UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-07462
WM Variable Trust
(Exact name of registrant as specified in charter)
1201 Third Avenue, 22nd Floor, Seattle, WA 98101
(Address of principal executive offices) (Zip code)
John T. West
1201 Third Avenue, 22nd Floor, Seattle, WA 98101
(Name and address of agent for service)
Registrant's telephone number, including area code: (206) 461-3800
Date of fiscal year end: December 31, 2003
Date of reporting period: December 31, 2003
ITEM 1. REPORTS TO STOCKHOLDERS
[wm Variable Trust logo]
WM VARIABLE TRUST
| | EQUITY FUNDS
| | FIXED-INCOME FUNDS
Common sense. Uncommon solutions.
[PHOTO]
ANNUAL REPORT
for the year ended
December 31, 2003
Equity Funds
REIT Fund
Equity Income Fund
Growth & Income Fund
West Coast Equity Fund
Mid Cap Stock Fund
Growth Fund
Small Cap Stock Fund
International Growth Fund
Fixed-Income Funds
Short Term Income Fund
U.S. Government Securities Fund
Income Fund
Money Market Fund
Table of Contents
Message from the President.................1
Individual Portfolio Reviews...............2
Portfolio of Investments..................25
Statements of Assets and Liabilities......56
Statements of Operations..................60
Statements of Changes in Net Assets.......62
Statements of Changes in Net
Assets - Capital Stock Activity...........66
Financial Highlights......................68
Notes to Financial Statements.............75
Independent Auditors' Report..............82
Other Information (unaudited).............83
- ---------------------------------------------------------
NOT FDIC OR NCUA/NCUSIF INSURED
- ---------------------------------------------------------
May Lose Value * Not a Deposit * No Bank or Credit Union
Guarantee * Not insured by any federal government agency
- ---------------------------------------------------------
[PHOTO] Dear Investor,
During 2003, equity investments rebounded after three years of down
markets while bonds also reported positive performance.(1) We believe
these past few years have demonstrated the benefits provided by our fund
family's emphasis on diversification and asset allocation. At this
strategy's most basic level, a mix of carefully selected stocks and
bonds offered not only the ability to help manage risk and limit losses
during the recent equity market downturn, but also the potential for
performance gains as markets turned the tide.
This year's performance also underscored the importance of
diversification and allocation at the asset class level. During the
year, the forefront of the market rebound included asset classes such as
high-yield bonds, small-cap stocks, real estate holdings, and foreign
equities. Over the last several years, we have made each of these asset
classes available through individual funds and as components of our
Strategic Asset Management Portfolios. Like many of our investment
options, these WM Variable Trust Funds and Portfolios offer the
potential to build wealth while managing and moderating risk levels--the
crux of our investment philosophy at the WM Group of Funds.
We introduced the WM VT REIT Fund in May 2003 and have been very pleased
with its results. The Fund, which invests primarily in real estate
investment trust (REIT) securities, provides another tool for building
diversification. As both an individual fund option and an investment
within our asset allocation portfolios, the WM VT REIT Fund exemplifies
our dedication to improving diversification and thereby better managing
risk.
Although this year attested to the benefits of active asset allocation
in advancing markets, we believe this strategy can actually assist
investors during all phases of the market cycle. Active asset allocation
can keep portfolios balanced during an equity market run-up, potentially
limit the impact of a subsequent downturn, and provide the discipline to
stay invested so that an ensuing rebound is not missed. A well-
diversified and allocated portfolio can mitigate the effects of short-
term market movements and keep investors on track to meet their long-
term goals.
As always, we encourage you to meet regularly with your Investment
Representative to ensure that your investment portfolio remains in line
with your long-term goals. Economies and markets are in constant flux
and your needs can change over time, so it is prudent to periodically
examine your entire financial portfolio. The guidance of an investment
professional can assist this process.
Our enthusiasm for this year's equity market rebound has been tempered
by concerns raised by investigations within the mutual fund industry.
Two trading activities, market timing and late trading, have received
widespread media coverage in recent months. I would like to take this
opportunity to comment on how the WM Group of Funds views these issues.
Market timing, which involves the short-term buying and selling of
shares, is a practice that the WM Group of Funds opposes. We believe
that this type of activity can be detrimental to the long-term interests
of investors. Late trading is the practice of placing a trade for mutual
fund shares after 4 p.m. EST at that day's net asset value. The
securities laws strictly prohibit this practice, and the WM Group of
Funds endorses and abides by this rule. To ensure that we are
effectively addressing these issues, we will continue to review our
existing practices and to support appropriate regulations.
As an officer for more than half of our 64-year history, I have been
part of our diligent efforts to build a specific company culture and
industry reputation. We stress two basic values at the WM Group of
Funds: risk-adjusted asset management and customer service. This past
year has been a gratifying one in terms of both of these core values. We
are pleased with the performance of the Portfolios and Funds, and we
have garnered strong industry recognition for these results. By
providing a unique structure and mix of investment opportunities, we
have been able to grow when some in the industry have struggled. In
addition, customer service was the basis for many of this year's
initiatives. We worked hard to enhance aspects of it that you see
regularly, such as many of our Web site features, as well as those that
are behind the scenes. In each case, our goal has been to streamline and
improve operations for both you and your Investment Representative.
Thank you for the confidence and trust you have placed in the WM Group
of Funds. We look forward to continuing to serve your investment needs.
Sincerely,
/s/ William G. Papesh
William G. Papesh
President
<FN>
(1) As measured by the S&P 500 Index and the Lehman Brothers Aggregate
Bond Index for the one-year period ended December 31, 2003.
Indices are unmanaged, and individuals cannot invest directly in
an index.
1
[PHOTO] REIT Fund
Value of a $10,000 Investment (Class 1 shares)(1)
[graph]
- --------------------------------------------------------------------------
REIT Fund
DATE Fund Grth 10K Inflation
- --------------------------------------------------------------------------
Mar-03
Apr-03 $10,000 $10,000 $10,000
May-03 $10,510 $10,612 $9,984
Jun-03 $10,730 $10,888 $9,995
Jul-03 $11,340 $11,458 $10,006
Aug-03 $11,421 $11,508 $10,044
Sep-03 $11,791 $11,870 $10,077
Oct-03 $12,061 $12,125 $10,066
Nov-03 $12,571 $12,673 $10,039
Dec-03 $13,040 $13,108 $10,020
===========================================================
Total Returns as of 12/31/03(1)
CLASS 1 SHARES Since Inception(3)
(May 1, 2003)
REIT Fund(1) 30.40%
----------------------------------------------------------
NAREIT All REIT Index(2) 31.08%
===========================================================
CLASS 2 SHARES Since Inception(3)
(August 4, 2003)
REIT Fund(1) 16.34%
----------------------------------------------------------
NAREIT All REIT Index(2) 14.40%
===========================================================
To obtain more current Fund performance, including the most recent
month-end performance, call (800) 222-5852.
NOTE: PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. Investment
returns and unit value of an investment will fluctuate, and an
investor's units when redeemed may be worth more or less than their
original cost. Investing in securities underlying a variable annuity
involves risk.
<FN>
(1) Performance shown above represents performance of the WM Variable
Trust Funds (Class 1 shares) and does not account for fees,
expenses, and charges of any variable annuity contract. If these
fees had been reflected, performance would have been lower. The
performance of Class 2 shares is lower than what is shown on the
graph above for Class 1 shares, based on the differences in fees
paid by Class 2 shareholders. The WM Variable Trust Funds may not
be purchased directly but are currently available through the WM
Strategic Asset Manager and WM Advantage variable annuities issued
by American General Life. They are also available through the WM
Diversified Strategies and WM Diversified StrategiesIII variable
annuities issued by AIG SunAmerica Life Assurance Company, the WM
Diversified StrategiesIII (New York) variable annuity issued by
First SunAmerica Life Insurance Company, and the WM
LifeAccumulator variable universal life insurance policy issued by
Farmers New World Life Insurance Company. They also may be
available through other select variable insurance products and
retirement plans. The Fund may not have been available for sale
for all products for the time period shown above. Returns do not
account for income taxes due at withdrawal or premium taxes. Based
upon the contract through which an investment in the Fund may be
made, withdrawals made prior to age 59 1/2 may be subject to a 10%
tax penalty. The Fund's performance would have been lower had the
Advisor not waived a portion of its fees or reimbursed certain
other expenses, and had the Custodian not allowed its fees to be
reduced by credits. Performance results assume reinvestment of all
capital gains and dividends.
(2) The National Association of Real Estate Investment Trust (NAREIT)
All REIT Index is an unmanaged index that reflects the aggregate
performance of all publicly traded REITs that own, develop, and
manage properties. It assumes reinvestment of all dividends and
distributions, but it does not reflect any asset-based charges for
investment management or other expenses. Inflation is measured by
the Consumer Price Index for all urban consumers. Individuals
cannot invest directly in an index. For comparative purposes, the
benchmark's performance is shown from April 30, 2003 (Class 1
shares) and July 31, 2003 (Class 2 shares) and not from the
inception of the index.
(3) Not annualized.
PORTFOLIO MANAGER: RICHARD E. HELM
WM ADVISORS, INC.
The Fund is managed by an equity team led by Richard E. Helm, Senior
Portfolio Manager of WM Advisors, Inc. Mr. Helm, CFA, joined WM Advisors
in 2001, and he has investment management experience dating back to
1986. He holds a B.S. from the University of Colorado at Boulder and an
M.B.A. from the University of Denver.
PERFORMANCE REVIEW
The WM VT REIT FUND posted a total return of 30.40% (Class 1 shares)
from its inception on May 1, 2003 through December 31, 2003. Real estate
investments performed very well for much of this period. The Fund took
advantage of these strong results and performed in line with its
benchmark index. However, we believe that market conditions are such
that it would not be reasonable to expect Fund performance in the
upcoming fiscal year to match that of the year just completed. (All Fund
performance described above is for Class 1 shares.)
WHAT WERE THE MOST SIGNIFICANT FACTORS CONTRIBUTING TO THE FUND'S
PERFORMANCE OVER THE 8-MONTH PERIOD FROM ITS INCEPTION THROUGH DECEMBER
31, 2003?
The Fund's launch in May 2003 occurred in the midst of an equity market
rally, and real estate holdings performed very well throughout the
period. Given the strong economic backdrop and positive fundamentals,
the real estate market segment outpaced the overall equity market
(measured by the S&P 500) for the period. In its early months, the
Fund's performance trailed slightly behind the real estate index while
we were in the process of investing the Fund's cash. However, in late
summer and fall, the Fund's results were
2
roughly in line with the benchmark's results. Fund performance can be
credited to both stock selection and sector weightings.
The Fund's objective is to provide a high level of current income as
well as the potential for intermediate- to long-term capital
appreciation. The Fund will generally invest at least 80% of its assets
in real estate investment trust (REIT) securities or fixed-income
securities of issuers that are principally engaged in U.S. real estate
or related industries. Although REITs are unavoidably tied to conditions
in the real estate industry, we diversify the Fund across a variety of
property types in an effort to spread risk. These include residential,
office, industrial, retail, and health care properties.
Over the last few years, a very strong housing market has funded
consumer spending. Rising home values, historically low mortgage rates,
and a record boom in refinancing activity have all added to the
consumer's bottom line. As a result, certain housing-related stocks
among the Fund's holdings did well during the period. For example, D.R.
Horton, a national builder of single-family homes, benefited from the
housing boom. However, mortgage and realty REITs struggled a bit during
the summer as mortgage rates spiked higher. Annaly Mortgage Management,
which owns and manages a portfolio of mortgages on commercial and
residential loans, saw its stock price decline after rates increased in
June and July. In contrast, Equity Office Properties, the largest REIT
in the marketplace, generated positive results for the Fund even though
it trailed the overall market.
Individual holdings that benefited the Fund also included a position in
Freidman, Billings, Ramsey Group. It provided not only strong results,
but also additional diversification. This holding is unique in that it
is a REIT but it generates much of its cash flow through investment
banking and brokerage operations. Our position in Capital Automotive
also appreciated during the period. The firm buys auto dealer lots and
then leases the land back to dealers.
WHICH OF THE FUND'S HOLDINGS OR SECTOR ALLOCATIONS HAD A SIGNIFICANT
IMPACT ON PERFORMANCE?
We look at a variety of sectors within the real estate industry to find
high-quality REITs at attractive valuations. The three largest segments
of the REIT market are industrial/office space, retail, and residential
sectors. We held significant positions in all three sectors, but we were
a bit underweighted in each relative to the benchmark index.
We found what we deemed to be more attractive valuations in other
sectors, such as lodging. Until 2003, this segment of the market had not
fully recovered from the effects of 9/11, but its subsequent rebound was
quite sharp. We began with an industry weighting greater than that of
the index and were rewarded with strong performance as the entire sector
rallied significantly. Investments in FelCor Lodging Trust, Host
Marriott, and Hospitality Properties Trust all added to Fund
performance.
Another overweighted sector was that of health care REITs. For example,
our position in Health Care Property Investors, Inc. was a very strong
performer for the period. The firm invests in health care-related real
estate located throughout the United States. We slightly underweighted
the retail sector but found some attractive investments that added value
to the Fund. The retail market has experienced significant growth and it
may be difficult for some firms to sustain current growth rates.
WHAT IS THE OUTLOOK FOR BOTH THE FUND AND THE OVERALL ECONOMY?
We build the portfolio from the bottom up, but we also examine trends
within sectors to assess the relative valuations of individual REIT
securities. Currently, we see some value in the residential sector. We
believe these securities have strong yield characteristics as well as
the potential for relative upside growth. Low mortgage rates have
enabled home renters to buy homes while enabling speculators to build
new apartment complexes, so supply exceeds demand. However, the housing
market could suffer if interest rates rise sharply in response to
improving economic conditions. We are closely watching the valuations of
those sectors that are particularly interest-rate sensitive. The
economic backdrop is certainly stronger than in recent years, but market
valuations may already reflect this improvement and growth rates may be
difficult to sustain. Because REITs are generally dividend-producing
value stocks, they can provide a prudent investment opportunity when
market valuations extend and we see a cyclical rotation out of the
higher-growth equity segments. Overall, we see improvements in cyclical
economic conditions, but we feel that the magnitude of the recovery will
depend on employment conditions.
<FN>
(4) Allocation percentages are based on total investment value of the
portfolio as of 12/31/03. Differences from financial statements
are a result of a consolidation of industries or sectors.
Note: Performance information provided for individual securities held
within the Fund represents performance for the period ended 12/31/03.
The Fund may not have held these securities throughout the entire
period. The economic and financial market analysis represents the
opinions of the Portfolio Manager and/or WM Advisors Inc., and it should
not be considered investment advice. No forecast based on the opinions
expressed can be guaranteed, and they may be subject to change without
notice.
Portfolio Composition as of December 31, 2003(4)
[pie chart]
Mortgage/Financial 3%
Self Storage 3%
Cash Equivalents 4%
Health Care 5%
Diversified 5%
Lodging/Resorts 6%
Common Stocks 7%
Specialty 7%
Residential 12%
Retail 22%
Industrial/Office 26%
3
[PHOTO] Equity Income Fund*
Value of a $10,000 Investment (Class 1 shares)(1)
[graph]
- -------------------------------------------------------------------------------------------
EQUITY INCOME
S&P Barra
Inflation 500 Value S&P 500
DATE Fund Grth 10K Grth 10K Grth 10K
- -------------------------------------------------------------------------------------------
Apr-98 $10,000 $10,000 $10,000 $10,000
May-98 $9,800 $10,018 $9,859 $9,828
Jun-98 $9,820 $10,030 $9,934 $10,227
Jul-98 $9,549 $10,042 $9,718 $10,119
Aug-98 $8,777 $10,054 $8,156 $8,655
Sep-98 $9,248 $10,066 $8,652 $9,210
Oct-98 $9,850 $10,090 $9,329 $9,959
Nov-98 $10,221 $10,090 $9,815 $10,563
Dec-98 $10,302 $10,084 $10,159 $11,171
Jan-99 $10,432 $10,108 $10,365 $11,638
Feb-99 $10,171 $10,121 $10,142 $11,276
Mar-99 $10,261 $10,151 $10,449 $11,727
Apr-99 $10,552 $10,225 $11,350 $12,181
May-99 $10,602 $10,225 $11,149 $11,893
Jun-99 $10,729 $10,225 $11,577 $12,553
Jul-99 $10,568 $10,256 $11,221 $12,162
Aug-99 $10,327 $10,280 $10,937 $12,101
Sep-99 $10,096 $10,330 $10,509 $11,769
Oct-99 $10,226 $10,348 $11,102 $12,514
Nov-99 $10,417 $10,355 $11,036 $12,768
Dec-99 $10,558 $10,355 $11,451 $13,521
Jan-00 $10,236 $10,379 $11,087 $12,842
Feb-00 $10,176 $10,441 $10,394 $12,599
Mar-00 $10,799 $10,526 $11,478 $13,831
Apr-00 $10,769 $10,533 $11,401 $13,415
May-00 $10,920 $10,539 $11,437 $13,140
Jun-00 $10,820 $10,600 $10,985 $13,463
Jul-00 $10,799 $10,618 $11,205 $13,253
Aug-00 $11,074 $10,631 $11,955 $14,076
Sep-00 $11,391 $10,686 $11,953 $13,333
Oct-00 $11,851 $10,704 $12,176 $13,277
Nov-00 $11,677 $10,711 $11,553 $12,231
Dec-00 $12,372 $10,704 $12,148 $12,291
Jan-01 $12,648 $10,772 $12,661 $12,727
Feb-01 $12,576 $10,815 $11,821 $11,566
Mar-01 $12,442 $10,840 $11,354 $10,833
Apr-01 $12,913 $10,883 $12,124 $11,675
May-01 $13,199 $10,932 $12,251 $11,753
Jun-01 $13,144 $10,950 $11,854 $11,467
Jul-01 $13,403 $10,920 $11,649 $11,355
Aug-01 $13,300 $10,920 $10,976 $10,644
Sep-01 $12,667 $10,969 $9,933 $9,784
Oct-01 $12,625 $10,932 $9,933 $9,971
Nov-01 $13,154 $10,913 $10,564 $10,736
Dec-01 $13,351 $10,871 $10,725 $10,830
Jan-02 $13,299 $10,896 $10,431 $10,672
Feb-02 $13,236 $10,939 $10,337 $10,466
Mar-02 $13,848 $11,000 $10,866 $10,860
Apr-02 $13,402 $11,062 $10,322 $10,202
May-02 $13,444 $11,062 $10,363 $10,126
Jun-02 $12,731 $11,069 $9,709 $9,405
Jul-02 $11,786 $11,081 $8,660 $8,672
Aug-02 $12,020 $11,117 $8,719 $8,729
Sep-02 $10,864 $11,136 $7,723 $7,780
Oct-02 $11,340 $11,155 $8,364 $8,465
Nov-02 $12,030 $11,155 $8,952 $8,963
Dec-02 $11,680 $11,131 $8,486 $8,436
Jan-03 $11,404 $11,180 $8,254 $8,215
Feb-03 $11,202 $11,266 $8,029 $8,092
Mar-03 $11,330 $11,333 $8,019 $8,170
Apr-03 $12,125 $11,308 $8,812 $8,844
May-03 $12,868 $11,290 $9,460 $9,310
Jun-03 $13,107 $11,303 $9,529 $9,429
Jul-03 $13,227 $11,315 $9,741 $9,595
Aug-03 $13,425 $11,358 $9,951 $9,782
Sep-03 $13,545 $11,396 $9,771 $9,678
Oct-03 $14,158 $11,383 $10,440 $10,226
Nov-03 $14,410 $11,352 $10,534 $10,316
Dec-03 $15,196 $11,331 $11,185 $10,856
==========================================================================================
Average Annual Total Returns as of 12/31/03(1)
CLASS 1 SHARES 1 Year 5 Year Since Inception
(April 28, 1998)
Equity Income Fund(1) 30.10% 8.09% 7.65%
-----------------------------------------------------------------------------------------
S&P 500/Barra Value Index(2) 31.79% 1.95% 2.00%
-----------------------------------------------------------------------------------------
S&P 500 Index(2) 28.70% -0.57% 1.46%
==========================================================================================
CLASS 2 SHARES 1 Year 5 Year Since Inception
(May 1, 2001)
Equity Income Fund(1) 29.73% N/A 6.10%
-----------------------------------------------------------------------------------------
S&P 500/Barra Value Index(2) 31.79% N/A -2.98%
-----------------------------------------------------------------------------------------
S&P 500 Index(2) 28.70% N/A -2.69%
==========================================================================================
To obtain more current Fund performance, including the most recent
month-end performance, call (800) 222-5852.
NOTE: PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. Investment
returns and unit value of an investment will fluctuate, and an
investor's units when redeemed may be worth more or less than their
original cost. Investing in securities underlying a variable annuity
involves risk.
<FN>
* AS OF 08/01/00, THE WM VT BOND & STOCK FUND BECAME THE WM VT
EQUITY INCOME FUND, AND THE FUND'S OBJECTIVES AND STRATEGIES
CHANGED. THIS INFORMATION SHOULD BE CONSIDERED WHEN REVIEWING PAST
PERFORMANCE. PLEASE REVIEW THE PROSPECTUS FOR DETAILED
INFORMATION.
(1) Performance shown above represents performance of the WM Variable
Trust Funds (Class 1 shares) and does not account for fees,
expenses, and charges of any variable annuity contract. If these
fees had been reflected, performance would have been lower. The
performance of Class 2 shares is lower than what is shown on the
graph above for Class 1 shares, based on the differences in fees
paid by Class 2 shareholders. The WM Variable Trust Funds may not
be purchased directly but are currently available through the WM
Strategic Asset Manager and WM Advantage variable annuities issued
by American General Life. They are also available through the WM
Diversified Strategies and WM Diversified StrategiesIII variable
annuities issued by AIG SunAmerica Life Assurance Company, the WM
Diversified StrategiesIII (New York) variable annuity issued by
First SunAmerica Life Insurance Company, and the WM
LifeAccumulator variable universal life insurance policy issued by
Farmers New World Life Insurance Company. They also may be
available through other select variable insurance products and
retirement plans. The Fund may not have been available for sale
for all products for the time period shown above. Returns do not
account for income taxes due at withdrawal or premium taxes. Based
upon the contract through which an investment in the Fund may be
made, withdrawals made prior to age 59 1/2 may be subject to a 10%
tax penalty. The Fund's performance would have been lower had the
Advisor not waived a portion of its fees or reimbursed certain
other expenses, and had the Custodian not allowed its fees to be
reduced by credits. Performance results assume reinvestment of all
capital gains and dividends.
(2) The S&P 500 Index represents an unmanaged weighted index of 500
companies. The S&P 500/Barra Value Index is constructed by ranking
the securities in the S&P 500 Index by price-to-book ratio and
including the securities with the lowest price-to-book ratios that
represent approximately half of the market capitalization of the
S&P 500 Index. Effective May 1, 2003, WM Advisors included the S&P
500/Barra Value Index because it believes the new benchmark more
accurately reflects the Fund's performance characteristics.
Indices are unmanaged and assume reinvestment of all dividends and
distributions, but do not reflect any asset-based charges for
investment management or other expenses. Inflation is measured by
the Consumer Price Index for all urban consumers. Individuals
cannot invest directly in an index. For comparative purposes, the
benchmark's performance is shown from April 30, 1998 (Class 1
shares) and April 30, 2001 (Class 2 shares) and not from the
inception of the index.
PORTFOLIO MANAGER: RICHARD E. HELM
WM ADVISORS, INC.
The Fund is managed by an equity team led by Richard E. Helm, Senior
Portfolio Manager of WM Advisors, Inc. Mr. Helm, CFA, joined WM Advisors
in 2001, and he has investment management experience dating back to
1986. He holds a B.S. from the University of Colorado at Boulder and an
M.B.A. from the University of Denver.
PERFORMANCE REVIEW
The WM VT EQUITY INCOME FUND posted a total return of 30.10% for the
year ended December 31, 2003. This performance outpaced the 28.70%
return of the S&P 500 Index and came in just under the S&P 500/Barra
Value Index results of 31.79%.(2) Please note that due to a significant
shift in the Fund's investment objective in 2000, long-term performance
comparisons may not be relevant. (All Fund performance described above
is for Class 1 shares.)
WHAT WERE THE MOST SIGNIFICANT FACTORS CONTRIBUTING TO THE FUND'S
PERFORMANCE OVER THE YEAR ENDED DECEMBER 31, 2003?
Equities launched a rally in late 2002, and after stalling in early
2003, the market resumed its upward climb for much of the period's
remainder. Significant monetary and fiscal stimulus, improving economic
conditions, and an easing of mid-period geopolitical tensions all fed
the advance. During the rally's stall in the first few months of 2003,
the Fund's bond positions provided solid gains. Subsequently, a well-
timed increase in equity positions, along with sector allocations and
stock selection, supported the Fund's strong relative results. By the
close of the period, we had extended the Fund's equity investment
weighting
4
from 82% to 92%. This strategy allowed the Fund to increase its
participation in the resurgent rally.
The improving economic landscape benefited Fund performance within a
variety of sectors. The materials, technology, and industrial sectors
all augmented Fund performance. For example, Diebold (+31%), a
manufacturer of self-service transaction systems and one of the Fund's
largest positions, provided strong results. Key positions in the
financial sector also boosted overall performance. J.P. Morgan Chase
(+53%) took advantage of improvements in financial and economic
conditions and generated significant gains for the Fund.
Although our technology positions performed very well as a group, they
slightly underperformed the overall market segment. Software producer
Computer Associates (+103%) generated very strong results, but
telecommunications assets underperformed. We maintained an under-
weighting in this subsector, but the performance of holdings such as SBC
Communications (-4%) hampered overall results.
Health care provided somewhat mixed results for the year. Our
overweighting was vulnerable to the sector's general underperformance,
but some Fund holdings posted very strong results. One such example is
Mylan Laboratories (+63%), a developer and distributor of generic drugs.
Conversely, firms such as Schering-Plough (-22%) and Merck (-18%)
suffered because of weak product pipelines and the expiration of
patents. Because politics tend to play a role in health care, especially
during an election year, we reduced some of our health care positions,
including the elimination of our position in Schering-Plough. We believe
large pharmaceutical firms have the potential to rebound because they
continue to fund research and development and have the cash flows to
grow through mergers and acquisitions. Although there is some headline
risk associated with potential regulation in the industry, we continue
to favor several of these firms due to their attractive yields and
growth potential.
WERE THERE ANY SHIFTS IN THE FUND'S PORTFOLIO HOLDINGS/SECTORS THAT HAVE
HAD A SIGNIFICANT IMPACT ON PERFORMANCE?
At the end of February, we reduced exposure to fixed-income investments
in favor of equities. This shift proved highly beneficial for the Fund
after the equity market reignited a rally that lasted for the rest of
the year. We found several stocks at attractive prices that also offered
growing dividends and yields greater than the market average. We also
sought firms that announced plans to begin paying dividends. One such
example is Mandalay Resort Group, a hotel and casino gaming firm that
announced its first dividend during the year and closed with very strong
performance. Another purchase was D.R. Horton, a homebuilder with a
solid business model and dividend growth potential. This firm also
performed very well for the Fund.
We built on consumer discretionary and financial positions while
reducing bond holdings. This move enhanced the Fund's absolute and
relative performance. For example, our purchase of Countrywide Financial
generated strong results as the firm benefited from a boom in mortgage
refinancing and servicing. Beneficial real estate holdings included
General Growth Properties (+60%), a firm that owns and operates malls
and shopping centers. Despite advances by real estate stocks that
elevated valuations, strong cash flows into the Fund permitted us to
reduce the overall concentration without selling holdings. We directed
new cash flows into other more attractively valued areas of the markets.
Within consumer stocks, we added blue-chip companies that had been sold
off by the market and were poised for a rebound. For example, we
purchased McDonald's and Sears, and both performed well over the year.
WHAT IS THE OUTLOOK FOR BOTH THE FUND AND THE OVERALL ECONOMY?
Equity markets now seem to have priced in the economic recovery, and
valuations have advanced. In fact, the period closed with very strong
performance from value holdings as the rally in 2003 proved to be very
broad based. The extension in overall market valuations creates an
environment that hinges on strong stock selection. Profit growth has
supported the sharp rally, but growth rates are probably not sustainable
and the market should reward firms with the ability to generate
consistent earnings.
We look for opportunities in firms that are priced attractively relative
to the rest of the market, and we trim positions as they become more
richly valued. We believe that market interest in dividend yield has not
been fully factored into the prices of many firms, and we continue to
see opportunities in dividend-producing stocks. Overall, we are pleased
with the rebound in both the economy and equity markets and feel that
the recovery will continue to take hold. However, ongoing conditions of
corporate overcapacity and weak employment could limit the magnitude of
the advance.
<FN>
(3) Allocation percentages are based on total investment value of the
portfolio as of 12/31/03. Differences from financial statements
are a result of a consolidation of industries or sectors.
Note: Performance information provided for individual securities held
within the Fund represents performance for the year ended 12/31/03. The
Fund may not have held these securities throughout the entire period.
The economic and financial market analysis represents the opinions
of the Portfolio Manager and/or WM Advisors Inc., and it should not be
considered investment advice. No forecast based on the opinions
expressed can be guaranteed, and they may be subject to change without
notice.
Portfolio Composition as of December 31, 2003(3)
[pie chart]
Corporate Bonds 2%
Materials 3%
Telecommunication Services 3%
Convertible Bonds 3%
Cash Equivalents 3%
Utilities 4%
Information Technology 6%
Energy 7%
Consumer Staples 7%
Health Care 7%
REITs 8%
Industrials 8%
Consumer Discretionary 15%
Financials 24%
5
[PHOTO] Growth & Income Fund
Value of a $10,000 Investment (Class 1 shares)(1)
[graph]
- ----------------------------------------------------------------------------
GROWTH & INCOME
S&P
Inflation Index
DATE Fund Grth 10K Grth 10K
- ----------------------------------------------------------------------------
Dec-93 $10,000
Jan-94 $10,010 $10,000 $10,000
Feb-94 $9,970 $10,034 $9,730
Mar-94 $9,670 $10,068 $9,307
Apr-94 $9,860 $10,082 $9,428
May-94 $9,900 $10,089 $9,581
Jun-94 $9,660 $10,124 $9,345
Jul-94 $9,950 $10,151 $9,654
Aug-94 $10,250 $10,192 $10,047
Sep-94 $10,040 $10,219 $9,805
Oct-94 $10,140 $10,226 $10,029
Nov-94 $9,670 $10,239 $9,661
Dec-94 $9,830 $10,239 $9,802
Jan-95 $10,040 $10,280 $10,057
Feb-95 $10,440 $10,322 $10,447
Mar-95 $10,820 $10,356 $10,757
Apr-95 $11,030 $10,390 $11,070
May-95 $11,440 $10,411 $11,507
Jun-95 $11,646 $10,431 $11,777
Jul-95 $12,072 $10,431 $12,170
Aug-95 $12,123 $10,459 $12,202
Sep-95 $12,437 $10,479 $12,714
Oct-95 $12,123 $10,514 $12,669
Nov-95 $12,792 $10,507 $13,227
Dec-95 $13,016 $10,499 $13,471
Jan-96 $13,442 $10,561 $13,935
Feb-96 $13,726 $10,595 $14,069
Mar-96 $13,949 $10,650 $14,204
Apr-96 $14,253 $10,692 $14,412
May-96 $14,415 $10,712 $14,784
Jun-96 $14,213 $10,718 $14,845
Jul-96 $13,469 $10,739 $14,184
Aug-96 $13,924 $10,759 $14,485
Sep-96 $14,557 $10,794 $15,299
Oct-96 $14,734 $10,828 $15,718
Nov-96 $15,943 $10,849 $16,911
Dec-96 $15,855 $10,849 $16,580
Jan-97 $16,875 $10,883 $17,609
Feb-97 $16,931 $10,917 $17,752
Mar-97 $16,398 $10,944 $17,013
Apr-97 $17,020 $10,958 $18,029
May-97 $18,173 $10,951 $19,136
Jun-97 $18,639 $10,964 $19,990
Jul-97 $20,385 $10,977 $21,577
Aug-97 $19,760 $10,998 $20,377
Sep-97 $20,663 $11,026 $21,494
Oct-97 $19,712 $11,053 $20,776
Nov-97 $20,073 $11,047 $21,738
Dec-97 $20,374 $11,033 $22,112
Jan-98 $20,470 $11,054 $22,357
Feb-98 $22,058 $11,075 $23,969
Mar-98 $22,890 $11,096 $25,196
Apr-98 $23,082 $11,116 $25,451
May-98 $22,431 $11,136 $25,013
Jun-98 $23,082 $11,150 $26,029
Jul-98 $22,124 $11,163 $25,753
Aug-98 $18,354 $11,176 $22,029
Sep-98 $19,910 $11,190 $23,441
Oct-98 $21,738 $11,217 $25,347
Nov-98 $23,151 $11,217 $26,883
Dec-98 $24,237 $11,210 $28,431
Jan-99 $24,978 $11,237 $29,620
Feb-99 $24,436 $11,250 $28,698
Mar-99 $25,235 $11,284 $29,846
Apr-99 $26,921 $11,367 $31,001
May-99 $26,622 $11,367 $30,270
Jun-99 $27,964 $11,367 $31,950
Jul-99 $27,069 $11,401 $30,953
Aug-99 $26,344 $11,428 $30,798
Sep-99 $25,683 $11,483 $29,954
Oct-99 $26,823 $11,504 $31,850
Nov-99 $27,563 $11,510 $32,497
Dec-99 $28,627 $11,510 $34,411
Jan-00 $27,256 $11,538 $32,684
Feb-00 $26,362 $11,606 $32,066
Mar-00 $29,167 $11,701 $35,202
Apr-00 $29,260 $11,708 $34,142
May-00 $29,722 $11,715 $33,442
Jun-00 $29,354 $11,783 $34,265
Jul-00 $28,420 $11,803 $33,731
Aug-00 $30,333 $11,817 $35,825
Sep-00 $29,802 $11,879 $33,934
Oct-00 $30,637 $11,899 $33,791
Nov-00 $28,563 $11,906 $31,128
Dec-00 $29,302 $11,899 $31,281
Jan-01 $31,779 $11,974 $32,391
Feb-01 $30,364 $12,022 $29,437
Mar-01 $28,852 $12,050 $27,571
Apr-01 $30,298 $12,098 $29,713
May-01 $31,037 $12,152 $29,912
Jun-01 $30,363 $12,173 $29,185
Jul-01 $30,315 $12,139 $28,899
Aug-01 $28,654 $12,139 $27,090
Sep-01 $26,284 $12,193 $24,901
Oct-01 $26,597 $12,152 $25,377
Nov-01 $28,046 $12,131 $27,323
Dec-01 $28,276 $12,084 $27,564
Jan-02 $27,306 $12,112 $27,161
Feb-02 $26,697 $12,160 $26,637
Mar-02 $28,096 $12,228 $27,639
Apr-02 $26,138 $12,297 $25,964
May-02 $26,483 $12,297 $25,772
Jun-02 $24,648 $12,304 $23,937
Jul-02 $22,624 $12,318 $22,070
Aug-02 $22,973 $12,358 $22,215
Sep-02 $20,570 $12,379 $19,801
Oct-02 $22,110 $12,400 $21,543
Nov-02 $23,238 $12,400 $22,812
Dec-02 $22,292 $12,373 $21,471
Jan-03 $21,878 $12,428 $20,908
Feb-03 $21,363 $12,523 $20,594
Mar-03 $21,430 $12,598 $20,794
Apr-03 $23,170 $12,571 $22,508
May-03 $24,495 $12,551 $23,694
Jun-03 $25,027 $12,564 $23,997
Jul-03 $25,009 $12,578 $24,419
Aug-03 $25,327 $12,626 $24,896
Sep-03 $25,309 $12,668 $24,632
Oct-03 $26,266 $12,654 $26,026
Nov-03 $26,602 $12,620 $26,255
Dec-03 $28,262 $12,596 $27,631
=======================================================================================
Average Annual Total Returns as of 12/31/03(1)
CLASS 1 SHARES 1 Year 5 Year Since Inception
(January 12, 1994)
Growth & Income Fund(1) 26.80% 3.13% 10.99%
--------------------------------------------------------------------------------------
S&P 500 Index(2) 28.70% -0.57% 10.79%
=======================================================================================
CLASS 2 SHARES 1 Year 5 Year Since Inception
(November 6, 2001)
Growth & Income Fund(1) 26.49% N/A 1.40%
--------------------------------------------------------------------------------------
S&P 500 Index(2) 28.70% N/A 4.01%
=======================================================================================
To obtain more current Fund performance, including the most recent
month-end performance, call (800) 222-5852.
NOTE: PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. Investment
returns and unit value of an investment will fluctuate, and an
investor's units when redeemed may be worth more or less than their
original cost. Investing in securities underlying a variable annuity
involves risk.
<FN>
(1) Performance shown above represents performance of the WM Variable
Trust Funds (Class 1 shares) and does not account for fees,
expenses, and charges of any variable annuity contract. If these
fees had been reflected, performance would have been lower. The
performance of Class 2 shares is lower than what is shown on the
graph above for Class 1 shares, based on the differences in fees
paid by Class 2 shareholders. The WM Variable Trust Funds may not
be purchased directly but are currently available through the WM
Strategic Asset Manager and WM Advantage variable annuities issued
by American General Life. They are also available through the WM
Diversified Strategies and WM Diversified StrategiesIII variable
annuities issued by AIG SunAmerica Life Assurance Company, the WM
Diversified StrategiesIII (New York) variable annuity issued by
First SunAmerica Life Insurance Company, and the WM
LifeAccumulator variable universal life insurance policy issued by
Farmers New World Life Insurance Company. They also may be
available through other select variable insurance products and
retirement plans. The Fund may not have been available for sale
for all products for the time period shown above. Returns do not
account for income taxes due at withdrawal or premium taxes. Based
upon the contract through which an investment in the Fund may be
made, withdrawals made prior to age 59 1/2 may be subject to a 10%
tax penalty. The Fund's performance would have been lower had the
Advisor not waived a portion of its fees or reimbursed certain
other expenses, and had the Custodian not allowed its fees to be
reduced by credits. Performance results assume reinvestment of all
capital gains and dividends.
(2) The S&P 500 Index represents an unmanaged weighted index of 500
companies. It assumes reinvestment of all dividends and
distributions, but it does not reflect any asset-based charges for
investment management or other expenses. Inflation is measured by
the Consumer Price Index for all urban consumers. Individuals
cannot invest directly in an index. For comparative purposes, the
benchmark's performance is shown from January 31, 1994 (Class 1
shares) and October 31, 2001 (Class 2 shares) and not from the
inception of the index.
PORTFOLIO MANAGER: STEPHEN Q. SPENCER
WM ADVISORS, INC.
The Fund is managed by an equity team led by Stephen Q. Spencer, Senior
Portfolio Manager of WM Advisors, Inc. and Head of Equity Investments.
Mr. Spencer, CFA, joined WM Advisors in 1999, and he has experience in
investment and financial analysis dating back to 1984. He holds both a
B.S. and an M.B.A. in Finance/Capital Markets from Brigham Young
University.
PERFORMANCE REVIEW
For the year ended December 31, 2003, the WM VT GROWTH & INCOME FUND
posted a total return of 26.80%. The Fund slightly underperformed its
benchmark, the S&P 500 Index, which returned 28.70% for the period.(2)
Long-term results have been favorable, with the Fund outpacing its
benchmark and posting an average annual total return of 10.99% since its
inception. (All Fund performance described above is for Class 1 shares.)
WHAT WERE THE MOST SIGNIFICANT FACTORS CONTRIBUTING TO THE FUND'S
PERFORMANCE OVER THE YEAR ENDED DECEMBER 31, 2003?
The period was marked by very accommodative fiscal and monetary policies
that injected huge amounts of stimulus into the economy and financial
markets. Resulting improvements in economic growth helped fuel a broad-
based rally in global equity markets. Although some stagnant performance
occurred early in 2003, most major market segments and sectors closed
this fiscal year with positive performance. After geopolitical tensions
eased in the spring, equity markets responded and investors' appetite
for risk returned.
6
There has been a dramatic shift in market sentiment compared to this
time last year. The economic backdrop has improved, and the subsequent
cyclical upturn has been stronger than many had previously expected.
Assets with the most perceived risk led the market--a distinct contrast
to asset performance in 2002. For example, technology, which had lagged
significantly since early 2000, was among the period's best-performing
large-cap sectors. Growth stocks, particularly firms with higher price-
to-earnings ratios, led traditional value market segments early in 2003.
Historically, these types of reversals often characterize market
rebounds. When markets reach an inflection point and begin to rebound,
they can shift quickly to favor the segments that had suffered the most
through the downturn. Large-cap value stocks closed the period with very
strong results as the materials, energy, and industrials sectors led the
market in the fourth quarter.
The Fund benefited from strong stock selection in certain market
segments. Within consumer staples, Avon (+25%) was a strong performer.
Assisted by growing sales of its beauty products, the firm rallied on
news of strong earnings growth. The industrials sector also performed
well for the Fund. Both Tyco (+55%) and Honeywell (+39%) outpaced the
overall market. Within health care stocks, the Fund benefited from the
strong performance of firms like Mylan Laboratories (+63%), a developer
and distributor of generic drugs, and Guidant (+95%), a manufacturer of
implantable medical devices.
Other positions provided disappointing results during the period. For
example, Schering-Plough (-22%) suffered through a period of management
change, as well as patent expiration for some of its pharmaceuticals. As
a result, we lowered our weighting in the firm. Freddie Mac (-1%)
struggled through a management overhaul and scrutiny of its accounting
practices. It has also endured political pressure to remove the
government-backed status of its mortgage-backed securities, but we do
not feel that this outcome is likely. As a result, we added to our
position during the downturn and believe that the firm could benefit
once political pressure subsides.
WERE THERE ANY SHIFTS IN THE FUND'S PORTFOLIO HOLDINGS/SECTORS THAT HAVE
HAD A SIGNIFICANT IMPACT ON PERFORMANCE?
We typically maintain a core portfolio of positions in firms that we
feel are attractively valued and hold them for the long term. We build
or trim positions based on valuation as well as our analysis of company
fundamentals. This strategy encompasses a long-term investment horizon
and helps to limit portfolio turnover. During the period, we maintained
relatively consistent sector weightings by adhering to our core
investment philosophy and not chasing market movements.
Such market moves included those within the technology sector. These
assets rallied considerably, as demonstrated by the S&P 500 Information
Technology Sector Index, which advanced more than 47%. However, we chose
not to increase our positions in the sector after valuations advanced
farther and faster than our comfort level could tolerate. Accordingly,
we looked elsewhere for quality firms with more attractive valuations.
The underweighting in this sector caused the majority of the Fund's
underperformance, but certain technology stocks generated strong results
for the Fund. Firms such as Motorola (+62%) and Computer Associates
(+103%) both added to its results. The technology sector remained a
significant underweighting at the close of the period.
Within other sectors, we added a few select holdings to the portfolio.
One of these was ACE Limited, a firm that provides a broad range of
insurance and reinsurance products. It has rallied considerably since
hitting a low point in March. We also added Alcoa, an aluminum producer,
and were rewarded by strong results. We continue to carry an
overweighting in both the health care and financial sectors.
WHAT IS THE OUTLOOK FOR BOTH THE FUND AND THE OVERALL ECONOMY?
While we are pleased with the cyclical economic rebound and the ensuing
rally in equity markets, we are carefully watching secular headwinds
that could limit the advance. For example, job growth remains elusive,
and this could eventually constrain consumer spending. Business
investment has shown improvement, but firms may wait to increase hiring
until they feel more secure in the sustainability of profit and revenue
growth. The strong gains in earnings have been off of low base levels
and also partially the result of cost-cutting measures enacted during
the economic downturn.
We believe this environment provides solid investment opportunities.
Markets rebounded quickly during the period, led by many firms that have
yet to post sustainable earnings growth. Although value firms led during
the fourth quarter, a number of quality firms with solid profitability
did not participate in the rally's full magnitude. We feel these firms
could be poised for relative strength. We continue to scour markets for
quality firms that have attractive valuations and long-term growth
prospects.
<FN>
(3) Allocation percentages are based on total investment value of the
portfolio as of 12/31/03. Differences from financial statements
are a result of a consolidation of industries or sectors.
Note: Performance information provided for individual securities held
within the Fund represents performance for the year ended 12/31/03. The
Fund may not have held these securities throughout the entire period.
The economic and financial market analysis represents the opinions of
the Portfolio Manager and/or WM Advisors Inc., and it should not be
considered investment advice. No forecast based on the opinions
expressed can be guaranteed, and they may be subject to change without
notice.
Portfolio Composition as of December 31, 2003(3)
[pie chart]
Materials 1%
Telecommunication Services 1%
Cash Equivalents 4%
Utilities 4%
Energy 8%
Industrials 9%
Consumer Staples 10%
Consumer Discretionary 11%
Information Technology 12%
Health Care 16%
Financials 24%
7
[PHOTO] West Coast Equity Fund
Value of a $10,000 Investment (Class 1 shares)(1)
[graph]
- ----------------------------------------------------------------------------------------
WEST COAST
S&P500 Russell 3000 Inflation
DATE Fund Grth 10K Grth 10K Grth 10K
- ----------------------------------------------------------------------------------------
Apr-98 $10,000 $10,000 $10,000 $10,000
May-98 $9,470 $9,828 $9,753 $10,018
Jun-98 $9,290 $10,227 $10,083 $10,030
Jul-98 $8,720 $10,119 $9,899 $10,042
Aug-98 $7,020 $8,655 $8,383 $10,054
Sep-98 $7,690 $9,210 $8,954 $10,066
Oct-98 $8,500 $9,959 $9,634 $10,090
Nov-98 $9,700 $10,563 $10,224 $10,090
Dec-98 $10,940 $11,171 $10,874 $10,084
Jan-99 $11,230 $11,638 $11,243 $10,108
Feb-99 $10,540 $11,276 $10,845 $10,121
Mar-99 $10,860 $11,727 $11,243 $10,151
Apr-99 $11,470 $12,181 $11,751 $10,225
May-99 $11,990 $11,893 $11,527 $10,225
Jun-99 $12,853 $12,553 $12,109 $10,225
Jul-99 $12,903 $12,162 $11,742 $10,256
Aug-99 $12,953 $12,101 $11,609 $10,280
Sep-99 $12,497 $11,769 $11,311 $10,330
Oct-99 $13,126 $12,514 $12,021 $10,348
Nov-99 $13,622 $12,768 $12,357 $10,355
Dec-99 $15,355 $13,521 $13,146 $10,355
Jan-00 $15,234 $12,842 $12,630 $10,379
Feb-00 $17,473 $12,599 $12,748 $10,441
Mar-00 $17,959 $13,831 $13,746 $10,526
Apr-00 $16,732 $13,415 $13,262 $10,533
May-00 $16,115 $13,140 $12,889 $10,539
Jun-00 $17,576 $13,463 $13,271 $10,600
Jul-00 $17,504 $13,253 $13,036 $10,618
Aug-00 $18,992 $14,076 $14,003 $10,631
Sep-00 $17,697 $13,333 $13,369 $10,686
Oct-00 $16,748 $13,277 $13,179 $10,704
Nov-00 $15,311 $12,231 $11,964 $10,711
Dec-00 $16,320 $12,291 $12,165 $10,704
Jan-01 $17,686 $12,727 $12,581 $10,772
Feb-01 $15,983 $11,566 $11,431 $10,815
Mar-01 $15,137 $10,833 $10,686 $10,840
Apr-01 $16,707 $11,675 $11,543 $10,883
May-01 $18,063 $11,753 $11,635 $10,932
Jun-01 $19,730 $11,467 $11,421 $10,950
Jul-01 $18,278 $11,355 $11,233 $10,920
Aug-01 $17,871 $10,644 $10,570 $10,920
Sep-01 $14,612 $9,784 $9,638 $10,969
Oct-01 $15,625 $9,971 $9,862 $10,932
Nov-01 $16,931 $10,736 $10,622 $10,913
Dec-01 $17,443 $10,830 $10,771 $10,871
Jan-02 $17,254 $10,672 $10,637 $10,896
Feb-02 $16,878 $10,466 $10,420 $10,939
Mar-02 $17,870 $10,860 $10,876 $11,000
Apr-02 $17,243 $10,202 $10,305 $11,062
May-02 $16,595 $10,126 $10,186 $11,062
Jun-02 $15,785 $9,405 $9,452 $11,069
Jul-02 $14,093 $8,672 $8,701 $11,081
Aug-02 $13,583 $8,729 $8,742 $11,117
Sep-02 $12,540 $7,780 $7,823 $11,136
Oct-02 $13,348 $8,465 $8,446 $11,155
Nov-02 $14,403 $8,963 $8,957 $11,155
Dec-02 $13,508 $8,436 $8,451 $11,131
Jan-03 $13,306 $8,215 $8,243 $11,180
Feb-03 $13,178 $8,092 $8,107 $11,266
Mar-03 $12,998 $8,170 $8,193 $11,333
Apr-03 $13,978 $8,844 $8,862 $11,308
May-03 $15,382 $9,310 $9,397 $11,290
Jun-03 $15,715 $9,429 $9,524 $11,303
Jul-03 $16,302 $9,595 $9,742 $11,315
Aug-03 $17,049 $9,782 $9,958 $11,358
Sep-03 $16,836 $9,678 $9,850 $11,396
Oct-03 $18,257 $10,226 $10,446 $11,383
Nov-03 $18,684 $10,316 $10,590 $11,352
Dec-03 $19,368 $10,856 $11,074 $11,331
====================================================================================
Average Annual Total Returns as of 12/31/03(1)
CLASS 1 SHARES 1 Year 5 Year Since Inception
(April 28, 1998)
West Coast Equity Fund(1) 43.35% 12.10% 12.35%
-----------------------------------------------------------------------------------
Russell 3000 Index(2) 31.06% 0.37% 1.82%
-----------------------------------------------------------------------------------
S&P 500 Index(2) 28.70% -0.57% 1.46%
====================================================================================
CLASS 2 SHARES 1 Year 5 Year Since Inception
(November 6, 2001)
West Coast Equity Fund(1) 42.93% N/A 8.38%
-----------------------------------------------------------------------------------
Russell 3000 Index(2) 31.06% N/A 5.50%
-----------------------------------------------------------------------------------
S&P 500 Index(2) 28.70% N/A 4.01%
====================================================================================
To obtain more current Fund performance, including the most recent
month-end performance, call (800) 222-5852.
NOTE: THERE MAY BE ADDITIONAL INVESTMENT RISKS DUE TO THE FUND'S
CONCENTRATION IN THE WEST COAST REGION OF THE UNITED STATES. PAST
PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. Investment returns and
unit value of an investment will fluctuate, and an investor's units when
redeemed may be worth more or less than their original cost. Investing
in securities underlying a variable annuity involves risk.
<FN>
(1) Performance shown above represents performance of the WM Variable
Trust Funds (Class 1 shares) and does not account for fees,
expenses, and charges of any variable annuity contract. If these
fees had been reflected, performance would have been lower. The
performance of Class 2 shares is lower than what is shown on the
graph above for Class 1 shares, based on the differences in fees
paid by Class 2 shareholders. The WM Variable Trust Funds may not
be purchased directly but are currently available through the WM
Strategic Asset Manager and WM Advantage variable annuities issued
by American General Life. They are also available through the WM
Diversified Strategies and WM Diversified StrategiesIII variable
annuities issued by AIG SunAmerica Life Assurance Company, the WM
Diversified StrategiesIII (New York) variable annuity issued by
First SunAmerica Life Insurance Company, and the WM
LifeAccumulator variable universal life insurance policy issued by
Farmers New World Life Insurance Company. They also may be
available through other select variable insurance products and
retirement plans. The Fund may not have been available for sale
for all products for the time period shown above. Returns do not
account for income taxes due at withdrawal or premium taxes. Based
upon the contract through which an investment in the Fund may be
made, withdrawals made prior to age 59 1/2 may be subject to a 10%
tax penalty. The Fund's performance would have been lower had the
Advisor not waived a portion of its fees or reimbursed certain
other expenses, and had the Custodian not allowed its fees to be
reduced by credits. Performance results assume reinvestment of all
capital gains and dividends.
(2) The S&P 500 Index represents an unmanaged weighted index of 500
companies. The Russell 3000 Index measures the performance of the
3,000 largest U.S. companies based on total market capitalization,
representing approximately 98% of the investable U.S. equity
market. Effective May 1, 2003, the Russell 3000 Index replaced the
S&P 500 Index because WM Advisors believes the new benchmark more
accurately reflects the Fund's performance characteristics.
Indices are unmanaged and assume reinvestment of all dividends and
distributions, but do not reflect any asset-based charges for
investment management or other expenses. Inflation is measured by
the Consumer Price Index for all urban consumers. Individuals
cannot invest directly in an index. For comparative purposes, the
benchmark's performance is shown from April 30, 1998 (Class 1
shares) and October 31, 2001 (Class 2 shares) and not from the
inception of the index.
PORTFOLIO MANAGER: PHILIP M. FOREMAN
WM ADVISORS, INC.
The Fund is managed by an equity team led by Philip M. Foreman, Senior
Portfolio Manager of WM Advisors, Inc. Mr. Foreman, CFA, was employed by
WM Advisors from 1991 to 1999, and he rejoined the firm in 2002. He has
investment management experience dating back to 1984. He holds a B.S. in
Economics from the University of Washington and an M.B.A. in Finance
from the University of Puget Sound.
PERFORMANCE REVIEW
For the year ended December 31, 2003, the WM VT WEST COAST EQUITY FUND
posted a total return of 43.35%, which outpaced the 31.06% return of the
Russell 3000 Index.(2) Long-term results have also been very favorable.
The Fund had an average annual total return of 12.10% for the five-year
period ended December 31, 2003, and this performance surpassed the
Russell 3000 Index by an average annual rate of nearly 12 percentage
points. (All Fund performance described above is for Class 1 shares.)
WHAT WERE THE MOST SIGNIFICANT FACTORS CONTRIBUTING TO THE FUND'S
PERFORMANCE OVER THE YEAR ENDED DECEMBER 31, 2003?
Improving economic conditions and stronger earnings reports sustained
the period's rebounding equities market. Small-cap stocks led the market
advance as three years of investor aversion to risk ended. Technology
was among the top performing sectors. Many of the firms rewarded by the
market this period were those that had struggled the most through the
market downturn.
The Fund generated strong performance on both a relative and an absolute
basis, outpacing the Fund's benchmarks. It gained value from
8
its small-cap stock weighting, sector concentrations, and stock
selection. Smaller-sized companies, particularly those that could turn
profits while exiting the down cycle, provided impressive results.
Markets jumped at signs of profitability as the recession filtered out
weaker firms. For example, Advanced Digital Information Corp. (+109%), a
digital tape storage firm, held on to market share during the downturn
in the technology sector. When markets began to rebound, the firm's
stock appreciated quickly, more than doubling in price during the
period. Another firm, Schnitzer Steel (+504%), realized both pricing and
volume benefits from the boom in Chinese construction. The firm has
become a key exporter of scrap steel to China. Both of these firms were
strong contributors to the Fund's overall results for the year.
Improving economic conditions also led to performance gains within the
Fund's overweightings in industrials and cyclical firms. The materials
sector provided powerful results from firms such as Louisiana-Pacific
(+122%). Strong pricing power served the lumber firm well, and its stock
more than doubled over the period. In fact, advances in this industry
have been so substantial that we believe much of it has become richly
valued, so we have been trimming lumber positions. A materials company
that did not fare too well for much of this year was Oregon Steel Mills.
The firm struggled with balance sheet issues and weak demand for steel
piping in gas systems until the fourth quarter when its stock rallied
considerably and closed the year on a positive note (+45%). The
financial sector also performed relatively well, and our stock selection
contributed to Fund results. Holdings such as East West Bancorp (+49%)
and Greater Bay Bancorp (+65%) advanced amid the improving financial
backdrop and favorable market conditions.
The Fund also benefited from its technology holdings, which supplied
some of the period's strongest results. Among the Fund's better
performers was Pixelworks (+90%), a developer of chip sets for flat
panel screens. Large-cap technology positions, such as Hewlett-Packard
(+32%), also provided positive results. The firm reported stronger
earnings, and investors reaped the benefits. Although technology stocks
advanced rapidly, not all firms fully participated in the gains.
Microsoft (+6%) has been a core Fund holding for many years, but during
the past 12 months the firm languished while the majority of the sector
flourished. We maintained a slight overweighting in it because we
believe it could benefit from continued improvements in capital
spending. In addition, some of this sector's small-cap firms experienced
difficulties early in the year after struggling to maintain
profitability during the downturn. The stock of InFocus (+57%), a
producer of projectors for business presentations, languished for much
of the year, only to close the period with a sharp rally. Onyx (-35%), a
software firm, continued to struggle from growing pains stemming from
its overextension during the boom, which prompted us to reduce the
position during the year.
WERE THERE ANY SHIFTS IN THE FUND'S PORTFOLIO HOLDINGS/SECTORS THAT HAVE
HAD A SIGNIFICANT IMPACT ON PERFORMANCE?
We maintained relatively equal weightings in small-, mid-, and large-cap
stocks and benefited from the broad market advance. The Fund took
advantage of the strength offered by smaller-sized firms, but we will
continue to seek opportunities across the entire capitalization
spectrum.
As the prospects for an improving business environment brightened, we
added to firms that stand to gain from increased business investment. We
purchased Hilton since we feel that business travel should improve
alongside underlying economic conditions. We also favored firms that can
produce and sell in China. In addition to Schnitzer Steel, we increased
our holdings in Nike (+43%) and Intel (+106%), both of which have made
inroads into the Chinese market. We also added to the Fund's positions
in media-related firms, such as Univision (+62%) and Knight-Ridder
(+22%). This market segment could be poised for continued strength
because advertising budgets are generally tied to economic conditions
and can get a boost during an election year.
WHAT IS THE OUTLOOK FOR BOTH THE FUND AND THE OVERALL ECONOMY?
We are very pleased with the strong performance generated in the past
year, but we do not expect the market's advance to continue at its
current pace. The first year of a recovery often coincides with a
powerful market upswing--especially in small-cap equities. Many firms
streamlined operations during the downturn and were rewarded with very
strong earnings as the economy rebounded. These earnings have helped
drive the market higher, but the pace of earnings growth probably cannot
be sustained and markets will eventually favor firms that show
consistent profitability. We plan to keep the Fund cyclically oriented,
taking advantage of improving economic fundamentals and prospects for
continued growth in capital spending. However, we are closely watching
valuations and the Federal Reserve's stance toward short-term interest
rates. We continue to seek small-, mid-, and large-size firms that have
good business prospects and that are reasonably priced.
<FN>
(3) Allocation percentages are based on total investment value of the
portfolio as of 12/31/03. Differences from financial statements
are a result of a consolidation of industries or sectors.
Note: Performance information provided for individual securities held
within the Fund represents performance for the year ended 12/31/03. The
Fund may not have held these securities throughout the entire period.
The economic and financial market analysis represents the opinions of
the Portfolio Manager and/or WM Advisors Inc., and it should not be
considered investment advice. No forecast based on the opinions
expressed can be guaranteed, and they may be subject to change without
notice.
Portfolio Composition as of December 31, 2003(3)
[pie chart]
Telecommunication Services 1%
REITs 2%
Consumer Staples 3%
Energy 4%
Cash Equivalents 5%
Materials 5%
Health Care 11%
Industrials 13%
Consumer Discretionary 17%
Financials 18%
Information Technology 21%
9
[PHOTO] Mid Cap Stock Fund
Value of a $10,000 Investment (Class 1 shares)(1)
[graph]
- --------------------------------------------------------------------------
MID CAP
S&P400 Inflation
DATE Fund Grth 10K Grth 10K
- --------------------------------------------------------------------------
Apr-00 $10,000 $10,000 $10,000
May-00 $10,210 $9,875 $10,006
Jun-00 $9,980 $10,020 $10,064
Jul-00 $10,150 $10,178 $10,081
Aug-00 $10,860 $11,314 $10,093
Sep-00 $10,751 $11,237 $10,146
Oct-00 $10,951 $10,857 $10,163
Nov-00 $10,651 $10,037 $10,169
Dec-00 $11,740 $10,805 $10,163
Jan-01 $12,170 $11,046 $10,227
Feb-01 $12,139 $10,415 $10,268
Mar-01 $11,700 $9,640 $10,292
Apr-01 $12,351 $10,703 $10,333
May-01 $12,780 $10,953 $10,379
Jun-01 $13,188 $10,909 $10,397
Jul-01 $13,129 $10,746 $10,368
Aug-01 $12,739 $10,395 $10,368
Sep-01 $11,488 $9,102 $10,414
Oct-01 $11,898 $9,504 $10,379
Nov-01 $12,408 $10,211 $10,361
Dec-01 $13,149 $10,739 $10,321
Jan-02 $12,699 $10,683 $10,345
Feb-02 $12,699 $10,696 $10,386
Mar-02 $13,470 $11,461 $10,444
Apr-02 $13,380 $11,407 $10,503
May-02 $13,510 $11,214 $10,503
Jun-02 $12,805 $10,393 $10,509
Jul-02 $11,871 $9,386 $10,521
Aug-02 $11,995 $9,433 $10,555
Sep-02 $11,071 $8,673 $10,573
Oct-02 $11,389 $9,048 $10,591
Nov-02 $11,984 $9,572 $10,591
Dec-02 $11,789 $9,179 $10,568
Jan-03 $11,584 $8,911 $10,614
Feb-03 $11,430 $8,699 $10,696
Mar-03 $11,481 $8,772 $10,760
Apr-03 $11,882 $9,409 $10,737
May-03 $12,796 $10,189 $10,719
Jun-03 $12,867 $10,318 $10,731
Jul-03 $13,094 $10,684 $10,743
Aug-03 $13,433 $11,169 $10,784
Sep-03 $13,268 $10,999 $10,819
Oct-03 $14,194 $11,830 $10,808
Nov-03 $14,596 $12,242 $10,778
Dec-03 $15,058 $12,449 $10,758
================================================================================
Average Annual Total Returns as of 12/31/03(1)
CLASS 1 SHARES 1 Year Since Inception
(May 1, 2000)
Mid Cap Stock Fund(1) 27.73% 11.80%
S&P MidCap 400 Index(2) 35.61% 6.16%
===============================================================================
CLASS 2 SHARES 1 Year Since Inception
(May 1, 2001)
Mid Cap Stock Fund(1) 27.45% 7.49%
S&P MidCap 400 Index(2) 35.61% 5.83%
================================================================================
To obtain more current Fund performance, including the most recent
month-end performance, call (800) 222-5852.
NOTE: INTERNATIONAL INVESTING INVOLVES INCREASED RISKS DUE TO CURRENCY
FLUCTUATIONS, POLITICAL OR SOCIAL INSTABILITY, AND DIFFERENCES IN
ACCOUNTING STANDARDS. PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE
RESULTS. Investment returns and unit value of an investment will
fluctuate, and an investor's units when redeemed may be worth more or
less than their original cost. Investing in securities underlying a
variable annuity involves risk.
<FN>
(1) Performance shown above represents performance of the WM Variable
Trust Funds (Class 1 shares) and does not account for fees,
expenses, and charges of any variable annuity contract. If these
fees had been reflected, performance would have been lower. The
performance of Class 2 shares is lower than what is shown on the
graph above for Class 1 shares, based on the differences in fees
paid by Class 2 shareholders. The WM Variable Trust Funds may not
be purchased directly but are currently available through the WM
Strategic Asset Manager and WM Advantage variable annuities issued
by American General Life. They are also available through the WM
Diversified Strategies and WM Diversified StrategiesIII variable
annuities issued by AIG SunAmerica Life Assurance Company, the WM
Diversified StrategiesIII (New York) variable annuity issued by
First SunAmerica Life Insurance Company, and the WM
LifeAccumulator variable universal life insurance policy issued by
Farmers New World Life Insurance Company. They also may be
available through other select variable insurance products and
retirement plans. The Fund may not have been available for sale
for all products for the time period shown above. Returns do not
account for income taxes due at withdrawal or premium taxes. Based
upon the contract through which an investment in the Fund may be
made, withdrawals made prior to age 59 1/2 may be subject to a 10%
tax penalty. The Fund's performance would have been lower had the
Advisor not waived a portion of its fees or reimbursed certain
other expenses, and had the Custodian not allowed its fees to be
reduced by credits. Performance results assume reinvestment of all
capital gains and dividends.
(2) The S&P MidCap 400 Index represents an unmanaged weighted index of
400 mid-size companies. It assumes reinvestment of all dividends
and distributions, but it does not reflect any asset-based charges
for investment management or other expenses. Inflation is measured
by the Consumer Price Index for all urban consumers. Individuals
cannot invest directly in an index. For comparative purposes, the
benchmark's performance is shown from April 30, 2000 (Class 1
shares) and April 30, 2001 (Class 2 shares) and not from the
inception of the index.
PORTFOLIO MANAGER: DANIEL R. COLEMAN
WM ADVISORS, INC.
The Fund is managed by an equity team led by Daniel R. Coleman, Senior
Portfolio Manager of WM Advisors, Inc. Mr. Coleman joined WM Advisors in
2001, and he has investment experience dating back to 1979. He holds a
B.A. in Finance from the University of Washington and an M.B.A. from New
York University.
PERFORMANCE REVIEW
For the year ended December 31, 2003, the WM VT MID CAP STOCK FUND
returned 27.73%. The Fund underperformed its benchmark, the S&P MidCap
400 Index, which advanced 35.61%.(2) However, the Fund has posted an
average annual total return of 11.80% since its inception, nearly
doubling the 6.16% return of its benchmark for the same period. (All
Fund performance described above is for Class 1 shares.)
WHAT WERE THE MOST SIGNIFICANT FACTORS CONTRIBUTING TO THE FUND'S
PERFORMANCE OVER THE YEAR ENDED DECEMBER 31, 2003?
The Fund benefited from strong cyclical market performance as
significant fiscal and monetary stimulus contributed to a recovery in
economies and equity markets. Earnings climbed above their lows, and the
asset types that had suffered the most through the downturn led the
market recovery. As geopolitical uncertainty receded in April, markets
responded quickly and rallied for the rest of the period, driving the
Fund's results.
There were several very strong performers during the period. Among them
was Countrywide Financial (+96%), which benefited from low mortgage
rates and a booming refinancing business. Luxury retailer
10
Tiffany & Co. (+89%), which we had added near the end of the previous
fiscal year, also helped boost Fund performance. The firm benefited from
improving economic conditions and higher sales, partially due to an
expanded product line within its stores.
Health care stocks provided mixed results, but they remain a core
overweighting in the portfolio. Our position in HEALTHSOUTH hampered the
Fund's results for the period. We sold a portion of this position before
its price underwent a major decline, and we eliminated it when company
officers received indictments, but the damage had already been done.
Another health care holding that suffered during the period was
AmerisourceBergen (+6%), which has been a core Fund holding. The drug
distributor was a strong performer during the downturn, but it lagged
the market this year before closing the period with a rally. We added to
our position on the stock's weakness, but it did not rebound as much as
the overall market. Better results within the health care segment came
from Guidant (+95%), a manufacturer of medical devices, and Mylan
Laboratories (+63%), a producer and distributor of generic
pharmaceuticals.
Our investment style favors quality firms that we believe are priced
attractively and have the potential for strong long-term investment
performance. The period's broad-based rally benefited such firms, but it
was led by riskier assets for much of the year. As a result, we missed
out on some relative results. For example, toy-maker Mattel lagged
behind the market for the second half of the period. Yet, this firm has
been a core Fund holding for the past three years and a very strong
performance contributor for most of the Fund's history. We feel that the
markets will eventually reward these types of high-quality firms that
can generate consistent earnings over longer-term time horizons. In
fact, mid-cap value stocks returned to favor in the fourth quarter,
outpacing their growth counterparts.
The market's preference for aggressive mid-cap names early in the
period, plus the Fund's specific stock selection, yielded somewhat
disappointing results within industrials and technology. Firms such as
Lockheed Martin (-11%) did not perform as well as the overall group. We
sold off a portion of the Lockheed position late last year, but the firm
continued to experience choppy performance during this period as
prospects for additional defense contracts diminished.
WERE THERE ANY SHIFTS IN THE FUND'S PORTFOLIO HOLDINGS/SECTORS THAT HAVE
HAD A SIGNIFICANT IMPACT ON PERFORMANCE?
Because of their strong historical results, many firms within the
portfolio have appreciated to levels near the top of mid-cap parameters,
and we have begun to slowly shift assets into smaller mid-cap firms that
we believe have room to grow. This does not represent a wholesale shift
in style, just a trimming of positions that have done very well for the
Fund. Firms such as Nike, Guidant, Lockheed Martin, ConocoPhillips, and
Avon have grown to the top of the mid-cap range.
The process to lower the Fund's overall capitalization levels will be
slow and valuation-based. It has already begun with additions to, or new
positions in, firms with lower capitalizations, such as Adobe, Tiffany &
Co., Neiman Marcus, and Mandalay Resort Group, which all performed well
during the period.
We remained relatively sector neutral during the period, looking for
investment opportunities stock by stock. Although the technology sector
rallied considerably, we were a bit underweighted and did not attempt to
chase trailing performance. In contrast, our bottom-up stock selection
has created overweightings in both the financial and energy sectors.
We also employ a core buy-and-hold strategy, but trim and add to
positions in response to valuation shifts. For example, the stock of
Hershey advanced on talks of a potential takeover, and we took some
profits when it became richly valued. After the takeover fell through
and the stock declined, we rebuilt the position. The stock has since
rallied.
WHAT IS THE OUTLOOK FOR BOTH THE FUND AND THE OVERALL ECONOMY?
We were pleased with the period's equity rebound, which benefited Fund
performance. Although the more aggressive stocks led the summer's sharp
market advance, we are watching valuations closely to find quality firms
that have sustainable earnings leverage. These firms normally are
favored after the initial rebound of a market rally, like we experienced
in 2003. We are also attempting to reduce the Fund's overall
capitalization levels, adding to firms that in our opinion are not only
priced attractively, but also have growth opportunity within the mid-cap
arena. We seek firms that have strong balance sheets, good cash flows,
and valuations priced below that of the overall market. We believe the
economy should continue to rebound, but probably not at the pace
recorded in the third quarter as employment and overcapacity could
eventually hold back the magnitude of this growth. Overall earnings
growth has been very strong, but we do not expect the pace to continue.
As earnings growth moderates, we believe the market will eventually
rotate to favor firms that can generate consistent earnings.
<FN>
(3) Allocation percentages are based on total investment value of the
portfolio as of 12/31/03. Differences from financial statements
are a result of a consolidation of industries or sectors.
Note: Performance information provided for individual securities held
within the Fund represents performance for the year ended 12/31/03. The
Fund may not have held these securities throughout the entire period.
The economic and financial market analysis represents the opinions of
the Portfolio Manager and/or WM Advisors Inc., and it should not be
considered investment advice. No forecast based on the opinions
expressed can be guaranteed, and they may be subject to change without
notice.
Portfolio Composition as of December 2003(3)
[pie chart]
Telecommunications 1%
Materials 3%
Utilities 5%
Consumer Staples 5%
Cash Equivalents 8%
Energy 8%
Industrials 10%
Health Care 12%
Information Technology 14%
Consumer Discretionary 15%
Financials 19%
11
[PHOTO] Growth Fund
Value of a $10,000 Investment (Class 1 shares)(1)
[graph]
- ----------------------------------------------------------------------------------------------------
GROWTH FUND
Russell 1000
Growth S&P 500
Inflation Index Index
DATE Fund Grth 10K Grth 10K Grth 10K
- ----------------------------------------------------------------------------------------------------
Dec-93 $10,000 $10,000 $10,000 $10,000
Jan-94 $10,483 $10,027 $10,231 $10,335
Feb-94 $10,438 $10,061 $10,045 $10,056
Mar-94 $10,179 $10,095 $9,560 $9,619
Apr-94 $10,116 $10,109 $9,606 $9,744
May-94 $9,803 $10,117 $9,751 $9,902
Jun-94 $9,437 $10,151 $9,463 $9,658
Jul-94 $9,750 $10,178 $9,787 $9,977
Aug-94 $10,314 $10,219 $10,332 $10,384
Sep-94 $10,340 $10,247 $10,190 $10,133
Oct-94 $10,573 $10,254 $10,431 $10,365
Nov-94 $10,233 $10,267 $10,097 $9,985
Dec-94 $10,269 $10,267 $10,266 $10,131
Jan-95 $10,376 $10,308 $10,485 $10,394
Feb-95 $10,698 $10,349 $10,924 $10,797
Mar-95 $10,931 $10,384 $11,243 $11,117
Apr-95 $11,315 $10,418 $11,490 $11,441
May-95 $11,763 $10,439 $11,891 $11,892
Jun-95 $12,452 $10,460 $12,350 $12,172
Jul-95 $13,260 $10,460 $12,863 $12,577
Aug-95 $13,341 $10,487 $12,878 $12,611
Sep-95 $13,762 $10,508 $13,471 $13,140
Oct-95 $13,394 $10,542 $13,481 $13,094
Nov-95 $14,049 $10,535 $14,005 $13,670
Dec-95 $14,103 $10,528 $14,085 $13,923
Jan-96 $14,372 $10,590 $14,555 $14,402
Feb-96 $15,045 $10,624 $14,822 $14,540
Mar-96 $15,153 $10,679 $14,841 $14,679
Apr-96 $15,915 $10,721 $15,231 $14,895
May-96 $16,229 $10,741 $15,763 $15,279
Jun-96 $15,542 $10,747 $15,785 $15,342
Jul-96 $14,406 $10,768 $14,860 $14,659
Aug-96 $15,378 $10,788 $15,243 $14,970
Sep-96 $16,432 $10,823 $16,353 $15,811
Oct-96 $15,880 $10,857 $16,451 $16,245
Nov-96 $16,381 $10,878 $17,687 $17,478
Dec-96 $16,381 $10,878 $17,340 $17,135
Jan-97 $17,179 $10,913 $18,555 $18,199
Feb-97 $16,402 $10,947 $18,429 $18,347
Mar-97 $15,307 $10,974 $17,432 $17,583
Apr-97 $15,573 $10,987 $18,590 $18,633
May-97 $16,668 $10,981 $19,932 $19,777
Jun-97 $17,324 $10,994 $20,729 $20,659
Jul-97 $18,790 $11,007 $22,562 $22,300
Aug-97 $17,810 $11,028 $21,242 $21,060
Sep-97 $18,850 $11,055 $22,287 $22,214
Oct-97 $18,341 $11,083 $21,462 $21,472
Nov-97 $18,269 $11,076 $22,374 $22,466
Dec-97 $18,222 $11,063 $22,625 $22,852
Jan-98 $18,825 $11,084 $23,302 $23,106
Feb-98 $20,576 $11,105 $25,054 $24,772
Mar-98 $21,557 $11,126 $26,053 $26,040
Apr-98 $22,396 $11,146 $26,413 $26,303
May-98 $21,733 $11,166 $25,663 $25,851
Jun-98 $23,795 $11,180 $27,233 $26,901
Jul-98 $23,717 $11,193 $27,054 $26,615
Aug-98 $19,711 $11,207 $22,993 $22,767
Sep-98 $22,121 $11,220 $24,759 $24,226
Oct-98 $22,887 $11,247 $26,749 $26,196
Nov-98 $24,455 $11,247 $28,785 $27,783
Dec-98 $28,976 $11,240 $31,381 $29,384
Jan-99 $32,824 $11,267 $33,223 $30,612
Feb-99 $31,761 $11,281 $31,705 $29,660
Mar-99 $35,817 $11,315 $33,376 $30,846
Apr-99 $37,668 $11,397 $33,419 $32,040
May-99 $35,597 $11,397 $32,393 $31,284
Jun-99 $38,451 $11,397 $34,661 $33,020
Jul-99 $36,940 $11,431 $33,559 $31,990
Aug-99 $37,934 $11,459 $34,106 $31,830
Sep-99 $39,816 $11,514 $33,390 $30,958
Oct-99 $42,810 $11,535 $35,910 $32,917
Nov-99 $47,596 $11,541 $37,850 $33,586
Dec-99 $57,110 $11,541 $41,786 $35,564
Jan-00 $57,230 $11,569 $39,826 $33,778
Feb-00 $64,252 $11,637 $41,774 $33,140
Mar-00 $65,229 $11,733 $44,765 $36,381
Apr-00 $59,319 $11,740 $42,634 $35,286
May-00 $53,986 $11,747 $40,485 $34,563
Jun-00 $55,568 $11,815 $43,554 $35,413
Jul-00 $54,579 $11,835 $41,738 $34,860
Aug-00 $58,765 $11,849 $45,515 $37,025
Sep-00 $55,839 $11,911 $41,209 $35,070
Oct-00 $53,343 $11,931 $39,260 $34,923
Nov-00 $44,648 $11,938 $33,473 $32,171
Dec-00 $44,532 $11,931 $32,415 $32,329
Jan-01 $46,625 $12,006 $34,655 $33,476
Feb-01 $37,715 $12,054 $28,771 $30,423
Mar-01 $33,725 $12,082 $25,641 $28,495
Apr-01 $39,883 $12,130 $28,884 $30,709
May-01 $38,798 $12,185 $28,460 $30,914
Jun-01 $37,304 $12,206 $27,799 $30,163
Jul-01 $35,200 $12,172 $27,104 $29,868
Aug-01 $31,691 $12,172 $24,887 $27,998
Sep-01 $28,652 $12,226 $22,403 $25,736
Oct-01 $29,073 $12,185 $23,580 $26,227
Nov-01 $30,992 $12,164 $25,846 $28,239
Dec-01 $31,599 $12,117 $25,796 $28,487
Jan-02 $30,616 $12,145 $25,340 $28,071
Feb-02 $27,879 $12,193 $24,288 $27,530
Mar-02 $28,743 $12,261 $25,129 $28,565
Apr-02 $26,849 $12,330 $23,078 $26,834
May-02 $26,428 $12,330 $22,520 $26,635
Jun-02 $23,856 $12,337 $20,437 $24,739
Jul-02 $21,891 $12,351 $19,313 $22,809
Aug-02 $22,195 $12,392 $19,371 $22,960
Sep-02 $20,299 $12,413 $17,362 $20,464
Oct-02 $22,171 $12,434 $18,954 $22,265
Nov-02 $23,528 $12,434 $19,983 $23,576
Dec-02 $21,796 $12,407 $18,602 $22,190
Jan-03 $21,328 $12,461 $18,150 $21,608
Feb-03 $20,976 $12,557 $18,067 $21,284
Mar-03 $21,234 $12,632 $18,403 $21,491
Apr-03 $23,011 $12,605 $19,763 $23,262
May-03 $24,297 $12,585 $20,749 $24,488
Jun-03 $24,460 $12,598 $21,035 $24,801
Jul-03 $25,116 $12,612 $21,559 $25,237
Aug-03 $25,887 $12,660 $22,096 $25,730
Sep-03 $25,348 $12,702 $21,859 $25,457
Oct-03 $26,752 $12,688 $23,088 $26,898
Nov-03 $27,079 $12,654 $23,330 $27,134
Dec-03 $28,154 $12,630 $24,138 $28,556
==================================================================================
Average Annual Total Returns as of 12/31/03(1)
CLASS 1 SHARES 1 Year 5 Year 10 Year
Growth Fund(1) 29.18% -0.57% 10.91%
---------------------------------------------------------------------------------
Russell 1000 Growth Index(2) 29.75% -5.11% 9.21%
---------------------------------------------------------------------------------
S&P 500 Index(2) 28.70% -0.57% 11.06%
==================================================================================
CLASS 2 SHARES 1 Year 5 Year Since Inception
(November 6, 2001)
Growth Fund(1) 28.82% N/A -3.06%
---------------------------------------------------------------------------------
Russell 1000 Growth Index(2) 29.75% N/A 1.08%
---------------------------------------------------------------------------------
S&P 500 Index(2) 28.70% N/A 4.01%
==================================================================================
To obtain more current Fund performance, including the most recent
month-end performance, call (800) 222-5852.
NOTE: INTERNATIONAL INVESTING INVOLVES INCREASED RISKS DUE TO CURRENCY
FLUCTUATIONS, POLITICAL OR SOCIAL INSTABILITY, AND DIFFERENCES IN
ACCOUNTING STANDARDS. PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE
RESULTS. Investment returns and unit value of an investment will
fluctuate, and an investor's units when redeemed may be worth more or
less than their original cost. Investing in securities underlying a
variable annuity involves risk.
<FN>
(1) Performance shown above represents performance of the WM Variable
Trust Funds (Class 1 shares) and does not account for fees,
expenses, and charges of any variable annuity contract. If these
fees had been reflected, performance would have been lower. The
performance of Class 2 shares is lower than what is shown on the
graph above for Class 1 shares, based on the differences in fees
paid by Class 2 shareholders. The WM Variable Trust Funds may not
be purchased directly but are currently available through the WM
Strategic Asset Manager and WM Advantage variable annuities issued
by American General Life. They are also available through the WM
Diversified Strategies and WM Diversified StrategiesIII variable
annuities issued by AIG SunAmerica Life Assurance Company, the WM
Diversified StrategiesIII (New York) variable annuity issued by
First SunAmerica Life Insurance Company, and the WM
LifeAccumulator variable universal life insurance policy issued by
Farmers New World Life Insurance Company. They also may be
available through other select variable insurance products and
retirement plans. The Fund may not have been available for sale
for all products for the time period shown above. Returns do not
account for income taxes due at withdrawal or premium taxes. Based
upon the contract through which an investment in the Fund may be
made, withdrawals made prior to age 59 1/2 may be subject to a 10%
tax penalty. The Fund's performance would have been lower had the
Advisor not waived a portion of its fees or reimbursed certain
other expenses, and had the Custodian not allowed its fees to be
reduced by credits. Performance results assume reinvestment of all
capital gains and dividends.
(2) The S&P 500 Index represents an unmanaged weighted index of 500
companies. The Russell 1000 Growth Index represents the
performance of those companies in the Russell 1000 Index (the
1,000 largest companies included in the Russell 3000 Index) with
higher price-to-book ratios and higher forecasted growth values.
Effective May 1, 2003, the Russell 1000 Growth Index replaced the
S&P 500 Index because WM Advisors believes the new benchmark more
accurately reflects the Fund's performance characteristics.
Indices are unmanaged and assume reinvestment of all dividends and
distributions, but do not reflect any asset-based charges for
investment management or other expenses. Inflation is measured by
the Consumer Price Index for all urban consumers. Individuals
cannot invest directly in an index. For comparative purposes, the
benchmark's performance is shown from December 31, 1993 (Class 1
shares) and October 31, 2001 (Class 2 shares) and not from the
inception of the index.
PORTFOLIO MANAGERS: OPPENHEIMERFUNDS, JANUS CAPITAL MANAGEMENT, AND
COLUMBIA MANAGEMENT ADVISORS
The Fund combines the expertise of three large-cap growth fund managers:
OppenheimerFunds, Janus Capital Management, and Columbia Management
Advisors. WM Advisors sets the Fund's general investment process and
determines the asset proportions to be guided by each subadvisor. The
three subadvisors in turn provide additional expertise and complementary
styles of large-cap growth investment management.
PERFORMANCE REVIEW
The WM VT GROWTH FUND took advantage of a broad-based equity market
rally and posted a total return of 29.18% for the year ended December
31, 2003. The Fund performed in line with its benchmark, which advanced
29.75% for the period.(2) (All Fund performance described above is for
Class 1 shares.)
WHAT WERE THE MOST SIGNIFICANT FACTORS CONTRIBUTING TO THE FUND'S
PERFORMANCE OVER THE YEAR ENDED DECEMBER 31, 2003?
Oppenheimer cites its positions in cyclical stocks poised for renewed
growth from sectors such as consumer discretionary and technology as the
period's key performance drivers. These included firms such as Intel
Corp. (+106%), Cisco Systems (+85%), and Dell (+27%). Managers also
identified attractive investments among consumer discretionary stocks in
such areas as media, leisure, and other forms of entertainment. The
Fund's holdings among cruise ship operators, such as Royal Caribbean
Cruises Ltd. (+108%) and Carnival Corp. (+59%) appreciated in response
to stronger demand and steady growth. The Fund's performance was also
helped by cable service providers, such as Comcast Corp. (+39%), media
companies such as Time Warner (+37%), and several retailers.
12
Conversely, Viacom (+9%), one of the Fund's larger holdings, rose more
modestly than other media holdings.
The biggest contributor to Janus' portion of the portfolio was Internet
giant Yahoo! (+175%). Other strong performers within information
technology included Cisco Systems, which Janus also held, and Computer
Associates (+103%). Meanwhile, Liberty Media (+33%), which holds a broad
array of media assets spanning both content and distribution, and
storage and software producer Veritas Software also logged strong
results. Several of Janus' selected stocks did experience headwinds
during the period, including aerospace and defense contractor Lockheed
Martin and consumer products manufacturer Colgate Palmolive.
Columbia cites its overweighting in the consumer discretionary sector as
well as exposure to some of the higher-growth areas of the market as key
performance determinants. Strong performers in the consumer
discretionary sector include Chico's, a private label retailer that was
purchased during the period, and home improvement retailer Lowe's
(+48%). While good sector weightings in consumer discretionary, consumer
staples and health care contributed positively, there was some relative
weakness within the information technology sector.
WERE THERE ANY SHIFTS IN THE FUND'S PORTFOLIO HOLDINGS/SECTORS THAT HAVE
HAD A SIGNIFICANT IMPACT ON PERFORMANCE?
By the end of the period, Oppenheimer had nearly doubled its allocation
to the health care sector. It sold some holdings within the sector on
valuation concerns, but it replaced those positions with what they
believed to be other, more reasonably priced biotechnology, medical
device, and generic drug stocks. Oppenheimer also trimmed the Fund's
weighting in financials, especially among housing and mortgage-related
stocks. These assets included Countrywide Financial Corp. and Freddie
Mac, which enjoyed sizeable gains within the favorable interest rate
environment. Additionally, Oppenheimer built on positions in the
industrial/capital goods sector. It believes that there are significant
opportunities within this sector following three years of a capital-
spending drought. Overall, given the sharp appreciation in many holdings
and Oppenheimer's valuation-sensitive discipline, this subadvisor
continues to trade up and round out existing positions while seeking new
opportunities.
With key data and other evidence pointing to an improving business
environment, Janus increased its portfolio's growth bias, an area that
performed strongly during the period. It also maintained a strict sell
discipline as it managed individual positions in light of each company's
risk profile and valuation. The positions that were trimmed or sold
during the period were the result of efforts to reduce risk and realize
gains. In turn, Janus redeployed some of those assets in what it
considers to be companies that are more tuned in to an improving
economic picture. Information technology was by far the most significant
contributor to absolute performance. The consumer discretionary area
also boosted results. Meanwhile, investments in the industrials and
consumer staples sectors were its two weakest performing groups.
Columbia tactically selected weightings in consumer discretionary and
other cyclical issues during the period. It based these decisions on the
economic recovery, which has been bolstered by low interest rates and
fiscal stimulus. Its overweighting in the consumer discretionary sector
is due to the potential for improved economic conditions that would
support a 2004 rebound in retail and advertising. Columbia also
increased the technology weighting, but the positions have not yet
realized the full benefits from increased business spending. Industrials
and materials have been underweighted but going forward it expects to
increase holdings in these sectors as these companies should benefit
from a global economic expansion.
WHAT IS THE OUTLOOK FOR BOTH THE FUND AND THE OVERALL ECONOMY?
Oppenheimer sees favorable prospects for the U.S. economy based on
factors that include improvements in capital spending, industrial
production, and increases in manufacturing activity. Inflation and
interest rates near historical lows have also set the stage for further
business growth. Within this environment, Oppenheimer's investment style
remains focused on a company-by-company approach with a greater emphasis
on stocks it believes are most likely to be among beneficiaries of these
improving economic fundamentals. It allocates assets among a broadly
based portfolio of stocks that it believes offer good prospects for
growth at a reasonable price.
Janus feels that the upcoming earnings season will be telling in terms
of whether recent market gains are justified by a meaningful rise in
earnings. Growth in earnings could also support the premise that an
economic recovery is indeed underway. Janus is also paying close
attention to the possible effects on business fundamentals from energy
prices, the 2004 election, and the weak U.S. dollar. Janus stresses its
focus on the big picture, but credits its detailed financial modeling
and creative research as the sources of its edge in selecting individual
companies.
In Columbia's view, economic growth continues to strengthen, corporate
earnings are recovering and the labor market appears to have stabilized.
It continues to emphasize a top-down approach to evaluate the market
environment, coupled with bottom-up research on companies with strong
earnings growth, solid competitive positions, and reasonable valuations.
It maintains a positive outlook going forward, but is carefully
monitoring the investment environment for events that could erode
business and consumer confidence and jeopardize the recovery.
<FN>
(3) Allocation percentages are based on total investment value of the
portfolio as of 12/31/03. Differences from financial statements
are a result of a consolidation of industries or sectors.
Note: Performance information provided for individual securities held
within the Fund represents performance for the year ended 12/31/03. The
Fund may not have held these securities throughout the entire period.
The economic and financial market analysis represents the opinions of
the Portfolio Manager and/or WM Advisors Inc., and it should not be
considered investment advice. No forecast based on the opinions
expressed can be guaranteed, and they may be subject to change without
notice.
Portfolio Composition as of December 31, 2003(3)
[pie chart]
Other 1%
Materials 2%
Cash Equivalents 5%
Energy 5%
Consumer Staples 6%
Industrials 10%
Financials 11%
Health Care 15%
Consumer Discretionary 18%
Information Technology 27%
13
[PHOTO] Small Cap Stock Fund
[Value of a $10,000 Investment (Class 1 shares)(1)
[graph]
- -------------------------------------------------------------------------------------------
SMALL CAP
Russell 2K
Inflation Russ 2K Growth Index
DATE Fund Grth 10K Grth 10K Grth 10K
- -------------------------------------------------------------------------------------------
Dec-93 $10,000
Jan-94 $10,070 $10,000 $10,000 $10,000
Feb-94 $10,160 $10,034 $9,964 $9,956
Mar-94 $9,950 $10,068 $9,439 $9,345
Apr-94 $9,720 $10,082 $9,495 $9,359
May-94 $9,800 $10,089 $9,388 $9,149
Jun-94 $9,530 $10,124 $9,072 $8,758
Jul-94 $9,880 $10,151 $9,221 $8,883
Aug-94 $10,350 $10,192 $9,734 $9,535
Sep-94 $10,520 $10,219 $9,701 $9,575
Oct-94 $11,010 $10,226 $9,662 $9,676
Nov-94 $10,240 $10,239 $9,272 $9,284
Dec-94 $10,530 $10,239 $9,520 $9,504
Jan-95 $10,530 $10,280 $9,401 $9,310
Feb-95 $10,830 $10,322 $9,792 $9,740
Mar-95 $10,790 $10,356 $9,959 $10,024
Apr-95 $10,630 $10,390 $10,180 $10,175
May-95 $10,630 $10,411 $10,355 $10,308
Jun-95 $11,454 $10,431 $10,893 $11,018
Jul-95 $12,267 $10,431 $11,520 $11,876
Aug-95 $12,659 $10,459 $11,759 $12,022
Sep-95 $13,261 $10,479 $11,969 $12,270
Oct-95 $12,789 $10,514 $11,434 $11,666
Nov-95 $13,010 $10,507 $11,914 $12,181
Dec-95 $13,793 $10,499 $12,229 $12,451
Jan-96 $13,592 $10,561 $12,215 $12,348
Feb-96 $14,375 $10,595 $12,596 $12,911
Mar-96 $15,319 $10,650 $12,853 $13,167
Apr-96 $15,771 $10,692 $13,541 $14,178
May-96 $16,423 $10,712 $14,075 $14,905
Jun-96 $15,808 $10,718 $13,496 $13,936
Jul-96 $13,836 $10,739 $12,318 $12,235
Aug-96 $14,951 $10,759 $13,034 $13,140
Sep-96 $15,539 $10,794 $13,543 $13,817
Oct-96 $15,095 $10,828 $13,335 $13,221
Nov-96 $15,240 $10,849 $13,884 $13,589
Dec-96 $15,178 $10,849 $14,248 $13,854
Jan-97 $14,672 $10,883 $14,533 $14,200
Feb-97 $14,311 $10,917 $14,180 $13,342
Mar-97 $13,309 $10,944 $13,510 $12,401
Apr-97 $13,381 $10,958 $13,548 $12,257
May-97 $14,920 $10,951 $15,055 $14,099
Jun-97 $15,678 $10,964 $15,700 $14,577
Jul-97 $15,765 $10,977 $16,431 $15,323
Aug-97 $15,929 $10,998 $16,807 $15,783
Sep-97 $16,990 $11,026 $18,037 $17,042
Oct-97 $16,707 $11,053 $17,245 $16,018
Nov-97 $16,860 $11,047 $17,133 $15,637
Dec-97 $17,090 $11,033 $17,433 $15,646
Jan-98 $16,903 $11,054 $17,158 $15,438
Feb-98 $18,379 $11,075 $18,425 $16,801
Mar-98 $19,166 $11,096 $19,185 $17,507
Apr-98 $19,045 $11,116 $19,290 $17,614
May-98 $17,668 $11,136 $18,250 $16,335
Jun-98 $17,721 $11,150 $18,289 $16,502
Jul-98 $16,443 $11,163 $16,809 $15,124
Aug-98 $12,937 $11,176 $13,545 $11,633
Sep-98 $14,064 $11,190 $14,605 $12,813
Oct-98 $15,128 $11,217 $15,201 $13,482
Nov-98 $16,748 $11,217 $15,998 $14,528
Dec-98 $18,444 $11,210 $16,988 $15,843
Jan-99 $18,241 $11,237 $17,214 $16,555
Feb-99 $16,532 $11,250 $15,820 $15,041
Mar-99 $16,443 $11,284 $16,066 $15,576
Apr-99 $17,176 $11,367 $17,506 $16,951
May-99 $18,391 $11,367 $17,762 $16,979
Jun-99 $19,858 $11,367 $18,564 $17,873
Jul-99 $20,436 $11,401 $18,056 $17,321
Aug-99 $20,091 $11,428 $17,388 $16,673
Sep-99 $20,487 $11,483 $17,391 $16,995
Oct-99 $21,525 $11,504 $17,461 $17,430
Nov-99 $24,924 $11,510 $18,503 $19,272
Dec-99 $31,554 $11,510 $20,598 $22,668
Jan-00 $33,961 $11,538 $20,266 $22,457
Feb-00 $45,342 $11,606 $23,612 $27,683
Mar-00 $40,264 $11,701 $22,056 $24,774
Apr-00 $32,146 $11,708 $20,728 $22,272
May-00 $29,523 $11,715 $19,520 $20,321
Jun-00 $36,207 $11,783 $21,222 $22,946
Jul-00 $34,535 $11,803 $20,539 $20,980
Aug-00 $38,143 $11,817 $22,106 $23,187
Sep-00 $35,714 $11,879 $21,456 $22,034
Oct-00 $33,389 $11,899 $20,499 $20,245
Nov-00 $28,073 $11,906 $18,396 $16,569
Dec-00 $28,214 $11,899 $19,976 $17,583
Jan-01 $32,615 $11,974 $21,017 $19,005
Feb-01 $26,350 $12,022 $19,638 $16,399
Mar-01 $22,090 $12,050 $18,678 $14,909
Apr-01 $25,364 $12,098 $20,138 $16,734
May-01 $27,035 $12,152 $20,634 $17,122
Jun-01 $30,126 $12,173 $21,345 $17,589
Jul-01 $25,231 $12,139 $20,191 $16,089
Aug-01 $23,499 $12,139 $19,538 $15,085
Sep-01 $17,651 $12,193 $16,909 $12,652
Oct-01 $19,817 $12,152 $17,898 $13,869
Nov-01 $22,720 $12,131 $19,283 $15,027
Dec-01 $24,626 $12,084 $20,473 $15,963
Jan-02 $22,136 $12,112 $20,260 $15,395
Feb-02 $19,732 $12,160 $19,705 $14,399
Mar-02 $22,309 $12,228 $21,289 $15,650
Apr-02 $19,168 $12,297 $21,483 $15,312
May-02 $16,937 $12,297 $20,529 $14,416
Jun-02 $15,504 $12,304 $19,511 $13,194
Jul-02 $12,753 $12,318 $16,565 $11,166
Aug-02 $12,232 $12,358 $16,522 $11,160
Sep-02 $11,473 $12,379 $15,335 $10,354
Oct-02 $12,825 $12,400 $15,828 $10,878
Nov-02 $14,674 $12,400 $17,239 $11,956
Dec-02 $13,015 $12,373 $16,279 $11,131
Jan-03 $13,181 $12,428 $15,828 $10,829
Feb-03 $12,588 $12,523 $15,350 $10,540
Mar-03 $12,374 $12,598 $15,548 $10,699
Apr-03 $13,725 $12,571 $17,022 $11,711
May-03 $16,191 $12,551 $18,849 $13,031
Jun-03 $16,451 $12,564 $19,190 $13,282
Jul-03 $17,683 $12,578 $20,391 $14,286
Aug-03 $18,656 $12,626 $21,325 $15,053
Sep-03 $18,775 $12,668 $20,930 $14,672
Oct-03 $21,241 $12,654 $22,689 $15,940
Nov-03 $21,714 $12,620 $23,494 $16,460
Dec-03 $22,307 $12,596 $23,971 $16,534
==============================================================================
Average Annual Total Returns as of 12/31/03(1)
CLASS 1 SHARES 1 Year 5 Year Since Inception
(January 12, 1994)
Small Cap Stock Fund(1) 71.40% 3.88% 8.38%
-----------------------------------------------------------------------------
Russell 2000 Growth Index(2) 48.54% 0.86% 5.20%
-----------------------------------------------------------------------------
Russell 2000 Index(2) 47.25% 7.13% 9.21%
==============================================================================
CLASS 2 SHARES 1 Year 5 Year Since Inception
(May 1, 2001)
Small Cap Stock Fund(1) 70.93% N/A -4.91%
-----------------------------------------------------------------------------
Russell 2000 Growth Index(2) 48.54% N/A -0.45%
-----------------------------------------------------------------------------
Russell 2000 Index(2) 47.25% N/A 6.75%
==============================================================================
To obtain more current Fund performance, including the most recent
month-end performance, call (800) 222-5852.
NOTE: INTERNATIONAL INVESTING INVOLVES INCREASED RISKS DUE TO CURRENCY
FLUCTUATIONS, POLITICAL OR SOCIAL INSTABILITY, AND DIFFERENCES IN
ACCOUNTING STANDARDS. THERE MAY BE ADDITIONAL RISKS ASSOCIATED WITH
EMERGING MARKETS. PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.
Investment returns and unit value of an investment will fluctuate, and
an investor's units when redeemed may be worth more or less than their
original cost. Investing in securities underlying a variable annuity
involves risk.
<FN>
(1) Performance shown above represents performance of the WM Variable
Trust Funds (Class 1 shares) and does not account for fees,
expenses, and charges of any variable annuity contract. If these
fees had been reflected, performance would have been lower. The
performance of Class 2 shares is lower than what is shown on the
graph above for Class 1 shares, based on the differences in fees
paid by Class 2 shareholders. The WM Variable Trust Funds may not
be purchased directly but are currently available through the WM
Strategic Asset Manager and WM Advantage variable annuities issued
by American General Life. They are also available through the WM
Diversified Strategies and WM Diversified StrategiesIII variable
annuities issued by AIG SunAmerica Life Assurance Company, the WM
Diversified StrategiesIII (New York) variable annuity issued by
First SunAmerica Life Insurance Company, and the WM
LifeAccumulator variable universal life insurance policy issued by
Farmers New World Life Insurance Company. They also may be
available through other select variable insurance products and
retirement plans. The Fund may not have been available for sale
for all products for the time period shown above. Returns do not
account for income taxes due at withdrawal or premium taxes. Based
upon the contract through which an investment in the Fund may be
made, withdrawals made prior to age 59 1/2 may be subject to a 10%
tax penalty. The Fund's performance would have been lower had the
Advisor not waived a portion of its fees or reimbursed certain
other expenses, and had the Custodian not allowed its fees to be
reduced by credits. Performance results assume reinvestment of all
capital gains and dividends.
(2) The Russell 2000 Index represents the 2,000 smallest companies
included in the Russell 3000 Index and is used to measure the
small-cap market. The Russell 2000 Growth Index measures the
performance of those companies in the Russell 2000 Index with
higher price-to-book ratios and higher forecasted growth values.
Effective May 1, 2003, the Russell 2000 Growth Index replaced the
Russell 2000 Index because WM Advisors believes the new benchmark
more accurately reflects the Fund's performance characteristics.
Indices are unmanaged and assume reinvestment of all dividends and
distributions, but do not reflect any asset-based charges for
investment management or other expenses. Inflation is measured by
the Consumer Price Index for all urban consumers. Individuals
cannot invest directly in an index. For comparative purposes, the
benchmark's performance is shown from January 31, 1994 (Class 1
shares) and April 30, 2001 (Class 2 shares) and not from the
inception of the index.
PORTFOLIO MANAGER: LINDA C. OLSON
WM ADVISORS, INC.
The Fund is managed by an equity team led by Linda C. Olson, Senior
Portfolio Manager of WM Advisors, Inc. Ms. Olson holds the Chartered
Financial Analyst designation, and she is a Certified Financial Planner.
She joined WM Advisors in 1997 and has investment experience dating back
to 1983. Ms. Olson graduated magna cum laude from the University of
Washington and has participated in the Wharton Executive Education
program.
PERFORMANCE REVIEW
For the year ended December 31, 2003, the WM VT SMALL CAP STOCK FUND
posted very strong results on both an absolute and a relative basis. For
the period, the Fund generated a total return of 71.40%. These results
significantly outpaced those of its benchmark, the Russell 2000 Growth
Index, which advanced 48.54%.(2) (All Fund performance described above is
for Class 1 shares.) However, we believe that market conditions are such
that it would not be reasonable to expect Fund performance in the
upcoming year to match that of the year just completed.
WHAT WERE THE MOST SIGNIFICANT FACTORS CONTRIBUTING TO THE FUND'S
PERFORMANCE OVER THE YEAR ENDED DECEMBER 31, 2003?
A sharp turnaround in the technology sector characterized the period,
and the Fund benefited from its overweighting in small-cap technology
positions. Market sentiment experienced a turnaround over the course of
the past year as well. Throughout most of 2002, investors were extremely
risk averse and assets with higher degrees of perceived risk struggled
considerably. This trend reversed in October of that year. Investors'
appetite for risk increased, and the asset classes that had suffered the
most through the downturn began to lead the
14
recovery. This was definitely the case for small-cap growth stocks, and
it was particularly true in the technology sector. Although geopolitical
uncertainty derailed the rally in early 2003, small-cap stocks recovered
to post very strong results over the remainder of the period.
Just as investors overzealously invested in emerging companies during
the late-1990s boom, they quickly dumped these firms during the downturn
that followed from 2000 through 2002. Many of these emerging companies
went out of business, but the ones that were able to continue operations
and grow to profitability were amply rewarded in 2003. The overall
market advance was supported by a global economic recovery on the heels
of significant worldwide monetary stimulus. Technology spending re-
emerged, and capital expenditures climbed above the significant lows of
the past few years. However, the employment picture has remained
relatively weak. Prevailing overcapacity issues may need to be worked
through before firms will make strong hiring commitments. Yet, the
period's bump in spending certainly helped small-cap technology firms.
The Fund benefited from both strong stock selection and favorable sector
allocations. Its overweighting in the technology sector and very strong
performance from these holdings accounted for a large portion of the
Fund's advance over its benchmark. The Fund's positions within the
sector outpaced the market as well. For example, Primus Knowledge
Solutions (+1398%) skyrocketed after suffering alongside its entire
industry during the past few years. The firm provides software
applications to improve customer service. Once it reached profitability,
investors bid its stock price up quickly. Corillian (+597%) is a
technology solutions provider for financial services firms and was one
of the strongest contributors to Fund results. Lionbridge Technologies
(+392%) benefited from weakening competition and a well-executed plan.
It specializes in software testing and localization, as well as
translation of software and Internet applications. Another strong
performer was Click2Learn (+180%), which focuses on software on-line
learning and training. These products were not a priority for firms
during the cost-cutting of recent years. As many of its competitors
struggled and went out of business, Click2Learn merged with one of its
competitors and is now emerging as a leader in its industry.
Biotechnology positions also contributed to overall results. This sector
benefited from the shift in market preferences back to riskier assets,
as well as the appointment of a new commissioner of the Food and Drug
Administration (FDA). The new FDA regime has been somewhat more prone to
approval of new products than the prior administration and
pharmaceutical firms have benefited. Dendreon (+52%) was a strong
contributor to overall performance. It is currently developing a vaccine
for prostate cancer.
Despite the very strong overall performance, not all Fund holdings
advanced during the period. Onyx Software (-35%) was impacted by an
over-extension in real estate spending as the firm struggled to match
capacity and growth during the boom and subsequent downturn. We still
believe in their product and continue to hold the stock in the
portfolio. In addition, Corixa (-5%) suffered as lackluster sales of a
competitor's drug helped to push its market segment lower. First
Consulting Group (-2%), which has been a small Fund holding for quite
some time, struggled this year despite the sharp rally in small-cap
stocks.
WERE THERE ANY SHIFTS IN THE FUND'S PORTFOLIO HOLDINGS/SECTORS THAT HAVE
HAD A SIGNIFICANT IMPACT ON PERFORMANCE?
A major initiative during the year was the process of trimming positions
that had done very well and become richly valued. Some firms also
advanced so quickly that they represented too large a relative position
in the Fund's portfolio. Such gains led us to lock in profits and seek
other opportunities in the market.
Currently, we are slowly reducing the overweighting in technology-based
sectors relative to the Russell 2000 Growth Index, which is comprised of
roughly 30% technology stocks. This process funded the addition of some
consumer stocks, such as retailer AnnTaylor Stores, which performed well
in 2003. We will continue to methodically trim technology positions that
have become fairly valued and use the profits to spread out overall
sector allocations.
WHAT IS THE OUTLOOK FOR BOTH THE FUND AND THE OVERALL ECONOMY?
Equity market conditions have dramatically improved over the past 12
months. There continues to be positive news in the small-cap arena, but
we are carefully watching valuations and market sentiment. With memories
of difficult market performance fresh in investors' minds, sentiment can
change abruptly if fundamentals fail to support the quick market
advance. We do not believe that the hyper-rebound in the small-cap arena
can continue at its current pace. Historically, small-cap growth stocks
have led the early stages of a market recovery. Market scrutiny may now
focus on whether or not firms can continue to increase capital
investment or build sustainable profits and earnings. We will continue
to scour the small-cap market for emerging companies that have a strong
management team, and which we believe will be leaders in their
respective markets.
<FN>
(3) Allocation percentages are based on total investment value of the
portfolio as of 12/31/03. Differences from financial statements
are a result of a consolidation of industries or sectors.
(4) Represents an industry within the Information Technology sector
which accounted for 34% of the Fund's total net assets as of
12/31/03.
Note: Performance information provided for individual securities held
within the Fund represents performance for the year ended 12/31/03. The
Fund may not have held these securities throughout the entire period.
The economic and financial market analysis represents the opinions of
the Portfolio Manager and/or WM Advisors Inc., and it should not be
considered investment advice. No forecast based on the opinions
expressed can be guaranteed, and they may be subject to change without
notice.
Portfolio Composition as of December 31, 2003(3)
[pie chart]
Materials 1%
Computers & Peripherals(4) 1%
Telecommunication Services 1%
IT Services(4) 2%
Communications Equipment(4) 3%
Cash & Other 3%
Electronic Equipment(4) 3%
Energy 4%
Consumer Staples 4%
Semiconductors(4) 4%
Financials 9%
Industrials 10%
Internet Software & Services(4) 10%
Software(4) 11%
Consumer Discretionary 14%
Health Care 20%
15
[PHOTO] International Growth Fund
Value of a $10,000 Investment (Class 1 shares)(1)
[graph]
- ------------------------------------------------------------------------------------
INTERNATIONAL GROWTH
EAFE
Inflation Index
DATE Fund Grth 10K Grth 10K
- ------------------------------------------------------------------------------------
Dec-93 $10,000 $10,000 $10,000
Jan-94 $10,752 $10,027 $10,848
Feb-94 $10,513 $10,061 $10,820
Mar-94 $10,141 $10,095 $10,356
Apr-94 $10,469 $10,109 $10,798
May-94 $10,513 $10,117 $10,738
Jun-94 $10,419 $10,151 $10,893
Jul-94 $10,668 $10,178 $11,000
Aug-94 $10,827 $10,219 $11,263
Sep-94 $10,490 $10,247 $10,910
Oct-94 $10,712 $10,254 $11,276
Nov-94 $10,295 $10,267 $10,737
Dec-94 $10,188 $10,267 $10,806
Jan-95 $9,745 $10,308 $10,394
Feb-95 $9,638 $10,349 $10,367
Mar-95 $9,851 $10,384 $11,017
Apr-95 $10,144 $10,418 $11,434
May-95 $10,206 $10,439 $11,300
Jun-95 $10,072 $10,460 $11,105
Jul-95 $10,592 $10,460 $11,799
Aug-95 $10,422 $10,487 $11,352
Sep-95 $10,494 $10,508 $11,577
Oct-95 $10,323 $10,542 $11,269
Nov-95 $10,413 $10,535 $11,585
Dec-95 $10,861 $10,528 $12,054
Jan-96 $11,211 $10,590 $12,106
Feb-96 $11,175 $10,624 $12,150
Mar-96 $11,292 $10,679 $12,411
Apr-96 $11,453 $10,721 $12,775
May-96 $11,435 $10,741 $12,542
Jun-96 $11,534 $10,747 $12,616
Jul-96 $11,016 $10,768 $12,250
Aug-96 $11,143 $10,788 $12,280
Sep-96 $11,416 $10,823 $12,609
Oct-96 $11,325 $10,857 $12,483
Nov-96 $11,861 $10,878 $12,982
Dec-96 $11,843 $10,878 $12,819
Jan-97 $11,898 $10,913 $12,372
Feb-97 $11,970 $10,947 $12,578
Mar-97 $11,870 $10,974 $12,627
Apr-97 $12,116 $10,987 $12,696
May-97 $12,852 $10,981 $13,525
Jun-97 $13,412 $10,994 $14,275
Jul-97 $13,826 $11,007 $14,509
Aug-97 $12,631 $11,028 $13,428
Sep-97 $13,308 $11,055 $14,183
Oct-97 $11,888 $11,083 $13,096
Nov-97 $11,513 $11,076 $12,965
Dec-97 $11,531 $11,063 $13,082
Jan-98 $11,653 $11,084 $13,684
Feb-98 $12,425 $11,105 $14,565
Mar-98 $13,102 $11,126 $15,016
Apr-98 $13,431 $11,146 $15,138
May-98 $13,327 $11,166 $15,068
Jun-98 $12,904 $11,180 $15,186
Jul-98 $12,967 $11,193 $15,344
Aug-98 $11,242 $11,207 $13,446
Sep-98 $10,668 $11,220 $13,037
Oct-98 $11,221 $11,247 $14,399
Nov-98 $11,849 $11,247 $15,141
Dec-98 $12,131 $11,240 $15,742
Jan-99 $12,287 $11,267 $15,700
Feb-99 $11,911 $11,281 $15,329
Mar-99 $12,402 $11,315 $15,973
Apr-99 $12,872 $11,397 $16,623
May-99 $12,349 $11,397 $15,770
Jun-99 $13,194 $11,397 $16,388
Jul-99 $13,780 $11,431 $16,880
Aug-99 $13,989 $11,459 $16,946
Sep-99 $14,303 $11,514 $17,120
Oct-99 $14,962 $11,535 $17,766
Nov-99 $16,123 $11,541 $18,388
Dec-99 $18,433 $11,541 $20,041
Jan-00 $17,493 $11,569 $18,770
Feb-00 $18,132 $11,637 $19,279
Mar-00 $18,571 $11,733 $20,031
Apr-00 $17,703 $11,740 $18,981
May-00 $16,825 $11,747 $18,522
Jun-00 $17,810 $11,815 $19,250
Jul-00 $16,857 $11,835 $18,447
Aug-00 $17,204 $11,849 $18,611
Sep-00 $15,850 $11,911 $17,709
Oct-00 $15,135 $11,931 $17,294
Nov-00 $14,528 $11,938 $16,649
Dec-00 $14,777 $11,931 $17,245
Jan-01 $15,134 $12,006 $17,236
Feb-01 $13,813 $12,054 $15,945
Mar-01 $13,110 $12,082 $14,890
Apr-01 $14,323 $12,130 $15,934
May-01 $13,717 $12,185 $15,384
Jun-01 $13,079 $12,206 $14,761
Jul-01 $12,675 $12,172 $14,494
Aug-01 $12,271 $12,172 $14,130
Sep-01 $10,747 $12,226 $12,701
Oct-01 $11,270 $12,185 $13,027
Nov-01 $11,960 $12,164 $13,507
Dec-01 $12,150 $12,117 $13,588
Jan-02 $11,591 $12,145 $12,867
Feb-02 $11,698 $12,193 $12,958
Mar-02 $12,411 $12,261 $13,666
Apr-02 $12,399 $12,330 $13,764
May-02 $12,446 $12,330 $13,951
Jun-02 $11,828 $12,337 $13,402
Jul-02 $10,649 $12,351 $12,080
Aug-02 $10,493 $12,392 $12,056
Sep-02 $9,386 $12,413 $10,765
Oct-02 $10,144 $12,434 $11,344
Nov-02 $10,782 $12,434 $11,860
Dec-02 $10,241 $12,407 $11,463
Jan-03 $9,831 $12,461 $10,985
Feb-03 $9,602 $12,557 $10,733
Mar-03 $9,289 $12,632 $10,530
Apr-03 $10,204 $12,605 $11,575
May-03 $10,782 $12,585 $12,287
Jun-03 $11,035 $12,598 $12,590
Jul-03 $11,462 $12,612 $12,897
Aug-03 $11,804 $12,660 $13,211
Sep-03 $12,011 $12,702 $13,620
Oct-03 $12,840 $12,688 $14,470
Nov-03 $13,011 $12,654 $14,794
Dec-03 $13,876 $12,630 $15,951
=================================================================================================
Average Annual Total Returns as of 12/31/03(1)
CLASS 1 SHARES 1 Year 5 Year 10 Year
International Growth Fund(1) 35.51% 2.73% 3.33%
------------------------------------------------------------------------------------------------
Morgan Stanley Capital International EAFE Index(2) 39.17% 0.26% 4.78%
=================================================================================================
CLASS 2 SHARES 1 Year 5 Year Since Inception
(November 6, 2001)
International Growth Fund(1) 35.10% N/A 8.25%
------------------------------------------------------------------------------------------------
Morgan Stanley Capital International EAFE Index(2) 39.17% N/A 9.79%
=================================================================================================
To obtain more current Fund performance, including the most recent
month-end performance, call (800) 222-5852.
NOTE: INTERNATIONAL INVESTING INVOLVES INCREASED RISKS DUE TO CURRENCY
FLUCTUATIONS, POLITICAL OR SOCIAL INSTABILITY, AND DIFFERENCES IN
ACCOUNTING STANDARDS. PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE
RESULTS. Investment returns and unit value of an investment will
fluctuate, and an investor's units when redeemed may be worth more or
less than their original cost. Investing in securities underlying a
variable annuity involves risk.
<FN>
(1) Performance shown above represents performance of the WM Variable
Trust Funds (Class 1 shares) and does not account for fees,
expenses, and charges of any variable annuity contract. If these
fees had been reflected, performance would have been lower. The
performance of Class 2 shares is lower than what is shown on the
graph above for Class 1 shares, based on the differences in fees
paid by Class 2 shareholders. The WM Variable Trust Funds may not
be purchased directly but are currently available through the WM
Strategic Asset Manager and WM Advantage variable annuities issued
by American General Life. They are also available through the WM
Diversified Strategies and WM Diversified StrategiesIII variable
annuities issued by AIG SunAmerica Life Assurance Company, the WM
Diversified StrategiesIII (New York) variable annuity issued by
First SunAmerica Life Insurance Company, and the WM
LifeAccumulator variable universal life insurance policy issued by
Farmers New World Life Insurance Company. They also may be
available through other select variable insurance products and
retirement plans. The Fund may not have been available for sale
for all products for the time period shown above. Returns do not
account for income taxes due at withdrawal or premium taxes. Based
upon the contract through which an investment in the Fund may be
made, withdrawals made prior to age 59 1/2 may be subject to a 10%
tax penalty. The Fund's performance would have been lower had the
Advisor not waived a portion of its fees or reimbursed certain
other expenses, and had the Custodian not allowed its fees to be
reduced by credits. Performance results assume reinvestment of all
capital gains and dividends.
(2) The Morgan Stanley Capital International (MSCI) EAFE Index is a
broad-based unmanaged index of equity markets representing 21
countries. It includes the stock markets of Europe, Australasia,
and the Far East weighted by capitalization. It assumes
reinvestment of all dividends and distributions, but it does not
reflect any asset-based charges for investment management or other
expenses. Inflation is measured by the Consumer Price Index for
all urban consumers. Individuals cannot invest directly in an
index. For comparative purposes, the benchmark's performance is
shown from December 31, 1993 (Class 1 shares) and October 31, 2001
(Class 2 shares) and not from the inception of the index.
PORTFOLIO MANAGER: CAPITAL GUARDIAN TRUST COMPANY
The Fund is managed by an international equity team at Capital Guardian
Trust Company. Nine portfolio managers and 30 analysts share the
management responsibilities for the Fund. The managers average over 24
years of investment experience and have been with the firm for an
average of 21 years. The firm has managed the Fund since 1999.
PERFORMANCE REVIEW
For the year ended December 31, 2003, the WM VT INTERNATIONAL GROWTH
FUND posted a total return of 35.51%. Despite the strong results, the
Fund slightly underperformed its benchmark, the MSCI EAFE Index, which
returned 39.17%.(2) Global markets advanced for much of the period and
closed it with results that outpaced domestic markets. (All Fund
performance described above is for Class 1 shares.)
WHAT WERE THE MOST SIGNIFICANT FACTORS CONTRIBUTING TO THE FUND'S
PERFORMANCE OVER THE YEAR ENDED DECEMBER 31, 2003?
The year started out with the prospect of war in Iraq as well as the
impact of higher oil prices on already fragile economic growth in
international markets. As fighting began in late March, markets
fluctuated on the latest developments. Only small markets managed slight
gains (in U.S. dollar terms). A rally took hold in international markets
during the second quarter that continued until the end of the year
coinciding with investors beginning to anticipate an improvement in the
global economy.
Better global economic growth helped the European economy during the
year,
16
although domestic demand in much of Europe was problematic. The
manufacturing sector saw marginal improvement and service activity was
also higher. The Japanese economy showed further signs of firming this
year, based largely on export growth and capital investment following
the year's rebound in corporate profits. The economies of Hong Kong and
Singapore also improved as the Pacific region continued to benefit from
strong Chinese demand.
The Fund benefited from a tremendous year for cyclical stocks such as
those in the materials and commodity-related industries. Within the
materials sector, the Fund's holdings in BHP Billiton and Nitto Denko
performed well during the period.
The portfolio's overweighted position in information technology also
helped performance during 2003. Top performers within IT were
semiconductor manufacturers Samsung and Tokyo Electron as well as
computer maker NEC Corp., software giant SAP AG and Internet software
firm Yahoo! Japan.
The industrials sector also outperformed the benchmark and contributed
to the Fund's performance during the year. Siemens AG was the top
performing industrial stock in the portfolio and also represented the
largest position held among industrial issues. Siemens benefited from
better than expected profits in the third quarter and a positive outlook
for the next fiscal year. The company has undergone a cost-cutting
program that the market appears to be responding to positively.
Performance for the year was negatively impacted by stock selection in
financials--specifically commercial banks, European and Canadian
insurance and reinsurance companies and diversified financial services.
Within the insurance and reinsurance industry, companies continued to
engage in forced selling of securities to meet solvency requirements,
which, in turn, perpetuated a vicious cycle of losses and more forced
selling. Swiss Reinsurance, Manulife, Prudential, and AEGON were four of
the top detractors in this sector during the year.
Stock selection within the telecommunication services sector was also a
detractor for the year. We believe markets had already discounted the
debt reduction efforts of many European diversified operators so their
stock prices were flat following earlier gains. It appears European
wireless and equipment holdings were also weaker on market concerns
about future growth. Media holdings underperformed as the better
industry environment we had expected took longer to materialize.
WERE THERE ANY SHIFTS IN THE FUND'S PORTFOLIO HOLDINGS/SECTORS THAT HAVE
HAD A SIGNIFICANT IMPACT ON PERFORMANCE?
There were no major shifts in portfolio strategy during the year. As
portfolios are constructed from the bottom up, there are no sector or
country shifts, other than in the context of individual firms relative
to any other companies within the investment universe.
While the portfolio retained its overall appearance throughout the year
(in terms of over- and underweightings), we added to several individual
security positions such as NEC Corporation, which became a top portfolio
holding during 2003. New names to the portfolio this year included HSBC
Holdings, Toyota Motor Corp., and Mitsubishi Corp.
WHAT IS THE OUTLOOK FOR BOTH THE FUND AND THE OVERALL ECONOMY?
We continue to identify and invest in companies that may have been
overlooked by the market in 2003's equity rally. In other cases, though,
we continue to see upside potential in some companies even after strong
stock price gains. We still find value in Europe and the Pacific Rim
and, as we have expressed before, our outlook is predicated on our
belief that high free cash flows, the payment of dividends or the
potential for higher dividends are the attributes that will be rewarded
over time.
<FN>
(3) Allocation percentages are based on total investment value of the
portfolio as of 12/31/03.
Note: Performance information provided for individual securities held
within the Fund represents performance for the year ended 12/31/03. The
Fund may not have held these securities throughout the entire period.
The economic and financial market analysis represents the opinions of
the Portfolio Manager and/or WM Advisors Inc., and it should not be
considered investment advice. No forecast based on the opinions
expressed can be guaranteed, and they may be subject to change without
notice.
Portfolio Composition as of December 31, 2003(3)
[pie chart]
Norway 2%
Singapore 2%
Australia 2%
Hong Kong 2%
Spain 3%
Canada 4%
Cash Equivalents 5%
Germany 5%
Other 7%
Switzerland 9%
Netherlands 10%
France 11%
United Kingdom 17%
Japan 21%
17
[PHOTO] Short Term Income Fund
Value of a $10,000 Investment (Class 1 shares)(1)
[graph]
- -----------------------------------------------------------------------------------------------
SHORT TERM INCOME
ML 1-3
Inflation Citigroup 1-3 Index
DATE Fund Grth 10K Grth 10K Grth 10K
- -----------------------------------------------------------------------------------------------
Dec-93 $10,000
Jan-94 $10,000 $10,000 $10,000 $10,000
Feb-94 $9,960 $10,034 $9,954 $9,935
Mar-94 $9,920 $10,068 $9,902 $9,886
Apr-94 $9,880 $10,082 $9,869 $9,849
May-94 $9,880 $10,089 $9,881 $9,863
Jun-94 $9,880 $10,124 $9,918 $9,900
Jul-94 $9,961 $10,151 $10,011 $10,001
Aug-94 $10,001 $10,192 $10,054 $10,041
Sep-94 $9,953 $10,219 $10,036 $10,024
Oct-94 $9,994 $10,226 $10,061 $10,050
Nov-94 $9,994 $10,239 $10,019 $10,010
Dec-94 $9,838 $10,239 $10,042 $10,033
Jan-95 $9,838 $10,280 $10,186 $10,173
Feb-95 $9,921 $10,322 $10,336 $10,319
Mar-95 $9,999 $10,356 $10,406 $10,398
Apr-95 $10,081 $10,390 $10,508 $10,497
May-95 $10,288 $10,411 $10,706 $10,699
Jun-95 $10,329 $10,431 $10,769 $10,765
Jul-95 $10,329 $10,431 $10,823 $10,812
Aug-95 $10,413 $10,459 $10,896 $10,851
Sep-95 $10,455 $10,479 $10,951 $10,910
Oct-95 $10,583 $10,514 $11,048 $11,010
Nov-95 $10,668 $10,507 $11,147 $11,113
Dec-95 $10,753 $10,499 $11,238 $11,207
Jan-96 $10,839 $10,561 $11,340 $11,302
Feb-96 $10,753 $10,595 $11,301 $11,265
Mar-96 $10,710 $10,650 $11,299 $11,267
Apr-96 $10,710 $10,692 $11,308 $11,281
May-96 $10,710 $10,712 $11,343 $11,309
Jun-96 $10,797 $10,718 $11,427 $11,399
Jul-96 $10,841 $10,739 $11,473 $11,451
Aug-96 $10,886 $10,759 $11,516 $11,493
Sep-96 $10,975 $10,794 $11,628 $11,603
Oct-96 $11,065 $10,828 $11,769 $11,745
Nov-96 $11,155 $10,849 $11,862 $11,845
Dec-96 $11,155 $10,849 $11,864 $11,846
Jan-97 $11,201 $10,883 $11,930 $11,905
Feb-97 $11,247 $10,917 $11,958 $11,940
Mar-97 $11,247 $10,944 $11,955 $11,953
Apr-97 $11,294 $10,958 $12,052 $12,060
May-97 $11,387 $10,951 $12,140 $12,148
Jun-97 $11,433 $10,964 $12,231 $12,240
Jul-97 $11,575 $10,977 $12,387 $12,393
Aug-97 $11,575 $10,998 $12,392 $12,402
Sep-97 $11,670 $11,026 $12,494 $12,503
Oct-97 $11,718 $11,053 $12,574 $12,589
Nov-97 $11,766 $11,047 $12,596 $12,611
Dec-97 $11,814 $11,033 $12,678 $12,693
Jan-98 $11,862 $11,054 $12,807 $12,825
Feb-98 $11,911 $11,075 $12,824 $12,837
Mar-98 $11,940 $11,096 $12,886 $12,903
Apr-98 $11,988 $11,116 $12,956 $12,970
May-98 $12,038 $11,136 $13,032 $13,049
Jun-98 $12,087 $11,150 $13,099 $13,118
Jul-98 $12,137 $11,163 $13,168 $13,186
Aug-98 $12,236 $11,176 $13,270 $13,296
Sep-98 $12,385 $11,190 $13,449 $13,473
Oct-98 $12,436 $11,217 $13,468 $13,500
Nov-98 $12,436 $11,217 $13,512 $13,546
Dec-98 $12,436 $11,210 $13,577 $13,608
Jan-99 $12,487 $11,237 $13,665 $13,679
Feb-99 $12,436 $11,250 $13,622 $13,639
Mar-99 $12,538 $11,284 $13,741 $13,766
Apr-99 $12,589 $11,367 $13,805 $13,824
May-99 $12,538 $11,367 $13,787 $13,808
Jun-99 $12,585 $11,367 $13,829 $13,848
Jul-99 $12,585 $11,401 $13,850 $13,882
Aug-99 $12,637 $11,428 $13,886 $13,897
Sep-99 $12,737 $11,483 $13,992 $14,011
Oct-99 $12,737 $11,504 $14,038 $14,060
Nov-99 $12,789 $11,510 $14,084 $14,098
Dec-99 $12,794 $11,510 $14,121 $14,139
Jan-00 $12,794 $11,538 $14,131 $14,137
Feb-00 $12,902 $11,606 $14,235 $14,241
Mar-00 $12,923 $11,701 $14,308 $14,325
Apr-00 $12,978 $11,708 $14,305 $14,320
May-00 $12,978 $11,715 $14,351 $14,360
Jun-00 $13,114 $11,783 $14,529 $14,531
Jul-00 $13,224 $11,803 $14,648 $14,655
Aug-00 $13,334 $11,817 $14,775 $14,769
Sep-00 $13,427 $11,879 $14,920 $14,909
Oct-00 $13,484 $11,899 $14,926 $14,906
Nov-00 $13,651 $11,906 $15,066 $15,053
Dec-00 $13,847 $11,899 $15,249 $15,214
Jan-01 $14,018 $11,974 $15,538 $15,456
Feb-01 $14,074 $12,022 $15,664 $15,570
Mar-01 $14,227 $12,050 $15,810 $15,733
Apr-01 $14,284 $12,098 $15,862 $15,774
May-01 $14,341 $12,152 $16,006 $15,905
Jun-01 $14,399 $12,173 $16,080 $15,975
Jul-01 $14,571 $12,139 $16,310 $16,210
Aug-01 $14,687 $12,139 $16,444 $16,330
Sep-01 $14,860 $12,193 $16,618 $16,539
Oct-01 $14,976 $12,152 $16,766 $16,693
Nov-01 $14,919 $12,131 $16,749 $16,656
Dec-01 $14,977 $12,084 $16,742 $16,671
Jan-02 $15,034 $12,112 $16,796 $16,691
Feb-02 $15,091 $12,160 $16,831 $16,721
Mar-02 $14,976 $12,228 $16,752 $16,658
Apr-02 $15,207 $12,297 $16,890 $16,791
May-02 $15,323 $12,297 $17,037 $16,925
Jun-02 $15,375 $12,304 $17,096 $17,015
Jul-02 $15,375 $12,318 $17,194 $17,090
Aug-02 $15,495 $12,358 $17,335 $17,216
Sep-02 $15,674 $12,379 $17,510 $17,388
Oct-02 $15,554 $12,400 $17,464 $17,362
Nov-02 $15,673 $12,400 $17,593 $17,510
Dec-02 $15,913 $12,373 $17,863 $17,759
Jan-03 $16,034 $12,428 $17,936 $17,853
Feb-03 $16,154 $12,523 $18,086 $18,012
Mar-03 $16,214 $12,598 $18,148 $18,066
Apr-03 $16,394 $12,571 $18,313 $18,221
May-03 $16,575 $12,551 $18,489 $18,390
Jun-03 $16,601 $12,564 $18,565 $18,462
Jul-03 $16,473 $12,578 $18,433 $18,357
Aug-03 $16,473 $12,626 $18,464 $18,379
Sep-03 $16,729 $12,668 $18,682 $18,614
Oct-03 $16,665 $12,654 $18,624 $18,551
Nov-03 $16,665 $12,620 $18,645 $18,562
Dec-03 $16,793 $12,596 $18,786 $18,709
=============================================================================================================================
Average Annual Total Returns as of 12/31/03(1)
CLASS 1 SHARES 1 Year 5 Year Since Inception
(January 12, 1994)
Short Term Income Fund(1) 5.52% 6.19% 5.34%
--------------------------------------------------------------------------------------------------------------------------
Citigroup Broad Investment-Grade Credit 1-3 Years Index(2) 5.16% 6.70% 6.56%
--------------------------------------------------------------------------------------------------------------------------
Merrill Lynch (1-3 yrs.) Corporate Bond Index(2) 5.33% 6.57% 6.52%
=============================================================================================================================
CLASS 2 SHARES 1 Year 5 Year Since Inception
(November 6, 2001)
Short Term Income Fund(1) 5.46% N/A 5.25%
--------------------------------------------------------------------------------------------------------------------------
Citigroup Broad Investment-Grade Credit 1-3 Years Index(2) 5.16% N/A 5.38%
--------------------------------------------------------------------------------------------------------------------------
Merrill Lynch (1-3 yrs.) Corporate Bond Index(2) 5.33% N/A 5.40%
=============================================================================================================================
To obtain more current Fund performance, including the most recent month-
end performance, call (800) 222-5852.
NOTE: THERE MAY BE ADDITIONAL CREDIT AND DEFAULT RISKS ASSOCIATED WITH
LOWER-RATED SECURITIES. PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE
RESULTS. Investment returns and unit value of an investment will
fluctuate, and an investor's units when redeemed may be worth more or
less than their original cost. Investing in securities underlying a
variable annuity involves risk.
<FN>
(1) Performance shown above represents performance of the WM Variable Trust
Funds (Class 1 shares) and does not account for fees, expenses, and
charges of any variable annuity contract. If these fees had been
reflected, performance would have been lower. The performance of Class
2 shares is lower than what is shown on the graph above for Class 1
shares, based on the differences in fees paid by Class 2 shareholders.
The WM Variable Trust Funds may not be purchased directly but are
currently available through the WM Strategic Asset Manager and WM
Advantage variable annuities issued by American General Life. They are
also available through the WM Diversified Strategies and WM Diversified
StrategiesIII variable annuities issued by AIG SunAmerica Life
Assurance Company, the WM Diversified StrategiesIII (New York) variable
annuity issued by First SunAmerica Life Insurance Company, and the WM
LifeAccumulator variable universal life insurance policy issued by
Farmers New World Life Insurance Company. They also may be available
through other select variable insurance products and retirement plans.
The Fund may not have been available for sale for all products for the
time period shown above. Returns do not account for income taxes due at
withdrawal or premium taxes. Based upon the contract through which an
investment in the Fund may be made, withdrawals made prior to age 59 1/2
may be subject to a 10% tax penalty. The Fund's performance would have
been lower had the Advisor not waived a portion of its fees or
reimbursed certain other expenses, and had the Custodian not allowed
its fees to be reduced by credits. Performance results assume
reinvestment of all capital gains and dividends.
(2) The Merrill Lynch (1-3 years) Corporate Bond Index is unmanaged and
includes all investment-grade corporate debt securities with maturities
of one to three years. The Citigroup Broad Investment-Grade Credit 1-3
Years Index measures the performance of bonds including U.S. and non-
U.S. corporate securities and non-U.S. sovereign and provincial
securities with maturities between one and three years. Effective May
1, 2003, the Citigroup Broad Investment-Grade Credit 1-3 Years Index
replaced the Merrill Lynch (1-3 Years) Corporate Bond Index because WM
Advisors believes the new benchmark more accurately reflects the Fund's
performance characteristics. Indices assume reinvestment of all
dividends and distributions, but do not reflect any asset-based charges
for investment management or other expenses. Inflation is measured by
the Consumer Price Index for all urban consumers. Individuals cannot
invest directly in an index. For comparative purposes, the benchmark's
performance is shown as of January 31, 1994 (Class 1 shares) and
October 31, 2001 (Class 2 shares) and not from the inception of the
index.
PORTFOLIO MANAGER: CRAIG V. SOSEY
WM ADVISORS, INC.
The Fund is managed by a fixed-income team led by Craig V. Sosey, Senior
Portfolio Manager of WM Advisors, Inc. Mr. Sosey joined WM Advisors in
1998, and he has banking and financial analysis experience dating back to
1983. He holds a B.S. in Finance from the University of the Pacific and
an M.B.A. from the University of California, Berkeley.
PERFORMANCE REVIEW
The WM VT SHORT TERM INCOME FUND posted a total return of 5.52% for the
year ended December 31, 2003. The Fund benefited from both a
concentration in corporate issues and falling short-term interest rates
as it outpaced the 5.16% return of its benchmark, the Citigroup Broad
Investment-Grade Credit 1-3 Years Index.(2) Although declining short-term
rates can boost overall performance, lower rates also affect the income
generated by the underlying securities in the Fund. (All Fund performance
described above is for Class 1 shares.)
WHAT WERE THE MOST SIGNIFICANT FACTORS CONTRIBUTING TO THE FUND'S
PERFORMANCE OVER THE YEAR ENDED DECEMBER 31, 2003?
Interest rates sank to historical lows as the Federal Reserve utilized a
highly accommodative monetary policy. Attempting to spur economic growth
and avoid potential deflation, the Fed cut the federal funds rate to 1%
in June, its lowest level in 45 years. Subsequently, interest rates
spiked higher in response to stronger economic growth. The yield of the
two-year Treasury actually ended the fiscal year slightly higher than
where it began. Within fixed-income classes, corporate bonds led the
market throughout the
18
period, outpacing both Treasury bonds and mortgage-backed issues.
The Fund was overweighted in corporate bond positions. These holdings
performed well all year as yield spreads between corporate and Treasury
bonds declined in response to improving balance sheets and better
economic conditions. We were a little early when we moved into corporate
bonds during 2002, but our exposure to them rewarded the Fund in 2003.
The Fund also benefited from our discerning credit research, which helped
us avoid any major corporate bond defaults. It also helped us find
attractive values that may have been overlooked by the market. For
example, our analysis of Canadian phone company TELUS led us to retain
the holding after its debt was downgraded to below investment-grade. The
Fund was rewarded after the firm returned to investment-grade status and
generated a strong return for its bondholders. We tried to take advantage
of similar situations where our credit research uncovered opportunities
missed by much of the fixed-income market. Sealed Air, a manufacturer of
materials and systems for fresh food packaging, was constrained by an
acquisition's asbestos problems, and its bond prices suffered. We were
encouraged by the company's fundamentals and were rewarded as the firm
largely worked through these issues.
WERE THERE ANY SHIFTS IN THE FUND'S PORTFOLIO HOLDINGS/SECTORS THAT HAVE
HAD A SIGNIFICANT IMPACT ON PERFORMANCE?
The yield advantage of corporate issues narrowed dramatically during the
year, driving strong performance, especially for lower-rated issues.
Currently, the yield differential between short-term AA rated and BBB
rated bonds is small. Closer to the end of the period, this led us toward
higher-rated issues that we believe carry less risk but nearly the same
yield. For example, we purchased bonds of Berkshire Hathaway and Toyota
Motor Credit, which offered AAA ratings and very competitive yield
characteristics.
Late in the period, we began to take some profits in our corporate bond
positions and shift some of these assets into mortgage-backed securities.
We believe these issues may have already seen the bulk of refinancing and
prepayment activities. We added holdings in real estate investment trusts
due to their strong yields, as well as debt restrictions and interest
coverage requirements not offered by corporate bonds.
The Fund closed the fiscal year with 96% of assets in investment-grade
securities and an average rating of A1.(3) The Fund's securities have a
weighted average maturity of just 2.5 years and a weighted average
duration (a measurement of price sensitivity to interest rate changes) of
only 2.0 years, factors that could limit the risk associated with
potentially rising interest rates.
WHAT IS THE OUTLOOK FOR BOTH THE FUND AND THE OVERALL ECONOMY?
We plan to hold the Fund's duration near the two-year range because of
the increased likelihood that short-term rates could move higher in the
wake of economic growth. Part of this strategy will rely on balancing
very short-term positions with holdings in the five-year maturity range.
The short end of the yield curve is typically the most affected by rising
interest rates. Longer-term rates have already been moving higher, and
with the Federal Reserve holding short-term rates at 1%, the difference
in yields has become steeper. This steepness can signal the market's
anticipation of potential tightening by the Federal Reserve. We will be
watching for signs of a flattening yield curve, where the difference in
yields between short- and long-term assets decreases. Inflation has yet
to surface, but the Federal Reserve could intervene if we see signs of
employment growth or any potential price pressures.
<FN>
(3) Ratings are for portfolio holdings and are provided by Moody's
Investors Service (Moody's). The ratings represent the company's
opinion of the credit quality of securities and are intended to reflect
the issuer's ability to pay back principal and interest. Allocation
percentages are based on total investment value of the portfolio as of
12/31/03. Differences from financial statements are a result of a
consolidation of industries or sectors.
Note: Performance information provided for individual securities held
within the Fund represents performance for the year ended 12/31/03. The
Fund may not have held these securities throughout the entire period. The
economic and financial market analysis represents the opinions of the
Portfolio Manager and/or WM Advisors Inc., and it should not be
considered investment advice. No forecast based on the opinions expressed
can be guaranteed, and they may be subject to change without notice.
============================================================================
Portfolio Composition as of December 31, 2003(3)
[pie chart]
Commercial Mortgage-Backed Securities 1%
CMOs 1%
U.S. Treasuries 3%
Government Agency 4%
Asset-Backed Securities 5%
Government Mortgage-Backed Securities 7%
Cash Equivalents 10%
Corporate Bonds 69%
19
[PHOTO] U.S. Government Securities Fund
Value of a $10,000 Investment (Class 1 shares)(1)
[graph]
- ------------------------------------------------------------------------------------------------------
US GOVERNMENT
Inflation LB Gov Citigroup Mortgage
DATE Fund Grth 10K Grth 10K Grth 10K
- ------------------------------------------------------------------------------------------------------
Dec-93 $10,000 $10,000 $10,000 $10,000
Jan-94 $10,129 $10,027 $10,137 $10,101
Feb-94 $9,950 $10,061 $9,922 $10,038
Mar-94 $9,701 $10,095 $9,699 $9,790
Apr-94 $9,611 $10,109 $9,622 $9,729
May-94 $9,590 $10,117 $9,610 $9,762
Jun-94 $9,575 $10,151 $9,588 $9,737
Jul-94 $9,708 $10,178 $9,764 $9,927
Aug-94 $9,708 $10,219 $9,766 $9,948
Sep-94 $9,606 $10,247 $9,628 $9,815
Oct-94 $9,585 $10,254 $9,622 $9,812
Nov-94 $9,544 $10,267 $9,604 $9,777
Dec-94 $9,596 $10,267 $9,663 $9,858
Jan-95 $9,795 $10,308 $9,843 $10,079
Feb-95 $10,037 $10,349 $10,054 $10,336
Mar-95 $10,100 $10,384 $10,117 $10,378
Apr-95 $10,228 $10,418 $10,250 $10,517
May-95 $10,581 $10,439 $10,663 $10,858
Jun-95 $10,634 $10,460 $10,745 $10,915
Jul-95 $10,613 $10,460 $10,705 $10,937
Aug-95 $10,732 $10,487 $10,831 $11,038
Sep-95 $10,786 $10,508 $10,935 $11,136
Oct-95 $10,963 $10,542 $11,101 $11,238
Nov-95 $11,150 $10,535 $11,274 $11,370
Dec-95 $11,216 $10,528 $11,434 $11,511
Jan-96 $11,317 $10,590 $11,504 $11,600
Feb-96 $11,126 $10,624 $11,269 $11,508
Mar-96 $11,082 $10,679 $11,176 $11,469
Apr-96 $11,013 $10,721 $11,104 $11,416
May-96 $10,945 $10,741 $11,085 $11,401
Jun-96 $11,070 $10,747 $11,228 $11,547
Jul-96 $11,047 $10,768 $11,256 $11,593
Aug-96 $11,047 $10,788 $11,232 $11,596
Sep-96 $11,232 $10,823 $11,418 $11,790
Oct-96 $11,490 $10,857 $11,669 $12,019
Nov-96 $11,689 $10,878 $11,872 $12,185
Dec-96 $11,630 $10,878 $11,751 $12,131
Jan-97 $11,666 $10,913 $11,764 $12,235
Feb-97 $11,714 $10,947 $11,781 $12,248
Mar-97 $11,571 $10,974 $11,656 $12,146
Apr-97 $11,716 $10,987 $11,824 $12,331
May-97 $11,837 $10,981 $11,925 $12,446
Jun-97 $11,969 $10,994 $12,059 $12,589
Jul-97 $12,277 $11,007 $12,401 $12,822
Aug-97 $12,167 $11,028 $12,278 $12,799
Sep-97 $12,351 $11,055 $12,463 $12,951
Oct-97 $12,576 $11,083 $12,678 $13,091
Nov-97 $12,589 $11,076 $12,743 $13,135
Dec-97 $12,726 $11,063 $12,877 $13,255
Jan-98 $12,890 $11,084 $13,070 $13,378
Feb-98 $12,853 $11,105 $13,035 $13,418
Mar-98 $12,864 $11,126 $13,071 $13,470
Apr-98 $12,942 $11,146 $13,130 $13,546
May-98 $13,083 $11,166 $13,265 $13,641
Jun-98 $13,199 $11,180 $13,416 $13,701
Jul-98 $13,252 $11,193 $13,436 $13,768
Aug-98 $13,488 $11,207 $13,786 $13,893
Sep-98 $13,620 $11,220 $14,158 $14,060
Oct-98 $13,687 $11,247 $14,110 $14,044
Nov-98 $13,568 $11,247 $14,114 $14,109
Dec-98 $13,622 $11,240 $14,145 $14,180
Jan-99 $13,689 $11,267 $14,227 $14,277
Feb-99 $13,554 $11,281 $13,889 $14,225
Mar-99 $13,658 $11,315 $13,943 $14,323
Apr-99 $13,712 $11,397 $13,975 $14,393
May-99 $13,602 $11,397 $13,852 $14,297
Jun-99 $13,530 $11,397 $13,824 $14,264
Jul-99 $13,488 $11,431 $13,803 $14,167
Aug-99 $13,447 $11,459 $13,803 $14,158
Sep-99 $13,670 $11,514 $13,915 $14,399
Oct-99 $13,712 $11,535 $13,938 $14,475
Nov-99 $13,740 $11,541 $13,918 $14,487
Dec-99 $13,689 $11,541 $13,828 $14,439
Jan-00 $13,604 $11,569 $13,847 $14,328
Feb-00 $13,747 $11,637 $14,044 $14,497
Mar-00 $13,877 $11,733 $14,291 $14,652
Apr-00 $13,877 $11,740 $14,251 $14,659
May-00 $13,877 $11,747 $14,259 $14,671
Jun-00 $14,141 $11,815 $14,513 $14,988
Jul-00 $14,200 $11,835 $14,654 $15,084
Aug-00 $14,391 $11,849 $14,871 $15,307
Sep-00 $14,523 $11,911 $14,912 $15,471
Oct-00 $14,613 $11,931 $15,056 $15,585
Nov-00 $14,807 $11,938 $15,352 $15,816
Dec-00 $15,024 $11,931 $15,658 $16,069
Jan-01 $15,220 $12,006 $15,816 $16,318
Feb-01 $15,342 $12,054 $15,996 $16,408
Mar-01 $15,443 $12,082 $16,052 $16,514
Apr-01 $15,428 $12,130 $15,888 $16,533
May-01 $15,490 $12,185 $15,941 $16,635
Jun-01 $15,552 $12,206 $16,014 $16,658
Jul-01 $15,829 $12,172 $16,398 $16,968
Aug-01 $15,982 $12,172 $16,602 $17,123
Sep-01 $16,212 $12,226 $16,891 $17,374
Oct-01 $16,459 $12,185 $17,326 $17,611
Nov-01 $16,274 $12,164 $16,938 $17,449
Dec-01 $16,198 $12,117 $16,791 $17,386
Jan-02 $16,321 $12,145 $16,900 $17,556
Feb-02 $16,489 $12,193 $17,056 $17,748
Mar-02 $16,290 $12,261 $16,685 $17,568
Apr-02 $16,581 $12,330 $17,083 $17,895
May-02 $16,719 $12,330 $17,185 $18,026
Jun-02 $16,851 $12,337 $17,426 $18,172
Jul-02 $17,075 $12,351 $17,809 $18,377
Aug-02 $17,251 $12,392 $18,162 $18,539
Sep-02 $17,442 $12,413 $18,587 $18,674
Oct-02 $17,458 $12,434 $18,438 $18,745
Nov-02 $17,411 $12,434 $18,279 $18,728
Dec-02 $17,634 $12,407 $18,722 $18,925
Jan-03 $17,650 $12,461 $18,675 $18,978
Feb-03 $17,777 $12,557 $18,976 $19,107
Mar-03 $17,761 $12,632 $18,921 $19,101
Apr-03 $17,825 $12,605 $19,008 $19,174
May-03 $17,937 $12,585 $19,502 $19,183
Jun-03 $17,926 $12,598 $19,400 $19,224
Jul-03 $17,507 $12,612 $18,599 $18,876
Aug-03 $17,624 $12,660 $18,703 $18,998
Sep-03 $17,943 $12,702 $19,248 $19,323
Oct-03 $17,859 $12,688 $18,974 $19,258
Nov-03 $17,875 $12,654 $18,997 $19,313
Dec-03 $18,009 $12,630 $19,166 $19,503
=============================================================================================================================
Average Annual Total Returns as of 12/31/03(1)
CLASS 1 SHARES 1 Year 5 Year 10 Year
U.S. Government Securities Fund(1) 2.14% 5.74% 6.06%
--------------------------------------------------------------------------------------------------------------------------
Citigroup Mortgage Index(2) 3.07% 6.59% 6.91%
--------------------------------------------------------------------------------------------------------------------------
Lehman Brothers Government Bond Index(2) 2.37% 6.26% 6.72%
=============================================================================================================================
CLASS 2 SHARES 1 Year 5 Year Since Inception
(November 6, 2001)
U.S. Government Securities Fund(1) 1.87% N/A 4.10%
--------------------------------------------------------------------------------------------------------------------------
Citigroup Mortgage Index(2) 3.07% N/A 4.83%
--------------------------------------------------------------------------------------------------------------------------
Lehman Brothers Government Bond Index(2) 2.37% N/A 4.77%
=============================================================================================================================
To obtain more current Fund performance, including the most recent month-
end performance, call (800) 222-5852.
NOTE: NEITHER THE PRINCIPAL OF GOVERNMENT BOND FUNDS NOR THEIR YIELDS ARE
GUARANTEED BY THE U.S. GOVERNMENT. PAST PERFORMANCE IS NOT A GUARANTEE OF
FUTURE RESULTS. Investment returns and unit value of an investment will
fluctuate, and an investor's units when redeemed may be worth more or
less than their original cost. Investing in securities underlying a
variable annuity involves risk.
<FN>
(1) Performance shown above represents performance of the WM Variable Trust
Funds (Class 1 shares) and does not account for fees, expenses, and
charges of any variable annuity contract. If these fees had been
reflected, performance would have been lower. The performance of Class
2 shares is lower than what is shown on the graph above for Class 1
shares, based on the differences in fees paid by Class 2 shareholders.
The WM Variable Trust Funds may not be purchased directly but are
currently available through the WM Strategic Asset Manager and WM
Advantage variable annuities issued by American General Life. They are
also available through the WM Diversified Strategies and WM Diversified
StrategiesIII variable annuities issued by AIG SunAmerica Life
Assurance Company, the WM Diversified StrategiesIII (New York) variable
annuity issued by First SunAmerica Life Insurance Company, and the WM
LifeAccumulator variable universal life insurance policy issued by
Farmers New World Life Insurance Company. They also may be available
through other select variable insurance products and retirement plans.
The Fund may not have been available for sale for all products for the
time period shown above. Returns do not account for income taxes due at
withdrawal or premium taxes. Based upon the contract through which an
investment in the Fund may be made, withdrawals made prior to age 59 1/2
may be subject to a 10% tax penalty. The Fund's performance would have
been lower had the Advisor not waived a portion of its fees or
reimbursed certain other expenses, and had the Custodian not allowed
its fees to be reduced by credits. Performance results assume
reinvestment of all capital gains and dividends.
(2) The Lehman Brothers Government Bond Index is an unmanaged index of all
U.S. government bonds. The Citigroup Mortgage Index represents the
mortgage-backed securities component of Citigroup's Broad Investment-
Grade Bond Index, and consists of 30- and 15-year agency issued (GNMA,
FNMA, and FHLMC) pass-through securities as well as FNMA and FHLMC
balloon mortgages. Effective May 1, 2003, the Citigroup Mortgage Index
replaced the Lehman Brothers Government Bond Index because WM Advisors
believes the new benchmark more accurately reflects the Fund's
performance characteristics. Indices assume reinvestment of all
dividends and distributions, but do not reflect any asset-based charges
for investment management or other expenses. Inflation is measured by
the Consumer Price Index for all urban consumers. Individuals cannot
invest directly in an index. For comparative purposes, the benchmark's
performance is shown from December 31, 1993 (Class 1 shares) and
October 31, 2001 (Class 2 shares) and not from the inception of the
index.
PORTFOLIO MANAGER: CRAIG V. SOSEY
WM ADVISORS, INC.
The Fund is managed by a fixed-income team led by Craig V. Sosey, Senior
Portfolio Manager of WM Advisors, Inc. Mr. Sosey joined WM Advisors in
1998, and he has banking and financial analysis experience dating back to
1983. He holds a B.S. in Finance from the University of the Pacific and
an M.B.A. from the University of California, Berkeley.
PERFORMANCE REVIEW
The WM VT U.S. GOVERNMENT SECURITIES FUND posted a total return of 2.14%
(Class 1 shares) for the year ended December 31, 2003. Interest rates
moved lower during the first half of 2003 only to close the period on an
upswing. Mortgage-backed securities also suffered from a high degree of
prepayments stemming from record refinancing activity.
WHAT WERE THE MOST SIGNIFICANT FACTORS CONTRIBUTING TO THE FUND'S
PERFORMANCE OVER THE YEAR ENDED DECEMBER 31, 2003?
The period's key performance drivers were the rapid changes in interest
rates and the relative underperformance of mortgage-backed holdings. A
spike in Treasury and mortgage rates in late June and July erased much of
the gains generated by the Fund in prior months. Mortgages, which
represent the majority of Fund holdings, suffered from record refinancing
activity that pushed prepayments higher throughout the year. In general,
falling mortgage rates, like those of this period, provide mortgage
holders with greater incentive to refinance and lead them to prepay their
existing mortgages. These assets must then be invested at lower
20
interest rates. Under these types of market conditions, mortgage
securities do not get as much of a price benefit from falling rates, but
they are just as susceptible to a downswing in prices as interest rates
rise. In general, U.S. government-backed bonds underperformed much of the
fixed-income market as investors regained their appetite for risk.
After falling to historical lows early in the period, interest rates
reacted to improving economic conditions and changing market views of the
Federal Reserve's actions. When the Fed announced a June rate cut of 25
basis points (0.25%), the market had been expecting more drastic stimulus
measures, and long-term rates quickly moved higher. In fact, the yield on
the 10-year Treasury bond jumped from a low of 3.13% in mid-June to 4.58%
in just two months.(3) Mortgage rates moved just as rapidly, and even
though both rate measures settled lower in October, the damage had been
done. Third quarter economic growth subsequently came in above
expectations, and longer-term rates moved higher near the end of the
year. A slightly longer maturity structure compared to the overall market
helped the Fund during the decline in interest rates. However, the Fund
gave back some of those gains when rates moved higher.
WERE THERE ANY SHIFTS IN THE FUND'S PORTFOLIO HOLDINGS/SECTORS THAT HAVE
HAD A SIGNIFICANT IMPACT ON PERFORMANCE?
In general, we keep about 75% of the portfolio in core holdings designed
to track the overall mortgage market. We use the other 25% to gain the
yield, stability, or liquidity offered by securities such as Treasuries,
agency issues, or collateralized mortgage obligations. These securities
help our strategy of seeking relative performance strength in the
mortgage/government-backed market.
We also typically keep duration (a measure of price sensitivity to
interest rate changes) relatively close to that of the overall market,
attempting to limit interest rate risk while taking advantage of longer-
term secular trends in rates. During the period, the duration of both the
Fund and the overall mortgage market shortened considerably as a result
of the rapid rise in mortgage prepayments. Duration moved higher after
rates increased and prepayments began to slow. At the end of the period,
the Fund's securities had a weighted average maturity of 4.1 years and a
weighted average duration of 3.3 years.
To maintain yield and duration, we tried to avoid lower coupon mortgages
and instead favored Treasury and agency bonds. These positions also
suffered during the early summer and underperformed the overall fixed-
income market. We looked for mortgage securities with prepayment
protection and also used collateralized mortgage obligations to reduce
the impact of prepayments.
WHAT IS THE OUTLOOK FOR BOTH THE FUND AND THE OVERALL ECONOMY?
In response to a stronger economic environment, we moved the Fund to a
more defensive stance in the last few months of the period. We believe
there is increased potential for interest rates to rise above their
current levels, especially if employment conditions improve. Job growth,
an important determinant of future consumption, has lagged the rest of
the economy during the recovery period. For the near term, we plan to
hold the Fund to a slightly short-to-neutral duration to limit interest
rate risk. We are also looking for higher-coupon mortgages to generate
yield since we are less concerned with prepayment risk than we were
during the past 12 months. Although mortgage-backed securities struggled
during this period, they can provide yield advantages relative to other
areas of the fixed-income market and can perform relatively well in a
stable interest rate environment.
<FN>
(3) Source: The Federal Reserve Board. Represents rates from June 13, 2003
to August 13, 2003.
(4) Allocation percentages are based on total investment value of the
portfolio as of 12/31/03. Differences from financial statements are a
result of a consolidation of industries or sectors.
Note: Performance information provided for individual securities held
within the Fund represents performance for the year ended 12/31/03. The
Fund may not have held these securities throughout the entire period. The
economic and financial market analysis represents the opinions of the
Portfolio Manager and/or WM Advisors Inc., and it should not be
considered investment advice. No forecast based on the opinions expressed
can be guaranteed, and they may be subject to change without notice.
============================================================================
Portfolio Composition as of December 31, 2003(4)
[pie chart]
Cash Equivalents 6%
GNMA 8%
Government Agency 8%
U.S. Treasuries 8%
CMOs 13%
FNMA 25%
FHLMC/FGLMC 32%
21
[PHOTO] Income Fund
Value of a $10,000 Investment (Class 1 shares)(1)
[graph]
- ---------------------------------------------------------------------------------------------------------
INCOME
Leh Bros Citigroup Broad
Inflation Agg Inv Grade
DATE Fund Grth 10K Index Grth 10K
- ---------------------------------------------------------------------------------------------------------
Dec-93 $10,000 $10,000 $10,000 $10,000
Jan-94 $10,193 $10,027 $10,135 $10,135
Feb-94 $9,874 $10,061 $9,959 $9,967
Mar-94 $9,478 $10,095 $9,713 $9,720
Apr-94 $9,321 $10,109 $9,635 $9,647
May-94 $9,262 $10,117 $9,634 $9,646
Jun-94 $9,218 $10,151 $9,613 $9,625
Jul-94 $9,467 $10,178 $9,804 $9,808
Aug-94 $9,427 $10,219 $9,816 $9,819
Sep-94 $9,218 $10,247 $9,672 $9,678
Oct-94 $9,177 $10,254 $9,663 $9,668
Nov-94 $9,177 $10,267 $9,642 $9,642
Dec-94 $9,187 $10,267 $9,708 $9,715
Jan-95 $9,390 $10,308 $9,900 $9,916
Feb-95 $9,664 $10,349 $10,136 $10,148
Mar-95 $9,725 $10,384 $10,198 $10,207
Apr-95 $9,860 $10,418 $10,341 $10,347
May-95 $10,507 $10,439 $10,741 $10,758
Jun-95 $10,548 $10,460 $10,819 $10,833
Jul-95 $10,421 $10,460 $10,795 $10,812
Aug-95 $10,676 $10,487 $10,926 $10,936
Sep-95 $10,824 $10,508 $11,032 $11,039
Oct-95 $11,051 $10,542 $11,175 $11,187
Nov-95 $11,255 $10,535 $11,343 $11,361
Dec-95 $11,493 $10,528 $11,502 $11,518
Jan-96 $11,482 $10,590 $11,578 $11,596
Feb-96 $11,065 $10,624 $11,376 $11,399
Mar-96 $10,944 $10,679 $11,297 $11,317
Apr-96 $10,810 $10,721 $11,233 $11,233
May-96 $10,788 $10,741 $11,211 $11,226
Jun-96 $10,944 $10,747 $11,361 $11,371
Jul-96 $10,967 $10,768 $11,392 $11,402
Aug-96 $10,876 $10,788 $11,372 $11,386
Sep-96 $11,115 $10,823 $11,570 $11,584
Oct-96 $11,450 $10,857 $11,827 $11,845
Nov-96 $11,669 $10,878 $12,029 $12,040
Dec-96 $11,542 $10,878 $11,918 $11,934
Jan-97 $11,519 $10,913 $11,955 $11,981
Feb-97 $11,566 $10,947 $11,984 $11,994
Mar-97 $11,377 $10,974 $11,851 $11,873
Apr-97 $11,569 $10,987 $12,029 $12,043
May-97 $11,677 $10,981 $12,143 $12,156
Jun-97 $11,856 $10,994 $12,288 $12,301
Jul-97 $12,368 $11,007 $12,620 $12,634
Aug-97 $12,148 $11,028 $12,512 $12,525
Sep-97 $12,380 $11,055 $12,698 $12,709
Oct-97 $12,615 $11,083 $12,882 $12,892
Nov-97 $12,690 $11,076 $12,941 $12,953
Dec-97 $12,851 $11,063 $13,072 $13,085
Jan-98 $13,015 $11,084 $13,239 $13,254
Feb-98 $12,978 $11,105 $13,228 $13,245
Mar-98 $13,015 $11,126 $13,273 $13,296
Apr-98 $13,066 $11,146 $13,342 $13,365
May-98 $13,258 $11,166 $13,469 $13,494
Jun-98 $13,400 $11,180 $13,584 $13,604
Jul-98 $13,374 $11,193 $13,612 $13,633
Aug-98 $13,531 $11,207 $13,834 $13,841
Sep-98 $13,925 $11,220 $14,158 $14,168
Oct-98 $13,620 $11,247 $14,083 $14,104
Nov-98 $13,793 $11,247 $14,163 $14,182
Dec-98 $13,808 $11,240 $14,206 $14,226
Jan-99 $13,943 $11,267 $14,306 $14,331
Feb-99 $13,565 $11,281 $14,056 $14,080
Mar-99 $13,696 $11,315 $14,133 $14,161
Apr-99 $13,764 $11,397 $14,179 $14,207
May-99 $13,571 $11,397 $14,054 $14,077
Jun-99 $13,457 $11,397 $14,009 $14,029
Jul-99 $13,429 $11,431 $13,950 $13,973
Aug-99 $13,401 $11,459 $13,943 $13,963
Sep-99 $13,535 $11,514 $14,105 $14,130
Oct-99 $13,592 $11,535 $14,157 $14,173
Nov-99 $13,550 $11,541 $14,156 $14,171
Dec-99 $13,510 $11,541 $14,088 $14,106
Jan-00 $13,467 $11,569 $14,041 $14,067
Feb-00 $13,598 $11,637 $14,211 $14,231
Mar-00 $13,813 $11,733 $14,399 $14,416
Apr-00 $13,710 $11,740 $14,357 $14,373
May-00 $13,638 $11,747 $14,350 $14,360
Jun-00 $13,964 $11,815 $14,648 $14,660
Jul-00 $14,098 $11,835 $14,781 $14,794
Aug-00 $14,306 $11,849 $14,996 $15,005
Sep-00 $14,375 $11,911 $15,090 $15,107
Oct-00 $14,421 $11,931 $15,190 $15,204
Nov-00 $14,633 $11,938 $15,439 $15,450
Dec-00 $14,924 $11,931 $15,726 $15,742
Jan-01 $15,246 $12,006 $15,982 $16,002
Feb-01 $15,307 $12,054 $16,121 $16,144
Mar-01 $15,363 $12,082 $16,202 $16,228
Apr-01 $15,221 $12,130 $16,134 $16,152
May-01 $15,299 $12,185 $16,231 $16,257
Jun-01 $15,346 $12,206 $16,292 $16,311
Jul-01 $15,768 $12,172 $16,657 $16,688
Aug-01 $15,988 $12,172 $16,849 $16,871
Sep-01 $15,941 $12,226 $17,044 $17,079
Oct-01 $16,332 $12,185 $17,401 $17,424
Nov-01 $16,206 $12,164 $17,161 $17,183
Dec-01 $16,128 $12,117 $17,051 $17,082
Jan-02 $16,285 $12,145 $17,189 $17,217
Feb-02 $16,441 $12,193 $17,356 $17,382
Mar-02 $16,206 $12,261 $17,067 $17,095
Apr-02 $16,519 $12,330 $17,399 $17,420
May-02 $16,628 $12,330 $17,546 $17,568
Jun-02 $16,596 $12,337 $17,699 $17,698
Jul-02 $16,563 $12,351 $17,913 $17,909
Aug-02 $16,924 $12,392 $18,216 $18,222
Sep-02 $17,137 $12,413 $18,511 $18,512
Oct-02 $17,105 $12,434 $18,426 $18,429
Nov-02 $17,219 $12,434 $18,420 $18,425
Dec-02 $17,677 $12,407 $18,802 $18,808
Jan-03 $17,842 $12,461 $18,819 $18,823
Feb-03 $18,152 $12,557 $19,078 $19,090
Mar-03 $18,201 $12,632 $19,063 $19,073
Apr-03 $18,529 $12,605 $19,221 $19,241
May-03 $19,101 $12,585 $19,579 $19,597
Jun-03 $19,111 $12,598 $19,540 $19,562
Jul-03 $18,417 $12,612 $18,883 $18,901
Aug-03 $18,504 $12,660 $19,008 $19,031
Sep-03 $19,077 $12,702 $19,511 $19,530
Oct-03 $19,009 $12,688 $19,330 $19,350
Nov-03 $19,130 $12,654 $19,376 $19,406
Dec-03 $19,408 $12,630 $19,574 $19,600
=============================================================================================================================
Average Annual Total Returns as of 12/31/03(1)
CLASS 1 SHARES 1 Year 5 Year 10 Year
Income Fund(1) 9.78% 7.04% 6.86%
--------------------------------------------------------------------------------------------------------------------------
Citigroup Broad Investment-Grade Index(2) 4.20% 6.62% 6.96%
--------------------------------------------------------------------------------------------------------------------------
Lehman Brothers Aggregate Bond Index(2) 4.11% 6.62% 6.95%
=============================================================================================================================
CLASS 2 SHARES 1 Year 5 Year Since Inception
(November 6, 2001)
Income Fund(1) 9.47% N/A 8.06%
--------------------------------------------------------------------------------------------------------------------------
Citigroup Broad Investment-Grade Index(2) 4.20% N/A 5.57%
--------------------------------------------------------------------------------------------------------------------------
Lehman Brothers Aggregate Bond Index(2) 4.11% N/A 5.58%
=============================================================================================================================
To obtain more current Fund performance, including the most recent month-
end performance, call (800) 222-5852.
NOTE: THERE MAY BE ADDITIONAL CREDIT AND DEFAULT RISKS ASSOCIATED WITH
LOWER-RATED SECURITIES. PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE
RESULTS. Investment returns and unit value of an investment will
fluctuate, and an investor's units when redeemed may be worth more or
less than their original cost. Investing in securities underlying a
variable annuity involves risk.
<FN>
(1) Performance shown above represents performance of the WM Variable Trust
Funds (Class 1 shares) and does not account for fees, expenses, and
charges of any variable annuity contract. If these fees had been
reflected, performance would have been lower. The performance of Class
2 shares is lower than what is shown on the graph above for Class 1
shares, based on the differences in fees paid by Class 2 shareholders.
The WM Variable Trust Funds may not be purchased directly but are
currently available through the WM Strategic Asset Manager and WM
Advantage variable annuities issued by American General Life. They are
also available through the WM Diversified Strategies and WM Diversified
StrategiesIII variable annuities issued by AIG SunAmerica Life
Assurance Company, the WM Diversified StrategiesIII (New York) variable
annuity issued by First SunAmerica Life Insurance Company, and the WM
LifeAccumulator variable universal life insurance policy issued by
Farmers New World Life Insurance Company. They also may be available
through other select variable insurance products and retirement plans.
The Fund may not have been available for sale for all products for the
time period shown above. Returns do not account for income taxes due at
withdrawal or premium taxes. Based upon the contract through which an
investment in the Fund may be made, withdrawals made prior to age 59 1/2
may be subject to a 10% tax penalty. The Fund's performance would have
been lower had the Advisor not waived a portion of its fees or
reimbursed certain other expenses, and had the Custodian not allowed
its fees to be reduced by credits. Performance results assume
reinvestment of all capital gains and dividends.
(2) The Lehman Brothers Aggregate Bond Index is unmanaged and represents
all investment-grade, government, corporate, mortgage, and asset-backed
securities. The Citigroup Broad Investment-Grade 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. Effective May 1, 2003,
the Citigroup Broad Investment-Grade Index replaced the Lehman Brothers
Aggregate Bond Index because WM Advisors believes the new benchmark
more accurately reflects the Fund's performance characteristics.
Indices assume reinvestment of all dividends and distributions, but do
not reflect any asset-based charges for investment management or other
expenses. Inflation is measured by the Consumer Price Index for all
urban consumers. Individuals cannot invest directly in an index. For
comparative purposes, the benchmark's performance is shown from
December 31, 1993 (Class 1 shares) and October 31, 2001 (Class 2
shares) and not from the inception of the index.
PORTFOLIO MANAGER: GARY J. POKRZYWINSKI
WM ADVISORS, INC.
The Fund is managed by a fixed-income team led by Gary J. Pokrzywinski,
Senior Portfolio Manager of WM Advisors, Inc. and Head of Investments.
Mr. Pokrzywinski, CFA, joined WM Advisors in 1992, and he has investment
experience that dates back to 1984. He holds a Business Degree from the
University of Wisconsin, Milwaukee.
PERFORMANCE REVIEW
For the year ended December 31, 2003, the WM VT INCOME FUND posted a
total return of 9.78%, more than double the results of its benchmark,
which returned 4.20% over the same period.2 (All Fund performance
described above is for Class 1 shares.) The Fund benefited from the
strong relative results of corporate bond issues as credit conditions
improved throughout the period.
WHAT WERE THE MOST SIGNIFICANT FACTORS CONTRIBUTING TO THE FUND'S
PERFORMANCE OVER THE YEAR ENDED DECEMBER 31, 2003?
Corporate bond issues benefited as appetite for risk returned to the
fixed-income market. In fact, as risky assets returned to favor,
corporate bond performance aligned inversely with credit ratings so that
lower-rated issues provided the market's strongest results.
As a result, the Fund's performance for the period benefited from its
overweighting in corporate bonds. This was especially true within lower-
rated, higher-yielding sectors of the corporate bond market. Investment-
grade corporate bonds also performed very well, just not to the magnitude
of the results reported by high-yield issues. Although we were a little
early to build up positions in
22
corporates, this strategy ultimately assisted the Fund over the past 12
months and helped to drive strong relative performance.
The period was also marked by historical lows in mortgage rates, which
spurred record levels of refinancing. The resulting prepayments adversely
affected the performance of mortgage-backed bonds, and mortgage positions
were neutral to the Fund's overall performance. However, we believe that
market conditions for these securities have improved and that they could
provide strong yield characteristics in a more stable to slightly rising
interest rate environment. Recently, we have been adding to the Fund's
mortgage holdings.
Within sectors, we underweighted many of the financial services firms
that we believed were richly valued. We steered clear of problems in the
utilities sector, but took advantage of a subsector within utilities that
performed very well. This group included the bonds of regulated companies
that were also subsidiaries of a nonregulated, troubled parent company.
These firms tended to trade down alongside the parent. However, the
regulated subsidiaries were able to maintain revenue streams and their
bonds traded much higher during the period. One such example is Illinois
Power, a subsidiary of Dynegy, which had problems in 2002. We purchased
Illinois Power at a significant discount, and these bonds rallied
considerably during the period. The Fund also benefited from its purchase
of Qwest, a subsidiary of struggling U.S. West. The position in Qwest
rebounded nicely during the period, adding value to the Fund.
Lack of exposure to 2002's major corporate bond defaults benefited the
Fund, however, a few positions did adversely affect Fund performance
during the past 12 months. DVI, a health care equipment-financing firm,
defaulted after growing pains and questionable accounting practices led
to bankruptcy. Despite this outcome, the Fund has avoided much of the
large-scale negative impact from the escalating default rates of recent
years.
WERE THERE ANY SHIFTS IN THE FUND'S PORTFOLIO HOLDINGS/SECTORS THAT HAVE
HAD A SIGNIFICANT IMPACT ON PERFORMANCE?
We typically maintain the portfolio's core corporate bond positions and
look for opportunities in other areas of the fixed-income market.
Throughout this period, we kept positions in higher-yielding bonds within
a 15%-20% range, but we still see select opportunities available in this
area of the market. These issues benefited from the cleansing of
corporate balance sheets and improving economic conditions because their
performance is much more closely tied to economic fundamentals than
interest rate changes. Yield spreads for corporate bonds relative to
Treasuries plunged during the period, driving the strong performance of
investment-grade and lower-rated corporate issues.
With regard to other portfolio shifts, we added to mortgages near the end
of the period after prepayment risk subsided. We view mortgages as having
as good a risk/reward profile as investment-grade corporate bonds.
Looking toward the upcoming fiscal year, we plan to keep our weighting in
Treasury bonds relatively low. This is because of the possibility that
interest rates could rise on the heels of improving economic conditions,
and therefore, other types of bonds could provide better performance.
Corporate yield differentials compared to Treasuries have already fallen
drastically, and there is not as much room for relative strength as this
time last year. However, corporate securities should still do better than
Treasuries in 2004.
At the close of the period, the Fund's securities had a weighted average
maturity of 7.5 years and a weighted average duration (a measurement of
price sensitivity to interest rate changes) of 5.3 years. This
intermediate-term maturity structure will limit interest rate risk
relative to longer-term holdings if yields continue to rise. Although the
Fund has taken advantage of higher-yielding issues, it remains
concentrated in highly rated bonds, with 83% of assets in investment-
grade securities and an average rating of A2.(3)
WHAT IS THE OUTLOOK FOR BOTH THE FUND AND THE OVERALL ECONOMY?
We believe the possibility that interest rates will continue to climb in
the short term is increasingly likely. However, the fixed-income market
has already anticipated this and priced it into the current yield curve.
(The yield curve is defined as the distribution of yields relative to
maturities.) The yield curve became a little steeper in late June and
July after stronger economic conditions caused long-term rates to spike
higher but did not affect short-term rates. This continued late in the
year, and longer-term yields moved higher after settling lower in
October. If short-term rates should rise quickly, longer-term rates will
likely not move to the same magnitude, and the yield curve will flatten.
Yet, the Federal Reserve may wait until it sees clear signs of job growth
before beginning to raise short-term rates, as we have not seen
substantial inflation pressures. Because of the potential for quick
interest rate shifts, we may hold the Fund's maturity and duration
relatively neutral and look for incremental value in mortgages and
higher-yielding bonds.
<FN>
(3) Ratings are for portfolio holdings and are provided by Moody's
Investors Service (Moody's). The ratings represent the company's
opinion of the credit quality of securities and are intended to reflect
the issuer's ability to pay back principal and interest.
(4) Allocation percentages are based on total investment value of the
portfolio as of 12/31/03. Differences from financial statements are a
result of a consolidation of industries or sectors.
Note: Performance information provided for individual securities held
within the Fund represents performance for the year ended 12/31/03. The
Fund may not have held these securities throughout the entire period. The
economic and financial market analysis represents the opinions of the
Portfolio Manager and/or WM Advisors Inc., and it should not be considered
investment advice. No forecast based on the opinions expressed can be
guaranteed, and they may be subject to change without notice.
============================================================================
Portfolio Composition as of December 31, 2003(4)
[pie chart]
U.S. $ Foreign Government Bonds 1%
Cash Equivalents 5%
U.S. Treasuries 5%
Mortgage-Backed Securities 26%
Corporate Bonds 63%
23
[PHOTO] Money Market Fund
PORTFOLIO MANAGER
SCOTT J. PETERSON, CFA
WM ADVISORS, INC.
The Fund is managed by a fixed-income team led by Scott J. Peterson,
Portfolio Manager of WM Advisors, Inc. Mr. Peterson, CFA, who joined WM
Advisors in 2002, has investment and financial analysis experience dating
back to 1989. He holds a B.S. in Mathematics from Brigham Young
University and an M.B.A. in Finance from New York University.
ECONOMIC OVERVIEW
The Federal Reserve remained very accommodative throughout the year in an
effort to stimulate the economy. With the prospects for war and the
potential for deflation in mind, the Fed lowered interest rates by 50
basis points (0.50%) late in 2002. This was followed by a 25 basis point
decrease in late June, putting the federal funds rate at a 45-year low of
1% and providing substantial liquidity to the economy. The Fed has since
released several statements reaffirming plans to keep rates low for as
long as is necessary and inflation remains in check. The economy
responded by registering strong growth in both the second and third
quarters of 2003. Third quarter domestic growth levels topped 8% (as
measured by GDP), the largest quarterly economic growth rate in nearly
two decades. Although economic growth has rebounded, employment has
remained weak, and a lack of new jobs could eventually affect
consumption. Despite an increase in some materials and commodities
prices, inflation has remained subdued, allowing the Fed to hold rates
low for a longer period.
ECONOMIC AND INTEREST RATE OUTLOOK
The Fed has an incentive to hold rates low and help broaden the recovery,
but it could raise rates at the first sign of true inflation. Currently,
inflation remains historically weak, but the Fed may act quickly to avert
potential price pressures. Although this does not seem likely in the very
near term, it is something we are watching very closely. As a result, we
will maintain a somewhat conservative stance in managing maturities.
Interest rates are much lower now compared to their long-term historical
average, and we expect that over time rates could increase as the economy
improves. In general, as rates move higher so do yields of short-term
money market instruments, an outcome that benefits the WM VT MONEY MARKET
FUND. Longer-term yields have already advanced in response to stronger
growth, and we expect that short-term rates will eventually follow.
PORTFOLIO STRATEGY
As of December 31, 2003, the Fund's net assets totaled $23 million,
representing a decrease relative to the previous fiscal year's total. The
decline in asset levels may be partially due to the recent equity market
resurgence. With low interest rates providing stimulus for the economy
and reducing money market yields, assets flowed back into the equity
markets. As rates moved to historical lows, we kept the Fund's weighted
average maturity in a neutral stance. We also utilized a conservative
strategy of seeking yield through longer-term corporate issues nearing
maturity and incorporating taxable municipal securities with yield
advantages over commercial paper. We continue to look for instruments
that have competitive yield characteristics, but that we believe will not
be adversely affected by interest rate movements.
NOTE: An investment in the Fund is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
Although the Fund seeks to preserve the value of your investment at $1.00
per share, it is possible to lose money by investing in the Fund.
24
portfolio of investments
REIT Fund
December 31, 2003
Value
Shares (000s)
------ ------
REAL ESTATE INVESTMENT TRUSTS - 88.5%
Diversified - 5.4%
25,500 iStar Financial Inc. $ 992
20,000 Vornado Realty Trust 1,095
---------
Total Diversified 2,087
---------
Health Care - 4.6%
20,700 Health Care Property Investors, Inc. 1,051
20,000 Healthcare Realty Trust, Inc. 715
---------
Total Health Care 1,766
---------
Industrial/Office - 25.8%
Industrial - 7.3%
26,500 AMB Property Corporation 871
9,000 CenterPoint Properties Trust 674
39,000 ProLogis 1,252
---------
2,797
---------
Mixed - 2.3%
29,000 Duke Realty Corporation 899
---------
Office - 16.2%
22,500 Arden Realty, Inc. 683
20,000 Boston Properties, Inc. 964
28,000 CarrAmerica Realty Corporation 834
64,000 Corporate Office Properties Trust 1,344
60,000 Equity Office Properties Trust 1,719
17,500 SL Green Realty Corporation 718
---------
6,262
---------
Total Industrial/Office 9,958
---------
Lodging/Resorts - 6.2%
38,300 FelCor Lodging Trust, Inc. 424
32,000 Hospitality Properties Trust 1,321
51,300 Host Marriott Corporation+ 632
---------
Total Lodging/Resorts 2,377
---------
Mortgage/Financial - 2.9%
38,600 Annaly Mortgage Management, Inc.** 710
18,000 Friedman, Billings, Ramsey Group, Inc.,
Class A 416
---------
Total Mortgage/Financial 1,126
---------
Residential - 11.9%
Apartments - 11.9%
30,000 Apartment Investment & Management
Company, Class A 1,035
22,500 AvalonBay Communities, Inc. 1,075
53,000 Equity Residential 1,564
48,000 United Dominion Realty Trust, Inc. 922
---------
Total Residential 4,596
---------
Retail - 22.0%
Regional Malls - 16.0%
64,500 General Growth Properties, Inc. 1,790
34,000 Macerich Company 1,513
30,200 Mills Corporation 1,329
33,500 Simon Property Group, Inc. 1,552
---------
6,184
---------
Value
Shares (000s)
------ ------
Shopping Centers - 6.0%
29,200 Developers Diversified Realty Corporation $ 980
30,000 Kimco Realty Corporation 1,343
---------
2,323
---------
Total Retail 8,507
---------
Self Storage - 3.2%
17,000 Public Storage, Inc. 738
12,700 Shurgard Storage Centers, Inc., Class A 478
---------
Total Self Storage 1,216
---------
Specialty - 6.5%
41,500 Capital Automotive REIT 1,328
39,000 Plum Creek Timber Company, Inc. 1,187
---------
Total Specialty 2,515
---------
Total Real Estate Investment Trusts
(Cost $27,455) 34,148
---------
COMMON STOCKS - 7.3%
Consumer Discretionary - 5.1%
Consumer Durables & Apparel - 2.6%
23,000 D.R. Horton, Inc.** 995
---------
Hotels, Restaurants & Leisure - 2.5%
22,000 Mandalay Resort Group** 984
---------
Total Consumer Discretionary 1,979
---------
Financials - 2.2%
Insurance - 2.2%
22,000 Fidelity National Financial, Inc. 853
---------
Total Common Stocks
(Cost $2,060) 2,832
---------
Principal
Amount
(000s)
---------
REPURCHASE AGREEMENT - 3.9%
(Cost $1,498)
$ 1,498 Agreement with Goldman Sachs
Group, Inc., 0.750% dated
12/31/2003, to be repurchased at
$1,498 on 01/02/2004
(Collateralized by U.S.
Treasury Bonds, having various
interest rates and maturities,
market value $1,529) 1,498
---------
TOTAL INVESTMENTS (Cost $31,013*) 99.7% 38,478
OTHER ASSETS AND LIABILITIES (Net) 0.3 116
----- ---------
NET ASSETS 100.0% $ 38,594
===== =========
<FN>
- ---------
* Aggregate cost for federal tax purposes is $31,019.
** Some or all of these securities are on loan at December 31, 2003,
and have an aggregate market value of $1,165, representing 3.0% of the net
assets of the Fund (Collateral Value $1,199).
+ Non-income producing security.
See Notes to Financial Statements.
25
portfolio of investments
Equity Income Fund
December 31, 2003
Value
Shares (000s)
------ ------
COMMON STOCK - 84.2%
Consumer Discretionary - 14.6%
Automobiles & Components - 5.0%
60,200 General Motors Corporation $ 3,215
43,000 Genuine Parts Company 1,427
36,000 Magna International Inc., Class A 2,882
18,000 MI Developments, Inc., Class A+ 502
---------
8,026
---------
Consumer Durables & Apparel - 3.8%
48,000 D.R. Horton, Inc. 2,077
109,000 Mattel, Inc. 2,100
30,000 Nike Inc., Class B** 2,054
---------
6,231
---------
Hotels, Restaurants & Leisure - 4.2%
51,000 Carnival Corporation** 2,026
60,000 Mandalay Resort Group** 2,683
82,500 McDonald's Corporation 2,049
---------
6,758
---------
Retailing - 1.6%
43,500 May Department Stores Company 1,264
30,000 Sears, Roebuck & Company 1,365
---------
2,629
---------
Total Consumer Discretionary 23,644
---------
Consumer Staples - 7.3%
Food & Staples Retailing - 2.6%
51,000 Supervalu Inc. 1,458
94,500 Wal-Mart de Mexico SA de CV, ADR 2,674
---------
4,132
---------
Food, Beverage & Tobacco - 4.1%
35,000 Altria Group, Inc. 1,905
64,500 ConAgra Foods, Inc. 1,702
31,500 Diageo PLC, Sponsored ADR** 1,665
18,000 Hershey Foods Corporation 1,386
---------
6,658
---------
Household & Personal Products - 0.6%
10,500 Procter & Gamble Company 1,049
---------
Total Consumer Staples 11,839
---------
Energy - 7.4%
53,000 Baker Hughes Inc. 1,704
35,000 BP PLC, Sponsored ADR 1,727
22,742 ChevronTexaco Corporation 1,965
29,280 ConocoPhillips Company 1,920
27,100 Royal Dutch Petroleum Company (F) 1,420
21,500 Schlumberger Ltd. 1,176
43,697 Valero Energy Corporation 2,025
---------
Total Energy 11,937
---------
Value
Shares (000s)
------ ------
Financials - 24.1%
Banks - 7.9%
38,200 Bank of America Corporation** $ 3,072
21,333 Countrywide Financial Corporation 1,618
38,000 FleetBoston Financial Corporation 1,659
25,400 PNC Financial Services Group, Inc. 1,390
30,100 TCF Financial Corporation 1,546
39,700 U.S. Bancorp 1,182
40,500 Wells Fargo & Company 2,385
---------
12,852
---------
Diversified Financials - 8.5%
69,500 Citigroup Inc. 3,373
40,500 Fannie Mae 3,040
32,000 Franklin Resources, Inc. 1,666
61,000 J.P. Morgan Chase & Company 2,241
39,500 Morgan Stanley 2,286
25,600 T. Rowe Price Group, Inc.** 1,214
---------
13,820
---------
Insurance - 7.7%
85,000 ACE Ltd. 3,521
50,000 AFLAC Inc. 1,809
45,000 Allstate Corporation 1,936
48,000 Fidelity National Financial, Inc. 1,861
43,000 XL Capital Ltd., Class A 3,335
---------
12,462
---------
Total Financials 39,134
---------
Health Care - 7.1%
Health Care Equipment & Services - 1.1%
43,500 Becton Dickinson & Company 1,789
---------
Pharmaceuticals & Biotechnology - 6.0%
34,000 Abbott Laboratories 1,584
65,000 Bristol-Myers Squibb Company 1,859
29,500 Johnson & Johnson 1,524
23,500 Merck & Company, Inc. 1,086
97,500 Mylan Laboratories Inc. 2,463
36,000 Pfizer Inc. 1,272
---------
9,788
---------
Total Health Care 11,577
---------
Industrials - 8.3%
Capital Goods - 8.3%
48,500 Boeing Company 2,044
18,000 Emerson Electric Company 1,166
28,800 General Dynamics Corporation 2,603
69,000 General Electric Company 2,138
40,000 Honeywell International Inc. 1,337
12,000 Northrop Grumman Corporation 1,147
111,700 Tyco International Ltd. 2,960
---------
Total Industrials 13,395
---------
See Notes to Financial Statements.
26
portfolio of investments (continued)
Equity Income Fund
December 31, 2003
Value
Shares (000s)
------ ------
COMMON STOCK (continued)
Information Technology - 5.9%
Communications Equipment - 1.5%
65,000 Harris Corporation $ 2,467
---------
Computers & Peripherals - 1.8%
64,300 Hewlett-Packard Company 1,477
16,000 International Business Machines Corporation 1,483
---------
2,960
---------
Electronic Equipment & Instruments - 1.5%
44,000 Diebold, Inc. 2,370
---------
Software - 1.1%
67,000 Computer Associates International, Inc. 1,832
---------
Total Information Technology 9,629
---------
Materials - 2.9%
29,200 Alcoa Inc. 1,110
25,000 Dow Chemical Company 1,039
11,700 E.I. Du Pont de Nemours & Company 537
50,000 Monsanto Company 1,439
9,500 PPG Industries, Inc. 608
---------
Total Materials 4,733
---------
Telecommunication Services - 2.9%
44,000 Alltel Corporation 2,050
3,000 Metromedia Fiber Network, Inc., Class A+ 0***
36,800 SBC Communications Inc. 959
49,500 Verizon Communications Inc. 1,736
---------
Total Telecommunication Services 4,745
---------
Utilities - 3.7%
48,000 FPL Group, Inc. 3,140
36,500 Pinnacle West Capital Corporation 1,461
47,000 Southern Company 1,422
---------
Total Utilities 6,023
---------
Total Common Stock
(Cost $113,772) 136,656
---------
REAL ESTATE INVESTMENT TRUSTS - 7.5%
27,800 AMB Property Corporation 914
16,400 Apartment Investment & Management
Company, Class A 566
12,900 Arden Realty, Inc. 391
7,600 CarrAmerica Realty Corporation 226
18,500 Corporate Office Properties Trust 389
8,000 Developers Diversified Realty Corporation 269
12,200 Duke Realty Corporation 378
36,000 Equity Office Properties Trust 1,031
39,500 Equity Residential 1,166
51,000 General Growth Properties, Inc. 1,415
16,100 Health Care Property Investors, Inc. 818
Value
Shares (000s)
------ ------
18,000 Hospitality Properties Trust $ 743
6,500 Kimco Realty Corporation 291
14,000 Macerich Company 623
28,500 Plum Creek Timber Company, Inc. 868
15,200 ProLogis 488
17,000 Shurgard Storage Centers, Inc., Class A 640
19,000 Simon Property Group, Inc. 880
---------
Total Real Estate Investment Trusts
(Cost $8,928) 12,096
---------
Principal
Amount
(000s)
---------
CONVERTIBLE BONDS AND NOTES - 2.5%
$ 850 RadiSys Corporation, Conv. Sub. Note,
5.500% due 08/15/2007 817
1,750 TriQuint Semiconductor, Inc.,
Conv. Sub. Note,
4.000% due 03/01/2007 1,689
1,500 Vitesse Semiconductor Corporation,
Conv. Sub. Deb.,
4.000% due 03/15/2005 1,492
---------
Total Convertible Bonds and Notes
(Cost $3,441) 3,998
---------
FIXED INCOME SECURITIES - 2.3%
Corporate Bonds and Notes - 2.2%
100 Aetna Inc., Company Guarantee,
7.125% due 08/15/2006 111
500 Aetna Inc., Sr. Note,
7.875% due 03/01/2011 592
45 Baxter International Inc., Note,
7.125% due 02/01/2007 51
300 CBS Corporation, Sr. Note,
7.150% due 05/20/2005 322
1,000 ERAC USA Finance Company, Note,
7.350% due 06/15/2008++ 1,144
100 Raytheon Company, Sr. Note,
6.150% due 11/01/2008 109
1,000 TELUS Corporation, Note,
8.000% due 06/01/2011 1,171
100 Texas-New Mexico Power Company, Sr. Note,
6.250% due 01/15/2009 101
---------
Total Corporate Bonds and Notes
(Cost $3,183) 3,601
---------
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES - 0.1%
Federal Home Loan Mortgage Corporation (FHLMC) - 0.1%
128 6.500% due 09/01/2030 134
58 7.000% due 09/01/2030 62
---------
Total U.S. Government Agency
Mortgage-Backed Securities
(Cost $180) 196
---------
Total Fixed Income Securities
(Cost $3,363) 3,797
---------
See Notes to Financial Statements.
27
portfolio of investments (continued)
Equity Income Fund
December 31, 2003
Value
Shares (000s)
------ ------
WARRANTS - 0.0% +++
(Cost $0)
250 V2 Music Holdings PLC,
Expires 05/07/2008+,++ $ 0***
---------
Principal
Amount
(000s)
---------
REPURCHASE AGREEMENT - 3.4%
(Cost $5,481)
$ 5,481 Agreement with Goldman Sachs
Group, Inc., 0.750% dated
12/31/2003, to be repurchased at
$5,481 on 01/02/2004
(Collateralized by U.S.
Treasury Bonds, having various
interest rates and maturities,
market value $5,595) 5,481
---------
TOTAL INVESTMENTS (Cost $134,985*) 99.9% 162,028
OTHER ASSETS AND LIABILITIES (Net) 0.1 194
----- ---------
NET ASSETS 100.0% $ 162,222
===== =========
<FN>
- ---------
* Aggregate cost for federal tax purposes is $135,533.
** Some or all of these securities are on loan at December 31, 2003,
and have an aggregate market value of $9,332, representing 5.8% of
the net assets of the Fund (Collateral Value $9,594).
*** Value of security is less than $500.
+ Non-income producing security.
++ Security acquired in a transaction exempt from registration under
Rule 144A of the Securities Act of 1933.
+++ Amount represents less than 0.1% of the net assets.
GLOSSARY OF TERMS
ADR -- American Depository Receipt
(F) -- Foreign Shares
See Notes to Financial Statements.
28
portfolio of investments
GROWTH & INCOME FUND
December 31, 2003
Value
Shares (000s)
------ ------
COMMON STOCK - 95.6%
Consumer Discretionary - 10.6%
Consumer Durables & Apparel - 1.6%
212,000 Mattel, Inc. $ 4,085
---------
Hotels, Restaurants & Leisure - 3.6%
223,000 Carnival Corporation** 8,860
---------
Media - 5.4%
77,000 Comcast Corporation, Class A+ 2,531
108,000 Comcast Corporation, Special Class A+** 3,378
293,000 Liberty Media Corporation, Class A+ 3,484
88,000 Viacom Inc., Class B 3,905
---------
13,298
---------
Total Consumer Discretionary 26,243
---------
Consumer Staples - 10.1%
Food & Staples Retailing - 3.6%
70,000 Costco Wholesale Corporation+ 2,603
338,000 Kroger Company+ 6,256
---------
8,859
---------
Food, Beverage & Tobacco - 1.6%
85,000 PepsiCo Inc. 3,963
---------
Household & Personal Products - 4.9%
80,000 Avon Products, Inc. 5,399
69,000 Kimberly-Clark Corporation 4,077
28,000 Procter & Gamble Company 2,797
---------
12,273
---------
Total Consumer Staples 25,095
---------
Energy - 7.5%
94,000 BP PLC, Sponsored ADR** 4,639
91,000 Exxon Mobil Corporation 3,731
83,000 Royal Dutch Petroleum Company (F) 4,348
50,000 Schlumberger Ltd. 2,736
87,000 Unocal Corporation 3,204
---------
Total Energy 18,658
---------
Financials - 24.5%
Banks - 10.7%
70,000 Bank of America Corporation** 5,630
102,000 FleetBoston Financial Corporation 4,453
93,000 PNC Financial Services Group, Inc. 5,090
107,000 Wachovia Corporation 4,985
109,000 Wells Fargo & Company 6,419
---------
26,577
---------
Diversified Financials - 7.9%
124,000 Citigroup Inc. 6,019
111,000 Freddie Mac 6,474
195,000 J.P. Morgan Chase & Company 7,162
---------
19,655
---------
Value
Shares (000s)
------ ------
Insurance - 5.9%
67,000 ACE Ltd. $ 2,775
155,000 Allstate Corporation 6,668
79,000 American International Group Inc. 5,236
---------
14,679
---------
Total Financials 60,911
---------
Health Care - 16.2%
Health Care Equipment & Services - 4.6%
65,000 Baxter International Inc. 1,984
96,000 Cardinal Health Inc.** 5,871
60,000 Guidant Corporation 3,612
---------
11,467
---------
Pharmaceuticals & Biotechnology - 11.6%
130,000 Bristol-Myers Squibb Company 3,718
76,000 Johnson & Johnson 3,926
57,000 Merck & Company, Inc. 2,634
345,000 Mylan Laboratories Inc. 8,715
175,000 Pfizer Inc. 6,183
72,000 Schering-Plough Corporation 1,252
40,000 Teva Pharmaceutical Industries Ltd.,
Sponsored ADR 2,268
---------
28,696
---------
Total Health Care 40,163
---------
Industrials - 8.8%
Capital Goods - 8.8%
135,000 Boeing Company 5,689
110,000 General Electric Company 3,408
193,000 Honeywell International Inc. 6,452
241,000 Tyco International Ltd. 6,386
---------
Total Industrials 21,935
---------
Information Technology - 12.0%
Communications Equipment - 1.7%
301,000 Motorola, Inc.** 4,235
---------
Computers & Peripherals - 3.8%
143,000 Hewlett-Packard Company 3,285
65,000 International Business Machines Corporation 6,024
---------
9,309
---------
IT Services - 2.0%
123,000 First Data Corporation 5,054
---------
Software - 4.5%
185,000 Computer Associates International, Inc. 5,058
223,000 Microsoft Corporation 6,141
---------
11,199
---------
Total Information Technology 29,797
---------
See Notes to Financial Statements. 29
portfolio of investments (continued)
GROWTH & INCOME FUND
December 31, 2003
Value
Shares (000s)
------ ------
COMMON STOCK (continued)
Materials - 0.6%
37,000 Alcoa Inc. $ 1,406
---------
Telecommunication Services - 1.4%
136,000 SBC Communications Inc. 3,545
---------
Utilities - 3.9%
64,000 FPL Group, Inc. 4,187
115,000 NiSource Inc. 2,523
78,000 Pinnacle West Capital Corporation** 3,122
---------
Total Utilities 9,832
---------
Total Common Stock
(Cost $192,268) 237,585
---------
Principal
Amount
(000s)
- ---------
REPURCHASE AGREEMENT - 4.4%
(Cost $10,891)
$ 10,891 Agreement with Goldman Sachs
Group, Inc., 0.750% dated
12/31/2003, to be repurchased at
$10,891 on 01/02/2004
(Collateralized by U.S.
Treasury Bonds, having various
interest rates and maturities,
market value $11,117) 10,891
---------
TOTAL INVESTMENTS (Cost $203,159*) 100.0% 248,476
OTHER ASSETS AND LIABILITIES (Net) 0.0 56
----- ---------
NET ASSETS 100.0% $ 248,532
===== =========
<FN>
- ---------
* Aggregate cost for federal tax purposes is $205,470.
** Some or all of these securities are on loan at December 31, 2003, and
have an aggregate market value of $14,556, representing 5.9% of the net
assets of the Fund (Collateral Value $15,014).
+ Non-income producing security.
- ------------------------------------------
GLOSSARY OF TERMS
ADR -- American Depository Receipt
(F) -- Foreign Shares
- ------------------------------------------
30 See Notes to Financial Statements.
portfolio of investments
WEST COAST EQUITY FUND
December 31, 2003
Value
Shares (000s)
------ ------
COMMON STOCK - 93.3%
Consumer Discretionary - 16.7%
Automobiles & Components - 2.9%
106,000 Monaco Coach Corporation+ $ 2,523
14,200 Superior Industries International, Inc. 618
---------
3,141
---------
Consumer Durables & Apparel - 4.2%
18,324 Columbia Sportswear Company+ 999
16,000 KB Home 1,160
53,000 Mattel, Inc. 1,021
21,825 Nike Inc., Class B** 1,494
---------
4,674
---------
Hotels, Restaurants & Leisure - 2.5%
43,500 Hilton Hotels Corporation 745
9,000 Jack in the Box Inc.+ 193
36,270 Starbucks Corporation+ 1,199
129,460 WestCoast Hospitality Corporation+ 611
---------
2,748
---------
Media - 4.6%
37,000 Getty Images, Inc.+** 1,855
22,100 Knight-Ridder, Inc. 1,710
38,300 Univision Communications Inc., Class A+ 1,520
---------
5,085
---------
Retailing - 2.5%
92,985 Building Materials Holding Corporation 1,444
91,400 Hollywood Entertainment Corporation+ 1,257
13,600 Restoration Hardware, Inc.+ 64
---------
2,765
---------
Total Consumer Discretionary 18,413
---------
Consumer Staples - 3.1%
Food & Staples Retailing - 3.1%
48,520 Costco Wholesale Corporation+ 1,804
90,290 Kroger Company+ 1,671
---------
Total Consumer Staples 3,475
---------
Energy - 4.2%
13,600 Apache Corporation 1,103
24,900 ChevronTexaco Corporation 2,151
33,200 Nabors Industries Ltd.+ 1,378
---------
Total Energy 4,632
---------
Financials - 18.3%
Banks - 14.3%
27,950 Bank of America Corporation 2,248
34,300 Banner Corporation 863
10,200 City National Corporation 634
19,600 East West Bancorp, Inc. 1,052
33,200 Greater Bay Bancorp** 945
12,300 KeyCorp 361
Value
Shares (000s)
------ ------
3,100 Pacific Capital Bancorp $ 114
95,500 U.S. Bancorp 2,844
78,635 Washington Federal, Inc. 2,233
77,423 Wells Fargo & Company 4,559
---------
15,853
---------
Diversified Financials - 1.7%
92,500 Charles Schwab Corporation 1,095
14,700 Franklin Resources, Inc. 766
---------
1,861
---------
Insurance - 2.3%
17,100 RenaissanceRe Holdings Ltd. 839
26,600 StanCorp Financial Group, Inc. 1,672
---------
2,511
---------
Total Financials 20,225
---------
Health Care - 10.5%
Health Care Equipment & Services - 3.4%
15,800 Applera Corporation-Applied
Biosystems Group 327
7,500 Caremark Rx, Inc.+** 190
8,680 Health Net, Inc.+ 284
170,900 OraSure Technologies, Inc.+ 1,360
74,925 SonoSite, Inc.+ 1,607
---------
3,768
---------
Pharmaceuticals & Biotechnology - 7.1%
18,600 Allergan, Inc. 1,429
17,907 Amgen, Inc.+ 1,107
132,155 Corixa Corporation+** 798
34,000 Dendreon Corporation+ 274
43,325 EDEN Bioscience Corporation+** 62
11,000 Genentech, Inc.+ 1,029
22,555 ICOS Corporation+ 931
6,700 Neurocrine Biosciences, Inc.+ 365
32,800 Pfizer Inc. 1,159
13,600 Watson Pharmaceuticals, Inc.+ 626
---------
7,780
---------
Total Health Care 11,548
---------
Industrials - 13.0%
Capital Goods - 9.7%
54,711 Boeing Company 2,306
15,000 Cascade Corporation 334
3,500 Dionex Corporation+ 161
51,900 Electro Scientific Industries, Inc.+ 1,235
89,500 Greenbrier Companies, Inc.+ 1,499
11,650 Northrop Grumman Corporation 1,114
29,067 PACCAR Inc. 2,474
21,800 Precision Castparts Corporation 990
12,800 Simpson Manufacturing Company, Inc.+ 651
---------
10,764
---------
See Notes to Financial Statements. 31
portfolio of investments (continued)
WEST COAST EQUITY FUND
December 31, 2003
Value
Shares (000s)
------ ------
COMMON STOCK (continued)
Industrials (continued)
Commercial Services & Supplies - 1.0%
45,400 Robert Half International Inc.+ $ 1,060
---------
Transportation - 2.3%
34,460 Alaska Air Group, Inc.+ 940
42,300 Expeditors International of Washington, Inc. 1,593
---------
2,533
---------
Total Industrials 14,357
---------
Information Technology - 21.0%
Communications Equipment - 1.0%
44,600 Cisco Systems Inc.+ 1,083
---------
Computers & Peripherals - 2.8%
111,600 Advanced Digital Information Corporation+ 1,562
57,900 Hewlett-Packard Company 1,330
15,800 InFocus Corporation+ 153
---------
3,045
---------
Electronic Equipment & Instruments - 1.9%
47,790 Microvision, Inc.+** 364
54,020 Tektronix, Inc. 1,707
---------
2,071
---------
Internet Software & Services - 2.4%
302,700 Primus Knowledge Solutions, Inc.+ 1,904
124,300 WatchGuard Technologies, Inc.+ 724
---------
2,628
---------
Semiconductors & Semiconductor Equipment - 6.7%
20,625 Applied Materials, Inc.+ 463
13,700 Atmel Corporation+ 82
49,600 Credence Systems Corporation+ 653
31,790 FEI Company+ 715
70,130 Intel Corporation 2,258
9,000 KLA-Tencor Corporation+ 528
74,780 Lattice Semiconductor Corporation+ 724
50,500 LSI Logic Corporation+ 448
117,700 Pixelworks, Inc.+** 1,300
40,100 TriQuint Semiconductor, Inc.+ 284
---------
7,455
---------
Software - 6.2%
29,800 Actuate Corporation+ 93
24,300 Adobe Systems Inc. 955
12,400 Fair Isaac Corporation 610
114,530 Microsoft Corporation 3,154
46,562 ONYX Software Corporation+ 183
24,000 Quest Software, Inc.+ 341
41,390 RadiSys Corporation+ 698
Value
Shares (000s)
------ ------
25,700 Siebel Systems, Inc.+ $ 356
24,000 Sybase, Inc.+ 494
---------
6,884
---------
Total Information Technology 23,166
---------
Materials - 5.3%
60,500 Louisiana-Pacific Corporation+ 1,082
101,500 Oregon Steel Mills, Inc.+ 590
39,620 Schnitzer Steel Industries, Inc., Class A 2,397
27,835 Weyerhaeuser Company 1,781
---------
Total Materials 5,850
---------
Telecommunication Services - 1.2%
169,500 AT&T Wireless Services, Inc.+ 1,354
---------
Total Common Stock
(Cost $80,945) 103,020
---------
REAL ESTATE INVESTMENT TRUSTS - 2.2%
9,600 AMB Property Corporation 316
53,900 Plum Creek Timber Company, Inc. 1,641
12,300 Shurgard Storage Centers, Inc., Class A 463
---------
Total Real Estate Investment Trusts
(Cost $2,021) 2,420
---------
Principal
Amount
(000s)
- ---------
REPURCHASE AGREEMENT - 4.8%
(Cost $5,295)
$ 5,295 Agreement with Goldman Sachs
Group, Inc., 0.750% dated
12/31/2003, to be repurchased at
$5,295 on 01/02/2004
(Collateralized by U.S.
Treasury Bonds, having various
interest rates and maturities,
market value $5,405) 5,295
---------
TOTAL INVESTMENTS (Cost $88,261*) 100.3% 110,735
OTHER ASSETS AND LIABILITIES (Net) (0.3) (373)
----- ---------
NET ASSETS 100.0% $ 110,362
===== ==========
<FN>
- ---------
* Aggregate cost for federal tax purposes is $88,617.
** Some or all of these securities are on loan at December 31, 2003, and
have an aggregate market value of $4,747, representing 4.3% of the net
assets of the Fund (Collateral Value $5,074).
+ Non-income producing security.
32 See Notes to Financial Statements.
portfolio of investments
MID CAP STOCK FUND
December 31, 2003
Value
Shares (000s)
------ ------
COMMON STOCK - 92.2%
Consumer Discretionary - 14.6%
Automobiles & Components - 0.9%
5,300 Magna International Inc., Class A $ 424
9,300 Superior Industries International, Inc. 405
---------
829
---------
Consumer Durables & Apparel - 5.7%
70,700 Jones Apparel Group, Inc. 2,491
90,600 Mattel, Inc. 1,746
11,700 Nike Inc., Class B** 801
---------
5,038
---------
Hotels, Restaurants & Leisure - 4.1%
20,900 Mandalay Resort Group 934
24,200 Papa John's International, Inc.+** 808
53,800 Yum! Brands, Inc.+ 1,851
---------
3,593
---------
Retailing - 3.9%
35,300 Neiman Marcus Group Inc., Class A+ 1,895
33,700 Tiffany & Company 1,523
---------
3,418
---------
Total Consumer Discretionary 12,878
---------
Consumer Staples - 4.7%
Food, Beverage & Tobacco - 2.5%
26,400 Dean Foods Company+ 868
16,800 Hershey Foods Corporation 1,293
---------
2,161
---------
Household & Personal Products - 2.2%
10,500 Avon Products, Inc. 709
31,700 Estee Lauder Companies Inc., Class A 1,244
---------
1,953
---------
Total Consumer Staples 4,114
---------
Energy - 8.0%
52,200 Baker Hughes Inc. 1,679
33,399 Devon Energy Corporation 1,912
45,100 Nabors Industries Ltd.+ 1,872
29,900 Tidewater Inc. 893
19,500 Unocal Corporation 718
---------
Total Energy 7,074
---------
Financials - 19.5%
Banks - 6.7%
47,575 Charter One Financial, Inc. 1,644
71,900 GreenPoint Financial Corporation 2,540
33,100 TCF Financial Corporation 1,700
---------
5,884
---------
Value
Shares (000s)
------ ------
Diversified Financials - 5.9%
51,800 A.G. Edwards, Inc. $ 1,877
25,600 Ambac Financial Group, Inc. 1,776
20,133 Countrywide Financial Corporation 1,527
---------
5,180
---------
Insurance - 6.9%
62,925 Fidelity National Financial, Inc. 2,440
59,700 HCC Insurance Holdings, Inc. 1,898
16,000 MGIC Investment Corporation** 911
22,500 PMI Group, Inc. 838
---------
6,087
---------
Total Financials 17,151
---------
Health Care - 12.2%
Health Care Equipment & Services - 10.2%
38,200 AmerisourceBergen Corporation 2,145
69,000 Covance Inc.+ 1,849
31,000 Express Scripts, Inc., Class A+** 2,059
11,200 Guidant Corporation 674
67,402 IMS Health Inc. 1,676
6,000 WellPoint Health Networks, Inc.+ 582
---------
8,985
---------
Pharmaceuticals & Biotechnology - 2.0%
71,825 Mylan Laboratories Inc. 1,815
---------
Total Health Care 10,800
---------
Industrials - 9.9%
Capital Goods - 7.3%
80,800 Federal Signal Corporation 1,416
65,800 Lincoln Electric Holdings, Inc. 1,628
15,600 Lockheed Martin Corporation 802
10,400 PACCAR Inc. 885
35,100 Teleflex Inc. 1,696
---------
6,427
---------
Commercial Services & Supplies - 2.1%
71,500 Republic Services, Inc. 1,833
---------
Transportation - 0.5%
16,500 Alaska Air Group, Inc.+ 450
---------
Total Industrials 8,710
---------
Information Technology - 13.8%
Computers & Peripherals - 1.5%
51,400 Electronics for Imaging, Inc.+ 1,337
---------
Electronic Equipment & Instruments - 1.7%
20,500 Arrow Electronics, Inc.+ 474
19,100 Diebold, Inc. 1,029
---------
1,503
---------
See Notes to Financial Statements. 33
portfolio of investments (continued)
MID CAP STOCK FUND
December 31, 2003
Value
Shares (000s)
------ ------
COMMON STOCK (continued)
Information Technology (continued)
IT Services - 2.3%
85,500 Acxiom Corporation+ $ 1,588
26,800 Convergys Corporation+ 468
---------
2,056
---------
Semiconductors & Semiconductor Equipment - 2.2%
58,050 Microchip Technology Inc. 1,937
---------
Software - 6.1%
24,500 Adobe Systems Inc. 963
99,700 BMC Software Inc.+ 1,859
49,400 PeopleSoft Inc.+ 1,126
41,600 Synopsys, Inc.+ 1,405
---------
5,353
---------
Total Information Technology 12,186
---------
Materials - 3.4%
51,600 Cabot Corporation 1,643
27,000 Valspar Corporation 1,334
---------
Total Materials 2,977
---------
Telecommunication Services - 0.7%
17,000 United States Cellular Corporation+ 603
---------
Utilities - 5.4%
25,800 FPL Group, Inc. 1,688
60,300 NiSource Inc. 1,323
44,900 Pinnacle West Capital Corporation 1,797
---------
Total Utilities 4,808
---------
Total Common Stock
(Cost $59,371) 81,301
---------
Principal
Amount Value
(000s) (000s)
- --------- ------
REPURCHASE AGREEMENT - 7.9%
(Cost $6,939)
$ 6,939 Agreement with Goldman Sachs
Group, Inc., 0.750% dated
12/31/2003, to be repurchased at
$6,939 on 01/02/2004
(Collateralized by U.S.
Treasury Bonds, having various
interest rates and maturities,
market value $7,083) $ 6,939
---------
TOTAL INVESTMENTS (Cost $66,310*) 100.1% 88,240
OTHER ASSETS AND LIABILITIES (Net) (0.1) (107)
----- ---------
NET ASSETS 100.0% $ 88,133
===== =========
<FN>
- ---------
* Aggregate cost for federal tax purposes is $66,968.
** Some or all of these securities are on loan at December 31, 2003, and
have an aggregate market value of $4,065, representing 4.6% of the net
assets of the Fund (Collateral Value $4,189).
+ Non-income producing security.
34 See Notes to Financial Statements.
portfolio of investments
GROWTH FUND
December 31, 2003
Value
Shares (000s)
------ ------
COMMON STOCK - 94.8%
Consumer Discretionary - 18.4%
Consumer Durables & Apparel - 0.4%
5,900 Coach, Inc.+ $ 223
11,600 Ethan Allen Interiors Inc. 486
6,200 Matsushita Electric Industrial Company Ltd. 86
---------
795
---------
Hotels, Restaurants & Leisure - 3.3%
47,400 Carnival Corporation 1,883
34,160 Hilton Hotels Corporation 585
24,300 International Game Technology 868
17,555 McDonald's Corporation 436
56,100 Royal Caribbean Cruises Ltd. 1,952
7,100 Starwood Hotels & Resorts Worldwide Inc. 255
6,000 Yum! Brands, Inc.+ 206
---------
6,185
---------
Media - 11.0%
25,023 Cablevision Systems Corporation-New York
Group, Class A+** 585
41,050 Clear Channel Communications, Inc. 1,922
131,460 Comcast Corporation, Special Class A+ 4,112
9,600 Cox Communications Inc., Class A+** 331
113,981 Liberty Media Corporation, Class A+ 1,355
12,900 New York Times Company, Class A 617
40,200 News Corporation Ltd., Sponsored ADR** 1,451
10,200 Omnicom Group Inc. 891
186,882 Time Warner Inc.+ 3,362
26,470 Univision Communications Inc., Class A+ 1,051
115,600 Viacom Inc., Class B 5,130
7,400 XM Satellite Radio Holdings Inc., Class A+ 195
---------
21,002
---------
Retailing - 3.7%
4,500 Abercrombie & Fitch Company, Class A+ 111
5,150 Bed Bath & Beyond Inc.+ 223
6,900 Best Buy Company, Inc. 360
9,300 Chico's FAS, Inc.+ 344
7,300 eBay Inc.+ 471
6,700 Federated Department Stores, Inc. 316
37,500 Gap, Inc.** 870
15,300 Home Depot, Inc. 543
9,800 Lowe's Companies, Inc. 543
2,400 Nordstrom, Inc. 82
25,780 Staples, Inc.+ 704
51,525 Target Corporation 1,979
15,495 TJX Companies, Inc. 342
5,700 Weight Watchers International, Inc.+ 219
---------
7,107
---------
Total Consumer Discretionary 35,089
---------
Value
Shares (000s)
------ ------
Consumer Staples - 6.4%
Food & Staples Retailing - 1.4%
37,040 Costco Wholesale Corporation+ $ 1,377
6,800 Sysco Corporation 253
20,700 Wal-Mart Stores Inc. 1,098
---------
2,728
---------
Food, Beverage & Tobacco - 3.5%
10,600 Altria Group, Inc. 577
42,400 Anheuser-Busch Companies, Inc. 2,234
8,000 Bunge Ltd. 263
10,600 Coca-Cola Company 538
8,600 Dean Foods Company+ 283
13,800 General Mills, Inc. 625
47,450 PepsiCo Inc. 2,212
---------
6,732
---------
Household & Personal Products - 1.5%
4,100 Alberto-Culver Company, Class B 259
8,345 Colgate-Palmolive Company** 418
13,500 Estee Lauder Companies Inc., Class A 530
5,100 Gillette Company 187
13,900 Procter & Gamble Company 1,388
---------
2,782
---------
Total Consumer Staples 12,242
---------
Energy - 5.0%
5,800 Amerada Hess Corporation 308
26,900 BJ Services Company+ 966
6,200 BP PLC, Sponsored ADR 306
8,000 Burlington Resources Inc. 443
5,000 ConocoPhillips Company 328
15,100 EnCana Corporation** 596
58,830 Exxon Mobil Corporation 2,412
27,160 Halliburton Company 706
17,405 Kinder Morgan Management LLC+ 748
9,725 Murphy Oil Corporation 635
10,950 Noble Drilling Corporation+ 392
11,600 Rowan Companies, Inc.+ 269
7,100 Schlumberger Ltd. 388
8,600 Total SA, Sponsored ADR 795
7,300 Varco International, Inc.+ 151
---------
Total Energy 9,443
---------
Financials - 10.6%
Banks - 1.5%
14,800 Bank of America Corporation 1,191
23,900 Bank One Corporation 1,090
4,000 U.S. Bancorp 119
6,000 Wells Fargo & Company 353
---------
2,753
---------
See Notes to Financial Statements. 35
portfolio of investments (continued)
GROWTH FUND
December 31, 2003
Value
Shares (000s)
------ ------
COMMON STOCK (continued)
Financials (continued)
Diversified Financials - 7.5%
56,575 American Express Company $ 2,728
79,790 Charles Schwab Corporation 945
88,726 Citigroup Inc. 4,307
11,560 Fannie Mae 868
7,650 Goldman Sachs Group, Inc.** 755
16,000 J.P. Morgan Chase & Company 588
10,200 MBNA Corporation 253
18,500 Merrill Lynch & Company, Inc. 1,085
49,040 Morgan Stanley 2,838
---------
14,367
---------
Insurance - 1.6%
12,300 Allstate Corporation 529
22,500 American International Group Inc. 1,491
138 Berkshire Hathaway Inc., Class B+ 389
2,400 Everest Re Group Ltd. 203
6,400 XL Capital Ltd., Class A 496
---------
3,108
---------
Total Financials 20,228
---------
Health Care - 15.2%
Health Care Equipment & Services - 5.5%
15,200 Aetna Inc. 1,027
5,600 Alcon, Inc. 339
7,270 Anthem, Inc.+ 545
11,700 Applera Corporation-Applied Biosystems
Group 242
3,700 Apria Healthcare Group Inc.+ 105
9,700 Boston Scientific Corporation+ 357
33,940 Caremark Rx, Inc.+** 860
8,010 Guidant Corporation 482
3,300 Invitrogen Corporation+ 231
58,130 Medtronic Inc. 2,826
16,700 Millipore Corporation+ 719
7,600 Nektar Therapeutics+ 103
16,440 St. Jude Medical, Inc.+ 1,009
17,060 UnitedHealth Group Inc. 992
3,700 Varian Medical Systems, Inc.+ 256
500 VISX, Inc.+ 12
5,100 Zimmer Holdings, Inc.+ 359
---------
10,464
---------
Pharmaceuticals & Biotechnology - 9.7%
3,700 Abbott Laboratories 172
49,085 Amgen, Inc.+ 3,033
9,300 Barr Laboratories Inc.+ 716
15,700 Biogen Idec Inc.+** 577
15,000 Bristol-Myers Squibb Company 429
9,700 Celgene Corporation+ 437
Value
Shares (000s)
------ ------
3,100 Chiron Corporation+ $ 177
9,000 Dr. Reddy's Laboratories Ltd., ADR 285
7,080 Forest Laboratories, Inc.+ 437
16,080 Genentech, Inc.+ 1,505
17,300 Gilead Sciences, Inc.+ 1,006
6,100 GlaxoSmithKline PLC, ADR** 284
4,300 Medicis Pharmaceutical Corporation, Class A 307
3,500 Merck & Company, Inc. 162
15,922 Mylan Laboratories Inc. 402
22,000 OSI Pharmaceuticals, Inc.+ 709
22,500 Perrigo Company 354
125,535 Pfizer Inc. 4,435
6,667 Roche Holding AG-Genusschein 672
17,900 Serono SA, ADR 314
12,600 SICOR, Inc.+ 343
32,400 Teva Pharmaceutical Industries Ltd.,
Sponsored ADR 1,837
---------
18,593
---------
Total Health Care 29,057
---------
Industrials - 9.7%
Capital Goods - 7.1%
10,600 3M Company 901
3,500 Danaher Corporation 321
6,900 Dover Corporation 274
195,295 General Electric Company 6,050
25,000 Honeywell International Inc. 836
10,800 Ingersoll-Rand Company, Class A 733
5,000 ITT Industries, Inc. 371
9,460 Northrop Grumman Corporation 904
51,530 Tyco International Ltd. 1,366
17,055 United Technologies Corporation 1,616
3,300 York International Corporation 122
---------
13,494
---------
Commercial Services & Supplies - 1.1%
23,900 Cendant Corporation+ 532
7,500 Dun & Bradstreet Corporation+ 381
9,200 Paychex, Inc. 342
27,900 Waste Management Inc. 826
---------
2,081
---------
Transportation - 1.5%
5,400 Canadian National Railway Company 342
11,500 Expeditors International of Washington, Inc. 433
13,155 FedEx Corporation 888
16,500 Norfolk Southern Corporation 390
25,660 Southwest Airlines Company 414
6,500 United Parcel Service, Inc., Class B 485
---------
2,952
---------
Total Industrials 18,527
---------
36 See Notes to Financial Statements.
portfolio of investments (continued)
GROWTH FUND
December 31, 2003
Value
Shares (000s)
------ ------
COMMON STOCK (continued)
Information Technology - 27.0%
Communications Equipment - 4.3%
13,530 American Tower Corporation, Class A+ $ 146
2,800 Avaya Inc.+ 36
186,435 Cisco Systems Inc.+ 4,528
6,320 Crown Castle International Corporation+ 70
99,600 Lucent Technologies Inc.+ 283
164,099 Nokia Oyj, Sponsored ADR 2,790
5,800 QUALCOMM Inc. 313
---------
8,166
---------
Computers & Peripherals - 3.4%
24,445 Apple Computer, Inc.+ 522
74,640 Dell Computer Corporation+ 2,535
49,290 EMC Corporation+ 637
19,000 International Business Machines
Corporation 1,761
10,485 Lexmark International, Inc.+ 825
4,400 Maxtor Corporation+ 49
2,100 SanDisk Corporation+ 128
6,300 Seagate Technology LLC 119
---------
6,576
---------
Electronic Equipment & Instruments - 0.8%
5,300 Agilent Technologies, Inc.+ 155
11,700 Flextronics International Ltd.+ 174
1,100 L-3 Communications Holdings, Inc.+ 57
43,800 Sanmina-SCI Corporation+ 552
27,000 Vishay Intertechnology, Inc.+ 618
---------
1,556
---------
Internet Software & Services - 2.4%
10,800 Infosys Technologies Ltd., Sponsored ADR** 1,033
17,160 Symantec Corporation+ 595
4,300 United Online, Inc.+ 72
62,360 Yahoo! Inc.+** 2,817
---------
4,517
---------
IT Services - 0.6%
20,300 Accenture Ltd., Class A+ 534
3,900 Cognizant Technology Solutions
Corporation+ 178
11,500 First Data Corporation 473
---------
1,185
---------
Semiconductors & Semiconductor Equipment - 7.6%
6,300 Advanced Micro Devices, Inc.+ 94
12,000 Analog Devices, Inc.+ 548
61,115 Applied Materials, Inc.+ 1,372
32,800 ASML Holding NV (F)+ 658
6,200 ATI Technologies Inc.+ 94
4,200 Broadcom Corporation, Class A+ 143
Value
Shares (000s)
------ ------
37,800 Cypress Semiconductor Corporation+ $ 807
135,450 Intel Corporation 4,362
8,900 International Rectifier Corporation+ 440
21,875 Linear Technology Corporation 920
23,100 LSI Logic Corporation+ 205
4,900 Marvell Technology Group Ltd.+ 186
1,700 Maxim Integrated Products Inc. 85
1,090 Microchip Technology Inc. 36
11,800 National Semiconductor Corporation+ 465
6,300 NVIDIA Corporation+ 146
2,500 QLogic Corporation+ 129
1,800 Samsung Electronics Company Ltd., GDR** 341
3,200 Silicon Laboratories Inc.+ 138
13,100 STMicroelectronics NV (F) 354
74,632 Taiwan Semiconductor Manufacturing
Company Ltd., Sponsored ADR+ 764
69,125 Texas Instruments Inc. 2,031
13,400 United Microelectronics Corporation, ADR+ 66
2,100 Xilinx, Inc.+ 81
---------
14,465
---------
Software - 7.9%
27,800 Adobe Systems Inc. 1,093
31,100 Cadence Design Systems, Inc.+ 559
34,020 Computer Associates International, Inc. 930
19,875 Electronic Arts Inc.+ 950
18,545 Intuit Inc.+ 981
3,500 Mercury Interactive Corporation+ 170
255,795 Microsoft Corporation 7,045
12,000 Network Associates, Inc.+ 180
105,110 Oracle Corporation+ 1,387
4,400 SAP AG, Sponsored ADR 183
46,395 VERITAS Software Corporation+** 1,724
---------
15,202
---------
Total Information Technology 51,667
---------
Materials - 2.2%
18,600 Air Products & Chemicals, Inc. 983
30,700 Alcoa Inc. 1,167
9,900 Dow Chemical Company 411
9,200 Ecolab, Inc. 252
37,600 Praxair, Inc. 1,436
---------
Total Materials 4,249
---------
Telecommunication Services - 0.3%
900 Mobile Telesystems OJSC, Sponsored ADR+ 75
12,900 Telefonos de Mexico SA de CV, Class L,
Sponsored ADR 426
1,100 VimpelCom, Sponsored ADR+ 81
---------
Total Telecommunication Services 582
---------
See Notes to Financial Statements. 37
portfolio of investments (continued)
GROWTH FUND
December 31, 2003
Value
Shares (000s)
------ ------
COMMON STOCK (continued)
Utilities - 0.0% ++
3,125 Philadelphia Suburban Corporation $ 69
---------
Total Common Stock
(Cost $155,869) 181,153
---------
REAL ESTATE INVESTMENT TRUST - 0.3%
(Cost $516)
46,900 Host Marriott Corporation+ 578
---------
INVESTMENT COMPANY SECURITY - 0.2%
(Cost $374)
13,300 Nasdaq-100 Index Tracking Stock+** 485
---------
Principal
Amount
(000s)
- ---------
U.S. GOVERNMENT AGENCY DISCOUNT NOTE - 0.3%
(Cost $500)
Federal Home Loan Bank (FHLB) - 0.3%
$ 500 0.750% due 01/02/2004*** 500
---------
REPURCHASE AGREEMENT - 4.5%
(Cost $8,593)
8,593 Agreement with Goldman Sachs
Group, Inc., 0.750% dated
12/31/2003, to be repurchased at
$8,593 on 01/02/2004
(Collateralized by U.S.
Treasury Bonds, having various
interest rates and maturities,
market value $8,771) 8,593
---------
TOTAL INVESTMENTS (Cost $165,852*) 100.1% 191,309
OTHER ASSETS AND LIABILITIES (Net) (0.1) (198)
----- ---------
NET ASSETS 100.0% $ 191,111
===== =========
<FN>
- ---------
* Aggregate cost for federal tax purposes is $167,739.
** Some or all of these securities are on loan at December 31, 2003, and
have an aggregate market value of $8,136, representing 4.3% of the net
assets of the Fund (Collateral Value $8,344).
*** Rate represents discount rate on purchase date.
+ Non-income producing security.
++ Amount represents less than 0.1% of the net assets.
SCHEDULE OF FORWARD FOREIGN CURRENCY CONTRACTS
Forward Foreign Currency Contracts to Sell
Contracts to Deliver
(000s)
----------------------------------------------
Net
Unrealized
Expiration Local Value in In Exchange Depreciation
Date Currency U.S. $ for U.S. $ of Contracts
- ---------- -------- -------- ----------- ------------
02/06/2004 EUR 240 303 274 $ (29)
03/26/2004 EUR 140 176 160 (16)
-------
Net Unrealized Depreciation of Forward Foreign
Currency Contracts $ (45)
=======
- --------------------------------------
GLOSSARY OF TERMS
ADR -- American Depository Receipt
EUR -- EURO
(F) -- Foreign Shares
GDR -- Global Depository Receipt
- --------------------------------------
38 See Notes to Financial Statements.
portfolio of investments
SMALL CAP STOCK FUND
December 31, 2003
Value
Shares (000s)
------ ------
COMMON STOCK - 96.7%
Consumer Discretionary - 14.0%
Consumer Durables & Apparel - 0.9%
7,400 Deckers Outdoor Corporation+ $ 152
30,800 Quiksilver, Inc.+ 546
---------
698
---------
Hotels, Restaurants & Leisure - 3.2%
125,300 Intrawest Corporation 2,317
---------
Media - 2.8%
14,900 Getty Images, Inc.+** 747
414,900 Sirius Satellite Radio Inc.+** 1,311
---------
2,058
---------
Retailing - 7.1%
34,600 AnnTaylor Stores Corporation+ 1,349
85,400 Building Materials Holding Corporation 1,326
91,000 West Marine, Inc.+ 2,531
---------
5,206
---------
Total Consumer Discretionary 10,279
---------
Consumer Staples - 4.0%
Food & Staples Retailing - 4.0%
145,000 SunOpta Inc.+ 1,338
43,800 United Natural Foods, Inc.+ 1,573
---------
Total Consumer Staples 2,911
---------
Energy - 4.2%
103,000 Headwaters Inc.+ 2,021
90,400 Hydrogenics Corporation+** 557
68,400 Quantum Fuel Systems Technologies
Worldwide, Inc.+ 550
---------
Total Energy 3,128
---------
Financials - 9.2%
Banks - 0.2%
4,700 Frontier Financial Corporation 156
---------
Diversified Financials - 9.0%
25,800 Affiliated Managers Group, Inc.+ 1,795
73,408 American Capital Strategies Ltd.** 2,182
41,200 First Albany Companies Inc. 579
53,100 Investors Financial Services Corporation** 2,040
---------
6,596
---------
Total Financials 6,752
---------
Health Care - 20.3%
Health Care Equipment & Services - 5.0%
29,900 Accredo Health, Inc.+ 945
55,400 Affymetrix, Inc.+ 1,363
64,700 SonoSite, Inc.+ 1,387
---------
3,695
---------
Value
Shares (000s)
------ ------
Pharmaceuticals & Biotechnology - 15.3%
75,700 Antigenics Inc.+** $ 857
176,400 Corixa Corporation+** 1,066
189,900 Dendreon Corporation+ 1,531
151,400 Emisphere Technologies, Inc.+ 830
20,100 Medicis Pharmaceutical Corporation, Class A 1,433
76,700 Myriad Genetics, Inc.+** 986
102,700 Neose Technologies, Inc.+ 945
144,500 Pain Therapeutics, Inc.+ 1,004
151,500 Pharmacyclics, Inc.+ 1,121
92,800 Zymogenetics, Inc.+ 1,438
---------
11,211
---------
Total Health Care 14,906
---------
Industrials - 9.9%
Commercial Services & Supplies - 9.9%
170,500 Digimarc Corporation+ 2,268
80,700 Euronet Worldwide, Inc.+ 1,452
202,500 Exult Inc.+ 1,442
70,577 First Consulting Group, Inc.+ 397
44,300 Gevity HR, Inc. 985
29,100 Kroll Inc.+ 757
---------
Total Industrials 7,301
---------
Information Technology - 33.9% ++
Communications Equipment - 3.3%
76,400 InterDigital Communications Corporation+ 1,577
11,500 REMEC, Inc.+ 96
40,900 ViaSat, Inc.+ 783
---------
2,456
---------
Computers & Peripherals - 0.7%
87,700 Immersion Corporation+ 522
---------
Electronic Equipment & Instruments - 2.7%
47,300 Microvision, Inc.+** 361
43,000 Trimble Navigation Ltd.+ 1,601
---------
1,962
---------
Internet Software & Services - 9.6%
18,700 aQuantive, Inc.+ 192
579,812 Click2learn, Inc.+** 1,217
317,900 Corillian Corporation+ 2,006
829,900 Intraware, Inc.+ 1,718
127,800 Online Resources Corporation+ 845
166,900 Primus Knowledge Solutions, Inc.+ 1,050
---------
7,028
---------
IT Services - 2.4%
183,300 Lionbridge Technologies, Inc.+ 1,762
---------
See Notes to Financial Statements. 39
portfolio of investments (continued)
SMALL CAP STOCK FUND
December 31, 2003
Value
Shares (000s)
------ ------
COMMON STOCK (continued)
Information Technology (continued)
Semiconductors & Semiconductor Equipment - 3.9%
36,940 Credence Systems Corporation+** $ 486
49,320 FEI Company+** 1,110
115,900 Pixelworks, Inc.+** 1,279
---------
2,875
---------
Software - 11.3%
569,800 BSQUARE Corporation+ 815
23,900 Business Objects SA, Sponsored ADR+ 828
72,100 Informatica Corporation+ 743
91,242 NetIQ Corporation+ 1,209
116,200 Nuance Communications Inc.+ 888
234,100 ONYX Software Corporation+ 922
81,800 PDF Solutions, Inc.+ 1,219
313,700 ScanSoft, Inc.+ 1,669
---------
8,293
---------
Total Information Technology 24,898
---------
Materials - 0.7%
172,400 Liquidmetal Technologies Inc.+** 489
---------
Telecommunication Services - 0.5%
24,870 Gilat Satellite Networks Ltd.+ 122
27,900 Primus Telecommunications Group, Inc.+ 284
---------
Total Telecommunication Services 406
---------
Total Common Stock
(Cost $57,337) 71,070
---------
Principal
Amount Value
(000s) (000s)
- --------- ------
REPURCHASE AGREEMENT - 1.1%
(Cost $834)
$ 834 Agreement with Goldman Sachs
Group, Inc., 0.750% dated
12/31/2003, to be repurchased at
$834 on 01/02/2004
(Collateralized by U.S.
Treasury Bonds, having various
interest rates and maturities,
market value $851) $ 834
---------
TOTAL INVESTMENTS (Cost $58,171*) 97.8% 71,904
OTHER ASSETS AND LIABILITIES (Net) 2.2 1,612
----- ---------
NET ASSETS 100.0% $ 73,516
===== =========
<FN>
- ---------
* Aggregate cost for federal tax purposes is $69,212.
** Some or all of these securities are on loan at December 31, 2003, and
have an aggregate market value of $10,641, representing 14.5% of the net
assets of the Fund (Collateral Value $11,940).
+ Non-income producing security.
++ Investments in the Information Technology sector as of December 31,
2003 are 33.9% of the net assets of the Fund.
- -------------------------------------------
GLOSSARY OF TERMS
ADR -- American Depository Receipt
- -------------------------------------------
40 See Notes to Financial Statements.
portfolio of investments
INTERNATIONAL GROWTH FUND
December 31, 2003
Value
Shares (000s)
------ ------
COMMON STOCK - 94.8%
Japan - 20.0% +++
2,900 Advantest Corporation $ 230
21,000 AEON Company Ltd. 703
2,280 Aiful Corporation 167
8,000 Canon Inc. 373
7,300 Chugai Pharmaceutical Company Ltd.** 105
10,000 Dai Nippon Printing Company Ltd. 140
15,000 Daiwa House Industry Company Ltd. 160
20,000 Daiwa Securities Group Inc. 136
4,400 FANUC Ltd. 264
3,000 Fuji Photo Film Company Ltd. 97
3,600 Hirose Electric Company Ltd. 413
2,600 Honda Motor Company Ltd. 116
3,800 Hoya Corporation 349
25,000 Japan Airlines System Corporation 66
16,900 Kansai Electric Power Company, Inc. 296
600 Keyence Corporation 126
22 Millea Holdings, Inc. 287
30,000 Mitsubishi Corporation 318
42,000 Mitsubishi Estate Company Ltd. 398
44,000 Mitsubishi Heavy Industries Ltd. 122
69,000 Mitsubishi Motors Corporation+** 141
19 Mitsubishi Tokyo Financial Group, Inc. 148
23,000 Mitsui Fudosan Company Ltd. 208
47,000 Mitsui Sumitomo Insurance Company Ltd. 386
3,300 Murata Manufacturing Company Ltd. 178
108,000 NEC Corporation 795
2,200 Nidec Corporation 210
27,000 Nikko Cordial Corporation 150
13,000 Nikon Corporation 196
2,100 Nintendo Company Ltd. 196
82,000 Nippon Steel Corporation+ 176
58,000 Nissan Motor Company Ltd. 662
7,700 Nitto Denko Corporation 410
16,000 Nomura Securities Company Ltd. 272
46 NTT DoCoMo Inc. 104
5,500 ORIX Corporation 455
10,000 Ricoh Company, Ltd. 197
4,000 Rohm Company Ltd. 469
19,000 Sankyo Company Ltd. 357
31,000 Sekisui House Ltd. 320
1,600 Shimamura Company Ltd. 109
3,000 Shin-Etsu Chemical Company Ltd. 123
24,000 Shionogi & Company Ltd. 447
2,100 SMC Corporation 261
1,500 SOFTBANK Corporation** 46
15,000 Sompo Japan Insurance Inc. 123
7,442 Sony Corporation 258
45,000 Sumitomo Chemical Company Ltd. 186
31,000 Suzuki Motor Corporation 459
10,500 Tokyo Electron Ltd. 798
Value
Shares (000s)
------ ------
52,000 Toray Industries Inc. $ 217
2,000 Tostem Inax Holding Corporation 39
11,000 Toyota Motor Corporation 372
900 Unicharm Corporation 44
30 Vodafone Holdings K.K. 80
24 Yahoo! Japan Corporation+** 323
8,000 Yamato Transport Company Ltd. 94
---------
14,875
---------
United Kingdom - 17.2%
7,400 Anglo American PLC 160
31,000 ARM Holdings PLC+ 71
38,600 AstraZeneca PLC 1,852
10,500 AstraZeneca PLC (F) 511
64,610 BAE SYSTEMS PLC 195
32,100 Barclays PLC 286
137,500 BG Group PLC 706
76,237 BHP Billiton PLC 666
12,900 Brambles Industries PLC 47
58,800 Centrica PLC 222
15,200 Compass Group PLC 103
18,300 Diageo PLC 241
4,400 GlaxoSmithKline PLC 101
36,100 HBOS PLC 468
42,400 HSBC Holdings PLC** 666
47,000 National Grid Group PLC 337
49,000 Pearson PLC 546
17,300 Prudential PLC 146
5,700 Reckitt Benckiser PLC 129
14,800 Reed Elsevier PLC 124
2,900 Rio Tinto PLC 80
31,000 Royal Bank of Scotland Group PLC 913
13,200 Smith & Nephew PLC 111
45,180 Smiths Group PLC 535
33,100 Standard Chartered PLC 547
63,000 TI Automotive Ltd., Class A+ 0***
34,700 Unilever PLC 323
978,498 Vodafone Group PLC 2,426
4,800 Wolseley PLC 68
20,000 Xstrata PLC** 226
---------
12,806
---------
France - 11.2%
6,400 Accor SA 290
18,100 BNP Paribas SA 1,140
20,400 Bouygues SA++ 713
2,500 Carrefour SA 137
4,100 Essilor International SA 212
12,500 France Telecom SA 357
2,800 Groupe Danone 457
2,437 L'Air Liquide SA 430
2,900 L'Oreal SA 238
9,400 Renault SA 649
See Notes to Financial Statements. 41
portfolio of investments (continued)
INTERNATIONAL GROWTH FUND
December 31, 2003
Value
Shares (000s)
------ ------
COMMON STOCK (continued)
France (continued)
29,700 Sanofi-Synthelabo SA $ 2,237
5,000 Schneider Electric SA 327
1,900 Societe Generale Group 168
10,000 STMicroelectronics NV 271
1,300 STMicroelectronics NV (F) 35
26,600 Vivendi Universal SA 647
---------
8,308
---------
Netherlands - 10.1%
47,402 ABN AMRO Holding NV 1,109
76,193 AEGON NV 1,127
5,000 Heineken Holding NV, Class A 171
21,200 Heineken NV 807
24,631 ING Groep NV 574
90,200 Koninklijke (Royal) KPN NV+ 696
5,600 Koninklijke (Royal) Philips Electronics NV 164
5,300 Koninklijke Numico NV+ 147
4,200 Reed Elsevier NV 52
35,200 Royal Dutch Petroleum Company 1,856
2,900 Royal Dutch Petroleum Company (F) 152
6,100 TPG NV 143
5,700 Unilever NV 373
4,859 VNU NV 154
---------
7,525
---------
Switzerland - 8.8%
22,961 ABB Ltd 116
30,194 Compagnie Financiere Richemont AG,
A Units 725
3,458 Credit Suisse Group 127
12,411 Holcim Ltd. 578
3,484 Nestle SA 871
26,865 Novartis AG 1,220
3,699 Roche Holding AG-Genusschein 373
175 Serono SA 125
13,603 Swiss Reinsurance Company 918
2,265 Swisscom AG 747
170 Synthes-Stratec, Inc. 168
8,040 UBS AG 551
---------
6,519
---------
Germany - 5.1%
3,700 Allianz AG 467
3,900 Bayerische Motoren Werke (BMW) AG 181
7,500 DaimlerChrysler AG 350
5,600 Deutsche Bank AG 464
1,832 Deutsche Boerse AG 100
8,500 Deutsche Telekom AG 156
3,700 Epcos AG+** 83
11,700 Infineon Technologies AG+** 163
3,200 Metro AG 141
Value
Shares (000s)
------ ------
2,957 Muenchener Rueckversicherungs-
Gesellschaft AG $ 358
2,300 SAP AG 386
1,200 SAP AG, Sponsored ADR 50
9,200 Siemens AG 737
9,400 ThyssenKrupp AG 186
---------
3,822
---------
Canada - 3.8%
28,800 Abitibi-Consolidated Inc.** 231
3,300 Alcan Inc.** 155
14,700 BCE Inc.** 329
98,300 Bombardier Inc., Class B++** 416
5,400 Inco Ltd.+ 216
3,500 Manulife Financial Corporation 113
4,200 National Bank of Canada** 140
8,900 Suncor Energy Inc.** 224
11,200 TELUS Corporation** 210
20,900 Thomson Corporation** 761
---------
2,795
---------
Spain - 2.8%
57,500 Banco Bilbao Vizcaya Argentaria SA** 794
23,700 Industria de Diseno Textil SA (Inditex) 481
10,400 Repsol YPF SA 203
39,990 Telefonica SA 587
---------
2,065
---------
Australia - 2.3% +++
26,000 Alumina Ltd. 129
13,900 Amcor Ltd. 86
13,045 Australia & New Zealand Banking
Group Ltd. 174
12,772 BHP Billiton Ltd. 117
20,000 Brambles Industries Ltd.** 80
89,512 Foster's Group Ltd. 303
9,200 National Australia Bank Ltd. 208
13,897 News Corporation Ltd. 126
23,641 QBE Insurance Group Ltd. 189
3,600 Wesfarmers Ltd. 72
26,000 WMC Resources Ltd.+ 110
16,200 Woolworths Ltd. 144
---------
1,738
---------
Hong Kong - 2.2% +++
27,000 Cheung Kong Holdings Ltd. 215
176,500 Hang Lung Properties Ltd.** 226
10,600 Hang Seng Bank Ltd. 139
68,000 Hongkong Land Holdings Ltd. 116
18,000 Hutchison Whampoa Ltd. 133
168,000 Johnson Electric Holdings Ltd. 214
170,000 Li & Fung Ltd. 291
42 See Notes to Financial Statements.
portfolio of investments (continued)
INTERNATIONAL GROWTH FUND
December 31, 2003
Value
Shares (000s)
------ ------
COMMON STOCK (continued)
Hong Kong (continued)
18,000 Sung Hung Kai Properties Ltd. $ 149
25,000 Swire Pacific Ltd., Class A 154
---------
1,637
---------
Singapore - 1.9% +++
11,000 DBS Group Holdings Ltd. 95
23,000 DBS Group Holdings Ltd., ADR++ 199
14,000 Singapore Press Holdings Ltd. 156
139,000 Singapore Technologies Engineering Ltd. 167
723,000 Singapore Telecommunications Ltd. (F)++ 832
---------
1,449
---------
Norway - 1.7%
20,700 DnB Holding ASA 138
9,400 Norsk Hydro ASA 580
5,100 Norske Skogindustrier ASA 97
39,300 Statoil ASA 442
---------
1,257
---------
Sweden - 1.2%
28,200 Assa Abloy AB, B Shares 335
22,500 ForeningsSparbanken AB 443
7,200 Svenska Handlesbanken AB, A Shares 147
---------
925
---------
Finland - 1.1%
32,000 Nokia Oyj 554
12,600 UPM-Kymmene Oyj 240
---------
794
---------
Taiwan - 1.1% +++
76,750 Taiwan Semiconductor Manufacturing
Company Ltd., Sponsored ADR+ 786
---------
Italy - 0.9%
4,700 Assicurazioni Generali SpA 124
22,250 Eni SpA 420
20,200 UniCredito Italiano SpA 109
---------
653
---------
South Korea - 0.8% +++
1,565 Samsung Electronics Company Ltd. 592
---------
Brazil - 0.7%
3,100 Companhia Vale do Rio Doce, ADR 181
6,000 Companhia Vale do Rio Doce,
Sponsored ADR 309
---------
490
---------
Value
Shares (000s)
------ ------
Mexico - 0.6%
8,100 America Movil SA de CV, Series L, ADR $ 221
6,200 Telefonos de Mexico SA de CV, Class L,
Sponsored ADR 205
---------
426
---------
Denmark - 0.4%
5,200 Novo Nordisk A/S, Class B 212
1,400 TDC A/S 50
---------
262
---------
Ireland - 0.3%
12,585 CRH PLC 258
---------
China - 0.2% +++
46,000 China Mobile (Hong Kong) Ltd. 141
---------
Russia - 0.2%
3,300 YUKOS, ADR 141
---------
Belgium - 0.2%
13,600 SES GLOBAL, FDR 137
---------
South Africa - 0.0% ****
2,400 Sasol Ltd. 34
---------
New Zealand - 0.0% +++****
309 Telecom Corporation of New Zealand Ltd. 1
---------
Total Common Stock
(Cost $59,067) 70,436
---------
CONVERTIBLE PREFERRED STOCKS - 0.6%
Japan - 0.6% +++
3,000,000 Sumitomo Mitsui Finance Group Inc. (F),
Conv. Pfd., 2.250% due 07/11/2005 53
24,000,000 Sumitomo Mitsui Finance Group Inc. (F),
Conv. Pfd., 2.250% due 07/11/2005++ 420
---------
Total Convertible Preferred Stocks
(Cost $211) 473
---------
PREFERRED STOCK - 0.1%
(Cost $12)
South Korea - 0.1% +++
210 Samsung Electronics Company Ltd. 43
---------
Principal
Amount
(000s)
- ---------
CONVERTIBLE BONDS - 0.1%
(Cost $65)
Switzerland - 0.1%
$ 95 Credit Suisse Group Financial, Conv. Jr. Bond,
6.000% due 12/23/2005 105
---------
See Notes to Financial Statements. 43
portfolio of investments (continued)
INTERNATIONAL GROWTH FUND
December 31, 2003
Principal
Amount
(000s)
- ---------
REPURCHASE AGREEMENT - 4.8%
(Cost $3,570)
$ 3,570 Agreement with Goldman Sachs
Group, Inc., 0.750% dated
12/31/2003, to be repurchased at
$3,570 on 01/02/2004
(Collateralized by U.S.
Treasury Bonds, having various
interest rates and maturities,
market value $3,644) $ 3,570
---------
TOTAL INVESTMENTS (Cost $62,925*) 100.4% 74,627
OTHER ASSETS AND LIABILITIES (Net) (0.4) (307)
----- ---------
NET ASSETS 100.0% $ 74,320
===== =========
<FN>
- ---------
* Aggregate cost for federal tax purposes is $63,627.
** Some or all of these securities are on loan at December 31, 2003, and
have an aggregate market value of $4,571, representing 6.2% of the net
assets of the Fund (Collateral Value $4,761).
*** Value of security is $0.
**** Amount represents less than 0.1% of the net assets.
+ Non-income producing security.
++ Security acquired in a transaction exempt from registration under
Rule 144A of the Securities Act of 1933.
+++ Investments in the areas of the Pacific Rim as of December 31, 2003
are 29.2% of the net assets of the Fund.
As of December 31, 2003, sector diversification is as follows:
% of Value
Sector Diversification Net Assets (000s)
---------------------- ---------- ------
COMMON STOCK:
Banks 12.3% $ 9,173
Telecommunication Services 10.6 7,855
Pharmaceuticals & Biotechnology 10.1 7,540
Materials 7.6 5,678
Energy 6.4 4,758
Insurance 5.7 4,238
Capital Goods 5.7 4,208
Food, Beverage & Tobacco 5.0 3,693
Semiconductors & Semiconductor Equipment 4.9 3,611
Automobiles & Components 3.9 2,930
Media 3.6 2,703
Diversified Financials 2.7 2,008
Consumer Durables & Apparel 2.6 1,920
Retailing 2.3 1,725
Electronic Equipment & Instruments 1.8 1,359
Real Estate Investment Trusts 1.8 1,312
Utilities 1.2 855
Commercial Services & Supplies 1.1 837
Computers & Peripherals 1.1 795
Other 4.4 3,238
----- --------
TOTAL COMMON STOCK 94.8 70,436
CONVERTIBLE PREFERRED STOCKS 0.6 473
PREFERRED STOCK 0.1 43
CONVERTIBLE BONDS 0.1 105
REPURCHASE AGREEMENT 4.8 3,570
----- --------
TOTAL INVESTMENTS 100.4 74,627
OTHER ASSETS AND LIABILITIES (Net) (0.4) (307)
----- --------
NET ASSETS 100.0% $ 74,320
===== ========
44 See Notes Financial Statements.
portfolio of investments (continued)
INTERNATIONAL GROWTH FUND
December 31, 2003
SCHEDULE OF FORWARD FOREIGN CURRENCY CONTRACTS
Forward Foreign Currency Contracts To Buy
Contracts to Receive
(000s)
-----------------------------------------
Net
Unrealized
Expiration Local Value in In Exchange Appreciation
Date Currency U.S. $ for U.S. $ of Contracts
- ---------- ------------------ -------- ----------- ------------
01/02/2004 EUR 62 78 77 $ 1
01/05/2004 CHF 42 34 34 --***
01/20/2004 CAD 525 406 395 11
01/30/2004 CHF 427 345 304 41
05/12/2004 GBP 281 498 461 37
05/26/2004 JPY 85,781 804 790 14
-------
$ 104
-------
Forward Foreign Currency Contracts To Sell
Contracts to Deliver
(000s)
-------------------------------------------
Net
Unrealized
Appreciation/
Expiration Local Value in In Exchange (Depreciation)
Date Currency U.S. $ for U.S. $ of Contracts
- ---------- ------------------ -------- ----------- ------------
01/05/2004 NZD 34 22 22 $ --***
01/06/2004 ZAR 123 18 18 --***
01/07/2004 ZAR 180 27 27 --***
01/20/2004 JPY 42,886 400 394 (6)
01/30/2004 CHF 427 345 317 (28)
03/04/2004 JPY 25,777 241 223 (18)
05/12/2004 CHF 630 511 460 (51)
05/26/2004 CHF 1,025 832 791 (41)
------
$ (144)
------
Net Unrealized Depreciation of Forward Foreign
Currency Contracts $ (40)
======
<FN>
- ---------
*** Amount represents less than $500.
- --------------------------------------------
GLOSSARY OF TERMS
ADR -- American Depository Receipt
CAD -- Canadian Dollar
CHF -- Swiss Franc
EUR -- EURO
(F) -- Foreign Shares
FDR -- Fiduciary Depository Receipt
GBP -- Great Britain Pound Sterling
JPY -- Japanese Yen
NZD -- New Zealand Dollar
ZAR -- South African Rand
- --------------------------------------------
See Notes to Financial Statements. 45
portfolio of investments
SHORT TERM INCOME FUND
December 31, 2003
Principal
Amount Value
(000s) (000s)
- --------- ------
CORPORATE BONDS AND NOTES - 68.5%
Financial Services - 12.9%
$ 1,000 Berkshire Hathaway Inc., Note,
3.375% due 10/15/2008++ $ 994
CIT Group Inc., Sr. Note:
1,000 7.375% due 04/02/2007 1,130
500 7.625% due 08/16/2005 543
500 Goldman Sachs Group, Inc., Note,
4.125% due 01/15/2008 513
Household Finance Corporation, Note:
1,500 5.750% due 01/30/2007 1,623
250 7.875% due 03/01/2007 286
1,500 Rollins Truck Leasing Corporation, Deb.,
8.375% due 02/15/2007** 1,741
---------
6,830
---------
Banks - 10.5%
750 Capital One Bank, Sr. Note,
8.250% due 06/15/2005 812
1,000 J.P. Morgan Chase & Company, Note,
5.350% due 03/01/2007 1,071
1,500 MBNA America Bank N.A., Note,
6.500% due 06/20/2006 1,634
1,000 U.S. Bank N.A., Note,
2.850% due 11/15/2006 1,005
1,000 Wachovia Corporation, Sr. Note,
6.700% due 06/21/2004 1,026
---------
5,548
---------
Real Estate Investment Trusts/Property - 10.2%
750 Developers Diversified Realty Corporation,
Sr. Note, 6.625% due 01/15/2008 812
800 Duke-Weeks Realty Corporation, Note,
7.375% due 08/01/2007 910
600 EOP Operating LP, Note,
7.750% due 11/15/2007 688
1,000 Health Care Property Investors Inc., Note,
6.875% due 06/08/2005 1,048
1,000 Nationwide Health Properties Inc., Note,
9.750% due 03/20/2008 1,157
750 Shurgard Storage Centers, Inc., Note,
7.500% due 04/25/2004 763
---------
5,378
---------
Telecommunications - 4.5%
750 Deutsche Telekom International Finance BV,
Company Guarantee, 8.250% due 06/15/2005 814
500 TELUS Corporation, Note,
7.500% due 06/01/2007 560
1,000 Verizon Global Funding Corporation, Note,
4.000% due 01/15/2008 1,020
---------
2,394
---------
Cable TV - 4.5%
1,250 AOL Time Warner Inc., Note,
6.150% due 05/01/2007 1,361
1,000 Cox Enterprises, Inc., Note,
4.375% due 05/01/2008++ 1,017
---------
2,378
---------
Principal
Amount Value
(000s) (000s)
- --------- ------
Food - 4.2%
$ 1,000 ConAgra Inc., Sr. Note,
9.875% due 11/15/2005** $ 1,131
1,000 Safeway Inc., Sr. Note,
6.150% due 03/01/2006 1,071
---------
2,202
---------
Auto Manufacturing & Parts - 4.1%
1,000 Ford Motor Credit Company, Note,
6.500% due 01/25/2007 1,066
1,000 Toyota Motor Credit Corporation, Note,
5.650% due 01/15/2007 1,103
---------
2,169
---------
Airlines - 4.1%
2,000 Southwest Airlines Company,
Pass-thru Certificates,
5.496% due 11/01/2006 2,133
---------
Utilities - 3.5%
1,000 Constellation Energy Group, Inc., Note,
6.350% due 04/01/2007 1,095
750 Texas-New Mexico Power Company, Sr. Note,
6.250% due 01/15/2009 760
---------
1,855
---------
Information Technology - 2.1%
1,000 Computer Science Corporation, Note,
6.750% due 06/15/2006 1,097
---------
Services - 2.0%
1,000 PHH Corporation, Note,
6.000% due 03/01/2008 1,077
---------
Consumer Products/Services - 1.9%
1,000 Carnival Corporation, Company Guarantee,
3.750% due 11/15/2007++ 1,003
---------
Chemicals/Mining/Machinery - 1.5%
750 Consolidated Coal Company,
Company Guarantee,
8.210% due 06/21/2004 766
---------
Paper/Forest Products - 1.0%
500 Weyerhaeuser Company, Note,
6.000% due 08/01/2006 536
---------
Aerospace/Defense - 1.0%
500 Boeing Capital Corporation, Sr. Note,
5.650% due 05/15/2006 534
---------
Retail - 0.5%
250 Federated Department Stores Inc., Bond,
6.790% due 07/15/2027 266
---------
Total Corporate Bonds and Notes
(Cost $34,356) 36,166
---------
46 See Notes to Financial Statements.
portfolio of investments (continued)
SHORT TERM INCOME FUND
December 31, 2003
Principal
Amount Value
(000s) (000s)
- --------- ------
ASSET-BACKED SECURITIES - 4.6%
$ 750 Atlantic City Electric Transition Funding
LLC, Series 2003-1, Class A, 2.890%
due 07/20/2011 $ 748
1,000 Capital One Multi-Asset Execution Trust,
Series 2003-A6, Class A6, 2.950%
due 08/17/2009 1,008
273 FFCA Secured Lending Corporation,
Series 1999-2, Class WA1A,
7.130% due 05/18/2026++ 276
Green Tree Financial Corporation:
250 Series 1995-1, Class B2, (in default),
9.200% due 06/15/2025 73
80 Series 1995-6, Class B1,
7.700% due 09/15/2026 42
130 Green Tree Home Improvement,
Series 1995-D, Class B2,
7.450% due 09/15/2025 130
166 Mid-State Trust, Series 4, Class A,
8.330% due 04/01/2030 180
---------
Total Asset-Backed Securities
(Cost $2,664) 2,457
---------
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED
SECURITIES - 6.9%
Federal National Mortgage Association (FNMA) - 3.7%
1,000 4.250% due 06/15/2027 1,000
442 6.500% due 01/01/2014 469
370 8.000% due 05/01/2027 405
52 8.500% due 11/01/2017 57
---------
Total FNMAs
(Cost $1,893) 1,931
---------
Adjustable Rate Mortgage-Backed Securities (ARMS) - 1.4%
26 Federal Home Loan Mortgage Corporation
(FHLMC), 3.413% due 11/01/2021+ 27
Federal National Mortgage Association
(FNMA):
616 4.645% due 11/01/2032+ 628
26 5.595% due 04/01/2019+ 27
34 4.810% due 11/01/2035+ 34
14 4.852% due 01/01/2019+ 14
2 3.213% due 11/01/2022+ 2
10 3.250% due 11/01/2021+ 10
---------
Total ARMSs
(Cost $752) 742
---------
Federal Home Loan Mortgage Corporation (FHLMC) - 1.0%
489 6.000% due 05/01/2017 513
32 9.500% due 08/01/2016 36
---------
Total FHLMCs
(Cost $529) 549
---------
Principal
Amount Value
(000s) (000s)
- --------- ------
Government National Mortgage Association (GNMA) - 0.8%
$ 54 8.000% due 06/15/2009-08/15/2012 $ 58
45 9.000% due 12/15/2020-04/20/2025 50
256 10.000% due 12/15/2017-04/15/2025 289
20 11.000% due 12/15/2015 23
---------
Total GNMAs
(Cost $399) 420
---------
Total U.S. Government Agency Mortgage-
Backed Securities (Cost $3,573) 3,642
---------
U.S. GOVERNMENT AGENCY OBLIGATIONS - 3.8%
1,000 Federal Home Loan Mortgage Corporation,
Bond, 3.250% due 02/25/2008 992
1,000 Federal National Mortgage Association, Note,
4.750% due 03/15/2004 1,008
---------
Total U.S. Government Agency Obligations
(Cost $1,996) 2,000
---------
U.S. TREASURY NOTES - 2.9%
1,000 2.000% due 05/15/2006 1,001
500 6.000% due 08/15/2004** 515
---------
Total U.S. Treasury Notes
(Cost $1,507) 1,516
---------
COLLATERALIZED MORTGAGE OBLIGATIONS (CMO) - 1.1%
43 Deutsche Mortgage Securities, Inc.,
Series 2002-1, Class A13,
8.500% due 01/25/2033 43
515 Federal Home Loan Mortgage Corporation,
Series 2541, Class LU,
4.000% due 12/15/2027 522
---------
Total CMOs
(Cost $558) 565
---------
COMMERCIAL MORTGAGE-BACKED SECURITIES (CMBS) - 1.0%
(Cost $482)
483 GMAC Commercial Mortgage Securities Inc.,
Series 1999-CTL1, Class A,
7.151% due 02/15/2008++ 523
---------
See Notes to Financial Statements. 47
portfolio of investments (continued)
SHORT TERM INCOME FUND
December 31, 2003
Principal
Amount Value
(000s) (000s)
- --------- ------
REPURCHASE AGREEMENT - 10.1%
(Cost $5,321)
$ 5,321 Agreement with Goldman Sachs
Group, Inc., 0.750% dated
12/31/2003, to be repurchased at
$5,321 on 01/02/2004
(Collateralized by U.S.
Treasury Bonds, having various
interest rates and maturities,
market value $5,431) $ 5,321
---------
TOTAL INVESTMENTS (Cost $50,457*) 98.9% 52,190
OTHER ASSETS AND LIABILITIES (Net) 1.1 595
----- ---------
NET ASSETS 100.0% $ 52,785
===== =========
<FN>
- ---------
* Aggregate cost for federal tax purposes.
** Security segregated as collateral for futures contracts.
+ Variable rate security. The interest rate shown reflects the rate in
effect at December 31, 2003.
++ Security acquired in a transaction exempt from registration under
Rule 144A of the Securities Act of 1933.
Unrealized
Number of Value Depreciation
Contracts (000s) (000s)
----------- ------- ------------
Futures Contracts-Short Position
35 U.S. 5 Year Treasury Note,
March 2004 $ 3,907 $ (63)
========
48 See Notes to Financial Statements.
portfolio of investments
U.S. GOVERNMENT SECURITIES FUND
December 31, 2003
Principal
Amount Value
(000s) (000s)
- --------- ------
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED
SECURITIES - 64.7%
Federal Home Loan Mortgage Corporation (FHLMC) - 31.7%
$ 3,912 4.000% due 08/01/2018 $ 3,828
4,039 4.500% due 04/01/2018-08/01/2033 3,946
12,545 5.000% due 04/01/2018-08/01/2033 12,477
15,834 5.500% due 12/01/2008-12/01/2033 16,045
17,899 6.000% due 01/01/2013-12/01/2033 18,581
8,897 6.500% due 11/01/2016-01/01/2032 9,343
4,278 7.000% due 04/01/2008-04/01/2032 4,531
267 7.500% due 02/01/2031 287
411 8.000% due 07/01/2007-12/01/2030 437
220 8.500% due 07/01/2029 238
120 8.750% due 01/01/2013 125
---------
Total FHLMCs
(Cost $69,601) 69,838
---------
Federal National Mortgage Association (FNMA) - 25.4%
9,879 5.000% due 04/01/2018-10/01/2018 10,092
12,115 5.500% due 01/01/2017-06/01/2033 12,363
12,078 6.000% due 12/01/2016-03/01/2033 12,561
13,941 6.500% due 09/01/2024-02/01/2033 14,596
3,321 7.000% due 08/01/2028-11/01/2031 3,528
415 7.500% due 11/01/2029 447
1,015 8.000% due 05/01/2022-09/01/2027 1,109
711 8.500% due 02/01/2023-10/01/2027 776
457 9.000% due 09/01/2030 498
---------
Total FNMAs
(Cost $55,449) 55,970
---------
Government National Mortgage Association (GNMA) - 7.6%
4,379 5.500% due 07/20/2033 4,446
6,128 6.000% due 02/20/2029-07/20/2033 6,345
3,004 6.500% due 03/20/2031-07/15/2032 3,166
1,134 7.000% due 01/15/2028-06/20/2031 1,209
1,009 7.500% due 01/15/2023-11/15/2023 1,090
183 7.750% due 12/15/2029 199
412 8.000% due 07/15/2026-06/20/2030 445
---------
Total GNMAs
(Cost $16,422) 16,900
---------
Total U.S. Government Agency Mortgage-
Backed Securities
(Cost $141,472) 142,708
---------
Principal
Amount Value
(000s) (000s)
- --------- ------
COLLATERALIZED MORTGAGE OBLIGATIONS (CMO) - 13.3%
Federal Home Loan Mortgage Corporation:
$ 4,500 Series 2449, Class ND,
6.500% due 05/15/2030 $ 4,730
1,382 Series 2551, Class QK,
5.500% due 01/15/2033 1,401
3,573 Series 2575, Class LM,
4.500% due 05/15/2032 3,605
Federal National Mortgage Association:
3,000 Grantor Trust, Series 2000-T5, Class B,
7.300% due 05/25/2010 3,507
3,500 Series 2002-16, Class TM,
7.000% due 04/25/2032 3,728
Federal National Mortgage Association,
REMIC, Pass-through Certificates:
74 Series 1989-90, Class E,
8.700% due 12/25/2019 78
1,774 Series 1992-55, Class DZ,
8.000% due 04/25/2022 1,899
758 Government National Mortgage Association,
Series 2000-16, Class PB,
7.500% due 02/16/2028 785
138 Residential Funding Mortgage Security,
Series 1992-S39, Class A8,
7.500% due 11/25/2007 138
Vendee Mortgage Trust:
3,853 Series 2000-2, Class G,
7.500% due 10/15/2009 4,108
5,000 Series 2000-3, Class 2H,
7.500% due 11/15/2014 5,377
---------
Total CMOs
(Cost $28,696) 29,356
---------
U.S. GOVERNMENT AGENCY OBLIGATIONS - 7.7%
Federal Home Loan Bank, Bond:
4,000 4.875% due 04/16/2004 4,043
2,000 5.125% due 03/06/2006 2,129
2,500 6.500% due 08/14/2009 2,853
3,000 7.375% due 02/12/2010 3,568
2,000 Federal National Mortgage Association,
Sub. Note, 6.250% due 02/01/2011 2,214
2,000 Housing Urban Development, Series 99-A,
Government Guarantee, 6.160% due 08/01/2011 2,153
---------
Total U.S. Government Agency Obligations
(Cost $15,791) 16,960
---------
See Notes to Financial Statements. 49
portfolio of investments (continued)
U.S. GOVERNMENT SECURITIES FUND
December 31, 2003
Principal
Amount Value
(000s) (000s)
- --------- ------
U.S. TREASURY OBLIGATIONS - 7.9%
U.S. Treasury Notes - 7.1%
$ 2,500 3.625% due 03/31/2004 $ 2,517
2,000 4.250% due 11/15/2013 1,999
3,000 4.375% due 05/15/2007 3,178
3,000 5.000% due 08/15/2011 3,211
2,000 5.750% due 08/15/2010 2,243
2,000 5.875% due 11/15/2004 2,081
350 6.250% due 02/15/2007 390
---------
15,619
---------
U.S. Treasury Bonds - 0.8%
1,300 6.250% due 08/15/2023 1,482
300 12.750% due 11/15/2010 360
---------
1,842
---------
Total U.S. Treasury Obligations
(Cost $16,830) 17,461
---------
Principal
Amount Value
(000s) (000s)
- --------- ------
REPURCHASE AGREEMENT - 5.8%
(Cost $12,663)
$ 12,663 Agreement with Goldman Sachs
Group, Inc., 0.750% dated
12/31/2003, to be repurchased at
$12,664 on 01/02/2004
(Collateralized by U.S.
Treasury Bonds, having various
interest rates and maturities,
market value $12,926) $ 12,663
---------
TOTAL INVESTMENTS (Cost $215,452*) 99.4% 219,148
OTHER ASSETS AND LIABILITIES (Net) 0.6 1,368
----- ---------
NET ASSETS 100.0% $ 220,516
===== =========
<FN>
- ---------
* Aggregate cost for federal tax purposes is $215,825.
- ------------------------------------------------------
GLOSSARY OF TERMS
REMIC -- Real Estate Mortgage Investment Conduit
- ------------------------------------------------------
50 See Notes to Financial Statements.
portfolio of investments
INCOME FUND
December 31, 2003
Principal
Amount Value
(000s) (000s)
- --------- ------
CORPORATE BONDS AND NOTES - 63.3%
Financial Services/Banks - 9.1%
$ 1,000 Abbey National PLC, Sub. Note,
6.690% due 10/17/2005 $ 1,082
500 American General Corporation, Note,
7.500% due 07/15/2025 596
400 Banc One Corporation, Sub. Note,
10.000% due 08/15/2010 522
1,000 Bank of America Corporation, Sub. Note,
7.800% due 02/15/2010 1,191
500 CIT Group Inc., Sr. Note,
7.750% due 04/02/2012 592
3,000 Citigroup, Inc., Note,
6.500% due 01/18/2011 3,387
2,500 Goldman Sachs Group, Inc., Bond,
6.875% due 01/15/2011 2,843
1,000 Hartford Life Insurance Company, Deb.,
7.650% due 06/15/2027 1,198
1,500 Jefferies Group, Inc., Sr. Note,
7.750% due 03/15/2012 1,681
1,000 Legg Mason, Inc., Sr. Note,
6.750% due 07/02/2008 1,115
2,000 Merrill Lynch & Company Inc., Note,
6.000% due 02/17/2009 2,201
1,500 Morgan Stanley Dean Witter & Company,
Unsub. Note, 6.750% due 04/15/2011 1,700
1,100 NCNB Corporation, Sub. Note,
9.375% due 09/15/2009 1,389
---------
19,497
---------
Oil & Gas - 8.6%
1,200 ANR Pipeline Company, Deb.,
9.625% due 11/01/2021 1,433
1,750 Consolidated Natural Gas Company, Sr. Note,
6.850% due 04/15/2011 1,992
2,500 El Paso Natural Gas Company, Deb.,
7.500% due 11/15/2026 2,388
1,000 Enterprise Products Partners LP,
Company Guarantee, 6.375% due 02/01/2013 1,048
1,434 Express Pipeline LP, Sub. Note,
7.390% due 12/31/2017+ 1,475
2,000 PDVSA Finance Ltd., Note,
8.500% due 11/16/2012 1,950
Petro-Canada:
500 Deb., 9.250% due 10/15/2021 669
1,000 Note, 4.000% due 07/15/2013 925
2,500 Petrobras International Finance Company,
Sr. Note, 9.750% due 07/06/2011 2,925
1,000 Southern Natural Gas Company, Sr. Note,
8.000% due 03/01/2032 1,038
500 Tesoro Petroleum Corporation, Note,
8.000% due 04/15/2008 534
Principal
Amount Value
(000s) (000s)
- --------- ------
$ 500 Trans-Canada Pipeline Corporation, Deb.,
8.500% due 03/20/2023 $ 524
1,500 XTO Energy Inc., Sr. Note,
6.250% due 04/15/2013 1,586
---------
18,487
---------
Transportation/Auto - 7.2%
2,000 Burlington Northern Santa Fe Corporation,
Deb., 8.125% due 04/15/2020 2,420
1,000 Consolidated Rail Corporation, Deb.,
9.750% due 06/15/2020 1,382
546 Continental Airlines Inc., Pass-through
Certificates, Series 1997-4C,
6.800% due 07/02/2007 522
400 Ford Holdings Inc., Company Guarantee,
9.300% due 03/01/2030 466
250 Ford Motor Company, Deb.,
8.900% due 01/15/2032 281
2,000 Ford Motor Credit Company, Note,
7.375% due 10/28/2009 2,199
1,000 General Motors Corporation, Deb.,
9.400% due 07/15/2021 1,213
Norfolk Southern Corporation:
1,000 Bond, 7.800% due 05/15/2027 1,205
2,500 Sr. Note, 6.200% due 04/15/2009 2,752
2,000 Southwest Airlines Company, Pass-through
Certificates, Series A-4,
9.150% due 07/01/2016 2,435
1,300 United Air Lines Inc., Pass-through
Certificates, (in default),
9.560% due 10/19/2018 548
---------
15,423
---------
Consumer Products/Services - 6.1%
1,750 Carnival Corporation, Deb.,
7.200% due 10/01/2023 1,915
1,000 Cendant Corporation, Note,
6.875% due 08/15/2006 1,098
2,500 ConAgra, Inc., Sr. Note,
7.125% due 10/01/2026 2,852
Mattel, Inc., Note:
500 6.125% due 07/15/2005 528
1,000 7.300% due 06/13/2011 1,118
1,500 Reed Elsevier Capital Inc.,
Company Guarantee, 6.750% due 08/01/2011 1,723
1,000 Royal Caribbean Cruises Ltd., Sr. Note,
8.000% due 05/15/2010 1,095
1,000 Sealed Air Corporation, Company Guarantee,
8.750% due 07/01/2008+ 1,193
1,500 Waste Management Inc., Sr. Note,
7.375% due 08/01/2010 1,735
---------
13,257
---------
See Notes to Financial Statements. 51
portfolio of investments (continued)
INCOME FUND
December 31, 2003
Principal
Amount Value
(000s) (000s)
- --------- ------
CORPORATE BONDS AND NOTES (continued)
Telecommunications - 5.8%
$ 4,000 Deutsche Telekom International Finance BV,
Company Guarantee, 8.500% due 06/15/2010 $ 4,844
1,700 Northern Telecom Capital Inc., Company
Guarantee, 7.400% due 06/15/2006 1,772
2,000 Qwest Corporation, Note, 8.875% due 03/15/2012+ 2,305
1,000 TELUS Corporation, Note, 8.000% due 06/01/2011 1,171
2,000 Vodafone Group PLC, Note, 7.750% due 02/15/2010 2,374
---------
12,466
---------
Health Care - 4.9%
1,500 Aetna Inc., Sr. Note, 7.375% due 03/01/2006 1,651
2,000 Cardinal Health, Inc., Note, 6.750% due 02/15/2011 2,288
DVI, Inc., Sr. Note, (in default):
900 9.875% due 02/01/2004 258
400 9.875% due 02/01/2004 114
2,000 HCA Inc., Sr. Note, 8.750% due 09/01/2010 2,385
250 HIH Capital Ltd., Conv. Note,
7.500% due 09/25/2006 200
750 IVAX Corporation, Conv. Sr. Sub. Note,
4.500% due 05/15/2008 761
3,000 Tenet Healthcare Corporation, Sr. Note,
6.375% due 12/01/2011 2,895
---------
10,552
---------
Real Estate Investment Trusts - 4.6%
1,000 Developers Diversified Realty Corporation,
Note, 4.625% due 08/01/2010 996
2,000 Health Care Property Investors, Inc., Note,
6.000% due 03/01/2015 2,069
2,500 Healthcare Realty Trust, Inc., Sr. Note,
8.125% due 05/01/2011 2,867
Nationwide Health Properties Inc., Note:
1,000 7.060% due 12/05/2006 1,089
2,500 9.750% due 03/20/2008 2,893
---------
9,914
---------
Utilities - 3.4%
1,500 Arizona Public Service Company, Note,
6.500% due 03/01/2012 1,657
1,100 Illinois Power Company, First Mortgage,
7.500% due 06/15/2009 1,216
1,000 Metropolitan Edison Company, Note,
4.950% due 03/15/2013+ 963
500 Public Service Company of New Mexico,
Sr. Note, 4.400% due 09/15/2008 507
Principal
Amount Value
(000s) (000s)
- --------- ------
$ 1,500 Southwestern Electric Power Company, Note,
5.375% due 04/15/2015 $ 1,499
1,500 Texas-New Mexico Power Company,
Sr. Note, 6.250% due 01/15/2009 1,520
---------
7,362
---------
Media - 3.0%
1,500 Comcast Cable Communications Inc.,
Sr. Note, 7.125% due 06/15/2013 1,712
2,500 Cox Communications Inc., Note,
7.875% due 08/15/2009 2,957
1,200 News America Holdings Inc., Sr. Deb.,
8.000% due 10/17/2016 1,461
300 Time Warner Inc., Deb.,
9.150% due 02/01/2023 389
---------
6,519
---------
Information Technology - 2.7%
1,000 BEA Systems Inc., Conv. Sub. Note,
4.000% due 12/15/2006 1,009
2,500 Conexant Systems Inc., Conv. Sub. Note,
4.000% due 02/01/2007 2,394
1,000 Extreme Networks, Inc., Conv. Sub. Note,
3.500% due 12/01/2006 956
1,000 TriQuint Semiconductor, Inc., Conv.
Sub. Note, 4.000% due 03/01/2007 965
500 Vitesse Semiconductor Corporation, Conv.
Sub. Deb., 4.000% due 03/15/2005 497
---------
5,821
---------
Gaming - 2.3%
500 Harrah's Operating Company Inc.,
Company Guarantee, 8.000% due 02/01/2011 588
2,000 Park Place Entertainment Corporation,
Sr. Note, 7.500% due 09/01/2009 2,210
2,000 Riviera Holdings Corporation,
Company Guarantee, 11.000% due 06/15/2010 2,085
---------
4,883
---------
Retail - 2.2%
1,000 Fred Meyer Inc., Company Guarantee,
7.450% due 03/01/2008 1,140
600 May Department Stores Company, Deb.,
8.375% due 08/01/2024 644
2,500 Safeway Inc., Note,
7.500% due 09/15/2009 2,878
---------
4,662
---------
52 See Notes to Financial Statements.
portfolio of investments (continued)
INCOME FUND
December 31, 2003
Principal
Amount Value
(000s) (000s)
- --------- ------
CORPORATE BONDS AND NOTES (continued)
Aerospace/Defense - 1.7%
$ 1,000 Boeing Company, Deb.,
8.750% due 08/15/2021 $ 1,274
2,000 Lockheed Martin Corporation, Note,
8.200% due 12/01/2009 2,432
---------
3,706
---------
Foreign Government (U.S. Dollar Denominated) - 1.1%
1,231 Federative Republic of Brazil, C-Bond,
8.000% due 04/15/2014 1,215
1,000 United Mexican States, Bond,
9.875% due 02/01/2010 1,265
---------
2,480
---------
Industrial Products - 0.6%
200 Ogden Corporation, Deb., (in default),
9.250% due 03/01/2022 133
Weyerhaeuser Company:
500 Deb., 7.375% due 03/15/2032 546
500 Note, 6.750% due 03/15/2012 546
---------
1,225
---------
Total Corporate Bonds and Notes
(Cost $123,009) 136,254
---------
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED
SECURITIES - 25.7%
Federal Home Loan Mortgage Corporation (FHLMC) - 12.4%
11,914 4.500% due 08/01/2033 11,416
6,888 5.000% due 04/01/2018-05/01/2033 6,874
3,491 5.500% due 11/01/2017-05/01/2031 3,604
2,763 6.000% due 03/01/2031-05/01/2032 2,857
934 6.500% due 06/01/2029-08/01/2029 979
767 7.000% due 01/01/2032 812
38 9.000% due 01/01/2025 42
---------
Total FHLMCs
(Cost $26,388) 26,584
---------
Federal National Mortgage Association (FNMA) - 12.0%
8,952 4.000% due 09/01/2018-10/01/2018 8,738
2,518 5.000% due 01/01/2018 2,573
6,913 5.500% due 03/01/2033-06/01/2033 7,009
1,852 6.000% due 04/01/2032 1,915
3,046 6.500% due 05/01/2031-05/01/2032 3,186
140 7.000% due 01/01/2030 148
2,000 7.630% due 02/01/2010 2,300
---------
Total FNMAs
(Cost $25,550) 25,869
---------
Principal
Amount Value
(000s) (000s)
- --------- ------
Government National Mortgage Association (GNMA) - 1.3%
$ 1,305 6.000% due 05/20/2032 $ 1,351
1,224 7.000% due 06/20/2031 1,302
62 9.000% due 02/15/2025 69
---------
Total GNMAs
(Cost $2,597) 2,722
---------
Total U.S. Government Agency Mortgage-
Backed Securities
(Cost $54,535) 55,175
---------
U.S. TREASURY NOTES - 5.2%
7,500 4.000% due 11/15/2012 7,430
1,000 4.375% due 08/15/2012 1,020
2,500 5.625% due 05/15/2008 2,770
---------
Total U.S. Treasury Notes
(Cost $10,947) 11,220
---------
REPURCHASE AGREEMENT - 4.5%
(Cost $9,737)
9,737 Agreement with Goldman Sachs
Group, Inc., 0.750% dated
12/31/2003, to be repurchased at
$9,737 on 01/02/2004
(Collateralized by U.S.
Treasury Bonds, having various
interest rates and maturities,
market value $9,939) 9,737
---------
TOTAL INVESTMENTS (Cost $198,228*) 98.7% 212,386
OTHER ASSETS AND LIABILITIES (Net) 1.3 2,755
----- ---------
NET ASSETS 100.0% $ 215,141
===== =========
<FN>
- ---------
* Aggregate cost for federal tax purposes is $198,717.
+ Security acquired in a transaction exempt from registration under Rule
144A of the Securities Act of 1933.
See Notes to Financial Statements. 53
portfolio of investments
MONEY MARKET FUND
December 31, 2003
Principal
Amount Value
(000s) (000s)
- --------- ------
COMMERCIAL PAPER (DOMESTIC) - 8.6%
$ 1,000 Cooperative Association of Tractor Dealers
Inc., Series A, (MBIA Insured),
1.160% due 03/26/2004+++ $ 997
1,000 PACCAR Financial Corporation,
1.110% due 01/16/2004+++ 1,000
---------
Total Commercial Paper (Domestic)
(Cost $1,997) 1,997
---------
COMMERCIAL PAPER (YANKEE) - 8.6%
1,000 ABN AMRO North American Finance Inc.,
1.080% due 01/21/2004+++ 999
1,000 Societe Generale North America Inc.,
1.110% due 05/18/2004+++ 996
---------
Total Commercial Paper (Yankee)
(Cost $1,995) 1,995
---------
CERTIFICATE OF DEPOSIT (DOMESTIC) - 4.3%
(Cost $1,000)
1,000 SouthTrust Bank NA,
1.110% due 04/12/2004++ 1,000
---------
CERTIFICATES OF DEPOSIT (YANKEE) - 5.6%
(Cost $1,300)
1,300 Bayerische Landesbank NY,
1.101% due 08/25/2004++ 1,300
---------
MEDIUM TERM NOTES - 16.4%
800 Bank One Corporation, Sr. Note, Series A,
5.625% due 02/17/2004 805
1,000 General Electric Capital Corporation,
Series A, 7.250% due 05/03/2004 1,020
1,000 Morgan Stanley Dean Witter & Company,
Sr. Note, Series C, 1.280% due 03/19/2004++ 1,000
1,000 Toyota Motor Credit Corporation,
1.100% due 06/17/2004++ 1,000
---------
Total Medium Term Notes
(Cost $3,825) 3,825
---------
CORPORATE BONDS AND NOTES - 20.8%
1,245 Associates Corporation NA, Sr. Note,
5.800% due 04/20/2004 1,263
650 Bank of America Corporation, Note,
1.293% due 06/03/2004++ 650
1,169 Everett Clinic, P.S., Bond, (LOC: Bank of
America Corporation), 1.200% due 05/01/2022++ 1,169
1,000 Lauren Company LLC, Bond, (LOC: Wells
Fargo & Company), 1.300% due 07/01/2033+** 1,000
740 Wells Fargo & Company, Sr. Note,
6.625% due 07/15/2004 761
---------
Total Corporate Bonds and Notes
(Cost $4,843) 4,843
---------
Principal
Amount Value
(000s) (000s)
- --------- ------
TAXABLE MUNICIPAL BONDS - 24.6%
$ 900 Blair County, Pennsylvania, Industrial
Development Authority, IDR, (The Village
at Pennsylvania State Retirement
Community), Series D, (LOC: BNP Paribas SA),
1.090% due 01/01/2011+ $ 900
750 California Statewide Communities
Development Authority, MFHR,
(Hallmark House Apartments),
Series ZZ-T, (FNMA Collateral),
1.250% due 12/15/2036+ 750
975 Connecticut State Housing Finance
Authority, Housing Revenue, (AMBAC Insured),
(Housing Mortgage Finance Program), Series F-1,
1.140% due 11/15/2016+ 975
250 Los Angeles County, California, Pension
Obligation Revenue, Series D, (MBIA Insured),
6.730% due 06/30/2004 256
500 Shelby County, Tennessee, Health,
Educational & Housing Facilities Board,
MFHR, Series A-T, (LOC: Bank of
America Corporation), 1.250% due 07/01/2022+ 500
400 Tucson, Arizona, Airport Authority Inc.,
Airport Revenue, (FSA Insured),
4.000% due 06/01/2004 404
Washington State Housing Finance
Commission, MFHR, Series B:
400 (Bremerton Project), (FNMA Collateral),
1.180% due 05/15/2033+ 400
425 (Carlyle Care Center Project),
(LOC: U.S. Bancorp), 1.200% due 12/01/2025+ 425
500 (Woodland Retirement Project),
(LOC: Wells Fargo & Company),
1.200% due 11/01/2036+ 500
610 Washington State Housing Finance
Commission, Nonprofit Revenue,
(Pioneer Human Services Projects),
Series B, (LOC: U.S. Bancorp),
1.200% due 08/01/2019+ 610
---------
Total Taxable Municipal Bonds
(Cost $5,720) 5,720
---------
FUNDING AGREEMENT - 4.3%
(Cost $1,000)
1,000 New York Life Insurance, 1.200% due 08/04/2004 1,000
---------
54 See Notes to Financial Statements.
portfolio of investments (continued)
MONEY MARKET FUND
December 31, 2003
Principal
Amount Value
(000s) (000s)
- --------- ------
REPURCHASE AGREEMENT - 6.5%
(Cost $1,522)
$ 1,522 Agreement with Goldman Sachs
Group, Inc., 0.750% dated
12/31/2003, to be repurchased at
$1,522 on 01/02/2004
(Collateralized by U.S.
Treasury Bonds, having various
interest rates and maturities,
market value $1,554) $ 1,522
---------
TOTAL INVESTMENTS (Cost $23,202*) 99.7% 23,202
OTHER ASSETS AND LIABILITIES (Net) 0.3 64
----- ---------
NET ASSETS 100.0% $ 23,266
===== =========
<FN>
- ---------
* Aggregate cost for federal tax purposes.
** Security acquired in a transaction exempt from registration under Rule
144A of the Securities Act of 1933.
+ Variable rate securities payable upon demand with not more that five
business days' notice, and secured by bank letters of credit or guarantees
by certain corporations. The interest rate shown reflects the rate in
effect at December 31, 2003.
++ Floating rate security whose interest rate is reset periodically based
on an index.
+++ Rate represents discount rate on purchase date.
- -----------------------------------------------------------
GLOSSARY OF TERMS
AMBAC -- American Municipal Bond Assurance Corporation
FNMA -- Federal National Mortgage Association
FSA -- Financial Security Assurance
IDR -- Industrial Development Revenue
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors Assurance
MFHR -- Multi-family Housing Revenue
- -----------------------------------------------------------
See Notes to Financial Statements. 55
statements of assets and liabilities
WM Variable Trust
December 31, 2003
(In thousands)
Equity Growth & West Coast Mid Cap
REIT Income Income Equity Stock Growth
Fund Fund Fund Fund Fund Fund
------- -------- -------- -------- ------- --------
ASSETS:
Investments, at value:
Securities $36,980 $156,547 $237,585 $105,440 $81,301 $182,716
Repurchase Agreements 1,498 5,481 10,891 5,295 6,939 8,593
------- -------- -------- -------- ------- --------
Total Investments (a) 38,478 162,028 248,476 110,735 88,240 191,309
Cash --* -- --* 1 1 59
Cash held as collateral
for securities loaned 1,199 9,594 15,014 5,074 4,189 8,344
Unrealized appreciation
of forward foreign
currency contracts -- -- -- -- -- --
Dividends and/or interest
receivable 176 369 305 89 69 137
Receivable for Fund shares
sold -- 38 13 44 2 28
Receivable for investment
securities sold -- -- -- 196 210 429
Prepaid expenses 1 1 3 1 1 2
------- -------- -------- -------- ------- --------
Total Assets 39,854 172,030 263,811 116,140 92,712 200,308
------- -------- -------- -------- ------- --------
LIABILITIES:
Payable upon return of
securities loaned 1,199 9,594 15,014 5,074 4,189 8,344
Unrealized depreciation
of forward foreign
currency contracts -- -- -- -- -- 45
Payable for Fund shares
redeemed -- 51 40 52 2 18
Payable for investment
securities purchased -- -- -- 549 298 583
Investment advisory fee
payable 26 83 154 56 55 139
Distribution fees payable --* 2 1 1 1 --*
Variation margin -- -- -- -- -- --
Accrued legal and audit fees 28 31 30 28 23 29
Accrued printing and postage
expenses 6 25 37 15 10 28
Due to custodian -- 20 -- -- -- --
Accrued expenses and other
payables 1 2 3 3 1 11
------- -------- -------- -------- ------- --------
Total Liabilities 1,260 9,808 15,279 5,778 4,579 9,197
------- -------- -------- -------- ------- --------
NET ASSETS $38,594 $162,222 $248,532 $110,362 $88,133 $191,111
======= ======== ======== ======== ======= ========
(a) Investments, at cost $31,013 $134,985 $203,159 $88,261 $66,310 $165,852
======= ======== ======== ======== ======= ========
<FN>
- --------
* Amount represents less than $500.
56 See Notes to Financial Statements.
U.S.
Small Cap International Short Term Government Money
Stock Growth Income Securities Income Market
Fund Fund Fund Fund Fund Fund
------- ------- ------- -------- -------- -------
ASSETS:
Investments, at value:
Securities $71,070 $71,057 $46,869 $206,485 $202,649 $21,680
Repurchase Agreements 834 3,570 5,321 12,663 9,737 1,522
------- ------- ------- -------- -------- -------
Total Investments (a) 71,904 74,627 52,190 219,148 212,386 23,202
Cash 4 1 1 --* 68 1
Cash held as collateral
for securities loaned 11,940 4,761 -- -- -- --
Unrealized appreciation
of forward foreign
currency contracts -- 104 -- -- -- --
Dividends and/or interest
receivable 19 67 593 1,365 2,710 81
Receivable for Fund shares
sold 1 9 65 161 140 30
Receivable for investment
securities sold 1,711 88 --* -- -- --
Prepaid expenses 1 1 1 3 2 --
------- ------- ------- -------- -------- -------
Total Assets 85,580 79,658 52,850 220,677 215,306 23,314
------- ------- ------- -------- -------- -------
LIABILITIES:
Payable upon return of
securities loaned 11,940 4,761 -- -- -- --
Unrealized depreciation
of forward foreign
currency contracts -- 144 -- -- -- --
Payable for Fund shares
redeemed 17 2 1 3 7 7
Payable for investment
securities purchased 3 261 -- -- -- --
Investment advisory fee
payable 55 120 22 92 90 9
Distribution fees payable 1 --* 1 3 4 1
Variation margin -- -- 4 -- -- --
Accrued legal and audit fees 30 29 27 28 28 26
Accrued printing and postage
expenses 13 9 7 28 29 4
Due to custodian -- -- -- -- -- --
Accrued expenses and other
payables 5 12 3 7 7 1
------- ------- ------- -------- -------- -------
Total Liabilities 12,064 5,338 65 161 165 48
------- ------- ------- -------- -------- -------
NET ASSETS $73,516 $74,320 $52,785 $220,516 $215,141 $23,266
======= ======= ======= ======== ======== =======
(a) Investments, at cost $58,171 $62,925 $50,457 $215,452 $198,228 $23,202
======= ======= ======= ======== ======== =======
See Notes to Financial Statements. 57
statements of assets and liabilities (continued)
WM Variable Trust
December 31, 2003
(In thousands)
Equity Growth & West Coast Mid Cap
REIT Income Income Equity Stock Growth
Fund Fund Fund Fund Fund Fund
------- -------- -------- -------- ------- --------
Undistributed net
investment income $ 769 $ 3,301 $ 2,686 $ 295 $ 323 $ 45
Accumulated net realized
gain/(loss) on investment
transactions 204 (7,472) (36,879) (6,683) 978 (116,540)
Net unrealized appreciation
of investments 7,465 27,043 45,317 22,474 21,930 25,412
Paid-in capital 30,156 139,350 237,408 94,276 64,902 282,194
------- -------- -------- -------- ------- --------
Total Net Assets $38,594 $162,222 $248,532 $110,362 $88,133 $ 191,111
======= ======== ======== ======== ======= =========
NET ASSETS:
Class 1 Shares $38,593 $149,603 $245,820 $105,160 $84,408 $ 189,837
======= ======== ======== ======== ======= =========
Class 2 Shares $ 1 $ 12,619 $ 2,712 $ 5,202 $ 3,725 $ 1,274
======= ======== ======== ======== ======= =========
SHARES OUTSTANDING:
Class 1 Shares 2,959 10,763 14,586 5,797 5,769 15,772
======= ======== ======== ======== ======= =========
Class 2 Shares --** 911 162 288 256 106
======= ======== ======== ======== ======= =========
CLASS 1 SHARES:*
Net asset value, offering
and redemption price per
share of beneficial
interest outstanding $ 13.04 $ 13.90 $ 16.85 $ 18.14 $ 14.63 $ 12.04
======= ======== ======== ======== ======= =========
CLASS 2 SHARES:*
Net asset value, offering
and redemption price per
share of beneficial
interest outstanding $ 13.03 $ 13.85 $ 16.79 $ 18.08 $ 14.58 $ 11.98
======= ======== ======== ======== ======= =========
<FN>
- --------
* Net asset value is not shown in thousands.
** Shares outstanding are less than 500.
58 See Notes to Financial Statements.
U.S.
Small Cap International Short Term Government Money
Stock Growth Income Securities Income Market
Fund Fund Fund Fund Fund Fund
-------- ------- ------- -------- -------- -------
Undistributed net
investment income $ -- $ 748 $ 2,135 $ 10,306 $ 12,311 $ --
Accumulated net realized
gain/(loss) on investment
transactions (33,477) (14,018) (668) (2,444) (1,824) (1)
Net unrealized appreciation
of investments 13,733 11,666 1,671 3,696 14,158 --
Paid-in capital 93,260 75,924 49,647 208,958 190,496 23,267
-------- ------- ------- -------- -------- -------
Total Net Assets $ 73,516 $ 74,320 $52,785 $220,516 $215,141 $23,266
======== ======== ======== ======== ======== =======
NET ASSETS:
Class 1 Shares $ 70,806 $ 74,138 $46,628 $204,193 $193,953 $20,198
======== ======== ======== ======== ======== =======
Class 2 Shares $ 2,710 $ 182 $ 6,157 $ 16,323 $ 21,188 $ 3,068
======== ======== ======== ======== ======== =======
SHARES OUTSTANDING:
Class 1 Shares 7,523 6,517 17,759 19,003 17,352 20,213
======== ======== ======== ======== ======== =======
Class 2 Shares 290 16 2,354 1,526 1,905 3,071
======== ======== ======== ======== ======== =======
CLASS 1 SHARES:*
Net asset value, offering
and redemption price per
share of beneficial
interest outstanding $ 9.41 $ 11.38 $ 2.63 $ 10.75 $ 11.18 $ 1.00
======== ======== ======== ======== ======== =======
CLASS 2 SHARES:*
Net asset value, offering
and redemption price per
share of beneficial
interest outstanding $ 9.35 $ 11.34 $ 2.62 $ 10.70 $ 11.12 $ 1.00
======== ======== ======== ======== ======== =======
See Notes to Financial Statements. 59
statements of operations
WM Variable Trust
For the Year Ended December 31, 2003
(In thousands)
Equity Growth & West Coast Mid Cap
REIT Income Income Equity Stock Growth
Fund** Fund Fund Fund Fund Fund
------- -------- -------- -------- ------- --------
INVESTMENT INCOME:
Dividends $ 1,107 $ 3,416 $ 4,394 $ 902 $ 860 $ 1,403
Interest 12 931 74 36 53 91
Foreign withholding taxes -- (18) (39) -- -- (20)
Securities lending income 1 17 6 9 7 21
------- ------- -------- ------- ------- -------
Total investment income 1,120 4,346 4,435 947 920 1,495
------- ------- -------- ------- ------- -------
EXPENSES:
Investment advisory fee 172 816 1,621 525 529 1,408
Class 2 Shares distribution
fees --* 21 5 8 7 2
Custodian fees 3 9 13 11 8 52
Legal and audit fees 29 36 37 32 27 36
Other 11 50 69 30 23 65
------- ------- -------- ------- ------- -------
Total expenses 215 932 1,745 606 594 1,563
Fees reduced by custodian
credits --* --* --* --* --* (1)
------- ------- -------- ------- ------- -------
Net expenses 215 932 1,745 606 594 1,562
------- ------- -------- ------- ------- -------
NET INVESTMENT INCOME/(LOSS) 905 3,414 2,690 341 326 (67)
------- ------- -------- ------- ------- -------
NET REALIZED AND UNREALIZED
GAIN/(LOSS) ON INVESTMENTS:
Net realized gain/(loss) on
investment transactions 68 (7,316) (12,089) (1,579) 2,422 (2,956)
Net change in unrealized
appreciation/depreciation
of investments 7,465 39,347 59,580 32,401 15,142 44,951
------- ------- -------- ------- ------- -------
Net realized and unrealized
gain/(loss) on investments 7,533 32,031 47,491 30,822 17,564 41,995
------- ------- -------- ------- ------- -------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 8,438 $35,445 $ 50,181 $31,163 $17,890 $41,928
======= ======= ======== ======= ======= =======
<FN>
- --------
* Amount represents less than $500.
** The REIT Fund commenced operations on May 1, 2003.
60 See Notes to Financial Statements.
U.S.
Small Cap International Short Term Government Money
Stock Growth Income Securities Income Market
Fund Fund Fund Fund Fund Fund
-------- ------- ------- -------- -------- -------
INVESTMENT INCOME:
Dividends $ 271 $ 1,297 $ -- $ -- $ -- $ --
Interest 5 24 2,289 9,678 12,608 378
Foreign withholding taxes (2) (133) -- -- -- --
Securities lending income 146 39 5 22 26 --
-------- ------- ------ -------- ------- ----
Total investment income 420 1,227 2,294 9,700 12,634 378
-------- ------- ------ -------- ------- ----
EXPENSES:
Investment advisory fee 529 535 232 1,005 1,003 135
Class 2 Shares distribution
fees 4 --* 7 40 38 9
Custodian fees 18 85 9 18 13 4
Legal and audit fees 34 32 30 36 37 29
Other 26 41 22 75 72 11
-------- ------- ------ -------- ------- ----
Total expenses 611 693 300 1,174 1,163 188
Fees reduced by custodian
credits --* --* --* --* --* --*
-------- ------- ------ -------- ------- ----
Net expenses 611 693 300 1,174 1,163 188
-------- ------- ------ -------- ------- ----
NET INVESTMENT INCOME/(LOSS) (191) 534 1,994 8,526 11,471 190
-------- ------- ------ -------- ------- ----
NET REALIZED AND UNREALIZED
GAIN/(LOSS) ON INVESTMENTS:
Net realized gain/(loss) on
investment transactions (17,773) (1,832) (29) (21) 422 --
Net change in unrealized
appreciation/depreciation
of investments 52,475 19,869 433 (4,385) 6,477 --
-------- ------- ------ -------- ------- ----
Net realized and unrealized
gain/(loss) on investments 34,702 18,037 404 (4,406) 6,899 --
-------- ------- ------ -------- ------- ----
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 34,511 $18,571 $2,398 $ 4,120 $18,370 $190
======== ======= ====== ======== ======= ====
See Notes to Financial Statements. 61
statements of changes in net assets
WM Variable Trust
For the Year Ended December 31, 2003
(In thousands)
Equity Growth & West Coast Mid Cap
REIT Income Income Equity Stock Growth
Fund** Fund Fund Fund Fund Fund
------- -------- -------- -------- ------- --------
Net investment income/(loss) $ 905 $ 3,414 $ 2,690 $ 341 $ 326 $ (67)
Net realized gain/(loss) on
investment transactions 68 (7,316) (12,089) (1,579) 2,422 (2,956)
Net change in unrealized
appreciation/depreciation
of investments 7,465 39,347 59,580 32,401 15,142 44,951
------- -------- -------- -------- ------- --------
Net increase in net assets
resulting from operations 8,438 35,445 50,181 31,163 17,890 41,928
Distributions to
shareholders from:
Net investment income:
Class 1 Shares -- (3,038) (2,491) (224) (210) --
Class 2 Shares -- (197) (20) (5) (4) --
Net realized gains
on investments:
Class 1 Shares -- (545) -- -- -- --
Class 2 Shares -- (37) -- -- -- --
Net increase/(decrease)
in net assets from
Fund share transactions:
Class 1 Shares 30,156 7,840 (10,738) 7,200 4,304 12,725
Class 2 Shares --* 3,990 962 1,688 1,071 414
------- -------- -------- -------- ------- --------
Net increase/(decrease)
in net assets 38,594 43,458 37,894 39,822 23,051 55,067
NET ASSETS:
Beginning of year -- 118,764 210,638 70,540 65,082 136,044
------- -------- -------- -------- ------- --------
End of year $38,594 $162,222 $248,532 $110,362 $88,133 $191,111
======= ======== ======== ======== ======= ========
Undistributed net
investment income
at end of year $ 769 $ 3,301 $ 2,686 $ 295 $ 323 $ 45
======= ======== ======== ======== ======= ========
<FN>
- --------------
* Amount represents less than $500.
** The REIT Fund commenced operations on May 1, 2003.
62 See Notes to Financial Statements.
U.S.
Small Cap International Short Term Government Money
Stock Growth Income Securities Income Market
Fund Fund Fund Fund Fund Fund
-------- ------- ------- -------- -------- -------
Net investment income/(loss) $ (191) $ 534 $ 1,994 $ 8,526 $11,471 $ 190
Net realized gain/(loss) on
investment transactions (17,773) (1,832) (29) (21) 422 --
Net change in unrealized
appreciation/depreciation
of investments 52,475 19,869 433 (4,385) 6,477 --
-------- ------- ------- -------- -------- -------
Net increase in net assets
resulting from operations 34,511 18,571 2,398 4,120 18,370 190
Distributions to
shareholders from:
Net investment income:
Class 1 Shares -- (748) (2,610) (8,731) (10,778) (175)
Class 2 Shares -- (1) (129) (855) (925) (15)
Net realized gains
on investments:
Class 1 Shares -- -- -- -- -- --
Class 2 Shares -- -- -- -- -- --
Net increase/(decrease)
in net assets from
Fund share transactions:
Class 1 Shares (2,281) 5,729 5,370 35,286 7,807 (13,568)
Class 2 Shares 742 51 4,976 4,662 12,637 (1,610)
-------- ------- ------- -------- -------- -------
Net increase/(decrease)
in net assets 32,972 23,602 10,005 34,482 27,111 (15,178)
NET ASSETS:
Beginning of year 40,544 50,718 42,780 186,034 188,030 38,444
-------- ------- ------- -------- -------- -------
End of year $ 73,516 $74,320 $52,785 $220,516 $215,141 $ 23,266
======== ======= ======= ======== ======== ========
Undistributed net
investment income
at end of year $ -- $ 748 $ 2,135 $ 10,306 $ 12,311 $ --
======== ======= ======= ======== ======== ========
See Notes to Financial Statements. 63
statements of changes in net assets (continued)
WM Variable Trust
For the Year Ended December 31, 2002
(In thousands)
Equity Growth & West Coast Mid Cap
Income Income Equity Stock Growth
Fund Fund Fund Fund Fund
-------- -------- -------- ------- --------
Net investment income/
(loss) $ 3,427 $ 2,508 $ 321 $ 221 $ (79)
Net realized gain/(loss)
on investment transactions 129 (11,120) (4,844) (939) (33,280)
Net increase from payments
by a related party -- -- -- -- 1,200
Net change in unrealized
appreciation/depreciation
of investments (20,096) (48,917) (14,984) (6,935) (26,836)
-------- --------- -------- ------- --------
Net increase/(decrease)
in net assets
resulting from
operations (16,540) (57,529) (19,507) (7,653) (58,995)
Distributions to
shareholders from:
Net investment income:
Class 1 Shares (2,386) (1,689) (435) (143) --
Class 2 Shares (79) (7) (9) (3) --
Net realized gains
on investments:
Class 1 Shares (228) -- (1,033) (1,640) --
Class 2 Shares (8) -- (21) (34) --
Net increase/(decrease)
in net assets from
Fund share transactions:
Class 1 Shares 32,939 (50,799) 4,988 415 26,781
Class 2 Shares 6,425 1,379 2,663 1,484 743
-------- --------- -------- ------- --------
Net increase/(decrease)
in net assets 20,123 (108,645) (13,354) (7,574) (31,471)
NET ASSETS:
Beginning of year 98,641 319,283 83,894 72,656 167,515
-------- --------- -------- ------- --------
End of year $118,764 $ 210,638 $ 70,540 $65,082 $136,044
======== ========= ======== ======= ========
Undistributed net
investment income
at end of year $ 3,225 $ 2,506 $ 225 $ 211 $ 49
======== ========= ======== ======= ========
64 See Notes to Financial Statements.
U.S.
Small Cap International Short Term Government Money
Stock Growth Income Securities Income Market
Fund Fund Fund Fund Fund Fund
-------- ------- ------- -------- -------- -------
Net investment income/
(loss) $ (157) $ 245 $ 2,705 $ 8,944 $ 11,536 $ 447
Net realized gain/(loss)
on investment transactions (13,535) (5,022) 242 748 787 --
Net increase from payments
by a related party -- -- -- -- -- --
Net change in unrealized
appreciation/depreciation
of investments (20,657) (4,007) 6 4,415 4,147 --
-------- ------- ------- -------- -------- -------
Net increase/(decrease)
in net assets
resulting from
operations (34,349) (8,784) 2,953 14,107 16,470 447
Distributions to
shareholders from:
Net investment income:
Class 1 Shares -- (600) (2,079) (5,950) (7,749) (428)
Class 2 Shares -- (1) (22) (166) (104) (38)
Net realized gains
on investments:
Class 1 Shares (3,782) -- -- -- -- --
Class 2 Shares (75) -- -- -- -- --
Net increase/(decrease)
in net assets from
Fund share transactions:
Class 1 Shares 3,782 10,814 (9,585) 29,155 16,673 5,220
Class 2 Shares 1,161 111 1,150 11,230 7,553 4,492
-------- ------- ------- -------- -------- -------
Net increase/(decrease)
in net assets (33,263) 1,540 (7,583) 48,376 32,843 9,693
NET ASSETS:
Beginning of year 73,807 49,178 50,363 137,658 155,187 28,751
-------- ------- ------- -------- -------- -------
End of year $ 40,544 $50,718 $42,780 $186,034 $188,030 $38,444
======== ======= ======= ======== ======== =======
Undistributed net
investment income
at end of year $ -- $ 612 $ 2,736 $ 9,577 $ 11,701 $ --
======== ======= ======= ======== ======== =======
See Notes to Financial Statements. 65
statements of changes in net assets -- capital stock activity
WM Variable Trust
(In thousands)
REIT Fund* Equity Income Fund Growth & Income Fund
------------ ----------------------- -----------------------
Period Ended Year Ended Year Ended Year Ended Year Ended
12/31/03 12/31/03 12/31/02 12/31/03 12/31/02
------------ ---------- ---------- ---------- ----------
AMOUNT
Class 1:
Sold $30,249 $ 19,128 $39,712 $ 24,465 $ 30,723
Issued as reinvestment
of dividends -- 3,583 2,614 2,491 1,689
Redeemed (93) (14,871) (9,387) (37,694) (83,211)
------- -------- ------- -------- --------
Net increase/(decrease) $30,156 $ 7,840 $32,939 $(10,738) $(50,799)
======= ======== ======= ======== ========
Class 2:
Sold $ 5 $ 4,300 $ 6,869 $ 1,060 $ 1,521
Issued as reinvestment
of dividends -- 234 87 20 7
Redeemed (5) (544) (531) (118) (149)
------- -------- ------- -------- --------
Net increase $ --** $ 3,990 $ 6,425 $ 962 $ 1,379
======= ======== ======= ======== ========
SHARES
Class 1:
Sold 2,967 1,576 3,208 1,618 2,239
Issued as reinvestment
of dividends -- 295 216 164 112
Redeemed (8) (1,305) (841) (2,755) (5,369)
------- -------- ------- -------- --------
Net increase/(decrease) 2,959 566 2,583 (973) (3,018)
======= ======== ======= ======== ========
Class 2:
Sold --*** 352 577 71 101
Issued as reinvestment
of dividends -- 19 7 1 --***
Redeemed --*** (47) (47) (8) (11)
------- -------- ------- -------- --------
Net increase --*** 324 537 64 90
======= ======== ======= ======== ========
U.S. Government
International Growth Fund Short Term Income Fund Securities Fund
------------------------- ----------------------- -----------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
12/31/03 12/31/02 12/31/03 12/31/02 12/31/03 12/31/02
-------- -------- -------- -------- -------- --------
AMOUNT
Class 1:
Sold $ 8,003 $17,055 $10,800 $ 14,163 $ 53,760 $ 60,239
Issued as reinvestment
of dividends 748 600 2,610 2,079 8,731 5,950
Redeemed (3,022) (6,841) (8,040) (25,827) (27,205) (37,034)
------- ------- ------- -------- -------- --------
Net increase/(decrease) $ 5,729 $10,814 $ 5,370 $ (9,585) $ 35,286 $ 29,155
======= ======= ======= ======== ======== ========
Class 2:
Sold $ 63 $ 146 $ 5,547 $ 1,233 $ 9,784 $ 11,792
Issued as reinvestment
of dividends 1 1 129 22 855 166
Redeemed (13) (36) (700) (105) (5,977) (728)
------- ------- ------- -------- -------- --------
Net increase /(decrease) $ 51 $111 $ 4,976 $ 1,150 $ 4,662 $ 11,230
======= ======= ======= ======== ======== ========
SHARES
Class 1:
Sold 828 1,824 4,081 5,464 4,980 5,608
Issued as reinvestment
of dividends 80 63 1,000 812 815 564
Redeemed (340) (753) (3,032) (9,940) (2,518) (3,428)
------- ------- ------- -------- -------- --------
Net increase/(decrease) 568 1,134 2,049 (3,664) 3,277 2,744
======= ======= ======= ======== ======== ========
Class 2:
Sold 7 15 2,120 474 896 1,092
Issued as reinvestment
of dividends --*** --*** 50 9 80 16
Redeemed (2) (4) (265) (41) (563) (67)
------- ------- ------- -------- -------- --------
Net increase /(decrease) 5 11 1,905 442 413 1,041
======= ======= ======= ======== ======== ========
<FN>
- --------
* The REIT Fund commenced operations on May 1, 2003.
** Amount represents less than $500.
*** Amount represents less than 500 shares.
66 See Notes to Financial Statements.
West Coast
Equity Fund Mid Cap Stock Fund Growth Fund Small Cap Stock Fund
---------------------- --------------------- --------------------- ---------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
12/31/03 12/31/02 12/31/03 12/31/02 12/31/03 12/31/02 12/31/03 12/31/02
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
AMOUNT
Class 1:
Sold $12,538 $13,303 $10,754 $ 8,084 $ 27,111 $ 59,345 $ 13,819 $ 7,658
Issued as reinvestment
of dividends 224 1,468 210 1,783 -- -- -- 3,782
Redeemed (5,562) (9,783) (6,660) (9,452) (14,386) (32,564) (16,100) (7,658)
------- ------- ------- ------- -------- -------- -------- -------
Net increase/(decrease) $ 7,200 $ 4,988 $ 4,304 $ 415 $ 12,725 $ 26,781 $ (2,281) $ 3,782
======= ======= ======= ======= ======== ======== ======== =======
Class 2:
Sold $ 2,076 $ 2,930 $ 1,196 $ 1,622 $ 507 $ 839 $ 968 $ 1,203
Issued as reinvestment
of dividends 5 30 4 37 -- -- -- 74
Redeemed (393) (297) (129) (175) (93) (96) (226) (116)
------- ------- ------- ------- -------- -------- -------- -------
Net increase $ 1,688 $ 2,663 $ 1,071 $ 1,484 $ 414 $ 743 $ 742 $ 1,161
======= ======= ======= ======= ======== ======== ======== =======
SHARES
Class 1:
Sold 820 979 832 686 2,706 5,268 2,306 1,254
Issued as reinvestment
of dividends 15 100 16 139 -- -- -- 602
Redeemed (413) (725) (574) (810) (1,462) (3,134) (1,971) (1,120)
------- ------- ------- ------- -------- -------- -------- -------
Net increase/(decrease) 422 354 274 15 1,244 2,134 335 736
======= ======= ======= ======= ======== ======== ======== =======
Class 2:
Sold 133 200 95 133 48 75 125 163
Issued as reinvestment
of dividends --*** 2 --*** 3 -- -- -- 12
Redeemed (28) (23) (11) (15) (9) (10) (30) (18)
------- ------- ------- ------- -------- -------- -------- -------
Net increase 105 179 84 121 39 65 95 157
======= ======= ======= ======= ======== ======== ======== =======
Income Fund Money Market Fund
------------------------- -----------------------
Year Ended Year Ended Year Ended Year Ended
12/31/03 12/31/02 12/31/03 12/31/02
-------- -------- -------- --------
AMOUNT
Class 1:
Sold $ 18,940 $ 47,668 $ 11,839 $ 24,565
Issued as reinvestment
of dividends 10,778 7,749 175 428
Redeemed (21,911) (38,744) (25,582) (19,773)
-------- -------- -------- --------
Net increase/(decrease) $ 7,807 $ 16,673 $(13,568) $ 5,220
======== ======== ======== ========
Class 2:
Sold $ 15,366 $ 7,597 $ 3,108 $ 7,723
Issued as reinvestment
of dividends 925 104 15 38
Redeemed (3,654) (148) (4,733) (3,269)
-------- -------- -------- --------
Net increase /(decrease) $ 12,637 $ 7,553 $ (1,610) $ 4,492
======== ======== ======== ========
SHARES
Class 1:
Sold 1,704 4,610 11,839 24,565
Issued as reinvestment
of dividends 971 758 175 428
Redeemed (1,988) (3,727) (25,582) (19,773)
-------- -------- -------- --------
Net increase/(decrease) 687 1,641 (13,568) 5,220
======== ======== ======== ========
Class 2:
Sold 1,397 730 3,108 7,723
Issued as reinvestment
of dividends 84 10 15 38
Redeemed (337) (14) (4,733) (3,269)
-------- -------- -------- --------
Net increase /(decrease) 1,144 726 (1,610) 4,492
======== ======== ======== ========
See Notes to Financial Statements. 67
financial highlights
For a Fund share outstanding throughout each period.
Income from Investment Operations Less Distributions
------------------------------------------ ----------------------------------------
Net
Net Asset Realized and Dividends Distribution Net Asset
Value, Unrealized Total from from Net from Value,
Beginning Net Investment Gain/(Loss) Investment Investment Net Realized Total End of
of Period Income/(Loss) on Investments Operations Income Capital Gains Distributions Period
--------- -------------- -------------- ---------- ---------- ------------- ------------- ---------
REIT Fund
Class 1
12/31/03(3) $10.00 $ 0.36(6) $ 2.68 $ 3.04 $ -- $ -- $ -- $13.04
Class 2
12/31/03(4) 11.20 0.28(6) 1.55 1.83 -- -- -- 13.03
Equity Income Fund
Class 1
12/31/03 $11.01 $ 0.31(6) $ 2.95 $ 3.26 $(0.31) $(0.06) $(0.37) $13.90
12/31/02 12.87 0.36(6) (1.95) (1.59) (0.25) (0.02) (0.27) 11.01
12/31/01 12.11 0.42(6) 0.54 0.96 (0.12) (0.08) (0.20) 12.87
12/31/00 10.50 0.36(6) 1.42 1.78 (0.17) -- (0.17) 12.11
12/31/99 10.27 0.33(6) (0.07)(8) 0.26 (0.03) -- (0.03) 10.50
Class 2
12/31/03 10.99 0.29(6) 2.93 3.22 (0.30) (0.06) (0.36) 13.85
12/31/02 12.87 0.32(6) (1.93) (1.61) (0.25) (0.02) (0.27) 10.99
12/31/01(5) 12.64 0.22(6) 0.21 0.43 (0.12) (0.08) (0.20) 12.87
Growth & Income Fund
Class 1
12/31/03 $13.45 $ 0.19(6) $ 3.39 $ 3.58 $(0.18) $ -- $(0.18) $16.85
12/31/02 17.18 0.15(6) (3.77) (3.62) (0.11) -- (0.11) 13.45
12/31/01 18.23 0.09 (0.70) (0.61) (0.06) (0.38) (0.44) 17.18
12/31/00 18.58 0.07(6) 0.37 0.44 (0.04) (0.75) (0.79) 18.23
12/31/99 16.97 0.06(6) 2.93 2.99 (0.04) (1.34) (1.38) 18.58
Class 2
12/31/03 13.42 0.15(6) 3.39 3.54 (0.17) -- (0.17) 16.79
12/31/02 17.18 0.11(6) (3.76) (3.65) (0.11) -- (0.11) 13.42
12/31/01(5) 16.59 0.00(7) 0.59(8) 0.59 -- -- -- 17.18
West Coast Equity Fund
Class 1
12/31/03 $12.69 $ 0.06(6) $ 5.43 $ 5.49 $(0.04) $ -- $(0.04) $18.14
12/31/02 16.70 0.06(6) (3.79) (3.73) (0.08) (0.20) (0.28) 12.69
12/31/01 16.01 0.10(6) 1.03 1.13 (0.09) (0.35) (0.44) 16.70
12/31/00 15.14 0.13(6) 0.84 0.97 -- (0.10) (0.10) 16.01
12/31/99 10.94 (0.00)(7) 4.37 4.37 (0.00)(7) (0.17) (0.17) 15.14
Class 2
12/31/03 12.67 0.02(6) 5.41 5.43 (0.02) -- (0.02) 18.08
12/31/02 16.70 0.02(6) (3.77) (3.75) (0.08) (0.20) (0.28) 12.67
12/31/01(5) 15.52 0.01(6) 1.17 1.18 -- -- -- 16.70
68 See Notes to Financial Statements.
Ratios to Average Net Assets/Supplemental Data
---------------------------------------------------------------------------------
Ratio of Operating
Expenses to Average
Net Assets Without
Ratio of Ratio of Fee Waivers, Expenses
Operating Net Investment Reimbursed and/or Fees
Net Assets, Expenses Income/(Loss) to Reduced by Credits
Total End of Period to Average Average Portfolio Allowed by the
Return(1) (in 000's) Net Assets Net Assets Turnover Rate Custodian(2)
--------- ------------- ---------- ---------------- ------------- ----------------------
REIT Fund
Class 1
12/31/03(3) 30.40% $ 38,593 1.00%(9) 4.21%(9) 3% 1.00%(9)
Class 2
12/31/03(4) 16.34% 1 1.25%(9) 3.96%(9) 3% 1.25%(9)
Equity Income Fund
Class 1
12/31/03 30.10% $149,603 0.70% 2.63% 23% 0.70%
12/31/02 (12.51)% 112,304 0.70% 3.04% 16% 0.70%
12/31/01 7.92% 97,982 0.70% 3.29% 15% 0.70%
12/31/00 17.19% 46,744 0.98% 3.31% 40% 0.99%
12/31/99 2.49% 11,797 1.17% 3.22% 25% 1.19%
Class 2
12/31/03 29.73% 12,619 0.95% 2.38% 23% 0.95%
12/31/02 (12.67)% 6,460 0.95% 2.79% 16% 0.95%
12/31/01(5) 3.40% 658 0.94%(9) 3.05%(9) 15% 0.94%(9)
Growth & Income Fund
Class 1
12/31/03 26.80% $245,820 0.83% 1.28% 16% 0.83%
12/31/02 (21.16)% 209,337 0.81% 1.01% 20% 0.81%
12/31/01 (3.51)% 319,171 0.78% 0.54% 25% 0.78%
12/31/00 2.36% 309,992 0.97% 0.39% 31% 0.97%
12/31/99 18.11% 205,960 1.05% 0.34% 38% 1.05%
Class 2
12/31/03 26.49% 2,712 1.08% 1.03% 16% 1.08%
12/31/02 (21.33)% 1,301 1.06% 0.76% 20% 1.06%
12/31/01(5) 3.56% 112 1.03%(9) 0.29%(9) 25% 1.03%(9)
West Coast Equity Fund
Class 1
12/31/03 43.35% $105,160 0.71% 0.42% 16% 0.71%
12/31/02 (22.55)% 68,227 0.71% 0.42% 20% 0.71%
12/31/01 6.88% 83,835 0.70% 0.59% 19% 0.70%
12/31/00 6.30% 71,307 0.91% 0.76% 33% 0.91%
12/31/99 40.37% 20,429 1.27% (0.02)% 36% 1.28%
Class 2
12/31/03 42.93% 5,202 0.96% 0.17% 16% 0.96%
12/31/02 (22.67)% 2,313 0.96% 0.17% 20% 0.96%
12/31/01 7.60% 58 0.95%(9) 0.34%(9) 19% 0.95%(9)
See Notes to Financial Statements. 69
financial highlights
For a Fund share outstanding throughout each period.
Income from Investment Operations Less Distributions
------------------------------------------ ----------------------------------------
Net
Net Asset Realized and Dividends Distribution Net Asset
Value, Unrealized Total from from Net from Value,
Beginning Net Investment Gain/(Loss) Investment Investment Net Realized Total End of
of Period Income/(Loss) on Investments Operations Income Capital Gains Distributions Period
--------- -------------- -------------- ---------- ---------- ------------- ------------- ---------
Mid Cap Stock Fund
Class 1
12/31/03 $11.49 $ 0.06(6) $ 3.12 $ 3.18 $(0.04) $ -- $(0.04) $14.63
12/31/02 13.14 0.04(6) (1.36) (1.32) (0.03) (0.30) (0.33) 11.49
12/31/01 11.74 0.03(6) 1.38 1.41 (0.01) -- (0.01) 13.14
12/31/00(10) 10.00 0.01(6) 1.73 1.74 -- -- -- 11.74
Class 2
12/31/03 11.46 0.03(6) 3.11 3.14 (0.02) -- (0.02) 14.58
12/31/02 13.13 0.01(6) (1.36) (1.35) (0.02) (0.30) (0.32) 11.46
12/31/01(5) 12.35 (0.00)(6)(7) 0.79 0.79 (0.01) -- (0.01) 13.13
Growth Fund
Class 1
12/31/03 $ 9.32 $(0.00)(7) $ 2.72 $ 2.72 $ -- $ -- $ -- $12.04
12/31/02 13.51 (0.01)(6) (4.18) (4.19) -- -- -- 9.32
12/31/01 22.99 0.02(6) (6.24) (6.22) (0.37) (2.89) (3.26) 13.51
12/31/00 38.54 (0.03)(6) (6.61) (6.64) (0.02) (8.89) (8.91) 22.99
12/31/99 22.36 (0.19) 19.89 19.70 -- (3.52) (3.52) 38.54
Class 2
12/31/03 9.30 (0.03) 2.71 2.68 -- -- -- 11.98
12/31/02 13.51 (0.03)(6) (4.18) (4.21) -- -- -- 9.30
12/31/01(5) 12.81 (0.00)(6)(7) 0.70(8) 0.70 -- -- -- 13.51
Small Cap Stock Fund
Class 1
12/31/03 $ 5.49 $(0.02)(6) $ 3.94 $ 3.92 $ -- $ -- $ -- $ 9.41
12/31/02 11.37 (0.02)(6) (5.27) (5.29) -- (0.59) (0.59) 5.49
12/31/01 16.03 (0.06)(6) (1.69) (1.75) -- (2.91) (2.91) 11.37
12/31/00 19.13 (0.10) (1.65) (1.75) -- (1.35) (1.35) 16.03
12/31/99 14.59 (0.10)(6) 8.07 7.97 -- (3.43) (3.43) 19.13
Class 2
12/31/03 5.47 (0.04)(6) 3.92 3.88 -- -- -- 9.35
12/31/02 11.36 (0.03)(6) (5.27) (5.30) -- (0.59) (0.59) 5.47
12/31/01(5) 14.41 (0.05)(6) (0.09) (0.14) -- (2.91) (2.91) 11.36
International Growth Fund
Class 1
12/31/03 $ 8.51 $ 0.09(6) $ 2.91 $ 3.00 $(0.13) $ -- $(0.13) $11.38
12/31/02 10.21 0.04(6) (1.63) (1.59) (0.11) -- (0.11) 8.51
12/31/01 13.65 0.04 (2.39) (2.35) (0.09) (1.00) (1.09) 10.21
12/31/00 17.63 0.02(6) (3.42) (3.40) (0.43) (0.15) (0.58) 13.65
12/31/99 11.61 0.12 5.91 6.03 (0.01) -- (0.01) 17.63
Class 2
12/31/03 8.49 0.06(6) 2.90 2.96 (0.11) -- (0.11) 11.34
12/31/02 10.21 0.02(6) (1.63) (1.61) (0.11) -- (0.11) 8.49
12/31/01(5) 9.78 0.00(7) 0.43(8) 0.43 -- -- -- 10.21
70 See Notes to Financial Statements.
Ratios to Average Net Assets/Supplemental Data
---------------------------------------------------------------------------------
Ratio of Operating
Expenses to Average
Net Assets Without
Ratio of Ratio of Fee Waivers, Expenses
Operating Net Investment Reimbursed and/or Fees
Net Assets, Expenses Income/(Loss) to Reduced by Credits
Total End of Period to Average Average Portfolio Allowed by the
Return(1) (in 000's) Net Assets Net Assets Turnover Rate Custodian(2)
--------- ------------- ---------- ---------------- ------------- ----------------------
Mid Cap Stock Fund
Class 1
12/31/03 27.73% $ 84,408 0.83% 0.47% 37% 0.83%
12/31/02 (10.35)% 63,119 0.84% 0.32% 28% 0.84%
12/31/01 11.99% 71,988 0.82% 0.21% 30% 0.82%
12/31/00(10) 17.40% 56,717 1.04%(9) 0.14%(9) 13% 1.04%(9)
Class 2
12/31/03 27.45% 3,725 1.08% 0.22% 37% 1.08%
12/31/02 (10.54)% 1,962 1.09% 0.07% 28% 1.09%
12/31/01(5) 6.38% 668 1.07%(9) (0.04)%(9) 30% 1.07%(9)
Growth Fund
Class 1
12/31/03 29.18% $189,837 0.98% (0.04)% 75% 0.98%
12/31/02 (31.01)% 135,422 1.00% (0.05)% 171% 1.00%
12/31/01 (29.05)% 167,483 0.94% 0.11% 92% 0.94%
12/31/00 (22.04)% 306,551 1.10% (0.10)% 83% 1.11%
12/31/99 97.09% 369,952 1.15% (0.78)% 129% 1.15%
Class 2
12/31/03 28.82% 1,274 1.23% (0.29)% 75% 1.23%
12/31/02 (31.16)% 622 1.25% (0.30)% 171% 1.25%
12/31/01(5) 5.46% 31 1.19%(9) (0.14)%(9) 92% 1.19%(9)
Small Cap Stock Fund
Class 1
12/31/03 71.40% $ 70,806 1.00% (0.31)% 67% 1.00%
12/31/02 (47.15)% 39,476 1.00% (0.31)% 29% 1.00%
12/31/01 (12.73)% 73,367 0.95% (0.44)% 46% 0.95%
12/31/00 (10.58)% 82,288 1.11% (0.61)% 49% 1.11%
12/31/99 71.09% 53,616 1.19% (0.75)% 52% 1.19%
Class 2
12/31/03 70.93% 2,710 1.25% (0.56)% 67% 1.25%
12/31/02 (47.28)% 1,068 1.25% (0.56)% 29% 1.25%
12/31/01(5) (3.00)% 440 1.20%(9) (0.69)%(9) 46% 1.20%(9)
International Growth Fund
Class 1
12/31/03 35.51% $ 74,138 1.21% 0.94% 22% 1.21%
12/31/02 (15.71)% 50,625 1.26% 0.49% 30% 1.26%
12/31/01 (17.78)% 49,178 1.19% 0.33% 34% 1.19%
12/31/00 (19.84)% 67,227 1.31% 0.11% 40% 1.31%
12/31/99 51.96% 86,632 1.39% 0.87% 161% 1.40%
Class 2
12/31/03 35.10% 182 1.46% 0.69% 22% 1.46%
12/31/02 (15.91)% 93 1.51% 0.24% 30% 1.51%
12/31/01(5) 4.40% 0(11) 1.40%(9) 0.12%(9) 34% 1.40%(9)
See Notes to Financial Statements. 71
financial highlights
For a Fund share outstanding throughout each period.
Income from Investment Operations
------------------------------------------
Net
Net Asset Realized and Dividends Net Asset
Value, Unrealized Total from from Net Value,
Beginning Net Investment Gain/(Loss) Investment Investment End of
of Period Income on Investments Operations Income Period
--------- -------------- -------------- ---------- ---------- ---------
Short Term Income Fund
Class 1
12/31/03 $ 2.65 $0.11(6) $ 0.04 $ 0.15 $(0.17) $2.63
12/31/02 2.60 0.14(6) 0.02 0.16 (0.11) 2.65
12/31/01 2.44 0.15(6) 0.05 0.20 (0.04) 2.60
12/31/00 2.39 0.14 0.05 0.19 (0.14) 2.44
12/31/99 2.44 0.12 (0.05) 0.07 (0.12) 2.39
Class 2
12/31/03 2.64 0.10(6) 0.04 0.14 (0.16) 2.62
12/31/02 2.60 0.13(6) 0.02 0.15 (0.11) 2.64
12/31/01(5) 2.60 0.02(6) (0.02)(8) 0.00(7) -- 2.60
U.S. Government
Securities Fund
Class 1
12/31/03 $11.05 $0.46(6) $ (0.23) $ 0.23 $(0.53) $10.75
12/31/02 10.55 0.59(6) 0.33 0.92 (0.42) 11.05
12/31/01 9.93 0.61(6) 0.16 0.77 (0.15) 10.55
12/31/00 9.62 0.62(6) 0.29 0.91 (0.60) 9.93
12/31/99 10.11 0.54 (0.49) 0.05 (0.54) 9.62
Class 2
12/31/03 11.02 0.44(6) (0.23) 0.21 (0.53) 10.70
12/31/02 10.55 0.56(6) 0.33 0.89 (0.42) 11.02
12/31/01(5) 10.70 0.09(6) (0.24)(8) (0.15) -- 10.55
Income Fund
Class 1
12/31/03 $10.79 $0.63(6) $ 0.42 $ 1.05 $(0.66) $11.18
12/31/02 10.31 0.69(6) 0.27 0.96 (0.48) 10.79
12/31/01 9.70 0.67(6) 0.11 0.78 (0.17) 10.31
12/31/00 9.35 0.65(6) 0.30 0.95 (0.60) 9.70
12/31/99 10.24 0.67 (0.89) (0.22) (0.67) 9.35
Class 2
12/31/03 10.77 0.60(6) 0.41 1.01 (0.66) 11.12
12/31/02 10.31 0.65(6) 0.29 0.94 (0.48) 10.77
12/31/01(5) 10.45 0.10(6) (0.24)(8) (0.14) -- 10.31
Money Market Fund
Class 1
12/31/03 $ 1.00 $0.006 $ -- $0.006 $(0.006) $ 1.00
12/31/02 1.00 0.014(6) -- 0.014 (0.014) 1.00
12/31/01 1.00 0.036 (0.000)(12) 0.036 (0.036) 1.00
12/31/00 1.00 0.056 -- 0.056 (0.056) 1.00
12/31/99 1.00 0.045 (0.000)(12) 0.045 (0.045) 1.00
Class 2
12/31/03 1.00 0.004 -- 0.004 (0.004) 1.00
12/31/02 1.00 0.011(6) -- 0.011 (0.011) 1.00
12/31/01(5) 1.00 0.002 (0.000)(12) 0.002 (0.002) 1.00
72 See Notes to Financial Statements.
Ratios to Average Net Assets/Supplemental Data
---------------------------------------------------------------------------------
Ratio of Operating
Expenses to Average
Net Assets Without
Ratio of Ratio of Fee Waivers, Expenses
Operating Net Investment Reimbursed and/or Fees
Net Assets, Expenses Income/(Loss) to Reduced by Credits
Total End of Period to Average Average Portfolio Allowed by the
Return(1) (in 000's) Net Assets Net Assets Turnover Rate Custodian(2)
--------- ------------- ---------- ---------------- ------------- ----------------------
Short Term Income Fund
Class 1
12/31/03 5.52% $ 46,628 0.63% 4.31% 38% 0.63%
12/31/02 6.26% 41,592 0.62% 5.42% 41% 0.62%
12/31/01 8.15% 50,343 0.60% 5.77% 44% 0.60%
12/31/00 8.23% 43,479 0.80% 5.66% 17% 0.81%
12/31/99 2.89% 53,144 0.80% 5.26% 42% 0.81%
Class 2
12/31/03 5.46% 6,157 0.88% 4.06% 38% 0.88%
12/31/02 5.86% 1,188 0.87% 5.17% 41% 0.87%
12/31/01(5) 0.00% 20 0.85%(9) 5.52%(9) 44% 0.85%(9)
0.85%(9)
U.S. Government Securities Fund
Class 1
12/31/03 2.14% $204,193 0.56% 4.26% 46% 0.56%
12/31/02 8.87% 173,770 0.56% 5.45% 41% 0.56%
12/31/01 7.79% 136,904 0.56% 5.89% 31% 0.56%
12/31/00 9.73% 108,848 0.76% 6.35% 10% 0.76%
12/31/99 0.51% 80,015 0.83% 6.02% 15% 0.83%
Class 2
12/31/03 1.87% 16,323 0.81% 4.01% 46% 0.81%
12/31/02 8.57% 12,264 0.81% 5.20% 41% 0.81%
12/31/01(5) (1.40)% 753 0.81%(9) 5.64%(9) 31% 0.81%(9)
Income Fund
Class 1
12/31/03 9.78% $193,953 0.56% 5.74% 24% 0.56%
12/31/02 9.61% 179,844 0.56% 6.64% 21% 0.56%
12/31/01 8.08% 154,826 0.55% 6.69% 33% 0.55%
12/31/00 10.45% 127,505 0.74% 6.81% 2% 0.75%
12/31/99 (2.16)% 55,556 0.85% 6.84% 12% 0.85%
Class 2
12/31/03 9.47% 21,188 0.81% 5.49% 24% 0.81%
12/31/02 9.40% 8,186 0.81% 6.39% 21% 0.81%
12/31/01(5) (1.34)% 362 0.80%(9) 6.44%(9) 33% 0.80%(9)
Money Market Fund
Class 1
12/31/03 0.65% $ 20,198 0.60% 0.67% -- 0.60%
12/31/02 1.39% 33,766 0.57% 1.32% -- 0.57%
12/31/01 3.68% 28,563 0.62% 3.41% -- 0.62%
12/31/00 5.79% 18,265 0.76% 5.57% -- 0.78%
12/31/99 4.56% 31,105 0.71% 4.47% -- 0.78%
Class 2
12/31/03 0.40% 3,068 0.85% 0.42% -- 0.85%
12/31/02 1.13% 4,679 0.82% 1.07% -- 0.82%
12/31/01(5) 0.22% 189 0.87%(9) 3.16%(9) -- 0.87%(9)
See Notes to Financial Statements. 73
financial highlights
<FN>
Notes to Financial Highlights
(1) Total return is not annualized for periods less than one year. The
total return would have been lower if certain fees had not been waived
and/or expenses reimbursed by the investment advisor or if fees had not
been reduced by credits allowed by the custodian.
(2) Ratio of operating expenses to average net assets includes expenses paid
indirectly.
(3) The REIT Fund commenced operations on May 1, 2003.
(4) The REIT Fund commenced selling Class 2 shares on August 5, 2003.
(5) The Fund commenced selling Class 2 shares on November 6, 2001, with the
exception of the Equity Income, Mid Cap Stock and Small Cap Stock Funds
which commenced selling Class 2 shares on May 1, 2001.
(6) Per share numbers have been calculated using the average shares method.
(7) Amount represents less than $0.01 per share.
(8) The amount shown may not agree with the change in the aggregate gains
and losses of portfolio securities due to the timing of sales and
redemptions of Fund shares.
(9) Annualized.
(10) The Mid Cap Stock Fund commenced operations on May 1, 2000.
(11) Amount represents less than $500.
(12) Amount represents less than $0.001 per share.
74 See Notes to Financial Statements.
notes to financial statements
WM Variable Trust
1. Organization and Business
WM Variable Trust (the "Trust") was organized as a Massachusetts business
trust on January 29, 1993. The Trust is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as an open-end management
investment company. The Trust consists of 12 funds ("Funds") and 5
portfolios ("Portfolios"). The REIT, Equity Income, Growth & Income, West
Coast Equity, Mid Cap Stock, Growth, Small Cap Stock, International Growth,
Short Term Income, U.S. Government Securities, Income and Money Market Funds
are included in this report. The REIT Fund commenced operations on May 1,
2003.
WM Advisors, Inc. (the "Advisor" or "WM Advisors") serves as investment
advisor to the Trust. The Advisor is a wholly-owned subsidiary of Washington
Mutual, Inc. ("Washington Mutual"), a publicly-owned financial services
company.
The Trust is authorized to issue an unlimited number of shares of beneficial
interest, each without par value. Each Fund may offer two classes of shares:
Class 1 shares and Class 2 shares. These shares are issued and redeemed only
in connection with investments in, and payments under, variable annuity and
variable life insurance contracts (collectively "Variable Insurance
Contracts"), as well as certain qualified retirement plans.
2. Significant Accounting Policies
The following is a summary of significant accounting policies, in conformity
with accounting principles generally accepted in the United States of
America ("generally accepted accounting principles"), which are consistently
followed by the Funds in the preparation of their financial statements.
Portfolio valuation:
Securities that are primarily traded on a U.S. exchange (excluding
securities traded through the Nasdaq National Market System, which are
valued at the Nasdaq official close price) are valued at the last sale price
on that exchange or, if there were no sales during the day, at the mean of
the current day's bid and asked prices. Securities traded only on
over-the-counter markets (other than the Nasdaq National Market System and
the U.S. Government Securities System) are valued at the mean of the current
bid and asked prices.
The value of a foreign security is determined in its functional currency as
of the close of trading on the foreign exchange on which it is traded or at
the close of the New York Stock Exchange, if that is earlier, and the value
is then converted into its U.S. dollar equivalent using prevailing exchange
rates on the day the value of the foreign security is determined.
Options are generally valued at the last sale price or, in the absence of a
last sale price, at the mean of the current day's bid and asked prices. The
value of a futures contract equals the unrealized gain or loss on the
contract, which is determined by marking the contract to the current
settlement price for a like contract acquired on the day on which the
futures contract is being valued.
Debt securities of U.S. issuers (other than short-term investments) are
valued by one or more independent pricing services (each a "Pricing
Service") retained by the Trust. When, in the judgment of a Pricing Service,
market quotations for these securities are readily available, they are
valued at the mean between the quoted bid prices and asked prices.
Short-term debt securities that mature in 60 days or less are valued at
amortized cost, which approximates market value.
Securities for which market quotations are not readily available are valued
at fair value as determined by or under the direction of the Board of
Trustees.
The investments of the Money Market Fund are valued on the basis of
amortized cost in accordance with Rule 2a-7 of the 1940 Act, which
approximates market value. Amortized cost valuation involves initially
valuing an instrument at its cost and thereafter assuming a constant
amortization to maturity of any discount or premium, as long as the
amortized cost fairly reflects the market-based net asset value per share.
Certain other assets may be valued by the Advisor under the supervision of
the Board of Trustees.
Repurchase agreements:
Each Fund may enter into repurchase agreement transactions. A repurchase
agreement is a purchase of an underlying debt obligation subject to an
agreement by the seller to repurchase the obligation at an agreed upon price
and time. The value of the collateral is at all times at least equal to the
total amount of the repurchase obligation. In the event of counterparty
default, the Fund would seek to use the collateral to offset losses
incurred. There is potential loss to the Fund in the event the Fund is
delayed or prevented from exercising its right to dispose of the collateral
securities, including the risk of a possible decline in the value of the
underlying securities during the period while the Fund seeks to assert its
rights. WM Advisors, acting under the supervision of the Board of Trustees,
reviews the value of the collateral and the creditworthiness of those banks
and broker-dealers with whom each Fund enters into repurchase agreements.
75
notes to financial statements (continued)
WM Variable Trust
Futures contracts:
Certain Funds may enter into futures transactions. The underlying value of a
futures contract is incorporated within the unrealized
appreciation/(depreciation) shown in the Portfolio of Investments under the
caption "Futures Contracts."
Upon entering into a futures contract, the Fund is required to deposit with
the broker an amount of cash or cash equivalents equal to a certain
percentage of the contract amount (known as an initial margin deposit).
Subsequent payments (known as variation margins) are made or received by the
Fund each day, depending on the daily fluctuation of the value of the
contract. The daily changes in contract value are recorded as unrealized
gains or losses and the Fund recognizes a realized gain or loss when the
contract is closed. Should market conditions change unexpectedly, the Funds
may not achieve the anticipated benefits of the futures contracts and may
realize a loss. The use of futures transactions involves the risk of
imperfect correlation in movements in the price of futures contracts,
interest rates, and the underlying hedged assets.
Foreign currency:
The books and records of the Funds are maintained in U.S. dollars. Foreign
currencies, investments and other assets and liabilities are translated into
U.S. dollars on a daily basis using prevailing exchange rates. Purchases and
sales of investment securities, income and expenses are translated on the
respective dates of such transactions.
Unrealized gains and losses, not relating to securities, which result from
changes in foreign currency exchange rates have been included in unrealized
appreciation/(depreciation) of investments. Unrealized gains and losses of
securities, which result from changes in foreign currency exchange rates as
well as changes in market prices of securities, have been included in
unrealized appreciation/(depreciation) of investments. Net realized foreign
currency gains and losses, which result from changes in exchange rates
between trade date and settlement date on investment transactions as well as
the difference between the amounts of interest and dividends recorded on the
books of the Funds and the amount actually received, have been included in
realized gains/(losses) on investment transactions. Foreign currency gains
and losses, which result from fluctuations in exchange rates between the
initial purchase trade date and subsequent sale trade date, have been
included in realized gains/(losses) on investment transactions.
Forward foreign currency contracts:
Certain Funds may enter into forward foreign currency contracts. Forward
foreign currency contracts are agreements to exchange one currency for
another at a future date and at a specified price. These Funds may use
forward foreign currency contracts to facilitate transactions in foreign
securities and to manage the Funds' foreign currency exposure. These
contracts are valued daily, and a Fund's net equity therein, representing
unrealized gain or loss on the contracts as measured by the difference
between the forward foreign exchange rates at the dates of entry into the
contracts and the forward rates at the reporting date, is included in the
"Statements of Assets and Liabilities". Realized and unrealized gains and
losses are included in the "Statements of Operations". These instruments
involve market risk, credit risk, or both kinds of risks, in excess of the
amount recognized in the "Statements of Assets and Liabilities". Risks arise
from the possible inability of counterparties to meet the terms of their
contracts and from movement in currency and securities values and interest
rates.
Illiquid investments:
Each Fund may invest a portion of its net assets in securities that are not
readily marketable, including: (1) repurchase agreements with maturities
greater than seven calendar days; (2) time deposits maturing in more than
seven calendar days; (3) certain futures contracts and options; (4) certain
variable rate demand notes having a demand period of more than seven
calendar days; and (5) securities, the disposition of which are restricted
under Federal securities laws, excluding certain Rule 144A securities, as
defined in the following paragraph.
Illiquid securities generally cannot be sold or disposed of in the ordinary
course of business (within seven calendar days) at approximately the value
at which the Funds have valued the investments. This may have an adverse
effect on the Fund's ability to dispose of particular illiquid securities at
fair market value and may limit the Fund's ability to obtain accurate market
quotations for purposes of valuing the securities and calculating the net
asset value of shares of the Fund. The Funds may also purchase securities
that are not registered under the Securities Act of 1933, as amended (the
"Act"), but that can be sold to qualified institutional buyers in accordance
with Rule 144A under the Act ("Rule 144A Securities"). Rule 144A Securities
generally may be resold only to other qualified institutional buyers. If a
particular investment in Rule 144A Securities is not determined to be liquid
under the guidelines established by the Board of Trustees, that investment
will be subject to a Fund's limitation on investment in illiquid securities.
76
notes to financial statements (continued)
WM Variable Trust
Securities transactions and investment income:
Securities transactions are recorded as of the trade date (the date the
order to buy or sell is executed). Realized gains and losses from securities
sold are recorded on the identified cost basis. Securities purchased or sold
on a when-issued or delayed-delivery basis may be settled a month or more
after the trade date; interest income is not accrued until settlement date.
Each Fund instructs the custodian to segregate assets of the Fund with a
current value at least equal to the amount of its when-issued purchase
commitments.
Interest income on debt securities is accrued daily. Premiums and discounts
are amortized using the interest method. Paydown gains and losses on
mortgage-backed and asset-backed securities are presented as an adjustment
to interest income. Dividend income is recorded on the ex-dividend date,
except certain dividends from foreign securities are recorded as soon as the
Funds are informed of the ex-dividend date. Each Fund's investment income
and realized and unrealized gains and losses are allocated among the classes
of that Fund based upon the relative average net assets of each class.
Dividends and distributions to shareholders:
Dividends from net investment income and distributions of any net capital
gains of the Funds are declared and paid annually, with the exception of the
Money Market Fund from which dividends from net investment income are
declared daily and paid monthly.
Distributions from income and capital gains are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to differing
treatments of income and gains on various investment securities held by the
Funds, redesignated distributions and differing characterizations of
distributions made by each Fund. At December 31, 2003, 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/(Decrease) Increase/(Decrease)
Undistributed Net Accumulated
Decrease Investment Net Realized
Paid-in Capital Income/(Loss) Gain/(Loss)
Name of Fund (000s) (000s) (000s)
- ------------ --------------- ------------------ -------------------
REIT Fund $ -- $ (136) $ 136
Equity Income Fund -- (102) 102
West Coast Equity Fund -- (42) 42
Growth Fund (204) 62 142
Small Cap Stock Fund (191) 191 --
International Growth Fund -- 351 (351)
Short Term Income Fund (54) 143 (89)
U.S. Government Securities Fund (644) 1,789 (1,145)
Income Fund (876) 842 34
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 Fund's policy to qualify as a regulated investment company by
complying with the requirements of the Internal Revenue Code of 1986, as
amended (the "Code"), applicable to regulated investment companies and by
distributing substantially all of its earnings to its shareholders.
Therefore, no federal income tax provision is required.
It is each Fund's policy to meet the diversification requirements of the
Code so that variable annuity and variable life contracts funded by the
Trust will not fail to qualify as annuities and life insurance contracts for
tax purposes.
Expenses:
General expenses of the Trust are allocated to all the Funds and Portfolios
of the Trust based upon the relative average net assets of each Fund and
Portfolio. Operating expenses directly attributable to a class of shares are
charged to the operation of that class of shares. Expenses of each Fund not
directly attributable to the operation of any class of shares are prorated
among the classes to which the expenses relate based on the relative average
net assets of each class of shares.
Use of estimates:
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
77
notes to financial statements (continued)
WM Variable Trust
3. Investment Advisory and Other Transactions
WM Advisors serves as investment advisor to the Trust. The Advisor is
entitled to a monthly fee at an annual rate based upon a percentage of the
average daily net assets of each Fund at the following rates:
From $0 From $25 From $50 From $100 From $125 From $200
to $25 to $50 to $100 to $125 to $200 to $250
Name of Fund million million million million million million
- ------------ -------------------------------------------------------------------
REIT Fund 0.800% 0.800% 0.800% 0.800% 0.800% 0.800%
Equity Income
Fund 0.625% 0.625% 0.625% 0.625% 0.625% 0.625%
Growth & Income
Fund 0.800% 0.800% 0.800% 0.750% 0.750% 0.700%
West Coast Equity
Fund 0.625% 0.625% 0.625% 0.625% 0.625% 0.625%
Mid Cap Stock
Fund 0.750% 0.750% 0.750% 0.750% 0.750% 0.750%
Growth Fund 0.950% 0.875% 0.875% 0.875% 0.875% 0.875%
Small Cap Stock
Fund 0.900% 0.850% 0.850% 0.850% 0.850% 0.850%
International
Growth Fund 0.950% 0.950% 0.850% 0.850% 0.750% 0.750%
Short Term
Income Fund 0.500% 0.500% 0.500% 0.500% 0.500% 0.450%
U.S. Government
Securities Fund 0.500% 0.500% 0.500% 0.500% 0.500% 0.500%
Income Fund 0.500% 0.500% 0.500% 0.500% 0.500% 0.500%
Money Market
Fund 0.450% 0.450% 0.450% 0.450% 0.450% 0.450%
From $250 From $400 From $500 From $2
to $400 to $500 million to to Over
Name of Fund million million $2 billion $3 billion $3 billion
- ------------ ----------------------------------------------------------
REIT Fund 0.800% 0.800% 0.750% 0.700% 0.650%
Equity Income
Fund 0.625% 0.625% 0.500% 0.500% 0.500%
Growth & Income
Fund 0.700% 0.650% 0.575% 0.575% 0.575%
West Coast Equity
Fund 0.625% 0.625% 0.500% 0.500% 0.500%
Mid Cap Stock
Fund 0.750% 0.750% 0.750% 0.750% 0.700%
Growth Fund 0.825% 0.825% 0.750% 0.700% 0.650%
Small Cap Stock
Fund 0.850% 0.850% 0.750% 0.750% 0.750%
International
Growth Fund 0.750% 0.750% 0.750% 0.750% 0.700%
Short Term
Income Fund 0.450% 0.450% 0.400% 0.400% 0.400%
U.S. Government
Securities Fund 0.500% 0.500% 0.500% 0.500% 0.450%
Income Fund 0.500% 0.500% 0.500% 0.500% 0.450%
Money Market
Fund 0.450% 0.450% 0.450% 0.450% 0.450%
Custodian fees for certain Funds have been reduced by credits allowed by the
Funds' custodian for uninvested cash balances. The Funds could have invested
this cash in income producing securities. Fees reduced by credits allowed by
the custodian for the year ended December 31, 2003 are shown separately in
the "Statements of Operations".
4. Trustees' Fees
No officer or employee of Washington Mutual or its subsidiaries receives any
compensation from the Trust for serving as an officer or Trustee of the
Trust. The Trust, together with other mutual funds advised by WM Advisors,
pays each Trustee who is not an officer or employee of Washington Mutual or
its subsidiaries, a per annum retainer plus attendance fees for each meeting
at which they are present. The Lead Trustee, Committee Chairs and Committee
Members receive additional remuneration for these services to the 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 Plan
Each of the Funds has adopted a distribution plan, pursuant to Rule 12b-1
under the 1940 Act, applicable to Class 2 shares of the Funds (a "Rule 12b-1
Plan"). Under the Rule 12b-1 Plan, WM Funds Distributor, Inc. (the
"Distributor") may receive a fee at an annual rate of 0.25% of the average
daily net assets attributable to Class 2 shares. This fee may be used to
cover the expenses of the Distributor primarily intended to result in the
sale of such shares, including payments to the Distributor's representatives
or others for selling shares. The Rule 12b-1 Plan shall remain in effect
from year to year, provided such continuance is approved annually by vote of
the Board of Trustees, including a majority of those Trustees who are not
"interested persons" of the Trust, as defined in the 1940 Act, and who have
no direct or indirect financial interest in the operation of the
distribution plan or any agreements related to the plan.
78
notes to financial statements (continued)
WM Variable Trust
6. Purchases and Sales of Securities
The aggregate cost of purchases and proceeds from sales of securities,
excluding U.S. Government and short-term investments, for the year ended
December 31, 2003, are as follows:
Purchases Sales
Name of Fund (000s) (000s)
- ------------ --------- --------
REIT Fund* $ 30,370 $ 923
Equity Income Fund 40,695 27,288
Growth & Income Fund 33,087 52,070
West Coast Equity Fund 19,768 13,066
Mid Cap Stock Fund 29,109 24,652
Growth Fund 121,861 112,369
Small Cap Stock Fund 40,105 43,991
International Growth Fund 15,105 12,184
Short Term Income Fund 16,833 13,285
U.S. Government Securities Fund -- 67
Income Fund 14,290 14,229
<FN>
*The REIT Fund commenced operations on May 1, 2003.
The aggregate cost of purchases and proceeds from sales of U.S. Government
securities, excluding short-term investments, for the year ended December
31, 2003, are as follows:
Purchases Sales
Name of Fund (000s) (000s)
- ------------ --------- ------
Equity Income Fund $ 653 $ 1,969
Short Term Income Fund 5,847 3,180
U.S. Government Securities Fund 124,769 86,896
Income Fund 51,786 32,292
7. Lending of Securities
Certain Funds may lend securities to brokers, dealers and other financial
organizations to earn additional income. Each security loan is
collateralized with collateral assets in an amount equal to or greater than
the current market value of the loaned securities. There is a risk of delay
in receiving collateral, that the collateral could lose value or become
valueless, or in recovering the securities loaned or even a loss of rights
in collateral should the borrower fail financially.
At December 31, 2003, each of the Funds with outstanding loans of securities
to certain brokers, dealers or other financial institutions has segregated
cash and/or securities at least equal to the market value of securities
loaned with the Funds' custodian.
8. Transactions With Affiliates
At December 31, 2003, the Variable Trust Portfolios hold investments in a
number of the Funds. The figures presented below represent the percentage of
shares outstanding of each Fund owned by the Portfolios:
Portfolios
---------------------------------------------------------
Flexible Conservative Conservative Strategic
Income Balanced Balanced Growth Growth
Name of Fund Portfolio Portfolio Portfolio Portfolio Portfolio
- ------------ --------- ------------ --------- ------------ ---------
REIT Fund 5.6% 2.4% 43.6% 35.7% 12.7%
Equity Income Fund 4.0% 1.5% 30.7% 24.0% 8.8%
Growth & Income Fund 6.3% 1.7% 30.3% 25.9% 11.6%
West Coast Equity Fund 2.9% 1.3% 26.9% 23.0% 10.5%
Mid Cap Stock Fund 5.7% 1.8% 33.8% 28.1% 15.4%
Growth Fund 4.2% 1.6% 30.0% 25.3% 10.2%
Small Cap Stock Fund 5.7% 1.5% 29.8% 26.0% 11.8%
International Growth Fund -- 1.7% 39.0% 32.4% 14.8%
Short Term Income Fund 41.5% 5.2% 12.9% -- --
U.S. Government Securities Fund 21.7% 4.2% 32.9% 8.8% --
Income Fund 22.3% 4.3% 34.0% 12.5% --
79
notes to financial statements (continued)
WM Variable Trust
9. Post October Loss
Under the current tax law, capital and currency losses realized after
October 31, may be deferred and treated as occurring on the first day of the
following fiscal year. For the year ended December 31, 2003, the following
Funds have elected to defer capital losses occurring between November 1,
2003 and December 31, 2003 as follows:
Capital Losses
Name of Fund (000s)
- ------------ --------------
Equity Income Fund $2,703
Growth & Income Fund 2,937
U.S. Government Securities Fund 220
Income Fund 20
Such losses will be treated as arising on the first day of the year ending
December 31, 2004.
10. Capital Loss Carryforwards
At December 31, 2003, the following Funds have available for federal income
tax purposes unused capital losses as follows:
(In thousands)
------------------------------------------------------------------------------------------
Expiring Expiring Expiring Expiring Expiring Expiring Expiring Expiring
Name of Fund in 2004 in 2005 in 2006 in 2007 in 2008 in 2009 in 2010 in 2011
- ------------ -------- -------- -------- -------- -------- -------- -------- --------
Equity Income Fund $ -- $ -- $-- $ -- $ -- $ -- $ -- $ 4,221
Growth & Income Fund -- -- -- -- -- 13,669 8,844 9,117
West Coast Equity Fund -- -- -- -- -- -- 4,624 1,703
Growth Fund -- -- -- -- -- 71,089 37,621 5,944
Small Cap Stock Fund -- -- -- -- -- -- 9,348 13,089
International Growth Fund -- -- -- -- -- 4,252 5,109 4,184
Short Term Income Fund 241 76 52 115 76 35 -- 112
U.S. Government Securities Fund -- 161 -- -- 17 -- -- 1,673
Income Fund 144 -- -- 293 176 -- 202 --
Money Market Fund -- -- --* --* -- --* -- --
<FN>
- --------
*Amount represents less than $500.
11. Components of Distributable Earnings
At December 31, 2003, the components of distributable earnings on a tax
basis are as follows:
(In thousands)
------------------------------------------------------------------
Equity Growth & West Coast Mid Cap
REIT Income Income Equity Stock Growth
Fund Fund Fund Fund Fund Fund
------ ------- -------- ---------- ------- -------
Gross tax unrealized appreciation $7,585 $29,964 $49,861 $28,124 $21,600 $24,927
Gross tax unrealized depreciation (126) (3,469) (6,855) (6,006) (328) (1,357)
------ ------- ------- ------- ------- -------
Net tax unrealized appreciation $7,459 $26,495 $43,006 $22,118 $21,272 $23,570
====== ======= ======= ======= ======= =======
Undistributed ordinary income $ 769 $ 3,301 $ 2,686 $ 295 $ 323 $ --
Undistributed accumulated gains $ 209 $ -- $ -- $ -- $ 1,635 $ --
Tax Composition of Distributions:
Ordinary income $ -- $ 3,598 $ 2,511 $ 229 $ 214 $ --
Long-term capital gain $ -- $ 219 $ -- $ -- $ -- $ --
80
notes to financial statements (continued)
WM Variable Trust
(In thousands)
-----------------------------------------------------------------------
U.S.
Small Cap International Short Term Government Money
Stock Growth Income Securities Income Market
Fund Fund Fund Fund Fund Fund
--------- ------------- ---------- ---------- ------- ------
Gross tax unrealized appreciation $ 9,693 $13,818 $2,020 $ 4,305 $16,081 $ --
Gross tax unrealized depreciation (7,001) (2,818) (287) (982) (2,412) --
------- ------- ------ ------- ------- -----
Net tax unrealized appreciation $ 2,692 $11,000 $1,733 $ 3,323 $13,669 $ --
======= ======= ====== ======= ======= =====
Undistributed ordinary income $ -- $ 966 $2,135 $10,306 $12,311 $ --
Undistributed accumulated gains $ -- $ -- $ -- $ -- $ -- $ --
Tax Composition of Distributions:
Ordinary income $ -- $ 749 $2,739 $ 9,586 $11,703 $ 190
Long-term capital gain $ -- $ -- $ -- $ -- $ -- $ --
12. Industry and Geographic Concentration and Other Risk Factors
While no individual fund is intended as a complete investment program, this
is especially true for funds that concentrate their investments such as
those investing in particular industries or regions.
The REIT Fund concentrates its investments in real estate investment trust
("REIT") securities or debt securities of issuers that are principally
engaged in the U.S. real estate or related industries. The REIT Fund could
be adversely impacted by economic trends within this industry.
The West Coast Equity Fund concentrates its investments in companies located
or doing business in Alaska, California, Idaho, Montana, Oregon and
Washington. The West Coast Equity Fund could be adversely impacted by
economic trends within this region.
Certain Funds may invest a portion of their assets in foreign securities;
developing or emerging markets 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 enter into "delayed-delivery" transactions; and enter into various other
investment practices, each with inherent risks. The risks involved in
investing in foreign securities include those resulting from future adverse
political and economic developments and the possible imposition of currency
exchange restrictions or other foreign laws or restrictions. The risks
involved in investing in a high concentration of a single sector include
those resulting from future adverse political and economic developments or
regulatory occurrences and the potential for adverse effects to the
financial conditions of the industries within the sector due to market
fluctuations.
From time to time, one or more of the Funds used for investment by a
Variable Trust Portfolio may experience relatively large investments or
redemptions due to reallocations or rebalancings by the Portfolios. These
transactions will affect the Funds, since the Funds that experience
redemptions as a result of the reallocations or rebalancings may have to
sell portfolio securities and the Funds that receive additional cash will
have to invest such cash. While it is impossible to predict the overall
impact of these transactions over time, there could be adverse effects on
portfolio management to the extent that the Funds may be required to sell
securities or invest cash at times when they would not otherwise do so.
These transactions could also have tax consequences if sales of securities
resulted in gains and could also increase transaction costs. The Advisor is
committed to minimizing such impact on the Funds to the extent it is
consistent with pursuing the investment objectives of the Portfolios. The
Advisor may nevertheless face conflicts in fulfilling its responsibilities.
The Advisor will, at all times, monitor the impact on the Funds of
transactions by the Portfolios.
81
independent auditors' report
To the Trustees and Shareholders of the Funds of the
WM Variable Trust:
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of WM Variable Trust REIT Fund, WM
Variable Trust Equity Income Fund, WM Variable Trust Growth & Income Fund,
WM Variable Trust Growth Fund, WM Variable Trust Income Fund, WM Variable
Trust Money Market Fund, WM Variable Trust Mid Cap Stock Fund, WM Variable
Trust Small Cap Stock Fund, WM Variable Trust International Growth Fund, WM
Variable Trust Short Term Income Fund, WM Variable Trust U.S. Government
Securities Fund and WM Variable Trust West Coast Equity Fund (all funds of
WM Variable Trust) (collectively the "Funds") as of December 31, 2003, 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 periods presented. These
financial statements and financial highlights are the responsibility of the
Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned at December 31, 2003,
by correspondence with the custodian and brokers; where replies were not
received from brokers, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. 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 aforementioned Funds at December 31, 2003, the results of the operations
for the year then ended, the changes in their net assets for each of the two
years in the period then ended, and the financial highlights for each of the
periods presented, in conformity with accounting principles generally
accepted in the United States of America.
Deloitte & Touche LLP
Boston, Massachusetts
February 13, 2004
82
other information (unaudited)
WM Variable Trust
Year Ended December 31, 2003
1. Tax Information
The following tax information represents the amount of each distribution
made by the following Funds which may qualify for the dividends received
deduction available to corporate shareholders.
Name of Fund
- ------------
Equity Income Fund 72.25%
Growth & Income Fund 100.00%
West Coast Equity Fund 100.00%
Mid Cap Stock Fund 100.00%
If the Fund meets the requirements of Section 853 of the Code, the Fund may
elect to pass through to its shareholders credits for foreign taxes paid.
The total amount of income received by the International Growth Fund from
sources within foreign countries and possessions of the United States was
$0.1985 per share (representing a total of $1,297,023). The total amount of
taxes paid to such countries was $0.0203 per share (representing a total of
$132,658).
2. Trustees and Officers Information
Trustees and Officers:
Name, Age, and Address (1) Length of Principal Occupation(s) During Other Directorships
Of Independent Trustee Time Served (2) Past 5 Years Held by Trustee
==================================================================================================================================
David E. Anderson Sierra Funds-8 years Retired President and CEO of GTE Children's Bureau Foundation; Upward
Age 77 WM Group of California, Inc. Bound House of Santa Monica
Funds-5 years
(Retired May 2003)
- ----------------------------------------------------------------------------------------------------------------------------------
Wayne L. Attwood, M.D. Composite Funds-11 years Retired doctor of internal
Age 74 WM Group of medicine and gastroenterology.
Funds-5 years
- ----------------------------------------------------------------------------------------------------------------------------------
Kristianne Blake Composite Funds-3 years CPA specializing in personal Frank Russell Investment Company;
Age 49 WM Group of financial and tax planning. Russell Insurance Funds; Avista
Funds-5 years Corporation; St. George's School
- ----------------------------------------------------------------------------------------------------------------------------------
Edmond R. Davis, Esq. Sierra Funds-8 years Partner at the law firm of Braille Institute of America, Inc;
Age 75 WM Group of Davis & Whalen LLP. Prior to Children's Bureau of Southern California,
Funds-5 years 1999, partner at the law firm of Children's Bureau Foundation; Fifield
Brobeck, Phlegar & Harrison, LLP. Manors, Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
Carrol R. McGinnis Griffin Funds-5 years Founder of McGinnis Investments. Baptist Foundation of Texas; Concord
Age 60 WM Group of Prior to 1994, President and Chief Trust Company.
Funds-5 years Operating Officer of Transamerica
Fund Management Company.
- ----------------------------------------------------------------------------------------------------------------------------------
Alfred E. Osborne, Jr., Sierra Funds-7 years Senior Associate Dean of the Nordstrom Inc.; K2, Inc.; First Pacific
Ph.D. WM Group of Anderson Graduate School of Advisors' Capital, Crescent and New
Age 59 Funds-5 years Management at the University of Income Funds; Equity Marketing Inc.;
California Los Angeles. Member of Investment Company
Institute National Board of Governors.
- ----------------------------------------------------------------------------------------------------------------------------------
Daniel L. Pavelich Composite Funds-1 year Retired Chairman and CEO of BDO Wildseed Ltd.; Catalytic, Inc.; Vaagen
Age 59 WM Group of Seidman, LLP. Bros. Lumber, Inc.
Funds-5 years
- ----------------------------------------------------------------------------------------------------------------------------------
Jay Rockey Composite Funds-3 years Founder and Senior Counsel of Downtown Seattle Association; The Rainier
Age 75 WM Group of Rockey, Hill & Knowlton, formerly Club; WSU Foundation
Funds-5 years The Rockey Company. Prior to 2004,
Chairman and Founder of same.
- ----------------------------------------------------------------------------------------------------------------------------------
Morton O. Schapiro Griffin Funds-5 years President of Williams College Marsh & McLennan Companies
Age 50 WM Group of since 2000. Prior thereto, Dean
Funds-5 years of the College of Letters, Arts
(Retired February 2003) and Sciences; Professor of
Economics and Vice President of
Planning, University of Southern
California.
- ----------------------------------------------------------------------------------------------------------------------------------
Richard C. Yancey Composite Funds-23 years Retired Managing Director of AdMedia Partners Inc.; Czech and Slovak
(Lead Trustee) WM Group of Dillon, Read & Co., an Investment American Enterprise Fund
Age 77 Funds-5 years Bank now part of UBS.
- ----------------------------------------------------------------------------------------------------------------------------------
83
other information (unaudited) (continued)
WM Variable Trust
Year Ended December 31, 2003
Name, Age, and Address (1) Length of Principal Occupation(s) During Other Directorships
Of Interested Trustee (3) Time Served (2) Past 5 Years Held by Trustee
==================================================================================================================================
- ----------------------------------------------------------------------------------------------------------------------------------
Anne V. Farrell Composite Funds-4 years President Emeritus of the Seattle Washington Mutual, Inc.; REI
Age 68 WM Group of Foundation.
Funds-5 years
- ----------------------------------------------------------------------------------------------------------------------------------
Michael K. Murphy Composite Funds-3 years Chairman of CPM Development Washington Mutual, Inc.
Age 66 WM Group of Corporation.
Funds-5 years
- ----------------------------------------------------------------------------------------------------------------------------------
William G. Papesh, Composite Funds-9 years President, CEO and Director of the
President and CEO WM Group of Advisor and Director of the
Age 60 Funds-5 years Transfer Agent and Distributor.
Prior to 2004, President, CEO and
Director of the Advisor, Transfer
Agent and Distributor.
- ----------------------------------------------------------------------------------------------------------------------------------
Position(s) Held with Registrant
Name, Age, and Address (1) & Principal Occupation(s) During
Of Officer Length of Time Served Past 5 Years
==================================================================================================================================
Wendi B. Bernard Assistant Vice President Assistant Vice President of the Transfer Agent.
Age 35 and Assistant Secretary since 2003.
- ----------------------------------------------------------------------------------------------------------------------------------
Monte D. Calvin, CPA First Vice President since 2002. First Vice President and Director of the Transfer
Age 59 Prior to 2002, other officer positions since 1988. Agent, Advisor and Distributor.
- ----------------------------------------------------------------------------------------------------------------------------------
Sandy Cavanaugh Senior Vice President since 2000. Senior Vice President and Director of the
Age 49 Prior to 2000, First Vice President since 1997. Distributor and Transfer Agent.
- ----------------------------------------------------------------------------------------------------------------------------------
Alex Ghazanfari Vice President and Assistant Vice President and Chief Compliance Officer of the
Age 27 Compliance Officer since 2003. Distributor. Prior to 2003, senior level positions
at the Distributor and WM Financial Services.
- ----------------------------------------------------------------------------------------------------------------------------------
Sharon L. Howells First Vice President since 2000. First Vice President, Secretary and Director of
Age 53 the Advisor, Distributor, and Transfer Agent.
- ----------------------------------------------------------------------------------------------------------------------------------
Jeffrey L. Lunzer, CPA Vice President, Chief Financial Vice President of the Transfer Agent. Prior to
Age 42 Officer and Treasurer since 2003. 2003, senior level positions at the Columbia Funds
and Columbia Management Co.
- ----------------------------------------------------------------------------------------------------------------------------------
William G. Papesh President and CEO since 1987. Prior to President and Director of the Advisor and Director
Age 60 1987, other officer positions since 1972. of the Transfer Agent and Distributor.
- ----------------------------------------------------------------------------------------------------------------------------------
Gary Pokrzywinski First Vice President since 2001. Senior Vice President of the Advisor.
Age 42 Prior to 2001, Vice President since 1999.
- ----------------------------------------------------------------------------------------------------------------------------------
Stephen Q. Spencer First Vice President since 2001. First Vice President of the Advisor. Prior to
Age 45 2001, senior level positions at Smoot, Miller,
Cheney & Co.
- ---------------------------------------------------------------------------------------------------------------------------------
John T. West First Vice President, Secretary and Compliance First Vice President of the Transfer Agent,
Age 48 Officer since 2003. Prior to 2003, other officer Advisor and Distributor.
positions since 1993.
- ----------------------------------------------------------------------------------------------------------------------------------
Randall L. Yoakum Senior Vice President since 2001. Senior Vice President, Director and Chief
Age 44 Prior to 2001, First Vice President since 1999. Investment Strategist of the Advisor and Director
of the Distributor and Transfer Agent. Prior to
1999, senior positions at D.A. Davidson and
Boatmen's Trust.
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
- --------
Note: The Statement of Additional Information includes additional
information about Fund Trustees and Officers and is available, without
charge, upon request by calling 1-800-222-5852.
(1) The address for all Trustees and Officers is 1201 Third Avenue, 22nd
Floor, Seattle, WA, 98101.
(2) The Sierra Funds merged with the Composite Funds on March 23, 1998 to
form the WM Group of Funds. The Griffin Funds merged with the WM Group
of Funds on March 5, 1999.
(3) Trustees are considered interested due to their affiliation with
Washington Mutual, Inc. or the Funds.
84
This Annual Report is published for the general information of the
shareholders of the WM Variable Trust. It is authorized for distribution to
prospective investors only when preceded or accompanied by a current
prospectus. Share prices 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.
Shares of the WM Variable Trust are not federally insured by the Federal
Deposit Insurance Corporation (FDIC), the Federal Reserve Board, National
Credit Union Association (NCUA), National Credit Union Share Insurance Fund
(NCUSIF), or any other federal government agency. The purchase of WM
Variable Trust shares is not required for and is not a term of the
provision of any banking service or activity. They are not deposits or
obligations of, nor are they guaranteed by, any bank. These securities are
subject to investment risk, including possible loss of principal amount
invested.
Distributed by:
WM Funds Distributor, Inc.
Member NASD
[wm Variable Trust logo] PRSRT STD
U.S. POSTAGE
WM Funds Distributor, Inc. PAID
12009 Foundation Place, Suite 350 HAZELWOOD, MO
Gold River, CA 95670 PERMIT #14
VTAR (2/28/04)
[wm Variable Trust logo]
WM VARIABLE TRUST
| | STRATEGIC ASSET MANAGEMENT PORTFOLIOS
Common sense. Uncommon solutions.
[PHOTO]
ANNUAL REPORT
for the year ended
December 31, 2003
WM Strategic Asset Management Portfolios
Flexible Income Portfolio
Conservative Balanced Portfolio
Balanced Portfolio
Conservative Growth Portfolio
Strategic Growth Portfolio
Table of Contents
Message from the President.................1
Individual Portfolio Reviews...............2
Portfolio of Investments..................14
Statements of Assets and Liabilities......17
Statements of Operations..................18
Statements of Changes in Net Assets.......19
Statements of Changes in Net
Assets - Capital Stock Activity...........21
Financial Highlights......................22
Notes to Financial Statements.............26
Independent Auditors' Report..............30
Other Information (unaudited).............31
- ---------------------------------------------------------
NOT FDIC OR NCUA/NCUSIF INSURED
- ---------------------------------------------------------
May Lose Value * Not a Deposit * No Bank or Credit Union
Guarantee * Not insured by any federal government agency
- ---------------------------------------------------------
[PHOTO] Dear Investor,
During 2003, equity investments rebounded after three years of down
markets while bonds also reported positive performance.(1) We believe
these past few years have demonstrated the benefits provided by our fund
family's emphasis on diversification and asset allocation. At this
strategy's most basic level, a mix of carefully selected stocks and
bonds offered not only the ability to help manage risk and limit losses
during the recent equity market downturn, but also the potential for
performance gains as markets turned the tide.
This year's performance also underscored the importance of
diversification and allocation at the asset class level. During the
year, the forefront of the market rebound included asset classes such as
high-yield bonds, small-cap stocks, real estate holdings, and foreign
equities. Over the last several years, we have made each of these asset
classes available through individual funds and as components of our
Strategic Asset Management Portfolios. Like many of our investment
options, these WM Variable Trust Funds and Portfolios offer the
potential to build wealth while managing and moderating risk levels--the
crux of our investment philosophy at the WM Group of Funds.
We introduced the WM VT REIT Fund in May 2003 and have been very pleased
with its results. The Fund, which invests primarily in real estate
investment trust (REIT) securities, provides another tool for building
diversification. As both an individual fund option and an investment
within our asset allocation portfolios, the WM VT REIT Fund exemplifies
our dedication to improving diversification and thereby better managing
risk.
Although this year attested to the benefits of active asset allocation
in advancing markets, we believe this strategy can actually assist
investors during all phases of the market cycle. Active asset allocation
can keep portfolios balanced during an equity market run-up, potentially
limit the impact of a subsequent downturn, and provide the discipline to
stay invested so that an ensuing rebound is not missed. A well-
diversified and allocated portfolio can mitigate the effects of short-
term market movements and keep investors on track to meet their long-
term goals.
As always, we encourage you to meet regularly with your Investment
Representative to ensure that your investment portfolio remains in line
with your long-term goals. Economies and markets are in constant flux
and your needs can change over time, so it is prudent to periodically
examine your entire financial portfolio. The guidance of an investment
professional can assist this process.
Our enthusiasm for this year's equity market rebound has been tempered
by concerns raised by investigations within the mutual fund industry.
Two trading activities, market timing and late trading, have received
widespread media coverage in recent months. I would like to take this
opportunity to comment on how the WM Group of Funds views these issues.
Market timing, which involves the short-term buying and selling of
shares, is a practice that the WM Group of Funds opposes. We believe
that this type of activity can be detrimental to the long-term interests
of investors. Late trading is the practice of placing a trade for mutual
fund shares after 4 p.m. EST at that day's net asset value. The
securities laws strictly prohibit this practice, and the WM Group of
Funds endorses and abides by this rule. To ensure that we are
effectively addressing these issues, we will continue to review our
existing practices and to support appropriate regulations.
As an officer for more than half of our 64-year history, I have been
part of our diligent efforts to build a specific company culture and
industry reputation. We stress two basic values at the WM Group of
Funds: risk-adjusted asset management and customer service. This past
year has been a gratifying one in terms of both of these core values. We
are pleased with the performance of the Portfolios and Funds, and we
have garnered strong industry recognition for these results. By
providing a unique structure and mix of investment opportunities, we
have been able to grow when some in the industry have struggled. In
addition, customer service was the basis for many of this year's
initiatives. We worked hard to enhance aspects of it that you see
regularly, such as many of our Web site features, as well as those that
are behind the scenes. In each case, our goal has been to streamline and
improve operations for both you and your Investment Representative.
Thank you for the confidence and trust you have placed in the WM Group
of Funds. We look forward to continuing to serve your investment needs.
Sincerely,
/s/ William G. Papesh
William G. Papesh
President
<FN>
(1) As measured by the S&P 500 Index and the Lehman Brothers Aggregate
Bond Index for the one-year period ended December 31, 2003. Indices
are unmanaged, and individuals cannot invest directly in an index.
1
[PHOTO] Individual Portfolio Reviews
To Our Asset Allocation Clients
Welcome to the Strategic Asset Management Portfolios.
We are pleased to provide you with an overview of our asset allocation
portfolios, each designed to help you meet specific long-term investment
objectives. This report includes performance reviews and highlights of
the investment strategies for each of our five Portfolios during the
year ended December 31, 2003.
[WM Group of Funds Logo]
Understanding the Enclosed Charts and Performance
In order to help you understand the Strategic Asset Management (SAM)
Portfolios' investment performance, we have included portfolio
commentary along with graphs that compare the Portfolios' performance
with certain capital market benchmarks. The benchmarks are a blended mix
of capital market indices intended to help you assess for Portfolio
performance.
Descriptions of the indices used are as follows:
o Inflation is a measurement of the change in domestic prices and is
measured by the Consumer Price Index for all urban consumers.
o The Lehman Brothers Aggregate Bond Index is an index of
investment-grade fixed-rate debt issues, including government,
corporate, asset-backed, and mortgage-backed securities, with
maturities of one year or more.
o The S&P 500 Index is an index of 500 industrial, transportation,
utility and financial companies widely regarded by investors as
representative of the U.S. stock market.
Generally, an index represents the market value of an unmanaged group of
securities regarded by investors as representative of a particular
market. Individuals cannot invest directly in an index and an index does
not reflect any asset-based charges for investment management or other
expenses. Index results on the following pages include changes in value
and the reinvestment of dividends. Total return is used to measure
performance and reflects both changes in the value of the units as well
as any reinvestment of income dividends and/or capital gain
distributions made during the period. Past performance is not a
guarantee of future results. Investment returns and unit value of an
investment will fluctuate with market conditions, and an investor's
units when redeemed may be worth more or less that their original cost.
Investing in securities underlying a variable annuity involves risk.
Please note that performance shown in this report represents performance
of the WM Variable Trust Funds and does not account for fees, expenses,
and charges of any variable annuity contract. If these fees had been
assessed, performance would have been lower. The WM Variable Trust Funds
may not be purchased directly but are currently available through the WM
Strategic Asset Manager and WM Advantage variable annuities issued by
American General Life. They are also available through the WM
Diversified Strategies and WM Diversified StrategiesIII variable
annuities issued by AIG SunAmerica Life Assurance Company, the WM
Diversified StrategiesIII (New York) variable annuity issued by First
SunAmerica Life Insurance Company, and the WM LifeAccumulator variable
universal life insurance policy issued by Farmers New World Life
Insurance Company. They also may be available through other select
variable insurance products and retirement plans.
2
WM Advisors' Asset Allocation Team
[PHOTO] Randall L. Yoakum, CFA
Senior Portfolio Manager
Chief Investment Strategist
Randall L. Yoakum, Chief Investment Strategist and Co-Portfolio Manager
of the WM VT SAM Portfolios, has investment management experience dating
back to 1984. He currently serves as chairman of the Investment Policy
Committee and the Asset Allocation Team and works closely with Mr.
Meighan and Mr. Pokrzywinski in establishing 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. 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] Gary J. Pokrzywinski, CFA
Senior Portfolio Manager
Head of Investments
Gary J. Pokrzywinski, Senior Portfolio Manager of WM Advisors, Inc., is
responsible for helping to develop the outlook and policy for the fixed-
income assets within the Portfolios. He is also instrumental in
developing economic strategy with Mr. Yoakum and Mr. Meighan. Mr.
Pokrzywinski joined WM Advisors in 1992 and currently manages the WM VT
Income Fund and WM High Yield Fund. He holds the Chartered Financial
Analyst designation and has a B.B.A. from the University of Wisconsin,
Milwaukee.
[PHOTO] Michael D. Meighan, CFA
Portfolio Manager
Vice President
Michael D. Meighan is Co-Portfolio Manager of the WM VT SAM Portfolios.
Mr. Meighan oversees the Team analysts and works collaboratively with
Mr. Yoakum and Mr. Pokrzywinski in developing the asset allocation and
investment outlook for the Portfolios as well as formulating economic
strategy. Mr. Meighan supported the development of the current
investment policy for the Portfolios when he joined WM Advisors in 1999.
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] Charles D. Averill, CFA
Senior Quantitative Analyst
Assistant Vice President
Charles D. Averill 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. Mr. Averill 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 has a B.A. in Economics
from Reed College and an M.A. in Economics from Princeton University.
3
[PHOTO] Flexible Income Portfolio
Value of a $10,000 Investment (Class 1 shares)(1)
[graph]
SAM Flex Inc 20/80
Benchmark
Fund Index
Inflation Grth 10K LB Agg
----------- ---------
Aug-97 $10,000 $10,000 $10,000 $10,000
Sep-97 $10,110 $10,025 $10,228 $10,148
Oct-97 $10,110 $10,050 $10,278 $10,295
Nov-97 $10,140 $10,044 $10,411 $10,343
Dec-97 $10,230 $10,032 $10,530 $10,447
Jan-98 $10,350 $10,051 $10,662 $10,581
Feb-98 $10,540 $10,070 $10,809 $10,572
Mar-98 $10,650 $10,089 $10,950 $10,608
Apr-98 $10,720 $10,107 $11,018 $10,663
May-98 $10,740 $10,126 $11,064 $10,765
Jun-98 $10,871 $10,138 $11,229 $10,856
Jul-98 $10,831 $10,150 $11,223 $10,879
Aug-98 $10,470 $10,162 $11,045 $11,056
Sep-98 $10,771 $10,174 $11,393 $11,315
Oct-98 $10,961 $10,199 $11,529 $11,255
Nov-98 $11,172 $10,199 $11,722 $11,319
Dec-98 $11,432 $10,193 $11,885 $11,353
Jan-99 $11,623 $10,217 $12,051 $11,434
Feb-99 $11,452 $10,229 $11,808 $11,234
Mar-99 $11,680 $10,260 $11,954 $11,295
Apr-99 $11,924 $10,335 $12,077 $11,332
May-99 $11,803 $10,335 $11,935 $11,232
Jun-99 $11,950 $10,335 $12,036 $11,196
Jul-99 $11,847 $10,366 $11,921 $11,149
Aug-99 $11,796 $10,391 $11,904 $11,143
Sep-99 $11,853 $10,441 $11,949 $11,273
Oct-99 $12,019 $10,459 $12,136 $11,314
Nov-99 $12,174 $10,466 $12,184 $11,313
Dec-99 $12,415 $10,466 $12,280 $11,259
Jan-00 $12,278 $10,491 $12,124 $11,222
Feb-00 $12,436 $10,553 $12,196 $11,357
Mar-00 $12,719 $10,639 $12,563 $11,507
Apr-00 $12,602 $10,646 $12,459 $11,474
May-00 $12,528 $10,652 $12,403 $11,468
Jun-00 $12,736 $10,714 $12,671 $11,707
Jul-00 $12,736 $10,732 $12,724 $11,813
Aug-00 $13,081 $10,745 $13,029 $11,985
Sep-00 $13,040 $10,801 $12,958 $12,060
Oct-00 $13,063 $10,819 $13,015 $12,140
Nov-00 $12,877 $10,826 $12,981 $12,339
Dec-00 $13,133 $10,819 $13,187 $12,568
Jan-01 $13,564 $10,887 $13,452 $12,773
Feb-01 $13,366 $10,931 $13,300 $12,884
Mar-01 $13,206 $10,956 $13,184 $12,949
Apr-01 $13,361 $11,000 $13,345 $12,894
May-01 $13,484 $11,049 $13,427 $12,972
Jun-01 $13,510 $11,068 $13,403 $13,021
Jul-01 $13,656 $11,037 $13,617 $13,313
Aug-01 $13,622 $11,037 $13,572 $13,466
Sep-01 $13,374 $11,087 $13,478 $13,622
Oct-01 $13,633 $11,049 $13,755 $13,907
Nov-01 $13,734 $11,030 $13,814 $13,715
Dec-01 $13,769 $10,987 $13,767 $13,627
Jan-02 $13,769 $11,013 $13,816 $13,737
Feb-02 $13,780 $11,057 $13,870 $13,871
Mar-02 $13,836 $11,119 $13,790 $13,640
Apr-02 $13,847 $11,181 $13,837 $13,905
May-02 $13,904 $11,181 $13,910 $14,023
Jun-02 $13,701 $11,188 $13,809 $14,145
Jul-02 $13,486 $11,200 $13,727 $14,316
Aug-02 $13,656 $11,237 $13,930 $14,558
Sep-02 $13,531 $11,256 $13,808 $14,794
Oct-02 $13,747 $11,275 $14,000 $14,726
Nov-02 $14,008 $11,275 $14,161 $14,722
Dec-02 $14,064 $11,250 $14,229 $15,026
Jan-03 $14,086 $11,300 $14,165 $15,040
Feb-03 $14,154 $11,387 $14,278 $15,247
Mar-03 $14,211 $11,455 $14,296 $15,235
Apr-03 $14,596 $11,430 $14,627 $15,362
May-03 $15,050 $11,412 $14,998 $15,647
Jun-03 $15,132 $11,424 $15,013 $15,616
Jul-03 $14,924 $11,437 $14,662 $15,091
Aug-03 $15,052 $11,480 $14,797 $15,191
Sep-03 $15,296 $11,518 $15,079 $15,594
Oct-03 $15,493 $11,505 $15,138 $15,449
Nov-03 $15,609 $11,474 $15,194 $15,486
Dec-03 $15,935 $11,452 $15,477 $15,644
==================================================================================================
Average Annual Total Returns as of 12/31/03(1)
Class 1 Shares 1 Year 5 Year Since Inception
(September 9, 1997)
Flexible Income Portfolio(1) 13.30% 6.86% 7.66%
---------------------------------------------------------------------------------------------
Capital Market Benchmark(2) 8.78% 5.43% 7.15%
---------------------------------------------------------------------------------------------
==================================================================================================
Class 2 Shares 1 Year 5 Year Since Inception
(November 6, 2001)
Flexible Income Portfolio(1) 13.02% N/A 6.98%
---------------------------------------------------------------------------------------------
Capital Market Benchmark(2) 8.78% N/A 5.61%
==================================================================================================
To obtain more current Portfolio performance, including the most recent
month-end performance, call (800) 222-5852.
Note: Past performance is not a guarantee of future results. Investment
returns and unit value of an investment will fluctuate, and an
investor's units when redeemed may be worth more or less than their
original cost. Investing in securities underlying a variable annuity
involves risk.
<FN>
(1) Performance shown above represents performance of the WM Variable
Trust Funds (Class 1 shares) and does not account for fees,
expenses, and charges of any variable annuity contract. If these
fees had been assessed, performance would have been lower. The
performance of Class 2 shares is lower than what is shown on the
graph above for Class 1 shares, based on the differences in fees
paid by Class 2 shareholders. The WM Variable Trust Funds may not
be purchased directly but are currently available through the WM
Strategic Asset Manager and WM Advantage variable annuities issued
by American General Life. They are also available through the WM
Diversified Strategies and WM Diversified StrategiesIII variable
annuities issued by AIG SunAmerica Life Assurance Company, the WM
Diversified StrategiesIII (New York) variable annuity issued by
First SunAmerica Life Insurance Company, and the WM LifeAccumulator
variable universal life insurance policy issued by Farmers New
World Life Insurance Company. They also may be available through
other select variable insurance products and retirement plans. The
Portfolio may not have been available for sale for all products for
the time period shown above. Returns do not account for income
taxes due at withdrawal or premium taxes. Withdrawals made prior to
age 59 1/2 may be subject to a 10% tax penalty. The Portfolio's
performance through December 31, 1999 benefited from the agreement
of WM Advisors and its affiliates to limit the Portfolio's
expenses. Performance results assume reinvestment of all capital
gains and dividends.
(2) The WM VT Flexible Income Portfolio's benchmark is a capital market
index that is intended to represent a relevant proxy for market and
Portfolio performance. The benchmark allocation is: 20% S&P 500
Index and 80% Lehman Brothers Aggregate Bond Index. For comparative
purposes, the benchmark's performance is shown from August 31, 1997
(Class 1 shares) and October 31, 2001 (Class 2 shares) and not from
the inception of the index. The S&P 500 Index is a broad-based
index and is intended to represent the U.S. equity market. The
Lehman Brothers Aggregate Bond Index is a broad-based index
intended to represent the fixed-income market as a whole. The
returns shown for the indices assume reinvestment of all dividends
and distributions. Indices are unmanaged, and individuals cannot
invest directly in an index.
(3) Inflation is measured by the Consumer Price Index for all urban
consumers.
Performance Review
The WM VT SAM Flexible Income Portfolio returned 13.30% for the year
ended December 31, 2003. Both equity and bond markets rallied for much
of the year, and the Portfolio posted solid results, outpacing its
benchmark, which returned 8.78%. Longer-term results have also been
favorable. The Portfolio outperformed its benchmark by an average annual
rate of 1.43% for the five-year period ended December 31, 2003. (All
Portfolio performance described above is for Class 1 shares.)
Economic/Market Review
Equity markets started slowly in 2003, with stock performance being
hampered by geopolitical conflicts that reached a peak in the first
quarter. As the potential for a war in Iraq loomed, business and
consumer confidence declined causing further instability in the markets.
Once the war in Iraq began, markets moved in lock step with perceptions
of its progress, duration, and magnitude.
As equity markets receded, bond markets benefited, providing a safer
haven in the flight to quality. This asset flow helped push interest
rates lower. Bond markets rallied in response to these declining rates.
However, longer-term U.S. Treasury securities suffered in June and July
as interest rates reacted to stronger-than-expected economic growth by
spiking higher. After settling slightly lower at the end of the summer,
Treasury yields closed the year by moving higher in the fourth quarter.
During the year, corporate bond issues benefited from improving balance
sheets, and lower-rated, higher-yielding bonds led the fixed-income
market by a wide margin. Mortgage rates also edged higher during the
year. Both Treasuries and mortgage-backed securities underperformed
corporate bonds for the year ended December 31, 2003. (As measured by
the Lehman Brothers Government, Credit, and Mortgage indices.)
4
Global equity markets began to rebound in the second quarter of 2003
after geopolitical tensions eased and central banks injected significant
stimulus into world economies. In June, the Federal Reserve trimmed the
federal funds rate to a 45-year low of 1%. It has since released several
statements reaffirming plans to keep interest rates low for as long as
it takes to stimulate the economy and until they see signs of inflation,
which has remained low. This monetary stimulus was coupled with a robust
tax reduction package and rampant mortgage refinancing cash-outs, which
lined the pockets of consumers and provided significant liquidity.
Throughout the summer and into the fall, this stimulus helped the
economic backdrop improve, and equity markets continued their sharp
advance. A cyclical economic rebound now seems to be underway. In fact,
third quarter domestic growth levels topped 8%, the largest quarterly
economic growth rate in nearly two decades. Indications also point
toward healthy growth in the fourth quarter. Despite this liquidity-
driven economic growth, several factors continue to impede business
confidence levels. Excess capacity built up during the 1990s continues
to curtail business investment. Firms now have begun to increase
spending on capital equipment and technology, but they remain reluctant
to add to overall payrolls. Consumer spending, which has been buoyed by
the very strong housing market, could eventually be affected by the
absence of job growth.
Despite these longer-term secular economic headwinds, the cyclical
recovery has built stronger earnings and helped to push equity markets
higher. Corporate balance sheets continued to be cleansed through strong
productivity gains and cost-cutting measures, and earnings leverage has
helped boost profitability during 2003. Investors' appetite for risk
also reemerged during the year. The sectors and asset classes that
suffered the most during the downturn rebounded significantly during the
past year.
The effects of economic growth were also felt in the fixed-income
markets. After rising sharply in early summer, interest rates have
settled back a little, but the yield on 10-year Treasury bonds closed
the year more than 100 basis points (1%) above its June low. Yields
could move higher at the first sign of inflation.
Investment Strategy
The WM VT Flexible Income Portfolio is diversified among eleven funds,
representing nine major asset classes. A combination of asset classes
facilitates our ability to manage risk over a long-term investment
horizon. Diversification also fueled relative performance with strong
results from some nontraditional investment categories during the year.
The overall investment strategy for the year was to:
o Maintain overweighted positions in corporate and mortgage bonds to
generate yield
o Take advantage of the higher-yielding segments of the corporate
bond market
o Take some profits in investment-grade corporate bonds and shift
assets to mortgages near the end of the year
o Add to equity positions to take advantage of the broad-based market
rally
Review of Portfolio Allocations
During the past year, we shifted the Portfolio's equity weighting from
21% to 25%. Opportunities in stock valuations motivated this move, and
the Portfolio benefited from the strong results of its equity
allocations. Portfolio performance was also bolstered by its position in
the WM VT Small Cap Stock Fund, which was the best-performing WM Fund
during the year.
Fixed-income positions were led by the strong results of the WM High
Yield Fund. We have overweighted high-yield corporate bonds since the
summer of 2002, and although we may have been a little early, this
allocation significantly boosted Portfolio performance this year. The WM
VT Income Fund also provided strong results, spurred by falling
corporate yield differentials relative to Treasuries, which drove the
relative performance of corporate bonds. Mortgage-backed issues suffered
through a period of record refinancing and prepayment, causing the WM VT
U.S. Government Securities Fund to underperform. However, we now favor
these issues and ended the year by taking some profits in investment-
grade corporates in favor of mortgages. The WM VT Short Term Income Fund
also provided stable, positive results and has less sensitivity should
interest rates increase.
In May, we introduced a position in the WM VT REIT Fund, which invests
primarily in real estate investment trust (REIT) securities. These
holdings provided diversification benefits as well as additional
performance strength throughout the second half of the year. Because
REITs are typically more value-oriented positions, we reduced
allocations in the WM VT Growth & Income Fund and WM VT Equity Income
Fund when the Fund was introduced.
Overall, performance was very strong for many asset classes during the
year, and the broad diversification of the WM VT Flexible Income
Portfolio enhanced results. Certain nontraditional asset types led the
market during the period, ultimately to the Portfolio's benefit. High-
yield bonds, small-cap growth stocks, and real estate securities all
contributed significantly to the Portfolio's performance. We believe
these results underscore the benefits of active asset allocation, which
has the potential not only to manage risk, but also to provide tactical
opportunities for building wealth over the long term.
Outlook
We are encouraged by the cyclical, stimulus-driven economic recovery and
the subsequent rally in equity markets. Markets have reacted to economic
improvements and positive earnings growth. Yet, we remain vigilant
concerning longer-term secular headwinds that could limit the rebound's
magnitude. Equity markets may have already priced in much of this record
stimulus, and we are watching the sustainability of current growth
rates. We are seeking prudent opportunities to marginally shift assets
into more attractively priced market segments. While 2003 was a year
where risk was rewarded, we are looking for signals of a rotation that
could reward quality and prudent stock selection. Our long-term
discipline, with asset allocation and diversification at its core,
remains our investment strategy regardless of short-term market cycles.
Portfolio Allocation] Asset Class Diversification
as of December 31, 2003(4) as of December 31, 2003(4)
[pie chart] [pie chart]
Income Fund 27% Corporate Bonds 30%
U.S. Govt. Securities Fund 27% Mortgage-Backed Bonds 29%
Short Term Income Fund 12% U.S. Equity Large-Cap 13%
Growth & Income Fund 9% U.S. Equity Mid-Cap 7%
WM High Yield Fund 8% U.S. Treasuries 7%
Growth Fund 5% Convertible Bonds 3%
Equity Income Fund 4% U.S. Equity Small-Cap 3%
Mid Cap Stock Fund 3% Foreign Equity 2%
Small Cap Stock Fund 2% Asset-Backed Bonds 1%
West Coast Equity Fund 2% Cash Equivalents 5%
REIT Fund 1%
<FN>
(4) As of December 31, 2003 and may not reflect current allocations.
5
[PHOTO] Conservative Balanced Portfolio*
Value of a $10,000 Investment (Class 1 shares)(1)
[graph]
Conservative Balanced 40/60
Benchmark
Fund Index S&P 500
Inflation Grth 10K Grth 10K LB Agg
--------- ---------
Mar-98 $10,000
Apr-98 $10,000 $10,000 $10,000 $10,000 $10,000
May-98 $10,090 $10,018 $9,988 $9,828 $10,095
Jun-98 $10,163 $10,030 $10,201 $10,227 $10,181
Jul-98 $10,183 $10,042 $10,170 $10,119 $10,202
Aug-98 $10,233 $10,054 $9,681 $8,655 $10,368
Sep-98 $10,383 $10,066 $10,065 $9,210 $10,611
Oct-98 $10,323 $10,090 $10,361 $9,959 $10,555
Nov-98 $10,404 $10,090 $10,648 $10,563 $10,615
Dec-98 $10,424 $10,084 $10,912 $11,171 $10,647
Jan-99 $10,493 $10,108 $11,141 $11,638 $10,722
Feb-99 $10,363 $10,121 $10,886 $11,276 $10,535
Mar-99 $10,446 $10,151 $11,096 $11,727 $10,593
Apr-99 $10,538 $10,225 $11,289 $12,181 $10,627
May-99 $10,497 $10,225 $11,124 $11,893 $10,533
Jun-99 $10,472 $10,225 $11,349 $12,553 $10,499
Jul-99 $10,482 $10,256 $11,179 $12,162 $10,455
Aug-99 $10,460 $10,280 $11,153 $12,101 $10,450
Sep-99 $10,567 $10,330 $11,109 $11,769 $10,571
Oct-99 $10,599 $10,348 $11,414 $12,514 $10,610
Nov-99 $10,620 $10,355 $11,507 $12,768 $10,609
Dec-99 $10,618 $10,355 $11,745 $13,521 $10,558
Jan-00 $10,596 $10,379 $11,485 $12,842 $10,524
Feb-00 $10,693 $10,441 $11,482 $12,599 $10,651
Mar-00 $10,786 $10,526 $12,023 $13,831 $10,792
Apr-00 $10,786 $10,533 $11,857 $13,415 $10,760
May-00 $10,743 $10,539 $11,756 $13,140 $10,755
Jun-00 $10,917 $10,600 $12,018 $13,463 $10,979
Jul-00 $10,994 $10,618 $12,009 $13,253 $11,078
Aug-00 $11,359 $10,631 $12,411 $14,076 $11,239
Sep-00 $11,250 $10,686 $12,196 $13,333 $11,310
Oct-00 $11,217 $10,704 $12,224 $13,277 $11,385
Nov-00 $10,904 $10,711 $11,959 $12,231 $11,571
Dec-00 $11,152 $10,704 $12,116 $12,291 $11,787
Jan-01 $11,580 $10,772 $12,406 $12,727 $11,979
Feb-01 $11,254 $10,815 $12,018 $11,566 $12,083
Mar-01 $11,011 $10,840 $11,750 $10,833 $12,143
Apr-01 $11,284 $10,883 $12,086 $11,675 $12,092
May-01 $11,398 $10,932 $12,162 $11,753 $12,165
Jun-01 $11,421 $10,950 $12,071 $11,467 $12,211
Jul-01 $11,455 $10,920 $12,186 $11,355 $12,485
Aug-01 $11,341 $10,920 $11,965 $10,644 $12,628
Sep-01 $10,955 $10,969 $11,662 $9,784 $12,775
Oct-01 $11,171 $10,932 $11,898 $9,971 $13,042
Nov-01 $11,364 $10,913 $12,165 $10,736 $12,862
Dec-01 $11,421 $10,871 $12,161 $10,830 $12,779
Jan-02 $11,364 $10,896 $12,149 $10,672 $12,883
Feb-02 $11,318 $10,939 $12,126 $10,466 $13,008
Mar-02 $11,455 $11,000 $12,187 $10,860 $12,792
Apr-02 $11,376 $11,062 $12,034 $10,202 $13,040
May-02 $11,399 $11,062 $12,060 $10,126 $13,151
Jun-02 $11,129 $11,069 $11,779 $9,405 $13,265
Jul-02 $10,819 $11,081 $11,498 $8,672 $13,426
Aug-02 $10,934 $11,117 $11,645 $8,729 $13,653
Sep-02 $10,635 $11,136 $11,251 $7,780 $13,874
Oct-02 $10,923 $11,155 $11,616 $8,465 $13,810
Nov-02 $11,233 $11,155 $11,888 $8,963 $13,806
Dec-02 $11,164 $11,131 $11,756 $8,436 $14,092
Jan-03 $11,153 $11,180 $11,639 $8,215 $14,104
Feb-03 $11,164 $11,266 $11,666 $8,092 $14,299
Mar-03 $11,199 $11,333 $11,706 $8,170 $14,288
Apr-03 $11,601 $11,308 $12,150 $8,844 $14,406
May-03 $12,049 $11,290 $12,541 $9,310 $14,674
Jun-03 $12,135 $11,303 $12,590 $9,429 $14,645
Jul-03 $12,053 $11,315 $12,425 $9,595 $14,153
Aug-03 $12,194 $11,358 $12,571 $9,782 $14,246
Sep-03 $12,359 $11,396 $12,718 $9,678 $14,624
Oct-03 $12,628 $11,383 $12,936 $10,226 $14,488
Nov-03 $12,745 $11,352 $13,001 $10,316 $14,522
Dec-03 $13,074 $11,331 $13,353 $10,856 $14,671
==================================================================================================
Average Annual Total Returns as of 12/31/03(1)
Class 1 Shares 1 Year 5 Year Since Inception
(April 23, 1998)
Conservative Balanced Portfolio(1) 17.09% 4.63% 4.82%
----------------------------------------------------------------------------------------------
Capital Market Benchmark(2) 13.57% 4.11% 5.23%
----------------------------------------------------------------------------------------------
==================================================================================================
Class 2 Shares 1 Year 5 Year Since Inception
(November 6, 2001)
Conservative Balanced Portfolio(1) 16.83% N/A 6.84%
----------------------------------------------------------------------------------------------
Capital Market Benchmark(2) 13.57% N/A 5.46%
==================================================================================================
To obtain more current Portfolio performance, including the most recent
month-end performance, call (800) 222-5852.
Note: Past performance is not a guarantee of future results. Investment
returns and unit value of an investment will fluctuate, and an
investor's units when redeemed may be worth more or less than their
original cost. Investing in securities underlying a variable annuity
involves risk.
<FN>
* As of 8/1/00, the WM VT Income Portfolio became the WM VT
Conservative Balanced Portfolio and the Portfolio's objectives and
strategies changed. This information should be taken into
consideration when reviewing past performance.
(1) Performance shown above represents performance of the WM Variable
Trust Funds (Class 1 shares) and does not account for fees,
expenses, and charges of any variable annuity contract. If these
fees had been assessed, performance would have been lower. The
performance of Class 2 shares is lower than what is shown on the
graph above for Class 1 shares, based on the differences in fees
paid by Class 2 shareholders. The WM Variable Trust Funds may not
be purchased directly but are currently available through the WM
Strategic Asset Manager and WM Advantage variable annuities issued
by American General Life. They are also available through the WM
Diversified Strategies and WM Diversified StrategiesIII variable
annuities issued by AIG SunAmerica Life Assurance Company, the WM
Diversified StrategiesIII (New York) variable annuity issued by
First SunAmerica Life Insurance Company, and the WM LifeAccumulator
variable universal life insurance policy issued by Farmers New
World Life Insurance Company. They also may be available through
other select variable insurance products and retirement plans. The
Portfolio may not have been available for sale for all products for
the time period shown above. Returns do not account for income
taxes due at withdrawal or premium taxes. Withdrawals made prior to
age 59 1/2 may be subject to a 10% tax penalty. The Portfolio's
performance through October 31, 2003 benefited from the agreement
of WM Advisors and its affiliates to limit the Portfolio's
expenses. Performance results assume reinvestment of all capital
gains and dividends.
(2) The WM VT Conservative Balanced Portfolio's benchmark is a capital
market index that is intended to represent a relevant proxy for
market and Portfolio performance. The benchmark allocation is: 40%
S&P 500 Index and 60% Lehman Brothers Aggregate Bond Index. For
comparative purposes, the benchmark's performance is shown from
April 30, 1998 (Class 1 shares) and October 31, 2001 (Class 2
shares) and not from the inception of the index. The S&P 500 Index
is a broad-based index and is intended to represent the U.S. equity
market. The Lehman Brothers Aggregate Bond Index is a broad-based
index intended to represent the fixed-income market as a whole. The
returns shown for the indices assume reinvestment of all dividends
and distributions. Indices are unmanaged, and individuals cannot
invest directly in an index.
(3) Inflation is measured by the Consumer Price Index for all urban
consumers.
Performance Review
The WM VT SAM Conservative Balanced Portfolio returned 17.09% for the
year ended December 31, 2003. Both equity and bond markets rallied for
much of the year, and the Portfolio posted solid results, outpacing its
benchmark, which returned 13.57%. Please note that due to a significant
shift in the Portfolio's investment objective in 2000, long-term
performance comparisons may not be relevant. (All Portfolio performance
described above is for Class 1 shares.)
Economic/Market Review
Equity markets started slowly in 2003, with strong performance being
hampered by geopolitical conflicts that reached a peak in the first
quarter. As the potential for a war in Iraq loomed, business and
consumer confidence declined causing further instability in the markets.
Once the war in Iraq began, markets moved in lock step with perceptions
of its progress, duration, and magnitude.
As equity markets receded, bond markets benefited, providing a safer
haven in the flight to quality during the first quarter. This asset flow
helped push interest rates lower. Bond markets rallied in response to
these declining rates. However, longer-term U.S. Treasury securities
suffered in June and July as interest rates reacted to stronger-than-
expected economic growth by spiking higher. After settling slightly
lower at the end of the summer, Treasury yields closed the year by
moving higher in the fourth quarter. During the year, corporate bond
issues benefited from improving balance sheets, and lower-rated, higher-
yielding bonds led the fixed-income market by a wide margin. Mortgage
rates also edged higher during the year. Both Treasuries and mortgage-
backed securities underperformed corporate bonds for the year ended
December 31, 2003. (As measured by the Lehman Brothers Government,
Credit, and Mortgage indices.)
Global equity markets began to rebound in the second quarter of 2003
after geopolitical tensions
6
eased and central banks injected significant stimulus into world
economies. In June, the Federal Reserve trimmed the federal funds rate
to a 45-year low of 1%. It has since released several statements
reaffirming plans to keep interest rates low for as long as it takes to
stimulate the economy and until they see signs of inflation, which has
remained low. This monetary stimulus was coupled with a robust tax
reduction package and rampant mortgage refinancing cash-outs, which
lined the pockets of consumers and provided significant liquidity.
Throughout the summer and into the fall, this stimulus helped the
economic backdrop improve, and equity markets continued their sharp
advance. A cyclical economic rebound now seems to be underway. In fact,
third quarter domestic growth levels topped 8%, the largest quarterly
economic growth rate in nearly two decades. Indications also point
toward healthy growth in the fourth quarter. Despite this liquidity-
driven economic growth, several factors continue to impede business
confidence levels. Excess capacity built up during the 1990s continues
to curtail investment. Firms now have begun to increase spending on
capital equipment and technology, but they remain reluctant to add to
overall payrolls. Consumer spending, which has been buoyed by the very
strong housing market, could eventually be affected by the absence of
job growth.
Despite these longer-term secular economic headwinds, the cyclical
recovery has built stronger earnings and helped to push equity markets
higher. Corporate balance sheets continue to be cleansed through strong
productivity gains and cost-cutting measures, and earnings leverage has
helped boost profitability during 2003. Investors' appetite for risk
also reemerged during the past year. The sectors and asset classes that
suffered the most during the downturn rebounded significantly during the
year. Small-cap and foreign equities, as well as the technology sector,
returned to favor in 2003 and led the broad-based rally with very strong
results. Most major market segments reported positive results, with the
S&P 500 closing the year up more than 28%.
Investment Strategy
The WM VT Conservative Balanced Portfolio is diversified among twelve
funds, representing eight major asset classes. A combination of asset
classes facilitates our ability to manage risk over a long-term
investment horizon. Diversification also fueled relative performance
with strong results from some nontraditional investment categories
during the year.
The overall investment strategy for the year was to:
o Add to equity positions to take advantage of the broad-based market
rally
o Heavily weight corporate bonds and take advantage of higher-
yielding segments of this market
o Broaden equity positions, increasing holdings in smaller-cap
stocks, which led the market throughout the recovery, and
introducing a position in the WM VT REIT Fund
o Take some profits in investment-grade corporate bonds and add to
mortgages near the end of the year
Review of Portfolio Allocations
During the past year, we shifted the Portfolio's equity weighting from
33% to 38%. Opportunities in stock valuations motivated this move, and
the Portfolio benefited from the strong results of its equity
allocations. Portfolio performance was also bolstered by its position in
the WM VT Small Cap Stock Fund, which was the best-performing WM Fund
during the year.
Fixed-income positions were led by the strong results of the WM High
Yield Fund. We have overweighted high-yield corporate bonds since the
summer of 2002, and although we may have been a little early, this
allocation significantly boosted Portfolio performance this year. The WM
VT Income Fund also provided strong results, spurred by falling
corporate yield differentials relative to Treasuries, which drove the
relative performance of corporate bonds. Mortgage-backed issues suffered
through a period of record refinancing and prepayment, causing the WM VT
U.S. Government Securities Fund to underperform. However, we now favor
these issues and ended the year by taking some profits in investment-
grade corporates in favor of mortgages. The WM VT Short Term Income Fund
also provided stable, positive results and has less sensitivity should
interest rates increase.
In May, we introduced a position in the WM VT REIT Fund, which invests
primarily in real estate investment trust (REIT) securities. These
holdings provided diversification benefits as well as additional
performance strength throughout the second half of the year. Because
REITs are typically more value-oriented positions, we reduced
allocations in the WM VT Growth & Income Fund and WM VT Equity Income
Fund when the Fund was introduced. Foreign holdings also contributed to
the Portfolio's performance as the economic recovery spread globally.
Overall, performance was very strong for many asset classes during
the year, and the broad diversification of the WM VT Conservative
Balanced Portfolio enhanced results. Certain nontraditional asset types
led the market during the period, ultimately to the Portfolio's benefit.
High-yield bonds, small-cap growth stocks, international equities, and
real estate securities all contributed significantly to the Portfolio's
performance. We believe these results underscore the benefits of active
asset allocation, which has the potential not only to manage risk, but
also to provide tactical opportunities for building wealth over the long
term.
Outlook
We are encouraged by the cyclical, stimulus-driven economic recovery and
the subsequent rally in equity markets. Markets have reacted to economic
improvements and positive earnings growth. Yet, we remain vigilant
concerning longer-term secular headwinds that could limit the rebound's
magnitude. Equity markets may have already priced in much of this record
stimulus, and we are watching the sustainability of current growth
rates. We are also seeking prudent opportunities to marginally shift
assets into more attractively priced market segments. While 2003 was a
year where risk was rewarded, we are looking for signals of a rotation
that could reward quality and prudent stock selection. Our long-term
discipline, with asset allocation and diversification at its core,
remains our investment strategy regardless of short-term market cycles.
Portfolio Allocation Asset Class Diversification
as of December 31, 2003(4) as of December 31, 2003(4)
[pie chart] [pie chart]
U.S. Govt. Securities Fund 23% Mortgage-Backed Bonds 25%
Income Fund 23% Corporate Bonds 24%
Growth & Income Fund 10% U.S. Equity Large-Cap 18%
WM High Yield Fund 8% U.S. Equity Mid-Cap 10%
Short Term Income Fund 7% Foreign Equity 7%
Growth Fund 7% U.S. Treasuries 5%
Equity Income Fund 6% U.S. Equity Small-Cap 3%
West Coast Equity Fund 4% Convertible Bonds 3%
Mid Cap Stock Fund 4% Cash Equivalents 5%
Small Cap Stock Fund 3%
International Growth Fund 3%
REIT Fund 2%
<FN>
(4) As of December 31, 2003 and may not reflect current allocations.
7
[PHOTO] Balanced Portfolio
Value of a $10,000 Investment (Class 1 shares)(1)
[graph]
SAM Balanced 60/40
Benchmark
Fund Index S&P 500
Inflation Grth 10K Grth 10K LB Agg
------------- -------------
May-97 $10,000 $10,000 $10,000 $10,000 $10,000
Jun-97 $10,190 $10,012 $10,315 $10,446 $10,119
Jul-97 $10,680 $10,024 $10,917 $11,275 $10,392
Aug-97 $10,350 $10,043 $10,516 $10,648 $10,304
Sep-97 $10,700 $10,068 $10,924 $11,232 $10,456
Oct-97 $10,390 $10,093 $10,769 $10,857 $10,608
Nov-97 $10,390 $10,087 $11,087 $11,360 $10,657
Dec-97 $10,470 $10,075 $11,247 $11,555 $10,764
Jan-98 $10,600 $10,094 $11,380 $11,683 $10,902
Feb-98 $11,110 $10,113 $11,869 $12,526 $10,893
Mar-98 $11,410 $10,133 $12,250 $13,167 $10,931
Apr-98 $11,580 $10,151 $12,349 $13,300 $10,987
May-98 $11,440 $10,169 $12,269 $13,071 $11,092
Jun-98 $11,655 $10,181 $12,610 $13,602 $11,186
Jul-98 $11,534 $10,194 $12,539 $13,458 $11,210
Aug-98 $10,378 $10,206 $11,534 $11,512 $11,392
Sep-98 $10,719 $10,218 $12,085 $12,250 $11,659
Oct-98 $11,182 $10,243 $12,649 $13,245 $11,597
Nov-98 $11,655 $10,243 $13,138 $14,048 $11,663
Dec-98 $12,268 $10,237 $13,608 $14,857 $11,698
Jan-99 $12,691 $10,261 $13,988 $15,478 $11,781
Feb-99 $12,399 $10,273 $13,630 $14,997 $11,575
Mar-99 $12,929 $10,304 $13,987 $15,597 $11,639
Apr-99 $13,412 $10,379 $14,329 $16,200 $11,676
May-99 $13,103 $10,379 $14,076 $15,818 $11,573
Jun-99 $13,627 $10,379 $14,526 $16,696 $11,536
Jul-99 $13,461 $10,411 $14,230 $16,175 $11,488
Aug-99 $13,450 $10,436 $14,184 $16,094 $11,482
Sep-99 $13,579 $10,486 $14,017 $15,653 $11,615
Oct-99 $14,029 $10,505 $14,569 $16,644 $11,658
Nov-99 $14,614 $10,511 $14,747 $16,982 $11,657
Dec-99 $15,666 $10,511 $15,239 $17,982 $11,601
Jan-00 $15,351 $10,536 $14,759 $17,079 $11,563
Feb-00 $15,918 $10,598 $14,663 $16,757 $11,703
Mar-00 $16,435 $10,685 $15,602 $18,395 $11,857
Apr-00 $15,958 $10,692 $15,302 $17,842 $11,823
May-00 $15,693 $10,698 $15,111 $17,476 $11,817
Jun-00 $16,029 $10,760 $15,460 $17,906 $12,063
Jul-00 $15,846 $10,778 $15,372 $17,627 $12,172
Aug-00 $16,564 $10,791 $16,035 $18,721 $12,349
Sep-00 $16,246 $10,847 $15,566 $17,733 $12,427
Oct-00 $16,160 $10,866 $15,568 $17,658 $12,509
Nov-00 $15,373 $10,872 $14,934 $16,267 $12,714
Dec-00 $15,741 $10,866 $15,090 $16,346 $12,950
Jan-01 $16,512 $10,934 $15,509 $16,927 $13,161
Feb-01 $15,731 $10,978 $14,715 $15,383 $13,276
Mar-01 $15,188 $11,003 $14,185 $14,408 $13,342
Apr-01 $15,779 $11,047 $14,822 $15,527 $13,286
May-01 $15,998 $11,097 $14,917 $15,631 $13,366
Jun-01 $16,035 $11,116 $14,722 $15,251 $13,417
Jul-01 $15,932 $11,085 $14,767 $15,102 $13,717
Aug-01 $15,615 $11,085 $14,280 $14,157 $13,875
Sep-01 $14,753 $11,135 $13,655 $13,013 $14,036
Oct-01 $15,093 $11,097 $13,925 $13,261 $14,329
Nov-01 $15,568 $11,078 $14,489 $14,278 $14,132
Dec-01 $15,761 $11,035 $14,528 $14,404 $14,041
Jan-02 $15,523 $11,060 $14,448 $14,194 $14,155
Feb-02 $15,342 $11,104 $14,337 $13,920 $14,292
Mar-02 $15,737 $11,166 $14,565 $14,443 $14,055
Apr-02 $15,397 $11,229 $14,148 $13,568 $14,328
May-02 $15,364 $11,229 $14,134 $13,468 $14,449
Jun-02 $14,804 $11,236 $13,579 $12,509 $14,575
Jul-02 $14,098 $11,248 $13,010 $11,533 $14,751
Aug-02 $14,225 $11,285 $13,149 $11,609 $15,001
Sep-02 $13,554 $11,304 $12,377 $10,347 $15,244
Oct-02 $14,109 $11,324 $13,008 $11,258 $15,174
Nov-02 $14,677 $11,324 $13,466 $11,921 $15,169
Dec-02 $14,376 $11,299 $13,103 $11,220 $15,483
Jan-03 $14,259 $11,348 $12,901 $10,926 $15,497
Feb-03 $14,178 $11,436 $12,856 $10,762 $15,711
Mar-03 $14,201 $11,504 $12,926 $10,866 $15,698
Apr-03 $14,918 $11,479 $13,609 $11,762 $15,829
May-03 $15,659 $11,461 $14,141 $12,382 $16,123
Jun-03 $15,830 $11,473 $14,239 $12,540 $16,091
Jul-03 $15,888 $11,486 $14,197 $12,761 $15,550
Aug-03 $16,149 $11,530 $14,400 $13,010 $15,653
Sep-03 $16,267 $11,568 $14,461 $12,872 $16,068
Oct-03 $16,848 $11,555 $14,897 $13,600 $15,918
Nov-03 $17,073 $11,524 $14,990 $13,720 $15,956
Dec-03 $17,642 $11,502 $15,522 $14,439 $16,119
==================================================================================================
Average Annual Total Returns as of 12/31/03(1)
Class 1 Shares 1 Year 5 Year Since Inception
(June 3, 1997)
Balanced Portfolio(1) 22.74% 7.55% 9.02%
--------------------------------------------------------------------------------------------
Capital Market Benchmark(2) 18.49% 2.67% 6.91%
--------------------------------------------------------------------------------------------
==================================================================================================
Class 2 Shares 1 Year 5 Year Since Inception
(November 6, 2001)
Balanced Portfolio(1) 22.46% N/A 6.55%
--------------------------------------------------------------------------------------------
Capital Market Benchmark(2) 18.49% N/A 5.14%
==================================================================================================
To obtain more current Portfolio performance, including the most recent
month-end performance, call (800) 222-5852.
Note: Past performance is not a guarantee of future results. Investment
returns and unit value of an investment will fluctuate, and an
investor's units when redeemed may be worth more or less than their
original cost. Investing in securities underlying a variable annuity
involves risk.
<FN>
(1) Performance shown above represents performance of the WM Variable
Trust Funds (Class 1 shares) and does not account for fees,
expenses, and charges of any variable annuity contract. If these
fees had been assessed, performance would have been lower. The
performance of Class 2 shares is lower than what is shown on the
graph above for Class 1 shares, based on the differences in fees
paid by Class 2 shareholders. The WM Variable Trust Funds may not
be purchased directly but are currently available through the WM
Strategic Asset Manager and WM Advantage variable annuities issued
by American General Life. They are also available through the WM
Diversified Strategies and WM Diversified StrategiesIII variable
annuities issued by AIG SunAmerica Life Assurance Company, the WM
Diversified StrategiesIII (New York) variable annuity issued by
First SunAmerica Life Insurance Company, and the WM LifeAccumulator
variable universal life insurance policy issued by Farmers New
World Life Insurance Company. They also may be available through
other select variable insurance products and retirement plans. The
Portfolio may not have been available for sale for all products for
the time period shown above. Returns do not account for income
taxes due at withdrawal or premium taxes. Withdrawals made prior to
age 59 1/2 may be subject to a 10% tax penalty. The Portfolio's
performance through December 31, 1999 benefited from the agreement
of WM Advisors and its affiliates to limit the Portfolio's
expenses. Performance results assume reinvestment of all capital
gains and dividends.
(2) The WM VT Balanced Portfolio's benchmark is a capital market index
that is intended to represent a relevant proxy for market and
Portfolio performance. The benchmark allocation is: 60% S&P 500
Index and 40% Lehman Brothers Aggregate Bond Index. For comparative
purposes, the benchmark's performance is shown from May 31, 1997
(Class 1 shares) and October 31, 2001 (Class 2 shares) and not from
the inception of the index. The S&P 500 Index is a broad-based
index and is intended to represent the U.S. equity market. The
Lehman Brothers Aggregate Bond Index is a broad-based index
intended to represent the fixed-income market as a whole. The
returns shown for the indices assume reinvestment of all dividends
and distributions. Indices are unmanaged, and individuals cannot
invest directly in an index.
(3) Inflation is measured by the Consumer Price Index for all urban
consumers.
Performance Review
The WM VT SAM Balanced Portfolio returned 22.74% for the year ended
December 31, 2003. Both equity and bond markets rallied for much of the
year, and the Portfolio posted solid results, outpacing its benchmark,
which returned 18.49%. Longer-term results have also been favorable. The
Portfolio outperformed its benchmark by an average annual rate of 4.88%
for the five-year period ended December 31, 2003. (All Portfolio
performance described above is for Class 1 shares.)
Economic/Market Review
Equity markets started slowly in 2003, with stock performance being
hampered by geopolitical conflicts that reached a peak in the first
quarter. As the potential for a war in Iraq loomed, business and
consumer confidence declined causing further instability in the markets.
Once the war in Iraq began, markets moved in lock step with perceptions
of its progress, duration, and magnitude.
Global equity markets began to rebound in the second quarter of 2003
after geopolitical tensions eased and central banks injected significant
stimulus into world economies. In June, the Federal Reserve trimmed the
federal funds rate to a 45-year low of 1%. It has since released several
statements reaffirming plans to keep interest rates low for as long as
it takes to stimulate the economy and until they see signs of inflation,
which has remained low. This monetary stimulus was coupled with a robust
tax reduction package and rampant mortgage refinancing cash-outs, which
lined the pockets of consumers and provided significant liquidity.
Throughout the summer and into the fall, this stimulus helped the
economic backdrop improve, and equity markets continued their sharp
advance. A cyclical economic rebound now seems to be underway. In fact,
third quarter domestic growth levels topped 8%, the largest quarterly
economic growth rate in nearly two decades. Indications also point
towards healthy growth in the fourth quarter. Despite this liquidity-
8
driven economic growth, several factors continue to impede business
confidence levels. Excess capacity built up during the 1990s continues
to curtail investment. Firms now have begun to increase spending on
capital equipment and technology, but they remain reluctant to add to
overall payrolls. Consumer spending, which has been buoyed by the very
strong housing market, could eventually be affected by the absence of
job growth.
Despite these longer-term secular economic headwinds, the cyclical
recovery has built stronger earnings and helped to push equity markets
higher. Corporate balance sheets continue to be cleansed through strong
productivity gains and cost-cutting measures, and earnings leverage has
helped boost profitability during 2003. Investors' appetite for risk
also reemerged during the year. The sectors and asset classes that
suffered the most during the downturn rebounded significantly during the
past year. Small-cap and foreign equities, as well as the technology
sector, returned to favor in 2003 and led the broad-based rally with
very strong results. Most major market segments reported positive
results, with the S&P 500 closing the year up more than 28%.
Bond markets rallied early in the year in response to declining interest
rates. However, longer-term U.S. Treasury securities suffered in June
and July as interest rates reacted to stronger-than-expected economic
growth by spiking higher. After settling slightly lower at the end of
the summer, Treasury yields closed the year by moving higher in the
fourth quarter. During the year, corporate bond issues benefited from
improving balance sheets, and lower-rated, higher-yielding bonds led the
fixed-income market by a wide margin. Mortgage rates also edged higher
during the year. Both Treasuries and mortgage-backed securities
underperformed corporate bonds for the year ended December 31, 2003. (As
measured by the Lehman Brothers Government, Credit, and Mortgage
indices.)
Investment Strategy
The WM VT Balanced Portfolio is diversified among twelve funds,
representing eight major asset classes. A combination of asset classes
facilitates our ability to manage risk over a long-term investment
horizon. Diversification also fueled relative performance with strong
results from some nontraditional investment categories during the year.
The overall investment strategy for the year was to:
o Add to equity positions to take advantage of the broad-based
market rally
o Increase positions in smaller-cap stocks, which led the market
throughout the recovery
o Maintain a balance in growth and value positions, but add slightly
to cyclically sensitive growth holdings and sectors
o Heavily weight corporate bonds and take advantage of higher-
yielding segments of this market
Review of Portfolio Allocations
During the past year, we shifted the Portfolio's equity weighting from
52% to 58%. Opportunities in stock valuations motivated this move, and
the Portfolio benefited from the strong results of its equity
allocations. Portfolio performance was also bolstered by its position in
the WM VT Small Cap Stock Fund, which was the best-performing WM Fund
during the year. Although we maintained relatively balanced allocations
in both growth and value positions, we increased exposure to the WM VT
Growth Fund to benefit from the strength in cyclically sensitive
sectors.
In May, we introduced a position in the WM VT REIT Fund, which invests
primarily in real estate investment trust (REIT) securities. These
holdings provided diversification benefits as well as additional
performance strength throughout the second half of the year. Because
REITs are typically more value-oriented positions, we slightly reduced
allocations in the WM VT Growth & Income Fund and WM VT Equity Income
Fund when the Fund was introduced. Foreign holdings also contributed to
the Portfolio's performance as the economic recovery spread globally.
Fixed-income positions were led by the strong results of the WM High
Yield Fund. We have overweighted high-yield corporate bonds since the
summer of 2002, and although we may have been a little early, this
allocation significantly boosted Portfolio performance this year. The WM
VT Income Fund also provided strong results, spurred by falling
corporate yield differentials relative to Treasuries, which drove the
relative performance of corporate bonds. Mortgage-backed issues suffered
through a period of record refinancing and prepayment, causing the WM VT
U.S. Government Securities Fund to underperform. However, we now favor
these issues and ended the period by taking profits in investment-grade
corporates in favor of mortgages.
Overall, performance was very strong for many asset classes during the
year, and the broad diversification of the WM VT Balanced Portfolio
enhanced results. Certain nontraditional asset types led the market
during the period, ultimately to the Portfolio's benefit. Small-cap
growth stocks, high-yield bonds, international equities, and real estate
securities all contributed significantly to the Portfolio's performance.
We believe these results underscore the benefits of active asset
allocation, which has the potential not only to manage risk, but also to
provide tactical opportunities for building wealth over the long term.
Outlook
We are encouraged by the cyclical, stimulus-driven economic recovery and
the subsequent rally in equity markets. Markets have reacted to economic
improvements and positive earnings growth. Yet, we remain vigilant
concerning longer-term secular headwinds that could limit the rebound's
magnitude. Equity markets may have already priced in much of this record
stimulus, and we are watching the sustainability of current growth
rates. We are seeking prudent opportunities to marginally shift assets
into more attractively priced market segments. While 2003 was a year
where risk was rewarded, we are looking for signals of a rotation that
could reward quality and prudent stock selection. Our long-term
discipline, with asset allocation and diversification at its core,
remains our investment strategy regardless of short-term market cycles.
Portfolio Allocation Asset Class Diversification
as of December 31, 2003(4) as of December 31, 2003(4)
[pie chart] [pie chart]
Growth & Income Fund 15% U.S. Equity Large-Cap 27%
Income Fund 14% Mortgage-Backed Bonds 15%
U.S. Govt. Securities Fund 14% U.S. Equity Mid-Cap 15%
Growth Fund 11% Corporate Bonds 14%
Equity Income Fund 10% Foreign Equity 11%
WM High Yield Fund 7% U.S. Equity Small-Cap 5%
West Coast Equity Fund 6% Convertible Bonds 3%
Mid Cap Stock Fund 6% U.S. Treasuries 3%
International Growth Fund 6% Cash Equivalents 7%
Small Cap Stock Fund 4%
REIT Fund 3%
Short Term Income Fund 1%
Cash Equivalents(5) 3%
<FN>
(4) As of December 31, 2003 and may not reflect current allocations.
(5) Represents cash holdings outside of the WM Funds approved for use
in the VT Balanced Portfolio.
9
[PHOTO] Conservative Growth Portfolio
Value of a $10,000 Investment (Class 1 shares)(1)
[graph]
SAM Con Growth 80/20
Benchmark
Fund Index S&P 500
Inflation Grth 10K Grth 10K
-------------
May-97 $10,000 $10,000 $10,000 $10,000
Jun-97 $10,300 $10,012 $10,381 $10,446
Jul-97 $10,860 $10,024 $11,096 $11,275
Aug-97 $10,420 $10,043 $10,584 $10,648
Sep-97 $10,850 $10,068 $11,079 $11,232
Oct-97 $10,420 $10,093 $10,815 $10,857
Nov-97 $10,400 $10,087 $11,226 $11,360
Dec-97 $10,490 $10,075 $11,404 $11,555
Jan-98 $10,620 $10,094 $11,534 $11,683
Feb-98 $11,310 $10,113 $12,197 $12,526
Mar-98 $11,710 $10,133 $12,704 $13,167
Apr-98 $11,880 $10,151 $12,820 $13,300
May-98 $11,590 $10,169 $12,667 $13,071
Jun-98 $11,856 $10,181 $13,100 $13,602
Jul-98 $11,615 $10,194 $12,994 $13,458
Aug-98 $10,030 $10,206 $11,534 $11,512
Sep-98 $10,522 $10,218 $12,178 $12,250
Oct-98 $11,093 $10,243 $12,958 $13,245
Nov-98 $11,746 $10,243 $13,601 $14,048
Dec-98 $12,578 $10,237 $14,236 $14,857
Jan-99 $13,151 $10,261 $14,733 $15,478
Feb-99 $12,769 $10,273 $14,314 $14,997
Mar-99 $13,461 $10,304 $14,788 $15,597
Apr-99 $14,124 $10,379 $15,255 $16,200
May-99 $13,813 $10,379 $14,941 $15,818
Jun-99 $14,567 $10,379 $15,595 $16,696
Jul-99 $14,321 $10,411 $15,193 $16,175
Aug-99 $14,311 $10,436 $15,131 $16,094
Sep-99 $14,424 $10,486 $14,834 $15,653
Oct-99 $15,080 $10,505 $15,597 $16,644
Nov-99 $15,931 $10,511 $15,849 $16,982
Dec-99 $17,530 $10,511 $16,582 $17,982
Jan-00 $17,160 $10,536 $15,903 $17,079
Feb-00 $17,991 $10,598 $15,701 $16,757
Mar-00 $18,698 $10,685 $16,972 $18,395
Apr-00 $17,929 $10,692 $16,553 $17,842
May-00 $17,478 $10,698 $16,279 $17,476
Jun-00 $17,892 $10,760 $16,668 $17,906
Jul-00 $17,581 $10,778 $16,490 $17,627
Aug-00 $18,588 $10,791 $17,358 $18,721
Sep-00 $18,058 $10,847 $16,646 $17,733
Oct-00 $17,903 $10,866 $16,611 $17,658
Nov-00 $16,635 $10,872 $15,618 $16,267
Dec-00 $17,093 $10,866 $15,736 $16,346
Jan-01 $18,110 $10,934 $16,234 $16,927
Feb-01 $16,884 $10,978 $15,078 $15,383
Mar-01 $16,043 $11,003 $14,328 $14,408
Apr-01 $16,998 $11,047 $15,207 $15,527
May-01 $17,268 $11,097 $15,307 $15,631
Jun-01 $17,282 $11,116 $15,021 $15,251
Jul-01 $16,983 $11,085 $14,970 $15,102
Aug-01 $16,395 $11,085 $14,254 $14,157
Sep-01 $15,065 $11,135 $13,366 $13,013
Oct-01 $15,465 $11,097 $13,625 $13,261
Nov-01 $16,196 $11,078 $14,424 $14,278
Dec-01 $16,484 $11,035 $14,506 $14,404
Jan-02 $16,086 $11,060 $14,360 $14,194
Feb-02 $15,741 $11,104 $14,166 $13,920
Mar-02 $16,396 $11,166 $14,545 $14,443
Apr-02 $15,786 $11,229 $13,897 $13,568
May-02 $15,698 $11,229 $13,838 $13,468
Jun-02 $14,877 $11,236 $13,073 $12,509
Jul-02 $13,870 $11,248 $12,290 $11,533
Aug-02 $13,961 $11,285 $12,396 $11,609
Sep-02 $12,999 $11,304 $11,358 $10,347
Oct-02 $13,709 $11,324 $12,148 $11,258
Nov-02 $14,419 $11,324 $12,718 $11,921
Dec-02 $13,926 $11,299 $12,173 $11,220
Jan-03 $13,742 $11,348 $11,920 $10,926
Feb-03 $13,581 $11,436 $11,810 $10,762
Mar-03 $13,604 $11,504 $11,900 $10,866
Apr-03 $14,486 $11,479 $12,704 $11,762
May-03 $15,368 $11,461 $13,287 $12,382
Jun-03 $15,586 $11,473 $13,417 $12,540
Jul-03 $15,797 $11,486 $13,517 $12,761
Aug-03 $16,113 $11,530 $13,745 $13,010
Sep-03 $16,171 $11,568 $13,701 $12,872
Oct-03 $16,955 $11,555 $14,296 $13,600
Nov-03 $17,225 $11,524 $14,403 $13,720
Dec-03 $17,927 $11,502 $15,037 $14,439
==================================================================================================
Average Annual Total Returns as of 12/31/03(1)
Class 1 Shares 1 Year 5 Year Since Inception
(June 3, 1997)
Conservative Growth Portfolio(1) 28.74% 7.35% 9.28%
--------------------------------------------------------------------------------------------
Capital Market Benchmark(2) 23.53% 1.11% 6.40%
--------------------------------------------------------------------------------------------
==================================================================================================
Class 2 Shares 1 Year 5 Year Since Inception
(November 6, 2001)
Conservative Growth Portfolio(1) 28.36% N/A 5.82%
--------------------------------------------------------------------------------------------
Capital Market Benchmark(2) 23.53% N/A 4.66%
==================================================================================================
To obtain more current Portfolio performance, including the most recent
month-end performance, call (800) 222-5852.
Note: Past performance is not a guarantee of future results. Investment
returns and unit value of an investment will fluctuate, and an
investor's units when redeemed may be worth more or less than their
original cost. Investing in securities underlying a variable annuity
involves risk.
<FN>
(1) Performance shown above represents performance of the WM Variable
Trust Funds (Class 1 shares) and does not account for fees,
expenses, and charges of any variable annuity contract. If these
fees had been assessed, performance would have been lower. The
performance of Class 2 shares is lower than what is shown on the
graph above for Class 1 shares, based on the differences in fees
paid by Class 2 shareholders. The WM Variable Trust Funds may not
be purchased directly but are currently available through the WM
Strategic Asset Manager and WM Advantage variable annuities issued
by American General Life. They are also available through the WM
Diversified Strategies and WM Diversified StrategiesIII variable
annuities issued by AIG SunAmerica Life Assurance Company, the WM
Diversified StrategiesIII (New York) variable annuity issued by
First SunAmerica Life Insurance Company, and the WM LifeAccumulator
variable universal life insurance policy issued by Farmers New
World Life Insurance Company. They also may be available through
other select variable insurance products and retirement plans. The
Portfolio may not have been available for sale for all products for
the time period shown above. Returns do not account for income
taxes due at withdrawal or premium taxes. Withdrawals made prior to
age 59 1/2 may be subject to a 10% tax penalty. The Portfolio's
performance through December 31, 1999 benefited from the agreement
of WM Advisors and its affiliates to limit the Portfolio's
expenses. Performance results assume reinvestment of all capital
gains and dividends.
(2) The WM VT Conservative Growth Portfolio's benchmark is a capital
market index that is intended to represent a relevant proxy for
market and Portfolio performance. The benchmark allocation is: 80%
S&P 500 Index and 20% Lehman Brothers Aggregate Bond Index. For
comparative purposes, the benchmark's performance is shown from May
31, 1997 (Class 1 shares) and October 31, 2001 (Class 2 shares) and
not from the inception of the index. The S&P 500 Index is a
broad-based index and is intended to represent the U.S. equity
market. The Lehman Brothers Aggregate Bond Index is a broad-based
index intended to represent the fixed-income market as a whole. The
returns shown for the indices assume reinvestment of all dividends
and distributions. Indices are unmanaged, and individuals cannot
invest directly in an index.
(3) Inflation is measured by the Consumer Price Index for all urban
consumers.
Performance Review
The WM VT SAM Conservative Growth Portfolio returned 28.74% for the year
ended December 31, 2003. Both equity and bond markets rallied for much
of the year, and the Portfolio posted solid results, outpacing its
benchmark, which returned 23.53%. In fact, the Portfolio outpaced the
S&P 500 Index (28.70% return) despite having more than 20% in fixed-
income investments. Longer-term results have also been favorable. The
Portfolio outperformed its bench-mark by an average annual rate of 6.24%
for the five-year period ended December 31, 2003. (All Portfolio
performance described above is for Class 1 shares.)
Economic/Market Review
Equity markets started slowly in 2003, with stock performance being
hampered by geopolitical conflicts that reached a peak in the first
quarter. As the potential for a war in Iraq loomed, business and
consumer confidence declined causing further instability in the markets.
Once the war in Iraq began, markets moved in lock step with perceptions
of its progress, duration, and magnitude.
Global equity markets began to rebound in the second quarter of 2003
after geopolitical tensions eased and central banks injected significant
stimulus into world economies. In June, the Federal Reserve trimmed the
federal funds rate to a 45-year low of 1%. It has since released several
statements reaffirming plans to keep interest rates low for as long as
it takes to stimulate the economy and until they see signs of inflation,
which has remained low. This monetary stimulus was coupled with a robust
tax reduction package and rampant mortgage refinancing cash-outs, which
lined the pockets of consumers and provided significant liquidity.
Throughout the summer and into the fall, this stimulus helped the
economic backdrop improve, and equity markets continued their sharp
advance. A cyclical economic rebound now seems to be underway. In fact,
third quarter
10
domestic growth levels topped 8%, the largest quarterly economic growth
rate in nearly two decades. Indications also point toward healthy growth
in the fourth quarter. Despite this liquidity-driven economic growth,
several factors continue to impede business confidence levels. Excess
capacity built up during the 1990s continues to curtail investment.
Firms now have begun to increase spending on capital equipment and
technology, but they remain reluctant to add to overall payrolls.
Consumer spending, which has been buoyed by the very strong housing
market, could eventually be affected by the absence of job growth.
Despite these longer-term secular economic headwinds, the cyclical
recovery has built stronger earnings and helped to push equity markets
higher. Corporate balance sheets continue to be cleansed through strong
productivity gains and cost-cutting measures, and earnings leverage
helped boost profitability during 2003. Investors' appetite for risk
also reemerged during the year. The sectors and asset classes that
suffered the most during the downturn rebounded significantly during the
past year. Small-cap and foreign equities, as well as the technology
sector, returned to favor in 2003 and led the broad-based rally with
very strong results. Most major market segments reported positive
results, with the S&P 500 closing the year up more than 28%.
Bond markets rallied for much of the year in response to declining
interest rates. However, longer-term U.S. Treasury securities suffered
in June and July as interest rates reacted to stronger-than-expected
economic growth by spiking higher. Corporate bond issues benefited from
improving balance sheets, and lower-rated, higher-yielding bonds led the
fixed-income market by a wide margin.
Investment Strategy
The WM VT Conservative Growth Portfolio is diversified among eleven
funds, representing eight major asset classes. A combination of asset
classes facilitates our ability to manage risk over a long-term
investment horizon. Diversification also fueled relative performance
with strong results from some nontraditional investment categories
during the year.
The overall investment strategy for the year was to:
o Add to equity positions to take advantage of the broad-based
market rally
o Increase positions in both small- and mid-cap stocks, which led
the market throughout the recovery
o Maintain a balance in growth and value positions, but add slightly
to cyclically sensitive growth holdings and sectors
o Build corporate bond positions and take advantage of higher-
yielding segments of this market
Review of Portfolio Allocations
During the past year, we shifted the Portfolio's equity weighting from
73% to 76%. Opportunities in stock valuations motivated this move, and
the Portfolio benefited from the strong results of its equity
allocations. Portfolio performance was also bolstered by its position in
the WM VT Small Cap Stock Fund, which was the best-performing WM Fund
during the year. Although we maintained relatively balanced allocations
in both growth and value positions, we slightly increased exposure to
the WM VT Growth Fund to benefit from the strength in cyclically
sensitive sectors.
In May, we introduced a position in the WM VT REIT Fund, which invests
primarily in real estate investment trust (REIT) securities. These
holdings provided diversification benefits as well as additional
performance strength throughout the second half of the year. Because
REITs are typically more value-oriented positions, we slightly reduced
allocations in the WM VT Growth & Income Fund and WM VT Equity Income
Fund when the Fund was introduced. Foreign holdings also contributed to
the Portfolio's performance as the economic recovery spread globally.
The WM VT International Growth Fund and the WM VT West Coast Equity Fund
also added to the year's results.
Fixed-income positions were led by the strong results of the WM High
Yield Fund. We have overweighted high-yield corporate bonds since the
summer of 2002, and although we may have been a little early, this
allocation significantly boosted Portfolio performance this year. The WM
VT Income Fund also provided strong results, spurred by falling
corporate yield differentials relative to Treasuries, which drove the
relative performance of corporate bonds. Mortgage-backed issues suffered
through a period of record refinancing and prepayment, causing the WM VT
U.S. Government Securities Fund to underperform. However, we now favor
these issues and ended the period by taking some profits in investment-
grade corporates in favor of mortgages.
Overall, performance was very strong for many asset classes during
the year, and the broad diversification of the WM VT Conservative Growth
Portfolio enhanced results. Certain nontraditional asset types led the
market during the period, ultimately to the Portfolio's benefit. Small-
cap growth stocks, high-yield bonds, international equities, and real
estate securities all contributed significantly to the Portfolio's
performance. We believe these results underscore the benefits of active
asset allocation, which has the potential not only to manage risk, but
also to provide tactical opportunities for building wealth over the long
term.
Outlook
We are encouraged by the cyclical, stimulus-driven economic recovery and
the subsequent rally in equity markets. Markets have reacted to economic
improvements and positive earnings growth. Yet, we remain vigilant
concerning longer-term secular headwinds that could limit the rebound's
magnitude. Equity markets may have already priced in much of this record
stimulus, and we are watching the sustainability of current growth
rates. We are also seeking prudent opportunities to marginally shift
assets into more attractively priced market segments. While 2003 was a
year where risk was rewarded, we are looking for signals of a rotation
that could reward quality and prudent stock selection. Our long-term
discipline, with asset allocation and diversification at its core,
remains our investment strategy regardless of short-term market cycles.
Portfolio Allocation Asset Class Diversification
as of December 31, 2003(4) as of December 31, 2003(4)
[pie chart] [pie chart]
Growth & Income Fund 20% U.S. Equity Large-Cap 35%
Growth Fund 15% U.S. Equity Mid-Cap 20%
Equity Income Fund 12% Foreign Equity 14%
Income Fund 8% Corporate Bonds 9%
West Coast Equity Fund 8% Mortgage-Backed Bonds 7%
Mid Cap Stock Fund 8% U.S. Equity Small-Cap 7%
International Growth Fund 7% Convertible Bonds 2%
U.S. Govt. Securities Fund 6% U.S. Treasuries 1%
Small Cap Stock Fund 6% Cash Equivalents 5%
WM High Yield Fund 6%
REIT Fund 4%
<FN>
(4) As of December 31, 2003 and may not reflect current allocations.
11
[PHOTO] Strategic Growth Portfolio
Value of a $10,000 Investment (Class 1 shares)(1)
[graph]
SAM Strategic Growth S&P 500
Benchmark
Fund Index
Inflation Grth 10K
---------
May-97 $10,000 $10,000 $10,000
Jun-97 $10,320 $10,012 $10,446
Jul-97 $10,970 $10,024 $11,275
Aug-97 $10,550 $10,043 $10,648
Sep-97 $11,040 $10,068 $11,232
Oct-97 $10,610 $10,093 $10,857
Nov-97 $10,630 $10,087 $11,360
Dec-97 $10,700 $10,075 $11,555
Jan-98 $10,860 $10,094 $11,683
Feb-98 $11,710 $10,113 $12,526
Mar-98 $12,170 $10,133 $13,167
Apr-98 $12,360 $10,151 $13,300
May-98 $12,060 $10,169 $13,071
Jun-98 $12,409 $10,181 $13,602
Jul-98 $12,168 $10,194 $13,458
Aug-98 $10,423 $10,206 $11,512
Sep-98 $11,004 $10,218 $12,250
Oct-98 $11,636 $10,243 $13,245
Nov-98 $12,389 $10,243 $14,048
Dec-98 $13,503 $10,237 $14,857
Jan-99 $14,255 $10,261 $15,478
Feb-99 $13,793 $10,273 $14,997
Mar-99 $14,645 $10,304 $15,597
Apr-99 $15,427 $10,379 $16,200
May-99 $15,136 $10,379 $15,818
Jun-99 $16,038 $10,379 $16,696
Jul-99 $15,743 $10,411 $16,175
Aug-99 $15,752 $10,436 $16,094
Sep-99 $15,875 $10,486 $15,653
Oct-99 $16,701 $10,505 $16,644
Nov-99 $17,801 $10,511 $16,982
Dec-99 $19,973 $10,511 $17,982
Jan-00 $19,637 $10,536 $17,079
Feb-00 $20,922 $10,598 $16,757
Mar-00 $21,696 $10,685 $18,395
Apr-00 $20,615 $10,692 $17,842
May-00 $20,013 $10,698 $17,476
Jun-00 $20,592 $10,760 $17,906
Jul-00 $20,126 $10,778 $17,627
Aug-00 $21,438 $10,791 $18,721
Sep-00 $20,673 $10,847 $17,733
Oct-00 $20,404 $10,866 $17,658
Nov-00 $18,658 $10,872 $16,267
Dec-00 $19,227 $10,866 $16,346
Jan-01 $20,519 $10,934 $16,927
Feb-01 $18,824 $10,978 $15,383
Mar-01 $17,646 $11,003 $14,408
Apr-01 $19,050 $11,047 $15,527
May-01 $19,391 $11,097 $15,631
Jun-01 $19,449 $11,116 $15,251
Jul-01 $18,868 $11,085 $15,102
Aug-01 $18,013 $11,085 $14,157
Sep-01 $16,129 $11,135 $13,013
Oct-01 $16,589 $11,097 $13,261
Nov-01 $17,597 $11,078 $14,278
Dec-01 $18,025 $11,035 $14,404
Jan-02 $17,455 $11,060 $14,194
Feb-02 $16,963 $11,104 $13,920
Mar-02 $17,894 $11,166 $14,443
Apr-02 $17,028 $11,229 $13,568
May-02 $16,897 $11,229 $13,468
Jun-02 $15,821 $11,236 $12,509
Jul-02 $14,462 $11,248 $11,533
Aug-02 $14,520 $11,285 $11,609
Sep-02 $13,252 $11,304 $10,347
Oct-02 $14,120 $11,324 $11,258
Nov-02 $15,011 $11,324 $11,921
Dec-02 $14,327 $11,299 $11,220
Jan-03 $14,076 $11,348 $10,926
Feb-03 $13,825 $11,436 $10,762
Mar-03 $13,849 $11,504 $10,866
Apr-03 $14,876 $11,479 $11,762
May-03 $15,927 $11,461 $12,382
Jun-03 $16,183 $11,473 $12,540
Jul-03 $16,531 $11,486 $12,761
Aug-03 $16,936 $11,530 $13,010
Sep-03 $16,912 $11,568 $12,872
Oct-03 $17,908 $11,555 $13,600
Nov-03 $18,233 $11,524 $13,720
Dec-03 $19,066 $11,502 $14,439
==================================================================================================
Average Annual Total Returns as of 12/31/03(1)
Class 1 Shares 1 Year 5 Year Since Inception
(June 3, 1997)
Strategic Growth Portfolio(1) 33.07% 7.15% 10.31%
--------------------------------------------------------------------------------------------
S&P 500 Index(2) 28.70% -0.57% 5.74%
--------------------------------------------------------------------------------------------
==================================================================================================
Class 2 Shares 1 Year 5 Year Since Inception
(November 6, 2001)
Strategic Growth Portfolio(1) 32.76% N/A 5.23%
--------------------------------------------------------------------------------------------
S&P 500 Index(2) 28.70% N/A 4.01%
==================================================================================================
To obtain more current Portfolio performance, including the most recent
month-end performance, call (800) 222-5852.
Note: Past performance is not a guarantee of future results. Investment
returns and unit value of an investment will fluctuate, and an
investor's units when redeemed may be worth more or less than their
original cost. Investing in securities underlying a variable annuity
involves risk.
<FN>
(1) Performance shown above represents performance of the WM Variable
Trust Funds (Class 1 shares) and does not account for fees,
expenses, and charges of any variable annuity contract. If these
fees had been assessed, performance would have been lower. The
performance of Class 2 shares is lower than what is shown on the
graph above for Class 1 shares, based on the differences in fees
paid by Class 2 shareholders. The WM Variable Trust Funds may not
be purchased directly but are currently available through the WM
Strategic Asset Manager and WM Advantage variable annuities issued
by American General Life. They are also available through the WM
Diversified Strategies and WM Diversified StrategiesIII variable
annuities issued by AIG SunAmerica Life Assurance Company, the WM
Diversified StrategiesIII (New York) variable annuity issued by
First SunAmerica Life Insurance Company, and the WM LifeAccumulator
variable universal life insurance policy issued by Farmers New
World Life Insurance Company. They also may be available through
other select variable insurance products and retirement plans. The
Portfolio may not have been available for sale for all products for
the time period shown above. Returns do not account for income
taxes due at withdrawal or premium taxes. Withdrawals made prior to
age 59 1/2 may be subject to a 10% tax penalty. The Portfolio's
performance through December 31, 1999 benefited from the agreement
of WM Advisors and its affiliates to limit the Portfolio's
expenses. Performance results assume reinvestment of all capital
gains and dividends.
(2) The S&P 500 Index is a broad-based index and is intended to
represent the U.S. equity market. For comparative purposes, the
benchmark's performance is shown from May 31, 1997 (Class 1 shares)
and October 31 2001 (Class 2 shares) and not from the inception of
the index. The returns shown for the index assume reinvestment of
all dividends and distributions. Indices are unmanaged, and
individuals cannot invest directly in an index.
(3) Inflation is measured by the Consumer Price Index for all urban
consumers.
Performance Review
The WM VT SAM Strategic Growth Portfolio returned 33.07% for the year
ended December 31, 2003. Equity markets rallied for much of the year,
and the Portfolio posted solid results. It outpaced the S&P 500, which
returned 28.70%. Longer-term results have also been favorable. The
Portfolio outperformed the S&P 500 by an average annual rate of 7.72%
for the five-year period ended December 31, 2003. (All Portfolio
performance described above is for Class 1 shares.)
Economic/Market Review
Equity markets started slowly in 2003, with stock performance being
hampered by geopolitical conflicts that reached a peak in the first
quarter. As the potential for a war in Iraq loomed, business and
consumer confidence declined causing further instability in the markets.
Once the war in Iraq began, markets moved in lock step with perceptions
of its progress, duration, and magnitude.
Global equity markets began to rebound in the second quarter of 2003
after geopolitical tensions eased and central banks injected significant
stimulus into world economies. In June, the Federal Reserve trimmed the
federal funds rate to a 45-year low of 1%. It has since released several
statements reaffirming plans to keep interest rates low for as long as
it takes to stimulate the economy and until they see signs of inflation,
which has remained low. This monetary stimulus was coupled with a robust
tax reduction package and rampant mortgage refinancing cash-outs, which
lined the pockets of consumers and provided significant liquidity.
Throughout the summer and into the fall, this stimulus helped the
economic backdrop improve, and equity markets continued their sharp
advance. A cyclical economic rebound now seems to be underway. In fact,
third quarter domestic growth levels topped 8%, the largest quarterly
12
economic growth rate in nearly two decades. Indications also point
towards healthy growth in the fourth quarter. Despite this liquidity-
driven economic growth, several factors continue to impede business
confidence levels. Excess capacity built up during the 1990s continues
to curtail investment. Firms now have begun to increase spending on
capital equipment and technology, but they remain reluctant to add to
overall payrolls. Consumer spending, which has been buoyed by the very
strong housing market, could eventually be affected by the absence of
job growth.
Despite these longer-term secular economic headwinds, the cyclical
recovery has built stronger earnings and helped to push equity markets
higher. Corporate balance sheets continue to be cleansed through strong
productivity gains and cost-cutting measures, and earnings leverage
helped boost profitability during 2003. Investors' appetite for risk
also reemerged during the year. The sectors and asset classes that
suffered the most during the downturn rebounded significantly during the
past year. Small-cap and foreign equities, as well as the technology
sector, returned to favor in 2003 and led the broad-based rally with
very strong results. Most major market segments reported positive
results, with the S&P 500 closing the year up more than 28%.
Investment Strategy
The WM VT Strategic Growth Portfolio is diversified among nine funds,
representing six major asset classes. A combination of asset classes
facilitates our ability to manage risk over a long-term investment
horizon. Diversification also fueled relative performance with strong
results from some nontraditional investment categories during the year.
The overall investment strategy for the year was to:
o Broaden diversification levels by spreading equity assets across
multiple classes and introducing an investment in the WM VT REIT
Fund
o Increase positions in both small- and mid-cap stocks, which led
the market throughout the recovery
o Maintain a balance in growth and value positions, but add slightly
to cyclically sensitive growth holdings and sectors
o Take advantage of the strong performance of higher-yielding
corporate bonds
Review of Portfolio Allocations
During the past year, we broadened overall equity diversification
levels. We added to small-cap stocks throughout the year, and Portfolio
performance was bolstered by its position in the WM VT Small Cap Stock
Fund, which was the best-performing WM Fund during the year. Although we
maintained relatively balanced allocations in both growth and value
positions, we slightly increased exposure to the WM VT Growth Fund to
benefit from the strength in cyclically sensitive sectors.
In May, we introduced a position in the WM VT REIT Fund, which invests
primarily in real estate investment trust (REIT) securities. These
holdings provided diversification benefits as well as additional
performance strength throughout the second half of the year. Because
REITs are typically more value-oriented positions, we slightly reduced
allocations in the WM VT Growth & Income Fund and WM VT Equity Income
Fund when the Fund was introduced.
Foreign holdings also contributed to the Portfolio's performance as the
economic recovery spread globally. The WM VT International Growth Fund
and the WM VT West Coast Equity Fund also added to the year's outcome.
Fixed-income positions were led by the strong results of the WM High
Yield Fund, and this allocation significantly boosted Portfolio
performance.
Overall, performance was very strong for many asset classes during the
year, and the broad equity diversification of the WM VT Strategic Growth
Portfolio enhanced results. Certain nontraditional asset types led the
market during the period, ultimately to the Portfolio's benefit. Small-
cap growth stocks, high-yield bonds, international equities, and real
estate securities all contributed significantly to the Portfolio's
performance. We believe these results underscore the benefits of active
asset allocation, which has the potential not only to manage risk, but
also to provide tactical opportunities for building wealth over the long
term.
Outlook
We are encouraged by the cyclical, stimulus-driven economic recovery and
the subsequent rally in equity markets. Markets have reacted to economic
improvements and positive earnings growth. Yet, we remain vigilant
concerning longer-term secular headwinds that could limit the rebound's
magnitude. Equity markets may have already priced in much of this record
stimulus, and we are watching the sustainability of current growth
rates. We are seeking prudent opportunities to marginally shift assets
into more attractively priced market segments. While 2003 was a year
where risk was rewarded, we are looking for signals of a rotation that
could reward quality and prudent stock selection. Our long-term
discipline, with asset allocation and diversification at its core,
remains our investment strategy regardless of short-term market cycles.
Portfolio Allocation Asset Class Diversification
as of December 31, 2003(4) as of December 31, 2003(4)
[pie chart] [pie chart]
Growth & Income Fund 24% U.S. Equity Large-Cap 40%
Growth Fund 16% U.S. Equity Mid-Cap 24%
Equity Income Fund 12% Foreign Equity 17%
Mid Cap Stock Fund 12% U.S. Equity Small-Cap 9%
West Coast Equity Fund 10% Corporate Bonds 4%
International Growth Fund 9% Convertible Bonds 2%
Small Cap Stock Fund 7% Cash Equivalents 4%
WM High Yield Fund 6%
REIT Fund 4%
<FN>
(4) As of December 31, 2003 and may not reflect current allocations.
13
portfolios of investments
FLEXIBLE INCOME PORTFOLIO
December 31, 2003
Value
Shares (000s)
------ ------
INVESTMENT COMPANY SECURITIES -- 99.4%
463,978 WM VT Equity Income Fund $ 6,449
922,395 WM VT Growth & Income Fund 15,542
666,724 WM VT Growth Fund 8,027
1,742,804 WM High Yield Fund 14,134
4,301,847 WM VT Income Fund 48,095
344,055 WM VT Mid Cap Stock Fund 5,034
166,881 WM VT REIT Fund 2,176
8,342,525 WM VT Short Term Income Fund 21,941
446,766 WM VT Small Cap Stock Fund 4,204
4,458,640 WM VT U.S. Government Securities Fund 47,930
179,308 WM VT West Coast Equity Fund 3,253
--------
Total Investment Company Securities
(Cost $160,893) 176,785
--------
Principal
Amount
(000s)
------
REPURCHASE AGREEMENT -- 0.3%
(Cost $476)
$ 476 Agreement with Goldman Sachs Group,
Inc., 0.750% dated 12/31/2003,
to be repurchased at $476 on
01/02/2004 (Collateralized by U.S.
Treasury Bonds, having various
interest rates and maturities,
market value $486) 476
--------
TOTAL INVESTMENTS (Cost $161,369*) 99.7% 177,261
OTHER ASSETS AND LIABILITIES (Net) 0.3 523
------ --------
NET ASSETS 100.0% $177,784
===== ========
<FN>
- ---------------
* Aggregate cost for federal tax purposes is $162,145.
CONSERVATIVE BALANCED PORTFOLIO
December 31, 2003
Value
Shares (000s)
------ ------
INVESTMENT COMPANY SECURITIES -- 99.2%
178,998 WM VT Equity Income Fund $ 2,488
245,860 WM VT Growth & Income Fund 4,143
250,743 WM VT Growth Fund 3,019
392,365 WM High Yield Fund 3,182
834,686 WM VT Income Fund 9,332
112,902 WM VT International Growth Fund 1,285
105,500 WM VT Mid Cap Stock Fund 1,543
69,955 WM VT REIT Fund 912
1,048,422 WM VT Short Term Income Fund 2,757
113,913 WM VT Small Cap Stock Fund 1,072
854,837 WM VT U.S. Government Securities Fund 9,190
80,632 WM VT West Coast Equity Fund 1,463
-------
Total Investment Company Securities
(Cost $36,759) 40,386
-------
Principal
Amount
(000s)
------
REPURCHASE AGREEMENT -- 0.4%
(Cost $182)
$ 182 Agreement with Goldman Sachs Group,
Inc., 0.750% dated 12/31/2003,
to be repurchased at $182 on
01/02/2004 (Collateralized by U.S.
Treasury Bonds, having various
interest rates and maturities,
market value $186) 182
-------
TOTAL INVESTMENTS (Cost $36,941*) 99.6% 40,568
OTHER ASSETS AND LIABILITIES (Net) 0.4 160
----- -------
NET ASSETS 100.0% $40,728
===== =======
<FN>
- ---------------
* Aggregate cost for federal tax purposes is $37,619.
See Notes to Financial Statements.
14
portfolios of investments
BALANCED PORTFOLIO
December 31, 2003
Value
Shares (000s)
------ ------
INVESTMENT COMPANY SECURITIES -- 97.0%
3,580,993 WM VT Equity Income Fund $ 49,776
4,469,664 WM VT Growth & Income Fund 75,314
4,770,049 WM VT Growth Fund 57,431
4,129,600 WM High Yield Fund 33,491
6,538,511 WM VT Income Fund 73,101
2,547,981 WM VT International Growth Fund 28,996
2,038,932 WM VT Mid Cap Stock Fund 29,830
1,291,016 WM VT REIT Fund 16,835
2,588,864 WM VT Short Term Income Fund 6,809
2,324,597 WM VT Small Cap Stock Fund 21,874
6,760,703 WM VT U.S. Government Securities Fund 72,677
1,634,284 WM VT West Coast Equity Fund 29,646
--------
Total Investment Company Securities
(Cost $449,500) 495,780
--------
Principal
Amount
(000s)
------
REPURCHASE AGREEMENT -- 2.8%
(Cost $14,218)
$ 14,218 Agreement with Goldman Sachs Group,
Inc., 0.750% dated 12/31/2003,
to be repurchased at $14,219 on
01/02/2004 (Collateralized by U.S.
Treasury Bonds, having various
interest rates and maturities,
market value $14,513) 14,218
--------
TOTAL INVESTMENTS (Cost $463,718*) 99.8% 509,998
OTHER ASSETS AND LIABILITIES (Net) 0.2 906
----- --------
NET ASSETS 100.0% $510,904
===== ========
<FN>
- ---------------
* Aggregate cost for federal tax purposes is $475,289.
CONSERVATIVE GROWTH PORTFOLIO
December 31, 2003
Value
Shares (000s)
------ ------
INVESTMENT COMPANY SECURITIES -- 99.8%
2,800,650 WM VT Equity Income Fund $ 38,929
3,822,557 WM VT Growth & Income Fund 64,410
4,022,913 WM VT Growth Fund 48,436
2,348,796 WM High Yield Fund 19,049
2,408,152 WM VT Income Fund 26,923
2,114,149 WM VT International Growth Fund 24,059
1,691,932 WM VT Mid Cap Stock Fund 24,753
1,056,495 WM VT REIT Fund 13,777
2,028,171 WM VT Small Cap Stock Fund 19,085
1,810,905 WM VT U.S. Government Securities Fund 19,467
1,396,688 WM VT West Coast Equity Fund 25,336
--------
Total Investment Company Securities
(Cost $323,881) 324,224
--------
Principal
Amount
(000s)
------
REPURCHASE AGREEMENT -- 0.2%
(Cost $634)
$ 634 Agreement with Goldman Sachs Group,
Inc., 0.750% dated 12/31/2003,
to be repurchased at $634 on
01/02/2004 (Collateralized by U.S.
Treasury Bonds, having various
interest rates and maturities,
market value $647) 634
--------
TOTAL INVESTMENTS (Cost $324,515*) 100.0% 324,858
OTHER ASSETS AND LIABILITIES (Net) 0.0 (117)
----- --------
NET ASSETS 100.0% $324,741
===== ========
<FN>
- ---------------
* Aggregate cost for federal tax purposes is $333,603.
See Notes to Financial Statements.
15
portfolio of investments
STRATEGIC GROWTH PORTFOLIO
December 31, 2003
Value
Shares (000s)
------ ------
INVESTMENT COMPANY SECURITIES -- 99.3%
1,032,561 WM VT Equity Income Fund $ 14,352
1,703,553 WM VT Growth & Income Fund 28,705
1,614,630 WM VT Growth Fund 19,440
838,700 WM High Yield Fund 6,802
967,109 WM VT International Growth Fund 11,006
928,527 WM VT Mid Cap Stock Fund 13,584
374,396 WM VT REIT Fund 4,882
922,201 WM VT Small Cap Stock Fund 8,678
636,578 WM VT West Coast Equity Fund 11,548
--------
Total Investment Company Securities
(Cost $119,837) 118,997
--------
Principal
Amount
(000s)
------
REPURCHASE AGREEMENT -- 0.4%
(Cost $437)
$ 437 Agreement with Goldman Sachs Group,
Inc., 0.750% dated 12/31/2003,
to be repurchased at $437 on
01/02/2004 (Collateralized by U.S.
Treasury Bonds, having various
interest rates and maturities,
market value $446) 437
--------
TOTAL INVESTMENTS (Cost $120,274*) 99.7% 119,434
OTHER ASSETS AND LIABILITIES (Net) 0.3 409
----- --------
NET ASSETS 100.0% $119,843
===== ========
<FN>
- ---------------
* Aggregate cost for federal tax purposes is $123,990.
See Notes to Financial Statements.
16
statements of assets and liabilities
WM VARIABLE TRUST STRATEGIC ASSET MANAGEMENT PORTFOLIOS
December 31, 2003
(In thousands) Flexible Conservative Conservative Strategic
Income Balanced Balanced Growth Growth
Portfolio Portfolio Portfolio Portfolio Portfolio
--------- --------- --------- --------- ---------
ASSETS:
Investments, at value (a) $177,261 $40,568 $509,998 $324,858 $119,434
Receivable for Portfolio shares sold 623 209 1,214 342 500
Prepaid expenses and other assets 1 1 2 1 1
-------- ------- -------- -------- --------
Total Assets 177,885 40,778 511,214 325,201 119,935
-------- ------- -------- -------- --------
LIABILITIES:
Payable for Portfolio shares redeemed 11 16 91 309 26
Investment advisory fee payable 15 3 42 27 10
Administration fee payable 22 5 63 40 15
Distribution fees payable 7 2 18 8 3
Accrued legal and audit fees 21 19 22 21 20
Accrued printing and postage expenses 24 4 71 53 17
Accrued expenses and other payables 1 1 3 2 1
-------- ------- -------- -------- --------
Total Liabilities 101 50 310 460 92
-------- ------- -------- -------- --------
NET ASSETS $177,784 $40,728 $510,904 $324,741 $119,843
======== ======= ======== ======== ========
(a) Investments, at cost $161,369 $36,941 $463,718 $324,515 $120,274
======== ======= ======== ======== ========
NET ASSETS consist of:
Undistributed net investment income $ 6,611 $ 1,031 $ 10,389 $ 4,709 $ 909
Accumulated net realized loss on
investment transactions (1,768) (880) (29,289) (26,963) (11,010)
Net unrealized appreciation/(depreciation)
of investments 15,892 3,627 46,280 343 (840)
Paid-in capital 157,049 36,950 483,524 346,652 130,784
-------- ------- -------- -------- --------
Total Net Assets $177,784 $40,728 $510,904 $324,741 $119,843
======== ======= ======== ======== ========
NET ASSETS:
Class 1 Shares $143,283 $31,600 $419,273 $284,165 $105,077
======== ======= ======== ======== ========
Class 2 Shares $ 34,501 $ 9,128 $ 91,631 $ 40,576 $ 14,766
======== ======= ======== ======== ========
SHARES OUTSTANDING:
Class 1 Shares 10,454 2,833 28,175 18,551 6,385
======== ======= ======== ======== ========
Class 2 Shares 2,528 822 6,183 2,660 899
======== ======= ======== ======== ========
CLASS 1 SHARES:*
Net asset value, offering and redemption price per
share of beneficial interest outstanding $ 13.71 $ 11.15 $ 14.88 $ 15.32 $ 16.46
======== ======= ======== ======== ========
CLASS 2 SHARES:*
Net asset value, offering and redemption price per
share of beneficial interest outstanding $ 13.65 $ 11.11 $ 14.82 $ 15.25 $ 16.42
======== ======= ======== ======== ========
<FN>
- ---------------
* Net asset value is not shown in thousands.
See Notes to Financial Statements.
17
statements of operations
WM VARIABLE TRUST STRATEGIC ASSET MANAGEMENT PORTFOLIOS
For the Year Ended December 31, 2003
(In thousands)
Flexible Conservative Conservative Strategic
Income Balanced Balanced Growth Growth
Portfolio Portfolio Portfolio Portfolio Portfolio
--------- --------- --------- --------- ---------
INVESTMENT INCOME:
Dividends from investment company securities $ 7,108 $ 1,128 $ 11,506 $ 5,478 $ 1,173
Interest 7 3 130 6 6
------- ------- -------- -------- -------
Total investment income 7,115 1,131 11,636 5,484 1,179
------- ------- -------- -------- -------
EXPENSES:
Investment advisory fee 154 30 417 268 91
Administration fee 230 45 625 403 136
Class 2 Shares distribution fees 49 12 137 61 16
Custodian fees 3 3 3 3 3
Legal and audit fees 27 22 35 30 25
Printing and postage expenses 37 6 109 77 22
Other 12 2 27 14 5
------- ------- -------- -------- -------
Total expenses 512 120 1,353 856 298
Fees waived by the investment advisor -- (16) -- -- --
Fees reduced by custodian credits --* --* --* --* --*
------- ------- -------- -------- -------
Net expenses 512 104 1,353 856 298
------- ------- -------- -------- -------
NET INVESTMENT INCOME 6,603 1,027 10,283 4,628 881
------- ------- -------- -------- -------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS:
Net realized loss on investment transactions (1,044) (369) (13,373) (13,354) (4,837)
Capital gain distributions received 24 8 178 144 49
Net change in unrealized appreciation/depreciation
of investments 13,783 4,168 90,583 77,616 30,938
------- ------- -------- -------- -------
Net realized and unrealized gain on
investments 12,763 3,807 77,388 64,406 26,150
------- ------- -------- -------- -------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $19,366 $ 4,834 $ 87,671 $ 69,034 $27,031
======= ======= ======== ======== =======
<FN>
- ---------------
* Amount represents less than $500.
See Notes to Financial Statements.
18
statements of changes in net assets
WM VARIABLE TRUST STRATEGIC ASSET MANAGEMENT PORTFOLIOS
For the Year Ended December 31, 2003
(In thousands)
Flexible Conservative Conservative Strategic
Income Balanced Balanced Growth Growth
Portfolio Portfolio Portfolio Portfolio Portfolio
--------- --------- --------- --------- ---------
Net investment income $ 6,603 $ 1,027 $ 10,283 $ 4,628 $ 881
Net realized loss on investment transactions (1,044) (369) (13,373) (13,354) (4,837)
Capital gain distributions received 24 8 178 144 49
Net change in unrealized appreciation/depreciation
of investments 13,783 4,168 90,583 77,616 30,938
-------- -------- -------- -------- --------
Net increase in net assets
resulting from operations 19,366 4,834 87,671 69,034 27,031
Distributions to shareholders from:
Net investment income:
Class 1 Shares (3,460) (518) (8,745) (5,270) (1,233)
Class 2 Shares (438) (92) (1,167) (480) (70)
Net increase/(decrease) in net assets from
Portfolio share transactions:
Class 1 Shares 3,941 7,355 17,869 (2,482) 7,462
Class 2 Shares 22,967 6,146 49,336 19,765 10,041
-------- -------- -------- -------- --------
Net increase in net assets 42,376 17,725 144,964 80,567 43,231
NET ASSETS:
Beginning of year 135,408 23,003 365,940 244,174 76,612
-------- -------- -------- -------- --------
End of year $177,784 $ 40,728 $510,904 $324,741 $119,843
======== ======== ======== ======== ========
Undistributed net investment income at end of year $ 6,611 $ 1,031 $ 10,389 $ 4,709 $ 909
======== ======== ======== ======== ========
See Notes to Financial Statements.
19
statements of changes in net assets (continued)
WM VARIABLE TRUST STRATEGIC ASSET MANAGEMENT PORTFOLIOS
For the Year Ended December 31, 2002
(In thousands)
Flexible Conservative Conservative Strategic
Income Balanced Balanced Growth Growth
Portfolio Portfolio Portfolio Portfolio Portfolio
--------- --------- --------- --------- ---------
Net investment income $ 3,805 $ 591 $ 9,130 $ 4,871 $ 912
Net realized loss on investment transactions (741) (452) (11,941) (11,856) (5,626)
Capital gain distributions received 172 45 1,733 1,991 856
Net change in unrealized appreciation/depreciation
of investments (140) (512) (33,727) (45,520) (17,546)
-------- -------- -------- -------- --------
Net increase/(decrease) in net assets
resulting from operations 3,096 (328) (34,805) (50,514) (21,404)
Distributions to shareholders from:
Net investment income:
Class 1 Shares (657) (125) (7,468) (8,655) (3,357)
Class 2 Shares (21) (8) (366) (267) (50)
Net realized gains on investments:
Class 1 Shares -- (23) -- (432) (257)
Class 2 Shares -- (2) -- (13) (4)
Net increase/(decrease) in net assets from
Portfolio share transactions:
Class 1 Shares 32,910 7,002 21,600 (21,657) 1,275
Class 2 Shares 9,039 2,061 31,445 14,977 2,689
-------- -------- -------- -------- --------
Net increase/(decrease) in net assets 44,367 8,577 10,406 (66,561) (21,108)
NET ASSETS:
Beginning of year 91,041 14,426 355,534 310,735 97,720
-------- -------- -------- -------- --------
End of year $135,408 $ 23,003 $365,940 $244,174 $ 76,612
======== ======== ======== ======== ========
Undistributed net investment income at end of year $ 3,891 $ 609 $ 9,908 $ 5,742 $ 1,299
======== ======== ======== ======== ========
See Notes to Financial Statements.
20
statements of changes in net assets -- capital stock activity
WM VARIABLE TRUST STRATEGIC ASSET MANAGEMENT PORTFOLIOS
(In thousands)
Conservative Balanced
Flexible Income Portfolio Portfolio Balanced Portfolio
------------------------- ------------------------- -------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
12/31/03 12/31/02 12/31/03 12/31/02 12/31/03 12/31/02
---------- ---------- ---------- ---------- ---------- ----------
AMOUNT
Class 1:
Sold $ 28,141 $ 51,873 $ 11,763 $ 10,841 $ 64,152 $ 86,014
Issued as reinvestment of dividends 3,460 657 518 148 8,745 7,468
Redeemed (27,660) (19,620) (4,926) (3,987) (55,028) (71,882)
--------- --------- --------- --------- --------- ---------
Net increase $ 3,941 $ 32,910 $ 7,355 $ 7,002 $ 17,869 $ 21,600
========= ========= ========= ========= ========= =========
Class 2:
Sold $ 23,497 $ 9,246 $ 6,847 $ 2,574 $ 51,752 $ 32,721
Issued as reinvestment of dividends 438 21 92 10 1,167 365
Redeemed (968) (228) (793) (523) (3,583) (1,641)
--------- --------- --------- --------- --------- ---------
Net increase $ 22,967 $ 9,039 $ 6,146 $ 2,061 $ 49,336 $ 31,445
========= ========= ========= ========= ========= =========
SHARES
Class 1:
Sold 2,179 4,287 1,136 1,117 4,804 6,659
Issued as reinvestment of dividends 264 54 50 15 648 581
Redeemed (2,143) (1,617) (485) (416) (4,227) (5,753)
--------- --------- --------- --------- --------- ---------
Net increase 300 2,724 701 716 1,225 1,487
========= ========= ========= ========= ========= =========
Class 2:
Sold 1,809 763 656 266 3,834 2,527
Issued as reinvestment of dividends 33 2 9 1 87 28
Redeemed (75) (19) (74) (57) (268) (130)
--------- --------- --------- --------- --------- ---------
Net increase 1,767 746 591 210 3,653 2,425
========= ========= ========= ========= ========= =========
Conservative Strategic Growth
Growth Portfolio Portfolio
------------------------- -------------------------
Year Ended Year Ended Year Ended Year Ended
12/31/03 12/31/02 12/31/03 12/31/02
---------- ---------- ---------- ----------
AMOUNT
Class 1:
Sold $ 38,262 $ 39,872 $ 21,723 $ 19,153
Issued as reinvestment of dividends 5,270 9,087 1,233 3,614
Redeemed (46,014) (70,616) (15,494) (21,492)
--------- --------- --------- ---------
Net increase/(decrease) $ (2,482) $ (21,657) $ 7,462 $ 1,275
========= ========= ========= =========
Class 2:
Sold $ 22,137 $ 15,345 $ 10,877 $ 3,164
Issued as reinvestment of dividends 480 280 70 53
Redeemed (2,852) (648) (906) (528)
--------- --------- --------- ---------
Net increase $ 19,765 $ 14,977 $ 10,041 $ 2,689
========= ========= ========= =========
SHARES
Class 1:
Sold 2,872 3,019 1,563 1,359
Issued as reinvestment of dividends 390 695 87 259
Redeemed (3,586) (5,662) (1,157) (1,647)
--------- --------- --------- ---------
Net increase/(decrease) (324) (1,948) 493 (29)
========= ========= ========= =========
Class 2:
Sold 1,632 1,162 741 232
Issued as reinvestment of dividends 36 21 5 4
Redeemed (212) (55) (60) (42)
--------- --------- --------- ---------
Net increase 1,456 1,128 686 194
========= ========= ========= =========
See Notes to Financial Statements.
21
financial highlights
For a Portfolio share outstanding throughout each period.
Income from Investment Operations Less Distributions
------------------------------------- ----------------------------------------
Net Asset Net Realized Dividends Distributions
Value Net and Unrealized Total from from Net from Net Asset
Beginning Investment Gain/(Loss) on Investment Investment Net Realized Total Value, End
of Period Income Investments Operations Income(1) Capital Gains Distributions of Period
--------- ---------- -------------- ---------- ---------- ------------- ------------- ----------
Flexible Income Portfolio
Class 1
12/31/03 $12.41 $0.56(6) $1.08 $1.64 $(0.34) $ -- $(0.34) $13.71
12/31/02 12.23 0.41(6) (0.15) 0.26 (0.08) -- (0.08) 12.41
12/31/01 11.90 0.17(6) 0.40 0.57 (0.15) (0.09) (0.24) 12.23
12/31/00 11.86 0.58(6) 0.10 0.68 (0.58) (0.06) (0.64) 11.90
12/31/99 11.38 0.58(6) 0.41 0.99 (0.50) (0.01) (0.51) 11.86
Class 2
12/31/03 12.38 0.53(6) 1.07 1.60 (0.33) -- (0.33) 13.65
12/31/02 12.23 0.38(6) (0.15) 0.23 (0.08) -- (0.08) 12.38
12/31/01(5) 12.18 0.02(6) 0.03 0.05 -- -- -- 12.23
Conservative Balanced Portfolio
Class 1
12/31/03 $ 9.73 $0.36(6) $1.29 $1.65 $(0.23) $ -- $(0.23) $11.15
12/31/02 10.04 0.31(6) (0.54) (0.23) (0.07) (0.01) (0.08) 9.73
12/31/01 9.90 0.13 0.10 0.23 (0.09) -- (0.09) 10.04
12/31/00 9.90 0.49(6) (0.00)(7) 0.49 (0.49) (0.00)(7) (0.49) 9.90
12/31/99 10.42 0.71(6) (0.52) 0.19 (0.70) (0.01) (0.71) 9.90
Class 2
12/31/03 9.71 0.33(6) 1.29 1.62 (0.22) -- (0.22) 11.11
12/31/02 10.04 0.29(6) (0.54) (0.25) (0.07) (0.01) (0.08) 9.71
12/31/01(5) 9.92 0.01 0.11 0.12 -- -- -- 10.04
Balanced Portfolio
Class 1
12/31/03 $12.42 $0.33(6) $2.46 $2.79 $(0.33) $ -- $(0.33) $14.88
12/31/02 13.91 0.32(6) (1.53) (1.21) (0.28) -- (0.28) 12.42
12/31/01 14.50 0.17(6) (0.15) 0.02 (0.25) (0.36) (0.61) 13.91
12/31/00 14.92 0.41(6) (0.32) 0.09 (0.43) (0.08) (0.51) 14.50
12/31/99 12.20 0.34(6) 2.95 3.29 (0.48) (0.09) (0.57) 14.92
Class 2
12/31/03 12.39 0.30(6) 2.45 2.75 (0.32) -- (0.32) 14.82
12/31/02 13.91 0.29(6) (1.53) (1.24) (0.28) -- (0.28) 12.39
12/31/01(5) 13.52 0.02(6) 0.37(8) 0.39 -- -- -- 13.91
See Notes to Financial Statements.
22
Ratios to Average Net Assets/Supplemental Data
--------------------------------------------------------------------------
Ratio of Operating
Expenses to
Average Net
Assets Without Fee
Waivers, Expenses
Ratio of Ratio of Net Reimbursed and/or
Operating Investment Fees Reduced
Net Assets, Expenses Income by Credits
Total End of Period to Average to Average Portfolio Allowed by the
Return(2) (in 000's) Net Assets(3) Net Assets Turnover Rate Custodian(3)(4)
--------- ------------- ------------- ---------- ------------- ------------------
Flexible Income Portfolio
Class 1
12/31/03 13.30% $143,283 0.30% 4.33% 4% 0.30%
12/31/02 2.14% 125,992 0.30% 3.37% 9% 0.30%
12/31/01 4.84% 90,860 0.33% 1.43% 1% 0.33%
12/31/00 5.79% 40,049 0.31% 4.84% 14% 0.31%
12/31/99 8.58% 25,846 0.35% 5.09% 4% 0.41%
Class 2
12/31/03 13.02% 34,501 0.55% 4.08% 4% 0.55%
12/31/02 1.89% 9,416 0.55% 3.12% 9% 0.55%
12/31/01(5) 0.41% 182 0.58%(9) 1.18%(9) 1% 0.58%(9)
Conservative Balanced Portfolio
Class 1
12/31/03 17.09% $31,600 0.31% 3.48% 6% 0.36%
12/31/02 (2.26)% 20,759 0.30% 3.20% 9% 0.41%
12/31/01 2.40% 14,221 0.41% 1.36% 2% 0.53%
12/31/00 5.03% 8,736 0.37% 4.99% 67% 0.44%
12/31/99 1.88% 7,206 0.35% 7.07% 17% 0.59%
Class 2
12/31/03 16.83% 9,128 0.56% 3.23% 6% 0.61%
12/31/02 (2.47)% 2,244 0.55% 2.95% 9% 0.66%
12/31/01(5) 1.21% 205 0.66%(9) 1.11%(9) 2% 0.78%(9)
Balanced Portfolio
Class 1
12/31/03 22.74% $419,273 0.29% 2.50% 7% 0.29%
12/31/02 (8.78)% 334,605 0.29% 2.52% 22% 0.29%
12/31/01 0.13% 354,082 0.28% 1.22% 8% 0.28%
12/31/00 0.49% 305,399 0.29% 2.76% 15% 0.29%
12/31/99 27.71% 170,527 0.35% 2.70% 13% 0.35%
Class 2
12/31/03 22.46% 91,631 0.54% 2.25% 7% 0.54%
12/31/02 (9.00)% 31,335 0.54% 2.27% 22% 0.54%
12/31/01(5) 2.88% 1,452 0.53%(9) 0.97%(9) 8% 0.53%(9)
See Notes to Financial Statements.
23
financial highlights
For a Portfolio share outstanding throughout each period.
Income from Investment Operations Less Distributions
---------------------------------------- ---------------------------------------
Net Asset Net Realized Dividends Distributions
Value, Net and Unrealized Total From from Net from Net Asset
Beginning Investment Gain/(Loss) on Investment Investment Net Realized Total Value, End
of Period Income Investments Operations Income(1) Capital Gains Distributions of Period
--------- ---------- -------------- ---------- --------- ------------- ------------- ----------
Conservative Growth Portfolio
Class 1
12/31/03 $12.16 $0.23(6) $3.23 $3.46 $(0.30) $ -- $(0.30) $15.32
12/31/02 14.87 0.23(6) (2.51) (2.28) (0.41) (0.02) (0.43) 12.16
12/31/01 16.46 0.17(6) (0.72) (0.55) (0.61) (0.43) (1.04) 14.87
12/31/00 17.10 0.27(6) (0.69) (0.42) (0.07) (0.15) (0.22) 16.46
12/31/99 12.54 0.12(6) 4.76 4.88 (0.16) (0.16) (0.32) 17.10
Class 2
12/31/03 12.13 0.20(6) 3.20 3.40 (0.28) -- (0.28) 15.25
12/31/02 14.87 0.19(6) (2.50) (2.31) (0.41) (0.02) (0.43) 12.13
12/31/01(5) 14.24 0.01(6) 0.62(8) 0.63 -- -- -- 14.87
Strategic Growth Portfolio
Class 1
12/31/03 $12.55 $0.14(6) $3.98 $4.12 $(0.21) $ -- $(0.21) $16.46
12/31/02 16.45 0.15(6) (3.47) (3.32) (0.54) (0.04) (0.58) 12.55
12/31/01 18.61 0.16(6) (1.27) (1.11) (0.57) (0.48) (1.05) 16.45
12/31/00 19.59 0.13(6) (0.84) (0.71) (0.11) (0.16) (0.27) 18.61
12/31/99 13.46 0.05(6) 6.35 6.40 (0.16) (0.11) (0.27) 19.59
Class 2
12/31/03 12.54 0.10(6) 3.98 4.08 (0.20) -- (0.20) 16.42
12/31/02 16.45 0.11(6) (3.44) (3.33) (0.54) (0.04) (0.58) 12.54
12/31/01(5) 15.54 0.01(6) 0.90(8) 0.91 -- -- -- 16.45
<FN>
- ---------------
(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 less than one year. The
total return would have been lower if certain fees had not been
waived and/or expenses reimbursed by the investment advisor or if
fees had not been reduced by credits allowed by the custodian.
(3) The Portfolio 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 2 shares on November 6,
2001.
(6) Per share numbers have been calculated using the average shares
method.
(7) Amount represents less than $0.01 per share.
(8) The amount shown may not agree with the change in the aggregate
gains and losses of portfolio securities due to the timing of
sales and redemptions of Portfolio shares.
(9) Annualized.
See Notes to Financial Statements.
24
Ratios to Average Net Assets/Supplemental Data
-------------------------------------------------------------------------------------
Ratio of Operating
Expenses to
Average Net Assets
Without Fee Waivers,
Ratio of Ratio of Net Expenses Reimbursed
Operating Investment and/or Fees
Net Assets, Expenses Income Reduced by Credits
Total End of Period to Average to Average Portfolio Allowed by the
Return(2) (in 000's) Net Assets(3) Net Assets Turnover Rate Custodian(3)(4)
--------- ------------- ------------- ------------ ------------- --------------------
Conservative Growth Portfolio
Class 1
12/31/03 28.74% $284,165 0.30% 1.75% 11% 0.30%
12/31/02 (15.52)% 229,564 0.29% 1.77% 19% 0.29%
12/31/01 (3.56)% 309,608 0.28% 1.11% 7% 0.28%
12/31/00 (2.49)% 293,442 0.28% 1.59% 13% 0.28%
12/31/99 39.36% 155,790 0.35% 0.85% 12% 0.36%
Class 2
12/31/03 28.36% 40,576 0.55% 1.50% 11% 0.55%
12/31/02 (15.72)% 14,610 0.54% 1.52% 19% 0.54%
12/31/01(5) 4.42% 1,127 0.53%(9) 0.86%(9) 7% 0.53%(9)
Strategic Growth Portfolio
Class 1
12/31/03 33.07% $105,077 0.31% 0.99% 9% 0.31%
12/31/02 (20.53)% 73,936 0.32% 1.06% 16% 0.32%
12/31/01 (6.25)% 97,401 0.31% 0.95% 5% 0.31%
12/31/00 (3.73)% 98,431 0.30% 0.67% 12% 0.30%
12/31/99 47.95% 35,500 0.35% 0.35% 7% 0.43%
Class 2
12/31/03 32.76% 14,766 0.56% 0.74% 9% 0.56%
12/31/02 (20.59)% 2,676 0.57% 0.81% 16% 0.57%
12/31/01(5) 5.86% 319 0.56%(9) 0.70%(9) 5% 0.56%(9)
See Notes to Financial Statements.
25
notes to financial statements
WM VARIABLE TRUST STRATEGIC ASSET MANAGEMENT PORTFOLIOS
1. Organization and Business
WM Variable Trust (the "Trust") was organized as a Massachusetts
business trust on January 29, 1993. The Trust is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-
end management investment company. The Trust consists of 12 funds and 5
portfolios. The Flexible Income, Conservative Balanced, Balanced,
Conservative Growth, and Strategic Growth Portfolios (each a "Portfolio"
and collectively, the "Portfolios") are included in this report.
The Trust is authorized to issue an unlimited number of shares of
beneficial interest, each without par value. Each Portfolio offers two
classes of shares: Class 1 shares and Class 2 shares. These shares are
issued and redeemed only in connection with investments in, and payments
under, variable annuity contracts and variable life insurance contracts
(collectively "Variable Insurance Contracts"), as well as certain
qualified retirement plans including affiliated plans of Washington
Mutual, Inc. ("Washington Mutual"), a publicly owned financial services
company. At December 31, 2003, "The Washington Mutual Retirement Savings
and Investment Plan" held approximately 39%, 25%, 8%, 7% and 26% of the
outstanding shares in the Flexible Income, Conservative Balanced,
Balanced, Conservative Growth and Strategic Growth Portfolios,
respectively.
Each of the Portfolios invests, within certain percentage ranges, in
Class 1 shares of various funds in the Trust and Class I shares of WM
High Yield Fund (collectively, the "Underlying Funds"). WM Advisors,
Inc. (the "Advisor" or "WM Advisors"), a wholly-owned subsidiary of
Washington Mutual serves as investment advisor to the Portfolios. 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 in the preparation of their
financial statements.
Portfolio valuation:
Investments in the Underlying Funds are valued at net asset value per
Class 1 share or Class I share of the respective Underlying Funds
determined as of the close of the New York Stock Exchange on each
valuation date. Short-term debt securities that mature in 60 days or
less are valued at amortized cost which approximates market value.
Repurchase agreements:
Each Portfolio may enter into repurchase agreement transactions. A
repurchase agreement is a purchase of an underlying debt obligation
subject to an agreement by the seller to repurchase the obligation at an
agreed upon price and time. The 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. WM
Advisors, acting under the supervision of the Board of Trustees, reviews
the value of the collateral and the creditworthiness of those banks and
broker-dealers with whom each Portfolio enters into repurchase
agreements.
Securities transactions and investment income:
Securities transactions are recorded on a trade date basis. Realized
gains and losses from securities sold are recorded on the identified
cost basis.
Interest income on debt securities is accrued daily. Dividend income 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.
26
notes to financial statements (continued)
WM VARIABLE TRUST STRATEGIC ASSET MANAGEMENT PORTFOLIOS
Dividends and distributions to shareholders:
Dividends from net investment income and distributions of any net
capital gains of the Portfolios are declared and paid annually.
Distributions from income and capital gains are determined in accordance
with income tax regulations, which may differ from generally accepted
accounting principles. These differences are primarily due to differing
treatments of income and gains on various investments held by the
Portfolios, redesignated distributions and differing characterization of
distributions made by each Portfolio. At December 31, 2003, 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
Undistributed Accumulated
Net Investment Net Realized
Income Loss
Name of Portfolio (000s) (000s)
----------------- -------------- ------------
Flexible Income Portfolio $ 15 $ (15)
Conservative Balanced Portfolio 5 (5)
Balanced Portfolio 109 (109)
Conservative Growth Portfolio 89 (89)
Strategic Growth Portfolio 30 (30)
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 (the "Code"), applicable to regulated investment
companies and by distributing substantially all of its earnings to its
shareholders. Therefore, no federal income or excise tax provision is
required.
It is each Portfolio's policy to meet the diversification requirements
of the Code so that variable annuity and variable life contracts funded
by the Trust will not fail to qualify as annuities and life insurance
contracts for tax purposes.
Expenses:
General expenses of the Trust are allocated to all the Portfolios and
Funds of the Trust based upon the relative average net assets of each
Portfolio and Fund. In addition, the Portfolios will indirectly bear
their prorated share of the expenses of the Underlying Funds. Operating
expenses directly attributable to a class of shares are charged to the
operations of that class of shares. Expenses of each Portfolio not
directly attributable to the operations of any class of shares are
prorated among the classes to which the expenses relate based on the
relative average net assets of each class of shares.
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
WM Advisors serves as investment advisor to the Trust. As such, WM
Advisors 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, WM Advisors is entitled to a monthly fee at
an annual rate of 0.10% of each Portfolio's average daily net assets.
The Advisor has voluntarily waived $15,876 of its advisory fees for the
Conservative Balanced Portfolio for the year ended December 31, 2003.
WM Shareholder Services, Inc. (the "Administrator"), a wholly-owned
subsidiary of Washington Mutual, serves as administrator of the
Portfolios. For its administrative services to the Portfolios, the
Administrator is entitled to a monthly fee at an annual rate of 0.15% of
each Portfolio's average daily net assets.
Custodian fees for certain Portfolios have been reduced by credits
allowed by the Portfolios' custodian for uninvested cash balances. The
Portfolios could have invested this cash in income producing
investments. Fees reduced by credits allowed by the custodian for the
year ended December 31, 2003 are shown separately in the "Statements of
Operations".
27
notes to financial statements (continued)
WM VARIABLE TRUST STRATEGIC ASSET MANAGEMENT PORTFOLIOS
4. Trustees' Fees
No officer or employee of Washington Mutual or its subsidiaries receives
any compensation from the Trust for serving as an officer or Trustee of
the Trust. The Trust, together with other mutual funds advised by WM
Advisors, pays each Trustee who is not an officer or employee of
Washington Mutual or its subsidiaries, a per annum retainer plus
attendance fees for each meeting at which they are present. The Lead
Trustee, Committee Chairs and Committee Members receive additional
remuneration for these services to the 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 Plan
Each of the Portfolios has adopted a distribution plan, pursuant to Rule
12b-1 under the 1940 Act, applicable to the Class 2 shares of the
Portfolios (a "Rule 12b-1 Plan"). Under the Rule 12b-1 Plan, WM Funds
Distributor, Inc. (the "Distributor") may receive a fee at an annual
rate of 0.25% of the average daily net assets attributable to Class 2
shares. This fee may be used to cover the expenses of the Distributor
primarily intended to result in the sale of such shares, including
payments to the Distributor's representatives or others for selling
shares. The Rule 12b-1 Plan shall remain in effect from year to year,
provided such continuance is approved annually by vote of the Board of
Trustees, including a majority of those Trustees who are not "interested
persons" of the Trust, as defined in the 1940 Act, and who have no
direct or indirect financial interest in the operation of the
distribution plan or any agreements related to the plan.
6. Purchases and Sales of Investments
The aggregate cost of purchases and proceeds from sales of shares of the
Underlying Funds for the year ended December 31, 2003, are as follows:
Purchases Sales
Name of Portfolio (000s) (000s)
----------------- --------- ------
Flexible Income Portfolio $34,794 $ 5,926
Conservative Balanced Portfolio 15,797 1,884
Balanced Portfolio 93,997 29,217
Conservative Growth Portfolio 47,043 30,295
Strategic Growth Portfolio 25,383 8,339
7. Post October Loss
Under the current tax law, capital and currency losses realized after
October 31 may be deferred and treated as occurring on the first day of
the following fiscal year. For the fiscal year ended December 31, 2003,
the following Portfolios have elected to defer capital losses occurring
between November 1, 2003 and December 31, 2003 as follows:
Capital Losses
Name of Portfolio (000s)
----------------- --------------
Flexible Income Portfolio $ 308
Conservative Balanced Portfolio 59
Balanced Portfolio 6,153
Conservative Growth Portfolio 5,603
Strategic Growth Portfolio 1,919
Such losses will be treated as arising on the first day of the year
ending December 31, 2004.
8. Capital Loss Carryforwards
At December 31, 2003, the following Portfolios have available for
federal income tax purposes unused capital losses as follows:
(In thousands)
---------------------------------------------------
Expiring Expiring Expiring
Name of Portfolio in 2009 in 2010 in 2011
----------------- -------- -------- --------
Flexible Income Portfolio $ 19 $ 166 $ 500
Conservative Balanced Portfolio -- 28 115
Balanced Portfolio 3,740 4,364 3,460
Conservative Growth Portfolio -- 5,709 6,564
Strategic Growth Portfolio -- 3,815 1,560
28
notes to financial statements (continued)
WM VARIABLE TRUST STRATEGIC ASSET MANAGEMENT PORTFOLIOS
9. Components of Distributable Earnings
At December 31, 2003, 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 $15,116 $2,949 $36,284 $ 17,306 $ 9,458
Gross tax unrealized depreciation -- -- (1,575) (26,051) (14,014)
------- ------ ------- -------- --------
Net tax unrealized appreciation/
(depreciation) $15,116 $2,949 $34,709 $ (8,745) $ (4,556)
======= ====== ======= ======== ========
Undistributed ordinary income $ 6,611 $1,031 $10,388 $ 4,710 $ 908
Undistributed accumulated gains $ -- $ -- $ -- $ -- $ --
Tax Composition of Distributions:
Ordinary income $ 3,898 $ 610 $ 9,912 $ 5,750 $ 1,303
Long-term capital gain $ -- $ -- $ -- $ -- $ --
10. Risk Factors of the Portfolios
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.
Certain Underlying Funds may invest a portion of their assets in foreign
securities; 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
enter into "delayed-delivery" transactions; and enter into various other
investment practices each with inherent risks. The REIT Fund could be
adversely impacted by economic trends in the real estate industry; the
West Coast Equity Fund by economic trends in the West Coast region; and
the High Yield Fund by conditions affecting issuers of lower rated debt
securities.
The officers and Trustees, Advisor, Distributor and Transfer Agent of
the Portfolios serve in the same capacity for the Underlying Funds.
Conflicts may arise as these persons and companies seek to fulfill their
fiduciary responsibilities to both the Portfolios and the Underlying
Funds.
From time to time, one or more of the Underlying Funds used for
investment by a Portfolio may experience relatively large investments or
redemptions due to reallocations or rebalancings by the Portfolios.
These transactions will affect the Underlying Funds, since the
Underlying Funds that experience redemptions as a result of the
reallocations or rebalancings may have to sell portfolio securities and
the Underlying Funds that receive additional cash will have to invest
such cash. While it is impossible to predict the overall impact of these
transactions over time, there could be adverse effects on portfolio
management to the extent that the Underlying Funds may be required to
sell securities or invest cash at times when they would not otherwise do
so. These transactions could also have tax consequences if sales of
securities resulted in gains and could also increase transaction costs.
The Advisor is committed to minimizing such impact on the Underlying
Funds to the extent it is consistent with pursuing the investment
objectives of the Portfolios. The Advisor may nevertheless face
conflicts in fulfilling its responsibilities. The Advisor will, at all
times, monitor the impact on the Underlying Funds of transactions by the
Portfolios.
29
independent auditors' report
To the Trustees and Shareholders of the Funds of the
WM Variable Trust:
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of WM Variable Trust Flexible
Income Portfolio, WM Variable Trust Conservative Balanced Portfolio, WM
Variable Trust Balanced Portfolio, WM Variable Trust Conservative Growth
Portfolio, and WM Variable Trust Strategic Growth Portfolio (all Funds
of WM Variable Trust) (collectively the "Portfolios") as of December 31,
2003, 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 periods
presented. 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 auditing standards generally
accepted in the United States of America. 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. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at
December 31, 2003, by correspondence with the custodian and transfer
agent. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. 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 aforementioned Portfolios at December 31,
2003, the results of the operations for the year then ended, the changes
in their net assets for each of the two years in the period then ended,
and the financial highlights for each of the periods presented, in
conformity with accounting principles generally accepted in the United
States of America.
Deloitte & Touche LLP
Boston, Massachusetts
February 13, 2004
30
other information (unaudited)
WM VARIABLE TRUST STRATEGIC ASSET MANAGEMENT PORTFOLIOS
Year Ended December 31, 2003
1. Tax Information
Of the distributions made by the following Portfolios, the corresponding
percentages represent the amount of each distribution which may qualify
for the dividends received deduction available to corporate
shareholders.
Name of Portfolio
- -----------------
Flexible Income Portfolio 7.66%
Conservative Balanced Portfolio 12.74%
Balanced Portfolio 16.86%
Conservative Growth Portfolio 24.54%
Strategic Growth Portfolio 41.56%
2. Trustee Information
Trustees and Officers:
Name, Age, and Address (1) Length of Principal Occupation(s) During Other Directorships
Of Independent Trustee Time Served (2) Past 5 Years Held by Trustee
====================================================================================================================================
David E. Anderson Sierra Funds-8 years Retired President and CEO of Children's Bureau Foundation;
Age 77 WM Group of GTE California, Inc. Upward Bound House of Santa
Funds-5 years Monica
(Retired May 2003)
- ------------------------------------------------------------------------------------------------------------------------------------
Wayne L. Attwood, M.D. Composite Funds-11 years Retired doctor of internal medicine
Age 74 WM Group of and gastroenterology.
Funds-5 years
- ------------------------------------------------------------------------------------------------------------------------------------
Kristianne Blake Composite Funds-3 years CPA specializing in personal financial Frank Russell Investment Company;
Age 49 WM Group of and tax planning. Russell Insurance Funds; Avista
Funds-5 years Corporation; St. George's School
- ------------------------------------------------------------------------------------------------------------------------------------
Edmond R. Davis, Esq. Sierra Funds-8 years Partner at the law firm of Davis & Braille Institute of America,
Age 75 WM Group of Whalen LLP. Prior to 1999, partner at Inc; Children's Bureau of
Funds-5 years the law firm of Brobeck, Phlegar & Southern California, Children's
Harrison, LLP. Bureau Foundation; Fifield
Manors, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Carrol R. McGinnis Griffin Funds-5 years Founder of McGinnis Investments. Baptist Foundation of Texas;
Age 60 WM Group of Prior to 1994, President and Chief Concord Trust Company.
Funds-5 years Operating Officer of Transamerica
Fund Management Company.
- ------------------------------------------------------------------------------------------------------------------------------------
Alfred E. Osborne, Jr., Ph.D. Sierra Funds-7 years Senior Associate Dean of the Anderson Nordstrom Inc.; K2, Inc.; First
Age 59 WM Group of Graduate School of Management at Pacific Advisors' Capital,
Funds-5 years the University of California Los Crescent and New Income Funds;
Angeles. Equity Marketing Inc.; Member of
Investment Company Institute
National Board of Governors.
- ------------------------------------------------------------------------------------------------------------------------------------
Daniel L. Pavelich Composite Funds-1 year Retired Chairman and CEO of BDO Wildseed Ltd.; Catalytic, Inc.;
Age 59 WM Group of Seidman, LLP. Vaagen Bros. Lumber, Inc.
Funds-5 years
- ------------------------------------------------------------------------------------------------------------------------------------
Jay Rockey Composite Funds-3 years Founder and Senior Counsel of Rockey, Downtown Seattle Association;
Age 75 WM Group of Hill & Knowlton, formerly The Rockey The Rainier Club; WSU Foundation
Funds-5 years Company. Prior to 2004, Chairman and
Founder of same.
- ------------------------------------------------------------------------------------------------------------------------------------
Morton O. Schapiro Griffin Funds-5 years President of Williams College since Marsh & McLennan Companies
Age 50 WM Group of 2000. Prior thereto, Dean of the
Funds-5 years College of Letters, Arts and Sciences;
(Retired February 2003) Professor of Economics and Vice
President of Planning, University of
Southern California.
- ------------------------------------------------------------------------------------------------------------------------------------
Richard C. Yancey Composite Funds-23 years Retired Managing Director of Dillon, AdMedia Partners Inc.; Czech and
(Lead Trustee) WM Group of Read & Co., an Investment Bank now Slovak American Enterprise Fund
Age 77 Funds-5 years part of UBS.
- ------------------------------------------------------------------------------------------------------------------------------------
31
other information (unaudited) (continued)
WM VARIABLE TRUST STRATEGIC ASSET MANAGEMENT PORTFOLIOS
Year Ended December 31, 2003
Name, Age, and Address (1) Length of Principal Occupation(s) During Other Directorships
Of Independent Trustee Time Served (2) Past 5 Years Held by Trustee
====================================================================================================================================
Anne V. Farrell Composite Funds-4 years President Emeritus of the Seattle Washington Mutual, Inc.; REI
Age 68 WM Group of Foundation.
Funds-5 years
- ------------------------------------------------------------------------------------------------------------------------------------
Michael K. Murphy Composite Funds-3 years Chairman of CPM Development Washington Mutual, Inc.
Age 66 WM Group of Corporation.
Funds-5 years
- ------------------------------------------------------------------------------------------------------------------------------------
William G. Papesh, Composite Funds-9 years President, CEO and Director of the
President and CEO WM Group of Advisor and Director of the Transfer
Age 60 Funds-5 years Agent and Distributor. Prior to 2004,
President, CEO and Director of the
Advisor, Transfer Agent and Distributor.
- ------------------------------------------------------------------------------------------------------------------------------------
Position(s) Held with Registrant
Name, Age, and Address (1) & Principal Occupation(s) During
Of Officer Length of Time Served Past 5 Years
====================================================================================================================================
Wendi B. Bernard Assistant Vice President Assistant Vice President of the Transfer Agent.
Age 35 and Assistant Secretary since 2003.
- ------------------------------------------------------------------------------------------------------------------------------------
Monte D. Calvin, CPA First Vice President since 2002. First Vice President and Director of the
Age 59 Prior to 2002, other officer positions since 1988. Transfer Agent, Advisor and Distributor.
- ------------------------------------------------------------------------------------------------------------------------------------
Sandy Cavanaugh Senior Vice President since 2000. President and Director of the Distributor
Age 49 Prior to 2000, First Vice President since 1997. and Transfer Agent.
- ------------------------------------------------------------------------------------------------------------------------------------
Alex Ghazanfari Vice President and Assistant Vice President and Chief Compliance Officer of
Age 27 Compliance Officer since 2003. the Distributor. Prior to 2003, senior level
positions at the Distributor and WM Financial
Services.
- ------------------------------------------------------------------------------------------------------------------------------------
Sharon L. Howells First Vice President since 2000. First Vice President, Secretary and Director of the
Age 53 Advisor, Distributor, and Transfer Agent.
- ------------------------------------------------------------------------------------------------------------------------------------
Jeffrey L. Lunzer, CPA Vice President, Chief Financial Vice President of the Transfer Agent. Prior to 2003,
Age 42 Officer and Treasurer since 2003. senior level positions at the Columbia Funds and
Columbia Management Co.
- ------------------------------------------------------------------------------------------------------------------------------------
William G. Papesh President and CEO since 1987. Prior to President and Director of the Advisor and Director
Age 60 1987, other officer positions since 1972. of the Transfer Agent and Distributor.
- ------------------------------------------------------------------------------------------------------------------------------------
Gary Pokrzywinski First Vice President since 2001. Senior Vice President of the Advisor.
Age 42 Prior to 2001, Vice President since 1999.
- ------------------------------------------------------------------------------------------------------------------------------------
Stephen Q. Spencer First Vice President since 2001. First Vice President of the Advisor. Prior to 2001,
Age 45 senior level positions at Smoot, Miller, Cheney & Co.
- ------------------------------------------------------------------------------------------------------------------------------------
John T. West First Vice President, Secretary and Compliance First Vice President of the Transfer Agent, Advisor
Age 48 Officer since 2003. Prior to 2003, other officer and Distributor.
positions since 1993.
- ------------------------------------------------------------------------------------------------------------------------------------
Randall L. Yoakum Senior Vice President since 2001. Senior Vice President, Director and Chief Investment
Age 44 Prior to 2001, First Vice President since 1999. Strategist of the Advisor and Director of the
Distributor and Transfer Agent. Prior to 1999, senior
positions at D.A. Davidson and Boatmen's Trust.
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
- ---------------
Note: The Statement of Additional Information includes additional
information about Fund Trustees and Officers and is available, without
charge, upon request by calling 1-800-222-5852.
(1) The address for all Trustees and Officers is 1201 Third Avenue,
22nd Floor, Seattle, WA, 98101.
(2) The Sierra Funds merged with the Composite Funds on March 23, 1998
to form the WM Group of Funds. The Griffin Funds merged with the
WM Group of Funds on March 5, 1999.
(3) Trustees are considered interested due to their affiliation with
Washington Mutual, Inc. or the Funds.
32
This Annual Report is published for the general information of the
shareholders of the WM Variable Trust. It is authorized for distribution to
prospective investors only when preceded or accompanied by a current
prospectus. Share prices 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.
Shares of the WM Variable Trust are not federally insured by the Federal
Deposit Insurance Corporation (FDIC), the Federal Reserve Board, National
Credit Union Association (NCUA), National Credit Union Share Insurance Fund
(NCUSIF), or any other federal government agency. The purchase of WM
Variable Trust shares is not required for and is not a term of the provision
of any banking service or activity. They are not deposits or obligations of,
nor are they guaranteed by, any bank. These securities are subject to
investment risk, including possible loss of principal amount invested.
Distributed by:
WM Funds Distributor, Inc.
Member NASD
[wm Variable Trust logo] PRSRT STD
U.S. POSTAGE
WM Funds Distributor, Inc. PAID
12009 Foundation Place, Suite 350 HAZELWOOD, MO
Gold River, CA 95670 PERMIT #14
VTSAMAR (2/28/04)
ITEM 2. CODE OF ETHICS
The registrant has adopted a code of ethics that applies to the registrant's
principal executive and senior financial officers, 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
----------
2002 2003
---- ----
$361,165 $419,370
(b) Audit-Related Fees
------------------
2002 2003
---- ----
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
--------
2002 2003
---- ----
$37,455 $38,190
The tax fees consist of fees billed in connection with reviewing the
federal regulated investment company income tax returns for WM
Variable Trust for the tax years ended December 31, 2002 and December
31, 2003.
For the last two fiscal years, no tax fees were required to be
approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation
S-X.
(d) All Other Fees
--------------
2002 2003
---- ----
None. None.
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 adviser (not including a sub-adviser whose
role is primarily portfolio management and is sub-contracted or
overseen by another investment adviser) and any entity controlling,
controlled by or under common control with the investment adviser that
provides ongoing services to the funds in accordance with paragraph
(c)(7)(i) of Rule 2-01 of Regulation S-X, if the engagement relates
directly to the operations and financial reporting of the registrant.
(2) None of the services described in paragraphs (b) through (d) of
this Item 4 were approved by the Audit Committee pursuant to paragraph
(c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) Not applicable.
(g) For the fiscal year ended December 31, 2003, the registrant's principal
accountant billed aggregate non-audit fees in the amount of $435,540
for services rendered to the registrant, WM Advisors, Inc., WM Funds
Distributor, Inc., WM Shareholder Services, Inc. and WM Financial
Services, Inc. For the fiscal year ended December 31, 2002, the
registrant's principal accountant billed aggregate non-audit fees in
the amount of $255,105 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 adviser
(not including any subadviser whose role is primarily portfolio
management and is subcontracted with or overseen by another investment
adviser), and any entity controlling, controlled by, or under common
control with the investment adviser 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. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES
Not Applicable
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANIES AND AFFILIATED PURCHASERS
Not Applicable.
ITEM 9. 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.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
WM Variable Trust
By: /s/ William G. Papesh
William G. Papesh, President and Chief Executive Officer
March 5, 2004
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 and on
the dates indicated.
/s/ Jeffrey L. Lunzer
- ---------------------
Jeffrey L. Lunzer, Treasurer and Chief Financial Officer
March 5, 2004
/s/ William G. Papesh
- ---------------------
William G. Papesh, President and Chief Executive Officer
March 5, 2004