UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-07577
WM Strategic Asset Management Portfolios, LLC
(Exact name of registrant as specified in charter)
1201 Third Avenue, 22nd Floor, Seattle, WA 98101
(Address of principal executive offices) (Zip code)
Jeffrey L. Lunzer
1201 Third Avenue, 22nd Floor, Seattle, WA 98101
(Name and address of agent for service)
Registrant's telephone number, including area code: (206) 461-3800
Date of fiscal year end: October 31, 2005
Date of reporting period: October 31, 2005
ITEM 1. REPORTS TO STOCKHOLDERS
(WM GROUP OF FUNDS LOGO)
WM STRATEGIC ASSET MANAGEMENT PORTFOLIOS
(GRAPHIC)
ANNUAL REPORT
October 31, 2005
WM STRATEGIC ASSET MANAGEMENT PORTFOLIOS
At the WM Group of Funds, our passion is piecing individual investments together
into comprehensive portfolios to make your financial plan more effective.
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Table of Contents
1 Letter from the President
2 Economy & Financial Markets:
Review & Outlook
4 Asset Allocation:
A Key to Successful Investing
6 Our SAM Process and Asset Allocation Team
WM SAM Portfolio Performance and Investment Strategy:
8 Flexible Income Portfolio
10 Conservative Balanced Portfolio
12 Balanced Portfolio
14 Conservative Growth Portfolio
16 Strategic Growth Portfolio
18 Glossary
19 Expense Information
21 Financial Statements
36 Notes to Financial Statements
41 Report of Independent Registered Public Accounting Firm
42 Supplemental Information
NEW LOWER MANAGEMENT FEE SCHEDULE APPROVED FOR THE WM SAM PORTFOLIOS
The WM Group of Funds Board of Trustees approved a new management fee schedule
for the WM SAM Portfolios on November 9, 2005, retroactive to November 1, 2005.
This very significant reduction averages approximately 30 basis points, or about
half of our existing management fee based on fiscal year-end asset levels.
The WM SAM Portfolios have been innovators since they were launched nearly 10
years ago, and we believe that our active asset allocation process continues to
set the quality standard within the mutual fund industry. As asset allocation
products have proliferated in recent years, however, it has become increasingly
clear that reducing our fees will help ensure we remain a leader.
We believe that the WM SAM Portfolios have always delivered excellent value to
our shareholders through a rigorous, disciplined, and highly successful
process. We are truly excited to now make the WM SAM Portfolios an even better
value for you. Please visit our Web site at wmgroupoffunds.com for a complete
fee schedule.
NOT FDIC INSURED
MAY LOSE VALUE - NOT A DEPOSIT - NO BANK GUARANTEE
NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY
Dear Shareholder,
(PHOTO OF WILLIAM G. PAPESH)
During the past fiscal year, our nation and the world endured much
uncertainty--and unfortunately, much tragedy. From the Asian tsunami and
Hurricane Katrina to the recent deadly earthquake in Pakistan and the threat of
the avian flu virus, Mother Nature has once again proven that her fury can rise
at any time, and with deadly effect. Meanwhile, the ongoing wars in Iraq and
Afghanistan offer us a sobering reminder of the sacrifices made by our men and
women in uniform. Still, our nation and financial markets remain
strong--testaments to the American character, and to the character of folks like
you.
Despite recent adversities, both the equity and fixed-income markets provided
positive returns for the fiscal year ended October 31, 2005, with the S&P 500
rising 8.72% and the Lehman Brothers Aggregate Bond Index adding 1.14%.(1) We
are proud to note that against this backdrop, the WM Group of Funds continues to
grow. Over the last five years, our assets under management have increased by
122%, while industry assets have increased by 18%.(2) During this same period,
the stock market (as measured by the S&P 500) declined 8.39%.
THE VALUE OF STAYING ACTIVE
In today's uncertain markets, some investors may try to limit their risk by
taking a passive investment approach--that is, building a portfolio based on
funds that track the performance of various indices. While passive investing may
be beneficial in some cases, we continue to believe strongly in the value of
active management in our WM Strategic Asset Management (SAM) Portfolios. In our
view, the power of active security selection can never be replaced by indexing,
pure and simple. Our SAM Portfolios also utilize tactical reallocation, rather
than quarterly rebalancing, because to us, reallocating based on changing market
conditions makes more sense than rebalancing to static allocation targets. We
believe active investing also offers several other potential advantages, such as
superior risk management and more flexible portfolio construction. At the end of
the day, we firmly believe that the combined talents of our portfolio managers
and analysts--along with our disciplined investment philosophy and
processes--can add value to an investor's portfolio.
A PROUD HERITAGE
At the WM Group of Funds, we continue to take pride in our firm's core values of
honesty, trust, and integrity. We're proud that for 66 years, we've served our
shareholders with the principles that we believe have made the WM Group of Funds
as successful as it is today. Now more than ever, we remain committed to
bringing you the utmost in value and quality of service. And as always, we thank
you for your support.
Sincerely,
/s/ William G. Papesh
- -------------------------------------
William G. Papesh
President
(1) The S&P 500 is a broad-based index intended to represent the U.S. equity
market. The Lehman Brothers Aggregate Bond Index is a broad-based index
intended to represent the U.S. fixed-income market. Indices are unmanaged,
and individuals cannot invest directly in an index.
(2) Source: WM Group of Funds, ICI, and Ibbotson Associates. Figures are for
the five-year period ended 10/31/05 and reflect both net shareholder
purchases and fund performance. They are based on long-term assets only and
do not include money market funds.
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Economy & Financial Markets: Review & Outlook
ECONOMIC EXPANSION CONTINUES
The U.S. economy remained relatively strong during our 2005 fiscal year--the
twelve months between November 1, 2004, and October 31, 2005--as low interest
rates and improving corporate profits helped maintain positive economic
momentum. Real estate activity, including construction and home sales, was
especially robust with low mortgage and refinancing rates continuing to spur
demand.
Consumer confidence was relatively stable for much of the fiscal year, but it
plummeted late in the period due to the combined shocks of Hurricane Katrina,
soaring oil prices, and a weakening labor market. Consumer spending fell in
tandem as low approval ratings for the Bush administration and the ongoing wars
in Iraq and Afghanistan took their toll on the American psyche. Still, consumer
spending generally improved during the fiscal year, adding fuel to the growing
economy. As the economic expansion continued and oil prices rose sharply,
consumer prices (as measured by the Consumer Price Index) crept up, gaining
4.32% on a year-over-year basis.
In an effort to contain inflation, the Federal Reserve (the Fed) raised the
federal funds target rate to 3.75% during the period, an increase of two full
percentage points from the close of fiscal 2004. Against this backdrop,
short-term interest rates rose dramatically, while long-term rates rose more
modestly. As a result, the yield curve (the difference in yields between 2- and
10-year Treasury issues) flattened substantially--often an indication that
economic activity may slow in the nearto mid-term.
BONDS GAIN SLIGHTLY
Within this environment, the bond market (as measured by the Lehman Brothers
Aggregate Bond Index) gained slightly, rising 1.14% for the fiscal period.*
Yields on 10-year Treasury notes hovered within a tight range, rising from 4.07%
following the re-election of President Bush in November 2004 to close the period
at 4.56%. Generally, Treasuries outperformed investment-grade corporate issues,
though both sectors returned less than 1% for the period. High-yield issues did
much better, gaining 4.08% (as measured by the Lehman Brothers High Yield
Index).* Despite the increase in short-term rates, many investors
This economic and financial market analysis represents the opinions of WM
Advisors. It should not be considered as investment advice.
No forecast based on the opinions expressed can be guaranteed, and they may be
subject to change without notice.
* Indices are unmanaged, and individuals cannot invest directly in an index.
MAJOR MARKET EVENTS GRAPH
Source: Bloomberg L.P. (S&P 500 data).
2
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were willing to take on additional credit risk given the strength of corporate
balance sheets and the general economic recovery.
STOCKS RISE DESPITE FED TIGHTENING, OIL PRICES
In spite of the twin headwinds of rising shortterm interest rates and high
energy costs, stocks gained nicely for the fiscal year, with the S&P 500 rising
8.72%.* In the two months following the presidential election, stocks added more
than 7% on optimism that Republican-backed tax cuts and generous government
spending would continue to spark the economy. By mid-2005, however, the S&P 500
had lost approximately half of that advance before rebounding late in the year
(see chart below). Within S&P 500 sectors, energy and utilities were the clear
winners, advancing 33.72% and 23.86%, respectively, on the back of high oil and
natural gas prices. Lagging sectors included telecommunication services (-0.46%)
and consumer discretionaries (-1.07%).
INVESTMENT OUTLOOK
Looking forward, we anticipate moderate, weaker-than-consensus economic growth
and subdued, lower-than-consensus inflation over the next fiscal year. The
housing market appears set for a slowdown, and consumer spending may be
adversely affected by higher rates for home equity loans. We believe that
long-term interest rates will fall to the 3%-4% range, while the Fed will likely
stop its monetary tightening campaign relatively early in 2006. In this
scenario, we would expect mortgage-backed securities to offer a better relative
value than corporate bonds, and that high-yield issues will continue to
outperform. Equities appear fairly valued, with international stocks more
attractive than U.S. holdings. We expect large-cap equities to outperform
smallcap equities and growth to outperform value.
Importantly, we anticipate an alignment between cyclical (short-term) and
secular (long-term) economic trends over the coming fiscal year. On the cyclical
side, we believe that Fed policy will put pressure on consumer and business
confidence, as will ongoing high energy prices. On the secular side, we believe
that the aging of U.S., European, and Japanese populations will continue to
temper global demand, while excess supply will limit pricing power. While we
expect that these forces will combine to produce slower economic growth, we
believe that the likely halt in Fed tightening will ultimately offer investors
reasonably strong buying opportunities, particularly in the equity space.
MAJOR MARKET EVENTS GRAPH
3
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Asset Allocation: A Key to Successful Investing
Asset allocation is widely recognized as being a critical element in the
financial planning process. Investment representatives generally use asset
allocation to help cushion client portfolios from market volatility and reduce
overall risk levels. Studies have also shown that historically, asset allocation
has been responsible for more than 90% of the variability of a portfolio's
return.* In other words, the asset class you choose--for example, stocks,
bonds, or cash--can be more important than the individual securities you select.
WHAT IS ASSET ALLOCATION?
When many people hear the term "asset allocation," they think of an efficient
frontier diagram and the work of a pioneering economist, Harry Markowitz. As a
25-year-old student at the University of Chicago in the early 1950s, Markowitz
needed a thesis topic. In a chance meeting, a stock broker suggested that he
investigate the stock market. Conventional wisdom at that time suggested that
investors should select stocks with the highest expected return without taking
risk into account.
Markowitz recognized that this approach neglected a key part of the investment
equation. The concept of risk was identified as early as 1654 in the work of
French mathematician Blaise Pascal, who worked on a system to determine
probabilities related to gambling. The concept of risk probability was then
studied by British astronomer Edmund Halley, who in 1690 applied it to mortality
tables. Halley's work was later used to help sell annuities and insure sailing
vessels and their cargoes, which eventually led to the founding of Lloyd's of
London.
But it was Markowitz who first rigorously applied the concept of risk to stock
portfolios in his 1952 essay "Portfolio Selection." His research found that
diversification is measurably beneficial, and that pairing risky and less risky
assets can actually lower portfolio volatility while simultaneously enhancing
potential returns. Markowitz's early work laid the foundation for more
sophisticated statistical concepts such as mean variance optimization, which
became integral to modern portfolio theory.
THE ALLOCATION PROCESS
While the term "asset allocation" is widely used to describe an investment
strategy, we believe it is actually a process. Most investment representatives
today use asset allocation as part of an overall approach that involves
identifying
A HISTORICAL PERSPECTIVE ON ASSET ALLOCATION GRAPH
4
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a client's current investments, risk tolerance, portfolio construction, and
asset selection, as well as measuring performance.
IN PRACTICE, ASSET ALLOCATION IS OFTEN A MULTISTEP PROCESS:
- - Classifying an investor's current investments into their respective asset
classes.
- - Creating forecasts for each asset class and building a set of model
portfolios arranged along a spectrum of risk, often from conservative to
aggressive.
- - Determining important specific information about the client including their
risk tolerance, time horizon, and tax situation.
- - Recommending the actual asset class allocation to the client, primarily
based on their risk tolerance.
LOOKING AHEAD
The most time-consuming and analytical element of this process centers on asset
allocation modeling. This process involves analyzing hundreds of variables, such
as long- and short-term economic forecasts; expected returns for different
equity styles, sectors, and capitalizations; standard deviations; as well as
bond ratings and maturity structures. Each portfolio combination is then tested
for risk and return characteristics. But that is not the end of the process.
These multi-asset portfolios are then monitored and adjusted in response to
market conditions. Some asset allocation programs make adjustments at specific
intervals (monthly or quarterly) back to a predetermined static allocation. At
WM Advisors, we reevaluate asset allocations and reallocate assets daily using a
forward-looking process based on a longer-term allocation target. WM uses this
strategy to construct and monitor its Strategic Asset Management (SAM)
Portfolios for investors on a daily basis.
Yet even as this new work continues, one thing remains clear: asset allocation
will continue to be the foundation for many successful investment portfolios.
Note: Asset allocation does not guarantee a profit or protect against a loss.
* Gary P. Brinson, Brian D. Singer, and Gilbert L. Beebower, "Determinants of
Portfolio Performance II: An Update," Financial Analysts Journal, May/June,
1991. See also Gary P. Brinson, L. Randolph Hood, and Gilbert L. Beebower,
"Determinants of Portfolio Performance," Financial Analysts Journal,
July/August, 1986.
A HISTORICAL PERSPECTIVE ON ASSET ALLOCATION GRAPH
5
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Our SAM Process and Asset Allocation Team
OUR 3-STEP PROCESS FOR ACTIVE ASSET ALLOCATION
THE WM STRATEGIC ASSET MANAGEMENT (SAM) PORTFOLIOS ARE FUND-OF-FUNDS
INVESTMENTS--MUTUAL FUNDS THAT INVEST IN OTHER MUTUAL FUNDS WITHIN THE WM GROUP
OF FUNDS FAMILY. THE PORTFOLIOS ARE CONSTRUCTED AND MANAGED ACCORDING TO A
HIGHLY DISCIPLINED AND DYNAMIC PROCESS:
Step 1:
SETTING LONG-TERM ASSET ALLOCATION TARGETS FOR EACH PORTFOLIO.
Extensive research into risk and asset classes forms the basis for strategic
decisions about each Portfolio's long-term asset allocation policies. This
research involves analyzing historical and projected risk, return, and
correlation between asset classes. The results help position the Portfolios to
maximize the potential for returns at their assigned risk level.
WM ADVISORS
Asset Allocation Team
(PHOTO OF RANDALL L. YOAKUM, CFA)
Chief Investment Strategist and
Senior Co-Portfolio Manager of the SAM Portfolios
Randy currently serves as chairman of the Asset Allocation Team and works
closely with Mike Meighan and Gary Pokrzywinski to establish economic strategy.
He was instrumental in developing the investment policies at WM Advisors from
1987 to 1994, as well as after rejoining the company in 1999. His investment
management experience dates back to 1984. He holds the Chartered Financial
Analyst designation and has a B.B.A. from Pacific Lutheran University and an
M.B.A. from Arizona State University.
(PHOTO OF MICHAEL D. MEIGHAN, CFA)
Co-Portfolio Manager of the SAM Portfolios
Mike oversees the Team analysts and works collaboratively with Randy and Gary to
develop the asset allocation and investment outlook for the Portfolios as well
as to formulate economic strategy. Mike has been instrumental in developing the
current investment policies for the Portfolios since joining WM Advisors in
1999. His investment management experience dates back to 1993. He holds the
Chartered Financial Analyst designation and has a B.S. from Santa Clara
University and an M.B.A. from Gonzaga University.
(PHOTO OF GARY J. POKRZYWINSKI, CFA)
Head of Investments and Senior Portfolio Manager
Gary helps develop the outlook and policy for the fixed-income assets within the
Portfolios. He is also instrumental in developing economic strategy with Randy
and Mike. Gary joined WM Advisors in 1992 and currently manages the WM High
Yield Fund and co-manages the WM Income Fund. He holds the Chartered Financial
Analyst designation and has a B.B.A. from the University of Wisconsin.
6
(GRAPHIC)
Step 2:
DEVELOPING A NEAR-TERM INVESTMENT OUTLOOK THAT DETERMINES HOW MUCH RISK EACH
PORTFOLIO SHOULD TAKE.
Research into dozens of global and domestic market forces shapes the Asset
Allocation Team's outlook for the economy and capital markets. This view of
investment conditions determines the Team's tactical decisions about each
Portfolio's exact equity and fixed-income allocations. Here are just some of the
criteria tracked for this step:
Federal Reserve monetary policy
Consumer debt
Corporate profits
Elections
Employment trends
Consumer spending
Currency flows
Commodity prices
Yield spreads
Stock market volume
Capital goods expenditures
Historical asset class returns
Cyclical and secular economic trends
Volatility analysis
Consumer confidence
Government budget deficits
Tax policy
Demographic trends
Mortgage demand
Business spending
Inflationary pressures
Housing trends
GDP growth
Historical financial market returns
Inventories
Investor psychology
Technology trends
Risk/return characteristics
Stock valuations
State and federal fiscal policy
Trade pacts
Interest rate changes
Business confidence
Geopolitical risks
Wage and payroll trends
Investment flows
Import prices
Factory capacity utilization
Market capitalization relative values
Productivity growth
Asset class correlations
Business activity
Performance attribution by allocation and sector
Step 3:
CONSTRUCTING EACH PORTFOLIO'S SPECIFIC MIX OF ASSET CLASSES.
The Team refines its tactical decisions by examining hundreds of possible
Portfolio compositions. Combinations of equity styles, sectors, and
capitalizations, as well as bond ratings and maturity structures, are analyzed
before each Portfolio is built.
CONTINUOUS ACTIVE MANAGEMENT
Once the Portfolios are constructed, the Team continually monitors and
reallocates them to take advantage of changing investment conditions--unlike
many funds of funds that are only periodically rebalanced to static models. We
also repeatedly test the Portfolios' structure by assessing how fund allocations
and holdings affect performance. This dynamic process works toward optimizing
the Portfolios for building long-term investment value.
(PHOTO OF CHARLES D. AVERILL, CFA)
Senior Quantitative Analyst
Charlie is dedicated to the Asset Allocation Team as a Senior Quantitative
Analyst. His responsibilities include the ongoing analysis of both the current
and potential fund holdings, as well as the structural model underlying the
asset allocation process. To help examine the performance of the SAM Portfolios'
holdings, he also develops performance attribution procedures. Charlie holds the
Chartered Financial Analyst designation and has been with WM Advisors since
1990. Before joining the firm, he taught economics at Gonzaga University and
worked as a newspaper editor. He holds a B.A. in Economics from Reed College and
an M.A. in Economics from Princeton University.
(PHOTO OF NICOLE VERBRUGGHE, CFA)
Quantitative Analyst
Nicole works with the Asset Allocation Team as a Quantitative Analyst. She
gathers and analyzes economic data in order to track indicators that
specifically affect the SAM Portfolios. She continually reviews holdings and
performance characteristics of the underlying funds and assesses how the
weighting of each fund influences the Portfolios' investment policies and goals.
Nicole joined WM Advisors in 2001 and holds the Chartered Financial Analyst
designation. Before joining the Asset Allocation Team, Nicole worked for 12
years in financial accounting and analysis. She holds a B.A. in Mathematics from
Whitman College.
(PHOTO OF BRAD N. STEWART)
Quantitative Analyst
As a Quantitative Analyst with the Asset Allocation Team, Brad is responsible
for gathering and analyzing economic data. He focuses on tracking indicators
that specifically affect the SAM Portfolios. Brad joined WM Advisors in 2005 and
began his investment management career in 2002. He is a Level III Candidate for
the Chartered Financial Analyst designation. He holds a B.B.A. in Finance from
the University of Portland.
7
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Flexible Income Portfolio
ANNUAL TOTAL RETURNS(1)
Class a Shares At Net Asset Value(2)
(Calendar Year)
2004 5.73%
2003 12.08%
2002 1.03%
2001 4.33%
2000 5.10%
1999 8.64%
1998 9.24%
1997 10.25%
INVESTMENT STRATEGY
As of October 31, 2005, the WM Strategic Asset Management (SAM) Flexible Income
Portfolio was diversified among 12 funds representing 13 major asset classes.
The Portfolio held a 26%/74% equity-to-fixed income ratio during most of the
fiscal year.
Among all underlying WM fixed-income funds, the WM High Yield Fund made the
greatest overall contribution to Portfolio performance for the period. The
Fund's holdings in domestic corporate bonds and real estate investment trusts
(REITs) were the primary drivers of performance. The Portfolio also gained from
the contribution of the WM U.S. Government Securities Fund, which advanced
primarily due to its holdings in mortgage agency bonds, while its allocation to
U.S. Treasuries lagged on a relative basis.
On the equity side, the Portfolio benefited primarily from the WM Equity Income
Fund. The Fund's holdings in the energy, financial, and health care sectors were
particularly helpful. On the downside, the Fund's holdings
Data shown is past performance and does not guarantee future results. Current
performance, including the most recent month-end results, which may be higher or
lower than the data shown, can be obtained by calling 800-222-5852. Your
investment's return and principal value will fluctuate, so it may be worth more
or less upon redemption. A sales charge may apply as follows: Class A shares:
maximum up-front sales charge of 4.5%; Class B shares: contingent deferred sales
charge of 5%, which declines over 5 years (5-5-4-3-2-0%); Class C shares:
contingent deferred sales charge of 1% on redemptions made during the first 12
months. See the prospectus for details. Performance listed with sales charge
reflects the maximum sales charge noted above.
Equity investments involve greater risk, including heightened volatility, than
fixed-income investments. Fixed-income investments are subject to interest rate
risk, and their value will decline as interest rates rise.
AVERAGE ANNUAL TOTAL RETURNS(1) AS OF OCTOBER 31, 2005
1-Year 5-Year Since Inception Inception Date
------ ------ --------------- --------------
CLASS A SHARES Net Asset Value(2) 2.79% 4.72% 6.85% 7/25/96
With Sales Charge -1.83% 3.76% 6.32%
CLASS B SHARES Net Asset Value(2) 1.99% 3.92% 6.17% 7/25/96
With Sales Charge -3.01% 3.58% 6.17%
CLASS C SHARES Net Asset Value(2) 2.06% -- 4.39% 3/1/02
With Sales Charge 1.06% -- 4.39%
Lehman Brothers Aggregate Bond Index(3) 1.14% 6.32% 6.63%
S&P 500(3) 8.72% -1.74% 8.80%
Capital Market Benchmark(3) 2.69% 4.90% 7.30%
VALUE OF A $10,000 INVESTMENT(1) JULY 25, 1996 - OCTOBER 31, 2005
AS OF 10/31/05
$21,825 Total Value
$19,190 Total Value
$18,488 Total Value
$18,111 Total Value
$17,656 Total Value
(PERFORMANCE GRAPH)
Class A shares Lehman Brothers
Class A shares at with maximum Aggregate Bond Capital Market
Date net asset value(2) sales charge Index(3) S&P 500(3) Benchmark(3)
- ------ ------------------ -------------- --------------- ---------- --------------
Jul-96 10,018 9,567 10,000 10,000 10,000
Aug-96 10,046 9,594 9,983 10,212 10,029
Sep-96 10,266 9,804 10,157 10,786 10,282
Oct-96 10,446 9,976 10,382 11,081 10,520
Nov-96 10,748 10,264 10,560 11,923 10,824
Dec-96 10,690 10,209 10,462 11,689 10,701
Jan-97 10,836 10,348 10,494 12,415 10,860
Feb-97 10,866 10,377 10,520 12,515 10,899
Mar-97 10,711 10,229 10,403 11,995 10,712
Apr-97 10,857 10,369 10,559 12,711 10,968
May-97 11,035 10,539 10,660 13,491 11,186
Jun-97 11,161 10,659 10,787 14,093 11,392
Jul-97 11,529 11,011 11,078 15,212 11,819
Aug-97 11,399 10,886 10,984 14,366 11,608
Sep-97 11,598 11,076 11,146 15,153 11,872
Oct-97 11,606 11,083 11,308 14,647 11,931
Nov-97 11,667 11,142 11,360 15,325 12,084
Dec-97 11,790 11,259 11,475 15,589 12,223
Jan-98 11,896 11,360 11,622 15,762 12,376
Feb-98 12,067 11,524 11,612 16,898 12,547
Mar-98 12,211 11,661 11,652 17,764 12,710
Apr-98 12,272 11,719 11,712 17,943 12,789
May-98 12,266 11,714 11,824 17,634 12,843
Jun-98 12,397 11,839 11,924 18,350 13,034
Jul-98 12,322 11,768 11,949 18,156 13,027
Aug-98 11,853 11,320 12,144 15,531 12,820
Sep-98 12,169 11,622 12,428 16,526 13,224
Oct-98 12,365 11,809 12,362 17,870 13,383
Nov-98 12,635 12,066 12,433 18,953 13,606
Dec-98 12,891 12,311 12,470 20,044 13,795
Jan-99 13,136 12,545 12,558 20,882 13,989
Feb-99 12,948 12,366 12,339 20,233 13,706
Mar-99 13,169 12,576 12,407 21,042 13,876
Apr-99 13,439 12,834 12,446 21,856 14,019
May-99 13,331 12,731 12,337 21,340 13,854
Jun-99 13,470 12,864 12,297 22,525 13,971
Jul-99 13,359 12,758 12,246 21,822 13,837
Aug-99 13,280 12,683 12,239 21,713 13,818
Sep-99 13,335 12,735 12,381 21,118 13,870
Oct-99 13,527 12,918 12,427 22,455 14,087
Nov-99 13,708 13,091 12,426 22,911 14,143
Dec-99 13,992 13,362 12,366 24,260 14,255
Jan-00 13,834 13,211 12,326 23,042 14,074
Feb-00 13,985 13,355 12,475 22,607 14,157
Mar-00 14,343 13,697 12,639 24,818 14,583
Apr-00 14,214 13,574 12,603 24,071 14,462
May-00 14,134 13,498 12,596 23,577 14,397
Jun-00 14,367 13,721 12,858 24,157 14,708
Jul-00 14,382 13,734 12,975 23,780 14,769
Aug-00 14,780 14,115 13,164 25,257 15,124
Sep-00 14,699 14,037 13,246 23,923 15,041
Oct-00 14,685 14,025 13,334 23,823 15,107
Nov-00 14,436 13,786 13,553 21,946 15,068
Dec-00 14,706 14,044 13,805 22,053 15,307
Jan-01 15,226 14,541 14,030 22,836 15,615
Feb-01 14,978 14,304 14,152 20,754 15,438
Mar-01 14,758 14,094 14,223 19,440 15,304
Apr-01 14,951 14,278 14,163 20,950 15,491
May-01 15,077 14,398 14,248 21,091 15,585
Jun-01 15,102 14,423 14,302 20,578 15,557
Jul-01 15,255 14,568 14,622 20,376 15,806
Aug-01 15,228 14,542 14,790 19,101 15,754
Sep-01 14,943 14,270 14,962 17,558 15,645
Oct-01 15,225 14,540 15,275 17,893 15,966
Nov-01 15,318 14,629 15,064 19,265 16,035
Dec-01 15,338 14,648 14,967 19,435 15,980
Jan-02 15,349 14,658 15,089 19,151 16,038
Feb-02 15,358 14,667 15,235 18,781 16,100
Mar-02 15,427 14,733 14,982 19,488 16,007
Apr-02 15,441 14,746 15,273 18,307 16,061
May-02 15,484 14,787 15,403 18,171 16,146
Jun-02 15,263 14,576 15,537 16,877 16,029
Jul-02 14,982 14,308 15,725 15,561 15,934
Aug-02 15,144 14,462 15,990 15,664 16,170
Sep-02 14,956 14,283 16,249 13,961 16,028
Oct-02 15,165 14,483 16,175 15,190 16,250
Nov-02 15,478 14,781 16,170 16,084 16,437
Dec-02 15,496 14,799 16,505 15,139 16,516
Jan-03 15,512 14,814 16,519 14,742 16,442
Feb-03 15,572 14,871 16,747 14,521 16,573
Mar-03 15,617 14,915 16,734 14,662 16,595
Apr-03 16,044 15,322 16,873 15,870 16,978
May-03 16,501 15,758 17,187 16,706 17,409
Jun-03 16,575 15,829 17,152 16,920 17,427
Jul-03 16,345 15,609 16,576 17,218 17,019
Aug-03 16,467 15,726 16,685 17,553 17,176
Sep-03 16,705 15,953 17,128 17,367 17,504
Oct-03 16,905 16,144 16,968 18,350 17,572
Nov-03 17,044 16,277 17,009 18,512 17,637
Dec-03 17,367 16,586 17,183 19,482 17,965
Jan-04 17,586 16,795 17,320 19,840 18,146
Feb-04 17,743 16,944 17,507 20,116 18,353
Mar-04 17,806 17,005 17,638 19,812 18,408
Apr-04 17,412 16,629 17,180 19,501 17,968
May-04 17,381 16,599 17,111 19,769 17,959
Jun-04 17,571 16,780 17,209 20,152 18,110
Jul-04 17,492 16,704 17,379 19,485 18,134
Aug-04 17,714 16,917 17,711 19,563 18,426
Sep-04 17,809 17,008 17,759 19,774 18,505
Oct-04 17,985 17,176 17,908 20,077 18,686
Nov-04 18,113 17,298 17,765 20,890 18,718
Dec-04 18,363 17,536 17,928 21,600 18,984
Jan-05 18,265 17,443 18,041 21,073 18,988
Feb-05 18,298 17,475 17,935 21,516 18,978
Mar-05 18,137 17,321 17,843 21,135 18,834
Apr-05 18,170 17,352 18,084 20,733 18,966
May-05 18,446 17,616 18,279 21,393 19,250
Jun-05 18,566 17,730 18,380 21,422 19,341
Jul-05 18,681 17,840 18,213 22,219 19,345
Aug-05 18,763 17,919 18,446 22,017 19,507
Sep-05 18,637 17,799 18,256 22,196 19,378
Oct-05 18,488 17,656 18,111 21,825 19,190
Performance of Class B shares and C shares will differ.
See Glossary on page 18 for definitions of indices and terms.
(1) Performance reflects ongoing expenses and assumes reinvestment of all
dividends and capital gains. It also reflects ongoing fund expenses paid by
the Portfolio's applicable Funds, which include the effects of expense
reimbursement. Performance does not reflect the impact of federal, state,
or municipal taxes. If it did, performance would be lower. The Portfolio's
performance between 1996 and 1999 benefited from the agreement of WM
Advisors and its affiliates to limit the Portfolio's expenses.
(2) Net asset value is not adjusted for sales charge.
(3) Returns shown for the indices assume reinvestment of all dividends and
distributions, and since-inception returns shown for the indices are
calculated from 7/31/96. Indices are unmanaged, and individuals cannot
invest directly in an index.
8
(GRAPHIC)
PORTFOLIO MANAGER
Asset Allocation Team
WM Advisors, Inc.
in the telecommunication services and consumer discretionary sectors detracted
from returns. The WM Growth & Income Fund also contributed strongly to the
Portfolio's performance during the period. The Fund benefited from its holdings
in financials, information technology, and energy, while its holdings in
consumer discretionaries and materials lagged on a relative basis.
During the fiscal year, the Portfolio significantly increased its allocations to
U.S. growth stocks in anticipation that they may outperform over the next market
cycle. The Portfolio also increased its allocation to mortgage and asset-backed
bonds, while it reduced its exposure to corporate and high-yield bonds.
Looking forward, we anticipate that economic growth for fiscal 2006 will be
weaker than current consensus projections. We also believe that inflation will
be more muted than expected. The housing market appears to be slowing, which may
make it more difficult for consumers to secure low-interest home equity loans.
This in turn may negatively impact consumer spending. Given this combination of
factors, we believe the Federal Reserve will likely halt its monetary tightening
campaign relatively early in 2006. In this scenario, we believe that long-term
interest rates will fall to the 3%-4% range, but then stabilize. If long-term
rates stabilize, we would expect mortgage-backed securities to offer a better
relative value than corporate bonds, and that high-yield issues will continue to
outperform. Equities appear fairly valued, with growth stocks more attractive
than value holdings.
PORTFOLIO CHARACTERISTICS AS OF OCTOBER 31, 2005
Equity/Fixed-Income Allocation:(4) 26% Equity/74% Fixed-Income
Weighted Average Market Capitalization (equities): $61.9 billion
Weighted Average P/E (equities):(5) 16.2
Beta: 0.24
Portfolio Standard Deviation: 3.61
S&P 500 Standard Deviation: 11.57
Portfolio Turnover (for fiscal year):(6) 3%
Aggregate Portfolio Turnover (for fiscal year):(7) 38%
Number of Securities:(8) 1,585
Total Net Assets: $989.5 million
PORTFOLIO COMPOSITION(4)
As of As of
Asset Class 10/31/05 10/31/04 Change
- ----------- -------- -------- ------
Mortgage- & Asset-Backed Bonds 38% 37% +1%
Investment-Grade Corporate Bonds 17% 19% -2%
High-Yield Corporate Bonds 8% 9% -1%
U.S. Large-Cap Value Stocks 7% 7% 0%
U.S. Large-Cap Growth Stocks 7% 6% +1%
U.S. Government Securities 6% 6% 0%
U.S. Mid-Cap Growth Stocks 3% 2% +1%
U.S. Mid-Cap Value Stocks 2% 3% -1%
Convertible Securities 2% 2% 0%
REITs 2% 2% 0%
U.S. Small-Cap Growth Stocks 2% 1% +1%
U.S. Small-Cap Value Stocks 1% 1% 0%
Cash Equivalents 5% 5% 0%
Note: Pages 48 and 49 provide information about those WM Funds in which the
Flexible Income Portfolio invests a significant portion of its assets. For
additional information about these and other WM Funds, please see the WM Group
of Funds annual report, which is available online at wmgroupoffunds.com or by
calling 800-222-5852.
(4) May not reflect the current portfolio composition.
(5) Based on estimated earnings.
(6) Does not reflect portfolio turnover of the underlying WM Funds.
(7) Aggregate portfolio turnover of the Portfolio and its underlying WM Funds
assumes a constant allocation by the Portfolio of its assets among the
underlying Funds identical to the actual allocation of the Portfolio on
10/31/05. The Portfolio's actual aggregate portfolio turnover may be
different as a result of changes in the allocation of its assets among the
underlying Funds, the portfolio turnover of the underlying Funds, and/or
the Portfolio's own portfolio turnover.
(8) Represents the sum of securities held by the underlying WM Funds. Some
securities may be held by more than one WM Fund.
9
(GRAPHIC)
Conservative Balanced Portfolio*
ANNUAL TOTAL RETURNS(1)
Class a Shares At Net Asset Value(2)
(Calendar Year)
2004 7.38%
2003 15.98%
2002 -2.98%
2001 2.20%
2000 3.97%
1999 1.97%
1998 5.28%
1997 8.29%
* As of 8/1/00, the Income Portfolio became the Conservative Balanced
Portfolio, and the Portfolio's objectives and strategies changed. This
information should be considered when reviewing past performance. Please
see the prospectus for detailed information.
INVESTMENT STRATEGY
As of October 31, 2005, the WM Strategic Asset Management (SAM) Conservative
Balanced Portfolio was diversified among 13 funds representing 14 major asset
classes. The Portfolio held a 42%/58% equity-to-fixed income ratio at the end of
the fiscal year.
Among all underlying WM Funds, the WM Equity Income Fund made the greatest
overall contribution to Portfolio performance for the period. The Fund's
holdings in the energy, financial, and health care sectors were particularly
helpful. On the downside, the Fund's holdings in the telecommunication services
and consumer discretionary sectors detracted from returns. The WM Growth &
Income Fund also contributed strongly to the Portfolio's performance during the
period. The Fund benefited from its holdings in financials, information
technology, and energy, while its holdings in consumer discretionaries and
materials lagged on a relative basis.
On the fixed-income side, the Portfolio benefited primarily from the WM High
Yield Fund. The Fund's holdings in domestic corporate
Data shown is past performance and does not guarantee future results. Current
performance, including the most recent month-end results, which may be higher or
lower than the data shown, can be obtained by calling 800-222-5852. Your
investment's return and principal value will fluctuate, so it may be worth more
or less upon redemption. A sales charge may apply as follows: Class A shares:
maximum up-front sales charge of 5.5%; Class B shares: contingent deferred sales
charge of 5%, which declines over 5 years (5-5-4-3-2-0%); Class C shares:
contingent deferred sales charge of 1% on redemptions made during the first 12
months. See the prospectus for details. Performance listed with sales charge
reflects the maximum sales charge noted above.
Equity investments involve greater risk, including heightened volatility, than
fixed-income investments. Fixed-income investments are subject to interest rate
risk, and their value will decline as interest rates rise.
AVERAGE ANNUAL TOTAL RETURNS(1) AS OF OCTOBER 31, 2005
1-Year 5-Year Since Inception Inception Date
------ ------ --------------- --------------
CLASS A SHARES Net Asset Value(2) 4.82% 4.30% 5.05% 7/25/96
With Sales Charge -0.97% 3.13% 4.42%
CLASS B SHARES Net Asset Value(2) 4.02% 3.51% 4.37% 7/25/96
With Sales Charge -0.98% 3.16% 4.37%
CLASS C SHARES Net Asset Value(2) 4.00% -- 5.07% 3/1/02
With Sales Charge 3.00% -- 5.07%
Lehman Brothers Aggregate Bond Index(3) 1.14% 6.32% 6.63%
S&P 500(3) 8.72% -1.74% 8.80%
Capital Market Benchmark(3) 4.22% 3.39% 7.86%
VALUE OF A $10,000 INVESTMENT(1) JULY 25, 1996 - OCTOBER 31, 2005
AS OF 10/31/05
$21,825 Total Value
$20,147 Total Value
$18,111 Total Value
$15,792 Total Value
$14,923 Total Value
(PERFORMANCE GRAPH)
Class A shares Lehman Brothers
Class A shares at with maximum Aggregate Bond Capital Market
Date net asset value(2) sales charge Index(3) S&P 500(3) Benchmark(3)
- ------ ------------------ -------------- --------------- ---------- --------------
Jul-96 10,041 9,489 10,000 10,000 10,000
Aug-96 9,994 9,445 9,983 10,212 10,075
Sep-96 10,144 9,586 10,157 10,786 10,406
Oct-96 10,368 9,798 10,382 11,081 10,659
Nov-96 10,529 9,950 10,560 11,923 11,092
Dec-96 10,462 9,886 10,462 11,689 10,943
Jan-97 10,467 9,891 10,494 12,415 11,236
Feb-97 10,519 9,941 10,520 12,515 11,288
Mar-97 10,407 9,834 10,403 11,995 11,025
Apr-97 10,522 9,944 10,559 12,711 11,388
May-97 10,617 10,033 10,660 13,491 11,733
Jun-97 10,733 10,142 10,787 14,093 12,027
Jul-97 11,009 10,403 11,078 15,212 12,604
Aug-97 10,913 10,313 10,984 14,366 12,260
Sep-97 11,051 10,444 11,146 15,153 12,637
Oct-97 11,192 10,576 11,308 14,647 12,578
Nov-97 11,224 10,607 11,360 15,325 12,846
Dec-97 11,324 10,701 11,475 15,589 13,012
Jan-98 11,442 10,813 11,622 15,762 13,169
Feb-98 11,434 10,805 11,612 16,898 13,543
Mar-98 11,461 10,831 11,652 17,764 13,848
Apr-98 11,511 10,878 11,712 17,943 13,946
May-98 11,595 10,957 11,824 17,634 13,929
Jun-98 11,668 11,026 11,924 18,350 14,226
Jul-98 11,685 11,043 11,949 18,156 14,183
Aug-98 11,718 11,073 12,144 15,531 13,501
Sep-98 11,850 11,199 12,428 16,526 14,037
Oct-98 11,779 11,131 12,362 17,870 14,450
Nov-98 11,915 11,259 12,433 18,953 14,850
Dec-98 11,922 11,266 12,470 20,044 15,218
Jan-99 12,014 11,353 12,558 20,882 15,538
Feb-99 11,883 11,229 12,339 20,233 15,182
Mar-99 11,962 11,304 12,407 21,042 15,475
Apr-99 12,075 11,411 12,446 21,856 15,744
May-99 12,024 11,363 12,337 21,340 15,513
Jun-99 12,008 11,348 12,297 22,525 15,828
Jul-99 11,995 11,335 12,246 21,822 15,590
Aug-99 11,986 11,326 12,239 21,713 15,555
Sep-99 12,102 11,436 12,381 21,118 15,492
Oct-99 12,121 11,455 12,427 22,455 15,918
Nov-99 12,155 11,487 12,426 22,911 16,047
Dec-99 12,159 11,490 12,366 24,260 16,380
Jan-00 12,145 11,477 12,326 23,042 16,018
Feb-00 12,241 11,568 12,475 22,607 16,013
Mar-00 12,350 11,671 12,639 24,818 16,767
Apr-00 12,331 11,652 12,603 24,071 16,536
May-00 12,286 11,610 12,596 23,577 16,395
Jun-00 12,496 11,809 12,858 24,157 16,761
Jul-00 12,582 11,890 12,975 23,780 16,747
Aug-00 13,013 12,297 13,164 25,257 17,308
Sep-00 12,851 12,145 13,246 23,923 17,009
Oct-00 12,792 12,089 13,334 23,823 17,048
Nov-00 12,389 11,708 13,553 21,946 16,678
Dec-00 12,643 11,948 13,805 22,053 16,896
Jan-01 13,160 12,437 14,030 22,836 17,302
Feb-01 12,776 12,074 14,152 20,754 16,760
Mar-01 12,498 11,810 14,223 19,440 16,387
Apr-01 12,796 12,093 14,163 20,950 16,855
May-01 12,924 12,213 14,248 21,091 16,962
Jun-01 12,932 12,221 14,302 20,578 16,834
Jul-01 12,981 12,267 14,622 20,376 16,994
Aug-01 12,859 12,152 14,790 19,101 16,687
Sep-01 12,414 11,731 14,962 17,558 16,264
Oct-01 12,666 11,970 15,275 17,893 16,593
Nov-01 12,874 12,166 15,064 19,265 16,965
Dec-01 12,920 12,210 14,967 19,435 16,960
Jan-02 12,861 12,154 15,089 19,151 16,943
Feb-02 12,815 12,110 15,235 18,781 16,910
Mar-02 12,980 12,266 14,982 19,488 16,997
Apr-02 12,884 12,175 15,273 18,307 16,783
May-02 12,898 12,189 15,403 18,171 16,819
Jun-02 12,594 11,901 15,537 16,877 16,428
Jul-02 12,221 11,549 15,725 15,561 16,035
Aug-02 12,331 11,653 15,990 15,664 16,240
Sep-02 11,984 11,325 16,249 13,961 15,691
Oct-02 12,277 11,602 16,175 15,190 16,200
Nov-02 12,638 11,943 16,170 16,084 16,579
Dec-02 12,534 11,845 16,505 15,139 16,395
Jan-03 12,507 11,819 16,519 14,742 16,232
Feb-03 12,507 11,819 16,747 14,521 16,270
Mar-03 12,543 11,853 16,734 14,662 16,325
Apr-03 12,982 12,268 16,873 15,870 16,944
May-03 13,462 12,722 17,187 16,706 17,489
Jun-03 13,546 12,801 17,152 16,920 17,558
Jul-03 13,445 12,706 16,576 17,218 17,328
Aug-03 13,588 12,841 16,685 17,553 17,532
Sep-03 13,755 12,998 17,128 17,367 17,737
Oct-03 14,041 13,269 16,968 18,350 18,041
Nov-03 14,184 13,404 17,009 18,512 18,131
Dec-03 14,536 13,737 17,183 19,482 18,622
Jan-04 14,738 13,928 17,320 19,840 18,849
Feb-04 14,883 14,064 17,507 20,116 19,075
Mar-04 14,920 14,099 17,638 19,812 19,047
Apr-04 14,557 13,757 17,180 19,501 18,630
May-04 14,586 13,784 17,111 19,769 18,687
Jun-04 14,782 13,969 17,209 20,152 18,897
Jul-04 14,607 13,804 17,379 19,485 18,759
Aug-04 14,768 13,956 17,711 19,563 19,005
Sep-04 14,905 14,086 17,759 19,774 19,117
Oct-04 15,067 14,238 17,908 20,077 19,331
Nov-04 15,317 14,474 17,765 20,890 19,551
Dec-04 15,612 14,754 17,928 21,600 19,925
Jan-05 15,434 14,586 18,041 21,073 19,805
Feb-05 15,538 14,683 17,935 21,516 19,902
Mar-05 15,372 14,526 17,843 21,135 19,701
Apr-05 15,342 14,499 18,084 20,733 19,711
May-05 15,625 14,765 18,279 21,393 20,089
Jun-05 15,739 14,873 18,380 21,422 20,168
Jul-05 15,948 15,071 18,213 22,219 20,357
Aug-05 15,993 15,113 18,446 22,017 20,439
Sep-05 15,942 15,065 18,256 22,196 20,379
Oct-05 15,792 14,923 18,111 21,825 20,147
Performance of Class B shares and C shares will differ.
See Glossary on page 18 for definitions of indices and terms.
(1) Performance reflects ongoing expenses and assumes reinvestment of all
dividends and capital gains. It also reflects ongoing fund expenses paid by
the Portfolio's applicable Funds, which include the effects of expense
reimbursement. Performance does not reflect the impact of federal, state,
or municipal taxes. If it did, performance would be lower. The Portfolio's
performance between 1996 and 2003 benefited from the agreement of WM
Advisors and its affiliates to limit the Portfolio's expenses.
(2) Net asset value is not adjusted for sales charge.
(3) Returns shown for the indices assume reinvestment of all dividends and
distributions, and since-inception returns shown for the indices are
calculated from 7/31/96. Indices are unmanaged, and individuals cannot
invest directly in an index.
10
(GRAPHIC)
PORTFOLIO MANAGER
Asset Allocation Team
WM Advisors, Inc.
bonds and real estate investment trusts (REITs) were the primary drivers of
performance. The Portfolio also gained from the contribution of the WM U.S.
Government Securities Fund, which advanced primarily due to its holdings in
mortgage agency bonds.
During the fiscal year, the Portfolio significantly increased its allocations to
U.S. mid- and large-cap growth stocks in anticipation that these asset classes
may outperform over the next market cycle. The Portfolio also increased its
allocation to mortgage- and asset-backed bonds, while it reduced its exposure to
corporate bonds.
Looking forward, we anticipate that economic growth for fiscal 2006 will be
weaker than current consensus projections. We also believe that inflation will
be more muted than expected. The housing market appears to be slowing, which may
make it more difficult for consumers to secure low-interest home equity loans.
This in turn may negatively impact consumer spending. Given this combination of
factors, we believe the Federal Reserve will likely halt its monetary tightening
campaign relatively early in 2006. In this scenario, we believe that long-term
interest rates will fall to the 3%-4% range, but then stabilize. If long-term
rates stabilize, we would expect mortgage-backed securities to offer a better
relative value than corporate bonds, and that high-yield issues will continue to
outperform. Equities appear fairly valued, with international stocks more
attractive than U.S. holdings.
PORTFOLIO CHARACTERISTICS AS OF OCTOBER 31, 2005
Equity/Fixed-Income Allocation:(4) 42% Equity/58% Fixed-Income
Weighted Average Market Capitalization (equities): $62.5 billion
Weighted Average P/E (equities):(5) 16.2
Beta: 0.39
Portfolio Standard Deviation: 4.61
S&P 500 Standard Deviation: 11.57
Portfolio Turnover (for fiscal year):(6) 2%
Aggregate Portfolio Turnover (for fiscal year):(7) 37%
Number of Securities:(8) 1,838
Total Net Assets: $613.9 million
PORTFOLIO COMPOSITION(4)
As of As of
Asset Class 10/31/05 10/31/04 Change
- ----------- -------- -------- ------
Mortgage- & Asset-Backed Bonds 31% 30% +1%
U.S. Large-Cap Value Stocks 12% 10% +2%
Investment-Grade Corporate Bonds 11% 13% -2%
U.S. Large-Cap Growth Stocks 11% 9% +2%
High-Yield Corporate Bonds 6% 7% -1%
U.S. Government Securities 5% 5% 0%
U.S. Mid-Cap Growth Stocks 5% 3% +2%
Foreign Stocks 4% 4% 0%
U.S. Mid-Cap Value Stocks 3% 5% -2%
REITs 3% 3% 0%
Convertible Securities 2% 2% 0%
U.S. Small-Cap Growth Stocks 2% 2% 0%
U.S. Small-Cap Value Stocks 1% 2% -1%
Cash Equivalents 4% 5% -1%
Note: Page 48 provides information about a WM Fund in which the Conservative
Balanced Portfolio invests a significant portion of its assets. For additional
information about this and other WM Funds, please see the WM Group of Funds
annual report, which is available online at wmgroupoffunds.com or by calling
800-222-5852.
(4) May not reflect the current portfolio composition.
(5) Based on estimated earnings.
(6) Does not reflect portfolio turnover of the underlying WM Funds.
(7) Aggregate portfolio turnover of the Portfolio and its underlying WM Funds
assumes a constant allocation by the Portfolio of its assets among the
underlying Funds identical to the actual allocation of the Portfolio on
10/31/05. The Portfolio's actual aggregate portfolio turnover may be
different as a result of changes in the allocation of its assets among the
underlying Funds, the portfolio turnover of the underlying Funds, and/or
the Portfolio's own portfolio turnover.
(8) Represents the sum of securities held by the underlying WM Funds. Some
securities may be held by more than one WM Fund.
11
(GRAPHIC)
Balanced Portfolio
ANNUAL TOTAL RETURNS(1)
Class A shares at net asset value(2)
(Calendar Year)
2004 9.23%
2003 21.34%
2002 -9.41%
2001 -0.51%
2000 0.13%
1999 26.97%
1998 16.27%
1997 10.22%
INVESTMENT STRATEGY
As of October 31, 2005, the WM Strategic Asset Management (SAM) Balanced
Portfolio was diversified among 13 funds representing 14 major asset classes.
The Portfolio held a 62%/38% equity-to-fixed-income ratio during most of the
fiscal year.
Among all underlying WM Funds, the WM Equity Income Fund made the greatest
overall contribution to Portfolio performance for the period. The Fund's
holdings in the energy, financial, and health care sectors were particularly
helpful. On the downside, the Fund's holdings in the telecommunication services
and consumer discretionary sectors detracted from returns. The WM Mid Cap Stock
Fund also contributed strongly to the Portfolio's performance during the period.
The Fund benefited from its holdings in financials, energy, and utilities, while
its holdings in consumer discretionaries and materials lagged on a relative
basis.
On the fixed-income side, the Portfolio benefited primarily from the WM High
Yield Fund. The Fund's holdings in domestic corporate
Data shown is past performance and does not guarantee future results. Current
performance, including the most recent month-end results, which may be higher or
lower than the data shown, can be obtained by calling 800-222-5852. Your
investment's return and principal value will fluctuate, so it may be worth more
or less upon redemption. A sales charge may apply as follows: Class A shares:
maximum up-front sales charge of 5.5%; Class B shares: contingent deferred sales
charge of 5%, which declines over 5 years (5-5-4-3-2-0%); Class C shares:
contingent deferred sales charge of 1% on redemptions made during the first 12
months. See the prospectus for details. Performance listed with sales charge
reflects the maximum sales charge noted above.
Equity investments involve greater risk, including heightened volatility, than
fixed-income investments. Fixed-income investments are subject to interest rate
risk, and their value will decline as interest rates rise.
AVERAGE ANNUAL TOTAL RETURNS (1) AS OF OCTOBER 31, 2005
1-Year 5-Year Since Inception Inception Date
------ ------ --------------- --------------
CLASS A SHARES Net Asset Value(2) 7.20% 3.37% 8.48% 7/25/96
With Sales Charge 1.27% 2.20% 7.82%
CLASS B SHARES Net Asset Value(2) 6.32% 2.56% 7.77% 7/25/96
With Sales Charge 1.32% 2.20% 7.77%
CLASS C SHARES Net Asset Value(2) 6.41% -- 5.59% 3/1/02
With Sales Charge 5.41% -- 5.59%
S&P 500(3) 8.72% -1.74% 8.80%
Lehman Brothers Aggregate Bond Index(3) 1.14% 6.32% 6.63%
Capital Market Benchmark(3) 5.74% 1.77% 8.30%
Russell 3000(R) Index(3) 10.60% -0.81% 9.04%
VALUE OF A $10,000 INVESTMENT(1) JULY 25, 1996 - OCTOBER 31, 2005
AS OF 10/31/05
$22,271 Total Value
$21,825 Total Value
$21,277 Total Value
$20,899 Total Value
$20,107 Total Value
$18,111 Total Value
(PERFORMANCE GRAPH)
Class A shares Lehman Brothers
Class A shares at with maximum Aggregate Bond Capital Market Russell
Date net asset value(2) sales charge S&P 500(3) Index(3) Benchmark(3) 3000(R) Index(3)
- ------ ------------------ -------------- ---------- --------------- -------------- ----------------
Jul-96 10,074 9,520 10,000 10,000 10,000 10,000
Aug-96 10,162 9,604 10,212 9,983 10,120 10,303
Sep-96 10,432 9,858 10,786 10,157 10,532 10,863
Oct-96 10,462 9,886 11,081 10,382 10,798 11,062
Nov-96 10,813 10,218 11,923 10,560 11,364 11,842
Dec-96 10,740 10,150 11,689 10,462 11,188 11,700
Jan-97 10,912 10,312 12,415 10,494 11,619 12,347
Feb-97 10,868 10,271 12,515 10,520 11,687 12,361
Mar-97 10,585 10,003 11,995 10,403 11,344 11,802
Apr-97 10,792 10,199 12,711 10,559 11,818 12,384
May-97 11,245 10,627 13,491 10,660 12,298 13,230
Jun-97 11,501 10,868 14,093 10,787 12,685 13,780
Jul-97 12,082 11,417 15,212 11,078 13,426 14,860
Aug-97 11,696 11,053 14,366 10,984 12,932 14,257
Sep-97 12,089 11,424 15,153 11,146 13,434 15,065
Oct-97 11,735 11,090 14,647 11,308 13,243 14,559
Nov-97 11,750 11,104 15,325 11,360 13,635 15,117
Dec-97 11,831 11,181 15,589 11,475 13,831 15,419
Jan-98 11,979 11,320 15,762 11,622 13,994 15,499
Feb-98 12,542 11,852 16,898 11,612 14,596 16,607
Mar-98 12,942 12,230 17,764 11,652 15,065 17,431
Apr-98 13,089 12,369 17,943 11,712 15,187 17,602
May-98 12,920 12,209 17,634 11,824 15,088 17,167
Jun-98 13,146 12,423 18,350 11,924 15,507 17,748
Jul-98 13,010 12,295 18,156 11,949 15,422 17,425
Aug-98 11,653 11,012 15,531 12,144 14,185 14,755
Sep-98 12,033 11,371 16,526 12,428 14,863 15,761
Oct-98 12,510 11,822 17,870 12,362 15,557 16,958
Nov-98 13,040 12,323 18,953 12,433 16,158 17,995
Dec-98 13,757 13,001 20,044 12,470 16,736 19,140
Jan-99 14,260 13,475 20,882 12,558 17,203 19,791
Feb-99 13,930 13,164 20,233 12,339 16,763 19,090
Mar-99 14,496 13,698 21,042 12,407 17,202 19,791
Apr-99 15,019 14,193 21,856 12,446 17,624 20,683
May-99 14,659 13,852 21,340 12,337 17,312 20,290
Jun-99 15,245 14,406 22,525 12,297 17,866 21,315
Jul-99 15,039 14,212 21,822 12,246 17,501 20,669
Aug-99 15,008 14,182 21,713 12,239 17,445 20,434
Sep-99 15,140 14,307 21,118 12,381 17,239 19,910
Oct-99 15,657 14,796 22,455 12,427 17,918 21,159
Nov-99 16,292 15,395 22,911 12,426 18,137 21,751
Dec-99 17,468 16,507 24,260 12,366 18,743 23,139
Jan-00 17,096 16,155 23,042 12,326 18,152 22,232
Feb-00 17,697 16,724 22,607 12,475 18,034 22,439
Mar-00 18,366 17,356 24,818 12,639 19,189 24,196
Apr-00 17,852 16,870 24,071 12,603 18,820 23,344
May-00 17,563 16,597 23,577 12,596 18,585 22,688
Jun-00 17,934 16,947 24,157 12,858 19,014 23,360
Jul-00 17,738 16,762 23,780 12,975 18,906 22,946
Aug-00 18,552 17,532 25,257 13,164 19,721 24,649
Sep-00 18,140 17,143 23,923 13,246 19,145 23,532
Oct-00 18,024 17,033 23,823 13,334 19,147 23,198
Nov-00 17,098 16,157 21,946 13,553 18,368 21,059
Dec-00 17,491 16,529 22,053 13,805 18,559 21,413
Jan-01 18,369 17,359 22,836 14,030 19,075 22,145
Feb-01 17,482 16,520 20,754 14,152 18,098 20,121
Mar-01 16,863 15,936 19,440 14,223 17,446 18,809
Apr-01 17,504 16,541 20,950 14,163 18,230 20,318
May-01 17,735 16,759 21,091 14,248 18,346 20,480
Jun-01 17,765 16,788 20,578 14,302 18,106 20,103
Jul-01 17,653 16,682 20,376 14,622 18,162 19,772
Aug-01 17,284 16,334 19,101 14,790 17,563 18,605
Sep-01 16,354 15,455 17,558 14,962 16,794 16,964
Oct-01 16,714 15,795 17,893 15,275 17,126 17,360
Nov-01 17,216 16,269 19,265 15,064 17,820 18,696
Dec-01 17,403 16,446 19,435 14,967 17,868 18,960
Jan-02 17,149 16,206 19,151 15,089 17,770 18,723
Feb-02 16,942 16,010 18,781 15,235 17,633 18,341
Mar-02 17,387 16,431 19,488 14,982 17,913 19,144
Apr-02 17,013 16,078 18,307 15,273 17,401 18,139
May-02 16,969 16,036 18,171 15,403 17,383 17,929
Jun-02 16,351 15,452 16,877 15,537 16,700 16,638
Jul-02 15,555 14,700 15,561 15,725 16,000 15,315
Aug-02 15,675 14,813 15,664 15,990 16,172 15,387
Sep-02 14,915 14,094 13,961 16,249 15,222 13,770
Oct-02 15,489 14,637 15,190 16,175 15,999 14,866
Nov-02 16,108 15,222 16,084 16,170 16,562 15,765
Dec-02 15,764 14,897 15,139 16,505 16,115 14,875
Jan-03 15,626 14,767 14,742 16,519 15,867 14,510
Feb-03 15,535 14,680 14,521 16,747 15,811 14,271
Mar-03 15,554 14,698 14,662 16,734 15,898 14,421
Apr-03 16,305 15,408 15,870 16,873 16,737 15,599
May-03 17,086 16,146 16,706 17,187 17,392 16,541
Jun-03 17,250 16,301 16,920 17,152 17,512 16,764
Jul-03 17,297 16,345 17,218 16,576 17,461 17,148
Aug-03 17,574 16,607 17,553 16,685 17,711 17,529
Sep-03 17,700 16,727 17,367 17,128 17,785 17,338
Oct-03 18,288 17,282 18,350 16,968 18,322 18,387
Nov-03 18,535 17,515 18,512 17,009 18,436 18,641
Dec-03 19,130 18,077 19,482 17,183 19,090 19,492
Jan-04 19,472 18,401 19,840 17,320 19,361 19,900
Feb-04 19,674 18,592 20,116 17,507 19,607 20,168
Mar-04 19,676 18,594 19,812 17,638 19,488 19,928
Apr-04 19,177 18,122 19,501 17,180 19,102 19,516
May-04 19,286 18,225 19,769 17,111 19,228 19,799
Jun-04 19,627 18,548 20,152 17,209 19,495 20,193
Jul-04 19,190 18,134 19,485 17,379 19,185 19,430
Aug-04 19,362 18,297 19,563 17,711 19,377 19,509
Sep-04 19,595 18,517 19,774 17,759 19,524 19,810
Oct-04 19,846 18,754 20,077 17,908 19,768 20,135
Nov-04 20,396 19,274 20,890 17,765 20,185 21,071
Dec-04 20,899 19,750 21,600 17,928 20,672 21,821
Jan-05 20,536 19,406 21,073 18,041 20,422 21,241
Feb-05 20,774 19,631 21,516 17,935 20,630 21,708
Mar-05 20,525 19,396 21,135 17,843 20,368 21,341
Apr-05 20,367 19,246 20,733 18,084 20,246 20,878
May-05 20,874 19,726 21,393 18,279 20,720 21,669
Jun-05 21,037 19,880 21,422 18,380 20,784 21,821
Jul-05 21,531 20,347 22,219 18,213 21,173 22,715
Aug-05 21,531 20,347 22,017 18,446 21,164 22,500
Sep-05 21,516 20,332 22,196 18,256 21,179 22,695
Oct-05 21,277 20,107 21,825 18,111 20,899 22,271
Performance of Class B shares and C shares will differ.
See Glossary on page 18 for definitions of indices and terms.
(1) Performance reflects ongoing expenses and assumes reinvestment of all
dividends and capital gains. It also reflects ongoing fund expenses paid by
the Portfolio's applicable Funds, which include the effects of expense
reimbursement. Performance does not reflect the impact of federal, state,
or municipal taxes. If it did, performance would be lower. The Portfolio's
performance between 1996 and 1999 benefited from the agreement of WM
Advisors and its affiliates to limit the Portfolio's expenses.
(2) Net asset value is not adjusted for sales charge.
12
(GRAPHIC)
PORTFOLIO MANAGER
Asset Allocation Team
WM Advisors, Inc.
bonds and real estate investment trusts (REITs) were the primary drivers of
performance. The WM Income Fund also contributed modestly to Portfolio returns,
as its holdings in domestic corporate bonds and mortgage-backed securities
gained for the period.
During the fiscal year, the Portfolio significantly increased its allocations to
U.S. mid- and large-cap growth stocks in anticipation that these asset classes
may outperform U.S. small- and mid-cap value stocks over the next market cycle.
In contrast, the Portfolio slightly reduced its allocation to investment-grade
corporate bonds, while its exposures to mortgage- and asset-backed and
high-yield securities were unchanged.
Looking forward, we anticipate that economic growth for fiscal 2006 will be
weaker than current consensus projections. We also believe that inflation will
be more muted than expected. The housing market appears to be slowing, which may
make it more difficult for consumers to secure low-interest home equity loans.
This in turn may negatively impact consumer spending. Given this combination of
factors, we believe the Federal Reserve will likely halt its monetary tightening
campaign relatively early in 2006. In this scenario, we believe that long-term
interest rates will fall to the 3%-4% range, but then stabilize. If long-term
rates stabilize, we would expect mortgage-backed securities to offer a better
relative value than corporate bonds, and that high-yield issues will continue to
outperform. Equities appear fairly valued, with international stocks more
attractive than U.S. holdings.
PORTFOLIO CHARACTERISTICS AS OF OCTOBER 31, 2005
Equity/Fixed-Income Allocation:(4) 62% Equity/38% Fixed-Income
Weighted Average Market Capitalization (equities): $60.8 billion
Weighted Average P/E (equities):(5) 16.3
Beta: 0.59
Portfolio Standard Deviation: 6.39
S&P 500 Standard Deviation: 11.57
Portfolio Turnover (for fiscal year):(6) 0.47%
Aggregate Portfolio Turnover (for fiscal year):(7) 39%
Number of Securities:(8) 1,838
Total Net Assets: $4.3 billion
PORTFOLIO COMPOSITION(4)
As of As of
Asset Class 10/31/05 10/31/04 Change
- ----------- -------- -------- ------
Mortgage- & Asset-Backed Bonds 19% 19% 0%
U.S. Large-Cap Value Stocks 17% 16% +1%
U.S. Large-Cap Growth Stocks 16% 14% +2%
U.S. Mid-Cap Growth Stocks 7% 5% +2%
Investment-Grade Corporate Bonds 6% 7% -1%
Foreign Stocks 6% 5% +1%
U.S. Mid-Cap Value Stocks 5% 8% -3%
High-Yield Corporate Bonds 5% 5% 0%
REITs 4% 5% -1%
U.S. Small-Cap Growth Stocks 3% 3% 0%
U.S. Government Securities 3% 2% +1%
U.S. Small-Cap Value Stocks 2% 3% -1%
Convertible Securities 1% 1% 0%
Cash Equivalents 6% 7% -1%
Note: For information about the underlying WM Funds of the SAM Portfolios,
please see the WM Group of Funds annual report, which is available online at
wmgroupoffunds.com or by calling 800-222-5852.
(3) Returns shown for the indices assume reinvestment of all dividends and
distributions, and since-inception returns shown for the indices are
calculated from 7/31/96. Indices are unmanaged, and individuals cannot
invest directly in an index. Effective 3/1/05, the S&P 500 replaced the
Russell 3000(R) Index because WM Advisors believes the new benchmark more
accurately reflects the Portfolio's performance characteristics.
(4) May not reflect the current portfolio composition.
(5) Based on estimated earnings.
(6) Does not reflect portfolio turnover of the underlying WM Funds.
(7) Aggregate portfolio turnover of the Portfolio and its underlying WM Funds
assumes a constant allocation by the Portfolio of its assets among the
underlying Funds identical to the actual allocation of the Portfolio on
10/31/05. The Portfolio's actual aggregate portfolio turnover may be
different as a result of changes in the allocation of its assets among the
underlying Funds, the portfolio turnover of the underlying Funds, and/or
the Portfolio's own portfolio turnover.
(8) Represents the sum of securities held by the underlying WM Funds. Some
securities may be held by more than one WM Fund.
13
(GRAPHIC)
Conservative Growth Portfolio
ANNUAL TOTAL RETURNS(1)
Class A shares at net asset value(2)
(Calendar Year)
2004 10.88%
2003 26.97%
2002 -15.70%
2001 -4.20%
2000 -2.96%
1999 40.28%
1998 18.82%
1997 8.65%
INVESTMENT STRATEGY
As of October 31, 2005, the WM Strategic Asset Management (SAM) Conservative
Growth Portfolio was diversified among 12 funds representing 14 major asset
classes. The Portfolio held an 81%/19% equity-to-fixed-income ratio during most
of the fiscal year.
Among all underlying WM Funds, the WM Equity Income Fund made the greatest
overall contribution to Portfolio performance for the period. The Fund's
holdings in the energy, financial, and health care sectors were particularly
helpful. On the downside, the Fund's holdings in the telecommunication services
and consumer discretionary sectors detracted from returns. The WM Growth Fund
also contributed strongly to the Portfolio's performance during the period. The
Fund benefited from its holdings in information technology, health care, and
financials, while its holdings in consumer discretionaries and telecommunication
services lagged.
On the fixed-income side, the Portfolio benefited primarily from the WM High
Yield Fund, which dramatically outperformed all other
Data shown is past performance and does not guarantee future results. Current
performance, including the most recent month-end results, which may be higher or
lower than the data shown, can be obtained by calling 800-222-5852. Your
investment's return and principal value will fluctuate, so it may be worth more
or less upon redemption. A sales charge may apply as follows: Class A shares:
maximum up-front sales charge of 5.5%; Class B shares: contingent deferred sales
charge of 5%, which declines over 5 years (5-5-4-3-2-0%); Class C shares:
contingent deferred sales charge of 1% on redemptions made during the first 12
months. See the prospectus for details. Performance listed with sales charge
reflects the maximum sales charge noted above.
Equity investments involve greater risk, including heightened volatility, than
fixed-income investments. Fixed-income investments are subject to interest rate
risk, and their value will decline as interest rates rise.
AVERAGE ANNUAL TOTAL RETURNS(1) AS OF OCTOBER 31, 2005
1-Year 5-Year Since Inception Inception Date
------ ------ --------------- --------------
CLASS A SHARES Net Asset Value(2) 9.19% 1.99% 8.81% 7/25/96
With Sales Charge 3.18% 0.85% 8.15%
CLASS B SHARES Net Asset Value(2) 8.42% 1.22% 8.07% 7/25/96
With Sales Charge 3.42% 0.83% 8.07%
CLASS C SHARES Net Asset Value(2) 8.40% -- 5.86% 3/1/02
With Sales Charge 7.40% -- 5.86%
S&P 500(3) 8.72% -1.74% 8.80%
Lehman Brothers Aggregate Bond Index(3) 1.14% 6.32% 6.63%
Capital Market Benchmark(3) 7.24% 0.06% 8.61%
Russell 3000(R) Index(3) 10.60% -0.81% 9.04%
VALUE OF A $10,000 INVESTMENT(1) JULY 25, 1996 - OCTOBER 31, 2005
AS OF 10/31/05
$22,271 Total Value
$21,874 Total Value
$21,825 Total Value
$21,463 Total Value
$20,671 Total Value
$18,111 Total Value
(PERFORMANCE GRAPH)
Class A shares Lehman Brothers
Class A shares at with maximum Aggregate Bond Capital Market Russell
Date net asset value(2) sales charge S&P 500(3) Index(3) Benchmark(3) 3000(R) Index(3)
- ------ ------------------ -------------- ---------- --------------- -------------- ----------------
Jul-96 10,130 9,573 10,000 10,000 10,000 10,000
Aug-96 10,281 9,715 10,212 9,983 10,166 10,303
Sep-96 10,592 10,009 10,786 10,157 10,658 10,863
Oct-96 10,462 9,886 11,081 10,382 10,939 11,062
Nov-96 10,782 10,189 11,923 10,560 11,641 11,842
Dec-96 10,725 10,135 11,689 10,462 11,437 11,700
Jan-97 10,849 10,252 12,415 10,494 12,012 12,347
Feb-97 10,690 10,102 12,515 10,520 12,096 12,361
Mar-97 10,258 9,694 11,995 10,403 11,667 11,802
Apr-97 10,427 9,853 12,711 10,559 12,260 12,384
May-97 11,079 10,470 13,491 10,660 12,885 13,230
Jun-97 11,437 10,808 14,093 10,787 13,376 13,780
Jul-97 12,016 11,355 15,212 11,078 14,297 14,860
Aug-97 11,563 10,927 14,366 10,984 13,637 14,257
Sep-97 12,099 11,434 15,153 11,146 14,275 15,065
Oct-97 11,615 10,977 14,647 11,308 13,935 14,559
Nov-97 11,605 10,967 15,325 11,360 14,465 15,117
Dec-97 11,648 11,007 15,589 11,475 14,693 15,419
Jan-98 11,782 11,134 15,762 11,622 14,861 15,499
Feb-98 12,528 11,839 16,898 11,612 15,715 16,607
Mar-98 13,040 12,323 17,764 11,652 16,369 17,431
Apr-98 13,207 12,481 17,943 11,712 16,518 17,602
May-98 12,885 12,176 17,634 11,824 16,321 17,167
Jun-98 13,175 12,450 18,350 11,924 16,880 17,748
Jul-98 12,919 12,208 18,156 11,949 16,743 17,425
Aug-98 11,050 10,442 15,531 12,144 14,861 14,755
Sep-98 11,594 10,957 16,526 12,428 15,692 15,761
Oct-98 12,207 11,535 17,870 12,362 16,696 16,958
Nov-98 12,907 12,197 18,953 12,433 17,524 17,995
Dec-98 13,843 13,082 20,044 12,470 18,342 19,140
Jan-99 14,543 13,744 20,882 12,558 18,983 19,791
Feb-99 14,162 13,383 20,233 12,339 18,444 19,090
Mar-99 15,009 14,184 21,042 12,407 19,054 19,791
Apr-99 15,722 14,858 21,856 12,446 19,656 20,683
May-99 15,255 14,416 21,340 12,337 19,251 20,290
Jun-99 16,078 15,193 22,525 12,297 20,094 21,315
Jul-99 15,785 14,917 21,822 12,246 19,576 20,669
Aug-99 15,747 14,881 21,713 12,239 19,496 20,434
Sep-99 15,897 15,022 21,118 12,381 19,114 19,910
Oct-99 16,666 15,749 22,455 12,427 20,096 21,159
Nov-99 17,609 16,641 22,911 12,426 20,422 21,751
Dec-99 19,420 18,352 24,260 12,366 21,365 23,139
Jan-00 18,959 17,917 23,042 12,326 20,491 22,232
Feb-00 19,904 18,809 22,607 12,475 20,231 22,439
Mar-00 20,809 19,665 24,818 12,639 21,868 24,196
Apr-00 19,941 18,845 24,071 12,603 21,328 23,344
May-00 19,431 18,362 23,577 12,596 20,976 22,688
Jun-00 19,891 18,797 24,157 12,858 21,477 23,360
Jul-00 19,559 18,483 23,780 12,975 21,247 22,946
Aug-00 20,670 19,533 25,257 13,164 22,365 24,649
Sep-00 20,031 18,930 23,923 13,246 21,448 23,532
Oct-00 19,815 18,725 23,823 13,334 21,403 23,198
Nov-00 18,359 17,349 21,946 13,553 20,123 21,059
Dec-00 18,843 17,807 22,053 13,805 20,276 21,413
Jan-01 19,961 18,863 22,836 14,030 20,917 22,145
Feb-01 18,597 17,575 20,754 14,152 19,427 20,121
Mar-01 17,643 16,673 19,440 14,223 18,462 18,809
Apr-01 18,693 17,665 20,950 14,163 19,593 20,318
May-01 18,966 17,923 21,091 14,248 19,723 20,480
Jun-01 18,974 17,930 20,578 14,302 19,354 20,103
Jul-01 18,645 17,620 20,376 14,622 19,288 19,772
Aug-01 17,987 16,998 19,101 14,790 18,366 18,605
Sep-01 16,566 15,655 17,558 14,962 17,222 16,964
Oct-01 16,979 16,045 17,893 15,275 17,556 17,360
Nov-01 17,777 16,799 19,265 15,064 18,585 18,696
Dec-01 18,052 17,059 19,435 14,967 18,691 18,960
Jan-02 17,637 16,667 19,151 15,089 18,502 18,723
Feb-02 17,265 16,315 18,781 15,235 18,252 18,341
Mar-02 17,950 16,963 19,488 14,982 18,741 19,144
Apr-02 17,290 16,339 18,307 15,273 17,906 18,139
May-02 17,203 16,257 18,171 15,403 17,830 17,929
Jun-02 16,307 15,410 16,877 15,537 16,844 16,638
Jul-02 15,198 14,362 15,561 15,725 15,835 15,315
Aug-02 15,285 14,444 15,664 15,990 15,971 15,387
Sep-02 14,238 13,455 13,961 16,249 14,635 13,770
Oct-02 14,990 14,165 15,190 16,175 15,652 14,866
Nov-02 15,756 14,889 16,084 16,170 16,387 15,765
Dec-02 15,218 14,381 15,139 16,505 15,684 14,875
Jan-03 15,014 14,189 14,742 16,519 15,358 14,510
Feb-03 14,824 14,008 14,521 16,747 15,217 14,271
Mar-03 14,840 14,024 14,662 16,734 15,333 14,421
Apr-03 15,762 14,895 15,870 16,873 16,369 15,599
May-03 16,698 15,779 16,706 17,187 17,120 16,541
Jun-03 16,908 15,978 16,920 17,152 17,288 16,764
Jul-03 17,113 16,172 17,218 16,576 17,416 17,148
Aug-03 17,450 16,490 17,553 16,685 17,710 17,529
Sep-03 17,509 16,546 17,367 17,128 17,654 17,338
Oct-03 18,302 17,296 18,350 16,968 18,420 18,387
Nov-03 18,597 17,574 18,512 17,009 18,558 18,641
Dec-03 19,322 18,260 19,482 17,183 19,375 19,492
Jan-04 19,722 18,638 19,840 17,320 19,690 19,900
Feb-04 19,973 18,874 20,116 17,507 19,952 20,168
Mar-04 19,929 18,833 19,812 17,638 19,741 19,928
Apr-04 19,383 18,317 19,501 17,180 19,389 19,516
May-04 19,561 18,485 19,769 17,111 19,587 19,799
Jun-04 19,976 18,877 20,152 17,209 19,914 20,193
Jul-04 19,325 18,262 19,485 17,379 19,426 19,430
Aug-04 19,458 18,388 19,563 17,711 19,562 19,509
Sep-04 19,754 18,667 19,774 17,759 19,742 19,810
Oct-04 20,034 18,933 20,077 17,908 20,017 20,135
Nov-04 20,802 19,658 20,890 17,765 20,633 21,071
Dec-04 21,428 20,249 21,600 17,928 21,232 21,821
Jan-05 20,920 19,769 21,073 18,041 20,845 21,241
Feb-05 21,263 20,094 21,516 17,935 21,170 21,708
Mar-05 20,965 19,812 21,135 17,843 20,849 21,341
Apr-05 20,682 19,545 20,733 18,084 20,588 20,878
May-05 21,309 20,137 21,393 18,279 21,156 21,669
Jun-05 21,503 20,320 21,422 18,380 21,203 21,821
Jul-05 22,189 20,969 22,219 18,213 21,794 22,715
Aug-05 22,129 20,912 22,017 18,446 21,692 22,500
Sep-05 22,173 20,954 22,196 18,256 21,787 22,695
Oct-05 21,874 20,671 21,825 18,111 21,463 22,271
Performance of Class B shares and C shares will differ.
See Glossary on page 18 for definitions of indices and terms.
(1) Performance reflects ongoing expenses and assumes reinvestment of all
dividends and capital gains. It also reflects ongoing fund expenses paid by
the Portfolio's applicable Funds, which include the effects of expense
reimbursement. Performance does not reflect the impact of federal, state,
or municipal taxes. If it did, performance would be lower. The Portfolio's
performance between 1996 and 1999 benefited from the agreement of WM
Advisors and its affiliates to limit the Portfolio's expenses.
(2) Net asset value is not adjusted for sales charge.
14
(GRAPHIC)
PORTFOLIO MANAGER
Asset Allocation Team
WM Advisors, Inc.
WM fixed-income funds. The Fund's holdings in domestic corporate bonds and real
estate investment trusts (REITs) were the primary drivers of performance. The WM
Income Fund also contributed modestly to Portfolio returns, as its holdings in
domestic corporate bonds and mortgage-backed securities gained for the period.
During the fiscal year, the Portfolio significantly increased its allocations to
U.S. mid- and large-cap growth stocks in anticipation that these asset classes
may outperform U.S. small- and mid-cap value stocks over the next market cycle.
In contrast, the Portfolio slightly reduced its allocation to REITs, while its
exposures to investment-grade corporate and high-yield bonds were unchanged.
Looking forward, we anticipate that economic growth for fiscal 2006 will be
weaker than current consensus projections. We also believe that inflation will
be more muted than expected. The housing market appears to be slowing, which may
make it more difficult for consumers to secure low-interest home equity loans.
This in turn may negatively impact consumer spending. Given this combination of
factors, we believe the Federal Reserve will likely halt its monetary tightening
campaign relatively early in 2006. In this scenario, we believe that long-term
interest rates will fall to the 3%-4% range, but then stabilize. If long-term
rates stabilize, we would expect mortgage-backed securities to offer a better
relative value than corporate bonds, and that high-yield issues will continue to
outperform. Equities appear fairly valued, with international stocks more
attractive than U.S. holdings.
PORTFOLIO CHARACTERISTICS AS OF OCTOBER 31, 2005
Equity/Fixed-Income Allocation:(4) 81% Equity/19% Fixed-Income
Weighted Average Market Capitalization (equities): $60.5 billion
Weighted Average P/E (equities):(5) 16.4
Beta: 0.80
Portfolio Standard Deviation: 8.37
S&P 500 Standard Deviation: 11.57
Portfolio Turnover (for fiscal year):(6) 1%
Aggregate Portfolio Turnover (for fiscal year):(7) 42%
Number of Securities:(8) 1,745
Total Net Assets: $3.3 billion
PORTFOLIO COMPOSITION(4)
As of As of
Asset Class 10/31/05 10/31/04 Change
- ----------- -------- -------- ------
U.S. Large-Cap Value Stocks 22% 21% +1%
U.S. Large-Cap Growth Stocks 21% 19% +2%
U.S. Mid-Cap Growth Stocks 10% 7% +3%
Mortgage- & Asset-Backed Bonds 9% 9% 0%
Foreign Stocks 8% 7% +1%
U.S. Mid-Cap Value Stocks 7% 11% -4%
REITs 5% 6% -1%
U.S. Small-Cap Growth Stocks 4% 4% 0%
U.S. Small-Cap Value Stocks 3% 4% -1%
High-Yield Corporate Bonds 3% 3% 0%
Investment-Grade Corporate Bonds 2% 2% 0%
Convertible Securities 1% 1% 0%
U.S. Government Securities 1% 1% 0%
Cash Equivalents 4% 5% -1%
Note: For information about the underlying WM Funds of the SAM Portfolios,
please see the WM Group of Funds annual report, which is available online at
wmgroupoffunds.com or by calling 800-222-5852.
(3) Returns shown for the indices assume reinvestment of all dividends and
distributions, and since-inception returns shown for the indices are
calculated from 7/31/96. Indices are unmanaged, and individuals cannot
invest directly in an index. Effective 3/1/05, the S&P 500 replaced the
Russell 3000(R) Index because WM Advisors believes the new benchmark more
accurately reflects the Portfolio's performance characteristics.
(4) May not reflect the current portfolio composition.
(5) Based on estimated earnings.
(6) Does not reflect portfolio turnover of the underlying WM Funds.
(7) Aggregate portfolio turnover of the Portfolio and its underlying WM Funds
assumes a constant allocation by the Portfolio of its assets among the
underlying Funds identical to the actual allocation of the Portfolio on
10/31/05. The Portfolio's actual aggregate portfolio turnover may be
different as a result of changes in the allocation of its assets among the
underlying Funds, the portfolio turnover of the underlying Funds, and/or
the Portfolio's own portfolio turnover.
(8) Represents the sum of securities held by the underlying WM Funds. Some
securities may be held by more than one WM Fund.
15
(GRAPHIC)
Strategic Growth Portfolio
ANNUAL TOTAL RETURNS(1)
Class A shares at net asset value(2)
(Calendar Year)
2004 11.92%
2003 31.27%
2002 -20.85%
2001 -6.69%
2000 -4.43%
1999 44.48%
1998 22.63%
1997 12.38%
INVESTMENT STRATEGY
As of October 31, 2005, the WM Strategic Asset Management (SAM) Strategic Growth
Portfolio was diversified among 10 funds representing 11 major asset classes.
The Portfolio held a 92%/8% equity-to-fixed-income ratio during most of the
fiscal year.
Among all underlying WM Funds, the WM Equity Income Fund made the greatest
overall contribution to Portfolio performance for the period. The Fund's
holdings in the energy, financial, and health care sectors were particularly
helpful. On the downside, the Fund's holdings in the telecommunication services
and consumer discretionary sectors detracted from returns. The WM Mid Cap Stock
Fund also contributed strongly to the Portfolio's performance during the period.
The Fund benefited from its holdings in financials, energy, and utilities, while
its holdings in consumer discretionaries and materials lagged on a relative
basis.
Data shown is past performance and does not guarantee future results. Current
performance, including the most recent month-end results, which may be higher or
lower than the data shown, can be obtained by calling 800-222-5852. Your
investment's return and principal value will fluctuate, so it may be worth more
or less upon redemption. A sales charge may apply as follows: Class A shares:
maximum up-front sales charge of 5.5%; Class B shares: contingent deferred sales
charge of 5%, which declines over 5 years (5-5-4-3-2-0%); Class C shares:
contingent deferred sales charge of 1% on redemptions made during the first 12
months. See the prospectus for details. Performance listed with sales charge
reflects the maximum sales charge noted above.
Equity investments involve greater risk, including heightened volatility, than
fixed-income investments.
AVERAGE ANNUAL TOTAL RETURNS(1) AS OF OCTOBER 31, 2005
1-Year 5-Year Since Inception Inception Date
------ ------ --------------- --------------
CLASS A SHARES Net Asset Value(2) 10.61% 0.87% 9.54% 7/25/96
With Sales Charge 4.55% -0.27% 8.87%
CLASS B SHARES Net Asset Value(2) 9.71% 0.09% 8.83% 7/25/96
With Sales Charge 4.71% -0.32% 8.83%
CLASS C SHARES Net Asset Value(2) 9.76% -- 5.87% 3/1/02
With Sales Charge 8.76% -- 5.87%
S&P 500(3) 8.72% -1.74% 8.80%
Russell 3000(R) Index(3) 10.60% -0.81% 9.04%
VALUE OF A $10,000 INVESTMENT(1) JULY 25, 1996 - OCTOBER 31, 2005
AS OF 10/31/05:
$23,264 Total Value
$22,271 Total Value
$21,984 Total Value
$21,825 Total Value
(PERFORMANCE GRAPH)
Class A shares
Class A shares at with maximum Russell
Date net asset value(2) sales charge S&P 500(3) 3000(R) Index(3)
- ------ ------------------ -------------- ---------- ----------------
Jul-96 10,110 9,554 10,000 10,000
Aug-96 10,300 9,734 10,212 10,303
Sep-96 10,690 10,102 10,786 10,863
Oct-96 10,560 9,979 11,081 11,062
Nov-96 11,080 10,471 11,923 11,842
Dec-96 11,001 10,396 11,689 11,700
Jan-97 11,308 10,686 12,415 12,347
Feb-97 11,148 10,535 12,515 12,361
Mar-97 10,640 10,055 11,995 11,802
Apr-97 10,852 10,255 12,711 12,384
May-97 11,561 10,925 13,491 13,230
Jun-97 11,932 11,276 14,093 13,780
Jul-97 12,716 12,017 15,212 14,860
Aug-97 12,240 11,566 14,366 14,257
Sep-97 12,822 12,117 15,153 15,065
Oct-97 12,282 11,607 14,647 14,559
Nov-97 12,325 11,647 15,325 15,117
Dec-97 12,362 11,682 15,589 15,419
Jan-98 12,509 11,821 15,762 15,499
Feb-98 13,471 12,730 16,898 16,607
Mar-98 14,106 13,330 17,764 17,431
Apr-98 14,298 13,511 17,943 17,602
May-98 13,879 13,115 17,634 17,167
Jun-98 14,331 13,543 18,350 17,748
Jul-98 13,992 13,222 18,156 17,425
Aug-98 11,773 11,125 15,531 14,755
Sep-98 12,508 11,820 16,526 15,761
Oct-98 13,210 12,483 17,870 16,958
Nov-98 13,980 13,211 18,953 17,995
Dec-98 15,159 14,325 20,044 19,140
Jan-99 16,068 15,184 20,882 19,791
Feb-99 15,594 14,737 20,233 19,090
Mar-99 16,530 15,621 21,042 19,791
Apr-99 17,365 16,410 21,856 20,683
May-99 16,792 15,868 21,340 20,290
Jun-99 17,789 16,811 22,525 21,315
Jul-99 17,337 16,384 21,822 20,669
Aug-99 17,325 16,372 21,713 20,434
Sep-99 17,490 16,528 21,118 19,910
Oct-99 18,436 17,422 22,455 21,159
Nov-99 19,621 18,542 22,911 21,751
Dec-99 21,901 20,697 24,260 23,139
Jan-00 21,446 20,266 23,042 22,232
Feb-00 22,799 21,545 22,607 22,439
Mar-00 23,802 22,493 24,818 24,196
Apr-00 22,552 21,312 24,071 23,344
May-00 21,901 20,696 23,577 22,688
Jun-00 22,551 21,311 24,157 23,360
Jul-00 22,057 20,844 23,780 22,946
Aug-00 23,502 22,209 25,257 24,649
Sep-00 22,604 21,361 23,923 23,532
Oct-00 22,279 21,053 23,823 23,198
Nov-00 20,325 19,207 21,946 21,059
Dec-00 20,931 19,779 22,053 21,413
Jan-01 22,320 21,093 22,836 22,145
Feb-01 20,448 19,323 20,754 20,121
Mar-01 19,180 18,125 19,440 18,809
Apr-01 20,666 19,530 20,950 20,318
May-01 21,011 19,856 21,091 20,480
Jun-01 21,066 19,907 20,578 20,103
Jul-01 20,459 19,334 20,376 19,772
Aug-01 19,537 18,462 19,101 18,605
Sep-01 17,540 16,575 17,558 16,964
Oct-01 18,036 17,044 17,893 17,360
Nov-01 19,097 18,047 19,265 18,696
Dec-01 19,527 18,453 19,435 18,960
Jan-02 18,908 17,868 19,151 18,723
Feb-02 18,374 17,364 18,781 18,341
Mar-02 19,339 18,275 19,488 19,144
Apr-02 18,432 17,418 18,307 18,139
May-02 18,274 17,269 18,171 17,929
Jun-02 17,108 16,167 16,877 16,638
Jul-02 15,638 14,778 15,561 15,315
Aug-02 15,696 14,833 15,664 15,387
Sep-02 14,327 13,539 13,961 13,770
Oct-02 15,249 14,410 15,190 14,866
Nov-02 16,185 15,295 16,084 15,765
Dec-02 15,455 14,605 15,139 14,875
Jan-03 15,180 14,345 14,742 14,510
Feb-03 14,890 14,071 14,521 14,271
Mar-03 14,905 14,085 14,662 14,421
Apr-03 15,965 15,086 15,870 15,599
May-03 17,068 16,129 16,706 16,541
Jun-03 17,329 16,376 16,920 16,764
Jul-03 17,691 16,718 17,218 17,148
Aug-03 18,098 17,102 17,553 17,529
Sep-03 18,083 17,089 17,367 17,338
Oct-03 19,100 18,049 18,350 18,387
Nov-03 19,434 18,365 18,512 18,641
Dec-03 20,291 19,175 19,482 19,492
Jan-04 20,770 19,627 19,840 19,900
Feb-04 21,032 19,875 20,116 20,168
Mar-04 20,944 19,793 19,812 19,928
Apr-04 20,379 19,258 19,501 19,516
May-04 20,611 19,478 19,769 19,799
Jun-04 21,106 19,945 20,152 20,193
Jul-04 20,293 19,177 19,485 19,430
Aug-04 20,381 19,260 19,563 19,509
Sep-04 20,743 19,603 19,774 19,810
Oct-04 21,034 19,877 20,077 20,135
Nov-04 21,993 20,783 20,890 21,071
Dec-04 22,712 21,463 21,600 21,821
Jan-05 22,101 20,886 21,073 21,241
Feb-05 22,523 21,285 21,516 21,708
Mar-05 22,188 20,967 21,135 21,341
Apr-05 21,795 20,596 20,733 20,878
May-05 22,538 21,299 21,393 21,669
Jun-05 22,770 21,518 21,422 21,821
Jul-05 23,599 22,301 22,219 22,715
Aug-05 23,512 22,219 22,017 22,500
Sep-05 23,585 22,288 22,196 22,695
Oct-05 23,264 21,984 21,825 22,271
Performance of Class B shares and C shares will differ.
See Glossary on page 18 for definitions of indices and terms.
(1) Performance reflects ongoing expenses and assumes reinvestment of all
dividends and capital gains. It also reflects ongoing fund expenses paid by
the Portfolio's applicable Funds, which include the effects of expense
reimbursement. Performance does not reflect the impact of federal, state,
or municipal taxes. If it did, performance would be lower. The Portfolio's
performance between 1996 and 1999 benefited from the agreement of WM
Advisors and its affiliates to limit the Portfolio's expenses.
(2) Net asset value is not adjusted for sales charge.
(3) Returns shown for the indices assume reinvestment of all dividends and
distributions, and since-inception returns shown for the indices are
calculated from 7/31/96. Indices are unmanaged, and individuals cannot
invest directly in an index.
16
(GRAPHIC)
PORTFOLIO MANAGER
Asset Allocation Team
WM Advisors, Inc.
The Portfolio also benefited from its allocation to the WM High Yield Fund,
which dramatically outperformed all other WM fixed-income funds. The Fund's
holdings in domestic corporate bonds and real estate investment trusts (REITs)
were the primary drivers of performance.
During the fiscal year, the Portfolio significantly increased its allocations to
U.S. mid- and large-cap growth stocks in anticipation that these asset classes
may outperform U.S. mid-cap value stocks over the next market cycle. The
Portfolio also slightly increased its allocation to foreign stocks, while its
exposures to REITs, high-yield bonds, and convertible securities were unchanged.
Looking forward, we anticipate that economic growth for fiscal 2006 will be
weaker than current consensus projections. We also believe that inflation will
be more muted than expected. The housing market appears to be slowing, which may
make it more difficult for consumers to secure low-interest home equity loans.
This in turn may negatively impact consumer spending. Given this combination of
factors, we believe the Federal Reserve will likely halt its monetary tightening
campaign relatively early in 2006. In this scenario, we believe that long-term
interest rates will fall to the 3%-4% range, but then stabilize. If long-term
rates stabilize, we would expect high-yield issues to continue to outperform.
Equities appear fairly valued, with international stocks more attractive than
U.S. holdings.
PORTFOLIO CHARACTERISTICS AS OF OCTOBER 31, 2005
Equity/Fixed-Income Allocation:(4) 92% Equity/8% Fixed-Income
Weighted Average Market Capitalization (equities): $59.4 billion
Weighted Average P/E (equities):(5) 16.3
Beta: 0.95
Portfolio Standard Deviation: 9.88
S&P 500 Standard Deviation: 11.57
Portfolio Turnover (for fiscal year):(6) 1%
Aggregate Portfolio Turnover (for fiscal year):(7) 43%
Number of Securities:(8) 1,172
Total Net Assets: $2.0 billion
PORTFOLIO COMPOSITION(4)
As of As of
Asset Class 10/31/05 10/31/04 Change
- ----------- -------- -------- ------
U.S. Large-Cap Value Stocks 25% 24% +1%
U.S. Large-Cap Growth Stocks 23% 21% +2%
U.S. Mid-Cap Growth Stocks 11% 8% +3%
Foreign Stocks 10% 9% +1%
U.S. Mid-Cap Value Stocks 8% 13% -5%
REITs 6% 6% 0%
U.S. Small-Cap Growth Stocks 5% 5% 0%
U.S. Small-Cap Value Stocks 4% 4% 0%
High-Yield Corporate Bonds 3% 3% 0%
Convertible Securities 1% 1% 0%
Cash Equivalents 4% 6% -2%
Note: Page 47 provides information about a WM Fund in which the Strategic Growth
Portfolio invests a significant portion of its assets. For additional
information about this and other WM Funds, please see the WM Group of Funds
annual report, which is available online at wmgroupoffunds.com or by calling
800-222-5852.
(4) May not reflect the current portfolio composition.
(5) Based on estimated earnings.
(6) Does not reflect portfolio turnover of the underlying WM Funds.
(7) Aggregate portfolio turnover of the Portfolio and its underlying WM Funds
assumes a constant allocation by the Portfolio of its assets among the
underlying Funds identical to the actual allocation of the Portfolio on
10/31/05. The Portfolio's actual aggregate portfolio turnover may be
different as a result of changes in the allocation of its assets among the
underlying Funds, the portfolio turnover of the underlying Funds, and/or
the Portfolio's own portfolio turnover.
(8) Represents the sum of securities held by the underlying WM Funds. Some
securities may be held by more than one WM Fund.
17
(GRAPHIC)
Glossary
DEFINITIONS OF INDICES
CAPITAL MARKET BENCHMARK:
A benchmark intended to represent a relevant proxy for market and Portfolio
performance. It is allocated as follows: Flexible Income Portfolio: 20% S&P 500
and 80% Lehman Brothers Aggregate Bond Index; Conservative Balanced Portfolio:
40% S&P 500 and 60% Lehman Brothers Aggregate Bond Index; Balanced Portfolio:
60% S&P 500 and 40% Lehman Brothers Aggregate Bond Index; and Conservative
Growth Portfolio:80% S&P 500 and 20% Lehman Brothers Aggregate Bond Index.
CITIGROUP BROAD INVESTMENT-GRADE BOND INDEX:
Measures the performance of bonds, including U.S. and non-U.S. corporate
securities and non-U.S. sovereign and provincial securities. It includes
institutionally traded U.S. Treasury, government-sponsored, mortgage,
asset-backed, and investment-grade securities.
CITIGROUP MORTGAGE INDEX:
Represents the mortgage-backed securities component of Citigroup's Broad
Investment-Grade Bond Index. It consists of 30- and 15-year agency-issued (GNMA,
FNMA, and FHLMC) pass-through securities as well as FNMA and FHLMC balloon
mortgages.
LEHMAN BROTHERS AGGREGATE BOND INDEX:
A broad-based index intended to represent the U.S. fixed-income market.
RUSSELL 3000(R) INDEX:
Measures the performance of the 3,000 largest U.S. companies based on total
market capitalization, which represents approximately 98% of the investable
U.S. equity market.
S&P 500:
A broad-based index intended to represent the U.S. equity market.
DEFINITIONS OF TERMS
BETA:
A quantitative measure of a Portfolio's historical volatility relative to the
overall market (S&P 500). A beta above 1 indicates more volatility than the
market, and a beta below 1 indicates less volatility. Results are calculated
using three-month rolling returns for Class A shares for the three-year period
ended 10/31/05. Source: Lipper,Inc.
STANDARD DEVIATION:
Measures the historical fluctuation of returns around the arithmetic average
return of the investment. The higher the standard deviation (as one measure of
risk), the greater the variability of the investment returns. Results are
calculated for the three-year period ended 10/31/05,and Portfolio results are
for Class A shares. Source: Ibbotson Associates and Lipper, Inc.
18
Expense Information
As a shareholder of the Flexible Income Portfolio, Conservative Balanced
Portfolio, Balanced Portfolio, Conservative Growth Portfolio or Strategic Growth
Portfolio (collectively, "the Portfolios"), you incur two types of costs: (1)
transaction costs, including sales charges (loads) on purchase of Class A shares
and, if applicable, contingent deferred sales charges on redemption of shares
and (2) ongoing costs, including management fees, distribution and/or service
fees, and other Portfolio expenses. The example below is intended to help you
understand your ongoing costs (in dollars) of investing in the Portfolios and to
compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period May 1, 2005 to October 31, 2005.
ACTUAL EXPENSES:
The first section of the table below provides information about actual account
values and actual expenses. You may use the information in these columns,
together with the amount you invested, to estimate the expenses that you paid
over the period. Simply divide your account value by $1,000 (for example, an
$8,600 account value divided by $1,000 = $8.6), then multiply the result by the
number in the third column under the heading entitled "Expenses Paid During
Period" to estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES:
The second section of the table below provides information about hypothetical
account values and hypothetical expenses based on each Portfolio's actual
expense ratios and an assumed rate of return of 5% per year before expenses
(rather than each Portfolio's actual rate of return). The hypothetical account
values and expenses may not be used to estimate the actual ending balance or
expenses you paid for the period. You may use this information to compare the
ongoing costs of investing in the Portfolios and other mutual funds. To do so,
compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other mutual funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads). Therefore, the hypothetical section of the table is useful in
comparing ongoing costs only, and will not help you compare the relative total
costs of owning different mutual funds. In addition, if these transactional
costs were included, the cost shown would have been higher.
HYPOTHETICAL
ACTUAL EXPENSES (5% RETURN BEFORE EXPENSES)
---------------------------------- ----------------------------------
EXPENSES EXPENSES
BEGINNING ENDING PAID DURING BEGINNING ENDING PAID DURING
ACCOUNT ACCOUNT PERIOD* ACCOUNT ACCOUNT PERIOD*
VALUE VALUE 5/1/05- VALUE VALUE 5/1/05- EXPENSE
5/1/05 10/31/05 10/31/05 5/1/05 10/31/05 10/31/05 RATIO
--------- -------- ----------- --------- -------- ----------- -------
Flexible Income Portfolio
Class A ....................... $1,000 $1,017 $5.03 $1,000 $1,020 $5.04 0.99%
Class B ....................... 1,000 1,013 8.93 1,000 1,016 8.94 1.76%
Class C ....................... 1,000 1,013 8.88 1,000 1,016 8.89 1.75%
Conservative Balanced Portfolio
Class A ....................... $1,000 $1,029 $5.17 $1,000 $1,020 $5.14 1.01%
Class B ....................... 1,000 1,026 9.09 1,000 1,016 9.05 1.78%
Class C ....................... 1,000 1,025 8.98 1,000 1,016 8.94 1.76%
Balanced Portfolio
Class A ....................... $1,000 $1,045 $4.90 $1,000 $1,020 $4.84 0.95%
Class B ....................... 1,000 1,040 8.79 1,000 1,017 8.69 1.71%
Class C ....................... 1,000 1,040 8.74 1,000 1,017 8.64 1.70%
Conservative Growth Portfolio
Class A ....................... $1,000 $1,058 $5.08 $1,000 $1,020 $4.99 0.98%
Class B ....................... 1,000 1,053 9.00 1,000 1,016 8.84 1.74%
Class C ....................... 1,000 1,054 8.95 1,000 1,016 8.79 1.73%
Strategic Growth Portfolio
Class A ....................... $1,000 $1,067 $5.37 $1,000 $1,020 $5.24 1.03%
Class B ....................... 1,000 1,063 9.36 1,000 1,016 9.15 1.80%
Class C ....................... 1,000 1,063 9.26 1,000 1,016 9.05 1.78%
* Expenses are equal to each Portfolio's annualized expense ratio, multiplied
by the average account value over the period, multiplied by the 184 days in
the most recent fiscal half-year, divided by 365 days in the year (to
reflect the one-half year period).
19
Expense Information (continued)
The following table sets forth the estimated ongoing aggregate expenses of the
Portfolios, including expenses of Class I shares of various funds in the WM
Group of Funds (collectively, the "Underlying Funds"), based upon expenses shown
in the table on the prior page for each Portfolio and corresponding expenses for
each Underlying Fund's Class I shares. These estimates assume a constant
allocation by each Portfolio of its assets among the Underlying Funds identical
to the actual allocation of the Portfolio at October 31, 2005. A Portfolio's
actual aggregate expenses may be higher as a result of changes in the allocation
of the Portfolio's assets among the Underlying Funds, the expenses of the
Underlying Funds and/or the Portfolio's own expenses.
HYPOTHETICAL
ACTUAL EXPENSES (5% RETURN BEFORE EXPENSES)
---------------------------------- ----------------------------------
ESTIMATED ESTIMATED
AGGREGATE AGGREGATE
EXPENSES EXPENSES
BEGINNING ENDING PAID DURING BEGINNING ENDING PAID DURING ESTIMATED
ACCOUNT ACCOUNT PERIOD* ACCOUNT ACCOUNT PERIOD* AGGREGATE
VALUE VALUE 5/1/05- VALUE VALUE 5/1/05- EXPENSE
5/1/05 10/31/05 10/31/05 5/1/05 10/31/05 10/31/05 RATIO
--------- -------- ----------- --------- -------- ----------- ---------
Flexible Income Portfolio
Class A ....................... $1,000 $1,017 $ 7.93 $1,000 $1,017 $ 7.93 1.56%
Class B ....................... 1,000 1,013 11.82 1,000 1,013 11.82 2.33%
Class C ....................... 1,000 1,013 11.77 1,000 1,014 11.77 2.32%
Conservative Balanced Portfolio
Class A ....................... $1,000 $1,029 $ 8.29 $1,000 $1,017 $ 8.24 1.62%
Class B ....................... 1,000 1,026 12.20 1,000 1,013 12.13 2.39%
Class C ....................... 1,000 1,025 12.10 1,000 1,013 12.03 2.37%
Balanced Portfolio
Class A ....................... $1,000 $1,045 $ 8.40 $1,000 $1,017 $ 8.29 1.63%
Class B ....................... 1,000 1,040 12.29 1,000 1,013 12.13 2.39%
Class C ....................... 1,000 1,040 12.24 1,000 1,013 12.08 2.38%
Conservative Growth Portfolio
Class A ....................... $1,000 $1,058 $ 8.71 $1,000 $1,017 $ 8.54 1.68%
Class B ....................... 1,000 1,053 12.63 1,000 1,013 12.38 2.44%
Class C ....................... 1,000 1,054 12.58 1,000 1,013 12.33 2.43%
Strategic Growth Portfolio
Class A ....................... $1,000 $1,067 $ 9.12 $1,000 $1,016 $ 8.89 1.75%
Class B ....................... 1,000 1,063 13.10 1,000 1,013 12.78 2.52%
Class C ....................... 1,000 1,063 13.00 1,000 1,013 12.68 2.50%
* Expenses are equal to each Portfolio's estimated aggregate annualized
expense ratio, multiplied by the average account value over the period,
multiplied by the 184 days in the most recent fiscal half-year, divided by
365 days in the year (to reflect the one-half year period).
20
Financial Statements:
Portfolios of Investments
FLEXIBLE INCOME PORTFOLIO
October 31, 2005
VALUE
SHARES (000S)
- ------ --------
INVESTMENT COMPANY SECURITIES - 100.0%
EQUITY FUNDS - 24.1%
2,029,300 WM Equity Income Fund ............................... $ 40,728
3,128,017 WM Growth & Income Fund ............................. 77,418
3,023,008 WM Growth Fund ...................................... 49,668
1,508,897 WM Mid Cap Stock Fund ............................... 29,378
606,165 WM REIT Fund ........................................ 10,469
711,396 WM Small Cap Growth Fund+ ........................... 10,265
893,922 WM Small Cap Value Fund ............................. 10,495
265,817 WM West Coast Equity Fund ........................... 10,471
--------
Total Equity Funds (Cost $182,875) .................. 238,892
--------
FIXED-INCOME FUNDS - 75.9%
7,848,488 WM High Yield Fund .................................. 64,514
25,190,927 WM Income Fund ...................................... 228,482
51,625,486 WM Short Term Income Fund ........................... 119,255
32,121,479 WM U.S. Government Securities Fund .................. 338,239
--------
Total Fixed-Income Funds (Cost $762,389) ............ 750,490
--------
Total Investment Company Securities
(Cost $945,264) .................................. 989,382
--------
PRINCIPAL
AMOUNT
(000S)
- ---------
REPURCHASE AGREEMENT - 0.2%
(Cost $1,682)
$1,682 Agreement with Credit Suisse First
Boston Corporation, 3.930% dated
10/31/2005, to be repurchased at
$1,682,000 on 11/01/2005
(Collateralized by U.S. Treasury
Obligations, having various
interest rates and maturities,
market value $1,717,000) ....................... 1,682
--------
TOTAL INVESTMENTS (Cost $946,946*) ......................... 100.2% 991,064
OTHER ASSETS (LIABILITIES) (NET) ........................... (0.2) (1,527)
----- --------
NET ASSETS ................................................. 100.0% $989,537
===== ========
- ----------
* Aggregate cost for federal tax purposes is $953,534.
+ Non-income producing security.
CONSERVATIVE BALANCED PORTFOLIO
October 31, 2005
VALUE
SHARES (000S)
- ------ --------
INVESTMENT COMPANY SECURITIES - 99.7%
EQUITY FUNDS - 41.6%
2,347,274 WM Equity Income Fund ............................... $ 47,110
2,765,595 WM Growth & Income Fund ............................. 68,448
2,740,382 WM Growth Fund ...................................... 45,025
2,546,358 WM International Growth Fund ........................ 27,526
1,122,542 WM Mid Cap Stock Fund ............................... 21,856
724,801 WM REIT Fund ........................................ 12,517
443,134 WM Small Cap Growth Fund+ ........................... 6,394
785,867 WM Small Cap Value Fund ............................. 9,226
433,993 WM West Coast Equity Fund ........................... 17,095
--------
Total Equity Funds (Cost $209,967) .................. 255,197
--------
FIXED-INCOME FUNDS - 58.1%
3,869,145 WM High Yield Fund .................................. 31,804
11,964,384 WM Income Fund ...................................... 108,517
15,089,448 WM Short Term Income Fund ........................... 34,857
17,249,460 WM U.S. Government Securities Fund .................. 181,637
--------
Total Fixed-Income Funds (Cost $363,743) ............ 356,815
--------
Total Investment Company Securities
(Cost $573,710) .................................. 612,012
--------
PRINCIPAL
AMOUNT
(000S)
- ---------
REPURCHASE AGREEMENT - 0.2%
(Cost $1,028)
$1,028 Agreement with Credit Suisse First
Boston Corporation, 3.930% dated
10/31/2005, to be repurchased at
$1,028,000 on 11/01/2005
(Collateralized by U.S. Treasury
Obligations, having various
interest rates and maturities,
market value $1,049,000) ........................ 1,028
--------
TOTAL INVESTMENTS (Cost $574,738*) .......................... 99.9% 613,040
OTHER ASSETS (LIABILITIES) (NET) ............................ 0.1 833
----- --------
NET ASSETS .................................................. 100.0% $613,873
===== ========
- ----------
* Aggregate cost for federal tax purposes is $577,728.
+ Non-income producing security.
See Notes to Financial Statements.
21
Portfolios of Investments
BALANCED PORTFOLIO
October 31, 2005
VALUE
SHARES (000S)
- ------ ----------
INVESTMENT COMPANY SECURITIES - 98.5%
EQUITY FUNDS - 63.4%
24,045,754 WM Equity Income Fund ............................. $ 482,598
26,430,881 WM Growth & Income Fund ........................... 654,164
31,940,509 WM Growth Fund .................................... 524,783
25,402,464 WM International Growth Fund ...................... 274,601
12,777,806 WM Mid Cap Stock Fund ............................. 248,784
8,162,013 WM REIT Fund ...................................... 140,958
5,302,944 WM Small Cap Growth Fund+ ......................... 76,522
9,109,574 WM Small Cap Value Fund ........................... 106,946
5,173,783 WM West Coast Equity Fund ......................... 203,795
----------
Total Equity Funds (Cost $2,240,892) .............. 2,713,151
----------
FIXED-INCOME FUNDS - 35.1%
24,068,191 WM High Yield Fund ................................ 197,840
48,527,195 WM Income Fund .................................... 440,142
17,822,579 WM Short Term Income Fund ......................... 41,170
78,037,959 WM U.S. Government Securities Fund ................ 821,740
----------
Total Fixed-Income Funds (Cost $1,518,929) ........ 1,500,892
----------
Total Investment Company Securities
(Cost $3,759,821) .............................. 4,214,043
----------
PRINCIPAL
AMOUNT
(000S)
- ---------
REPURCHASE AGREEMENT - 1.5%
(Cost $65,443)
$65,443 Agreement with Credit Suisse First
Boston Corporation, 3.930% dated
10/31/2005, to be repurchased at
$65,450,000 on 11/01/2005
(Collateralized by U.S. Treasury
Obligations, having various
interest rates and maturities,
market value $66,809,000) ..................... 65,443
----------
TOTAL INVESTMENTS (Cost $3,825,264*) ...................... 100.0% 4,279,486
OTHER ASSETS (LIABILITIES) (NET) .......................... 0.0 352
----- ----------
NET ASSETS ................................................ 100.0% $4,279,838
===== ==========
- ----------
* Aggregate cost for federal tax purposes is $3,859,670.
+ Non-income producing security.
CONSERVATIVE GROWTH PORTFOLIO
October 31, 2005
VALUE
SHARES (000S)
- ------ ----------
INVESTMENT COMPANY SECURITIES - 99.9%
EQUITY FUNDS - 83.5%
22,245,677 WM Equity Income Fund ............................. $ 446,471
27,671,262 WM Growth & Income Fund ........................... 684,864
33,597,282 WM Growth Fund .................................... 552,003
26,453,079 WM International Growth Fund ...................... 285,958
13,356,123 WM Mid Cap Stock Fund ............................. 260,044
8,178,351 WM REIT Fund ...................................... 141,240
5,933,384 WM Small Cap Growth Fund+ ......................... 85,619
9,925,306 WM Small Cap Value Fund ........................... 116,523
5,670,846 WM West Coast Equity Fund ......................... 223,374
----------
Total Equity Funds (Cost $2,349,743) .............. 2,796,096
----------
FIXED-INCOME FUNDS - 16.4%
15,037,620 WM High Yield Fund ................................ 123,609
14,006,949 WM Income Fund .................................... 127,043
28,527,325 WM U.S. Government Securities Fund ................ 300,393
----------
Total Fixed-Income Funds (Cost $549,945) .......... 551,045
----------
Total Investment Company Securities
(Cost $2,899,688) .............................. 3,347,141
----------
PRINCIPAL
AMOUNT
(000S)
- ---------
REPURCHASE AGREEMENT - 0.1%
(Cost $3,047)
$3,047 Agreement with Credit Suisse First
Boston Corporation, 3.930% dated
10/31/2005, to be repurchased at
$3,047,000 on 11/01/2005
(Collateralized by U.S. Treasury
Obligations, having various
interest rates and maturities,
market value $3,111,000) ...................... 3,047
----------
TOTAL INVESTMENTS (Cost $2,902,735*) ...................... 100.0% 3,350,188
OTHER ASSETS (LIABILITIES) (NET) .......................... 0.0 (1,394)
----- ----------
NET ASSETS ................................................ 100.0% $3,348,794
===== ==========
- ----------
* Aggregate cost for federal tax purposes is $2,921,612.
+ Non-income producing security.
See Notes to Financial Statements.
22
Portfolio of Investments
STRATEGIC GROWTH PORTFOLIO
October 31, 2005
VALUE
SHARES (000S)
- ------ ----------
INVESTMENT COMPANY SECURITIES - 100.0%
EQUITY FUNDS - 95.1%
13,851,570 WM Equity Income Fund ............................. $ 278,001
19,354,547 WM Growth & Income Fund ........................... 479,025
20,384,920 WM Growth Fund .................................... 334,924
17,814,971 WM International Growth Fund ...................... 192,580
10,620,862 WM Mid Cap Stock Fund ............................. 206,788
4,850,016 WM REIT Fund ...................................... 83,760
4,198,844 WM Small Cap Growth Fund+ ......................... 60,589
6,504,602 WM Small Cap Value Fund ........................... 76,364
4,246,809 WM West Coast Equity Fund ......................... 167,282
----------
Total Equity Funds (Cost $1,623,237) .............. 1,879,313
----------
FIXED-INCOME FUND - 4.9%
(Cost $92,302)
11,620,094 WM High Yield Fund ................................ 95,517
----------
Total Investment Company Securities
(Cost $1,715,539) .............................. 1,974,830
----------
PRINCIPAL
AMOUNT
(000S)
- ---------
REPURCHASE AGREEMENT - 0.3%
(Cost $6,483)
$6,483 Agreement with Credit Suisse First
Boston Corporation, 3.930% dated
10/31/2005, to be repurchased at
$6,484,000 on 11/01/2005
(Collateralized by U.S. Treasury
Obligations, having various
interest rates and maturities,
market value $6,618,000) ...................... 6,483
----------
TOTAL INVESTMENTS (Cost $1,722,022*) ...................... 100.3% 1,981,313
OTHER ASSETS (LIABILITIES) (NET) .......................... (0.3) (5,457)
----- ----------
NET ASSETS ................................................ 100.0% $1,975,856
===== ==========
- ----------
* Aggregate cost for federal tax purposes is $1,741,235.
+ Non-income producing security.
See Notes to Financial Statements.
23
Statements of Assets and Liabilities
October 31, 2005
(In thousands)
FLEXIBLE CONSERVATIVE CONSERVATIVE STRATEGIC
INCOME BALANCED BALANCED GROWTH GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- ------------ ---------- ------------ ----------
ASSETS:
Investments, at cost ......................... $946,946 $574,738 $3,825,264 $2,902,735 $1,722,022
======== ======== ========== ========== ==========
Investments, at value ........................ $991,064 $613,040 $4,279,486 $3,350,188 $1,981,313
Dividends and/or interest receivable ......... -- -- 7 -- 1
Receivable for Portfolio shares sold ......... 2,283 2,939 10,593 7,423 4,166
Prepaid expenses and other assets ............ 4 3 17 14 8
-------- -------- ---------- ---------- ----------
Total Assets .............................. 993,351 615,982 4,290,103 3,357,625 1,985,488
-------- -------- ---------- ---------- ----------
LIABILITIES:
Payable for Portfolio shares redeemed ........ 2,505 1,325 5,012 3,524 1,997
Payable for investment securities purchased .. -- -- -- 1,047 4,983
Investment advisory fee payable .............. 533 326 2,093 1,669 1,006
Shareholder servicing and distribution
fees payable .............................. 558 331 2,264 1,828 1,099
Transfer agent fees payable .................. 53 29 210 199 159
Accrued printing and postage expenses ........ 97 36 437 353 230
Accrued legal and audit fees ................. 30 28 45 41 34
Accrued expenses and other payables .......... 38 34 204 170 124
-------- -------- ---------- ---------- ----------
Total Liabilities ......................... 3,814 2,109 10,265 8,831 9,632
-------- -------- ---------- ---------- ----------
NET ASSETS ................................... $989,537 $613,873 $4,279,838 $3,348,794 $1,975,856
======== ======== ========== ========== ==========
NET ASSETS CONSIST OF:
Undistributed net investment income .......... $ 2,173 $ 799 $ 2,073 $ 107 $ 166
Accumulated net realized loss on
investment transactions ................... (3,978) (2,034) (59,736) (73,385) (59,667)
Net unrealized appreciation of investments ... 44,118 38,302 454,222 447,453 259,291
Paid-in capital .............................. 947,224 576,806 3,883,279 2,974,619 1,776,066
-------- -------- ---------- ---------- ----------
Total Net Assets .......................... $989,537 $613,873 $4,279,838 $3,348,794 $1,975,856
======== ======== ========== ========== ==========
NET ASSETS:
Class A Shares ............................... $443,361 $291,796 $2,125,167 $1,561,310 $ 885,165
======== ======== ========== ========== ==========
Class B Shares ............................... $384,036 $169,869 $1,419,870 $1,059,655 $ 672,826
======== ======== ========== ========== ==========
Class C Shares ............................... $162,140 $152,208 $ 734,801 $ 727,829 $ 417,865
======== ======== ========== ========== ==========
SHARES OUTSTANDING:
Class A Shares ............................... 39,624 27,828 159,595 106,403 55,368
======== ======== ========== ========== ==========
Class B Shares ............................... 34,377 16,227 106,890 74,356 44,117
======== ======== ========== ========== ==========
Class C Shares ............................... 14,583 14,597 55,586 51,427 27,333
======== ======== ========== ========== ==========
CLASS A SHARES:**
Net asset value per share of beneficial
interest outstanding* ..................... $ 11.19 $ 10.49 $ 13.32 $ 14.67 $ 15.99
======== ======== ========== ========== ==========
Maximum sales charge ......................... 4.50% 5.50% 5.50% 5.50% 5.50%
======== ======== ========== ========== ==========
Maximum offering price per share
of beneficial interest outstanding ........ $ 11.72 $ 11.10 $ 14.10 $ 15.52 $ 16.92
======== ======== ========== ========== ==========
CLASS B SHARES:**
Net asset value and offering price per share
of beneficial interest outstanding* ....... $ 11.17 $ 10.47 $ 13.28 $ 14.25 $ 15.25
======== ======== ========== ========== ==========
CLASS C SHARES:**
Net asset value and offering price per share
of beneficial interest outstanding* ....... $ 11.12 $ 10.43 $ 13.22 $ 14.15 $ 15.29
======== ======== ========== ========== ==========
- ----------
* Redemption price per share is equal to net asset value per share less any
applicable contingent deferred sales charge.
** Net asset values and maximum offering prices are not shown in thousands.
See Notes to Financial Statements.
24
Statements of Operations
For the Year Ended October 31, 2005
(In thousands)
FLEXIBLE CONSERVATIVE CONSERVATIVE STRATEGIC
INCOME BALANCED BALANCED GROWTH GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- ------------ ---------- ------------ ----------
INVESTMENT INCOME:
Dividends from investment
company securities ...................... $39,319 $18,913 $100,801 $ 57,089 $ 25,205
Interest ................................... 47 33 1,997 88 67
------- ------- -------- -------- --------
Total investment income ................. 39,366 18,946 102,798 57,177 25,272
------- ------- -------- -------- --------
EXPENSES:
Investment advisory fee .................... 6,115 3,474 22,944 18,482 11,040
Custodian fees ............................. 9 4 3 4 4
Legal and audit fees ....................... 42 34 102 86 59
Registration and filing fees ............... 81 85 206 162 137
Printing and postage expenses .............. 256 122 1,116 945 665
Other ...................................... 145 89 578 490 320
Shareholder servicing and distribution fees:
Class A Shares .......................... 1,029 636 4,670 3,500 1,940
Class B Shares .......................... 4,051 1,681 14,187 10,557 6,604
Class C Shares .......................... 1,444 1,236 6,203 6,229 3,620
Transfer agent fees:
Class A Shares .......................... 222 143 1,012 961 725
Class B Shares .......................... 307 139 1,138 966 754
Class C Shares .......................... 93 78 394 466 341
------- ------- -------- -------- --------
Total expenses ....................... 13,794 7,721 52,553 42,848 26,209
Fees reduced by custodian credits .......... --* --* --* --* --*
------- ------- -------- -------- --------
Net expenses ......................... 13,794 7,721 52,553 42,848 26,209
------- ------- -------- -------- --------
NET INVESTMENT INCOME/(LOSS) ............... 25,572 11,225 50,245 14,329 (937)
------- ------- -------- -------- --------
NET REALIZED AND UNREALIZED
GAIN/(LOSS) ON INVESTMENTS:
Net realized gain/(loss) on investment
transactions ............................ (294) 24 (671) (2,370) (2,613)
Capital gain distributions received ........ 1,239 1,041 11,568 12,156 8,964
Net change in unrealized appreciation/
depreciation of investments ............. (4,746) 9,351 179,183 220,107 155,476
------- ------- -------- -------- --------
Net realized and unrealized gain/(loss) on
investments ............................. (3,801) 10,416 190,080 229,893 161,827
------- ------- -------- -------- --------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ............... $21,771 $21,641 $240,325 $244,222 $160,890
======= ======= ======== ======== ========
- ----------
* Amount represents less than $500.
See Notes to Financial Statements.
25
Statements of Changes in Net Assets
(In thousands)
FLEXIBLE CONSERVATIVE
INCOME PORTFOLIO BALANCED PORTFOLIO BALANCED PORTFOLIO
----------------------- ----------------------- -----------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
10/31/05 10/31/04 10/31/05 10/31/04 10/31/05 10/31/04
---------- ---------- ---------- ---------- ---------- ----------
Net investment income/(loss) ............ $ 25,572 $ 20,738 $ 11,225 $ 7,342 $ 50,245 $ 31,455
Net realized gain/(loss) on investment
transactions ......................... (294) 2,394 24 646 (671) (21,358)
Capital gain distributions received ..... 1,239 81 1,041 53 11,568 619
Net change in unrealized appreciation/
depreciation of investments .......... (4,746) 19,948 9,351 14,620 179,183 184,763
-------- -------- -------- -------- ---------- ----------
Net increase in net assets resulting
from operations ...................... 21,771 43,161 21,641 22,661 240,325 195,479
Distributions to shareholders from:
Net investment income:
Class A Shares .................... (12,642) (9,197) (6,169) (3,698) (31,381) (18,617)
Class B Shares .................... (9,207) (9,486) (2,814) (2,374) (13,452) (10,238)
Class C Shares .................... (3,397) (2,379) (2,133) (1,260) (5,984) (3,132)
Net realized gains on investments:
Class AShares ..................... (1,159) -- (307) -- -- --
Class B Shares .................... (1,306) -- (231) -- -- --
Class C Shares .................... (401) -- (146) -- -- --
Net increase in net assets from
Portfolio share transactions:
Class A Shares .................... 88,792 125,662 79,532 107,648 511,715 665,510
Class B Shares .................... (33,003) 35,707 4,826 38,752 (7,480) 203,662
Class C Shares .................... 35,589 56,455 52,920 42,994 223,780 228,227
-------- -------- -------- -------- ---------- ----------
Net increase in net assets .............. 85,037 239,923 147,119 204,723 917,523 1,260,891
NET ASSETS:
Beginning of year ....................... 904,500 664,577 466,754 262,031 3,362,315 2,101,424
-------- -------- -------- -------- ---------- ----------
End of year ............................. $989,537 $904,500 $613,873 $466,754 $4,279,838 $3,362,315
======== ======== ======== ======== ========== ==========
Undistributed net investment income/
(accumulated net investment loss)
at end of year ....................... $ 2,173 $ 1,673 $ 799 $ 582 $ 2,073 $ 1,467
======== ======== ======== ======== ========== ==========
TAX CHARACTER OF DISTRIBUTIONS PAID:
Ordinary income ......................... $ 26,279 $ 21,062 $ 11,703 $ 7,332 $ 50,817 $ 31,987
Long-term capital gains ................. 1,833 -- 97 -- -- --
-------- -------- -------- -------- ---------- ----------
Total ................................... $ 28,112 $ 21,062 $ 11,800 $ 7,332 $ 50,817 $ 31,987
======== ======== ======== ======== ========== ==========
See Notes to Financial Statements.
26
CONSERVATIVE STRATEGIC
GROWTH PORTFOLIO GROWTH PORTFOLIO
- ----------------------- -----------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
10/31/05 10/31/04 10/31/05 10/31/04
- ---------- ---------- ---------- ----------
$ 14,329 $ 6,607 $ (937) $ (5,054)
(2,370) (33,528) (2,613) (25,066)
12,156 633 8,964 435
220,107 192,878 155,476 127,779
- ---------- ---------- ---------- ----------
244,222 166,590 160,890 98,094
(11,899) (3,971) (1,610) --
(2,201) (3,187) -- --
(2,378) (1,027) -- --
-- -- -- --
-- -- -- --
-- -- -- --
300,718 474,242 206,269 272,782
(22,833) 104,834 535 81,770
203,027 264,288 110,472 155,320
- ---------- ---------- ---------- ----------
708,656 1,001,769 476,556 607,966
2,640,138 1,638,369 1,499,300 891,334
- ---------- ---------- ---------- ----------
$3,348,794 $2,640,138 $1,975,856 $1,499,300
========== ========== ========== ==========
$ 107 $ (1,722) $ 166 $ (9,034)
========== ========== ========== ==========
$ 16,478 $ 8,185 $ 1,610 $ --
-- -- -- --
- ---------- ---------- ---------- ----------
$ 16,478 $ 8,185 $ 1,610 $ --
========== ========== ========== ==========
See Notes to Financial Statements.
27
Statements of Changes in Net Assets -- Capital Stock Activity
(In thousands)
FLEXIBLE CONSERVATIVE
INCOME PORTFOLIO BALANCED PORTFOLIO BALANCED PORTFOLIO
----------------------- ----------------------- -----------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
10/31/05 10/31/04 10/31/05 10/31/04 10/31/05 10/31/04
---------- ---------- ---------- ---------- ---------- ----------
AMOUNT
CLASS A:
Sold ................................. $ 209,417 $ 205,718 $143,665 $146,926 $ 793,211 $ 833,154
Issued as reinvestment of dividends .. 11,907 8,244 5,799 3,374 28,968 17,690
Redeemed ............................. (132,532) (88,300) (69,932) (42,652) (310,464) (185,334)
--------- --------- -------- -------- --------- ---------
Net increase ......................... $ 88,792 $ 125,662 $ 79,532 $107,648 $ 511,715 $ 665,510
========= ========= ======== ======== ========= =========
CLASS B:
Sold ................................. $ 60,992 $ 131,911 $ 34,134 $ 70,538 $ 195,378 $ 384,734
Issued as reinvestment of dividends .. 9,136 8,441 2,710 2,179 12,481 9,770
Redeemed ............................. (103,131) (104,645) (32,018) (33,965) (215,339) (190,842)
--------- --------- -------- -------- --------- ---------
Net increase/(decrease) .............. $ (33,003) $ 35,707 $ 4,826 $ 38,752 $ (7,480) $ 203,662
========= ========= ======== ======== ========= =========
CLASS C:
Sold ................................. $ 81,325 $ 79,388 $ 73,937 $ 58,347 $ 325,240 $ 276,378
Issued as reinvestment of dividends .. 3,329 2,086 2,045 1,151 5,544 2,947
Redeemed ............................. (49,065) (25,019) (23,062) (16,504) (107,004) (51,098)
--------- --------- -------- -------- --------- ---------
Net increase ......................... $ 35,589 $ 56,455 $ 52,920 $ 42,994 $ 223,780 $ 228,227
========= ========= ======== ======== ========= =========
SHARES
CLASS A:
Sold ................................. 18,516 18,450 13,693 14,538 60,281 67,334
Issued as reinvestment of dividends .. 1,055 741 553 334 2,194 1,433
Redeemed ............................. (11,727) (7,941) (6,655) (4,219) (23,564) (14,979)
--------- --------- -------- -------- --------- ---------
Net increase ......................... 7,844 11,250 7,591 10,653 38,911 53,788
========= ========= ======== ======== ========= =========
CLASS B:
Sold ................................. 5,423 11,851 3,265 6,992 14,915 31,147
Issued as reinvestment of dividends .. 810 760 258 216 948 797
Redeemed ............................. (9,139) (9,420) (3,061) (3,366) (16,412) (15,466)
--------- --------- -------- -------- --------- ---------
Net increase/(decrease) .............. (2,906) 3,191 462 3,842 (549) 16,478
========= ========= ======== ======== ========= =========
CLASS C:
Sold ................................. 7,239 7,161 7,088 5,800 24,889 22,496
Issued as reinvestment of dividends .. 297 189 196 115 423 241
Redeemed ............................. (4,370) (2,261) (2,211) (1,644) (8,188) (4,153)
--------- --------- -------- -------- --------- ---------
Net increase ......................... 3,166 5,089 5,073 4,271 17,124 18,584
========= ========= ======== ======== ========= =========
See Notes to Financial Statements.
28
CONSERVATIVE STRATEGIC
GROWTH PORTFOLIO GROWTH PORTFOLIO
- ----------------------- -----------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
10/31/05 10/31/04 10/31/05 10/31/04
- ---------- ---------- ---------- ---------
$ 511,183 $ 597,373 $ 337,997 $348,227
11,340 3,856 1,537 --
(221,805) (126,987) (133,265) (75,445)
- --------- --------- --------- --------
$ 300,718 $ 474,242 $ 206,269 $272,782
========= ========= ========= ========
$ 157,022 $ 249,220 $ 112,864 $160,387
2,100 3,092 -- --
(181,955) (147,478) (112,329) (78,617)
- --------- --------- --------- --------
$ (22,833) $ 104,834 $ 535 $ 81,770
========= ========= ========= ========
$ 295,161 $ 306,396 $ 167,135 $177,989
2,203 960 -- --
(94,337) (43,068) (56,663) (22,669)
- --------- --------- --------- --------
$ 203,027 $ 264,288 $ 110,472 $155,320
========= ========= ========= ========
35,691 45,316 21,789 24,697
790 301 99 --
(15,434) (9,635) (8,553) (5,365)
- --------- --------- --------- --------
21,047 35,982 13,335 19,332
========= ========= ========= ========
11,277 19,332 7,597 11,813
150 246 -- --
(13,063) (11,484) (7,568) (5,796)
- --------- --------- --------- --------
(1,636) 8,094 29 6,017
========= ========= ========= ========
21,286 23,937 11,236 13,091
158 77 -- --
(6,788) (3,368) (3,794) (1,664)
- --------- --------- --------- --------
14,656 20,646 7,442 11,427
========= ========= ========= ========
See Notes to Financial Statements.
29
Financial Highlights
For a Portfolio share outstanding throughout each period.
FLEXIBLE INCOME PORTFOLIO
CLASS A
----------------------------------------------------------
YEARS ENDED OCTOBER 31 2005 2004 2003 2002 2001
- ---------------------- -------- -------- -------- -------- --------
NET ASSET VALUE, BEGINNING OF PERIOD .............................. $ 11.26 $ 10.92 $ 10.17 $ 10.71 $ 11.06
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ....................................... 0.35 0.34(6) 0.38(6) 0.45(6) 0.50(6)
Net realized and unrealized gain/(loss) on investments ...... (0.03) 0.35 0.77 (0.48) (0.04)
-------- -------- -------- -------- --------
Total from investment operations ............................ 0.32 0.69 1.15 (0.03) 0.46
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income(1) ..................... (0.35) (0.35) (0.38) (0.43) (0.61)
Distributions from net realized capital gains ............... (0.04) -- (0.02) (0.08) (0.20)
-------- -------- -------- -------- --------
Total distributions ......................................... (0.39) (0.35) (0.40) (0.51) (0.81)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD .................................... $ 11.19 $ 11.26 $ 10.92 $ 10.17 $ 10.71
======== ======== ======== ======== ========
TOTAL RETURN(2) ................................................... 2.79% 6.38% 11.49% (0.37)% 3.67%
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000s) ......................... $443,361 $357,735 $224,192 $144,710 $110,680
Ratio of operating expenses to average net assets(3) ........ 1.00% 1.02% 1.04% 1.06% 1.06%
Ratio of net investment income to average net assets ........ 3.10% 3.07% 3.64% 4.41% 4.61%
Portfolio turnover rate ..................................... 3% 3% 3% 9% 7%
Ratio of operating expenses to average net assets
without fee waivers, expenses reimbursed and/or
fees reduced by credits allowed by the custodian(3)(4) ... 1.00% 1.02% 1.04% 1.06% 1.06%
CONSERVATIVE BALANCED PORTFOLIO
CLASS A
------------------------------------------------------
YEARS ENDED OCTOBER 31 2005 2004 2003 2002 2001
- ---------------------- -------- -------- ------- ------- -------
NET ASSET VALUE, BEGINNING OF PERIOD .............................. $ 10.27 $ 9.81 $ 8.83 $ 9.43 $ 9.96
-------- -------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ....................................... 0.26(6) 0.24 0.28(6) 0.33 0.34(6)
Net realized and unrealized gain/(loss) on investments ...... 0.23 0.47 0.97 (0.61) (0.44)
-------- -------- ------- ------- -------
Total from investment operations ............................ 0.49 0.71 1.25 (0.28) (0.10)
-------- -------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income(1) ..................... (0.26) (0.25) (0.27) (0.32) (0.43)
Distributions from net realized capital gains ............... (0.01) -- -- -- --
-------- -------- ------- ------- -------
Total distributions ......................................... (0.27) (0.25) (0.27) (0.32) (0.43)
-------- -------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD .................................... $ 10.49 $ 10.27 $ 9.81 $ 8.83 $ 9.43
======== ======== ======= ======= =======
TOTAL RETURN(2) ................................................... 4.82% 7.29% 14.38% (3.06)% (0.99)%
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000s) ......................... $291,796 $207,816 $94,005 $31,070 $12,257
Ratio of operating expenses to average net assets(3) ........ 1.00% 1.04% 1.05% 1.05% 1.16%
Ratio of net investment income to average net assets ........ 2.47% 2.42% 2.99% 3.67% 3.65%
Portfolio turnover rate ..................................... 2% 2% 4% 9% 18%
Ratio of operating expenses to average net assets without fee
waivers, expenses reimbursed and/or fees reduced by
credits allowed by the custodian(3)(4) ................... 1.00% 1.04% 1.09% 1.17% 1.30%
- ----------
(1) Includes dividends paid from the short-term portion of capital gain
distributions received from the Underlying Funds.
(2) Total return is not annualized for periods of less than one year and does
not reflect any applicable sales charges. The total return would have been
lower if certain fees had not been waived and/or expenses reimbursed by the
investment advisor or if fees had not been reduced by credits allowed by
the custodian.
(3) The Portfolio also will indirectly bear its prorated share of expenses of
the Underlying Funds.
(4) Ratio of operating expenses to average net assets includes expenses paid
indirectly.
(5) The Portfolios commenced selling Class C shares on March 1, 2002.
(6) Per share numbers have been calculated using the average shares method.
(7) Annualized.
See Notes to Financial Statements.
30
CLASS B CLASS C
- ---------------------------------------------------------- -------------------------------------------
2005 2004 2003 2002 2001 2005 2004 2003 2002(5)
- -------- -------- -------- -------- -------- -------- -------- ------- -------
$ 11.24 $ 10.90 $ 10.15 $ 10.71 $ 11.06 $ 11.19 $ 10.86 $ 10.13 $ 10.54
- -------- -------- -------- -------- -------- -------- -------- ------- -------
0.26 0.26(6) 0.30(6) 0.38(6) 0.42(6) 0.26 0.26(6) 0.30(6) 0.24(6)
(0.03) 0.34 0.77 (0.50) (0.04) (0.03) 0.34 0.76 (0.43)
- -------- -------- -------- -------- -------- -------- -------- ------- -------
0.23 0.60 1.07 (0.12) 0.38 0.23 0.60 1.06 (0.19)
- -------- -------- -------- -------- -------- -------- -------- ------- -------
(0.26) (0.26) (0.30) (0.36) (0.53) (0.26) (0.27) (0.31) (0.22)
(0.04) -- (0.02) (0.08) (0.20) (0.04) -- (0.02) --
- -------- -------- -------- -------- -------- -------- -------- ------- -------
(0.30) (0.26) (0.32) (0.44) (0.73) (0.30) (0.27) (0.33) (0.22)
- -------- -------- -------- -------- -------- -------- -------- ------- -------
$ 11.17 $ 11.24 $ 10.90 $ 10.15 $ 10.71 $ 11.12 $ 11.19 $ 10.86 $ 10.13
======== ======== ======== ======== ======== ======== ======== ======= =======
1.99% 5.56% 10.60% (1.08)% 2.92% 2.06% 5.57% 10.63% (1.78)%
$384,036 $418,994 $371,639 $244,999 $146,555 $162,140 $127,771 $68,746 $20,677
1.77% 1.79% 1.79% 1.81% 1.79% 1.76% 1.78% 1.79% 1.81%(7)
2.33% 2.30% 2.89% 3.66% 3.88% 2.34% 2.31% 2.89% 3.66%(7)
3% 3% 3% 9% 7% 3% 3% 3% 9%
1.77% 1.79% 1.79% 1.81% 1.79% 1.76% 1.78% 1.79% 1.81%(7)
CLASS B CLASS C
- ------------------------------------------------------- ------------------------------------------
2005 2004 2003 2002 2001 2005 2004 2003 2002(5)
- -------- -------- -------- ------- ------- -------- ------- ------- -------
$ 10.25 $ 9.79 $ 8.82 $ 9.43 $ 9.96 $ 10.22 $ 9.76 $ 8.80 $ 9.39
- -------- -------- -------- ------- ------- -------- ------- ------- -------
0.18(6) 0.17 0.21(6) 0.27 0.27(6) 0.18(6) 0.16 0.21(6) 0.16
0.23 0.46 0.96 (0.62) (0.44) 0.22 0.48 0.97 (0.60)
- -------- -------- -------- ------- ------- -------- ------- ------- -------
0.41 0.63 1.17 (0.35) (0.17) 0.40 0.64 1.18 (0.44)
- -------- -------- -------- ------- ------- -------- ------- ------- -------
(0.18) (0.17) (0.20) (0.26) (0.36) (0.18) (0.18) (0.22) (0.15)
(0.01) -- -- -- -- (0.01) -- -- --
- -------- -------- -------- ------- ------- -------- ------- ------- -------
(0.19) (0.17) (0.20) (0.26) (0.36) (0.19) (0.18) (0.22) (0.15)
- -------- -------- -------- ------- ------- -------- ------- ------- -------
$ 10.47 $ 10.25 $ 9.79 $ 8.82 $ 9.43 $ 10.43 $ 10.22 $ 9.76 $ 8.80
======== ======== ======== ======= ======= ======== ======= ======= =======
4.02% 6.47% 13.46% (3.77)% (1.71)% 4.00% 6.55% 13.53% (4.70)%
$169,869 $161,623 $116,742 $58,054 $30,554 $152,208 $97,315 $51,284 $10,505
1.78% 1.81% 1.82% 1.80% 1.89% 1.76% 1.79% 1.80% 1.78%(7)
1.69% 1.65% 2.22% 2.92% 2.92% 1.71% 1.67% 2.24% 2.94%(7)
2% 2% 4% 9% 18% 2% 2% 4% 9%
1.78% 1.81% 1.86% 1.92% 2.03% 1.76% 1.79% 1.84% 1.90%(7)
See Notes to Financial Statements.
31
Financial Highlights
For a Portfolio share outstanding throughout each period.
BALANCED PORTFOLIO
CLASS A
---------------------------------------------------------
YEARS ENDED OCTOBER 31 2005 2004 2003 2002 2001
- ---------------------- ---------- ---------- -------- -------- --------
NET ASSET VALUE, BEGINNING OF PERIOD ............................. $ 12.64 $ 11.85 $ 10.24 $ 11.63 $ 13.55
---------- ---------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ...................................... 0.23 0.20 0.22 0.28 0.33(6)
Net realized and unrealized gain/(loss) on investments ..... 0.68 0.79 1.62 (1.08) (1.27)
---------- ---------- -------- -------- --------
Total from investment operations ........................... 0.91 0.99 1.84 (0.80) (0.94)
---------- ---------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income(1) .................... (0.23) (0.20) (0.23) (0.33) (0.51)
Distributions from net realized capital gains .............. -- -- -- (0.26) (0.47)
---------- ---------- -------- -------- --------
Total distributions ........................................ (0.23) (0.20) (0.23) (0.59) (0.98)
---------- ---------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD ................................... $ 13.32 $ 12.64 $ 11.85 $ 10.24 $ 11.63
========== ========== ======== ======== ========
TOTAL RETURN(2) .................................................. 7.20% 8.51% 18.07% (7.32)% (7.28)%
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000s) ........................ $2,125,167 $1,524,988 $792,423 $423,478 $380,681
Ratio of operating expenses to average net assets(3) ....... 0.94% 0.98% 1.02% 1.04% 1.02%
Ratio of net investment income to average net assets ....... 1.69% 1.56% 2.03% 2.55% 2.63%
Portfolio turnover rate .................................... 0% 2% 5% 19% 6%
Ratio of operating expenses to average net assets without
fee waivers, expenses reimbursed and/or fees reduced
by credits allowed by the custodian(3)(4) ............... 0.94% 0.98% 1.02% 1.04% 1.02%
CONSERVATIVE GROWTH PORTFOLIO
CLASS A
----------------------------------------------------------------
YEARS ENDED OCTOBER 31 2005 2004 2003 2002 2001
- ---------------------- ---------- ---------- -------- -------- --------
NET ASSET VALUE, BEGINNING OF PERIOD ......................... $ 13.56 $ 12.47 $ 10.37 $ 12.35 $ 15.52
INCOME FROM INVESTMENT OPERATIONS:
Net investment income/(loss) ........................... 0.13(6) 0.10(6) 0.14(6) 0.16(6) 0.20(6)
Net realized and unrealized gain/(loss) on investments 1.11 1.06 2.14 (1.52) (2.34)
---------- ---------- -------- -------- --------
Total from investment operations ....................... 1.24 1.16 2.28 (1.36) (2.14)
---------- ---------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income(1) ................ (0.13) (0.07) (0.14) (0.22) (0.58)
Distributions from net realized capital gains .......... -- -- (0.04) (0.40) (0.45)
---------- ---------- -------- -------- --------
Total distributions .................................... (0.13) (0.07) (0.18) (0.62) (1.03)
---------- ---------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD ............................... $ 14.67 $ 13.56 $ 12.47 $ 10.37 $ 12.35
========== ========== ======== ======== ========
TOTAL RETURN(2) .............................................. 9.19% 9.44% 22.12% (11.72)% (14.31)%
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000s) .................... $1,561,310 $1,157,038 $615,501 $347,297 $319,583
Ratio of operating expenses to average net assets(3) ... 0.97% 1.01% 1.05% 1.06% 1.03%
Ratio of net investment income/(loss) to average net
assets .............................................. 0.89% 0.74% 1.24% 1.41% 1.45%
Portfolio turnover rate ................................ 1% 5% 7% 14% 5%
Ratio of operating expenses to average net assets
without fee waivers, expenses reimbursed and/or fees
reduced by credits allowed by the custodian(3)(4) ... 0.97% 1.01% 1.05% 1.06% 1.03%
- ----------
(1) Includes dividends paid from the short-term portion of capital gain
distributions received from the Underlying Funds.
(2) Total return is not annualized for periods of less than one year and does
not reflect any applicable sales charges. The total return would have been
lower if certain fees had not been waived and/or expenses reimbursed by the
investment advisor or if fees had not been reduced by credits allowed by
the custodian.
(3) The Portfolio also will indirectly bear its prorated share of expenses of
the Underlying Funds.
(4) Ratio of operating expenses to average net assets includes expenses paid
indirectly.
(5) The Portfolios commenced selling Class C shares on March 1, 2002.
(6) Per share numbers have been calculated using the average shares method.
(7) Annualized.
(8) Amount represents less than $0.01 per share.
See Notes to Financial Statements.
32
CLASS B CLASS C
- ----------------------------------------------------------- ----------------------------------------
2005 2004 2003 2002 2001 2005 2004 2003 2002(5)
- ---------- ---------- ---------- -------- -------- -------- -------- -------- -------
$ 12.61 $ 11.82 $ 10.22 $ 11.62 $ 13.54 $ 12.55 $ 11.78 $ 10.20 $ 11.35
- ---------- ---------- ---------- -------- -------- -------- -------- -------- -------
0.12 0.10 0.14 0.20 0.23(6) 0.13 0.10 0.14 0.13
0.67 0.79 1.61 (1.09) (1.27) 0.67 0.78 1.60 (1.15)
- ---------- ---------- ---------- -------- -------- -------- -------- -------- -------
0.79 0.89 1.75 (0.89) (1.04) 0.80 0.88 1.74 (1.02)
- ---------- ---------- ---------- -------- -------- -------- -------- -------- -------
(0.12) (0.10) (0.15) (0.25) (0.41) (0.13) (0.11) (0.16) (0.13)
-- -- -- (0.26) (0.47) -- -- -- --
- ---------- ---------- ---------- -------- -------- -------- -------- -------- -------
(0.12) (0.10) (0.15) (0.51) (0.88) (0.13) (0.11) (0.16) (0.13)
- ---------- ---------- ---------- -------- -------- -------- -------- -------- -------
$ 13.28 $ 12.61 $ 11.82 $ 10.22 $ 11.62 $ 13.22 $ 12.55 $ 11.78 $ 10.20
========== ========== ========== ======== ======== ======== ======== ======== =======
6.32% 7.59% 17.25% (8.03)% (7.98)% 6.41% 7.64% 17.15% (9.00)%
$1,419,870 $1,354,528 $1,074,925 $743,953 $670,318 $734,801 $482,799 $234,076 $54,745
1.72% 1.75% 1.78% 1.80% 1.78% 1.70% 1.74% 1.76% 1.80%(7)
0.91% 0.79% 1.27% 1.79% 1.87% 0.93% 0.80% 1.29% 1.79%(7)
0% 2% 5% 19% 6% 0% 2% 5% 19%
1.72% 1.75% 1.78% 1.80% 1.78% 1.70% 1.74% 1.76% 1.80%(7)
CLASS B CLASS C
- ------------------------------------------------------------------- -------------------------------------------------
2005 2004 2003 2002 2001 2005 2004 2003 2002(5)
- ---------- ---------- -------- -------- -------- -------- -------- -------- -------
$ 13.17 $ 12.18 $ 10.14 $ 12.10 $ 15.17 $ 13.11 $ 12.13 $ 10.10 $ 11.79
- ---------- ---------- -------- -------- -------- -------- -------- -------- -------
0.02(6) (0.00)(6)(8) 0.05(6) 0.08(6) 0.09(6) 0.02(6) (0.00)(6)(8) 0.06(6) 0.05(6)
1.09 1.04 2.09 (1.50) (2.28) 1.08 1.03 2.08 (1.66)
- ---------- ---------- -------- -------- -------- -------- -------- -------- -------
1.11 1.04 2.14 (1.42) (2.19) 1.10 1.03 2.14 (1.61)
- ---------- ---------- -------- -------- -------- -------- -------- -------- -------
(0.03) (0.05) (0.06) (0.14) (0.43) (0.06) (0.05) (0.07) (0.08)
-- -- (0.04) (0.40) (0.45) -- -- (0.04) --
- ---------- ---------- -------- -------- -------- -------- -------- -------- -------
(0.03) (0.05) (0.10) (0.54) (0.88) (0.06) (0.05) (0.11) (0.08)
- ---------- ---------- -------- -------- -------- -------- -------- -------- -------
$ 14.25 $ 13.17 $ 12.18 $ 10.14 $ 12.10 $ 14.15 $ 13.11 $ 12.13 $ 10.10
========== ========== ======== ======== ======== ======== ======== ======== =======
8.42% 8.53% 21.24% (12.46)% (14.93)% 8.40% 8.53% 21.41% (13.72)%
$1,059,655 $1,001,081 $827,312 $623,852 $636,145 $727,829 $482,019 $195,556 $48,424
1.75% 1.78% 1.81% 1.82% 1.79% 1.73% 1.76% 1.79% 1.82%(7)
0.11% (0.03)% 0.48% 0.65% 0.69% 0.13% (0.01)% 0.50% 0.65%(7)
1% 5% 7% 14% 5% 1% 5% 7% 14%
1.75% 1.78% 1.81% 1.82% 1.79% 1.73% 1.76% 1.79% 1.82%(7)
See Notes to Financial Statements.
33
Financial Highlights
For a Portfolio share outstanding throughout each period.
STRATEGIC GROWTH PORTFOLIO
CLASS A
------------------------------------------------------------
YEARS ENDED OCTOBER 31 2005 2004 2003 2002 2001
- ---------------------- -------- -------- -------- -------- --------
NET ASSET VALUE, BEGINNING OF PERIOD ......................... $ 14.49 $ 13.16 $ 10.59 $ 13.10 $ 17.11
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income/(loss) ........................... 0.06(6) 0.01(6) 0.03(6) 0.03(6) 0.05(6)
Net realized and unrealized gain/(loss) on
investments ......................................... 1.48 1.32 2.63 (1.92) (3.21)
-------- -------- -------- -------- --------
Total from investment operations ....................... 1.54 1.33 2.66 (1.89) (3.16)
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income(1) ................ (0.04) -- -- (0.14) (0.47)
Distributions from net realized capital gains .......... -- -- (0.09) (0.48) (0.38)
-------- -------- -------- -------- --------
Total distributions .................................... (0.04) -- (0.09) (0.62) (0.85)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD ............................... $ 15.99 $ 14.49 $ 13.16 $ 10.59 $ 13.10
======== ======== ======== ======== ========
TOTAL RETURN(2) .............................................. 10.61% 10.11% 25.24% (15.45)% (19.03)%
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000s) .................... $885,165 $609,250 $298,852 $166,354 $153,857
Ratio of operating expenses to average net assets(3) ... 1.02% 1.07% 1.13% 1.13% 1.08%
Ratio of net investment income/(loss) to average net
assets .............................................. 0.38% 0.07% 0.30% 0.23% 0.34%
Portfolio turnover rate ................................ 1% 3% 7% 10% 2%
Ratio of operating expenses to average net assets
without fee waivers, expenses reimbursed and/or fees
reduced by credits allowed by the custodian(3)(4) ... 1.02% 1.07% 1.13% 1.13% 1.08%
- ----------
(1) Includes dividends paid from the short-term portion of capital gain
distributions received from the Underlying Funds.
(2) Total return is not annualized for periods of less than one year and does
not reflect any applicable sales charges. The total return would have been
lower if certain fees had not been waived and/or expenses reimbursed by the
investment advisor and/or distributor or if fees had not been reduced by
credits allowed by the custodian.
(3) The Portfolio also will indirectly bear its prorated share of expenses of
the Underlying Funds.
(4) Ratio of operating expenses to average net assets includes expenses paid
indirectly.
(5) The Portfolio commenced selling Class C shares on March 1, 2002.
(6) Per share numbers have been calculated using the average shares method.
(7) Annualized.
See Notes to Financial Statements.
34
CLASS B CLASS C
- ---------------------------------------------------------------- -------------------------------------------------
2005 2004 2003 2002 2001 2005 2004 2003 2002(5)
- -------- -------- -------- -------- -------- --------- -------- -------- -------
$ 13.90 $ 12.73 $ 10.32 $ 12.78 $ 16.75 $ 13.93 $ 12.74 $ 10.32 $ 12.50
- -------- -------- -------- -------- -------- -------- -------- -------- -------
(0.06)(6) (0.09)(6) (0.05)(6) (0.06)(6) (0.06)(6) (0.06)(6) (0.09)(6) (0.05)(6) (0.04)(6)
1.41 1.26 2.55 (1.88) (3.14) 1.42 1.28 2.56 (2.14)
- -------- -------- -------- -------- -------- -------- -------- -------- -------
1.35 1.17 2.50 (1.94) (3.20) 1.36 1.19 2.51 (2.18)
- -------- -------- -------- -------- -------- -------- -------- -------- -------
-- -- -- (0.04) (0.39) -- -- -- --
-- -- (0.09) (0.48) (0.38) -- -- (0.09) --
- -------- -------- -------- -------- -------- -------- -------- -------- -------
-- -- (0.09) (0.52) (0.77) -- -- (0.09) --
- -------- -------- -------- -------- -------- -------- -------- -------- -------
$ 15.25 $ 13.90 $ 12.73 $ 10.32 $ 12.78 $ 15.29 $ 13.93 $ 12.74 $ 10.32
======== ======== ======== ======== ======== ======== ======== ======== =======
9.71% 9.19% 24.35% (16.04)% (19.70)% 9.76% 9.34% 24.44% (17.44)%
$672,826 $612,914 $484,656 $350,982 $384,566 $417,865 $277,136 $107,826 $26,645
1.79% 1.83% 1.88% 1.87% 1.84% 1.77% 1.81% 1.84% 1.85%(7)
(0.39)% (0.69)% (0.45)% (0.51)% (0.42)% (0.37)% (0.67)% (0.41)% (0.49)%(7)
1% 3% 7% 10% 2% 1% 3% 7% 10%
1.79% 1.83% 1.88% 1.87% 1.84% 1.77% 1.81% 1.84% 1.85%(7)
See Notes to Financial Statements.
35
Notes to Financial Statements
1. ORGANIZATION AND BUSINESS
WM Strategic Asset Management Portfolios, LLC (the "LLC") was organized under
the laws of the Commonwealth of Massachusetts on March 12, 1999, as a limited
liability company. The LLC is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end management investment company.
The LLC offers five portfolios: Flexible Income, Conservative Balanced,
Balanced, Conservative Growth and Strategic Growth Portfolios (each a
"Portfolio" and collectively, the "Portfolios").
The LLC is authorized to issue an unlimited number of shares of beneficial
interest, each without par value. Each Portfolio offers three classes of shares:
Class A shares, Class B shares and Class C shares. Class A shares are generally
subject to an initial sales charge at the time of purchase. Certain Class A
shares purchased without an initial sales charge may be subject to a contingent
deferred sales charge ("CDSC") if redeemed within eighteen months from the date
of purchase. Class B shares are not subject to an initial sales charge although
they are generally subject to a CDSC if redeemed within five years from the date
of purchase. Class C shares are not subject to an initial sales charge although
they are subject to a CDSC if redeemed within one year from the date of
purchase.
Each of the Portfolios invests, within certain percentage ranges, in the
Underlying Funds. WM Advisors, Inc. (the "Advisor"), a wholly owned subsidiary
of Washington Mutual, Inc. ("Washington Mutual"), a publicly owned financial
services company, serves as investment advisor to the Portfolios and the
Underlying Funds. The Advisor may alter these percentage ranges when it deems
appropriate. The assets of each Portfolio will be allocated among the Underlying
Funds in accordance with its investment objective based on the Advisor's outlook
for the economy, the financial markets and the relative market valuations of the
Underlying Funds. In addition, in order to meet liquidity needs or for temporary
defensive purposes, each Portfolio may invest its assets directly in cash, stock
or bond index futures, options, money market securities and certain short-term
debt instruments, including repurchase agreements.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies, in conformity
with accounting principles generally accepted in the United States of America
("generally accepted accounting principles"), which are consistently followed by
the Portfolios and Underlying Funds in the preparation of their financial
statements.
PORTFOLIO VALUATION:
Investments in the Underlying Funds are valued at net asset value per Class I
share of the respective Underlying Funds determined as of the close of the New
York Stock Exchange on each valuation date. Short-term debt securities that
mature in 60 days or less are valued at amortized cost, which approximates
market value.
REPURCHASE AGREEMENTS:
Each Portfolio may enter into repurchase agreement transactions. A repurchase
agreement is a purchase of an underlying debt obligation subject to an agreement
by the seller to repurchase the obligation at an agreed upon price and time. It
is each Portfolio's policy that its custodian take possession of the underlying
collateral securities. The fair value of the collateral is at all times at least
equal to the total amount of the repurchase obligation. In the event of
counterparty default, the Portfolio would seek to use the collateral to offset
losses incurred. There is potential loss to the Portfolio in the event the
Portfolio is delayed or prevented from exercising its right to dispose of the
collateral securities, including the risk of a possible decline in the value of
the underlying securities during the period while the Portfolio seeks to assert
its rights. The Advisor, acting under the supervision of the Board of Trustees,
reviews the value of the collateral and the creditworthiness of those banks and
broker-dealers with whom each Portfolio enters into repurchase agreements.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME:
Securities transactions are recorded on a trade date basis. Realized gains and
losses from securities sold are recorded on the identified cost basis.
Interest income on debt securities is accrued daily. Dividend income and capital
gain distributions received from the Underlying Funds are recorded on the
ex-dividend date. Each Portfolio's investment income and realized and unrealized
gains and losses are allocated among the classes of that Portfolio based upon
the relative average net assets of each class.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income of the Flexible Income, Conservative
Balanced, Balanced and Conservative Growth Portfolios are declared and paid
quarterly. Dividends from any net investment income of the Strategic Growth
Portfolio are declared and paid annually. Distributions of any net capital gains
earned by a Portfolio are distributed no less frequently than annually at the
discretion of the Board of Trustees. Additional distributions of net investment
income and capital gains for each Portfolio may be made at the discretion of the
Board of Trustees of the LLC in accordance with federal income tax regulations.
36
Notes to Financial Statements (continued)
Distributions from income and capital gains are determined in accordance with
federal income tax regulations, which may differ from generally accepted
accounting principles. These differences are primarily due to differing
treatments of income and gains on various investments held by the Portfolios,
redesignated distributions and differing characterization of distributions made
by each Portfolio. At October 31, 2005, the following adjustments have been
reflected in the components of net assets on the "Statements of Assets and
Liabilities" to present these balances on an income tax basis, excluding certain
temporary differences:
INCREASE/
INCREASE (DECREASE)
INCREASE/ UNDISTRIBUTED ACCUMULATED
(DECREASE) NET INVESTMENT NET REALIZED
PAID-IN CAPITAL INCOME/(LOSS) LOSS
(000S) (000S) (000S)
--------------- -------------- ------------
Flexible Income Portfolio .................. $ (1,287) $ 174 $ 1,113
Conservative Balanced Portfolio ............ -- 108 (108)
Balanced Portfolio ......................... 4 1,178 (1,182)
Conservative Growth Portfolio .............. (2,766) 3,978 (1,212)
Strategic Growth Portfolio ................. (11,288) 11,747 (459)
The above adjustments are not reflected in the calculation of net investment
income per share presented in the Financial Highlights.
FEDERAL INCOME TAXES:
It is each Portfolio's policy to qualify as a regulated investment company by
complying with the requirements of the Internal Revenue Code of 1986, as
amended, applicable to regulated investment companies and by distributing
substantially all of its earnings to its shareholders. Therefore, no federal
income or excise tax provision is required.
EXPENSES:
General expenses of the LLC are allocated to all the Portfolios based upon the
relative average net assets of each Portfolio except printing and postage
expenses, which are allocated to all the Portfolios based upon the relative
number of shareholder accounts of each Portfolio. In addition, the Portfolios
will indirectly bear their prorated share of expenses of the Underlying Funds.
Operating expenses directly attributable to a class of shares are charged to the
operations of that class of shares. Expenses of each Portfolio not directly
attributable to the operations of any class of shares are prorated among the
classes to which the expenses relate based on the relative average net assets of
each class of shares.
USE OF ESTIMATES:
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates.
3. INVESTMENT ADVISORY AND OTHER TRANSACTIONS
The Advisor provides its proprietary asset allocation services to the
Portfolios, formulates the Portfolios' investment policies, analyzes economic
and market trends, exercises investment discretion over the assets of the
Portfolios and monitors the allocation of each Portfolio's assets and each
Portfolio's performance. For its investment advisory services to the Portfolios,
the Advisor is entitled to a monthly fee at an annual rate of 0.650% of each
Portfolio's average daily net assets up to $1 billion, 0.600% of the next $2
billion of each Portfolio's average daily net assets and 0.550% of each
Portfolio's average daily net assets over $3 billion. The Advisor discounts its
monthly fee based upon aggregate average daily net assets ("aggregate net
assets") of the LLC. Each Portfolio receives a monthly discount at an annual
rate of 0.025% of average daily net assets for aggregate net assets from $5 to
$10 billion; 0.050% of average daily net assets for aggregate net assets from
$10 to $15 billion; 0.075% of average daily net assets for aggregate net assets
from $15 to $20 billion; 0.100% of average daily net assets from aggregate net
assets from $20 to $25 billion; and 0.125% of average daily net assets for
aggregate net assets over $25 billion.
Effective November 1, 2005, the Advisor's monthly fee based upon average daily
net assets for each Portfolio changed to a monthly fee based upon aggregate net
assets of the LLC of 0.550% of aggregate net assets up to $500 million, 0.500%
of the next $500 million of aggregate net assets, 0.450% of the next $1 billion
of aggregate net assets, 0.400% of the next $1 billion of aggregate net assets,
0.350% of the next $1 billion of aggregate net assets, 0.300% of the next $1
billion of aggregate net assets and 0.250% of aggregate net assets over $5
billion. In addition, the Advisor will discontinue the discount for its monthly
fee based upon aggregate average daily net assets.
WM Shareholder Services, Inc. (the "Transfer Agent"), a wholly owned subsidiary
of Washington Mutual, serves as the transfer agent of the Portfolios. Fees are
paid to the Transfer Agent for services related to the issuance and transfer of
shares, maintaining shareholder lists, and issuing and mailing distributions and
reports. For such services, the Transfer Agent receives a fee per open and
closed account, in addition to reimbursement for certain out-of-pocket expenses.
The Transfer Agent is entitled to a monthly
37
Notes to Financial Statements (continued)
fee based upon an annual rate of $20.00 per open account for all Class A, Class
B and Class C shareholder accounts. Prior to June 1, 2005, the Transfer Agent
was entitled to a monthly fee based upon an annual rate of $20.40 per open
account for Class A, Class B and Class C shareholder accounts, with the
exception of the Flexible Income Portfolio, for which the fee was $21.15.
Custodian fees for certain Portfolios have been reduced by credits allowed by
the Portfolio's custodian for uninvested cash balances. The Portfolios could
have invested this cash in income producing investments. Fees reduced by credits
allowed by the custodian for the year ended October 31, 2005, are shown
separately in the "Statements of Operations".
4. TRUSTEES' FEES
No officer or employee of Washington Mutual or its subsidiaries receives any
compensation from the LLC for serving as an officer or Trustee of the LLC. The
LLC, together with other mutual funds advised by the Advisor, pays each Trustee
who is not an officer or employee of Washington Mutual or its subsidiaries, a
per annum retainer plus attendance fees for each meeting at which they are
present. The Lead Trustee, Committee Chairs and Committee Members receive
additional remuneration for these services to the LLC. Trustees are also
reimbursed for travel and out-of-pocket expenses. Each Trustee serves in the
same capacity for all 42 funds within the WM Group of Funds.
5. DISTRIBUTION PLANS
WM Funds Distributor, Inc. (the "Distributor"), a registered broker/dealer and a
wholly owned subsidiary of Washington Mutual, serves as distributor for Class A,
Class B and Class C shares of each Portfolio. For the year ended October 31,
2005, the Distributor received $12,775,675 representing commissions (front end
sales charges) on Class A shares and $2,022,558 representing CDSCs from Class A,
Class B and Class C shares.
Each of the Portfolios has adopted three distribution plans, pursuant to Rule
12b-1 under the 1940 Act, applicable to Class A, Class B and Class C shares of
each Portfolio (each, a "Rule 12b-1 Plan"), respectively. Under the applicable
Rule 12b-1 Plans, the Distributor may receive a service fee at an annual rate of
0.25% of the average daily net assets of each class. In addition, the
Distributor is paid a fee as compensation in connection with the offering and
sale of Class B and Class C shares at an annual rate of 0.75% of the average
daily net assets of each class. These fees may be used to cover the expenses of
the Distributor primarily intended to result in the sale of such shares,
including payments to the Distributor's representatives or others for selling
shares. The service fee is paid by the Portfolio to the Distributor, which in
turn, pays service fees to broker/dealers that provide services, such as
accepting telephone inquiries, transaction requests, processing correspondence,
new account applications and subsequent purchases for the shareholders. Under
their terms, each Rule 12b-1 plan shall remain in effect from year to year,
provided such continuance is approved annually by vote of the Board of Trustees,
including a majority of those Trustees who are not "interested persons" of the
LLC, as defined in the 1940 Act, and who have no direct or indirect financial
interest in the operation of such distribution plans, or any agreements related
to such plans, respectively.
6. PURCHASES AND SALES OF INVESTMENTS
The aggregate cost of purchases and proceeds from sales of Underlying Funds for
the year ended October 31, 2005, are as follows:
PURCHASES SALES
NAME OF PORTFOLIO (000S) (000S)
- ----------------- --------- -------
Flexible Income Portfolio ......... $117,179 $29,050
Conservative Balanced Portfolio ... 149,655 9,250
Balanced Portfolio ................ 757,357 18,000
Conservative Growth Portfolio ..... 517,206 24,600
Strategic Growth Portfolio ........ 338,762 13,750
7. CAPITAL LOSS CARRYFORWARDS
At October 31, 2005, the following Portfolios have available for federal income
tax purposes unused capital losses as follows:
(IN THOUSANDS)
-------------------------------------------------------------------
EXPIRING IN EXPIRING IN EXPIRING IN EXPIRING IN EXPIRING IN
NAME OF PORTFOLIO 2009 2010 2011 2012 2013
- ----------------- ----------- ----------- ----------- ----------- -----------
Balanced Portfolio .............. $4,005 $2,892 $ 7,703 $10,095 $ 635
Conservative Growth Portfolio ... -- 6,370 24,246 19,285 4,608
Strategic Growth Portfolio ...... -- 8,026 15,146 15,086 2,197
38
Notes to Financial Statements (continued)
8. COMPONENTS OF DISTRIBUTABLE EARNINGS
At October 31, 2005, the components of distributable earnings on a tax basis are
as follows:
(IN THOUSANDS)
---------------------------------------------------------------
FLEXIBLE CONSERVATIVE CONSERVATIVE STRATEGIC
INCOME BALANCED BALANCED GROWTH GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- ------------ --------- ------------ ---------
Gross tax unrealized appreciation .. $ 53,965 $44,517 $445,299 $435,834 $240,078
Gross tax unrealized depreciation .. (16,435) (9,205) (25,483) (7,258) --
--------- ------- -------- -------- --------
Net tax unrealized appreciation .... $ 37,530 $35,312 $419,816 $428,576 $240,078
========= ======= ======== ======== ========
Undistributed ordinary income ...... $ 2,173 $ 940 $ 2,073 $ 107 $ 166
Undistributed long-term gains ...... $ 2,610 $ 814 $ -- $ -- $ --
9. UNDERLYING FUNDS
The following is a summary of investment objectives and risk factors of the
Underlying Funds, and Portfolio ownership in the Underlying Funds. The WM Group
of Funds annual report, which is available online at wmgroupoffunds.com or by
calling 800-222-5852, contains more information regarding the Underlying Funds.
INVESTMENT OBJECTIVES OF UNDERLYING FUNDS:
The investment objectives of the Underlying Funds are as follows:
WM REIT Fund Seeks to provide a high level of current
income and intermediate- to long-term
capital appreciation.
WM Equity Income Fund Seeks to provide a relatively high level of
current income and long-term growth of
income and capital.
WM Growth & Income Fund Seeks to provide long-term capital growth.
Current income is a secondary
consideration.
WM West Coast Equity Fund Seeks to provide long-term growth of
capital.
WM Mid Cap Stock Fund Seeks to provide long-term capital
appreciation.
WM Growth Fund Seeks to provide long-term capital
appreciation.
WM Small Cap Value Fund Seeks to provide long-term capital
appreciation.
WM Small Cap Growth Fund Seeks to provide long-term capital
appreciation.
WM International Growth Fund Seeks to provide long-term capital
appreciation.
WM Short Term Income Fund Seeks to provide as high a level of current
income as is consistent with prudent
investment management and stability of
principal.
WM U.S. Government Securities Fund Seeks to provide a high level of current
income consistent with safety and
liquidity.
WM Income Fund Seeks to provide a high level of current
income consistent with preservation of
capital.
WM High Yield Fund Seeks to provide a high level of current
income.
RISK FACTORS OF UNDERLYING FUNDS:
While no individual fund is intended as a complete investment program, this is
especially true for funds that concentrate their investments such as those
investing in particular industries or regions.
The REIT Fund concentrates its investments in real estate investment trust
("REIT") securities or debt securities of issuers that are principally engaged
in the U.S. real estate or related industries. The REIT Fund could be adversely
impacted by economic trends within this industry.
The West Coast Equity Fund, which invests significant portions of its assets in
Alaska, California, Oregon and Washington, generally has more exposure to
regional economic risks than a fund making investments more broadly.
The High Yield Fund concentrates its investments in lower rated debt securities,
which may be more susceptible to adverse economic conditions than investment
grade holdings. These securities are often subordinated to the prior claims of
other senior lenders, and uncertainties exist as to an issuer's ability to meet
principal and interest payments.
39
Notes to Financial Statements (continued)
Certain Underlying Funds may invest a portion of their assets in foreign
securities of developing or emerging markets countries; enter into forward
foreign currency transactions; lend their portfolio securities; enter into a
stock index, interest rate and currency futures contracts, and options on such
contracts; enter into interest rate swaps or purchase or sell interest rate caps
or floors; enter into other types of options transactions; make short sales;
purchase zero coupon and payment-in-kind bonds; enter into repurchase or reverse
repurchase agreements; purchase and sell "when-issued" securities and engage in
"delayed-delivery" transactions; and enter into various other investment
practices, each with inherent risks. The risks involved in investing in foreign
securities include those resulting from future adverse political and economic
developments and the possible imposition of currency exchange restrictions or
other foreign laws or restrictions. The risks involved in investing in a high
concentration of a single sector include those resulting from future adverse
political and economic developments or regulatory occurrences and the potential
for adverse effects to the financial conditions of the industries within the
sector due to market fluctuations.
PORTFOLIO OWNERSHIP IN THE UNDERLYING FUNDS:
At October 31, 2005, the LLC holds investments in a number of the Underlying
Funds. The figures presented below represent the percentage of shares
outstanding of each underlying Fund owned by the Portfolios:
PORTFOLIOS
-----------------------------------------------------------------------
FLEXIBLE CONSERVATIVE CONSERVATIVE STRATEGIC
INCOME BALANCED BALANCED GROWTH GROWTH
NAME OF UNDERLYING FUND PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO TOTAL
- ----------------------- --------- ------------ --------- ------------ --------- -----
REIT Fund .................................... 2.5% 3.0% 33.5% 33.5% 19.9% 92.4%
Equity Income Fund ........................... 1.6% 1.9% 19.0% 17.6% 10.9% 51.0%
Growth & Income Fund ......................... 2.9% 2.6% 24.9% 26.1% 18.2% 74.7%
West Coast Equity Fund ....................... 0.7% 1.1% 13.0% 14.2% 10.7% 39.7%
Mid Cap Stock Fund ........................... 3.3% 2.5% 27.9% 29.2% 23.2% 86.1%
Growth Fund .................................. 2.8% 2.6% 29.9% 31.5% 19.1% 85.9%
Small Cap Value Fund ......................... 3.1% 2.7% 31.5% 34.3% 22.5% 94.1%
Small Cap Growth Fund ........................ 3.0% 1.9% 22.3% 25.0% 17.7% 69.9%
International Growth Fund .................... -- 3.3% 32.6% 33.9% 22.8% 92.6%
Short Term Income Fund ....................... 44.4% 13.0% 15.3% -- -- 72.7%
U.S. Government Securities Fund .............. 17.9% 9.6% 43.4% 15.9% -- 86.8%
Income Fund .................................. 19.2% 9.1% 37.0% 10.7% -- 76.0%
High Yield Fund* ............................. 8.0% 3.9% 24.4% 15.2% 11.8% 63.3%
- ----------
* Does not include approximately 9.3% of the High Yield Fund held by the WM
Variable Trust Portfolios, which are managed in a style substantially
identical to that of the Portfolios.
OTHER FACTORS:
Investing in the Underlying Funds through the Portfolios involves certain
additional expenses and tax results that would not be present in a direct
investment in the Underlying Funds. For example, under certain circumstances, an
Underlying Fund may determine to make payment of a redemption request by a
Portfolio wholly or partly by a distribution in kind of securities from its
portfolio, instead of cash, in accordance with the rules of the Securities and
Exchange Commission. In such cases, the Portfolios may hold securities
distributed by an Underlying Fund until the Advisor determines that it is
appropriate to dispose of such securities.
The officers and Trustees, the Advisor, the Distributor and Transfer Agent of
the Portfolios serve in the same capacity for the Underlying Funds. Conflicts
may arise as these persons and companies seek to fulfill their fiduciary
responsibilities to both the Portfolios and the Underlying Funds.
From time to time, one or more of the Underlying Funds used for investment by a
Portfolio may experience relatively large investments or redemptions due to
reallocations or rebalancings by the Portfolios as recommended by the Advisor.
These transactions will affect the Underlying Funds, since the Underlying Funds
that experience redemptions as a result of the reallocations or rebalancings may
have to sell portfolio securities and since the Underlying Funds that receive
additional cash will have to invest such cash. While it is impossible to predict
the overall impact of these transactions over time, there could be adverse
effects on portfolio management to the extent that the Underlying Funds may be
required to sell securities or invest cash at times when they would not
otherwise do so. These transactions could also have tax consequences if sales of
securities resulted in gains and could also increase transaction costs. The
Advisor is committed to minimizing such impact on the Underlying Funds to the
extent it is consistent with pursuing the investment objectives of the
Portfolios. The Advisor may nevertheless face conflicts in fulfilling its dual
responsibilities for the Portfolios and the Underlying Funds. The Advisor will,
at all times, monitor the impact on the Underlying Funds of transactions by the
Portfolios.
40
Report of Independent Registered Public Accounting Firm
TO THE TRUSTEES AND SHAREHOLDERS OF WM STRATEGIC ASSET MANAGEMENT PORTFOLIOS
LLC:
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of WM Flexible Income Portfolio, WM Conservative
Balanced Portfolio, WM Balanced Portfolio, WM Conservative Growth Portfolio and
WM Strategic Growth Portfolio (collectively, the "Portfolios") as of October 31,
2005, and the related statements of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the period
then ended. These financial statements and financial highlights are the
responsibility of the Portfolios' management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. The
Portfolios are not required to have, nor were we engaged to perform, an audit of
their internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Portfolios'
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. Our procedures
included confirmation of securities owned as of October 31, 2005, by
correspondence with the custodian. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Portfolios as of October 31, 2005, the results of their operations for the year
then ended, the changes in their net assets for each of the two years in the
period then ended, and their financial highlights for each of the five years in
the period then ended, in conformity with accounting principles generally
accepted in the United States of America.
Deloitte & Touche LLP
Boston, Massachusetts
December 22, 2005
41
Supplemental Information (unaudited)
BOARD APPROVAL OF INVESTMENT ADVISORY AGREEMENT
Each year, the Board of Trustees of the LLC (the "Board"), including a majority
of the Trustees who are not interested persons of the LLC (the "Independent
Trustees"), is required to determine whether to continue the LLC's advisory
agreement. The Investment Company Act of 1940, as amended, requires that the
Board request and evaluate, and that the investment manager furnish, such
information as may reasonably be necessary to evaluate the terms of the LLC's
advisory agreement. In May 2005, the Board and the Independent Trustees approved
the continuation of the LLC Amended and Restated Investment Management Agreement
with the Advisor (the "Agreement") for an additional one-year term beginning
July 1, 2005, following the recommendation of the Investment Committee (the
"Committee"), a majority of the members of which are Independent Trustees, and
the recommendation of the Independent Trustees as a whole. The material factors
and conclusions that formed the basis for the Committee's recommendation and the
subsequent approval by the Board and the Independent Trustees are required to be
in this report and are discussed below.
REVIEW PROCESS:
The Independent Trustees received assistance and advice, including a written
memorandum, regarding the legal standards applicable to the consideration of
advisory arrangements from independent counsel to the LLC and the Independent
Trustees. The Independent Trustees discussed the continuation of the Agreement
with representatives of the Advisor and in private session with independent
legal counsel at which no representatives of the Advisor were present. The
Committee, in deciding to recommend continuation of the Agreement, and the Board
and the Independent Trustees, in approving such continuation, did not identify
any particular information that was all-important or controlling, and each
Trustee attributed different weights to the various factors. The Trustees
evaluated all information available to them on a Portfolio-by-Portfolio basis,
and their deliberations were made separately in respect of each Portfolio. This
summary describes the most important, but not all, of the factors considered by
the Board, the Independent Trustees and the Committee. The Board, the
Independent Trustees and the Committee considered the fact that each of the
Portfolios is managed in a style substantially identical to that of a
corresponding series of WM Variable Trust (each, a "SAM Portfolio"), and
reviewed the Portfolios simultaneously with their review of the corresponding
SAM Portfolios.
MATERIALS REVIEWED:
During the course of each year, the Board receives a wide variety of materials
relating to the services provided by the Advisor and its affiliates, including
reports on: each Portfolio's investment results; portfolio construction;
portfolio composition; performance attribution; shareholder services; the
Advisor's views on the economy and capital markets; and other information
relating to the nature, extent and quality of services provided by the Advisor
and its affiliates to the Portfolios. With respect to performance attribution,
the Board, the Independent Trustees and the Committee focused in particular on
the Balanced Portfolio, as the corresponding performance attribution for the
other Portfolios typically varies in proportion to the greater or lesser risk
profiles of those Portfolios. In addition, in connection with its annual
consideration of the LLC's advisory arrangements, the Board requests and reviews
supplementary information regarding the terms of the Agreement, performance and
expense information for other investment companies derived from data compiled by
Lipper Inc., a third-party data provider ("Lipper"), and materials prepared by
Cerulli Associates, a research and consulting firm ("Cerulli"), with respect to
the costs of mutual fund wrap accounts, as well as additional information
prepared by the Advisor, including financial and profitability information
regarding the Advisor and its affiliates, descriptions of various functions
undertaken by the Advisor, such as compliance monitoring practices, and
information about the personnel providing investment management to the
Portfolios. The Board, the Independent Trustees and the Committee also
considered information regarding "revenue sharing" arrangements that the Advisor
and its affiliates have entered into with various intermediaries that sell
shares of the Portfolios. The Board also requested and reviewed information
relating to other services provided to the Portfolios by the Advisor and its
affiliates under other agreements, including information regarding so-called
"fall-out" benefits to the Advisor and its affiliates due to their other
relationships with the Portfolios, such as the administrative services contract
with the Advisor described below. The Board and the Committee also received and
reviewed comparative performance information regarding the SAM Portfolios at
each of the quarterly Board and Committee meetings.
NATURE, EXTENT AND QUALITY OF SERVICES:
Nature and Extent of Services -- In considering the continuation of the
Agreement for the current year, the Board, the Independent Trustees and the
Committee evaluated the nature and extent of the services provided by the
Advisor and its affiliates. The Advisor formulates each Portfolio's investment
policies (subject to the terms of the prospectus), analyzes economic trends and
capital market developments with a view to optimizing asset allocations,
evaluates the consistency, style and quality of the investment services provided
to the Underlying Funds in which the Portfolios invest, evaluates the
risk/return characteristics of each of the Underlying Funds by reference to the
specific security holdings of each Underlying Fund, constructs each Portfolio,
monitors each Portfolio's investment performance and reports to the Board and
the Committee. The Board, the Independent Trustees and the Committee considered
information concerning the investment philosophy and investment process used by
the Advisor in managing the Portfolios. In this context, the Board, the
Independent Trustees and the Committee considered the in-house research
capabilities of the Advisor as well as other resources available to the Advisor,
including research services available to the Advisor as a result of securities
transactions effected for the Underlying Funds. The Board, the Independent
Trustees and the Committee considered the managerial and financial resources
available to the Advisor and concluded that they would be
42
Supplemental Information (unaudited) (continued)
sufficient to meet any reasonably foreseeable obligations under the Agreement.
The Board, the Independent Trustees and the Committee noted that the standard of
care under the Agreement was comparable to that found in many investment
advisory agreements, and considered the record of the Advisor in resolving
potential disputes arising under its investment advisory agreements with the WM
Group of Funds in the best interests of shareholders.
Quality of Services -- The Board, the Independent Trustees and the Committee
considered the quality of the services provided by the Advisor and the quality
of the Advisor's resources that are available to the Portfolios. The Board, the
Independent Trustees and the Committee considered the investment experience and
professional qualifications of the personnel of the Advisor and its affiliates
and the size and functions of their staffs, as well as the reputation of the
Advisor. The Board, the Independent Trustees and the Committee considered the
complexity of managing the Portfolios relative to other types of funds including
both other funds that pursue their objectives through investments in mutual
funds (so-called "funds-of-funds") that simply rebalance their portfolios on a
periodic basis and mutual fund wrap accounts that offer asset allocation
services. In evaluating the scope and quality of the services provided by the
Advisor to the Portfolios, the Board, the Independent Trustees and the Committee
members also drew on their experiences as directors or trustees of the
Underlying Funds and, for certain Trustees, other funds. The Board, the
Independent Trustees and the Committee also received and reviewed information
regarding the quality of non-investment advisory services provided to the
Portfolios by the Advisor and its affiliates under other agreements.
The Board, the Independent Trustees and the Committee concluded that the
services provided by the Advisor have benefited and should continue to benefit
the Portfolios and their shareholders. The Board, the Independent Trustees and
the Committee concluded that the investment philosophy, process, and research
capabilities of the Advisor were well suited to the Portfolios, given their
investment objectives and policies. The Board, the Independent Trustees and the
Committee concluded that the scope of the services provided to the Portfolios by
the Advisor and its affiliates under the Agreement and the administrative
services agreement was consistent with the Portfolios' operational requirements,
including, in addition to their investment objectives, compliance with the
Portfolios' investment restrictions, tax and reporting requirements and related
shareholder services. The Board, the Independent Trustees and the Committee
concluded that the nature, scope and quality of the services provided by the
Advisor were sufficient, in light of the resources dedicated by the Advisor and
its integrity, personnel, systems and financial resources, to merit approval of
the continuation of the Agreement.
PORTFOLIO MANAGEMENT SERVICES AND PERFORMANCE:
In their evaluation of the quality of the portfolio management services provided
by the Advisor, the Board, the Independent Trustees and the Committee considered
the professional credentials and investment experience of the
Portfolios' portfolio managers. The Board, the Independent Trustees and the
Committee considered whether the Portfolios operated within their investment
objectives and their record of compliance with investment restrictions. The
Board, the Independent Trustees and the Committee reviewed information comparing
the Portfolios' historical performance to relevant market indices for the 1-, 3-
and 5-year periods ended March 31, 2005 and to performance information for other
investment companies with similar investment objectives over the 1-, 3-, 5-,
10-year and since inception periods ended January 31, 2005 derived from data
compiled by Lipper. The Board, the Independent Trustees and the Committee
focused, in particular, on the performance comparisons of the Balanced Portfolio
as compared to other mutual funds categorized by Lipper as "balanced funds." The
Board, the Independent Trustees and the Committee considered the difficulty in
identifying peer groups for the Portfolios other than the Balanced Portfolio.
The Board, the Independent Trustees and the Committee determined that those
Portfolios that did not have as readily identifiable peer groups performed
consistently with their risk profiles relative to the Balanced Portfolio and
that such Portfolios' performance should be and was symmetrically arrayed around
the performance of the Balanced Portfolio. The Board, the Independent Trustees
and the Committee noted that the Portfolios, other than the Flexible Income
Portfolio, had performed well relative to their index benchmarks over the 3- and
5-year periods and that the Balanced Portfolio had outperformed its peers for
the 3- and 5-year periods, though it had underperformed its peers during the
most recent year. The Board, the Independent Trustees and the Committee
discussed with the Advisor the reasons for this recent underperformance and the
Advisor's plans to monitor and address performance issues. The Board, the
Independent Trustees and the Committee noted the Flexible Income Portfolio's
exposure to equities accounted for its recent underperformance, its relatively
good longer term performance and short-term volatility, in each case, relative
to funds that invested exclusively in debt securities. The Board, the
Independent Trustees and the Committee considered the "core" allocations for the
Portfolios and reviewed the performance attribution analysis prepared by the
Advisor. The Board, the Independent Trustees and the Committee concluded that
the Advisor's performance record and investment process used in managing the
Portfolios were sufficient to merit approval of the continuation of the
Agreement.
MANAGEMENT FEES AND EXPENSES:
The Board, the Independent Trustees and the Committee reviewed information,
including comparative information provided by Lipper, regarding the advisory,
transfer agent, and service and distribution fees paid to the Advisor and its
affiliates and the total expenses borne by the Portfolios. The Board, the
Independent Trustees and the Committee considered both the total expenses borne
directly by the Portfolios and the total expenses borne on an aggregate basis,
including the expenses borne indirectly through the Portfolios' investments in
the Underlying Funds. They discussed the general downward trend in total expense
ratios for the Portfolios. The Board, the Independent Trustees and the Committee
reviewed the administrative and transfer agency fees paid by the Portfolios to
the Administrator, as well as the distribution (12b-1) fees paid to the
Distributor. The Board, the Independent Trustees and the Committee considered
the peer groups identified by Lipper for the Portfolios, including Lipper peer
groups comprised of funds with similar investment objectives that invest
directly in portfolio securities, and Lipper peer
43
Supplemental Information (unaudited) (continued)
groups comprised exclusively of funds-of-funds. The Board, the Independent
Trustees and the Committee noted that there were relatively few funds-of-funds
identified by Lipper. The Board, the Independent Trustees and the Committee
concluded that the Lipper peer groups comprised of funds with similar investment
objectives that invest directly in portfolio securities represented the best
mutual fund analogue to the Portfolios, particularly the Balanced Portfolio. The
Board, the Independent Trustees and the Committee considered the similarity of
the Portfolios to mutual fund wrap accounts, and reviewed and considered a
report provided by Cerulli on mutual fund wrap accounts, including data on
average annual advisory fees. The Board, the Independent Trustees and the
Committee considered information provided by Lipper comparing the aggregate
total expenses of funds-of-funds (including underlying fund expenses) identified
by Lipper relative to the Portfolios. The Committee considered the anticipated
effect on the Portfolios' expense ratios of proposed management fee reductions
for the Growth Fund, an Underlying Fund. The Board, the Independent Trustees and
the Committee concluded that the fees to be charged under the Agreement bore a
reasonable relationship to the scope and quality of the services provided.
PROFITABILITY AND ECONOMIES OF SCALE:
Profitability -- The Board, the Independent Trustees and the Committee reviewed
information regarding the cost of services provided by the Advisor and its
affiliates and the profitability (before and after distribution expenses and
prior to taxes) of their relationships with the Portfolios. The Board, the
Independent Trustees and the Committee considered trends in the profitability of
the Advisor and its affiliates, and information provided by Lipper regarding the
pre- and post-marketing profitability of other investment advisers with
publicly-traded parent companies. The Board, the Independent Trustees and the
Committee considered that the Advisor must be able to pay and retain experienced
professional personnel at competitive rates to provide services to the
Portfolios (and in connection therewith reviewed and considered changes in the
structure of compensation of the Advisor's investment professionals, including a
change in the performance-based component of the compensation and the
introduction of options and restricted stock rather than vesting periods for
cash bonuses) and that maintaining the financial viability of the Advisor is
important in order for it to continue to provide significant services to the
Portfolios and their shareholders. The Board, the Independent Trustees and the
Committee considered the impact of previously-negotiated fee reductions on the
profitability of the Advisor and the year-to-year trends in pre-distribution
margins for the Advisor, over a four-year period in which complex-wide assets
more than doubled. The Board, the Independent Trustees and the Committee also
considered that new breakpoints for an Underlying Fund would reduce revenues to
the Advisor at current asset levels. In addition, the Board, the Independent
Trustees and the Committee considered information regarding the direct and
indirect benefits the Advisor receives as a result of its relationship with the
Portfolios, including compensation paid to the Advisor and its affiliates under
other agreements, such as administrative fees to the Advisor, transfer agency
fees to the Administrator, and 12b-1 fees and sales charges to the Distributor,
as well as research provided to the Advisor in connection with portfolio
transactions effected on behalf of the Underlying Funds (soft dollar
arrangements) and reputational benefits.
Economies of Scale -- The Board, the Independent Trustees and the Committee
reviewed the extent to which the Advisor may realize economies of scale in
managing and supporting the Portfolios and the current level of Portfolio assets
in relation to the breakpoints in each Portfolio's advisory fees. The Board, the
Independent Trustees and the Committee considered the savings for the Portfolios
that had been achieved due to breakpoints previously implemented as a result of
negotiations between the Advisor and the Board. The Board, the Independent
Trustees and the Committee considered the extent to which any economies of scale
might be realized (if at all) by the Advisor across a variety of products and
services, including the SAM Portfolios, and not only in respect of a single
Portfolio, and took into account the fact that the Advisor had agreed to
advisory fee breakpoints on assets based in part on the combined assets of all
the Portfolios. The Board, the Independent Trustees and the Committee concluded
that the Portfolios' cost structure was reasonable given the scope and quality
of the services provided to the Portfolios and that the Advisor was sharing any
economies of scale with the Portfolios and their shareholders.
ADDITIONAL CONSIDERATIONS:
The Board, the Independent Trustees and the Committee also considered possible
conflicts of interest associated with the provision of investment advisory
services by the Advisor to other clients and the fact that such clients of the
Advisor were then limited to those affiliated with AIG Asset Management and
Transamerica Life Insurance Company (representing approximately $5.5 billion and
$2.5 million in assets under management as of October 31, 2005, respectively).
The Trustees considered the procedures of the Advisor designed to fulfill its
fiduciary duties to its advisory clients with respect to possible conflicts of
interest, including the codes of ethics, the integrity of the systems in place
to ensure compliance with the foregoing, and the record of the Advisor in these
matters.
CONCLUSIONS:
Based on their review, including their consideration of each of the factors
referred to above, the Board, the Independent Trustees and the Committee
concluded that the Agreement, including the fees payable to the Advisor, is fair
and reasonable to the Portfolios and their shareholders given the scope and
quality of the services provided to the Portfolios and such other considerations
as the Trustees considered relevant in the exercise of their reasonable business
judgment and that the continuation of the Agreement was in the best interests of
the Portfolios and their shareholders. The Board and the Independent Trustees
unanimously approved the continuation of the Agreement.
44
Supplemental Information (unaudited) (continued)
OTHER FUND INFORMATION
TAX INFORMATION:
The following tax information for the fiscal year ended October 31, 2005 is
provided pursuant to provisions of the Internal Revenue Code.
The amounts of long term capital gains designated are as follows (in thousands):
NAME OF PORTFOLIO
- -----------------
Flexible Income Portfolio ......... $2,254
Conservative Balanced Portfolio ... 818
Of the distributions made by the following Portfolios, the corresponding
percentages represent the amount of each distribution which may qualify for the
dividends received deduction available to corporate shareholders.
NAME OF PORTFOLIO
- -----------------
Flexible Income Portfolio ......... 9.28%
Conservative Balanced Portfolio ... 17.51%
Balanced Portfolio ................ 51.05%
Conservative Growth Portfolio ..... 100.00%
Strategic Growth Portfolio ........ 100.00%
Of the distributions made by the following Portfolios, the corresponding
percentages represent the amount of each distribution which qualifies for the
15% dividend income tax rate.
NAME OF PORTFOLIO
- -----------------
Flexible Income Portfolio ................... 9.18%
Conservative Balanced Portfolio ............. 18.86%
Balanced Portfolio .......................... 49.95%
Conservative Growth Portfolio ............... 100.00%
Strategic Growth Portfolio .................. 100.00%
The above percentages may differ from those cited elsewhere in this report due
to differences in the calculation of income and capital gains for generally
accepted accounting principles (book) purposes and federal income tax (tax)
purposes.
SCHEDULES OF INVESTMENTS:
The LLC files its complete schedules of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each fiscal
year on Form N-Q. The LLC's Form N-Q is available at http://www.sec.gov and also
may be reviewed and copied at the SEC's Public Reference Room ("PRR") in
Washington, DC. Information regarding the operation of the PRR may be obtained
by calling 800-SEC-0330.
PROXY VOTING INFORMATION:
The policies and procedures that the LLC uses to determine how to vote proxies
relating to portfolio securities held by the Fund are included in the LLC's
Statement of Additional Information which is available, without charge and upon
request, by calling 800-222-5852. Information regarding how the Portfolio voted
proxies relating to portfolio securities during the most recent twelve-month
period ended June 30 is available at http://www.wmgroupoffunds.com. This
information is also available at http://www.sec.gov.
45
Supplemental Information (unaudited) (continued)
TRUSTEES AND OFFICERS INFORMATION
NAME, AGE, AND
ADDRESS(1) OF NON- PRINCIPAL OCCUPATION(S)
INTERESTED TRUSTEE(4) LENGTH OF TIME SERVED(2) DURING PAST 5 YEARS OTHER DIRECTORSHIPS HELD BY TRUSTEE
--------------------- ------------------------ ----------------------- -----------------------------------
Wayne L. Attwood, M.D. Composite Funds-11 years Retired doctor of internal medicine None.
Age 76 WM Group of Funds-7 years and gastroenterology.
(Retired February 2005)
Kristianne Blake Composite Funds-3 years CPA specializing in personal financial Avista Corporation; Frank Russell
Age 51 WM Group of Funds-7 years and tax planning. Investment Company; Russell
Investment Funds.
Edmond R. Davis, Esq. Sierra Funds-8 years Partner at the law firm of Davis & Braille Institute of America, Inc;
Age 77 WM Group of Funds-7 years Whalen LLP. Prior thereto, partner at Children's
the law firm of Brobeck, Phlegar & Bureau of Southern California,
Harrison, LLP. Children's
Bureau Foundation; Fifield Manors, Inc.
Carrol R. McGinnis Griffin Funds-3 years Private investor since 1994. Prior Baptist Foundation of Texas; Concord
Age 62 WM Group of Funds-6 years thereto, President and Chief Operating Trust Company.
Officer of Transamerica Fund
Management Company.
Alfred E. Osborne, Jr., Sierra Funds-7 years Senior Associate Dean, University of Nordstrom Inc.; K2, Inc.; First Pacific
Ph.D. WM Group of Funds-7 years California at Los Angeles Anderson Advisors'Funds, EMAK Worldwide, Inc.;
Age 60 Graduate School of Management, and Member of Investment Company
Faculty Director of the Harold Price Institute National Board of Directors;
Center for Entrepreneurial Studies, Director of Independent Directors
University of California at Los Council and Member of Communication
Angeles. & Education Committees.
Daniel L. Pavelich Composite Funds-1 year Retired Chairman and CEO of BDO Catalytic, Inc.; Vaagen Bros.
Age 61 WM Group of Funds-7 years Seidman. Lumber, Inc.
Jay Rockey Composite Funds-3 years Founder and Senior Counsel of The Downtown Seattle Association;
Age 77 WM Group of Funds-7 years Rockey Company, now Rockey, Hill & WSU Foundation
Knowlton.
Richard C. Yancey Composite Funds-23 years Retired Managing Director of Dillon AdMedia Partners Inc.; Czech and
(Lead Trustee) WM Group of Funds-7 years Read & Co., an investment bank now Slovak American Enterprise Fund
Age 79 part of UBS.
NAME, AGE, AND
ADDRESS(1) OF
INTERESTED TRUSTEE PRINCIPAL OCCUPATION(S)
(3)(4) LENGTH OF TIME SERVED(2) DURING PAST 5 YEARS OTHER DIRECTORSHIPS HELD BY TRUSTEE
------------------ ------------------------ ----------------------- -----------------------------------
Anne V. Farrell Composite Funds-4 years President Emeritus of the Seattle Washington Mutual, Inc.;
Age 70 Foundation.
WM Group of Funds-7 years Recreational Equipment Inc.
Michael K. Murphy Composite Funds-3 years Chairman of CPM Development Washington Mutual, Inc.
Age 68 WM Group of Funds-7 years Corporation.
(Retired November 2005)
William G. Papesh Composite Funds-9 years President and Director of the Advisor, Member of Investment Company
(President and CEO) WM Group of Funds-7 years Transfer Agent and Distributor. Institute Board of Governors.
Age 62
NAME, AGE, AND ADDRESS(1) POSITION(S) HELD WITH REGISTRANT &
OF OFFICER(4) LENGTH OF TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
- ------------------------- ---------------------------------- -------------------------------------------
Wendi B. Bernard Assistant Vice President and Assistant Secretary Assistant Vice President of the Advisor.
Age 37 since 2003.
Jeffrey L. Lunzer, CPA First Vice President, Chief Financial Officer First Vice President of the Advisor, Transfer
Age 44 and Treasurer since 2003. Agent and Distributor. Prior to 2003, senior
level positions at the Columbia Funds and
Columbia Management Company.
William G. Papesh President and CEO since 1987. President and Director of the Advisor, Transfer
Age 62 Prior to 1987, other officer positions since 1972. Agent and Distributor.
Gary Pokrzywinski Senior Vice President since 2004. First Vice Senior Vice President and Director of the
Age 44 President since 2001. Prior to 2001, Vice President Advisor, Transfer Agent and Distributor.
since 1999.
Debra Ramsey Senior Vice President since 2004. Senior Vice President and Director of the
Age 52 Advisor, Transfer Agent and Distributor.
John T. West First Vice President, Secretary, Chief Compliance First Vice President of the Advisor, Transfer
Age 50 Officer and Anti-Money Laundering Compliance Officer Agent and Distributor.
since 2004.
Prior to 2004, various other officer positions
since 1993.
Randall L. Yoakum Senior Vice President since 2001. Senior Vice President and Chief Investment
Age 45 Prior to 2001, First Vice President since 1999. Strategist of the Advisor
Note: The Statement of Additional Information includes additional information
about Fund Trustees and Officers and is available, without charge, upon request
by calling 800-222-5852.
(1) The address for all Trustees and Officers is 1201 Third Avenue, 22nd Floor,
Seattle, WA, 98101.
(2) The Sierra Funds merged with the Composite Funds on March 23, 1998, to form
the WM Group of Funds. The Griffin Funds merged with the WM Group of Funds
on March 5, 1999.
(3) Trustees are considered interested due to their affiliation with Washington
Mutual, Inc.
(4) The Trustees and Officers serve in these capacities for the 42 Portfolios
and Funds in the Fund Complex. Each Trustee and officer shall hold the
indicated positions until his or her resignation, retirement or removal.
46
Supplemental Information (unaudited) (continued)
PORTFOLIO MANAGER Growth & Income Fund
Stephen Q. Spencer, CFA
WM Advisors, Inc.
Note: Pages 47-49 provide information about certain WM Funds in which the SAM
Portfolios invest a significant portion of their assets. For additional
information about these and other WM Funds, please see the WM Group of Funds
annual report, which is available online at wmgroupoffunds.com or by calling
800-222-5852.
Data shown is past performance and does not guarantee future results. Current
per-formance, including the most recent month-end results, which may be higher
or lower than the data shown, can be obtained by calling 800-222-5852. Your
investment's return and principal value will fluctuate, so it may be worth more
or less upon redemption. A sales charge may apply as follows: Class A shares:
maximum up-front sales charge of 5.5%; Class B shares: contingent deferred sales
charge of 5%, which declines over 5 years (5-5-4-3-2-0%); Class C shares:
contingent deferred sales charge of 1% on redemptions made during the first 12
months. See the prospectus for details. Performance listed with sales charge
reflects the maximum sales charge.
AVERAGE ANNUAL TOTAL RETURNS(1) AS OF OCTOBER 31, 2005
1-Year 5-Year 10-Year Since Inception Inception Date
------ ------ ------- --------------- --------------
CLASS A SHARES Net Asset Value(2) 6.34% -0.01% 9.38% 10.06% 10/31/49
With Sales Charge 0.50% -1.14% 8.77% 9.95%
CLASS B SHARES Net Asset Value(2) 5.28% -0.99% 8.62% 9.81% 3/30/94
With Sales Charge 0.28% -1.41% 8.62% 9.81%
CLASS C SHARES Net Asset Value(2) 5.30% -- -- 2.88% 3/1/02
With Sales Charge 4.30% -- -- 2.88%
S&P 500(3) 8.72% -1.74% 9.35% 11.98%
PORTFOLIO COMPOSITION(4)
As of 10/31/05
(PIE CHART)
As of As of
Asset Class 10/31/05 10/31/04 Change
- ----------- -------- -------- ------
Financials 22% 24% -2%
Information Technology 13% 13% 0%
Health Care 11% 13% -2%
Industrials 11% 10% +1%
Consumer Discretionary 10% 12% -2%
Consumer Staples 10% 10% 0%
Energy 9% 8% +1%
Utilities 5% 3% +2%
Materials 2% 0% +2%
Telecommunication Services 1% 1% 0%
Cash Equivalents 6% 6% 0%
(1) Performance reflects ongoing fund expenses, which may have been waived, and
assumes reinvestment of all dividends and capital gains. Performance does
not reflect the impact of federal, state, or municipal taxes. If it
did, performance would be lower.
(2) Net asset value is not adjusted for sales charge.
(3) See page 18 for definitions of indices. Returns shown for the index assume
reinvestment of all dividends and distributions, and the since-inception
return shown for the index is calculated from 10/31/49. Indices are
unmanaged, and individuals cannot invest directly in an index.
(4) May not reflect the current portfolio composition.
47
Supplemental Information (unaudited) (continued)
U.S. Government Securities Fund
PORTFOLIO MANAGER
Craig V. Sosey
WM Advisors, Inc.
(GRAPHIC)
Data shown is past performance and does not guarantee future results. Current
performance, including the most recent month-end results, which may be higher or
lower than the data shown, can be obtained by calling 800-222-5852. Your
investment's return and principal value will fluctuate, so it may be worth more
or less upon redemption. A sales charge may apply as follows: Class A shares:
maximum up-front sales charge of 4.5%; Class B shares: contingent deferred sales
charge of 5%, which declines over 5 years
AVERAGE ANNUAL TOTAL RETURNS(1) AS OF OCTOBER 31, 2005
1-Year 5-Year 10-Year Since Inception Inception Date
------ ------ ------- --------------- --------------
CLASS A SHARES Net Asset Value(2) 1.02% 4.92% 5.42% 7.60% 5/4/84
With Sales Charge -3.51% 3.95% 4.93% 7.37%
CLASS B SHARES Net Asset Value(2) 0.28% 4.16% 4.75% 5.31% 3/30/94
With Sales Charge -4.72% 3.82% 4.75% 5.31%
CLASS C SHARES Net Asset Value(2) 0.29% -- -- 2.62% 3/1/02
With Sales Charge -0.71% -- -- 2.62%
Citigroup Mortgage Index(3) 1.80% 5.86% 6.31% 9.15%
PORTFOLIO COMPOSITION(4)
As of 10/31/05
(PIE CHART)
As of As of
Asset Class 10/31/05 10/31/04 Change
- ----------- -------- -------- ------
FHLMC 33% 34% -1%
FNMA 29% 27% +2%
CMOs 18% 17% +1%
GNMA 7% 10% -3%
U.S. Treasuries 5% 6% -1%
U.S. Government Agency 4% 3% +1%
Cash Equivalents 4% 3% +1%
(1) Performance reflects ongoing fund expenses, which may have been waived, and
assumes reinvestment of all dividends and capital gains. Performance does
not reflect the impact of federal, state, or municipal taxes. If it did,
performance would be lower. The U.S. Government Securities Fund's
performance between 1998 and 2000 benefited from the agreement of WM
Advisors and its affiliates to limit the Fund's expenses. On 3/1/04, the
investment policies of the Fund were modified. As a result, the Fund's
performance for periods prior to that date may not be representative of the
performance it would have achieved had its current investment policies been
in place. The Income Fund's performance in 1999 benefited from the
agreement of WM Advisors and its affiliates to limit the Fund's expenses.
(2) Net asset value is not adjusted for sales charge.
48
PORTFOLIO MANAGERS
John R. Friedl, CFA and Gary J. Pokrzywinski, CFA
WM Advisors, Inc.
Income Fund
(5-5-4-3-2-0%); Class C shares: contingent deferred sales charge of 1% on
redemptions made during the first 12 months. See the prospectus for details.
Performance listed with sales charge reflects the maximum sales charge.
Fixed-income investments are subject to interest rate risk, and their value will
decline as interest rates rise. U.S. Government Securities Fund: Neither the
principal of government bond funds nor their yields are guaranteed by the
U.S. government.
Income Fund: Lower-rated securities are subject to additional credit and default
risks.
AVERAGE ANNUAL TOTAL RETURNS(1) AS OF OCTOBER 31, 2005
1-Year 5-Year 10-Year Since Inception Inception Date
------ ------ ------- --------------- --------------
CLASS A SHARES Net Asset Value(2) 0.75% 6.59% 6.37% 8.41% 12/15/75
With Sales Charge -3.83% 5.61% 5.89% 8.24%
CLASS B SHARES Net Asset Value(2) 0.02% 5.85% 5.73% 6.28% 3/30/94
With Sales Charge -4.98% 5.53% 5.73% 6.28%
CLASS C SHARES Net Asset Value(2) 0.01% -- -- 4.74% 3/1/02
With Sales Charge -0.99% -- -- 4.74%
Citigroup Broad Investment-Grade
Bond Index(3) 1.24% 6.37% 6.35% --
PORTFOLIO COMPOSITION(4)
As of 10/31/05
(PIE CHART)
As of As of
Asset Class 10/31/05 10/31/04 Change
- ----------- -------- -------- ------
Domestic Corporate Bonds 57% 57% 0%
Mortgage-Backed Bonds 23% 23% 0%
U.S. Treasuries 7% 6% +1%
Foreign Corporate 6% 6% 0%
Bonds (U.S.$)
Equities 1% 0% +1%
Foreign Government
Bonds (U.S.$) 1% 2% -1%
Cash Equivalents 5% 6% -1%
(3) See page 18 for definitions of indices. Returns shown for the indices
assume reinvestment of all dividends and distributions. The since-inception
return shown for the Citigroup Mortgage Index is calculated from 4/30/84.
Indices are unmanaged, and individuals cannot invest directly in an index.
(4) May not reflect the current portfolio composition.
49
(WM GROUP of FUNDS LOGO)
A mutual fund's share price and investment return will vary with market
conditions, and the principal value of an investment when you sell your shares
may be more or less than the original cost.
This annual report is published as general information for the shareholders of
the WM Group of Funds. This material is not authorized for distribution unless
preceded or accompanied by a current prospectus that includes more information
regarding the risk factors, expenses, policies, and objectives of the funds.
Investors should read the prospectus carefully before investing. To obtain an
additional prospectus, please contact your Investment Representative or call
800-222-5852.
The WM Group of mutual funds is advised by WM Advisors, Inc., distributed by WM
Funds Distributor, Inc., and sold through WM Financial Services, Inc. (all
affiliates of Washington Mutual, Inc.) and independent broker/dealers.
Distributed by:
WM Funds Distributor, Inc.
Member NASD
(WM GROUP of FUNDS LOGO)
P.O. Box 8024
Boston, MA 02266-8024
PRESORTED
STANDARD
US POSTAGE PAID
LOS ANGELES, CA
PERMIT #1631
ITEM 2. CODE OF ETHICS
The registrant has adopted a code of ethics that applies to the registrant's
principal executive officer, principal financial officer and principal
accounting officer, a copy of which is attached hereto.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT
The Board of Trustees of the registrant has determined that there is at least
one Trustee who is an audit committee financial expert serving on its Audit
Committee and has designated Daniel L. Pavelich as an "audit committee financial
expert." Mr. Pavelich is "independent," as such term has been defined by the
Securities and Exchange Commission (the "SEC") for purposes of implementing
Section 407 of the Sarbanes Oxley Act of 2002. The SEC has stated that the
designation or identification of a person as an audit committee financial expert
pursuant to this Item 3 of Form N-CSR does not impose on such person any duties,
obligations or liability that are greater than the duties, obligations and
liability imposed on such person as a member of the Audit Committee and the
Board of Trustees in the absence of such designation or identification.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES
(a) Audit Fees
2004 2005
- ------- --------
$99,500 $103,000
(b) Audit-Related Fees
2004 2005
- ---- ----
None None
For the last two fiscal years, no audit-related fees were required to be
approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X.
(c) Tax Fees
2004 2005
- ------- -------
$11,665 $11,920
The tax fees consist of fees billed in connection with reviewing the federal
regulated investment company income tax returns for WM Strategic Asset
Management Portfolios, LLC for the tax years ended October 31, 2004 and October
31, 2005.
(d) All Other Fees
For the last two fiscal years, no other fees were required to be approved
pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X.
(e) (1) Pre-approval Policies and Procedures
Pursuant to the Audit Committee charter, the Audit Committee of the registrant
will review and pre-approve or disapprove its principal accountant's engagement
for all services with the registrant and its principal accountant's engagement
for non-audit services with the registrant's investment advisor (not including a
sub-advisor whose role is primarily portfolio management and is sub-contracted
or overseen by another investment advisor) and any entity controlling,
controlled by or under common control with the investment advisor that provides
ongoing services to the funds in accordance with paragraph (c)(7)(i) of Rule
2-01 of Regulation S-X, if the engagement relates directly to the operations and
financial reporting of the registrant.
(2) None of the services described in paragraphs (b) through (d) of this Item 4
were approved by the Audit Committee pursuant to paragraph (c)(7)(i)(C) of Rule
2-01 of Regulation S-X.
(f) Not applicable.
(g) For the fiscal year ended October 31, 2005, the registrant's principal
accountant billed aggregate non-audit fees in the amount of $11,920 for services
rendered to the registrant, WM Advisors, Inc., WM Funds Distributor, Inc., WM
Shareholder Services, Inc. and WM Financial Services, Inc. For the fiscal year
ended October 31, 2004, the registrant's principal accountant billed aggregate
non-audit fees in the amount of $50,665 for services rendered to the registrant,
WM Advisors, Inc., WM Funds Distributor, Inc., WM Shareholder Services, Inc. and
WM Financial Services, Inc.
(h) The Audit Committee has considered whether the provision of non-audit
services that were rendered to the registrant's investment advisor (not
including any subadvisor whose role is primarily portfolio management and is
subcontracted with or overseen by another investment advisor), and any entity
controlling, controlled by, or under common control with the investment advisor
that provides ongoing services to the registrant that were not pre-approved
pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible
with maintaining the principal accountant's independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS
Not Applicable.
ITEM 6. SCHEDULE OF INVESTMENTS
Not Applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES
Not Applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES
Not Applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANIES AND AFFILIATED PURCHASERS
Not Applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
ITEM 11. CONTROLS AND PROCEDURES:
(a) The registrant's principal executive officer and principal financial officer
have concluded, based on their evaluation of the effectiveness of the design and
operation of the registrant's disclosure controls and procedures as of a date
within 90 days of the filing date of this report on Form N-CSR, that the design
and operation of such procedures are effective to provide reasonable assurance
that information required to be disclosed by the registrant in the reports that
it files or submits on Form N-CSR is recorded, processed, summarized, and
reported within the time periods specified in the SEC's rules and forms.
(b) There have been no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Investment Company
Act of 1940, as amended) that occurred during the registrant's second fiscal
half-year that have materially affected, or are reasonably likely to materially
affect, the registrant's internal control over financial reporting.
ITEM 12. EXHIBITS
(a) Registrant's Code of Ethics. The registrant's code of ethics required to be
disclosed under Item 2 of Form N-CSR attached hereto at Exhibit 99.CODE ETH.
(b) A separate certification for each principal executive officer and principal
financial officer of the registrant as required by Rule 30a-2 of the Investment
Company Act of 1940 attached hereto as Exhibit 99.CERT.
(c) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
attached hereto as Exhibit 99.906 CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
WM Strategic Asset Management Portfolios, LLC
By: /s/William G. Papesh
--------------------
William G. Papesh
President and Chief Executive Officer
Date: January 6, 2006
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities an on the
dates indicated.
By: /s/Jeffrey L. Lunzer
--------------------
Jeffrey L. Lunzer
Treasurer and Chief Financial Officer
Date: January 6, 2006
By: /s/William G. Papesh
--------------------
William G. Papesh
President and Chief Executive Officer
Date: January 6, 2006