<PAGE> 1
As filed with the Securities and Exchange Commission on October 30, 1998
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Securities Act of 1933 File #333-01999
Investment Company Act of 1940 File #811-07577
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No.
Post-Effective Amendment No. 5
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 7
WM Strategic Asset Management Portfolios
(Exact name of Registrant as specified in Charter)
1201 Third Avenue, Suite 1400, Seattle, WA 98101
(Address of principal executive offices)
Registrant's telephone number, including area code (206) 461-3800
John T. West
1201 Third Avenue, Suite 1400, Seattle, WA 98101
(Name and address of agent for service)
Copies to:
Lawrence R. Small, Esq. Joseph B. Kittredge, Esq.
Paine, Hamblen, Coffin, Ropes & Gray
Brooke & Miller One International Place
717 West Sprague Avenue, Suite l200 Boston, MA 02110
Spokane, WA 99201-3505
It is proposed that this filing will become effective:
____ immediately upon filing pursuant to paragraph (b) of Rule 485
X on November 1, 1998 pursuant to paragraph (b) of Rule 485
----
____ 60 days after filing pursuant to paragraph (a)(i) of Rule 485
____ 75 days after filing pursuant to paragraph (a)(ii) of Rule 485
____ on (date) pursuant to paragraph (a)(ii) of Rule 485
____ this post-effective amendment designated a new effective date for
a previously filed post-effective amendment.
<PAGE> 2
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[LOGO]WM
GROUPofFUNDS
PROSPECTUS
NOVEMBER 1, 1998
MONEY FUNDS
FIXED-INCOME FUNDS
MUNICIPAL FUNDS
EQUITY FUNDS
STRATEGIC ASSET MANAGEMENT
PORTFOLIOS
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[BACKGROUND IMAGE OF CLOCKS]
<PAGE> 3
THE WM GROUP OF FUNDS
Prospectus
NOVEMBER 1, 1998
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Money Funds
+ Money Market Fund
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+ Tax-Exempt Money Market Fund
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+ California Money Fund
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Fixed-Income Funds
+ Short Term High Quality Bond Fund
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+ Target Maturity 2002 Fund
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+ U.S. Government Securities Fund
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+ Income Fund
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+ High Yield Fund
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Municipal Funds
+ Tax-Exempt Bond Fund
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+ California Municipal Fund
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+ California Insured Intermediate Municipal Fund
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+ Florida Insured Municipal Fund
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Equity Funds
+ Bond & Stock Fund
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+ Growth & Income Fund
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+ Northwest Fund
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+ Growth Fund
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+ Emerging Growth Fund
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+ International Growth Fund
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Strategic Asset Management Portfolios
+ Strategic Growth Portfolio
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+ Conservative Growth Portfolio
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+ Balanced Portfolio
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+ Flexible Income Portfolio
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+ Income Portfolio
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- --------------------------------------------------------------------------------
This Prospectus describes the Class A and Class B shares of the WM Group of
Funds listed above (each a "Fund" or a "Portfolio") (except for the Target
Maturity 2002 Fund, which offers only Class A shares). Class A and Class B
shares offer investors alternative ways of paying sales charges and distribution
costs.
All of the Funds are series of either WM Trust I or WM Trust II and all of the
Portfolios are series of WM Strategic Asset Management Portfolios, collectively
known as the "Trusts."
Please read this Prospectus before investing, and keep it for future reference.
It contains useful information that can help you decide whether the investment
goals of the Funds and Portfolios are right for you. A Statement of Additional
Information (the "SAI") about the Funds and Portfolios, dated November 1, 1998,
has been filed with the Securities and Exchange Commission (the "SEC") and is
incorporated herein by reference. The SAI is available free upon request by
calling the Trusts at 800-222-5852.
The Income, Tax-Exempt Bond, Bond & Stock, Growth & Income, Growth and Emerging
Growth Funds may each invest up to 35% of their total assets in lower-rated
(non-investment grade) bonds, sometimes referred to as "junk bonds." The High
Yield Fund may invest entirely in lower-rated bonds and will generally invest at
least 65% of its assets in such bonds. Bonds of this type are considered to be
speculative with regard to the payment of interest and return of principal.
Purchasers should carefully assess the risks associated with an investment in
these Funds. See "Common Investment Practices - Lower-Rated Securities."
Investments in the Funds and the Portfolios are not guaranteed or insured by the
U.S. Government. There is no assurance that the Money Market, Tax-Exempt Money
Market or California Money Funds will be able to maintain a stable net asset
value of $1.00 per share. The California Money Fund may invest a significant
percentage of its assets in a single issuer, and investing in that Fund may be
riskier than investing in other types of money market funds.
SHARES OF THE FUNDS AND PORTFOLIOS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT INSURED BY THE
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY AND INVOLVE RISK, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 4
THE WM GROUP OF FUNDS
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CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Schedule of Fees 4
The Funds' and Portfolios' Investments and Risk
Considerations 7
Money Funds 7
Fixed-Income Funds 8
Municipal Funds 10
Equity Funds 12
Strategic Asset Management Portfolios 14
Common Investment Practices 15
Performance Information 25
Ways to Set Up Your Account 27
How to Invest in the Funds and Portfolios 28
Buying Class A Shares 30
Buying Class B Shares 31
Distribution of Income and Capital Gains 33
How to Sell Shares 33
Exchange Privilege and Restrictions 34
Dividends, Capital Gains and Taxes 35
Organization 37
Financial Highlights 41
Appendix A: Description of Moody's Investors
Service, Inc. Bond Ratings 63
</TABLE>
<PAGE> 5
THE WM GROUP OF FUNDS
1201 Third Avenue + Suite 1400 + Seattle, Washington 98101 + Toll Free
(800)222-5852
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The following Funds and Portfolios are managed by WM Advisors, Inc. (the
"Advisor") and provide a diversified selection of investment objectives and
strategies:
MONEY FUNDS
+ Money Market Fund -- seeks to provide maximum current income, while preserving
capital and maintaining liquidity. Investments are in high-quality money
market instruments.
+ Tax-Exempt Money Market Fund -- seeks to provide maximum current income that
is exempt from federal income tax, while preserving capital and maintaining
liquidity. Its primary investments are high-quality, short-term fixed income
Municipal Obligations. "Municipal Obligations" are obligations issued by
states, counties, cities or other governmental bodies that generate income
exempt from federal income tax.
+ California Money Fund -- seeks to maximize current income that is exempt from
federal income tax and from California State personal income taxation,
consistent with safety of principal and maintenance of liquidity. The Fund
invests primarily in high-quality, short-term municipal obligations that are
exempt from California State personal income tax.
FIXED-INCOME FUNDS
+ Short Term High Quality Bond Fund -- seeks to provide as high a level of
current income as is consistent with prudent investment management and
stability of principal. The Fund invests primarily in high grade short-term
bonds and other fixed-income securities.
+ Target Maturity 2002 Fund -- seeks to provide as high a level of return by
December 31, 2002 as is consistent with preservation of capital at the end of
the target maturity year and, thereafter, current income consistent with the
creditworthiness of U.S. Treasury securities.
+ U.S. Government Securities Fund -- seeks to provide a high level of current
income, consistent with safety and liquidity. The Fund invests primarily in
securities of the U.S. Government and its agencies, including mortgage-backed
securities.
+ Income Fund -- seeks to provide a high level of current income that is
consistent with protection of shareholders' capital. It pursues this objective
through investment in a diversified pool of debt securities.
+ High Yield Fund -- seeks to provide investors with high current income by
investing primarily in high-yielding, lower-rated fixed-income securities.
Under normal market conditions the Fund will invest at least 65% of its assets
in a diversified portfolio of such securities.
1
<PAGE> 6
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MUNICIPAL FUNDS
+ Tax-Exempt Bond Fund -- seeks to provide a high level of income that is exempt
from federal taxes and to protect investors' capital. The Fund invests
primarily in Municipal Obligations. Subject to shareholder approval, it is
expected that Van Kampen Management Inc. ("Van Kampen") will serve as
sub-advisor to this fund beginning January 1, 1999.
+ California Municipal Fund -- seeks to provide investors with as high a level
of current income exempt from federal and California State income tax as is
consistent with prudent investment management and preservation of capital. The
Fund invests at least 80% of its assets in intermediate and long-term
California municipal obligations. Van Kampen serves as sub-advisor to this
Fund.
+ California Insured Intermediate Municipal Fund -- seeks to provide investors
with as high a level of current income exempt from federal and California
State income tax as is consistent with prudent investment management and
preservation of capital. The Fund invests primarily in intermediate-term
California municipal obligations that are "insured obligations" and offer
potential for a high level of current income. Van Kampen serves as sub-advisor
to this Fund.
+ Florida Insured Municipal Fund -- seeks as high a level of current income
exempt from federal income tax as is consistent with prudent investment
management and preservation of capital, and seeks to offer shares the value of
which is exempt from Florida intangible personal property tax. The Fund
invests at least 80% of its assets in intermediate and long-term Florida
municipal obligations that are "insured obligations." Van Kampen serves as
sub-advisor to this Fund.
EQUITY FUNDS
+ Bond & Stock Fund -- established in 1939, seeks to provide continuity of
income, conservation of principal and long-term growth of income and
principal. The Fund invests primarily in common stocks, preferred stocks,
bonds and convertible securities.
+ Growth & Income Fund -- established in 1949, seeks long-term capital growth,
with current income as a secondary consideration. The Fund invests primarily
in common stocks. The Fund may also invest in fixed-income obligations and
other securities.
+ Northwest Fund -- seeks long-term growth of capital by investing primarily in
common stocks of companies located or doing business in the Northwest states
of Alaska, Idaho, Montana, Oregon and Washington.
+ Growth Fund -- seeks long-term capital appreciation. The Fund invests
primarily in common stocks that offer potential for growth. Janus Capital
Corporation ("Janus") serves as sub-advisor to this Fund.
+ Emerging Growth Fund -- seeks long-term capital appreciation by investing
primarily in equity securities. The Fund invests primarily in common stocks of
small companies that are expected to achieve accelerated growth in earnings on
revenues and/or are believed to be undervalued in the market.
+ International Growth Fund -- seeks long-term capital appreciation by investing
primarily in equity securities of foreign issuers. Warburg Pincus Asset
Management, Inc. ("Warburg Pincus") serves as sub-advisor to this Fund.
2
<PAGE> 7
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STRATEGIC ASSET MANAGEMENT
PORTFOLIOS
Each of the Portfolios seeks to achieve its objective by investing in certain of
the Funds.
+ Strategic Growth Portfolio (formerly Capital Growth Portfolio) -- seeks to
provide long-term capital appreciation. In general, relative to the other
Portfolios, the Strategic Growth Portfolio should offer investors the
potential for a higher level of capital growth while exposing investors to
corresponding levels of principal risk.
+ Conservative Growth Portfolio (formerly Growth Portfolio) -- seeks to provide
long-term capital appreciation. In general, relative to the other Portfolios,
the Conservative Growth Portfolio should offer investors the potential for a
low level of income and the potential for a medium to high level of capital
growth while exposing investors to a medium level of principal risk.
+ Balanced Portfolio -- seeks total return consisting of a combination of
reinvested income and capital appreciation, consistent with reasonable risk,
through limited participation in domestic and international fixed-income and
equity markets. In general, relative to the other Portfolios, the Balanced
Portfolio should offer investors the potential for a medium level of income
and the potential for a medium level of capital growth while exposing
investors to a medium level of principal risk.
+ Flexible Income Portfolio (formerly Value Portfolio) -- seeks total return
consisting of reinvestment of income with some capital appreciation, primarily
through investments in domestic and international fixed-income markets with
limited participation in domestic and international equity markets. In
general, relative to the other Portfolios, the Flexible Income Portfolio
should offer investors the potential for a medium to high level of
reinvestment income and the potential for a low to medium level of capital
growth, while exposing investors to a low to medium level of principal risk.
+ Income Portfolio -- seeks long-term total return through reinvestment of
current income consistent with preservation of capital, primarily through
participation in the domestic fixed income markets with limited participation
in international fixed-income markets. In general, relative to the other
Portfolios, the Income Portfolio should offer investors the potential for a
high level of income while maintaining principal and exposing investors to a
low level of principal risk.
3
<PAGE> 8
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SCHEDULE OF FEES
The table below shows the Funds' costs and expenses that an investor will bear
directly or indirectly and how they affect share ownership. Except as noted and
except for the High Yield Fund, expenses shown below are based upon the most
recent fiscal year. Expenses shown below for the High Yield Fund are estimates
for the Fund's first full fiscal year. For further information on costs and
expenses, please see "Organization."
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
SHAREHOLDER CLASS A CLASS B
TRANSACTION EXPENSES SHARES (in %) SHARES (in %)
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Maximum initial sales charge imposed on purchases (as a
percentage of offering price at time of purchase)
Equity Funds and Strategic Growth, Conservative Growth and
Balanced Portfolios 5.50 0.00
----------------------------------------------------------------------------------------------------
Fixed-Income Funds, Municipal Funds and Flexible Income and
Income Portfolios 4.50(1) 0.00
----------------------------------------------------------------------------------------------------
Money Funds 0.00(2) 0.00
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Maximum sales charge imposed on reinvested dividends 0.00 0.00
----------------------------------------------------------------------------------------------------
Maximum contingent deferred sales charge ("CDSC") (as a
percentage of original purchase price or redemption proceeds,
as applicable)(5) 0.00(3) 5.00(4)
----------------------------------------------------------------------------------------------------
Exchange Fee 0.00(2) 0.00
----------------------------------------------------------------------------------------------------
(1) 3.50% for Short Term High Quality Bond Fund and 2.00% for Target Maturity 2002 Fund.
(2) Regular sales charges apply when Class A shares of a Money Market Fund (on which no sales
charge was paid at time of purchase) are exchanged for shares of any other Fund.
(3) Certain investors who purchase Class A shares without paying an initial sales charge may
be subject to a CDSC of 1.00% on redemptions within the first year or 0.50% on redemptions
within the second year after purchase. Class A shares are not otherwise subject to a CDSC.
(4) The maximum CDSC is imposed on shares redeemed in the first year. For shares held longer
than one year, the CDSC declines according to the schedules set forth under "Buying Class B
Shares -- Contingent deferred sales charge" in this Prospectus. The maximum CDSC for Class
B shares of the Short Term High Quality Bond Fund is 4.00%.
(5) A $10 fee may be charged for redemptions made by wire transfer.
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE> 9
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
ANNUAL FUND
OPERATING EXPENSES
(As a percentage of
CLASS A SHARES Average net assets)
----------------------------------------------------------------------------------------------
Total Fund
Management 12b-1 Other Operating
Fees(1) Fees(2) Expenses(1) Expenses(1)
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Money Market Fund 0.45% 0.00%(7) 0.28%(5) 0.73%(6)
----------------------------------------------------------------------------------------------
Tax-Exempt Money Market Fund 0.31(3) 0.00(7) 0.26 0.57(6)
----------------------------------------------------------------------------------------------
California Money Fund 0.31(3) 0.00(7) 0.54 0.85(6)
----------------------------------------------------------------------------------------------
Short Term High Quality Bond Fund 0.00(3) 0.25 0.57 0.82(6)
----------------------------------------------------------------------------------------------
Target Maturity 2002 Fund 0.00(3) 0.25 0.75(5) 1.00(6)
----------------------------------------------------------------------------------------------
U.S. Government Securities Fund 0.50(3) 0.25(4) 0.17 0.92(6)
----------------------------------------------------------------------------------------------
Income Fund 0.63 0.25(4) 0.20 1.08
----------------------------------------------------------------------------------------------
High Yield Fund 0.00(3) 0.25 1.11 1.36(6)
----------------------------------------------------------------------------------------------
Tax-Exempt Bond Fund 0.50 0.25(4) 0.10 0.85
----------------------------------------------------------------------------------------------
California Municipal Fund 0.39(3) 0.25 0.24 0.88(6)
----------------------------------------------------------------------------------------------
California Insured Intermediate
Municipal Fund 0.43(3) 0.25 0.30 0.98(6)
----------------------------------------------------------------------------------------------
Florida Insured Municipal Fund 0.25(3) 0.25 0.50 1.00(6)
----------------------------------------------------------------------------------------------
Bond & Stock Fund 0.60 0.25(4) 0.15 1.00
----------------------------------------------------------------------------------------------
Growth & Income Fund 0.57(3) 0.25(4) 0.19 1.01(6)
----------------------------------------------------------------------------------------------
Northwest Fund 0.63 0.25 0.23 1.11
----------------------------------------------------------------------------------------------
Growth Fund 0.70(3) 0.25 0.35 1.30(6)
----------------------------------------------------------------------------------------------
Emerging Growth Fund 0.85(3) 0.25 0.37 1.47(6)
----------------------------------------------------------------------------------------------
International Growth Fund 1.02 0.25 0.40 1.67
----------------------------------------------------------------------------------------------
Strategic Growth Portfolio(8) 0.15 0.25 0.68 1.08
----------------------------------------------------------------------------------------------
Conservative Growth Portfolio(8) 0.15 0.25 0.60 1.00
----------------------------------------------------------------------------------------------
Balanced Portfolio(8) 0.15 0.25 0.60 1.00
----------------------------------------------------------------------------------------------
Flexible Income Portfolio(8) 0.15 0.25 0.60(5) 1.00(6)
----------------------------------------------------------------------------------------------
Income Portfolio(8) 0.15 0.25 0.60(5) 1.00(6)
----------------------------------------------------------------------------------------------
<CAPTION>
- --- -----------------------------------------------------
EXAMPLES: You would pay the following
expenses on a $1,000 investment assuming a
5% annual return and redemption at the
end of each period:
-------------------------------------------------
One Three Five Ten
Year Years Years Years
-------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 7 $ 23 $ 41 $ 91
-----------------------------------------------------
6 18 32 71
-------------------------------------------------------------
9 27 47 105
---------------------------------------------------------------------
43 60 79 133
-----------------------------------------------------------------------------
31 51 75 140
-------------------------------------------------------------------------------------
54 73 94 153
---------------------------------------------------------------------------------------------
56 78 102 171
----------------------------------------------------------------------------------------------
58 86 n/a(9) n/a(9)
----------------------------------------------------------------------------------------------
53 71 90 145
----------------------------------------------------------------------------------------------
54 72 92 149
----------------------------------------------------------------------------------------------
55 75 97 160
----------------------------------------------------------------------------------------------
55 75 98 162
----------------------------------------------------------------------------------------------
65 85 108 171
----------------------------------------------------------------------------------------------
65 85 108 172
----------------------------------------------------------------------------------------------
66 88 113 183
----------------------------------------------------------------------------------------------
68 94 123 203
----------------------------------------------------------------------------------------------
69 99 131 221
----------------------------------------------------------------------------------------------
71 105 141 242
----------------------------------------------------------------------------------------------
65 87 112 179
----------------------------------------------------------------------------------------------
65 85 108 171
----------------------------------------------------------------------------------------------
65 85 108 171
----------------------------------------------------------------------------------------------
55 75 98 162
----------------------------------------------------------------------------------------------
55 75 98 162
----------------------------------------------------------------------------------------------
</TABLE>
(1) After voluntary waiver/reimbursement where indicated.
(2) 12b-1 fees represent servicing fees which are paid to the Distributor.
See "Organization - Distributor."
(3) The Advisor has voluntarily undertaken to waive a portion of its
management fee through at least October 31, 1999. Absent such waiver,
management fees would have been as follows: Tax-Exempt Money
Market - 0.45%; California Money - 0.45%; Short Term High Quality
Bond - 0.50%; Target Maturity 2002 - 0.25%; U.S. Government
Securities - 0.63%; High Yield - 0.63%; California Municipal - 0.70%;
California Insured Intermediate Municipal - 0.70%; Florida Insured
Municipal - 0.70%; Growth & Income - 0.61%; Growth - 1.06%; Emerging
Growth - 1.04%.
(4) Restated to reflect the maximum fee payable under the Fund's Class A
Distribution Plan.
(5) The Advisor and/or the administrator has voluntarily undertaken to
reimburse certain expenses. Absent such voluntary reimbursement, "other
expenses" would have been: Money Market - 0.38%; Target Maturity
2002 - 2.13%; Flexible Income Portfolio - 0.83%; Income
Portfolio - 0.85%.
(6) Total fund operating expenses above are restated to reflect the effect
of voluntary expense waivers/reimbursements through October 31, 1999.
Absent such voluntary waivers/reimbursements, total fund operating
expenses would have been as follows: Money Market - 0.83%; Tax-Exempt
Money Market - 0.71%; California Money - 0.99%; Short Term High Quality
Bond - 1.32%; Target Maturity 2002 - 2.63%; U.S. Government
Securities - 1.05%; High Yield - 1.99%; California Municipal - 1.19%;
California Insured Intermediate Municipal - 1.25%; Florida Insured
Municipal - 1.45%; Growth & Income - 1.05%; Growth - 1.66%; Emerging
Growth - 1.66%; Flexible Income Portfolio - 1.23%; Income
Portfolio - 1.25%.
(7) The applicable Rule 12b-1 distribution plan provides for payments of up
to 0.25%. However, the Board of Trustees has not currently authorized
any payments under such plan.
(8) Does not include underlying Fund expenses that the Portfolios bear
indirectly.
(9) Because the High Yield Fund has not completed its first full fiscal
year, the expenses for the 5-year and 10-year periods are not
applicable.
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5
<PAGE> 10
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
ANNUAL FUND
OPERATING EXPENSES
(As a percentage of
CLASS B SHARES Average net assets)
-----------------------------------------------------------------------------------------
Total Fund
Management 12b-1 Other Operating
Fees(1) Fees(1,2) Expenses(1) Expenses(1)
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Money Market Fund 0.45% 1.00% 0.14%(7) 1.59%(8)
-----------------------------------------------------------------------------------------
Tax-Exempt Money Market Fund 0.31(4) 1.00 0.19(7) 1.50(8)
-----------------------------------------------------------------------------------------
California Money Fund 0.31(4) 1.00 0.37 1.68(8)
-----------------------------------------------------------------------------------------
Short Term High Quality Bond Fund 0.00(4) 1.00 0.57 1.57(8)
-----------------------------------------------------------------------------------------
U.S. Government Securities Fund 0.50(4) 1.00(5) 0.21 1.71(8)
-----------------------------------------------------------------------------------------
Income Fund 0.63 0.97(5,6) 0.23 1.83(8)
-----------------------------------------------------------------------------------------
High Yield Fund 0.00(4) 1.00 1.14 2.14
-----------------------------------------------------------------------------------------
Tax-Exempt Bond Fund 0.50 1.00(5) 0.12 1.62
-----------------------------------------------------------------------------------------
California Municipal Fund 0.39(4) 1.00 0.25 1.64(8)
-----------------------------------------------------------------------------------------
California Insured Intermediate
Municipal Fund 0.43(4) 1.00 0.31 1.74(8)
-----------------------------------------------------------------------------------------
Florida Insured Municipal Fund 0.25(4) 1.00 0.51 1.76(8)
-----------------------------------------------------------------------------------------
Bond & Stock Fund 0.60 1.00 0.19 1.79
-----------------------------------------------------------------------------------------
Growth & Income Fund 0.57(4) 0.92(5,6) 0.27 1.76(8)
-----------------------------------------------------------------------------------------
Northwest Fund 0.63 1.00 0.28 1.91
-----------------------------------------------------------------------------------------
Growth Fund 0.70(4) 0.95(6) 0.40 2.05(8)
-----------------------------------------------------------------------------------------
Emerging Growth Fund 0.85(4) 1.00 0.43 2.28(8)
-----------------------------------------------------------------------------------------
International Growth Fund 1.02 1.00 0.51 2.53
-----------------------------------------------------------------------------------------
Strategic Growth Portfolio(9) 0.15 1.00 0.68 1.83
-----------------------------------------------------------------------------------------
Conservative Growth Portfolio(9) 0.15 1.00 0.60 1.75
-----------------------------------------------------------------------------------------
Balanced Portfolio(9) 0.15 1.00 0.60 1.75
-----------------------------------------------------------------------------------------
Flexible Income Portfolio(9) 0.15 1.00 0.60(7) 1.75(8)
-----------------------------------------------------------------------------------------
Income Portfolio(9) 0.15 1.00 0.60(7) 1.75(8)
-----------------------------------------------------------------------------------------
<CAPTION>
- --- ---------------------------------------------------------------------------
EXAMPLES: You would pay the following
expenses on a $1,000 investment assuming
a 5% annual return and either
1) redemption at the end of each period or
2) no redemption:
-----------------------------------------------------------------------
(1) (2)
One Three Five Ten One Three Five Ten
Year Years Years Years(3) Year Years Years Years(3)
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$66 $ 80 $ 97 $166 $16 $50 $ 87 $166
-------------------------------------------------------------------------------
65 77 92 154 15 47 82 154
---------------------------------------------------------------------------------------
67 83 102 176 17 53 92 176
-----------------------------------------------------------------------------------------
56 70 86 166 16 50 86 166
-----------------------------------------------------------------------------------------
67 84 103 181 17 54 93 181
-----------------------------------------------------------------------------------------
69 88 110 195 19 58 100 195
-----------------------------------------------------------------------------------------
72 97 n/a(10) n/a(10) 22 67 n/a(10) n/a(10)
-----------------------------------------------------------------------------------------
66 81 99 171 16 51 89 171
-----------------------------------------------------------------------------------------
67 82 100 174 17 52 90 174
-----------------------------------------------------------------------------------------
68 85 105 183 18 55 95 183
-----------------------------------------------------------------------------------------
68 85 106 187 18 55 96 187
-----------------------------------------------------------------------------------------
68 86 108 190 18 56 98 190
-----------------------------------------------------------------------------------------
68 85 106 187 18 35 96 187
-----------------------------------------------------------------------------------------
69 90 114 202 19 60 104 202
-----------------------------------------------------------------------------------------
71 94 121 218 21 64 111 218
-----------------------------------------------------------------------------------------
73 101 133 241 23 71 123 241
-----------------------------------------------------------------------------------------
76 109 145 265 26 79 135 265
-----------------------------------------------------------------------------------------
69 88 110 195 19 58 100 195
-----------------------------------------------------------------------------------------
68 85 105 186 18 55 95 186
-----------------------------------------------------------------------------------------
68 85 105 186 18 55 95 186
-----------------------------------------------------------------------------------------
68 85 105 186 18 55 95 186
-----------------------------------------------------------------------------------------
68 85 105 186 18 55 95 186
-----------------------------------------------------------------------------------------
</TABLE>
(1) After voluntary waiver/reimbursement where indicated.
(2) 0.25% of the 12b-1 fees shown represent servicing fees which are paid to
the Distributor. Long-term Class B shareholders may pay more than the
economic equivalent of the maximum front end sales charge permitted by the
National Association of Securities Dealers, Inc.
(3) Class B shares convert to Class A shares after eight years; accordingly,
the expense amounts for years nine and ten are based on Class A shares.
(4) The Advisor has voluntarily undertaken to waive a portion of its
management fee through at least October 31, 1999. Absent such waiver,
management fees would have been as follows: Tax-Exempt Money
Market - 0.45%; California Money - 0.45%; Short Term High Quality
Bond - 0.50%; U.S. Government Securities - 0.63%; High Yield - 0.63%;
California Municipal - 0.70%; California Insured Intermediate
Municipal - 0.70%; Florida Insured Municipal - 0.70%; Growth &
Income - 0.61%; Growth - 1.06%; Emerging Growth - 1.03%.
(5) Restated to reflect the maximum fee payable under the Fund's Class B
Distribution Plan.
(6) The Distributor has voluntarily undertaken to waive a portion of its
distribution fee through at least October 31, 1999. Absent such waiver,
12b-1 fees would have been 1.00%.
(7) The Advisor and/or the administrator has voluntarily undertaken to
reimburse certain expenses. Absent such voluntary reimbursement, "other
expenses" would have been: Money Market - 0.35%; Tax-Exempt Money
Market - 0.82%; Flexible Income Portfolio - 0.83%; Income
Portfolio - 0.86%
(8) Total fund operating expenses above are restated to reflect the effect of
voluntary expense waivers/reimbursements through October 31, 1999. Absent
such voluntary waivers/reimbursements, total fund operating expenses would
have been: Money Market - 1.80%; Tax-Exempt Money Market - 2.27%;
California Money - 1.82%; Short Term High Quality Bond - 2.07%; U.S.
Government Securities - 1.84%; High Yield - 2.77%; California
Municipal - 1.95%; California Insured Intermediate Municipal - 2.01%;
Florida Insured Municipal - 2.21%; Growth & Income - 1.88%;
Growth - 2.46%; International Growth - 2.53%; Emerging Growth - 2.47%;
Flexible Income Portfolio - 1.98%; Income Portfolio - 2.01%.
(9) Does not include underlying Fund expenses that the Portfolios bear
indirectly.
(10) Because the High Yield Fund has not completed its first full fiscal year,
the expenses for the 5-year and 10-year periods are not applicable.
- --------------------------------------------------------------------------------
6
<PAGE> 11
THE FUNDS' AND PORTFOLIOS' INVESTMENTS
AND RISK CONSIDERATIONS
The following section describes the investment objective and policies of each
Fund and Portfolio and some of the risks you should consider when investing in
the Funds and Portfolios. The "Common Investment Practices" section that follows
provides more detailed information about the investment practices of the Funds
and identifies the Funds and Portfolios that may engage in such practices to a
significant extent. Except for policies explicitly identified as "fundamental"
in this Prospectus or the SAI, the investment objectives and investment policies
set forth in this Prospectus and the SAI are not fundamental and may be changed
at any time without shareholder consent by vote of the Board of Trustees of the
Trusts, subject to applicable law. A list of investment restrictions that
identifies those restrictions that cannot be changed without the approval of a
majority of an affected Fund's or Portfolio's outstanding shares is contained in
the SAI.
MONEY FUNDS
The Money Funds invest only in U.S. dollar-denominated short-term, money market
securities. The Money Funds will not purchase a security other than obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities
("U.S. Government Securities") unless the security or the issuer with respect to
a comparable security (i) is rated by at least two nationally recognized
statistical rating organizations ("NRSROs"), such as Standard & Poor's ("S&P")
or Moody's Investors Service, Inc. ("Moody's"), in one of the two highest rating
categories for short-term debt securities, (ii) is rated in one of the two
highest categories for short-term debt by the only NRSRO that has issued a
rating, or (iii) if not so rated, is determined to be of comparable quality. A
description of the rating systems of S&P and Moody's is contained in Appendix A
to this Prospectus and in the SAI. At the time of investment, no security
purchased by a Money Fund (except U.S. Government Securities subject to
repurchase agreements and variable rate demand notes) can have a maturity
exceeding 397 days, and each Money Fund's average portfolio maturity cannot
exceed 90 days. Although the Money Funds attempt to maintain a stable net asset
value ("NAV") of $1.00, there can be no assurance that any Money Fund will be
able to do so.
MONEY MARKET FUND. To accomplish its objective, the Money Market Fund invests
solely in money market instruments that are selected from the following six
general categories: (1) U.S. Government Securities; (2) short-term commercial
notes (including asset-backed securities) issued directly by U.S. and foreign
businesses, banking institutions, financial institutions (including brokerage,
finance and insurance companies) and state and local governments and
municipalities to finance short-term cash needs; (3) obligations of U.S. and
foreign banks with assets of more than $500 million; (4) securities issued by
foreign governments, their agencies or instrumentalities or by supranational
entities; (5) short-term corporate obligations rated in one of the two highest
rating categories by Moody's or S&P; and (6) repurchase agreements.
TAX-EXEMPT MONEY MARKET FUND. To accomplish its objective, the Tax-Exempt Money
Market Fund invests primarily in a diversified selection of Municipal
Obligations, the income from which is exempt from federal income tax. "Municipal
Obligations" include fixed income obligations issued by states, counties, cities
or other governmental bodies that generate income exempt from federal income
tax. Short-term Municipal Obligations may include, but are not limited to, tax
anticipation notes, bond anticipation notes, revenue anticipation notes and
project notes, or other forms of short-term municipal loans and obligations.
Under normal market conditions, the Fund will not invest more than 20% of its
assets in obligations that pay interest subject to alternative minimum tax
("AMT-Subject Bonds").
For temporary defensive purposes, the Tax-Exempt Money Market Fund may invest
more than 20% of its assets in instruments eligible for purchase by the Money
Market Fund, which may produce income that is not exempt from federal income
taxes.
The Fund may also invest in variable rate demand obligations, stand-by
commitments, when-issued securities and forward commitments.
CALIFORNIA MONEY FUND. To accomplish its objective, the California Money Fund
invests in a portfolio of Municipal Obligations. It is a fundamental policy of
the Fund to invest, under normal market conditions, at least 80% of its total
assets in Municipal Obliga-
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tions. The Fund normally invests at least 80% of its total assets in Municipal
Obligations issued by the State of California and its political subdivisions and
certain other governmental issuers such as the Commonwealth of Puerto Rico
("California Municipal Obligations"), which produce income that is exempt from
California state personal income tax. The Fund may also invest in AMT-Subject
Bonds. For a discussion of the tax consequences of investing in AMT-Subject
Bonds, see "Common Investment Practices -- Municipal Obligations and AMT-Subject
Bonds" and "Dividends, Capital Gains and Taxes."
The Fund may also invest in variable rate demand obligations, stand-by
commitments, when-issued securities and forward commitments.
As a non-diversified investment company under the Investment Company Act of 1940
(the "1940 Act"), the Fund may invest a larger portion of its assets in the
securities of a small number of issuers. See "Common Investment
Practices -- Non-Diversified Status."
For temporary defensive purposes, the Fund may invest more than 20% of its
assets in instruments eligible for purchase by the Money Market Fund, which may
produce income that is not exempt from federal income taxes or California
personal income tax.
FIXED-INCOME FUNDS
SHORT TERM HIGH QUALITY BOND FUND. To accomplish its objective, the Short Term
High Quality Bond Fund invests primarily in short-term bonds and other debt
securities. Under normal market conditions the Fund maintains a dollar-weighted
average portfolio maturity of three years or less. The Fund may, however, hold
individual securities with remaining maturities of more than three years. For
purposes of the weighted average maturity calculation, a mortgage instrument's
average life will be considered to be its maturity, and the date on which the
interest rate of a floating rate security can next change will be used in place
of its maturity date.
The Fund will invest substantially all of its assets in debt securities that, at
the time of purchase, are rated in one of the top four rating categories by one
or more NRSROs or, if unrated, are judged to be of comparable quality by the
Advisor ("investment grade" securities). All debt securities purchased by the
Fund will be investment grade at the time of purchase. Under normal market
conditions, the Fund will invest at least 65% of its total assets in U.S.
Government securities, corporate debt obligations or mortgage-related securities
rated in one of the two highest categories by an NRSRO or determined by the
Advisor to be of comparable quality.
The Fund may invest in obligations issued or guaranteed by domestic and foreign
governments and government agencies and instrumentalities and in high-grade
corporate debt obligations, such as bonds, debentures, notes, equipment lease
and trust certificates, mortgage-backed securities, collateralized mortgage
obligations and asset-backed securities.
The Fund may invest up to 10% of its assets in foreign fixed-income securities,
primarily bonds of foreign governments or their political subdivisions, foreign
companies and supranational organizations, including non-U.S. dollar-denominated
securities and U.S. dollar-denominated debt securities issued by foreign issuers
and foreign branches of U.S. banks. Investment in foreign securities is subject
to special risks. The Fund may invest up to 5% of its assets in preferred stock.
The Fund may also invest in high-quality, short-term obligations (with
maturities of 12 months or less). The Fund may engage in certain options
transactions, enter into financial futures contracts and related options for the
purpose of portfolio hedging and enter into currency forwards or futures
contracts and related options for the purpose of currency hedging. The Fund may
invest in certain illiquid investments, such as privately placed obligations,
including restricted securities. The Fund may invest up to 10% of its assets in
securities of unaffiliated mutual funds. The Fund may borrow money or enter into
reverse repurchase agreements or dollar roll transactions in the aggregate up to
33 1/3% of its total assets. The Fund may invest up to 25% of its total assets
in asset-backed securities, which represent a participation in, or are secured
by and payable from, a stream of payments generated by particular assets, most
often a pool of similar assets.
TARGET MATURITY 2002 FUND. To accomplish its objective, the Target Maturity
2002 Fund will invest at least 90% of its net assets in zero-coupon U.S.
Treasury securities (each such security, a "Zero-Coupon Security") maturing
during 2002. Generally, the Fund will endeavor to purchase those Zero-Coupon
Securities that mature towards the end of
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<PAGE> 13
2002. Until December 31, 2002 (the "Target Maturity Date"), the Fund may also
invest up to 10% of its net assets in coupon-bearing (income-producing) U.S.
Treasury securities maturing on or before the Target Maturity Date and money
market instruments. If the Advisor determines that the desired Zero-Coupon
Securities are not otherwise readily available for purchase, the Fund may invest
in zero-coupon and income-producing U.S. Government Securities maturing on or
before the Target Maturity Date. The Fund may also invest in cash and cash
equivalents for temporary defensive purposes.
The market value of fixed-income securities held by the Fund and, consequently,
the Fund's NAV, can be expected to vary inversely to changes in prevailing
interest rates. Consequently, redemptions made prior to the Target Maturity Date
may result in substantial capital gains or losses.
To the extent that the Fund holds Zero-Coupon Securities that mature prior to
the Target Maturity Date, the proceeds of such Zero-Coupon Securities at their
maturity will be reinvested in short term coupon-bearing U.S. Treasury
securities or money market instruments until the Target Maturity Date.
Therefore, towards the end of the target maturity year, 2002, the percentage of
the Fund's assets invested in coupon-bearing U.S. Treasury securities and money
market instruments may increase up to 100%. After the Target Maturity Date, the
Fund intends to remain open, with all its assets invested in money market
instruments and U.S. Treasury securities with maturities of up to three years,
and the Fund will be managed as a relatively short-term bond fund. After the
Target Maturity Date, the normal risks of a bond fund will apply.
The Fund pursues professional management of market risk. To approximate the
return an investor would receive if he or she purchased Zero-Coupon Securities
directly, the Advisor manages the Fund to track as closely as possible the price
behavior of Zero-Coupon Securities maturing towards the end of 2002. To correct
for factors such as shareholder purchase and redemption activity (and related
transaction costs) that differentiate investing in a portfolio of Zero-Coupon
Securities from investing directly in a Zero-Coupon Security, the Advisor
executes portfolio transactions necessary to accommodate net shareholder
activity each business day.
By adhering to these investment parameters, the Advisor expects that a
shareholder who holds his or her shares and does not make any redemptions until
the Target Maturity Date, and who reinvests all dividends and capital gain
distributions, will realize a maturity value that does not differ substantially
from the anticipated value at maturity ("AVM"), as calculated on the purchase
date. There can be no assurance, however, that these objectives will be
achieved. Furthermore, if a shareholder does not reinvest all dividends and
capital gain distributions, then the AVM cannot be estimated accurately.
The Fund's AVM is calculated by the Advisor each day the Fund is open for
business and may vary from day-to-day, due to redemptions and distributions, as
well as transaction costs, interest rate changes, and the Advisor's efforts to
improve total return by taking advantage of market opportunities.
There are relatively few mutual funds with investment objectives and policies
similar to those of the Fund that have reached their target maturity date.
Therefore, there is relatively little experience regarding the types of risk
involved in investing in the Fund.
U.S. GOVERNMENT SECURITIES FUND. To accomplish its objective, the U.S.
Government Securities Fund invests primarily in a selection of obligations of
the U.S. Government and its agencies. The Fund may also invest in collateralized
mortgage obligations or repurchase agreements which are secured by those types
of obligations. It is a fundamental policy of the Fund to invest only in the
following types of securities: (1) U.S. Government securities, including
mortgage-backed securities; (2) obligations secured by the full faith and credit
of the U.S. Government or its instrumentalities; and (3) collateralized mortgage
obligations and repurchase agreements which are secured by obligations
identified in (1) and (2) above. The Fund may borrow up to 5% of its total net
assets for emergency, non-investment purposes and may enter into dollar roll
transactions.
INCOME FUND. To accomplish its objective, the Income Fund invests in debt
issues and obligations that offer high current yields and that are consistent
with a moderate degree of risk. Accordingly, the Fund invests most of its assets
in (1) debt and convertible debt securities; (2) U.S. Government Securities,
including mortgage-backed securities issued by the Government National Mortgage
Association ("GNMA"), Federal National Mortgage Association ("FNMA"), and
Federal
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<PAGE> 14
Home Loan Mortgage Corporation ("FHLMC") or similar government agencies; (3)
obligations of U.S. banks that belong to the Federal Reserve System; (4)
preferred stocks and convertible preferred stocks; (5) the highest grade
commercial paper as rated by S&P or Moody's; and (6) deposits in U.S. banks.
The Fund may also invest in securities denominated in foreign currencies and
likewise receive interest, dividends and sale proceeds in foreign currencies.
The Fund may engage in foreign currency exchange transactions for hedging
purposes in connection with the purchase and sale of foreign securities or to
protect against changes in the value of specific securities held by the Fund,
and may purchase and sell currencies on a spot (cash) basis, enter into forward
contracts to purchase or sell foreign currencies at a future date, and buy and
sell foreign currency futures contracts. The Fund may also borrow up to 5% of
its total net assets for emergency, non-investment purposes, and may enter into
dollar roll transactions. The Fund may purchase securities of issuers which deal
in real estate or securities which are secured by interests in real estate, and
it may acquire and dispose of real estate or interests in real estate acquired
through the exercise of its rights as a holder of debt obligations secured by
real estate or interests therein. The Fund may also purchase and sell interest
rate futures and options. The Fund may invest up to 35% of its assets in
lower-rated fixed-income securities (sometimes called "junk bonds").
HIGH YIELD FUND. To accomplish its objective, the High Yield Fund invests,
under normal market conditions, at least 65% of its assets in a diversified
portfolio of fixed income securities (including debt securities, convertible
securities and preferred stocks) rated lower than BBB by S&P or Baa by Moody's
or of equivalent quality as determined by the Advisor. The remainder of the
Fund's assets may be invested in any other securities the Advisor believes are
consistent with the Fund's objective, including higher rated fixed-income
securities, common stocks and other equity securities. The Fund may invest in
securities of foreign issuers and engage in hedging strategies involving
options.
MUNICIPAL FUNDS
Each of the Municipal Funds, as well as the California Money Fund, invests most
of its assets in Municipal Obligations. Current federal income tax laws limit
the types and volume of bonds qualifying for the federal income tax exemption of
interest, which may have an effect on the ability of the Fund to purchase
sufficient amounts of tax-exempt securities.
TAX-EXEMPT BOND FUND. To accomplish its objective, the Tax-Exempt Bond Fund
invests primarily in Municipal Obligations.
Under normal market conditions, the Fund will invest at least 80% of its assets
in Municipal Obligations, including inverse floating rate obligations. The Fund
specifically limits these investments to: municipal bonds, municipal notes and
securities of unaffiliated tax-exempt mutual funds. Inverse floating obligations
will generally be more volatile than other types of Municipal Obligations. The
Fund may invest up to 35% of its assets in lower-rated securities.
In adverse markets, the Fund may seek to protect its investment position by
investing up to 50% of its portfolio in taxable short-term investments such as:
(1) U.S. Government Securities; (2) commercial paper rated in the highest grade
by either S&P or Moody's; (3) obligations of U.S. banks; (4) time or demand
deposits in U.S. banks; and (5) repurchase agreements relating to municipal
securities or any of the foregoing taxable instruments. Interest income from
these short-term investments, when it is distributed by the Fund, may result in
a tax liability to investors.
The Fund may also purchase and sell interest rate futures and options. The Fund
may also invest in AMT-Subject Bonds, although, so long as its name includes the
words "tax-exempt" and the SEC so requires, such investments will be limited to
20% of the Fund's total assets.
CALIFORNIA MUNICIPAL FUND. To accomplish its objective, the California
Municipal Fund invests primarily in intermediate- and long-term California
Municipal Obligations. "California Municipal Obligations" are Municipal
Obligations the interest from which is exempt from California state personal
income tax. It is a fundamental policy of the Fund that, under normal market
conditions, at least 80% of the Fund's total assets will be invested in
California Municipal Obligations. The Fund may invest in AMT-Subject Bonds, as
described in "Common Investment Practices -- Municipal Obligations and
AMT-Subject Bonds."
The Fund will invest primarily in investment grade Municipal Obligations. The
Fund may also invest in
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inverse floating obligations, which will generally be more volatile than other
types of Municipal Obligations.
The Fund may, under normal circumstances, invest up to 20% of its assets in (1)
Municipal Obligations that are not exempt from California personal income tax;
(2) short-term Municipal Obligations; (3) taxable cash equivalents, including
short-term U.S. Government Securities, certificates of deposit and bankers'
acceptances, commercial paper rated Prime-1 by Moody's or A-1+ or A-1 by S&P,
repurchase agreements (collectively "Short-Term Instruments"); and (4)
securities of money market mutual funds (subject to the limitations set forth
under "Common Investment Practices"). The Fund may, for temporary defensive
purposes, invest in these securities without limitation. As a non-diversified
investment company under the 1940 Act, the Fund may invest a larger portion of
its assets in the securities of a small number of issuers.
CALIFORNIA INSURED INTERMEDIATE MUNICIPAL FUND. To accomplish its objective, the
California Insured Intermediate Municipal Fund will invest primarily in insured
intermediate-term California Municipal Obligations. It is a fundamental policy
of the Fund that it will invest at least 80% of the value of its total assets in
insured California Municipal Obligations (except when maintaining a temporary
defensive position). The weighted average effective maturity of the securities
in which the Fund invests will be ten years or less, and the maximum effective
maturity (the maturity date without regard to call provisions, except that for
pooled single family mortgage securities effective maturity is the average life
of the underlying mortgage obligations) of any Municipal Obligation in which the
Fund invests will be fifteen years.
All of the Municipal Obligations in which the Fund will invest, taking into
account any insurance, are investment grade securities. For more information,
see "About Bond Insurance" below and "Common Investment
Practices -- Fixed-Income Obligations."
The Fund may invest without limitation in AMT-Subject Bonds, as described in
"Common Investment Practices -- Municipal Obligations and AMT-Subject Bonds."
The Fund under normal circumstances may invest up to 20% of its assets in (1)
uninsured Municipal Obligations; (2) Municipal Obligations that are not exempt
from California personal income tax; and (3) short-term Municipal Obligations
and taxable cash equivalents, including Short-Term Instruments and securities of
unaffiliated money market mutual funds (subject to the limitations set forth
under "Common Investment Practices") and may, for temporary defensive purposes,
invest in these securities without limitation. In addition, the Fund may invest
in inverse floating rate obligations. Inverse floating obligations will
generally be more volatile than other types of Municipal Obligations. See
"Common Investment Practices -- Floating Rate, Inverse Floating Rate and
Variable Rate Obligations."
The Fund may engage in hedging transactions through the use of financial futures
and options thereon, purchase and sell securities on a when-issued or forward
commitment basis, invest in mortgage-backed securities, enter into repurchase
agreements, invest in stand-by commitments and lend portfolio securities. The
Fund may invest in floating rate and variable rate obligations, including
participation interests therein (referred to collectively as "Hedging
Transactions").
As a non-diversified investment company under the 1940 Act, the Fund may invest
a larger portion of its assets in the securities of a small number of issuers.
See "Common Investment Practices -- Non-Diversified Status."
FLORIDA INSURED MUNICIPAL FUND. To accomplish its objective, the Florida
Insured Municipal Fund will invest primarily in insured, intermediate- and long-
term Florida Municipal Obligations, which are Municipal Obligations issued by
the State of Florida and its political subdivisions. The Fund will invest
primarily in investment-grade Municipal Obligations. It is a fundamental policy
of the Fund that it will invest at least 80% of the value of its total assets
(except when maintaining a temporary defensive position) in insured Florida
Municipal Obligations. See "About Bond Insurance" below. The Fund may invest
without limitation in AMT-Subject Bonds, as described in "Common Investment
Practices -- Municipal Obligations and AMT-Subject Bonds." The Fund may also
invest in inverse floating obligations, which will generally be more volatile
than other types of Municipal Obligations.
The Fund may invest up to 20% of its total assets in (1) uninsured Municipal
Obligations; (2) Municipal Obligations that are not exempt from Florida
intangible personal property tax; and (3) Short-Term Instruments and securities
of unaffiliated money market
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<PAGE> 16
mutual funds and, for temporary defensive purposes, invest in these securities
without limitation.
As a non-diversified investment company under the 1940 Act, the Fund may invest
a larger portion of its assets in the securities of a small number of issuers.
See "Common Investment Practices -- Non-Diversified Status."
Florida does not impose an income tax on individuals. Distributions of
investment income and capital gains by the Fund will be subject to Florida
corporate income taxes. Florida imposes a tax on intangible personal property
owned by Florida residents. Based on a ruling the Fund has received from the
Florida Department of Revenue, if the Fund's assets consist, on the last
business day of the calendar year, solely of assets exempt from Florida
intangible personal property tax, shares of the Fund owned by Florida residents
will be exempt from Florida intangible personal property tax. Assets exempt from
Florida intangible personal property tax include Florida Municipal Obligations
issued by the State of Florida and its political subdivisions, municipalities
and public authorities; obligations of the U. S. Government or its agencies; and
cash.
ABOUT BOND INSURANCE. The insured Municipal Obligations in which the California
Insured Intermediate Municipal and Florida Insured Municipal Funds will invest
and the other Municipal Funds may invest are insured under insurance policies
that relate to the specific Municipal Obligation in question ("Specific Issue
Insurance") and that are issued by an insurer having a claims-paying ability
rated AAA by S&P or Aaa by Moody's. Specific Issue Insurance is generally
non-cancelable and will continue in force so long as the Municipal Obligations
are outstanding and the insurer remains in business.
The insured Municipal Obligations are insured as to the scheduled payment of all
installments of principal and interest as they fall due. Such insurance does not
insure against market risk and therefore does not guarantee the market value of
the obligations in a Fund's investment portfolio or a Fund's NAV. Such market
value and NAV will continue to fluctuate in response to fluctuations in interest
rates. A Fund's investment policy requiring investment in insured Municipal
Obligations will not affect the Fund's ability to hold its assets in cash or to
invest in escrow-secured and defeased bonds or in certain short-term tax-exempt
obligations as set forth herein, or affect its ability to invest in uninsured
taxable obligations for temporary or liquidity purposes or on a defensive basis.
EQUITY FUNDS
BOND & STOCK FUND. To accomplish its objective, the Bond & Stock Fund invests
primarily in common stocks, preferred stocks, bonds and convertible securities.
Under normal market conditions, at least 25% of the Fund's assets will be
invested in fixed-income securities, including preferred stocks and that portion
of the value of convertible securities which is not attributable to a conversion
feature. The Fund may invest in money market instruments for temporary or
defensive purposes. The Fund may invest in fixed-income securities of any
maturity, including mortgage-backed securities, U.S. Government Securities and
asset-backed securities, and may also invest up to 35% of its assets, in below
investment grade bonds (sometimes called junk bonds). The Fund may purchase or
sell U.S. Government Securities or collateralized mortgage obligations on
"when-issued" or "delayed-delivery" basis in an aggregate of up to 20% of the
market value of its total net assets. The Fund may invest up to 25% of its
assets in real estate investment trusts, known as "REITs." The Fund may write
(sell) covered call options. A call option is covered if the Fund owns the
security underlying the option it has written or it maintains enough cash, cash
equivalents or liquid securities to purchase the underlying security. The Fund
may invest up to 25% of its assets in U.S. dollar-denominated securities of
foreign issuers.
GROWTH & INCOME FUND. To accomplish its objective, the Growth & Income Fund
invests primarily in common stocks. The Fund may also invest in money market
instruments for temporary or defensive purposes. To limit risk, repurchase
agreements maturing in more than seven days will not exceed 10% of the Fund's
total assets. The Fund may invest up to 25% of its assets in REITs. The Fund may
invest in fixed-income securities of any maturity, including mortgage-backed
securities, and may invest up to 35% of its assets in below investment grade
fixed-income securities.
The Fund may purchase or sell U.S. Government securities or collateralized
mortgage obligations on a "when-issued" or "delayed-delivery" basis in an
aggregate up to 20% of the market value of its total assets minus total
liabilities (except for the obligations
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<PAGE> 17
created by these commitments). The Fund may write (sell) covered call options.
The Fund may invest up to 25% of its assets in U.S. dollar-denominated
securities of foreign issuers.
NORTHWEST FUND. To accomplish its objective, the Northwest Fund invests in
common stocks of companies located or doing business in the Northwest states of
Alaska, Idaho, Montana, Oregon and Washington. Under normal circumstances, at
least 65% of the Fund's total assets will be invested in companies whose
principal executive offices are located in one of those states.
The Fund is permitted to invest in money market instruments for temporary or
defensive purposes. The Fund may invest up to 25% of its assets in REITs, and
may write (sell) covered call options.
Because the Fund concentrates its investments in companies located or doing
business in the Northwest, the Fund is not intended as a complete investment
program, and could be adversely impacted by economic trends within the
five-state area.
GROWTH FUND. To accomplish its objective, the Growth Fund invests primarily in
common stocks believed to have significant appreciation potential. The Fund also
may invest in debt securities, bonds, convertible bonds, preferred stock and
convertible preferred stock, including up to 35% of its assets in
non-investment-grade debt securities.
The Fund may invest up to 25% of its assets in foreign securities, usually
foreign common stocks, and up to 5% of its assets in securities of companies in
(or governments of) developing or emerging countries (sometimes referred to as
"emerging markets"). The Fund may also engage in certain options transactions,
enter into financial futures contracts and related options for the purpose of
portfolio hedging and enter into currency forwards or futures contracts and
related options for the purpose of currency hedging.
EMERGING GROWTH FUND. To accomplish its objective, the Emerging Growth Fund
invests primarily in equity securities of companies with market capitalization
of less than $1.4 billion at the time of purchase. In addition to common stock,
the Fund's equity securities may include convertible bonds, convertible
preferred stock and warrants to purchase common stock, as well as cash and cash
equivalents. The Fund may invest up to 25% of its assets in securities of
foreign issuers and up to 5% of its assets in securities in developing or
emerging countries. The Fund may invest up to 35% of its assets in
non-investment-grade debt securities if the Advisor believes that doing so will
be consistent with the goal of capital appreciation.
Small capitalization companies typically are subject to a greater degree of
change in earnings and business prospects than larger, more established
companies. In addition, securities of small capitalization companies are
generally traded in lower volume than those issued by larger companies and may
be more volatile and less liquid, and consequently bear greater investment risk,
than those of larger companies. Small capitalization companies generally are not
as well known to the investing public and have less of an investor following
than larger companies. In selecting investments for the Fund, the Advisor seeks
small capitalization companies that it believes are undervalued in the
marketplace or that have earnings that the Advisor expects to grow faster than
the U.S. economy in general.
INTERNATIONAL GROWTH FUND. To accomplish its objective, the International
Growth Fund invests primarily in equity securities of issuers located in foreign
countries that the Fund's sub-advisor believes present attractive investment
opportunities. Criteria for determining the appropriate distribution of
investments among various countries and regions include prospects for relative
economic growth, expected levels of inflation, government policies influencing
business conditions, the outlook for currency relationships and the range of
investment opportunities available to international investors. The relative
strength or weakness of a particular country's currency or economy may dictate
whether securities of issuers located in such country will be purchased or sold.
The Fund may invest without limit in the securities of issuers located in any
one country (except as provided below with respect to emerging markets
countries). The Fund will emphasize established companies, although it may
invest in companies of varying sizes as measured by assets, sales and
capitalization.
The Fund invests in common stock and may invest in other securities with equity
characteristics, such as trust or limited partnership interests, preferred
stock, rights and warrants. The Fund may also invest in convertible securities.
The Fund invests in securities listed on foreign or domestic securities
exchanges and securities traded in foreign or domestic over-the-counter markets,
and may invest in restricted or unlisted securities.
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The Fund intends to stay fully invested in the securities described above to the
extent practical. Fund assets may be invested in short-term debt instruments to
meet anticipated day-to-day operating expenses, and for temporary defensive
purposes. In addition, when the Fund experiences large cash inflows, the Fund
may hold short-term investments until desirable equity securities become
available. These short-term instruments are generally rated A or higher by
Moody's or S&P, or, if unrated, of comparable quality in the opinion of the
Fund's sub-advisor.
The Fund may invest up to 30% of its assets in the securities of companies in or
governments of developing or emerging markets, provided that no more than 5% of
the Fund's total assets are invested in any one emerging markets country. For
temporary defensive purposes, the Fund may invest a major portion of its assets
in securities of U.S. issuers. Furthermore, the Fund may invest up to 5% of its
total assets in investment grade corporate debt securities having maturities
longer than one year, including Euro-currency instruments and securities.
STRATEGIC ASSET MANAGEMENT PORTFOLIOS
The Portfolios offer investors the opportunity to pursue a variety of
specifically constructed asset allocation strategies that are implemented
through the Portfolios' investing in certain of the Funds. The Portfolios are
designed for long-term investors seeking total return for tax-advantaged
retirement and other long-term investment or savings accounts.
In order to achieve its investment objective, each Portfolio typically allocates
its assets, within predetermined percentage ranges, among certain of the Funds.
Nonetheless, due primarily to market activity, the Portfolios may temporarily
exceed one or more of the applicable percentage limits for short periods. The
percentages reflect the extent to which each Portfolio will invest in the
particular market segment represented by each underlying Fund, and the varying
degrees of potential investment risk and reward represented by each Portfolio's
investments in those market segments and their corresponding Funds. The Advisor
may alter these percentage ranges when it deems appropriate. The assets of each
Portfolio will be allocated among the Funds in accordance with its investment
objective, the Advisor's outlook for the economy and the financial markets, and
the relative market valuations of the Funds.
In addition, in order to meet liquidity needs or for temporary defensive
purposes, each Portfolio may invest, without limit, its assets directly in cash,
stock or bond index futures and options thereon and the following short-term
instruments: (i) short-term obligations of the U.S. Government, its agencies,
instrumentalities, authorities or political subdivisions; (ii) other short-term
debt securities rated A or higher by Moody's or S&P, or if unrated, of
comparable quality in the opinion of the Advisor; (iii) commercial paper,
including master notes; (iv) bank obligations, including negotiable certificates
of deposit, time deposits and bankers' acceptances; and (v) repurchase
agreements. At the time a Portfolio invests in any commercial paper, bank
obligations or repurchase agreements, the issuer must have outstanding debt
rated A or higher by Moody's or S&P; the issuer's parent corporation, if any,
must have outstanding commercial paper rated Prime-1 by Moody's or A-1 by S&P;
or, if no such ratings are available, the investment must be of comparable
quality in the opinion of the Advisor. In addition to purchasing shares of the
Funds, a Portfolio may use futures contracts and options in order to remain
effectively fully invested in proportions consistent with the Advisor's current
asset allocation strategy for the Portfolio. Specifically, each Portfolio may
enter into futures contracts and options thereon, provided that the aggregate
deposits required on these contracts do not exceed 5% of the Portfolio's total
assets. A Portfolio may also use futures contracts and options for bona fide
hedging transactions. Futures contracts and options may also be used to
reallocate the Portfolio's assets among asset categories while minimizing
transaction costs, to maintain cash reserves while simulating full investment,
to facilitate trading, to seek higher investment returns, or to simulate full
investment when a futures contract is priced attractively or is otherwise
considered more advantageous than the underlying security or index. As a
fundamental policy, which may not be changed without shareholder vote, each
Portfolio will concentrate its investments in shares of the Funds.
STRATEGIC GROWTH PORTFOLIO. To accomplish its objective, the Strategic Growth
Portfolio invests in the
14
<PAGE> 19
following Funds up to the percentage limits set forth below:
<TABLE>
<CAPTION>
Portfolio Investment Limit
(Percent of the STRATEGIC GROWTH
FUNDS PORTFOLIO'S Total Assets)
- -------------------------------------------------------------------------
<S> <C>
Money Market Fund.................... 25%
Short Term High Quality Bond Fund.... 25%
High Yield Fund...................... 25%
Growth & Income Fund................. 50%
Northwest Fund....................... 50%
Growth Fund.......................... 50%
Emerging Growth Fund................. 50%
International Growth Fund............ 50%
</TABLE>
Except for defensive periods or liquidity needs, the STRATEGIC GROWTH PORTFOLIO
intends to invest at least 75% of its net assets available for investment in the
Equity Funds.
CONSERVATIVE GROWTH PORTFOLIO. The Conservative Growth Portfolio seeks to
achieve its objective by investing in the following Funds up to the percentage
limits set forth below:
<TABLE>
<CAPTION>
Portfolio Investment Limit
(Percent of the CONSERVATIVE GROWTH
FUNDS PORTFOLIO'S Total Assets)
- -------------------------------------------------------------------------
<S> <C>
Money Market Fund................. 30%
Short Term High Quality Bond
Fund ........................... 30%
U.S. Government Securities Fund... 30%
Income Fund....................... 30%
High Yield Fund................... 30%
Growth & Income Fund.............. 40%
Northwest Fund.................... 40%
Growth Fund....................... 40%
Emerging Growth Fund.............. 40%
International Growth Fund......... 40%
</TABLE>
Except for defensive periods or liquidity needs, the CONSERVATIVE GROWTH
PORTFOLIO intends to invest at least 60% of its net assets available for
investment in Equity Funds.
BALANCED PORTFOLIO. To accomplish its objective, the Balanced Portfolio invests
in the following Funds up to the percentage limits set forth below:
<TABLE>
<CAPTION>
Portfolio Investment Limit
(Percent of the BALANCED
FUNDS PORTFOLIO'S Total Assets)
- -----------------------------------------------------------------------
<S> <C>
Money Market Fund........................... 40%
Short Term High Quality Bond Fund........... 40%
U.S. Government Securities Fund............. 40%
Income Fund................................. 40%
High Yield Fund............................. 40%
Growth & Income Fund........................ 30%
Northwest Fund.............................. 30%
Growth Fund................................. 30%
Emerging Growth Fund........................ 30%
International Growth Fund................... 30%
</TABLE>
Except for defensive periods or liquidity needs, the Balanced Portfolio intends
to invest no less than 30% and no more than 70% of its net assets available for
investment in the Fixed-Income Funds and no less than 30% and no more than 70%
of its net assets available for investment in Equity Funds.
FLEXIBLE INCOME PORTFOLIO. To accomplish its objective, the FLEXIBLE INCOME
PORTFOLIO invests in the following Funds up to the percentage limits set forth
below:
<TABLE>
<CAPTION>
Portfolio Investment Limit
(Percent of the FLEXIBLE INCOME
FUNDS PORTFOLIO'S Total Assets)
- -------------------------------------------------------------------------
<S> <C>
Money Market Fund...................... 40%
Short Term High Quality Bond Fund...... 40%
U.S. Government Securities Fund........ 40%
Income Fund............................ 40%
High Yield Fund........................ 40%
Growth & Income Fund................... 30%
Northwest Fund......................... 30%
Growth Fund............................ 30%
Emerging Growth Fund................... 30%
</TABLE>
Except for defensive periods or liquidity needs, the Flexible Income Portfolio
intends to invest no more than 30% of its net assets available for investment in
Equity Funds.
INCOME PORTFOLIO. To accomplish its objective, the Income Portfolio invests in
the following Funds up to the percentage limits set forth below:
<TABLE>
<CAPTION>
Portfolio Investment Limit
(Percent of the INCOME
FUNDS PORTFOLIO'S Total Assets)
- -------------------------------------------------------------------------
<S> <C>
Money Market Fund...................... 50%
Short Term High Quality Bond Fund...... 50%
U.S. Government Securities Fund........ 50%
Income Fund............................ 40%
High Yield Fund........................ 40%
</TABLE>
Except for defensive periods or liquidity needs, the INCOME PORTFOLIO intends to
invest 100% of its net assets available for investment in Fixed-Income Funds.
COMMON INVESTMENT PRACTICES
The presentation of the common investments practices as set forth below is
ordered alphabetically and not necessarily in order of importance.
The following pages contain more detailed information about types of securities
in which the Funds and the Portfolios may invest, and strategies which the
Advisor or the respective sub-advisor may employ in pursuit of that Fund's
investment objective and a summary of risks and restrictions associated with
these securities and investment practices. Each Fund's NAV will fluctuate as the
values of the securities it owns change. There are many factors that influence
fluctua-
15
<PAGE> 20
tions in the market value of securities owned by the Funds. These include
economic trends, government actions and regulations and international monetary
conditions. An individual security's price can be affected by such factors as
poor earnings reports by its issuer, litigation, loss of major customers or
changes particular to its industry. For more information, see the SAI. As
described below under "Risk Factors of the Portfolios," the Funds may from time
to time be adversely affected by large purchases and redemptions of Fund shares
resulting from reallocations and rebalancings by the Portfolios or other
accounts managed by the Advisor that invest in the Funds. Except as otherwise
indicated, all policies and limitations are considered at the time of purchase;
the sale of securities is not required in the event of a subsequent change in
valuation or other circumstances.
AMERICAN DEPOSITARY RECEIPTS AND EUROPEAN DEPOSITARY RECEIPTS. The Equity
Funds, the Short Term High Quality Bond Fund, the Income Fund and the High Yield
Fund may invest in securities of foreign issuers directly or in the form of
American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"),
Global Depositary Receipts ("GDRs") or other similar securities representing
securities of foreign issuers. These securities may not necessarily be
denominated in the same currency as the securities they represent. ADRs are
receipts typically issued by a United States bank or trust company evidencing
ownership of the underlying foreign securities. EDRs, which are sometimes
referred to as Continental Depositary Receipts ("CDRs"), are receipts issued by
a European financial institution evidencing a similar arrangement. Generally,
ADRs, in registered form, are designed for use in the United States securities
markets, and EDRs, in bearer form, are designed for use in European securities
markets. These securities generally involve the risks described under "Foreign
Investments" below.
BORROWING. The Funds may borrow money from banks solely for temporary or
emergency purposes, subject to various limitations. If a Fund borrows money, its
share price may be subject to greater fluctuation until the borrowing is paid
off. For the California Money, Short Term High Quality Bond, Target Maturity
2002, California Municipal, California Insured Intermediate Municipal, Florida
Insured Municipal, Growth, International Growth and Emerging Growth Funds, and
for the Portfolios, such borrowings may not exceed 30% of total assets. The
Money Market, Tax-Exempt Money Market, U.S. Government Securities, Income, High
Yield, Tax-Exempt Bond, Bond & Stock, Growth & Income and Northwest Funds may
borrow up to 5% of total assets for emergency purposes. In addition, the Money
Market and Tax-Exempt Money Market Funds may borrow up to 33 1/3% of total
assets to meet redemption requests. The Short Term High Quality Bond Fund is
prohibited from borrowing money or entering into reverse repurchase agreements
or dollar roll transactions (described below) in the aggregate in excess of
33 1/3% of the Fund's total assets (after giving effect to such borrowings and
transactions). If a Fund makes additional leverage investments while borrowings
are outstanding, this will have the effect of leveraging the Fund. The
California Money, Short Term High Quality Bond, Target Maturity 2002, California
Municipal, California Insured Intermediate Municipal, Florida Insured Municipal,
Growth, International Growth and Emerging Growth Funds and the Portfolios may
not purchase additional securities when borrowings, including, for each such
Fund and Portfolio other than the Short Term High Quality Bond Fund, reverse
repurchase agreements, exceed 5% of total assets. Leveraging will magnify
declines as well as increases in the NAV of a Fund's or Portfolio's shares and
in the yield on a Fund's or Portfolio's investments. Each of the foregoing
percentage limitations on borrowings is a fundamental policy of the respective
Funds and Portfolios.
The Income, Short Term High Quality Bond and U.S. Government Securities Funds
may enter into DOLLAR ROLLS. A Fund enters into a DOLLAR ROLL by selling
securities for delivery in the current month and simultaneously contracts to
repurchase, typically in 30 or 60 days, substantially similar (same type, coupon
and maturity) securities on a specified future date, which, under the Investment
Company Act of 1940, as amended (the "1940 Act") may be considered borrowings
from the counterparty and may produce similar leveraging effects. The proceeds
of the initial sale of securities in the dollar roll transactions, for example,
may be used to purchase long-term securities which will be held during the roll
period. To the extent that the proceeds of the initial sale of securities are
invested in bonds, the Fund will be subject to market risk on these bonds as
well as similar risk with respect to the securities the Fund is required to
repurchase. See "Fixed-Income Obligations" below.
16
<PAGE> 21
Each of the Short Term High Quality Bond, California Municipal, California
Insured Intermediate Municipal, Florida Insured Municipal, Growth, International
Growth and Emerging Growth Funds may engage in REVERSE REPURCHASE AGREEMENTS.
Reverse repurchase agreements involve the risk that the market value of the
securities sold by a Fund may decline below the repurchase price of the
securities and, if the proceeds from the reverse repurchase agreement are
invested in securities, that the market value of the securities bought may
decline at the same time there is decline in the securities sold (and required
to be repurchased).
FIXED-INCOME OBLIGATIONS. The market value of fixed-income securities held by a
Fund and, consequently, the value of the Fund's shares can be expected to vary
inversely to changes in prevailing interest rates. Investors should also
recognize that, in periods of declining interest rates, the yield of the Fund
will tend to be somewhat higher than prevailing market rates and, in periods of
rising interest rates, the Fund's yield will tend to be somewhat lower. Also,
when interest rates are falling, any net inflow of money to the Fund will likely
be invested in instruments producing lower yields than the balance of its
assets, thereby reducing current yield. In periods of rising interest rates, the
opposite can be expected to occur. The prices of longer maturity securities are
also subject to greater market fluctuations as a result of changes in interest
rates. In addition, obligations purchased by a Fund may be subject to the risk
of default. Fixed-Income obligations, including Municipal Obligations, rated in
the lower end of the investment-grade category (Baa or BBB) may have speculative
characteristics and may be more sensitive to economic changes and changes in the
financial condition of their issuers.
The fixed-income securities in which the Funds may invest include Zero-Coupon
Securities, which make no payments of interest or principal until maturity.
Because these securities avoid the need to make current interest payments, they
may involve greater credit risks than other fixed-income securities.
FLOATING RATE, INVERSE FLOATING RATE AND VARIABLE RATE OBLIGATIONS. The
Municipal Funds, the Fixed-Income Funds and the Growth & Income Fund may
purchase floating rate, inverse floating rate and variable rate obligations,
including participation interests therein.
The Money Funds may purchase floating rate and variable rate obligations,
including participation interests therein.
The Fixed-Income Funds may purchase mortgage-backed securities that are floating
rate, inverse floating rate and variable rate obligations. Municipal Obligations
purchased by the Municipal Funds may include floating rate, inverse floating
rate and variable rate obligations, including variable rate demand notes issued
by industrial development authorities and other governmental entities, as well
as participation interests therein. Although variable rate demand notes are
frequently not rated by credit rating agencies, a Fund may purchase unrated
notes that are determined by the Advisor or the Fund's sub-advisor to be of
comparable quality at the time of purchase to rated instruments that may be
purchased by the Fund. The absence of an active secondary market could make it
difficult for a Fund to dispose of these securities in the event the issuer of
the note were to default on its payment obligations, and the Fund could, for
this or other reasons, suffer a loss as a result of the default.
Each Fund may also invest in securities representing interests in tax-exempt
securities, known as inverse floating obligations or "residual interest bonds,"
which pay interest rates that vary inversely with changes in the interest rates
of specified short-term tax-exempt securities or an index of short-term
tax-exempt securities. The interest rates on inverse floating-rate obligations
or residual interest bonds will typically decline as short-term market interest
rates increase and increase as short-term market rates decline. These securities
have the effect of providing a degree of investment leverage. They will
generally respond to changes in market interest rates more rapidly than
fixed-rate long-term securities (typically twice as fast). As a result, the
market values of inverse floating-rate obligations and residual interest bonds
will generally be more volatile than the market values of fixed-rate tax-exempt
securities.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS AND CURRENCY MANAGEMENT. The Equity
Funds and Fixed-Income Funds (with the exception of the Target Maturity 2002,
U.S. Government Securities, Bond & Stock, Growth & Income and Northwest Funds)
may, subject to the investment limitations stated elsewhere in this Prospectus
and the SAI, engage in foreign currency exchange transactions. Funds that buy
and sell securities denominated in currencies other than
17
<PAGE> 22
the U.S. dollar, and receive interest, dividends and sale proceeds in currencies
other than the U.S. dollar, may enter into foreign currency exchange
transactions to convert to and from different foreign currencies and to convert
foreign currencies to and from the U.S. dollar. The Fund either enters into
these transactions on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign currency exchange market, or uses forward contracts to purchase or
sell foreign currencies.
These Funds may enter into foreign currency hedging transactions in an attempt
to protect against changes in foreign currency exchange rates between the trade
and settlement dates of specific securities transactions or changes in foreign
currency exchange rates that would adversely affect a portfolio position or an
anticipated portfolio position. These transactions tend to limit any potential
gain that might be realized should the value of the hedged currency increase.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible because the future value of
these securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. The projection of currency market
movements is extremely difficult, and the successful execution of a hedging
strategy is highly uncertain. In addition, when the Advisor or a Fund's
sub-advisor believes that the currency of a specific country may deteriorate
against another currency, it may enter into a forward contract to sell the less
attractive currency and buy the more attractive one. The amount in question
could be less than or equal to the value of the Fund's securities denominated in
the less attractive currency. The Fund may also enter into a forward contract to
sell a currency which is linked to a currency or currencies in which some or all
of the Fund's portfolio securities are or could be denominated, and to buy U.S.
dollars. These practices are referred to as "cross hedging" and "proxy hedging."
Forward currency exchange contracts are agreements to exchange one currency for
another - for example, to exchange a certain amount of U.S. dollars for a
certain amount of Japanese yen - at a future date and specified price. Because
there is a risk of loss to the Fund if the other party does not complete the
transaction, the Advisor or the Fund's sub-advisor will enter into forward
currency exchange contracts only with parties approved by the Trusts' Board of
Trustees or persons acting pursuant to their direction.
Each of the Funds other than the Money Funds (the "Non-Money Funds") (with the
exception of the Target Maturity 2002, U.S. Government Securities Bond & Stock,
Growth & Income and Northwest Funds) may invest in securities which are indexed
to certain specific foreign currency exchange rates. These securities involve
the possibility of significant changes in rates of exchange between the U.S.
dollar and any foreign currency to which an exchange rate-related security is
linked. In addition, there is no assurance that sufficient trading interest to
create a liquid secondary market will exist for a particular exchange
rate-related security due to conditions in the debt and foreign currency
markets. Illiquidity in the forward foreign exchange market and the high
volatility of the foreign exchange market may from time to time combine to make
it difficult to sell an exchange rate-related security prior to maturity without
incurring a significant loss.
While the foregoing actions are intended to protect the Fund from adverse
currency movements, there is a risk that currency movements involved will not be
properly anticipated, and there can be no assurance that such transactions will
be available or that the Funds will use such transactions even if they are
available. Use of currency hedging techniques may also be limited by the need to
protect the status of the Fund as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code").
FOREIGN INVESTMENTS. The Money Market, Bond & Stock, Growth & Income and
Northwest Funds may invest in securities of foreign issuers if such securities
are denominated in U.S. dollars. The High Yield, Income, Short Term High Quality
Bond, Emerging Growth, Growth and International Growth Funds may invest in both
U.S. dollar denominated and non-U.S. dollar denominated foreign securities.
There are certain risks involved in investing in foreign securities, including
those resulting from (i) fluctuations in currency exchange rates, (ii)
devaluation of currencies, (iii) future political or economic developments and
the possible imposition of currency exchange blockages or other foreign
governmental laws or restrictions, (iv) reduced availability of public
information concerning issuers, and (v) the fact that foreign companies are not
generally subject to uniform accounting, auditing and financial reporting
standards or to other regulatory practices and requirements comparable to those
applicable to domestic companies.
18
<PAGE> 23
Moreover, securities of many foreign companies may be less liquid and their
prices more volatile than those of securities of comparable domestic companies.
In addition, there is the possibility of expropriation, nationalization,
confiscatory taxation and limitations on the use or removal of funds or other
assets of the Funds, including the withholding of dividends. The risks
associated with foreign securities are generally greater for securities of
issuers in emerging markets.
In addition, while the volume of transactions effected on foreign stock
exchanges has increased in recent years, in most cases it remains appreciably
below that of the New York Stock Exchange (the "NYSE"). Accordingly, the Funds'
foreign investments may be less liquid and their prices may be more volatile
than comparable investments in securities of U.S. companies. Moreover, the
settlement periods for foreign securities, which are often longer than those for
securities of U.S. issuers, may affect portfolio liquidity. In buying and
selling securities on foreign exchanges, the Fund normally pays fixed
commissions that are generally higher than the negotiated commissions charged in
the United States. In addition, there is generally less governmental supervision
and regulation of securities exchanges, brokers and issuers in foreign countries
than in the United States. Foreign securities generally are denominated and pay
dividends or interest in foreign currencies, and the value of the Funds' net
assets as measured in U.S. dollars will be affected favorably or unfavorably by
changes in exchange rates.
GEOGRAPHICAL CONCENTRATION. Potential investors in the Northwest Fund and the
Municipal Funds (other than the Tax-Exempt Bond Fund) as well as the California
Money Fund should consider the possibly greater risk arising from the geographic
concentration of their investments, as well as the current and past financial
condition of California and Florida municipal issuers in the case of the
Municipal Funds. In addition to factors affecting the state or regional economy,
certain California and Florida constitutional amendments, legislative measures,
executive orders, administrative regulations, court decisions and voter
initiatives could result in certain adverse consequences affecting California
and Florida municipal obligations, respectively. See the SAI for a more detailed
description of these risks.
GOVERNMENT STRIPPED MORTGAGE-BACKED SECURITIES. The Income, Short Term High
Quality Bond, Target Maturity 2002, U.S. Government Securities and High Yield
Funds may invest in government stripped mortgage-backed securities issued or
guaranteed by GNMA, FNMA or FHLMC. These securities represent beneficial
ownership interests in either periodic principal distributions (principal-only
or "PO strips") or interest distributions (interest-only or "IO strips") on
mortgage-backed certificates issued by GNMA, FNMA or FHLMC, as the case may be.
The mortgages backing GNMA certificates include conventional 30-year fixed-rate
mortgages, 15-year fixed-rate mortgages, graduated payment mortgages, and
adjustable-rate mortgages. The U.S. Government guarantees the timely payment of
interest and principal for these securities. However, the guarantees do not
extend to the securities' yield or value, which are likely to vary inversely
with fluctuations in interest rates, nor do the guarantees extend to the yield
or value of the Fund's shares. Investing in government stripped mortgage-backed
securities involves the risks normally associated with investing in
mortgage-backed securities issued by government or government-related entities.
See "Mortgage-Backed Securities" below. In addition, the yields on PO and IO
strips are extremely sensitive to prepayments on the underlying PO and IO
strips, mortgage loans. If a decline in the level of prevailing interest rates
results in a higher than anticipated rate of principal prepayment, distributions
of principal will be accelerated, thereby reducing the yield to maturity on IO
strips and increasing the yield to maturity on PO strips. Conversely, if an
increase in the level of prevailing interest rates results in a rate of
principal prepayments lower than anticipated, distributions of principal will be
deferred, thereby increasing the yield to maturity on IO strips and decreasing
the yield to maturity on PO strips. Sufficiently high prepayment rates could
result in the Fund losing some or all of its initial investment in an IO strip.
The Funds will acquire government stripped mortgage-backed securities only if a
liquid secondary market for the securities exists at the time of acquisition.
However, there can be no assurance that the Funds will be able to effect a trade
of a government stripped mortgage-backed security at a time when it wishes to do
so.
HOLDINGS IN OTHER INVESTMENT COMPANIES. When the Advisor or a Fund's
sub-advisor believes that it would be beneficial to the Fund, each of the Tax-
Exempt Money Market, California Money, California Insured Intermediate
Municipal, California Municipal, Florida Insured Municipal, Short Term High
Quality
19
<PAGE> 24
Bond, Tax-Exempt Bond, Emerging Growth, Growth and International Growth Funds
may invest up to 10% of its assets in securities of mutual funds that are not
affiliated with the Advisor or the Fund's sub-advisor, if any. As a shareholder
in any such mutual fund, the Fund will bear its ratable share of the mutual
fund's expenses, including management fees, and will remain subject to the
Fund's advisory and administration fees with respect to the assets so invested.
In addition, the Growth Fund may invest Fund assets in money market funds
affiliated with Janus, provided that Janus remits to the Fund the amount of any
investment advisory and administrative services fees paid to Janus as the
investment manager of the money market fund.
ILLIQUID SECURITIES. Up to 15% of the net assets of each Non-Money Fund, and up
to 10% of the net assets of each Money Fund, may be invested in securities that
are not readily marketable. Such illiquid securities may include (1) repurchase
agreements with maturities greater than seven calendar days; (2) time deposits
maturing in more than seven calendar days; (3) to the extent a liquid secondary
market does not exist for the instruments, futures contracts and options
thereon; (4) certain over-the-counter options, as described in the SAI; (5)
certain variable rate demand notes having a demand period of more than seven
days; and (6) securities the disposition of which is restricted under federal
securities laws (excluding certain Rule 144A securities, as described below).
For purposes of the restrictions on illiquid investments, the Funds will not
include securities which may be resold pursuant to Rule 144A under the
Securities Act of 1933, as amended, so long as such securities meet liquidity
guidelines established by the Trusts' Board of Trustees.
LENDING OF SECURITIES. The California Money, California Insured Intermediate
Municipal, Short Term High Quality Bond, Emerging Growth, Growth and
International Growth Funds each may lend portfolio securities up to 20% of total
assets to brokers and other financial organizations. The Bond & Stock, Growth &
Income and Northwest Funds may lend portfolio securities up to 33% of total
assets. These transactions involve a risk of loss to the Fund if the
counterparty should fail to return such securities to the Fund upon demand.
LOWER-RATED SECURITIES. The Income, Tax-Exempt Bond, Bond & Stock, Emerging
Growth, Growth & Income and Growth Funds may each invest up to 35% of the total
assets of the Fund in non-investment grade debt securities, sometimes referred
to as "junk bonds." The High Yield Fund may invest all of its assets in such
securities and will generally invest at least 65% of its assets in such
securities.
Non-investment grade securities usually entail greater risk (including the
possibility of default or bankruptcy of the issuers), generally involve greater
price volatility and risk of principal and income, and may be less liquid than
higher-rated securities. Both price volatility and illiquidity may make it
difficult for the Fund to value or to sell certain of these securities under
certain market conditions. Non-investment-grade debt securities are often
considered to be speculative and involve greater risk of default or price
changes due to changes in the issuer's creditworthiness. The market prices of
these securities may fluctuate more than higher-rated securities and may decline
significantly in periods of general economic difficulty, which may follow
periods of rising interest rates. For further information, see Appendix A to
this Prospectus.
The following table shows, for each indicated Fund, the average percentage of
its total assets that was invested during the past fiscal year in securities
assigned to the various rating categories by S&P, or if unrated by S&P, assigned
to comparable rating categories by another NRSRO, and in unrated securities
determined by the Advisor to be of comparable quality:
<TABLE>
<CAPTION>
Income Tax-Exempt Bond & Stock
S&P RATING Fund Bond Fund Fund
- -------------------------------------------------------------------
<S> <C> <C> <C>
AAA (or US Treasury)......... 40% 36% 24%
AA........................... 2 46 0
A............................ 13 9 1
BBB.......................... 22 4 6
BB........................... 5 0 2
B............................ 6 0 2
Not Rated.................... 7 3 1
</TABLE>
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. The California Insured
Intermediate Municipal, California Municipal, Florida Insured Municipal, Short
Term High Quality Bond, U.S. Government Securities, Emerging Growth and
International Growth Funds may invest in mortgage-backed U.S. Government
securities, which represent interests in a pool of mortgage loans. See
"Government Stripped Mortgage-Backed Securities" above. In addition, the Income,
Bond & Stock and Growth & Income Funds may invest in commercial mortgage-backed
securities, which are similar to the above mortgage-backed
20
<PAGE> 25
securities, except they are not issued or guaranteed by governmental entities.
Commercial mortgage-backed securities include collateralized mortgage
obligations and real estate mortgage investment conduits ("REMICs"). While
commercial mortgage-backed securities are generally structured with one or more
types of credit enhancement, they typically lack a guarantee by an entity having
the credit status of a governmental agency or instrumentality.
To the extent that a Fund purchases mortgage-backed securities at a premium,
mortgage foreclosures and payments and prepayments of principal (which may be
made at any time without penalty) will tend to result in the loss of that
premium. The yield of the Fund may be affected by reinvestment of prepayments at
higher or lower rates than the original investment. In addition, like other debt
securities, the value of mortgage-related securities, including government and
government-related mortgage pools, will generally fluctuate in response to
market interest rates.
The Money Market, Tax-Exempt Money Market, Short Term High Quality Bond, Bond &
Stock, Emerging Growth and High Yield Funds may purchase asset-backed
securities. These Funds will not invest more than 10% of their total assets in
asset-backed securities, except that the Short Term High Quality Bond Fund may
invest up to 25% of its total assets in such securities. Asset-backed securities
are structured like mortgage-backed securities, but instead of mortgage loans or
interests in mortgage loans, the underlying assets may include such items as
motor vehicle installment sales or installment loan contracts, leases of various
types of real and personal property, including home equity loans, and
receivables from credit card agreements. The ability of an issuer of
asset-backed securities to enforce its security interest in the underlying
assets may be limited.
MUNICIPAL LEASES. The Tax-Exempt Money Market, California Money and California
Insured Intermediate Municipal Funds may acquire participations in lease
obligations or installment purchase contract obligations (collectively, "lease
obligations") of municipal authorities or entities. Lease obligations do not
constitute general obligations of the municipality for which the municipality's
taxing power is pledged. Certain of these lease obligations contain
"non-appropriation" clauses, which provide that the municipality has no
obligation to make lease or installment purchase payments in future years unless
money is appropriated for such purpose on a yearly basis. In addition to the
"non-appropriation" risk, these securities represent a relatively new type of
financing that has not yet developed the depth of marketability associated with
more conventional bonds. In the case of a "non-appropriation" lease, the Fund's
ability to recover under the lease in the event of non-appropriation or default
will be limited solely to the repossession of the leased property, and in any
event, foreclosure of that property might prove difficult.
MUNICIPAL OBLIGATIONS AND AMT-SUBJECT BONDS. The two principal classifications
of municipal bonds are "general obligation" and "revenue" bonds. General
obligation bonds are secured by the issuer's pledge of its full faith and
credit, with either limited or unlimited taxing power for the payment of
principal and interest. Revenue bonds are not supported by the issuer's full
taxing authority. Generally, they are payable only from the revenues of a
particular facility, a class of facilities, or the proceeds of another specific
revenue source.
"AMT-Subject Bonds" are Municipal Obligations issued to finance certain "private
activities," such as bonds used to finance airports, housing projects, student
loan programs and water and sewer projects. Interest on AMT-Subject Bonds is a
specific tax preference item for purposes of the federal individual and
corporate alternative minimum taxes. See "Dividends, Capital Gains and Taxes"
for a discussion of the tax consequences of investing in AMT-Subject Bonds.
Current federal income tax laws limit the types and volume of bonds qualifying
for the federal income tax exemption of interest, which may have an effect upon
the ability of the Fund to purchase sufficient amounts of tax-exempt securities.
NON-DIVERSIFIED STATUS. Each of the California Money, California Municipal,
Florida Insured Municipal and California Insured Intermediate Municipal Funds is
classified as "non-diversified" under the 1940 Act, which means that the Fund is
not limited by the 1940 Act in the proportion of its assets that may be invested
in the obligations of a single issuer. Each of these Funds must, however, meet
certain diversification standards to qualify as a regulated investment company
under the Code. See the "Taxes" section in the SAI. Each of these Funds may
assume large positions in the obligations of a small number of issuers, which
may subject the Fund to greater credit and other risks than a more broadly
diversified portfolio.
21
<PAGE> 26
REAL ESTATE INVESTMENT TRUSTS. The Income, Bond & Stock, Growth & Income and
Northwest Funds may invest in real estate investment trusts, known as "REITs."
REITs involve certain unique risks in addition to those risks associated with
investing in the real estate industry in general (such as possible declines in
the value of real estate, lack of availability of mortgage funds or extended
vacancies of property). Equity REITs may be affected by changes in the value of
the underlying property owned by the REITs, while mortgage REITs may be affected
by the quality of any credit extended. REITs are dependent upon management
skills, are not diversified, are subject to heavy cash flow dependency, risks of
default by borrowers, and self-liquidation. REITs are also subject to the
possibilities of failing to qualify for tax-free pass-through of income under
the Code, and failing to maintain their exemptions from registration under the
1940 Act.
Investment in REITs involves risks similar to those associated with investing in
small capitalization companies. REITs may have limited financial resources, may
trade less frequently and in a limited volume and may be subject to more abrupt
or erratic price movements than larger company securities.
REPURCHASE AGREEMENTS. All of the Funds may invest in repurchase agreements,
which are purchases of underlying debt obligations from financial institutions,
such as banks and broker-dealers, subject to the seller's agreement to
repurchase the obligations at an established time and price. Repurchase
agreements can be regarded as loans to the seller, collateralized by the
securities that are the subject of the agreement. Default by the seller would
expose the Fund to possible loss because of adverse market action or delay in
connection with the disposition of the underlying obligations. In addition, if
bankruptcy proceedings are commenced with respect to the seller of the
obligations, the Fund may be delayed or limited in its ability to sell the
collateral. The Tax-Exempt Money Market and California Money Funds' investments
in repurchase agreements are limited by their restrictions on investment in
taxable instruments. Pursuant to an exemptive order granted by the SEC, the
Funds may transfer daily uninvested cash balances into one or more joint trading
accounts. Assets in the joint trading accounts are invested in money market
instruments, and the proceeds are allocated to the participating funds on a pro
rata basis.
RESTRICTED SECURITIES. Each of the Funds may purchase restricted securities
(provided such securities are in the case of the Money Market, Tax-Exempt Money
Market, Income, U.S. Government Securities, Tax-Exempt Bond, Bond & Stock,
Growth & Income and Northwest Funds eligible for resale pursuant to Rule 144A
under the Securities Act of 1933, as amended). Although recent and ongoing
developments in the securities markets have resulted in greater trading of
restricted securities, making restricted securities, in many instances, more
liquid than they once were considered to be, investing in restricted securities
could have the effect of increasing the level of illiquidity of the portfolio
securities of a Fund. While such conditions are in effect, it could be more
difficult for a Fund to fulfill shareholder redemption orders on a timely basis.
If a Fund were required to sell these securities on short notice, it might be
unable to obtain fair market value.
STAND-BY COMMITMENTS. The California Money and Tax-Exempt Money Market Funds
and the Municipal Funds may acquire "stand-by commitments" with respect to
Municipal Obligations held in their portfolios. Under a stand-by commitment, a
dealer agrees to purchase, at a Fund's option, specified Municipal Obligations
at a specified price. A Fund may pay for stand-by commitments either separately
in cash or by paying a higher price for the securities acquired with the
commitment, thus increasing the cost of the securities and reducing the yield
otherwise available from them. The Funds will acquire stand-by commitments
solely to facilitate portfolio liquidity and do not intend to exercise their
rights thereunder for trading purposes.
STRATEGIC TRANSACTIONS. Subject to the investment limitations and restrictions
stated elsewhere in this Prospectus and the SAI, each of the Funds and
Portfolios except the Money Funds may utilize various investment strategies as
described below to hedge various market risks, to manage the effective maturity
or duration of fixed-income securities or for other bona fide hedging purposes.
Utilizing these investment strategies, the Fund or Portfolio may purchase and
sell, to the extent not otherwise limited or restricted for such Fund or
Portfolio, exchange-listed and over-the-counter put and call options on
securities, equity and fixed-income indices and other financial instruments,
purchase and sell financial futures contracts and options thereon, enter into
various interest rate transactions such as swaps, caps, floors or collars, and
22
<PAGE> 27
enter into various currency transactions such as currency forward contracts,
currency futures contracts, currency swaps or options on currencies or currency
futures. The Funds may write (sell) covered call options as well. A call option
is "covered" if the Fund owns the security underlying the option it has written
or it maintains enough cash, cash equivalents or liquid securities to purchase
the underlying security. All the above are collectively referred to as
"Strategic Transactions."
Strategic Transactions may be used to attempt to protect against possible
changes in the market value of securities held in, or to be purchased for, the
Fund's portfolio resulting from securities markets or currency exchange rate
fluctuations, to protect the Fund's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes, to manage the effective maturity or duration of the Fund's portfolio,
or to establish a position in the derivatives markets as a temporary substitute
for purchasing or selling particular securities. Some Strategic Transactions may
also be used to seek potentially higher returns. Any or all of these investment
techniques may be used at any time, as the use of any Strategic Transaction is a
function of numerous variables including market conditions. The use of Strategic
Transactions involves special considerations and risks; for example, (1) the
ability of the Fund to utilize Strategic Transactions successfully will depend
on the ability of the Advisor or the sub-advisor to predict pertinent market
movements, (2) the risk that the other party to a Strategic Transaction will
fail to meet its obligations to the Fund, (3) the risk that the Fund will be
unable to close out a Strategic Transaction at a time when it would otherwise do
so, due to the illiquidity of the Strategic Transaction and (4) the risk of
imperfect correlation, or even no correlation, between price movements of
Strategic Transactions and price movements of the related portfolio positions.
Strategic Transactions can reduce risk of loss by wholly or partially offsetting
the negative effect of unfavorable price movements or of unfavorable currency
fluctuations in the related portfolio or currency positions, but can also reduce
opportunity for gain by offsetting the positive effect of favorable price
movements in positions. The Funds and Portfolios will comply with applicable
regulatory requirements when utilizing Strategic Transactions.
U.S. GOVERNMENT SECURITIES. All of the Funds may invest in U.S. Government
Securities, which include direct obligations of the U.S. Treasury (such as U.S.
Treasury bills, notes and bonds) and obligations issued or guaranteed by U.S.
Government agencies or instrumentalities. Some obligations issued or guaranteed
by agencies or instrumentalities of the U.S. Government are backed by the full
faith and credit of the U.S. Government (such as GNMA bonds), others are backed
only by the right of the issuer to borrow from the U.S. Treasury (such as
securities of Federal Home Loan Banks) and still others are backed only by the
credit of the instrumentality (such as FNMA and FHLMC bonds).
WHEN-ISSUED SECURITIES, FORWARD COMMITMENTS AND DELAYED-DELIVERY
TRANSACTIONS. In order to secure yields or prices deemed advantageous at the
time, the Funds (with the exception of the Money Funds and the Target Maturity
2002 Fund) may purchase or sell securities on a when-issued or a
delayed-delivery basis. The Funds will enter into a when-issued transactions
only for the purpose of acquiring portfolio securities. Due to fluctuations in
the value of securities purchased on a when-issued or a delayed-delivery basis,
the yields obtained on such securities may be higher or lower than the yields
available in the market on the dates when the securities are actually delivered
to the Fund. Similarly, the sale of securities for delayed-delivery can involve
the risk that the prices available in the market when delivery is made may
actually be higher than those obtained in the transaction itself. The California
Money Fund and the Municipal Funds may purchase Municipal Obligations offered on
a "forward commitment" basis.
When-issued Municipal Obligations may include bonds purchased on a "when, as and
if issued" basis, under which the issuance of the securities depends on the
occurrence of a subsequent event, such as approval of a proposed financing by
appropriate municipal authorities. No when-issued or forward commitments will be
made by the California Money Fund or any Municipal Fund if, as a result, more
than 20% of the value of the Fund's total assets would be committed to such
transactions. A significant commitment of a Fund's assets to the purchase of
securities on a "when, as and if issued" basis may increase the volatility of
the Fund's NAV.
YEAR 2000. Many computer software systems in use today cannot properly process
date-related information from and after January 1, 2000. Should any of the
computer systems employed by the Fund's or Portfo-
23
<PAGE> 28
lio's major service providers fail to process this type of information properly,
that could have a negative impact on the Fund's or Portfolio's operations and
the services that are provided to the Fund's or Portfolio's shareholders. The
Advisor and Shareholder Services have advised the Funds and Portfolios that they
are reviewing all of their computer systems with the goal of modifying or
replacing such systems prior to January 1, 2000 to the extent necessary to avoid
any such negative impact. In addition, the Advisor has been advised by the
Custodian that it is also in the process of reviewing its systems with the same
goal. As of the date of this prospectus, the Funds and Portfolios and the
Advisor have no reason to believe that these goals will not be achieved.
Similarly, the values of certain of the Funds' or Portfolio's assets may be
adversely affected by the inability of their issues or third parties to properly
process date-related information from and after January 1, 2000.
PORTFOLIO TRANSACTIONS AND TURNOVER. All orders for the purchase or sale of
securities on behalf of each Fund are placed by the Advisor or relevant sub-
advisor with broker-dealers that it selects. Broker-dealers are selected on the
basis of their ability to obtain best price and execution for a Fund's
transactions and recognizing brokerage, research and other services provided to
the Fund and to the Advisor or sub-advisor. Each Fund may, at the discretion of
the Advisor or sub-advisor, utilize authorized dealers or brokers affiliated
with the Advisor or sub-advisor in connection with a purchase or sale of
securities in accordance with rules adopted or exemptive orders issued by the
SEC and procedures adopted by the Trusts' trustees.
Each Fund's turnover rate varies from year to year, depending on market
conditions and investment strategies. High turnover rates increase transaction
costs and may increase taxable capital gains. Historical portfolio turnover
rates for each Fund are shown under "Financial Highlights" below. The Advisor
and the sub-advisors will not consider portfolio turnover rate to be a limiting
factor in making investment decisions consistent with the Funds' investment
objectives and policies.
RISK FACTORS OF THE PORTFOLIOS
Like any investment in an investment company, investment in the Portfolios
involves risk. Prospective investors in the Portfolios should consider the
following factors:
+ Investing in Funds through the Portfolios involves certain additional expenses
and tax results that would not be present in a direct investment in the Funds.
See "Dividends, Capital Gains and Taxes" for additional information about tax
implications of investing in the Portfolios.
+ Under certain circumstances, a Fund may determine to pay 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 federal securities laws. In
such cases, the Portfolios may hold securities distributed by a Fund until the
Advisor determines that it is appropriate to dispose of such securities.
+ Each of the Portfolios may indirectly invest in lower-rated bonds, commonly
referred to as "junk bonds." The Strategic Growth Portfolio, in particular,
can invest as much as 50% of its total assets in the Growth Fund and the
Growth & Income Fund, 25% of its total assets in the High Yield Fund, and 50%
of its total assets in the Emerging Growth Fund, each of which may invest as
much as 35% of its total assets (in the case of the High Yield Fund, all of
its assets) in lower-rated bonds. As a result, the Portfolios will be subject
to the risks associated with investing in such lower-rated bonds. See "Common
Investment Practices -- Lower-Rated Securities" for additional information
about such risks.
+ Certain Portfolios invest as much as 50% of their total assets in the Growth
Fund or Emerging Growth Fund, each of which may invest up to 25% of its total
assets in foreign equity securities and as much as 5% of its total assets in
securities in developing or emerging markets countries. Certain Portfolios
invest as much as 50% of their total assets in the International Growth Fund,
which invests primarily in foreign equity securities, and may invest as much
as 30% of its total assets in securities in developing or emerging markets
countries. These investments will subject such Portfolios to risks associated
with investing in foreign securities. See "Common Investment Practices --
Foreign Investments" for additional information.
+ The officers, trustees, Advisor, Distributor and transfer agent of the
Portfolios serve in the same
24
<PAGE> 29
capacities for the Funds. Conflicts may arise as these persons and companies
seek to fulfill their fiduciary responsibilities to the Portfolios or the
Funds.
+ From time to time, one or more of the underlying Funds used for investment by
a Portfolio may experience relatively large investments or redemptions due to
reallocations or rebalancings by the Portfolios as recommended by the Advisor.
These transactions will affect such Funds, since the Funds that experience
redemptions as a result of reallocations or rebalancings may have to sell
portfolio securities and 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.
PERFORMANCE INFORMATION
YIELD
MONEY FUNDS. From time to time, advertisements or shareholder reports
concerning the Money Funds may describe yield and effective yield. The yield of
a Money Fund refers to the income generated by an investment in the Fund over a
7-day period identified in the advertisement. This income is then "annualized."
That is, the amount of income generated by the investment during that week is
assumed to be generated each week over a 52-week period and is shown as a
percentage of the investment. Effective yield is calculated similarly but, when
annualized, the income earned by an investment in a Fund is assumed to be
reinvested. Effective yield will generally be slightly higher than the yield
because of the compounding effect of this assumed reinvestment.
FIXED-INCOME AND MUNICIPAL FUNDS. From time to time, the Fixed-Income and
Municipal Funds and the Income, Flexible Income and Balanced Portfolios may
advertise 30-day yield. The 30-day yield of each of these Funds or Portfolios
refers to the income generated by an investment in such Fund over the 30-day
period identified in the advertisement, and is computed by dividing the net
investment income per share earned by the Fund during the period by the maximum
public offering price per share on the last day of the 30-day period. This
income is "annualized" by assuming that the amount of income is generated each
month over a one-year period and is compounded semiannually. The annualized
income is then shown as a percentage of the maximum public offering price. In
addition, these Funds and Portfolios may advertise a similar 30-day yield
computed in the same manner except that the NAV per share is used in place of
the public offering price per share.
TAX-EQUIVALENT YIELD. The Municipal Funds, the California Money Fund and the
Tax-Exempt Money Market Fund may also quote tax-equivalent yield. Tax-
equivalent yield shows the taxable yields an investor would have to earn before
taxes to equal the Fund's tax-free yield. A tax-equivalent yield is calculated
by dividing a Fund's tax-exempt yield by the result of one minus the sum of a
stated federal and applicable state tax rate, based upon the highest marginal
tax rate and adjusted for the federal deduction of state taxes paid. To the
extent that a particular investor is not subject to the highest marginal tax
rate, the tax-equivalent yield experienced by the investor will be lower than
the tax-equivalent yield quoted by the Fund. If only a portion of a Fund's
income is tax-exempt, only that portion is adjusted in the calculation.
TOTAL RETURN
From time to time, a Fund may advertise its average annual total return over
various periods. Such total return figures reflect a deduction for any front end
sales charge or contingent deferred sales charge and show the average percentage
change in value of an investment in the Fund from the beginning date of the
25
<PAGE> 30
measuring period. These figures reflect changes in the price of the Fund's
shares and assume that any income dividends and/or capital gains distributions
made by the Fund during the period were reinvested. Figures will be given for
recent one-, five-and ten-year periods (or from commencement of the Fund's
operations) and may be given for other periods.
ADDITIONAL PERFORMANCE QUOTATIONS.
Advertisements of total return may also show total return without giving effect
to sales charges. Similarly, a Fund may provide yield quotations in investor
communications based on the Fund's NAV (rather than its public offering price)
on the last day of the period covered by the yield computation. Because these
additional quotations will not reflect the maximum sales charge payable, such
performance quotations will be higher than the performance quotations that
include the maximum sales charge.
TOTAL RETURNS AND YIELDS ARE BASED ON PAST RESULTS AND ARE NOT A PREDICTION OF
FUTURE PERFORMANCE.
Performance information is computed separately for each class of shares. Because
Class B shares bear the expense of the higher distribution and service fees, it
is expected that performance for such shares will be lower than that for a
Fund's Class A shares.
OBTAINING PERFORMANCE INFORMATION
Each Fund's strategies, performance, and holdings are detailed twice a year in
Fund reports, which are sent to all shareholders. The SAI describes the methods
used to determine a Fund's performance. Shareholders may call 800-222-5852 for
performance information.
26
<PAGE> 31
WAYS TO SET UP YOUR ACCOUNT
+ Individual or Joint Account
Individual accounts are owned by one person. Two types of joint accounts
(having two or more owners) can be opened:
1) in a "joint tenancy" account, the surviving owner(s) automatically
receive(s) the shares of any owner(s) who die(s); and
2) in a "tenants in common" account, the heir(s) of any deceased owner
receive(s) such owner's shares, rather than the surviving owners of the joint
account.
+ Retirement
Retirement plans protect investment income and capital gains from current
taxes. Contributions to these accounts may be tax deductible. Retirement
accounts require special applications and typically have lower minimums.
- INDIVIDUAL RETIREMENT ACCOUNTS ("IRAS") allow persons of legal age and
under 70 1/2 years old with Adjusted Gross Income ("AGI") of less than
$40,000 (or $60,000 if married and filing jointly) to protect up to $2,000
(subject to certain limitations for single persons with AGI equal to or
greater than $30,000 and married persons who file jointly with AGI equal to
or greater than $50,000) per tax year from certain tax effects. If your
spouse does not work, you can protect up to an additional $2,000 per year
in your spouse's name.
- ROTH IRAS allow persons of legal age with AGI not exceeding $110,000 (or
$160,000 if married and filing jointly) to protect up to $2,000 on a
non-deductible basis (subject to certain limitations for single persons
with AGI equal to or greater than $95,000 and married persons who file
jointly with AGI equal to or greater than $150,000) per tax year from
certain tax effects.
- ROLLOVER IRAS allow persons to retain special tax advantages for certain
transfers from employer-sponsored retirement plans (often occurring when a
person changes employers).
- SIMPLIFIED EMPLOYEE PENSION PLANS ("SEP-IRAS") provide small business
owners or those with self-employed income (and their eligible employees)
with many of the same advantages as a Keogh, but with fewer administrative
requirements.
+ Gifts or Transfers to a Minor Child
("UGMA" or "UTMA")
These gifts or transfers provide a way to give money to a child and obtain
certain tax benefits. A parent or grandparent can give up to $10,000 a year to
each child without paying federal gift tax. Depending on state laws, you can
set up a custodial account under the Uniform Gifts to Minors Act (UGMA) or the
Uniform Transfers to Minors Act (UTMA).
+ Trust
Trusts can be used for many purposes, including charitable contributions and
providing a regular income for a child until a certain age. The trust must be
established before an account can be opened.
+ Corporation or Other Organization
Corporations, associations, partnerships, institutions, or other groups may
invest for many purposes.
27
<PAGE> 32
HOW TO INVEST IN THE FUNDS
AND PORTFOLIOS
TO OPEN AN ACCOUNT:
(MINIMUM $1,000*)
TO ADD TO AN ACCOUNT:
(MINIMUM $50**)
- --------------------------------------------------------------------------------
+ By Phone -- 800-222-5852
Exchange from another Fund or Portfolio account with the same registration,
including name, address, and taxpayer ID number (social security number for an
individual).
Call WM Shareholder Services at 800-222-5852. (5:00 a.m. to 6:00 p.m., Pacific
Time/8:00 a.m. to 9:00 p.m., Eastern Time, Monday through Friday and 6:00 a.m.
to 3:00 p.m., Pacific Time/9:00 a.m. to 6:00 p.m., Eastern Time, on Saturdays)
Exchange from another Fund or Portfolio account with the same registration,
including name, address, and taxpayer ID number.
Call WM Shareholder Services at 800-222-5852
- --------------------------------------------------------------------------------
+ By Mail
Complete and sign the application. Make your check or negotiable bank draft
payable to The WM Group of Funds. Third-party checks are not accepted.
Mail the completed application form and check to:
THE WM GROUP OF FUNDS
P.O. BOX 9757
PROVIDENCE, RI 02940-9757
Make your check payable to The WM Group of Funds. Indicate your account number
on your check. Include the "next investment" stub from your previous account
statement. Mail the check and stub to the address printed on your account
statement.
Exchange by mail: call 800-222-5852 for instructions
- --------------------------------------------------------------------------------
+ By Wire
1) Telephone WM Shareholder Services for an application form and instructions.
2) Instruct your bank to wire Federal Funds exactly as follows:
BOSTON SAFE DEPOSIT AND TRUST
BOSTON, MA
ABA# 011-001234
FOR CREDIT TO:
THE WM GROUP OF FUNDS
ACCOUNT #167053
(FUND NAME AND CLASS OF SHARES)
(CUSTOMER'S NAME)
(CUSTOMER'S SOCIAL SECURITY NUMBER)
3) Mail the completed application form to:
THE WM GROUP OF FUNDS
P.O. BOX 9757
PROVIDENCE, RI 02940-9757
Instruct your bank/financial institution to wire Federal Funds as described at
left under paragraph 2.
28
<PAGE> 33
HOW TO INVEST IN THE FUNDS
AND PORTFOLIOS (CONT.)
TO OPEN AN ACCOUNT:
(MINIMUM $1,000*)
TO ADD TO AN ACCOUNT:
(MINIMUM $50**)
- --------------------------------------------------------------------------------
+ Systematic
(Minimum New Account amount $50+)
1) Obtain and complete an application form.
2) Attach a voided check or deposit slip from the bank account you would like
the investments transferred from and indicate either the day of the week or
day(s) of the month when the purchase would occur.
3) Mail the application to the address listed above.
Pre-authorized periodic investments will be processed automatically. (Minimum
Amount $25++)
- --------------------------------------------------------------------------------
* $10,000 for the Portfolios and $2,000 for IRA accounts investing in the
Portfolios.
** $100 for the Portfolios.
+ $1,000 for the Portfolios.
++ $100 for the Portfolios.
29
<PAGE> 34
BUYING CLASS A SHARES
The offering price for Class A shares of the Non-Money Funds is the NAV next
calculated after receipt of a properly completed purchase order, plus an initial
sales charge as shown in the table below. Sales charges may be reduced or waived
as discussed following the table. The final column in each table indicates what
dealers receive for selling Class A shares.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
+ FIXED-INCOME FUNDS
(other than Short Term High Quality Bond
and Target Maturity 2002 Funds)
+ MUNICIPAL FUNDS
+ Income and Flexible Income
Portfolios
----------------------------------------------------------------------------------------
REALLOWED
SALES CHARGE TO DEALERS
----------------------------------------------------------------------------------------
Percentage Percentage of Percentage
of Offering Net Amount of Offering
Purchase of Class A Shares Price Invested Price
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Less than $50,000 4.50% 4.71% 4.00%
----------------------------------------------------------------------------------------
$50,000 to $100,000 4.00 4.17 3.50
----------------------------------------------------------------------------------------
$100,000 to $250,000 3.50 3.63 3.00
----------------------------------------------------------------------------------------
$250,000 to $500,000 2.50 2.56 2.00
----------------------------------------------------------------------------------------
$500,000 to $1,000,000 2.00 2.04 1.75
----------------------------------------------------------------------------------------
$1,000,000 and above* .00 .00 .00
----------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
<CAPTION>
- --- -----------------------------------------------------
+ Equity Funds
Strategic Growth,
Conservative Growth and
Balanced Portfolios
-------------------------------------------------
REALLOWED
SALES CHARGE TO DEALERS
-------------------------------------------------
Percentage Percentage of Percentage
of Offering Net Amount of Offering
Price Invested Price
-------------------------------------------------
<S> <C> <C> <C> <C> <C>
5.50% 5.82% 4.75%
----------------------------------------------------------------------------------------
4.75 4.99 4.00
----------------------------------------------------------------------------------------
3.75 3.90 3.00
----------------------------------------------------------------------------------------
3.00 3.09 2.50
----------------------------------------------------------------------------------------
2.00 2.04 1.75
----------------------------------------------------------------------------------------
.00 .00 .00
----------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
+ SHORT TERM HIGH QUALITY
Bond Fund
----------------------------------------------------------------------------------------
REALLOWED
SALES CHARGE TO DEALERS
----------------------------------------------------------------------------------------
Percentage Percentage of Percentage
of Offering Net Amount of Offering
Purchase of Class A Shares Price Invested Price
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Less than $50,000 3.50% 3.63% 3.00%
----------------------------------------------------------------------------------------
$50,000 to $100,000 3.00 3.09 2.50
----------------------------------------------------------------------------------------
$100,000 to $250,000 2.50 2.56 2.00
----------------------------------------------------------------------------------------
$250,000 to $500,000 2.25 2.30 2.00
----------------------------------------------------------------------------------------
$500,000 to $1,000,000 2.00 2.04 1.75
----------------------------------------------------------------------------------------
$1,000,000 and above* .00 .00 .00
----------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
<CAPTION>
- --- -----------------------------------------------------
+ Target Maturity
2002 Fund
-------------------------------------------------
REALLOWED
SALES CHARGE TO DEALERS
-------------------------------------------------
Percentage Percentage of Percentage
of Offering Net Amount of Offering
Price Invested Price
-------------------------------------------------
<S> <C> <C> <C> <C> <C>
2.00% 2.04% 1.75%
----------------------------------------------------------------------------------------
1.50 1.52 1.25
----------------------------------------------------------------------------------------
1.00 1.01 0.75
----------------------------------------------------------------------------------------
1.00 1.01 0.75
----------------------------------------------------------------------------------------
0.50 0.50 0.50
----------------------------------------------------------------------------------------
.00 .00 .00
----------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
</TABLE>
* See "net asset value purchases" below.
Example: An investor considers putting $1,000 into an Equity Fund's Class A
shares. Based on the first column in the above table, 5.50% of the $1,000 would
pay for a sales charge. The charge would be $55.00, which is 5.82% of the net
investment of $945.00, as the next column shows. The dealer selling the shares
would be paid $47.50 of the $55.00, which is 4.75% of $1,000, as the last column
shows.
30
<PAGE> 35
CUMULATIVE DISCOUNT. This allows current purchases to qualify for the foregoing
discounts by including the value of shares of the Funds and Portfolios that were
purchased subject to an initial or contingent deferred sales charge. The
discount will be based on current market value. Those eligible for a cumulative
discount include individuals, immediate family members or trustees purchasing
for single fiduciary accounts.
LETTER OF INTENT. This discount is for purchases made over an extended period.
It provides for a cumulative discount on the same basis as explained in the
previous paragraph if the following conditions are met: Purchases of Class A
shares must be made within a 13-month period that begins no earlier than 90 days
before the submission of a letter of intent from the investor to the Funds. For
more information about this discount, please contact Shareholder Services or
your Investment Representative.
REINVESTMENT. Redemption proceeds of Class A shares that were subject to a
sales charge when first purchased may be reinvested in Class A shares within 120
days without incurring another initial sales charge. Redemption proceeds of
Class B shares that were subject to a contingent deferred sales charge may be
reinvested in Class A shares within 120 days without incurring an initial sales
charge.
NET ASSET VALUE PURCHASES. There is no initial sales charge on Class A
purchases of $1 million or more, but such purchases are generally subject to a
contingent deferred sales charge of 1.00% if redeemed during the first year
after purchase or .50% if redeemed during the second year after purchase.
Qualified employee benefit plans (including SEPs and SIMPLEs) that have more
than 100 participants or that have more than $500,000 invested in the Funds and
Portfolios may purchase shares without an initial sales charge. However, a
contingent deferred sales charge of 1% may be imposed on the amount that was
invested through such a plan in Class A shares and that is redeemed (i) if,
within the first two years after the plan's initial investment in the Funds or
Portfolios, the named fiduciary of the plan withdraws the plan from investing in
the Funds and Portfolios in a manner that causes all shares held by the plan's
participants to be redeemed; or (ii) by a plan participant within two years of
the plan participant's purchase of such Class A shares. The contingent deferred
sales charge will be waived on redemptions in connection with certain
involuntary distributions, including distributions arising out of the death or
post purchase disability of a shareholder (including one who owns the shares as
joint tenant).
Class A shares may be purchased at net asset value, and in any amount, by
officers, directors and employees of the Advisor or its affiliates, or companies
which have entered into selling agreements with the Distributor, and to certain
family members of such individuals. The purchase must be for investment purposes
only and may not be resold other than through redemption by the Fund or
Portfolio. The Funds and Portfolios may also offer their shares at net asset
value to certain retirement plans; to investors who purchase shares with the
proceeds of redemptions of shares of other mutual funds advised by WM Advisors
or its affiliates within five business days of such redemptions; and to brokers,
dealers or registered investment advisors who have entered into arrangements
with the Distributor providing specifically for the shares to be used in
particular investment products made available to their clients for which they
may charge a separate fee. No sales charge will be assessed on a purchase by any
other investment company in connection with the combination of such company with
the Trust by merger, acquisition of assets or otherwise. The Distributor will
pay authorized dealers commissions on certain net asset value purchases as
described in the SAI.
EACH FUND AND PORTFOLIO RESERVES THE RIGHT TO SUSPEND THE OFFERING OF SHARES OF
ANY CLASS AT ANY TIME. Each Fund and Portfolio also reserves the right to
reject any specific purchase order, including purchases by exchange.
CONSULT AN INVESTMENT REPRESENTATIVE OR SEE THE SAI IF YOU THINK YOU MAY QUALIFY
FOR ANY OF THESE PURCHASE PLANS. YOU MUST NOTIFY THE FUND OR PORTFOLIO AT THE
TIME OF PURCHASE WHENEVER A REDUCED SALES CHARGE OR NET ASSET VALUE PURCHASE
APPLIES.
BUYING CLASS B SHARES
Class B shares are offered at the NAV next calculated after receipt of a
properly completed purchase order, without an initial sales charge. The entire
amount of the purchase price is invested in the Fund selected. However, Class B
shares have higher distribution and service fees than Class A shares for eight
years. Also, if Class B shares are redeemed within five years of purchase (four
years in the case of Class B shares of
31
<PAGE> 36
the Short Term High Quality Bond Fund), a contingent deferred sales charge
generally must be paid.
The proceeds from any contingent deferred sales charges are paid to the
Distributor to defray expenses for providing distribution services for Class B
shares. Examples of such expenses include compensation to salespeople and
selected dealers. The Distributor currently pays authorized dealers commissions
of 4.00% of the price of Class B shares sold by them (3.00% for Class B shares
of the Short Term High Quality Bond Fund).
CONTINGENT DEFERRED SALES CHARGE. Class B shares redeemed within five years of
purchase are subject to a contingent deferred sales charge according to the
following schedule. Class B shares purchased by exchange will be subject to a
contingent deferred sales charge using the schedule of the Fund originally
purchased. Shares purchased through reinvestment of dividends or capital gain
distributions are not subject to a contingent deferred sales charge.
Class B shares of all Funds (except for the Short Term High Quality Bond Fund)
and Class B shares of all Portfolios:
<TABLE>
<CAPTION>
YEAR OF
REDEMPTION Contingent
AFTER PURCHASE Deferred Sales Charge
- ------------------------------------------------------------------
<S> <C>
First...................................... 5.00%
Second..................................... 4.00%
Third...................................... 3.00%
Fourth..................................... 2.00%
Fifth...................................... 1.00%
Sixth and following........................ 0.00%
</TABLE>
Class B shares of the Short Term High Quality Bond Fund:
<TABLE>
<CAPTION>
YEAR OF
REDEMPTION Contingent
AFTER PURCHASE Deferred Sales Charge
- ------------------------------------------------------------------
<S> <C>
First.................................... 4.00%
Second................................... 3.00%
Third.................................... 2.00%
Fourth................................... 1.00%
Fifth and following...................... 0.00%
</TABLE>
Class B shares of certain Funds purchased prior to March 20, 1998 may be subject
to a different contingent deferred sales charge schedule, as described in the
SAI.
The contingent deferred sales charge is calculated by applying the above
percentages to the lesser of (i) the NAV of the redeemed shares at the time they
were purchased or (ii) the NAV of the redeemed shares at the time of redemption.
This means that no contingent deferred sales charge will be charged on any NAV
increases above the initial purchase price. Shares are redeemed in the order
that results in the lowest possible rate being charged. Accordingly, they will
be redeemed first from shares purchased through reinvested dividends or capital
gain distributions and then in the order of purchase.
Here is an example:
An investor purchases 100 Class B shares at $10 per share -- for a total cost of
$1,000. In the second year after the purchase, the NAV has risen to $12 per
share, and the investor has acquired 10 more shares through dividend
reinvestment.
At that time, the investor decides to make the first redemption. The transaction
includes 50 shares at $12 per share -- for a total of $600.
The first 10 shares to be redeemed will not be subject to any charge because of
the 10 shares received from dividend reinvestment.
As for the other 40 shares, the charge will be applied only to the original cost
of $10 per share. The NAV increase of $2 per share will not be considered. As a
result, $400 of the redemption proceeds (40 X $10) will be charged a rate of 4%,
which is the second-year rate shown in the table above. The resulting sales
charge will be 4% X $400, which will be $16.
The contingent deferred sales charge may be waived for redemptions of Class B
shares under these circumstances: (1) Following the death or post-purchase
disability of a shareholder, as defined in Section 72(m)(7) of the Code; (2) In
connection with certain distributions from an IRA or other retirement plan, as
described in the SAI, including IRA distributions made to shareholders over age
59 1/2; (3) According to a systematic withdrawal plan -- but limited to 12%
annually of the value of the account at the time the plan is established; and
(4) In connection with the liquidation by the Fund or Portfolio of a
shareholder's account as described under "How to Sell Shares."
YOU MUST NOTIFY THE FUND OR PORTFOLIO WHENEVER YOU ARE ENTITLED TO A WAIVER OR
REIMBURSEMENT OF CDSC.
CONVERSION FEATURE. Class B shares that remain outstanding for eight years will
convert to Class A shares of the same Fund or Portfolio based on the relative
NAVs at the time of conversion.
32
<PAGE> 37
Some investors buy shares at several different times and reinvest dividends and
capital gains over an extended period. Each time a conversion takes place, a
pro-rata portion of shares of the same class acquired through the reinvestment
of dividends and capital gain distributions also will convert to Class A shares.
The conversion of Class B shares to Class A shares is subject to a favorable
ruling from the Internal Revenue Service or a determination by the Board of
Trustees, after consultation with legal counsel that such conversion will not be
subject to federal income taxes. There cannot be any assurance that a ruling or
determination will be available. If they should not be available, the conversion
of Class B shares to Class A shares would not occur and those shares would
continue to be subject to higher expenses than Class A shares for an indefinite
period. Class B shares of Funds of WM Trust I purchased prior to March 20, 1998,
will generally convert to Class A shares six years after they were initially
purchased. Please see the SAI for further information.
DISTRIBUTION OF INCOME AND CAPITAL GAINS
The Funds and Portfolios distribute dividends from net investment income (which
is essentially interest and dividends from securities held), minus expenses.
They also make capital gain distributions if realized gains from the sale of
securities exceed realized losses. The amount of dividends of net investment
income and distributions of net realized long- and short-term capital gains
payable to shareholders will be determined separately for each Fund or
Portfolio. Dividends from the net investment income of the Money, Fixed-Income
and Municipal Funds and the Balanced, Flexible Income and Income Portfolios will
normally be declared daily and paid monthly. Dividends from the net investment
income of the Bond & Stock and Growth & Income Funds and the Conservative Growth
Portfolio will normally be declared and paid quarterly. Dividends from the net
investment income of the Growth Fund and the Strategic Growth Portfolio will
normally be declared and paid semiannually. Dividends from the net investment
income of the Northwest, Emerging Growth and International Growth Funds will
normally be declared and paid annually. Except as otherwise specified, the Funds
and Portfolios distribute capital gains, if any, at least annually, normally in
December.
You have three choices regarding what you do with dividends and capital gain
distributions. You can make your choice at the time of your initial purchase or
by contacting the Funds' offices or your investment representative. The options
include:
AUTOMATIC REINVESTMENT. This procedure is automatically effective unless you
choose another option. All dividends and capital gain distributions are
reinvested into additional shares of the Fund or Portfolio.
REINVEST DIVIDENDS IN ANOTHER FUND OR PORTFOLIO. Income dividends may be
automatically invested in the same class of shares of another Fund or Portfolio,
provided that Fund or Portfolio is available for sale in your state of
residence.
CASH PAYMENT OF ALL DISTRIBUTIONS. All dividends and capital gain distributions
are deposited to your pre-authorized bank account or paid by check.
Reinvestments of income dividends and capital gain distributions are made at the
closing NAV on the day dividends or distributions are deducted from the Fund's
assets.
If you've chosen to receive dividends or capital gain distributions in cash and
your check is returned as undeliverable, the Funds reserve the right (but are
not obligated) to reinvest your check at the then-current NAV and to
automatically reinvest subsequent dividends and capital gain distributions in
your account. The Funds may also automatically reinvest dividends or
distributions of $10 or less.
HOW TO SELL SHARES
YOU MAY REDEEM SHARES AT ANY TIME. The price paid per share will be the next
NAV that is calculated (less any applicable CDSC).
TELEPHONE. You may authorize telephone transactions on your Fund account
application. Provided you have pre-authorized these transactions, you may redeem
or exchange shares by telephoning 800-222-5852. You may also request these
transactions through your investment representative. Proceeds may be directed to
a pre-authorized bank or broker account or to the address of record for the
account. Exchanges also may be made by telephone.
It may be difficult to reach the Trusts' offices by telephone during periods of
unusual economic or market activity. Please be persistent if this occurs. The
Funds' and Portfolios' transfer agent is committed to
33
<PAGE> 38
extending its 5:00 a.m. to 6:00 p.m. Pacific time business hours during such
periods.
For your protection, all telephone instructions are verified by requesting
personal shareholder information, providing written confirmations of each
telephone transaction, and recording telephone instructions. WM Shareholder
Services, Inc. ("Shareholder Services" or the "Transfer Agent") may require a
Letter of Authorization, other documents, or authorization from your broker to
initiate telephone redemptions of $50,000 or more that are not directed to your
pre-authorized bank or broker account. If these or other reasonable procedures
are used, neither the Transfer Agent nor the Funds or Portfolios will be liable
for following telephone instructions which they reasonably believe to be
genuine. Shareholders assume the risk of any losses in such cases. However, the
Transfer Agent or the Trusts may be liable for any losses because of
unauthorized or fraudulent telephone instructions if they fail to follow
reasonable procedures.
WRITTEN REQUEST. Redemptions also may be requested by writing the Trusts'
offices. Written requests may require a signature guarantee, as discussed below,
and the return of any outstanding share certificates. Changes in pre-authorized
redemption instructions or your account registration may also require signature
guarantees. For your protection, the signature(s) must be guaranteed by an
eligible guarantor institutions which includes banks, credit unions, broker
dealers, national securities exchanges, savings institutions as well as
medallion signature guarantee.
PROMPT PAYMENT. Payment normally will be made on the next business day after
redemption, but no later than seven days after the transaction, unless you
recently purchased Fund shares by check or Automated Clearing House transfer. In
that case, redemption proceeds may be delayed for up to 15 days, until the
Transfer Agent verifies collection of funds. Redemption proceeds will be sent by
check or Automated Clearing House transfer to your bank account without charge.
Wire redemption proceeds may be subject to a $10 fee. The receiving bank also
may charge a fee.
SYSTEMATIC WITHDRAWAL PLAN. Shareholders may choose to receive specific cash
withdrawals on a periodic basis. A $5,000 minimum balance in the applicable Fund
or $10,000 in the applicable Portfolio is required to establish a systematic
withdrawal plan (the minimum balance requirement is waived for IRA accounts).
Shares of the Fund or Portfolio will be redeemed to provide the requested
payment. Naturally, withdrawals that continually exceed dividend income and
capital gains will eventually exhaust the account. Class B shareholders may use
a systematic withdrawal plan to redeem up to 12% of the beginning balance
annually without incurring a contingent deferred sales charge. The beginning
balance is the account balance at the time the plan is established.
OTHER CONSIDERATIONS. It is costly to maintain small accounts. Accordingly, an
account may be closed after 90 days' written notice if the total account value
falls below a minimum (currently $7,000 for the Portfolios and $700 for the
Funds or, in the case of an IRA account, $300 for the Funds and $500 for the
Portfolios) when any transfer or redemption is made. Shares will be redeemed at
the next calculated NAV, less any applicable CDSC, on the day the account is
closed. To prevent an account closure, investors may purchase shares to bring
their account balance above the minimum during the 90-day grace period.
IRAS AND OTHER TAX-SHELTERED RETIREMENT PLANS
Shares of the Funds or Portfolios may be appropriate for many retirement plans,
including IRAs. Retirement plan contributions are tax deductible in some cases,
and earnings compound on a tax-deferred basis until withdrawn.
Information about IRAs and other qualified retirement plans is available from
the Trusts' offices or your Investment Representative.
EXCHANGE PRIVILEGE AND RESTRICTIONS
You may exchange shares of any of the Funds or Portfolios for shares of the same
class of any other of the Funds or Portfolios. Exchanges of shares are sales and
may result in a gain or loss for income tax purposes.
Exchanges are made at the relative NAVs of the shares being exchanged. No
additional sales charge will be incurred when exchanging shares from a Fund
which imposes an initial or contingent deferred sales charge. Any contingent
deferred sales charge on the subsequent sale of shares acquired by exchange will
be based on the contingent deferred sales charge schedule
34
<PAGE> 39
of the Fund from which the shares were initially purchased. Shares exchanged
from a Money Fund will be subject to the acquired Fund's sales charge unless the
shares given in exchange were previously exchanged from a Fund that imposes an
initial or contingent deferred sales charge.
All exchanges are subject to the minimum investment requirements of the Fund or
Portfolio being acquired and to its availability for sale in your state of
residence. You may arrange for automatic monthly exchanges. The Funds and
Portfolios reserve the right to refuse any order for the purchase of shares,
including those by exchange. In particular, a pattern of exchanges that
coincides with a "market timing" strategy may be disruptive to a Fund or
Portfolio and, consequently, may be disallowed.
DIVIDENDS, CAPITAL GAINS AND TAXES
Each Fund and each Portfolio intends to qualify as a "regulated investment
company" for federal income tax purposes and to meet all other requirements
necessary for it to be relieved of federal taxes on income and gains it
distributes to shareholders. Each Fund and Portfolio will distribute
substantially all of its ordinary income and capital gain net income on a
current basis.
You are responsible for federal income tax (and state and local income taxes, if
applicable) on dividends and capital gain distributions. This is true whether
such dividends or distributions are paid in cash or reinvested in additional
shares. You will be advised annually as to the amount and tax status of these
dividends and distributions.
Generally, dividends paid by the Funds and Portfolios from interest, dividends
or net short-term capital gains will be taxed as ordinary income. Distributions
designated by the Fund or Portfolio as deriving from net gains on securities
held for more than one year are taxable as such (generally at a 20% tax rate),
regardless of how long you have held your shares. Distributions of gains
realized in 1997 may be subject to tax at a 28% rate.
A dividend or distribution made shortly after the purchase of shares of a Fund
or Portfolio by a shareholder, although in effect a return of capital to that
particular shareholder, would be taxable to him or her as described above. If a
shareholder held shares six months or less and during that period received a
distribution of net capital gains, any loss realized on the sale of such shares
during such six-month period would be a long-term capital loss to the extent of
such distribution.
Because of tax law requirements, you must provide the Trusts an accurate and
certified taxpayer identification number (for individuals, a Social Security
number) to avoid the 31% "back-up" withholding tax.
Early in each calendar year each Fund and Portfolio will notify you of the
amount and tax status of distributions paid to you for the preceding year.
ADDITIONAL CONSIDERATIONS FOR SHAREHOLDERS OF THE MUNICIPAL FUNDS, THE
TAX-EXEMPT MONEY MARKET FUND AND THE CALIFORNIA MONEY FUND. Dividends paid by
any of the Municipal Funds, the Tax-Exempt Money Market Fund or the California
Money Fund that are derived from interest earned on qualifying tax-exempt
obligations will be "exempt-interest" dividends that shareholders may exclude
from their gross income for federal income tax purposes, if at the close of each
quarter of that Fund's taxable year at least 50 percent of the Fund's total
assets consists of obligations the interest on which is excludable from gross
income for federal income tax purposes. To the extent that any of these Funds
invest in AMT-Subject Bonds, any exempt-interest dividends derived from interest
on such AMT-Subject Bonds are a specific preference item for purposes of the
federal alternative minimum tax for individuals and corporations. In any event,
all exempt-interest dividends will be a component of adjusted current earnings
for purposes of computing the federal corporate alternative minimum tax.
Part or all of the interest on indebtedness incurred or continued by
shareholders to purchase or carry shares of the Municipal Funds, the Tax-Exempt
Money Market Fund and the California Money Fund is not deductible for federal
income tax purposes. The Municipal Funds, the Tax-Exempt Money Market Fund and
the California Money Fund may not be an appropriate investment for persons
(including corporations and other business entities) who are not currently
subject to federal income tax (such as certain qualified retirement accounts) or
who are "substantial users" (or who are related to substantial users) of
facilities financed by "private activity bonds" or certain industrial
development bonds. "Substantial user" is defined generally as including a
"non-exempt person" who regularly uses in a trade or business a part of a
facility financed from the proceeds of such bonds. Entities or persons who are
"substantial users" (or
35
<PAGE> 40
persons related to "substantial users") should consult their tax advisors before
purchasing shares of the Municipal Funds or the California Money Fund.
Shareholders who receive social security or railroad retirement benefits should
also consult their tax advisors to determine what effect, if any, an investment
in the Municipal Funds, the Tax-Exempt Money Market Fund or the California Money
Fund may have on the taxation of your benefits.
ADDITIONAL CONSIDERATIONS FOR SHAREHOLDERS OF THE FLORIDA INSURED MUNICIPAL
FUND. Florida does not impose an income tax on individuals. Accordingly,
dividends or distributions by the Florida Insured Municipal Fund to an
individual who is a Florida resident are not subject to state income tax in
Florida. Florida imposes an income tax on corporations. Corporate taxpayers
should consult their tax advisor concerning the Florida income tax treatment of
dividends or distributions. Florida imposes an intangible personal property tax
on shares of the Fund owned by a Florida resident on January 1 of each year
unless such shares qualify for an exemption from the tax.
The Fund has received a Technical Assistance Advisement from the State of
Florida, Department of Revenue, to the effect that Fund shares owned by a
Florida resident will be exempt from the intangible personal property tax so
long as the Fund's portfolio includes, on the last business day of the preceding
calendar year, only assets, such as notes, bonds, and other obligations issued
by the State of Florida or its municipalities, counties, and other taxing
districts, the United States Government, and its agencies, Puerto Rico, Guam,
and the U.S. Virgin Islands, which are exempt from that tax.
ADDITIONAL CONSIDERATIONS FOR SHAREHOLDERS OF THE CALIFORNIA MONEY FUND,
CALIFORNIA MUNICIPAL FUND AND CALIFORNIA INSURED INTERMEDIATE MUNICIPAL
FUND. If, at the close of each quarter of its taxable year, at least 50% of the
value of the total assets of each of the California Money Fund, California
Municipal Fund and California Insured Intermediate Municipal Fund (the
"California Funds") consist of obligations the interest on which would be exempt
from California personal income tax if the obligations were held by an
individual ("California Tax-Exempt Obligations"), and if each of the California
Funds continues to qualify as a regulated investment company for federal income
tax purposes, then each respective California Fund will be qualified to pay
dividends, subject to certain limitations, to its shareholders that are exempt
from California State personal income tax, but not from California State
franchise tax or California State corporate income tax ("California
exempt-interest dividends"). However, the total amount of California
exempt-interest dividends paid by each of the California Funds to each of the
California Fund's non-corporate shareholders with respect to any taxable year
cannot exceed the amount of interest received by such California Fund during
such year on California Tax-Exempt Obligations less any expenses and
expenditures (including any dividends paid to corporate shareholders) deemed to
have been paid from such interest. If the aggregate dividends exceed the amount
that may be treated as California exempt-interest dividends, only that
percentage of each dividend distribution equal to the ratio of aggregate
California exempt-interest dividends to aggregate dividends will be treated as a
California exempt-interest dividend. Dividend distributions that do not qualify
for treatment as California exempt-interest dividends will be taxable to
shareholders at ordinary tax rates for California personal income tax purposes.
In addition, shareholders who receive social security or railroad retirement
benefits should consult their tax advisors to determine what effect, if any, an
investment in one of these Funds may have on the taxation of these benefits.
ADDITIONAL CONSIDERATIONS FOR SHAREHOLDERS OF THE INTERNATIONAL GROWTH FUND. If
at the end of the International Growth Fund's fiscal year more than 50% of the
value of its total assets represents securities of foreign corporations, the
Fund intends to make an election permitted by the Code to treat any foreign
taxes paid by it on securities it has held for at least the minimum period
specified in the Code as having been paid directly by the Fund's shareholders in
connection with the Fund's dividends received by them. In this case,
shareholders generally will be required to include in U.S. taxable income their
pro rata share of such taxes, and those shareholders who are U.S. citizens, U.S.
corporations and, in some cases, U.S. residents will be entitled to deduct their
share of such taxes. Alternatively, such shareholders who hold Fund shares
(without protection from risk of loss) on the ex-dividend date and for at least
15 other days during the 30-day period surrounding the ex-dividend
36
<PAGE> 41
date will be entitled to claim a foreign tax credit for their share of these
taxes.
In addition, investment by a Fund in an entity that qualifies as a "passive
foreign investment company" under the Code could subject the Fund to a U.S.
federal income tax or other charge on certain "excess distributions" with
respect to the investment, and on the proceeds from disposition of the
investment. This tax or charge may be avoided, however, by making an election to
mark such investments to market annually or to treat the passive foreign
investment company as a "qualified electing fund."
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT A COMPLETE DESCRIPTION OF
THE FEDERAL, STATE OR LOCAL TAX CONSEQUENCES OF INVESTING IN THE FUNDS OR
PORTFOLIOS. YOU SHOULD CONSULT YOUR TAX ADVISOR BEFORE INVESTING IN THE FUNDS OR
PORTFOLIOS.
ORGANIZATION
The Municipal Funds, other than the Tax-Exempt Bond Fund, and the California
Money, Short Term High Quality Bond, Target Maturity 2002, Growth, International
Growth and Emerging Growth Funds are series of WM Trust II, a Massachusetts
business trust organized on February 22, 1989. The Portfolios are series of WM
Strategic Asset Management Portfolios, a Massachusetts business trust organized
on March 26, 1996. The remaining Funds are series of WM Trust I, a Massachusetts
business trust organized on September 19, 1997. The Trusts are governed by a
common Board of Trustees, which oversees the Trusts' activities and is
responsible for protecting the interests of shareholders.
Each Trust is classified as an open end management investment company under the
1940 Act.
Although each Trust is offering only its own shares in this Prospectus, it is
possible that a Trust might become liable for any misstatement in the prospectus
about another of the Trusts. The Trustees of each Trust have considered this
factor in approving the use of a single prospectus.
Each of the Money Market, Tax-Exempt Money Market, Short Term High Quality Bond,
Target Maturity 2002, U.S. Government Securities, Income, High Yield, Tax-Exempt
Bond, Bond & Stock, Growth & Income, Growth, International Growth, Northwest and
Emerging Growth Funds and the Portfolios is a diversified series of the relevant
Trust. Each of the California Money, California Municipal, California Insured
Intermediate Municipal and Florida Insured Municipal Funds is a non-diversified
series of WM Trust II. See "Common Investment Practices - Non-Diversified
Status."
Each of the Funds (other than the Target Maturity 2002 Fund) and Portfolios is
offering only its Class A and Class B shares, and the Target Maturity 2002 Fund
is offering only its Class A shares, pursuant to this Prospectus. Each Fund and
Portfolio may also offer other classes of shares with different sales charges
and expenses. Because of those different sales charges and expenses, the
investment performance of the classes will vary. For more information, including
your eligibility to purchase any other class of shares, call the WM Group at
800-222-5852. Each share of the Funds and Portfolios has one vote, with
fractional shares voting proportionally.
HOW NAV IS DETERMINED
Investment securities and other assets are valued primarily on the basis of
market quotations or, if quotations are not readily available, by a method that
the Board of Trustees believes accurately reflects fair value. Foreign
securities are valued on the basis of quotations from the primary market in
which they are traded, and are translated from the local currency into U.S.
dollars using current exchange rates. The NAVs are determined at the end of each
business day of the New York Stock Exchange or at 1:00 p.m. Pacific time,
whichever is earlier.
ADVISOR AND SUB-ADVISORS
The Funds and Portfolios are managed by WM Advisors, Inc., which is referred to
as the Advisor in this Prospectus. The Advisor's address is 1201 Third Avenue,
Suite 1400, Seattle, Washington 98101. The Advisor has delegated portfolio
management responsibilities in respect of the Growth, California Municipal,
Florida Insured Municipal, California Insured Interme-
37
<PAGE> 42
diate Municipal and International Growth Funds, and it is expected that the
Advisor will, effective January 1, 1999, delegate portfolio management
responsibility in respect of the Tax-Exempt Bond Fund, to a sub-advisor. Each
Fund and Portfolio may, to the extent permitted under the 1940 Act, place
portfolio transactions with (and pay brokerage commissions to) affiliates of the
Advisor and the sub-advisors to the Funds indicated below. For more information
see the SAI.
The Advisor has been in the business of investment management since 1944. Its
responsibilities include formulating each Fund's and Portfolio's investment
policies (subject to the terms of this Prospectus), analyzing economic trends,
directing and evaluating the investment services provided by the sub-advisors
and monitoring each Fund's or Portfolio's investment performance and reporting
to the Board of Trustees, as well as providing certain administrative services
to the Funds and Portfolios. In connection with its service as investment
advisor to each Fund and Portfolio, the Advisor may engage one or more
sub-advisors to provide investment advisory services to any of the Funds or
Portfolios and may change or eliminate any such sub-advisor if it deems such
action to be in the best interests of a Fund or Portfolio and its shareholders.
Where the Advisor has not delegated such duties to a sub-advisor, it is
responsible for managing the investment and reinvestment of the Fund's or
Portfolio's assets. The Advisor is an indirect wholly owned subsidiary of
Washington Mutual, Inc. ("Washington Mutual"), a publicly owned financial
services company.
The following organizations, under the supervision of the Advisor, act as
sub-advisors to the Funds indicated below, and are responsible for continuously
reviewing, supervising and administering such Funds' respective investment
programs:
JANUS, 100 Fillmore Street, Denver, Colorado 80206, acts as sub-advisor to the
Growth Fund. Janus is an indirectly majority owned subsidiary of Kansas City
Southern Industries, Inc., a publicly traded holding company whose primary
subsidiaries are engaged in transportation, information processing and financial
services. Janus has been providing investment advice to mutual funds or other
large institutional clients since 1970. As of March 27, 1998, Janus' assets
under management were in excess of $67.8 billion.
VAN KAMPEN, One Parkview Plaza, Oakbrook, Illinois 60181, acts as sub-advisor to
the California Municipal, California Insured Intermediate Municipal and Florida
Insured Municipal Funds. Subject to shareholder approval, it is expected that,
effective January 1, 1999, Van Kampen will become sub-advisor to the Tax-Exempt
Bond Fund. Van Kampen is an indirect wholly owned subsidiary of Morgan Stanley,
Dean Witter, Discover & Co., a publicly held global financial services company.
Van Kampen provides investment advice to a wide variety of individual,
institutional and investment company clients and, together with its affiliates,
had aggregate assets under management or supervision, as of June 5, 1998, of
more than $3.9 billion.
WARBURG, 466 Lexington Avenue, New York, New York 10017, acts as sub-advisor to
the International Growth Fund. Warburg is a professional investment counseling
firm which provides investment services to investment companies, employee
benefit plans, endowment funds, foundations and other institutions and
individuals. As of March 30, 1998, Warburg managed approximately $15 billion of
assets. Incorporated in 1970, Warburg is indirectly controlled by Warburg,
Pincus & Co. ("WP & Co."), which has no business other than being a holding
company of Warburg and its affiliates. Lionel I. Pincus, the managing partner of
WP & Co., may be deemed to control both WP & Co. and Warburg.
INDIVIDUAL FUND MANAGERS
Gary J. Pokrzywinski, CFA, Vice President and Senior Portfolio Manager of the
Advisor, is primarily responsible for the day-to-day management of the High
Yield, Income, Short Term High Quality Bond and Target Maturity 2002 Funds. He
has managed such Funds since March 1998, 1992, January 1998 and January 1998,
respectively, and has been employed by the Advisor since 1992. Effective
November 1, 1998, Craig V. Sosey, Vice President and Portfolio Manager of the
Advisor, is primarily responsible for the day-to-day management of the U.S.
Government Securities Fund. He has been employed by the Advisor since May 1998.
Prior to that he was the Assistant Treasurer of California Federal Bank, where
he worked for over eight years. He holds an MBA from University of California
Berkeley. Philip M. Foreman, CFA, Vice President and Senior Portfolio Manager of
the Advisor, is primarily responsible for the day-to-day management of the
Growth & Income Fund. He has managed the Fund since 1991 and has been employed
by the Advisor since 1991. Jeffrey D. Huffman, CFA, Vice President and Senior
Portfolio Manager of the Advisor,
38
<PAGE> 43
has had primary responsibility for the day-to-day management of the Bond & Stock
Fund since 1995. Prior to 1995, Mr. Huffman was Vice President of Trust
Investments for First Interstate Bank since 1994 and a portfolio manager at
Safeco since 1992. David W. Simpson, CFA, Vice President and Senior Portfolio
Manager of the Advisor, has had primary responsibility for the day-to-day
management of the Northwest Fund since 1993 and he and Linda C. Walk, CFA, who
is Vice President and Portfolio Manager of the Advisor, have been co-managers of
the Emerging Growth Fund since March 1998. Mr. Simpson has been employed by the
Advisor since 1993. Prior to 1997, Ms. Walk was a portfolio manager at Laird
Norton Trust Company since 1996, a valuation consultant for Ernst & Young LLP
since 1994, and a valuation consultant for Management Advising Services since
1990. Brian Placzek, CFA, Vice President and Portfolio Manager of the Advisor,
has had primary responsibility for the day-to-day management of the Tax-Exempt
Bond Fund since 1995 and has been employed by the Advisor since 1990. Audrey S.
Quaye, CPA, Vice President and Portfolio Manager of the Advisor, is primarily
responsible for the day-to-day management of the Money Market Fund, the Tax-
Exempt Money Market Fund and the California Money Fund. She has managed such
Funds since 1997, 1997, and March 1998, respectively, and has been employed at
the Advisor since 1996. Prior to 1996, Ms. Quaye worked at the Benham Group as a
municipal credit analyst. Stephen C. Scott, Senior Portfolio Manager, has had
primary responsibility for the day-to-day management of the Strategic Growth
Portfolio, the Conservative Growth Portfolio, the Balanced Portfolio, the
Flexible Income Portfolio and the Income Portfolio since their inception. Mr.
Scott has been employed by WM Advisors, Inc since March of 1998, prior to that
date he was employed by Sierra Investment Services Corporation with essentially
identical responsibility for the Portfolios.
Warren B. Lammert has had primary responsibility for the day-to-day management
of the Growth Fund since its inception. Mr. Lammert is a Vice President of
Janus. Mr. Lammert joined Janus in 1987, and his duties at Janus include the
management of separate equity accounts.
Since May 1992, Joseph A. Piraro, Vice President of Van Kampen, has had primary
responsibility for the day-to-day management of the California Municipal Fund.
Mr. Piraro has been employed by Van Kampen since 1992. Mr. Piraro has also had
primary responsibility for the day-to-day management of the California Insured
Intermediate Municipal Fund since the Fund's inception. Since January 1997,
Thomas M. Byron, Vice President of Van Kampen, has had primary responsibility
for the day-to-day management of the Florida Insured Municipal Fund. Mr. Byron
has been at Van Kampen for over 15 years and prior to taking over responsibility
for managing the Fund, Mr. Byron was Head Buyer and Manager of Van Kampen's Unit
Investment Trust desk. Subject to shareholder approval, it is expected that
David C. Johnson, Senior Vice President of Van Kampen, will have primary
responsibility for the day-to-day management of the Tax-Exempt Bond Fund's
portfolio effective January 1, 1999. Mr. Johnson has been employed by Van Kampen
since 1989.
The following people are primarily responsible for the day-to-day management of
the International Growth Fund: Harold W. Ehrlich, CFA, CIC, Managing Director of
Warburg, has 14 years of investment experience. Prior to 1998, Mr. Ehrlich was a
senior vice president, portfolio manager and analyst at Templeton Investment
Counsel Inc. Todd Jacobson, CFA, Vice President of Warburg. Prior to joining
Warburg in 1997, Mr. Jacobson was an analyst at Brown Brothers Harriman from
1993 to 1997.
TRANSFER AGENT AND CUSTODIAN
WM Shareholder Services, Inc., referred to as Shareholder Services in this
Prospectus, provides transfer agency and other shareholder services. Shareholder
Services is an indirect wholly owned subsidiary of Washington Mutual, located at
1201 Third Avenue, Suite 1400, Seattle, Washington 98101. The Custodian for the
Funds and the Portfolios is Boston Safe Deposit and Trust Co., which is located
at One Boston Place, Boston, Massachusetts 02108. Shareholder Services may
charge a fee for special services, such as providing historical account
documents, that are beyond the normal scope of its services.
DISTRIBUTOR
WM Funds Distributor, Inc., referred to as the Distributor in this Prospectus,
is the distributor of the Class A and Class B shares of the Funds. The
Distributor, located at 1300 Twenty-First Street, Sacramento, California 95814,
is an indirect wholly owned subsidiary of Washington Mutual.
39
<PAGE> 44
Each of the Funds (other than the Target Maturity 2002 Fund, which offers only
Class A shares) has adopted distribution plans, pursuant to Rule 12b-1 under the
1940 Act, applicable to Class A and Class B and shares of the Fund (each, a
"Rule 12b-1 Plan"), respectively. The Target Maturity 2002 Fund has adopted a
12b-1 Plan applicable to its Class A shares. Under the applicable Rule 12b-1
Plans, the Distributor receives 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 shares
at an annual rate of 0.75% of the average daily net assets of such shares. These
fees may be used to cover the expenses of the Distributor primarily intended to
result in the sale of such shares, including payments to the Distributor's
representatives or others for selling shares. Because the Distributor may retain
any amount of its fee that is not so expended, the Rule 12b-1 Plans are
characterized by the SEC as "compensation-type" plans.
In addition to providing for the expenses discussed above, each Rule 12b-1 Plan
also recognizes that the Advisor may use its investment advisory fees or other
resources to pay expenses associated with activities primarily intended to
result in the promotion and distribution of the Fund's or Portfolio's shares.
The Distributor may, from time to time, pay to other dealers, in connection with
retail sales or the distribution of shares of a Fund or Portfolio, material
compensation in the form of merchandise or trips. Salespersons, including
representatives of WM Financial Services, Inc. (a subsidiary of Washington
Mutual), and any other person entitled to receive any compensation for selling
or servicing Fund or Portfolio shares may receive different compensation with
respect to one particular class of shares over another, and may receive
additional compensation or other incentives for selling Fund or Portfolio
shares.
MANAGEMENT AND ADMINISTRATIVE FEES
Each Fund and each Portfolio pays a management fee to the Advisor. The
management fee is calculated and paid to the Advisor every month. The management
fee for each Fund and Portfolio is based upon a percentage of the average net
assets of such Fund or Portfolio. Absent fee waivers, the total management fee
for each Fund and Portfolio as provided in the investment advisory agreement of
the Fund or Portfolio is as follows:
<TABLE>
<CAPTION>
FUNDS Fees
- -----------------------------------------------------------------------
<S> <C>
Money Market and Tax-Exempt Money
Market Funds.................... 0.45% of the first $1 billion,
0.40% thereafter
California Money Fund............. 0.45% of the first $500 million,
0.40% thereafter
Short Term High Quality Bond
Fund............................ 0.50% of the first $200 million,
0.45% of the next $300 million,
0.40% thereafter
Target Maturity 2002 Fund......... 0.25% of all assets
U.S. Government Securities,
Income, High Yield, Bond & Stock
and Growth & Income Funds....... 0.625% of the first $250 million,
0.50% thereafter
Tax-Exempt Bond Fund.............. 0.50% of the first $250 million,
0.40% thereafter
California Municipal, California
Insured Intermediate Municipal
and Florida Insured Municipal
Funds........................... 0.70% of the first $500 million,
0.55% thereafter
Northwest Fund.................... 0.625% of the first $500 million,
0.50% of the next $500 million,
0.375% thereafter
Growth Fund....................... 1.10% of the first $100 million,
1.05% of the next $100 million,
1.025% thereafter
Emerging Growth Fund.............. 1.05% of the first $100 million,
1.00% of the next $400 million,
0.90% thereafter
International Growth Fund......... 1.10% of the first $50 million,
1.00% of the next $75 million,
0.80% thereafter
Each of the Portfolios............ 0.15% of all assets
</TABLE>
Each of the Portfolios, unlike the Funds, also pays an administrative fee at the
annual rate of 0.50% of the average net assets to the Transfer Agent.
40
<PAGE> 45
The Advisor has voluntarily undertaken, through October 31, 1999, to waive a
portion of its management fees for the following Funds to the extent that total
Fund operating expenses for Class A shares would otherwise exceed the indicated
annual rates:
<TABLE>
<CAPTION>
Total Fund
FUNDS Operating Expenses
- -------------------------------------------------------------------
<S> <C>
Money Market Fund.............................. 0.73%
Tax-Exempt Money Market Fund................... 0.57%
California Money Fund.......................... 0.85%
Short Term High Quality Bond Fund.............. 0.82%
Target Maturity 2002 Fund...................... 1.00%
California Municipal Fund...................... 0.88%
California Insured Intermediate Municipal
Fund......................................... 1.00%
Florida Insured Municipal Fund................. 1.00%
Growth & Income Fund........................... 1.01%
Growth Fund.................................... 1.30%
Income Portfolio............................... 1.00%
Flexible Income Portfolio...................... 1.00%
</TABLE>
In addition, the Distributor has agreed to waive its distribution fees for Class
B shares of the following Funds to the extent that total Fund operating expenses
for Class B shares would otherwise exceed the indicated annual rates.
<TABLE>
<CAPTION>
Total Fund
FUNDS Operating Expenses
- -------------------------------------------------------------------
<S> <C>
Income Fund.................................... 1.83%
Growth & Income Fund........................... 1.76%
Growth Fund.................................... 2.05%
</TABLE>
In addition, the Advisor has voluntarily undertaken, through October 31, 1999,
to waive a portion of its management fees in excess of the following indicated
annual rates:
<TABLE>
<CAPTION>
FUNDS Management Fees
- ------------------------------------------------------------------
<S> <C>
U.S. Government Securities Fund.................. 0.50%
High Yield Fund.................................. 0.00%
California Municipal Fund........................ 0.50%
California Insured Intermediate Municipal Fund... 0.50%
Florida Insured Municipal Fund................... 0.50%
Growth Fund...................................... 0.85%
Emerging Growth Fund............................. 0.85%
</TABLE>
SUB-ADVISORY FEES
The Advisor retains only the net amount of the management fees paid to it after
the sub-advisory fees described below are paid to the sub-advisors. The Advisor
pays to the sub-advisors for the Funds listed below a monthly fee at an annual
rate of the following percentages of the average net assets of each such Fund:
<TABLE>
<CAPTION>
SUBADVISOR/FUNDS Fees
- -----------------------------------------------------------------------
<S> <C>
VAN KAMPEN
California Municipal Fund....... 0.20% of first $150 million
0.15% thereafter
Florida Insured Municipal
Fund.......................... 0.20% of first $75 million
0.125% thereafter
California Insured Intermediate
Municipal Fund................ 0.20% of first $75 million
0.125% thereafter
Tax-Exempt Bond Fund*........... 0.10% of average daily net assets
JANUS
Growth Fund..................... 0.55% of first $100 million
0.50% thereafter
WARBURG
International Growth Fund....... 0.50% of average daily net assets
* Effective January 1, 1999 subject to shareholder approval.
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN THE FUNDS'
AND PORTFOLIOS' OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFERING OF THE
FUNDS' AND PORTFOLIOS' SHARES, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUNDS
OR PORTFOLIOS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN
WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER MAY NOT LAWFULLY BE MADE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The financial highlights set forth below on the following pages present
financial and performance information for each of the Funds and Portfolios,
except for the High Yield Fund which has not yet completed a fiscal period.
Additional information about the performance of the Funds and Portfolios is
contained in the Funds' and Portfolios' Semi-Annual and Annual Reports to
Shareholders for the periods ended April 30, 1998 and June 30, 1998,
respectively, as applicable. Copies of these reports and the financial
statements and notes thereto contained therein, are incorporated into this
Prospectus by reference, and may be obtained by shareholders without charge from
WM Funds Distributor, Inc. (the "Distributor") by calling 800-222-5852. Except
as otherwise stated below, the information provided below with respect to each
of the Funds within WM Trust I (Money Market, Tax-Exempt Money Market, Income,
U.S. Government Securities, Tax-Exempt Bond, Bond & Stock, Growth & Income and
Northwest Funds) has been audited by LeMaster & Daniels PLLC, and the
information provided below with respect to each of the Funds within WM Trust II
(California Money, Short Term High Quality Bond,
41
<PAGE> 46
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Target Maturity 2002, California Municipal, California Insured Intermediate
Municipal, Florida Insured Municipal, Growth, International Growth and Emerging
Growth Funds) and the Portfolios has been audited by PricewaterhouseCoopers LLP,
whose reports on such Funds' and Portfolios' financial statements are
incorporated by reference into the SAI and may be obtained by shareholders by
calling 800-222-5852.
MONEY MARKET FUND CLASS A SHARES
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED DECEMBER 31,
APRIL 30, -------------------------------------------------------------------
1998+ 1997 1996 1995 1994 1993 1992 1991
----------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period........... $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- ------- ------- ------- -------
INCOME FROM
INVESTMENT OPERATIONS:
Net Investment Income....... 0.0163 0.0493 0.0476 0.0519 0.0341 0.0238 0.0302 0.0526
Net Realized & Unrealized
Gain on Investments........ - - - - - - - -
------- ------- ------- ------- ------- ------- ------- -------
Total From Investment
Operations................ 0.0163 0.0493 0.0476 0.0519 0.0341 0.0238 0.0302 0.0526
------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from Net
Investment Income.......... (0.0163) (0.0493) (0.0476) (0.0519) (0.0341) (0.0238) (0.0302) (0.0526)
Distributions from Net
Realized Gains............. - - - - - - - -
------- ------- ------- ------- ------- ------- ------- -------
Total Distributions....... (0.0163) (0.0493) (0.0476) (0.0519) (0.0341) (0.0238) (0.0302) (0.0526)
------- ------- ------- ------- ------- ------- ------- -------
Net Asset Value,
End of Period................. $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= ======= ======= ======= =======
Total Return(5)............... 1.64% 5.04% 4.88% 5.33% 3.47% 2.41% 3.07% 5.41%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period
($1,000's)................. $354,348 $260,877 $229,355 $171,225 $125,651 $135,187 $141,193 $178,741
Ratio of Operating Expenses
to Average Net Assets(4)... 0.69%(2) 0.75% 0.79% 0.92% 0.95% 0.97% 0.88% 0.93%
Ratio of Net Investment
Income to Average Net
Assets..................... 4.85%(2) 4.93% 4.77% 5.19% 3.39% 2.38% 3.04% 5.33%
Ratio of Operating Expenses
to Average Net Assets
Without Fee Waivers,
Expenses Absorbed and/or
Credits Allowed by the
Custodian.................. 0.69%(2) 0.83% 0.89% 1.04% 1.04% 1.03% 0.88% 0.93%
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1990 1989 1988
---------------------------
<S> <C> <C> <C>
Net Asset Value,
Beginning of Period........... $1.0000 $1.0000 $1.0000
------- ------- -------
INCOME FROM
INVESTMENT OPERATIONS:
Net Investment Income....... 0.0733 0.0826 0.0668
Net Realized & Unrealized
Gain on Investments........ - - -
------- ------- -------
Total From Investment
Operations................ 0.0733 0.0826 0.0668
------- ------- -------
LESS DISTRIBUTIONS:
Dividends from Net
Investment Income.......... (0.0733) (0.0826) (0.0668)
Distributions from Net
Realized Gains............. - - -
------- ------- -------
Total Distributions....... (0.0733) (0.0826) (0.0668)
------- ------- -------
Net Asset Value,
End of Period................. $1.0000 $1.0000 $1.0000
======= ======= =======
Total Return(5)............... 7.61% 8.60% 6.85%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period
($1,000's)................. $252,051 $256,017 $180,130
Ratio of Operating Expenses
to Average Net Assets(4)... 0.97% 1.06% 1.01%
Ratio of Net Investment
Income to Average Net
Assets..................... 7.33% 8.26% 6.68%
Ratio of Operating Expenses
to Average Net Assets
Without Fee Waivers,
Expenses Absorbed and/or
Credits Allowed by the
Custodian.................. 0.97% 1.00% 1.01%
</TABLE>
MONEY MARKET FUND CLASS B SHARES
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED DECEMBER 31, MAY 2, 1994 TO
APRIL 30, --------------------------- DECEMBER 31,
1998+ 1997 1996 1995 1994(1)
-----------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income..................................... 0.0136 0.0407 0.0384 0.0421 0.0184
Net Realized & Unrealized Gain on Investments............. - - - - -
------- ------- ------- ------- -------
Total From Investment Operations........................ 0.0136 0.0407 0.0384 0.0421 0.0184
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income...................... (0.0136) (0.0407) (0.0384) (0.0421) (0.0184)
Distributions from Net Realized Gains..................... - - - - -
------- ------- ------- ------- -------
Total Distributions..................................... (0.0136) (0.0407) (0.0384) (0.0421) (0.0184)
------- ------- ------- ------- -------
Net Asset Value, End of Period.............................. $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= =======
Total Return(5)............................................. 1.36% 4.15% 3.91% 4.30% 2.78%(2)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's)...................... $3,216 $471 $117 $74 $11
Ratio of Operating Expenses to Average Net Assets(4)...... 1.71%(2) 1.59% 1.69% 1.94% 1.93%(2)
Ratio of Net Investment Income to Average Net Assets...... 3.83%(2) 4.15% 3.87% 4.19% 3.29%(2)
Ratio of Operating Expenses to Average Net Assets Without
Fee Waivers, Expenses Absorbed and/or Credits Allowed by
the Custodian............................................ 1.71%(2) 1.80% 1.90% 2.10% 2.62%(2)
</TABLE>
Footnotes appear on page 62
42
<PAGE> 47
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
TAX-EXEMPT MONEY MARKET FUND CLASS A SHARES
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED DECEMBER 31,
APRIL 30, ---------------------------------------------------------
1998+ 1997 1996 1995 1994 1993 1992
------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.......... $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- ------- ------- -------
INCOME FROM
INVESTMENT OPERATIONS:
Net Investment Income...... 0.0102 0.0314 0.0301 0.0339 0.0235 0.0203 0.0238
Net Realized & Unrealized
Gain on Investments....... - - - 0.0054 - - -
------- ------- ------- ------- ------- ------- -------
Total From Investment
Operations............... 0.0102 0.0314 0.0301 0.0393 0.0235 0.0203 0.0238
------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from Net
Investment Income......... (0.0102) (0.0314) (0.0301) (0.0339) (0.0235) (0.0203) (0.0238)
Distributions from Net
Realized Gains............ - - - (.0054) - - -
------- ------- ------- ------- ------- ------- -------
Total Distributions...... (0.0102) 0.0314 (0.0301) (0.0393) (0.0235) (0.0203) (0.0238)
------- ------- ------- ------- ------- ------- -------
Net Asset Value,
End of Period................ $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= ======= ======= =======
Total Return(5).............. 1.02% 3.18% 3.05% 4.01% 2.37% 2.06% 2.41%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period
($1,000's)................ $27,330 $32,134 $31,974 $30,988 $33,612 $34,513 $32,425
Ratio of Operating Expenses
to Average Net
Assets(4)................. 0.59%(2) 0.57% 0.57% 0.61% 0.60% 0.50% 0.57%
Ratio of Net Investment
Income to Average Net
Assets.................... 3.09%(2) 3.14% 3.01% 3.39% 2.33% 2.03% 2.36%
Ratio of Operating Expenses
to Average Net Assets
Without Fee Waivers,
Expenses Absorbed and/or
Credits Allowed by the
Custodian................. 0.78%(2) 0.71% 0.72% 0.81% 0.76% 0.77% 0.81%
<CAPTION>
JANUARY 28,
YEAR ENDED DECEMBER 31, 1998 TO
--------------------------- DECEMBER 31,
1991 1990 1989 1988(1)
------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.......... $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- -------
INCOME FROM
INVESTMENT OPERATIONS:
Net Investment Income...... 0.0410 0.0561 0.0587 0.0381
Net Realized & Unrealized
Gain on Investments....... - - - -
------- ------- ------- -------
Total From Investment
Operations............... 0.0410 0.0561 0.0587 0.0381
------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from Net
Investment Income......... (0.0410) (0.0561) (0.0587) (0.0381)
Distributions from Net
Realized Gains............ - - - -
------- ------- ------- -------
Total Distributions...... (0.0410) (0.0561) (0.0587) (0.0381)
------- ------- ------- -------
Net Asset Value,
End of Period................ $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= =======
Total Return(5).............. 4.19% 5.77% 6.05% 4.10%(2)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period
($1,000's)................ $40,060 $43,379 $25,113 $8,031
Ratio of Operating Expenses
to Average Net
Assets(4)................. 0.44% 0.24% 0.09% 0.75%(2)
Ratio of Net Investment
Income to Average Net
Assets.................... 4.11% 5.60% 5.97% 3.81%(2)
Ratio of Operating Expenses
to Average Net Assets
Without Fee Waivers,
Expenses Absorbed and/or
Credits Allowed by the
Custodian................. 0.78% 0.83% 0.76% 0.75%
</TABLE>
TAX-EXEMPT MONEY MARKET FUND CLASS B SHARES
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED DECEMBER 31, MAY 2, 1994 TO
APRIL 30, --------------------------- DECEMBER 31,
1998+ 1997 1996 1995 1994(1)
-----------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income..................................... 0.0072 0.0223 0.0199 0.0226 0.0097
Net Realized & Unrealized Gain on Investments............. - - - 0.0054 -
------- ------- ------- ------- -------
Total From Investment Operations........................ 0.0072 0.0223 0.0199 0.0280 0.0097
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income...................... (0.0072) (0.0223) (0.0199) (0.0226) (0.0097)
Distributions from Net Realized Gains..................... - - - (0.0054) -
------- ------- ------- ------- -------
Total Distributions..................................... (0.0072) (0.0223) (0.0199) (0.0280) (0.0097)
------- ------- ------- ------- -------
Net Asset Value, End of Period.............................. $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= =======
Total Return(5)............................................. 0.54% 2.26% 2.01% 2.83% 1.45%(2)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's)...................... $12 $12 $2 $1 $1
Ratio of Operating Expenses to Average Net Assets(4)...... 1.94%(2) 1.50% 1.53% 1.73% 1.66%(2)
Ratio of Net Investment Income to Average Net Assets...... 1.70%(2) 2.32% 1.99% 2.12% 1.38%(2)
Ratio of Operating Expenses to Average Net Assets Without
Fee Waivers, Expenses Absorbed and/or Credits Allowed by
the Custodian............................................ 2.14%(2) 2.27% 4.22% 3.66% 3.61%(2)
</TABLE>
Footnotes appear on page 62
43
<PAGE> 48
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
CALIFORNIA MONEY FUND CLASS A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, JULY 10, 1989
--------------------------------------------------------------------- TO JUNE 30,
1998++ 1997 1996 1995 1994 1993 1992 1991 1990(1)
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period...... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income................... 0.027 0.028 0.029 0.028 0.018 0.021 0.033 0.044 0.046
Net Realized & Unrealized Gain on
Investments............................ - - - - - - - - -
------ ------ ------ ------ ------ ------ ------ ------ ------
Total From Investment Operations...... 0.027 0.028 0.029 0.028 0.018 0.021 0.033 0.044 0.046
------ ------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income.... (0.027) (0.028) (0.029) (0.028) (0.018) (0.021) (0.033) (0.044) (0.046)
Distributions in Excess of Net
Investment Income...................... - - - - - - - - -
Distributions from Net Realized Gains... - - - - - - - - -
Distributions in Excess of Net Realized
Gains.................................. - - - - - - - - -
Distributions from Capital.............. - - - - - - - - -
------ ------ ------ ------ ------ ------ ------ ------ ------
Total Distributions................... (0.027) (0.028) (0.029) (0.028) (0.018) (0.021) (0.033) (0.044) (0.046)
------ ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value, End of Period............ $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
====== ====== ====== ====== ====== ====== ====== ====== ======
Total Return(5)........................... 2.73% 2.81% 3.00% 2.79% 1.81% 2.07% 3.35% 4.52% 4.64%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's).... $37,403 $42,923 $51,211 $48,836 $62,500 $68,404 $94,607 $113,392 $147,487
Ratio of Operating Expenses to Average
Net Assets............................. 0.82% 0.85% 0.85% 0.85% 0.85% 0.85% 0.85% 0.83% 1.00%(2)
Ratio of Net Investment Income to
Average Net Assets..................... 2.71% 2.75% 2.94% 2.73% 1.80% 2.06% 3.31% 4.48% 5.07%(2)
Ratio of Operating Expenses to Average
Net Assets Without Fee Waivers,
Expenses Absorbed and/or Credits
Allowed by the Custodian............... 0.99% 1.14% 1.14% 1.15% 1.27% 1.29% 1.28% 1.48% 1.64%(2)
</TABLE>
CALIFORNIA MONEY FUND CLASS B SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------
1998++ 1997 1996 1995+++
-----------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $1.00 $1.00 $1.00 $1.00
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income..................................... 0.019 0.020 0.022 0.020
Net Realized & Unrealized Gain on Investments............. - - - -
------ ------ ------ ------
Total From Investment Operations........................ 0.019 0.020 0.022 0.020
------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income...................... (0.019) (0.020) (0.022) (0.020)
Distributions in Excess of Net Investment Income.......... - - - -
Distributions from Net Realized Gains..................... - - - -
Distributions in Excess of Net Realized Gains............. - - - -
Distributions from Capital................................ - - - -
------ ------ ------ ------
Total Distributions..................................... (0.019) (0.020) (0.022) (0.020)
------ ------ ------ ------
Net Asset Value, End of Period.............................. $1.00 $1.00 $1.00 $1.00
====== ====== ====== ======
Total Return(5)............................................. 1.96% 2.03% 2.22% 2.04%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's)...................... $63 $68 $147 $79
Ratio of Operating Expenses to Average Net Assets......... 1.60% 1.60% 1.60% 1.60%
Ratio of Net Investment Income to Average Net Assets...... 1.88% 2.00% 2.19% 1.98%
Ratio of Operating Expenses to Average Net Assets Without
Fee Waivers, Expenses Absorbed and/or Credits Allowed by
the Custodian............................................ 1.82%(8) 1.89% 1.89% 1.90%
</TABLE>
Footnotes appear on page 62
44
<PAGE> 49
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
SHORT TERM HIGH QUALITY BOND FUND CLASS A SHARES
<TABLE>
<CAPTION>
NOVEMBER 1,
YEAR ENDED JUNE 30, 1993 TO
------------------------------------- JUNE 30,
1998++ 1997 1996 1995 1994(1)
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $2.32 $2.32 $2.35 $2.39 $2.50
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income..................................... 0.13 0.14 0.15(7) 0.08 0.09
Net Realized & Unrealized Gain/(Loss) on Investments...... 0.00(6) 0.00(6) (0.03) 0.02 (0.11)
------- ------- ------- ------- -------
Total From Investment Operations........................ 0.13 0.14 0.12 0.10 (0.02)
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income...................... (0.13) (0.14) (0.15) (0.08) (0.09)
Distributions in Excess of Net Investment Income.......... - - - (0.06) -
Distributions from Net Realized Gains..................... - - - - -
Distributions in Excess of Net Realized Gains............. - - - - -
Distributions from Capital................................ (0.00)(6) - (0.00)(6) (0.00)(6) -
------- ------- ------- ------- -------
Total Distributions..................................... (0.13) (0.14) (0.15) (0.14) (0.09)
------- ------- ------- ------- -------
Net Asset Value, End of Period.............................. $2.32 $2.32 $2.32 $2.35 $2.39
======= ======= ======= ======= =======
Total Return(5)............................................. 5.91% 6.15% 5.05% 4.42% (0.73)%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's)...................... $35,551 $13,685 $32,440 $43,811 $21,771
Ratio of Operating Expenses to Average Net Assets......... 0.86% 0.82% 0.75% 0.75% 0.00%(2)
Ratio of Net Investment Income to Average Net Assets...... 5.71% 6.50% 6.22% 6.10% 5.70%(2)
Portfolio Turnover Rate................................... 138% 51% 225% 137% 95%
Ratio of Operating Expenses to Average Net Assets Without
Fee Waivers, Expenses Absorbed and/or Credit Allowed by
the Custodian............................................ 1.32%(8) 1.45%(8) 1.42%(8) 1.39% 1.61%(2)
</TABLE>
SHORT TERM HIGH QUALITY BOND FUND CLASS B SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------
1998++ 1997 1996 1995+++
-----------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $2.32 $2.32 $2.35 $2.39
------- ------ ------ -------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income..................................... 0.12 0.12 0.13(7) 0.06
Net Realized & Unrealized Gain/(Loss) on Investments...... 0.00(6) 0.00(6) (0.03) 0.02
------- ------ ------ -------
Total From Investment Operations........................ 0.12 0.12 0.10 0.08
------- ------ ------ -------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income...................... (0.12) (0.12) (0.13) (0.06)
Distributions in Excess of Net Investment Income.......... - - - (0.06)
Distributions from Net Realized Gains..................... - - - -
Distributions in Excess of Net Realized Gains............. - - - -
Distributions from Capital................................ (0.00)(6) - (0.00) (0.00)(6)
------- ------ ------ -------
Total Distributions..................................... (0.12) (0.12) (0.13) (0.12)
------- ------ ------ -------
Net Asset Value, End of Period.............................. $2.32 $2.32 $2.32 $2.35
======= ====== ====== =======
Total Return(5)............................................. 5.13 5.37 4.27 3.64
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's)...................... $3,459 $800 $3,437 $3,015
Ratio of Operating Expenses to Average Net Assets......... 1.61% 1.57% 1.50% 1.50%
Ratio of Net Investment Income to Average Net Assets...... 4.96% 5.75% 5.47% 5.35%
Portfolio Turnover Rate................................... 138% 51% 225% 137%
Ratio of Operating Expenses to Average Net Assets Without
Fee Waivers, Expenses Absorbed and/or Credit Allowed by
the Custodian............................................ 2.07(8) 2.20(8) 2.17(8) 2.14(8)
</TABLE>
Footnotes appear on page 62
45
<PAGE> 50
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
TARGET MATURITY 2002 FUND CLASS A SHARES
<TABLE>
<CAPTION>
MARCH 20,
YEAR ENDED JUNE 30, 1995 TO
-------------------------- JUNE 30,
1998++ 1997 1996 1995(1)
--------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $10.69 $10.72 $10.78 $10.00
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income..................................... 0.61(7) 0.62(7) 0.63 0.12
Net Realized & Unrealized Gain/(Loss) on Investments...... 0.40 0.11 (0.30) 0.66
------ ------ ------ ------
Total From Investment Operations........................ 1.01 0.73 0.33 0.78
------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income...................... (0.73) (0.71) (0.39) -
Distributions from Net Realized Gains..................... (0.11) (0.05) - -
------ ------ ------ ------
Total Distributions..................................... (0.84) (0.76) (0.39) -
------ ------ ------ ------
Net Asset Value, End of Period.............................. $10.86 $10.69 $10.72 $10.78
====== ====== ====== ======
Total Return(5)............................................. 9.78% 6.95% 2.91% 7.80%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's)...................... $2,536 $2,816 $3,125 $2,626
Ratio of Operating Expenses to Average Net Assets......... 0.62% 0.64% 0.62% 0.74%(2)
Ratio of Net Investment Income to Average Net Assets...... 5.61% 5.80% 5.66% 5.22%(2)
</TABLE>
<TABLE>
Portfolio Turnover Rate. 0% 0% 5% 0%
<S> <C> <C> <C> <C>
Ratio of Operating Expenses to Average Net Assets Without
Credits Allowed by the Custodian......................... 0.71%(8) 0.72%(8) 0.70%(8) N/A
Ratio of Operating Expenses to Average Net Assets Without
Fee Waivers, Expenses Absorbed and/or Credits Allowed by
the Custodian............................................ 2.63%(8) 2.89%(8) 2.55%(8) 4.71%(2)
</TABLE>
Footnotes appear on page 62
46
<PAGE> 51
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
U.S. GOVERNMENT SECURITIES FUND CLASS A SHARES
<TABLE>
<CAPTION>
TEN MONTHS
PERIOD ENDED YEAR ENDED DECEMBER 31, ENDED YEAR ENDED
APRIL 30, ------------------------------------------ DECEMBER 31, FEBRUARY 29,
1998+ 1997 1996 1995 1994 1993 1992++++ 1992
-------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period................. $10.84 $10.46 $10.84 $9.64 $10.79 $10.63 $10.53 $10.17
------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net Investment Income... 0.21 0.62 0.63 0.63 0.63 0.69 0.62 0.79
Net Realized &
Unrealized Gain/(Loss)
on Investments......... (0.01) 0.38 (0.38) 1.20 (1.15) 0.16 0.10 0.36
------ ------ ------ ------ ------ ------ ------ ------
Total From Investment
Operations............ 0.20 1.00 0.25 1.83 (0.52) 0.85 0.72 1.15
------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from Net
Investment Income...... (0.21) (0.62) (0.63) (0.63) (0.63) (0.69) (0.62) (0.79)
------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value,
End of Period............. $10.83 $10.84 $10.46 $10.84 $10.79 $10.63 $10.53 $10.17
====== ====== ====== ====== ====== ====== ====== ======
Total Return(3)........... 1.84% 9.92% 2.48% 19.45% 8.12% 7.03% 11.72% 11.72%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of
Period ($1,000's)...... $294,039 $107,054 $138,159 $177,310 $268,112 $207,501 $141,377 $92,293
Ratio of Operating
Expenses to Average Net
Assets(4)............... 0.90%(2) 1.05% 0.97% 1.01% 0.99% 0.99%(2) 1.01% 1.03%
Ratio of Net Investment
Income to Average Net
Assets.................. 5.98%(2) 5.92% 6.01% 6.08% 6.29% 6.98% 7.63% 8.43%
Portfolio Turnover
Rate.................... 4% 6% 16% 8% 51% 11% 17% 66%
<CAPTION>
YEAR ENDED FEBRUARY 28, YEAR ENDED
------------------------- FEBRUARY 29,
1991 1990 1989 1988
----------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period................. $9.90 $9.63 $10.25 $10.61
------- ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net Investment Income... 0.84 0.88 0.91 0.91
Net Realized &
Unrealized Gain/(Loss)
on Investments......... 0.27 0.27 (0.62) (0.36)
------- ------ ------ ------
Total From Investment
Operations............ 1.11 1.15 0.29 0.55
------- ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from Net
Investment Income...... (0.84) (0.88) (0.91) (0.91)
------- ------ ------ ------
Net Asset Value,
End of Period............. $9.64 $9.90 $9.63 $10.25
======= ====== ====== ======
Total Return(3)........... (4.91)% 12.31% 2.94% 6.63%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of
Period ($1,000's)...... $188,068 $83,360 $79,920 $89,385
Ratio of Operating
Expenses to Average Net
Assets(4)............... 0.97% 0.99% 0.88% 0.88%
Ratio of Net Investment
Income to Average Net
Assets.................. 6.19% 8.86% 9.14% 9.03%
Portfolio Turnover
Rate.................... 34% 19% 41% 43%
</TABLE>
U.S. GOVERNMENT SECURITIES FUND CLASS B SHARES
<TABLE>
<CAPTION>
MARCH 20,
PERIOD ENDED YEAR ENDED DECEMBER 31, 1994 TO
APRIL 30, ------------------------ DECEMBER 31,
1998+ 1997 1996 1995 1994(1)
------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $10.84 $10.46 $10.84 $9.64 $10.24
------ ------ ------ ------ -------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income..................................... 0.18 0.54 0.54 0.54 0.41
Net Realized & Unrealized Gain/(Loss) on Investments...... (0.01) 0.38 (0.38) 1.20 (0.60)
------ ------ ------ ------ -------
Total From Investment Operations........................ 0.17 0.92 0.16 1.74 (0.19)
------ ------ ------ ------ -------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income...................... (0.18) (0.54) (0.54) (0.54) (0.41)
------ ------ ------ ------ -------
Net Asset Value, End of Period.............................. $10.83 $10.84 $10.46 $10.84 $9.64
====== ====== ====== ====== =======
Total Return(3)............................................. 1.54% 9.03% 1.58% 18.48% (1.86)%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's)...................... $22,081 $3,352 $2,963 $2,206 $1,063
Ratio of Operating Expenses to Average Net Assets(4)...... 1.69%(2) 1.84% 1.85% 1.84% 1.76%(2)
Ratio of Net Investment Income to Average Net Assets...... 5.20%(2) 5.08% 5.14% 5.20% 5.43%(2)
Portfolio Turnover Rate................................... 4% 6% 16% 8% 34%
</TABLE>
Footnotes appear on page 62
47
<PAGE> 52
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
INCOME FUND CLASS A SHARES
<TABLE>
<CAPTION>
THREE
PERIOD MONTHS
ENDED YEAR ENDED DECEMBER 31, ENDED
APRIL 30, ------------------------------------------------ DECEMBER 31,
1998+ 1997 1996 1995 1994 1993 1992++++
-----------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period:.... $9.48 $9.15 $9.44 $8.29 $9.33 $8.99 $9.17
-------- ------- ------- ------- ------- -------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net Investment
Income............... 0.20 0.60 0.59 0.59 0.60 0.61 0.16
Net Realized &
Unrealized
Gain/(Loss) on
Investments.......... 0.03 0.33 (0.29) 1.15 (1.04) 0.34 (0.18)
-------- ------- ------- ------- ------- -------- -------
Total From
Investment
Operations.......... 0.23 0.93 0.30 1.74 (0.44) 0.95 (0.02)
-------- ------- ------- ------- ------- -------- -------
LESS DISTRIBUTIONS:
Dividends from Net
Investment Income.... (0.20) (0.60) (0.59) (0.59) (0.60) (0.61) (0.16)
-------- ------- ------- ------- ------- -------- -------
Net Asset Value, End of
Period.................. $9.51 $9.48 $9.15 $9.44 $8.29 $9.33 $8.99
======== ======= ======= ======= ======= ======== =======
Total Return(5)......... 2.47% 10.51% 3.46% 21.58% (4.82%) 10.82% (0.23%)
RATIOS/SUPPLEMENTAL
DATA:
Net Assets, End of
Period ($1,000's).... $223,060 $77,864 $86,657 $97,534 $88,102 $104,876 $86,425
Ratio of Operating
Expenses to Average
Net Assets(4)........ 1.02%(2) 1.08% 1.03% 1.08% 1.04% 1.08% 0.95%(2)
Ratio of Net
Investment Income to
Average Net Assets... 6.50%(2) 6.47% 6.52% 6.59% 6.83% 6.58% 6.94%(2)
Portfolio Turnover
Rate................. 36% 27% 42% 43% 26% 51% 87%(2)
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------------------
1992 1991 1990 1989 1988
-------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period:.... $8.68 $8.12 $8.51 $8.87 $9.04
------- ------- ------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net Investment
Income............... 0.65 0.68 0.74 0.91 0.95
Net Realized &
Unrealized
Gain/(Loss) on
Investments.......... 0.49 0.56 (0.39) (0.36) (0.17)
------- ------- ------- -------- --------
Total From
Investment
Operations.......... 1.14 1.24 0.35 0.55 0.78
------- ------- ------- -------- --------
LESS DISTRIBUTIONS:
Dividends from Net
Investment Income.... (0.65) (0.68) (0.74) (0.91) (0.95)
------- ------- ------- -------- --------
Net Asset Value, End of
Period.................. $9.17 $8.68 $8.12 $8.51 $8.87
======= ======= ======= ======== ========
Total Return(5)......... 13.57% 15.93% 4.32% 6.58% 9.02%
RATIOS/SUPPLEMENTAL
DATA:
Net Assets, End of
Period ($1,000's).... $84,995 $73,342 $66,648 $126,088 $162,956
Ratio of Operating
Expenses to Average
Net Assets(4)........ 1.05% 1.04% 1.04% 0.96% 1.01%
Ratio of Net
Investment Income to
Average Net Assets... 7.26% 8.16% 8.97% 10.53% 10.56%
Portfolio Turnover
Rate................. 47% 106% 64% 37% 47%
</TABLE>
INCOME FUND CLASS B SHARES
<TABLE>
<CAPTION>
PERIOD MARCH 30,
ENDED YEAR ENDED DECEMBER 31, 1994 TO
APRIL 30, ------------------------ APRIL 30,
1998+ 1997 1996 1995 1994(1)
------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period:....................... $9.49 $9.17 $9.46 $8.30 $8.85
------- ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income..................................... 0.18 0.53 0.52 0.51 0.40
Net Realized & Unrealized Gain/(Loss) on Investments...... 0.03 0.32 (0.29) 1.16 (0.55)
------- ------ ------ ------ ------
Total From Investment Operations........................ 0.21 0.85 0.23 1.67 (0.15)
------- ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income...................... (0.18) (0.53) (0.52) (0.51) (0.40)
------- ------ ------ ------ ------
Net Asset Value, End of Period.............................. $9.52 $9.49 $9.17 $9.46 $8.30
======= ====== ====== ====== ======
Total Return(5)............................................. 2.18% 9.51% 2.59% 20.70% (1.67%)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's)...................... $31,311 $9,691 $7,122 $4,452 $2,299
Ratio of Operating Expenses to Average Net Assets(4)...... 1.79%(2) 1.86% 1.89% 1.91% 1.80%(2)
Ratio of Net Investment Income to Average Net Assets...... 5.73%(2) 5.65% 5.69% 5.73% 6.25%(2)
Portfolio Turnover Rate................................... 36% 27% 42% 43% 26%
</TABLE>
Footnotes appear on page 62
48
<PAGE> 53
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
TAX EXEMPT BOND FUND CLASS A SHARES
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED DECEMBER 31,
APRIL 30, ----------------------------------------------------------------
1998+ 1997 1996 1995 1994 1993 1992 1991
-------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period......... $8.09 $7.83 $8.02 $7.13 $8.04 $7.58 $7.42 $7.16
----- ----- ----- ------ ------- ------ ----- ------
INCOME FROM
INVESTMENT OPERATIONS:
Net Investment Income..... 0.13 0.38 0.38 0.38 0.39 0.40 0.42 0.45
Net Realized & Unrealized
Gain/(Loss) on
Investments.............. (0.13) 0.27 (0.19) 0.89 (0.91) 0.54 0.23 0.34
----- ----- ----- ------ ------- ------ ----- ------
Total From Investment
Operations.............. 0.00 0.65 0.19 1.27 (0.52) 0.94 0.65 0.79
----- ----- ----- ------ ------- ------ ----- ------
LESS DISTRIBUTIONS:
Dividends from Net
Investment Income........ (0.13) (0.38) (0.38) (0.38) (0.39) (0.40) (0.42) (0.45)
Distribution from Capital
Gains.................... - (0.01) - - - (0.08) (0.07) (0.08)
----- ----- ----- ------ ------- ------ ----- ------
Total Distributions..... (0.13) (0.39) (0.38) (0.38) (0.39) (0.48) (0.49) (0.53)
----- ----- ----- ------ ------- ------ ----- ------
Net Asset Value,
End of Period............... $7.96 $8.09 $7.83 $8.02 $7.13 $8.04 $7.58 $7.42
===== ===== ===== ====== ======= ====== ===== ======
Total Return(3)............. 0.01% 8.59% 2.52% 18.25% (6.53)% 12.54% 9.00% 11.36%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period
($1,000's)............... $316,112 $188,021 $203,606 $230,055 $215,438 $259,045 $186,861 $140,154
Ratio of Operating
Expenses to Average Net
Assets(4)................ 0.77%(2) 0.80% 0.75% 0.81% 0.79% 0.81% 0.78% 0.77%
Ratio of Net Investment
Income to Average Net
Assets................... 5.09%(2) 4.84% 4.90% 5.03% 5.23% 4.97% 5.56% 6.16%
Portfolio Turnover Rate... 2% 21% 22% 8% 12% 19% 30% 83%
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1990 1989 1988
------------------------
<S> <C> <C> <C>
Net Asset Value,
Beginning of Period......... $7.17 $7.20 $7.02
----- ----- ------
INCOME FROM
INVESTMENT OPERATIONS:
Net Investment Income..... 0.47 0.50 0.52
Net Realized & Unrealized
Gain/(Loss) on
Investments.............. (0.01) 0.07 0.20
----- ----- ------
Total From Investment
Operations.............. 0.46 0.57 0.72
----- ----- ------
LESS DISTRIBUTIONS:
Dividends from Net
Investment Income........ (0.47) (0.50) (0.52)
Distribution from Capital
Gains.................... - (0.10) (0.02)
----- ----- ------
Total Distributions..... (0.47) (0.60) (0.54)
----- ----- ------
Net Asset Value,
End of Period............... $7.16 $7.17 $7.20
===== ===== ======
Total Return(3)............. 6.71% 8.08% 10.66%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period
($1,000's)............... $111,462 $104,208 $94,156
Ratio of Operating
Expenses to Average Net
Assets(4)................ 0.77% 0.80% 0.80%
Ratio of Net Investment
Income to Average Net
Assets................... 6.65% 6.85% 7.34%
Portfolio Turnover Rate... 115% 104% 47%
</TABLE>
TAX-EXEMPT BOND FUND CLASS B SHARES
<TABLE>
<CAPTION>
MARCH 20,
PERIOD ENDED YEAR ENDED DECEMBER 31, 1994 TO
APRIL 30, ------------------------- DECEMBER 31,
1998+ 1997 1996 1995 1994(1)
-------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $8.09 $7.83 $8.02 $7.13 $7.49
------- ----- ----- ------ -------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income..................................... 0.11 0.32 0.31 0.32 0.25
Net Realized & Unrealized Gain/(Loss) on Investments...... (0.13) 0.27 (0.19) 0.89 (0.36)
------- ----- ----- ------ -------
Total From Investment Operations........................ (0.02) 0.59 0.12 1.21 (0.11)
------- ----- ----- ------ -------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income...................... (0.11) (0.32) (0.31) (0.32) (0.25)
Distribution from Capital Gains........................... - (0.01) - - -
------- ----- ----- ------ -------
Total Distributions..................................... (0.11) (0.33) - - -
------- ----- ----- ------ -------
Net Asset Value, End of Period.............................. $7.96 $8.09 $7.83 $8.02 $7.13
======= ===== ===== ====== =======
Total Return(3)............................................. (0.27)% 7.71% 1.61% 17.30% (1.46)%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's)...................... $14,586 $8,110 $5,266 $2,682 $1,258
Ratio of Operating Expenses to Average Net Assets(4)...... 1.52%(2) 1.62% 1.65% 1.62% 1.58%(2)
Ratio of Net Investment Income to Average Net Assets...... 4.34%(2) 4.00% 4.01% 4.18% 4.53%(2)
Portfolio Turnover Rate................................... 2% 21% 22% 8% 12%
</TABLE>
Footnotes appear on page 62
49
<PAGE> 54
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
CALIFORNIA MUNICIPAL FUND CLASS A SHARES
<TABLE>
<CAPTION>
JULY 25,
YEAR ENDED JUNE 30, 1989 TO
---------------------------------------------------------------------- JUNE 30,
1998++ 1997 1996 1995 1994 1993 1992 1991 1990(1)
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.......... $10.92 $10.60 $10.53 $10.38 $11.22 $10.45 $10.07 $10.01 $10.00
------ ------ ------ ------ ------- ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net Investments Income...................... 0.58 0.59 0.60(7) 0.61 0.61 0.62 0.65 0.63 0.57
Net Realized & Unrealized Gain/(Loss) on
Investments................................ 0.41 0.32 0.07 0.15 (0.82) 0.77 0.38 0.06 0.01
------ ------ ------ ------ ------- ------ ------ ------ ------
Total From Investment Operations.......... 0.99 0.91 0.67 0.76 (0.21) 1.39 1.03 0.69 0.58
------ ------ ------ ------ ------- ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income........ (0.58) (0.59) (0.60) (0.61) (0.61) (0.62) (0.65) (0.63) (0.57)
Distributions in Excess of Net Investment
Income..................................... - - - - (0.00)(6) - - - -
Distributions from Net Realized Gains....... - - - (0.00)(6) - - - - -
Distributions in Excess of Net Realized
Gains...................................... - - - - (0.02) - - - -
Distributions from Capital.................. - - - - - - - - -
------ ------ ------ ------ ------- ------ ------ ------ ------
Total Distributions....................... (0.58) (0.59) (0.60) (0.61) (0.63) (0.62) (0.65) (0.63) (0.57)
------ ------ ------ ------ ------- ------ ------ ------ ------
Net Asset Value, End of Period................ $11.33 $10.92 $10.60 $10.53 $10.38 $11.22 $10.45 $10.07 $10.01
====== ====== ====== ====== ======= ====== ====== ====== ======
Total Return(5)............................... 9.26% 8.83% 6.40% 7.57% (2.19)% 13.84% 10.56% 7.16% 5.99%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's)........ $290,328 $318,251 $372,177 $405,967 $509,223 $511,364 $309,146 $202,595 $92,972
Ratio of Operating Expenses to Average Net
Assets..................................... 1.00% 0.97% 0.94% 0.85% 0.79% 0.80% 0.94% 1.05% 1.01%(2)
Ratio of Net Investment Income to Average
Net Assets................................. 5.18% 5.51% 5.56% 5.89% 5.45% 5.74% 6.08% 6.30% 6.26%(2)
Portfolio Turnover Rate..................... 87% 36% 17% 22% 50% 41% 29% 16% 38%
Ratio of Operating Expenses to Average Net
Assets Without Fee Waivers, Expenses
Absorbed and/or Credits Allowed by the
Custodian.................................. 1.19%(8) 1.26%(8) 1.29%(8) 1.29% 1.39% 1.41% 1.40% 1.60% 1.84%(2)
</TABLE>
CALIFORNIA MUNICIPAL FUND CLASS B SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------
1998++ 1997 1996 1995+++
----------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $10.92 $10.60 $10.53 $10.38
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net Investments Income.................................... 0.50 0.51 0.51(7) 0.53
Net Realized & Unrealized Gain on Investments............. 0.41 0.32 0.07 0.15
------ ------ ------ ------
Total From Investment Operations........................ 0.91 0.83 0.58 0.68
------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income...................... (0.50) (0.51) (0.51) (0.53)
Distributions in Excess of Net Investment Income.......... - - - -
Distributions from Net Realized Gains..................... - - - (0.00)(6)
Distributions in Excess of Net Realized Gains............. - - - -
Distributions from Capital................................ - - - -
------ ------ ------ ------
Total Distributions..................................... (0.50) (0.51) (0.51) (0.53)
------ ------ ------ ------
Net Asset Value, End of Period.............................. $11.33 $10.92 $10.60 $10.53
====== ====== ====== ======
Total Return(5)............................................. 8.45% 8.02% 5.61% 6.78%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's)...................... $34,537 $25,219 $20,543 $7,230
Ratio of Operating Expenses to Average Net Assets......... 1.75% 1.72% 1.69% 1.60%
Ratio of Net Investment Income to Average Net Assets...... 4.42% 4.76% 4.81% 5.14%
Portfolio Turnover Rate................................... 87% 36% 17% 22%
Ratio of Operating Expenses to Average Net Assets Without
Fee Waivers, Expenses Absorbed and/or Credits Allowed by
the Custodian............................................ 1.95%(8) 2.01%(8) 2.04%(8) 2.04%
</TABLE>
Footnotes appear on page 62
50
<PAGE> 55
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
CALIFORNIA INSURED INTERMEDIATE MUNICIPAL FUND CLASS A SHARES
<TABLE>
<CAPTION>
APRIL 4,
YEAR ENDED JUNE 30, 1994 TO
---------------------------------- JUNE 30,
1998++ 1997 1996 1995 1994(1)
------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $10.74 $10.56 $10.45 $10.10 $10.00
------ ------ ------- ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net Investments Income.................................... 0.49 0.49(7) 0.49 0.50 0.11
Net Realized & Unrealized Gain on Investments............. 0.17 0.23 0.15 0.35 0.11(9)
------ ------ ------- ------ ------
Total From Investment Operations........................ 0.66 0.72 0.64 0.85 0.22
------ ------ ------- ------ ------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income...................... (0.49) (0.49) (0.49) (0.50) (0.11)
Distributions in Excess of Net Investment Income.......... (0.00)(6) - - - -
Distributions from Net Realized Gains..................... (0.10) (0.05) (0.04) - (0.01)
Distributions in Excess of Net Realized Gains............. - - - - -
Distributions from Capital................................ - - - - -
------ ------ ------- ------ ------
Total Distributions..................................... (0.59) (0.54) (0.53) (0.50) (0.12)
------ ------ ------- ------ ------
Net Asset Value, End of Period.............................. $10.81 $10.74 $10.56 $10.45 $10.10
====== ====== ======= ====== ======
Total Return(5)............................................. 6.26% 6.97% 6.25% 8.71% 2.20%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's)...................... $38,724 $45,157 $54,518(8) $54,507 $34,147
Ratio of Operating Expenses to Average Net Assets......... 0.86% 0.82% 0.73% 0.42% 0.00%(2)
Ratio of Net Investment Income to Average Net Assets...... 4.49% 4.61% 4.62% 4.95% 4.25%(2)
Portfolio Turnover Rate................................... 25% 29% 27% 13% 17%
Ratio of Operating Expenses to Average Net Assets Without
Credits Allowed by the Custodian......................... 0.86%(8) 0.83%(8) 0.75%(8) N/A N/A
Ratio of Operating Expenses to Average Net Assets Without
Fee Waivers, Expenses Absorbed and/or Credits Allowed by
the Custodian............................................ 1.25%(8) 1.31%(8) 1.39%(8) 1.41% 1.95%(2)
</TABLE>
CALIFORNIA INSURED INTERMEDIATE MUNICIPAL FUND CLASS B SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------
1998++ 1997 1996 1995++
---------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $10.74 $10.56 $10.45 $10.10
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net Investments Income.................................... 0.41 0.41(7) 0.41 0.43
Net Realized & Unrealized Gain on Investments............. 0.17 0.23 0.15 0.35
------ ------ ------ ------
Total From Investment Operations........................ 0.58 0.64 0.56 0.78
------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income...................... (0.41) (0.41) (0.41) (0.43)
Distributions in Excess of Net Investment Income.......... (0.00)(6) - - -
Distributions from Net Realized Gains..................... (0.10) (0.05) (0.04) -
Distributions in Excess of Net Realized Gains............. - - - -
Distributions from Capital................................ - - - -
------ ------ ------ ------
Total Distributions..................................... (0.51) (0.46) (0.45) (0.43)
------ ------ ------ ------
Net Asset Value, End of Period.............................. $10.81 $10.74 $10.56 $10.45
====== ====== ====== ======
Total Return(5)............................................. 5.47% 6.17% 5.46% 7.90%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's)...................... $21,688 $20,992 $20,948 $12,391
Ratio of Operating Expenses to Average Net Assets......... 1.61% 1.57% 1.48% 1.17%
Ratio of Net Investment Income to Average Net Assets...... 3.74% 3.86% 3.87% 4.20%
Portfolio Turnover Rate................................... 25% 29% 27% 13%
Ratio of Operating Expenses to Average Net Assets Without
Credits Allowed by the Custodian......................... 1.61%(8) 1.58%(8) 1.50%(8) N/A
Ratio of Operating Expenses to Average Net Assets Without
Fee Waivers, Expenses Absorbed and/or Credits Allowed by
the Custodian............................................ 2.01%(8) 2.06%(8) 2.14%(8) 2.16%
</TABLE>
Footnotes appear on page 62
51
<PAGE> 56
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FLORIDA INSURED MUNICIPAL FUND CLASS A SHARES
<TABLE>
<CAPTION>
JUNE 7,
YEAR ENDED JUNE 30, 1993 TO
----------------------------------------------- JUNE 30,
1998++ 1997 1996 1995 1994 1993(1)
----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $9.93 $9.64 $9.43 $9.40 $10.05 $10.00
------ ----- ----- ----- ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income..................................... 0.49 0.49(7) 0.50 0.52 0.52 0.00(6)
Net Realized & Unrealized Gain/(Loss) on Investments...... 0.42 0.30 0.21 0.03(9) (0.65) 0.05
------ ----- ----- ----- ------ ------
Total From Investment Operations........................ 0.91 0.79 0.71 0.55 (0.13) 0.05
------ ----- ----- ----- ------ ------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income...................... (0.49) (0.50) (0.50) (0.52) (0.52) -
Distributions in Excess of Net Investment Income.......... - (0.00)(6) - - (0.00)(6) -
Distributions from Net Realized Gains..................... - - - - - -
Distributions in Excess of Net Realized Gains............. - - - - (0.00)(6) -
Distributions from Capital................................ - - - - - -
------ ----- ----- ----- ------ ------
Total Distributions..................................... (0.49) (0.50) (0.50) (0.52) (0.52) -
------ ----- ----- ----- ------ ------
Net Asset Value, End of Period.............................. $10.35 $9.93 $9.64 $9.43 $9.40 $10.05
====== ===== ===== ===== ====== ======
Total Return(5)............................................. 9.34% 8.43% 7.56% 6.01% (1.50%) 0.50%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's)...................... $16,538 $22,761 $29,821 $33,714 $38,541 $4,837
Ratio of Operating Expenses to Average Net Assets......... 0.88% 0.82% 0.63% 0.39% 0.00% 0.00%(2)
Ratio of Net Investment Income to Average Net Assets...... 4.79% 5.01% 5.08% 5.53% 5.09% 0.48%(2)
Portfolio Turnover Rate................................... 51% 53% 52% 44% 83% 0%
Net Investment Income/(Loss) Per Share Without Fee
Waivers, Expenses Absorbed and/or Credits Allowed by the
Custodian................................................ -(8) 0.43(7)(8) 0.42(8) 0.42 0.36 (0.02)
Ratio of Operating Expenses to Average Net Assets Without
Credit Allowed by the Custodian.......................... 0.89%(8) 0.84%(8) 0.66%(8) N/A N/A N/A
Ratio of Operating Expenses to Average Net Assets Without
Fee Waivers, Expenses Absorbed and/or Credit Allowed by
the Custodian............................................ 1.45%(8) 1.46%(8) 1.46%(8) 1.51% 1.55% 5.59%(2)
</TABLE>
FLORIDA INSURED MUNICIPAL FUND CLASS B SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------
1998++ 1997 1996 1995+++
-----------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $9.93 $9.64 $9.43 $9.40
------ ----- ----- -----
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income..................................... 0.41 0.42(7) 0.42 0.45
Net Realized & Unrealized Gain on Investments............. 0.43 0.30 0.21 0.03(9)
------ ----- ----- -----
Total From Investment Operations........................ 0.84 0.72 0.63 0.48
------ ----- ----- -----
LESS DISTRIBUTIONS:
Dividends from Net Investment Income...................... (0.42) (0.43) (0.42) (0.45)
Distributions in Excess of Net Investment Income.......... - (0.00)(6) - -
Distributions from Net Realized Gains..................... - - - -
Distributions in Excess of Net Realized Gains............. - - - -
Distributions from Capital................................ - - - -
------ ----- ----- -----
Total Distributions..................................... (0.42) (0.43) (0.42) (0.45)
------ ----- ----- -----
Net Asset Value, End of Period.............................. $10.35 $9.93 $9.64 $9.43
====== ===== ===== =====
Total Return(5)............................................. 8.53% 7.63% 6.76% 5.23%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's)...................... $5,075 $5,067 $5,428 $3,330
Ratio of Operating Expenses to Average Net Assets......... 1.63% 1.57% 1.38% 1.14%
Ratio of Net Investment Income to Average Net Assets...... 4.04% 4.26% 4.33% 4.78%
Portfolio Turnover Rate................................... 51% 53% 52% 44%
Ratio of Operating Expenses to Average Net Assets Without
Credit Allowed by the Custodian.......................... 1.64%(8) 1.59%(8) 1.41%(8) N/A
Ratio of Operating Expenses to Average Net Assets Without
Fee Waivers, Expenses Absorbed and/or Credit Allowed by
the Custodian............................................ 2.21%(8) 2.21%(8) 2.21%(8) 2.26%
</TABLE>
Footnotes appear on page 62
52
<PAGE> 57
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
BOND & STOCK FUND CLASS A SHARES
<TABLE>
<CAPTION>
ELEVEN MONTHS
PERIOD ENDED YEAR ENDED OCTOBER 31, ENDED
APRIL 30, ------------------------------------------ OCTOBER 31,
1998 1997 1996 1995 1994 1993 1992++++
-------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period............ $16.13 $14.71 $13.48 $11.53 $12.23 $11.27 $11.01
------ ------ ------ ------ ------ ------ ------
INCOME FROM
INVESTMENT OPERATIONS:
Net Investment Income........ 0.59 0.50 0.52 0.50 0.46 0.48 0.44
Net Realized & Unrealized
Gain/(Loss) on
Investments................. 1.22 2.37 1.53 2.02 (0.57) 1.06 0.80
------ ------ ------ ------ ------ ------ ------
Total From Investment
Operations................. 1.81 2.87 2.05 2.52 (0.11) 1.54 1.24
------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from Net Investment
Income...................... (0.61) (0.51) (0.50) (0.49) (0.44) (0.46) (0.53)
Distributions from Capital
Gains....................... (2.32) (0.94) (0.32) (0.08) (0.15) (0.12) (0.45)
------ ------ ------ ------ ------ ------ ------
Total Distributions........ (2.93) (1.45) (0.82) (0.57) (0.59) (0.58) (0.98)
------ ------ ------ ------ ------ ------ ------
Net Asset Value,
End of Period.................. $15.01 $16.13 $14.71 $13.48 $11.53 $12.23 $11.27
====== ====== ====== ====== ====== ====== ======
Total Return(3)................ 9.78% 20.81% 15.66% 22.55% (0.90)% 13.99% 11.92%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period
($1,000's).................. $323,373 $307,018 $255,414 $208,592 $191,615 $180,281 $102,523
Ratio of Operating Expenses
to Average Net Assets(4).... 0.88%(2) 0.99% 0.98% 1.02% 1.06% 1.13% 1.132%
Ratio of Net Investment
Income to Average Net
Assets...................... 3.06%(2) 3.31% 3.68% 3.98% 3.97% 4.01% 4.302%
Portfolio Turnover Rate...... 54% 54% 46% 32% 25% 19% 152%
<CAPTION>
YEAR ENDED NOVEMBER 30,
---------------------------------
1991 1990 1989 1988
---------------------------------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period............ $9.90 $10.86 $10.08 $8.85
------ ------ ------ ------
INCOME FROM
INVESTMENT OPERATIONS:
Net Investment Income........ 0.55 0.53 0.58 0.53
Net Realized & Unrealized
Gain/(Loss) on
Investments................. 1.10 (0.78) 0.72 1.19
------ ------ ------ ------
Total From Investment
Operations................. 1.65 (0.25) 1.30 1.72
------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from Net Investment
Income...................... (0.54) (0.61) (0.52) (0.44)
Distributions from Capital
Gains....................... - (0.10) - (0.05)
------ ------ ------ ------
Total Distributions........ (0.54) (0.71) (0.52) (0.49)
------ ------ ------ ------
Net Asset Value,
End of Period.................. $11.01 $9.90 $10.86 $10.08
====== ====== ====== ======
Total Return(3)................ 16.96% (2.29)% 13.21% 19.67%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period
($1,000's).................. $66,090 $63,669 $71,771 $69,230
Ratio of Operating Expenses
to Average Net Assets(4).... 1.14% 1.17% 0.96% 0.87%
Ratio of Net Investment
Income to Average Net
Assets...................... 4.90% 5.25% 5.42% 5.35%
Portfolio Turnover Rate...... 35% 38% 36% 81%
</TABLE>
BOND & STOCK FUND CLASS B SHARES
<TABLE>
<CAPTION>
MARCH 30,
PERIOD ENDED YEAR ENDED OCTOBER 31, 1994 TO
APRIL 30, ------------------------ OCTOBER 31,
1998 1997 1996 1995 1994(1)
-----------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $16.10 $14.69 $13.47 $11.51 $11.49
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income..................................... 0.46 0.39 0.41 0.39 0.18
Net Realized & Unrealized Gain on Investments............. 1.20 2.36 1.53 2.03 0.04
------ ------ ------ ------ ------
Total From Investment Operations........................ 1.66 2.75 1.94 2.42 0.22
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income...................... (0.47) (0.40) (0.40) (0.38) (0.20)
Distributions from Capital Gains.......................... (2.32) (0.94) (0.32) (0.08) -
------ ------ ------ ------ ------
Total Distributions..................................... (2.79) (1.34) (0.72) (0.46) (0.20)
------ ------ ------ ------ ------
Net Asset Value, End of Period.............................. $14.97 $16.10 $14.69 $13.47 $11.51
====== ====== ====== ====== ======
Total Return(3)............................................. 9.33% 19.86% 14.73% 21.60% 1.94%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's)...................... $68,428 $46,556 $22,243 $7,372 $3,362
Ratio of Operating Expenses to Average Net Assets(4)...... 1.77%(2) 1.79% 1.86% 1.84% 1.772%
Ratio of Net Investment Income to Average Net Assets...... 2.25%(2) 2.48% 2.80% 3.10% 3.222%
Portfolio Turnover Rate................................... 54% 54% 46% 32% 25%
</TABLE>
Footnotes appear on page 62
53
<PAGE> 58
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
GROWTH & INCOME FUND CLASS A SHARES
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED OCTOBER 31,
APRIL 30, ------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991
---------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period........................ $21.01 $17.26 $14.65 $12.71 $12.81 $12.02 $11.86 $9.18
------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net Investment Income....... 0.04 0.12 0.20 0.22 0.18 0.21 0.29 0.29
Net Realized & Unrealized
Gain/(Loss) on
Investments................ 3.00 4.98 3.16 2.31 0.85 1.10 0.80 2.69
------ ------ ------ ------ ------ ------ ------ ------
Total From Investment
Operations................ 3.04 5.10 3.36 2.53 1.03 1.31 1.09 2.98
------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from Net
Investment Income.......... (0.06) (0.14) (0.21) (0.19) (0.18) (0.21) (0.34) (0.30)
Distributions from Capital
Gains...................... (2.47) (1.21) (0.54) (0.40) (0.95) (0.31) (0.59) -
------ ------ ------ ------ ------ ------ ------ ------
Total Distributions....... (2.53) (1.35) (0.75) (0.59) (1.13) (0.52) (0.93) (0.30)
------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value, End of
Period........................ $21.52 $21.01 $17.26 $14.65 $12.71 $12.81 $12.02 $11.86
====== ====== ====== ====== ====== ====== ====== ======
Total Return(3)............... 15.42% 31.24% 23.61% 20.87% 8.55% 11.06% 9.94% 32.69%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period
($1,000's)................. $515,796 $299,928 $178,331 $130,630 $102,837 $95,229 $81,102 $69,365
Ratio of Operating Expenses
to Average Net Assets(4)... 0.98%(2) 1.05% 1.03% 1.07% 1.10% 1.17% 1.10% 1.12%
Ratio of Net Investment
Income to Average Net
Assets..................... 0.69%(2) 0.66% 1.26% 1.62% 1.45% 1.67% 2.37% 2.73%
Portfolio Turnover Rate..... 44% 71% 52% 39% 34% 54% 18% 26%
<CAPTION>
YEAR ENDED OCTOBER 31,
-------------------------
1990 1989 1988
-------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period........................ $12.17 $11.10 $9.77
------- ------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net Investment Income....... 0.35 0.46 0.35
Net Realized & Unrealized
Gain/(Loss) on
Investments................ (2.19) 0.96 1.32
------- ------ ------
Total From Investment
Operations................ (1.84) 1.42 1.67
------- ------ ------
LESS DISTRIBUTIONS:
Dividends from Net
Investment Income.......... (0.50) (0.35) (0.29)
Distributions from Capital
Gains...................... (0.65) - (0.05)
------- ------ ------
Total Distributions....... (1.15) (0.35) (0.34)
------- ------ ------
Net Asset Value, End of
Period........................ $9.18 $12.17 $11.10
======= ====== ======
Total Return(3)............... (16.25)% 13.00% 17.36%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period
($1,000's)................. $68,297 $72,642 $69,117
Ratio of Operating Expenses
to Average Net Assets(4)... 1.17% 1.06% 0.89%
Ratio of Net Investment
Income to Average Net
Assets..................... 3.33% 3.88% 3.33%
Portfolio Turnover Rate..... 37% 37% 45%
</TABLE>
GROWTH & INCOME FUND CLASS B SHARES
<TABLE>
<CAPTION>
MARCH 30,
PERIOD ENDED YEAR ENDED OCTOBER 31, 1994 TO
APRIL 30, ------------------------ OCTOBER 31,
1998 1997 1996 1995 1994(1)
-----------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $20.85 $17.17 $14.59 $12.68 $12.00
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income/(Loss).............................. 0.00 (0.02) 0.06 0.11 0.05
Net Realized & Unrealized Gain on Investments............. 2.96 4.93 3.14 2.31 0.69
------ ------ ------ ------ ------
Total From Investment Operations........................ 2.96 4.91 3.20 2.42 0.74
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income...................... - (0.02) (0.08) (0.11) (0.06)
Distributions from Capital Gains.......................... (2.47) (1.21) (0.54) (0.40) -
------ ------ ------ ------ ------
Total Distributions..................................... (2.47) (1.23) (0.62) (0.51) (0.06)
------ ------ ------ ------ ------
Net Asset Value, End of Period.............................. $21.34 $20.85 $17.17 $14.59 $12.68
====== ====== ====== ====== ======
Total Return(3)............................................. 15.06% 30.20% 22.55% 19.95% 6.14%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's)...................... $118,479 $49,994 $22,851 $8,871 $2,082
Ratio of Operating Expenses to Average Net Assets(4)...... 1.72%(2) 1.88% 1.94% 1.91% 1.85%(2)
Ratio of Net Investment Income to Average Net Assets...... -0.13%(2) -0.19% 0.34% 0.69% 0.65%(2)
Portfolio Turnover Rate................................... 44% 71% 52% 39% 34%
</TABLE>
Footnotes appear on page 62
54
<PAGE> 59
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NORTHWEST FUND CLASS A SHARES
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED DECEMBER 31,
APRIL 30, ------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991
---------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period............ $25.92 $19.69 $17.40 $14.30 $14.50 $14.04 $13.45 $8.43
------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM
INVESTMENT OPERATIONS:
Net Investment
Income/(Loss)............... 0.00 (0.02) 0.03 0.07 0.08 0.07 0.08 0.07
Net Realized & Unrealized
Gain/(Loss) on
Investments................. 2.84 8.13 2.47 3.10 0.35 0.46 0.69 5.03
------ ------ ------ ------ ------ ------ ------ ------
Total From Investment
Operations................. 2.84 8.11 2.50 3.17 0.43 0.53 0.77 5.10
------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from Net Investment
Income...................... - - (0.03) (0.07) (0.08) (0.07) (0.07) (0.08)
Distributions from
Capital Gains............... (4.77) (1.88) (0.18) - (0.55) - (0.11) -
------ ------ ------ ------ ------ ------ ------ ------
Total Distributions........ (4.77) (1.88) (0.21) (0.07) (0.63) (0.07) (0.18) (0.08)
------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value,
End of Period.................. $23.99 $25.92 $19.69 $17.40 $14.30 $14.50 $14.04 $13.45
====== ====== ====== ====== ====== ====== ====== ======
Total Return(3)................ 12.11% 44.47% 14.54% 22.24% 2.97% 3.82% 5.77% 60.49%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period
($1,000's).................. $286,979 $256,908 $176,706 $157,953 $152,622 $168,840 $167,115 $98,754
Ratio of Operating Expenses
to Average Net Assets(4).... 1.01%(2) 1.05% 1.08% 1.10% 1.09% 1.09% 1.11% 1.21%
Ratio of Net Investment
Income to Average Net
Assets...................... -0.01%(2) -0.08% 0.16% 0.44% 0.51% 0.48% 0.53% 0.63%
Portfolio Turnover Rate...... 42% 37% 42% 9% 11% 8% 4% 8%
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1990 1989 1988
--------------------------
<S> <C> <C> <C>
Net Asset Value,
Beginning of Period............ $10.18 $7.55 $6.02
-------- ------ ------
INCOME FROM
INVESTMENT OPERATIONS:
Net Investment
Income/(Loss)............... 0.08 0.08 0.06
Net Realized & Unrealized
Gain/(Loss) on
Investments................. (1.76) 2.63 1.52
-------- ------ ------
Total From Investment
Operations................. (1.68) 2.71 1.58
-------- ------ ------
LESS DISTRIBUTIONS:
Dividends from Net Investment
Income...................... (0.07) (0.08) (0.05)
Distributions from
Capital Gains............... - - -
-------- ------ ------
Total Distributions........ (0.07) (0.08) (0.05)
-------- ------ ------
Net Asset Value,
End of Period.................. $8.43 $10.18 $7.55
======== ====== ======
Total Return(3)................ (16.68)% 36.14% 26.42%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period
($1,000's).................. $42,647 $18,687 $6,994
Ratio of Operating Expenses
to Average Net Assets(4).... 1.45% 1.50% 1.44%
Ratio of Net Investment
Income to Average Net
Assets...................... 0.72% 0.81% 0.84%
Portfolio Turnover Rate...... 7% 12% 17%
</TABLE>
NORTHWEST FUND CLASS B SHARES
<TABLE>
<CAPTION>
MARCH 30,
PERIOD ENDED YEAR ENDED DECEMBER 31, 1994 TO
APRIL 30, --------------------------- OCTOBER 31,
1998 1997 1996 1995 1994(1)
---------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $25.34 $19.45 $17.31 $14.28 $14.42
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income/(Loss).............................. (0.01) (0.08) (0.08) (0.05) (0.02)
Net Realized & Unrealized Gain/(Loss) on Investments...... 2.68 7.85 2.40 3.08 (0.12)
------- ------- ------- ------- -------
Total From Investment Operations........................ 2.67 7.77 2.32 3.03 (0.14)
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income...................... - - - - -
Distributions from Capital Gains.......................... (4.77) (1.88) (0.18) - -
------- ------- ------- ------- -------
Total Distributions..................................... (4.77) (1.88) (0.18) - -
------- ------- ------- ------- -------
Net Asset Value, End of Period.............................. $23.24 $25.34 $19.45 $17.31 $14.28
======= ======= ======= ======= =======
Total Return(3)............................................. 11.66 43.17 13.54 21.25 (0.97)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's)...................... $55,932 $39,627 $14,653 $7,083 $3,012
Ratio of Operating Expenses to Average Net Assets(4)...... 1.91%(2) 1.91% 1.98% 1.95% 1.96%(2)
Ratio of Net Investment Income to Average Net Assets...... -0.90%(2) -0.96% -0.76% -0.45% -0.39%(2)
Portfolio Turnover Rate................................... 42% 37% 42% 9% 11%
</TABLE>
Footnotes appear on page 62
55
<PAGE> 60
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
GROWTH FUND CLASS A SHARES
<TABLE>
<CAPTION>
APRIL 5,
YEAR ENDED JUNE 30, 1993 TO
------------------------------------------------------ JUNE 30,
1998++ 1997 1996 1995 1994 1993(1)
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $14.90 $15.69 $14.18 $10.73 $10.72 $10.00
------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income/(Loss).............................. (0.15)(7) (0.03)(7) (0.07)(7) 0.05(7) (0.02) 0.00(6)
Net Realized & Unrealized Gain/(Loss) on Investments...... 4.99 1.58 3.47 3.42 0.03(9) 0.72
------ ------ ------ ------ ------ ------
Total From Investment Operations........................ 4.84 1.55 3.40 3.47 0.01 0.72
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income...................... - - - (0.02) - -
Distributions in Excess of Net Investment Income.......... - - - - - -
Distributions from Net Realized Gains..................... (1.28) (2.34) (1.89) (0.00)(6) - -
Distributions in Excess of Net Realized Gains............. - - - - - -
Distributions from Capital................................ - - - - - -
------ ------ ------ ------ ------ ------
Total Distributions..................................... (1.28) (2.34) (1.89) (0.02) - -
------ ------ ------ ------ ------ ------
Net Asset Value, End of Period.............................. $18.46 $14.90 $15.69 $14.18 $10.73 $10.72
====== ====== ====== ====== ====== ======
Total Return(5)............................................. 35.43% 10.88% 25.44% 32.33% 0.00% 7.30%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's)...................... $112,153 $111,187 $179,720 $154,763 $126,808 $23,323
Ratio of Operating Expenses to Average Net Assets......... 1.66% 1.70% 1.70% 1.76% 1.75% 1.44%(2)
Ratio of Net Investment Income to Average Net Assets...... -0.91% -0.22% -0.49% 0.28% -0.35% -0.63%(2)
Portfolio Turnover Rate................................... 153% 156% 205% 233% 227% 13%
Ratio of Operating Expenses to Average Net Assets Without
Credits Allowed by the Custodian......................... 1.66%(8) 1.70%(8) 1.71%(8) N/A N/A N/A
Ratio of Operating Expenses to Average Net Assets Without
Fee Waivers, Expenses Absorbed and/or Credits Allowed by
the Custodian............................................ 1.66%(8) 1.70%(8) 1.71%(8) 1.76% 1.75% 2.52%(2)
</TABLE>
GROWTH FUND CLASS B SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------
1998++ 1997 1996 1995+++
----------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $14.53 $15.47 $14.10 $10.73
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income/(Loss).............................. (0.25)(7) (0.14)(7) (0.19)(7) (0.04)(7)
Net Realized & Unrealized Gain on Investments............. 4.82 1.54 3.45 3.42
------ ------ ------ ------
Total From Investment Operations........................ 4.57 1.40 3.26 3.38
------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income...................... - - - (0.01)
Distributions in Excess of Net Investment Income.......... - - - -
Distributions from Net Realized Gains..................... (1.28) (2.34) (1.89) (0.00)(6)
Distributions in Excess of Net Realized Gains............. - - - -
Distributions from Capital................................ - - - -
------ ------ ------ ------
Total Distributions..................................... (1.28) (2.34) (1.89) (0.01)
------ ------ ------ ------
Net Asset Value, End of Period.............................. $17.82 $14.53 $15.47 $14.10
====== ====== ====== ======
Total Return(5)............................................. 34.43% 9.99% 24.54% 31.46%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's)...................... $38,390 $30,397 $25,067 $6,928
Ratio of Operating Expenses to Average Net Assets......... 2.46% 2.45% 2.45% 2.51%
Ratio of Net Investment Income to Average Net Assets...... -1.70% -0.97% -1.24% -0.47%
Portfolio Turnover Rate................................... 153% 156% 205% 233%
Ratio of Operating Expenses to Average Net Assets Without
Credits Allowed by the Custodian......................... 2.46%(8) 2.45%(8) 2.46%(8) N/A
Ratio of Operating Expenses to Average Net Assets Without
Fee Waivers, Expenses Absorbed and/or Credits Allowed by
the Custodian............................................ 2.46%(8) 2.45%(8) 2.46%(8) 2.51%
</TABLE>
Footnotes appear on page 62
56
<PAGE> 61
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
EMERGING GROWTH FUND CLASS A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------
1998++ 1997 1996 1995
-------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period........................ $18.28 $20.17 $15.47 $13.02
------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net Investment
Income/(Loss).............. (0.22)(7) (0.21)(7) (0.19)(7) (0.00)(6)(7)
Net Realized & Unrealized
Gain/(Loss) on
Investments................ 2.50 (0.18) 5.65 2.77
------ ------ ------ ------
Total From Investment
Operations................ 2.28 (0.39) 5.46 2.77
------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from Net
Investment Income.......... - - - -
Distributions in Excess of
Net Investment Income...... - - - -
Distributions from Net
Realized Gains............. (1.07) (1.50) (0.76) (0.32)
Distributions in Excess of
Net Realized Gains......... - - - -
Distributions from
Capital.................... - - - -
------ ------ ------ ------
Total Distributions....... (1.07) (1.50) (0.76) (0.32)
------ ------ ------ ------
Net Asset Value, End of
Period........................ $19.49 $18.28 $20.17 $15.47
====== ====== ====== ======
Total Return(5)............... 12.95% (1.50)% 35.93% 21.54%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period
($1,000's)................. $118,473 $165,719 $283,747 $185,722
Ratio of Operating Expenses
to Average Net Assets...... 1.66% 1.64% 1.64% 1.68%
Ratio of Net Investment
Income/Loss to Average Net
Assets..................... -1.10% -1.17% -1.02% -0.31%
Portfolio Turnover Rate..... 112% 81% 131% 181%
Ratio of Operating Expenses
to Average Net Assets
Without Fee Waivers,
Expenses Absorbed and/or
Credits Allowed by the
Custodian.................. 1.66%(8) 1.64%(8) 1.65%(8) 1.68%
<CAPTION>
JULY 18,
YEAR ENDED JUNE 30, 1990 TO
------------------------------- JUNE 30,
1994 1993 1992 1991(1)
----------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period........................ $13.76 $11.67 $9.62 $10.00
------ ------- ------ -------
INCOME FROM INVESTMENT
OPERATIONS:
Net Investment
Income/(Loss).............. (0.09) (0.02) (0.01)(7) 0.09
Net Realized & Unrealized
Gain/(Loss) on
Investments................ 0.68 2.31 2.16 (0.40)
------ ------- ------ -------
Total From Investment
Operations................ 0.59 2.29 2.15 (0.31)
------ ------- ------ -------
LESS DISTRIBUTIONS:
Dividends from Net
Investment Income.......... - - (0.01) (0.07)
Distributions in Excess of
Net Investment Income...... - - - -
Distributions from Net
Realized Gains............. (1.33) (0.20) (0.08) -
Distributions in Excess of
Net Realized Gains......... - - - -
Distributions from
Capital.................... - - (0.01)(10) -
------ ------- ------ -------
Total Distributions....... (1.33) (0.20) (0.10) (0.07)
------ ------- ------ -------
Net Asset Value, End of
Period........................ $13.02 $13.76 $11.67 $9.62
====== ======= ====== =======
Total Return(5)............... 3.40% 19.75% 22.47% (2.95)%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period
($1,000's)................. $124,941 $96,646 $27,652 $8,490
Ratio of Operating Expenses
to Average Net Assets...... 1.66% 1.59% 1.93% 1.84%(2)
Ratio of Net Investment
Income/Loss to Average Net
Assets..................... -0.68% -0.32% -0.04% 1.10%(2)
Portfolio Turnover Rate..... 224% 28% 60% 17%
Ratio of Operating Expenses
to Average Net Assets
Without Fee Waivers,
Expenses Absorbed and/or
Credits Allowed by the
Custodian.................. 1.66% 1.59% 1.93% 2.11%(2)
</TABLE>
EMERGING GROWTH FUND CLASS B SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------
1998++ 1997 1996 1995+++
-------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $17.85 $19.88 $15.37 $13.02
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income/(Loss).............................. (0.36)(7) (0.34)(7) (0.32)(7) (0.10)(7)
Net Realized & Unrealized Gain/(Loss) on Investments...... 2.44 (0.19) 5.59 2.77
------ ------ ------ ------
Total From Investment Operations........................ 2.08 (0.53) 5.27 2.67
------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income...................... - - - -
Distributions in Excess of Net Investment Income.......... - - - -
Distributions from Net Realized Gains..................... (1.07) (1.50) (0.76) (0.32)
Distributions in Excess of Net Realized Gains............. - - - -
Distributions from Capital................................ - - - -
------ ------ ------ ------
Total Distributions..................................... (1.07) (1.50) (0.76) (0.32)
------ ------ ------ ------
Net Asset Value, End of Period.............................. $18.86 $17.85 $19.88 $15.37
====== ====== ====== ======
Total Return(5)............................................. 12.05% (2.26)% 34.93% 20.69%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's)...................... $28,540 $29,123 $28,920 $10,208
Ratio of Operating Expenses to Average Net Assets......... 2.47% 2.39% 2.39% 2.43%
Ratio of Net Investment Income/Loss to Average Net
Assets................................................... -1.92% -1.92% -1.77% -1.06%
Portfolio Turnover Rate................................... 112% 81% 131% 181%
Ratio of Operating Expenses to Average Net Assets Without
Fee Waivers, Expenses Absorbed and/or Credits Allowed by
the Custodian............................................ 2.47%(8) 2.39%(8) 2.40%(8) 2.43%
</TABLE>
Footnotes appear on page 62
57
<PAGE> 62
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
INTERNATIONAL GROWTH FUND CLASS A SHARES
<TABLE>
<CAPTION>
JULY 18,
YEAR ENDED JUNE 30, 1990 TO
------------------------------------------------------------------- JUNE 30,
1998++ 1997 1996 1995 1994 1993 1992 1991(1)
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period............ $11.85 $10.49 $9.78 $10.74 $9.80 $8.82 $8.27 $10.00
------- ------ ------- ------- ------- ------ ------ --------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income/(Loss).................. 0.05(7) 0.04(7) 0.05(7) (0.11)(7) 0.06 0.07 0.05 0.02
Net Realized & Unrealized Gain/(Loss) on
Investments.................................. (0.67) 1.55 1.21 (0.31) 1.15 0.94 0.55 (1.75)
------- ------ ------- ------- ------- ------ ------ --------
Total From Investment Operations............ (0.62) 1.59 1.26 (0.42) 1.21 1.01 0.60 (1.73)
------- ------ ------- ------- ------- ------ ------ --------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income.......... (0.50) (0.13) (0.05) (0.04) (0.02) (0.03) (0.05) -
Distributions in Excess of Net Investment
Income....................................... (0.03) - (0.04) - - - - -
Distributions from Net Realized Gains......... (0.50) (0.10) (0.46) (0.44) (0.25) - - -
Distributions in Excess of Net Realized
Gains........................................ - - - (0.06) - - - -
------- ------ ------- ------- ------- ------ ------ --------
Total Distributions......................... (1.03) (0.23) (0.55) (0.54) (0.27) (0.03) (0.05) -
------- ------ ------- ------- ------- ------ ------ --------
Net Asset Value, End of Period.................. $10.20 $11.85 $10.49 $9.78 $10.74 $9.80 $8.82 $8.27
======= ====== ======= ======= ======= ====== ====== ========
Total Return(5)................................. (4.19)% 15.50% 13.16% (4.01)% 12.39% 11.51% 7.28% (17.30)%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's).......... $38,281 $57,776 $116,254 $91,763 $127,764 $56,962 $24,479 $11,647
Ratio of Operating Expenses to Average Net
Assets....................................... 1.67% 1.65% 1.77% 1.69% 1.69% 1.80% 2.25% 2.24%(2)
Ratio of Net Investment Income to Average Net
Assets....................................... 0.50% 0.35% 0.46% 0.62% 0.54% 1.07% 0.69% 0.51%(2)
Portfolio Turnover Rate....................... 118% 67% 125% 81% 44% 63% 66% 45%
Ratio of Operating Expenses to Average Net
Assets Without Fee Waivers, Expenses Absorbed
and/or Credits Allowed by the Custodian...... 1.67%(8) 1.65%(8) 1.77%(8) 1.69% 1.69% 1.80% 2.29% 2.47%(2)
</TABLE>
INTERNATIONAL GROWTH FUND CLASS B SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------
1998++ 1997 1996 1995+++
----------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $11.70 $10.39 $9.73 $10.74
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income/(Loss).............................. (0.04)(7) (0.04)(7) (0.03)(7) (0.17)(7)
Net Realized & Unrealized Gain/(Loss) on Investments...... (0.64) 1.53 1.21 (0.31)
------- ------- ------- -------
Total From Investment Operations........................ (0.68) 1.49 1.18 (0.48)
------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income...................... (0.42) (0.08) (0.02) (0.03)
Distributions in Excess of Net Investment Income.......... (0.03) - (0.04) -
Distributions from Net Realized Gains..................... (0.50) (0.10) (0.46) (0.44)
Distributions in Excess of Net Realized Gains............. - - - (0.06)
------- ------- ------- -------
Total Distributions..................................... (0.95) (0.18) (0.52) (0.53)
------- ------- ------- -------
Net Asset Value, End of Period.............................. $10.07 $11.70 $10.39 $9.73
======= ======= ======= =======
Total Return(5)............................................. (4.95)% 14.66% 12.34% (4.61)%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's)...................... $4,294 $4,876 $4,447 $2,268
Ratio of Operating Expenses to Average Net Assets......... 2.49% 2.40% 2.52% 2.44%
Ratio of Net Investment Income to Average Net Assets...... -0.35% -0.40% -0.29% -0.13%
Portfolio Turnover Rate................................... 118% 67% 125% 81%
Net Investment Income (Loss) Per Share Without Fee
Waivers, Expenses Absorbed and/or Credits Allowed by the
Custodian................................................ $-(7)(8) $(0.04)(7)(8) $(0.03)(7)(8) N/A
Ratio of Operating Expenses to Average Net Assets Without
Fee Waivers, Expenses Absorbed and/or Credits Allowed by
the Custodian............................................ 2.53%(8) 2.40%(8) 2.52%(8) 2.44%
</TABLE>
Footnotes appear on page 62
58
<PAGE> 63
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
STRATEGIC GROWTH PORTFOLIO
<TABLE>
<CAPTION>
CLASS A CLASS B
----------------------------- -----------------------------
YEAR ENDED JULY 25, 1996 TO YEAR ENDED JULY 25, 1996 TO
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998++ 1997(1) 1998++ 1997(1)
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $11.26 $10.00 $11.19 $10.00
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income/(Loss).............................. 0.00(7)(6) (0.02)(7) (0.09)(7) (0.10)(7)
Net Realized & Unrealized Gain on Investments............. 2.12 1.90 2.11 1.90
------ ------ ------ ------
Total From Investment Operations........................ 2.12 1.88 2.02 1.80
------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income...................... - - - -
Distributions in Excess of Net Investment Income.......... (0.68) (0.62) (0.64) (0.61)
Distributions from Net Realized Gains..................... (0.04) (0.00)(6) (0.04) (0.00)(6)
------ ------ ------ ------
Total Distributions..................................... (0.72) (0.62) (0.68) (0.61)
------ ------ ------ ------
Net Asset Value, End of Period.............................. $12.66 $11.26 $12.53 $11.19
====== ====== ====== ======
Total Return(5)............................................. 20.11% 19.33% 19.24% 18.48%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's)...................... $18,330 $14,253 $51,173 $35,802
Ratio of Operating Expenses to Average Net Assets(11)..... 0.94% 0.90%(2) 1.68% 1.65%(2)
Ratio of Net Investment Income/Loss to Average Net
Assets................................................... 0.01% -0.19%(2) -0.74% -0.94%(2)
Portfolio Turnover Rate................................... 23% 33% 23% 33%
Ratio of Operating Expenses to Average Net Assets Without
Credits Allowed by the Custodian(11)..................... 0.94% 0.91%(2) 1.68% 1.66%(2)
Ratio of Operating Expenses to Average Net Assets Without
Fee Waivers, Expenses Absorbed and/or Credits Allowed by
the Custodian............................................ 1.08% 1.45%(2) 1.83% 2.20%(2)
</TABLE>
CONSERVATIVE GROWTH PORTFOLIO
<TABLE>
<CAPTION>
CLASS A CLASS B
----------------------------- -----------------------------
YEAR ENDED JULY 25, 1996 TO YEAR ENDED JULY 25, 1996 TO
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998++ 1997(1) 1998++ 1997(1)
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $10.86 $10.00 $10.80 $10.00
------- ------ ------- ------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income..................................... 0.13(7) 0.08(7) 0.04(7) 0.01(7)
Net Realized & Unrealized Gain on Investments............. 1.42 1.32 1.43 1.31
------- ------ ------- ------
Total From Investment Operations........................ 1.55 1.40 1.47 1.32
------- ------ ------- ------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income...................... (0.09) (0.08) (0.08) (0.01)
Distributions in Excess of Net Investment Income.......... (0.42) (0.46) (0.39) (0.51)
Distributions from Net Realized Gains..................... (0.06) - (0.06) -
------- ------ ------- ------
Total Distributions..................................... (0.57) (0.54) (0.53) (0.52)
------- ------ ------- ------
Net Asset Value, End of Period.............................. $11.84 $10.86 $11.74 $10.80
======= ====== ======= ======
Total Return(5)............................................. 15.18% 14.39% 14.44% 13.59%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's)...................... $114,946 $136,141 $169,269 $158,697
Ratio of Operating Expenses to Average Net Assets(11)..... 0.95% 0.92%(2) 1.70% 1.67%(2)
Ratio of Net Investment Income/Loss to Average Net
Assets................................................... 1.17% 0.81%(2) 0.40% 0.06%(2)
Portfolio Turnover Rate................................... 28% 20% 28% 20%
Ratio of Operating Expenses to Average Net Assets Without
Credits Allowed by the Custodian(11)..................... 0.95% 0.93%(2) 1.70% 1.68%(2)
Ratio of Operating Expenses to Average Net Assets Without
Fee Waivers, Expenses Absorbed and/or Credits Allowed by
the Custodian............................................ 1.00% 1.17%(2) 1.74% 1.92%(2)
</TABLE>
Footnotes appear on page 62
59
<PAGE> 64
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
BALANCED PORTFOLIO
<TABLE>
<CAPTION>
CLASS A CLASS B
----------------------------- -----------------------------
YEAR ENDED JULY 25, 1996 TO YEAR ENDED JULY 25, 1996 TO
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998++ 1997(1) 1998++ 1997(1)
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $10.95 $10.00 $10.95 $10.00
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income..................................... 0.22 0.20 0.17(7) 0.14(7)
Net Realized & Unrealized Gain on Investments............. 1.25 1.27 1.22 1.25
------- ------- ------- -------
Total From Investment Operations........................ 1.47 1.47 1.39 1.39
------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income...................... (0.23) (0.20) (0.20) (0.14)
Distributions in Excess of Net Investment Income.......... (0.45) (0.32) (0.40) (0.30)
Distributions from Net Realized Gains..................... (0.11) (0.00)(6) (0.11) (0.00)(6)
------- ------- ------- -------
Total Distributions..................................... (0.79) (0.52) (0.71) (0.44)
------- ------- ------- -------
Net Asset Value, End of Period.............................. $11.63 $10.95 $11.63 $10.95
======= ======= ======= =======
Total Return(5)............................................. 14.32% 15.02% 13.47% 14.23%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's)...................... $101,726 $109,421 $114,944 $99,821
Ratio of Operating Expenses to Average Net Assets(11)..... 0.95% 0.92%(2) 1.70% 1.67%(2)
Ratio of Net Investment Income/Loss to Average Net
Assets................................................... 2.14% 2.48%(2) 1.39% 1.73%(2)
Portfolio Turnover Rate................................... 29% 46% 29% 46%
Ratio of Operating Expenses to Average Net Assets Without
Credits Allowed by the Custodian(11)..................... 0.95% 0.93%(2) 1.70% 1.68%(2)
Ratio of Operating Expenses to Average Net Assets Without
Fee Waivers, Expenses Absorbed and/or Credits Allowed by
the Custodian............................................ 1.00% 1.17%(2) 1.75% 1.92%(2)
</TABLE>
FLEXIBLE INCOME PORTFOLIO
<TABLE>
<CAPTION>
CLASS A CLASS B
----------------------------- -----------------------------
YEAR ENDED JULY 25, 1996 TO YEAR ENDED JULY 25, 1996 TO
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998++ 1997(1)* 1998++ 1997(1)
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $10.57 $10.00 $10.57 $10.00
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income..................................... 0.45 0.43(7) 0.31 0.38(7)
Net Realized & Unrealized Gain on Investments............. 0.67 0.70 0.73 0.68
------ ------ ------ ------
Total From Investment Operations........................ 1.12 1.13 1.04 1.06
------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income...................... (0.45) (0.43) (0.37) (0.38)
Distributions in Excess of Net Investment Income.......... (0.21) (0.13) (0.21) (0.11)
Distributions from Net Realized Gains..................... (0.24) (0.00)(6) (0.24) (0.00)(6)
------ ------ ------ ------
Total Distributions..................................... (0.90) (0.56) (0.82) (0.49)
------ ------ ------ ------
Net Asset Value, End of Period.............................. $10.79 $10.57 $10.79 $10.57
====== ====== ====== ======
Total Return(5)............................................. 11.07% 11.58% 10.24% 10.80%
RATIOS/SUPPLEMENTAL DATA:
Net Assets End of Period ($1,000's)....................... $8,808 $12,613 $7,684 $7,385
Ratio of Operating Expenses to Average Net Assets(11)..... 0.95% 0.92%(2) 1.70% 1.67%(2)
Ratio of Net Investment Income/Loss to Average Net
Assets................................................... 4.07% 4.95%(2) 3.32% 4.20%(2)
Portfolio Turnover Rate................................... 24% 54% 24% 54%
Ratio of Operating Expenses to Average Net Assets Without
Credits Allowed by the Custodian(11)..................... 0.95% 0.93%(2) 1.70% 1.68%(2)
Ratio of Operating Expenses to Average Net Assets Without
Fee Waivers, Expenses Absorbed and/or Credits Allowed by
the Custodian............................................ 1.23% 1.67%(2) 1.98% 2.42%(2)
</TABLE>
Footnotes appear on page 62
60
<PAGE> 65
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
INCOME PORTFOLIO
<TABLE>
<CAPTION>
CLASS A CLASS B
----------------------------- -----------------------------
YEAR ENDED JULY 25, 1996 TO YEAR ENDED JULY 25, 1996 TO
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998++ 1997(1) 1998++ 1997(1)
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $10.13 $10.00 $10.13 $10.00
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income..................................... 0.64 0.58(7) 0.56 0.51(7)
Net Realized & Unrealized Gain on Investments............. 0.22 0.14(9) 0.22 0.14(9)
------ ------ ------ ------
Total From Investment Operations........................ 0.86 0.72 0.78 0.65
------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income...................... (0.65) (0.58) (0.57) (0.51)
Distributions in Excess of Net Investment Income.......... (0.00)(6) (0.01) (0.00)(6) (0.01)
Distributions from Net Realized Gains..................... - (0.00)(6) - (0.00)(6)
------ ------ ------ ------
Total Distributions..................................... (0.65) (0.59) (0.57) (0.52)
------ ------ ------ ------
Net Asset Value, End of Period.............................. $10.34 $10.13 $10.34 $10.13
====== ====== ====== ======
Total Return(5)............................................. 8.71% 7.38% 7.90% 6.63%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's)...................... $7,793 $13,410 $4,084 $4,537
Ratio of Operating Expenses to Average Net Assets(11)..... 0.95% 0.93%(2) 1.70% 1.68%(2)
Ratio of Net Investment Income/Loss to Average Net
Assets................................................... 6.23% 6.09%(2) 5.48% 5.34%(2)
Portfolio Turnover Rate................................... 14% 56% 14% 56%
Ratio of Operating Expenses to Average Net Assets Without
Credits Allowed by the Custodian(11)..................... 0.95% 0.93%(2) 1.71% 1.68%(2)
Ratio of Operating Expenses to Average Net Assets Without
Fee Waivers, Expenses Absorbed and/or Credits Allowed by
the Custodian**.......................................... 1.25% 1.65%(2) 2.01% 2.40%(2)
</TABLE>
Footnotes appear on page 62
61
<PAGE> 66
- --------------------------------------------------------------------------------
FOOTNOTES TO FINANCIAL HIGHLIGHTS
<TABLE>
<C> <S>
(1) From the commencement of offering shares.
(2) Annualized.
(3) Total returns do not reflect a sales charge and are not
annualized.
(4) Ratio of operating expenses to average net assets includes
expenses paid indirectly beginning in fiscal 1995.
(5) Total return represents aggregate total return for the
periods indicated 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 absorbed by the
investment advisor, administrator and/or distributor or
without credits allowed by the custodian.
(6) Amount represents less than $0.01 per share.
(7) Per share numbers have been calculated using the average
shares method.
(8) The ratio and per share numbers include custodian fees
before reduction by credits allowed by the custodian as
required by amended disclosure requirements effective
September 1, 1995.
(9) The amount shown may not accord with the change in aggregate
gains and losses of portfolio securities due to the timing
of sales and redemptions of Fund shares.
(10) Amounts distributed in excess of accumulated net investment
income as determined for financial statement purposes have
been reported as distributions from paid-in capital at the
fiscal year end in which the distribution was made. Certain
of these distributions which are reported as being from
paid-in capital for financial statement purposes may be
reported to shareholders as taxable distributions due to
differing tax and accounting rules.
(11) The Portfolios will indirectly incur their pro rata share of
the expenses of the Funds when they purchase. Such
underlying Fund expenses are not included in the table.
+ Fiscal year end changed to October 31. Prior to this, the
fiscal year end was December 31.
++ On March 20, 1998, WM Advisors, Inc. replaced Sierra
Investment Advisers Corporation as investment adviser to the
Fund. In the case of the portfolios, on March 20, 1998, WM
Advisors, Inc. replace Sierra Investment Services
Corporation as investment advisor to the portfolio.
+++ On July 1, 1994, the Funds commenced selling Class B shares
in addition to Class A shares. Those shares in existence
prior to July 1, 1994 were designated Class A shares.
++++ Fiscal year end changed as indicated.
</TABLE>
62
<PAGE> 67
- --------------------------------------------------------------------------------
APPENDIX A
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC. BOND RATINGS:
+ Aaa, Aa, A -- Bonds which are rated Aaa or Aa are judged to be of high quality
by all standards and are generally known as high grade bonds. Bonds rated Aa
are rated lower than Aaa securities because margins of protection may not be
as large as in the latter or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities. Bonds which are
rated A possess many favorable investment attributes and are to be considered
as upper medium grade obligations. Factors giving security to principal and
interest are considered adequate, but elements may be present which suggest a
susceptibility to impairment sometime in the future.
+ Baa -- Bonds which are rated Baa are considered medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
+ Ba -- Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well secured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
+ B -- Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
+ Caa -- Bonds which are rated Caa are poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
+ Ca -- Bonds which are rated Ca represent obligations which are speculative in
high degree. Such issues are often in default or have other marked
shortcomings.
+ C -- Bonds which are rated C are the lowest rated class of bonds and can be
regarded as having extremely poor prospectus of ever attaining any real
investment standing.
+ Description of Standard & Poor's bond ratings: AAA, AA, A -- Bonds rated AAA
have the highest rating assigned by S&P to a debt obligation. Capacity to pay
interest and repay principal is extremely strong. Bonds rated AA have a very
strong capacity to pay interest and repay principal and differ from the
highest rated issues only in small degree. Bonds rated A have a strong
capacity to pay interest and repay principal although they are somewhat more
susceptible to the adverse effects of changes in circumstances and economic
conditions than bonds in high rated categories.
+ BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to repay principal and pay
interest for bonds in this category than for bonds in higher rated categories.
+ BB-B-CCC-CC-C -- Bonds rated BB, B, CCC, CC and C are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the obligation.
BB indicates the lowest degree of speculation and C the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
+ CI -- The rating CI is reserved for income bonds on which no income is being
paid.
+ D -- Bonds rated D are in default, and payment of interest and/or repayment of
principal is in arrears.
63
<PAGE> 68
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
(800) 222-5852
[LOGO]WM 1201 Third Avenue, Suite 1400
GROUP of FUNDS Seattle, Washington 98101
- ------------------------------------------------------------------------------------------------------------------------------
1. YOUR ACCOUNT REGISTRATION Check one box for the account you wish to open and complete information.
[ ] INDIVIDUAL ..................... NAME: ________________________________________ SS/TAX ID# ___________________
STREET ADDRESS ______________________________________________________________
CITY _______________________________________________STATE ______ ZIP ________
HOME PHONE ( )________________________ BUSINESS PHONE ( ) _________________
[ ] JOINT TENANT ................... NAME OF ADD'L OWNER:___________________________ SS/TAX ID# __________________
[ ] TENANTS IN COMMON
[ ] TRANSFER TO MINORS ............. ______________________________ AS CUSTODIAN FOR _____________________________
NAME OF CUSTODIAN NAME OF MINOR
UNDER THE _____ UNIFORM TRANSFERS (GIFTS) TO MINORS ACT ___ MINOR'S SS# _____
STATE AGE
[ ] OTHER .......................... NAME:___________________________________________ SS/TAX ID# _________________
Indicate name of Corporation, other organization or fiduciary; if Trust,
include date of instrument (additional forms, such as a Corporate Resolution
may be required -- call 800-222-5852 for information)
[ ] I AM A UNITED STATES CITIZEN ... IF NOT, PLEASE SPECIFY COUNTRY ______________________________________________
- ------------------------------------------------------------------------------------------------------------------------------
2. YOUR INVESTMENT SELECTION Minimum initial $1,000; Minimum subsequent $50 per fund listed below
WM GROUP OF FUNDS
MONEY FUNDS EQUITY FUNDS
MONEY MARKET FUND Class A Shares $_______ BOND & STOCK FUND
TAX-EXEMPT MONEY MARKET FUND Class A Shares $_______ Class A Shares $_______ Class B Shares $_______
CALIFORNIA MONEY FUND Class A Shares $_______ GROWTH & INCOME FUND
Class A Shares $_______ Class B Shares $_______
FIXED-INCOME FUNDS GROWTH FUND
SHORT TERM HIGH QUALITY BOND FUND Class A Shares $_______ Class B Shares $_______
Class A Shares $_______ Class B Shares $_______ INTERNATIONAL GROWTH FUND
TARGET MATURITY 2002 FUND Class A Shares $_______ Class B Shares $_______
Class A Shares $_______ NORTHWEST FUND
U.S. GOVERNMENT SECURITIES FUND Class A Shares $_______ Class B Shares $_______
Class A Shares $_______ Class B Shares $_______ EMERGING GROWTH FUND
INCOME FUND Class A Shares $_______ Class B Shares $_______
Class A Shares $_______ Class B Shares $_______
HIGH YIELD FUND STRATEGIC ASSET MANAGEMENT PORTFOLIOS
Class A Shares $_______ Class B Shares $_______ ($10,000 MINIMUM; $100 SUBSEQUENT)
STRATEGIC GROWTH PORTFOLIO
MUNICIPAL FUNDS Class A Shares $_______ Class B Shares $_______
TAX-EXEMPT BOND FUND CONSERVATIVE GROWTH PORTFOLIO
Class A Shares $_______ Class B Shares $_______ Class A Shares $_______ Class B Shares $_______
CALIFORNIA MUNICIPAL FUND BALANCED PORTFOLIO
Class A Shares $_______ Class B Shares $_______ Class A Shares $_______ Class B Shares $_______
CALIFORNIA INSURED INTERMEDIATE MUNICIPAL FUND FLEXIBLE INCOME PORTFOLIO
Class A Shares $_______ Class B Shares $_______ Class A Shares $_______ Class B Shares $_______
FLORIDA INSURED MUNICIPAL FUND INCOME PORTFOLIO
Class A Shares $_______ Class B Shares $_______ Class A Shares $_______ Class B Shares $_______
OTHER ________________________ Amount $_______________ TOTAL INVESTMENT $______________________________________
- ------------------------------------------------------------------------------------------------------------------------------
3. YOUR PAYMENT METHOD FOR INITIAL INVESTMENT
[ ] CHECK .......................... MAKE CHECK PAYABLE TO: WM GROUP OF FUNDS
[ ] WIRE ........................... CALL 800-222-5852 FOR INSTRUCTIONS
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 69
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------
4. YOUR BROKER/DEALER -- (If you do not have a registered representative, we will refer you to one)
DEALER NUMBER ________________________________ BRANCH NUMBER ______________ REPRESENTATIVE'S NUMBER _______________
REPRESENTATIVES NAME: FIRST __________________________________ LAST _______________________________________________
BRANCH ADDRESS _______________________________________________ CITY ______________________ STATE _____ ZIP ________
- ------------------------------------------------------------------------------------------------------------------------------
5. SPECIAL FEATURES AND PRIVILEGES
A. TELEPHONE PRIVILEGES -- permits transfer of money by wire between your fund(s) within the WM GROUP OF FUNDS and
your designated bank account (please attach a voided unsigned check)
[ ] YES [ ] NO .... IF "YES," PLEASE WIRE MONIES TO THE FOLLOWING BANK:
NAME OF YOUR BANK _________________________________________________________________________________________________
BANK ACCOUNT NAME ____________________________________________ BANK ACCOUNT NO. ___________________________________
BANK ADDRESS _________________________________________________ CITY ______________________ STATE _____ ZIP ________
B. DIVIDEND AND DISTRIBUTION PLANS -- check only one; if none is checked, all dividends/distributions will be reinvested
[ ] FULL REINVESTMENT -- reinvest all dividends and distributions at net asset value
[ ] CASH -- [ ] pay all income dividends and distributions by check and mail/deposit to my bank provided in Section "A"
[ ] pay all income dividends and distributions by check and mail to the address provided in Section "1"
[ ] SYSTEMATIC WITHDRAWAL PLAN -- if you have more than $5,000 in a WM GROUP OF FUNDS mutual fund account, (per
Fund or Portfolio), you can elect to receive a regular check as follows:
FREQUENCY: [ ] - Monthly [ ] - Quarterly [ ] - Semi-Annually [ ] - Annually Amount $ _________________
DATE PAYMENT TO BEGIN ON ____________________
CHECK THE DATE OF PAYMENT YOU PREFER: [ ] - 10th day OR [ ] - 20th day of month
C. CHECKWRITING PRIVILEGES -- available for Class A Shares of the money funds only; minimum of $250 per check
If you wish to redeem monies by check, complete the Signature Card (see following page).
D. AUTOMATIC INVESTMENT PLAN -- (optional)
I authorize the Trust's Agent to withdraw funds from the bank account provided below in the amount of $____________
(minimum $50), on the Days/Date indicated below and on the Day/Date of each week/month thereafter.
FREQUENCY: [ ] - Weekly _______________ [ ] - Bi-Monthly ________ & ________ [ ] - Monthly _______________
(Check one) Day of the week Date Date Date
NAME OF YOUR BANK ____________________________________________(account must have check or draft writing privileges)
BANK ACCOUNT NAME ____________________________________________ BANK ACCOUNT NO. ___________________________________
BANK ADDRESS _________________________________________________ CITY ______________________ STATE _____ ZIP ________
(pleae attach a voided unsigned check of encoded deposit slip)
E. LETTER OF INTENT -- (LOI)
I agree to the terms of the Letter of Intent and provisions for redemption of shares as set forth in the
Prospectus. Although I am not obligated to do so, it is my intention to invest over a 13-month period in Class A
Shares or one or more funds (excluding all Money Funds) an aggregate amount at least equal to the amount indicated
below:
[ ] - $50,000 [ ] - $100,000 [ ] - $250,000 [ ] - $500,000 [ ] - $1,000,000
___________________ NOTE: THE EFFECTIVE DATE CAN BE NO MORE THAN 90 DAYS PRIOR TO TODAY'S DATE.
Effective Date
___________________________________________________________________ _________________________________
Signature(s) Date
APPLICATION CONTINUED ON THE NEXT PAGE
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 70
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------------------------------
F. RIGHT OF ACCUMULATION -- (ROA)
In order for a cumulative quantity discount (as described in the Prospectus) to be made available, you or your
securities dealer must notify WM Shareholder Services at 800-222-5852 of the total holdings in your group (excluding all
Class A Shares of Money Funds) each time an order is placed.
[ ] I own shares in other of the WM GROUP OF FUNDS or the WM Prime Income Fund which may entitle this purchase to have a
reduced sales charge under the provisions in the WM GROUP OF FUNDS Prospectus. My other account numbers (including
accounts held by my spouse and minor children) are:
______________________________________________________ ________________________________________________________
______________________________________________________ ________________________________________________________
_______________________________________________________________________________________ _______________________
Signature(s) Date
- ----------------------------------------------------------------------------------------------------------------------------
6. CLIENT SIGNATURES AND TAXPAYER CERTIFICATION Please read and sign below
I am of legal age, have received and read the Prospectus, agree to its terms and understand that by signing below (a)
neither the Funds nor the Trusts of which they are a series are a bank; and Fund shares are not backed or guaranteed by
any bank nor insured by the FDIC; (b) my/our account will automatically have the Exchange Privilege capability and that
all information provided above (if applicable) will apply to any Fund into which my/our shares may be exchanged; (c) I
hereby ratify any instructions given on this account and any account into which I exchange relating to items on the
application and agree that neither the Funds, nor WM Shareholder Services, Inc., will be liable for any loss, cost or
expense for acting upon such instructions (by telephone or in writing) believed by it to be genuine and in accordance
with the procedures described in the Prospectus; (d) it is my responsibility to read the Prospectus; (e) I represent and
warrant that I have full right, power and authority to give the foregoing affirmations, certifications and
authorizations, and to make the investments applied for pursuant to the Application Form and, if signing on behalf of
the beneficial owner, represent and warrant that I am duly authorized to sign the Application Form and to purchase and
redeem shares (or to deposit and withdraw funds) on behalf of the beneficial owner.
TAXPAYER IDENTIFICATION NUMBER CERTIFICATION:
As required by federal Law, I/we certify under penalties of perjury (1) that the Social Security Number ("SSN") or
Taxpayer Identification Number ("TIN") provided above is correct and (2) that the IRS has never notified me/us that I/we
am/are subject to 31% backup withholding, or has notified me/us that I/we am/are no longer subject to such backup
withholding. (Note: If any or all of Part (2) of the preceding sentence is not true in your case, please strike out that
part before signing.) If I/we fail to furnish my/our correct SSN or TIN, I/we may be subject to a penalty for each
failure and my/our account may be subject to 31% backup withholding on distribution and redemption proceeds. THE
INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF THE DOCUMENT OTHER THAN THE CERTIFICATION
REQUIRED TO AVOID BACKUP WITHHOLDING.
______________________________________________________ X ___________________________________________________________
Registered Representative's Name and Number Signature
______________________________________________________ X ___________________________________________________________
Date Signature
- ----------------------------------------------------------------------------------------------------------------------------
SIGNATURE CARD ACCOUNT NUMBER ___________________________________________________________________________
Please check the Fund(s) for which you wish to have Checkwriting Privileges:
[WM
GROUP OF FUNDS [ ] Money Market Fund [ ] California Money Fund [ ] Tax-Exempt Money Fund
LOGO]
PLEASE PRINT
BOSTON SAFE DEPOSIT Last Name ______________________ First Name _________________ Middle Init. ___________
AND TRUST CO.
Signature X ___________________________________________________________________________
All Registered Owners must
sign this Signature Card. Last Name ______________________ First Name _________________ Middle Init. ___________
Signature X ___________________________________________________________________________
[ ] Only one signature is required on checks. [ ] Both signatures are required on checks.
IF NEITHER BOX IS CHECKED, ALL CHECKS WILL REQUIRE BOTH SIGNATURES.
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 71
- -------------------------------------------------------------------------------
The payment of redemption proceeds is Boston Safe is further authorized to
authorized by the signature(s) effect withdrawals or redemptions to
appearing on the reverse side. Each defray Boston Safe's charges relating
signatory guarantees the genuineness to this checking arrangement. The
of the other signatures. shareholder agrees that he/she shall
be subject to the rules and
Boston Safe Deposit and Trust Co. regulations of Boston Safe pertaining
("Boston Safe") is hereby appointed to this checking arrangement as
agent by the person(s) signing this amended from time to time; that Boston
card (the "Shareholder(s)") and, as Safe has the right not to honor checks
agent is authorized and directed, upon which do not meet Boston Safe's normal
presentment of checks to Boston Safe standards for checks presented to it,
to, in the case of investments in the that Boston Safe and WM Group of Funds
Money Market, Tax-Exempt Money Market have the right to change, modify or
and California Money (the "Funds"), terminate this checkwriting service at
transmit such checks to the Fund or any time, and that Boston Safe, with
its transfer agent as requests to respect to these checkwriting services
redeem shares registered in the name shall be liable to the Shareholder
of the Shareholders in the amounts of and/or the Funds only for its own
such checks for deposit in this willful misfeasance, bad faith or
checking account; WM Shareholder gross negligence.
Services, Inc., is hereby further
authorized to accept and execute Please sign and return this card (with
instructions relating to such any necessary authorizing
withdrawals. documentation) to:
This checking arrangement is subject WM GROUP OF FUNDS
to the applicable terms and 1201 Third Avenue, Suite 1400
restrictions, including charges, set Seattle, Washington 98101
forth in the current prospectus for
each WM Group of Funds mutual fund to
which the Shareholder has arranged to
redeem shares by checkwriting.
- -------------------------------------------------------------------------------
<PAGE> 72
- --------------------------------------------------------------------------------
Distributed by: Bulk Rate
WM Funds Distributor, Inc. U.S. Postage
PAID
Los Angeles, CA
Permit No. 30835
[LOGO]WM
GROUPofFUNDS
P.O. Box 9757
Providence, RI 02940-9757
[RECYCLED LOGO]Printed on Recycled Paper with Soy-based Inks
WMG1000 (250M)
- --------------------------------------------------------------------------------
[BACKGROUND IMAGE OF CLOCKS]
<PAGE> 73
WM GROUP OF FUNDS
1201 THIRD AVENUE, SUITE 1400
SEATTLE, WASHINGTON 98101
800-222-5852
STATEMENT OF ADDITIONAL INFORMATION
November 1, 1998
WM Group of Funds
MONEY FUNDS EQUITY FUNDS
----------- ------------
MONEY MARKET FUND BOND & STOCK FUND
TAX-EXEMPT MONEY MARKET FUND GROWTH & INCOME FUND
CALIFORNIA MONEY FUND NORTHWEST FUND
GROWTH FUND
FIXED-INCOME FUNDS EMERGING GROWTH FUND
------------------ INTERNATIONAL GROWTH FUND
SHORT TERM HIGH QUALITY BOND FUND
TARGET MATURITY 2002 FUND STRATEGIC ASSET MANAGEMENT PORTFOLIOS
U.S. GOVERNMENT SECURITIES FUND -------------------------------------
INCOME FUND STRATEGIC GROWTH PORTFOLIO
HIGH YIELD FUND CONSERVATIVE GROWTH PORTFOLIO
BALANCED PORTFOLIO
MUNICIPAL FUNDS FLEXIBLE INCOME PORTFOLIO
--------------- INCOME PORTFOLIO
TAX-EXEMPT BOND FUND
CALIFORNIA MUNICIPAL FUND
CALIFORNIA INSURED INTERMEDIATE
MUNICIPAL FUND
FLORIDA INSURED MUNICIPAL FUND
This Statement of Additional Information (the "SAI") supplements the
information contained in the current Prospectus of the WM Group of Funds listed
above dated November 1, 1998 (the "Prospectus"), and should be read in
conjunction with such Prospectus.
The Money Market, Tax-Exempt Money Market, High Yield, Income, U.S.
Government Securities, Tax-Exempt Bond, Bond & Stock, Growth & Income and
Northwest Funds are series of WM Trust I (the "WM Trust I Funds"), a
Massachusetts business trust organized on September 19, 1997. The California
Money, Short Term High Quality Bond, Target Maturity 2002, California
Municipal, California Insured Intermediate Municipal, Florida Insured
Municipal, Growth, International Growth and Emerging Growth Funds are series of
WM Trust II (the "WM Trust II Funds"), a Massachusetts business trust organized
on February 22, 1989. The WM Trust I Funds and WM Trust II Funds are
collectively referred to in this SAI as the "Funds." The Strategic Growth,
Conservative Growth, Balanced, Flexible Income and Income Portfolios,
collectively referred to in this SAI as the "Portfolios," are series of WM
Strategic Asset Management Portfolios, a Massachusetts business trust organized
on March 26, 1996. In this SAI, WM Trust I, WM Trust II and WM Strategic Asset
Management Portfolios are referred to as the "Trusts."
The Prospectus may be obtained without charge by writing to WM Shareholders
Services, Inc. ("Shareholder Services") or by calling Shareholder Services at
800-222-5852. This SAI provides information applicable to the Class A, Class B,
Class I and Class S shares of each of the Funds (except for the Target Maturity
2002 Fund, which offers only Class A shares), and the Class A and Class B
shares of each of the Portfolios. This SAI, although not in itself a
prospectus, is incorporated by reference into the Prospectus in its entirety.
<PAGE> 74
CONTENTS
MANAGEMENT..................................................................3
INVESTMENT OBJECTIVES AND POLICIES.........................................24
INVESTMENT RESTRICTIONS....................................................48
PORTFOLIO TURNOVER.........................................................57
PORTFOLIO TRANSACTIONS.....................................................58
NET ASSET VALUE............................................................61
HOW TO BUY AND REDEEM SHARES...............................................62
HOW TO EXCHANGE SHARES.....................................................66
DETERMINATION OF PERFORMANCE...............................................67
TAXES......................................................................74
DISTRIBUTOR................................................................80
APPENDIX...................................................................84
-2-
<PAGE> 75
MANAGEMENT
TRUSTEES AND OFFICERS
- ---------------------
The Trusts are governed by a common Board of Trustees which oversees
the Trusts' activities and is responsible for protecting the interests of
shareholders. The names, addresses and birthdates of the Trustees and executive
officers of the Trusts, together with information as to their principal business
occupations, are set forth below. The executive officers of the Trusts are
employees of organizations that provide services to the Funds and Portfolios
offered by the Trusts. Each Trustee who is an "interested person" of the Trusts,
as defined in the Investment Company Act of 1940, as amended (the "1940 Act"),
is indicated by an asterisk.
TRUSTEES:
- ---------
DAVID E. ANDERSON (11/17/26)
Trustee
17960 Seabreeze Drive
Pacific Palisades, California 90272
Retired in 1988 from GTE California, Inc. after 40 years of service. President
and CEO from 1979 to 1988. Director of Barclay's Bank of California until 1988.
Currently involved in the following charitable organizations as a director on
the following boards: Board chairman, Children's Bureau Foundation; Board
member, Upward Bound House of Santa Monica; Past campaign chairman of United
Way; Former chairman, Los Angeles Area Chamber of Commerce.
WAYNE L. ATTWOOD, MD (1/28/29)
Trustee
2931 S. Howard
Spokane, Washington 99203
Retired doctor of internal medicine and gastroenterology. Former president,
Medical Staff--Sacred Heart Medical Center; former president of Spokane Society
of Internal Medicine; and former president of Spokane Physicians for Social
Responsibility.
ARTHUR H. BERNSTEIN, ESQ. (6/8/25)
Trustee
11661 San Vicente Blvd., Suite 701
Los Angeles, California 90049
President of Bancorp Capital Group, Inc. and Bancorp Venture Capital, Inc.
Previously served on the board of directors of Great Western Leasing
Corporation, subsidiary of Great Western Financial Corporation ("GWFC"), until
the subsidiary was sold in 1987. Director of Ryder
-3-
<PAGE> 76
System, Inc.; chairman of the board of trustees of the California Family Studies
Center and Phillips Graduate Institute since 1984.
KRISTIANNE BLAKE (1/22/54)
Trustee
705 W. 7th, Suite D
Spokane, Washington 99204
CPA specializing in personal financial and tax planning since 1975. Served as a
partner with the accounting firm of Deloitte, Haskins & Sells prior to starting
own firm in 1987. Community activities include: United Way of Spokane County -
board chair; YMCA of the Inland Northwest - treasurer; Junior League of Spokane
- - past president; Spokane Intercollegiate Research & Technology Institute
Foundation - board member; Spokane Joint Center for Higher Education board
member; Spokane Area Chamber of Commerce - board member; and St. George's School
board member.
EDMOND R. DAVIS, ESQ. (9/24/28)
Trustee
550 South Hope Street, 21st Floor
Los Angeles, California 90071-2604
Joined the law firm of Brobeck, Phleger & Harrison as a partner in 1987,
responsible for estate planning, and trusts and estate matters in the Los
Angeles office. Prior to joining the firm, had a similar position for 20 years
with the law firm of Overton, Lyman & Prince in Los Angeles. His expertise has
been recognized in Who's Who in California, the Best Lawyers of America and
Who's Who in American Law.
JOHN W. ENGLISH (3/27/33)
Trustee
50 H New England Ave.
P.O. Box 640
Summit, New Jersey 07902-0640
Retired vice president and chief investment officer of the Ford Foundation (a
non-profit charitable organization). Chairman of the board and director, the
China Fund, Inc., (closed-end mutual fund). Director, Paribas Trust for
Institutions (an open-end mutual fund). Trustee, Retail Property Trust (a
company providing management services for a shopping center).
*ANNE V. FARRELL (7/17/35)
Trustee
425 Pike Street, Suite 510
Seattle, Washington 98101
-4-
<PAGE> 77
Joined the Seattle Foundation (a charitable foundation) in 1980 as executive
vice president. Became president in 1984. Also serves on the board of Washington
Mutual Bank, Inc. ("Washington Mutual") and Blue Cross of Washington and Alaska.
Listed in Who's Who in America. Past President of the Nature Conservancy of
Washington, Lakeside School and Seattle Rotary Club. Currently a Regent at
Seattle University and president of the Rainier Club in Seattle.
*MICHAEL K. MURPHY (1/14/37)
Trustee
PO Box 3366
Spokane, Washington 99220-3366
President and CEO of CPM Development Corporation (a holding company which
includes Central Pre-mix Concrete Company Inland Asphalt Co., Central Pre-Mix
Prestress Co., and Interstate Concrete & Asphalt Co.). Member of the board of
directors for Washington Mutual. Former president and director of
Inland Empire Chapter - Associated General Contractors. Former director of
National Aggregates Associates.
ALFRED E. OSBORNE, JR. PH.D. (12/7/44)
Trustee
110 Westwood Plaza, Suite C305
Los Angeles, California 90095-1481
University professor, researcher and administrator at University of California
Los Angeles since 1972. Director, Times Mirror Company (newspaper publisher),
United States Filter Corporation, Nordstrom Inc. (clothing retailer) and
Greyhound Lines, Inc. (bus company). Independent general partner, Technology
Funding Venture Partners V, and former Governor of the National Association of
Securities Dealers, Inc.
*WILLIAM G. PAPESH (1/21/43)
President and Trustee
601 W. Main Avenue
Suite 300
Spokane, WA 99201
President and director of WM Advisors, Inc. (the "Advisor"), WM Shareholder
Services, Inc. ("Shareholder Services"), WM Funds Distributor, Inc. (the
"Distributor") and WM Fund Services, Inc. (a registered investment adviser and
broker/dealer).
-5-
<PAGE> 78
DANIEL L. PAVELICH (9/12/44)
Trustee
Two Prudential Plaza
180 North Stetson Avenue, Suite 4300
Chicago, Illinois 60601
Chairman and CEO of BDO Seidman, a leading national accounting and consulting
firm. Worked in Seidman's Spokane office for 27 years and is a former presiding
member of the firm's board of directors. A member of the American Institute of
CPAs and served as a vice president of the Washington Society of CPAs' board of
directors.
JAY ROCKEY (1/5/28)
Trustee
2121 Fifth Avenue
Seattle, Washington 98121
Founder and chairman of The Rockey Company, a public relations and marketing
communications consulting firm with headquarters in Seattle and offices in
Portland and Spokane. Founder and director of RXL Pulitzer, an international
multimedia company that is a joint venture with Pulitzer Publishing Co. of St.
Louis. History includes managing New York City public relations for Aluminum
Company of America, director of public relations for the Seattle World's Fair
and the presidency of the Public Relations Society of America. He is vice
president of the Rainier Club and trustee of the Downtown Seattle Association.
RICHARD C. YANCEY (5/28/26)
Lead Trustee
535 Madison Avenue
New York, New York 10022
Investment Banker - Warburg Dillon Read LLC, New York City, 1952 through 1992.
Served as vice president, managing director and director and senior advisor at
Warburg Dillon Read LLC, Member of the boards of directors of AdMedia Partners,
Inc., CapMAC Holdings Inc., Fiberite, Inc., The Scoreboard, Inc., and Czech and
Slovak American Enterprise Fund.
OFFICERS:
- ---------
GENE BRANSON (12/26/45)
Vice President
11th Floor
601 W. Main Street
Spokane, WA 99201
Senior vice president and Director of the Advisor and Shareholder Services.
-6-
<PAGE> 79
MONTE D. CALVIN, CPA (1/22/44)
Senior Vice President and Chief Financial Officer
601 W. Main Avenue
Suite 300
Spokane, WA 99201
Executive vice president and Director of Shareholder Services; Director of the
Advisor and the Distributor.
SANDY CAVANAUGH (5/10/54)
Senior Vice President
1631 Broadway
Sacramento, CA 95818
First vice president and Director of the Distributor since September 1997.
Director of Advisor and Shareholder Services. Prior to joining the Distributor,
Ms. Cavanaugh held senior level positions with AIM Funds Distributor, First
Interstate Investments and ASB Financial Services.
JEFFREY L. LUNZER, CPA (1/4/61)
Vice President and Treasurer
601 W. Main Avenue
Suite 300
Spokane, WA 99201
Vice president of Shareholder Services.
JOHN T. WEST, CPA (1/21/55)
Vice President, Secretary and Compliance Officer
601 W. Main Avenue
Suite 300
Spokane, WA 99201
Vice president of Shareholder Services.
Each of the Trustees and officers of the Trusts listed above holds the
same position(s) with all three Trusts and is also a trustee or officer of WM
Variable Trust (the "Variable Trust"). The Variable Trust is an investment
company advised by the Advisor.
REMUNERATION. No Trustee who is a director, officer or employee of the
Advisor or its affiliates receives any compensation from the Trusts for serving
as Trustee of the Trusts. The Trusts, together with the Variable Trust, pay each
Trustee who is not a director, officer or employee of the Advisor or its
affiliates a fee of $18,000 per annum plus $3,000 per Board meeting attended in
person and $1,000 per Board meeting attended by telephone, and reimburses
-7-
<PAGE> 80
each such Trustee for travel and out-of-pocket expenses. The Lead Trustee
receives an additional fee of $500 per month. The Chairman of each committee
receives a fee of $500 per committee meeting. Officers of the Trusts receive no
direct remuneration in such capacity from the Trusts. Officers and Trustees of
the Trusts who are employees of the Advisor or its affiliates may be considered
to have received remuneration indirectly.
Wayne L. Attwood, M.D., Kristianne Blake, Anne V. Farrell, Michael K.
Murphy, William G. Papesh, Daniel L. Pavelich, Jay Rockey and Richard C. Yancey
became Trustees of WM Trust II and WM Strategic Asset Management Portfolios on
December 23, 1997. Arthur H. Bernstein, Esq., David E. Anderson, Edmond R.
Davis, Esq., John W. English and Alfred E. Osborne, Jr. Ph.D became trustees of
WM Trust I on December 23, 1997.
The WM Trust I Funds other than the High Yield Fund are successors to
the following Washington corporations, or series thereof, which commenced
operations in the years indicated, which made up the group of mutual funds known
as the "Composite Funds."
Composite U.S. Government Securities, Inc. (1982)
Composite Income Fund, Inc. (1975)
Composite Growth & Income Fund, a series of Composite Equity Series,
Inc. (1949)
Composite Money Market Portfolio, a series of Composite Cash Management
Company
(predecessor of the Money Market Fund) (1979)
Composite Tax-Exempt Portfolio, a series of Composite Cash Management
Company
(predecessor of the Tax-Exempt Money Market Fund) (1979)
Composite Tax-Exempt Bond Fund, Inc. (1976)
Composite Northwest Fund, Inc. (1986)
Composite Bond & Stock Fund, Inc. (1939)
Each of the Composite Funds was reorganized as a series of WM Trust I
on March 20, 1998. In connection with this reorganization, the Trust, whose name
was previously "The Composite Funds" and which conducted no operations prior to
that date, changed its name to its current name. The High Yield fund was
organized on March 23, 1998.
Prior to March 20, 1998, the name of WM Trust II was "Sierra Trust
Funds" and the name of WM Strategic Asset Management Portfolios was "Sierra
Asset Management Portfolios." These Trusts were part of a family of mutual funds
known as the "Sierra Funds."
The reorganizations and name changes described in the foregoing
paragraphs were part of an overall restructuring of the Composite Funds and the
Sierra Funds into a combined mutual fund family known as the WM Group of Funds.
This restructuring also consisted of the replacement of Sierra Investment
Advisors Corporation as investment advisor to the Sierra Funds with WM Advisors,
Inc. (formerly known as Composite Research & Management Co.), the advisor to the
Composite Funds, the election of the Directors of the Composite Funds as
Trustees of WM Trust I, WM Trust II and WM Strategic Asset Management Portfolios
and the election of
-8-
<PAGE> 81
the independent Trustees of WM Trust II and WM Strategic Asset Management
Portfolios as Trustees of WM Trust I.
The following table shows the aggregate compensation paid to each of
the Trusts' Trustees by each Fund or Portfolio (or, in the case of the WM Trust
I Funds, by the predecessor Composite Funds) for the most recent fiscal year and
by the "Fund Complex" for calendar 1997. The Fund Complex consists of the Funds
and Portfolios, together with the Funds within the Variable Trust, WM Prime
Income Fund, a closed-end investment company that was liquidated in August, 1998
(the "Prime Income Fund") and Composite Deferred Series, Inc., an investment
company for which WM Advisors, Inc. serves as advisor.
-9-
<PAGE> 82
WM GROUP OF FUNDS
COMPENSATION TABLE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Short-
Tax- Term U.S.
Exempt High Target Govern-
Money Money California Quality Maturity ment
Market Market Money Bond 2002 Securities Income
Trustee Fund Fund Fund Fund Fund Fund Fund
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
David E. Anderson $ 0 $ 0 $ 484 $ 318 $ 31 $ 0 $ 0
- ------------------------------------------------------------------------------------------------------------
Wayne L. Attwood, 1,265 1,265 164 191 11 1,265 1,265
M.D.
- ------------------------------------------------------------------------------------------------------------
Arthur H. Bernstein, Esq. 0 0 1,779 1,519 1,167 0 0
- ------------------------------------------------------------------------------------------------------------
Kristianne Blake 2,532 311 168 195 11 1,265 838
- ------------------------------------------------------------------------------------------------------------
Edmond R. Davis, Esq. 0 0 459 314 30 0 0
- ------------------------------------------------------------------------------------------------------------
John W. English 0 0 459 314 30 0 0
- ------------------------------------------------------------------------------------------------------------
Anne V. Farrell 0 0 161 187 11 0 0
- ------------------------------------------------------------------------------------------------------------
Michael K. Murphy 0 0 149 182 10 0 0
- ------------------------------------------------------------------------------------------------------------
Alfred E. Osborne, Jr., 0 0 438 290 28 0 0
Ph.D.
- ------------------------------------------------------------------------------------------------------------
William G. Papesh 0 0 0 0 0 0 0
- ------------------------------------------------------------------------------------------------------------
Daniel L. Pavelich 1,265 1,265 91 191 11 1,265 1,265
- ------------------------------------------------------------------------------------------------------------
Jay Rockey 1,265 1,265 164 191 11 1,265 1,265
- ------------------------------------------------------------------------------------------------------------
Richard C. Yancey 1,178 1,178 201 234 13 1,178 1,178
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------
California
Insured
Tax- Inter- Florida Bond
High Exempt California mediate Insured &
Yield Bond Municipal Municipal Municipal Stock
Trustee Fund Fund Fund Fund Fund Fund
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
David E. Anderson n/a $ 0 $3,964 $ 746 $ 301 $ 0
- -----------------------------------------------------------------------------------------------
Wayne L. Attwood, n/a 1,265 1,393 260 97 1,250
M.D.
- -----------------------------------------------------------------------------------------------
Arthur H. Bernstein, Esq. n/a 0 6,462 2,130 1,534 0
- -----------------------------------------------------------------------------------------------
Kristianne Blake n/a 1,265 1,422 266 99 1,333
- -----------------------------------------------------------------------------------------------
Edmond R. Davis, Esq. n/a 0 3,755 707 285 0
- -----------------------------------------------------------------------------------------------
John W. English n/a 0 3,755 707 285 0
- -----------------------------------------------------------------------------------------------
Anne V. Farrell n/a 0 1,369 256 95 0
- -----------------------------------------------------------------------------------------------
Michael K. Murphy n/a 0 1,325 248 92 0
- -----------------------------------------------------------------------------------------------
Alfred E. Osborne, Jr., n/a 0 3,573 673 273 0
Ph.D.
- -----------------------------------------------------------------------------------------------
William G. Papesh n/a 0 0 0 0 0
- -----------------------------------------------------------------------------------------------
Daniel L. Pavelich n/a 1,265 1,393 260 97 1,000
- -----------------------------------------------------------------------------------------------
Jay Rockey n/a 1,265 1,393 260 97 1,208
- -----------------------------------------------------------------------------------------------
Richard C. Yancey n/a 1,178 1,704 318 119 1,125
- -----------------------------------------------------------------------------------------------
</TABLE>
-10-
<PAGE> 83
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Growth Inter-
& national Emerging Strategic
Income Growth Growth Northwest Growth Growth
Trustee Fund Fund Fund Fund Fund Portfolio
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
David E. Anderson $ 0 $3,130 $1,742 $ 0 $2,792 $335
- -------------------------------------------------------------------------------------------------------------
Wayne L. Attwood, 1,250 963 517 1,250 898 286
M.D.
- -------------------------------------------------------------------------------------------------------------
Arthur H. Bernstein, Esq. 0 5,413 3,528 0 4,930 370
- -------------------------------------------------------------------------------------------------------------
Kristianne Blake 1,333 988 533 1,333 920 293
- -------------------------------------------------------------------------------------------------------------
Edmond R. Davis, Esq. 0 2,961 1,659 0 2,637 348
- -------------------------------------------------------------------------------------------------------------
John W. English 0 3,590 1,659 0 2,637 348
- -------------------------------------------------------------------------------------------------------------
Anne V. Farrell 0 930 490 0 875 280
- -------------------------------------------------------------------------------------------------------------
Michael K. Murphy 0 930 505 0 855 273
- -------------------------------------------------------------------------------------------------------------
Alfred E. Osborne, Jr., 0 2,804 1,569 0 2,532 309
Ph.D.
- -------------------------------------------------------------------------------------------------------------
William G. Papesh 0 0 0 0 0 0
- -------------------------------------------------------------------------------------------------------------
Daniel L. Pavelich 1,000 963 517 1,000 898 286
- -------------------------------------------------------------------------------------------------------------
Jay Rockey 1,208 963 517 1,208 898 286
- -------------------------------------------------------------------------------------------------------------
Richard C. Yancey 1,125 1,190 646 1,125 1,106 351
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------------------
Total Comp-
ensation
From the
Conserv- Fund
ative Growth Flexible Complex*
Portfolio Balanced Income Income for Calendar
Trustee Portfolio Portfolio Portfolio 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
David E. Anderson $1,522 $1,137 91 74 $41,450
- --------------------------------------------------------------------------------------------------
Wayne L. Attwood, 1,227 929 72 56 $15,000
M.D.
- --------------------------------------------------------------------------------------------------
Arthur H. Bernstein, Esq. 1,699 1,266 102 84 $59,889
- --------------------------------------------------------------------------------------------------
Kristianne Blake 1,254 949 74 58 $16,500
- --------------------------------------------------------------------------------------------------
Edmond R. Davis, Esq. 1,575 1,177 95 77 $41,450
- --------------------------------------------------------------------------------------------------
John W. English 1,575 1,177 95 79 $41,450
- --------------------------------------------------------------------------------------------------
Anne V. Farrell 1,204 911 71 56 0
- --------------------------------------------------------------------------------------------------
Michael K. Murphy 1,168 884 69 54 0
- --------------------------------------------------------------------------------------------------
Alfred E. Osborne, Jr., 1,415 1,056 85 70 $41,450
Ph.D.
- --------------------------------------------------------------------------------------------------
William G. Papesh 0 0 0 0 0
- --------------------------------------------------------------------------------------------------
Daniel L. Pavelich 1,227 929 72 56 $14,000
- --------------------------------------------------------------------------------------------------
Jay Rockey 1,227 929 72 56 $15,000
- --------------------------------------------------------------------------------------------------
Richard C. Yancey 1,503 1,137 89 69 $15,000
- --------------------------------------------------------------------------------------------------
</TABLE>
* In the case of WM Trust I, includes compensation from
predecessor Composite Funds.
-11-
<PAGE> 84
During the fiscal year ended June 30, 1997, Sierra Investment Advisors
Corporation reimbursed WM Trust II and WM Asset Management Portfolios in the
amount of $80,500 for certain expenses associated with special meetings of the
Board, held with regard to the contemplation of the sale of Sierra Capital
Management Corporation and the merger of Great Western Financial Securities
Corporation and Washington Mutual, Inc. As of October 1, 1998, the Trustees and
officers of the Trusts owned, in the aggregate, 80,141 shares of the Balanced
Portfolio, 522,570 of the Tax-Exempt Money Market Fund and less than 1% of the
outstanding shares of any of the other Portfolios or the Funds. In addition, as
of October 1, 1998, except as noted below, to the knowledge of the Trusts, no
shareholders owned of record or beneficially 5% or more of the outstanding
shares of the indicated classes of the Funds or Portfolios:
MONEY MARKET FUND B CLASS A: BHC Securities, Omnibus Account, Attn: Cash Sweeps
Dept., 2005 Market St., 12th floor, Philadelphia, PA 19103-7042, 25.68%
Northwestern Trust & Investors, Advisory Company, 1201 3rd Ave., Suite 2010,
Seattle, WA 98101-3026, 20.12%
MONEY MARKET FUND B CLASS I: SAM Balanced Portfolio, c/o WM Advisors, 5200 E.
2nd St., 2nd floor, Long Beach, CA 90803, 37.28%
SAM Conservative Portfolio, c/o. WM Advisors, 5200 E. 2nd St., 2nd floor, Long
Beach, CA 90803, 34.98%
WM Funds Distributor, Inc., 601 W. Main Ave., Suite 300, Spokane, WA 99201,
6.37%
WM Advisors, Inc., 601 W. Main Ave., Suite 300, Spokane, WA 99201, 6.06%
SAM Flexible Income Portfolio, c/o WM Advisors, 5200 E. 2nd St., 2nd floor, Long
Beach, CA 90803, 5.79%
TAX-EXEMPT MONEY MARKET FUND B CLASS A: BHC Securities, Omnibus Account, Attn:
Cash Sweeps Dept., 2005 Market St., 12th floor, Philadelphia, PA 19103-7042,
13.49%
TAX-EXEMPT MONEY MARKET FUND B CLASS B: Southwest Securities, Inc., FBO David
C. Gobin & Bonnie Gobin JTWROS, Acct. 35454616, P.O. Box 509002, Dallas, TX
75250, 4.71%
Genevieve Odegard, 5702 N. 33rd St., #13D, Tacoma, WA 98407-2513, 5.07%
CALIFORNIA MONEY FUND B CLASS A: Edward B. Baker TTEE FBO The Baker Family Trust
DTD 7/10/94, 1650 16th Ave., San Francisco, CA 94122, 14.50%
-12-
<PAGE> 85
CALIFORNIA MONEY FUND B CLASS B: Oscar L. Roehl TTEE, The Oscar L. Roehl Trust,
UTA DTD 12/15/89, 1826 Harding Ave., Redwood City, CA 94062, 80.25%
Ella M. Brown, 29094 Cobblestone St., Nuevo, CA 92567, 16.97%
CALIFORNIA MONEY FUND B CLASS I: WM Shareholder Services, Inc., 601 W. Main,
Suite 300, Spokane, WA 99201, 100.00%
CALIFORNIA MONEY FUND B CLASS S: WM Funds Administration, 601 W. Main, Suite
300, Spokane, WA 99201, 50.05%
WM Shareholder Services, Inc., 601 W. Main, Suite 300, Spokane, WA 99201, 49.95%
SHORT TERM HIGH QUALITY BOND FUND B CLASS S: KY Cabinet for Human Resources,
TTEE FBO The Marian K. Burns Irrevocable Charitable Remainder Trust, 275 E. Main
St., 6th Floor West, Frankfort, KY 40621, 27.58%
Harold P. Jewell and Oveta B. Jewell JTWROS, 1001 Urell Place NE, Washington,
D.C. 20017- 2140, 11.97%
Carole Hurst & Judith Chinello & Stan R. Mandell Trust, The Frederick S. Tobias
Non-Marital Trust U/A DTD 11/04/81, 411 N. Central Ave., Ste. #200, Glendale, CA
91203-2020, 10.86%
SHORT TERM HIGH QUALITY BOND FUND B CLASS I: SAM Income Portfolio, c/o WM
Advisors, 5200 E. 2nd St., 2nd floor, Long Beach, CA 90803, 100.00%
INCOME FUND B CLASS A: Northwestern Trust & Investors, Advisory Company, 1201
3rd Ave., Suite 2010, Seattle, WA 98101-3026, 8.12%
INCOME FUND B CLASS I: SAM Income Portfolio, c/o WM Advisors, 5200 E. 2nd, 2nd
floor, Long Beach, CA 90803, 59.87%
INCOME FUND B CLASS S: KY Cabinet for Human Resources, TTEE FBO The Marian K.
Burns Irrevocable Charitable Remainder Trust, 275 E. Main St., 6th Floor West,
Frankfort, KY 40621, 9.41%
CALIFORNIA MUNICIPAL BOND FUND B CLASS I: WM Shareholder Services, Inc., 601 W.
Main, Suite 300, Spokane, WA 99201, 100.00%
CALIFORNIA MUNICIPAL BOND FUND B CLASS S: Josefina F. Parungao and Reynaldo
Fernando, JTWROS, 5480 Avenida El Cid, Yorba Linda, CA 92686, 74.29%
WM Funds Administration, 601 W. Main, Suite 300, Spokane, WA 99201, 12.96%
-13-
<PAGE> 86
WM Shareholder Services, Inc., 601 W. Main, Suite 300, Spokane, WA 99201, 12.75%
CALIFORNIA INSURED INTERMEDIATE MUNICIPAL BOND FUND B CLASS A: Consolacion
Padama and Manuel Padama JTWROS, 2045 Demille Drive, Los Angeles, CA 90027,
5.96%
CALIFORNIA INSURED INTERMEDIATE MUNICIPAL BOND FUND B CLASS I: WM Shareholder
Services, Inc., 601 W. Main, Suite 300, Spokane, WA 99201, 100.00%
CALIFORNIA INSURED INTERMEDIATE MUNICIPAL BOND FUND B CLASS S: WM Funds
Administration, 601 W. Main, Suite 300, Spokane, WA 99201, 50.38%
WM Shareholder Services, Inc., 601 W. Main, Suite 300, Spokane, WA 99201, 49.62%
FLORIDA INSURED MUNICIPAL BOND FUND B CLASS B: Joseph R. Ott and Steel C. Ott
JTWROS, 5800 SW 99th Terrace, Miami, FL 33156, 7.24%
MLPF&S for the Sole Benefit of its Customers, Attn: Fund Administration, 4800
Deer Lake Dr. East, 3rd Floor, Jacksonville, FL 32246, 5.43%
FLORIDA INSURED MUNICIPAL BOND FUND B CLASS I: WM Shareholder Services, Inc.,
601 W. Main, Suite 300, Spokane, WA 99201, 100.00%
FLORIDA INSURED MUNICIPAL BOND FUND B CLASS S: WM Funds Administration, 601 W.
Main, Suite 300, Spokane, WA 99201, 50.38%
WM Shareholder Services, Inc., 601 W. Main, Suite 300, Spokane, WA 99201, 49.62%
BOND & STOCK FUND B CLASS A: Northwestern Trust & Investors, Advisory Company,
1201 3rd Ave., Suite 2010, Seattle, WA 98101-3026, 16.49%
BOND & STOCK FUND B CLASS S: BSDT TTEE IRA R Victor L. Scherr, 25012 Woolwich
Street, Laguna Hills, CA 92653, 38.73%
Everen Clearing Corp. FBO, Acct#19166887, Randall E. Cambell, 111 E. Kilbourn
Avenue, Milwaukee, WI 53202, 23.02%
BSDT TTEE IRA, Victor L. Scherr, 25012 Woolwich Street, Laguna Hills, CA 92653,
19.31%
BSDT TTEE IRA R, Robert Hillman Alston, 1508 Greenfield Ave., #104, Los Angeles,
CA 90025, 9.79%
BSDT TTEE IRA R, William M. Cordova, 25036 Oxford Dr., Laguna Niguel, CA
92677-8884, 9.15%
-14-
<PAGE> 87
GROWTH & INCOME FUND B CLASS A: Northwestern Trust & Investors, Advisory
Company, 1201 3rd Ave., Suite 2010, Seattle, WA 98101-3026, 26.93%
GROWTH & INCOME FUND B CLASS I: SAM Conservative Growth Portfolio, c/o WM
Advisors, 5200 E. 2nd, 2nd floor, Long Beach, CA 90803, 49.55%
SAM Balanced Portfolio, c/o WM Advisors, 5200 E. 2nd, 2nd floor, Long Beach, CA
90803, 33.04%
SAM Strategic Growth Portfolio, c/o WM Advisors, 5200 E. 2nd, 2nd floor, Long
Beach, CA 90803, 15.40%
SAM Flexible Income Portfolio, c/o WM Advisors, 5200 E. 2nd, 2nd floor, Long
Beach, CA 90803, 40.13%
GROWTH FUND B CLASS I: SAM Conservative Growth Portfolio, c/o WM Advisors, 5200
E. 2nd St., 2nd floor, Long Beach, CA 90803, 53.35%
SAM Balanced Portfolio, c/o WM Advisors, 5200 E. 2nd St., 2nd floor, Long Beach,
CA 90803, 25.29%
SAM Strategic Growth Portfolio, c/o WM Advisors, 5200 E. 2nd Str., 2nd floor,
Long Beach, CA 90803, 20.59%
EMERGING GROWTH FUND B CLASS I: SAM Conservative Growth Portfolio, c/o WM
Advisors, 5200 E. 2nd St., 2nd floor, Long Beach, CA 90803, 100.00%
INTERNATIONAL GROWTH FUND B CLASS I: SAM Conservative Growth Portfolio, c/o WM
Advisors, 5200 E. 2nd St., 2nd floor, Long Beach, CA 90803, 49.51%
SAM Balanced Portfolio, c/o WM Advisors, 5200 E. 2nd St., 2nd floor, Long Beach,
CA 90803, 37.12%
SAM Strategic Growth Portfolio, c/o WM Advisors, 5200 E. 2nd St., 2nd floor,
Long Beach, CA 90803, 13.37%
NORTHWEST FUND B CLASS A: Northwestern Trust & Investors, Advisory Company, 1201
3rd Ave., Suite 2010, Seattle, WA 98101-3026, 17.37%
HIGH YIELD FUND B CLASS A: Washington Mutual, Inc., Mail Stop WMT0511, 1201
Third Ave., Seattle, WA 98101, 88.46%
-15-
<PAGE> 88
HIGH YIELD FUND B CLASS B: BHC Securities, Inc., FAO 86067976, Attn: Mutual
Funds Dept., One Commerce Square, 2005 Market Street, Suite 1200, Philadelphia,
PA 19103, 5.02%
HIGH YIELD FUND B CLASS I: SAM Income Portfolio, c/o WM Advisors, 5200 E. 2nd
St., 2nd floor, Long Beach, CA 90803, 95.53%
HIGH YIELD FUND B CLASS S: Alonzo G. Orr and Janet S. Richardson JTWROS TOD
Beatrice Orr, Rodney Orr, Diane Keane, 7483 Overlook Dr., Lake Worth, FL 33467,
57.09%
Walter A. Talgo and Gertrude D. Talgo JTWROS, 1623 SW Waterfall Blvd.,
Palm City, FL 34990, 13.44%
Harold P. Jewell and Oveta B. Jewell JTWROS, 1001 Urell Place, NE, Washington,
D.C., 20017- 2140, 11.18%
John Yanok and Lucille Yanok JTWROS, 1365 SW Gastodor Ave., Port St. Lucie, FL
34953, 7.96%
TAX-EXEMPT BOND FUND B CLASS I: WM Shareholder Services, 601 W. Main Ave., Suite
300, Spokane, WA 99201, 100.00%
TAX-EXEMPT BOND FUND B CLASS S: WM Funds Administration, 601 W. Main, Suite 300,
Spokane, WA 99201, 50.52%
WM Shareholder Services, Inc., 601 W. Main, Suite 300, Spokane, WA 99201, 49.48%
Eliana J. Kross, 5221 Cribari Dale, San Jose, CA 95135-1315, 5.37%
U.S. GOVERNMENT SECURITIES B CLASS I: SAM Balanced Portfolio, c/o WM Advisors,
5200 E. 2nd St., 2nd floor, Long Beach, CA 90803, 79.30%
SAM Flexible Income Portfolio, c/o WM Advisors, 5200 E. 2nd St., 2nd floor, Long
Beach, CA 90803, 11.72%
SAM Income Portfolio, c/o WM Advisors, 5200 2nd St., 2nd floor, Long Beach, CA
90803, 8.98%
INCOME PORTFOLIO B CLASS B: Dain Rauscher Custodian, Octavio Gomez, Rollover
IRA, 3606 La Reforma Blvd., Baytown, TX 77251, 7.69%
FLEXIBLE INCOME PORTFOLIO B CLASS B: BHC Securities, Inc., FAO 86647042, Attn:
Mutual Funds Dept., One Commerce Square, 2005 Market Street, Suite 1200,
Philadelphia, PA 19103 5.44%
-16-
<PAGE> 89
WM ADVISORS, INC., ITS AFFILIATES AND SERVICE PROVIDERS
ADVISOR
The Funds and Portfolios are managed by the Advisor. The Advisor has
delegated portfolio management responsibilities in respect of the Growth,
California Municipal, Florida Insured Municipal, California Insured Intermediate
Municipal and International Growth Funds to a sub-advisor. Subject to
stockholder approval, it is expected that, effective January 1, 1999, the
Advisor will delegate portfolio management responsibilities in respect of the
Tax-Exempt Bond Fund to a sub-advisor.
MANAGEMENT FEES. For the three most recent fiscal years the Funds and
Portfolios paid the Advisor or its affiliates the following management fees:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Fiscal Year Ended June 30, 1998
- -------------------------------------------------------------------------------------------------------------
Expenses
Fees Before Waiver Fees Waived Reimbursed
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
California Money Fund $ 188,184 $ 70,002 $ 0
- -------------------------------------------------------------------------------------------------------------
Short Term High Quality Bond Fund 145,180 133,982 0
- -------------------------------------------------------------------------------------------------------------
Target Maturity 2002 Fund 6,596 33,075 17,651
- -------------------------------------------------------------------------------------------------------------
California Municipal Fund 2,010,319 656,426 0
- -------------------------------------------------------------------------------------------------------------
California Insured Intermediate Municipal Fund 380,528 246,808 0
- -------------------------------------------------------------------------------------------------------------
Florida Insured Municipal Fund 146,555 140,651 396
- -------------------------------------------------------------------------------------------------------------
Growth Fund 2,739,222 0 0
- -------------------------------------------------------------------------------------------------------------
International Growth Fund 1,354,934 0 29,113
- -------------------------------------------------------------------------------------------------------------
Emerging Growth Fund 2,214,151 3,472 0
- -------------------------------------------------------------------------------------------------------------
Strategic Growth Portfolio 91,196 86,276 1,754
- -------------------------------------------------------------------------------------------------------------
Conservative Growth Portfolio 438,904 116,516 19,099
- -------------------------------------------------------------------------------------------------------------
Balanced Portfolio 323,735 107,755 11,970
- -------------------------------------------------------------------------------------------------------------
Flexible Income Portfolio 26,686 35,116 13,939
- -------------------------------------------------------------------------------------------------------------
Income Portfolio 22,941 34,864 11,403
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Fiscal Year Ended 1997
- -------------------------------------------------------------------------------------------------------------
Expenses
Fees Paid Fees Waived Reimbursed
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
</TABLE>
-17-
<PAGE> 90
<TABLE>
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
Money Market Fund* $1,148,906 $ 0 $98,432
- -------------------------------------------------------------------------------------------------------------
Tax-Exempt Money Market Fund* $ 143,965 $ 0 $45,307
- -------------------------------------------------------------------------------------------------------------
California Money Fund** $ 187,084 $ 135,495 $ 0
- -------------------------------------------------------------------------------------------------------------
Short Term High Quality Bond Fund** $ 153,348 $ 153,348 $40,836
- -------------------------------------------------------------------------------------------------------------
Target Maturity 2002 Fund** $ 7,756 $ 7,756 $59,718
- -------------------------------------------------------------------------------------------------------------
U.S. Government Securities Fund* $ 769,591 $ 0 $ 0
- -------------------------------------------------------------------------------------------------------------
Income Fund* $ 553,562 $ 0 $ 0
- -------------------------------------------------------------------------------------------------------------
Tax-Exempt Bond Fund* $ 987,356 $ 0 $ 0
- -------------------------------------------------------------------------------------------------------------
California Municipal Fund** $2,063,242 $1,080,813 $ 0
- -------------------------------------------------------------------------------------------------------------
California Insured Intermediate Municipal Fund** $ 398,681 $ 350,384 $ 0
- -------------------------------------------------------------------------------------------------------------
Florida Insured Municipal Fund** $ 173,618 $ 173,618 $22,193
- -------------------------------------------------------------------------------------------------------------
Bond & Stock Fund*** $1,912,341 $ 0 $ 0
- -------------------------------------------------------------------------------------------------------------
Growth & Income Fund*** $1,630,777 $ 0 $ 0
- -------------------------------------------------------------------------------------------------------------
Growth Fund** $2,418,645 $ 0 $ 0
- -------------------------------------------------------------------------------------------------------------
International Growth Fund** $1,444,004 $ 0 $ 0
- -------------------------------------------------------------------------------------------------------------
Northwest Fund*** $1,538,183 $ 137,944 $ 0
- -------------------------------------------------------------------------------------------------------------
Emerging Growth Fund** $2,600,399 $ 0 $ 0
- -------------------------------------------------------------------------------------------------------------
Strategic Growth Portfolio** $ 36,642 $ 6,241 $41,371
- -------------------------------------------------------------------------------------------------------------
Conservative Growth Portfolio** $ 260,044 $ 54,435 $98,600
- -------------------------------------------------------------------------------------------------------------
Balanced Portfolio** $ 188,577 $ 40,744 $82,121
- -------------------------------------------------------------------------------------------------------------
Flexible Income Portfolio** $ 19,886 $ 4,470 $34,312
- -------------------------------------------------------------------------------------------------------------
Income Portfolio** $ 18,539 $ 4,476 $33,580
- -------------------------------------------------------------------------------------------------------------
</TABLE>
* Fiscal year ended 12/31
** Fiscal year ended 6/30
*** Fiscal year ended 10/31
-18-
<PAGE> 91
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Fiscal Year Ended 1996
- -------------------------------------------------------------------------------------------------------------
Expenses
Fees Paid Fees Waived Reimbursed
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Money Market Fund* $ 916,867 $ 0 $202,612
- -------------------------------------------------------------------------------------------------------------
Tax-Exempt Money Market Fund* $ 139,482 $ 0 $ 47,274
- -------------------------------------------------------------------------------------------------------------
California Money Fund** $ 206,796 $ 148,062 $ 0
- -------------------------------------------------------------------------------------------------------------
Short Term High Quality Bond Fund** $ 262,885 $ 262,885 $ 13,583
- -------------------------------------------------------------------------------------------------------------
Target Maturity 2002 Fund** $ 7,915 $ 7,915 $ 47,054
- -------------------------------------------------------------------------------------------------------------
U.S. Government Securities Fund* $ 984,485 $ 0 $ 0
- -------------------------------------------------------------------------------------------------------------
Income Fund* $ 599,008 $ 0 $ 0
- -------------------------------------------------------------------------------------------------------------
Tax-Exempt Bond Fund* $1,065,379 $ 0 $ 0
- -------------------------------------------------------------------------------------------------------------
California Municipal Fund** $2,233,979 $1,398,796 $ 0
- -------------------------------------------------------------------------------------------------------------
California Insured Intermediate Municipal Fund** $ 393,599 $ 393,599 $ 47,057
- -------------------------------------------------------------------------------------------------------------
Florida Insured Municipal Fund** $ 201,769 $ 201,769 $ 74,295
- -------------------------------------------------------------------------------------------------------------
Bond & Stock Fund*** $1,555,733 $ 0 $ 0
- -------------------------------------------------------------------------------------------------------------
Growth & Income Fund*** $1,065,507 $ 0 $ 0
- -------------------------------------------------------------------------------------------------------------
Growth Fund** $2,023,665 $ 0 $ 0
- -------------------------------------------------------------------------------------------------------------
International Growth Fund** $1,062,220 $ 0 $ 0
- -------------------------------------------------------------------------------------------------------------
Northwest Fund*** $1,123,204 $ 166,941 $ 0
- -------------------------------------------------------------------------------------------------------------
Emerging Growth Fund** $2,464,903 $ 0 $ 0
- -------------------------------------------------------------------------------------------------------------
</TABLE>
* Fiscal year ends 12/31
** Fiscal year ends 6/30
*** Fiscal year ends 10/31
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Fiscal Year Ended 1995
- -------------------------------------------------------------------------------------------------------------
Expenses
Fees Paid Fees Waived Reimbursed
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Money Market Fund* $ 688,617 $ 0 $22,965
- -------------------------------------------------------------------------------------------------------------
Tax-Exempt Money Market Fund* $ 143,292 $ 0 $57,104
- -------------------------------------------------------------------------------------------------------------
California Money Fund** $ 215,043 $108,224 $ 0
- -------------------------------------------------------------------------------------------------------------
Short Term High Quality Bond Fund** $ 270,744 $228,615 $ 0
- -------------------------------------------------------------------------------------------------------------
Target Maturity 2002 Fund** $ 1,207 $ 1,207 $16,281
- -------------------------------------------------------------------------------------------------------------
U.S. Government Securities Fund* $1,156,052 $ 0 $ 0
- -------------------------------------------------------------------------------------------------------------
Income Fund* $ 598,377 $ 0 $ 0
- -------------------------------------------------------------------------------------------------------------
</TABLE>
-19-
<PAGE> 92
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Tax-Exempt Bond Fund* $1,120,096 $ 0 $ 0
- ------------------------------------------------------------------------------------------------------------
California Municipal Fund** $2,419,708 $1,403,390 $ 0
- ------------------------------------------------------------------------------------------------------------
California Insured Intermediate Municipal Fund** $ 319,780 $ 319,780 $52,835
- ------------------------------------------------------------------------------------------------------------
Florida Insured Municipal Fund** $ 200,364 $ 200,364 $80,852
- ------------------------------------------------------------------------------------------------------------
Bond & Stock Fund*** $1,230,409 $ 0 $ 0
- ------------------------------------------------------------------------------------------------------------
Growth & Income Fund*** $ 738,064 $ 0 $ 0
- ------------------------------------------------------------------------------------------------------------
Growth Fund** $1,365,171 $ 0 $ 0
- ------------------------------------------------------------------------------------------------------------
International Growth Fund** $1,097,217 $ 0 $ 0
- ------------------------------------------------------------------------------------------------------------
Northwest Fund*** $ 973,877 $ 116,742 $ 0
- ------------------------------------------------------------------------------------------------------------
Emerging Growth Fund** $1,400,644 $ 0 $ 0
- ------------------------------------------------------------------------------------------------------------
</TABLE>
* Fiscal year ends 12/31
** Fiscal year ends 6/30
*** Fiscal year ends 10/31
The subadvisory agreements for the Growth Fund with Janus, for the
International Growth Fund with Warburg, and for the California Municipal Fund,
the Florida Insured Municipal Fund and the California Insured Intermediate Fund
with Van Kampen each took effect on March 20, 1998. It is expected that, subject
to shareholder approval, a subadvisory agreement for the Tax Exempt Bond Fund
with Van Kampen will take effect on January 1, 1999.
For the three most recent fiscal years, the Advisor or its affiliates
paid the sub-advisors the following sub-advisory fees:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
FEES PAID FEES PAID
FEES PAID FISCAL YEAR FISCAL YEAR
FISCAL YEAR ENDED ENDED
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
California Money Fund 36,881 $ 70,156 $ 77,549
- ------------------------------------------------------------------------------------------------------------
California Municipal Fund 580,166 $ 637,702 $ 684,267
- ------------------------------------------------------------------------------------------------------------
California Insured Intermediate Municipal Fund 126,152 $ 144,771 $ 143,109
- ------------------------------------------------------------------------------------------------------------
Florida Insured Municipal Fund 49,884 $ 63,134 $ 73,371
- ------------------------------------------------------------------------------------------------------------
Growth Fund 1,473,318 $1,374,940 $1,149,390
- ------------------------------------------------------------------------------------------------------------
International Growth Fund 753,964 $ 880,003 $ 640,950
- ------------------------------------------------------------------------------------------------------------
Emerging Growth Fund 921,864 $1,550,235 $1,470,531
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Until March 20, 1998, Sierra Fund Administration Corporation ("Sierra
Administration") served as the administrator, and First Data Investor Services
Group, Inc. ("First Data") served as
-20-
<PAGE> 93
the sub-administrator to each of the WM Trust II Funds and each of the
Portfolios. Shareholder Services had provided transfer agency and other
shareholder services to each of the WM Trust I Funds prior to
that date, and has provided transfer agency and other shareholder services
to each of the Funds and Portfolios since March 20, 1998.
For the three most recent fiscal years the Trusts paid Shareholder
Services and its affiliates the following administration and/or Transfer Agent
fees:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
Fees Fees Fees Paid Fees Fees Paid Fees Waived Fees Paid Fees Waived
Paid Waived Waived
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Money Market Fund* n/a n/a $ 476,775 $141,274 $ 411,274 $137,904 $ 268,265 $ 0
- ---------------------------------------------------------------------------------------------------------------------------------
Tax-Exempt Money n/a n/a $ 26,688 $ 1,293 $ 26,736 $ 1,628 $ 32,355 $ 0
Market Fund*
- ---------------------------------------------------------------------------------------------------------------------------------
California Money 73,762 0 $ 140,313 $ 0 $ 155,097 $ 0 $ 161,282 $ 50,408
Fund**
- ---------------------------------------------------------------------------------------------------------------------------------
Short Term High 33,910 0 $ 107,344 $ 0 $ 809,686 $ 11,630 $ 189,519 $117,460
Quality Bond Fund**
- ---------------------------------------------------------------------------------------------------------------------------------
Target Maturity 2002 5,515 0 $ 10,859 $ 0 $ 11,080 $ 3,805 $ 1,690 $ 1,690
Fund+**
- ---------------------------------------------------------------------------------------------------------------------------------
U.S. Government n/a n/a $ 105,444 $ 0 $ 146,145 $ 0 $ 165,595 $ 0
Securities Fund*
- ---------------------------------------------------------------------------------------------------------------------------------
Income Fund* n/a n/a $ 93,522 $ 0 $ 114,258 $ 0 $ 114,938 $ 0
- ---------------------------------------------------------------------------------------------------------------------------------
Tax-Exempt Bond n/a n/a $ 84,547 $ 0 $ 102,716 $ 0 $ 107,114 $ 0
Fund*
- ---------------------------------------------------------------------------------------------------------------------------------
California Municipal 860,498 0 $1,312,972 $ 0 $1,421,633 $ 0 $1,539,815 $511,663
Fund**
- ---------------------------------------------------------------------------------------------------------------------------------
California Insured 161,117 0 $ 253,706 $ 0 $ 250,472 $ 14,288 $ 203,496 $203,496
Intermediate Municipal
Fund**
- ---------------------------------------------------------------------------------------------------------------------------------
Florida Insured 65,423 0 $ 110,484 $ 0 $ 128,399 $ 20,472 $ 127,505 $127,505
Municipal Fund**
- ---------------------------------------------------------------------------------------------------------------------------------
Bond & Stock Fund*** n/a n/a $ 235,936 $ 0 222,913 $ 0 $ 194,112 $ 0
- ---------------------------------------------------------------------------------------------------------------------------------
Growth Income n/a n/a $ 245,357 $ 0 $ 193,784 $ 0 $ 142,648 $ 0
Fund***
- ---------------------------------------------------------------------------------------------------------------------------------
Growth Fund** 723,887 0 $ 927,458 $ 0 $ 769,573 $ 0 $ 511,456 $ 0
- ---------------------------------------------------------------------------------------------------------------------------------
International Growth 370,136 0 $ 616,002 $ 0 $ 422,563 $ 0 $ 454,734 $ 0
Fund**
- ---------------------------------------------------------------------------------------------------------------------------------
Northwest Fund*** n/a n/a $ 347,561 $ 0 $ 320,799 $ 0 $ 292,144 $ 0
- ---------------------------------------------------------------------------------------------------------------------------------
Emerging Growth 620,085 0 $1,050,164 $ 0 $ 994,372 $ 0 $ 556,148 $ 0
Fund**
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-21-
<PAGE> 94
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
Strategic Growth 303,985 0 $122,140 $ 83,235 n/a n/a n/a n/a
Portfolio++**
- -------------------------------------------------------------------------------------------------------------
Conservative Growth 1,463,013 0 $866,812 $259,689 n/a n/a n/a n/a
Portfolio++**
- -------------------------------------------------------------------------------------------------------------
Balanced 1,079,118 0 $628,588 $179,370 n/a n/a n/a n/a
Portfolio++**
- -------------------------------------------------------------------------------------------------------------
Flexible Income 88,955 0 $ 66,287 $ 58,740 n/a n/a n/a n/a
Portfolio++**
- -------------------------------------------------------------------------------------------------------------
Income Portfolio++** 76,470 0 $ 61,796 50,033 n/a n/a n/a n/a
- -------------------------------------------------------------------------------------------------------------
</TABLE>
+ The Target Maturity 2002 Fund commenced operations on March 20, 1995.
++ The Portfolios commenced operations on July 25, 1996.
* Fiscal year ends 12/31
** Fiscal year ends 6/30
*** Fiscal year ends 10/31
For the three most recent fiscal years, Shareholder Services and its
affiliates paid the following amounts to First Data for sub-administrative
services to the Funds and Portfolios.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Money Market Fund n/a n/a n/a n/a
- ---------------------------------------------------------------------------------------------------------------
Tax-Exempt Money Market n/a n/a n/a n/a
Fund
- ---------------------------------------------------------------------------------------------------------------
California Money Fund $ 37,008 $ 37,649 $ 40,546 $ 84,360
- ---------------------------------------------------------------------------------------------------------------
Short Term High Quality Bond $ 31,105 $ 24,633 $ 41,119 $152,405
Fund
- ---------------------------------------------------------------------------------------------------------------
Target Maturity 2002 Fund+ $ 7,700 $ 2,499 $ 2,485 $ 692
- ---------------------------------------------------------------------------------------------------------------
US Government Securities n/a n/a n/a n/a
Fund
- ---------------------------------------------------------------------------------------------------------------
Income Fund n/a n/a n/a n/a
- ---------------------------------------------------------------------------------------------------------------
California Municipal Fund $243,920 $302,048 $318,453 $436,521
- ---------------------------------------------------------------------------------------------------------------
Tax-Exempt Bond Fund n/a n/a n/a n/a
- ---------------------------------------------------------------------------------------------------------------
California Municipal Fund n/a n/a n/a n/a
- ---------------------------------------------------------------------------------------------------------------
California Insured Intermediate $ 49,738 $ 58,360 $ 56,128 $ 54,451
Municipal Fund
- ---------------------------------------------------------------------------------------------------------------
Florida Insured Municipal Fund $ 23,945 $ 25,408 $ 28,762 $ 37,321
- ---------------------------------------------------------------------------------------------------------------
Bond & Stock Fund n/a n/a n/a n/a
- ---------------------------------------------------------------------------------------------------------------
Growth & Income Fund n/a n/a n/a n/a
- ---------------------------------------------------------------------------------------------------------------
Growth Fund $260,697 $213,556 $172,561 $312,093
- ---------------------------------------------------------------------------------------------------------------
International Growth Fund $249,221 $141,808 $ 94,735 $263,659
- ---------------------------------------------------------------------------------------------------------------
Emerging Growth Fund $193,279 $241,257 $222,994 $380,867
- ---------------------------------------------------------------------------------------------------------------
Strategic Growth Portfolio++ $ 32,694 $ 1,128 n/a n/a
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
-22-
<PAGE> 95
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
Conservative Growth $52,443 $1,164 n/a n/a
Portfolio++
- ---------------------------------------------------------------------------------------------------------------
Balanced Portfolio++ $45,182 $1,257 n/a n/a
- ---------------------------------------------------------------------------------------------------------------
Flexible Income Portfolio++ $25,987 $1,533 n/a n/a
- ---------------------------------------------------------------------------------------------------------------
Income Portfolio++ $25,783 $1,249 n/a n/a
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
+ The Target Maturity 2002 Fund commenced operations on March 20, 1995.
++The Portfolios commenced operations on July 25, 1996.
COUNSEL
Ropes & Gray, located at One International Place, Boston, Massachusetts
02110, and Paine, Hamblen, Coffin, Brooke & Miller, located at 717 West Sprague
Avenue, Suite 1200, Spokane, Washington 99201, serve as co-counsel to the
Trusts.
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
Deloitte & Touche LLP, 50 Fremont Street, San Francisco, CA 94105,
serves as independent accountants to each of the Funds and Portfolios.
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts 02110,
served as independent accountants to WM Trust II and WM Strategic Asset
Management Portfolios for their fiscal year ending June 30, 1998 and for prior
fiscal years. Prior to the current fiscal year of the WM Trust I Funds, LeMaster
& Daniels PLLC, 601 West Riverside, Suite 700, Spokane, Washington 99201, served
as independent accountants to WM Trust I. The financial statements, financial
highlights and Report of Independent Accountants of PricewaterhouseCoopers LLP
for each of the WM Trust II Funds and each of the Portfolios contained in such
Funds' and Portfolios' Annual Report to Shareholders for the year ended June 30,
1998 are incorporated herein by reference. The financial statements, financial
highlights and Report of Independent Accountants of LeMaster & Daniels PLLC for
each of the WM Trust I Funds contained in such Funds' Annual Reports to
Shareholders for the fiscal years ended October 31, 1997 or December 31, 1997,
as the case may be, are hereby incorporated by reference. Also incorporated
herein by reference are the unaudited financial highlights and financial
statements for each of the WM Trust I Funds included in such Funds' Semi-Annual
Report to Shareholders for the periods ended April 30, 1998. The audited
financial statements incorporated by reference into this SAI and the financial
highlights in the Prospectus have been audited by PricewaterhouseCoopers LLP or
LeMaster & Daniels PLLC, as the case may be, and have been so included in
reliance on such independent accountants' reports, given on the authority of
such firms in accounting and auditing.
ORGANIZATION OF THE TRUST
WM Trust I is an open-end management investment company, organized as a
Massachusetts business trust pursuant to a Master Trust Agreement dated
September 19, 1997, as amended from time to time (the "WM Trust I Agreement").
WM Trust II is organized as a Massachusetts business trust pursuant to a Master
Trust Agreement dated February 22, 1989, as amended from time to time
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(the "WM Trust II Agreement"). WM Strategic Asset Management Portfolios is an
open-end management investment company, organized as a Massachusetts business
trust pursuant to a Master Trust Agreement dated March 26, 1996, as amended from
time to time (the "WM Strategic Asset Management Portfolios Agreement" and
collectively, the "Trust Agreements"). In the interest of economy and
convenience, certificates representing shares in the Trusts are not physically
issued. Boston Safe Deposit and Trust Co. ("Boston Safe"), the Trusts'
Custodian, and Shareholder Services, the Trusts' Transfer Agent, maintain a
record of each shareholder's ownership of Trust shares. Shares do not have
cumulative voting rights, which means that holders of more than 50% of the
shares voting for the election of Trustees can elect all Trustees. Shares are
transferable but have no preemptive, conversion or subscription rights.
Shareholders generally vote by Fund, Portfolio or Class, except with respect to
the election of Trustees and the selection of independent accountants, for which
shareholders of each Trust as a whole vote together.
Under normal circumstances, there will be no meetings of shareholders
for the purpose of electing Trustees unless and until such time as less than a
majority of the Trustees holding office have been elected by shareholders, at
which time the Trustees then in office promptly will call a shareholders'
meeting for the election of Trustees. Under the 1940 Act, shareholders of record
of no less than two-thirds of the outstanding shares of the Trust may remove a
Trustee through a declaration in writing or by vote cast in person or by proxy
at a meeting called for that purpose. Under the Trust Agreements, the Trustees
are required to call a meeting of shareholders for the purpose of voting upon
the question of removal of any such Trustee when requested in writing to do so
by the shareholders of record of not less than 10% of any of a Trust's
outstanding shares.
Massachusetts law provides that shareholders, under certain
circumstances, could be held personally liable for the obligations of a Trust.
However, each Trust Agreement disclaims shareholder liability for acts or
obligations of the Trusts and require that notice of such disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Trust
or a Trustee. Each Trust Agreement provides for indemnification from the Trust's
property for all losses and expenses of any shareholder held personally liable
for the obligations of the Trust. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Trust would be unable to meet its obligations, a possibility that
the Trusts' management believes is remote. The Trustees intend to conduct the
operations of each Trust in such a way so as to avoid, to the extent possible,
ultimate liability of the shareholders for the liabilities of the Trust.
INVESTMENT OBJECTIVES AND POLICIES
The Prospectus discusses the investment objective or objectives of each
of the Funds and Portfolios and the policies to be employed to achieve such
objectives. This section contains supplemental information concerning the types
of securities and other instruments in which the Funds and Portfolios may
invest, the investment policies and portfolio strategies that the Funds and
Portfolios may utilize and certain risks attendant to such investments, policies
and strategies.
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RATINGS AS INVESTMENT CRITERIA. In general, the ratings of nationally
recognized statistical rating organization ("NRSROs"), such as Moody's Investors
Service, Inc. ("Moody's"), Standard & Poor's ("S&P"), Duff and Phelps, and
Fitch, represent the opinions of these agencies as to the quality of securities
which they rate. It should be emphasized, however, that such ratings are
relative and subjective and are not absolute standards of quality. These ratings
will be used by the Funds as initial criteria for the selection of portfolio
securities, but the Funds will also rely upon the independent advice of the
Advisor or their respective sub-advisors. The Appendix to this SAI contains
further information concerning the ratings of these services and their
significance.
To the extent that the rating given by Moody's or S&P for securities
may change as a result of changes in such organizations or their rating systems,
each Fund will attempt to use comparable ratings as standards for its
investments in accordance with the investment policies contained in the
Prospectus and in this SAI.
U.S. GOVERNMENT SECURITIES. U.S. Government Securities include debt
obligations of varying maturities issued or guaranteed by the U.S. Government,
its agencies or instrumentalities. U.S. Government Securities include, but are
not necessarily limited to, direct obligations of the U.S. Treasury, and
securities issued or guaranteed by the Federal Housing Administration, Farmers
Home Administration, Export-Import Bank of the United States, Small Business
Administration, Government National Mortgage Association ("GNMA"), General
Services Administration, Central Bank for Cooperatives, Federal Farm Credit
Banks, Federal Home Loan Banks, Federal Home Loan Mortgage Corporation
("FHLMC"), Federal Intermediate Credit Banks, Resolution Trust Corporation,
Federal Land Banks, Federal National Mortgage Association ("FNMA"), Maritime
Administration, Tennessee Valley Authority, District of Columbia Armory Board
and Student Loan Marketing Association. Direct obligations of the U.S. Treasury
include a variety of securities that differ in their interest rates, maturities
and dates of issuance. Because the U.S. Government is not obligated by law to
provide support to an instrumentality it sponsors, a Fund will invest in
obligations issued by such an instrumentality only if the Advisor or the Fund's
sub-advisor determines that the credit risk with respect to the instrumentality
does not make its securities unsuitable for investment by the Fund.
ILLIQUID INVESTMENTS. These securities generally cannot be sold or
disposed of in the ordinary course of business at approximately the value at
which the Fund has valued the investments within seven days. This may have an
adverse effect upon the Fund's ability to dispose of the particular 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 "Securities Act"),
but that can be sold to qualified institutional buyers in accordance with Rule
144A under that Act ("Rule 144A securities"). Rule 144A securities generally
must be sold to other qualified institutional buyers. If a particular investment
in Rule 144A securities is not determined to be liquid, that investment will be
treated as an illiquid security.
COMBINED TRANSACTIONS. To the extent permitted by each Fund's
investment polices and restrictions, the Funds may enter into multiple
transactions, including multiple options transactions,
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multiple futures transactions, multiple foreign currency transactions (including
forward foreign currency exchange contracts) and any combination of futures,
options and foreign currency transactions (each separately, a "component"
transaction), instead of a single transaction, as part of a single hedging
strategy when, in the opinion of the Advisor or the sub-advisor, it is in the
best interest of the Fund to do so. A combined transaction, while part of a
single hedging strategy, may contain elements of risk that are present in each
of its component transactions.
BANK OBLIGATIONS. Domestic commercial banks organized under federal law
are supervised and examined by the Comptroller of the Currency and are required
to be members of the Federal Reserve System and to be insured by the Federal
Deposit Insurance Corporation (the "FDIC"). Domestic banks organized under state
law are supervised and examined by state banking authorities but are members of
the Federal Reserve System only if they elect to join. Most state banks are
insured by the FDIC (although such insurance may not be of material benefit to a
Fund, depending upon the principal amount of certificates of deposit ("CDs") of
each state bank held by a Fund) and are subject to federal examination and to a
substantial body of federal law and regulation. As a result of federal and state
laws and regulations, domestic branches of domestic banks are, among other
things, generally required to maintain specific levels of reserves, and are
subject to other supervision and regulation designed to promote financial
soundness.
Obligations of foreign branches of U.S. banks and of foreign branches
of foreign banks, such as CDs and time deposits ("TDs"), may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and governmental regulation.
Obligations of foreign branches of U.S. banks and foreign banks are subject to
the risks associated with investing in foreign securities generally. Foreign
branches of U.S. banks and foreign branches of foreign banks are not necessarily
subject to the same or similar regulatory requirements that apply to U.S. banks,
such as mandatory reserve requirements, loan limitations, and accounting,
auditing and financial recordkeeping requirements. In addition, less information
may be publicly available about a foreign branch of a U.S. bank or about a
foreign bank than about a U.S. bank.
Obligations of U.S. branches of foreign banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and by federal and state
regulation as well as governmental action in the country in which the foreign
bank has its head office. A U.S. branch of a foreign bank may or may not be
subject to reserve requirements imposed by the Federal Reserve System or by the
state in which the branch is located if the branch is licensed in that state.
The deposits of branches licensed by certain states may not necessarily be
insured by the FDIC. In addition, there may be less publicly available
information about a U.S. branch of a foreign bank than about a U.S. bank.
In view of the foregoing factors associated with the purchase of CDs
and TDs issued by foreign banks and foreign branches of U.S. banks, the Advisor
or the Funds' respective sub-advisors will carefully evaluate such investments
on a case-by-case basis.
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A Fund may purchase a CD, TD or bankers' acceptances issued by a bank,
savings and loan association or other banking institution with less than $1
billion in assets (a "Small Issuer Bank Obligation") only so long as the issuer
is a member of the FDIC or supervised by the Office of Thrift Supervision (the
"OTS") and so long as the principal amount of the Small Issuer Bank Obligation
is fully insured by the FDIC and is no more than $100,000. Each of the Funds
will at any one time hold only one Small Issuer Bank Obligation from any one
issuer.
Savings and loan associations whose CDs, TDs and bankers' acceptances
may be purchased by the Funds are supervised by the OTS and insured by the
Savings Association Insurance Fund, which is administered by the FDIC and is
backed by the full faith and credit of the United States Government. As a
result, such savings and loan associations are subject to regulation and
examination.
MORTGAGE-BACKED SECURITIES. The mortgage-backed securities in which the
Funds may invest include these classified as governmental or government-related.
Governmental mortgage-backed securities are backed by the full faith and credit
of the United States. GNMA, the principal U.S. guarantor of such securities, is
a wholly-owned U.S. Government corporation within the Department of Housing and
Urban Development. Government-related mortgage-backed securities which are not
backed by the full faith and credit of the United States include those issued by
FNMA and FHLMC. FNMA is a government-sponsored corporation owned entirely by
private stockholders, which is subject to general regulation by the Secretary of
Housing and Urban Development. Pass-through securities issued by FNMA are
guaranteed as to timely payment of principal and interest by FNMA. FHLMC is a
corporate instrumentality of the United States, the stock of which is owned by
the Federal Home Loan Banks. Participation certificates representing interests
in mortgages from FHLMC's national portfolio are guaranteed as to the timely
payment of interest and ultimate collection of principal by FHLMC.
Entities may create mortgage loan pools offering pass-through
investments in addition to those described above. The mortgages underlying these
securities may be alternative mortgage instruments, that is, mortgage
instruments in which principal or interest payments may vary or terms to
maturity may be shorter than previously customary. As new types of
mortgage-backed securities are developed and offered to investors, the Funds
will, consistent with their respective investment objectives and policies,
consider making investments in such new types of securities.
The average maturity of pass-through pools of mortgage-backed
securities varies with the maturities of the underlying mortgage instruments. In
addition, a pool's stated maturity may be shortened by unscheduled payments on
the underlying mortgages. Factors affecting mortgage prepayments include the
level of interest rates, general economic and social conditions, the location of
the mortgaged property and the age of the mortgage. Because prepayment rates of
individual mortgage pools vary widely, it is not possible to accurately predict
the average life of a particular pool. Common industry practice, for example, is
to assume that prepayments will result in a 7- to 9-year average life for pools
of fixed-rate 30-year mortgages. Pools of mortgages with other maturities or
different characteristics will have varying average life assumptions.
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REPURCHASE AGREEMENTS. The California Money, Short Term High Quality
Bond, High Yield, Target Maturity 2002, California Insured Intermediate
Municipal, Florida Insured Municipal, Growth, International Growth and Emerging
Growth Funds may invest in repurchase agreements without limitation. The
California Municipal Fund may invest no more than 20%, in the aggregate, of its
assets in repurchase agreements and certain other securities or instruments, but
this 20% limit does not apply to investments for temporary defensive purposes.
The Money Market, Tax-Exempt Money Market, U.S. Government Securities, Income,
Tax-Exempt Bond, Bond & Stock, Growth & Income and Northwest Funds may enter
into repurchase agreements with brokers, dealers and banks to temporarily invest
cash reserves, provided that repurchase agreements maturing in greater than 7
days cannot exceed 10% of each Fund's total assets.
WHEN ISSUED SECURITIES AND DELAYED DELIVERY TRANSACTIONS. A segregated
account in the name of the Fund consisting of cash or other liquid assets equal
to the amount of when-issued or delayed-delivery commitments will be established
at Boston Safe, the Trusts' Custodian. For the purpose of determining the
adequacy of the securities in the accounts, the deposited securities will be
valued at market or fair value. If the market or fair value of the securities
declines, additional cash or securities will be placed in the account daily so
that the value of the account will equal the amount of such commitments by the
Fund. On the settlement date, the Fund will meet its obligations from
then-available cash flow, the sale of securities held in the segregated account,
the sale of other securities or, although it would not normally expect to do so,
from the sale of securities purchased on a when-issued or delayed-delivery basis
themselves (which may have a greater or lesser value than the Fund's payment
obligations).
STRATEGIC TRANSACTIONS. Subject to the investment limitations and
restrictions for each of the Funds stated elsewhere in this SAI and in the
Prospectus, each of the Funds and Portfolios, except for the Money Funds, may
utilize various investment strategies as described below to hedge various market
risks, to manage the effective maturity or duration of fixed-income securities
or for other bona fide hedging purposes. No Fund or Portfolio currently intends
to enter into Strategic Transactions, excluding Strategic Transactions that are
"covered" or entered into for bona fide hedging purposes, that are in the
aggregate principal amount in excess of 15% of the Fund's net assets.
The Funds and Portfolios may enter into multiple transactions,
including multiple options transactions, multiple futures transactions, multiple
foreign currency transactions (including forward foreign currency exchange
contracts) and any combination of futures, options and foreign currency
transactions (each separately, a "component" transaction), instead of a single
transaction, as part of a single strategy when, in the opinion of the Advisor or
the sub-advisor, it is in the best interest of the Fund or Portfolio to do so. A
combined transaction may contain elements of risk that are present in each of
its component transactions.
The use of Strategic Transactions for asset management purposes
involves special considerations and risks. Additional risks pertaining to
particular strategies that make up Strategic Transactions are described below.
Successful use of most Strategic Transactions depends upon the
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Advisor or the sub-advisor's ability to predict movements of the overall
securities and interest rate markets, which requires different skills than
predicting changes in the prices of individual securities. There can be no
assurance that any particular strategy adopted will succeed. There may be
imperfect correlation, or even no correlation, between price movements of
Strategic Transactions and price movements of the related portfolio or currency
positions. Such a lack of correlation might occur due to factors unrelated to
the value of the related portfolio or currency positions, such as speculative or
other pressures on the markets in which Strategic Transactions are traded. In
addition, a Fund or Portfolio might be required to maintain assets as "cover,"
maintain segregated accounts or make margin payments when it takes positions in
Strategic Transactions involving obligations to third parties (i.e., Strategic
Transactions other than purchased options). These requirements might impair the
Fund's ability to sell a portfolio security or currency position or make an
investment at a time when it would otherwise be favorable to do so, or require
that the Fund sell a portfolio security or currency position at a
disadvantageous time.
- SWAPS, CAPS, FLOORS AND COLLARS. Among the Strategic
Transactions into which a Fund engaging in Strategic Transactions may
enter, consistent with the Fund's investment policies and restrictions,
are interest rate, currency and index swaps and the purchase or sale of
related caps, floors and collars. A Fund would enter into these
transactions primarily to preserve a return or spread on a particular
investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against
any increase in the price of securities the Fund anticipates purchasing
at a later date. A Fund will use these transactions as hedges and not
speculative investments and will not sell interest rate caps or floors
where it does not own securities or other instruments providing the
income stream the Fund may be obligated to pay. Interest rate swaps
involve the exchange by a Fund with another party of their respective
commitments to pay or receive interest, e.g., an exchange of floating
rate payments for fixed rate payments with respect to a notional amount
of principal. A currency swap is an agreement to exchange cash flows on
a notional amount of two or more currencies based on the relative value
differential among them and an index swap is an agreement to swap cash
flows on a notional amount based on changes in the values of the
reference indices. The purchase of a cap entitles the purchaser to
receive payments on a notional principal amount from the party selling
such cap to the extent that a specified index exceeds a predetermined
interest rate or amount. The purchase of a floor entitles the purchaser
to receive payments on a notional principal amount from the party
selling such floor to the extent that a specified index falls below a
predetermined interest rate or amount. A collar is a combination of a
cap and a floor that preserves a certain return within a predetermined
range of interest rates or value.
A Fund will usually enter into swaps on a net basis, i.e., the
two payment streams are netted out in a cash settlement on the payment
date or dates specified in the instrument, with the Fund receiving or
paying, as the case may be, only the net amount of the two payments.
Inasmuch as these swaps, caps, floors and collars are entered into for
good faith hedging purposes, the Advisor and the Trusts believe that
such obligations do not constitute senior securities under the 1940 Act
and, accordingly, will not treat them as being subject to the
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Fund's borrowing restrictions. If there is a default by the
counterparty, a Fund may have contractual remedies pursuant to the
agreements related to the transaction. Caps, floors and collars are
relatively recent innovations for which standardized documentation has
not yet been fully developed and, accordingly, they may be less liquid.
- FUTURES ACTIVITIES. Each of the Funds permitted to engage in
Strategic Transactions (other than the Target Maturity 2002 Fund or the
WM Trust I Funds and each of the Portfolios may enter into futures
contracts and options on futures contracts that are traded on a U.S.
exchange or board of trade. These investments may be made by the Fund
involved for the purpose of hedging against changes in the value of its
portfolio securities due to anticipated changes in interest rates and
market conditions, and for otherwise permitted Strategic Transactions.
In the case of the California Municipal, the California Insured
Intermediate Municipal and the Florida Insured Municipal Funds, such
investments will be made only in unusual circumstances, such as when
that Funds' sub-advisor anticipates an extreme change in interest rates
or market conditions. The ability of a Fund to trade in futures
contracts and options on futures contracts may be materially limited by
the requirement of the Internal Revenue Code of 1986, as amended (the
"Code"), applicable to a regulated investment company. See "Taxes"
below.
- FUTURES CONTRACTS. An interest rate futures contract provides
for the future sale by one party and the purchase by the other party of
a certain amount of a specific financial instrument (debt security) at
a specified price, date, time and place. A bond index futures contract
is an agreement pursuant to which two parties agree to take or make
delivery of an amount of cash equal to the difference between the value
of the index at the close of the last trading day of the contract and
the price at which the index contract was originally written. No
physical delivery of the underlying securities in the index is made.
The purpose of entering into a futures contract by a Fund or
Portfolio is to protect the Fund or Portfolio from fluctuations in the
value of its securities caused by anticipated changes in interest rates
or market conditions without necessarily buying or selling the
securities. For example, if the California Municipal Fund, the
California Insured Intermediate Municipal Fund or the Florida Insured
Municipal Fund owns long-term bonds and tax-exempt rates are expected
to increase, these Funds might enter into futures contracts to sell a
municipal bond index. Such a transaction would have much the same
effect as a Fund's selling some of the long-term bonds in its
portfolio. If tax-exempt rates increase as anticipated, the value of
certain long-term municipal obligations in the portfolio would decline,
but the value of the Fund's futures contracts would increase at
approximately the same rate, thereby keeping the net asset value of the
Fund from declining as much as it otherwise would have. Because the
value of portfolio securities will far exceed the value of the futures
contracts entered into by a Fund, an increase in the value of the
futures contract would only mitigate -- but not totally offset -- the
decline in the value of the portfolio.
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No consideration is paid or received by a Fund upon entering
into a futures contract. Initially, a Fund or Portfolio would be
required to deposit with the broker an amount of cash or cash
equivalents equal to approximately 1% to 10% of the contract amount
(this amount is subject to change by the board of trade on which the
contract is traded and members of such board of trade may charge a
higher amount). This amount is known as "initial margin" and is in its
nature the equivalent of a performance bond or good faith deposit on
the contract, which is returned to a Fund or Portfolio upon termination
of the futures contract, assuming all contractual obligations have been
satisfied. Subsequent payments, known as "variation margin," to and
from the broker, will be made daily as the price of the index or
securities underlying the futures contract fluctuates, making the long
and short positions in the futures contract more or less valuable, a
process known as "marking-to-market." At any time prior to the
expiration of a futures contract, a Fund or Portfolio may elect to
close the position by taking an opposite position, which will operate
to terminate the Fund's or Portfolio's existing position in the
contract.
There are several risks in connection with the use of futures
contracts as a hedging device. Successful use of futures contracts by a
Fund is subject to the ability of the Advisor or the sub-advisor to
correctly predict movements in the direction of interest rates or
changes in market conditions. These predictions involve skills and
techniques that may be different from those involved in the management
of the portfolio being hedged. In addition, there can be no assurance
that there will be a correlation between movements in the price of the
underlying index or securities and movements in the price of the
securities which are the subject of the hedge. A decision of whether,
when and how to hedge involves the exercise of skill and judgment, and
even a well-conceived hedge may be unsuccessful to some degree because
of market behavior or unexpected trends in interest rates.
Although the Funds and the Portfolios intend to enter into
futures contracts only if there is an active market for such contracts,
there is no assurance that an active market will exist for the
contracts at any particular time. Most U.S. futures exchanges and
boards of trade limit the amount of fluctuation permitted in futures
contract prices during a single trading day. Once the daily limit has
been reached in a particular contract, no trades may be made that day
at a price beyond that limit. It is possible that futures contract
prices would move to the daily limit for several consecutive trading
days with little or no trading, thereby preventing prompt liquidation
of futures positions and subjecting some futures traders to substantial
losses. In such event, and in the event of adverse price movements, a
Fund or Portfolio would be required to make daily cash payments of
variation margin. In such circumstances, an increase in the value of
the portion of the portfolio being hedged, if any, may partially or
completely offset losses on the futures contract. However, as described
above, there is no guarantee that the price of the securities being
hedged will, in fact, correlate with the price movements in a futures
contract and thus provide an offset to losses on the futures contract.
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To ensure that transactions constitute bona fide hedges in
instances involving the purchase or sale of a futures contract, the
Funds or Portfolios will be required to either (i) segregate sufficient
cash or liquid assets to cover the outstanding position or (ii) cover
the futures contract by either owning the instruments underlying the
futures contract or by holding a portfolio of securities with
characteristics substantially similar to the underlying index or stock
index comprising the futures contract or by holding a separate option
permitting it to purchase or sell the same futures contract. Because of
the imperfect correlation between the movements in the price of
underlying indexes or stock indexes of various futures contracts and
the movement of the price of securities in the Funds' or Portfolio's
assets, the Funds and Portfolios will periodically make adjustments to
its index futures contracts positions to appropriately reflect the
relationship between the underlying portfolio and the indexes. The
Funds and Portfolios will not maintain short positions in index or
stock index futures contracts, options written on index or stock index
futures contracts and options written on indexes or stock indexes, if
in the aggregate, the value of these positions exceeds the current
market value of its securities portfolio plus or minus the unrealized
gain or loss on those positions, adjusted for the historical volatility
relationship between the portfolio and the index contracts.
- OPTIONS ON FUTURES CONTRACTS. An option on a futures contract,
as contrasted with the direct investment in such a contract, gives the
purchaser the right, in return for the premium paid, to assume a
position in the futures contract at a specified exercise price at any
time prior to the expiration date of the option. Upon exercise of an
option, the delivery of the futures position by the writer of the
option to the holder of the option will be accompanied by delivery of
the accumulated balance in the writer's futures margin account, which
represents the amount by which the market price of the futures contract
exceeds, in the case of a call, or is less than, in the case of a put,
the exercise price of the option on the futures contract. The value of
the option can change daily and that change would be reflected in the
net asset value of the Fund or Portfolio holding the option.
When engaging in Strategic Transactions, the Funds and the
Portfolios may purchase and write put and call options on futures
contracts that are traded on a U.S. exchange or board of trade as a
hedge against changes in the value of its portfolio securities, and may
enter into closing transactions with respect to such options to
terminate existing positions. There is no guarantee that such closing
transactions can be effected.
There are several risks relating to options on futures
contracts. The ability to establish and close out positions on such
options will be subject to the existence of a liquid market. In
addition, the purchase of put or call options will be based upon
predictions as to anticipated interest rate and market trends by the
Advisor or the sub-advisors, which could prove to be inaccurate. Even
if the expectations of the Advisor or the sub-advisors are correct,
there may be an imperfect correlation between the change in the value
of the options and the portfolio securities hedged.
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- OPTIONS ON SECURITIES. The Short Term High Quality Bond, Bond
& Stock, Growth & Income, Growth, International Growth, Northwest and
Emerging Growth Funds may buy and sell covered put (except for the
Bond & Stock, Growth & Income and Northwest Funds) and call options on
securities.
Options written by a Fund will normally have expiration dates
between one and nine months from the date written. The exercise price
of the options may be below, equal to or above the market values of the
underlying securities at the times the options are written. In the case
of call options, these exercise prices are referred to as
"in-the-money," "at-the-money" and "out-of-the-money," respectively. A
Fund may write (1) in-the-money call options when the Advisor or its
sub-advisor expects that the price of the underlying security will
remain flat or decline moderately during the option period, (2)
at-the-money call options when the Advisor or its sub-advisor expects
that the price of the underlying security will remain flat or advance
moderately during the option period and (3) out-of-the-money call
options when the Advisor or its sub-advisor expects that the premiums
received from writing the call option plus the appreciation in the
market price of the underlying security up to the exercise price will
be greater than the appreciation in the price of the underlying
security alone. In any of the preceding situations, if the market price
of the underlying security declines and the security is sold at this
lower price, the amount of any realized loss will be offset wholly or
in part by the premium received. Out-of-the-money, at-the-money and
in-the-money put options (the reverse of call options as to the
relation of exercise price to market price) may be utilized in the same
market environments as such call options described above.
So long as the obligation of the Fund as the writer of an option
continues, the Fund may be assigned an exercise notice by the
broker-dealer through which the option was sold, requiring the Fund to
deliver, in the case of a call, or take delivery of, in the case of a
put, the underlying security against payment of the exercise price.
This obligation terminates when the option expires or the Fund effects
a closing purchase transaction. The Fund can no longer effect a closing
purchase transaction with respect to an option once it has been
assigned an exercise notice. To secure its obligation to deliver the
underlying security when it writes a call option, or to pay for the
underlying security when it writes a put option, the Fund will be
required to deposit in escrow the underlying security or other assets
in accordance with the rules of the Options Clearing Corporation (the
"OCC") and of the securities exchange on which the option is written.
An option may be closed out only when there exists a secondary
market for an option of the same series on a recognized securities
exchange or in the over-the-counter market. In light of this fact and
current trading conditions, the Fund expects to purchase or write call
or put options issued by the OCC, except that options on U.S.
Government Securities may be purchased or written in the
over-the-counter market. Over-the-counter options can be closed out
only by agreement with the primary dealer in the transaction. Any
over-the-counter option written by a Fund will be with a qualified
dealer pursuant to an
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agreement under which the Fund may repurchase the option at a formula
price at which the Fund would have the absolute right to repurchase an
over-the-counter option it has sold. Such options will generally be
considered illiquid in an amount equal to the formula price, less the
amount by which the option is "in-the-money." In the event of the
insolvency of the primary dealer, the Fund may not be able to liquidate
its position in over-the-counter options, and the inability of the Fund
to enter into closing purchase transactions on options written by the
Fund may result in a material loss to the Fund.
A Fund may realize a profit or loss upon entering into closing
transactions. In cases where the Fund has written an option, it will
realize a profit if the cost of the closing purchase transaction is
less than the premium received upon writing the original option, and
will incur a loss if the cost of the closing purchase transaction
exceeds the premium received upon writing the original option.
Similarly, when the Fund has purchased an option and engages in a
closing sale transaction, the Fund will realize a profit or loss to the
extent that the amount received in the closing sale transaction is more
or less than the premium the Fund initially paid for the original
option plus the related transaction costs.
To facilitate closing transactions, a Fund will generally
purchase or write only those options for which the Advisor or its
sub-advisor believes there is an active secondary market although there
is no assurance that sufficient trading interest to create a liquid
secondary market on a securities exchange will exist for any particular
option or at any particular time, and for some options no such
secondary market may exist. A liquid secondary market in an option may
cease to exist for a variety of reasons. In the past, for example,
higher than anticipated trading activity or order flow, or other
unforeseen events, have at times rendered certain of the facilities of
the OCC and the securities exchanges inadequate and resulted in the
institution of special procedures, such as trading rotations,
restrictions on certain types of orders or trading halts or suspensions
in one or more options. There can be no assurance that similar events,
or events that may otherwise interfere with the timely execution of
customers' orders, will not recur. In such events, it might not be
possible to effect closing transactions in particular options. If as a
covered call option writer the Fund is unable to effect a closing
purchase transaction in a secondary market, it will not be able to sell
the underlying security until the option expires or it delivers the
underlying security upon exercise.
Securities exchanges have established limitations governing the
maximum number of calls and puts of each class which may be held or
written, or exercised within certain time periods, by an investor or
group of investors acting in concert (regardless of whether the options
are written on the same or different securities exchanges or are held,
written or exercised in one or more accounts or through one or more
brokers). It is possible that the particular Fund and other clients of
the Advisor and its sub-advisors and certain of their affiliates may be
considered to be such a group. A securities exchange may order the
liquidation of positions found to be in violation of these limits and
it may impose certain other sanctions.
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In the case of options written by a Fund that are deemed covered
by virtue of the Fund's holding convertible or exchangeable preferred
stock or debt securities, the time required to convert or exchange and
obtain physical delivery of the underlying security with respect to
which the Fund has written options may exceed the time within which the
Fund must make delivery in accordance with an exercise notice. In these
instances, the Fund may purchase or temporarily borrow the underlying
securities for purposes of physical delivery. By so doing, the Fund
will not bear any market risk, since the Fund will have the absolute
right to receive from the issuer of the underlying security an equal
number of shares to replace the borrowed stock. The Fund may however,
incur additional transaction costs or interest expenses in connection
with any such purchase or borrowing.
Additional risks exist with respect to mortgage-backed U.S.
Government Securities for which the Fund may write covered call
options. If a Fund writes covered call options on a mortgage-backed
security, the security that it holds as cover may, because of scheduled
amortization of unscheduled prepayments, cease to be sufficient cover.
In such an instance, the Fund will compensate by purchasing an
appropriate additional amount of mortgage-backed securities.
- OPTIONS ON SECURITIES INDEXES. The Short Term High Quality
Bond, California Insured Intermediate Municipal, Growth, International
Growth and Emerging Growth Funds may also purchase and sell call and
put options on securities indexes. Such options give the holder the
right to receive a cash settlement during the term of the option based
upon the difference between the exercise price and the value of the
index.
Options on securities indexes entail risks in addition to the
risks of options on securities. Because exchange trading of options on
securities indexes is relatively new, the absence of a liquid secondary
market to close out an option position is more likely to occur,
although the Fund generally will purchase or write such an option only
if the Advisor or its sub-advisor believes the option can be closed
out.
Use of options on securities indexes also entails the risk that
trading in such options may be interrupted if trading in certain
securities included in the index is interrupted. The Fund will not
purchase such options unless the Advisor or its sub-advisor believes
the market is sufficiently developed for the risk of trading in such
options to be no greater than the risk of trading in options on
securities.
Price movements in the Fund's portfolio may not correlate
precisely with movements in the level of an index and, therefore, the
use of options on securities indexes cannot serve as a complete hedge.
Because options on securities indexes require settlement in cash, the
Fund may be forced to liquidate portfolio securities to meet settlement
obligations.
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- FOREIGN CURRENCY EXCHANGE TRANSACTIONS. The Short Term High
Quality Bond, Income, Growth, International Growth and Emerging Growth
Funds may engage in currency exchange transactions to protect against
uncertainty in the level of future exchange rates. The Funds' dealings
in forward currency exchange contracts will be limited to hedging
involving either specific transactions or portfolio positions.
Transaction hedging is the purchase or sale of forward foreign currency
with respect to specific receivables or payables of the Fund generally
arising in connection with the purchase or sale of its portfolio
securities. Position hedging is the sale of forward foreign currency
with respect to portfolio security positions denominated or quoted in
such foreign currency. A Fund may not position hedge with respect to a
particular currency to an extent greater than the aggregate market
value (at the time of making such sale) of the securities held in its
portfolio denominated or quoted in or currently convertible into that
particular currency.
If a Fund enters into a position hedging transaction, the
Trusts' Custodian will, except in circumstances where segregated
accounts are not required by the 1940 Act and the rules adopted
thereunder, place cash or other liquid assets in a segregated account
for the Fund in an amount at least equal to the value of the Fund's
total assets committed to the consummation of the forward contract. For
each forward foreign currency exchange contract that is used to hedge a
securities position denominated in a foreign currency, but for which
the hedging position no longer provides, in the opinion of the Advisor
or the sub-advisor, sufficient protection to consider the contract to
be a hedge, the Fund maintains with the Custodian a segregated account
of cash or other liquid assets in an amount at least equal to the
portion of the contract that is no longer sufficiently covered by such
hedge. If the value of the securities placed in the segregated account
declines, additional cash or securities will be placed in the account
so that the value of the account will equal the amount of the Fund's
unhedged exposure (in the case of securities denominated in a foreign
currency) or commitment with respect to the contract. Hedging
transactions may be made from any foreign currency into U.S. dollars or
into other appropriate currencies.
At or before the maturity of a forward contract, a Fund may
either sell a portfolio security and make delivery of the currency, or
retain the security and offset its contractual obligation to deliver
the currency by purchasing a second contract pursuant to which the Fund
will obtain, on the same maturity date, the amount of the currency that
it is obligated to deliver. If the Fund retains the portfolio security
and engages in an offsetting transaction, the Fund, at the time of
execution of the offsetting transaction, will incur a gain or a loss to
the extent that movement has occurred in forward contract prices.
Should forward prices decline during the period between the Fund's
entering into a forward contract for the sale of currency and the date
it enters into an offsetting contract for the purchase of the currency,
the Fund will realize a gain to the extent the price of the currency it
has agreed to sell exceeds the price of the currency it has agreed to
purchase. Should forward prices increase, the Fund will suffer a loss
to the extent the price of the currency it has agreed to purchase
exceeds the price of the currency it has agreed to sell.
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The cost to a Fund of engaging in currency transactions with
factors such as, the currency involved, the length of the contract
period and the prevailing market conditions. Because transactions in
currency exchange are usually conducted on a principal basis, no fees
or commissions are involved. The use of forward currency contracts does
not eliminate fluctuations in the underlying prices of the securities.
If a devaluation of a currency is generally anticipated, a Fund
may not be able to contract to sell the currency at a price above the
devaluation level it anticipates.
The Funds, in addition, may combine forward currency exchange
contracts with investments in securities denominated in other
currencies in an attempt to create a combined investment position, the
overall performance of which will be similar to that of a security
denominated in a Fund's underlying currency. For instance, a Fund could
purchase a U.S. dollar-denominated security and at the same time enter
into a forward currency exchange contract to exchange U.S. dollars for
its underlying currency at a future date. By matching the amount of
U.S. dollars to be exchanged with the anticipated value of the U.S.
dollar-denominated security, the Fund may be able to "lock in" the
foreign currency value of the security and adopt a synthetic investment
position whereby the Fund's overall investment return from the combined
position is similar to the return from purchasing a foreign
currency-denominated instrument.
There is a risk in adopting a synthetic investment position. It
is impossible to forecast with absolute precision what the market value
of a particular security will be at any given time. If the value of a
security denominated in the U.S. dollar or other foreign currency is
not exactly matched with a Fund's obligation under a forward currency
exchange contract on the date of maturity, the Fund may be exposed to
some risk of loss from fluctuations in that currency. Although the
Advisor and each sub-advisor will attempt to hold such mismatching to a
minimum, there can be no assurance that the Advisor or the Fund's
sub-advisor will be able to do so.
There is less protection against defaults in the forward trading
to currencies than there is in trading such currencies on an exchange
because such forward contracts are not guaranteed by an exchange or
clearing house. The Commodity Futures Trading Commission has indicated
that it may assert jurisdiction over forward contracts in foreign
currencies and attempt to prohibit certain entities from engaging in
such transactions. In the event that such prohibition included the
Fund, it would cease trading such contracts. Cessation of trading might
adversely affect the performance of a Fund.
- OPTIONS ON FOREIGN CURRENCIES. The Short Term High Quality Bond,
California Insured Intermediate Municipal, International Growth and
Growth Funds may purchase and write put and call options on foreign
currencies for the purpose of hedging against declines in the U.S.
dollar value of foreign currency-denominated portfolio securities and
against increases in the U.S. dollar cost of such securities to be
acquired. Such hedging includes
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cross hedging and proxy hedging where the options to buy or sell
currencies involve other currencies besides the U.S. dollar. As one
example, a decline in the U.S. dollar value of a foreign currency in
which securities are denominated will reduce the U.S. dollar value of
the securities, even if their value in the foreign currency remains
constant. To protect against diminutions in the value of securities
held by a Fund in a particular foreign currency, the Fund may purchase
put options on the foreign currency. If the value of the currency does
decline, the Fund will have the right to sell the currency for a fixed
amount in U.S. dollars and may thereby offset, in whole or in part, the
adverse effect on its portfolio that otherwise would have resulted.
When an increase in the U.S. dollar value of a currency in which
securities to be acquired are denominated is projected, thereby
increasing the cost of the securities, the Fund conversely may purchase
call options on the currency. The purchase of such options could
offset, at least partially, the effects of the adverse movements in
exchange rates. As in the case of other types of options, however, the
benefit to the Fund deriving from purchases of foreign currency options
will be reduced by the amount of the premium and related transaction
costs. In addition, if currency exchange rates do not move in the
direction, or to the extent anticipated, the Fund could sustain losses
on transactions in foreign currency options that would require it to
forego a portion or all of the benefits of advantageous changes in the
rates.
The Funds may also write covered call options on foreign
currencies for the types of hedging purposes described above. As one
example, when the Advisor or Fund's sub-advisor anticipates a decline
in the U.S. dollar value of foreign currency-denominated securities due
to adverse fluctuations in exchange rates it could, instead of
purchasing a put option, write a covered call option on the relevant
currency. If the expected decline occurs, the option will most likely
not be exercised, and the diminution in value of portfolio securities
will be offset by the amount of the premium received. As in the case of
other types of options, however, the writing of a foreign currency
option will constitute only a partial hedge up to the amount of the
premium, and only if rates move in the expected direction. If this does
not occur, the option may be exercised and the Fund would be required
to purchase or sell the underlying currency at a loss that may not be
offset-by the amount of the premium. Through the writing of options on
foreign currencies, the Fund may also be required to forego all or a
portion of the benefits that might otherwise have been obtained from
favorable movements in exchange rates.
A call option written on a foreign currency by a Fund is
"covered" if the Fund owns the underlying foreign currency covered by
the call or has an absolute and immediate right to acquire the foreign
currency without additional cash consideration (or for additional cash
consideration held in a segregated account by Boston Safe, the Fund's
Custodian, upon conversion or exchange of other foreign currency held
by the Fund). A call option also is covered if the Fund has a call on
the same foreign currency and in the same principal amount as the call
written when the exercise price of the call held (1) is equal to or
less than the exercise price of the call written or (2) is greater than
the exercise price of the call written if
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the difference is maintained by the Fund in cash, U.S. Government
Securities and other liquid debt securities in a segregated account
with Boston Safe.
Options on foreign currencies traded on national securities
exchanges are within the jurisdiction of the SEC, as are other
securities traded on those exchanges. As a result, many of the
projections provided to traders on organized exchanges will be
available with respect to those transactions. In particular, all
foreign currency option positions entered into on a national securities
exchange are cleared and guaranteed by the OCC, thereby reducing the
risk of counterparty default. Further, a liquid secondary market in
options traded on a national securities exchange may exist, potentially
permitting the Fund to liquidate open positions at a profit prior to
their exercise or expiration, or to limit losses in the event of
adverse market movements.
The purchase and sale of exchange-traded foreign currency
options are subject to the risks of the availability of a liquid
secondary market described above, as well as the risks regarding
adverse market movements, margining of options written, the nature of
the foreign currency market, possible intervention by governmental
authorities and the effects of other political and economic events. In
addition, exercise and settlement of exchange-traded foreign currency
options must be made exclusively through the OCC, which has established
banking relationships in applicable foreign countries for this purpose.
As a result, the OCC may, if it determines that foreign governmental
restrictions or taxes would prevent the orderly settlement of foreign
currency option exercises, or would result in undue burdens on the OCC
or its clearing member, impose special procedures on exercise and
settlement, such as technical changes in the mechanics of delivery of
currency, the fixing of dollar settlement prices or prohibitions on
exercise.
SECURITIES IN DEVELOPING COUNTRIES. Although most of the investments of
the Bond & Stock, Growth, International Growth and Emerging Growth Funds are
made in securities of companies in (or governments of) developed countries, the
Funds set forth above may also invest in securities of companies in (or
governments of) developing or emerging countries (sometimes referred to as
"emerging markets"). Each Fund may invest up to 5% of its total assets in
emerging markets. A developing or emerging country is generally considered to be
a country that is in the initial stages of its industrialization cycle.
Investing in the equity and fixed-income markets of developing or emerging
countries involves exposure to economic structures that are generally less
diverse and mature, and to political systems that can be expected to have less
stability than those of developed countries. Historical experience indicates
that the markets of developing or emerging countries have been more volatile
than the markets of the more mature economies of developed countries.
Price movements in the Fund's portfolio may not correlate precisely
with movements in the level of an index and, therefore, the use of options on
securities indexes cannot serve as a complete hedge. Because options on
securities indexes require settlement in cash, the Fund may be forced to
liquidate portfolio securities to meet settlement obligations.
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LENDING OF PORTFOLIO SECURITIES. Each of the California Money, Short
Term High Quality Bond, California Insured Intermediate Municipal, Growth,
International Growth and Emerging Growth Funds will adhere to the following
conditions whenever its portfolio securities are loaned: (1) the Fund must
receive at least 100% cash collateral or equivalent securities from the
borrower; (2) the borrower must increase the collateral whenever the market
value of the securities rises above the level of the collateral; (3) the Fund
must be able to terminate the loan at any time; (4) the Fund must receive
reasonable interest on the loan, as well as any dividends, interest or other
distributions on the loaned securities and any increase in market value; (5) the
Fund may pay only reasonable custodian fees in connection with the loan; and (6)
voting rights on the loaned securities may pass to the borrower, provided that
if a material event adversely affecting the investment occurs, the Trusts' Board
of Trustees must terminate the loan and regain the right to vote the securities.
From time to time, the Funds may pay a part of the interest earned from the
investment of the collateral received for securities loaned to the borrower
and/or a third party that is unaffiliated with the Trust and that is acting as a
"finder." The Funds will not lend more than 20% of their respective total
assets.
MUNICIPAL OBLIGATIONS. Municipal Obligations are securities, the
interest on which qualifies for exclusion from gross income for federal income
tax purposes in the opinion of bond counsel to the issuer. The three principal
classifications of Municipal Obligations are Municipal Bonds, Municipal
Commercial Paper and Municipal Notes.
Municipal Bonds, which generally have a maturity of more than one year
when issued, have two principal classifications: General Obligation Bonds and
Revenue Bonds. An AMT-Subject Bond is a particular kind of Revenue Bond. The
classifications of Municipal Bonds and AMT-Subject Bonds are discussed below.
1. GENERAL OBLIGATION BONDS. The proceeds of these obligations are
used to finance a wide range of public projects, including
construction or improvement of schools, highways and roads, and
water and sewer systems. General Obligation Bonds are secured by
the issuer's pledge of its faith, credit and taxing power for the
payment of principal and interest.
2. REVENUE BONDS. Revenue Bonds are issued to finance a wide variety
of capital projects, including; electric, gas, water and sewer
systems; highways, bridges and tunnels; port and airport
facilities; colleges and universities; and hospitals. The
principal security for a Revenue Bond is generally the net
revenues derived from a particular facility, group of facilities,
or, in some cases, the proceeds of a special excise or other
specific revenue source. Although the principal security behind
these bonds may vary, many provide additional security in the form
of a debt service reserve fund which may be used to make principal
and interest payments on the issuer's obligations. Some
authorities provide further security in the form of a state's
ability (without obligation) to make up deficiencies in the debt
service reserve fund.
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3. AMT-SUBJECT BONDS. AMT-Subject Bonds are considered Municipal
Bonds if the interest paid on them is excluded from gross income
for federal income tax purposes and if they are issued by or on
behalf of public authorities to raise money to finance, for
example, privately operated manufacturing or housing facilities,
publicly operated airport, dock, wharf, or mass-commuting
facilities. The payment of the principal and interest on these
bonds is dependent solely on the ability of the facility's user to
meet its financial obligations and the pledge, if any, of real and
personal property so financed as security for such payment.
MUNICIPAL COMMERCIAL PAPER issues typically represent short-term,
unsecured, negotiable promissory notes. These obligations are issued by agencies
of state and local governments to finance seasonal working capital needs of
municipalities or to provide interim construction financing, and are paid from
general revenues of municipalities or are refinanced with long-term debt. In
most cases, Municipal Commercial Paper is backed by letters of credit, lending
agreements, note repurchase agreements or other credit facility agreements
offered by banks or other institutions.
MUNICIPAL NOTES generally are used to provide for short-term capital
needs and generally have maturities of one year or less. Municipal Notes
include:
1. TAX ANTICIPATION NOTES. Tax Anticipation Notes are issued to
finance working capital needs of municipalities. Generally, they
are issued in anticipation of various seasonal tax revenues, such
as income, sales, use and business taxes and are payable from
these specific future taxes.
2. REVENUE ANTICIPATION NOTES. Revenue Anticipation Notes are issued
in expectation of receipt of other kinds of revenue, such as
federal revenues available under the Federal Revenue Sharing
Program.
3. BOND ANTICIPATION NOTES. Bond Anticipation Notes are issued to
provide interim financing until long-term financing can be
arranged. In most cases, the long-term bonds provide the money for
the repayment of the notes.
4. CONSTRUCTION LOAN NOTES. Construction Loan Notes are sold to
provide construction financing. Permanent financing, the proceeds
of which are applied to the payment of Construction Loan Notes, is
sometimes provided by a commitment by GNMA to purchase the loan,
accompanied by a commitment by the Federal Housing Administration
to insure mortgage advances thereunder. In other instances,
permanent financing is provided by commitments of banks to
purchase the loan. The Tax-Exempt Money Market, California Money,
Tax-Exempt Bond, California Municipal, California Insured
Intermediate Municipal and Florida Insured Municipal Funds (the
"Municipal Funds") will only purchase Construction Loan Notes that
are subject to GNMA or bank purchase commitments.
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From time to time, proposals to restrict or eliminate the federal
income tax exemption for interest on Municipal Obligations have been introduced
before Congress. Similar proposals may be introduced in the future. If a
proposal to restrict or eliminate the federal tax exemption for interest on
Municipal Obligations were enacted, the availability of Municipal Obligations
for investment by the Municipal Funds would be adversely affected. In such
event, the Municipal Funds would reevaluate their respective investment
objectives and policies and submit possible changes in the structure of the
Funds for the consideration of shareholders.
PARTICIPATION INTERESTS. The Municipal Funds may invest in
participation interests purchased from banks in floating rate or variable rate
municipal obligations (such as AMT-Subject Bonds) owned by banks. A
participation interest gives the purchaser an undivided interest in the
municipal security in the proportion that the relevant Fund's participation
interest bears to the total principal amount of the municipal security and
provides a demand repurchase feature. Each participation is backed by an
irrevocable letter of credit or guarantee of a bank that meets the prescribed
quality standards of the Fund. A Fund has the right to sell the instrument back
to the issuing bank or draw on the letter of credit on demand for all or any
part of the Fund's participation interest in the municipal security, plus
accrued interest. Banks will retain or receive a service fee, letter of credit
fee and a fee for issuing repurchase commitments in an amount equal to the
excess of the interest paid on the municipal obligations over the negotiated
yield at which the instruments were purchased by the Fund. Participation
interests in the form to be purchased by the Fund are new instruments, and no
ruling of the Internal Revenue Service has been secured relating to their
tax-exempt status. The Funds intend to purchase participation interests based
upon opinions of counsel to the issuer to the effect that income from them is
tax-exempt to the Fund.
STAND-BY COMMITMENTS. The Municipal Funds may acquire stand-by
commitments with respect to municipal obligations held in their respective
portfolios. Under a stand-by commitment, a broker-dealer, dealer or bank would
agree to purchase, at the relevant Funds' option, a specified municipal security
at a specified price. Thus, a stand-by commitment may be viewed as the
equivalent of a "put" option acquired by a Fund with respect to a particular
municipal security held in the Fund's portfolio.
The amount payable to a Fund upon its exercise of a stand-by commitment
normally would be (1) the acquisition cost of the municipal security (excluding
any accrued interest that the Fund paid on the acquisition), less any amortized
market premium or plus any amortized market or original issue discount during
the period the Fund owned the security, plus, (2) all interest accrued on the
security since the last interest payment date during the period the security was
owned by the Fund. Absent unusual circumstances, the Fund would value the
underlying municipal security at amortized cost. As a result, the amount payable
by the broker-dealer, dealer or bank during the time a stand-by commitment is
exercisable would be substantially the same as the value of the underlying
municipal obligation.
A Fund's right to exercise a stand-by commitment would be unconditional
and unqualified. Although a Fund could not transfer a stand-by commitment, it
could sell the underlying municipal
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security to a third party at any time. It is expected that stand-by commitments
generally will be available to the Funds without the payment of any direct or
indirect consideration. The Funds may, however, pay for stand-by commitments if
such action is deemed necessary. In any event, the total amount paid for
outstanding stand-by commitments held in a Fund's portfolio would not exceed 1/2
of 1% of the value of a Fund's total assets calculated immediately after each
stand-by commitment is acquired.
The Funds intend to enter into stand-by commitments only with
broker-dealers, dealers or banks that the Advisor or their sub-advisor believes
present minimum credit risks. A Fund's ability to exercise a stand-by commitment
will depend upon the ability of the issuing institution to pay for the
underlying securities at the time the stand-by commitment is exercised. The
credit of each institution issuing a stand-by commitment to a Fund will be
evaluated on an ongoing basis by the Advisor or its sub-advisor in accordance
with procedures established by the Board of Trustees.
A Fund intends to acquire stand-by commitments solely to facilitate
portfolio liquidity and does not intend to exercise its right thereunder for
trading purposes. The acquisition of a stand-by commitment would not affect the
valuation of the underlying municipal security. Each stand-by commitment will be
valued at zero in determining net asset value. Should a Fund pay directly or
indirectly for a stand-by commitment, its costs will be reflected in realized
gain or loss when the commitment is exercised or expires. The maturity of a
municipal security purchased by a Fund will not be considered shortened by any
stand-by commitment to which the obligation is subject. Thus, stand-by
commitments will not affect the dollar-weighted average maturity of a Fund's
portfolio.
SPECIAL CONSIDERATIONS RELATING TO CALIFORNIA MUNICIPAL OBLIGATIONS
The ability of issuers to pay interest on, and repay principal of,
California municipal obligations ("California Municipal Obligations") may be
affected by (1) amendments to the California Constitution and related statutes
that limit the taxing and spending authority of California government entities,
(2) voter initiatives, (3) a wide variety of California laws and regulations,
including laws related to the operation of health care institutions and laws
related to secured interests in real property and (4) the general financial
condition of the State of California. The following information constitutes only
a brief summary, and is not intended as a complete description. The information
has been drawn, in some cases by excerpt, from official statements relating to
securities offerings of the State of California available as of the date of this
Statement of Additional Information. While the information has not been
independently verified by the California Money, California Municipal Fund, or
California Insured Intermediate Municipal Fund (the "California Fund"), the
California Fund has no reason to believe that such information is not correct in
all material respects.
AMENDMENTS TO THE CALIFORNIA CONSTITUTION AND RELATED STATUTES. Since
1978 the California voters have voted to amend the California Constitution in a
number of ways which could affect a governmental entity's ability to budget or
raise sufficient funds to meet debt service on bonds and other obligations.
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These amendments, among other things, provide maximum limits on ad
valorem taxes on real property, appropriation limits for state and local
governmental entities, require new local taxes to be submitted to the electorate
and make it generally more difficult for local agencies to levy and maintain
fees, charges and assessments for municipal services and programs. These
amendments may adversely affect the ability of issuers of California Municipal
Obligations to make timely payments of principal and interest, and may adversely
affect the supply of California Municipal Obligations.
OTHER RELEVANT CALIFORNIA LAWS. A wide variety of California laws and
regulations may affect, directly or indirectly, the payment of interest on, or
the repayment of the principal of, California Municipal Obligations in which the
California Money, California Municipal and California Insured Intermediate
Municipal Funds may invest. The impact of such laws and regulations on
particular California Municipal Obligations may vary depending upon numerous
factors including, among others, the particular type of Municipal Security
involved, the public purpose funded by the Municipal Security and the nature and
extent of insurance or other security for payment of principal and interest on
the Municipal Security. For example, California Municipal Obligations which are
payable only from the revenues derived from a particular facility may be
adversely affected by California laws or regulations which make it more
difficult for the particular facility to generate revenues sufficient to pay
such interest and principal, including, among others, laws and regulations which
limit the amount of fees, rates or other charges which may be imposed for use of
the facility or which increase competition among facilities of that type or
which limit or otherwise have the effect of reducing the use of such facilities
generally, thereby reducing the revenues generated by the particular facility.
California Municipal Obligations, the payment of interest and principal on which
is insured in whole or in part by a California governmentally created fund, may
be adversely affected by California laws or regulations which restrict the
aggregate insurance proceeds available for payment of principal and interest in
the event of a default on such Municipal Obligations.
Certain California Municipal Obligations in which the California Money,
California Municipal and California Insured Intermediate Funds may invest may be
obligations that are payable solely from the revenues of health care
institutions. Certain provisions under California law may adversely affect such
revenues and, consequently, payment on those California Municipal Obligations.
Certain California Municipal Obligations in which the California Money,
California Municipal and California Insured Intermediate Municipal Funds may
invest may be obligations which are secured in whole or in part by a mortgage or
deed of trust on real property. California has five principal statutory
provisions which limit the remedies of a creditor secured by a mortgage or deed
of trust, two of which limit the creditor's right to obtain a deficiency
judgment. One of the limitations is based on the method of foreclosure and the
other on the type of debt secured. Under the former, a deficiency judgment is
barred when the foreclosure is accomplished by means of a nonjudicial trustee's
sale. Under the latter, a deficiency judgment is barred when the foreclosed
mortgage or deed of trust secures certain purchase money obligations. Another
California statute, commonly known as the "one form of action" rule, requires
the creditors secured by real property
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to exhaust their real property security by foreclosure before bringing a
personal action against the debtor. The fourth statutory provision limits any
deficiency judgment obtained by a creditor secured by real property following a
judicial sale of such property to the excess of the outstanding debt over the
fair value of the property at the time of the sale, thus preventing the creditor
from obtaining a large deficiency judgment against the debtor as the result of
low bids at a judicial sale. The fifth statutory provision gives the debtor the
right to redeem the real property from any judicial foreclosure sale as to which
a deficiency judgment may be ordered against the debtor.
Upon the default of a mortgage or deed of trust with respect to
California real property, the creditor's nonjudicial foreclosure rights under
the power of sale contained in the mortgage or deed of trust are subject to the
constraints imposed by California law upon transfers of title to real property
by private power of sale. During the three-month period beginning with the
filing of a formal notice of default, the debtor is entitled to reinstate the
mortgage by making any overdue payments. Under standard loan servicing
procedures, the filing of the formal notice of default does not occur unless at
least three full monthly payments have become due and remain unpaid. The power
of sale is exercised by posting and publishing a notice of sale for at least 20
days after expiration of the three-month reinstatement period. Therefore, the
effective minimum period for foreclosing on a home mortgage could be in excess
of seven months after the initial default. Such time delays in collections could
disrupt the flow of revenues available to an issuer for the payment of debt
service on the outstanding obligations if such defaults occur with respect to a
substantial number of mortgages or deeds of trust securing an issuer's
obligations.
In addition, a court could find that there is sufficient involvement of
the issuer in the nonjudicial sale of property securing a mortgage for such
private sale to constitute "state action," and could hold that the
private-right-of-sale proceedings violate the due process requirements of the
Federal or State Constitutions, consequently preventing an issuer from using the
nonjudicial foreclosure remedy described above.
Certain California Municipal Obligations in which the California Money,
California Municipal and California Insured Intermediate Municipal Funds may
invest may be obligations which finance the acquisition of single family home
mortgages for low and moderate income mortgagors. These obligations may be
payable solely from revenues derived from the home mortgages, and are subject to
the California statutory limitations described above applicable to obligations
secured by real property. Under California anti-deficiency legislation, there is
no personal recourse against a mortgagor of a single family residence purchased
with the loan secured by the mortgage, regardless of whether the creditor
chooses judicial or nonjudicial foreclosure.
Under California law, mortgage loans secured by single family
owner-occupied dwellings may be prepaid at any time. Prepayment charges on such
mortgage loans may be imposed only with respect to voluntary prepayments made
during the first five years during the term of the mortgage loan, and cannot in
any event exceed six months' advance interest on the amount prepaid in any
twelve month period in excess of 20% of the original amount of the mortgage
loan. This limitation
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could affect the flow of revenues available to an issuer for debt service on the
outstanding debt obligations which financed such home mortgages.
Because of the diverse nature of such laws and regulations and the
impossibility of either predicting in which specific California Municipal
Obligations the California Money, California Municipal and California Insured
Intermediate Municipal Funds will invest from time to time or predicting the
nature or extent of future changes in existing laws or regulations or the future
enactment or adoption of additional laws or regulations, it is not presently
possible to determine the impact of such laws and regulations on the Municipal
Obligations in which the California Money, California Municipal and California
Insured Intermediate Municipal Funds may invest and, therefore, on the units of
the California Money, California Municipal or California Insured Intermediate
Municipal Funds.
ADDITIONAL CONSIDERATIONS. With respect to Municipal Obligations issued
by the State of California and its political subdivisions, as well as certain
other governmental issuers such as the Commonwealth of Puerto Rico, the Trusts
cannot predict what legislation, if any, may be proposed in the California State
Legislature as regards the California State personal income tax status of
interest on such obligations, or which proposals, if any, might be enacted. Such
proposals, if enacted, might materially adversely affect the availability of
California Municipal Obligations for investment by the California Money,
California Municipal and California Insured Intermediate Municipal Funds and the
value of the Fund's investments. In such event, the Trustees would reevaluate
the investment objective and policies of the California Money, California
Municipal and California Insured Intermediate Municipal Funds and consider
changes in its investments structure or possible dissolution.
SPECIAL CONSIDERATIONS RELATING TO FLORIDA MUNICIPAL OBLIGATIONS
The following information constitutes only a brief summary, and does
not purport to be a complete description. The information in this section is
updated periodically. While the Fund has not independently verified such
information, it has no reason to believe that such information is not correct in
all material respects. The source of the 1994-95, 1995-96 and 1996-97 figures
set forth below is the Revenue and Economic Analysis Unit of the Executive
Office of the Governor of the State of Florida. Such figures are preliminary and
subject to change without notice.
An amendment to the State Constitution was approved by statewide ballot
in the November 8, 1994 general election which is commonly referred to as the
"Limitation on State Revenues Amendment." This amendment provides that State
revenues collected for any fiscal year shall be limited to State revenues
allowed under the amendment for the prior fiscal year plus an adjustment for
growth. Growth is defined as an amount equal to the average annual rate of
growth in State personal income over the most recent twenty quarters times the
State revenues allowed under the amendment for the prior fiscal year. State
revenues collected for any fiscal year in excess of this limitation are required
to be transferred to the budget stabilization fund until the fund reaches the
maximum balance specified in Section 19(g) of Article III of the State
Constitution, and
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thereafter is required to be refunded to taxpayers as provided by general law.
The limitation on State revenues imposed by the amendment may be increased by
the Legislature, by a two-thirds vote of each house.
The term "State revenues," as used in the amendment, means taxes, fees,
licenses, and charges for services imposed by the Legislature on individuals,
businesses, or agencies outside State government. However, the term "State
revenues" does not include: (i) revenues that are necessary to meet the
requirements set forth in documents authorizing the issuance of bonds by the
State; (ii) revenues that are used to provide matching funds for the federal
Medicaid program with the exception of the revenues used to support the Public
Medical Assistance Trust Fund or its successor program and with the exception of
State matching funds used to fund elective expansions made after July 1, 1994;
(iii) proceeds from the State lottery returned as prizes; (iv) receipts of the
Florida Hurricane Catastrophe Fund; (v) balances carried forward from prior
fiscal years; (vi) the proceeds from the sale of goods (e.g. land, buildings);
or (vii) revenue from taxes, licenses, fees and charges for services required to
be imposed by any amendment or revision to the State Constitution after July 1,
1994. The amendment took effect on January 1, 1995 and is applicable to State
fiscal year 1995-96.
It should be noted that many of the provisions of the amendment are
ambiguous, and likely will not be clarified until State courts have ruled on
their meanings. Further, it is unclear how the Legislature will implement the
language of the amendment and whether such implementing legislation itself will
be the subject of further court interpretation.
The Fund cannot predict the impact of the amendment on State finances.
To the extent local governments traditionally receive revenues from the State
which are subject to, and limited by, the amendment, the future distribution of
such State revenues may be adversely affected by the amendment.
Hurricanes continue to threaten Florida resulting in significant
property damages. The 1995 hurricane season was especially active. The Fund
cannot predict the impact on state finances resulting from repeated hurricane
damage.
LOWER-RATED SECURITIES. The Income, Tax-Exempt Bond, Bond & Stock,
Growth & Income, Growth and Emerging Growth Funds may each invest up to 35% of
their total assets, respectively, in non-investment grade securities (rated Ba
and lower by Moody's and BB and lower by S&P) or unrated securities determined
to be of comparable quality. The High Yield Fund may invest entirely in such
securities and will generally invest at least 65% of its assets in such
securities. Such securities carry a high degree of risk (including the
possibility of default or bankruptcy of the issuer of such securities),
generally involve greater volatility of price and risk of principal and income,
and may be less liquid, than securities in the higher rating categories and are
considered speculative. See the Appendix to this SAI for a more detailed
description of the ratings assigned by ratings organizations and their
respective characteristics.
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Historically, economic downturns have disrupted the high yield market
and impaired the ability of issuers to repay principal and interest. Also, an
increase in interest rates could adversely affect the value of such obligations
held by any of the Funds set forth above. Prices and yields of high yield
securities will fluctuate over time and may affect a Fund's net asset value. In
addition, investments in high yield zero coupon or pay-in-kind bonds, rather
than income-bearing high yield securities, may be more speculative and may be
subject to greater fluctuations in value due to changes in interest rates.
The trading market for high yield securities may be thin to the extent
that there is no established retail secondary market or because of a decline in
the value of such securities. A thin trading market may limit the ability of the
Trustees to accurately value high yield securities in the Fund's portfolio and
to dispose of those securities. Adverse publicity and investor perceptions may
decrease the value and liquidity of high yield securities. These securities may
also involve special registration responsibilities, liabilities and costs.
Credit quality in the high yield securities market can change suddenly
and unexpectedly, and even recently-issued credit ratings may not fully reflect
the actual risks posed by a particular high yield security. For these reasons,
it is the policy of the Advisor and the sub-advisor of each of the Funds not to
rely exclusively on ratings issued by established credit rating agencies, but to
supplement such ratings with its own independent and ongoing review of credit
quality. The achievement of a Fund's investment objectives by investment in such
securities may be more dependent on the Advisor or its sub-advisor's credit
analysis than is the case for higher quality bonds. Should the rating of a
portfolio security be downgraded the Advisor or the Fund's sub-advisor will
determine whether it is in the best interest of the Fund to retain or dispose of
the security.
Prices for below investment-grade securities may be affected by
legislative and regulatory developments. For example, new federal rules require
savings and loan institutions to gradually reduce their holdings of this type of
security. Also, Congress from time to time has considered legislation which
would restrict or eliminate the corporate tax deduction for interest payments on
these securities and would regulate corporate restructurings. Such legislation
may significantly depress the prices of outstanding securities of this type.
INVESTMENT RESTRICTIONS
Certain of the Funds' and Portfolios' investment restrictions set forth
below are fundamental policies. A fundamental policy may not be changed without
the vote of a majority of the outstanding voting securities of the Fund or
Portfolio, as defined in the 1940 Act. Such a majority is defined in the 1940
Act as the lesser of (a) 67% or more of the shares present at a meeting of
shareholders of the Fund or Portfolio, if the holders of more than 50% of the
outstanding shares of the Fund or Portfolio are present or represented by proxy,
or (b) more than 50% of the outstanding shares of the Fund or Portfolio. A
fundamental policy affecting a particular Fund or Portfolio may
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not be changed without the vote of a majority of the outstanding shares of the
affected Fund or Portfolio.
RESTRICTIONS APPLICABLE TO THE CALIFORNIA MONEY, SHORT TERM HIGH
QUALITY BOND, TARGET MATURITY 2002, CALIFORNIA MUNICIPAL, CALIFORNIA INSURED
INTERMEDIATE MUNICIPAL, FLORIDA INSURED MUNICIPAL, GROWTH, INTERNATIONAL GROWTH
AND EMERGING GROWTH FUNDS:
Restrictions 1 through 16 are fundamental policies of the Funds.
Investment restrictions 17 through 26 may be changed by the WM Trust II's Board
of Trustees at any time, without shareholder approval.
The above listed Funds are prohibited from:
1. Purchasing the securities of any issuer (other than U.S. Government
securities) if as a result more than 5% of the value of the Fund's
total assets would be invested in the securities of the issuer (the "5%
Limitation"), except that up to 25% of the value of the Fund's total
assets may be invested without regard to the 5% Limitation; provided
that this restriction shall not apply to the California Money,
California Municipal, California Insured Intermediate Municipal and
Florida Insured Municipal Funds.
2. Purchasing more than 10% of the securities of any class of any one
issuer; provided that this limitation shall not apply to investments in
U.S. Government securities; provided further that this restriction
shall not apply to the California Money, California Municipal,
California Insured Intermediate Municipal, Florida Insured Municipal
and Growth Funds; and provided further that the Growth Fund may not own
more than 10% of the outstanding voting securities of a single issuer.
3. Purchasing securities on margin, except that a Fund may obtain any
short-term credits necessary for the clearance of purchases and sales
of securities. For purposes of this restriction, the deposit or payment
of initial or variation margin in connection with futures contracts or
related options will not be deemed to be a purchase of securities on
margin.
4. Making short sales of securities or maintaining a short position;
provided that this restriction shall not apply to the Growth and
International Growth Funds.
5. Borrowing money, except that (a) the Funds may (i) enter into reverse
repurchase agreements or (ii) borrow from banks for temporary or
emergency (not leveraging) purposes including the meeting of redemption
requests that might otherwise require the untimely disposition of
securities in an aggregate amount not exceeding 30% of the value of a
Fund's total assets (including the amount borrowed) valued at market
less liabilities (not including the amount borrowed) at the time the
borrowing is made, (b) the Short Term High Quality Bond, California
Municipal, California Insured Intermediate Municipal, Florida Insured
Municipal, Growth, International Growth and Emerging Growth Fund may
enter
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into futures contracts, and (c) the Short Term High Quality Bond Fund
may engage in dollar roll transactions; provided that whenever
borrowings pursuant to (a) above (except that whenever borrowings
pursuant to (a)(ii) above) exceed 5% of the value of a Fund's total
assets, the Fund will not purchase any securities; and provided further
that the Short Term High Quality Bond Fund is prohibited from borrowing
money or entering into reverse repurchase agreements or dollar roll
transactions in the aggregate in excess of 33 1/3% of the Fund's total
assets (after giving effect to any such borrowing).
6. Pledging, hypothecating, mortgaging or otherwise encumbering more than
30% of the value of the Fund's total assets. For purposes of this
restriction, (a) the deposit of assets in escrow in connection with the
writing of covered put or call options and the purchase of securities
on a when-issued or delayed-delivery basis and (b) collateral
arrangements with respect to (i) the purchase and sale of options on
securities, options on indexes and options on foreign currencies, and
(ii) initial or variation margin for futures contracts will not be
deemed to be pledges of a Fund's assets.
7. Underwriting the securities of other issuers, except insofar as the
Fund may be deemed an underwriter under the Securities Act of 1933, as
amended, by virtue of disposing of portfolio securities.
8. Purchasing or selling real estate or interests in real estate, except
that a Fund may purchase and sell securities that are secured, directly
or indirectly, by real estate and may purchase securities issued by
companies that invest or deal in real estate.
9. Investing in commodities, except that the Short Term High Quality Bond,
California Municipal, California Insured Intermediate Municipal,
Florida Insured Municipal, Growth, International Growth and Emerging
Growth Funds may invest in futures contracts and options on futures
contracts. The entry into forward foreign currency exchange contracts
is not and shall not be deemed to involve investing in commodities.
10. Investing in oil, gas or other mineral exploration or development
programs.
11. Making loans, except through the purchase of qualified debt
obligations, loans of portfolio securities (except in the case of the
California Municipal and Florida Insured Municipal Funds) and the entry
into repurchase agreements.
12. Investing in securities of other investment companies registered or
required to be registered under the 1940 Act, except as they may be
acquired as part of a consolidation, reorganization, acquisition of
assets or an offer of exchange or as otherwise permitted by law,
including the 1940 Act.
13. Purchasing any securities that would cause more than 25% of the value
of the Fund's total assets at the time of purchase to be invested in
the securities of issuers conducting their
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principal business activities in the same industry provided that this
limitation shall not apply to the purchase of (a) U.S. Government
securities, (b) municipal obligations issued by governments or
political subdivisions of governments or (c) with respect to the
California Money Fund, U.S. dollar-denominated bank instruments such as
certificates of deposit, time deposits, bankers' acceptances and
letters of credit that have been issued by U.S. banks.
14. Purchasing, writing or selling puts, calls, straddles, spreads or
combinations thereof; provided that this restriction shall not apply to
the Short Term High Quality Bond, California Insured Intermediate
Municipal and Growth Funds; and provided further that (a) the
International Growth and Emerging Growth Funds may purchase, write and
sell covered put and call options on securities, (b) California
Municipal, Florida Insured Municipal, International Growth and Emerging
Growth Funds may purchase, write and sell futures contracts and options
on futures contracts, (c) the California Money, California Municipal
and Florida Insured Municipal Funds may acquire stand-by commitments,
(d) the International Growth and Emerging Growth Funds may purchase and
write put and call options on stock indexes, and (e) the International
Growth Fund may purchase put and call options and write covered call
options on foreign currency contracts.
15. With respect to the Growth Fund, investing more than 35% of the fund's
assets in non-investment grade debt securities.
16. With respect to the Short Term High Quality Bond Fund, having a
dollar-weighted average portfolio maturity in excess of five years.
17. With respect to the Growth Fund, investing more than 25% of the Fund's
assets in foreign securities.
18. Purchasing securities that are not readily marketable if more than 10%
of the net assets of a Money Fund, or more than 15% of the net assets
of a Non-Money Fund, would be invested in such securities, including,
but not limited to: (1) repurchase agreements with maturities greater
than seven calendar days; (2) time deposits maturing in more than seven
calendar days; (3) to the extent a liquid secondary market does not
exist for the instruments, futures contracts and options thereon; (4)
certain over-the-counter options, as described in this SAI; (5) certain
variable rate demand notes having a demand period of more than seven
days; and (6) certain Rule 144A restricted securities that are deemed
to be illiquid.
19. Investing more than 10% of its total assets in time deposits maturing
in more than seven calendar days; provided that this restriction shall
not apply to the Short Term High Quality Bond and Growth Funds.
20. Purchasing any security if as a result the Fund would then have more
than 5% of its total assets invested in securities of companies
(including predecessors) that have been in continuous operation for
less than three years; provided that in the case of industrial revenue
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bonds purchased for the Municipal Funds, this restriction shall apply
to the entity supplying the revenues from which the issue is to be
paid.
21. Making investments for the purpose of exercising control or management.
22. Purchasing or retaining securities of any company if, to the knowledge
of the Company, any of the Company's officers or Trustees or any
officer or director of the Advisor or a sub-advisor individually owns
more than 1/2 of 1% of the outstanding securities of such company and
together they own beneficially more than 5% of the securities.
23. Investing in warrants, (other than warrants acquired by the Fund as
part of a unit or attached to securities at the time of purchase) if,
as a result, the investments (valued at the lower of cost or market)
would exceed 5% of the value of the Fund's net assets or if, as a
result, more than 2% of the Fund's net assets would be invested in
warrants not listed on a recognized United States or foreign stock
exchange, to the extent permitted by applicable state securities laws.
24. Purchasing or selling interests in real estate limited partnerships.
25. Investing in mineral leases.
26. Entering into Strategic Transactions otherwise prohibited by the Fund's
investment restrictions or in the aggregate in excess of 25% of the
Fund's net assets, for purposes other than bona fide hedging positions
or that are not "covered," subject to such greater percentage
limitations as may be imposed by the Advisor from time to time.
For purposes of the investment restrictions described above, the issuer
of a municipal security is deemed to be the entity (public or private)
ultimately responsible for the payment of the principal of and interest on the
security. For purposes of investment restriction Number 13 above, AMT-Subject
Bonds and Revenue Bonds, the payment of principal and interest on which is the
ultimate responsibility of companies within the same industry, are grouped
together as an "industry." The percentage limitations contained in the
restrictions listed above apply at the time of purchase of securities, and shall
not be considered violated unless an excess or deficiency occurs immediately
after and as a result of such purchase.
THE INVESTMENT RESTRICTIONS SET FORTH BELOW HAVE BEEN ADOPTED BY WM
TRUST I WITH RESPECT TO THE FUNDS WITHIN WM TRUST I AS FUNDAMENTAL POLICIES.
EACH OF THE MONEY MARKET AND TAX-EXEMPT MONEY MARKET FUNDS MAY NOT:
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1. invest in common stocks or other equity securities;(1)
2. borrow money for investment purposes, except that each Fund may borrow
up to 5% of its total assets in emergencies, and may borrow up to 33
1/3% of such assets to meet redemption requests that would otherwise
result in the untimely liquidation of vital parts of its portfolio;
3. buy securities on margin, mortgage or pledge its securities, or engage
in "short" sales;
4. buy or sell options;
5. act as underwriter of securities issued by others;
6. buy securities restricted as to resale under federal securities laws
(other than securities eligible for resale pursuant to Rule 144A under
the Securities Act of 1933, as amended, and except in connection with
repurchase agreements);
7. buy or sell real estate, real estate investment trust securities,
commodities, or oil, gas and mineral interests;
8. lend money, except in connection with repurchase agreements and for
investments made in accordance with Fund policies discussed in the
Prospectus;
9. issue senior securities;
10. invest more than 5%* of its total assets in the securities of any
single issuer (except for the United States Government, its agencies or
instrumentalities);
11. invest more than 25%* of its total assets in securities of issuers in
any single industry;
12. invest more than 10%* of its net assets in illiquid securities;
13. invest in companies for the purpose of exercising control.
THE MONEY MARKET FUND MAY NOT:
1. invest in other investment companies (except as part of a merger).
THE TAX-EXEMPT MONEY MARKET FUND MAY NOT:
1. invest more than 20%* of its assets in obligations that pay interest
subject to federal alternative minimum tax.
* Percentage at the time the investment is made.
EACH OF THE INCOME, U.S. GOVERNMENT SECURITIES AND TAX-EXEMPT BOND FUNDS MAY
NOT:
1. invest more than 5%* of its total assets in any single issuer other
than U.S. Government Securities, except that up to 25% of a Fund's
assets may be invested without regard to this 5% limitation;
- ----------------------
(1) For purposes of determining compliance with this restriction, the
Tax-Exempt Money market Fund will not consider securities of other Money market
Funds to be "common stocks or other equities."
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2. acquire more than 10%* of the voting securities of any one company;
3. invest in any company for the purpose of management or exercising
control;
4. invest in real estate or commodities, although the Income Fund may
purchase securities of issuers which deal in real estate, securities
which are secured by interests in real estate, and/or securities which
represent interests in real estate, and it may acquire and dispose of
real estate or interests in real estate acquired through the exercise
of its rights as a holder of debt obligations secured by real estate
interests therein, and the Income and Tax-Exempt Bond Funds may
purchase and sell interest rate futures and options;
5. invest in oil, gas or other mineral leases;
6. invest in securities restricted under federal securities laws other
than securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933, as amended;
7. invest more than 20%* of its assets in forward commitments;
8. invest more than 25%* of its assets in any single industry;**
9. invest more than 15%* of its net assets in illiquid securities;
10. buy foreign securities not payable in U.S. dollars (not applicable to
the Income Fund);
11. buy securities on margin, mortgage or pledge its securities, or engage
in "short" sales;
12. invest more than 5%* of its net assets in warrants including not more
than 2%* of such net assets in warrants that are not listed on either
the New York Stock Exchange or American Stock Exchange; however,
warrants acquired in units or attached to securities may be deemed to
be without value for the purpose of this restriction;
13. act as underwriter of securities issued by others;
14. borrow money for investment purposes, although it may borrow up to 5%
of its total net assets for emergency, non-investment purposes and,
except for the Tax-Exempt Bond Fund, may enter into transactions in
which the Fund sells securities for delivery in the current month and
simultaneously contracts to repurchase substantially similar securities
on a specified future date;
15. lend money (except for the execution of repurchase agreements);
16. buy or sell put or call options;
17. issue senior securities.
In addition,
THE U.S. GOVERNMENT SECURITIES FUND MAY NOT:
1. invest less than 80%* of its assets in obligations guaranteed by the
U.S. Government, its agencies and instrumentalities or in repurchase
agreements or collateralized mortgage obligations secured by these
obligations.
THE TAX-EXEMPT BOND FUND MAY NOT:
1. buy or hold securities which directors or officers of the Fund or the
Advisor hold more than .50% of the outstanding securities.
THE U.S. GOVERNMENT SECURITIES AND INCOME FUNDS MAY NOT:
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1. invest in other investment companies (except as part of a merger).
THE U.S. GOVERNMENT SECURITIES AND TAX-EXEMPT BOND FUNDS MAY NOT:
1. buy common stocks or other equity securities, except that the Tax-
Exempt Bond Fund may invest in other investment companies.
* Percentage at the time the investment is made.
** It is a policy of the Income Fund to consider electric utilities, electric
and gas utilities, gas utilities, and telephone utilities to be separate
industries. The Fund also considers foreign issues to be a separate industry. It
is a policy of the Tax-Exempt Bond Fund to apply this restriction only to its
assets in non-municipal bond holdings, pollution control revenue bonds and
industrial development revenue bonds. These policies may result in increased
risk.
THE HIGH YIELD FUND MAY NOT:
1. invest more than 5% of its total assets in any single issuer other than
U.S. Government Securities, except that up to 25% of the Fund's assets
may be invested without regard to this 5% limitation;
2. acquire more than 10% of the voting securities of any one company;
3. invest in real estate or commodities;
4. invest in oil, gas or other mineral leases;
5. invest more than 25% or more of its assets in any single industry;*
6. buy securities on margin, mortgage or pledge its securities;
7. act as underwriter of securities issued by others;
8. borrow money for investment purposes (it may borrow up to 5% of its
total assets for emergency, non-investment purposes);
9. lend money (except for the execution of repurchase agreements);
10. issues senior securities.
* Percentage at the time the investment is made.
EACH OF THE BOND & STOCK, GROWTH & INCOME AND NORTHWEST FUNDS MAY NOT:
1. invest more than 5%* of its total assets in securities of any single
issuer other than U.S. Government Securities, except that up to 25% of
a Fund's assets may be invested without regard to this 5% limitation;
2. acquire more than 10%* of the voting securities of any one company;
3. invest in any company for the purpose of management or exercising
control;
4. invest in real estate (except publicly traded real estate investment
trusts);
5. invest in commodities;
6. invest in oil, gas or other mineral leases;
7. invest in other investment companies (except as part of a merger);
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8. invest more than 20%* of its total assets in forward commitments or
repurchase agreements;
9. invest more than 25%* of its total assets in any single industry;
10. act as underwriter of securities issued by others;
11. borrow money for investment purposes (it may borrow up to 5% of its
total net assets for emergency, non-investment purposes);
12. lend money (except for the execution of repurchase agreements);
13. issue senior securities;
14. buy or sell options, with the exception of covered call options which
must be limited to 20% of total assets;
15. buy or sell futures-related securities;
16. invest in securities restricted under federal securities laws (other
than securities eligible for resale under Rule 144A under the
Securities Act of 1933, as amended);
17. invest more than 15%* of its net assets in illiquid securities;
18. buy securities on margin, mortgage or pledge its securities, or engage
in "short" sales;
19. invest more than 5%* of its net assets in warrants including not more
than 2% of such net assets in warrants that are not listed on either
New York Stock Exchange or American Stock Exchange; however, warrants
acquired in units or attached to securities may be deemed to be without
value for the purpose of this restriction;
20. invest more than 25%* of its total assets in foreign securities and
then only in U.S. dollar-denominated foreign securities.
* Percentage at the time the investment is made.
THE INVESTMENT RESTRICTIONS SET FORTH BELOW HAVE BEEN ADOPTED BY THE WM
STRATEGIC ASSET MANAGEMENT PORTFOLIOS WITH RESPECT TO THE PORTFOLIOS AS
FUNDAMENTAL POLICIES.
EACH OF THE STRATEGIC GROWTH, CONSERVATIVE GROWTH, BALANCED, FLEXIBLE
INCOME AND INCOME PORTFOLIOS WILL NOT
1. purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (except this shall not
prevent the Fund from purchasing or selling options or futures
contracts or from investing in securities or other instruments backed
by physical commodities);
2. purchase or sell real estate including limited partnership interests,
although it may purchase and sell securities of companies that deal in
real estate and may purchase and sell securities that are secured by
interests in real estate;
3. make loans to any person, except loans of portfolio securities to the
extent that no more than 33 1/3% of its total assets would be lent to
other parties, but this limitation does not apply to purchases of debt
securities or repurchase agreements;
4. (i) purchase more than 10% of any class of the outstanding voting
securities of any issuer (except other investment companies as defined
in the 1940 Act) and (ii) purchase securities of an issuer (except
obligations of the U.S. Government and its agencies and
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instrumentalities and securities of other investment companies as
defined in the 1940 Act) if as a result, with respect to 75% of its
total assets, more than 5% of the Portfolio's total assets, at market
value, would be invested in the securities of such issuer.
5. issue senior securities (as defined in the 1940 Act) except as
permitted by rule, regulation or order of the Securities and Exchange
Commission;
6. will not borrow, except from banks for temporary or emergency (not
leveraging) purposes including the meeting of redemption requests that
might otherwise require the untimely disposition of securities in an
aggregate amount not exceeding 30% of the value of the Portfolio's
total assets (including the amount borrowed) at the time the borrowing
is made; and whenever borrowings by a Portfolio, including reverse
repurchase agreements, exceed 5% of the value of a Portfolio's total
assets, the Portfolio will not purchase any securities;
7. underwrite securities issued by others, except to the extent that the
Portfolio may be considered an underwriter within the meaning of the
1933 Act in the disposition of restricted securities; and
8. write or acquire options or interests in oil, gas or other mineral
exploration or development programs.
PORTFOLIO TURNOVER
The Money Funds attempt to increase yields by trading to take advantage
of short-term market variations, which result in high portfolio turnover and
high transactions costs. The Short Term High Quality Bond, Target Maturity 2002,
U.S. Government Securities, Income and High Yield Funds, the Tax-Exempt Bond,
California Municipal, California Insured Intermediate Municipal and Florida
Insured Municipal Funds and the Bond & Stock, Growth & Income, Growth,
International Growth, Northwest and Emerging Growth Funds do not intend to seek
profits through short-term trading. Nevertheless, the Funds will not consider
portfolio turnover rate a limiting factor in making investment decisions.
Under certain market conditions, the Short Term High Quality Bond,
California Insured Intermediate Municipal, Growth, International Growth or
Emerging Growth Funds may experience increased portfolio turnover as a result of
such Fund's options activities. For instance, the exercise of a substantial
number of options written by a Fund (due to appreciation of the underlying
security in the case of call options or depreciation of the underlying security
in the case of put options) could result in a turnover rate in excess of 100%. A
portfolio turnover rate of 100% would occur if all of a Fund's securities that
are included in the computation of turnover were replaced once during a period
of one year. The portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the year by the monthly average
value of portfolio securities. Securities with remaining maturities of one year
or less at the date of acquisition are excluded from the calculation. In
addition, the Northwest Fund experienced a significant increase in its portfolio
turnover rate for the fiscal year ended 10/31/97, when the Fund's portfolio
turnover rate increased to 42% versus the 9% it experienced for the fiscal year
ended 10/31/96.
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<PAGE> 130
Certain other practices that may be employed by the Funds could result
in high portfolio turnover. For example, portfolio securities may be sold in
anticipation of a rise in interest rates (market decline) or purchased in
anticipation of a decline in interest rates (market rise) and later sold. In
addition, a security may be sold and another of comparable quality purchased at
approximately the same time to take advantage of what the Advisor or a Fund's
sub-advisor believes to be a temporary disparity in the normal yield
relationship between the two securities. These yield disparities may occur for
reasons not directly related to the investment quality of particular issues or
the general movement of interest rates, such as changes in the overall demand
for, or supply of, various types of securities.
PORTFOLIO TRANSACTIONS
Most of the purchases and sales of securities for a Fund, whether
transacted on a securities exchange or over-the-counter, will be effected in the
primary trading market for the securities. Decisions to buy and sell securities
for a Fund are made by the Advisor or the relevant sub-advisor, which also is
responsible for placing these transactions, subject to the overall review of the
Trusts' Board of Trustees. Although investment decisions for each Fund are made
independently from those of the other accounts managed by the Advisor or the
sub-advisor, investments of the type the Fund may make may also be made by those
other accounts. When a Fund and one or more other accounts managed by the
Advisor or the sub-advisor are prepared to invest in, or desire to dispose of,
the same security, available investments or opportunities for sales will be
allocated in a manner believed by the Advisor or the sub-advisor to be equitable
to each. In some cases, this procedure may adversely affect the price paid or
received by a Fund or the size of the position obtained or disposed of by the
Fund. In other cases, however, it is believed that coordination and the ability
to participate in volume transactions will be to the benefit of the Fund.
Transactions on U.S. exchanges involve the payment of negotiated
brokerage commissions. With respect to exchanges on which commissions are
negotiated, the cost of transactions may vary among different brokers. There is
generally no stated commission in the case of securities traded in the
over-the-counter markets, but the prices of those securities include undisclosed
commissions or concessions, and the prices at which securities are purchased
from and sold to dealers include a dealer's mark-up or mark-down. U.S.
Government Securities may be purchased directly from the U.S. Treasury or from
the issuing agency or instrumentality.
In selecting brokers or dealers to execute portfolio transactions on
behalf of a Fund, the Advisor or the Fund's sub-advisor seeks the best overall
terms available. In assessing the best overall terms available for any
transaction, the Advisor and each sub-advisor will consider the factors that the
Advisor or the sub-advisor deems relevant, including the breadth of the market
in the security, the price of the security, the financial condition and
execution capability of the broker or dealer and the reasonableness of the
commission, if any, for the specific transaction and on a continuing basis. In
addition, each advisory agreement among the Trusts authorizes the Advisor, and a
sub-advisory agreement authorizes the sub-advisor, in selecting brokers or
dealers to execute a particular transaction and in evaluating the best overall
terms available, to consider the brokerage
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<PAGE> 131
and research services (as those terms are defined in Section 28(e) of the
Securities Exchange Act of 1934, as amended) provided to the Trusts, the other
Funds and/or other accounts over which the Advisor, the sub-advisor or their
affiliates exercise investment discretion. The fees under the advisory
agreements between the Trusts, the Advisor and the sub-advisors are not reduced
by reason of their receiving such brokerage and research services. The Trusts'
Board of Trustees will periodically review the commissions paid by the Funds to
determine if the commissions paid over representative periods of time were
reasonable in relation to the benefits received by the Trusts.
Consistent with applicable provisions of the 1940 Act, the rules and
exemptions adopted by the Commission thereunder, and relevant interpretive and
"no-action" positions taken by the Commission's staff, the Trusts' Board of
Trustees has adopted procedures pursuant to Rule 17e-1 under the 1940 Act to
ensure that all portfolio transactions with affiliates will be fair and
reasonable. Under the procedures adopted, portfolio transactions for a Fund may
be executed through any affiliated broker (other than affiliated persons of the
Trust solely because the broker is an affiliated person of a sub-advisor of
another Fund) if, subject to other conditions in the Rule 17e- 1 procedures, in
the judgment of the Advisor or the Fund's sub-advisor, the use of an affiliated
broker is likely to result in price and execution at least as favorable as those
of other qualified broker-dealers, and if, in the transaction an affiliated
broker charges the Fund a rate consistent with those charged for comparable
transactions in comparable accounts of the broker's most favored unaffiliated
clients. Over-the-counter purchases and sales are transacted directly with
principal market makers except in those cases in which better prices and
executions may be obtained elsewhere.
For the years set forth below, the WM Trust I and WM Trust II Funds paid the
following brokerage commissions:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
TOTAL BROKERAGE COMMISSIONS PAID
- --------------------------------------------------------------------------------------
Fund 1998 1997 1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Money Market Fund* n/a $ 0 $ 0 $ 0
- --------------------------------------------------------------------------------------
Tax-Exempt Money Market Fund* n/a 0 0 7,320
- --------------------------------------------------------------------------------------
California Money Fund*** $ 0 0 0 757,574
- --------------------------------------------------------------------------------------
Short Term High Quality Bond Fund*** 3,616 6,064 20,378 0
- --------------------------------------------------------------------------------------
Target Maturity 2002 Fund*** 0 0 0 0
- --------------------------------------------------------------------------------------
U.S. Government Securities Fund* n/a 0 0 0
- --------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 132
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income Fund* n/a 0 0 0
- ------------------------------------------------------------------------------------------------------------------
Tax-Exempt Bond Fund* n/a 0 0 0
- ------------------------------------------------------------------------------------------------------------------
California Municipal Fund*** 0 0 20,982 0
- ------------------------------------------------------------------------------------------------------------------
California Insured Intermediate Municipal 4,277 7,102 0 0
Fund***
- ------------------------------------------------------------------------------------------------------------------
Florida Insured Municipal Fund*** 1,905 7,935 0 0
- ------------------------------------------------------------------------------------------------------------------
Bond & Stock Fund** n/a 307,372 199,663 0
- ------------------------------------------------------------------------------------------------------------------
Growth & Income Fund** n/a 502,688 292,486 635,228
- ------------------------------------------------------------------------------------------------------------------
Northwest Fund** n/a 98,599 123,164 583,298
- ------------------------------------------------------------------------------------------------------------------
Growth Fund*** 208,497 616,898 723,100 0
- ------------------------------------------------------------------------------------------------------------------
Emerging Growth Fund*** 387,993 480,975 849,149 0
- ------------------------------------------------------------------------------------------------------------------
International Growth Fund*** 1,036,609 696,191 860,863 0
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
* Fiscal year ended 12/31
** Fiscal year ended 10/31
*** Fiscal year ended 6/30
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
TOTAL BROKERAGE COMMISSIONS TOTAL AMOUNT OF
PAID TO BROKERS THAT PROVIDED TRANSACTIONS WHERE
RESEARCH BROKERAGE COMMISSIONS
WERE PAID TO BROKERS THAT
PROVIDED RESEARCH
- -------------------------------------------------------------------------------------------------------------------
Fiscal Year Fiscal Year
Fund ended 6/30/98 ended 6/30/98
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Money Market Fund $0 $0
- -------------------------------------------------------------------------------------------------------------------
Tax-Exempt Money Market Fund 0 0
- -------------------------------------------------------------------------------------------------------------------
California Money Fund 0 0
- -------------------------------------------------------------------------------------------------------------------
Short Term High Quality Bond Fund 0 0
- -------------------------------------------------------------------------------------------------------------------
Target Maturity 2002 Fund 0 0
- -------------------------------------------------------------------------------------------------------------------
U.S. Government Securities Fund 0 0
- -------------------------------------------------------------------------------------------------------------------
Income Fund 0 0
- -------------------------------------------------------------------------------------------------------------------
Tax-Exempt Bond Fund 0 0
- -------------------------------------------------------------------------------------------------------------------
California Municipal Fund 0 0
- -------------------------------------------------------------------------------------------------------------------
California Insured Intermediate Municipal Fund 0 0
- -------------------------------------------------------------------------------------------------------------------
Florida Insured Municipal Fund 0 0
- -------------------------------------------------------------------------------------------------------------------
Bond & Stock Fund 0 0
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 133
- --------------------------------------------------------------------------------
[S] [C] [C]
- --------------------------------------------------------------------------------
Growth & Income Fund 0 0
- --------------------------------------------------------------------------------
Northwest Fund 0 0
- --------------------------------------------------------------------------------
Growth Fund 138,239 1,373,066
- --------------------------------------------------------------------------------
Emerging Growth Fund 10,529 1,524,833
- --------------------------------------------------------------------------------
International Growth Fund 87,981 345,761,000
- --------------------------------------------------------------------------------
WM Trust I, WM Trust II and WM Strategic Asset Management Portfolios
are required to identify any securities of their "regular brokers or dealers"
(as such term is defined in the 1940 Act) which they have acquired during their
most recent fiscal years. As of June 30, 1998, none of the Funds held any
securities of any "regular broker or dealer" of the Trusts or Portfolios.
NET ASSET VALUE
The Trusts will calculate the net asset value of the Funds' Class A,
Class B, Class I and Class S shares as of the close of regular trading on the
New York Stock Exchange (currently 4:00 p.m., New York time), Monday through
Friday, exclusive of national business holidays. The Trusts will be closed on
the following national holidays: New Year's Day, Martin Luther King Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas.
A security that is primarily traded on a U.S. exchange (including
securities traded through the NASDAQ National Market System) is 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. Over-the-counter securities
that are not traded through the NASDAQ National Market System and U.S.
Government Securities are valued at the mean of the current day's bid and asked
prices. An option is 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.
Short term debt securities that mature in 60 days or less are valued at
amortized cost; assets of the Money Funds are also valued at amortized cost. The
value of a foreign security is determined in its national currency as of the
close of trading on the foreign exchange on which it is traded or as of 4:00
p.m. New York Time, if that is earlier, and that value is then converted into
its U.S. dollar equivalent at the foreign exchange rate in effect at noon, New
York time, on the day the value of the foreign security is determined. 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. If
the market makes a limit move with respect to the security or index underlying
the futures contract, the futures contract will be valued at a fair market value
as determined by or under the direction of the Board of Trustees.
Debt securities of U.S. issuers (other than U.S. Government Securities
and short-term investments), including Municipal Obligations, are valued by one
or more independent pricing services (each a "Pricing Service") retained by the
Trusts. When, in the judgment of a Pricing Service, market quotations for these
securities are readily available, they are valued at the mean
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<PAGE> 134
between the quoted bid prices and asked prices. 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, which may rely on the
assistance of one or more Pricing Services. The procedures of each Pricing
Service are reviewed periodically by the officers of the Trusts under the
general supervision and responsibility of the Board of Trustees.
VALUATION OF THE MONEY FUNDS. The valuation of the portfolio securities
of the Money Funds is based upon their amortized cost, which does not take into
account unrealized capital gains or losses. Amortized cost valuation involves
initially valuing an instrument at its cost and thereafter assuming a constant
amortization to maturity of any discount or premium, regardless of the impact of
fluctuating interest rates on the market value of the instrument. While this
method provides certainty in valuation, it may result in periods during which
value, as determined by amortized cost, is higher or lower than the price a Fund
would receive if it sold the instrument.
The use by the Money Funds of the amortized cost method of valuing
their respective portfolio securities is permitted by a rule adopted by the SEC.
Under this rule, the Money Funds must maintain dollar-weighted average portfolio
maturities of 90 days or less, purchase only instruments having remaining
maturities of thirteen months or less and invest only in securities determined
by the Board of Trustees of the Trusts to present minimal credit risks. Pursuant
to the rule, the Board of Trustees also has established procedures designed to
stabilize, to the extent reasonably possible, the Funds' price per share as
computed for the purpose of sales and redemptions at $1.00. Such procedures
include review of the Funds' portfolio holdings by the Board of Trustees or its
delegate, at such intervals as the Board of Trustees may deem appropriate, to
determine whether the Funds' net asset values calculated by using available
market quotations or market equivalents deviates from $1.00 per share based on
amortized cost.
In the event the Board of Trustees determines that a deviation exists
which may result in material dilution or other unfair results to investors or
existing shareholders, the Board of Trustees will cause the Trusts to take such
corrective action as the Board deems necessary and appropriate including:
selling portfolio instruments prior to maturity to realize capital gains or
losses or to shorten average portfolio maturity; withholding dividends or paying
distributions from capital or capital gains; redeeming shares in kind; or
establishing a net asset value per share by using available market quotations.
HOW TO BUY AND REDEEM SHARES
Class A, Class B, Class I and Class S shares of the Funds may be
purchased and redeemed in the manner described in the Prospectus and in this
SAI. Class I shares are currently offered and sold only to the Portfolios.
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<PAGE> 135
COMPUTATION OF PUBLIC OFFERING PRICES
The Funds offer their shares to the public on a continuous basis. The
public offering price per Class A share of the Funds is equal to the net asset
value next computed after receipt of a purchase order, plus the applicable
front-end sales charge, if any, as set forth in the Prospectus. The public
offering price per Class B, Class I or Class S share of the Funds is equal to
the net asset value next computed after receipt of a purchase order.
An illustration of the computation of the public offering price per
share of each Fund and Portfolio is contained in the financial statements
incorporated herein by reference.
COMMISSIONS ON NAV SALES. The Distributor pays authorized dealers commissions of
up to 1% on purchases of Class A shares at net asset value that are (i) part of
a purchase of $1 million or more or (ii) sold to qualified employee benefit
plans (including SEPs and SIMPLEs) that have more than 100 participants or that
have more than $500,000 invested in the WM Group of Funds.
REDEMPTIONS
The procedures for redemption of Class A, Class B and Class S shares of
each Fund and Portfolio are summarized in the Prospectus under "How to Sell
Shares." The right of redemption of Class A, Class B and Class S shares of a
Fund and Class A and Class B of a Portfolio may be suspended or the date of
payment postponed (1) for any periods during which the New York Stock Exchange
is closed (other than for customary weekend and holiday closings), (2) when
trading in the markets the Fund normally utilizes is restricted, or an
emergency, as defined by the rules and regulations of the SEC, exists making
disposal of a Fund's or Portfolio's investments or determination of its net
asset value not reasonably practicable or (3) for such other periods as the SEC
by order may permit for protection of shareholders.
CERTAIN WAIVERS OF THE CONTINGENT DEFERRED SALES CHARGES. Contingent
deferred sales charges (each, a "CDSC") imposed upon redemptions of Class A,
Class B and Class S shares will be waived in certain instances.
APPLICATION OF CLASS A SHARES CDSC. The Class A CDSC of 1.0% or 0.5%
may be imposed on certain redemptions within one or two years of purchase,
respectively, with respect to Class A shares (i) purchased at NAV without a
sales charge at time of purchase due to purchases of $1 million or more, or (ii)
acquired, including Class A shares of a Money Fund acquired, through an exchange
for Class A shares of a Non-Money Fund purchased at NAV without a sales charge
at time of purchase due to purchases of $1 million or more. The CDSCs for Class
A shares are calculated on the lower of the shares' cost or current net asset
value, and in determining whether the CDSC is payable, the Funds will first
redeem shares not subject to any CDSC.
With respect to certain investors who purchase Class A shares through
an authorized dealer and who receive a waiver of the entire initial sales charge
on Class A shares because the
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<PAGE> 136
Class A shares where purchased through a plan qualified under Section 401(k) of
the Code ("401(k) Plan") or through a plan qualified under Section 403(b) of the
Code ("403(b) Plan") or who hold Class A shares of a Money Fund that were
acquired through an exchange for Non-Money Fund Class A shares that were
purchased at NAV through one of such plans, a CDSC of 1% may be imposed on the
amount that was invested through the plan in such Class A shares and that is
redeemed (i) if, within the first two years after the plan's initial investment
in the Funds, the named fiduciary of the plan withdraws the plan from investing
in the Funds in a manner that causes all shares held by the plan's participants
to be redeemed; or (ii) by a plan participant in a 403(b) Plan within two years
of the plan participant's purchase of such Class A shares. This CDSC will be
waived on redemptions in connection with certain involuntary distributions,
including distributions arising out of the death or disability of a shareholder
(including one who owns the shares as joint tenant). See "How to Buy and Redeem
Shares" in the SAI.
WAIVERS OF CLASS A SHARES CDSC. The Class A CDSC is waived for
redemptions of Class A shares (i) that are part of exchanges for Class A shares
of other Funds; (ii) for distributions to pay benefits to participants from a
retirement plan qualified under Section 401(a) or 401(k) of the Code, including
distributions due to the death or disability of the participant (including one
who owns the shares as a joint tenant); (iii) for distributions from a 403(b)
Plan or an IRA due to death, disability, or attainment of age 70 1/2, including
certain involuntary distributions; (iv) for tax-free returns of excess
contributions to an IRA; (v) for distributions by other employee benefit plans
to pay benefits; (vi) in connection with certain involuntary distributions;
(vii) for systematic withdrawals in amounts of 1% or less per month; and (viii)
by a 401(k) Plan participant so long as the shares were purchased through the
401(k) Plan and the 401(k) Plan continues in effect with investments in Class A
shares of the Fund. See "How to Buy and Redeem Shares" in the SAI.
For purposes of the waivers described in such section of the
Prospectus, a person will be deemed "disabled" only if the person is unable to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or be of long-continued and indefinite duration.
DEFERRED SALES CHARGE ALTERNATIVE: CLASS B AND CLASS S SHARES. If you
choose the deferred sales charge alternative, you will purchase Class B shares
at their NAV per share without the imposition of a sales charge at the time of
purchase. Class B shares of the Short Term High Quality Bond Fund that are
redeemed within four years of purchase, and Class B shares of the remaining
Funds and Portfolios that are redeemed within five years of purchase, however,
will be subject to a CDSC as described below. CDSC payments and distribution
fees on Class B shares may be used to fund commissions payable to Authorized
Dealers.
No charge will be imposed with respect to shares having a value equal to any net
increase in the value of shares purchased during the preceding four or five
years and shares acquired by reinvestment of net investment income and capital
gain distributions. The amount of the charge is determined as a percentage of
the lesser of (1) the NAV of the Class B shares at the time of purchase or (2)
the NAV
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<PAGE> 137
of the Class B shares at the time of redemption. The percentage used to
calculate the CDSC will depend on the number of years since you invested the
dollar amount being redeemed, according to the following table:
<TABLE>
<CAPTION>
Class B shares of all Funds (except Class B shares of all Funds of WM Trust II Class B shares of all Funds of
for the Short Term High Quality (except for the Short Term High Quality WM Trust I purchased before
Bond Fund), Portfolios Bond Fund), Portfolios and Class S shares of March 20, 1998* and the Short
and Class S shares of all Funds all Funds purchased before March 20, 1998 Term High Quality Bond Fund
Year of Contingent Year of Contingent Year of
Redemption Deferred Redemption Deferred Redemption Contingent
After Purchase Sales Charge After Purchase Sales Charge After Purchase Deferred Sales Charge
- -------------- ------------ -------------- ------------ -------------- ---------------------
<S> <C> <C> <C> <C> <C>
First......... 5.00% First........ 5.00% First........ 4.00%
Second........ 4.00% Second....... 4.00% Second....... 3.00%
Third......... 3.00% Third........ 3.00% Third........ 2.00%
Fourth........ 2.00% Fourth....... 3.00% Fourth....... 1.00%
Fifth......... 1.00% Fifth........ 2.00% Fifth and following 0%
Sixth and following 0.00% Sixth ....... 1.00%
Seventh and following 0.00%
</TABLE>
All purchases are considered made on the last day of the month of
purchase. To determine the CDSC payable on a redemption of Class B shares, a
Fund will first redeem Class B shares not subject to a CDSC. Thereafter, to
determine the applicability and rate of any CDSC, it will be assumed that shares
representing the reinvestment of dividends and capital gain distributions are
redeemed first and shares held for the longest period of time are redeemed next.
Using this method, your sales charge, if any, will be at the lowest possible
CDSC rate.
The Trusts will adopt procedures to convert Class B shares, without
payment of any sales charges, into Class A shares, which have lower distribution
fees, after the passage of a number of years after purchase. Such conversion may
occur in approximately eight years.
WAIVERS OF CLASS B CDSCS. For each of the WM Trust II Funds purchased
prior to March 20, 1998, no CDSC charges will be assessed on redemptions of
Class B shares in the case of systematic withdrawals in amounts of 1% or less
per month; death of the shareholder; and redemptions in connection with certain
involuntary distributions, including distributions arising out of the death or
disability of a shareholder or attainment of age 70 1/2, from IRAs. The
foregoing waivers may be changed at any time. For waivers with respect to each
of the other Funds and Portfolios, or for shares of the WM Trust II Funds
purchased on or after March 20, 1998, see the Prospectus.
DISTRIBUTIONS IN KIND. If the Board of Trustees determines that it
would be detrimental to the best interests of the remaining shareholders of a
Fund to make a redemption payment
- -------------------
* Class B shares of the U.S. Government Securities, Income and
Tax-Exempt Bond Funds purchased prior to March 15, 1996, and Class B shares of
the Growth & Income, Bond & Stock and Northwest Funds purchased prior to January
15, 1996, are subject to a contingent deferred sales charge of 3% if redeemed
the first or second year after purchase, 2% in the third or fourth year, 1% in
the fifth year, and 0% in year six.
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<PAGE> 138
wholly in cash, the Trusts may pay, in accordance with SEC rules, any portion of
a redemption in excess of the lesser of $250,000 or 1% of the Fund's net assets
by distribution in kind of portfolio securities in lieu of cash. Securities
issued in a distribution in kind will be readily marketable, although
shareholders receiving distributions in kind may incur brokerage commissions
when subsequently redeeming shares of those securities.
SYSTEMATIC WITHDRAWAL PLAN. As described in the Prospectus, a
Systematic Withdrawal Plan may be established by a shareholder who owns either
Class A or Class B shares of a Fund with a value exceeding $5,000 and who wishes
to receive specific amounts of cash periodically. Monthly, quarterly, semiannual
or annual withdrawals in a minimum amount of $100 may be made under the
Systematic Withdrawal Plan by redeeming as many shares of the Fund or Portfolio
as may be necessary to cover the stipulated withdrawal payment. The CDSC on
Class B shares is waived for withdrawals under a Systematic Withdrawal Plan that
meets certain conditions as described in "Buying Class B [or Class S] shares -
Contingent deferred sales charge" in the Prospectus. To the extent that
withdrawals exceed dividends, distributions and appreciation of a shareholder's
investment in a Fund or Portfolio, there will be a reduction in the value of the
shareholder's investment in the relevant class of the Fund or Portfolio and
continued withdrawal payments may reduce the shareholder's investment and
ultimately exhaust it. Withdrawal payments should not be considered as income
from investment in a Fund or Portfolio. For additional information regarding the
Systematic Withdrawal Plan, write to the WM Group of Funds at Suite 300, 1201
Third Avenue, Suite 1400, Seattle, Washington 98101 or call the Trust at
800-222-5852.
CHECK REDEMPTION PRIVILEGE. Checkwriting is available for the Class A
shares of the Money Funds only. Checks to redeem shares of any of the Money
Funds are drawn on the account of the Fund at Boston Safe and shareholders will
be subject to the same rules and regulations that Boston Safe applies to
checking accounts and, will have the same rights and duties with respect to stop
payment orders, "stale" checks, and unauthorized endorsements as bank checking
account customers do under Massachusetts Uniform Commercial Code. All notices
with regard to those rights and duties must be given to Boston Safe.
HOW TO EXCHANGE SHARES
You may exchange shares of any of the Funds or Portfolios for shares of
the same class of any other of the Funds or Portfolios. Exchanges of shares are
sales and may result in a gain or loss for income tax purposes.
Exchanges are made at the relative NAVs of the shares being exchanged.
No additional sales charge will be incurred when exchanging shares from a Fund
which imposes an initial or contingent deferred sales charge. Any contingent
deferred sales charge on the subsequent sale of shares acquired by exchange will
be based on the contingent deferred sales charge schedule of the Fund originally
purchased. Shares exchanged from Money Fund will be subject to the acquired
-66-
<PAGE> 139
Fund's sales charge unless the shares given in exchange were previously
exchanged from a Fund that imposes an initial or contingent deferred sales
charge.
All exchanges are subject to the minimum investment requirements of the
Fund being acquired and to its availability for sale in your state of residence.
You may arrange for automatic monthly exchanges. The Funds or Portfolios reserve
the right to refuse any order for the purchase of shares, including those by
exchange. In particular, a pattern of exchanges that coincides with a "market
timing" strategy may be disruptive to a Fund or Portfolios and, consequently,
may be disallowed.
DETERMINATION OF PERFORMANCE
From time to time, the Trusts may quote the performance of a Fund's or
Portfolio's Class A, Class B and Class S shares in terms of yield, actual
distributions, total return or capital appreciation in reports or other
communications to shareholders or in advertising material. The yield for the
Class A, Class B and Class S shares of the Money Funds is computed by: (1)
determining the net change, exclusive of capital changes, in the value of a
hypothetical pre-existing account in each Fund having a balance of one share at
the beginning of a seven calendar day period for which yield is to be quoted,
(2) subtracting a hypothetical change reflecting deductions from shareholder
accounts, (3) dividing the net change by the value of the account at the
beginning of the period to obtain the base period return, and (4) annualizing
the results (i.e., multiplying the base period return by 365/7). The net change
in the value of the account reflects the value of additional shares purchased
with dividends declared on the original share and any such additional shares,
but does not include realized gains and losses or unrealized appreciation or
depreciation. In addition, the Money Funds may calculate a compounded effective
annualized yield by adding 1 to the base period return (calculated as described
above), raising the sum to a power equal to 365/7 and subtracting 1.
The current yield for the Money Funds and the Target Maturity 2002 Fund
may be obtained by calling 800-222-5852. For the seven-day period ended June 30,
1998, the yield for the outstanding shares of the California Money Fund that are
treated as Class A shares was 2.51% and the effective yield of such shares of
that Fund for the same period was 2.54%. The California Money and Tax-Exempt
Money Market Funds may also calculate their tax equivalent yields as described
below.
The Municipal Funds and Fixed-Income Funds may quote a 30-day yield
figure (the "SEC Yield") which is calculated according to a formula prescribed
by the SEC. The formula can be expressed as follows:
YIELD = 2[(a-b + 1)(superscript 6) - 1]
---------------------------------------
cd
Where: a = dividends and interest earned during the period.
-67-
<PAGE> 140
b = expenses accrued for the period (net of reimbursement).
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period.
For the purpose of determining the interest earned (variable "a" in the
formula) on debt obligations that were purchased by one of the Municipal and
Fixed-Income Funds at a discount or premium, the formula generally calls for
amortization of the discount or premium; the amortization schedule will be
adjusted monthly to reflect changes in the market values of the debt
obligations.
Based on the foregoing calculation, the SEC Yields relating to the
outstanding shares treated as Class A shares for the 30-day period ended 6/30/98
are as follows:
Fund Yield
---- -----
Short Term High Quality Bond Fund.....................5.30%
Target Maturity 2002 Fund.............................4.85
U.S. Government Securities Fund.......................5.62
Income Fund...........................................6.39
High Yield Fund.......................................8.58
Tax-Exempt Bond Fund..................................4.19
California Municipal Fund.............................4.24
California Insured Intermediate Municipal Fund........3.49
Florida Insured Municipal Fund........................4.03
Income Portfolio......................................6.39
Flexible Income Portfolio.............................3.84
Balanced Portfolio....................................1.21
In addition, the Fund or Portfolio may quote a 30-day yield based on
actual distributions during a 30-day period that is computed by dividing the net
investment income per share earned by the Fund or Portfolio during the period by
the maximum Public Offering Price per share on the last day of the 30-day
period. This income is "annualized" by assuming that the amount of income is
generated each month over a one-year period and is compounded semiannually. The
annualized income is then shown as a percentage of the maximum Public Offering
Price. In addition, the Municipal Funds, the Fixed-Income Funds and the Income,
Flexible Income and Balanced Portfolios may advertise a similar 30-day yield
computed in the same manner except that the NAV per share is used in place of
the Public Offering Price per share. These 30-day average yields for the period
ended June 30, 1998 for the Class A shares of the Tax-Exempt Bond, California
Municipal, California Insured Intermediate Municipal and Florida Insured
Municipal Funds and the Income, Flexible Income and Balanced Portfolios were
5.17%, 5.07%, 4.16%, 4.74%, 5.32%, 3.85%, and 1.01%, respectively. Yields for
the same period for the Short Term High Quality Bond, Target Maturity 2002,
U.S. Government Securities, Income and High Yield funds were 5.40%, 5.67%,
6.15%, 6.70% and 9.04% respectively.
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<PAGE> 141
The tax equivalent yield for the Tax-Exempt Money Market, California
Money, Tax-Exempt Bond, California Municipal, California Insured Intermediate
Municipal and Florida Insured Municipal Funds is computed by dividing that
portion of the Fund's yield which is tax-exempt by one minus a stated federal
and/or state income tax rate and adding the product to that portion, if any, of
the Fund's yield that is not tax-exempt. The tax-equivalent yields for the
outstanding shares of the Tax-Exempt Money Market and California Money Fund,
that are treated as Class A shares, for the 7-day period ended June 30, 1998
were 4.77% and 4.58%, respectively. The tax equivalent SEC 30-day yields for the
period ended June 30, 1997 for the outstanding shares of the Tax-Exempt Bond,
California Municipal, California Insured Intermediate Municipal, and Florida
Insured Municipal Funds were 6.94%, 7.74%, 6.37% and 6.67%, respectively. The
tax equivalent yield based on the 30-day average yield for the period ended June
30, 1997 for the outstanding shares of the Tax-Exempt Bond, California
Municipal, California Insured Intermediate Municipal and Florida Insured
Municipal Funds were 8.56%, 9.25%, 7.59% and 7.85%, respectively. Tax-equivalent
yields assume the payment of federal income taxes at a rate of 39.6% and, if
applicable, California state income taxes at a rate of 9.3%.
Capital appreciation for Class A, Class B and Class S shares of the
Municipal, Fixed-Income and the Equity Funds and the Portfolios (Class A and
Class B shares) shows principal changes for the period shown, and total return
combines principal changes and dividend and interest income reinvested for the
periods shown. Principal changes are based on the difference between the
beginning and closing net asset values for the period. Actual distributions
include short-term capital gains derived from option writing or other sources.
The period selected for performance data will depend upon the purpose of
reporting the performance.
The total return of the Funds' and the Portfolios' (Class A and Class B
shares) Class A, Class B and Class S shares may be calculated on an "average
annual total return" basis, and may also be calculated on an "aggregate total
return" basis, for various periods. Average annual total return reflects the
average annual percentage change in the value of an investment in a Fund over
the particular measuring period. Aggregate total return reflects the cumulative
percentage change in value over the measuring period. Average annual total
return figures provided for Class A, Class B and Class S shares of the
Fixed-Income and Equity Funds and the Portfolios (Class A and Class B shares)
will be computed according to a formula prescribed by the SEC. The formula can
be expressed as follows:
P(1+T)(superscript n) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return/aggregate total return
n = number of years
ERV = Ending Redeemable Value of a hypothetical $1,000
payment made at the beginning of the 1, 5 or 10
years (or other) periods or the life of the Fund
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<PAGE> 142
The formula for calculating aggregate total return can be expressed as
follows:
Aggregate Total Return = [(ERV) - 1]
-----
P
The calculation of average annual total return and aggregate total
return assumes reinvestment of all income dividends and capital gain
distributions on the reinvestment dates during the period and includes all
recurring fees charged to all shareholder accounts. In addition, with respect to
Class A shares, the maximum sales charge is deducted from the initial $1,000
payment (variable "P" in the formula).
The ERV assumes complete redemption of the hypothetical investment at
the end of the measuring period and reflects deduction of all nonrecurring
charges at the end of the measuring period covered by the computation. A Fund's
net investment income changes in response to fluctuations in interest rates and
the expenses of the Fund.
The average annual rates of return (unless otherwise noted) for the
Funds for the one-year, five-year and ten-year periods and for the period since
inception in each case ended June 30, 1998 (except in the case of the Bond &
Stock, Growth & Income and Northwest Funds, for which returns are given for
periods ended October 31, 1997 and the Money Market, Tax-Exempt Money Market,
U.S. Government Securities, Income, High Yield and Tax-Exempt Bond Fund, for
which returns are given for periods ended December 31, 1997) are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Aggregate
Total Return for
Since Ten Year Period
Date or from Date of
of Inception, if
Fund and inception date One Year Five Year Ten Year Inception shorter
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SHORT TERM HIGH QUALITY BOND FUND
CLASS A SHARES 11/1/93
Adjusted for Maximum Sales Charge 2.38% N/A N/A 3.65% 18.18%
Not Adjusted for Sales Charge 5.91% N/A N/A 4.44% 22.43%
CLASS B SHARES 6/30/94
Adjusted for Maximum Sales Charge 1.13% N/A N/A 4.39% 18.74%
Not Adjusted for Sales Charge 5.13% N/A N/A 4.60% 19.71%
CLASS S SHARES 6/30/94
Adjusted for Maximum Sales Charge 0.13% N/A N/A 4.17% 17.76%
Not Adjusted for Sales Charge 5.13% N/A N/A 4.60% 19.71%
- ------------------------------------------------------------------------------------------------------------------------
TARGET MATURITY 2002 FUND
CLASS A SHARES 3/20/95
Adjusted for Maximum Sales Charge 7.56% N/A N/A 7.74% 27.70%
Not Adjusted for Sales Charge 9.78% N/A N/A 8.39% 30.25%
- ------------------------------------------------------------------------------------------------------------------------
CALIFORNIA MONEY FUND
CLASS A SHARES 6/30/94
Not Adjusted for Maximum Sales Charge 2.73% 2.63% N/A 3.13% 31.84%
CLASS B SHARES --
Not Adjusted for Maximum Sales Charge 1.96% N/A N/A 2.07% 8.52%
CLASS S SHARES 6/30/94
Adjusted for Maximum Sales Charge -3.04% N/A N/A 1.59% 6.52%
Not Adjusted for Sales Charge 1.96% N/A N/A 2.07% 8.52%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 143
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Aggregate
Total Return for
Since Ten Year Period
Date or from Date of
of Inception, if
Fund and inception date One Year Five Year Ten Year Inception shorter
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. GOVERNMENT SECURITIES FUND
CLASS A SHARES
Adjusted for Maximum Sales Charge .48% 5.84% 7.96% N/A 115.09%
Not Adjusted for Sales Charge .92% 6.70% 8.40% N/A 119.89%
CLASS B SHARES 3/30/94
Adjusted for Maximum Sales Charge .03% N/A N/A 6.74% 27.76%
Not Adjusted for Sales Charge .03% N/A N/A 7.96% 29.76%
CLASS S SHARES 3/23/98
Adjusted for Maximum Sales Charge N/A N/A N/A -3.09% -3.09%
Not Adjusted for Sales Charge N/A N/A N/A 1.91% 1.91%
- --------------------------------------------------------------------------------------------------------------------
INCOME FUND
CLASS A SHARES
Adjusted for Maximum Sales Charge 6.10% 7.09% 8.16% 119.11%
Not Adjusted for Sales Charge 0.51% 7.95% 8.61% 124.07%
CLASS B SHARES 3/30/94
Adjusted for Maximum Sales Charge 6.51% N/A N/A 7.74% 32.32%
Not Adjusted for Sales Charge 9.51% N/A N/A 7.96% 39.32%
CLASS S SHARES 3/23/98
Adjusted for Maximum Sales Charge N/A N/A N/A -3.27% -3.27%
Not Adjusted for Sales Charge N/A N/A N/A 1.73% 1.73%
- --------------------------------------------------------------------------------------------------------------------
TAX-EXEMPT BOND FUND
CLASS A SHARES
Adjusted for Maximum Sales Charge 4.20% 5.85% 7.50% N/A 106.10%
Not Adjusted for Sales Charge 8.59% 6.73% 7.93% N/A 110.52%
CLASS B SHARES 3/30/94
Adjusted for Maximum Sales Charge 4.71% N/A N/A 6.21% 25.39%
Not Adjusted for Sales Charge 7.71% N/A N/A 6.45% 27.39%
CLASS S SHARES 3/23/98
Adjusted for Maximum Sales Charge N/A N/A N/A -4.09% -4.09%
Not Adjusted for Sales Charge N/A N/A N/A 0.90% 0.90%
- --------------------------------------------------------------------------------------------------------------------
CALIFORNIA MUNICIPAL FUND
CLASS A SHARES 7/25/89
Adjusted for Maximum Sales Charge 4.83% 4.92% N/A 6.87% 81.06%
Not Adjusted for Sales Charge 9.26% 5.89% N/A 7.42% 89.57%
CLASS B SHARES 6/30/94
Adjusted for Maximum Sales Charge 3.45% N/A N/A 6.80% 30.12%
Not Adjusted for Sales Charge 8.45% N/A N/A 7.21% 32.12%
CLASS S SHARES 6/30/94
Adjusted for Maximum Sales Charge 3.45% N/A N/A 6.80% 30.12%
Not Adjusted for Sales Charge 8.45% N/A N/A 7.21% 32.12%
- --------------------------------------------------------------------------------------------------------------------
CALIFORNIA INSURED INTERMEDIATE MUNICIPAL FUND
CLASS A SHARES 4/4/94
Adjusted for Maximum Sales Charge 1.45% N/A N/A 6.04% 28.23%
Not Adjusted for Sales Charge 6.26% N/A N/A 7.20% 34.26%
CLASS B SHARES 6/30/94
Adjusted for Maximum Sales Charge .47% N/A N/A 5.83% 25.43%
Not Adjusted for Sales Charge 5.47% N/A N/A 6.25% 27.43%
CLASS S SHARES 6/30/94
Adjusted for Maximum Sales Charge 0.47% N/A N/A 5.83% 25.43%
Not Adjusted for Sales Charge 5.47% N/A N/A 6.25% 27.43%
- --------------------------------------------------------------------------------------------------------------------
FLORIDA INSURED MUNICIPAL FUND
CLASS A SHARES 6/7/93
Adjusted for Maximum Sales Charge 4.40% 4.93% N/A 4.88% 27.28%
Not Adjusted for Sales Charge 9.34% 5.90% N/A 5.84% 33.26%
CLASS B SHARES 6/30/94
Adjusted for Maximum Sales Charge 3.53% N/A N/A 6.62% 29.22%
Not Adjusted for Sales Charge 8.53% N/A N/A 7.03% 31.22%
CLASS S SHARES 6/30/94
Adjusted for Maximum Sales Charge 3.53% N/A N/A 6.62% 29.22%
Not Adjusted for Sales Charge 8.53% N/A N/A 7.03% 31.22%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 144
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Aggregate
Total Return for
Since Ten Year Period
Date or from Date of
of Inception, if
Fund and inception date One Year Five Year Ten Year Inception shorter
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BOND & STOCK FUND
CLASS A SHARES
Adjusted for Maximum Sales Charge 15.37% 13.06% 11.99% N/A 207.81%
Not Adjusted for Sales Charge 20.81% 14.10% 12.51% N/A 216.60%
CLASS B SHARES 3/30/94
Adjusted for Maximum Sales Charge 16.86% N/A N/A 15.82% 69.70%
Not Adjusted for Sales Charge 19.86% N/A N/A 16.01% 71.70%
CLASS S SHARES 5/06/98
Adjusted for Maximum Sales Charge N/A N/A N/A N/A N/A
Not Adjusted for Sales Charge N/A N/A N/A -0.98% -0.98%
- --------------------------------------------------------------------------------------------------------------------
GROWTH & INCOME FUND
CLASS A SHARES
Adjusted for Maximum Sales Charge 25.34% 17.69% 13.85% N/A 267.27%
Not Adjusted for Sales Charge 31.24% 18.77% 14.37% N/A 273.58%
CLASS B SHARES 3/30/94
Adjusted for Maximum Sales Charge 27.20% N/A N/A 21.65% 102.76%
Not Adjusted for Sales Charge 30.20% N/A N/A 21.81% 104.76%
CLASS S SHARES 3/23/98
Adjusted for Maximum Sales Charge N/A N/A N/A -4.48% -4.48%
Not Adjusted for Sales Charge N/A N/A N/A 0.52% 0.52%
- --------------------------------------------------------------------------------------------------------------------
GROWTH FUND
CLASS A SHARES 4/5/93
Adjusted for Maximum Sales Charge 27.96% N/A N/A 19.38% 152.80%
Not Adjusted for Sales Charge 35.43% N/A N/A 20.67% 167.46%
CLASS B SHARES 6/30/94
Adjusted for Maximum Sales Charge 29.43% N/A N/A 24.48% 140.09%
Not Adjusted for Sales Charge 34.43% N/A N/A 24.74% 142.09%
CLASS S SHARES 6/30/94
Adjusted for Maximum Sales Charge 29.40% N/A N/A 24.48% 140.14%
Not Adjusted for Sales Charge 34.40% N/A N/A 24.74% 142.14%
- --------------------------------------------------------------------------------------------------------------------
INTERNATIONAL GROWTH FUND
CLASS A SHARES 7/18/90
Adjusted for Maximum Sales Charge -9.46% 5.01% N/A 2.98% 26.34%
Not Adjusted for Sales Charge -4.19% 6.20% N/A 3.72% 33.67%
CLASS B SHARES 6/30/94
Adjusted for Maximum Sales Charge -9.25% N/A N/A 3.54% 14.91%
Not Adjusted for Sales Charge -4.95% N/A N/A 3.96% 16.74%
CLASS S SHARES 6/30/94
Adjusted for Maximum Sales Charge -9.26% N/A N/A 3.51% 14.81%
Not Adjusted for Sales Charge -4.94% N/A N/A 3.94% 16.70%
- --------------------------------------------------------------------------------------------------------------------
NORTHWEST FUND
CLASS A SHARES
Adjusted for Maximum Sales Charge 37.95% 15.60% 17.53% N/A 402.71%
Not Adjusted for Sales Charge 44.47% 16.68% 18.07% N/A 421.69%
CLASS B SHARES 3/30/94
Adjusted for Maximum Sales Charge 40.17% N/A N/A 20.29% 94.66%
Not Adjusted for Sales Charge 43.17% N/A N/A 20.47% 96.66%
CLASS S SHARES 5/06/98
Adjusted for Maximum Sales Charge N/A N/A N/A -11.57% -11.57%
Not Adjusted for Sales Charge N/A N/A N/A - 6.92% - 6.92%
- --------------------------------------------------------------------------------------------------------------------
EMERGING GROWTH FUND
CLASS A SHARES 7/18/90
Adjusted for Maximum Sales Charge 6.75% 12.42% N/A 12.53% 155.61%
Not Adjusted for Sales Charge 12.95% 13.70% N/A 13.33% 170.44%
CLASS B SHARES 6/30/94
Adjusted for Maximum Sales Charge 7.05% N/A N/A 15.25% 76.42%
Not Adjusted for Sales Charge 12.05% N/A N/A 15.57% 78.42%
CLASS S SHARES 6/30/94
Adjusted for Maximum Sales Charge 7.11% N/A N/A 15.26% 76.51%
Not Adjusted for Sales Charge 12.11% N/A N/A 15.59% 78.51%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Each Portfolio is modeled after an investment strategy used by the WM
Strategic Asset Management ("SAM") program, an investment management service
offered by WM Fund Services Inc., an affiliate of the Portfolios' Advisor that
allocates investments across a combination of the underlying Funds. Set forth
below is certain performance data for the Portfolios and, prior to the
Portfolios' inception, those strategies. Performance information for the
strategies is deemed relevant because each strategy was managed using virtually
the same
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<PAGE> 145
investment objectives, policies and restrictions as those used by the
Portfolios. Nonetheless, the performance data is not necessarily indicative of
the future performance of the Portfolios.
Because of certain differences in the expenses applicable to the SAM
program and the Portfolios, the following performance information has been
adjusted by applying the current total expense ratios for the Class A shares of
the Portfolios. The average annual total return of the following investment
strategies for the one-year period, the five-year period and the period from
inception of the strategy, in each case ended June 30, 1998, was as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Since Date
of
Portfolio/strategy and inception date One Year Five Year Ten Year Inception
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
STRATEGIC GROWTH PORTFOLIO
CLASS A SHARES 5/31/95
Adjusted for Maximum Sales Charge 13.27% N/A N/A 17.41%
Not Adjusted for Sales Charge 19.87% N/A N/A 19.59%
CLASS B SHARES 5/31/95
Adjusted for Maximum Sales Charge 14.01% N/A N/A 18.30%
Not Adjusted for Sales Charge 19.01% N/A N/A 18.76%
- ------------------------------------------------------------------------------------------------------
CONSERVATIVE GROWTH PORTFOLIO
CLASS A SHARES 9/30/90
Adjusted for Maximum Sales Charge 8.84% 10.62% N/A 12.31%
Not Adjusted for Sales Charge 15.18% 11.88% N/A 13.13%
CLASS B SHARES 6/30/94
Adjusted for Maximum Sales Charge 9.44% N/A N/A 13.19%
Not Adjusted for Sales Charge 14.44% N/A N/A 13.54%
- ------------------------------------------------------------------------------------------------------
BALANCED PORTFOLIO
CLASS A SHARES 9/30/90
Adjusted for Maximum Sales Charge 8.03% 9.11% N/A 10.25%
Not Adjusted for Sales Charge 14.32% 10.35% N/A 11.06%
CLASS B SHARES 6/30/94
Adjusted for Maximum Sales Charge 8.47% N/A N/A 12.03%
Not Adjusted for Sales Charge 13.47% N/A N/A 12.38%
- ------------------------------------------------------------------------------------------------------
FLEXIBLE INCOME PORTFOLIO
CLASS A SHARES 3/31/93
Adjusted for Maximum Sales Charge 6.06% 6.79% N/A 6.97%
Not Adjusted for Sales Charge 11.06% 7.78% N/A 7.91%
CLASS B SHARES 6/30/94
Adjusted for Maximum Sales Charge 5.24% N/A N/A 9.62%
Not Adjusted for Sales Charge 10.24% N/A N/A 10.00%
- ------------------------------------------------------------------------------------------------------
INCOME PORTFOLIO
CLASS A SHARES 9/30/90
Adjusted for Maximum Sales Charge 3.82% 3.83% N/A 6.88%
Not Adjusted for Sales Charge 8.71% 4.79% N/A 7.52%
CLASS B SHARES 6/30/94
Adjusted for Maximum Sales Charge 2.90% N/A N/A 6.04%
Not Adjusted for Sales Charge 7.90% N/A N/A 6.46%
- ------------------------------------------------------------------------------------------------------
</TABLE>
The performance of a Fund's Class A, Class B and Class S shares and the
Portfolio's Class A and Class B shares will vary from time to time depending
upon market conditions, the composition of the Fund's or Portfolio's portfolio
and the Fund's or Portfolio's operating expenses.
-73-
<PAGE> 146
Consequently, any given performance quotation should not be considered
representative of the Fund's or Portfolio's performance for any specified period
in the future. In addition, because performance will fluctuate, it may not
provide a basis for comparing an investment in a Fund or Portfolio with certain
bank deposits or other investments that pay a fixed yield or return for a stated
period of time.
Investors should recognize that, because the Funds other than the
Equity Funds and each of the Portfolios will have a high component of
fixed-income securities, in periods of declining interest rates the yields of
the Funds will tend to be somewhat higher than prevailing market rates, and in
periods of rising interest rates yields will tend to be somewhat lower. In
addition, when interest rates are falling, the inflow of net new money to the
Funds and Portfolios from the continuous sale of shares will likely be invested
in portfolio instruments producing lower yields than the balance of the Fund's
or Portfolio's securities, thereby reducing the current yields of the Funds. In
periods of rising interest rates, the opposite can be expected to occur.
Comparative performance information may be used from time to time in advertising
the Trusts' Class A, Class B and Class S shares, including data from Lipper
Analytical Services, Inc., the S&P 500 Composite Stock Price Index, the Dow
Jones Industrial Average and other industry publications. The International
Growth Fund may compare its performance to other investments or relevant indexes
consisting of Morgan Stanley Capital International EAFE Index, the Standard &
Poor's 500 Index, the Lipper International Fund Index and The Financial Times
World Stock Index.
TAXES
The following discussion of federal income tax consequences is based on
the Code and the regulations issued thereunder as in effect on the date of this
Statement of Additional Information and all references to the Funds in this
discussion includes the Portfolios. New legislation, as well as administrative
changes or court decisions, may significantly alter the conclusions expressed
herein, and may have a retroactive effect with respect to the transactions
contemplated herein.
Each Fund is treated as a separate entity for federal income tax
purposes and is not combined with the other funds within a Trust. Each of the
Funds intends to continue qualifying as a "regulated investment company" ("RIC")
as defined under Subchapter M of the Code. A Fund that is a RIC and distributes
to its shareholders at least 90% of its taxable net investment income
(including, for this purpose, its net realized short-term capital gains) and 90%
of its tax-exempt interest income (reduced by certain expenses), will not be
liable for federal income taxes on that part of its income distributed to its
stockholders.
In order to qualify as a RIC under the Code, in addition to satisfying
the distribution requirement described above, each Fund must (a) derive at least
90% of its gross income each taxable year from dividends, interest, payments
with respect to securities loans, gains from the sale or other disposition of
stock, securities, or foreign currencies, and certain other related income,
including, generally, certain gains from options futures, and forward contracts;
and (b) diversify its holdings so that, at the end of each fiscal quarter of the
Fund's taxable year, (i) at least
-74-
<PAGE> 147
50% of the market value of the Fund's assets is represented by cash and cash
items, U.S. Government Securities, securities of other RICs, and other
securities, with such other securities limited, in respect to any one issuer, to
an amount that does not represent more than 10% of the outstanding voting
securities of such issuer or exceed 5% of the value of the Fund's total assets
and (ii) not more than 25% of the value of its assets is invested in the
securities (other than U.S. Government Securities and securities of other RICs)
of any one issuer or of two or more issuers which the Fund controls and which
are engaged in the same, similar, or related trades or businesses.
If a Fund fails to qualify as a RIC for any year, all of its income
will be subject to tax at corporate rates, and its distributions (including
capital gains distributions) will in general be taxable as ordinary income
dividends to its shareholders, subject to the dividends received deduction for
corporate shareholders.
Notwithstanding the distribution requirement described above, which
only requires a Fund to distribute at least 90% of its annual investment company
taxable income and tax-exempt interest income and does not require any minimum
distribution of net capital gain (the excess of net long-term capital gain over
net short-term capital loss), a Fund will be subject to a nondeductible 4%
federal excise tax to the extent it fails to distribute by the end of any
calendar year at least 98% of its ordinary income for that year and at least 98%
of its capital gain net income (the excess of short- and long-term capital gains
over short- and long-term capital losses) for the one-year period ending on
October 31 of that year, plus certain other amounts. Each Fund intends to make
distributions sufficient to avoid imposition of the 4% excise tax.
The Tax-Exempt Money Market, California Money, Tax-Exempt Bond,
California Municipal, California Insured Intermediate Municipal and Florida
Insured Municipal Funds will be qualified to pay exempt-interest dividends to
their shareholders only if, at the close of each quarter of a Fund's taxable
year, at least 50% of the total value of a Fund's assets consist of obligations
the interest on which is exempt from federal income tax. Part or all of the
interest on indebtedness incurred or continued by a shareholder to purchase or
carry shares of these funds will not be deductible for federal income tax
purposes or, in the case of the California and Florida Funds, for California and
Florida income tax purposes. Any loss on the sale or exchange of shares in these
Funds held for six months or less will be disallowed to the extent of any
exempt-interest dividend received by the shareholders with respect to such
shares. In addition, the Code may require a shareholder who receives
exempt-interest dividends to treat as taxable income a portion of certain
otherwise non-taxable social security and railroad retirement benefit payments.
Municipal funds may not be an appropriate investment for persons (including
corporations and other business entities) who are "substantial users" (or who
are related to substantial users) of facilities financed by "private activity
bonds" or "industrial development bonds." For these purposes, the term
"substantial user" is defined generally to include a "non-exempt person" who
regularly uses in a trade or business a part of a facility financed from the
proceeds of such bonds. Moreover, as noted in the Prospectus, some or all of
these Funds' dividends may be a specific preference item, or a component of an
adjustment item, for purposes of the federal individual and
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corporate alternative minimum taxes. In addition, the receipt of dividends and
distributions may affect a foreign corporate shareholder's federal "branch
profits" tax liability and a Subchapter S corporate shareholder's federal
"excess net passive income" tax liability. Similar rules apply for California
State personal income tax purposes. Shareholders should consult their own tax
advisers as to whether they are (1) "substantial users" with respect to a
facility or "related" to such users within the meaning of the Code or (2)
subject to federal alternative minimum tax, the federal "branch profits" tax, or
the federal "excess net passive income" tax. Issuers of bonds purchased by the
Municipal Funds (or the beneficiary of such bonds) may have made certain
representations or covenants in connection with the issuance of such bonds to
satisfy certain requirements of the Code that must be satisfied subsequent to
the issuance of such bonds. Shareholders should be aware that exempt-interest
dividends may become subject to federal income taxation retroactively to the
date of issuance of the bonds to which such dividends are attributable if such
representations are determined to have been inaccurate or if the issuers (or the
beneficiary) of the bonds fail to comply with certain covenants made at that
time.
Distributions made by the Fixed-Income Funds generally will not be
eligible for the dividends received deduction otherwise available to corporate
taxpayers. In addition, the dividends received deduction shall be disallowed
with respect to a dividend from any other Fund unless a corporate shareholder
held its shares on the ex-dividend date and for at least 45 more days during the
90-day period surrounding the ex-dividend date, without protection from risk of
loss.
As described above and in the Prospectus, certain of the Funds may
invest in certain types of futures contracts and options. The Funds anticipate
that these investment activities will not prevent the Funds from qualifying as
RICs. As a general rule, these investment activities may accelerate, increase or
decrease the amount of long-term and short-term capital gains or losses realized
by a Fund and, accordingly, will affect the amount of capital gains distributed
to a Fund's shareholders.
A Fund's transactions in foreign currencies, foreign
currency-denominated debt securities and certain foreign currency options,
futures contracts and forward contracts (and similar instruments) may give rise
to ordinary income or loss to the extent such income or loss results from
fluctuations in the value of the foreign currency concerned. In addition, if a
Fund engages in hedging transactions, including hedging transactions in options,
futures contracts and straddles (or other similar transactions), it will be
subject to special tax rules (including mark-to-market, straddle, wash sale,
short sale and constructive sale rules), the effect of which may be to
accelerate income to a Fund, defer losses to a Fund, cause adjustments in the
holding periods of a Fund's securities, or convert short-term capital losses
into long-term capital losses. These rules could therefore affect the amount,
timing and character of distributions to shareholders. Each Fund will endeavor
to make any available elections pertaining to such transactions in a manner
believed to be in the best interests of the Fund.
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Distributions of net capital gains (i.e., the excess of net gains from
capital assets held for more than one year over net losses from capital assets
held for not more than one year) that are designated by a Fund as capital gain
dividends will generally be taxable to a shareholder receiving such
distributions as long-term capital gain (generally taxed at a 20% tax rate for
noncorporate shareholders) regardless of how long the shareholder has held Fund
shares.
While only the Equity Funds expect to realize a significant amount of
net long-term capital gains, any such realized gains will be distributed as
described in the Prospectus and will be designated as such in a written notice
mailed to the shareholder after the close of the Fund's taxable year. Any loss
on the sale or exchange of shares in a Fund that have been held for six months
or less will be treated as a long-term capital loss to the extent of any capital
gain dividend received by the shareholder with respect to such shares. In
addition, all or a portion of any loss realized upon a taxable disposition of
Fund shares will be disallowed if other shares of the same Fund are purchased
within 30 days before or after the disposition. In such a case, the basis of the
newly purchased shares will be adjusted to reflect the disallowed loss.
Dividends and distributions on a Fund's shares are generally subject to
federal income tax as described herein to the extent they do not exceed the
Fund's realized income and gains, even though such dividends and distributions
may economically represent a return of a particular shareholder's investment.
Such distributions are likely to occur in respect of shares purchased at a time
when a Fund's net asset value reflects gains that are either unrealized, or
realized but not distributed. Such realized gains may be required to be
distributed, even when a Fund's net asset value also reflects unrealized losses.
ADDITIONAL CONSIDERATIONS FOR SHAREHOLDERS OF THE INTERNATIONAL GROWTH FUND
If at the end of the International Growth Fund's fiscal year more than
50% of the value of its total assets represents securities of foreign
corporations, the Fund intends to make an election permitted by the Code to
treat any foreign taxes paid by it on securities it has held for at least the
minimum period specified in the Code as having been paid directly by the Fund's
shareholders in connection with the Fund's dividends received by them. In this
case, shareholders generally will be required to include in U.S. taxable income
their pro rata share of such taxes, and those shareholders who are U.S.
citizens, U.S. corporations and, in some cases, U.S. residents will be entitled
to deduct their share of such taxes. Alternatively, such shareholders who hold
Fund shares (without protection from risk of loss) on the ex-dividend date and
for at least 15 other days during the 30-day period surrounding the ex-dividend
date will be entitled to claim a foreign tax credit for their share of these
taxes.
In addition, investment by a Fund in an entity that qualified as a
"passive foreign investment company" under the Code could subject the Fund to a
U.S. federal income tax or other charge on certain "excess distributions" with
respect to the investment, and on the proceeds from disposition of the
investment. This tax or charge may be avoided, however, by making an
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election to mark such investments to market annually or to treat the passive
foreign investment company as a "qualified electing fund."
A "passive foreign investment company" is any foreign corporation: (i)
75 percent or more of the income of which for the taxable year is passive
income, or (ii) the average percentage of the assets of which (generally by
value, but by adjusted tax basis in certain cases) that produce or are held for
the production of passive income is at least 50 percent. Generally, passive
income for this purpose means dividends, interest (including income equivalent
to interest), royalties, rents, annuities, the excess of gains over losses from
certain property transactions and commodities transactions, and foreign currency
gains. Passive income for this purpose does not include rents and royalties
received by the foreign corporation from active business and certain income
received from related persons.
FLORIDA TAXES
TAXATION OF FUND SHARES. Florida does not impose an income tax on
individuals. Thus, dividends and distributions paid by the Florida Insured
Municipal Fund to individuals who are residents of Florida are not taxable by
Florida. Florida imposes an income tax on corporations and similar entities at a
rate of 5.5%. Distributions of investment income and capital gains by the
Florida Insured Municipal Fund will be subject to Florida corporate income tax.
Accordingly, investors in the Florida Insured Municipal Fund, including, in
particular, investors that may be subject to the Florida corporate income tax,
should consult their tax advisors with respect to the application of the Florida
corporate income tax to the receipt of Fund dividends and distributions and to
the investor's Florida tax situation in general.
Florida imposes a tax on intangible personal property owned by Florida
residents. Shares in the Florida Insured Municipal Fund constitute intangible
personal property for purposes of the Florida intangible personal property tax.
Thus, unless an exemption applies, shares in the Florida Insured Municipal Fund
will be subject to the Florida intangible personal property tax. Florida
provides an exemption for shares in an investment fund if the fund's portfolio
of assets consists solely of assets exempt from the Florida intangible personal
property tax. Assets exempt from Florida intangible personal property tax
include obligations issued by the State of Florida and its political
subdivisions, municipalities, and public authorities; obligations of the United
States Government or its agencies; and cash.
The Florida Insured Municipal Fund has received a ruling from the
Florida Department of Revenue that if, on the last business day of any calendar
year, the Insured Municipal Fund's assets consist solely of assets exempt from
the Florida intangible personal property tax, shares of the Florida Insured
Municipal Fund will be exempt from the Florida intangible personal property tax
in the following year. Based on the ruling, if the Insured Municipal Fund's
assets consist, on the last business day of the calendar year, solely of assets
exempt from the Florida intangible personal property tax, shares of the Florida
Insured Municipal Fund owned by Florida residents will be exempt from the
Florida intangible personal property tax. If shares of the Fund are subject to
the
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Florida intangible personal property tax because less than 100% of the Fund's
assets on the last business day of the calendar year consists of assets exempt
from the Florida intangible personal property tax, only the portion of the net
asset value of a share of the Florida Insured Municipal Fund that is
attributable to obligations of the United States Government will be exempt from
taxation.
TAXATION OF THE FLORIDA INSURED MUNICIPAL FUND. If the Fund does not
have a taxable nexus to Florida, such as through the location of the Florida
Fund's activities or those of its advisors within the state, under present
Florida law, the Fund is not subject to Florida corporate income taxation.
Additionally, if the Fund's assets do not have a taxable situs in Florida as of
January 1 of each calendar year, the Fund will not be subject to the Florida
intangible personal property tax. If the Fund has a taxable nexus to Florida or
the Fund's assets have a taxable situs in Florida, the Fund will be subject to
Florida taxation. The Florida Insured Municipal Fund intends to operate so as
not to be subject to Florida taxation.
SHAREHOLDER STATEMENTS
Each shareholder will receive after the close of the calendar year an
annual statement and such other written notices as are appropriate as to the
federal income and California State personal income tax status of the
shareholder's dividends and distributions received from the Fund for the prior
calendar year. These statements will also inform shareholders as to the amount
of exempt-interest dividends that is a specific preference item for purposes of
the federal individual and corporate alternative minimum taxes and as to the
exempt portion, if any, of the shareholder's shares of the Florida Insured
Municipal Fund for purposes of the Florida State intangible personal property
tax for the current tax year. Shareholders should consult their tax advisers as
to any other state and local taxes that may apply to these dividends and
distributions. The dollar amount of dividends excluded or exempt from federal
income taxation or California State personal income taxation and the dollar
amount of dividends subject to federal income taxation or California State
personal income taxation, if any, will vary for each shareholder depending upon
the size and duration of each shareholder's investment in a Fund. To the extent
that the Tax-Exempt Money Market, California Money, Tax-Exempt Bond, California
Municipal, California Insured Intermediate Municipal or Florida Insured
Municipal Funds earns taxable net investment income, it intends to designate as
taxable dividends the same percentage of each day's dividend (or of each day's
taxable net investment income) as its taxable net investment income bears to its
total net investment income earned on that day. Therefore, the percentage of
each day's dividend designated as taxable, if any, may vary from day to day.
If a shareholder fails to furnish a correct taxpayer identification
number, fails to report fully dividend or interest income, or fails to certify
that the taxpayer identification number is correct and that the shareholder is
not subject to "backup withholding," then the shareholder may be subject to a
31% "backup withholding" tax with respect to (1) taxable dividends and
distributions and (2) the proceeds of any redemptions of Fund shares. An
individual's taxpayer
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identification number is his or her social security number. The 31% "backup
withholding" tax is not an additional tax and may be credited against a
taxpayer's regular federal income tax liability.
THE FOREGOING IS ONLY A SUMMARY OF CERTAIN TAX CONSIDERATIONS GENERALLY
AFFECTING A FUND AND ITS SHAREHOLDERS, AND IS NOT INTENDED AS A SUBSTITUTE FOR
CAREFUL TAX PLANNING. SHAREHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS WITH
SPECIFIC REFERENCE TO THEIR OWN TAX SITUATIONS, INCLUDING THEIR STATE AND LOCAL
TAX LIABILITIES.
DISTRIBUTOR
Prior to March 20, 1998, WM Fund Services Inc. (formerly named Sierra
Investment Services Inc.) served as the distributor for WM Trust II. For the
fiscal years ended June 30, 1998, 1997 and 1996, the Distributor and WM Fund
Services Inc. (formerly Sierra Investment Services Corp.) received distribution
fees totaling (after waivers of fees) $1,839,806, $5,278,281 and $6,430,836,
respectively, in the aggregate, from the WM Trust II Funds under the Class A
Plan. For the same periods, the Distributor and WM Fund Services Inc. received
$0, $13,944 and $0, respectively, representing contingent deferred sales charges
on redemptions of Class A shares of the Funds. In addition, for the fiscal years
ended June 30, 1998, 1997 and 1996, the Distributor and WM Fund Services Inc.
received $180,165, $303,490 and $637,291, respectively, representing
compensation from front-end sales charges on Class A shares of such Funds sold.
For each fiscal year ended June 30, 1998, 1997 and 1996, the Distributor and WM
Fund Services Inc. voluntarily waived no distribution fees in the aggregate.
During the fiscal year ended June 30, 1998, the Distributor and WM Fund Services
Inc. incurred distribution and operating expenses with respect to Class A shares
of the Funds totaling $2,420,780 consisting of $426,800 for advertising;
$174,267 for marketing promotion; $58,383 for fulfillment; $1,689,244 in
commissions and additional compensation to the personnel of WM Fund Services
Inc. and $72,085 in other expenses.
WM Fund Services Inc. also served as distributor of Class B and S
shares of the WM Trust II Funds. For the fiscal year ended June 30, 1998, the
Distributor and WM Fund Services Inc. received distribution fees from the Funds
totaling $1,237,250, in the aggregate under the Class B Distribution Plan and
$312,288, in the aggregate under the Class S Distribution Plan. For the same
period, the Distributor and WM Fund Services Inc. received $653,684,
representing CDSCs on redemptions of Class B shares of the Funds and $1,497,900,
representing CDSCs on redemptions of Class S shares of the Funds. For the fiscal
year ended June 30, 1998, WM Fund Services Inc. did not waive any distribution
fees. The Distributor and WM Fund Services Inc. paid out all of the distribution
related fees they received for each of the Class B and Class S shares to the
financier of the sales commissions paid on sale of Class B and S shares,
respectively.
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The Distributor also serves as the distributor for the Portfolios. The
Distributor received $41,197, $318,337, $265,656, $25,447 and $27,083,
respectively, from the Strategic Growth, Conservative Growth, Balanced, Flexible
Income and Income Portfolios in connection with the sales of Class A shares in
1998. Such payments totaled $16,775, $210,208, $173,926, $21,809 and $23,425 in
1997.
During the fiscal year ended June 30, 1998, the Distributor incurred
distribution and operating expenses with respect to Class A shares of the
Portfolios totaling $988,175 consisting of $146,319 for advertising; $61,504
for marketing promotion; $6,801 for fulfillment; $742,109 in commissions and
additional compensation to personnel and $31,442 in other expenses.
For the same time period, the Distributor received the following
contingent deferred sales charge payments for Class B shares from the
Portfolios: $20,997, $124,469, $79,882, $3,080 and $13,232 from the Strategic
Growth, Conservative Growth, Balanced, Flexible Income and Income Portfolios,
respectively, for 1998. The Distributor received $497,858 in total from these
same Portfolios for 1997.
The Distributor received $443,183, $1,652,679, $1,095,612, $76,123 and
$44,611 from the Strategic Growth, Conservative Growth, Balanced, Flexible
Income and Income Portfolios, respectively, in 1998 in connection with the sales
of Class B shares. Such payments totaled $177,179, $892,793, $561,471, $45,337
and $29,891 in 1997.
WM Funds Distributor, Inc. (formerly Composite Funds Distributor, Inc.
and referred to as the Distributor in this SAI) serves as the distributor for
the WM Trust I Funds. The Money Market and Tax-Exempt Money Market Funds
reimbursed the Distributor $50,492 and $0, respectively, for distribution
expenses incurred during 1997. Of this amount, $28,559 was paid for printing and
$21,933 was for other distribution-related expenses. During 1996 the Money
Market and Tax-Exempt Money Market Funds reimbursed the Distributor $20,720 and
$0, respectively and in 1995 each reimbursed the Distributor $18,754 and $0,
respectively.
During 1997 the Money Market and Tax-Exempt Money Market Funds
compensated the Distributor $2,233 and $91, respectively, for the sale of Class
B shares. During 1996, the Money Market and Tax-Exempt Funds compensated the
Distributor $1,270 and $16, respectively, for the sale of Class B shares. During
1995, the Money Market and Tax-Exempt Portfolios compensated the Distributor
$702 and $11, respectively, for the sale of Class B shares.
During the fiscal year ended December 31, 1997, the Distributor
received contingent deferred sales charge payments of $5,618 and $0 upon
redemption of Class B shares of the Money Market Fund and Tax-Exempt Fund,
respectively. For the fiscal year ended December 31, 1996, the Distributor
received contingent deferred sales charge payments of $5,275 and $0 upon
redemption of Class B shares of the Money Market Fund and Tax-Exempt Money
Market Fund,
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respectively. No brokerage fees were paid by the Fund to the Distributor during
the year, but the Distributor may act as broker on portfolio purchases and sales
should it become a member of a securities exchange.
The U.S. Government Securities, Income, and Tax-Exempt Bond Funds
reimbursed the Distributor in the amounts of $248,837, $169,132 and $407,707,
respectively, for distribution expenses incurred on behalf of Class A shares
during the year ended December 31, 1997. Of this amount, $119,084, $77,335 and
$200,406 was paid on behalf of the U.S. Government Securities, Income, and
Tax-Exempt Bond Funds, respectively, to selected dealers and registered
representatives of the Distributor for their shareholder servicing activities,
and $129,748, $91,797 and $207,301, respectively, was paid for other
distribution related expenses.
During the fiscal years 1996 and 1995, the U.S. Government Securities
Fund reimbursed the Distributor $218,510 and $343,633, respectively; the Income
Fund reimbursed the Distributor $133,600 and $168,531, respectively; and the
Tax-Exempt Bond Fund reimbursed the Distributor $315,034 and $432,854,
respectively, for distribution expenses related to Class A shares.
During the fiscal years ended December 31, 1997 and 1996, respectively,
the U.S. Government Securities Fund compensated the Distributor in the amounts
of $29,872 and $26,484, respectively; the Income Fund compensated the
Distributor in the amounts of $78,016 and $57,828, respectively, and the
Tax-Exempt Bond Fund compensated the Distributor $66,282 and $40,939,
respectively, for the sale of Class B shares.
During the 1997, 1996 and 1995 fiscal years, the Distributor received
$55,967, $89,694 and $150,970, respectively, for the sale of U.S. Government
Securities Fund Class A shares; $102,701, $156,410 and $209,703, respectively,
for the sale of Income Fund Class A shares; and $195,489, $282,768 and $341,454,
respectively, for the sale of Tax-Exempt Bond Fund Class A shares.
During the fiscal year ended December 31, 1997, the Distributor
received contingent deferred sales charge payments of $8,623, $20,754 and
$11,543 upon redemption of Class B shares of the U.S. Government Securities,
Income, and Tax-Exempt Bond Funds, respectively. No brokerage fees were paid by
the Funds to the Distributor during the year, but the Distributor may act as a
broker on portfolio purchases and sales should it become a member of a
securities exchange.
The Bond & Stock, Growth & Income and Northwest Funds reimbursed the
Distributor in the amounts of $701,288, $563,809 and $537,269, respectively, for
distribution expenses incurred on behalf of Class A shares during fiscal 1997.
Of this amount, $271,656, $205,286 and $210,705 was paid on behalf of the Bond &
Stock, Growth & Income and Northwest Funds to sales personnel of the Distributor
and to selected dealers for their shareholder servicing activities; $30,762,
$57,056 and $46,096, respectively, was paid for printing; and $195,701, $167,292
and $257,705, respectively, was paid for other advertising expenses.
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During fiscal years 1996 and 1995, the Bond & Stock Fund reimbursed the
Distributor $394,279 and $356,379, respectively; the Growth & Income Fund
reimbursed the Distributor $265,579 and $203,566, respectively; and Northwest
reimbursed the Distributor $360,642 and $279,851, respectively, for distribution
expenses related to Class A shares.
During fiscal years 1997, 1996 and 1995, the Bond & Stock Fund
compensated the Distributor in the amounts of $334,855, $148,688 and $46,435,
respectively; the Growth & Income Fund compensated the Distributor $365,290,
$151,222 and $49,988, respectively; and the Northwest Fund compensated the
Distributor $247,630, $106,606 and $49,126, respectively, for distribution
expenses related to Class B shares.
During the 1997, 1996 and 1995 fiscal years, the Distributor received
$885,598, $1,064,004 and $471,479, respectively, for the sale of Bond & Stock
Class A shares. The Distributor retained $710,403, $1,047,926 and $471,455,
respectively, for the same time periods, with the balance paid to dealers for
their sales of Bond & Stock Class A shares.
During the 1997, 1996 and 1995 fiscal years, the Distributor received
$825,142, $586,437 and $384,766, respectively, for the sale of Growth & Income
Class A shares. The Distributor retained $666,246, $563,398 and $384,647,
respectively, for the same time periods, with the balance paid to dealers for
their sales of Growth & Income Class A shares.
During the fiscal years 1997, 1996 and 1995 the Distributor received
$799,120, $517,022 and $348,729, respectively, for the sale of Northwest Class A
shares. The Distributor retained $551,530, $465,694 and $337,189, respectively,
for the same time periods, with the balance paid to dealers for their sales of
Northwest Class A shares.
During the fiscal year ended October 31, 1997, the Distributor received
contingent deferred sales charge payments of $63,218, $63,310 and $37,195 upon
redemption of Class B shares of Bond & Stock, Growth & Income, and Northwest,
respectively. No brokerage fees were paid by the Funds to the Distributor during
the year, but the Distributor may act as a broker on portfolio purchases and
sales should it become a member of a securities exchange.
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APPENDIX
DESCRIPTION OF BOND, NOTES AND COMMERCIAL PAPER RATINGS
DESCRIPTION OF S&P CORPORATE BOND RATINGS
AAA: Bonds rated AAA have the highest rating assigned by S&P to a
debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA: Bonds rated AA have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only in small degree.
A: Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS
Aaa: Bonds which are rated Aaa are judged to be the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt-edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as for Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A: Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium grade obligations. Factors
giving security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Moody's applies the numerical modifiers 1, 2 and 3 to each generic
rating classification from Aa through B. The modifier 1 indicates that the issue
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.
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DESCRIPTION OF DUFF & PHELPS' CORPORATE BOND RATINGS
Bonds rated AAA by Duff & Phelps are judged by Duff & Phelps to be of
the highest credit quality, with negligible risk factors being only slightly
more than for risk-free U.S. Treasury debt. Bonds rated AA by Duff & Phelps are
judged by Duff & Phelps to be of high credit quality with strong protection
factors and risk that is modest but that may vary slightly from time to time
because of economic conditions. Bonds rated A by Duff & Phelps are judged by
Duff & Phelps to have average but adequate protection factors. However, risk
factors are more variable and greater in periods of economic stress. Bonds rated
BBB by Duff & Phelps are judged by Duff & Phelps as having below average
protection factors but still considered sufficient for prudent investment, with
considerable variability in risk during economic cycles.
DESCRIPTION OF FITCH'S CORPORATE BOND RATINGS
Bonds rated AAA by Fitch are considered to be investment grade and of
the highest credit quality. The obligor has an exceptionally strong ability to
pay interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events. Bonds rated AA by Fitch are considered to be investment
grade and of very high credit quality. The obligor's ability to pay interest and
repay principal is very strong, although not quite as strong as bonds rated AAA.
Bonds rated A by Fitch are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is considered
to be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings. Bonds rated BBB by
Fitch are considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
DESCRIPTION OF S&P MUNICIPAL BOND RATINGS
AAA - Prime - These bonds have the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely strong.
General Obligation Bonds - In a period of economic stress, the
issuers will suffer the smallest declines in income and will be least
susceptible to autonomous decline. Debt burden is moderate. A strong revenue
structure appears more than adequate to meet future expenditure requirements.
Quality of management appears superior.
Revenue Bonds - Debt service coverage has been, and is expected to
remain, substantial. Stability of the pledged revenues is also exceptionally
strong due to the competitive position of the municipal enterprise or to the
nature of the revenues. Basic security provisions (including rate
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covenant, earnings test for issuance of additional bonds, debt service reserve
requirements) are rigorous. There is evidence of superior management.
AA - High Grade - Bonds in this group have a very strong capacity to
pay interest and repay principal and differ from the highest rated debt only in
small degree.
A - Good Grade - Bonds in this category have a strong capacity to pay
interest and repay principal, although they are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than bonds
in higher rated categories. Regarding municipal bonds, the rating differs from
the two higher ratings because:
General Obligation Bonds - There is some weakness, either in the
local economic base, in debt burden, in the balance between revenues and
expenditures or in quality of management. Under certain adverse circumstances,
any one such weakness might impair the ability of the issuer to meet debt
obligations at some future date.
Revenue Bonds - Debt service coverage is good, but not exceptional.
Stability of the pledged revenues could show some variations because of
increased competition or economic influences on revenues. Basic security
provisions, while satisfactory, are less stringent. Management performance
appears adequate.
BBB - Medium Grade - Bonds in this group are regarded as having an
adequate capacity to pay interest and repay principal. Whereas they normally
exhibit adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for bonds in this category than for bonds in higher rated
categories.
General Obligation Bonds - Under certain adverse conditions, several
of the above factors could contribute to a lesser capacity for payment of debt
service. The difference between A and BBB ratings is that the latter shows more
than one fundamental weakness, or one very substantial fundamental weakness,
whereas the former shows only one deficiency among the factors considered.
Revenue Bonds - Debt coverage is only fair. Stability of the pledged
revenues could show substantial variations, with the revenue flow possibly being
subject to erosion over time. Basic security provisions are no more than
adequate. Management performance could be stronger.
BB, B, CCC, CC and C - Bonds rated BB, B, CCC, CC and C are regarded,
on balance, as predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligation. BB
indicates the least degree of speculation and C the highest degree of
speculation. While such bonds will likely have some quality and protective
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<PAGE> 159
characteristics, these are outweighed by large uncertainties or major risk
exposure to adverse conditions.
D - Bonds rated D are in default, or the obligor has filed for
bankruptcy. The D rating is issued when interest or principal payments are not
made on the date due, even if the applicable grace period has not expired,
unless S&P believes that such payments will be made during such grace period.
S&P's letter ratings may be modified by the addition of a plus or a
minus sign, which is used to show relative standing within the major rating
categories, except in the AAA-Prime Grade category.
DESCRIPTION OF S&P MUNICIPAL NOTE RATINGS
Municipal notes with maturities of three years or less are usually
given note ratings (designated SP-1, -2 or -3) to distinguish more clearly the
credit quality of notes as compared to bonds. Notes rated SP-1 have a strong
capacity to pay principal and interest. Those issues determined to possess a
very strong capacity to pay debt service are given the designation of SP-1+.
Notes rated SP-2 have a satisfactory capacity to pay principal and interest,
with some vulnerability to adverse financial and economic changes over the term
of the notes.
DESCRIPTION OF MOODY'S MUNICIPAL BOND RATINGS
Aaa: Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt-edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities, or fluctuation of
protective elements may be of greater amplitude, or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A: Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa: Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear
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<PAGE> 160
adequate for the present but certain protective elements may be lacking or may
be characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Moody's applies the numerical modifiers 1, 2 and 3 in each generic
rating classification from Aa through B. The modifier 1 indicates that the
security ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the issuer
ranks in the lower end of its generic rating category.
DESCRIPTION OF MOODY'S MUNICIPAL NOTE RATINGS
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade (MIG) and for variable rate demand
obligations are designated Variable Moody's Investment Grade (VMIG). This
distinction recognizes the differences between short-term credit risk and
long-term risk. Loans bearing the designation MIG 1/VMIG 1 are of the best
quality, enjoying strong protection from established cash flows of funds for
their servicing, from superior liquidity support, or from established and
broad-based access to the market for refinancing, or both. Loans bearing the
designation of MIG 2/VMIG 2 are of high quality, with margins of protection
ample, although not as large as the preceding group. Loans bearing the
designation MIG 3/VMIG 3 are of favorable quality, with all security elements
accounted for but lacking the undeniable strength of the preceding grades.
Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established. Loans bearing the designation
MIG 4/VMIG 4 are of adequate quality. Protection commonly regarded as required
of an investment security is present and although not distinctly or
predominantly speculative, there is specific risk.
DESCRIPTION OF S&P COMMERCIAL PAPER RATINGS
Commercial paper rated A-1 by S&P indicates that the degree of safety
regarding timely payments is strong. Those issues determined to possess
extremely strong safety characteristics are denoted A-1+. Capacity for timely
payment on commercial paper rated A-2 is satisfactory, but the relative degree
of safety is not as high as for issues designated A-1.
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<PAGE> 161
DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated Prime-1 (or related supporting institutions) are
considered to have a superior capacity for repayment of short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the characteristics of
issuers rated Prime-1 but to a lesser degree. Earnings trends and coverage
ratios, while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternative liquidity is maintained.
DESCRIPTION OF DUFF'S COMMERCIAL PAPER RATINGS
Paper rated Duff-1 is regarded as having very high certainty of
timely payment with excellent liquidity factors which are supported by good
fundamental protection factors. Risk factors are minor. Ratings of Duff-1 are
further refined by the gradations of "1+" and "1-". Issues rated Duff-1+ have
the highest certainty of timely payment, outstanding short term liquidity, and
safety just below risk-free U.S. Treasury short-term obligations. Issues rated
Duff- 1- have high certainty of timely payment, strong liquidity factors
supported by good fundamental protection factors, and small risk factors. Paper
rated Duff-2 is regarded as having good certainty of timely payment, good access
to capital markets and sound liquidity factors and company fundamentals. Risk
factors are small.
DESCRIPTION OF FITCH'S COMMERCIAL PAPER RATINGS
The rating F-1+ (Exceptionally Strong Credit Quality) is the highest
commercial rating assigned by Fitch and is assigned to issues regarded as having
the strongest degree of assurance for timely payment. Paper rated F-1 (Very
Strong Credit Quality) is regarded as having an assurance of timely payment only
slightly less in degree than issues rated F-1+. The rating F-2 (Good Credit
Quality) reflects an assurance of timely payment, but the margin of safety is
not as great as for issues assigned F-1+ or F-1 ratings.
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<PAGE> 162
WM STRATEGIC ASSET MANAGEMENT PORTFOLIOS
FORM N-1A
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(a) Index to Financial Statements and Supporting Schedules:
(1) Financial Statements:
Strategic Growth Portfolio
Conservative Growth Portfolio
Balanced Portfolio
Flexible Income Portfolio
Income Portfolio
Statement of assets and liabilities -- June 30, 1998
(a) and June 30, 1997 (a). Statement of operations --
June 30, 1998 (a) and June 30, 1997 (a). Statement of
changes in net assets -- years ended June 30, 1998
and June 30, 1997 (a).
Financial highlights (a) (b).
Notes to financial statements (a).
(2) Supporting Schedules:
Strategic Growth Portfolio
Conservative Growth Portfolio
Balanced Portfolio
Flexible Income Portfolio
Income Portfolio
Schedule I -- Portfolio of investments owned -- June
30, 1998 (a).
Schedules II through IX omitted because the required
matter is not present.
(a). Incorporated by reference into Parts A and B.
(b). Included in Part A.
(b) Exhibits
<PAGE> 163
1(a) Agreement and Declaration of Trust dated March 26, 1996
(the "Declaration of Trust") is incorporated by reference
to the Registration Statement filed with the SEC on March
27, 1996.
1(b) Agreement and Declaration of Trust dated March 26, 1996
Amended and Restated July 19, 1996 is incorporated by
reference to Pre-Effective Amendment No. 2 filed with the
SEC on July 22, 1996.
1(c) Amendment No. 1 to Amended and Restated Agreement and
Declaration of Trust dated March 20, 1998.
2 By-Laws of the Trust are incorporated by reference to the
Registration Statement as filed with the SEC on March 27,
1996.
3 Not applicable
4 Not applicable
5 Investment Management Agreement dated March 20, 1998 is
incorporated by reference to Post-Effective Amendment
No. 4 filed with the SEC on March 27, 1998.
6 Distribution Contract dated March 20, 1998 is incorporated
by reference to Post-Effective Amendment No. 4 filed with
the SEC on March 27, 1998.
7 Not applicable
8 Custody Agreement dated March 20, 1998 is incorporated by
reference to Post-Effective Amendment No. 4 filed with the
SEC on March 27, 1998.
9(a) Administration Agreement dated March 20, 1998 is
incorporated by reference to Post-Effective Amendment No. 4
filed with the SEC on March 27, 1998.
9(b) Transfer Agency Agreement dated March 20, 1998 is
incorporated by reference to Post-Effective Amendment No. 4
filed with the SEC on March 27, 1998.
10 Opinion and consent of counsel is incorporated by reference
to Pre-Effective Amendment No. 2 filed with the SEC on July
22, 1996.
11 Consent of Independent Accountants dated October 22, 1998.
12 Not applicable
13 Purchase Agreement relating to the Income, Flexible Income,
Balanced, Conservative Growth, and Strategic Growth
Portfolios is incorporated by
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<PAGE> 164
reference to Post-Effective Amendment No. 1 filed with the
SEC on January 6, 1997.
14 Not applicable
15(a) Class A Distribution Plan dated May 21, 1996 is
incorporated by reference to Post-Effective Amendment No. 2
filed with the SEC on August 29, 1997.
15(b) Class B Distribution Plan dated March 24, 1998 is
incorporated by reference to Post-Effective Amendment No. 4
filed with the SEC on March 27, 1998.
16 Not applicable
17 Financial Data Schedules.
18 Rule 18f-3 Multiple Class Plan is incorporated by reference
to Pre-Effective Amendment No. 1 filed with the SEC on June
21, 1996.
19 Powers of Attorney are incorporated by reference to
Post-Effective Amendment No. 4 filed with the SEC on
March 27, 1998.
Item 25. Persons Controlled by or Under Common Control with Registrant.
Not applicable.
Item 26. Number of Holders of Securities
Not applicable.
Item 27. Indemnification.
Under Section 8.1 of Registrant's Declaration of Trust, any
past or present Trustee or officer of Registrant (including persons who serve at
Registrant's request as directors, officers or trustees of another organization
in which Registrant has any interest as a shareholder, creditor or otherwise
(hereinafter referred to as a "Covered Person"), is indemnified to the fullest
extent permitted by law against liability and all expenses reasonably incurred
by him in connection with any action, suit or proceeding to which he may be a
party or otherwise involved by reason of his being or having been a Covered
Person. This provision does not authorize indemnification when it is determined,
in the manner specified in the Master Trust Agreement, that a Covered Person has
not acted in good faith in the reasonable belief that his actions were in or not
opposed to the best interests of Registrant. Moreover, this provision does not
authorize indemnification when it is determined, in the manner specified in the
Declaration of Trust, that the Covered Person would otherwise be liable to
Registrant or its shareholders by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of his duties. Expenses may be paid by
Registrant in
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<PAGE> 165
advance of the final disposition of any action, suit or proceeding upon receipt
of an undertaking by a Covered Person to repay those expenses to Registrant in
the event that it is ultimately determined that indemnification of the expenses
is not authorized under the Declaration of Trust and the Covered Person either
provides security for such undertaking or insures Registrant against losses from
such advances or the disinterested Trustees or independent legal counsel
determines, in the manner specified in the Declaration of Trust, that there is
reason to believe the Covered Person will be found to be entitled to
indemnification.
Insofar as indemnification for liability arising under the
Securities Act of 1933, as amended (the "1933 Act"), may be permitted to
Trustees, officers and controlling persons of Registrant pursuant to the
foregoing provisions, or otherwise, Registrant has been advised that, in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the 1933 Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by Registrant of expenses incurred or paid
by a Trustee, officer or controlling person of Registrant in the successful
defense of any action, suit or proceeding) is asserted by such Trustee, officer
or controlling person in connection with the securities being registered,
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the 1933 Act and will be governed by the final adjudication of such
issue.
Item 28. Business and Other Connections of Investment Advisor.
(a) WM Advisors, Inc.
<TABLE>
<CAPTION>
Directors Past two fiscal years
- --------- ---------------------
<S> <C>
Monte D. Calvin WM Shareholder Services, Inc.
First Vice President, Director 601 West Main Ave., Suite 300, Spokane, WA 98201
Treasurer, Director April 1997 - present
WM Advisors, Inc.
1201 Third Ave., Suite 1400, Seattle, WA 98101
Vice President, Treasurer July 1997 - present
Director WM Funds Distributor, Inc.
601 West Main Ave., Suite 300, Spokane, WA 98201
Craig S. Davis July 1997 - present
Director WM Funds Distributor, Inc.
601 West Main Ave., Suite 300, Spokane, WA 98201
Director WM Shareholder Services, Inc.
601 West Main Ave., Suite 300, Spokane, WA 98201
Director April 1997 - present WM
Advisors, Inc.
</TABLE>
-4-
<PAGE> 166
<TABLE>
<S> <C>
1201 Third Ave., Suite 1400, Seattle, WA 98101
Executive Vice President December - present
Washington Mutual, Inc.
1201 Third Ave., Seattle, WA 98101
Chairman January 1996 - July 1997
ASB Financial Services, Irvin, CA
J. Pamela Dawson July 1997 - present
Director WM Funds Distributor, Inc.
601 West Main Ave., Suite 300, Spokane, WA 98201
Director WM Shareholder Services, Inc.
601 West Main Ave., Suite 300, Spokane, WA 98201
Director April 1997 - present WM
Advisors, Inc.
1201 Third Ave., Suite 1400, Seattle, WA 98101
President March 1997 - present
WM Financial Services
1201 Third Ave., 7th Floor, Seattle, WA 98101
President December 1996 - July 1997
ASB Financial Services, Irvine, CA
Senior Vice President/Regional Manager November 1996 - December 1996
Wells Fargo Securities/First Interstate, Houston, TX
Kerry K. Killinger WM Advisors, Inc.
Director 1201 Third Ave., Suite 1400, Seattle, WA 98101
CEO, Chairman, Director Washington Mutual Bank
1201 Third Avenue, Seattle, WA 98101
Director July 1997 - present
WM Funds Distributor, Inc.
601 West Main Ave., Suite 300, Spokane, WA 98201
Director WM Shareholder Services, Inc.
601 West Main Ave., Suite 300, Spokane, WA 98201
Officers Past two fiscal years
Philip M. Foreman WM Advisors, Inc.
Vice President 1201 Third Ave., Suite 1400, Seattle, WA 98101
Sharon L. Howells WM Advisors, Inc.
</TABLE>
-5-
<PAGE> 167
<TABLE>
<S> <C>
First Vice President, 1201 Third Ave., Suite 1400, Seattle, WA 98101
Corporate Secretary
Vice President, July 1997 - present
Corporate Secretary WM Funds Distributor, Inc.
601 West Main Ave., Suite 300, Spokane, WA 98201
Corporate Secretary WM Shareholder Services, Inc.
601 West Main Ave., Suite 300, Spokane, WA 98201
Jeffrey D. Huffman WM Advisors, Inc.
Vice President 1201 Third Ave., Suite 1400, Seattle, WA 98101
B. Joel King March 1998 - present
Vice President WM Advisors, Inc.
1201 Third Ave., Suite 1400, Seattle, WA 98101
Vice President January 1996 - February 1998
Bennington Capital Management
1420 Fifth Ave., Seattle, WA 98101
William G. Papesh WM Advisors, Inc.
President, Director 1201 Third Ave., Suite 1400, Seattle, WA 98101
President, Director WM Shareholder Services, Inc.
601 West Main Ave., Suite 300, Spokane, WA 98201
Director WM Insurance Services
1201 Third Ave., Seattle, WA 98101
President, Director WM Group of Funds
601 West Main Ave., Suite 300, Spokane, WA 98201
President, Director July 1997 - present
WM Funds Distributor, Inc.
601 West Main Ave., Suite 300, Spokane, WA 98201
Brian L. Placzek WM Advisors, Inc.
Vice President 1201 Third Ave., Suite 1400, Seattle, WA 98101
Gary J. Pokrzywinski WM Advisors, Inc.
Vice President 1201 Third Ave., Suite 1400, Seattle, WA 98101
Audrey S. Quaye February 1996 - present
Vice President WM Advisors, Inc.
1201 Third Ave., Suite 1400, Seattle, WA 98101
Credit Analyst January 1996 - February 1996
Tandem Computers, Cupertino, CA
</TABLE>
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<PAGE> 168
<TABLE>
<S> <C>
Stephen C. Scott March 1998 - present
Vice President WM Advisors, Inc.
1201 Third Ave., Suite 1400, Seattle, WA 98101
Senior Investment Advisor Sierra Investment Services Corporation
9301 Corbin Ave., Northridge, CA 91324
President Sierra Investment Services Corporation
9301 Corbin Ave., Northridge, CA 91324
David W. Simpson WM Advisors, Inc.
Vice President 1201 Third Ave., Suite 1400, Seattle, WA 98101
Linda C. Walk December 1997 - present
Vice President WM Advisors, Inc.
1201 Third Ave., Suite 1400, Seattle, WA 98101
November 1996 - November 1997
Laid Norton Trust Company
Norton Building, Suite 1600, Seattle, WA 98104
January 1996 - July 1996
Ernst & Young LLP
2001 Market Street, 41st Floor, Philadelphia, PA 19103
</TABLE>
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<PAGE> 169
Item 29. Principal Underwriters.
(a) The principal underwriter for the Registrant is WM Funds
Distributor, Inc. which also serves in the same capacity for WM Trust II, WM
Trust I and WM Variable Trust.
(b) The directors and officers of WM Funds Distributor, Inc., their
positions with WM Funds Distributor, Inc. and the WM Group of Funds are set
forth in the table below. The principal business address of WM Funds
Distributor, Inc. and each of its directors and officers is 1201 Third Avenue,
Suite 1400, Seattle, WA 98101.
<TABLE>
<CAPTION>
Name and Position And Positions And
Principal Business Offices With Offices With
Address Underwriter Registrant
------- ----------- ----------
<S> <C> <C>
William G. Papesh President President
Sandra A. Cavanaugh First Vice President Senior Vice President
Monte D. Calvin Vice President, Chief Financial Officer,
Treasurer Senior Vice President
Sharon L. Howells Vice President, Senior Vice President
Corporate Secretary
</TABLE>
(c) Not applicable.
-8-
<PAGE> 170
Item 30. Location of Accounts and Records.
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the rules thereunder
will be maintained at the offices of the Registrant at 1201 Third Avenue, Suite
1400, Seattle, WA 98101, and the offices of the Registrant's custodian, Boston
Safe Deposit and Trust Company, One Boston Place, Boston, MA 02108.
Item 31. Management Services.
Registrant is not a party to any management related contract, other than
as set forth in the Prospectus.
Item 32. Undertakings.
(a) The Registrant undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual report to
shareholders upon request and without charge.
(b) The Registrant has undertaken to call a meeting of its
shareholders for the purpose of voting upon the question of removal of a trustee
or trustees of Registrant when requested to do so by the holders of at least 10%
of Registrant's outstanding shares. The Registrant has undertaken further, in
connection with the meeting, to comply with the provisions of Section 16(c) of
the Investment Company Act of 1940, as amended, relating to communications with
the shareholders of certain common-law trusts.
-9-
<PAGE> 171
Exhibit Index
11 Consent of Independent Accountants dated October 22, 1998.
17 Financial Data Schedules for the year ended June 30, 1998.
-10-
<PAGE> 172
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it meets all of the requirements for effectiveness of this
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized in the City of Seattle in the
State of Washington on the 26th day of October, 1998.
WM STRATEGIC ASSET MANAGEMENT PORTFOLIOS
WILLIAM G. PAPESH
____________________________
WILLIAM G. PAPESH, PRESIDENT
Pursuant to the requirement of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
Signature Title Date
WILLIAM G. PAPESH
- ----------------------- President and Trustee October 26, 1998
William G. Papesh
MONTE D. CALVIN
- ----------------------- Chief Financial Officer October 26, 1998
Monte D. Calvin
DAVID E. ANDERSON* Trustee October 26, 1998
- -----------------------
David E. Anderson*
WAYNE L. ATTWOOD, M.D.* Trustee October 26, 1998
- -----------------------
Wayne L. Attwood, M.D.
ARTHUR H. BERNSTEIN* Trustee October 26, 1998
- -----------------------
Arthur H. Bernstein
KRISTIANNE BLAKE* Trustee October 26, 1998
- -----------------------
Kristianne Blake
EDMOND R. DAVIS* Trustee October 26, 1998
- -----------------------
Edmond R. Davis
<PAGE> 173
Signature Title Date
JOHN W. ENGLISH* Trustee October 26, 1998
- -----------------------
John W. English
ANNE V. FARRELL* Trustee October 26, 1998
- -----------------------
Anne V. Farrell
MICHAEL K. MURPHY* Trustee October 26, 1998
- -----------------------
Michael K. Murphy
ALFRED E. OSBORNE, JR.* Trustee October 26, 1998
- -----------------------
Alfred E. Osborne, Jr.
DANIEL PAVELICH* Trustee October 26, 1998
- -----------------------
Daniel Pavelich
JAY ROCKEY* Trustee October 26, 1998
- -----------------------
Jay Rockey
RICHARD C. YANCEY* Trustee October 26, 1998
- -----------------------
Richard C. Yancey
* Pursuant to Powers of Attorney previously filed.
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and the
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 5 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated August 14, 1998, relating to the financial
statements and financial highlights appearing in the June 30, 1998 Annual
Reports to Shareholders of WM Strategic Asset Management Portfolios (formerly
known as Sierra Asset Management Portfolios), which are also incorporated by
reference into the Registration Statement. We also consent to the references to
us under the heading "Financial Highlights" in the Prospectus and under the
heading "Independent Accountants and Financial Statements" in the Statement of
Additional Information.
PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
October 22, 1998
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> WM SAM STRATEGIC GROWTH PORTFOLIO CL. A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 64,007,749
<INVESTMENTS-AT-VALUE> 68,906,649
<RECEIVABLES> 838,673
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 34,036
<TOTAL-ASSETS> 69,779,358
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 275,985
<TOTAL-LIABILITIES> 275,985
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 15,472,896
<SHARES-COMMON-STOCK> 1,448,239
<SHARES-COMMON-PRIOR> 1,266,018
<ACCUMULATED-NII-CURRENT> 343,195
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,843,883
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,898,900
<NET-ASSETS> 18,330,270
<DIVIDEND-INCOME> 546,974
<INTEREST-INCOME> 26,543
<OTHER-INCOME> 0
<EXPENSES-NET> 900,782
<NET-INVESTMENT-INCOME> (327,265)
<REALIZED-GAINS-CURRENT> 8,905,540
<APPREC-INCREASE-CURRENT> 2,307,572
<NET-CHANGE-FROM-OPS> 10,885,847
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (950,866)
<DISTRIBUTIONS-OF-GAINS> (53,136)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 602,394
<NUMBER-OF-SHARES-REDEEMED> (513,861)
<SHARES-REINVESTED> 93,688
<NET-CHANGE-IN-ASSETS> 19,448,582
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 316,081
<OVERDISTRIB-NII-PRIOR> (202,159)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 91,196
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 988,861
<AVERAGE-NET-ASSETS> 16,478,824
<PER-SHARE-NAV-BEGIN> 11.26
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 2.12
<PER-SHARE-DIVIDEND> (0.68)
<PER-SHARE-DISTRIBUTIONS> (0.04)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.66
<EXPENSE-RATIO> 0.94
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 012
<NAME> WM SAM STRATEGIC GROWTH PORTFOLIO CL. B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 64,007,749
<INVESTMENTS-AT-VALUE> 68,906,649
<RECEIVABLES> 838,673
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 34,036
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<NAME> WM SAM CONSERVATIVE GROWTH PORTFOLIO CL. A
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<NAME> WM SAM CONSERVATIVE GROWTH PORTFOLIO CL. B
<S> <C>
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<TABLE> <S> <C>
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<NUMBER> 031
<NAME> WM SAM BALANCED PORTFOLIO CL. A
<S> <C>
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<TABLE> <S> <C>
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<SERIES>
<NUMBER> 032
<NAME> WM SAM BALANCED PORTFOLIO CL. B
<S> <C>
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<TABLE> <S> <C>
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<NUMBER> 041
<NAME> WM SAM FLEXIBLE INCOME PORTFOLIO CL. A
<S> <C>
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<TABLE> <S> <C>
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<NUMBER> 042
<NAME> WM SAM FLEXIBLE INCOME PORTFOLIO CL. B
<S> <C>
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<TABLE> <S> <C>
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<NUMBER> 051
<NAME> WM SAM INCOME PORTFOLIO CL. A
<S> <C>
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<TABLE> <S> <C>
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<SERIES>
<NUMBER> 052
<NAME> WM SAM INCOME PORTFOLIO CL. B
<S> <C>
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<ACCUMULATED-NII-PRIOR> 18,156
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (25,034)
<GROSS-ADVISORY-FEES> 22,941
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 225,458
<AVERAGE-NET-ASSETS> 4,461,045
<PER-SHARE-NAV-BEGIN> 10.13
<PER-SHARE-NII> 0.56
<PER-SHARE-GAIN-APPREC> 0.22
<PER-SHARE-DIVIDEND> (0.57)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.34
<EXPENSE-RATIO> 1.70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
