UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR/A
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, WMT 0822, Seattle, WA 98101
(Address of principal executive offices) (Zip code)
Jeffrey L. Lunzer
1201 Third Avenue, WMT 0822, Seattle, WA 98101
(Name and address of agent for service)
Registrant's telephone number, including area code: (206) 913-5800
Date of fiscal year end: October 31, 2006
Date of reporting period: October 31, 2006
ITEM 1. REPORTS TO STOCKHOLDERS
(WM GROUP OF FUNDS LOGO)
The sophistication of a managed account with the simplicity of a mutual fund.
WM STRATEGIC ASSET MANAGEMENT PORTFOLIOS (GRAPHIC)
Annual Report
October 31, 2006
(SEAL)
WM Group of Funds transitions to Principal Funds.
See article on page 2.
(PRINCIPAL(R) FUNDS LOGO)
WM Strategic Asset Management Portfolios
(GRAPHIC)
AT THE WM GROUP OF FUNDS, OUR PASSION IS PIECING INDIVIDUAL INVESTMENTS TOGETHER
INTO COMPREHENSIVE PORTFOLIOS TO MAKE YOUR FINANCIAL PLAN MORE EFFECTIVE.
Table of Contents
1 Letter from the President
2 WM Group of Funds Transitions to Principal Funds
4 The SAM Process and Asset Allocation Team
6 Economy & Financial Markets:
Review & Outlook
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
35 Notes to Financial Statements
41 Report of Independent Registered
Public Accounting Firm
42 Supplemental Information
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)
As we enter a new fiscal year, our fund family is moving rapidly to complete
preparations for the acquisition of WM Advisors, Inc. and its subsidiaries by
the Principal Financial Group(R) (The Principal(R)). We are extremely
enthusiastic about the opportunity to join a company where asset management and
accumulation form the core of its business and where the advisory group,
Principal Global Investors, shares our expertise in asset allocation. Just as
the WM Group of Funds is the 4th largest manager of target-risk asset allocation
funds, The Principal is the 4th largest manager of target-date asset allocation
funds.(1) Together, we will rank 4th in the overall management of asset
allocation funds nationally.
On the next few pages, we introduce you to our future parent company and its
world-class investment management group. I'd also like to briefly explain below
how the WM Group of Funds will transition through this process.
EVOLUTION OF A FUND COMPLEX
To summarize, the 22 existing retail WM Funds will become part of Principal
Investors Fund, Inc. (Principal Investors Funds) as follows:
- - 15 funds will continue to be managed by their current portfolio management
teams. These funds include the SAM Portfolios.
- - 7 funds will be merged into existing Principal Investors Funds and
thereafter will be managed by Principal Global Investors or one of its
premier boutique asset management affiliates.(2)
We arrived at these decisions through careful consideration of many factors, two
of which stand out with respect to their potential impact on shareholders:
- - SHAREHOLDER EXPENSES: Each share class of a surviving fund will have an
expense ratio equal to or lower than that of the corresponding share class
of the current WM Fund. In certain instances, this will be achieved through
an expense cap agreed to by The Principal.(3)
- - PERFORMANCE: With respect to the 7 WM Funds that will merge into existing
Principal Investors Funds, the Principal Investors Funds had better
historical performance than the merged fund for the 1-, 3-, and 5-year
periods ended September 30, 2006, as applicable.(4) Please note that past
performance does not guarantee future results.
After the fund mergers in January 2007,the combined lineup will consist of 48
retail funds spanning a broad array of asset allocation, equity, and
fixed-income investments.
CONTINUITY OF MANAGEMENT AND STEWARDSHIP
The Principal Funds complex also will retain many of the people who have served
you and your investment needs over the previous years:
- - WM ADVISORS: Our investment management group will have a new name--Edge
Asset Management, Inc.-- but it will remain in Seattle and employ many of
WM Advisors' portfolio managers.
- - WM FUNDS DISTRIBUTOR, INC. AND WM SHAREHOLDER SERVICES, INC.: These groups
will form the management and staff of Principal Funds Distributor, Inc. and
Principal Shareholder Services, Inc.
- - WM GROUP OF FUNDS BOARD OF TRUSTEES: Four members of our current Board are
proposed for election to the board of Principal Investors Fund, Inc. This
group includes Dick Yancey (our Chairman and a Board member for over 30
years), Dan Pavelich (head of the Audit Committee), Kristi Blake (head of
the Operations and Distribution Committee), and myself. I would also like
to express my deep gratitude to Ed Davis, Carrol McGinnis, Al Osborne, Jay
Rockey, and Anne Farrell for their many years of diligent service on behalf
of our shareholders.
The Principal has embraced our management and staff, and I think you'll find the
combined fund family reflects our best qualities, plus new capabilities and
resources. On behalf of everyone at the WM Group of Funds, thank you for the
support and trust that you and other shareholders have honored us with for over
65 years.
Sincerely,
/s/ William G. Papesh
- -------------------------------------
William G. Papesh
President
(1) Source: FRC. Based on assets as of September 30, 2006.
(2) Principal Global Investors, one of the primary asset management divisions
of Principal Financial Group(R), consists of Principal Global Investors,
LLC; Principal Real Estate Investors, LLC; Spectrum Asset Management, Inc.;
Post Advisory Group, LLC; Columbus Circle Investors; Principal Global
Investors (Europe) Limited; Principal Global Investors (Singapore) Ltd;
Principal Global Investors (Australia) Ltd; and Principal International,
Inc., its subsidiaries and affiliates.
(3) Expense caps are subject to limited time frames.
(4) Excluding the WM Money Market Fund.
WM Group of Funds Transitions to Principal Funds
Earlier this year, we announced that the Principal Financial Group(R) (The
Principal(R)) had agreed to acquire our fund family's operating companies. Now
that the process is nearing completion, we'd like to introduce you to our future
parent company and the mutual fund complex that will manage your investments.
Many of our shareholders will recognize the Principal Financial Group as a name
they associate with their workplace benefits, such as their retirement plan. As
the nation's 401(k) leader, (1) The Principal derives over 90% of its assets
under management from retirement operations. In the U.S., it serves 42,000
employers with 2.7 million plan participants, (2) representing a large base of
investors who recognize The Principal as one of "America's Retirement Experts."
To extend its services to individual investors outside of their work-place, The
Principal is acquiring WM Advisors and its affiliates. When the transaction
closes at the end of 2006 (see Milestones chart on the next page), we will
become part of a diverse family of financial services companies--one where asset
management is central to the company's business.
WM ADVISORS JOINS WORLD-CLASS INVESTMENT MANAGER
The heart of the company's asset management organization is Principal Global
Investors, an investment manager that combines wide-ranging capabilities with a
truly global reach.
Like WM Advisors, Principal Global Investors is a leader within the field of
asset allocation investing. While the WM Group of Funds is the 4th largest
manager of target-risk asset allocation funds, The Principal is the 4th largest
manager of target-date asset allocation funds. (3) The combined fund family will
rank 4th in the overall management of asset allocation funds nationally.
Following the acquisition, WM Advisors will be positioned within a network of
investment managers affiliated with Principal Global Investors. It will join
premier boutique firms such as Columbus Circle Investors and Spectrum Asset
Management, which have expertise in a variety of core asset styles and niche
investments.
PRINCIPAL GLOBAL INVESTORS
PRINCIPAL GLOBAL INVESTORS HAS ATTRACTED A LARGE BASE OF INSTITUTIONAL ASSETS
FROM CLIENTS IN 25 COUNTRIES. IT IS THE:
- - 42nd largest institutional asset manager out of 778 worldwide
- - 23rd largest U.S. institutional tax-exempt manager out of 500
- - 5th largest real estate investment manager out of 101
- - Investment manager for 9 of the 25 largest U.S. pension funds
PRINCIPAL GLOBAL INVESTORS HAS INVESTMENT EXPERTISE IN:
- - Target-date asset allocation funds
- - Large-cap, mid-cap, and small-cap equities
- - Real estate securities
- - International equities
- - Taxable fixed-income securities
Source: Pensions & Investments Magazine. Based on assets as of December 31,2005
or June 30,2006.
(MAP)
2
(GRAPHICS)
HUMBLE BEGINNINGS GIVE RISE TO GLOBAL OPERATIONS
The Principal Financial Group was founded in 1879 as Bankers Life Association, a
company that provided life insurance to bankers and their employees from its
headquarters in Des Moines, Iowa. From this specialized focus, the firm has
expanded its product offerings to include a broad range of financial products
and services: retirement and investment services, life and health insurance, and
online banking. And its operations are not limited to domestic markets. A member
of the Fortune 500, the Principal Financial Group serves some 16.4 million
customers from its offices in 11 countries throughout Asia, Australia,
Europe, Latin America, and the United States. (2)
TOP: The Equitable Building housed the company's offices from 1880 to 1917. It
was the tallest office building in Iowa at the time.
BOTTOM: Present-day headquarters of the Principal Financial Group.
JANUARY FUND MERGERS LAUNCH AN EXPANDED FUND FAMILY
The fund mergers scheduled for mid-January 2007 will constitute one of the final
steps in the transition process. The combined fund business groups will be known
as Principal Funds. With 48 mutual funds offered to retail investors, Principal
Funds can provide you with:
- - World-Class Investment Management
- - Comprehensive Asset Allocation Solutions
- - Retirement Investing Expertise
On January 16,2007, join Principal Funds at our new Web site,
www.principalfunds.com, to take a complete tour of the investment products and
services available to you. In the meantime, if you have any questions about how
this transition affects your account or your investments, please phone our
Customer Service line at 800-222-5852.
WM GROUP OF FUNDS TRANSITIONS TO PRINCIPAL FUNDS: MILESTONES
JULY 25, 2006 AUGUST 11, 2006 DECEMBER 15, 2006 ON OR NEAR DECEMBER 31, 2006 ON OR NEAR JANUARY 12, 2007
- ------------- --------------- ----------------- ---------------------------- ---------------------------
Announcement of agreement Voting by WM Group of Funds Anticipated close of Anticipated mergers of funds
between Washington WM Group of Funds shareholder meeting acquisition
Mutual, Inc. and the Board of Trustees for voting on fund
Principal Financial Group mergers
(1) The Principal ranks number one in plans where it provides administrative
and investment services according to a 2006 Spectrem Group analysis of
fully bundled 401(k) providers.
(2) As of September 30,2006.
(3) Source: FRC. Based on assets as of September 30,2006.
3
The SAM Process and Asset Allocation Team
OUR CONTINUOUS PROCESS FOR ACTIVE ASSET ALLOCATION
The SAM Process combines a simple mutual fund structure with the sophisticated
management techniques typically used by high net worth investors. Where many
competing asset allocation programs use passive methods--rebalancing investments
back to fixed models--our innovative approach employs a continuous, dynamic
discipline.
INITIAL PORTFOLIO DEVELOPMENT
ACTION:
Conduct extensive financial research that helps position the Portfolios along a
risk/return spectrum
OUTCOME:
The long-term asset allocation targets for each Portfolio
(PIE CHART)
CONTINUOUS ACTIVE MANAGEMENT
ACTION:
- - Develop a financial and economic outlook
- - Use the outlook to assign a risk level to each Portfolio
- - Adjust each Portfolio's mix of assets according to the assigned risk
- - Repeat this process on a continual basis
OUTCOME:
Dynamic, active management that we believe is superior to passive rebalancing
(PIE CHART)
Allocations illustrated above may not reflect current portfolio composition.
4
ASSET ALLOCATION TEAM
Our Asset Allocation Team consists of highly experienced investment
professionals who are dedicated to the active management of the WM SAM
Portfolios:
(PHOTO OF RANDALL L. YOAKUM)
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 CHARLES D. AVERILL)
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 MICHAEL D. MEIGHAN)
MICHAEL D. MEIGHAN, CFA
Senior 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 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 NICOLE VERBRUGGHE)
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 GARY J. POKRZYWINSKI)
GARY J. POKRZYWINSKI, CFA
Chief Investment Officer 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,
Milwaukee.
(PHOTO OF BRAD N. STEWART)
BRAD N. STEWART, CFA
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 holds the Chartered Financial
Analyst designation and has a B.B.A. in Finance from the University of Portland.
5
Economy & Financial Markets: Review & Outlook
ECONOMY ENTERS MID-CYCLE SLOWDOWN
We began the fiscal year with the view that U.S. economic growth would be
moderate but weaker than consensus projections. Although corporate profits and
consumer spending looked healthy, a slowdown in the housing market appeared
likely. We thought when this housing pullback took hold, it would curtail
consumers' ability to maintain refinancing-fueled spending. Our 2006 outlook
also recognized that a variety of short-term and long-term forces had aligned to
indicate that growth would slow.
One cyclical measure that attracted widespread headlines during the period was
crude oil prices which, through elevated fuel costs, can act as a tax on
consumers. The U.S. benchmark price of oil began the period at $59.77 per
barrel, reached a high closing price of $77.03 in July, and then retreated to
close at $58.74 on October 31,2006.
Like crude oil prices, the rate of economic growth climbed and peaked before
ending the period near its starting point. Inflation-adjusted (real) growth
increased 1.8% during the final three months of 2005. With strong consumer and
business spending, it surged 5.6% in early 2006. Evidence of a housing sector
correction became clearer in the following months, and real growth decelerated
to an estimated 2.2%. (See text highlights in chart below.)
Since housing is a lagging indicator, we believe that the full economic effects
of its pullback have yet to play out. However, we expect solid job markets to
mitigate the pain that housing causes consumers. Our 2007 outlook is for real
growth to keep to the lower end of a 2-3% range as the economy works through a
mid-cycle slowdown.
INFLATION GIVES FED PAUSE
For this kind of "soft landing" to occur, we believe that lower interest rates
courtesy of the Federal Reserve (the Fed) will be a requirement. The Fed began
steadily raising short-term interest rates in June 2004. Like many market
participants, we entered 2006 believing that a housing-led slowdown in growth
would soon spur the Fed to halt this monetary tightening campaign.
However, concerns about rising inflation dominated the Fed's mindset during the
year. A price index that measures core personal consumption(1) stood at 1.9% for
November 2005, but inflation picked up steam and sent this gauge to 2.5% in
August 2006. Inflation
(1) Source: Bureau of Economic Analysis. Monthly data measures the price index
for personal consumption expenditures excluding food and energy as a
percent change from the same month one year ago.
(2) Indices are unmanaged, and individuals cannot invest directly in an
index. See page 18 for definitions of indices.
A WRAP-UP OF THE YEAR NOVEMBER 1, 2005 - OCTOBER 31, 2006
(FLOW CHART)
6
fears eased somewhat as energy prices headed downward and the housing market
cooled. These developments allowed the Fed to leave its target for the federal
funds rate unchanged at 5.25% near the end of the fiscal year.
This rate is slightly restrictive in our view. We expect the lagging effects of
monetary tightening to contain inflation going forward by combining with
significant deflationary forces. We also believe that the economic system has
become somewhat self-regulating in recent years, alleviating the need for a
highly active Fed. However, as fears of inflation continue to subside, we think
the Fed will turn its sights on potential deflation and recession. We don't
regard either of these conditions as likely, but we would welcome Fed actions
that begin cutting interest rates early in 2007.
MARKETS MAKE LATE-PERIOD CLIMB
Uncertainty about inflation and interest rates often determined investor
behavior during the fiscal year. As shown in the chart below, stock markets
achieved muted gains within the early months of 2006 before retreating in May
and June--a span that was framed by the year's final two Fed rate increases. The
growing likelihood and then arrival of the Fed's pause kindled a rally in stocks
and also benefited bonds, causing yields to fall. The S&P 500 advanced 16.34%
for the fiscal year, and the Lehman Brothers Aggregate Bond Index ended the
period with a total return of 5.18%.(2)
The outlook for subdued growth and inflation described above, and the potential
for monetary easing by the Fed, lead us to expect that bond yields will continue
inching lower in 2007. Any incoming data that sparks recession fears could
create some volatility for fixed-income securities. However, we regard corporate
and mortgage issues as reasonably valued and believe that they will perform in
line with this risk.
Lower bond yields are also among the factors that support the prospects for
moderate but positive gains by equities in 2007. Stocks continue to appear
attractive relative to bonds and are likely to be assisted by fair valuations,
the global flow of funds, and the generally healthy state of corporations.
Cyclical economic and valuation indicators also suggest that large-cap stocks
could outperform small caps and growth could outperform value. A less
restrictive stance by the Fed could also accommodate the appreciation of stock
prices.
This economic and financial market analysis represents the opinions of WM
Advisors. It should not be considered as investment advice.
No forecast based on the opinions expressed can be guaranteed, and they may be
subject to change without notice.
(FLOW CHART)
7
Flexible Income Portfolio
ANNUAL TOTAL RETURNS(1)
Class A shares at net asset value(2)
(Calendar Year)
2005 2.66%
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
The WM Strategic Asset Management (SAM) Flexible Income Portfolio ended its 2006
fiscal year invested in 12 underlying funds that provide diversification across
14 equity and fixed-income asset classes.
We began the 12-month period with an outlook for the economy and financial
markets that supported the assessment that stocks appeared more attractive than
bonds. In response, we built on the Portfolio's equity allocation by raising it
from 26% to 27%. Despite a short-lived stock market retreat during May and June,
this addition to equities proved beneficial to performance during the year.
As we strengthened the Portfolio's equity allocation, we also shifted its equity
style and capitalization weightings to favor large-cap growth stocks. These
adjustments ultimately proved to be slightly ahead of a market rotation away
from value and smaller capitalization assets. However, large-cap growth stocks
enjoyed improved performance late in the period, and we believe the Portfolio is
well-positioned for the upcoming year.
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, 2006
Since Inception
1-Year 5-Year 10-Year Inception Date
------ ------ ------- --------- ---------
CLASS A SHARES
Net Asset Value(2) 7.28% 5.44% 6.62% 6.89% 7/25/96
With Sales Charge 2.43% 4.48% 6.13% 6.42%
CLASS B SHARES
Net Asset Value(2) 6.54% 4.65% 5.99% 6.28% 7/25/96
With Sales Charge 1.54% 4.31% 5.99% 6.28%
CLASS C SHARES
Net Asset Value(2) 6.52% 4.65% 5.77% 4.84% 3/1/02
With Sales Charge 5.52% 4.65% 5.77% 4.84%
Lehman Brothers Aggregate
Bond Index(3) 5.18% 4.52% 6.26% 6.49%
S&P 500(3) 16.34% 7.25% 8.64% 9.52%
Capital Market Benchmark(3) 7.36% 5.23% 6.96% 7.31%
VALUE OF A $10,000 INVESTMENT(1) OCTOBER 31, 1996 - OCTOBER 31, 2006
(PERFORMANCE GRAPH)
FLEXIBLE INCOME PORTFOLIO
------------------------------------------------------------
LEHMAN BROTHERS
AGGREGATE BOND CAPITAL MARKET
DATE NAV MOP S&P 500 INDEX BENCHMARK
- ------ ------ ------ ------- --------------- --------------
Oct-96 10,000 9,550 10,000 10,000 10,000
Nov-96 10,289 9,826 10,759 10,171 10,289
Dec-96 10,234 9,774 10,548 10,076 10,172
Jan-97 10,373 9,906 11,203 10,108 10,323
Feb-97 10,402 9,934 11,294 10,133 10,360
Mar-97 10,254 9,792 10,824 10,020 10,182
Apr-97 10,394 9,926 11,470 10,171 10,426
May-97 10,564 10,089 12,175 10,267 10,633
Jun-97 10,685 10,204 12,718 10,390 10,829
Jul-97 11,038 10,541 13,727 10,670 11,235
Aug-97 10,913 10,422 12,964 10,579 11,034
Sep-97 11,103 10,603 13,675 10,736 11,285
Oct-97 11,110 10,610 13,218 10,892 11,341
Nov-97 11,169 10,667 13,830 10,942 11,487
Dec-97 11,287 10,779 14,068 11,052 11,619
Jan-98 11,388 10,876 14,224 11,194 11,764
Feb-98 11,552 11,032 15,249 11,185 11,927
Mar-98 11,690 11,164 16,030 11,223 12,082
Apr-98 11,748 11,219 16,192 11,281 12,156
May-98 11,742 11,214 15,913 11,388 12,208
Jun-98 11,868 11,334 16,560 11,485 12,389
Jul-98 11,797 11,266 16,384 11,509 12,383
Aug-98 11,347 10,837 14,015 11,697 12,186
Sep-98 11,650 11,126 14,913 11,971 12,570
Oct-98 11,838 11,305 16,126 11,907 12,721
Nov-98 12,096 11,551 17,103 11,975 12,933
Dec-98 12,341 11,786 18,088 12,011 13,113
Jan-99 12,576 12,010 18,844 12,096 13,297
Feb-99 12,396 11,838 18,258 11,884 13,028
Mar-99 12,607 12,039 18,988 11,950 13,190
Apr-99 12,865 12,286 19,723 11,988 13,326
May-99 12,762 12,188 19,258 11,883 13,168
Jun-99 12,895 12,315 20,327 11,845 13,280
Jul-99 12,789 12,214 19,692 11,795 13,153
Aug-99 12,714 12,142 19,594 11,789 13,134
Sep-99 12,766 12,191 19,057 11,926 13,184
Oct-99 12,950 12,367 20,263 11,970 13,390
Nov-99 13,123 12,533 20,675 11,969 13,444
Dec-99 13,395 12,792 21,892 11,911 13,550
Jan-00 13,244 12,648 20,793 11,872 13,378
Feb-00 13,388 12,785 20,400 12,015 13,457
Mar-00 13,731 13,113 22,396 12,174 13,862
Apr-00 13,607 12,995 21,722 12,139 13,747
May-00 13,531 12,922 21,276 12,133 13,685
Jun-00 13,754 13,135 21,800 12,385 13,980
Jul-00 13,768 13,148 21,460 12,498 14,039
Aug-00 14,149 13,513 22,792 12,679 14,376
Sep-00 14,071 13,438 21,589 12,759 14,297
Oct-00 14,059 13,426 21,498 12,843 14,360
Nov-00 13,820 13,198 19,804 13,054 14,323
Dec-00 14,078 13,445 19,901 13,297 14,550
Jan-01 14,577 13,921 20,608 13,513 14,843
Feb-01 14,339 13,694 18,728 13,631 14,675
Mar-01 14,128 13,492 17,543 13,699 14,547
Apr-01 14,313 13,669 18,906 13,641 14,725
May-01 14,433 13,784 19,032 13,723 14,815
Jun-01 14,458 13,807 18,570 13,775 14,788
Jul-01 14,604 13,947 18,388 14,084 15,025
Aug-01 14,578 13,922 17,237 14,246 14,975
Sep-01 14,305 13,661 15,844 14,411 14,872
Oct-01 14,576 13,920 16,147 14,712 15,177
Nov-01 14,664 14,005 17,385 14,509 15,242
Dec-01 14,683 14,023 17,538 14,417 15,190
Jan-02 14,694 14,033 17,282 14,533 15,245
Feb-02 14,703 14,041 16,949 14,674 15,304
Mar-02 14,769 14,104 17,586 14,431 15,215
Apr-02 14,782 14,117 16,520 14,711 15,267
May-02 14,823 14,156 16,398 14,836 15,348
Jun-02 14,611 13,954 15,230 14,965 15,236
Jul-02 14,343 13,697 14,042 15,146 15,146
Aug-02 14,498 13,845 14,135 15,402 15,370
Sep-02 14,318 13,673 12,599 15,651 15,235
Oct-02 14,518 13,865 13,707 15,579 15,447
Nov-02 14,817 14,150 14,515 15,575 15,624
Dec-02 14,835 14,167 13,661 15,897 15,699
Jan-03 14,850 14,182 13,303 15,911 15,629
Feb-03 14,908 14,237 13,104 16,131 15,754
Mar-03 14,951 14,278 13,231 16,118 15,774
Apr-03 15,359 14,668 14,321 16,252 16,139
May-03 15,797 15,086 15,076 16,554 16,548
Jun-03 15,868 15,154 15,269 16,521 16,565
Jul-03 15,647 14,943 15,537 15,966 16,177
Aug-03 15,765 15,055 15,840 16,071 16,326
Sep-03 15,992 15,272 15,673 16,497 16,638
Oct-03 16,184 15,455 16,560 16,344 16,703
Nov-03 16,316 15,582 16,705 16,383 16,765
Dec-03 16,626 15,878 17,581 16,550 17,077
Jan-04 16,836 16,078 17,904 16,682 17,249
Feb-04 16,986 16,221 18,153 16,863 17,446
Mar-04 17,046 16,279 17,879 16,989 17,498
Apr-04 16,670 15,919 17,598 16,547 17,080
May-04 16,640 15,891 17,839 16,481 17,071
Jun-04 16,821 16,064 18,185 16,575 17,215
Jul-04 16,745 15,992 17,583 16,739 17,237
Aug-04 16,958 16,195 17,654 17,059 17,515
Sep-04 17,049 16,282 17,844 17,105 17,590
Oct-04 17,218 16,443 18,117 17,249 17,762
Nov-04 17,340 16,559 18,851 17,111 17,792
Dec-04 17,579 16,788 19,492 17,268 18,045
Jan-05 17,486 16,699 19,017 17,377 18,049
Feb-05 17,517 16,729 19,416 17,274 18,040
Mar-05 17,363 16,582 19,072 17,186 17,903
Apr-05 17,394 16,612 18,710 17,418 18,028
May-05 17,659 16,864 19,305 17,606 18,298
Jun-05 17,774 16,974 19,332 17,703 18,384
Jul-05 17,884 17,079 20,051 17,542 18,388
Aug-05 17,963 17,154 19,869 17,767 18,543
Sep-05 17,842 17,039 20,029 17,584 18,420
Oct-05 17,700 16,903 19,695 17,445 18,241
Nov-05 17,921 17,115 20,439 17,521 18,444
Dec-05 18,050 17,238 20,446 17,688 18,586
Jan-06 18,226 17,406 20,987 17,690 18,686
Feb-06 18,274 17,452 21,044 17,748 18,746
Mar-06 18,266 17,444 21,305 17,574 18,645
Apr-06 18,315 17,491 21,590 17,543 18,667
May-06 18,121 17,305 20,969 17,523 18,544
Jun-06 18,154 17,337 20,998 17,560 18,581
Jul-06 18,251 17,430 21,128 17,797 18,804
Aug-06 18,529 17,695 21,631 18,069 19,124
Sep-06 18,742 17,899 22,189 18,228 19,357
Oct-06 18,989 18,135 22,913 18,349 19,586
Performance of other share classes 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. For Class C shares, performance for periods prior to
inception is hypothetical, based on Class A share returns adjusted for the
respective expenses of the share class. 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
PORTFOLIO MANAGER
Asset Allocation Team
WM Advisors, Inc.
Other equity asset classes that drove Portfolio performance included real estate
investment trusts (REITs) and international equities, which realized strong
absolute returns.
Among fixed-income assets, high-yield bonds had a positive impact on
performance, while mortgage- and asset-backed bonds provided a slight benefit.
Through small adjustments in allocations, the Portfolio ended the period with
neutral weightings in corporate and mortgage securities.
Looking forward, we believe that the economy will continue to slow while
inflation fears subside, subsequently leading the Federal Reserve to cut
short-term interest rates. We anticipate that in 2007, these cuts will begin
earlier and occur more often than the market expects. Lower interest rates
should bring down bond yields and could support the expansion of equity price
multiples. The Portfolio's asset class allocations are designed to take
advantage of this soft landing scenario.
However, we also feel that choppy market performance is apt to occur in reaction
to mixed economic data.
In the near term, we are analyzing the Portfolio's five underlying equity funds
that will be changing management following our acquisition by The
Principal. Given our asset allocation discipline, we are focused on proactively
identifying and executing adjustments that might be necessary to keep
allocations aligned with our targets and our outlook.
PORTFOLIO CHARACTERISTICS AS OF OCTOBER 31, 2006
Equity/Fixed-Income Allocation:(4) 27% Equity/73% Fixed Income
Weighted Average Market Capitalization (equities): $61.5 billion
Weighted Average P/E (equities):(5) 16.6
Beta: 0.31
Portfolio Standard Deviation: 2.98
S&P 500 Standard Deviation: 8.14
Portfolio Turnover (for fiscal year):(6) 8%
Aggregate Portfolio Turnover (for fiscal year):(6) 36%
Number of Securities:(7) 1,564
Total Net Assets: $867.3 million
PORTFOLIO COMPOSITION(4)
As of As of
Asset Class 10/31/06 10/31/05 Change
- ----------- -------- -------- ------
Mortgage- & Asset-Backed Bonds 37% 38% -1%
Investment-Grade Corporate Bonds 19% 17% +2%
High-Yield Corporate Bonds 10% 8% +2%
U.S. Government Securities 6% 6% 0%
U.S. Large-Cap Growth Stocks 8% 6% +2%
U.S. Large-Cap Value Stocks 6% 7% -1%
U.S. Mid-Cap Growth Stocks 4% 3% +1%
U.S. Mid-Cap Value Stocks 2% 2% 0%
REITs 2% 2% 0%
Convertible Securities 1% 2% -1%
Non-U.S. Developed Market Stocks 1% 1% 0%
U.S. Small-Cap Growth Stocks 1% 2% -1%
U.S. Small-Cap Value Stocks 1% 1% 0%
Cash Equivalents 2% 5% -3%
Note: Pages 46 and 47 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 or by calling 800-222-5852.
(4) May not reflect the current portfolio composition.
(5) Based on estimated earnings.
(6) Portfolio turnover does not reflect turnover of the underlying WM
Funds. Aggregate portfolio turnover reflects turnover of the underlying WM
Funds and the Portfolio itself. It assumes a constant portfolio allocation
identical to the Portfolio's actual allocation as of 10/31/ 06.Current
portfolio turnover and aggregate portfolio turnover may differ from data
shown above.
(7) Represents the sum of securities held by the underlying WM Funds. Some
securities may be held by more than one WM Fund.
9
Conservative Balanced Portfolio*
ANNUAL TOTAL RETURNS(1)
Class A shares at net asset value(2)
(Calendar Year)
2005 3.80%
2004 7.38%
2003 15.98%
2002 -2.98%
2001 2.20%
2000 3.97%
1999 1.97%
1998 5.28%
1997 8.29%
INVESTMENT STRATEGY
The WM Strategic Asset Management (SAM) Conservative Balanced Portfolio ended
its 2006 fiscal year invested in 13 underlying funds that provide
diversification across 15 equity and fixed-income asset classes.
We began the 12-month period with an outlook for the economy and financial
markets that supported the assessment that stocks appeared more attractive than
bonds. In response, we built on the Portfolio's equity allocation by raising it
from 42% to 45%.Despite a short-lived stock market retreat during May and June,
this overweighting in equities proved beneficial to performance during the
year.
As we strengthened the Portfolio's equity allocation, we also shifted its equity
style and capitalization weightings to favor large-cap growth stocks. These
adjustments ultimately proved to be slightly ahead of a market rotation away
from value and smaller capitalization assets. However, large-cap growth stocks
enjoyed improved performance late in the period, and we believe the Portfolio is
well-positioned for the upcoming year.
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.
* 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.
AVERAGE ANNUAL TOTAL RETURNS(1) AS OF OCTOBER 31, 2006
Since Inception
1-Year 5-Year 10-Year Inception Date
------ ------ ------- --------- ---------
CLASS A SHARES
Net Asset Value(2) 9.31% 6.39% 5.23% 5.46% 7/25/96
With Sales Charge 3.31% 5.19% 4.64% 4.88%
CLASS B SHARES
Net Asset Value(2) 8.50% 5.58% 4.60% 4.84% 7/25/96
With Sales Charge 3.49% 5.25% 4.60% 4.84%
CLASS C SHARES
Net Asset Value(2) 8.57% 5.62% 4.45% 5.81% 3/1/02
With Sales Charge 7.57% 5.62% 4.45% 5.81%
Lehman Brothers Aggregate
Bond Index(3) 5.18% 4.52% 6.26% 6.49%
S&P 500(3) 16.34% 7.25% 8.64% 9.52%
Capital Market Benchmark(3) 9.57% 5.87% 7.55% 8.03%
VALUE OF A $10,000 INVESTMENT(1) OCTOBER 31, 1996 - OCTOBER 31, 2006
(PERFORMANCE GRAPH)
CONSERVATIVE BALANCED PORTFOLIO
------------------------------------------------------------
LEHMAN BROTHERS
AGGREGATE BOND CAPITAL MARKET
DATE NAV MOP S&P 500 INDEX BENCHMARK
- ------ ------ ------ ------- --------------- --------------
Oct-96 10,000 9,450 10,000 10,000 10,000
Nov-96 10,155 9,597 10,759 10,171 10,406
Dec-96 10,090 9,535 10,548 10,076 10,267
Jan-97 10,095 9,540 11,203 10,108 10,541
Feb-97 10,146 9,588 11,294 10,133 10,590
Mar-97 10,037 9,485 10,824 10,020 10,343
Apr-97 10,149 9,591 11,470 10,171 10,684
May-97 10,240 9,677 12,175 10,267 11,007
Jun-97 10,352 9,782 12,718 10,390 11,283
Jul-97 10,618 10,034 13,727 10,670 11,824
Aug-97 10,525 9,947 12,964 10,579 11,501
Sep-97 10,659 10,073 13,675 10,736 11,856
Oct-97 10,794 10,201 13,218 10,892 11,800
Nov-97 10,826 10,230 13,830 10,942 12,051
Dec-97 10,922 10,321 14,068 11,052 12,207
Jan-98 11,036 10,429 14,224 11,194 12,354
Feb-98 11,028 10,421 15,249 11,185 12,705
Mar-98 11,054 10,446 16,030 11,223 12,991
Apr-98 11,102 10,491 16,192 11,281 13,083
May-98 11,183 10,568 15,913 11,388 13,068
Jun-98 11,253 10,635 16,560 11,485 13,346
Jul-98 11,270 10,650 16,384 11,509 13,306
Aug-98 11,302 10,680 14,015 11,697 12,666
Sep-98 11,430 10,801 14,913 11,971 13,169
Oct-98 11,361 10,736 16,126 11,907 13,556
Nov-98 11,492 10,860 17,103 11,975 13,932
Dec-98 11,499 10,866 18,088 12,011 14,277
Jan-99 11,587 10,950 18,844 12,096 14,577
Feb-99 11,461 10,830 18,258 11,884 14,243
Mar-99 11,538 10,903 18,988 11,950 14,518
Apr-99 11,646 11,006 19,723 11,988 14,771
May-99 11,597 10,959 19,258 11,883 14,553
Jun-99 11,582 10,945 20,327 11,845 14,849
Jul-99 11,569 10,933 19,692 11,795 14,626
Aug-99 11,560 10,924 19,594 11,789 14,592
Sep-99 11,672 11,030 19,057 11,926 14,534
Oct-99 11,691 11,048 20,263 11,970 14,934
Nov-99 11,724 11,079 20,675 11,969 15,055
Dec-99 11,727 11,082 21,892 11,911 15,366
Jan-00 11,714 11,070 20,793 11,872 15,027
Feb-00 11,807 11,157 20,400 12,015 15,022
Mar-00 11,912 11,257 22,396 12,174 15,730
Apr-00 11,893 11,239 21,722 12,139 15,513
May-00 11,850 11,198 21,276 12,133 15,381
Jun-00 12,053 11,390 21,800 12,385 15,724
Jul-00 12,136 11,468 21,460 12,498 15,711
Aug-00 12,551 11,861 22,792 12,679 16,238
Sep-00 12,395 11,713 21,589 12,759 15,957
Oct-00 12,338 11,660 21,498 12,843 15,993
Nov-00 11,950 11,292 19,804 13,054 15,646
Dec-00 12,194 11,524 19,901 13,297 15,851
Jan-01 12,693 11,995 20,608 13,513 16,232
Feb-01 12,323 11,645 18,728 13,631 15,724
Mar-01 12,054 11,391 17,543 13,699 15,373
Apr-01 12,342 11,663 18,906 13,641 15,813
May-01 12,465 11,780 19,032 13,723 15,912
Jun-01 12,473 11,787 18,570 13,775 15,793
Jul-01 12,520 11,832 18,388 14,084 15,943
Aug-01 12,403 11,721 17,237 14,246 15,654
Sep-01 11,974 11,315 15,844 14,411 15,258
Oct-01 12,217 11,545 16,147 14,712 15,567
Nov-01 12,417 11,734 17,385 14,509 15,915
Dec-01 12,462 11,776 17,538 14,417 15,911
Jan-02 12,404 11,722 17,282 14,533 15,895
Feb-02 12,360 11,680 16,949 14,674 15,864
Mar-02 12,519 11,831 17,586 14,431 15,945
Apr-02 12,426 11,743 16,520 14,711 15,744
May-02 12,440 11,756 16,398 14,836 15,779
Jun-02 12,147 11,478 15,230 14,965 15,411
Jul-02 11,787 11,139 14,042 15,146 15,043
Aug-02 11,893 11,239 14,135 15,402 15,236
Sep-02 11,559 10,923 12,599 15,651 14,721
Oct-02 11,841 11,190 13,707 15,579 15,198
Nov-02 12,189 11,519 14,515 15,575 15,553
Dec-02 12,089 11,424 13,661 15,897 15,381
Jan-03 12,063 11,399 13,303 15,911 15,228
Feb-03 12,063 11,399 13,104 16,131 15,263
Mar-03 12,097 11,432 13,231 16,118 15,315
Apr-03 12,521 11,832 14,321 16,252 15,896
May-03 12,984 12,270 15,076 16,554 16,408
Jun-03 13,065 12,346 15,269 16,521 16,472
Jul-03 12,968 12,255 15,537 15,966 16,256
Aug-03 13,105 12,385 15,840 16,071 16,448
Sep-03 13,267 12,537 15,673 16,497 16,640
Oct-03 13,543 12,798 16,560 16,344 16,925
Nov-03 13,681 12,928 16,705 16,383 17,009
Dec-03 14,020 13,249 17,581 16,550 17,470
Jan-04 14,215 13,433 17,904 16,682 17,683
Feb-04 14,354 13,565 18,153 16,863 17,896
Mar-04 14,390 13,599 17,879 16,989 17,869
Apr-04 14,040 13,268 17,598 16,547 17,477
May-04 14,068 13,295 17,839 16,481 17,532
Jun-04 14,257 13,473 18,185 16,575 17,728
Jul-04 14,089 13,314 17,583 16,739 17,598
Aug-04 14,244 13,460 17,654 17,059 17,829
Sep-04 14,376 13,586 17,844 17,105 17,934
Oct-04 14,532 13,733 18,117 17,249 18,135
Nov-04 14,773 13,960 18,851 17,111 18,342
Dec-04 15,058 14,230 19,492 17,268 18,692
Jan-05 14,886 14,068 19,017 17,377 18,580
Feb-05 14,986 14,162 19,416 17,274 18,671
Mar-05 14,826 14,010 19,072 17,186 18,482
Apr-05 14,798 13,984 18,710 17,418 18,492
May-05 15,070 14,241 19,305 17,606 18,847
Jun-05 15,180 14,345 19,332 17,703 18,920
Jul-05 15,382 14,536 20,051 17,542 19,098
Aug-05 15,425 14,577 19,869 17,767 19,174
Sep-05 15,376 14,530 20,029 17,584 19,119
Oct-05 15,230 14,393 19,695 17,445 18,901
Nov-05 15,506 14,653 20,439 17,521 19,237
Dec-05 15,628 14,769 20,446 17,688 19,349
Jan-06 15,907 15,032 20,987 17,690 19,556
Feb-06 15,907 15,032 21,044 17,748 19,617
Mar-06 15,989 15,110 21,305 17,574 19,599
Apr-06 16,063 15,180 21,590 17,543 19,683
May-06 15,783 14,915 20,969 17,523 19,443
Jun-06 15,796 14,928 20,998 17,560 19,478
Jul-06 15,856 14,984 21,128 17,797 19,685
Aug-06 16,139 15,251 21,631 18,069 20,053
Sep-06 16,350 15,451 22,189 18,228 20,365
Oct-06 16,649 15,733 22,913 18,349 20,712
Performance of other share classes 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. For Class C shares, performance for periods prior to
inception is hypothetical, based on Class A share returns adjusted for the
respective expenses of the share class. 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.
10
PORTFOLIO MANAGER
Asset Allocation Team
WM Advisors, Inc.
Other equity asset classes that drove Portfolio performance included real estate
investment trusts (REITs) and international equities, which realized strong
absolute returns. In March, we slightly expanded the Portfolio's exposure to
emerging market stocks. This timing missed some of the period's impressive
appreciation by emerging market equities, but the Portfolio's small core
position can provide broader diversification going forward.
Among fixed-income assets, high-yield bonds had a positive impact on
performance, while mortgage- and asset-backed bonds provided a slight benefit.
Through small adjustments in allocations, the Portfolio ended the period with
neutral weightings in corporate and mortgage securities.
Looking forward, we believe that the economy will continue to slow while
inflation fears subside, subsequently leading the Federal Reserve to cut
short-term interest rates. We anticipate that in 2007, these cuts will begin
earlier and occur more often than the market expects. Lower interest rates
should bring down bond yields and could support the expansion of equity price
multiples. The Portfolio's asset class allocations are designed to take
advantage of this soft landing scenario. However, we also feel that choppy
market performance is apt to occur in reaction to mixed economic data.
In the near term, we are analyzing the Portfolio's six underlying equity funds
that will be changing management following our acquisition by The Principal.
Given our asset allocation discipline, we are focused on proactively identifying
and executing adjustments that might be necessary to keep allocations aligned
with our targets and our outlook.
PORTFOLIO CHARACTERISTICS AS OF OCTOBER 31, 2006
Equity/Fixed-Income Allocation:(4) 45% Equity/55% Fixed Income
Weighted Average Market Capitalization (equities): $62.0 billion
Weighted Average P/E (equities):(5) 16.6
Beta: 0.48
Portfolio Standard Deviation: 3.90
S&P 500 Standard Deviation: 8.14
Portfolio Turnover (for fiscal year):(6) 13%
Aggregate Portfolio Turnover (for fiscal year):(6) 46%
Number of Securities:(7) 2,093
Total Net Assets: $647.6 million
PORTFOLIO COMPOSITION (4)
As of As of
Asset Class 10/31/06 10/31/05 Change
- ----------- -------- -------- ------
Mortgage- & Asset-Backed Bonds 30% 31% -1%
Investment-Grade Corporate Bonds 12% 11% +1%
High-Yield Corporate Bonds 8% 6% +2%
U.S. Government Securities 4% 5% -1%
U.S. Large-Cap Growth Stocks 13% 10% +3%
U.S. Large-Cap Value Stocks 9% 11% -2%
U.S. Mid-Cap Growth Stocks 6% 5% +1%
Non-U.S. Developed Market Stocks 5% 5% 0%
U.S. Mid-Cap Value Stocks 3% 3% 0%
REITs 3% 3% 0%
U.S. Small-Cap Growth Stocks 2% 2% 0%
U.S. Small-Cap Value Stocks 1% 1% 0%
Emerging Market Stocks 1% 1% 0%
Convertible Securities 1% 2% -1%
Cash Equivalents 2% 4% -2%
Note: Page 46 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 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.
(4) May not reflect the current portfolio composition.
(5) Based on estimated earnings.
(6) Portfolio turnover does not reflect turnover of the underlying WM Funds.
Aggregate portfolio turnover reflects turnover of the underlying WM Funds
and the Portfolio itself. It assumes a constant portfolio allocation
identical to the Portfolio's actual allocation as of 10/31/ 06. Current
portfolio turnover and aggregate portfolio turnover may differ from data
shown above.
(7) Represents the sum of securities held by the underlying WM Funds. Some
securities may be held by more than one WM Fund.
11
Balanced Portfolio
ANNUAL TOTAL RETURNS(1)
Class A shares at net asset value(2)
(Calendar Year)
2005 5.21%
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
The WM Strategic Asset Management (SAM) Balanced Portfolio ended its 2006 fiscal
year invested in 13 underlying funds that provide diversification across 15
equity and fixed-income asset classes.
We began the 12-month period with an outlook for the economy and financial
markets that supported the assessment that stocks appeared more attractive than
bonds. In response, we built on the Portfolio's equity allocation by raising it
from 62% to 66%. Despite a short-lived stock market retreat during May and June,
this overweighting in equities proved beneficial to performance during the
year.
As we strengthened the Portfolio's equity allocation, we also shifted its equity
style and capitalization weightings to favor large-cap growth stocks. These
adjustments ultimately proved to be slightly ahead of a market rotation away
from value and smaller capitalization assets. However, large-cap growth stocks
enjoyed improved performance late in the period, and we believe the Portfolio is
well-positioned for the upcoming year.
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, 2006
1-Year 5-Year 10-Year Since Inception Inception Date
------ ------ ------- --------------- --------------
CLASS A SHARES
Net Asset Value(2) 11.26% 7.21% 8.51% 8.75% 7/25/96
With Sales Charge 5.11% 5.99% 7.89% 8.15%
CLASS B SHARES
Net Asset Value(2) 10.44% 6.38% 7.85% 8.11% 7/25/96
With Sales Charge 5.44% 6.06% 7.85% 8.11%
CLASS C SHARES
Net Asset Value(2) 10.47% 6.40% 7.66% 6.61% 3/1/02
With Sales Charge 9.47% 6.40% 7.66% 6.61%
S&P 500(3) 16.34% 7.25% 8.64% 9.52%
Lehman Brothers Aggregate
Bond Index(3) 5.18% 4.52% 6.26% 6.49%
Capital Market Benchmark(3) 11.80% 6.42% 8.03% 8.63%
(PERFORMANCE GRAPH)
VALUE OF A $10,000 INVESTMENT(1) OCTOBER 31, 1996 - OCTOBER 31, 2006
BALANCED PORTFOLIO
-----------------------------------------------------------------
LEHMAN BROTHERS CAPITAL MARKET
DATE NAV MOP S&P 500 AGGREGATE BOND INDEX BENCHMARK
- ------ ------ ------ ------- -------------------- --------------
Oct-96 10,000 9,450 10,000 10,000 10,000
Nov-96 10,335 9,767 10,759 10,171 10,524
Dec-96 10,266 9,702 10,548 10,076 10,361
Jan-97 10,430 9,857 11,203 10,108 10,760
Feb-97 10,389 9,817 11,294 10,133 10,823
Mar-97 10,118 9,561 10,824 10,020 10,505
Apr-97 10,316 9,748 11,470 10,171 10,944
May-97 10,749 10,158 12,175 10,267 11,388
Jun-97 10,993 10,388 12,718 10,390 11,747
Jul-97 11,548 10,913 13,727 10,670 12,433
Aug-97 11,180 10,565 12,964 10,579 11,976
Sep-97 11,556 10,920 13,675 10,736 12,440
Oct-97 11,217 10,600 13,218 10,892 12,264
Nov-97 11,232 10,614 13,830 10,942 12,627
Dec-97 11,309 10,687 14,068 11,052 12,809
Jan-98 11,450 10,821 14,224 11,194 12,960
Feb-98 11,989 11,329 15,249 11,185 13,517
Mar-98 12,371 11,691 16,030 11,223 13,951
Apr-98 12,511 11,823 16,192 11,281 14,064
May-98 12,349 11,670 15,913 11,388 13,972
Jun-98 12,566 11,874 16,560 11,485 14,361
Jul-98 12,436 11,752 16,384 11,509 14,282
Aug-98 11,139 10,526 14,015 11,697 13,136
Sep-98 11,502 10,870 14,913 11,971 13,764
Oct-98 11,958 11,300 16,126 11,907 14,407
Nov-98 12,465 11,779 17,103 11,975 14,963
Dec-98 13,150 12,427 18,088 12,011 15,499
Jan-99 13,630 12,880 18,844 12,096 15,931
Feb-99 13,315 12,583 18,258 11,884 15,524
Mar-99 13,856 13,094 18,988 11,950 15,930
Apr-99 14,356 13,567 19,723 11,988 16,321
May-99 14,012 13,241 19,258 11,883 16,032
Jun-99 14,572 13,771 20,327 11,845 16,545
Jul-99 14,375 13,585 19,692 11,795 16,207
Aug-99 14,345 13,556 19,594 11,789 16,155
Sep-99 14,471 13,675 19,057 11,926 15,965
Oct-99 14,966 14,143 20,263 11,970 16,594
Nov-99 15,572 14,716 20,675 11,969 16,796
Dec-99 16,697 15,778 21,892 11,911 17,357
Jan-00 16,341 15,442 20,793 11,872 16,810
Feb-00 16,916 15,986 20,400 12,015 16,701
Mar-00 17,556 16,590 22,396 12,174 17,770
Apr-00 17,064 16,126 21,722 12,139 17,429
May-00 16,788 15,864 21,276 12,133 17,211
Jun-00 17,142 16,199 21,800 12,385 17,609
Jul-00 16,955 16,023 21,460 12,498 17,508
Aug-00 17,733 16,758 22,792 12,679 18,263
Sep-00 17,340 16,386 21,589 12,759 17,730
Oct-00 17,229 16,281 21,498 12,843 17,731
Nov-00 16,343 15,444 19,804 13,054 17,010
Dec-00 16,719 15,799 19,901 13,297 17,187
Jan-01 17,558 16,593 20,608 13,513 17,664
Feb-01 16,710 15,791 18,728 13,631 16,760
Mar-01 16,119 15,232 17,543 13,699 16,157
Apr-01 16,731 15,811 18,906 13,641 16,882
May-01 16,952 16,020 19,032 13,723 16,990
Jun-01 16,981 16,047 18,570 13,775 16,767
Jul-01 16,874 15,946 18,388 14,084 16,819
Aug-01 16,521 15,613 17,237 14,246 16,264
Sep-01 15,632 14,773 15,844 14,411 15,552
Oct-01 15,976 15,098 16,147 14,712 15,860
Nov-01 16,456 15,551 17,385 14,509 16,502
Dec-01 16,635 15,720 17,538 14,417 16,547
Jan-02 16,392 15,491 17,282 14,533 16,456
Feb-02 16,194 15,303 16,949 14,674 16,329
Mar-02 16,620 15,706 17,586 14,431 16,589
Apr-02 16,262 15,368 16,520 14,711 16,114
May-02 16,220 15,328 16,398 14,836 16,098
Jun-02 15,630 14,770 15,230 14,965 15,466
Jul-02 14,868 14,051 14,042 15,146 14,818
Aug-02 14,983 14,159 14,135 15,402 14,976
Sep-02 14,256 13,472 12,599 15,651 14,097
Oct-02 14,805 13,991 13,707 15,579 14,816
Nov-02 15,397 14,551 14,515 15,575 15,337
Dec-02 15,068 14,239 13,661 15,897 14,923
Jan-03 14,936 14,115 13,303 15,911 14,694
Feb-03 14,849 14,032 13,104 16,131 14,642
Mar-03 14,867 14,050 13,231 16,118 14,723
Apr-03 15,585 14,728 14,321 16,252 15,500
May-03 16,332 15,434 15,076 16,554 16,106
Jun-03 16,489 15,582 15,269 16,521 16,217
Jul-03 16,533 15,624 15,537 15,966 16,170
Aug-03 16,798 15,874 15,840 16,071 16,401
Sep-03 16,919 15,988 15,673 16,497 16,470
Oct-03 17,480 16,519 16,560 16,344 16,968
Nov-03 17,716 16,742 16,705 16,383 17,073
Dec-03 18,285 17,279 17,581 16,550 17,679
Jan-04 18,612 17,589 17,904 16,682 17,930
Feb-04 18,806 17,772 18,153 16,863 18,158
Mar-04 18,808 17,773 17,879 16,989 18,047
Apr-04 18,330 17,322 17,598 16,547 17,690
May-04 18,435 17,421 17,839 16,481 17,806
Jun-04 18,761 17,729 18,185 16,575 18,054
Jul-04 18,343 17,334 17,583 16,739 17,767
Aug-04 18,508 17,490 17,654 17,059 17,944
Sep-04 18,730 17,700 17,844 17,105 18,081
Oct-04 18,970 17,927 18,117 17,249 18,307
Nov-04 19,495 18,423 18,851 17,111 18,693
Dec-04 19,977 18,878 19,492 17,268 19,144
Jan-05 19,629 18,550 19,017 17,377 18,912
Feb-05 19,857 18,765 19,416 17,274 19,105
Mar-05 19,619 18,540 19,072 17,186 18,862
Apr-05 19,468 18,397 18,710 17,418 18,749
May-05 19,952 18,855 19,305 17,606 19,188
Jun-05 20,108 19,002 19,332 17,703 19,247
Jul-05 20,581 19,449 20,051 17,542 19,607
Aug-05 20,581 19,449 19,869 17,767 19,599
Sep-05 20,566 19,435 20,029 17,584 19,613
Oct-05 20,337 19,219 19,695 17,445 19,354
Nov-05 20,871 19,724 20,439 17,521 19,828
Dec-05 21,019 19,863 20,446 17,688 19,908
Jan-06 21,543 20,358 20,987 17,690 20,224
Feb-06 21,481 20,300 21,044 17,748 20,283
Mar-06 21,727 20,532 21,305 17,574 20,356
Apr-06 21,866 20,663 21,590 17,543 20,505
May-06 21,293 20,122 20,969 17,523 20,142
Jun-06 21,297 20,125 20,998 17,560 20,176
Jul-06 21,296 20,125 21,128 17,797 20,359
Aug-06 21,747 20,551 21,631 18,069 20,775
Sep-06 22,081 20,866 22,189 18,228 21,169
Oct-06 22,626 21,382 22,913 18,349 21,635
Performance of other share classes 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. For Class C shares, performance for periods prior to
inception is hypothetical, based on Class A share returns adjusted for the
respective expenses of the share class. 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.
12
PORTFOLIO MANAGER
Asset Allocation Team
WM Advisors, Inc.
Other equity asset classes that drove Portfolio performance included real estate
investment trusts (REITs) and international equities, which realized strong
absolute returns. In March, we expanded the Portfolio's exposure to emerging
market stocks. This timing missed some of the period's impressive appreciation
by emerging market equities, but the Portfolio's core position can provide
broader diversification going forward.
Among fixed-income assets, high-yield bonds had a positive impact on
performance, while mortgage- and asset-backed bonds provided a slight benefit.
Through small adjustments in allocations, the Portfolio ended the period with
neutral weightings in corporate and mortgage securities.
Looking forward, we believe that the economy will continue to slow while
inflation fears subside, subsequently leading the Federal Reserve to cut
short-term interest rates. We anticipate that in 2007, these cuts will begin
earlier and occur more often than the market expects. Lower interest rates
should bring down bond yields and could support the expansion of equity price
multiples. The Portfolio's asset class allocations are designed to take
advantage of this soft landing scenario. However, we also feel that choppy
market performance is apt to occur in reaction to mixed economic data.
In the near term, we are analyzing the Portfolio's six underlying equity funds
that will be changing management following our acquisition by The Principal.
Given our asset allocation discipline, we are focused on proactively identifying
and executing adjustments that might be necessary to keep allocations aligned
with our targets and our outlook.
PORTFOLIO CHARACTERISTICS AS OF OCTOBER 31, 2006
Equity/Fixed-Income Allocation:(4) 66% Equity/34% Fixed Income
Weighted Average Market Capitalization (equities): $61.7 billion
Weighted Average P/E (equities):(5) 16.7
Beta: 0.70
Portfolio Standard Deviation: 5.32
S&P 500 Standard Deviation: 8.14
Portfolio Turnover (for fiscal year):(6) 10%
Aggregate Portfolio Turnover (for fiscal 47%
year):(6)
Number of Securities:(7) 2,093
Total Net Assets: $4.7 billion
PORTFOLIO COMPOSITION (4)
As of As of
Asset Class 10/31/06 10/31/05 Change
- ----------- -------- -------- ------
U.S. Large-Cap Growth Stocks 19% 15% +4%
U.S. Large-Cap Value Stocks 14% 16% -2%
U.S. Mid-Cap Growth Stocks 9% 7% +2%
Non-U.S. Developed Market Stocks 8% 8% 0%
REITs 4% 4% 0%
U.S. Mid-Cap Value Stocks 4% 5% -1%
U.S. Small-Cap Growth Stocks 3% 3% 0%
U.S. Small-Cap Value Stocks 2% 2% 0%
Emerging Market Stocks 2% 1% +1%
Convertible Securities 1% 1% 0%
Mortgage- & Asset-Backed Bonds 18% 19% -1%
High-Yield Corporate Bonds 6% 5% +1%
Investment-Grade Corporate Bonds 5% 5% 0%
U.S. Government Securities 2% 3% -1%
Cash Equivalents 3% 6% -3%
Note: For information about underlying WM Funds of the SAM Portfolios, please
see the WM Group of Funds annual report, which is available online or by calling
800-222-5852.
(4) May not reflect the current portfolio composition.
(5) Based on estimated earnings.
(6) Portfolio turnover does not reflect turnover of the underlying WM
Funds. Aggregate portfolio turnover reflects turnover of the underlying WM
Funds and the Portfolio itself. It assumes a constant portfolio allocation
identical to the Portfolio's actual allocation as of 10/31/06. Current
portfolio turnover and aggregate portfolio turnover may differ from data
shown above.
(7) Represents the sum of securities held by the underlying WM Funds. Some
securities may be held by more than one WM Fund.
13
Conservative Growth Portfolio
ANNUL TOTAL RETURNS(1)
Class A shares at net asset value(2)
(Calendar Year)
2005 6.24%
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
The WM Strategic Asset Management (SAM) Conservative Growth Portfolio ended its
2006 fiscal year invested in 12 underlying funds that provide diversification
across 14 equity and fixed-income asset classes.
We began the 12-month period with an outlook for the economy and financial
markets that supported the assessment that stocks appeared more attractive than
bonds. In response, we built on the Portfolio's equity allocation by raising it
from 81% to 84%. Despite a short-lived stock market retreat during May and June,
this overweighting in equities proved beneficial to performance during the year.
As we strengthened the Portfolio's equity allocation, we also shifted its equity
style and capitalization weightings to favor large-cap growth stocks. These
adjustments ultimately proved to be slightly ahead of a market rotation away
from value and smaller capitalization assets. However, large-cap growth stocks
enjoyed improved performance late in the period, and we believe the Portfolio is
well-positioned for the upcoming year.
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 s hares:
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, 2006
Since Inception
1-Year 5-Year 10-Year Inception Date
------ ------ ------- --------- ---------
CLASS A SHARES
Net Asset Value(2) 13.07% 7.81% 8.99% 9.22% 7/25/96
With Sales Charge 6.88% 6.60% 8.37% 8.62%
CLASS B SHARES
Net Asset Value(2) 12.19% 6.98% 8.29% 8.55% 7/25/96
With Sales Charge 7.19% 6.67% 8.29% 8.55%
CLASS C SHARES
Net Asset Value(2) 12.21% 7.00% 8.10% 7.19% 3/1/02
With Sales Charge 11.21% 7.00% 8.10% 7.19%
S&P 500(3) 16.34% 7.25% 8.64% 9.52%
Lehman Brothers Aggregate Bond Index(3) 5.18% 4.52% 6.26% 6.49%
Capital Market Benchmark(3) 14.06% 6.88% 8.39% 9.13%
VALUE OF A $10,000 INVESTMENT(1) OCTOBER 31, 1996 - OCTOBER 31, 2006
(PERFORMANCE GRAPH)
CONSERVATIVE GROWTH PORTFOLIO
-------------------------------------------------------------------
Lehman Brothers Capital
DATE NAV MOP S&P 500 Aggregate Bond Index Market Benchmark
- ------ ------ ------ ------- -------------------- ----------------
Oct-96 10,000 9,450 10,000 10,000 10,000
Nov-96 10,306 9,740 10,759 10,171 10,641
Dec-96 10,252 9,688 10,548 10,076 10,455
Jan-97 10,370 9,799 11,203 10,108 10,981
Feb-97 10,218 9,656 11,294 10,133 11,058
Mar-97 9,805 9,266 10,824 10,020 10,665
Apr-97 9,966 9,418 11,470 10,171 11,207
May-97 10,590 10,008 12,175 10,267 11,778
Jun-97 10,932 10,331 12,718 10,390 12,227
Jul-97 11,485 10,854 13,727 10,670 13,070
Aug-97 11,052 10,445 12,964 10,579 12,466
Sep-97 11,565 10,929 13,675 10,736 13,049
Oct-97 11,103 10,492 13,218 10,892 12,739
Nov-97 11,093 10,483 13,830 10,942 13,223
Dec-97 11,134 10,521 14,068 11,052 13,431
Jan-98 11,262 10,642 14,224 11,194 13,585
Feb-98 11,975 11,316 15,249 11,185 14,366
Mar-98 12,464 11,779 16,030 11,223 14,963
Apr-98 12,624 11,930 16,192 11,281 15,100
May-98 12,316 11,638 15,913 11,388 14,920
Jun-98 12,593 11,900 16,560 11,485 15,430
Jul-98 12,349 11,669 16,384 11,509 15,305
Aug-98 10,562 9,981 14,015 11,697 13,585
Sep-98 11,082 10,473 14,913 11,971 14,344
Oct-98 11,668 11,026 16,126 11,907 15,262
Nov-98 12,337 11,659 17,103 11,975 16,019
Dec-98 13,232 12,504 18,088 12,011 16,767
Jan-99 13,901 13,137 18,844 12,096 17,353
Feb-99 13,537 12,793 18,258 11,884 16,860
Mar-99 14,347 13,558 18,988 11,950 17,418
Apr-99 15,028 14,202 19,723 11,988 17,968
May-99 14,582 13,780 19,258 11,883 17,598
Jun-99 15,368 14,523 20,327 11,845 18,369
Jul-99 15,088 14,258 19,692 11,795 17,895
Aug-99 15,052 14,224 19,594 11,789 17,822
Sep-99 15,195 14,359 19,057 11,926 17,472
Oct-99 15,930 15,054 20,263 11,970 18,370
Nov-99 16,832 15,906 20,675 11,969 18,668
Dec-99 18,562 17,541 21,892 11,911 19,530
Jan-00 18,122 17,126 20,793 11,872 18,732
Feb-00 19,025 17,978 20,400 12,015 18,494
Mar-00 19,890 18,796 22,396 12,174 19,990
Apr-00 19,061 18,013 21,722 12,139 19,496
May-00 18,573 17,552 21,276 12,133 19,174
Jun-00 19,013 17,968 21,800 12,385 19,633
Jul-00 18,696 17,667 21,460 12,498 19,423
Aug-00 19,758 18,671 22,792 12,679 20,444
Sep-00 19,147 18,094 21,589 12,759 19,606
Oct-00 18,940 17,899 21,498 12,843 19,565
Nov-00 17,548 16,583 19,804 13,054 18,395
Dec-00 18,011 17,021 19,901 13,297 18,535
Jan-01 19,080 18,030 20,608 13,513 19,120
Feb-01 17,776 16,799 18,728 13,631 17,759
Mar-01 16,865 15,937 17,543 13,699 16,876
Apr-01 17,868 16,885 18,906 13,641 17,911
May-01 18,129 17,132 19,032 13,723 18,029
Jun-01 18,136 17,139 18,570 13,775 17,692
Jul-01 17,822 16,842 18,388 14,084 17,632
Aug-01 17,193 16,248 17,237 14,246 16,789
Sep-01 15,835 14,964 15,844 14,411 15,743
Oct-01 16,229 15,337 16,147 14,712 16,048
Nov-01 16,992 16,057 17,385 14,509 16,989
Dec-01 17,255 16,306 17,538 14,417 17,086
Jan-02 16,858 15,931 17,282 14,533 16,913
Feb-02 16,503 15,595 16,949 14,674 16,685
Mar-02 17,158 16,214 17,586 14,431 17,132
Apr-02 16,527 15,618 16,520 14,711 16,368
May-02 16,444 15,539 16,398 14,836 16,299
Jun-02 15,587 14,730 15,230 14,965 15,398
Jul-02 14,527 13,728 14,042 15,146 14,475
Aug-02 14,610 13,806 14,135 15,402 14,600
Sep-02 13,609 12,861 12,599 15,651 13,378
Oct-02 14,328 13,540 13,707 15,579 14,308
Nov-02 15,060 14,232 14,515 15,575 14,980
Dec-02 14,546 13,746 13,661 15,897 14,338
Jan-03 14,352 13,562 13,303 15,911 14,039
Feb-03 14,169 13,390 13,104 16,131 13,910
Mar-03 14,185 13,405 13,231 16,118 14,016
Apr-03 15,066 14,237 14,321 16,252 14,963
May-03 15,961 15,083 15,076 16,554 15,650
Jun-03 16,162 15,273 15,269 16,521 15,804
Jul-03 16,357 15,458 15,537 15,966 15,920
Aug-03 16,680 15,762 15,840 16,071 16,190
Sep-03 16,736 15,816 15,673 16,497 16,138
Oct-03 17,494 16,532 16,560 16,344 16,838
Nov-03 17,776 16,798 16,705 16,383 16,964
Dec-03 18,469 17,453 17,581 16,550 17,711
Jan-04 18,852 17,815 17,904 16,682 18,000
Feb-04 19,091 18,041 18,153 16,863 18,239
Mar-04 19,049 18,001 17,879 16,989 18,046
Apr-04 18,527 17,508 17,598 16,547 17,724
May-04 18,698 17,669 17,839 16,481 17,905
Jun-04 19,094 18,044 18,185 16,575 18,204
Jul-04 18,471 17,456 17,583 16,739 17,758
Aug-04 18,599 17,576 17,654 17,059 17,882
Sep-04 18,882 17,843 17,844 17,105 18,047
Oct-04 19,150 18,097 18,117 17,249 18,298
Nov-04 19,883 18,790 18,851 17,111 18,861
Dec-04 20,482 19,355 19,492 17,268 19,408
Jan-05 19,996 18,897 19,017 17,377 19,055
Feb-05 20,324 19,207 19,416 17,274 19,352
Mar-05 20,040 18,938 19,072 17,186 19,058
Apr-05 19,769 18,682 18,710 17,418 18,820
May-05 20,368 19,248 19,305 17,606 19,339
Jun-05 20,554 19,423 19,332 17,703 19,382
Jul-05 21,209 20,043 20,051 17,542 19,923
Aug-05 21,152 19,989 19,869 17,767 19,829
Sep-05 21,194 20,029 20,029 17,584 19,916
Oct-05 20,909 19,759 19,695 17,445 19,620
Nov-05 21,636 20,446 20,439 17,521 20,230
Dec-05 21,759 20,562 20,446 17,688 20,274
Jan-06 22,449 21,215 20,987 17,690 20,704
Feb-06 22,334 21,106 21,044 17,748 20,762
Mar-06 22,708 21,459 21,305 17,574 20,928
Apr-06 22,895 21,636 21,590 17,543 21,146
May-06 22,119 20,902 20,969 17,523 20,655
Jun-06 22,119 20,902 20,998 17,560 20,686
Jul-06 22,047 20,835 21,128 17,797 20,843
Aug-06 22,565 21,324 21,631 18,069 21,304
Sep-06 22,953 21,691 22,189 18,228 21,781
Oct-06 23,644 22,343 22,913 18,349 22,378
Performance of other share classes 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. For Class C shares, performance for periods prior to
inception is hypothetical, based on Class A share returns adjusted for the
respective expenses of the share class. 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.
14
PORTFOLIO MANAGER
Asset Allocation Team
WM Advisors, Inc.
Other equity asset classes that drove Portfolio performance included real estate
investment trusts (REITs) and international equities, which realized strong
absolute returns. In March, we expanded the Portfolio's exposure to emerging
market stocks. This timing missed some of the period's impressive appreciation
by emerging market equities, but the Portfolio's core position can provide
broader diversification going forward.
Among fixed-income assets, high-yield bonds had a positive impact on
performance, while mortgage- and asset-backed bonds provided a slight benefit.
Through small adjustments in allocations, the Portfolio ended the period with
neutral weightings in corporate and mortgage securities.
Looking forward, we believe that the economy will continue to slow while
inflation fears subside, subsequently leading the Federal Reserve to cut
short-term interest rates. We anticipate that in 2007, these cuts will begin
earlier and occur more often than the market expects. Lower interest rates
should bring down bond yields and could support the expansion of equity price
multiples. The Portfolio's asset class allocations are designed to take
advantage of this soft landing scenario. However, we also feel that choppy
market performance is apt to occur in reaction to mixed economic data.
In the near term, we are analyzing the Portfolio's six underlying equity funds
that will be changing management following our acquisition by The Principal.
Given our asset allocation discipline, we are focused on proactively identifying
and executing adjustments that might be necessary to keep allocations aligned
with our targets and our outlook.
PORTFOLIO CHARACTERISTICS AS OF OCTOBER 31, 2006
Equity/Fixed-Income Allocation:(4) 84% Equity/16% Fixed Income
Weighted Average Market Capitalization (equities): $61.4 billion
Weighted Average P/E (equities):(5) 16.6
Beta: 0.91
Portfolio Standard Deviation: 6.80
S&P 500 Standard Deviation: 8.14
Portfolio Turnover (for fiscal year):(6) 11%
Aggregate Portfolio Turnover (for fiscal year):(6) 52%
Number of Securities:(7) 2,003
Total Net Assets: $3.8 billion
PORTFOLIO COMPOSITION (4)
As of As of
Asset Class 10/31/06 10/31/05 Change
- ----------- -------- -------- ------
U.S. Large-Cap Growth Stocks 24% 20% +4%
U.S. Large-Cap Value Stocks 18% 20% -2%
U.S. Mid-Cap Growth Stocks 12% 10% +2%
Non-U.S. Developed Market Stocks 10% 10% 0%
U.S. Mid-Cap Value Stocks 5% 7% -2%
REITs 5% 5% 0%
U.S. Small-Cap Growth Stocks 4% 4% 0%
U.S. Small-Cap Value Stocks 3% 3% 0%
Emerging Market Stocks 3% 1% +2%
Convertible Securities 0% 1% -1%
Mortgage- & Asset-Backed Bonds 8% 9% -1%
High-Yield Corporate Bonds 3% 3% 0%
Investment-Grade Corporate Bonds 2% 2% 0%
U.S. Government Securities 1% 1% 0%
Cash Equivalents 2% 4% -2%
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 or by
calling 800-222-5852.
(4) May not reflect the current portfolio composition.
(5) Based on estimated earnings.
(6) Portfolio turnover does not reflect turnover of the underlying WM
Funds. Aggregate portfolio turnover reflects turnover of the underlying WM
Funds and the Portfolio itself. It assumes a constant portfolio allocation
identical to the Portfolio's actual allocation as of 10/31/ 06. Current
portfolio turnover and aggregate portfolio turnover may differ from data
shown above.
(7) Represents the sum of securities held by the underlying WM Funds. Some
securities may be held by more than one WM Fund.
15
Strategic Growth Portfolio
ANNUAL TOTAL RETURNS(1)
Class A shares at net asset value(2)
(Calendar Year)
2005 6.98%
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
The WM Strategic Asset Management (SAM) Strategic Growth Portfolio ended its
2006 fiscal year invested in 10 underlying funds that provide diversification
across 12 equity and fixed-income asset classes.
We began the 12-month period with an outlook for the economy and financial
markets that supported the assessment that stocks appeared more attractive than
bonds. In response, we built on the Portfolio's equity allocation by raising it
from 92% to 94%. Despite a short-lived stock market retreat during May and June,
this addition to equities proved beneficial to performance during the year.
As we strengthened the Portfolio's equity allocation, we also shifted its equity
style and capitalization weightings to favor large-cap growth stocks. These
adjustments ultimately proved to be slightly ahead of a market rotation away
from value and smaller capitalization assets. However, large-cap growth stocks
enjoyed improved performance late in the period, and we believe the Portfolio is
well-positioned for the upcoming year.
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, 2006
Since Inception
1-Year 5-Year 10-Year Inception Date
------ ------ ------- --------- ---------
CLASS A SHARES
Net Asset Value(2) 13.99% 8.01% 9.65% 9.96% 7/25/96
With Sales Charge 7.73% 6.80% 9.03% 9.36%
CLASS B SHARES
Net Asset Value(2) 13.16% 7.19% 8.99% 9.33% 7/25/96
With Sales Charge 8.16% 6.89% 8.99% 9.33%
CLASS C SHARES
Net Asset Value(2) 13.12% 7.22% 8.73% 7.38% 3/1/02
With Sales Charge 12.12% 7.22% 8.73% 7.38%
S&P 500(3) 16.34% 7.25% 8.64% 9.52%
Russell 3000(R) Index(3) 16.37% 8.35% 8.89% 9.74%
VALUE OF A $10,000 INVESTMENT(1) OCTOBER 31, 1996 - OCTOBER 31, 2006
(PERFORMANCE GRAPH)
STRATEGIC GROWTH PORTFOLIO
----------------------------------------------
DATE NAV MOP Russell 3000 Index S&P 500
- ------ ------ ------ ------------------ -------
Oct-96 10,000 9,450 10,000 10,000
Nov-96 10,492 9,915 10,705 10,759
Dec-96 10,417 9,844 10,577 10,548
Jan-97 10,708 10,119 11,161 11,203
Feb-97 10,557 9,976 11,174 11,294
Mar-97 10,076 9,521 10,669 10,824
Apr-97 10,276 9,711 11,195 11,470
May-97 10,948 10,346 11,959 12,175
Jun-97 11,300 10,678 12,457 12,718
Jul-97 12,042 11,380 13,433 13,727
Aug-97 11,590 10,953 12,888 12,964
Sep-97 12,142 11,474 13,619 13,675
Oct-97 11,631 10,991 13,161 13,218
Nov-97 11,672 11,030 13,665 13,830
Dec-97 11,707 11,063 13,938 14,068
Jan-98 11,846 11,194 14,011 14,224
Feb-98 12,757 12,055 15,013 15,249
Mar-98 13,358 12,623 15,757 16,030
Apr-98 13,539 12,795 15,912 16,192
May-98 13,143 12,420 15,519 15,913
Jun-98 13,571 12,825 16,043 16,560
Jul-98 13,250 12,521 15,751 16,384
Aug-98 11,148 10,535 13,338 14,015
Sep-98 11,845 11,193 14,248 14,913
Oct-98 12,509 11,821 15,329 16,126
Nov-98 13,239 12,511 16,267 17,103
Dec-98 14,355 13,565 17,302 18,088
Jan-99 15,216 14,379 17,890 18,844
Feb-99 14,767 13,955 17,257 18,258
Mar-99 15,653 14,792 17,890 18,988
Apr-99 16,444 15,539 18,697 19,723
May-99 15,901 15,027 18,342 19,258
Jun-99 16,846 15,919 19,268 20,327
Jul-99 16,418 15,515 18,684 19,692
Aug-99 16,406 15,504 18,471 19,594
Sep-99 16,562 15,651 17,998 19,057
Oct-99 17,458 16,498 19,127 20,263
Nov-99 18,581 17,559 19,663 20,675
Dec-99 20,740 19,599 20,917 21,892
Jan-00 20,308 19,191 20,097 20,793
Feb-00 21,590 20,402 20,284 20,400
Mar-00 22,540 21,300 21,872 22,396
Apr-00 21,356 20,182 21,102 21,722
May-00 20,739 19,599 20,509 21,276
Jun-00 21,355 20,181 21,116 21,800
Jul-00 20,888 19,739 20,743 21,460
Aug-00 22,256 21,032 22,282 22,792
Sep-00 21,405 20,228 21,272 21,589
Oct-00 21,097 19,937 20,970 21,498
Nov-00 19,247 18,188 19,037 19,804
Dec-00 19,821 18,730 19,357 19,901
Jan-01 21,137 19,974 20,019 20,608
Feb-01 19,363 18,298 18,189 18,728
Mar-01 18,163 17,164 17,003 17,543
Apr-01 19,570 18,494 18,367 18,906
May-01 19,897 18,803 18,514 19,032
Jun-01 19,949 18,852 18,173 18,570
Jul-01 19,374 18,309 17,873 18,388
Aug-01 18,501 17,483 16,819 17,237
Sep-01 16,610 15,696 15,335 15,844
Oct-01 17,080 16,141 15,693 16,147
Nov-01 18,084 17,090 16,901 17,385
Dec-01 18,491 17,474 17,139 17,538
Jan-02 17,905 16,920 16,925 17,282
Feb-02 17,400 16,443 16,580 16,949
Mar-02 18,314 17,306 17,306 17,586
Apr-02 17,455 16,495 16,397 16,520
May-02 17,305 16,353 16,207 16,398
Jun-02 16,200 15,309 15,040 15,230
Jul-02 14,809 13,994 13,844 14,042
Aug-02 14,864 14,046 13,910 14,135
Sep-02 13,568 12,821 12,448 12,599
Oct-02 14,440 13,646 13,438 13,707
Nov-02 15,327 14,484 14,252 14,515
Dec-02 14,635 13,830 13,446 13,661
Jan-03 14,375 13,584 13,117 13,303
Feb-03 14,100 13,325 12,900 13,104
Mar-03 14,114 13,338 13,036 13,231
Apr-03 15,118 14,286 14,101 14,321
May-03 16,163 15,274 14,953 15,076
Jun-03 16,410 15,507 15,154 15,269
Jul-03 16,753 15,831 15,502 15,537
Aug-03 17,138 16,196 15,846 15,840
Sep-03 17,124 16,183 15,673 15,673
Oct-03 18,087 17,092 16,621 16,560
Nov-03 18,403 17,391 16,851 16,705
Dec-03 19,215 18,158 17,621 17,581
Jan-04 19,668 18,587 17,989 17,904
Feb-04 19,916 18,821 18,232 18,153
Mar-04 19,834 18,743 18,015 17,879
Apr-04 19,298 18,237 17,642 17,598
May-04 19,518 18,445 17,898 17,839
Jun-04 19,987 18,887 18,254 18,185
Jul-04 19,217 18,160 17,564 17,583
Aug-04 19,300 18,238 17,636 17,654
Sep-04 19,643 18,563 17,907 17,844
Oct-04 19,918 18,823 18,201 18,117
Nov-04 20,827 19,681 19,047 18,851
Dec-04 21,508 20,325 19,726 19,492
Jan-05 20,929 19,778 19,201 19,017
Feb-05 21,329 20,156 19,623 19,416
Mar-05 21,011 19,855 19,292 19,072
Apr-05 20,639 19,504 18,873 18,710
May-05 21,343 20,169 19,588 19,305
Jun-05 21,563 20,377 19,725 19,332
Jul-05 22,348 21,119 20,534 20,051
Aug-05 22,265 21,040 20,339 19,869
Sep-05 22,334 21,106 20,516 20,029
Oct-05 22,031 20,819 20,132 19,695
Nov-05 22,871 21,613 20,916 20,439
Dec-05 23,008 21,743 20,934 20,446
Jan-06 23,826 22,515 21,634 20,987
Feb-06 23,687 22,385 21,672 21,044
Mar-06 24,159 22,830 22,047 21,305
Apr-06 24,366 23,026 22,286 21,590
May-06 23,452 22,162 21,572 20,969
Jun-06 23,438 22,149 21,611 20,998
Jul-06 23,300 22,018 21,592 21,128
Aug-06 23,881 22,568 22,121 21,631
Sep-06 24,325 22,987 22,616 22,189
Oct-06 25,115 23,733 23,430 22,913
Performance of other share classes 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. For Class C shares, performance for periods prior to
inception is hypothetical, based on Class A share returns adjusted for the
respective expenses of the share class. 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
PORTFOLIO MANAGER
Asset Allocation Team
WM Advisors, Inc.
Other asset classes that drove Portfolio per-formance included real estate
investment trusts (REITs) and international equities, which realized strong
absolute returns. In March, we expanded the Portfolio's exposure to emerging
market stocks. This timing missed some of the period's impressive appreciation
by emerging market equities, but the Portfolio's core position can provide
broader diversification going forward.
The Portfolio's fixed-income allocation in high-yield bonds had a positive
impact on performance, as the underlying fund achieved strong relative results.
Looking forward, we believe that the economy will continue to slow while
inflation fears subside, subsequently leading the Federal Reserve to cut
short-term interest rates. We anticipate that in 2007, these cuts will begin
earlier and occur more often than the market expects. Lower interest rates
should bring down bond yields and could support the expansion of equity price
multiples. The Portfolio's asset class allocations are designed to take
advantage of this soft landing scenario. However, we also feel that choppy
market performance is apt to occur in reaction to mixed economic data.
In the near term, we are analyzing the Portfolio's six underlying equity funds
that will be changing management following our acquisition by The Principal.
Given our asset allocation discipline, we are focused on proactively identifying
and executing adjustments that might be necessary to keep allocations aligned
with our targets and our outlook.
PORTFOLIO CHARACTERISTICS AS OF OCTOBER 31, 2006
Equity/Fixed-Income Allocation:(4) 94% Equity/6% Fixed Income
Weighted Average Market Capitalization (equities): $61.1 billion
Weighted Average P/E (equities):(5) 16.7
Beta: 1.02
Portfolio Standard Deviation: 7.65
S&P 500 Standard Deviation: 8.14
Portfolio Turnover (for fiscal year):(6) 12%
Aggregate Portfolio Turnover (for fiscal year):(6) 56%
Number of Securities:(7) 1,493
Total Net Assets: $2.3 billion
PORTFOLIO COMPOSITION (4)
As of As of
Asset Class 10/31/06 10/31/05 Change
- ----------- -------- -------- ------
U.S. Large-Cap Growth Stocks 27% 22% +5%
U.S. Large-Cap Value Stocks 19% 23% -4%
U.S. Mid-Cap Growth Stocks 13% 11% +2%
Non-U.S. Developed Market Stocks 12% 11% +1%
U.S. Mid-Cap Value Stocks 6% 8% -2%
REITs 6% 6% 0%
U.S. Small-Cap Growth Stocks 4% 5% -1%
U.S. Small-Cap Value Stocks 3% 4% -1%
Emerging Market Stocks 3% 2% +1%
Convertible Securities 1% 1% 0%
High-Yield Corporate Bonds 3% 3% 0%
Cash Equivalents 3% 4% -1%
Note: For information about the underlying WM Funds of the SAM Portfolios,
please see the WM Group of Funds annual report, which is available online or by
calling 800-222-5852.
(4) May not reflect the current portfolio composition.
(5) Based on estimated earnings.
(6) Portfolio turnover does not reflect turnover of the underlying WM
Funds. Aggregate portfolio turnover reflects turnover of the underlying WM
Funds and the Portfolio itself. It assumes a constant portfolio allocation
identical to the Portfolio's actual allocation as of 10/31/ 06. Current
portfolio turnover and aggregate portfolio turnover may differ from data
shown above.
(7) Represents the sum of securities held by the underlying WM Funds. Some
securities may be held by more than one WM Fund.
17
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 10/31/06. 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 10/31/06, and Portfolio results are
for Class A shares. Sources: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 share 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, 2006, to October 31, 2006.
ACTUAL EXPENSES:
The first section of the table below provides information about actual account
values and actual expenses. You may use the information in these columns,
together with the amount you invested, to estimate the expenses that you paid
over the period. Simply divide your account value by $1,000 (for example, an
$8,600 account value divided by $1,000 = $8.60), then multiply the result by the
number in the third column under the heading entitled "Expenses Paid During
Period" to estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES:
The second section of the table below provides information about hypothetical
account values and hypothetical expenses based on each Portfolio's actual
expense ratio and an assumed rate of return of 5% per year before expenses
(rather than each Portfolio's actual rate of return). The hypothetical account
values and expenses may not be used to estimate the actual ending balance or
expenses you paid for the period. You may use this information to compare the
ongoing costs of investing in the Portfolios and other mutual funds. To do so,
compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other mutual funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as 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 5/1/06- VALUE VALUE 5/1/06- EXPENSE
5/1/06 10/31/06 10/31/06 5/1/06 10/31/06 10/31/06 RATIO
--------- -------- ----------- --------- -------- ----------- -------
Flexible Income Portfolio
Class A Shares ................ $1,000 $1,037 $3.44 $1,000 $1,022 $3.41 0.67%
Class B Shares ................ 1,000 1,034 7.43 1,000 1,018 7.37 1.45%
Class C Shares ................ 1,000 1,033 7.28 1,000 1,018 7.22 1.42%
Conservative Balanced Portfolio
Class A Shares ................ $1,000 $1,037 $3.44 $1,000 $1,022 $3.41 0.67%
Class B Shares ................ 1,000 1,033 7.43 1,000 1,018 7.37 1.45%
Class C Shares ................ 1,000 1,033 7.33 1,000 1,018 7.27 1.43%
Balanced Portfolio
Class A Shares ................ $1,000 $1,035 $3.33 $1,000 $1,022 $3.31 0.65%
Class B Shares ................ 1,000 1,030 7.32 1,000 1,018 7.27 1.43%
Class C Shares ................ 1,000 1,031 7.22 1,000 1,018 7.17 1.41%
Conservative Growth Portfolio
Class A Shares ................ $1,000 $1,033 $3.38 $1,000 $1,022 $3.36 0.66%
Class B Shares ................ 1,000 1,029 7.36 1,000 1,018 7.32 1.44%
Class C Shares ................ 1,000 1,029 7.26 1,000 1,018 7.22 1.42%
Strategic Growth Portfolio
Class A Shares ................ $1,000 $1,031 $3.69 $1,000 $1,022 $3.67 0.72%
Class B Shares ................ 1,000 1,026 7.61 1,000 1,018 7.58 1.49%
Class C Shares ................ 1,000 1,026 7.51 1,000 1,018 7.48 1.47%
* 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, 2006. 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 5/1/06- VALUE VALUE 5/1/06- EXPENSE
5/1/06 10/31/06 10/31/06 5/1/06 10/31/06 10/31/06 RATIO
--------- -------- ----------- --------- -------- ----------- ---------
Flexible Income Portfolio
Class A Shares ................ $1,000 $1,037 $ 6.31 $1,000 $1,019 $ 6.26 1.23%
Class B Shares ................ 1,000 1,034 10.30 1,000 1,015 10.21 2.01%
Class C Shares ................ 1,000 1,033 10.15 1,000 1,015 10.06 1.98%
Conservative Balanced Portfolio
Class A Shares ................ $1,000 $1,037 $ 6.47 $1,000 $1,019 $ 6.41 1.26%
Class B Shares ................ 1,000 1,033 10.45 1,000 1,015 10.36 2.04%
Class C Shares ................ 1,000 1,033 10.35 1,000 1,015 10.26 2.02%
Balanced Portfolio
Class A Shares ................ $1,000 $1,035 $ 6.56 $1,000 $1,019 $ 6.51 1.28%
Class B Shares ................ 1,000 1,030 10.54 1,000 1,015 10.46 2.06%
Class C Shares ................ 1,000 1,031 10.44 1,000 1,015 10.36 2.04%
Conservative Growth Portfolio
Class A Shares ................ $1,000 $1,033 $ 6.71 $1,000 $1,019 $ 6.67 1.31%
Class B Shares ................ 1,000 1,029 10.69 1,000 1,015 10.61 2.09%
Class C Shares ................ 1,000 1,029 10.58 1,000 1,015 10.51 2.07%
Strategic Growth Portfolio
Class A Shares ................ $1,000 $1,031 $ 7.22 $1,000 $1,018 $ 7.17 1.41%
Class B Shares ................ 1,000 1,026 11.13 1,000 1,014 11.07 2.18%
Class C Shares ................ 1,000 1,026 11.03 1,000 1,014 10.97 2.16%
* 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).
20
Financial Statements:
Portfolios of Investments
FLEXIBLE INCOME PORTFOLIO
October 31, 2006
VALUE
SHARES (000S)
- ---------- --------
INVESTMENT COMPANY SECURITIES -- 100.0%
EQUITY FUNDS -- 25.6%
1,774,927 WM Equity Income Fund .......................... $ 39,812
1,938,075 WM Growth & Income Fund ........................ 53,374
3,621,984 WM Growth Fund ................................. 63,711
1,181,439 WM Mid Cap Stock Fund .......................... 24,976
419,895 WM REIT Fund ................................... 9,275
611,467 WM Small Cap Growth Fund+ ...................... 9,343
765,097 WM Small Cap Value Fund ........................ 9,801
262,137 WM West Coast Equity Fund ...................... 11,419
--------
Total Equity Funds
(Cost $149,393) ............................. 221,711
--------
FIXED-INCOME FUNDS -- 74.4%
6,527,510 WM High Yield Fund ............................. 57,311
23,672,049 WM Income Fund ................................. 215,652
43,913,189 WM Short Term Income Fund ...................... 101,879
25,615,933 WM U.S. Government Securities Fund ............. 270,248
--------
Total Fixed-Income Funds
(Cost $643,519) ............................. 645,090
--------
Total Investment Company Securities
(Cost $792,912) ............................. 866,801
--------
PRINCIPAL
AMOUNT
(000S)
- ----------
REPURCHASE AGREEMENT -- 0.3%
(Cost $2,742)
$ 2,742 Agreement with Morgan Stanley,
5.270% dated 10/31/2006, to be repurchased at
$2,742,000 on 11/01/2006 (collateralized by
U.S Treasury Note, 2.000% due 01/15/2016,
market value $2,834,000) .................... 2,742
--------
TOTAL INVESTMENTS (Cost $795,654*) .......................... 100.3% 869,543
OTHER ASSETS (LIABILITIES) (NET) ............................ (0.3) (2,229)
----- --------
NET ASSETS .................................................. 100.0% $867,314
===== ========
- ----------
* Aggregate cost for federal tax purposes is $803,755.
+ Non-income producing security.
CONSERVATIVE BALANCED PORTFOLIO
October 31, 2006
VALUE
SHARES (000S)
- ---------- --------
INVESTMENT COMPANY SECURITIES -- 99.8%
EQUITY FUNDS -- 44.5%
2,638,136 WM Equity Income Fund .......................... $ 59,174
1,903,681 WM Growth & Income Fund ........................ 52,427
3,652,830 WM Growth Fund ................................. 64,253
2,623,920 WM International Growth Fund ................... 34,951
1,049,968 WM Mid Cap Stock Fund .......................... 22,196
642,063 WM REIT Fund ................................... 14,183
476,428 WM Small Cap Growth Fund+ ...................... 7,280
621,416 WM Small Cap Value Fund ........................ 7,960
593,609 WM West Coast Equity Fund ...................... 25,858
--------
Total Equity Funds
(Cost $213,753) ............................. 288,282
--------
FIXED-INCOME FUNDS -- 55.3%
4,266,214 WM High Yield Fund ............................. 37,457
12,647,139 WM Income Fund ................................. 115,215
15,559,806 WM Short Term Income Fund ...................... 36,099
16,048,811 WM U.S. Government Securities Fund ............. 169,315
--------
Total Fixed-Income Funds
(Cost $359,652) ............................. 358,086
--------
Total Investment Company Securities
(Cost $573,405) ............................. 646,368
--------
PRINCIPAL
AMOUNT
(000S)
- ----------
REPURCHASE AGREEMENT -- 0.4%
(Cost $2,222)
$ 2,222 Agreement with Morgan Stanley,
5.270% dated 10/31/2006, to be repurchased at
$2,222,000 on 11/01/2006 (collateralized by
U.S Treasury Note, 2.000% due 01/15/2016,
market value $2,296,000) .................... 2,222
--------
TOTAL INVESTMENTS (Cost $575,627*) .......................... 100.2% 648,590
OTHER ASSETS (LIABILITIES) (NET) ............................ (0.2) (998)
----- --------
NET ASSETS .................................................. 100.0% $647,592
===== ========
- ----------
* Aggregate cost for federal tax purposes is $579,699.
+ Non-income producing security.
See Notes to Financial Statements.
21
Portfolios of Investments
BALANCED PORTFOLIO
October 31, 2006
VALUE
SHARES (000S)
- ---------- ----------
INVESTMENT COMPANY SECURITIES -- 99.6%
EQUITY FUNDS -- 66.7%
25,452,906 WM Equity Income Fund ........................ $ 570,909
20,620,000 WM Growth & Income Fund ...................... 567,875
42,293,680 WM Growth Fund ............................... 743,946
29,041,873 WM International Growth Fund ................. 386,838
11,303,897 WM Mid Cap Stock Fund ........................ 238,964
6,943,837 WM REIT Fund ................................. 153,389
5,751,117 WM Small Cap Growth Fund+ .................... 87,877
7,484,011 WM Small Cap Value Fund ...................... 95,870
6,468,699 WM West Coast Equity Fund .................... 281,776
----------
Total Equity Funds
(Cost $2,343,507) ......................... 3,127,444
----------
FIXED-INCOME FUNDS -- 32.9%
24,487,823 WM High Yield Fund ........................... 215,003
53,059,963 WM Income Fund ............................... 483,376
18,996,851 WM Short Term Income Fund .................... 44,073
76,004,999 WM U.S. Government Securities Fund ........... 801,853
----------
Total Fixed-Income Funds
(Cost $1,538,196) ......................... 1,544,305
----------
Total Investment Company Securities
(Cost $3,881,703) ......................... 4,671,749
----------
PRINCIPAL
AMOUNT
(000S)
- ----------
REPURCHASE AGREEMENT -- 0.5%
(Cost $22,264)
$ 22,264 Agreement with Morgan Stanley,
5.270% dated 10/31/2006, to be repurchased
at $22,267,000 on 11/01/2006
(collateralized by U.S Treasury Note,
2.000% due 01/15/2016, market value
$23,009,000) .............................. 22,264
----------
TOTAL INVESTMENTS (COST $3,903,967*) ...................... 100.1% 4,694,013
OTHER ASSETS (LIABILITIES) (NET) .......................... (0.1) (6,457)
----- ----------
NET ASSETS ................................................ 100.0% $4,687,556
===== ==========
- ----------
* Aggregate cost for federal tax purposes is $3,942,141.
+ Non-income producing security.
CONSERVATIVE GROWTH PORTFOLIO
OCTOBER 31, 2006
VALUE
SHARES (000S)
- ---------- ----------
INVESTMENT COMPANY SECURITIES -- 100.0%
EQUITY FUNDS -- 86.2%
27,504,485 WM Equity Income Fund ........................ $ 616,926
22,272,138 WM Growth & Income Fund ...................... 613,375
42,763,397 WM Growth Fund ............................... 752,208
29,310,687 WM International Growth Fund ................. 390,418
11,886,500 WM Mid Cap Stock Fund ........................ 251,281
7,497,473 WM REIT Fund ................................. 165,619
6,543,442 WM Small Cap Growth Fund+ .................... 99,984
8,433,938 WM Small Cap Value Fund ...................... 108,039
6,881,323 WM West Coast Equity Fund .................... 299,750
----------
Total Equity Funds
(Cost $2,517,321) ......................... 3,297,600
----------
FIXED-INCOME FUNDS -- 13.8%
11,065,461 WM High Yield Fund ........................... 97,155
16,355,389 WM Income Fund ............................... 148,997
26,569,201 WM U.S. Government Securities Fund ........... 280,305
----------
Total Fixed-Income Funds
(Cost $515,411) ........................... 526,457
----------
Total Investment Company Securities
(Cost $3,032,732) ......................... 3,824,057
----------
PRINCIPAL
AMOUNT
(000S)
- ----------
REPURCHASE AGREEMENT -- 0.1%
(Cost $3,510)
$ 3,510 Agreement with Morgan Stanley,
5.270% dated 10/31/2006, to be repurchased
at $3,511,000 on 11/01/2006 (collateralized
by U.S Treasury Note, 2.000% due
01/15/2016, market value $3,627,000) ...... 3,510
----------
TOTAL INVESTMENTS (Cost $3,036,242*) ...................... 100.1% 3,827,567
OTHER ASSETS (LIABILITIES) (NET) .......................... (0.1) (4,776)
----- ----------
NET ASSETS ................................................ 100.0% $3,822,791
===== ==========
- ----------
* Aggregate cost for federal tax purposes is $3,057,132.
+ Non-income producing security.
See Notes to Financial Statements.
22
Portfolio of Investments
STRATEGIC GROWTH PORTFOLIO
October 31, 2006
VALUE
SHARES (000S)
- ---------- ----------
INVESTMENT COMPANY SECURITIES -- 100.1%
EQUITY FUNDS -- 96.0%
17,820,458 WM Equity Income Fund ........................ $ 399,713
14,473,059 WM Growth & Income Fund ...................... 398,588
30,645,273 WM Growth Fund ............................... 539,050
20,558,682 WM International Growth Fund ................. 273,842
8,896,395 WM Mid Cap Stock Fund ........................ 188,070
4,578,008 WM REIT Fund ................................. 101,128
4,302,818 WM Small Cap Growth Fund+ .................... 65,747
5,530,801 WM Small Cap Value Fund ...................... 70,849
4,770,979 WM West Coast Equity Fund .................... 207,824
----------
Total Equity Funds
(Cost $1,767,142) ......................... 2,244,811
----------
FIXED-INCOME FUND -- 4.1%
(Cost $85,271)
10,830,531 WM High Yield Fund ........................... 95,092
----------
Total Investment Company Securities
(Cost $1,852,413) ......................... 2,339,903
----------
PRINCIPAL
AMOUNT
(000S)
- ----------
REPURCHASE AGREEMENT -- 0.0%
(Cost $976)
$ 976 Agreement with Morgan Stanley,
5.270% dated 10/31/2006, to be repurchased
at $976,000 on 11/01/2006 (collateralized
by U.S Treasury Note, 2.000% due
01/15/2016, market value $1,009,000) ...... 976
----------
TOTAL INVESTMENTS (Cost $1,853,389*) ...................... 100.1% 2,340,879
OTHER ASSETS (LIABILITIES) (NET) .......................... (0.1) (2,339)
----- ----------
NET ASSETS ................................................ 100.0% $2,338,540
===== ==========
- ----------
* Aggregate cost for federal tax purposes is $1,874,405.
+ Non-income producing security.
See Notes to Financial Statements.
23
Statements of Assets and Liabilities
October 31, 2006
(In thousands)
FLEXIBLE CONSERVATIVE CONSERVATIVE STRATEGIC
INCOME BALANCED BALANCED GROWTH GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- ------------ ---------- ------------ ----------
ASSETS:
Investments, at cost .................................. $795,654 $575,627 $3,903,967 $3,036,242 $1,853,389
======== ======== ========== ========== ==========
Investments, at value ................................. $869,543 $648,590 $4,694,013 $3,827,567 $2,340,879
Receivable for Portfolio shares sold .................. 847 524 4,761 3,756 2,715
Receivable for investment securities sold ............. -- -- 740 490 1,020
Prepaid expenses and other assets ..................... 6 5 28 21 13
-------- -------- ---------- ---------- ----------
Total Assets ....................................... 870,396 649,119 4,699,542 3,831,834 2,344,627
-------- -------- ---------- ---------- ----------
LIABILITIES:
Payable for Portfolio shares redeemed ................. 2,137 860 7,389 5,097 3,573
Investment advisory fee payable ....................... 231 172 1,237 1,009 616
Shareholder servicing and distribution fees payable ... 483 351 2,444 2,073 1,291
Transfer agent fees payable ........................... 73 31 254 252 152
Accrued legal and audit fees .......................... 29 28 43 40 34
Accrued expenses and other payables ................... 129 85 619 572 421
-------- -------- ---------- ---------- ----------
Total Liabilities .................................. 3,082 1,527 11,986 9,043 6,087
-------- -------- ---------- ---------- ----------
NET ASSETS ............................................ $867,314 $647,592 $4,687,556 $3,822,791 $2,338,540
======== ======== ========== ========== ==========
NET ASSETS CONSIST OF:
Undistributed net investment income ................... $ 2,179 $ 1,089 $ 3,615 $ 4,532 $ 1,424
Accumulated net realized gain/(loss) on investment
transactions ....................................... (5,351) 405 (13,547) (25,229) (24,363)
Net unrealized appreciation of investments ............ 73,889 72,963 790,046 791,325 487,490
Paid-in capital ....................................... 796,597 573,135 3,907,442 3,052,163 1,873,989
-------- -------- ---------- ---------- ----------
Total Net Assets ................................... $867,314 $647,592 $4,687,556 $3,822,791 $2,338,540
======== ======== ========== ========== ==========
NET ASSETS:
Class A Shares ........................................ $401,786 $309,946 $2,389,102 $1,822,661 $1,074,546
======== ======== ========== ========== ==========
Class B Shares ........................................ $317,142 $166,857 $1,414,695 $1,093,660 $ 718,841
======== ======== ========== ========== ==========
Class C Shares ........................................ $148,386 $170,789 $ 883,759 $ 906,470 $ 545,153
======== ======== ========== ========== ==========
SHARES OUTSTANDING:
Class A Shares ........................................ 34,802 27,864 164,674 110,874 59,268
======== ======== ========== ========== ==========
Class B Shares ........................................ 27,508 15,027 97,752 68,958 41,842
======== ======== ========== ========== ==========
Class C Shares ........................................ 12,935 15,445 61,388 57,552 31,654
======== ======== ========== ========== ==========
CLASS A SHARES:**
Net asset value per share of beneficial interest
outstanding* ....................................... $ 11.54 $ 11.12 $ 14.51 $ 16.44 $ 18.13
======== ======== ========== ========== ==========
Maximum sales charge .................................. 4.50% 5.50% 5.50% 5.50% 5.50%
======== ======== ========== ========== ==========
Maximum offering price per share of beneficial
interest outstanding ............................... $ 12.08 $ 11.77 $ 15.35 $ 17.40 $ 19.19
======== ======== ========== ========== ==========
CLASS B SHARES:**
Net asset value and offering price per share of
beneficial interest outstanding* ................... $ 11.53 $ 11.10 $ 14.47 $ 15.86 $ 17.18
======== ======== ========== ========== ==========
CLASS C SHARES:**
Net asset value and offering price per share of
beneficial interest outstanding* ................... $ 11.47 $ 11.06 $ 14.40 $ 15.75 $ 17.22
======== ======== ========== ========== ==========
- ----------
* 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 price are not shown in thousands.
See Notes to Financial Statements.
24
Statements of Operations
For the Year Ended October 31, 2006
(In thousands)
FLEXIBLE CONSERVATIVE CONSERVATIVE STRATEGIC
INCOME BALANCED BALANCED GROWTH GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- ------------ ---------- ------------ ----------
INVESTMENT INCOME:
Dividends from investment company securities .......... $39,834 $22,845 $120,038 $ 67,344 $ 31,888
Interest .............................................. 64 65 1,520 130 101
------- ------- -------- -------- --------
Total investment income ......................... 39,898 22,910 121,558 67,474 31,989
------- ------- -------- -------- --------
EXPENSES:
Investment advisory fee ............................... 2,937 2,021 14,339 11,566 6,957
Custodian fees ........................................ 10 3 2 4 5
Legal and audit fees .................................. 38 33 96 81 58
Trustees' fees ........................................ 19 13 89 72 43
Other ................................................. 362 283 1,351 1,266 1,157
Shareholder servicing and distribution fees:
Class A Shares ..................................... 1,070 767 5,739 4,343 2,514
Class B Shares ..................................... 3,496 1,698 14,325 10,968 7,078
Class C Shares ..................................... 1,562 1,661 8,323 8,446 4,990
Transfer agent fees:
Class A Shares ..................................... 267 182 1,336 1,190 898
Class B Shares ..................................... 294 142 1,163 983 745
Class C Shares ..................................... 104 104 525 636 479
------- ------- -------- -------- --------
Total expenses .................................. 10,159 6,907 47,288 39,555 24,924
Fees reduced by custodian credits ..................... --* --* --* --* --*
------- ------- -------- -------- --------
Net expenses .................................... 10,159 6,907 47,288 39,555 24,924
------- ------- -------- -------- --------
NET INVESTMENT INCOME ................................. 29,739 16,003 74,270 27,919 7,065
------- ------- -------- -------- --------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain/(loss) on investment transactions ... (2,293) (177) 7,075 8,689 6,391
Capital gain distributions received ................... 4,116 4,105 45,198 45,983 32,414
Net change in unrealized appreciation/ depreciation of
investments ........................................ 29,771 34,661 335,824 343,872 228,199
------- ------- -------- -------- --------
Net realized and unrealized gain on investments ....... 31,594 38,589 388,097 398,544 267,004
------- ------- -------- -------- --------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .. $61,333 $54,592 $462,367 $426,463 $274,069
======= ======= ======== ======== ========
- ----------
* 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
10/31/06 10/31/05 10/31/06 10/31/05 10/31/06 10/31/05
---------- ---------- ---------- ---------- ---------- ----------
Net investment income/(loss) .......................... $ 29,739 $ 25,572 $ 16,003 $ 11,225 $ 74,270 $ 50,245
Net realized gain/(loss) on investment transactions ... (2,293) (294) (177) 24 7,075 (671)
Capital gain distributions received ................... 4,116 1,239 4,105 1,041 45,198 11,568
Net change in unrealized appreciation/ depreciation
of investments ..................................... 29,771 (4,746) 34,661 9,351 335,824 179,183
--------- -------- -------- -------- ---------- ----------
Net increase in net assets resulting from operations .. 61,333 21,771 54,592 21,641 462,367 240,325
Distributions to shareholders from:
Net investment income:
Class A Shares .................................. (15,695) (12,642) (8,934) (6,169) (48,045) (31,381)
Class B Shares .................................. (10,067) (9,207) (3,662) (2,814) (19,331) (13,452)
Class C Shares .................................. (4,575) (3,397) (3,645) (2,133) (11,433) (5,984)
Class R-1 Shares ................................ -- -- -- -- (2) --
Class R-2 Shares ................................ -- -- (1) -- (1) --
Net realized gains on investments:
Class A Shares .................................. (1,189) (1,159) (454) (307) -- --
Class B Shares .................................. (1,004) (1,306) (263) (231) -- --
Class C Shares .................................. (425) (401) (243) (146) -- --
Net increase/(decrease) in net assets from Portfolio
share transactions:
Class A Shares .................................. (54,414) 88,792 282 79,532 70,848 511,715
Class B Shares .................................. (77,609) (33,003) (12,930) 4,826 (126,471) (7,480)
Class C Shares .................................. (18,578) 35,589 8,977 52,920 79,786 223,780
--------- -------- -------- -------- ---------- ----------
Net increase/(decrease) in net assets ................. (122,223) 85,037 33,719 147,119 407,718 917,523
NET ASSETS:
Beginning of year ..................................... 989,537 904,500 613,873 466,754 4,279,838 3,362,315
--------- -------- -------- -------- ---------- ----------
End of year ........................................... $ 867,314 $989,537 $647,592 $613,873 $4,687,556 $4,279,838
========= ======== ======== ======== ========== ==========
Undistributed net investment income at end of year .... $ 2,179 $ 2,173 $ 1,089 $ 799 $ 3,615 $ 2,073
========= ======== ======== ======== ========== ==========
TAX CHARACTER OF DISTRIBUTIONS PAID:
Ordinary income ....................................... $ 30,693 $ 26,279 $ 16,383 $ 11,703 $ 78,812 $ 50,817
Long-term capital gains ............................... 2,262 1,833 819 97 -- --
--------- -------- -------- -------- ---------- ----------
Total ................................................. $ 32,955 $ 28,112 $ 17,202 $ 11,800 $ 78,812 $ 50,817
========= ======== ======== ======== ========== ==========
See Notes to Financial Statements.
26
CONSERVATIVE STRATEGIC
GROWTH PORTFOLIO GROWTH PORTFOLIO
---------------------- ----------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
10/31/06 10/31/05 10/31/06 10/31/05
---------- ---------- ---------- ----------
Net investment income/(loss) .......................... $ 27,919 $ 14,329 $ 7,065 $ (937)
Net realized gain/(loss) on investment transactions ... 8,689 (2,370) 6,391 (2,613)
Capital gain distributions received ................... 45,983 12,156 32,414 8,964
Net change in unrealized appreciation/ depreciation
of investments ..................................... 343,872 220,107 228,199 155,476
---------- ---------- ---------- ----------
Net increase in net assets resulting from operations .. 426,463 244,222 274,069 160,890
Distributions to shareholders from:
Net investment income:
Class A Shares .................................. (14,884) (11,899) (5,113) (1,610)
Class B Shares .................................. (8,753) (2,201) (3,135) --
Class C Shares .................................. (6,373) (2,378) (2,033) --
Class R-1 Shares ................................ -- -- -- --
Class R-2 Shares ................................ -- -- -- --
Net realized gains on investments:
Class A Shares .................................. -- -- -- --
Class B Shares .................................. -- -- -- --
Class C Shares .................................. -- -- -- --
Net increase/(decrease) in net assets from Portfolio
share transactions:
Class A Shares .................................. 68,279 300,718 66,014 206,269
Class B Shares .................................. (81,636) (22,833) (37,097) 535
Class C Shares .................................. 90,901 203,027 69,979 110,472
---------- ---------- ---------- ----------
Net increase/(decrease) in net assets ................. 473,997 708,656 362,684 476,556
NET ASSETS:
Beginning of year ..................................... 3,348,794 2,640,138 1,975,856 1,499,300
---------- ---------- ---------- ----------
End of year ........................................... $3,822,791 $3,348,794 $2,338,540 $1,975,856
========== ========== ========== ==========
Undistributed net investment income at end of year .... $ 4,532 $ 107 $ 1,424 $ 166
========== ========== ========== ==========
TAX CHARACTER OF DISTRIBUTIONS PAID:
Ordinary income ....................................... $ 30,010 $ 16,478 $ 10,281 $ 1,610
Long-term capital gains ............................... -- -- -- --
---------- ---------- ---------- ----------
Total ................................................. $ 30,010 $ 16,478 $ 10,281 $ 1,610
========== ========== ========== ==========
See Notes to Financial Statements.
27
Statements of Changes in Net Assets -- Capital Stock Activity
(In thousands)
FLEXIBLE INCOME PORTFOLIO
ISSUED AS
REINVESTMENT NET INCREASE/
SOLD OF DIVIDENDS REDEEMED (DECREASE)
----------------- ---------------- ------------------- -----------------
AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
-------- ------ ------- ------ --------- ------- -------- ------
YEAR ENDED 10/31/06:
Class A Shares .... $111,970 9,890 $14,517 1,288 $(180,901) (16,000) $(54,414) (4,822)
Class B Shares .... 25,913 2,295 9,517 845 (113,039) (10,009) (77,609) (6,869)
Class C Shares .... 43,206 3,848 4,339 387 (66,123) (5,883) (18,578) (1,648)
Class R-1 Shares .. 44 4 -- -- (44) (4) -- --
Class R-2 Shares .. 5 -- -- -- (5) -- -- --
YEAR ENDED 10/31/05:
Class A Shares .... $209,417 18,516 $11,907 1,055 $(132,532) (11,727) $ 88,792 7,844
Class B Shares .... 60,992 5,423 9,136 810 (103,131) (9,139) (33,003) (2,906)
Class C Shares .... 81,325 7,239 3,329 297 (49,065) (4,370) 35,589 3,166
CONSERVATIVE BALANCED PORTFOLIO
ISSUED AS
REINVESTMENT NET INCREASE/
SOLD OF DIVIDENDS REDEEMED (DECREASE)
----------------- --------------- ------------------ -----------------
AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
-------- ------ ------ ------ --------- ------ -------- ------
YEAR ENDED 10/31/06:
Class A Shares .... $ 87,710 8,160 $8,406 783 $(95,834) (8,907) $ 282 36
Class B Shares .... 21,449 2,015 3,612 337 (37,991) (3,552) (12,930) (1,200)
Class C Shares .... 44,537 4,168 3,608 338 (39,168) (3,658) 8,977 848
Class R-1 Shares .. 2 -- -- -- (2) -- -- --
Class R-2 Shares .. 103 10 1 -- (104) (10) -- --
YEAR ENDED 10/31/05:
Class A Shares .... $143,665 13,693 $5,799 553 $(69,932) (6,655) $ 79,532 7,591
Class B Shares .... 34,134 3,265 2,710 258 (32,018) (3,061) 4,826 462
Class C Shares .... 73,937 7,088 2,045 196 (23,062) (2,211) 52,920 5,073
BALANCED PORTFOLIO
ISSUED AS
REINVESTMENT NET INCREASE/
SOLD OF DIVIDENDS REDEEMED (DECREASE)
----------------- ---------------- ------------------- ------------------
AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
-------- ------ ------- ------ --------- ------- --------- ------
YEAR ENDED 10/31/06:
Class A Shares .... $522,607 37,645 $44,010 3,182 $(495,769) (35,748) $ 70,848 5,079
Class B Shares .... 116,766 8,430 18,045 1,311 (261,282) (18,879) (126,471) (9,138)
Class C Shares .... 225,375 16,369 10,504 767 (156,093) (11,334) 79,786 5,802
Class R-1 Shares .. 370 26 2 -- (372) (26) -- --
Class R-2 Shares .. 83 6 -- -- (83) (6) -- --
YEAR ENDED 10/31/05:
Class A Shares .... $793,211 60,281 $28,968 2,194 $(310,464) (23,564) $ 511,715 38,911
Class B Shares .... 195,378 14,915 12,481 948 (215,339) (16,412) (7,480) (549)
Class C Shares .... 325,240 24,889 5,544 423 (107,004) (8,188) 223,780 17,124
See Notes to Financial Statements.
28
Statements of Changes in Net Assets -- Capital Stock Activity (continued)
(In thousands)
CONSERVATIVE GROWTH PORTFOLIO
ISSUED AS
REINVESTMENT NET INCREASE/
SOLD OF DIVIDENDS REDEEMED (DECREASE)
----------------- ---------------- ------------------- -----------------
AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
-------- ------ ------- ------ --------- ------- -------- ------
YEAR ENDED 10/31/06:
Class A Shares .... $366,364 23,610 $14,092 927 $(312,177) (20,066) $ 68,279 4,471
Class B Shares .... 93,804 6,249 8,512 576 (183,952) (12,223) (81,636) (5,398)
Class C Shares .... 228,099 15,289 5,943 406 (143,141) (9,570) 90,901 6,125
Class R-1 Shares .. 374 24 -- -- (374) (24) -- --
Class R-2 Shares .. 335 22 -- -- (335) (22) -- --
YEAR ENDED 10/31/05:
Class A Shares .... $511,183 35,691 $11,340 790 $(221,805) (15,434) $300,718 21,047
Class B Shares .... 157,022 11,277 2,100 150 (181,955) (13,063) (22,833) (1,636)
Class C Shares .... 295,161 21,286 2,203 158 (94,337) (6,788) 203,027 14,656
STRATEGIC GROWTH PORTFOLIO
ISSUED AS
REINVESTMENT NET INCREASE/
SOLD OF DIVIDENDS REDEEMED (DECREASE)
----------------- --------------- ------------------- -----------------
AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
-------- ------ ------ ------ --------- ------- -------- ------
YEAR ENDED 10/31/06:
Class A Shares .... $244,967 14,356 $4,861 291 $(183,814) (10,747) $ 66,014 3,900
Class B Shares .... 72,573 4,465 3,047 191 (112,717) (6,931) (37,097) (2,275)
Class C Shares .... 150,851 9,270 1,893 119 (82,765) (5,068) 69,979 4,321
Class R-1 Shares .. 333 21 -- -- (333) (21) -- --
Class R-2 Shares .. 117 7 -- -- (117) (7) -- --
YEAR ENDED 10/31/05:
Class A Shares .... $337,997 21,789 $1,537 99 $(133,265) (8,553) $206,269 13,335
Class B Shares .... 112,864 7,597 -- -- (112,329) (7,568) 535 29
Class C Shares .... 167,135 11,236 -- -- (56,663) (3,794) 110,472 7,442
See Notes to Financial Statements.
29
Financial Highlights
FLEXIBLE INCOME PORTFOLIO
For a Portfolio share outstanding throughout each period.
INCOME/(LOSS) FROM
INVESTMENT OPERATIONS LESS DISTRIBUTIONS
-------------------------------------- ------------------------------------------
NET REALIZED
NET AND
ASSET UNREALIZED DIVIDENDS DISTRIBUTIONS
VALUE NET GAIN/(LOSS) TOTAL FROM FROM NET FROM NET
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT REALIZED TOTAL
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME(1) CAPITAL GAINS DISTRIBUTIONS
--------- ---------- ------------ ---------- ---------- ------------- -------------
CLASS A SHARES
Year Ended:
10/31/06 $11.19 $0.41 $ 0.39 $ 0.80 $(0.42) $(0.03) $(0.45)
10/31/05 11.26 0.35 (0.03) 0.32 (0.35) (0.04) (0.39)
10/31/04 10.92 0.34(6) 0.35 0.69 (0.35) -- (0.35)
10/31/03 10.17 0.38(6) 0.77 1.15 (0.38) (0.02) (0.40)
10/31/02 10.71 0.45(6) (0.48) (0.03) (0.43) (0.08) (0.51)
CLASS B SHARES
Year Ended:
10/31/06 $11.17 $0.33 $ 0.39 $ 0.72 $(0.33) $(0.03) $(0.36)
10/31/05 11.24 0.26 (0.03) 0.23 (0.26) (0.04) (0.30)
10/31/04 10.90 0.26(6) 0.34 0.60 (0.26) -- (0.26)
10/31/03 10.15 0.30(6) 0.77 1.07 (0.30) (0.02) (0.32)
10/31/02 10.71 0.38(6) (0.50) (0.12) (0.36) (0.08) (0.44)
CLASS C SHARES
Year Ended:
10/31/06 $11.12 $0.32 $ 0.39 $ 0.71 $(0.33) $(0.03) $(0.36)
10/31/05 11.19 0.26 (0.03) 0.23 (0.26) (0.04) (0.30)
10/31/04 10.86 0.26(6) 0.34 0.60 (0.27) -- (0.27)
10/31/03 10.13 0.30(6) 0.76 1.06 (0.31) (0.02) (0.33)
10/31/02(5) 10.54 0.24(6) (0.43) (0.19) (0.22) -- (0.22)
RATIOS TO AVERAGE
NET ASSETS/SUPPLEMENTAL DATA
----------------------------------------------------------------------
RATIO OF RATIO OF
EXPENSES EXPENSES RATIO OF
NET NET TO AVERAGE TO AVERAGE NET
ASSET ASSETS NET ASSETS NET ASSETS INVESTMENT
VALUE END OF BEFORE AFTER INCOME TO PORTFOLIO
END OF TOTAL PERIOD REIMBURSEMENTS/ REIMBURSEMENTS/ AVERAGE TURNOVER
PERIOD RETURN(2) (IN 000S) WAIVERS(3) WAIVERS(3)(4) NET ASSETS RATE
------ --------- --------- --------------- --------------- ---------- ---------
CLASS A SHARES
Year Ended:
10/31/06 $11.54 7.28% $401,786 0.67% 0.67% 3.60% 8%
10/31/05 11.19 2.79 443,361 1.00 1.00 3.10 3
10/31/04 11.26 6.38 357,735 1.02 1.02 3.07 3
10/31/03 10.92 11.49 224,192 1.04 1.04 3.64 3
10/31/02 10.17 (0.37) 144,710 1.06 1.06 4.41 9
CLASS B SHARES
Year Ended:
10/31/06 $11.53 6.54% $317,142 1.44% 1.44% 2.83% 8%
10/31/05 11.17 1.99 384,036 1.77 1.77 2.33 3
10/31/04 11.24 5.56 418,994 1.79 1.79 2.30 3
10/31/03 10.90 10.60 371,639 1.79 1.79 2.89 3
10/31/02 10.15 (1.08) 244,999 1.81 1.81 3.66 9
CLASS C SHARES
Year Ended:
10/31/06 $11.47 6.52% $148,386 1.43% 1.43% 2.84% 8%
10/31/05 11.12 2.06 162,140 1.76 1.76 2.34 3
10/31/04 11.19 5.57 127,771 1.78 1.78 2.31 3
10/31/03 10.86 10.63 68,746 1.79 1.79 2.89 3
10/31/02(5) 10.13 (1.78) 20,677 1.81(7) 1.81(7) 3.66(7) 9
(1) Includes dividends paid from the short-term portion of capital gain
distributions received from the Underlying Funds.
(2) Total return is not annualized for periods of less than one year and does
not reflect any applicable sales charges. The total return would have been
lower if certain fees had not been waived and/or expenses reimbursed by the
investment advisor or if fees had not been reduced by credits allowed by
the custodian.
(3) The Portfolio also will indirectly bear its prorated share of expenses of
the Underlying Funds.
(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.
30
Financial Highlights
CONSERVATIVE BALANCED PORTFOLIO
For a Portfolio share outstanding throughout each period.
INCOME/(LOSS) FROM
INVESTMENT OPERATIONS LESS DISTRIBUTIONS
-------------------------------------- ------------------------------------------
NET REALIZED
NET AND
ASSET UNREALIZED DIVIDENDS DISTRIBUTIONS
VALUE NET GAIN/(LOSS) TOTAL FROM FROM NET FROM NET
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT REALIZED TOTAL
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME(1) CAPITAL GAINS DISTRIBUTIONS
--------- ---------- ------------ ---------- ---------- ------------- -------------
CLASS A SHARES
Year Ended:
10/31/06 $10.49 $0.31 $ 0.65 $ 0.96 $(0.31) $(0.02) $(0.33)
10/31/05 10.27 0.26(6) 0.23 0.49 (0.26) (0.01) (0.27)
10/31/04 9.81 0.24 0.47 0.71 (0.25) -- (0.25)
10/31/03 8.83 0.28(6) 0.97 1.25 (0.27) -- (0.27)
10/31/02 9.43 0.33 (0.61) (0.28) (0.32) -- (0.32)
CLASS B SHARES
Year Ended:
10/31/06 $10.47 $0.23 $ 0.65 $ 0.88 $(0.23) $(0.02) $(0.25)
10/31/05 10.25 0.18(6) 0.23 0.41 (0.18) (0.01) (0.19)
10/31/04 9.79 0.17 0.46 0.63 (0.17) -- (0.17)
10/31/03 8.82 0.21(6) 0.96 1.17 (0.20) -- (0.20)
10/31/02 9.43 0.27 (0.62) (0.35) (0.26) -- (0.26)
CLASS C SHARES
Year Ended:
10/31/06 $10.43 $0.23 $ 0.65 $ 0.88 $(0.23) $(0.02) $(0.25)
10/31/05 10.22 0.18(6) 0.22 0.40 (0.18) (0.01) (0.19)
10/31/04 9.76 0.16 0.48 0.64 (0.18) -- (0.18)
10/31/03 8.80 0.21(6) 0.97 1.18 (0.22) -- (0.22)
10/31/02(5) 9.39 0.16 (0.60) (0.44) (0.15) -- (0.15)
RATIOS TO AVERAGE
NET ASSETS/SUPPLEMENTAL DATA
----------------------------------------------------------------------
RATIO OF RATIO OF
EXPENSES EXPENSES RATIO OF
NET NET TO AVERAGE TO AVERAGE NET
ASSET ASSETS NET ASSETS NET ASSETS INVESTMENT
VALUE END OF BEFORE AFTER INCOME TO PORTFOLIO
END OF TOTAL PERIOD REIMBURSEMENTS/ REIMBURSEMENTS/ AVERAGE TURNOVER
PERIOD RETURN(2) (IN 000S) WAIVERS(3) WAIVERS(3)(4) NET ASSETS RATE
------ --------- --------- --------------- --------------- ---------- ---------
CLASS A SHARES
Year Ended:
10/31/06 $11.12 9.31% $309,946 0.68% 0.68% 2.89% 13%
10/31/05 10.49 4.82 291,796 1.00 1.00 2.47 2
10/31/04 10.27 7.29 207,816 1.04 1.04 2.42 2
10/31/03 9.81 14.38 94,005 1.09 1.05 2.99 4
10/31/02 8.83 (3.06) 31,070 1.17 1.05 3.67 9
CLASS B SHARES
Year Ended:
10/31/06 $11.10 8.50% $166,857 1.45% 1.45% 2.12% 13%
10/31/05 10.47 4.02 169,869 1.78 1.78 1.69 2
10/31/04 10.25 6.47 161,623 1.81 1.81 1.65 2
10/31/03 9.79 13.46 116,742 1.86 1.82 2.22 4
10/31/02 8.82 (3.77) 58,054 1.92 1.80 2.92 9
CLASS C SHARES
Year Ended:
10/31/06 $11.06 8.57% $170,789 1.43% 1.43% 2.14% 13%
10/31/05 10.43 4.00 152,208 1.76 1.76 1.71 2
10/31/04 10.22 6.55 97,315 1.79 1.79 1.67 2
10/31/03 9.76 13.53 51,284 1.84 1.80 2.24 4
10/31/02(5) 8.80 (4.70) 10,505 1.90(7) 1.78(7) 2.94(7) 9
(1) Includes dividends paid from the short-term portion of capital gain
distributions received from the Underlying Funds.
(2) Total return is not annualized for periods of less than one year and does
not reflect any applicable sales charges. The total return would have been
lower if certain fees had not been waived and/or expenses reimbursed by the
investment advisor or if fees had not been reduced by credits allowed by
the custodian.
(3) The Portfolio also will indirectly bear its prorated share of expenses of
the Underlying Funds.
(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.
31
Financial Highlights
BALANCED PORTFOLIO
For a Portfolio share outstanding throughout each period.
INCOME/(LOSS) FROM
INVESTMENT OPERATIONS LESS DISTRIBUTIONS
---------------------------------------------- ----------------------------------------------
NET REALIZED AND DISTRIBUTIONS
NET ASSET VALUE UNREALIZED TOTAL FROM DIVIDENDS FROM FROM NET
BEGINNING OF NET INVESTMENT GAIN/(LOSS) ON INVESTMENT NET INVESTMENT REALIZED TOTAL
PERIOD INCOME INVESTMENTS OPERATIONS INCOME(1) CAPITAL GAINS DISTRIBUTIONS
--------------- -------------- ---------------- ---------- -------------- ------------- -------------
CLASS A SHARES
Year Ended:
10/31/06 $13.32 $0.28 $ 1.20 $ 1.48 $(0.29) $ -- $(0.29)
10/31/05 12.64 0.23 0.68 0.91 (0.23) -- (0.23)
10/31/04 11.85 0.20 0.79 0.99 (0.20) -- (0.20)
10/31/03 10.24 0.22 1.62 1.84 (0.23) -- (0.23)
10/31/02 11.63 0.28 (1.08) (0.80) (0.33) (0.26) (0.59)
CLASS B SHARES
Year Ended:
10/31/06 $13.28 $0.17 $ 1.21 $ 1.38 $(0.19) $ -- $(0.19)
10/31/05 12.61 0.12 0.67 0.79 (0.12) -- (0.12)
10/31/04 11.82 0.10 0.79 0.89 (0.10) -- (0.10)
10/31/03 10.22 0.14 1.61 1.75 (0.15) -- (0.15)
10/31/02 11.62 0.20 (1.09) (0.89) (0.25) (0.26) (0.51)
CLASS C SHARES
Year Ended:
10/31/06 $13.22 $0.17 $ 1.20 $ 1.37 $(0.19) $ -- $(0.19)
10/31/05 12.55 0.13 0.67 0.80 (0.13) -- (0.13)
10/31/04 11.78 0.10 0.78 0.88 (0.11) -- (0.11)
10/31/03 10.20 0.14 1.60 1.74 (0.16) -- (0.16)
10/31/02(5) 11.35 0.13 (1.15) (1.02) (0.13) -- (0.13)
RATIOS TO AVERAGE
NET ASSETS/SUPPLEMENTAL DATA
-------------------------------------------------------------------------------------
RATIO OF EXPENSES RATIO OF EXPENSES
TO AVERAGE NET TO AVERAGE NET RATIO OF NET
NET ASSET NET ASSETS ASSETS BEFORE ASSETS AFTER INVESTMENT INCOME PORTFOLIO
VALUE END TOTAL END OF PERIOD REIMBURSEMENTS/ REIMBURSEMENTS/ TO AVERAGE NET TURNOVER
OF PERIOD RETURN(2) (IN 000S) WAIVERS (3) WAIVERS (3)(4) ASSETS RATE
--------- --------- ------------- ----------------- ----------------- ----------------- ---------
CLASS A SHARES
Year Ended:
10/31/06 $14.51 11.26% $2,389,102 0.66% 0.66% 2.01% 10%
10/31/05 13.32 7.20 2,125,167 0.94 0.94 1.69 0
10/31/04 12.64 8.51 1,524,988 0.98 0.98 1.56 2
10/31/03 11.85 18.07 792,423 1.02 1.02 2.03 5
10/31/02 10.24 (7.32) 423,478 1.04 1.04 2.55 19
CLASS B SHARES
Year Ended:
10/31/06 $14.47 10.44% $1,414,695 1.43% 1.43% 1.24% 10%
10/31/05 13.28 6.32 1,419,870 1.72 1.72 0.91 0
10/31/04 12.61 7.59 1,354,528 1.75 1.75 0.79 2
10/31/03 11.82 17.25 1,074,925 1.78 1.78 1.27 5
10/31/02 10.22 (8.03) 743,953 1.80 1.80 1.79 19
CLASS C SHARES
Year Ended:
10/31/06 $14.40 10.47% $ 883,759 1.41% 1.41% 1.26% 10%
10/31/05 13.22 6.41 734,801 1.70 1.70 0.93 0
10/31/04 12.55 7.64 482,799 1.74 1.74 0.80 2
10/31/03 11.78 17.15 234,076 1.76 1.76 1.29 5
10/31/02(5) 10.20 (9.00) 54,745 1.80(6) 1.80(6) 1.79(6) 19
(1) Includes dividends paid from the short-term portion of capital gain
distributions received from the Underlying Funds.
(2) Total return is not annualized for periods of less than one year and does
not reflect any applicable sales charges. The total return would have been
lower if certain fees had not been waived and/or expenses reimbursed by the
investment advisor or if fees had not been reduced by credits allowed by
the custodian.
(3) The Portfolio also will indirectly bear its prorated share of expenses of
the Underlying Funds.
(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) Annualized.
See Notes to Financial Statements.
32
Financial Highlights
CONSERVATIVE GROWTH PORTFOLIO
For a Portfolio share outstanding throughout each period.
INCOME/(LOSS) FROM
INVESTMENT OPERATIONS LESS DISTRIBUTIONS
---------------------------------------------- ----------------------------------------------
NET REALIZED AND DISTRIBUTIONS
NET ASSET VALUE UNREALIZED TOTAL FROM DIVIDENDS FROM FROM NET
BEGINNING OF NET INVESTMENT GAIN/(LOSS) ON INVESTMENT NET INVESTMENT REALIZED TOTAL
PERIOD INCOME/(LOSS) INVESTMENTS OPERATIONS INCOME(1) CAPITAL GAINS DISTRIBUTIONS
--------------- -------------- ---------------- ---------- -------------- ------------- -------------
CLASS A SHARES
Year Ended:
10/31/06 $14.67 $ 0.18(6) $ 1.73 $ 1.91 $(0.14) $ -- $(0.14)
10/31/05 13.56 0.13(6) 1.11 1.24 (0.13) -- (0.13)
10/31/04 12.47 0.10(6) 1.06 1.16 (0.07) -- (0.07)
10/31/03 10.37 0.14(6) 2.14 2.28 (0.14) (0.04) (0.18)
10/31/02 12.35 0.16(6) (1.52) (1.36) (0.22) (0.40) (0.62)
CLASS B SHARES
Year Ended:
10/31/06 $14.25 $ 0.06(6) $ 1.67 $ 1.73 $(0.12) $ -- $(0.12)
10/31/05 13.17 0.02(6) 1.09 1.11 (0.03) -- (0.03)
10/31/04 12.18 (0.00)(6)(8) 1.04 1.04 (0.05) -- (0.05)
10/31/03 10.14 0.05(6) 2.09 2.14 (0.06) (0.04) (0.10)
10/31/02 12.10 0.08(6) (1.50) (1.42) (0.14) (0.40) (0.54)
CLASS C SHARES
Year Ended:
10/31/06 $14.15 $ 0.06(6) $ 1.66 $ 1.72 $(0.12) $ -- $(0.12)
10/31/05 13.11 0.02(6) 1.08 1.10 (0.06) -- (0.06)
10/31/04 12.13 (0.00)(6)(8) 1.03 1.03 (0.05) -- (0.05)
10/31/03 10.10 0.06(6) 2.08 2.14 (0.07) (0.04) (0.11)
10/31/02(5) 11.79 0.05(6) (1.66) (1.61) (0.08) -- (0.08)
RATIOS TO AVERAGE
NET ASSETS/SUPPLEMENTAL DATA
--------------------------------------------------------------------------------------
RATIO OF EXPENSES RATIO OF EXPENSES
TO AVERAGE NET TO AVERAGE NET RATIO OF NET
NET ASSET NET ASSETS ASSETS BEFORE ASSETS AFTER INVESTMENT INCOME/ PORTFOLIO
VALUE END TOTAL END OF PERIOD REIMBURSEMENTS/ REIMBURSEMENTS/ (LOSS) TO AVERAGE TURNOVER
OF PERIOD RETURN(2) (IN 000S) WAIVERS (3) WAIVERS (3)(4) NET ASSETS RATE
--------- --------- ------------- ----------------- ----------------- ------------------ ---------
CLASS A SHARES
Year Ended:
10/31/06 $16.44 13.07% $1,822,661 0.67% 0.67% 1.16% 11%
10/31/05 14.67 9.19 1,561,310 0.97 0.97 0.89 1
10/31/04 13.56 9.44 1,157,038 1.01 1.01 0.74 5
10/31/03 12.47 22.12 615,501 1.05 1.05 1.24 7
10/31/02 10.37 (11.72) 347,297 1.06 1.06 1.41 14
CLASS B SHARES
Year Ended:
10/31/06 $15.86 12.19% $1,093,660 1.44% 1.44% 0.39% 11%
10/31/05 14.25 8.42 1,059,655 1.75 1.75 0.11 1
10/31/04 13.17 8.53 1,001,081 1.78 1.78 (0.03) 5
10/31/03 12.18 21.24 827,312 1.81 1.81 0.48 7
10/31/02 10.14 (12.46) 623,852 1.82 1.82 0.65 14
CLASS C SHARES
Year Ended:
10/31/06 $15.75 12.21% $ 906,470 1.43% 1.43% 0.40% 11%
10/31/05 14.15 8.40 727,829 1.73 1.73 0.13 1
10/31/04 13.11 8.53 482,019 1.76 1.76 (0.01) 5
10/31/03 12.13 21.41 195,556 1.79 1.79 0.50 7
10/31/02(5) 10.10 (13.72) 48,424 1.82(7) 1.82(7) 0.65(7) 14
(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 Portfolio 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.
33
Financial Highlights
STRATEGIC GROWTH PORTFOLIO
For a Portfolio share outstanding throughout each period.
INCOME/(LOSS) FROM
INVESTMENT OPERATIONS LESS DISTRIBUTIONS
---------------------------------------------- ----------------------------------------------
NET REALIZED AND DISTRIBUTIONS
NET ASSET VALUE UNREALIZED TOTAL FROM DIVIDENDS FROM FROM NET
BEGINNING OF NET INVESTMENT GAIN/(LOSS) ON INVESTMENT NET INVESTMENT REALIZED TOTAL
PERIOD INCOME/(LOSS) INVESTMENTS OPERATIONS INCOME(1) CAPITAL GAINS DISTRIBUTIONS
--------------- -------------- ---------------- ---------- -------------- ------------- -------------
CLASS A SHARES
Year Ended:
10/31/06 $15.99 $ 0.13(6) $ 2.10 $ 2.23 $(0.09) $ -- $(0.09)
10/31/05 14.49 0.06(6) 1.48 1.54 (0.04) -- (0.04)
10/31/04 13.16 0.01(6) 1.32 1.33 -- -- --
10/31/03 10.59 0.03(6) 2.63 2.66 -- (0.09) (0.09)
10/31/02 13.10 0.03(6) (1.92) (1.89) (0.14) (0.48) (0.62)
CLASS B SHARES
Year Ended:
10/31/06 $15.25 $(0.01)(6) $ 2.01 $ 2.00 $(0.07) $ -- $(0.07)
10/31/05 13.90 (0.06)(6) 1.41 1.35 -- -- --
10/31/04 12.73 (0.09)(6) 1.26 1.17 -- -- --
10/31/03 10.32 (0.05)(6) 2.55 2.50 -- (0.09) (0.09)
10/31/02 12.78 (0.06)(6) (1.88) (1.94) (0.04) (0.48) (0.52)
CLASS C SHARES
Year Ended:
10/31/06 $15.29 $(0.00)(6)(8) $ 2.00 $ 2.00 $(0.07) $ -- $(0.07)
10/31/05 13.93 (0.06)(6) 1.42 1.36 -- -- --
10/31/04 12.74 (0.09)(6) 1.28 1.19 -- -- --
10/31/03 10.32 (0.05)(6) 2.56 2.51 -- (0.09) (0.09)
10/31/02(5) 12.50 (0.04)(6) (2.14) (2.18) -- -- --
RATIOS TO AVERAGE
NET ASSETS/SUPPLEMENTAL DATA
--------------------------------------------------------------------------------------
RATIO OF EXPENSES RATIO OF EXPENSES
TO AVERAGE NET TO AVERAGE NET RATIO OF NET
NET ASSET NET ASSETS ASSETS BEFORE ASSETS AFTER INVESTMENT INCOME/ PORTFOLIO
VALUE END TOTAL END OF PERIOD REIMBURSEMENTS/ REIMBURSEMENTS/ (LOSS) TO AVERAGE TURNOVER
OF PERIOD RETURN(2) (IN 000S) WAIVERS (3) WAIVERS (3)(4) NET ASSETS RATE
--------- --------- ------------- ----------------- ----------------- ------------------ ---------
CLASS A SHARES
Year Ended:
10/31/06 $18.13 13.99% $1,074,546 0.71% 0.71% 0.74% 12%
10/31/05 15.99 10.61 885,165 1.02 1.02 0.38 1
10/31/04 14.49 10.11 609,250 1.07 1.07 0.07 3
10/31/03 13.16 25.24 298,852 1.13 1.13 0.30 7
10/31/02 10.59 (15.45) 166,354 1.13 1.13 0.23 10
CLASS B SHARES
Year Ended:
10/31/06 $17.18 13.16% $ 718,841 1.48% 1.48% (0.03)% 12%
10/31/05 15.25 9.71 672,826 1.79 1.79 (0.39) 1
10/31/04 13.90 9.19 612,914 1.83 1.83 (0.69) 3
10/31/03 12.73 24.35 484,656 1.88 1.88 (0.45) 7
10/31/02 10.32 (16.04) 350,982 1.87 1.87 (0.51) 10
CLASS C SHARES
Year Ended:
10/31/06 $17.22 13.12% $ 545,153 1.47% 1.47% (0.02)% 12%
10/31/05 15.29 9.76 417,865 1.77 1.77 (0.37) 1
10/31/04 13.93 9.34 277,136 1.81 1.81 (0.67) 3
10/31/03 12.74 24.44 107,826 1.84 1.84 (0.41) 7
10/31/02(5) 10.32 (17.44) 26,645 1.85(7) 1.85(7) (0.49)(7) 10
(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.
(8) Amount represents less than $0.01 per share.
See Notes to Financial Statements.
34
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, Class B 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.
Effective on October 1, 2006, (i) the Rule 12b-1 plans applicable to Class R-1
and Class R-2 shares of each Portfolio were amended to reduce the amounts
payable for distribution thereunder to the annual rate of 0.25% of the net
assets attributable to such shares, (ii) the plan recordkeeping/administrative
services agreement applicable to such shares was replaced with a transfer agency
agreement identical to the transfer agency agreement applicable to Class A
shares, (iii) the number of Class R-1 and Class R-2 shares was increased or
decreased proportionately so that the net asset value of each Class R-1 and
Class R-2 share was equal to the net asset value of each Class A share of the
Portfolio, and (iv) since the economic attributes of Class R-1 and Class R-2
shares would thereafter be identical to those of Class A shares of such
Portfolio, they were re-designated as Class A shares of the Portfolio.
Each of the Portfolios invests, within certain percentage ranges, in Class I
shares of various funds in the WM Group of Funds (collectively, 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
of the LLC, 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 is 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.
35
Notes to Financial Statements (continued)
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 in accordance with federal income tax regulations.
Distributions from income and capital gains are determined in accordance with
income tax regulations, which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments of
income and gains on various investments held by the Portfolios, redesignated
distributions and differing characterization of distributions made by each
Portfolio. At October 31, 2006, the following adjustments have been reflected in
the components of net assets on the "Statements of Assets and Liabilities" to
present these balances on an income tax basis, excluding certain temporary
differences:
INCREASE/
INCREASE (DECREASE)
INCREASE/ UNDISTRIBUTED ACCUMULATED
(DECREASE) NET INVESTMENT NET REALIZED
PAID-IN CAPITAL INCOME/(LOSS) LOSS
(000S) (000S) (000S)
--------------- -------------- ------------
Flexible Income Portfolio ........ $ (26) $ 604 $ (578)
Conservative Balanced Portfolio .. -- 529 (529)
Balanced Portfolio ............... -- 6,084 (6,084)
Conservative Growth Portfolio .... -- 6,516 (6,516)
Strategic Growth Portfolio ....... (973) 4,474 (3,501)
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.
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, 2006, are shown
separately in the "Statements of Operations."
USE OF ESTIMATES:
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates.
3. INVESTMENT ADVISORY AND OTHER TRANSACTIONS
The Advisor 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 based upon aggregate
average daily net assets ("aggregate net assets") of the LLC of 0.55% of
aggregate net assets up to $500 million, 0.50% of the next $500 million of
aggregate net assets, 0.45% of the next $1 billion of aggregate net assets,
0.40% of the next $1 billion of aggregate net assets, 0.35% of the next $1
billion of aggregate net assets, 0.30% of the next $1 billion of aggregate net
assets and 0.25% of aggregate net assets over $5 billion.
36
Notes to Financial Statements (continued)
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 fee based upon an annual rate of
$20.00 per open account for all Class A, Class B and Class C shareholder
accounts.
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 Chairman, Committee Chairs and Committee Members receive additional
remuneration for these services to the LLC and Trust. Trustees are also
reimbursed for travel and out-of-pocket expenses. Each Trustee serves in the
same capacity for all 40 funds within the WM Group of Funds.
5. DISTRIBUTION PLANS
WM Funds Distributor, Inc. (the "Distributor"), a registered broker/dealer and a
wholly owned subsidiary of Washington Mutual, serves as distributor for the
Portfolios. For the year ended October 31, 2006, the Distributor has received
$25,186,388 representing commissions (front-end sales charges) on Class A and
Class C shares and $7,251,198 representing CDSCs from Class A, Class B and Class
C shares.
Each of the Portfolios has adopted 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. The distribution fees for Class B and Class
C shares are paid to the Distributor at an annual rate of 0.75% of the average
daily net assets of such shares. 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 and transaction requests and 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, 2006, are as follows :
PURCHASES SALES
NAME OF PORTFOLIO (000S) (000S)
- ----------------- --------- ---------
Flexible Income Portfolio......... $ 72,542 $222,600
Conservative Balanced Portfolio... 83,122 83,250
Balanced Portfolio................ 567,488 452,680
Conservative Growth Portfolio..... 536,593 412,240
Strategic Growth Portfolio........ 405,374 274,890
7. CAPITAL LOSS CARRYFORWARDS
At October 31, 2006, the following Portfolios have available for federal income
tax purposes unused capital losses as follows:
(IN THOUSANDS)
-------------------------
EXPIRING IN EXPIRING IN
NAME OF PORTFOLIO 2012 2013
- ----------------- ----------- -----------
Conservative Growth Portfolio .. $ -- $4,338
Strategic Growth Portfolio ..... 1,150 2,197
37
Notes to Financial Statements (continued)
8. COMPONENTS OF DISTRIBUTABLE EARNINGS
At October 31, 2006, 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 .. $73,046 $75,067 $767,764 $775,099 $466,474
Gross tax unrealized depreciation .. (7,258) (6,176) (15,892) (4,664) --
------- ------- -------- -------- --------
Net tax unrealized appreciation .... $65,788 $68,891 $751,872 $770,435 $466,474
======= ======= ======== ======== ========
Undistributed ordinary income ...... $ 3,124 $ 2,062 $ 3,615 $ 4,532 $ 1,424
Undistributed accumulated gains .... $ 1,805 $ 3,504 $ 24,627 $ -- $ --
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 WM 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 WM REIT Fund could be
adversely impacted by economic trends within this industry.
The WM West Coast Equity Fund concentrates its investments in companies located
or doing business in Alaska, California, Oregon, and Washington. The WM West
Coast Equity Fund could be adversely impacted by economic trends within this
region.
38
Notes to Financial Statements (continued)
The WM International Growth Fund concentrates its investments in foreign
securities in both developed and emerging market countries. Additional risks may
involve foreign currency exchange rate fluctuations, adverse political and
economic developments, and the possible prevention of currency exchange or
other foreign governmental laws or restrictions. Investments in emerging markets
are subject to additional risk as less developed countries are more likely to
experience high levels of inflation, deflation, or currency devaluation, which
could harm their economies and securities markets.
The WM High Yield Fund concentrates its investments in lower rated debt
securities, which may be more susceptible to adverse economic conditions than
investment grade holdings. These securities are often subordinated to the prior
claims of other senior lenders, and uncertainties may exist as to an issuer's
ability to meet principal and interest payments.
Certain Underlying Funds may invest a portion of their assets in foreign
securities of developing or emerging market countries; enter into forward
foreign currency transactions; lend their portfolio securities; enter into stock
index, interest rate and currency futures contracts, and options on such
contracts; enter into interest rate swaps or purchase or sell interest rate caps
or floors; enter into other types of options transactions; make short sales;
purchase zero coupon and payment-in-kind bonds; enter into repurchase or
reverse repurchase agreements; purchase and sell "when-issued" securities and
engage in "delayed-delivery" transactions; and enter into various other
investment practices, each with inherent risks. The risks involved in investing
in a high concentration of a single sector include those resulting from future
adverse political and economic developments or regulatory occurrences and the
potential for adverse effects to the financial conditions of the industries
within the sector due to market fluctuations.
PORTFOLIO OWNERSHIP IN THE UNDERLYING FUNDS:
At October 31, 2006, the LLC holds investments in a number of the Underlying
Funds. The figures presented below represent the percentage of shares
outstanding of each Fund owned by the Portfolios:
PORTFOLIOS
-----------------------------------------------------------------------
FLEXIBLE CONSERVATIVE CONSERVATIVE STRATEGIC
INCOME BALANCED BALANCED GROWTH GROWTH
NAME OF FUND PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO TOTAL
- ------------ --------- ------------ --------- ------------ --------- -----
REIT Fund ......................... 1.9% 2.9% 30.9% 33.3% 20.3% 89.3%
Equity Income Fund ................ 1.1% 1.6% 15.1% 16.3% 10.5% 44.6%
Growth & Income Fund .............. 2.3% 2.2% 24.3% 26.3% 17.1% 72.2%
West Coast Equity Fund ............ 0.6% 1.3% 14.4% 15.4% 10.7% 42.4%
Mid Cap Stock Fund ................ 2.5% 2.3% 24.3% 25.5% 19.1% 73.7%
Growth Fund ....................... 2.7% 2.7% 31.0% 31.3% 22.4% 90.1%
Small Cap Value Fund .............. 3.2% 2.6% 31.0% 34.9% 22.9% 94.6%
Small Cap Growth Fund ............. 2.4% 1.9% 22.6% 25.7% 16.9% 69.5%
International Growth Fund ......... -- 2.8% 31.5% 31.8% 22.3% 88.4%
Short Term Income Fund ............ 42.9% 15.2% 18.6% -- -- 76.7%
U.S. Government Securities Fund ... 15.8% 9.9% 46.8% 16.4% -- 88.9%
Income Fund ....................... 17.7% 9.5% 39.7% 12.2% -- 79.1%
High Yield Fund* .................. 5.0% 3.3% 18.7% 8.4% 8.3% 43.7%
- ----------
* Does not include approximately 6.0% 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 OF UNDERLYING FUNDS:
Investing in the Underlying Funds through the Portfolios involves certain
additional expenses and tax results that would not be present in a direct
investment in the Underlying Funds. For example, under certain circumstances, an
Underlying Fund may determine to make payment of a redemption request by a
Portfolio wholly or partly by a distribution in kind of securities from its
portfolio, instead of cash, in accordance with the rules of the Securities and
Exchange Commission. In such cases, the Portfolios may hold securities
distributed by an Underlying Fund until the Advisor determines that it is
appropriate to dispose of such securities.
The officers and Trustees, the Advisor, the Distributor and Transfer Agent of
the Portfolios serve in the same capacity for the Underlying Funds. Conflicts
may arise as these persons and companies seek to fulfill their fiduciary
responsibilities to both the Portfolios and the Underlying Funds.
From time to time, one or more of a Portfolio's Underlying Funds used for
investment may experience relatively large investments or redemptions due to
reallocations or rebalancings by the Portfolios as recommended by the Advisor.
These transactions will affect the Underlying Funds, since the Underlying Funds
that experience redemptions as a result of the reallocations or rebalancings may
have to sell portfolio securities. At the same time, the Underlying Funds that
receive additional cash will have to invest such cash. This may be particularly
important when one or more Portfolios owns a substantial portion of any
Underlying Fund. While it is impossible to predict the overall impact of these
transactions over time, there could be adverse effects on Underlying Fund
performance to the extent that the Underlying Funds may be required to sell
securities or invest cash at times when they would not otherwise do so. These
transactions could also accelerate the realization of taxable income if sales of
securities resulted in gains and could also increase transaction costs. Because
the Portfolios own substantial portions of some Underlying Funds, redemptions
and
39
Notes to Financial Statements (continued)
reallocations by the Portfolios away from an Underlying Fund could cause the
Underlying Fund's expenses to increase and may result in an Underlying Fund
becoming too small to be economically viable. The Advisor is committed to
minimizing such impact on the Underlying Funds to the extent it is consistent
with pursuing the investment objectives of the Portfolios. The Advisor may
nevertheless face conflicts in fulfilling its dual responsibilities to the
Portfolios and the Underlying Funds. The Advisor will, at all times, monitor
the impact on the Underlying Funds of transactions by the Portfolios.
10. NEW ACCOUNTING PRONOUNCEMENTS
In July 2006, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 48 (FIN 48), "Accounting for Uncertainty in Income Taxes."
This pronouncement provides guidance on the recognition, measurement,
classification, and disclosures related to uncertain tax positions, along with
any related interest and penalties. FIN 48 is effective for fiscal years
beginning after December 15, 2006. The impact from the adoption of FIN 48 is
being evaluated, but is not anticipated to have a material effect on the
financial statements.
In addition, in September 2006, Statement of Financial Accounting Standards No.
157 Fair Value Measurements ("SFAS 157") was issued and is effective for fiscal
years beginning after November 15, 2007. SFAS 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. Management is currently evaluating the impact that the
adoption of SFAS 157 will have on the Portfolios' financial statement
disclosures.
11. REORGANIZATION
On July 25, 2006, the Principal Financial Group, Inc. ("PFG") and its
subsidiary, Principal Management Corporation ("PMC") entered into an agreement
with Washington Mutual, Inc. to acquire all of the outstanding stock of certain
of its subsidiaries, WM Advisors, the Advisor of the Funds, WM Shareholder
Services, Inc., the Transfer Agent of the Funds, and WM Funds Distributor, Inc.,
the Distributor (the "Transaction"). On August 11, 2006, the Board of Trustees
approved proposed reorganizations (the "Reorganizations") pursuant to which each
of the following Funds (each, an "Acquired Fund") will combine with and into the
following corresponding separate series (each, an "Acquiring Fund") of Principal
Investors Fund, Inc. ("PIF"), subject to various conditions including the
approval of shareholders of each Acquired Fund. A special meeting of
shareholders will be held on December 15, 2006. Under the Reorganizations (i)
all the assets and the stated liabilities of each Acquired Fund will be
transferred to its corresponding Acquiring Fund in exchange for Class A, Class B
and Class C shares of the Acquiring Fund; (ii) holders of Class A, Class B and
Class C shares of the Acquired Fund will receive, respectively, that number of
Class A, Class B and Class C shares of the corresponding Acquiring Fund equal in
value at the time of the exchange to the value of the holder's Acquired Fund
shares at such time; and (iii) the Acquired Fund will be liquidated and
dissolved. The Transaction is expected to close in December 2006, and the
Reorganizations will occur shortly thereafter.
As a result of the Reorganization, shareholders of the Acquired Funds will
become shareholders of the Acquiring Funds as follows:
WM ACQUIRED FUND: PIF ACQUIRING FUND:
REIT Fund Real Estate Securities Fund
Equity Income Fund Equity Income Fund I*
Growth & Income Fund Disciplined LargeCap Blend Fund
West Coast Equity Fund West Coast Equity Fund*
Mid Cap Stock Fund MidCap Stock Fund*
Growth Fund LargeCap Growth Fund
Small Cap Value Fund SmallCap Value Fund
Small Cap Growth Fund SmallCap Growth Fund
International Growth Fund Diversified International Fund
Short Term Income Fund Short-Term Income Fund*
U.S. Government Securities Fund Mortgage Securities Fund*
Income Fund Income Fund*
Money Market Fund Money Market Fund
Flexible Income Portfolio SAM Flexible Income Portfolio*
Conservative Balanced Portfolio SAM Conservative Balanced Portfolio*
Balanced Portfolio SAM Balanced Portfolio*
Conservative Growth Portfolio SAM Conservative Growth Portfolio*
Strategic Growth Portfolio SAM Strategic Growth Portfolio*
* These Acquiring Funds are newly-organized funds that will commence
operations in connection with the Reorganization and the Acquired Fund will
be the survivor for accounting and performance reporting purposes. The
other Acquiring Funds are existing PIF Funds into which the relevant WM
Fund will be merged and the Acquiring Fund will be the survivor for
accounting and performance reporting purposes.
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,
2006, 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, 2006, 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, 2006, 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 18, 2006
41
Supplemental Information (unaudited)
CONSIDERATION BY THE BOARD OF TRUSTEES OF ADVISORY AGREEMENT
The LLC's investment advisory agreement (the "Agreement") was approved in May
and August, 2006. In connection with their approval in August 2006 of investment
advisory agreements for the LLC substantially identical to the LLC's current
Agreement, except with respect to dates and in contemplation of the acquisition
of the Advisor by the Principal Financial Group, the Board of Trustees,
Independent Trustees and the Investment Committee of the Board (the "Committee")
relied on the information provided in connection with the approval of the
Agreement in May 2006, as supplemented by expense and performance information
provided by Lipper Inc., a third-party data provider ("Lipper") for period ended
June 30, 2006. The material factors and conclusions that formed the basis for
the Committee's recommendation and the subsequent approval by the Board and the
Independent Trustees in August 2006 were the same as those in May 2006, which
are discussed below, except that the Board, the Independent Trustees and the
Committee also considered the supplemental expense and performance information
for periods ended June 30, 2006; representations by the Principal Financial
Group (see Note 11 in the Notes to Financial Statements) that, subsequent to its
acquisition of the Advisor in the Transaction, there is not expected to be any
reduction in the nature, quality and extent of services provided to the LLC by
the Advisor; the fact that the substantive terms of the Agreement, including the
advisory fees payable thereunder, were not changing; and representations by the
Principal Financial Group that, except as discussed with the Board of Trustees,
no changes were expected in either the Advisor's investment professionals who
would be providing services to the LLC or the amount of time and attention that
would be devoted by such investment professionals to the LLC.
BOARD APPROVAL OF INVESTMENT ADVISORY AGREEMENT:
Each year, the Board, including a majority of the Independent Trustees, is
required to determine whether to continue the LLC's Agreement. The 1940 Act
requires that the Board request and evaluate, and that the investment advisor
furnish, such information as may reasonably be necessary to evaluate the terms
of the advisory agreement. In May 2006, the Board and the Independent Trustees
approved the continuation of the Agreement with the Advisor, in each case
following the recommendation of the Committee, a majority of the members of
which are Independent Trustees, and the recommendations of the Independent
Trustees as a whole. The material factors and conclusions that formed the basis
for the Committee's recommendation and the subsequent approval by the Board and
the Independent Trustees are discussed below.
REVIEW PROCESS:
The Independent Trustees received assistance and advice, including a written
memorandum, regarding the legal standards applicable to the consideration of
advisory arrangements from independent counsel to the 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 many of the
Portfolios are managed in a style substantially identical to that of a
corresponding series of WM Variable Trust (each, a "VT Portfolio") and reviewed
the Portfolios simultaneously with their review of the corresponding VT
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 of
the Portfolios, 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 Agreement, the Board requests and reviews
supplementary information regarding the terms of the Agreement, performance and
expense information for other investment companies derived from data compiled by
Lipper, data on pre- and post-marketing profit margins for investment advisory
subsidiaries of publicly traded companies prepared by Lipper, as well as
additional information prepared by the Advisor, including financial and
profitability information regarding the Advisor and its affiliates, descriptions
of various functions undertaken by the Advisor, such as compliance monitoring
practices, and information about the personnel providing investment management
to the Portfolios. The Board, the Independent Trustees and the Committee also
considered information regarding "revenue sharing" arrangements that the Advisor
and its affiliates have entered into with various intermediaries that sell
shares of the Portfolios. The Board also requested and reviewed information
relating to other services provided to the Portfolios by the Advisor and its
affiliates under other agreements, including information regarding so-called
"fall-out" benefits to the 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 Portfolios at each of
the quarterly Board and Committee meetings.
42
Supplemental Information (unaudited) (continued)
NATURE, EXTENT AND QUALITY OF SERVICES:
Nature and Extent of Services -- In considering the continuation of the
Agreement, the Board, the Independent Trustees and the Committee evaluated the
nature and extent of the services provided by the Advisor and its affiliates.
For each Portfolio, the Advisor formulates the Portfolio's investment policies
(subject to the terms of the prospectus); analyzes economic trends and capital
market developments (with a view to optimizing the Portfolio's asset
allocations); evaluates the consistency, style and quality of the investment
services provided to the Underlying Funds in which the Portfolio invests;
evaluates the risk/return characteristics of each of the Underlying Funds by
reference to the specific security holdings of each Underlying Fund; constructs
the Portfolio (including actively managing the Portfolio's asset allocation
through daily cash flows); monitors the Portfolio's investment performance; and
reports to the Board and the Committee. The Board, the Independent Trustees and
the Committee considered information concerning the investment philosophy and
investment process used by the Advisor in managing the Portfolios. The Board,
the Independent Trustees and the Committee considered the extent to which the
investment style employed for the Portfolios differs from that of funds that are
simply rebalanced periodically to specific static allocations, including
performance attribution information showing the effect on performance of the
Advisor's asset allocation decisions. In this context, the Board, the
Independent Trustees and the Committee considered the in-house research
capabilities of the Advisor as well as other resources available to the Advisor,
including research services available to the Advisor as a result of securities
transactions effected for the Underlying Funds. The Board, the Independent
Trustees and the Committee considered the managerial and financial resources
available to the Advisor and concluded that they would be sufficient to meet any
reasonably foreseeable obligations under the Agreement. The Board, the
Independent Trustees and the Committee noted that the standard of care under the
Agreement was comparable to that typically found in mutual fund investment
advisory agreements, and considered the record of the Advisor in resolving
potential disputes arising under its investment advisory agreements with the WM
Group of Funds in the best interests of shareholders.
Quality of Services -- The Board, the Independent Trustees and the Committee
considered the quality of the services provided by the Advisor and the quality
of their resources that are available to the Portfolios. The Board, the
Independent Trustees and the Committee considered the investment experience and
professional qualifications of the personnel of the Advisor and its affiliates
and the size and functions of their staffs, as well as the reputation of the
Advisor. The Board, the Independent Trustees and the Committee considered the
complexity of managing the Portfolios relative to other types of funds,
including other funds that pursue their objectives through investments in mutual
funds (so-called "funds-of-funds"), other funds that pursue their objectives by
investing directly in portfolio securities, and mutual fund wrap accounts that
offer asset allocation services. In evaluating the scope and quality of the
services provided by the Advisor to the Portfolios, the Board, the Independent
Trustees and the Committee members also drew on their experiences as directors
or Trustees of the VT Portfolios and, for certain Trustees, other funds. The
Board, the Independent Trustees and the Committee also received and reviewed
information regarding the quality of non-investment advisory services provided
to the Portfolios by the Advisor and its affiliates under other agreements.
The Board, the Independent Trustees and the Committee concluded that the
services provided by the Advisor have benefited and should continue to benefit
the Portfolios and their shareholders. The Board, the Independent Trustees and
the Committee concluded that the investment philosophies, processes, and
research capabilities of the Advisor were well suited to the Portfolios, given
their investment objectives and policies. The Board, the Independent Trustees
and the Committee concluded that the scope of the services provided to the
Portfolios by the Advisor under the Agreement was consistent with the
Portfolios' operational requirements, including, in addition to their investment
objectives, compliance with the Portfolios' investment restrictions, tax and
reporting requirements and related shareholder services. The Board, the
Independent Trustees and the Committee concluded that the nature, scope and
quality of the services provided by the Advisor were sufficient, in light of the
resources dedicated by the Advisor and their integrity, personnel, systems and
financial resources, to merit approval of the continuation of the Agreement.
PORTFOLIO MANAGEMENT SERVICES AND PERFORMANCE:
In their evaluation of the quality of the portfolio management services provided
by the Advisor, the Board, the Independent Trustees and the Committee considered
the professional credentials and investment experience of the Portfolios'
portfolio managers. The Board, the Independent Trustees and the Committee
considered the Portfolios' record of compliance with investment restrictions.
The Board, the Independent Trustees and the Committee reviewed information
comparing the Portfolios' historical performance to relevant market indices or
blends of market indices for the 1-, 3- and 5-year (or since inception) periods
ended March 31, 2006, and to average performance information for peer groups
prepared by Lipper based on the performance of other investment companies with
similar investment objectives (including, separately, both funds-of-funds and
funds investing directly in portfolio securities) over the 1-, 3-, 5-, and
10-year periods (to the extent applicable) ended December 31, 2005. In the case
of each Portfolio that had performance that lagged that of a relevant peer group
for certain (although not necessarily all) periods, the Board, the Independent
Trustees and the Committee concluded that other factors relevant to performance
were sufficient, in light of other considerations, to warrant continuation of
the Agreement. The Board, the Independent Trustees and the Committee focused, in
particular, on the performance of the Balanced Portfolio as compared to other
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 the Portfolios other than the
Balanced Portfolio performed consistently with their risk profiles relative to
the Balanced Portfolio and that such Portfolios' performance should be and was
symmetrically arrayed around the performance of the Balanced Portfolio. The
Board, the Independent Trustees and the Committee noted that the Portfolios had
performed well relative to their respective blended
43
Supplemental Information (unaudited) (continued)
index benchmarks over the 1-, 3- and 5-year periods and that the Balanced
Portfolio had outperformed its peer average (for both funds-of-funds and funds
investing directly in portfolio securities) for the 1-, 3- and 5-year periods.
The Board, the Independent Trustees and the Committee noted that the other
Portfolios had outperformed their peer averages (for both funds-of-funds and
funds investing directly in portfolio securities) for the 5-year period,
although they had generally underperformed their peer averages (for both
funds-of-funds and funds investing directly in portfolio securities) for the 1-
and 3-year periods. The Board, the Independent Trustees and the Committee
discussed with the Advisor the reasons for this recent relative
underperformance, and the conditions under which the Portfolios other than the
Balanced Portfolio should be expected to outperform or underperform relative to
their Lipper peer averages, given the "core" allocations of such Portfolios.
After reviewing the foregoing factors, the Board, the Independent Trustees and
the Committee concluded that the Advisor's performance record and investment
processes used in managing the Portfolios were sufficient to merit approval of
the continuation of the Agreement.
MANAGEMENT FEES AND EXPENSES:
The Board, the Independent Trustees and the Committee reviewed information,
including comparative information provided by Lipper, regarding the advisory,
administrative, transfer agent, and service and distribution fees paid to the
Advisor and its affiliates, and the total expenses borne by the Portfolios. The
Board, the Independent Trustees and the Committee considered both the total
expenses borne directly by the Portfolios and the total expenses borne on an
aggregate basis, including the expenses borne indirectly through the Portfolios'
investments in the Underlying Funds. They discussed trends in total expense
ratios for the Portfolios. The Board, the Independent Trustees and the Committee
reviewed the transfer agency fees paid by the Portfolios to the Transfer Agent
and the distribution (12b-1) fees paid to the Distributor. The Board, the
Independent Trustees and the Committee considered average expenses for peer
groups identified by Lipper for the Portfolios, including Lipper peer groups
comprised of funds that invest directly in portfolio securities and Lipper peer
groups comprised exclusively of funds-of-funds. The Board, the Independent
Trustees and the Committee noted that the number of funds-of-funds identified by
Lipper had increased from prior years, and considered the relative merits of
broader and more focused expense comparison groups. The Board, the Independent
Trustees and the Committee considered the similarity of the Portfolios to mutual
fund wrap accounts, and reviewed and considered a report provided by Cerulli on
mutual fund wrap accounts, including data on average annual advisory fees. The
Board, the Independent Trustees and the Committee considered information
provided by Lipper comparing the total expenses of funds-of-funds, including and
excluding underlying fund expenses, to those of the Portfolios. The Board, the
Independent Trustees and the Committee concluded that the total expenses of
funds-of-funds, including underlying fund expenses, represented the best
comparison for the expenses of the Portfolios, because they reflected all of the
expenses borne directly and indirectly by investors. The Board, the Independent
Trustees and the Committee concluded that the fees to be charged under the
Agreement bore a reasonable relationship to the scope and quality of the
services provided.
PROFITABILITY AND ECONOMIES OF SCALE:
Profitability -- The Board, the Independent Trustees and the Committee reviewed
information regarding the cost of services provided by the Advisor and its
affiliates and the profitability (before and after distribution expenses and
prior to taxes) of their relationships with the Portfolios. The Board, the
Independent Trustees and the Committee considered trends in the profitability of
the Advisor and its affiliates, and information provided by Lipper regarding the
pre- and post-marketing profitability of other investment advisers with
publicly-traded parent companies. The Board, the Independent Trustees and the
Committee considered that the Advisor must be able to pay and retain experienced
professional personnel at competitive rates to provide services to the
Portfolios (and in connection therewith, reviewed information regarding the
structure of compensation of the Advisor's investment professionals) and that
maintaining the financial viability of the Advisor is important in order for it
to continue to provide significant services to the Portfolios and their
shareholders. In addition, the Board, the Independent Trustees and the Committee
considered information regarding the direct and indirect benefits the Advisor
receives as a result of its relationship with the Portfolios, including
compensation paid to the Advisor and its affiliates under other agreements, such
as transfer agency fees to the Transfer Agent, 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 the Portfolios' advisory fees. The Board, the
Independent Trustees and the Committee considered the extent to which economies
of scale might be realized (if at all) by the Advisor across a variety of
products and services included within the WM Group of Funds.
The Board, the Independent Trustees and the Committee concluded that the
Portfolios' cost structure was reasonable given the scope and quality of the
services provided to the Portfolios and that the Advisor was sharing any
economies of scale with the Portfolios and their shareholders.
ADDITIONAL CONSIDERATIONS:
The Board, the Independent Trustees and the Committee also considered possible
conflicts of interest associated with the provision of investment advisory
services by the Advisor to other clients. The Trustees considered the procedures
of the Advisor designed to fulfill its fiduciary duties to its advisory clients
with respect to possible conflicts of interest, including the codes of ethics,
the integrity of the systems in place to ensure compliance with the foregoing,
and the record of the Advisor in these matters.
44
Supplemental Information (unaudited) (continued)
CONCLUSIONS:
Based on their review, including their consideration of each of the factors
referred to above, the Board, the Independent Trust and the Committee concluded
that the Agreement and the fees payable to the Advisor are fair and reasonable
to the Portfolios an 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.
OTHER PORTFOLIO INFORMATION
TAX INFORMATION:
The following tax information for the fiscal year ended October 31, 2006, 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 ............................................ $ 1,813
Conservative Balanced Portfolio ...................................... 3,509
Balanced Portfolio ................................................... 24,627
Of the distributions made by the following Portfolios, the corresponding
percentages represent the amount of each distribution that may qualify for the
dividends received deduction available to corporate shareholders.
NAME OF PORTFOLIO
- -----------------
Flexible Income Portfolio ............................................ 8.54%
Conservative Balanced Portfolio ...................................... 16.73%
Balanced Portfolio ................................................... 34.89%
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 that will qualify for the
15% dividend income tax rate.
NAME OF PORTFOLIO
- -----------------
Flexible Income Portfolio ............................................ 10.67%
Conservative Balanced Portfolio ...................................... 21.30%
Balanced Portfolio ................................................... 44.42%
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 Portfolios 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 Portfolios
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)
PORTFOLIO MANAGER
U.S. Government Securities Fund Craig V. Sosey
WM Advisors, Inc.
Note: Pages 46 and 47 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 or by calling 800-222-5852.
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, 2006
Since Inception
1-Year 5-Year 10-Year Inception Date
------ ------ ------- --------- ---------
CLASS A SHARES
Net Asset Value(2) 4.74% 3.45% 5.43% 7.47% 5/4/84
With Sales Charge -0.01% 2.50% 4.95% 7.25%
CLASS B SHARES
Net Asset Value(2) 4.06% 2.72% 4.78% 5.27% 3/30/94
With Sales Charge -0.94% 2.36% 4.78% 5.27%
CLASS C SHARES
Net Asset Value(2) 4.00% 2.70% 4.75% 2.91% 3/1/02
With Sales Charge 3.00% 2.70% 4.75% 2.91%
Citigroup Mortgage Index(3) 5.71% 4.46% 6.19% 9.00%
PORTFOLIO COMPOSITION(4)
As of 10/31/06
(PIE CHART)
As of As of
Asset Class 10/31/06 10/31/05 Change
- ----------- -------- -------- ------
FHLMC/FGLMC 36% 33% +3%
FNMA 32% 29% +3%
CMOs 20% 18% +2%
GNMA 5% 7% -2%
U.S. Government Agency 4% 4% 0%
U.S. Treasuries 2% 5% -3%
Cash Equivalents 1% 4% -3%
(1) Performance reflects ongoing fund expenses, which may have been waived, and
assumes reinvestment of all dividends and capital gains. For Class C
shares, performance for periods prior to inception is hypothetical, based
on Class A share returns adjusted for the respective expenses of the share
class. 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 and the Income Fund's
performance in 1999 benefited from the agreement of WM Advisors and its
affiliates to limit the Funds' expenses. On 3/1/04, the investment policies
of the U.S. Government Securities 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.
46
PORTFOLIO MANAGERS
John R. Friedl, CFA and Income Fund
Gary J. Pokrzywinski, CFA
WM Advisors, Inc.
(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, 2006
1-Year 5-Year 10-Year Since Inception Inception Date
------ ------ ------- --------------- --------------
CLASS A SHARES
Net Asset Value(2) 6.02% 5.39% 6.38% 8.33% 12/15/75
With Sales Charge 1.21% 4.42% 5.90% 8.17%
CLASS B SHARES
Net Asset Value(2) 5.23% 4.63% 5.76% 6.26% 3/30/94
With Sales Charge 0.23% 4.29% 5.76% 6.26%
CLASS C SHARES
Net Asset Value(2) 5.23% 4.63% 5.70% 4.85% 3/1/02
With Sales Charge 4.23% 4.63% 5.70% 4.85%
Citigroup Broad
Investment-Grade
Bond Index(3) 5.24% 4.57% 6.28% --
PORTFOLIO COMPOSITION(4)
As of 10/31/06
(PIE CHART)
As of As of
Asset Class 10/31/06 10/31/05 Change
- ----------- -------- -------- ------
Domestic Corporate Bonds 60% 57% +3%
Mortgage-Backed Bonds 24% 23% +1%
U.S. Treasuries 9% 7% +2%
Foreign Corporate Bonds (U.S. $) 6% 6% 0%
Equities 0% 1% -1%
Foreign Government Bonds (U.S. $) 0% 1% -1%
Cash Equivalents 1% 5% -4%
(2) Net asset value is not adjusted for sales charge.
(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.
47
Supplemental Information (unaudited) (continued)
TRUSTEES AND OFFICERS INFORMATION
NAME, AGE, AND ADDRESS(1) LENGTH OF PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIPS
OF NON-INTERESTED TRUSTEE(4) TIME SERVED(2) DURING PAST 5 YEARS HELD BY TRUSTEE
- ---------------------------- ------------------------- ----------------------------------------- -----------------------------
Kristianne Blake Composite Funds-3 years CPA specializing in personal financial A vista Corporation; Frank
Age 52 WM Group of Funds-8 years and tax planning. Russell Investment Company;
Russell Investment Funds;
University of Washington.
Edmond R. Davis, Esq. Sierra Funds-8 years Partner at the law firm of Davis & Whalen Braille Institute of America,
Age 78 WM Group of Funds-8 years LLP. Prior thereto, partner at the law Inc; Children's Bureau of
firm of Brobeck, Phlegar & Harrison, LLP. Southern California,
Children's Bureau Foundation;
Fifield Manors, Inc.
Carrol R. McGinnis Griffin Funds-3 years Private investor since 1994. Prior Baptist Foundation of Texas;
Age 63 WM Group of Funds-7 years thereto, President and Chief Operating Concord Trust Company.
Officer of Transamerica Fund Management
Company.
Alfred E. Osborne, Jr., Sierra Funds-7 years Senior Associate Dean, University of K2, Inc.; First Pacific
Ph.D. WM Group of Funds-8 years California at Los Angeles Anderson Advisors' Funds; EMAK
Age 62 Graduate School of Management, and Worldwide, Inc.; Investment
Faculty Director of the Harold Price Company Institute;
Center for Entrepreneurial Studies, Independent Directors Council
University of California at Los Angeles.
Daniel L. Pavelich Composite Funds-1 year Retired Chairman and CEO of BDO Catalytic, Inc.; Vaagen Bros.
Age 62 WM Group of Funds-8 years Seidman. Lumber, Inc.
Jay Rockey Composite Funds-3 years Founder and Senior Counsel of The Rockey
Age 78 WM Group of Funds-8 years Company, now Rockey, Hill & Knowlton.
Richard C. Yancey Composite Funds-23 years Retired Managing Director of Dillon Read AdMedia Partners Inc.; Czech
(Chairman) WM Group of Funds-8 years & Co., an investment bank now part of and Slovak American
Age 80 UBS. Enterprise Fund
NAME, AGE, AND ADDRESS(1) LENGTH OF PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIPS
OF INTERESTED TRUSTEE(3)(4) TIME SERVED(2) DURING PAST 5 YEARS HELD BY TRUSTEE
- --------------------------- ------------------------- ----------------------------------------- -----------------------------
Anne V. Farrell Composite Funds-4 years President Emeritus of the Seattle Washington Mutual, Inc.;
Age 71 WM Group of Funds-8 years Foundation. Recreational Equipment, Inc.
William G. Papesh Composite Funds-9 years President and Director of the Advisor; Member of Investment Company
(President and CEO) WM Group of Funds-8 years Sr. Vice President and Director of the Institute Board of Governors.
Age 63 Transfer Agent and Distributor.
NAME, AGE, AND ADDRESS(1) POSITION(S) HELD WITH REGISTRANT & PRINCIPAL OCCUPATION(S)
OF OFFICER(4) LENGTH OF TIME SERVED DURING PAST 5 YEARS
- ------------------------- ------------------------------------------------- -------------------------------------------------
Wendi B. Bernard Vice President and Assistant Secretary since Assistant Vice President of the Advisor.
Age 38 2006. Prior to 2006, various other officer
positions since 2003.
Jeffrey L. Lunzer, CPA First Vice President, Chief Financial Officer and First Vice President of the Advisor, Transfer
Age 46 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. Prior to 1987, President and Director of the Advisor; Sr. Vice
Age 63 other officer positions since 1972. President and Director of the Transfer Agent and
Distributor.
Gary Pokrzywinski Senior Vice President since 2004. First Vice Senior Vice President and Director of the
Age 45 President since 2001. Prior to 2001, Vice Advisor, Transfer Agent and Distributor.
President since 1999.
Debra Ramsey Senior Vice President since 2004. President and Director of the Transfer Agent and
Age 53 Distributor; Sr. Vice President and Director of
the Advisor.
John T. West First Vice President, Secretary, Chief Compliance First Vice President of the Advisor, Transfer
Age 51 Officer and Anti-Money Laundering Compliance Agent and Distributor.
Officer since 2004. Prior to 2004, various other
officer positions since 1993.
Randall L. Yoakum Senior Vice President since 2001. Prior to 2001, Senior Vice President and Chief Investment
Age 47 First Vice President since 1999. Strategist of the Advisor.
Note: The Statement of Additional Information includes additional information
about Fund Trustees and Officers and is available, without charge, upon request
by calling 800-222-5852.
(1) The address for all Trustees and Officers is 1201 Third Avenue, 8th Floor,
Seattle, WA, 98101.
(2) The Sierra Funds merged with the Composite Funds on March 23, 1998, to form
the WM Group of Funds. The Griffin Funds merged with the WM Group of Funds
on March 5, 1999.
(3) Trustees are considered interested due to their affiliation with Washington
Mutual, Inc., WM Advisors, Inc., WM Funds Distri butor, Inc. and WM
Shareholder Services, Inc.
(4) The Trustees and Officers serve in these capacities for the 40 Portfolios
and Funds in the Fund Complex. Each Trustee and Offi cer shall hold the
indicated positions until his or her resignation, retirement or removal.
48
(GRAPHIC)
(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) PRESORT
P.O. Box 8024 STANDARD
Boston, MA 02266-8024 U.S. POSTAGE
PAID
DST OUTPUT
ITEM 2. CODE OF ETHICS
The registrant has adopted a code of ethics that applies to the registrant's
principal executive officer, principal financial officer and principal
accounting officer, a copy of which is attached hereto.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT
The Board of Trustees of the registrant has determined that there is at least
one Trustee who is an audit committee financial expert serving on its Audit
Committee and has designated Daniel L. Pavelich as an "audit committee financial
expert." Mr. Pavelich is "independent," as such term has been defined by the
Securities and Exchange Commission (the "SEC") for purposes of implementing
Section 407 of the Sarbanes Oxley Act of 2002. The SEC has stated that the
designation or identification of a person as an audit committee financial expert
pursuant to this Item 3 of Form N-CSR does not impose on such person any duties,
obligations or liability that are greater than the duties, obligations and
liability imposed on such person as a member of the Audit Committee and the
Board of Trustees in the absence of such designation or identification.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES
(a) Audit Fees
2005 2006
- ------- --------
$103,000 $106,500
(b) Audit-Related Fees
2005 2006
- ---- ----
None None
For the last two fiscal years, no audit-related fees were required to be
approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X.
(c) Tax Fees
2005 2006
- ------- -------
$11,920 $13,000
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, 2006, the registrant's principal
accountant billed aggregate non-audit fees in the amount of $112,000 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, 2005, the registrant's principal accountant billed
aggregate non-audit fees in the amount of $0 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 11, 2007
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities an on the
dates indicated.
By: /s/ Jeffrey L. Lunzer
---------------------
Jeffrey L. Lunzer
Treasurer and Chief Financial Officer
Date: January 11, 2007
By: /s/ William G. Papesh
---------------------
William G. Papesh
President and Chief Executive Officer
Date: January 11, 2007