<PAGE> 1
WM TRUST II
Florida Insured Municipal Fund
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
NOVEMBER 7, 2000
--------------------------------------------------------------------------------
To the Shareholders:
This is to notify you that a Special Meeting of Shareholders of the Florida
Insured Municipal Fund, a series of WM Trust II, will be held on November 7,
2000 at 10:00 a.m., Pacific Time, at the offices of WM Group of Funds, 1201
Third Avenue, 22nd Floor, Seattle, WA 98101, for the following purposes:
1. To approve or disapprove an Agreement and Plan of Reorganization
providing for the transfer of all of the assets of the Florida Insured
Municipal Fund to the Tax-Exempt Bond Fund, a series of WM Trust I, in
exchange for shares of the Tax-Exempt Bond Fund and the assumption by the
Tax-Exempt Bond Fund of all of the liabilities of the Florida Insured
Municipal Fund, and the distribution of such shares to the shareholders of
the Florida Insured Municipal Fund in complete liquidation of the Florida
Insured Municipal Fund.
2. To transact such other business as may properly come before the
meeting.
The Trustees have fixed the close of business on September 8, 2000 as the record
date for determination of shareholders entitled to notice of, and to vote at,
the Special Meeting.
By order of the Board of Trustees
John T. West
Secretary
September 11, 2000
WE URGE YOU TO MARK, SIGN, DATE AND MAIL THE ENCLOSED PROXY IN THE POSTAGE-PAID
ENVELOPE PROVIDED SO THAT YOU WILL BE REPRESENTED AT THE SPECIAL MEETING.
<PAGE> 2
--------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Introduction.................................... 2
Overview of Merger.............................. 3
Proposed Transaction.......................... 3
Operating Expenses............................ 3
Example of Fund Expenses...................... 4
Federal Income Tax Consequences............... 4
Comparison of Investment Objectives, Policies
and Restrictions.............................. 4
Comparison of Distribution Policies and
Purchase, Exchange and Redemption
Procedures.................................... 5
Advisory Services............................. 6
Risk Factors.................................... 7
Special Meeting of Shareholders................. 9
The Proposal: Approval or Disapproval of
Agreement and Plan of Reorganization............ 9
Background and Reasons for the Proposed
Merger..................................... 9
Information about the Merger.................. 10
Capitalization Tables......................... 13
Information About the Funds..................... 13
Voting Information.............................. 13
Appendix A: Agreement and Plan of
Reorganization................................ A-1
Appendix B: Excerpts from the Annual Report for
the Tax-Exempt Bond Fund for the Year Ended
October 31, 1999.............................. B-1
</TABLE>
<PAGE> 3
PROSPECTUS/PROXY STATEMENT
September 11, 2000
INTRODUCTION
This Prospectus/Proxy Statement relates to the proposed merger (the "Merger") of
the Florida Insured Municipal Fund (the "Acquired Fund") into the Tax-Exempt
Bond Fund (the "Acquiring Fund"). The Acquired Fund is a series of WM Trust II,
and the Acquiring Fund is a series of WM Trust I. The Acquired Fund and the
Acquiring Fund are referred to in this Prospectus/Proxy Statement as the
"Funds." The Merger is to be effected through the transfer of all of the assets
of the Acquired Fund to the Acquiring Fund in exchange for shares of beneficial
interest of the Acquiring Fund (the "Merger Shares") and the assumption by the
Acquiring Fund of all of the liabilities of the Acquired Fund. This will be
followed by the distribution of the Merger Shares to the shareholders of the
Acquired Fund in liquidation of the Acquired Fund. As a result of the proposed
transaction, each shareholder of the Acquired Fund will receive in exchange for
his or her Acquired Fund shares a number of Merger Shares of the same class
equal in value at the date of the exchange to the aggregate value of the
shareholder's Acquired Fund shares. This means that you may end up with a
different number of shares than you originally held, but the total dollar value
of your shares will not change as a result of the Merger.
Because shareholders of the Acquired Fund are being asked to approve
transactions which will result in their receiving shares of the Acquiring Fund,
this Proxy Statement also serves as a Prospectus for the Merger Shares of the
Acquiring Fund.
Both WM Trust I and WM Trust II (collectively, the "Trusts") are open-end series
management investment companies organized as Massachusetts business trusts.
Each of the Trusts has its principal executive offices at 1201 Third Avenue,
Seattle, Washington 98101, and can be reached at toll-free telephone number
(800) 222-5852.
The Acquiring Fund seeks to provide a high level of income that is exempt from
federal income tax while protecting investors' capital. The Acquired 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 Acquired Fund also seeks to ensure that the value of its shares is
exempt from Florida intangible personal property tax.
This Prospectus/Proxy Statement explains concisely what you should know before
investing in the Acquiring Fund. Please read it carefully and keep it for future
reference.
The following documents have been filed with the Securities and Exchange
Commission (the "SEC") and are incorporated into this Prospectus/Proxy Statement
by reference:
- the Funds' current Prospectus (which includes all of the series of both WM
Trust I and WM Trust II, among other funds), dated March 1, 2000 and as
supplemented through June 18, 2000 (the "Fund Prospectus");
- the Funds' current Statement of Additional Information, dated March 1, 2000
(the "Fund SAI");
- the Statement of Additional Information relating to this Prospectus/Proxy
Statement dated September 11, 2000 (the "Merger SAI");
- the Report of Independent Accountants and financial statements in respect of
each Fund included in the Funds' Annual Report to Shareholders for the year
ended October 31, 1999 (the "Annual Report"); and
- the financial statements in respect of each Fund included in the Funds'
Semi-Annual Report to Shareholders for the six months ended April 30, 2000
(the "Semi-Annual Report").
This Prospectus/Proxy Statement is accompanied by a copy of the Fund Prospectus.
For a free copy of the Fund Prospectus, SAI, Merger SAI, Annual Report, or
Semi-Annual Report, please call 1-800-222-5852 or write to WM Group of Funds at:
WM Group of Funds
1201 Third Avenue
22nd Floor
Seattle, WA 98101
The SEC has not approved or disapproved these securities or passed upon the
accuracy or adequacy of this Prospectus/Proxy Statement. Any representation to
the contrary is a crime.
You can lose money by investing in the Acquiring Fund. The Acquiring Fund may
not achieve its goals, and is not intended as a complete investment program. An
investment in the Acquiring Fund is not a deposit in a bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
2
<PAGE> 4
--------------------------------------------------------------------------------
OVERVIEW OF MERGER
PROPOSED TRANSACTION
The Trustees of each of the Trusts, on behalf of their respective Funds, have
approved the proposed Merger of the Acquired Fund into the Acquiring Fund. The
Merger is proposed to be accomplished pursuant to an Agreement and Plan of
Reorganization providing for the transfer of all of the assets of the Acquired
Fund to the Acquiring Fund in exchange for shares of the Acquiring Fund and the
assumption by the Acquiring Fund of all the liabilities of the Acquired Fund,
followed by the liquidation of the Acquired Fund.
As a result of the proposed Merger, the Acquired Fund will receive a number of
Class A or Class B Merger Shares of the Acquiring Fund equal in value to the
value of the net assets of the Acquired Fund being transferred and attributable
to the Class A or Class B shares of the Acquired Fund, as the case may be.
Following the transfer, (i) the Acquired Fund will distribute to each of its
Class A and Class B shareholders a number of full and fractional Class A or
Class B Merger Shares equal in value to the aggregate value of the shareholder's
Class A and Class B Acquired Fund shares, and (ii) the Acquired Fund will be
liquidated.
The Class A and Class B shares of the Acquired Fund have identical
characteristics to the corresponding classes of shares of the Acquiring Fund, as
described in the Fund Prospectus.
You will not be charged a front end sales load on the issuance of the Merger
Shares, or a contingent deferred sales charge ("CDSC") on Acquired Fund shares
exchanged for Merger Shares. The Merger Shares that you receive will be subject
to a CDSC on redemption to the same extent that Acquired Fund shares exchanged
were so subject. For purposes of computing the CDSC, if any, payable on
redemption of Class A and Class B Merger Shares, the Merger Shares will be
treated as having been purchased as of the date that, and for the price
(adjusted to reflect the Merger) at which, you originally purchased the Acquired
Fund shares.
As described more fully below, the Trustees of each Trust have approved, and
recommend that shareholders of the Acquired Fund approve, the Merger. In
reaching their decision, the Trustees considered that the Merger offers
shareholders the opportunity to pursue a generally similar investment objective
(with the exception that the Acquiring Fund does not seek to ensure that the
value of its assets is exempt from the Florida intangible personal property tax)
in a larger Fund, which should offer economies of scale and opportunities for
greater diversification of risk.
See "Proposals -- Background and Reasons for the Proposed Merger."
OPERATING EXPENSES
As the following tables suggest, the Merger should result in Acquired Fund
shareholders experiencing lower Fund expenses. Of course, there can be no
assurance that the Merger will result in expense savings for shareholders. These
tables summarize, for Class A shares and Class B shares, expenses:
- that each Fund incurred in its fiscal year ended October 31, 1999; and
- that the Acquiring Fund would have incurred in its most recent fiscal year on
a pro forma basis, giving effect to the proposed Merger, as if the Merger had
occurred as of the beginning of such fiscal year.
The tables are provided to help you understand an investor's share of the
operating expenses which each Fund incurs. The examples show the estimated
cumulative expenses attributable to a hypothetical $10,000 investment in each
Fund and the Acquiring Fund on a pro forma basis, over specified periods. By
translating "Total Annual Fund Operating Expenses" into dollar amounts, these
examples help you compare the costs of investing in a Fund, or a particular
class of shares, with the costs of investing in other mutual funds.
<TABLE>
<CAPTION>
SHAREHOLDER FEES Class A Class B
<S> <C> <C>
-------------------------------------------------------------------
Maximum Sales Charge Imposed on Purchase (as a
percentage of offering price at the time of
purchase)..................................... 5.50% None
Maximum Contingent Deferred Sales Charge (as a
percentage of original purchase price or
redemption price, as applicable).............. 0%(1) 5%(2)
-------------------------------------------------------------------
</TABLE>
(1) 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.
(2) 5% first year; 4% second year; 3% third year; 2% fourth year; 1% fifth year
and 0% thereafter.
3
<PAGE> 5
<TABLE>
<CAPTION>
Pro Forma
Current Expenses Current Expenses Expenses
Florida Insured Tax-Exempt Tax-Exempt
Municipal Fund Bond Fund Bond Fund
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Annual Fund Operating Expenses (as a percentage of average
net assets)
Management Fees
Class A................................................... 0.50% 0.48% 0.48%
Class B................................................... 0.50% 0.48% 0.48%
--------------------------------------------------------------------------------------------------------------
Service (12b-1) Fees
Class A................................................... 0.25% 0.25% 0.25%
Class B................................................... 1.00% 1.00% 1.00%
--------------------------------------------------------------------------------------------------------------
Other Expenses
Class A................................................... 0.39% 0.16% 0.16%
Class B................................................... 0.38% 0.16% 0.16%
--------------------------------------------------------------------------------------------------------------
Total Annual Fund Operating Expenses
Class A................................................... 1.14% 0.89% 0.89%
Class B................................................... 1.88% 1.64% 1.64%
--------------------------------------------------------------------------------------------------------------
Expense Reimbursement
Class A................................................... -- 0.01%(1) 0.01%(1)
Class B................................................... -- 0.01%(1) 0.01%(1)
--------------------------------------------------------------------------------------------------------------
Net Expenses
Class A................................................... 1.14% 0.88%(1) 0.88%(1)
Class B................................................... 1.88% 1.63%(1) 1.63%(1)
--------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Reflects WM Advisors, Inc.'s obligation to limit Total Annual Fund Operating
Expenses through October 31, 2000.
EXAMPLE OF FUND EXPENSES:
An investment of $10,000 would incur the following expenses, assuming 5% annual
return, constant expenses and, except as indicated, redemption at the end of
each time period:
<TABLE>
<CAPTION>
Pro Forma
Current Expenses Current Expenses Expenses
Florida Insured Tax-Exempt Tax-Exempt
Municipal Fund Bond Fund Bond Fund
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A
1 year.................................................... $ 561 $ 537 $ 537
3 years................................................... $ 796 $ 721 $ 721
5 years................................................... $1,054 $ 924 $ 924
10 years.................................................. $1,774 $1,497 $1,497
--------------------------------------------------------------------------------------------------------------
Class B
1 year.................................................... $ 691 $ 667 $ 667
3 years................................................... $ 891 $ 817 $ 817
5 years................................................... $1,122 $ 997 $ 997
10 years.................................................. $2,006 $1,742 $1,742
--------------------------------------------------------------------------------------------------------------
Class B (no redemption)
1 year.................................................... $ 191 $ 167 $ 167
3 years................................................... $ 591 $ 517 $ 517
5 years................................................... $1,022 $ 897 $ 897
10 years.................................................. $2,006 $1,742 $1,742
--------------------------------------------------------------------------------------------------------------
</TABLE>
FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes, the Merger will be a tax-free reorganization.
Accordingly, no gain or loss will be recognized by the Acquired Fund or its
shareholders as a result of the Merger, and the aggregate tax basis of the
Merger Shares received by each Acquired Fund shareholder will be the same as the
aggregate tax basis of the shareholder's Acquired Fund shares.
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
The Acquiring Fund has investment objectives that are generally similar to those
of the Acquired Fund. Both Funds generally seek to provide a high level of
current
4
<PAGE> 6
income that is exempt from federal income tax while protecting investor capital;
however, unlike the Acquired Fund, the Acquiring Fund does not seek to ensure
that the value of its shares is exempt from Florida intangible personal property
tax. As a result, it is likely that holders of Merger Shares who are subject to
the Florida intangible personal property tax will be so taxed on the value of
such shares. In this event, the effective after-tax return obtained as a result
of holding Merger Shares would be lower for holders subject to the Florida
intangible personal property tax. The significance of this differential may be
lessened by the fact that the Florida intangible personal property tax has
recently been reduced and proposals have been made which, if implemented, would
eliminate the tax entirely. However, it is not certain that such proposals will
ever be so adopted or implemented.
The total return for the Acquired Fund and the Acquiring Fund is set forth in
the chart below.
TOTAL RETURN COMPARISON
AS OF 6/30/00*
<TABLE>
<CAPTION>
Since
5 Years 10 Years 6/9/93**
1 Year Annualized Annualized Annualized
------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Tax-Exempt Bond Fund........................................ (3.03)% 3.68% 5.75% 3.97%
Florida Insured Municipal Fund.............................. (4.23)% 4.48% N/A 3.86%
</TABLE>
* Performance is for Class A shares of both Funds. Fund performance data is
after all expenses and sales charges. For further information about each
Fund's performance, including information about waivers/reimbursements that
affected the Fund's performance, see the Fund Prospectus.
** The Acquired Fund's Class A inception.
It is a fundamental policy of each Fund to invest at least 80% of the value of
its total assets (except when maintaining a temporary defensive position) in
municipal obligations, including inverse floating rate obligations. However, the
Acquiring Fund specifically limits such assets to investments to municipal
bonds, municipal notes and securities of unaffiliated tax-exempt mutual funds,
while the Acquired Fund must invest such assets in insured Florida obligations.
The Acquiring Fund may invest up to 35% of its assets in lower-rated securities
("junk bonds"). The following chart sets forth, for each bond grade in Moody's
rating system, the percentage of assets of the Acquiring Fund invested in
obligations rated by Moody's or Standard & Poor's, as applicable, to be of that
grade.
<TABLE>
<CAPTION>
Percentage of
Assets
CREDIT RATINGS as of 6/30/00
------------------------------------------------------------------
<S> <C>
AAA................................................ 52.6%
AA................................................. 25.9%
A.................................................. 10.2%
BBB................................................ 7.2%
BB................................................. 0.0%
Unrated Securities................................. 4.2%
------------------------------------------------------------------
</TABLE>
Both Funds may invest in interest rate futures and options.
Both Funds may invest in certain municipal obligations issued to finance private
activities, such as airports, housing projects, student loan programs, water and
sewer projects and certain other projects. Interest on such private activity
bonds is a specific tax preference item for purposes of the federal individual
and corporate alternative minimum taxes ("AMT"). The Acquired Fund may invest
without limitation in AMT-subject bonds, whereas the Acquiring Fund limits these
instruments to 20% of its total assets.
With respect to the maintenance of temporary defensive positions, the Acquired
Fund may invest without limitation in taxable short-term instruments and
securities of unaffiliated money market mutual funds, but the Acquiring Fund may
only invest 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 Standard & Poor's or Moody's, time or demand deposits in U.S. banks, and
repurchase agreements relating to municipalities.
For a more detailed description of the investment techniques used by the
Acquired Fund and the Acquiring Fund, please see the Fund Prospectus and the
Fund SAI.
COMPARISON OF DISTRIBUTION POLICIES AND PURCHASE, EXCHANGE AND REDEMPTION
PROCEDURES
The Acquired Fund and the Acquiring Fund each declare dividends daily and pay
them monthly. Both Funds also distribute any net realized capital gains at least
annually.
5
<PAGE> 7
The Acquired Fund and the Acquiring Fund have the same procedures for purchasing
shares, as described in the Fund Prospectus.
Shares of each Fund can be exchanged for shares of the same class of any other
fund or portfolio offered by the WM Group of Funds.
See the Fund Prospectus and the Fund SAI for further information.
ADVISORY SERVICES
WM Advisors, Inc. (the "Advisor"), the investment advisor to both Trusts, has
been in the business of investment management since 1944. The advisor has
delegated responsibility for managing the portfolios of both the Acquired Fund
and the Acquiring Fund to a sub-advisor. The sub-advisor, Van Kampen Management
Inc. is located at 1 Parkview Plaza, Oakbrook Terrace, IL 60181. The sub-advisor
is a wholly owned subsidiary of Van Kampen Investments Inc. ("Van Kampen
Investments"). Van Kampen Investments is a diversified asset management company
with extensive capabilities for managing institutional portfolios and more than
$100 billion under management or supervision as of June 30, 2000. Van Kampen
Investments is a wholly owned subsidiary of Morgan Stanley Dean Witter & Co.
6
<PAGE> 8
--------------------------------------------------------------------------------
RISK FACTORS
Certain risks associated with an investment in the Acquiring Fund are summarized
below. Because the Acquiring Fund and the Acquired Fund share certain policies
described more fully above under "Overview of Merger -- Comparisons of
Investment Objectives, Policies and Restrictions," many of the risks of an
investment in the Acquiring Fund are substantially similar to the risks of an
investment in the Acquired Fund.
The values of all securities and other instruments held by the Acquiring Fund
vary from time to time in response to a wide variety of market factors.
Consequently, the net asset value per share of the Acquiring Fund will vary, and
may be less at the time of redemption than it was at the time of investment.
MARKET RISK
The Acquiring Fund is subject to market risk, which is the general risk of
unfavorable changes in the market value of a Fund's portfolio securities.
One aspect of market risk is interest rate risk. As interest rates rise, your
investment in the Acquiring Fund is likely to be worth less. This type of market
risk is generally greater for securities with longer maturities. Interest rate
risk may be compounded in the case of the Acquiring Fund, as it invests in
mortgage-backed and/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.
CREDIT RISK
The Acquiring Fund may be subject to credit risk, as it invests in fixed-income
securities. This is the risk that the issuer or the guarantor 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 the
Acquiring Fund as it may from time to time 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.
LEVERAGING RISK
When the Acquiring Fund borrows money or otherwise leverages its portfolio, the
value of an investment in the Acquiring Fund will be more volatile and all other
risks will tend to be compounded. The Acquiring Fund may achieve leverage
through the use of inverse floating rate investments.
DERIVATIVES RISK
The Acquiring Fund may, subject to the limitations and restrictions stated
elsewhere in this Prospectus/ Proxy Statement, the Fund Prospectus and the Fund
SAI, enter into strategic transactions involving derivatives such as futures
contracts 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. The Acquiring Fund may be subject to liquidity risk.
MANAGEMENT RISK
The Acquiring Fund and the Acquired Fund are subject to management risk because
they are actively managed investment portfolios. WM Advisors or Van Kampen
Management Inc. ("Van Kampen") will apply its investment techniques and risk
analyses in making investment decisions for the Acquiring Fund, but there can be
no guarantee that they will meet stated objectives or produce desired results.
In some cases derivatives and other investments may be unavailable or WM
Advisors or Van Kampen may choose not to use them under market conditions when
their use, in hindsight, might have been beneficial to the Acquiring Fund.
7
<PAGE> 9
TAX RISK
The Acquiring Fund is subject to the risk that some or all of the income it
receives 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 Acquiring Fund's investments would likely fall, and some or all of
the income distributions paid by the Acquiring Fund might become taxable. In
addition, some or all of the income distributions paid by the Fund may be
subject to federal alternative minimum income tax.
Additionally, the Acquiring Fund does not specifically seek to ensure that the
value of its shares is exempt from Florida intangible personal property tax. As
a result, it is likely that holders of Merger Shares who are otherwise subject
to the Florida intangible personal property tax will be so taxed on the value of
such shares. In this event, the effective after-tax return obtained as a result
of holding Merger Shares would be lower for holders subject to the Florida
intangible personal property tax. The significance of this differential may be
lessened by the fact that the Florida intangible personal property tax has
recently been reduced and proposals have been made which, if implemented, would
eliminate the tax entirely. However, it is not certain that such proposals will
ever be so adopted or implemented.
8
<PAGE> 10
--------------------------------------------------------------------------------
SPECIAL MEETING OF SHAREHOLDERS
This Prospectus/Proxy Statement is being furnished in connection with a Special
Meeting of Shareholders of the Acquired Fund to be held on November 7, 2000 or
at such later time made necessary by adjournment (the "Meeting") and the
solicitation of proxies from the shareholders of the Acquired Fund for use at
the Meeting. The Meeting is being held to consider the proposed Merger. This
Prospectus/Proxy Statement and the enclosed form of proxy are being mailed to
shareholders on or about September 11, 2000.
The Trustees know of no matters other than those set forth herein to be brought
before the Meeting. If, however, any other matters properly come before the
Meeting, it is the Trustees' intention that proxies will be voted on such
matters in accordance with the judgment of the persons named in the enclosed
form of proxy.
--------------------------------------------------------------------------------
THE PROPOSAL: APPROVAL OR
DISAPPROVAL OF AGREEMENT AND
PLAN OF REORGANIZATION
Shareholders of the Acquired Fund are being asked to approve or disapprove a
Merger between the Acquired Fund and the Acquiring Fund. The Merger is proposed
to take place pursuant to an Agreement and Plan of Reorganization between the
Acquired Fund and the Acquiring Fund (the "Agreement") in the form attached to
this Prospectus/Proxy Statement as Appendix A.
The Agreement provides, among other things, for the transfer of all of the
assets of the Acquired Fund to the Acquiring Fund in exchange for (i) the
issuance to the Acquired Fund of the Class A and Class B Merger Shares, the
number of which will be calculated based on the value of the net assets
attributable to the Class A and Class B shares, respectively, of the Acquired
Fund acquired by the Acquiring Fund and the net asset value per Class A and
Class B share of the Acquiring Fund and (ii) the assumption by the Acquiring
Fund of all of the liabilities of the Acquired Fund, all as more fully described
below under "Information About the Merger."
After receipt of the Merger Shares, the Acquired Fund will cause the Class A
Merger Shares to be distributed to its Class A shareholders, and the Class B
Merger Shares to be distributed to its Class B shareholders, in complete
liquidation of the Acquired Fund. Each shareholder of the Acquired Fund will
receive a number of full and fractional Class A and Class B Merger Shares equal
in value at the date of the exchange to the aggregate value of the shareholder's
Class A and Class B Acquired Fund shares.
TRUSTEES' RECOMMENDATIONS. The Board of Trustees has voted unanimously to
approve the Merger and to recommend that shareholders of the Acquired Fund also
approve the Merger.
REQUIRED SHAREHOLDER VOTE. Approval of the Merger requires the approval not
only of a majority of the Trustees, but also of a "majority of the outstanding
voting securities" of the Acquired Fund, as defined in the 1940 Act, which means
the lesser of (A) 67% or more of the shares of the Acquired Fund present at a
meeting, if the holders of more than 50% of the outstanding shares of the
Acquired Fund are present or represented by proxy, or (B) more than 50% of the
outstanding shares of the Acquired Fund.
BACKGROUND AND REASONS FOR THE PROPOSED MERGER
The Board of Trustees, acting in such capacity for both the Acquiring Fund and
the Acquired Fund, including all of the Trustees who are not "interested
persons" of the Funds (the "Independent Trustees"), has unanimously determined
that the Merger would be in the best interests of the Funds, and that the
interests of the Funds' shareholders would not be diluted as a result of
effecting the Merger. At a meeting held on June 6, 2000, the Trustees
unanimously approved the proposed Merger and recommended its approval by
shareholders. Before reaching their conclusions, the Board considered (i) that
the Advisor will be bearing the expenses associated with the Merger, including
those described under "Information about the Merger," (ii) that the portfolio
manager of the Acquired Fund and the other service providers to the Acquired
Fund would not change, (iii) the decreased overall expenses expected to be borne
by Acquired Fund shareholders, (iv) the pres-
9
<PAGE> 11
ently unfavorable marketing environment for Florida municipal bond funds, (v)
the prospects for growth of the Acquiring Fund, possibly enabling further
economies of scale and even lower management fees for all shareholders of the
Fund in the future, and (vi) the difficulties of managing the Acquired Fund as
its assets continue to shrink. In addition, the Board took into account the
relative historical investment performance of the Acquiring Fund and the
Acquired Fund. Furthermore, the Trustees took into account the capital loss
carry-forwards for the Acquired Fund and the Acquiring Fund, and the unrealized
capital appreciation in the Acquired Fund and in the Acquiring Fund, in each
case as a percentage of the Fund's total net assets. Those percentages as of
June 30, 2000 were as follows:
<TABLE>
<CAPTION>
Unrealized
Capital
Capital Loss Carry- Appreciation (as
Forwards (as a % of a % of total net
total net assets) on assets) on
FUND 6/30/00 6/30/00
-----------------------------------------------------------------------
<S> <C> <C>
Tax-Exempt Bond Fund.......... 1.3% 2.8%
Florida Insured Municipal
Fund........................ 14.5% 1.4%
</TABLE>
The principal reasons why the Board of Trustees is recommending the Merger are
as follows:
(i) Sustainable decreases in overall expenses. The Merger is expected to
result in aggregate operating expenses that would be lower than those
expected to be borne by the Acquired Fund as described more fully in the
Overview under "Operating Expenses." Of course, there can be no assurance
that the Merger will result in savings in operating expenses to
shareholders.
(ii) Appropriate investment objectives, diversification, etc. The
investment objective, policies, and restrictions of the Acquiring Fund are
generally similar to those of the Acquired Fund, with the exception that
the Acquiring Fund does not seek to ensure that the value of its assets is
exempt from the Florida intangible personal property tax. The Trustees
believe that an investment in shares of the Acquiring Fund (whose portfolio
will have been combined with that of the Acquired Fund) will provide
shareholders with an investment opportunity comparable to that currently
afforded by the Acquired Fund, with the potential for reduced investment
risk because of the opportunities for additional diversification of
portfolio investments through increased Fund assets.
INFORMATION ABOUT THE MERGER
AGREEMENT AND PLAN OF REORGANIZATION. The proposed Agreement and Plan of
Reorganization provides that the Acquiring Fund will acquire all of the assets
of the Acquired Fund in exchange for the issuance of the Class A and Class B
Merger Shares and for the assumption by the Acquiring Fund of all of the
liabilities of the Acquired Fund, all as of the Exchange Date (defined in each
Agreement to be November 1, 2000 or such other date as may be agreed upon by the
Acquiring Fund and the Acquired Fund). The following discussion of the Agreement
is qualified in its entirety by the full text of the Agreement, the form of
which is attached as Appendix A to this Prospectus/ Proxy Statement.
The Acquired Fund will sell all of its assets to the Acquiring Fund, and, in
exchange, the Acquiring Fund will assume all of the liabilities of the Acquired
Fund and deliver to the Acquired Fund (i) a number of full and fractional Class
A Merger Shares having an aggregate net asset value equal to the value of the
assets of the Acquired Fund attributable to its Class A shares, less the value
of the liabilities of the Acquired Fund assumed by the Acquiring Fund
attributable to the Class A shares of the Acquired Fund, and (ii) a number of
full and fractional Class B Merger Shares having an aggregate net asset value
equal to the value of assets of the Acquired Fund attributable to its Class B
shares, less the value of the liabilities of the Acquired Fund assumed by the
Acquiring Fund attributable to the Class B shares of the Acquired Fund.
Immediately following the Exchange Date, the Acquired Fund will distribute pro
rata to its shareholders of record as of the close of business on the Exchange
Date the full and fractional Merger Shares received by the Acquired Fund, with
Class A Merger Shares being distributed to holders of Class A shares of the
Acquired Fund and Class B Merger Shares being distributed to holders of Class B
shares of the Acquired Fund. As a result of the proposed transaction, each
holder of Class A and Class B shares of the Acquired Fund will receive a number
of Class A and Class B Merger Shares equal in aggregate value at the Exchange
Date to the value of the Class A and Class B shares of the Acquired Fund held by
the shareholder. This distribution will be accomplished by the establishment of
accounts on the share records of the Acquiring Fund in the names of the Acquired
10
<PAGE> 12
Fund shareholders, each account representing the respective number of full and
fractional Class A and Class B Merger Shares due such shareholder. Because the
shares of the Acquiring Fund will not be represented by certificates,
certificates for Merger Shares will not be issued.
The consummation of the Merger is subject to the conditions set forth in the
Agreement, any of which may be waived, except for the condition requiring
shareholder approval of the Agreement. The Agreement may be terminated and the
Merger abandoned at any time, before or after approval by the shareholders of
the Acquired Fund, prior to the Exchange Date, by mutual consent of the Funds
or, if any condition set forth in the Agreement has not been fulfilled and has
not been waived by the party entitled to its benefits, by such party.
All legal and accounting fees and expenses, printing other fees and expenses
(other than portfolio transfer taxes (if any), brokerage and other similar
expenses, all of which will be borne by the relevant Fund) incurred in
connection with the consummation of the transactions contemplated by the
Agreement will be borne by WM Advisors, Inc. Notwithstanding the foregoing,
expenses will in any event be paid by the party directly incurring such expenses
if and to the extent that the payment by any other party of such expenses would
result in the disqualification of the first party as a "regulated investment
company" within the meaning of Section 851 of the Internal Revenue Code of 1986,
as amended (the "Code").
DESCRIPTION OF THE MERGER SHARES. Full and fractional Merger Shares will be
issued to the Acquired Fund's shareholders in accordance with the procedures
under the Agreement as described above. The Merger Shares are Class A and Class
B shares of the Acquiring Fund, which have characteristics identical to those of
the corresponding class of Acquired Fund shares with respect to sales charges,
CDSCs, conversion and 12b-1 servicing and distribution fees. For purposes of
determining the CDSC payable on redemption of Class B Merger Shares received by
holders of Class B shares of the Acquired Fund, such shares will be treated as
having been purchased as of the dates that, and for the price (adjusted to
reflect the Merger) at which, such shareholders originally purchased shares of
the Acquired Fund, and the CDSC will be applied at the same rate as was in
effect for the Acquiring Fund at the time the shares of the Acquired Fund were
originally purchased. For purposes of determining the conversion date of Class B
Merger Shares to Class A shares, the Merger Shares will be treated as having
been purchased as of the date that the Acquired Fund shares exchanged for such
Merger Shares were originally purchased (so that the conversion of such shares
will be unchanged by the Mergers). See the Fund Prospectus for more information
about the characteristics of Class A and Class B shares of the Funds.
ORGANIZATION. Each of the Merger Shares will be fully paid and nonassessable by
the Acquiring Fund when issued, will be transferable without restriction, and
will have no preemptive or conversion rights, except that Class B Merger Shares
convert automatically into Class A shares as described above. The Amended and
Restated Agreement and Declaration of Trust of WM Trust I (the "WM Trust I
Declaration of Trust") permits the Trustees of WM Trust I to divide its shares,
without shareholder approval, into two or more series of shares representing
separate investment portfolios and to further divide any such series, without
shareholder approval, into two or more classes of shares having such preferences
and special or relative rights and privileges as the Trustees may determine. The
Acquiring Fund's shares are currently divided into two classes: Class A and
Class B.
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for the obligations of
the trust. However, the WM Trust I Declaration of Trust disclaims shareholder
liability for acts or obligations of the Acquiring Fund and requires that notice
of such disclaimer be given in each agreement, undertaking, or obligation
entered into or executed by WM Trust I. The WM Trust I Declaration of Trust
provides for indemnification out of Acquiring Fund property for all loss and
expense of any shareholder held personally liable for the obligations of the
Acquiring Fund. Thus, the risk of a shareholder's incurring financial loss from
shareholder liability is limited to circumstances in which the Acquiring Fund
would be unable to meet its obligations. The likelihood of such a circumstances
is considered remote. The shareholders of the Acquired Fund are currently
subject to substantially the same risk of shareholder liability, under
Massachusetts law and the Master Trust Agreement of WM Trust II and the
amendments thereto (the "WM Trust II Declaration of Trust").
11
<PAGE> 13
Except as otherwise noted below, the provisions of the WM Trust I Declaration of
Trust are substantially similar to those of the WM Trust II Declaration of
Trust. The WM Trust I Declaration of Trust provides that Trustees may be removed
by a majority of the Trustees, whereas the WM Trust II Declaration of Trust
provides that Trustees may be removed by two-thirds vote of the Trustees or by
vote of shareholders holding at least two-thirds of the outstanding shares of WM
Trust II. In addition, the WM Trust II Declaration of Trust provides that
shareholders holding 10% or more of the outstanding shares of WM Trust II may
call a meeting of shareholders to consider the removal of any Trustee. The WM
Trust I Declaration of Trust specifies no minimum number of Trustees, while the
WM Trust II Declaration of Trust specifies a minimum of two Trustees.
Unlike the WM Trust I Declaration of Trust, the WM Trust II Declaration of Trust
provides that the liquidation or merger of any fund requires the approval not
only of a majority of the Trustees, but also of a "majority of the outstanding
voting securities" of the fund, as defined in the 1940 Act, which means the
lesser of (A) 67% or more of the shares of the fund present at a meeting, if the
holders of more than 50% of the outstanding shares of the fund are present or
represented by proxy, or (B) more than 50% of the outstanding shares of the
fund. The WM Trust I Declaration of Trust requires only the vote of a majority
of the Trustees for the liquidation of any fund. The WM Trust I Declaration of
Trust provides that WM Trust I or any fund thereof may be terminated by a vote
of at least 50% of the shares of each fund entitled to vote (voting separately
by fund) or by a majority of the Trustees by written notice to shareholders,
whereas the WM Trust II Declaration of Trust provides that WM Trust II may be
terminated only by both the vote of a majority of the outstanding voting
securities of each fund and the vote of a majority of the Trustees. The WM Trust
I Declaration of Trust provides that a quorum for a meeting of shareholders is
10% of the shares entitled to vote at the meeting, while the WM Trust II
Declaration of Trust provides that a quorum for a meeting of shareholders is a
majority of the shares entitled to vote at the meeting.
FEDERAL INCOME TAX CONSEQUENCES. The Merger will be a tax-free reorganization.
The Merger will be conditioned on receipt of an opinion from Ropes & Gray,
counsel to WM Group of Funds, to the effect that, on the basis of the existing
provisions of the Code, current administrative rules and court decisions, for
federal income tax purposes: (i) under Section 361 of the Code, no gain or loss
will be recognized by the Acquired Fund as a result of the Merger; (ii) under
Section 354 of the code, no gain or loss will be recognized by shareholders of
the Acquired Fund on the distribution of Merger Shares to them in exchange for
their shares of the Acquired Fund; (iii) under Section 358 of the Code, the
aggregate tax basis of the Merger Shares that the Acquired Fund's shareholders
receive in place of their Acquired Fund shares will be the same as the aggregate
basis of the Acquired Fund shares; (iv) under Section 1223(1) of the Code, an
Acquired Fund's shareholder's holding period for the Merger Shares received
pursuant to the Agreement will be determined by including the holding period for
the Acquired Fund shares exchanged for the Merger Shares, provided that the
shareholder held the Acquired Fund shares as a capital asset; (v) under Section
1032 of the Code, no gain or loss will be recognized by the Acquiring Fund as a
result of the reorganization; (vi) under Section 362(b) of the Code, the
Acquiring Fund's tax basis in the assets that the Acquiring Fund receives from
the Acquired Fund will be the same as the Acquired Fund's tax basis in such
assets; and (vii) under Section 1223(2) of the Code, the Acquiring Fund's
holding period in such assets will include the Acquired Fund's holding period in
such assets. The opinion will be based on certain factual certifications made by
officers of WM Trust I and WM Trust II, and will also be based on customary
assumptions.
Prior to the Exchange Date, the Acquired Fund will declare a distribution to
shareholders which, together with all previous distributions, will have the
effect of distributing to shareholders of all of its investment company taxable
income (computed without regard to the deduction for dividends paid) and net
realized capital gains, if any, through the Exchange Date.
The foregoing description of the federal income tax consequences of the Merger
is made without regard to the particular circumstances of any shareholder.
Shareholders are therefore urged to consult their tax adviser as to the specific
consequences to them of the Merger, including the applicability and effect of
state, local, foreign and other taxes.
12
<PAGE> 14
CAPITALIZATION. The following tables show the capitalization of the Acquiring
Fund and the Acquired Fund as of June 30, 2000 and of the Acquiring Fund on a
pro forma basis as of that date, giving effect to the proposed acquisition by
the Acquiring Fund of the assets and liabilities of the Acquired Fund at net
asset value:
CAPITALIZATION TABLES
JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
Florida Insured Tax-Exempt Pro Forma
Municipal Fund Bond Fund Combined
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net assets (000's omitted)
Class A................................................... $9,802 $212,012 $221,814
Class B................................................... 6,172 24,549 30,721
--------------------------------------------------------------------------------------------------------
Shares outstanding (000's omitted)
Class A................................................... $1,019 $ 28,492 $ 29,814
Class B................................................... 643 3,299 4,129
--------------------------------------------------------------------------------------------------------
Net asset value per share
Class A................................................... $ 9.62 $ 7.44 $ 7.44
Class B................................................... 9.62 7.44 7.44
--------------------------------------------------------------------------------------------------------
</TABLE>
INFORMATION ABOUT THE FUNDS
Other information regarding the Funds, including information with respect to
their investment objectives, policies and restrictions and financial history may
be found in the Fund Prospectus, the Fund SAI, the Annual Report and the
Semi-Annual Report, which are available upon request by calling 1-800-222-5852.
Proxy materials, reports and other information filed by WM Trust I and WM Trust
II with respect to the Funds can be inspected and copied at the Securities and
Exchange Commission's public reference room located at 450 5th Street NW, Room
1200, Washington, DC 20549-6009. You may call the Commission at 1-202-942-8090
for information about the operation of the public reference room. You may also
access reports and other information about the Trusts on the EDGAR database or
the Commission's Internet site at http://www.sec.gov. You may also obtain copies
of this information, with payment of a duplication fee, by electronic request at
the following email address: public [email protected] by writing the Public
Reference Section of the Commission, Washington, D.C. 20549-6009. You may need
to refer to the following file numbers:
File No. 811-00123: WM Trust I (Tax-Exempt Bond Fund)
File No. 811-05775: WM Trust II (Florida Insured Municipal Fund)
VOTING INFORMATION
RECORD DATE, QUORUM AND METHOD OF TABULATION. Shareholders of record of the
Acquired Fund at the close of business on September 8, 2000 (the "Record Date")
will be entitled to notice of and to vote at the Meeting or any adjournment
thereof. The holders of more than 50% of the shares of the Acquired Fund
outstanding at the close of business on the Record Date present in person or
represented by proxy will constitute a quorum for the Meeting. Shareholders are
entitled to one vote for each share held, with fractional shares voting
proportionally. Class A and Class B shareholders of the Acquired Fund vote
together as a single class in connection with the approval or disapproval of the
Merger. Votes cast by proxy or in person at the Meeting will be counted by
persons appointed by WM Trust II as tellers for the Meeting. The tellers will
count the total number of votes cast "for" approval of the Proposal for purposes
of determining whether sufficient affirmative votes have been cast. The tellers
will count shares represented by proxies that reflect abstentions and "broker
non-votes" (i.e., shares held by brokers or nominees as to which (i)
instructions have not been received from the beneficial owners or the persons
entitled to vote and (ii) the broker or nominee does not have the discretionary
voting power on a particular matter) as shares that are present and entitled to
vote on the matter for purposes of determining the presence of a quorum. So long
as a quorum is present, abstentions
13
<PAGE> 15
and broker non-votes have the effect of negative votes on the Merger.
SHARES OUTSTANDING AND BENEFICIAL OWNERSHIP. As of the Record Date, as shown on
the books of the Acquired Fund, there were issued and outstanding the following
number of shares of beneficial interest of each class of the Acquired Fund.
<TABLE>
<CAPTION>
Number of Shares
Outstanding
-----------------------------------------------------------------
<S> <C>
Class A........................................ 273,718
Class B........................................ 16,731
</TABLE>
As of the Record Date, the officers and Trustees of WM Trust II as a group
beneficially owned less than 1% of the outstanding shares of each class of the
Acquired Fund. As of June 30, 2000, to the best of the Acquired Fund's
knowledge, no person owned of record or beneficially 5% or more of the
outstanding shares of the Acquired Fund and the Acquiring Fund.
SOLICITATION OF PROXIES. Solicitation of proxies by personal interview, mail,
and telephone, may be made by officers and Trustees of the Funds and the
employees of the Advisor and its affiliates. In addition, the firm of D.F. King
& Co., Inc. may be retained to assist in the solicitation of proxies for an
estimated cost of $50,000. The costs for solicitation of proxies, like the other
costs associated with the Merger of the Funds, will be borne by the Advisor. See
"Information About the Merger."
The Advisor or its affiliates may call shareholders to ask if they would be
willing to have their votes recorded by telephone. The telephone voting
procedure is designed to authenticate shareholders' identities, to allow
shareholders to authorize the voting of their shares in accordance with their
instructions and to confirm that their instructions have been recorded properly.
Shareholders voting by telephone would be asked for their social security number
or other identifying information, and would be given an opportunity to authorize
proxies to vote their shares in accordance with their instructions.
To ensure that the shareholders' instructions have been recorded correctly, they
will receive a confirmation of their instructions in the mail. A special
toll-free number will be available in case the information contained in the
confirmation is incorrect. Although a shareholder's vote may be taken by
telephone, each shareholder will receive a copy of this Prospectus/ Proxy
Statement, and may vote by mail using the enclosed proxy card. Shareholders may
contact WM Shareholder Services at (800) 222-5852.
REVOCATION OF PROXIES. Any shareholder giving a proxy has the power to revoke
it by mail (addressed to the Secretary of WM Trust II, 1201 Third Avenue, 22nd
Floor, Seattle, WA 98101), or in person at the Meeting, by executing a
superseding proxy, or by submitting a notice of revocation to the Secretary of
WM Trust II. All properly executed proxies received in time for the Meeting will
be voted as specified in the proxy, or, if no specification is made FOR the
proposal to implement the Merger.
SHAREHOLDER PROPOSALS AT FUTURE MEETINGS OF SHAREHOLDERS. The WM Trust II
Declaration of Trust does not provide for annual meetings of shareholders, and
the Acquired Fund does not currently intend to hold such a meeting for
shareholders. Shareholder proposals for inclusion in a proxy statement for any
subsequent meeting of the Acquired Fund shareholders must be received by the
Acquired Fund a reasonable period of time prior to any such meeting. If the
Merger is consummated, there will be no further meetings of the shareholders of
the Acquired Fund.
ADJOURNMENT. If sufficient votes in favor of any proposal are not received by
the time scheduled for the Meeting, the persons named as proxies may propose one
or more adjournments of the Meeting to permit further solicitation of proxies.
Any adjournment will require the affirmative vote of a majority of the votes
cast on the question in person or by proxy at the session of the Meeting to be
adjourned. If the Meeting is adjourned only with respect to one proposal, any
other proposal may still be acted upon by the shareholders. The persons named as
proxies will vote in favor of such adjournment those proxies which they are
entitled to vote in favor of the proposal. They will vote against any such
adjournment those proxies required to be voted against the proposal.
14
<PAGE> 16
--------------------------------------------------------------------------------
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement") is made as of
September 8, 2000 in Boston, Massachusetts, by and between WM Trust II, a
Massachusetts business trust, on behalf of its Florida Insured Municipal Fund
series (the "Acquired Fund"), and WM Trust I, a Massachusetts business trust, on
behalf of its Tax-Exempt Bond Fund series (the "Acquiring Fund").
PLAN OF REORGANIZATION
(a) The Acquired Fund will sell, assign, convey, transfer and deliver to the
Acquiring Fund on the Exchange Date (as defined in Section 6) all of its
properties and assets. In consideration therefor, the Acquiring Fund shall, on
the Exchange Date, assume all of the liabilities of the Acquired Fund existing
at the Valuation Time (as defined in Section 3(c)) and deliver to the Acquired
Fund (i) a number of full and fractional Class A shares of beneficial interest
of the Acquiring Fund (the "Class A Merger Shares") having an aggregate net
asset value equal to the value of the assets of the Acquired Fund attributable
to the Class A shares of the Acquired Fund transferred to the Acquiring Fund on
such date less the value of the liabilities of the Acquired Fund attributable to
the Class A shares of the Acquired Fund assumed by the Acquiring Fund on that
date, and (ii) a number of full and fractional Class B shares of beneficial
interest of the Acquiring Fund (the "Class B Merger Shares") having an aggregate
net asset value equal to the value of the assets of the Acquired Fund
attributable to the Class B shares of the Acquired Fund transferred to the
Acquiring Fund on such date less the value of the liabilities of the Acquired
Fund attributable to the Class B shares of the Acquired Fund assumed by the
Acquiring Fund on that date. (The Class A Merger Shares and the Class B Merger
Shares shall be referred to collectively as the "Merger Shares"). It is intended
that the reorganization described in this Agreement shall be a reorganization
within the meaning of Section 368 of the Internal Revenue Code of 1986, as
amended (the "Code").
(b) Upon consummation of the transaction described in paragraph (a) of this
Agreement, the Acquired Fund shall distribute in complete liquidation to its
Class A and Class B shareholders of record as of the Exchange Date the Class A
and Class B Merger Shares, each such shareholder being entitled to receive that
proportion of such Class A and Class B Merger Shares which the number of Class A
and Class B shares of beneficial interest of the Acquired Fund held by such
shareholder bears to the number of Class A and Class B shares of the Acquired
Fund outstanding on such date. Certificates representing the Class A and Class B
Merger Shares will not be issued. All issued and outstanding Class A and Class B
shares of the Acquired Fund will simultaneously be canceled on the books of the
Acquired Fund.
(c) As promptly as practicable after the liquidation of the Acquired Fund as
aforesaid, the Acquired Fund shall be dissolved pursuant to the provisions of
the Amended and Restated Agreement and Declaration of Trust of WM Trust II (the
"WM Trust II Declaration of Trust"), as amended, and applicable law, and its
legal existence terminated. Any reporting responsibility of the Acquired Fund is
and shall remain the responsibility of the Acquired Fund up to and including the
Exchange Date and, if applicable, such later date on which the Acquired Fund is
liquidated.
AGREEMENT
The Acquiring Fund and the Acquired Fund agree as follows:
1. Representations, Warranties and Agreements of the Acquiring Fund. The
Acquiring Fund represents and warrants to and agrees with the Acquired Fund
that:
a. The Acquiring Fund is a series of WM Trust I, a Massachusetts business
trust duly established and validly existing under the laws of The
Commonwealth of Massachusetts, and has power to own all of its properties
and assets and to carry out its obligations under this Agreement. WM Trust
I is qualified as a foreign association in every jurisdiction where
required, except to the extent that failure to so qualify would not have a
material adverse effect on WM Trust I. Each of
A-1
<PAGE> 17
WM Trust I and the Acquiring Fund has all necessary federal, state and
local authorizations to carry on its business as now being conducted and to
carry out this Agreement.
b. Reserved
c. The statement of assets and liabilities, statement of operations,
statement of changes in net assets and a schedule of investments
(indicating their market values) of the Acquiring Fund as of and for the
year ended October 31, 1999 have been furnished to the Acquired Fund. Such
statement of assets and liabilities and schedule fairly present the
financial position of the Acquiring Fund as of that date and such
statements of operations and changes in net assets fairly reflect the
results of its operations and changes in net assets for the periods covered
thereby in conformity with generally accepted accounting principles.
d. The current prospectus and statement of additional information of WM
Trust I and WM Trust II, each dated March 1, 2000, and as supplemented on
March 2, 2000, March 22, 2000, and June 18, 2000 (collectively, as from
time to time amended, the "Prospectus"), which have previously been
furnished to the Acquired Fund, did not as of such date and does not
contain as of the date hereof, with respect to the Acquiring Fund, any
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.
e. There are no material legal, administrative or other proceedings
pending or, to the knowledge of WM Trust I or the Acquiring Fund,
threatened against WM Trust I or the Acquiring Fund which assert liability
on the part of the Acquiring Fund. The Acquiring Fund knows of no facts
which might form the basis for the institution of such proceedings and is
not a party to or subject to the provisions of any order, decree or
judgment of any court or governmental body which materially and adversely
affects its business or its ability to consummate the transactions herein
contemplated.
f. The Acquiring Fund has no known liabilities of a material nature,
contingent or otherwise, other than those shown belonging to it on its
statement of assets and liabilities as of October 31, 1999, those incurred
in the ordinary course of its business as an investment company since
October 31, 1999 and those to be assumed pursuant to this Agreement. Prior
to the Exchange Date, the Acquiring Fund will endeavor to quantify and to
reflect on its balance sheet all of its material known liabilities and will
advise the Acquired Fund of all material liabilities, contingent or
otherwise, incurred by it subsequent to October 31, 1999, whether or not
incurred in the ordinary course of business.
g. As of the Exchange Date, the Acquiring Fund will have filed all federal
and other tax returns and reports which, to the knowledge of WM Trust I's
officers, are required to have been filed by the Acquiring Fund and will
have paid or will pay all federal and other taxes shown to be due on said
returns or on any assessments received by the Acquiring Fund. All tax
liabilities of the Acquiring Fund have been adequately provided for on its
books, and no tax deficiency or liability of the Acquiring Fund has been
asserted, and no question with respect thereto has been raised or is under
audit, by the Internal Revenue Service or by any state or local tax
authority for taxes in excess of those already paid.
h. No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the Acquiring
Fund of the transactions contemplated by this Agreement, except such as may
be required under the Securities Act of 1933, as amended (the "1933 Act"),
the Securities Exchange Act of 1934, as amended (the "1934 Act"), the
Investment Company Act of 1940, as amended (the "1940 Act") and state
insurance, securities or blue sky laws (which term as used herein shall
include the laws of the District of Columbia and of Puerto Rico).
i. The registration statement (the "Registration Statement") filed with
the Securities and Exchange Commission (the "Commission") by WM Trust I on
Form N-14 on behalf of the Acquiring Fund and relating to the Merger Shares
issuable hereunder and the proxy statement of the Acquired Fund relating to
the meeting of the Acquired Fund shareholders referred to in Section 7(a)
herein (together with the documents incorporated therein by reference, the
"Acquired Fund Proxy Statement"), on the effective date of the Registration
Statement, (i) will comply in all
A-2
<PAGE> 18
material respects with the provisions of the 1933 Act, the 1934 Act and the
1940 Act and the rules and regulations thereunder and (ii) will not contain
any 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; and at the time of the shareholders meeting referred to in
Section 7(a) and on the Exchange Date, the prospectus which is contained in
the Registration Statement, as amended or supplemented by any amendments or
supplements filed with the Commission by WM Trust I, and the Acquired Fund
Proxy Statement will not contain any 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; provided, however, that none of
the representations and warranties in this subsection shall apply to
statements in or omissions from the Registration Statement or the Acquired
Fund Proxy Statement made in reliance upon and in conformity with
information furnished in writing by the Acquired Fund to the Acquiring Fund
specifically for use in the Registration Statement or the Acquired Fund
Proxy Statement.
j. There are no material contracts outstanding to which the Acquiring Fund
is a party, other than as are or will be disclosed in the Prospectus, the
Registration Statement or the Acquired Fund Proxy Statement.
k. All of the issued and outstanding shares of beneficial interest of the
Acquiring Fund have been offered for sale and sold in conformity with all
applicable federal and state securities laws (including any applicable
exemptions therefrom), or the Acquiring Fund has taken any action necessary
to remedy any prior failure to have offered for sale and sold such shares
in conformity with such laws.
l. The Acquiring Fund qualifies and will at all times through the Exchange
Date qualify for taxation as a "regulated investment company" under
Sections 851 and 852 of the Code.
m. The issuance of the Merger Shares pursuant to this Agreement will be in
compliance with all applicable federal and state securities laws.
n. The Merger Shares to be issued to the Acquired Fund have been duly
authorized and, when issued and delivered pursuant to this Agreement, will
be legally and validly issued and will be fully paid and non-assessable by
the Acquiring Fund, and no shareholder of the Acquiring Fund will have any
preemptive right of subscription or purchase in respect thereof.
o. All issued and outstanding shares of the Acquiring Fund are, and at the
Exchange Date will be, duly authorized, validly issued, fully paid and
non-assessable by the Acquiring Fund. The Acquiring Fund does not have
outstanding any options, warrants or other rights to subscribe for or
purchase any Acquiring Fund shares, nor is there outstanding any security
convertible into any Acquiring Fund shares.
2. Representations, Warranties and Agreements of the Acquired Fund. The
Acquired Fund represents and warrants to and agrees with the Acquiring Fund
that:
a. The Acquired Fund is a series of WM Trust II, a Massachusetts business
trust duly established and validly existing under the laws of The
Commonwealth of Massachusetts, and has power to own all of its properties
and assets and to carry out this Agreement. WM Trust II is qualified as a
foreign association in every jurisdiction where required, except to the
extent that failure to so qualify would not have a material adverse effect
on WM Trust II. Each of WM Trust II and the Acquired Fund has all necessary
federal, state and local authorizations to own all of its properties and
assets and to carry on its business as now being conducted and to carry out
this Agreement.
b. Reserved
c. A statement of assets and liabilities, statement of operations,
statement of changes in net assets and a schedule of investments
(indicating their market values) of the Acquired Fund as of and for the
year ended October 31, 1999 have been furnished to the Acquiring Fund. Such
statement of assets and liabilities and schedule fairly present the
financial position of the Acquired Fund as of that date, and such
statements of operations and changes in net assets fairly reflect the
results of its operations and changes in
A-3
<PAGE> 19
net assets for the period covered thereby, in conformity with generally
accepted accounting principles.
d. The Prospectus, which has been previously furnished to the Acquiring
Fund, did not contain as of such dates and does not contain, with respect
to the Acquired Fund, any 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.
e. There are no material legal, administrative or other proceedings
pending or, to the knowledge of WM Trust II or the Acquired Fund,
threatened against WM Trust II or the Acquired Fund, which assert liability
on the part of the Acquired Fund. The Acquired Fund knows of no facts which
might form the basis for the institution of such proceedings and is not a
party to or subject to the provisions of any order, decree or judgment of
any court or governmental body which materially and adversely affects its
business or its ability to consummate the transactions herein contemplated.
f. There are no material contracts outstanding to which the Acquired Fund
is a party, other than as are disclosed in the WM Trust II registration
statement on Form N-1A or the Prospectus.
g. The Acquired Fund has no known liabilities of a material nature,
contingent or otherwise, other than those shown on the Acquired Fund's
statement of assets and liabilities as of October 31, 1999 referred to
above and those incurred in the ordinary course of its business as an
investment company since such date. Prior to the Exchange Date, the
Acquired Fund will endeavor to quantify and to reflect on its balance sheet
all of its material known liabilities and will advise the Acquiring Fund of
all material liabilities, contingent or otherwise, incurred by it
subsequent to October 31, 1999, whether or not incurred in the ordinary
course of business.
h. As of the Exchange Date, the Acquired Fund will have filed all federal
and other tax returns and reports which, to the knowledge of WM Trust II's
officers, are required to have been filed by the Acquired Fund and has paid
or will pay all federal and other taxes shown to be due on said returns or
on any assessments received by the Acquired Fund. All tax liabilities of
the Acquired Fund have been adequately provided for on its books, and no
tax deficiency or liability of the Acquired Fund has been asserted, and no
question with respect thereto has been raised or is under audit, by the
Internal Revenue Service or by any state or local tax authority for taxes
in excess of those already paid.
i. At the Exchange Date, WM Trust II, on behalf of the Acquired Fund, will
have full right, power and authority to sell, assign, transfer and deliver
the Investments (as defined below) and any other assets and liabilities of
the Acquired Fund to be transferred to the Acquiring Fund pursuant to this
Agreement. At the Exchange Date, subject only to the delivery of the
Investments and any such other assets and liabilities as contemplated by
this Agreement, the Acquiring Fund will acquire the Investments and any
such other assets and liabilities subject to no encumbrances, liens or
security interests whatsoever and without any restrictions upon the
transfer thereof, except as previously disclosed to the Acquiring Fund. As
used in this Agreement, the term "Investments" shall mean the Acquired
Fund's investments shown on the schedule of its investments as of October
31, 1999 referred to in Section 2(c) hereof, as supplemented with such
changes in the portfolio as the Acquired Fund shall make, and changes
resulting from stock dividends, stock split-ups, mergers and similar
corporate actions through the Exchange Date.
j. No registration under the 1933 Act of any of the Investments would be
required if they were, as of the time of such transfer, the subject of a
public distribution by either of the Acquiring Fund or the Acquired Fund,
except as previously disclosed to the Acquiring Fund by the Acquired Fund.
k. No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the Acquired
Fund of the transactions contemplated by this Agreement, except such as may
be required under the 1933 Act, 1934 Act, the 1940 Act or state insurance,
securities or blue sky laws.
l. The Registration Statement and the Acquired Fund Proxy Statement, on
the effective date of the Registration Statement, (i) will comply in all
A-4
<PAGE> 20
material respects with the provisions of the 1933 Act, the 1934 Act and the
1940 Act and the rules and regulations thereunder and (ii) will not contain
any 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; and at the time of the shareholders meeting referred to in
Section 7(a) and on the Exchange Date, the Acquired Fund Proxy Statement
and the Registration Statement will not contain any 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;
provided, however, that none of the representations and warranties in this
subsection shall apply to statements in or omissions from the Registration
Statement or the Acquired Fund Proxy Statement made in reliance upon and in
conformity with information furnished in writing by the Acquiring Fund to
the Acquired Fund or North American Funds specifically for use in the
Registration Statement or the Acquired Fund Proxy Statement.
m. The Acquired Fund qualifies and will at all times through the Exchange
Date qualify for taxation as a "regulated investment company" under Section
851 and 852 of the Code.
n. At the Exchange Date, the Acquired Fund will have sold such of its
assets, if any, as are necessary to ensure that, after giving effect to the
acquisition of the assets of the Acquired Fund pursuant to this Agreement,
the Acquiring Fund will remain a "diversified company" within the meaning
of Section 5(b)(1) of the 1940 Act and in compliance with such other
mandatory investment restrictions as are set forth in the Prospectus, as
amended through the Exchange Date. Notwithstanding the foregoing, nothing
herein will require the Acquired Fund to dispose of any assets if, in the
reasonable judgment of the Acquired Fund, such disposition would adversely
affect the tax-free nature of the reorganization or would violate the
Acquired Fund's fiduciary duty to its shareholders.
o. All of the issued and outstanding shares of beneficial interest of the
Acquired Fund shall have been offered for sale and sold in conformity with
all applicable federal and state securities laws (including any applicable
exemptions therefrom), or the Acquired Fund has taken any action necessary
to remedy any prior failure to have offered for sale and sold such shares
in conformity with such laws.
p. All issued and outstanding shares of the Acquired Fund are, and at the
Exchange Date will be, duly authorized, validly issued, fully paid and
non-assessable by the Acquired Fund. The Acquired Fund does not have
outstanding any options, warrants or other rights to subscribe for or
purchase any of the Acquired Fund shares, nor is there outstanding any
security convertible into any of the Acquired Fund shares.
3. Reorganization.
a. Subject to the requisite approval of the shareholders of the Acquired
Fund and to the other terms and conditions contained herein (including the
Acquired Fund's obligation to distribute to its shareholders all of its
investment company taxable income and net capital gain as described in
Section 8(l)), the Acquired Fund agrees to sell, assign, convey, transfer
and deliver to the Acquiring Fund, and the Acquiring Fund agrees to acquire
from the Acquired Fund, on the Exchange Date all of the Investments and all
of the cash and other properties and assets of the Acquired Fund, whether
accrued or contingent (including cash received by the Acquired Fund upon
the liquidation by the Acquired Fund of any Investments), in exchange for
that number of shares of beneficial interest of the Acquiring Fund provided
for in Section 4 and the assumption by the Acquiring Fund of all of the
liabilities of the Acquired Fund, whether accrued or contingent, existing
at the Valuation Time (as defined below) except for the Acquired Fund's
liabilities, if any, arising in connection with this Agreement. Pursuant to
this Agreement, the Acquired Fund will, as soon as practicable after the
Exchange Date, distribute all of the Class A and Class B Merger Shares
received by it to the shareholders of the Acquired Fund in exchange for
their Class A and Class B shares of the Acquired Fund.
b. The Acquired Fund will pay or cause to be paid to the Acquiring Fund
any interest, cash or such dividends, rights and other payments received by
it on or after the Exchange Date with respect to the Investments and other
properties
A-5
<PAGE> 21
and assets of the Acquired Fund, whether accrued or contingent, received by
it on or after the Exchange Date. Any such distribution shall be deemed
included in the assets transferred to the Acquiring Fund at the Exchange
Date and shall not be separately valued unless the securities in respect of
which such distribution is made shall have gone "ex" such distribution
prior to the Valuation Time, in which case any such distribution which
remains unpaid at the Exchange Date shall be included in the determination
of the value of the assets of the Acquired Fund acquired by the Acquiring
Fund.
c. The Valuation Time shall be 4:00 p.m. Eastern time on the Exchange Date
or such earlier or later day as may be mutually agreed upon in writing by
the parties hereto (the "Valuation Time").
4. Transaction. On the Exchange Date, the Acquiring Fund will deliver to the
Acquired Fund (i) a number of full and fractional Class A Merger Shares having
an aggregate net asset value equal to the value of the assets of the Acquired
Fund attributable to the Class A shares of the Acquired Fund transferred to the
Acquiring Fund on such date less the value of the liabilities of the Acquired
Fund attributable to the Class A shares of the Acquired Fund assumed by the
Acquiring Fund on that date, and (ii) a number of full and fractional Class B
Merger Shares having an aggregate net asset value equal to the value of the
assets of the Acquired Fund attributable to the Class B shares of the Acquired
Fund transferred to the Acquiring Fund on such date less the value of the
liabilities of the Acquired Fund attributable to the Class B shares of the
Acquired Fund assumed by the Acquiring Fund on that date.
a. The net asset value of the Class A and Class B Merger Shares to be
delivered to the Acquired Fund, the value of the assets attributable to the
Class A and Class B shares of the Acquired Fund, and the value of the
liabilities attributable to the Class A and Class B shares of the Acquired
Fund to be assumed by the Acquiring Fund, shall in each case be determined
as of the Valuation Time.
b. The net asset value of the Class A and Class B Merger Shares shall be
computed in the manner set forth in the Prospectus. The value of the assets
and liabilities of the Class A and Class B shares of the Acquired Fund
shall be determined by the Acquiring Fund, in cooperation with the Acquired
Fund, pursuant to procedures which the Acquiring Fund would use in
determining the fair market value of the Acquiring Fund's assets and
liabilities.
c. No adjustment shall be made in the net asset value of either the
Acquired Fund or the Acquiring Fund to take into account differences in
realized and unrealized gains and losses.
d. The Acquired Fund shall distribute the Merger Shares to the
shareholders of the Acquired Fund by furnishing written instructions to the
Acquiring Fund's transfer agent, which will as soon as practicable set up
open accounts for each Acquired Fund shareholder in accordance with such
written instructions.
e. The Acquiring Fund shall assume all liabilities of the Acquired Fund,
whether accrued or contingent, in connection with the acquisition of assets
and subsequent dissolution of the Acquired Fund or otherwise, except for
the Acquired Fund's liabilities, if any, pursuant to this Agreement.
5. Expenses, Fees, etc.
a. The costs of all transactions contemplated by this Agreement will be
borne by WM Advisors, Inc. ("WM Advisors"). Notwithstanding the foregoing,
expenses will be paid by the party directly incurring such expenses if and
to the extent that the payment by the other party of such expenses would
result in the disqualification of such party as a "regulated investment
company" within the meaning of Section 851 of the Code.
b. Reserved
c. Reserved
d. In the event the transactions contemplated by this Agreement are not
consummated for any reason, WM Advisors and/or its affiliates shall bear
all expenses incurred in connection with such transactions.
e. Notwithstanding any other provisions of this Agreement, if for any
reason the transactions contemplated by this Agreement are not consummated,
no party shall be liable to the other party
A-6
<PAGE> 22
for any damages resulting therefrom, including, without limitation,
consequential damages, except as specifically set forth above.
6. Exchange Date. Delivery of the assets of the Acquired Fund to be
transferred, assumption of the liabilities of the Acquired Fund to be assumed,
and the delivery of the Merger Shares to be issued shall be made at Boston,
Massachusetts, as of November 17, 2000, or at such other date agreed to by the
Acquiring Fund and the Acquired Fund, the date and time upon which such delivery
is to take place being referred to herein as the "Exchange Date."
7. Meetings of Shareholders; Dissolution.
a. WM Trust II, on behalf of the Acquired Fund, agrees to call a meeting
of the Acquired Fund's shareholders as soon as is practicable after the
effective date of the Registration Statement for the purpose of considering
the sale of all of its assets to and the assumption of all of its
liabilities by the Acquiring Fund as herein provided and adopting this
Agreement.
b. The Acquired Fund agrees that the liquidation and dissolution of the
Acquired Fund will be effected in the manner provided in the Amended and
Restated Agreement and Declaration of Trust of WM Trust II in accordance
with applicable law and that on and after the Exchange Date, the Acquired
Fund shall not conduct any business except in connection with its
liquidation and dissolution.
c. The Acquiring Fund has, in consultation with the Acquired Fund and
based in part on information furnished by the Acquired Fund, filed the
Registration Statement with the Commission. Each of the Acquired Fund and
the Acquiring Fund will cooperate with the other, and each will furnish to
the other the information relating to itself required by the 1933 Act, the
1934 Act and the 1940 Act and the rules and regulations thereunder to be
set forth in the Registration Statement.
8. Conditions to the Acquiring Fund's Obligations. The obligations of the
Acquiring Fund hereunder shall be subject to the following conditions:
a. That this Agreement shall have been adopted and the transactions
contemplated hereby shall have been approved by the requisite votes of the
holders of the outstanding shares of beneficial interest of the Acquired
Fund entitled to vote.
b. That the Acquired Fund shall have furnished to the Acquiring Fund a
statement of the Acquired Fund's assets and liabilities, with values
determined as provided in Section 4 of this Agreement, together with a list
of Investments with their respective tax costs, all as of the Valuation
Time, certified on the Acquired Fund's behalf by WM Trust II's President
(or any Vice President) and Treasurer (or any Assistant Treasurer), and a
certificate of both such officers, dated the Exchange Date, that there has
been no material adverse change in the financial position of the Acquired
Fund since October 31, 1999, other than changes in the Investments and
other assets and properties since that date or changes in the market value
of the Investments and other assets of the Acquired Fund, or changes due to
dividends paid or losses from operations.
c. That the Acquired Fund shall have furnished to the Acquiring Fund a
statement, dated the Exchange Date, signed by WM Trust II's President (or
any Vice President) and Treasurer (or any Assistant Treasurer) certifying
that as of the Valuation Time and as of the Exchange Date all
representations and warranties of the Acquired Fund made in this Agreement
are true and correct in all material respects as if made at and as of such
dates and the Acquired Fund has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied at or
prior to such dates.
d. Reserved
e. That there shall not be any material litigation pending with respect to
the matters contemplated by this Agreement.
f. That the Acquiring Fund shall have received an opinion of Ropes & Gray,
counsel to the Acquired Fund, in form satisfactory to counsel to the
Acquiring Fund, and dated the Exchange Date, to the effect that (i) WM
Trust II is a Massachusetts business trust duly formed and is validly
existing under the laws of The Commonwealth of Massachusetts and has the
power to own all its properties and to carry on its business as presently
conducted; (ii) this Agreement has been duly authorized, executed and
delivered by
A-7
<PAGE> 23
WM Trust II on behalf of the Acquired Fund and, assuming that the
Registration Statement, the Prospectus and the Acquired Fund Proxy
Statement comply with the 1933 Act, the 1934 Act and the 1940 Act and
assuming due authorization, execution and delivery of this Agreement by WM
Trust II on behalf of the Acquiring Fund, is a valid and binding obligation
of WM Trust II and the Acquired Fund; (iii) WM Trust II, on behalf of the
Acquired Fund, has power to sell, assign, convey, transfer and deliver the
assets contemplated hereby and, upon consummation of the transactions
contemplated hereby in accordance with the terms of this Agreement, the
Acquired Fund will have duly sold, assigned, conveyed, transferred and
delivered such assets to the Acquiring Fund; (iv) the execution and
delivery of this Agreement did not, and the consummation of the
transactions contemplated hereby will not, violate the WM Trust II
Declaration of Trust or By-Laws or any provision of any agreement known to
such counsel to which WM Trust II or the Acquired Fund is a party or by
which it is bound; and (v) to the knowledge of such counsel, no consent,
approval, authorization or order of any court or governmental authority is
required for the consummation by WM Trust II on behalf of the Acquired Fund
of the transactions contemplated hereby, except such as have been obtained
under the 1933 Act, the 1934 Act and the 1940 Act and such as may be
required under state securities or blue sky laws.
g. That the Acquiring Fund shall have received an opinion of Ropes & Gray
(which opinion would be based upon certain factual representations), dated
the Exchange Date, in form satisfactory to the Acquiring Fund and its
counsel, to the effect that, on the basis of the existing provisions of the
Code, current administrative rules, and court decisions, for federal income
tax purposes (i) no gain or loss will be recognized by the Acquiring Fund
upon receipt of the Investments transferred to the Acquiring Fund pursuant
to this Agreement in exchange for the Merger Shares; (ii) the tax basis to
the Acquiring Fund of the Investments will be the same as the tax basis of
the Investments in the hands of the Acquired Fund immediately prior to such
exchange; and (iii) the Acquiring Fund's holding periods with respect to
the Investments will include the respective periods for which the
Investments were held by the Acquired Fund.
h. That the assets of the Acquired Fund to be acquired by the Acquiring
Fund will include no assets which the Acquiring Fund, by reason of charter
limitations or of investment restrictions disclosed in the Registration
Statement in effect on the Exchange Date, may not properly acquire.
i. That the Registration Statement shall have become effective under the
1933 Act, and no stop order suspending such effectiveness shall have been
instituted or, to the knowledge of WM Trust I or the Acquiring Fund,
threatened by the Commission.
j. That WM Trust I shall have received from the Commission, any relevant
state securities administrator and any relevant state insurance regulatory
authority such order or orders as are reasonably necessary or desirable
under the 1933 Act, the 1934 Act, the 1940 Act, and any applicable state
securities or blue sky laws or state insurance laws in connection with the
transactions contemplated hereby, and that all such orders shall be in full
force and effect.
k. That all actions taken by WM Trust II on behalf of the Acquired Fund in
connection with the transactions contemplated by this Agreement and all
documents incidental thereto shall be satisfactory in form and substance to
the Acquiring Fund and its counsel.
l. That, prior to the Exchange Date, the Acquired Fund shall have declared
a dividend or dividends which, together with all previous such dividends,
shall have the effect of distributing to the shareholders of the Acquired
Fund (i) all of the excess of (x) the Acquired Fund's investment income
excludable from gross income under Section 103(a) of the Code over (y) the
Acquired Fund's deductions disallowed under Sections 265 and 171(a)(2) of
the Code, (ii) all of the Acquired Fund's investment company taxable income
(as defined in Section 852 of the Code) (computed without regard to any
deduction for dividends paid), and (iii) all of the Acquired Fund's net
capital gain realized (after reduction for any capital loss carryover), in
each case for its taxable years ending on or after October 31, 1999 and on
or prior to the Exchange Date.
A-8
<PAGE> 24
m. That the Acquired Fund shall have furnished to the Acquiring Fund a
certificate, signed by the President (or any Vice President) and the
Treasurer (or any Assistant Treasurer) of WM Trust II, as to the tax cost
to the Acquired Fund of the securities delivered to the Acquiring Fund
pursuant to this Agreement, together with any such other evidence as to
such tax cost as the Acquiring Fund may reasonably request.
n. That the Acquired Fund's custodian shall have delivered to the
Acquiring Fund a certificate identifying all of the assets of the Acquired
Fund held or maintained by such custodian as of the Valuation Time.
o. That the Acquired Fund's transfer agent shall have provided to the
Acquiring Fund (i) the originals or true copies of all of the records of
the Acquired Fund in the possession of such transfer agent as of the
Exchange Date, (ii) a certificate setting forth the number of shares of the
Acquired Fund outstanding as of the Valuation Time, and (iii) the name and
address of each holder of record of any shares and the number of shares
held of record by each such shareholder.
p. Reserved
q. Reserved
r. Reserved
9. Conditions to the Acquired Fund's Obligations. The obligations of the
Acquired Fund hereunder shall be subject to the following conditions:
a. That this Agreement shall have been adopted and the transactions
contemplated hereby shall have been approved by the requisite votes of the
holders of the outstanding shares of beneficial interest of the Acquired
Fund entitled to vote.
b. That WM Trust I, on behalf of the Acquiring Fund, shall have executed
and delivered to the Acquired Fund an Assumption of Liabilities dated as of
the Exchange Date pursuant to which the Acquiring Fund will assume all of
the liabilities of the Acquired Fund existing at the Valuation Time in
connection with the transactions contemplated by this Agreement, other than
liabilities arising pursuant to this Agreement.
c. That the Acquiring Fund shall have furnished to the Acquired Fund a
statement, dated the Exchange Date, signed by WM Trust I's President (or
any Vice President) and Treasurer (or any Assistant Treasurer) certifying
that as of the Valuation Time and as of the Exchange Date all
representations and warranties of the Acquiring Fund made in this Agreement
are true and correct in all material respects as if made at and as of such
dates, and that the Acquiring Fund has complied with all of the agreements
and satisfied all of the conditions on its part to be performed or
satisfied at or prior to each of such dates; and that WM Trust I shall have
furnished to the Acquired Fund a statement, dated the Exchange Date, signed
by an officer of WM Trust I certifying that as of the Valuation Time and as
of the Exchange Date, to the best of WM Trust I's knowledge, after due
inquiry, all representations and warranties of the Acquiring Fund made in
this Agreement are true and correct in all material respects as if made at
and as of such date.
d. That there shall not be any material litigation pending or threatened
with respect to the matters contemplated by this Agreement.
e. That the Acquired Fund shall have received an opinion of Ropes & Gray,
counsel to the Acquiring Fund, in form satisfactory to counsel to the
Acquired Fund, and dated the Exchange Date, to the effect that (i) WM Trust
I is a Massachusetts business trust duly formed and is validly existing
under the laws of The Commonwealth of Massachusetts and has the power to
own all its properties and to carry on its business as presently conducted;
(ii) the Merger Shares to be delivered to the Acquired Fund as provided for
by this Agreement are duly authorized and upon such delivery will be
validly issued and will be fully paid and non-assessable by WM Trust I and
the Acquiring Fund and no shareholder of the Acquiring Fund has any
preemptive right to subscription or purchase in respect thereof; (iii) this
Agreement has been duly authorized, executed and delivered by WM Trust I on
behalf of the Acquiring Fund and, assuming that the Prospectus, the
Registration Statement and the Acquired Fund Proxy Statement comply with
the 1933 Act, the 1934 Act and the 1940 Act and assuming due authorization,
execution and delivery of this Agreement by WM Trust II on behalf
A-9
<PAGE> 25
of the Acquired Fund, is a valid and binding obligation of WM Trust I and
the Acquiring Fund; (iv) the execution and delivery of this Agreement did
not, and the consummation of the transactions contemplated hereby will not,
violate WM Trust I's Amended and Restated Declaration of Trust ("WM Trust I
Declaration of Trust") or its By-Laws, or any provision of any agreement
known to such counsel to which WM Trust I or the Acquiring Fund is a party
or by which it is bound; (v) no consent, approval, authorization or order
of any court or governmental authority is required for the consummation by
WM Trust I on behalf of the Acquiring Fund of the transactions contemplated
herein, except such as have been obtained under the 1933 Act, the 1934 Act
and the 1940 Act and such as may be required under state securities or blue
sky laws; and (vi) the Registration Statement has become effective under
the 1933 Act, and to best of the knowledge of such counsel, no stop order
suspending the effectiveness of the Registration Statement has been issued
and no proceedings for that purpose have been instituted or are pending or
contemplated under the 1933 Act.
f. That the Acquired Fund shall have received an opinion of Ropes & Gray,
dated the Exchange Date (which opinion would be based upon certain factual
representations), in form satisfactory to the Acquired Fund and its
counsel, to the effect that, on the basis of the existing provisions of the
Code, current administrative rules, and court decisions, for federal income
tax purposes: (i) no gain or loss will be recognized by the Acquired Fund
as a result of the reorganization; (ii) no gain or loss will be recognized
by shareholders of the Acquired Fund on the distribution of Merger Shares
to them in exchange for their shares of the Acquired Fund; (iii) the
aggregate tax basis of the Merger Shares that the Acquired Fund's
shareholders receive in place of their Acquired Fund shares will be the
same as the aggregate tax basis of the Acquired Fund shares; and (iv) an
Acquired Fund's shareholder's holding period for the Merger Shares received
pursuant to the Agreement will be determined by including the holding
period for the Acquired Fund shares exchanged for the Merger Shares,
provided that the shareholder held the Acquired Fund shares as a capital
asset.
g. That all actions taken by WM Trust I on behalf of the Acquiring Fund in
connection with the transactions contemplated by this Agreement and all
documents incidental thereto shall be satisfactory in form and substance to
the Acquired Fund and its counsel.
h. That the Registration Statement shall have become effective under the
1933 Act, and no stop order suspending such effectiveness shall have been
instituted or, to the knowledge of North American Funds or the Acquiring
Fund, threatened by the Commission.
i. That WM Trust I shall have received from the Commission, any relevant
state securities administrator and any relevant state insurance regulatory
authority such order or orders as are reasonably necessary or desirable
under the 1933 Act, the 1934 Act, the 1940 Act, and any applicable state
securities or blue sky laws or state insurance laws in connection with the
transactions contemplated hereby, and that all such orders shall be in full
force and effect.
j. Reserved
10. Reserved
11. Waiver of Conditions. Each of the Acquired Fund or the Acquiring Fund,
after consultation with counsel and by consent of its Board of Trustees behalf,
or an officer authorized by such trustees, may waive any condition to their
respective obligations hereunder, except for the conditions set forth in
Sections 8(a) and 9(a).
12. No Broker, etc. Each of the Acquired Fund and the Acquiring Fund
represents that there is no person who has dealt with it or the Trust of which
such fund is a series who by reason of such dealings is entitled to any broker's
or finder's or other similar fee or commission arising out of the transactions
contemplated by this Agreement.
13. Termination. The Acquired Fund and the Acquiring Fund may, by consent of
its Board of Trustees on behalf of each Fund, terminate this Agreement. If the
transactions contemplated by this Agreement have not been substantially
completed by January 1, 2001, this Agreement shall automatically terminate on
that date unless a later date is agreed to by the Acquired Fund and the
Acquiring Fund.
14. Reserved
A-10
<PAGE> 26
15. Covenants, etc. Deemed Material. All covenants, agreements,
representations and warranties made under this Agreement and any certificates
delivered pursuant to this Agreement shall be deemed to have been material and
relied upon by each of the parties, notwithstanding an investigation made by
them or on their behalf.
16. Sole Agreement; Amendments. This Agreement supersedes all previous
correspondence and oral communications between the parties regarding the subject
matter hereof, constitutes the only understanding with respect to such subject
matter, may not be changed except by a letter of agreement signed by each party
hereto, and shall be construed in accordance with and governed by the laws of
The Commonwealth of Massachusetts.
17. Declaration of Trust. Copies of the WM Trust I Declaration of Trust and
the WM Trust II Declaration of Trust are on file with the Secretary of State of
The Commonwealth of Massachusetts, and notice is hereby given that this
instrument is executed on behalf of the trustees of WM Trust II on behalf of the
Acquired Fund and by the trustees of WM Trust I on behalf of Acquiring Fund, in
each case, as trustees and not individually and that the obligations of this
instrument are not binding upon any of the trustees, officers or shareholders of
either trust individually but are binding only upon the assets and property of
the Acquired Fund and the Acquiring Fund.
WM Trust II,
on behalf of its Florida Insured Municipal
Fund series
By: ____________________
WM Trust I,
on behalf of its Tax-Exempt Bond Fund
series
By: ____________________
A-11
<PAGE> 27
APPENDIX B
TAX-EXEMPT bond fund
PORTFOLIO MANAGERS:
DAVID JOHNSON AND THOMAS BYRON
VAN KAMPEN INVESTMENTS
The Fund is co-managed by David Johnson and Thomas Byron. Mr. Johnson, Senior
Portfolio Manager, has 14 years of tax-free management experience. He has a BS
from Lewis University and an MBA from Loyola University. Mr. Byron has been with
Van Kampen Investments since 1981 and currently serves as Vice President. He
received his BS in Finance from Marquette University and his MBA from DePaul
University. Van Kampen has had management responsibilities for the Fund since
January 1999.
PERFORMANCE REVIEW
For the 10-year period ended October 31, 1999, the TAX-EXEMPT BOND FUND (Class A
shares) returned 6.32% on an average annual total return basis, or 5.83%
adjusted for the maximum sales charge. For the 12-month period ended October 31,
1999, the Fund's total return was -3.77%, or -8.08% adjusted for the maximum
sales charge. Interest rates increased throughout the period, and the rising
rates more than offset the income earned by the Fund. AS OF OCTOBER 31, 1999,
THE 30-DAY SEC YIELD OF THE FUND WAS 4.61% FOR A SHARES AND 4.09% FOR B SHARES;
ON A TAX EQUIVALENT BASIS, THE YIELD WAS 7.63% FOR A SHARES AND 6.77% FOR B
SHARES.++++
WHAT WERE THE MOST SIGNIFICANT FACTORS CONTRIBUTING TO THE FUND'S PERFORMANCE
OVER THE 12-MONTH PERIOD ENDED OCTOBER 31, 1999, AND WHAT INVESTMENT TECHNIQUES
WERE USED TO ADDRESS THOSE CONDITIONS?
Bonds of all types experienced price declines during the past 12 months as
interest rates increased, especially toward the end of the reporting period. In
addition to the negative effects of the Federal Reserve Board's two interest
rate increases during the
VALUE OF A $10,000 INVESTMENT (CLASS A SHARES)+
[PERFORMANCE GRAPH]
(1) The Lehman Brothers Municipal Bond Index is unmanaged and includes all
investment grade municipal bond issues. The Consumer Price Index is a
measurement of inflation for all urban consumers (CPI). The Index
assumes reinvestment of all dividends/distributions, and does not
reflect any asset-based charges for investment management or other
expenses. Past investment performance does not guarantee future
performance. The returns shown for the Fund assume reinvestment of all
dividends/ distributions by the shareholder. For comparison purposes,
the benchmark's performance is shown as of the Fund's inception date not
from the inception date of the benchmark.
The Fund's performance would have been lower had the Fund's custodian
not allowed its fees to be reduced by credits.
+ The performance of the Class B Shares was different than that indicated
by the lines shown on the left for the Class A Shares, based on the
differences in sales loads and fees paid by Class B shareholders.
--------------------------------------------------------------------------------
TOTAL RETURNS AS OF 10/31/99
<TABLE>
<CAPTION>
CLASS A SHARES 1 YEAR 5 YEAR* 10 YEAR*
<S> <C> <C> <C>
Fund (not adjusted for sales charge) -3.77% 5.96% 6.32%
Fund (adjusted for the maximum 4.5% sales charge) -8.08% 4.98% 5.83%
Lehman Brothers Municipal Bond Index(1) -2.22% 6.82% 7.08%(1)
</TABLE>
<TABLE>
<CAPTION>
SINCE INCEPTION*
CLASS B SHARES 1 YEAR 5 YEAR* (MARCH 30, 1994)
<S> <C> <C> <C>
Fund (not adjusted for contingent deferred sales charge) -4.52% 5.09% 4.14%
Fund (adjusted for the maximum contingent deferred
sales charge) -9.09% 4.93% 4.14%
Lehman Brothers Municipal Bond Index(1) -2.22% 6.82% 6.09%(1)
</TABLE>
*Annualized
B-1
<PAGE> 28
PORTFOLIO COMPOSITION++
[PIE CHART]
<TABLE>
<CAPTION>
AAA AA A BBB Other
--- -- - --- -----
<S> <C> <C> <C> <C>
43% 26% 14% 11% 6%
</TABLE>
summer, the bond market declined as the nation's strong economic growth
continued to spark inflationary fears, leading to concern about future rate
hikes. Because of low institutional demand for municipal bonds during the
period, these conditions affected municipals more than their taxable
counterparts -- Corporate and Treasury bonds. The yields of newly issued 30-year
AAA municipal bonds rose more than a full percentage point during the 12-month
period, so the prices of existing bonds dropped concurrently. The bonds in the
Fund's portfolio were not spared from this market movement and suffered price
declines along with the rest of the municipal market.
The interest rate increases also suppressed municipal bond supply, bringing
nationwide issuance down more than 20% in the first 10 months of the year
compared with 1998.
Supply was down in almost every sector, with Electric/ Utility and Health Care
bonds experiencing the most significant drops. Although new issuance kept pace
with last year's active market, the amount of bonds issued through refinancing
was down more than 50% for the year through October. Many municipalities simply
chose not to refinance outstanding bonds because of the higher interest rates
they would have to pay in the current marketplace. Overall, the lower supply
helped support bond prices somewhat because it meant greater demand for
available bonds.
We took advantage of the general market price declines to enhance the current
income potential and tax management of the Fund. We sold some of our holdings
that were pre-refunded or were nearing their call dates, as well as securities
purchased at below-market interest rates, at a capital loss to offset some of
the gains we had earned early in 1999. This allowed us to avoid the need to
distribute taxable capital gains to shareholders this year. These bonds were
replaced with longer-maturity, higher-yielding issues. The new bonds also had
better call protection. This should help the Fund maintain its income stream for
a longer period of time if interest rates fall.
WERE THERE ANY SHIFTS IN THE FUND'S PORTFOLIO HOLDINGS/SECTORS THAT HAVE HAD A
SIGNIFICANT IMPACT ON PERFORMANCE?
We made some minor adjustments to sector concentration, but these did not
significantly impact fund performance. We decreased our exposure to the
wholesale electric sector by one percent, and increased exposure to the retail
gas sector by two percent. Higher education increased by one percent.
The credit quality of the portfolio remains high, with 43% of assets AAA-rated
and AA-rated at 26%. We increased our exposure slightly to non-rated securities
that help contribute to the Fund's dividend paying ability. As we see attractive
offerings of non-rated issues in the market, we will continue to add to this
position by leveraging on our research expertise.
WHAT IS THE OUTLOOK FOR BOTH THE FUND AND THE OVERALL ECONOMY?
In the coming months, we will probably see a slowing economy, which may be
partly the result of Y2K concerns. Wage increases will likely keep inflationary
fears at the forefront, although increasing productivity should be able to
offset higher wage costs for employers.
Preparations for the turn of the millennium may also limit new issuance and
general market activity at the end of the year. Many municipal issuers are
planning to postpone issuing bonds until they feel certain that any potential
computer problems have been avoided. We will continue to focus on finding
attractive-yielding bonds and protecting the Fund from bond calls as much as
possible.
We do not expect to make any significant changes to the structure of the
portfolio. We feel the Fund is positioned for strong performance and will
continue our "bottom up" approach of investing by identifying individual
securities we feel will out-perform the general market. We will also use our
extensive research capabilities to look for attractive opportunities throughout
the coming months.
++ Bond ratings provided by a combination of Standard & Poors and Moody's.
Allocation percentages are based on total investment value of the portfolio as
of 10/31/99.
++++ A portion of the Fund's income may be subject to some state
and/or local tax. In addition, exempt-interest dividends from the Fund will
generally increase a corporate shareholder's exposure to AMT liability. Tax
equivalent yield based on a 39.6% Federal tax rate.
B-2
<PAGE> 29
WM TRUST I
FORM N-14
PART B
STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER 11, 2000
This Joint Statement of Additional Information (the "SAI") relates to the
proposed merger (the "Merger") of the Florida Insured Municipal Fund (the
"Acquired Fund"), a series of WM Trust II, a Massachusetts business trust, into
the Tax-Exempt Bond Fund (the "Acquiring Fund"), a series of WM Trust I, also a
Massachusetts business trust.
This SAI contains information which may be of interest to shareholders but which
is not included in the Prospectus/Proxy Statement dated September 11, 2000 (the
"Prospectus/Proxy Statement") of the Acquiring Fund which relates to the Merger.
As described in the Prospectus/Proxy Statement, the Merger would involve the
transfer of all the assets of the Acquired Fund in exchange for shares of the
Acquiring Fund and the assumption of all the liabilities of the Acquired Fund.
The Acquired Fund would distribute the Acquiring Fund shares it receives to its
shareholders in complete liquidation of the Acquired Fund.
This SAI is not a prospectus and should be read in conjunction with the
Prospectus/Proxy Statement. The Prospectus/Proxy Statement has been filed with
the Securities and Exchange Commission and is available upon request and without
charge by writing to WM Group of Funds, 1201 Third Avenue, 22nd Floor, Seattle,
Washington 98101 or by calling 1-800-222-5852.
<PAGE> 30
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
I. Additional Information about the Acquiring
Fund and the Acquired Fund................ 1
II. Financial Statements...................... 1
</TABLE>
i
<PAGE> 31
I. ADDITIONAL INFORMATION ABOUT THE ACQUIRING FUND AND THE ACQUIRED FUND.
Incorporated by reference to Post-Effective Amendment No. 33 to the Acquired
Fund's Registration Statement Form N-1A (filed on February 29, 2000)
(Registration Nos. 33-27489 and 811-5775).
Incorporated by reference to Post-Effective Amendment No. 78 to the Acquiring
Fund's Registration Statement Form N-1A (filed on February 29, 2000)
(Registration Nos. 333-36941 and 811-00123).
II. FINANCIAL STATEMENTS.
This Statement of Additional Information is accompanied by the Annual Report for
the year ended October 31, 1999 of each of the Acquiring Fund and Acquired Fund,
which contains historical financial information regarding the Acquiring Fund and
Acquired Fund. Such report has been filed with the Securities and Exchange
Commission and is incorporated herein by reference.
In accordance with Item 14(a)(2) of Form N-14, because the assets of the
Acquired Fund as of July 31, 2000 (approximately $16 million) represent less
than 10% of the assets of the Acquiring Fund as of that date (approximately $237
million), proforma financial information has been omitted.
1
