<PAGE> 1
As filed with the Securities and Exchange Commission on April 30, 1999
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Securities Act of 1933 File #333-01999
Investment Company Act File #811-07577
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No.
Post-Effective Amendment No. 8
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 10
WM Strategic Asset Management Portfolios, LLC(1)
(Exact name of Registrant as specified in Charter)
1201 Third Avenue, 22nd Floor, Seattle, WA 98101
(Address of principal executive offices)
Registrant's telephone number, including area code (206) 461-3800
John T. West
1201 Third Avenue, 22nd Floor, Seattle, WA 98101
(Name and address of agent for service)
- --------
(1) Effective as of the close of business on July 16, 1999, or such earlier
or later date as WM Strategic Asset Management Portfolios, a Massachusetts
business trust, and WM Strategic Asset Management Portfolios, LLC, a
Massachusetts limited liability company (the "LLC"), may agree (the "Effective
Time"), the Strategic Growth Portfolio, Conservative Growth Portfolio, Balanced
Portfolio, Flexible Income Portfolio and Income Portfolio, the five initial
series of shares of the LLC will succeed to all of the assets, rights,
obligations and liabilities of the Strategic Growth Portfolio, Conservative
Growth Portfolio, Balanced Portfolio, Flexible Income Portfolio and Income
Portfolio, respectively, the five series of shares of WM Strategic Asset
Management Portfolios. The LLC hereby expressly adopts the Registration
Statement on Form N-1A of WM Strategic Asset Management Portfolios, as amended
hereby, as its own, effective as of the Effective Time, for all purposes of the
Securities Act of 1933 and the Investment Company Act of 1940.
<PAGE> 2
With a copy to:
Joseph B. Kittredge, Jr., Esq.
Ropes & Gray
One International Place
Boston, MA 02110
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b) of Rule 485
- -----
on (date) pursuant to paragraph (b) of Rule 485
- -----
X 60 days after filing pursuant to paragraph (a)(1) of Rule 485
- -----
on (date) pursuant to paragraph (a)(1) of Rule 485
- -----
75 days after filing pursuant to paragraph (a)(2) of Rule 485
- -----
this post-effective amendment designated a new effective date for a
previously filed post-effective amendment.
- -----
-2-
<PAGE> 3
THE WM GROUP OF FUNDS
Prospectus
MARCH 1, 1999, AS REVISED
----------, 1999
- --------------------------------------------------------------------------------
Money Funds
+ Money Market Fund
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+ Tax-Exempt Money Market Fund
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+ California Money Fund
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Fixed-Income Funds
+ Short Term High Quality Bond Fund
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+ Target Maturity 2002 Fund
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+ U.S. Government Securities Fund
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+ Income Fund
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+ High Yield Fund
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Municipal Funds
+ Tax-Exempt Bond Fund
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+ California Municipal Fund
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+ California Insured Intermediate Municipal Fund
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+ Florida Insured Municipal Fund
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Equity Funds
+ Bond & Stock Fund
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+ Growth & Income Fund
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+ Northwest Fund
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+ Growth Fund
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+ Emerging Growth Fund
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+ International Growth Fund
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WM Strategic Asset Management Portfolios, LLC
+ Strategic Growth Portfolio
- ----------------------------------------------------------------
+ Conservative Growth Portfolio
- ----------------------------------------------------------------
+ Balanced Portfolio
- ----------------------------------------------------------------
+ Flexible Income Portfolio
- ----------------------------------------------------------------
+ Income Portfolio
- ----------------------------------------------------------------
- --------------------------------------------------------------------------------
The WM Group of Funds provides a broad selection
of investment alternatives to investors.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a crime.
<PAGE> 4
THE WM GROUP OF FUNDS
- --------------------------------------------------------------------------------
CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Risk/Return Summary 2
Summary of Principal Risks 26
Fees and Expenses of the Funds and Portfolios 31
Description of the Funds and Portfolios 35
Money Funds 35
Fixed-Income Funds 36
Municipal Funds 38
Equity Funds 40
Strategic Asset Management Portfolios 41
Common Investment Practices 42
Ways to Set Up Your Account 51
How Can I Invest in the Funds and Portfolios? 52
Which Class of Shares is Best for Me? 54
Class A Shares 54
Class B Shares 55
Distribution Plans 57
Distribution of Income and Capital Gains 57
How Can I Sell Shares? 57
How Can I Exchange My Shares? 58
Dividends, Capital Gains and Taxes 59
Organization 60
Financial Highlights 64
</TABLE>
<PAGE> 5
RISK/RETURN SUMMARY
The WM Group of Funds provides a broad range of investment choices, including
asset allocation strategies available through the WM Strategic Asset Management
Portfolios, LLC (the "Portfolios"). This summary identifies the investment
objective, principal investment strategies and principal risks of each Fund and
Portfolio. The principal investment strategies identified in this summary are
not the only investment strategies available to the Funds and Portfolios, and
some of the principal investment strategies may not be available at any given
time. For a discussion of all of the investment strategies available to the
Funds and Portfolios, please see the Statement of Additional Information (the
"SAI").
The principal investment strategies identified in this summary provide specific
information about each of the Funds and Portfolios, but there are some general
principles WM Advisors and the sub-advisors apply in making investment
decisions. Generally, when making decisions about whether to buy or sell equity
securities, WM Advisors and the sub-advisors will consider, among other things,
a company's strength in fundamentals, its potential for earnings growth over
time, and the current price of its securities relative to their perceived worth.
When making decisions about whether to buy or sell fixed-income investments, WM
Advisors and the sub-advisors will generally consider, among other things, the
strength of certain sectors of the fixed-income market relative to others,
interest rates and other general market conditions, as well as the credit
quality of individual issuers.
The discussion of each Fund's and Portfolio's principal investment strategies
includes a short discussion of some of the principal risks of investing in such
Fund or Portfolio. You can find additional information about each Fund and
Portfolio, including a more detailed description of these and other principal
risks of an investment in each Fund or Portfolio, after this summary.
Investments mentioned in the summary and described in greater detail under
"Common Investment Practices" below appear in BOLD TYPE. Please be sure to read
the more complete descriptions of the Funds and Portfolios, and the related
risks, before you invest.
Below the description of each Fund or Portfolio is a bar chart showing how the
investment returns of its Class A shares have varied in the past ten years, or
in the years since the Fund or Portfolio began if it is less than ten years old.
The bar chart is intended to provide some indication of the volatility of the
Fund's or Portfolio's returns. The table following each bar chart shows how, for
each Class of shares, average annual returns of the Fund or Portfolio compare to
returns of a broad-based securities market index for the last one, five and ten
years (or, for a newer Fund or Portfolio, for the life of the Fund or
Portfolio). Performance shown in the table reflects the maximum applicable sales
charge, but performance shown in the bar chart does not reflect any sales
charges. PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF FUTURE
PERFORMANCE.
There can be no assurance that any Fund or Portfolio will achieve its objective.
It is possible to lose money on investments in the Funds and Portfolios. An
investment in a Fund or Portfolio is not a deposit of a bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Although the Money Funds seek to preserve the value of your
investment at $1.00 per share, it is possible to lose money by investing in the
Money Funds.
2
<PAGE> 6
- --------------------------------------------------------------------------------
MONEY MARKET fund
OBJECTIVE This Fund seeks to maximize current income while preserving capital
and maintaining liquidity.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS The Fund invests in high-quality
money market instruments. The Fund's investments in high-quality money market
instruments may include U.S. GOVERNMENT SECURITIES, FLOATING AND VARIABLE RATE
SECURITIES, MUNICIPAL OBLIGATIONS, U.S. dollar denominated FOREIGN INVESTMENTS,
ASSET-BACKED SECURITIES, REPURCHASE AGREEMENTS, and WHEN-ISSUED AND DELAYED-
DELIVERY SECURITIES.
Among the principal risks of investing in the Fund are:
<TABLE>
<S> <C>
- - Market Risk, - Liquidity Risk,
- - Credit Risk, - Management Risk, and
- - Foreign Investment - Money Market Risk.
Risk,
</TABLE>
YEARLY performance*
[Money Market Bar Chart]
<TABLE>
<CAPTION>
CALENDAR YEAR ANNUAL RETURN (%)
- ------------- -----------------
<S> <C>
'1989' 8.57
'1990' 7.58
'1991' 5.34
'1992' 3.06
'1993' 2.41
'1994' 3.47
'1995' 5.33
'1996' 4.87
'1997' 5.04
'1998' 5.00
</TABLE>
During the periods shown above, the highest quarterly return was 2.22% (for the
quarter ended 6/30/89), and the lowest was 0.56% (for the quarter ended
6/30/93).
PERFORMANCE TABLE*
<TABLE>
<CAPTION>
Average Annual Total Returns Past Past Past Since Class B
(for periods ended December 31, 1998) One Year Five Years Ten Years Inception (5/2/94)
<S> <C> <C> <C> <C>
CLASS A SHARES 5.00% 4.74% 5.06% N/A
CLASS B SHARES 4.19% N/A N/A 3.87%
MERRILL LYNCH 3-MONTH U.S. TREASURY BILL INDEX** 5.23% 5.21% 5.68% 5.37%
</TABLE>
* The Fund's performance through December 31, 1997 benefitted from the
agreement of WM Advisors and its affiliates to limit the Fund's expenses.
** This is an unmanaged index that measures the performance of 3-month U.S.
Treasury bills currently available in the marketplace.
3
<PAGE> 7
- --------------------------------------------------------------------------------
TAX-EXEMPT MONEY MARKET fund
OBJECTIVE This Fund seeks to maximize current income that is exempt from
federal income tax while preserving capital and maintaining liquidity.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS The Fund invests primarily in
high-quality, short-term, fixed-income MUNICIPAL OBLIGATIONS issued by states,
counties, cities or other governmental entities that generate income exempt from
federal income tax. The Fund's investments may include VARIABLE RATE
OBLIGATIONS, HOLDINGS IN OTHER INVESTMENT COMPANIES, MUNICIPAL LEASES,
WHEN-ISSUED and DELAYED-DELIVERY SECURITIES and ALTERNATIVE MINIMUM TAX ("AMT")-
SUBJECT BONDS.
Among the principal risks of investing in the Fund are:
<TABLE>
<S> <C>
- - Market Risk, - Management Risk,
- - Credit Risk, - Tax Risk, and
- - Liquidity Risk, - Money Market Risk.
</TABLE>
YEARLY performance*
[Tax-Exempt Money Market Bar Chart]
<TABLE>
<CAPTION>
CALENDAR YEAR ANNUAL RETURN (%)
- ------------- -----------------
<S> <C>
'1989' 6.04
'1990' 5.76
'1991' 4.18
'1992' 2.41
'1993' 2.06
'1994' 2.37
'1995' 4.00
'1996' 3.05
'1997' 3.18
'1998' 3.07
</TABLE>
During the periods shown above, the highest quarterly return was 1.63% (for the
quarter ended 6/30/89), and the lowest was 0.46% (for the quarter ended
3/31/94).
PERFORMANCE TABLE*
<TABLE>
<CAPTION>
Average Annual Total Returns Past Past Past Since Class B
(for periods ended December 31, 1998) One Year Five Years Ten Years Inception (5/2/94)
<S> <C> <C> <C> <C>
CLASS A SHARES 3.07% 3.13% 3.60% N/A
CLASS B SHARES 2.08% N/A N/A 2.18%
MERRILL LYNCH 3-MONTH U.S. TREASURY BILL INDEX** 5.23% 5.21% 5.68% 5.37%
</TABLE>
* The Fund's performance through December 31, 1998 has benefitted from the
agreement of WM Advisors and its affiliates to limit the Fund's expenses.
** This is an unmanaged index that measures the performance of 3-month U.S.
Treasury bills currently available in the marketplace.
4
<PAGE> 8
- --------------------------------------------------------------------------------
CALIFORNIA MONEY fund
OBJECTIVE This Fund seeks to maximize current income that is exempt from
federal and California state personal income tax, consistent with safety of
principal and maintenance of liquidity.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS The Fund invests primarily in
high-quality, short-term, fixed-income MUNICIPAL OBLIGATIONS issued by states,
counties, cities or other governmental bodies that generate income exempt from
California state personal income tax. The Fund may also invest in high-quality
instruments that may generate taxable income, including U.S. GOVERNMENT
SECURITIES, MORTGAGE- AND ASSET-BACKED SECURITIES (including collateralized
mortgage obligations) and REPURCHASE AGREEMENTS.
Among the principal risks of investing in the Fund are:
<TABLE>
<S> <C>
- - Market Risk, - Liquidity Risk,
- - Credit Risk, - Management Risk,
- - Geographic - Tax Risk, and
Concentration Risk, - Money Market Risk.
</TABLE>
The Fund is also "non-diversified," which means that the Fund may invest more of
its assets in the securities of fewer issuers than other mutual funds. Thus, the
Fund is also subject to Non-Diversification Risk.
YEARLY performance*
[California Money Bar Chart]
<TABLE>
<CAPTION>
CALENDAR YEAR ANNUAL RETURN (%)
- ------------- -----------------
<S> <C>
'1990' 5.02
'1991' 3.85
'1992' 2.60
'1993' 1.85
'1994' 2.20
'1995' 3.11
'1996' 2.76
'1997' 2.85
'1998' 2.48
</TABLE>
During the periods shown above, the highest quarterly return was 1.34% (for the
quarter ended 12/31/89), and the lowest was 0.43% (for the quarter ended
3/31/94).
PERFORMANCE TABLE*
<TABLE>
<CAPTION>
Average Annual Total Returns Past Past Since Class A Since Class B
(for periods ended December 31, 1998) One Year Five Years Inception (7/10/89) Inception (6/30/94)
<S> <C> <C> <C> <C>
CLASS A SHARES 2.48% 2.68% 3.09% N/A
CLASS B SHARES 1.65% N/A N/A 2.00%
MERRILL LYNCH 3-MONTH U.S. TREASURY
BILL INDEX** 5.23% 5.21% 5.49% 5.40%
</TABLE>
* The Fund's performance through December 31, 1998 has benefitted from the
agreement of WM Advisors and its affiliates to limit the Fund's expenses.
** This is an unmanaged index that measures the performance of 3-month U.S.
Treasury bills currently available in the marketplace.
5
<PAGE> 9
- --------------------------------------------------------------------------------
SHORT TERM HIGH QUALITY BOND fund
OBJECTIVE This Fund seeks as high a level of current income as is consistent
with prudent investment management and stability of principal.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS The Fund invests primarily in
high-quality short-term bonds and other FIXED-INCOME SECURITIES. The Fund
generally maintains a dollar-weighted average portfolio maturity of three years
or less. The Fund's investments may include corporate securities, U.S.
GOVERNMENT SECURITIES, REPURCHASE AGREEMENTS AND MORTGAGE- AND ASSET-BACKED
SECURITIES.
Among the principal risks of investing in the Fund are:
<TABLE>
<S> <C>
- - Market Risk, - Leveraging Risk,
- - Credit Risk, - Derivatives Risk,
- - Currency Risk, - Liquidity Risk, and
- - Foreign - Management Risk.
Investment Risk,
</TABLE>
YEARLY performance*
[Yearly Performance Chart]
<TABLE>
<CAPTION>
CALENDAR YEAR ANNUAL RETURN (%)
- ------------- -----------------
<S> <C>
'1994' -2.05
'1995' 10.03
'1996' 4.09
'1997' 5.77
'1998' 6.30
</TABLE>
During the periods shown above, the highest quarterly return was 3.28% (for the
quarter ended 6/30/95), and the lowest was -1.52% (for the quarter ended
12/31/94).
PERFORMANCE TABLE*
<TABLE>
<CAPTION>
Average Annual Total Returns Past Past Since Class A Since Class B
(for periods ended December 31, 1998) One Year Five Years Inception (11/1/93) Inception (6/30/94)
<S> <C> <C> <C> <C>
CLASS A SHARES 2.75% 4.00% 3.98% N/A
CLASS B SHARES 1.51% N/A N/A 4.79%
LEHMAN BROTHERS MUTUAL FUND SHORT (1-5)
INVESTMENT GRADE DEBT INDEX** 7.56% 6.70% 6.36% 7.78%
</TABLE>
* The Fund's performance through December 31, 1998 has benefitted from the
agreement of WM Advisors and its affiliates to limit the Fund's expenses.
** This index includes all investment-grade, corporate debt securities with
maturities of one to five years.
6
<PAGE> 10
- --------------------------------------------------------------------------------
TARGET MATURITY 2002 fund
OBJECTIVE This Fund seeks as high a level of return as is consistent with
preservation of capital through December 31, 2002, and current income consistent
with the creditworthiness of U.S. Treasury securities thereafter.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS The Fund invests primarily in
ZERO-COUPON U.S. Treasury Securities that will mature during 2002. The Fund may
also invest in other U.S. GOVERNMENT SECURITIES and FIXED-INCOME SECURITIES.
Among the principal risks of investing in the Fund are:
<TABLE>
<S> <C>
- - Market Risk, - Derivatives Risk,
- - Credit Risk, - Liquidity Risk, and
- - Leveraging Risk, - Management Risk.
</TABLE>
YEARLY performance*
[Yearly Performance Chart]
<TABLE>
<CAPTION>
CALENDAR YEAR ANNUAL RETURN (%)
- ------------- -----------------
<S> <C>
'1996' 0.44
'1997' 8.27
'1998' 10.06
</TABLE>
During the periods shown above, the highest quarterly return was 7.91% (for the
quarter ended 6/30/95), and the lowest was -8.47% (for the quarter ended
9/30/98).
PERFORMANCE TABLE*
<TABLE>
<CAPTION>
Average Annual Total Returns Past Life of Fund
(for periods ended December 31, 1998) One Year (Since 3/20/95)
<S> <C> <C>
CLASS A SHARES 7.90% 8.42%
LEHMAN BROTHERS GOVERNMENT BOND INDEX** 9.85% 9.35%
</TABLE>
* The Fund's performance through December 31, 1998 has benefitted from the
agreement of WM Advisors and its affiliates to limit the Fund's expenses.
** This index includes all U.S. Government agency and Treasury securities.
7
<PAGE> 11
- --------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES fund
OBJECTIVE This Fund seeks a high level of current income consistent with safety
and liquidity.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS The Fund invests primarily in U.S.
GOVERNMENT SECURITIES, including collateralized mortgage obligations and other
MORTGAGE-BACKED SECURITIES. The Fund may also invest in DOLLAR ROLLS, which
involve leverage.
Among the principal risks of investing in the Fund are:
<TABLE>
<S> <C>
- - Market Risk, - Derivatives Risk,
- - Credit Risk, - Liquidity Risk, and
- - Leveraging Risk, - Management Risk.
</TABLE>
YEARLY performance*
[Yearly Performance Chart]
<TABLE>
<CAPTION>
CALENDAR YEAR ANNUAL RETURN (%)
- ------------- -----------------
<S> <C>
'1989' 13.30
'1990' 9.45
'1991' 14.72
'1992' 6.12
'1993' 8.12
'1994' -4.91
'1995' 19.45
'1996' 2.48
'1997' 9.92
'1998' 7.21
</TABLE>
During the periods shown above, the highest quarterly return was 7.65% (for the
quarter ended 6/30/89), and the lowest was -3.68% (for the quarter ended
3/31/94).
PERFORMANCE TABLE*
<TABLE>
<CAPTION>
Average Annual Total Returns Past Past Past Since Class B
(for periods ended December 31, 1998) One Year Five Years Ten Years Inception (3/31/94)
<S> <C> <C> <C> <C>
CLASS A SHARES 2.39% 5.55% 7.89% N/A
CLASS B SHARES 6.23% N/A N/A 6.65%
LEHMAN BROTHERS GOVERNMENT BOND INDEX** 9.85% 7.18% 9.17% 8.27%
</TABLE>
* The Fund's performance through December 31, 1998 has benefitted from the
agreement of WM Advisors and its affiliates to limit the Fund's expenses.
** This index includes all U.S. Government agency and Treasury securities.
8
<PAGE> 12
- --------------------------------------------------------------------------------
INCOME fund
OBJECTIVE This Fund seeks a high level of current income consistent with
preservation of capital.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS The Fund invests primarily in a
diversified pool of FIXED-INCOME SECURITIES, including corporate securities,
U.S. GOVERNMENT SECURITIES and MORTGAGE-BACKED SECURITIES (including
collateralized mortgage obligations), up to 35% of which may be in LOWER-RATED
SECURITIES (which are sometimes called "junk bonds"). The Fund may also invest
in convertible securities.
Among the principal risks of investing in the Fund are:
- - Market Risk, - Leveraging Risk,
- - Credit Risk, - Derivatives Risk,
- - Currency Risk, - Liquidity Risk, and
- - Foreign Investment Risk, - Management Risk.
YEARLY performance
[Income Fund Bar Chart]
<TABLE>
<CAPTION>
CALENDAR YEAR ANNUAL RETURN (%)
- ------------- -----------------
<S> <C>
'1989' 6.75
'1990' 8.21
'1991' 17.29
'1992' 7.38
'1993' 10.82
'1994' -4.82
'1995' 21.58
'1996' 3.46
'1997' 10.51
'1998' 7.15
</TABLE>
During the periods shown above, the highest quarterly return was 8.04% (for the
quarter ended 6/30/95), and the lowest was -3.95% (for the quarter ended
3/31/94).
PERFORMANCE TABLE
<TABLE>
<CAPTION>
Average Annual Total Returns Past Past Past Since Class B
(for periods ended December 31, 1998) One Year Five Years Ten Years Inception (3/30/94)
<S> <C> <C> <C> <C>
CLASS A SHARES 2.30% 6.25% 8.12% N/A
CLASS B SHARES 1.31% N/A N/A 7.45%
LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND INDEX* 9.47% 7.30% 9.34% 8.43%
</TABLE>
* This index is generally considered representative of the U.S. government and
corporate bond markets.
9
<PAGE> 13
- --------------------------------------------------------------------------------
HIGH YIELD fund
OBJECTIVE This Fund seeks to provide a high level of current income.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS The Fund invests primarily in
high-yielding LOWER-RATED SECURITIES (sometimes called "junk bonds"), which may
include FOREIGN INVESTMENTS. The Fund may also invest in higher-rated
FIXED-INCOME SECURITIES, preferred stock and convertible securities.
Among the principal risks of investing in the Fund are:
- - Market Risk,
- - Credit Risk,
- - Currency Risk,
- - Foreign Investment Risk,
- Leveraging Risk,
- Derivatives Risk,
- Liquidity Risk,
- Management Risk, and
- Smaller Company Risk.
NO PERFORMANCE INFORMATION IS AVAILABLE FOR THE HIGH YIELD FUND BECAUSE IT HAS
NOT YET BEEN IN OPERATION FOR A FULL YEAR.
10
<PAGE> 14
- --------------------------------------------------------------------------------
TAX-EXEMPT BOND fund
OBJECTIVE This Fund seeks to provide a high level of income that is exempt from
federal income tax while protecting investors' capital.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS The Fund invests primarily in
MUNICIPAL OBLIGATIONS issued by states, counties, cities or other governmental
entities, including MUNICIPAL LEASES, AMT-SUBJECT BONDS and INVERSE FLOATING
RATE OBLIGATIONS, that generate income exempt from federal income tax. The Fund
may also invest in taxable FIXED-INCOME SECURITIES (including junk bonds) and
utilize STRATEGIC TRANSACTIONS (derivatives) such as interest rate futures and
options.
Among the principal risks of investing in the Fund are:
<TABLE>
<S> <C>
- - Market Risk, - Liquidity Risk,
- - Credit Risk, - Management Risk, and
- - Leveraging Risk, - Tax Risk.
- - Derivatives Risk,
</TABLE>
YEARLY performance
YEARLY PERFORMANCE GRAPH
<TABLE>
<CAPTION>
Calendar Year Annual Return (%)
<S> <C>
1989 8.08
1990 6.71
1991 11.36
1992 9.00
1993 12.54
1994 -6.53
1995 18.25
1996 2.52
1997 8.59
1998 5.08
</TABLE>
During the periods shown above, the highest quarterly return was 7.29% (for the
quarter ended 3/31/95), and the lowest was -6.33% (for the quarter ended
3/31/94).
PERFORMANCE TABLE
<TABLE>
<CAPTION>
Average Annual Total Returns Past Past Past Since Class B
(for periods ended December 31, 1998) One Year Five Years Ten Years Inception (3/30/94)
<S> <C> <C> <C> <C>
CLASS A SHARES 0.36% 4.30% 6.88% N/A
CLASS B SHARES -0.77% N/A N/A 5.82%
LEHMAN BROTHERS MUNICIPAL BOND INDEX* 6.47% 6.22% 8.22% 7.83%
</TABLE>
* This index includes all investment grade, tax-exempt bond issues.
11
<PAGE> 15
- --------------------------------------------------------------------------------
CALIFORNIA MUNICIPAL fund
OBJECTIVE This Fund seeks to provide as high a level of current income that is
exempt from federal and California state income tax as is consistent with
prudent investment management and preservation of capital.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS The Fund invests primarily in
intermediate-and long-term California MUNICIPAL OBLIGATIONS, including municipal
leases and AMT-SUBJECT BONDS. The Fund may also invest in other municipal
obligations and utilize STRATEGIC TRANSACTIONS (derivatives) such as interest
rate futures and options.
Among the principal risks of investing in the Fund are:
- - Market Risk, - Derivatives Risk,
- - Credit Risk, - Liquidity Risk,
- - Leveraging Risk, - Management Risk, and
- - Geographic - Tax Risk.
Concentration Risk,
The Fund is also "non-diversified," which means that the Fund may invest more of
its assets in the securities of fewer issuers than other mutual funds. Thus, the
Fund is also subject to Non-Diversification Risk.
YEARLY performance*
Yearly Performance Graph
<TABLE>
<CAPTION>
CALENDAR YEAR ANNUAL RETURN (%)
- ------------- -----------------
<S> <C>
'1990' 6.47
'1991' 9.65
'1992' 9.17
'1993' 13.65
'1994' -8.61
'1995' 18.09
'1996' 4.42
'1997' 10.30
'1998' 6.09
</TABLE>
During the periods shown above, the highest quarterly return was 7.76% (for the
quarter ended 3/31/95), and the lowest was -6.61% (for the quarter ended
3/31/94).
PERFORMANCE TABLE*
<TABLE>
<CAPTION>
Average Annual Total Returns Past Past Since Class A Since Class B
(for periods ended December 31, 1998) One Year Five Years Inception (7/25/89) Inception (6/30/94)
<S> <C> <C> <C> <C>
CLASS A SHARES 1.35% 4.71% 6.94% N/A
CLASS B SHARES 0.30% N/A N/A 6.96%
LEHMAN BROTHERS MUNICIPAL BOND INDEX** 6.47% 6.22% 7.85% 8.02%
</TABLE>
* The Fund's performance through December 31, 1998 has benefitted from the
agreement of WM Advisors and its affiliates to limit the Fund's expenses.
** This index includes all investment grade tax-exempt bond issues.
12
<PAGE> 16
- --------------------------------------------------------------------------------
CALIFORNIA INSURED INTERMEDIATE MUNICIPAL fund
OBJECTIVE This Fund seeks to provide as high a level of current income that is
exempt from federal and California state income tax as is consistent with
prudent investment management and preservation of capital.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS The Fund invests primarily in
intermediate-term insured California MUNICIPAL OBLIGATIONS, including MUNICIPAL
LEASES and AMT-SUBJECT BONDS. The weighted average effective maturity of the
Fund's investments is ten years or less, and the maximum effective maturity of
any of its investments is fifteen years. The Fund may also invest in other
municipal obligations and utilize STRATEGIC TRANSACTIONS (derivatives) such as
interest rate futures and options.
Among the principal risks of investing in the Fund are:
<TABLE>
<S> <C>
- - Market Risk, - Derivatives Risk,
- - Credit Risk, - Liquidity Risk,
- - Leveraging Risk, - Management Risk, and
- - Geographic Concentra- - Tax Risk.
tion Risk,
</TABLE>
The Fund is also "non-diversified," which means that the Fund may invest more of
its assets in the securities of fewer issuers than other mutual funds. Thus, the
Fund is also subject to Non-Diversification Risk.
YEARLY performance*
[California Insured Intermediate Municipal Fund Bar Chart]
<TABLE>
<CAPTION>
CALENDAR YEAR ANNUAL RETURN (%)
- ------------- -----------------
<S> <C>
'1995' 16.45
'1996' 3.91
'1997' 7.14
'1998' 5.26
</TABLE>
During the periods shown above, the highest quarterly return was 7.23% (for the
quarter ended 3/31/95), and the lowest was -1.52% (for the quarter ended
12/31/94).
PERFORMANCE TABLE*
<TABLE>
<CAPTION>
Average Annual Total Returns Past Since Class A Since Class B
(for periods ended December 31, 1998) One Year Inception (4/04/94) Inception (6/30/94)
<S> <C> <C> <C>
CLASS A SHARES 0.54% 6.13% N/A
CLASS B SHARES -0.48% N/A 6.05%
LEHMAN BROTHERS MUNICIPAL BOND INDEX** 6.47% 7.78% 8.02%
</TABLE>
* The Fund's performance through December 31, 1998 has benefitted from the
agreement of WM Advisors and its affiliates to limit the Fund's expenses.
** This index includes all investment grade tax-exempt bond issues.
13
<PAGE> 17
- --------------------------------------------------------------------------------
FLORIDA INSURED MUNICIPAL fund
OBJECTIVE This Fund seeks to provide as high a level of current income that is
exempt from federal income tax as is consistent with prudent investment
management and preservation of capital. The Fund also seeks to ensure that the
value of its shares is exempt from Florida intangible personal property tax.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS The Fund invests primarily in
intermediate-and long-term insured Florida MUNICIPAL OBLIGATIONS, including
MUNICIPAL LEASES and AMT-SUBJECT BONDS. The Fund may also invest in other
municipal obligations and utilize STRATEGIC TRANSACTIONS (derivatives) such as
interest rate futures and options.
Among the principal risks of investing in the Fund are:
<TABLE>
<S> <C>
- - Market Risk, - Derivatives Risk,
- - Credit Risk, - Liquidity Risk,
- - Leveraging Risk, - Management Risk, and
- - Geographic - Tax Risk.
Concentration Risk,
</TABLE>
The Fund is also "non-diversified," which means that the Fund may invest more of
its assets in the securities of fewer issuers than other mutual funds. Thus, the
Fund is also subject to Non-Diversification Risk.
YEARLY performance*
[Florida Insured Municipal Fund Bar Chart]
<TABLE>
<CAPTION>
CALENDAR YEAR ANNUAL RETURN (%)
- ------------- -----------------
<S> <C>
'1994' -8.48
'1995' 17.57
'1996' 3.41
'1997' 10.01
'1998' 5.99
</TABLE>
During the periods shown above, the highest quarterly return was 6.99% (for the
quarter ended 3/31/95), and the lowest was -8.33% (for the quarter ended
3/31/94).
PERFORMANCE TABLE*
<TABLE>
<CAPTION>
Average Annual Total Returns Past Past Since Class A Since Class B
(for periods ended December 31, 1998) One Year Five Years Inception (6/7/93) Inception (6/30/94)
<S> <C> <C> <C> <C>
CLASS A SHARES 1.21% 4.38% 5.17% N/A
CLASS B SHARES 0.20% N/A N/A 6.79%
LEHMAN BROTHERS MUNICIPAL BOND INDEX** 6.47% 6.22% 6.55% 8.02%
</TABLE>
* The Fund's performance through December 31, 1998 has benefitted from the
agreement of WM Advisors and its affiliates to limit the Fund's expenses.
** This index includes all investment grade tax-exempt bond issues.
14
<PAGE> 18
- --------------------------------------------------------------------------------
BOND & STOCK fund
OBJECTIVE This Fund seeks to provide continuity of income, conservation of
principal and long-term growth of income and principal.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS The Fund invests primarily in common
stocks, preferred stocks, bonds and convertible securities. At least 25% of the
Fund's assets are generally invested in FIXED-INCOME SECURITIES. The Fund's
investments may include U.S. GOVERNMENT SECURITIES, AMERICAN DEPOSITORY RECEIPTS
(ADRs) and EUROPEAN DEPOSITORY RECEIPTS (EDRs), MORTGAGE-BACKED SECURITIES
(including collateralized mortgage obligations), REPURCHASE AGREEMENTS and REAL
ESTATE INVESTMENT TRUSTS (REITs).
In selecting equity investments for the Fund, WM Advisors looks for long-term
potential for growth in "value" stocks currently selling for less than WM
Advisors believes they are worth. In selecting debt investments for the Fund, WM
Advisors looks for investments that provide regular income in addition to some
opportunity for capital appreciation.
Among the risks of investing in the Fund are:
<TABLE>
<S> <C>
- - Market Risk, - Derivatives Risk,
- - Credit Risk, - Liquidity Risk,
- - Currency Risk, - Management Risk, and
- - Foreign Investment - Smaller Company Risk.
Risk,
</TABLE>
YEARLY performance
[Yearly Performance Chart]
<TABLE>
<CAPTION>
CALENDAR YEAR ANNUAL RETURN (%)
- ------------- -----------------
<S> <C>
'1989' 12.32
'1990' 0.08
'1991' 21.75
'1992' 9.89
'1993' 9.27
'1994' -2.13
'1995' 31.18
'1996' 13.60
'1997' 19.89
'1998' 6.93
</TABLE>
During the periods shown above, the highest quarterly return was 12.85% (for the
quarter ended 12/31/98), and the lowest was -10.15% (for the quarter ended
9/30/98).
PERFORMANCE TABLE
<TABLE>
<CAPTION>
Average Annual Total Returns Past Past Past Since Class B
(for periods ended December 31, 1998) One Year Five Years Ten Years Inception (3/30/94)
<S> <C> <C> <C> <C>
CLASS A SHARES 1.02% 12.05% 11.25% N/A
CLASS B SHARES 1.04% N/A N/A 13.83%
STANDARD & POOR'S 500 COMPOSITE INDEX** 28.58% 24.06% 19.19% 26.50%
LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND*** 9.47% 7.30% 9.34% 8.43%
</TABLE>
* This is an index of 500 industrial, transportation, utility and financial
companies widely regarded by investors as representative of the stock market.
** This index is generally considered representative of the U.S. Government and
corporate bond markets.
15
<PAGE> 19
- --------------------------------------------------------------------------------
GROWTH & INCOME fund
OBJECTIVE This Fund seeks to provide long-term capital growth. Current income
is a secondary consideration.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS The Fund invests primarily in common
stocks. In selecting investments for the Fund, WM Advisors looks for common
stocks that it believes are currently undervalued and whose issuers WM Advisors
believes have the potential to increase earnings over time. WM Advisors seeks
out companies that it believes have solid management, a competitive advantage,
and the resources to maintain superior cash flow and profitability over the long
term.
Among the principal risks of investing in the Fund are:
<TABLE>
<S> <C>
- - Market Risk, - Leveraging Risk,
- - Credit Risk, - Derivatives Risk,
- - Currency Risk - Liquidity Risk,
- - Foreign - Management Risk, and
Investment Risk - Smaller Company Risk.
</TABLE>
YEARLY performance
[Yearly Performance Chart]
<TABLE>
<CAPTION>
CALENDAR YEAR ANNUAL RETURN (%)
- ------------- -----------------
<S> <C>
'1989' 12.10
'1990' -5.98
'1991' 27.39
'1992' 11.01
'1993' 6.83
'1994' 2.58
'1995' 33.15
'1996' 22.28
'1997' 29.52
'1998' 14.41
</TABLE>
During the periods shown above, the highest quarterly return was 21.33% (for the
quarter ended 12/31/98), and the lowest was -14.72% (for the quarter ended
9/30/90).
PERFORMANCE TABLE
<TABLE>
<CAPTION>
Average Annual Total Returns Past Past Past Since Class B
(for periods ended December 31, 1998) One Year Five Years Ten Years Inception (3/31/94)
<S> <C> <C> <C> <C>
CLASS A SHARES 8.13% 18.52% 14.05% N/A
CLASS B SHARES 8.58% N/A N/A 20.22%
STANDARD & POOR'S 500 COMPOSITE INDEX** 28.58% 24.06% 19.19% 26.50%
</TABLE>
** This is an index of 500 industrial, transportation, utility and financial
companies widely regarded by investors as representative of the stock market.
16
<PAGE> 20
- --------------------------------------------------------------------------------
NORTHWEST fund
OBJECTIVE This Fund seeks long-term growth of capital.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS The Fund invests primarily in common
stocks of companies located or doing business in Alaska, Idaho, Montana, Oregon
and Washington. The Fund's investments may include REPURCHASE AGREEMENTS and
REAL ESTATE INVESTMENT TRUSTS (REITS).
In selecting investments for the Fund, WM Advisors looks for equity securities
that it believes are undervalued, yet well-managed, with excellent long-term
growth possibilities.
Among the principal risks of investing in the Fund are:
<TABLE>
<S> <C>
- - Market Risk, - Derivatives Risk,
- - Credit Risk, - Liquidity Risk,
- - Foreign Investment - Management Risk, and
Risk, - Smaller Company Risk.
- - Geographic
Concentration Risk,
</TABLE>
YEARLY performance*
[Yearly Performance Chart]
<TABLE>
<CAPTION>
CALENDAR YEAR ANNUAL RETURN (%)
- ------------- -----------------
<S> <C>
'1989' 37.98
'1990' -1.14
'1991' 43.98
'1992' 3.54
'1993' 2.50
'1994' -1.42
'1995' 26.52
'1996' 22.56
'1997' 32.88
'1998' 22.98
</TABLE>
During the periods shown above, the highest quarterly return was 45.26% (for the
quarter ended 12/31/98), and the lowest was -23.42% (for the quarter ended
9/30/90).
PERFORMANCE TABLE*
<TABLE>
<CAPTION>
Average Annual Total Returns Past Past Past Since Class B
(for periods ended December 31, 1998) One Year Five Years Ten Years Inception (3/30/94)
<S> <C> <C> <C> <C>
CLASS A SHARES 16.19% 18.74% 17.29% N/A
CLASS B SHARES 16.85% N/A N/A 20.03%
STANDARD & POOR'S 500 COMPOSITE INDEX** 28.58% 24.06% 19.19% 26.50%
</TABLE>
* The Fund's performance through October 31, 1997 benefitted from the agreement
of WM Advisors and its affiliates to limit the Fund's expenses.
** This is an index of 500 industrial, transportation, utility and financial
companies widely regarded by investors as representative of the stock market.
17
<PAGE> 21
- --------------------------------------------------------------------------------
GROWTH fund
OBJECTIVE This Fund seeks long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS The Fund invests primarily in common
stocks, including FOREIGN INVESTMENTS, that, in the opinion of WM Advisors or
the sub-advisor, offer potential for growth. The Fund may also invest in
commercial paper and preferred stock.
In selecting investments for the Fund, the Fund's sub-advisor looks for
individual companies that it believes have exceptional potential for growth,
regardless of economic conditions. Companies are evaluated on their individual
merit, their ability to generate earnings growth, and their superior management
teams, rather than on the broad analysis of a particular sector or market trend.
Among the principal risks of investing in the Fund are:
<TABLE>
<S> <C>
- - Market Risk, - Leveraging Risk,
- - Credit Risk, - Derivatives Risk,
- - Currency Risk, - Liquidity Risk,
- - Foreign Investment - Management Risk, and
Risk, - Smaller Company Risk.
</TABLE>
YEARLY performance
[Yearly Performance Chart]
<TABLE>
<CAPTION>
CALENDAR YEAR ANNUAL RETURN (%)
- ------------- -----------------
<S> <C>
'1994' 0.65
'1995' 36.25
'1996' 16.92
'1997' 9.78
'1998' 57.10
</TABLE>
During the periods shown above, the highest quarterly return was 30.52% (for the
quarter ended 12/31/98), and the lowest was -8.60% (for the quarter ended
6/30/94).
PERFORMANCE TABLE
<TABLE>
<CAPTION>
Average Annual Total Returns Past Past Since Class A Since Class B
(for periods ended December 31, 1998) One Year Five Years Inception (4/5/93) Inception (6/30/94)
<S> <C> <C> <C> <C>
CLASS A SHARES 48.42% 21.18% 21.46% N/A
CLASS B SHARES 50.87% N/A N/A 26.68%
STANDARD & POOR'S 500 INDEX** 28.58% 24.06% 22.63% 28.05%
</TABLE>
** This is an index of 500 industrial, transportation, utility and financial
companies widely regarded by investors as representative of the stock market.
18
<PAGE> 22
- --------------------------------------------------------------------------------
EMERGING GROWTH fund
OBJECTIVE This Fund seeks long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS The Fund invests primarily in equity
securities, including FOREIGN INVESTMENTS, of companies with market
capitalizations of less than $1.4 billion. The Fund may also invest in
REPURCHASE AGREEMENTS and utilize STRATEGIC TRANSACTIONS (derivatives) such as
futures and options on futures.
In selecting investments for the Fund, WM Advisors looks for small companies
that it expects to achieve
growth in earnings and revenues or that it believes are currently undervalued
relative to their true worth.
Among the principal risks of investing in the Fund are:
<TABLE>
<S> <C>
- - Market Risk, - Leveraging Risk,
- - Credit Risk, - Derivatives Risk,
- - Currency Risk, - Liquidity Risk,
- - Foreign Investment - Management Risk, and
Risk,
- Smaller Company Risk.
</TABLE>
YEARLY performance
[Emerging Growth Fund Bar Chart]
<TABLE>
<CAPTION>
CALENDAR YEAR ANNUAL RETURN (%)
- ------------- -----------------
<S> <C>
'1991' 39.29
'1992' 15.40
'1993' 22.27
'1994' -0.34
'1995' 32.26
'1996' 8.50
'1997' 12.63
'1998' 4.94
</TABLE>
During the periods shown above, the highest quarterly return was 30.57% (for the
quarter ended 12/31/98), and the lowest was -8.33% (for the quarter ended
3/31/94).
PERFORMANCE TABLE
<TABLE>
<CAPTION>
Average Annual Total Returns Past Past Since Class A Since Class B
(for periods ended December 31, 1998) One Year Five Years Inception (7/18/90) Inception (6/30/94)
<S> <C> <C> <C> <C>
CLASS A SHARES -0.85% 9.81% 11.94% N/A
CLASS B SHARES -0.33% N/A N/A 13.84%
STANDARD & POOR'S 500 INDEX* 28.58% 24.06% 18.86% 28.05%
RUSSELL 2000 INDEX** -2.55% 11.86% 13.88% 14.96%
</TABLE>
* This is an index of 500 industrial, transportation, utility and financial
companies widely regarded by investors as representative of the stock market.
** This index represents the smallest 2000 companies followed by Russell and is
used to measure the small-cap market.
19
<PAGE> 23
- --------------------------------------------------------------------------------
INTERNATIONAL GROWTH fund
OBJECTIVE This Fund seeks to provide long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS The Fund invests primarily in equity
securities of foreign issuers, including issuers located in developing or
emerging market countries. The Fund may also use STRATEGIC TRANSACTIONS
(derivatives) such as FOREIGN CURRENCY EXCHANGE TRANSACTIONS and REPURCHASE
AGREEMENTS.
In selecting investments for the Fund, the Fund's sub-advisor seeks to identify
foreign stocks with high return on invested capital, excellent cash flow, strong
balance sheets, low institutional ownership, and strong owner management.
Among the principal risks of investing in the Fund are:
<TABLE>
<S> <C>
- - Market Risk, - Leveraging Risk,
- - Credit Risk, - Derivatives Risk,
- - Currency Risk, - Liquidity Risk,
- - Foreign Investment - Management Risk, and
Risk,
- Smaller Company Risk.
</TABLE>
YEARLY performance
[International Growth Fund Bar Chart]
<TABLE>
<CAPTION>
CALENDAR YEAR ANNUAL RETURN (%)
- ------------- -----------------
<S> <C>
'1991' 14.42
'1992' -10.57
'1993' 32.35
'1994' -1.31
'1995' 4.87
'1996' 8.02
'1997' -2.49
'1998' 4.08
</TABLE>
During the periods shown above, the highest quarterly return was 13.47% (for the
quarter ended 12/31/98), and the lowest was -17.45% (for the quarter ended
9/30/98).
PERFORMANCE TABLE
<TABLE>
<CAPTION>
Average Annual Total Returns Past Past Since Class A Since Class B
(for periods ended December 31, 1998) One Year Five Years Inception (7/18/90) Inception (6/30/94)
<S> <C> <C> <C> <C>
CLASS A SHARES -1.60% 1.40% 2.01% N/A
CLASS B SHARES -1.80% N/A N/A 1.73%
MORGAN STANLEY CAPITAL INTERNATIONAL EAFE
INDEX* 20.33% 9.50% 7.13% 8.53%
</TABLE>
* This index includes stock markets of Europe, Australia and the Far East
weighted by capitalization and represents the equity markets of 18 countries.
20
<PAGE> 24
- --------------------------------------------------------------------------------
STRATEGIC GROWTH portfolio
OBJECTIVE This Portfolio seeks to provide long-term capital appreciation. In
general, relative to the other Portfolios, the Strategic Growth Portfolio should
offer you the potential for a higher level of capital growth while exposing you
to corresponding levels of principal risk.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS All of the Portfolios allocate their
assets among certain of the Funds to achieve their objectives. This Portfolio
generally invests at least 75% of its net assets in the Equity Funds.
The Portfolio may invest up to 25% of its assets in each of the Money Market,
Short-Term High Quality Bond and High Yield Funds. It may also invest up to 50%
of its assets in each of the Growth & Income, Northwest, Growth, Emerging Growth
and International Growth Funds.
The Portfolio may also invest in U.S. GOVERNMENT SECURITIES, short-term debt
rated A or higher, commercial paper (including master notes and bank
obligations), REPURCHASE AGREEMENTS and STRATEGIC TRANSACTIONS such as futures
contracts and options.
The Portfolio shares the principal risks of each of the Funds it invests in, as
well as Portfolio Risk.
YEARLY performance*
[Strategic Growth Portfolio Bar Chart]
<TABLE>
<CAPTION>
ANNUAL RETURN
-------------
<S> <C>
'1997' 12.38
'1998' 22.63
</TABLE>
Calendar Year
During the periods shown above, the highest quarterly return was 21.19% (for the
quarter ended 12/31/98), and the lowest was -12.72% (for the quarter ended
9/30/98).
PERFORMANCE TABLE*
<TABLE>
<CAPTION>
Average Annual Total Returns Past Life of Fund
(for periods ended December 31, 1998) One Year (Since 7/25/96)
<S> <C> <C>
CLASS A SHARES 15.88% 16.69%
CLASS B SHARES 16.74% 17.36%
STANDARD & POOR'S 500 COMPOSITE INDEX** 28.58% 29.68%
RUSSELL 3000 INDEX*** 24.14% 26.90%
</TABLE>
* The performance information shown is that of the corresponding series of WM
Strategic Asset Management Portfolios, the predecessor to the Portfolio. The
performance of the Portfolio's predecessor through December 31, 1998 has
benefitted from the agreement of WM Advisors and its affiliates to limit the
Portfolio's expenses.
** This is an index of 500 industrial, transportation, utility and financial
companies widely regarded by investors as representative of the stock
market.
*** This index is intended to represent the equity market as a whole.
21
<PAGE> 25
- --------------------------------------------------------------------------------
CONSERVATIVE GROWTH portfolio
OBJECTIVE This Portfolio seeks to provide long-term capital appreciation. In
general, relative to the other Portfolios, the Conservative Growth Portfolio
should offer you the potential for a low level of income and the potential for a
medium to high level of capital growth while exposing you to a medium level of
principal risk.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS All of the Portfolios allocate their
assets among certain of the Funds to achieve their objectives. This Portfolio
generally invests at least 60% of its net assets in the Equity Funds.
The Portfolio may invest up to 30% of its assets in each of the Money Market,
Short-Term High Quality Bond, U.S. Government Securities, Income and High Yield
Funds. It may also invest up to 40% of its assets in each of the Growth &
Income, Northwest, Growth, Emerging Growth and International Growth Funds.
The Portfolio may also invest in U.S. GOVERNMENT SECURITIES, short-term debt
rated A or higher, commercial paper (including master notes and bank
obligations), REPURCHASE AGREEMENTS and STRATEGIC TRANSACTIONS such as futures
contracts and options.
The Portfolio shares the principal risks of each of the Funds it invests in, as
well as Portfolio Risk.
YEARLY performance*
[Conservative Growth Portfolio Bar Chart]
<TABLE>
<CAPTION>
ANNUAL RETURN (%)
-----------------
<S> <C>
'1997' 8.65
'1998' 18.82
</TABLE>
Calendar Year
During the periods shown above, the highest quarterly return was 19.39% (for the
quarter ended 12/31/98), and the lowest was -11.99% (for the quarter ended
9/30/98).
PERFORMANCE TABLE*
<TABLE>
<CAPTION>
Average Annual Total Returns Past Life of Fund
(for periods ended December 31, 1998) One Year (Since 7/25/96)
<S> <C> <C>
CLASS A SHARES 12.28% 12.19%
CLASS B SHARES 12.93% 12.94%
RUSSELL 3000 INDEX** 24.14% 26.90%
CAPITAL MARKET BENCHMARK*** 16.03% 14.64%
</TABLE>
* The performance information shown is that of the corresponding series of WM
Strategic Asset Management Portfolios, the predecessor to the Portfolio. The
performance of the Portfolio's predecessor through December 31, 1998 has
benefitted from the agreement of WM Advisors and its affiliates to limit the
Portfolio's expenses.
** This index is intended to represent the equity market as a whole.
*** This is a blended mix of capital market indices that is 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. A description of the components of the Portfolio's
Capital Market Index can be found in the Statement of Additional
Information, which you can obtain free of charge by calling 800-222-5852.
22
<PAGE> 26
- --------------------------------------------------------------------------------
BALANCED portfolio
OBJECTIVE This Portfolio seeks to provide as high a level of total return
(consisting of reinvested income and capital appreciation) as is consistent with
reasonable risk. In general, relative to the other Portfolios, the Balanced
Portfolio should offer you the potential for a medium level of income and the
potential for a medium level of capital growth while exposing you to a medium
level of principal risk.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS All of the Portfolios allocate their
investments among certain of the Funds to achieve their objectives. This
Portfolio invests at least 30% and no more than 70% of its net assets in both
the Equity Funds and the Fixed-Income Funds.
The Portfolio may invest up to 40% of its assets in each of the Money Market,
Short-Term High Quality Bond, U.S. Government Securities, Income and High Yield
Funds. It may also invest up to 30% of its assets in each of the Growth &
Income, Northwest, Growth, Emerging Growth and International Growth Funds.
The Portfolio may also invest in U.S. GOVERNMENT SECURITIES, short-term debt
rated A or higher, commercial paper (including master notes and bank
obligations), REPURCHASE AGREEMENTS and STRATEGIC TRANSACTIONS such as futures
contracts and options.
The Portfolio shares the principal risks of each of the Funds it invests in, as
well as Portfolio Risk.
YEARLY performance*
[Balanced Portfolio Bar Chart]
<TABLE>
<CAPTION>
ANNUAL RETURN (%)
-----------------
<S> <C>
'1997' 10.22
'1998' 16.27
</TABLE>
Calendar Year
During the periods shown above, the highest quarterly return was 14.32% (for the
quarter ended 12/31/98), and the lowest was -8.47% (for the quarter ended
9/30/98).
PERFORMANCE TABLE*
<TABLE>
<CAPTION>
Average Annual Total Returns Past Life of Fund
(for periods ended December 31, 1998) One Year (Since 7/25/96)
<S> <C> <C>
CLASS A SHARES 9.88% 10.20%
CLASS B SHARES 10.43% 11.82%
LEHMAN BROTHERS AGGREGATE BOND INDEX** 8.67% 9.35%
RUSSELL 3000 INDEX*** 24.14% 26.90%
CAPITAL MARKET BENCHMARK**** 11.42% 10.48%
</TABLE>
* The performance information shown is that of the corresponding series of WM
Strategic Asset Management Portfolios, the predecessor to the Portfolio.
The performance of the Portfolio's predecessor through December 31, 1998
has benefitted from the agreement of WM Advisors and its affiliates to
limit the Portfolio's expenses.
** This index is intended to represent the fixed-income market as a whole.
*** This index is intended to represent the equity market as a whole.
**** This is a blended mix of capital market indices that is 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. A description of the components of
the Portfolio's Capital Market Index can be found in the Statement of
Additional Information, which you can obtain free of charge by calling
800-222-5852.
23
<PAGE> 27
- --------------------------------------------------------------------------------
FLEXIBLE INCOME portfolio
OBJECTIVE This Portfolio seeks to provide a high level of total return
(consisting of reinvestment of income with some capital appreciation). In
general, relative to the other Portfolios, the Flexible Income Portfolio should
offer you the potential for a medium to high level of reinvestment income and
the potential for a low to medium level of capital growth, while exposing you to
a low to medium level of principal risk.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS All of the Portfolios allocate their
assets among certain of the Funds to achieve their objectives. This Portfolio
generally invests no more than 30% of its net assets in the Equity Funds.
The Portfolio may invest up to 40% of its assets in each of the Money Market,
Short-Term High Quality Bond, U.S. Government Securities, Income and High Yield
Funds. It may also invest up to 30% of its assets in each of the Growth &
Income, Northwest, Growth and Emerging Growth Funds.
The Portfolio may also invest in U.S. GOVERNMENT SECURITIES, short-term debt
rated A or higher, commercial paper (including master notes and bank
obligations), REPURCHASE AGREEMENTS and STRATEGIC TRANSACTIONS such as futures
contracts and options.
The Portfolio shares the principal risks of the Funds it invests in, as well as
Portfolio Risk.
YEARLY performance*
[Flexible Income Portfolio Bar Chart]
<TABLE>
<CAPTION>
ANNUAL RETURN (%)
-----------------
<S> <C>
'1997' 10.25
'1998' 9.24
</TABLE>
Calendar Year
During the periods shown above, the highest quarterly return was 5.83% (for the
quarter ended 12/31/98), and the lowest was -1.84% (for the quarter ended
9/30/98).
PERFORMANCE TABLE*
<TABLE>
<CAPTION>
Average Annual Total Returns Past Life of Fund
(for periods ended December 31, 1998) One Year (Since 7/25/96)
<S> <C> <C>
CLASS A SHARES 4.32% 7.05%
CLASS B SHARES 3.52% 9.53%
LEHMAN BROTHERS AGGREGATE BOND INDEX** 8.67% 9.35%
CAPITAL MARKET BENCHMARK*** 8.71% 8.88%
</TABLE>
* The performance information shown is that of the corresponding series of WM
Strategic Asset Management Portfolios, the predecessor to the Portfolio. The
performance of the Portfolio's predecessor through December 31, 1998 has
benefitted from the agreement of WM Advisors and its affiliates to limit the
Portfolio's expenses.
** This index is intended to represent the fixed-income market as a whole.
*** This is a blended mix of capital market indices that is 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. A
description of the components of the Portfolio's Capital Market Index can be
found in the Statement of Additional Information, which you can obtain free
of charge by calling 800-222-5852.
24
<PAGE> 28
- --------------------------------------------------------------------------------
INCOME portfolio
OBJECTIVE This Portfolio seeks long-term total return through reinvestment of
current income consistent with preservation of capital. In general, relative to
the other Portfolios, the Income Portfolio should offer you the potential for a
high level of income while maintaining principal and exposing you to a low level
of principal risk.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS All of the Portfolios allocate their
assets among certain of the Funds to achieve their objectives. This Portfolio
generally invests 100% of its net assets in the Fixed-Income Funds.
The Portfolio may invest up to 50% of its assets in each of the Money Market,
Short-Term High Quality Bond and U.S. Government Securities Funds. It may also
invest up to 40% of its assets in either of the Income and High Yield Funds.
The Portfolio may also invest in U.S. GOVERNMENT SECURITIES, short-term debt
rated A or higher, commercial paper (including master notes and bank
obligations), REPURCHASE AGREEMENTS and STRATEGIC TRANSACTIONS such as futures
contracts and options.
The Portfolio shares the principal risks of each of the Funds it invests in, as
well as Portfolio Risk.
YEARLY performance*
[Income Portfolio Bar Chart]
<TABLE>
<CAPTION>
ANNUAL RETURN (%)
-----------------
<S> <C>
'1997' 10.22
'1998' 16.27
</TABLE>
Calendar Year
During the periods shown above, the highest quarterly return was 3.14% (for the
quarter ended 12/31/96), and the lowest was -0.48% (for the quarter ended
3/31/97).
PERFORMANCE TABLE*
<TABLE>
<CAPTION>
Average Annual Total Returns Past Life of Fund
(for periods ended December 31, 1998) One Year (Since 7/25/96)
<S> <C> <C>
CLASS A SHARES 0.54% 6.73%
CLASS B SHARES -0.48% 5.96%
LEHMAN BROTHERS AGGREGATE BOND INDEX** 8.67% 9.35%
CAPITAL MARKET BENCHMARK*** 6.23% 6.85%
</TABLE>
* The performance information shown is that of the corresponding series of WM
Strategic Asset Management Portfolios, the predecessor to the Portfolio. The
performance of the Portfolio's predecessor through December 31, 1998 has
benefitted from the agreement of WM Advisors and its affiliates to limit the
Portfolio's expenses.
** This index is intended to represent the fixed-income market as a whole.
*** This is a blended mix of capital market indices that is intended to
represent a proxy for portfolio performance. The benchmark allocation is as
follows: 20% Salomon Bros, 90-day T-Bills, 30% Lehman Bros Mutual Fund Short
(1-5) Gov/Corp Index 10% Lehman Bros Mortgages Index and 10% Lehman Bros BAA
LT Corporate Bond Index. A description of the components of the Portfolio's
Capital Market Index can be found in the Statement of Additional
Information, which you can obtain free of charge by calling 800-222-5852.
25
<PAGE> 29
SUMMARY OF PRINCIPAL RISKS
The value of your investment in a Fund or Portfolio changes with the value of
the investments held by that Fund or Portfolio. Many factors can affect that
value, and it is possible that you may lose money on investments in the Funds
and Portfolios. Factors that may affect a particular Fund or Portfolio as a
whole are called "principal risks." They are summarized in this section. The
chart at the end of this section displays similar information. All Funds and
Portfolios are subject to principal risks. These risks can change over time,
because the types of investments made by the Funds and Portfolios can change
over time. Investments mentioned in this summary and described in greater detail
under "Description of the Funds" or "Common Investment Practices" appear in BOLD
TYPE. Those sections also include more information about the Funds, their
investments and the related risks.
+ MARKET RISK. Each of the Funds and Portfolios is subject to market risk,
which is the general risk of unfavorable changes in the market value of a
Fund's portfolio securities. The Equity Funds, by investing in equity
securities, such as common stock, preferred stock and convertible securities,
are exposed to the risk of changes in the value of equity securities. Those
risks include the risks of broader market declines as well as more specific
risks affecting the issuer, such as management performance, financial
leverage, industry problems and reduced demand for the issuer's goods or
services.
Another aspect of market risk is interest rate risk. As interest rates rise,
your investment in a Fund or Portfolio is likely to be worth less because
its income-producing equity or debt investments are likely to be worth less.
Even Funds such as the Short Term High Quality Bond, U.S. Government
Securities and Target Maturity 2002 Funds are subject to interest rate risk,
even though they generally invest substantial portions of their assets in
the highest quality debt securities, such as U.S. GOVERNMENT SECURITIES.
Interest rate risk is generally greater for Funds that invest in debt
securities with longer maturities. This risk is usually compounded for Funds
such as the Tax-Exempt Bond, California Municipal, Florida Insured
Municipal, Income and U.S. Government Securities Funds that invest
significantly in GOVERNMENT STRIPPED MORTGAGE-BACKED or other ASSET-BACKED
SECURITIES that may be prepaid. These securities have variable maturities
that tend to lengthen when that is least desirable -- when interest rates
are rising. Increased market risk is also likely for Funds such as the
Income, Short Term High Quality Bond and Target Maturity 2002 Funds that
invest in debt securities paying no interest, such as ZERO-COUPON,
PRINCIPAL-ONLY and INTEREST-ONLY SECURITIES.
+ CREDIT RISK. Each of the Funds may be subject to credit risk to the extent it
invests in FIXED-INCOME SECURITIES. This is the risk that the issuer or the
guarantor (or, in the case of the California Insured Intermediate Municipal
Fund and the Florida Insured Municipal Fund, the insurer) of a debt security,
or the counterparty to any of a Fund's portfolio transactions (including
without limitation REPURCHASE AGREEMENTS, REVERSE REPURCHASE AGREEMENTS,
LENDING OF SECURITIES and other over-the-counter transactions), will be unable
or unwilling to make timely principal and/or interest payments, or to
otherwise honor its obligations. Varying degrees of credit risk, often
reflected in Credit Ratings, apply. Credit risk is particularly significant
for Funds such as the Income, High Yield, Tax-Exempt Bond, Bond & Stock,
Growth & Income, Growth and Emerging Growth Funds that invest significantly in
LOWER-RATED SECURITIES. These securities and similar unrated securities
(commonly known as "junk bonds") have speculative elements or are
predominantly speculative credit risks. The Short Term High Quality Bond,
Income, High Yield, Bond & Stock, Growth & Income, Northwest, Growth, Emerging
Growth and International Growth Funds, which make FOREIGN INVESTMENTS
denominated in U.S. dollars, are also subject to increased credit risk because
of the difficulties of requiring foreign entities to honor their contractual
commitments, and because a number of foreign governments and other issuers are
already in default. The Money Market Fund may also make U.S. dollar
denominated FOREIGN INVESTMENTS.
+ CURRENCY RISK. Funds such as the Short Term High Quality Bond, Income, High
Yield, Bond & Stock, Growth & Income, Growth, Emerging
26
<PAGE> 30
Growth and International Growth Funds that invest in securities denominated
in, and/or receive revenues in, foreign currencies will be subject to currency
risk. This is the risk that those currencies will decline in value relative to
the U.S. dollar, or, in the case of hedging positions, that the U.S. dollar
will decline in value relative to the currency hedged.
+ FOREIGN INVESTMENT RISK. Each of the Funds with FOREIGN INVESTMENTS such as
the Short Term High Quality Bond, Income, High Yield, Bond & Stock, Growth &
Income, Growth, Emerging Growth and International Growth Funds, may experience
more rapid and extreme changes in value than Funds with investments solely in
securities of U.S. companies. This is because the securities markets of many
foreign countries are relatively small, with a limited number of companies
representing a small number of industries. Additionally, foreign securities
issuers are usually not subject to the same degree of regulation as U.S.
issuers. Reporting, accounting and auditing standards of foreign countries
differ, in some cases significantly, from U.S. standards. Also,
nationalization, expropriation or confiscatory taxation, currency blockage,
political changes or diplomatic developments could adversely affect a Fund's
investments in a foreign country. In the event of nationalization,
expropriation or other confiscation, a Fund could lose its entire investment.
Adverse developments in certain regions, such as Southeast Asia, may adversely
affect the markets of other countries whose economies appear to be unrelated.
The Money Market, and Northwest Funds may also make U.S. dollar denominated
FOREIGN INVESTMENTS.
+ GEOGRAPHIC CONCENTRATION RISK. Funds such as the California Money, Northwest,
California Municipal, California Insured Intermediate Municipal and Florida
Insured Municipal Funds that invest significant portions of their assets in
concentrated geographic areas like the northwestern United States, California
or Florida generally have more exposure to regional economic risks than Funds
making investments more broadly.
+ LEVERAGING RISK. When a Fund is BORROWING money or otherwise leveraging its
portfolio, the value of an investment in that Fund will be more volatile and
all other risks will tend to be compounded. The Income, Short-Term High
Quality Bond, U.S. Government Securities, California Municipal, California
Insured Intermediate Municipal, Florida Insured Municipal, Growth,
International Growth and Emerging Growth Funds may achieve leverage by using
REVERSE REPURCHASE AGREEMENTS and/or DOLLAR ROLLS. The Municipal Funds, the
Fixed-Income Funds, and the Growth & Income Fund may achieve leverage through
the use of INVERSE FLOATING RATE INVESTMENTS. Funds such as the California
Money, California Insured Intermediate Municipal, Short Term High Quality
Bond, Emerging Growth, Growth and International Growth Funds may also take on
leveraging risk by investing collateral from securities loans, by using
STRATEGIC TRANSACTIONS (derivatives) and by BORROWING money to meet redemption
requests.
+ NON-DIVERSIFICATION RISK. Most analysts believe that overall risk can be
reduced through diversification, while concentration of investments in a small
number of securities increases risk. Each of the California Money, California
Municipal, California Insured Intermediate Municipal and Florida Insured
Municipal Funds is NON-DIVERSIFIED. This means they can invest a greater
portion of their assets in a relatively small number of issuers and will have
greater concentration of risk. Some of those issuers may present substantial
credit or other risks.
+ DERIVATIVES RISK. Each of the Funds, except the Money Funds, may, subject to
the limitations and restrictions stated elsewhere in this Prospectus and the
SAI, enter into STRATEGIC TRANSACTIONS involving derivatives such as forward
contracts, futures contracts, options, swaps, caps, floors and collars, which
are financial contracts whose value depends on, or is derived from, the value
of something else, such as an underlying asset, reference rate or index. In
addition to other risks such as the credit risk of the counterparty,
derivatives involve the risk of mispricing or improper valuation and the risk
that changes in the value of the derivative may not correlate perfectly with
relevant assets, rates and indices.
+ LIQUIDITY RISK. Liquidity risk exists when particular investments are
difficult to purchase or sell, possibly preventing a Fund from selling out of
these ILLIQUID SECURITIES at an advantageous price. All of the Funds may be
subject to liquidity risk. Funds that engage in STRATEGIC TRANSACTIONS, make
27
<PAGE> 31
FOREIGN INVESTMENTS, or invest in securities involving substantial market
and/or credit risk tend to be subject to greater liquidity risk. In addition,
liquidity risk increases for Funds that hold RESTRICTED SECURITIES.
+ MANAGEMENT RISK. Each Fund and Portfolio is subject to management risk
because it is an actively managed investment portfolio. WM Advisors, or the
sub-advisor if applicable, will apply its investment techniques and risk
analyses in making investment decisions for the Funds or Portfolios, but there
can be no guarantee that they will produce the desired results. In some cases
derivatives and other investments may be unavailable or WM Advisors or the
sub-advisor may choose not to use them under market conditions when their use
would have been beneficial to the Funds or Portfolios.
+ SMALLER COMPANY RISK. Market risk and liquidity risk are particularly
pronounced for stocks of companies with relatively small market
capitalizations. These companies may have limited product lines, markets or
financial resources, or they may depend on a few key employees. The Equity
Funds, the High Yield Fund, and the Emerging Growth Fund in particular,
generally have the greatest exposure to this risk.
+ TAX RISK. The Tax Exempt Money Market, California Money and the Municipal
Funds are subject to the risk that some or all of the interest they receive
might become taxable by law or be determined by the Internal Revenue Service
(or the relevant state tax authority) to be taxable. In this event, the value
of the Funds' investments would likely fall, and some or all of the income
distributions paid by the Funds might become taxable. In addition, some or all
of the income distributions paid by these Funds may be subject to federal
alternative minimum income tax.
+ MONEY MARKET RISK. While the Money Funds are designed to be relatively low
risk investments, they are not entirely free of risk. The Money Funds may not
be able to maintain a net asset value of $1.00 per share, as a result of a
deterioration in the credit quality of issuers whose securities the Funds
hold, or an increase in interest rates. In addition, the Money Funds are still
subject to the risk that the value of your investment may be eroded over time
by inflation.
+ PORTFOLIO REALLOCATION RISK. From time to time, one or more of a Portfolio's
underlying Funds may experience relatively large investments or redemptions
due to reallocations or rebalancings by the Portfolios as recommended by WM
Advisors. These transactions will affect such Funds, since the Funds that
experience redemptions as a result of reallocations or rebalancings may have
to sell portfolio securities and Funds that receive additional cash will have
to invest such cash. While it is impossible to predict the overall impact of
these transactions over time, there could be adverse effects on portfolio
management to the extent that the Funds may be required to sell securities or
invest cash at times when they would not otherwise do so. These transactions
could also have tax consequences if sales of securities resulted in gains and
could also increase transaction costs. WM Advisors is committed to minimizing
such impact on the Funds to the extent it is consistent with pursuing the
investment objectives of the Portfolios. WM Advisors may nevertheless face
conflicts in fulfilling its responsibilities. WM Advisors will at all times
monitor the impact on the Funds of transactions by the Portfolios.
+ PORTFOLIO RISK. Each of the Portfolios allocates its assets among the Funds
as determined by its Advisor and in accordance with the investment
restrictions discussed above. As a result, the Portfolios share the risks of
each of the Funds in which they invest, which are described above.
In particular, the Portfolios may be subject to credit risk. For instance,
the Strategic Growth Portfolio can invest up to 50% of its assets in each of
the Growth, Growth & Income and Emerging Growth Funds and up to 25% of its
assets in the High Yield Fund. Each of these Funds may invest significant
amounts of its assets in lower-rated securities ("junk bonds"). The
Portfolios may also be exposed to FOREIGN INVESTMENT RISK through their
investments in the Growth or Emerging Growth Funds. In choosing among the
Portfolios, investors should understand the risks of each of the Funds and
the extent to which each Portfolio invests in each Fund.
Investing in Funds through the Portfolios involves certain additional
expenses and tax results that would not be present in a direct investment in
the Funds. See "Dividends, Capital Gains and Taxes"
28
<PAGE> 32
for additional information about the tax implications of investing in the
Portfolios.
Under certain circumstances, a Fund may determine to pay a redemption
request by a Portfolio wholly or partly by a distribution in kind of
securities from its portfolio, instead of cash. In such cases, the
Portfolios may hold portfolio securities until WM Advisors determines that
it is appropriate to dispose of such securities.
The officers, trustees, advisor, distributor and transfer agent of the
Portfolios serve in the same capacities for the Funds. Conflicts may arise
as these persons and companies seek to fulfill their fiduciary
responsibilities to the Portfolios and the Funds.
29
<PAGE> 33
PRINCIPAL RISKS by fund
The following chart summarizes the Principal Risks of each Fund other than
Market Risk, Credit Risk, Liquidity Risk, Management Risk and Portfolio
Reallocation Risk, which apply to all of the Funds. Risks not marked for a
particular Fund may, however, still apply to some extent to that Fund at various
times.
<TABLE>
<CAPTION>
Foreign Geographic Smaller Money
Currency Investment Concentration Leveraging Non-Diversification Derivatives Company Tax Market
Fund Risk Risk Risk Risk Risk Risk Risk Risk Risk
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MONEY
MARKET X X
fund
TAX-EXEMPT
MONEY MARKET X X
fund
CALIFORNIA
MONEY X X X X
fund
SHORT TERM
HIGH QUALITY BOND X X X X
fund
TARGET
MATURITY 2002 X X
fund
U.S. GOVERNMENT
SECURITIES X X
fund
INCOME
fund X X X X
HIGH YIELD
fund X X X X X
TAX-EXEMPT
BOND X X X
fund
CALIFORNIA
MUNICIPAL X X X X X
fund
CALIFORNIA INSURED
INTERMEDIATE X X X X X
MUNICIPAL fund
FLORIDA INSURED
MUNICIPAL X X X X X
fund
BOND &
STOCK X X X X
fund
GROWTH &
INCOME X X X X X
fund
NORTHWEST
fund X X X X
GROWTH
fund X X X X X
EMERGING
GROWTH X X X X X
fund
INTERNATIONAL
GROWTH X X X X X
fund
<CAPTION>
<S> <C>
</TABLE>
30
<PAGE> 34
- --------------------------------------------------------------------------------
FEES AND EXPENSES OF THE FUNDS
AND PORTFOLIOS
This table summarizes the fees and expenses that you may pay if you invest in
Class A or Class B shares of a Fund or Portfolio. Each of the Funds may offer
other classes of shares that are subject to different fees and expenses. For
information about other classes of shares offered by the Funds, please contact
WM Shareholder Services at 800-222-5852. The Examples on the next two pages are
intended to help you compare the cost of investing in the Funds and Portfolios
with the costs of investing in other mutual funds. The Examples assume that your
investment has a 5% return each year, as required by the Securities and Exchange
Commission, and that the Fund's or Portfolio's operating expenses remain the
same. Your actual costs may be higher or lower than those in the Examples.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
SHAREHOLDER FEES CLASS A CLASS B
(fees paid directly from your investment) SHARES (in %) SHARES (in %)
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Maximum sales charge (load) imposed on purchases (as a
percentage of offering price)
Equity Funds and Strategic Growth, Conservative Growth and
Balanced Portfolios 5.50 0.00
----------------------------------------------------------------------------------------------------
Fixed-Income Funds, Municipal Funds and Flexible Income and
Income Portfolios 4.50(1) 0.00
----------------------------------------------------------------------------------------------------
Money Funds 0.00(2) 0.00
----------------------------------------------------------------------------------------------------
Maximum deferred sales charge (load) (as a percentage of
original purchase price or redemption proceeds, as
applicable)(5) 0.00(3) 5.00(4)
----------------------------------------------------------------------------------------------------
(1) 3.50% for Short Term High Quality Bond Fund and 2.00% for Target Maturity 2002 Fund.
(2) Regular sales charges apply when Class A shares of a Money Market Fund (on which no sales
charge was paid at time of purchase) are exchanged for shares of any other Fund.
(3) Certain investors who purchase Class A shares without paying an initial sales charge may
be subject to a deferred sales charge of 1.00% on redemptions within the first year or 0.50%
on redemptions within the second year after purchase. Class A shares are not otherwise
subject to a deferred sales charge.
(4) The maximum deferred sales charge is imposed on shares redeemed in the first year. For
shares held longer than one year, the deferred sales charge declines according to the
schedules set forth under "Buying Class B Shares -- Contingent deferred sales charge" in
this Prospectus. The maximum deferred sales charge for Class B shares of the Short Term
High Quality Bond Fund is 4.00%.
(5) A $10 fee may be charged for redemptions made by wire transfer.
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE> 35
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
ANNUAL FUND
OPERATING EXPENSES
(expenses that are deducted
CLASS A SHARES from Fund assets)
-----------------------------------------------------------------------------------------------------------
Total
Annual
Service Fund
Management (12b-1) Other Operating Expense Net
Fees Fees(4) Expenses Expenses Reimbursement Expenses
-----------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
Money Market Fund 0.45% 0.00% 0.22% 0.67% N/A 0.67%
-----------------------------------------------------------------------------------------------------------
Tax-Exempt Money Market Fund(1) 0.45 0.00 0.27 0.72 0.15% 0.57
-----------------------------------------------------------------------------------------------------------
California Money Fund(1) 0.45 0.00 0.42 0.87 0.02 0.85
-----------------------------------------------------------------------------------------------------------
Short Term High Quality Bond
Fund(1) 0.50 0.25 0.65 1.40 0.58 0.82
-----------------------------------------------------------------------------------------------------------
Target Maturity 2002 Fund(1) 0.25 0.25 0.97 1.47 0.47 1.00
-----------------------------------------------------------------------------------------------------------
U.S. Government Securities
Fund(2,3) 0.50 0.25 0.66 1.41 0.45 0.96
-----------------------------------------------------------------------------------------------------------
Income Fund(3) 0.50 0.25 0.19 0.94 N/A 0.94
-----------------------------------------------------------------------------------------------------------
High Yield Fund(1) 0.63 0.25 0.34 1.22 0.63 0.59
-----------------------------------------------------------------------------------------------------------
Tax-Exempt Bond Fund 0.50 0.25 0.09 0.84 N/A 0.84
-----------------------------------------------------------------------------------------------------------
California Municipal Fund(3) 0.50 0.25 0.10 0.85 N/A 0.85
-----------------------------------------------------------------------------------------------------------
California Insured Intermediate
Municipal Fund(3) 0.50 0.25 0.20 0.95 N/A 0.95
-----------------------------------------------------------------------------------------------------------
Florida Insured Municipal
Fund(1,3) 0.50 0.25 0.45 1.20 0.20 1.00
-----------------------------------------------------------------------------------------------------------
Bond & Stock Fund 0.59 0.25 0.13 0.97 N/A 0.97
-----------------------------------------------------------------------------------------------------------
Growth & Income Fund 0.55 0.25 0.14 0.94 N/A 0.94
-----------------------------------------------------------------------------------------------------------
Northwest Fund 0.63 0.25 0.22 1.10 N/A 1.10
-----------------------------------------------------------------------------------------------------------
Growth Fund(2,3) 0.85 0.25 0.38 1.48 0.18 1.30
-----------------------------------------------------------------------------------------------------------
Emerging Growth Fund(3) 0.85 0.25 0.56 1.66 N/A 1.66
-----------------------------------------------------------------------------------------------------------
International Growth Fund 1.00 0.25 0.61 1.86 N/A 1.86
-----------------------------------------------------------------------------------------------------------
Strategic Growth Portfolio(5) 0.15 0.25 0.73 1.13 N/A 1.13
-----------------------------------------------------------------------------------------------------------
Conservative Growth Portfolio(5) 0.15 0.25 0.63 1.03 N/A 1.03
-----------------------------------------------------------------------------------------------------------
Balanced Portfolio(5) 0.15 0.25 0.62 1.02 N/A 1.02
-----------------------------------------------------------------------------------------------------------
Flexible Income Portfolio(1,5) 0.15 0.25 0.97 1.37 0.37 1.00
-----------------------------------------------------------------------------------------------------------
Income Portfolio(1,5) 0.15 0.25 1.13 1.53 0.53 1.00
-----------------------------------------------------------------------------------------------------------
<CAPTION>
- --- -----------------------------------------
EXAMPLES: You would pay
the following expenses on a
$10,000 investment assuming a
5% annual return and
redemption at the end of each
period:
-----------------------------------------
One Three Five Ten
Year Years Years Years
-----------------------------------------
<C> <C> <C> <C> <C>
Money Market Fund $ 7 $ 21 $ 37 $ 82
- -------------------------------------------------------------------------------
Tax-Exempt Money Market Fund(1) 7 23 40 89
- -------------------------------------------------------------------------------
California Money Fund(1) 9 28 49 107
- -------------------------------------------------------------------------------
Short Term High Quality Bond
Fund(1) 49 78 109 197
- -------------------------------------------------------------------------------
Target Maturity 2002 Fund(1) 35 66 99 192
- -------------------------------------------------------------------------------
U.S. Government Securities
Fund(2,3) 59 88 119 206
- -------------------------------------------------------------------------------
Income Fund(3) 54 74 95 155
- -------------------------------------------------------------------------------
High Yield Fund(1) 57 82 109 186
- -------------------------------------------------------------------------------
Tax-Exempt Bond Fund 53 71 90 144
- -------------------------------------------------------------------------------
California Municipal Fund(3) 53 71 90 145
- -------------------------------------------------------------------------------
California Insured Intermediate
Municipal Fund(3) 54 74 96 156
- -------------------------------------------------------------------------------
Florida Insured Municipal
Fund(1,3) 57 81 108 184
- -------------------------------------------------------------------------------
Bond & Stock Fund 64 84 106 167
- -------------------------------------------------------------------------------
Growth & Income Fund 64 88 105 164
- -------------------------------------------------------------------------------
Northwest Fund 66 88 113 182
- -------------------------------------------------------------------------------
Growth Fund(2,3) 69 99 132 222
- -------------------------------------------------------------------------------
Emerging Growth Fund(3) 71 104 141 241
- -------------------------------------------------------------------------------
International Growth Fund 73 110 151 261
- -------------------------------------------------------------------------------
Strategic Growth Portfolio(5) 66 89 114 185
- -------------------------------------------------------------------------------
Conservative Growth Portfolio(5) 65 86 109 174
- -------------------------------------------------------------------------------
Balanced Portfolio(5) 65 86 109 173
- -------------------------------------------------------------------------------
Flexible Income Portfolio(1,5) 58 86 117 202
- -------------------------------------------------------------------------------
Income Portfolio(1,5) 60 91 125 219
- -------------------------------------------------------------------------------
</TABLE>
(1) Reflects the Advisor's obligation to limit Total Annual Fund Operating
Expenses through October 31, 1999, as described on page 62.
(2) Reflects the Advisor's obligation to limit Total Annual Fund Operating
Expenses through October 31, 2000, as described on page 62.
(3) Management fees shown have been restated to reflect current contractual
rates.
(4) 12b-1 fees represent servicing fees which are paid to the Distributor.
See "Which Class of Shares is Best for Me -- Distribution Plans."
(5) Does not include underlying Fund expenses that the Portfolios bear
indirectly.
- --------------------------------------------------------------------------------
32
<PAGE> 36
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
ANNUAL FUND
OPERATING EXPENSES
(expenses that are deducted
CLASS B SHARES from Fund assets)
----------------------------------------------------------------------------------------------------------
Distribution Total
and Annual
Service Fund
Management (12b-1) Other Operating Expense Net
Fees Fees(4) Expenses Expenses Reimbursement Expenses
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Money Market Fund 0.45% 1.00% 0.20% 1.65% N/A 1.65%
----------------------------------------------------------------------------------------------------------
Tax-Exempt Money Market
Fund(1) 0.45 1.00 0.35 1.80 0.15% 1.65
----------------------------------------------------------------------------------------------------------
California Money Fund(1) 0.45 1.00 0.60 2.05 0.02 2.03
----------------------------------------------------------------------------------------------------------
Short Term High Quality Bond
Fund(1) 0.50 1.00 0.68 2.18 0.58 1.60
----------------------------------------------------------------------------------------------------------
U.S. Government Securities
Fund(2, 3) 0.50 1.00 0.68 2.18 0.45 1.73
----------------------------------------------------------------------------------------------------------
Income Fund(3) 0.50 1.00 0.21 1.71 N/A 1.71
----------------------------------------------------------------------------------------------------------
High Yield Fund(1) 0.63 1.00 0.39 2.02 0.63 1.39
----------------------------------------------------------------------------------------------------------
Tax-Exempt Bond Fund 0.50 1.00 0.12 1.62 N/A 1.62
----------------------------------------------------------------------------------------------------------
California Municipal Fund(3) 0.50 1.00 0.11 1.61 N/A 1.61
----------------------------------------------------------------------------------------------------------
California Insured
Intermediate Municipal
Fund(3) 0.50 1.00 0.20 1.70 N/A 1.70
----------------------------------------------------------------------------------------------------------
Florida Insured Municipal
Fund(1, 3) 0.50 1.00 0.45 1.95 0.20 1.75
----------------------------------------------------------------------------------------------------------
Bond & Stock Fund 0.59 1.00 0.17 1.76 N/A 1.76
----------------------------------------------------------------------------------------------------------
Growth & Income Fund(1) 0.55 1.00 0.24 1.79 0.03 1.76
----------------------------------------------------------------------------------------------------------
Northwest Fund 0.63 1.00 0.32 1.95 N/A 1.95
----------------------------------------------------------------------------------------------------------
Growth Fund(2, 3) 0.85 1.00 0.48 2.33 0.28 2.05
----------------------------------------------------------------------------------------------------------
Emerging Growth Fund(3) 0.85 1.00 0.77 2.62 N/A 2.62
----------------------------------------------------------------------------------------------------------
International Growth Fund 1.00 1.00 0.97 2.97 N/A 2.97
----------------------------------------------------------------------------------------------------------
Strategic Growth
Portfolio(6) 0.15 1.00 0.73 1.88 N/A 1.88
----------------------------------------------------------------------------------------------------------
Conservative Growth
Portfolio(6) 0.15 1.00 0.63 1.78 N/A 1.78
----------------------------------------------------------------------------------------------------------
Balanced Portfolio(6) 0.15 1.00 0.62 1.77 N/A 1.77
----------------------------------------------------------------------------------------------------------
Flexible Income
Portfolio(1,6) 0.15 1.00 0.97 2.12 0.37 1.75
----------------------------------------------------------------------------------------------------------
Income Portfolio(1,6) 0.15 1.00 1.13 2.28 0.53 1.75
----------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------- ---------------------------------------------------------------------------
EXAMPLES: You would pay the following
expenses on a $10,000 investment assuming a 5%
annual return and either
a) redemption at the end of each period or
CLASS B SHARES b) no redemption:
---------------------------------------- -----------------------------------------------------------------------
(a) (b)
One Three Five Ten One Three Five Ten
Year Years Years Years(5) Year Years Years Years(5)
------------------------------ ---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Money Market Fund 67 82 100 169 17 52 90 169
-----------------------------------------------------------------------------------------------
Tax-Exempt Money Market
Fund(1) 68 87 108 183 18 57 98 183
-----------------------------------------------------------------------------------------------
California Money Fund(1) 71 94 121 207 21 64 111 207
-----------------------------------------------------------------------------------------------
Short Term High Quality Bond
Fund(1) 62 88 118 231 22 68 118 231
-----------------------------------------------------------------------------------------------
U.S. Government Securities
Fund(2, 3) 72 98 128 232 20 68 118 232
-----------------------------------------------------------------------------------------------
Income Fund(3) 67 84 103 181 17 54 93 181
-----------------------------------------------------------------------------------------------
High Yield Fund(1) 71 93 119 214 21 63 109 214
-----------------------------------------------------------------------------------------------
Tax-Exempt Bond Fund 66 81 99 171 16 51 89 171
-----------------------------------------------------------------------------------------------
California Municipal Fund(3) 66 81 98 171 16 51 88 171
-----------------------------------------------------------------------------------------------
California Insured
Intermediate Municipal
Fund(3) 67 84 103 181 17 54 93 181
------------------------------------------------------------------------------------------------
Florida Insured Municipal
Fund(1, 3) 70 91 116 208 20 61 106 208
------------------------------------------------------------------------------------------------
Bond & Stock Fund 68 85 106 186 18 55 96 186
------------------------------------------------------------------------------------------------
Growth & Income Fund(1) 68 86 108 188 18 56 98 188
------------------------------------------------------------------------------------------------
Northwest Fund 70 91 116 205 20 61 106 205
------------------------------------------------------------------------------------------------
Growth Fund(2, 3) 74 103 135 245 24 73 125 245
------------------------------------------------------------------------------------------------
Emerging Growth Fund(3) 71 111 150 272 27 81 140 272
------------------------------------------------------------------------------------------------
International Growth Fund 80 122 167 302 30 92 157 302
------------------------------------------------------------------------------------------------
Strategic Growth
Portfolio(6) 69 89 112 200 19 59 102 200
------------------------------------------------------------------------------------------------
Conservative Growth
Portfolio(6) 68 86 107 189 18 56 97 189
------------------------------------------------------------------------------------------------
Balanced Portfolio(6) 68 86 107 188 18 56 107 188
------------------------------------------------------------------------------------------------
Flexible Income
Portfolio(1,6) 72 96 125 226 22 66 115 226
------------------------------------------------------------------------------------------------
Income Portfolio(1,6) 73 101 133 242 23 71 123 242
------------------------------------------------------------------------------------------------
</TABLE>
(1) Reflects the Advisor's obligation to limit Total Annual Fund Operating
Expenses through October 31, 1999, as described on page 62.
(2) Reflects the Advisor's obligation to limit Total Annual Fund Operating
Express through October 31, 2000, as described on page 62.
(3) Management fees shown have been restated to reflect current contractual
rates.
(4) 0.25% of the 12b-1 fees shown represent servicing fees which are paid to
the Distributor. Long-term Class B shareholders may pay more than the
sales charge paid by Class A shareholders. See "Which Class of Shares is
Best for Me -- Distribution Plans."
(5) Class B shares convert to Class A shares after eight years; accordingly,
the expense amounts for years nine and ten are based on Class A share
expenses.
(6) Does not include underlying Fund expenses that the Portfolios bear
indirectly.
- --------------------------------------------------------------------------------
33
<PAGE> 37
ESTIMATED AGGREGATE PORTFOLIO EXPENSES
The following table sets forth the estimated aggregate expenses of the
Portfolios, including expenses of the underlying Funds, based upon expenses
shown in the table above for each Portfolio and underlying Fund (excluding 12b-1
fees to which the shares purchased by the Portfolios, Class I shares, are not
subject). These estimates assume a constant allocation by each Portfolio of its
assets among the underlying Funds identical to the actual allocation of the
corresponding series of WM Strategic Asset Management Portfolios, the
predecessor to the Portfolio, at October 31, 1998. A Portfolio's actual expenses
may be higher as a result of changes in the allocation of the Portfolio's assets
among the underlying Funds, the expenses of the underlying Funds, and/or the
Portfolio's own expenses.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Class A Shares Class B Shares
------------------------------------------------
Combined Combined
Expenses Expenses
Combined Without Combined Without
Net Waivers or Net Waivers or
PORTFOLIO Expenses Credits Expenses Credits
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Strategic Growth Portfolio(1) 2.17% 2.23% 2.92% 2.98%
- --------------------------------------------------------------------------------------------------------------
Conservative Growth Portfolio(2) 2.08 2.12 2.83 2.87
- --------------------------------------------------------------------------------------------------------------
Balanced Portfolio(3) 1.96 2.05 2.71 2.80
- --------------------------------------------------------------------------------------------------------------
Flexible Income Portfolio(4) 1.68 2.17 2.43 2.92
- --------------------------------------------------------------------------------------------------------------
Income Portfolio(5) 1.62 2.39 2.37 3.14
- --------------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
(1) As of October 31, 1998, the allocation of the assets of the predecessor to
the Strategic Growth Portfolio were allocated as follows: Money Market Fund
5%, Growth & Income Fund 41%, Growth Fund 35%, and International Growth Fund
19%.
(2) As of October 31, 1998, the allocation of the assets of the predecessor to
the Conservative Growth Portfolio were allocated as follows: Money Market
Fund 15%, Growth & Income Fund 36%, Growth Fund 25%, Emerging Growth Fund 5%
and International Growth Fund 19%.
(3) As of October 31, 1998, the allocation of the assets of the predecessor to
the Balanced Portfolio were allocated as follows: Money Market Fund 20%,
U.S. Government Securities Fund 15%, Growth & Income Fund 30%, Growth Fund
15%, International Growth Fund 18% and other assets 2%.
(4) As of October 31, 1998, the allocation of the assets of the predecessor to
the Flexible Income Portfolio were allocated as follows: Money Market Fund
33%, U.S. Government Securities Fund 24%, Income Fund 14%, Growth & Income
Fund 20%, Growth Fund 5% and other assets 4%.
(5) As of October 31, 1998, the allocation of the assets of the predecessor to
the Income Portfolio were allocated as follows: Money Market Fund 14%, Short
Term High Quality Bond Fund 10%, U.S. Government Securities Fund 29%, Income
Fund 33%, High Yield Fund 9% and other assets 5%.
34
<PAGE> 38
DESCRIPTION OF THE FUNDS AND PORTFOLIOS
This section provides a more complete description of the principal investment
strategies and risks of each Fund and Portfolio. The "Common Investment
Practices" section that follows provides additional information about the
principal investment strategies of the Funds and identifies the Funds and
Portfolios that may engage in such practices to a significant extent. You can
find additional descriptions of the Funds' strategies and risks in the Statement
of Additional Information ("SAI"). Except for policies explicitly identified as
"fundamental" in this Prospectus or the SAI, the investment objectives and
investment policies set forth in this Prospectus and the SAI are not fundamental
and may be changed at any time without shareholder consent. Except as otherwise
indicated, all policies and limitations are considered at the time of purchase;
the sale of securities is not required in the event of a subsequent change in
valuation or other circumstances.
MONEY FUNDS
The Money Funds invest only in U.S. dollar-denominated short-term, money market
securities. They will only purchase obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities or securities that are, or have
issuers that are,
- - rated by at least two nationally recognized statistical rating organizations
("NRSROs"), such as Standard & Poor's ("S&P") or Moody's Investors Service,
Inc. ("Moody's"), in one of the two highest rating categories for short-term
debt securities,
- - rated in one of the two highest categories for short-term debt by the only
NRSRO that has issued a rating, or
- - if not so rated, are determined to be of comparable quality.
A description of the rating systems of S&P and Moody's is contained in Appendix
A to this Prospectus and in the SAI. At the time of investment, no security
purchased by a Money Fund (except U.S. Government Securities subject to
repurchase agreements and variable rate demand notes) will have a maturity
exceeding 397 days, and each Money Fund's average portfolio maturity will not
exceed 90 days. The Money Funds will attempt to maintain a stable net asset
value ("NAV") of $1.00, but there can be no assurance that any Money Fund will
be able to do so.
MONEY MARKET FUND. To accomplish its objective, the Money Market Fund invests
solely in money market instruments that are selected from the following six
general categories:
- - U.S. Government securities;
- - short-term commercial notes (including asset-backed securities) issued
directly by U.S. and foreign businesses, banking institutions, financial
institutions (including brokerage, finance and insurance companies) and state
and local governments and municipalities to finance short-term cash needs;
- - obligations of U.S. and foreign banks with assets of more than $500 million;
- - securities issued by foreign governments, their agencies or instrumentalities
or by supranational entities;
- - short-term corporate obligations rated in one of the two highest rating
categories by Moody's or S&P; and
- - repurchase agreements.
TAX-EXEMPT MONEY MARKET FUND. The Tax-Exempt Money Market Fund invests
primarily in a diversified selection of Municipal Obligations, the income from
which is exempt from federal income tax. These obligations include fixed income
obligations issued by states, counties, cities or other governmental bodies that
generate income exempt from federal income tax. Short-term Municipal Obligations
may include, but are not limited to, tax anticipation notes, bond anticipation
notes, revenue anticipation notes and project notes, or other forms of
short-term municipal loans and obligations. Under normal market conditions, the
Fund will not invest more than 20% of its assets in obligations that pay
interest subject to alternative minimum tax ("AMT-Subject Bonds").
For temporary defensive purposes, the Fund may invest more than 20% of its
assets in instruments eligible for purchase by the Money Market Fund, which may
produce income that is not exempt from federal income taxes.
The Fund may also invest in variable rate demand obligations, stand-by
commitments, when-issued securities and forward commitments.
CALIFORNIA MONEY FUND. To accomplish its objective, the California Money Fund
invests in a portfolio of
35
<PAGE> 39
Municipal Obligations. It is a fundamental policy of the Fund to invest, under
normal market conditions, at least 80% of its total assets in Municipal
Obligations. The Fund normally invests at least 80% of its total assets in
Municipal Obligations issued by the State of California and its political
subdivisions and certain other governmental issuers (such as the Commonwealth of
Puerto Rico), which produce income that is exempt from California state personal
income tax. The Fund may also invest in AMT-Subject Bonds.
The Fund may also invest in variable rate demand obligations, stand-by
commitments, when-issued securities and forward commitments.
For temporary defensive purposes, the Fund may invest more than 20% of its
assets in instruments eligible for purchase by the Money Market Fund, which may
produce income that is not exempt from federal income taxes or California
personal income tax.
FIXED-INCOME FUNDS
SHORT TERM HIGH QUALITY BOND FUND. Although the Short Term High Quality Bond
Fund maintains a dollar-weighted average portfolio maturity of three years or
less, it may hold individual securities with remaining maturities of more than
three years. For purposes of the weighted average maturity calculation, a
mortgage instrument's average life will be considered to be its maturity, and
the date on which the interest rate of a floating rate security can next change
will be used in place of its maturity date.
The Fund will invest substantially all of its assets in debt securities that, at
the time of purchase, are rated in one of the top four rating categories by one
or more NRSROs or, if unrated, are judged to be of comparable quality by the
Advisor ("investment grade" securities). All debt securities purchased by the
Fund will be investment grade at the time of purchase. Under normal market
conditions, the Fund will invest at least 65% of its total assets in U.S.
Government securities, corporate debt obligations or mortgage-related securities
rated in one of the two highest categories by an NRSRO or determined by the
Advisor to be of comparable quality.
The Fund may invest in obligations issued or guaranteed by domestic and foreign
governments and government agencies and instrumentalities and in high-grade
corporate debt obligations, such as bonds, debentures, notes, equipment lease
and trust certificates, mortgage-backed securities, collateralized mortgage
obligations and asset-backed securities.
The Fund may invest up to 10% of its assets in foreign fixed-income securities,
primarily bonds of foreign governments or their political subdivisions, foreign
companies and supranational organizations, including non-U.S. dollar-denominated
securities and U.S. dollar-denominated debt securities issued by foreign issuers
and foreign branches of U.S. banks. Investment in foreign securities is subject
to special risks. The Fund may invest up to 5% of its assets in preferred stock.
The Fund may engage in certain options transactions, enter into financial
futures contracts and related options for the purpose of portfolio hedging and
enter into currency forwards or futures contracts and related options for the
purpose of currency hedging. The Fund may invest in certain illiquid
investments, such as privately placed obligations, including restricted
securities. The Fund may invest up to 10% of its assets in securities of
unaffiliated mutual funds. The Fund may borrow money or enter into reverse
repurchase agreements or dollar roll transactions in the aggregate up to 33 1/3%
of its total assets. The Fund may invest up to 25% of its total assets in
asset-backed securities, which represent a participation in, or are secured by
and payable from, a stream of payments generated by particular assets, most
often a pool of similar assets.
TARGET MATURITY 2002 FUND. The Target Maturity 2002 Fund will invest at least
90% of its net assets in zero-coupon U.S. Treasury securities maturing during
2002. Generally, the Fund will endeavor to purchase those zero-coupon securities
that mature toward the end of 2002. Until the Fund's target maturity date,
December 31, 2002, the Fund may also invest up to 10% of its net assets in
coupon-bearing (income-producing) U.S. Treasury securities maturing on or before
that date and money market instruments. If the Advisor determines that the
desired zero-coupon securities are not otherwise readily available for purchase,
the Fund may invest in zero-coupon and income-producing U.S. Government
Securities maturing on or before December 31, 2002. The Fund may also invest in
cash and cash equivalents for temporary defensive purposes.
The market value of fixed-income securities held by the Fund and, consequently,
the Fund's NAV, can be expected to vary inversely to changes in prevailing
interest rates. Consequently, redemptions made prior
36
<PAGE> 40
to December 31, 2002 may result in substantial capital gains or losses.
To the extent that the Fund holds zero-coupon securities that mature prior to
December 31, 2002, the proceeds of these securities at their maturity will be
reinvested in short-term coupon-bearing U.S. Treasury securities or money market
instruments until that date. Therefore, towards the end of the target maturity
year, 2002, the percentage of the Fund's assets invested in coupon-bearing U.S.
Treasury securities and money market instruments may increase up to 100%. After
December 31, 2002, the Fund intends to remain open, with all its assets invested
in money market instruments and U.S. Treasury securities with maturities of up
to three years. The Fund will then be managed as a relatively short-term bond
fund and the normal risks of a bond fund will apply.
To approximate the return you would receive if you purchased zero-coupon
securities directly, the Advisor manages the Fund to track as closely as
possible the price behavior of zero-coupon securities maturing towards the end
of 2002. To correct for factors such as shareholder purchase and redemption
activity (and related transaction costs) that differentiate investing in a
portfolio of zero-coupon securities from investing directly in a zero-coupon
security, the Advisor executes portfolio transactions necessary to accommodate
net shareholder activity each business day.
By adhering to these investment parameters, the Advisor expects that if you hold
your shares and do not make any redemptions until December 31, 2002, and you
reinvest all dividends and capital gain distributions, you will realize a
maturity value that does not differ substantially from the anticipated value at
maturity, as calculated on the purchase date. There can be no assurance,
however, that these objectives will be achieved. Furthermore, if you do not
reinvest all dividends and capital gain distributions, then the AVM cannot be
estimated accurately.
The Fund's AVM is calculated by the Advisor each day the Fund is open for
business. It may vary from day-to-day due to redemptions and distributions, as
well as transaction costs, interest rate changes, and the Advisor's efforts to
improve total return by taking advantage of market opportunities.
Relatively few mutual funds with investment objectives and policies similar to
those of the Fund have reached their target maturity date. As a result, there is
relatively little experience regarding the types of risk involved in investing
in the Fund.
U.S. GOVERNMENT SECURITIES FUND. The U.S. Government Securities Fund invests
primarily in a selection of obligations of the U.S. Government and its agencies.
The Fund may also invest in collateralized mortgage obligations or repurchase
agreements which are secured by those types of obligations. It is a fundamental
policy of the Fund to invest only in the following types of securities: (1) U.S.
Government securities, including mortgage-backed securities; (2) obligations
secured by the full faith and credit of the U.S. Government or its
instrumentalities; and (3) collateralized mortgage obligations and repurchase
agreements which are secured by obligations identified in (1) and (2) above. The
Fund may borrow up to 5% of its total net assets for emergency, non-investment
purposes. The Fund may also enter into dollar roll transactions.
INCOME FUND. The Income Fund invests most of its assets in
- - debt and convertible debt securities;
- - U.S. Government securities, including mortgage-backed securities issued by the
Government National Mortgage Association ("GNMA"), Federal National Mortgage
Association ("FNMA"), and Federal Home Loan Mortgage Corporation ("FHLMC") or
similar government agencies;
- - obligations of U.S. banks that belong to the Federal Reserve System;
- - preferred stocks and convertible preferred stocks;
- - the highest grade commercial paper as rated by S&P or Moody's; and
- - deposits in U.S. banks.
The Fund may also invest in securities denominated in foreign currencies and
receive interest, dividends and sale proceeds in foreign currencies. The Fund
may engage in foreign currency exchange transactions for hedging purposes in
connection with the purchase and sale of foreign securities or to protect
against changes in the value of specific securities held by the Fund. It may
also purchase and sell currencies on a spot (cash) basis, enter into forward
contracts to purchase or sell foreign currencies at a future date, and buy and
sell foreign currency futures contracts. The Fund may borrow up to 5% of its
total net assets for emergency,
37
<PAGE> 41
non-investment purposes, and may enter into dollar roll transactions. The Fund
may purchase securities of issuers which deal in real estate or securities which
are secured by interests in real estate, and it may acquire and dispose of real
estate or interests in real estate acquired through the exercise of its rights
as a holder of debt obligations secured by real estate or interests therein. The
Fund may also purchase and sell interest rate futures and options. The Fund may
invest up to 35% of its assets in lower-rated fixed-income securities (sometimes
called "junk bonds").
HIGH YIELD FUND. The High Yield Fund invests, under normal market conditions,
at least 65% of its assets in a diversified portfolio of fixed income securities
(including debt securities, convertible securities and preferred stocks) rated
lower than BBB by S&P or Baa by Moody's or of equivalent quality as determined
by the Advisor. The remainder of the Fund's assets may be invested in any other
securities the Advisor believes are consistent with the Fund's objective. These
may include higher rated fixed-income securities, common stocks and other equity
securities. The Fund may also invest in securities of foreign issuers and engage
in hedging strategies involving options.
MUNICIPAL FUNDS
Each of the Municipal Funds and the California Money Fund, invests most of its
assets in Municipal Obligations. Current federal income tax laws limit the types
and volume of bonds qualifying for the federal income tax exemption of interest
which may affect the ability of a Fund to purchase sufficient amounts of
tax-exempt securities.
TAX-EXEMPT BOND FUND. The Tax-Exempt Bond Fund will invest at least 80% of its
assets in Municipal Obligations, including inverse floating rate obligations,
under normal market conditions.
The Fund specifically limits these investments to: municipal bonds, municipal
notes and securities of unaffiliated tax-exempt mutual funds. The Fund also may
invest up to 35% of its assets in lower-rated securities.
In adverse markets, the Fund may seek to protect its investment position by
investing up to 50% of its portfolio in taxable short-term investments such as:
- - U.S. Government securities;
- - commercial paper rated in the highest grade by either S&P or Moody's;
- - obligations of U.S. banks;
- - time or demand deposits in U.S. banks; and
- - repurchase agreements relating to municipal securities or any of the foregoing
taxable instruments.
Interest income from these investments that is distributed to you by the Fund
may be taxable.
The Fund may also purchase and sell interest rate futures and options. The Fund
may also invest in AMT-Subject Bonds, although, so long as its name includes the
words "tax-exempt" and the SEC so requires, those investments will be limited to
20% of the Fund's total assets.
CALIFORNIA MUNICIPAL FUND. The California Municipal Fund invests primarily in
intermediate- and long-term California municipal obligations which are Municipal
Obligations that generate interest which is exempt from California state
personal income tax. It is a fundamental policy of the Fund that, under normal
market conditions, at least 80% of its total assets will be invested in these
obligations. The Fund may also invest in AMT-Subject Bonds.
The Fund will invest primarily in investment grade Municipal Obligations. The
Fund may also invest in inverse floating rate obligations, which are generally
more volatile than other types of Municipal Obligations.
The Fund may, under normal circumstances, invest up to 20% of its assets in
- - Municipal Obligations that are not exempt from California personal income tax;
- - short-term Municipal Obligations;
- - taxable cash equivalents, including short-term U.S. Government securities,
certificates of deposit and bankers' acceptances, commercial paper rated
Prime-1 by Moody's or A-1+ or A-1 by S&P, repurchase agreements (collectively
"Short-Term Instruments"); and
38
<PAGE> 42
- - securities of money market mutual funds (subject to the limitations set forth
under "Common Investment Practices").
The Fund may, for temporary defensive purposes, invest in these securities
without limitation. Also, as a non-diversified investment company under the 1940
Act, the Fund may invest a larger portion of its assets in the securities of a
small number of issuers.
CALIFORNIA INSURED INTERMEDIATE MUNICIPAL FUND. The California Insured
Intermediate Municipal Fund will invest primarily in insured intermediate-term
California Municipal Obligations. It is a fundamental policy of the Fund that it
will invest at least 80% of the value of its total assets in Insured California
Municipal Obligations (except when maintaining a temporary defensive position).
Under normal market conditions, the dollar-weighted average maturity of the
securities in which the Fund invests will be more than three years but less than
ten years. The maximum effective maturity (the maturity date without regard to
call provisions, except that for pooled single family mortgage securities
effective maturity is the average life of the underlying mortgage obligations)
of any Municipal Obligation in which the Fund invests will be fifteen years.
All of the Municipal Obligations in which the Fund invests, taking into account
any insurance, are investment grade securities. For more information, see "About
Bond Insurance" below.
The Fund may invest without limitation in AMT-Subject Bonds.
Under normal market conditions, the Fund may invest up to 20% of its assets in
- - uninsured Municipal Obligations;
- - Municipal Obligations that are not exempt from California personal income tax;
and
- - short-term Municipal Obligations and taxable cash equivalents, including
Short-Term Instruments and securities of unaffiliated money market mutual
funds (subject to the limitations set forth under "Common Investment
Practices") and may, for temporary defensive purposes, invest in these
securities without limitation.
In addition, the Fund may invest in inverse floating rate obligations. The Fund
may engage in hedging transactions through the use of financial futures and
options thereon. It may also purchase and sell securities on a when-issued or
forward commitment basis, invest in mortgage-backed securities, enter into
repurchase agreements, invest in stand-by commitments and lend portfolio
securities. The Fund may invest in floating rate and variable rate obligations,
including participation interests therein (referred to collectively as "Hedging
Transactions").
FLORIDA INSURED MUNICIPAL FUND. The Florida Insured Municipal Fund will invest
primarily in insured, intermediate- and long-term Municipal Obligations issued
by the State of Florida and its political subdivisions. The Fund will invest
primarily in investment-grade Municipal Obligations. It is a fundamental policy
of the Fund that it will invest at least 80% of the value of its total assets
(except when maintaining a temporary defensive position) in insured Florida
Municipal Obligations. See "About Bond Insurance" below. The Fund may invest
without limitation in AMT-Subject Bonds. The Fund may also invest in inverse
floating rate obligations.
The Fund may invest up to 20% of its total assets in:
- - uninsured Municipal Obligations;
- - Municipal Obligations that are not exempt from Florida intangible personal
property tax; and
- - Short-Term Instruments and securities of unaffiliated money market mutual
funds and, for temporary defensive purposes, invest in these securities
without limitation.
Florida does not impose an income tax on individuals. Distributions of
investment income and capital gains by the Fund will be subject to Florida
corporate income taxes. Florida imposes a tax on intangible personal property
owned by Florida residents. Based on a ruling the Fund has received from the
Florida Department of Revenue, if the Fund's assets consist, on the last
business day of the calendar year, solely of assets exempt from Florida
intangible personal property tax, shares of the Fund owned by Florida residents
will be exempt from Florida intangible personal property tax. Assets exempt from
Florida intangible personal property tax include Florida Municipal Obligations;
obligations of the U. S. Government or its agencies; and cash.
ABOUT BOND INSURANCE. The insured Municipal Obligations in which the California
Insured Intermediate Municipal and Florida Insured Municipal Funds will invest
and the other Municipal Funds may invest are
39
<PAGE> 43
insured under insurance policies that relate to the specific Municipal
Obligation in question and that are issued by an insurer having a claims-paying
ability rated AAA by S&P or Aaa by Moody's. This insurance is generally
non-cancelable and will continue in force so long as the Municipal Obligations
are outstanding and the insurer remains in business.
The insured Municipal Obligations are insured as to the scheduled payment of all
installments of principal and interest as they fall due. The insurance covers
only credit risk and therefore does not guarantee the market value of the
obligations in a Fund's investment portfolio or a Fund's NAV. The Fund's NAV
will continue to fluctuate in response to fluctuations in interest rates. A
Fund's investment policy requiring investment in insured Municipal Obligations
will not affect the Fund's ability to hold its assets in cash or to invest in
escrow-secured and defeased bonds or in certain short-term tax-exempt
obligations, or affect its ability to invest in uninsured taxable obligations
for temporary or liquidity purposes or on a defensive basis.
EQUITY FUNDS
BOND & STOCK FUND. Under normal market conditions, at least 25% of the Bond &
Stock Fund's assets will be invested in fixed-income securities, including
preferred stocks and that portion of the value of convertible securities which
is not attributable to a conversion feature. The Fund may invest in money market
instruments for temporary or defensive purposes. The Fund may invest in
fixed-income securities of any maturity, including mortgage-backed securities,
U.S. Government securities and asset-backed securities, and may also invest up
to 35% of its assets, in below investment grade bonds (sometimes called junk
bonds). The Fund may purchase or sell U.S. Government securities or
collateralized mortgage obligations on "when-issued" or "delayed-delivery" basis
in an aggregate of up to 20% of the market value of its total net assets. The
Fund may invest up to 25% of its assets in real estate investment trusts, known
as "REITs." The Fund may write (sell) covered call options. The Fund may invest
up to 25% of its assets in U.S. dollar-denominated securities of foreign
issuers.
GROWTH & INCOME FUND. The Growth & Income Fund invests primarily in common
stocks. The Fund may also invest in money market instruments for temporary or
defensive purposes. To limit risk, repurchase agreements maturing in more than
seven days will not exceed 10% of the Fund's total assets. The Fund may invest
up to 25% of its assets in REITs. The Fund may invest in fixed-income securities
of any maturity, including mortgage-backed securities, and may invest up to 35%
of its assets in below investment grade fixed-income securities.
The Fund may purchase or sell U.S. Government securities or collateralized
mortgage obligations on a "when-issued" or "delayed-delivery" basis in an
aggregate up to 20% of the market value of its total assets minus total
liabilities (except for the obligations created by these commitments). The Fund
may write (sell) covered call options. The Fund may invest up to 25% of its
assets in U.S. dollar-denominated securities of foreign issuers.
NORTHWEST FUND. The Northwest Fund invests in common stocks of companies
located or doing business in the Northwest states of Alaska, Idaho, Montana,
Oregon and Washington. Under normal circumstances, at least 65% of the Fund's
total assets will be invested in companies whose principal executive offices are
located in one of those states.
The Fund is permitted to invest in money market instruments for temporary or
defensive purposes. The Fund may invest up to 25% of its assets in REITs, and
may write (sell) covered call options.
Because the Fund concentrates its investments in companies located or doing
business in the Northwest, the Fund is not intended as a complete investment
program, and could be adversely impacted by economic trends within the
five-state area.
GROWTH FUND. The Growth Fund invests primarily in common stocks believed to
have significant appreciation potential. The Fund also may invest in debt
securities, bonds, convertible bonds, preferred stock and convertible preferred
stock, including up to 35% of its assets in non-investment-grade debt
securities.
The Fund may invest up to 25% of its assets in foreign securities, usually
foreign common stocks, and up to 5% of its assets in securities of companies in
(or governments of) developing or emerging countries (sometimes referred to as
"emerging markets"). The Fund may also engage in certain options transactions,
enter into financial futures contracts and related options for the purpose of
portfolio hedging and enter into currency forwards or futures contracts and
related options for the purpose of currency hedging.
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<PAGE> 44
EMERGING GROWTH FUND. The Emerging Growth Fund invests primarily in equity
securities of companies with market capitalization of less than $1.4 billion at
the time of purchase. In addition to common stock, the Fund's equity securities
may include convertible bonds, convertible preferred stock and warrants to
purchase common stock, as well as cash and cash equivalents. The Fund may invest
up to 25% of its assets in securities of foreign issuers and up to 5% of its
assets in securities in developing or emerging countries. The Fund may invest up
to 35% of its assets in non-investment-grade debt securities ("junk bonds") if
the Advisor believes that doing so will be consistent with the goal of capital
appreciation.
INTERNATIONAL GROWTH FUND. The International Growth Fund invests primarily in
equity securities of issuers located in foreign countries that the Fund's
sub-advisor believes present attractive investment opportunities. Criteria for
determining the appropriate distribution of investments among various countries
and regions include prospects for relative economic growth, expected levels of
inflation, government policies influencing business conditions, the outlook for
currency relationships and the range of investment opportunities available to
international investors. The relative strength or weakness of a particular
country's currency or economy may dictate whether securities of issuers located
in such country will be purchased or sold. The Fund may invest without limit in
the securities of issuers located in any one country (except as provided below
with respect to emerging markets countries). The Fund will emphasize established
companies, although it may invest in companies of varying sizes as measured by
assets, sales and capitalization.
The Fund invests in common stock and may invest in other securities with equity
characteristics, such as trust or limited partnership interests, preferred
stock, rights and warrants. The Fund may also invest in convertible securities.
The Fund invests in securities listed on foreign or domestic securities
exchanges and securities traded in foreign or domestic over-the-counter markets,
and may invest in restricted or unlisted securities.
The Fund intends to stay fully invested in the securities described above to the
extent practical. Fund assets may be invested in short-term debt instruments to
meet anticipated day-to-day operating expenses, and for temporary defensive
purposes. In addition, when the Fund experiences large cash inflows, it may hold
short-term investments until desirable equity securities become available. These
short-term instruments are generally rated A or higher by Moody's or S&P, or, if
unrated, of comparable quality in the opinion of the Fund's sub-advisor.
The Fund may invest up to 30% of its assets in the securities of companies in or
governments of developing or emerging markets, provided that no more than 5% of
the Fund's total assets are invested in any one emerging markets country. For
temporary defensive purposes, the Fund may invest a major portion of its assets
in securities of U.S. issuers. Furthermore, the Fund may invest up to 5% of its
total assets in investment grade corporate debt securities having maturities
longer than one year, including Euro-currency instruments and securities.
STRATEGIC ASSET MANAGEMENT PORTFOLIOS
The Portfolios offer you the opportunity to pursue a variety of specially
constructed asset allocation strategies. The Portfolios are designed for
long-term investors seeking total return for tax-advantaged retirement and other
long-term investment or savings accounts.
In order to achieve its investment objective, each Portfolio typically allocates
its assets, within predetermined percentage ranges, among certain of the Funds.
Even so, the Portfolios may temporarily exceed one or more of the applicable
percentage limits for short periods. The percentages reflect the extent to which
each Portfolio will normally invest in the particular market segment represented
by each underlying Fund, and the varying degrees of potential investment risk
and reward represented by each Portfolio's investments in those market segments
and their corresponding Funds. The Advisor may alter these percentage ranges
when it deems appropriate. The assets of each Portfolio will be allocated among
the Funds in accordance with its investment objective, the Advisor's outlook for
the economy and the financial markets, and the relative market valuations of the
Funds.
In addition, in order to meet liquidity needs or for temporary defensive
purposes, each Portfolio may invest, without limit, directly in cash stock or
bond
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<PAGE> 45
index futures and options thereon and the following short-term instruments:
- - short-term obligations of the U.S. Government, its agencies,
instrumentalities, authorities or political subdivisions;
- - other short-term debt securities rated A or higher by Moody's or S&P, or if
unrated, of comparable quality in the opinion of the Advisor;
- - commercial paper, including master notes;
- - bank obligations, including negotiable certificates of deposit, time deposits
and bankers' acceptances; and
- - repurchase agreements.
At the time a Portfolio invests in any commercial paper, bank obligations or
repurchase agreements, the issuer must have outstanding debt rated A or higher
by Moody's or S&P; the issuer's parent corporation, if any, must have
outstanding commercial paper rated Prime-1 by Moody's or A-1 by S&P; or, if no
such ratings are available, the investment must be of comparable quality in the
opinion of the Advisor. In addition to purchasing shares of the Funds, a
Portfolio may use futures contracts and options in order to remain effectively
fully invested in proportions consistent with the Advisor's current asset
allocation strategy for the Portfolio. Specifically, each Portfolio may enter
into futures contracts and options thereon, provided that the aggregate deposits
required on these contracts do not exceed 5% of the Portfolio's total assets. A
Portfolio may also use futures contracts and options for bona fide hedging
transactions. Futures contracts and options may also be used to reallocate the
Portfolio's assets among asset categories while minimizing transaction costs, to
maintain cash reserves while simulating full investment, to facilitate trading,
to seek higher investment returns, or to simulate full investment when a futures
contract is priced attractively or is otherwise considered more advantageous
than the underlying security or index. As a fundamental policy, which may not be
changed without shareholder vote, each Portfolio will concentrate its
investments in shares of the Funds.
COMMON INVESTMENT PRACTICES
The next several pages contain more detailed information about types of
securities in which the Funds may invest, and strategies which the Advisor or
the respective sub-advisor may employ in pursuit of that Fund's investment
objective and a summary of risks and restrictions associated with these
securities and investment practices. For more information, see the SAI.
BORROWING. The Funds may borrow money from banks solely for temporary or
emergency purposes, subject to various limitations. If a Fund borrows money, its
share price may be subject to greater fluctuation until the borrowing is paid
off. For the California Money, Short Term High Quality Bond, Target Maturity
2002, California Municipal, California Insured Intermediate Municipal, Florida
Insured Municipal, Growth, International Growth and Emerging Growth Funds, and
for the Portfolios, such borrowings may not exceed 30% of total assets. The
Money Market, Tax-Exempt Money Market, U.S. Government Securities, Income, High
Yield, Tax-Exempt Bond, Bond & Stock, Growth & Income and Northwest Funds may
borrow up to 5% of their total assets for emergency purposes. In addition, the
Money Market and Tax-Exempt Money Market Funds may borrow up to one-third of
their total assets to meet redemption requests. The Short Term High Quality Bond
Fund is prohibited from borrowing money or entering into reverse repurchase
agreements or dollar roll transactions (described below) in the aggregate in
excess of one-third of the Fund's total assets (after giving effect to such
borrowings and transactions). If a Fund makes additional leverage investments
while borrowings are outstanding, this will have the effect of leveraging the
Fund. The California Money, Short Term High Quality Bond, Target Maturity 2002,
California Municipal, California Insured Intermediate Municipal, Florida Insured
Municipal, Growth, International Growth and Emerging Growth Funds and the
Portfolios may not purchase additional securities when borrowings, including
reverse repurchase agreements, for each of these except the Short Term High
Quality Bond Fund, exceed 5% of total assets. Leveraging will magnify declines
as well as increases in the NAV of a Fund's or Portfolio's shares and in the
yield on a Fund's or Portfolio's investments. Each of the foregoing percentage
limitations on borrowings is a fundamental policy of the respective Funds and
Portfolios.
The Income, Short Term High Quality Bond and U.S. Government Securities Funds
may enter into DOLLAR ROLLS. A Fund enters into a DOLLAR ROLL by selling
securities for delivery in the current month and simultaneously contracting to
repurchase, typically in
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<PAGE> 46
30 or 60 days, substantially similar (same type, coupon and maturity) securities
on a specified future date. Under the Investment Company Act of 1940, as amended
(the "1940 Act"), this may be considered borrowing from the counterparty and may
produce similar leveraging effects. The proceeds of the initial sale of
securities in the dollar roll transactions, for example, may be used to purchase
long-term securities which will be held during the roll period. To the extent
that the proceeds of the initial sale of securities are invested in bonds, the
Fund will be subject to market risk on those bonds as well as similar risk with
respect to the securities the Fund is required to repurchase.
Each of the Short Term High Quality Bond, California Municipal, California
Insured Intermediate Municipal, Florida Insured Municipal, Growth, International
Growth and Emerging Growth Funds may engage in REVERSE REPURCHASE AGREEMENTS.
Reverse repurchase agreements involve the risk that the market value of the
securities sold by a Fund may decline below the repurchase price of the
securities and, if the proceeds from the reverse repurchase agreement are
invested in securities, that the market value of the securities bought may
decline at the same time there is decline in the securities sold (and required
to be repurchased).
FIXED-INCOME SECURITIES. The market value of fixed-income securities held by a
Fund and, consequently, the value of the Fund's shares can be expected to vary
inversely to changes in prevailing interest rates. You should recognize that, in
periods of declining interest rates, the Fund's yield will tend to be somewhat
higher than prevailing market rates and, in periods of rising interest rates,
the Fund's yield will tend to be somewhat lower. Also, when interest rates are
falling, any net inflow of money to the Fund will likely be invested in
instruments producing lower yields than the balance of its assets, thereby
reducing current yield. In periods of rising interest rates, the opposite can be
expected to occur. The prices of longer maturity securities are also subject to
greater market fluctuations as a result of changes in interest rates. In
addition, obligations purchased by a Fund may be subject to the risk of default.
Fixed-Income securities, including Municipal Obligations, rated in the lower end
of the investment-grade category (Baa or BBB) may have speculative
characteristics and may be more sensitive to economic changes and changes in the
financial condition of their issuers.
The fixed-income securities in which the Funds may invest include ZERO-COUPON
SECURITIES, which make no payments of interest or principal until maturity.
Because these securities avoid the need to make current interest payments, they
may involve greater credit risks than other fixed-income securities.
FLOATING RATE, INVERSE FLOATING RATE AND VARIABLE RATE INVESTMENTS. The
Municipal Funds, the Fixed-Income Funds and the Growth & Income Fund may
purchase floating rate, inverse floating rate and variable rate obligations,
including participation interests therein.
The Money Funds may purchase floating rate and variable rate obligations,
including participation interests therein.
The Fixed-Income Funds may purchase mortgage-backed securities that are floating
rate, inverse floating rate and variable rate obligations. Municipal Obligations
purchased by the Municipal Funds may include floating rate, inverse floating
rate and variable rate obligations, including variable rate demand notes issued
by industrial development authorities and other governmental entities, as well
as participation interests therein. Although variable rate demand notes are
frequently not rated by credit rating agencies, a Fund may purchase unrated
notes that are determined by the Advisor or the Fund's sub-advisor to be of
comparable quality at the time of purchase to rated instruments that may be
purchased by the Fund. The absence of an active secondary market could make it
difficult for a Fund to dispose of these securities in the event the issuer of
the note were to default on its payment obligations, and the Fund could, for
this or other reasons, suffer a loss as a result of the default.
Each Fund may also invest in securities representing interests in tax-exempt
securities, known as inverse floating obligations or "residual interest bonds,"
which pay interest rates that vary inversely with changes in the interest rates
of specified short-term tax-exempt securities or an index of short-term
tax-exempt securities. The interest rates on inverse floating-rate obligations
or residual interest bonds will typically decline as short-term market interest
rates increase and increase as short-term market rates decline. These securities
have the effect of providing a degree of investment leverage. They will
generally respond to changes in market interest rates more rapidly than
fixed-rate long-term securities (typically twice as fast). As a result, the
market values of inverse floating-rate obligations
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<PAGE> 47
and residual interest bonds will generally be more volatile than the market
values of fixed-rate tax-exempt securities.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS AND CURRENCY MANAGEMENT. The Equity
Funds and Fixed-Income Funds (with the exception of the Target Maturity 2002,
U.S. Government Securities, Bond & Stock, Growth & Income and Northwest Funds)
may, subject to the investment limitations stated elsewhere in this Prospectus
and the SAI, engage in foreign currency exchange transactions. Funds that buy
and sell securities denominated in currencies other than the U.S. dollar, and
receive interest, dividends and sale proceeds in currencies other than the U.S.
dollar, may enter into foreign currency exchange transactions to convert to and
from different foreign currencies and to convert foreign currencies to and from
the U.S. dollar. These Funds either enter into these transactions on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or use forward contracts to purchase or sell foreign currencies.
These Funds also may enter into foreign currency hedging transactions in an
attempt to protect against changes in foreign currency exchange rates between
the trade and settlement dates of specific securities transactions or changes in
foreign currency exchange rates that would adversely affect a portfolio position
or an anticipated portfolio position. These transactions tend to limit any
potential gain that might be realized should the value of the hedged currency
increase. The precise matching of the forward contract amounts and the value of
the securities involved will not generally be possible because the future value
of these securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. The projection of currency market
movements is extremely difficult, and the successful execution of a hedging
strategy is highly uncertain. In addition, when the Advisor or a Fund's
sub-advisor believes that the currency of a specific country may deteriorate
against another currency, it may enter into a forward contract to sell the less
attractive currency and buy the more attractive one. The amount in question
could be less than or equal to the value of the Fund's securities denominated in
the less attractive currency. The Fund may also enter into a forward contract to
sell a currency which is linked to a currency or currencies in which some or all
of the Fund's portfolio securities are or could be denominated, and to buy U.S.
dollars. These practices are referred to as "cross hedging" and "proxy hedging."
Forward currency exchange contracts are agreements to exchange one currency for
another - for example, to exchange a certain amount of U.S. dollars for a
certain amount of Japanese yen - at a future date and specified price. Because
there is a risk of loss to the Fund if the other party does not complete the
transaction, the Advisor or the Fund's sub-advisor will enter into forward
currency exchange contracts only with parties approved by the Trusts' Board of
Trustees or persons acting pursuant to their direction.
Each of the Funds other than the Money Funds (with the exception of the Target
Maturity 2002, U.S. Government Securities Bond & Stock, Growth & Income and
Northwest Funds) may invest in securities which are indexed to certain specific
foreign currency exchange rates. These securities expose you to the risk of
significant changes in rates of exchange between the U.S. dollar and any foreign
currency to which an exchange rate-related security is linked. In addition,
there is no assurance that sufficient trading interest to create a liquid
secondary market will exist for a particular exchange rate-related security due
to conditions in the debt and foreign currency markets. Illiquidity in the
forward foreign exchange market and the high volatility of the foreign exchange
market may from time to time combine to make it difficult to sell an exchange
rate-related security prior to maturity without incurring a significant loss.
While the foregoing actions are intended to protect the Fund from adverse
currency movements, there is a risk that currency movements involved will not be
properly anticipated, and there can be no assurance that such transactions will
be available or that the Funds will use such transactions even if they are
available. Use of currency hedging techniques may also be limited by the need to
protect the status of the Fund as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code").
FOREIGN INVESTMENTS. The Money Market, Bond & Stock, Growth & Income and
Northwest Funds may invest in securities of foreign issuers if such securities
are denominated in U.S. dollars. The High Yield, Income, Short Term High Quality
Bond, Emerging Growth, Growth and International Growth Funds may invest in both
U.S. dollar denominated and non-U.S. dollar denominated foreign securities.
There are
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<PAGE> 48
certain risks involved in investing in foreign securities, including those
resulting from
- - fluctuations in currency exchange rates,
- - devaluation of currencies,
- - future political or economic developments and the possible imposition of
currency exchange blockages or other foreign governmental laws or
restrictions,
- - reduced availability of public information concerning issuers, and
- - the fact that foreign companies are not generally subject to uniform
accounting, auditing and financial reporting standards or to other regulatory
practices and requirements comparable to those applicable to domestic
companies.
Moreover, securities of many foreign companies may be less liquid and their
prices more volatile than those of securities of comparable domestic companies.
In addition, there is the possibility of expropriation, nationalization,
confiscatory taxation and limitations on the use or removal of funds or other
assets of the Funds, including the withholding of dividends. The risks
associated with foreign securities are generally greater for securities of
issuers in emerging markets.
In addition, while the volume of transactions effected on foreign stock
exchanges has increased in recent years, in most cases it remains well below
that of the New York Stock Exchange. Accordingly, the Funds' foreign investments
may be less liquid and their prices may be more volatile than comparable
investments in securities of U.S. companies. Moreover, the settlement periods
for foreign securities, which are often longer than those for securities of U.S.
issuers, may affect portfolio liquidity. In buying and selling securities on
foreign exchanges, the Funds normally pay fixed commissions that are generally
higher than the negotiated commissions charged in the United States. In
addition, there is generally less governmental supervision and regulation of
securities exchanges, brokers and issuers in foreign countries than in the
United States. Foreign securities generally are denominated and pay dividends or
interest in foreign currencies, and the value of the Funds' net assets as
measured in U.S. dollars will be affected favorably or unfavorably by changes in
exchange rates.
The Equity Funds, the Short Term High Quality Bond Fund, the Income Fund and the
High Yield Fund may invest in securities of foreign issuers directly or in the
form of AMERICAN DEPOSITARY RECEIPTS ("ADRs"), EUROPEAN DEPOSITARY RECEIPTS
("EDRs"), GLOBAL DEPOSITARY RECEIPTS ("GDRs") or other similar securities
representing securities of foreign issuers. These securities may not be
denominated in the same currency as the securities they represent. ADRs are
receipts typically issued by a United States bank or trust company evidencing
ownership of the underlying foreign securities. EDRs, which are sometimes
referred to as Continental Depositary Receipts ("CDRs"), are receipts issued by
a European financial institution evidencing a similar arrangement. Generally,
ADRs, in registered form, are designed for use in the United States securities
markets, and EDRs, in bearer form, are designed for use in European securities
markets.
GEOGRAPHIC CONCENTRATION. Potential investors in the Northwest Fund, the
Municipal Funds (other than the Tax-Exempt Bond Fund) and the California Money
Fund should consider the possibly greater risk arising from the geographic
concentration of their investments, as well as the current and past financial
condition of California and Florida municipal issuers in the case of the
Municipal Funds. In addition to factors affecting the state or regional economy,
certain California and Florida constitutional amendments, legislative measures,
executive orders, administrative regulations, court decisions and voter
initiatives could result in certain adverse consequences affecting California
and Florida municipal obligations, respectively. See the SAI for a more detailed
description of these risks.
HOLDINGS IN OTHER INVESTMENT COMPANIES. When the Advisor or a Fund's
sub-advisor believes that it would be beneficial to the Fund, each of the
Tax-Exempt Money Market, California Money, California Insured Intermediate
Municipal, California Municipal, Florida Insured Municipal, Short Term High
Quality Bond, Tax-Exempt Bond, Emerging Growth, Growth and International Growth
Funds may invest up to 10% of its assets in securities of mutual funds that are
not affiliated with the Advisor or the Fund's sub-advisor. As a shareholder in
any such mutual fund, the Fund will bear its ratable share of the mutual fund's
expenses, including management fees, and will remain subject to the Fund's
advisory and administration fees with respect to the assets so invested. In
addition, the Growth Fund may invest Fund assets in money market funds
affiliated with Janus (its sub-advisor), provided that Janus remits to the Fund
the amount of any
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<PAGE> 49
investment advisory and administrative services fees paid to Janus as the
investment manager of the money market fund.
ILLIQUID SECURITIES AND RESTRICTED SECURITIES. Up to 10% of the net assets of
each Money Fund and up to 15% of the net assets of every other Fund may be
invested in securities that are not readily marketable. Such illiquid securities
may include:
- - repurchase agreements with maturities greater than seven calendar days;
- - time deposits maturing in more than seven calendar days;
- - to the extent a liquid secondary market does not exist for the instruments,
futures contracts and options thereon;
- - certain over-the-counter options, as described in the SAI;
- - certain variable rate demand notes having a demand period of more than seven
days; and
- - securities the disposition of which is restricted under federal securities
laws (excluding certain Rule 144A securities, as described below).
Securities which may be resold pursuant to Rule 144A under the Securities Act of
1933, as amended, will not be included for the purposes of these restrictions,
so long as such securities meet liquidity guideline established by the Trusts'
Board of Trustees.
Each of the Funds may purchase RESTRICTED SECURITIES (provided such securities
are, in the case of the Money Market, Tax-Exempt Money Market, Income, U.S.
Government Securities, Tax-Exempt Bond, Bond & Stock, Growth & Income and
Northwest Funds, eligible for resale pursuant to Rule 144A under the Securities
Act of 1933, as amended). Although recent and ongoing developments in the
securities markets have resulted in greater trading of restricted securities,
making restricted securities, in many instances, more liquid than they once were
considered to be, investing in restricted securities could increase the level of
illiquidity of the portfolio securities of a Fund. This could make it more
difficult for a Fund to fulfill shareholder redemption orders on a timely basis.
If a Fund were required to sell these securities on short notice, it might be
unable to obtain fair market value.
LENDING OF SECURITIES. The California Money, California Insured Intermediate
Municipal, Short Term High Quality Bond, Emerging Growth, Growth and
International Growth Funds each may lend portfolio securities up to 20% of total
assets to brokers and other financial organizations. The Bond & Stock, Growth &
Income and Northwest Funds may lend portfolio securities up to 33% of total
assets. These transactions involve a risk of loss to the Fund if the
counterparty should fail to return such securities to the Fund upon demand.
LOWER-RATED SECURITIES. The Income, Tax-Exempt Bond, Bond & Stock, Emerging
Growth, Growth & Income and Growth Funds may each invest up to 35% of their
total assets in non-investment grade debt securities, sometimes referred to as
"junk bonds." The High Yield Fund may invest all of its assets in these
securities, and will generally invest at least 65% of its assets in them.
Non-investment-grade debt securities usually entail greater risk (including the
possibility of default or bankruptcy of the issuers), generally involve greater
price volatility and risk of principal and income, and may be less liquid than
higher-rated securities. Both price volatility and illiquidity may make it
difficult for a Fund to value or to sell certain of these securities under
certain market conditions. These securities are often considered to be
speculative and involve greater risk of default or price changes due to changes
in the issuer's creditworthiness. The market prices of these securities may
fluctuate more than higher-rated securities and may decline significantly in
periods of general economic difficulty, which may follow periods of rising
interest rates. For further information, see Appendix A to this Prospectus.
The following table shows, for each indicated Fund, the average percentage of
its total assets that was invested during the past fiscal year in securities
assigned to the various rating categories by S&P, or if unrated by S&P, assigned
to comparable rating categories by another NRSRO, and in unrated securities
determined by the Advisor to be of comparable quality:
<TABLE>
<CAPTION>
Income Tax-Exempt Bond & Stock
S&P RATING Fund Bond Fund Fund
- -----------------------------------------------------------------
<S> <C> <C> <C>
AAA (or US Treasury)....... 13 38 66
AA......................... 3 26 0
A.......................... 25 16 8
BBB........................ 44 14 22
BB......................... 4 2 4
B.......................... 4 1 0
Not Rated.................. 6 3 0
</TABLE>
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<PAGE> 50
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. The California Insured
Intermediate Municipal, California Municipal, Florida Insured Municipal, Short
Term High Quality Bond, U.S. Government Securities, Emerging Growth and
International Growth Funds may invest in GOVERNMENT STRIPPED MORTGAGE-BACKED
SECURITIES issued or guaranteed by GNMA, FNMA or FHLMC. These securities
represent beneficial ownership interests in either periodic principal
distributions (PRINCIPAL-ONLY SECURITIES or "PO strips") or interest
distributions (INTEREST-ONLY SECURITIES or "IO strips") on mortgage-backed
certificates issued by GNMA, FNMA or FHLMC, as the case may be. The mortgages
backing GNMA certificates include conventional 30-year fixed-rate mortgages,
15-year fixed-rate mortgages, graduated payment mortgages, and adjustable-rate
mortgages.
The U.S. Government guarantees the timely payment of interest and principal for
these securities. However, the guarantees do not extend to the securities' yield
or value, which are likely to vary inversely with fluctuations in interest
rates. Also, the guarantees do not extend to the yield or value of the Fund's
shares. Investing in government stripped mortgage-backed securities involves the
risks normally associated with investing in mortgage-backed securities issued by
government or government-related entities. In addition, the yields on PO and IO
strips are extremely sensitive to prepayments on the underlying PO and IO
strips, mortgage loans. If a decline in the level of prevailing interest rates
results in a higher than anticipated rate of principal prepayment, distributions
of principal will be accelerated, thereby reducing the yield to maturity on IO
strips and increasing the yield to maturity on PO strips. Conversely, if an
increase in the level of prevailing interest rates results in a rate of
principal prepayments lower than anticipated, distributions of principal will be
deferred, thereby increasing the yield to maturity on IO strips and decreasing
the yield to maturity on PO strips. Sufficiently high prepayment rates could
result in the Fund losing some or all of its initial investment in an IO strip.
The Funds will acquire government stripped mortgage-backed securities only if a
liquid secondary market for the securities exists at the time of acquisition.
However, there can be no assurance that the Funds will be able to effect a trade
of a government stripped mortgage-backed security at a time when it wishes to do
so.
In addition, the Income, Bond & Stock and Growth & Income Funds may invest in
commercial mortgage-backed securities, which are similar to those securities,
except that they are not issued or guaranteed by governmental entities.
Commercial mortgage-backed securities include collateralized mortgage
obligations and real estate mortgage investment conduits ("REMICs"). While
commercial mortgage-backed securities are generally structured with one or more
types of credit enhancement, they typically lack a guarantee by an entity having
the credit status of a governmental agency or instrumentality.
To the extent that a Fund purchases mortgage-backed securities at a premium,
mortgage foreclosures and payments and prepayments of principal (which may be
made at any time without penalty) will tend to result in the loss of that
premium. The yield of a Fund may be affected by reinvestment of prepayments at
higher or lower rates than the original investment. In addition, like other debt
securities, the value of mortgage-related securities, including government and
government-related mortgage pools, will generally fluctuate in response to
market interest rates.
The Money Market, Tax-Exempt Money Market, Short Term High Quality Bond, Bond &
Stock, Emerging Growth and High Yield Funds may purchase asset-backed
securities. These Funds will not invest more than 10% of their total assets in
asset-backed securities, except that the Short Term High Quality Bond Fund may
invest up to 25% of its total assets in such securities. Asset-backed securities
are structured like mortgage-backed securities, but instead of mortgage loans or
interests in mortgage loans, the underlying assets may include such items as
motor vehicle installment sales or installment loan contracts, leases of various
types of real and personal property, including home equity loans, and
receivables from credit card agreements. The ability of an issuer of
asset-backed securities to enforce its security interest in the underlying
assets may be limited.
MUNICIPAL OBLIGATIONS, LEASES AND AMT-SUBJECT BONDS. The two principal
classifications of municipal bonds are "general obligation" and "revenue" bonds.
General obligation bonds are secured by the issuer's pledge of its full faith
and credit, with either limited or unlimited taxing power for the payment of
principal and interest. Revenue bonds are not supported by the issuer's full
taxing authority. Generally, they are payable only from the revenues of a
particular facility,
47
<PAGE> 51
a class of facilities, or the proceeds of another specific revenue source.
The Tax-Exempt Money Market, California Money and California Insured
Intermediate Municipal Funds may acquire participations in lease obligations or
installment purchase contract obligations (collectively, "lease obligations") of
municipal authorities or entities. Lease obligations do not constitute general
obligations of the municipality for which the municipality's taxing power is
pledged. Certain of these lease obligations contain "non-appropriation" clauses,
which provide that the municipality has no obligation to make lease or
installment purchase payments in future years unless money is appropriated for
such purpose on a yearly basis. In addition to the "non-appropriation" risk,
these securities represent a relatively new type of financing that has not yet
developed the depth of marketability associated with more conventional bonds. In
the case of a "non-appropriation" lease, the Fund's ability to recover under the
lease in the event of non-appropriation or default will be limited solely to the
repossession of the leased property, and in any event, foreclosure of that
property might prove difficult.
"AMT-Subject Bonds" are Municipal Obligations issued to finance certain "private
activities," such as bonds used to finance airports, housing projects, student
loan programs and water and sewer projects. Interest on AMT-Subject Bonds is a
specific tax preference item for purposes of the federal individual and
corporate alternative minimum taxes. See "Dividends, Capital Gains and Taxes"
for a discussion of the tax consequences of investing in AMT-Subject Bonds.
Current federal income tax laws limit the types and volume of bonds qualifying
for the federal income tax exemption of interest, which may have an effect upon
the ability of the Fund to purchase sufficient amounts of tax-exempt securities.
REAL ESTATE INVESTMENT TRUSTS. The Income, Bond & Stock, Growth & Income and
Northwest Funds may invest in real estate investment trusts, known as "REITs."
REITs involve certain unique risks in addition to those risks associated with
investing in the real estate industry in general (such as possible declines in
the value of real estate, lack of availability of mortgage funds or extended
vacancies of property). Equity REITs may be affected by changes in the value of
the underlying property owned by the REITs, while mortgage REITs may be affected
by the quality of any credit extended. REITs are dependent upon management
skills, are not diversified, are subject to heavy cash flow dependency, risks of
default by borrowers, and self-liquidation. REITs are also subject to the
possibilities of failing to qualify for tax-free pass-through of income under
the Code, and failing to maintain their exemptions from registration under the
1940 Act.
Investment in REITs involves risks similar to those associated with investing in
small capitalization companies. REITs may have limited financial resources, may
trade less frequently and in a limited volume and may be subject to more abrupt
or erratic price movements than larger company securities.
REPURCHASE AGREEMENTS. All of the Funds may invest in repurchase agreements,
which are purchases of underlying debt obligations from financial institutions,
such as banks and broker-dealers, subject to the seller's agreement to
repurchase the obligations at an established time and price. Repurchase
agreements can be regarded as loans to the seller, collateralized by the
securities that are the subject of the agreement. Default by the seller would
expose the Fund to possible loss because of adverse market action or delay in
connection with the disposition of the underlying obligations. In addition, if
bankruptcy proceedings are commenced with respect to the seller of the
obligations, the Fund may be delayed or limited in its ability to sell the
collateral. The Tax-Exempt Money Market and California Money Funds' investments
in repurchase agreements are limited by their restrictions on investment in
taxable instruments. Pursuant to an exemptive order granted by the SEC, the
Funds may transfer daily uninvested cash balances into one or more joint trading
accounts. Assets in the joint trading accounts are invested in money market
instruments, and the proceeds are allocated to the participating funds on a pro
rata basis.
STAND-BY COMMITMENTS. The California Money, Tax-Exempt Money Market and the
Municipal Funds may acquire "stand-by commitments" with respect to Municipal
Obligations held in their portfolios. Under a stand-by commitment, a dealer
agrees to purchase, at a Fund's option, specified Municipal Obligations at a
specified price. A Fund may pay for stand-by commitments either separately in
cash or by paying a higher price for the securities acquired with the
commitment, thus increasing the cost of the securities and reducing the yield
otherwise available from them. The Funds
48
<PAGE> 52
will acquire stand-by commitments solely to facilitate portfolio liquidity and
do not intend to exercise their rights thereunder for trading purposes.
STRATEGIC TRANSACTIONS. Subject to the investment limitations and restrictions
stated elsewhere in this Prospectus and the SAI, each of the Funds and
Portfolios except the Money Funds may utilize various investment strategies as
described below to hedge various market risks, to manage the effective maturity
or duration of fixed-income securities or for other bona fide hedging purposes.
Utilizing these investment strategies, the Fund or Portfolio may purchase and
sell, exchange-listed and over-the-counter put and call options on securities,
equity and fixed-income indices and other financial instruments. It may also
purchase and sell financial futures contracts and options thereon, enter into
various interest rate transactions such as swaps, caps, floors or collars, and
enter into various currency transactions such as currency forward contracts,
currency futures contracts, currency swaps or options on currencies or currency
futures. The Funds may write (sell) covered call options as well. A call option
is "covered" if the Fund owns the security underlying the option it has written
or it maintains enough cash, cash equivalents or liquid securities to purchase
the underlying security. All the above are collectively referred to as
"Strategic Transactions."
Strategic Transactions may be used
- - to attempt to protect against possible changes in the market value of
securities held in, or to be purchased for, the Fund's portfolio resulting
from securities markets or currency exchange rate fluctuations,
- - to protect the Fund's unrealized gains in the value of its portfolio
securities,
- - to facilitate the sale of such securities for investment purposes,
- - to manage the effective maturity or duration of the Fund's portfolio, or
- - to establish a position in the derivatives markets as a temporary substitute
for purchasing or selling particular securities.
Some Strategic Transactions may also be used to seek potentially higher returns.
Any or all of these investment techniques may be used at any time, as the use of
any Strategic Transaction is a function of numerous variables including market
conditions.
The use of Strategic Transactions involves special considerations and risks; for
example,
- - the ability of the Fund to utilize Strategic Transactions successfully will
depend on the ability of the Advisor or the sub-advisor to predict pertinent
market movements,
- - the risk that the other party to a Strategic Transaction will fail to meet its
obligations to the Fund,
- - the risk that the Fund will be unable to close out a Strategic Transaction at
a time when it would otherwise do so, due to the illiquidity of the Strategic
Transaction and
- - the risk of imperfect correlation, or even no correlation, between price
movements of Strategic Transactions and price movements of the related
portfolio positions.
Strategic Transactions can reduce opportunity for gain by offsetting the
positive effect of favorable price movements in the related portfolio positions.
U.S. GOVERNMENT SECURITIES. All of the Funds may invest in U.S. Government
Securities, which include direct obligations of the U.S. Treasury (such as U.S.
Treasury bills, notes and bonds) and obligations issued or guaranteed by U.S.
Government agencies or instrumentalities. Some obligations issued or guaranteed
by agencies or instrumentalities of the U.S. Government are backed by the full
faith and credit of the U.S. Government (such as GNMA bonds), others are backed
only by the right of the issuer to borrow from the U.S. Treasury (such as
securities of Federal Home Loan Banks) and still others are backed only by the
credit of the instrumentality (such as FNMA and FHLMC bonds).
WHEN-ISSUED SECURITIES, FORWARD COMMITMENTS AND DELAYED-DELIVERY
TRANSACTIONS. In order to secure yields or prices deemed advantageous at the
time, the Funds (with the exception of the Money Funds and the Target Maturity
2002 Fund) may purchase or sell securities on a when-issued or a
delayed-delivery basis. The Funds will enter into a when-issued transactions
only for the purpose of acquiring portfolio securities. Due to fluctuations in
the value of securities purchased on a when-issued or a delayed-delivery basis,
the yields obtained on such securities may be higher or lower than the yields
available in the market on the dates when the securities are actually delivered
to the Fund. Similarly, the sale of securities for delayed-
49
<PAGE> 53
delivery can involve the risk that the prices available in the market when
delivery is made may actually be higher than those obtained in the transaction
itself. The California Money Fund and the Municipal Funds may purchase Municipal
Obligations offered on a "forward commitment" basis.
When-issued Municipal Obligations may include bonds purchased on a "when, as and
if issued" basis, under which the issuance of the securities depends on the
occurrence of a subsequent event, such as approval of a proposed financing by
appropriate municipal authorities. No when-issued or forward commitments will be
made by the California Money Fund or any Municipal Fund if, as a result, more
than 20% of the value of the Fund's total assets would be committed to such
transactions. A significant commitment of a Fund's assets to the purchase of
securities on a "when, as and if issued" basis may increase the volatility of
the Fund's NAV.
YEAR 2000. Many computer software systems in use today cannot properly process
date-related information from and after January 1, 2000. Should any of the
computer systems employed by the Fund's or Portfolio's major service providers
fail to process this type of information properly, that could have a negative
impact on the Fund's or Portfolio's operations and the services that are
provided to the Fund's or Portfolio's shareholders. The Advisor and Shareholder
Services have advised the Funds and Portfolios that they are reviewing all of
their computer systems with the goal of modifying or replacing such systems
prior to January 1, 2000 to the extent necessary to avoid any such negative
impact. In addition, the Advisor has been advised by the Custodian that it is
also in the process of reviewing its systems with the same goal. As of the date
of this prospectus, the Funds and Portfolios and the Advisor have no reason to
believe that these goals will not be achieved. Similarly, the values of certain
of the Funds' or Portfolio's assets may be adversely affected by the inability
of their issues or third parties to properly process date-related information
from and after January 1, 2000.
PORTFOLIO TRANSACTIONS AND TURNOVER. Each Fund's turnover rate varies from year
to year, depending on market conditions and investment strategies. High turnover
rates increase transaction costs and may increase taxable capital gains.
Historical portfolio turnover rates for each Fund are shown under "Financial
Highlights" below. The Advisor and the sub-advisors will not consider portfolio
turnover rate to be a limiting factor in making investment decisions consistent
with the Funds' investment objectives and policies.
50
<PAGE> 54
WAYS TO SET UP YOUR ACCOUNT
+ Individual or Joint Account
Individual accounts are owned by one person. Two types of joint accounts
(having two or more owners) can be opened:
1) in a "joint tenancy" account, the surviving owner(s) automatically
receive(s) the shares of any owner(s) who die(s); and
2) in a "tenants in common" account, the heir(s) of any deceased owner
receive(s) such owner's shares, rather than the surviving owners of the joint
account.
+ Retirement
Retirement plans protect investment income and capital gains from current
taxes. Contributions to these accounts may be tax deductible. Retirement
accounts require special applications and typically have lower minimums.
- INDIVIDUAL RETIREMENT ACCOUNTS ("IRAS") If you are of legal age and under
70 1/2 years old with Adjusted Gross Income ("AGI") of less than $40,000 (or
$60,000 if married and filing jointly) you may protect up to $2,000
(subject to certain limitations for single persons with AGI equal to or
greater than $30,000 and married persons who file jointly with AGI equal to
or greater than $50,000) per tax year from certain tax effects. If your
spouse does not work, you can protect up to an additional $2,000 per year
in your spouse's name.
- ROTH IRAS If you are of legal age with AGI not exceeding $110,000 (or
$160,000 if married and filing jointly) you may protect up to $2,000 on a
non-deductible basis (subject to certain limitations for single persons
with AGI equal to or greater than $95,000 and married persons who file
jointly with AGI equal to or greater than $150,000) per tax year from
certain tax effects.
- ROLLOVER IRAS You may transfer money from certain employer-sponsored
retirement plans and keep your tax benefits (often happens when you change
employers).
- SIMPLIFIED EMPLOYEE PENSION PLANS ("SEP-IRAS") If you own a small business
or are self-employed, you and your eligible employees could get many of the
same advantages as a Keogh, but with fewer administrative requirements.
+ Gifts or Transfers to a Minor Child
("UGMA" or "UTMA")
You can give money to a child and obtain certain tax benefits. A parent or
grandparent can give up to $10,000 a year to each child or grandchild without
paying federal gift tax. Depending on state laws, you can set up a custodial
account under the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers
to Minors Act (UTMA).
+ Trust
You can use a Trust for many purposes, including charitable contributions and
providing a regular income for a child until a certain age. The trust must be
established before an account can be opened.
+ Corporation or Other Organization
Corporations, associations, partnerships, institutions, or other groups may
invest for many purposes.
51
<PAGE> 55
HOW CAN I INVEST IN THE FUNDS
AND PORTFOLIOS?
<TABLE>
<CAPTION>
TO OPEN AN ACCOUNT: TO ADD TO AN ACCOUNT:
(MINIMUM $1,000*) (MINIMUM $50**)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
+ By Phone -- 800-222-5852 Exchange from another Fund or Exchange from another Fund or
Portfolio account with the same Portfolio account with the same
registration, including name, registration, including name,
address, and taxpayer ID number address, and taxpayer ID number.
(social security number for an
individual). Call WM Shareholder Services at
800-222-5852
Call WM Shareholder Services at
800-222-5852. (5:00 a.m. to 6:00
p.m., Pacific Time/8:00 a.m. to
9:00 p.m., Eastern Time, Monday
through Friday and 6:00 a.m. to
3:00 p.m., Pacific Time/9:00 a.m.
to 6:00 p.m., Eastern Time, on
Saturdays)
- ------------------------------------------------------------------------------------------------------------------
+ By Mail Complete and sign the application. Make your check payable to The WM
Make your check or negotiable bank Group of Funds. Indicate your
draft payable to The WM Group of account number on your check.
Funds. Third-party checks are not Include the "next investment" stub
accepted. from your previous account
statement. Mail the check and stub
Mail the completed application to the address printed on your
form and check to: account statement.
THE WM GROUP OF FUNDS Exchange by mail: call
P.O. BOX 9757 800-222-5852 for instructions
PROVIDENCE, RI 02940-9757
- ------------------------------------------------------------------------------------------------------------------
+ By Wire 1) Telephone WM Shareholder Ser- Instruct your bank/financial
vices for an application form and institution to wire Federal Funds
instructions. as described at left under
2) Instruct your bank to wire paragraph 2.
Federal Funds exactly as follows:
BOSTON SAFE DEPOSIT AND TRUST
BOSTON, MA
ABA# 011-001234
FOR CREDIT TO:
THE WM GROUP OF FUNDS
ACCOUNT #167053
(FUND NAME AND CLASS OF SHARES)
(CUSTOMER'S NAME)
(CUSTOMER'S SOCIAL SECURITY
NUMBER)
3) Mail the completed application
form to:
THE WM GROUP OF FUNDS
P.O. BOX 9757
PROVIDENCE, RI 02940-9757
</TABLE>
52
<PAGE> 56
HOW CAN I INVEST IN THE FUNDS
AND PORTFOLIOS? (CONT.)
<TABLE>
<CAPTION>
TO OPEN AN ACCOUNT: TO ADD TO AN ACCOUNT:
(MINIMUM $1,000*) (MINIMUM $50**)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
+ Systematic 1) Obtain and complete an Pre-authorized periodic
application form. investments will be processed
(Minimum New Account amount automatically. (Minimum Amount
$50+) 2) Attach a voided check or $25++)
deposit slip from the bank account
you would like the investments
transferred from and indicate
either the day of the week or
day(s) of the month when the
purchase would occur.
3) Mail the application to the
address listed above.
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
* $10,000 for the Portfolios and $2,000 for IRA accounts investing in the
Portfolios.
** $100 for the Portfolios.
+ $1,000 for the Portfolios.
++ $100 for the Portfolios.
53
<PAGE> 57
WHICH CLASS OF SHARES IS BEST FOR ME?
This prospectus offers you a choice of two classes of fund shares: Class A and
Class B. The next several pages will expand upon the "Fees and Expenses" section
above to help you determine which class of shares is best for you. This will
depend upon a number of factors, including the amount you plan to invest and how
long you plan to hold your shares.
CLASS A SHARES
The offering price for Class A shares of the Non-Money Funds is the NAV next
calculated after receipt of a properly completed purchase order, plus an initial
sales charge as shown in the table below. Sales charges may be reduced or waived
as discussed following the table. The final column in each table indicates what
dealers receive for selling Class A shares.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
+ Fixed-Income Funds
(other than Short Term High Quality Bond
and Target Maturity 2002 Funds)
+ Municipal Funds
+ Income and Flexible Income
Portfolios
------------------------------------------------------------------------------------
REALLOWED
SALES CHARGE TO DEALERS
------------------------------------------------------------------------------------
Percentage Percentage of Percentage
of Offering Net Amount of Offering
Purchase of Class A Shares Price Invested Price
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Less than $50,000 4.50% 4.71% 4.00%
------------------------------------------------------------------------------------
$50,000 to $100,000 4.00 4.17 3.50
------------------------------------------------------------------------------------
$100,000 to $250,000 3.50 3.63 3.00
------------------------------------------------------------------------------------
$250,000 to $500,000 2.50 2.56 2.00
------------------------------------------------------------------------------------
$500,000 to $1,000,000 2.00 2.04 1.75
------------------------------------------------------------------------------------
$1,000,000 and above* .00 .00 .00
------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
<CAPTION>
- --- -----------------------------------------------------
+ Equity Funds
Strategic Growth,
Conservative Growth and
Balanced Portfolios
-------------------------------------------------
REALLOWED
SALES CHARGE TO DEALERS
-------------------------------------------------
Percentage Percentage of Percentage
of Offering Net Amount of Offering
Price Invested Price
-------------------------------------------------
<S> <C> <C> <C> <C> <C>
5.50% 5.82% 4.75%
------------------------------------------------------------------------------------
4.75 4.99 4.00
------------------------------------------------------------------------------------
3.75 3.90 3.00
------------------------------------------------------------------------------------
3.00 3.09 2.50
------------------------------------------------------------------------------------
2.00 2.04 1.75
------------------------------------------------------------------------------------
.00 .00 .00
------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
+ Short Term High Quality
Bond Fund
------------------------------------------------------------------------------------
REALLOWED
SALES CHARGE TO DEALERS
------------------------------------------------------------------------------------
Percentage Percentage of Percentage
of Offering Net Amount of Offering
Purchase of Class A Shares Price Invested Price
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Less than $50,000 3.50% 3.63% 3.00%
------------------------------------------------------------------------------------
$50,000 to $100,000 3.00 3.09 2.50
------------------------------------------------------------------------------------
$100,000 to $250,000 2.50 2.56 2.00
------------------------------------------------------------------------------------
$250,000 to $500,000 2.25 2.30 2.00
------------------------------------------------------------------------------------
$500,000 to $1,000,000 2.00 2.04 1.75
------------------------------------------------------------------------------------
$1,000,000 and above* .00 .00 .00
------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
<CAPTION>
- --- -----------------------------------------------------
+ Target Maturity
2002 Fund
-------------------------------------------------
REALLOWED
SALES CHARGE TO DEALERS
-------------------------------------------------
Percentage Percentage of Percentage
of Offering Net Amount of Offering
Price Invested Price
-------------------------------------------------
<S> <C> <C> <C> <C> <C>
2.00% 2.04% 1.75%
------------------------------------------------------------------------------------
1.50 1.52 1.25
------------------------------------------------------------------------------------
1.00 1.01 0.75
------------------------------------------------------------------------------------
1.00 1.01 0.75
------------------------------------------------------------------------------------
0.50 0.50 0.50
------------------------------------------------------------------------------------
.00 .00 .00
------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
</TABLE>
* See "net asset value purchases" below.
Example: An investor considers putting $1,000 into an Equity Fund's Class A
shares. Based on the first column in the above table, 5.50% of the $1,000 would
pay for a sales charge. The charge would be $55.00, which is 5.82% of the net
investment of $945.00, as the next column shows. The dealer selling the shares
would be paid $47.50 of the $55.00, which is 4.75% of $1,000, as the last column
shows.
54
<PAGE> 58
CUMULATIVE DISCOUNT. This allows your current purchases to qualify for the
foregoing discounts by including the value of shares of the Funds and Portfolios
that were purchased subject to an initial or contingent deferred sales charge.
The discount will be based on current market value. Individuals, immediate
family members and trustees purchasing for single fiduciary accounts are
eligible for this discount.
LETTER OF INTENT. This discount is for purchases made over an extended period.
It provides you with a cumulative discount on the same basis as explained in the
previous paragraph if the following conditions are met: Purchases of Class A
shares must be made within a 13-month period that begins no earlier than 90 days
before the submission of a letter of intent from the investor to the Funds. For
more information about this discount, please contact Shareholder Services or
your Investment Representative.
REINVESTMENT. You can reinvest redemption proceeds of Class A shares that were
subject to a sales charge when first purchased in other Class A shares within
120 days without incurring another initial sales charge. You can also reinvest
any redemption proceeds of Class B shares that were subject to a contingent
deferred sales charge in Class A shares within 120 days without incurring an
initial sales charge.
NET ASSET VALUE PURCHASES. There is no initial sales charge on Class A
purchases of $1 million or more, but such purchases are generally subject to a
contingent deferred sales charge of 1.00% if you redeem them during the first
year after purchase or .50% if you redeem them during the second year after
purchase.
Qualified employee benefit plans (including SEPs and SIMPLEs) that have more
than 100 participants or that have more than $500,000 invested in the Funds and
Portfolios may purchase shares without an initial sales charge. However, a
contingent deferred sales charge of 1% may be imposed on the amount that was
invested through such a plan in Class A shares and that is redeemed (1) if,
within the first two years after the plan's initial investment in the Funds or
Portfolios, the named fiduciary of the plan withdraws the plan from investing in
the Funds and Portfolios in a manner that causes all shares held by the plan's
participants to be redeemed; or (2) by a plan participant within two years of
the plan participant's purchase of such Class A shares. The contingent deferred
sales charge will be waived on redemptions in connection with certain
involuntary distributions, including distributions arising out of the death or
post-purchase disability of a shareholder (including one who owns the shares as
joint tenant).
Class A shares may be purchased at net asset value, and in any amount, by
officers, directors and employees of the Advisor or its affiliates, or companies
which have entered into selling agreements with the Distributor, and to certain
family members of such individuals. The purchase must be for investment purposes
only and may not be resold other than through redemption by the Fund or
Portfolio. The Funds and Portfolios may also offer their shares at net asset
value to certain retirement plans; to investors who purchase shares with the
proceeds of redemptions of shares of other mutual funds advised by WM Advisors
or its affiliates within five business days of such redemptions; and to brokers,
dealers or registered investment advisors who have entered into arrangements
with the Distributor providing specifically for the shares to be used in
particular investment products made available to their clients for which they
may charge a separate fee. No sales charge will be assessed on a purchase by any
other investment company in connection with the combination of such company with
the Trust by merger, acquisition of assets or otherwise. The Distributor will
pay authorized dealers commissions on certain net asset value purchases as
described in the SAI.
EACH FUND AND PORTFOLIO RESERVES THE RIGHT TO SUSPEND THE OFFERING OF SHARES OF
ANY CLASS OF ANY FUND OR PORTFOLIO AT ANY TIME. Each Fund and Portfolio also
reserves the right to reject any specific purchase order, including purchases by
exchange.
CONSULT AN INVESTMENT REPRESENTATIVE OR SEE THE SAI IF YOU THINK YOU MAY QUALIFY
FOR ANY OF THESE PURCHASE PLANS. YOU MUST NOTIFY THE FUND OR PORTFOLIO AT THE
TIME OF PURCHASE WHENEVER A REDUCED SALES CHARGE OR NET ASSET VALUE PURCHASE
APPLIES.
CLASS B SHARES
Class B shares are offered at the NAV next calculated after receipt of a
properly completed purchase order, without an initial sales charge. The entire
amount of the purchase price is invested in the Fund selected. However, Class B
shares have higher distribution and service fees than Class A shares for eight
years. Also, if you redeem Class B shares within five years of
55
<PAGE> 59
purchase (four years in the case of Class B shares of the Short Term High
Quality Bond Fund), you generally must pay a contingent deferred sales charge.
The proceeds from any contingent deferred sales charges are paid to the
Distributor to defray expenses for providing distribution services for Class B
shares. Examples of such expenses include compensation to salespeople and
selected dealers. The Distributor currently pays authorized dealers commissions
of 4.00% of the price of Class B shares sold by them (3.00% for Class B shares
of the Short Term High Quality Bond Fund).
CONTINGENT DEFERRED SALES CHARGE. Class B shares redeemed within five years of
purchase are subject to a contingent deferred sales charge according to the
following schedule. Class B shares purchased by exchange will be subject to a
contingent deferred sales charge using the schedule of the Fund originally
purchased. Shares purchased through reinvestment of dividends or capital gain
distributions are not subject to a contingent deferred sales charge.
Class B shares of all Funds (except for the Short Term High Quality Bond Fund)
and Class B shares of all Portfolios:
<TABLE>
<CAPTION>
YEAR OF
REDEMPTION Contingent
AFTER PURCHASE Deferred Sales Charge
- -------------------------------------------------------------------
<S> <C>
First....................................... 5.00%
Second...................................... 4.00%
Third....................................... 3.00%
Fourth...................................... 2.00%
Fifth....................................... 1.00%
Sixth and following......................... 0.00%
</TABLE>
Class B shares of the Short Term High Quality Bond Fund:
<TABLE>
<CAPTION>
YEAR OF
REDEMPTION Contingent
AFTER PURCHASE Deferred Sales Charge
- -------------------------------------------------------------------
<S> <C>
First..................................... 4.00%
Second.................................... 3.00%
Third..................................... 2.00%
Fourth.................................... 1.00%
Fifth and following....................... 0.00%
</TABLE>
Class B shares of certain Funds purchased prior to March 20, 1998 may be subject
to a different contingent deferred sales charge schedule, as described in the
SAI.
The contingent deferred sales charge is calculated by applying the above
percentages to the lesser of (1) the NAV of the redeemed shares at the time they
were purchased or (2) the NAV of the redeemed shares at the time of redemption.
This means that no contingent deferred sales charge will be charged on any NAV
increases above the initial purchase price. Shares are redeemed in the order
that results in the lowest possible rate being charged. Accordingly, they will
be redeemed first from shares purchased through reinvested dividends or capital
gain distributions and then in the order of purchase.
Here is an example:
An investor purchases 100 Class B shares at $10 per share -- for a total cost of
$1,000. In the second year after the purchase, the NAV has risen to $12 per
share, and the investor has acquired 10 more shares through dividend
reinvestment.
At that time, the investor decides to make the first redemption. The transaction
includes 50 shares at $12 per share -- for a total of $600.
The first 10 shares to be redeemed will not be subject to any charge because of
the 10 shares received from dividend reinvestment.
As for the other 40 shares, the charge will be applied only to the original cost
of $10 per share. The NAV increase of $2 per share will not be considered. As a
result, $400 of the redemption proceeds (40 X $10) will be charged a rate of 4%,
which is the second-year rate shown in the table above. The resulting sales
charge will be 4% X $400, which will be $16.
The contingent deferred sales charge may be waived for redemptions of Class B
shares under these circumstances:
- - Following the death or post-purchase disability of a shareholder, as defined
in Section 72(m)(7) of the Code;
- - In connection with certain distributions from an IRA or other retirement plan,
as described in the SAI, including IRA distributions made to shareholders over
age 59 1/2;
- - According to a systematic withdrawal plan -- but limited to 12% annually of
the value of the Fund at the time the systematic withdrawal plan is
established; and
- - In connection with the liquidation by the Fund or Portfolio of a shareholder's
account as described under "How to Sell Shares."
YOU MUST NOTIFY THE FUND OR PORTFOLIO WHENEVER YOU ARE ENTITLED TO A WAIVER OR
REIMBURSEMENT OF CDSC.
56
<PAGE> 60
CONVERSION FEATURE. Class B shares that remain outstanding for eight years will
generally convert to Class A shares of the same Fund or Portfolio based on the
relative NAVs at the time of conversion.
DISTRIBUTION PLANS
Each of the Funds (other than the Target Maturity 2002 Fund, which offers only
Class A shares) has adopted distribution plans, pursuant to Rule 12b-1 under the
1940 Act, applicable to Class A and Class B and shares of the Fund (each, a
"Rule 12b-1 Plan"), respectively. The Target Maturity 2002 Fund has adopted a
12b-1 Plan applicable to its Class A shares. Under the applicable Rule 12b-1
Plans, WM Funds Distributor, Inc., referred to as the Distributor in this
Prospectus, receives a service fee at an annual rate of 0.25% of the average
daily net assets of each class. In addition, the Distributor is paid a fee as
compensation in connection with the offering and sale of Class B shares at an
annual rate of 0.75% of the average daily net assets of such shares.
The Distributor may, from time to time, pay to other dealers, in connection with
retail sales or the distribution of shares of a Fund or Portfolio, material
compensation in the form of merchandise or trips. Salespersons, including
representatives of WM Financial Services, Inc. (a subsidiary of Washington
Mutual), and any other person entitled to receive any compensation for selling
or servicing Fund or Portfolio shares may receive different compensation with
respect to one particular class of shares over another, and may receive
additional compensation or other incentives for selling Fund or Portfolio
shares.
DISTRIBUTION OF INCOME AND CAPITAL GAINS
The Funds and Portfolios distribute dividends from net investment income (which
is essentially interest and dividends from securities held), minus expenses.
They also make capital gain distributions if realized gains from the sale of
securities exceed realized losses. The amount of dividends of net investment
income and distributions of net realized long- and short-term capital gains
payable to shareholders will be determined separately for each Fund or
Portfolio. Dividends from the net investment income of the Money, Fixed-Income
and Municipal Funds and the Balanced, Flexible Income and Income Portfolios will
normally be declared daily and paid monthly. Dividends from the net investment
income of the Bond & Stock and Growth & Income Funds and the Conservative Growth
Portfolio will normally be declared and paid quarterly. Dividends from the net
investment income of the Growth Fund and the Strategic Growth Portfolio will
normally be declared and paid semiannually. Dividends from the net investment
income of the Northwest, Emerging Growth and International Growth Funds will
normally be declared and paid annually. Except as otherwise specified, the Funds
and Portfolios distribute capital gains, if any, at least annually, normally in
December.
You have three choices regarding what you do with dividends and capital gain
distributions. You can make your choice at the time of your initial purchase or
by contacting the Funds' offices or your investment representative. The options
include:
AUTOMATIC REINVESTMENT. This procedure is automatically effective unless you
choose another option. All dividends and capital gain distributions are
reinvested into additional shares of the Fund or Portfolio.
REINVEST DIVIDENDS IN ANOTHER FUND OR PORTFOLIO. Income dividends may be
automatically invested in the same class of shares of another Fund or Portfolio,
provided that Fund or Portfolio is available for sale in your state of
residence.
CASH PAYMENT OF ALL DISTRIBUTIONS. All dividends and capital gain distributions
are deposited to your pre-authorized bank account or paid by check.
Reinvestments of income dividends and capital gain distributions are made at the
closing NAV on the day dividends or distributions are deducted from the Fund's
assets.
If you've chosen to receive dividends or capital gain distributions in cash and
your check is returned as undeliverable, the Funds and Portfolios reserve the
right (but are not obligated) to reinvest your check at the then-current NAV and
to automatically reinvest subsequent dividends and capital gain distributions in
your account. The Funds and Portfolios may also automatically reinvest dividends
or distributions of $10 or less.
HOW CAN I SELL SHARES?
You may redeem shares at any time in the following ways. The price paid per
share will be the NAV next calculated after receipt of a properly completed
redemption request (less any applicable CDSC).
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<PAGE> 61
TELEPHONE. You may authorize telephone transactions on your account
application. Provided you have pre-authorized these transactions, you may redeem
or exchange shares by telephoning 800-222-5852. You may also request these
transactions through your investment representative. Proceeds may be directed to
a pre-authorized bank or broker account or to the address of record for the
account. Exchanges also may be made by telephone.
It may be difficult to reach the Trusts' offices by telephone during periods of
unusual economic or market activity. Please be persistent if this occurs. The
Funds' and Portfolios' transfer agent is committed to extending its 5:00 a.m. to
6:00 p.m. Pacific time business hours during such periods.
WRITTEN REQUEST. You may also sell shares by writing the Trusts' offices.
Written requests may require a signature guarantee, as discussed below, and the
return of any outstanding share certificates. Changes in pre-authorized
redemption instructions or your account registration may also require signature
guarantees. For your protection, the signature(s) must be guaranteed by an
eligible guarantor institutions which includes banks, credit unions, broker
dealers, national securities exchanges, savings institutions as well as
medallion signature guarantee.
PROMPT PAYMENT. Payment normally will be made on the next business day after
redemption, but no later than seven days after the transaction, unless you
recently purchased Fund shares by check or Automated Clearing House transfer. In
that case, redemption proceeds may be delayed for up to 15 days after the
purchase transaction, until the transfer agent verifies collection of funds.
Redemption proceeds will be sent by check or Automated Clearing House transfer
to your bank account without charge. Wire redemption proceeds may be subject to
a $10 fee. The receiving bank also may charge a fee.
SYSTEMATIC WITHDRAWAL PLAN. Shareholders may choose to receive specific cash
withdrawals on a periodic basis. A $5,000 minimum balance in the applicable Fund
or $10,000 in the applicable Portfolio is required to establish a systematic
withdrawal plan (the minimum balance requirement is waived for IRA accounts).
Shares of the Fund or Portfolio will be redeemed to provide the requested
payment. Naturally, withdrawals that continually exceed dividend income and
capital gains will eventually exhaust the account. Class B shareholders may use
a systematic withdrawal plan to redeem up to 12% of the Fund balance annually,
without incurring a contingent deferred sales charge. The beginning balance is
the Fund balance at the time the systematic withdrawal plan is established.
OTHER CONSIDERATIONS. It is costly to maintain small accounts. Accordingly, an
account may be closed after 90 days' written notice if the total account value
falls below a minimum (currently $7,000 for the Portfolios and $700 for the
Funds or, in the case of an IRA account, $500 for the Portfolios and $300 for
the Funds) when any transfer or redemption is made. Shares will be redeemed at
the next calculated NAV, less any applicable CDSC, on the day the account is
closed. To prevent an account closure, you may purchase shares to bring your
account balance above the minimum during the 90-day grace period.
IRAS AND OTHER TAX-SHELTERED RETIREMENT PLANS
Shares of the Funds or Portfolios may be appropriate for many retirement plans,
including IRAs. Retirement plan contributions are tax deductible in some cases,
and earnings compound on a tax-deferred basis until withdrawn.
Information about IRAs and other qualified retirement plans is available from
the Trusts' offices or your Investment Representative.
HOW CAN I EXCHANGE MY SHARES?
You may exchange shares of any of the Funds or Portfolios for shares of the same
class of any other of the Funds or Portfolios. Exchanges of shares are sales and
may result in a gain or loss for income tax purposes.
Exchanges are made at the relative NAVs of the shares being exchanged. No
additional sales charge will be incurred when exchanging shares from a Fund
which imposes an initial or contingent deferred sales charge. Any contingent
deferred sales charge on the subsequent sale of shares acquired by exchange will
be based on the contingent deferred sales charge schedule of the Fund from which
the shares were initially purchased. Shares exchanged from a Money Fund will be
subject to the acquired Fund's sales charge unless the shares given in exchange
were previously exchanged from a Fund that imposes an initial or contingent
deferred sales charge.
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<PAGE> 62
All exchanges are subject to the minimum investment requirements of the Fund or
Portfolio being acquired and to its availability for sale in your state of
residence. You may arrange for automatic monthly exchanges. The Funds and
Portfolios reserve the right to refuse any order for the purchase of shares,
including those by exchange. In particular, a pattern of exchanges that
coincides with a "market timing" strategy may be disruptive to a Fund or
Portfolio and, consequently, may be disallowed.
DIVIDENDS, CAPITAL GAINS AND TAXES
Each Fund and Portfolio will distribute substantially all of its net investment
income and net realized capital gain on a current basis.
You are responsible for federal income tax (and state and local income taxes, if
applicable) on dividends and capital gain distributions. This is true whether
such dividends or distributions are paid in cash or reinvested in additional
shares.
Generally, dividends paid by the Funds and Portfolios from interest, dividends
or net short-term capital gains will be taxed as ordinary income. Distributions
designated by the Fund or Portfolio as deriving from net gains on securities
held for more than one year are taxable as such (generally at a 20% tax rate),
regardless of how long you have held your shares.
A dividend or distribution made shortly after the purchase of shares of a Fund
or Portfolio by a shareholder, although in effect a return of capital to that
particular shareholder, would be taxable to him or her as described above.
Because of tax law requirements, you must provide the Trusts an accurate and
certified taxpayer identification number (for individuals, a Social Security
number) to avoid the 31% "back-up" withholding tax.
Early in each calendar year each Fund and Portfolio will notify you of the
amount and tax status of distributions paid to you for the preceding year.
A Portfolio's use of a fund-of-funds structure could affect the amount, timing
and character of distributions to shareholders. See "Taxes" in the Statement of
Additional Information.
Any gain resulting from the sale or exchange of your shares will generally also
be subject to tax. You should consult your tax advisor for more information on
your own tax situation, including possible foreign, state and local taxes.
ADDITIONAL CONSIDERATIONS FOR SHAREHOLDERS OF THE MUNICIPAL FUNDS, THE
TAX-EXEMPT MONEY MARKET FUND, AND THE CALIFORNIA MONEY MARKET FUND.
Distributions designated as "exempt-interest dividends" by any of the Municipal
Funds, the Tax-Exempt Money Market Fund or the California Money Market Fund are
not generally subject to federal income tax. However, if you receive social
security or railroad retirement benefits, you should consult your tax adviser to
determine what effect, if any, an investment in the fund may have on the federal
taxation of your benefits. In addition, an investment in the Fund may result in
liability for federal alternative minimum tax, both for individual and corporate
shareholders.
ADDITIONAL CONSIDERATIONS FOR SHAREHOLDERS OF THE FLORIDA INSURED MUNICIPAL
FUND. It is expected that shares of the Florida Insured Municipal Fund held by
a Florida resident will be exempt from the Florida intangible personal property
tax and that a portion of the dividends paid by the California Money Fund,
California Municipal Fund and the California Insured Intermediate Municipal Fund
will be exempt from California State personal income tax, but not from
California State franchise tax or California State corporate income tax.
Corporate taxpayers should consult their tax advisor concerning the Florida and
California state tax treatment of investments in these funds.
ADDITIONAL CONSIDERATIONS FOR SHAREHOLDERS OF THE INTERNATIONAL GROWTH
FUND. The International Growth Fund's investments in foreign securities may be
subject to foreign withholding taxes. In that case, the Fund's yield on those
securities would be decreased. Shareholders may be entitled to claim a credit or
deduction with respect to foreign taxes. In addition, the Fund's investments in
foreign securities or foreign currencies may increase or accelerate the Fund's
recognition of ordinary income and may affect the timing or amount of the Fund's
distributions.
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT A COMPLETE DESCRIPTION OF
THE FEDERAL, STATE OR LOCAL TAX CONSEQUENCES OF INVESTING IN THE FUNDS OR
PORTFOLIOS. YOU SHOULD CONSULT YOUR TAX ADVISOR BEFORE INVESTING IN THE FUNDS OR
PORTFOLIOS.
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<PAGE> 63
ORGANIZATION
HOW NAV IS DETERMINED
Investment securities and other assets are valued primarily on the basis of
market quotations or, if quotations are not readily available, by a method that
the Board of Trustees believes accurately reflects fair value. Foreign
securities are valued on the basis of quotations from the primary market in
which they are traded, and are translated from the local currency into U.S.
dollars using current exchange rates. As a result, changes in the value of those
currencies in relation to the U.S. dollar may affect the Funds' NAV. Because
foreign markets may be open at different times than the New York Stock Exchange,
the value of the Funds' shares may change on days when shareholders are not able
to buy or sell them. If events materially affecting the values of the Funds'
foreign investments occur between the closed foreign markets and the close of
regular trading on the New York Stock Exchange, those investments may be valued
at their fair value. The NAVs are determined at the end of each business day of
the New York Stock Exchange or at 1:00 p.m. Pacific time, whichever is earlier.
ADVISOR AND SUB-ADVISORS
The Funds and Portfolios are managed by WM Advisors, Inc., which is referred to
as the Advisor in this Prospectus. The Advisor's address is 1201 Third Avenue,
22nd Floor, Seattle, Washington 98101. The Advisor has delegated portfolio
management responsibilities in respect of the Growth, California Municipal,
Florida Insured Municipal, California Insured Intermediate Municipal and
International Growth Funds, and it is expected that the Advisor will, effective
January 1, 1999, delegate portfolio management responsibility in respect of the
Tax-Exempt Bond Fund, to a sub-advisor. Each Fund and Portfolio may, to the
extent permitted under the 1940 Act, place portfolio transactions with (and pay
brokerage commissions to) affiliates of the Advisor and the sub-advisors to the
Funds indicated below. For more information see the SAI.
The Advisor has been in the business of investment management since 1944. Its
responsibilities include formulating each Fund's and Portfolio's investment
policies (subject to the terms of this Prospectus), analyzing economic trends,
directing and evaluating the investment services provided by the sub-advisors
and monitoring each Fund's or Portfolio's investment performance and reporting
to the Board of Trustees, as well as providing certain administrative services
to the Funds and Portfolios. In connection with its service as investment
advisor to each Fund and Portfolio, the Advisor may engage one or more
sub-advisors to provide investment advisory services to any of the Funds or
Portfolios and may change or eliminate any such sub-advisor if it deems such
action to be in the best interests of a Fund or Portfolio and its shareholders.
Where the Advisor has not delegated such duties to a sub-advisor, it is
responsible for managing the investment and reinvestment of the Fund's or
Portfolio's assets. The Advisor is an indirect wholly owned subsidiary of
Washington Mutual, Inc. ("Washington Mutual"), a publicly owned financial
services company.
The following organizations, under the supervision of the Advisor, act as
sub-advisors to the Funds indicated below, and are responsible for continuously
reviewing, supervising and administering such Funds' respective investment
programs:
JANUS, 100 Fillmore Street, Denver, Colorado 80206, acts as sub-advisor to the
Growth Fund. Janus is an indirectly majority owned subsidiary of Kansas City
Southern Industries, Inc., a publicly traded holding company whose primary
subsidiaries are engaged in transportation, information processing and financial
services. Janus has been providing investment advice to mutual funds or other
large institutional clients since 1970. As of March 27, 1998, Janus' assets
under management were in excess of $67.8 billion.
VAN KAMPEN, One Parkview Plaza, Oakbrook, Illinois 60181, acts as sub-advisor to
the California Municipal, California Insured Intermediate Municipal and Florida
Insured Municipal Funds. Subject to shareholder approval, it is expected that,
effective January 1, 1999, Van Kampen will become sub-advisor to the Tax-Exempt
Bond Fund. Van Kampen is an indirect wholly owned subsidiary of Morgan Stanley,
Dean Witter, Discover & Co., a publicly held global financial services company.
Van Kampen provides investment advice to a wide variety of individual,
institutional and investment company clients and, together with its affiliates,
had aggregate assets under management or supervision, as of June 5, 1998, of
more than $3.9 billion.
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<PAGE> 64
WARBURG, 466 Lexington Avenue, New York, New York 10017, acts as sub-advisor to
the International Growth Fund. Warburg is a professional investment counseling
firm which provides investment services to investment companies, employee
benefit plans, endowment funds, foundations and other institutions and
individuals. As of March 30, 1998, Warburg managed approximately $15 billion of
assets. Incorporated in 1970, Warburg is indirectly controlled by Warburg,
Pincus & Co. ("WP & Co."), which has no business other than being a holding
company of Warburg and its affiliates. Lionel I. Pincus, the managing partner of
WP & Co., may be deemed to control both WP & Co. and Warburg. A proxy statement
proposing a new sub-advisor for the International Growth Fund has been submitted
to the SEC. Subject to shareholder approval and approval by the Board of
Trustees at an in-person meeting for such purpose, it is expected that Capital
Guardian Trust Company will replace Warburg as sub-advisor to the International
Growth Fund, effective on or about July 1, 1999.
INDIVIDUAL FUND MANAGERS
Gary J. Pokrzywinski, CFA, Vice President and Senior Portfolio Manager of the
Advisor, is primarily responsible for the day-to-day management of the High
Yield, Income, Short Term High Quality Bond and Target Maturity 2002 Funds. He
has managed such Funds since March 1998, 1992, January 1998 and January 1998,
respectively, and has been employed by the Advisor since 1992. Effective
November 1, 1998, Craig V. Sosey, Vice President and Portfolio Manager of the
Advisor, is primarily responsible for the day-to-day management of the U.S.
Government Securities Fund. He has been employed by the Advisor since May 1998.
Prior to that he was the Assistant Treasurer of California Federal Bank, where
he worked for over eight years. He holds an MBA from University of California
Berkeley. Since February 9, 1999, Randall L. Yoakum, Chairman of the Investment
Committee, has had primary responsibility for the day-to-day management of the
Growth & Income Fund. Prior to assuming these duties, Mr. Yoakum was Chief
Investment Officer for D.A. Davison & Co. (DADCO) for 2 years. From September
1994 until he joined DADCO, Mr. Yoakum was the Senior Vice President and
Managing Director of Portfolio Management for Boatmen's Trust Company, and,
prior to that, Mr. Yoakum was Senior Vice President and Chief Equity Officer for
Composite Research & Management Co. (the predecessor to WM Advisors, Inc.) for 8
years. Jeffrey D. Huffman, CFA, Vice President and Senior Portfolio Manager of
the Advisor, has had primary responsibility for the day-to-day management of the
Bond & Stock Fund since 1995. Prior to 1995, Mr. Huffman was Vice President of
Trust Investments for First Interstate Bank since 1994 and a portfolio manager
at Safeco since 1992. David W. Simpson, CFA, Vice President and Senior Portfolio
Manager of the Advisor, has had primary responsibility for the day-to-day
management of the Northwest Fund since 1993 and he and Linda C. Walk, CFA, who
is Vice President and Portfolio Manager of the Advisor, have been co-managers of
the Emerging Growth Fund since March 1998. Mr. Simpson has been employed by the
Advisor since 1993. Prior to 1997, Ms. Walk was a portfolio manager at Laird
Norton Trust Company since 1996, a valuation consultant for Ernst & Young LLP
since 1994, and a valuation consultant for Management Advising Services since
1990. Audrey S. Quaye, CPA, Vice President and Portfolio Manager of the Advisor,
is primarily responsible for the day-to-day management of the Money Market Fund,
the Tax-Exempt Money Market Fund and the California Money Fund. She has managed
such Funds since 1997, 1997, and March 1998, respectively, and has been employed
by the Advisor since 1996. Prior to 1996, Ms. Quaye worked at the Benham Group
as a municipal credit analyst. Stephen C. Scott, Senior Portfolio Manager, has
had primary responsibility for the day-to-day management of the Strategic Growth
Portfolio, the Conservative Growth Portfolio, the Balanced Portfolio, the
Flexible Income Portfolio and the Income Portfolio since their inception. Mr.
Scott has been employed by WM Advisors, Inc since March of 1998, prior to that
date he was employed by Sierra Investment Services Corporation with essentially
identical responsibility for the Portfolios.
Warren B. Lammert has had primary responsibility for the day-to-day management
of the Growth Fund since its inception. Mr. Lammert is a Vice President of
Janus. Mr. Lammert joined Janus in 1987, and his duties at Janus include the
management of separate equity accounts.
Since May 1992, Joseph A. Piraro, Vice President of Van Kampen, has had primary
responsibility for the day-to-day management of the California Municipal Fund.
Mr. Piraro has been employed by Van Kampen since 1992. Mr. Piraro has also had
primary responsibility for the day-to-day management of the California
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<PAGE> 65
Insured Intermediate Municipal Fund since the Fund's inception. Since January
1997, Thomas M. Byron, Vice President of Van Kampen, has had primary
responsibility for the day-to-day management of the Florida Insured Municipal
Fund. Mr. Byron has been at Van Kampen for over 15 years and prior to taking
over responsibility for managing the Fund, Mr. Byron was Head Buyer and Manager
of Van Kampen's Unit Investment Trust desk. David C. Johnson, Senior Vice
President of Van Kampen, has primary responsibility for the day-to-day
management of the Tax-Exempt Bond Fund's portfolio since January 1, 1999. Mr.
Johnson has been employed by Van Kampen since 1989.
The following people are primarily responsible for the day-to-day management of
the International Growth Fund: Harold W. Ehrlich, CFA, CIC, Managing Director of
Warburg, has 14 years of investment experience. Prior to 1998, Mr. Ehrlich was a
senior vice president, portfolio manager and analyst at Templeton Investment
Counsel Inc. Todd Jacobson, CFA, Vice President of Warburg. Prior to joining
Warburg in 1997, Mr. Jacobson was an analyst at Brown Brothers Harriman from
1993 to 1997.
MANAGEMENT FEES
During their most recent fiscal years, each of the Funds paid management fees to
the Advisor at the following rates:
<TABLE>
<CAPTION>
Fees Paid as a Percentage
FUNDS of Net Assets
- -----------------------------------------------------------------------
<S> <C>
Money Market Fund..................... .45%
Tax-Exempt Money Market Fund.......... .45%
California Money Fund................. .45%
Short Term High Quality Bond Fund..... .50%
Target Maturity 2002 Fund............. .25%
U.S. Government Securities Fund....... .54%*
Income Fund........................... .625%*
High Yield Fund....................... .625%**
Tax-Exempt Bond Fund.................. .50%
California Municipal Fund............. .70%*
California Insured Intermediate
Municipal Fund...................... .70%*
Florida Insured Municipal Fund........ .70%**
Bond & Stock Fund..................... .59%
Growth & Income Fund.................. .55%
Northwest Fund........................ .625%
Growth Fund........................... 1.06%*
Emerging Growth Fund.................. 1.08%*
International Growth Fund............. 1.00%
Strategic Growth Portfolio............ .15%***
Conservative Growth Portfolio......... .15%***
Balanced Portfolio.................... .15%***
Flexible Income Portfolio............. .15%***
Income Portfolio...................... .15%***
</TABLE>
*Effective January 1, 1999, management fees were reduced to 0.50% for the U.S.
Government Securities, Income, California Municipal, California Insured
Intermediate Municipal and Florida Insured Municipal Funds. Also effective
January 1, 1999, management fees were reduced to 0.85% for the Growth and
Emerging Growth Funds.
**The High Yield Fund has not completed a full fiscal year. These numbers
represent the percentages of net assets the Fund has agreed to pay the
Advisor in its first full fiscal year. The fee would be reduced should net
assets exceed $250 million.
***Fee percentages shown for each Portfolio are based on the fees of the
corresponding series of WM Strategic Asset Management Portfolios, the
predecessor to the Portfolio.
The Advisor has undertaken, through October 31, 1999, to waive a portion of its
management fees (and for the Tax-Exempt Money Market and Short Term High Quality
Bond Funds, to reimburse expenses) for the following Funds to the extent that
total Fund operating expenses for Class A shares would otherwise exceed the
indicated annual rates:
<TABLE>
<CAPTION>
Total Fund
FUNDS Operating Expenses
- ------------------------------------------------------------------
<S> <C>
Tax-Exempt Money Market Fund.................. 0.57%
California Money Fund......................... 0.85%
Short-Term High Quality Bond Fund............. 0.82%
Target Maturity 2002 Fund..................... 1.00%
California Insured Intermediate Municipal
Fund........................................ 1.00%
Florida Insured Municipal Fund................ 1.00%
Growth & Income Fund.......................... 1.01%
Income Portfolio.............................. 1.00%
Flexible Income Portfolio..................... 1.00%
</TABLE>
The Advisor has also undertaken, through October 31, 2000, to waive its
management fees and reimburse expenses to the extent necessary to limit the
total Fund operating expenses for Class A shares of the Tax-Exempt Money Market
Fund and the Short Term High Quality Bond Fund to the annual rates of 0.72% and
1.00%, respectively.
In addition, the Distributor has agreed to waive its distribution fees through
October 31, 1999 for Class B shares of the following Funds to the extent that
total Fund operating expenses for Class B shares would otherwise exceed the
indicated annual rates:
<TABLE>
<CAPTION>
Total Fund
FUNDS Operating Expenses
- ------------------------------------------------------------------
<S> <C>
Income Fund................................... 1.83%
Growth & Income Fund.......................... 1.76%
Growth Fund................................... 2.05%
</TABLE>
The Advisor has also undertaken to waive its management fees and reimburse
expenses to the extent necessary to limit the total Fund operating expenses for
Class A shares of the following funds to the indicated annual rates through
October 31, 2000.
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<PAGE> 66
<TABLE>
<CAPTION>
Total Fund
FUNDS Operating Expenses
- ------------------------------------------------------------------
<S> <C>
Money Market Fund............................. 0.73%
U.S. Government Securities Fund............... 0.96%
Tax-Exempt Bond Fund.......................... 0.88%
California Municipal Fund..................... 0.88%
Income Fund................................... 1.04%
Growth & Income Fund.......................... 1.00%
Growth Fund................................... 1.30%
</TABLE>
In addition, the Advisor has undertaken, through October 31, 1999, to waive all
of its management fees for the High Yield Fund.
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- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN THE FUNDS'
AND PORTFOLIOS' OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFERING OF THE
FUNDS' AND PORTFOLIOS' SHARES, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUNDS
OR PORTFOLIOS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN
WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER MAY NOT LAWFULLY BE MADE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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FINANCIAL HIGHLIGHTS
================================================================================
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The financial highlights table is intended to help you understand the Funds' and
the predecessor Portfolios' financial performance for the past 5 years (or, if
shorter, the period of the Fund's or predecessor Portfolio's operations). The
financial information shown for each Portfolio is that of the corresponding
series of WM Strategic Asset Management Portfolios, the Portfolio's predecessor.
Certain information reflects financial results for a single Fund or predecessor
Portfolio share. The total returns in the table represent the rate that an
investor would have earned (or lost) on an investment in the Fund or the
predecessor Portfolio (assuming reinvestment of all dividends and
distributions). The information provided below with respect to each of the Funds
within WM Trust I (Money Market, Tax-Exempt Money Market, Income, U.S.
Government Securities, Tax-Exempt Bond, Bond & Stock, Growth & Income and
Northwest Funds) for periods prior to October 31, 1998 has been audited by
LeMaster & Daniels PLLC. The information provided below with respect to each of
the Funds within WM Trust II (California Money, Short Term High Quality Bond,
Target Maturity 2002, California Municipal, California Insured Intermediate
Municipal, Florida Insured Municipal, Growth, International Growth and Emerging
Growth Funds) and the predecessor Portfolios for periods prior to October 31,
1998 has been audited by PricewaterhouseCoopers LLP. The information for the
period ended October 31, 1998 has been audited by Deloitte & Touche LLP. The
Reports of Independent Accountants for each such period, along with the Funds'
and predecessor Portfolios' financial statements, are included in the Annual
Reports to Shareholders for such periods, which are available upon request.
- -------------------------------------------------------------------------------
MONEY MARKET FUND CLASS A SHARES(15)
<TABLE>
<CAPTION>
FISCAL
PERIOD ENDED YEAR ENDED DECEMBER 31,
OCTOBER 31, -----------------------------------------------
1998(1) 1997 1996 1995 1994 1993
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income..................................... 0.041 0.0493 0.0476 0.0519 0.0341 0.024
Net Realized & Unrealized Gain on Investments............. - - - - - -
------- ------- ------- ------- ------- -------
Total From Investment Operations........................ 0.041 0.0493 0.0476 0.0519 0.0341 0.024
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income...................... (0.041) (0.0493) (0.0476) (0.0519) (0.0341) (0.024)
Distributions from Net Realized Gains..................... - - - - - -
------- ------- ------- ------- ------- -------
Total Distributions..................................... (0.041) (0.0493) (0.0476) (0.0519) (0.0341) (0.024)
------- ------- ------- ------- ------- -------
Net Asset Value, End of Period.............................. $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= ======= =======
Total Return(2)............................................. 4.19% 5.04% 4.88% 5.33% 3.47% 2.41%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's)...................... $403,443 $260,877 $229,355 $171,225 $125,651 $135,187
Ratio of Operating Expenses to Average Net Assets(3)...... 0.66%(5) 0.75% 0.79% 0.92% 0.95% 0.97%
Ratio of Net Investment Income to Average Net Assets...... 4.94%(5) 4.93% 4.77% 5.19% 3.39% 2.38%
Ratio of Operating Expenses to Average Net Assets Without
Fee Waivers, Expenses Absorbed and/or Credits Allowed by
the Custodian............................................ 0.67%(5) 0.83% 0.89% 1.04% 1.04% 1.03%
</TABLE>
- -------------------------------------------------------------------------------
MONEY MARKET FUND CLASS B SHARES(15)
<TABLE>
<CAPTION>
FISCAL
PERIOD ENDED YEAR ENDED DECEMBER 31,
OCTOBER 31, --------------------------------------
1998(1) 1997 1996 1995 1994(14)
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income..................................... 0.035 0.0407 0.0384 0.0421 0.018
Net Realized & Unrealized Gain on Investments............. - - - - -
------- ------- ------- ------- -------
Total From Investment Operations........................ 0.035 0.0407 0.0384 0.0421 0.018
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income...................... (0.035) (0.0407) (0.0384) (0.0421) (0.018)
Distributions from Net Realized Gains..................... - - - - -
------- ------- ------- ------- -------
Total Distributions..................................... (0.035) (0.0407) (0.0384) (0.0421) (0.018)
------- ------- ------- ------- -------
Net Asset Value, End of Period.............................. $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= =======
Total Return(2)............................................. 3.52% 4.15% 3.91% 4.30% 2.78%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's)...................... $6,619 $471 $117 $74 $11
Ratio of Operating Expenses to Average Net Assets(3)...... 1.64%(5) 1.59% 1.69% 1.94% 1.93%(5)
Ratio of Net Investment Income to Average Net Assets...... 3.96%(5) 4.15% 3.87% 4.19% 3.29%(5)
Ratio of Operating Expenses to Average Net Assets Without
Fee Waivers, Expenses Absorbed and/or Credits Allowed by
the Custodian............................................ 1.65%(5) 1.80% 1.90% 2.10% 2.62%(5)
</TABLE>
Footnotes appear on page 85
64
<PAGE> 69
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
TAX-EXEMPT MONEY MARKET FUND CLASS A SHARES(16)
<TABLE>
<CAPTION>
FISCAL
PERIOD ENDED YEAR ENDED DECEMBER 31,
OCTOBER 31, ---------------------------------------------------
1998(1) 1997 1996 1995 1994 1993
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income..................................... 0.026 0.0314 0.0301 0.034 0.0235 .020
Net Realized & Unrealized Gain on Investments............. - - - 0.000(8) - -
------- ------- ------- ------- ------- -------
Total From Investment Operations........................ 0.026 0.0314 0.0301 0.034 0.0235 .020
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income...................... (0.026) (0.0314) (0.0301) (0.034) (0.0235) (.020)
Distributions from Net Realized Gains..................... - - - 0.000(8) - -
------- ------- ------- ------- ------- -------
Total Distributions..................................... (0.026) 0.0314 (0.0301) (0.034) (0.0235) (0.20)
------- ------- ------- ------- ------- -------
Net Asset Value, End of Period.............................. $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= ======= =======
Total Return(2)............................................. 2.60% 3.18% 3.05% 4.01% 2.37% 2.06%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's)...................... $25,441 $32,134 $31,974 $30,988 $33,612 $34,513
Ratio of Operating Expenses to Average Net Assets(3)...... 0.55%(5) 0.57% 0.57% 0.61% 0.60% 0.50%
Ratio of Net Investment Income to Average Net Assets...... 3.09%(5) 3.14% 3.01% 3.39% 2.33% 2.03%
Ratio of Operating Expenses to Average Net Assets Without
Fee Waivers, Expenses Absorbed and/or Credits Allowed by
the Custodian............................................ 0.72%(5) 0.71% 0.72% 0.81% 0.76% 0.77%
</TABLE>
TAX-EXEMPT MONEY MARKET FUND CLASS B SHARES(16)
<TABLE>
<CAPTION>
FISCAL
PERIOD ENDED YEAR ENDED DECEMBER 31, MAY 2, 1994 TO
OCTOBER 31, --------------------------- DECEMBER 31,
1998(1) 1997 1996 1995 1994(4)
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income..................................... 0.018 0.0223 0.0199 0.023 0.0097
Net Realized & Unrealized Gain on Investments............. - - - 0.00(8) -
------- ------- ------- ------- -------
Total From Investment Operations........................ 0.018 0.0223 0.0199 0.023 0.0097
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income...................... (0.018) (0.0223) (0.0199) (0.023) (0.0097)
Distributions from Net Realized Gains..................... - - - 0.00(8) -
------- ------- ------- ------- -------
Total Distributions..................................... (0.018) (0.0223) (0.0199) (0.023) (0.0097)
------- ------- ------- ------- -------
Net Asset Value, End of Period.............................. $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= =======
Total Return(2)............................................. 1.79% 2.26% 2.01% 2.83% 1.45%(5)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's)...................... $212 $12 $2 $1 $1
Ratio of Operating Expenses to Average Net Assets(3)...... 1.63%(5) 1.50% 1.53% 1.73% 1.66%(5)
Ratio of Net Investment Income to Average Net Assets...... 2.01%(5) 2.32% 1.99% 2.12% 1.38%(5)
Ratio of Operating Expenses to Average Net Assets Without
Fee Waivers, Expenses Absorbed and/or Credits Allowed by
the Custodian............................................ 1.80%(5) 2.27% 4.22% 3.66% 3.61%(5)
</TABLE>
Footnotes appear on page 85
65
<PAGE> 70
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
CALIFORNIA MONEY FUND CLASS A SHARES
<TABLE>
<CAPTION>
FISCAL
PERIOD
ENDED YEAR ENDED JUNE 30,
OCTOBER 31, -----------------------------------------------
1998(1) 1998(6) 1997 1996 1995 1994
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
------- ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income..................................... 0.008 0.027 0.028 0.029 0.028 0.018
Net Realized & Unrealized Gain on Investments............. - - - - - -
------- ------ ------ ------ ------ ------
Total From Investment Operations........................ 0.008 0.027 0.028 0.029 0.028 0.018
------- ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income...................... (0.008) (0.027) (0.028) (0.029) (0.028) (0.018)
Distributions in Excess of Net Investment Income.......... - - - - - -
Distributions from Net Realized Gains..................... - - - - - -
Distributions in Excess of Net Realized Gains............. - - - - - -
Distributions from Capital................................ - - - - - -
------- ------ ------ ------ ------ ------
Total Distributions..................................... (0.008) (0.027) (0.028) (0.029) (0.028) (0.018)
------- ------ ------ ------ ------ ------
Net Asset Value, End of Period.............................. $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
======= ====== ====== ====== ====== ======
Total Return(2)............................................. 0.99% 2.73% 2.81% 3.00% 2.79% 1.81%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's)...................... $37,167 $37,403 $42,923 $51,211 $48,836 $62,500
Ratio of Operating Expenses to Average Net Assets(3)...... 0.73%(5) 0.82% 0.85% 0.85% 0.85% 0.85%
Ratio of Net Investment Income to Average Net Assets...... 2.31%(5) 2.71% 2.75% 2.94% 2.73% 1.80%
Ratio of Operating Expenses to Average Net Assets Without
Fee Waivers, Expenses Absorbed and/or Credits Allowed by
the Custodian............................................ 0.87%(5) 0.99% 1.14% 1.14% 1.15% 1.27%
</TABLE>
CALIFORNIA MONEY FUND CLASS B SHARES
<TABLE>
<CAPTION>
FISCAL
PERIOD
ENDED YEAR ENDED JUNE 30,
OCTOBER 31, --------------------------------------
1998(1) 1998(6) 1997 1996 1995(7)
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $1.00 $1.00 $1.00 $1.00 $1.00
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income..................................... 0.005 0.019 0.020 0.022 0.020
Net Realized & Unrealized Gain on Investments............. - - - - -
------ ------ ------ ------ ------
Total From Investment Operations........................ 0.005 0.019 0.020 0.022 0.020
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income...................... (0.005) (0.019) (0.020) (0.022) (0.020)
Distributions in Excess of Net Investment Income.......... - - - - -
Distributions from Net Realized Gains..................... - - - - -
Distributions in Excess of Net Realized Gains............. - - - - -
Distributions from Capital................................ - - - - -
------ ------ ------ ------ ------
Total Distributions..................................... (0.005) (0.019) (0.020) (0.022) (0.020)
------ ------ ------ ------ ------
Net Asset Value, End of Period.............................. $1.00 $1.00 $1.00 $1.00 $1.00
====== ====== ====== ====== ======
Total Return(2)............................................. 0.63% 1.96% 2.03% 2.22% 2.04%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's)...................... $58 $63 $68 $147 $79
Ratio of Operating Expenses to Average Net Assets(3)...... 1.60%(5) 1.60% 1.60% 1.60% 1.60%
Ratio of Net Investment Income to Average Net Assets...... 1.44%(5) 1.88% 2.00% 2.19% 1.98%
Ratio of Operating Expenses to Average Net Assets Without
Fee Waivers, Expenses Absorbed and/or Credits Allowed by
the Custodian............................................ 2.05%(5) 1.82%(10) 1.89% 1.89% 1.90%
</TABLE>
Footnotes appear on page 85
66
<PAGE> 71
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
SHORT TERM HIGH QUALITY BOND FUND CLASS A SHARES
<TABLE>
<CAPTION>
FISCAL
PERIOD NOVEMBER 1,
ENDED YEAR ENDED JUNE 30, 1993 TO
OCTOBER 31, ------------------------------------------------------- JUNE 30,
1998(1) 1998(6) 1997 1996 1995 1994(4)
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period.......................... $2.32 $2.32 $2.32 $2.35 $2.39 $2.50
------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net Investment Income......... 0.04 0.13 0.14 0.15(9) 0.08 0.09
Net Realized & Unrealized
Gain/(Loss) on Investments... 0.03 0.00(8) 0.00(8) (0.03) 0.02 (0.11)
------- ------- ------- ------- ------- -------
Total From Investment
Operations.................. 0.07 0.13 0.14 0.12 0.10 (0.02)
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from Net Investment
Income....................... (0.04) (0.13) (0.14) (0.15) (0.08) (0.09)
Distributions in Excess of Net
Investment Income............ - - - - (0.06) -
Distributions from Net
Realized Gains............... - - - - - -
Distributions in Excess of Net
Realized Gains............... - - - - - -
Distributions from Capital.... - (0.00)(8) - (0.00)(8) (0.00)(8) -
------- ------- ------- ------- ------- -------
Total Distributions......... (0.04) (0.13) (0.14) (0.15) (0.14) (0.09)
------- ------- ------- ------- ------- -------
Net Asset Value, End of
Period.......................... $2.35 $2.32 $2.32 $2.32 $2.35 $2.39
======= ======= ======= ======= ======= =======
Total Return(2)................. 3.11% 5.91% 6.15% 5.05% 4.42% (0.73)%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period
($1,000's)................... $32,748 $35,551 $13,685 $32,440 $43,811 $21,771
Ratio of Operating Expenses to
Average Net Assets(3)........ 0.82%(5) 0.86% 0.82% 0.75% 0.75% 0.00%(5)
Ratio of Net Investment Income
to Average Net Assets........ 5.44%(5) 5.71% 6.50% 6.22% 6.10% 5.70%(5)
Portfolio Turnover Rate....... 19% 138% 51% 225% 137% 95%
Ratio of Operating Expenses to
Average Net Assets Without
Fee Waivers, Expenses
Absorbed and/or Credit
Allowed by the Custodian..... 1.40%(5) 1.32%(10) 1.45%(10) 1.42%(10) 1.39% 1.61%(5)
</TABLE>
SHORT TERM HIGH QUALITY BOND FUND CLASS B SHARES
<TABLE>
<CAPTION>
FISCAL
PERIOD
ENDED YEAR ENDED JUNE 30,
OCTOBER 31, -----------------------------------------------------
1998(1) 1998(6) 1997 1996 1995(7)
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................. $2.32 $2.32 $2.32 $2.35 $2.39
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income.............................. 0.04 0.12 0.12 0.13(9) 0.06
Net Realized & Unrealized Gain/(Loss) on
Investments....................................... 0.03 0.00(8) 0.00(8) (0.03) 0.02
------ ------ ------ ------ ------
Total From Investment Operations................. 0.07 0.12 0.12 0.10 0.08
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income............... (0.04) (0.12) (0.12) (0.13) (0.06)
Distributions in Excess of Net Investment Income... - - - - (0.06)
Distributions from Net Realized Gains.............. - - - - -
Distributions in Excess of Net Realized Gains...... - - - - -
Distributions from Capital......................... - (0.00)(8) - (0.00)(8) (0.00)(8)
------ ------ ------ ------ ------
Total Distributions.............................. (0.04) (0.12) (0.12) (0.13) (0.12)
------ ------ ------ ------ ------
Net Asset Value, End of Period....................... $2.35 $2.32 $2.32 $2.32 $2.35
====== ====== ====== ====== ======
Total Return(2)...................................... 2.85% 5.13% 5.37% 4.27% 3.64%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's)............... $3,747 $3,459 $2,994 $3,437 $3,015
Ratio of Operating Expenses to Average Net
Assets(3)......................................... 1.57%(5) 1.61% 1.57% 1.50% 1.50%
Ratio of Net Investment Income to Average Net
Assets............................................ 4.69%(5) 4.96% 5.75% 5.47% 5.35%
Portfolio Turnover Rate............................ 19% 138% 51% 225% 137%
Ratio of Operating Expenses to Average Net Assets
Without Fee Waivers, Expenses Absorbed and/or
Credit Allowed by the Custodian................... 2.18%(5) 2.07%(10) 2.20%(10) 2.17%(10) 2.14%(10)
</TABLE>
Footnotes appear on page 85
67
<PAGE> 72
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
TARGET MATURITY 2002 FUND CLASS A SHARES
<TABLE>
<CAPTION>
FISCAL MARCH 20,
PERIOD ENDED YEAR ENDED JUNE 30, 1995 TO
OCTOBER 31, --------------------------- JUNE 30,
1998(1) 1998(6) 1997 1996 1995(4)
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $10.86 $10.69 $10.72 $10.78 $10.00
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income..................................... 0.23 0.61(9) 0.62(9) 0.63 0.12
Net Realized & Unrealized Gain/(Loss) on Investments...... 0.57 0.40 0.11 (0.30) 0.66
------ ------ ------ ------ ------
Total From Investment Operations........................ 0.80 1.01 0.73 0.33 0.78
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income...................... - (0.73) (0.71) (0.39) -
Distributions from Net Realized Gains..................... - (0.11) (0.05) - -
------ ------ ------ ------ ------
Total Distributions..................................... - (0.84) (0.76) (0.39) -
------ ------ ------ ------ ------
Net Asset Value, End of Period.............................. $11.66 $10.86 $10.69 $10.72 $10.78
====== ====== ====== ====== ======
Total Return(2)............................................. 7.37% 9.78% 6.95% 2.91% 7.80%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's)...................... $2,385 $2,536 $2,816 $3,125 $2,626
Ratio of Operating Expenses to Average Net Assets(3)...... 0.64%(5) 0.62% 0.64% 0.62% 0.74%(5)
Ratio of Net Investment Income to Average Net Assets...... 5.92%(5) 5.61% 5.80% 5.66% 5.22%(5)
Portfolio Turnover Rate................................... 0% 0% 0% 5% 0%
Ratio of Operating Expenses to Average Net Assets Without
Credits Allowed by the Custodian......................... - 0.71%(10) 0.72%(10) 0.70%(10) N/A
Ratio of Operating Expenses to Average Net Assets Without
Fee Waivers, Expenses Absorbed and/or Credits Allowed by
the Custodian............................................ 1.47%(5) 2.63%(10) 2.89%(10) 2.55%(10) 4.71%(5)
</TABLE>
Footnotes appear on page 85
68
<PAGE> 73
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
U.S. GOVERNMENT SECURITIES FUND CLASS A SHARES(17)
<TABLE>
<CAPTION>
FISCAL
PERIOD ENDED YEAR ENDED DECEMBER 31,
OCTOBER 31, ----------------------------------------------------
1998(1) 1997 1996 1995 1994 1993
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $10.84 $10.46 $10.84 $9.64 $10.79 $10.63
-------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income..................................... 0.54 0.62 0.63 0.63 0.63 0.69
Net Realized & Unrealized Gain/(Loss) on Investments...... 0.14 0.38 (0.38) 1.20 (1.15) 0.16
-------- -------- -------- -------- -------- --------
Total From Investment Operations........................ 0.68 1.00 0.25 1.83 (0.52) 0.85
-------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income...................... (0.54) (0.62) (0.63) (0.63) (0.63) (0.69)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period.............................. $10.98 $10.84 $10.46 $10.84 $9.64 $10.79
======== ======== ======== ======== ======== ========
Total Return(2)............................................. 6.38% 9.92% 2.48% 19.45% (4.91)% 8.12%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's)...................... $266,334 $107,054 $138,159 $177,310 $188,068 $268,112
Ratio of Operating Expenses to Average Net Assets(3)...... 0.92%(5) 1.05% 0.97% 1.01% 0.97% 0.99%
Ratio of Net Investment Income to Average Net Assets...... 5.99%(5) 5.92% 6.01% 6.08% 6.19% 6.29%
Portfolio Turnover Rate................................... 12% 6% 16% 8% 34% 51%
Ratio of operating expenses to average net assets w/o fee
waivers or fees reduced by credits allowed by the
custodian................................................ 1.45%(5) 1.05% 0.97% 1.01% 0.97% 0.99%
Ratio of operating expenses to average net assets
including interest expense............................... 1.36%(5) N/A N/A N/A N/A N/A
</TABLE>
U.S. GOVERNMENT SECURITIES FUND CLASS B SHARES(17)
<TABLE>
<CAPTION>
FISCAL MARCH 20,
PERIOD ENDED YEAR ENDED DECEMBER 31, 1994 TO
OCTOBER 31, ------------------------ DECEMBER 31,
1998(1) 1997 1996 1995 1994(8)
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $10.84 $10.46 $10.84 $9.64 $10.24
------- ------ ------ ------ -------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income..................................... 0.47 0.54 0.54 0.54 0.41
Net Realized & Unrealized Gain/(Loss) on Investments...... 0.12 0.38 (0.38) 1.20 (0.60)
------- ------ ------ ------ -------
Total From Investment Operations........................ 0.59 0.92 0.16 1.74 (0.19)
------- ------ ------ ------ -------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income...................... (0.46) (0.54) (0.54) (0.54) (0.41)
------- ------ ------ ------ -------
Net Asset Value, End of Period.............................. $10.97 $10.84 $10.46 $10.84 $9.64
======= ====== ====== ====== =======
Total Return(2)............................................. 5.54% 9.03% 1.58% 18.48% (1.86)%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's)...................... $28,747 $3,352 $2,963 $2,206 $1,063
Ratio of Operating Expenses to Average Net Assets(3)...... 1.67%(5) 1.84% 1.85% 1.84% 1.76%(5)
Ratio of Net Investment Income to Average Net Assets...... 5.24%(5) 5.08% 5.14% 5.20% 5.43%(5)
Portfolio Turnover Rate................................... 12% 6% 16% 8% 34%
Ratio of operating expenses to average net assets w/o fee
waivers or fees reduced by credits allowed by the
custodian................................................ 2.22%(5) 1.84% 1.85% 1.84% 1.76%
Ratio of operating expenses to average net assets
including interest expense............................... 2.12%(5) N/A N/A N/A N/A
</TABLE>
Footnotes appear on page 85
69
<PAGE> 74
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
INCOME FUND CLASS A SHARES(19)
<TABLE>
<CAPTION>
FISCAL
PERIOD ENDED YEAR ENDED DECEMBER 31,
OCTOBER 31, ------------------------------------------------
1998(1) 1997 1996 1995 1994 1993
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period:....................... $9.48 $9.15 $9.44 $8.29 $9.33 $8.99
-------- ------- ------- ------- ------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income..................................... 0.53 0.60 0.59 0.59 0.60 0.61
Net Realized & Unrealized Gain/(Loss) on Investments...... (0.04)(12) 0.33 (0.29) 1.15 (1.04) 0.34
-------- ------- ------- ------- ------- --------
Total From Investment Operations........................ 0.49 0.93 0.30 1.74 (0.44) 0.95
-------- ------- ------- ------- ------- --------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income...................... (0.53) (0.60) (0.59) (0.59) (0.60) (0.61)
-------- ------- ------- ------- ------- --------
Net Asset Value, End of Period.............................. $9.44 $9.48 $9.15 $9.44 $8.29 $9.33
======== ======= ======= ======= ======= ========
Total Return(2)............................................. 5.21% 10.51% 3.46% 21.58% (4.82)% 10.82%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's)...................... $213,397 $77,864 $86,657 $97,534 $88,102 $104,876
Ratio of Operating Expenses to Average Net Assets(3)...... 1.07%(5) 1.08% 1.03% 1.08% 1.04% 1.08%
Ratio of Net Investment Income to Average Net Assets...... 6.66%(5) 6.47% 6.52% 6.59% 6.83% 6.58%
Portfolio Turnover Rate................................... 37% 27% 42% 43% 26% 51%
</TABLE>
INCOME FUND CLASS B SHARES(19)
<TABLE>
<CAPTION>
FISCAL MARCH 30,
PERIOD ENDED YEAR ENDED DECEMBER 31, 1994 TO
OCTOBER 31, ------------------------ APRIL 30,
1998(1) 1997 1996 1995 1994(18)
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period:....................... $9.49 $9.17 $9.46 $8.30 $8.85
------- ------ ------ ------ -------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income..................................... 0.46 0.53 0.52 0.51 0.40
Net Realized & Unrealized Gain/(Loss) on Investments...... (0.04)(12) 0.32 (0.29) 1.16 (0.55)
------- ------ ------ ------ -------
Total From Investment Operations........................ 0.42 0.85 0.23 1.67 (0.15)
------- ------ ------ ------ -------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income...................... (0.46) (0.53) (0.52) (0.51) (0.40)
------- ------ ------ ------ -------
Net Asset Value, End of Period.............................. $9.45 $9.49 $9.17 $9.46 $8.30
======= ====== ====== ====== =======
Total Return(2)............................................. 4.51% 9.51% 2.59% 20.70% (1.67)%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's)...................... $34,321 $9,691 $7,122 $4,452 $2,299
Ratio of Operating Expenses to Average Net Assets(3)...... 1.84%(5) 1.86% 1.89% 1.91% 1.80%(5)
Ratio of Net Investment Income to Average Net Assets...... 5.89%(5) 5.65% 5.69% 5.73% 6.25%(5)
Portfolio Turnover Rate................................... 37% 27% 42% 43% 26%
</TABLE>
Footnotes appear on page 85
70
<PAGE> 75
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
HIGH YIELD FUND CLASS A SHARES
<TABLE>
<CAPTION>
FISCAL PERIOD
APRIL 8, 1998 -
OCTOBER 31, 1998(4)
--------------------
<S> <C>
Net Asset Value, Beginning of Period........................ $10.00
-------
INCOME FROM INVESTMENT OPERATIONS:
Net Investments Income.................................... 0.47
Net Realized & Unrealized Loss on Investments............. (1.15)
-------
Total from Investment Operations........................ (0.68)
-------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income...................... (0.45)
Distributions in Excess of Net Investment Income.......... (0.01)
Distributions from Net Realized Gains..................... -
Distributions in Excess of Net Realized Gains............. -
Distributions from Capital................................ -
-------
Total Distributions..................................... (0.46)
-------
Net Asset Value, End of Period.............................. $8.86
=======
Total Return(5)............................................. (6.90)%
RATIOS/SUPPLEMENTAL DATA:
Net Assets End of Period ($1,000's)....................... $10,861
Ratio of Operating Expenses to Average Net Assets(12)..... 0.78%(5)
Ratio of Net Investment Income to Average Net Assets...... 8.80%(5)
Portfolio Turnover Rate................................... 54%
Ratio of Operating Expenses to Average Net Assets Without
Fee Waivers or fees reduced by Credits Allowed by the
Custodian................................................ 1.22%(5)
</TABLE>
HIGH YIELD FUND CLASS B SHARES
<TABLE>
<CAPTION>
FISCAL PERIOD
MAY 5, 1998 -
OCTOBER 31, 1998(4)
---------------------
<S> <C>
Net Asset Value, Beginning of Period........................ $10.00
-------
INCOME FROM INVESTMENT OPERATIONS:
Net Investments Income.................................... 0.42
Net Realized & Unrealized Loss on Investments............. (1.09)
-------
Total from Investment Operations........................ (0.67)
-------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income...................... (0.42)
Distributions in Excess of Net Investment Income.......... (0.01)
Distributions from Net Realized Gains..................... -
Distributions in Excess of Net Realized Gains............. -
Distributions from Capital................................ -
-------
Total Distributions..................................... (0.43)
-------
Net Asset Value, End of Period.............................. $8.90
=======
Total Return(5)............................................. (6.33)%
RATIOS/SUPPLEMENTAL DATA:
Net Assets End of Period ($1,000's)....................... $2,830
Ratio of Operating Expenses to Average Net Assets(12)..... 1.57%(5)
Ratio of Net Investment Income to Average Net Assets...... 8.01%(5)
Portfolio Turnover Rate................................... 54%
Ratio of Operating Expenses to Average Net Assets Without
Fee Waivers or fees reduced by Credits Allowed by the
Custodian................................................ 2.02%(5)
</TABLE>
Footnotes appear on page 85
71
<PAGE> 76
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
TAX EXEMPT BOND FUND CLASS A SHARES(21)
<TABLE>
<CAPTION>
FISCAL
PERIOD ENDED YEAR ENDED DECEMBER 31,
OCTOBER 31, -------------------------------------------
1998(1) 1997 1996 1995 1994 1993
----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $8.09 $7.83 $8.02 $7.13 $8.04 $7.58
----- ----- ------ ------ ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income..................................... 0.34 0.38 0.38 0.38 0.39 0.40
Net Realized & Unrealized Gain/(Loss) on Investments...... 0.02 0.27 (0.19) 0.89 (0.91) 0.54
----- ----- ------ ------ ------- -------
Total From Investment Operations........................ 0.36 0.65 0.19 1.27 (0.52) 0.94
----- ----- ------ ------ ------- -------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income...................... (0.34) (0.38) (0.38) (0.38) (0.39) (0.40)
Distribution from Capital Gains........................... - (0.01) - - - (0.08)
----- ----- ------ ------ ------- -------
Total Distributions..................................... (0.34) (0.39) (0.38) (0.38) (0.39) (0.48)
----- ----- ------ ------ ------- -------
Net Asset Value, End of Period.............................. $8.11 $8.09 $7.83 $8.02 $7.13 $8.04
===== ===== ====== ====== ======= =======
Total Return(2)............................................. 4.58% 8.59% 2.52% 18.25% (6.53)% 12.54%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's)...................... $301,162 $188,021 $203,606 $230,055 $215,438 $259,045
Ratio of Operating Expenses to Average Net Assets(3)...... 0.84%(5) 0.80% 0.75% 0.81% 0.79% 0.81%
Ratio of Net Investment Income to Average Net Assets...... 5.14%(5) 4.84% 4.90% 5.03% 5.23% 4.97%
Portfolio Turnover Rate................................... 6% 21% 22% 8% 12% 19%
</TABLE>
TAX-EXEMPT BOND FUND CLASS B SHARES(21)
<TABLE>
<CAPTION>
FISCAL MARCH 20,
PERIOD ENDED YEAR ENDED DECEMBER 31, 1994 TO
OCTOBER 31, ------------------------- DECEMBER 31,
1998(1) 1997 1996 1995 1994(18)
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $8.09 $7.83 $8.02 $7.13 $7.49
----- ----- ----- ------ -------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income..................................... 0.28 0.32 0.31 0.32 0.25
Net Realized & Unrealized Gain/(Loss) on Investments...... 0.03 0.27 (0.19) 0.89 (0.36)
----- ----- ----- ------ -------
Total From Investment Operations........................ 0.31 0.59 0.12 1.21 (0.11)
----- ----- ----- ------ -------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income...................... (0.29) (0.32) (0.31) (0.32) (0.25)
Distribution from Capital Gains........................... - (0.01) - - -
----- ----- ----- ------ -------
Total Distributions..................................... (0.29) (0.33) - - -
----- ----- ----- ------ -------
Net Asset Value, End of Period.............................. $8.11 $8.09 $7.83 $8.02 $7.13
===== ===== ===== ====== =======
Total Return(2)............................................. 3.88% 7.71% 1.61% 17.30% (1.46)%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's)...................... $17,344 $8,110 $5,266 $2,682 $1,258
Ratio of Operating Expenses to Average Net Assets(3)...... 1.62%(5) 1.62% 1.65% 1.62% 1.58%(5)
Ratio of Net Investment Income to Average Net Assets...... 4.36%(5) 4.00% 4.01% 4.18% 4.53%(5)
Portfolio Turnover Rate................................... 6% 21% 22% 8% 12%
</TABLE>
Footnotes appear on page 85
72
<PAGE> 77
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
CALIFORNIA MUNICIPAL FUND CLASS A SHARES
<TABLE>
<CAPTION>
FISCAL
PERIOD ENDED YEAR ENDED JUNE 30,
OCTOBER 31, ------------------------------------------------
1998(1) 1998(6) 1997 1996 1995 1994
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $11.33 $10.92 $10.60 $10.53 $10.38 $11.22
------ ------ ------ ------ ------ -------
INCOME FROM INVESTMENT OPERATIONS:
Net Investments Income.................................... 0.19(9) 0.58(9) 0.59 0.60(9) 0.61 0.61
Net Realized & Unrealized Gain/(Loss) on Investments...... 0.13 0.41 0.32 0.07 0.15 (0.82)
------ ------ ------ ------ ------ -------
Total From Investment Operations........................ 0.32 0.99 0.91 0.67 0.76 (0.21)
------ ------ ------ ------ ------ -------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income...................... (0.19) (0.58) (0.59) (0.60) (0.61) (0.61)
Distributions in Excess of Net Investment Income.......... - - - - - (0.00)(8)
Distributions from Net Realized Gains..................... - - - - (0.00)(8) -
Distributions in Excess of Net Realized Gains............. - - - - - (0.02)
Distributions from Capital................................ - - - - - -
------ ------ ------ ------ ------ -------
Total Distributions..................................... (0.19) (0.58) (0.59) (0.60) (0.61) (0.63)
------ ------ ------ ------ ------ -------
Net Asset Value, End of Period.............................. $11.46 $11.33 $10.92 $10.60 $10.53 $10.38
====== ====== ====== ====== ====== =======
Total Return(2)............................................. 2.82% 9.26% 8.83% 6.40% 7.57% (2.19)%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's)...................... $287,590 $290,328 $318,251 $372,177 $405,967 $509,223
Ratio of Operating Expenses to Average Net Assets(3)...... 0.97%(5) 1.00% 0.97% 0.94% 0.85% 0.79%
Ratio of Net Investment Income to Average Net Assets...... 4.87%(5) 5.18% 5.51% 5.56% 5.89% 5.45%
Portfolio Turnover Rate................................... 28% 87% 36% 17% 22% 50%
Ratio of Operating Expenses to Average Net Assets Without
Fee Waivers, Expenses Absorbed and/or Credits Allowed by
the Custodian............................................ 1.05%(5) 1.19%(10) 1.26%(10) 1.29%(10) 1.29% 1.39%
</TABLE>
CALIFORNIA MUNICIPAL FUND CLASS B SHARES
<TABLE>
<CAPTION>
FISCAL
PERIOD
ENDED YEAR ENDED JUNE 30,
OCTOBER 31, -----------------------------------
1998(1) 1998(6) 1997 1996 1995(7)
--------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $11.33 $10.92 $10.60 $10.53 $10.38
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net Investments Income.................................... 0.16(9) 0.50(9) 0.51 0.51(9) 0.53
Net Realized & Unrealized Gain on Investments............. 0.13 0.41 0.32 0.07 0.15
------ ------ ------ ------ ------
Total From Investment Operations........................ 0.29 0.91 0.83 0.58 0.68
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income...................... (0.16) (0.50) (0.51) (0.51) (0.53)
Distributions in Excess of Net Investment Income.......... - - - - -
Distributions from Net Realized Gains..................... - - - - (0.00)(8)
Distributions in Excess of Net Realized Gains............. - - - - -
Distributions from Capital................................ - - - - -
------ ------ ------ ------ ------
Total Distributions..................................... (0.16) (0.50) (0.51) (0.51) (0.53)
------ ------ ------ ------ ------
Net Asset Value, End of Period.............................. $11.46 $11.33 $10.92 $10.60 $10.53
====== ====== ====== ====== ======
Total Return(2)............................................. 2.56% 8.45% 8.02% 5.61% 6.78%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's)...................... $49,683 $34,537 $25,219 $20,543 $7,230
Ratio of Operating Expenses to Average Net Assets(3)...... 1.72%(5) 1.75% 1.72% 1.69% 1.60%
Ratio of Net Investment Income to Average Net Assets...... 4.12%(5) 4.42% 4.76% 4.81% 5.14%
Portfolio Turnover Rate................................... 28% 87% 36% 17% 22%
Ratio of Operating Expenses to Average Net Assets Without
Fee Waivers, Expenses Absorbed and/or Credits Allowed by
the Custodian............................................ 1.81%(5) 1.95%(10) 2.01%(10) 2.04%(10) 2.04%
</TABLE>
Footnotes appear on page 85
73
<PAGE> 78
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
CALIFORNIA INSURED INTERMEDIATE MUNICIPAL FUND CLASS A SHARES
<TABLE>
<CAPTION>
FISCAL
PERIOD APRIL 4,
ENDED YEAR ENDED JUNE 30, 1994 TO
OCTOBER 31, -------------------------------------- JUNE 30,
1998(1) 1998(6) 1997 1996 1995 1994(4)
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $10.81 $10.74 $10.56 $10.45 $10.10 $10.00
------ ------ ------ ------- ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net Investments Income.................................... 0.16 0.49 0.49(9) 0.49 0.50 0.11
Net Realized & Unrealized Gain on Investments............. 0.21 0.17 0.23 0.15 0.35 0.11(12)
------ ------ ------ ------- ------ ------
Total From Investment Operations........................ 0.37 0.66 0.72 0.64 0.85 0.22
------ ------ ------ ------- ------ ------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income...................... (0.16) (0.49) (0.49) (0.49) (0.50) (0.11)
Distributions in Excess of Net Investment Income.......... - (0.00)(8) - - - -
Distributions from Net Realized Gains..................... - (0.10) (0.05) (0.04) - (0.01)
Distributions in Excess of Net Realized Gains............. - - - - - -
Distributions from Capital................................ - - - - - -
------ ------ ------ ------- ------ ------
Total Distributions..................................... (0.16) (0.59) (0.54) (0.53) (0.50) (0.12)
------ ------ ------ ------- ------ ------
Net Asset Value, End of Period.............................. $11.02 $10.81 $10.74 $10.56 $10.45 $10.10
====== ====== ====== ======= ====== ======
Total Return(2)............................................. 3.46% 6.26% 6.97% 6.25% 8.71% 2.20%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's)...................... $37,529 $38,724 $45,157 $54,518(10) $54,507 $34,147
Ratio of Operating Expenses to Average Net Assets(3)...... 0.82%(5) 0.86% 0.82% 0.73% 0.42% 0.00%(5)
Ratio of Net Investment Income to Average Net Assets...... 4.39%(5) 4.49% 4.61% 4.62% 4.95% 4.25%(5)
Portfolio Turnover Rate................................... 7% 25% 29% 27% 13% 17%
Ratio of Operating Expenses to Average Net Assets Without
Credits Allowed by the Custodian......................... - 0.86%(10) 0.83%(10) 0.75%(10) N/A N/A
Ratio of Operating Expenses to Average Net Assets Without
Fee Waivers, Expenses Absorbed and/or Credits Allowed by
the Custodian............................................ 1.15%(5) 1.25%(10) 1.31%(10) 1.39%(10) 1.41% 1.95%(5)
</TABLE>
CALIFORNIA INSURED INTERMEDIATE MUNICIPAL FUND CLASS B SHARES
<TABLE>
<CAPTION>
FISCAL
PERIOD
ENDED YEAR ENDED JUNE 30,
OCTOBER 31, --------------------------------------
1998(1) 1998(6) 1997 1996 1995(7)
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $10.81 $10.74 $10.56 $10.45 $10.10
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net Investments Income.................................... 0.13 0.41 0.41(9) 0.41 0.43
Net Realized & Unrealized Gain on Investments............. 0.21 0.17 0.23 0.15 0.35
------ ------ ------ ------ ------
Total From Investment Operations........................ 0.34 0.58 0.64 0.56 0.78
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income...................... (0.13) (0.41) (0.41) (0.41) (0.43)
Distributions in Excess of Net Investment Income.......... - (0.00)(8) - - -
Distributions from Net Realized Gains..................... - (0.10) (0.05) (0.04) -
Distributions in Excess of Net Realized Gains............. - - - - -
Distributions from Capital................................ - - - - -
------ ------ ------ ------ ------
Total Distributions..................................... (0.13) (0.51) (0.46) (0.45) (0.43)
------ ------ ------ ------ ------
Net Asset Value, End of Period.............................. $11.02 $10.81 $10.74 $10.56 $10.45
====== ====== ====== ====== ======
Total Return(2)............................................. 3.20% 5.47% 6.17% 5.46% 7.90%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's)...................... $23,960 $21,688 $20,992 $20,948 $12,391
Ratio of Operating Expenses to Average Net Assets(3)...... 1.57%(5) 1.61% 1.57% 1.48% 1.17%
Ratio of Net Investment Income to Average Net Assets...... 3.64%(5) 3.74% 3.86% 3.87% 4.20%
Portfolio Turnover Rate................................... 7% 25% 29% 27% 13%
Ratio of Operating Expenses to Average Net Assets Without
Credits Allowed by the Custodian......................... - 1.61%(10) 1.58%(10) 1.50%(10) N/A
Ratio of Operating Expenses to Average Net Assets Without
Fee Waivers, Expenses Absorbed and/or Credits Allowed by
the Custodian............................................ 1.90%(5) 2.01%(10) 2.06%(10) 2.14%(10) 2.16%
</TABLE>
Footnotes appear on page 85
74
<PAGE> 79
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FLORIDA INSURED MUNICIPAL FUND CLASS A SHARES
<TABLE>
<CAPTION>
FISCAL
PERIOD
ENDED YEAR ENDED JUNE 30,
OCTOBER 31, ------------------------------------------------
1998(1) 1998(6) 1997 1996 1995 1994
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $10.35 $9.93 $9.64 $9.43 $9.40 $10.05
------ ------ ----- ----- ----- ------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income..................................... 0.17 0.49 0.49(9) 0.50 0.52 0.52
Net Realized & Unrealized Gain/(Loss) on Investments...... 0.15 0.42 0.30 0.21 0.03(12) (0.65)
------ ------ ----- ----- ----- ------
Total From Investment Operations........................ 0.32 0.91 0.79 0.71 0.55 (0.13)
------ ------ ----- ----- ----- ------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income...................... (0.17) (0.49) (0.50) (0.50) (0.52) (0.52)
Distributions in Excess of Net Investment Income.......... - - (0.00)(8) - - (0.00)(8)
Distributions from Net Realized Gains..................... - - - - - -
Distributions in Excess of Net Realized Gains............. - - - - - (0.00)(8)
Distributions from Capital................................ - - - - - -
------ ------ ----- ----- ----- ------
Total Distributions..................................... (0.17) (0.49) (0.50) (0.50) (0.52) (0.52)
------ ------ ----- ----- ----- ------
Net Asset Value, End of Period.............................. $10.50 $10.35 $9.93 $9.64 $9.43 $9.40
====== ====== ===== ===== ===== ======
Total Return(2)............................................. 3.08% 9.34% 8.43% 7.56% 6.01% (1.50%)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's)...................... $15,813 $16,538 $22,761 $29,821 $33,714 $38,541
Ratio of Operating Expenses to Average Net Assets(3)...... 0.82%(5) 0.88% 0.82% 0.63% 0.39% 0.00%
Ratio of Net Investment Income to Average Net Assets...... 4.76%(5) 4.79% 5.01% 5.08% 5.53% 5.09%
Portfolio Turnover Rate................................... 40% 51% 53% 52% 44% 83%
Ratio of Operating Expenses to Average Net Assets Without
Credit Allowed by the Custodian.......................... - 0.89%(10) 0.84%(10) 0.66%(10) N/A N/A
Ratio of Operating Expenses to Average Net Assets Without
Fee Waivers, Expenses Absorbed and/or Credit Allowed by
the Custodian............................................ 1.40%(5) 1.45%(10) 1.46%(10) 1.46%(10) 1.51% 1.55%
</TABLE>
FLORIDA INSURED MUNICIPAL FUND CLASS B SHARES
<TABLE>
<CAPTION>
FISCAL
PERIOD
ENDED YEAR ENDED JUNE 30,
OCTOBER 31, --------------------------------------
1998(1) 1998(6) 1997 1996 1995(7)
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $10.35 $9.93 $9.64 $9.43 $9.40
------ ------ ----- ----- -----
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income..................................... 0.14 0.41 0.42(9) 0.42 0.45
Net Realized & Unrealized Gain on Investments............. 0.15 0.43 0.30 0.21 0.03(12)
------ ------ ----- ----- -----
Total From Investment Operations........................ 0.29 0.84 0.72 0.63 0.48
------ ------ ----- ----- -----
LESS DISTRIBUTIONS:
Dividends from Net Investment Income...................... (0.14) (0.42) (0.43) (0.42) (0.45)
Distributions in Excess of Net Investment Income.......... - - (0.00)(8) - -
Distributions from Net Realized Gains..................... - - - - -
Distributions in Excess of Net Realized Gains............. - - - - -
Distributions from Capital................................ - - - - -
------ ------ ----- ----- -----
Total Distributions..................................... (0.14) (0.42) (0.43) (0.42) (0.45)
------ ------ ----- ----- -----
Net Asset Value, End of Period.............................. $10.50 $10.35 $9.93 $9.64 $9.43
====== ====== ===== ===== =====
Total Return(2)............................................. 2.82% 8.53% 7.63% 6.76% 5.23%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's)...................... $6,054 $5,075 $5,067 $5,428 $3,330
Ratio of Operating Expenses to Average Net Assets(3)...... 1.57%(5) 1.63% 1.57% 1.38% 1.14%
Ratio of Net Investment Income to Average Net Assets...... 4.01%(5) 4.04% 4.26% 4.33% 4.78%
Portfolio Turnover Rate................................... 40% 51% 53% 52% 44%
Ratio of Operating Expenses to Average Net Assets Without
Credit Allowed by the Custodian.......................... - 1.64%(10) 1.59%(10) 1.41%(10) N/A
Ratio of Operating Expenses to Average Net Assets Without
Fee Waivers, Expenses Absorbed and/or Credit Allowed by
the Custodian............................................ 2.15%(5) 2.21%(10) 2.21%(10) 2.21%(10) 2.26%
</TABLE>
Footnotes appear on page 85
75
<PAGE> 80
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
BOND & STOCK FUND CLASS A SHARES(22)
<TABLE>
<CAPTION>
FISCAL
PERIOD ENDED YEAR ENDED OCTOBER 31,
OCTOBER 31, ---------------------------------
1998 1997 1996 1995 1994
------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $16.13 $14.71 $13.48 $11.53 $12.23
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income..................................... 0.45(9) 0.50 0.52 0.50 0.46
Net Realized & Unrealized Gain/(Loss) on Investments...... 0.21(12) 2.37 1.53 2.02 (0.57)
------ ------ ------ ------ ------
Total From Investment Operations........................ 0.66 2.87 2.05 2.52 (0.11)
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income...................... (0.45) (0.51) (0.50) (0.49) (0.44)
Distributions from Capital Gains.......................... (2.32) (0.94) (0.32) (0.08) (0.15)
------ ------ ------ ------ ------
Total Distributions..................................... (2.77) (1.45) (0.82) (0.57) (0.59)
------ ------ ------ ------ ------
Net Asset Value, End of Period.............................. $14.02 $16.13 $14.71 $13.48 $11.53
====== ====== ====== ====== ======
Total Return(2)............................................. 4.03% 20.81% 15.66% 22.55% (0.90)%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's)...................... $298,651 $307,018 $255,414 $208,592 $191,615
Ratio of Operating Expenses to Average Net Assets(3)...... 0.97% 0.99% 0.98% 1.02% 1.06%
Ratio of Net Investment Income to Average Net Assets...... 3.09% 3.31% 3.68% 3.98% 3.97%
Portfolio Turnover Rate................................... 80% 54% 46% 32% 25%
</TABLE>
BOND & STOCK FUND CLASS B SHARES(22)
<TABLE>
<CAPTION>
FISCAL MARCH 30,
PERIOD ENDED YEAR ENDED OCTOBER 31, 1994 TO
OCTOBER 31, ------------------------ OCTOBER 31,
1998 1997 1996 1995 1994(18)
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $16.10 $14.69 $13.47 $11.51 $11.49
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income..................................... 0.33(9) 0.39 0.41 0.39 0.18
Net Realized & Unrealized Gain on Investments............. 0.19(12) 2.36 1.53 2.03 0.04
------ ------ ------ ------ ------
Total From Investment Operations........................ 0.52 2.75 1.94 2.42 0.22
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income...................... (0.34) (0.40) (0.40) (0.38) (0.20)
Distributions from Capital Gains.......................... (2.32) (0.94) (0.32) (0.08) -
------ ------ ------ ------ ------
Total Distributions..................................... (2.66) (1.34) (0.72) (0.46) (0.20)
------ ------ ------ ------ ------
Net Asset Value, End of Period.............................. $13.96 $16.10 $14.69 $13.47 $11.51
====== ====== ====== ====== ======
Total Return(2)............................................. 3.12% 19.86% 14.73% 21.60% 1.94%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's)...................... $74,542 $46,556 $22,243 $7,372 $3,362
Ratio of Operating Expenses to Average Net Assets(3)...... 1.76% 1.79% 1.86% 1.84% 1.77%(5)
Ratio of Net Investment Income to Average Net Assets...... 2.30% 2.48% 2.80% 3.10% 3.22%(5)
Portfolio Turnover Rate................................... 80% 54% 46% 32% 25%
</TABLE>
Footnotes appear on page 85
76
<PAGE> 81
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
GROWTH & INCOME FUND CLASS A SHARES(23)
<TABLE>
<CAPTION>
FISCAL
PERIOD ENDED YEAR ENDED OCTOBER 31,
OCTOBER 31, ---------------------------------
1998 1997 1996 1995 1994
------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $21.01 $17.26 $14.65 $12.71 $12.81
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income..................................... 0.11(9) 0.12 0.20 0.22 0.18
Net Realized & Unrealized Gain/(Loss) on Investments...... 1.43 4.98 3.16 2.31 0.85
------ ------ ------ ------ ------
Total From Investment Operations........................ 1.54 5.10 3.36 2.53 1.03
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income...................... (0.09) (0.14) (0.21) (0.19) (0.18)
Distributions from Capital Gains.......................... (2.47) (1.21) (0.54) (0.40) (0.95)
------ ------ ------ ------ ------
Total Distributions..................................... (2.56) (1.35) (0.75) (0.59) (1.13)
------ ------ ------ ------ ------
Net Asset Value, End of Period.............................. $19.99 $21.01 $17.26 $14.65 $12.71
====== ====== ====== ====== ======
Total Return(2)............................................. 7.38% 31.24% 23.61% 20.87% 8.55%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's)...................... $502,115 $299,928 $178,331 $130,630 $102,837
Ratio of Operating Expenses to Average Net Assets(3)...... 0.94% 1.05% 1.03% 1.07% 1.10%
Ratio of Net Investment Income to Average Net Assets...... 0.52% 0.66% 1.26% 1.62% 1.45%
Portfolio Turnover Rate................................... 79% 71% 52% 39% 34%
</TABLE>
GROWTH & INCOME FUND CLASS B SHARES(23)
<TABLE>
<CAPTION>
FISCAL MARCH 30,
PERIOD ENDED YEAR ENDED OCTOBER 31, 1994 TO
OCTOBER 31, ------------------------- OCTOBER 31,
1998 1997 1996 1995 1994(18)
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $20.85 $17.17 $14.59 $12.68 $12.00
-------- ------- ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income/(Loss).............................. (0.07)(9) (0.02) 0.06 0.11 0.05
Net Realized & Unrealized Gain on Investments............. 1.46 4.93 3.14 2.31 0.69
-------- ------- ------ ------ ------
Total From Investment Operations........................ 1.39 4.91 3.20 2.42 0.74
-------- ------- ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income...................... (0.00)(8) (0.02) (0.08) (0.11) (0.06)
Distributions from Capital Gains.......................... (2.47) (1.21) (0.54) (0.40) -
-------- ------- ------ ------ ------
Total Distributions..................................... (2.47) (1.23) (0.62) (0.51) (0.06)
-------- ------- ------ ------ ------
Net Asset Value, End of Period.............................. $19.77 $20.85 $17.17 $14.59 $12.68
======== ======= ====== ====== ======
Total Return(2)............................................. 6.60% 30.20% 22.55% 19.95% 6.14%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's)...................... $117,063 $49,994 $22,851 $8,871 $2,082
Ratio of Operating Expenses to Average Net Assets(3)...... 1.79% 1.88% 1.94% 1.91% 1.85%(5)
Ratio of Net Investment Income/(Loss) to Average Net
Assets................................................... (0.33)% (0.19)% 0.34% 0.69% 0.65%(5)
Portfolio Turnover Rate................................... 79% 71% 52% 39% 34%
</TABLE>
Footnotes appear on page 85
77
<PAGE> 82
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NORTHWEST FUND CLASS A SHARES(24)
<TABLE>
<CAPTION>
FISCAL
PERIOD ENDED YEAR ENDED OCTOBER 31,
OCTOBER 31, -----------------------------------
1998 1997 1996 1995 1994
--------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $25.92 $19.69 $17.40 $14.30 $14.50
------ ------- ------ ------ -------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income/(Loss).............................. (0.02)(9) (0.02) 0.03 0.07 0.08
Net Realized & Unrealized Gain/(Loss) on Investments...... (0.76) 8.13 2.47 3.10 0.35
------ ------- ------ ------ -------
Total From Investment Operations........................ (0.78) 8.11 2.50 3.17 0.43
------ ------- ------ ------ -------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income...................... - - (0.03) (0.07) (0.08)
Distributions from Capital Gains.......................... (4.74) (1.88) (0.18) - (0.55)
Distributions from Capital................................ (0.03) - - - -
------ ------- ------ ------ -------
Total Distributions..................................... (4.77) (1.88) (0.21) (0.07) (0.63)
------ ------- ------ ------ -------
Net Asset Value, End of Period.............................. $20.37 $25.92 $19.69 $17.40 $14.30
====== ======= ====== ====== =======
Total Return(2)............................................. (4.81)% 44.47% 14.54% 22.24% 2.97%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's)...................... $243,126 $256,908 $176,706 $157,953 $152,622
Ratio of Operating Expenses to Average Net Assets(3)...... 1.10% 1.05% 1.08% 1.10% 1.09%
Ratio of Net Investment Income/(Loss) to Average Net
Assets................................................... (0.09)% (0.08)% 0.16% 0.44% 0.51%
Portfolio Turnover Rate................................... 39% 37% 42% 9% 11%
Ratio of operating expenses to average net assets w/o fee
waivers or fees reduced by credits allowed by the
custodian................................................ 1.10% 1.11% 1.08% 1.10% 1.09%
</TABLE>
NORTHWEST FUND CLASS B SHARES(24)
<TABLE>
<CAPTION>
FISCAL MARCH 30,
PERIOD ENDED YEAR ENDED OCTOBER 31, 1994 TO
OCTOBER 31, --------------------------- OCTOBER 31,
1998 1997 1996 1995 1994(18)
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $25.34 $19.45 $17.31 $14.28 $14.42
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Loss....................................... (0.20)(9) (0.08) (0.08) (0.05) (0.02)
Net Realized & Unrealized Gain/(Loss) on Investments...... (0.73) 7.85 2.40 3.08 (0.12)
------- ------- ------- ------- -------
Total From Investment Operations........................ (0.93) 7.77 2.32 3.03 (0.14)
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income...................... - - - - -
Distributions from Capital Gains.......................... (4.74) (1.88) (0.18) - -
Distributions from Capital................................ (0.03) - - - -
------- ------- ------- ------- -------
Total Distributions..................................... (4.77) (1.88) (0.18) - -
------- ------- ------- ------- -------
Net Asset Value, End of Period.............................. $19.64 $25.34 $19.45 $17.31 $14.28
======= ======= ======= ======= =======
Total Return(2)............................................. (5.63)% 43.17% 13.54% 21.25% (0.97)%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's)...................... $47,106 $39,627 $14,653 $7,083 $3,012
Ratio of Operating Expenses to Average Net Assets(3)...... 1.95% 1.91% 1.98% 1.95% 1.96%(5)
Ratio of Net Investment Loss to Average Net Assets........ (0.94)% (0.94)% (0.76)% (0.45)% (0.39)%(5)
Portfolio Turnover Rate................................... 39% 37% 42% 9% 11%
Ratio of operating expenses to average net assets w/o fee
waivers or fees reduced by credits allowed by the
custodian................................................ 1.95% 1.97% 1.98% 1.95% 1.96%(5)
</TABLE>
Footnotes appear on page 85
78
<PAGE> 83
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
GROWTH FUND CLASS A SHARES
<TABLE>
<CAPTION>
FISCAL
PERIOD ENDED YEAR ENDED JUNE 30,
OCTOBER 31, ---------------------------------------------------
1998(1) 1998(6) 1997 1996 1995 1994
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.............. $18.46 $14.90 $15.69 $14.18 $10.73 $10.72
------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income/(Loss).................... (0.07)(9) (0.15)(9) (0.03)(9) (0.07)(9) 0.05(9) (0.02)
Net Realized & Unrealized Gain/(Loss) on
Investments.................................... (0.75) 4.99 1.58 3.47 3.42 0.03(12)
------ ------ ------ ------ ------ ------
Total From Investment Operations.............. (0.82) 4.84 1.55 3.40 3.47 0.01
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income............ - - - - (0.02) -
Distributions in Excess of Net Investment
Income......................................... - - - - - -
Distributions from Net Realized Gains........... - (1.28) (2.34) (1.89) (0.00)(8) -
Distributions in Excess of Net Realized Gains... - - - - - -
Distributions from Capital...................... - - - - - -
------ ------ ------ ------ ------ ------
Total Distributions........................... - (1.28) (2.34) (1.89) (0.02) -
------ ------ ------ ------ ------ ------
Net Asset Value, End of Period.................... $17.64 $18.46 $14.90 $15.69 $14.18 $10.73
====== ====== ====== ====== ====== ======
Total Return(2)................................... (4.44)% 35.43% 10.88% 25.44% 32.33% 0.00%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's)............ $104,775 $112,153 $111,187 $179,720 $154,763 $126,808
Ratio of Operating Expenses to Average Net
Assets(3)...................................... 1.69%(5) 1.66% 1.70% 1.70% 1.76% 1.75%
Ratio of Net Investment Income to Average Net
Assets......................................... (1.21)%(5) (0.91)% (0.22)% (0.49)% 0.28% -0.35%
Portfolio Turnover Rate......................... 24% 153% 156% 205% 233% 227%
Ratio of Operating Expenses to Average Net
Assets Without Credits Allowed by the
Custodian...................................... - 1.66%(10) 1.70%(10) 1.71%(10) N/A N/A
Ratio of Operating Expenses to Average Net
Assets Without Fee Waivers, Expenses Absorbed
and/or Credits Allowed by the Custodian........ - 1.66%(10) 1.70%(10) 1.71%(10) 1.76% 1.75%
</TABLE>
GROWTH FUND CLASS B SHARES
<TABLE>
<CAPTION>
FISCAL
PERIOD ENDED YEAR ENDED JUNE 30,
OCTOBER 31, -----------------------------------------
1998(1) 1998(6) 1997 1996 1995(7)
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $17.82 $14.53 $15.47 $14.10 $10.73
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Loss....................................... (0.12)(9) (0.25)(9) (0.14)(9) (0.19)(9) (0.04)(9)
Net Realized & Unrealized Gain on Investments............. (0.71) 4.82 1.54 3.45 3.42
------ ------ ------ ------ ------
Total From Investment Operations........................ (0.83) 4.57 1.40 3.26 3.38
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income...................... - - - - (0.01)
Distributions in Excess of Net Investment Income.......... - - - - -
Distributions from Net Realized Gains..................... - (1.28) (2.34) (1.89) (0.00)(8)
Distributions in Excess of Net Realized Gains............. - - - - -
Distributions from Capital................................ - - - - -
------ ------ ------ ------ ------
Total Distributions..................................... - (1.28) (2.34) (1.89) (0.01)
------ ------ ------ ------ ------
Net Asset Value, End of Period.............................. $16.99 $17.82 $14.53 $15.47 $14.10
====== ====== ====== ====== ======
Total Return(2)............................................. (4.66)% 34.43% 9.99% 24.54% 31.46%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's)...................... $39,379 $38,390 $30,397 $25,067 $6,928
Ratio of Operating Expenses to Average Net Assets(3)...... 2.54%(5) 2.46% 2.45% 2.45% 2.51%
Ratio of Net Investment Loss to Average Net Assets........ (2.06)%(5) (1.70)% (0.97)% (1.24)% (0.47)%
Portfolio Turnover Rate................................... 24% 153% 156% 205% 233%
Ratio of Operating Expenses to Average Net Assets Without
Credits Allowed by the Custodian......................... - 2.46%(10) 2.45%(10) 2.46%(10) N/A
Ratio of Operating Expenses to Average Net Assets Without
Fee Waivers, Expenses Absorbed and/or Credits Allowed by
the Custodian............................................ - 2.46%(10) 2.45%(10) 2.46%(10) 2.51%
</TABLE>
Footnotes appear on page 85
79
<PAGE> 84
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
EMERGING GROWTH FUND CLASS A SHARES
<TABLE>
<CAPTION>
FISCAL
PERIOD ENDED
OCTOBER 31,
1998(1)
------------
<S> <C>
Net Asset Value, Beginning of Period.............. $19.49
--------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Loss............................. (0.08)(9)
Net Realized & Unrealized Gain/(Loss) on
Investments.................................... (3.16)
--------
Total From Investment Operations.............. (3.24)
--------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income............ -
Distributions in Excess of Net Investment
Income......................................... -
Distributions from Net Realized Gains........... -
Distributions in Excess of Net Realized Gains... -
Distributions from Capital...................... -
--------
Total Distributions........................... -
--------
Net Asset Value, End of Period.................... $16.25
========
Total Return(2)................................... (16.62)%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's)............ $88,502
Ratio of Operating Expenses to Average Net
Assets(3)...................................... 1.88%(5)
Ratio of Net Investment Loss to Average Net
Assets......................................... (1.43)%(5)
Portfolio Turnover Rate......................... 20%
Ratio of Operating Expenses to Average Net
Assets Without Fee Waivers, Expenses Absorbed
and/or Credits Allowed by the Custodian........ 1.89%(5)
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------------------
1998(6) 1997 1996 1995 1994
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.............. $18.28 $20.17 $15.47 $13.02 $13.76
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Loss............................. (0.22)(9) (0.21)(9) (0.19)(9) (0.00)(8)(9) (0.09)
Net Realized & Unrealized Gain/(Loss) on
Investments.................................... 2.50 (0.18) 5.65 2.77 0.68
-------- -------- -------- -------- --------
Total From Investment Operations.............. 2.28 (0.39) 5.46 2.77 0.59
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income............ - - - - -
Distributions in Excess of Net Investment
Income......................................... - - - - -
Distributions from Net Realized Gains........... (1.07) (1.50) (0.76) (0.32) (1.33)
Distributions in Excess of Net Realized Gains... - - - - -
Distributions from Capital...................... - - - - -
-------- -------- -------- -------- --------
Total Distributions........................... (1.07) (1.50) (0.76) (0.32) (1.33)
-------- -------- -------- -------- --------
Net Asset Value, End of Period.................... $19.49 $18.28 $20.17 $15.47 $13.02
======== ======== ======== ======== ========
Total Return(2)................................... 12.95% (1.50)% 35.93% 21.54% 3.40%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's)............ $118,473 $165,719 $283,747 $185,722 $124,941
Ratio of Operating Expenses to Average Net
Assets(3)...................................... 1.66% 1.64% 1.64% 1.68% 1.66%
Ratio of Net Investment Loss to Average Net
Assets......................................... (1.10)% (1.17)% (1.02)% (0.31)% (0.68)%
Portfolio Turnover Rate......................... 112% 81% 131% 181% 224%
Ratio of Operating Expenses to Average Net
Assets Without Fee Waivers, Expenses Absorbed
and/or Credits Allowed by the Custodian........ 1.66%(10) 1.64%(10) 1.65%(10) N/A N/A
</TABLE>
EMERGING GROWTH FUND CLASS B SHARES
<TABLE>
<CAPTION>
FISCAL
PERIOD ENDED
OCTOBER 31,
1998(1)
-------------------
<S> <C>
Net Asset Value, Beginning of Period....... $18.86
---------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income/(Loss)............. (0.13)(9)
Net Realized & Unrealized Gain/(Loss) on
Investments............................. (3.06)
---------
Total From Investment Operations....... (3.19)
---------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income..... -
Distributions in Excess of Net Investment
Income.................................. -
Distributions from Net Realized Gains.... -
Distributions in Excess of Net Realized
Gains................................... -
Distributions from Capital............... -
---------
Total Distributions.................... -
---------
Net Asset Value, End of Period............. $15.67
=========
Total Return(2)............................ (16.87)%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's)..... $22,172
Ratio of Operating Expenses to Average
Net Assets(3)........................... 2.84%(5)
Ratio of Net Investment Income/Loss to
Average Net Assets...................... (2.39)%(5)
Portfolio Turnover Rate.................. 20%
Ratio of Operating Expenses to Average
Net Assets Without Fee Waivers,
Expenses Absorbed and/or Credits Allowed
by the Custodian........................ 2.85%(5)
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------------------
1998(6) 1997 1996 1995(7)
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period....... $17.85 $19.88 $15.37 $13.02
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income/(Loss)............. (0.36)(9) (0.34)(9) (0.32)(9) (0.10)(9)
Net Realized & Unrealized Gain/(Loss) on
Investments............................. 2.44 (0.19) 5.59 2.77
------- ------- ------- -------
Total From Investment Operations....... 2.08 (0.53) 5.27 2.67
------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income..... - - - -
Distributions in Excess of Net Investment
Income.................................. - - - -
Distributions from Net Realized Gains.... (1.07) (1.50) (0.76) (0.32)
Distributions in Excess of Net Realized
Gains................................... - - - -
Distributions from Capital............... - - - -
------- ------- ------- -------
Total Distributions.................... (1.07) (1.50) (0.76) (0.32)
------- ------- ------- -------
Net Asset Value, End of Period............. $18.86 $17.85 $19.88 $15.37
======= ======= ======= =======
Total Return(2)............................ 12.05% (2.26)% 34.93% 20.69%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's)..... $28,540 $29,123 $28,920 $10,208
Ratio of Operating Expenses to Average
Net Assets(3)........................... 2.47% 2.39% 2.39% 2.43%
Ratio of Net Investment Income/Loss to
Average Net Assets...................... (1.92)% (1.92)% (1.77)% (1.06)%
Portfolio Turnover Rate.................. 112% 81% 131% 181%
Ratio of Operating Expenses to Average
Net Assets Without Fee Waivers,
Expenses Absorbed and/or Credits Allowed
by the Custodian........................ 2.47%(10) 2.39%(10) 2.40%(10) N/A
</TABLE>
Footnotes appear on page 85
80
<PAGE> 85
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
INTERNATIONAL GROWTH FUND CLASS A SHARES
<TABLE>
<CAPTION>
FISCAL
PERIOD
ENDED
OCTOBER 31,
1998(1)
---------------
<S> <C>
Net Asset Value, Beginning of Period.................... $10.20
---------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income/(Loss).......................... (0.02)(9)
Net Realized & Unrealized Gain/(Loss) on
Investments.......................................... (1.32)
---------
Total From Investment Operations.................... (1.34)
---------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income.................. -
Distributions in Excess of Net Investment Income...... -
Distributions from Net Realized Gains................. -
Distributions in Excess of Net Realized Gains......... -
---------
Total Distributions................................. -
---------
Net Asset Value, End of Period.......................... $8.86
=========
Total Return(2)......................................... (13.14)%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's).................. $30,117
Ratio of Operating Expenses to Average Net
Assets(3)............................................ 1.86%(5)
Ratio of Net Investment Income/(Loss) to Average Net
Assets............................................... (0.50)%(5)
Portfolio Turnover Rate............................... 41%
Ratio of Operating Expenses to Average Net Assets
Without Fee Waivers, Expenses Absorbed and/or Credits
Allowed by the Custodian............................. 1.86%(5)
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------
1998(6) 1997 1996 1995 1994
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.................... $11.85 $10.49 $9.78 $10.74 $9.80
------- -------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income/(Loss).......................... 0.05(9) 0.04(9) 0.05(9) (0.11)(9) 0.06
Net Realized & Unrealized Gain/(Loss) on
Investments.......................................... (0.67) 1.55 1.21 (0.31) 1.15
------- -------- ------- ------- -------
Total From Investment Operations.................... (0.62) 1.59 1.26 (0.42) 1.21
------- -------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income.................. (0.50) (0.13) (0.05) (0.04) (0.02)
Distributions in Excess of Net Investment Income...... (0.03) - (0.04) - -
Distributions from Net Realized Gains................. (0.50) (0.10) (0.46) (0.44) (0.25)
Distributions in Excess of Net Realized Gains......... - - - (0.06) -
------- -------- ------- ------- -------
Total Distributions................................. (1.03) (0.23) (0.55) (0.54) (0.27)
------- -------- ------- ------- -------
Net Asset Value, End of Period.......................... $10.20 $11.85 $10.49 $9.78 $10.74
======= ======== ======= ======= =======
Total Return(2)......................................... (4.19)% 15.50% 13.16% (4.01)% 12.39%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's).................. $38,281 $57,776 $116,254 $91,763 $127,764
Ratio of Operating Expenses to Average Net
Assets(3)............................................ 1.67% 1.65% 1.77% 1.69% 1.69%
Ratio of Net Investment Income/(Loss) to Average Net
Assets............................................... 0.50% 0.35% 0.46% 0.62% 0.54%
Portfolio Turnover Rate............................... 118% 67% 125% 81% 44%
Ratio of Operating Expenses to Average Net Assets
Without Fee Waivers, Expenses Absorbed and/or Credits
Allowed by the Custodian............................. 1.67%(10) 1.65%(10) 1.77%(10) N/A N/A
</TABLE>
INTERNATIONAL GROWTH FUND CLASS B SHARES
<TABLE>
<CAPTION>
FISCAL
PERIOD
ENDED YEAR ENDED JUNE 30,
OCTOBER 31, --------------------------------------------
1998(1) 1998(6) 1997 1996 1995(7)
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $10.07 $11.70 $10.39 $9.73 $10.74
--------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Loss....................................... (0.05)(9) (0.04)(9) (0.04)(9) (0.03)(9) (0.17)(9)
Net Realized & Unrealized Gain/(Loss) on Investments...... (1.30) (0.64) 1.53 1.21 (0.31)
--------- -------- -------- -------- --------
Total From Investment Operations........................ (1.35) (0.68) 1.49 1.18 (0.48)
--------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income...................... - (0.42) (0.08) (0.02) (0.03)
Distributions in Excess of Net Investment Income.......... - (0.03) - (0.04) -
Distributions from Net Realized Gains..................... - (0.50) (0.10) (0.46) (0.44)
Distributions in Excess of Net Realized Gains............. - - - - (0.06)
--------- -------- -------- -------- --------
Total Distributions..................................... - (0.95) (0.18) (0.52) (0.53)
--------- -------- -------- -------- --------
Net Asset Value, End of Period.............................. $8.72 $10.07 $11.70 $10.39 $9.73
========= ======== ======== ======== ========
Total Return(2)............................................. (13.41)% (4.95)% 14.66% 12.34% (4.61)%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's)...................... $3,552 $4,294 $4,876 $4,447 $2,268
Ratio of Operating Expenses to Average Net Assets(3)...... 2.97%(5) 2.49% 2.40% 2.52% 2.44%
Ratio of Net Investment Loss to Average Net Assets........ (1.61)%(5) (0.35)% (0.40)% (0.29)% (0.13)%
Portfolio Turnover Rate................................... 41% 118% 67% 125% 81%
Ratio of Operating Expenses to Average Net Assets Without
Fee Waivers, Expenses Absorbed and/or Credits Allowed by
the Custodian............................................ - 2.53%(10) 2.40%(10) 2.52%(10) 2.44%
</TABLE>
Footnotes appear on page 85
81
<PAGE> 86
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
STRATEGIC GROWTH PORTFOLIO(25)
<TABLE>
<CAPTION>
CLASS A
---------------
FISCAL
PERIOD
ENDED
OCTOBER 31,
1998(1)
---------------
<S> <C>
Net Asset Value, Beginning of Period............ $12.66
-------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income/(Loss).................. (0.02)(9)
Net Realized & Unrealized Gain on
Investments.................................. (0.97)
-------
Total From Investment Operations............ (0.99)
-------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income.......... -
Distributions in Excess of Net Investment
Income....................................... -
Distributions from Net Realized Gains......... -
-------
Total Distributions......................... -
-------
Net Asset Value, End of Period.................. $11.67
=======
Total Return(2)................................. (7.82)%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's).......... $19,690
Ratio of Operating Expenses to Average Net
Assets(3).................................... 0.95%(5)
Ratio of Net Investment Income/(Loss) to
Average Net Assets........................... (0.53)%(5)
Portfolio Turnover Rate....................... 10%
Ratio of Operating Expenses to Average Net
Assets Without Credits Allowed by the
Custodian(13)................................ -
Ratio of Operating Expenses to Average Net
Assets Without Fee Waivers, Expenses Absorbed
and/or Credits Allowed by the Custodian...... 1.13%(5)
<CAPTION>
CLASS A CLASS B
-------------------- -----------------------------------
FISCAL
YEAR JULY 25, PERIOD YEAR JULY 25,
ENDED 1996 TO ENDED ENDED 1996 TO
JUNE 30, JUNE 30, OCTOBER 31, JUNE 30, JUNE 30,
1998(6) 1997(4) 1998(1) 1998(6) 1997(4)
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period............ $11.26 $10.00 $12.53 $11.19 $10.00
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income/(Loss).................. 0.00(8)(9) (0.02)(9) (0.05)(4) (0.09)(9) (0.10)(9)
Net Realized & Unrealized Gain on
Investments.................................. 2.12 1.90 (0.96) 2.11 1.90
------- ------- ------- ------- -------
Total From Investment Operations............ 2.12 1.88 (1.01) 2.02 1.80
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income.......... - - - - -
Distributions in Excess of Net Investment
Income....................................... (0.68) (0.62) - (0.64) (0.61)
Distributions from Net Realized Gains......... (0.04) (0.00)(8) - (0.04) (0.00)(8)
------- ------- ------- ------- -------
Total Distributions......................... (0.72) (0.62) - (0.68) (0.61)
------- ------- ------- ------- -------
Net Asset Value, End of Period.................. $12.66 $11.26 $11.52 $12.53 $11.19
======= ======= ======= ======= =======
Total Return(2)................................. 20.11% 19.33% (8.06)% 19.24% 18.48%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($1,000's).......... $18,330 $14,253 $51,752 $51,173 $35,802
Ratio of Operating Expenses to Average Net
Assets(3).................................... 0.94% 0.90%(5) 1.70%(5) 1.68% 1.65%(5)
Ratio of Net Investment Income/(Loss) to
Average Net Assets........................... 0.01% (0.19)%(5) (1.28)%(5) (0.74)% (0.94)%(5)
Portfolio Turnover Rate....................... 23% 33% 10% 23% 33%
Ratio of Operating Expenses to Average Net
Assets Without Credits Allowed by the
Custodian(13)................................ 0.94% 0.91%(5) - 1.68% 1.66%(5)
Ratio of Operating Expenses to Average Net
Assets Without Fee Waivers, Expenses Absorbed
and/or Credits Allowed by the Custodian...... 1.08% 1.45%(5) 1.88%(5) 1.83% 2.20%(5)
</TABLE>
CONSERVATIVE GROWTH PORTFOLIO(25)
<TABLE>
<CAPTION>
CLASS A CLASS B
-------------------------------------------- --------------------------------------------
FISCAL FISCAL
PERIOD ENDED YEAR ENDED JULY 25, 1996 TO PERIOD ENDED YEAR ENDED JULY 25, 1996 TO
OCTOBER 31, JUNE 30, JUNE 30, OCTOBER 31, JUNE 30, JUNE 30,
1998(1) 1998(6) 1997(4) 1998(1) 1998(6) 1997(4)
-------------------------------------------------------------------------------------------
<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(9) 0.08(9) (0.03) 0.04(9) 0.01(9)
Net Realized & Unrealized Gain 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
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(2)..................... (7.35)% 15.18% 14.39% (7.58)% 14.44% 13.59%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period
($1,000's)....................... $100,024 $114,946 $136,141 $155,064 $169,269 $158,697
Ratio of Operating Expenses to
Average Net Assets(13)(3)........ 0.95%(5) 0.95% 0.92%(5) 1.70%(5) 1.70% 1.67%(5)
Ratio of Net Investment
Income/(Loss) to Average Net
Assets........................... 0.05%(5) 1.17% 0.81%(5) (.70)%(5) 0.40% 0.06%(5)
Portfolio Turnover Rate........... 9% 28% 20% 9% 28% 20%
Ratio of Operating Expenses to
Average Net Assets Without
Credits Allowed by the
Custodian(13).................... - 0.95% 0.93%(5) - 1.70% 1.68%(5)
Ratio of Operating Expenses to
Average Net Assets Without Fee
Waivers, Expenses Absorbed and/or
Credits Allowed by the
Custodian........................ 1.03%(5) 1.00% 1.17%(5) 1.78%(5) 1.74% 1.92%(5)
</TABLE>
Footnotes appear on page 85
82
<PAGE> 87
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
BALANCED PORTFOLIO(25)
<TABLE>
<CAPTION>
CLASS A CLASS B
-------------------------------------------- --------------------------------------------
FISCAL FISCAL
PERIOD YEAR JULY 25, 1996 PERIOD YEAR JULY 25, 1996
ENDED ENDED TO ENDED ENDED TO
OCTOBER 31, JUNE 30, JUNE 30, OCTOBER 31, JUNE 30, JUNE 30,
1998(1) 1998(6) 1997(4) 1998(1) 1998(6) 1997(4)
-------------------------------------------------------------------------------------------
<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(9) 0.02 0.17 0.14(9)
Net Realized & 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
Gains............................ - (0.11) (0.00)(8) - (0.11) (0.00)(8)
------- ------- ------- -------- ------- -------
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(2)..................... (4.85)% 14.32% 15.02% (5.09)% 13.47% 14.23%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period
($1,000's)....................... $93,491 $101,726 $109,421 $110,626 $114,944 $99,821
Ratio of Operating Expenses to
Average Net Assets(13)(3)........ 0.95%(5) 0.95% 0.92%(5) 1.70%(5) 1.70% 1.67%(5)
Ratio of Net Investment
Income/Loss to Average Net
Assets........................... 1.22%(5) 2.14% 2.48%(5) 0.47%(5) 1.39% 1.73%(5)
Portfolio Turnover Rate........... 3% 29% 46% 3% 29% 46%
Ratio of Operating Expenses to
Average Net Assets Without
Credits Allowed by the
Custodian(13).................... - 0.95% 0.93%(5) - 1.70% 1.68%(5)
Ratio of Operating Expenses to
Average Net Assets Without Fee
Waivers, Expenses Absorbed and/or
Credits Allowed by the
Custodian........................ 1.02%(5) 1.00% 1.17%(5) 1.77%(5) 1.75% 1.92%(5)
</TABLE>
FLEXIBLE INCOME PORTFOLIO(25)
<TABLE>
<CAPTION>
CLASS A CLASS B
-------------------------------------------- --------------------------------------------
FISCAL FISCAL
PERIOD YEAR JULY 25, 1996 PERIOD YEAR JULY 25, 1996
ENDED ENDED TO ENDED ENDED TO
OCTOBER 31, JUNE 30, JUNE 30, OCTOBER 31, JUNE 30, JUNE 30,
1998(1) 1998(6) 1997(4)* 1998(1) 1998(6) 1997(4)
-------------------------------------------------------------------------------------------
<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(9) 0.10 0.31 0.38(9)
Net Realized & 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
Gains............................ - (0.24) (0.00)(8) - (0.24) (0.00)(8)
------- ------ ------ ------- ------ ------
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(2)..................... (0.26)% 11.07% 11.58% (0.51)% 10.24% 10.80%
RATIOS/SUPPLEMENTAL DATA:
Net Assets End of Period
($1,000's)....................... $9,766 $8,808 $12,613 $11,142 $7,684 $7,385
Ratio of Operating Expenses to
Average Net Assets(13)(3)........ 0.95%(5) 0.95% 0.92%(5) 1.70%(5) 1.70% 1.67%(5)
Ratio of Net Investment Income to
Average Net Assets............... 3.62%(5) 4.07% 4.95%(5) 2.87%(5) 3.32% 4.20%(5)
Portfolio Turnover Rate........... 15% 24% 54% 15% 24% 54%
Ratio of Operating Expenses to
Average Net Assets Without
Credits Allowed by the
Custodian(13).................... - 0.95% 0.93%(5) - 1.70% 1.68%(5)
Ratio of Operating Expenses to
Average Net Assets Without Fee
Waivers, Expenses Absorbed and/or
Credits Allowed by the
Custodian........................ 1.37%(5) 1.23% 1.67%(5) 2.12%(5) 1.98% 2.42%(5)
</TABLE>
Footnotes appear on page 85
83
<PAGE> 88
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
INCOME PORTFOLIO(25)
<TABLE>
<CAPTION>
CLASS A CLASS B
-------------------------------------------- --------------------------------------------
FISCAL FISCAL
PERIOD ENDED YEAR ENDED JULY 25, 1996 TO PERIOD ENDED YEAR ENDED JULY 25, 1996 TO
OCTOBER 31, JUNE 30, JUNE 30, OCTOBER 31, JUNE 30, JUNE 30,
1998(1) 1998(6) 1997(4) 1998(1) 1998(6) 1997(4)
-------------------------------------------------------------------------------------------
<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(9) 0.16 0.56 0.51(9)
Net Realized & Unrealized
Gain/(Loss) on
Investments...................... (0.09) 0.22 0.14(12) (0.09) 0.22 0.14(12)
------ ------ ------ ------ ------ ------
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)(8) (0.01) - (0.00)(8) (0.01)
Distributions from Net Realized
Gains............................ - - (0.00)(8) - - (0.00)(8)
------ ------ ------ ------ ------ ------
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(2)..................... (0.96)% 8.71% 7.38% 0.70% 7.90% 6.63%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period
($1,000's)....................... $7,611 $7,793 $13,410 $5,698 $4,084 $4,537
Ratio of Operating Expenses to
Average Net
Assets(13)(3).................... 0.95%(5) 0.95% 0.93%(5) 1.70%(5) 1.70% 1.68%(5)
Ratio of Net Investment
Income/Loss to Average Net
Assets........................... 5.40%(5) 6.23% 6.09%(5) 4.65%(5) 5.48% 5.34%(5)
Portfolio Turnover Rate........... 22% 14% 56% 22% 14% 56%
Ratio of Operating Expenses to
Average Net Assets Without
Credits Allowed by the
Custodian(13).................... - 0.95% 0.93%(5) - 1.71% 1.68%(5)
Ratio of Operating Expenses to
Average Net Assets Without Fee
Waivers, Expenses Absorbed and/or
Credits Allowed by the
Custodian........................ 1.53%(5) 1.25% 1.65%(5) 2.28%(5) 2.01% 2.40%(5)
</TABLE>
Footnotes appear on page 85
84
<PAGE> 89
- --------------------------------------------------------------------------------
FOOTNOTES TO FINANCIAL HIGHLIGHTS
<TABLE>
<C> <S>
(1) Fiscal year end changed to October 31.
(2) Total return is not annualized for periods less than one
year and does not reflect any applicable sales charges. The
total return would have been lower if certain fees had not
been waived and/or expenses absorbed by the investment
advisor or if fees had not been reduced by credits allowed
by the custodian.
(3) Ratio of operating expenses to average net assets includes
expenses paid indirectly beginning in fiscal 1995.
(4) From the commencement of offering shares.
(5) Annualized.
(6) On March 23, 1998, WM Advisors, Inc. replaced Sierra
Investment Advisers Corporation as investment advisor to the
Funds. In the case of the Portfolios, on March 23, 1998, WM
Advisors, Inc. replaced Sierra Investment Services
Corporation as investment advisor to the Portfolio.
(7) On July 1, 1994, the Funds commenced selling Class B shares
in addition to Class A shares. Those shares in existence
prior to July 1, 1994 were designated Class A shares.
(8) Amount represents less than $0.01 per share.
(9) Per share numbers have been calculated using the average
shares method.
(10) The ratio and per share numbers include custodian fees
before reduction by credits allowed by the custodian as
required by amended disclosure requirements effective
September 1, 1995.
(11) Total returns do not reflect a sales charge and are not
annualized.
(12) The amount shown may not accord with the change in aggregate
gains and losses of portfolio securities due to the timing
of sales and redemptions of Fund shares.
(13) The Portfolios will indirectly incur their pro rata share of
the expenses of the Funds when they purchase. Such
underlying Fund expenses are not included in the table.
(14) On May 2, 1994, the Fund commenced selling Class B shares.
Those shares in existence prior to May 2, 1994 were
designated as Class A shares.
(15) Formerly, Composite Cash Management Company Money Market
Portfolio.
(16) Formerly, Composite Cash Management Company Tax-Exempt
Portfolio.
(17) Formerly, Composite U.S. Government Securities, Inc.
(18) On March 30, 1994 the Fund commenced selling Class B shares.
Those shares in existence prior to March 30, 1994 were
designated as Class A shares.
(19) Formerly, Composite Income Fund, Inc.
(20) Amounts distributed in excess of accumulated net investment
income as determined for financial statement purposes have
been reported as distributions from paid-in capital at the
fiscal year end in which the distribution was made. Certain
of these distributions which are reported as being from
paid-in capital for financial statement purposes may be
reported to shareholders as taxable distributions due to
differing tax and accounting rules.
(21) Formerly, Composite Tax-Exempt Bond Fund, Inc.
(22) Formerly, Composite Bond & Stock Fund, Inc.
(23) Formerly, Composite Growth & Income Fund.
(24) Formerly, Composite Northwest Fund, Inc.
(25) The financial information shown for each Portfolio is that
of the corresponding series of WM Strategic Asset Management
Portfolios, the Portfolio's predecessor.
</TABLE>
85
<PAGE> 90
- --------------------------------------------------------------------------------
APPENDIX A
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC. BOND RATINGS:
+ Aaa, Aa, A -- Bonds which are rated Aaa or Aa are judged to be of high quality
by all standards and are generally known as high grade bonds. Bonds rated Aa
are rated lower than Aaa securities because margins of protection may not be
as large as in the latter or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities. Bonds which are
rated A possess many favorable investment attributes and are to be considered
as upper medium grade obligations. Factors giving security to principal and
interest are considered adequate, but elements may be present which suggest a
susceptibility to impairment sometime in the future.
+ Baa -- Bonds which are rated Baa are considered medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
+ Ba -- Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well secured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
+ B -- Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
+ Caa -- Bonds which are rated Caa are poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
+ Ca -- Bonds which are rated Ca represent obligations which are speculative in
high degree. Such issues are often in default or have other marked
shortcomings.
+ C -- Bonds which are rated C are the lowest rated class of bonds and can be
regarded as having extremely poor prospectus of ever attaining any real
investment standing.
+ Description of Standard & Poor's bond ratings: AAA, AA, A -- Bonds rated AAA
have the highest rating assigned by S&P to a debt obligation. Capacity to pay
interest and repay principal is extremely strong. Bonds rated AA have a very
strong capacity to pay interest and repay principal and differ from the
highest rated issues only in small degree. Bonds rated A have a strong
capacity to pay interest and repay principal although they are somewhat more
susceptible to the adverse effects of changes in circumstances and economic
conditions than bonds in high rated categories.
+ BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to repay principal and pay
interest for bonds in this category than for bonds in higher rated categories.
+ BB-B-CCC-CC-C -- Bonds rated BB, B, CCC, CC and C are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the obligation.
BB indicates the lowest degree of speculation and C the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
+ CI -- The rating CI is reserved for income bonds on which no income is being
paid.
+ D -- Bonds rated D are in default, and payment of interest and/or repayment of
principal is in arrears.
86
<PAGE> 91
- --------------------------------------------------------------------------------
FOR MORE INFORMATION ABOUT THE WM GROUP OF FUNDS
The WM Group's Statement of Additional Information (SAI) and Annual and
Semi-annual Reports to shareholders include additional information about the
Funds and Portfolios. The SAI and the Reports of Independent Accountants, along
with the financial statements, included in the Funds' and Portfolios' two most
recent Annual Reports are incorporated by reference into this prospectus, which
means that they are part of this prospectus for legal purposes. The Funds' and
Portfolio's Annual Reports discuss the market conditions and investment
strategies that significantly affected performance during the last fiscal year.
You may obtain free copies of these materials, request other information about
the WM Group of Funds, or make shareholder inquiries, by contacting your
financial advisor or by calling toll-free 1-800-222-5852.
You may review and copy information about the Funds and Portfolios, including
the SAI, at the Securities and Exchange Commission's public reference room in
Washington, D.C. You may call the Commission at 1-800-SEC-0330 for information
about the operation of the public reference room. You may also access reports
and other information about the Funds and Portfolios on the Commission's
Internet site at http://www.sec.gov. You may obtain copies of this information,
with payment of a duplication fee, by writing the Public Reference Section of
the Commission, Washington, D.C. 20549-6009. You may need to refer to the
following file number:
FILE NO. 333-36941
Money Market Fund
Tax-Exempt Money Market Fund
U.S. Government Securities Fund
Income Fund
High Yield Fund
Tax-Exempt Bond Fund
Bond & Stock Fund
Growth & Income Fund
Northwest Fund
FILE NO. 33-27489
California Money Fund
Short Term High Quality Bond Fund
Target Maturity 2002 Fund
California Municipal Fund
California Insured Intermediate Municipal Fund
Florida Insured Municipal Fund
Growth Fund
Emerging Growth Fund
International Growth Fund
FILE NO. 333-01999
Strategic Growth Portfolio
Conservative Growth Portfolio
Balanced Portfolio
Flexible Income Portfolio
Income Portfolio
<PAGE> 92
WM GROUP OF FUNDS
1201 THIRD AVENUE, SUITE 1400
SEATTLE, WASHINGTON 98101
800-222-5852
STATEMENT OF ADDITIONAL INFORMATION
March 1, 1999, as revised _____ __, 1999
MONEY FUNDS EQUITY FUNDS
MONEY MARKET FUND BOND & STOCK FUND
TAX-EXEMPT MONEY MARKET FUND GROWTH & INCOME FUND
CALIFORNIA MONEY FUND NORTHWEST FUND
GROWTH FUND
EMERGING GROWTH FUND
FIXED-INCOME FUNDS INTERNATIONAL GROWTH FUND
SHORT TERM HIGH QUALITY BOND FUND
TARGET MATURITY 2002 FUND WM STRATEGIC ASSET MANAGEMENT
U.S. GOVERNMENT SECURITIES FUND PORTFOLIOS, LLC
INCOME FUND STRATEGIC GROWTH PORTFOLIO
HIGH YIELD FUND CONSERVATIVE GROWTH PORTFOLIO
BALANCED PORTFOLIO
MUNICIPAL FUNDS FLEXIBLE INCOME PORTFOLIO
TAX-EXEMPT BOND FUND INCOME PORTFOLIO
CALIFORNIA MUNICIPAL FUND
CALIFORNIA INSURED INTERMEDIATE
MUNICIPAL FUND
FLORIDA INSURED MUNICIPAL FUND
This Statement of Additional Information (the "SAI") supplements the
information contained in the current Prospectus(es) of the WM Group of Funds
listed above dated March 1, 1999, as revised ______ __, 1999 (collectively,
the "Prospectus"), and should be read in conjunction with such Prospectus.
The Annual Reports of the Funds and the Portfolios' predecessors for the
fiscal years ended December 31, 1997, June 30, 1998 and October 31, 1998,
respectively are incorporated by reference in this SAI. The Prospectus may be
obtained without charge by writing to WM Shareholder Services, Inc.
("Shareholder Services") or by calling Shareholder Services at 800-222-5852.
The Money Market, Tax-Exempt Money Market, U.S. Government Securities,
Income, High Yield, Tax-Exempt Bond, Bond & Stock, Growth & Income and
Northwest Funds are series of WM Trust I (the "WM Trust I Funds"), a
Massachusetts business trust organized on September 19, 1997. The California
Money, Short Term High Quality Bond, Target Maturity 2002, California
Municipal, California Insured Intermediate Municipal, Florida Insured
Municipal, Growth, International Growth and Emerging Growth Funds are series
of WM Trust II (the "WM Trust II Funds"), a Massachusetts business trust
organized on February 22, 1989. The WM Trust I Funds and WM Trust II Funds
are collectively
<PAGE> 93
referred to in this SAI as the "Funds." The Strategic Growth, Conservative
Growth, Balanced, Flexible Income and Income Portfolios, collectively
referred to in this SAI as the "Portfolios," are series of WM Strategic Asset
Management Portfolios, LLC, a Massachusetts limited liability company
organized on March 12, 1999. On July [16], 1999, each Portfolio succeeded to
a corresponding fund ("Predecessor Portfolio") of the same name that was a
series of WM Strategic Asset Management Portfolios, a Massachusetts business
trust, which commenced operations on July 26, 1996. Where appropriate, the
term "Portfolio" shall mean or include the Predecessor Portfolio. In this
SAI, WM Trust I, WM Trust II and WM Strategic Asset Management Portfolios,
LLC are referred to as the "Trusts."
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<PAGE> 94
CONTENTS
MANAGEMENT........................................... 4
INVESTMENT OBJECTIVES AND POLICIES................... 21
INVESTMENT RESTRICTIONS ............................. 45
PORTFOLIO TURNOVER .................................. 54
PORTFOLIO TRANSACTIONS .............................. 55
NET ASSET VALUE ..................................... 58
HOW TO BUY AND REDEEM SHARES ........................ 59
HOW TO EXCHANGE SHARES .............................. 64
DETERMINATION OF PERFORMANCE ........................ 64
TAXES ............................................... 75
DISTRIBUTOR ......................................... 81
APPENDIX ............................................ 86
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<PAGE> 95
MANAGEMENT
TRUSTEES AND OFFICERS
The Trusts are governed by a common Board of Trustees which oversees
the Trusts' activities and is responsible for protecting the interests of
shareholders. The names, addresses and birthdates of the Trustees and executive
officers of the Trusts, together with information as to their principal business
occupations, are set forth below. The executive officers of the Trusts are
employees of organizations that provide services to the Funds and Portfolios
offered by the Trusts. Each Trustee who is an "interested person" of the Trusts,
as defined in the Investment Company Act of 1940, as amended (the "1940 Act"),
is indicated by an asterisk.
TRUSTEES:
DAVID E. ANDERSON, AGE: 72
Trustee
17960 Seabreeze Drive
Pacific Palisades, California 90272
Retired in 1988 from GTE California, Inc. after 40 years of service. President
and CEO from 1979 to 1988. Director of Barclay's Bank of California until 1988.
Currently involved in the following charitable organizations as a director on
the following boards: Board chairman, Children's Bureau Foundation; Board
member, Upward Bound House of Santa Monica; Past campaign chairman of United
Way; Former chairman, Los Angeles Area Chamber of Commerce.
WAYNE L. ATTWOOD, MD, AGE: 70
Trustee
2931 S. Howard
Spokane, Washington 99203
Retired doctor of internal medicine and gastroenterology. Former president,
Medical Staff--Sacred Heart Medical Center; former president of Spokane
Society of Internal Medicine; and former president of Spokane Physicians for
Social Responsibility.
ARTHUR H. BERNSTEIN, ESQ., AGE: 73
Trustee
11661 San Vicente Blvd., Suite 701
Los Angeles, California 90049
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<PAGE> 96
President of Bancorp Capital Group, Inc. and Bancorp Venture Capital, Inc.
Previously served on the board of directors of Great Western Leasing
Corporation, subsidiary of Great Western Financial Corporation ("GWFC"), until
the subsidiary was sold in 1987. Director of Ryder System, Inc.; chairman of the
board of trustees of the California Family Studies Center and Phillips Graduate
Institute since 1984.
KRISTIANNE BLAKE, AGE: 45
Trustee
705 W. 7th, Suite D
Spokane, Washington 99204
CPA specializing in personal financial and tax planning since 1975. Served as
a partner with the accounting firm of Deloitte, Haskins & Sells prior to
starting own firm in 1987. Community activities include: United Way of
Spokane County - board chair; YMCA of the Inland Northwest - treasurer;
Junior League of Spokane - past president; Spokane Intercollegiate Research &
Technology Institute Foundation - board member; Spokane Joint Center for
Higher Education board member; Spokane Area Chamber of Commerce - board
member; and St. George's School board member.
EDMOND R. DAVIS, ESQ., AGE: 70
Trustee
550 South Hope Street, 21st Floor
Los Angeles, California 90071-2604
Joined the law firm of Brobeck, Phleger & Harrison as a partner in 1987,
responsible for estate planning, and trusts and estate matters in the Los
Angeles office. Prior to joining the firm, had a similar position for 20
years with the law firm of Overton, Lyman & Prince in Los Angeles. His
expertise has been recognized in Who's Who in California, the Best Lawyers of
America and Who's Who in American Law.
JOHN W. ENGLISH, AGE: 66
Trustee
50 H New England Ave.
P.O. Box 640
Summit, New Jersey 07902-0640
Retired vice president and chief investment officer of the Ford Foundation (a
non-profit charitable organization). Chairman of the board and director, the
China Fund, Inc., (closed-end mutual fund). Director, Paribas Trust for
Institutions (an open-end mutual fund). Trustee, Retail Property Trust (a
company providing management services for a shopping center).
*ANNE V. FARRELL, AGE: 63
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<PAGE> 97
Trustee
425 Pike Street, Suite 510
Seattle, Washington 98101
Joined the Seattle Foundation (a charitable foundation) in 1980 as executive
vice president. Became president in 1984. Also serves on the board of
Washington Mutual Bank, Inc. ("Washington Mutual") and Blue Cross of
Washington and Alaska. Listed in Who's Who in America. Past President of the
Nature Conservancy of Washington, Lakeside School and Seattle Rotary Club.
Currently a Regent at Seattle University and president of the Rainier Club in
Seattle.
CARROL R. MCGINNIS, AGE: 54
Trustee
9225 Katy Freeway, Suite 205
Houston, TX 77024
Founder, McGinnis Investments, since 1994. Prior thereto, served in various
positions with Transamerica Fund Management Company and its predecessor
companies from 1969-1993, including as president and chief operating officer.
*MICHAEL K. MURPHY, AGE: 62
Trustee
PO Box 3366
Spokane, Washington 99220-3366
President and CEO of CPM Development Corporation (a holding company which
includes Central Pre-mix Concrete Company Inland Asphalt Co., Central Pre-Mix
Prestress Co., and Interstate Concrete & Asphalt Co.). Member of the board of
directors for Washington Mutual. Former president and director of Inland
Empire Chapter - Associated General Contractors. Former director of National
Aggregates Associates.
ALFRED E. OSBORNE, JR. PH.D., AGE: 54
Trustee
110 Westwood Plaza, Suite C305
Los Angeles, California 90095-1481
University professor, researcher and administrator at University of California
Los Angeles since 1972. Director, Times Mirror Company (newspaper publisher),
United States Filter Corporation, Nordstrom Inc. (clothing retailer) and
Greyhound Lines, Inc. (bus company).
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<PAGE> 98
Independent general partner, Technology Funding Venture Partners V, and former
Governor of the National Association of Securities Dealers, Inc.
*WILLIAM G. PAPESH, AGE: 56
President and Trustee
1201 Third Avenue
22nd Floor
Seattle, WA 98101
President and director of WM Advisors, Inc. (the "Advisor"), WM Shareholder
Services, Inc. ("Shareholder Services"), WM Funds Distributor, Inc. (the
"Distributor") and WM Fund Services, Inc. (a registered investment adviser and
broker/dealer).
DANIEL L. PAVELICH, AGE: 54
Trustee
Two Prudential Plaza
180 North Stetson Avenue, Suite 4300
Chicago, Illinois 60601
Chairman and CEO of BDO Seidman, a leading national accounting and consulting
firm. Worked in Seidman's Spokane office for 27 years and is a former
presiding member of the firm's board of directors. A member of the American
Institute of CPAs and served as a vice president of the Washington Society of
CPAs' board of directors.
JAY ROCKEY, AGE: 71
Trustee
2121 Fifth Avenue
Seattle, Washington 98121
Founder and chairman of The Rockey Company, a public relations and marketing
communications consulting firm with headquarters in Seattle and offices in
Portland and Spokane. Founder and director of RXL Pulitzer, an international
multimedia company that is a joint venture with Pulitzer Publishing Co. of St.
Louis. History includes managing New York City public relations for Aluminum
Company of America, director of public relations for the Seattle World's Fair
and the presidency of the Public Relations Society of America. He is vice
president of the Rainier Club and trustee of the Downtown Seattle Association.
MORTON O. SCHAPIRO, AGE: 45
Trustee
4535 Lenox Avenue
Sherman Oaks, CA 91423
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<PAGE> 99
Dean of the College of Letters, Arts and Sciences and Professor of Economics,
University of Southern California, since 1991. Prior thereto, Professor of
Economics, Williams College, 1980-1991.
RICHARD C. YANCEY, AGE: 72
Lead Trustee
535 Madison Avenue
New York, New York 10022
Investment Banker - Warburg Dillon Read LLC, New York City, 1952 through
1992. Served as vice president, managing director and director and senior
advisor at Warburg Dillon Read LLC, Member of the boards of directors of
AdMedia Partners, Inc., CapMAC Holdings Inc., Fiberite, Inc., The Scoreboard,
Inc., and Czech and Slovak American Enterprise Fund.
OFFICERS:
GENE BRANSON, AGE: 53
Vice President
11th Floor
601 W. Main Street
Spokane, WA 99201
Senior vice president and director of the Advisor and Shareholder Services.
MONTE D. CALVIN, CPA, AGE: 55
Senior Vice President and Chief Financial Officer
1201 Third Avenue
22nd Floor
Seattle, WA 98101
Executive vice president and director of Shareholder Services; Director of
the Advisor and the Distributor.
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<PAGE> 100
SANDY CAVANAUGH, AGE: 44
Senior Vice President
1631 Broadway
Sacramento, CA 95818
First vice president and director of the Distributor since September 1997.
Director of Advisor and Shareholder Services. Prior to joining the Distributor,
Ms. Cavanaugh held senior level positions with AIM Funds Distributor, First
Interstate Investments and ASB Financial Services.
JOHN T. WEST, CPA, AGE: 44
Vice President, Secretary and Compliance Officer
1201 Third Avenue
22nd Floor
Seattle, WA 98101
Vice president of Shareholder Services.
Each of the Trustees and officers of the Trusts listed above holds the
same position(s) with all three Trusts and is also a trustee or officer of WM
Variable Trust (the "Variable Trust"). The Variable Trust is an investment
company advised by the Advisor.
REMUNERATION. No Trustee who is a director, officer or employee of the
Advisor or its affiliates receives any compensation from the Trusts for serving
as Trustee of the Trusts. The Trusts, together with the Variable Trust, pay each
Trustee who is not a director, officer or employee of the Advisor or its
affiliates a fee of $18,000 per annum plus $3,000 per Board meeting attended in
person and $1,000 per Board meeting attended by telephone, and reimburses each
such Trustee for travel and out-of-pocket expenses. The Lead Trustee receives an
additional fee of $500 per month. The Chairman of each committee receives a fee
of $500 per committee meeting. Officers of the Trusts receive no direct
remuneration in such capacity from the Trusts. Officers and Trustees of the
Trusts who are employees of the Advisor or its affiliates may be considered to
have received remuneration indirectly.
Wayne L. Attwood, M.D., Kristianne Blake, Anne V. Farrell, Michael K.
Murphy, William G. Papesh, Daniel L. Pavelich, Jay Rockey and Richard C. Yancey
became Trustees of WM Trust II and WM Strategic Asset Management Portfolios on
December 23, 1997. Arthur H. Bernstein, Esq., David E. Anderson, Edmond R.
Davis, Esq., John W. English and Alfred E. Osborne, Jr. Ph.D. became trustees of
WM Trust I on December 23, 1997. The terms of Carrol R. McGinnis and Morton O.
Schapiro as trustees commenced on March 5, 1999. The WM Trust I Funds other than
the High Yield Fund are successors to the following
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<PAGE> 101
Washington corporations, or series thereof, which commenced operations in the
years indicated, which made up the group of mutual funds known as the
"Composite Funds."
Composite U.S. Government Securities, Inc. (1982)
Composite Income Fund, Inc. (1975)
Composite Growth & Income Fund, a series of Composite Equity Series, Inc. (1949)
Composite Money Market Portfolio, a series of Composite Cash Management Company
(predecessor of the Money Market Fund) (1979)
Composite Tax-Exempt Portfolio, a series of Composite Cash Management Company
(predecessor of the Tax-Exempt Money Market Fund) (1979)
Composite Tax-Exempt Bond Fund, Inc. (1976)
Composite Northwest Fund, Inc. (1986)
Composite Bond & Stock Fund, Inc. (1939)
Each of the Composite Funds was reorganized as a series of WM Trust I
on March 20, 1998. In connection with this reorganization, the Trust, whose name
was previously "The Composite Funds" and which conducted no operations prior to
that date, changed its name to its current name. The High Yield fund was
organized on March 23, 1998.
Prior to March 20, 1998, the name of WM Trust II was "Sierra Trust
Funds" and the name of the Predecessor Portfolios was "Sierra Asset Management
Portfolios." These Trusts were part of a family of mutual funds known as the
"Sierra Funds."
The reorganizations and name changes described in the foregoing
paragraphs were part of an overall restructuring of the Composite Funds and the
Sierra Funds into a combined mutual fund family known as the WM Group of Funds.
This restructuring also consisted of the replacement of Sierra Investment
Advisors Corporation as investment advisor to the Sierra Funds with WM Advisors,
Inc. (formerly known as Composite Research & Management Co.), the advisor to the
Composite Funds, the election of the Directors of the Composite Funds as
Trustees of WM Trust I, WM Trust II and the Predecessor Portfolios and the
election of the independent Trustees of WM Trust II and the Predecessor
Portfolios as Trustees of WM Trust I.
The following table shows the aggregate compensation paid to each of
the Trusts' Trustees by each Fund or Portfolio (or, in the case of the WM Trust
I Funds, by the predecessor Composite Funds, and in the case of the Portfolios,
by the Predecessor Portfolios) for the most recent fiscal year and by the "Fund
Complex" for calendar 1998. The Fund Complex consists of the Funds and
Portfolios, together with the Funds within the Variable Trust, WM Prime Income
Fund, a closed-end investment company that was liquidated in August, 1998 (the
"Prime Income Fund") and Composite Deferred Series, Inc., an investment company
for which WM Advisors, Inc. serves as advisor. None of the Trusts has any plan
which would pay pension or retirement benefits to any Trustee.
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<PAGE> 102
WM GROUP OF FUNDS
COMPENSATION TABLE
<TABLE>
<CAPTION>
TAX-
EXEMPT SHORTTERM TARGET U.S.
MONEY MONEY CALIFORNIA HIGH MATURITY GOVERNMENT
MARKET MARKET MONEY QUALITY 2002 SECURITIES INCOME
TRUSTEE FUND FUND FUND BOND FUND FUND FUND FUND
------- ---- ---- ---- --------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
David E. Anderson $4,094 $ 177 $ 345 $ 304 $ 22 $3,088 $2,217
Wayne L. Attwood, M.D $4,340 $ 235 $ 287 $ 299 $ 18 $2,747 $2,074
Arthur H. Bernstein,
Esq.+ $5,744 $ 246 $ 489 $ 426 $ 31 $4,373 $3,131
Kristianne Blake $5,088 $ 288 $ 323 $ 337 $ 21 $3,178 $2,404
Edmond R. Davis, Esq $4,726 $ 217 $ 370 $ 351 $ 24 $3,343 $2,452
John W. English $4,265 $ 195 $ 338 $ 317 $ 22 $3,044 $2,227
Anne V. Farrell $3,514 $ 172 $ 250 $ 261 $ 16 $2,281 $1,719
Michael K. Murphy $3,342 $ 163 $ 237 $ 248 $ 15 $2,168 $1,634
Alfred E. Osborne, Jr., $4,035 $ 183 $ 321 $ 300 $ 21 $2,895 $2,114
Ph.D
William G. Papesh $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Daniel L. Pavelich $4,705 $ 258 $ 307 $ 320 $ 20 $2,964 $2,240
Jay Rockey $4,109 $ 223 $ 270 $ 282 $ 17 $2,596 $1,961
Richard C. Yancey $5,262 $ 280 $ 352 $ 367 $ 23 $3,343 $2,5255
</TABLE>
<TABLE>
<CAPTION>
CALIFORNIA
TAX- INSURED FLORIDA BOND
HIGH EXEMPT CALIFORNIA INTER-MEDIATE INSURED &
YIELD BOND MUNICIPAL MUNICIPAL MUNICIPAL STOCK
TRUSTEE FUND FUND FUND FUND FUND FUND
------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
David E. Anderson $ 37 $2,575 $3,048 $ 558 $ 206 $2,583
Wayne L. Attwood, M.D $ 39 $2,677 $2,593 $ 473 $ 168 $3,295
Arthur H. Bernstein, Esq.+ $ 39 $3,621 $4,316 $ 791 $ 293 $3,591
Kristianne Blake $ 40 $3,162 $2,927 $ 534 $ 190 $3,982
Edmond R. Davis, Esq $ 39 $2,933 $3,303 $ 604 $ 220 $3,162
John W. English $ 39 $2,653 $3,007 $ 550 $ 201 $2,834
Anne V. Farrell $ 36 $2,134 $2,260 $ 412 $ 147 $2,501
Michael K. Murphy $ 39 $2,029 $2,149 $ 392 $ 139 $2,378
Alfred E. Osborne, Jr., $ 32 $2,513 $2,859 $ 523 $ 191 $2,670
Ph.D
William G. Papesh $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Daniel L. Pavelich $ 39 $2,908 $2,778 $ 507 $ 180 $3,606
Jay Rockey $ 39 $2,537 $2,445 $ 446 $ 159 $3,131
Richard C. Yancey $ 48 $3,236 $3,186 $ 581 $ 207 $3,951
</TABLE>
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<PAGE> 103
<TABLE>
<CAPTION>
GROWTH
& EMERGING STRATEGIC
INCOME GROWTH INTERNATIONAL NORTHWEST GROWTH GROWTH
TRUSTEE FUND FUND GROWTH FUND FUND FUND PORTFOLIO
------- ---- ---- ----------- ---- ---- ---------
<S> <C> <C> <C> <C> <C> <C>
David E. Anderson $6,457 $2,493 $1,292 $2,008 $1,407 $ 517
Wayne L. Attwood, M.D $6,705 $2,116 $1,074 $2,581 $ 977 $ 549
Arthur H. Bernstein, $9,066 $3,532 $1,831 $2,793 $2,014 $ 722
Esq.+
Kristianne Blake $7,831 $2,388 $1,212 $3,131 $1,103 $ 620
Edmond R. Davis, Esq $7,430 $2,702 $1,393 $2,459 $1,405 $ 628
John W. English $6,712 $2,460 $1,270 $2,204 $1,294 $ 565
Anne V. Farrell $5,474 $1,844 $ 936 $1,945 $ 852 $ 479
Michael K. Murphy $5,205 $1,753 $ 890 $1,849 $ 810 $ 455
Alfred E. Osborne, Jr., $6,353 $2,339 $1,209 $2,076 $1,238 $ 534
Ph.D
William G. Papesh $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Daniel L. Pavelich $7,260 $2,267 $1,151 $2,828 $1,047 $ 589
Jay Rockey $6,346 $1,995 $1,013 $2,454 $ 922 $ 518
Richard C. Yancey $8,141 $2,599 $1,320 $3,092 $1,201 $ 675
</TABLE>
<TABLE>
<CAPTION>
TOTAL COMPENSATION
TOTAL FROM THE FUND
CONSERVATIVE FLEXIBLE INCOME COMPENSATION COMPLEX*
GROWTH BALANCED INCOME PORT FOR FISCAL FOR CALENDAR
TRUSTEE PORTFOLIO PORTFOLIO PORTFOLIO FOLIO YEAR 1998 1998
------- --------- --------- --------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C>
David E. Anderson $ 1,889 $ 1,501 $ 152 $ 99 $37,069 $44,582
Wayne L. Attwood, M.D $ 1,961 $ 1,569 $ 161 $ 102 $37,039 $44,052
Arthur H. Bernstein, Esq.+ $ 2,640 $ 2,097 $ 212 $ 139 $52,136 $51,351
Kristianne Blake $ 2,213 $ 1,771 $ 181 $ 115 $43,039 $47,053
Edmond R. Davis, Esq $ 2,285 $ 1,818 $ 185 $ 120 $42,171 $45,617
John W. English $ 2,061 $ 1,639 $ 166 $ 108 $38,171 $37,617
Anne V. Farrell $ 1,709 $ 1,368 $ 140 $ 89 $30,536 $33,548
Michael K. Murphy $ 1,625 $ 1,300 $ 133 $ 85 $29,039 $36,052
Alfred E. Osborne, Jr., $ 1,949 $ 1,549 $ 157 $ 102 $36,163 $39,610
Ph.D
William G. Papesh $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
</TABLE>
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<PAGE> 104
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Daniel L. Pavelich $ 2,101 $ 1,681 $ 172 $ 110 $40,039 $44,552
Jay Rockey $ 1,849 $ 1,480 $ 152 $ 96 $35,039 $36,052
Richard C. Yancey $ 2,410 $ 1,928 $ 197 $ 126 $45,048 $51,564
</TABLE>
+ Includes compensation deferred pursuant to a deferred compensation
plan. The total amount of deferred compensation payable to Mr.
Bernstein as of December 31, 1998 was $141,093.22 including income
earned on deferred amounts.
* IN THE CASE OF WM TRUST I, INCLUDES COMPENSATION FROM PREDECESSOR
COMPOSITE FUNDS.
During the fiscal year ended October 31, 1998, Sierra Investment
Advisors Corporation reimbursed WM Trust II and WM Strategic Asset Management
Portfolios for expenses associated with special meetings of the Board, held with
regard to the contemplation of the sale of Sierra Capital Management Corporation
and the merger of Great Western Financial Securities Corporation and Washington
Mutual, Inc.
As of December 31, 1998, except as noted below, to the knowledge of the
Trusts, no shareholders owned of record or beneficially 5% or more of the
outstanding shares of the indicated classes of the Funds or Portfolios:
MONEY MARKET FUND B CLASS A: BHC Securities, Omnibus Account, ATTN:
Cash Sweeps Dept., 2005 Market St. 12th Flr., Philadelphia, PA 19103-7042,
28.46%
Northwestern Trust & Investors Advisory Company, 1201 3rd Ave. Ste.
2010, Seattle, WA 98101-3026, 20.05%
MONEY MARKET FUND B CLASS I: SAM Balanced Portfolio, C/O WM Advisors,
5200 E. 2nd St., 2nd Floor, Long Beach, CA 90803, 44.51%
SAM Conservative Growth Portfolio, C/O WM Advisors, 5200 E. 2nd St.,
2nd Floor, Long Beach, CA 90803, 33.73%
WM Advisors Inc., 1201 Third Ave., 22nd Floor, Seattle, WA 98101, 6.43%
MONEY MARKET FUND B CLASS S: Smith Barney Inc. Cust, FBO William &
Tamara H. Pullman TTEE, The Pullman Trust U/A DTD 6/13/94, C/O Marie Ambrosino
Mgmt., 612 N. Sepulveda Blvd. #10, Los Angeles, CA 90049-2108
TAX-EXEMPT MONEY MARKET FUND B CLASS A: BHC Securities, Omnibus
Account, Cash Sweeps Dept., 2005 Market St. 12th Flr., Philadelphia, PA
19103-7042, 22.78%
TAX-EXEMPT MONEY MARKET FUND B CLASS B: Genevieve Odegard, 5702 N. 33rd
St. #13D, Tacoma, WA 98407-2513, 86.62%
Kay Richard Davidson GRDN FBO Roy C. Davidsen, P.O. Box 1494, Libby, MT
59923-1494, 13.38%
CALIFORNIA MONEY FUND B CLASS A: Edward B. Baker TTEE FBO The Baker
Family Trust DTD 7/10/94 1650 16th Ave., San Francisco, CA 94122, 14.39%
BHC Securities, Omnibus Account, Cash Sweeps Dept., 2005 Market St.
12th Flr, Philadelphia, PA 19103-7042, 6.91%
CALIFORNIA MONEY FUND B CLASS B: Oscar L Roehl TTEE, The Oscar L Roehl
Trust UTA DTD 12/15/89, 1826 Harding Ave., Redwood City, CA 94062, 78.53%
Ella M. Brown, 29094 Cobblestone St., Nuevo, CA 92567, 18.45%
CALIFORNIA MONEY FUND B CLASS S: WM Funds Administration, 1201 Third
Avenue, 22nd Floor, Seattle, WA 98101, 50.06%
WM Shareholder Services, 1201 Third Avenue, 22nd Floor, Seattle, WA
98101, 49.94%
CALIFORNIA MONEY FUND B CLASS I: WM Shareholder Services, 1201 Third
Avenue, 22nd Floor, Seattle, WA 98101, 100%
SHORT-TERM HIGH QUALITY BOND FUND B CLASS S: KY Cabinet for Human
Resources, TTEE FBO The Marian K. Buns Irrevocable Charitable Remainder Trust,
275 E. main St. 6th Floor West, Frankfort, KY 40621, 15.04%
Harold P. Jewell and Oveta B. Jewell JTWROS, 1001 Urell Place NE,
Washington DC 20017-2140, 6.53%
Carole Hurst & Judith Chinello & Stan R. Mandell TR, The Frederick S.
Tobias Non-Marital Trust U/A DTD 11/4/81, 111 E. Kilbourn Ave., Milwaukee, WI
53202, 5.84%
SHORT-TERM HIGH QUALITY BOND FUND B CLASS I: SAM Balanced Portfolio,
C/O WM Advisors, 5200 E. 2nd St., 2nd Floor, Long Beach, CA 90803, 61.08%
SAM Flexible Income Portfolio, C/O WM Advisors, 5200 E. 2nd St., 2nd
Floor, Long Beach, CA 90803, 16.98%
SAM Income Portfolio, C/O WM Advisors, 5200 E. 2nd St., 2nd Floor, Long
Beach, CA 90803, 10.98%
SAM Strategic Growth Portfolio, C/O WM Advisors, 5200 E. 2nd St., 2nd
Floor, Long Beach, CA 90803, 10.95%
INCOME FUND B CLASS A: Northwestern Trust & Investors Advisory Company,
1201 3rd Ave., Ste. 2010, Seattle, WA 98101-3026, 8.36%
INCOME FUND B CLASS S: KY Cabinet for Human Resources TTEE FBO the
Marian K. Burns Irrevocable Charitable Remainder Trust, 275 E. Main St. 6th
Floor West, Frankfort, KY 40621, 10.62%
INCOME FUND B CLASS I: SAM Flexible Income Portfolio, C/O WM Advisors,
5200 E. 2nd St., 2nd Floor, Long Beach, CA 90803, 50.73%
SAM Income Portfolio, C/O WM Advisors, 5200 E. 2nd St., 2nd Floor, Long
Beach, CA 90803, 49.27%
CALIFORNIA MUNICIPAL BOND FUND B CLASS S: Josefina F. Parungao and
Reynaldo Fernando, JTWROS, 5480 Avenida El Cid, Yorba Linda, CA 92686, 74.29%
WM Funds Administration, 1201 Third Avenue, 22nd Floor, Seattle, WA
98101, 12.96%
WM Shareholder Services, 1201 Third Avenue, 22nd Floor, Seattle, WA
98101, 12.75%
CALIFORNIA MUNICIPAL BOND FUND B CLASS I: WM Shareholder Services, 1201
Third Avenue, 22nd Floor, Seattle, WA 98101, 100%
CALIFORNIA INSURED INTERMEDIATE MUNICIPAL BOND FUND B CLASS A:
Consolacion Padama and Manuel Padama JTWROS, 2045 Demille Drive, Los Angeles, CA
90027, 5.93%
CALIFORNIA INSURED INTERMEDIATE MUNICIPAL BOND FUND B CLASS S: WM Funds
Administration, 1201 Third Avenue, 22nd Floor, Seattle, WA 98101, 50.38%
WM Shareholder Services, 1201 Third Avenue, 22nd Floor, Seattle, WA
98101, 49.62%
CALIFORNIA INSURED INTERMEDIATE MUNICIPAL BOND FUND B CLASS I: WM
Shareholder Services, 1201 Third Avenue, 22nd Floor, Seattle, WA 98101, 100%
FLORIDA INSURED MUNICIPAL BOND FUND B CLASS B: Joseph R. Ott and Stella
C. Ott JTWROS, 5800 SW 99th Terrace, Miami, FL 33156, 5.88%
BHC Securities, Inc., FAO 84814707, ATTN: Mutual Funds Dept., One
Commerce Square, 2005 Market Street, Suite 1200, Philadelphia, PA 19103, 5.58%
FLORIDA INSURED MUNICIPAL BOND FUND B CLASS S: WM Funds Administration,
1201 Third Avenue, 22nd Floor, Seattle, WA 98101, 50.38%
WM Shareholder Services, 1201 Third Avenue, 22nd Floor, Seattle, WA
98101, 49.62%
FLORIDA INSURED MUNICIPAL BOND FUND B CLASS I: WM Shareholder Services,
1201 Third Avenue, 22nd Floor, Seattle, WA 98101, 100%
BOND & STOCK FUND B CLASS A: Northwestern Trust & Investors Advisory
Company, 1201 3rd Ave., Ste. 2010, Seattle, WA 98101-3026, 17.06%
BOND & STOCK FUND B CLASS S: Everen Securities, Inc., A/C 1916-6877,
Randall E. Campbell, 111 East Kilbourn Avenue, Milwaukee, WI 53202, 67.53%
BSDT TTEE IRA R, William M. Cordova, 25036 Oxford Dr., Laguna Niguel,
CA 92677-8884, 26.85%
BSDT TTEE IRA R, Tessie Penafiel, 4593 Arizona St., San Diego, CA
92116, 5.61%
GROWTH & INCOME FUND B CLASS A: Northwestern Trust & Investors Advisory
Company, 1201 3rd Ave., Ste. 2010, Seattle, WA 98101-3026, 27.49%
GROWTH & INCOME FUND B CLASS I: SAM Conservative Growth Portfolio, C/O
WM Advisors, 5200 E. 2nd St., 2nd Floor, Long Beach, CA 90803, 49.92%
SAM Balanced Portfolio, C/O WM Advisors, 5200 E. 2nd St., 2nd Floor,
Long Beach, CA 90803, 29.45%
SAM Strategic Growth Portfolio, C/O WM Advisors, 5200 E. 2nd St., 2nd
Floor, Long Beach, CA 90803, 18.13%
GROWTH FUND B CLASS I: SAM Conservative Growth Portfolio, C/O WM
Advisors, 5200 E. 2nd St., 2nd Floor, Long Beach, CA 90803, 53.48%
SAM Balanced Portfolio, C/O WM Advisors, 5200 E. 2nd St., 2nd Floor,
Long Beach, CA 90803, 26.13%
SAM Strategic Growth Portfolio, C/O WM Advisors, 5200 E. 2nd St., 2nd
Floor, Long Beach, CA 90803, 19.40%
EMERGING GROWTH FUND B CLASS I: SAM Conservative Growth Portfolio, C/O
WM Advisors, 5200 E. 2nd St., 2nd Floor, Long Beach, CA 90803, 47.50%
SAM Balanced Portfolio, C/O WM Advisors, 5200 E. 2nd St., 2nd Floor,
Long Beach, CA 90803, 37.52%
SAM Strategic Growth Portfolio, C/O WM Advisors, 5200 E. 2nd St., 2nd
Floor, Long Beach, CA 90803, 14.98%
INTERNATIONAL GROWTH FUND B CLASS I: SAM Conservative Growth Portfolio,
C/O WM Advisors, 5200 E. 2nd St., 2nd Floor, Long Beach, CA 90803, 49.85%
SAM Balanced Portfolio, C/O WM Advisors, 5200 E. 2nd St., 2nd Floor,
Long Beach, CA 90803, 38.43%
SAM Strategic Growth Portfolio, C/O WM Advisors, 5200 E. 2nd St., 2nd
Floor, Long Beach, CA 90803, 11.72%
NORTHWEST FUND B CLASS A: Northwestern Trust & Investors Advisory
Company, 1201 3rd Ave., Ste. 2010, Seattle, WA 98101-3026, 18.19%
HIGH YIELD FUND B CLASS A: Washington Mutual Inc., Paul Bonde TAOS,
Mail Stop WMT0511, 1201 3rd Ave., Seattle, WA 98101, 74.28%
HIGH YIELD FUND B CLASS S: Alonzo G. Orr and Janet S. Richardson JTWROS
TOD Beatrice Orr, Rodney Orr, Diane Keane, 7483 Overlook Dr., Lake Worth, FL
33467, 65.95%
Harold P. Jewell and Oveta B. Jewell JTWROS, 1001 Urell Place NE,
Washington DC 20011-2140, 12.91%
John Yanok and Lucille Yanok JTWROS, 1365 SW Gastador Ave., Port ST
Lucie, FL 34953, 9.19%
Eliana J. Kross, 5221 Cribari Dale, San Jose, CA 95135-1315, 6.21%
Robert F. Burns and Elizabeth J. Burns JTWROS, Greenwood Rd.,
Wynantskill, NY 12198-0000, 5.73%
HIGH YIELD FUND B CLASS I: SAM Income Portfolio, C/O WM Advisors, 5200
E. 2nd St., 2nd Floor, Long Beach, CA 90803, 62.48%
SAM Flexible Income Portfolio, C/O WM Advisors, 5200 E. 2nd St., 2nd
Floor, Long Beach, CA 90803, 32.06%
TAX-EXEMPT BOND FUND B CLASS S: WM Funds Administration, 1201 Third
Avenue, 22nd Floor, Seattle, WA 98101, 50.52%
WM Shareholder Services, 1201 Third Avenue, 22nd Floor, Seattle, WA
98101, 49.48%
TAX-EXEMPT BOND FUND B CLASS I: WM Shareholder Services, 1201 Third
Avenue, 22nd Floor, Seattle, WA 98101, 100%
U.S. GOVERNMENT SECURITIES B CLASS S: KY Cabinet for Human Resources
TTEE FBO the Marian K. Burns Irrevocable Charitable Remainder Trust, 275 E. Main
St. 6th Floor West, Frankfort, KY 40621, 5.07%
U.S. GOVERNMENT SECURITIES B CLASS S: SAM Balanced Portfolio, C/O WM
Advisors, 5200 E. 2nd St., 2nd Floor, Long Beach, CA 90803, 61.79%
SAM Flexible Income Portfolio, C/O WM Advisors, 5200 E. 2nd St., 2nd
Floor, Long Beach, CA 90803, 20.53%
SAM Income Portfolio, C/O WM Advisors, 5200 E. 2nd St., 2nd Floor, Long
Beach, CA 90803, 17.68%
VARIABLE TRUST MONEY MARKET FUND: American General Life Insurance Co.,
Variable Products Department, 5-36, Deborah Kerai, P.O. Box 1591, Houston, TX
77251-1591, 88.76%
Variable Trust Balanced Portfolio, C/O WM Advisors, 5200 E. 2nd St.,
2nd Floor, Long Beach, CA 90803, 5.90%
VARIABLE TRUST U.S. GOVERNMENT SECURITIES FUND: American General Life
Insurance Co., Variable Products Department, Deborah Kerai, P.O Box 1591,
Houston, TX 77251-1591, 95.76%
VARIABLE TRUST INCOME FUND: American General Life Insurance Co.,
Variable Products Department, Deborah Kerai, P.O Box 1591, Houston, TX
77251-1591, 97.37%
VARIABLE TRUST INTERNATIONAL GROWTH FUND: American General Life
Insurance Co., Variable Products Department, Deborah Kerai, P.O Box 1591,
Houston, TX 77251-1591, 90.95%
VARIABLE TRUST GROWTH FUND: American General Life Insurance Co.,
Variable Products Department, Deborah Kerai, P.O Box 1591, Houston, TX
77251-1591, 94.58%
VARIABLE TRUST GROWTH & INCOME FUND: American General Life Insurance
Co., Variable Products Department, Deborah Kerai, P.O Box 1591, Houston, TX
77251-1591, 89.73%
VARIABLE TRUST EMERGING GROWTH FUND: American General Life Insurance
Co., Variable Products Department, Deborah Kerai, P.O Box 1591, Houston, TX
77251-1591, 96.09%
VARIABLE TRUST SHORT-TERM HIGH QUALITY BOND FUND: American General Life
Insurance Co., Variable Products Department, Deborah Kerai, P.O Box 1591,
Houston, TX 77251-1591, 93.30%
VARIABLE TRUST NORTHWEST FUND: WM Shareholder Services, 1201 Third
Avenue, 22nd Floor, Seattle, WA 98101, 43.39%
Variable Trust Strategic Growth Portfolio, C/O WM Advisors, 5200 E. 2nd
St., 2nd Floor, Long Beach, CA 90803, 20.46%
Variable Trust Growth Portfolio, C/O WM Advisors, 5200 E. 2nd St., 2nd
Floor, Long Beach, CA 90803, 19.01%
American General Life Insurance Co., Variable Products Department,
Deborah Kerai, P.O Box 1591, Houston, TX 77251-1591, 17.14%
VARIABLE TRUST BOND & STOCK FUND: American General Life Insurance Co.,
Variable Products Department, Deborah Kerai, P.O Box 1591, Houston, TX
77251-1591, 66.71%
WM Shareholder Services, 1201 Third Avenue, 22nd Floor, Seattle, WA
98101, 33.29%
VARIABLE TRUST INCOME PORTFOLIO: American General Life Insurance Co.,
Variable Products Department, Deborah Kerai, P.O Box 1591, Houston, TX
77251-1591, 100%
VARIABLE TRUST FLEXIBLE INCOME PORTFOLIO: American General Life
Insurance Co., Variable Products Department, Deborah Kerai, P.O Box 1591,
Houston, TX 77251-1591, 100%
VARIABLE TRUST BALANCED PORTFOLIO: American General Life Insurance Co.,
Variable Products Department, Deborah Kerai, P.O Box 1591, Houston, TX
77251-1591, 100%
VARIABLE TRUST CONSERVATIVE GROWTH PORTFOLIO: American General Life
Insurance Co., Variable Products Department, Deborah Kerai, P.O Box 1591,
Houston, TX 77251-1591, 100%
VARIABLE TRUST STRATEGIC GROWTH PORTFOLIO: American General Life
Insurance Co., Variable Products Department, Deborah Kerai, P.O Box 1591,
Houston, TX 77251-1591, 100%
THE FUNDS' SERVICE PROVIDERS
ADVISOR
The Funds and Portfolios are managed by the Advisor. The Advisor has
delegated portfolio management responsibilities in respect of the Tax-Exempt
Bond, California Municipal, California Insured Intermediate Municipal, Florida
Insured Municipal, Growth and International Growth Funds to sub-advisors.
MANAGEMENT FEES. For the three most recent fiscal years the Funds and
Portfolios paid the Advisor or its affiliates the following management fees:
-13-
<PAGE> 105
<TABLE>
<CAPTION>
FISCAL YEAR ENDED OCTOBER 31, 1998
----------------------------------------------------
FEES BEFORE FEES WAIVED EXPENSES
WAIVER REIMBURSED
------------ ----------- ----------
<S> <C> <C> <C>
Money Market Fund $ -- $ -- $ --
Tax-Exempt Money Market Fund $ 104,751 $ 37,019 $ 0
California Money Fund* $ 64,254 $ 18,193 $ 0
Short Term High Quality Bond Fund* $ 67,678 $ 67,678 $ 9,467
Target Maturity 2002 Fund* $ 2,065 $ 2,065 $ 4,769
U.S. Government Securities Fund $1,467,714 $ 202,160 $ 0
Income Fund $ 124,138 $ 0 $ 0
High Yield Fund** $ 42,864 $ 29,768 $ 0
Tax-Exempt Bond Fund $1,213,255 $ 0 $ 0
California Municipal Fund* $ 778,933 $ 76,222 $ 0
California Insured Intermediate Municipal Fund F * $ 142,361 $ 66,654 $ 0
Short Term High Quality Bond Fund* $ 67,678 $ 67,678 $ 9,467
Florida Insured Municipal Fund* $ 50,825 $ 41,923 $ 0
Bond & Stock Fund $2,190,790 $ 0 $ 0
Growth & Income Fund $3,575,552 $ 0 $ 0
Northwest Fund $1,920,011 $ 0 $ 0
Growth Fund* $ 955,950 $ 0 $ 0
Emerging Growth Fund* $ 493,746 $ 0 $ 0
International Growth Fund* $ 497,321 $ 0 $ 0
Strategic Growth Portfolio* $ 34,290 $ 34,290 $ 6,085
Conservative Growth Portfolio* $ 130,854 $ 66,873 $ 0
Balanced Portfolio* $ 102,838 $ 46,178 $ 0
Flexible Income Portfolio* $ 8,801 $ 24,570 $ 0
Income Portfolio* $ 6,074 $ 6,074 $ 17,261
</TABLE>
* Fiscal Period from June 30, 1998 through October 31, 1998.
** Commenced operations on April 8, 1998.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30, 1998
-------------------------------------------------
FEES BEFORE FEES WAIVED EXPENSES
WAIVER REIMBURSED
------------ ----------
<S> <C> <C> <C>
California Money Fund $ 188,184 $ 70,002 $ 0
Short Term High Quality Bond Fund $ 145,180 $ 133,982 $ 0
Target Maturity 2002 Fund $ 6,596 $ 33,075 $ 17,651
California Municipal Fund $2,010,319 $ 656,426 $ 0
California Insured Intermediate Municipal Fund $ 380,528 $ 246,808 $ 0
Florida Insured Municipal Fund $ 146,555 $ 140,651 $ 396
</TABLE>
-14-
<PAGE> 106
<TABLE>
<S> <C> <C> <C>
Growth Fund $2,739,222 $ 0 $ 0
International Growth Fund $1,354,934 $ 0 $ 29,113
Emerging Growth Fund $2,214,151 $ 3,472 $ 0
Strategic Growth Portfolio $ 91,196 $ 86,276 $ 1,754
Conservative Growth Portfolio $ 438,904 $ 116,516 $ 19,099
Balanced Portfolio $ 323,735 $ 107,755 $ 11,970
Flexible Income Portfolio $ 26,686 $ 35,116 $ 13,939
Income Portfolio $ 22,941 $ 34,864 $ 11,403
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED 1997
------------------------------------------------
EXPENSES
FEES PAID FEES WAIVED REIMBURSED
--------- ----------- ----------
<S> <C> <C> <C>
Money Market Fund* $1,148,906 $ 0 $ 98,432
Tax-Exempt Money Market Fund* $ 143,965 $ 0 $ 45,307
California Money Fund** $ 187,084 $ 135,495 $ 0
Short Term High Quality Bond Fund** $ 153,348 $ 153,348 $ 40,836
Target Maturity 2002 Fund** $ 7,756 $ 7,756 $ 59,718
U.S. Government Securities Fund* $ 769,591 $ 0 $ 0
Income Fund* $ 553,562 $ 0 $ 0
Tax-Exempt Bond Fund* $ 987,356 $ 0 $ 0
California Municipal Fund** $2,063,242 $1,080,813 $ 0
California Insured Intermediate Municipal Fund** $ 398,681 $ 350,384 $ 0
Florida Insured Municipal Fund** $ 173,618 $ 173,618 $ 22,193
Bond & Stock Fund*** $1,912,341 $ 0 $ 0
Growth & Income Fund*** $1,630,777 $ 0 $ 0
Growth Fund** $2,418,645 $ 0 $ 0
International Growth Fund** $1,444,004 $ 0 $ 0
Northwest Fund*** $1,538,183 $ 137,944 $ 0
Emerging Growth Fund** $2,600,399 $ 0 $ 0
Strategic Growth Portfolio** $ 36,642 $ 6,241 $ 41,371
Conservative Growth Portfolio** $ 260,044 $ 54,435 $ 98,600
Balanced Portfolio** $ 188,577 $ 40,744 $ 82,121
Flexible Income Portfolio** $ 19,886 $ 4,470 $ 34,312
Income Portfolio** $ 18,539 $ 4,476 $ 33,580
</TABLE>
+ Fiscal year ended 12/31
** Fiscal year ended 6/30
*** Fiscal year ended 10/31
-15-
<PAGE> 107
<TABLE>
<CAPTION>
FISCAL YEAR ENDED 1996
------------------------------------------------
EXPENSES
FEES PAID FEES WAIVED REIMBURSED
--------- ----------- ----------
<S> <C> <C> <C>
Money Market Fund* $ 916,867 $ 0 $ 202,612
Tax-Exempt Money Market Fund* $ 139,482 $ 0 $ 47,274
California Money Fund** $ 206,796 $ 148,062 $ 0
Short Term High Quality Bond Fund** $ 262,885 $ 262,885 $ 13,583
Target Maturity 2002 Fund** $ 7,915 $ 7,915 $ 47,054
U.S. Government Securities Fund* $ 984,485 $ 0 $ 0
Income Fund* $ 599,008 $ 0 $ 0
Tax-Exempt Bond Fund* $1,065,379 $ 0 $ 0
California Municipal Fund** $2,233,979 $1,398,796 $ 0
California Insured Intermediate Municipal Fund** $ 393,599 $ 393,599 $ 47,057
Florida Insured Municipal Fund** $ 201,769 $ 201,769 $ 74,295
Bond & Stock Fund*** $1,555,733 $ 0 $ 0
Growth & Income Fund*** $1,065,507 $ 0 $ 0
Growth Fund** $2,023,665 $ 0 $ 0
International Growth Fund** $1,062,220 $ 0 $ 0
Northwest Fund*** $1,123,204 $ 166,941 $ 0
Emerging Growth Fund** $2,464,903 $ 0 $ 0
</TABLE>
* Fiscal year ended 12/31
** Fiscal year ended 6/30
*** Fiscal year ended 10/31
-16-
<PAGE> 108
SUB-ADVISORY FEES
The Advisor retains only the net amount of the management fees paid to
it after the sub-advisory fees described below are paid to the sub-advisors. The
Advisor pays to the sub-advisors for the funds listed below a monthly fee at an
annual rate of the following percentages of the average net assets of each such
fund.
<TABLE>
<CAPTION>
SUBADVISOR/FUNDS FEES
- ---------------- ----
<S> <C>
VAN KAMPEN
California Municipal Fund .................................... 0.20% of the first $150 million
0.15% thereafter
Florida Insured Municipal Fund.................................. 0.20% of the first $75 million
0.125% thereafter
California Insured Intermediate Municipal Fund.................. 0.20% of the first $75 million
0.125% thereafter
Tax-Exempt Bond Fund............................................ 0.10% of average daily net assets
JANUS
Growth Fund..................................................... 0.55% of the first $100 million
0.50% thereafter
WARBURG
International Growth Fund....................................... 0.50% of average daily net assets
</TABLE>
The subadvisory agreements for the Growth Fund with Janus, for the
International Growth Fund with Warburg and for California Municipal Fund, the
Florida Insured Municipal Fund and the California Insured Intermediate Fund with
Van Kampen each took effect on March 20, 1998. The subadvisory agreement for the
Tax-Exempt Bond Fund with Van Kampen took effect on January 1, 1998.
For the three most recent fiscal years, the Advisor or its affiliates paid the
sub-advisors the following sub-advisory fees:
<TABLE>
<CAPTION>
FEES PAID FEES PAID FEES PAID FEES PAID
FISCAL YEAR FISCAL YEAR FISCAL YEAR FISCAL YEAR
ENDED OCT. ENDED JUNE ENDED ENDED
1998* 1998 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
California Money Fund $ 0 $ 36,881 $ 70,156 $ 77,549
California Municipal Fund $ 192,188 $ 580,166 $ 637,702 $ 684,267
California Insured Intermediate Municipal Fund $ 40,648 $ 126,152 $ 144,771 $ 143,109
Florida Insured Municipal Fund $ 14,521 $ 49,884 $ 63,134 $ 73,371
Growth Fund $ 466,728 $1,473,318 $1,374,940 $1,149,390
</TABLE>
-17-
<PAGE> 109
<TABLE>
<S> <C> <C> <C> <C>
International Growth Fund $ 247,641 $ 753,964 $ 880,003 $ 640,950
Emerging Growth Fund $ 0 $ 921,864 $1,550,235 $1,470,531
</TABLE>
* Fiscal period from June 30, 1998 through October 31, 1998.
Until March 20, 1998, Sierra Fund Administration Corporation ("Sierra
Administration") served as the administrator, and First Data Investor Services
Group, Inc. ("First Data") served as the sub-administrator to each of the WM
Trust II Funds and each of the Portfolios. Shareholder Services had provided
transfer agency and other shareholder services to each of the WM Trust I Funds
prior to that date, and has provided transfer agency and other shareholder
services to each of the Funds and Portfolios since March 20, 1998.
For the three most recent fiscal years the Trusts paid Shareholder
Services and its affiliates the following administration and/or Transfer Agent
fees:
<TABLE>
<CAPTION>
OCT. 1998 JUNE 1998
--------------------- ----------------------
FEES FEES FEES FEES
PAID WAIVED PAID WAIVED
---------- ------ ---------- ------
<S> <C> <C> <C> <C>
Money Market Fund* $ 586,106 $ 0 n/a n/a
Tax-Exempt Money Market Fund* $ 16,010 $ 0 n/a n/a
California Money Fund** $ 13,361 $ 0 $ 73,762 $ 0
Short Term High Quality Bond Fund** $ 24,407 $ 0 $ 33,910 $ 0
Target Maturity 2002 Fund+** $ 1,489 $ 0 $ 5,515 $ 0
U.S. Government Securities Fund* $1,290,2955 $ 0 n/a n/a
Income Fund* $ 195,913 $ 0 n/a n/a
High Yield Fund $ 2,519 $ 0 n/a n/a
Tax-Exempt Bond Fund* $ 98,013 $ 0 n/a n/a
California Municipal Fund** $ 41,000 $ 0 $ 860,498 $ 0
California Insured Intermediate Municipal Fund** $ 8,369 $ 0 $ 161,117 $ 0
Florida Insured Municipal Fund** $ 3,487 $ 0 $ 65,423 $ 0
Bond & Stock Fund $ 248,201 $ 0 n/a n/a
Growth Income Fund $ 482,655 $ 0 n/a n/a
Growth Fund** $ 106,901 $ 0 $ 723,887 $ 0
International Growth Fund** $ 46,783 $ 0 $ 370,136 $ 0
Northwest Fund*** $ 394,356 $ 0 n/a n/a
Emerging Growth Fund** $ 132,833 $ 0 $ 620,085 $ 0
Strategic Growth Portfolio++** $ 129,401 $ 0 $ 303,985 $ 0
Conservative Growth Portfolio++** $ 87,805 $ 0 $1,463,013 $ 0
Balanced Portfolio++** $ 374,761 $ 0 $1,079,118 $ 0
Flexible Income Portfolio++** $ 32,391 $ 0 $ 88,955 $ 0
Income Portfolio++** $ 22,302 $ 0 $ 76,470 $ 0
</TABLE>
<TABLE>
<CAPTION>
1997 1996
------------------------ -----------------------
FEES FEES FEES FEES
PAID WAIVED PAID WAIVED
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Money Market Fund* $ 476,775 $ 141,274 $ 411,274 $137,904
Tax-Exempt Money Market Fund* $ 26,688 $ 1,293 $ 26,736 $ 1,628
California Money Fund** $ 140,313 $ 0 $ 155,097 $ 0
Short Term High Quality Bond Fund** $ 107,344 $ 0 $ 809,686 $ 11,630
Target Maturity 2002 Fund+** $ 10,859 $ 0 $ 11,080 $ 3,805
U.S. Government Securities Fund* $ 105,444 $ 0 $ 146,145 $ 0
Income Fund* $ 93,522 $ 0 $ 114,258 $ 0
High Yield Fund n/a n/a n/a n/a
Tax-Exempt Bond Fund* $ 84,547 $ 0 $ 102,716 $ 0
California Municipal Fund** $1,312,972 $ 0 $ 14,216 $ 0
California Insured Intermediate Municipal Fund** $ 253,706 $ 0 $ 250,472 $ 14,288
Florida Insured Municipal Fund** $ 110,484 $ 0 $ 128,399 $ 20,472
Bond & Stock Fund $ 235,936 $ 0 $ 222,913 $ 0
Growth Income Fund $ 245,357 $ 0 $ 193,784 $ 0
Growth Fund** $ 927,458 $ 0 $ 769,573 $ 0
International Growth Fund** $ 616,002 $ 0 $ 422,563 $ 0
Northwest Fund*** $ 347,561 $ 0 $ 320,799 $ 0
Emerging Growth Fund** $1,050,164 $ 0 $ 994,372 $ 0
Strategic Growth Portfolio++** $ 122,140 $ 83,235 n/a n/a
Conservative Growth Portfolio++** $ 866,812 $ 259,689 n/a n/a
Balanced Portfolio++** $ 628,588 $ 179,370 n/a n/a
Flexible Income Portfolio++** $ 66,287 $ 58,740 n/a n/a
Income Portfolio++** $ 61,796 $ 50,033 n/a n/a
</TABLE>
+ The Target Maturity 2002 Fund commenced operations on March 20, 1995.
++ The Portfolios commenced operations on July 25, 1996.
* Fiscal year end changed from 12/31 to 10/31
-18-
<PAGE> 110
** Fiscal year end changed from 6/30 to 10/31
For the three most recent fiscal years, Shareholder Services and its affiliates
paid the following amounts to First Data for sub-administrative services to the
Funds and Portfolios.
<TABLE>
<CAPTION>
OCTOBER 1998 JUNE 1998 1997 1996
------------ --------- -------- ----------
<S> <C> <C> <C> <C>
Money Market Fund* $134,737 n/a n/a n/a
Tax-Exempt Money Market Fund* $ 8,464 n/a n/a n/a
California Money Fund** $ 5,818 $ 37,008 $ 37,649 $ 40,546
Short Term High Quality Bond Fund** $ 6,151 $ 31,105 $ 24,633 $ 41,119
Target Maturity 2002 Fund** $ 315 $ 7,700 $ 2,499 $ 2,485
US Government Securities Fund* $ 98,252 n/a n/a n/a
Income Fund* $ 73,599 n/a n/a n/a
High Yield Fund $ 7,768 n/a n/a n/a
Tax-Exempt Bond Fund* $ 89,401 n/a n/a n/a
California Municipal Fund** $ 50,611 $243,920 $302,048 $ 318,453
California Insured Intermediate Municipal Fund** $ 3,302 $249,738 $ 58,360 $ 56,128
Florida Insured Municipal Fund** $ 84,519 $ 23,945 $ 25,408 $ 28,762
Bond & Stock Fund $212,391 n/a n/a n/a
Growth & Income Fund $ 67,046 n/a n/a n/a
Northwest Fund $ 40,745 n/a n/a n/a
Growth Fund* $ 22,493 $260,697 $213,556 $ 172,561
International Growth Fund** $ 21,615 $249,221 $141,808 $ 94,735
Emerging Growth Fund** $ 10,291 $193,279 $241,257 $ 222,994
Strategic Growth Portfolio+** $ 39,627 $ 32,694 $ 1,128 n/a
Conservative Growth Portfolio+** $ 31,153 $ 52,443 $ 1,164 n/a
Balanced Portfolio+** $ 2,670 $ 45,182 $ 1,257 n/a
Flexible Income Portfolio+** $ 1,842 $ 25,987 $ 1,533 n/a
Income Portfolio++** ?? $ 25,783 $ 1,249 n/a
</TABLE>
* Fiscal year end changed from 12/31 to 10/31.
** Fiscal year end changed from 6/30 to 10/31.
+ The Portfolios commenced operations on July 25, 1996.
TRANSFER AGENT AND CUSTODIAN
WM Shareholder Services, Inc., provides transfer agency and other shareholder
services. WM Shareholder Services, Inc. is an indirect wholly owned subsidiary
of Washington Mutual, located at 1201 Third Avenue, Suite 1400, Seattle,
Washington 98101. The Custodian for the Funds and Portfolios is Boston Safe
Deposit and Trust Co., which is located at One Boston Place, Boston,
Massachusetts 02108. WM Shareholder Services, Inc. may charge a fee for special
services, such as providing historical account documents, that are beyond the
normal scope of its services.
COUNSEL
Ropes & Gray, located at One International Place, Boston, Massachusetts
02110, serves as counsel to the Trusts.
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INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
Deloitte & Touche LLP, 50 Fremont Street, San Francisco, CA 94105,
serves as independent accountants to each of the Funds and Portfolios.
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts 02110,
served as independent accountants to WM Trust II and the Predecessor Portfolios
for their fiscal year ended June 30, 1998 and for prior fiscal years. Prior to
the current fiscal year of the WM Trust I Funds, LeMaster & Daniels PLLC, 601
West Riverside, Suite 700, Spokane, Washington 99201, served as independent
accountants to WM Trust I. The financial statements, financial highlights and
Report of Independent Accountants of Deloitte & Touche LLP for each of the Funds
and Predecessor Portfolios contained in the Funds' and the Predecessor
Portfolios' Annual Report for the fiscal year ended October 31 ,1998 are hereby
incorporated by reference. The financial statements, financial highlights and
Report of Independent Accountants of PricewaterhouseCoopers LLP for each of the
WM Trust II Funds and each of the Predecessor Portfolios contained in such
Funds' and the Predecessor Portfolios' Annual Report to Shareholders for the
year ended June 30, 1998 are incorporated herein by reference. The financial
statements, financial highlights and Report of Independent Accountants of
LeMaster & Daniels PLLC for each of the WM Trust I Funds contained in such
Funds' Annual Reports to Shareholders for the fiscal years ended October 31,
1997 or December 31, 1997, as the case may be, are hereby incorporated by
reference. The financial statements incorporated by reference into this SAI and
the financial highlights in the Prospectus have been audited by Deloitte &
Touche LLP, PricewaterhouseCoopers LLP or LeMaster & Daniels PLLC, as the case
may be, and have been so included in reliance on such independent accountants'
reports, given on the authority of such firms in accounting and auditing.
ORGANIZATION OF THE TRUST
WM Trust I is an open-end management investment company, organized as a
Massachusetts business trust pursuant to an Agreement and Declaration of Trust
dated September 19, 1997, as amended from time to time (the "WM Trust I
Agreement"). WM Trust II is organized as a Massachusetts business trust pursuant
to a Master Trust Agreement dated February 22, 1989, as amended from time to
time (the "WM Trust II Agreement"). The WM Trust I Agreement and WM Trust II
Agreements are collectively referred to herein as the "Trust Agreements." WM
Strategic Asset Management Portfolios, LLC is an open-end management investment
company, organized as a Massachusetts limited liability company pursuant to a
Limited Liability Company Agreement dated March 12, 1999, as amended from time
to time (the "LLC Agreement"). In the interest of economy and convenience,
certificates representing shares in the Trusts are not physically issued. Boston
Safe Deposit and Trust Co. ("Boston Safe"), the Trusts' Custodian, and
Shareholder Services, the Trusts' Transfer Agent, maintain a record of each
shareholder's ownership of Trust shares. Shares do not have cumulative voting
rights, which means that holders of more than 50% of the shares voting for the
election of Trustees can elect all Trustees. Shares are transferable but have no
preemptive, conversion or subscription rights. Shareholders generally
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vote by Fund, Portfolio or Class, except with respect to the election of
Trustees and the selection of independent accountants, for which shareholders of
each Trust as a whole vote together.
Under normal circumstances, there will be no meetings of shareholders
for the purpose of electing Trustees unless and until such time as less than a
majority of the Trustees holding office have been elected by shareholders, at
which time the Trustees then in office promptly will call a shareholders'
meeting for the election of Trustees. Under the 1940 Act, shareholders of record
of no less than two-thirds of the outstanding shares of the Trust may remove a
Trustee through a declaration in writing or by vote cast in person or by proxy
at a meeting called for that purpose. Under the Trust Agreements and LLC
Agreement, the Trustees are required to call a meeting of shareholders for the
purpose of voting upon the question of removal of any such Trustee when
requested in writing to do so by the shareholders of record of not less than 10%
of any of a Trust's outstanding shares.
Massachusetts law provides that shareholders, under certain
circumstances, could be held personally liable for the obligations of a
business trust, such as WM Trust I or WM Trust II. However, each Trust Agreement
disclaims shareholder liability for acts or obligations of the Trusts and
require that notice of such disclaimer be given in each agreement, obligation or
instrument entered into or executed by the Trust or a Trustee. Each Trust
Agreement provides for indemnification from the Trust's property for all losses
and expenses of any shareholder held personally liable for the obligations of
the Trust. Thus, the risk of a shareholder incurring financial loss on account
of shareholder liability is limited to circumstances in which the Trust would be
unable to meet its obligations, a possibility that the Trusts' management
believes is remote. The Trustees intend to conduct the operations of each Trust
in such a way so as to avoid, to the extent possible, ultimate liability of the
shareholders for the liabilities of the Trust. Massachusetts law provides that
shareholders of limited liability companies, such as WM Strategic Asset
Management Portfolios, LLC, may not be held personally liable for the
obligations of the Portfolios.
INVESTMENT OBJECTIVES AND POLICIES
The Prospectus discusses the investment objective or objectives of each
of the Funds and Portfolios and the policies to be employed to achieve such
objectives. This section contains supplemental information concerning the types
of securities and other instruments in which the Funds and Portfolios may
invest, the investment policies and portfolio strategies that the Funds and
Portfolios may utilize and certain risks attendant to such investments, policies
and strategies.
RATINGS AS INVESTMENT CRITERIA. In general, the ratings of nationally
recognized statistical rating organization ("NRSROs"), such as Moody's Investors
Service, Inc. ("Moody's"), Standard & Poor's ("S&P"), Duff and Phelps, and
Fitch, represent the opinions of these agencies as to the quality of securities
which they rate. It should be emphasized, however, that such ratings are
relative and subjective and are not absolute standards of quality. These ratings
will be used by the Funds as initial criteria for the selection of portfolio
securities, but the Funds will also rely upon the independent advice of the
Advisor or their
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respective sub-advisors. The Appendix to this SAI contains further information
concerning the ratings of these services and their significance.
To the extent that the rating given by Moody's or S&P for securities
may change as a result of changes in such organizations or their rating systems,
each Fund will attempt to use comparable ratings as standards for its
investments in accordance with the investment policies contained in the
Prospectus and in this SAI.
U.S. GOVERNMENT SECURITIES. U.S. Government Securities include debt
obligations of varying maturities issued or guaranteed by the U.S. Government,
its agencies or instrumentalities. U.S. Government Securities include, but are
not necessarily limited to, direct obligations of the U.S. Treasury, and
securities issued or guaranteed by the Federal Housing Administration, Farmers
Home Administration, Export-Import Bank of the United States, Small Business
Administration, Government National Mortgage Association ("GNMA"), General
Services Administration, Central Bank for Cooperatives, Federal Farm Credit
Banks, Federal Home Loan Banks, Federal Home Loan Mortgage Corporation
("FHLMC"), Federal Intermediate Credit Banks, Resolution Trust Corporation,
Federal Land Banks, Federal National Mortgage Association ("FNMA"), Maritime
Administration, Tennessee Valley Authority, District of Columbia Armory Board
and Student Loan Marketing Association. Direct obligations of the U.S. Treasury
include a variety of securities that differ in their interest rates, maturities
and dates of issuance. Because the U.S. Government is not obligated by law to
provide support to an instrumentality it sponsors, a Fund will invest in
obligations issued by such an instrumentality only if the Advisor or the Fund's
sub-advisor determines that the credit risk with respect to the instrumentality
does not make its securities unsuitable for investment by the Fund.
ILLIQUID INVESTMENTS. These securities generally cannot be sold or
disposed of in the ordinary course of business at approximately the value at
which the Fund has valued the investments within seven days. This may have an
adverse effect upon the Fund's ability to dispose of the particular securities
at fair market value and may limit the Fund's ability to obtain accurate market
quotations for purposes of valuing the securities and calculating the net asset
value of shares of the Fund. The Funds may also purchase securities that are not
registered under the Securities Act of 1933, as amended (the "Securities Act"),
but that can be sold to qualified institutional buyers in accordance with Rule
144A under that Act ("Rule 144A securities"). Rule 144A securities generally
must be sold to other qualified institutional buyers. If a particular investment
in Rule 144A securities is not determined to be liquid, that investment will be
treated as an illiquid security.
COMBINED TRANSACTIONS. To the extent permitted by each Fund's
investment polices and restrictions, the Funds may enter into multiple
transactions, including multiple options transactions, multiple futures
transactions, multiple foreign currency transactions (including forward foreign
currency exchange contracts) and any combination of futures, options and foreign
currency transactions (each separately, a "component" transaction), instead
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of a single transaction, as part of a single hedging strategy when, in the
opinion of the Advisor or the sub-advisor, it is in the best interest of the
Fund to do so. A combined transaction, while part of a single hedging strategy,
may contain elements of risk that are present in each of its component
transactions.
BANK OBLIGATIONS. Domestic commercial banks organized under federal law
are supervised and examined by the Comptroller of the Currency and are required
to be members of the Federal Reserve System and to be insured by the Federal
Deposit Insurance Corporation (the "FDIC"). Domestic banks organized under state
law are supervised and examined by state banking authorities but are members of
the Federal Reserve System only if they elect to join. Most state banks are
insured by the FDIC (although such insurance may not be of material benefit to a
Fund, depending upon the principal amount of certificates of deposit ("CDs") of
each state bank held by a Fund) and are subject to federal examination and to a
substantial body of federal law and regulation. As a result of federal and state
laws and regulations, domestic branches of domestic banks are, among other
things, generally required to maintain specific levels of reserves, and are
subject to other supervision and regulation designed to promote financial
soundness.
Obligations of foreign branches of U.S. banks and of foreign branches
of foreign banks, such as CDs and time deposits ("TDs"), may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and governmental regulation.
Obligations of foreign branches of U.S. banks and foreign banks are subject to
the risks associated with investing in foreign securities generally. Foreign
branches of U.S. banks and foreign branches of foreign banks are not necessarily
subject to the same or similar regulatory requirements that apply to U.S. banks,
such as mandatory reserve requirements, loan limitations, and accounting,
auditing and financial recordkeeping requirements. In addition, less information
may be publicly available about a foreign branch of a U.S. bank or about a
foreign bank than about a U.S. bank.
Obligations of U.S. branches of foreign banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and by federal and state
regulation as well as governmental action in the country in which the foreign
bank has its head office. A U.S. branch of a foreign bank may or may not be
subject to reserve requirements imposed by the Federal Reserve System or by the
state in which the branch is located if the branch is licensed in that state.
The deposits of branches licensed by certain states may not necessarily be
insured by the FDIC. In addition, there may be less publicly available
information about a U.S. branch of a foreign bank than about a U.S. bank.
In view of the foregoing factors associated with the purchase of CDs
and TDs issued by foreign banks and foreign branches of U.S. banks, the Advisor
or the Funds' respective sub-advisors will carefully evaluate such investments
on a case-by-case basis.
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A Fund may purchase a CD, TD or bankers' acceptances issued by a bank,
savings and loan association or other banking institution with less than $1
billion in assets (a "Small Issuer Bank Obligation") only so long as the issuer
is a member of the FDIC or supervised by the Office of Thrift Supervision (the
"OTS") and so long as the principal amount of the Small Issuer Bank Obligation
is fully insured by the FDIC and is no more than $100,000. Each of the Funds
will at any one time hold only one Small Issuer Bank Obligation from any one
issuer.
Savings and loan associations whose CDs, TDs and bankers' acceptances
may be purchased by the Funds are supervised by the OTS and insured by the
Savings Association Insurance Fund, which is administered by the FDIC and is
backed by the full faith and credit of the United States Government. As a
result, such savings and loan associations are subject to regulation and
examination.
MORTGAGE-BACKED SECURITIES. The mortgage-backed securities in which the
Funds may invest include these classified as governmental or government-related.
Governmental mortgage-backed securities are backed by the full faith and credit
of the United States. GNMA, the principal U.S. guarantor of such securities, is
a wholly-owned U.S. Government corporation within the Department of Housing and
Urban Development. Government-related mortgage-backed securities which are not
backed by the full faith and credit of the United States include those issued by
FNMA and FHLMC. FNMA is a government-sponsored corporation owned entirely by
private stockholders, which is subject to general regulation by the Secretary of
Housing and Urban Development. Pass-through securities issued by FNMA are
guaranteed as to timely payment of principal and interest by FNMA. FHLMC is a
corporate instrumentality of the United States, the stock of which is owned by
the Federal Home Loan Banks. Participation certificates representing interests
in mortgages from FHLMC's national portfolio are guaranteed as to the timely
payment of interest and ultimate collection of principal by FHLMC.
Entities may create mortgage loan pools offering pass-through
investments in addition to those described above. The mortgages underlying these
securities may be alternative mortgage instruments, that is, mortgage
instruments in which principal or interest payments may vary or terms to
maturity may be shorter than previously customary. As new types of
mortgage-backed securities are developed and offered to investors, the Funds
will, consistent with their respective investment objectives and policies,
consider making investments in such new types of securities.
The average maturity of pass-through pools of mortgage-backed
securities varies with the maturities of the underlying mortgage instruments. In
addition, a pool's stated maturity may be shortened by unscheduled payments on
the underlying mortgages. Factors affecting mortgage prepayments include the
level of interest rates, general economic and social conditions, the location of
the mortgaged property and the age of the mortgage. Because prepayment rates of
individual mortgage pools vary widely, it is not possible to accurately predict
the average life of a particular pool. Common industry practice, for example, is
to assume that prepayments will result in a 7- to 9-year average life for pools
of fixed-rate 30-year mortgages. Pools of mortgages with other maturities or
different characteristics will have varying average life assumptions.
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REPURCHASE AGREEMENTS. The California Money, Short Term High Quality
Bond, High Yield, Target Maturity 2002, California Insured Intermediate
Municipal, Florida Insured Municipal, Growth, International Growth and Emerging
Growth Funds may invest in repurchase agreements without limitation. The
California Municipal Fund may invest no more than 20%, in the aggregate, of its
assets in repurchase agreements and certain other securities or instruments, but
this 20% limit does not apply to investments for temporary defensive purposes.
The Money Market, Tax-Exempt Money Market, U.S. Government Securities, Income,
Tax-Exempt Bond, Bond & Stock, Growth & Income and Northwest Funds may enter
into repurchase agreements with brokers, dealers and banks to temporarily invest
cash reserves, provided that repurchase agreements maturing in greater than 7
days cannot exceed 10% of each Fund's total assets.
WHEN ISSUED SECURITIES AND DELAYED DELIVERY TRANSACTIONS. A segregated
account in the name of the Fund consisting of cash or other liquid assets equal
to the amount of when-issued or delayed-delivery commitments will be established
at Boston Safe, the Trusts' Custodian. For the purpose of determining the
adequacy of the securities in the accounts, the deposited securities will be
valued at market or fair value. If the market or fair value of the securities
declines, additional cash or securities will be placed in the account daily so
that the value of the account will equal the amount of such commitments by the
Fund. On the settlement date, the Fund will meet its obligations from
then-available cash flow, the sale of securities held in the segregated account,
the sale of other securities or, although it would not normally expect to do so,
from the sale of securities purchased on a when-issued or delayed-delivery basis
themselves (which may have a greater or lesser value than the Fund's payment
obligations).
STRATEGIC TRANSACTIONS. Subject to the investment limitations and
restrictions for each of the Funds stated elsewhere in this SAI and in the
Prospectus, each of the Funds and Portfolios, except for the Money Funds, may
utilize various investment strategies as described below to hedge various market
risks, to manage the effective maturity or duration of fixed-income securities
or for other bona fide hedging purposes. No Fund or Portfolio currently intends
to enter into Strategic Transactions, excluding Strategic Transactions that are
"covered" or entered into for bona fide hedging purposes, that are in the
aggregate principal amount in excess of 15% of the Fund's net assets.
The Funds and Portfolios may enter into multiple transactions,
including multiple options transactions, multiple futures transactions, multiple
foreign currency transactions (including forward foreign currency exchange
contracts) and any combination of futures, options and foreign currency
transactions (each separately, a "component" transaction), instead of a single
transaction, as part of a single strategy when, in the opinion of the Advisor or
the sub-advisor, it is in the best interest of the Fund or Portfolio to do so. A
combined transaction may contain elements of risk that are present in each of
its component transactions.
The use of Strategic Transactions for asset management purposes
involves special considerations and risks. Additional risks pertaining to
particular strategies that make up Strategic Transactions are described below.
Successful use of most Strategic Transactions depends upon the
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Advisor or the sub-advisor's ability to predict movements of the overall
securities and interest rate markets, which requires different skills than
predicting changes in the prices of individual securities. There can be no
assurance that any particular strategy adopted will succeed. There may be
imperfect correlation, or even no correlation, between price movements of
Strategic Transactions and price movements of the related portfolio or currency
positions. Such a lack of correlation might occur due to factors unrelated to
the value of the related portfolio or currency positions, such as speculative or
other pressures on the markets in which Strategic Transactions are traded. In
addition, a Fund or Portfolio might be required to maintain assets as "cover,"
maintain segregated accounts or make margin payments when it takes positions in
Strategic Transactions involving obligations to third parties (i.e., Strategic
Transactions other than purchased options). These requirements might impair the
Fund's ability to sell a portfolio security or currency position or make an
investment at a time when it would otherwise be favorable to do so, or require
that the Fund sell a portfolio security or currency position at a
disadvantageous time.
- SWAPS, CAPS, FLOORS AND COLLARS. Among the Strategic Transactions
into which a Fund engaging in Strategic Transactions may enter, consistent with
the Fund's investment policies and restrictions, are interest rate, currency and
index swaps and the purchase or sale of related caps, floors and collars. A Fund
would enter into these transactions primarily to preserve a return or spread on
a particular investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities the Fund anticipates purchasing at a later
date. A Fund will use these transactions as hedges and not speculative
investments and will not sell interest rate caps or floors where it does not own
securities or other instruments providing the income stream the Fund may be
obligated to pay. Interest rate swaps involve the exchange by a Fund with
another party of their respective commitments to pay or receive interest, e.g.,
an exchange of floating rate payments for fixed rate payments with respect to a
notional amount of principal. A currency swap is an agreement to exchange cash
flows on a notional amount of two or more currencies based on the relative value
differential among them and an index swap is an agreement to swap cash flows on
a notional amount based on changes in the values of the reference indices. The
purchase of a cap entitles the purchaser to receive payments on a notional
principal amount from the party selling such cap to the extent that a specified
index exceeds a predetermined interest rate or amount. The purchase of a floor
entitles the purchaser to receive payments on a notional principal amount from
the party selling such floor to the extent that a specified index falls below a
predetermined interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain return within a predetermined range of interest
rates or value.
A Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as these swaps, caps,
floors and collars are entered into for good faith hedging purposes, the Advisor
and the Trusts believe that such obligations do not constitute senior securities
under the 1940 Act and, accordingly, will not treat them as being subject to the
Fund's borrowing
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restrictions. If there is a default by the counterparty, a Fund may have
contractual remedies pursuant to the agreements related to the transaction.
Caps, floors and collars are relatively recent innovations for which
standardized documentation has not yet been fully developed and, accordingly,
they may be less liquid.
- FUTURES ACTIVITIES. Each of the Funds permitted to engage in
Strategic Transactions (other than the Target Maturity 2002 Fund or the WM Trust
I Funds and each of the Portfolios may enter into futures contracts and options
on futures contracts that are traded on a U.S. exchange or board of trade. These
investments may be made by the Fund involved for the purpose of hedging against
changes in the value of its portfolio securities due to anticipated changes in
interest rates and market conditions, and for otherwise permitted Strategic
Transactions. In the case of the California Municipal, the California Insured
Intermediate Municipal and the Florida Insured Municipal Funds, such investments
will be made only in unusual circumstances, such as when that Funds' sub-advisor
anticipates an extreme change in interest rates or market conditions. The
ability of a Fund to trade in futures contracts and options on futures contracts
may be materially limited by the requirement of the Internal Revenue Code of
1986, as amended (the "Code"), applicable to a regulated investment company. See
"Taxes" below.
- FUTURES CONTRACTS. An interest rate futures contract provides for the
future sale by one party and the purchase by the other party of a certain amount
of a specific financial instrument (debt security) at a specified price, date,
time and place. A bond index futures contract is an agreement pursuant to which
two parties agree to take or make delivery of an amount of cash equal to the
difference between the value of the index at the close of the last trading day
of the contract and the price at which the index contract was originally
written. No physical delivery of the underlying securities in the index is made.
The purpose of entering into a futures contract by a Fund or Portfolio
is to protect the Fund or Portfolio from fluctuations in the value of its
securities caused by anticipated changes in interest rates or market conditions
without necessarily buying or selling the securities. For example, if the
California Municipal Fund, the California Insured Intermediate Municipal Fund or
the Florida Insured Municipal Fund owns long-term bonds and tax-exempt rates are
expected to increase, these Funds might enter into futures contracts to sell a
municipal bond index. Such a transaction would have much the same effect as a
Fund's selling some of the long-term bonds in its portfolio. If tax-exempt rates
increase as anticipated, the value of certain long-term municipal obligations in
the portfolio would decline, but the value of the Fund's futures contracts would
increase at approximately the same rate, thereby keeping the net asset value of
the Fund from declining as much as it otherwise would have. Because the value of
portfolio securities will far exceed the value of the futures contracts entered
into by a Fund, an increase in the value of the futures contract would only
mitigate -- but not totally offset -- the decline in the value of the portfolio.
No consideration is paid or received by a Fund upon entering into a
futures contract. Initially, a Fund or Portfolio would be required to deposit
with the broker an amount of cash or cash equivalents equal to approximately 1%
to 10% of the contract amount (this amount is
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subject to change by the board of trade on which the contract is traded and
members of such board of trade may charge a higher amount). This amount is known
as "initial margin" and is in its nature the equivalent of a performance bond or
good faith deposit on the contract, which is returned to a Fund or Portfolio
upon termination of the futures contract, assuming all contractual obligations
have been satisfied. Subsequent payments, known as "variation margin," to and
from the broker, will be made daily as the price of the index or securities
underlying the futures contract fluctuates, making the long and short positions
in the futures contract more or less valuable, a process known as
"marking-to-market." At any time prior to the expiration of a futures contract,
a Fund or Portfolio may elect to close the position by taking an opposite
position, which will operate to terminate the Fund's or Portfolio's existing
position in the contract.
There are several risks in connection with the use of futures contracts
as a hedging device. Successful use of futures contracts by a Fund is subject to
the ability of the Advisor or the sub-advisor to correctly predict movements in
the direction of interest rates or changes in market conditions. These
predictions involve skills and techniques that may be different from those
involved in the management of the portfolio being hedged. In addition, there can
be no assurance that there will be a correlation between movements in the price
of the underlying index or securities and movements in the price of the
securities which are the subject of the hedge. A decision of whether, when and
how to hedge involves the exercise of skill and judgment, and even a
well-conceived hedge may be unsuccessful to some degree because of market
behavior or unexpected trends in interest rates.
Although the Funds and the Portfolios intend to enter into futures
contracts only if there is an active market for such contracts, there is no
assurance that an active market will exist for the contracts at any particular
time. Most U.S. futures exchanges and boards of trade limit the amount of
fluctuation permitted in futures contract prices during a single trading day.
Once the daily limit has been reached in a particular contract, no trades may be
made that day at a price beyond that limit. It is possible that futures contract
prices would move to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses. In such event, and in
the event of adverse price movements, a Fund or Portfolio would be required to
make daily cash payments of variation margin. In such circumstances, an increase
in the value of the portion of the portfolio being hedged, if any, may partially
or completely offset losses on the futures contract. However, as described
above, there is no guarantee that the price of the securities being hedged will,
in fact, correlate with the price movements in a futures contract and thus
provide an offset to losses on the futures contract.
To ensure that transactions constitute bona fide hedges in instances
involving the purchase or sale of a futures contract, the Funds or Portfolios
will be required to either (i) segregate sufficient cash or liquid assets to
cover the outstanding position or (ii) cover the futures contract by either
owning the instruments underlying the futures contract or by holding a portfolio
of securities with characteristics substantially similar to the underlying index
or stock index
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comprising the futures contract or by holding a separate option permitting it to
purchase or sell the same futures contract. Because of the imperfect correlation
between the movements in the price of underlying indexes or stock indexes of
various futures contracts and the movement of the price of securities in the
Funds' or Portfolio's assets, the Funds and Portfolios will periodically make
adjustments to its index futures contracts positions to appropriately reflect
the relationship between the underlying portfolio and the indexes. The Funds and
Portfolios will not maintain short positions in index or stock index futures
contracts, options written on index or stock index futures contracts and options
written on indexes or stock indexes, if in the aggregate, the value of these
positions exceeds the current market value of its securities portfolio plus or
minus the unrealized gain or loss on those positions, adjusted for the
historical volatility relationship between the portfolio and the index
contracts.
- OPTIONS ON FUTURES CONTRACTS. An option on a futures contract, as
contrasted with the direct investment in such a contract, gives the purchaser
the right, in return for the premium paid, to assume a position in the futures
contract at a specified exercise price at any time prior to the expiration date
of the option. Upon exercise of an option, the delivery of the futures position
by the writer of the option to the holder of the option will be accompanied by
delivery of the accumulated balance in the writer's futures margin account,
which represents the amount by which the market price of the futures contract
exceeds, in the case of a call, or is less than, in the case of a put, the
exercise price of the option on the futures contract. The value of the option
can change daily and that change would be reflected in the net asset value of
the Fund or Portfolio holding the option.
When engaging in Strategic Transactions, the Funds and the Portfolios
may purchase and write put and call options on futures contracts that are traded
on a U.S. exchange or board of trade as a hedge against changes in the value of
its portfolio securities, and may enter into closing transactions with respect
to such options to terminate existing positions. There is no guarantee that such
closing transactions can be effected.
There are several risks relating to options on futures contracts. The
ability to establish and close out positions on such options will be subject to
the existence of a liquid market. In addition, the purchase of put or call
options will be based upon predictions as to anticipated interest rate and
market trends by the Advisor or the sub-advisors, which could prove to be
inaccurate. Even if the expectations of the Advisor or the sub-advisors are
correct, there may be an imperfect correlation between the change in the value
of the options and the portfolio securities hedged.
- OPTIONS ON SECURITIES. The Short Term High Quality Bond, Bond &
Stock, Growth & Income, Growth, International Growth, Northwest and Emerging
Growth Funds may buy and sell covered put (except for the Bond & Stock, Growth &
Income and Northwest Funds) and call options on securities.
Options written by a Fund will normally have expiration dates between
one and nine months from the date written. The exercise price of the options may
be below, equal to or above
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the market values of the underlying securities at the times the options are
written. In the case of call options, these exercise prices are referred to as
"in-the-money," "at-the-money" and "out-of-the-money," respectively. A Fund may
write (1) in-the-money call options when the Advisor or its sub-advisor expects
that the price of the underlying security will remain flat or decline moderately
during the option period, (2) at-the-money call options when the Advisor or its
sub-advisor expects that the price of the underlying security will remain flat
or advance moderately during the option period and (3) out-of-the-money call
options when the Advisor or its sub-advisor expects that the premiums received
from writing the call option plus the appreciation in the market price of the
underlying security up to the exercise price will be greater than the
appreciation in the price of the underlying security alone. In any of the
preceding situations, if the market price of the underlying security declines
and the security is sold at this lower price, the amount of any realized loss
will be offset wholly or in part by the premium received. Out-of-the-money,
at-the-money and in-the-money put options (the reverse of call options as to the
relation of exercise price to market price) may be utilized in the same market
environments as such call options described above.
So long as the obligation of the Fund as the writer of an option
continues, the Fund may be assigned an exercise notice by the broker-dealer
through which the option was sold, requiring the Fund to deliver, in the case of
a call, or take delivery of, in the case of a put, the underlying security
against payment of the exercise price. This obligation terminates when the
option expires or the Fund effects a closing purchase transaction. The Fund can
no longer effect a closing purchase transaction with respect to an option once
it has been assigned an exercise notice. To secure its obligation to deliver the
underlying security when it writes a call option, or to pay for the underlying
security when it writes a put option, the Fund will be required to deposit in
escrow the underlying security or other assets in accordance with the rules of
the Options Clearing Corporation (the "OCC") and of the securities exchange on
which the option is written.
An option may be closed out only when there exists a secondary market
for an option of the same series on a recognized securities exchange or in the
over-the-counter market. In light of this fact and current trading conditions,
the Fund expects to purchase or write call or put options issued by the OCC,
except that options on U.S. Government Securities may be purchased or written in
the over-the-counter market. Over-the-counter options can be closed out only by
agreement with the primary dealer in the transaction. Any over-the-counter
option written by a Fund will be with a qualified dealer pursuant to an
Agreement under which the Fund may repurchase the option at a formula price at
which the Fund would have the absolute right to repurchase an over-the-counter
option it has sold. Such options will generally be considered illiquid in an
amount equal to the formula price, less the amount by which the option is
"in-the-money." In the event of the insolvency of the primary dealer, the Fund
may not be able to liquidate its position in over-the-counter options, and the
inability of the Fund to enter into closing purchase transactions on options
written by the Fund may result in a material loss to the Fund.
A Fund may realize a profit or loss upon entering into closing
transactions. In cases where the Fund has written an option, it will realize a
profit if the cost of the closing purchase transaction
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is less than the premium received upon writing the original option, and will
incur a loss if the cost of the closing purchase transaction exceeds the premium
received upon writing the original option. Similarly, when the Fund has
purchased an option and engages in a closing sale transaction, the Fund will
realize a profit or loss to the extent that the amount received in the closing
sale transaction is more or less than the premium the Fund initially paid for
the original option plus the related transaction costs.
To facilitate closing transactions, a Fund will generally purchase or
write only those options for which the Advisor or its sub-advisor believes there
is an active secondary market although there is no assurance that sufficient
trading interest to create a liquid secondary market on a securities exchange
will exist for any particular option or at any particular time, and for some
options no such secondary market may exist. A liquid secondary market in an
option may cease to exist for a variety of reasons. In the past, for example,
higher than anticipated trading activity or order flow, or other unforeseen
events, have at times rendered certain of the facilities of the OCC and the
securities exchanges inadequate and resulted in the institution of special
procedures, such as trading rotations, restrictions on certain types of orders
or trading halts or suspensions in one or more options. There can be no
assurance that similar events, or events that may otherwise interfere with the
timely execution of customers' orders, will not recur. In such events, it might
not be possible to effect closing transactions in particular options. If as a
covered call option writer the Fund is unable to effect a closing purchase
transaction in a secondary market, it will not be able to sell the underlying
security until the option expires or it delivers the underlying security upon
exercise.
Securities exchanges have established limitations governing the maximum
number of calls and puts of each class which may be held or written, or
exercised within certain time periods, by an investor or group of investors
acting in concert (regardless of whether the options are written on the same or
different securities exchanges or are held, written or exercised in one or more
accounts or through one or more brokers). It is possible that the particular
Fund and other clients of the Advisor and its sub-advisors and certain of their
affiliates may be considered to be such a group. A securities exchange may order
the liquidation of positions found to be in violation of these limits and it may
impose certain other sanctions.
In the case of options written by a Fund that are deemed covered by
virtue of the Fund's holding convertible or exchangeable preferred stock or debt
securities, the time required to convert or exchange and obtain physical
delivery of the underlying security with respect to which the Fund has written
options may exceed the time within which the Fund must make delivery in
accordance with an exercise notice. In these instances, the Fund may purchase or
temporarily borrow the underlying securities for purposes of physical delivery.
By so doing, the Fund will not bear any market risk, since the Fund will have
the absolute right to receive from the issuer of the underlying security an
equal number of shares to replace the borrowed stock. The Fund may however,
incur additional transaction costs or interest expenses in connection with any
such purchase or borrowing.
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Additional risks exist with respect to mortgage-backed U.S. Government
Securities for which the Fund may write covered call options. If a Fund writes
covered call options on a mortgage-backed security, the security that it holds
as cover may, because of scheduled amortization of unscheduled prepayments,
cease to be sufficient cover. In such an instance, the Fund will compensate by
purchasing an appropriate additional amount of mortgage-backed securities.
- OPTIONS ON SECURITIES INDEXES. The Short Term High Quality Bond,
California Insured Intermediate Municipal, Growth, International Growth and
Emerging Growth Funds may also purchase and sell call and put options on
securities indexes. Such options give the holder the right to receive a cash
settlement during the term of the option based upon the difference between the
exercise price and the value of the index.
Options on securities indexes entail risks in addition to the risks of
options on securities. Because exchange trading of options on securities indexes
is relatively new, the absence of a liquid secondary market to close out an
option position is more likely to occur, although the Fund generally will
purchase or write such an option only if the Advisor or its sub-advisor believes
the option can be closed out.
Use of options on securities indexes also entails the risk that trading
in such options may be interrupted if trading in certain securities included in
the index is interrupted. The Fund will not purchase such options unless the
Advisor or its sub-advisor believes the market is sufficiently developed for the
risk of trading in such options to be no greater than the risk of trading in
options on securities.
Price movements in the Fund's portfolio may not correlate precisely
with movements in the level of an index and, therefore, the use of options on
securities indexes cannot serve as a complete hedge. Because options on
securities indexes require settlement in cash, the Fund may be forced to
liquidate portfolio securities to meet settlement obligations.
- FOREIGN CURRENCY EXCHANGE TRANSACTIONS. The Short Term High Quality
Bond, Income, Growth, International Growth and Emerging Growth Funds may engage
in currency exchange transactions to protect against uncertainty in the level of
future exchange rates. The Funds' dealings in forward currency exchange
contracts will be limited to hedging involving either specific transactions or
portfolio positions. Transaction hedging is the purchase or sale of forward
foreign currency with respect to specific receivables or payables of the Fund
generally arising in connection with the purchase or sale of its portfolio
securities. Position hedging is the sale of forward foreign currency with
respect to portfolio security positions denominated or quoted in such foreign
currency. A Fund may not position hedge with respect to a particular currency to
an extent greater than the aggregate market value (at the time of making such
sale) of the securities held in its portfolio denominated or quoted in or
currently convertible into that particular currency.
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If a Fund enters into a position hedging transaction, the Trusts'
Custodian will, except in circumstances where segregated accounts are not
required by the 1940 Act and the rules adopted thereunder, place cash or other
liquid assets in a segregated account for the Fund in an amount at least equal
to the value of the Fund's total assets committed to the consummation of the
forward contract. For each forward foreign currency exchange contract that is
used to hedge a securities position denominated in a foreign currency, but for
which the hedging position no longer provides, in the opinion of the Advisor or
the sub-advisor, sufficient protection to consider the contract to be a hedge,
the Fund maintains with the Custodian a segregated account of cash or other
liquid assets in an amount at least equal to the portion of the contract that is
no longer sufficiently covered by such hedge. If the value of the securities
placed in the segregated account declines, additional cash or securities will be
placed in the account so that the value of the account will equal the amount of
the Fund's unhedged exposure (in the case of securities denominated in a foreign
currency) or commitment with respect to the contract. Hedging transactions may
be made from any foreign currency into U.S. dollars or into other appropriate
currencies.
At or before the maturity of a forward contract, a Fund may either sell
a portfolio security and make delivery of the currency, or retain the security
and offset its contractual obligation to deliver the currency by purchasing a
second contract pursuant to which the Fund will obtain, on the same maturity
date, the amount of the currency that it is obligated to deliver. If the Fund
retains the portfolio security and engages in an offsetting transaction, the
Fund, at the time of execution of the offsetting transaction, will incur a gain
or a loss to the extent that movement has occurred in forward contract prices.
Should forward prices decline during the period between the Fund's entering into
a forward contract for the sale of currency and the date it enters into an
offsetting contract for the purchase of the currency, the Fund will realize a
gain to the extent the price of the currency it has agreed to sell exceeds the
price of the currency it has agreed to purchase. Should forward prices increase,
the Fund will suffer a loss to the extent the price of the currency it has
agreed to purchase exceeds the price of the currency it has agreed to sell.
The cost to a Fund of engaging in currency transactions with factors
such as, the currency involved, the length of the contract period and the
prevailing market conditions. Because transactions in currency exchange are
usually conducted on a principal basis, no fees or commissions are involved. The
use of forward currency contracts does not eliminate fluctuations in the
underlying prices of the securities.
If a devaluation of a currency is generally anticipated, a Fund may not
be able to contract to sell the currency at a price above the devaluation level
it anticipates.
The Funds, in addition, may combine forward currency exchange contracts
with investments in securities denominated in other currencies in an attempt to
create a combined investment position, the overall performance of which will be
similar to that of a security denominated in a Fund's underlying currency. For
instance, a Fund could purchase a U.S. dollar-denominated security and at the
same time enter into a forward currency exchange contract to exchange U.S.
dollars for its underlying currency at a future date. By matching the amount of
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U.S. dollars to be exchanged with the anticipated value of the U.S.
dollar-denominated security, the Fund may be able to "lock in" the foreign
currency value of the security and adopt a synthetic investment position whereby
the Fund's overall investment return from the combined position is similar to
the return from purchasing a foreign currency-denominated instrument.
There is a risk in adopting a synthetic investment position. It is
impossible to forecast with absolute precision what the market value of a
particular security will be at any given time. If the value of a security
denominated in the U.S. dollar or other foreign currency is not exactly matched
with a Fund's obligation under a forward currency exchange contract on the date
of maturity, the Fund may be exposed to some risk of loss from fluctuations in
that currency. Although the Advisor and each sub-advisor will attempt to hold
such mismatching to a minimum, there can be no assurance that the Advisor or the
Fund's sub-advisor will be able to do so.
There is less protection against defaults in the forward trading to
currencies than there is in trading such currencies on an exchange because such
forward contracts are not guaranteed by an exchange or clearing house. The
Commodity Futures Trading Commission has indicated that it may assert
jurisdiction over forward contracts in foreign currencies and attempt to
prohibit certain entities from engaging in such transactions. In the event that
such prohibition included the Fund, it would cease trading such contracts.
Cessation of trading might adversely affect the performance of a Fund.
- OPTIONS ON FOREIGN CURRENCIES. The Short Term High Quality Bond,
California Insured Intermediate Municipal, International Growth and Growth Funds
may purchase and write put and call options on foreign currencies for the
purpose of hedging against declines in the U.S. dollar value of foreign
currency-denominated portfolio securities and against increases in the U.S.
dollar cost of such securities to be acquired. Such hedging includes cross
hedging and proxy hedging where the options to buy or sell currencies involve
other currencies besides the U.S. dollar. As one example, a decline in the U.S.
dollar value of a foreign currency in which securities are denominated will
reduce the U.S. dollar value of the securities, even if their value in the
foreign currency remains constant. To protect against diminutions in the value
of securities held by a Fund in a particular foreign currency, the Fund may
purchase put options on the foreign currency. If the value of the currency does
decline, the Fund will have the right to sell the currency for a fixed amount in
U.S. dollars and may thereby offset, in whole or in part, the adverse effect on
its portfolio that otherwise would have resulted. When an increase in the U.S.
dollar value of a currency in which securities to be acquired are denominated is
projected, thereby increasing the cost of the securities, the Fund conversely
may purchase call options on the currency. The purchase of such options could
offset, at least partially, the effects of the adverse movements in exchange
rates. As in the case of other types of options, however, the benefit to the
Fund deriving from purchases of foreign currency options will be reduced by the
amount of the premium and related transaction costs. In addition, if currency
exchange rates do not move in the direction, or to the extent anticipated, the
Fund could sustain losses on transactions in foreign currency options that would
require it to forego a portion or all of the benefits of advantageous changes in
the rates.
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The Funds may also write covered call options on foreign currencies for
the types of hedging purposes described above. As one example, when the Advisor
or Fund's sub-advisor anticipates a decline in the U.S. dollar value of foreign
currency-denominated securities due to adverse fluctuations in exchange rates it
could, instead of purchasing a put option, write a covered call option on the
relevant currency. If the expected decline occurs, the option will most likely
not be exercised, and the diminution in value of portfolio securities will be
offset by the amount of the premium received. As in the case of other types of
options, however, the writing of a foreign currency option will constitute only
a partial hedge up to the amount of the premium, and only if rates move in the
expected direction. If this does not occur, the option may be exercised and the
Fund would be required to purchase or sell the underlying currency at a loss
that may not be offset-by the amount of the premium. Through the writing of
options on foreign currencies, the Fund may also be required to forego all or a
portion of the benefits that might otherwise have been obtained from favorable
movements in exchange rates.
A call option written on a foreign currency by a Fund is "covered" if
the Fund owns the underlying foreign currency covered by the call or has an
absolute and immediate right to acquire the foreign currency without additional
cash consideration (or for additional cash consideration held in a segregated
account by Boston Safe, the Fund's Custodian, upon conversion or exchange of
other foreign currency held by the Fund). A call option also is covered if the
Fund has a call on the same foreign currency and in the same principal amount as
the call written when the exercise price of the call held (1) is equal to or
less than the exercise price of the call written or (2) is greater than the
exercise price of the call written if the difference is maintained by the Fund
in cash, U.S. Government Securities and other liquid debt securities in a
segregated account with Boston Safe.
Options on foreign currencies traded on national securities exchanges
are within the jurisdiction of the SEC, as are other securities traded on those
exchanges. As a result, many of the projections provided to traders on organized
exchanges will be available with respect to those transactions. In particular,
all foreign currency option positions entered into on a national securities
exchange are cleared and guaranteed by the OCC, thereby reducing the risk of
counterparty default. Further, a liquid secondary market in options traded on a
national securities exchange may exist, potentially permitting the Fund to
liquidate open positions at a profit prior to their exercise or expiration, or
to limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options are
subject to the risks of the availability of a liquid secondary market described
above, as well as the risks regarding adverse market movements, margining of
options written, the nature of the foreign currency market, possible
intervention by governmental authorities and the effects of other political and
economic events. In addition, exercise and settlement of exchange-traded foreign
currency options must be made exclusively through the OCC, which has established
banking relationships in applicable foreign countries for this purpose. As a
result, the OCC may, if it determines that foreign governmental restrictions or
taxes would prevent the orderly settlement of foreign currency option exercises,
or would result in undue burdens on the OCC or its clearing member, impose
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special procedures on exercise and settlement, such as technical changes in the
mechanics of delivery of currency, the fixing of dollar settlement prices or
prohibitions on exercise.
SECURITIES IN DEVELOPING COUNTRIES. Although most of the investments of
the Bond & Stock, Growth, International Growth and Emerging Growth Funds are
made in securities of companies in (or governments of) developed countries, the
Funds set forth above may also invest in securities of companies in (or
governments of) developing or emerging countries (sometimes referred to as
"emerging markets"). Each Fund may invest up to 5% of its total assets in
emerging markets. A developing or emerging country is generally considered to be
a country that is in the initial stages of its industrialization cycle.
Investing in the equity and fixed-income markets of developing or emerging
countries involves exposure to economic structures that are generally less
diverse and mature, and to political systems that can be expected to have less
stability than those of developed countries. Historical experience indicates
that the markets of developing or emerging countries have been more volatile
than the markets of the more mature economies of developed countries.
Price movements in the Fund's portfolio may not correlate precisely
with movements in the level of an index and, therefore, the use of options on
securities indexes cannot serve as a complete hedge. Because options on
securities indexes require settlement in cash, the Fund may be forced to
liquidate portfolio securities to meet settlement obligations.
LENDING OF PORTFOLIO SECURITIES. Each of the California Money, Short
Term High Quality Bond, California Insured Intermediate Municipal, Growth,
International Growth and Emerging Growth Funds will adhere to the following
conditions whenever its portfolio securities are loaned: (1) the Fund must
receive at least 100% cash collateral or equivalent securities from the
borrower; (2) the borrower must increase the collateral whenever the market
value of the securities rises above the level of the collateral; (3) the Fund
must be able to terminate the loan at any time; (4) the Fund must receive
reasonable interest on the loan, as well as any dividends, interest or other
distributions on the loaned securities and any increase in market value; (5) the
Fund may pay only reasonable custodian fees in connection with the loan; and (6)
voting rights on the loaned securities may pass to the borrower, provided that
if a material event adversely affecting the investment occurs, the Trusts' Board
of Trustees must terminate the loan and regain the right to vote the securities.
From time to time, the Funds may pay a part of the interest earned from the
investment of the collateral received for securities loaned to the borrower
and/or a third party that is unaffiliated with the Trust and that is acting as a
"finder." The Funds will not lend more than 20% of their respective total
assets.
MUNICIPAL OBLIGATIONS. Municipal Obligations are securities, the
interest on which qualifies for exclusion from gross income for federal income
tax purposes in the opinion of bond counsel to the issuer. The three principal
classifications of Municipal Obligations are Municipal Bonds, Municipal
Commercial Paper and Municipal Notes.
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Municipal Bonds, which generally have a maturity of more than one year
when issued, have two principal classifications: General Obligation Bonds and
Revenue Bonds. An AMT-Subject Bond is a particular kind of Revenue Bond. The
classifications of Municipal Bonds and AMT-Subject Bonds are discussed below.
1. GENERAL OBLIGATION BONDS. The proceeds of these obligations
are used to finance a wide range of public projects, including
construction or improvement of schools, highways and roads,
and water and sewer systems. General Obligation Bonds are
secured by the issuer's pledge of its faith, credit and taxing
power for the payment of principal and interest.
2. REVENUE BONDS. Revenue Bonds are issued to finance a wide
variety of capital projects, including; electric, gas, water
and sewer systems; highways, bridges and tunnels; port and
airport facilities; colleges and universities; and hospitals.
The principal security for a Revenue Bond is generally the net
revenues derived from a particular facility, group of
facilities, or, in some cases, the proceeds of a special
excise or other specific revenue source. Although the
principal security behind these bonds may vary, many provide
additional security in the form of a debt service reserve fund
which may be used to make principal and interest payments on
the issuer's obligations. Some authorities provide further
security in the form of a state's ability (without obligation)
to make up deficiencies in the debt service reserve fund.
3. AMT-SUBJECT BONDS. AMT-Subject Bonds are considered Municipal
Bonds if the interest paid on them is excluded from gross
income for federal income tax purposes and if they are issued
by or on behalf of public authorities to raise money to
finance, for example, privately operated manufacturing or
housing facilities, publicly operated airport, dock, wharf, or
mass-commuting facilities. The payment of the principal and
interest on these bonds is dependent solely on the ability of
the facility's user to meet its financial obligations and the
pledge, if any, of real and personal property so financed as
security for such payment.
MUNICIPAL COMMERCIAL PAPER issues typically represent short-term,
unsecured, negotiable promissory notes. These obligations are issued by agencies
of state and local governments to finance seasonal working capital needs of
municipalities or to provide interim construction financing, and are paid from
general revenues of municipalities or are refinanced with long-term debt. In
most cases, Municipal Commercial Paper is backed by letters of credit, lending
agreements, note repurchase agreements or other credit facility agreements
offered by banks or other institutions.
MUNICIPAL NOTES generally are used to provide for short-term capital
needs and generally have maturities of one year or less. Municipal Notes
include:
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1. TAX ANTICIPATION NOTES. Tax Anticipation Notes are issued to
finance working capital needs of municipalities. Generally,
they are issued in anticipation of various seasonal tax
revenues, such as income, sales, use and business taxes and
are payable from these specific future taxes.
2. REVENUE ANTICIPATION NOTES. Revenue Anticipation Notes are
issued in expectation of receipt of other kinds of revenue,
such as federal revenues available under the Federal Revenue
Sharing Program.
3. BOND ANTICIPATION NOTES. Bond Anticipation Notes are issued to
provide interim financing until long-term financing can be
arranged. In most cases, the long-term bonds provide the money
for the repayment of the notes.
4. CONSTRUCTION LOAN NOTES. Construction Loan Notes are sold to
provide construction financing. Permanent financing, the
proceeds of which are applied to the payment of Construction
Loan Notes, is sometimes provided by a commitment by GNMA to
purchase the loan, accompanied by a commitment by the Federal
Housing Administration to insure mortgage advances thereunder.
In other instances, permanent financing is provided by
commitments of banks to purchase the loan. The Tax-Exempt
Money Market, California Money, Tax-Exempt Bond, California
Municipal, California Insured Intermediate Municipal and
Florida Insured Municipal Funds (the "Municipal Funds") will
only purchase Construction Loan Notes that are subject to GNMA
or bank purchase commitments.
From time to time, proposals to restrict or eliminate the federal
income tax exemption for interest on Municipal Obligations have been introduced
before Congress. Similar proposals may be introduced in the future. If a
proposal to restrict or eliminate the federal tax exemption for interest on
Municipal Obligations were enacted, the availability of Municipal Obligations
for investment by the Municipal Funds would be adversely affected. In such
event, the Municipal Funds would reevaluate their respective investment
objectives and policies and submit possible changes in the structure of the
Funds for the consideration of shareholders.
PARTICIPATION INTERESTS. The Municipal Funds may invest in
participation interests purchased from banks in floating rate or variable rate
municipal obligations (such as AMT-Subject Bonds) owned by banks. A
participation interest gives the purchaser an undivided interest in the
municipal security in the proportion that the relevant Fund's participation
interest bears to the total principal amount of the municipal security and
provides a demand repurchase feature. Each participation is backed by an
irrevocable letter of credit or guarantee of a bank that meets the prescribed
quality standards of the Fund. A Fund has the right to sell the instrument back
to the issuing bank or draw on the letter of credit on demand for all or any
part of the Fund's participation interest in the municipal security, plus
accrued interest. Banks will retain or receive a service fee, letter of credit
fee and a fee for issuing repurchase commitments in an amount equal to the
excess of the interest paid on the municipal obligations over the negotiated
yield at which
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the instruments were purchased by the Fund. Participation interests in the form
to be purchased by the Fund are new instruments, and no ruling of the Internal
Revenue Service has been secured relating to their tax-exempt status. The Funds
intend to purchase participation interests based upon opinions of counsel to the
issuer to the effect that income from them is tax-exempt to the Fund.
STAND-BY COMMITMENTS. The Municipal Funds may acquire stand-by
commitments with respect to municipal obligations held in their respective
portfolios. Under a stand-by commitment, a broker-dealer, dealer or bank would
agree to purchase, at the relevant Funds' option, a specified municipal security
at a specified price. Thus, a stand-by commitment may be viewed as the
equivalent of a "put" option acquired by a Fund with respect to a particular
municipal security held in the Fund's portfolio.
The amount payable to a Fund upon its exercise of a stand-by commitment
normally would be (1) the acquisition cost of the municipal security (excluding
any accrued interest that the Fund paid on the acquisition), less any amortized
market premium or plus any amortized market or original issue discount during
the period the Fund owned the security, plus, (2) all interest accrued on the
security since the last interest payment date during the period the security was
owned by the Fund. Absent unusual circumstances, the Fund would value the
underlying municipal security at amortized cost. As a result, the amount payable
by the broker-dealer, dealer or bank during the time a stand-by commitment is
exercisable would be substantially the same as the value of the underlying
municipal obligation.
A Fund's right to exercise a stand-by commitment would be unconditional
and unqualified. Although a Fund could not transfer a stand-by commitment, it
could sell the underlying municipal security to a third party at any time. It is
expected that stand-by commitments generally will be available to the Funds
without the payment of any direct or indirect consideration. The Funds may,
however, pay for stand-by commitments if such action is deemed necessary. In any
event, the total amount paid for outstanding stand-by commitments held in a
Fund's portfolio would not exceed 1/2 of 1% of the value of a Fund's total
assets calculated immediately after each stand-by commitment is acquired.
The Funds intend to enter into stand-by commitments only with
broker-dealers, dealers or banks that the Advisor or their sub-advisor believes
present minimum credit risks. A Fund's ability to exercise a stand-by commitment
will depend upon the ability of the issuing institution to pay for the
underlying securities at the time the stand-by commitment is exercised. The
credit of each institution issuing a stand-by commitment to a Fund will be
evaluated on an ongoing basis by the Advisor or its sub-advisor in accordance
with procedures established by the Board of Trustees.
A Fund intends to acquire stand-by commitments solely to facilitate
portfolio liquidity and does not intend to exercise its right thereunder for
trading purposes. The acquisition of a stand-by commitment would not affect the
valuation of the underlying municipal security. Each stand-by commitment will be
valued at zero in determining net asset value. Should a Fund pay directly or
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indirectly for a stand-by commitment, its costs will be reflected in realized
gain or loss when the commitment is exercised or expires. The maturity of a
municipal security purchased by a Fund will not be considered shortened by any
stand-by commitment to which the obligation is subject. Thus, stand-by
commitments will not affect the dollar-weighted average maturity of a Fund's
portfolio.
SPECIAL CONSIDERATIONS RELATING TO CALIFORNIA MUNICIPAL OBLIGATIONS
The ability of issuers to pay interest on, and repay principal of,
California municipal obligations ("California Municipal Obligations") may be
affected by (1) amendments to the California Constitution and related statutes
that limit the taxing and spending authority of California government entities,
(2) voter initiatives, (3) a wide variety of California laws and regulations,
including laws related to the operation of health care institutions and laws
related to secured interests in real property and (4) the general financial
condition of the State of California. The following information constitutes only
a brief summary, and is not intended as a complete description. The information
has been drawn, in some cases by excerpt, from official statements relating to
securities offerings of the State of California available as of the date of this
Statement of Additional Information. While the information has not been
independently verified by the California Money, California Municipal Fund, or
California Insured Intermediate Municipal Fund (the "California Fund"), the
California Fund has no reason to believe that such information is not correct in
all material respects.
AMENDMENTS TO THE CALIFORNIA CONSTITUTION AND RELATED STATUTES. Since
1978 the California voters have voted to amend the California Constitution in a
number of ways which could affect a governmental entity's ability to budget or
raise sufficient funds to meet debt service on bonds and other obligations.
These amendments, among other things, provide maximum limits on ad
valorem taxes on real property, appropriation limits for state and local
governmental entities, require new local taxes to be submitted to the electorate
and make it generally more difficult for local agencies to levy and maintain
fees, charges and assessments for municipal services and programs. These
amendments may adversely affect the ability of issuers of California Municipal
Obligations to make timely payments of principal and interest, and may adversely
affect the supply of California Municipal Obligations.
OTHER RELEVANT CALIFORNIA LAWS. A wide variety of California laws and
regulations may affect, directly or indirectly, the payment of interest on, or
the repayment of the principal of, California Municipal Obligations in which the
California Money, California Municipal and California Insured Intermediate
Municipal Funds may invest. The impact of such laws and regulations on
particular California Municipal Obligations may vary depending upon numerous
factors including, among others, the particular type of Municipal Security
involved, the public purpose funded by the Municipal Security and the nature and
extent of insurance or other
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security for payment of principal and interest on the Municipal Security. For
example, California Municipal Obligations which are payable only from the
revenues derived from a particular facility may be adversely affected by
California laws or regulations which make it more difficult for the particular
facility to generate revenues sufficient to pay such interest and principal,
including, among others, laws and regulations which limit the amount of fees,
rates or other charges which may be imposed for use of the facility or which
increase competition among facilities of that type or which limit or otherwise
have the effect of reducing the use of such facilities generally, thereby
reducing the revenues generated by the particular facility. California Municipal
Obligations, the payment of interest and principal on which is insured in whole
or in part by a California governmentally created fund, may be adversely
affected by California laws or regulations which restrict the aggregate
insurance proceeds available for payment of principal and interest in the event
of a default on such Municipal Obligations.
Certain California Municipal Obligations in which the California Money,
California Municipal and California Insured Intermediate Funds may invest may be
obligations that are payable solely from the revenues of health care
institutions. Certain provisions under California law may adversely affect such
revenues and, consequently, payment on those California Municipal Obligations.
Certain California Municipal Obligations in which the California Money,
California Municipal and California Insured Intermediate Municipal Funds may
invest may be obligations which are secured in whole or in part by a mortgage or
deed of trust on real property. California has five principal statutory
provisions which limit the remedies of a creditor secured by a mortgage or deed
of trust, two of which limit the creditor's right to obtain a deficiency
judgment. One of the limitations is based on the method of foreclosure and the
other on the type of debt secured. Under the former, a deficiency judgment is
barred when the foreclosure is accomplished by means of a nonjudicial trustee's
sale. Under the latter, a deficiency judgment is barred when the foreclosed
mortgage or deed of trust secures certain purchase money obligations. Another
California statute, commonly known as the "one form of action" rule, requires
the creditors secured by real property to exhaust their real property security
by foreclosure before bringing a personal action against the debtor. The fourth
statutory provision limits any deficiency judgment obtained by a creditor
secured by real property following a judicial sale of such property to the
excess of the outstanding debt over the fair value of the property at the time
of the sale, thus preventing the creditor from obtaining a large deficiency
judgment against the debtor as the result of low bids at a judicial sale. The
fifth statutory provision gives the debtor the right to redeem the real property
from any judicial foreclosure sale as to which a deficiency judgment may be
ordered against the debtor.
Upon the default of a mortgage or deed of trust with respect to
California real property, the creditor's nonjudicial foreclosure rights under
the power of sale contained in the mortgage or deed of trust are subject to the
constraints imposed by California law upon transfers of title to real property
by private power of sale. During the three-month period beginning with the
filing of a formal notice of default, the debtor is entitled to reinstate the
mortgage by making any overdue
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payments. Under standard loan servicing procedures, the filing of the formal
notice of default does not occur unless at least three full monthly payments
have become due and remain unpaid. The power of sale is exercised by posting and
publishing a notice of sale for at least 20 days after expiration of the
three-month reinstatement period. Therefore, the effective minimum period for
foreclosing on a home mortgage could be in excess of seven months after the
initial default. Such time delays in collections could disrupt the flow of
revenues available to an issuer for the payment of debt service on the
outstanding obligations if such defaults occur with respect to a substantial
number of mortgages or deeds of trust securing an issuer's obligations.
In addition, a court could find that there is sufficient involvement of
the issuer in the nonjudicial sale of property securing a mortgage for such
private sale to constitute "state action," and could hold that the
private-right-of-sale proceedings violate the due process requirements of the
Federal or State Constitutions, consequently preventing an issuer from using the
nonjudicial foreclosure remedy described above.
Certain California Municipal Obligations in which the California Money,
California Municipal and California Insured Intermediate Municipal Funds may
invest may be obligations which finance the acquisition of single family home
mortgages for low and moderate income mortgagors. These obligations may be
payable solely from revenues derived from the home mortgages, and are subject to
the California statutory limitations described above applicable to obligations
secured by real property. Under California anti-deficiency legislation, there is
no personal recourse against a mortgagor of a single family residence purchased
with the loan secured by the mortgage, regardless of whether the creditor
chooses judicial or nonjudicial foreclosure.
Under California law, mortgage loans secured by single family
owner-occupied dwellings may be prepaid at any time. Prepayment charges on such
mortgage loans may be imposed only with respect to voluntary prepayments made
during the first five years during the term of the mortgage loan, and cannot in
any event exceed six months' advance interest on the amount prepaid in any
twelve month period in excess of 20% of the original amount of the mortgage
loan. This limitation could affect the flow of revenues available to an issuer
for debt service on the outstanding debt obligations which financed such home
mortgages.
Because of the diverse nature of such laws and regulations and the
impossibility of either predicting in which specific California Municipal
Obligations the California Money, California Municipal and California Insured
Intermediate Municipal Funds will invest from time to time or predicting the
nature or extent of future changes in existing laws or regulations or the future
enactment or adoption of additional laws or regulations, it is not presently
possible to determine the impact of such laws and regulations on the Municipal
Obligations in which the California Money, California Municipal and California
Insured Intermediate Municipal Funds may invest and, therefore, on the units of
the California Money, California Municipal or California Insured Intermediate
Municipal Funds.
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ADDITIONAL CONSIDERATIONS. With respect to Municipal Obligations issued
by the State of California and its political subdivisions, as well as certain
other governmental issuers such as the Commonwealth of Puerto Rico, the Trusts
cannot predict what legislation, if any, may be proposed in the California State
Legislature as regards the California State personal income tax status of
interest on such obligations, or which proposals, if any, might be enacted. Such
proposals, if enacted, might materially adversely affect the availability of
California Municipal Obligations for investment by the California Money,
California Municipal and California Insured Intermediate Municipal Funds and the
value of the Fund's investments. In such event, the Trustees would reevaluate
the investment objective and policies of the California Money, California
Municipal and California Insured Intermediate Municipal Funds and consider
changes in its investments structure or possible dissolution.
SPECIAL CONSIDERATIONS RELATING TO FLORIDA MUNICIPAL OBLIGATIONS
The following information constitutes only a brief summary, and does
not purport to be a complete description. The information in this section is
updated periodically. While the Fund has not independently verified such
information, it has no reason to believe that such information is not correct in
all material respects. The source of the 1994-95, 1995-96 and 1996-97 figures
set forth below is the Revenue and Economic Analysis Unit of the Executive
Office of the Governor of the State of Florida. Such figures are preliminary and
subject to change without notice.
An amendment to the State Constitution was approved by statewide ballot
in the November 8, 1994 general election which is commonly referred to as the
"Limitation on State Revenues Amendment." This amendment provides that State
revenues collected for any fiscal year shall be limited to State revenues
allowed under the amendment for the prior fiscal year plus an adjustment for
growth. Growth is defined as an amount equal to the average annual rate of
growth in State personal income over the most recent twenty quarters times the
State revenues allowed under the amendment for the prior fiscal year. State
revenues collected for any fiscal year in excess of this limitation are required
to be transferred to the budget stabilization fund until the fund reaches the
maximum balance specified in Section 19(g) of Article III of the State
Constitution, and thereafter is required to be refunded to taxpayers as provided
by general law. The limitation on State revenues imposed by the amendment may be
increased by the Legislature, by a two-thirds vote of each house.
The term "State revenues," as used in the amendment, means taxes, fees,
licenses, and charges for services imposed by the Legislature on individuals,
businesses, or agencies outside State government. However, the term "State
revenues" does not include: (i) revenues that are necessary to meet the
requirements set forth in documents authorizing the issuance of bonds by the
State; (ii) revenues that are used to provide matching funds for the federal
Medicaid program with the exception of the revenues used to support the Public
Medical Assistance Trust Fund or its successor program and with the exception of
State matching funds used to fund elective
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expansions made after July 1, 1994; (iii) proceeds from the State lottery
returned as prizes; (iv) receipts of the Florida Hurricane Catastrophe Fund; (v)
balances carried forward from prior fiscal years; (vi) the proceeds from the
sale of goods (e.g. land, buildings); or (vii) revenue from taxes, licenses,
fees and charges for services required to be imposed by any amendment or
revision to the State Constitution after July 1, 1994. The amendment took effect
on January 1, 1995 and is applicable to State fiscal year 1995-96.
It should be noted that many of the provisions of the amendment are
ambiguous, and likely will not be clarified until State courts have ruled on
their meanings. Further, it is unclear how the Legislature will implement the
language of the amendment and whether such implementing legislation itself will
be the subject of further court interpretation.
The Fund cannot predict the impact of the amendment on State finances.
To the extent local governments traditionally receive revenues from the State
which are subject to, and limited by, the amendment, the future distribution of
such State revenues may be adversely affected by the amendment.
Hurricanes continue to threaten Florida resulting in significant
property damages. The 1995 hurricane season was especially active. The Fund
cannot predict the impact on state finances resulting from repeated hurricane
damage.
LOWER-RATED SECURITIES. The Income, Tax-Exempt Bond, Bond & Stock,
Growth & Income, Growth and Emerging Growth Funds may each invest up to 35% of
their total assets, respectively, in non-investment grade securities (rated Ba
and lower by Moody's and BB and lower by S&P) or unrated securities determined
to be of comparable quality. The High Yield Fund may invest entirely in such
securities and will generally invest at least 65% of its assets in such
securities. Such securities carry a high degree of risk (including the
possibility of default or bankruptcy of the issuer of such securities),
generally involve greater volatility of price and risk of principal and income,
and may be less liquid, than securities in the higher rating categories and are
considered speculative. See the Appendix to this SAI for a more detailed
description of the ratings assigned by ratings organizations and their
respective characteristics.
Historically, economic downturns have disrupted the high yield market
and impaired the ability of issuers to repay principal and interest. Also, an
increase in interest rates could adversely affect the value of such obligations
held by any of the Funds set forth above. Prices and yields of high yield
securities will fluctuate over time and may affect a Fund's net asset value. In
addition, investments in high yield zero coupon or pay-in-kind bonds, rather
than income-bearing high yield securities, may be more speculative and may be
subject to greater fluctuations in value due to changes in interest rates.
The trading market for high yield securities may be thin to the extent
that there is no established retail secondary market or because of a decline in
the value of such securities. A thin trading market may limit the ability of the
Trustees to accurately value high yield securities in the
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Fund's portfolio and to dispose of those securities. Adverse publicity and
investor perceptions may decrease the value and liquidity of high yield
securities. These securities may also involve special registration
responsibilities, liabilities and costs.
Credit quality in the high yield securities market can change suddenly
and unexpectedly, and even recently-issued credit ratings may not fully reflect
the actual risks posed by a particular high yield security. For these reasons,
it is the policy of the Advisor and the sub-advisor of each of the Funds not to
rely exclusively on ratings issued by established credit rating agencies, but to
supplement such ratings with its own independent and ongoing review of credit
quality. The achievement of a Fund's investment objectives by investment in such
securities may be more dependent on the Advisor or its sub-advisor's credit
analysis than is the case for higher quality bonds. Should the rating of a
portfolio security be downgraded the Advisor or the Fund's sub-advisor will
determine whether it is in the best interest of the Fund to retain or dispose of
the security.
Prices for below investment-grade securities may be affected by
legislative and regulatory developments. For example, new federal rules require
savings and loan institutions to gradually reduce their holdings of this type of
security. Also, Congress from time to time has considered legislation which
would restrict or eliminate the corporate tax deduction for interest payments on
these securities and would regulate corporate restructurings. Such legislation
may significantly depress the prices of outstanding securities of this type.
INVESTMENT RESTRICTIONS
Certain of the Funds' and Portfolios' investment restrictions set forth
below are fundamental policies. A fundamental policy may not be changed without
the vote of a majority of the outstanding voting securities of the Fund or
Portfolio, as defined in the 1940 Act. Such a majority is defined in the 1940
Act as the lesser of (a) 67% or more of the shares present at a meeting of
shareholders of the Fund or Portfolio, if the holders of more than 50% of the
outstanding shares of the Fund or Portfolio are present or represented by proxy,
or (b) more than 50% of the outstanding shares of the Fund or Portfolio. A
fundamental policy affecting a particular Fund or Portfolio may not be changed
without the vote of a majority of the outstanding shares of the affected Fund or
Portfolio.
RESTRICTIONS APPLICABLE TO THE CALIFORNIA MONEY, SHORT TERM HIGH
QUALITY BOND, TARGET MATURITY 2002, CALIFORNIA MUNICIPAL, CALIFORNIA INSURED
INTERMEDIATE MUNICIPAL, FLORIDA INSURED MUNICIPAL, GROWTH, INTERNATIONAL GROWTH
AND EMERGING GROWTH FUNDS:
Restrictions 1 through 16 are fundamental policies of the Funds.
Investment restrictions 17 through 26 may be changed by the WM Trust II's Board
of Trustees at any time, without shareholder approval.
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The above listed Funds are prohibited from:
1. Purchasing the securities of any issuer (other than U.S.
Government securities) if as a result more than 5% of the
value of the Fund's total assets would be invested in the
securities of the issuer (the "5% Limitation"), except that up
to 25% of the value of the Fund's total assets may be invested
without regard to the 5% Limitation; provided that this
restriction shall not apply to the California Money,
California Municipal, California Insured Intermediate
Municipal and Florida Insured Municipal Funds.
2. Purchasing more than 10% of the securities of any class of any
one issuer; provided that this limitation shall not apply to
investments in U.S. Government securities; provided further
that this restriction shall not apply to the California Money,
California Municipal, California Insured Intermediate
Municipal, Florida Insured Municipal and Growth Funds; and
provided further that the Growth Fund may not own more than
10% of the outstanding voting securities of a single issuer.
3. Purchasing securities on margin, except that a Fund may obtain
any short-term credits necessary for the clearance of
purchases and sales of securities. For purposes of this
restriction, the deposit or payment of initial or variation
margin in connection with futures contracts or related options
will not be deemed to be a purchase of securities on margin.
4. Making short sales of securities or maintaining a short
position; provided that this restriction shall not apply to
the Growth and International Growth Funds.
5. Borrowing money, except that (a) the Funds may (i) enter into
reverse repurchase agreements or (ii) borrow from banks for
temporary or emergency (not leveraging) purposes including the
meeting of redemption requests that might otherwise require
the untimely disposition of securities in an aggregate amount
not exceeding 30% of the value of a Fund's total assets
(including the amount borrowed) valued at market less
liabilities (not including the amount borrowed) at the time
the borrowing is made, (b) the Short Term High Quality Bond,
California Municipal, California Insured Intermediate
Municipal, Florida Insured Municipal, Growth, International
Growth and Emerging Growth Fund may enter into futures
contracts, and (c) the Short Term High Quality Bond Fund may
engage in dollar roll transactions; provided that whenever
borrowings pursuant to (a) above (except that whenever
borrowings pursuant to (a)(ii) above) exceed 5% of the value
of a Fund's total assets, the Fund will not purchase any
securities; and provided further that the Short Term High
Quality Bond Fund is prohibited from borrowing money or
entering into reverse repurchase agreements or dollar roll
transactions in the aggregate in excess of 33 1/3% of the
Fund's total assets (after giving effect to any such
borrowing).
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6. Pledging, hypothecating, mortgaging or otherwise encumbering
more than 30% of the value of the Fund's total assets. For
purposes of this restriction, (a) the deposit of assets in
escrow in connection with the writing of covered put or call
options and the purchase of securities on a when-issued or
delayed-delivery basis and (b) collateral arrangements with
respect to (i) the purchase and sale of options on securities,
options on indexes and options on foreign currencies, and (ii)
initial or variation margin for futures contracts will not be
deemed to be pledges of a Fund's assets.
7. Underwriting the securities of other issuers, except insofar
as the Fund may be deemed an underwriter under the Securities
Act of 1933, as amended, by virtue of disposing of portfolio
securities.
8. Purchasing or selling real estate or interests in real estate,
except that a Fund may purchase and sell securities that are
secured, directly or indirectly, by real estate and may
purchase securities issued by companies that invest or deal in
real estate.
9. Investing in commodities, except that the Short Term High
Quality Bond, California Municipal, California Insured
Intermediate Municipal, Florida Insured Municipal, Growth,
International Growth and Emerging Growth Funds may invest in
futures contracts and options on futures contracts. The entry
into forward foreign currency exchange contracts is not and
shall not be deemed to involve investing in commodities.
10. Investing in oil, gas or other mineral exploration or
development programs.
11. Making loans, except through the purchase of qualified debt
obligations, loans of portfolio securities (except in the case
of the California Municipal and Florida Insured Municipal
Funds) and the entry into repurchase agreements.
12. Investing in securities of other investment companies
registered or required to be registered under the 1940 Act,
except as they may be acquired as part of a consolidation,
reorganization, acquisition of assets or an offer of exchange
or as otherwise permitted by law, including the 1940 Act.
13. Purchasing any securities that would cause more than 25% of
the value of the Fund's total assets at the time of purchase
to be invested in the securities of issuers conducting their
principal business activities in the same industry provided
that this limitation shall not apply to the purchase of (a)
U.S. Government securities, (b) municipal obligations issued
by governments or political subdivisions of governments or (c)
with respect to the California Money Fund, U.S. dollar-
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denominated bank instruments such as certificates of deposit,
time deposits, bankers' acceptances and letters of credit that
have been issued by U.S. banks.
14. Purchasing, writing or selling puts, calls, straddles, spreads
or combinations thereof; provided that this restriction shall
not apply to the Short Term High Quality Bond, California
Insured Intermediate Municipal and Growth Funds; and provided
further that (a) the International Growth and Emerging Growth
Funds may purchase, write and sell covered put and call
options on securities, (b) the California Municipal, Florida
Insured Municipal, International Growth and Emerging Growth
Funds may purchase, write and sell futures contracts and
options on futures contracts, (c) the California Money,
California Municipal and Florida Insured Municipal Funds may
acquire stand-by commitments, (d) the International Growth and
Emerging Growth Funds may purchase and write put and call
options on stock indexes, and (e) the International Growth
Fund may purchase put and call options and write covered call
options on foreign currency contracts.
15. With respect to the Growth Fund, investing more than 35% of
the fund's assets in non-investment grade debt securities.
16. With respect to the Short Term High Quality Bond Fund, having
a dollar-weighted average portfolio maturity in excess of five
years.
17. With respect to the Growth Fund, investing more than 25% of
the Fund's assets in foreign securities.
18. Purchasing securities that are not readily marketable if more
than 10% of the net assets of a Money Fund, or more than 15%
of the net assets of a Non-Money Fund, would be invested in
such securities, including, but not limited to: (1) repurchase
agreements with maturities greater than seven calendar days;
(2) time deposits maturing in more than seven calendar days;
(3) to the extent a liquid secondary market does not exist for
the instruments, futures contracts and options thereon; (4)
certain over-the-counter options, as described in this SAI;
(5) certain variable rate demand notes having a demand period
of more than seven days; and (6) certain Rule 144A restricted
securities that are deemed to be illiquid.
19. Investing more than 10% of its total assets in time deposits
maturing in more than seven calendar days; provided that this
restriction shall not apply to the Short Term High Quality
Bond and Growth Funds.
20. Purchasing any security if as a result the Fund would then
have more than 5% of its total assets invested in securities
of companies (including predecessors) that have been in
continuous operation for less than three years; provided that
in the case of
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industrial revenue bonds purchased for the Municipal Funds,
this restriction shall apply to the entity supplying the
revenues from which the issue is to be paid.
21. Making investments for the purpose of exercising control or
management.
22. Purchasing or retaining securities of any company if, to the
knowledge of the Company, any of the Company's officers or
Trustees or any officer or director of the Advisor or a
sub-advisor individually owns more than 1/2 of 1% of the
outstanding securities of such company and together they own
beneficially more than 5% of the securities.
23. Investing in warrants, (other than warrants acquired by the
Fund as part of a unit or attached to securities at the time
of purchase) if, as a result, the investments (valued at the
lower of cost or market) would exceed 5% of the value of the
Fund's net assets or if, as a result, more than 2% of the
Fund's net assets would be invested in warrants not listed on
a recognized United States or foreign stock exchange, to the
extent permitted by applicable state securities laws.
24. Purchasing or selling interests in real estate limited
partnerships.
25. Investing in mineral leases.
26. Entering into Strategic Transactions otherwise prohibited by
the Fund's investment restrictions or in the aggregate in
excess of 25% of the Fund's net assets, for purposes other
than bona fide hedging positions or that are not "covered,"
subject to such greater percentage limitations as may be
imposed by the Advisor from time to time.
For purposes of the investment restrictions described above, the issuer
of a municipal security is deemed to be the entity (public or private)
ultimately responsible for the payment of the principal of and interest on the
security. For purposes of investment restriction Number 13 above, AMT-Subject
Bonds and Revenue Bonds, the payment of principal and interest on which is the
ultimate responsibility of companies within the same industry, are grouped
together as an "industry." The percentage limitations contained in the
restrictions listed above apply at the time of purchase of securities, and shall
not be considered violated unless an excess or deficiency occurs immediately
after and as a result of such purchase.
THE INVESTMENT RESTRICTIONS SET FORTH BELOW HAVE BEEN ADOPTED BY WM TRUST I WITH
RESPECT TO THE FUNDS WITHIN WM TRUST I AS FUNDAMENTAL POLICIES.
EACH OF THE MONEY MARKET AND TAX-EXEMPT MONEY MARKET FUNDS MAY NOT:
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1. invest in common stocks or other equity securities(1)
2. borrow money for investment purposes, except that each Fund may borrow
up to 5% of its total assets in emergencies, and may borrow up to
33-1/3% of such assets to meet redemption requests that would otherwise
result in the untimely liquidation of vital parts of its portfolio;
3. buy securities on margin, mortgage or pledge its securities, or engage
in "short" sales;
4. buy or sell options;
5. act as underwriter of securities issued by others;
6. buy securities restricted as to resale under federal securities laws
(other than securities eligible for resale pursuant to Rule 144A under
the Securities Act of 1933, as amended, and except in connection with
repurchase agreements);
7. buy or sell real estate, real estate investment trust securities,
commodities, or oil, gas and mineral interests;
8. lend money, except in connection with repurchase agreements and for
investments made in accordance with Fund policies discussed in the
Prospectus;
9. issue senior securities;
10. invest more than 5%* of its total assets in the securities of any
single issuer (except for the United States Government, its agencies or
instrumentalities);
11. invest more than 25%* of its total assets in securities of issuers in
any single industry;
12. invest more than 10%* of its net assets in illiquid securities;
13. invest in companies for the purpose of exercising control.
THE MONEY MARKET FUND MAY NOT:
1. invest in other investment companies (except as part of a merger).
THE TAX-EXEMPT MONEY MARKET FUND MAY NOT:
1. invest more than 20%* of its assets in obligations that pay interest
subject to federal alternative minimum tax.
* Percentage at the time the investment is made.
EACH OF THE INCOME, U.S. GOVERNMENT SECURITIES AND TAX-EXEMPT BOND
FUNDS MAY NOT:
1. invest more than 5%* of its total assets in any single issuer other
than U.S. Government Securities, except that up to 25% of a Fund's
assets may be invested without regard to this 5% limitation;
- --------
(1) For purposes of determining compliance with this restriction, the
Tax-Exempt Money market Fund will not consider securities of other
Money market Funds to be "common stocks or other equities."
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2. acquire more than 10%* of the voting securities of any one company;
3. invest in any company for the purpose of management or exercising
control;
4. invest in real estate or commodities, although the Income Fund may
purchase securities of issuers which deal in real estate, securities
which are secured by interests in real estate, and/or securities which
represent interests in real estate, and it may acquire and dispose of
real estate or interests in real estate acquired through the exercise
of its rights as a holder of debt obligations secured by real estate
interests therein, and the Income and Tax-Exempt Bond Funds may
purchase and sell interest rate futures and options;
5. invest in oil, gas or other mineral leases;
6. invest in securities restricted under federal securities laws other
than securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933, as amended;
7. invest more than 20%* of its assets in forward commitments;
8. invest more than 25%* of its assets in any single industry;**
9. invest more than 15%* of its net assets in illiquid securities;
10. buy foreign securities not payable in U.S. dollars (not applicable to
the Income Fund);
11. buy securities on margin, mortgage or pledge its securities, or engage
in "short" sales;
12. invest more than 5%* of its net assets in warrants including not more
than 2%* of such net assets in warrants that are not listed on either
the New York Stock Exchange or American Stock Exchange; however,
warrants acquired in units or attached to securities may be deemed to
be without value for the purpose of this restriction;
13. act as underwriter of securities issued by others;
14. borrow money for investment purposes, although it may borrow up to 5%
of its total net assets for emergency, non-investment purposes and,
except for the Tax-Exempt Bond Fund, may enter into transactions in
which the Fund sells securities for delivery in the current month and
simultaneously contracts to repurchase substantially similar securities
on a specified future date;
15. lend money (except for the execution of repurchase agreements);
16. buy or sell put or call options;
17. issue senior securities.
In addition,
THE U.S. GOVERNMENT SECURITIES FUND MAY NOT:
1. invest less than 80%* of its assets in obligations guaranteed by the
U.S. Government, its agencies and instrumentalities or in repurchase
agreements or collateralized mortgage obligations secured by these
obligations.
THE TAX-EXEMPT BOND FUND MAY NOT:
1. buy or hold securities which directors or officers of the Fund or the
Advisor hold more than .50% of the outstanding securities.
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THE U.S. GOVERNMENT SECURITIES AND INCOME FUNDS MAY NOT:
1. invest in other investment companies (except as part of a merger).
THE U.S. GOVERNMENT SECURITIES AND TAX-EXEMPT BOND FUNDS MAY NOT:
1. buy common stocks or other equity securities, except that the Tax-
Exempt Bond Fund may invest in other investment companies.
* Percentage at the time the investment is made.
** It is a policy of the Income Fund to consider electric utilities, electric
and gas utilities, gas utilities, and telephone utilities to be separate
industries. The Fund also considers foreign issues to be a separate industry. It
is a policy of the Tax-Exempt Bond Fund to apply this restriction only to its
assets in non-municipal bond holdings, pollution control revenue bonds and
industrial development revenue bonds. These policies may result in increased
risk.
THE HIGH YIELD FUND MAY NOT:
1. invest more than 5% of its total assets in any single issuer other than
U.S. Government Securities, except that up to 25% of the Fund's assets
may be invested without regard to this 5% limitation;
2. acquire more than 10% of the voting securities of any one company;
3. invest in real estate or commodities;
4. invest in oil, gas or other mineral leases;
5. invest more than 25% or more of its assets in any single industry;*
6. buy securities on margin, mortgage or pledge its securities;
7. act as underwriter of securities issued by others;
8. borrow money for investment purposes (it may borrow up to 5% of its
total assets for emergency, non-investment purposes);
9. lend money (except for the execution of repurchase agreements);
10. issues senior securities.
* Percentage at the time the investment is made.
EACH OF THE BOND & STOCK, GROWTH & INCOME AND NORTHWEST FUNDS MAY NOT:
1. invest more than 5%* of its total assets in securities of any single
issuer other than U.S. Government Securities, except that up to 25% of
a Fund's assets may be invested without regard to this 5% limitation;
2. acquire more than 10%* of the voting securities of any one company;
3. invest in any company for the purpose of management or exercising
control;
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<PAGE> 144
4. invest in real estate (except publicly traded real estate investment
trusts);
5. invest in commodities;
6. invest in oil, gas or other mineral leases;
7. invest in other investment companies (except as part of a merger);
8. invest more than 20%* of its total assets in forward commitments or
repurchase agreements;
9. invest more than 25%* of its total assets in any single industry;
10. act as underwriter of securities issued by others;
11. borrow money for investment purposes (it may borrow up to 5% of its
total net assets for emergency, non-investment purposes);
12. lend money (except for the execution of repurchase agreements);
13. issue senior securities;
14. buy or sell options, with the exception of covered call options which
must be limited to 20% of total assets;
15. buy or sell futures-related securities;
16. invest in securities restricted under federal securities laws (other
than securities eligible for resale under Rule 144A under the
Securities Act of 1933, as amended);
17. invest more than 15%* of its net assets in illiquid securities;
18. buy securities on margin, mortgage or pledge its securities, or engage
in "short" sales;
19. invest more than 5%* of its net assets in warrants including not more
than 2% of such net assets in warrants that are not listed on either
New York Stock Exchange or American Stock Exchange; however, warrants
acquired in units or attached to securities may be deemed to be without
value for the purpose of this restriction;
20. invest more than 25%* of its total assets in foreign securities and
then only in U.S. dollar-denominated foreign securities.
* Percentage at the time the investment is made.
THE INVESTMENT RESTRICTIONS SET FORTH BELOW HAVE BEEN ADOPTED BY THE WM
STRATEGIC ASSET MANAGEMENT PORTFOLIOS, LLC WITH RESPECT TO THE PORTFOLIOS AS
FUNDAMENTAL POLICIES.
EACH OF THE STRATEGIC GROWTH, CONSERVATIVE GROWTH, BALANCED, FLEXIBLE INCOME AND
INCOME PORTFOLIOS WILL NOT
1. purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (except this shall not
prevent the Fund from purchasing or selling options or futures
contracts or from investing in securities or other instruments backed
by physical commodities);
2. purchase or sell real estate including limited partnership interests,
although it may purchase and sell securities of companies that deal in
real estate and may purchase and sell securities that are secured by
interests in real estate;
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<PAGE> 145
3. make loans to any person, except loans of portfolio securities to the
extent that no more than 33 1/3% of its total assets would be lent to
other parties, but this limitation does not apply to purchases of debt
securities or repurchase agreements;
4. (i) purchase more than 10% of any class of the outstanding voting
securities of any issuer (except other investment companies as defined
in the 1940 Act) and (ii) purchase securities of an issuer (except
obligations of the U.S. Government and its agencies and
instrumentalities and securities of other investment companies as
defined in the 1940 Act) if as a result, with respect to 75% of its
total assets, more than 5% of the Portfolio's total assets, at market
value, would be invested in the securities of such issuer.
5. issue senior securities (as defined in the 1940 Act) except as
permitted by rule, regulation or order of the Securities and Exchange
Commission;
6. will not borrow, except from banks for temporary or emergency (not
leveraging) purposes including the meeting of redemption requests that
might otherwise require the untimely disposition of securities in an
aggregate amount not exceeding 30% of the value of the Portfolio's
total assets (including the amount borrowed) at the time the borrowing
is made; and whenever borrowings by a Portfolio, including reverse
repurchase agreements, exceed 5% of the value of a Portfolio's total
assets, the Portfolio will not purchase any securities;
7. underwrite securities issued by others, except to the extent that the
Portfolio may be considered an underwriter within the meaning of the
1933 Act in the disposition of restricted securities; and
8. write or acquire options or interests in oil, gas or other mineral
exploration or development programs.
PORTFOLIO TURNOVER
The Money Funds attempt to increase yields by trading to take advantage
of short-term market variations, which result in high portfolio turnover and
high transactions costs. The Short Term High Quality Bond, Target Maturity 2002,
U.S. Government Securities, Income and High Yield Funds, the Tax-Exempt Bond,
California Municipal, California Insured Intermediate Municipal and Florida
Insured Municipal Funds and the Bond & Stock, Growth & Income, Growth,
International Growth, Northwest and Emerging Growth Funds do not intend to seek
profits through short-term trading. Nevertheless, the Funds will not consider
portfolio turnover rate a limiting factor in making investment decisions.
Under certain market conditions, the Short Term High Quality Bond,
California Insured Intermediate Municipal, Growth, International Growth or
Emerging Growth Funds may experience increased portfolio turnover as a result of
such Fund's options activities. For instance, the exercise of a substantial
number of options written by a Fund (due to appreciation of the underlying
security in the case of call options or depreciation of the underlying security
in the case of put options) could result in a turnover rate in excess of 100%. A
portfolio turnover rate of 100% would occur if all of a Fund's securities that
are included in the computation of turnover were replaced once during a period
of one year. The portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the year by the monthly average
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<PAGE> 146
value of portfolio securities. Securities with remaining maturities of one year
or less at the date of acquisition are excluded from the calculation. During
fiscal year 1998, each of the California Municipal, Emerging Growth and
International Growth Funds experienced a significant increase in portfolio
turnover rate from fiscal year 1997. The California Municipal Fund rose to 87%
from 36%, the Emerging Growth Fund rose to 112% from 87% and the International
Growth Fund rose to 118% from 67%. In addition, the Northwest Fund experienced a
significant increase in its portfolio turnover rate for the fiscal year ended
10/31/97, when the Fund's portfolio turnover rate increased to 42% versus the 9%
it experienced for the fiscal year ended 10/31/96.
Certain other practices that may be employed by the Funds could result
in high portfolio turnover. For example, portfolio securities may be sold in
anticipation of a rise in interest rates (market decline) or purchased in
anticipation of a decline in interest rates (market rise) and later sold. In
addition, a security may be sold and another of comparable quality purchased at
approximately the same time to take advantage of what the Advisor or a Fund's
sub-advisor believes to be a temporary disparity in the normal yield
relationship between the two securities. These yield disparities may occur for
reasons not directly related to the investment quality of particular issues or
the general movement of interest rates, such as changes in the overall demand
for, or supply of, various types of securities.
PORTFOLIO TRANSACTIONS
Most of the purchases and sales of securities for a Fund, whether
transacted on a securities exchange or over-the-counter, will be effected in the
primary trading market for the securities. Decisions to buy and sell securities
for a Fund are made by the Advisor or the relevant sub-advisor, which also is
responsible for placing these transactions, subject to the overall review of the
Trusts' Board of Trustees. Although investment decisions for each Fund are made
independently from those of the other accounts managed by the Advisor or the
sub-advisor, investments of the type the Fund may make may also be made by those
other accounts. When a Fund and one or more other accounts managed by the
Advisor or the sub-advisor are prepared to invest in, or desire to dispose of,
the same security, available investments or opportunities for sales will be
allocated in a manner believed by the Advisor or the sub-advisor to be equitable
to each. In some cases, this procedure may adversely affect the price paid or
received by a Fund or the size of the position obtained or disposed of by the
Fund. In other cases, however, it is believed that coordination and the ability
to participate in volume transactions will be to the benefit of the Fund.
Transactions on U.S. exchanges involve the payment of negotiated
brokerage commissions. With respect to exchanges on which commissions are
negotiated, the cost of transactions may vary among different brokers. There is
generally no stated commission in the case of securities traded in the
over-the-counter markets, but the prices of those securities include undisclosed
commissions or concessions, and the prices at which securities are purchased
from and sold to dealers include a dealer's mark-up or mark-down. U.S.
Government Securities may be purchased directly from the U.S. Treasury or from
the issuing agency or instrumentality.
In selecting brokers or dealers to execute portfolio transactions on
behalf of a Fund, the Advisor or the Fund's sub-advisor seeks the best overall
terms available. In assessing the best
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<PAGE> 147
overall terms available for any transaction, the Advisor and each sub-advisor
will consider the factors that the Advisor or the sub-advisor deems relevant,
including the breadth of the market in the security, the price of the security,
the financial condition and execution capability of the broker or dealer and the
reasonableness of the commission, if any, for the specific transaction and on a
continuing basis. In addition, each advisory agreement among the Trusts
authorizes the Advisor, and a sub-advisory agreement authorizes the sub-advisor,
in selecting brokers or dealers to execute a particular transaction and in
evaluating the best overall terms available, to consider the brokerage and
research services (as those terms are defined in Section 28(e) of the Securities
Exchange Act of 1934, as amended) provided to the Trusts, the other Funds and/or
other accounts over which the Advisor, the sub-advisor or their affiliates
exercise investment discretion. The fees under the advisory agreements between
the Trusts, the Advisor and the sub-advisors are not reduced by reason of their
receiving such brokerage and research services. The Trusts' Board of Trustees
will periodically review the commissions paid by the Funds to determine if the
commissions paid over representative periods of time were reasonable in relation
to the benefits received by the Trusts.
Consistent with applicable provisions of the 1940 Act, the rules and
exemptions adopted by the Commission thereunder, and relevant interpretive and
"no-action" positions taken by the Commission's staff, the Trusts' Board of
Trustees has adopted procedures pursuant to Rule 17e-1 under the 1940 Act to
ensure that all portfolio transactions with affiliates will be fair and
reasonable. Under the procedures adopted, portfolio transactions for a Fund may
be executed through any affiliated broker (other than affiliated persons of the
Trust solely because the broker is an affiliated person of a sub-advisor of
another Fund) if, subject to other conditions in the Rule 17e- 1 procedures, in
the judgment of the Advisor or the Fund's sub-advisor, the use of an affiliated
broker is likely to result in price and execution at least as favorable as those
of other qualified broker-dealers, and if, in the transaction an affiliated
broker charges the Fund a rate consistent with those charged for comparable
transactions in comparable accounts of the broker's most favored unaffiliated
clients. Over-the-counter purchases and sales are transacted directly with
principal market makers except in those cases in which better prices and
executions may be obtained elsewhere.
For the years set forth below, the WM Trust I and WM Trust II Funds
paid the following brokerage commissions:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
TOTAL BROKERAGE COMMISSIONS PAID
- --------------------------------------------------------------------------------------------------------
FUND OCTOBER JUNE 1997 1996 1995
1998 1998
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Money Market Fund* n/a n/a $0 $0 $0
- --------------------------------------------------------------------------------------------------------
Tax-Exempt Money Market n/a n/a 0 0 7,320
- --------------------------------------------------------------------------------------------------------
California Money Fund*** n/a $0 0 0 757,574
- --------------------------------------------------------------------------------------------------------
Short Term High Quality Bond Fund*** n/a 3,616 6,064 20,378 0
- --------------------------------------------------------------------------------------------------------
Target Maturity 2002 Fund*** n/a 0 0 0 0
- --------------------------------------------------------------------------------------------------------
U.S. Government Securities Fund* n/a n/a 0 0 0
- --------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 148
<TABLE>
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
Income Fund* 750 n/a 0 0 0
- --------------------------------------------------------------------------------------------------------
Tax-Exempt Bond Fund* n/a n/a 0 0 0
- --------------------------------------------------------------------------------------------------------
California Municipal Fund*** n/a 0 0 20,982 0
- --------------------------------------------------------------------------------------------------------
California Insured Intermediate Municipal Fund n/a 4,277 7,102 0 0
- --------------------------------------------------------------------------------------------------------
Florida Insured Municipal Fund*** n/a 1,905 7,935 0 0
- --------------------------------------------------------------------------------------------------------
Bond & Stock Fund** 315,598 n/a 307,372 199,663 0
- --------------------------------------------------------------------------------------------------------
Growth & Income Fund** 923,392 n/a 502,372 292,486 635,228
- --------------------------------------------------------------------------------------------------------
Northwest Fund** 121,767 n/a 98,599 123,164 583,298
- --------------------------------------------------------------------------------------------------------
Growth Fund*** 63,900 208,497 616,898 723,100 0
- --------------------------------------------------------------------------------------------------------
Emerging Growth Fund*** 29,914 387,993 480,975 849,149 0
- --------------------------------------------------------------------------------------------------------
International Growth Fund*** 47,507 1,036,609 696,191 860,863 0
- --------------------------------------------------------------------------------------------------------
</TABLE>
* Fiscal year changed from 12/31 to 10/31 as of 10/31/98
** Fiscal year ended 10/31
*** Fiscal year changed from 6/30 to 10/31/98
<TABLE>
<CAPTION>
TOTAL AMOUNT OF
TOTAL BROKERAGE TRANSACTIONS WHERE
COMMISSIONS PAID BROKERAGE COMMISSIONS
TO BROKERS THAT WERE PAID TO BROKERS
PROVIDED RESEARCH THAT PROVIDED
FISCAL YEAR ENDED RESEARCH FISCAL YEAR
FUND 10/31/98 ENDED 10/31/98
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Money Market Fund $ 0 $ 0
- ---------------------------------------------------------------------------------------------------------
Tax-Exempt Money Market Fund 0 0
- ---------------------------------------------------------------------------------------------------------
California Money Fund 0 0
- ---------------------------------------------------------------------------------------------------------
Short Term High Quality Bond Fund 0 0
- ---------------------------------------------------------------------------------------------------------
Target Maturity 2002 Fund 0 0
- ---------------------------------------------------------------------------------------------------------
U.S. Government Securities Fund 0 0
- ---------------------------------------------------------------------------------------------------------
Income Fund 0 0
- ---------------------------------------------------------------------------------------------------------
Tax-Exempt Bond Fund 0 0
- ---------------------------------------------------------------------------------------------------------
California Municipal Fund 0 0
- ---------------------------------------------------------------------------------------------------------
California Insured Intermediate Municipal Fund 0 0
- ---------------------------------------------------------------------------------------------------------
Florida Insured Municipal Fund 0 0
- ---------------------------------------------------------------------------------------------------------
Bond & Stock Fund 0 0
- ---------------------------------------------------------------------------------------------------------
Growth & Income Fund 0 0
- ---------------------------------------------------------------------------------------------------------
Northwest Fund 0 0
- ---------------------------------------------------------------------------------------------------------
Growth Fund 138,239 1,373,066
- ---------------------------------------------------------------------------------------------------------
Emerging Growth Fund 10,529 1,524,833
- ---------------------------------------------------------------------------------------------------------
International Growth Fund 87,981 345,761,000
- ---------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 149
WM Trust I, WM Trust II and WM Strategic Asset Management Portfolios, LLC
are required to identify any securities of their "regular brokers or dealers"
(as such term is defined in the 1940 Act) which they have acquired during their
most recent fiscal years. As of December 31, 1998, none of the Funds held any
securities of any "regular broker or dealer" of the Trusts or Portfolios.
NET ASSET VALUE
The Trusts will calculate the net asset value of the Funds' Class A, Class
B, Class I and Class S shares as of the close of regular trading on the New York
Stock Exchange (currently 4:00 p.m., New York time), Monday through Friday,
exclusive of national business holidays. The Trusts will be closed on the
following national holidays: New Year's Day, Martin Luther King Day, President's
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas.
A security that is primarily traded on a U.S. exchange (including securities
traded through the NASDAQ National Market System) is valued at the last sale
price on that exchange or, if there were no sales during the day, at the mean of
the current day's bid and asked prices. Over-the-counter securities that are not
traded through the NASDAQ National Market System and U.S. Government Securities
are valued at the mean of the current day's bid and asked prices. An option is
generally valued at the last sale price or, in the absence of a last sale price,
at the mean of the current day's bid and asked prices. Short term debt
securities that mature in 60 days or less are valued at amortized cost; assets
of the Money Funds are also valued at amortized cost. The value of a foreign
security is determined in its national currency as of the close of trading on
the foreign exchange on which it is traded or as of 4:00 p.m. New York Time, if
that is earlier, and that value is then converted into its U.S. dollar
equivalent at the foreign exchange rate in effect at noon, New York time, on the
day the value of the foreign security is determined. The value of a futures
contract equals the unrealized gain or loss on the contract, which is determined
by marking the contract to the current settlement price for a like contract
acquired on the day on which the futures contract is being valued. If the market
makes a limit move with respect to the security or index underlying the futures
contract, the futures contract will be valued at a fair market value as
determined by or under the direction of the Board of Trustees.
Debt securities of U.S. issuers (other than U.S. Government Securities and
short-term investments), including Municipal Obligations, are valued by one or
more independent pricing services (each a "Pricing Service") retained by the
Trusts. When, in the judgment of a Pricing Service, market quotations for these
securities are readily available, they are valued at the mean between the quoted
bid prices and asked prices. Securities for which market quotations are not
readily available are valued at fair value as determined by, or under the
direction of, the Board of Trustees, which may rely on the assistance of one or
more Pricing Services. The
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<PAGE> 150
procedures of each Pricing Service are reviewed periodically by the officers of
the Trusts under the general supervision and responsibility of the Board of
Trustees.
VALUATION OF THE MONEY FUNDS. The valuation of the portfolio securities of
the Money Funds is based upon their amortized cost, which does not take into
account unrealized capital gains or losses. Amortized cost valuation involves
initially valuing an instrument at its cost and thereafter assuming a constant
amortization to maturity of any discount or premium, regardless of the impact of
fluctuating interest rates on the market value of the instrument. While this
method provides certainty in valuation, it may result in periods during which
value, as determined by amortized cost, is higher or lower than the price a Fund
would receive if it sold the instrument.
The use by the Money Funds of the amortized cost method of valuing their
respective portfolio securities is permitted by a rule adopted by the SEC. Under
this rule, the Money Funds must maintain dollar-weighted average portfolio
maturities of 90 days or less, purchase only instruments having remaining
maturities of thirteen months or less and invest only in securities determined
by the Board of Trustees of the Trusts to present minimal credit risks. Pursuant
to the rule, the Board of Trustees also has established procedures designed to
stabilize, to the extent reasonably possible, the Funds' price per share as
computed for the purpose of sales and redemptions at $1.00. Such procedures
include review of the Funds' portfolio holdings by the Board of Trustees or its
delegate, at such intervals as the Board of Trustees may deem appropriate, to
determine whether the Funds' net asset values calculated by using available
market quotations or market equivalents deviates from $1.00 per share based on
amortized cost.
In the event the Board of Trustees determines that a deviation exists which
may result in material dilution or other unfair results to investors or existing
shareholders, the Board of Trustees will cause the Trusts to take such
corrective action as the Board deems necessary and appropriate including:
selling portfolio instruments prior to maturity to realize capital gains or
losses or to shorten average portfolio maturity; withholding dividends or paying
distributions from capital or capital gains; redeeming shares in kind; or
establishing a net asset value per share by using available market quotations.
HOW TO BUY AND REDEEM SHARES
Class A, Class B, Class I and Class S shares of the Funds may be purchased
and redeemed in the manner described in the Prospectus and in this SAI. Class I
shares are currently offered and sold only to the Portfolios.
COMPUTATION OF PUBLIC OFFERING PRICES
The Funds offer their shares to the public on a continuous basis. The public
offering price per Class A share of the Funds is equal to the net asset value
next computed after receipt of a
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<PAGE> 151
purchase order, plus the applicable front-end sales charge, if any, as set forth
in the Prospectus. The public offering price per Class B, Class I or Class S
share of the Funds is equal to the net asset value next computed after receipt
of a purchase order.
An illustration of the computation of the public offering price per share of
each Fund and Portfolio is contained in the financial statements incorporated
herein by reference.
COMMISSIONS ON NAV SALES. The Distributor pays authorized dealers commissions of
up to 1% on purchases of Class A shares at net asset value that are (i) part of
a purchase of $1 million or more or (ii) sold to qualified employee benefit
plans (including SEPs and SIMPLEs) that have more than 100 participants or that
have more than $500,000 invested in the WM Group of Funds.
REDEMPTIONS
The procedures for redemption of Class A, Class B and Class S shares of each
Fund and Portfolio are summarized in the Prospectus under "How to Sell Shares."
The right of redemption of Class A, Class B and Class S shares of a Fund and
Class A and Class B of a Portfolio may be suspended or the date of payment
postponed (1) for any periods during which the New York Stock Exchange is closed
(other than for customary weekend and holiday closings), (2) when trading in the
markets the Fund normally utilizes is restricted, or an emergency, as defined by
the rules and regulations of the SEC, exists making disposal of a Fund's or
Portfolio's investments or determination of its net asset value not reasonably
practicable or (3) for such other periods as the SEC by order may permit for
protection of shareholders.
CERTAIN WAIVERS OF THE CONTINGENT DEFERRED SALES CHARGES. Contingent
deferred sales charges (each, a "CDSC") imposed upon redemptions of Class A,
Class B and Class S shares will be waived in certain instances.
APPLICATION OF CLASS A SHARES CDSC. The Class A CDSC of 1.0% or 0.5% may be
imposed on certain redemptions within one or two years of purchase,
respectively, with respect to Class A shares (i) purchased at NAV without a
sales charge at time of purchase due to purchases of $1 million or more, or (ii)
acquired, including Class A shares of a Money Fund acquired, through an exchange
for Class A shares of a Non-Money Fund purchased at NAV without a sales charge
at time of purchase due to purchases of $1 million or more. The CDSCs for Class
A shares are calculated on the lower of the shares' cost or current net asset
value, and in determining whether the CDSC is payable, the Funds will first
redeem shares not subject to any CDSC.
With respect to certain investors who purchase Class A shares through an
authorized dealer and who receive a waiver of the entire initial sales charge on
Class A shares because the Class A shares where purchased through a plan
qualified under Section 401(k) of the Code ("401(k)
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<PAGE> 152
Plan") or through a plan qualified under Section 403(b) of the Code ("403(b)
Plan") or who hold Class A shares of a Money Fund that were acquired through an
exchange for Non-Money Fund Class A shares that were purchased at NAV through
one of such plans, a CDSC of 1% may be imposed on the amount that was invested
through the plan in such Class A shares and that is redeemed (i) if, within the
first two years after the plan's initial investment in the Funds, the named
fiduciary of the plan withdraws the plan from investing in the Funds in a manner
that causes all shares held by the plan's participants to be redeemed; or (ii)
by a plan participant in a 403(b) Plan within two years of the plan
participant's purchase of such Class A shares. This CDSC will be waived on
redemptions in connection with certain involuntary distributions, including
distributions arising out of the death or disability of a shareholder (including
one who owns the shares as joint tenant). See "How to Buy and Redeem Shares" in
the SAI.
WAIVERS OF CLASS A SHARES CDSC. The Class A CDSC is waived for redemptions
of Class A shares (i) that are part of exchanges for Class A shares of other
Funds; (ii) for distributions to pay benefits to participants from a retirement
plan qualified under Section 401(a) or 401(k) of the Code, including
distributions due to the death or disability of the participant (including one
who owns the shares as a joint tenant); (iii) for distributions from a 403(b)
Plan or an IRA due to death, disability, or attainment of age 70 1/2, including
certain involuntary distributions; (iv) for tax-free returns of excess
contributions to an IRA; (v) for distributions by other employee benefit plans
to pay benefits; (vi) in connection with certain involuntary distributions;
(vii) for systematic withdrawals in amounts of 1% or less per month; and (viii)
by a 401(k) Plan participant so long as the shares were purchased through the
401(k) Plan and the 401(k) Plan continues in effect with investments in Class A
shares of the Fund. See "How to Buy and Redeem Shares" in the SAI.
For purposes of the waivers described in such section of the Prospectus, a
person will be deemed "disabled" only if the person is unable to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment which can be expected to result in death or be of
long-continued and indefinite duration.
DEFERRED SALES CHARGE ALTERNATIVE: CLASS B AND CLASS S SHARES. If you choose
the deferred sales charge alternative, you will purchase Class B shares at their
NAV per share without the imposition of a sales charge at the time of purchase.
Class B shares of the Short Term High Quality Bond Fund that are redeemed within
four years of purchase, and Class B shares of the remaining Funds and Portfolios
that are redeemed within five years of purchase, however, will be subject to a
CDSC as described below. CDSC payments and distribution fees on Class B shares
may be used to fund commissions payable to Authorized Dealers.
No charge will be imposed with respect to shares having a value equal to any net
increase in the value of shares purchased during the preceding four or five
years and shares acquired by reinvestment of net investment income and capital
gain distributions. The amount of the charge
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<PAGE> 153
is determined as a percentage of the lesser of (1) the NAV of the shares at the
time of purchase or (2) the NAV of the shares at the time of redemption. The
percentage used to calculate the CDSC will depend on the number of years since
you invested the dollar amount being redeemed, according to the following
tables:
<TABLE>
<S> <C> <C>
Class B shares of all Funds (except for Class B shares of all Funds of WM Class B shares of all Funds of WM Trust I
the Short Term High Quality Bond Trust II (except for the Short Term purchased before March 20, 1998(2) and
Fund and Portfolios and Class S High Quality Bond Fund), Portfolios the Short Term High Quality Bond Fund
shares of all Funds purchased after and Class S shares of all Funds
March 20, 1998 (other than shares of purchased before March 20, 1998,
the Funds received in connection with and shares of the Funds received in
the merger of other mutual funds into connection with the merger of other
certain Funds). mutual Funds into certain funds.
</TABLE>
<TABLE>
<CAPTION>
YEAR OF CONTINGENT YEAR OF CONTINGENT YEAR OF
REDEMPTION DEFERRED REDEMPTION DEFERRED REDEMPTION CONTINGENT
AFTER PURCHASE SALES CHARGE AFTER PURCHASE SALES CHARGE AFTER PURCHASE DEFERRED SALES
-------------- ------------ -------------- ------------ -------------- --------------
<S> <C> <C> <C> <C> <C>
First 5.00% First 5.00% First 4.00%
Second 4.00% Second 4.00% Second 3.00%
Third 3.00% Third 3.00% Third 2.00%
Fourth 2.00% Fourth 3.00% Fourth 1.00%
Fifth 1.00% Fifth 2.00% Fifth and following 0%
Sixth and following 0.00% Sixth 1.00%
Seventh and 0.00%
following
</TABLE>
(2) Class B shares of the U.S. Government Securities, Income and Tax-Exempt
Bond Funds purchased prior to March 15, 1996, and Class B shares of the Growth &
Income, Bond & Stock and Northwest Funds purchased prior to January 15, 1996,
are subject to a contingent deferred sales charge of 3% if redeemed the first or
second year after purchase, 2% in the third or fourth year, 1% in the fifth
year, and 0% in year six.
For these purposes, all purchases are considered made on the last day of the
month of purchase. To determine the CDSC payable on a redemption of Class B
shares, a Fund will first redeem Class B shares not subject to a CDSC.
Thereafter, to determine the applicability and rate of any CDSC, it will be
assumed that shares representing the reinvestment of dividends and capital gain
distributions are redeemed first and shares held for the longest period of time
are redeemed next. Using this method, your sales charge, if any, will be at the
lowest possible CDSC rate.
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<PAGE> 154
The Trusts will adopt procedures to convert Class B shares, without
payment of any sales charges, into Class A shares, which have lower distribution
fees, after the passage of a number of years after purchase. Such conversion may
occur in approximately eight years. Those shares of the former Griffin Funds
purchased prior to the merger with the WM Group of Funds may convert in
approximately six years.
The conversion of Class B shares to Class A shares is subject to a
favorable ruling from the Internal Revenue Service or a determination by the
Board of Trustees, after consultation with legal counsel, that such conversion
will not be subject to federal income tax. There can not be any assurance that a
ruling or determination will be available. If they should not be available, the
conversion of Class B shares to Class A shares would not occur and those shares
would continue to be subject to higher expenses than Class A shares for an
indefinite period.
WAIVERS OF CLASS B CDSCS. For each of the WM Trust II Funds purchased
prior to March 20, 1998, no CDSCs will be assessed on redemptions of Class B
shares in the case of systematic withdrawals in amounts of 1% or less per month;
death of the shareholder; and redemptions in connection with certain involuntary
distributions, including distributions arising out of the death or disability of
a shareholder or attainment of age 70 1/2, from IRAs. The foregoing waivers may
be changed at any time. For waivers with respect to each of the other Funds and
Portfolios, or for shares of the WM Trust II Funds purchased on or after March
20, 1998, see the Prospectus.
DISTRIBUTIONS IN KIND. If the Board of Trustees determines that it
would be detrimental to the best interests of the remaining shareholders of a
Fund to make a redemption payment wholly in cash, the Trusts may pay, in
accordance with SEC rules, any portion of a redemption in excess of the lesser
of $250,000 or 1% of the Fund's net assets by distribution in kind of portfolio
securities in lieu of cash. Securities issued in a distribution in kind will be
readily marketable, although shareholders receiving distributions in kind may
incur brokerage commissions when subsequently redeeming shares of those
securities.
SYSTEMATIC WITHDRAWAL PLAN. As described in the Prospectus, a
Systematic Withdrawal Plan may be established by a shareholder who owns either
Class A or Class B shares of a Fund with a value exceeding $5,000 and who wishes
to receive specific amounts of cash periodically. Monthly, quarterly, semiannual
or annual withdrawals in a minimum amount of $100 may be made under the
Systematic Withdrawal Plan by redeeming as many shares of the Fund or Portfolio
as may be necessary to cover the stipulated withdrawal payment. The CDSC on
Class B shares is waived for withdrawals under a Systematic Withdrawal Plan that
meets certain conditions as described in "Buying Class B [or Class S] shares -
Contingent deferred sales charge" in the Prospectus. To the extent that
withdrawals exceed dividends, distributions and appreciation of a shareholder's
investment in a Fund or Portfolio, there will be a reduction in the value of the
shareholder's investment in the relevant class of the Fund or Portfolio and
continued withdrawal payments may reduce the shareholder's investment and
ultimately exhaust it. Withdrawal payments should not be considered as income
from
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<PAGE> 155
investment in a Fund or Portfolio. For additional information regarding the
Systematic Withdrawal Plan, write to the WM Group of Funds at Suite 300, 1201
Third Avenue, Suite 1400, Seattle, Washington 98101 or call the Trust at
800-222-5852.
CHECK REDEMPTION PRIVILEGE. Checkwriting is available for the Class A
shares of the Money Funds only. Checks to redeem shares of any of the Money
Funds are drawn on the account of the Fund at Boston Safe and shareholders will
be subject to the same rules and regulations that Boston Safe applies to
checking accounts and, will have the same rights and duties with respect to stop
payment orders, "stale" checks, and unauthorized endorsements as bank checking
account customers do under Massachusetts Uniform Commercial Code. All notices
with regard to those rights and duties must be given to Boston Safe.
HOW TO EXCHANGE SHARES
You may exchange shares of any of the Funds or Portfolios for shares of
the same class of any other of the Funds or Portfolios. Exchanges of shares are
sales and may result in a gain or loss for income tax purposes.
Exchanges are made at the relative NAVs of the shares being exchanged.
No additional sales charge will be incurred when exchanging shares from a Fund
which imposes an initial or contingent deferred sales charge. Any contingent
deferred sales charge on the subsequent sale of shares acquired by exchange will
be based on the contingent deferred sales charge schedule of the Fund originally
purchased. Shares exchanged from Money Fund will be subject to the acquired
Fund's sales charge unless the shares given in exchange were previously
exchanged from a Fund that imposes an initial or contingent deferred sales
charge.
All exchanges are subject to the minimum investment requirements of the
Fund being acquired and to its availability for sale in your state of residence.
You may arrange for automatic monthly exchanges. The Funds or Portfolios reserve
the right to refuse any order for the purchase of shares, including those by
exchange. In particular, a pattern of exchanges that coincides with a "market
timing" strategy may be disruptive to a Fund or Portfolios and, consequently,
may be disallowed.
PERFORMANCE INFORMATION
YIELD
MONEY FUNDS. From time to time, advertisements or shareholder reports
concerning the Money Funds may describe yield and effective yield. The yield of
a Money Fund refers to the income generated by an investment in the Fund over a
7-day period identified in the advertisement. This income is then "annualized."
That is, the amount of income generated by the investment during that week is
assumed to be generated each week over a 52-week period and is shown as a
percentage of the investment. Effective yield is calculated similarly but,
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<PAGE> 156
when annualized, the income earned by an investment in a Fund is assumed to be
reinvested. Effective yield will generally be slightly higher than the yield
because of the compounding effect of this assumed reinvestment.
FIXED-INCOME AND MUNICIPAL FUNDS. From time to time, the Fixed-Income
and Municipal Funds may advertise 30-day yield. The 30-day yield of each of
these Funds refers to the income generated by an investment in such Fund over
the 30-day period identified in the advertisement, and is computed by dividing
the net investment income per share earned by the Fund during the period by the
maximum public offering price per share on the last day of the 30-day period.
This income is "annualized" by assuming that the amount of income is generated
each month over a one-year period and is compounded semiannually. The annualized
income is then shown as a percentage of the maximum public offering price. In
addition, these Funds may advertise a similar 30-day yield computed in the same
manner except that the NAV per share is used in place of the public offering
price per share.
STRATEGIC ASSET MANAGEMENT PORTFOLIOS
In the Risk/Return Summary of the Prospectus, each of the Portfolio's
performance is compared to a capital Mixed Benchmark. Each such benchmark is a
blended mix of component indices. Descriptions of each such component index are
as follows:
- - THE SALOMON BROTHERS U.S. 90-DAY T-BILL INDEX measures performance of
United States Treasury Bills with maturities of three months.
- - THE LEHMAN BROTHERS MUTUAL FUND (I-5) GOVERNMENT/CORPORATE INDEX represents by
all U.S. government agency and Treasury securities and all investment-grade
corporate debt securities with maturities of one to five years.
- - 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.
- - THE LEHMAN BROTHERS EAA 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.
- - THE LEHMAN BROTHERS AGGREGATE INDEX is an all-inclusive bond index which
contains government, corporate, mortgage and asset-backed securities.
- - 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.
- - 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.
- - 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.
- - 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.
- - 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.
TAX-EQUIVALENT YIELD. The Municipal Funds, the California Money Fund
and the Tax-Exempt Money Market Fund may also quote tax-equivalent yield.
Tax-equivalent yield shows the taxable yields an investor would have to earn
before taxes to equal the Funds' tax-free yield. A tax-equivalent yield is
calculated by dividing a Fund's tax-exempt yield by the result of one minus the
sum of a stated federal and applicable state tax rate, based upon the highest
marginal tax rate and adjusted for the federal deduction of state taxes paid. To
the extent that particular investor is not subject to the highest marginal tax
rate, the tax-equivalent yield experienced by the investor will be lower than
the tax-equivalent yield quoted by the Fund. If only a portion of a Fund's
income is tax-exempt, only that portion is adjusted in the calculation.
TOTAL RETURN
From time to time, a Fund may advertise its average annual total return over
various periods. Such total return figures reflect a deduction or any front end
sales charge or contingent deferred sales charge and show the average percentage
change in value of an investment in the Fund from the beginning date of the
measuring period. These figures reflect changes in the price of the Fund's
shares and assume that any income dividends and/or capital gains distributions
made by the fund during the period were reinvested. Figures will be given for
recent one-, five-, and ten-year periods (or from commencement of the Fund's
operations) and may be given for other periods.
ADDITIONAL PERFORMANCE QUOTATIONS
Advertisements of total return may also show total return without giving effect
to sales charges. Similarly, a Fund may provide yield quotations in investor
communications based on the Fund's NAV (rather than its public offering price)
on the last day of the period covered by the yield computation. Because these
additional quotations will not reflect the maximum sales
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<PAGE> 157
charge payable, such performance quotations will be higher than the performance
quotations that include the maximum sales charge.
TOTAL RETURNS AND YIELDS ARE BASED ON PAST RESULTS AND ARE NOT A PREDICTION
OF FUTURE PERFORMANCE
Performance information is computed separately for each class of shares. Because
Class B shares bear the expense of the higher distribution and service fees, it
is expected that performance for such shares will be lower than that for a
Fund's Class A shares.
OBTAINING PERFORMANCE INFORMATION
Each Fund's strategies, performance, and holdings are detailed twice a year in
Fund reports, which are sent to all shareholders. The SAI describes the methods
used to determine a Fund's performance. Shareholders may call 800-222-5852 for
performance information.
DETERMINATION OF PERFORMANCE
From time to time, the Trusts may quote the performance of a Fund's or
Portfolio's Class A, Class B and Class S shares in terms of yield, actual
distributions, total return or capital appreciation in reports or other
communications to shareholders or in advertising material. The yield for the
Class A, Class B and Class S shares of the Money Funds is computed by: (1)
determining the net change, exclusive of capital changes, in the value of a
hypothetical pre-existing account in each Fund having a balance of one share at
the beginning of a seven calendar day period for which yield is to be quoted,
(2) subtracting a hypothetical change reflecting deductions from shareholder
accounts, (3) dividing the net change by the value of the account at the
beginning of the period to obtain the base period return, and (4) annualizing
the results (i.e., multiplying the base period return by 365/7). The net change
in the value of the account reflects the value of additional shares purchased
with dividends declared on the original share and any such additional shares,
but does not include realized gains and losses or unrealized appreciation or
depreciation. In addition, the Money Funds may calculate a compounded effective
annualized yield by adding 1 to the base period return (calculated as described
above), raising the sum to a power equal to 365/7 and subtracting 1.
The current yield for the Money Funds and the Target Maturity 2002 Fund may
be obtained by calling 800-222- 5852. For the seven-day period ended June 30,
1998, the yield for the outstanding shares of the California Money Fund that are
treated as Class A shares was 2.51% and the effective yield of such shares of
that Fund for the same period was 2.54%. The California Money and Tax-Exempt
Money Market Funds may also calculate their tax equivalent yields as described
below.
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<PAGE> 158
The Municipal Funds and Fixed-Income Funds may quote a 30-day yield figure
(the "SEC Yield") which is calculated according to a formula prescribed by the
SEC. The formula can be expressed as follows:
[(a-b + 1) (6)-1]}
YIELD = 2 ------------------
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursement).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = the maximum offering price per share on the last day of
the period.
For the purpose of determining the interest earned (variable "a" in the
formula) on debt obligations that were purchased by one of the Municipal and
Fixed-Income Funds at a discount or premium, the formula generally calls for
amortization of the discount or premium; the amortization schedule will be
adjusted monthly to reflect changes in the market values of the debt
obligations.
Based on the foregoing calculation, the SEC Yields relating to the
outstanding shares treated as Class A shares for the 30-day period ended
10/31/98 are as follows:
FUND YIELD
---- -----
Short Term High Quality Bond Fund.................................. 4.71%
Target Maturity 2002 Fund.......................................... 3.92%
U.S. Government Securities Fund.................................... 5.44%
Income Fund........................................................ 6.12%
High Yield Fund.................................................... 10.32%
Tax-Exempt Bond Fund............................................... 4.05%
California Municipal Fund.......................................... 3.97%
California Insured Intermediate Municipal Fund..................... 3.25%
Florida Insured Municipal Fund..................................... 3.90%
Income Portfolio................................................... 6.12%
Flexible Income Portfolio.......................................... 3.56%
Balanced Portfolio................................................. 1.31%
In addition, the Fund or Portfolio may quote a 30-day yield based on actual
distributions during a 30-day period that is computed by dividing the net
investment income per share earned by the Fund or Portfolio during the period by
the maximum Public Offering Price per share on the last day of the 30-day
period. This income is "annualized" by assuming that the amount of income is
generated each month over a one-year period and is compounded semiannually. The
annualized income is then shown as a percentage of the maximum Public
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<PAGE> 159
Offering Price. In addition, the Municipal Funds, the Fixed-Income Funds and the
Income, Flexible Income and Balanced Portfolios may advertise a similar 30-day
yield computed in the same manner except that the NAV per share is used in place
of the Public Offering Price per share. These 30-day average yields for the
period ended October 31, 1998 for the Class A shares of the Tax-Exempt Bond,
California Municipal, California Insured Intermediate Municipal and Florida
Insured Municipal Funds and the Income, Flexible Income and Balanced Portfolios
were 5.22%,5.35%, 4.35%, 4.82%, 5.61%, 3.59%, and 0.64%, respectively. Yields
for the same period for the Short Term High Quality Bond, Target Maturity 2002,
U.S. Government Securities, Income and High Yield funds were 5.19%, n/a%, 5.81%,
6.66% and 10.77% respectively.
The tax equivalent yield for the Tax-Exempt Money Market, California Money,
Tax-Exempt Bond, California Municipal, California Insured Intermediate Municipal
and Florida Insured Municipal Funds is computed by dividing that portion of the
Fund's yield which is tax-exempt by one minus a stated federal and/or state
income tax rate and adding the product to that portion, if any, of the Fund's
yield that is not tax-exempt. The tax-equivalent yields for the outstanding
shares of the Tax-Exempt Money Market and California Money Fund, that are
treated as Class A shares, for the 7-day period ended October 31, 1998 were
4.75% and 4.42%, respectively. The tax equivalent SEC 30-day yields for the
period ended October 31, 1997 for the outstanding shares of the Tax-Exempt Bond,
California Municipal, California Insured Intermediate Municipal, and Florida
Insured Municipal Funds were 6.71%, 6.79%, 6.36% and 6.46%, respectively. The
tax equivalent yield based on the 30-day average yield for the period ended
October 31, 1997 for the outstanding shares of the Tax-Exempt Bond, California
Municipal, California Insured Intermediate Municipal and Florida Insured
Municipal Funds were 8.64%, 10.47%, 8.92% and 6.71%, respectively.
Tax-equivalent yields assume the payment of federal income taxes at a rate of
39.6% and, if applicable, California state income taxes at a rate of 9.30%.
Capital appreciation for Class A, Class B and Class S shares of the
Municipal, Fixed-Income and the Equity Funds and the Portfolios (Class A and
Class B shares) shows principal changes for the period shown, and total return
combines principal changes and dividend and interest income reinvested for the
periods shown. Principal changes are based on the difference between the
beginning and closing net asset values for the period. Actual distributions
include short-term capital gains derived from option writing or other sources.
The period selected for performance data will depend upon the purpose of
reporting the performance.
The total return of the Funds' and the Portfolios' (Class A and Class B
shares) Class A, Class B and Class S shares may be calculated on an "average
annual total return" basis, and may also be calculated on an "aggregate total
return" basis, for various periods. Average annual total return reflects the
average annual percentage change in the value of an investment in a Fund over
the particular measuring period. Aggregate total return reflects the cumulative
percentage change in value over the measuring period. Average annual total
return figures provided for Class A, Class B and Class S shares of the
Fixed-Income and Equity Funds and the Portfolios (Class A and Class
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<PAGE> 160
B shares) will be computed according to a formula prescribed by the SEC. The
formula can be expressed as follows:
P (1 + T) (n) = E R V
Where: P = a hypothetical initial payment of $1,000
T = average annual total return/aggregate total return
n = number of years
ERV = Ending Redeemable Value of a hypothetical
$1,000 payment made at the beginning of the 1, 5
or 10 years (or other) periods or the life of
the Fund
The formula for calculating aggregate total return can be expressed as
follows:
(ERV)
Aggregate Total Return = ----- -1
p
The calculation of average annual total return and aggregate total return
assumes reinvestment of all income dividends and capital gain distributions on
the reinvestment dates during the period and includes all recurring fees charged
to all shareholder accounts. In addition, with respect to Class A shares, the
maximum sales charge is deducted from the initial $1,000 payment (variable "P"
in the formula).
The ERV assumes complete redemption of the hypothetical investment at the
end of the measuring period and reflects deduction of all nonrecurring charges
at the end of the measuring period covered by the computation. A Fund's net
investment income changes in response to fluctuations in interest rates and the
expenses of the Fund.
The average annual rates of return (unless otherwise noted) for the Funds
for the one-year, five-year and ten-year periods and for the period since
inception in each case ended October 31, 1998 are as follows:
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<PAGE> 161
<TABLE>
<CAPTION>
AGGREGATE
TOTAL RETURN
SINCE TEN YEAR
DATE OR FROM DATE OF
OF INCEPTION, IF
FUND AND INCEPTION DATE ONE YEAR FIVE TEN INCEPTION SHORTER
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SHORT TERM HIGH QUALITY BOND FUND
CLASS A SHARES 11/1/93
Adjusted for Maximum Sales Charge 3.09% 4.03% N/A 4.03% 26.22%
Not Adjusted for Sales Charge 6.63% 4.77% N/A 4.77% 21.85%
CLASS B SHARES 6/30/94
Adjusted for Maximum Sales Charge 1.84% N/A N/A 4.91% 23.13%
Not Adjusted for Sales Charge 5.84% N/A N/A 4.91% 23.13%
CLASS S SHARES 6/30/94
Adjusted for Maximum Sales Charge 0.84% N/A N/A 4.72% 22.14%
Not Adjusted for Sales Charge 5.84% N/A N/A 4.91% 23.14%
- -------------------------------------------------------------------------------------------------------------
TARGET MATURITY 2002 FUND
CLASS A SHARES 3/20/95
Adjusted for Maximum Sales Charge 10.14% N/A N/A 9.12% 37.11%
Not Adjusted for Sales Charge 12.40% N/A N/A 9.72% 39.85%
- -------------------------------------------------------------------------------------------------------------
CALIFORNIA MONEY FUND
CLASS A SHARES 6/30/94
Not Adjusted for Maximum Sales Charge 0.49% 1.81% N/A 1.81% 32.87%
CLASS B SHARES --
Not Adjusted for Maximum Sales Charge 0.63% N/A N/A 2.04% 9.05%
CLASS S SHARES 6/30/94
Adjusted for Maximum Sales Charge -3.20% N/A N/A 1.81% 8.08%
Not Adjusted for Sales Charge 0.66% N/A N/A 2.04% 9.08%
- -------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES FUND .
CLASS A SHARES
Adjusted for Maximum Sales Charge 3.11% 5.28% 7.65% N/A 235.59%
Not Adjusted for Sales Charge 7.99% 6.26% 8.15% N/A 251.37%
CLASS B SHARES 3/30/94
Adjusted for Maximum Sales Charge 2.00% N/A N/A 0.07% 34.92%
Not Adjusted for Sales Charge 7.00% N/A N/A 6.92% 35.92%
CLASS S SHARES 3/23/98
Adjusted for Maximum Sales Charge N/A N/A N/A -0.65% -0.65%
Not Adjusted for Sales Charge N/A N/A N/A 4.35% 4.35%
- -------------------------------------------------------------------------------------------------------------
INCOME FUND
CLASS A SHARES
Adjusted for Maximum Sales Charge 1.21% 5.66% 7.88% N/A xxx.xx%
Not Adjusted for Sales Charge 6.00% 6.64% 8.38% N/A xxx.xx%
CLASS B SHARES 3/30/94
Adjusted for Maximum Sales Charge 0.20% N/A N/A 7.33% 38.37%
Not Adjusted for Sales Charge 5.17% N/A N/A 7.50% 39.37%
CLASS S SHARES 3/23/98
Adjusted for Maximum Sales Charge N/A N/A N/A -2.73% -2.73%
Not Adjusted for Sales Charge N/A N/A N/A 2.20% 2.20%
</TABLE>
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<PAGE> 162
<TABLE>
<CAPTION>
AGGREGATE
TOTAL RETURN
SINCE TEN YEAR
DATE OR FROM DATE OF
OF INCEPTION, IF
FUND AND INCEPTION DATE ONE YEAR FIVE TEN INCEPTION SHORTER
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aggregate
TAX-EXEMPT BOND FUND
CLASS A SHARES
Adjusted for Maximum Sales Charge 2.16% 4.35% 6.90% N/A 267.00%
Not Adjusted for Sales Charge 7.03% 5.30% 7.39% N/A 284.50%
CLASS B SHARES 3/30/94
Adjusted for Maximum Sales Charge 1.17% N/A N/A 5.96% 30.41%
Not Adjusted for Sales Charge 6.17% N/A N/A 6.13% 31.41%
CLASS S SHARES 3/23/98
Adjusted for Maximum Sales Charge N/A N/A N/A -1.73% -1.73%
Not Adjusted for Sales Charge N/A N/A N/A 3.27% 3.27%
- -------------------------------------------------------------------------------------------------------------
CALIFORNIA MUNICIPAL FUND
CLASS A SHARES 7/25/89
Adjusted for Maximum Sales Charge 2.92% 4.70% N/A 6.98% 86.89%
Not Adjusted for Sales Charge 7.80% 5.67% N/A 7.51% 95.67%
CLASS B SHARES 6/30/94
Adjusted for Maximum Sales Charge 2.00% N/A N/A 7.07% 34.50%
Not Adjusted for Sales Charge 7.00% N/A N/A 7.26% 35.50%
CLASS S SHARES 6/30/94
Adjusted for Maximum Sales Charge 2.00% N/A N/A 7.07% 30.70%
Not Adjusted for Sales Charge 7.00% N/A N/A 7.26% 36.84%
- -------------------------------------------------------------------------------------------------------------
CALIFORNIA INSURED INTERMEDIATE MUNICIPAL
FUND
CLASS A SHARES 4/4/94
Adjusted for Maximum Sales Charge 2.03% N/A N/A 5.24% 30.70%
Not Adjusted for Sales Charge 6.81% N/A N/A 6.14% 36.84%
CLASS B SHARES 6/30/94
Adjusted for Maximum Sales Charge 1.01% N/A N/A 6.33% 30.51%
Not Adjusted for Sales Charge 6.01% N/A N/A 6.52% 31.51%
CLASS S SHARES 6/30/94
Adjusted for Maximum Sales Charge 1.01% N/A N/A 6.33% 30.51%
Not Adjusted for Sales Charge 6.01% N/A N/A 6.52% 31.51%
- -------------------------------------------------------------------------------------------------------------
FLORIDA INSURED MUNICIPAL FUND
CLASS A SHARES 6/7/93
Adjusted for Maximum Sales Charge 3.12% 4.55% N/A 5.24% 30.707%
Not Adjusted for Sales Charge 7.97% 5.52% N/A 6.14% 36.84%
CLASS B SHARES 6/30/94
Adjusted for Maximum Sales Charge 2.17% N/A N/A 6.97% 33.93%
Not Adjusted for Sales Charge 7.17% N/A N/A 7.15% 34.93%
CLASS S SHARES 6/30/94
Adjusted for Maximum Sales Charge 2.17% N/A N/A 6.97% 33.93%
Not Adjusted for Sales Charge 7.17% N/A N/A 7.15% 34.93%
</TABLE>
-71-
<PAGE> 163
<TABLE>
<CAPTION>
AGGREGATE
TOTAL RETURN FOR
SINCE TEN YEAR PERIOD
DATE OR FROM DATE OF
ONE FIVE TEN OF INCEPTION, IF
FUND AND INCEPTION DATE YEAR YEAR YEAR INCEPTION SHORTER
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BOND & STOCK FUND
CLASS A SHARES
Adjusted for Maximum Sales Charge -1.70% 10.78% 10.50% N/A 152.71%
Not Adjusted for Sales Charge 4.03% 12.04% 11.12% N/A 161.68%
CLASS B SHARES 3/30/94
Adjusted for Maximum Sales Charge -1.22% N/A N/A 12.94% 74.81%
Not Adjusted for Sales Charge 3.12% N/A N/A 13.08% 75.81%
CLASS S SHARES 5/06/98
Adjusted for Maximum Sales Charge N/A N/A N/A -10.87% -10.87%
Not Adjusted for Sales Charge N/A N/A N/A -6.25% -6.25%
- ---------------------------------------------------------------------------------------------------------------------
GROWTH & INCOME FUND
CLASS A SHARES
Adjusted for Maximum Sales Charge 1.48% 16.66% 12.27% N/A 143.22%
Not Adjusted for Sales Charge 7.38% 17.99% 13.37% N/A 151.67%
CLASS B SHARES 3/30/94
Adjusted for Maximum Sales Charge 1.86% N/A N/A 18.21% 115.36%
Not Adjusted for Sales Charge 6.50% N/A N/A 18.33% 116.36%
CLASS S SHARES 3/23/98
Adjusted for Maximum Sales Charge N/A N/A N/A -11.49% -11.49%
Not Adjusted for Sales Charge N/A N/A N/A -6.83% -6.83%
- ---------------------------------------------------------------------------------------------------------------------
GROWTH FUND
CLASS A SHARES 4/5/93
Adjusted for Maximum Sales Charge 15.68% 16.00% N/A 17.15% 141.57%
Not Adjusted for Sales Charge 22.43% 17.32% N/A 18.34% 155.58%
CLASS B SHARES 6/30/94
Adjusted for Maximum Sales Charge 16.56% N/A N/A 21.15% 129.81%
Not Adjusted for Sales Charge 21.57% N/A N/A 21.27% 130.81%
CLASS S SHARES 6/30/94
Adjusted for Maximum Sales Charge 16.47% N/A N/A 21.14% 129.73%
Not Adjusted for Sales Charge 21.47% N/A N/A 21.26% 130.73%
- ---------------------------------------------------------------------------------------------------------------------
INTERNATIONAL GROWTH FUND
CLASS A SHARES 7/18/90
Adjusted for Maximum Sales Charge -11.23% -0.17% N/A 1.13% 9.75%
Not Adjusted for Sales Charge -6.07% 0.97% N/A 1.82% 16.11%
CLASS B SHARES 6/30/94
Adjusted for Maximum Sales Charge -11.09% N/A N/A 0.07% 0.32%
Not Adjusted for Sales Charge -6.88% N/A N/A 0.26% 1.13%
CLASS S SHARES 6/30/94
Adjusted for Maximum Sales Charge -11.15% N/A N/A 0.04% 0.16%
Not Adjusted for Sales Charge -6.92% N/A N/A 0.23% 0.98%
- ---------------------------------------------------------------------------------------------------------------------
NORTHWEST FUND
CLASS A SHARES
Adjusted for Maximum Sales Charge -10.05% 13.39% 14.12% N/A 366.79%
</TABLE>
-72-
<PAGE> 164
<TABLE>
<CAPTION>
AGGREGATE
TOTAL RETURN FOR
SINCE TEN YEAR PERIOD
DATE OR FROM DATE OF
ONE FIVE TEN OF INCEPTION, IF
FUND AND INCEPTION DATE YEAR YEAR YEAR INCEPTION SHORTER
ADJUSTED FOR MAXIMUM SALES CHARGE N/A N/A N/A -19.30% -19.30%
NOT ADJUSTED FOR SALES CHARGE N/A N/A N/A -15.05% -15.05%
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
EMERGING GROWTH FUND
CLASS A SHARES 7/18/90
Adjusted for Maximum Sales Charge -16.31% 6.57% N/A 9.56% 113.12%
Not Adjusted for Sales Charge -11.45% 7.78% N/A 10.31% 125.48%
CLASS B SHARES 6/30/94
Adjusted for Maximum Sales Charge -16.35% N/A N/A 9.35% 47.32%
Not Adjusted for Sales Charge -12.21% N/A N/A 9.52% 48.32%
CLASS S SHARES 6/30/94
Adjusted for Maximum Sales Charge -16.35% N/A N/A 9.34% 47.32%
Not Adjusted for Sales Charge -12.21% N/A N/A 9.52% 48.32%
</TABLE>
Each Portfolio is modeled after an investment strategy used by the WM
Strategic Asset Management ("SAM") program, an investment management service
offered by WM Fund Services Inc., an affiliate of the Portfolios' Advisor that
allocates investments across a combination of the underlying Funds. Set forth
below is certain performance data for the Portfolios and, prior to the
Portfolios' inception, those strategies. Performance information for the
strategies is deemed relevant because each strategy was managed using virtually
the same investment objectives, policies and restrictions as those used by the
Portfolios. Nonetheless, the performance data is not necessarily indicative of
the future performance of the Portfolios.
Because of certain differences in the expenses applicable to the SAM program
and the Portfolios, the following performance information has been adjusted by
applying the current total expense ratios for the Class A shares of the
Portfolios. The average annual total return of the following investment
strategies for the one-year period, the five-year period and the period from
inception of the strategy, in each case ended October 31, 1998, was as follows:
<TABLE>
<CAPTION>
SINCE DATE
PORTFOLIO/STRATEGY AND INCEPTION DATE ONE YEAR FIVE TEN OF
YEAR YEAR INCEPTION
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
STRATEGIC GROWTH PORTFOLIO
CLASS A SHARES 5/31/95
Adjusted for Maximum Sales Charge 1.65% N/A N/A 12.93%
Not Adjusted for Sales Charge 7.56% N/A N/A 14.82%
CLASS B SHARES 5/31/95
Adjusted for Maximum Sales Charge 1.77% N/A N/A 13.58%
Not Adjusted for Sales Charge 6.77% N/A N/A 14.01%
- ------------------------------------------------------------------------------------------------
CONSERVATIVE GROWTH PORTFOLIO
CLASS A SHARES 9/30/90
Adjusted for Maximum Sales Charge -0.71% 7.39% N/A 10.72%
Not Adjusted for Sales Charge 5.07% 8.61% N/A 11.50%
</TABLE>
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<TABLE>
<S> <C> <C> <C>
CLASS B SHARES 6/30/94
Adjusted for Maximum Sales Charge 0.64% N/A N/A 10.24%
Not Adjusted for Sales Charge 4.32% N/A N/A 10.41%
BALANCED PORTFOLIO
CLASS A SHARES 9/30/90
Adjusted for Maximum Sales Charge 0.74% 6.78% N/A 9.13%
Not Adjusted for Sales Charge 6.60% 7.99% N/A 9.90%
CLASS B SHARES 6/30/94
Adjusted for Maximum Sales Charge 0.85% N/A N/A 9.87%
Not Adjusted for Sales Charge 5.81% N/A N/A 10.04%
FLEXIBLE INCOME PORTFOLIO
CLASS A SHARES 3/31/93
Adjusted for Maximum Sales Charge 1.74% 5.89% N/A 6.49%
Not Adjusted for Sales Charge 6.53% 6.87% N/A 7.37%
CLASS B SHARES 6/30/94
Adjusted for Maximum Sales Charge 0.83% N/A N/A 8.89%
Not Adjusted for Sales Charge 5.74% N/A N/A 9.06%
INCOME PORTFOLIO
CLASS A SHARES 9/30/90
Adjusted for Maximum Sales Charge 0.52% 3.35% N/A 6.72%
Not Adjusted for Sales Charge 5.25% 4.31% N/A 7.33%
CLASS B SHARES 6/30/94
Adjusted for Maximum Sales Charge -0.48% N/A N/A 5.93%
Not Adjusted for Sales Charge 4.47% N/A N/A 6.12%
</TABLE>
The performance of a Fund's Class A, Class B and Class S shares and the
Portfolio's Class A and Class B shares will vary from time to time depending
upon market conditions, the composition of the Fund's or Portfolio's portfolio
and the Fund's or Portfolio's operating expenses. Consequently, any given
performance quotation should not be considered representative of the Fund's or
Portfolio's performance for any specified period in the future. In addition,
because performance will fluctuate, it may not provide a basis for comparing an
investment in a Fund or Portfolio with certain bank deposits or other
investments that pay a fixed yield or return for a stated period of time.
Investors should recognize that, because the Funds other than the Equity
Funds and each of the Portfolios will have a high component of fixed-income
securities, in periods of declining interest rates the yields of the Funds will
tend to be somewhat higher than prevailing market rates, and in periods of
rising interest rates yields will tend to be somewhat lower. In addition, when
interest rates are falling, the inflow of net new money to the Funds and
Portfolios from the continuous sale of shares will likely be invested in
portfolio instruments producing lower yields than the balance of the Fund's or
Portfolio's securities, thereby reducing the current yields of the Funds. In
periods of rising interest rates, the opposite can be expected to occur.
Comparative performance information may be used from time to time in advertising
the Trusts' Class A, Class B and Class S shares, including data from Lipper
Analytical Services, Inc., the S&P 500 Composite Stock Price Index, the Dow
Jones Industrial Average and other industry
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publications. The International Growth Fund may compare its performance to other
investments or relevant indexes consisting of Morgan Stanley Capital
International EAFE Index, the Standard & Poor's 500 Index, the Lipper
International Fund Index and The Financial Times World Stock Index.
TAXES
The following discussion of federal income tax consequences is based on the
Code and the regulations issued thereunder as in effect on the date of this
Statement of Additional Information and all references to the Funds in this
discussion includes the Portfolios. New legislation, as well as administrative
changes or court decisions, may significantly alter the conclusions expressed
herein, and may have a retroactive effect with respect to the transactions
contemplated herein.
Each Fund is treated as a separate entity for federal income tax purposes and
is not combined with the other funds within a Trust. Each of the Funds intends
to continue qualifying as a "regulated investment company" ("RIC") as defined
under Subchapter M of the Code. A Fund that is a RIC and distributes to its
shareholders at least 90% of its taxable net investment income (including, for
this purpose, its net realized short-term capital gains) and 90% of its
tax-exempt interest income (reduced by certain expenses), will not be liable for
federal income taxes on that part of its income distributed to its stockholders.
In order to qualify as a RIC under the Code, in addition to satisfying the
distribution requirement described above, each Fund must (a) derive at least 90%
of its gross income each taxable year from dividends, interest, payments with
respect to securities loans, gains from the sale or other disposition of stock,
securities, or foreign currencies, and certain other related income, including,
generally, certain gains from options futures, and forward contracts; and (b)
diversify its holdings so that, at the end of each fiscal quarter of the Fund's
taxable year, (i) at least 50% of the market value of the Fund's assets is
represented by cash and cash items, U.S. Government Securities, securities of
other RICs, and other securities, with such other securities limited, in respect
to any one issuer, to an amount that does not represent more than 10% of the
outstanding voting securities of such issuer or exceed 5% of the value of the
Fund's total assets and (ii) not more than 25% of the value of its assets is
invested in the securities (other than U.S. Government Securities and securities
of other RICs) of any one issuer or of two or more issuers which the Fund
controls and which are engaged in the same, similar, or related trades or
businesses.
If a Fund fails to qualify as a RIC for any year, all of its income will be
subject to tax at corporate rates, and its distributions (including capital
gains distributions) will in general be taxable as ordinary income dividends to
its shareholders, subject to the dividends received deduction for corporate
shareholders.
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Notwithstanding the distribution requirement described above, which only
requires a Fund to distribute at least 90% of its annual investment company
taxable income and tax-exempt interest income and does not require any minimum
distribution of net capital gain (the excess of net long-term capital gain over
net short-term capital loss), a Fund will be subject to a nondeductible 4%
federal excise tax to the extent it fails to distribute by the end of any
calendar year at least 98% of its ordinary income for that year and at least 98%
of its capital gain net income (the excess of short- and long-term capital gains
over short- and long-term capital losses) for the one-year period ending on
October 31 of that year, plus certain other amounts. Each Fund intends to make
distributions sufficient to avoid imposition of the 4% excise tax.
The Tax-Exempt Money Market, California Money, Tax-Exempt Bond, California
Municipal, California Insured Intermediate Municipal and Florida Insured
Municipal Funds will be qualified to pay exempt-interest dividends to their
shareholders only if, at the close of each quarter of a Fund's taxable year, at
least 50% of the total value of a Fund's assets consist of obligations the
interest on which is exempt from federal income tax. Part or all of the interest
on indebtedness incurred or continued by a shareholder to purchase or carry
shares of these funds will not be deductible for federal income tax purposes or,
in the case of the California and Florida Funds, for California and Florida
income tax purposes. Any loss on the sale or exchange of shares in these Funds
held for six months or less will be disallowed to the extent of any
exempt-interest dividend received by the shareholders with respect to such
shares. In addition, the Code may require a shareholder who receives
exempt-interest dividends to treat as taxable income a portion of certain
otherwise non-taxable social security and railroad retirement benefit payments.
Municipal funds may not be an appropriate investment for persons (including
corporations and other business entities) who are "substantial users" (or who
are related to substantial users) of facilities financed by "private activity
bonds" or "industrial development bonds." For these purposes, the term
"substantial user" is defined generally to include a "non-exempt person" who
regularly uses in a trade or business a part of a facility financed from the
proceeds of such bonds. Moreover, as noted in the Prospectus, some or all of
these Funds' dividends may be a specific preference item, or a component of an
adjustment item, for purposes of the federal individual and corporate
alternative minimum taxes. In addition, the receipt of dividends and
distributions may affect a foreign corporate shareholder's federal "branch
profits" tax liability and a Subchapter S corporate shareholder's federal
"excess net passive income" tax liability. Similar rules apply for California
State personal income tax purposes. Shareholders should consult their own tax
advisers as to whether they are (1) "substantial users" with respect to a
facility or "related" to such users within the meaning of the Code or (2)
subject to federal alternative minimum tax, the federal "branch profits" tax, or
the federal "excess net passive income" tax. Issuers of bonds purchased by the
Municipal Funds (or the beneficiary of such bonds) may have made certain
representations or covenants in connection with the issuance of such bonds to
satisfy certain requirements of the Code that must be satisfied subsequent to
the issuance of such bonds. Shareholders should be aware that exempt-interest
dividends may become subject to federal income taxation retroactively to the
date of issuance of the bonds to which such
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dividends are attributable if such representations are determined to have been
inaccurate or if the issuers (or the beneficiary) of the bonds fail to comply
with certain covenants made at that time.
Distributions made by the Fixed-Income Funds generally will not be eligible
for the dividends received deduction otherwise available to corporate taxpayers.
In addition, the dividends received deduction shall be disallowed with respect
to a dividend from any other Fund unless a corporate shareholder held its shares
on the ex-dividend date and for at least 45 more days during the 90-day period
surrounding the ex-dividend date, without protection from risk of loss.
As described above and in the Prospectus, certain of the Funds may invest in
certain types of futures contracts and options. The Funds anticipate that these
investment activities will not prevent the Funds from qualifying as RICs. As a
general rule, these investment activities may accelerate, increase or decrease
the amount of long-term and short-term capital gains or losses realized by a
Fund and, accordingly, will affect the amount of capital gains distributed to a
Fund's shareholders.
A Fund's transactions in foreign currencies, foreign currency-denominated
debt securities and certain foreign currency options, futures contracts and
forward contracts (and similar instruments) may give rise to ordinary income or
loss to the extent such income or loss results from fluctuations in the value of
the foreign currency concerned. In addition, if a Fund engages in hedging
transactions, including hedging transactions in options, futures contracts and
straddles (or other similar transactions), it will be subject to special tax
rules (including mark-to-market, straddle, wash sale, short sale and
constructive sale rules), the effect of which may be to accelerate income to a
Fund, defer losses to a Fund, cause adjustments in the holding periods of a
Fund's securities, or convert short-term capital losses into long-term capital
losses. These rules could therefore affect the amount, timing and character of
distributions to shareholders. Each Fund will endeavor to make any available
elections pertaining to such transactions in a manner believed to be in the best
interests of the Fund.
Distributions of net capital gains (i.e., the excess of net gains from
capital assets held for more than one year over net losses from capital assets
held for not more than one year) that are designated by a Fund as capital gain
dividends will generally be taxable to a shareholder receiving such
distributions as long-term capital gain (generally taxed at a 20% tax rate for
noncorporate shareholders) regardless of how long the shareholder has held Fund
shares. If a shareholder held shares six months or less and during that period
received a distribution of net capital gains, any loss realized on the sale of
such shares during such six-month period would be a long-term capital loss to
the extent of such distribution.
While only the Equity Funds expect to realize a significant amount of net
long-term capital gains, any such realized gains will be distributed as
described in the Prospectus and will be designated as such in a written notice
mailed to the shareholder after the close of the Fund's
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<PAGE> 169
taxable year. Any loss on the sale or exchange of shares in a Fund that have
been held for six months or less will be treated as a long-term capital loss to
the extent of any capital gain dividend received by the shareholder with respect
to such shares. In addition, all or a portion of any loss realized upon a
taxable disposition of Fund shares will be disallowed if other shares of the
same Fund are purchased within 30 days before or after the disposition. In such
a case, the basis of the newly purchased shares will be adjusted to reflect the
disallowed loss.
Dividends and distributions on a Fund's shares are generally subject to
federal income tax as described herein to the extent they do not exceed the
Fund's realized income and gains, even though such dividends and distributions
may economically represent a return of a particular shareholder's investment.
Such distributions are likely to occur in respect of shares purchased at a time
when a Fund's net asset value reflects gains that are either unrealized, or
realized but not distributed. Such realized gains may be required to be
distributed, even when a Fund's net asset value also reflects unrealized losses.
ADDITIONAL CONSIDERATIONS FOR SHAREHOLDERS OF THE INTERNATIONAL GROWTH FUND
If at the end of the International Growth Fund's fiscal year more than 50% of
the value of its total assets represents securities of foreign corporations, the
Fund intends to make an election permitted by the Code to treat any foreign
taxes paid by it on securities it has held for at least the minimum period
specified in the Code as having been paid directly by the Fund's shareholders in
connection with the Fund's dividends received by them. In this case,
shareholders generally will be required to include in U.S. taxable income their
pro rata share of such taxes, and those shareholders who are U.S. citizens, U.S.
corporations and, in some cases, U.S. residents will be entitled to deduct their
share of such taxes. Alternatively, such shareholders who hold Fund shares
(without protection from risk of loss) on the ex-dividend date and for at least
15 other days during the 30-day period surrounding the ex-dividend date will be
entitled to claim a foreign tax credit for their share of these taxes.
In addition, investment by a Fund in an entity that qualified as a "passive
foreign investment company" under the Code could subject the Fund to a U.S.
federal income tax or other charge on certain "excess distributions" with
respect to the investment, and on the proceeds from disposition of the
investment. This tax or charge may be avoided, however, by making an election to
mark such investments to market annually or to treat the passive foreign
investment company as a "qualified electing fund."
A "passive foreign investment company" is any foreign corporation: (i) 75
percent or more of the income of which for the taxable year is passive income,
or (ii) the average percentage of the assets of which (generally by value, but
by adjusted tax basis in certain cases) that produce or are held for the
production of passive income is at least 50 percent. Generally, passive income
for this purpose means dividends, interest (including income equivalent to
interest), royalties, rents, annuities, the excess of gains over losses from
certain property transactions
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<PAGE> 170
and commodities transactions, and foreign currency gains. Passive income for
this purpose does not include rents and royalties received by the foreign
corporation from active business and certain income received from related
persons.
ADDITIONAL CONSIDERATIONS FOR SHAREHOLDERS OF THE CALIFORNIA MONEY FUND,
CALIFORNIA MUNICIPAL FUND AND CALIFORNIA INSURED INTERMEDIATE MUNICIPAL FUND.
If, at the close of each quarter of its taxable year, at least 50% of the value
of the total assets of each of the California Money Fund, California Municipal
Fund and California Insured Intermediate Municipal Fund (The "California Funds")
consist of obligations the interest on which would be exempt from California
personal income tax if the obligations were held by an individual ("California
Tax-Exempt Obligations"), and if each of the California Funds continues to
qualify as a regulated investment company for federal income tax purposes, then
each respective California Fund will be qualified to pay dividends, subject to
certain limitations, to its shareholders that are exempt from California State
personal income tax, but not from California State franchise tax or California
State corporate income tax ("California Exempt-Interest Dividends"). However,
the total amount of California Exempt-Interest Dividends paid by each of the
California Funds to each of the California Fund's non-corporate shareholders
with respect to any taxable year cannot exceed the amount of interest received
by such California Fund during such year on California Tax-Exempt Obligations
less any expenses and expenditures (including any dividends paid to corporate
shareholders) deemed to have been paid from such interest. If the aggregate
dividends exceed the amount that may be treated as California Exempt-Interest
Dividends, only that percentage of each dividend distribution equal to the ratio
of aggregate California Exempt-Interest Dividends to aggregate dividends will be
treated as a California Exempt-Interest Dividend. Dividend distributions that do
not qualify for treatment as California Exempt-Interest Dividends will be
taxable to shareholders at ordinary tax rates for California personal income tax
purposes. In addition, shareholders who receive social security or railroad
retirement benefits should consult their tax advisors to determine what effect,
if any, an investment in one of these Funds may have on the taxation of these
benefits.
FLORIDA TAXES
TAXATION OF FUND SHARES. Florida does not impose an income tax on
individuals. Thus, dividends and distributions paid by the Florida Insured
Municipal Fund to individuals who are residents of Florida are not taxable by
Florida. Florida imposes an income tax on corporations and similar entities at a
rate of 5.5%. Distributions of investment income and capital gains by the
Florida Insured Municipal Fund will be subject to Florida corporate income tax.
Accordingly, investors in the Florida Insured Municipal Fund, including, in
particular, investors that may be subject to the Florida corporate income tax,
should consult their tax advisors with respect to the application of the Florida
corporate income tax to the
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receipt of Fund dividends and distributions and to the investor's Florida tax
situation in general.
Florida imposes a tax on intangible personal property owned by Florida
residents. Shares in the Florida Insured Municipal Fund constitute intangible
personal property for purposes of the Florida intangible personal property tax.
Thus, unless an exemption applies, shares in the Florida Insured Municipal Fund
will be subject to the Florida intangible personal property tax. Florida
provides an exemption for shares in an investment fund if the fund's portfolio
of assets consists solely of assets exempt from the Florida intangible personal
property tax. Assets exempt from Florida intangible personal property tax
include obligations issued by the State of Florida and its political
subdivisions, municipalities, and public authorities; obligations of the United
States Government or its agencies; and cash.
The Florida Insured Municipal Fund has received a ruling from the Florida
Department of Revenue that if, on the last business day of any calendar year,
the Insured Municipal Fund's assets consist solely of assets exempt from the
Florida intangible personal property tax, shares of the Florida Insured
Municipal Fund will be exempt from the Florida intangible personal property tax
in the following year. Based on the ruling, if the Insured Municipal Fund's
assets consist, on the last business day of the calendar year, solely of assets
exempt from the Florida intangible personal property tax, shares of the Florida
Insured Municipal Fund owned by Florida residents will be exempt from the
Florida intangible personal property tax. If shares of the Fund are subject to
the Florida intangible personal property tax because less than 100% of the
Fund's assets on the last business day of the calendar year consists of assets
exempt from the Florida intangible personal property tax, only the portion of
the net asset value of a share of the Florida Insured Municipal Fund that is
attributable to obligations of the United States Government will be exempt from
taxation.
TAXATION OF THE FLORIDA INSURED MUNICIPAL FUND. If the Fund does not have a
taxable nexus to Florida, such as through the location of the Florida Fund's
activities or those of its advisors within the state, under present Florida law,
the Fund is not subject to Florida corporate income taxation. Additionally, if
the Fund's assets do not have a taxable situs in Florida as of January 1 of each
calendar year, the Fund will not be subject to the Florida intangible personal
property tax. If the Fund has a taxable nexus to Florida or the Fund's assets
have a taxable situs in Florida, the Fund will be subject to Florida taxation.
The Florida Insured Municipal Fund intends to operate so as not to be subject to
Florida taxation.
SHAREHOLDER STATEMENTS
Each shareholder will receive after the close of the calendar year an annual
statement and such other written notices as are appropriate as to the federal
income and California State personal income tax status of the shareholder's
dividends and distributions received from the Fund for the prior calendar year.
These statements will also inform shareholders as to the amount of
exempt-interest dividends that is a specific preference item for purposes of the
federal individual and
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corporate alternative minimum taxes and as to the exempt portion, if any, of the
shareholder's shares of the Florida Insured Municipal Fund for purposes of the
Florida State intangible personal property tax for the current tax year.
Shareholders should consult their tax advisers as to any other state and local
taxes that may apply to these dividends and distributions. The dollar amount of
dividends excluded or exempt from federal income taxation or California State
personal income taxation and the dollar amount of dividends subject to federal
income taxation or California State personal income taxation, if any, will vary
for each shareholder depending upon the size and duration of each shareholder's
investment in a Fund. To the extent that the Tax-Exempt Money Market, California
Money, Tax-Exempt Bond, California Municipal, California Insured Intermediate
Municipal or Florida Insured Municipal Funds earns taxable net investment
income, it intends to designate as taxable dividends the same percentage of each
day's dividend (or of each day's taxable net investment income) as its taxable
net investment income bears to its total net investment income earned on that
day. Therefore, the percentage of each day's dividend designated as taxable, if
any, may vary from day to day.
If a shareholder fails to furnish a correct taxpayer identification number,
fails to report fully dividend or interest income, or fails to certify that the
taxpayer identification number is correct and that the shareholder is not
subject to "backup withholding," then the shareholder may be subject to a 31%
"backup withholding" tax with respect to (1) taxable dividends and distributions
and (2) the proceeds of any redemptions of Fund shares. An individual's taxpayer
identification number is his or her social security number. The 31% "backup
withholding" tax is not an additional tax and may be credited against a
taxpayer's regular federal income tax liability.
THE FOREGOING IS ONLY A SUMMARY OF CERTAIN TAX CONSIDERATIONS GENERALLY
AFFECTING A FUND AND ITS SHAREHOLDERS, AND IS NOT INTENDED AS A SUBSTITUTE FOR
CAREFUL TAX PLANNING. SHAREHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS WITH
SPECIFIC REFERENCE TO THEIR OWN TAX SITUATIONS, INCLUDING THEIR STATE AND LOCAL
TAX LIABILITIES.
DISTRIBUTOR
Prior to March 20, 1998, WM Financial Services Inc. (formerly named Sierra
Investment Services Inc.) served as the distributor for WM Trust II. For the
fiscal years ended June 30, 1998, 1997 and 1996, the Distributor and WM
Financial Services Inc. (formerly Sierra Investment Services Corp.) received
distribution fees totaling (after waivers of fees) $1,839,806, $5,278,281 and
$6,430,836, respectively, in the aggregate, from the WM Trust II Funds under the
Class A Plan. For the fiscal period ended October 31, 1998, the Distributor and
WM Financial Services Inc. received distribution fees totaling $4,490,369. For
the same periods, the Distributor and WM Financial Services Inc. received $0,
$13,944, $0 and $0, respectively, representing contingent deferred sales charges
on redemptions of Class A shares of the Funds. In addition, for the fiscal years
ended June 30, 1998, 1997 and 1996, the Distributor and WM Financial Services
Inc. received $180,165, $303,490 and $637,291, respectively, representing
compensation from front-end sales charges on Class A shares of such Funds sold.
For the fiscal period ended October 31, 1998, the Distributor
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and WM Financial Services Inc. received $3,010,621 in front-end sales charges on
Class A shares of such Funds sold. For each fiscal year ended June 30, 1998,
1997 and 1996, and the discount period ended October 31, 1998, the Distributor
and WM Financial Services Inc. voluntarily waived no distribution fees in the
aggregate. During the fiscal year ended June 30, 1998, the Distributor and WM
Financial Services Inc. incurred distribution and operating expenses with
respect to Class A shares of the Funds totaling $2,420,780 consisting of
$426,800 for advertising; $174,267 for marketing promotion; $58,383 for
fulfillment; $1,689,244 in commissions and additional compensation to the
personnel of WM Financial Services Inc. and $72,085 in other expenses. Those
expenses for the fiscal period ended October 31, 1998, amounted to $806,920
consisting of $142,266 for advertising; $54,080 for marketing production;
$19,461 for fulfillment; $563,081 in commissions and additional compensation to
the personnel of WM Fund Services Inc. and $24,032 in other expenses.
WM Financial Services Inc. also served as distributor of Class B and S shares
of the WM Trust II Funds. For the fiscal year ended June 30, 1998, the
Distributor and WM Financial Services Inc. received distribution fees from the
Funds totaling $1,237,250, in the aggregate under the Class B Distribution Plan
and $312,288, in the aggregate under the Class S Distribution Plan. For the
same period, the Distributor and WM Financial Services Inc. received $653,684,
representing CDSCs on redemptions of Class B shares of the Funds and
$1,497,900, representing CDSCs on redemptions of Class S shares of the Funds.
For the fiscal period ended October 31, 1998, the Distributor and WM Financial
Services Inc. received distribution fees from the Funds totaling $3,013,027, in
the aggregate under the Class B Distribution Plan and $262,619, in the
aggregate under the Class S Distribution Plan. For the same period, the
Distributor and WM Financial Services Inc. received $1,183,085, representing
CDSCs on redemptions of Class B shares. For the fiscal year ended June 30, 1998
and the fiscal period ended October 31, 1998, WM Financial Services Inc. did
not waive any distribution fees. The Distributor and WM Financial Services
Inc. paid out all of the distribution related fees they received for each of
the Class B and Class S shares to the financier of the sales commissions paid
on sale of Class B and S shares, respectively.
The Distributor also serves as the distributor for the Portfolios. The
Distributor received $677,720 in total from the Portfolios in connection with
the sales of Class A shares in 1998. For the fiscal period from July 1, 1998
through October 31, 1998, the Distributor received $195,324 in total from the
Portfolios. Such payments totaled $446,143 in 1997.
During the fiscal year ended June 30, 1998, the Distributor incurred
distribution and operating expenses with respect to Class A shares of the
Portfolios totaling $988,175, consisting of $146,319 for advertising; $61,504
for marketing promotion; $6,801 for fulfillment; $742,109 in commissions and
additional compensation to personnel and $31,442 in other expenses. For the
fiscal period from July 1, 1998 through October 31, 1998, the Distributor
incurred distribution
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and operating expenses with respect to Class A shares of the Portfolios totaling
$329,392, consisting of $48,773 for advertising; $20,501 for marketing
promotion; $2,267 for fulfillment; $247,870 in commissions and additional
compensation to personnel and $10,481 in other expenses.
For the same time periods, the Distributor and WM Fund Services, Inc.
received $687,805 in total for contingent deferred sales charge payments for
Class B shares from the Portfolios through June 30, 1998 and $1,128,985 in total
for the fiscal period ended October 31, 1998. The Distributor received $497,858
in total from these same Portfolios for 1997.
The Distributor received $3,312,208 in total from the Portfolios in 1998 in
connection with the sales of Class B shares. Such payments totaled $1,104,413
for the fiscal period ended October 31, 1998 and $1,706,671 in 1997.
WM Funds Distributor, Inc. (formerly Composite Funds Distributor, Inc. and
referred to as the Distributor in this SAI) serves as the distributor for the WM
Trust I Funds. The Money Market and Tax-Exempt Money Market Funds reimbursed the
Distributor $50,492 and $0, respectively, for distribution expenses incurred
during 1997. Of this amount, $28,559 was paid for printing and $21,933 was for
other distribution-related expenses. During 1996 the Money Market and Tax-Exempt
Money Market Funds reimbursed the Distributor $20,720 and $0, respectively and
in 1995 each reimbursed the Distributor $18,754 and $0, respectively.
During 1997, the Money Market and Tax-Exempt Money Market Funds compensated
the Distributor $2,233 and $91, respectively, for the sale of Class B shares.
During 1996, the Money Market and Tax-Exempt Funds compensated the Distributor
$1,270 and $16, respectively, for the sale of Class B shares. During 1995, the
Money Market and Tax-Exempt Portfolios compensated the Distributor $702 and $11,
respectively, for the sale of Class B shares.
During the fiscal year ended December 31, 1997, the Distributor received
contingent deferred sales charge payments of $5,618 and $0 upon redemption of
Class B shares of the Money Market Fund and Tax-Exempt Fund, respectively. For
the fiscal year ended December 31, 1996, the Distributor received contingent
deferred sales charge payments of $5,275 and $0 upon redemption of Class B
shares of the Money Market Fund and Tax-Exempt Money Market Fund, respectively.
No brokerage fees were paid by the Fund to the Distributor during the year, but
the Distributor may act as broker on portfolio purchases and sales should it
become a member of a securities exchange.
The U.S. Government Securities, Income, and Tax-Exempt Bond Funds reimbursed
the Distributor in the amounts of $248,837, $169,132 and $407,707, respectively,
for distribution
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expenses incurred on behalf of Class A shares during the year ended December 31,
1997. Of this amount, $119,084, $77,335 and $200,406 was paid on behalf of the
U.S. Government Securities, Income, and Tax-Exempt Bond Funds, respectively, to
selected dealers and registered representatives of the Distributor for their
shareholder servicing activities, and $129,748, $91,797 and $207,301,
respectively, was paid for other distribution related expenses.
During the fiscal years 1996 and 1995, the U.S. Government Securities Fund
reimbursed the Distributor $218,510 and $343,633, respectively; the Income Fund
reimbursed the Distributor $133,600 and $168,531, respectively; and the
Tax-Exempt Bond Fund reimbursed the Distributor $315,034 and $432,854,
respectively, for distribution expenses related to Class A shares.
During the fiscal years ended December 31, 1997 and 1996, respectively, the
U.S. Government Securities Fund compensated the Distributor in the amounts of
$29,872 and $26,484, respectively; the Income Fund compensated the Distributor
in the amounts of $78,016 and $57,828, respectively, and the Tax-Exempt Bond
Fund compensated the Distributor $66,282 and $40,939, respectively, for the sale
of Class B shares.
During the 1997, 1996 and 1995 fiscal years, the Distributor received
$55,967, $89,694 and $150,970, respectively, for the sale of U.S. Government
Securities Fund Class A shares; $102,701, $156,410 and $209,703, respectively,
for the sale of Income Fund Class A shares; and $195,489, $282,768 and $341,454,
respectively, for the sale of Tax-Exempt Bond Fund Class A shares.
During the fiscal year ended December 31, 1997, the Distributor received
contingent deferred sales charge payments of $8,623, $20,754 and $11,543 upon
redemption of Class B shares of the U.S. Government Securities, Income, and
Tax-Exempt Bond Funds, respectively. No brokerage fees were paid by the Funds to
the Distributor during the year, but the Distributor may act as a broker on
portfolio purchases and sales should it become a member of a securities
exchange.
The Bond & Stock, Growth & Income and Northwest Funds reimbursed the
Distributor in the amounts of $701,288, $563,809 and $537,269, respectively, for
distribution expenses incurred on behalf of Class A shares during fiscal 1997.
Of this amount, $271,656, $205,286 and $210,705 was paid on behalf of the Bond &
Stock, Growth & Income and Northwest Funds to sales personnel of the Distributor
and to selected dealers for their shareholder servicing activities; $30,762,
$57,056 and $46,096, respectively, was paid for printing; and $195,701, $167,292
and $257,705, respectively, was paid for other advertising expenses.
During fiscal years 1996 and 1995, the Bond & Stock Fund reimbursed the
Distributor $394,279 and $356,379, respectively; the Growth & Income Fund
reimbursed the Distributor $265,579 and $203,566, respectively; and Northwest
reimbursed the Distributor $360,642 and $279,851, respectively, for distribution
expenses related to Class A shares.
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During fiscal years 1997, 1996 and 1995, the Bond & Stock Fund compensated
the Distributor in the amounts of $334,855, $148,688 and $46,435, respectively;
the Growth & Income Fund compensated the Distributor $365,290, $151,222 and
$49,988, respectively; and the Northwest Fund compensated the Distributor
$247,630, $106,606 and $49,126, respectively, for distribution expenses related
to Class B shares.
During the 1997, 1996 and 1995 fiscal years, the Distributor received
$885,598, $1,064,004 and $471,479, respectively, for the sale of Bond & Stock
Class A shares. The Distributor retained $710,403, $1,047,926 and $471,455,
respectively, for the same time periods, with the balance paid to dealers for
their sales of Bond & Stock Class A shares.
During the 1997, 1996 and 1995 fiscal years, the Distributor received
$825,142, $586,437 and $384,766, respectively, for the sale of Growth & Income
Class A shares. The Distributor retained $666,246, $563,398 and $384,647,
respectively, for the same time periods, with the balance paid to dealers for
their sales of Growth & Income Class A shares.
During the fiscal years 1997, 1996 and 1995 the Distributor received
$799,120, $517,022 and $348,729, respectively, for the sale of Northwest Class A
shares. The Distributor retained $551,530, $465,694 and $337,189, respectively,
for the same time periods, with the balance paid to dealers for their sales of
Northwest Class A shares.
During the fiscal year ended October 31, 1997, the Distributor received
contingent deferred sales charge payments of $63,218, $63,310 and $37,195 upon
redemption of Class B shares of Bond & Stock, Growth & Income, and Northwest,
respectively. No brokerage fees were paid by the Funds to the Distributor during
the year, but the Distributor may act as a broker on portfolio purchases and
sales should it become a member of a securities exchange.
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APPENDIX
DESCRIPTION OF BOND, NOTES AND COMMERCIAL PAPER RATINGS
DESCRIPTION OF S&P CORPORATE BOND RATINGS
AAA: Bonds rated AAA have the highest rating assigned by S&P to a debt
obligation. Capacity to pay interest and repay principal is extremely strong.
AA: Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A: Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS
Aaa: Bonds which are rated Aaa are judged to be the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as for Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Moody's applies the numerical modifiers 1, 2 and 3 to each generic rating
classification from Aa through B. The modifier 1 indicates that the issue ranks
in the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.
DESCRIPTION OF DUFF & PHELPS' CORPORATE BOND RATINGS
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Bonds rated AAA by Duff & Phelps are judged by Duff & Phelps to be of the
highest credit quality, with negligible risk factors being only slightly more
than for risk-free U.S. Treasury debt. Bonds rated AA by Duff & Phelps are
judged by Duff & Phelps to be of high credit quality with strong protection
factors and risk that is modest but that may vary slightly from time to time
because of economic conditions. Bonds rated A by Duff & Phelps are judged by
Duff & Phelps to have average but adequate protection factors. However, risk
factors are more variable and greater in periods of economic stress. Bonds rated
BBB by Duff & Phelps are judged by Duff & Phelps as having below average
protection factors but still considered sufficient for prudent investment, with
considerable variability in risk during economic cycles.
DESCRIPTION OF FITCH'S CORPORATE BOND RATINGS
Bonds rated AAA by Fitch are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events. Bonds rated AA by Fitch are considered to be investment
grade and of very high credit quality. The obligor's ability to pay interest and
repay principal is very strong, although not quite as strong as bonds rated AAA.
Bonds rated A by Fitch are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is considered
to be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings. Bonds rated BBB by
Fitch are considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
DESCRIPTION OF S&P MUNICIPAL BOND RATINGS
AAA - PRIME - These bonds have the highest rating assigned by S&P. Capacity
to pay interest and repay principal is extremely strong.
GENERAL OBLIGATION BONDS - In a period of economic stress, the issuers will
suffer the smallest declines in income and will be least susceptible to
autonomous decline. Debt burden is moderate. A strong revenue structure appears
more than adequate to meet future expenditure requirements.
Quality of management appears superior.
REVENUE BONDS - Debt service coverage has been, and is expected to remain,
substantial. Stability of the pledged revenues is also exceptionally strong due
to the competitive position of the municipal enterprise or to the nature of the
revenues. Basic security provisions (including rate covenant, earnings test for
issuance of additional bonds, debt service reserve requirements) are rigorous.
There is evidence of superior management.
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AA - HIGH GRADE - Bonds in this group have a very strong capacity to pay
interest and repay principal and differ from the highest rated debt only in
small degree.
A - GOOD GRADE - Bonds in this category have a strong capacity to pay
interest and repay principal, although they are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than bonds
in higher rated categories. Regarding municipal bonds, the rating differs from
the two higher ratings because:
GENERAL OBLIGATION BONDS - There is some weakness, either in the local
economic base, in debt burden, in the balance between revenues and expenditures
or in quality of management. Under certain adverse circumstances, any one such
weakness might impair the ability of the issuer to meet debt obligations at some
future date.
REVENUE BONDS - Debt service coverage is good, but not exceptional. Stability
of the pledged revenues could show some variations because of increased
competition or economic influences on revenues. Basic security provisions, while
satisfactory, are less stringent. Management performance appears adequate.
BBB - MEDIUM GRADE - Bonds in this group are regarded as having an adequate
capacity to pay interest and repay principal. Whereas they normally exhibit
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for bonds in this category than for bonds in higher rated
categories.
GENERAL OBLIGATION BONDS - Under certain adverse conditions, several of the
above factors could contribute to a lesser capacity for payment of debt service.
The difference between A and BBB ratings is that the latter shows more than one
fundamental weakness, or one very substantial fundamental weakness, whereas the
former shows only one deficiency among the factors considered.
REVENUE BONDS - Debt coverage is only fair. Stability of the pledged revenues
could show substantial variations, with the revenue flow possibly being subject
to erosion over time. Basic security provisions are no more than adequate.
Management performance could be stronger.
BB, B, CCC, CC AND C - Bonds rated BB, B, CCC, CC and C are regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the least degree of speculation and C the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposure to adverse
conditions.
D - Bonds rated D are in default, or the obligor has filed for bankruptcy.
The D rating is issued when interest or principal payments are not made on the
date due, even if the applicable grace
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period has not expired, unless S&P believes that such payments will be made
during such grace period.
S&P's letter ratings may be modified by the addition of a plus or a minus
sign, which is used to show relative standing within the major rating
categories, except in the AAA-Prime Grade category.
DESCRIPTION OF S&P MUNICIPAL NOTE RATINGS
Municipal notes with maturities of three years or less are usually given note
ratings (designated SP-1, -2 or -3) to distinguish more clearly the credit
quality of notes as compared to bonds. Notes rated SP-1 have a strong capacity
to pay principal and interest. Those issues determined to possess a very strong
capacity to pay debt service are given the designation of SP-1+. Notes rated
SP-2 have a satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.
DESCRIPTION OF MOODY'S MUNICIPAL BOND RATINGS
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities, or fluctuation of
protective elements may be of greater amplitude, or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very
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moderate and thereby not well safeguarded during both good and bad times over
the future. Uncertainty of position characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Moody's applies the numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B. The modifier 1 indicates that the security
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates that the issuer ranks in the
lower end of its generic rating category.
DESCRIPTION OF MOODY'S MUNICIPAL NOTE RATINGS
Moody's ratings for state and municipal notes and other short-term loans are
designated Moody's Investment Grade (MIG) and for variable rate demand
obligations are designated Variable Moody's Investment Grade (VMIG). This
distinction recognizes the differences between short-term credit risk and
long-term risk. Loans bearing the designation MIG 1/VMIG 1 are of the best
quality, enjoying strong protection from established cash flows of funds for
their servicing, from superior liquidity support, or from established and
broad-based access to the market for refinancing, or both. Loans bearing the
designation of MIG 2/VMIG 2 are of high quality, with margins of protection
ample, although not as large as the preceding group. Loans bearing the
designation MIG 3/VMIG 3 are of favorable quality, with all security elements
accounted for but lacking the undeniable strength of the preceding grades.
Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established. Loans bearing the designation
MIG 4/VMIG 4 are of adequate quality. Protection commonly regarded as required
of an investment security is present and although not distinctly or
predominantly speculative, there is specific risk.
DESCRIPTION OF S&P COMMERCIAL PAPER RATINGS
Commercial paper rated A-1 by S&P indicates that the degree of safety
regarding timely payments is strong. Those issues determined to possess
extremely strong safety characteristics are denoted A-1+. Capacity for timely
payment on commercial paper rated A-2 is satisfactory, but the relative degree
of safety is not as high as for issues designated A-1.
DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated Prime-1 (or related supporting institutions) are
considered to have a superior capacity for repayment of short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the characteristics of
issuers rated Prime-
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1 but to a lesser degree. Earnings trends and coverage ratios, while sound, will
be more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternative
liquidity is maintained.
DESCRIPTION OF DUFF'S COMMERCIAL PAPER RATINGS
Paper rated Duff-1 is regarded as having very high certainty of timely
payment with excellent liquidity factors which are supported by good fundamental
protection factors. Risk factors are minor. Ratings of Duff-1 are further
refined by the gradations of "1+" and "1-". Issues rated Duff-1+ have the
highest certainty of timely payment, outstanding short term liquidity, and
safety just below risk-free U.S. Treasury short-term obligations. Issues rated
Duff- 1- have high certainty of timely payment, strong liquidity factors
supported by good fundamental protection factors, and small risk factors. Paper
rated Duff-2 is regarded as having good certainty of timely payment, good access
to capital markets and sound liquidity factors and company fundamentals. Risk
factors are small.
DESCRIPTION OF FITCH'S COMMERCIAL PAPER RATINGS
The rating F-1+ (Exceptionally Strong Credit Quality) is the highest
commercial rating assigned by Fitch and is assigned to issues regarded as having
the strongest degree of assurance for timely payment. Paper rated F-1 (Very
Strong Credit Quality) is regarded as having an assurance of timely payment only
slightly less in degree than issues rated F-1+. The rating F-2 (Good Credit
Quality) reflects an assurance of timely payment, but the margin of safety is
not as great as for issues assigned F-1+ or F-1 ratings.
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WM TRUST I
WM TRUST II
WM STRATEGIC ASSET MANAGEMENT PORTFOLIOS, LLC
FORM N-1A
PART C
OTHER INFORMATION
Item 23. Exhibits
(a) Charter
(1) WM Trust I
(A) Form of Amended and Restated Agreement and Declaration
of Trust dated as of September 19, 1997 -- incorporated
by reference to Post-Effective Amendment ("PEA") No. 67
to the Registrant's Registration Statement, filed with
the SEC on March 27, 1998.
(B) Amendment No. 1 to Amended and Restated Agreement and
Declaration of Trust dated March 20, 1998 --incorporated
by reference to PEA No. 74 to the Registrant's
Registration Statement.
(C) Amendment No. 2 to Amended and Restated Agreement and
Declaration of Trust dated March 20, 1998 is
incorporated by reference to PEA No. 74 to the
Registrant's Registration Statement.
(2) WM Trust II
(A) Master Trust Agreement of the Registrant dated February
22, 1989 -- incorporated by reference to PEA No. 26 to
the Registrant's Registration Statement, filed with the
SEC on August 28, 1997.
(B) Amendment No. 1 to Master Trust Agreement, dated May 10,
1989 -- incorporated by reference to PEA No. 26 to the
Registrant's Registration Statement.
(C) Amendment No. 2 to Master Trust Agreement, dated May 22,
1989 -- incorporated by reference to PEA No. 26 to the
Registrant's Registration Statement.
<PAGE> 184
(D) Amendment No. 3 to Master Trust Agreement, dated May 24,
1989 -- incorporated by reference to PEA No. 26 to the
Registrant's Registration Statement.
(E) Amendment No. 4 to Master Trust Agreement, dated May 7,
1990 -- incorporated by reference to PEA No. 26 to the
Registrant's Registration Statement.
(F) Amendment No. 5 to Master Trust Agreement, dated
December 4, 1991 -- incorporated by reference to PEA No.
26 to the Registrant's Registration Statement.
(G) Amendment No. 6 to Master Trust Agreement, dated January
30, 1992 -- incorporated by reference to PEA No. 26 to
the Registrant's Registration Statement.
(H) Amendment No. 7 to Master Trust Agreement, dated
September 12, 1992 -- incorporated by reference to PEA
No. 26 to the Registrant's Registration Statement.
(I) Amendment No. 8 to Master Trust Agreement, dated
September 22, 1993 -- incorporated by reference to PEA
No. 26 to the Registrant's Registration Statement.
(J) Amendment No. 9 to Master Trust Agreement, dated March
13, 1994 -- incorporated by reference to PEA No. 26 to
the Registrant's Registration Statement.
(K) Amendment No. 10 to Master Trust Agreement, dated
January 20, 1995 -- incorporated by reference to PEA No.
26 to the Registrant's Registration Statement.
(L) Amendment No. 11 to Master Trust Agreement, dated July
19, 1996 -- incorporated by reference to PEA No. 28 to
the Registrant's Registration Statement, filed with the
SEC on March 27, 1998.
(M) Amendment No. 12 to Master Trust Agreement, dated March
20, 1998 -- incorporated by reference to PEA No. 28 to
the Registrant's Registration Statement.
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(3) WM Strategic Asset Management Portfolios, LLC - LLC Operating
Agreement, dated March 12, 1999.
(b) Bylaws
(1) WM Trust I - incorporated by reference to PEA No. 67 to the
Registrant's Registration Statement.
(2) WM Trust II - incorporated by reference to PEA No. 26 to the
Registrant's Registration Statement.
(3) WM Strategic Asset Management Portfolios, LLC.
(c) Instruments defining the Rights of Shareholders See (a) and (b)
above.
(d) Investment Advisory Contracts
(1) WM Trust I - Investment Management Agreement dated March 20,
1998, as amended as of January 1, 1999 - incorporated by
reference to PEA No. 76 of the Registrant's Registration
Statement.
(2) WM Trust II
(A) Investment Management Agreement dated January 30, 1998
with respect to the Short Term High Quality Bond,
California Money and Target Maturity 2002 Funds --
incorporated by reference to PEA No. 28 to the
Registrant's Registration Statement.
(B) Investment Management Agreement dated March 20, 1998
with respect to the Growth, Emerging Growth,
International Growth, California Municipal, California
Insured Intermediate Municipal and Florida Insured
Municipal Funds, as amended as of January 1, 1999.
Incorporated by reference to PEA No. 31 to the
Registrant's Registration Statement.
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<PAGE> 186
(C) Investment Sub-Advisory Agreement dated March 20, 1998
with respect to the California Municipal and California
Insured Intermediate Municipal Funds --incorporated by
reference to PEA No. 28 to the Registrant's Registration
Statement.
(3) WM Strategic Asset Management Portfolios, LLC - Investment
Management Agreement dated _________ __, 1999.
(e) Underwriting Contracts.
(1) WM Trust I
(A) Distribution Contract dated March 20, 1998
--incorporated by reference to PEA No. 74 to the
Registrant's Registration Statement.
(B) Form of Selected Dealer Agreement -- incorporated by
reference to PEA No. 67 to the Registrant's Registration
Statement.
(2) WM Trust II - Distribution Agreement dated March 20, 1998 --
incorporated by reference to PEA No. 28 to the Registrant's
Registration Statement.
(3) WM Strategic Asset Management Portfolios, LLC - Distribution
Contract dated _________ __, 1999.
(f) Bonus or Profit Sharing Plans Not Applicable.
(g) Custodian Agreements
(1) WM Trust I - Custody Agreement dated March 20, 1998 --
incorporated by reference to PEA No. 74 to the Registrant's
Registration Statement.
(2) WM Trust II - Custody Agreement dated March 20, 1998
--incorporated by reference to PEA No. 28 to the Registrant's
Registration Statement.
(3) WM Strategic Asset Management Portfolios, LLC - Delegation,
Custody and Information Services Agreement dated _________
__, 1999.
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<PAGE> 187
(h) Other Material Contracts
(1) WM Trust I -
(A) Shareholders Service Contract -- incorporated by
reference to PEA No. 67 to the Registrant's Registration
Statement.
(B) Transfer Agent Contract dated March 20, 1998
--incorporated by reference to PEA No. 74 to the
Registrant's Registration Statement.
(2) WM Trust II - Transfer Agency Agreement dated March 20, 1998
-- incorporated by reference to PEA No. 28 to the Registrant's
Registration Statement.
(3) WM Strategic Asset Management Portfolios, LLC
(a) Administration Agreement dated _________ __, 1999.
(b) Transfer Agent Agreement dated _________ __, 1999.
(i) Legal Opinion
(1) WM Trust I - Opinion and Consent of Counsel --incorporated by
reference to PEA No. 74 to the Registrant's Registration
Statement.
(2) WM Trust II - Consent and Opinion of Counsel dated June 20,
1998 -- incorporated by reference to PEA No. 26 to the
Registrant's Registration Statement.
(3) WM Strategic Asset Management Portfolios, LLC - Form of
Opinion and Consent of Counsel dated _________ __, 1999.
(j) Other Opinions
(1) WM Trust I
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<PAGE> 188
(A) Consent of Deloitte & Touche LLP
(B) Consent of LeMaster & Daniels LLC
(2) WM Trust II
(A) Consent of Deloitte & Touche LLP
(B) Consent of PricewaterhouseCoopers LLP
(3) WM Strategic Asset Management Portfolios, LLC
(A) Consent of Deloitte & Touche LLP
(B) Consent of PricewaterhouseCoopers LLP
(k) Omitted Financial Statements Not Applicable.
(l) Initial Capital Agreements
(1) WM Trust I - Not applicable.
(2) WM Trust II - Not applicable.
(3) WM Strategic Asset Management Portfolios, LLC - Not
applicable.
(m) 12b-1 Plan
(1) WM Trust I (B)
(A) Class A Distribution Plan dated March 20, 1998
--incorporated by reference to PEA No. 74 to the
Registrant's Registration Statement.
(B) Class B Distribution Plan dated March 24, 1998
--incorporated by reference to PEA No. 74 to the
Registrant's Registration Statement.
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<PAGE> 189
(C) Class S Distribution Plan dated March 24, 1998
--incorporated by reference to PEA No. 74 to the
Registrant's Registration Statement.
(2) WM Trust II
(A) Class A Distribution Plan, dated July 7, 1989 and
amended July 1, 1995 -- incorporated by reference to PEA
No. 24 to the Registrant's Registration Statement filed
with the SEC on October 30, 1996.
(B) Class B Distribution Plan, dated March 24, 1998
--incorporated by reference to PEA No. 28 to the
Registrant's Registration Statement.
(C) Class S Distribution Plan, dated March 24, 1998
--incorporated by reference to PEA No. 28 to the
Registrant's Registration Statement.
(3) WM Strategic Asset Management Portfolios, LLC
(A) Class A Distribution Plan, dated ______ __, 1999
(B) Class B Distribution Plan, dated ______ __, 1999
(n) Financial Data Schedules for the year ended October 31, 1998 --
incorporated by reference to PEA No. 7 to the Registrant's
Registration Statement, filed with the SEC on February 26, 1999.
(o) Rule 18f-3 Plan
(1) WM Trust I - Rule 18f-3 Multiple Class Plan --incorporated by
reference to Pre-Effective Amendment No. 1 to the Registrant's
Registration Statement, filed with the SEC on June 21, 1996.
(2) WM Trust II - Rule 18f-3 Multiple Class Plan dated June 13,
1995 -- incorporated by reference to PEA No. 27 to the
Registrant's Registration Statement, filed with the SEC on
October 30, 1997.
(3) WM Strategic Asset Management Portfolios, LLC - Rule 18f-3
Multiple Class Plan dated ______ __, 1999
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<PAGE> 190
Item 24. Persons Controlled by or Under Common Control with Registrant.
Not applicable.
Item 25. Indemnification.
(a) WM Trust I - Reference is made to Article VIII, Section 1 of the
Amended and Restated Agreement and Declaration of Trust (the "Agreement and
Declaration of Trust") of the Registrant.
Insofar as indemnification for liability arising under the
Securities Act of 1933, as amended (the "1933 Act"), may be permitted to
Trustees, officers and controlling persons of Registrant pursuant to the
foregoing provisions, or otherwise, Registrant has been advised that, in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the 1933 Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by Registrant of expenses incurred or paid
by a Trustee, officer or controlling person of Registrant in the successful
defense of any action, suit or proceeding) is asserted by such Trustee, officer
or controlling person in connection with the securities being registered,
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the 1933 Act and will be governed by the final adjudication of such
issue.
(b) WM Trust II - Under Section 6.4 of Registrant's Master Trust
Agreement, as amended, any past or present Trustee or officer of Registrant
(including persons who serve at Registrant's request as directors, officers or
trustees of another organization in which Registrant has any interest as a
shareholder, creditor or otherwise (hereinafter referred to as a "Covered
Person"), is indemnified to the fullest extent permitted by law against
liability and all expenses reasonably incurred by him with any action, suit or
proceeding to which he may be a party or otherwise involved by reason of his
being or having been a Covered Person. This provision does not authorize
indemnification when it is determined, in the manner specified in the Master
Trust Agreement, that a Covered Person has not acted in good faith in the
reasonable belief that his actions were in or not opposed to the best interests
of Registrant. Moreover, this provision does not authorize indemnification when
it is determined, in the manner specified in the Master Trust Agreement, that
the Covered Person would otherwise be liable to Registrant or its shareholders
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of his duties. Expenses may be paid by Registrant in advance
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<PAGE> 191
of the final disposition of any action, suit or proceeding upon receipt of an
undertaking by a Covered Person to repay those expenses to Registrant in the
event that it is ultimately determined that indemnification of the expenses is
not authorized under the Master Trust Agreement and the Covered Person either
provides security for such undertaking or insures Registrant against losses from
such advances or the disinterested Trustees or independent legal counsel
determines, in the manner specified in the Master Trust Agreement, that there is
reason to believe the Covered Person will be found to be entitled to
indemnification.
Insofar as indemnification for liability arising under the
Securities Act of 1933, as amended (the "1933 Act"), may be permitted to
Trustees, officers and controlling persons of Registrant pursuant to the
foregoing provisions, or otherwise, Registrant has been advised that, in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the 1933 Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by Registrant of expenses incurred or paid
by a Trustee, officer or controlling person of Registrant in the successful
defense of any action, suit or proceeding) is asserted by such Trustee, officer
or controlling person in connection with the securities being registered,
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the 1933 Act and will be governed by the final adjudication of such
issue.
(c) WM Strategic Asset Management Portfolios, LLC - Under Article 8,
Section 1 of Registrant's Limited Liability Company Agreement (the "LLC
Agreement"), any past or present Trustee or officer of Registrant, including
persons who serve at Registrant's request as directors, officers or trustees of
another organization in which Registrant has any interest as a shareholder,
creditor or otherwise (hereinafter referred to as a "Covered Person"), is
indemnified to the fullest extent permitted by law against liability and all
expenses reasonably incurred by him in connection with any action, suit or
proceeding to which he may be a party or otherwise involved by reason of his
being or having been a Covered Person. This provision does not authorize
indemnification when it is determined, in the manner specified in the LLC
Agreement, that a Covered Person has not acted in good faith in the reasonable
belief that his actions were in or not opposed to the best interests of
Registrant. Moreover, this provision does not authorize indemnification when it
is determined, in the manner specified in the LLC Agreement, that the Covered
Person would otherwise be liable to Registrant or its shareholders by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of his
duties. Expenses may be paid by Registrant in advance of the final disposition
of any action, suit or proceeding upon receipt of an undertaking by a Covered
Person to repay those expenses to Registrant in the event that it is ultimately
determined that indemnification of the expenses is not authorized under the LLC
Agreement and the Covered Person either provides security for such undertaking
or insures Registrant against losses from such advances or the disinterested
Trustees or independent legal counsel determines, in the manner specified in the
LLC Agreement, that there is reason to believe the Covered Person will be found
to be entitled to indemnification.
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<PAGE> 192
Insofar as indemnification for liability arising under the
Securities Act of 1933, as amended (the "1933 Act"), may be permitted to
Trustees, officers and controlling persons of Registrant pursuant to the
foregoing provisions, or otherwise, Registrant has been advised that, in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the 1933 Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by Registrant of expenses incurred or paid
by a Trustee, officer or controlling person of Registrant in the successful
defense of any action, suit or proceeding) is asserted by such Trustee, officer
or controlling person in connection with the securities being registered,
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the 1933 Act and will be governed by the final adjudication of such
issue.
Item 26. Business and Other Connections of Investment Advisor.
(a) WM Advisors, Inc.
Directors Past Two Fiscal Years
- --------- ---------------------
Monte D. Calvin WM Shareholder Services, Inc.
First Vice President, Director 601 West Main Ave., Suite 300, Spokane, WA 98201
Treasurer, Director April 1997 - present
WM Advisors, Inc.
1201 Third Ave., 22nd Floor, Seattle, WA 98101
Vice President, Treasurer July 1997 - present
Director WM Funds Distributor, Inc.
601 West Main Ave., Suite 300, Spokane, WA 98201
Craig S. Davis July 1997 - present
Director WM Funds Distributor, Inc.
601 West Main Ave., Suite 300, Spokane, WA 98201
Director WM Shareholder Services, Inc.
601 West Main Ave., Suite 300, Spokane, WA 98201
Director April 1997 - present
WM Advisors, Inc.
1201 Third Ave., 22nd Floor, Seattle, WA 98101
Executive Vice President December - present
Washington Mutual, Inc.
1201 Third Ave., Seattle, WA 98101
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<PAGE> 193
Chairman January 1996 - July 1997
ASB Financial Services, Irvine, CA
J. Pamela Dawson July 1997 - present
Director WM Funds Distributor, Inc.
601 West Main Ave., Suite 300, Spokane, WA 98201
Director WM Shareholder Services, Inc.
601 West Main Ave., Suite 300, Spokane, WA 98201
Director April 1997 - present
WM Advisors, Inc.
1201 Third Ave., 22nd Floor, Seattle, WA 98101
President March 1997 - present
WM Financial Services
1201 Third Ave., 7th Floor, Seattle, WA 98101
President December 1996 - July 1997
ASB Financial Services, Irvine, CA
Senior Vice President/Regional November 1996 - December 1996
Manager Wells Fargo Securities/First Interstate,
Houston, TX
Kerry K. Killinger WM Advisors, Inc.
Director 1201 Third Ave., 22nd Floor, Seattle, WA 98101
CEO, Chairman, Director Washington Mutual Bank
1201 Third Avenue, Seattle, WA 98101
Director July 1997 - present
WM Funds Distributor, Inc.
601 West Main Ave., Suite 300, Spokane, WA 98201
Director WM Shareholder Services, Inc.
601 West Main Ave., Suite 300, Spokane, WA 98201
Randall L. Yoakum WM Advisors, Inc.
Chairman of Investment 1201 Third Ave., 22nd Floor, Seattle, WA 98101
Committee
Sharon L. Howells WM Advisors, Inc.
First Vice President, 1201 Third Ave., 22nd Floor, Seattle, WA 98101
Corporate Secretary
-11-
<PAGE> 194
Vice President, July 1997 - present
Corporate Secretary WM Funds Distributor, Inc.
601 West Main Ave., Suite 300, Spokane, WA 98201
Corporate Secretary WM Shareholder Services, Inc.
601 West Main Ave., Suite 300, Spokane, WA 98201
Jeffrey D. Huffman WM Advisors, Inc.
Vice President 1201 Third Ave., 22nd Floor, Seattle, WA 98101
B. Joel King March 1998 - present
Vice President WM Advisors, Inc.
1201 Third Ave., 22nd Floor, Seattle, WA 98101
Vice President January 1996 - February 1998
Bennington Capital Management
1420 Fifth Ave., Seattle, WA 98101
William G. Papesh WM Advisors, Inc.
President, Director 1201 Third Ave., 22nd Floor, Seattle, WA 98101
President, Director WM Shareholder Services, Inc.
601 West Main Ave., Suite 300, Spokane, WA 98201
Director WM Insurance Services
1201 Third Ave., Seattle, WA 98101
President, Director WM Group of Funds
601 West Main Ave., Suite 300, Spokane, WA 98201
President, Director July 1997 - present
WM Funds Distributor, Inc.
601 West Main Ave., Suite 300, Spokane, WA 98201
Brian L. Placzek WM Advisors, Inc.
Vice President 1201 Third Ave., 22nd Floor, Seattle, WA 98101
Gary J. Pokrzywinski WM Advisors, Inc.
Vice President 1201 Third Ave., 22nd Floor, Seattle, WA 98101
Audrey S. Quaye February 1996 - present
Vice President WM Advisors, Inc.
1201 Third Ave., 22nd Floor, Seattle, WA 98101
Credit Analyst January 1996 - February 1996
Tandem Computers, Cupertino, CA
-12-
<PAGE> 195
Stephen C. Scott March 1998 - present
Vice President WM Advisors, Inc.
1201 Third Ave., 22nd Floor, Seattle, WA 98101
Senior Investment Advisor Sierra Investment Services Corporation
9301 Corbin Ave., Northridge, CA 91324
President Sierra Investment Services Corporation
9301 Corbin Ave., Northridge, CA 91324
David W. Simpson WM Advisors, Inc.
Vice President 1201 Third Ave., 22nd Floor, Seattle, WA 98101
Linda C. Walk December 1997 - present
Vice President WM Advisors, Inc.
1201 Third Ave., 22nd Floor, Seattle, WA 98101
November 1996 - November 1997
Laid Norton Trust Company
Norton Building, Suite 1600, Seattle, WA 98104
January 1996 - July 1996
Ernst & Young LLP
2001 Market Street, 41st Floor, Philadelphia,
PA 19103
(b) Van Kampen Management, Inc.
Van Kampen Management, Inc. ("Van Kampen"), is a wholly-owned
subsidiary of VK/AC Holding, Inc. VK/AC Holding, Inc. is a wholly-owned
subsidiary of Morgan Stanley, Dean Witter, Discover & Co. Van Kampen
provides investment advice to a wide variety of individual, institutional
and investment company clients.
The list required by this Item 28 of officers and directors of Van
Kampen, together with information as to any other business, profession, vocation
of employment of a substantial nature engaged in by such officers and directors
during the past two years, is incorporated by reference to Schedules A and D of
Form ADV filed by Van Kampen pursuant to the Advisers Act (SEC File No.
801-40808).
(c) Janus Capital Corporation
Janus Capital Corporation ("Janus") is an investment advisor
registered under the Advisers Act, and acts as investment advisor for registered
investment companies, foreign investment companies and for individual,
charitable, corporate and retirement accounts. Janus,
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<PAGE> 196
and its affiliates, provide a variety of trust, investment management and
investment advisory services.
The list required by this Item 28 of officers and directors of
Janus, together with information as to any other business, profession, vocation
or employment of a substantial nature engaged in by such officers and directors
during the past two years, is incorporated by reference to Schedules A and D of
Form ADV, filed by Janus pursuant to the Advisers Act (SEC File No. 801-13991).
(d) Warburg, Pincus Asset Management, Inc.
Warburg, Pincus Asset Management, Inc. ("Warburg") is an investment
advisor registered under the Advisers Act, and acts as investment advisor for
registered investment companies and foreign investment companies. Warburg
provides investment services to investment endowment funds, foundations and
other institutions and individuals.
The list required by this Item 28 of officers and directors of
Warburg, together with information as to any other business, profession,
vocation or employment of a substantial nature engaged in by such officers and
directors during the past two years, is incorporated by reference to Schedules A
and D of Form ADV, filed by Warburg, pursuant to the Advisers Act (SEC File No.
801-07321).
Item 27. Principal Underwriters.
(a) The principal underwriter for each Registrant is WM Funds
Distributor, Inc.
(b) The Directors and Officers of WM Funds Distributor, Inc., their
positions with WM Funds Distributor, Inc. and the WM Group of Funds
are set forth in the table below. The principal business address of
WM Funds Distributor, Inc. and each of its directors and officers is
1201 Third Avenue, 22nd Floor, Seattle, Washington 98101.
Name and Position And Positions And
Principal Business Offices With Offices With
Address Underwriter Registrant
------- ----------- ----------
William G. Papesh President President
Sandra A. Cavanaugh First Vice President Senior Vice President
Monte D. Calvin Vice President, Chief Financial Officer,
Treasurer Senior Vice President
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<PAGE> 197
Sharon L. Howells Vice President, Senior Vice President
Corporate Secretary
(c) Not applicable.
Item 28. Location of Accounts and Records.
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the rules thereunder
will be maintained at the offices of the Registrants, at 1201 Third Avenue,
22nd Floor, Seattle, WA 98101, the offices of the Registrants' custodian, Boston
Safe Deposit and Trust Company, One Boston Place, Boston, MA 02108 and the
offices of the Registrants' sub-advisors, Van Kampen Management, Inc., One
Parkview Plaza, Oakbrook Terrace, Illinois 60181, Janus Capital Corporation, 100
Fillmore Street, Suite 300, Denver, Colorado 80206, and Warburg Pincus Asset
Management, Inc., 466 Lexington Avenue, New York, New York 10017-3147.
Item 29. Management Services.
None of the Registrants is a party to any management related contract,
other than as set forth in the Prospectus.
Item 30. Undertakings.
(a) Each Registrant undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders upon request and without charge.
(b) Each of the Registrants has undertaken to call a meeting of its
shareholders for the purpose of voting upon the question of removal
of a trustee or trustees of the Registrant when requested to do so
by the holders of at least 10% of the Registrant's outstanding
shares. Each Registrant has undertaken further, in connection with
the meeting, to comply with the provisions of Section 16(c) of the
Investment Company Act of 1940, as amended, relating to
communications with the shareholders of certain common-law trusts.
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<PAGE> 198
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of Seattle in the State of Washington on
the 30th day of April, 1999.
WM STRATEGIC ASSET
MANAGEMENT PORTFOLIOS, LLC
WILLIAM G. PAPESH
------------------------------------
WILLIAM G. PAPESH, PRESIDENT
Pursuant to the requirement of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the date indicated.
Signature Title Date
--------- ----- ----
WILLIAM G. PAPESH President (Principal April 30, 1999
William G. Papesh Executive Officer) and
Trustee
/s/ MONTE D. CALVIN Chief Financial Officer April 30, 1999
Monte D. Calvin (Principal Financial and
Accounting Officer
<PAGE> 199
Exhibit Index
(a)(3) WM Strategic Asset Management, LLC--LLC Operating Agreement
(b)(3) WM Strategic Asset Management, LLC--By-laws
(d)(3) WM Strategic Asset Management, LLC--Investment Management Agreement
(e)(3) WM Strategic Asset Management, LLC--Distribution Contract
(g)(3) WM Strategic Asset Management, LLC--Delegation, Custody and
Information Services Agreement
(h)(3)(A) WM Strategic Asset Management, LLC--Administration Agreement
(h)(3)(B) WM Strategic Asset Management, LLC--Transfer Agent Agreement
(i)(3) Opinion and Consent of Counsel
(j)(3)(A) Consent of Deloitte & Touche LLP
(j)(3)(B) Consent of PricewaterhouseCoopers LLP
(m)(3)(A) WM Strategic Asset Management, LLC--Class A Distribution Plan
(m)(3)(B) WM Strategic Asset Management, LLC--Class B Distribution Plan
(o)(3) WM Strategic Asset Management, LLC--18f-3 Multiple Class Plan
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<PAGE> 1
Exhibit (a)(3)
WM STRATEGIC ASSET MANAGEMENT PORTFOLIOS, LLC
LIMITED LIABILITY COMPANY AGREEMENT
March 12, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I
Name and Definitions.....................................................................................1
Section 1. Name................................................................................1
Section 2. Definitions.........................................................................1
ARTICLE II
Formation and Purpose of Company.........................................................................2
Section 1. Formation...........................................................................2
Section 2. Purpose.............................................................................3
Section 3. Registered Office/Agent.............................................................3
Section 4. Certificate.........................................................................3
ARTICLE III
Shares...................................................................................................3
Section 1. Division of Beneficial Interest.....................................................3
Section 2. Ownership of Shares.................................................................4
Section 3. Investments in the Company..........................................................4
Section 4. Status of Shares and Limitation of Personal Liability...............................4
Section 5. Power of Trustees to Change Provisions Relating to Shares...........................4
Section 6. Establishment and Designation of Series.............................................6
Section 7. No Preemptive Rights................................................................8
Section 8. Derivative Claims...................................................................8
ARTICLE IV
The Trustees.............................................................................................8
Section 1. Election and Tenure.................................................................8
Section 2. Powers..............................................................................9
Section 3. Payment of Expenses by the Company.................................................11
Section 4. Payment of Expenses by Shareholders................................................12
Section 5. Advisory, Management and Distribution Contracts....................................12
ARTICLE V
Shareholders' Rights, Voting Powers and Meetings........................................................13
Section 1. No Management and Control..........................................................13
Section 2. Voting Powers......................................................................13
Section 3. Voting Power and Meetings..........................................................13
Section 4. Quorum and Required Vote...........................................................14
Section 5. Action by Written Consent..........................................................14
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
Section 6. Record Dates.......................................................................14
Section 7. Shareholders' Rights to Records....................................................15
Section 8. Additional Provisions..............................................................15
ARTICLE VI
Net Income, Distributions, and Redemptions and Repurchases..............................................15
Section 1. Distributions of Net Income........................................................15
Section 2. Determination of Net Income........................................................15
Section 3. Redemptions and Repurchases........................................................16
Section 4. Redemptions at the Option of the Company...........................................17
ARTICLE VII
Compensation and Limitation of Liability of Trustees....................................................17
Section 1. Compensation.......................................................................17
Section 2. Limitation of Liability............................................................17
ARTICLE VIII
Indemnification.........................................................................................17
Section 1. Trustees, Officers, Etc............................................................17
Section 2. Compromise Payment.................................................................18
Section 3. Indemnification Not Exclusive......................................................19
Section 4. Shareholders.......................................................................19
ARTICLE IX
Miscellaneous...........................................................................................19
Section 1. Trustees, Shareholders, Etc. Not Personally Liable; Notice.........................19
Section 2. Trustee's Good Faith Action, Expert Advice, No Bond or
Surety..........................................................................20
Section 3. Liability of Third Persons Dealing with Trustees...................................20
Section 4. Termination of Company, Series or Class............................................20
Section 5. No Action for Dissolution; No Further Claim........................................21
Section 6. Merger and Consolidation...........................................................21
Section 7. Filing of Copies, References, Headings.............................................22
Section 8. Applicable Law.....................................................................22
Section 9. Amendments.........................................................................22
</TABLE>
ii
<PAGE> 4
LIMITED LIABILITY COMPANY AGREEMENT
OF
WM STRATEGIC ASSET MANAGEMENT PORTFOLIOS, LLC
THIS LIMITED LIABILITY COMPANY AGREEMENT of WM STRATEGIC ASSET
MANAGEMENT PORTFOLIOS, LLC is dated as of March 12, 1999, by and among WM
Advisors, Inc., William G. Papesh and certain other Persons from time to time
party hereto.
WHEREAS, the Shareholders wish to form a limited liability company
pursuant to and in accordance with the LLC Act in order to conduct the
businesses described herein.
WHEREAS, the Shareholders wish to enter into this Agreement to provide
for, among other things, the management of the business and affairs of the
Company, the allocation of profits and losses among the Shareholders, the
respective rights and obligations of the Shareholders to each other and to the
Company, and certain other matters.
NOW, THEREFORE, the Shareholders agree as follows:
ARTICLE I
Name and Definitions
Section 1. Name. This Company shall be known as WM Strategic Asset
Management Portfolios, LLC, and the Trustees shall conduct the business of the
Company under that name or any other name as they may from time to time
determine.
Section 2. Definitions. Whenever used herein, unless otherwise required
by the context or specifically provided:
(a) "Agreement" shall mean this Limited Liability Company Agreement, as
amended or restated from time to time;
(b) "Bylaws" shall mean the Bylaws of the Company as amended from time
to time;
(c) "Certificate" shall mean the Certificate of Organization of the
Company and any and all amendments thereto and restatements thereof filed on
behalf of the Company with the office of the Secretary of State of The
Commonwealth of Massachusetts pursuant to the LLC Act.
(d) "Class" or "Class of Shares" refers to the division of Shares
representing any Series into two or more classes as provided in Article III,
Section 1 hereof.
<PAGE> 5
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(f) The terms "Commission" and "principal underwriter" shall have the
meanings given them in the 1940 Act;
(g) "Company" shall mean the Massachusetts limited liability company
established by this Agreement, as amended or restated from time to time;
(h) "LLC Act" shall mean the Massachusetts Limited Liability Company
Act, as amended from time to time;
(i) "Series" refers to a Series of Shares established and designated
under or in accordance with the provisions of Article III; and
(j) "Shareholder" shall mean a record owner of Shares that has been
admitted to the Company as a shareholder as provided in Article III, Section 3
of this Agreement (the Shareholders shall for all purposes be Members as defined
in clause eight of Section Two of the LLC Act).
(k) "Shares" shall mean the equal proportionate units or interests into
which the limited liability company interests in the Company or in the Company
property belonging to any particular Series of the Company (or in the property
belonging to any Series allocable to any Class of that Series) (as the context
may require) shall be divided from time to time;
(l) "Trustees" shall mean to the Trustees of the Company named in
Article IV hereof or any Trustees elected in accordance with such Article; and
(m) "1940 Act" shall mean the Investment Company Act of 1940 and the
rules and regulations thereunder, all as amended from time to time.
ARTICLE II
Formation and Purpose of Company
Section 1. Formation. The Shareholders hereby form a limited liability
company pursuant to and in accordance with the LLC Act effective upon the filing
of the Certificate with the Secretary of State of The Commonwealth of
Massachusetts. The rights and liabilities of the Shareholders shall be
determined pursuant to this Agreement and the LLC Act. To the extent that the
rights or obligations of any Shareholder are different by reason of any
provision of this Agreement than they would be in the absence of such provision,
this Agreement shall, to the extent permitted by the LLC Act, control.
2
<PAGE> 6
Section 2. Purpose. The purpose of the Company is to provide investors
a managed investment primarily in securities (including options), debt
instruments, money market instruments, commodities, commodity contracts and
options thereon.
Section 3. Registered Office/Agent. The registered office required to
be maintained by the Company in The Commonwealth of Massachusetts pursuant to
the LLC Act shall initially be c/o CT Corporation System, 2 Oliver Street,
Boston, Massachusetts 02109. The name and address of the registered agent of the
Company pursuant to the LLC Act shall initially be CT Corporation System, 2
Oliver Street, Boston, Massachusetts 02109. The Company may, upon compliance
with the applicable provisions of the LLC Act, change its registered office or
registered agent from time to time in the discretion of the Trustees.
Section 4. Certificate. William G. Papesh is hereby designated as an
authorized person, within the meaning of the Act, to execute, deliver and file
the Certificate and said named individual and such other Persons as may be
designated from time to time by the Trustees are each hereby designated as an
authorized person, within the meaning of the LLC Act, to execute, deliver and
file any amendments or restatements of the Certificate and any other
certificates and any amendments or restatements thereof necessary for the
Company to qualify to do business in a jurisdiction in which the Company may
wish to conduct business.
ARTICLE III
Shares
Section 1. Division of Beneficial Interest. The interests in the
Company shall at all times be divided into an unlimited number of Shares,
without par value. Each Series shall be preferred over all other Series in
respect of assets allocated to that Series within the meaning of the 1940 Act
and shall represent a separate investment portfolio of the Company. Subject to
the provisions of Section 6 of this Article III, each Shareholder shall have the
voting rights provided in Article V hereof with respect to all of such
Shareholder's Shares, and Shareholders shall be entitled to receive
distributions, when and as declared with respect to their Shares in the manner
provided in Article VI, Section 1 hereof. No Share shall have any priority or
preference over any other Share of a Shareholder of the same Series with respect
to dividends or distributions upon termination of the Company or of such Series
made pursuant to Article IX, Section 4 hereof except to the extent otherwise
required or permitted by the preferences and special or relative rights and
privileges of any Classes of Shares of that series. Any distribution to the
Shareholders of a particular Class of Shares of that Series shall be made to
such Shareholders pro rata in proportion to the number of Shares of such Class
held by each of them. All distributions shall be made ratably among all
Shareholders of a particular Series from the assets belonging to such Series
according to the number of Shares held of record by such Shareholders on the
record date for any distribution or on the date of termination, as the case may
be, except to the extent otherwise required or permitted by the preferences and
special or relative rights and privileges of any Classes of Shares of that
series. The Trustees may, without Shareholder approval, divide the Shares of any
series into two or more Classes,
3
<PAGE> 7
Shares of each such Class having such preferences and special or relative rights
and privileges (including conversion rights, if any) as the Trustees may
determine and as shall be set forth in the registration statement of the Company
as filed with the Commission. The Trustees may from time to time divide or
combine the Shares of Shareholders of any particular Series or Class into a
greater or lesser number of Shares without thereby changing the proportionate
beneficial interest of the Shareholders of that Series or Class in the assets
belonging to that Series or Class or in any way affecting the rights of
Shareholders of any other Series or Class.
Section 2. Ownership of Shares. The ownership of Shares shall be
recorded on the books of the Company or a transfer or similar agent for the
Company, which books shall be maintained separately for each Series. No
certificates certifying the ownership of Shares shall be issued except as the
Trustees may otherwise determine from time to time. The Trustees may make such
rules as they consider appropriate for the transfer of Shares of Shareholders of
each Series and similar matters. The record books of the Company as kept by the
Company or any transfer or similar agent, as the case may be, shall be
conclusive as to who are the Shareholders of each Series and as to the number of
Shares held from time to time by each Shareholder.
Section 3. Investments in the Company. The Trustees shall accept
investments in the Company from such persons, and shall admit such persons as
Shareholders of the Company, on such terms and for such consideration as they
from time to time authorize.
Section 4. Status of Shares and Limitation of Personal Liability.
Shares shall be deemed to be personal property giving only the rights provided
in this instrument. Every Shareholder by virtue of having become a Shareholder
shall be held to have expressly assented and agreed to the terms hereof and to
have become a party hereto. Ownership of Shares shall not entitle the
Shareholder to any title in or to the whole or any part of the Company property
or right to call for a partition or division of the same or for an accounting,
nor shall the ownership of Shares constitute the Shareholders partners of each
other. Neither the Company nor the Trustees, nor any officer, employee or agent
of the Company shall have any power to bind personally any Shareholders, nor
except as specifically provided herein to call upon any Shareholder for the
payment of any sum of money or assessment whatsoever other than such as the
Shareholder may at any time personally agree to pay.
Section 5. Power of Trustees to Change Provisions Relating to Shares.
Notwithstanding any other provisions of this Agreement and without limiting the
power of the Trustees to amend this Agreement as provided elsewhere herein, the
Trustees shall have the power to amend this Agreement, at any time and from time
to time, in such manner as the Trustees may determine in their sole discretion,
without the need for Shareholder action, so as to add to, delete, replace or
otherwise modify any provisions relating to the Shares contained in this
Agreement for the purpose of (i) responding to or complying with any
regulations, orders, rulings or interpretations of any governmental agency or
any laws, now or hereafter applicable to the Company, or (ii) designating and
establishing Series in addition to the Series
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established in Section 6 of this Article III; provided that before adopting any
such amendment in clause (i) without Shareholder approval the Trustees shall
determine that it is consistent with the fair and equitable treatment of all
Shareholders. The establishment and designation of any Series in addition to the
Series established and designated in Section 6 of this Article III shall be
effective upon the execution by a majority of the then Trustees of an amendment
to this Agreement, taking the form of a complete restatement or otherwise,
setting forth such establishment and designation and the relative rights and
preferences of such Series, or as otherwise provided in such instrument.
Without limiting the generality of the foregoing, the Trustees may, for
the above-stated purposes, amend this Agreement to:
(a) create one or more Series or Classes of Shares (with respect to or
in addition to any Series or Classes already existing or otherwise) with such
rights and preferences and such eligibility requirements for membership or
investment therein as the Trustees shall determine, and reclassify any or all
outstanding Shares as Shares of Shareholders of particular Series or Classes in
accordance with such eligibility requirements;
(b) amend any of the provisions set forth in paragraphs (a) through (j)
of Section 6 of this Article III;
(c) combine one or more Series or Classes of Shares into a single
Series or Class on such terms and conditions as the Trustees shall determine;
(d) change or eliminate any eligibility requirements for membership or
investment in any Series, including without limitation the power to provide for
the issue of Shares to Shareholders of any Series in connection with any merger
or consolidation of the Company with another entity or any acquisition by the
Company of part or all of the assets of another entity;
(e) change the designation of any Series or Class of Shares;
(f) change the method of allocating distributions among the various
Series;
(g) allocate any specific assets or liabilities of the Company or any
specific items of income or expense of the Company to one or more Series or
Classes of Shares; or
(h) specifically allocate assets to any or all Series or create one or
more additional Series which are preferred over all other Series in respect of
assets specifically allocated thereto or any distributions paid by the Company
with respect to any net income, however determined, earned from the investment
and reinvestment of any assets so allocated or otherwise and provide for any
special voting or other rights with respect to such Series.
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Section 6. Establishment and Designation of Series. Without limiting
the authority of the Trustees set forth in Section 5, among other things, to
establish and designate any further Series or to modify the rights and
preferences of any Series, the Initial Capital Series, Strategic Growth
Portfolio, Conservative Growth Portfolio, Balanced Portfolio, Flexible Income
Portfolio and Income Portfolio shall be, and hereby are, established and
designated as separate
Series of the Company.
Shares of each Series established in this Section 6 shall have the
following relative rights and preferences:
(a) Assets Belonging to Series. All consideration received by the
Company for the issue or sale of Shares of a particular Series, together with
all assets in which such consideration is invested or reinvested, all income,
earnings, profits, and proceeds thereof from whatever source derived, including,
without limitation, any proceeds derived from the sale, exchange or liquidation
of such assets, and any funds or payments derived from any reinvestment of such
proceeds in whatever form the same may be, shall irrevocably belong to that
Series for all purposes, subject only to the rights of creditors, and shall be
so recorded upon the books of account of the Company. Such consideration,
assets, income, earnings, profits and proceeds thereof, from whatever source
derived, including, without limitation, any proceeds derived from the sale,
exchange or liquidation of such assets, and any funds or payments derived from
any reinvestment of such proceeds, in whatever form the same may be, are herein
referred to as "assets belonging to" that Series. In the event that there are
any assets, income, earnings, profits and proceeds thereof, funds or payments
which are not readily identifiable as belonging to any particular Series
(collectively "General Assets"), the Trustees shall allocate such General Assets
to, between or among any one or more of the Series established and designated
from time to time in such manner and on such basis as they, in their sole
discretion, deem fair and equitable, and any General Asset so allocated to a
particular Series shall belong to that Series. Each such allocation by the
Trustees shall be conclusive and binding upon the Shareholders of all Series for
all purposes.
(b) Liabilities Belonging to Series. The assets belonging to each
particular Series shall be charged solely with the liabilities of the Company in
respect of that Series, expenses, costs, charges and reserves attributable to
that Series, and any general liabilities of the Company which are not readily
identifiable as belonging to any particular Series but which are allocated and
charged by the Trustees to and among any one or more of the Series established
and designated from time to time in a manner and on such basis as the Trustees
in their sole discretion deem fair and equitable. The liabilities, expenses,
costs, charges, and reserves so charged to a Series are herein referred to as
"liabilities belonging to" that Series. Each allocation of liabilities,
expenses, costs, charges and reserves by the Trustees shall be conclusive and
binding upon the Shareholders of all Series for all purposes.
(c) Distributions, Redemptions, and Repurchases. Notwithstanding any
other provisions of this Agreement, including, without limitation, Article VI,
no distribution
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(including, without limitation, any distribution paid upon termination of the
Company or of any Series) with respect to, nor any redemption or repurchase of,
the Shares of Shareholders of any Series shall be effected by the Company other
than from the assets belonging to such Series, nor shall any Shareholder of any
particular Series otherwise have any right or claim against the assets belonging
to any other Series except to the extent that such Shareholder has such a right
or claim hereunder as a Shareholder of such other Series. Shares held by any
Shareholder of more than one Series in its capacity as a Shareholder of any
other Series shall be deemed not to be held by such Shareholder for purposes of
determining such Shareholder's rights and obligations with respect to each
Series.
(d) Voting. Notwithstanding any of the other provisions of this
Agreement, including, without limitation, Section 1 of Article V, the
Shareholders of any particular Series or Class shall not be entitled to vote on
any matters as to which such Series or Class is not affected. On any matter
submitted to a vote of Shareholders, all Shares of the Company then entitled to
vote shall be voted with other Series or Classes entitled to vote on such
matters, unless otherwise required by the 1940 Act or other applicable law or as
specifically required under this Agreement or the Bylaws or as otherwise
determined by the Trustees.
(e) Equality. Except to the extent necessary or appropriate to give
effect to the relative rights and preferences of any Classes of a Series with
multiple Classes, all the Shares of each particular Series shall represent an
equal proportionate interest in the assets belonging to that Series (subject to
the liabilities belonging to that Series), and each Share of any Shareholder of
any particular Series shall be equal to each other Share of that Series.
(f) Fractions. Any fractional Share of any Series shall carry
proportionately all the rights and obligations of a whole share of that Series,
including rights with respect to voting, receipt of dividends and distributions,
redemption of Shares and termination of the Company.
(g) Exchange Privilege. The Trustees shall have the authority to
provide that the holders of Shares of any Series shall have the right to
exchange their shares for Shares of one or more other Series in accordance with
such requirements and procedures as may be established by the Trustees.
(h) Combination of Series or Classes. The Trustees shall have the
authority, without the approval of the Shareholders of any Series or Class
unless otherwise required by applicable law, to combine the assets and
liabilities belonging to any two or more Series or Classes into assets and
liabilities belonging to a single Series or Class.
(i) Elimination of Series. At any time that there are no Shares
outstanding of any particular Series previously established and designated, the
Trustees may amend this Agreement to abolish that Series and to rescind the
establishment and designation thereof, such amendment to be effected in the
manner provided in Section 5 of this Article III.
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(j) Assets and Liabilities Allocable to a Class. The assets and
liabilities belonging to a Series shall be fully allocated among all the Classes
of that Series. For purposes of determining the assets and liabilities belonging
to a Series which are allocable to a Class of that Series, subject to the
provisions of paragraph (g) of Section 5 of this Article III, the provisions of
paragraphs (a) and (b) of this Section 6 shall apply, mutatis mutandis, as if
each Class were a Series.
Section 7. No Preemptive Rights. Shareholders shall have no preemptive
or other right to subscribe to any additional Shares or other securities issued
by the Company.
Section 8. Derivative Claims. No Shareholder shall have the right to
bring or maintain any court action, proceeding or claim on behalf of this
Company or any Series without first making demand on the Trustees requesting the
Trustees to bring or maintain such action, proceeding or claim. Such demand
shall be excused only when the plaintiff makes a specific showing that
irreparable injury to the Company or Series would otherwise result. Such demand
shall be mailed to the Secretary of the Company at the Company's principal
office and shall set forth in reasonable detail the nature of the proposed court
action, proceeding or claim and the essential facts relied upon by the
Shareholder to support the allegations made in the demand. The Trustees shall
consider such demand within 45 days of its receipt by the Company. In their sole
discretion, the Trustees may submit the matter to a vote of Shareholders of the
Company or Series, as appropriate. Any decision by the Trustees to bring,
maintain or settle (or not to bring, maintain or settle) such court action,
proceeding or claim, or to submit the matter to a vote of Shareholders shall be
made by the Trustees in their business judgment and shall be binding upon the
Shareholders; provided, however, that if this provision shall be found not to be
enforceable, any decision by any shareholder to bring such a court action,
proceeding or claim shall require a majority affirmative vote of the Shares
outstanding of the Company or Series, as applicable.
ARTICLE IV
The Trustees
Section 1. Election and Tenure. The initial Trustee shall be William G.
Papesh. The Trustees may fix the number of Trustees, fill vacancies in the
Trustees, including vacancies arising from an increase in the number of
Trustees, or remove Trustees with or without cause. Each Trustee shall serve
during the continued lifetime of the Company until he dies, resigns or is
removed, or, if sooner, until the next meeting of Shareholders called for the
purpose of electing Trustees and until the election and qualification of his
successor. Any Trustee may resign at any time by written instrument signed by
him and delivered to any officer of the Company or to a meeting of the Trustees.
Such resignation shall be effective upon receipt unless specified to be
effective at some other time. Except to the extent expressly provided in a
written agreement with the Company, no Trustee resigning and no Trustee removed
shall have any right to any compensation for any period following his
resignation or removal, or any right to damages on account of such removal. The
Shareholders may fix the number of
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Trustees and elect Trustees at any meeting of Shareholders called by the
Trustees for that purpose. The Trustees shall for all purposes be Managers as
defined in clause seven of Section Two and Section 23 of the LLC Act.
Section 2. Powers. Subject to the provisions of this Agreement, the
business of the Company shall be managed by the Trustees, and they shall have
all powers necessary or convenient to carry out that responsibility including
the power to engage in securities transactions of all kinds on behalf of the
Company. Without limiting the foregoing, the Trustees may adopt Bylaws not
inconsistent with this Agreement providing for the regulation and management of
the affairs of the Company and may amend and repeal them to the extent that such
Bylaws do not reserve that right to the Shareholders; they may remove from their
number with or without cause; they may fill vacancies in their number (including
any vacancies created by an increase in the number of Trustees and any vacancies
created by the removal of a Trustee); they may elect and remove such officers
and appoint and terminate such agents as they consider appropriate; they may
appoint from their own number and terminate one or more committees consisting of
two or more Trustees which may exercise the powers and authority of the Trustees
to the extent that the Trustees determine; they may employ one or more
custodians of the assets of the Company and may authorize such custodians to
employ subcustodians and to deposit all or any part of such assets in a system
or systems for the central handling of securities or with a Federal Reserve
Bank; they may retain a transfer agent or a shareholder servicing agent, or
both; they may provide for the distribution of Shares by the Company, through
one or more principal underwriters or otherwise; they may set record dates for
the determination of Shareholders with respect to various matters; and in
general they may delegate such authority as they consider desirable to any
officer of the Company, to any committee of the Trustees and to any agent or
employee of the Company or to any such custodian or underwriter.
Without limiting the foregoing, the Trustees shall have power and
authority:
(a) To invest and reinvest cash, and to hold cash uninvested;
(b) To sell, exchange, lend, pledge, mortgage, hypothecate, lease, or
write options with respect to or otherwise deal in any property rights relating
to any or all of the assets of the Company;
(c) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property; and to execute and deliver
proxies or powers of attorney to such person or persons as the Trustees shall
deem proper, granting to such person or persons such power and discretion with
relation to securities or property as the Trustees shall deem proper;
(d) To exercise powers and rights of subscription or otherwise which in
any manner arise out of ownership of securities;
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(e) To hold any security or property in a form not indicating any
ownership by the Company, whether in bearer, unregistered or other negotiable
form, or in their own name or in the name of a custodian or subcustodian or a
nominee or nominees or otherwise;
(f) To allocate assets, liabilities and expenses of the Trust to a
particular Series or Class of Shares or to apportion the same among two or more
Series or Classes, provided that any liabilities or expenses incurred by a
particular Series or Class of Shares shall be payable solely out of the assets
of that Series or Class;
(g) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or issuer of any security which is
held by the Company; to consent to any contract, lease, mortgage, purchase or
sale of property by such corporation or issuer; and to pay calls or
subscriptions with respect to any security held by the Company;
(h) To join with other security holders in acting through a committee,
depositary, voting trustee or otherwise, and in that connection to deposit any
security with, or transfer any security to, any such committee, depositary or
trustee, and to delegate to them such power and authority with relation to any
security (whether or not so deposited or transferred) as the Trustees shall deem
proper, and to agree to pay, and to pay, such portion of the expenses and
compensation of such committee, depositary or trustee as the Trustees shall deem
proper;
(i) To compromise, arbitrate or otherwise adjust claims in favor of or
against the Company or any matter in controversy, including but not limited to
claims for taxes;
(j) To enter into joint ventures, general or limited partnerships and
any other combinations or associations;
(k) To borrow funds or other property;
(l) To endorse or guarantee the payment of any notes or other
obligations of any person; to make contracts of guaranty or suretyship, or
otherwise assume liability for payment thereof;
(m) To purchase and pay for entirely out of Company property such
insurance as they may deem necessary or appropriate for the conduct of the
business, including without limitation, insurance policies insuring the assets
of the Company and payment of distributions and principal on its portfolio
investments, and insurance policies insuring the Shareholders, Trustees,
officers, employees, agents, investment advisers, principal underwriters, or
independent contractors of the Company individually against all claims and
liabilities of every nature arising by reason of holding, being or having held
any such office or position, or by reason of any action alleged to have been
taken or omitted by any such person as Trustee, officer, employee, agent,
investment adviser, principal underwriter, or independent contractor,
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including any action taken or omitted that may be determined to constitute
negligence, whether or not the Company would have the power to indemnify such
person against liability;
(n) To pay pensions as deemed appropriate by the Trustees and to adopt,
establish and carry out pension, profit-sharing, share bonus, share purchase,
savings, thrift and other retirement, incentive and benefit plans, trusts and
provisions, including the purchasing of life insurance and annuity contracts as
a means of providing such retirement and other benefits, for any or all of the
Trustees, officers, employees and agents of the Company;
(o) To enter into forward commitments, futures contracts and swap
contracts and to buy and sell options on futures contracts or swap contracts and
to buy and or to enter into transactions with respect to any other securities or
derivative instruments;
(p) To make such filings under the LLC Act as may be necessary or
desirable to give effect to the provisions of this Agreement or any amendments
thereto, including without limitation Section 3.6 hereof; and
(q) To engage in any other lawful act or activity in which corporations
organized under the Massachusetts Business Corporation Act or LLC Act may
engage.
The Trustees shall not in any way be bound or limited by any present or
future law or custom in regard to investments by fiduciaries. The Trustees shall
not be required to obtain any court order to deal with any assets of the Company
or take any other action hereunder.
Except as otherwise provided herein or from time to time in the Bylaws,
any action to be taken by the Trustees may be taken by a majority of the
Trustees present at a meeting of the Trustees (a quorum being present), within
or without Massachusetts, including any meeting held by means of a conference
telephone or other communications equipment by means of which all persons
participating in the meeting can hear each other at the same time and
participation by such means shall constitute presence in person at a meeting, or
by written consents of a majority of the Trustees then in office.
Section 3. Payment of Expenses by the Company. The Trustees are
authorized to pay or cause to be paid out of the principal or income of the
Company, or partly out of principal and partly out of income, as they deem fair,
all expenses, fees, charges, taxes and liabilities incurred or arising in
connection with the Company, or in connection with the management thereof,
including but not limited to, the Trustees' compensation and such expenses and
charges for the services of the Company's officers, employees, investment
adviser or Trustee, principal underwriter, auditor, counsel, custodian, transfer
agent, shareholder servicing agent, and such other agents or independent
contractors and such other expenses and charges as the Trustees may deem
necessary or proper to incur.
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Section 4. Payment of Expenses by Shareholders. The Trustees shall have
the power, as frequently as they may determine, to cause each Shareholder, or
each Shareholder of any particular Series, to pay directly, in advance or
arrears, for charges of the Company's custodian or transfer, shareholder
servicing or similar agent, an amount fixed from time to time by the Trustees,
by setting off such charges due from such Shareholder from declared but unpaid
dividends owed such Shareholder and/or by reducing the number of Shares in the
account of such Shareholder by that number of full and/or fractional Shares
which represents the outstanding amount of such charges due from such
Shareholder.
Section 5. Advisory, Management and Distribution Contracts. Subject to
such requirements and restrictions as may be set forth in the Bylaws, the
Trustees may, at any time and from time to time, contract for exclusive or
nonexclusive advisory and/or management services for the Company or for any
Series with WM Advisors, Inc. or any other partnership, corporation, trust,
association or other organization (the "Manager"); and any such contract may
contain such other terms as the Trustees may determine, including without
limitation, authority for a Manager to determine from time to time without prior
consultation with the Trustees what investments shall be purchased, held, sold
or exchanged and what portion, if any, of the assets of the Company shall be
held uninvested and to make changes in the Company's investments. The Trustees
may also, at any time and from time to time, contract with the Manager or any
other partnership, corporation, trust, association or other organization,
appointing it exclusive or nonexclusive distributor, principal underwriter or
placement agent for the Shares, every such contract to comply with such
requirements and restrictions as may be set forth in the Bylaws; and any such
contract may contain such other terms as the Trustees may determine.
The fact that:
(i) any of the Shareholders, Trustees or officers of the
Company is a shareholder, director, officer, partner, Trustee,
employee, manager, adviser, principal underwriter, placement agent,
distributor or affiliate or agent of or for any partnership,
corporation, trust, association, or other organization, or of or for
any parent or affiliate of any organization, with which an advisory or
management contract, or principal underwriter's or distributor's
contract, or placement agreement, or transfer, shareholder servicing or
other agency contract may have been or may hereafter be made, or that
any such organization, or any parent or affiliate thereof, is a
Shareholder or has an interest in the Company, or that
(ii) any partnership, corporation, trust, association or other
organization with which an advisory or management contract or principal
underwriter's or distributor's contract, or placement agreement, or
transfer, shareholder servicing or other agency contract may have been
or may hereafter be made also has an advisory or management contract,
or principal underwriter's or distributor's contract, or transfer,
shareholder
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servicing or other agency contract with one or more other corporations,
trusts, associations, or other organizations, or has other business or
interests,
shall not affect the validity of any such contract or disqualify any
Shareholder, Trustee or officer of the Company from voting upon or executing the
same or create any liability or accountability to the Company or its
Shareholders.
ARTICLE V
Shareholders' Rights, Voting Powers and Meetings
Section 1. No Management and Control. Except as expressly provided in
this Agreement, no Shareholder shall take part in or interfere in any manner
with the management of the business and affairs of the Company or have any right
or authority to act for or bind the Company.
Section 2. Voting Powers. Subject to the voting powers of one or more
Classes of Shares as set forth elsewhere in this Agreement or in the Bylaws, the
Shareholders shall have power to vote only (i) for the election of Trustees as
provided in Article IV, Section 1, (ii) with respect to any amendment of this
Agreement to the extent and as provided in Article IX, Section 9, (iii) subject
to Section 3.8 hereof, to the same extent as the stockholders of a Massachusetts
business corporation as to whether or not a court action, proceeding or claim
should or should not be brought or maintained derivatively or as a class action
on behalf of the Company or the Shareholders, (iv) with respect to the
termination of the Company or any Series to the extent and as provided in
Article IX, Section 4, and (v) with respect to such additional matters relating
to the Company as may be required by this Agreement, the Bylaws or any
registration of the Company with the Commission (or any successor agency) or any
state, or as the Trustees may consider necessary or desirable. Each Shareholder
shall be entitled to one vote as to any matter on which it is entitled to vote
for each whole Share held by such Shareholder and shall be entitled to a
proportionate fractional vote for each fractional Share held by such
Shareholder. There shall be no cumulative voting in the election of Trustees.
Shareholders may vote in person or by proxy. A proxy which may be executed on
behalf of a Shareholder by more than one person shall be valid if executed by
any one of them unless at or prior to exercise of the proxy the Company receives
a specific written notice to the contrary from any one of them. A proxy
purporting to be executed by or on behalf of a Shareholder shall be deemed valid
unless challenged at or prior to its exercise and the burden of proving
invalidity shall rest on the challenger. At any time when there are no Shares
outstanding of a Series or Class, the Trustees may exercise all rights of
Shareholders of that Series or Class with respect to matters affecting that
Series or Class and may with respect to that Series or Class take any action
required by law, this Agreement or the Bylaws to be taken by the Shareholders.
Section 3. Voting Power and Meetings. Meetings of the Shareholders may
be called by the Trustees for the purpose of electing Trustees as provided in
Article IV, Section 1 and
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for such other purposes as may be prescribed by law, by this Agreement or by the
Bylaws. Meetings of the Shareholders may also be called by the Trustees from
time to time for the purpose of taking action upon any other matter deemed by
the Trustees to be necessary or desirable. A meeting of Shareholders may be held
at any place designated by the Trustees. Written notice of any meeting of
Shareholders shall be given or caused to be given by the Trustees by mailing
such notice at least seven days before such meeting, postage prepaid, stating
the time and place of the meeting, to each Shareholder at the Shareholder's
address as it appears on the records of the Company. Whenever notice of a
meeting is required to be given to a Shareholder under this Agreement or the
Bylaws, a written waiver thereof, executed before or after the meeting by such
Shareholder or his attorney thereunto authorized and filed with the records of
the meeting, shall be deemed equivalent to such notice.
Section 4. Quorum and Required Vote. Except when a larger quorum is
required by law, by the Bylaws or by this Agreement, Shareholders holding 10% of
the Shares held by Shareholders entitled to vote shall constitute a quorum at a
Shareholders' meeting. When any one or more Series or Class is to vote as a
single class separate from any other Shareholders who are to vote on the same
matters as a separate class or classes, Shareholders holding 10% of the Shares
held by Shareholders of each such Series or Class entitled to vote shall
constitute a quorum at a Shareholder's meeting of that Series or Class. Any
meeting of Shareholders may be adjourned from time to time by a majority of the
votes properly cast upon the question, whether or not a quorum is present, and
the meeting may be held as adjourned within a reasonable time after the date set
for the original meeting without further notice. When a quorum is present at any
meeting, a majority of the votes cast shall decide any questions and a plurality
shall elect a Trustee, except when a larger vote is required by any provision of
this Agreement or the Bylaws or by law. If any question on which the
Shareholders are entitled to vote would adversely affect the rights of any
Series or Class, the vote of Shareholders holding a majority (or such larger
vote as is required as aforesaid) of the Shares held by Shareholders of such
Series or Class entitled to vote, voting separately, shall be required to decide
such question.
Section 5. Action by Written Consent. Any action taken by Shareholders
may be taken without a meeting if Shareholders holding a majority of the Shares
held by Shareholders entitled to vote on the matter (or such larger proportion
thereof as shall be required by any express provision of this Agreement or by
the Bylaws) and/or holding a majority (or such larger proportion as aforesaid)
of the Shares held by Shareholders of any Series entitled to vote separately on
the matter consent to the action in writing and such written consents are filed
with the records of the meetings of Shareholders. Such consent shall be treated
for all purposes as a vote taken at a meeting of Shareholders.
Section 6. Record Dates. For the purpose of determining the
Shareholders of any Series who are entitled to vote or act at any meeting or any
adjournment thereof, the Trustees may from time to time fix a time as the record
date for determining the Shareholders of such Series having the right to notice
of and to vote at such a meeting and any adjournment thereof,
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and in such case only Shareholders of record on such record date shall have such
right, notwithstanding any transfer of Shares on the books of the Company after
the record date. For the purpose of determining the Shareholders of any Series
who are entitled to receive payment of any distribution, the Trustees may from
time to time fix a date, which shall be before the date for the payment of such
distribution, as the record date for determining the Shareholders of such Series
having the right to receive such distribution. Without fixing a record date the
Trustees may for voting and/or distribution purposes close the register or
transfer books for one or more Series for all or any part of the period between
a record date and a meeting of Shareholders or the payment of a distribution.
Nothing in this section shall be construed as precluding the Trustees from
setting different record dates for different Series.
Section 7. Shareholders' Rights to Records. Any documents which a
Shareholder may have a right to obtain pursuant to the LLC Act or otherwise
shall be furnished at the sole expense of such Shareholder at the Company's
principal office only after the Shareholder gives 30 days' prior written notice
of its intent to obtain such records, and further subject to such rules and
procedures as the Trustees may establish, which may include rules and procedures
established after the date of such request.
Section 8. Additional Provisions. The Bylaws may include further
provisions for Shareholders' votes and meetings and related matters.
ARTICLE VI
Net Income, Distributions, and Redemptions and Repurchases
Section 1. Distributions of Net Income. The Trustees may each year, or
more frequently if they so determine in their sole discretion, distribute to the
Shareholders of each Series or Class, in shares of that Series or Class, cash or
otherwise, some or all of the net income attributable to the assets belonging to
such Series or Class, and may from time to time distribute to the Shareholders
of each Series or Class, in shares of that Series or Class, cash or otherwise,
after providing for actual and accrued expenses and liabilities of such Series
or Class, such additional amounts as they may authorize, but only from the
assets belonging to such Series (or allocable to such Class). All dividends and
distributions on Shares of a particular Series or Class shall be distributed pro
rata to the holders of that Series or Class in proportion to the number of
Shares of that Series or Class held by such holders and recorded on the books of
the Trust at the date and time of record established for that payment of such
dividend or distributions.
Section 2. Determination of Net Income. The manner of determining net
income, income, asset values, capital gains, expenses, liabilities and reserves
of any Series or Class may from time to time be altered as necessary or
desirable in the judgment of the Trustees to conform such manner of
determination to any other method prescribed or permitted by applicable law. Net
income shall be determined by the Trustees or by such person as they may
authorize at the times and in the manner provided in the Bylaws. Determinations
of net
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<PAGE> 19
income of any Series or Class and determinations of income, asset values,
capital gains, expenses, and liabilities made by the Trustees, or by such person
as they may authorize, in good faith, shall be binding on all parties concerned.
The foregoing sentence shall not be construed to protect any Trustee, officer or
agent of the Company against any liability to the Company or its Shareholders to
which he would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office.
If, for any reason, the net income of any Series or Class determined at
any time is a negative amount, in the discretion of the Trustees the pro rata
share of such negative amount allocable to each Shareholder of such Series or
Class may constitute a liability of such Shareholder to that Series or Class
which shall be paid out of such Shareholder's account at such times and in such
manner as the Trustees may from time to time determine (x) out of the accrued
dividend account of such Shareholder, (y) by reducing the number of Shares of
that Series or Class in the account of such Shareholder, or (z) otherwise.
Section 3. Redemptions and Repurchases. The Company shall purchase such
Shares as offered by any Shareholder for redemption, upon the presentation of a
proper instrument of transfer together with a request directed to the Company or
a person designated by the Company that the Company purchase such Shares or in
accordance with such other procedures for redemption as the Trustees may from
time to time authorize; and the Company will pay therefor the net asset value
thereof, as determined in accordance with the Bylaws, the 1940 Act and the rules
of the Commission. Payment for said Shares shall be made by the Company to the
Shareholder within seven days after the date on which the request is made or in
accordance with such other procedures, consistent with the 1940 Act and the
rules of the Commission, as the Trustees may from time to time authorize. The
obligation set forth in this Section 2 is subject to the provision that in the
event that at any time the New York Stock Exchange (the "Exchange") is closed
for other than weekends or holidays, or if permitted by the rules of the
Commission during periods when trading on the Exchange is restricted or during
any emergency which makes it impracticable for the Company to dispose of the
investments of the applicable Series or to determine fairly the value of the net
assets belonging to such Series or during any other period permitted by order of
the Commission for the protection of investors, such obligations may be
suspended or postponed by the Trustees. The Company may also purchase or
repurchase Shares at a price not exceeding the net asset value of such Shares in
effect when the purchase or repurchase or any contract to purchase or repurchase
is made.
The redemption price may in any case or cases be paid wholly or partly
in kind if the Trustees determine that such payment is advisable in the
interests of the remaining Shareholders of the Series and Class the Shares of
which are being redeemed. In making any such payment wholly or partly in kind,
the Company shall, so far as may be practicable, deliver assets which
approximate the diversification of all of the assets belonging at the time to
the Series the Shares of which are being redeemed. Subject to the foregoing, the
fair value, selection and quantity of securities or other property so paid or
delivered as all or part of the
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redemption price may be determined by or under authority of the Trustees. In no
case shall the Company be liable for any delay of any corporation or other
person in transferring securities selected for delivery as all or part of any
payment in kind.
Section 4. Redemptions at the Option of the Company. The Company shall
have the right at its option and at any time to redeem Shares of any Shareholder
at the net asset value thereof as described in Section 1 of this Article VI: (i)
if at such time such Shareholder owns Shares having an aggregate net asset value
of less than an amount determined from time to time by the Trustees; or (ii) to
the extent that such Shareholder owns Shares equal to or in excess of a
percentage determined from time to time by the Trustees of (a) the outstanding
Shares of the Company or (b) the Shares of any Series or Class.
ARTICLE VII
Compensation and Limitation of Liability of Trustees
Section 1. Compensation. The Trustees as such shall be entitled to
reasonable compensation from the Company; they may fix the amount of their
compensation. Nothing herein shall in any way prevent the employment of any
Trustee for advisory, management, legal, accounting, investment banking or other
services and payment of the same by the Company.
Section 2. Limitation of Liability. The Trustees shall not be
responsible or liable in any event for any neglect or wrong-doing of any
officer, agent, employee, manager or principal underwriter of the Company, nor
shall any Trustee be responsible for the act or omission of any other Trustee,
but nothing herein contained shall protect any Trustee against any liability to
which he would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office.
Every note, bond, contract, instrument, certificate or undertaking and
every other act or thing whatsoever issued, executed or done by or on behalf of
the Company or the Trustees or any of them in connection with the Company shall
be conclusively deemed to have been issued, executed or done only in or with
respect to their or his capacity as Trustees or Trustee, and such Trustees or
Trustee shall not be personally liable thereon.
ARTICLE VIII
Indemnification
Section 1. Trustees, Officers, Etc. The Company shall indemnify each of
its Trustees and officers (including persons who serve at the Company's request
as directors, officers or Trustees of another organization in which the Company
has any interest as a shareholder, creditor or otherwise) (hereinafter referred
to as a "Covered Person") against all liabilities and expenses, including but
not limited to amounts paid in satisfaction of judgments, in compromise or as
fines and penalties, and counsel fees reasonably incurred by any Covered
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<PAGE> 21
Person in connection with the defense or disposition of any action, suit or
other proceeding, whether civil or criminal, before any court or administrative
or legislative body, in which such Covered Person may be or may have been
involved as a party or otherwise or with which such Covered Person may be or may
have been threatened, while in office or thereafter, by reason of being or
having been such a Covered Person except with respect to any matter as to which
such Covered Person shall have been finally adjudicated in any such action, suit
or other proceeding to be liable to the Company or its Shareholders by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of such Covered Person's office. Expenses,
including counsel fees so incurred by any such Covered Person (but excluding
amounts paid in satisfaction of judgments, in compromise or as fines or
penalties), shall be paid from time to time by Company in advance of the final
disposition of any such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such Covered Person to repay amounts so paid to
the Company if it is ultimately determined that indemnification of such expenses
is not authorized under this Article, provided, however, that either (a) such
Covered Person shall have provided appropriate security for such undertaking,
(b) the Company shall be insured against losses arising from any such advance
payments or (c) either a majority of the disinterested Trustees acting on the
matter (provided that a majority of the disinterested Trustees then in office
act on the matter), or independent legal counsel in a written opinion, shall
have determined, based upon a review of readily available facts (as opposed to a
full trial type inquiry) that there is reason to believe that such Covered
Person will be found entitled to indemnification under this Article.
Section 2. Compromise Payment. As to any matter disposed of (whether by
a compromise payment, pursuant to a consent decree or otherwise) without an
adjudication by a court, or by any other body before which the proceeding was
brought, that such Covered Person is liable to the Company or its Shareholders
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her office,
indemnification shall be provided if (a) approved, after notice that it involves
such indemnification, by at least a majority of the disinterested Trustees
acting on the matter (provided that a majority of the disinterested Trustees
then in office act on the matter) upon a determination, based upon a review of
readily available facts (as opposed to a full trial type inquiry) that such
Covered Person is not liable to the Company or its Shareholders by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his or her office, or (b) there has been
obtained an opinion in writing of independent legal counsel, based upon a review
of readily available facts (as opposed to a full trial type inquiry) to the
effect that such indemnification would not protect such Covered Person against
any liability to the Company to which he would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his or her office. Any approval pursuant to
this Section shall not prevent the recovery from any Covered Person of any
amount paid to such Covered Person in accordance with this Section as
indemnification if such Covered Person is subsequently adjudicated by a court of
competent jurisdiction to have been liable to the Company or its Shareholders by
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<PAGE> 22
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of such Covered Person's office.
Section 3. Indemnification Not Exclusive. The right of indemnification
hereby provided shall not be exclusive of or affect any other rights to which
such Covered Person may be entitled. As used in this Article VIII, the term
"Covered Person" shall include such person's heirs, executors and administrators
and a "disinterested Trustee" is a Trustee who is not an "interested person" of
the Company as defined in Section 2(a)(19) of the 1940 Act (or who has been
exempted from being an "interested person" by any rule, regulation or order of
the Commission), and against whom none of such actions, suits or other
proceedings or another action, suit or other proceeding on the same or similar
grounds is then or has been pending. Nothing contained in this Article shall
affect any rights to indemnification to which personnel of the Company, other
than Trustees or officers, and other persons may be entitled by contract or
otherwise under law, nor the power of the Company to purchase and maintain
liability insurance on behalf of any such person; provided, however, that the
Company shall not purchase or maintain any such liability insurance in
contravention of applicable law, including without limitation the 1940 Act.
Section 4. Shareholders. In case any Shareholder or former Shareholder
shall be held to be personally liable solely by reason of his or her being or
having been a Shareholder and not because of his or her acts or omissions or for
some other reason, the Shareholder or former Shareholder (or his or her heirs,
executors, administrators or other legal representatives or in the case of a
corporation or other entity, its corporate or other general successor) shall be
entitled to be held harmless from and indemnified against all loss and expense
arising from such liability, but only out of the assets of the particular Series
of which he or she is or was a Shareholder.
ARTICLE IX
Miscellaneous
Section 1. Trustees, Shareholders, Etc. Not Personally Liable; Notice.
All persons extending credit to, contracting with or having any claim against
the Company or any Series shall look only to the assets of the Company or to the
assets of that particular Series for payment under such credit, contract or
claim; and neither Shareholders nor the Trustees, nor any of the Company's
officers, employees or agents, whether past, present or future, shall be
personally liable therefor. Nothing in this Agreement shall protect any Trustee
against any liability to which such Trustee would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of the office of Trustee.
Every note, bond, contract, instrument, certificate or undertaking made
or issued on behalf of the Company by the Trustees, by any officers or officer
or otherwise shall give notice that this Agreement is on file at the offices of
the Company and shall recite that the same was
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executed or made by or on behalf of the Company or by them as Trustee or
Trustees or as officer or officers or otherwise and not individually and that
the obligations of such instrument are not binding upon any of them or the
shareholders individually but are binding only upon the assets and property of
the Company or upon the assets belonging to the Series for the benefit of which
the Trustees have caused the note, bond, contract, instrument, certificate or
undertaking to be made or issued, and may contain such further recital as he or
they may deem appropriate, but the omission of any such recital shall not
operate to bind any Trustee or Trustees or officer or officers or Shareholders
or any other person individually; provided however, that such a recital shall
not be required if it is not necessary to achieve the purpose of protecting the
Trustees and Shareholders from any personal liability arising out of obligations
of the Company and each Series of the Company from liability arising out of any
obligation of any other Series of the Company.
Section 2. Trustee's Good Faith Action, Expert Advice, No Bond or
Surety. The exercise by the Trustees of their powers and discretions hereunder
shall be binding upon everyone interested. A Trustee shall be liable for his or
her own willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of the office of Trustee, and for nothing
else, and shall not be liable for errors of judgment or mistakes of fact or law.
The Trustees may take advice of counsel or other experts with respect to the
meaning and operation of this Agreement, and shall be under no liability for any
act or omission in accordance with such advice or for failing to follow such
advice. The Trustees shall not be required to give any bond as such, nor any
surety if a bond is required.
Section 3. Liability of Third Persons Dealing with Trustees. No person
dealing with the Trustees shall be bound to make any inquiry concerning the
validity of any transaction made or to be made by the Trustees or to see to the
application of any payments made or property transferred to the Company or upon
its order.
Section 4. Termination of Company, Series or Class. The Company shall
be dissolved upon the happening of: (a) the written determination of the
Trustees to dissolve the Company, (b) the vote of 50% of the Shares of each
Series entitled to vote and voting separately by Series or (c) the entry of a
decree of judicial dissolution under the LLC Act. Any Series or Class may be
terminated at any time by vote of at least 50% of the Shares of each Series or
Class entitled to vote and voting separately by Series or Class or upon the
written determination of the Trustees to terminate the Series or Class.
Notwithstanding anything in the Act to the contrary, except as provided above,
the LLC shall have perpetual existence so long as it has the minimum number of
Shareholders required by the Act, and it shall not be dissolved and its affairs
shall not be wound up as a result of the death, insanity, retirement,
resignation, expulsion, bankruptcy or dissolution of a Shareholder, or the
occurrence of any other event which terminates the membership of a Shareholder
in the LLC, and in any such event the existence of the LLC shall continue
without further consent of the Shareholders, unless the Shareholders otherwise
determine. If the death, insanity, retirement, resignation, expulsion,
bankruptcy or dissolution of a Shareholder leaves the LLC with less than the
minimum number
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of Shareholders required by the Act, the existence of the LLC shall nevertheless
be continued if the last remaining Shareholder or the personal representative or
successor of the last former Shareholder shall agree in writing to continue the
existence of the LLC and to the admission of the personal representative or
successor of the last former Shareholder or any other person as a Shareholder of
the LLC. The death, declination, resignation, retirement, removal or incapacity
of the Trustees, or any of them, shall not operate to annul the Company or any
Series or to revoke any existing agency created pursuant to the terms of this
Agreement.
Upon termination of the Company (or any Series or Class, as the case
may be), after paying or otherwise providing for all charges, taxes, expenses
and liabilities belonging, severally, to each Series or Class (or the applicable
Series or Class, as the case may be), whether due or accrued or anticipated as
may be determined by the Trustees, the Company shall in accordance with such
procedures as the Trustees consider appropriate reduce the remaining assets
belonging, severally, to each Series or Class (or the applicable Series or
Class, as the case may be), to distributable form in cash or shares or other
securities, or any combination thereof, and distribute the proceeds belonging to
each Series or Class (or the applicable Series or Class, as the case may be), to
the Shareholders of that Series or Class, as a Series or Class, ratably
according to the number of Shares of that Series or Class outstanding on the
date of termination, except to the extent otherwise required or permitted by the
preferences and special or relative rights and privileges of any classes of
Shares of that Series or Class, provided that any distribution to the
Shareholders of a particular Class of Shares shall be made to such Shareholders
pro rata in proportion of the number of Shares of such Class held by each of
them.
Section 5. No Action for Dissolution; No Further Claim. The
Shareholders acknowledge that irreparable damage would be done to the goodwill
and reputation of the Company if any Shareholder should bring an action in court
to dissolve the Company under circumstances where dissolution is not required by
Article IX, Section 4. Accordingly, except where the Trustees have failed to
liquidate the Company as required by Article IX, Section 4 and except as
specifically provided in Section 44 of the LLC Act, each Shareholder hereby
waives and renounces its right to initiate legal action to seek dissolution or
to seek the appointment of a receiver or trustee to liquidate the Company. Upon
dissolution, each Shareholder shall look solely to the assets of the Company for
the return of its capital, and if the Company's property remaining after payment
or discharge of the debts and liabilities of the Company, including debts and
liabilities owed to one or more of the Shareholders, is insufficient to return
the aggregate Capital Contributions of each Shareholder, such Shareholders shall
have no recourse against the Company, the Board of Trustees or any other
Shareholder.
Section 6. Merger and Consolidation. The Trustees may cause the Company
to be merged into or consolidated with another entity or its shares exchanged
under or pursuant to any state or federal statute, if any, or otherwise to the
extent permitted by law, if such merger or consolidation or share exchange has
been authorized by vote of Shareholders holding a
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majority of the votes present at a meeting and properly cast upon the matter;
provided that in all respects not governed by statute or applicable law, the
Trustees shall have power to prescribe the procedure necessary or appropriate to
accomplish such merger, consolidation or share exchange.
Section 7. Filing of Copies, References, Headings. The original or a
copy of this instrument and of each amendment hereto shall be kept at the office
of the Company where it may be inspected by any Shareholder upon 30 days' prior
written notice to the Company and subject to such rules and procedures as the
Trustees may establish pursuant to Section 5.7 hereof. Anyone dealing with the
Company may rely on a certificate by an officer of the Company as to whether or
not any such amendments have been made and as to any matters in connection with
the Company hereunder; and, with the same effect as if it were the original, may
rely on a copy certified by an officer of the Company to be a copy of this
instrument or of any such amendments. In this instrument and in any such
amendment, references to this instrument, and all expressions like "herein,"
"hereof" and "hereunder" shall be deemed to refer to this instrument as amended
or affected by any such amendments. Headings are placed herein for convenience
of reference only and shall not be taken as a part hereof or control or affect
the meaning, construction or effect of this instrument. This instrument may be
executed in any number of counterparts each of which shall be deemed an
original.
Section 8. Applicable Law. This Agreement is made in The Commonwealth
of Massachusetts, and it is created under and is to be governed by and construed
and administered according to the laws of said Commonwealth. The Company shall
be a Massachusetts limited liability company, and without limiting the
provisions hereof, the Company may exercise all powers which are ordinarily
exercised by such a company.
Section 9. Amendments. This Agreement may be amended at any time by an
instrument in writing signed by a majority of the then Trustees,when authorized
so to do by vote of Shareholders holding a majority of the votes present at a
meeting and properly cast upon the matter, except that amendments described in
Article III, Section 5 hereof or having the purpose of changing the name of the
Trust or of supplying any omission, curing any ambiguity or curing, correcting
or supplementing any defective or inconsistent provision contained herein shall
not require authorization by Shareholder vote.
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IN WITNESS WHEREOF, the parties have executed this Limited Liability
Company Agreement as of the day and year first set forth above.
/s/William G. Papesh /s/ William G. Papesh
----------------------- -------------------------
WILLIAM G. PAPESH WM ADVISORS, INC.
By: William G. Papesh
Title: President
23
<PAGE> 1
Exhibit (b)(3)
BYLAWS
OF
WM STRATEGIC ASSET MANAGEMENT PORTFOLIOS, LLC
ARTICLE 1
Agreement and Principal Office
1.1. Agreement. These Bylaws shall be subject to the Limited Liability
Company Agreement, as from time to time in effect (the "Agreement"), of WM
STRATEGIC ASSET MANAGEMENT PORTFOLIOS, LLC, the Massachusetts limited liability
company established by the Agreement (the "Company"). Capitalized terms not
otherwise defined herein have the meanings given them in the Agreement.
1.2. Principal Office of the Company. The initial principal office of
the Company shall be located in 1201 Third Avenue, Seattle, Washington. The
Company may have such other offices within or without Massachusetts as the
Trustees may determine or as they may authorize.
ARTICLE 2
Meetings of Trustees
2.1. Regular Meetings. Regular meetings of the Trustees may be held
without call or notice at such places and at such times as the Trustees may from
time to time determine, provided that notice of the first regular meeting
following any such determination shall be given to absent Trustees.
2.2. Special Meetings. Special meetings of the Trustees may be held at
any time and at any place designated in the call of the meeting when called by
the Chairman of the Trustees, the President or the Treasurer or by two or more
Trustees, sufficient notice thereof being given to each Trustee by the Secretary
or an Assistant Secretary or by the officer or the Trustees calling the meeting.
2.3. Notice. It shall be sufficient notice to a Trustee of a special
meeting to send notice by mail at least forty-eight hours or by telegram, telex
or telecopy or other electronic facsimile transmission method at least
twenty-four hours before the meeting addressed to the Trustee at his or her
usual or last known business or residence address or to give notice to him or
her in person or by telephone at least twenty-four hours before the meeting.
Notice of a meeting need not be given to any Trustee if a written waiver of
notice, executed by him or her before the meeting, is filed with the records of
the meeting, or to any Trustee who attends the
<PAGE> 2
meeting without protesting prior thereto or at its commencement the lack of
notice to him or her. Neither notice of a meeting nor a waiver of a notice need
specify the purposes of the meeting.
2.4. Quorum. At any meeting of the Trustees a majority of the Trustees
then in office shall constitute a quorum. Any meeting may be adjourned from time
to time by a majority of the votes cast upon the question, whether or not a
quorum is present, and the meeting may be held as adjourned without further
notice.
2.5. Action by Vote. When a quorum is present at any meeting, a
majority of Trustees present may take any action, except when a larger vote is
expressly required by law, by the Agreement or by these Bylaws.
2.6. Action by Writing. Except as otherwise required by law, any action
required or permitted to be taken at any meeting of the Trustees may be taken
without a meeting if a majority of the Trustees (or such larger proportion
thereof as shall be required by any express provision of the Agreement or these
Bylaws) consent to the action in writing and such written consents are filed
with the records of the meetings of Trustees. Such consent shall be treated for
all purposes as a vote taken at a meeting of Trustees.
2.7. Presence through Communications Equipment. Except as otherwise
required by law, the Trustees may participate in a meeting of Trustees by means
of a conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other at the same time
and participation by such means shall constitute presence in person at a
meeting.
ARTICLE 3
Officers
3.1. Enumeration; Qualification. The officers of the Company shall be a
President, a Treasurer, a Secretary, and such other officers, including a
Chairman of the Trustees and a Controller, if any, as the Trustees from time to
time may in their discretion elect. The Company may also have such agents as the
Trustees from time to time may in their discretion appoint. The Chairman of the
Trustees, if one is elected, shall be a Trustee and may but need not be a
Shareholder; and any other officer may but need not be a Trustee or a
Shareholder. Any two or more offices may be held by the same person.
3.2. Election. The President, the Treasurer, and the Secretary shall be
elected annually by the Trustees. Other officers, if any, may be elected or
appointed by the Trustees at such or any other time. Vacancies in any office may
be filled at any time.
3.3. Tenure. The Chairman of the Trustees, if one is elected, the
President, the Treasurer and the Secretary shall hold office until their
respective successors are chosen and
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<PAGE> 3
qualified, or in each case until he or she sooner dies, resigns, is removed or
becomes disqualified. Each other officer shall hold office and each agent shall
retain authority at the pleasure of the Trustees.
3.4. Powers. Subject to the provisions of these Bylaws, each officer
shall have, in addition to the duties and powers herein and in the Agreement set
forth, such duties and powers as are commonly incident to the office occupied by
him or her as if the Company were organized as a Massachusetts business
corporation and such other duties and powers as the Trustees may from time to
time designate.
3.5. Chairman; President. Unless the Trustees otherwise provide, the
Chairman of the Trustees or, if there is none or in the absence of the Chairman,
the President shall preside at all meetings of the Shareholders and of the
Trustees. The President shall be the chief executive officer.
3.6. Treasurer and Controller. The Treasurer shall be the chief
financial officer and, if no Controller is elected, chief accounting officer of
the Company, and shall, subject to the provisions of the Agreement and to any
arrangement made by the Trustees with a custodian, investment adviser, or
transfer, shareholder servicing or similar agent, be in charge of the valuable
papers and, if no Controller is elected, the books of account and accounting
records of the Company, and shall have such other duties and powers as may be
designated from time to time by the Trustees or by the President.
The Controller, if any, shall be the chief accounting officer of the
Company and shall be in charge of its books of account and accounting records.
The Controller shall be responsible for preparation of financial statements of
the Company and shall have such other duties and powers as may be designated
from time to time by the Trustees or the President.
3.7. Secretary. The Secretary shall record all proceedings of the
Shareholders and the Trustees in books to be kept therefor, which books or a
copy thereof shall be kept at the principal office of the Company. In the
absence of the Secretary from any meeting of the Shareholders or Trustees, an
assistant secretary or, if there be none or if he or she is absent, a temporary
secretary chosen at such meeting shall record the proceedings thereof in the
aforesaid books.
3.8. Resignations. Any officer may resign at any time by written
instrument signed by him or her and delivered to the Chairman, the President or
the Secretary or to a meeting of the Trustees. Such resignation shall be
effective upon receipt unless specified to be effective at some other time.
Except to the extent expressly provided in a written agreement with the Company,
no officer resigning and no officer removed shall have any right to any
compensation for any period following his or her resignation or removal, or any
right to damages on account of such removal.
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<PAGE> 4
3.9. Other Officers and Duties. The Trustees may elect such other
officers and assistant officers as they shall from time to time determine to be
necessary or desirable in order to conduct the business of the Company.
Assistant officers shall act generally in the absence of the officer whom they
assist and shall assist that officer in the duties of his office. Each officer,
employee and agent of the Company shall have such other duties and authority as
may be conferred upon him by the Trustees or delegated to him by the President.
ARTICLE 4
Committees
4.1. General. The Trustees, by vote of a majority of the Trustees then
in office, may elect from their number an Executive Committee or certain other
committees and may delegate thereto some or all of their powers except those
which by law, by the Limited Liability Company Agreement, or by these By-Laws
may not be delegated. Except as the Trustees may otherwise determine, any such
committee may make rules for the conduct of its business, but unless otherwise
provided by the Trustees or in such rules, its business shall be conducted so
far as possible in the same manner as is provided by these By-Laws for the
Trustees themselves. All members of such committees shall hold such offices at
the pleasure of the Trustees. The Trustees may abolish any such committee at any
time. Any committee to which the Trustees delegate any of their powers or duties
shall keep records of its meetings and shall report its action to the Trustees.
The Trustees shall have power to rescind any action of any committee, but no
such rescission shall have retroactive effect.
4.2. Quorum; Voting. A majority of the members of any Committee of the
Trustees shall constitute a quorum for the transaction of business, and any
action of such a Committee may be taken at a meeting by a vote of a majority of
the members present (a quorum being present) or evidenced by one or more
writings signed by such a majority. Shareholders of a Committee may participate
in a meeting of such Committee by means of a conference telephone or other
communications equipment by means of which all persons participating in the
meeting can hear each other at the same time and participation by such means
shall constitute presence in person at a meeting.
ARTICLE 5
Reports
5.1. General. The Trustees and officers shall render reports at the
time and in the manner required by the Agreement or any applicable law. Officers
and Committees shall render such additional reports as they may deem desirable
or as may from time to time be required by the Trustees.
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<PAGE> 5
ARTICLE 6
Fiscal Year
6.1. General. Except as from time to time otherwise provided by the
Trustees, the initial fiscal year of the Company shall end on such date as is
determined in advance or in arrears by the Treasurer, and subsequent fiscal
years shall end on such date in subsequent years.
ARTICLE 7
Seal
7.1. General. The Company shall have no seal.
ARTICLE 8
Execution of Papers
8.1. General. Except as the Trustees may generally or in particular
cases authorize the execution thereof in some other manner, all deeds, leases,
contracts, notes and other obligations made by the Trustees shall be signed by
the President or by the Treasurer.
ARTICLE 9
Share Certificates
9.1. Share Certificates. No certificates certifying the ownership of
Shares shall be issued except as the Trustees may otherwise authorize. In the
event that the Trustees authorize the issuance of Share certificates, subject to
the provisions of Section 9.3, each Shareholder shall be entitled to a
certificate stating the number of Shares and the Series or Class owned by him or
her, in such form as shall be prescribed from time to time by the Trustees. Such
certificates shall be signed by the President or any Vice-President and by the
Treasurer or any Assistant Treasurer. Such signatures may be facsimiles if the
certificate is signed by a transfer agent, or by a registrar, other than a
Trustee, officer or employee of the Company. In case any officer who has signed
or whose facsimile signature has been placed on such certificate shall cease to
be such officer before such certificate is issued, it may be issued by the
Company with the same effect as if he or she were such officer at the time of
its issue.
In lieu of issuing certificates for Shares, the Trustees or the
transfer agent may either issue receipts therefor or may keep accounts upon the
books of the Company for the record holders of such Shares, who shall in either
case be deemed, for all purposes hereunder, to be the holders of certificates
for such Shares as if they had accepted such certificates and shall be held to
have expressly assented and agreed to the terms hereof.
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<PAGE> 6
9.2. Loss of Certificates. In case of the alleged loss or destruction
or the mutilation of a Share certificate, a duplicate certificate may be issued
in place thereof, upon such terms as the Trustees may prescribe.
9.3. Discontinuance of Issuance of Certificates. The Trustees may at
any time discontinue the issuance of Share certificates and may, by written
notice to each Shareholder, require the surrender of Share certificates to the
Company for cancellation. Such surrender and cancellation shall not affect the
ownership of Shares in the Company.
ARTICLE 10
Provisions Relating to the Conduct of the Company's Business
10.1. Determination of Net Asset Value Per Share. Net asset value per
Share for each Series or Class shall mean: (i) the value of all the assets of
such Series or Class; (ii) less total liabilities of such Series or Class; (iii)
divided by the number of Shares of such Series or Class outstanding, in each
case at the time of each determination. The net asset value per Share for each
Series or Class shall be determined at such times as determined by the Trustees.
In valuing the portfolio investments of any Series or Class for
determination of net asset value per Share for such Series or Class, securities
for which market quotations are readily available shall be valued at prices
which, in the opinion of the Trustees or the person designated by the Trustees
to make the determination, most nearly represent the market value of such
securities, and other securities and assets shall be valued at their fair value
as determined by or pursuant to the direction of the Trustees, which in the case
of short-term debt obligations, commercial paper and repurchase agreements may,
but need not, be on the basis of quoted yields for securities of comparable
maturity, quality and type, or on the basis of amortized cost. Expenses and
liabilities of the Company shall be accrued each day. Liabilities may include
such reserves for taxes, estimated accrued expenses and contingencies as the
Trustees or their designates may in their sole discretion deem fair and
reasonable under the circumstances. No accruals shall be made in respect of
taxes on unrealized appreciation of securities owned unless the Trustees shall
otherwise determine. Dividends payable by the Company shall be deducted as at
the time of but immediately prior to the determination of net asset value per
Share on the record date thereof.
10.2. Derivative Claims. No Shareholder shall have the right to bring
or maintain any court action, proceeding or claim on behalf of this Company or
any Series without first making demand on the Trustees requesting the Trustees
to bring or maintain such action, proceeding or claim. Such demand shall be
excused only when the plaintiff makes a specific showing that irreparable injury
to the Company or Series would otherwise result. Such demand shall be mailed to
the Secretary of the Company at the Company's principal office and shall set
forth in reasonable detail the nature of the proposed court action, proceeding
or claim and the essential facts relied upon by the Shareholder to support the
allegations made in the demand. The Trustees shall consider such demand within
45 days of its receipt by the Company. In their
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sole discretion, the Trustees may submit the matter to a vote of Shareholders of
the Company or Series, as appropriate. Any decision by the Trustees to bring,
maintain or settle (or not to bring, maintain or settle) such court action,
proceeding or claim, or to submit the matter to a vote of Shareholders shall be
made by the Trustees in their business judgment and shall be binding upon the
Shareholders. Any decision by the Trustees to bring or maintain a court action,
proceeding or suit on behalf of the Company or a series shall be subject to the
right of the Shareholders under Article V, Section 1 of the Agreement to vote on
whether or not such court action, proceeding or suit should or should not be
brought or maintained.
10.3. Securities and Cash of the Company to be held by Custodian
Subject to Certain Terms and Conditions.
(a) All securities and cash owned by this Company shall be held by
or deposited with one or more banks or trust companies having
(according to its last published report) not less than
$5,000,000 aggregate capital, surplus and undivided profits
(any such bank or trust company being hereby designated as
"Custodian"), provided such a Custodian can be found ready and
willing to act; subject to such rules, regulations and orders,
if any, as the Commission may adopt, this Company may, or may
permit any Custodian to, deposit all or any part of the
securities owned by this Company in a system for the central
handling of securities pursuant to which all securities of any
particular class or series of any issue deposited within the
system may be transferred or pledged by bookkeeping entry,
without physical delivery. The Custodian may appoint, subject
to the approval of the Trustees, one or more subcustodians.
(b) The Company shall enter into a written contract with each
Custodian regarding the powers, duties and compensation of
such Custodian with respect to the cash and securities of the
Company held by such Custodian. Such contract and all
amendments thereto shall be approved by the Trustees.
(c) The Company shall upon the resignation or inability to serve
of any Custodian or upon change of any Custodian:
(i) in case of such resignation or inability to serve,
use its best efforts to obtain a successor Custodian;
(ii) require that the cash and securities owned by the
Company be delivered directly to the successor
Custodian; and
(iii) in the event that no successor Custodian can be
found, submit to the Shareholders, before permitting
delivery of the cash and securities owned by the
Company to a successor Custodian, the question
whether the Company shall be liquidated or shall
function without a Custodian.
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<PAGE> 8
ARTICLE 11
Shareholders' Voting Powers and Meetings
11.1. Voting Powers. The Shareholders shall have power to vote only (i)
for the election of Trustees as provided in Article IV, Section 1 of the
Agreement, provided, however, that no meeting of Shareholders is required to be
called for the purpose of electing Trustees unless and until such time as less
than a majority of the Trustees have been elected by the Shareholders, (ii) with
respect to any Adviser or Sub-Adviser as provided in Article IV, Section 6 of
the Agreement to the extent required by the 1940 Act, (iii) with respect to any
plan of distribution adopted by the Trustees with respect to one or more Series
or Classes pursuant to Rule 12b-1 under the 1940 Act, (iv) with respect to any
termination of this Company to the extent and as provided in Article IX, Section
4 of the Agreement, (v) with respect to any amendment of the Agreement to the
extent and as provided in Article IX, Section 7 of the Agreement, and (vi) with
respect to such additional matters relating to the Company as may be required by
law, the Agreement, these Bylaws or any registration of the Company with the
Commission (or any successor agency) or any state, or as the Trustees may
consider necessary or desirable. Annual meetings of Shareholders are not
required by these Bylaws. Each Shareholder shall be entitled to one vote for
each whole Share held by such Shareholder as to any matter on which he or she is
entitled to vote and shall be entitled to a proportionate fractional vote for
each fractional Share held by such Shareholder. The Shareholders of any
particular Series or Class shall not be entitled to vote on any matters as to
which such Series or Class is not affected. Except with respect to matters as to
which the Trustees have determined that only the interests of one or more
particular series or classes are affected or as required by law, all of the
Shares of Shareholders of each Series or Class shall, on matters as to which
such Series or Class is entitled to vote, vote with other Series or Classes so
entitled as a single class. Notwithstanding the foregoing, with respect to
matters which would otherwise be voted on by two or more Series or Classes as a
single class, the Trustees may, in their sole discretion, submit such matters to
the Shareholders of any or all such Series or Classes, separately. There will be
no cumulative voting in the election of Trustees. Shareholders may vote in
person or by proxy. A proxy purporting to be executed by or on behalf of a
Shareholder shall be deemed valid unless challenged at or prior to its exercise
and the burden of proving invalidity shall rest on the challenger. The placing
of a Shareholder's name on a proxy pursuant to telephonic or electronically
transmitted instructions obtained pursuant to procedures reasonably designed to
verify that such instructions have been authorized by such Shareholder shall
constitute execution of such proxy by or on behalf of such Shareholder. Until
Shares are issued, the Trustees may exercise all rights of Shareholders and may
take action required by law, the Agreement or these Bylaws to be taken by
Shareholders.
11.2. Voting Power and Meetings. Meetings of the Shareholders of the
Company or of one or more Series or Classes may be called by the Trustees for
the purpose of electing Trustees as provided in Article IV, Section 1 of the
Agreement and for such other purposes as
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<PAGE> 9
may be prescribed by law, by the Agreement or by these Bylaws. Meetings of the
Shareholders of the Company or of one or more Series or Classes may also be
called by the Trustees from time to time for the purpose of taking action upon
any other matter deemed by the Trustees to be necessary or desirable. A meeting
of Shareholders may be held at any place designated by the Trustees. Written
notice of any meeting of Shareholders shall be given or caused to be given by
the Trustees by mailing such notice at least seven days before such meeting,
postage prepaid, stating the time and place of the meeting, to each Shareholder
at the Shareholder's address as it appears on the record of the Company.
Whenever notice of a meeting is required to be given to a Shareholder under the
Agreement or these Bylaws, a written waiver thereof, executed before or after
the meeting by such Shareholder or his attorney thereunto authorized and filed
with the records of the meeting, shall be deemed equivalent to such notice.
11.3. Quorum and Required Vote. Shareholders holding ten percent (10%)
of the Shares entitled to vote shall be a quorum for the transaction of business
at a Shareholders' meeting, except that where any provision of law or of the
Agreement or these Bylaws permits or requires that holders of any Series or
Class shall vote as a Series or Class, as the case may be, then Shareholders
holding ten percent (10%) of the aggregate number of Shares held by Shareholders
of that Series or that Class entitled to vote shall be necessary to constitute a
quorum for the transaction of business by that Series or Class. Any lesser
number shall be sufficient for adjournments. Any adjourned session or sessions
may be held, within a reasonable time after the date set for the original
meeting, without the necessity of further notice. Except when a larger vote is
required by any provision of law or the Agreement or these Bylaws, the vote of
Shareholders holding a majority of the Shares shall decide any questions and a
plurality shall elect a Trustee, provided that where any provision of law or of
the Agreement or these Bylaws permits or requires that the Shareholders of any
Series or Class shall vote as a Series or Class, as the case may be, then the
vote of Shareholders holding a majority of the Shares held by the Shareholders
of that Series or Class on the matter (or a plurality with respect to the
election of a Trustee) shall decide that matter insofar as that Series or Class
is concerned.
11.4. Action by Written Consent. Any action taken by Shareholders may
be taken without a meeting if Shareholders holding a majority of the Shares held
by Shareholders entitled to vote on the matter (or such larger proportion
thereof as shall be required by any express provision of law or the Agreement or
these Bylaws) consent to the action in writing and such written consents are
filed with the records of the meetings of Shareholders. Such consent shall be
treated for all purposes as a vote taken at a meeting of Shareholders.
11.5. Record Dates. For the purpose of determining the Shareholders who
are entitled to vote or act at any meeting or any adjournment thereof, or who
are entitled to receive payment of any dividend or of any other distribution,
the Trustees may from time to time fix a time, which shall be not more than 60
days before the date of any meeting of Shareholders or the date for the payment
of any dividend or of any other distribution, as the record date for
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<PAGE> 10
determining the Shareholders having the right to notice of and to vote at such
meeting and any adjournment thereof or the right to receive such dividend or
distribution, and in such case only Shareholders of record on such record date
shall have such right notwithstanding any transfer of Shares on the books of the
Company after the record date; or without fixing such record date the Trustees
may for any of such purposes close the register or transfer books for all or any
part of such period.
ARTICLE 12
Amendments to the Bylaws
12.1. General. These Bylaws may be amended or repealed, in whole or in
part, by a majority of the Trustees then in office at any meeting of the
Trustees, or by one or more writings signed by such a majority.
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<PAGE> 1
Exhibit (d)(3)
WM STRATEGIC ASSET MANAGEMENT PORTFOLIOS, LLC
INVESTMENT MANAGEMENT AGREEMENT
INVESTMENT MANAGEMENT AGREEMENT (this "Agreement"), dated _____ __,
1999, between the WM Strategic Asset Management Portfolios, LLC, a Massachusetts
limited liability company (the "LLC"), on behalf of each of its investment
portfolios, which are listed on the signature page of this Agreement (each
referred to herein as a "Portfolio" and, collectively, as the "Portfolios") and
WM Advisors, Inc., a Washington corporation (the "Manager").
W I T N E S S E T H
WHEREAS, the LLC is an open-end management investment company,
registered under the Investment Company Act of 1940, as amended (the "1940
Act"); and
WHEREAS, the LLC desires to retain the Manager to render investment
management services to each Portfolio, and the Manager is willing to render such
services;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the parties hereto agree as follows:
1. Appointment. The LLC hereby appoints the Manager to act as investment
manager to each Portfolio for the period and on the terms set forth in
this Agreement. The Manager accepts such appointment and agrees to
render the services herein described, for the compensation herein
provided.
2. Management. Subject to the supervision of the Board of Trustees of the
LLC, the Manager shall manage the investment operations of each
Portfolio and the composition of each Portfolio's portfolio, including
the purchase, retention and disposition of securities therefor, in
accordance with such Portfolio's investment objectives, policies and
restrictions as stated in the Prospectus and Statement of Additional
Information (as such terms are hereinafter defined) and resolutions of
the LLC's Board of Trustees and subject to the following
understandings:
A. The Manager shall provide supervision of each Portfolio's
investments, furnish a continuous investment program for each
Portfolio's portfolio and determine from time to time what
securities will be purchased, retained, or sold by each
Portfolio, and what portion of the assets will be invested or
held as cash.
<PAGE> 2
B. The Manager, in the performance of its duties and obligations
under this Agreement, shall act in conformity with the LLC
Operating Agreement of the LLC and the investment policies of
the Portfolios as determined by the Board of Trustees of the
LLC.
C. The Manager shall determine the securities to be purchased or
sold by each Portfolio and shall place orders for the purchase
and sale of portfolio securities pursuant to its
determinations with brokers or dealers selected by the
Manager. In executing portfolio transactions and selecting
brokers or dealers, the Manager shall use its best efforts to
seek on behalf of each Portfolio the best overall terms
available. In assessing the best overall terms available for
any transaction, the Manager may consider all factors it deems
relevant, including the breadth of the market in the security,
the price of the security, the size of the transaction, the
timing of the transaction, the reputation, financial
condition, experience, and execution capability of a broker or
dealer, the amount of commission, and the value of any
brokerage and research services (as those terms are defined in
Section 28(e) of the Securities Exchange Act of 1934, as
amended) provided by a broker or dealer. The Manager is
authorized to pay to a broker or dealer who provides such
brokerage and research services a commission for executing a
portfolio transaction for a Portfolio which is in excess of
the amount of commission another broker or dealer would have
charged for effecting the transaction if the Manager
determines in good faith that such commission was reasonable
in relation to the value of the brokerage and research
services provided by such broker or dealer, viewed in terms of
that particular transaction or in terms of the overall
responsibilities of the Manager to the Portfolio and/or other
accounts over which the Manager exercises investment
discretion.
D. On occasions when the Manager deems the purchase or sale of a
security to be in the best interest of a Portfolio as well as
other fiduciary accounts for which it has investment
responsibility, the Manager, to the extent permitted by
applicable laws and regulations, may aggregate the securities
to be so sold or purchased in order to obtain the best
execution, most favorable net price or lower brokerage
commissions.
E. Subject to the provisions of the LLC Operating Agreement of
the LLC and the 1940 Act, the Manager, at its expense, may
select and contract with one or more investment advisers (the
"Sub-adviser") for a Portfolio to perform some or all of the
services for which it is responsible pursuant to this Section
2. The Manager shall be solely responsible for the
compensation of any Sub-adviser of a Portfolio for its
services to a Portfolio. The Manager may terminate the
services of any Sub-adviser at any time in its sole
discretion, and shall at such time assume the responsibilities
of such Sub-adviser unless and until a successor Sub-adviser
is selected. To the extent that more than one Sub-adviser is
selected,
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<PAGE> 3
the Manager shall, in its sole discretion, determine the
amount of a Portfolio's assets allocated to each such
Sub-adviser.
3. Services Not Exclusive. The investment management services rendered by
the Manager hereunder to each Portfolio are not to be deemed exclusive,
and the Manager shall have the right to render similar services to
others, including, without limitation, other investment companies.
4. Expenses. During the term of this Agreement, the Manager shall pay all
expenses incurred by it in connection with its activities under this
Agreement, including the salaries and expenses of any of the officers
or employees of the Manager who act as officers, Trustees or employees
of the LLC, but excluding the cost of securities purchased for a
Portfolio and the amount of any brokerage fees and commissions incurred
in executing portfolio transactions for a Portfolio, and shall provide
the Portfolios with suitable office space. Other expenses to be
incurred in the operation of the Portfolios (other than those borne by
any third party), including without limitation, taxes, interest,
brokerage fees and commissions, fees of Trustees who are not officers,
directors, or employees of the Manager, federal registration fees and
state Blue Sky qualification fees, administration fees, bookkeeping,
charges of custodians, transfer and dividend disbursing agents' fees,
certain insurance premiums, industry association fees, outside auditing
and legal expenses, costs of maintaining the Fund's or the LLC's
existence, costs of independent pricing services, costs attributable to
investor services (including, without limitation, telephone and
personnel expenses), costs of preparing, printing and distributing
prospectuses to existing shareholders, costs of stockholders' reports
and meetings of shareholders and Trustees, as applicable, and any
extraordinary expenses will be borne by the Portfolios.
5. Compensation. For the services provided pursuant to this Agreement,
each Portfolio shall pay to the Manager as full compensation therefor a
monthly fee computed on the average daily net assets at the annual rate
for each Portfolio as stated in Schedule A attached hereto. The LLC
acknowledges that the Manager, as agent for the Portfolios, will
allocate a portion of the fee equal to the sub-advisory fee payable to
the sub-advisor, if any, under its sub-advisory agreement to the
sub-advisor for sub-advisory services. The LLC acknowledges that the
Manager, as agent for the Portfolios, may allocate a portion of the fee
to WM Shareholder Services, Inc. for administrative services, portfolio
accounting and regulatory compliance systems. The Manager also from
time to time and in such amounts as it shall determine in its sole
discretion may allocate a portion of the fee to WM Funds Distributor,
Inc. for facilitating distribution of the Portfolios. This payment
would be made from revenue which otherwise would be considered profit
to the Manager for its services. This disclosure is being made to the
LLC solely for the purpose of conforming with requirements of the
Washington Department of Revenue for exclusion of revenue from the
Washington Business and Occupation Tax.
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<PAGE> 4
6. Limitation of Liability. The Manager shall not be liable for any error
of judgment or mistake of law or for any loss suffered by a Portfolio
in connection with the matters to which this Agreement relates, except
a loss resulting from willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or from
reckless disregard by it of its obligations and duties under this
Agreement.
7. Delivery of Documents. The LLC has heretofore delivered to the Manager
true and complete copies of each of the following documents and shall
promptly deliver to it all future amendments and supplements thereto,
if any:
A. LLC Operating Agreement (as presently in effect and as amended
from time to time);
B. Bylaws of the LLC;
C. Registration Statement under the Securities Act of 1933 and
under the 1940 Act of the LLC on Form N-1A, and all amendments
thereto, as filed with the Securities and Exchange Commission
(the "Registration Statement") relating to the Portfolios and
the shares of the Portfolios;
D. Notification of Registration of the LLC under the 1940 Act on
Form N-8A;
E. Prospectuses of the Portfolios (such prospectuses as presently
in effect and/or as amended or supplemented from time to time,
the "Prospectus"); and
F. Statement of Additional Information of the Portfolios (such
statement as presently in effect and/or as amended or
supplemented from time to time, the "Statement of Additional
Information").
8. Duration and Termination. This Agreement shall become effective as of
the date first above-written for an initial period of two years and
shall continue thereafter so long as such continuance is specifically
approved at least annually (a) by the vote of the Board of Trustees,
including a majority of those members of the LLC's Board of Trustees
who are not parties to this Agreement or "interested persons" of any
such party, cast in person at a meeting called for that purpose, or (b)
by vote of a majority of the outstanding voting securities of the
Portfolios. Notwithstanding the foregoing, this Agreement (a) may be
terminated at any time, without the payment of any penalty, by either
the LLC (by vote of the LLC's Board of Trustees or by vote of a
majority of the outstanding voting securities of the Portfolios) or the
Manager, on sixty (60) days prior written notice to the other, and (b)
shall automatically terminate in the event of its assignment. As used
in this Agreement, the terms "majority of the outstanding voting
securities", "interested persons" and "assignment" shall have the
meanings assigned to such terms in the 1940 Act.
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<PAGE> 5
9. Amendments. No provision of this Agreement may be amended, modified,
waived or supplemented, except by a written instrument signed by the
party against which enforcement is sought. No amendment of this
Agreement shall be effective until approved in accordance with any
applicable provisions of the 1940 Act.
10. Use of Name and Logo. The LLC agrees that it shall furnish to the
Manager, prior to any use or distribution thereof, copies of all
prospectuses, statements of additional information, proxy statements,
reports to stockholders, sales literature, advertisements, and other
material prepared for distribution to stockholders of the LLC or to the
public, which in any way refer to or describe the Manager or which
include any trade names, trademarks or logos of the Manager or of any
affiliate of the Manager. The LLC further agrees that it shall not use
or distribute any such material if the Manager reasonably objects in
writing to such use or distribution within five (5) business days after
the date such material is furnished to the Manager.
The Manager and/or its affiliates own the names "WM," "WM Group of
Funds" and any other names which may be listed from time to time on a
Schedule B to be attached hereto that they may develop for use in
connection with the LLC, which names may be used by the LLC only with
the consent of the Manager and/or its affiliates. The Manager, on
behalf of itself and/or its affiliates, consents to the use by the LLC
of such names or any other names embodying such names, but only on
condition and so long as (i) this Agreement shall remain in full force,
(ii) the LLC shall fully perform, fulfill and comply with all
provisions of this Agreement expressed herein to be performed,
fulfilled or complied with by it, and (iii) the Manager is the manager
of each Portfolio of the LLC. No such name shall be used by the LLC at
any time or in any place or for any purposes or under any conditions
except as provided in this section. The foregoing authorization by the
Manager, on behalf of itself and/or its affiliates, to the LLC to use
such names as part of a business or name is not exclusive of the right
of the Manager and/or its affiliates themselves to use, or to authorize
others to use, the same; the LLC acknowledges and agrees that as
between the Manager and/or its affiliates and the LLC, the Manager
and/or its affiliates have the exclusive right so to use, or authorize
others to use, such names, and the LLC agrees to take such action as
may reasonably be requested by the Manager, on behalf of itself and/or
its affiliates, to give full effect to the provisions of this section
(including, without limitation, consenting to such use of such names).
Without limiting the generality of the foregoing, the LLC agrees that,
upon (i) any violation of the provisions of this Agreement by the LLC
or (ii) any termination of this Agreement, by either party or
otherwise, the LLC will, at the request of the Manager, on behalf of
itself and/or its affiliates, made within six months after such
violation or termination, use its best efforts to change the name of
the LLC and/or the Portfolios so as to eliminate all reference, if any,
to such names and will not thereafter transact any business in a name
containing such names in any form or combination whatsoever, or
designate itself as the same entity as or successor to an
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<PAGE> 6
entity of such names, or otherwise use such names or any other
reference to the Manager and/or its affiliates, except as may be
required by law. Such covenants on the part of the LLC shall be binding
upon it, its Trustees, officers, shareholders, creditors and all other
persons claiming under or through it.
The provisions of this section shall survive termination of this
Agreement.
11. Notices. Any notice or other communication required to be given
pursuant to this Agreement shall be deemed duly given if delivered or
mailed by registered mail, postage prepaid, if to the LLC: 1201 Third
Avenue, 22nd Floor, Seattle, Washington 98101; or if to the Manager:
1201 Third Avenue, 22nd Floor, Seattle, Washington 98101; or to either
party at such other address as such party shall designate to the other
by a notice given in accordance with the provisions of this section.
12. Miscellaneous.
A. Except as otherwise expressly provided herein or authorized by
the Board of Trustees of the LLC from time to time, the
Manager for all purposes herein shall be deemed to be an
independent contractor and shall have no authority to act for
or represent the LLC or the Portfolios in any way or otherwise
be deemed an agent of the LLC or the Portfolios.
B. The LLC shall furnish or otherwise make available to the
Manager such information relating to the business affairs of
the Portfolios as the Manager at any time or from time to time
reasonably requests in order to discharge its obligations
hereunder.
C. This Agreement shall be governed by and construed in
accordance with the laws of The Commonwealth of Massachusetts
and shall inure to the benefit of the parties hereto and their
respective successors.
D. If any provision of this Agreement shall be held or made
invalid or by any court decision, statute, rule or otherwise,
the remainder of this Agreement shall not be affected thereby.
13. Limitation of Liability. A copy of the Certificate of Formation of the
LLC is on file with the Secretary of the Commonwealth of Massachusetts,
and notice is hereby given that this Agreement is executed by an
officer of the LLC on behalf of the Trustees of the LLC, as trustees
and not individually, on further behalf of each Portfolio, and that the
obligations of this Agreement with respect to a Portfolio shall be
binding upon the assets and properties of that Portfolio only and shall
not be binding upon the assets and properties of any other Portfolio or
series of the LLC or upon any of the Trustees, officers, employees,
agents or shareholders of the Portfolios or the LLC individually.
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<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the date first above-written.
WM STRATEGIC ASSET MANAGEMENT PORTFOLIOS, LLC,
on behalf of its portfolios
INCOME PORTFOLIO,
FLEXIBLE INCOME PORTFOLIO,
BALANCED PORTFOLIO,
CONSERVATIVE GROWTH PORTFOLIO, and
STRATEGIC GROWTH PORTFOLIO
By:
----------------------------------
Name: William G. Papesh
Title: President
Attest:
By:
-----------------------------------
Name: John T. West
Title: Secretary
WM ADVISORS, INC.
By:
----------------------------------
William G. Papesh
President
Attest:
By:
-----------------------------------
Name: Sharon L. Howells
Title: Secretary
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<PAGE> 1
Exhibit (e)(3)
WM STRATEGIC ASSET MANAGEMENT PORTFOLIOS, LLC
DISTRIBUTION CONTRACT
THIS DISTRIBUTION CONTRACT (this "Agreement"), dated this __th day of
________, 1999, between the WM Strategic Asset Management Portfolios, LLC, a
Massachusetts limited liability company (the "LLC"), on behalf of each of its
series which are listed on the signature page of this Agreement (each a "Fund"),
and WM Funds Distributor, Inc., a Washington corporation doing business at
Sacramento, California herein sometimes referred to as the "Distributor."
RECITALS
WHEREAS, the LLC is registered as an open-end, management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act")
and the Funds are separate series of the LLC;
WHEREAS, each Fund and the Distributor desire to enter into an
agreement that sets forth standard terms and conditions for distribution and
other services for Class A and Class B shares of each Fund;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration the receipt of which is
hereby acknowledged, the parties hereto agree as follows:
1. APPOINTMENT.
1.1. The LLC hereby affirms the appointment of WM Funds Distributor, Inc.
as the agent for distribution of shares for each Fund and grants Distributor the
right to sell Class A and Class B shares on behalf of each Fund and on terms set
forth in this Agreement.
1.2. The Distributor accepts such appointment and agrees to render the
services herein set forth for the payments herein provided (including
reimbursement of expenses).
2. DELIVERY OF DOCUMENTS.
2.1. The LLC and/or each Fund has furnished the Distributor with copies
of:
<PAGE> 2
(a) LLC Operating Agreement and all amendments thereto for the LLC (as
amended from time to time, the "LLC Agreement");
(b) Bylaws and all amendments thereto for the LLC (as amended from time
to time, the "Bylaws"); and
(c) Each Fund's registration statement, prospectus and statement of
additional information, then in effect (the "Registration Statement")
under the Securities Act of 1933, as amended (the "1933 Act") and the
1940 Act.
2.2. From time to time, each Fund will furnish the Distributor with
current copies of all amendments or supplements to the foregoing, if any, and
all documents, notices and reports filed with the Securities and Exchange
Commission (the "SEC") and will make available, upon request, evidence of
payment of registration fees imposed from time to time by the States in which
securities of each Fund are sold by the Distributor.
3. DUTIES OF THE DISTRIBUTOR.
3.1. The Distributor shall provide each Fund with the benefit of its best
judgment, efforts and facilities in rendering its services as Distributor. The
Distributor will act as the exclusive Distributor of the Class A and Class B
shares of each Fund, subject to the supervision of the LLC's Board of Trustees
and the following understandings:
(a) The LLC's Board of Trustees shall be responsible for and control
the conduct of each Fund's affairs;
(b) In all matters relating to the performance of this Agreement, the
Distributor will act in conformity with the LLC Agreement and Bylaws of
the LLC and the Registration Statement of each Fund and with the
instructions and directions of the LLC's Board of Trustees; and
(c) The Distributor will conform to and comply with applicable
requirements of the 1940 Act, the 1933 Act and all other applicable
federal or state laws and regulations.
3.2. In carrying out its obligations hereunder, the Distributor shall:
(a) Provide to the LLC's Board of Trustees, at least quarterly, a
written report of the amounts expended in connection with all
distribution services rendered pursuant to this Agreement, including
the purposes for which such expenditures were made; and
(b) Take, on behalf of each Fund, all actions which appear to be
necessary to carry into effect the distribution of each Fund's shares
as provided in Section 4.
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<PAGE> 3
4. DISTRIBUTION OF SHARES.
4.1. It is mutually understood and agreed that the Distributor does not
undertake to sell all or any specific portion of the Class A or Class B shares
of any Fund. Distributor shall have the right to enter into sales agreements
with dealers of its choice for the sale of the Class A or Class B shares of each
Fund to the public at the public offering price. Distributor shall set forth in
such agreements the portion of the sales charge which may be retained by such
dealers.
4.2. If any Fund determines that it is necessary to file the form of
dealer agreement and amendments thereto as an exhibit to its currently effective
Registration Statement under the 1933 Act, then the Distributor shall provide
the Fund with currently effective documents.
4.3. A Fund shall not sell any of its Class A or Class B shares except
through the Distributor. Notwithstanding the provisions of the foregoing
sentence:
(a) A Fund may issue its Class A or Class B shares at their net asset
value to any shareholder of the Fund purchasing such shares with
dividends or other cash distributions received from the Fund pursuant
to any special or continuing offer made to shareholders;
(b) The Distributor may, and when requested by a Fund, shall, suspend
its efforts to effectuate sales of the Class A or Class B shares of a
Fund at any time when in the opinion of the Distributor or of the Fund
no sales should be made because of a need to revise a Registration
Statement, or because of market or other economic considerations or
abnormal circumstances of any kind. Either party in its sole discretion
may reject orders for the purchase of such shares;
(c) A Fund may withdraw the offering of its Class A or Class B shares
at any time with the consent of the Distributor or without such consent
when so required by the provisions of any statute or of any order, rule
or regulation of any governmental body having jurisdiction;
(d) The price at which the Class A or Class B shares will be sold to
investors (the "offering price") shall be the net asset value per
share, determined in accordance with the provisions of the Fund's
current Registration Statement, plus a sales charge determined in the
amount and manner established from time to time by the Distributor and
set forth in a Fund's current prospectus. The Fund shall receive the
net asset value per share for the sale of its Class A or Class B
shares;
(e) If a sales charge is in effect, the Distributor shall have the
right, subject to such rules or regulations of the Securities and
Exchange Commission as may then be in effect pursuant to Section 22 of
the 1940 Act, to pay a portion of the sales charge to dealers
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<PAGE> 4
who have sold Class A or Class B shares of the Fund in accordance with
provisions of dealer agreements; and
(f) The Distributor is not authorized by any Fund to provide any
information or to make any representations other than those contained
in the appropriate Registration Statements, or contained in shareholder
reports or other material that may be prepared by or on behalf of a
Fund for Distributor's use. This shall not be construed to prevent the
Distributor from preparing and distributing sales literature or other
material as it may deem appropriate.
5. COMPENSATION FOR SERVICING SHAREHOLDER ACCOUNTS.
5.1. As compensation for its services hereunder, the Distributor shall be
entitled to receive all front-end loads and contingent deferred sales charges as
may be described from time to time in the Registration Statement. The Fund also
shall pay a distribution fee to the Distributor at an annual rate as shall be
authorized by the shareholders and further set by the Board of Trustees pursuant
to the provisions of the LLC's Distribution Plans for Class A and Class B
shares, then in effect, in accordance with Rule 12b-1 under the 1940 Act (the
"Distribution Plans").
5.2. The LLC acknowledges that the Distributor and its dealers may
compensate their investment representatives for opening accounts, processing
investors' purchase and redemption orders, responding to inquiries from Fund
shareholders concerning the status of their accounts and the operations of a
Fund, and communicating with a Fund and its transfer agent on behalf of Fund
shareholders in such manner and amount as the Distributor may deem appropriate.
6. EXPENSES.
The expenses connected with distribution shall be allocable between the
Funds and the Distributor as follows:
6.1. The Distributor shall furnish the services of personnel to the
extent that such services are required to carry out its obligations under this
Agreement.
6.2. Each Fund assumes and shall pay or cause to be paid the following
expenses incurred on its behalf: Registration of shares including the expense of
printing and distributing prospectuses to existing shareholders; expenses
incurred for maintaining the LLC's or Fund's existence, taxes and expenses
related to portfolio transactions; charges and expenses of any registrar,
custodian or depository for portfolio securities and other property, and any
stock transfer, dividend or account agent or agents; all taxes, including
securities issuance and transfer taxes, and fees payable to federal, state or
other governmental agencies; costs and expenses in connection with the
registration, maintenance of registration and qualification for sale of a Fund
and its shares with the SEC and various states and other jurisdictions
(including
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<PAGE> 5
filing fees, legal fees and disbursements of counsel); expenses of shareholders'
and directors' meetings and preparing, printing, and mailing of proxy statements
and reports to shareholders; fees and travel expenses of directors who are not
"interested persons" as that term is defined in the 1940 Act; expenses incident
to the payment of any dividend, distribution, withdrawal or redemption, whether
in shares or in cash; charges and expenses of any outside service used for
pricing of a Fund's shares; fees and expenses of legal counsel and of
independent accountants; membership dues of industry associations; postage
(excluding postage for promotional and sales literature); insurance premiums on
property of personnel (including, but not limited to legal claims and
liabilities and litigation costs and any indemnification related thereto); and
all other charges and costs of a Fund's operation unless otherwise explicitly
provided herein.
6.3. The Distributor will bear all expenses incurred in connection with
its performance of the services described herein and the incurring of
distribution expenses under this Agreement. For purposes of this Agreement,
"distribution expenses" of the Distributor shall mean all expenses borne by the
Distributor which represent payment for activities primarily intended to result
in the sale of Class A or Class B shares, including, but not limited to, the
expenses of distribution that are described in the Distribution Plans. The
Distributor will furnish the Board of Trustees statements of distribution
revenues and expenditures at least quarterly with respect to the Class A and
Class B shares of each Fund as required by the Distribution Plans for each
respective Class.
7. NON-EXCLUSIVITY.
7.1. The services of the Distributor are not exclusive and the
Distributor shall be entitled to render distribution or other services to others
(including other investment companies) and to engage in other activities.
7.2. It is understood and agreed that officers of the Distributor may
serve as officers or trustees of the LLC, and that officers or trustees of the
LLC may serve as officers of the Distributor to the extent permitted by law; and
that officers of the Distributor are not prohibited from engaging in any other
business activity or from rendering services to any other person, or from
serving as partners, officers or directors of any other firm or corporation,
including other investment companies and broker/dealers.
8. TERM AND APPROVAL.
8.1. This Agreement shall become effective as of the date first above
written for an initial period of two years, and shall continue in force and
effect from year to year thereafter, provided that, with respect to any Fund or
Class, such continuance is specifically approved at least annually:
(a) By the LLC's Board of Trustees, including the affirmative vote of a
majority of the Board of Trustees of the LLC who are not (i) parties to
this Agreement, (ii) interested
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<PAGE> 6
persons of any such party (as defined in Section 2(a)(19) of the 1940
Act), or (iii) persons having a direct or indirect financial interest
in the operation of this Agreement or any agreement related to this
Agreement (the "Qualified Trustees") by votes cast in person at a
meeting called for the purpose of voting on such approval, or
(b) By the vote of a majority of the outstanding voting securities of
the Fund (as defined in Section 2(a)(42) of the 1940 Act).
9. TERMINATION.
9.1. This Agreement may be terminated, with respect to any Fund or Class,
at any time, without the payment of any penalty, on sixty (60) days' written
notice, by vote of the Board of Trustees of the LLC, or by a vote of a majority
of the Qualified Trustees, or by a vote of a majority of the outstanding voting
securities of the Fund (as defined in Section 2(a)(42) of the 1940 Act), or by
the Distributor on sixty (60) days' written notice to the Fund. The notice
provided for herein may be waived by either party.
9.2. This Agreement shall automatically terminate in the event of its
assignment, the term "assignment" for this purpose having the meaning set forth
in Section 2(a)(4) of the 1940 Act.
10. REPRESENTATIONS AND WARRANTIES.
10.1. The LLC represents and warrants to the Distributor that any
registration statement, prospectus and statement of additional information, when
such Registration Statement becomes effective, will include all statements
required to be contained therein in conformity with the 1933 Act, the 1940 Act
and the rules and regulations of the SEC; that all statements of fact contained
in any registration statement, prospectus or statement of additional information
will be true and correct when such Registration Statement becomes effective; and
that neither any registration statement nor any prospectus or statement of
additional information when such Registration Statement becomes effective will
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading to a purchaser of shares.
10.2. The Distributor may, but shall not be obligated to, propose from
time to time such amendment or amendments to any registration statement and such
supplement or supplements to any prospectus or statement of additional
information as, in the light of future developments, may, in the opinion of the
Distributor's counsel, be necessary or advisable. If the LLC shall not propose
such amendment or amendments and/or supplement or supplements within fifteen
(15) days after receipt by the LLC of a written request from the Distributor to
do so, the Distributor may, at its option, terminate this Agreement.
10.3. The LLC shall not file any amendment to any registration statement
or supplement to any prospectus or statement of additional information without
giving the Distributor
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<PAGE> 7
reasonable notice thereof in advance; provided, however, that nothing contained
in this Agreement shall in any way limit the LLC's right to file at any time
such amendments to any registration statement and/or supplements to any
prospectus or statement of additional information, of whatever character, as the
LLC may deem advisable, such right being in all respects absolute and
unconditional.
11. AMENDMENTS.
This Agreement may be amended, with respect to any Fund or Class, by
the parties hereto only if such amendment is specifically approved by the Board
of Trustees of the LLC or by the vote of majority of outstanding voting
securities of the Fund, and by a majority of the Qualified Trustees, which vote
must be cast in person at a meeting called for the purpose of voting on such
approval; provided, however, that any such amendment that constitutes an
amendment of the Distribution Plans for any Class of shares of the Fund shall be
approved by shareholders pursuant to Rule 12b-1 to the extent required by
applicable law.
12. INDEMNIFICATION.
12.1. The LLC authorizes the Distributor and any dealers with whom
Distributor has entered into dealer agreements to use any prospectus or
statement of additional information furnished by the LLC from time to time, in
connection with the sale of shares of each Fund. The LLC agrees to indemnify,
defend and hold Distributor, its several officers and directors, and any person
who controls Distributor within the meaning of Section 15 of the 1933 Act, free
and harmless from and against any and all claims, demands, liabilities and
expenses (including the cost of investigating or defending such claims, demands
or liabilities and any counsel fees incurred in connection therewith) which
Distributor, its officers and directors, or any such controlling person, may
incur under the 1933 Act, the 1940 Act or common law or otherwise, arising out
of or based upon any untrue statement or alleged untrue statement of a material
fact contained in any registration statement, any prospectus or any statement of
additional information, or arising out of or based upon any omission or alleged
omission to state a material fact required to be stated in any registration
statement, any prospectus or any statement of additional information, or
necessary to make the statements in any of them not misleading; provided,
however, that the LLC's agreement to indemnify the Distributor, its officers or
directors, and any such controlling person shall not be deemed to cover any
claims, demands, liabilities or expenses arising out of or based upon any
statements or representations made by Distributor or its representatives or
agents other than such statements and representations as are contained in any
registration statement, prospectus or statement of additional information and in
such financial and other statements as are furnished to the Distributor pursuant
to Section 2 hereof; and further provided that the LLC's agreement to indemnify
the Distributor and the LLC's representations and warranties shall not be deemed
to cover any liability to the LLC or its shareholders to which Distributor would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of Distributor's
reckless disregard of its obligations and duties under this Agreement. The LLC's
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<PAGE> 8
agreement to indemnify Distributor, its officers and directors, and any such
controlling person, as aforesaid, is expressly conditioned upon the LLC's being
notified of any action brought against Distributor, its officers or directors,
or any such controlling person, such notification to be given by letter or by
telegram addressed to the LLC at its principal office stated herein and sent to
the LLC by the person against whom such action is brought, within ten (10) days
after the summons or other first legal process shall have been served. The
failure so to notify the LLC of any such action shall not relieve the LLC from
any liability that the LLC may have to the person against whom such action is
brought by reason of any such untrue or alleged untrue statement or omission or
alleged omission otherwise than on account of the LLC's indemnity agreement
contained in this Sub-Section 12.1. The LLC's indemnification agreement
contained in this Sub-Section 12.1 and the LLC's representations and warranties
in this Agreement shall remain operative and in full force and effect regardless
of any investigation made by or on behalf of Distributor, its officers and
directors, or any controlling person, and shall survive the delivery of any
shares. This agreement of indemnity will inure exclusively to Distributor's
benefit, to the benefit of its several officers and directors and their
respective estates, and to the benefit of the controlling persons and their
successors. The LLC agrees to notify Distributor promptly of the commencement of
any litigation or proceedings against the LLC or any of its officers or trustees
in connection with the issuance and sale of any shares.
12.2. Distributor agrees to indemnify, defend and hold the LLC, its
several officers and trustees, and any person who controls the LLC within the
meaning of Section 15 of the 1933 Act, free and harmless from and against any
and all claims, demands, liabilities and expenses (including the costs of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) that the LLC, its officers or trustees or
any such controlling person may incur under the 1933 Act, the 1940 Act or common
law or otherwise, but only to the extent that such liability or expense incurred
by the LLC, its officers or trustees or such controlling person resulting from
such claims or demands shall arise out of or be based upon (a) any unauthorized
sales literature, advertisements, information, statements or representations or
(b) any untrue or allegedly untrue statement of a material fact contained in
information furnished in writing by the Distributor to the LLC and used in the
answers to any of the items of the Registration Statement or in the
corresponding statements made in the prospectus or statement of additional
information, or shall arise out of or be based upon any omission or alleged
omission to state a material fact in connection with such information furnished
in writing by Distributor to the LLC and required to be stated in such answers
or necessary to make such information not misleading. Distributor's agreement to
indemnify the LLC, its officers and trustees, and any such controlling person,
as aforesaid, is expressly conditioned upon Distributor being notified of any
action brought against the LLC, its officers or trustees, or any such
controlling person, such notification to be given by letter or telegram
addressed to Distributor at its principal office as stated herein and sent to
Distributor by the person against whom such action is brought, within ten days
after the summons or other first legal process shall have been served. The
failure so to notify the Distributor of any such action shall not relieve
Distributor from any liability that the Distributor may have to the LLC, its
officers or trustees, or to such controlling person by reason of any such untrue
or alleged untrue
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<PAGE> 9
statement or omission or alleged omission otherwise than on account of
Distributor's indemnity agreement contained in this Sub-Section 12.2. The
Distributor agrees to notify the LLC promptly of the commencement of any
litigation or proceedings against Distributor or any of its officers or
directors in connection with the issuance and sale of any shares.
12.3. In case any action shall be brought against any indemnified party
under Sub-Sections 12.1 or 12.2, and it shall notify the indemnifying party of
the commencement thereof, the indemnifying party shall be entitled to
participate in, and, to the extent that it shall wish to do so, to assume the
defense thereof with counsel satisfactory to such indemnified party. If the
indemnifying party opts to assume the defense of such action, the indemnifying
party will not be liable to the indemnified party for any legal or other
expenses subsequently incurred by the indemnified party in connection with the
defense thereof other than (a) reasonable costs of investigation or the
furnishing of documents or witnesses and (b) all reasonable fees and expenses of
separate counsel to such indemnified party if (i) the indemnifying party and the
indemnified party shall have agreed to the retention of such counsel or (ii) the
indemnified party shall have concluded reasonably that representation of the
indemnifying party and the indemnified party by the same counsel would be
inappropriate due to actual or potential differing interests between them in the
conduct of the defense of such action.
13. LIABILITY OF THE DISTRIBUTOR.
In the performance of its duties hereunder, the Distributor shall be
obligated to exercise care and diligence and to act in good faith and to use its
best efforts within reasonable limits to insure the accuracy of all services
performed under this Agreement, but the Distributor shall not be liable for any
act or omission which does not constitute willful misfeasance, bad faith or
gross negligence on the part of the Distributor or reckless disregard by the
Distributor of its duties under this Agreement.
14. NOTICES.
Any notices under this Agreement shall be in writing, addressed and
delivered or mailed postage paid to the other party at such address as such
other party may designate for the receipt of such notice. Until further notice
to the other party, it is agreed that the address of each Fund shall be 1201
Third Avenue, 22nd Floor, Seattle, WA 98101, and the address of the Distributor
shall be 1300 21st Street, 2nd Floor, Sacramento, CA 95814.
15. LIMITATION OF LIABILITY.
A copy of the Certificate of Formation of the LLC is on file with the
Secretary of the Commonwealth of Massachusetts, and notice is hereby given that
this Agreement is executed by an officer of the LLC on behalf of the trustees of
the LLC, as trustees and not individually, on further behalf of each Fund, and
that the obligations of this Agreement as they relate to each Fund shall be
binding upon the assets and properties of that Fund only and shall not be
binding
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<PAGE> 10
upon the assets and properties of any other Fund or series of the LLC or upon
any of the trustees, officers, employees, agents or shareholders of the Fund or
the LLC individually.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers on the day and year first
above written.
WM STRATEGIC ASSET MANAGEMENT
PORTFOLIOS, LLC, on behalf of its portfolios:
INCOME PORTFOLIO,
FLEXIBLE INCOME PORTFOLIO,
BALANCED PORTFOLIO,
CONSERVATIVE GROWTH PORTFOLIO and
STRATEGIC GROWTH PORTFOLIO
By:
-------------------------
William G. Papesh
President
Attest:
By:
--------------------
John T. West
Secretary
WM FUNDS DISTRIBUTOR, INC.
By:
-------------------------
William G. Papesh
President
Attest:
By:
--------------------
Sharon L. Howells
Secretary
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<PAGE> 1
Exhibit (g)(3)
DELEGATION, CUSTODY AND INFORMATION SERVICES AGREEMENT
AGREEMENT dated as of ______ __, 1999, between WM Trust I, a
Massachusetts business trust, WM Trust II, a Massachusetts business trust, WM
Strategic Asset Management Portfolios, LLC, a Massachusetts limited liability
company, and WM Variable Trust, a Massachusetts business trust, each having its
principal office and place of business at 1201 Third Avenue, 22nd Floor,
Seattle, Washington 98101 (the "Funds"), and BOSTON SAFE DEPOSIT AND TRUST
COMPANY, a Massachusetts trust company with its principal place of business at
One Boston Place, Boston, Massachusetts 02108 (the "Custodian").
W I T N E S S E T H:
WHEREAS, The Board of Trustees of the Funds desires to delegate certain
of its responsibilities for performing the services set forth in paragraphs
(c)(1), (c)(2) and (c)(3) of Rule 17f-5 under the Investment Company Act of
1940, as amended (the "1940 Act") to the Custodian;
WHEREAS, The Custodian agrees to accept such delegation with respect to
Assets held by Foreign Custodians in the jurisdictions listed on Appendix B as
set forth in Article II;
WHEREAS, The Funds and the Custodian desire to restate the terms of any
existing custody agreement between various Funds and the Custodian to reflect
the changes made by the revised Rule 17f-5, and to set forth their agreement
with respect to the custody of the Fund's Securities and cash and the processing
of Securities transactions;
WHEREAS, The Funds desire to hire the Custodian as a vendor to provide
certain information available to the Custodian with respect to foreign
jurisdictions, Securities Depositories and Foreign Custodians not listed on
Appendix B for which the board or a delegatee other than the Custodian has the
responsibilities described in paragraphs (c)(1), (c)(2) and (c)(3) of Rule 17f-
5; and
WHEREAS, The Custodian agrees to provide, as a vendor, the information
described in Article IV if, and when available in accordance with the terms and
conditions of Article IV.
NOW THEREFORE, in consideration of the mutual promises hereinafter set
forth, the Funds and the Custodian agree as follows:
<PAGE> 2
ARTICLE I
DEFINITIONS
Whenever used in this Agreement or in any Appendices to this Agreement,
the following words and phrases, unless the context otherwise requires, shall
have the following meanings:
a. "Affiliated Person" shall have the meaning of the term within
Section 2(a)(3) of the 1940 Act.
b. "Agreement" shall mean this Delegation, Custody and
Information Services Agreement.
c. "Assets" shall mean any of a Fund's investments (including
foreign currencies) for which the primary market is outside
the United States, and such cash and cash equivalents as are
reasonably necessary to effect a Fund's transactions in such
investments.
d. "Authorized Person" shall be deemed to include the Chairman of
the Board of Trustees, the President, and any Vice President,
the Secretary, the Treasurer or any other person, whether or
not any such person is an officer or employee of the Fund,
duly authorized by the Board of Trustees of the Fund to add or
delete jurisdictions pursuant to Article II and to give Oral
Instructions and Written Instructions on behalf of the Funds
and listed in the certification annexed hereto as Appendix A
or such other certification as may be received by the
Custodian from time to time.
e. "Board" shall mean the Board of Trustees of the Funds.
f. "Book-Entry System" shall mean the Federal Reserve/Treasury
book-entry system for United States and federal agency
Securities, its successor or successors and its nominee or
nominees.
g. "Business Day" shall mean any day on which the Funds, the
Custodian, the Book-Entry System and appropriate clearing
corporation(s) are open for business.
h. "Certificate" shall mean any notice, instruction or other
instrument in writing, authorized or required by this
Agreement to be given to the Custodian, which is actually
received by the Custodian and signed on behalf of the Fund by
any two Authorized Persons or any two officers thereof.
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<PAGE> 3
i. "Country Risk" means all factors reasonably related to the
systematic risk of holding assets in a particular country
including, but not limited to, such country's financial
infrastructure (including any Securities Depositories
operating in such country), prevailing custody and settlement
practices and laws applicable to the safekeeping and recovery
of Assets held in custody.
j. "Custodian" shall mean Boston Safe Deposit and Trust Company
in its capacity as delegate, custodian or information services
provider as required under the terms of each Article.
k. "Custody Agreement" shall mean the provisions of Articles I,
III and V of this Agreement and any Appendices referenced
therein and attached to this Agreement.
l. "Delegation Agreement" shall mean the provisions of Articles
I, II and V of this Agreement and any Appendices referenced
therein and attached to this Agreement.
m. "Foreign Custodian" shall mean: (a) a banking institution or
trust company incorporated or organized under the laws of a
country other than the United States, that is regulated as
such by the country's government or an agency of the country's
government; (b) a majority-owned direct or indirect subsidiary
of a U.S. Bank or bank-holding company; or (c) any entity
other than a Securities Depository with respect to which
exemptive or no-action relief has been granted by the
Securities and Exchange Commission. For the avoidance of
doubt, the term "Foreign Custodian" shall not include
Euroclear, Cedel, First Chicago Clearing Centre or any other
transnational system for the central handling of securities or
equivalent book-entries regardless of whether or not such
entities are acting in a custodial capacity with respect to
Assets, Securities or other property of the Funds.
n. "Funds" shall mean WM Trust I, WM Trust II, WM Strategic Asset
Management Portfolios, LLC, and WM Variable Trust.
o. "Information Services Agreement" shall mean the provisions of
Articles I and IV and V of this Agreement and any Appendices
referenced therein and attached to this Agreement.
p. "LLC Agreement" shall mean the Limited Liability Company
Agreement of WM Strategic Asset Management Portfolios, LLC, as
the same may be amended from time to time.
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<PAGE> 4
q. "Money Market Security" shall be deemed to include, without
limitation, debt obligations issued or guaranteed as to
interest and principal by the government of the United States
or agencies or instrumentalities thereof ("U.S. government
securities"), commercial paper, bank certificates of deposit,
bankers' acceptances and short-term corporate obligations,
where the purchase or sale of such securities normally
requires settlement in federal funds on the same day as such
purchase or sale, and repurchase and reverse repurchase
agreements with respect to any of the foregoing types of
securities.
r. "Oral Instructions" shall mean verbal instructions from a
person reasonably believed by the Custodian, based on the
instructions actually received by the Custodian to be an
Authorized Person.
s. "Prospectus" shall mean a Fund's current prospectus and
statement of additional information relating to the
registration of the Fund's Shares under the Securities Act of
1933, as amended.
t. "Rule 17f-5" shall mean Rule 17f-5 promulgated under Section
17(f) of the 1940 Act as such rule (and any successor
regulation) may be amended from time to time.
u. "Selected Countries" means the jurisdictions listed on
Appendix B as such may be amended from time to time in
accordance with Article II.
v. "Securities Depository" shall mean any entity described in
subparagraph (a)(1)(ii) or paragraph (a)(6) of Rule 17f-5 or
any other recognized foreign or domestic clearing facility,
book-entry system, centralized custodial depository or similar
organization. For the avoidance of doubt, the term "Securities
Depository" shall include Euroclear, Cedel, First Chicago
Clearing Centre or any other transnational system for the
central handling of securities or equivalent book-entries
regardless of whether or not such entities are acting in a
custodial capacity with respect to Assets, Securities or other
property of the Fund.
w. "Security" or "Securities" shall be deemed to include bonds,
debentures, notes, stocks, shares, evidences of indebtedness,
and other securities, commodities interests and investments
from time to time owned by the Fund.
x. "Shares" refers to shares of beneficial interest par value per
share of the Funds.
y. "Subcustodian" means a banking institution or any affiliate
thereof located in the United States.
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z. "Transfer Agent" shall mean the person which performs the
transfer agent, dividend disbursing agent and shareholder
servicing agent functions for the Fund.
aa. "Trust Agreement" shall mean the Agreement and Declaration of
Trust of WM Trust I, the Master Trust Agreement of WM Trust
II, and the WM Variable Trust Agreement and Declaration of
Trust, as the same may be amended from time to time.
bb. "Written Instructions" shall mean a written communication
actually received by the Custodian from a person reasonably
believed by the Custodian to be an Authorized Person by any
system, including, without limitation, electronic
transmissions, facsimile and telex.
cc. The "1940 Act" refers to the Investment Company Act of 1940,
and the Rules and Regulations thereunder, all as amended from
time to time.
ARTICLE II
DELEGATION AGREEMENT
1. REPRESENTATIONS.
A. Status of Custodian. The Custodian represents that it is a
U.S. Bank within the meaning of paragraph (a)(7) of Rule 17f-5.
B. Fund Determinations and Authorizations. The Funds represent
that the Board has determined that it is reasonable to rely on
Custodian to perform the responsibilities delegated pursuant to this
Delegation Agreement and that it has made the delegations set forth
below, subject to the acceptance of such delegation by the Custodian on
the terms and conditions set forth in this Delegation Agreement.
C. Power and Authority; No Conflicts. Each party represents to
the other that it has all necessary power and authority, and has
obtained any consent or approval necessary to permit it, to enter into
and perform under this Delegation Agreement and that this Delegation
Agreement does not violate, breach, give rise to a default or right of
termination under or otherwise conflict with any applicable law,
regulation, ruling, decree or other governmental authorization or any
contract to which it is a party or by which any of its assets is bound.
D. Fund Responsibilities. The Funds acknowledge and agree
that, except as expressly set forth in this Delegation Agreement, each
Fund is solely responsible to assure that the maintenance of the Fund's
Securities and cash (including Assets)
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<PAGE> 6
hereunder complies with applicable laws and regulations, including
without limitation the 1940 Act and the rules and regulations
promulgated thereunder and applicable interpretations thereof or
exemptions therefrom.
2. DELEGATION AND CUSTODIAN'S SERVICES.
A. Delegation. Subject to the provisions of this Delegation
Agreement and the requirements of Rule 17f-5, the Board hereby
delegates to, and the Custodian hereby agrees to accept the
responsibility for selecting, contracting with and monitoring Foreign
Custodians in Selected Countries in accordance with paragraphs (c)(1),
(c)(2) and (c)(3) of Rule 17f-5. Pursuant to this delegation, the Board
authorizes the Custodian to place and maintain Assets in the care of
any Foreign Custodian(s) in the Selected Countries and to enter into,
on behalf of the Fund, such written contracts governing the Fund's
foreign custody arrangements with such Foreign Custodian(s) as the
Custodian deems appropriate.
B. Scope of Delegation. The delegation contained in Section
2(a) applies only to the selection of, contracting with and monitoring
of Foreign Custodians located in Selected Countries and only with
respect to Assets held by such Foreign Custodians in Selected
Countries. The Board and the Custodian agree that nothing in this
Delegation Agreement or this Agreement as a whole shall cause or be
deemed to cause any delegation to the Custodian of any of the Board's
responsibilities with respect to Assets, Securities or other property
held in Securities Depositories or Assets held by Foreign Custodians in
jurisdictions other than Selected Countries.
C. Additions to Appendix B. Appendix B may be amended from
time to time to add jurisdictions by an instrument in writing signed by
an Authorized Person of the Fund and the Custodian, provided that with
respect to any amendment that adds a jurisdiction to Appendix B, the
Custodian's responsibility and authority with respect to any
jurisdiction so added will commence at the later of (i) the time that
the Custodian and the Fund's Authorized Person have both executed such
amendment, or (ii) the time that the Custodian receives a copy of such
executed amendment.
D. Deletions from Appendix B. The Board may withdraw its
delegation with respect to any jurisdiction upon written notice to the
Custodian. The Custodian shall withdraw its acceptance of delegated
authority with respect to any jurisdiction upon written notice to the
Board. Upon receipt of such notice by the party to whom such notice is
given, the Custodian shall have no further responsibilities under this
Delegation Agreement with respect to the selecting, contracting with,
and monitoring of any Foreign Custodian holding Assets in the removed
jurisdiction.
E. Reports to Board. Custodian shall provide written reports
notifying Board of the placement of Assets with a particular Foreign
Custodian and of any
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material change in Fund's foreign custody arrangements. Such reports
shall be provided to Board quarterly, except as otherwise agreed by the
Custodian and the Fund.
F. Monitoring System. In each case in which the Custodian has
exercised the authority delegated under this Article II, Section 2, to
place Assets with a Foreign Custodian, the Custodian is authorized to,
and shall, on behalf of Funds, establish a system to re-assess or
re-evaluate, at least annually (i) the appropriateness of maintaining
Assets with such Foreign Custodian and (ii) the contract governing the
Fund's arrangements with such Foreign Custodian.
3. GUIDELINES AND PROCEDURES.
A. Country Risk. In exercising its delegated authority under
Article II, Section 2, the Custodian may assume, for all purposes, that
the Board (or a Fund's investment adviser, pursuant to authority
delegated by the Board) has considered, and, pursuant to its fiduciary
duties to the Fund and the Fund's shareholders, determined to accept,
such Country Risk. In exercising its delegated authority under Article
II, Section 2, the Custodian may also assume that the Board (or a
Fund's investment adviser, pursuant to authority delegated by the
Board) has, and will continue to, monitor such Country Risk to the
extent the Board deems necessary or appropriate. Nothing in this
Delegation Agreement shall require the Custodian to make any selection
or to engage in any monitoring on behalf of the Fund (i) that would
entail consideration of Country Risk or (ii) otherwise in connection
with any Securities Depository or Foreign Custodians in jurisdictions
other than Selected Countries.
B. Standard of Care for Selection of Eligible Foreign
Custodians. In exercising the authority delegated under Article II,
Section 2, to place Assets with any Foreign Custodian in a Selected
Country, the Custodian shall determine that Assets will be subject to
reasonable care, based on the standards applicable to custodians in the
Selected Country in which the Assets will be held, after considering
all factors relevant to the safekeeping of such assets, including the
factors set forth in Rule 17f-5(c)(1)(i)-(iv).
C. Standard for Contracting with Eligible Foreign Custodians.
In exercising the authority delegated under Article II, Section 2, to
enter into a written contract governing the Fund's foreign custody
arrangements with a Foreign Custodian in a Selected Country, the
Custodian shall determine that such contract provides reasonable care
for Assets based on the standards applicable to Foreign Custodians in
the Selected Country. In making this determination, the Custodian shall
consider the provisions of Rule 17f-5(c)(2).
D. Standard of Care for Delegated Authority. In exercising the
authority delegated under Article II, Section 2, the Custodian agrees
to exercise reasonable care,
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<PAGE> 8
prudence and diligence such as a person having responsibility for the
safekeeping of the Assets would exercise in like circumstances.
ARTICLE III
CUSTODY PROVISIONS
1. APPOINTMENT OF CUSTODIAN.
A. The Board hereby constitutes and appoints the Custodian as
custodian of all the Securities and monies at the time owned by or in
the possession of each Fund during the period of this Agreement.
B. The Custodian hereby accepts appointment as such custodian
and agrees to perform the duties thereof as hereinafter set forth.
2. CUSTODY OF CASH AND SECURITIES.
A. Receipt and Holding of Assets. Each Fund will deliver or
cause to be delivered to the Custodian all Securities and monies owned
by it at any time during the period of this Custody Agreement. The
Custodian will not be responsible for such Securities and monies until
actually received by it. The Board hereby specifically authorizes the
Custodian to hold Securities, Assets or other property of each Fund
with any Subcustodian, Foreign Custodian or Securities Depository.
Securities and monies of each Fund deposited in a Securities Depository
will be represented in accounts which include only assets held by the
Custodian for customers, including but not limited to accounts for
which the Custodian acts in a fiduciary or representative capacity.
B. Accounts and Disbursements. The Custodian shall establish
and maintain a separate account for each Fund and shall credit to the
separate account all monies received by it for the account of each such
Fund and shall disburse the same only:
1. In payment for Securities purchased for the Fund;
2. In payment of dividends or distributions with respect to
the Shares;
3. In payment of original issue or other taxes with respect to
the Shares;
4. In payment for Shares which have been redeemed by the Fund;
5. Pursuant to Written Instructions setting forth the name and
address of the person to whom the payment is to be made, the amount to
be paid and the purpose for which payment is to be made, provided that
in the event of disbursements pursuant to
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<PAGE> 9
this sub-section 2(b), the Fund shall indemnify and hold the Custodian
harmless from any claims or losses arising out of such disbursements in
reliance on such Written Instructions which it, in good faith, believes
to be received from duly Authorized Persons; or
6. In payment of fees and in reimbursement of the expenses and
liabilities of the Custodian attributable to the Fund, as provided in
Article III, Section 9(I) and Article V, Section 1.
C. Confirmation and Statements. Promptly after the close of
business on each day, the Custodian shall furnish each Fund with
confirmations and a summary of all transfers to or from the account of
the Fund during said day. Where securities purchased by a Fund are in a
fungible bulk of securities registered in the name of the Custodian (or
its nominee) or shown on the Custodian's account on the books of a
Securities Depository, the Custodian shall by book-entry or otherwise
identify the quantity of those securities belonging to the Fund. At
least monthly, the Custodian shall furnish each Fund with a detailed
statement of the Securities and monies held for the Fund under this
Custody Agreement.
D. Registration of Securities and Physical Separation. The
Custodian is authorized to hold all Securities, Assets, or other
property of each Fund in nominee name, in bearer form or in book-entry
form. The Custodian may register any Securities, Assets or other
property of a Fund in the name of the Fund, in the name of the
Custodian, any Subcustodian, or Foreign Custodian, in the name of any
duly appointed registered nominee of such entity, or in the name of a
Securities Depository or its successor or successors, or its nominee or
nominees. The Custodian is hereby authorized to deposit with, and hold
Securities, Assets or other property of a Fund with any Securities
Depository. Each Fund agrees to furnish to the Custodian appropriate
instruments to enable the Custodian to hold or deliver in proper form
for transfer, or to register in the name of its registered nominee or
in the name of a Securities Depository, any Securities which it may
hold for the account of the Fund and which may from time to time be
registered in the name of the Fund. The Custodian shall hold all such
Securities specifically allocated to a Fund which are not held in a
Securities Depository in a separate account for the Fund in the name of
the Fund physically segregated at all times from those of any other
person or persons.
E. Segregated Accounts. Upon receipt of a Written Instruction,
the Custodian will establish segregated accounts on behalf of each Fund
to hold liquid or other assets as it shall be directed by a Written
Instruction and shall increase or decrease the assets in such
segregated accounts only as it shall be directed by subsequent Written
Instruction.
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<PAGE> 10
F. Collection of Income and Other Matters Affecting
Securities. Unless otherwise instructed to the contrary by a Written
Instruction, the Custodian by itself, or through the use of a
Securities Depository with respect to Securities therein deposited,
shall with respect to all Securities held for a Fund in accordance with
this Agreement:
1. Collect all income due or payable, provided that the
Custodian shall not be responsible for the failure to receive payment
of (or late payment of) distribution with respect to securities or
other property held in the account;
2. Present for payment and collect the amount payable upon all
Securities which may mature or be called, redeemed, retired or
otherwise become payable. Notwithstanding the foregoing, the Custodian
shall have no responsibility to the Fund for monitoring or ascertaining
any call, redemption or retirement dates with respect to put bonds
which are owned by the Fund and held by the Custodian or its nominees.
Nor shall the Custodian have any responsibility or liability to the
Fund for any loss by the Fund for any missed payments or other defaults
resulting therefrom, unless the Custodian received timely notification
from the Fund specifying the time, place and manner for the presentment
of any such put bond owned by the Fund and held by the Custodian or its
nominee. The Custodian shall not be responsible and assumes no
liability for the accuracy or completeness of any notification the
Custodian may furnish to the Fund with respect to put bonds;
3. Surrender Securities in temporary form for definitive
Securities;
4. Execute any necessary declarations or certificates of
ownership under the Federal income tax laws or the laws or regulations
of any other taxing authority now or hereafter in effect; and
5. Hold directly, or through a Securities Depository with
respect to Securities therein deposited, for the account of the Fund
all rights and similar Securities issued with respect to any Securities
held by the Custodian hereunder for the Fund.
G. Delivery of Securities and Evidence of Authority. Upon
receipt of a Written Instruction and not otherwise, except for
subparagraphs 5, 6, 7, and 8 of this section 2(G) which may be effected
by Oral or Written Instructions, the Custodian, directly or through the
use of a Securities Depository, shall:
1. Execute and deliver or cause to be executed and delivered
to such persons as may be designated in such Written Instructions,
proxies, consents, authorizations, and any other instruments whereby
the authority of a Fund as owner of any Securities may be exercised;
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<PAGE> 11
2. Deliver or cause to be delivered any Securities held for a
Fund in exchange for other Securities or cash issued or paid in
connection with the liquidation, reorganization, refinancing, merger,
consolidation or recapitalization of any corporation, or the exercise
of any conversion privilege;
3. Deliver or cause to be delivered any Securities held for a
Fund to any protective committee, reorganization committee or other
person in connection with the reorganization, refinancing, merger,
consolidation or recapitalization or sale of assets of any corporation,
and receive and hold under the terms of this Custody Agreement in the
separate account for the Fund such certificates of deposit, interim
receipts or other instruments or documents as may be issued to it to
evidence such delivery;
4. Make or cause to be made such transfers or exchanges of the
assets specifically allocated to the separate account of a Fund and
take such other steps as shall be stated in Written Instructions to be
for the purpose of effectuating any duly authorized plan of
liquidation, reorganization, merger, consolidation or recapitalization
of the Fund;
5. Deliver Securities upon sale of such Securities for the
account of a Fund pursuant to Section 3;
6. Deliver Securities upon the receipt of payment in
connection with any repurchase agreement related to such Securities
entered into by a Fund;
7. Deliver Securities owned by a Fund to the issuer thereof or
its agent when such Securities are called, redeemed, retired or
otherwise become payable; provided, however, that in any such case the
cash or other consideration is to be delivered to the Custodian.
Notwithstanding the foregoing, the Custodian shall have no
responsibility to the Fund for monitoring or ascertaining any call,
redemption or retirement dates with respect to the put bonds which are
owned by the Fund and held by the Custodian or its nominee. Nor shall
the Custodian have any responsibility or liability to the Fund for any
loss by the Fund for any missed payment or other default resulting
therefrom unless the Custodian received timely notification from the
Fund specifying the time, place and manner for the presentment of any
such put bond owned by the Fund and held by the Custodian or its
nominee. The Custodian shall not be responsible and assumes no
liability to the Fund for the accuracy or completeness of any
notification the Custodian may furnish to the Fund with respect to put
bonds;
8. Deliver Securities for delivery in connection with any
loans of Securities made by a Fund but only against receipt of adequate
collateral as agreed upon from time to time by the custodian and the
Fund which may be in the form of cash or U.S.
government securities or a letter of credit;
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9. Deliver Securities for delivery as security in connection
with any borrowings by a Fund requiring a pledge of Fund assets, but
only against receipt of amounts borrowed;
10. Deliver Securities upon receipt of Written Instructions
from a Fund for delivery to the Transfer Agent or to the holders of
Shares in connection with distributions in kind, as may be described
from time to time in the Fund's Prospectus, in satisfaction of requests
by holders of Shares for repurchase or redemption;
11. Deliver Securities as collateral in connection with short
sales by a Fund of common stock for which the Fund owns the stock or
owns preferred stocks or debt securities convertible or exchangeable,
without payment or further consideration, into shares of the common
stock sold short;
12. Deliver Securities for any purpose expressly permitted by
and in accordance with procedures described in a Fund's Prospectus; and
13. Deliver Securities for any other proper business purpose,
but only upon receipt of, in addition to Written Instructions, a
certified copy of a resolution of the Board of Trustees signed by an
Authorized Person and certified by the Secretary of a Fund, specifying
the Securities to be delivered, setting forth the purpose for which
such delivery is to be made, declaring such purpose to be a proper
business purpose, and naming the person or persons to whom delivery of
such Securities shall be made.
Notwithstanding anything in this Agreement to the contrary, the
Custodian shall not be liable for the acts or omissions of any agent appointed
under paragraph (f) of Section 9 pursuant to Oral or Written Instructions
including, but not limited to, any broker-dealer or other entity designated by
the Fund or its investment advisor to hold any Securities or other property of
the Fund as collateral or otherwise pursuant to any investment strategy.
H. Endorsement and Collection of Checks, Etc. The Custodian is
hereby authorized to endorse and collect all checks, drafts or other
orders for the payment of money received by the Custodian for the
account of the Fund.
3. SETTLEMENT OF FUND TRANSACTIONS.
A. Customary Practices. Notwithstanding anything to the
contrary in this Agreement, the Custodian is authorized to settle
transactions in accordance with trading and processing practices
customary in the jurisdiction or market where the transaction occurs.
Each Fund acknowledges that this may, in certain circumstances, require
the delivery of cash or Securities (or other property) without the
concurrent receipt of Securities (or other property) or cash and, in
such circumstances, the Fund shall have
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responsibility for nondelivery of Securities or other property (or late
delivery) or nonreceipt of payments of monies (or late payment) by the
counterparty.
B. Contractual Income. The Custodian shall credit each Fund
with income and maturity proceeds on securities on contractual payment
date net of any taxes or upon actual receipt as agreed between the
Custodian and the Fund. To the extent a Fund and the Custodian have
agreed to credit income on contractual payment date, the Custodian may
reverse such accounting entries with back value to the contractual
payment date if the Custodian reasonably believes that it will not
receive such amount.
C. Contractual Settlement. The Custodian will attend to the
settlement of securities transactions on the basis of either
contractual settlement date accounting or actual settlement date
accounting as agreed between a Fund and the Custodian. To the extent
the Fund and the Custodian have agreed to settle certain securities
transactions on the basis of contractual settlement date accounting,
the Custodian may reverse with back value to the contractual settlement
date any entry relating to such contractual settlement where the
related transaction remains unsettled in accordance with established
procedures.
4. LENDING OF SECURITIES.
The Custodian may lend the assets of each Fund in accordance with the
terms and conditions of a separate securities lending agreement.
5. PAYMENT OF DIVIDENDS OR DISTRIBUTIONS.
A. Each Fund shall furnish to the Custodian the vote of the
Board of Trustees of the Fund certified by the Secretary (i)
authorizing the declaration of distributions on a specified periodic
basis and authorizing the Custodian to rely on Oral or Written
Instructions specifying the date of the declaration of such
distribution, the date of payment thereof, the record date as of which
shareholders entitled to payment shall be determined, the amount
payable per share to the shareholders of record as of the record date
and the total amount payable to the Transfer Agent on the payment date,
or (ii) setting forth the date of declaration of any distribution by
the Fund, the date of payment thereof, the record date as of which
shareholders entitled to payment shall be determined, the amount
payable per share to the shareholders of record as of the record date
and the total amount payable to the Transfer Agent on the payment date.
B. Upon the payment date specified in such vote, Oral
Instructions or Written Instructions, as the case may be, the Custodian
shall pay out the total amount payable to the Transfer Agent of the
Fund.
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6. SALE AND REDEMPTION OF SHARES OF A FUND.
A. Whenever a Fund shall sell any Shares, the Fund shall
deliver or cause to be delivered to the Custodian a Written Instruction
duly specifying:
1. The number of Shares sold, trade date, and price; and
2. The amount of money to be received by the Custodian for the
sale of such Shares.
3. The Custodian understands and agrees that Written
Instructions may be furnished subsequent to the purchase of Shares and
that the information contained therein will be derived from the sales
of Shares as reported to the Fund by the Transfer Agent.
B. Upon receipt of money from the Transfer Agent, the
Custodian shall credit such money to the separate account of the Fund.
C. Upon issuance of any Shares in accordance with the
foregoing provisions of this Section 6, the Custodian shall pay all
original issue or other taxes required to be paid in connection with
such issuance upon the receipt of a Written Instruction specifying the
amount to be paid.
D. Except as provided hereafter, whenever any Shares are
redeemed, the Fund shall cause the Transfer Agent to promptly furnish
to the Custodian Written Instructions, specifying:
1. The number of Shares redeemed; and
2. The amount to be paid for the Shares redeemed.
The Custodian further understands that the information
contained in such Written Instructions will be derived from the
redemption of Shares as reported to the Fund by the Transfer Agent.
E. Upon receipt from the Transfer Agent of advice setting
forth the number of Shares received by the Transfer Agent for
redemption and that such Shares are valid and in good form for
redemption, the Custodian shall make payment to the Transfer Agent of
the total amount specified in a Written Instruction issued pursuant to
paragraph (D) of this Section 6.
F. Notwithstanding the above provisions regarding the
redemption of Shares, whenever such Shares are redeemed pursuant to any
check redemption privilege which
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may from time to time be offered by the Fund, the Custodian, unless
otherwise instructed by a Written Instruction shall, upon receipt of
advice from the Fund or its agent stating that the redemption is in
good form for redemption in accordance with the check redemption
procedure, honor the check presented as part of such check redemption
privilege out of the monies specifically allocated to the Fund in such
advice for such purpose.
7. INDEBTEDNESS.
A. Each Fund will cause to be delivered to the Custodian by
any bank (excluding the custodian) from which the Fund borrows money
for temporary administrative or emergency purposes using Securities as
collateral for such borrowings, a notice or undertaking in the form
currently employed by any such bank setting forth the amount which such
bank will loan to the Fund against delivery of a stated amount of
collateral. The Fund shall promptly deliver to the Custodian Written
Instructions stating with respect to each such borrowing: (1) the name
of the bank; (2) the amount and terms of the borrowing, which may be
set forth by incorporating by reference an attached promissory note,
duly endorsed by the Fund, or other loan agreement; (3) the time and
date, if known, on which the loan is to be entered into (the "borrowing
date"); (4) the date on which the loan becomes due and payable; (5) the
total amount payable to the Fund on the borrowing date; (6) the market
value of Securities to be delivered as collateral for such loan,
including the name of the issuer, the title and the number of shares or
the principal amount of any particular Securities; (7) whether the
Custodian is to deliver such collateral through a Securities
Depository; and (8) a statement that such loan is in conformance with
the 1940 Act and the Fund's Prospectus.
B. Upon receipt of the Written Instruction referred to in
subparagraph (a) above, the Custodian shall deliver on the borrowing
date the specified collateral and the executed promissory note, if any,
against delivery by the lending bank of the total amount of the loan
payable, provided that the same conforms to the total amount payable as
set forth in the Written Instruction. The Custodian may, at the option
of the lending bank, keep such collateral in its possession, but such
collateral shall be subject to all rights therein given the lending
bank by virtue of any promissory note or loan agreement. The Custodian
shall deliver as additional collateral in the manner directed by the
Fund from time to time such Securities as may be specified in Written
Instruction to collateralize further any transaction described in this
Section 7. The Fund shall cause all Securities released from collateral
status to be returned directly to the Custodian, and the Custodian
shall receive from time to time such return of collateral as may be
tendered to it. In the event that the Fund fails to specify in Written
Instruction all of the information required by this Section 7, the
Custodian shall not be under any obligation to deliver any Securities.
Collateral returned to the Custodian shall be held hereunder as it was
prior to being used as collateral.
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8. PERSONS HAVING ACCESS TO ASSETS OF THE FUND.
A. No trustee or agent of a Fund, and no officer, director,
employee or agent of a Fund's investment adviser, of any sub-investment
adviser of a Fund, or of the Fund's administrator, shall have physical
access to the assets of the Fund held by the Custodian or be authorized
or permitted to withdraw any investments of the Fund, nor shall the
Custodian deliver any assets of the Fund to any such person. No
officer, director, employee or agent of the Custodian who holds any
similar position with the Fund's investment adviser, with any
sub-investment adviser of the Fund or with the Fund's administrator
shall have access to the assets of the Fund.
B. Nothing in this Section 8 shall prohibit any duly
authorized officer, employee or agent of a Fund, or any duly authorized
officer, director, employee or agent of the investment adviser, of any
sub-investment adviser of a Fund or of a Fund's administrator, from
giving Oral Instructions or Written Instructions to the Custodian or
executing a Certificate so long as it does not result in delivery of or
access to assets of the Fund prohibited by paragraph (A) of this
Section 8.
9. CONCERNING THE CUSTODIAN.
A. Standard of Conduct. Notwithstanding any other provision of
this Custody Agreement, the Custodian shall not be liable for any loss
or damage, including counsel fees, resulting from its action or
omission to act or otherwise, except for any such loss or damage
arising out of the negligence or willful misconduct of the Custodian.
The Custodian may, with respect to questions of law, apply for and
obtain the advice and opinion of counsel to the Funds or of its own
counsel, at the expense of the Funds, and shall be fully protected with
respect to anything done or omitted by it in good faith in conformity
with such advice or opinion.
B. Limit of Duties. Without limiting the generality of the
foregoing, the Custodian shall be under no duty or obligation to
inquire into, and shall not be liable for:
1. The validity of the issue of any Securities purchased by a
Fund, the legality of the purchase thereof, or the propriety of the
amount paid therefor;
2. The legality of the sale of any Securities by a Fund or the
propriety of the amount for which the same are sold;
3. The legality of the issue or sale of any Shares, or the
sufficiency of the amount to be received therefor;
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<PAGE> 17
4. The legality of the redemption of any Shares, or the
propriety of the amount to be paid therefor;
5. The legality of the declaration or payment of any
distribution of a Fund;
6. The legality of any borrowing for temporary administrative
or emergency purposes.
C. No Liability Until Receipt. The Custodian shall not be
liable for, or considered to be the Custodian of, any money, whether or
not represented by any check, draft, or other instrument for the
payment of money, received by it on behalf of a Fund until the
Custodian actually receives and collects such money.
D. Amounts Due from Transfer Agent. The Custodian shall not be
under any duty or obligation to take action to effect collection of any
amount due to a Fund from the Transfer Agent nor to take any action to
effect payment or distribution by the Transfer Agent of any amount paid
by the Custodian to the Transfer Agent in accordance with this Custody
Agreement.
E. Collection Where Payment Refused. The Custodian shall not
be under any duty or obligation to take action to effect collection of
any amount, if the Securities upon which such amount is payable are in
default, or if payment is refused after due demand or presentation,
unless and until (i) it shall be directed to take such action by a
Certificate and (ii) it shall be assured to its satisfaction of
reimbursement of its costs and expenses in connection with any such
action.
F. Appointment of Subcustodians. (i) The Custodian is hereby
authorized to appoint one or more Subcustodians to hold Securities and
monies at any time owned by a Fund. The Custodian is also hereby
authorized to place Assets with any Foreign Custodian located in a
jurisdiction which is not a Selected Country and with Euroclear, Cedel,
First Chicago Clearing Centre or any other transnational depository.
G. No Duty to Ascertain Authority. The Custodian shall not be
under any duty or obligation to ascertain whether any Securities at any
time delivered to or held by it for a Fund are such as may properly be
held by the Fund under the provisions of the Trust Agreement, LLC
Agreement and the Prospectus.
H. Reliance on Certificates and Instructions. The Custodian
shall be entitled to rely upon any Certificate, notice or other
instrument in writing received by the Custodian and reasonably believed
by the Custodian to be genuine and to be signed by an officer or
Authorized Person of a Fund. The Custodian shall be entitled to rely
upon any Written Instructions or Oral Instructions actually received by
the Custodian pursuant to the applicable Sections of this Agreement and
reasonably believed by the Custodian to
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<PAGE> 18
be genuine and to be given by an Authorized Person. Each Fund agrees to
forward to the Custodian Written Instructions from an Authorized Person
confirming such Oral Instructions in such manner so that such Written
Instructions are received by the Custodian, whether by hand delivery,
telex or otherwise, by the close of business on the same day that such
Oral Instructions are given to the Custodian. Each Fund agrees that the
fact that such confirming instructions are not received by the
Custodian shall in no way affect the validity of the transactions or
enforceability of the transactions hereby authorized by the Fund. Each
Fund agrees that the Custodian shall incur no liability to the Fund in
acting upon Oral Instructions given to the Custodian hereunder
concerning such transactions provided such instructions reasonably
appear to have been received from a duly Authorized Person. The
Custodian shall be under no duty to question any direction of an
Authorized Person with respect to the portion of the account over which
such Authorized Person has authority, to review any property held in
the account, to make any suggestions with respect to the investment and
reinvestment of the assets in the account, or to evaluate or question
the performance of any Authorized Person. The Custodian shall not be
responsible or liable for any diminution of value of any securities or
other property held by the Custodian.
I. Overdraft Facility and Security for Payment. In the event
that the Custodian is directed by Written Instruction (or Oral
Instructions confirmed in writing in accordance with Section 9(H)
hereof) to make any payment or transfer of monies on behalf of a Fund
for which there would be, at the close of business on the date of such
payment or transfer, insufficient monies held by the Custodian on
behalf of the Fund, the Custodian may, in its sole discretion, provide
an overdraft (an "Overdraft") to the Fund in an amount sufficient to
allow the completion of such payment or transfer. Any Overdraft
provided hereunder: (a) shall be payable on the next Business Day,
unless otherwise agreed by the Fund and the Custodian; and (b) shall
accrue interest from the date of the Overdraft to the date of payment
in full by the Fund at a rate agreed upon from time to time, by the
Custodian and the Fund. The Custodian and the Fund acknowledge that the
purpose of such Overdraft is to temporarily finance the purchase of
Securities for prompt delivery in accordance with the terms hereof, to
meet unanticipated or unusual redemptions, to allow the settlement of
foreign exchange contracts or to meet other emergency expenses not
reasonably foreseeable by the Fund. The Custodian shall promptly notify
the Fund (an "Overdraft Notice") of any Overdraft by facsimile
transmission or in such other manner as the Fund and the Custodian may
agree. To secure payment of any Overdraft, the Fund hereby grants to
the Custodian a continuing security interest in and right of setoff
against the Securities and cash in the Fund's account from time to time
in the full amount of such Overdraft. Should the Fund fail to pay
promptly any amounts owed hereunder, the Custodian shall be entitled to
use available cash in the Fund's account and to liquidate Securities in
the account as is necessary to meet the Fund's obligations under the
Overdraft. In any such case, and without limiting the foregoing, the
Custodian shall be entitled to take such other actions(s) or exercise
such other options, powers and rights as the Custodian now or
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<PAGE> 19
hereafter has as a secured creditor under the Massachusetts Uniform
Commercial Code or any other applicable law.
ARTICLE IV
INFORMATION SERVICES AGREEMENT
The following sets forth our agreement with respect to the delivery of
certain information to the Board or its agents as requested by the Board from
time to time.
A. PROVISIONS OF INFORMATION
In accordance with the provisions of this Information Services
Agreement, the Custodian agrees to provide to the Board, or at the
direction of the Board, to a Fund's investment advisors, the
information set forth in Article IV, Section 2 with respect to Foreign
Custodians and Securities Depositories which hold Securities, Assets,
or other property of the Fund and the systems and environment for
securities processing in the jurisdiction in which such Foreign
Custodians or Securities Depositories are located. The Custodian shall
provide only that portion of such information as is reasonably
available to it.
B. INFORMATION TO BE PROVIDED
1. COUNTRY INFORMATION
a. Settlement Environment
b. Depository
c. Settlement Period
d. Trading
e. Security Registration
f. Currency
g. Foreign Investment Restrictions
h. Entitlements
i. Proxy Voting
j. Foreign Taxation
2. DEPOSITORY INFORMATION (if applicable to the Country)
a. Name
b. Information relative to Determining
Compulsory or Voluntary Status of the
Facility
c. Type of Entity
d. Ownership Structure
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<PAGE> 20
e. Operating History
f. Eligible Instruments
g. Security Form
h. Financial Data
i. Regulator
j. External Auditor
3. SUBCUSTODIAN INFORMATION
a. Financial Information
b. Regulator
c. External Auditor
d. How Securities are Held
e. Operational Capabilities
f. Insurance Coverage
4. INFORMATION ON THE FOLLOWING LEGAL QUESTIONS
a. Would the applicable foreign law restrict
the access afforded the independent public
accountants of the Fund to books and records
kept by a foreign custodian?
b. Would the applicable foreign law restrict
the ability of the Fund to recover its
assets in the event of bankruptcy of the
foreign custodian?
c. Would the applicable foreign law restrict
the ability of the Fund to recover assets
that are lost while under the control of the
foreign custodian?
d. What are the foreseeable difficulties in
converting the Fund's cash into U.S.
dollars?
C. LIABILITY AND WARRANTIES
The Custodian will take all reasonable precautions to ensure
that the information provided is accurate. However, due to the nature
and source of this information, and the necessity of relying on various
information sources, most of which are external to the Custodian, the
Custodian shall have no liability for direct or indirect use of such
information. The Custodian makes no other warranty or condition, either
express or implied, as to the merchantability or fitness for any
particular purpose of the information provided under this Article IV.
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<PAGE> 21
ARTICLE V
ADDITIONAL PROVISIONS
1. COMPENSATION.
A. The Custodian shall be entitled to receive, and each Fund
agrees to pay to the Custodian, such compensation as may be agreed upon
from time to time between the Custodian and the Fund. The Custodian may
charge against any monies held on behalf of the Fund pursuant to this
Agreement such compensation and any expenses incurred by the Custodian
in the performance of its duties pursuant to this Agreement. The
Custodian shall also be entitled to charge against any money held on
behalf of the Fund pursuant to this Agreement the amount of any loss,
damage, liability or expense incurred with respect to the Fund,
including counsel fees, for which it shall be entitled to reimbursement
under the provisions of this Agreement. The expenses which the
Custodian may charge against such account include, but are not limited
to, the expenses of Subcustodians and Foreign Custodians incurred in
settling transactions outside of Boston, Massachusetts or New York
City, New York involving the purchase and sale of Securities.
B. Each Fund will compensate the Custodian for its services
rendered under this Agreement in accordance with the fees set forth in
a separate Fee Schedule which schedule may be modified by the Custodian
upon not less than thirty days prior written notice to the Fund.
C. Any compensation agreed to hereunder may be adjusted from
time to time by a revised Fee Schedule, dated and signed by an
Authorized Person or authorized representative of each party hereto.
D. The Custodian will bill each Fund as soon as practicable
after the end of each calendar month. The Fund will promptly pay to the
Custodian the amount of such billing. In making payments to service
providers pursuant to Written Instructions, the Fund acknowledges that
the Custodian is acting as a paying agent and not as the payor, for tax
information reporting and withholding purposes.
2. INSOLVENCY OF ELIGIBLE FOREIGN CUSTODIANS.
The Custodian shall not be responsible or liable for any losses or
damages suffered by a Fund arising as a result of the insolvency of any Foreign
Custodian except with respect to any Foreign Custodian in any Selected Country
which the Custodian appointed in accordance with the provisions of Article II
but only to the extent that the Custodian failed to comply with the
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<PAGE> 22
standard of care set forth in Article II with respect to the selection and
monitoring of such Foreign Custodian.
3. LIABILITY FOR DEPOSITORIES.
The Custodian shall not be responsible for any losses resulting from
the deposit or maintenance of Securities, Assets or other property of a Fund
with any Securities Depository.
4. DAMAGES.
Under no circumstances shall the Custodian be liable for any indirect,
consequential or special damages with respect to its role as Delegate, Custodian
or information vendor.
5. LIMITATION OF LIABILITY.
A copy of the Trust Agreement or LLC Certificate of Formation of each
Fund is on file with the Secretary of State of the Commonwealth of
Massachusetts, and notice is hereby given that this Agreement is executed by an
officer of each Fund on behalf of the trustees of that Fund, as trustees and not
individually, on further behalf of each series of each Fund, and that the
obligations of this Agreement as they relate to each series of each Fund shall
be binding upon the assets and properties of that series only and shall not be
binding upon the assets and properties of any other series of a Fund or upon any
of the trustees, officers, employees, agents or shareholders of a series of a
Fund or a Fund individually.
6. TERM AND TERMINATION
A. This Agreement and any portion thereof shall become
effective on the date first set forth above (the "Effective Date") and
shall continue in effect thereafter until such time as this Agreement
may be terminated in accordance with the provisions hereof.
B. Any of the parties hereto may terminate this Agreement as a
whole or may terminate either the Delegation Agreement or the
Information Services Agreement individually or the Delegation Agreement
collectively, or may terminate this Agreement as to such party, by
giving to the other parties a notice in writing specifying the date and
scope of such termination, which shall be not less than 60 days after
the date of receipt of such notice. In the event such notice is given
by a Fund, it shall be accompanied by a certified vote of the Board of
Trustees of the Fund, electing to terminate this Agreement or the
applicable portion thereof and designating a successor, which shall be
a person qualified to so act under the 1940 Act if necessary.
In the event such notice is given by the Custodian of any
termination which include the Custody Agreement, each Fund shall, on or
before the termination date,
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<PAGE> 23
deliver to the Custodian a certified vote of the Board of Trustees of
the Fund, designating a successor custodian or custodians. In the
absence of such designation by the Fund, the Custodian may designate a
successor custodian, which shall be a person qualified to so act under
the 1940 Act. If a Fund fails to designate a successor custodian, the
Fund shall upon the date specified in the notice of termination of this
Agreement and upon the delivery by the Custodian of all Securities and
monies then owned by the Fund, be deemed to be its own custodian and
the Custodian shall thereby be relieved of all duties and
responsibilities pursuant to this Agreement or the portion so
terminated, other than the duty with respect to Securities held in the
Book-Entry System which cannot be delivered to the Fund.
C. Upon the date set forth in such notice under paragraph (B)
of this Section 6, this Agreement or portion thereof shall terminate to
the extent specified in such notice, and if the Custody Agreement is
terminated the Custodian shall upon receipt of a notice of acceptance
by the successor custodian on that date deliver directly to the
successor custodian all Securities and monies then held by the
Custodian on behalf of the Fund, after deducting all fees, expenses and
other amounts for the payment or reimbursement of which it shall then
be entitled.
7. FORCE MAJEURE.
Notwithstanding anything in this Agreement to the contrary, the
Custodian shall not be liable for any losses resulting from or caused by events
or circumstances beyond its reasonable control, including, but not limited to,
losses resulting from nationalization, strikes, expropriation, devaluation,
revaluation, confiscation, seizure, cancellation, destruction or similar action
by any governmental authority, de facto or de jure; or enactment, promulgation,
imposition or enforcement by any such governmental authority of currency
restrictions, exchange controls, taxes, levies or other charges affecting a
Fund's property; or the breakdown, failure or malfunction of any utilities or
telecommunications systems; or any order or regulation of any banking or
securities industry including changes in market rules and market conditions
affecting the execution or settlement of transactions; or acts of war,
terrorism, insurrection or revolution; or any other similar or third-party
event. This Section shall survive the termination of this Agreement.
8. INSPECTION OF BOOKS AND RECORDS.
The books and records of the Custodian shall be open to inspection and
audit at reasonable times by officers and auditors employed by a Fund at its own
expense and with prior written notice to the Custodian, and by the appropriate
employees of the Securities and Exchange Commission.
9. MISCELLANEOUS.
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<PAGE> 24
A. Annexed hereto as Appendix C is a certification signed by
the Secretary of each Fund setting forth the names and the signatures
of the present Authorized Persons. Each Fund agrees to furnish to the
Custodian a new certification in similar form in the event that any
such present Authorized Person ceases to be such an Authorized Person
or in the event that other or additional Authorized Persons are elected
or appointed. Until such new certification shall be received, the
Custodian shall be fully protected in acting under the provisions of
this Agreement upon Oral Instructions or signatures of the present
Authorized Persons as set forth in the last delivered certification.
B. Annexed hereto as Appendix A is a certification signed by
the Secretary of each Fund setting forth the names and the signatures
of the present officers of the Fund. Each Fund agrees to furnish to the
Custodian a new certification in similar form in the event any such
present officer ceases to be an officer of the Fund or in the event
that other or additional officers are elected or appointed. Until such
new certification shall be received, the Custodian shall be fully
protected in acting under the provisions of this Agreement upon the
signature of an officer as set forth in the last delivered
certification.
C. Any notice or other instrument in writing, authorized or
required by this Agreement to be given to the Custodian, shall be
sufficiently given if addressed to the Custodian and mailed or
delivered to it at its offices at One Boston Place, Boston,
Massachusetts 02108 or at such other place as the Custodian may from
time to time designate in writing.
D. Any notice or other instrument in writing, authorized or
required by this Agreement to be given to a Fund, shall be sufficiently
given if addressed to the Fund and mailed or delivered to it at its
offices at 1201 Third Avenue, 22nd Floor, Seattle, Washington 98101 or
at such other place as the Fund may from time to time designate in
writing.
E. Except as provided in Article II, Section 2 this Agreement
may not be amended or modified with respect to a Fund in any manner
except by a written agreement executed by both the Fund and the
Custodian with the same formality as this Agreement (i) authorized, or
ratified and approved by a vote of the Board of Trustees of the Fund,
including a majority of the members of the Board of Trustees of the
Fund who are not "interested persons" of the Fund (as defined in the
1940 Act), or (ii) authorized, or ratified and approved by such other
procedures as may be permitted or required by the 1940 Act.
F. This Agreement shall extend to and shall be binding upon
the parties hereto, and their respective successors and assigns;
provided, however, that this
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<PAGE> 25
Agreement shall not be assignable by a Fund without the written consent
of the Custodian, or by the Custodian without the written consent of
each Fund authorized or approved by a vote of the Board of Trustees of
the Fund provided, however, that the Custodian may assign the Agreement
to an Affiliated Person and any attempted assignment without such
written consent shall be null and void. Nothing in this Agreement shall
give or be construed to give or confer upon any third party any rights
hereunder.
G. Each Fund represents that a copy of its Trust Agreement or
LLC Agreement is on file with the Secretary of the Commonwealth of
Massachusetts.
H. This Agreement shall be construed in accordance with the
laws of the Commonwealth of Massachusetts.
I. The captions of the Agreement are included for convenience
of reference only and in no way define or delimit any of the provisions
hereof or otherwise affect their construction or effect.
J. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective representatives duly authorized as of the day and
year first above written.
WM Trust I, WM Trust II, WM Strategic Asset Management Portfolios,
LLC, WM Variable Trust
By:
Name:
Title:
BOSTON SAFE DEPOSIT AND TRUST COMPANY
By:
Name:
Title:
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<PAGE> 26
APPENDIX A
I, John T. West, the Secretary of WM Trust I, WM Trust II, and WM
Variable Trust, each a business trust organized under the laws of the
Commonwealth of Massachusetts and WM Strategic Asset Management Portfolios, LLC,
a limited liability company organized under the laws of the Commonwealth of
Massachusetts (the "Fund"), do hereby certify that:
The following individuals have been duly authorized as Authorized
Persons to give Oral Instructions and Written Instructions on behalf of the Fund
and the specimen signatures set forth opposite their respective names are their
true and correct signatures:
Name Signature
---- ---------
WM Trust I,
WM Trust II,
WM Strategic Asset Management Portfolios, LLC,
WM Variable Trust
By:
---------------------------
Secretary
Dated:
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<PAGE> 27
APPENDIX B
Selected Countries
ARGENTINA
AUSTRALIA
AUSTRIA
BANGLADESH
BELGIUM
BERMUDA
BOTSWANA
BRAZIL
CANADA
CHILE
CHINA, PEOPLES' REPUBLIC OF
COLOMBIA
CYPRUS
THE CZECH REPUBLIC
DENMARK
EGYPT
FINLAND
FRANCE
GERMANY
GHANA
GREECE
HONG KONG
HUNGARY
INDIA
INDONESIA
IRELAND
ISRAEL
ITALY
JAPAN
KENYA
KOREA, REPUBLIC OF
LUXEMBOURG
MALAYSIA
MAURITIUS
MEXICO
NAMIBIA
THE NETHERLANDS
NEW ZEALAND
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<PAGE> 28
NORWAY
PAKISTAN
PERU
THE PHILIPPINES
POLAND
PORTUGAL
SINGAPORE
SLOVAK REPUBLIC
SOUTH AFRICA
SPAIN
SRI LANKA
SWEDEN
SWITZERLAND
TAIWAN
THAILAND
TURKEY
UNITED KINGDOM
URUGUAY
VENEZUELA
ZAMBIA
ZIMBABWE
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<PAGE> 29
APPENDIX C
I, John T. West, the Secretary of WM Trust I, WM Trust II, and WM
Variable Trust, each a business trust organized under the laws of the
Commonwealth of Massachusetts, and WM Strategic Asset Management Portfolios,
LLC, a Massachusetts limited liability company organized under the laws of the
Commonwealth of Massachusetts (the "Funds"), do hereby certify that:
The following individuals serve in the following positions with the
Funds and each individual has been duly elected or appointed to each such
position and qualified therefor in conformity with each Fund's Agreement and
Declaration of Trust, Master Trust Agreement or LLC Agreement, and the specimen
signatures set forth opposite their respective names are their true and correct
signatures:
Name Position Signature
William G. Papesh President ______________________
Monte D. Calvin Senior Vice President/ ______________________
Chief Financial Officer
John T. West Vice President/Secretary ______________________
WM Trust I,
WM Trust II,
WM Strategic Asset Management Portfolios, LLC,
WM Variable Trust
By: ____________________________
Secretary
Dated:
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<PAGE> 1
Exhibit (h)(3)(A)
WM STRATEGIC ASSET MANAGEMENT PORTFOLIOS, LLC
ADMINISTRATION AGREEMENT
______ __, 1999
WM Shareholder Services, Inc.
1201 Third Avenue, 22nd Floor
Seattle, WA 98101
Ladies and Gentlemen:
WM Strategic Asset Management Portfolios, LLC (the "LLC"), a limited
liability company organized under the laws of the Commonwealth of Massachusetts,
confirms its agreement with WM Shareholder Services, Inc. ("WMSS"), a
corporation organized under the laws of the State of Washington, regarding
administration services to be provided by WMSS in connection with each of the
investment portfolios offered from time to time by the LLC (individually, a
"Portfolio" and together, the "Portfolios"). WMSS agrees to provide services
upon the following terms and conditions:
1. Investment Description: Appointment
The LLC desires to employ the LLC's capital by investing and
reinvesting (a) in investments of the kind, and in accordance with the
limitations, specified in (i) the LLC's LLC Operating Agreement dated March 12,
1999, as amended (the "LLC Agreement"), and (ii) the prospectus(es) (the
"Prospectus") and statement(s) of additional information (the "Statement")
relating to the Portfolios contained in the LLC's Registration Statement on Form
N-1A filed with the Securities and Exchange Commission (the "Registration
Statement") and (b) in such manner and to such extent as may from time to time
be approved by the LLC's Board of Trustees. Copies of the Prospectus, the
Statement and the LLC Agreement have been submitted to WMSS. The LLC desires to
employ and hereby appoints WMSS to act as the Portfolios' administrator. WMSS
accepts this appointment and agrees to furnish the services described herein for
the compensation set forth below.
2. Services as Administrator
Subject to the supervision and direction of the Board of Trustees of
the LLC, WMSS is responsible for all administrative functions with respect to
the LLC and will (a) assist in supervising all aspects of the operations of the
LLC except those performed by the LLC's
<PAGE> 2
investment adviser under its investment advisory agreement; (b) supply the LLC
with office facilities (which may be in WMSS's own offices), statistical and
research data, data processing services, clerical, accounting and bookkeeping
services (including, but not limited to, the calculation of (i) the net asset
values of shares of the LLC, and (ii) distribution fees), internal auditing and
legal services, internal executive and administrative services, and stationery
and office (c) prepare reports to the LLC's shareholders and materials for the
Board of Trustees of the LLC; (d) prepare tax returns and reports to and filings
with the Securities and Exchange Commission and state Blue Sky authorities; (e)
cooperate with the LLC's transfer agent for the purpose of establishing the
implementing procedures to ensure that the LLC's transfer agency and shareholder
relations functions are efficiently carried out; and (f) provide such other
similar services as the LLC may reasonably request to the extent permitted under
application statutes, rules and regulations. The services to be performed by
WMSS hereunder may be delegated by it, in whole or in part, to one or more
sub-administrators provided that any delegation of duties to a sub-administrator
shall not relieve WMSS of its responsibilities hereunder. Notwithstanding
anything to the contrary in this Agreement, WMSS shall not be responsible for
the performance of any duties which are required to be performed by the LLC's
transfer agent.
3. Compensation
a. In consideration of services rendered pursuant to this Agreement,
the LLC will pay WMSS on the first business day of each month a fee for the
previous month at an annual rate of 0.50% of the average daily net assets of
each Portfolio; out of which fee WMSS shall pay expenses as described in
Paragraph 4 including, without limitation, fees to any sub-administrator and the
LLC's custodian. The fee for the period from the date of this Agreement to the
end of the first calendar month of the term of this Agreement shall be prorated
according to the proportion that such period bears to the full monthly period.
b. Upon any termination of this Agreement before the end of any month,
the fee for such part of a month shall be prorated according to the proportion
which such period bears to the full monthly period and shall be payable upon the
date of termination of this Agreement. For the purpose of determining fees
payable to WMSS, the value of each Portfolio's net assets shall be computed at
the times and in the manner specified in the Prospectus and/or the Statement
relating to the Portfolio as from time to time in effect.
4. Expenses
WMSS will bear all expenses in connection with the performance of its
services under this Agreement, including, without limitation, payment of the fee
to any sub-administrator and custodian described in Paragraph 2 above. The LLC
will bear certain other expenses to be incurred in its operation, including:
organizational expenses; taxes, interest, brokerage fees and commissions, if
any; fees of trustees of the LLC who are not officers, directors, or employees
of WM Advisors, Inc., each sub-administrator or any of their affiliates;
transfer agent fees; federal regulatory fees and state Blue Sky fees;
out-of-pocket expenses of custodians, transfer
-2-
<PAGE> 3
and dividend disbursing agents and the LLC's sub-administrator and transaction
charges of custodians; insurance premiums; outside auditing and legal expenses;
costs of maintenance of the LLC's existence; costs attributable to investor
services, including, without limitation, telephone and personnel expenses; costs
of preparing and printing prospectuses and statements of additional information
for regulatory purposes and for distribution to existing shareholders; costs of
shareholders' reports and meetings of the shareholders of the LLC and of the
officers Board of Trustees of the LLC; and any extraordinary expenses. In
addition, each Portfolio pays a distribution fee pursuant to terms of a
Distribution Plan adopted under Rule 12b-1 of the Investment Company Act of 1940
(the "1940 Act").
5. Standard of Care
WMSS shall exercise its best judgment in rendering the services listed
in Paragraph 2 above. WMSS shall not be liable for any error of judgment or
mistake of law or for any loss suffered by a Portfolio in connection with the
matters to which this Agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on its part in the performance of its
duties or from reckless disregard by it of its obligations and duties under this
Agreement.
6. Term of Agreement
This Agreement shall become effective as of the date set forth above
and shall continue for an initial two-year term and shall continue automatically
from year-to-year thereafter unless terminated in accordance with the following
sentence. This Agreement is terminable at any time, without penalty, on 60 days'
written notice by the Board of Trustees of the LLC, or upon 90 days' written
notice by WMSS.
7. Service to Other Companies or Accounts
The LLC understands that WMSS may act in the future as administrator to
other investment companies or series of investment companies, and the LLC has no
objection to WMSS's so acting in such capacity. The LLC understands that the
persons employed by WMSS to assist in the performance of WMSS's duties under
this Agreement will not devote their full time to such service and nothing
contained in this Agreement shall be deemed to limit or restrict the right of
WMSS or any affiliate of WMSS to engage in and devote time and attention to
other businesses or to render services of whatever kind or nature.
8. Representations of the LLC and WMSS
The LLC represents that (a) a copy of the LLC Agreement is on file in
the office of the Secretary of The Commonwealth of Massachusetts, (b) the
appointment of WMSS has been duly authorized and (c) it has acted and will
continue to act in conformity with the 1940 Act and
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<PAGE> 4
other applicable laws WMSS represents that it is authorized to perform the
services described herein
9. Limitation of Liability
A copy of the Certificate of Formation of the LLC is on file with the
Secretary of the Commonwealth of Massachusetts, and notice is hereby given that
this Agreement is executed by an officer of the LLC on behalf of the Trustees of
the LLC, as trustees and not individually, on further behalf of each Portfolio,
and that the obligations of this Agreement with respect to a Portfolio shall be
binding upon the assets and properties of that Portfolio only and shall not be
binding upon the assets and properties of any other Portfolio or series of the
LLC or upon any of the Trustees, officers, employees, agents or shareholders of
the Portfolios or the LLC individually.
10. Entire Agreement
This Agreement constitutes the entire agreement between the parties
hereto.
11. Governing Law
This Agreement shall be governed in accordance with the laws of the
Commonwealth of Massachusetts.
If the foregoing accurately sets forth our agreement, kindly indicate
your acceptance hereof by signing and returning the enclosed copy hereof.
Very truly yours,
WM STRATEGIC ASSET
MANAGEMENT PORTFOLIOS, LLC
--------------------------
Name: William G. Papesh
Title: President
Accepted:
WM SHAREHOLDER SERVICES, INC.
- --------------------------
Name: William G. Papesh
Title: President
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<PAGE> 1
Exhibit (h)(3)(B)
WM STRATEGIC ASSET MANAGEMENT PORTFOLIOS, LLC
TRANSFER AGENT CONTRACT
TRANSFER AGENT CONTRACT (this "Agreement"), dated, ____ __, 1999, by
and among WM Trust II, a Massachusetts business trust, and WM Strategic Asset
Management Portfolios, LLC, a Massachusetts limited liability company,
(collectively the "Trusts"), and WM Shareholder Services, Inc. (the "Transfer
Agent"), a Washington corporation.
W I T N E S S E T H
WHEREAS, the Trusts are investment management companies registered
under the Investment Company Act of 1940 (the "1940" Act);
WHEREAS, the Trusts are authorized to issue shares in separate series
with each series representing a separate portfolio of securities and other
assets (each a "Fund"); and
WHEREAS, each Fund listed on the signature page attached to this
Agreement desires the Transfer Agent to perform the services set forth in
Schedule A attached hereto and incorporated herein by reference, and the
Transfer Agent is willing to perform such services;
NOW THEREFORE, in consideration of the premises and the mutual
agreements set forth herein, the parties hereto agree as follows:
1. The Transfer Agent shall perform for each Fund the services set
forth in Schedule A for a monthly fee as set forth in Schedule B attached hereto
and incorporated herein by reference.
2. Each Fund agrees to reimburse the Transfer Agent for postage, the
procurement and/or printing of statements, envelopes, checks, reports, tax
forms, proxies, or other forms of printed material required in the performance
of its services to the Fund under this Agreement.
3. Each Fund agrees to reimburse the Transfer Agent for all freight and
other delivery charges and insurance or bonding charges incurred by the Transfer
Agent in delivering materials to and from the Fund and its shareholders
("Shareholders").
<PAGE> 2
4. Each Fund agrees to reimburse the Transfer Agent for all direct
telephone expenses incurred by the Fund in calling Shareholders regarding their
Fund transactions, accounts, and for any other Fund business.
5. Each Fund agrees that all computer programs and procedures developed
to perform services required under this Agreement are the property of the
Transfer Agent and the Transfer Agent agrees that all records and other data,
except computer programs and procedures, are the property of the Fund. The
Transfer Agent agrees that it will furnish all records and other data as may be
requested to a Fund immediately upon termination of this Agreement for any
reason whatsoever.
6. The Transfer Agent agrees to treat all records and other information
relative to a Fund with utmost confidence and further agrees that all records
maintained by the Transfer Agent for the Fund shall be open to inspection and
audit at reasonable times by the officers, agents or auditors employed by the
Fund and that such records shall be preserved and retained by the Transfer Agent
so long as this agreement shall remain in effect.
7. The Transfer Agent shall not be liable for any damage, loss of data,
delay or any other loss caused by any such power failure or machine breakdown,
except that the Transfer Agent shall be liable for actual out-of-pocket costs
caused by any such power failure or machine breakdown, and the Transfer Agent
shall recover the data in process that is assumed lost during any power failure
or machine breakdown.
8. The Transfer Agent will maintain in force through the duration of
this Agreement a fidelity bond in a face amount not less than $1,000,000 written
by a reputable insurance company, covering theft, embezzlement, forgery and
other acts of malfeasance by the Transfer Agent, its employees, or agents in
connection with services performed for a Fund.
9. This agreement may be terminated without the payment of any penalty
by any party upon one hundred eighty (180) days written notice thereof given by
a Fund to the Transfer Agent and upon one hundred eighty (180) days written
notice thereof given by the Transfer Agent to a Fund.
10. Any notice shall be officially given when sent by registered or
certified mail by a party to the appropriate address listed in the Funds'
current registration statement, provided that each party may notify each other
by regular mail of any changed address to which such notices should be sent.
11. This Agreement constitutes the entire Agreement between the parties
and shall be governed by, and construed in accordance with, the laws of the
Commonwealth of Massachusetts and shall inure to the benefit of the parties
hereto and their respective successors.
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<PAGE> 3
12. A copy of the Master Trust Agreement or the LLC Certificate of
Formation of each Trust is on file with the Secretary of the Commonwealth of
Massachusetts, and notice is hereby given that this Agreement is executed by an
officer of each Trust on behalf of the trustees of that Trust, as trustees and
not individually, on further behalf of each Fund, and that the obligations of
this Agreement as they relate to each Fund shall be binding upon the assets and
properties of that Fund only and shall not be binding upon the assets and
properties of any other Fund or series of one of the Trusts or upon any of the
trustees, officers, employees, agents or shareholders of a Fund or a Trust
individually.
IN WITNESS WHEREOF, the parties hereto cause this Agreement to
be executed by their officers designated below as of the date first
above-written.
WM TRUST II, on behalf of its series:
California Money Fund
Short Term High Quality Bond Fund
Target Maturity 2002 Fund
California Municipal Fund
Florida Insured Municipal Fund
California Insured Intermediate Municipal Fund
Growth Fund
Emerging Growth Fund
International Growth Fund
By:
- -----------------------------
William G. Papesh
President
WM STRATEGIC ASSET MANAGEMENT
PORTFOLIOS, LLC on behalf of its series:
Strategic Growth Portfolio
Conservative Growth Portfolio
Balanced Portfolio
Flexible Income Portfolio
Income Portfolio
By:
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William G. Papesh
President
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<PAGE> 4
WM SHAREHOLDER SERVICES, INC.
By:
- -----------------------------
Ken Lepore
President
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<PAGE> 5
SCHEDULE A
SERVICE PROVIDED
I. Shareholder Services
A. Maintain all Shareholder records on electronic data processing
equipment, including:
1. Share balances
2. Account transaction history
3. Names and addresses
4. Distribution records
5. Transfer records
6. Over-all control records
B. New Accounts
1. Deposit all monies received into a Fund custody account
maintained by the Fund's custodian.
2. Set up account according to Shareholders' instructions
3. Issue and mail shareholder confirmations
C. Additional Purchases
1. Deposit monies received into a Fund custody account
maintained by the Fund's custodian.
2. Issue Shareholder confirmations
D. Redemptions
1. Liquidate shares upon Shareholder request
2. Make payments of redemption proceeds in accordance with
the Fund's then current prospectus.
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<PAGE> 6
3. Issue and mail Shareholder confirmation
E. Transfer shares as requested, including obtaining necessary
papers and documents to satisfy transfer requirements. On
irregular transfers requiring special legal opinions, such
special legal fees, if any, are to be paid for by the Fund.
F. Process changes, corrections of addresses and registrations
G. Maintain service with Shareholders as follows:
1. Activity required to receive, process and reply to
Shareholders' correspondence regarding account matters
2. Refer correspondence regarding investment matters to the
Fund with sufficient account data to answer
3. Contact Shareholders directly to settle problems and
answer questions
H. Compute distributions, dividends and capital gains
1. Make payment or reinvest in additional shares as directed
by shareholders according to provisions of the Fund's then
current prospectus
2. Advise each Shareholder of the amount of dividends
received and tax status annually
I. Produce transcripts of shareholder account history as required
J. Maintain the controls associated with the computer programs
and manual systems to arrive at the Fund's total shares
outstanding
K. Receive mail and perform other administrative functions relating
to transfer agent work
II Other Services
A. Mailing services to shareholders
B. Services in connection with any stock splits
C. Develop special reports for Fund officers regarding statistical
and accounting data pertaining to the Fund. Fund shall pay for
out-of-pocket expenses charged by vendors to develop such
reports or portions thereof
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<PAGE> 7
D. Voice response unit
E. NSCC support
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<PAGE> 8
SCHEDULE B
MONTHLY SHAREHOLDER SERVICING FEES
_________ __, 1999
<TABLE>
<CAPTION>
Fee Per Account Per Month
-------------------------
Class B &
Class A Class S
------- ---------
<S> <C> <C>
California Money Fund
First 25,000 accounts $1.85 $1.95
Each additional account $1.55 $1.65
- -----------------------------------------------------------------------------------------
Emerging Growth Fund $1.25 $1.35
Growth Fund
International Growth Fund
Strategic Growth Portfolio
Conservative Growth Portfolio
- -----------------------------------------------------------------------------------------
Short Term High Quality Bond Fund $1.45 $1.55
California Municipal Fund
Florida Insured Municipal Fund
California Insured Intermediate Municipal Fund
Target Maturity 2002 Fund
Balanced Portfolio
Flexible Income Portfolio
Income Portfolio
- -----------------------------------------------------------------------------------------
</TABLE>
Fees Include:
- - Shareholder and Broker Servicing
- - Transaction Processing, Correspondence, and Research
- - Settlement and Reconciliation
- - Corporate Actions
- - Tax Reporting and Compliance
- - NSCC Support
- - Management Company and Broker/Dealer Support
- - Asset Allocation Processing for all distribution channels
Additional charges will be made for out-of-pocket expenses according to Schedule
C.
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<PAGE> 9
SCHEDULE C
OUT-OF-POCKET EXPENSES
The Funds shall reimburse the Transfer Agent monthly for applicable
out-of- pocket expenses, including, but not limited to the following items:
- - NSCC charges
- - Banking fees
- - Voice response unit
- - Microfiche/Microfilm/Image production
- - Magnetic media tapes and freight
- - Printing costs, including certificates, envelopes, checks and
stationery
- - Postage (bulk, pre-sort, ZIP+4, bar-coding, first class) direct pass
through to the Funds
- - Due diligence mailings
- - Telephone and telecommunication costs, including all lease, maintenance
and line costs
- - Ad hoc reports
- - Shareholder transcripts
- - Proxy solicitations, mailings and tabulations
- - Daily & Distribution advice mailings
- - Shipping, Certified and Overnight mail and insurance
- - Year-end form production and mailings
- - Terminals, communication lines, printers and other equipment and any
expenses incurred in connection with such terminals and lines
- - Duplicating services
- - Courier services
- - Incoming and outgoing wire charges
- - Federal Reserve charges for check clearance
- - Overtime, as approved by the Funds
- - Temporary staff, as approved by the Funds
- - Travel and entertainment, as approved by the Funds
- - Record retention, retrieval and destruction costs, including, but not
limited to exit fees charged by third party record keeping vendors
- - Third party audit reviews
- - Ad hoc programming time
- - Insurance
- - Such other miscellaneous expenses reasonably incurred by the Transfer
Agent in performing its duties and responsibilities under this
Agreement
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<PAGE> 1
Ropes & Gray
One International Place
Boston, MA 02110
Phone: (617) 951-7000
Fax: (617) 951-7050
Form of Opinion and Consent of Counsel
- --------------------------------------
Exhibit (i)(3)
_____ ____, 1999
WM Strategic Asset Management Portfolios, LLC
1201 Third Avenue, 22nd Floor
Seattle, Washington 98101
Ladies and Gentlemen:
We are furnishing this opinion in connection with the proposed offer
and sale by WM Strategic Asset Management Portfolios, LLC, a Massachusetts
limited liability company (the "LLC"), of shares of beneficial interest of its
Strategic Growth Portfolio series, Conservative Growth Portfolio series,
Balanced Portfolio series, Flexible Income Portfolio series, and Income
Portfolio series (the "Shares") pursuant to a registration statement on Form
N-1A (the "Registration Statement") under the Securities Act of 1933, as
amended.
We are familiar with the action taken by the Trustees of the LLC to
authorize the issuance of the Shares. We have examined the LLC's By-laws and
Limited Liability Company Agreement and such other documents as we deem
necessary for the purposes of this opinion.
We assume that upon sale of the Shares the LLC will receive the net
asset value thereof.
Based upon the foregoing, we are of the opinion that the LLC is
authorized to issue an unlimited number of Shares, and that, when the Shares are
issued and sold, they will be validly issued, fully paid and nonassessable by
the LLC.
We consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
Ropes & Gray
<PAGE> 1
Exhibit (j)(3)(A)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Post-Effective Amendment No. 8
to Registration Statement No. 333-01999 on Form N-1A (the "Registration
Statement") of our report dated December 11, 1998, appearing in the Annual
Report of the WM Strategic Asset Management Portfolios for the period ended
October 31, 1998, and to the references to us under the heading "Financial
Highlights" in the Prospectus and under the headings "Independent Accountants
and Financial Statements" in the Statement of Additional Information, which is
part of such Registration Statement.
Deloitte & Touche LLP
San Francisco, California
April 28, 1999
<PAGE> 1
Exhibit (j)(3)(B)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
the Statement of Additional Information constituting parts of this
Post-Effective Amendment No. 8 to the registration statement on Form N-1A (the
"Registration Statement") of our report dated August 14, 1998, relating to the
financial statements and financial highlights appearing in the June 30, 1998
Annual Report to Shareholders of WM Strategic Asset Management Portfolios
(formerly known as Sierra Asset Management Portfolios), which financial
statements and financial highlights are also incorporated by reference into the
Registration Statement. We also consent to the references to us under the
heading "Financial Highlights" in the Prospectus and under the heading
"Independent Accountants and Financial Statements" in the Statement of
Additional Information.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 28, 1999
<PAGE> 1
Exhibit (m)(3)(A)
WM STRATEGIC ASSET MANAGEMENT PORTFOLIOS, LLC
CLASS A DISTRIBUTION PLAN
Dated _______ __, 1999
This Class A Distribution Plan (the "Plan") is adopted in
accordance with Rule 12b-1 (the "Rule") under the Investment Company Act of
1940, as amended (the "Act"), by WM Strategic Asset Management Portfolios, LLC,
a limited liability company organized under the laws of the Commonwealth of
Massachusetts and registered with the Securities and Exchange Commission under
the Act as an open-end management investment company (the "LLC"), the Trustees
of the LLC having concluded that there is a reasonable likelihood that this Plan
will benefit the LLC and its shareholders.
Section 1. Distribution Fee.
The LLC will pay to or at the direction of the distributor of
its Class A shares (the "Distributor"), an annual fee or portions thereof for
services rendered or expenses incurred by the Distributor or any other person
with which the Distributor has a written agreement to provide services as
permitted by the Plan and the distribution agreement with the Distributor (each
a "Designated Provider") in connection with the offering and sale of each series
of the LLC's shares (each, a "Fund," and together, the "Funds"). The annual fee
or portions thereof paid to the Distributor or at the direction of the
Distributor to the Designated Providers under the Plan will be calculated daily
and paid monthly in arrears by the LLC in the aggregate at the annual rate of
.25% of the average daily net assets of each of the Funds.
Section 2. Expenses Covered by Plan.
(a) The annual fee paid to the Distributor or at the direction
of the Distributor to the Designated Providers under Section 1 of the Plan may
be used by the Distributor or Designated Providers to cover any expenses
primarily intended to result in the sale of the LLC's Class A shares, including,
but not limited to: (i) payments made to, and expenses of, the registered
representatives and other employees of the Distributor or Designated Providers
that are registered broker-dealers and engage in the distribution of the LLC's
shares; (ii) payments made to, and expenses of, persons who provide support
services in connection with the sale of the LLC's Class A shares, including, but
not limited to, office space and equipment, telephone facilities, answering
routine inquiries regarding the LLC, processing shareholder transactions and
providing any other shareholder services not otherwise provided by the LLC's
<PAGE> 2
transfer agent or any shareholder servicing agent; (iii) costs relating to the
formulation and implementation of marketing and promotional activities regarding
the LLC's Class A shares, including, but not limited to, direct mail promotions
and television, radio, newspaper, magazine and other mass media advertising;
(iv) costs of printing and distributing prospectuses, statements of additional
information and reports of the LLC to prospective Class A shareholders of the
LLC; (v) costs involved in preparing, printing and distributing advertising and
sales literature pertaining to the LLC's Class A shares; and (vi) costs involved
in obtaining whatever information, analyses and reports with respect to
marketing and promotional activities that the LLC may, from time to time, deem
advisable regarding the LLC's Class A shares.
(b) WM Advisors, Inc., as investment advisor to each of the
Funds, may use its investment advisory fee for purposes that may be deemed to be
directly or indirectly related to the distribution of the LLC's Class A shares.
To the extent that such uses might be considered to constitute the direct or
indirect financing of activities primarily intended to result in the sale of the
LLC's Class A shares, such uses are expressly authorized under the Plan.
Section 3. Approval by Shareholders.
The Plan will not take effect, and no fee will be payable in
accordance with Section 1 of the Plan, with respect to the Class A shares of a
particular Fund until the Plan has been approved by a vote of at least a
majority of the outstanding voting securities of the Class A shares of the Fund.
The Plan will be deemed to have been approved with respect to the Class A shares
of a Fund so long as a majority of the outstanding Class A shares of the Fund
votes for the approval of the Plan, notwithstanding that: (a) the Plan has not
been approved by a majority of the outstanding voting securities of any other
class of such Fund or any other Fund or (b) the Plan has not been approved by a
majority of the outstanding voting securities of the LLC in the aggregate.
Section 4. Approval by Trustees.
Neither the Plan nor any related agreements will take effect
until approved by a majority vote of both (a) the full Board of Trustees of the
LLC and (b) those Trustees who are not interested persons of the LLC and who
have no direct or indirect financial interest in the operation of the Plan or in
any agreements related to it (the "Qualified Trustees"), cast in person at a
meeting called for the purposes of voting on the Plan or the related agreements.
Section 5. Continuance of the Plan.
The Plan will continue in effect for so long as its
continuance is specifically approved at least annually by the LLC's Board of
Trustees in the manner described in Section 4 above.
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<PAGE> 3
Section 6. Termination.
The Plan may be terminated at any time with respect to any
Fund by a majority vote of the Qualified Trustees or by vote of a majority of
the outstanding Class A shares of the Fund. The Plan may remain in effect with
respect to the Class A shares of a particular Fund even if the Plan has been
terminated in accordance with this Section 6 with respect to the Class A shares
of one or more of the other Funds.
Section 7. Amendments.
The Plan may not be amended with respect to the Class A shares
of a Fund so as to increase materially the amount of the fee described in
Section 1 above with respect to the Class A shares of the Fund, unless the
amendment is approved by a vote of at least a majority of the outstanding Class
A shares of that Fund. No material amendment to the Plan may be made unless
approved by the LLC's Board of Trustees in the manner described in Section 4
above.
Section 8. Selection of Certain Trustees.
While the Plan is in effect, the selection and nomination of
the LLC's Trustees who are not interested persons of the LLC will be committed
to the discretion of the Trustees then in office who are not interested persons
of the LLC.
Section 9. Written Reports.
In each year during which the Plan remains in effect, any
person authorized to direct the disposition of monies paid or payable by the LLC
pursuant to the Plan or any related agreement will prepare and furnish to the
LLC's Board of Trustees, and the Board will review, at least quarterly, written
reports, complying with the requirements of the Rule, which set out the amounts
expended under the Plan and the purposes for which those expenditures were made.
Section 10. Preservation of Materials.
The LLC will preserve copies of the Plan, any agreement
relating to the Plan and any report made pursuant to Section 9 above, for a
period of not less than six years (the first two years in an easily accessible
place) from the date of the Plan, agreement or report.
Section 11. Meanings of Certain Terms.
As used in the Plan, the terms "interested person" and
"majority of the outstanding voting securities" will be deemed to have the same
meaning that those terms have
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<PAGE> 4
under the Act and the rules and regulations under the Act, subject to any
exemption that may be granted to the LLC under the Act by the Securities and
Exchange Commission.
Section 12. Limitation of Liability.
The execution of the Plan by an officer of the LLC has been authorized
by both the LLC's Board of Trustees and the sole [initial] shareholder of the
Class A shares of each Fund. A copy of the Certificate of Formation of the LLC
is on file with the Secretary of the Commonwealth of Massachusetts, and notice
is hereby given that this Plan is executed by an officer of the LLC on behalf of
the Trustees of the LLC, as trustees and not individually, on further behalf of
each Fund and that the obligations of this Agreement with respect to a Fund
shall be binding upon the assets and properties of that Fund only and shall not
be binding upon the assets and properties of any other Fund or series of the LLC
or upon any of the Trustees, officers, employees, agents or shareholders of a
Fund or the LLC individually.
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<PAGE> 1
Exhibit (m)(3)(B)
WM GROUP OF FUNDS
CLASS B DISTRIBUTION PLAN
Dated _____ __, 1999
This Class B Distribution Plan dated ______ __, 1998 (the "Plan") is
adopted in accordance with Rule 12b-1 under the Investment Company Act of 1940,
as amended (the "Act"), by WM Trust I, a Massachusetts business trust, WM Trust
II, a Massachusetts business trust, and WM Strategic Asset Management
Portfolios, LLC, a Massachusetts limited liability company, each registered with
the Securities and Exchange Commission under the Act as an open-end series
management investment company (collectively, the "Trust"), the Trustees of each
respective Trust having concluded that there is a reasonable likelihood that
this Plan will benefit the Trust and the shareholders of its Funds.
SECTION 1. DISTRIBUTION FEE.
(a) Payment. The Trust may pay to each person as may from time to time
be engaged and appointed to act as the distributor of its Class B shares at such
point in time (any such person, a "Distributor," and such shares, "Shares") a
distribution fee for services rendered and expenses borne in connection with the
offering and sale of Shares of one or more series of the Trust (each such
series, a "Fund", and together, the "Funds"). The aggregate distribution fees in
respect of Shares of any Fund payable to all Distributors shall not be greater
than the annual rate of .75% of the average daily net assets attributable to the
Shares of such Fund. Each distribution agreement shall provide that the
Distributor that is a party to such agreement will receive its Allocable Portion
of the fee specified in such agreement. Each Distributor's "Allocable Portion"
of the total distribution fee payable in respect of Shares of any Fund during
any period shall be the portion of such distribution fees allocated to such
Distributor in accordance with the Distributor's Allocation Schedule. The
"Allocation Schedule" is, in respect of any Shares of any Fund, a schedule
assigning to each of the current and former Distributors of Shares of a Fund the
portion of the total distribution fees payable by the Trust in respect of all of
the Shares of such Fund which has been earned by such Distributor.
No amount shall be paid by the Trust in contravention of any applicable
exemptive order, rule or regulation issued by the Securities and Exchange
Commission.
(b) Receipt, Retention, Direction of Payment. Any Distributor (i) may
retain all or any part of the distribution fee payable to it as compensation for
distribution services it provides to the applicable Fund and/or as reimbursement
for expenses associated with such services; (ii) may use all or any part of such
fee to compensate or reimburse persons that provide
<PAGE> 2
distribution services to such Fund; and (iii) may direct the Trust to pay any
part or all of such fee directly to persons providing funds to a Distributor to
cover or otherwise enable the incurring of expenses associated with such
services.
The distribution fee shall be payable to the relevant Distributor or to
persons to whom such Distributor directs the Trust to make payments.
SECTION 2. DISTRIBUTION SERVICES.
(a) Services. A Distributor will be deemed to have fully earned its
Allocable Portion of the distribution fee payable in respect of Shares of a Fund
upon the sale of the Commission Shares of such Fund taken into account in
determining such Distributor's Allocable Portion of such distribution fees. For
this purpose, "Commission Share" of a Fund is each share of such Fund which is
issued under circumstances which normally create an obligation of the holder of
such Share to pay a contingent deferred sales charge upon redemption of such
Share (excluding any Shares of such Fund issued in connection with a permitted
free exchange) and any such Share shall not cease to be a Commission Share prior
to the redemption (including redemption in connection with a permitted free
exchange) or conversion, even though the obligation to pay the contingent
deferred sales charge shall have expired or conditions for waivers thereof shall
exist. Such distribution services may include any activities or expenses
primarily intended to result in the sale of Shares, including, but not limited
to: (i) payments made to, and expenses of, a Distributor's registered
representatives and other employees of a Distributor or other broker-dealers
that engage in the distribution of the Shares; (ii) payments made to, and
expenses of, persons who provide support services in connection with the sale of
the Shares, including, but not limited to, office space and equipment, telephone
facilities, answering routine inquiries regarding the Trust, processing
shareholder transactions and providing any other shareholder services not
otherwise provided by the Trust's transfer agent, sub-transfer agent or any
shareholder servicing agent; (iii) costs relating to the formulation and
implementation of marketing and promotional activities, including, but not
limited to, direct mail promotions and television, radio, newspaper, magazine
and other mass media advertising; (iv) costs of printing and distributing
prospectuses, statements of additional information and reports of the Trust to
prospective shareholders of the Trust; (v) costs involved in preparing, printing
and distributing advertising and sales literature pertaining to the Trust; (vi)
costs involved in obtaining whatever information, analyses and reports with
respect to marketing and promotional activities that the Trust may, from time to
time, deem advisable; and (vii) amounts payable by a Distributor under
arrangements entered into by such Distributor to raise funds to cover the
expenditures in clauses (i) through (vi) of this Section 2(a).
(b) Continuation. Notwithstanding Sections 5, 6 and 7 hereof, the Trust
may agree with any Distributor that, so long as no Complete Termination (as
defined in Section 6(b) hereof) of this Plan has occurred and is continuing,
payments of such Distributor's Allocable Portion of the distribution fee will
continue to be made to or at the direction of such Distributor notwithstanding
either the termination of such agreement with such Distributor, the
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<PAGE> 3
termination of the role of such Distributor as Distributor hereunder or the
termination of this Plan.
(c) Financing. Any Manager for each of the Funds may use its investment
advisory fee for purposes that may be deemed to be directly or indirectly
related to the distribution of Shares. To the extent that such uses might be
considered to constitute the direct or indirect financing of activities
primarily intended to result in the sale of Shares, such uses are expressly
authorized under the Plan.
(d) Recording of Payments. Each Fund will record all payments made
under the Plan as expenses in the calculation of its net investment income. The
amount of distribution expenses incurred by the Distributor that may be paid
pursuant to the Plan in future periods will not be incurred as a liability,
unless the standards for accrual of a liability under generally accepted
accounting principles have been satisfied. Such distribution expenses will be
recorded as an expense in future periods as they are paid by a Fund.
SECTION 3. SHAREHOLDER SERVICES AND FEE.
(a) Shareholder Services Annual Fee. The Trust is authorized to pay to
a Distributor a fee, calculated daily and paid monthly in arrears, for the
shareholder services that are described in paragraph (b) of this Section 3 and
that are provided by such Distributor to one or more of the Funds. The aggregate
fee paid to all Distributors under this Section 3 for shareholder services to
any Fund shall not be greater than the annual rate of .25% of the average daily
net assets attributable to the Shares of such Fund.
(b) Shareholder Services. In addition to the distribution services set
forth in Section 2(a) above, a Distributor may provide shareholder services to
accounts of the Shares of one or more of the Funds, including but not limited to
the following: telephone service to shareholders, including the acceptance of
telephone inquiries and transaction requests; acceptance and processing of
written correspondence, new account applications and subsequent purchases by
check; mailing of confirmations, statements and tax forms directly to
shareholders; and acceptance of payment for trades by check, Federal Reserve
wire or Automated Clearing House payment. In addition, a Distributor may perform
or supervise the performance by others of other shareholder services in
connection with the operations of such Fund(s) with respect to its Shares, as
agreed from time to time.
SECTION 4. APPROVALS.
(a) Shareholder Approval. This Plan will not take effect, and no fee
will be payable under any distribution agreement related to this Plan, with
respect to the Shares of a particular Fund until this Plan has been approved by
a vote of at least a majority of the outstanding Shares of that Fund. This Plan
will be deemed to have been approved with respect to the Shares of a Fund so
long as a majority of the outstanding Shares of that Fund votes for the
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<PAGE> 4
approval of this Plan, notwithstanding that: (i) the Plan has not been approved
by a majority of the outstanding voting securities of any other class of shares
of that Fund or any other Fund or (ii) the Plan has not been approved by a
majority of the outstanding voting securities of the Trust in the aggregate.
(b) Trustees' Approval. Neither this Plan nor any distribution
agreement related to this Plan will take effect with respect to the Shares of
any Fund until approved by a majority vote of both (i) the full Board of
Trustees of the Trust and (ii) those Trustees who are not interested persons of
the Trust and who have no direct or indirect financial interest in the operation
of the Plan or in any agreements related to it (the "Qualified Trustees"), cast
in person at a meeting called for the purposes of voting on the Plan or the
related agreements.
SECTION 5. CONTINUANCE OF THE PLAN.
This Plan will continue in effect for so long as its continuance is
specifically approved at least annually by the Trust's Board of Trustees in the
manner described in Section 4 above.
SECTION 6. TERMINATION.
(a) Termination. This Plan may be terminated at any time with respect
to the Shares of any Fund by a majority vote of the Qualified Trustees or by
vote of a majority of the outstanding Shares of such Fund. This Plan may remain
in effect for the Shares of any particular Fund even if the Plan has been
terminated in accordance with this Section 6 for the Shares of one or more other
Funds.
(b) Complete Termination. A "Complete Termination" of this Plan for the
Shares of a Fund shall occur only if and only so long as this Plan is terminated
for such Shares and following such termination, no distribution fees are imposed
either on such Shares of such Fund or on any "Similar Class" of shares of such
Fund. For purposes of determining whether any termination of this Plan for the
Shares of a Fund is a Complete Termination, a "Similar Class" is any class of
shares of such Fund that has a sales load structure substantially similar to
that of the class for which this Plan was terminated, taking into account the
total sales load borne directly or indirectly by holders of such class of shares
including commissions paid directly by such holders to brokers on issuance of
shares of such class, asset based sales charges paid by the Fund and allocated
to shares of such class, contingent deferred sales charges payable by holders of
shares of such class, installment or deferred sales charges payable by holders
of shares of such class, and similar charges borne directly or indirectly by
holders of shares of such class. A class of shares would not be considered
substantially similar to the Shares if (i) a front end sales charge is paid by
the purchaser; or (ii)(A) the shares are purchased at net asset value, (B) any
commission paid up front to any selling agent(s) does not exceed 1.0% of the
purchase amount, (C) the period during which any contingent deferred sales
charge applies does not exceed 12 months from the purchase date, and (D) there
is no other sales load feature borne directly or indirectly by holders of such
class of shares.
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<PAGE> 5
SECTION 7. AMENDMENTS.
The Plan may not be amended with respect to the Shares of a Fund so as
to increase materially the amount of the fees described herein with respect to
the Shares of such Fund, unless the amendment is approved by a vote of at least
a majority of the outstanding Shares of such Fund. No material amendment to this
Plan may be made unless approved by the Trust's Board of Trustees in the manner
described in Section 4(b) above.
SECTION 8. SELECTION OF CERTAIN TRUSTEES.
While the Plan is in effect, the selection and nomination of the
Trust's Trustees who are not interested persons of the Trust will be committed
to the discretion of the Trustees then in office who are not interested persons
of the Trust.
SECTION 9. WRITTEN REPORTS.
In each year during which the Plan remains in effect, any person
authorized to direct the disposition of monies paid or payable by the Trust
pursuant to the Plan or any related agreement will prepare and furnish to the
Trust's Board of Trustees, and the Board will review, at least quarterly,
written reports, complying with the requirements of Rule 12b-1, which set out
the amounts expended under the Plan and the purposes for which those
expenditures were made.
SECTION 10. PRESERVATION OF MATERIALS.
The Trust will preserve copies of the Plan, any agreement referring to
the Plan and any report made pursuant to Section 9 above, for a period of not
less than six years (the first two years in an easily accessible place) from the
date of the Plan, agreement or report.
SECTION 11. MEANINGS OF CERTAIN TERMS.
As used in the Plan, the terms (a) "interested persons" and (b)
"majority of the outstanding" voting securities or Shares will be deemed to have
the same meaning that those terms have under the Act and the rules and
regulations under the Act, subject to any exemption that may be granted to the
Trust under the Act by the Securities and Exchange Commission.
SECTION 12. LIMITATION OF LIABILITY.
The adoption of the Plan has been authorized by both the Trust's Board
of Trustees and the sole shareholder of the Shares of each Fund. A copy of WM
Trust I's Declaration of Trust Agreement, WM Trust II's Master Trust Agreement
and WM Strategic Asset Management Portfolios, LLC's Certificate of Formation are
on file with the Secretary of the Commonwealth of Massachusetts, and notice is
hereby given that this Plan is executed by an officer of each
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<PAGE> 6
Trust on behalf of the Trustees of that Trust, as trustees and not individually,
on further behalf of each Fund, and that the obligations of this Agreement as
they relate to each Fund shall be binding upon the assets and properties of that
Fund only and shall not be binding upon the assets and properties of any other
Fund or series of the Trusts or upon any of the trustees, officers, employees,
agents or shareholders of a Fund or a Trust individually.
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<PAGE> 1
Exhibit (o)(3)
WM STRATEGIC ASSET MANAGEMENT PORTFOLIOS, LLC
RULE 18F-3
MULTIPLE CLASS PLAN
__________ __, 1999
INTRODUCTION
The Strategic Growth Portfolio, Conservative Growth Portfolio, Balanced
Portfolio, Flexible Income Portfolio, Income Portfolio, and any other series
offered by WM Strategic Asset Management Portfolios, LLC (the "LLC") from time
to time with multiple classes of shares (each, a "Fund," and collectively, the
"Funds"), have elected to rely on Rule 18f-3 under the Investment Company Act of
1940, as amended (the "1940 Act") in offering multiple classes of units of
beneficial interest ("shares") in each Fund with differing distribution and/or
servicing arrangements and voting rights. This Multiple Class Plan (the "Plan")
sets forth the differences among classes, including shareholder services,
distribution arrangements, expense allocations, and conversion or exchange
options.
A. ATTRIBUTES OF SHARE CLASSES.
With respect to any class of shares of a Fund, the following
requirements shall apply. Each share of a Fund must represent an equal pro rata
interest in the Fund and must have identical voting, dividend, liquidation and
other rights, preferences, powers, restrictions, limitations, qualifications,
designations and terms and conditions, except that: (i) each new class must have
a different class name or other designation that identifies the class as
separate from any other class of the same Fund; (ii) each class must separately
bear any distribution expenses ("distribution fees") in connection with a plan
adopted pursuant to Rule 12b-1 under the 1940 Act (a "Rule 12b-1 Plan") and must
separately bear any expenses associated with any non-Rule 12b-1 Plan service
payments ("service fees") that are made under any servicing agreement entered
into with respect to that class; (iii) each new class of shares may bear,
consistent with rulings and other published statements of position by the
Internal Revenue Service, the expenses of the Fund's operations which are
directly attributable to such class ("Class Expenses"); and (iv) holders of the
shares of the class shall have exclusive voting rights regarding the Rule 12b-1
Plan and the servicing agreements relating to such class, and shall have
separate voting rights on any matter submitted to shareholders in which the
<PAGE> 2
interests of that class differ from the interests of any other class. Class
Expenses are limited to any or all of the following: (i) transfer agent fees
identified as being attributable to a specific class of shares, (ii) stationery,
printing, postage, and delivery expenses related to preparing and distributing
materials such as shareholder reports, prospectuses, and proxy statements to
current shareholders of a specific class, (iii) Blue Sky registration fees
incurred by a class of shares, (iv) SEC registration fees incurred by a class of
shares, (v) expenses of administrative personnel and services as required to
support the shareholders of a specific class, (vi) directors' fees or expenses
incurred as a result of issues relating to one class of shares, (vii) account
expenses relating solely to one class of shares, (viii) auditors' fees,
litigation expenses, and legal fees and expenses relating to a class of shares,
and (ix) expenses incurred in connection with shareholder meetings as a result
of issues relating to one class of shares.
B. EXPENSE ALLOCATIONS.
Expenses of each class created after the date hereof must be allocated
as follows: (i) distribution and shareholder servicing payments associated with
any Rule 12b-1 Plan or non-Rule 12b-1 servicing agreement relating to each class
of shares will be borne exclusively by that class; (ii) any incremental transfer
agency fees relating to a particular class will be borne exclusively by that
class; and (iii) Class Expenses relating to a particular class will be borne
exclusively by that class.
C. AMENDMENT OF PLAN; PERIODIC REVIEW.
This Plan must be amended to properly describe (through additional
exhibits hereto or otherwise) each additional class of shares approved by the
LLC's Board of Trustees after the date hereof.
The LLC's Board of Trustees, including a majority of the independent
Trustees, must periodically review this Plan for its continued appropriateness,
and must approve any material amendment of the Plan as it relates to any class
of any Fund covered by the Plan.
D. LIMITATION OF LIABILITY.
A copy of the Certificate of Formation of the LLC is on file with the
Secretary of State of the Commonwealth of Massachusetts, and notice is hereby
given that this Plan is executed by an officer of the LLC on behalf of the
Trustees of the LLC, as Trustees and not individually, on further behalf of each
Fund and that the obligations of this Agreement with respect to a Fund shall be
binding upon the assets and properties of that Fund only and shall not be
binding upon the assets and properties of any other Fund or series of the LLC or
upon any of the Trustees, officers, employees, agents or shareholders of the
Funds or the LLC individually.
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