fund holdings for a planned fund merger. See Note 1
in Notes to Financial Statements.
See Notes to Financial Statements.
92
Financial Highlights
VT SHORT TERM INCOME FUND
For a Fund share outstanding throughout each period.
INCOME/(LOSS) FROM
INVESTMENT OPERATIONS LESS DISTRIBUTIONS
-------------------------------------- ------------------------------------------
NET REALIZED
NET AND
ASSET UNREALIZED DIVIDENDS DISTRIBUTIONS
VALUE NET GAIN/(LOSS) TOTAL FROM FROM NET FROM NET
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT REALIZED TOTAL
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME CAPITAL GAINS DISTRIBUTIONS
--------- ---------- ------------ ---------- ---------- ------------- -------------
CLASS 1 SHARES
Year Ended:
12/31/06 $2.52 $0.11(3) $(0.00)(4) $0.11 $(0.11) $-- $(0.11)
12/31/05 2.58 0.10(3) (0.06) 0.04 (0.10) -- (0.10)
12/31/04 2.63 0.10(3) (0.05) 0.05 (0.10) -- (0.10)
12/31/03 2.65 0.11(3) 0.04 0.15 (0.17) -- (0.17)
12/31/02 2.60 0.14(3) 0.02 0.16 (0.11) -- (0.11)
CLASS 2 SHARES
Year Ended:
12/31/06 $2.51 $0.10(3) $(0.00)(4) $0.10 $(0.10) $-- $(0.10)
12/31/05 2.56 0.09(3) (0.05) 0.04 (0.09) -- (0.09)
12/31/04 2.62 0.09(3) (0.05) 0.04 (0.10) -- (0.10)
12/31/03 2.64 0.10(3) 0.04 0.14 (0.16) -- (0.16)
12/31/02 2.60 0.13(3) 0.02 0.15 (0.11) -- (0.11)
RATIOS TO AVERAGE
NET ASSETS/SUPPLEMENTAL DATA
----------------------------------------------------------------
RATIO OF RATIO OF
EXPENSES EXPENSES
TO AVERAGE TO AVERAGE RATIO OF
NET NET ASSETS NET ASSETS NET
ASSET BEFORE AFTER INVESTMENT
VALUE NET ASSETS REIMBURSE- REIMBURSE- INCOME TO PORTFOLIO
END OF TOTAL END OF PERIOD MENTS/ MENTS/ AVERAGE TURNOVER
PERIOD RETURN(1) (IN 000S) WAIVERS WAIVERS(2) NET ASSETS RATE
------ --------- ------------- ---------- ---------- ---------- ---------
CLASS 1 SHARES
Year Ended:
12/31/06 $2.52 4.59% $42,466 0.61% 0.61% 4.30% 13%
12/31/05 2.52 1.64 47,221 0.60 0.60 4.01 22
12/31/04 2.58 2.07 48,574 0.61 0.61 3.74 17
12/31/03 2.63 5.52 46,628 0.63 0.63 4.31 38
12/31/02 2.65 6.26 41,592 0.62 0.62 5.42 41
CLASS 2 SHARES
Year Ended:
12/31/06 $2.51 4.24% $ 3,221 0.86% 0.86% 4.05% 13%
12/31/05 2.51 1.76 5,156 0.85 0.85 3.76 22
12/31/04 2.56 1.60 7,096 0.86 0.86 3.49 17
12/31/03 2.62 5.46 6,157 0.88 0.88 4.06 38
12/31/02 2.64 5.86 1,188 0.87 0.87 5.17 41
See Notes to Financial Statements.
93
Financial Highlights
VT U.S. GOVERNMENT SECURITIES FUND
For a Fund share outstanding throughout each period.
INCOME/(LOSS) FROM
INVESTMENT OPERATIONS LESS DISTRIBUTIONS
-------------------------------------- ------------------------------------------
NET REALIZED
NET AND
ASSET UNREALIZED DIVIDENDS DISTRIBUTIONS
VALUE NET GAIN/(LOSS) TOTAL FROM FROM NET FROM NET
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT REALIZED TOTAL
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME CAPITAL GAINS DISTRIBUTIONS
--------- ---------- ------------ ---------- ---------- ------------- -------------
CLASS 1 SHARES
Year Ended:
12/31/06 $10.47 $0.47(3) $(0.03) $0.44 $(0.50) $-- $(0.50)
12/31/05 10.71 0.46(3) (0.22) 0.24 (0.48) -- (0.48)
12/31/04 10.75 0.45(3) (0.06) 0.39 (0.43) -- (0.43)
12/31/03 11.05 0.46(3) (0.23) 0.23 (0.53) -- (0.53)
12/31/02 10.55 0.59(3) 0.33 0.92 (0.42) -- (0.42)
CLASS 2 SHARES
Year Ended:
12/31/06 $10.43 $0.44(3) $(0.02) $0.42 $(0.46) $-- $(0.46)
12/31/05 10.66 0.43(3) (0.22) 0.21 (0.44) -- (0.44)
12/31/04 10.70 0.42(3) (0.06) 0.36 (0.40) -- (0.40)
12/31/03 11.02 0.44(3) (0.23) 0.21 (0.53) -- (0.53)
12/31/02 10.55 0.56(3) 0.33 0.89 (0.42) -- (0.42)
RATIOS TO AVERAGE
NET ASSETS/SUPPLEMENTAL DATA
----------------------------------------------------------------
RATIO OF RATIO OF
EXPENSES EXPENSES
TO AVERAGE TO AVERAGE RATIO OF
NET NET ASSETS NET ASSETS NET
ASSET BEFORE AFTER INVESTMENT
VALUE NET ASSETS REIMBURSE- REIMBURSE- INCOME TO PORTFOLIO
END OF TOTAL END OF PERIOD MENTS/ MENTS/ AVERAGE TURNOVER
PERIOD RETURN(1) (IN 000S) WAIVERS WAIVERS(2) NET ASSETS RATE
------ --------- ------------- ---------- ---------- ---------- ---------
CLASS 1 SHARES
Year Ended:
12/31/06 $10.41 4.45% $259,054 0.53% 0.53% 4.54% 16%
12/31/05 10.47 2.27 266,902 0.54 0.54 4.39 33
12/31/04 10.71 3.78 263,816 0.54 0.54 4.21 28
12/31/03 10.75 2.14 204,193 0.56 0.56 4.26 46
12/31/02 11.05 8.87 173,770 0.56 0.56 5.45 41
CLASS 2 SHARES
Year Ended:
12/31/06 $10.39 4.22% $ 5,041 0.78% 0.78% 4.29% 16%
12/31/05 10.43 2.02 8,742 0.79 0.79 4.14 33
12/31/04 10.66 3.59 12,757 0.79 0.79 3.96 28
12/31/03 10.70 1.87 16,323 0.81 0.81 4.01 46
12/31/02 11.02 8.57 12,264 0.81 0.81 5.20 41
(1) Total return is not annualized for periods of less than one year. 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.
(2) Ratio of operating expenses to average net assets includes expenses paid
indirectly.
(3) Per share numbers have been calculated using the average shares method.
See Notes to Financial Statements.
94
Financial Highlights
VT INCOME FUND
For a Fund share outstanding throughout each period.
INCOME/(LOSS) FROM
INVESTMENT OPERATIONS LESS DISTRIBUTIONS
-------------------------------------- ------------------------------------------
NET REALIZED
NET AND
ASSET UNREALIZED DIVIDENDS DISTRIBUTIONS
VALUE NET GAIN/(LOSS) TOTAL FROM FROM NET FROM NET
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT REALIZED TOTAL
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME CAPITAL GAINS DISTRIBUTIONS
--------- ---------- ------------ ---------- ---------- ------------- -------------
CLASS 1 SHARES
Year Ended:
12/31/06 $10.69 $0.61(3) $(0.13) $0.48 $(0.61) $(0.01) $(0.62)
12/31/05 11.08 0.60(3) (0.34) 0.26 (0.65) -- (0.65)
12/31/04 11.18 0.61(3) (0.03) 0.58 (0.68) -- (0.68)
12/31/03 10.79 0.63(3) 0.42 1.05 (0.66) -- (0.66)
12/31/02 10.31 0.69(3) 0.27 0.96 (0.48) -- (0.48)
CLASS 2 SHARES
Year Ended:
12/31/06 $10.62 $0.58(3) $(0.12) $0.46 $(0.58) $(0.01) $(0.59)
12/31/05 11.01 0.57(3) (0.34) 0.23 (0.62) -- (0.62)
12/31/04 11.12 0.58(3) (0.03) 0.55 (0.66) -- (0.66)
12/31/03 10.77 0.60(3) 0.41 1.01 (0.66) -- (0.66)
12/31/02 10.31 0.65(3) 0.29 0.94 (0.48) -- (0.48)
RATIOS TO AVERAGE
NET ASSETS/SUPPLEMENTAL DATA
----------------------------------------------------------------
RATIO OF RATIO OF
EXPENSES EXPENSES
TO AVERAGE TO AVERAGE RATIO OF
NET NET ASSETS NET ASSETS NET
ASSET BEFORE AFTER INVESTMENT
VALUE NET ASSETS REIMBURSE- REIMBURSE- INCOME TO PORTFOLIO
END OF TOTAL END OF PERIOD MENTS/ MENTS/ AVERAGE TURNOVER
PERIOD RETURN(1) (IN 000S) WAIVERS WAIVERS(2) NET ASSETS RATE
------ --------- ------------- ---------- ---------- ---------- ---------
CLASS 1 SHARES
Year Ended:
12/31/06 $10.55 4.90% $182,728 0.54% 0.54% 5.79% 24%
12/31/05 10.69 2.40 185,140 0.54 0.54 5.50 13
12/31/04 11.08 5.56 185,570 0.55 0.55 5.53 20
12/31/03 11.18 9.78 193,953 0.56 0.56 5.74 24
12/31/02 10.79 9.61 179,844 0.56 0.56 6.64 21
CLASS 2 SHARES
Year Ended:
12/31/06 $10.49 4.59% $ 16,474 0.79% 0.79% 5.54% 24%
12/31/05 10.62 2.06 20,374 0.79 0.79 5.25 13
12/31/04 11.01 5.31 23,358 0.80 0.80 5.28 20
12/31/03 11.12 9.47 21,188 0.81 0.81 5.49 24
12/31/02 10.77 9.40 8,186 0.81 0.81 6.39 21
See Notes to Financial Statements.
95
Financial Highlights
VT MONEY MARKET FUND
For a Fund share outstanding throughout each period.
INCOME FROM
INVESTMENT OPERATIONS LESS DISTRIBUTIONS
-------------------------------------- ------------------------------------------
NET REALIZED
NET AND
ASSET UNREALIZED DIVIDENDS DISTRIBUTIONS
VALUE NET LOSS TOTAL FROM FROM NET FROM NET
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT REALIZED TOTAL
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME CAPITAL GAINS DISTRIBUTIONS
--------- ---------- ------------ ---------- ---------- ------------- -------------
CLASS 1 SHARES
Year Ended:
12/31/06 $1.00 $0.043 $-- $0.043 $(0.043) $-- $(0.043)
12/31/05 1.00 0.026 -- 0.026 (0.026) -- (0.026)
12/31/04 1.00 0.008 -- 0.008 (0.008) -- (0.008)
12/31/03 1.00 0.006 -- 0.006 (0.006) -- (0.006)
12/31/02 1.00 0.014(3) -- 0.014 (0.014) -- (0.014)
CLASS 2 SHARES
Year Ended:
12/31/06 $1.00 $0.041 $-- $0.041 $(0.041) $-- $(0.041)
12/31/05 1.00 0.023 -- 0.023 (0.023) -- (0.023)
12/31/04 1.00 0.006 -- 0.006 (0.006) -- (0.006)
12/31/03 1.00 0.004 -- 0.004 (0.004) -- (0.004)
12/31/02 1.00 0.011(3) -- 0.011 (0.011) -- (0.011)
RATIOS TO AVERAGE
NET ASSETS/SUPPLEMENTAL DATA
-------------------------------------------------------
RATIO OF RATIO OF
EXPENSES EXPENSES
TO AVERAGE TO AVERAGE RATIO OF
NET NET ASSETS NET ASSETS NET
ASSET BEFORE AFTER INVESTMENT
VALUE NET ASSETS REIMBURSE- REIMBURSE- INCOME TO
END OF TOTAL END OF PERIOD MENTS/ MENTS/ AVERAGE
PERIOD RETURN(1) (IN 000S) WAIVERS WAIVERS(2) NET ASSETS
------ --------- ------------- ---------- ---------- ----------
CLASS 1 SHARES
Year Ended:
12/31/06 $1.00 4.39% $12,841 0.71% 0.71% 4.31%
12/31/05 1.00 2.59 13,132 0.70 0.70 2.53
12/31/04 1.00 0.85 14,660 0.63 0.63 0.84
12/31/03 1.00 0.65 20,198 0.60 0.60 0.67
12/31/02 1.00 1.39 33,766 0.57 0.57 1.32
CLASS 2 SHARES
Year Ended:
12/31/06 $1.00 4.13% $ 2,833 0.96% 0.96% 4.06%
12/31/05 1.00 2.33 3,315 0.95 0.95 2.28
12/31/04 1.00 0.59 5,404 0.88 0.88 0.59
12/31/03 1.00 0.40 3,068 0.85 0.85 0.42
12/31/02 1.00 1.13 4,679 0.82 0.82 1.07
(1) Total return is not annualized for periods of less than one year. 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.
(2) Ratio of operating expenses to average net assets includes expenses paid
indirectly.
(3) Per share numbers have been calculated using the average shares method.
See Notes to Financial Statements.
96
Notes to Financial Statements
WM VARIABLE TRUST
1. ORGANIZATION AND BUSINESS
WM Variable Trust (the "Trust") was organized as a Massachusetts business trust
on January 29, 1993. The Trust is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end management investment company.
The Trust consists of 13 funds (each a "Fund" and collectively, the "Funds") and
5 portfolios ("Portfolios"). The VT REIT, VT Equity Income, VT Growth & Income,
VT West Coast Equity, VT Mid Cap Stock, VT Growth, VT Small Cap Value, VT Small
Cap Growth, VT International Growth, VT Short Term Income, VT U.S. Government
Securities, VT Income and VT Money Market Funds are included in this report.
The Trust is authorized to issue an unlimited number of shares of beneficial
interest, each without par value. Each Fund offers two classes of shares: Class
1 shares and Class 2 shares. These shares are issued and redeemed only in
connection with investments in, and payments under, variable annuity and
variable life insurance contracts (collectively "Variable Insurance Contracts"),
as well as certain qualified retirement plans.
WM Advisors, Inc., (the "Advisor") serves as investment advisor to the Trust. On
July 25, 2006, the Principal Financial Group, Inc. ("PFG"), a publicly owned
financial services company, and its subsidiary Principal Management Corporation
("PMC") entered into an agreement with Washington Mutual, Inc. to acquire all of
the outstanding stock of the Advisor, WM Shareholder Services, Inc. (the
"Transfer Agent"), and WM Funds Distributor, Inc. (the "Distributor") (the
"Transaction"). The Transaction closed on December 31, 2006.
On August 11, 2006, the Board of Trustees approved proposed reorganizations (the
"Reorganizations") pursuant to which each of the Funds (each, an "Acquired
Fund") would combine with and into the corresponding separate series (each, an
"Acquiring Fund") of Principal Variable Contracts Fund, Inc. ("PVC"), subject to
various conditions including the approval of shareholders of each Acquired Fund.
Under the Reorganizations (i) all the assets and the stated liabilities of each
Acquired Fund would be transferred to its corresponding Acquiring Fund in
exchange for Class 1 and Class 2 shares of the Acquiring Fund; (ii) holders of
Class 1 and Class 2 shares of the Acquired Fund would receive, respectively,
that number of Class 1 and Class 2 shares of the corresponding Acquiring Fund
equal in value at the time of the exchange to the value of the holder's Acquired
Fund shares at such time; and (iii) the Acquired Fund would be liquidated and
dissolved. A special meeting of shareholders was held on December 15, 2006.
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 their financial statements.
PORTFOLIO VALUATION:
Securities that are primarily traded on a U.S. exchange (excluding securities
traded through the NASDAQ National Market System, which are valued at the NASDAQ
official closing price) are valued at the last reported sales price on that
exchange or, if there were no sales during the day (and no official closing
price on such day), at the mean of the current day's bid and asked prices.
Securities traded only on over-the-counter markets (other than the NASDAQ
National Market System and the U.S. Government Securities System) are valued at
the mean of the current day's bid and asked prices.
The value of a foreign security is determined in its functional currency as of
the close of trading on the foreign exchange on which it is traded or at the
close of the New York Stock Exchange, if that is earlier, or if there has been
movement in the U.S. market and/or other economic indicators that exceed a
specified threshold, the foreign security is fair valued. The value is then
converted into its U.S. dollar equivalent using prevailing exchange rates on the
day the value of the foreign security is determined.
Options are generally valued at the last sale price or, in the absence of a last
sale price, at the mean of the current day's bid and asked prices. The value of
a futures contract equals the unrealized gain or loss on the contract, which is
determined by marking the contract to the current settlement price for a like
contract acquired on the day on which the futures contract is being valued.
Debt securities of U.S. issuers (other than short-term investments), including
municipal securities, are valued by one or more independent pricing services
retained by the Trust. When, in the judgment of a pricing service, market
quotations for these securities are readily available, they are valued at the
mean between the quoted bid and asked prices. Short-term debt securities that
mature in 60 days or less are valued at amortized cost, which approximates
market value.
Securities for which market quotations are not readily available are valued at
fair value as determined by, or under the direction of, the Funds' Board of
Trustees, which may rely on the assistance of one or more pricing services.
The investments of the VT Money Market Fund 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 other assets may be valued by the Advisor under
the supervision of the VT Money Market Fund's Board of Trustees.
97
Notes to Financial Statements (Continued)
WM VARIABLE TRUST
REPURCHASE AGREEMENTS:
Each Fund 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 Fund'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 Fund would seek to use the collateral to offset losses
incurred. There is potential loss to the Fund in the event the Fund 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 Fund seeks to assert its rights. The
Advisor, acting under the supervision of the Board of Trustees of the Trust,
reviews the value of the collateral and the creditworthiness of those banks and
broker/dealers with whom each Fund enters into repurchase agreements.
FUTURES CONTRACTS:
Certain Funds may enter into futures transactions. The underlying value of a
futures contract is incorporated within the unrealized
appreciation/(depreciation) shown in the Portfolio of Investments under the
caption "Futures Contracts."
Upon entering into a futures contract, the Fund is required to deposit with the
broker an amount of cash or cash equivalents equal to a certain percentage of
the contract amount (known as an initial margin deposit). Subsequent payments
(known as variation margins) are made or received by the Fund each day,
depending on the daily fluctuation of the value of the contract. The daily
changes in contract value are recorded as unrealized gains or losses, and the
Fund recognizes a realized gain or loss when the contract is closed. Should
market conditions change unexpectedly, the Funds may not achieve the anticipated
benefits of the futures contracts and may realize a loss. The use of futures
transactions involves the risk of imperfect correlation in movements in the
price of futures contracts, interest rates and the underlying hedged assets.
PURCHASED OPTION CONTRACTS:
Certain Funds may enter into put and call option contracts. These Funds may use
option contracts to manage their exposure to the stock and bond markets and to
fluctuations in interest rates and currency values. Upon entering into a put or
call option, the premium paid is recorded as an investment. The daily changes in
contract value are recorded as unrealized gains or losses. When a purchased
option expires, the Fund will realize a loss in the amount of the cost of the
option. When the Fund enters into a closing sale transaction, the Fund will
realize a gain or loss depending on whether the sales proceeds from the closing
sale transaction are greater or less than the cost of the option plus related
transaction costs. When the Fund exercises a put option, the Fund will realize a
gain or loss from the sale of the underlying security and the proceeds from such
sale will be decreased by the premium originally paid. When the Fund exercises a
call option, the cost of the security, which the Fund purchases upon exercise,
will be increased by the premium originally paid. The risk associated with
purchasing options is limited to the premium originally paid.
FOREIGN CURRENCY:
The books and records of the Funds are maintained in U.S. dollars. Foreign
currencies, investments and other assets and liabilities are translated into
U.S. dollars on a daily basis using prevailing exchange rates. Purchases and
sales of investment securities, income and expenses are translated on the
respective dates of such transactions.
Unrealized gains and losses, not relating to securities, which result from
changes in foreign currency exchange rates, have been included in unrealized
appreciation/(depreciation) of investments. Unrealized gains and losses of
securities, which result from changes in foreign currency exchange rates as well
as changes in market prices of securities, have been included in unrealized
appreciation/(depreciation) of investments. Net realized foreign currency gains
and losses, which result from changes in exchange rates between trade date and
settlement date on investment transactions as well as the difference between the
amounts of interest and dividends recorded on the books of the Funds and the
amount actually received, have been included in realized gains/(losses) on
investment transactions. Foreign currency gains and losses, which result from
fluctuations in exchange rates between the initial purchase trade date and
subsequent sale trade date, have been included in realized gains/(losses) on
investment transactions.
FORWARD FOREIGN CURRENCY CONTRACTS:
Certain Funds may enter into forward foreign currency contracts. Forward foreign
currency contracts are agreements to exchange one currency for another at a
future date and at a specified price. These Funds may use forward foreign
currency contracts to facilitate transactions in foreign securities and to
manage the Funds' foreign currency exposure. These contracts are valued daily,
and a Fund's net equity therein, representing unrealized gain or loss on the
contracts as measured by the difference between the forward foreign exchange
rates at the dates of entry into the contracts and the forward rates at the
reporting date, is included in the "Statements of Assets and Liabilities."
Realized and unrealized gains and losses are included in the "Statements of
Operations." Due to the risks, the Funds could incur losses up to the entire
contract amount, which may exceed the net unrealized value shown in the
"Statements of Assets and Liabilities."
98
Notes to Financial Statements (Continued)
WM VARIABLE TRUST
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; (5)
securities, the disposition of which are restricted under federal securities
laws, excluding certain Rule 144A securities, as defined in the following
paragraph; and (6) certain over-the-counter options.
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
each 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, the 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 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. Paydown gains and losses on mortgage-backed
and asset-backed securities are presented as an adjustment to interest income.
Dividend income is recorded on the ex-dividend date, except certain dividends
from foreign securities are recorded as soon as the information is available to
the Funds if informed after the ex-dividend date. The Funds estimate components
of distributions from real estate investment trusts (REITs). Distributions
received in excess of income are recorded as a reduction of the cost of the
related investments. Distributions received from capital gains are presented as
an adjustment to dividend income and recorded as capital gain distributions
received. Each Fund's investment income and realized and unrealized gains and
losses are allocated among the classes of that Fund based upon the relative
average net assets of each class.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income and distributions of any net capital gains
earned by a Fund are declared and paid annually, with the exception of the VT
Money Market Fund, from which dividends from net investment income are declared
daily and paid monthly.
Distributions from income and capital gains are determined in accordance with
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 investment securities held by the Funds,
redesignated distributions and differing characterization of distributions made
by each Fund. At December 31, 2006, 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) (DECREASE)
UNDISTRIBUTED ACCUMULATED
DECREASE NET INVESTMENT NET REALIZED
PAID-IN CAPITAL INCOME/(LOSS) GAIN/(LOSS)
NAME OF FUND (000S) (000S) (000S)
- ------------ --------------- -------------- ------------
VT Equity Income Fund ................ $ -- $ 5 $ (5)
VT Growth Fund ....................... -- 2 (2)
VT Small Cap Value Fund .............. -- (16) 16
VT Small Cap Growth Fund ............. (246) 246 --
VT International Growth Fund ......... -- 2,306 (2,306)
VT Short Term Income Fund ............ (52) 20 32
VT U.S. Government Securities Fund ... -- 1,165 (1,165)
VT Income Fund ....................... -- 354 (354)
The above adjustments are not reflected in the calculation of net investment
income per share presented in the Financial Highlights.
99
Notes to Financial Statements (continued)
WM VARIABLE TRUST
FEDERAL INCOME TAXES:
It is each Fund's policy to qualify as a regulated investment company by
complying with the requirements of Sub-Chapter M of the Internal Revenue Code of
1986, as amended (the "Code"), 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.
It is each Fund's policy to meet the diversification requirements of the Code so
that variable annuity and variable life contracts funded by the Trust will not
fail to qualify as annuities and life insurance contracts for tax purposes.
EXPENSES:
General expenses of the Trust are allocated to all the Funds of the Trust based
upon the relative average net assets 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.
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 December 31, 2006, are shown separately in the
"Statements of Operations."
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:
FROM FROM FROM FROM FROM FROM FROM
$50 $100 $125 $200 $250 $400 $500 FROM $1 FROM $2
FROM $0 MILLION MILLION MILLION MILLION MILLION MILLION MILLION BILLION BILLION
TO $50 TO $100 TO $125 TO $200 TO $250 TO $400 TO $500 TO $1 TO $2 TO $3 OVER $3
NAME OF FUND MILLION MILLION MILLION MILLION MILLION MILLION MILLION BILLION BILLION BILLION BILLION
- ------------ ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
VT REIT Fund ........ 0.800% 0.800% 0.800% 0.800% 0.800% 0.800% 0.800% 0.750% 0.750% 0.700% 0.650%
VT Equity Income
Fund ............. 0.625% 0.625% 0.625% 0.625% 0.625% 0.625% 0.625% 0.500% 0.500% 0.500% 0.500%
VT Growth &
Income Fund ...... 0.750% 0.750% 0.750% 0.750% 0.700% 0.700% 0.650% 0.575% 0.575% 0.575% 0.575%
VT West Coast
Equity Fund ...... 0.625% 0.625% 0.625% 0.625% 0.625% 0.625% 0.625% 0.500% 0.500% 0.500% 0.500%
VT Mid Cap Stock
Fund ............. 0.750% 0.750% 0.750% 0.750% 0.750% 0.750% 0.750% 0.750% 0.700% 0.650% 0.600%
VT Growth Fund ...... 0.750% 0.750% 0.750% 0.750% 0.750% 0.750% 0.750% 0.700% 0.700% 0.650% 0.600%
VT Small Cap
Value Fund ....... 0.850% 0.850% 0.850% 0.850% 0.850% 0.850% 0.850% 0.750% 0.750% 0.750% 0.700%
VT Small Cap
Growth Fund ...... 0.850% 0.850% 0.850% 0.850% 0.850% 0.850% 0.850% 0.750% 0.750% 0.750% 0.700%
VT International
Growth Fund ...... 0.950% 0.850% 0.850% 0.750% 0.750% 0.750% 0.750% 0.750% 0.750% 0.750% 0.700%
VT Short Term
Income Fund ...... 0.500% 0.500% 0.500% 0.500% 0.450% 0.450% 0.450% 0.400% 0.400% 0.400% 0.400%
VT U.S. Government
Securities Fund .. 0.500% 0.500% 0.500% 0.500% 0.500% 0.500% 0.500% 0.500% 0.500% 0.450% 0.450%
VT Income Fund ...... 0.500% 0.500% 0.500% 0.500% 0.500% 0.500% 0.500% 0.500% 0.500% 0.450% 0.450%
VT Money Market
Fund ............. 0.450% 0.450% 0.450% 0.450% 0.450% 0.450% 0.450% 0.450% 0.400% 0.400% 0.400%
On December 18, 2006, the Advisor reimbursed $16,623 for capital losses incurred
in previous years for the VT Money Market Fund.
100
Notes to Financial Statements (continued)
WM VARIABLE TRUST
4. TRUSTEES' FEES
No officer or employee of PFG or its subsidiaries, or Washington Mutual or its
subsidiaries prior to December 31, 2006, received any compensation from the
Trust for serving as an officer or Trustee of the Trust. The Trust, together
with other mutual funds advised by the Advisor, pays each Trustee who is not an
officer or employee of PFG or its subsidiaries, or Washington Mutual or its
subsidiaries prior to December 31, 2006, a per annum retainer plus attendance
fees for each meeting at which they are present. The Chairman, Committee Chairs
and Committee Members receive additional remuneration for these services to the
Trust. Trustees are also reimbursed for travel and out-of-pocket expenses. Each
Trustee serves in the same capacity for all 40 funds within the WM Group of
Funds.
5. DISTRIBUTION PLANS
Each of the Funds has adopted a distribution plan, pursuant to Rule 12b-1 under
the 1940 Act, applicable to Class 2 shares of the Funds (a "Rule 12b-1 Plan").
Under the Rule 12b-1 Plan, the Distributor, a registered broker/dealer, may
receive a fee at an annual rate of 0.25% of the average daily net assets
attributable to Class 2 shares. This fee 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 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
Trust, as defined in the 1940 Act, and who have no direct or indirect financial
interest in the operation of the distribution plan, or any agreements related to
the plan.
6. PURCHASES AND SALES OF SECURITIES
The aggregate cost of purchases and proceeds from sales of securities, excluding
U.S. government and short-term investments, for the year ended December 31,
2006, are as follows:
PURCHASES SALES
NAME OF FUND (000S) (000S)
- ------------ --------- --------
VT REIT Fund ........................ $ 37,619 $ 46,108
VT Equity Income Fund ............... 319,471 275,583
VT Growth & Income Fund ............. 83,730 126,308
VT West Coast Equity Fund ........... 38,730 26,089
VT Mid Cap Stock Fund ............... 14,337 25,900
VT Growth Fund ...................... 333,486 308,912
VT Small Cap Value Fund ............. 31,588 38,545
VT Small Cap Growth Fund ............ 29,239 34,181
VT International Growth Fund ........ 153,955 138,873
VT Short Term Income Fund ........... 6,251 8,358
VT U.S. Government Securities Fund .. -- 3,731
VT Income Fund ...................... 27,722 36,077
The aggregate cost of purchases and proceeds from sales of U.S. government
securities, excluding short-term investments, for the year ended December 31,
2006, are as follows:
PURCHASES SALES
NAME OF FUND (000S) (000S)
- ------------ --------- -------
VT Equity Income Fund ............... $ -- $ 8
VT West Coast Equity Fund ........... 717 766
VT Short Term Income Fund ........... 267 3,203
VT U.S. Government Securities Fund .. 43,468 42,031
VT Income Fund ...................... 20,066 14,776
7. LENDING OF SECURITIES
Certain Funds may lend securities to brokers, dealers and other financial
organizations to earn additional income. The Funds also continue to receive
interest or dividends on the securities loaned. Each security loan is
collateralized with assets in an amount equal to or greater than the current
market value of the loaned securities. There is a risk of delay in receiving
collateral, that the collateral could lose value or become valueless, or in
recovering the securities loaned or even a loss of rights in collateral should
the borrower fail financially.
101
Notes to Financial Statements (continued)
WM VARIABLE TRUST
At December 31, 2006, each of the Funds with outstanding loans of securities to
certain brokers, dealers or other financial institutions has segregated cash
and/or securities at least equal to the market value of securities loaned with
the Funds' custodian. The Funds currently invest the segregated cash in Mellon
GSL DBT II, which is a common collective trust that invests in high-grade
short-term investments.
8. PORTFOLIO OWNERSHIP AND OTHER FACTORS
At December 31, 2006, the Portfolios hold investments in a number of the Funds.
The figures presented below represent the percentage of shares outstanding of
each Fund owned by the Portfolios:
PORTFOLIOS
------------------------------------------------------------------------------------
VT FLEXIBLE VT CONSERVATIVE VT CONSERVATIVE VT STRATEGIC
INCOME BALANCED VT BALANCED GROWTH GROWTH
NAME OF FUND PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO TOTAL
- ------------ ----------- --------------- ----------- --------------- ------------ -----
VT REIT Fund .................. 3.5% 2.9% 40.1% 29.5% 15.8% 91.8%
VT Equity Income Fund ......... 2.3% 1.9% 24.3% 18.0% 10.1% 56.6%
VT Growth & Income Fund ....... 4.5% 2.4% 34.8% 25.7% 14.4% 81.8%
VT West Coast Equity Fund ..... 1.5% 1.8% 25.8% 18.9% 11.3% 59.3%
VT Mid Cap Stock Fund ......... 4.7% 2.3% 32.0% 23.1% 14.9% 77.0%
VT Growth Fund ................ 4.5% 2.5% 38.4% 26.6% 16.4% 88.4%
VT Small Cap Value Fund ....... 6.0% 2.6% 40.5% 31.8% 17.8% 98.7%
VT Small Cap Growth Fund ...... 4.4% 1.8% 28.8% 22.6% 12.6% 70.2%
VT International Growth Fund .. -- 2.8% 40.4% 27.9% 16.9% 88.0%
VT Short Term Income Fund ..... 48.7% 9.0% 15.9% -- -- 73.6%
VT U.S. Government Securities
Fund ....................... 22.2% 7.3% 47.3% 11.1% -- 87.9%
VT Income Fund ................ 23.4% 6.6% 37.8% 7.9% -- 75.7%
From time to time, one or more of the 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 Funds, since the Funds that experience redemptions
as a result of the reallocations or rebalancings may have to sell portfolio
securities. At the same time, the Funds that receive additional cash will have
to invest such cash. This may be particularly important when one or more
Portfolios owns a substantial portion of any Underlying Fund. While it is
impossible to predict the overall impact of these transactions over time, there
could be adverse effects on Fund performance to the extent that the Funds may be
required to sell securities or invest cash at times when they would not
otherwise do so. These transactions could also accelerate the realization of
taxable income if sales of securities resulted in gains and could also increase
transaction costs. Because the Portfolios own substantial portions of some of
the Funds, redemptions and reallocations by the Portfolios away from a Fund
could cause the Fund's expenses to increase and may result in a Fund becoming
too small to be economically viable. The Advisor is committed to minimizing such
impact on the 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 to the Portfolios and Funds. The Advisor
will, at all times, monitor the impact on the Funds of transactions by the
Portfolios.
9. CAPITAL LOSS CARRYFORWARDS
At December 31, 2006, the following Funds have available for federal income tax
purposes unused capital losses as follows:
(IN THOUSANDS)
-------------------------------------------------------------------------------------
EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING
NAME OF FUND IN 2007 IN 2008 IN 2009 IN 2010 IN 2011 IN 2012 IN 2013 IN 2014
- ------------ -------- -------- -------- -------- -------- -------- -------- --------
VT Growth & Income Fund .............. $ -- $-- $ -- $ 1,851 $ 9,117 $ -- $ -- $ --
VT Growth Fund ....................... -- -- 21,289 37,621 5,944 -- -- --
VT Small Cap Growth Fund ............. -- -- -- 931 13,089 -- 7,505 --
VT Short Term Income Fund ............ 115 76 35 -- 112 85 -- 42
VT U.S. Government Securities Fund ... -- 17 -- -- 1,673 1,119 782 1,308
102
Notes to Financial Statements (continued)
WM VARIABLE TRUST
10. POST OCTOBER LOSS
Under the current tax law, capital and currency losses realized after October 31
may be deferred and treated as occurring on the first day of the following
fiscal year. For the year ended December 31, 2006, the following Funds have
elected to defer capital and currency losses occurring between November 1, 2006,
and December 31, 2006, as follows:
CAPITAL LOSSES CURRENCY LOSSES
NAME OF FUND (000S) (000S)
- ------------ -------------- ---------------
VT Small Cap Value Fund .............. $ -- $12
VT U.S. Government Securities Fund ... 208 --
VT Income Fund ....................... 179 --
11. COMPONENTS OF DISTRIBUTABLE EARNINGS
At December 31, 2006, the components of distributable earnings on a tax basis
are as follows:
(IN THOUSANDS)
-------------------------------------------------------------------------
VT VT VT VT VT
VT EQUITY GROWTH & WEST COAST MID CAP VT SMALL CAP
REIT INCOME INCOME EQUITY STOCK GROWTH VALUE
FUND FUND FUND FUND FUND FUND FUND
------- ------- -------- ---------- ------- ------- ---------
Gross tax unrealized appreciation ... $13,828 $73,025 $71,512 $52,538 $39,247 $23,358 $3,518
Gross tax unrealized depreciation ... (17) (844) (1,804) (4,535) (67) (3,289) (904)
------- ------- ------- ------- ------- ------- ------
Net tax unrealized appreciation ..... $13,811 $72,181 $69,708 $48,003 $39,180 $20,069 $2,614
======= ======= ======= ======= ======= ======= ======
Undistributed ordinary income ....... $ 2,691 $ 8,681 $ 3,099 $ 1,182 $ 1,262 $ 564 $1,026
Undistributed long-term gains ....... $15,679 $23,916 $ -- $ 4,877 $ 5,927 $ -- $4,554
Net unrealized appreciation/
(depreciation)* .................. $13,811 $72,181 $69,708 $48,003 $39,180 $20,069 $2,614
VT VT VT VT U.S. VT
SMALL CAP INTERNATIONAL SHORT TERM GOVERNMENT VT MONEY
GROWTH GROWTH INCOME SECURITIES INCOME MARKET
FUND FUND FUND FUND FUND FUND
--------- ------------- ---------- ---------- ------- ------
Gross tax unrealized appreciation ... $10,210 $22,819 $ 99 $ 851 $ 4,905 $--
Gross tax unrealized depreciation ... (1,746) (1,034) (560) (5,436) (3,374) --
------- ------- ------ ------- ------- ---
Net tax unrealized appreciation ..... $ 8,464 $21,785 $ (461) $(4,585) $ 1,531 $--
======= ======= ====== ======= ======= ===
Undistributed ordinary income ....... $ -- $ 2,991 $2,131 $13,582 $12,389 $16
Undistributed long-term gains ....... $ -- $22,015 $ -- $ -- $ -- $--
Net unrealized appreciation/
(depreciation)* .................. $ 8,464 $21,776 $ (461) $(4,585) $ 1,531 $--
* Net unrealized appreciation/(depreciation) may not agree due to foreign
currency.
12. 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 VT 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 VT REIT Fund could be
adversely impacted by economic trends within this industry.
The VT West Coast Equity Fund concentrates its investments in companies located
or doing business in Alaska, California, Oregon, and Washington. The VT West
Coast Equity Fund could be adversely impacted by economic trends within this
region.
The VT International Growth Fund concentrates its investments in foreign
securities in both developed and emerging market countries. Additional risks may
involve foreign currency exchange rate fluctuations, adverse political and
economic developments, and the possible prevention of currency exchange or other
foreign governmental laws or restrictions. Investments in emerging markets are
subject to additional risk as less developed countries are more likely to
experience high levels of inflation, deflation, or currency devaluation, which
could harm their economies and securities markets.
103
Notes to Financial Statements (continued)
WM VARIABLE TRUST
The WM 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.
Certain Funds may invest a portion of their assets in foreign securities of
developing or emerging market countries; enter into forward foreign currency
transactions; lend their portfolio securities; enter into 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 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.
13. NEW ACCOUNTING PRONOUNCEMENTS
In July 2006, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 48 (FIN 48), "Accounting for Uncertainty in Income Taxes."
This pronouncement provides guidance on the recognition, measurement,
classification, and disclosures related to uncertain tax positions, along with
any related interest and penalties. FIN 48 is effective June 29, 2007. The
impact from the adoption of FIN 48 is being evaluated, but is not anticipated to
have a material effect on the financial statements.
In addition, in September 2006, Statement of Financial Accounting Standards No.
157 Fair Value Measurements ("SFAS 157") was issued and is effective for fiscal
years beginning after November 15, 2007. SFAS 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. Management is currently evaluating the impact the
adoption of SFAS 157 will have on the Funds' financial statement disclosures.
14. SUBSEQUENT EVENT
The Reorganizations occurred as of the end of business on January 5, 2007, and
as a result, shareholders of the Acquired Funds became shareholders of the
Acquiring Funds as follows:
WM ACQUIRED FUND: PVC ACQUIRING FUND:
VT REIT Fund Real Estate Securities Account
VT Equity Income Fund Equity Income Account I*
VT Growth & Income Fund Disciplined LargeCap Blend Account
VT West Coast Equity Fund West Coast Equity Account*
VT Mid Cap Stock Fund MidCap Stock Account*
VT Growth Fund LargeCap Growth Account
VT Small Cap Value Fund SmallCap Value Account
VT Small Cap Growth Fund SmallCap Growth Account
VT International Growth Fund Diversified International Account
VT Short Term Income Fund Short-Term Income Account*
VT U.S. Government Securities Fund Mortgage Securities Account*
VT Income Fund Income Account*
VT Money Market Fund Money Market Account
* These Acquiring Funds are newly-organized funds that commenced operations
in connection with the Reorganization and the Acquired Fund is the survivor
for accounting and performance reporting purposes. The other Acquiring
Funds are existing PVC Accounts into which the relevant WM Fund merged and
the Acquiring Fund is the survivor for accounting and performance reporting
purposes.
104
Report of Independent Registered Public Accounting Firm
THE TRUSTEES AND SHAREHOLDERS OF WM VARIABLE TRUST:
We have audited the accompanying statements of assets and liabilities of WM
Variable Trust REIT Fund, WM Variable Trust Equity Income Fund, WM Variable
Trust Growth & Income Fund, WM Variable Trust West Coast Equity Fund, WM
Variable Trust Mid Cap Stock Fund, WM Variable Trust Growth Fund, WM Variable
Trust Small Cap Value Fund, WM Variable Trust Small Cap Growth Fund, WM Variable
Trust International Growth Fund, WM Variable Trust Short Term Income Fund, WM
Variable Trust U.S. Government Securities Fund, WM Variable Trust Income Fund
and WM Variable Trust Money Market Fund (collectively, "the Funds"), including
the portfolios of investments, as of December 31, 2006, and the related
statements of operations, statements of changes in net assets and financial
highlights for the year 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 audit. The statement of changes in net assets for the periods
presented through December 31, 2005 and the financial highlights for the periods
presented through December 31, 2005 were audited by other auditors whose report
dated February 17, 2006, expressed an unqualified opinion on those statements.
We conducted our audit 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. We were
not engaged to perform an audit of the Funds' internal control over financial
reporting. Our audit 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 and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of December 31, 2006, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. We believe that our audit provides 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 at December 31, 2006, the results of their operations, changes in their
net assets, and their financial highlights for the year then ended, in
conformity with U.S. generally accepted accounting principles.
Ernst & Young LLP
Des Moines, Iowa
February 22, 2007
105
Supplemental Information (unaudited)
WM VARIABLE TRUST
CONSIDERATION BY THE BOARD OF TRUSTEES OF ADVISORY AND SUB-ADVISORY AGREEMENTS
The Trust's investment advisory agreements with the Advisor and sub-advisory
agreements (each an "Agreement" and together the "Agreements") with Salomon
Brothers Asset Management, Inc., Janus Capital Management LLC, Oppenheimer
Funds, Inc., Delaware Management Company, Oberweis Asset Management, Inc., and
Capital Guardian Trust Company (each a "Sub-Advisor" and collectively the
"Sub-Advisors") were approved in May and August, 2006. In connection with their
approval in August 2006 of investment advisory agreements for the Funds
substantially identical to the Trust's current Agreements, except with respect
to dates and in contemplation of the acquisition of the Advisor by PFG, the
Board of Trustees, Independent Trustees and the Investment Committee of the
Board (the "Committee") relied on the information provided in connection with
the approval of the corresponding Agreements in May 2006, as supplemented by
expense and performance information provided by Lipper Inc., a third-party data
provider ("Lipper"), for the period ended June 30, 2006. 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 in August 2006
were the same as those in May 2006, which are discussed below, except that the
Board, the Independent Trustees and the Committee also considered the
supplemental expense and performance information for periods ended June 30,
2006; representations by PFG that, subsequent to its acquisition of the Advisor
in the Transaction, there is not expected to be any reduction in the nature,
quality and extent of services provided to the Funds by the Advisor; the fact
that the substantive terms of the Agreements, including the advisory and
sub-advisory fees payable thereunder, were not changing; and representations by
PFG that, except as discussed with the Board of Trustees, no changes were
expected in either the Advisor's investment professionals who would be providing
services to the Funds or the amount of time and attention that would be devoted
by such investment professionals to the Funds.
BOARD APPROVAL OF INVESTMENT ADVISORY AGREEMENT:
Each year, the Board, including a majority of the Independent Trustees, is
required to determine whether to continue the Agreements. The 1940 Act requires
that the Board request and evaluate, and that the investment advisor furnish,
such information as may reasonably be necessary to evaluate the terms of the
Agreements. In May 2006, the Board and the Independent Trustees approved the
continuation of the Agreements with, respectively, the Advisor and each of the
Sub-Advisors, in each case following the recommendation of 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 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 Trust 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. The Board, the Independent
Trustees and the Committee considered the fact that each of the Funds is managed
in a style substantially identical to that of a corresponding series of WM Trust
I or WM Trust II (each, a "Retail Fund") and reviewed the Funds simultaneously
with their review of the corresponding Retail Funds.
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; 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, performance and expense
information for other investment companies derived from data compiled by Lipper,
data on pre- and post-marketing profit margins for investment advisory
subsidiaries of publicly-traded companies prepared by Lipper, 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 Funds. 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 Funds by the Advisor and its affiliates under
other agreements, including information regarding
106
Supplemental Information (unaudited) (continued)
WM VARIABLE TRUST
so-called "fall-out" benefits to the Advisor and its affiliates due to their
other relationships with the Funds, 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 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 continuation of the
Agreements, the Board, the Independent Trustees and the Committee evaluated the
nature and extent of the services provided by the Advisor, its affiliates and
the Sub-Advisors. For each Fund, the Advisor or the relevant Sub-Advisor, as
applicable, 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
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 and the Sub-Advisors as well as
other resources available to the Advisor and the Sub-Advisors, including
research services available to the Advisor and the Sub-Advisors as a result of
securities transactions effected for the Funds. The Board, the Independent
Trustees and the Committee considered the managerial and financial resources
available to the Advisor and the Sub-Advisors 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 typically found in mutual fund
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
Sub-Advisors and the quality of their 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, its
affiliates and the Sub-Advisors, and the size and functions of their staffs as
well as the reputation of the Advisor and the Sub-Advisors. The Board, the
Independent Trustees and the Committee considered the complexity of managing the
Funds relative to other types of funds. In evaluating the scope and quality of
the services provided by the Advisor to the Funds, the Board, the Independent
Trustees and the Committee members also drew on their experiences as directors
or Trustees of the Retail 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 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 and the Sub-Advisors 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 and the Sub-Advisors 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 the Sub-Advisors was
consistent with the Funds' operational requirements, including, in addition to
their 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 the Sub-Advisors were
sufficient, in light of the resources dedicated by the Advisor and the
Sub-Advisors and their 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 and the Sub-Advisors, the Board, the Independent Trustees and the
Committee considered the professional credentials and investment experience of
the Funds' portfolio managers. The Board, the Independent Trustees and the
Committee considered the Funds' record of compliance with 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 (or since inception) periods ended March 31,
2006, and to average performance information for peer groups prepared by Lipper
based on the performance of other investment companies with similar investment
objectives over the 1-, 3-, 5- and 10-year periods (to the extent applicable)
ended December 31, 2005. In the case of each Fund that had performance that
lagged that of a relevant peer group for certain (although not necessarily all)
periods, the Board, the Independent Trustees and the Committee concluded that
other factors relevant to performance were sufficient, in light of other
considerations, to warrant continuation of the Agreements. Those factors varied
from Fund to Fund, but included one or more of the following: (i) that the
Fund's performance, although lagging in certain recent periods, was stronger
over the longer term; (ii) that the underperformance was attributable, to a
significant extent, to investment decisions that were reasonable and consistent
with the Fund's investment strategy and policies and that the Fund was
performing as expected, given market conditions and the Fund's investment
strategy; (iii) that the Fund's performance was competitive when compared to
other
107
Supplemental Information (unaudited) (continued)
WM VARIABLE TRUST
relevant performance benchmarks or peer groups; and (iv) that the Advisor had
taken or was taking steps designed to improve the Fund's investment performance.
After reviewing those and related factors, the Board, the Independent Trustees
and the Committee concluded that the Advisor's and the Sub-Advisors' performance
records and investment processes used in managing the Funds were sufficient, in
light of other considerations, to warrant 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,
service and distribution fees paid to the Advisor, its affiliates and the
Sub-Advisors, and the total expenses borne by the Funds. They discussed trends
in total expense ratios for the Funds. The Board, the Independent Trustees and
the Committee reviewed the distribution (12b-1) fees paid to the Distributor.
They considered the Funds' management fees relative to those of their respective
peer groups as determined by Lipper. 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 their relationships 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 information regarding the structure of
compensation of the Advisor's investment professionals), 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 their shareholders. 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 Funds, including compensation paid to the
Advisor and its affiliates, such as 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. The Trustees considered the fact
that the structure of breakpoints for the Advisor's fees and the fees of the
Sub-Advisors for Funds with multiple Sub-Advisors was such that, assuming
relatively equal allocation of Fund assets among all Sub-Advisors, the Advisor's
fee would be reduced by breakpoints at lower asset levels than those at which
the Advisor might benefit from breakpoints in the fees of the Sub-Advisors. The
Trustees did not evaluate the profitability to the Sub-Advisors of their
relationships with the Fund because the structure of the Agreements is such that
the fees payable to the Advisor are reduced by any fees payable to the
Sub-Advisors and they concluded that negotiations between the Advisor and the
Sub-Advisors had been entirely at arm's-length.
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 Fund assets in
relation to the breakpoints in the Funds' advisory fees. The Board, the
Independent Trustees and the Committee considered the extent to which economies
of scale might be realized by the Advisor across a variety of products and
services included within the WM Group of Funds.
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 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. 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 Agreements and the fees payable to the Advisor and the
Sub-Advisors are fair and reasonable to the Funds 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 Agreements was in
the best interests of the Funds and their shareholders. The Board and the
Independent Trustees unanimously approved the continuation of the Agreements.
108
Supplemental Information (unaudited) (continued)
WM VARIABLE TRUST
SPECIAL MEETING OF SHAREHOLDERS
A special meeting of shareholders was convened on December 15, 2006, at which
shareholders approved the following:
Approval of the Agreement and Plan of Reorganization providing for the
combination of the WM VT REIT Fund into the PVC Real Estate Securities Account.
AFFIRMATIVE AGAINST ABSTAIN TOTAL
------------- ---------- ----------- -------------
Voted Shares .............. 2,548,886.571 46,489.620 330,508.958 2,925,885.149
% of Outstanding Shares ... 87.115% 1.589% 11.296% 100.000%
% of Shares Voted ......... 87.115% 1.589% 11.296% 100.000%
Approval of the Agreement and Plan of Reorganization providing for the
combination of the WM VT Equity Income Fund into the PVC Equity Income Account
I.
AFFIRMATIVE AGAINST ABSTAIN TOTAL
-------------- ----------- ------------- --------------
Voted Shares .............. 16,776,524.185 293,045.408 1,896,339.337 18,965,908.930
% of Outstanding Shares ... 88.456% 1.545% 9.999% 100.000%
% of Shares Voted ......... 88.456% 1.545% 9.999% 100.000%
Approval of the Agreement and Plan of Reorganization providing for the
combination of the WM VT Growth & Income Fund into the PVC LargeCap Blend
Account.
AFFIRMATIVE AGAINST ABSTAIN TOTAL
-------------- ----------- ----------- --------------
Voted Shares .............. 11,401,913.615 774,335.229 719,123.368 12,895,372.212
% of Outstanding Shares ... 88.418% 6.005% 5.577% 100.000%
% of Shares Voted ......... 88.418% 6.005% 5.577% 100.000%
Approval of the Agreement and Plan of Reorganization providing for the
combination of the WM VT West Coast Equity Fund into the PVC West Coast Equity
Account.
AFFIRMATIVE AGAINST ABSTAIN TOTAL
------------- ----------- ----------- -------------
Voted Shares .............. 6,249,537.989 208,588.432 664,515.671 7,122,642.092
% of Outstanding Shares ... 87.741% 2.929% 9.330% 100.000%
% of Shares Voted ......... 87.741% 2.929% 9.330% 100.000%
Approval of the Agreement and Plan of Reorganization providing for the
combination of the WM VT Mid Cap Stock Fund into the PVC MidCap Stock Account.
AFFIRMATIVE AGAINST ABSTAIN TOTAL
------------- ----------- ----------- -------------
Voted Shares .............. 5,498,954.481 248,674.939 921,190.251 6,668,819.671
% of Outstanding Shares ... 82.458% 3.729% 13.813% 100.000%
% of Shares Voted ......... 82.458% 3.729% 13.813% 100.000%
Approval of the Agreement and Plan of Reorganization providing for the
combination of the WM VT Growth Fund into the PVC Growth Account.
AFFIRMATIVE AGAINST ABSTAIN TOTAL
-------------- ------------- ------------- --------------
Voted Shares .............. 19,064,543.591 1,096,612.217 1,178,687.929 21,339,843.737
% of Outstanding Shares ... 89.311% 5.137% 5.522% 99.970%
% of Shares Voted ......... 89.338% 5.139% 5.523% 100.000%
109
Supplemental Information (unaudited) (continued)
WM VARIABLE TRUST
Approval of the Agreement and Plan of Reorganization providing for the
combination of the WM VT Small Cap Value Fund into the PVC SmallCap Value
Account.
AFFIRMATIVE AGAINST ABSTAIN TOTAL
------------- ------- ---------- -------------
Voted Shares .............. 3,000,902.052 2.995 31,098.271 3,032,003.318
% of Outstanding Shares ... 98.974% 0.000% 1.026% 100.000%
% of Shares Voted ......... 98.974% 0.000% 1.026% 100.000%
Approval of the Agreement and Plan of Reorganization providing for the
combination of the WM VT Small Cap Growth Fund into the PVC SmallCap Growth
Account.
AFFIRMATIVE AGAINST ABSTAIN TOTAL
------------- ----------- ----------- -------------
Voted Shares .............. 4,314,188.572 188,948.782 218,931.788 4,722,069.142
% of Outstanding Shares ... 91.363% 4.001% 4.636% 100.000%
% of Shares Voted ......... 91.363% 4.001% 4.636% 100.000%
Approval of the Agreement and Plan of Reorganization providing for the
combination of the WM VT International Growth Fund into the PVC Diversified
International Account.
AFFIRMATIVE AGAINST ABSTAIN TOTAL
------------- ------------- ----------- -------------
Voted Shares .............. 7,331,536.037 1,006,926.687 487,988.920 8,826,451.644
% of Outstanding Shares ... 83.014% 11.401% 5.525% 99.940%
% of Shares Voted ......... 83.063% 11.408% 5.529% 100.000%
Approval of the Agreement and Plan of Reorganization providing for the
combination of the WM VT Short Term Income Fund into the PVC Short-Term Income
Account.
AFFIRMATIVE AGAINST ABSTAIN TOTAL
-------------- ----------- ------------- --------------
Voted Shares .............. 16,672,390.191 412,419.183 1,822,704.241 18,907,513.615
% of Outstanding Shares ... 88.171% 2.181% 9.639% 99.991%
% of Shares Voted ......... 88.179% 2.181% 9.640% 100.000%
Approval of the Agreement and Plan of Reorganization providing for the
combination of the WM VT U.S. Government Securities Fund into the PVC Mortgage
Securities Account.
AFFIRMATIVE AGAINST ABSTAIN TOTAL
-------------- ----------- ------------- --------------
Voted Shares .............. 22,832,235.535 460,874.399 2,879,851.835 26,172,961.769
% of Outstanding Shares ... 87.233% 1.761% 11.003% 99.997%
% of Shares Voted ......... 87.236% 1.761% 11.003% 100.000%
Approval of the Agreement and Plan of Reorganization providing for the
combination of the WM VT Income Fund into the PVC Income Account.
AFFIRMATIVE AGAINST ABSTAIN TOTAL
-------------- ----------- ------------- --------------
Voted Shares .............. 16,932,780.023 188,158.587 2,221,324.459 19,342,263.069
% of Outstanding Shares ... 87.521% 0.973% 11.481% 99.975%
% of Shares Voted ......... 87.543% 0.973% 11.484% 100.000%
110
Supplemental Information (unaudited) (continued)
WM VARIABLE TRUST
Approval of the Agreement and Plan of Reorganization providing for the
combination of the WM VT Money Market Fund into the PVC Money Market Account.
AFFIRMATIVE AGAINST ABSTAIN TOTAL
-------------- ----------- ----------- --------------
Voted Shares .............. 13,783,142.665 723,287.174 190,160.318 14,696,590.157
% of Outstanding Shares ... 93.163% 4.889% 1.285% 99.337%
% of Shares Voted ......... 93.785% 4.921% 1.294% 100.000%
Approval of the proposed advisory agreement with WM Advisors, Inc. for the WM VT
REIT Fund.
AFFIRMATIVE AGAINST ABSTAIN TOTAL
-------------- ---------- ----------- -------------
Voted Shares .............. 2,548,886.571 46,489.620 330,508.958 2,925,885.149
% of Outstanding Shares ... 87.115% 1.589% 11.296% 100.000%
% of Shares Voted ......... 87.115% 1.589% 11.296% 100.000%
Approval of the proposed advisory agreement with WM Advisors, Inc. for the WM VT
Equity Income Fund.
AFFIRMATIVE AGAINST ABSTAIN TOTAL
-------------- ----------- ------------- --------------
Voted Shares .............. 17,053,325.838 236,801.101 1,675,781.991 18,965,908.930
% of Outstanding Shares ... 89.915% 1.249% 8.836% 100.000%
% of Shares Voted ......... 89.915% 1.249% 8.836% 100.000%
Approval of the proposed advisory agreement with WM Advisors, Inc. for the WM VT
Growth & Income Fund.
AFFIRMATIVE AGAINST ABSTAIN TOTAL
-------------- ----------- ----------- --------------
Voted Shares .............. 11,535,761.070 792,327.591 567,283.551 12,895,372.212
% of Outstanding Shares ... 89.457% 6.144% 4.399% 100.000%
% of Shares Voted ......... 89.457% 6.144% 4.399% 100.000%
Approval of the proposed advisory agreement with WM Advisors, Inc. for the WM
VT West Coast Equity Fund.
AFFIRMATIVE AGAINST ABSTAIN TOTAL
-------------- ----------- ----------- -------------
Voted Shares .............. 6,177,356.288 242,720.095 702,565.709 7,122,642.092
% of Outstanding Shares ... 86.728% 3.408% 9.864% 100.000%
% of Shares Voted ......... 86.728% 3.408% 9.864% 100.000%
Approval of the proposed advisory agreement with WM Advisors, Inc. for the WM VT
Mid Cap Stock Fund.
AFFIRMATIVE AGAINST ABSTAIN TOTAL
-------------- ----------- ----------- -------------
Voted Shares .............. 5,546,799.964 252,086.429 869,933.278 6,668,819.671
% of Outstanding Shares ... 83.175% 3.780% 13.045% 100.000%
% of Shares Voted ......... 83.175% 3.780% 13.045% 100.000%
Approval of the proposed advisory agreement with WM Advisors, Inc. for the WM VT
Growth Fund.
AFFIRMATIVE AGAINST ABSTAIN TOTAL
-------------- ------------- ----------- --------------
Voted Shares .............. 19,323,352.841 1,193,406.805 823,084.091 21,339,843.737
% of Outstanding Shares ... 90.523% 5.591% 3.856% 99.970%
% of Shares Voted ......... 90.551% 5.592% 3.857% 100.000%
111
Supplemental Information (unaudited) (continued)
WM VARIABLE TRUST
Approval of the proposed advisory agreement with WM Advisors, Inc. for the WM VT
Small Cap Value Fund.
AFFIRMATIVE AGAINST ABSTAIN TOTAL
------------- ------- ---------- -------------
Voted Shares .............. 3,000,902.052 2.995 31,098.271 3,032,003.318
% of Outstanding Shares ... 98.974% 0.000% 1.026% 100.000%
% of Shares Voted ......... 98.974% 0.000% 1.026% 100.000%
Approval of the proposed advisory agreement with WM Advisors, Inc. for the WM VT
Small Cap Growth Fund.
AFFIRMATIVE AGAINST ABSTAIN TOTAL
------------- ----------- ----------- -------------
Voted Shares .............. 4,306,017.342 206,587.292 209,464.508 4,722,069.142
% of Outstanding Shares ... 91.189% 4.375% 4.436% 100.000%
% of Shares Voted ......... 91.189% 4.375% 4.436% 100.000%
Approval of the proposed advisory agreement with WM Advisors, Inc. for the WM VT
International Growth Fund.
AFFIRMATIVE AGAINST ABSTAIN TOTAL
------------- ------------- ----------- -------------
Voted Shares .............. 7,372,260.021 1,006,926.688 447,264.935 8,826,451.644
% of Outstanding Shares ... 83.475% 11.401% 5.064% 99.940%
% of Shares Voted ......... 83.525% 11.408% 5.067% 100.000%
Approval of the proposed advisory agreement with WM Advisors, Inc. for the WM VT
Short Term Income Fund.
AFFIRMATIVE AGAINST ABSTAIN TOTAL
-------------- ----------- ------------- --------------
Voted Shares .............. 17,269,344.732 472,648.949 1,165,519.934 18,907,513.615
% of Outstanding Shares ... 91.327% 2.500% 6.164% 99.991%
% of Shares Voted ......... 91.336% 2.500% 6.164% 100.000%
Approval of the proposed advisory agreement with WM Advisors, Inc. for the WM VT
U.S. Government Securities Fund.
AFFIRMATIVE AGAINST ABSTAIN TOTAL
-------------- ----------- ------------- --------------
Voted Shares .............. 23,057,832.998 525,047.428 2,590,081.343 26,172,961.769
% of Outstanding Shares ... 88.095% 2.006% 9.896% 99.997%
% of Shares Voted ......... 88.098% 2.006% 9.896% 100.000%
Approval of the proposed advisory agreement with WM Advisors, Inc. for the WM VT
Income Fund.
AFFIRMATIVE AGAINST ABSTAIN TOTAL
-------------- ----------- ------------- --------------
Voted Shares .............. 16,832,326.629 220,494.891 2,289,441.549 19,342,263.069
% of Outstanding Shares ... 87.001% 1.140% 11.834% 99.975%
% of Shares Voted ......... 87.024% 1.140% 11.836% 100.000%
Approval of the proposed advisory agreement with WM Advisors, Inc. for the WM VT
Money Market Fund.
AFFIRMATIVE AGAINST ABSTAIN TOTAL
-------------- ----------- ----------- --------------
Voted Shares .............. 12,984,897.677 723,287.056 988,405.424 14,696,590.157
% of Outstanding Shares ... 87.767% 4.889% 6.681% 99.337%
% of Shares Voted ......... 88.354% 4.921% 6.725% 100.000%
112
Supplemental Information (unaudited) (continued)
WM VARIABLE TRUST
Approval of the proposed sub-advisory agreement with ClearBridge Advisors, LLC
for the WM VT Growth Fund.
AFFIRMATIVE AGAINST ABSTAIN TOTAL
-------------- ------------- ------------- --------------
Voted Shares .............. 17,995,603.739 1,270,016.033 2,074,223.965 21,339,843.737
% of Outstanding Shares ... 84.303% 5.950% 9.717% 99.970%
% of Shares Voted ......... 84.329% 5.951% 9.720% 100.000%
Approval of the proposed sub-advisory agreement with Janus Capital Management
LLC for the WM VT Growth Fund.
AFFIRMATIVE AGAINST ABSTAIN TOTAL
-------------- ------------- ------------- --------------
Voted Shares .............. 18,303,558.158 1,156,293.724 1,879,991.855 21,339,843.737
% of Outstanding Shares ... 85.746% 5.417% 8.807% 99.970%
% of Shares Voted ......... 85.772% 5.418% 8.810% 100.000%
Approval of the proposed sub-advisory agreement with OppenheimerFunds, Inc. for
the WM VT Growth Fund.
AFFIRMATIVE AGAINST ABSTAIN TOTAL
-------------- ------------- ------------- --------------
Voted Shares .............. 19,078,384.776 1,122,956.770 1,138,502.191 21,339,843.737
% of Outstanding Shares ... 89.375% 5.261% 5.334% 99.970%
% of Shares Voted ......... 89.403% 5.262% 5.335% 100.000%
Approval of the proposed sub-advisory agreement with Delaware Management Company
for the WM VT Small Cap Growth Fund.
AFFIRMATIVE AGAINST ABSTAIN TOTAL
------------- ----------- ----------- -------------
Voted Shares .............. 4,234,322.368 235,006.270 252,740.504 4,722,069.142
% of Outstanding Shares ... 89.671% 4.977% 5.352% 100.000%
% of Shares Voted ......... 89.671% 4.977% 5.352% 100.000%
Approval of the proposed sub-advisory agreement with Oberweis Asset Management,
Inc. for the WM VT Small Cap Growth Fund.
AFFIRMATIVE AGAINST ABSTAIN TOTAL
------------- ----------- ----------- -------------
Voted Shares .............. 4,207,210.792 249,710.498 265,147.852 4,722,069.142
% of Outstanding Shares ... 89.097% 5.288% 5.615% 100.000%
% of Shares Voted ......... 89.097% 5.288% 5.615% 100.000%
Approval of the proposed sub-advisory agreement with Capital Guardian Trust
Company for the WM VT International Growth Fund.
AFFIRMATIVE AGAINST ABSTAIN TOTAL
------------- ------------- ----------- -------------
Voted Shares .............. 7,116,540.729 1,211,165.988 498,744.927 8,826,451.644
% of Outstanding Shares ... 80.579% 13.714% 5.647% 99.940%
% of Shares Voted ......... 80.627% 13.722% 5.651% 100.000%
113
Supplemental Information (unaudited) (continued)
WM VARIABLE TRUST
OTHER FUND INFORMATION
TAX INFORMATION:
The following tax information for the fiscal year ended December 31, 2006, is
provided pursuant to the provisions of the Code.
The amounts of long-term capital gains designated are as follows (in thousands):
NAME OF FUND
- ------------
VT REIT Fund.................. $17,591
VT Equity Income Fund......... 24,357
VT West Coast Equity Fund..... 5,003
VT Mid Cap Stock Fund......... 6,012
VT Small Cap Value Fund....... 4,692
VT International Growth Fund.. 22,015
VT Income Fund................ 111
Of each distribution made by the following Funds, these are the amounts which
may qualify for the dividends received deduction available to corporate
shareholders.
NAME OF FUND
- ------------
VT REIT Fund.................. 7.52%
VT Equity Income Fund......... 100.00%
VT Growth & Income Fund....... 100.00%
VT West Coast Equity Fund..... 100.00%
VT Mid Cap Stock Fund......... 55.46%
VT Growth Fund................ 100.00%
VT Small Cap Value Fund....... 30.24%
VT International Growth Fund.. 2.51%
If the Fund meets the requirements of Section 853 of the Code, the Fund may
elect to pass through to its shareholders credits for foreign taxes paid. The
total amount of income received by the VT International Growth Fund from sources
within the foreign countries and possessions of the United States was $0.3356
per share (representing a total of $2,887,914). The total amount of taxes paid
to such countries was $0.0297 per share (representing a total of $255,901).
SCHEDULES OF INVESTMENTS:
The Trust 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 Trust'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 Trust uses to determine how to vote proxies
relating to portfolio securities held by the Funds are included in the Trust's
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 by calling 800-222-5852 or at
http://www.sec.gov.
114
Supplemental Information (unaudited) (continued)
WM VARIABLE TRUST
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
---------------------------- -------------- ----------------------- -------------------
Kristianne Blake Composite Funds-3 years CPA specializing in personal Avista Corporation; Frank
Age 52 WM Group of Funds-8 years financial and tax planning. Russell Investment Company;
Russell Investment Funds;
University of Washington.
Edmond R. Davis, Esq. Sierra Funds-8 years Partner at the law firm of Davis & Braille Institute of America,
Age 78 WM Group of Funds-8 years Whalen LLP. Prior thereto, partner at Inc; Children's Bureau of
the law firm of Brobeck, Phlegar & Southern California, Children's
Harrison, LLP. Bureau Foundation; Fifield
Manors, Inc.
Carrol R. McGinnis Griffin Funds-3 years Private investor since 1994. Prior Baptist Foundation of Texas;
Age 63 WM Group of Funds-7 years thereto, President and Chief Concord Trust Company.
Operating Officer of Transamerica
Fund Management Company.
Alfred E. Osborne, Jr., Ph.D. Sierra Funds-7 years Senior Associate Dean, University of K2, Inc.; First Pacific
Age 62 WM Group of Funds-8 years California at Los Angeles Anderson Advisors' Funds; EMAK Worldwide,
Graduate School of Management, and Inc.; Investment Company
Faculty Director of the Harold Price Institute; Independent Directors
Center for Entrepreneurial Studies, Council
University of California at Los
Angeles.
Daniel L. Pavelich Composite Funds-1 year Retired Chairman and CEO of BDO Catalytic, Inc.; Vaagen Bros.
Age 62 WM Group of Funds-8 years Seidman. Lumber, Inc.
Jay Rockey Composite Funds-3 years Founder and Senior Counsel of The
Age 78 WM Group of Funds-8 years Rockey Company, now Rockey, Hill &
Knowlton.
Richard C. Yancey Composite Funds-23 years Retired Managing Director of Dillon AdMedia Partners Inc.; Czech and
(Chairman) WM Group of Funds-8 years Read & Co., an investment bank now Slovak American Enterprise Fund
Age 80 part of UBS.
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 Washington Mutual, Inc.;
Age 71 WM Group of Funds-8 years Foundation. Recreational Equipment, Inc.
William G. Papesh Composite Funds-9 years President and Director of the Advisor; Member of Investment Company
(President and CEO) WM Group of Funds-8 years Sr. Vice President and Director of the Institute Board of Governors.
Age 63 Transfer Agent and Distributor.
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 Vice President and Assistant Secretary Vice President of the Advisor.
Age 38 since 2006. Prior to 2006, various other
officer positions since 2003.
Jeffrey L. Lunzer, CPA First Vice President, Chief Financial Officer First Vice President of the Advisor, Transfer Agent and
Age 46 and Treasurer since 2003. 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; Sr. Vice
Age 63 Prior to 1987, other officer positions since President and Director of the Transfer Agent and
1972. Distributor.
Gary Pokrzywinski Senior Vice President since 2004. First Vice Senior Vice President and Director of the Advisor,
Age 45 President since 2001. Prior to 2001, Vice Transfer Agent and Distributor.
President since 1999.
Debra Ramsey Senior Vice President since 2004. President and Director of the Transfer Agent and
Age 53 Distributor; Sr. Vice President and Director of the
Advisor.
John T. West First Vice President, Secretary, Chief First Vice President of the Advisor, Transfer Agent
Age 51 Compliance Officer and Anti-Money Laundering and Distributor.
Compliance Officer 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 Strategist of
Age 47 Prior to 2001, First Vice President since the Advisor.
1999.
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, 8th 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 PFG,
Washington Mutual, Inc. (prior to December 31, 2006), the Advisor, the
Distributor, or the Transfer Agent.
(4) The Trustees and Officers serve in these capacities for the 40 Portfolios
and Funds in the Fund Complex. Each Trustee and Officer shall hold the
indicated positions until his or her resignation, retirement or removal.
115
(WM VARIABLE TRUST LOGO)
A variable insurance product's unit value and investment returns will vary with
market conditions, and an investor's units when redeemed may be worth more or
less than their original cost.
This annual report is published as general information for the shareholders of
the WM Variable Trust. 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 contract.
Investors should read the prospectus carefully before investing. To obtain an
additional prospectus, please call 800-222-5852.
The WM Variable Trust Funds are advised by WM Advisors, Inc. (WMAI). They are
available through variable insurance products distributed by WM Funds
Distributor, Inc. (WMFD) and sold through WM Financial Services, Inc. (WMFS) and
independent broker/dealers. WMAI, WMFD, and WMFS are affiliates of Washington
Mutual, Inc.
Distributed by:
WM Funds Distributor, Inc.
Member NASD
(WM VARIABLE TRUST LOGO)
MM 3487 (2/28/07)
(WM VARIABLE TRUST LOGO)
The sophistication of a managed account
with the simplicity of a mutual fund.
WM VT STRATEGIC ASSET MANAGEMENT PORTFOLIOS
Annual Report
December 31, 2006
WM VT Strategic Asset Management Portfolios
Table of Contents
1 Letter from the President
2 Economy & Financial Markets:
Review & Outlook
WM VT SAM Portfolio Performance and
Investment Strategy:
4 VT Flexible Income Portfolio
6 VT Conservative Balanced Portfolio
8 VT Balanced Portfolio
10 VT Conservative Growth Portfolio
12 VT Strategic Growth Portfolio
14 Glossary
15 Expense Information
17 Financial Statements
31 Notes to Financial Statements
37 Report of Independent Registered
Public Accounting Firm
38 Supplemental Information
The WM Variable Trust (VT) Funds may not be purchased directly, but are
currently available through the WM Strategic Asset Manager and the WM Advantage
variable annuities issued by American General Life. They are also available
through the WM Diversified Strategies and WM Diversified Strategies (III)
variable annuities issued by AIG SunAmerica Life Assurance Company, the WM
Diversified Strategies (III) (New York) variable annuity issued by First
SunAmerica Life Insurance Company, and the WM Life Accumulator variable
universal life insurance policy issued by Farmers New World Life Insurance
Company. They may also be available through other select variable insurance
products and retirement plans. The VT SAM Portfolios may not have been available
for sale for all products for the time periods shown on pages 4-13.
Withdrawals made prior to age 59 1/2 may be subject to a 10% IRS tax penalty.
--------------------------------------------------------
NOT FDIC OR NCUA/NCUSIF INSURED
--------------------------------------------------------
MAY LOSE VALUE - NOT A DEPOSIT - NO BANK OR CREDIT UNION
GUARANTEE - NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY
--------------------------------------------------------
(PHOTO OF WILLIAM G. PAPESH)
Dear Investor,
The end of the 2006 fiscal year coincided with the acquisition of WM Advisors,
Inc. and its subsidiaries by the Principal Financial Group(R) (The
Principal(R)). We are extremely enthusiastic about joining a company where asset
management and accumulation form the core of its business and where the advisory
group, Principal Global Investors, shares our expertise in asset allocation.
Just as the WM Group of Funds is the 4th largest manager of target-risk asset
allocation funds, The Principal is the 4th largest manager of target-date asset
allocation funds.(1) Together, we will rank 4th in the overall management of
asset allocation funds nationally. I'd like to briefly explain below how the WM
Group of Funds will transition through this process.
EVOLUTION OF A FUND COMPLEX
To summarize, the 18 WM Variable Trust Funds will become part of the Principal
Variable Contracts Fund, Inc.(2) Other notable changes are as follows:
- - 11 funds will continue to be managed by their current portfolio management
teams. These funds include the VT SAM Portfolios.
- - 7 funds will be combined into existing Principal Variable Contract (PVC)
Accounts and thereafter will be managed by Principal Global Investors(3) or
another premier asset management firm.
After the fund mergers in January 2007, the combined PVC lineup will consist of
41 funds spanning a broad array of asset allocation, equity, and fixed-income
investments.
CONTINUITY OF MANAGEMENT AND STEWARDSHIP
The Principal Funds complex has also retained many of the people who have served
you and your investment needs over the previous years:
- - WM ADVISORS: Our investment management group has a new name--Edge Asset
Management, Inc. -- but it remains in Seattle and employs all of WM
Advisors' portfolio managers.
- - WM FUNDS DISTRIBUTOR, INC. AND WM SHAREHOLDER SERVICES, INC.: These groups
form the management and staff of Principal Funds Distributor, Inc. and
Principal Shareholder Services, Inc.
- - WM GROUP OF FUNDS BOARD OF TRUSTEES: Four members of our current Board are
proposed for election to the board of Principal Variable Contracts
Fund, Inc. This group includes Dick Yancey (our Chairman and a Board member
for over 30 years), Dan Pavelich (head of the Audit Committee), Kristi
Blake (head of the Operations and Distribution Committee), and myself. I
would also like to express my deep gratitude to Ed Davis, Carrol
McGinnis, Al Osborne, Jay Rockey, and Anne Farrell for their many years of
diligent service on behalf of investors.
The Principal has embraced our management and staff, and I think you'll find the
combined fund family reflects our best qualities, plus new capabilities and
resources. On behalf of everyone at the WM Group of Funds, thank you for the
support and trust that you and other investors have honored us with for over 65
years.
Sincerely,
/s/ William G. Papesh
- -------------------------------------
William G. Papesh
President
(1) Source: FRC. Based on assets as of September 30, 2006.
(2) For more information about these funds, including their full names, please
see the Principal Variable Contract Fund, Inc. prospectus.
(3) Principal Global Investors, one of the primary asset management divisions
of Principal Financial Group(R), consists of Principal Global Investors,
LLC; Principal Real Estate Investors, LLC; Spectrum Asset Management, Inc.;
Post Advisory Group, LLC; Columbus Circle Investors; Principal Global
Investors (Europe) Limited; Principal Global Investors (Singapore) Ltd;
Principal Global Investors (Australia) Ltd; and Principal International,
Inc., its subsidiaries and affiliates.
Economy & Financial Markets: Review & Outlook
ECONOMY ENTERS MID-CYCLE SLOWDOWN
We began 2006 with the view that U.S. economic growth would be moderate but
weaker than consensus projections. Although corporate profits and consumer
spending looked healthy, a slowdown in the housing market appeared likely. We
thought when this housing pullback took hold, it would curtail consumers'
ability to maintain refinancing-fueled spending. Our 2006 outlook also
recognized that a variety of short-term and long-term forces had aligned to
indicate that growth would slow.
One cyclical measure that attracted widespread headlines during the period was
crude oil prices which, through elevated fuel costs, can act as a tax on
consumers. The U.S. benchmark price of oil ended 2005 at $61.04 per
barrel, reached a high closing price of $77.03 in July 2006, and then retreated
to end 2006 at $61.05.
Like crude oil prices, the rate of economic growth climbed and peaked before
retreating during the year. Inflation-adjusted (real) growth increased 3.2% in
2005, but with a weaker 1.8% increase in the final quarter. Strong consumer and
business spending sent real growth surging 5.6% in the first quarter of
2006. Evidence of a housing sector correction became clearer in the following
months, and real growth decelerated to 2.0% in the third quarter. (See text
highlights in chart below.)
Since housing is a lagging indicator, we believe that the full economic effects
of its pullback have yet to play out. However, we expect solid job markets to
mitigate the pain that housing causes consumers. Our 2007 outlook is for real
growth to keep to the lower end of a 2-3% range as the economy works through a
mid-cycle slowdown.
INFLATION GIVES FED PAUSE
For this kind of "soft landing" to occur, we believe that lower interest rates
courtesy of the Federal Reserve (the Fed) will be a requirement. The Fed began
steadily raising short-term interest rates in June 2004. Like many market
participants, we entered 2006 believing that a housing-led slowdown in growth
would soon spur the Fed to halt this monetary tightening campaign.
However, concerns about rising inflation dominated the Fed's mindset during the
year. A price index that measures core personal consumption (1) stood at 2.0%
for January 2006, but inflation picked up steam and sent this
(1) Source: Bureau of Economic Analysis. Monthly data measures the price index
for personal consumption expenditures excluding food and energy as a
percent change from the same month one year ago.
(2) Indices are unmanaged, and individuals cannot invest directly in an
index. See page 14 for definitions of indices.
A WRAP-UP OF THE YEAR JANUARY 1, 2006 - DECEMBER 31, 2006
(PERFORMANCE GRAPH)
2
gauge to 2.4% in August. Inflation fears eased somewhat after energy prices
headed downward and the housing market cooled. These developments allowed the
Fed to leave its target for the federal funds rate at 5.25% from June 29 through
the end of the year.
This rate is slightly restrictive in our view. We expect the lagging effects of
monetary tightening to contain inflation going forward by combining with
significant deflationary forces. We also believe that the economic system has
become somewhat self-regulating in recent years, alleviating the need for a
highly active Fed. However, as fears of inflation continue to subside, we think
the Fed will turn its sights on potential deflation and recession. We don't
regard either of these conditions as likely, but we would welcome Fed actions
that begin cutting interest rates early in 2007.
STOCKS RALLY FROM MID-YEAR ON
Uncertainty about inflation and interest rates often determined investor
behavior during the year. As shown in the chart below, stock markets achieved
muted gains within the early months of 2006 before retreating in May and June--a
span that was framed by the year's final two Fed rate increases. The growing
likelihood and then arrival of the Fed's pause kindled a rally in stocks and
also benefited bonds, causing yields to fall. The S&P 500 advanced 15.80% for
2006, and the Lehman Brothers Aggregate Bond Index ended the year with a total
return of 4.33%. (2)
The outlook for subdued growth and inflation described above, and the potential
for monetary easing by the Fed, lead us to expect that bond yields will continue
inching lower in 2007. Any incoming data that sparks recession fears could
create some volatility for fixed-income securities. However, we regard corporate
and mortgage issues as reasonably valued and believe that they will perform in
line with this risk.
Potentially lower bond yields are also among the factors that support the
prospects for moderate but positive gains by equities in 2007. Stocks continue
to appear attractive relative to bonds and are likely to be assisted by fair
valuations, the global flow of funds, and the generally healthy state of
corporations. Cyclical economic and valuation indicators also suggest that
large-cap stocks could outperform small caps and growth could outperform value.
A less restrictive stance by the Fed could also accommodate the appreciation of
stock prices.
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.
(PERFORMANCE GRAPH)
3
VT Flexible Income Portfolio
INVESTMENT STRATEGY
The WM VT Strategic Asset Management (SAM) Flexible Income Portfolio ended 2006
invested in 12 underlying funds that provide diversification across 14 equity
and fixed-income asset classes.
We began the 12-month period with an outlook for the economy and financial
markets that judged stocks to be more attractive than bonds. In response, we
slightly increased the Portfolio's 26% allocation to equities. Despite a
short-lived stock market retreat during May and June, this addition to equities
proved beneficial to performance during the year.
As we strengthened the Portfolio's equity allocation, we also shifted its equity
style and capitalization weightings to favor large-cap growth stocks. These
adjustments ultimately proved to be ahead of a market rotation away from value
and smaller capitalization assets. However, large-cap growth stocks enjoyed
improved performance late in the period, and we believe the Portfolio is
well-positioned for the upcoming year. Other equity asset classes that drove
Portfolio performance included real estate investment trusts (REITs) and
international equities, which realized strong absolute returns.
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. Performance shown below does not account for fees,
expenses, and charges of any variable insurance contract or retirement plan. If
these fees were reflected, performance would be lower.
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 DECEMBER 31, 2006
1-Year 5-Year Since Inception Inception Date
------ ------ --------------- --------------
CLASS 1 SHARES 6.84% 6.36% 6.98% 9/9/97
CLASS 2 SHARES 6.61% 6.10% 6.00% 11/6/01
Lehman Brothers Aggregate Bond Index (2) 4.33% 5.06% 6.14%
S&P 500 (2) 15.80% 6.19% 6.67%
Capital Market Benchmark (2) 6.56% 5.45% 6.47%
VALUE OF A $10,000 INVESTMENT (1) SEPTEMBER 9, 1997 - DECEMBER 31, 2006
(PERFORMANCE GRAPH)
WM GROUP OF FUNDS
VT ANNUAL REPORT UPDATE MATERIAL
PERFORMANCE NAV -- MOUNTAIN CHARTS (VALUE OF $10,000 INVESTMENT OVER 10-YEARS)
DATA AS OF 12/31/2006
CLASS 1 SHARES
LEHMAN
VT FLEXIBLE BROTHERS CAPITAL
INCOME AGGREGATE MARKET
DATE PORTFOLIO S&P 500 BOND INDEX BENCHMARK
- ------ ----------- ------- ---------- ---------
DEC-96
Jan-97
Feb-97
Mar-97
Apr-97
May-97
Jun-97
Jul-97
Aug-97 10,000 10,000 10,000 10,000
Sep-97 10,110 10,548 10,148 10,228
Oct-97 10,110 10,196 10,295 10,278
Nov-97 10,140 10,668 10,343 10,411
Dec-97 10,231 10,851 10,447 10,530
Jan-98 10,350 10,972 10,581 10,662
Feb-98 10,541 11,763 10,572 10,809
Mar-98 10,650 12,365 10,608 10,950
Apr-98 10,721 12,490 10,663 11,018
May-98 10,741 12,275 10,765 11,064
Jun-98 10,872 12,773 10,856 11,229
Jul-98 10,832 12,638 10,879 11,223
Aug-98 10,471 10,811 11,056 11,045
Sep-98 10,772 11,504 11,315 11,393
Oct-98 10,962 12,439 11,255 11,529
Nov-98 11,173 13,193 11,319 11,722
Dec-98 11,433 13,952 11,353 11,885
Jan-99 11,624 14,536 11,434 12,051
Feb-99 11,453 14,084 11,234 11,808
Mar-99 11,681 14,647 11,295 11,954
Apr-99 11,925 15,214 11,332 12,077
May-99 11,804 14,855 11,232 11,935
Jun-99 11,951 15,679 11,196 12,036
Jul-99 11,848 15,190 11,149 11,921
Aug-99 11,797 15,114 11,143 11,904
Sep-99 11,854 14,700 11,273 11,949
Oct-99 12,020 15,630 11,314 12,136
Nov-99 12,175 15,948 11,313 12,184
Dec-99 12,416 16,887 11,259 12,280
Jan-00 12,280 16,039 11,222 12,124
Feb-00 12,437 15,736 11,357 12,196
Mar-00 12,720 17,275 11,507 12,563
Apr-00 12,603 16,755 11,474 12,459
May-00 12,529 16,412 11,468 12,403
Jun-00 12,737 16,815 11,707 12,671
Jul-00 12,737 16,553 11,813 12,724
Aug-00 13,082 17,581 11,985 13,029
Sep-00 13,041 16,653 12,060 12,958
Oct-00 13,064 16,583 12,140 13,015
Nov-00 12,878 15,276 12,339 12,981
Dec-00 13,134 15,351 12,568 13,187
Jan-01 13,565 15,896 12,773 13,452
Feb-01 13,366 14,446 12,884 13,300
Mar-01 13,205 13,532 12,949 13,184
Apr-01 13,361 14,583 12,894 13,345
May-01 13,484 14,681 12,972 13,427
Jun-01 13,510 14,324 13,021 13,403
Jul-01 13,656 14,184 13,313 13,617
Aug-01 13,622 13,296 13,466 13,572
Sep-01 13,374 12,222 13,622 13,478
Oct-01 13,633 12,455 13,907 13,755
Nov-01 13,734 13,410 13,715 13,814
Dec-01 13,768 13,528 13,627 13,767
Jan-02 13,768 13,331 13,737 13,816
Feb-02 13,779 13,073 13,871 13,870
Mar-02 13,836 13,565 13,640 13,790
Apr-02 13,847 12,743 13,905 13,837
May-02 13,904 12,649 14,023 13,910
Jun-02 13,701 11,748 14,145 13,809
Jul-02 13,486 10,832 14,316 13,727
Aug-02 13,655 10,903 14,558 13,930
Sep-02 13,531 9,718 14,794 13,808
Oct-02 13,746 10,573 14,726 14,000
Nov-02 14,008 11,196 14,722 14,161
Dec-02 14,064 10,538 15,026 14,229
Jan-03 14,086 10,262 15,040 14,165
Feb-03 14,154 10,108 15,247 14,278
Mar-03 14,210 10,206 15,235 14,296
Apr-03 14,595 11,047 15,362 14,627
May-03 15,049 11,629 15,647 14,998
Jun-03 15,132 11,778 15,616 15,013
Jul-03 14,923 11,985 15,091 14,662
Aug-03 15,052 12,219 15,191 14,797
Sep-03 15,295 12,089 15,594 15,079
Oct-03 15,493 12,773 15,449 15,138
Nov-03 15,609 12,886 15,486 15,194
Dec-03 15,935 13,561 15,644 15,477
Jan-04 16,157 13,811 15,769 15,633
Feb-04 16,284 14,003 15,939 15,811
Mar-04 16,343 13,791 16,059 15,859
Apr-04 15,995 13,575 15,641 15,480
May-04 15,971 13,761 15,579 15,472
Jun-04 16,159 14,028 15,667 15,602
Jul-04 16,100 13,563 15,822 15,622
Aug-04 16,317 13,617 16,125 15,874
Sep-04 16,438 13,765 16,168 15,942
Oct-04 16,582 13,975 16,304 16,098
Nov-04 16,727 14,541 16,174 16,126
Dec-04 16,967 15,036 16,322 16,355
Jan-05 16,883 14,669 16,425 16,358
Feb-05 16,918 14,977 16,328 16,350
Mar-05 16,786 14,712 16,245 16,225
Apr-05 16,835 14,432 16,464 16,339
May-05 17,099 14,891 16,642 16,584
Jun-05 17,208 14,912 16,734 16,662
Jul-05 17,332 15,467 16,581 16,665
Aug-05 17,419 15,326 16,794 16,805
Sep-05 17,332 15,450 16,621 16,694
Oct-05 17,195 15,192 16,489 16,533
Nov-05 17,420 15,766 16,562 16,716
Dec-05 17,546 15,771 16,719 16,845
Jan-06 17,721 16,189 16,721 16,936
Feb-06 17,758 16,233 16,776 16,990
Mar-06 17,771 16,434 16,612 16,898
Apr-06 17,808 16,654 16,582 16,918
May-06 17,621 16,174 16,564 16,807
Jun-06 17,642 16,197 16,598 16,840
Jul-06 17,746 16,298 16,822 17,042
Aug-06 18,032 16,685 17,080 17,332
Sep-06 18,239 17,116 17,230 17,544
Oct-06 18,473 17,674 17,344 17,751
Nov-06 18,746 18,010 17,545 17,983
Dec-06 18,746 18,262 17,443 17,951
(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 1997 and 1999 benefited from the agreement of WM
Advisors and its affiliates to limit the Portfolio's expenses.
(2) See glossary on page 14 for definitions of indices. Returns shown for the
indices assume reinvestment of all dividends and distributions, and 4
since-inception returns shown for the indices are calculated from 8/31/97.
Indices are unmanaged, and individuals cannot invest directly in an index.
4
PORTFOLIO MANAGER
Asset Allocation Team
WM Advisors, Inc.
Among fixed-income assets, high-yield bonds had a positive impact on
performance, while mortgage- and asset-backed bonds provided a slight benefit.
Through small adjustments in allocations, the Portfolio ended the period with
neutral weightings in corporate and mortgage securities.
Looking forward, we believe that the economy will continue to slow while
inflation fears subside, subsequently leading the Federal Reserve to cut
short-term interest rates. We anticipate that in 2007, these cuts will begin
earlier and occur more often than the market expects. Lower interest rates
should bring down bond yields and could support the expansion of equity price
multiples. The Portfolio's asset class allocations are designed to take
advantage of this soft landing scenario. However, we also feel that choppy
market performance is apt to occur in reaction to mixed economic data.
In the near term, we are analyzing the Portfolio's five underlying equity funds
that will be changing management as a result of fund mergers scheduled for
January 2007. Given our asset allocation discipline, we are focused on
proactively identifying and executing adjustments that might be necessary to
keep allocations aligned with our targets and our outlook.
PORTFOLIO COMPOSITION (3)
As of As of
Asset Class 12/31/06 12/31/05 Change
- ----------- -------- -------- ------
Mortgage- & Asset-Backed Bonds 35% 36% -1%
Investment-Grade Corporate Bonds 20% 20% 0%
High-Yield Corporate Bonds 9% 8% +1%
U.S. Government Securities 7% 6% +1%
U.S. Large-Cap Growth Stocks 8% 7% +1%
U.S. Large-Cap Value Stocks 6% 7% -1%
U.S. Mid-Cap Growth Stocks 5% 3% +2%
REITs 2% 2% 0%
U.S. Mid-Cap Value Stocks 2% 2% 0%
Convertible Securities 1% 2% -1%
Non-U.S. Developed Market Stocks 1% 1% 0%
U.S. Small-Cap Growth Stocks 1% 2% -1%
U.S. Small-Cap Value Stocks 1% 1% 0%
Cash Equivalents 2% 3% -1%
Note: Pages 44 and 45 provide information about those WM Funds in which the VT
Flexible Income Portfolio invests a significant portion of its assets. For
additional information about these and other WM Funds, please see the WM
Variable Trust annual report, which is available online.
(3) May not reflect the current portfolio composition.
5
VT Conservative Balanced Portfolio*
INVESTMENT STRATEGY
The WM VT Strategic Asset Management (SAM) Conservative Balanced Portfolio ended
2006 invested in 13 underlying funds that provide diversification across 15
equity and fixed-income asset classes.
We began the 12-month period with an outlook for the economy and financial
markets that judged stocks to be more attractive than bonds. In response, we
built on the Portfolio's equity allocation by raising it from 45% to 46%.
Despite a short-lived stock market retreat during May and June, this
overweighting in equities proved beneficial to performance during the year.
As we strengthened the Portfolio's equity allocation, we also shifted its equity
style and capitalization weightings to favor large-cap growth stocks. These
adjustments ultimately proved to be ahead of a market rotation away from value
and smaller capitalization assets. However, large-cap growth stocks enjoyed
improved performance late in the period, and we believe the Portfolio is
well-positioned for the upcoming year.
Other equity asset classes that drove Portfolio performance included real estate
investment trusts (REITs) and international equities, which realized strong
absolute returns. In March,
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. Performance shown below does not account for fees,
expenses, and charges of any variable insurance contract or retirement plan. If
these fees were reflected, performance would be lower.
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.
* As of 8/1/00, the VT Income Portfolio became the VT 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.
AVERAGE ANNUAL TOTAL RETURNS(1) AS OF DECEMBER 31, 2006
1-Year 5-Year Since Inception Inception Date
------ ------ --------------- --------------
CLASS 1 SHARES 8.83% 7.11% 5.63% 4/23/98
CLASS 2 SHARES 8.50% 6.83% 6.87% 11/6/01
Lehman Brothers Aggregate Bond Index(2) 4.33% 5.06% 5.84%
S&P 500(2) 15.80% 6.19% 4.48%
Capital Market Benchmark(2) 8.82% 5.76% 5.64%
VALUE OF A $10,000 INVESTMENT (1) APRIL 23, 1998 - DECEMBER 31, 2006
(PERFORMANCE GRAPH)
WM GROUP OF FUNDS
VT ANNUAL REPORT UPDATE MATERIAL
PERFORMANCE NAV -- MOUNTAIN CHARTS (VALUE OF $10,000 INVESTMENT OVER 10-YEARS)
DATA AS OF 12/31/2006
CLASS 1 SHARES
LEHMAN
VT CONSERVATIVE BROTHERS CAPITAL
BALANCED AGGREGATE MARKET
DATE PORTFOLIO S&P 500 BOND INDEX BENCHMARK
- ------ --------------- ------- ---------- ---------
DEC-96
Jan-97
Feb-97
Mar-97
Apr-97
May-97
Jun-97
Jul-97
Aug-97
Sep-97
Oct-97
Nov-97
Dec-97
Jan-98
Feb-98
Mar-98
Apr-98 10,000 10,000 10,000 10,000
May-98 10,090 9,828 10,095 9,988
Jun-98 10,163 10,227 10,181 10,201
Jul-98 10,183 10,119 10,202 10,170
Aug-98 10,233 8,655 10,368 9,681
Sep-98 10,383 9,210 10,611 10,065
Oct-98 10,323 9,959 10,555 10,361
Nov-98 10,404 10,563 10,615 10,648
Dec-98 10,423 11,171 10,647 10,912
Jan-99 10,493 11,638 10,722 11,141
Feb-99 10,363 11,276 10,535 10,886
Mar-99 10,446 11,727 10,593 11,096
Apr-99 10,538 12,181 10,627 11,289
May-99 10,497 11,893 10,533 11,124
Jun-99 10,472 12,553 10,499 11,349
Jul-99 10,482 12,162 10,455 11,179
Aug-99 10,461 12,101 10,450 11,153
Sep-99 10,568 11,769 10,571 11,109
Oct-99 10,600 12,514 10,610 11,414
Nov-99 10,621 12,768 10,609 11,507
Dec-99 10,619 13,521 10,558 11,745
Jan-00 10,597 12,842 10,524 11,485
Feb-00 10,694 12,599 10,651 11,482
Mar-00 10,787 13,831 10,792 12,023
Apr-00 10,787 13,415 10,760 11,857
May-00 10,744 13,140 10,755 11,756
Jun-00 10,918 13,463 10,979 12,018
Jul-00 10,995 13,253 11,078 12,009
Aug-00 11,360 14,076 11,239 12,411
Sep-00 11,251 13,333 11,310 12,196
Oct-00 11,217 13,277 11,385 12,224
Nov-00 10,905 12,231 11,571 11,959
Dec-00 11,153 12,291 11,787 12,116
Jan-01 11,581 12,727 11,979 12,406
Feb-01 11,255 11,566 12,083 12,018
Mar-01 11,012 10,834 12,143 11,750
Apr-01 11,285 11,676 12,092 12,086
May-01 11,399 11,754 12,165 12,162
Jun-01 11,422 11,469 12,211 12,071
Jul-01 11,456 11,356 12,485 12,186
Aug-01 11,342 10,645 12,628 11,965
Sep-01 10,956 9,785 12,775 11,662
Oct-01 11,171 9,972 13,042 11,898
Nov-01 11,365 10,737 12,862 12,165
Dec-01 11,422 10,831 12,779 12,161
Jan-02 11,364 10,673 12,883 12,149
Feb-02 11,319 10,467 13,008 12,126
Mar-02 11,456 10,861 12,792 12,187
Apr-02 11,376 10,203 13,040 12,034
May-02 11,399 10,127 13,151 12,060
Jun-02 11,128 9,406 13,265 11,779
Jul-02 10,819 8,672 13,426 11,498
Aug-02 10,934 8,730 13,653 11,645
Sep-02 10,635 7,781 13,874 11,251
Oct-02 10,922 8,465 13,810 11,616
Nov-02 11,233 8,964 13,806 11,888
Dec-02 11,164 8,437 14,092 11,756
Jan-03 11,153 8,216 14,104 11,639
Feb-03 11,164 8,093 14,299 11,666
Mar-03 11,199 8,171 14,288 11,706
Apr-03 11,601 8,845 14,406 12,150
May-03 12,048 9,311 14,674 12,541
Jun-03 12,135 9,430 14,645 12,590
Jul-03 12,053 9,596 14,153 12,425
Aug-03 12,194 9,783 14,246 12,571
Sep-03 12,358 9,679 14,624 12,718
Oct-03 12,628 10,227 14,488 12,936
Nov-03 12,745 10,317 14,522 13,001
Dec-03 13,074 10,858 14,671 13,353
Jan-04 13,284 11,057 14,788 13,516
Feb-04 13,413 11,211 14,948 13,678
Mar-04 13,448 11,042 15,060 13,657
Apr-04 13,132 10,868 14,668 13,358
May-04 13,156 11,017 14,609 13,400
Jun-04 13,345 11,231 14,693 13,550
Jul-04 13,201 10,859 14,838 13,451
Aug-04 13,357 10,903 15,122 13,627
Sep-04 13,489 11,021 15,162 13,708
Oct-04 13,644 11,189 15,290 13,861
Nov-04 13,872 11,642 15,167 14,019
Dec-04 14,147 12,038 15,307 14,287
Jan-05 14,002 11,744 15,403 14,201
Feb-05 14,098 11,991 15,313 14,271
Mar-05 13,954 11,779 15,234 14,127
Apr-05 13,941 11,555 15,440 14,134
May-05 14,205 11,922 15,607 14,405
Jun-05 14,317 11,939 15,693 14,461
Jul-05 14,513 12,383 15,550 14,597
Aug-05 14,574 12,271 15,749 14,656
Sep-05 14,538 12,370 15,587 14,613
Oct-05 14,403 12,163 15,464 14,446
Nov-05 14,672 12,623 15,532 14,704
Dec-05 14,795 12,627 15,679 14,789
Jan-06 15,053 12,962 15,681 14,947
Feb-06 15,040 12,997 15,733 14,993
Mar-06 15,138 13,158 15,578 14,980
Apr-06 15,212 13,334 15,550 15,044
May-06 14,943 12,950 15,533 14,861
Jun-06 14,952 12,968 15,566 14,888
Jul-06 15,015 13,049 15,776 15,045
Aug-06 15,293 13,359 16,017 15,327
Sep-06 15,495 13,704 16,158 15,566
Oct-06 15,772 14,151 16,265 15,830
Nov-06 16,050 14,419 16,454 16,062
Dec-06 16,101 14,621 16,358 16,095
(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 1998 and 2003 benefited from the agreement of WM
Advisors and its affiliates to limit the Portfolio's expenses.
(2) See glossary on page 14 for definitions of indices. Returns shown for the
indices assume reinvestment of all dividends and distributions, and
since-inception returns shown for the indices are calculated from 4/30/98.
Indices are unmanaged, and individuals cannot invest directly in an index.
6
PORTFOLIO MANAGER
Asset Allocation Team
WM Advisors, Inc.
we slightly expanded the Portfolio's exposure to emerging market stocks and
believe that the Portfolio's small core position can provide broader
diversification going forward. However, in December, the underlying fund
temporarily trimmed this allocation in preparation for fund mergers scheduled
for January 2007.
Among fixed-income assets, high-yield bonds had a positive impact on
performance, while mortgage- and asset-backed bonds provided a slight benefit.
The Portfolio ended the period with neutral weightings in corporate and mortgage
securities.
Looking forward, we believe that the economy will continue to slow while
inflation fears subside, subsequently leading the Federal Reserve to cut
short-term interest rates. We anticipate that in 2007, these cuts will begin
earlier and occur more often than the market expects. Lower interest rates
should bring down bond yields and could support the expansion of equity price
multiples. The Portfolio's asset class allocations are designed to take
advantage of this soft landing scenario. However, we also feel that choppy
market performance is apt to occur in reaction to mixed economic data.
In the near term, we are analyzing the Portfolio's six underlying equity funds
that will be changing management as a result of the upcoming fund mergers. Given
our asset allocation discipline, we are focused on proactively identifying and
executing adjustments that might be necessary to keep allocations aligned with
our targets and our outlook.
PORTFOLIO COMPOSITION (3)
As of As of
Asset Class 12/31/06 12/31/05 Change
- ----------- -------- -------- ------
Mortgage- & Asset-Backed Bonds 28% 28% 0%
Investment-Grade Corporate Bonds 12% 13% -1%
High-Yield Corporate Bonds 7% 6% +1%
U.S. Government Securities 5% 5% 0%
U.S. Large-Cap Growth Stocks 12% 11% +1%
U.S. Large-Cap Value Stocks 9% 11% -2%
U.S. Mid-Cap Growth Stocks 7% 5% +2%
Non-U.S. Developed Market Stocks 6% 5% +1%
REITs 3% 3% 0%
U.S. Mid-Cap Value Stocks 3% 3% 0%
U.S. Small-Cap Growth Stocks 2% 2% 0%
U.S. Small-Cap Value Stocks 2% 2% 0%
Emerging Market Stocks 1% 1% 0%
Convertible Securities 1% 2% -1%
Cash Equivalents 2% 3% -1%
Note: Page 44 provides information about a WM Fund in which the VT Conservative
Balanced Portfolio invests a significant portion of its assets. For additional
information about this and other WM Funds, please see the WM Variable Trust
annual report, which is available online.
(3) May not reflect the current portfolio composition.
7
VT Balanced Portfolio
INVESTMENT STRATEGY
The WM VT Strategic Asset Management (SAM) Balanced Portfolio ended 2006
invested in 13 underlying funds that provide diversification across 15 equity
and fixed-income asset classes.
We began the 12-month period with an outlook for the economy and financial
markets that judged stocks to be more attractive than bonds. In response, we
built on the Portfolio's equity allocation by raising it from 65% to 66%.
Despite a short-lived stock market retreat during May and June, this
overweighting in equities proved beneficial to performance during the year.
As we strengthened the Portfolio's equity allocation, we also shifted its equity
style and capitalization weightings to favor large-cap growth stocks. These
adjustments ultimately proved to be ahead of a market rotation away from value
and smaller capitalization assets. However, large-cap growth stocks enjoyed
improved performance late in the period, and we believe the Portfolio is
well-positioned for the upcoming year.
Other equity asset classes that drove Portfolio performance included real estate
investment trusts (REITs) and international equities, which realized strong
absolute returns. In March,
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. Performance shown below does not account for fees,
expenses, and charges of any variable insurance contract or retirement plan. If
these fees were reflected, performance would be lower.
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 DECEMBER 31, 2006
1-Year 5-Year Since Inception Inception Date
------ ------ --------------- --------------
CLASS 1 SHARES 10.61% 7.65% 8.98% 6/3/97
CLASS 2 SHARES 10.38% 7.39% 7.75% 11/6/01
S&P 500(2) 15.80% 6.19% 7.19%
Lehman Brothers Aggregate Bond Index(2) 4.33% 5.06% 6.31%
Capital Market Benchmark(2) 11.11% 5.98% 7.17%
VALUE OF A $10,000 INVESTMENT(1) JUNE 3, 1997 - DECEMBER 31, 2006
(PERFORMANCE GRAPH)
WM GROUP OF FUNDS
VT ANNUAL REPORT UPDATE MATERIAL
PERFORMANCE NAV -- MOUNTAIN CHARTS (VALUE OF $10,000 INVESTMENT OVER 10-YEARS)
DATA AS OF 12/31/2006
CLASS 1 SHARES
LEHMAN
VT BROTHERS
BALANCED AGGREGATE CAPITAL MARKET
DATE PORTFOLIO S&P 500 BOND INDEX BENCHMARK
---- --------- ------- ---------- --------------
DEC-96
Jan-97
Feb-97
Mar-97
Apr-97
May-97 10,000 10,000 10,000 10,000
Jun-97 10,190 10,446 10,119 10,315
Jul-97 10,680 11,275 10,392 10,917
Aug-97 10,350 10,648 10,304 10,516
Sep-97 10,700 11,232 10,456 10,924
Oct-97 10,390 10,857 10,608 10,769
Nov-97 10,390 11,360 10,657 11,087
Dec-97 10,470 11,555 10,764 11,247
Jan-98 10,599 11,683 10,902 11,380
Feb-98 11,109 12,526 10,893 11,869
Mar-98 11,409 13,167 10,931 12,250
Apr-98 11,579 13,300 10,987 12,349
May-98 11,439 13,071 11,092 12,269
Jun-98 11,654 13,602 11,186 12,610
Jul-98 11,533 13,458 11,210 12,541
Aug-98 10,376 11,512 11,392 11,535
Sep-98 10,718 12,250 11,659 12,086
Oct-98 11,181 13,245 11,597 12,651
Nov-98 11,654 14,048 11,663 13,139
Dec-98 12,267 14,857 11,698 13,609
Jan-99 12,689 15,478 11,781 13,989
Feb-99 12,397 14,997 11,575 13,631
Mar-99 12,927 15,597 11,639 13,988
Apr-99 13,409 16,200 11,676 14,331
May-99 13,101 15,818 11,573 14,077
Jun-99 13,625 16,696 11,536 14,528
Jul-99 13,459 16,175 11,488 14,231
Aug-99 13,448 16,094 11,482 14,186
Sep-99 13,577 15,653 11,615 14,018
Oct-99 14,027 16,644 11,658 14,571
Nov-99 14,611 16,982 11,657 14,748
Dec-99 15,664 17,982 11,601 15,241
Jan-00 15,349 17,079 11,563 14,761
Feb-00 15,915 16,757 11,703 14,665
Mar-00 16,432 18,395 11,857 15,604
Apr-00 15,956 17,842 11,823 15,304
May-00 15,691 17,476 11,817 15,113
Jun-00 16,027 17,906 12,063 15,462
Jul-00 15,844 17,627 12,172 15,374
Aug-00 16,562 18,721 12,349 16,036
Sep-00 16,244 17,733 12,427 15,568
Oct-00 16,158 17,658 12,509 15,569
Nov-00 15,371 16,267 12,714 14,936
Dec-00 15,738 16,346 12,950 15,091
Jan-01 16,509 16,927 13,161 15,511
Feb-01 15,728 15,383 13,276 14,717
Mar-01 15,186 14,409 13,342 14,187
Apr-01 15,776 15,529 13,286 14,824
May-01 15,996 15,633 13,366 14,919
Jun-01 16,033 15,253 13,417 14,723
Jul-01 15,930 15,104 13,717 14,769
Aug-01 15,613 14,158 13,875 14,281
Sep-01 14,751 13,014 14,036 13,656
Oct-01 15,090 13,263 14,329 13,926
Nov-01 15,566 14,280 14,132 14,490
Dec-01 15,759 14,406 14,041 14,529
Jan-02 15,521 14,195 14,155 14,450
Feb-02 15,339 13,921 14,292 14,338
Mar-02 15,736 14,445 14,055 14,566
Apr-02 15,397 13,569 14,328 14,150
May-02 15,363 13,469 14,449 14,135
Jun-02 14,804 12,510 14,575 13,580
Jul-02 14,097 11,534 14,751 13,011
Aug-02 14,224 11,610 15,001 13,150
Sep-02 13,553 10,348 15,244 12,378
Oct-02 14,109 11,259 15,174 13,010
Nov-02 14,676 11,922 15,169 13,467
Dec-02 14,375 11,221 15,483 13,104
Jan-03 14,258 10,927 15,497 12,902
Feb-03 14,177 10,763 15,711 12,857
Mar-03 14,200 10,868 15,698 12,928
Apr-03 14,917 11,763 15,829 13,610
May-03 15,658 12,383 16,123 14,142
Jun-03 15,829 12,541 16,091 14,240
Jul-03 15,888 12,762 15,550 14,199
Aug-03 16,148 13,011 15,653 14,402
Sep-03 16,266 12,873 16,068 14,462
Oct-03 16,847 13,602 15,918 14,899
Nov-03 17,072 13,721 15,956 14,991
Dec-03 17,641 14,440 16,119 15,524
Jan-04 17,985 14,706 16,248 15,744
Feb-04 18,186 14,911 16,423 15,944
Mar-04 18,186 14,685 16,547 15,847
Apr-04 17,735 14,455 16,116 15,533
May-04 17,831 14,653 16,052 15,635
Jun-04 18,157 14,937 16,143 15,853
Jul-04 17,771 14,443 16,303 15,601
Aug-04 17,939 14,501 16,615 15,757
Sep-04 18,169 14,657 16,660 15,876
Oct-04 18,411 14,881 16,799 16,075
Nov-04 18,930 15,484 16,665 16,414
Dec-04 19,426 16,011 16,818 16,810
Jan-05 19,088 15,620 16,924 16,606
Feb-05 19,330 15,948 16,824 16,776
Mar-05 19,100 15,666 16,739 16,563
Apr-05 18,955 15,368 16,965 16,463
May-05 19,450 15,857 17,148 16,848
Jun-05 19,619 15,879 17,242 16,901
Jul-05 20,111 16,470 17,085 17,217
Aug-05 20,111 16,320 17,304 17,210
Sep-05 20,124 16,452 17,126 17,222
Oct-05 19,890 16,177 16,990 16,995
Nov-05 20,445 16,789 17,065 17,411
Dec-05 20,592 16,794 17,227 17,481
Jan-06 21,109 17,239 17,229 17,758
Feb-06 21,061 17,285 17,286 17,810
Mar-06 21,307 17,500 17,117 17,872
Apr-06 21,443 17,734 17,086 18,003
May-06 20,877 17,223 17,067 17,684
Jun-06 20,890 17,247 17,103 17,714
Jul-06 20,890 17,354 17,334 17,875
Aug-06 21,343 17,767 17,599 18,240
Sep-06 21,682 18,226 17,754 18,587
Oct-06 22,211 18,820 17,871 18,999
Nov-06 22,678 19,178 18,078 19,303
Dec-06 22,780 19,446 17,973 19,421
(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 1997 and 1998 benefited from the agreement of WM
Advisors and its affiliates to limit the Portfolio's expenses.
(2) See glossary on page 14 for definitions of indices. Returns shown for the
indices assume reinvestment of all dividends and distributions, and
since-inception returns shown for the indices are calculated from 5/31/97.
Indices are unmanaged, and individuals cannot invest directly in an index.
8
PORTFOLIO MANAGER
Asset Allocation Team
WM Advisors, Inc.
we expanded the Portfolio's exposure to emerging market stocks and believe that
the Portfolio's core position can provide broader diversification going forward.
However, in December, the underlying fund temporarily trimmed this allocation in
preparation for fund mergers scheduled for January 2007.
Among fixed-income assets, high-yield bonds had a positive impact on
performance, while mortgage- and asset-backed bonds provided a slight benefit.
The Portfolio ended the period with neutral weightings in corporate and mortgage
securities.
Looking forward, we believe that the economy will continue to slow while
inflation fears subside, subsequently leading the Federal Reserve to cut
short-term interest rates. We anticipate that in 2007, these cuts will begin
earlier and occur more often than the market expects. Lower interest rates
should bring down bond yields and could support the expansion of equity price
multiples. The Portfolio's asset class allocations are designed to take
advantage of this soft landing scenario. However, we also feel that choppy
market performance is apt to occur in reaction to mixed economic data.
In the near term, we are analyzing the Portfolio's six underlying equity funds
that will be changing management as a result of the upcoming fund mergers. Given
our asset allocation discipline, we are focused on proactively identifying and
executing adjustments that might be necessary to keep allocations aligned with
our targets and our outlook.
PORTFOLIO COMPOSITION (3)
As of As of
Asset Class 12/31/06 12/31/05 Change
- ----------- -------- -------- ------
U.S. Large-Cap Growth Stocks 18% 16% +2%
U.S. Large-Cap Value Stocks 13% 16% -3%
U.S. Mid-Cap Growth Stocks 10% 8% +2%
Non-U.S. Developed Market Stocks 9% 8% +1%
REITs 5% 4% +1%
U.S. Mid-Cap Value Stocks 4% 5% -1%
U.S. Small-Cap Growth Stocks 3% 3% 0%
U.S. Small-Cap Value Stocks 2% 3% -1%
Convertible Securities 1% 1% 0%
Emerging Market Stocks 1% 1% 0%
Mortgage- & Asset-Backed Bonds 17% 17% 0%
Investment-Grade Corporate Bonds 6% 6% 0%
High-Yield Corporate Bonds 5% 5% 0%
U.S. Government Securities 3% 3% 0%
Cash Equivalents 3% 4% -1%
Note: For information about the underlying WM Funds of the VT SAM Portfolios,
please see the WM Variable Trust annual report, which is available online.
(3) May not reflect the current portfolio composition.
9
VT Conservative Growth Portfolio
INVESTMENT STRATEGY
The WM VT Strategic Asset Management (SAM) Conservative Growth Portfolio ended
2006 invested in 12 underlying funds that provide diversification across 14
equity and fixed-income asset classes.
We began the 12-month period with an outlook for the economy and financial
markets that judged stocks to be more attractive than bonds. In response, we
built on the Portfolio's equity allocation by raising it from 83% to 84%.
Despite a short-lived stock market retreat during May and June, this
overweighting in equities proved beneficial to performance during the year.
As we strengthened the Portfolio's equity allocation, we also shifted its equity
style and capitalization weightings to favor large-cap growth stocks. These
adjustments ultimately proved to be ahead of a market rotation away from value
and smaller capitalization assets. However, large-cap growth stocks enjoyed
improved performance late in the period, and we believe the Portfolio is
well-positioned for the upcoming year.
Other equity asset classes that drove Portfolio performance included real estate
investment trusts (REITs) and international equities, which realized strong
absolute returns. In March,
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. Performance shown below does not account for fees,
expenses, and charges of any variable insurance contract or retirement plan. If
these fees were reflected, performance would be lower.
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 DECEMBER 31, 2006
1-Year 5-Year Since Inception Inception Date
------ ------ --------------- --------------
CLASS 1 SHARES 12.20% 7.86% 9.60% 6/3/97
CLASS 2 SHARES 11.95% 7.59% 8.26% 11/6/01
S&P 500(2) 15.80% 6.19% 7.19%
Lehman Brothers Aggregate Bond Index(2) 4.33% 5.06% 6.31%
Capital Market Benchmark(2) 13.44% 6.13% 7.24%
VALUE OF A $10,000 INVESTMENT(1) JUNE 3, 1997 - DECEMBER 31, 2006
(PERFORMANCE GRAPH)
WM GROUP OF FUNDS
VT ANNUAL REPORT UPDATE MATERIAL
PERFORMANCE NAV -- MOUNTAIN CHARTS (VALUE OF $10,000 INVESTMENT OVER 10-YEARS)
DATA AS OF 12/31/2006
CLASS 1 SHARES
VT LEHMAN
CONSERVATIVE BROTHERS CAPITAL
GROWTH AGGREGATE MARKET
DATE PORTFOLIO S&P 500 BOND INDEX BENCHMARK
---- ------------ ------- ---------- ---------
Dec-96
Jan-97
Feb-97
Mar-97
Apr-97
May-97 10,000 10,000 10,000 10,000
Jun-97 10,300 10,446 10,119 10,381
Jul-97 10,860 11,275 10,392 11,096
Aug-97 10,420 10,648 10,304 10,584
Sep-97 10,851 11,232 10,456 11,079
Oct-97 10,421 10,857 10,608 10,815
Nov-97 10,401 11,360 10,657 11,226
Dec-97 10,492 11,555 10,764 11,404
Jan-98 10,622 11,683 10,902 11,534
Feb-98 11,312 12,526 10,893 12,197
Mar-98 11,713 13,167 10,931 12,704
Apr-98 11,883 13,300 10,987 12,820
May-98 11,593 13,071 11,092 12,667
Jun-98 11,859 13,602 11,186 13,100
Jul-98 11,619 13,458 11,210 12,994
Aug-98 10,034 11,512 11,392 11,534
Sep-98 10,525 12,250 11,659 12,178
Oct-98 11,097 13,245 11,597 12,958
Nov-98 11,750 14,048 11,663 13,601
Dec-98 12,583 14,857 11,698 14,236
Jan-99 13,155 15,478 11,781 14,733
Feb-99 12,774 14,997 11,575 14,314
Mar-99 13,466 15,597 11,639 14,788
Apr-99 14,128 16,200 11,676 15,255
May-99 13,818 15,818 11,573 14,941
Jun-99 14,572 16,696 11,536 15,595
Jul-99 14,326 16,175 11,488 15,193
Aug-99 14,316 16,094 11,482 15,131
Sep-99 14,429 15,653 11,615 14,834
Oct-99 15,085 16,644 11,658 15,597
Nov-99 15,936 16,982 11,657 15,849
Dec-99 17,536 17,982 11,601 16,582
Jan-00 17,168 17,079 11,563 15,903
Feb-00 17,999 16,757 11,703 15,701
Mar-00 18,706 18,395 11,857 16,972
Apr-00 17,937 17,842 11,823 16,553
May-00 17,485 17,476 11,817 16,279
Jun-00 17,900 17,906 12,063 16,668
Jul-00 17,588 17,627 12,172 16,490
Aug-00 18,596 18,721 12,349 17,358
Sep-00 18,066 17,733 12,427 16,646
Oct-00 17,911 17,658 12,509 16,611
Nov-00 16,643 16,267 12,714 15,618
Dec-00 17,100 16,346 12,950 15,736
Jan-01 18,118 16,927 13,161 16,234
Feb-01 16,891 15,383 13,276 15,078
Mar-01 16,050 14,409 13,342 14,328
Apr-01 17,007 15,529 13,286 15,207
May-01 17,277 15,633 13,366 15,307
Jun-01 17,291 15,253 13,417 15,021
Jul-01 16,992 15,104 13,717 14,970
Aug-01 16,404 14,158 13,875 14,254
Sep-01 15,073 13,014 14,036 13,366
Oct-01 15,473 13,263 14,329 13,625
Nov-01 16,205 14,280 14,132 14,424
Dec-01 16,493 14,406 14,041 14,506
Jan-02 16,094 14,195 14,155 14,360
Feb-02 15,750 13,921 14,292 14,166
Mar-02 16,405 14,445 14,055 14,545
Apr-02 15,795 13,569 14,328 13,897
May-02 15,706 13,469 14,449 13,838
Jun-02 14,885 12,510 14,575 13,073
Jul-02 13,876 11,534 14,751 12,290
Aug-02 13,967 11,610 15,001 12,396
Sep-02 13,005 10,348 15,244 11,358
Oct-02 13,715 11,259 15,174 12,148
Nov-02 14,425 11,922 15,169 12,718
Dec-02 13,932 11,221 15,483 12,173
Jan-03 13,748 10,927 15,497 11,920
Feb-03 13,587 10,763 15,711 11,810
Mar-03 13,610 10,868 15,698 11,900
Apr-03 14,492 11,763 15,829 12,704
May-03 15,375 12,383 16,123 13,287
Jun-03 15,593 12,541 16,091 13,417
Jul-03 15,804 12,762 15,550 13,517
Aug-03 16,120 13,011 15,653 13,745
Sep-03 16,178 12,873 16,068 13,701
Oct-03 16,962 13,602 15,918 14,296
Nov-03 17,232 13,721 15,956 14,403
Dec-03 17,935 14,440 16,119 15,037
Jan-04 18,333 14,706 16,248 15,282
Feb-04 18,568 14,911 16,423 15,485
Mar-04 18,533 14,685 16,547 15,321
Apr-04 18,042 14,455 16,116 15,048
May-04 18,206 14,653 16,052 15,202
Jun-04 18,601 14,937 16,143 15,456
Jul-04 18,007 14,443 16,303 15,077
Aug-04 18,150 14,501 16,615 15,183
Sep-04 18,435 14,657 16,660 15,322
Oct-04 18,707 14,881 16,799 15,535
Nov-04 19,443 15,484 16,665 16,014
Dec-04 20,047 16,011 16,818 16,478
Jan-05 19,584 15,620 16,924 16,178
Feb-05 19,917 15,948 16,824 16,431
Mar-05 19,644 15,666 16,739 16,181
Apr-05 19,383 15,368 16,965 15,979
May-05 19,988 15,857 17,148 16,420
Jun-05 20,196 15,879 17,242 16,456
Jul-05 20,868 16,470 17,085 16,915
Aug-05 20,820 16,320 17,304 16,835
Sep-05 20,856 16,452 17,126 16,909
Oct-05 20,591 16,177 16,990 16,657
Nov-05 21,311 16,789 17,065 17,175
Dec-05 21,456 16,794 17,227 17,213
Jan-06 22,141 17,239 17,229 17,578
Feb-06 22,032 17,285 17,286 17,627
Mar-06 22,405 17,500 17,117 17,768
Apr-06 22,597 17,734 17,086 17,953
May-06 21,840 17,223 17,067 17,537
Jun-06 21,836 17,247 17,103 17,563
Jul-06 21,762 17,354 17,334 17,696
Aug-06 22,286 17,767 17,599 18,088
Sep-06 22,678 18,226 17,754 18,493
Oct-06 23,350 18,820 17,871 18,999
Nov-06 23,901 19,178 18,078 19,332
Dec-06 24,073 19,446 17,973 19,527
(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 1997 and 1998 benefited from the agreement of WM
Advisors and its affiliates to limit the Portfolio's expenses.
(2) See glossary on page 14 for definitions of indices. Returns shown for the
indices assume reinvestment of all dividends and distributions, and 10
since-inception returns shown for the indices are calculated from 5/31/97.
Indices are unmanaged, and individuals cannot invest directly in an index.
10
PORTFOLIO MANAGER
Asset Allocation Team
WM Advisors, Inc.
we expanded the Portfolio's exposure to emerging market stocks and believe that
the Portfolio's core position can provide broader diversification going forward.
However, in December, the underlying fund temporarily trimmed this allocation in
preparation for fund mergers scheduled for January 2007.
Among fixed-income assets, high-yield bonds had a positive impact on
performance, while mortgage- and asset-backed bonds provided a slight benefit.
The Portfolio ended the period with neutral weightings in corporate and mortgage
securities.
Looking forward, we believe that the economy will continue to slow while
inflation fears subside, subsequently leading the Federal Reserve to cut
short-term interest rates. We anticipate that in 2007, these cuts will begin
earlier and occur more often than the market expects. Lower interest rates
should bring down bond yields and could support the expansion of equity price
multiples. The Portfolio's asset class allocations are designed to take
advantage of this soft landing scenario. However, we also feel that choppy
market performance is apt to occur in reaction to mixed economic data.
In the near term, we are analyzing the Portfolio's six underlying equity funds
that will be changing management as a result of the upcoming fund mergers. Given
our asset allocation discipline, we are focused on proactively identifying and
executing adjustments that might be necessary to keep allocations aligned with
our targets and our outlook.
PORTFOLIO COMPOSITION(3)
As of As of
Asset Class 12/31/06 12/31/05 Change
- ----------- -------- -------- ------
U.S. Large-Cap Growth Stocks 24% 20% +4%
U.S. Large-Cap Value Stocks 18% 21% -3%
U.S. Mid-Cap Growth Stocks 13% 10% +3%
Non-U.S. Developed Market Stocks 11% 10% +1%
REITs 6% 5% +1%
U.S. Mid-Cap Value Stocks 5% 7% -2%
U.S. Small-Cap Growth Stocks 3% 4% -1%
U.S. Small-Cap Value Stocks 3% 3% 0%
Emerging Market Stocks 1% 2% -1%
Convertible Securities 0% 1% -1%
Mortgage- & Asset-Backed Bonds 7% 7% 0%
High-Yield Corporate Bonds 3% 3% 0%
Investment-Grade Corporate Bonds 2% 2% 0%
U.S. Government Securities 1% 1% 0%
Cash Equivalents 3% 4% -1%
Note: For information about the underlying WM Funds of the VT SAM
Portfolios, please see the WM Variable Trust annual report, which is available
online.
(3) May not reflect the current portfolio composition.
11
VT Strategic Growth Portfolio
INVESTMENT STRATEGY
The WM VT Strategic Asset Management (SAM) Strategic Growth Portfolio ended 2006
invested in 10 underlying funds that provide diversification across 12 equity
and fixed-income asset classes.
We began the 12-month period with an outlook for the economy and financial
markets that judged stocks to be more attractive than bonds. In response, we
built on the Portfolio's equity allocation by raising it from 93% to 94%.
Despite a short-lived stock market retreat during May and June, this addition to
equities proved beneficial to performance during the year.
As we strengthened the Portfolio's equity allocation, we also shifted its equity
style and capitalization weightings to favor large-cap growth stocks. These
adjustments ultimately proved to be ahead of a market rotation away from value
and smaller capitalization assets. However, large-cap growth stocks enjoyed
improved performance late in the period, and we believe the Portfolio is
well-positioned for the upcoming year.
Other asset classes that drove Portfolio performance included real estate
investment trusts (REITs) and international equities, which realized strong
absolute returns. In March,
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. Performance shown below does not account for fees,
expenses, and charges of any variable insurance contract or retirement plan. If
these fees were reflected, performance would be lower.
Equity investments involve greater risk, including heightened volatility, than
fixed-income investments.
AVERAGE ANNUAL TOTAL RETURNS(1) AS OF DECEMBER 31, 2006
1-Year 5-Year Since Inception Inception Date
------ ------ --------------- --------------
CLASS 1 SHARES 13.06% 7.76% 10.58% 6/3/97
CLASS 2 SHARES 12.77% 7.53% 8.49% 11/6/01
S&P 500(2) 15.80% 6.19% 7.19%
Russell 3000(R) Index(2) 15.72% 7.17% 7.65%
VALUE OF A $10,000 INVESTMENT(1) JUNE 3, 1997 - DECEMBER 31, 2006
(PERFORMANCE GRAPH)
WM GROUP OF FUNDS
VT ANNUAL REPORT UPDATE MATERIAL
PERFORMANCE NAV -- MOUNTAIN CHARTS (VALUE OF $10,000 INVESTMENT OVER 10-YEARS)
DATA AS OF 12/31/2006
CLASS 1 SHARES
VT STRATEGIC
GROWTH RUSSELL 3000
DATE PORTFOLIO S&P 500 INDEX
- ------ ------------ ------- ------------
DEC-96
Jan-97
Feb-97
Mar-97
Apr-97
May-97 10,000 10,000 10,000
Jun-97 10,320 10,446 10,416
Jul-97 10,970 11,275 11,233
Aug-97 10,550 10,648 10,777
Sep-97 11,041 11,232 11,388
Oct-97 10,610 10,857 11,005
Nov-97 10,630 11,360 11,426
Dec-97 10,700 11,555 11,655
Jan-98 10,861 11,683 11,716
Feb-98 11,711 12,526 12,553
Mar-98 12,171 13,167 13,176
Apr-98 12,361 13,300 13,305
May-98 12,061 13,071 12,976
Jun-98 12,411 13,602 13,415
Jul-98 12,170 13,458 13,171
Aug-98 10,424 11,512 11,153
Sep-98 11,005 12,250 11,914
Oct-98 11,637 13,245 12,818
Nov-98 12,390 14,048 13,602
Dec-98 13,504 14,857 14,468
Jan-99 14,256 15,478 14,959
Feb-99 13,794 14,997 14,430
Mar-99 14,646 15,597 14,959
Apr-99 15,429 16,200 15,634
May-99 15,137 15,818 15,337
Jun-99 16,039 16,696 16,112
Jul-99 15,744 16,175 15,623
Aug-99 15,755 16,094 15,445
Sep-99 15,878 15,653 15,050
Oct-99 16,704 16,644 15,994
Nov-99 17,804 16,982 16,441
Dec-99 19,976 17,982 17,490
Jan-00 19,639 17,079 16,805
Feb-00 20,923 16,757 16,961
Mar-00 21,697 18,395 18,289
Apr-00 20,617 17,842 17,645
May-00 20,015 17,476 17,149
Jun-00 20,595 17,906 17,657
Jul-00 20,130 17,627 17,345
Aug-00 21,442 18,721 18,631
Sep-00 20,677 17,733 17,787
Oct-00 20,408 17,658 17,535
Nov-00 18,661 16,267 15,918
Dec-00 19,230 16,346 16,186
Jan-01 20,522 16,927 16,739
Feb-01 18,827 15,383 15,209
Mar-01 17,649 14,409 14,218
Apr-01 19,054 15,529 15,358
May-01 19,395 15,633 15,481
Jun-01 19,453 15,253 15,196
Jul-01 18,871 15,104 14,945
Aug-01 18,016 14,158 14,063
Sep-01 16,132 13,014 12,823
Oct-01 16,592 13,263 13,122
Nov-01 17,600 14,280 14,132
Dec-01 18,028 14,406 14,331
Jan-02 17,458 14,195 14,152
Feb-02 16,966 13,921 13,863
Mar-02 17,897 14,445 14,471
Apr-02 17,031 13,569 13,711
May-02 16,900 13,469 13,552
Jun-02 15,824 12,510 12,576
Jul-02 14,464 11,534 11,576
Aug-02 14,522 11,610 11,631
Sep-02 13,254 10,348 10,408
Oct-02 14,123 11,259 11,237
Nov-02 15,014 11,922 11,917
Dec-02 14,329 11,221 11,243
Jan-03 14,078 10,927 10,968
Feb-03 13,828 10,763 10,787
Mar-03 13,851 10,868 10,900
Apr-03 14,879 11,763 11,791
May-03 15,929 12,383 12,503
Jun-03 16,186 12,541 12,672
Jul-03 16,534 12,762 12,962
Aug-03 16,939 13,011 13,250
Sep-03 16,915 12,873 13,105
Oct-03 17,912 13,602 13,898
Nov-03 18,236 13,721 14,090
Dec-03 19,069 14,440 14,734
Jan-04 19,532 14,706 15,042
Feb-04 19,798 14,911 15,245
Mar-04 19,693 14,685 15,063
Apr-04 19,207 14,455 14,752
May-04 19,416 14,653 14,966
Jun-04 19,894 14,937 15,263
Jul-04 19,136 14,443 14,686
Aug-04 19,241 14,501 14,747
Sep-04 19,580 14,657 14,974
Oct-04 19,883 14,881 15,219
Nov-04 20,804 15,484 15,927
Dec-04 21,515 16,011 16,494
Jan-05 20,932 15,620 16,055
Feb-05 21,353 15,948 16,408
Mar-05 21,050 15,666 16,131
Apr-05 20,677 15,368 15,781
May-05 21,388 15,857 16,379
Jun-05 21,626 15,879 16,494
Jul-05 22,471 16,470 17,170
Aug-05 22,388 16,320 17,007
Sep-05 22,458 16,452 17,155
Oct-05 22,163 16,177 16,834
Nov-05 23,021 16,789 17,489
Dec-05 23,173 16,794 17,505
Jan-06 24,007 17,239 18,089
Feb-06 23,866 17,285 18,122
Mar-06 24,348 17,500 18,436
Apr-06 24,572 17,734 18,635
May-06 23,655 17,223 18,038
Jun-06 23,648 17,247 18,071
Jul-06 23,506 17,354 18,055
Aug-06 24,101 17,767 18,497
Sep-06 24,552 18,226 18,911
Oct-06 25,347 18,820 19,592
Nov-06 25,988 19,178 20,019
Dec-06 26,202 19,446 20,259
(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 1997 and 1999 benefited from the agreement of WM
Advisors and its affiliates to limit the Portfolio's expenses.
(2) See glossary on page 14 for definitions of indices. Returns shown for the
indices assume reinvestment of all dividends and distributions, and
since-inception returns shown for the indices are calculated from 5/31/97.
Indices are unmanaged, and individuals cannot invest directly in an index.
12
PORTFOLIO MANAGER
Asset Allocation Team
WM Advisors, Inc.
we expanded the Portfolio's exposure to emerging market stocks and believe that
the Portfolio's core position can provide broader diversification going
forward. However, in December, the underlying fund temporarily trimmed this
allocation in preparation for fund mergers scheduled for January 2007.
The Portfolio's fixed-income allocation in high-yield bonds had a positive
impact on performance, as the underlying fund achieved strong relative results.
Looking forward, we believe that the economy will continue to slow while
inflation fears subside, subsequently leading the Federal Reserve to cut
short-term interest rates. We anticipate that in 2007, these cuts will begin
earlier and occur more often than the market expects. Lower interest rates
should bring down bond yields and could support the expansion of equity price
multiples. The Portfolio's asset class allocations are designed to take
advantage of this soft landing scenario. However, we also feel that choppy
market performance is apt to occur in reaction to mixed economic data.
In the near term, we are analyzing the Portfolio's six underlying equity funds
that will be changing management as a result of the upcoming fund mergers. Given
our asset allocation discipline, we are focused on proactively identifying and
executing adjustments that might be necessary to keep allocations aligned with
our targets and our outlook.
PORTFOLIO COMPOSITION (3)
As of As of
Asset Class 12/31/06 12/31/05 Change
- ----------- -------- -------- ------
U.S. Large-Cap Growth Stocks 26% 23% +3%
U.S. Large-Cap Value Stocks 19% 23% -4%
U.S. Mid-Cap Growth Stocks 15% 11% +4%
Non-U.S. Developed Market Stocks 13% 12% +1%
U.S. Mid-Cap Value Stocks 6% 8% -2%
REITs 6% 5% +1%
U.S. Small-Cap Growth Stocks 4% 5% -1%
U.S. Small-Cap Value Stocks 3% 3% 0%
Emerging Market Stocks 1% 2% -1%
Convertible Securities 1% 1% 0%
High-Yield Corporate Bonds 3% 3% 0%
Cash Equivalents 3% 4% -1%
Note: For information about the underlying WM Funds of the VT SAM Portfolios,
please see the WM Variable Trust annual report, which is available online.
(3) May not reflect the current portfolio composition.
13
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: VT Flexible Income Portfolio: 20% S&P
500 and 80% Lehman Brothers Aggregate Bond Index; VT Conservative Balanced
Portfolio: 40% S&P 500 and 60% Lehman Brothers Aggregate Bond Index; VT Balanced
Portfolio:60% S&P 500 and 40% Lehman Brothers Aggregate Bond Index; and VT
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.
14
Expense Information
WM VARIABLE TRUST STRATEGIC ASSET MANAGEMENT PORTFOLIOS
As a shareholder of the VT Flexible Income Portfolio, VT Conservative Balanced
Portfolio, VT Balanced Portfolio, VT Conservative Growth Portfolio or VT
Strategic Growth Portfolio (collectively, the "Portfolios"), you incur ongoing
costs, including management fees, distribution and/or service fees, and other
Portfolio expenses. This example 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. This example does not
include expenses of Class 1 shares of various funds in the WM Group of Funds and
Class I shares of the WM High Yield Fund (collectively, the "Underlying Funds")
(see Notes to Financial Statements - note 1). An example including expenses of
the Underlying Funds appears on the following page. Also note expenses shown
below and on the following page do not account for fees, expenses, and charges
of any variable insurance contract or retirement plan. If these fees had been
reflected, expenses would have been higher.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period July 1, 2006, to December 31, 2006.
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 = $8.60), 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 ratio 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 separate
account expenses. 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.
ACTUAL HYPOTHETICAL
EXPENSES (5% RETURN BEFORE EXPENSES)
---------------------------------- ----------------------------------
EXPENSES EXPENSES
BEGINNING ENDING PAID DURING BEGINNING ENDING PAID DURING
ACCOUNT ACCOUNT PERIOD* ACCOUNT ACCOUNT PERIOD*
VALUE VALUE 7/1/06- VALUE VALUE 7/1/06- EXPENSE
7/1/06 12/31/06 12/31/06 7/1/06 12/31/06 12/31/06 RATIO
--------- -------- ----------- --------- -------- ----------- -------
VT Flexible Income Portfolio
Class 1 ............................ $1,000 $1,068 $1.46 $1,000 $1,024 $1.43 0.28%
Class 2 ............................ 1,000 1,066 2.76 1,000 1,023 2.70 0.53%
VT Conservative Balanced Portfolio
Class 1 ............................ $1,000 $1,088 $1.63 $1,000 $1,024 $1.58 0.31%
Class 2 ............................ 1,000 1,085 2.94 1,000 1,022 2.85 0.56%
VT Balanced Portfolio
Class 1 ............................ $1,000 $1,106 $1.43 $1,000 $1,024 $1.38 0.27%
Class 2 ............................ 1,000 1,104 2.76 1,000 1,023 2.65 0.52%
VT Conservative Growth Portfolio
Class 1 ............................ $1,000 $1,122 $1.44 $1,000 $1,024 $1.38 0.27%
Class 2 ............................ 1,000 1,119 2.78 1,000 1,023 2.65 0.52%
VT Strategic Growth Portfolio
Class 1 ............................ $1,000 $1,131 $1.50 $1,000 $1,024 $1.43 0.28%
Class 2 ............................ 1,000 1,128 2.84 1,000 1,023 2.70 0.53%
* 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).
15
Expense Information (continued)
WM VARIABLE TRUST STRATEGIC ASSET MANAGEMENT PORTFOLIOS
The following table sets forth the estimated ongoing aggregate expenses of the
Portfolios, including expenses of the Underlying Funds, based upon expenses
shown in the table above for each Portfolio and corresponding expenses for each
Underlying Fund's Class 1 shares or 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 December 31, 2006.
A Portfolio's actual expenses may be higher as a result of changes in the
allocation of the Portfolio's assets among the Underlying Funds, the expenses of
the Underlying Funds and/or the Portfolio's own expenses.
ACTUAL HYPOTHETICAL
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 7/1/06- VALUE VALUE 7/1/06- EXPENSE
7/1/06 12/31/06 12/31/06 7/1/06 12/31/06 12/31/06 RATIO
--------- -------- ----------- --------- -------- ----------- ----------
VT Flexible Income Portfolio
Class 1 ............................ $1,000 $1,068 $4.54 $1,000 $1,021 $4.43 0.87%
Class 2 ............................ 1,000 1,066 5.83 1,000 1,020 5.70 1.12%
VT Conservative Balanced Portfolio
Class 1 ............................ $1,000 $1,088 $4.95 $1,000 $1,020 $4.79 0.94%
Class 2 ............................ 1,000 1,085 6.25 1,000 1,019 6.06 1.19%
VT Balanced Portfolio
Class 1 ............................ $1,000 $1,106 $5.04 $1,000 $1,020 $4.84 0.95%
Class 2 ............................ 1,000 1,104 6.36 1,000 1,019 6.11 1.20%
VT Conservative Growth Portfolio
Class 1 ............................ $1,000 $1,122 $5.46 $1,000 $1,020 $5.19 1.02%
Class 2 ............................ 1,000 1,119 6.78 1,000 1,019 6.46 1.27%
VT Strategic Growth Portfolio
Class 1 ............................ $1,000 $1,131 $5.75 $1,000 $1,020 $5.45 1.07%
Class 2 ............................ 1,000 1,128 7.08 1,000 1,019 6.72 1.32%
* 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).
16
Financial Statements:
Portfolios of Investments
VT FLEXIBLE INCOME PORTFOLIO
December 31, 2006
VALUE
SHARES (000S)
- ------ --------
INVESTMENT COMPANY SECURITIES -- 99.1%
EQUITY FUNDS -- 25.2%
442,423 WM VT Equity Income Fund ............................. $ 8,579
554,994 WM VT Growth & Income Fund ........................... 11,350
923,910 WM VT Growth Fund .................................... 13,480
308,381 WM VT Mid Cap Stock Fund ............................. 5,468
95,928 WM VT REIT Fund ...................................... 1,978
203,515 WM VT Small Cap Growth Fund+ ......................... 2,104
176,401 WM VT Small Cap Value Fund ........................... 2,180
104,959 WM VT West Coast Equity Fund ......................... 2,525
--------
Total Equity Funds
(Cost $30,969) .................................... 47,664
--------
FIXED-INCOME FUNDS -- 73.9%
1,427,830 WM High Yield Fund ................................... 12,436
4,423,594 WM VT Income Fund .................................... 46,713
8,831,301 WM VT Short Term Income Fund ......................... 22,255
5,636,978 WM VT U.S. Government Securities Fund ................ 58,681
--------
Total Fixed-Income Funds
(Cost $135,204) ................................... 140,085
--------
Total Investment Company Securities
(Cost $166,173) ................................... 187,749
--------
PRINCIPAL
AMOUNT
(000S)
---------
REPURCHASE AGREEMENT -- 1.0%
(Cost $1,927)
$ 1,927 Agreement with Morgan Stanley, 4.750%
dated 12/29/2006, to be repurchased
at $1,928,000 on 01/03/2007
(collateralized by U.S. Treasury Bond,
3.625% due 04/15/2028, market value
$1,986,000) ............................... 1,927
----- --------
TOTAL INVESTMENTS (Cost $168,100*) .......................... 100.1% 189,676
OTHER ASSETS (LIABILITIES) (NET) ............................ (0.1) (123)
----- --------
NET ASSETS .................................................. 100.0% $189,553
===== ========
- ----------
* Aggregate cost for federal tax purposes is $169,332.
+ Non-income producing security.
VT CONSERVATIVE BALANCED PORTFOLIO
December 31, 2006
VALUE
SHARES (000S)
- ------ --------
INVESTMENT COMPANY SECURITIES -- 98.5%
EQUITY FUNDS -- 44.6%
355,930 WM VT Equity Income Fund ............................. $ 6,902
297,217 WM VT Growth & Income Fund ........................... 6,078
514,764 WM VT Growth Fund .................................... 7,510
237,056 WM VT International Growth Fund ...................... 4,156
150,437 WM VT Mid Cap Stock Fund ............................. 2,667
81,158 WM VT REIT Fund ...................................... 1,673
83,391 WM VT Small Cap Growth Fund+ ......................... 862
77,395 WM VT Small Cap Value Fund ........................... 957
126,550 WM VT West Coast Equity Fund ......................... 3,045
--------
Total Equity Funds
(Cost $24,359) .................................... 33,850
--------
FIXED-INCOME FUNDS -- 53.9%
499,433 WM High Yield Fund.................................... 4,350
1,251,641 WM VT Income Fund .................................... 13,217
1,630,858 WM VT Short Term Income Fund ......................... 4,110
1,851,130 WM VT U.S. Government Securities Fund ................ 19,270
--------
Total Fixed-Income Funds
(Cost $40,240) .................................... 40,947
--------
Total Investment Company Securities
(Cost $64,599) .................................... 74,797
--------
PRINCIPAL
AMOUNT
(000S)
- -----------
REPURCHASE AGREEMENT -- 1.4%
(Cost $1,102)
$ 1,102 Agreement with Morgan Stanley, 4.750% dated
12/29/2006, to be repurchased at $1,103,000
on 01/03/2007 (collateralized by U.S.
Treasury Bond, 3.625% due 04/15/2028,
market value $1,136,000)................... 1,102
--------
TOTAL INVESTMENTS (Cost $65,701*) ........................... 99.9% 75,899
OTHER ASSETS (LIABILITIES) (NET) ............................ 0.1 66
----- --------
NET ASSETS .................................................. 100.0% $ 75,965
===== ========
- ----------
* Aggregate cost for federal tax purposes is $66,700.
+ Non-income producing security.
See Notes to Financial Statements.
17
Portfolios of Investments
VT BALANCED PORTFOLIO
December 31, 2006
VALUE
SHARES (000S)
- ------ --------
INVESTMENT COMPANY SECURITIES -- 99.5%
EQUITY FUNDS -- 66.6%
4,587,979 WM VT Equity Income Fund ............................. $ 88,961
4,334,030 WM VT Growth & Income Fund ........................... 88,631
7,967,100 WM VT Growth Fund .................................... 116,240
3,476,020 WM VT International Growth Fund ...................... 60,935
2,089,232 WM VT Mid Cap Stock Fund ............................. 37,042
1,112,143 WM VT REIT Fund ...................................... 22,932
1,343,417 WM VT Small Cap Growth Fund+ ......................... 13,891
1,193,805 WM VT Small Cap Value Fund ........................... 14,756
1,819,754 WM VT West Coast Equity Fund ......................... 43,783
--------
Total Equity Funds
(Cost $348,425) ................................... 487,171
--------
FIXED-INCOME FUNDS -- 32.9%
3,820,680 WM High Yield Fund ................................... 33,278
7,133,449 WM VT Income Fund .................................... 75,329
2,878,170 WM VT Short Term Income Fund ......................... 7,253
12,007,961 WM VT U.S. Government Securities Fund ................ 125,003
--------
Total Fixed-Income Funds
(Cost $228,055) ................................... 240,863
--------
Total Investment Company Securities
(Cost $576,480) ................................... 728,034
--------
PRINCIPAL
AMOUNT
(000S)
- -----------
REPURCHASE AGREEMENT -- 0.4%
(Cost $2,910)
$ 2,910 Agreement with Morgan Stanley, 4.750% dated
12/29/2006, to be repurchased at $2,912,000
on 01/03/2007 (collateralized by U.S.
Treasury Bond, 3.625% due 04/15/2028,
market value $2,999,000) .................. 2,910
--------
TOTAL INVESTMENTS (Cost $579,390*) .......................... 99.9% 730,944
OTHER ASSETS (LIABILITIES) (NET) ............................ 0.1 452
----- --------
NETASSETS ................................................... 100.0% $731,396
===== ========
- ----------
* Aggregate cost for federal tax purposes is $592,223.
+ Non-income producing security.
VT CONSERVATIVE GROWTH PORTFOLIO
December 31, 2006
VALUE
SHARES (000S)
- ------ --------
INVESTMENT COMPANY SECURITIES -- 99.7%
EQUITY FUNDS -- 86.1%
3,395,910 WM VT Equity Income Fund ............................. $ 65,847
3,198,057 WM VT Growth & Income Fund ........................... 65,400
5,519,663 WM VT Growth Fund .................................... 80,532
2,399,860 WM VT International Growth Fund ...................... 42,070
1,505,941 WM VT Mid Cap Stock Fund ............................. 26,700
817,370 WM VT REIT Fund ...................................... 16,854
1,054,894 WM VT Small Cap Growth Fund+ ......................... 10,908
939,388 WM VT Small Cap Value Fund ........................... 11,611
1,331,568 WM VT West Coast Equity Fund ......................... 32,037
--------
Total Equity Funds
(Cost $262,728) ................................... 351,959
--------
FIXED-INCOME FUNDS -- 13.6%
1,174,208 WM High Yield Fund ................................... 10,227
1,486,627 WM VT Income Fund .................................... 15,699
2,825,718 WM VT U.S. Government Securities Fund 29,416
--------
Total-Fixed Income Funds
(Cost $51,399) .................................... 55,342
--------
Total Investment Company Securities
(Cost $314,127) ................................... 407,301
--------
PRINCIPAL
AMOUNT
(000S)
---------
REPURCHASE AGREEMENT -- 0.2%
(Cost $921)
$ 921 Agreement with Morgan Stanley, 4.750% dated
12/29/2006, to be repurchased at $922,000 on
01/03/2007 (collateralized by U.S. Treasury
Bond, 3.625% due 04/15/2028, market value
$949,000) .................................... 921
--------
TOTAL INVESTMENTS (Cost $315,048*) .......................... 99.9% 408,222
OTHER ASSETS (LIABILITIES) (NET) ............................ 0.1 416
----- --------
NET ASSETS .................................................. 100.0% $408,638
===== ========
- ----------
* Aggregate cost for federal tax purposes is $325,478.
+ Non-income producing security.
See Notes to Financial Statements.
18
Portfolio of Investments
VT STRATEGIC GROWTH PORTFOLIO
December 31, 2006
VALUE
SHARES (000S)
- ------ --------
INVESTMENT COMPANY SECURITIES -- 99.5%
EQUITY FUNDS -- 95.5%
1,912,486 WM VT Equity Income Fund ............................. $ 37,083
1,794,010 WM VT Growth & Income Fund ........................... 36,687
3,409,658 WM VT Growth Fund .................................... 49,747
1,454,402 WM VT International Growth Fund ...................... 25,496
973,416 WM VT Mid Cap Stock Fund ............................. 17,258
438,644 WM VT REIT Fund ...................................... 9,045
589,485 WM VT Small Cap Growth Fund+ ......................... 6,095
525,060 WM VT Small Cap Value Fund ........................... 6,490
796,328 WM VT West Coast Equity Fund ......................... 19,160
--------
Total Equity Funds
(Cost $160,312) ................................... 207,061
--------
FIXED-INCOME FUND -- 4.0%
(Cost $7,864)
993,897 WM High Yield Fund ................................... 8,657
--------
Total Investment Company Securities
(Cost $168,176) ................................... 215,718
--------
PRINCIPAL
AMOUNT
(000S)
- -----------
REPURCHASE AGREEMENT -- 0.1%
(Cost $171)
$ 171 Agreement with Morgan Stanley, 4.750% dated
12/29/2006, to be repurchased at $171,000
on 01/03/2007 (collateralized by U.S.
Treasury Bond, 3.625% due 04/15/2028,
market value $176,000) .................... 171
--------
TOTAL INVESTMENTS (Cost $168,347*) .......................... 99.6% 215,889
OTHER ASSETS (LIABILITIES) (NET) ............................ 0.4 865
----- --------
NET ASSETS .................................................. 100.0% $216,754
===== ========
- ----------
* Aggregate cost for federal tax purposes is $173,194.
+ Non-income producing security.
See Notes to Financial Statements.
19
Statements of Assets and Liabilities
WM VARIABLE TRUST STRATEGIC ASSET MANAGEMENT PORTFOLIOS
December 31, 2006
(In thousands)
VT FLEXIBLE VT CONSERVATIVE VT CONSERVATIVE VT STRATEGIC
INCOME BALANCED VT BALANCED GROWTH GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- --------------- ----------- --------------- ------------
ASSETS:
Investments, at cost ................................. $168,100 $65,701 $579,390 $315,048 $168,347
======== ======= ======== ======== ========
Investments, at value ................................ $189,676 $75,899 $730,944 $408,222 $215,889
Dividends and/or interest receivable ................. 1 -- 1 -- --
Receivable for Portfolio shares sold ................. 152 147 411 230 386
Receivable for investment securities sold ............ -- -- 700 500 600
Prepaid expenses and other assets .................... 1 1 1 1 --
-------- ------- -------- -------- --------
Total Assets ...................................... 189,830 76,047 732,057 408,953 216,875
-------- ------- -------- -------- --------
LIABILITIES:
Payable for Portfolio shares redeemed ................ 178 24 371 141 15
Investment advisory fee payable ...................... 16 6 62 35 18
Administration fee payable ........................... 24 10 94 52 28
Distribution fees payable ............................ 14 7 47 26 14
Accrued legal and audit fees ......................... 26 26 27 26 26
Accrued printing and postage expenses ................ 18 8 59 34 19
Accrued expenses and other payables .................. 1 1 1 1 1
-------- ------- -------- -------- --------
Total Liabilities ................................. 277 82 661 315 121
-------- ------- -------- -------- --------
NET ASSETS ........................................... $189,553 $75,965 $731,396 $408,638 $216,754
======== ======= ======== ======== ========
NET ASSETS CONSIST OF:
Undistributed net investment income .................. $ 8,157 $ 2,415 $ 17,470 $ 6,427 $ 2,492
Accumulated net realized gain/(loss) on investment
transactions ...................................... 1,421 (69) (15,005) (26,828) (9,177)
Net unrealized appreciation of investments ........... 21,576 10,198 151,554 93,174 47,542
Paid-in capital ...................................... 158,399 63,421 577,377 335,865 175,897
-------- ------- -------- -------- --------
Total Net Assets .................................. $189,553 $75,965 $731,396 $408,638 $216,754
======== ======= ======== ======== ========
NET ASSETS:
Class 1 Shares ....................................... $126,456 $43,249 $507,193 $284,083 $146,789
======== ======= ======== ======== ========
Class 2 Shares ....................................... $ 63,097 $32,716 $224,203 $124,555 $ 69,965
======== ======= ======== ======== ========
SHARES OUTSTANDING:
Class 1 Shares ....................................... 8,770 3,396 28,037 14,422 6,651
======== ======= ======== ======== ========
Class 2 Shares ....................................... 4,406 2,588 12,479 6,368 3,188
======== ======= ======== ======== ========
CLASS 1 SHARES:*
Net asset value, offering and redemption price per
share of beneficial interest outstanding .......... $ 14.42 $ 12.74 $ 18.09 $ 19.70 $ 22.07
======== ======= ======== ======== ========
CLASS 2 SHARES:*
Net asset value, offering and redemption price per
share of beneficial interest outstanding .......... $ 14.32 $ 12.64 $ 17.97 $ 19.56 $ 21.95
======== ======= ======== ======== ========
- ----------
* Net asset values are not shown in thousands.
See Notes to Financial Statements.
20
Statements of Operations
WM VARIABLE TRUST STRATEGIC ASSET MANAGEMENT PORTFOLIOS
For the Year Ended December 31, 2006
(In thousands)
VT FLEXIBLE VT CONSERVATIVE VT CONSERVATIVE VT STRATEGIC
INCOME BALANCED VT BALANCED GROWTH GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- --------------- ----------- --------------- ------------
INVESTMENT INCOME:
Dividends from investment company securities ......... $ 8,757 $2,651 $18,763 $ 7,004 $ 2,770
Interest ............................................. 31 22 180 33 32
------- ------ ------- ------- -------
Total investment income ........................... 8,788 2,673 18,943 7,037 2,802
------- ------ ------- ------- -------
EXPENSES:
Investment advisory fee .............................. 205 75 712 397 202
Administration fee ................................... 308 113 1,067 595 302
Class 2 Shares distribution fees ..................... 178 80 538 275 147
Custodian fee ........................................ 3 2 2 3 2
Legal and audit fees ................................. 26 24 32 28 26
Registration and filing fees ......................... 18 17 25 19 18
Trustees'fees ........................................ 4 1 13 7 4
Printing and postage expenses ........................ 21 12 68 40 24
Other ................................................ 7 5 16 11 7
------- ------ ------- ------- -------
Total expenses .................................... 770 329 2,473 1,375 732
Fees reduced by custodian credits .................... --* --* --* --* --*
------- ------ ------- ------- -------
Net expenses ...................................... 770 329 2,473 1,375 732
------- ------ ------- ------- -------
NET INVESTMENT INCOME ................................ 8,018 2,344 16,470 5,662 2,070
------- ------ ------- ------- -------
NET REALIZED AND UNREALIZED
GAIN/(LOSS) ON INVESTMENTS:
Net realized gain/(loss) on investment transactions .. 706 (148) (1,069) 1,847 384
Capital gain distributions received from investment
company securities ................................ 1,815 1,006 13,068 9,355 5,255
Net change in unrealized appreciation/depreciation of
investments ....................................... 2,559 3,013 42,134 28,620 17,187
------- ------ ------- ------- -------
Net realized and unrealized gain on investments ...... 5,080 3,871 54,133 39,822 22,826
------- ------ ------- ------- -------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ......................... $13,098 $6,215 $70,603 $45,484 $24,896
======= ====== ======= ======= =======
- ----------
* Amount represents less than $500.
See Notes to Financial Statements.
21
Statements of Changes in Net Assets
WM VARIABLE TRUST STRATEGIC ASSET MANAGEMENT PORTFOLIOS
(In thousands)
VT FLEXIBLE VT CONSERVATIVE
INCOME PORTFOLIO BALANCED PORTFOLIO VT BALANCED PORTFOLIO
----------------------- ----------------------- -----------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
12/31/06 12/31/05 12/31/06 12/31/05 12/31/06 12/31/05
---------- ---------- ---------- ---------- ---------- ----------
Net investment income ......................... $ 8,018 $ 8,050 $ 2,344 $ 1,929 $ 16,470 $ 13,960
Net realized gain/(loss) on investment
transactions ............................... 706 (438) (148) (107) (1,069) 1,400
Capital gain distributions received ........... 1,815 639 1,006 259 13,068 4,091
Net change in unrealized appreciation/
depreciation of investments ................ 2,559 (1,105) 3,013 926 42,134 17,751
-------- -------- ------- ------- -------- --------
Net increase in net assets resulting
from operations ............................ 13,098 7,146 6,215 3,007 70,603 37,202
Distributions to shareholders from:
Net investment income:
Class 1 Shares .......................... (5,441) (4,878) (1,175) (980) (10,811) (8,714)
Class 2 Shares .......................... (2,747) (2,294) (815) (534) (4,176) (3,132)
Net realized gains on investments:
Class 1 Shares .......................... (76) (186) (117) -- -- --
Class 2 Shares .......................... (41) (93) (88) -- -- --
Net increase/(decrease) in net assets from
Portfolio share transactions:
Class 1 Shares .......................... (20,124) (5,428) (2,894) 2,467 6,161 (22,572)
Class 2 Shares .......................... (17,970) 11,780 1,037 8,539 8,901 26,056
-------- -------- ------- ------- -------- --------
Net increase in net assets .................... (33,301) 6,047 2,163 12,499 70,678 28,840
NET ASSETS:
Beginning of year ............................. 222,854 216,807 73,802 61,303 660,718 631,878
-------- -------- ------- ------- -------- --------
End of year ................................... $189,553 $222,854 $75,965 $73,802 $731,396 $660,718
======== ======== ======= ======= ======== ========
Undistributed net investment income
at end of year ............................. $ 8,157 $ 8,185 $ 2,415 $ 1,989 $ 17,470 $ 14,964
======== ======== ======= ======= ======== ========
TAX CHARACTER OF DISTRIBUTIONS PAID:
Ordinary income ............................... $ 8,247 $ 7,173 $ 2,009 $ 1,514 $ 14,987 $ 11,846
Long-term capital gains ....................... 58 278 186 -- -- --
-------- -------- ------- ------- -------- --------
Total ...................................... $ 8,305 $ 7,451 $ 2,195 $ 1,514 $ 14,987 $ 11,846
======== ======== ======= ======= ======== ========
See Notes to Financial Statements.
22
VT CONSERVATIVE VT STRATEGIC
GROWTH PORTFOLIO GROWTH PORTFOLIO
----------------------- -----------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
12/31/06 12/31/05 12/31/06 12/31/05
---------- ---------- ---------- ----------
Net investment income ......................... $ 5,662 $ 5,298 $ 2,070 $ 1,633
Net realized gain/(loss) on investment
transactions ............................... 1,847 (9,831) 384 (1,690)
Capital gain distributions received ........... 9,355 3,091 5,255 1,761
Net change in unrealized appreciation/
depreciation of investments ................ 28,620 26,819 17,187 11,390
-------- -------- -------- --------
Net increase in net assets resulting
from operations ............................ 45,484 25,377 24,896 13,094
Distributions to shareholders from:
Net investment income:
Class 1 Shares .......................... (4,557) (3,689) (1,524) (868)
Class 2 Shares .......................... (1,537) (914) (523) (207)
Net realized gains on investments:
Class 1 Shares .......................... -- -- -- --
Class 2 Shares .......................... -- -- -- --
Net increase/(decrease) in net assets from
Portfolio share transactions:
Class 1 Shares .......................... (37,408) (26,037) (6,181) (2,087)
Class 2 Shares .......................... 18,616 15,889 14,707 11,249
-------- -------- -------- --------
Net increase in net assets .................... 20,598 10,626 31,375 21,181
NET ASSETS:
Beginning of year ............................. 388,040 377,414 185,379 164,198
-------- -------- -------- --------
End of year ................................... $408,638 $388,040 $216,754 $185,379
======== ======== ======== ========
Undistributed net investment income
at end of year ............................. $ 6,427 $ 6,081 $ 2,492 $ 2,044
======== ======== ======== ========
TAX CHARACTER OF DISTRIBUTIONS PAID:
Ordinary income ............................... $ 6,094 $ 4,603 $ 2,047 $ 1,075
Long-term capital gains ....................... -- -- -- --
-------- -------- -------- --------
Total ...................................... $ 6,094 $ 4,603 $ 2,047 $ 1,075
======== ======== ======== ========
See Notes to Financial Statements.
23
Statements of Changes in Net Assets -- Capital Stock Activity
WM VARIABLE TRUST STRATEGIC ASSET MANAGEMENT PORTFOLIOS
(In thousands)
VT FLEXIBLE INCOME PORTFOLIO
ISSUED AS
REINVESTMENT NET INCREASE/
SOLD OF DIVIDENDS REDEEMED (DECREASE)
---------------- --------------- ----------------- -----------------
AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
------- ------ ------ ------ -------- ------ -------- ------
YEAR ENDED 12/31/06:
Class 1 Shares ....... $ 8,512 604 $5,517 409 $(34,153) (2,428) $(20,124) (1,415)
Class 2 Shares ....... 3,941 281 2,788 208 (24,699) (1,768) (17,970) (1,279)
YEAR ENDED 12/31/05:
Class 1 Shares ....... $12,734 911 $5,064 367 $(23,226) (1,664) $ (5,428) (386)
Class 2 Shares ....... 17,886 1,289 2,387 174 (8,493) (611) 11,780 852
VT CONSERVATIVE BALANCED PORTFOLIO
ISSUED AS
REINVESTMENT NET INCREASE/
SOLD OF DIVIDENDS REDEEMED (DECREASE)
---------------- --------------- ----------------- -----------------
AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
------- ------ ------ ------ -------- ------ -------- ------
YEAR ENDED 12/31/06:
Class 1 Shares ....... $ 6,380 521 $1,292 110 $(10,566) (866) $(2,894) (235)
Class 2 Shares ....... 7,523 618 903 77 (7,389) (609) 1,037 86
YEAR ENDED 12/31/05:
Class 1 Shares ....... $ 9,437 799 $ 980 84 $ (7,950) (674) $ 2,467 209
Class 2 Shares ....... 11,296 963 534 46 (3,291) (280) 8,539 729
VT BALANCED PORTFOLIO
ISSUED AS
REINVESTMENT NET INCREASE/
SOLD OF DIVIDENDS REDEEMED (DECREASE)
---------------- ---------------- ----------------- -----------------
AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
------- ------ ------- ------ -------- ------ -------- ------
YEAR ENDED 12/31/06:
Class 1 Shares ....... $78,952 4,580 $10,811 660 $(83,602) (4,861) $ 6,161 379
Class 2 Shares ....... 31,517 1,858 4,176 256 (26,792) (1,570) 8,901 544
YEAR ENDED 12/31/05:
Class 1 Shares ....... $29,514 1,831 $ 8,714 546 $(60,800) (3,774) $(22,572) (1,397)
Class 2 Shares ....... 39,460 2,461 3,132 197 (16,536) (1,032) 26,056 1,626
See Notes to Financial Statements.
24
Statements of Changes in Net Assets -- Capital Stock Activity (continued)
WM VARIABLE TRUST STRATEGIC ASSET MANAGEMENT PORTFOLIOS
(In thousands)
VT CONSERVATIVE GROWTH PORTFOLIO
ISSUED AS
REINVESTMENT NET INCREASE/
SOLD OF DIVIDENDS REDEEMED (DECREASE)
---------------- --------------- ----------------- -----------------
AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
------- ------ ------ ------ -------- ------ -------- ------
YEAR ENDED 12/31/06:
Class 1 Shares ....... $17,041 923 $4,557 260 $(59,006) (3,201) $(37,408) (2,018)
Class 2 Shares ....... 29,855 1,634 1,537 88 (12,776) (693) 18,616 1,029
YEAR ENDED 12/31/05:
Class 1 Shares ....... $16,106 947 $3,689 219 $(45,832) (2,698) $(26,037) (1,532)
Class 2 Shares ....... 23,764 1,410 914 54 (8,789) (521) 15,889 943
VT STRATEGIC GROWTH PORTFOLIO
ISSUED AS
REINVESTMENT NET INCREASE/
SOLD OF DIVIDENDS REDEEMED (DECREASE)
---------------- --------------- ----------------- -----------------
AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
------- ------ ------ ------ -------- ------ -------- ------
YEAR ENDED 12/31/06:
Class 1 Shares ....... $19,197 936 $1,524 78 $(26,902) (1,302) $ (6,181) (288)
Class 2 Shares ....... 20,332 997 523 26 (6,148) (300) 14,707 723
YEAR ENDED 12/31/05:
Class 1 Shares ....... $18,421 989 $ 868 47 $(21,376) (1,147) $ (2,087) (111)
Class 2 Shares ....... 16,216 876 207 11 (5,174) (279) 11,249 608
See Notes to Financial Statements.
25
Financial Highlights
VT FLEXIBLE INCOME PORTFOLIO
For a Portfolio share outstanding throughout each period.
INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS
------------------------------------- ------------------------------------------
NET
REALIZED
NET AND
ASSET UNREALIZED DIVIDENDS DISTRIBUTIONS
VALUE NET GAIN/(LOSS) TOTAL FROM FROM NET FROM NET
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT REALIZED TOTAL
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME(1) CAPITAL GAINS DISTRIBUTIONS
--------- ---------- ----------- ---------- ---------- ------------- -------------
CLASS 1 SHARES
Year Ended:
12/31/06 $14.08 $0.56(5) $ 0.36 $0.92 $(0.57) $(0.01) $(0.58)
12/31/05 14.10 0.52(5) (0.05) 0.47 (0.47) (0.02) (0.49)
12/31/04 13.71 0.51(5) 0.35 0.86 (0.47) -- (0.47)
12/31/03 12.41 0.56(5) 1.08 1.64 (0.34) -- (0.34)
12/31/02 12.23 0.41(5) (0.15) 0.26 (0.08) -- (0.08)
CLASS 2 SHARES
Year Ended:
12/31/06 $13.98 $0.53(5) $ 0.36 $0.89 $(0.54) $(0.01) $(0.55)
12/31/05 14.02 0.49(5) (0.07) 0.42 (0.44) (0.02) (0.46)
12/31/04 13.65 0.47(5) 0.36 0.83 (0.46) -- (0.46)
12/31/03 12.38 0.53(5) 1.07 1.60 (0.33) -- (0.33)
12/31/02 12.23 0.38(5) (0.15) 0.23 (0.08) -- (0.08)
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
---------------------------------------------------------------
RATIO OF RATIO OF
EXPENSES EXPENSES
TO AVERAGE TO AVERAGE RATIO OF
NET NET NET ASSETS NET ASSETS NET
ASSET ASSETS BEFORE AFTER INVESTMENT
VALUE TOTAL END OF REIMBURSE- REIMBURSE- INCOME TO PORTFOLIO
END OF RETURN PERIOD MENTS/ MENTS/ AVERAGE TURNOVER
PERIOD (2) (IN 000S) WAIVERS(3) WAIVERS(3)(4) NET ASSETS RATE
------ ------ --------- ---------- ------------- ---------- ---------
CLASS 1 SHARES
Year Ended:
12/31/06 $14.42 6.84% $126,456 0.29% 0.29% 3.99% 6%
12/31/05 14.08 3.41 143,367 0.30 0.30 3.74 5
12/31/04 14.10 6.47 149,055 0.28 0.28 3.67 5
12/31/03 13.71 13.30 143,283 0.30 0.30 4.33 4
12/31/02 12.41 2.14 125,992 0.30 0.30 3.37 9
CLASS 2 SHARES
Year Ended:
12/31/06 $14.32 6.61% $ 63,097 0.54% 0.54% 3.74% 6%
12/31/05 13.98 3.09 79,487 0.55 0.55 3.49 5
12/31/04 14.02 6.24 67,752 0.53 0.53 3.42 5
12/31/03 13.65 13.02 34,501 0.55 0.55 4.08 4
12/31/02 12.38 1.89 9,416 0.55 0.55 3.12 9
(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. Such expenses are excluded from the expense ratio.
(4) Ratio of operating expenses to average net assets includes expenses paid
indirectly.
(5) Per share numbers have been calculated using the average shares method.
See Notes to Financial Statements.
26
Financial Highlights
VT CONSERVATIVE BALANCED PORTFOLIO
For a Portfolio share outstanding throughout each period.
INCOME/(LOSS) FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS
---------------------------------------- ------------------------------------------
NET
REALIZED
NET AND
ASSET UNREALIZED DIVIDENDS DISTRIBUTIONS
VALUE NET GAIN/(LOSS) TOTAL FROM FROM NET FROM NET
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT REALIZED TOTAL
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME(1) CAPITAL GAINS DISTRIBUTIONS
--------- ---------- ----------- ---------- ---------- ------------- -------------
CLASS 1 SHARES
Year Ended:
12/31/06 $12.07 $0.39(5) $ 0.64 $ 1.03 $(0.33) $(0.03) $(0.36)
12/31/05 11.82 0.35(5) 0.18 0.53 (0.28) -- (0.28)
12/31/04 11.15 0.34(5) 0.56 0.90 (0.23) -- (0.23)
12/31/03 9.73 0.36(5) 1.29 1.65 (0.23) -- (0.23)
12/31/02 10.04 0.31(5) (0.54) (0.23) (0.07) (0.01) (0.08)
CLASS 2 SHARES
Year Ended:
12/31/06 $11.98 $0.36(5) $ 0.64 $ 1.00 $(0.31) $(0.03) $(0.34)
12/31/05 11.75 0.32(5) 0.17 0.49 (0.26) -- (0.26)
12/31/04 11.11 0.31(5) 0.55 0.86 (0.22) -- (0.22)
12/31/03 9.71 0.33(5) 1.29 1.62 (0.22) -- (0.22)
12/31/02 10.04 0.29(5) (0.54) (0.25) (0.07) (0.01) (0.08)
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
---------------------------------------------------------------
RATIO OF RATIO OF
EXPENSES EXPENSES
TO AVERAGE TO AVERAGE RATIO OF
NET NET NET ASSETS NET ASSETS NET
ASSET ASSETS BEFORE AFTER INVESTMENT
VALUE TOTAL END OF REIMBURSE- REIMBURSE- INCOME TO PORTFOLIO
END OF RETURN PERIOD MENTS/ MENTS/ AVERAGE TURNOVER
PERIOD (2) (IN 000S) WAIVERS(3) WAIVERS(3)(4) NET ASSETS RATE
------ ------ --------- ---------- ------------- ---------- ---------
CLASS 1 SHARES
Year Ended:
12/31/06 $12.74 8.83% $43,249 0.33% 0.33% 3.22% 11%
12/31/05 12.07 4.59 43,818 0.38 0.38 3.00 4
12/31/04 11.82 8.21 40,458 0.33 0.33 3.02 1
12/31/03 11.15 17.09 31,600 0.36 0.31 3.48 6
12/31/02 9.73 (2.26) 20,759 0.41 0.30 3.20 9
CLASS 2 SHARES
Year Ended:
12/31/06 $12.64 8.50% $32,716 0.58% 0.58% 2.97% 11%
12/31/05 11.98 4.37 29,984 0.63 0.63 2.75 4
12/31/04 11.75 7.88 20,845 0.58 0.58 2.77 1
12/31/03 11.11 16.83 9,128 0.61 0.56 3.23 6
12/31/02 9.71 (2.47) 2,244 0.66 0.55 2.95 9
(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. Such expenses are excluded from the expense ratio.
(4) Ratio of operating expenses to average net assets includes expenses paid
indirectly.
(5) Per share numbers have been calculated using the average shares method.
See Notes to Financial Statements.
27
Financial Highlights
VT BALANCED PORTFOLIO
For a Portfolio share outstanding throughout each period.
INCOME/(LOSS) FROM
INVESTMENT OPERATIONS LESS DISTRIBUTIONS
------------------------------------- ------------------------------------------
NET
REALIZED
NET AND
ASSET UNREALIZED DIVIDENDS DISTRIBUTIONS
VALUE NET GAIN/(LOSS) TOTAL FROM FROM NET FROM NET
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT REALIZED TOTAL
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME(1) CAPITAL GAINS DISTRIBUTIONS
--------- ---------- ----------- ---------- ---------- ------------- -------------
CLASS 1 SHARES
Year Ended:
12/31/06 $16.72 $0.41(5) $ 1.33 $ 1.74 $(0.37) $-- $(0.37)
12/31/05 16.08 0.36(5) 0.59 0.95 (0.31) -- (0.31)
12/31/04 14.88 0.32(5) 1.16 1.48 (0.28) -- (0.28)
12/31/03 12.42 0.33(5) 2.46 2.79 (0.33) -- (0.33)
12/31/02 13.91 0.32(5) (1.53) (1.21) (0.28) -- (0.28)
CLASS 2 SHARES
Year Ended:
12/31/06 $16.61 $0.37(5) $ 1.32 $ 1.69 $(0.33) $-- $(0.33)
12/31/05 15.99 0.32(5) 0.58 0.90 (0.28) -- (0.28)
12/31/04 14.82 0.28(5) 1.16 1.44 (0.27) -- (0.27)
12/31/03 12.39 0.30(5) 2.45 2.75 (0.32) -- (0.32)
12/31/02 13.91 0.29(5) (1.53) (1.24) (0.28) -- (0.28)
RATIOS TO AVERAGE
NET ASSETS/SUPPLEMENTAL DATA
-------------------------------------------------------------------
RATIO OF RATIO OF
EXPENSES EXPENSES
TO AVERAGE TO AVERAGE RATIO OF
NET NET ASSETS NET ASSETS NET
ASSET BEFORE AFTER INVESTMENT
VALUE NET ASSETS REIMBURSE- REIMBURSE- INCOME TO PORTFOLIO
END OF TOTAL END OF PERIOD MENTS/ MENTS/ AVERAGE TURNOVER
PERIOD RETURN(2) (IN 000S) WAIVERS(3) WAIVERS(3)(4) NET ASSETS RATE
------ --------- ------------- ---------- ------------- ---------- ---------
CLASS 1 SHARES
Year Ended:
12/31/06 $18.09 10.61% $507,193 0.27% 0.27% 2.39% 11%
12/31/05 16.72 6.01 462,438 0.28 0.28 2.26 4
12/31/04 16.08 10.12 467,076 0.28 0.28 2.13 4
12/31/03 14.88 22.74 419,273 0.29 0.29 2.50 7
12/31/02 12.42 (8.78) 334,605 0.29 0.29 2.52 22
CLASS 2 SHARES
Year Ended:
12/31/06 $17.97 10.38% $224,203 0.52% 0.52% 2.14% 11%
12/31/05 16.61 5.72 198,280 0.53 0.53 2.01 4
12/31/04 15.99 9.83 164,802 0.53 0.53 1.88 4
12/31/03 14.82 22.46 91,631 0.54 0.54 2.25 7
12/31/02 12.39 (9.00) 31,335 0.54 0.54 2.27 22
(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. Such expenses are excluded from the expense ratio.
(4) Ratio of operating expenses to average net assets includes expenses paid
indirectly.
(5) Per share numbers have been calculated using the average shares method.
See Notes to Financial Statements.
28
Financial Highlights
VT CONSERVATIVE GROWTH PORTFOLIO
For a Portfolio share outstanding throughout each period.
INCOME/(LOSS) FROM
INVESTMENT OPERATIONS LESS DISTRIBUTIONS
------------------------------------- ------------------------------------------
NET
REALIZED
NET AND
ASSET UNREALIZED DIVIDENDS DISTRIBUTIONS
VALUE NET GAIN/(LOSS) TOTAL FROM FROM NET FROM NET
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT REALIZED TOTAL
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME(1) CAPITAL GAINS DISTRIBUTIONS
--------- ---------- ----------- ---------- ---------- ------------- -------------
CLASS 1 SHARES
Year Ended:
12/31/06 $17.85 $0.28(5) $ 1.86 $ 2.14 $(0.29) $ -- $(0.29)
12/31/05 16.89 0.25(5) 0.93 1.18 (0.22) -- (0.22)
12/31/04 15.32 0.21(5) 1.58 1.79 (0.22) -- (0.22)
12/31/03 12.16 0.23(5) 3.23 3.46 (0.30) -- (0.30)
12/31/02 14.87 0.23(5) (2.51) (2.28) (0.41) (0.02) (0.43)
CLASS 2 SHARES
Year Ended:
12/31/06 $17.73 $0.23(5) $ 1.86 $ 2.09 $(0.26) $ -- $(0.26)
12/31/05 16.80 0.21(5) 0.91 1.12 (0.19) -- (0.19)
12/31/04 15.25 0.17(5) 1.58 1.75 (0.20) -- (0.20)
12/31/03 12.13 0.20(5) 3.20 3.40 (0.28) -- (0.28)
12/31/02 14.87 0.19(5) (2.50) (2.31) (0.41) (0.02) (0.43)
RATIOS TO AVERAGE
NET ASSETS/SUPPLEMENTAL DATA
-------------------------------------------------------------------
RATIO OF RATIO OF
EXPENSES EXPENSES
TO AVERAGE TO AVERAGE RATIO OF
NET NET ASSETS NET ASSETS NET
ASSET BEFORE AFTER INVESTMENT
VALUE NET ASSETS REIMBURSE- REIMBURSE- INCOME TO PORTFOLIO
END OF TOTAL END OF PERIOD MENTS/ MENTS/ AVERAGE TURNOVER
PERIOD RETURN(2) (IN 000S) WAIVERS(3) WAIVERS(3)(4) NET ASSETS RATE
------ --------- ------------- ---------- ------------- ---------- ---------
CLASS 1 SHARES
Year Ended:
12/31/06 $19.70 12.20% $284,083 0.28% 0.28% 1.50% 8%
12/31/05 17.85 7.04 293,378 0.29 0.29 1.47 9
12/31/04 16.89 11.78 303,584 0.28 0.28 1.36 10
12/31/03 15.32 28.74 284,165 0.30 0.30 1.75 11
12/31/02 12.16 (15.52) 229,564 0.29 0.29 1.77 19
CLASS 2 SHARES
Year Ended:
12/31/06 $19.56 11.95% $124,555 0.53% 0.53% 1.25% 8%
12/31/05 17.73 6.71 94,662 0.54 0.54 1.22 9
12/31/04 16.80 11.58 73,830 0.53 0.53 1.11 10
12/31/03 15.25 28.36 40,576 0.55 0.55 1.50 11
12/31/02 12.13 (15.72) 14,610 0.54 0.54 1.52 19
(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. Such expenses are excluded from the expense ratio.
(4) Ratio of operating expenses to average net assets includes expenses paid
indirectly.
(5) Per share numbers have been calculated using the average shares method.
See Notes to Financial Statements.
29
Financial Highlights
VT STRATEGIC GROWTH PORTFOLIO
For a Portfolio share outstanding throughout each period.
INCOME/(LOSS) FROM
INVESTMENT OPERATIONS LESS DISTRIBUTIONS
------------------------------------- ------------------------------------------
NET
REALIZED
NET AND
ASSET UNREALIZED DIVIDENDS DISTRIBUTIONS
VALUE NET GAIN/(LOSS) TOTAL FROM FROM NET FROM NET
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT REALIZED TOTAL
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME(1) CAPITAL GAINS DISTRIBUTIONS
--------- ---------- ----------- ---------- ---------- ------------- -------------
CLASS 1 SHARES
Year Ended:
12/31/06 $19.74 $0.23(5) $ 2.32 $ 2.55 $(0.22) $ -- $(0.22)
12/31/05 18.45 0.19(5) 1.22 1.41 (0.12) -- (0.12)
12/31/04 16.46 0.14(5) 1.96 2.10 (0.11) -- (0.11)
12/31/03 12.55 0.14(5) 3.98 4.12 (0.21) -- (0.21)
12/31/02 16.45 0.15(5) (3.47) (3.32) (0.54) (0.04) (0.58)
CLASS 2 SHARES
Year Ended:
12/31/06 $19.64 $0.17(5) $ 2.32 $ 2.49 $(0.18) $ -- $(0.18)
12/31/05 18.38 0.14(5) 1.22 1.36 (0.10) -- (0.10)
12/31/04 16.42 0.09(5) 1.97 2.06 (0.10) -- (0.10)
12/31/03 12.54 0.10(5) 3.98 4.08 (0.20) -- (0.20)
12/31/02 16.45 0.11(5) (3.44) (3.33) (0.54) (0.04) (0.58)
RATIOS TO AVERAGE
NET ASSETS/SUPPLEMENTAL DATA
-------------------------------------------------------------------
RATIO OF RATIO OF
EXPENSES EXPENSES
TO AVERAGE TO AVERAGE RATIO OF
NET NET ASSETS NET ASSETS NET
ASSET BEFORE AFTER INVESTMENT
VALUE NET ASSETS REIMBURSE- REIMBURSE- INCOME TO PORTFOLIO
END OF TOTAL END OF PERIOD MENTS/ MENTS/ AVERAGE TURNOVER
PERIOD RETURN(2) (IN 000S) WAIVERS(3) WAIVERS(3)(4) NET ASSETS RATE
------ --------- ------------- ---------- ------------- ---------- ---------
CLASS 1 SHARES
Year Ended:
12/31/06 $22.07 13.06% $146,789 0.29% 0.29% 1.10% 7%
12/31/05 19.74 7.71 136,966 0.31 0.31 1.01 9
12/31/04 18.45 12.83 130,069 0.29 0.29 0.80 4
12/31/03 16.46 33.07 105,077 0.31 0.31 0.99 9
12/31/02 12.55 (20.53) 73,936 0.32 0.32 1.06 16
CLASS 2 SHARES
Year Ended:
12/31/06 $21.95 12.77% $ 69,965 0.54% 0.54% 0.85% 7%
12/31/05 19.64 7.47 48,413 0.56 0.56 0.76 9
12/31/04 18.38 12.54 34,129 0.54 0.54 0.55 4
12/31/03 16.42 32.76 14,766 0.56 0.56 0.74 9
12/31/02 12.54 (20.59) 2,676 0.57 0.57 0.81 16
(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. Such expenses are excluded from the expense ratio.
(4) Ratio of operating expenses to average net assets includes expenses paid
indirectly.
(5) Per share numbers have been calculated using the average shares method.
See Notes to Financial Statements.
30
Notes to Financial Statements
WM VARIABLE TRUST STRATEGIC ASSET MANAGEMENT PORTFOLIOS
1. ORGANIZATION AND BUSINESS
WM Variable Trust (the "Trust") was organized as a Massachusetts business trust
on January 29, 1993. The Trust is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end management investment company.
The Trust consists of 13 funds (each a "Fund" and collectively, the "Funds") and
5 portfolios (each a "Portfolio" and collectively, the "Portfolios"). The VT
Flexible Income, VT Conservative Balanced, VT Balanced, VT Conservative Growth
and VT Strategic Growth Portfolios are included in this report.
The Trust is authorized to issue an unlimited number of shares of beneficial
interest, each without par value. Each Portfolio offers two classes of shares:
Class 1 shares and Class 2 shares. These shares are issued and redeemed only in
connection with investments in, and payments under, variable annuity and
variable life insurance contracts (collectively "Variable Insurance Contracts"),
as well as certain qualified retirement plans including affiliated plans of
Washington Mutual, Inc. ("Washington Mutual"), a publicly owned financial
services company. At December 31, 2006, "The Washington Mutual Savings Plan"
held approximately 48%, 34%, 22%, 18% and 50% of the outstanding shares in the
VT Flexible Income, VT Conservative Balanced, VT Balanced, VT Conservative
Growth and VT Strategic Growth Portfolios, respectively.
Each of the Portfolios invests, within certain percentage ranges, in Class 1
shares of various funds in the Trust and Class I shares of the WM High Yield
Fund (collectively, the "Underlying Funds"). WM Advisors, Inc. (the "Advisor")
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.
On July 25, 2006, the Principal Financial Group, Inc. ("PFG"), a publicly owned
financial services company, and its subsidiary Principal Management Corporation
("PMC") entered into an agreement with Washington Mutual, Inc. to acquire all of
the outstanding stock of the Advisor, WM Shareholder Services, Inc. (the
"Transfer Agent"), and WM Funds Distributor, Inc. (the "Distributor") (the
"Transaction"). The Transaction closed on December 31, 2006.
On August 11, 2006, the Board of Trustees approved proposed reorganizations (the
"Reorganizations") pursuant to which each of the Portfolios (each, an "Acquired
Fund") would combine with and into the corresponding separate series (each, an
"Acquiring Fund") of Principal Variable Contracts Fund, Inc. ("PVC"), subject to
various conditions including the approval of shareholders of each Acquired Fund.
Under the Reorganizations (i) all the assets and the stated liabilities of each
Acquired Fund would be transferred to its corresponding Acquiring Fund in
exchange for Class 1 and Class 2 shares of the Acquiring Fund; (ii) holders of
Class 1 and Class 2 shares of the Acquired Fund would receive, respectively,
that number of Class 1 and Class 2 shares of the corresponding Acquiring Fund
equal in value at the time of the exchange to the value of the holder's Acquired
Fund shares at such time; and (iii) the Acquired Fund would be liquidated and
dissolved. A special meeting of shareholders was held on December 15, 2006.
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 the Underlying Funds in the preparation of their financial
statements.
PORTFOLIO VALUATION:
Investments in the Underlying Funds are valued at net asset value per Class 1
share or 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
of the Trust, reviews the value of the collateral and the creditworthiness of
those banks and broker/dealers with whom each Portfolio enters into repurchase
agreements.
31
Notes to Financial Statements (continued)
WM VARIABLE TRUST STRATEGIC ASSET MANAGEMENT PORTFOLIOS
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 and distributions of any net capital gains
earned by a Portfolio are declared and paid annually.
Distributions from income and capital gains are determined in accordance with
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 December 31, 2006, the following reclassifications 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 DECREASE
UNDISTRIBUTED ACCUMULATED NET
NET INVESTMENT REALIZED
INCOME GAIN/(LOSS)
NAME OF PORTFOLIO (000S) (000S)
- ----------------- -------------- ---------------
VT Flexible Income Portfolio ......... $ 142 $ (142)
VT Conservative Balanced Portfolio ... 72 (72)
VT Balanced Portfolio ................ 1,023 (1,023)
VT Conservative Growth Portfolio ..... 778 (778)
VT Strategic Growth Portfolio ........ 425 (425)
The above reclassifications did not impact net assets and are not reflected in
the calculation of net investment income 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
(the "Code"), 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.
It is each Portfolio's policy to meet the diversification requirements of the
Code so that variable annuity and variable life contracts funded by the Trust
will not fail to qualify as annuities and life insurance contracts for tax
purposes.
EXPENSES:
General expenses of the Trust are allocated to all the Portfolios based upon the
relative average net assets of each Portfolio. In addition, the Portfolios will
indirectly bear their prorated share of the 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.
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 December 31, 2006, are shown
separately in the "Statements of Operations."
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.
32
Notes to Financial Statements (continued)
WM VARIABLE TRUST STRATEGIC ASSET MANAGEMENT PORTFOLIOS
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 0.100% of each
Portfolio's average daily net assets up to $1 billion and 0.075% of each
Portfolio's average daily net assets over $1 billion.
The Advisor also serves as administrator to the Portfolios. For its
administrative services to the Portfolios, the Advisor is entitled to a monthly
fee at an annual rate of 0.150% of each Portfolio's average daily net assets up
to $1 billion and 0.125% of each Portfolio's average daily net assets over $1
billion.
4. TRUSTEES' FEES
No officer or employee of PFG or its subsidiaries, or Washington Mutual or its
subsidiaries prior to December 31, 2006, received any compensation from the
Trust for serving as an officer or Trustee of the Trust. The Trust, together
with other mutual funds advised by the Advisor, pays each Trustee who is not an
officer or employee of PFG or its subsidiaries, or Washington Mutual or its
subsidiaries prior to December 31, 2006, a per annum retainer plus attendance
fees for each meeting at which they are present. The Chairman, Committee Chairs
and Committee Members receive additional remuneration for these services to the
Trust. Trustees are also reimbursed for travel and out-of-pocket expenses. Each
Trustee serves in the same capacity for all 40 funds within the WM Group of
Funds.
5. DISTRIBUTION PLANS
Each of the Portfolios has adopted a distribution plan, pursuant to Rule 12b-1
under the 1940 Act, applicable to Class 2 shares of the Portfolios (a "Rule
12b-1 Plan"). Under the Rule 12b-1 Plan, the Distributor, a registered
broker/dealer, may receive a fee at an annual rate of 0.25% of the average daily
net assets attributable to Class 2 shares. This fee 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 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
Trust, as defined in the 1940 Act, and who have no direct or indirect financial
interest in the operation of the distribution plan, or any agreements related to
the plan, respectively.
6. PURCHASES AND SALES OF INVESTMENTS
The aggregate cost of purchases and proceeds from sales of Underlying Funds for
the year ended December 31, 2006, are as follows:
PURCHASES SALES
NAME OF PORTFOLIO (000S) (000S)
- ----------------- --------- -------
VT Flexible Income Portfolio ......... $ 12,151 $49,840
VT Conservative Balanced Portfolio ... 8,220 9,765
VT Balanced Portfolio ................ 111,671 80,965
VT Conservative Growth Portfolio ..... 33,442 43,615
VT Strategic Growth Portfolio ........ 28,201 14,815
7. CAPITAL LOSS CARRYFORWARDS
At December 31, 2006, the following Portfolios have available for federal income
tax purposes unused capital losses as follows:
(IN THOUSANDS)
------------------------------
EXPIRING EXPIRING EXPIRING
NAME OF PORTFOLIO IN 2011 IN 2012 IN 2013
- ----------------- -------- -------- --------
VT Balanced Portfolio .............. $ -- $1,870 $ --
VT Conservative Growth Portfolio ... 809 8,756 6,832
VT Strategic Growth Portfolio ...... -- 4,215 116
33
Notes to Financial Statements (continued)
WM VARIABLE TRUST STRATEGIC ASSET MANAGEMENT PORTFOLIOS
8. POST OCTOBER LOSS
Under the current tax law, capital and currency losses realized after October 31
may be deferred and treated as occurring on the first day of the following
fiscal year. For the year ended December 31, 2006, the following Portfolios have
elected to defer capital losses occurring between November 1, 2006, and December
31, 2006, as follows:
CAPITAL
LOSSES
NAME OF PORTFOLIO (000S)
- ----------------- -------
VT Balanced Portfolio ... $303
9. COMPONENTS OF DISTRIBUTABLE EARNINGS
At December 31, 2006, the components of distributable earnings on a tax basis
are as follows:
(IN THOUSANDS)
---------------------------------------------------------------
VT VT VT VT
FLEXIBLE CONSERVATIVE VT CONSERVATIVE STRATEGIC
INCOME BALANCED BALANCED GROWTH GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- ------------ --------- ------------ ---------
Gross tax unrealized appreciation ................ $20,344 $9,278 $138,721 $82,744 $42,695
Gross tax unrealized depreciation ................ -- (79) -- -- --
------- ------ -------- ------- -------
Net tax unrealized appreciation/(depreciation) ... $20,344 $9,199 $138,721 $82,744 $42,695
======= ====== ======== ======= =======
Undistributed ordinary income .................... $ 8,328 $2,535 $ 17,470 $ 6,427 $ 2,492
Undistributed long-term gains .................... $ 2,480 $ 811 $ -- $ -- $ --
10. 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
Variable Trust annual report, which is available online 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 VT REIT Fund Seeks to provide a high level of current
income and intermediate- to long-term capital
appreciation.
WM VT Equity Income Fund Seeks to provide a relatively high level of
current income and long-term growth of income
and capital.
WM VT Growth & Income Fund Seeks to provide long-term capital growth.
Current income is a secondary consideration.
WM VT West Coast Equity Fund Seeks to provide long-term growth of capital.
WM VT Mid Cap Stock Fund Seeks to provide long-term capital
appreciation.
WM VT Growth Fund Seeks to provide long-term capital
appreciation.
WM VT Small Cap Value Fund Seeks to provide long-term capital
appreciation.
WM VT Small Cap Growth Fund Seeks to provide long-term capital
appreciation.
WM VT International Growth Fund Seeks to provide long-term capital
appreciation.
WM VT 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 VT U.S. Government Seeks to provide a high level of current
Securities Fund income consistent with safety and liquidity.
WM VT 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.
34
Notes to Financial Statements (continued)
WM VARIABLE TRUST STRATEGIC ASSET MANAGEMENT PORTFOLIOS
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 VT 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 VT REIT Fund could be
adversely impacted by economic trends within this industry.
The VT West Coast Equity Fund concentrates its investments in companies located
or doing business in Alaska, California, Oregon, and Washington. The VT West
Coast Equity Fund could be adversely impacted by economic trends within this
region.
The VT International Growth Fund concentrates its investments in foreign
securities in both developed and emerging market countries. Additional risks may
involve foreign currency exchange rate fluctuations, adverse political and
economic developments, and the possible prevention of currency exchange or other
foreign governmental laws or restrictions. Investments in emerging markets are
subject to additional risk as less developed countries are more likely to
experience high levels of inflation, deflation, or currency devaluation, which
could harm their economies and securities markets.
The WM 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.
Certain Underlying Funds may invest a portion of their assets in foreign
securities of developing or emerging market countries; enter into forward
foreign currency transactions; lend their portfolio securities; enter into 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 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 December 31, 2006, the Portfolios hold investments in a number of the
Underlying Funds. The figures presented below represent the percentage of shares
outstanding of each Fund owned by the Portfolios:
PORTFOLIOS
------------------------------------------------------------------------------------
VT FLEXIBLE VT CONSERVATIVE VT CONSERVATIVE VT STRATEGIC
INCOME BALANCED VT BALANCED GROWTH GROWTH
NAME OF FUND PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO TOTAL
- ------------ ----------- --------------- ----------- --------------- ------------ -----
VT REIT Fund ........................ 3.5% 2.9% 40.1% 29.5% 15.8% 91.8%
VT Equity Income Fund ............... 2.3% 1.9% 24.3% 18.0% 10.1% 56.6%
VT Growth & Income Fund ............. 4.5% 2.4% 34.8% 25.7% 14.4% 81.8%
VT West Coast Equity Fund ........... 1.5% 1.8% 25.8% 18.9% 11.3% 59.3%
VT Mid Cap Stock Fund ............... 4.7% 2.3% 32.0% 23.1% 14.9% 77.0%
VT Growth Fund ...................... 4.5% 2.5% 38.4% 26.6% 16.4% 88.4%
VT Small Cap Value Fund ............. 6.0% 2.6% 40.5% 31.8% 17.8% 98.7%
VT Small Cap Growth Fund ............ 4.4% 1.8% 28.8% 22.6% 12.6% 70.2%
VT International Growth Fund ........ -- 2.8% 40.4% 27.9% 16.9% 88.0%
VT Short Term Income Fund ........... 48.7% 9.0% 15.9% -- -- 73.6%
VT U.S. Government Securities Fund .. 22.2% 7.3% 47.3% 11.1% -- 87.9%
VT Income Fund ...................... 23.4% 6.6% 37.8% 7.9% -- 75.7%
High Yield Fund* .................... 1.0% 0.3% 2.7% 0.8% 0.7% 5.5%
- ----------
* Does not include approximately 40.4% of the High Yield Fund held by WM
Strategic Asset Management Portfolios, LLC, which is managed in a style
substantially identical to that of the Portfolios.
35
Notes to Financial Statements (continued)
WM VARIABLE TRUST STRATEGIC ASSET MANAGEMENT PORTFOLIOS
OTHER FACTORS OF UNDERLYING FUNDS:
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 the 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 a Portfolio's Underlying Funds used for
investment 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. At the same time, 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 Underlying Fund performance 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 accelerate the realization of
taxable income if sales of securities resulted in gains and could also increase
transaction costs. Because the Portfolios own substantial portions of the
Underlying Funds, redemptions and reallocations by the Portfolios away from an
Underlying Fund could cause the Underlying Fund's expenses to increase and may
result in an Underlying Fund becoming too small to be economically viable. 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 to the Portfolios and Underlying Funds. The Advisor will, at
all times, monitor the impact on the Underlying Funds of transactions by the
Portfolios.
11. NEW ACCOUNTING PRONOUNCEMENTS
In July 2006, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 48 (FIN 48), "Accounting for Uncertainty in Income Taxes."
This pronouncement provides guidance on the recognition, measurement,
classification, and disclosures related to uncertain tax positions, along with
any related interest and penalties. FIN 48 is effective June 29, 2007. The
impact from the adoption of FIN 48 is being evaluated, but is not anticipated to
have a material effect on the financial statements.
In addition, in September 2006, Statement of Financial Accounting Standards No.
157 Fair Value Measurements ("SFAS 157") was issued and is effective for fiscal
years beginning after November 15, 2007. SFAS 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. Management is currently evaluating the impact the
adoption of SFAS 157 will have on the Portfolios' financial statement
disclosures.
12. SUBSEQUENT EVENT
The Reorganizations occurred as of the end of business on January 5, 2007, and
as a result, shareholders of the Acquired Funds became shareholders of the
Acquiring Funds as follows:
WM ACQUIRED FUND: PVC ACQUIRING FUND:
- ----------------- -------------------
VT Flexible Income Portfolio SAM Flexible Income Portfolio
VT Conservative Balanced Portfolio SAM Conservative Balanced Portfolio
VT Balanced Portfolio SAM Balanced Portfolio
VT Conservative Growth Portfolio SAM Conservative Growth Portfolio
VT Strategic Growth Portfolio SAM Strategic Growth Portfolio
The PVC Acquiring Funds are newly-organized funds that commenced operations in
connection with the Reorganization and the WM Acquired Fund is the survivor for
accounting and performance reporting purposes.
36
Report of Independent Registered Public Accounting Firm
TO THE TRUSTEES AND SHAREHOLDERS OF WM VARIABLE TRUST:
We have audited the accompanying statements of assets and liabilities of WM
Variable Trust Flexible Income Portfolio, WM Variable Trust Conservative
Balanced Portfolio, WM Variable Trust Balanced Portfolio, WM Variable Trust
Conservative Growth Portfolio and WM Variable Trust Strategic Growth Portfolio
(collectively, "the Portfolios"), including the portfolios of investments, as of
December 31, 2006, and the related statements of operations, statements of
changes in net assets and financial highlights for the year 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 audit. The statement
of changes in net assets for the year ended December 31, 2005 and the financial
highlights for the four years ended December 31, 2005 were audited by other
auditors whose report dated February 17, 2006, expressed an unqualified opinion
on those statements.
We conducted our audit 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. We were
not engaged to perform an audit of the Portfolios' internal control over
financial reporting. Our audit 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 and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of December 31, 2006, by correspondence with the
custodian. We believe that our audit provides 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 at December 31, 2006, the results of their operations, changes in
their net assets, and their financial highlights for the year then ended, in
conformity with U.S. generally accepted accounting principles.
Ernst & Young LLP
Des Moines, Iowa
February 22, 2007
37
Supplemental Information (unaudited)
WM VARIABLE TRUST STRATEGIC ASSET MANAGEMENT PORTFOLIOS
CONSIDERATION BY THE BOARD OF TRUSTEES OF ADVISORY AGREEMENT
The Trust's investment advisory agreement (the "Agreement") was approved in May
and August, 2006. In connection with their approval in August 2006 of investment
advisory agreements for the Portfolios substantially identical to the Trust's
current Agreement, except with respect to dates and in contemplation of the
acquisition of the Advisor by PFG, the Board of Trustees, Independent Trustees
and the Investment Committee of the Board (the "Committee") relied on the
information provided in connection with the approval of the Agreement in May
2006, as supplemented by expense and performance information provided by Lipper
Inc., a third-party data provider ("Lipper") for the period ended June 30, 2006.
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 in August 2006 were the same as those in May 2006, which are discussed
below, except that the Board, the Independent Trustees and the Committee also
considered the supplemental expense and performance information for periods
ended June 30, 2006; representations by PFG that, subsequent to its acquisition
of the Advisor in the Transaction, there is not expected to be any reduction in
the nature, quality and extent of services provided to the Portfolios by the
Advisor; the fact that the substantive terms of the Agreement, including the
advisory fees payable thereunder, were not changing; and representations by PFG
that, except as discussed with the Board of Trustees, no changes were expected
in either the Advisor's investment professionals who would be providing services
to the Portfolios or the amount of time and attention that would be devoted by
such investment professionals to the Portfolios.
BOARD APPROVAL OF INVESTMENT ADVISORY AGREEMENT:
Each year, the Board, including a majority of the Independent Trustees, is
required to determine whether to continue the Trust's Agreement. The 1940 Act
requires that the Board request and evaluate, and that the investment advisor
furnish, such information as may reasonably be necessary to evaluate the terms
of the advisory agreement. In May 2006, the Board and the Independent Trustees
approved the continuation of the Agreement with the Advisor, in each case
following the recommendation of 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 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 Trust 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 Strategic Asset Management Portfolios, LLC (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 SAM 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 SAM 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 Agreement, 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,
data on pre- and post-marketing profit margins for investment advisory
subsidiaries of publicly traded companies prepared by Lipper, 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
38
Supplemental Information (unaudited) (continued)
WM VARIABLE TRUST STRATEGIC ASSET MANAGEMENT PORTFOLIOS
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. For each Portfolio, the Advisor formulates the
Portfolio's investment policies (subject to the terms of the prospectus);
analyzes economic trends and capital market developments (with a view to
optimizing the Portfolio's asset allocations); evaluates the consistency, style
and quality of the investment services provided to the Underlying Funds in which
the Portfolio invests; evaluates the risk/return characteristics of each of the
Underlying Funds by reference to the specific security holdings of each
Underlying Fund; constructs the Portfolio (including actively managing the
Portfolio's asset allocation through daily cash flows); monitors the 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. The Board, the Independent Trustees and the Committee considered the
extent to which the investment style employed for the Portfolios differs from
that of funds that are simply rebalanced periodically to specific static
allocations, including performance attribution information showing the effect on
performance of the Advisor's asset allocation decisions. 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 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 typically found in mutual fund 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 other funds that pursue their objectives through investments in mutual
funds (so-called "funds-of-funds"), other funds that pursue their objectives by
investing directly in portfolio securities, 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 philosophies, processes, 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 under the 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 the Portfolios' 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 or
blends of market indices for the 1-, 3- and 5-year periods ended March 31, 2006,
and to average performance information for peer groups prepared by Lipper based
on the performance of other investment companies with similar investment
objectives (including, separately, both funds-of-funds and funds investing
directly in portfolio securities) over the 1-, 3- and 5-year periods ended
December 31, 2005. 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
39
Supplemental Information (unaudited) (continued)
WM VARIABLE TRUST STRATEGIC ASSET MANAGEMENT PORTFOLIOS
the Portfolios other than the Balanced Portfolio 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 had performed well relative to their
respective blended index benchmarks over the 1-, 3- and 5-year periods and that
the Balanced Portfolio had outperformed its peer average (for both
funds-of-funds and funds investing directly in portfolio securities) for the 1-,
3- and 5-year periods. The Board, the Independent Trustees and the Committee
noted that the other Portfolios had outperformed their peer averages (for both
funds-of-funds and funds investing directly in portfolio securities) for the
5-year period, although they had generally underperformed their peer averages
(for both funds-of-funds and funds investing directly in portfolio securities)
for the 1- and 3-year periods. The Board, the Independent Trustees and the
Committee discussed with the Advisor the reasons for this recent relative
underperformance, and the conditions under which the Portfolios other than the
Balanced Portfolio should be expected to outperform or underperform relative to
their Lipper peer averages, given the "core" allocations of such Portfolios. 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,
administrative, 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 trends in total
expense ratios for the Portfolios. The Board, the Independent Trustees and the
Committee reviewed the administrative fees paid by the Portfolios to the Advisor
and the distribution (12b-1) fees paid to the Distributor. The Board, the
Independent Trustees and the Committee considered average expenses for peer
groups identified by Lipper for the Portfolios, including Lipper peer groups
comprised of funds that invest directly in portfolio securities and Lipper peer
groups comprised exclusively of funds-of-funds. The Board, the Independent
Trustees and the Committee noted that the number of funds-of-funds identified by
Lipper had increased from prior years, and considered the relative merits of
broader and more focused expense comparison groups. 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 total expenses of funds-of-funds, including and
excluding underlying fund expenses, to those of the Portfolios. The Board, the
Independent Trustees and the Committee concluded that the total expenses of
funds-of-funds, including underlying fund expenses, represented the best
comparison for the expenses of the Portfolios, because they reflected all of the
expenses borne directly and indirectly by investors. 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 information regarding the
structure of compensation of the Advisor's investment professionals) 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. 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, 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 extent to which economies
of scale might be realized (if at all) by the Advisor across a variety of
products and services included within the WM Group of Funds.
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.
40
Supplemental Information (unaudited) (continued)
WM VARIABLE TRUST STRATEGIC ASSET MANAGEMENT PORTFOLIOS
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. 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 and the fees payable to the Advisor are 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.
41
Supplemental Information (unaudited) (continued)
WM VARIABLE TRUST STRATEGIC ASSET MANAGEMENT PORTFOLIOS
SPECIAL MEETING OF SHAREHOLDERS
A special meeting of shareholders was convened on December 15, 2006, at which
shareholders approved the following:
Approval of the Agreement and Plan of Reorganization providing for the
combination of the WM VT Flexible Income Portfolio into the PVC SAM Flexible
Income Portfolio.
AFFIRMATIVE AGAINST ABSTAIN TOTAL
------------- ----------- ------------- -------------
Voted Shares .............. 8,609,775.816 124,388.084 1,223,429.818 9,957,593.718
% of Outstanding Shares ... 62.202% 0.899% 8.839% 71.939%
% of Shares Voted ......... 86.464% 1.249% 12.286% 100.000%
Approval of the Agreement and Plan of Reorganization providing for the
combination of the WM VT Conservative Balanced Portfolio into the PVC SAM
Conservative Balanced Portfolio.
AFFIRMATIVE AGAINST ABSTAIN TOTAL
------------- ----------- ----------- -------------
Voted Shares .............. 4,672,857.148 126,629.947 181,182.170 4,980,669.265
% of Outstanding Shares ... 77.148% 2.091% 2.991% 82.230%
% of Shares Voted ......... 93.820% 2.542% 3.638% 100.000%
Approval of the Agreement and Plan of Reorganization providing for the
combination of the WM VT Balanced Portfolio into the PVC SAM Balanced Portfolio.
AFFIRMATIVE AGAINST ABSTAIN TOTAL
------------- ------------- ------------- --------------
Voted Shares .............. 29,904,067.660 1,516,777.731 4,720,297.006 36,141,142.397
% of Outstanding Shares ... 71.416% 3.622% 11.273% 86.312%
% of Shares Voted ......... 82.742% 4.197% 13.061% 100.000%
Approval of the Agreement and Plan of Reorganization providing for the
combination of the WM VT Conservative Growth Portfolio into the PVC SAM
Conservative Growth Portfolio.
AFFIRMATIVE AGAINST ABSTAIN TOTAL
-------------- ----------- ------------- --------------
Voted Shares .............. 16,959,622.452 464,509.659 1,346,637.598 18,770,769.709
% of Outstanding Shares ... 80.095% 2.194% 6.360% 88.648%
% of Shares Voted ......... 90.351% 2.475% 7.174% 100.000%
Approval of the Agreement and Plan of Reorganization providing for the
combination of the WM VT Strategic Growth Portfolio into the PVC SAM Strategic
Growth Portfolio.
AFFIRMATIVE AGAINST ABSTAIN TOTAL
------------- ----------- ----------- -------------
Voted Shares .............. 6,365,459.410 143,452.551 212,055.811 6,720,967.772
% of Outstanding Shares ... 63.654% 1.435% 2.121% 67.209%
% of Shares Voted ......... 94.711% 2.134% 3.155% 100.000%
42
Supplemental Information (unaudited) (continued)
WM VARIABLE TRUST STRATEGIC ASSET MANAGEMENT PORTFOLIOS
Approval of the proposed advisory agreement with WM Advisors, Inc. for the WM VT
Flexible Income Portfolio.
AFFIRMATIVE AGAINST ABSTAIN TOTAL
------------- ----------- ----------- -------------
Voted Shares .............. 8,864,441.490 110,281.184 982,871.044 9,957,593.718
% of Outstanding Shares ... 64.042% 0.797% 7.101% 71.939%
% of Shares Voted ......... 89.022% 1.108% 9.871% 100.000%
Approval of the proposed advisory agreement with WM Advisors, Inc. for the WM VT
Conservative Balanced Portfolio.
AFFIRMATIVE AGAINST ABSTAIN TOTAL
------------- ----------- ----------- -------------
Voted Shares .............. 4,678,221.443 124,060.253 178,387.569 4,980,669.265
% of Outstanding Shares ... 77.236% 2.048% 2.945% 82.230%
% of Shares Voted ......... 93.928% 2.491% 3.582% 100.000%
Approval of the proposed advisory agreement with WM Advisors, Inc. for the WM VT
Balanced Portfolio.
AFFIRMATIVE AGAINST ABSTAIN TOTAL
-------------- ----------- ------------- --------------
Voted Shares .............. 31,308,063.285 862,196.371 3,970,882.741 36,141,142.397
% of Outstanding Shares ... 74.769% 2.059% 9.483% 86.312%
% of Shares Voted ......... 86.627% 2.386% 10.987% 100.000%
Approval of the proposed advisory agreement with WM Advisors, Inc. for the WM VT
Conservative Growth Portfolio.
AFFIRMATIVE AGAINST ABSTAIN TOTAL
-------------- ----------- ------------- --------------
Voted Shares .............. 17,292,855.190 357,365.732 1,120,548.787 18,770,769.709
% of Outstanding Shares ... 81.668% 1.688% 5.292% 88.648%
% of Shares Voted ......... 92.127% 1.904% 5.970% 100.000%
Approval of the proposed advisory agreement with WM Advisors, Inc. for the WM VT
Strategic Growth Portfolio.
AFFIRMATIVE AGAINST ABSTAIN TOTAL
------------- ----------- ----------- -------------
Voted Shares .............. 6,355,899.332 144,084.008 220,984.432 6,720,967.772
% of Outstanding Shares ... 63.558% 1.441% 2.210% 67.209%
% of Shares Voted ......... 94.568% 2.144% 3.288% 100.000%
43
Supplemental Information (unaudited) (continued)
VT U.S. GOVERNMENT SECURITIES FUND PORTFOLIO MANAGER
Craig V. Sosey
WM Advisors, Inc.
Note: Pages 44 and 45 provide information about certain WM Funds in which the VT
SAM Portfolios invest a significant portion of their assets. For additional
information about these and other WM Funds, please see the WM Variable Trust
annual report, which is available online.
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. Performance shown below does not account for
fees, expenses,
AVERAGE ANNUAL TOTAL RETURNS(1) AS OF DECEMBER 31, 2006
1-Year 5-Year 10-Year Since Inception Inception Date
------ ------ ------- --------------- --------------
CLASS 1 SHARES 4.45% 4.27% 5.55% 5.37% 5/6/93
CLASS 2 SHARES 4.22% 4.03% -- 3.62% 11/6/01
Citigroup Mortgage Index(2) 5.17% 4.90% 6.18% 6.22%
PROTFOLIO COMPOSITION(3)
As of 12/31/06
(PIE CHART)
As of As of
Asset Class 12/31/06 12/31/05 Change
- ----------- -------- -------- ------
FHLMC/FGLMC 35% 34% +1%
FNMA 29% 24% +5%
CMOs 18% 22% -4%
U.S. Treasuries 8% 5% +3%
GNMA 5% 6% -1%
U.S. Government Agency 4% 6% -2%
Cash Equivalents 1% 3% -2%
(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 VT U.S. Government Securities Fund's
performance in 1995 and 1998 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.
44
PORTFOLIO MANAGERS VT Income Fund
John R.Friedl, CFA and
Gary J. Pokrzywinski, CFA
WM Advisors, Inc.
and charges of any variable insurance contract or retirement plan. If these fees
were reflected, performance would be lower.
Fixed-income investments are subject to interest rate risk, and their value will
decline as interest rates rise. VT U.S. Government Securities Fund: Neither the
principal of government bond funds nor their yields are guaranteed by the
U.S. government.
VT Income Fund: Lower-rated securities are subject to additional credit and
default risks.
AVERAGE ANNUAL TOTAL RETURNS(1) AS OF DECEMBER 31, 2006
1-Year 5-Year 10-Year Since Inception Inception Date
------ ------ ------- --------------- --------------
CLASS 1 SHARES 4.90% 6.41% 6.67% 6.37% 5/7/93
CLASS 2 SHARES 4.59% 6.13% -- 5.66% 11/6/01
Citigroup Broad Investment-Grade
Bond Index(2) 4.33% 5.10% 6.26% 6.26%
PROTFOLIO COMPOSITION(3)
As of 12/31/06
(PIE CHART)
As of As of
Asset Class 12/31/06 12/31/05 Change
- ----------- -------- -------- ------
Domestic Corporate Bonds 59% 58% +1%
Mortgage-Backed Bonds 22% 22% 0%
U.S. Treasuries 10% 7% +3%
Foreign Corporate
Bonds (U.S.$) 7% 8% -1%
Foreign Government
Bonds (U.S.$) 1% 1% 0%
Equities 0% 1% -1%
Cash Equivalents 1% 3% -2%
(2) See page 14 for definitions of indices. Returns shown for the indices
assume reinvestment of all dividends and distributions, and since-inception
returns shown for the indices are calculated from 4/30/93. Indices are
unmanaged, and individuals cannot invest directly in an index.
(3) May not reflect the current portfolio composition.
45
Supplemental Information (unaudited) (continued)
WM VARIABLE TRUST STRATEGIC ASSET MANAGEMENT PORTFOLIOS
OTHER PORTFOLIO INFORMATION
TAX INFORMATION:
The following tax information for the fiscal year ended December 31, 2006, is
provided pursuant to provisions of the Code. The amounts of long-term capital
gains designated are as follows (in thousands):
NAME OF PORTFOLIO
- -----------------
VT Flexible Income Portfolio........ $2,493
VT Conservative Balanced Portfolio.. 815
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
- -----------------
VT Flexible Income Portfolio........ 6.25%
VT Conservative Balanced Portfolio.. 15.00%
VT Balanced Portfolio............... 27.19%
VT Conservative Growth Portfolio.... 48.40%
VT Strategic Growth Portfolio....... 79.45%
SCHEDULES OF INVESTMENTS:
The Trust 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 Trust'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 Trust uses to determine how to vote proxies
relating to portfolio securities held by the Portfolios are included in the
Trust's Statement of Additional Information which is available, without charge
and upon request, by calling 800-222-5852. Information regarding how the
Portfolios voted proxies relating to portfolio securities during the most recent
twelve-month period ended June 30 is available by calling 800-222-5852 or at
http://www.sec.gov.
46
Supplemental Information (unaudited) (continued)
WM VARIABLE TRUST STRATEGIC ASSET MANAGEMENT PORTFOLIOS
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
- ---------------------------- -------------- ----------------------- -------------------
Kristianne Blake Composite Funds-3 years CPA specializing in personal Avista Corporation; Frank Russell
Age 52 WM Group of Funds-8 years financial and tax planning. Investment Company; Russell Investment
Funds; University of Washington.
Edmond R. Davis, Esq. Sierra Funds-8 years Partner at the law firm of Braille Institute of America, Inc;
Age 78 WM Group of Funds-8 years Davis & Whalen LLP. Prior Children's Bureau of Southern California,
thereto, partner at the law Children's Bureau Foundation; Fifield
firm of Brobeck, Phlegar & Manors, Inc.
Harrison, LLP.
Carrol R. McGinnis Griffin Funds-3 years Private investor since 1994. Baptist Foundation of Texas; Concord
Age 63 WM Group of Funds-7 years Prior thereto, President and Trust Company.
Chief Operating Officer of
Transamerica Fund Management
Company.
Alfred E. Osborne, Jr., Ph.D. Sierra Funds-7 years Senior Associate Dean, K2, Inc.; First Pacific Advisors' Funds;
Age 62 WM Group of Funds-8 years University of California at EMAK Worldwide, Inc.; Investment Company
Los Angeles Anderson Institute; Independent Directors Council
Graduate School of
Management, and Faculty
Director of the Harold Price
Center for Entrepreneurial
Studies, University of
California at Los Angeles.
Daniel L. Pavelich Composite Funds-1 year Retired Chairman and CEO of Catalytic, Inc.; Vaagen Bros. Lumber,
Age 62 WM Group of Funds-8 years BDO Seidman. Inc.
Jay Rockey Composite Funds-3 years Founder and Senior Counsel
Age 78 WM Group of Funds-8 years of The Rockey Company, now
Rockey, Hill & Knowlton.
Richard C. Yancey Composite Funds-23 years Retired Managing Director of AdMedia Partners Inc.; Czech and Slovak
(Chairman) WM Group of Funds-8 years Dillon Read & Co., an American Enterprise Fund
Age 80 investment bank now part of
UBS.
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 Washington Mutual, Inc.; Recreational
Age 71 WM Group of Funds-8 years Seattle Foundation. Equipment, Inc.
William G. Papesh Composite Funds-9 years President and Director of Member of Investment Company Institute
(President and CEO) WM Group of Funds-8 years the Advisor; Sr. Vice Board of Governors.
Age 63 President and Director of
the Transfer Agent and
Distributor.
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 Vice President and Assistant Secretary since Vice President of the Advisor.
Age 38 2006. Prior to 2006, various other officer
positions since 2003.
Jeffrey L. Lunzer, CPA First Vice President, Chief Financial Officer First Vice President of the Advisor, Transfer Agent
Age 46 and Treasurer since 2003. and Distributor. Prior to 2003, senior level
positions at the Columbia Funds and Columbia
Management Company.
William G. Papesh President and CEO since 1987. Prior to 1987, President and Director of the Advisor; Sr. Vice
Age 63 other officer positions since 1972. President and Director of the Transfer Agent and
Distributor.
Gary Pokrzywinski Senior Vice President since 2004. First Vice Senior Vice President and Director of the Advisor,
Age 45 President since 2001. Prior to 2001, Vice Transfer Agent and Distributor.
President since 1999.
Debra Ramsey Senior Vice President since 2004. President and Director of the Transfer Agent and
Age 53 Distributor; Sr. Vice President and Director of the
Advisor.
John T. West First Vice President, Secretary, Chief First Vice President of the Advisor, Transfer Agent
Age 51 Compliance Officer and Anti-Money Laundering and Distributor.
Compliance Officer since 2004. Prior to 2004,
various other officer positions since 1993.
Randall L. Yoakum Senior Vice President since 2001. Prior to Senior Vice President and Chief Investment
Age 47 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, 8th 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 PFG,
Washington Mutual, Inc. (prior to December 31, 2006), the Advisor, the
Distributor, or the Transfer Agent.
(4) The Trustees and Officers serve in these capacities for the 40 Portfolios
and Funds in the Fund Complex. Each Trustee and Officer shall hold the
indicated positions until his or her resignation, retirement or removal.
47
(WM VARIABLE TRUST LOGO)
A variable insurance product's unit value and investment returns will vary with
market conditions, and an investor's units when redeemed may be worth more or
less than their original cost.
This annual report is published as general information for the shareholders of
the WM Variable Trust. 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 contract.
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 Variable Trust Funds are advised by WM Advisors, Inc. (WMAI). They are
available through variable insurance products distributed by WM Funds
Distributor, Inc. (WMFD) and sold through WM Financial Services, Inc. (WMFS) and
independent broker/dealers. WMAI, WMFD, and WMFS are affiliates of Washington
Mutual, Inc.
Distributed by:
WM Funds Distributor, Inc.
Member NASD
(WM VARIABLE TRUST LOGO)
MM 3488 (2/28/07)
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
2005 2006
- ---- ----
$472,800 $489,500
(b) Audit-Related Fees
2005 2006
- ---- ----
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
2005 2006
- ---- ----
$42,912 $46,800
The tax fees consist of fees billed in connection with reviewing the federal
regulated investment company income tax returns for WM Variable Trust for the
tax years ended December 31, 2005 and December 31, 2006.
(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 December 31, 2006, the registrant's principal
accountant billed aggregate non-audit fees in the amount of $158,800 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 December 31, 2005, the registrant's principal accountant
billed aggregate non-audit fees in the amount of $42,912 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 sub-advisor 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 Variable Trust
By: /s/William G. Papesh
William G. Papesh
President and Chief Executive Officer
Date: March 1, 2007
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: March 1, 2007
By: /s/William G. Papesh
William G. Papesh
President and Chief Executive Officer
Date: March 1, 2007