SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
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[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
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[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
WM VARIABLE TRUST
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(1) Title of each class of securities to which transaction applies:
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[WM Group Letterhead]
October 3, 2005
Dear VT Growth Fund Shareholder:
As you may be aware, Citigroup Inc., the parent company of Salomon Brothers
Asset Management Inc (together with its successor or successors hereinafter
referred to as "Salomon"), sub-advisor to the Growth Fund series of WM Variable
Trust (the "Fund"), has entered into an agreement to sell substantially all of
its worldwide asset management business to Legg Mason, Inc. Upon consummation,
the sale will cause the Fund's sub-advisory current agreement with Salomon,
approved by shareholders on August 9, 2005, to terminate. In light of the fact
that Salomon is willing to enter into another sub-advisory agreement under the
same terms and conditions to be effective upon termination of the existing
agreement, and after considering its alternatives, management has recommended,
and the Board of Trustees has approved, entering into such an agreement with
Salomon. In order for the management of the Fund to continue uninterrupted after
the sale, we are requesting shareholders of the Fund to approve a new
sub-advisory agreement. The enclosed proxy statement solicits your vote as a
shareholder of the Fund for the purpose of approving a new sub-advisory
agreement between WM Advisors, Inc. (the "Advisor") and Salomon relating to the
Fund.
Additionally, because it was necessary to send to shareholders of the Fund a
proxy statement relating to the sub-advisory agreement with Salomon, the
Trustees determined that it would be appropriate and efficient to seek
shareholder approval of a proposal seeking approval of a policy allowing the
Board of Trustees and the Advisor to appoint sub-advisors and to approve
amendments to sub-advisory agreements without shareholder approval (the
"Sub-advisor Policy"). The Trustees believe that, in the event that the
Securities and Exchange Commission should issue a so-called
"manager-of-managers" exemptive order to the Fund, or adopt a corresponding
exemptive rule, the Sub-advisor Policy would provide the Advisor with maximum
flexibility to enter into new sub-advisory agreements and to amend existing
sub-advisory agreements, without incurring the delay or expense of obtaining
further shareholder approval. The Trustees believe that such flexibility in
selection of sub-advisors is in the best interest of the Fund's shareholders as
it will allow the Fund to operate more efficiently. Currently, in order to
appoint a sub-advisor or materially modify a sub-advisory agreement, the Fund
must call and hold a shareholder meeting, create and distribute proxy materials,
and solicit votes from the Fund's shareholders. This is a time-consuming
process, the costs of which are often borne by the Fund. Without the delay
inherent in holding shareholder meetings, the Advisor would be able to act more
quickly to appoint a qualified sub-advisor that the Advisor and the Fund's Board
of Trustees mutually agree would be in the interest of the shareholders.
This proxy statement is designed to give you complete and detailed information
about these two proposals.
After you have reviewed this material carefully, we encourage you to follow the
Board of Trustees' recommendation by voting "FOR" each of the proposals.
A special meeting of shareholders has been scheduled for Thursday, October 27,
2005, at 10:30 a.m., Pacific time, at the main office of the Fund at 1201 Third
Avenue, Seattle, Washington 98101. While you are invited to attend the meeting,
most shareholders cast their vote by completing the accompanying proxy card.
Your vote is essential. Please vote as soon as possible using any of the
following methods:
- - Touch-tone telephone -- please refer to your proxy card.
- - Internet -- please refer to your proxy card.
- - Mail -- sign and date your proxy card, and mail it back in the enclosed
postage-paid envelope.
If you have questions, please contact your Investment Representative or call
800-222-5852.
Your vote is important to us and is needed to ensure that the proposals in the
proxy statement can be acted upon. We look forward to receiving your vote soon.
Sincerely,
/s/ William G. Papesh
William G. Papesh
President
Q & A
Q. WHY AM I RECEIVING THIS PROXY STATEMENT?
The proposed sale by Citigroup Inc. of its asset management business to Legg
Mason, Inc. will result in the termination of the investment sub-advisory
agreement with Salomon Brothers Asset Management Inc ("Salomon") with respect to
the Growth Fund (the "Fund"), a series of WM Variable Trust (the "Trust").
Because a proxy statement is required to be sent to shareholders to approve a
new sub-advisory agreement with Salomon, the Board of Trustees of the Trust (the
"Trustees") determined that it would be appropriate and efficient to seek
shareholder approval of another proposal at the same time. Accordingly, the
Trustees, on behalf of the Fund, have scheduled a special meeting of
shareholders on Thursday, October 27, 2005 at 10:30 a.m., Pacific time for the
purpose of:
(i) approving a new sub-advisory agreement among the Fund, WM Advisors, Inc.
(the "Advisor") and Salomon; and
(ii) approving a policy allowing the Board of Trustees and the Advisor to
appoint sub-advisors and to approve amendments to sub-advisory agreements
without shareholder approval.
The Board believes that the proposals would be in the best interest of
shareholders and recommends that you vote "FOR" their approval.
Q. DOES THE PROPOSED NEW SUB-ADVISORY AGREEMENT WITH SALOMON DIFFER MATERIALLY
FROM THE FUND'S CURRENT SUB-ADVISORY AGREEMENT WITH SALOMON?
No. The proposed new sub-advisory agreement with Salomon is identical to the
Fund's current sub-advisory agreement with Salomon, except with respect to
names, dates, and a provision that permits Salomon to continue to act as sub-
advisor to the Fund for up to 150 days following the termination of Salomon's
current sub-advisory agreement with the Fund pursuant to Rule 15a-4 under the
Investment Company Act of 1940, as amended.
Q. WHY IS THE BOARD SEEKING SHAREHOLDER APPROVAL OF A SUB-ADVISOR POLICY THAT
WOULD ALLOW THE ADVISOR, SUBJECT TO TRUSTEE APPROVAL, TO APPOINT SUB-ADVISORS
AND TO APPROVE AMENDMENTS TO SUB-ADVISORY AGREEMENTS WITHOUT SHAREHOLDER
APPROVAL?
Because it was necessary to send to shareholders of the Fund a proxy statement
relating to the sub-advisory agreement with Salomon, the Trustees determined
that it would be appropriate and efficient to seek shareholder approval of this
proposal at the same time. The Trustees believe that, in the event that the
Securities and Exchange Commission should issue a so-called "manager-of-
managers" exemptive order to the Fund, or adopt a corresponding exemptive rule,
the sub-advisor policy would provide the Advisor with maximum flexibility to
enter into new sub-advisory agreements and to amend existing sub-advisory
agreements, without incurring the delay or expense of obtaining further
shareholder approval. The Trustees believe that such flexibility in selection of
sub-advisors is in the best interest of the Fund's shareholders as it will allow
the Fund to operate more efficiently. Currently, in order to appoint a
sub-advisor or materially modify a sub-advisory agreement, the Fund must call
and hold a shareholder meeting, create and distribute proxy materials, and
solicit votes from the Fund's shareholders. This process is time-intensive,
costly and slow. Without the delay inherent in holding shareholder meetings, the
Advisor would be able to act more quickly to appoint a sub-advisor when the
Trustees and the Advisor feel that the appointment would benefit the Fund.
Q. WILL ANY OF THE PROPOSALS, IF APPROVED, AFFECT THE TOTAL ADVISORY FEES PAID
BY THE FUND?
No. The proposals, if approved, will not affect the Fund's total advisory fees
or expense ratio.
Q. HOW DO I CAST MY VOTE?
Most shareholders cast their votes by completing and signing the enclosed proxy
card and mailing it back in the postage-paid reply envelope. However, you can
also use any of the following convenient methods:
- Mail -- sign and date your proxy card, and mail it back in the enclosed
postage-paid envelope.
- Touch-tone telephone -- please refer to your proxy card.
- Internet -- please refer to your proxy card.
Your vote is important to us and will help ensure that the proposals in the
proxy statement can be acted upon.
Please take the time to read the proxy statement thoroughly. If you have any
questions, please contact your investment representative or call 800-222-5852.
Thank you for your time, consideration and vote.
WM GROUP OF FUNDS
GROWTH FUND
WM VARIABLE TRUST
1201 THIRD AVENUE
SEATTLE, WASHINGTON 98101
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 27, 2005
To the Shareholders of the Growth Fund:
Notice is hereby given that a special meeting of shareholders of the WM
Growth Fund (the "Fund"), a series of WM Variable Trust, will be held on
Thursday, October 27, 2005 at 10:30 a.m., Pacific time, at the main office of
the Fund at 1201 Third Avenue, Seattle, Washington 98101, for the following
purposes:
1. To approve or disapprove a new sub-advisory agreement for the Fund
among the Fund, WM Advisors, Inc. (the "Advisor") and Salomon Brothers
Asset Management Inc;
2. To approve a policy allowing the Board of Trustees and the Advisor
to appoint sub-advisors and to approve amendments to sub-advisory
agreements without shareholder approval;
3. To consider and act upon any other matters that may properly come
before the meeting or any adjournment thereof.
Shareholders of record at the close of business on September 21, 2005 are
entitled to notice of, and to vote at, the Meeting.
By order of the Board of Trustees,
John T. West, Secretary
October 3, 2005
YOUR VOTE IS IMPORTANT
PLEASE RESPOND -- YOUR VOTE IS IMPORTANT WHETHER OR NOT YOU PLAN TO ATTEND THE
MEETING. PLEASE COMPLETE, SIGN, DATE AND MAIL THE ENCLOSED PROXY IN THE ENCLOSED
POSTAGE PREPAID ENVELOPE SO THAT YOU WILL BE REPRESENTED AT THE MEETING.
WM GROUP OF FUNDS
GROWTH FUND
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Trustees (the "Trustees") of WM Variable Trust
(the "Trust") for use at the special meeting of shareholders of the Growth Fund
(the "Fund"), a series of the Trust, to be held at 10:30 a.m., Pacific time, on
Thursday, October 27, 2005, at 1201 Third Avenue, Seattle, Washington, and at
any adjournment or adjournments thereof (the "Meeting"). This Proxy Statement
and its enclosures are being mailed to shareholders beginning on or about
October 3, 2005.
A COPY OF THE TRUST'S MOST RECENT ANNUAL REPORT MAY BE OBTAINED WITHOUT
CHARGE BY WRITING TO WM FUNDS DISTRIBUTOR, INC., P.O. BOX 8024, BOSTON,
MASSACHUSETTS 02266-8024 OR BY CALLING 800-222-5852.
I. GENERAL
All shareholders of record of the Fund as of the close of business on
September 21, 2005, the record date for determining shareholders entitled to
vote at the Meeting (the "Record Date"), are entitled to one vote for each share
of beneficial interest of the Fund held as of that date, and each fractional
share shall be entitled to a proportional fractional vote. The aggregate number
of shares of beneficial interest of the Fund for all classes issued and
outstanding as of the Record Date was 17,829,657.
Timely, properly executed proxies will be voted as you instruct. IF NO
SPECIFICATION IS MADE AS TO A PARTICULAR PROPOSAL, SHARES WILL BE VOTED FOR THE
APPROVAL OF THAT PROPOSAL. At any time before it has been voted, the enclosed
proxy may be revoked by the signer by a written revocation received by the
Secretary of the Trust, by properly executing a later-dated proxy or by
attending the Meeting, requesting the return of any previously delivered proxy
and voting in person.
The holders of a majority of the shares of the Fund outstanding as of the
Record Date, present in person or represented by proxy, constitute a quorum for
the transaction of business by the shareholders of the Fund at the Meeting.
Votes cast by proxy or in person at the Meeting will be counted by persons
appointed by the Trust as tellers for the Meeting. The tellers will count the
total number of votes cast "for" approval of Proposal 1 or Proposal 2 (the
"Proposals") for purposes of determining whether sufficient affirmative votes
have been cast for the Proposals. Shares of the Fund are sold to insurance
company separate accounts and are used to fund variable annuity and life
insurance contracts. Each owner of such a contract (a "Contract Owner") is
entitled to instruct his or her insurance company as to how to vote its shares
and can do so by marking voting instructions on the ballot enclosed with this
Proxy Statement and then signing, dating and mailing the ballot in the envelope
provided. If a ballot is not marked to indicate voting instructions, but is
signed, dated and returned, it will be treated as an instruction to vote the
shares in favor of the proposal. Each insurance company shareholder will vote
the shares for which it receives timely voting instructions from Contract Owners
in accordance with those instructions and will vote those shares for which it
receives no timely voting instructions for and against approval of a proposal,
and as an abstention, in the same proportion as the shares for which it receives
voting instructions. Shares attributable to amounts retained by each insurance
company shareholder will be voted in the same proportion as votes cast by
Contract Owners. Accordingly, there are not expected to be any "broker
non-votes."
Solicitation of proxies by personal interview, mail, telephone and
facsimile may be made by officers and Trustees of the Trust and employees of WM
Advisors, Inc., the Fund's investment advisor (the "Advisor"), and its
affiliates. The Trust has retained Computershare Fund Services, Inc., 280 Oser
Avenue, Hauppauge, New York 11788, ("Computershare"), to aid in the tabulation
of proxies.
The costs of retaining Computershare and other expenses incurred in
connection with the solicitation of proxies, and the costs of holding the
Meeting, will be borne by Salomon. The anticipated cost associated with the
tabulation and solicitation of proxies by Computershare is approximately
$10,000.
Only one proxy statement is being delivered to multiple shareholders of the
Fund sharing an address, unless contrary instructions have been received by the
Fund from one or more of the shareholders. The Fund will deliver promptly upon
written or oral request a separate copy of the proxy statement to a shareholder
of the Fund at a shared address to which a single copy of the proxy statement
was
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delivered. A shareholder can notify the Fund of its request for separate copy or
to notify the Fund to distribute all further documents separately by writing to
WM Funds Distributor, Inc., P.O. Box 8024, Boston, Massachusetts 02266-8024 or
by phone at 800-222-5852.
II. PROPOSAL 1: APPROVAL OF A NEW SUB-ADVISORY AGREEMENT WITH SALOMON BROTHERS
ASSET MANAGEMENT INC
INTRODUCTION
On June 23, 2005, Citigroup Inc. ("Citigroup") the parent company of the
Fund's sub-advisor, Salomon Brothers Asset Management Inc ("Salomon"), entered
into a definitive agreement (the "Transaction Agreement") with Legg Mason, Inc.
("Legg Mason") under which Citigroup will sell substantially all of its
worldwide asset management business, Citigroup Asset Management ("CAM"), to Legg
Mason in exchange for the broker-dealer and investment banking businesses of
Legg Mason, a number of shares of Legg Mason common stock representing 4.39% of
the outstanding voting securities of Legg Mason and a number of shares of
non-voting, convertible preferred stock representing approximately 10% of the
pro-forma common stock of Legg Mason (on an as converted basis) and, subject to
certain adjustments, approximately $550 million in the form of a five-year loan
facility provided to Legg Mason by Citigroup Corporate and Investment Banking
(the "Transaction"). Subject to certain adjustments, the total value of the
Transaction (based on the average price of Legg Mason common stock prior to June
23, 2005) is approximately $3.7 billion. As a result of the Transaction, the
Sub-advisor to the Fund will become a wholly owned subsidiary of Legg Mason.
Consummation of the Transaction is subject to certain terms and conditions,
including, among others: (1) Citigroup and Legg Mason obtaining certain required
regulatory approvals, (2) consent by certain advisory clients of CAM
representing no less than 75% of the revenue attributable to the assets under
management for such clients to continue their advisory relationship with CAM
following the consummation of the Transaction and (3) conversion of Legg Mason's
subsidiary, Legg Mason Trust, fsb, from a federal thrift charter to a trust
company chartered under state law or the National Bank Act that is not a bank,
thrift or savings association under the Bank Holding Company Act. Although there
is no assurance that the Transaction will be completed, if each of the terms
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and conditions is satisfied or waived, the closing of the Transaction is
expected by Citigroup and Legg Mason to take place during the fourth quarter of
2005.
Legg Mason, whose principal executive offices are at 100 Light Street,
Baltimore, Maryland, 21202, is a financial services holding company. Legg Mason
is a holding company that currently provides asset management, securities
brokerage, investment banking and related financial services through its
subsidiaries. As of June 30, 2005, Legg Mason's asset management operation had
aggregate assets under management of approximately $397 billion, of which,
approximately $248 billion (62%) represented fixed income assets, and $75
billion (19%) represented assets in mutual and closed-end funds sponsored by
Legg Mason and its affiliates.
The Transaction will cause the Fund's current sub-advisory agreement with
Salomon (the "Current Sub-advisory Agreement") to terminate. In order for
Salomon to continue to render sub-advisory services to the Fund, under the
supervision of the Advisor and the Trustees, the Investment Company Act of 1940,
as amended (the "1940 Act"), requires approval of a new sub-advisory agreement
with Salomon by both the Trustees and the Fund's shareholders (the "New
Sub-advisory Agreement"). The Advisor believes the Fund could benefit from
entering into the New Sub-advisory Agreement as the Advisor believes that
Salomon's investment style is complementary to the investment styles of the
Fund's other two sub-advisors, Janus Capital Management, LLC ("Janus") and
OppenheimerFunds, Inc. ("Oppenheimer"), and, as a result, could benefit the Fund
by reducing volatility.
It is anticipated that the name of the sub-advisor will remain the same
immediately following the closing of the Transaction but will eventually change.
Upon closing of the Transaction, Legg Mason will have a license which will
permit Salomon to continue using its current name for up to twelve months
following the closing.
The New Sub-advisory Agreement was approved by the Trustees, including
those Trustees who are not "interested persons" (as defined in the 1940 Act) of
any party to the New Sub-advisory Agreement (the "Independent Trustees"), on
August 9, 2005. The Trustees, including a majority of the Independent Trustees,
have recommended approval of the New Sub-advisory Agreement by shareholders of
the Fund. If shareholders of the Fund do not approve the New Sub-advisory
Agreement, the Trustees will consider what further actions to take. Such actions
could include considering another sub-advisor for the Fund.
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DESCRIPTION OF THE NEW SUB-ADVISORY AGREEMENT
A description of the New Sub-advisory Agreement, the services to be
provided thereunder, and the procedures for termination and renewal thereof is
set forth below. Such description is qualified in its entirety by reference to
the form of New Sub-advisory Agreement set forth in Appendix A to this Proxy
Statement. Additional information about Salomon is set forth below under
"Additional Information."
Except with respect to names, dates, and a provision that permits Salomon
to continue to act as sub-advisor to the Fund for up to 150 days following the
termination of the Current Sub-advisory Agreement pursuant to Rule 15a-4 under
the 1940 Act, the terms of the New Sub-advisory Agreement are identical to those
of the Current Sub-advisory Agreement. The New Sub-advisory Agreement provides
that, subject to the supervision of the Trustees and the Advisor, Salomon, will,
with respect to the portion of the Fund's assets allocated to it, make
investment decisions for the Fund in accordance with the Fund's investment
objectives and policies as stated in the Fund's Prospectus and Statement of
Additional Information as in effect and as amended from time to time and in
conformity with the Trust's Master Trust Agreement, the 1940 Act and the
Investment Advisors Act of 1940, as amended (the "Advisors Act"). For its
portion of the Fund, Salomon will also place purchase and sale orders for
securities to effectuate the investment decisions made, maintain books and
records with respect to the securities transactions and furnish to the Trust's
Board of Trustees such quarterly, annual and special reports as the Board may
reasonably request; treat confidentially and as proprietary information of the
Fund all records and other information relative to the Fund and prior, present
or potential shareholders; and supervise investments and conduct a continuous
program of investment, evaluation and, if appropriate, sale and reinvestment.
The New Sub-advisory Agreement further provides that Salomon shall not use such
records and information for any purpose other than performance of its
responsibilities and duties thereunder. In addition, Salomon will furnish the
Fund or the Advisor with whatever statistical information the Fund or the
Advisor may reasonably request with respect to the investments that the Fund may
hold or consider purchasing.
5
The New Sub-advisory Agreement provides that it will continue in effect for
an initial term of two years from its date of execution and thereafter so long
as it is approved at least annually in accordance with the 1940 Act. The 1940
Act requires that, after the initial two-year term, the New Sub-advisory
Agreement be approved at least annually by (i) the vote, cast in person at a
meeting called for the purpose, of a majority of the Independent Trustees and
(ii) the majority vote of the full Board of Trustees or the vote of a majority
of the outstanding voting securities (as defined in the 1940 Act) of the Fund.
The New Sub-advisory Agreement terminates automatically in the event of its
assignment or upon any termination of the advisory agreement between the Trust
and the Advisor. The New Sub-advisory Agreement may be terminated without
penalty on thirty days' written notice, by the Advisor, the Board of Trustees of
the Trust or by a vote of holders of a majority of the Funds' shares, and upon
sixty days' written notice by Salomon.
The New Sub-advisory Agreement provides that Salomon shall not be subject
to any liability to the Trust, the Fund or the Advisor, or to any shareholder,
officer, director or Trustee thereof, for any act or omission in the course of,
or connected with, rendering services thereunder, in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations and duties by Salomon.
The New Sub-advisory Agreement also provides that, for the period during
which the New Sub-advisory Agreement is in effect, the Trust, on behalf of the
Fund, will pay the Advisor a monthly fee equal to the excess, if any, of the fee
otherwise payable to the Advisor under the Advisory Agreement dated as of May
14, 2002 between the Advisor and the Fund (the "Advisory Agreement") over the
total fees paid by the Fund pursuant to the sub-advisory agreements with respect
to the Fund.
TRUSTEES' CONSIDERATIONS IN CONNECTION WITH THE APPROVAL OF THE NEW SUB-
ADVISORY AGREEMENT
In determining whether to approve the New Sub-advisory Agreement with
Salomon, the Trustees did not identify any particular information or factor that
was all-important or controlling, and each Trustee attributed different weights
to the various factors that were considered. The Trustees considered, among
other things, the responsibilities of, and services provided by, Salomon under
the Current Sub-advisory Agreement; representations by CAM management and
6
Legg Mason to the Trustees that, subsequent to the consummation of the
Transaction, there is not expected to be any reduction in the nature, quality
and extent of services provided to the Fund by Salomon; the fact that the sub-
advisory fees paid to Salomon under the New Sub-advisory Agreement are identical
to those under the Current Sub-advisory Agreement; the fact that the terms and
conditions of the New Sub-advisory Agreement are identical to those of the
Current Sub-advisory Agreement (except with respect to names, dates, and a
provision that permits Salomon to continue to act as sub-advisor to the Fund for
up to 150 days following the termination of the Current Sub-advisory Agreement
pursuant to Rule 15a-4 under the 1940 Act); and representations by CAM
management and Legg Mason to the Trustees that there would be no changes in
either the composition of the Salomon investment professionals who would be
providing services under the New Sub-advisory Agreement or the amount of time
and attention that would be devoted by these investment professionals to the
Fund. The Trustees also considered information relating to the education,
experience and number of investment professionals and other personnel who would
continue to provide services to the Fund under the New Sub-advisory Agreement.
The Trustees considered the level of skill required to manage the Fund and
concluded that the resources that would continue to be devoted by Salomon to the
Fund would be appropriate to effectively fulfill its duties under the New
Sub-advisory Agreement. The Trustees also considered the business reputation and
financial resources of Salomon and concluded that Salomon would continue to be
able to meet any reasonably foreseeable obligations under the New Sub-advisory
Agreement.
The Trustees considered information concerning the investment philosophy
and investment process currently being applied by Salomon in managing the Fund,
including consideration of Salomon's investment philosophy and investment
process in light of the investment philosophies and processes of the other
sub-advisors of the Fund. In this regard, the Trustees considered the in-house
research capabilities of Salomon as well as other resources available to
Salomon's personnel, including research services available to Salomon that would
result from securities transactions effected for the Fund and other investment
advisory clients of Salomon. The Trustees concluded that the investment process,
research capabilities and philosophy of Salomon would continue to be well-suited
to the Fund, given its investment objective and policies, as well as the
investment processes and philosophies of the Fund's other sub-advisors.
7
The Trustees considered the scope of the services that Salomon would
provide to the Fund under the New Sub-advisory Agreement in relation to services
provided by the Fund's other sub-advisors and services provided by Salomon
currently to mutual funds and other clients. The Trustees considered the
services to be provided by the Advisor with respect to the Fund, including
oversight by the Advisor of the advisory services to be provided by Salomon, and
other non-advisory services provided by the Advisor. The Trustees noted that the
standard of care applicable to Salomon under the New Sub-advisory Agreement is
the same as that under the Current Sub-advisory Agreement and is comparable to
that found in most mutual fund investment advisory agreements. The Trustees
concluded that the scope of the services to be provided to the Fund by Salomon
would be consistent with the Fund's operational requirements, including, in
addition to its investment objective, compliance with the Fund's investment
restrictions, tax and reporting requirements.
The Trustees evaluated the record of Salomon and certain of its affiliates
with respect to regulatory compliance. The Trustees also considered the
procedures of Salomon designed to fulfill its fiduciary duties to its advisory
clients with respect to possible conflicts of interest, including the code of
ethics of Salomon (regulating the personal trading of its officers and
employees), the procedures by which Salomon allocates trades among its various
investment advisory clients, the integrity of the systems in place to ensure
compliance with the foregoing and the record of Salomon in these matters. The
Trustees also considered Salomon's procedures with respect to the execution of
portfolio transactions. The Trustees concluded that Salomon's regulatory
compliance record and procedures were sufficient to support approval of the New
Sub-Advisory Agreement.
The Trustees considered information relating to the investment performance
of accounts managed by Salomon in a style similar to that Salomon currently uses
with respect to the Fund, relative to funds managed similarly by other advisors.
The Trustees reviewed performance over various periods, including one-, three-
and five-year periods, and considered information presented by the Advisor with
respect to its expectations regarding the relative performance of Salomon and
the Fund's other sub-advisors under different market conditions and during
different phases of a market cycle, the volatility of such returns, as well as
factors identified by Salomon as contributing to performance. The Trustees
concluded that the scope and quality of the services that Salomon would provide
under the New Sub-advisory Agreement, as well as the investment performance of
comparable investment advisory clients of Salomon, were suffi-
8
cient, in light of market conditions, performance attribution, the resources
dedicated by Salomon and its integrity, its personnel and systems and its
financial resources, to merit approval of the New Sub-advisory Agreement.
In reaching that conclusion, the Trustees also gave substantial
consideration to the fees payable under the New Sub-advisory Agreement and fees
payable by the Fund to its other sub-advisors. The Trustees not only took into
account the actual dollar amount of fees to be paid by the Fund directly to
Salomon, but also took into account so-called "fallout benefits" to Salomon,
such as any incremental increase to its reputation derived from serving as
investment advisor to the Fund, as well as a potential increase in fallout
benefits to Salomon on account of the Transaction. The Trustees considered
information concerning fees paid by the Fund to its other sub-advisors,
Oppenheimer and Janus. The Trustees also considered fees paid to Salomon, and
services provided by Salomon, under other advisory contracts, concluding that,
considering the relative complexity of the investment management
responsibilities under such contracts, the fees to be paid to Salomon and the
services to be provided by Salomon under the New Sub-advisory Agreement bore a
reasonable relationship to such fees and services.
In reviewing the New Sub-advisory Agreement, the Trustees considered
Salomon's sub-advisory fees as a percentage of assets at different asset levels
and the possible economies of scale to Salomon and concluded that the fee levels
reflect an appropriate sharing of these economies of scale for the benefit of
the Fund's shareholders. The Trustees also considered the fact that, under the
New Sub-advisory Agreement, the fees payable to the Advisor by the Fund would be
reduced by the total fees that would be paid by the Fund to Salomon under the
New Sub-advisory Agreement and the possible impact of Salomon's fees on the
profitability of the Advisor. The Trustees noted that the structure of
breakpoints for the Advisor's fees and the fees of Salomon and other
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 Salomon and the other sub-advisors. The Trustees did
not evaluate the profitability to Salomon of its relationship with the Fund
because they concluded that negotiations between the Advisor and Salomon had
been entirely at arm's-length.
In evaluating the Fund's sub-advisory fees, the Trustees took into account
the complexity of investment management for the Fund relative to other types of
funds. The Trustees concluded that generally greater research intensity and
9
trading acumen is required for equity funds such as the Fund, as compared to
funds investing in primarily debt obligations.
Based on the foregoing, the Trustees concluded that the fees to be paid to
Salomon under the New Sub-advisory Agreement are fair and reasonable, given the
scope and quality of the services that Salomon would provide to the Fund. The
Trustees approved, and recommended that shareholders of the Fund approve, the
New Sub-advisory Agreement.
SUB-ADVISORY FEES
The Trust, on behalf of the Fund, would pay fees to Salomon under the
proposed New Sub-advisory Agreement. As noted above, however, the fees payable
by the Fund to the Advisor are reduced by any amounts paid by the Fund to a
sub-advisor.
Under the proposed New Sub-advisory Agreement, Salomon would receive fees
on a monthly basis calculated at an annual rate of 0.40% of the average daily
net assets of the Fund and the Growth Fund series of WM Trust II (together, the
"Combined Assets") under management by Salomon on the first $250 million of such
assets, 0.35% of the next $250 million of such Combined Assets and 0.30% of such
Combined Assets in excess of $500 million. Had the Current Sub-advisory
Agreement or the New Sub-advisory Agreement been in effect for the fiscal year
ended December 31, 2004, the Advisor estimates that Salomon would have received
fees equal to 0.40% of the Combined Assets managed by Salomon, assuming Salomon
had managed a portion of the Combined Assets equal to the portion of the
Combined Assets the Advisor currently allocates to Salomon.
To the extent that the Fund may pay lower fees to another sub-advisor for
sub-advisory services provided to the Fund, the Advisor may have a financial
incentive to allocate more assets to that sub-advisor than the Fund's other sub-
advisors.
TRUSTEES' RECOMMENDATION
THE TRUSTEES OF THE TRUST RECOMMEND THAT SHAREHOLDERS OF THE FUND VOTE FOR
APPROVAL OF THE PROPOSED NEW SUB-ADVISORY AGREEMENT.
10
Approval of the New Sub-advisory Agreement requires the vote of a majority
of the outstanding voting securities as defined in the 1940 Act. A "majority of
the outstanding voting securities," as defined in the 1940 Act, means the lesser
of (1) 67% of the shares of the Fund represented at the Meeting, if more than
50% of the shares of the Fund are represented at the Meeting, or (2) more than
50% of the outstanding shares of the Fund.
III. PROPOSAL 2: APPROVAL OF A POLICY ALLOWING THE ADVISOR, SUBJECT TO TRUSTEE
APPROVAL, TO APPOINT SUB-ADVISORS AND TO APPROVE AMENDMENTS TO SUBADVISORY
AGREEMENTS WITHOUT SHAREHOLDER APPROVAL, TO THE EXTENT PERMITTED BY
APPLICABLE LAW
INTRODUCTION
As noted above, the 1940 Act generally requires that all investment
advisory contracts for mutual funds, including sub-advisory contracts, be
approved by fund shareholders. In order to enhance the ability of the Advisor
and the Trustees to respond to changes in control of a sub-advisor, or the need
to retain a new sub-advisor, without the delay and expense of shareholder
approval, the Fund is planning to seek an order from the SEC (the "Exemptive
Order") exempting the Fund from certain provisions of Section 15(a) of the 1940
Act and Rule 18f-2 thereunder. The SEC has also proposed new rule 15a-5 under
the 1940 Act (the "Proposed Rule") that would, if adopted, provide the Fund with
essentially the same flexibility with respect to sub-advisory arrangements as
the Exemptive Order. It is expected that the Exemptive Order, if granted, or the
Proposed Rule, if adopted, would allow the Advisor, subject to Trustee approval,
to enter into new sub-advisory agreements and to amend existing sub-advisory
agreements without having to obtain further shareholder approval.
The Proposed Rule provides, and the Exemptive Order would likely provide,
that it may be relied upon only if certain conditions are met, including a
condition that shareholders have approved such reliance. This proposal is
soliciting approval of a policy allowing the Advisor, subject to Trustee
approval, to appoint sub-advisors and to approve amendments to sub-advisory
agreements without shareholder approval (the "Sub-advisor Policy"), to the
extent permitted by applicable law. If the Fund's shareholders approve the
Sub-advisor Policy, and if either the Exemptive Order is granted or the Proposed
Rule is adopted, the Advisor, subject to Trustee approval, will be able to
undertake the actions described above without having to obtain further
shareholder approval.
11
Approval of the Sub-advisor Policy will not affect any of the requirements
under the federal securities laws that govern the Fund, the Advisor, any
proposed sub-advisor, or any proposed sub-advisory agreement, other than the
requirement to have a sub-advisory agreement approved by the Fund's
shareholders. The Trustees will continue to evaluate and approve all new
sub-advisory agreements between the Advisor and any sub-advisor as well as all
changes to any sub-advisory agreement. In addition, the Fund and the Advisor
will likely be subject to several conditions under the Exemptive Order or the
Proposed Rule, that are designed to ensure that the interests of the Fund's
shareholders are adequately protected whenever the Advisor acts under the
Sub-advisor Policy. One of these is the requirement that within 90 days of the
adoption of or a change to the Fund's sub-advisory arrangements, the Fund
provide you with an information statement that contains substantially the same
information about the sub-advisor and the sub-advisory agreement that the Fund
would, absent the Exemptive Order or the Proposed Rule, be required to send to
you in a proxy statement. Shareholders wishing to exchange their shares for
another fund in the WM Group of Funds or to redeem their shares would be able to
do so. Exchanges and redemptions may be subject to sales charges or redemption
fees. Finally, shareholders will continue to have the right, under the 1940 Act,
to terminate any investment advisory contract, including a sub-advisory
contract, at any time on 60 days written notice by the vote of a majority of the
outstanding shares.
The Trustees believe that it is in the best interest of the Fund and its
shareholders to allow the Advisor the flexibility to provide its investment
advisory services to the Fund through one or more sub-advisors, subject to
Trustee approval. In addition, the Trustees believe that providing the Advisor
with maximum flexibility to select sub-advisors -- without incurring the delay
or expense of obtaining further shareholder approval -- is in the best interest
of the Fund's shareholders because it will allow the Fund to operate more
efficiently. Currently, in order for the Advisor to appoint a sub-advisor or
materially modify a sub-advisory agreement, the Fund must call and hold a
shareholder meeting of the fund, create and distribute proxy materials, and
solicit votes from the fund's shareholders. This process is time-intensive,
costly and slow. Without the delay inherent in holding shareholder meetings, the
Advisor would be able to act more quickly to appoint a sub-advisor when the
Trustees and the Advisor feel that the appointment would benefit the Fund.
The Trustees believe that many investors choose to invest in the Fund
because of the Advisor's investment management experience and expertise in
12
selecting sub-advisors. The Advisor believes that, if it becomes appropriate to
appoint a sub-advisor to the Fund, it can use this experience and expertise in
choosing sub-advisors who are best positioned to add value to your investment in
the Fund. The Advisor also has experience in retaining and supervising sub-
advisors for the WM Group of Funds, which currently have a total of seven sub-
advisors.
Under the Sub-advisor Policy, the Trustees will continue to evaluate and
approve all new sub-advisory agreements as well as any modification to existing
sub-advisory agreements. Each sub-advisory agreement will be subject to all
provisions of the 1940 Act, and rules adopted thereunder, except, in the event
that the Exemptive Order is granted, for the specific provisions of the 1940 Act
from which the Exemptive Order may provide relief.
TRUSTEES' RECOMMENDATION
THE TRUSTEES OF THE TRUST RECOMMEND THAT SHAREHOLDERS OF THE FUND VOTE FOR
APPROVAL OF THE SUB-ADVISOR POLICY.
Approval of the Sub-advisor Policy requires the vote of a majority of the
outstanding voting securities as defined in the 1940 Act. A "majority of the
outstanding voting securities," as defined in the 1940 Act, means the lesser of
(1) 67% of the shares of the Fund represented at the Meeting, if more than 50%
of the shares of the Fund are represented at the Meeting, or (2) more than 50%
of the outstanding shares of the Fund. If the Fund does not approve this
proposal, the Sub-advisor Policy will not be adopted, and decisions regarding a
proposed sub-advisor or a material change to a sub-advisory agreement will
continue to require shareholder approval.
IV. ADDITIONAL INFORMATION
INFORMATION ABOUT THE TRUST
The Trust is an open-end management investment company organized in 1989 as
a business trust under the laws of the Commonwealth of Massachusetts. The Trust
is a series investment company with seven investment portfolios. The Fund is one
of those portfolios and is diversified. The address of the Trust is 1201 Third
Avenue, Seattle, Washington 98101.
13
INFORMATION ABOUT THE ADVISOR'S PRINCIPAL EXECUTIVE OFFICERS AND DIRECTORS
The Principal Executive Officers and Directors of the Advisor and their
principal occupations are listed below. The address for each is 1201 Third
Avenue, Seattle, WA 98101.
<Table>
<Caption>
- ---------------------------------------------------------------------------
NAME PRINCIPAL OCCUPATION
- ---------------------------------------------------------------------------
William G. Papesh Director and President of the
Advisor; WM Funds Distributor,
Inc. and WM Shareholder Services,
Inc.
- ---------------------------------------------------------------------------
Michael L. Amato Director of the Advisor, WM Funds
Distributor, Inc. and WM
Shareholder Services, Inc. and
Executive Vice President and
President, Retail Banking, of
Washington Mutual Bank, FA and
Washington Mutual Bank fsb.
- ---------------------------------------------------------------------------
Mike E. Brandeberry Director of the Advisor, WM Funds
Distributor, Inc. and WM
Shareholder Services, Inc. and
Senior Vice President of
Washington Mutual Bank, Washington
Mutual Bank, FA and Washington
Mutual Bank fsb.
- ---------------------------------------------------------------------------
Melissa R. Martinez Director of the Advisor, WM Funds
Distributor, Inc. and WM
Shareholder Services, Inc. and
Senior Vice President of
Washington Mutual Bank.
- ---------------------------------------------------------------------------
Scott Pelkola Director of the Advisor, WM Funds
Distributor, Inc. and WM
Shareholder Services, Inc. and
Senior Vice President of
Washington Mutual Bank, Washington
Mutual Bank, FA and Washington
Mutual Bank fsb.
- ---------------------------------------------------------------------------
Gary J. Pokrzywinski Director and Senior Vice President
of the Advisor; Director of WM
Funds Distributor, Inc. and WM
Shareholder Services, Inc.
- ---------------------------------------------------------------------------
</Table>
14
<Table>
<Caption>
- ---------------------------------------------------------------------------
NAME PRINCIPAL OCCUPATION
- ---------------------------------------------------------------------------
Debra C. Ramsey Director and Senior Vice President
of the Advisor, WM Funds
Distributor, Inc. and WM
Shareholder Services, Inc.
- ---------------------------------------------------------------------------
</Table>
By virtue of their positions with the Advisor and its affiliates, each of
the foregoing may have an interest in shareholder approval of the sub-advisory
agreement.
INFORMATION ABOUT THE ADVISOR
The Advisor is registered under the Advisors Act and has been in the
investment management business since 1944. The Advisor is a subsidiary of
Washington Mutual, Inc. The principal address of Washington Mutual, Inc. is 1201
Third Avenue, Seattle, Washington 98101.
THE ADVISORY AGREEMENT
The Advisor currently acts as the Fund's investment advisor pursuant to the
Advisory Agreement, which was last approved by the Fund's shareholders on
December 23, 1997. The Advisory Agreement was submitted for shareholder approval
at such time in connection with the consolidation of the investment advisory
businesses of the Advisor and Sierra Investment Advisors Corporation, the
Trust's previous investment advisor.
The Advisor's responsibilities under the Advisory Agreement include
formulating the Fund's investment policies (subject to the terms of the
prospectus), analyzing economic trends, directing and evaluating the investment
services provided by any sub-advisors and monitoring the Fund's investment
performance and reporting to the Trustees, as well as providing certain
administrative services for the Fund. In connection with its service as
investment advisor to the Fund, the Advisor may engage one or more sub-advisors
to provide investment advisory services to the Fund and may change or eliminate
any such sub-advisor if it deems such action to be in the best interests of the
Fund and its shareholders. Where the Advisor has not delegated such duties to a
sub-advisor, it is responsible for managing the investment and reinvestment of
the Fund's assets.
The Advisory Agreement provides that it will, unless sooner terminated in
accordance with the Advisory Agreement, continue in effect with respect to the
15
Fund for a period of two years from its effective date and thereafter on an
annual basis with respect to the Fund, provided such continuance is approved at
least annually by the vote of a majority of the Independent Trustees and either:
(a) by the vote of a majority of the Trustees, or (b) by the vote of a majority
of the outstanding voting securities of the Fund. The Advisory Agreement
provides that it terminates automatically in the event of its assignment (as
defined by the 1940 Act) by the Advisor. The Advisory Agreement provides that it
may be amended only in accordance with the 1940 Act.
The Advisory Agreement may be terminated at any time without the payment of
any penalty, by the Trust by vote of a majority of the Trustees, including a
majority of the Independent Trustees, or by a vote of a majority of the
outstanding voting securities of the Fund upon 60 days' written notice to the
Advisor or by the Advisor at any time, without the payment of any penalty, upon
60 days' written notice to the Trust.
The Advisory Agreement provides that the Advisor shall not be subject to
any liability arising out of any services rendered by it under the Advisory
Agreement, except by reason of willful misfeasance, bad faith, or gross
negligence in the performance of its duties, or by reason of reckless disregard
of its obligations and duties under the Advisory Agreement.
The Advisory Agreement provides that the Advisor shall pay the expenses
incurred by it in connection with its activities under the Advisory Agreement.
Under the Advisory Agreement, the Fund currently pays the Advisor a monthly
advisory fee based on the excess, if any, of (i) 0.80% of the first $500
million, 0.75% of the next $1.5 billion, 0.70% of the next $1 billion and 0.65%
thereafter, of the Fund's average daily net assets over (ii) the fees paid by
the Fund directly to its sub-advisor or sub-advisors.
Effective January 1, 2006, the Fund will pay the Advisor a monthly advisory
fee based on the excess, if any, of (i) 0.75% of the first $500 million, 0.70%
of the next $1.5 billion, 0.65% of the next $1 billion and 0.60% thereafter, of
the Fund's average daily net assets over (ii) the fees paid by the Fund directly
to its sub-advisor or sub-advisors.
FEES PAID
For the fiscal year ended December 31, 2004, the Fund paid advisory fees of
$1,152,229 to the Advisor and distribution fees of $3,367 to WM Funds
16
Distributor, Inc. (the "Distributor"). If the fees in the Current Sub-advisory
Agreement or the New Sub-advisory Agreement had been in effect during such
fiscal year, and assuming Salomon had managed Columbia Management Advisors,
Inc.'s (the sub-advisor that Salomon had replaced when the Fund's shareholders
had, earlier this year, approved the Current Sub-advisory Agreement) allocation
of the Fund's assets, the net advisory fees paid to the Advisor would have been
$1,166,693, representing an increase of 1.3% from the net advisory fees actually
paid to the Advisor.
INFORMATION ABOUT SALOMON
Salomon, located at 399 Park Avenue, New York, New York 10022, is an
indirect, wholly owned subsidiary of Citigroup. Salomon was established in 1987
and together with its affiliates in London, Tokyo and Hong Kong, provides a
broad range of fixed income and equity investment services to individuals and
institutional clients throughout the world. Citigroup businesses provide a broad
range of financial services -- asset management, banking and consumer finance,
credit and charge cards, insurance, investments, investment banking and
trading -- and use diverse channels to make them available to consumer and
corporate customers around the world. As of June 30, 2005, Salomon Brothers had
approximately $82.8 billion in assets under management.
Salomon has informed the Advisor that it has no financial condition that is
reasonably likely to impair its financial ability to fulfill its commitment to
the Fund under the New Sub-advisory Agreement.
The Principal Executive Officers and Directors of Salomon and their
principal occupations are listed below. The address for each is 399 Park Avenue,
New York, New York 10022.
<Table>
<Caption>
- -----------------------------------------------------------------------------
NAME PRINCIPAL OCCUPATION
- -----------------------------------------------------------------------------
Michael Even Director
- -----------------------------------------------------------------------------
Evan Merberg Director
- -----------------------------------------------------------------------------
Michael Fred Rosenbaum Chief Legal Officer; General
Counsel, Citigroup Asset
Management;
- -----------------------------------------------------------------------------
Jeffrey Scott Chief Compliance Officer
- -----------------------------------------------------------------------------
Peter J. Wilby Director
- -----------------------------------------------------------------------------
</Table>
17
If the New Sub-advisory Agreement is approved by shareholders, Alan Blake,
Managing Director and Senior Portfolio Manager of Salomon, will continue to
remain primarily responsible for the day-to-day management of the portion of the
Fund's portfolio managed by Salomon. Mr. Blake has more than 24 years of
securities business experience.
OTHER FUNDS ADVISED OR SUB-ADVISED BY SALOMON
Please see below for information on similar funds advised/sub-advised by
Salomon or any of its affiliates.
Salomon Brothers Large Cap Growth Fund is managed by the same team that
manages a portion of the Fund and is managed in a substantially similar manner.
There may be differences in holdings and other portfolio characteristics between
the Salomon Brothers Large Cap Growth Fund and the Fund. Salomon receives fees
in accordance with the following fee schedule: 0.70% on average daily net assets
up to and including $5 billion; 0.70% on average daily net assets over $5
billion and up to and including $7.5 billion; 0.675% on average daily net assets
over $7.5 billion and up to and including $10 billion; and 0.65% on average
daily net assets in excess of $10 billion of the Salomon Brothers Large Cap
Growth Fund. As of June 30, 2005, the approximate net assets of the Salomon
Brothers Large Cap Growth Fund were $5.5 million.
Salomon Brothers Variable Large Cap Growth Fund is managed by the same team
that manages a portion of the Fund and is managed in a substantially similar
manner. There may be differences in holdings and other portfolio characteristics
between the Salomon Brothers Variable Large Cap Growth Fund and the Fund.
Salomon receives fees in accordance with the following fee schedule: 0.70% on
average daily net assets up to and including $5 billion; 0.70% on average daily
net assets over $5 billion and up to and including $7.5 billion; 0.675% on
average daily net assets over $7.5 billion and up to and including $10 billion;
and 0.65% on average daily net assets in excess of $10 billion of the Salomon
Brothers Variable Large Cap Growth Fund. As of June 30, 2005, the approximate
net assets of the Salomon Brothers Variable Large Cap Growth Fund were $328.4
million.
Smith Barney Large Capitalization Growth Fund is managed by the same team
that manages a portion of the Fund and is managed in a substantially similar
manner. There may be differences in holdings and other portfolio characteristics
between the Smith Barney Large Capitalization Growth Fund and
18
the Fund. The Smith Barney Large Capitalization Growth Fund has a fee schedule
that reduces the investment management fee payable on assets in excess of $5
billion as follows: 0.75% on assets up to $5 billion; 0.725% on assets over $5
billion and up to and including $7.5 billion; 0.70% on assets over $7.5 billion
and up to and including $10 billion; and 0.65% on assets in excess of $10
billion. As of June 30, 2005, the approximate net assets of the Smith Barney
Large Capitalization Growth Fund were $5,189.7 million.
Smith Barney Fund Management LLC, manages the Smith Barney Large
Capitalization Growth Fund and is an affiliate of Salomon.
ING Salomon Brothers Large Cap Growth Fund is sub-advised by the same team
that manages a portion of the Fund and is sub-advised in a substantially similar
manner. There may be differences in holdings and other portfolio characteristics
between the ING Salomon Brothers Large Cap Growth Fund and the Fund. Salomon
receives fees on assets as follows: 0.35% on average daily net assets up to and
including $500 million; 0.30% on average daily net assets over $500 million and
up to and including $2 billion and 0.25% on assets in excess of $2 billion. Note
that in calculating fees for the ING Salomon Brothers Large Cap Growth Fund,
assets are aggregated with the ING Salomon Brothers Aggressive Growth Fund. The
ING Salomon Brothers Large Cap Growth Fund had approximate net assets of $63.8
million at June 30, 2005 and the ING Salomon Brothers Aggressive Growth Fund
assets as of June 30, 2005 were $941.2 million.
USAZ Salomon Brothers Large Cap Growth Fund is sub-advised by the same team
that manages a portion of the Fund and is sub-advised in a substantially similar
manner. There may be differences in holdings and other portfolio characteristics
between the USAZ Salomon Brothers Large Cap Growth Fund and the Fund. Salomon
receives fees on assets as follows: 0.45% on average daily net assets up to and
including $250 million; 0.40% on average daily net assets in excess of $250
million and up to and including $500 million and 0.35% on assets in excess of
$500 million. The USAZ Salomon Brothers Large Cap Growth Fund had approximate
net assets of $162.6 million at June 30, 2005.
BROKERAGE AND RESEARCH SERVICES
Most of the purchases and sales of securities for the Fund, whether
transacted on a securities exchange or over-the-counter, will be effected in the
primary trading market for the securities. Decisions to buy and sell securities
for
19
the Fund will be made by the Advisor, or by Salomon, each of which also is
responsible for placing these transactions, subject to the overall review of the
Trustees. Although investment decisions for the Fund will be made independently
from those of the other accounts managed by the Advisor or Salomon, investments
of the type the Fund may make may also be made by those other accounts. When the
Fund and one or more other accounts managed by the Advisor or Salomon are
prepared to invest in, or desire to dispose of, the same security, available
investments or opportunities for sales will be allocated in a manner believed by
the Advisor or Salomon to be equitable to each. In some cases, this procedure
may adversely affect the price paid or received by the Fund or the size of the
position obtained or disposed of by the Fund. In other cases, however, it is
believed that coordination and the ability to participate in volume transactions
will be to the benefit of the Fund.
There is frequently no stated commission in the case of securities traded
in the over-the-counter markets, but the prices of those securities include
undisclosed commissions or concessions, and the prices at which securities are
purchased from and sold to dealers include a dealer's mark-up or mark-down.
In selecting brokers or dealers to execute portfolio transactions on behalf
of the Fund, the Advisor or Salomon seeks to obtain execution of Fund
transactions at prices which that are advantageous to the Fund and at commission
rates that are reasonable in relation to the benefits received. However, the
Advisory Agreement authorizes the Advisor, and the New Sub-advisory Agreement
authorizes Salomon, to select brokers or dealers on the basis that they provide
brokerage, research, or other services or products (as those terms are defined
in Section 28(e) of the Securities Exchange Act of 1934, as amended) to the Fund
and/or other accounts serviced by Salomon or the Advisor. The Advisor or Salomon
may cause the Fund to pay a broker or dealer an amount of commission for
effecting a securities transaction in excess of the amount of commission or
dealer spread another broker or dealer would have charged for effecting that
transaction if the Advisor or Salomon determines in good faith that such amount
of commission was reasonable in relation to the value of the brokerage and
research products and/or services provided by such broker or dealer. This
determination, with respect to brokerage and research services or products, may
be viewed in terms of either that particular transaction or the overall
responsibilities which the Advisor, Salomon and their affiliates have with
respect to the Fund and to accounts over which they exercise investment
discretion. The Trustees have approved the Advisor's direction of Salomon to
cause the Fund to effect
20
transactions through brokers who provide research services and products to the
Advisor. The fees under the Advisory Agreement and the New Sub-advisory
Agreement are not reduced by reason of their receiving brokerage and research
services.
Consistent with applicable provisions of the 1940 Act, the rules and
exemptions adopted by the Securities and Exchange Commission (the "SEC")
thereunder, and relevant interpretive and "no-action" positions taken by the
SEC's staff, the Trustees have adopted procedures pursuant to Rule 17e-1 under
the 1940 Act to ensure that all portfolio transactions with affiliates will be
fair and reasonable. Under the procedures adopted, portfolio transactions for
the Fund may be executed through any affiliated broker (other than affiliated
persons of the Trust solely because the broker is an affiliated person of
another sub-advisor, who are generally not treated as affiliated brokers) if,
subject to other conditions in the Rule 17e-1 procedures, in the judgment of the
Advisor or the applicable sub-advisor, the use of an affiliated broker is likely
to result in price and execution at least as favorable as those of other
qualified broker-dealers, and if, in the transaction an affiliated broker
charges the Fund a rate consistent with those charged for comparable
transactions in comparable accounts of the broker's most favored unaffiliated
clients.
Over-the-counter purchases and sales are transacted directly with principal
market makers except in those cases in which better prices and executions may be
obtained elsewhere.
BROKERAGE TRANSACTIONS WITH AFFILIATES
During the fiscal year ended December 31, 2004, the Fund did not pay any
brokerage commissions to any broker then affiliated with the Advisor or any sub-
advisor to the Fund.
CURRENT SUB-ADVISORY AGREEMENTS
Janus, Salomon and Oppenheimer currently act as sub-advisors to the Fund
pursuant to sub-advisory agreements among the Advisor, the relevant sub-advisor
and the Fund. The current sub-advisory agreement with respect to Janus was
submitted for shareholder approval on March 20, 1998 in connection with the
consolidation of the investment advisory businesses of the Advisor and Sierra
Investment Advisors Corporation, the Trust's previous investment advisor. The
current sub-advisory agreement with respect to Oppenheimer was submitted for
21
shareholder approval on February 1, 2002. The Trustees last approved the Janus
sub-advisory agreement at a meeting held on November 9, 2004 and the Oppenheimer
advisory agreement at a meeting held on May 13, 2004, and approved the Current
Sub-advisory Agreement at a meeting held on November 9, 2004. The aggregate fee
paid to Janus was $235,153 and the aggregate fee paid to Oppenheimer was
$457,882, each for the fiscal year ended December 31, 2004.
OWNERSHIP OF SHARES AND VOTING INFORMATION
As of the Record Date, to the knowledge of the Trust, the Trustees and
officers of the Trust, as a group, owned less than one percent of each class of
shares of the Fund and of the Fund as a whole.
As of the Record Date, except as noted below, no persons owned of record or
beneficially 5% or more of the noted class of shares of the Fund:
<Table>
<Caption>
SHARES PERCENTAGE OF
BENEFICIALLY SHARES
OWNED OWNED
------------ -------------
CLASS 1
WM VT Balanced Portfolio.......... 6,430,263 37%
1201 Third Avenue
Seattle, WA 98101
WM VT Conservative Growth
Portfolio...................... 4,515,724 25%
1201 Third Avenue
Seattle, WA 98101
WM VT Strategic Growth
Portfolio...................... 2,312,843 13%
1201 Third Avenue
Seattle, WA 98101
American General Life Insurance
Co............................. 3,037,730 17%
P.O. Box 1591
Houston, TX 77251-1591
WM VT Flexible Income Portfolio... 913,775 5%
1201 Third Avenue
Seattle, WA 98101
</Table>
22
<Table>
<Caption>
SHARES PERCENTAGE OF
BENEFICIALLY SHARES
OWNED OWNED
------------ -------------
CLASS 2
Anchor National Life Insurance
Co............................. 85,308 90%
P.O. Box 54299
Los Angeles, CA 90054-0299
First SunAmerica Life Insurance
Co............................. 5,190 6%
P.O. Box 54299
Los Angeles, CA 90054-0299
</Table>
CERTAIN TRUSTEES AND OFFICERS OF THE TRUST
The following persons are both officers or Trustees of the Trust and
officers or directors of the Advisor: William G. Papesh, Director and President
of the Advisor, is the President and Chief Executive Officer of the Trust; Gary
J. Pokrzywinski, Director and Senior Vice President of the Advisor, is Senior
Vice President of the Trust; Debra C. Ramsey, Director and Senior Vice President
of the Advisor, is Senior Vice President of the Trust; Randall L. Yoakum, Senior
Vice President of the Advisor, is Senior Vice President of the Trust; Jeffrey L.
Lunzer, First Vice President of the Advisor, is First Vice President, Chief
Financial Officer and Treasurer of the Trust; John T. West, First Vice President
of the Advisor, is First Vice President, Chief Compliance Officer, Secretary and
Anti-Money Laundering Compliance Officer of the Trust; and Wendi B. Bernard,
Assistant Vice President of the Advisor, is Assistant Vice President and
Assistant Secretary of the Trust.
No persons act as both officers or Trustees of the Trust and officers or
directors of Salomon.
TRANSFER AGENT, ADMINISTRATOR AND PRINCIPAL UNDERWRITER
The Fund's transfer agent and administrator is WM Shareholder Services,
Inc., and the Fund's principal underwriter is WM Funds Distributor, Inc., both
of which have a principal business address of 1201 Third Avenue, Seattle,
Washington 98101.
23
V. OTHER MATTERS
In the event that a quorum is not present for purposes of acting on the
Proposals or if sufficient votes in favor of the Proposals are not received by
the time of the Meeting, the persons named as proxies may propose one or more
adjournments of the Meeting to permit further solicitation of proxies. Any such
adjournment will require the affirmative vote of a plurality of the shares
present in person or represented by proxy at the session of the Meeting to be
adjourned. The persons named as proxies will vote in favor of such adjournment
those proxies which they are entitled to vote in favor of the Proposals. They
will vote against any such adjournment those proxies required to be voted
against the Proposals and will not vote any proxies that direct them to abstain
from voting on the Proposals.
Although the Meeting is called to transact any other business that may
properly come before it, the only business that management intends to present or
knows that others will present is contained in the Proposals, as mentioned in
the Notice of Special Meeting. However, you are being asked on the enclosed
proxy to authorize the persons named therein to vote in accordance with their
judgment with respect to any additional matters which properly come before the
Meeting, and on all matters incidental to the conduct of the Meeting.
IV. SHAREHOLDER PROPOSALS AT FUTURE MEETINGS
The Trust does not hold annual or other regular meetings of shareholders.
Shareholder proposals to be presented at any future meeting of shareholders of
the Trust must be received by the Trust at a reasonable time before the Trust's
solicitation of proxies for that meeting in order for such proposals to be
considered for inclusion in the proxy materials relating to that meeting.
October 3, 2005
24
YOUR VOTE IS IMPORTANT!
UNLESS VOTING BY TELEPHONE OR INTERNET,
PLEASE SIGN, DATE AND MAIL THIS PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.
YOUR PROXY VOTE IS IMPORTANT!
AND NOW YOU CAN VOTE YOUR PROXY ON THE
PHONE OR THE INTERNET.
IT SAVES MONEY! TELEPHONE AND INTERNET
VOTING SAVES POSTAGE COSTS. SAVINGS
WHICH CAN HELP MINIMIZE EXPENSES.
IT SAVES TIME! TELEPHONE AND INTERNET
VOTING IS INSTANTANEOUS - 24 HOURS A
DAY.
IT'S EASY! JUST FOLLOW THESE SIMPLE
STEPS:
1. READ YOUR PROXY STATEMENT AND HAVE IT
AT HAND.
2. CALL TOLL-FREE 1-866-235-4258 OR GO
TO WEBSITE: VOTE.PROXY-DIRECT.COM.
3. FOLLOW THE RECORDED OR ON-SCREEN
DIRECTIONS.
4. DO NOT MAIL YOUR PROXY CARD WHEN YOU
VOTE BY PHONE OR INTERNET.
Please detach at perforation before mailing.
VOTING INSTRUCTION CARD WM GROUP OF FUNDS VOTING INSTRUCTION CARD
GROWTH FUND
WM VARIABLE TRUST
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS ON OCTOBER 27, 2005
[INSURANCE COMPANY NAME DROP IN]
The undersigned revoking all voting instructions heretofore given with respect
to shares to be voted at the Special Meeting of Shareholders of the referenced
Funds to be held on October 27, 2005 at 10:30 a.m., Pacific time, at the main
office of the Fund at 1201 Third Avenue, Seattle, Washington 98101, hereby
instructs all shares deemed attributable to the undersigned's contract or policy
with the issuing insurance company named above be voted as indicated on the
Voting Instruction Card at the Special Meeting and at any adjournment or
postponement thereof. The issuing insurance company named above and any proxies
appointed by it are authorized in their discretion to transact such other
business as may properly come before the Special Meeting or any adjournment
thereof.
VOTE VIA THE INTERNET:
HTTPS://VOTE.PROXY-DIRECT.COM VOTE VIA
THE TELEPHONE: 1-866-235-4258
----------------------------------------
999 9999 9999 999
----------------------------------------
SIGNATURE(S) NOTE: Please sign exactly
as your name appears on this proxy card.
All joint owners should sign. When
signing as executor, administrator,
attorney, trustee or guardian or as
custodian for a minor, please give full
title as such. If a corporation, please
sign in full corporate name and indicate
the signer's office. If a partner, sign
in the partnership name.
----------------------------------------
Signature(s) (Title(s), if applicable)
----------------------------------------
Date VTG_15714
PLEASE VOTE, SIGN AND DATE THIS PROXY AND RETURN IT
PROMPTLY IN THE ENCLOSED ENVELOPE.
YOUR VOTE IS IMPORTANT!
UNLESS VOTING BY TELEPHONE OR INTERNET,
PLEASE SIGN, DATE AND MAIL THIS PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.
Please detach at perforation before mailing.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR THE PROPOSALS.
In their discretion, the proxies are authorized to vote upon such other matters
that may properly come before the Meeting or any adjournment(s) thereof. The
Trustees recommend a vote FOR the Proposals.
TO VOTE, MARK A BLOCK BELOW IN BLUE OR BLACK INK. EXAMPLE: [X]
FOR AGAINST ABSTAIN
1. To approve or disapprove new sub-advisory [ ] [ ] [ ]
agreement relating for the Fund among the
Fund, WM Advisors, Inc (the "Advisor").and
Salomon Brothers Asset Management Inc;
2. To approve a policy allowing the Board of [ ] [ ] [ ]
Trustees and the Advisor to appoint
sub-advisors and to approve amendments to
sub-advisory agreements without shareholder
approval;
3. To consider and act upon any other matters [ ] [ ] [ ]
that may properly come before the meeting or
any adjournment thereof.
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED ON REVERSE SIDE.