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[logo] WM
GROUP of FUNDS
STRATEGIC ASSET
MANAGEMENT PORTFOLIOS
[graphic omitted]
THE DIFFERENCE IS EXPERIENCE
ANNUAL REPORT
for the period ended October 31, 1998
<PAGE>
MESSAGE FROM THE PRESIDENT ............................................... 1
WM GROUP OF FUNDS MARKET & ECONOMIC OVERVIEW ............................. 2
INDIVIDUAL PORTFOLIO REVIEWS ............................................. 5
STATEMENTS OF ASSETS AND LIABILITIES ..................................... 16
STATEMENTS OF OPERATIONS ................................................. 18
STATEMENTS OF CHANGES IN NET ASSETS ...................................... 20
STATEMENTS OF CHANGES IN NET ASSETS - CAPITAL STOCK ACTIVITY ............. 24
FINANCIAL HIGHLIGHTS ..................................................... 26
PORTFOLIO OF INVESTMENTS ................................................. 31
NOTES TO FINANCIAL STATEMENTS ............................................ 36
INDEPENDENT AUDITORS' REPORT .............................................. 41
TAX INFORMATION (UNAUDITED) .............................................. 42
<PAGE>
DEAR shareholder: [Photo of William G. Papesh]
As 1998 draws to a close, I would like to take this opportunity to reflect on
the events that we have witnessed in the investment markets this year. While the
U.S. stock and bond markets both posted positive returns to investors through
October, 1998, you probably know that there were some unusually bumpy periods
along the way.
The widespread stock market volatility that began in Asia and culminated in
substantial declines in some Latin American markets demonstrated quite clearly
that the world's financial markets have become intertwined in recent years. Yet
the economies of these geographic regions, and even individual countries, remain
less closely linked. In 1998, this difference between economic events and market
events highlighted the importance of maintaining a long-term perspective when
pursuing long-term objectives.
Twenty years ago, money moved more slowly between investment markets than it
does today. The development of new communication and money-transfer technologies
over the years has created a new type of investor - institutions who invest
large amounts of capital in short-term opportunities throughout the world. One
result is that local events which affect one financial market can quickly spill
over to far distant economies as money is moved around the globe. In some cases
the result can be the tail wagging the dog. An example is the nearly 11% decline
in the U.S. stock market in August immediately following Russia's devaluation of
its currency. That decline was in part due to the need by some investment
companies to raise cash by selling holdings in the U.S.
Maintaining a long-term perspective during such periods can help investors avoid
turning a "paper loss" into a real one. Focusing on the longer term can also be
key to recognizing opportunity. A basic tenet of the investment approach
followed by portfolio managers who steer the individual funds in the WM Group of
Funds is that long-term investment opportunities are identified by focusing on
fundamental factors such as earnings. When distortions in market prices occur
due to temporary factors that do not affect fundamentals, investment managers
often have opportunities to buy at below-value prices.
THREE KEY REASONS FOR KEEPING ON TRACK
STAYING FOCUSED ON INVESTMENT OBJECTIVES can help individuals withstand market
turbulence. As an individual investor, how you pursue your financial goals will
be affected by several factors including your investment time frame, and your
ability to withstand a potential loss in the value of your investments. If you
choose investments that are appropriate to your goals, you'll probably be less
tempted to abandon your strategy during a market downturn.
MAINTAINING REALISTIC EXPECTATIONS is another key to keeping your equilibrium
during changing markets. According to a recent survey, nearly two thirds of
individual investors expect the long-term total return on their stock
investments to average 12% per year or less.* That's actually lower than recent
long-term historical trends. For example, over the four decades that ended on
June 30, 1998, the compound rate of return on the S&P 500 was 12.24%, with
periods of declining as well as rising prices. During those 40 years, there were
12 corrections in which prices slid by 10% or more before resuming their
generally upward trend.**
Finally, FOLLOWING SOUND INVESTMENT PRINCIPLES BY DIVERSIFYING YOUR INVESTMENTS
is always wise. Stock investments have captured the media's attention for the
last several years, but fixed-income investments have always been an important
part of a diversified portfolio, providing an income stream that can help smooth
out returns. For example, during the second and third quarters of 1998, bond
investments were the top performers while stock prices were on the decline.
Thank you for your continued confidence in the WM Group of Funds. We are
committed to continuing to serve you, our shareholder, by providing an
appropriate selection of investment vehicles and mutual funds managed by
experienced professionals - just as we have for nearly 60 years.
Sincerely,
/s/ William G. Papesh
William G. Papesh
President
* Source: Business Week, June 15, 1998.
** Source: Standard & Poor's. The S&P 500 is an unmanaged index that is
generally considered representative of the U.S. stock market. The
performance of any index is not indicative of the performance of a
particular investment and does not take into account the effects of fees and
expenses associated with purchasing mutual fund shares. Individuals cannot
invest directly in any index. Past performance does not guarantee future
results.
<PAGE>
WM GROUP OF FUNDS
MARKET & ECONOMIC OVERVIEW
STEPHEN C. SCOTT
SENIOR PORTFOLIO MANAGER
WM ADVISORS, INC.
Mr. Scott received his B.A. and M.B.A. from California State University, Long
Beach. He is responsible for providing economic analysis, as well as conducting
investment analysis, and management for the Strategic Asset Management (SAM)
Portfolios. Mr. Scott is also Senior Portfolio Manager of WM Advisors, Inc., the
investment advisor to WM Group of Funds, which he joined in March 1998. Prior to
that date, Mr. Scott managed the SAM Portfolios under Sierra Investment Services
(SISC). Before joining SISC, Mr. Scott was President & Chairman of his own firm,
SDS Investment Advisors, after serving nine years as Senior Pension Investment
Manager with the Group Pension and Investment Division of The Equitable Life
Assurance Society of the United States.
INTERNATIONAL EVENTS UNDERLIE
U.S. MARKET ENVIRONMENT IN 1998
The exceptional performance of the U.S. stock market in recent years has been
driven largely by a vibrant U.S. economy. But in 1998, events in international
markets played a key role.
From January through June, the Dow Jones Industrial Average Index of 30 Stocks
(DJIA) rose 13%, from 7908 at December 31, 1997 to 8952 at the end of June. But
from June through August, the index fell nearly 16%, erasing all of the year's
gains, as political and economic uncertainty in Asia, Eastern Europe, and Latin
America roiled financial markets around the world.
While U.S. stocks have since recovered - the DJIA posted a total return of 14%
in September and October - a look at the events underlying the market's recent
volatility provides valuable investment insights.*
DOW JONES INDUSTRIAL AVERAGE
12 months ended 10-31-98
Oct 97 7442
Nov 97 7581
7572
7881
7823
Dec 97 8149
7838
7756
7679
7908
Jan 98 7965
7580
7753
7700
7906
Feb 98 8189
8370
8413
8545
Mar 98 8569
8602
8906
8796
Apr 98 8983
8994
9167
9064
May 98 9147
9055
9096
9114
8899
Jun 98 9037
8834
8712
8945
Jul 98 9025
9106
9338
8937
8883
Aug 98 8598
8425
8534
8052
Sep 98 7640
7796
7896
8029
Oct 98 7785
7900
8417
8452
8592
* Source: The Wall Street Journal
Note: The Dow Jones Industrial Average is an unmanaged index of 30 stocks and is
sometimes used to measure the overall U.S. equity market. Individuals cannot
invest directly in an index.
AN INTERNATIONAL CONFIDENCE CRISIS
The start of the summer's market slide coincided with a deepening currency
crisis in Southeast Asia, which led to currency devaluations in emerging market
economies there, including Malaysia and Indonesia. The result was a sharp
decline in economic growth in these countries. Last year the International
Monetary Fund (IMF) predicted Indonesia's gross domestic product would grow by
8% in 1998; instead, it will probably shrink by 10%. From growth rates of around
8% in 1996 and 1997, Malaysia is down 7% in 1998. The recession in these "growth
engine" countries has also put further pressure on Japan, which is still
struggling to reform and stabilize its own financial institutions.
As analysts began scaling back earnings forecasts for some U.S. companies that
sell products and services in Asia, particularly technology companies, problems
arose in other parts of the world. In August, political and economic troubles
surfaced in Russia.
On August 17, Russia defaulted on interest payments on $40 billion in short-term
debts and devalued the Ruble. The resulting losses incurred by Russia's
financial institutions led to widespread bank failures in that country,
particularly among the nation's smaller banks, and a collapse in stock prices.
As the scope of Russia's problems widened, prices of U.S. stocks fell sharply,
with the DJIA price index dropping 4.19% on August 27 and more than 6% on
August 31.
ASSET CLASS PERFORMANCE DISPARITY
one-year ended 10-31-98
LARGE-CAP STOCKS 22.00%
MID-CAP STOCKS 6.71%
SMALL-CAP STOCKS -11.84%
EUROPEAN STOCKS 23.42%
PACIFIC STOCKS -13.70%
EMERGING COUNTRIES -28.86%
INTERMEDIATE TREASURY BONDS 13.46%
INTERMEDIATE CORPORATE BONDS 8.06%
HIGH-YIELD CORPORATE BONDS -2.49%
Source: Ibbotson Associates. Domestic stocks are represented by: S&P 500, S&P
400 Midcap, and the Russell 2000, respectively. International equities are
represented by the Morgan Stanley Capital International regional indices. Bond
indices are represented by: Merrill Lynch, Lehman Brothers, and Ibbotson,
respectively. There are additional risks associated with international
investing, including currency fluctuations. An investor would typically purchase
stocks for long-term growth of capital. However, stocks are often subject to
significant price fluctuation and therefore an investor may have a gain or loss
in principal when the shares are sold. Indices are unmanaged and individuals
cannot invest directly in an index. This chart is not intended to represent the
performance of any mutual fund.
The U.S. market's reaction to the crisis in Russia reflected short-term
considerations rather than long-term fundamentals. Russia is not a significant
trading partner with the U.S., and the impact on U.S. companies due to a slower
economy in Russia is likely to be minimal. However, some investment companies in
the U.S. and Europe which had invested in Russia's emerging financial markets
were forced to sell U.S. stock holdings to provide cash needed to cover losses
in Russia.
Adding to the problems in Russia and Asia were concerns about economic stability
in Latin America. These fears adversely affected stock prices in the region.
Interest rates in Brazil and Mexico rose sharply as central banks sought to stem
capital outflows from worried investors.
With the spread of the confidence crisis to Latin America in September, Federal
Reserve Chairman Alan Greenspan urged the U.S. and other developed nations to
focus on efforts designed to promote economic growth. Mr. Greenspan's comments
fueled a record 381 point surge in the DJIA on September 8 as Fed watchers began
anticipating a cut in U.S. interest rates.
The Federal Reserve Open Market Committee (FOMC) lowered short-term rates at its
September 29 meeting by one-quarter of a percentage point. This cut was less
than many investors expected, however, as evidenced by a subsequent 6% decline
in the DJIA. In October, the Federal Reserve again lowered rates another quarter
point, citing slower growth in new jobs and indications of lower inflation.
YIELD ON THE 30-YEAR TREASURY BOND
12 months ended 10-31-98
30 Year Treasury
Oct 97 6.15
Nov 97 6.16
6.11
6.03
6.05
Dec 97 6.08
5.92
5.92
5.9
5.92
Jan 98 5.84
5.73
5.81
5.97
5.8
Feb 98 5.92
5.85
5.87
5.92
Mar 98 6.02
5.89
5.88
5.96
Apr 98 5.79
5.88
5.88
5.95
May 98 5.93
5.98
5.97
5.9
5.8
Jun 98 5.79
5.66
5.67
5.63
Jul 98 5.6
5.63
5.75
5.69
5.71
Aug 98 5.63
5.54
5.43
5.34
Sep 98 5.29
5.23
5.15
5.11
Oct 98 4.84
5.12
4.98
5.18
5.16
Source: The Wall Street Journal
Note: Represents yield on the 30-year Treasury Bond which is sometimes used to
characterize the overall bond market.
OUTLOOK FOR MODEST GROWTH,
LOW INFLATION
As the fourth quarter draws to a close, the outlook for fundamental economic
indicators - unemployment, inflation, and interest rates - remains positive for
U.S. investors. However, there are continuing concerns that pressure from the
slowdown in Asia may further slow domestic growth, despite the fact that only
about 5% of U.S. economic activity involves Asia.
Another factor affecting the domestic stock market positively is a high level of
merger activity. During the first half of 1998, corporate mergers totaled a
record $1.4 trillion - more than double 1997's first-half total with 7 of the 10
largest mergers in history having been announced since April.
In 1999, investors will be evaluating the potential effects of the introduction
of the new Euro currency. On January 1, eleven European countries will comprise
the European Monet-ary Union (EMU). With a population 10% greater than the
United States, the EMU will control the world's second-largest economy and
generate nearly 25% of the world's total economic output. Countries admitted
into the EMU have to meet strict criteria to ensure their economic and financial
strength, a factor that market analysts believe may strengthen the EMU's
competitive position and, in turn, stimulate growth and employment.
By adopting a single currency, the 11 participating countries will eliminate the
costs and complications associated with currency fluctuations and conversions.
As a result, trade activities within the EMU may become less risky and less
expensive. Cost comparisons among goods and services should also be facilitated.
Monetary policy governing the Euro will be directed by the European Central
Bank, an organization similar to the U.S. Federal Reserve Bank. This
organization will monitor the money supply and set interest rate policy.
THE RETURN OF MARKET VOLATILITY
daily equity volatility for various
periods ended 10/31/98
A DIVERSIFIED PORTFOLIO MAY SMOOTH OUT THE INCREASED MARKET VOLATILITY SEEN IN
RECENT MONTHS.
Volitility
3 Months 1.9
1 Year 1.26
10 Years 0.87
20 Years 1.01
Source: Bloomberg Business News. Represents daily results of the Dow Jones
Industrial Average. Volatility is measured by the standard deviation of
investment results. Standard deviation is a measurement of results relative to
the average return. A lower standard deviation means less volatility or
investment risk. Past performance is not a guarantee of future results.
PREPARING FOR WHAT TOMORROW MAY BRING
Long-term investment opportunities remain attractive, both in the U.S. and
abroad. But as 1998 has shown, many factors can affect investment returns from
month to month. Individual investors can best prepare to weather inevitable
periods of market volatility by ensuring that their investment portfolios match
their goals and investment time frame.
The WM Group of Funds offers a comprehensive spectrum of professionally managed
products to provide investors with appropriate opportunities to pursue their
financial goals. Your Investment Representative can help you evaluate your
individual circumstances, including your need for cash reserves, investment
income, and long-term growth potential. He or she can then assist you in
selecting a portfolio that is designed to pursue your objectives with an
acceptable level of risk.
In asset allocation, we diversify among several asset classes - money market,
bond, and stock investments - which helps temper the effects of market
volatility on your portfolio returns over time. Stock and bond prices, for
example, often do not react in identical ways to economic events. A price
decline in the stock market may be partially offset by a rally in bond prices,
so holding some of each in your portfolio can help smooth out your returns.
The Strategic Asset Management Portfolios offer you the added convenience of
investing in a portfolio that is actively managed to pursue market opportunities
as they arise while seeking the potential risk reduction benefits of
diversification and asset allocation. For more information on any of the SAM
Portfolios or Funds in the WM Group of Funds, speak with your Investment
Representative.
<PAGE>
INDIVIDUAL
portfolio reviews
TO OUR ASSET
ALLOCATION CLIENTS
Welcome to the Strategic Asset Management Portfolios.
We are pleased to provide you with an overview of our five asset allocation
portfolios, each designed to meet your individual investment needs.
This report includes performance reviews and highlights of the investment
strategies incorporated during the 12-month period ended October 31, 1998.
UNDERSTANDING THE ENCLOSED CHARTS AND PERFORMANCE
In order to help you understand the Strategic Asset Management (SAM) Portfolios'
investment performance, we have included the following discussions along with
graphs that compare the Portfolios' performance with certain capital market
benchmarks. The benchmarks are a blended mix of capital market indices intended
to represent a proxy for Portfolio performance. Descriptions of the indices used
are as follows:
o The SALOMON BROTHERS U.S. 90-DAY T-BILL INDEX measures performance of United
States Treasury Bills with maturities of three months.
o The LEHMAN BROTHERS MUTUAL FUND (1-5) GOVERNMENT/CORPORATE INDEX is
represented by all U.S. government agency and Treasury securities and all
investment-grade corporate debt securities with maturities of one to five
years.
o The LEHMAN BROTHERS MORTGAGE-BACKED SECURITIES INDEX includes 15- and
30-year fixed rate securities backed by mortgage pools of the Government
National Mortgage Association (GNMA), Federal Home Loan Mortgage Corporation
(FHLMC), and Federal National Mortgage Association (FNMA). Balloons are
included in the index; graduated payment mortgages (GPMs), buydowns,
manufactured home mortgages, and graduated equity mortgages (GEMs) are not.
o The LEHMAN BROTHERS BAA LONG-TERM CORPORATE BOND INDEX includes all publicly
issued, fixed rate, nonconvertible BAA rated, dollar-denominated,
SEC-registered corporate debt with maturities greater than ten years.
o The LEHMAN BROTHERS AGGREGATE INDEX is an all-inclusive bond index which
contains government, corporate, mortgage and asset-backed securities.
o The STANDARD & POOR'S 500 COMPOSITE INDEX is a capitalization-weighted index
of 500 stocks designed to measure performance of the broad domestic economy
and all economic sectors.
o The RUSSELL 2000 INDEX measures the performance of the 2,000 smallest
companies (approximately 10% of the total market capitalization) of the
Russell 3000 Index.
o The RUSSELL 2000 GROWTH INDEX measures the performance of the companies with
higher price-to- book ratios and higher forecasted growth values within the
Russell 2000 Index.
o The RUSSELL 3000 INDEX is comprised of the 3,000 largest U.S. companies
based on total market capitalization, which represents approximately 98% of
the investable U.S. equity market.
o The MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) EUROPE, AUSTRALASIA, AND THE
FAR EAST PLUS EMERGING MARKETS FREE INDEX is a market capitalization
weighted index composed of companies representative of the market structure
of 48 developed and emerging market countries. The index is calculated with
gross dividends reinvested and in United States Dollars.
Generally, an index represents the market value of an unmanaged group of
securities, regarded by investors as representative of a particular market. An
index does not reflect any asset-based charges for investment management or
other expenses. Index results on the following pages include changes in value
and the reinvestment of dividends. Total return is used to measure a Portfolio's
performance and reflects both changes in the value of the Portfolio's shares as
well as any income dividend and/or capital gain distributions made by the
Portfolio during the period. Past performance is not a guarantee of future
results. A mutual fund's share price and investment return will vary with market
conditions, and the principal value of an investment when you sell your shares
may be more or less than the original cost.
The 30-day SEC yield is the yield calculated pursuant to a standard formula
required by the Securities and Exchange Commission ("SEC") for performance
advertisement purposes, and does not imply any endorsement or recommendation by
the SEC.
Yield indicates the investment income per share as a percentage of the ending
offering price, whereas total return includes both net investment income and
changes in the value of the shares as a percentage of the initial investment.
THE YEAR 2000 PROBLEM
Many computer systems in use today cannot process date-related information from
and after January 1, 2000. At the stroke of midnight on New Year's Eve, 1999,
some computer systems could become seriously confused. They may miscalculate
critical data, delete vital files, or simply not turn on because the computer's
internal calendars and clocks may not recognize the year 2000. This issue stems
from the practice of abbreviating years to their last two digits. Computer
systems may not be able to decide correctly when a date entered with a year of
"00" should be interpreted as 1900 or 2000.
Should any of the computer systems employed by the Portfolios' major service
providers fail to process this type of information properly, that could have a
negative impact on Portfolio operations and the services that are provided to
shareholders. Similarly, the values of certain Portfolios' 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.
The Advisor, Shareholder Servicing Agent and Administrator have advised the
Portfolios that they are reviewing all of their computer systems with their goal
of modifying or replacing such systems prior to January 1, 2000 to the extent
necessary to avoid any such negative impact. Furthermore, the Portfolios are
seeking assurance from each of their key service providers that similar
replacements or modifications will be completed to avoid any negative impact
from this issue. In the event a key service provider cannot provide such
assurance, the Portfolios may consider retaining an alternate service provider.
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
report, the Portfolios and Advisor have no reason to believe that these goals
will not be achieved.
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STRATEGIC GROWTH
portfolio
GROWTH OF A $10,000 INVESTMENT(5)
(class A shares)
Benchmark
Index
NAV Sales Grth 10K Inflation Russell3K
$10,000 $ 9,450 $10,000 $10,000 $10,000
10,375 9,805 10,235 10,000 10,289
10,908 10,308 10,576 10,040 10,703
Aug 95 10,992 10,387 10,604 10,080 10,798
11,291 10,670 11,049 10,113 11,217
Oct 95 10,951 10,349 11,010 10,147 11,120
11,346 10,722 11,494 10,167 11,614
Dec 95 11,657 11,015 11,707 10,187 11,803
11,849 11,197 12,110 10,187 12,146
Feb 96 12,208 11,536 12,226 10,214 12,324
12,530 11,840 12,343 10,234 12,448
Apr 96 12,886 12,177 12,525 10,268 12,684
13,146 12,423 12,848 10,261 13,009
Jun 96 12,799 12,095 12,901 10,254 12,967
11,893 11,238 12,327 10,314 12,288
Aug 96 12,444 11,760 12,588 10,347 12,660
12,982 12,268 13,295 10,401 13,349
Oct 96 12,824 12,118 13,660 10,442 13,593
13,455 12,715 14,696 10,461 14,551
Dec 96 13,358 12,623 14,408 10,468 14,377
13,730 12,975 15,303 10,488 15,172
Feb 97 13,537 12,792 15,427 10,508 15,188
12,919 12,209 14,785 10,541 14,502
Apr 97 13,177 12,452 15,668 10,575 15,217
14,038 13,266 16,630 10,595 16,256
Jun 97 14,489 13,692 17,372 10,595 16,932
15,441 14,592 18,751 10,629 18,260
Aug 97 14,862 14,044 17,709 10,662 17,518
15,569 14,713 18,678 10,689 18,512
Oct 97 14,914 14,094 18,055 10,701 17,890
14,966 14,143 18,891 10,695 18,575
Dec 97 14,981 14,157 19,215 10,708 18,946
15,159 14,325 19,429 10,728 19,045
Feb 98 16,325 15,427 20,830 10,748 20,407
17,094 16,154 21,897 10,769 21,419
Apr 98 17,326 16,373 22,117 10,788 21,629
16,819 15,894 21,737 10,808 21,094
Jun 98 17,367 16,412 22,620 10,821 21,807
16,955 16,023 22,379 10,834 21,411
Aug 98 14,266 13,482 19,143 10,847 18,130
15,158 14,324 20,370 10,860 19,367
Oct 98 16,008 15,128 22,025 10,873 20,837
+ The performance of the Class B Shares was different than that shown above for
the Class A Shares, based on the difference in sales loads and fees paid by
Class B shareholders.
TOTAL RETURNS AS OF 10/31/98(5)
CLASS A SHARES 1 YEAR 5 YEAR* SINCE INCEPTION*
(May 31, 1995)
- -------------------------------------------------------------------------------
Fund (not adjusted for sales charge) 7.56% N/A 14.82%
- -------------------------------------------------------------------------------
Fund (adjusted for maximum 5.5% sales charge) 1.65% N/A 12.93%
- -------------------------------------------------------------------------------
Capital Market Benchmark(1) 21.99% N/A 26.00%
- -------------------------------------------------------------------------------
CLASS B SHARES 1 YEAR 5 YEAR* SINCE INCEPTION*
(May 31, 1995)
- -------------------------------------------------------------------------------
Fund (not adjusted for sales charge) 6.77% N/A 14.01%
- -------------------------------------------------------------------------------
Fund (adjusted for maximum CDSC) 1.77% N/A 13.58%
- -------------------------------------------------------------------------------
Capital Market Benchmark(1) 21.99% N/A 26.00%
- -------------------------------------------------------------------------------
(1) The Strategic Growth Portfolio's benchmark is a capital market index that
is intended to represent a proxy for Portfolio performance. The benchmark
allocation is as follows: 100% S&P 500. Past investment performance does
not guarantee future performance. The returns shown for the Portfolio
assume reinvestment of all dividends/distributions by the shareholder.
(2) The Russell 3000 Index is a broad-based index and is intended to represent
the equity market as a whole.
(3) Inflation is measured by the Consumer Price Index for all urban customers.
(4) Annual rate of inflation: 2.17%. Source: Ibbotson Associates
(5) All performance shown prior to the November 1, 1996 asset conversion date
(the date on which the majority of existing SAM clients voluntarily
exchanged into the new SAM Portfolios) for the Sierra Asset Management
Portfolios represents the performance of the Sierra Asset Management
Account ("SAM Account"), a discretionary asset allocation service that
invested in the Sierra Trust Funds. The SAM Account was not registered as
an investment company under the Investment Company Act of 1940 ("Act") and
therefore, was not subject to certain restrictions that the Act imposes. If
the SAM Account had been registered under the Act, its performance may have
differed significantly.
The Advisor waived a portion of its fee and absorbed certain other expenses
during the periods presented. In the absence of the waivers and the
absorption of other expenses, performance would have been lower.
* Annualized
PERFORMANCE REVIEW
The SAM Strategic Growth Portfolio (A Shares) returned 7.56% (1.65% adjusted for
the maximum sales charge+) for the one-year ended October 31, 1998. Since the
last report on June 30, 1998, the Portfolio reported negative performance as
equity markets declined substantially in August. The Portfolio continues to be
managed in an effort to reduce volatility relative to single asset class equity
investments. Long-term results are favorable and provide a premium over
inflation; since inception, the Portfolio's A Shares returned 12.65%* above the
rate of inflation (10.76%* adjusted for the maximum sales charge+) (4).
ECONOMIC / MARKET REVIEW
Over the past 12 months, fixed-income yields fell substantially across all
maturities, with intermediate-term yields recording the most dramatic decline.
The drop in rates was primarily due to slowing inflation and strong foreign
demand for the safety and liquidity of U.S. Treasuries. A global "flight to
quality" ensued as investors worldwide sold riskier assets and poured money into
the Treasury market. The Federal Reserve enacted policy to infuse liquidity into
the market with two short-term interest rate cuts in September and October.
- -------------------------------------------------------------------------------
MUTUAL FUND ALLOCATION
as of October 31, 1998++
(as a percentage of investment company securities)
- -------------------------------------------------------------------------------
GROWTH & INCOME FUND 41%
GROWTH FUND 35%
MONEY MARKET FUND 5%
INTERNATIONAL GROWTH FUND 19%
- -------------------------------------------------------------------------------
ASSET CLASS DIVERSIFICATION
as of October 31, 1998++
- -------------------------------------------------------------------------------
LARGE-CAP STOCKS 45%
MID-CAP STOCKS 17%
SMALL-CAP STOCKS 5%
BONDS 1%
CASH EQUIVALENT 11%
FOREIGN STOCKS 21%
++ may not reflect current allocation
In the equity markets, the period started very strong as indices climbed to
all-time highs throughout the spring and summer, although the Asian economic
crisis increased volatility. The flight to quality was also evident in equities,
as large, liquid, blue-chip holdings significantly outperformed all other
classes of stocks during the period. Large-cap indices reached their peak on
July 17, 1998 and then began to recess. This performance turned negative in
August, as large-cap stocks (S&P 500) declined over 14% and small-cap stocks
(Russell 2000) dropped nearly 20%. International equities were also extremely
volatile and experienced a major sell off as growing concern regarding global
economic and financial stability climaxed with the Russian default and the
subsequent devaluation of the Ruble. The period closed with positive performance
around the globe as markets bounced back, yet still well short of their previous
highs.
INVESTMENT STRATEGY
The Strategic Growth Portfolio is diversified in four funds, representing six
major asset classes. The combination of asset classes allows us to maximize our
ability to manage risk during periods of market volatility. Asset classes
ranging in risk levels from short-term money market instruments to international
equities are intended to shield the Portfolio from drastic swings in any one
specific area of the financial markets.
The overall investment strategy for the period was to:
o Maintain a large concentration (70-75%) in the two equity funds investing in
the largest-capitalized companies (average for domestic stocks about $45
billion) and reduced small-cap position.
o Concentrate approximately 90% of assets in equities given our long-term
outlook.
o Maintain a small position in the Money Market Fund throughout the year to
temper volatility during turbulent times.
REVIEW OF PORTFOLIO ALLOCATIONS
The Portfolio maintained a structure of 90-95% equities over the majority of the
period. This provided positive overall results during the past 12-months, but
performance was volatile. Much of the return was generated by the Growth Fund,
which benefited from its concentration in strong performing technology and drug
issues. The short-term decline in August significantly impacted Portfolio
performance and should remind shareholders to focus on long-term investing in
the face of market volatility. Although we held a position in small-caps, the
equity position was weighted towards the mid- to large-cap holdings, which
exhibited better relative performance throughout the year. The position in the
small-cap Emerging Growth Fund was removed during the period, and had only a
small negative impact on performance. We increased the international exposure,
which hurt performance of the Portfolio, but we are maintaining our long-term
focus on global markets. The small cash position served to mitigate risk during
the market downturn.
OUTLOOK
Inflation should remain weak in the face of moderate economic growth. This trend
will probably keep the yield on long-term bonds relatively flat, while the
Federal Reserve, sympathetic to easing monetary policy to restore financial
equilibrium, is apt to keep short-term rates moving downward over the short
term. The stance of the Fed, coupled with low inflation, create a positive
backdrop for equity investments as well.
Our long-term outlook calls for an increase in interest rates as the global
economic picture strengthens and the U.S. expansion continues. However, we also
feel that global deflationary forces will remain in the foreseeable future. This
is supported by the trend of technological enhancements, which allow for lower
prices in spite of pressures on wages. This, along with global competition,
could prevent inflation from accelerating as it has historically done at the end
of economic cycles. The effect of a low inflation environment is very positive
for financial assets and should limit the length and the magnitude of interest
rate increases. We expect foreign markets to remain volatile, but many areas
should trend upward as turmoil abates, interest rates decline, and economies
improve.
For 1999, we forecast GDP growth at around 2.5% (a bit above consensus
estimates) with low inflation. This will benefit the consumer, as consumption
should continue to propel the economy forward. The trade picture should improve
late in 1999 as the Dollar declines further and foreign countries can again
afford U.S. goods. In addition, strength in Europe-as the Euro comes on the
scene-and improvements in Asia could incite foreign demand. We expect corporate
profitability to improve as the technological gains from capital investments
continue and greater efficiencies improve the ability to earn higher margins.
This continues to support our positive long-term outlook on stocks, especially
the technology sector. Overall, financial markets should stabilize as monetary,
fiscal, and trading policies are planned and implemented on a global scale. The
Year 2000 bug may be a short-term disruption, but efforts over the next 14
months should avert any major global impact.
<PAGE>
CONSERVATIVE GROWTH
portfolio
GROWTH OF A $10,000 INVESTMENT
(class A shares)
Benchmark
Index Russell
NAV Sales Grth 10K Inflation 3K
--- ----- -------- --------- --------
$10,000 $ 9,450 $10,000 $10,000 $10,000
10,199 9,639 10,294 10,016 9,922
10,427 9,854 10,490 10,039 10,604
Dec 90 10,555 9,975 10,691 10,093 10,930
10,911 10,311 11,013 10,132 11,479
11,482 10,850 11,619 10,225 12,340
11,495 10,863 11,654 10,311 12,704
11,608 10,970 11,719 10,373 12,717
11,872 11,219 11,980 10,395 13,243
Jun 91 11,416 10,788 11,604 10,395 12,639
11,804 11,155 11,971 10,458 13,236
11,991 11,331 12,103 10,473 13,590
12,118 11,451 12,215 10,489 13,436
12,375 11,695 12,375 10,505 13,660
12,105 11,439 12,094 10,536 13,137
Dec 91 12,971 12,258 12,822 10,567 14,609
13,125 12,403 12,750 10,583 14,510
13,238 12,510 12,749 10,613 14,703
12,799 12,095 12,475 10,660 14,378
12,848 12,141 12,609 10,676 14,668
13,152 12,428 12,830 10,707 14,767
Jun 92 12,975 12,261 12,636 10,715 14,501
13,090 12,370 12,822 10,731 15,100
13,166 12,442 12,883 10,769 14,774
13,123 12,401 12,943 10,824 14,972
13,068 12,350 12,848 10,839 15,120
13,370 12,635 13,079 10,855 15,741
Dec 92 13,550 12,805 13,212 10,894 16,023
13,737 12,981 13,305 10,917 16,180
14,001 13,231 13,448 10,947 16,285
14,408 13,616 13,810 10,978 16,692
14,498 13,701 13,947 11,016 16,250
14,831 14,015 14,179 11,032 16,716
Jun 93 14,835 14,019 14,201 11,024 16,825
14,940 14,119 14,296 11,078 16,796
15,576 14,719 14,721 11,117 17,450
15,620 14,761 14,666 11,156 17,448
15,935 15,059 14,905 11,187 17,698
15,540 14,685 14,596 11,202 17,425
Dec 93 16,068 15,184 14,936 11,218 17,767
16,659 15,742 15,416 11,218 18,310
16,309 15,412 15,227 11,250 17,867
15,655 14,794 14,787 11,273 17,086
15,711 14,847 14,949 11,319 17,281
15,555 14,699 15,031 11,327 17,471
Jun 94 15,207 14,371 14,914 11,327 16,993
15,656 14,795 15,185 11,358 17,519
16,083 15,198 15,577 11,397 18,283
15,827 14,956 15,360 11,435 17,894
16,071 15,187 15,593 11,451 18,189
15,521 14,667 15,210 11,459 17,525
Dec 94 15,510 14,657 15,317 11,498 17,797
15,447 14,597 15,366 11,529 18,186
15,694 14,831 15,653 11,575 18,928
15,932 15,056 16,050 11,607 19,400
16,236 15,343 16,402 11,615 19,906
16,610 15,696 16,711 11,630 20,629
Jun 95 17,137 16,194 16,892 11,630 21,225
17,913 16,927 17,377 11,676 22,078
18,076 17,082 17,321 11,723 22,275
18,498 17,481 17,689 11,762 23,139
18,045 17,053 17,577 11,801 22,940
18,551 17,531 18,020 11,824 23,958
Dec 95 19,023 17,977 18,351 11,848 24,349
19,293 18,232 18,657 11,848 25,055
19,847 18,755 18,754 11,879 25,423
20,268 19,153 18,910 11,902 25,678
20,789 19,646 19,207 11,942 26,165
21,123 19,961 19,388 11,933 26,835
Jun 96 20,730 19,590 19,426 11,925 26,749
19,446 18,377 18,907 11,995 25,348
20,234 19,121 19,159 12,034 26,116
20,942 19,790 19,737 12,096 27,536
20,647 19,511 19,905 12,144 28,040
21,279 20,108 20,663 12,167 30,017
Dec 96 21,166 20,002 20,504 12,174 29,657
21,416 20,238 20,924 12,197 31,297
21,103 19,942 21,029 12,220 31,332
20,251 19,137 20,656 12,259 29,915
20,583 19,451 21,165 12,299 31,390
21,871 20,668 22,086 12,322 33,534
Jun 97 22,578 21,336 22,772 12,322 34,929
23,720 22,415 23,633 12,361 37,668
22,826 21,570 22,852 12,400 36,138
23,885 22,571 23,689 12,431 38,187
22,929 21,668 22,993 12,446 36,904
22,909 21,649 23,314 12,438 38,318
Dec 97 22,994 21,729 23,560 12,453 39,084
23,258 21,979 23,862 12,477 39,287
24,730 23,370 24,910 12,500 42,096
25,742 24,326 25,607 12,524 44,184
26,071 24,637 25,784 12,547 44,617
25,435 24,936 25,488 12,569 43,515
Jun 98 26,007 24,577 25,889 12,584 44,986
25,503 24,100 25,806 12,599 44,167
21,813 20,613 23,582 12,615 37,401
22,888 21,629 24,234 12,630 39,952
Oct 98 24,096 22,771 25,527 12,645 42,984
+ The performance of the Class B Shares was different than that shown above for
the Class A Shares, based on the difference in sales loads and fees paid by
Class B shareholders.
TOTAL RETURNS AS OF 10/31/98(5)
CLASS A SHARES 1 YEAR 5 YEAR* SINCE INCEPTION*
(September 30, 1990)
- -------------------------------------------------------------------------------
Fund (not adjusted for sales charge) 5.07% 8.61% 11.50%
- -------------------------------------------------------------------------------
Fund (adjusted for maximum 5.5%
sales charge) -0.71% 7.39% 10.72%
- -------------------------------------------------------------------------------
Capital Market Benchmark(1) 11.02% 11.36% 12.29%
- -------------------------------------------------------------------------------
CLASS B SHARES 1 YEAR 5 YEAR* SINCE INCEPTION*
(June 30, 1994)
- -------------------------------------------------------------------------------
Fund (not adjusted for sales charge) 4.32% N/A 10.41%
- -------------------------------------------------------------------------------
Fund (adjusted for maximum CDSC) -0.64% N/A 10.24%
- -------------------------------------------------------------------------------
Capital Market Benchmark(1) 11.02% N/A 13.21%
- -------------------------------------------------------------------------------
(1) The Conservative Growth Portfolio's benchmark is a blended mix of capital
market indices that are intended to represent a proxy for Portfolio
performance. The benchmark allocation is as follows: 35% S&P 500, 20% MSCI
EAFE + Emerging Markets, 20% Lehman Bros. Mutual Fund (1-5) Gov/Corp Index,
20% Salomon Bros. 90-day T-Bills, and 5% Russell 2000 Growth. Past
investment performance does not guarantee future performance. The returns
shown for the Portfolio assume reinvestment of all dividends/distributions
by the shareholder.
(2) The Russell 3000 Index is a broad-based index and is intended to represent
the equity market as a whole.
(3) Inflation is measured by the Consumer Price Index for all urban customers.
(4) Annual rate of inflation: 2.64%. Source: Ibbotson Associates
(5) All performance shown prior to the November 1, 1996 asset conversion date
(the date on which the majority of existing SAM clients voluntarily
exchanged into the new SAM Portfolios) for the Sierra Asset Management
Portfolios represents the performance of the Sierra Asset Management
Account ("SAM Account"), a discretionary asset allocation service that
invested in the Sierra Trust Funds. The SAM Account was not registered as
an investment company under the Investment Company Act of 1940 ("Act") and
therefore, was not subject to certain restrictions that the Act imposes. If
the SAM Account had been registered under the Act, its performance may have
differed significantly.
The Advisor waived a portion of its fee and absorbed certain other expenses
during the periods presented. In the absence of the waivers and the
absorption of other expenses, performance would have been lower.
* Annualized
PERFORMANCE REVIEW
The SAM Conservative Growth Portfolio (A Shares) returned 5.07% (-0.71% adjusted
for the maximum sales charge+) for the one-year ended October 31, 1998. Since
the last report on June 30, 1998, the Portfolio reported negative performance as
equity markets declined substantially in August. The Portfolio continues to be
managed in an effort to reduce volatility relative to single asset class
investments. Long-term results are favorable and provide a premium over
inflation; since inception, the Portfolio's A Shares returned 8.86%* above the
rate of inflation (8.08%* adjusted for the maximum sales charge+) (4).
ECONOMIC / MARKET REVIEW
Over the past 12 months, fixed-income yields fell substantially across all
maturities, with intermediate-term yields recording the most dramatic decline.
The drop in rates was primarily due to slowing inflation and strong foreign
demand for the safety and liquidity of U.S. Treasuries. A global "flight to
quality" ensued as investors worldwide sold riskier assets and poured money into
the Treasury market. The Federal Reserve enacted policy to infuse liquidity into
the market with two short-term interest rate cuts in September and October.
- -------------------------------------------------------------------------------
MUTUAL FUND ALLOCATION
as of October 31, 1998++
(as a percentage of investment company securities)
- -------------------------------------------------------------------------------
INTERNATIONAL GROWTH FUND 19%
EMERGING GROWTH FUND 5%
GROWTH FUND 25%
GROWTH & INCOME FUND 36%
MONEY MARKET FUND 15%
- -------------------------------------------------------------------------------
ASSET CLASS DIVERSIFICATION
as of October 31, 1998++
- -------------------------------------------------------------------------------
LARGE-CAP STOCKS 36%
FOREIGN STOCKS 21%
CASH EQUIVALENT 20%
OTHER BONDS 1%
SMALL-CAP STOCKS 8%
MID-CAP STOCKS 14%
++ may not reflect current allocation
In the equity markets, the period started very strong as indices climbed to
all-time highs throughout the spring and summer, although the Asian economic
crisis increased volatility. The flight to quality was also evident in equities,
as large, liquid blue-chip holdings significantly outperformed all other classes
of stocks during the period. Large-cap indices reached their peak on July 17,
1998 and then began to recess. This performance turned negative in August, as
large-cap stocks (S&P 500) declined over 14% and small-cap stocks (Russell 2000)
dropped nearly 20%. International equities were also extremely volatile and
experienced a major sell off as growing concern regarding global economic and
financial stability climaxed with the Russian default and the subsequent
devaluation of the Ruble. The period closed with positive performance as markets
bounced back worldwide, yet still well short of their previous highs.
INVESTMENT STRATEGY
The Conservative Growth Portfolio is diversified in five funds, representing six
major asset classes. The combination of asset classes allows us to maximize our
ability to manage risk during periods of market volatility. Asset classes
ranging in risk levels from short-term money market instruments to international
equities are intended to shield the Portfolio from drastic swings in any one
specific area of the financial markets.
The overall investment strategy for the period was to:
o Maintain a large concentration (55%) in the two equity funds investing in the
largest-capitalized companies (average for domestic stocks about $37 billion)
and reduced small-cap holdings.
o Concentrate approximately 80-85% of assets in equities given our long-term
outlook.
o Maintain a 10-15% position in the money fund throughout the year to temper
volatility during turbulent times.
REVIEW OF PORTFOLIO ALLOCATIONS
The Portfolio maintained a structure of over 80% equities during the majority of
the period. The equity component provided positive results during the past
12-months, contributing significantly to the overall return. Much of the return
was generated by the Growth Fund, which benefited from its concentration in
strong performing technology and drug issues. The short-term decline in August
significantly impacted Portfolio performance and should remind shareholders to
focus on long-term investing in the face of market volatility. Although we held
a position in small-caps, the equity position was weighted towards the mid- to
large-cap holdings, which exhibited better relative performance throughout the
period. The small-cap position was reduced over the year, yet still had a
negative impact on performance. We averaged 18% international exposure, which
proved to be a drag on the Portfolio, but we are maintaining our long-term focus
on global markets. Besides income, the debt portion also contributed price
appreciation as interest rates declined. These holdings also served to mitigate
risk during the market downturn.
OUTLOOK
Inflation should remain weak in the face of moderate econ-omic growth. This
trend will probably keep the yield on long-term bonds relatively flat, while the
Federal Reserve, sympathetic to easing monetary policy to restore financial
equilibrium, is apt to keep short-term rates moving downward over the short
term. The stance of the Fed, coupled with low inflation, create a positive
backdrop for equity investments as well.
Our long-term outlook calls for an increase in interest rates as the global
economic picture strengthens and the U.S. expansion continues. However, we also
feel that global deflationary forces will remain in the foreseeable future. This
is supported by the trend of technological enhancements, which allow for lower
prices in spite of pressures on wages. This, along with global competition,
could prevent inflation from accelerating as it has historically done at the end
of economic cycles. The effect of a low inflation environment is very positive
for financial assets and should limit the length and the magnitude of interest
rate increases. We expect foreign markets to remain volatile, but many areas
should trend upward as turmoil abates, interest rates decline, and economies
improve.
For 1999, we forecast GDP growth at around 2.5% (a bit above consensus
estimates) with low inflation. This will benefit the consumer, as consumption
should continue to propel the economy forward. The trade picture should improve
late in 1999 as the Dollar declines further and foreign countries can again
afford U.S. goods. In addition, strength in Europe-as the Euro comes on the
scene-and improvements in Asia could incite foreign demand. We expect corporate
profitability to improve as the technological gains from capital investments
continue and greater efficiencies improve the ability to earn higher margins.
This continues to support our positive long-term outlook on stocks, especially
the technology sector. Overall, financial markets should stabilize as monetary,
fiscal, and trading policies are planned and implemented on a global scale. The
Year 2000 bug may be a short-term disruption, but efforts over the next 14
months should avert any major global impact.
<PAGE>
BALANCED
portfolio
GROWTH OF A $10,000 INVESTMENT
(class A shares)
Benchmark
Index Russell
NAV Sales Grth 10K 3K LB Agg Inflation
--- ----- -------- -------- ------ ---------
$10,000 $ 9,450 $10,000 $10,000 $10,000 $10,000
10,211 9,649 10,286 9,922 10,127 10,016
10,335 9,767 10,384 10,604 10,345 10,039
Dec 90 10,458 9,883 10,537 10,930 10,506 10,093
10,736 10,145 10,734 11,479 10,636 10,132
11,160 10,546 11,076 12,340 10,727 10,225
11,059 10,451 11,071 12,704 10,801 10,311
11,180 10,566 11,156 12,717 10,917 10,373
11,349 10,724 11,301 13,243 10,981 10,395
Jun 91 11,059 10,451 11,137 12,639 10,975 10,395
11,360 10,735 11,378 13,236 11,128 10,458
11,527 10,893 11,489 13,590 11,368 10,473
11,649 11,008 11,647 13,436 11,599 10,489
11,768 11,121 11,783 13,660 11,728 10,505
11,604 10,966 11,694 13,137 11,836 10,536
Dec 91 12,279 11,604 12,104 14,609 12,187 10,567
12,201 11,530 12,014 14,510 12,021 10,583
12,247 11,574 12,021 14,703 12,100 10,613
11,962 11,304 11,865 14,378 12,032 10,660
12,063 11,399 11,987 14,668 12,118 10,676
12,340 11,661 12,200 14,767 12,347 10,707
Jun 92 12,236 11,563 12,159 14,501 12,518 10,715
12,329 11,651 12,268 15,100 12,773 10,731
12,454 11,769 12,405 14,774 12,902 10,769
12,398 11,716 12,456 14,972 13,056 10,824
12,235 11,562 12,332 15,120 12,882 10,839
12,438 11,754 12,416 15,741 12,885 10,855
Dec 92 12,581 11,889 12,529 16,023 13,090 10,894
12,741 12,040 12,634 16,180 13,341 10,917
12,969 12,255 12,787 16,285 13,574 10,947
13,318 12,585 13,025 16,692 13,631 10,978
13,502 12,759 13,201 16,250 13,727 11,016
13,743 12,987 13,310 16,716 13,745 11,032
Jun 93 13,770 13,013 13,357 16,825 13,993 11,024
13,887 13,124 13,443 16,796 14,073 11,078
14,330 13,542 13,694 17,450 14,319 11,117
14,366 13,576 13,660 17,448 14,358 11,156
14,601 13,797 13,796 17,698 14,411 11,187
14,257 13,473 13,612 17,425 14,289 11,202
Dec 93 14,620 13,816 13,842 17,767 14,366 11,218
15,101 14,270 14,153 18,310 14,560 11,218
14,790 13,977 14,037 17,867 14,306 11,250
14,215 13,433 13,751 17,086 13,953 11,273
14,163 13,384 13,818 17,281 13,841 11,319
14,019 13,248 13,878 17,471 13,840 11,327
Jun 94 13,749 12,993 13,858 16,993 13,810 11,327
14,169 13,390 14,064 17,519 14,084 11,358
14,462 13,667 14,252 18,283 14,101 11,397
14,185 13,405 14,096 17,894 13,894 11,435
14,342 13,553 14,221 18,189 13,882 11,451
13,940 13,173 14,028 17,525 13,851 11,459
Dec 94 13,945 13,178 14,099 17,797 13,947 11,498
13,993 13,224 14,191 18,186 14,223 11,529
14,282 13,496 14,406 18,928 14,561 11,575
14,462 13,667 14,645 19,400 14,650 11,607
14,759 13,947 14,894 19,906 14,855 11,615
15,229 14,392 15,167 20,629 15,430 11,630
Jun 95 15,476 14,625 15,245 21,225 15,543 11,630
15,936 15,059 15,487 22,078 15,509 11,676
16,097 15,211 15,489 22,275 15,696 11,723
16,382 15,481 15,693 23,139 15,848 11,762
16,236 15,343 15,704 22,940 16,054 11,801
16,678 15,761 15,957 23,958 16,295 11,824
Dec 95 16,975 16,042 16,191 24,349 16,523 11,848
17,181 16,236 16,383 25,055 16,632 11,848
17,300 16,348 16,369 25,423 16,343 11,879
17,373 16,418 16,432 25,678 16,229 11,902
17,633 16,664 16,547 26,165 16,138 11,942
17,762 16,785 16,582 26,835 16,105 11,933
Jun 96 17,617 16,648 16,707 26,749 16,321 11,925
17,029 16,092 16,558 25,348 16,365 11,995
17,363 16,408 16,649 26,116 16,338 12,034
17,871 16,888 16,970 27,536 16,622 12,096
17,941 16,954 17,152 28,040 16,991 12,144
18,542 17,522 17,550 30,017 17,281 12,167
Dec 96 18,418 17,405 17,459 29,657 17,121 12,174
18,720 17,690 17,630 31,297 17,174 12,197
18,645 17,620 17,743 31,332 17,217 12,220
18,158 17,160 17,605 29,915 17,026 12,259
18,514 17,496 17,901 31,390 17,281 12,299
19,292 18,231 18,317 33,534 17,445 12,322
Jun 97 19,730 18,645 18,693 34,929 17,653 12,322
20,726 19,586 19,127 37,668 18,129 12,361
20,065 18,962 18,747 36,138 17,975 12,400
20,739 19,599 19,164 38,187 18,241 12,431
20,132 19,024 18,924 36,904 18,506 12,446
20,158 19,049 19,065 38,318 18,591 12,438
Dec 97 20,297 19,181 19,236 39,084 18,779 12,453
20,551 19,420 19,475 39,287 19,019 12,477
21,516 20,333 19,910 42,096 19,004 12,500
22,203 20,982 20,215 44,184 19,068 12,524
22,454 21,219 20,334 44,617 19,168 12,547
22,164 20,945 20,301 43,515 19,350 12,569
Jun 98 22,552 21,312 20,486 44,986 19,514 12,584
22,320 21,092 20,557 44,167 19,555 12,599
19,992 18,892 19,816 37,401 19,874 12,615
20,643 19,508 20,102 39,952 20,339 12,630
Oct 98 21,461 20,281 20,691 42,984 20,231 12,645
+ The performance of the Class B Shares was different than that shown above for
the Class A Shares, based on the difference in sales loads and fees paid by
Class B shareholders.
TOTAL RETURNS AS OF 10/31/98(6)
CLASS A SHARES 1 YEAR 5 YEAR* SINCE INCEPTION*
(September 30, 1990)
- -------------------------------------------------------------------------------
Fund (not adjusted for sales charge) 6.60% 7.99% 9.90%
- -------------------------------------------------------------------------------
Fund (adjusted for maximum 5.5%
sales charge) 0.74% 6.78% 9.13%
- -------------------------------------------------------------------------------
Capital Market Benchmark(1) 9.34% 8.44% 9.41%
- -------------------------------------------------------------------------------
CLASS B SHARES 1 YEAR 5 YEAR* SINCE INCEPTION*
(June 30, 1994)
- -------------------------------------------------------------------------------
Fund (not adjusted for sales charge) 5.81% N/A 10.04%
- -------------------------------------------------------------------------------
Fund (adjusted for maximum CDSC) 0.85% N/A 9.87%
- -------------------------------------------------------------------------------
Capital Market Benchmark(1) 9.34% N/A 9.69%
- -------------------------------------------------------------------------------
(1) The Balanced Portfolio's benchmark is a blended mix of capital market
indices that are intended to represent a proxy for Portfolio performance.
The benchmark allocation is as follows: 25% Lehman Bros. Mutual Fund Short
(1-5) Gov/Corp Index, 25% Salomon Bros. 90-day T-Bills, 20% Lehman Bros.
Mortgage Index, 15% S&P 500, and 15% MSCI EAFE + Emerging Markets. Past
investment performance does not guarantee future performance. The returns
shown for the Portfolio assume reinvestment of all dividends/distributions
by the shareholder.
(2) The Russell 3000 Index is a broad-based index and is intended to represent
the equity market as a whole.
(3) The Lehman Brothers Aggregate Index is a broad-based index intended to
represent the fixed-income market as a whole.
(4) Inflation is measured by the Consumer Price Index for all urban customers.
(5) Annual rate of inflation: 2.64%. Source: Ibbotson Associates
(6) All performance shown prior to the November 1, 1996 asset conversion date
(the date on which the majority of existing SAM clients voluntarily
exchanged into the new SAM Portfolios) for the Sierra Asset Management
Portfolios represents the performance of the Sierra Asset Management
Account ("SAM Account"), a discretionary asset allocation service that
invested in the Sierra Trust Funds. The SAM Account was not registered as
an investment company under the Investment Company Act of 1940 ("Act") and
therefore, was not subject to certain restrictions that the Act imposes. If
the SAM Account had been registered under the Act, its performance may have
differed significantly.
The Advisor waived a portion of its fee and absorbed certain other expenses
during the periods presented. In the absence of the waivers and the
absorption of other expenses, performance would have been lower.
* Annualized
PERFORMANCE REVIEW
The SAM Balanced Portfolio (A Shares) returned 6.60% (0.74% adjusted for the
maximum sales charge+) for the one-year ended October 31, 1998. Since the last
report on June 30, 1998, the Portfolio reported negative performance as equity
markets declined substantially in August. The Portfolio continues to beat its
benchmark index since inception,1 while being managed in an effort to reduce
volatility relative to single asset class investments. Long-term results are
favorable and provide a premium over inflation; since inception, the Portfolio's
A Shares returned 7.26%* above the rate of inflation (6.49%* adjusted for the
maximum sales charge+)5.
ECONOMIC / MARKET REVIEW
Over the past 12 months, fixed-income yields fell substantially across all
maturities, with intermediate-term yields recording the most dramatic decline.
The drop in rates was primarily due to slowing inflation and strong foreign
demand for the safety and liquidity of U.S. Treasuries. A global "flight to
quality" ensued as investors worldwide sold riskier assets and poured money into
the Treasury market. Other fixed-income securities suffered as high-quality
government bonds outperformed corporate issues, especially lower-rated,
higher-yielding bonds. The Federal Reserve enacted policy to infuse liquidity
into the market with two short-term interest rate cuts in September and October.
Overall, the one-year period ended October 31, 1998 was favorable for
fixed-income investors as most asset classes posted strong results and the low
levels of inflation provided substantial real (inflation adjusted) returns.
- -------------------------------------------------------------------------------
MUTUAL FUND ALLOCATION
as of October 31, 1998++
(as a percentage of investment company securities)
- -------------------------------------------------------------------------------
INTERNATIONAL GROWTH FUND 20%
MONEY MARKET FUND 20%
U.S. GOVERNMENT SECURITIES FUND 15%
GROWTH & INCOME FUND 30%
GROWTH FUND 15%
- -------------------------------------------------------------------------------
ASSET CLASS DIVERSIFICATION
as of October 31, 1998++
- -------------------------------------------------------------------------------
FOREIGN STOCKS 19%
CASH EQUIVALENT 25%
TREASURIES 2%
MORTGAGE BACKED 13%
SMALL-CAP STOCKS 3%
MID-CAP STAOCKS 10%
LARGE-CAP STOCKS 27%
OTHER BONDS 1%
++ may not reflect current allocation
In the equity markets, the period started very strong as equity indices hit
all-time highs in July. The flight to quality was also evident in equities, as
large, liquid blue-chip holdings significantly outperformed all other classes of
stocks during the period. This performance turned negative in August, as
large-cap stocks (S&P 500) declined over 14% and small-cap stocks (Russell 2000)
dropped nearly 20%. International equities were also extremely volatile and
experienced a major sell off as growing concern regarding global economic and
financial stability climaxed with the Russian default and the subsequent
devaluation of the Ruble.
INVESTMENT STRATEGY
The Balanced Portfolio is diversified in seven funds, representing eight major
asset classes. The combination of asset classes allows us to maximize our
ability to manage risk during periods of market volatility. Asset classes
ranging in risk levels from short-term money market instruments to international
equities are intended to shield the Portfolio from drastic swings in any one
specific area of the financial markets.
The overall investment strategy for the period was to:
o Manage risk by maintaining 35-40% invested in AAA short- to intermediate-
term fixed-income securities.
o Concentrate approximately 60% of assets in primarily large-cap growth stocks
given our positive long-term outlook.
o Maintain a 20% position in the money fund throughout the year to temper
volatility during turbulent times.
REVIEW OF PORTFOLIO ALLOCATIONS
The Portfolio maintained a structure of over 60% equities during the majority of
the period. The equity component provided positive results during the past
12-months, contributing significantly to the overall return. Much of the return
was generated by the Growth Fund, which benefited from its concentration in
strong performing technology and drug issues. The short-term decline in August
significantly impacted Portfolio performance and should remind shareholders to
focus on long-term investing in the face of market volatility. The equity
position was weighted towards the mid- to large-cap holdings, which exhibited
better relative performance throughout the period. We increased international
exposure in April to 20%; this proved to be a drag on the Portfolio, but we are
maintaining our long-term focus on global markets. Besides income, the debt
portion also contributed price appreciation as interest rates declined. These
holdings also served to mitigate risk during the market downturn.
OUTLOOK
Inflation should remain weak even in the face of moderate economic growth. This
trend will probably keep the yield on long-term bonds relatively flat, while the
Federal Reserve, sympathetic to easing monetary policy to restore financial
equilibrium, is apt to keep short-term rates moving downward over the short
term. The stance of the Fed, coupled with low inflation, create a positive
backdrop for equity investments as well.
Our long-term outlook calls for an increase in interest rates as the global
economic picture strengthens and the U.S. expansion continues. However, we also
feel that global deflationary forces will remain in the foreseeable future. This
is supported by the trend of technological enhancements, which allow for lower
prices in spite of pressures on wages. This, along with global competition,
could prevent inflation from accelerating as it has historically done at the end
of economic cycles. The effect of a low inflation environment is very positive
for financial assets and should limit the length and the magnitude of interest
rate increases. We expect foreign markets to remain volatile, but many areas
should trend upward as turmoil abates, interest rates decline, and economies
improve.
For 1999, we forecast GDP growth at around 2.5% (a bit above consensus
estimates) with low inflation. This will benefit the consumer, as consumption
should continue to propel the economy forward. The trade picture should improve
late in 1999 as the Dollar declines further and foreign countries can again
afford U.S. goods. In addition, strength in Europe-as the Euro comes on the
scene-and improvements in Asia could incite foreign demand. We expect corporate
profitability to improve as the technological gains from capital investments
continue and greater efficiencies improve the ability to earn higher margins.
This continues to support our positive long-term outlook on stocks, especially
the technology sector. Overall, financial markets should stabilize as monetary,
fiscal, and trading policies are planned and implemented on a global scale. The
Year 2000 bug may be a short-term disruption, but efforts over the next 14
months should avert any major global impact.
<PAGE>
FLEXIBLE INCOME
portfolio
GROWTH OF A $10,000 INVESTMENT
(class A shares)
Benchmark
Index
NAV Sales Grth 10K LB Agg Inflation
--- ----- -------- -------- ---------
$10,000 $ 9,550 $10,000 $10,000 $10,000
9,977 9,528 10,022 10,070 10,035
10,121 9,666 10,052 10,083 10,049
Jun 93 10,255 9,793 10,117 10,266 10,042
10,301 9,838 10,135 10,324 10,091
10,539 10,065 10,238 10,505 10,127
10,562 10,087 10,255 10,533 10,162
10,676 10,195 10,300 10,572 10,190
10,544 10,069 10,290 10,482 10,205
Dec 93 10,643 10,164 10,339 10,539 10,219
10,863 10,374 10,430 10,681 10,219
10,636 10,157 10,363 10,495 10,248
10,302 9,839 10,260 10,236 10,269
10,173 9,715 10,253 10,154 10,311
10,039 9,588 10,291 10,153 10,318
Jun 94 9,907 9,461 10,284 10,131 10,318
10,140 9,684 10,399 10,332 10,346
10,225 9,765 10,473 10,345 10,381
10,093 9,639 10,426 10,193 10,417
10,123 9,667 10,471 10,184 10,431
10,028 9,576 10,424 10,161 10,439
Dec 94 9,994 9,544 10,476 10,231 10,474
10,140 9,684 10,609 10,434 10,502
10,382 9,915 10,770 10,682 10,544
10,483 10,012 10,853 10,747 10,573
10,659 10,180 10,967 10,898 10,580
11,083 10,585 11,168 11,320 10,594
Jun 95 11,177 10,674 11,249 11,402 10,594
11,318 10,808 11,321 11,377 10,636
11,476 10,960 11,389 11,515 10,679
11,645 11,121 11,494 11,626 10,714
11,654 11,129 11,565 11,778 10,750
11,897 11,362 11,699 11,954 10,771
Dec 95 12,090 11,546 11,797 12,122 10,793
12,131 11,585 11,911 12,202 10,793
12,035 11,493 11,899 11,989 10,821
12,026 11,485 11,912 11,905 10,842
12,044 11,502 11,943 11,839 10,878
12,074 11,530 11,994 11,815 10,870
Jun 96 12,120 11,575 12,078 11,973 10,863
12,007 11,467 12,067 12,006 10,927
12,083 11,539 12,126 11,985 10,962
12,343 11,787 12,289 12,194 11,019
12,579 12,013 12,437 12,465 11,062
12,942 12,360 12,618 12,678 11,083
Dec 96 12,874 12,294 12,596 12,560 11,090
13,046 12,459 12,729 12,599 11,111
13,083 12,494 12,774 12,630 11,132
12,896 12,315 12,715 12,490 11,167
13,072 12,484 12,882 12,677 11,203
13,287 12,689 13,034 12,798 11,224
Jun 97 13,438 12,833 13,171 12,950 11,224
13,881 13,257 13,401 13,300 11,260
13,725 13,107 13,338 13,187 11,295
13,963 13,335 13,501 13,382 11,323
13,973 13,344 13,543 13,576 11,337
14,047 13,415 13,643 13,638 11,330
Dec 97 14,193 13,555 13,743 13,776 11,344
14,321 13,677 13,860 13,952 11,365
14,527 13,874 13,985 13,941 11,387
14,700 14,039 14,107 13,989 11,409
14,774 14,109 14,181 14,061 11,429
14,766 14,102 14,226 14,195 11,450
Jun 98 14,924 14,253 14,346 14,316 11,463
14,835 14,167 14,387 14,346 11,477
14,270 13,627 14,297 14,580 11,491
14,651 13,991 14,537 14,921 11,505
Oct 98 14,886 14,217 14,692 14,842 11,519
+ The performance of the Class B Shares was different than that shown above for
the Class A Shares, based on the difference in sales loads and fees paid by
Class B shareholders.
- --------------------------------------------------------------------------------
Total Returns as of 10/31/98 (5)
CLASS A SHARES
1 YEAR 5 YEAR* SINCE INCEPTION*
(MARCH 31, 1993)
Fund (not adjusted for sales charge) 6.53% 6.87% 7.37%
- --------------------------------------------------------------------------------
Fund (adjusted for maximum 4.5% sales charge) 1.74% 5.89% 6.49%
- --------------------------------------------------------------------------------
Capital Market Benchmark (1) 8.48% 7.36% 7.13%
- --------------------------------------------------------------------------------
CLASS B SHARES
1 YEAR 5 YEAR* SINCE INCEPTION*
(JUNE 30, 1994)
- --------------------------------------------------------------------------------
Fund (not adjusted for sales charge) 5.74% N/A 9.06%
- --------------------------------------------------------------------------------
Fund (adjusted for maximum CDSC) 0.83% N/A 8.89%
- --------------------------------------------------------------------------------
Capital Market Benchmark (1) 8.48% N/A 8.58%
- --------------------------------------------------------------------------------
1 The Flexible Income Portfolio's benchmark is a blended mix of capital market
indices that are intended to represent a proxy for Portfolio performance. The
benchmark allocation is as follows: 40% Lehman Bros. Mutual Fund Short (1-5)
Gov/Corp Index, 40% Salomon Bros. 90-day T-Bills, 10% Lehman Bros. Mortgage
Index, and 10% S&P 500. Past investment performance does not guarantee future
performance. The returns shown for the Portfolio assume reinvestment of all
dividends/distributions by the shareholder.
2 The Lehman Brothers Aggregate Index is a broad-based index intended to
represent the fixed-income market as a whole.
3 Inflation is measured by the Consumer Price Index for all urban customers.
4 Annual rate of inflation: 2.39%. Source: Ibbotson Associates
5 All performance shown prior to the November 1, 1996 asset conversion date (the
date on which the majority of existing SAM clients voluntarily exchanged into
the new SAM Portfolios) for the Sierra Asset Management Portfolios represents
the performance of the Sierra Asset Management Account ("SAM Account"), a
discretionary asset allocation service that invested in the Sierra Trust
Funds. The SAM Account was not registered as an investment company under the
Investment Company Act of 1940 ("Act") and therefore, was not subject to
certain restrictions that the Act imposes. If the SAM Account had been
registered under the Act, its performance may have differed significantly.
The Advisor waived a portion of its fee and absorbed certain other expenses
during the periods presented. In the absence of the waivers and the absorption
of other expenses, performance would have been lower.
*Annualized
PERFORMANCE REVIEW
The SAM Flexible Income Portfolio (A Shares) returned 6.53% (1.74% adjusted for
the maximum sales charge+) for the one-year ended October 31, 1998. Since the
last report on June 30, 1998, the Portfolio reported slightly negative
performance as equity markets declined substantially in August. The Portfolio
(not adjusted for sales charge) continues to beat its benchmark index since
inception,1 while being managed in an effort to reduce volatility relative to
single asset class investments. Long-term results are favorable and provide a
premium over inflation; since inception, the Portfolio's A Shares returned
4.98%* above the rate of inflation (4.10%* adjusted for the maximum sales
charge+) (4). With one objective of income, as of October 31, 1998, the 30-day
SEC Yield of the Portfolio is 3.20% (2.61% for B Shares).
ECONOMIC / MARKET REVIEW
Over the past 12 months, fixed-income yields fell substantially across all
maturities, with intermediate-term yields recording the most dramatic decline.
In fact, the yield on the five-year Treasury Note fell 148 basis points (1.48%)
during the period, while the yield on the 30-year Treasury Bond fell 100 basis
points. The drop in rates was primarily due to slowing inflation and strong
foreign demand for the safety and liquidity of U.S. Treasuries. This global
"flight to quality" was most evident after the August 17, 1998 collapse of the
Russian economy. Investors worldwide sold riskier assets and poured money into
the Treasury market. Other fixed-income securities suffered as high-quality
government bonds outperformed corporate issues, especially lower-rated,
higher-yielding bonds. The Federal Reserve enacted policy to infuse liquidity
into the market with two short-term interest rate cuts in September and October.
Mortgage-backed securities generated positive results, but were impacted by the
increase in refinancings as interest rates dropped. Overall, the one-year period
ended October 31, 1998 was favorable for fixed-income investors as most asset
classes posted strong results and the low levels of inflation provided
substantial real (inflation adjusted) returns. In the equity markets, very
strong results turned negative in August, when large-cap stocks (S&P 500)
declined over 14% and small-cap stocks (Russell 2000) dropped nearly 20%. The
flight to quality was also evident in the equity markets as large, liquid
blue-chip holdings significantly outperformed all other classes of stocks during
the period.
INVESTMENT STRATEGY
The Flexible Income Portfolio is diversified in five funds, representing seven
major asset classes. The combination of asset classes allows us to maximize our
ability to manage risk during periods of market volatility. Asset classes
ranging in risk levels from short-term money market instruments to equities are
intended to shield the Portfolio from drastic swings in any one specific area of
the financial markets.
The overall investment strategy for the period was to:
o Maintain high concentration (nearly 50%) in intermediate- to long-term
fixed-income securities as yields dropped throughout the period.
o Focus on high-quality holdings (65% AAA rated by Standard & Poors) for most
of the period.
o Allocate additional assets (24% overall) in equities as long-term prospects
are favorable.
REVIEW OF PORTFOLIO ALLOCATIONS
Our heaviest weighting over the period was in the best performing WM Group
fixed-income fund, the U.S. Government Securities Fund. In addition, the equity
component provided positive results during the past 12-months, contributing
significantly to the overall return. The short-term correction in August
significantly impacted Fund performance and should remind shareholders to focus
on long-term investing in the face of market volatility. The Portfolio
maintained a structure of 80% debt, 20% equities over the majority of the
period. In August, a slight shift was made to increase the equity position and
lower duration (a measure of price sensitivity to changes in interest rates) to
offset risk during the last three months. However, this change was made with a
long- term outlook and given our forecasts, should improve relative performance
moving forward.
OUTLOOK
We remain positive about the domestic economy for both growth and low inflation.
We are taking advantage of narrowing yield spreads among corporate credits
relative to U.S. Treasuries. Inflation should remain low in the face of moderate
economic growth. This trend will probably keep the yield on long-term bonds
relatively flat, while the Federal Reserve, sympathetic to easing monetary
policy to restore financial equilibrium, is apt to keep short-term rates moving
downward over the short term. The stance of the Fed, coupled with low inflation,
creates a positive backdrop for equity investments as well.
Our long-term outlook calls for an increase in interest rates as the global
economic picture strengthens and the U.S. expansion continues. However, we also
feel that global deflationary forces will remain in the foreseeable future. This
is supported by the trend of technological enhancements, which allow for lower
prices in spite of pressures on wages. This, along with global competition,
could prevent inflation from accelerating as it has historically done at the end
of economic cycles. The effect of a low inflation environment is very positive
for financial assets and should limit the length and the magnitude of interest
rate increases.
For 1999, we forecast GDP growth at around 2.5% (a bit above consensus
estimates) with low inflation. This will benefit the consumer, as consumption
should continue to propel the economy forward. The trade picture should improve
late in 1999 as the Dollar declines further and foreign countries can again
afford U.S. goods. In addition, strength in Europe-as the Euro comes on the
scene-and improvements in Asia could incite foreign demand. We expect corporate
profitability to improve as the technological gains from capital investments
continue and greater efficiencies improve the ability to earn higher margins.
This continues to support our positive long-term outlook on stocks, especially
the technology sector. Overall, financial markets should stabilize as monetary,
fiscal, and trading policies are planned and implemented on a global scale. The
Year 2000 bug may be a short-term disruption, but efforts over the next 14
months should avert any major global impact.
- --------------------------------------------------
MUTUAL FUND ALLOCATION
as of October 31, 1998++
(as a percentage of investment company securities)
- --------------------------------------------------
MONEY MARKET FUND 35%
U.S. GOVERNMENT SECURITIES FUND 25%
INCOME FUND 15%
GROWTH FUND 5%
GROWTH & INCOME FUND 20%
- --------------------------------------------------
ASSET CLASS DIVERSIFICATION
as of October 31, 1998++
- --------------------------------------------------
CASH EQUIVALENT 38%
TREASURIES 4%
MORTGAGE BACKED 21%
OTHER BONDS 2%
CORPORATE BONDS 11%
FOREIGN STOCKS 1%
DOMESTIC STOCKS 23%
++ may not reflect current allocation
<PAGE>
INCOME
portfolio
GROWTH OF A $10,000 INVESTMENT
(class A shares)
Benchmark
Index
NAV Sales Grth 10K LB Agg Inflation
--- ----- -------- -------- ---------
Sep 90 $10,000 $ 9,550 $10,000 $10,000 $10,000
Oct 90 10,007 9,556 10,074 10,127 10,016
Nov 90 10,173 9,715 10,177 10,345 10,039
Dec 90 10,328 9,864 10,284 10,506 10,093
Jan 91 10,386 9,919 10,370 10,636 10,132
Feb 91 10,558 10,083 10,457 10,727 10,225
Mar 91 10,661 10,182 10,530 10,801 10,311
Apr 91 10,823 10,336 10,616 10,917 10,373
May 91 10,891 10,401 10,681 10,981 10,395
Jun 91 10,896 10,406 10,730 10,975 10,395
Jul 91 11,047 10,550 10,825 11,128 10,458
Aug 91 11,302 10,794 10,951 11,368 10,473
Sep 91 11,455 10,940 11,065 11,599 10,489
Oct 91 11,596 11,075 11,155 11,728 10,505
Nov 91 11,711 11,184 11,234 11,836 10,536
Dec 91 12,033 11,492 11,386 12,187 10,567
Jan 92 11,913 11,377 11,364 12,021 10,583
Feb 92 12,004 11,464 11,419 12,100 10,613
Mar 92 11,926 11,390 11,421 12,032 10,660
Apr 92 11,997 11,458 11,485 12,118 10,676
May 92 12,241 11,691 11,597 12,347 10,707
Jun 92 12,416 11,858 11,692 12,518 10,715
Jul 92 12,688 12,117 11,810 12,773 10,731
Aug 92 12,767 12,192 11,885 12,902 10,769
Sep 92 12,868 12,289 11,966 13,056 10,824
Oct 92 12,673 12,103 11,911 12,882 10,839
Nov 92 12,690 12,119 11,928 12,885 10,855
Dec 92 12,890 12,310 12,024 13,090 10,894
Jan 93 13,120 12,530 12,141 13,341 10,917
Feb 93 13,371 12,769 12,244 13,574 10,947
Mar 93 13,447 12,841 12,284 13,631 10,978
Apr 93 13,533 12,924 12,342 13,727 11,016
May 93 13,625 13,012 12,360 13,745 11,032
Jun 93 13,869 13,245 12,463 13,993 11,024
Jul 93 13,979 13,350 12,507 14,073 11,078
Aug 93 14,225 13,585 12,611 14,319 11,117
Sep 93 14,214 13,574 12,637 14,358 11,156
Oct 93 14,331 13,686 12,678 14,411 11,187
Nov 93 14,191 13,553 12,663 14,289 11,202
Dec 93 14,245 13,604 12,711 14,366 11,218
Jan 94 14,466 13,815 12,810 14,560 11,218
Feb 94 14,123 13,488 12,740 14,306 11,250
Mar 94 13,627 13,013 12,636 13,953 11,273
Apr 94 13,422 12,818 12,603 13,841 11,319
May 94 13,329 12,729 12,615 13,840 11,327
Jun 94 13,250 12,654 12,634 13,810 11,327
Jul 94 13,531 12,922 12,771 14,084 11,358
Aug 94 13,481 12,874 12,808 14,101 11,397
Sep 94 13,277 12,680 12,758 13,894 11,435
Oct 94 13,240 12,644 12,784 13,882 11,451
Nov 94 13,259 12,662 12,792 13,851 11,459
Dec 94 13,177 12,584 12,858 13,947 11,498
Jan 95 13,352 12,751 13,005 14,223 11,529
Feb 95 13,616 13,004 13,175 14,561 11,575
Mar 95 13,688 13,072 13,254 14,650 11,607
Apr 95 13,870 13,246 13,373 14,855 11,615
May 95 14,433 13,784 13,624 15,430 11,630
Jun 95 14,450 13,800 13,704 15,543 11,630
Jul 95 14,393 13,745 13,741 15,509 11,676
Aug 95 14,624 13,966 13,848 15,696 11,723
Sep 95 14,746 14,083 13,938 15,848 11,762
Oct 95 14,957 14,284 14,034 16,054 11,801
Nov 95 15,170 14,487 14,156 16,295 11,824
Dec 95 15,373 14,681 14,276 16,523 11,848
Jan 96 15,448 14,753 14,358 16,632 11,848
Feb 96 15,127 14,446 14,298 16,343 11,879
Mar 96 14,990 14,315 14,298 16,229 11,902
Apr 96 14,880 14,211 14,302 16,138 11,942
May 96 14,851 14,182 14,333 16,105 11,933
Jun 96 15,011 14,335 14,448 16,321 11,925
Jul 96 15,053 14,375 14,503 16,365 11,995
Aug 96 15,007 14,332 14,536 16,338 12,034
Sep 96 15,248 14,561 14,681 16,622 12,096
Oct 96 15,575 14,875 14,859 16,991 12,144
Nov 96 15,817 15,105 14,998 17,281 12,167
Dec 96 15,717 15,010 14,982 17,121 12,174
Jan 97 15,731 15,023 15,045 17,174 12,197
Feb 97 15,810 15,099 15,103 17,217 12,220
Mar 97 15,641 14,937 15,074 17,026 12,259
Apr 97 15,814 15,103 15,200 17,281 12,299
May 97 15,957 15,239 15,303 17,445 12,322
Jun 97 16,131 15,405 15,420 17,653 12,322
Jul 97 16,545 15,801 15,634 18,129 12,361
Aug 97 16,401 15,663 15,620 17,975 12,400
Sep 97 16,610 15,862 15,754 18,241 12,431
Oct 97 16,821 16,064 15,875 18,506 12,446
Nov 97 16,869 16,110 15,940 18,591 12,438
Dec 97 17,019 16,254 16,050 18,779 12,453
Jan 98 17,196 16,423 16,168 19,019 12,477
Feb 98 17,184 16,411 16,202 19,004 12,500
Mar 98 17,226 16,451 16,268 19,068 12,524
Apr 98 17,300 16,521 16,349 19,168 12,547
May 98 17,426 16,642 16,451 19,350 12,569
Jun 98 17,536 16,747 16,535 19,514 12,584
Jul 98 17,562 16,772 16,590 19,555 12,599
Aug 98 17,611 16,819 16,697 19,874 12,615
Sep 98 17,810 17,009 16,902 20,339 12,630
Oct 98 17,703 16,907 16,895 20,231 12,645
+ The performance of the Class B Shares was different than that shown above for
the Class A Shares, based on the difference in sales loads and fees paid by
Class B shareholders.
- --------------------------------------------------------------------------------
Total Returns as of 10/31/98(5)
CLASS A SHARES 1 YEAR 5 YEAR* SINCE INCEPTION*
(SEPTEMBER 30, 1990)
Fund (not adjusted for sales charge) 5.25% 4.31% 7.33%
- --------------------------------------------------------------------------------
Fund (adjusted for maximum 4.5% sales charge) 0.52% 3.35% 6.72%
- --------------------------------------------------------------------------------
Capital Market Benchmark (1) 6.42% 5.91% 6.70%
- --------------------------------------------------------------------------------
CLASS B SHARES 1 YEAR 5 YEAR* SINCE INCEPTION*
(June 30, 1994)
Fund (not adjusted for sales charge) 4.47% N/A 6.12%
- --------------------------------------------------------------------------------
Fund (adjusted for maximum CDSC) -0.48% N/A 5.93%
- --------------------------------------------------------------------------------
Capital Market Benchmark (1) 6.42% N/A 6.94%
- --------------------------------------------------------------------------------
1 The Income Portfolio's benchmark is a blended mix of capital market indices
that are intended to represent a proxy for Portfolio performance. The
benchmark allocation is as follows: 50% Salomon Bros. 90-day T-Bills, 30%
Lehman Bros. Mutual Fund Short (1-5) Gov/Corp Index, 10% Lehman Bros. Mortgage
Index, and 10% Lehman Bros. BAA LT Corporate Bond Index. Past investment
performance does not guarantee future performance. The returns shown for the
Portfolio assume reinvestment of all dividends/distributions by the
shareholder.
2 The Lehman Brothers Aggregate Index is a broad-based index intended to
represent the fixed-income market as a whole.
3 Inflation is measured by the Consumer Price Index for all urban customers.
4 Annual rate of inflation: 2.64%. Source: Ibbotson Associates
5 All performance shown prior to the November 1, 1996, asset conversion date
(the date on which the majority of existing SAM clients voluntarily exchanged
into the new SAM Portfolios) for the Sierra Asset Management Portfolios
represents the performance of the Sierra Asset Management Account ("SAM
Account"), a discretionary asset allocation service that invested in the
Sierra Trust Funds. The SAM Account was not registered as an investment
company under the Investment Company Act of 1940 ("Act") and therefore, was
not subject to certain restrictions that the Act imposes. If the SAM Account
had been registered under the Act, its performance may have differed
significantly.
The Advisor waived a portion of its fee and absorbed certain other expenses
during the periods presented. In the absence of the waivers and the absorption
of other expenses performance, would have been lower.
*Annualized
PERFORMANCE REVIEW
The SAM Income Portfolio (A Shares) returned 5.25% (0.52% adjusted for the
maximum sales charge+) for the one-year ended October 31, 1998. Since the last
report on June 30, 1998, the Portfolio reported positive performance as interest
rates generally fell with an uptick in October. The Portfolio (A shares)
continues to beat its benchmark index since inception,1 while being managed in
an effort to reduce volatility relative to single asset class investments.
Long-term results continue to provide a premium over inflation; since inception,
the Portfolio's A Shares returned 4.69%* above the rate of inflation (4.08%*
adjusted for the maximum sales charge+)(4). As of October 31, 1998, the
Portfolio's 30-day SEC Yield was 5.21% (4.67% for B Shares).
ECONOMIC / MARKET REVIEW
Over the past 12 months, fixed-income yields fell substantially across all
maturities, with intermediate-term yields recording the most dramatic decline.
In fact, the yield on the five-year Treasury Note fell 148 basis points (1.48%)
during the period, while the yield on the 30-year Treasury Bond fell 100 basis
points. The drop in rates was primarily due to slowing inflation and strong
foreign demand for the safety and liquidity of U.S. Treasuries. This global
"flight to quality" was most evident after the August 17, 1998 collapse of the
Russian economy. Investors worldwide sold riskier assets and poured money into
the Treasury market. Other fixed-income securities suffered as high-quality
government bonds outperformed corporate issues, especially lower-rated,
higher-yielding bonds. The Federal Reserve enacted policy to infuse liquidity
into the market with two short-term interest rate cuts in September and October.
Mortgage-backed securities generated positive results, but were impacted by the
increase in refinancings as interest rates dropped. Overall, the one-year period
ended October 31, 1998 was favorable for fixed-income investors as most asset
classes posted strong results and the low levels of inflation provided
substantial real (inflation adjusted) returns.
INVESTMENT STRATEGY
The Income Portfolio is diversified in five funds, representing seven major
asset classes. The combination of asset classes allows us to maximize our
ability to manage risk during periods of market volatility. Asset classes
ranging in risk levels from short-term money market instruments to high-yield
bonds are intended to shield the Portfolio from drastic swings in any one
specific area of the fixed-income markets.
The overall investment strategy for the period was to:
o Maintain high concentration in intermediate-term securities as they provided
strong returns relative to interest rate risk.
o Focus on high-quality holdings (67% AAA rated by Standard & Poors) for most
of the period.
o Allocate a portion of assets in high-yield corporate securities in an effort
to boost overall income levels as the flight to quality unwinds.
REVIEW OF PORTFOLIO ALLOCATIONS
Our heaviest weightings over the period were in the two best performing WM Group
fixed-income funds, the U.S. Government Securities Fund and the Income Fund.
Together, they averaged 65% of assets while contributing over 80% of the total
return of the Portfolio. The Portfolio maintained a structure of 30% short-term
debt, 40% intermediate-term debt, and 30% long-term holdings over the majority
of the period. In August, we allocated approximately 10% of assets in below
investment grade bonds to increase yield in the declining rate environment. The
yield on the Portfolio increased 30 basis points from July to August in spite of
falling yields among the higher quality fixed-income funds. Although the
allocation in high-yield bonds negatively impacted Portfolio performance, this
Fund could provide relative performance strength as the gap in yields between
lower-rated bonds and Treasuries closes to more normal levels.
OUTLOOK
We remain positive about the domestic economy for both growth and low inflation.
We are taking advantage of narrowing yield spreads among corporate credits
relative to U.S. Treasuries. Inflation should remain low in the face of moderate
economic growth. This trend will probably keep the yield on long-term bonds
relatively flat, while the Federal Reserve, sympathetic to easing monetary
policy to restore financial equilibrium, is apt to keep short-term rates moving
downward over the short term.
Our long-term outlook calls for an increase in interest rates as the global
economic picture strengthens and the U.S. expansion continues. However, we also
feel that global deflationary forces will remain in the foreseeable future. This
is supported by the trend of technological enhancements, which allow for lower
prices in spite of pressures on wages. This, along with global competition,
could prevent inflation from accelerating as it has historically done at the end
of economic cycles. The effect of a low inflation environment is very positive
for financial assets and should limit the length and the magnitude of interest
rate increases.
For 1999, we forecast GDP growth around 2.5% (a bit above consensus estimates)
with low inflation. This will benefit the consumer, as consumption should
continue to propel the economy forward. The trade picture should improve late in
1999 as the Dollar declines further and foreign countries can again afford U.S.
goods. In addition, strength in Europe-as the Euro comes on the scene-and
improvements in Asia could incite foreign demand. We expect corporate
profitability to improve as the technological gains from capital investments
continue and greater efficiencies improve the ability to earn higher margins.
Overall, financial markets should stabilize as monetary, fiscal, and trading
policies are planned and implemented on a global scale. The Year 2000 bug may be
a short-term disruption, but efforts over the next 14 months should avert any
major global impact.
- --------------------------------------------------
MUTUAL FUND ALLOCATION
as of October 31, 1998++
(as a percentage of investment company securities)
- --------------------------------------------------
U.S. GOVERNMENT SECURITIES FUND 30%
INCOME FUND 35%
SHORT TERM HIGH QUALITY BOND FUND 10%
MONEY MARKET FUND 15%
HIGH YIELD FUND 10%
- --------------------------------------------------
ASSET CLASS DIVERSIFICATION
as of October 31, 1998++
- --------------------------------------------------
CASH EQUIVALENT 20%
SHORT-TERM BONDS 10%
MORTGAGE BACKED 27%
CORPORATE BONDS 32%
OTHER BONDS 1%
TREASURIES 6%
FOREIGN BONDS 4%
++ may not reflect current allocation
<PAGE>
<TABLE>
STATEMENTS of ASSETS and LIABILITIES
WM GROUP OF FUNDS
OCTOBER 31, 1998
<CAPTION>
STRATEGIC CONSERVATIVE FLEXIBLE
GROWTH GROWTH BALANCED INCOME INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments, at value
(See portfolios of
investments)(a) ........ $71,277,158 $254,787,131 $204,073,704 $20,355,997 $13,080,780
Cash ..................... 13,463 171,635 -- 70,020 57,635
Dividends and/or
interest receivable .... 1,082 10,617 330,470 1,927 7,912
Receivable for Fund
shares sold ............ 381,949 606,511 829,573 545,026 215,408
Receivable for
investment
securities sold ........ -- -- 200,000 -- --
Unamortized
organization costs ..... 24,082 24,082 24,082 24,082 24,082
Receivable from
investment advisor ..... 5,843 4,514 1,738 -- 3,378
Prepaid expenses and
other assets ........... 79 103 92 -- --
----------- ------------ ------------ ----------- -----------
Total Assets ......... 71,703,656 255,604,593 205,459,659 20,997,052 13,389,195
----------- ------------ ------------ ----------- -----------
LIABILITIES:
Payable for Fund
shares redeemed ........ 163,340 213,679 507,938 51,379 983
Payable for
investment
securities
purchased .............. -- -- 596,858 -- --
Administration fee
payable ................ 28,016 102,220 82,563 8,292 5,345
Shareholder servicing
and distribution
fees payable ........... 44,698 144,066 108,119 10,627 5,856
Dividends payable ........ -- -- 1,774 3,990 54,074
Due to custodian ......... -- -- 1,624 -- --
Accrued legal and
audit fees ............. 11,791 13,141 12,709 11,477 11,455
Accrued expenses and
other payables ......... 14,325 43,349 31,269 3,112 2,195
----------- ------------ ------------ ----------- -----------
Total Liabilities .... 262,170 516,455 1,342,854 88,877 79,908
----------- ------------ ------------ ----------- -----------
NET ASSETS ............... $71,441,486 $255,088,138 $204,116,805 $20,908,175 $13,309,287
=========== ============ ============ =========== ===========
- ----------------
(a) Investments, at
cost ................... $71,724,964 $257,884,542 $205,269,950 $20,335,581 $12,910,608
=========== ============ ============ =========== ===========
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENTS of ASSETS and LIABILITIES (continued)
WM GROUP OF FUNDS
OCTOBER 31, 1998
<CAPTION>
STRATEGIC CONSERVATIVE FLEXIBLE
GROWTH GROWTH BALANCED INCOME INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- ------------ --------- --------- ---------
<S> <C> <C> <C> <C> <C>
NET ASSETS CONSIST OF:
Undistributed net
investment income ...... $ 343,195 $ 2,093,956 $ 1,750,563 $ 99,614 $ 6,580
Accumulated net
realized gain on
investments sold ....... 4,779,087 15,570,296 11,836,854 601,695 16,590
Net unrealized
appreciation/
(depreciation)
of investments ......... (447,806) (3,097,411) (1,196,246) 20,416 170,172
Paid-in capital .......... 66,767,010 240,521,297 191,725,634 20,186,450 13,115,945
----------- ------------ ------------ ----------- -----------
Total Net Assets ..... $71,441,486 $255,088,138 $204,116,805 $20,908,175 $13,309,287
=========== ============ ============ =========== ===========
NET ASSETS:
Class A Shares ........... $19,689,550 $100,024,075 $ 93,490,864 $ 9,766,311 $ 7,611,105
=========== ============ ============ =========== ===========
Class B Shares ........... $51,751,936 $155,064,063 $110,625,941 $11,141,864 $ 5,698,182
=========== ============ ============ =========== ===========
SHARES OUTSTANDING:
Class A Shares ........... 1,687,587 9,116,914 8,484,250 919,140 742,440
=========== ============ ============ =========== ===========
Class B Shares ........... 4,492,814 14,295,882 10,039,850 1,048,502 555,854
=========== ============ ============ =========== ===========
CLASS A SHARES:
Net asset value per
share of beneficial
interest
outstanding* ........... $11.67 $10.97 $11.02 $10.63 $10.25
=========== ============ ============ =========== ===========
Maximum sales charge ..... 5.50% 5.50% 5.50% 4.50% 4.50%
=========== ============ ============ =========== ===========
Maximum offering
price per share of
beneficial
interest
outstanding ............ $12.35 $11.61 $11.66 $11.13 $10.73
=========== ============ ============ =========== ===========
CLASS B SHARES:
Net asset value and
offering price per
share of
beneficial interest
outstanding* ........... $11.52 $10.85 $11.02 $10.63 $10.25
=========== ============ ============ =========== ===========
- --------------
*Redemption price per share is equal to net asset value per share less any
applicable contingent deferred sales charge.
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENTS of OPERATIONS
WM GROUP OF FUNDS(a)
FOR THE PERIOD ENDED OCTOBER 31, 1998
<CAPTION>
STRATEGIC CONSERVATIVE FLEXIBLE
GROWTH GROWTH BALANCED INCOME INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- ------------ --------- --------- ---------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends ................ $ 86,332 $ 839,654 $ 1,462,079 $ 260,630 $ 252,044
Interest ................. 9,587 30,727 28,429 7,759 5,060
----------- ----------- ----------- ---------- ----------
Total investment
income ............. 95,919 870,381 1,490,508 268,389 257,104
----------- ----------- ----------- ---------- ----------
EXPENSES:
Investment advisory
fee .................... 34,290 130,854 102,838 8,801 6,074
Administration fee ....... 114,301 436,180 342,792 29,336 20,246
Custodian fees ........... 425 456 645 420 552
Legal and audit fees ..... 9,760 11,906 11,359 9,002 8,902
Trustees' fees and
expenses ............... 2,255 8,680 6,678 491 315
Amortization of
organization costs ..... 3,010 3,010 3,010 3,010 3,010
Registration and
filing fees ............ 9,542 24,345 15,086 9,797 9,652
Other .................... 11,802 22,588 12,510 1,503 860
Shareholder servicing
and distribution
fees:
Class A Shares ......... 15,124 86,714 79,505 7,536 6,445
Class B Shares ......... 168,106 525,505 367,565 28,527 14,710
Transfer agent fees:
Class A Shares ......... 4,029 16,315 14,962 1,724 1,292
Class B Shares ......... 11,071 25,310 17,007 1,331 764
Fees waived and/or
expenses absorbed
by investment
advisor ................ (40,375) (66,873) (46,178) (24,570) (23,335)
----------- ----------- ----------- ---------- ----------
Total expenses ....... 343,340 1,224,990 927,779 76,908 49,487
Fees reduced by
credits allowed by
the custodian .......... (90) (157) (365) (78) (99)
----------- ----------- ----------- ---------- ----------
Net expenses ......... 343,250 1,224,833 927,414 76,830 49,388
----------- ----------- ----------- ---------- ----------
NET INVESTMENT
INCOME/(LOSS) .......... (247,331) (354,452) 563,094 191,559 207,716
----------- ----------- ----------- ---------- ----------
NET REALIZED AND UNREALIZED LOSS ON
INVESTMENTS:
Net realized gain/
(loss) on
investments during
the period ............. (64,796) (761,954) 83,566 55,085 41,770
Net change in
unrealized
depreciation of
investments during
the period ............. (5,346,706) (20,541,582) (11,355,763) (240,391) (148,281)
----------- ----------- ----------- ---------- ----------
Net realized and
unrealized loss on
investments ............ (5,411,502) (21,303,536) (11,272,197) (185,306) (106,511)
----------- ----------- ----------- ---------- ----------
NET INCREASE/
(DECREASE) IN NET
ASSETS RESULTING
FROM OPERATIONS ........ $(5,658,833) $(21,657,988) $(10,709,103) $ 6,253 $ 101,205
=========== =========== =========== ========== ==========
- ----------------
(a) Fiscal year end changed to October 31. Prior to this, the fiscal year end was June 30. The amounts reflected are for
the period July 1, 1998 through October 31, 1998.
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENTS of OPERATIONS (continued)
WM GROUP OF FUNDS
FOR THE YEAR ENDED JUNE 30, 1998
<CAPTION>
STRATEGIC CONSERVATIVE FLEXIBLE
GROWTH GROWTH BALANCED INCOME INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- ------------ --------- --------- ---------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends ................ $ 546,974 $ 6,078,778 $ 6,582,937 $ 875,048 $1,084,829
Interest ................. 26,543 79,334 82,016 17,721 13,766
----------- ----------- ----------- ---------- ----------
Total investment
income ................. 573,517 6,158,112 6,664,953 892,769 1,098,595
----------- ----------- ----------- ---------- ----------
EXPENSES:
Investment advisory fee .. 91,196 438,904 323,735 26,686 22,941
Administration fee ....... 303,985 1,463,013 1,079,118 88,955 76,470
Custodian fees ........... 1,402 3,165 1,420 1,597 1,208
Legal and audit fees ..... 13,856 21,027 24,863 10,735 12,728
Trustees' fees and
expenses ............... 4,167 18,512 13,937 1,103 901
Amortization of
organization costs ..... 9,030 9,030 9,030 9,030 9,030
Registration and filing
fees ................... 28,232 30,102 30,247 14,907 19,548
Printing and postage
fees ................... 39,041 153,100 112,091 17,501 8,326
Other .................... 1,826 8,175 6,018 731 673
----------- ----------- ----------- ---------- ----------
Shareholder servicing
and distribution
fees:
Class A Shares ......... 41,197 318,337 265,656 25,447 27,083
Class B Shares ......... 443,183 1,652,679 1,095,612 76,123 44,611
Transfer agent fees:
Class A Shares ......... 3,209 15,331 13,619 1,590 1,268
Class B Shares ......... 8,537 21,868 14,289 1,072 671
Fees waived and/or
expenses absorbed by
investment advisor
and/or administrator ... (88,030) (135,615) (119,725) (49,005) (46,267)
----------- ----------- ----------- ---------- ----------
Total expenses ....... 408,096 1,872,600 1,269,451 55,177 27,366
Fees reduced by credits
allowed by the
custodian .............. (49) (1,424) (288) (250) (212)
----------- ----------- ----------- ---------- ----------
Net expenses ......... 408,047 1,871,176 1,269,163 54,927 27,154
----------- ----------- ----------- ---------- ----------
NET INVESTMENT INCOME .... 165,470 4,286,936 5,395,790 837,842 1,071,441
----------- ----------- ----------- ---------- ----------
NET REALIZED AND UNREALIZED GAIN/
(LOSS) ON INVESTMENTS:
Realized gain/(loss) from:
Security transactions .. 70,811 634,997 1,600,513 180,143 (146)
Capital gain
distribution received .. 8,834,729 29,135,400 21,083,866 950,791 --
Net unrealized
appreciation of
securities ............. 2,307,572 7,816,736 1,378,617 38,924 368,927
----------- ----------- ----------- ---------- ----------
Net realized and
unrealized gain on
investments ............ 11,213,112 37,587,133 24,062,996 1,169,858 368,781
----------- ----------- ----------- ---------- ----------
NET INCREASE IN NET
ASSETS RESULTING FROM
OPERATIONS ............. $11,378,582 $41,874,069 $29,458,786 $2,007,700 $1,440,222
=========== =========== =========== ========== ==========
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENTS of CHANGES in NET assets
WM GROUP OF FUNDS(a)
FOR THE PERIOD ENDED OCTOBER 31, 1998
<CAPTION>
STRATEGIC CONSERVATIVE FLEXIBLE
GROWTH GROWTH BALANCED INCOME INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net investment income/(loss) ............. $ (247,331) $ (354,452) $ 563,094 $ 191,559 $ 207,716
Net realized gain/(loss) on investments
during the period ...................... (64,796) (761,954) 83,566 55,085 41,770
Net unrealized depreciation of investments
during the period ...................... (5,346,706) (20,541,582) (11,355,763) (240,391) (148,281)
----------- ------------ ------------ ----------- -----------
Net increase/(decrease) in net assets
resulting from operations .............. (5,658,833) (21,657,988) (10,709,103) 6,253 101,205
Distributions to shareholders from net
investment income:
Class A Shares ......................... -- -- (389,135) (108,577) (139,418)
Class B Shares ......................... -- -- (174,108) (81,407) (68,390)
Net increase/(decrease) in net assets from
Fund share transactions:
Class A Shares ......................... 2,756,174 (6,408,482) (2,997,578) 1,068,611 (113,235)
Class B Shares ......................... 4,840,772 (1,061,147) 1,717,446 3,531,424 1,651,308
----------- ------------ ------------ ----------- -----------
Net increase/(decrease) in net assets .... 1,938,113 (29,127,617) (12,552,478) 4,416,304 1,431,470
NET ASSETS:
Beginning of period ...................... 69,503,373 284,215,755 216,669,283 16,491,871 11,877,817
----------- ------------ ------------ ----------- -----------
End of period ............................ $71,441,486 $255,088,138 $204,116,805 $20,908,175 $13,309,287
=========== ============ ============ =========== ===========
Undistributed net investment income
at end of period ....................... $ 343,195 $ 2,093,956 $ 1,750,563 $ 99,614 $ 6,580
=========== ============ ============ =========== ===========
- ----------------
(a) Fiscal year end changed to October 31. Prior to this, the fiscal year end was June 30. The amounts reflected are for the
period July 1, 1998 through October 31, 1998.
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENTS of CHANGES in NET assets (continued)
WM GROUP OF FUNDS
FOR THE YEAR ENDED JUNE 30, 1998
<CAPTION>
STRATEGIC CONSERVATIVE FLEXIBLE
GROWTH GROWTH BALANCED INCOME INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net investment income/(loss) ............. $ (327,265) $ 2,141,908 $ 3,795,331 $ 666,597 $ 919,616
Net realized gain/(loss) on investments
during the year ........................ 70,811 634,997 1,600,513 180,143 (146)
Capital gain distribution received ....... 8,834,729 29,135,400 21,083,866 950,791 --
Net unrealized appreciation of investments
during the year ........................ 2,307,572 7,816,736 1,378,617 38,924 368,927
----------- ------------ ------------ ----------- -----------
Net increase in net assets resulting from
operations ............................. 10,885,847 39,729,041 27,858,327 1,836,455 1,288,397
Distributions to shareholders from net
investment income:
Class A Shares ......................... -- (974,521) (2,029,043) (390,981) (687,206)
Class B Shares ......................... -- (1,167,578) (1,843,104) (296,913) (250,566)
Distributions in excess of net
investment income:
Class A Shares ......................... (950,866) (4,768,523) (4,295,670) (200,387) (979)
Class B Shares ......................... (2,366,606) (5,713,185) (3,902,019) (152,174) (357)
Net realized gains on investments:
Class A Shares ......................... (53,136) (709,436) (1,050,143) (218,896) --
Class B Shares ......................... (140,517) (922,315) (1,095,753) (167,811) --
Net increase/(decrease) in net assets
from Fund share transactions:
Class A Shares ......................... 2,069,016 (32,508,160) (14,387,577) (4,062,849) (5,873,876)
Class B Shares ......................... 10,004,844 (3,587,306) 8,172,018 147,178 (544,041)
----------- ------------ ------------ ----------- -----------
Net increase/ (decrease) in net assets ... 19,448,582 (10,621,983) 7,427,036 (3,506,378) (6,068,628)
NET ASSETS:
Beginning of year ........................ 50,054,791 294,837,738 209,242,247 19,998,249 17,946,445
----------- ------------ ------------ ----------- -----------
End of year .............................. $69,503,373 $284,215,755 $216,669,283 $16,491,871 $11,877,817
=========== ============ ============ =========== ===========
Undistributed net investment income
at end of year ......................... $ 343,195 $ 2,093,956 $ 1,751,125 $ 96,037 $ 4,670
=========== ============ ============ =========== ===========
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENTS of CHANGES in NET assets (continued)
WM GROUP OF FUNDS
FOR THE PERIOD ENDED JUNE 30, 1997*
<CAPTION>
STRATEGIC CONSERVATIVE FLEXIBLE
GROWTH GROWTH BALANCED INCOME INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- ------------ --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net investment income/(loss) ............. $ (178,097) $ 742,917 $ 2,691,767 $ 621,784 $ 730,796
Net realized loss on investments during
the period ............................. (832,813) (4,572,450) (2,221,544) (82,264) (25,028)
Capital gain distribution received ....... 2,663,475 17,000,068 8,289,328 498,118 --
Net unrealized appreciation/ (depreciation)
of investments during the year ......... 2,591,328 9,627,435 8,780,900 221,883 (50,474)
----------- ------------ ------------ ----------- -----------
Net increase in net assets resulting
from operations ........................ 4,243,893 22,797,970 17,540,451 1,259,521 655,294
Distributions to shareholders from net
investment income:
Class A Shares ......................... -- (656,680) (1,872,563) (438,577) (571,274)
Class B Shares ......................... -- (86,237) (819,204) (183,207) (159,522)
Distributions in excess of net investment
income:
Class A Shares ......................... (432,599) (5,678,412) (2,697,778) (121,042) (12,235)
Class B Shares ......................... (1,142,282) (6,029,325) (2,177,251) (62,906) (3,903)
Net realized gains on investments:
Class A Shares ......................... (406) -- (389) (256) (5)
Class B Shares ......................... (1,155) -- (270) (115) (1)
Net increase in net assets from Fund
share transactions:
Class A Shares ......................... 13,405,891 131,432,582 104,172,141 12,313,830 13,469,251
Class B Shares ......................... 33,961,449 153,037,840 95,077,110 7,211,001 4,548,840
----------- ------------ ------------ ----------- -----------
Net increase in net assets ............... 50,034,791 294,817,738 209,222,247 19,978,249 17,926,445
NET ASSETS:
Beginning of year ........................ 20,000 20,000 20,000 20,000 20,000
----------- ------------ ------------ ----------- -----------
End of year .............................. $50,054,791 $294,837,738 $209,242,247 $19,998,249 $17,946,445
=========== ============ ============ =========== ===========
Undistributed net investment
income/ (distributions in excess of net
investment income) at end of period .... $ (202,159) $ 191 $ 76,816 $ 21,297 $ 18,156
=========== ============ ============ =========== ===========
- ----------------
* The portfolios' Class A Shares and Class B Shares commenced operations on July 25, 1996.
See Notes to Financial Statements.
</TABLE>
<PAGE>
[This Page Intentionally Left Blank]
<PAGE>
<TABLE>
STATEMENTS of CHANGES in NET assets -- CAPITAL stock ACTIVITY
WM GROUP OF FUNDS
<CAPTION>
STRATEGIC GROWTH PORTFOLIO(a) CONSERVATIVE GROWTH PORTFOLIO(b)
------------------------------------------------- ---------------------------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
10/31/98(D) 06/30/98 06/30/97* 10/31/98(D) 06/30/98 06/30/97*
------------ ---------- ------------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
AMOUNT
CLASS A:
Sold .................. $ 4,093,087 $ 7,185,762 $ 14,561,758 $ 3,500,446 $ 16,883,750 $ 153,704,747
Issued as reinvestment
of dividends .......... -- 985,685 406,975 -- 6,378,314 6,299,489
Redeemed .............. (1,336,913) (6,102,431) (1,562,842) (9,908,928) (55,770,224) (28,571,654)
------------ ------------ ------------- ------------ ------------- --------------
Net increase/(decrease) $ 2,756,174 $ 2,069,016 $ 13,405,891 $ (6,408,482) $ (32,508,160) $ 131,432,582
============ ============ ============= ============ ============= ==============
CLASS B:
Sold .................. $ 8,406,722 $ 16,349,909 $ 34,262,712 $ 12,766,400 $ 29,916,859 $ 162,649,840
Issued as reinvestment
of dividends .......... -- 2,469,178 1,130,781 -- 7,663,465 6,026,225
Redeemed .............. (3,565,950) (8,814,243) (1,432,044) (13,827,547) (41,167,630) (15,638,225)
------------ ------------ ------------- ------------ ------------- --------------
Net increase/(decrease) $ 4,840,772 $ 10,004,844 $ 33,961,449 $ (1,061,147) $ (3,587,306) $ 153,037,840
============ ============ ============= ============ ============= ==============
SHARES
CLASS A:
Sold .................. 353,399 602,394 1,373,772 320,925 1,496,544 14,708,889
Issued as reinvestment
of dividends .......... -- 93,688 39,283 -- 628,647 622,409
Redeemed .............. (114,051) (513,861) (148,037) (909,242) (4,959,288) (2,792,970)
------------ ------------ ------------- ------------ ------------- --------------
Net increase/(decrease) 239,348 182,221 1,265,018 (588,317) (2,834,097) 12,538,328
============ ============ ============= ============ ============= ==============
CLASS B:
Sold .................. 731,727 1,392,992 3,224,045 1,219,668 2,663,779 15,618,441
Issued as reinvestment
of dividends .......... -- 236,345 109,360 -- 758,711 598,687
Redeemed .............. (323,112) (743,910) (135,633) (1,343,665) (3,691,585) (1,529,154)
------------ ------------ ------------- ------------ ------------- --------------
Net increase/(decrease) 408,615 885,427 3,197,772 (123,997) (269,095) 14,687,974
============ ============ ============= ============ ============= ==============
- ----------------
* The Portfolio's Class A Shares and Class B Shares commenced operations on July 25, 1996.
(a) Formerly Sierra Sierra Asset Management Capital Growth Portfolio.
(b) Formerly Sierra Asset Management Growth Portfolio.
(c) Formerly Sierra Asset Management Value Portfolio.
(d) Fiscal year end changed to October 31. Prior to this, the fiscal year end was June 30. The amounts reflected are for the
period July 1, 1998 through October 31, 1998.
</TABLE>
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
BALANCED PORTFOLIO FLEXIBLE INCOME PORTFOLIO(c) INCOME PORTFOLIO
- ------------------------------------------- ------------------------------------------ ---------------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
10/31/98(D) 06/30/98 06/30/97* 10/31/98(D) 06/30/98 06/30/97* 10/31/98(D) 06/30/98 06/30/97*
------------ --------- -------- ----------- -------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 5,387,129 $19,339,371 $ 126,999,007 $1,695,735 $ 1,432,574 $ 16,188,869 $ 520,319 $ 1,269,248 $ 18,811,393
379,722 7,178,526 4,442,814 102,837 794,058 512,504 65,592 352,767 269,092
(8,764,429) (40,905,474) (27,269,680) (729,961) (6,289,481) (4,387,543) (699,146) (7,495,891) (5,611,234)
----------- ------------ ------------- ---------- ----------- ------------- ---------- ----------- -------------
$(2,997,578) $(14,387,577) $ 104,172,141 $1,068,611 $(4,062,849) $ 12,313,830 $ (113,235) $(5,873,876) $ 13,469,251
=========== ============ ============= ========== =========== ============= ========== =========== =============
$12,689,247 $ 27,242,146 $ 104,072,070 $3,993,004 $ 1,998,856 $ 8,433,643 $1,926,369 $ 1,358,238 $ 5,718,919
169,403 6,704,966 2,955,038 74,833 535,294 231,229 54,623 186,208 99,878
(11,141,204) (25,775,094) (11,949,998) (536,413) (2,386,972) (1,453,871) (329,684) (2,088,487) (1,269,957)
----------- ------------ ------------- ---------- ----------- ------------- ---------- ----------- -------------
$ 1,717,446 $ 8,172,018 $ 95,077,110 $3,531,424 $ 147,178 $ 7,211,001 $1,651,308 $ (544,041) $ 4,548,840
=========== ============ ============= ========== =========== ============= ========== =========== =============
495,626 1,719,960 12,169,876 162,071 134,118 1,564,273 50,467 123,065 1,849,003
35,208 676,566 428,830 9,780 75,144 49,180 6,367 34,204 26,612
(796,592) (3,640,170) (2,606,054) (69,274) (586,227) (420,925) (67,860) (727,213) (553,205)
----------- ------------ ------------- ---------- ----------- ------------- ---------- ----------- -------------
(265,758) (1,243,644) 9,992,652 102,577 (376,965) 1,192,528 (11,026) (569,944) 1,322,410
=========== ============ ============= ========== =========== ============= ========== =========== =============
1,157,429 2,426,948 9,967,493 380,195 185,916 814,464 187,661 131,591 562,467
15,550 635,623 285,165 7,114 50,797 22,213 5,303 18,089 9,879
(1,020,050) (2,292,460) (1,136,848) (51,101) (223,256) (138,840) (31,983) (202,516) (125,637)
----------- ------------ ------------- ---------- ----------- ------------- ---------- ----------- -------------
152,929 770,111 9,115,810 336,208 13,457 697,837 160,981 (52,836) 446,709
=========== ============ ============= ========== =========== ============= ========== =========== =============
</TABLE>
See Notes to Financial Statements.
<PAGE>
<TABLE>
FINANCIAL highlights
STRATEGIC GROWTH PORTFOLIO
FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<CAPTION>
CLASS A SHARES CLASS B SHARES
------------------------------------------ ---------------------------------------------
PERIOD YEAR PERIOD PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
10/31/98(C) 06/30/98 06/30/97* 10/31/98(C) 06/30/98 06/30/97*
----------- -------- --------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period ............................. $ 12.66 $ 11.26 $ 10.00 $ 12.53 $ 11.19 $ 10.00
------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income/(loss) ........ (0.02)++ 0.00#++ (0.02)++ (0.05)++ (0.09)++ (0.10)++
Net realized and unrealized
gain/(loss) on investments ......... (0.97) 2.12 1.90 (0.96) 2.11 1.90
------- ------- ------- ------- ------- -------
Total from investment operations .... (0.99) 2.12 1.88 (1.01) 2.02 1.80
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Distributions in excess of net
investment income .................. -- (0.68) (0.62) -- (0.64) (0.61)
Distributions from net realized
capital gains ...................... -- (0.04) (0.00)# -- (0.04) (0.00)#
------- ------- ------- ------- ------- -------
Total distributions ................. -- (0.72) (0.62) -- (0.68) (0.61)
------- ------- ------- ------- ------- -------
Net asset value, end of period ...... $ 11.67 $ 12.66 $ 11.26 $ 11.52 $ 12.53 $ 11.19
======= ======= ======= ======= ======= =======
TOTAL RETURN+ ....................... (7.82)% 20.11% 19.33% (8.06)% 19.24% 18.48%
======= ======= ======= ======= ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $19,690 $18,330 $14,253 $51,752 $51,173 $35,802
Ratio of operating expenses to average
net assets(a)(b) ................... 0.95%** 0.94% 0.90%** 1.70%** 1.68% 1.65%**
Ratio of net investment income/(loss)
to average net assets .............. (0.53)%** 0.01% (0.19)%** (1.28)%** (0.74)% (0.94)%**
Portfolio turnover rate ............ 10% 23% 33% 10% 23% 33%
Ratio of operating expenses to average
net assets without fee waivers,
expenses absorbed and/or fees reduced
by credits allowed by the custodian(a) 1.13%** 1.08% 1.45%** 1.88%** 1.83% 2.20%**
- ----------------
* The Portfolio's Class A Shares and Class B Shares commenced operations on July 25, 1996.
** Annualized.
# Amount represents less than $0.01 per share.
+ Total return is not annualized for periods less than one year and does not reflect any applicable sales charges. The total
return would have been lower if certain fees had not been waived and expenses absorbed by the investment advisor or if fees
had not been reduced by credits allowed by the custodian.
++ Per share numbers have been calculated using the average shares method.
(a) The Portfolio also will indirectly bear its prorated share of expenses of the Underlying Funds.
(b) Ratio of operating expenses to average net assets includes expenses paid indirectly.
(c) Fiscal year end changed to October 31. Prior to this, the fiscal year end was June 30.
</TABLE>
See Notes to Financial Statements.
<PAGE>
<TABLE>
FINANCIAL highlights
CONSERVATIVE GROWTH PORTFOLIO
FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<CAPTION>
CLASS A SHARES CLASS B SHARES
--------------------------------------------- --------------------------------------------
PERIOD YEAR PERIOD PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
10/31/98(C) 06/30/98 06/30/97* 10/31/98(C) 06/30/98 06/30/97*
----------- -------- --------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period ..................... $11.84 $10.86 $10.00 $11.74 $10.80 $10.00
------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income/(loss) 0.01 0.13++ 0.08++ (0.03) 0.04++ 0.01++
Net realized and unrealized
gain/(loss) on investments . (0.88) 1.42 1.32 (0.86) 1.43 1.31
------ ------ ------ ------ ------ ------
Total from investment
operations ................. (0.87) 1.55 1.40 (0.89) 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 capital gains ..... -- (0.06) -- -- (0.06) --
------ ------ ------ ------ ------ ------
Total distributions ........ -- (0.57) (0.54) -- (0.53) (0.52)
------ ------ ------ ------ ------ ------
Net asset value, end of period $10.97 $11.84 $10.86 $10.85 $11.74 $10.80
====== ====== ====== ====== ====== ======
TOTAL RETURN+ ............... (7.35)% 15.18% 14.39% (7.58)% 14.44% 13.59%
====== ====== ====== ====== ====== ======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in
000's) ..................... $100,024 $114,946 $136,141 $155,064 $169,269 $158,697
Ratio of operating expenses to
average net assets(a)(b) ... 0.95%** 0.95% 0.92%** 1.70%** 1.70% 1.67%**
Ratio of net investment
income/(loss) to average net
assets ..................... 0.05%** 1.17% 0.81%** (0.70)%** 0.40% 0.06%**
Portfolio turnover rate ..... 9% 28% 20% 9% 28% 20%
Ratio of operating expenses to
average net assets without
fee waivers, expenses
absorbed and/or fees reduced
by credits allowed by the
custodian(a) ............... 1.03%** 1.00% 1.17%** 1.78%** 1.74% 1.92%**
- ----------------
* The Portfolio's Class A Shares and Class B Shares commenced operations on July 25, 1996.
** Annualized.
+ Total return is not annualized for periods less than one year and does not reflect any applicable sales charges. The total
return would have been lower if certain fees had not been waived and expenses absorbed by the investment advisor or if fees
had not been reduced by credits allowed by the custodian.
++ Per share numbers have been calculated using the average shares method.
(a) The Portfolio also will indirectly bear its prorated share of expenses of the Underlying Funds.
(b) Ratio of operating expenses to average net assets includes expenses paid indirectly.
(c) Fiscal year end changed to October 31. Prior to this, the fiscal year end was June 30.
</TABLE>
See Notes to Financial Statements.
<PAGE>
<TABLE>
FINANCIAL highlights
BALANCED PORTFOLIO
FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<CAPTION>
CLASS A SHARES CLASS B SHARES
-------------------------------------------- ----------------------------------------------
PERIOD YEAR PERIOD PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
10/31/98(C) 06/30/98 06/30/97* 10/31/98(C) 06/30/98 06/30/97*
----------- -------- --------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period ..................... $11.63 $10.95 $10.00 $11.63 $10.95 $10.00
------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.05 0.22 0.20++ 0.02 0.17 0.14++
Net realized and unrealized
gain/(loss) on investments . (0.61) 1.25 1.27 (0.61) 1.22 1.25
------ ------ ------ ------ ------ ------
Total from investment
operations ................. (0.56) 1.47 1.47 (0.59) 1.39 1.39
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment
income ..................... (0.05) (0.23) (0.20) (0.02) (0.20) (0.14)
Distributions in excess of net
investment income .......... -- (0.45) (0.32) -- (0.40) (0.30)
Distributions from net
realized capital gains ..... -- (0.11) (0.00)# -- (0.11) (0.00)#
------ ------ ------ ------ ------ ------
Total distributions ......... (0.05) (0.79) (0.52) (0.02) (0.71) (0.44)
------ ------ ------ ------ ------ ------
Net asset value, end of period $11.02 $11.63 $10.95 $11.02 $11.63 $10.95
====== ====== ====== ====== ====== ======
TOTAL RETURN+ ............... (4.85)% 14.32% 15.02% (5.09)% 13.47% 14.23%
====== ====== ====== ====== ====== ======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in
000's) ..................... $93,491 $101,726 $109,421 $110,626 $114,944 $99,821
Ratio of operating expenses to
average net assets(a)(b) ... 0.95%** 0.95% 0.92%** 1.70%** 1.70% 1.67%**
Ratio of net investment income
to average net assets ...... 1.22%** 2.14% 2.48%** 0.47%** 1.39% 1.73%**
Portfolio turnover rate ..... 3% 29% 46% 3% 29% 46%
Ratio of operating expenses to
average net assets without
fee waivers, expenses
absorbed and/or fees reduced
by credits allowed by the
custodian(a) ............... 1.02%** 1.00% 1.17%** 1.77%** 1.75% 1.92%**
- ----------------
* The Portfolio's Class A Shares and Class B Shares commenced operations on July 25, 1996.
** Annualized.
# Amount represents less than $0.01 per share.
+ Total return is not annualized for periods less than one year and does not reflect any applicable sales charges. The total
return would have been lower if certain fees had not been waived and expenses absorbed by the investment advisor or if fees
had not been reduced by credits allowed by the custodian.
++ Per share numbers have been calculated using the average shares method.
(a) The Portfolio also will indirectly bear its prorated share of expenses of the Underlying Funds.
(b) Ratio of operating expenses to average net assets includes expenses paid indirectly.
(c) Fiscal year end changed to October 31. Prior to this, the fiscal year end was June 30.
</TABLE>
See Notes to Financial Statements.
<PAGE>
<TABLE>
FINANCIAL highlights
FLEXIBLE INCOME PORTFOLIO
FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<CAPTION>
CLASS A SHARES CLASS B SHARES
------------------------------------------------ ---------------------------------------------
PERIOD YEAR PERIOD PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
10/31/98(C) 06/30/98 06/30/97* 10/31/98(C) 06/30/98 06/30/97*
----------- -------- --------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period ..................... $10.79 $10.57 $10.00 $10.79 $10.57 $10.00
------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ....... 0.12 0.45 0.43++ 0.10 0.31 0.38++
Net realized and unrealized
gain/(loss) on investments . (0.15) 0.67 0.70 (0.16) 0.73 0.68
------ ------ ------ ------ ------ ------
Total from investment
operations ................. (0.03) 1.12 1.13 (0.06) 1.04 1.06
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment
income ..................... (0.13) (0.45) (0.43) (0.10) (0.37) (0.38)
Distributions in excess of net
investment income .......... -- (0.21) (0.13) -- (0.21) (0.11)
Distributions from net
realized capital gains ..... -- (0.24) (0.00)# -- (0.24) (0.00)#
------ ------ ------ ------ ------ ------
Total distributions ......... (0.13) (0.90) (0.56) (0.10) (0.82) (0.49)
------ ------ ------ ------ ------ ------
Net asset value, end of period $10.63 $10.79 $10.57 $10.63 $10.79 $10.57
====== ====== ====== ====== ====== ======
TOTAL RETURN+ ............... (0.26)% 11.07% 11.58% (0.51)% 10.24% 10.80%
====== ====== ====== ====== ====== ======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in
000's) ..................... $9,766 $8,808 $12,613 $11,142 $7,684 $7,385
Ratio of operating expenses to
average net assets(a)(b) ... 0.95%** 0.95% 0.92%** 1.70%** 1.70% 1.67%**
Ratio of net investment
income to average net
assets ..................... 3.62%** 4.07% 4.95%** 2.87%** 3.32% 4.20%**
Portfolio turnover rate ..... 15% 24% 54% 15% 24% 54%
Ratio of operating expenses to
average net assets without
fee waivers, expenses
absorbed and/or fees reduced by
credits allowed by the
custodian(a) ............... 1.37%** 1.23% 1.67%** 2.12%** 1.98% 2.42%**
- ----------------
* The Portfolio's Class A Shares and Class B Shares commenced operations on July 25, 1996.
** Annualized.
# Amount represents less than $0.01 per share.
+ Total return is not annualized for periods less than one year and does not reflect any applicable sales charges. The total
return would have been lower if certain fees had not been waived and expenses absorbed by the investment advisor or if fees
had not been reduced by credits allowed by the custodian.
++ Per share numbers have been calculated using the average shares method.
(a) The Portfolio also will indirectly bear its prorated share of expenses of the Underlying Funds.
(b) Ratio of operating expenses to average net assets includes expenses paid indirectly.
(c) Fiscal year end changed to October 31. Prior to this, the fiscal year end was June 30.
</TABLE>
See Notes to Financial Statements.
<PAGE>
<TABLE>
FINANCIAL highlights
INCOME PORTFOLIO
FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<CAPTION>
CLASS A SHARES CLASS B SHARES
-------------------------------------------- ---------------------------------------------
PERIOD YEAR PERIOD PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
10/31/98(C) 06/30/98 06/30/97* 10/31/98(C) 06/30/98 06/30/97*
----------- -------- --------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period ..................... $10.34 $10.13 $10.00 $10.34 $10.13 $10.00
------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ....... 0.19 0.64 0.58++ 0.16 0.56 0.51++
Net realized and unrealized
gain/(loss) on investments . (0.09) 0.22 0.14## (0.09) 0.22 0.14##
------ ------ ------ ------ ------ ------
Total from investment
operations ................. 0.10 0.86 0.72 0.07 0.78 0.65
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment
income ..................... (0.19) (0.65) (0.58) (0.16) (0.57) (0.51)
Distributions in excess of net
investment income .......... -- (0.00)# (0.01) -- (0.00)# (0.01)
Distributions
from net
realized capital gains ..... -- -- (0.00)# -- -- (0.00)#
------ ------ ------ ------ ------ ------
Total distributions ......... (0.19) (0.65) (0.59) (0.16) (0.57) (0.52)
------ ------ ------ ------ ------ ------
Net asset value, end of period $10.25 $10.34 $10.13 $10.25 $10.34 $10.13
====== ====== ====== ====== ====== ======
TOTAL RETURN+ ............... 0.96% 8.71% 7.38% 0.70% 7.90% 6.63%
====== ====== ====== ====== ====== ======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in
000's) ..................... $7,611 $7,793 $13,410 $5,698 $4,084 $4,537
Ratio of operating expenses to
average net assets(a)(b) ... 0.95%** 0.95% 0.93%** 1.70%** 1.70% 1.68%**
Ratio of net investment income
to average net assets ...... 5.40%** 6.23% 6.09%** 4.65%** 5.48% 5.34%**
Portfolio turnover rate ..... 22% 14% 56% 22% 14% 56%
Ratio of operating expenses to
average net assets without
fee waivers, expenses
absorbed and/or fees reduced
by credits allowed by the
custodian(a) ............... 1.53%** 1.25% 1.65%** 2.28%** 2.01% 2.40%**
- ----------------
* The Portfolio's Class A Shares and Class B Shares commenced operations on July 25, 1996.
** Annualized.
# Amount represents less than $0.01 per share.
## The amount shown may not accord with the change in the aggregate gains and losses of portfolio securities due to timing of
sales and redemptions of Portfolio shares.
+ Total return is not annualized for periods less than one year and does not reflect any applicable sales charges. The total
return would have been lower if certain fees had not been waived and expenses absorbed by the investment advisor or if fees
had not been reduced by credits allowed by the custodian.
++ Per share numbers have been calculated using the average shares method.
(a) The Portfolio also will indirectly bear its prorated share of expenses of the Underlying Funds.
(b) Ratio of operating expenses to average net assets includes expenses paid indirectly.
(c) Fiscal year end changed to October 31. Prior to this, the fiscal year end was June 30.
</TABLE>
See Notes to Financial Statements.
<PAGE>
PORTFOLIO of INVESTMENTS
STRATEGIC GROWTH PORTFOLIO
OCTOBER 31, 1998
SHARES VALUE
------ -----
INVESTMENT COMPANY SECURITIES -- 99.0%
1,399,893 WM Growth Fund ................................... $24,862,092
1,452,021 WM Growth & Income Fund .......................... 29,083,971
1,499,080 WM International Growth Fund ..................... 13,236,877
3,533,218 WM Money Market Fund ............................. 3,533,218
-----------
Total Investment Company Securities
(Cost $71,163,964) ............................. 70,716,158
-----------
PRINCIPAL
AMOUNT
--------
REPURCHASE AGREEMENT -- 0.8%
(Cost $561,000)
$ 561,000 Agreement with Boston Safe Deposit & Trust Company,
4.500% dated 10/30/1998, to be repurchased at
$561,210 on 11/02/1998 collateralized by $590,000
Student Loan Marketing Association, 4.380%
due 02/08/1999 (Market Value $566,053) ......... 561,000
-----------
TOTAL INVESTMENTS (Cost $71,724,964*) ................ 99.8% 71,277,158
OTHER ASSETS AND LIABILITIES (Net) ................... 0.2 164,328
----- -----------
NET ASSETS ........................................... 100.0% $71,441,486
===== ===========
- ----------------
*Aggregate cost for federal tax purposes is $71,992,478.
See Notes to Financial Statements.
<PAGE>
PORTFOLIO of INVESTMENTS
CONSERVATIVE GROWTH PORTFOLIO
October 31, 1998
SHARES VALUE
------ -----
INVESTMENT COMPANY SECURITIES -- 99.1%
1,379,064 WM Emerging Growth Fund .......................... $ 12,479,860
3,545,867 WM Growth Fund ................................... 62,974,604
4,567,754 WM Growth & Income Fund .......................... 91,492,120
5,423,707 WM International Growth Fund ..................... 47,891,332
37,688,215 WM Money Market Fund ............................. 37,866,215
------------
Total Investment Company Securities
(Cost $255,801,542) ............................ 252,704,131
------------
PRINCIPAL
AMOUNT
--------
REPURCHASE AGREEMENT -- 0.8%
(Cost $2,083,000)
$ 2,083,000 Agreement with Boston Safe Deposit & Trust Company,
4.500% dated 10/30/1998, to be repurchased at
$2,083,781 on 11/02/1998 collateralized by
$2,190,000 Student Loan Marketing Association,
4.380% due 02/08/1999 (Market Value $2,101,114) .. 2,083,000
------------
TOTAL INVESTMENTS (Cost $257,884,542*) .............. 99.9% 254,787,131
OTHER ASSETS AND LIABILITIES (Net) .................. 0.1 301,007
----- ------------
NET ASSETS ........................................... 100.0% $255,088,138
===== ============
- -------------
*Aggregate cost for federal tax purposes is $258,930,970.
See Notes to Financial Statements.
<PAGE>
PORTFOLIO of INVESTMENTS
BALANCED PORTFOLIO
October 31, 1998
SHARES VALUE
------ -----
INVESTMENT COMPANY SECURITIES -- 98.8%
10,345 WM Emerging Growth Fund .......................... $ 169,142
1,718,901 WM Growth Fund ................................... 30,527,678
3,038,694 WM Growth & Income Fund .......................... 60,865,035
4,239,499 WM International Growth Fund ..................... 37,434,780
41,225,073 WM Money Market Fund ............................. 41,225,073
143,951 WM Short Term High Quality Bond Fund ............. 338,284
2,831,457 WM U.S. Government Securities Fund ............... 31,117,712
------------
Total Investment Company Securities
(Cost $202,873,950) ............................ 201,677,704
------------
PRINCIPAL
AMOUNT
--------
REPURCHASE AGREEMENT -- 1.2%
(Cost $2,396,000)
$ 2,396,000 Agreement with Boston Safe Deposit & Trust Company,
4.500% dated 10/30/1998, to be repurchased at
$2,396,899 on 11/02/1998 collateralized by
$2,520,000 Student Loan Marketing Association,
4.380% due 02/08/1999 (Market Value $2,417,721) .. 2,396,000
------------
TOTAL INVESTMENTS (Cost $205,269,950*) ............... 100.0% 204,073,704
OTHER ASSETS AND LIABILITIES (Net) ................... 0.0 43,101
----- ------------
NET ASSETS ........................................... 100.0% $204,116,805
===== ============
- -------------
*Aggregate cost for federal tax purposes is $205,684,971.
See Notes to Financial Statements
<PAGE>
PORTFOLIO of INVESTMENTS
FLEXIBLE INCOME PORTFOLIO
October 31, 1998
SHARES VALUE
------ -----
INVESTMENT COMPANY SECURITIES -- 95.0%
56,391 WM Growth Fund ................................... $ 1,001,497
203,558 WM Growth & Income Fund .......................... 4,077,266
308,753 WM Income Fund ................................... 2,914,630
6,901,403 WM Money Market Fund ............................. 6,901,403
450,974 WM U.S. Government Securities Fund ............... 4,956,201
------------
Total Investment Company Securities
(Cost $19,830,581) ............................. 19,850,997
------------
PRINCIPAL
AMOUNT
--------
REPURCHASE AGREEMENT -- 2.4%
(Cost $505,000)
$ 505,000 Agreement with Boston Safe Deposit & Trust Company,
4.500% dated 10/30/1998, to be repurchased at
$505,189 on 11/ 02/1998 collateralized by $535,000
Student Loan Marketing Association, 4.380% due
02/08/1999 (Market Value $513,286) ............... 505,000
------------
TOTAL INVESTMENTS (Cost $20,335,581*) ................. 97.4% 20,355,997
OTHER ASSETS AND LIABILITIES (Net) .................... 2.6 552,178
----- ------------
NET ASSETS ............................................ 100.0% $ 20,908,175
===== ============
- -------------
*Aggregate cost for federal tax purposes is $20,347,872.
See Notes to Financial Statements.
<PAGE>
PORTFOLIO of INVESTMENTS
INCOME PORTFOLIO
October 31, 1998
SHARES VALUE
------ -----
INVESTMENT COMPANY SECURITIES -- 95.6%
137,396 WM High Yield Fund ............................... $ 1,215,955
468,851 WM Income Fund ................................... 4,425,950
1,924,043 WM Money Market Fund ............................. 1,924,043
550,517 WM Short Term High Quality Bond Fund ............. 1,293,716
351,694 WM U.S. Government Securities Fund ............... 3,865,116
------------
Total Investment Company Securities
(Cost $12,554,608) ............................. 12,724,780
------------
PRINCIPAL
AMOUNT
--------
REPURCHASE AGREEMENT -- 2.7%
(Cost $356,000)
$ 356,000 Agreement with Boston Safe Deposit & Trust Company,
4.500% dated 10/30/1998, to be repurchased at
$356,134 on 11/ 02/1998 collateralized by $375,000
Student Loan Marketing Association, 4.380% due
02/08/1999 (Market Value $359,780) ............... 356,000
------------
TOTAL INVESTMENTS (Cost $12,910,608*) ................. 98.3% 13,080,780
OTHER ASSETS AND LIABILITIES (Net) .................... 1.7 228,507
----- -----------
NET ASSETS ............................................ 100.0% $13,309,287
===== ===========
- -------------
*Aggregate cost for federal tax purposes is $12,915,417.
See Notes to Financial Statements.
<PAGE>
NOTES to FINANCIAL statements
WM STRATEGIC ASSETS MANAGEMENT PORTFOLIO
1. ORGANIZATION AND BUSINESS
WM Strategic Asset Management Portfolios (the "Trust") was organized under the
laws of the Commonwealth of Massachusetts on March 26, 1996 as a business
entity commonly known as a "Massachusetts business trust." The Trust is
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end management investment company. The Trust was established
in order to offer a range of asset allocation strategies to accommodate
different investment philosophies and goals. The Trust offers five portfolios;
Strategic Growth and Conservative Growth Portfolios (the "Equity Portfolios"),
Balanced, Flexible Income and Income Portfolios (the "Fixed Income
Portfolios") (each a "Portfolio" and collectively, the "Portfolios"). Each of
the Portfolios offers two classes of shares: Class A shares and Class B
shares. Class A shares are subject to an initial sales charge at the time of
purchase. Certain Class A shares purchased without an initial sales charge may
be subject to a contingent deferred sales charge ("CDSC") if redeemed within
two years of purchase. Class B shares are not subject to an initial sales
charge. Class B shares are subject to a CDSC if redeemed within five years
from the date of purchase.
Each of the Portfolios invests, within certain percentage ranges, in Class I
shares of certain funds in the WM Group of Funds and certain other mutual
funds (collectively, the "Underlying Funds"). Each Portfolio typically
allocates its assets, within determined percentage ranges, among the
Underlying Funds. The percentages reflect the extent to which each Portfolio
can 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 Underlying Funds. WM Advisors, Inc. (the "Advisor" or "WM
Advisors"), a wholly-owned subsidiary of Washington Mutual, Inc. ("Washington
Mutual"), may alter these percentage ranges when it deems appropriate. The
assets of each Portfolio will be allocated among the Underlying Funds in
accordance with its investment objective based on the Advisor's outlook for
the economy and the financial markets and the relative market valuations of
the Underlying Funds. In addition, in order to meet liquidity needs or for
temporary defensive purposes, each Portfolio may invest its assets directly in
cash, stock or bond index futures, options, money market securities and
certain short-term debt instruments.
2. SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures in the financial statements.
Actual results could differ from those estimates. The following is a summary
of significant accounting policies consistently followed by the Portfolios in
the preparation of their financial statements.
PORTFOLIO VALUATION:
Investments in the Underlying Funds are valued at net asset value per Class I
share of the respective Underlying Funds determined as of the close of the New
York Stock Exchange on each valuation date. Short-term debt securities that
mature in 60 days or less are valued at amortized cost.
REPURCHASE AGREEMENTS:
Each Portfolio may engage in repurchase agreement transactions. Under the
terms of a typical repurchase agreement, the Portfolio, through its custodian,
takes possession of an underlying debt obligation subject to an obligation of
the seller to repurchase. The Portfolio is then obligated to resell the
obligation at an agreed upon price and time, thereby determining the yield
during the Portfolio's holding period. The value of the collateral is at all
times at least equal to the total amount of the repurchase obligation,
including interest. In the event of counterparty default, the Portfolio would
seek to use the collateral to offset losses incurred. There is potential loss
to the Portfolio in the event the Portfolio is delayed or prevented from
exercising its right to dispose of the collateral securities, including the
risk of a possible decline in the value of the underlying securities during
the period while the Portfolio seeks to assert its rights. WM Advisors, acting
under the supervision of the Board of Trustees, reviews the value of the
collateral and the credit worthiness of those banks and dealers with whom each
Portfolio enters into repurchase agreements.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME:
Securities transactions are recorded as of the trade date (the date the order
to buy or sell is executed). Realized gains and losses from securities sold
are recorded on the identified cost basis. Interest income is recorded on the
accrual basis and consists of interest accrued and, if applicable, discount
accreted less premiums amortized. Dividend income is recorded on the ex-
dividend date. Each Portfolio's investment income and realized and unrealized
gains and losses are allocated among the Portfolio's classes of shares based
upon the relative average net assets of each class.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income of the Flexible Income Portfolio,
Balanced Portfolio and Income Portfolio are declared daily and paid monthly.
Dividends from the net investment income of the Conservative Growth Portfolio
are declared and paid quarterly. Dividends from the net investment income of
the Strategic Growth Portfolio are declared and paid semi-annually.
Distributions of any net long-term capital gains earned by a Portfolio are
made annually. Distributions of any net short-term capital gains earned by a
Portfolio are distributed no less frequently than annually at the discretion
of the Board of Trustees. Additional distributions of net investment income
and capital gains for each Portfolio may be made at the discretion of the
Board of Trustees in order to avoid the application of a 4% non-deductible
excise tax on certain undistributed amounts of ordinary income and capital
gains. Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments of income and gains on various investment securities held
by the Portfolios, organizational costs, dividends payable, redesignated
distributions and differing characterization of distributions made by each
Portfolio as a whole. Net investment income per share calculations in the
financial highlights for the period ended October 31, 1998 for the Strategic
Growth Portfolio, Conservative Growth Portfolio, Balanced Portfolio, Flexible
Income Portfolio and Income Portfolio excludes these adjustments.
INCREASE/
INCREASE/ (DECREASE) DECREASE
(DECREASE) UNDISTRIBUTED NET ACCUMULATED NET
PAID-IN CAPITAL INVESTMENT INCOME REALIZED GAIN
--------------- ----------------- ---------------
Strategic Growth Portfolio $(247,331) $247,331 $ --
Conservative Growth
Portfolio ............... (354,452) 354,452 --
Balanced Portfolio ........ 413 (413) --
Flexible Income Portfolio . (2,001) 2,002 (1)
Income Portfolio .......... (2,002) 2,002 --
FEDERAL INCOME TAXES:
It is each Portfolio's policy to qualify as a regulated investment company by
complying with the requirements of the Internal Revenue Code of 1986, as
amended, applicable to regulated investment companies and by, among other
things, distributing substantially all of its taxable and tax-exempt earnings
to its shareholders. Therefore, no Federal income tax provision is required.
EXPENSES:
General expenses of the Trust are allocated to all the Portfolios based upon
the relative net assets of each Portfolio. In addition, the Portfolios will
indirectly bear their prorated share of expenses of the Underlying Funds.
Operating expenses directly attributable to a class of shares are charged to
the operations of that class of shares. Expenses of each Portfolio not
directly attributable to the operations of any class of shares are prorated
among the classes to which the expenses relate based on the relative average
net assets of each class of shares.
3. INVESTMENT ADVISORY AND OTHER TRANSACTIONS
WM Advisors serves as investment advisor to the Trust. As investment advisor
to the Portfolios, WM Advisors provides its proprietary asset allocation
services to the Portfolios, formulates the Portfolios' investment policies,
analyzes economic and market trends, exercises investment discretion over the
assets of the Portfolios and monitors the allocation of each Portfolio's
assets and each Portfolio's performance. For its investment advisory services
to the Portfolios, WM Advisors is entitled to a monthly fee, at an annual rate
of 0.15% of each Portfolio's average daily net assets. WM Shareholder
Services, Inc., an indirect wholly-owned subsidiary of Washington Mutual,
serves as administrator to the Portfolios and is entitled to a monthly fee at
an annual rate of 0.50% of average daily net assets of each Portfolio.
The Advisor has agreed to waive a portion of its management fees and/or
reimburse expenses. Fees waived and/or expenses absorbed by the Advisor and/or
administrator are as follows:
<TABLE>
<CAPTION>
PERIOD ENDED PERIOD ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, 1998 OCTOBER 31, 1998 JUNE 30, 1998 JUNE 30, 1998
NAME OF PORTFOLIO FEES WAIVED EXPENSES ABSORBED FEES WAIVED EXPENSES ABSORBED
- ----------------- ---------------- ----------------- ----------- -----------------
<S> <C> <C> <C> <C>
Strategic Growth Portfolio ......... $34,290 $ 6,085 $ 88,030 $ --
Conservative Growth Portfolio 66,873 -- 135,615 --
Balanced Portfolio ................. 46,178 -- 119,725 --
Flexible Income Portfolio .......... 24,570 -- 26,686 22,319
Income Portfolio ................... 6,074 17,261 22,941 23,326
</TABLE>
WM Shareholder Services, Inc. (the "Transfer Agent") serves as the transfer
and shareholder servicing agent of the Portfolios. Shareholder servicing fees
were paid to the Transfer Agent for services incidental to issuance and
transfer of shares, maintaining shareholder lists, and issuing and mailing
distributions and reports. The authorized monthly shareholder servicing fees
are as follows:
NAME OF PORTFOLIO CLASS A CLASS B
- ----------------- ------- -------
The Fixed Income Portfolios .................. $1.45 $1.55
The Equity Portfolios ........................ 1.25 1.35
Custodian fees for certain Portfolios have been reduced by credits allowed by
the custodian for uninvested cash balances. These Portfolios could have
invested this cash in income producing investments. Fees reduced by credits
allowed by the custodian are as follows:
PERIOD ENDED YEAR ENDED
NAME OF PORTFOLIO OCTOBER 31, 1998 JUNE 30, 1998
- ----------------- ---------------- -------------
Strategic Growth Portfolio .................. $ 90 $ 49
Conservative Growth Portfolio ............... 157 1,424
Balanced Portfolio .......................... 365 288
Flexible Income Portfolio ................... 78 250
Income Portfolio ............................ 99 212
4. TRUSTEES' FEES
No director, officer or employee of Washington Mutual or its subsidiaries
receives any compensation from the Trust for serving as an officer or Trustee
of the Trust. The Trust, together with other Trusts advised by WM Advisors,
Inc., pays each Trustee who is not a director, officer or employee of
Washington Mutual or its subsidiaries, $18,000 per annum plus $3,000 per board
meeting attended in person or $1,000 per board meeting attended by telephone.
Trustee's are also reimbursed for travel and out-of-pocket expenses. The
Chairman of each committee receives $500 per committee meeting attended.
Pursuant to an exemptive order granted by the Securities and Exchange
Commission, the Trust's eligible Trustees may participate in a deferred
compensation plan (the "Plan") which may be terminated at any time. Under the
Plan, Trustees may elect to defer receipt of all or a portion of their fees
which, in accordance with the Plan, are invested in mutual fund shares. Upon
termination of the Plan, Trustees that have deferred accounts under the Plan
will be paid benefits no later than the time the payments would otherwise have
been made without regard to such termination. All benefits provided under
these plans are funded and any payments to plan participants are paid solely
out of the Trust's assets.
5. DISTRIBUTION PLANS
WM Funds Distributor, Inc. (the "Distributor"), a registered broker-dealer and
an indirect wholly-owned subsidiary of Washington Mutual, serves as
distributor for Class A and Class B shares of the Portfolios. For the period
ended October 31, 1998, the Distributor and WM Financial Services, Inc. ("WM
Securities") received $405,223 and $38,055, respectively, representing
commissions (front end sales charges) on Class A shares. In addition the
Distributor and WM Securities received $10,302,225 and $987,631, respectively,
representing CDSC Fees from Class B shares.
Each of the Portfolios has adopted two distribution plans, pursuant to Rule
12b-1 under the 1940 Act, one for the Class A shares ("Class A Plan") and one
for the Class B shares ("Class B Plan"). Under the Class A and Class B Plans,
the Distributor is to be paid a shareholder service fee at an annual rate of
0.25% of the average daily net assets of each Class of shares. In addition,
under the Class B Plan, the Distributor is to be paid an annual distribution fee
of up to 0.75% of the average daily net assets of the Class B shares of each
Portfolio for activities primarily intended to result in the sale of Class B
shares for the Portfolios.
6. PURCHASES AND SALES OF SECURITIES
The aggregate cost of purchases and proceeds from sales of securities,
excluding U.S. Government and short-term investments, for the period ended
October 31, 1998 were as follows:
NAME OF PORTFOLIO PURCHASES SALES
- ----------------- --------- -----
Strategic Growth Portfolio ..................... $14,094,314 $ 6,850,303
Conservative Growth Portfolio .................. 3,829,747 2,549,513
Balanced Portfolio ............................. 6,642,208 9,032,315
Flexible Income Portfolio ...................... 6,593,869 2,510,647
Income Portfolio ............................... 22,380,076 31,402,720
At October 31, 1998, aggregate gross unrealized appreciation for all
Underlying Funds in which there is an excess of value over tax cost and
aggregate gross unrealized depreciation for all Underlying Funds in which
there is an excess of tax cost over value were as follows:
TAX BASIS TAX BASIS
UNREALIZED UNREALIZED
NAME OF PORTFOLIO APPRECIATION DEPRECIATION
- ----------------- ------------ ------------
Strategic Growth Portfolio .................... $3,993,794 $ 4,709,114
Conservative Growth Portfolio ................. 8,431,476 12,575,315
Balanced Portfolio ............................ 7,533,458 9,144,729
Flexible Income Portfolio ..................... 192,087 183,962
Income Portfolio .............................. 248,490 83,127
7. SHARES OF BENEFICIAL INTEREST
The Trust may issue an unlimited number of shares of beneficial interest, each
without par value.
8. ORGANIZATION COSTS
Expenses incurred in connection with the organization of the Portfolios,
including the fees and expenses of registering and qualifying its shares for
distribution under federal and state securities regulations, are being
amortized on a straight-line basis over a period of five years from
commencement of operations of each Portfolio, respectively. In the event any
of the initial shares of a Portfolio are redeemed by any holder thereof during
the amortization period, the proceeds of such redemptions will be reduced by
an amount equal to the pro-rata portion of unamortized deferred organizational
expenses in the same proportion as the number of shares being redeemed bears
to the number of initial shares of such Portfolio outstanding at the time of
such redemption.
9. CAPITAL LOSS CARRYFORWARDS
At October 31, 1998, the following Funds had available for federal income tax
purposes unused capital losses as follows:
EXPIRING
IN 2006
------
Strategic Growth Portfolio .................................. $ 85,703
Conservative Growth Portfolio ............................... 582,031
10. RISK FACTORS OF THE PORTFOLIOS
Investing in the Underlying Funds through the Portfolios involves certain
additional expenses and tax results that would not be present in a direct
investment in the Underlying Funds. For example, under certain circumstances,
an Underlying Fund may determine to make payment of a redemption request by a
Portfolio wholly or partly by a distribution in kind of securities from its
portfolio, instead of cash, in accordance with the rules of the Securities and
Exchange Commission. In such cases, the Portfolios may hold securities
distributed by an Underlying Fund until the Advisor determines that it is
appropriate to dispose of such securities.
Certain Underlying Funds may invest a portion of their assets in foreign
securities; enter into forward foreign currency transactions; lend their
portfolio securities; enter into stock index, interest rate and currency
futures contracts, and options on such contracts; enter into interest rate
swaps or purchase or sell interest rate caps or floors; engage in other types
of options transactions; make short sales; purchase zero coupon and payment-
in-kind bonds; engage in repurchase or reverse repurchase agreements; purchase
and sell "when-issued" securities and engage in "delayed-delivery"
transactions; and engage in various other investment practices each with
inherent risks.
The Strategic Growth Portfolio can invest as much as 50% of its total assets
in the WM Growth Fund, 50% of its total assets in the WM Emerging Growth Fund
and 25% of its total assets in the WM High Yield Fund, each of which
Underlying Funds may invest as much as 35% (100% in the case of the High Yield
Fund) of its total assets in lower-rated bonds. Securities rated below
investment grade generally involve greater price volatility and risk of
principal and income and may be less liquid than higher rated securities.
Certain Portfolios may invest as much as 50% of their total assets in the WM
Growth or WM Emerging Growth Funds, 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 WM International
Growth Fund, which invests primarily in the foreign equity securities, and may
invest as much as 30% of its total assets in securities in developing or
emerging market countries. These investments will subject such Portfolios to
risks associated with investing in foreign securities, including those
resulting from adverse political and economic developments and the possible
imposition of currency exchange restrictions or other foreign laws or
restrictions.
The officers and Trustees, the Advisor, the Distributor and Transfer Agent of
the Portfolios serve in the same capacity for the Underlying Funds. Conflicts
may arise as theses persons and companies seek to fulfill their fiduciary
responsibilities to both the Portfolios and the Underlying Funds.
From time to time, one or more of the Underlying Funds used for investment by
a Portfolio may experience relatively large investments or redemptions due to
reallocations or rebalancings by the Portfolios. These transactions will
affect the Underlying Funds, since the Underlying Funds that experience
redemptions as a result of the reallocations or rebalancings may have to sell
portfolio securities and the Underlying Funds that receive additional cash
will have to invest such cash. While it is impossible to predict the overall
impact of these transactions over time, there could be adverse effects on
portfolio management to the extent that the Underlying Funds may be required
to sell securities or invest cash at times when they would not otherwise do
so. These transactions could also have tax consequences if sales of securities
resulted in gains and could also increase transaction costs. The Advisor is
committed to minimizing such impact on the 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.
<PAGE>
INDEPENDENT auditors' REPORT
TO THE TRUSTEES AND SHAREHOLDERS OF
WM STRATEGIC ASSET MANAGEMENT PORTFOLIOS:
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of WM Strategic Growth Portfolio, WM
Conservative Growth Portfolio, WM Balanced Portfolio, WM Flexible Income
Portfolio and WM Income Portfolio, (the "Portfolios") as of October 31, 1998,
and the related statements of operations, changes in net assets and financial
highlights for the period July 1, 1998 through October 31, 1998. These
financial statements and financial highlights are the responsibility of the
Portfolios' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit. The
statements of operations, changes in net assets and financial highlights of
the Portfolios' for the year ended June 30, 1998 and the period ended June 30,
1997 were audited by other auditors whose report, dated August 14, 1998,
expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned at October 31, 1998, by correspondence with
the custodian and brokers; where replies were not received from brokers, we
performed other auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of the aforementioned
Portfolios at October 31, 1998, the results of their operations, the changes
in their net assets and their financial highlights for the period July 1, 1998
through October 31, 1998 in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
San Francisco, California
December 11, 1998
<PAGE>
TAX information (UNAUDITED)
WM GROUP OF FUNDS
PERIOD ENDED OCTOBER 31, 1998
The following tax information represents fiscal year end disclosures of
various tax benefits passed through to shareholders at calendar year end.
Of the distributions made by the following Portfolios, the corresponding
percentages represent the amount of each distribution which will qualify for
the dividends received deduction available to corporate shareholders.
Name of Portfolio
- -----------------
Balanced Portfolio .................................................. 4.40%
Flexible Income Portfolio ........................................... 1.35%
The above figures may differ from those cited elsewhere in this report due to
differences in the calculation of income and capital gains for Securities and
Exchange Commission (book) purposes and Internal Revenue Service (tax)
purposes.
<PAGE>
----------------------------------------------
This Annual Report is published for the
general information of the shareholders
of the WM Group of Funds. It is
authorized for distribution to
prospective investors only when preceded
or accompanied by a current WM Group of
Funds prospectus. A mutual fundshare
price and investment return will vary
[Graphic Omitted] with market conditions, and the
principal value of an investment when
you sell your shares may be more or less
than the original cost.
The WM Group of Funds are not insured by
the FDIC. They are not deposits or
obligations of, nor are they guaranteed
by any bank. These securities are
subject to investment risks, including
possible loss of principal amount
invested.
Distributed by
WM Funds Distributor, Inc.
Member NASD
----------------------------------------------
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