UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-07577
WM Strategic Asset Management Portfolios, LLC
(Exact name of registrant as specified in charter)
1201 Third Avenue, 22nd Floor, Seattle, WA 98101
(Address of principal executive offices) (Zip code)
Jeffrey L. Lunzer
1201 Third Avenue, 22nd Floor, Seattle, WA 98101
(Name and address of agent for service)
Registrant's telephone number, including area code: (206) 461-3800
Date of fiscal year end: October 31, 2004
Date of reporting period: April 30, 2004
Item 1. Reports to Stockholders
[logo] WM
GROUPofFUNDS
S T R A T E G I C A S S E T
M A N A G E M E N T
P O R T F O L I O S
Common sense. Uncommon solutions.
[photo]
SEMI-ANNUAL REPORT
April 30, 2004
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
Portfolios of Investments.....................2
Statements of Assets and Liabilities..........5
Statements of Operations......................6
Statements of Changes in Net Assets...........7
Statements of Changes in Net
Assets - Capital Stock Activity...............8
Financial Highlights.........................10
Notes to Financial Statements................16
Not FDIC Insured
- --------------------------------------------------
May Lose Value * Not a Deposit * No Bank Guarantee
Not Insured by any Federal Government Agency
[PHOTO] Dear Shareholder,
Since our last shareholder report, the U.S. economy has regained its
economic foothold. Corporate profits have improved in an ongoing environment
of low inflation and low interest rates. Corporations are showing renewed
confidence that is evident through increased capital spending and hiring,
accompanied by higher worker productivity. The creation of more jobs in the
service and manufacturing sectors is a welcome sign that can have a positive
proliferating impact on the economy. We are also seeing the development of
more favorable factors outside the U.S. that can drive stronger economic
growth.
These developments were reflected in the performance of the stock market,
which gained 6% for the six-month period ended April 30, 2004.(1) Among the
best-performing equity sectors were energy (+22%), telecommunications
(+13%), health care (+10%), and consumer staples (+10%).(2) Corporate bonds,
particularly lower-quality high-yield issues in sectors such as insurance
(+10%), financial institutions (+9%), and basic industry (+8%), were among
the top-performing assets during the period.(3)
Asset Allocation Shows Its Benefits
What makes the investment business so challenging is that we continually see
new positive trends that are invariably accompanied by negative news. This
combination of events can rapidly alter our well-researched projections. As
a result, we continue to embrace asset allocation, which studies have shown
accounts for over 90% of an investment's return.(4) In our judgement, this is
the most appropriate and time-tested investment philosophy. Our approach to
investing is reflected in such variables as portfolio allocations, bond
maturities, corporate sector and asset class exposures, equity styles, and
capitalizations.
As evidence of how important asset allocation is to our investment approach,
we launched the WM Small Cap Value Fund, which invests in smaller-sized,
undervalued firms, on March 1 of this year. With this new fund, we can now
invest in up to 13 separate asset classes within our Strategic Asset
Management (SAM) Portfolios. It also provides us with greater investment
opportunities and strengthens our ability to spread assets across more
well-researched and widely traded investment styles.
Celebrating 65 Years of Shared Values
This year marks the 65th anniversary of our WM Equity Income Fund, which
traces its origins back to 1939 when it was launched as the Composite Bond
Fund, one of the first 50 mutual funds in the U.S. Much has changed since
then. Today there are over 8,000 U.S. mutual funds,(5) but few can claim a
similar heritage and institutional dedication to shareholder interests.
I am honored to be only the fourth president of WM Advisors during its
65-year history. My mentor, Lee Sahlin, upheld the corporate culture
developed under his predecessor, George Yancey, who worked alongside the
founder of the Composite Research & Management Company, R. M. "Pete"
Williams. My predecessors had long tenures because they took the values of
long-term investing, consistency of purpose, trust, and integrity very
seriously. I am proud that these values are still at work today at our
staff, management, and board levels.
The WM Group of Funds Board of Trustees is comprised of 11 experienced
individuals, eight of whom are independent of fund management. The remaining
three trustees (myself included) are termed "interested persons" who are
connected with fund management or Washington Mutual, Inc. Acting together,
the board members represent shareholder interests by striving to ensure that
the funds' managers, distributor, transfer agent, and other service
providers meet their fiduciary responsibilities.
A Time-Tested Investment Approach
As the mutual fund industry approaches its 80th anniversary, we note that
over a history with nearly the same longevity, WM Advisors has built a
venerable record of successful investment management. Our investment
philosophy has been tested over decades that have included some
extraordinary historic and economic events. We have persevered while also
achieving some exceptional results and recognition for our achievements from
national publications, such as Barron's.
I believe the key to this success can be distilled from our investment
process, consistent approach, and teamwork. Our overall approach is aligned
with the goals of our shareholders, so we operate with a common purpose.
This process has worked exceptionally well for the past 65 years, and we are
confident it can produce mutual benefits in the years ahead.
Sincerely,
/s/ William G. Papesh
William G. Papesh
President
<FN>
(1) As measured by the S&P 500 Index. Indices are unmanaged, and individuals
cannot invest directly in an index.
(2) Source: Bloomberg News.
(3) Source: Lehman Brothers.
(4) Source: Ibbotson Associates.
(5) Source: Investment Company Institute.
1
portfolios of investments
FLEXIBLE INCOME PORTFOLIO
April 30, 2004 (unaudited)
Value
Shares (000s)
------ ------
INVESTMENT COMPANY SECURITIES -- 99.5%
1,695,182 WM Equity Income Fund ................ $ 28,547
2,700,376 WM Growth & Income Fund .............. 63,378
2,698,974 WM Growth Fund ....................... 39,702
7,211,718 WM High Yield Fund ................... 57,982
21,858,725 WM Income Fund ....................... 203,505
1,448,556 WM Mid Cap Stock Fund ................ 24,162
677,092 WM REIT Fund.......................... 8,660
41,609,852 WM Short Term Income Fund ............ 99,031
565,561 WM Small Cap Growth Fund ............. 8,110
828,652 WM Small Cap Value Fund............... 8,038
24,442,466 WM U.S. Government Securities Fund.... 263,001
386,435 WM West Coast Equity Fund ............ 13,046
--------
Total Investment Company Securities
(Cost $784,692) .................... 817,162
--------
Principal
Amount
(000s)
- ---------
REPURCHASE AGREEMENT -- 0.3%
(Cost $2,404)
$ 2,404 Agreement with Morgan Stanley,
0.940% dated 04/30/2004, to be
repurchased at $2,404,000 on
05/03/2004 (Collateralized by
U.S. Treasury Note, 6.750% due
05/15/2005, market value
$2,453,000)............................ 2,404
--------
TOTAL INVESTMENTS (Cost $787,096*).......... 99.8% 819,566
OTHER ASSETS AND LIABILITIES (Net) ......... 0.2 1,523
----- --------
NET ASSETS.................................. 100.0% $821,089
===== ========
<FN>
- --------
* Aggregate cost for federal tax purposes.
CONSERVATIVE BALANCED PORTFOLIO
April 30, 2004 (unaudited)
Value
Shares (000s)
------ ------
INVESTMENT COMPANY SECURITIES -- 98.9%
1,401,002 WM Equity Income Fund ................. $ 23,593
1,418,071 WM Growth & Income Fund ............... 33,282
2,115,166 WM Growth Fund ........................ 31,114
3,041,027 WM High Yield Fund .................... 24,450
7,828,509 WM Income Fund ........................ 72,883
1,603,637 WM International Growth Fund .......... 14,369
882,622 WM Mid Cap Stock Fund ................. 14,722
559,413 WM REIT Fund........................... 7,155
9,230,800 WM Short Term Income Fund ............. 21,969
372,543 WM Small Cap Growth Fund .............. 5,342
563,597 WM Small Cap Value Fund................ 5,467
9,822,910 WM U.S. Government Securities Fund..... 105,695
326,558 WM West Coast Equity Fund ............. 11,025
--------
Total Investment Company Securities
(Cost $352,525)...................... 371,066
--------
Principal
Amount
(000s)
- ---------
REPURCHASE AGREEMENT -- 0.3%
(Cost $959)
$ 959 Agreement with Morgan Stanley,
0.940% dated 04/30/2004, to be
repurchased at $959,000 on
05/03/2004, (Collateralized by
U.S. Treasury Note, 6.750% due
05/15/2005, market value
$978,000) ............................... 959
--------
TOTAL INVESTMENTS (Cost $353,484*).......... 99.2% 372,025
OTHER ASSETS AND LIABILITIES (Net) ......... 0.8 3,051
----- --------
NET ASSETS ................................. 100.0% $375,076
===== ========
<FN>
- --------
* Aggregate cost for federal tax purposes.
See Notes to Financial Statements.
2
portfolios of investments
BALANCED PORTFOLIO
April 30, 2004 (unaudited)
Value
Shares (000s)
------ ------
INVESTMENT COMPANY SECURITIES -- 97.5%
16,542,263 WM Equity Income Fund ................ $ 278,572
17,173,241 WM Growth & Income Fund .............. 403,056
24,716,923 WM Growth Fund ....................... 363,586
20,270,332 WM High Yield Fund ................... 162,973
38,964,976 WM Income Fund ....................... 362,764
17,038,725 WM International Growth Fund ......... 152,667
10,121,815 WM Mid Cap Stock Fund ................ 168,832
6,445,387 WM REIT Fund.......................... 82,437
13,936,469 WM Short Term Income Fund ............ 33,169
4,725,906 WM Small Cap Growth Fund ............. 67,769
7,175,791 WM Small Cap Value Fund............... 69,605
46,291,883 WM U.S. Government Securities Fund.... 498,101
4,218,221 WM West Coast Equity Fund ............ 142,407
----------
Total Investment Company Securities
(Cost $2,601,241)................... 2,785,938
----------
Principal
Amount
(000s)
- ---------
REPURCHASE AGREEMENT -- 2.1%
(Cost $61,044)
$ 61,044 Agreement with Morgan Stanley,
0.940% dated 04/30/2004, to be
repurchased at $61,049,000 on
05/03/2004 (Collateralized by
U.S. Treasury Note, 6.750% due
05/15/2005, market value
$62,284,000)........................... 61,044
----------
TOTAL INVESTMENTS (Cost $2,662,285*)........ 99.6% 2,846,982
OTHER ASSETS AND LIABILITIES (Net) ......... 0.4 11,541
----- ----------
NET ASSETS.................................. 100.0% $2,858,523
===== ==========
<FN>
- --------
* Aggregate cost for federal tax purposes.
CONSERVATIVE GROWTH PORTFOLIO
April 30, 2004 (unaudited)
Value
Shares (000s)
------ ------
INVESTMENT COMPANY SECURITIES -- 99.6%
15,884,313 WM Equity Income Fund ................ $ 267,492
18,824,230 WM Growth & Income Fund .............. 441,805
23,787,909 WM Growth Fund ....................... 349,920
14,341,637 WM High Yield Fund ................... 115,307
15,549,703 WM Income Fund ....................... 144,768
18,329,370 WM International Growth Fund ......... 164,231
10,577,885 WM Mid Cap Stock Fund ................ 176,439
6,591,493 WM REIT Fund.......................... 84,305
5,248,668 WM Small Cap Growth Fund ............. 75,266
7,939,909 WM Small Cap Value Fund............... 77,017
18,545,061 WM U.S. Government Securities Fund.... 199,545
4,643,764 WM West Coast Equity Fund ............ 156,773
----------
Total Investment Company Securities
(Cost $2,106,072)................... 2,252,868
----------
Principal
Amount
(000s)
- ---------
REPURCHASE AGREEMENT -- 0.2%
(Cost $3,731)
$ 3,731 Agreement with Morgan Stanley,
0.940% dated 04/30/2004, to be
repurchased at $3,731,000 on
05/03/2004 (Collateralized by
U.S. Treasury Note, 6.750% due
05/15/2005, market value
$3,807,000)............................ 3,731
----------
TOTAL INVESTMENTS (Cost $2,109,803*)........ 99.8% 2,256,599
OTHER ASSETS AND LIABILITIES (Net).......... 0.2 4,740
----- ----------
NET ASSETS.................................. 100.0% $2,261,339
===== ==========
<FN>
- --------
* Aggregate cost for federal tax purposes.
See Notes to Financial Statements.
3
portfolio of investments
STRATEGIC GROWTH PORTFOLIO
April 30, 2004 (unaudited)
Value
Shares (000s)
------ ------
INVESTMENT COMPANY SECURITIES -- 99.5%
9,124,920 WM Equity Income Fund ................ $ 153,664
12,791,201 WM Growth & Income Fund .............. 300,209
16,376,604 WM Growth Fund ....................... 240,900
8,467,631 WM High Yield Fund ................... 68,080
12,742,829 WM International Growth Fund ......... 114,176
8,576,293 WM Mid Cap Stock Fund ................ 143,052
3,638,230 WM REIT Fund.......................... 46,533
3,372,754 WM Small Cap Growth Fund ............. 48,365
5,135,659 WM Small Cap Value Fund............... 49,816
3,402,862 WM West Coast Equity Fund ............ 114,881
----------
Total Investment Company Securities
(Cost $1,223,437)................... 1,279,676
----------
Principal
Amount
(000s)
- ---------
REPURCHASE AGREEMENT -- 0.3%
(Cost $3,255)
$ 3,255 Agreement with Morgan Stanley,
0.940% dated 04/30/2004, to be
repurchased at $3,255,000 on
05/03/2004 (Collateralized by
U.S. Treasury Note, 6.750% due
05/15/2005, market value
$3,321,000)............................ 3,255
----------
TOTAL INVESTMENTS (Cost $1,226,692*)........ 99.8% 1,282,931
OTHER ASSETS AND LIABILITIES (Net).......... 0.2 3,138
----- ----------
NET ASSETS.................................. 100.0% $1,286,069
===== ==========
<FN>
- --------
* Aggregate cost for federal tax purposes.
See Notes to Financial Statements.
4
statements of assets and liabilities
WM STRATEGIC ASSET MANAGEMENT PORTFOLIOS
April 30, 2004 (unaudited)
(In thousands)
Flexible Conservative Conservative Strategic
Income Balanced Balanced Growth Growth
Portfolio Portfolio Portfolio Portfolio Portfolio
--------- ------------ --------- ------------ ---------
ASSETS:
Investments, at value (a) $819,566 $372,025 $2,846,982 $2,256,599 $1,282,931
Receivable for Portfolio shares sold 5,017 4,319 24,550 14,406 8,884
Prepaid expenses and other assets 9 4 30 23 432
-------- -------- ---------- ---------- ----------
Total Assets 824,592 376,348 2,871,562 2,271,028 1,292,247
-------- -------- ---------- ---------- ----------
LIABILITIES:
Payable for Portfolio shares redeemed 2,076 439 4,538 4,613 1,773
Payable for investment securities purchased 404 359 5,044 2,231 2,675
Investment advisory fee payable 435 198 1,441 1,157 675
Shareholder servicing and distribution
fees payable 484 212 1,595 1,287 758
Transfer agent fees payable 54 27 192 186 145
Accrued expenses and other payables 50 37 229 215 152
-------- -------- ---------- ---------- ----------
Total Liabilities 3,503 1,272 13,039 9,689 6,178
-------- -------- ---------- ---------- ----------
NET ASSETS $821,089 $375,076 $2,858,523 $2,261,339 $1,286,069
======== ======== ========== ========== ==========
(a) Investments, at cost $787,096 $353,484 $2,662,285 $2,109,803 $1,226,692
======== ======== ========== ========== ==========
NET ASSETS consist of:
Undistributed net investment income/
(accumulated net investment loss) $ 1,441 $ 455 $ 962 $ (506) $ (3,536)
Accumulated net realized loss on
investment transactions (3,245) (2,157) (68,014) (78,655) (65,090)
Net unrealized appreciation
of investments 32,470 18,541 184,697 146,796 56,239
Paid-in capital 790,423 358,237 2,740,878 2,193,704 1,298,456
-------- -------- ---------- ---------- ----------
Total Net Assets $821,089 $375,076 $2,858,523 $2,261,339 $1,286,069
======== ======== ========== ========== ==========
NET ASSETS:
Class A Shares $307,326 $151,462 $1,218,316 $ 939,488 $ 489,241
======== ======== ========== ========== ==========
Class B Shares $413,215 $146,383 $1,270,440 $ 957,335 $ 582,805
======== ======== ========== ========== ==========
Class C Shares $100,548 $ 77,231 $ 369,767 $ 364,516 $ 214,023
======== ======== ========== ========== ==========
SHARES OUTSTANDING:
Class A Shares 27,794 15,097 99,129 71,584 34,833
======== ======== ========== ========== ==========
Class B Shares 37,429 14,613 103,604 74,765 43,095
======== ======== ========== ========== ==========
Class C Shares 9,142 7,735 30,276 28,612 15,794
======== ======== ========== ========== ==========
CLASS A SHARES:**
Net asset value per share of beneficial
interest outstanding * $ 11.06 $ 10.03 $ 12.29 $ 13.12 $ 14.05
======== ======== ========== ========== ==========
Maximum sales charge 4.50% 5.50% 5.50% 5.50% 5.50%
======== ======== ========== ========== ==========
Maximum offering price per share of beneficial
interest outstanding $ 11.58 $ 10.61 $ 13.01 $ 13.88 $ 14.87
======== ======== ========== ========== ==========
CLASS B SHARES:**
Net asset value and offering price per share of
beneficial interest outstanding * $ 11.04 $ 10.02 $ 12.26 $ 12.80 $ 13.52
======== ======== ========== ========== ==========
CLASS C SHARES:**
Net asset value and offering price per share of
beneficial interest outstanding * $ 11.00 $ 9.99 $ 12.21 $ 12.74 $ 13.55
======== ======== ========== ========== ==========
<FN>
- --------
* Redemption price per share is equal to net asset value per share less any
applicable contingent deferred sales charge.
** Net asset value and maximum offering price are not shown in thousands.
See Notes to Financial Statements.
5
statements of operations
WM STRATEGIC ASSET MANAGEMENT PORTFOLIOS
For the Six Months Ended April 30, 2004 (unaudited)
(In thousands)
Flexible Conservative Conservative Strategic
Income Balanced Balanced Growth Growth
Portfolio Portfolio Portfolio Portfolio Portfolio
--------- ------------ --------- ------------ ---------
INVESTMENT INCOME:
Dividends from investment company securities $15,670 $6,000 $ 36,241 $ 22,690 $ 9,268
Interest 15 7 324 33 23
------- ------ -------- -------- --------
Total investment income 15,685 6,007 36,565 22,723 9,291
------- ------ -------- -------- --------
EXPENSES:
Investment advisory fee 2,409 1,044 7,803 6,236 3,588
Custodian fees 2 1 1 1 1
Legal and audit fees 21 16 41 39 24
Other 206 119 689 599 409
Shareholder servicing and distribution fees:
Class A Shares 328 157 1,272 991 500
Class B Shares 1,974 661 5,961 4,557 2,745
Class C Shares 419 319 1,542 1,457 826
Transfer agent fees:
Class A Shares 77 41 313 314 238
Class B Shares 136 54 451 407 318
Class C Shares 27 21 100 112 79
------- ------ -------- -------- --------
Total expenses 5,599 2,433 18,173 14,713 8,728
Fees reduced by custodian credits --* --* --* --* --*
------- ------ -------- -------- --------
Net expenses 5,599 2,433 18,173 14,713 8,728
------- ------ -------- -------- --------
NET INVESTMENT INCOME 10,086 3,574 18,392 8,010 563
------- ------ -------- -------- --------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain/(loss) on investment
transactions 3,239 704 (20,125) (30,411) (24,716)
Capital gain distributions received 82 52 619 633 435
Net change in unrealized appreciation/
depreciation of investments 3,554 4,210 94,421 112,328 80,203
------- ------ -------- -------- --------
Net realized and unrealized gain on investments 6,875 4,966 74,915 82,550 55,922
------- ------ -------- -------- --------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $16,961 $8,540 $ 93,307 $ 90,560 $ 56,485
======= ====== ======== ======== ========
<FN>
- --------
* Amount represents less than $500.
See Notes to Financial Statements.
6
statements of changes in net assets
WM STRATEGIC ASSET MANAGEMENT PORTFOLIOS
For the Six Months Ended April 30, 2004 (unaudited)
(In thousands)
Flexible Conservative Conservative Strategic
Income Balanced Balanced Growth Growth
Portfolio Portfolio Portfolio Portfolio Portfolio
--------- ------------ --------- ------------ ---------
Net investment income $ 10,086 $ 3,574 $ 18,392 $ 8,010 $ 563
Net realized gain/(loss) on investment transactions 3,239 704 (20,125) (30,411) (24,716)
Capital gain distributions received 82 52 619 633 435
Net change in unrealized appreciation/depreciation of
investments 3,554 4,210 94,421 112,328 80,203
-------- -------- ---------- ---------- ----------
Net increase in net assets resulting from operations 16,961 8,540 93,307 90,560 56,485
Distributions to shareholders from:
Net investment income:
Class A Shares (4,415) (1,728) (10,028) (3,971) --
Class B Shares (5,088) (1,306) (7,246) (3,187) --
Class C Shares (1,116) (641) (1,971) (1,027) --
Net increase in net assets from Portfolio share
transactions:
Class A Shares 81,474 55,910 399,062 292,409 170,797
Class B Shares 37,329 27,242 156,300 88,640 68,058
Class C Shares 31,367 25,028 127,675 159,546 99,395
-------- -------- ---------- ---------- ----------
Net increase in net assets 156,512 113,045 757,099 622,970 394,735
NET ASSETS:
Beginning of period 664,577 262,031 2,101,424 1,638,369 891,334
-------- -------- ---------- ---------- ----------
End of period $821,089 $375,076 $2,858,523 $2,261,339 $1,286,069
======== ======== ========== ========== ==========
Undistributed net investment income/
(accumulated net investment loss) at end of period $ 1,441 $ 455 $ 962 $ (506) $ (3,536)
======== ======== ========== ========== ==========
For The Year Ended October 31, 2003
Net investment income/(loss) $ 16,979 $ 4,114 $ 23,759 $ 9,132 $ (1,375)
Net realized loss on investment transactions (4,679) (1,915) (23,365) (27,792) (18,516)
Net change in unrealized appreciation/depreciation of
investments 43,834 19,838 258,639 267,163 170,878
-------- -------- ---------- ---------- ----------
Net increase in net assets resulting from operations 56,134 22,037 259,033 248,503 150,987
Distributions to shareholders from:
Net investment income:
Class A Shares (6,392) (1,486) (10,917) (5,264) --
Class B Shares (8,956) (1,756) (11,375) (3,864) --
Class C Shares (1,284) (605) (1,556) (519) --
Net realized gains on investments:
Class A Shares (226) -- -- (1,176) (1,363)
Class B Shares (389) -- -- (2,123) (2,912)
Class C Shares (37) -- -- (182) (240)
Net increase in net assets from Portfolio share
transactions:
Class A Shares 66,490 56,926 284,390 182,874 84,392
Class B Shares 104,021 49,644 200,435 74,140 48,369
Class C Shares 44,830 37,641 159,237 126,407 68,120
-------- -------- ---------- ---------- ----------
Net increase in net assets 254,191 162,401 879,247 618,796 347,353
NET ASSETS:
Beginning of year 410,386 99,630 1,222,177 1,019,573 543,981
-------- -------- ---------- ---------- ----------
End of year $664,577 $262,031 $2,101,424 $1,638,369 $ 891,334
======== ======== ========== ========== ==========
Undistributed net investment income/
(accumulated net investment loss) at end of year $ 1,974 $ 556 $ 1,815 $ (331) $ (4,099)
======== ======== ========== ========== ==========
See Notes to Financial Statements.
7
statements of changes in net assets -- capital stock activity
WM STRATEGIC ASSET MANAGEMENT PORTFOLIOS
(In thousands)
Conservative
Flexible Income Portfolio Balanced Portfolio Balanced Portfolio
------------------------- ------------------------ -------------------------
Six Months Six Months Six Months
Ended Ended Ended
04/30/04 Year Ended 04/30/04 Year Ended 04/30/04 Year Ended
(unaudited) 10/31/03 (unaudited) 10/31/03 (unaudited) 10/31/03
----------- ---------- ----------- ---------- ----------- ----------
AMOUNT
Class A:
Sold $116,450 $132,626 $ 74,924 $ 77,203 $465,301 $ 388,253
Issued as reinvestment of dividends 4,003 6,038 1,603 1,400 9,621 10,557
Redeemed (38,979) (72,174) (20,617) (21,677) (75,860) (114,420)
-------- -------- -------- -------- -------- ---------
Net increase $ 81,474 $ 66,490 $ 55,910 $ 56,926 $399,062 $ 284,390
======== ======== ======== ======== ======== =========
Class B:
Sold $ 84,952 $188,101 $ 42,043 $ 77,595 $238,063 $ 363,002
Issued as reinvestment of dividends 4,578 8,565 1,210 1,659 6,955 11,004
Redeemed (52,201) (92,645) (16,011) (29,610) (88,718) (173,571)
-------- -------- -------- -------- -------- ---------
Net increase $ 37,329 $104,021 $ 27,242 $ 49,644 $156,300 $ 200,435
======== ======== ======== ======== ======== =========
Class C:
Sold $ 41,705 $ 66,013 $ 31,031 $ 48,833 $146,835 $ 178,337
Issued as reinvestment of dividends 982 1,207 592 574 1,862 1,494
Redeemed (11,320) (22,390) (6,595) (11,766) (21,022) (20,594)
-------- -------- -------- -------- -------- ---------
Net increase $ 31,367 $ 44,830 $ 25,028 $ 37,641 $127,675 $ 159,237
======== ======== ======== ======== ======== =========
SHARES
Class A:
Sold 10,394 12,528 7,386 8,237 37,566 35,203
Issued as reinvestment of dividends 359 574 159 150 786 977
Redeemed (3,489) (6,804) (2,032) (2,322) (6,119) (10,622)
-------- -------- -------- -------- -------- ---------
Net increase 7,264 6,298 5,513 6,065 32,233 25,558
======== ======== ======== ======== ======== =========
Class B:
Sold 7,601 17,920 4,151 8,360 19,242 33,351
Issued as reinvestment of dividends 411 816 120 179 571 1,031
Redeemed (4,675) (8,770) (1,581) (3,199) (7,170) (16,183)
-------- -------- -------- -------- -------- ---------
Net increase 3,337 9,966 2,690 5,340 12,643 18,199
======== ======== ======== ======== ======== =========
Class C:
Sold 3,743 6,291 3,078 5,256 11,952 16,269
Issued as reinvestment of dividends 88 115 59 62 153 138
Redeemed (1,017) (2,120) (655) (1,258) (1,707) (1,895)
-------- -------- -------- -------- -------- ---------
Net increase 2,814 4,286 2,482 4,060 10,398 14,512
======== ======== ======== ======== ======== =========
See Notes to Financial Statements.
8
Conservative Growth
Portfolio Strategic Growth Portfolio
------------------------- --------------------------
Six Months Six Months
Ended Ended
04/30/04 Year Ended 04/30/04 Year Ended
(unaudited) 10/31/03 (unaudited) 10/31/03
----------- ---------- ----------- ----------
AMOUNT
Class A:
Sold $341,081 $ 255,874 $199,021 $125,879
Issued as reinvestment of dividends 3,855 6,302 -- 1,345
Redeemed (52,527) (79,302) (28,224) (42,832)
-------- --------- -------- --------
Net increase $292,409 $ 182,874 $170,797 $ 84,392
======== ========= ======== ========
Class B:
Sold $150,308 $ 209,247 $100,750 $109,265
Issued as reinvestment of dividends 3,091 5,859 -- 2,863
Redeemed (64,759) (140,966) (32,692) (63,759)
-------- --------- -------- --------
Net increase $ 88,640 $ 74,140 $ 68,058 $ 48,369
======== ========= ======== ========
Class C:
Sold $175,642 $ 141,969 $108,145 $ 75,726
Issued as reinvestment of dividends 960 678 -- 236
Redeemed (17,056) (16,240) (8,750) (7,842)
-------- --------- -------- --------
Net increase $159,546 $ 126,407 $ 99,395 $ 68,120
======== ========= ======== ========
SHARES
Class A:
Sold 25,905 22,560 14,139 10,682
Issued as reinvestment of dividends 300 581 -- 124
Redeemed (3,995) (7,272) (2,007) (3,815)
-------- --------- -------- --------
Net increase 22,210 15,869 12,132 6,991
======== ========= ======== ========
Class B:
Sold 11,658 19,061 7,427 9,686
Issued as reinvestment of dividends 246 570 -- 271
Redeemed (5,037) (13,258) (2,403) (5,899)
-------- --------- -------- --------
Net increase 6,867 6,373 5,024 4,058
======== ========= ======== ========
Class C:
Sold 13,738 12,791 7,970 6,566
Issued as reinvestment of dividends 77 65 -- 22
Redeemed (1,328) (1,524) (640) (706)
-------- --------- -------- --------
Net increase 12,487 11,332 7,330 5,882
======== ========= ======== ========
See Notes to Financial Statements.
9
financial highlights
For a Portfolio share outstanding throughout each period.
Income from Investment Operations Less Distributions
------------------------------------ ---------------------------------------
Net Realized
Net Asset and Dividends Distributions
Value, Net Unrealized Total from from Net from Net
Beginning Investment Gain/(Loss) Investment Investment Net Realized Total Asset Value,
of Period Income on Investments Operations Income(1) Capital Gains Distributions End of Period
--------- ---------- -------------- ---------- ---------- ------------- ------------- -------------
FLEXIBLE INCOME PORTFOLIO
Class A
04/30/04 (unaudited) $10.92 $0.17 $ 0.16 $ 0.33 $(0.19) $ -- $(0.19) $11.06
10/31/03 10.17 0.38(6) 0.77 1.15 (0.38) (0.02) (0.40) 10.92
10/31/02 10.71 0.45(6) (0.48) (0.03) (0.43) (0.08) (0.51) 10.17
10/31/01 11.06 0.50(6) (0.04) 0.46 (0.61) (0.20) (0.81) 10.71
10/31/00 10.75 0.47(6) 0.42 0.89 (0.55) (0.03) (0.58) 11.06
10/31/99 10.63 0.40(6) 0.57(7) 0.97 (0.48) (0.37) (0.85) 10.75
Class B
04/30/04 (unaudited) 10.90 0.13 0.15 0.28 (0.14) -- (0.14) 11.04
10/31/03 10.15 0.30(6) 0.77 1.07 (0.30) (0.02) (0.32) 10.90
10/31/02 10.71 0.38(6) (0.50) (0.12) (0.36) (0.08) (0.44) 10.15
10/31/01 11.06 0.42(6) (0.04) 0.38 (0.53) (0.20) (0.73) 10.71
10/31/00 10.75 0.39(6) 0.42 0.81 (0.47) (0.03) (0.50) 11.06
10/31/99 10.63 0.33(6) 0.56(7) 0.89 (0.40) (0.37) (0.77) 10.75
Class C
04/30/04 (unaudited) 10.86 0.13 0.16 0.29 (0.15) -- (0.15) 11.00
10/31/03 10.13 0.30(6) 0.76 1.06 (0.31) (0.02) (0.33) 10.86
10/31/02(5) 10.54 0.24(6) (0.43) (0.19) (0.22) -- (0.22) 10.13
CONSERVATIVE BALANCED PORTFOLIO
Class A
04/30/04 (unaudited) $ 9.81 $0.13 $ 0.23 $ 0.36 $(0.14) $ -- $(0.14) $10.03
10/31/03 8.83 0.28(6) 0.97 1.25 (0.27) -- (0.27) 9.81
10/31/02 9.43 0.33 (0.61) (0.28) (0.32) -- (0.32) 8.83
10/31/01 9.96 0.34(6) (0.44) (0.10) (0.43) -- (0.43) 9.43
10/31/00 9.94 0.51(6) 0.02(7) 0.53 (0.50) (0.01) (0.51) 9.96
10/31/99 10.25 0.56 (0.27) 0.29 (0.58) (0.02) (0.60) 9.94
Class B
04/30/04 (unaudited) 9.79 0.09 0.24 0.33 (0.10) -- (0.10) 10.02
10/31/03 8.82 0.21(6) 0.96 1.17 (0.20) -- (0.20) 9.79
10/31/02 9.43 0.27 (0.62) (0.35) (0.26) -- (0.26) 8.82
10/31/01 9.96 0.27(6) (0.44) (0.17) (0.36) -- (0.36) 9.43
10/31/00 9.94 0.44(6) 0.02(7) 0.46 (0.43) (0.01) (0.44) 9.96
10/31/99 10.25 0.50 (0.29) 0.21 (0.50) (0.02) (0.52) 9.94
Class C
04/30/04 (unaudited) 9.76 0.09 0.24 0.33 (0.10) -- (0.10) 9.99
10/31/03 8.80 0.21(6) 0.97 1.18 (0.22) -- (0.22) 9.76
10/31/02(5) 9.39 0.16 (0.60) (0.44) (0.15) -- (0.15) 8.80
See Notes to Financial Statements.
10
Ratio to Average Net Assets/Supplemental Data
------------------------------------------------------------------------------------
Ratio of Operating
Expenses to Average
Net Assets Without Fee
Ratio of Ratio of Waivers, Expenses Reimbursed
Operating Net Investment and/or Fees
Net Assets, Expenses to Income to Portfolio Reduced by Credits
End of Period Average Net Average Net Turnover Allowed by the
Total Return(2) (in 000's) Assets(3) Assets Rate Custodian(3)(4)
--------------- ------------- ----------- -------------- --------- ----------------------------
FLEXIBLE INCOME PORTFOLIO
Class A
04/30/04 (unaudited) 3.00% $307,326 1.02%(8) 3.21%(8) 1% 1.02%(8)
10/31/03 11.49% 224,192 1.04% 3.64% 3% 1.04%
10/31/02 (0.37)% 144,710 1.06% 4.41% 9% 1.06%
10/31/01 3.67% 110,680 1.06% 4.61% 7% 1.06%
10/31/00 8.56% 129,386 1.06% 4.28% 27% 1.06%
10/31/99 9.39% 194,404 1.00% 3.86% 31% 1.06%
Class B
04/30/04 (unaudited) 2.59% 413,215 1.78%(8) 2.45%(8) 1% 1.78%(8)
10/31/03 10.60% 371,639 1.79% 2.89% 3% 1.79%
10/31/02 (1.08)% 244,999 1.81% 3.66% 9% 1.81%
10/31/01 2.92% 146,555 1.79% 3.88% 7% 1.79%
10/31/00 7.76% 77,238 1.80% 3.54% 27% 1.80%
10/31/99 8.60% 46,821 1.75% 3.11% 31% 1.81%
Class C
04/30/04 (unaudited) 2.64% 100,548 1.78%(8) 2.45%(8) 1% 1.78%(8)
10/31/03 10.63% 68,746 1.79% 2.89% 3% 1.79%
10/31/02(5) (1.78)% 20,677 1.81%(8) 3.66%(8) 9% 1.81%(8)
CONSERVATIVE BALANCED PORTFOLIO
Class A
04/30/04 (unaudited) 3.67% $151,462 1.05%(8) 2.69%(8) 2% 1.05%(8)
10/31/03 14.38% 94,005 1.05% 2.99% 4% 1.09%
10/31/02 (3.06)% 31,070 1.05% 3.67% 9% 1.17%
10/31/01 (0.99)% 12,257 1.16% 3.65% 18% 1.30%
10/31/00 5.52% 4,557 1.32% 5.16% 59% 1.32%
10/31/99 2.89% 7,297 1.00% 5.57% 51% 1.24%
Class B
04/30/04 (unaudited) 3.37% 146,383 1.82%(8) 1.92%(8) 2% 1.82%(8)
10/31/03 13.46% 116,742 1.82% 2.22% 4% 1.86%
10/31/02 (3.77)% 58,054 1.80% 2.92% 9% 1.92%
10/31/01 (1.71)% 30,554 1.89% 2.92% 18% 2.03%
10/31/00 4.76% 10,947 2.04% 4.44% 59% 2.04%
10/31/99 2.05% 13,443 1.74% 4.83% 51% 1.98%
Class C
04/30/04 (unaudited) 3.41% 77,231 1.80%(8) 1.94%(8) 2% 1.80%(8)
10/31/03 13.53% 51,284 1.80% 2.24% 4% 1.84%
10/31/02(5) (4.70)% 10,505 1.78%(8) 2.94%(8) 9% 1.90%(8)
See Notes to Financial Statements.
11
financial highlights
For a Portfolio share outstanding throughout each period.
Income from Investment Operations Less Distributions
---------------------------------------- --------------------------------------
Net Realized
Net Asset and Dividends Distributions
Value, Net Unrealized Total from from Net from Net
Beginning Investment Gain/(Loss) Investment Investment Net Realized Total Asset Value,
of Period Income/(Loss) on Investments Operations Income(1) Capital Gains Distributions End of Period
--------- ------------- -------------- ---------- ---------- ------------- ------------- -------------
BALANCED PORTFOLIO
Class A
04/30/04 (unaudited) $11.85 $0.12 $0.45 $0.57 $(0.13) $ -- $(0.13) $12.29
10/31/03 10.24 0.22 1.62 1.84 (0.23) -- (0.23) 11.85
10/31/02 11.63 0.28 (1.08) (0.80) (0.33) (0.26) (0.59) 10.24
10/31/01 13.55 0.33(6) (1.27) (0.94) (0.51) (0.47) (0.98) 11.63
10/31/00 12.22 0.28(6) 1.53 1.81 (0.48) -- (0.48) 13.55
10/31/99 11.02 0.19(6) 2.39 2.58 (0.44) (0.94) (1.38) 12.22
Class B
04/30/04 (unaudited) 11.82 0.07 0.45 0.52 (0.08) -- (0.08) 12.26
10/31/03 10.22 0.14 1.61 1.75 (0.15) -- (0.15) 11.82
10/31/02 11.62 0.20 (1.09) (0.89) (0.25) (0.26) (0.51) 10.22
10/31/01 13.54 0.23(6) (1.27) (1.04) (0.41) (0.47) (0.88) 11.62
10/31/00 12.21 0.18(6) 1.55 1.73 (0.40) -- (0.40) 13.54
10/31/99 11.02 0.11(6) 2.38 2.49 (0.36) (0.94) (1.30) 12.21
Class C
04/30/04 (unaudited) 11.78 0.07 0.44 0.51 (0.08) -- (0.08) 12.21
10/31/03 10.20 0.14 1.60 1.74 (0.16) -- (0.16) 11.78
10/31/02(5) 11.35 0.13 (1.15) (1.02) (0.13) -- (0.13) 10.20
CONSERVATIVE GROWTH PORTFOLIO
Class A
04/30/04 (unaudited) $12.47 $0.09 $0.63 $0.72 $(0.07) $ -- $(0.07) $13.12
10/31/03 10.37 0.14(6) 2.14 2.28 (0.14) (0.04) (0.18) 12.47
10/31/02 12.35 0.16(6) (1.52) (1.36) (0.22) (0.40) (0.62) 10.37
10/31/01 15.52 0.20(6) (2.34) (2.14) (0.58) (0.45) (1.03) 12.35
10/31/00 13.43 0.12(6) 2.40 2.52 (0.43) -- (0.43) 15.52
10/31/99 10.97 0.06(6) 3.70 3.76 (0.42) (0.88) (1.30) 13.43
Class B
04/30/04 (unaudited) 12.18 0.03 0.64 0.67 (0.05) -- (0.05) 12.80
10/31/03 10.14 0.05(6) 2.09 2.14 (0.06) (0.04) (0.10) 12.18
10/31/02 12.10 0.08(6) (1.50) (1.42) (0.14) (0.40) (0.54) 10.14
10/31/01 15.17 0.09(6) (2.28) (2.19) (0.43) (0.45) (0.88) 12.10
10/31/00 13.21 0.00(6)(9) 2.37 2.37 (0.41) -- (0.41) 15.17
10/31/99 10.85 (0.03)(6) 3.61 3.58 (0.34) (0.88) (1.22) 13.21
Class C
04/30/04 (unaudited) 12.13 0.04 0.62 0.66 (0.05) -- (0.05) 12.74
10/31/03 10.10 0.06(6) 2.08 2.14 (0.07) (0.04) (0.11) 12.13
10/31/02(5) 11.79 0.05(6) (1.66) (1.61) (0.08) -- (0.08) 10.10
See Notes to Financial Statements.
12
Ratios to Average Net Assets/Supplemental Data
------------------------------------------------------------------------------------
Ratio of Operating
Expenses to Average
Net Assets Without Fee
Ratio of Ratio of Waivers, Expenses Reimbursed
Operating Net Investment and/or Fees
Net Assets, Expenses to Income/(Loss) Portfolio Reduced by Credits
End of Period Average Net to Average Turnover Allowed by the
Total Return(2) (in 000's) Assets(3) Net Assets Rate Custodian(3)(4)
--------------- ------------- ----------- -------------- --------- ----------------------------
BALANCED PORTFOLIO
Class A
04/30/04 (unaudited) 4.86% $1,218,316 0.99%(8) 1.91%(8) 2% 0.99%(8)
10/31/03 18.07% 792,423 1.02% 2.03% 5% 1.02%
10/31/02 (7.32)% 423,478 1.04% 2.55% 19% 1.04%
10/31/01 (7.28)% 380,681 1.02% 2.63% 6% 1.02%
10/31/00 15.11% 391,655 1.03% 2.05% 22% 1.03%
10/31/99 25.16% 333,639 1.03% 1.66% 39% 1.04%
Class B
04/30/04 (unaudited) 4.37% 1,270,440 1.75%(8) 1.15%(8) 2% 1.75%(8)
10/31/03 17.25% 1,074,925 1.78% 1.27% 5% 1.78%
10/31/02 (8.03)% 743,953 1.80% 1.79% 19% 1.80%
10/31/01 (7.98)% 670,318 1.78% 1.87% 6% 1.78%
10/31/00 14.26% 549,849 1.77% 1.31% 22% 1.77%
10/31/99 24.22% 237,438 1.77% 0.92% 39% 1.78%
Class C
04/30/04 (unaudited) 4.44% 369,767 1.74%(8) 1.16%(8) 2% 1.74%(8)
10/31/03 17.15% 234,076 1.76% 1.29% 5% 1.76%
10/31/02(5) (9.00)% 54,745 1.80%(8) 1.79%(8) 19% 1.80%(8)
CONSERVATIVE GROWTH PORTFOLIO
Class A
04/30/04 (unaudited) 5.89% $939,488 1.02%(8) 1.26%(8) 3% 1.02%(8)
10/31/03 22.12% 615,501 1.05% 1.24% 7% 1.05%
10/31/02 (11.72)% 347,297 1.06% 1.41% 14% 1.06%
10/31/01 (14.31)% 319,583 1.03% 1.45% 5% 1.03%
10/31/00 18.89% 341,685 1.02% 0.76% 17% 1.02%
10/31/99 36.54% 249,650 1.02% 0.48% 16% 1.03%
Class B
04/30/04 (unaudited) 5.48% 957,335 1.78%(8) 0.50%(8) 3% 1.78%(8)
10/31/03 21.24% 827,312 1.81% 0.48% 7% 1.81%
10/31/02 (12.46)% 623,852 1.82% 0.65% 14% 1.82%
10/31/01 (14.93)% 636,145 1.79% 0.69% 5% 1.79%
10/31/00 18.07% 604,460 1.77% 0.01% 17% 1.77%
10/31/99 34.98% 263,911 1.77% (0.27)% 16% 1.78%
Class C
04/30/04 (unaudited) 5.47% 364,516 1.77%(8) 0.51%(8) 3% 1.77%(8)
10/31/03 21.41% 195,556 1.79% 0.50% 7% 1.79%
10/31/02(5) (13.72)% 48,424 1.82%(8) 0.65%(8) 14% 1.82%(8)
See Notes to Financial Statements.
13
financial highlights
For a Portfolio share outstanding throughout each period.
Income from Investment Operations Less Distributions
---------------------------------------- --------------------------------------
Net Realized
Net Asset and Dividends Distributions
Value, Net Unrealized Total from from Net from Net
Beginning Investment Gain/(Loss) Investment Investment Net Realized Total Asset Value,
of Period Income/(Loss) on Investments Operations Income(1) Capital Gains Distributions End of Period
--------- ------------- -------------- ---------- ---------- ------------- ------------- -------------
STRATEGIC GROWTH PORTFOLIO
Class A
04/30/04 (unaudited) $13.16 $0.04(6) $ 0.85 $0.89 $ -- $ -- $ -- $14.05
10/31/03 10.59 0.03(6) 2.63 2.66 -- (0.09) (0.09) 13.16
10/31/02 13.10 0.03(6) (1.92) (1.89) (0.14) (0.48) (0.62) 10.59
10/31/01 17.11 0.05(6) (3.21) (3.16) (0.47) (0.38) (0.85) 13.10
10/31/00 14.61 (0.04)(6) 3.07 3.03 (0.53) -- (0.53) 17.11
10/31/99 11.67 (0.03)(6) 4.36 4.33 (0.41) (0.98) (1.39) 14.61
Class B
04/30/04 (unaudited) 12.73 (0.01)(6) 0.80 0.79 -- -- -- 13.52
10/31/03 10.32 (0.05)(6) 2.55 2.50 -- (0.09) (0.09) 12.73
10/31/02 12.78 (0.06)(6) (1.88) (1.94) (0.04) (0.48) (0.52) 10.32
10/31/01 16.75 (0.06)(6) (3.14) (3.20) (0.39) (0.38) (0.77) 12.78
10/31/00 14.40 (0.16)(6) 3.02 2.86 (0.51) -- (0.51) 16.75
10/31/99 11.52 (0.13)(6) 4.31 4.18 (0.32) (0.98) (1.30) 14.40
Class C
04/30/04 (unaudited) 12.74 (0.01)(6) 0.82 0.81 -- -- -- 13.55
10/31/03 10.32 (0.05)(6) 2.56 2.51 -- (0.09) (0.09) 12.74
10/31/02(5) 12.50 (0.04)(6) (2.14) (2.18) -- -- -- 10.32
<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 and does
not reflect any applicable sales charges. The total return would have been
lower if certain fees had not been waived and/or expenses reimbursed by
the investment advisor or if fees had not been reduced by credits allowed
by the custodian.
(3) The Portfolio also will indirectly bear its prorated share of expenses
of the Underlying Funds.
(4) Ratio of operating expenses to average net assets includes expenses paid
indirectly.
(5) The Portfolios commenced selling Class C shares on March 1, 2002.
(6) Per share numbers have been calculated using the average shares method.
(7) 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.
(8) Annualized.
(9) Amount represents less than $0.01 per share.
See Notes to Financial Statements.
14
Ratios to Average Net Assets/Supplemental Data
------------------------------------------------------------------------------------
Ratio of Operating
Expenses to Average
Net Assets Without Fee
Ratio of Ratio of Waivers, Expenses Reimbursed
Operating Net Investment and/or Fees
Net Assets, Expenses to Income/(Loss) Portfolio Reduced by Credits
End of Period Average Net to Average Turnover Allowed by the
Total Return(2) (in 000's) Assets(3) Net Assets Rate Custodian(3)(4)
--------------- ------------- ----------- -------------- --------- ----------------------------
STRATEGIC GROWTH PORTFOLIO
Class A
04/30/04 (unaudited) 6.69% $489,241 1.09%(8) 0.58%(8) 3% 1.09%(8)
10/31/03 25.24% 298,852 1.13% 0.30% 7% 1.13%
10/31/02 (15.45)% 166,354 1.13% 0.23% 10% 1.13%
10/31/01 (19.03)% 153,857 1.08% 0.34% 2% 1.08%
10/31/00 20.84% 142,241 1.06% (0.21)% 15% 1.06%
10/31/99 39.55% 74,678 1.07% (0.21)% 20% 1.09%
Class B
04/30/04 (unaudited) 6.21% 582,805 1.84%(8) (0.17)%(8) 3% 1.84%(8)
10/31/03 24.35% 484,656 1.88% (0.45)% 7% 1.88%
10/31/02 (16.04)% 350,982 1.87% (0.51)% 10% 1.87%
10/31/01 (19.70)% 384,566 1.84% (0.42)% 2% 1.84%
10/31/00 19.95% 363,910 1.81% (0.96)% 15% 1.81%
10/31/99 38.60% 130,522 1.83% (0.97)% 20% 1.85%
Class C
04/30/04 (unaudited) 6.36% 214,023 1.82%(8) (0.15)%(8) 3% 1.82%(8)
10/31/03 24.44% 107,826 1.84% (0.41)% 7% 1.84%
10/31/02(5) (17.44)% 26,645 1.85%(8) (0.49)%(8) 10% 1.85%(8)
See Notes to Financial Statements.
15
notes to financial statements (unaudited)
WM STRATEGIC ASSET MANAGEMENT PORTFOLIOS
1. Organization and Business
WM Strategic Asset Management Portfolios, LLC (the "LLC") was organized
under the laws of the Commonwealth of Massachusetts on March 12, 1999 as a
limited liability company. The LLC is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as an open-end management
investment company. The LLC offers five portfolios: Flexible Income,
Conservative Balanced, Balanced, Conservative Growth and Strategic Growth
Portfolios (each a "Portfolio" and collectively, the "Portfolios").
The LLC is authorized to issue an unlimited number of shares of beneficial
interest, each without par value. Each Portfolio offers three classes of
shares: Class A shares, Class B shares and Class C shares. Class A shares
are generally subject to an initial sales charge at the time of purchase.
Certain Class A shares purchased without an initial sales charge may be
subject to a contingent deferred sales charge ("CDSC") if redeemed within
eighteen months from the date of purchase. Class B shares are not subject to
an initial sales charge although they are generally subject to a CDSC if
redeemed within five years from the date of purchase. Class C shares are not
subject to an initial sales charge although they are subject to a CDSC if
redeemed within one year from the date of purchase. Prior to January 1,
2004, Class C shares were subject to an initial sales charge at the time of
purchase.
Each of the Portfolios invests, within certain percentage ranges, in Class I
shares of various funds in the WM Group of Funds (collectively, the
"Underlying Funds"). WM Advisors, Inc. (the "Advisor" or "WM Advisors"), a
wholly-owned subsidiary of Washington Mutual, Inc. ("Washington Mutual"), a
publicly owned financial services company, 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
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.
16
notes to financial statements (unaudited) (continued)
WM STRATEGIC ASSET MANAGEMENT PORTFOLIOS
Dividends and distributions to shareholders:
Dividends from net investment income of the Flexible Income, Conservative
Balanced, Balanced and Conservative Growth Portfolios are declared and paid
quarterly. Dividends from any net investment income of the Strategic Growth
Portfolio are declared and paid annually. Distributions of any net capital
gains earned by a Portfolio are distributed no less frequently than annually
at the discretion of the Board of Trustees. Additional distributions of net
investment income and capital gains for each Portfolio may be made at the
discretion of the Board of Trustees in accordance with federal income tax
regulations.
Distributions from income and capital gains are determined in accordance
with income tax regulations, which may differ from generally accepted
accounting principles. These differences are primarily due to differing
treatments of income and gains on various investments held by the
Portfolios, redesignated distributions and differing characterization of
distributions made by each Portfolio.
Federal income taxes:
It is each Portfolio's policy to qualify as a regulated investment company
by complying with the requirements of the Internal Revenue Code of 1986, as
amended, applicable to regulated investment companies and by distributing
substantially all of its earnings to its shareholders. Therefore, no federal
income or excise tax provision is required.
Expenses:
General expenses of the LLC are allocated to all the Portfolios based upon
the relative average net assets of each Portfolio except printing and
postage expenses, which are allocated to all the Portfolios based upon the
relative number of shareholder accounts of each Portfolio. In addition, the
Portfolios will indirectly bear their prorated share of expenses of the
Underlying Funds. Operating expenses directly attributable to a class of
shares are charged to the operations of that class of shares. Expenses of
each Portfolio not directly attributable to the operations of any class of
shares are prorated among the classes to which the expenses relate based on
the relative average net assets of each class of shares.
Use of estimates:
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
3. Investment Advisory and Other Transactions
WM Advisors serves as investment advisor to the LLC. 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 0.65% of each
Portfolio's average daily net assets up to $1 billion, 0.60% of the next $2
billion of each Portfolio's average daily net assets and 0.55% of each
Portfolio's average daily net assets over $3 billion.
WM Shareholder Services, Inc. (the "Transfer Agent"), a wholly-owned
subsidiary of Washington Mutual, serves as the transfer agent of the
Portfolios. Fees were paid to the Transfer Agent for services related to the
issuance and transfer of shares, maintaining shareholder lists, and issuing
and mailing distributions and reports. The authorized annual shareholder
servicing fee is $20.40 for Class A, Class B and Class C shareholder
accounts, with the exception of the Flexible Income Portfolio, for which the
fee is $21.15. Prior to December 1, 2003, the authorized annual shareholder
servicing fee was $19.68 for Class A, Class B and Class C shareholder
accounts, with the exception of the Flexible Income Portfolio, for which the
fee was $20.21.
Custodian fees for certain Portfolios have been reduced by credits allowed
by the Portfolio's custodian for uninvested cash balances. The Portfolios
could have invested this cash in income producing investments. Fees reduced
by credits allowed by the custodian for the six months ended April 30, 2004,
are shown separately in the "Statements of Operations".
17
notes to financial statements (unaudited) (continued)
WM STRATEGIC ASSET MANAGEMENT PORTFOLIOS
4. Trustees' Fees
No officer or employee of Washington Mutual or its subsidiaries receives any
compensation from the LLC for serving as an officer or Trustee of the LLC.
The LLC, together with other mutual funds advised by 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 LLC.
Trustees are also reimbursed for travel and out-of-pocket expenses. Each
Trustee serves in the same capacity for all 41 funds within the WM Group of
Funds.
5. Distribution Plans
WM Funds Distributor, Inc. (the "Distributor"), a registered broker-dealer
and a wholly-owned subsidiary of Washington Mutual, serves as distributor
for Class A, Class B and Class C shares of the Portfolios. For the six
months ended April 30, 2004, the Distributor has received $4,085,185
representing commissions (front end sales charges) on Class A and Class C
shares and $2,817,394 representing CDSCs on Class A, Class B and Class C
shares.
Each of the Portfolios has adopted three distribution plans, pursuant to
Rule 12b-1 under the 1940 Act, applicable to Class A, Class B and Class C
shares of the Portfolio (each, a "Rule 12b-1 Plan"), respectively. Under the
applicable Rule 12b-1 Plans, the Distributor may receive a service fee at an
annual rate of 0.25% of the average daily net assets of each class. In
addition, the Distributor is paid a fee as compensation in connection with
the offering and sale of Class B and Class C shares at an annual rate of
0.75% of the average daily net assets of each class. These fees may be used
to cover the expenses of the Distributor primarily intended to result in the
sale of such shares, including payments to the Distributor's representatives
or others for selling shares. The service fee is paid by the Portfolio to
the Distributor, which in turn, pays service fees to broker/dealers that
provide services, such as accepting telephone inquiries and transaction
requests and processing correspondence, new account applications and
subsequent purchases for the shareholders. Under their terms, each Rule
12b-1 plan shall remain in effect from year to year, provided such
continuance is approved annually by vote of the Board of Trustees, including
a majority of those Trustees who are not "interested persons" of the LLC, as
defined in the 1940 Act, and who have no direct or indirect financial
interest in the operation of such distribution plans, or any agreements
related to such plans, respectively.
6. Purchases and Sales of Investments
The aggregate cost of purchases and proceeds from sales of Underlying Funds
for the six months ended April 30, 2004, are as follows:
Purchases Sales
Name of Portfolio (000s) (000s)
----------------- --------- --------
Flexible Income Portfolio $161,410 $ 10,855
Conservative Balanced Portfolio 111,032 4,830
Balanced Portfolio 730,971 52,861
Conservative Growth Portfolio 598,092 56,282
Strategic Growth Portfolio 377,598 37,500
7. Unrealized Appreciation/(Depreciation)
At April 30, 2004, the aggregate gross unrealized appreciation/(depreciation)
on a tax basis are as follows:
(In thousands)
------------------------------------------------------------
Flexible Conservative Conservative Strategic
Income Balanced Balanced Growth Growth
Portfolio Portfolio Portfolio Portfolio Portfolio
--------- ------------ --------- ------------ ---------
Tax basis unrealized appreciation $36,353 $20,806 $189,766 $155,588 $ 82,592
Tax basis unrealized depreciation (3,883) (2,265) (5,069) (8,792) (26,353)
------- ------- -------- -------- --------
Net tax basis unrealized appreciation $32,470 $18,541 $184,697 $146,796 $ 56,239
======= ======= ======== ======== ========
18
notes to financial statements (unaudited) (continued)
WM STRATEGIC ASSET MANAGEMENT PORTFOLIOS
8. 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. In addition, 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 the conditions affecting issuers of lower rated securities.
The officers and Trustees, the Advisor, the Distributor and Transfer Agent
of the Portfolios serve in the same capacity for the Underlying Funds.
Conflicts may arise as these persons and companies seek to fulfill their
fiduciary responsibilities to both the Portfolios and the Underlying Funds.
From time to time, one or more of the Underlying Funds used for investment
by a Portfolio may experience relatively large investments or redemptions
due to reallocations or rebalancings by the Portfolios. 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.
9. Proxy Voting Information
A description of the policies and procedures that the LLC uses to determine
how to vote proxies relating to portfolio securities held by the Portfolio
is available, without charge and upon request, by calling 1-800-222-5852.
This information is also available from the EDGAR database or the Securities
and Exchange Commission's internet site at http://www.sec.gov.
19
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Before investing, you should carefully consider a
fund's investment objectives, risks, charges, and
expenses. Contact your Investment Representative
or call 800-222-5852 to obtain a prospectus
containing this and other information. Read the
prospectus carefully before investing.
This Semi-Annual Report is published for the general information
of the shareholders of the WM Group of Funds. It is authorized
for distribution to prospective investors only when preceded or
accompanied by a current WM Group of Funds prospectus. A
mutual fund's share price and investment return will vary with
market conditions, and the principal value of an investment when
you sell your shares may be more or less than the original cost.
The WM Group of Funds are not insured by the FDIC. 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
- ----------------------------------------------------------------------------
[logo]WM P R S R T S T D
GROUPofFUNDS U.S. POSTAGE
PAID
P.O. Box 9757 N. READING, MA
Providence, RI 02940-9757 PERMIT #105
[logo]Printed on recycled paper
WMSAMSAR (6/29/04)
Item 2. Code of Ethics.
Not applicable for this filing.
Item 3. Audit Committee Financial Expert.
Not applicable for this filing.
Item 4. Principal Accountant Fees and Services.
Not applicable for this filing.
Item 5. Audit Committee of Listed Registrants
Not applicable for this filing.
Item 6. Schedule of Investments.
Not applicable.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable.
Item 8. Purchases of Equity Securities by Closed-End Management
Investment Company and Affiliated Purchasers.
Not applicable.
Item 9. Submission of Matters to a Vote of Security Holders.
None.
Item 10. 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 last
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 Strategic Asset Management Portfolios, LLC
By: /s/ William G. Papesh
---------------------
William G. Papesh
President and Chief Executive Officer
July 2, 2004
SIGNATURES
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.
WM Strategic Asset Management Portfolios, LLC
By: /s/ Jeffery L. Lunzer
---------------------
Jeffery L. Lunzer
Treasurer and Chief Financial Officer
July 2, 2004
By: /s/ William G. Papesh
---------------------
William G. Papesh
President and Chief Executive Officer
July 2, 2004