<PAGE> 1
WM VARIABLE TRUST
Variable Trust
the difference is experience
Semi-Annual Report
for the six months ended June 30, 1998
<PAGE> 2
<TABLE>
<S> <C>
message from the president ....................................................... 1
six months in review and our outlook for 1998 .................................... 2
individual fund reviews .......................................................... 5
portfolio of investments.......................................................... 32
statements of assets and liabilities ............................................. 54
statements of operations ......................................................... 56
statements of changes in net assets .............................................. 58
statements of changes in net assets - capital stock activity ..................... 62
financial highlights ............................................................. 64
notes to financial statements (unaudited)......................................... 79
</TABLE>
<PAGE> 3
[PHOTO]
DEAR contract owner:
We are pleased to provide your WM Variable Trust Funds semi annual report for
the period ended June 30, 1998. Tradition at the WM Advisors, Inc. began in 1939
with the creation of Bond & Stock Fund, one of the first 50 mutual funds in the
country. For nearly 60 years the organization has built a reputation in the
mutual fund industry for performance, integrity and commitment to client
service.
The equity market continued to set record highs during 1998, with the Dow Jones
Industrial Average breaking through the 9000 mark. As share prices have risen on
Wall Street, so has investors' interest in -- and reliance on -- stocks and
stock mutual funds as the building blocks for retirement portfolios and other
investment strategies.
If you've been invested in equity funds during the last several years, you've
likely noticed some impressive gains in your portfolio. During the three years
ended June 30, 1998, the stock market posted an average annual return of over
30%, as measured by Standard & Poor's Composite Index (S&P 500). This is far
above the longer-term average of 11% a year--so it may be time to review your
investment strategy and your overall portfolio allocation.*
As part of a diversified portfolio, stocks play an important role in long-term
investing. Historically, they have offered investors the opportunity to earn
returns significantly higher than the rate of inflation. Yet you should be
careful about being overly optimistic in your expectations, and also remember
that ups and downs are a normal part of the market cycle.
Because market turbulence is part of investing in equities, I encourage you to
look at the returns of any investment relative to its potential volatility.
Although stocks have historically provided higher average annual returns than
other investment classes, they also carry greater risk of volatility. One way to
help reduce volatility in your portfolio while still pursuing opportunities for
growth is to allocate your investments among several appropriate asset classes.
For example, during the 20-year period ended June 30, 1998 stocks returned
17.42% annually on average, compared with 10.94% for long-term bonds. Allocating
70% of a portfolio to stocks and 30% to bonds during that period would have
resulted in a slightly lower average annual return of 15.69% per year, but with
a 20% reduction in volatility relative to an all-stock portfolio.*
The same theory also holds true for investors who seek income. Allocating a
small percentage of the portfolio to stocks can actually help reduce overall
volatility. That's because bond prices often react differently to changes in the
economy than do stocks. This is also true on a global perspective, where
economies and markets are less correlated, and a portion of assets invested
internationally can lower overall portfolio risk in addition to providing the
potential for higher returns.
With the complexities of today's global markets, building an appropriately
diversified portfolio is increasingly difficult. WM Funds offer investors a
broad range of professionally-managed diversification solutions, each within the
tax-deferred shelter of our variable annuity. These variable trust choices
include our family of 10 INVESTMENT FUNDS plus 5 ACTIVELY MANAGED ASSET
ALLOCATION PORTFOLIOS, all of which are designed to meet specific investment
objectives. During the period, we have expanded our scope and added additional
investment options into the WM Strategic Asset Manager, a tax-deferred variable
annuity.
Working with your Investment Representative, you can also create a custom
allocation from our wide array of investment funds in the WM Strategic Asset
Manager. The WM Funds offer you a diversity of asset classes and investment
vehicles through which you can pursue your financial goals. Thank you for your
continued confidence in us.
Sincerely,
/s/ WILLIAM G. PAPESH
-----------------------------------------
William G. Papesh
President
* Source: Ibbotson Associates. Stocks are represented by Standard & Poor's
Composite Index of 500 Stocks, an unmanaged index of common stocks generally
representative of the U.S. stock market. Long-term bonds are represented by
Lehman Brothers Long Term Government Corporate Bond Index. Volatility is
measured by standard deviation. Individuals cannot invest directly in any index.
Past performance is no guarantee of future results.
1
<PAGE> 4
SIX MONTHS IN REVIEW AND OUR OUTLOOK FOR 1998
STRONG FUNDAMENTALS CONTINUE TO DRIVE FINANCIAL MARKETS
The bull market continued its strength during the six months ended June 30,
1998, with stocks rising nearly 18%. Among the strongest performers were
large-cap growth stocks, while mid-caps followed, and small-caps rounded out
domestic equity results.
Underlying this strength are sound fundamentals in the economic picture. A
low-inflation environment is generally good for financial markets, and inflation
has been falling rather than rising. That, in turn, has helped keep interest
rates in check despite a growing economy.
Interest rates dropped throughout the period. The yield on the benchmark 30-year
Treasury bond hovered around 6% for much of the period, hitting a record low in
June.
CONSUMERS SPUR GROWTH
Paradoxically, personal incomes have risen even though companies' labor costs
have shown only small increases. Real (after inflation) personal income rose
2.9% in 1997 and is expected to rise about 3.9% in 1998. One way that companies
have managed to control costs without sacrificing wage increases is through more
efficient use of technology. U.S. businesses have continued to post significant
gains in productivity, helping them remain cost-competitive even in a tight
labor market.
The increase in personal incomes has contributed to a boost in consumer
spending, helping to sustain economic growth in the 3% to 4% range. During the
first quarter, gross domestic product (GDP) rose at an annual rate of 5.5%,
largely driven by consumer rather than business or government spending. Although
GDP growth slowed in the second quarter, prospects for the second half of 1998
are strong.
Government spending has actually been declining, which is another bright spot
for the economy. The current fiscal year, ending September 30, is likely to see
a budget surplus for the first time in nearly 30 years.
dow jones industrial average
six months ended 6-30-98
<TABLE>
<S> <C>
31-Dec-97 7908
2-Jan-98 7965
9-Jan-98 7580
16-Jan-98 7753
23-Jan-98 7700
30-Jan-98 7906
6-Feb-98 8189
13-Feb-98 8370
20-Feb-98 8413
27-Feb-98 8545
6-Mar-98 8569
13-Mar-98 8602
20-Mar-98 8906
27-Mar-98 8796
3-Apr-98 8983
10-Apr-98 8994
17-Apr-98 9167
24-Apr-98 9064
1-May-98 9147
8-May-98 9055
15-May-98 9096
22-May-98 9114
29-May-98 8899
5-Jun-98 9037
12-Jun-98 8834
19-Jun-98 8712
26-Jun-98 8944
30-Jun-98 8952
</TABLE>
Source: The Wall Street Journal.
Note: The Dow Jones Industrial Average is an unmanaged index of 30 stocks and is
sometimes used to measure the overall U.S. equity market. Individuals cannot
invest directly in an index.
OUTLOOK
2
<PAGE> 5
yield on the 30-year Treasury bond
six months ended 6-30-98
<TABLE>
<S> <C>
31-Dec-97 5.92%
2-Jan-98 5.84%
9-Jan-98 5.73%
16-Jan-98 5.81%
23-Jan-98 5.97%
30-Jan-98 5.80%
6-Feb-98 5.92%
13-Feb-98 5.85%
20-Feb-98 5.87%
27-Feb-98 5.92%
6-Mar-98 6.02%
13-Mar-98 5.89%
20-Mar-98 5.88%
27-Mar-98 5.96%
3-Apr-98 5.79%
10-Apr-98 5.88%
17-Apr-98 5.88%
24-Apr-98 5.95%
1-May-98 5.93%
8-May-98 5.98%
15-May-98 5.97%
22-May-98 5.90%
29-May-98 5.80%
5-Jun-98 5.79%
12-Jun-98 5.66%
19-Jun-98 5.67%
26-Jun-98 5.63%
30-Jun-98 5.63%
</TABLE>
Source: The Wall Street Journal.
Note: Represents yield on the 30-year Treasury Bond, which is sometimes used to
characterize the overall bond market.
POTENTIAL TROUBLE SPOTS FOLLOW WEAKNESS IN ASIA
Nevertheless, there are several possible weak spots in the economy which could
have a negative impact on the markets, and which investors will want to watch
closely.
One factor is that short-term interest rates remain unusually high when compared
with inflation. The Federal Reserve, which influences short-term rates, has
maintained a steady policy during the last year even as inflation has fallen. As
a result, rates on three-month Treasuries have remained at about 5%, while
inflation is only 1.7% (as measured by CPI).
In administering interest-rate policy, members of the Federal Reserve Board's
("Fed") Open Market Committee look to potential future inflation -- so the
current stance may indicate that they believe the strength of the economy could
trigger higher inflation in coming months. In a recent address, Fed Chairman
Alan Greenspan indicated they may have to notch interest rates upward given the
prospects for growth in the second half of 1998.
Another area of potential concern is the rising trade deficit, due largely to a
slowdown in exports to Asian markets. Remember Asia's bout of severe market
volatility and the financial crisis it sparked late last year? Many newly
industrialized Asian markets remain in turmoil while Japan, the second-largest
export market for the U.S., remains in an economic slump.
The impact of the Asian crisis on American companies, particularly those in the
technology sector, is more favorable for companies that import goods from Asia
than those who export there. Dell Computer, for example, reported that
lower-cost Asian components have allowed them to reduce prices and spur sales.
Digital Equipment, on the other hand, said that it lost substantial business
when Asian orders were canceled as a result of the sharp slowdown in economic
activity there. Overall, the degree of impact of the Asian crisis on the
domestic economy and corporate profits remains unclear.
THE YEAR 2000 PROBLEM
At the stroke of midnight on New Year's Eve, 1999, some computer systems could
become seriously confused. They may miscalculate critical data, delete vital
files, or simply not turn on, all because the computer's internal calendars and
clocks may not recognize the year 2000.
This computer system problem, that has come to be popularly known as the Year
2000 Problem, The Millennium Bug -- or simply Y2K -- grows out of the habit of
abbreviating years to their last two digits. Now, many systems may not be able
to decide correctly when a year 00 should be interpreted as 1900, and when it
should be seen as 2000.
3
<PAGE> 6
Aside from being an enormous inconvenience, the Y2K problem could have
significant market repercussions for individual stocks as well as the overall
markets. Services of companies which have already prepared for the millennium,
or which have capabilities to assist other companies in preventing future
problems, are in line to receive the lion's share of government and corporate
capital spending on technology. The Clinton Administration has budgeted $3.9
billion in fiscal 1999 to upgrade the federal government's computers. Worldwide,
a survey by Giga Information Group estimated that companies will spend $300
billion to fix systems with Y2K problems.
INTERNATIONAL INVESTMENTS POST GAINS
On the international front, many investors in developed international markets
saw significant gains over the last six months. Stocks in Europe outpaced the
gains seen in North America. Countries in Asia and the Pacific region showed
very poor overall results throughout the past year. As a whole, measured by the
Morgan Stanley Capital International World Index, global equities advanced
nearly 17%. This was concentrated in the more developed countries, as emerging
international markets were down for the period.
Looking ahead, the outlook for international investment remains favorable. The
Organization for Economic Cooperation and Development predicts that Western
Europe's GDP will match that of the United States' for 1998, forecast at 2.7%
growth. A major longer-term factor is the planned introduction of a single
currency -- the Euro -- in 1999. As of June 1998, 11 European countries have
indicated they will adopt the Euro as their common currency.
A DIVERSITY OF OPPORTUNITIES
Today's economic and market environment offers diverse opportunities in domestic
stock and fixed-income investments as well as investments in foreign markets.
This was clearly evident during the period as the economic crisis in Asia caused
investors to pour money out of investments and currencies of the region. In
addition, a close look at domestic markets uncovers a huge disparity in results
relative to market capitalization. In 1998, large-cap stocks appreciated three
times as much as small-caps. Volatility has increased in all markets, and the
need for professional, active money management is greater than ever. Because of
these factors, we stress diversification and the benefits provided by
appropriate asset allocation.
performance around the globe
six months ended 6-30-98
<TABLE>
<S> <C>
Europe 26.67%
North America 17.61%
Nordic Countries 27.06%
Pacific -5.82%
Far East -6.37%
World 16.85%
</TABLE>
Source: Ibbotson Associates. Each region is represented by the corresponding
MSCI Index in U.S. Dollars. There are additional risks associated with
international investing, including currency fluctuations.
4
<PAGE> 7
asset class results
six months ended 6-30-98
<TABLE>
<S> <C>
T-Bills 2.61%
Government Bonds 4.19%
Mortgages 3.37%
Corporate Bonds 3.87%
Large Company Stocks 17.72%
Small Company Stocks 4.93%
International Stocks 16.08%
</TABLE>
Sources: Ibbotson Associates. T-bills represent 90-day U.S. Treasury bills;
government bonds are represented by the Lehman Brothers Government Bond Index;
mortgage-backed bonds are represented by Lehman Brothers Mortgage-Backed Bond
Index; corporate bonds are represented by Lehman Brothers Corporate Bond Index;
large company stocks are represented by S&P 500 Composite Index; small company
stocks are represented by the Russell 2000 Index; and international stocks are
represented by MSCI EAFE Index. Indices represent unmanaged performance. T-bills
are generally considered the safest securities because they are short-term and
offer a fixed yield at maturity, which is guaranteed by the U.S. Government.
Government bonds are riskier than T-bills because of the longer maturities. An
investor would typically purchase stocks for long-term growth of capital.
However, stocks are often subject to significant price fluctuations and,
therefore, an investor may have a gain or loss in principal when the shares are
sold. This chart is not intended to represent the performance of any mutual
fund.
Different markets and asset classes respond differently to ever changing
economic factors. When one market is up, another may be down. Therefore,
investing in a properly-allocated portfolio will help to avoid some of the risks
of a single asset class.
Diversification works to manage risk. The example below demonstrates the
positive tradeoff between risk and reward achieved through diversification. Over
the past 20 years, THE DIVERSIFIED PORTFOLIO GENERATED NEARLY 80% OF THE RETURN
WITH MORE THAN 40% LESS RISK. This concept is especially important in today's
marketplace. Many of your portfolios may have a larger concentration in stocks
than you originally planned. The rebalancing of assets is another way to reduce
your portfolio's risk exposure.
A diversified, rebalanced portfolio generated nearly 80% of the return with over
40% less risk.
<TABLE>
<S> <C>
1 - T-Bills 20%
2 - Gov./Corporate Bonds 20%
100% Stocks 3 - Large Company Stocks 20%
4 - Small Company Stocks 20%
5 - International Stocks 20%
17.42% average annual return 13.72% average annual return
17.13% Risk 9.98% Risk
</TABLE>
Source: Ibbotson Associates July 1978-June 1998. Returns are geometric means.
Risk is measured by the standard deviation of investment returns. Standard
deviation is a measurement of volatility relative to the average return. A lower
standard deviation means less volatility or investment risk. Past performance is
not a guarantee of future results.
The WM Funds offer a diverse array of professionally managed investments
including mutual funds, annuities, and other professionally allocated
investments through the Strategic Asset Management ("SAM") Program. The WM Funds
provide all the tools to take advantage of the benefits of asset allocation. For
more information about how your portfolio can be positioned to potentially
benefit from multiple-market opportunities, speak to your Investment
Representative.
5
<PAGE> 8
INDIVIDUAL FUND REVIEWS
TO OUR
CONTRACT OWNERS:
WE ARE PLEASED
TO PROVIDE YOU WITH AN
OVERVIEW OF THE FUNDS IN THE WM
VARIABLE TRUST FOR THE
SIX-MONTH PERIOD ENDED
JUNE 30, 1998.
TO HELP YOU BETTER
UNDERSTAND THE
PROFESSIONAL INVESTMENT
MANAGEMENT AVAILABLE TO YOU AS A
WM VARIABLE TRUST FUNDS CONTRACT OWNER,
WE HAVE ALSO INCLUDED
BIOGRAPHIES OF THE
INVESTMENT PROFESSIONALS
MANAGING YOUR FUNDS.
WM Advisors, Inc. is the investment advisor to WM Group of Funds, and has
general oversight responsibility for the advisory services provided to the
Funds. These services include formulating the Funds' investment policies,
analyzing economic trends affecting the Funds, and directing and evaluating the
investment services provided by the Sub-Advisors and the individual Portfolio
Managers of each Fund. WM Advisors supervises the individual Portfolio Managers
in their day-to-day management of the Funds in the WM Group of Funds family to
ensure that the policies and guidelines are met, and to determine appropriate
investment performance measures.
UNDERSTANDING THE ENCLOSED CHARTS
In order to help you understand the WM Funds' investment performance, we have
included the following discussions along with graphs that compare the Funds'
performance with certain market indices. Descriptions of these indices are
provided next to the individual graphs on the following pages.
Generally, an index represents the market value of an unmanaged group of
securities, regarded by investors as representative of a particular market. An
index does not reflect any asset-based charges for investment management or
other expenses. Total return is used to measure a Fund's performance and
reflects both changes in the value of the price of the Fund's shares as well as
any income dividend and/or capital gain distributions made by the Fund during
the period. Past performance is not a guarantee of future results. A mutual
fund's share price and investment return will vary with market conditions, and
the principal value of an investment when you sell your shares may be more or
less than the original cost.
Where applicable, the total returns of the Funds reflect the Advisors' voluntary
waiver of fees, absorption of certain expenses, and credits allowed by the
Custodian. Total returns would have been lower if these fees and expenses had
not been waived, absorbed, or reduced by credits.
Both the Funds' performance results and the market indices reflect total
reinvestment of income, dividends, and capital gains. The unit values of these
variable options will fluctuate with market conditions.
The 30-day SEC yield is computed by dividing net investment income per share
over the one-month period ended June 30, 1998, by the maximum offering price on
that date, and annualizing the result.
Yield indicates the net investment income per share as a percentage of the
offering price, whereas total return includes both net investment income and
changes in the value of the shares as a percentage of the initial investment.
The 30-day SEC yield is the yield calculated pursuant to a standard formula
required by the Securities and Exchange Commission ("SEC") for performance
advertisement purposes, and does not imply any endorsement or recommendation by
the SEC.
The Funds of the WM Variable Trust may not be purchased directly but are
currently available only through the WM Strategic Asset Manager and WM Advantage
tax-deferred variable annuities issued by American General Life Insurance
Company. Annuity contract owner values will depend not only on the performance
of the Funds, but also on the mortality and expense risk charges and the
administrative charges under the WM Strategic Asset Manager and WM Advantage
variable annuity contracts.
6
<PAGE> 9
MONEY MARKET FUND
PORTFOLIO MANAGER: WM ADVISORS, INC.
Audrey Quaye has over five years investment management and analysis experience,
is a Certified Public Accountant, holds an MBA, and has been with WM Advisors,
Inc. since 1996.
ECONOMIC CONDITIONS WHICH AFFECTED FUND PERFORMANCE
The Asian economic crisis, which commenced at the beginning of 1997 and reached
its peak in mid to late 1997, resulted in a flight to quality and a strong rally
in the U.S. bond market as Treasury bond yields declined. Economic data released
during the half-year ended June 30, 1998, continued to indicate strength in the
U.S. economy. However, the pace of growth was moderate in some regions due to a
slowdown in manufacturing and export activity. Consumer confidence remained high
as income and spending continued to increase. Also, housing demand was up due to
relatively low interest rates. However, the labor market remained tight, and the
unemployment rate declined to a 28-year low of 4.3% during April and May of
1998.
Due to a lack of inflationary pressures, the Federal Reserve's left its target
fed funds rate (the rate at which banks borrow from one another) of 5.50%
unchanged at its May and June 1998 meetings. The benchmark 90-day U.S. Treasury
bill yield declined from 5.48% in December 1997, to 4.98% on June 1, 1998, and
then rose to 5.08% at June 30, 1998.
ECONOMIC AND INTEREST RATE OUTLOOK
We expect inflation to remain tame and anticipate a gradual slowdown in the U.S
economy as exports to Asia continue to decline and domestic price levels
decrease due to cheaper imports from Asia. We also expect the slowdown in the
economy to reduce the risk of inflation, resulting in a continued decline in
interest rates.
Conversely, there is still a risk of pressures on both prices and rates, if the
effect of the Asian economic crisis is not as strong as projected. Nevertheless,
we do not anticipate a Fed rate action in the near future.
PORTFOLIO STRATEGY
Effective March 20, 1998, WM Advisors, Inc. assumed management of The Sierra
Variable Trust money market fund and the portfolio was renamed the WM Variable
Trust Money Market Fund. The WM Variable Trust Money Market Fund's net assets at
June 30, 1998, totaled $34.28 million. We reduced the Fund's exposure to the
banking and foreign sectors in an attempt to lower overall risk levels. We also
extended the portfolio's weighted average maturity in view of our interest rate
outlook.
FUND'S PERFORMANCE
As of June 30, 1998, the seven-day simple yield for WM Money Market Fund was
5.04%, or 5.17% on a compounded annual basis. The Fund had a weighted average
maturity of 72 days.*
Seven-day Yield
---------------
<TABLE>
<S> <C>
Money Market Fund................. 5.17%
</TABLE>
* The Fund's Advisor waived fees or reimbursed a portion of the expenses.
Without the waivers and reimbursements, yields and distribution rates would have
been lower. All yield information represents past performance, which cannot
guarantee future results. Principal is not guaranteed or insured by the U.S.
Government, and yields will fluctuate depending on market conditions. There is
no assurance that the Fund will maintain the $1.00 per share net asset value
("NAV"). The yield and distribution rate do not reflect administrative fees or
other expenses charged by American General Life Insurance Company Separate
Account D through which shares of the Fund are purchased.
MONEY FUND
7
<PAGE> 10
SHORT TERM HIGH QUALITY BOND fund
PORTFOLIO MANAGER:
WM ADVISORS, INC.
The WM Short Term High Quality Bond Fund is managed by a fixed-income team led
by Senior Portfolio Manager Gary Pokrzywinski, who has over 12 years of asset
management experience and has been with WM Advisors, Inc. for more than 5 years.
Mr. Pokrzywinski is a Chartered Financial Analyst and holds a Business Degree
from the University of Wisconsin.
PERFORMANCE REVIEW:
From the Fund's inception (January 12, 1994) through June 30, 1998, the Short
Term High Quality Bond Fund's average annual total return advanced 4.34%. For
the 12-month period ended June 30, 1998, the Fund's total return was 5.72%. The
Fund's 30-day SEC yield as of June 30, 1998, was 5.20%. For additional
information, see the accompanying chart.
WHAT WERE THE MOST SIGNIFICANT FACTORS CONTRIBUTING TO THE FUND'S PERFORMANCE
OVER THE PAST SIX MONTHS?
The fixed-income market benefited from low inflation and an overall flight to
quality stemming from the Asian economic crisis. Many investors worldwide moved
assets from volatile global regions to U.S. domestic securities. The yield on
the 30-year Treasury dropped to a record low of 5.57% in June of 1998. Given
this positive economic backdrop, the WM Short Term High Quality Bond Fund's
total return for the six-months ended June 30, 1998 was 2.32%. Because the Fund
has a short duration, it is less affected by changes in interest rates, and is
less sensitive to fluctuations than long-term funds. The Fund is managed to
provide income to its shareholders, while focusing on the preservation of
capital.
<TABLE>
<S> <C> <C>
Inception*|1/12/94 10000 10000
10000 10000
9960 9898
Mar 9920 9785
9880 9726
9880 9743
Jun 9880 9770
9961 9898
10001 9942
Sep 9953 9887
9994 9899
9994 9843
Dec 94 9838 9864
9838 10027
9921 10227
Mar 9999 10291
10081 10412
10288 10680
Jun 10329 10750
10329 10778
10413 10871
Sep 10455 10942
10583 11049
10668 11182
Dec 95 10753 11288
10839 11405
10753 11323
Mar 10710 11279
10710 11269
10710 11278
Jun 10797 11384
10841 11427
10886 11451
Sep 10975 11596
11065 11776
11156 11907
Dec 96 11155 11865
11201 11924
11247 11955
Mar 11247 11901
11293 12025
11386 12121
Jun 11433 12227
11575 12227
11575 12403
Sep 11670 12532
11718 12620
11766 12641
Dec 97 11814 12724
11862 12877
11911 12886
Mar 11940 12935
11988 13006
12038 13095
Jun 98 12087 13163
</TABLE>
The line graph above and the following total returns do not reflect
administrative fees or other expenses charged by American General Life Insurance
Company Separate Account D through which shares of the Fund are purchased.
*Index total returns were calculated from 1/31/94 to 6/30/98. The Lehman
Brothers Mutual Fund Short (1-5) Investment Grade Debt Index includes all
investment-grade corporate debt securities with maturities of one to five years,
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 for the Fund
assume reinvestment of all dividends/ distributions by the shareholder.
During the period noted, the Advisor waived a portion of its management fees,
and credits were allowed by the Custodian. In the absence of the waivers or
credits, yield and total return would have been lower.
<TABLE>
<CAPTION>
TOTAL RETURNS AS OF 6/30/98 SIX MONTH ONE YEAR SINCE INCEPTION**
(January 12, 1994)
<S> <C> <C> <C>
Fund 2.32% 5.72% 4.34%
Lehman Brothers Mutual Fund Short (1-5)
Investment Grade Debt Index* 3.44% 7.66% 6.42%
</TABLE>
**Annualized
8
<PAGE> 11
WHAT MARKET CONDITIONS AFFECTED THE FUND'S PERFORMANCE DURING THE PERIOD, AND
WHAT INVESTMENT TECHNIQUES WERE USED TO ADDRESS THOSE CONDITIONS?
Interest rates dropped marginally during the past six months. The effects of
this were positive for the Fund and its total return performance. However, the
income stream provided the largest impact on performance. Our position in
asset-backed securities also helped to boost results as that class provided
relative strength. Because of the drop in interest rates, mortgage-backed
securities tended to underperform other sectors as investors were nervous about
the prospects for increased prepayments. Corporate yields did not fall as much
as other fixed-income sectors towards the end of the period, so we took
advantage of good relative prices to add to these positions.
WERE THERE ANY SHIFTS IN THE FUND'S PORTFOLIO HOLDINGS/SECTORS THAT HAVE HAD A
SIGNIFICANT IMPACT ON FUND PERFORMANCE?
During the past six months, the Short Term Global Government Fund was merged
into this Fund and WM Advisors took over the management of the merged Fund. Due
to the merger and the inflows of assets, we used the cash to restructure the
portfolio favoring corporate bonds and Treasury notes. We also decreased
exposure to mortgage-backed securities which helped performance in the second
quarter of 1998. Although the overall management outlook remains the same, the
Fund's average maturity and duration -- a measurement of price sensitivity to
changes in interest rates -- increased slightly in the period. We also
maintained the Fund's position in asset-backed securities during the period.
WHAT IS OUR INTERMEDIATE- AND LONG-TERM OUTLOOK FOR THE FUND?
The long-term strategy of the Fund is to continue to have a diversified
portfolio of high-quality securities with a yield advantage. The Fund will
invest a significant percentage of its holdings in corporates, asset-backed, and
mortgage-backed securities. Over a complete cycle of interest rates, mortgage
securities should continue to provide a high level of income. The Fund will
maintain its short-term structure to lessen price volatility relative to
long-term assets. We will shift the sector allocations depending upon our
outlook for interest rates and the overall business cycle.
WHAT IS OUR OVERALL ECONOMIC OUTLOOK FOR THE NEXT 12 MONTHS?
Over the next 12 months, we expect the economy to exhibit moderate growth. The
effects of the fallout in Asia should help keep growth and inflation under
control. Global price competition and the higher levels of imports into the
United States should support this scenario. Overall, there continues, to be
world wide structural forces at work (fiscal austerity, demographics, excess
capacity) which should keep inflation under control for the next 3-5 years.
Although there will be periods of volatility, we believe the overall interest
rate trend is lower. These aforementioned factors should continue to produce
slow growth and keep price pressures at bay.
short term high quality bond fund portfolio composition
1 - AAA 65%
2 - AA 11%
3 - A 5%
4 - BBB 19%
As rated by Standard and Poors.
FIXED INCOME FUND
9
<PAGE> 12
U.S. GOVERNMENT SECURITIES fund
PORTFOLIO MANAGER: WM ADVISORS, INC.
The WM U.S. Government Securities Fund is managed by a fixed-income team led by
Senior Portfolio Manager Gary Pokrzywinski, who has over 12 years of asset
management experience and has been with WM Advisors, Inc. for more than 5 years.
Mr. Pokrzywinski is a Chartered Financial Analyst and holds a Business Degree
from the University of Wisconsin.
PERFORMANCE REVIEW:
From the Fund's inception (May 6, 1993) through June 30, 1998, the U.S.
Government Securities Fund's average annual total return was 6.00%. For the
12-month period ended June 30, 1998, the Fund's total return was 10.28%. The
Fund's 30-day SEC yield as of June 30, 1998, was 5.80%. For additional
information, see the accompanying chart.
WHAT WERE THE MOST SIGNIFICANT FACTORS CONTRIBUTING TO THE FUND'S PERFORMANCE
OVER THE PAST SIX MONTHS?
The fixed-income market benefited from low inflation and an overall flight to
quality stemming from the Asian economic crisis. The yield on the 30-year
Treasury dropped to a record low on June 15, 1998. Given this positive economic
backdrop, the U.S. Government Securities Fund reported positive performance for
the six-months ended June 30, 1998. Given the strength of the U.S. economy and
the lack of intervention by the Federal Reserve, the yield curve flattened
- --there was just a slight difference in yield between the 2-year and the 30-year
Treasury Bond. This favors the intermediate-term concentration of the Fund.
Because of these factors, the Fund advanced 3.73% during the six-month period.
The large percentage of mortgage-backed securities in the Fund produced a
relatively high level of income for contract owners invested in the U.S.
Government Securities Fund.
<TABLE>
<S> <C> <C> <C>
Inception*|5/6/93 10000 10000 10000
10093 10222 10076
Jun 10153 10284 10116
10283 10514 10164
10294 10554 10173
Sep 10305 10594 10202
10163 10477 10182
10227 10518 10265
Dec 93 10359 10662 10366
10176 10436 10294
9921 10201 10026
Mar 9829 10121 9952
9808 10108 9992
9792 10084 9970
Jun 9928 10270 10169
9928 10272 10202
9824 10127 10057
Sep 9803 10120 10051
9760 10102 10020
9813 10163 10100
Dec 94 10017 10316 10352
10265 10579 10575
10329 10629 10642
Mar 10460 10779 10781
10821 11119 11216
10876 11182 11302
Jun 10876 11182 11302
10853 11260 11201
10976 11392 11318
Sep 11031 11501 11418
11211 11676 11519
11403 11858 11650
Dec 95 11471 12027 11796
11574 12100 11885
11379 11853 11786
Mar 11333 11755 11743
11263 11679 11711
11193 11660 11677
Jun 11320 11810 11838
11298 11840 11882
11298 11813 11882
Sep 11486 12010 12080
11750 12274 12317
11954 12487 12493
Dec 96 11894 12360 12428
11931 12374 12520
11980 12391 12561
Mar 11834 12260 12443
11981 12436 12641
12105 12544 12765
Jun 12241 12685 12915
12556 13045 13158
12443 12916 13126
Sep 12632 13109 13262
12862 13336 13410
12874 13404 13454
Dec 97 13015 13545 13607
13183 13748 13742
13144 13711 13771
Mar 13156 13749 13829
13235 13811 13908
13379 13953 13999
Jun 98 13499 14113 14066
</TABLE>
The line graph above and the following total returns do not reflect
administrative fees or other expenses charged by American General Life Insurance
Company Separate Account D through which shares of the Fund are purchased.
*Index total returns were calculated from 5/31/93 to 6/30/98. The Lehman
Brothers Mutual Fund U.S. General Government Index represents all U.S.
Government agency and Treasury securities. The Lehman Brothers Mutual Fund U.S.
Mortgage Index includes all agency mortgage-backed securities. The indices
assume reinvestment of all dividends/distributions and do not reflect any
asset-based charges for investment management or other expenses. Past investment
performance does not guarantee future performance. The returns for the Fund
assume reinvestment of all dividends/ distributions by the shareholder.
During the period noted, the Advisor waived a portion of its management fees,
and credits were allowed by the Custodian. In the absence of the waivers or
credits, yield and total return would have been lower.
<TABLE>
<CAPTION>
TOTAL RETURNS AS OF 6/30/98 SIX MONTH ONE YEAR FIVE YEARS** SINCE INCEPTION**
(May 6, 1993)
<S> <C> <C> <C> <C>
Fund 3.73% 10.28% 5.99% 6.00%
Lehman Brothers U.S. Government Index* 4.19% 11.26% 6.66% 7.01%
Lehman Brothers U.S. Mortgage Index* 3.37% 8.92% 6.90% 6.94%
</TABLE>
**Annualized
10
<PAGE> 13
WHAT MARKET CONDITIONS AFFECTED THE FUND'S PERFORMANCE DURING THE PERIOD, AND
WHAT INVESTMENT TECHNIQUES WERE USED TO ADDRESS THOSE CONDITIONS?
Interest rates dropped marginally during the period. The effects of this were
positive for the Fund and its total return performance. Because of the drop in
interest rates, mortgage-backed securities tended to underperform other sectors
as investors were nervous about the prospects for increased prepayments. Lower
rates provided an environment conducive to prepayments as refinancing increased
throughout 1998. To help offset the performance of mortgages, we extended the
duration of the Fund to capture more of the rally in interest rates.
WERE THERE ANY SHIFTS IN THE FUND'S PORTFOLIO HOLDINGS/SECTORS THAT HAVE HAD A
SIGNIFICANT IMPACT ON FUND PERFORMANCE?
WM Advisors took over the management responsibilities for the Fund in March of
1998. As we were able to find good prices on mortgage-backed securities, the
Fund increased its exposure to this sector. We plan to continue to increase our
concentration moving forward. The Fund remains focused on securities that are
non-callable and have a low probability of being prepaid. We continue to stress
both the income stream and the overall total return of the Fund. We believe that
this will bring the most benefit to shareholders of the WM Variable Trust U.S.
Government Securities Fund.
WHAT IS OUR INTERMEDIATE- AND LONG-TERM OUTLOOK FOR THE FUND?
The long-term strategy of the Fund is to have a significant percentage of its
holdings in mortgage-backed securities. Over a complete cycle of interest rates,
mortgage securities should continue to provide a high level of income. In
addition, as actual and expected prepayments slow, mortgage-backed securities
should outperform Treasuries. The Fund will maintain its intermediate maturity
structure since that type of structure typically offers the best risk/reward
profile on the yield curve (the distribution of yields ranging from short to
long maturities).
WHAT IS OUR OVERALL ECONOMIC OUTLOOK FOR THE NEXT 12 MONTHS?
Over the next twelve months we expect the economy to exhibit moderate growth.
The effects of the fallout in Asia should help keep growth and inflation under
control. Global price competition and the higher levels of imports into the
United States should support this scenario. Overall, there continues to be
world-wide structural forces at work (fiscal austerity, demographics, excess
capacity) which should keep inflation under control for the next 3-5 years.
Unexpected economic impacts stemming from Asia and Russia remain wildcards for
overall global growth.
u.s. government securities fund
portfolio composition
1 - CMO'S 37%
2 - GNMA 22%
3 - Treasuries 15%
4 - FHLMC 15%
5 - Cash/Other 9%
6 - FNMA 2%
FIXED-INCOME FUND
11
<PAGE> 14
INCOME FUND
PORTFOLIO MANAGER: WM ADVISORS, INC.
The WM Income Fund is managed by a fixed-income team led by Senior Portfolio
Manager Gary Pokrzywinski, who has over 12 years of asset management experience
and has been with WM Advisors, Inc. for more than 5 years. Mr. Pokrzywinski is a
Chartered Financial Analyst and holds a Business Degree from the University of
Wisconsin.
PERFORMANCE REVIEW:
From the Fund's inception (May 7, 1993) through June 30, 1998, the Income Fund's
average annual total return was 6.98%. For the 12-month period ended June 30,
1998, the Fund advanced 13.04% on a total return basis. The Income Fund's 30-day
SEC yield as of June 30, 1998, was 5.84%. For additional information, see the
accompanying chart.
WHAT WERE THE MOST SIGNIFICANT FACTORS CONTRIBUTING TO THE FUND'S PERFORMANCE
OVER THE PAST SIX MONTHS?
The fixed-income market benefited from low inflation and an overall flight to
quality stemming from the Asian economic crisis. Many investors worldwide moved
assets from volatile global regions to U.S. domestic securities. The yield on
the 30-year Treasury dropped to a record low on June 15, 1998. Given this
positive economic backdrop, the Income Fund advanced 4.28% over the past six
months, outperforming its benchmark.
The Fund has a large percentage of corporate and mortgage-backed holdings which
help to produce a higher yield. In addition, the intermediate-maturity profile
of securities in the Fund provided strong results as interest rates dropped and
bond prices correspondingly increased. However, most of the return was generated
by the yield of the Fund. Also, the high-yield component of the portfolio
provided strong results as that sector tended to outperform all other
fixed-income sectors for the six-month period.
<TABLE>
<S> <C> <C>
Inception*|5/7/93 10000 10000
10224 10243
Sep 10284 10317
10595 10574
10590 10599
Dec 93 10661 10652
10489 10521
10562 10583
Mar 10766 10788
10429 10534
10010 10210
Jun 9844 10112
9782 10075
9735 10050
Sep 9999 10304
9957 10315
9735 10123
Dec 94 9693 10100
9693 10084
9703 10168
Mar 9917 10383
10207 10682
10271 10770
Jun 10414 10952
11097 11468
11141 11571
Sep 11006 11520
11275 11706
11432 11844
Dec 95 11671 11998
11887 12227
12138 12429
Mar 12127 12509
11687 12212
11559 12108
Jun 11559 12162
11583 12185
11487 12147
Sep 11739 12405
12092 12743
12324 13016
Dec 96 12190 12836
12166 12854
12216 12908
Mar 12016 12707
12218 12900
12332 13046
Jun 12522 13231
13063 13715
12830 13512
Sep 13075 13748
13324 13923
13402 14001
Dec 97 13573 14149
13746 14318
13706 14313
Mar 13746 14366
13800 14457
14003 14629
Jun 98 14152 14737
</TABLE>
*Index total returns were calculated from 5/31/93 to 6/30/98. The Lehman
Brothers Mutual Fund Corporate Debt BBB-Rated Index represents all
investment-grade corporate debt securities, 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 for the Fund assume reinvestment of
all dividends/distributions by the shareholder.
During the period noted, the Advisor waived a portion of its management fees,
and credits were allowed by the Custodian. In the absence of the waivers or
credits, yield and total return would have been lower.
The line graph above and the following total returns do not reflect
administrative fees or other expenses charged by American General Life Insurance
Company Separate Account D through which shares of the Fund are purchased.
<TABLE>
<CAPTION>
TOTAL RETURNS AS OF 6/30/98 SIX MONTH ONE YEAR FIVE YEARS** SINCE INCEPTION**
(May 7, 1993)
<S> <C> <C> <C> <C>
Fund 4.28% 13.04% 6.72% 6.98%
Lehman Brothers Mutual Fund Corporate Debt BBB-Rated Index* 4.15% 11.39% 7.55% 7.93%
</TABLE>
**Annualized
12
<PAGE> 15
WHAT MARKET CONDITIONS AFFECTED THE FUND'S PERFORMANCE DURING THE PERIOD, AND
WHAT INVESTMENT TECHNIQUES WERE USED TO ADDRESS THOSE CONDITIONS?
Because of the Fund's intermediate maturity and duration--a measurement of
sensitivity to interest rate changes -- performance will always cycle with
market rates. As some corporate holdings lost relative value in the period, the
Fund took advantage of the lower prices of corporate securities and increased
the percentage of the portfolio allocated to industries that do not depend
entirely on the strength of the U.S. economy. This was done as we continue to
believe we are in the latter stages of the business cycle.
WERE THERE ANY SHIFTS IN THE FUND'S PORTFOLIO HOLDINGS/SECTORS THAT HAVE HAD A
SIGNIFICANT IMPACT ON FUND PERFORMANCE?
Although there were no major structural changes in the overall portfolio and its
management style, we changed the make-up of the Fund to some extent. WM Advisors
took over the management responsibilities for the Fund in March of 1998. There
is now a larger percentage of assets in corporate holdings in an attempt to
boost overall yield. The Fund will continue to add to positions in
higher-yielding corporate bonds; the risk will be controlled through
diversification. We also plan to balance the Fund by increasing concentration in
mortgage-backed securities and Treasuries. We have lowered the average maturity
and duration of the Fund, and if rates continue to move down, we will continue
to shorten the portfolio. The Fund is now positioned with an intermediate
average maturity of around 11.8 years and an average quality of bond issues at
"A".
Internal credit research of individual corporate securities is one of the
primary ways the Fund seeks to add value to its shareholders. Each company is
scrutinized and its business prospects are analyzed in an attempt to find value
relative to the overall market.
WHAT IS OUR INTERMEDIATE- AND LONG-TERM OUTLOOK FOR THE FUND?
The Fund will continue to invest a large percentage of assets in corporate
securities, and to a lesser extent, mortgage-backed and treasury securities.
Shifts in these sectors will occur dependent upon our overall outlook for the
business cycle. The Fund will continue to position investments at the longer end
of the intermediate maturity range to take advantage of the prospects of
continued market declines and interest rates. As rates decline further, we will
then reduce duration to lower the overall risk of the portfolio. The current
inflation environment gives rise to this outlook as global price pressures
remain very weak and real returns (inflation adjusted) remain strong.
WHAT IS OUR OVERALL ECONOMIC OUTLOOK FOR THE NEXT 12 MONTHS?
Over the next twelve months we expect the economy to exhibit moderate growth.
The effects of the fallout in Asia should help keep growth and inflation under
control. Global price competition and the higher levels of imports into the
United States should support this scenario. Overall, there continues to be
world-wide structural forces at work (fiscal austerity, demographics, excess
capacity) which should keep inflation under control for the next 3-5 years. In
this environment, corporate credit quality should continue to improve at a
modest pace as companies are able to grow and flourish. Conversely, if Asian
effects turn out to be overestimated, the possibility of a short-term uptick in
interest rates does exist. The Federal Reserve continues to watch for any sign
on upcoming inflation and is prepared to enact monetary policy to slow growth.
income fund
portfolio composition
<TABLE>
<S> <C>
1 - AAA 8%
2 - AA 11%
3 - A 40%
4 - BBB 39%
5 - B 2%
</TABLE>
As rated by Standard & Poors
FIXED INCOME FUND
13
<PAGE> 16
GROWTH & INCOME FUND
PORTFOLIO MANAGER:
WM ADVISORS, INC.
Philip M. Foreman, Senior Portfolio Manager of WM Advisors, Inc., is both a
Chartered Financial Analyst and a Certified Financial Planner. He holds an MBA
and has over 12 years of experience in the investment industry.
PERFORMANCE REVIEW:
From the Fund's inception (January 12, 1994) through June 30, 1998, the Growth &
Income Fund advanced 20.61% on an average annual total return basis. For the
12-month period ended June 30, 1998, the Fund's total return was 23.84%. For
additional information, see the accompanying chart.
WHAT WERE THE MOST SIGNIFICANT FACTORS CONTRIBUTING TO THE FUND'S PERFORMANCE
OVER THE PAST SIX MONTHS?
The period was dominated by strong fundamental performance. Markets advanced on
positive economic news and continued strength in earnings. This was especially
evident in the larger-capitalized companies that dominate the Growth & Income
portfolio. Although it underperformed relative to the S&P 500, the Fund
appreciated 13.30% for the six-month period ended June 30, 1998.
Another trend in domestic equity markets was that of mergers and acquisitions.
Three of our holdings were bought out at substantial premiums to their previous
trading prices: Zurn Industries, Greentree Financial and Waste Management. Also,
some mega-cap securities benefited from a flight to quality and lack of Asian
market exposure (GE, Merck and Abbott Labs are examples) during the period. The
flight to quality transpired as many worldwide investors poured money into more
predictable, large, U.S. corporations after the debacle in the Asian economies.
<TABLE>
<S> <C> <C>
Inception*|1/12/94 10000 10000
9970 9729
Mar 9670 9305
9860 9424
9900 9578
Jun 9660 9344
9950 9650
10250 10045
Sep 10040 9799
10140 10019
9670 9655
Dec 94 9830 9798
10040 10052
10440 10443
Mar 10820 10751
11030 11068
11440 11511
Jun 11646 11778
12072 12052
12123 12082
Sep 12437 12592
12123 12546
12792 13097
Dec 95 13016 13477
13442 13935
13726 14065
Mar 13949 14200
14253 14408
14415 14780
Jun 14212 14836
13469 14181
13925 14480
Sep 14557 15295
14734 15717
15944 16904
Dec 96 15855 16568
16876 17603
16931 17741
Mar 16398 17014
17020 18029
18173 19126
Jun 18639 19982
20385 21573
19760 20365
Sep 20663 21486
19712 20768
20073 21730
Dec 97 20374 22103
20470 22349
22058 23960
Mar 22890 25187
23082 25441
22431 25004
Jun 98 23082 26019
</TABLE>
The line graph above and the following total returns do not reflect
administrative fees or other expenses charged by American General Life Insurance
Company Separate Account D through which shares of the Fund are purchased.
*Index total returns were calculated from 1/31/94 to 6/30/98. The Standard &
Poor's Composite Index of 500 Stocks (S&P 500) represents an unmanaged weighted
index of 500 industrial, transportation, utility and financial companies widely
regarded by investors as representative of the stock market, 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 for the Fund
assume reinvestment of all dividends/distributions by the shareholder.
During the period noted, the Advisor waived a portion of its management fees,
and credits were allowed by the Custodian. In the absence of the waivers or
credits, yield and total return would have been lower.
<TABLE>
<CAPTION>
Total Returns as of 6/30/98
SIX MONTH ONE YEAR SINCE INCEPTION**
(January 12, 1994)
<S> <C> <C> <C>
Fund 13.30% 23.84% 20.61%
Standard & Poor's Composite Index of 500 Stocks* 17.72% 30.21% 24.17%
</TABLE>
**Annualized
14
<PAGE> 17
WHAT MARKET CONDITIONS AFFECTED THE FUND'S PERFORMANCE DURING THE PERIOD, AND
WHAT INVESTMENT TECHNIQUES WERE USED TO ADDRESS THOSE CONDITIONS?
Heavy flow of money into large-cap issues characterized the period.
Larger-company stocks performed relatively better than almost all other classes
of equities. This was driven by economic conditions that produced low interest
rates, slowing economic growth from Asian countries, and record levels of
mergers and acquisitions. Most of the holdings in the Fund benefited from
moderate economic growth conditions as earnings were able to grow with low
inflation and low interest rates. The Fund avoided capital goods and basic
industry issues during the period, as low-cost Asian imports could negatively
impact their profitability. The Fund also owned a number of good performing
franchise businesses that have proven to be attractive for takeovers in today's
business environment. The value style of the Fund dragged a bit on performance
during the period, as large-cap growth stocks led the market.
WERE THERE ANY SHIFTS IN THE FUND'S PORTFOLIO HOLDINGS/SECTORS THAT HAVE HAD A
SIGNIFICANT IMPACT ON FUND PERFORMANCE?
WM Advisors began managing the Fund in April of 1998. We reduced the overall
number of holdings and continued to focus on good companies that have an
advantage over their competition. The lack of retail exposure in the Fund
dragged on performance during the last six months. We were, and still are,
concerned by the lack of competitive advantage and barriers to entry in the
retail industry. During the period, the Fund was overweighted in software at the
expense of computer hardware and semiconductors. This proved to be beneficial,
as software sales held up much better than mainframe computers and chips. This
can be attributed to the lack of Asian competitors who, in these other sectors,
greatly increased their exports into the United States after the currency
crisis.
WHAT IS OUR INTERMEDIATE- AND LONG-TERM OUTLOOK FOR THE FUND?
We continue to believe that we have a portfolio of good businesses that are
trading at attractive prices. We still are finding plenty of companies to buy
that are "on sale," despite the high level of the overall market. We will
maintain our overall value approach, focusing on businesses which are unique and
will generate sustainable cash flows and profitability. We will continue to
target large companies on the lower end of their trading range. Our outlook
calls for slowing economic growth, good money flows, and a continuation of
mergers and acquisitions. All these factors provide a healthy environment for
holdings of the Growth & Income Fund.
WHAT IS OUR OVERALL ECONOMIC OUTLOOK FOR THE NEXT 12 MONTHS?
We see slowing corporate profits from the basic industry, commodity, and
computer hardware/semiconductor sectors of the market. Low-cost Asian imports
stemming from the currency crisis in these countries will keep prices and
inflation low. Low global inflation will help maintain interest rates at flat to
slightly lower levels, which is very positive for stocks. We look for large
companies to buy revenue growth through acquisitions using their highly-valued
equity to make the purchase. Despite volatility in certain industries, we
maintain our positive long-term outlook on the equity markets and believe that
current conditions continue to provide a strong backdrop for equity investment.
growth & income fund portfolio composition
<TABLE>
<S> <C>
1 - Consumer Stocks 20%
2 - Financials 15%
3 - Technology 15%
4 - Healthcare 13%
5 - Capital Goods 10%
6 - Other 9%
7 - Energy 7%
8 - Media 5%
9 - Basic Industry 4%
10 - Transportation 2%
</TABLE>
Differences from financial statements are a result of a consolidation of
industries or sectors
EQUITY FUND
15
<PAGE> 18
GROWTH FUND
PORTFOLIO MANAGER:
JANUS CAPITAL CORPORATION
Warren Lammert is a graduate of Yale University and the London School of
Economics. He first joined Janus in January 1987 and has been Portfolio Manager
for the WM Growth Fund since its inception. He is a Chartered Financial Analyst.
PERFORMANCE REVIEW:
From the Fund's inception (May 7, 1993) through June 30, 1998, the Growth Fund
advanced 20.96% on an average annual total return basis. For the 12-month period
ended June 30, 1998, the Fund's total return was 37.37%. For additional
information, see the accompanying chart.
WHAT WERE THE MOST SIGNIFICANT FACTORS CONTRIBUTING TO THE FUND'S PERFORMANCE
OVER THE PAST SIX MONTHS?
While the Fund posted strong results since the first of the year, several issues
came alive at the end of the quarter to bolster the returns. As a result, we
continued to top the market and moved ahead nicely for the period. Overall, the
Fund reflects our commitment to a variety of themes, particularly technology,
pharmaceuticals, cable, and financial services. However, over the past six
months, we have shortened the list of names by trimming a number of smaller
positions, which has helped to create more focus in the portfolios.
WHAT MARKET CONDITIONS AFFECTED THE FUND'S PERFORMANCE DURING THE PERIOD, AND
WHAT WERE THE INVESTMENT TECHNIQUES THAT WERE UTILIZED TO ADDRESS THOSE
CONDITIONS?
Although domestic stocks started the period smartly and managed to build on the
first quarter's impressive gains, these early gains proved fleeting. Mounting
concerns over Asia's continuing difficulties and related uncertainty surrounding
corporate profits once again unsettled the markets. As a result, stocks lost
ground in late May and early June. However, equities proved resilient and
managed to end the second quarter with a strong rally, thanks largely to a
significant drop in long-term interest rates and a resurgent technology sector.
During the period, a number of developments helped to validate our thesis on the
cable industry--an area that remains very compelling. After years of equipment
and infrastructure upgrades, cable operators are on the verge of rolling out a
two-way digital platform that will allow a variety of new services, including
telephony data and expanded video offerings. These factors, combined with a
dramatic decline in capital expenditures, create a promising outlook. As a
result, we built positions in Comcast,
<TABLE>
<S> <C> <C>
Inception*|5/7/93 10000 10000
10410 10033
Sep 10810 10290
10980 10498
10900 10400
Dec 93 11190 10528
11730 10886
11680 10591
Mar 11390 10129
11320 10259
10970 10427
Jun 10560 10171
10910 10505
11541 10935
Sep 11571 10667
11831 10907
11451 10510
Dec 94 11491 10665
11611 10942
11971 11368
Mar 12232 11704
12662 12048
13162 12530
Jun 13934 12821
14838 13119
14928 13152
Sep 15420 13707
14988 13657
15721 14257
Dec 95 15781 14665
16083 15163
16835 15304
Mar 16956 15451
17809 15678
18160 16083
Jun 17392 16144
16120 15430
17208 15756
Sep 18387 16643
17769 17102
18331 18394
Dec 96 18330 18032
19224 19155
18353 19305
Mar 17129 18514
17427 19618
18652 20811
Jun 19386 21743
21026 23474
19929 22160
Sep 21093 23379
20523 22599
20443 23645
Dec 97 20390 24052
21065 24319
23024 26072
Mar 24122 27407
25061 27684
24319 27207
Jun 98 26627 28312
</TABLE>
The line graph above and the following total returns do not reflect
administrative fees or other expenses charged by American General Life Insurance
Company Separate Account D through which shares of the Fund are purchased.
*Index total returns were calculated from 5/31/93 to 6/30/98. The Standard &
Poor's Composite Index of 500 Stocks (S&P 500) represents an unmanaged weighted
index of 500 industrial, transportation, utility and financial companies widely
regarded by investors as representative of the stock market, 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 for the Fund
assume reinvestment of all dividends/distributions by the shareholder.
During the period noted, the Advisor waived a portion of its management fees,
and credits were allowed by the Custodian. In the absence of the waiver or
credits, yield and total return would have been lower.
<TABLE>
<CAPTION>
Total Returns as of 6/30/98
SIX MONTH ONE YEAR FIVE YEARS** SINCE INCEPTION**
(May 7, 1993)
<S> <C> <C> <C> <C>
Fund 30.59% 37.37% 20.67% 20.96%
Standard & Poor's Composite Index of 500 Stocks* 17.72% 30.21% 23.07% 22.72%
</TABLE>
**Annualized
16
<PAGE> 19
Time Warner, Media One, and Tele-Communications, Inc. (TCI), all of which
performed very well. In addition, AT&T's recent decision to purchase TCI
highlights the value of the cable pipeline, and we believe the combined entity
will unlock a variety of important synergies moving ahead.
Our technology stocks, particularly our internet positions, also posted strong
gains, and Amazon.com was a clear winner. We added a position in this leading
internet book and music retailer during the second quarter, and the stock's
price more than doubled over a thirteen-day period in June. While we are excited
about Amazon.com's prospects given its strong brand name and explosive growth,
we also realize that such quick gains can easily reverse themselves. So, we
opted to trim the position at a significant profit.
Additionally, our positions in Dell, Microsoft, and America Online (AOL) helped
bolster the results of the Fund. Dell continues to exploit its highly successful
business model, despite a generally weak environment for PC manufacturers. The
company is beginning to target overseas markets, where direct PC sales are in an
earlier phase of the life cycle with substantially higher growth rates.
Additionally, Dell continues to target and gain market share in other
high-margin businesses such as laptops and corporate PC's. Meanwhile, Microsoft
advanced strongly, overcoming concerns related to the Justice Department's
antitrust suit. The company is at the beginning of a major new product cycle
with the current launch of Windows 98 and the rollout of Windows NT 5.0 later
this year. And AOL, supported by the growing acceptance of the internet as a new
media avenue, continues to perform well.
Several of our pharmaceutical stocks also did exceptionally well during the
period, including Warner-Lambert, Pfizer, and Eli Lilly. All three companies
continue to see strong results from their new product launches, effectively
driving revenues higher. More recently, we also added Cognizant, which owns IMS,
a provider of prescription and market share data for pharmaceutical companies.
It essentially has a lock on the necessary tracking services that these
manufacturers require, and is benefiting from a wealth of new products being
brought to market by the industry.
WERE THERE ANY SHIFTS IN THE FUND'S PORTFOLIO HOLDINGS/SECTORS THAT HAVE HAD A
SIGNIFICANT IMPACT ON FUND PERFORMANCE?
Overall, there were no significant shifts in the Fund. However, while we enjoyed
broad-based gains, we did suffer some minor setbacks, especially in our
semiconductor stocks, which were hit by Asian jitters. We scaled back our
weighting in this industry partly to reduce the Fund's exposure to Asia. We also
sold our position in Sealed Air following an earnings disappointment.
WHAT IS OUR INTERMEDIATE- AND LONG-TERM OUTLOOK FOR THE FUND?
Looking ahead, Asia's continuing economic difficulties contribute an element of
uncertainty to global markets. Japan's economy has moved into a severe
recession, brought about by the Japanese government's failure to enact
meaningful economic reforms and by its fragile banking system. Additionally, the
recent weakness in the Yen versus the Dollar highlights the currency risk that
still lingers throughout the region. On the positive side, Asia's slowdown has
been an effective brake on the global economy and has helped keep domestic
inflation in check, despite an impressive U.S. expansion. As a result, domestic
interest rates continue to reflect these positive fundamentals and remain at
very low levels.
In this economic environment, we remain constructive on the stock market for a
variety of reasons. Many of our positions are experiencing robust growth and
remain well insulated from Asia's downturn. As always, we continue to rely upon
Janus' strategy to find promising individual companies with strong fundamentals
and positive earnings momentum.
growth fund portfolio composition
<TABLE>
<S> <C>
1 - Technology 33%
2 - Telecommunications 19%
3 - Healthcare 13%
4 - Financials 10%
5 - Media 10%
6 - Capital Good 5%
7 - Business Services 4%
8 - Consumer Stocks 4%
9 - Other 2%
</TABLE>
EQUITY FUND
17
<PAGE> 20
BOND & STOCK FUND
PORTFOLIO MANAGER: WM ADVISORS, INC.
Jeffrey D. Huffman, Senior Portfolio Manager of WM Advisors, Inc. is a Chartered
Financial Analyst, holds an MBA, and has over 12 years of investment management
experience.
WHAT WERE THE MOST SIGNIFICANT FACTORS CONTRIBUTING TO THE FUND'S PERFORMANCE
OVER THE PAST SIX MONTHS?
The WM Variable Trust Bond & Stock Fund began operations in April of 1998. The
Fund is concentrated in the large, income-producing equity holdings which have
led the market thus far in 1998. The fixed-income portion of the portfolio also
provided positive performance as interest rates fell throughout the period; low
global inflation was a decisive factor in the rate decline. The yield on the
bell weather 30-year Treasury bond hit a record low on June 15, 1998. Falling
interest rates boost the price of bonds and therefore have a positive impact on
performance for the Bond & Stock Fund.
WHAT MARKET CONDITIONS AFFECTED THE FUND'S PERFORMANCE DURING THE PERIOD, AND
WHAT INVESTMENT TECHNIQUES WERE USED TO ADDRESS THOSE CONDITIONS?
The U.S. economy is remarkably healthy. The consumer is in good shape, housing
is strong, unemployment is low, and inflation has not surfaced. The Asian
economic crisis seems to have slowed the economy enough to keep growth at a more
moderate pace and hold back inflation. The lack of price inflation has allowed
interest rates to decline and confidence in the economy to build. This positive
economic backdrop has allowed corporations to report solid growth in earnings
which in turn has led to higher stock prices. In addition, low interest rates
allow companies to grow and expand with a reduced cost of capital. We maintained
our bullish outlook throughout the period and shareholders have participated in
the advance of both fixed-income and equity markets. Although prospects continue
to be good, it is not without some caution as questions over corporate
profitability may incite some volatility.
WERE THERE ANY SHIFTS IN THE FUND'S PORTFOLIO HOLDINGS/SECTORS THAT HAVE HAD A
SIGNIFICANT IMPACT ON FUND PERFORMANCE?
We plan to invest a high concentration (two-thirds of assets) in equity
securities, these include: common stocks, convertibles, and Real Estate
Investment Trusts (REITs). Because of the outlook for domestic equity markets,
this strategy should benefit shareholders. Even with the strong performance in
recent years, we continue to find stocks at good prices that represent prudent
value investments. The fixed-income portion of the portfolio is concentrated in
high-quality intermediate-term bonds which not only provide an income stream,
but aid in overall risk management of the Fund.
WHAT IS OUR INTERMEDIATE- AND LONG-TERM OUTLOOK FOR THE FUND?
We continue our core strategy of seeking out high-quality companies whose
stocks trade in the market at prices significantly less than our estimate of
their underlying value. Our objective continues to be providing a broadly
diversified portfolio of high-quality investments that meets long-term
objectives of most investors. A diversified portfolio can temper volatility and
lower portfolio risk as different types of assets (asset classes) react
differently to changing market conditions. We feel that the portfolio is
positioned to take advantage of these changing market conditions and to provide
the investment vehicle to meet your investment goals.
WHAT IS OUR OVERALL ECONOMIC OUTLOOK FOR THE NEXT 12 MONTHS?
We expect the pace of the economy to slow as we move deeper into 1998; although,
if the impact of Asia is weaker than forecasted, domestic growth could return. A
slowdown would result in a further decline in interest rates and increased
concern over the sustainability of corporate earnings. The effects of such a
scenario will be positive to both bonds and interest-rate sensitive stocks. The
overall equity market appears to be fairly valued at current prices with stock
selection becoming increasingly important in magnitude.
bond & stock fund
portfolio composition
<TABLE>
<S> <C>
1 - Common Stocks 43%
2 - U.S. Treasuries 31%
3 - Corporate Bonds 4%
4 - Convertible Preferred Stocks 2%
5 - Cash/Other 20%
</TABLE>
EQUITY FUND
18
<PAGE> 21
NORTHWEST fund
PORTFOLIO MANAGER: WM ADVISORS, INC.
David Simpson, Senior Portfolio Manager of WM Advisors, Inc., is a Chartered
Financial Analyst, holds an MBA, and has over 11 years of continuous investment
experience.
WHAT WERE THE MOST SIGNIFICANT FACTORS CONTRIBUTING TO THE FUND'S PERFORMANCE
OVER THE PAST SIX MONTHS?
The WM Variable Northwest Fund commenced investing in May 1998. The portfolio
has lagged both the S&P 500 and the Russell 2000 due to weakness in
small-capitalization stocks, particularly small-cap technology stocks. These
equity classes were especially battered by concerns over the effects of the
Asian crisis. A number of companies preannounced disappointing earnings as
weakness in Asia was compounded by a slowdown in PC demand.
WHAT MARKET CONDITIONS AFFECTED THE FUND'S PERFORMANCE DURING THE PERIOD, AND
WHAT INVESTMENT TECHNIQUES WERE USED TO ADDRESS THOSE CONDITIONS?
Despite the recent underperformance, we maintain a long-term investment horizon.
We will use near-term weakness as an opportunity to add to positions in
companies where long-run prospects are strong.
WERE THERE ANY SHIFTS IN THE FUND'S PORTFOLIO HOLDINGS/SECTORS THAT HAVE HAD A
SIGNIFICANT IMPACT ON FUND PERFORMANCE?
Initial positions were established shortly after the Fund commenced investment
operations and there have not been any major shifts in sectors or holdings. We
maintain a concentration in technology and bio-tech firms which should lead
their industries and continue to focus on companies that benefit from the growth
of the Northwest region of the U.S.
WHAT IS OUR INTERMEDIATE- AND LONG-TERM OUTLOOK FOR THE FUND?
We believe that the Fund is invested in strong companies with good long-run
prospects. Although we are seeing the negative impacts of Asia, stock valuations
appear to have been already discounted for its effects. Recent market
performance has been dominated by the very largest stocks. Because the Fund has
limited exposure to these "mega-caps", it has underperformed. We believe this
trend will not continue in the long-run and valuation of these very large
companies may have reached their peak. We feel our valuation discipline will
reward our shareholders with long investment horizons.
WHAT IS OUR OVERALL ECONOMIC OUTLOOK FOR THE NEXT 12 MONTHS?
The Northwest economy continues to be very strong, although there are signs that
growth may be slowing from its recent torrid pace. Boeing is maintaining full
employment, although it has stopped hiring and may slightly reduce employment
over the next 12-18 months. Microsoft continues to be a powerful economic engine
with its heavy investment in research and development (expected to exceed $3
billion over the next year). The rapid growth in the Portland area has slowed
recently due to weakness in the semiconductor industry. Overall, the domestic
economy continues to support strong growth without significant inflation.
However, it is unclear if all of the effects of Asia have rippled through the
U.S. economy. Currently, the effects of Asia have only muted growth and
inflation. Should the impact be more profound, the markets could be upset by a
substantially weaker economy than was previously forecasted.
NORTHWEST FUND PORTFOLIO COMPOSITION
1 - Technology 26%
2 - Other 16%
3 - Consumer Stocks 14%
4 - Healthcare 12%
5 - Financials 9%
6 - Capital Goods 7%
7 - Basic Industry 7%
8 - Transportation 5%
9 - Telecommunications 3%
10 - Media 1%
Differences from financial statements are a result of a consolidation of
industries or sectors.
EQUITY FUND
19
<PAGE> 22
EMERGING GROWTH FUND
PORTFOLIO MANAGER: WM ADVISORS, INC.
The Emerging Growth Fund is co-managed by Dave Simpson and Linda Walk of WM
Advisors, Inc. Mr. Simpson and Ms. Walk began managing the Fund on March 23,
1998. Both managers are Chartered Financial Analysts and have experience in
small-cap management.
PERFORMANCE REVIEW:
The Fund gained 13.03% during the past year, while one benchmark, the Russell
2000 Index, gained 16.50%. Despite significant efforts to improve performance,
the past six months proved to be a very difficult period for the Fund. Severe
market swings buffeted performance, and we were unable to close the performance
gap with the benchmark Index.
WHAT WERE THE MOST SIGNIFICANT FACTORS CONTRIBUTING TO THE FUND'S PERFORMANCE
OVER THE PAST SIX MONTHS?
The Fund appreciated 3.70% during the six-month period ended June 30, 1998. The
performance was slightly under the small-cap market, as measured by the Russell
2000 Index.
The performance of the WM Emerging Growth Fund was negatively impacted by the
underperformance of small-capitalization companies relative to
large-capitalization companies. During the past six-months, large-caps
appreciated more than three times as much as stocks of smaller companies. The
portfolio has lagged both the S&P 500 and the Russell 2000 due to weakness in
small-cap growth stocks, particularly small-cap technology stocks. These equity
classes were especially affected by concerns over the effects of the Asian
crisis. A number of companies preannounced disappointing earnings as weakness in
Asia was compounded by a slowdown in PC demand.
WHAT MARKET CONDITIONS AFFECTED THE FUND'S PERFORMANCE DURING THE PERIOD, AND
WHAT INVESTMENT TECHNIQUES WERE USED TO ADDRESS THOSE CONDITIONS?
Although the Fund reported positive performance, the "flight to large", liquid
stocks hampered the performance of the Emerging Growth Fund, which invests in
small capitalization companies. Investors poured money into the largest domestic
companies with more predictable earnings streams during this period of market
uncer-
<TABLE>
<S> <C> <C> <C>
Inception*|1/12/94 10000 10000 10000
10160 9729 9964
Mar 9950 9305 9439
9720 9425 9495
9800 9579 9388
Jun 9530 9344 9072
9880 9651 9221
10350 10046 9734
Sep 10520 9801 9701
11010 10020 9662
10240 9656 9272
Dec 94 10530 9799 9520
10530 10053 9401
10830 10444 9792
Mar 10790 10752 9959
10630 11068 10180
10630 11510 10355
Jun 11454 11777 10893
12267 12167 11520
12659 12197 11759
Sep 13261 12712 11969
12789 12667 11434
13010 13222 11914
Dec 95 13793 13477 12229
13592 13935 12215
14375 14065 12596
Mar 15319 14200 12853
15791 14408 13541
16443 14780 14075
Jun 15828 14836 13496
13835 14181 12318
14950 14480 13034
Sep 15539 15295 13543
15095 15717 13335
15240 16904 13884
Dec 96 15177 16569 14248
14672 17603 14533
14311 17741 14180
Mar 13309 17014 13510
13381 18029 13548
14920 19126 15055
Jun 15678 19982 15700
15765 21573 16431
15929 20365 16807
Sep 16990 21486 18037
16707 20768 17245
16880 21730 17133
Dec 97 17090 22103 17433
16903 22349 17158
18379 23960 18425
Mar 19166 25187 19185
19045 25441 19290
17668 25004 18250
Jun 98 17721 26019 18289
</TABLE>
The line graph above and the following total returns do not reflect
administrative fees or other expenses charged by American General Life Insurance
Company Separate Account D through which shares of the Fund are purchased.
*Index total returns were calculated from 1/31/94 to 6/30/98. The Standard
& Poor's 500 Composite Index (S&P 500) represents an unmanaged weighted index of
500 industrial, transportation, utility, and financial companies widely regarded
by investors as representative of the stock market. The Russell 2000 Index
represents the smallest 2000 companies followed by Russell and is used to
measure the small-cap market. The indices assume reinvestment of all
dividends/distributions, and do not reflect any asset-based charges for
investment management or other expenses. Past investment performance does not
guarantee future performance. The returns for the Fund assume reinvestment of
all dividends/distributions by the shareholder.
During the period noted, the Advisor and Administrator waived a portion of their
management fees, and credits were allowed by the Custodian. In the absence of
the waivers or credits, yield and total return would have been lower.
<TABLE>
<CAPTION>
TOTAL RETURNS AS OF 6/30/98 SIX MONTH ONE YEAR SINCE INCEPTION**
(January 12, 1994)
<S> <C> <C> <C>
Fund 3.70% 13.03% 13.68%
Standard & Poor's Composite Index of 500 Stocks* 17.71% 30.21% 24.17%
Russell 2000 Index* 4.93% 16.50% 14.65%
</TABLE>
**Annualized
20
<PAGE> 23
tainty. With the collapse in Asia, it was difficult to predict the underlying
effects on domestic companies. The small-cap technology firms have not yet
rebounded and their performance was not as strong as some of the larger
technology firms. Examples include Radisys and In Focus Systems. Radisys designs
and produces embedded computer solutions, while In Focus builds portable
projectors for multimedia presentations. Both companies have struggled recently,
but we maintain our positions as our long-term outlook looks good.
Prior to March, the Fund was managed by earnings momentum -- a growth style.
Stocks were bought on earnings growth and were sold when prices fell. Although
large-cap growth investing led the market, this style has not performed well in
the small-cap market recently. The Fund is now managed with more of a value
style -- looking for good companies at good prices. We will now use near-term
weakness as an opportunity to add to positions in companies where long-run
prospects are strong.
WERE THERE ANY SHIFTS IN THE FUND'S PORTFOLIO HOLDINGS/SECTORS THAT HAVE HAD A
SIGNIFICANT IMPACT ON FUND PERFORMANCE?
We took over management of the Fund in March of 1998 and began to subtly reshape
the portfolio. We increased concentrations in emerging growth industries such as
technology and healthcare and reduced holdings in consumer discretionary stocks,
particularly restaurants. We believe that these new positions will add to
performance over the long-run as the industries are growing faster than the
economy as a whole.
We intend to shift focus to stocks with lower relative valuations. These stocks
may be currently out of favor, but have strong fundamentals and good business
prospects. The net effect on the Fund will be a lower overall price-to-earnings
ratio as these more moderately priced companies are included in the portfolio.
This will work to reduce risk given the high valuations of domestic equities. We
had success with Icos, a biopharmaceutical firm that currently has eight
products in Phase II trials for approval. A medical equipment firm, ATL
Ultrasound, was recently purchased and has been a strong performer.
WHAT IS OUR INTERMEDIATE- AND LONG-TERM OUTLOOK FOR THE FUND?
The market has been dominated by the large- cap stocks. We believe that this
trend will not continue in the long-run and that valuations of these very large
companies may have reached excessive levels. It seems likely that the
performance gap between large and small companies will close and our valuation
discipline will reward our shareholders over the long run. The Fund focuses on
companies with a strong management teams and excellent long-term prospects. We
attempt to buy stocks below their intrinsic value with the expectation that
their value will ultimately be realized.
It is important for investors to maintain a long-term focus when investing in
small-cap equities. These stocks tend to be more volatile than large-cap stocks,
but long-term results have been very favorable.
WHAT IS OUR OVERALL ECONOMIC OUTLOOK FOR THE NEXT 12 MONTHS?
The domestic economy continues to support strong growth without significant
inflation. However, it is unclear if all of the effects of Asia have rippled
through the U.S. economy. Currently, the effects of Asia have only muted growth
and inflation. Should the impact be more profound, the markets could be upset by
a substantially weaker economy than was previously forecast. The tight labor
market could cause inflationary pressures, although currently inflation is well
contained.
These factors will play an important role in the overall performance of
financial assets as stocks benefit from a low inflation, low interest rate
environment.
EMERGING GROWTH FUND
PORTFOLIO COMPOSITION
1 - Technology 22%
2 - Other 18%
3 - Consumer Stocks 17%
4 - Healthcare 14%
5 - Financials 12%
6 - Media 7%
7 - Energy 3%
8 - Transportation 3%
9 - Business Services 2%
10 - Electrical Equipment 2%
Differences from Financial Statements are a result of a consolidation of
industries or sectors.
EQUITY FUND
21
<PAGE> 24
INTERNATIONAL GROWTH FUND
PORTFOLIO MANAGER: WARBURG PINCUS ASSET MANAGEMENT, INC.
The following team has been primarily responsible for managing the WM
International Growth Fund. Richard H. King, Senior Managing Director, joined the
firm in 1989 to found the department and has 33 years of investment experience.
Prior to joining Warburg, Mr. King was chief investment officer and a director
of Fiduciary Trust Company International S.A. in London from 1984 to 1988. P.
Nicholas Edwards, Managing Director, has 15 years of investment experience.
Prior to joining Warburg, Mr. Edwards was a director and senior fund manager at
Jardine Fleming Investment Advisers in Tokyo from 1991 to 1995. Harold W.
Ehrlich, CFA, CIC, Managing Director, has 15 years of investment experience.
Prior to joining Warburg, Mr. Ehrlich was a senior vice president, portfolio
manager and analyst at Templeton Investment Counsel Inc. from 1987 to 1995.
Vincent J. McBride, Senior Vice President, has 12 years of investment
experience. Prior to joining Warburg, Mr. McBride was an international equity
analyst at Smith Barney Inc. from 1993 to 1994. He was an international equity
analyst at General Electric Investments from 1992 to 1993 and a portfolio
manager/analyst at United Jersey Bank from 1989 to 1992.
PERFORMANCE REVIEW:
From the Fund's inception (May 7, 1993) through June 30, 1998, the International
Growth Fund's average annual total return was 7.62%. For the six-month period
ended June 30, 1998, the Fund's total return was 11.90%. For additional
information, see the accompanying chart.
WHAT WERE THE MOST SIGNIFICANT FACTORS CONTRIBUTING TO THE FUND'S PERFORMANCE
OVER THE SIX-MONTH PERIOD ENDED JUNE 30, 1998?
The Asian region's continued economic and financial problems, as well as
strength from a buoyant Europe were factors that affected performance for the
six months ended June 30, 1998. Europe, whose markets showed near-universal
gains, rose throughout the period on continued economic improvement and robust
profit growth. In the second quarter of 1998, Europe's performance was even
stronger from the perspective of Dollar-based investors, as most regional
currencies rose vs. the Dollar, bucking the recent trend.
Across the Asian region, economic growth continued to contract, and the picture
is unlikely to improve dramatically any time soon.
*Index total returns were calculated from 5/31/93 to 6/30/98. The Morgan Stanley
Capital International EAFE Index ("EAFE") includes 1,050 companies representing
the stock markets of Europe, Australia, New Zealand and the Far East weighted by
capitalization. EAFE is a broad-based index of equity markets representing 18
countries, 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
for the Fund assume reinvestment of all dividends/distributions by the
shareholder.
During the period noted, the Advisor and Administrator waived a portion of their
management fees, and credits were allowed by the Custodian. In the absence of
the waivers or credits, yield and total return would have been lower.
<TABLE>
<S> <C> <C>
Inception*|5/7/93 10000 10000
10120 9844
Sep 11080 10497
11430 10820
10820 9875
Dec 93 11310 10588
11800 11482
11890 11450
Mar 11470 11482
11840 11421
11890 11356
Jun 11784 11516
12065 11627
12246 11902
Sep 11864 11527
12115 11911
11643 11324
Dec 94 11523 11381
11021 10944
10901 10912
Mar 11142 11593
11473 12029
11543 11886
Jun 11392 11707
11980 12420
11787 11850
Sep 11868 12147
11676 11967
11777 12284
Dec 95 12284 12690
12680 12742
12639 12785
Mar 12771 13056
12954 13436
12933 13192
Jun 13044 13249
12459 12667
12604 12813
Sep 12913 13127
12809 12975
13416 13474
Dec 96 13394 13457
13458 12976
13540 13187
Mar 13426 13232
13704 13301
14537 14165
Jun 15169 14955
15637 15197
14286 14062
Sep 15052 14849
13446 13707
13021 13567
Dec 97 13042 13685
13180 14311
14052 15230
Mar 14818 15699
15190 15823
15073 15750
Jun 98 14594 15868
</TABLE>
The line graph above and the following total returns do not reflect
administrative fees or other expenses charged by American General Life Insurance
Company Separate Account D through which shares of the Fund are purchased.
<TABLE>
<CAPTION>
TOTAL RETURNS AS OF 6/30/98 SIX MONTHS ONE YEAR FIVE YEARS** SINCE INCEPTION**
(May 7, 1993)
<S> <C> <C> <C> <C>
Fund 11.90% -3.79% 7.60% 7.62%
Morgan Stanley Capital International EAFE Index* 16.08% 6.38% 10.34% 9.51%
</TABLE>
**Annualized
22
<PAGE> 25
The near-term earnings outlook from most Asian companies is correspondingly
poor, and in some cases it is difficult to gauge earnings prospects at all,
especially given the absence of currency stability. Investor sentiment, which
had picked up briefly in the first quarter, has once again turned overwhelmingly
bearish, exacerbated by growing worries in Japan.
WHAT MARKET CONDITIONS AFFECTED THE FUND'S PERFORMANCE DURING THE PERIOD, AND
WHAT INVESTMENT TECHNIQUES WERE USED TO ADDRESS THOSE CONDITIONS?
In the first quarter of 1998, foreign stock markets staged a strong rally,
bouncing back convincingly after 1997's fourth quarter. By region, the most
impressive results came from Europe, where markets showed across-the-board
strength, propelled by robust corporate profits, merger speculation and
increased optimism toward the prospects for European Monetary Union. Asian
markets generally rose as well, with several of last year's hardest-hit markets
rallying sharply.
Non-U.S. equity markets had mixed results in the second quarter of 1998, with
performance divided almost entirely along regional lines. Asian/Pacific markets
mostly declined, with several falling sharply, amid renewed worries over the
region's economic and financial straits. Adding a considerable amount of fuel to
the fire was a further deterioration of Japan's economy, as a healthy Japan is
requisite for a broad, sustained regional recovery. Asia's weakness had
spillover effects on Latin American and, to a lesser extent, Eastern European
markets, whose troubles were compounded by the threat of an economic implosion
in Russia. Losses in all of these markets were magnified in Dollar terms, as
most countries' currencies fell in value against the U.S. Dollar.
The safe harbor through the period was, once again, Europe, where most markets
showed gains. Because of the continued strength there, as well as the
uncertainty and underperformance in the Asian region, we continued to focus on
Europe, which comprised over 75% of the portfolio as of June 30.
WERE THERE ANY SHIFTS IN THE FUND'S PORTFOLIO HOLDINGS/SECTORS THAT HAD A
SIGNIFICANT IMPACT ON FUND PERFORMANCE?
Our continued shift away from a lagging Asian region in favor of Europe, helped
performance over the six-month period ended June 30, 1998. We further trimmed
our Asian-Pacific exposure during the period, reflecting our ongoing concerns
about the region. The Fund's exposure to Japan is concentrated in a handful of
strong, globally competitive companies, primarily electronics firms. These
companies continue to generate strong earnings gains, Asian economic weakness
notwithstanding, and their stocks remain reasonably priced vs. those of their
global peers.
WHAT IS OUR INTERMEDIATE- AND LONG-TERM OUTLOOK FOR THE FUND?
We expect to maintain this Europe-heavy positioning for at least the near term,
given the tailwind that continues to drive these markets. Economic growth, which
has improved significantly over the past year, continued pace, with most
continental European economies projected to expand by 2.5% to 3% over the next
12 months. Growth in Europe stands to be even higher in 1999, barring a major
external shock (e.g., a total collapse in Russia or a significant tightening of
U.S. monetary policy).
Also, the interest-rate backdrop remains supportive, local-investor sentiment
toward stocks grows increasingly bullish, and foreign sentiment toward Europe
remains positive. In short, we maintain our positive outlook regarding Europe,
and all things considered, we are comfortable with our current level of
exposure.
Asian markets continue to struggle, with no clear improvements likely in the
near term. Given this, we have deemed it prudent to maintain a cautious posture,
limiting our exposure to only those stocks in which we have a very high level of
conviction. This short list of names is concentrated primarily in Hong Kong,
Singapore, South Korea and New Zealand.
INTERNATIONAL GROWTH FUND PORTFOLIO COMPOSITION
1-Europe 76%
2-Far East (excluding Japan) 5%
3-Japan 8%
4-Latin America 4%
5-Cash/Other 6%
6-Australia/New Zealand 1%
EQUITY FUND
23
<PAGE> 26
INCOME PORTFOLIO
PORTFOLIO MANAGER: STEVE SCOTT
The Strategic Asset Management Portfolios are managed by Senior Portfolio
Manager Steve Scott. Mr. Scott is a pioneer in the asset allocation business,
with over 28 years experience. He is the architect and founder of the SAM
Portfolios and holds both a B.S. and an MBA.
ECONOMIC/MARKET REVIEW
Strong economic fundamentals drove the financial markets forward in the
six-month period ended June 30, 1998. Low unemployment, strong consumer
spending, low interest rates, and a booming housing market provided some of the
positive backdrop for economic growth. While both fixed-income and equity
investments posted very positive results, it was not without volatility. The
crisis in the Far East sent shock waves throughout the financial markets
worldwide in the fourth quarter of 1997. The extent to which the Asian collapse
ultimately impacts U.S. and European growth is not yet known, but the
uncertainty is likely to increase market volatility until a turnaround becomes
visible.
Interest rates fell during the period, with the yield on the 30-year Treasury
Bond reaching a record low of 5.57% on June 15, 1998. With falling yields, the
longer-term fixed-income holdings performed very well in the period. It seems
that the Federal Reserve has been correct in their decision to allow interest
rates to remain unchanged in light of the prospective economic cooling influence
from Asia. Inflation was dormant throughout the period. Recently, housing and
medical costs have increased while wages continue to modestly accelerate, but
most of these pressures have been countered by falling commodity prices. It is
important to consider the inflation outlook as an indicator of the future
direction of interest rates, given the Fed's anti-inflation stance.
INVESTMENT STRATEGY
The Strategic Asset Management ("SAM") Income Portfolio remained diversified in
four fixed-income funds, representing five major asset classes. This broad
diversification enables the Portfolio to manage risk during periods of market
volatility. Asset classes ranging in risk levels from short-term money markets
to long-term corporate bonds shield the Portfolio from drastic swings in one
specific area of the fixed-income markets.
The overall investment strategy for the Portfolio is to:
o Maintain a concentration (approximately 30%) in mortgages to boost
overall yield
o Hold a position in cash to manage risk in a volatile market
o Invest over two-thirds of the Portfolio in AAA-rated securities to
reduce credit risk
o Maintain a bias towards intermediate-term bonds to take advantage of
falling rates and provide positive risk/reward characteristics.
OUTLOOK
Inflation remains weak and interest rates are low. Both the Bundesbank (Europe)
and the Federal Reserve Board (U.S.) have announced they are closely watching
inflation and maintaining a bias towards raising interest rates. If the negative
impact from Asia is less than expected and if consumption remains strong, the
Federal Reserve may be forced to adjust interest rates later in the year. This
would be done to prevent the economy from overheating. We believe that inflation
is manageable and Chairman Greenspan has been very effective in interest rate
policy during this new paradigm. However, we believe domestic growth will
increase. Therefore, until evidence shows us weakness beyond current forecasts,
we are reluctant to extend portfolio risk of the Fund.
<TABLE>
<CAPTION>
INCOME PORTFOLIO
PORTFOLIO ALLOCATION PORTFOLIO COMPOSITION*
<S> <C> <C> <C>
1 - Cash 10% 1 - Cash Equivalent 21%
2 - Money Market Fund 10% 2 - Short Term Bonds 12%
3 - Short Term High Quality 3 - Mortgage-Backed 32%
Bond Fund 15% 4 - Treasuries 11%
4 - U.S. Government 5 - Corporate Bonds 21%
Securities Fund 40% 6 - Other Bonds 3%
5 - Income Fund 25%
</TABLE>
* This is a sample only and will not reflect current market positions.
SAM PORTFOLIOS
24
<PAGE> 27
FLEXIBLE INCOME PORTFOLIO
PORTFOLIO MANAGER: STEVE SCOTT
The Strategic Asset Management Portfolios are managed by Senior Portfolio
Manager Steve Scott. Mr. Scott is a pioneer in the asset allocation business,
with over 28 years experience. He is the architect and founder of the SAM
Portfolios and holds both a B.S. and an MBA.
ECONOMIC/MARKET REVIEW
Strong economic fundamentals drove the financial markets forward in the
six-month period ended June 30, 1998. Low unemployment, strong consumer
spending, low interest rates, and a booming housing market provided some of the
positive backdrop for economic growth. While both fixed-income and equity
investments posted very positive results, it was not without volatility. The
crisis in the Far East sent shock waves throughout the financial markets
worldwide in the fourth quarter of 1997. The extent to which the Asian collapse
ultimately impacts U.S. and European growth is not yet known, but the
uncertainty is likely to increase market volatility until a turnaround becomes
visible.
Although there are pockets of slowing, the U.S. economy continues to move
forward. The bull market continued during the period as large-cap stocks drove
market indices higher.
Interest rates fell during the period, with the yield on the 30-year Treasury
Bond reaching a record low of 5.57% on June 15, 1998. With falling yields, the
longer-term fixed-income holdings performed very well in the period. It seems
that the Federal Reserve has been correct in their decision to allow interest
rates to remain unchanged in light of the prospective economic cooling influence
from Asia. Inflation was dormant throughout the period. Recently, housing and
medical costs have increased while wages continue to modestly accelerate, but
most of these pressures have been countered by falling commodity prices. It is
important to consider the inflation outlook as an indicator of the future
direction of interest rates, given the Fed's anti-inflation stance.
INVESTMENT STRATEGY
The Strategic Asset Management ("SAM") Flexible Income Portfolio remained
diversified in six funds, representing seven major asset classes. This broad
diversification enables the Portfolio to manage risk during periods of market
volatility. Asset classes ranging in risk levels from cash to foreign stocks
shield the Portfolio from drastic swings in one specific area of the financial
markets.
The overall investment strategy for the Portfolio is to:
o Maintain equity exposure at 20% of assets to participate in the strength of
the large-cap market
o Hold a position in cash to manage risk in a volatile market
o Invest nearly two-thirds of the Portfolio in AAA-rated securities to reduce
credit risk
o Maintain a bias towards intermediate-term bonds to take advantage of falling
rates and provide positive risk/reward characteristics.
OUTLOOK
Inflation remains weak and interest rates are low. Both the Bundesbank (Europe)
and the Federal Reserve Board (U.S.) have announced they are closely watching
inflation and maintaining a bias towards raising interest rates. If the negative
impact from Asia is less than expected and if consumption remains strong, the
Federal Reserve may be forced to adjust interest rates later in the year. This
would be done to prevent the economy from overheating. We believe that inflation
is manageable and Chairman Greenspan has been very effective in interest rate
policy during this new paradigm. However, we believe domestic growth will
increase. Therefore, until evidence shows us weakness beyond current forecasts,
we are reluctant to extend portfolio risk on the fixed-income side of the Fund.
We maintain our long-term positive outlook on the equity markets. Although there
will always be periods of volatility, the overriding economic fundamentals
provided by globalization and efficiency improvements brought about by
technological enhancements create a dynamically positive environment for stocks.
FLEXIBLE INCOME PORTFOLIO
PORTFOLIO ALLOCATION
1 - Money Market Fund 25%
2 - Short Term High Quality 10%
Bond Fund
3 - U.S. Government - 30%
Securities Fund
4 - Income Fund 15%
5 - Growth & Income Fund 15%
6 - Growth Fund 5%
PORTFOLIO COMPOSITION*
1 - Cash Equivalent 25%
2 - Short Term Bonds 10%
3 - Mortgage-Backed 22%
4 - Treasuries 8%
5 - Corporate Bonds 12%
6 - Domestic Stocks 19%
7 - Foreign Stocks 1%
8 - Other Bonds 2%
* This is a sample only and will not reflect current
market positions.
SAM PORTFOLIOS
25
<PAGE> 28
BALANCED PORTFOLIO
PORTFOLIO MANAGER: STEVE SCOTT
The Strategic Asset Management Portfolios are managed by Senior Portfolio
Manager Steve Scott. Mr. Scott is a pioneer in the asset allocation business,
with over 28 years experience. He is the architect and founder of the SAM
Portfolios and holds both a B.S. and an MBA.
PERFORMANCE REVIEW
The Strategic Asset Management ("SAM") Balanced Portfolio returned 11.32% for
the six-months ended June 30, 1998. The period was marked with market volatility
and change. In March, the WM Group of Funds were introduced as a result of the
merger between Sierra and Composite Funds. We are pleased to report the
architectural design, fundamental policies, and management of the SAM Portfolios
continued to provide benefit to shareholders. In addition, the continuity of
asset management personnel for the SAM Portfolios remained in place. The Fund
continues to beat its benchmark index for all periods(1) while being managed
with an effort to reduce volatility relative to single asset class investments.
Results continue to provide a premium over inflation; since inception, the Fund
returned 13.45% above the rate of inflation(4).
ECONOMIC/MARKET REVIEW
Strong economic fundamentals drove the financial markets forward in 1998. Low
unemployment, strong consumer spending, low interest rates, and a booming
housing market provided some of the positive backdrop for economic growth. While
both fixed-income and equity investments posted very positive results, it was
not without volatility. The crisis in the Far East sent shock waves throughout
the financial markets worldwide in the fourth quarter of 1997. The extent to
which the Asian collapse ultimately impacts U.S. and European growth is not yet
known, but the uncertainty is likely to increase market volatility until a
turnaround becomes visible.
Although there are pockets of slowing, the U.S. economy continues to move
forward. In the equity markets, a dichotomy of results relative to market
capitalization continued throughout the period. Large capitalization companies,
the type found among the S&P 500, have appreciated three times as
<TABLE>
<S> <C> <C> <C> <C>
Inception*|7/00/98 10000 10000 10000 10000
Jun 10190 10206 10416 10119
Jul 10680 10443 11233 10392
Aug 10350 10236 10777 10304
Sep 10700 10464 11388 10456
Oct 10390 10333 11005 10608
Nov 10390 10410 11426 10657
Dec 97 10470 10504 11655 10764
Jan 10599 10634 11716 10902
Feb 11109 10869 12553 10893
Mar 11409 11037 13176 10931
Apr 11579 11104 13305 10987
May 11439 11088 12976 11092
Jun 98 11654 11190 13415 11186
</TABLE>
(1) The Balanced Portfolio's benchmark is a blended mix of capital market
indices that is intended to represent a proxy for Portfolio performance.
The benchmark allocation is as follows: 25% Lehman Brothers Mutual Fund
(1-5) Gov/Corp Index, 25% Salomon Bros. 90-day T-Bills, 20% Lehman
Brothers Mortgage Index, 15% S&P 500, and 15% MSCI EAFE + Emerging
Markets. Past investment performance does not guarantee future
performance. The returns shown for the Portfolio assume reinvestment of
all dividends/distributions by the shareholder.
(2) The Russell 3000 Index is a broad-based index and is intended to
represent the equity market as a whole.
(3) The Lehman Brothers Aggregate Index is a broad-based index intended to
represent the fixed-income market as a whole.
(4) The stated goals may or may not be met and are in no way a guarantee.
Annual rate of inflation: 1.73%. Source: Ibbotson
The line graph above and the following total returns do not reflect
administrative fees or other expenses charged by American General Life Insurance
Company Separate Account D through which shares of the Fund are purchased.
<TABLE>
<CAPTION>
SINCE INCEPTION
AVERAGE ANNUAL TOTAL RETURNS AS OF 6/30/98 SIX MONTH ONE YEAR (June 3, 1997)
<S> <C> <C> <C>
Fund 11.32% 14.38% 15.29%
Capital Market Benchmark(1) 6.53% 9.64% 10.94%
</TABLE>
For the period November 1, 1996 to June 30, 1998, the Advisor waived its
management fee and absorbed certain other expenses, and the Custodian allowed
credits. Prior to November 1, 1996, the Advisor waived a portion of its
management fees and absorbed other expenses, and the Custodian allowed credits.
In the absence of the waiver, absorption of other expenses, or credits total
return would have been lower.
26
<PAGE> 29
much as small-caps (Russell 2000) so far in 1998.
Interest rates fell during the period, with the yield on the 30-year Treasury
Bond reaching a record low of 5.57% on June 15, 1998. With falling yields, the
longer-term fixed-income holdings performed very well in the period. It seems
that the Federal Reserve has been correct in their decision to allow interest
rates to remain unchanged in light of the prospective economic cooling influence
from Asia. Inflation was dormant throughout the period. Recently, housing and
medical costs have increased while wages continue to modestly accelerate, but
most of these pressures have been countered by falling commodity prices. It is
important to consider the inflation outlook as an indicator of the future
direction of interest rates, given the Fed's anti-inflation stance.
INVESTMENT STRATEGY
The SAM Balanced Portfolio remained diversified in five funds, representing
eight major asset classes. This broad diversification enables the Portfolio to
manage risk during periods of market volatility. Asset classes ranging in risk
levels from cash to foreign stocks shield the Portfolio from drastic swings in
one specific area of the financial markets.
The overall investment strategy for the period was to:
o Increase equity fund exposure to 65% of assets while slightly reducing
fixed-income fund exposure to 35%.
o Increase exposure to European holdings to take advantage of prospects
for strength in the region.
o Overweight the equity portion of the portfolio in middle- and large-
capitalization stocks.
o Maintain a bias towards intermediate-term bonds to take advantage of
falling rates and provide positive risk/reward characteristics.
REVIEW OF PORTFOLIO ALLOCATIONS
We have positioned the Portfolio to take advantage of current market trends as
well as to manage overall portfolio risk levels. The Fund benefited from its
emphasis in mid-to large-cap holdings. Prior to the Asian collapse, the
Portfolio was underweighted in international stocks which aided both performance
and the overall risk of the Portfolio. Recently, we have increased exposure
overseas due to a positive outlook in Europe. We also reduced our concentration
in the very highly-valued U.S. domestic market. These moves further diversify
the assets and, in conjunction with the cash and mortgage position, should work
to manage the overall risk levels of the Balanced Portfolio given the high
valuation levels of domestic equities.
OUTLOOK
Inflation remains weak and interest rates are low. Both the Bundesbank (Europe)
and the Federal Reserve Board (U.S.) have announced they are closely watching
inflation and maintaining a bias towards raising interest rates. If the
negative impact from Asia is less than expected and if consumption remains
strong, the Federal Reserve may be forced to adjust rates later in the year.
This would be done to prevent the economy from overheating. We believe inflation
is manageable and Chairman Greenspan has been very effective in interest rate
policy during this new paradigm. However, we believe domestic growth will
increase. Therefore, until evidence shows us weakness beyond current forecasts,
we are reluctant to extend portfolio risk on the fixed-income side of the Fund.
We maintain our long-term positive outlook on the equity markets. Although there
will always be periods of volatility, the overriding economic fundamentals
provided by globalization and efficiency improvements brought about by
technological enhancements create a dynamically positive environment for stocks.
We are also bullish on foreign equities, especially Europe, where an improving
structural foundation also furnishes a positive long-term forecast. By the same
respect, we are reluctant to extend portfolio risk much beyond current levels
due to the high equity valuations. We prefer to make allocation changes only if
diversification can be maintained and portfolio risk is not measurably extended.
BALANCED PORTFOLIO
<TABLE>
<CAPTION>
PORTFOLIO ALLOCATION PORTFOLIO COMPOSITION*
<S> <C> <C> <C>
1 - Money Market Fund 20% 1 - Cash 20%
2 - U.S. Government 2 - Mortgage-Backed 11%
Securities Fund 15% 3 - Treasuries 4%
3 - Growth & Income Fund 30% 4 - Other Bonds 1%
4 - Growth Fund 15% 5 - Small-Cap 3%
5 - International Growth Fund 20% 6 - Mid-Cap 12%
7 - Large-Cap 27%
8 - Foreign Stocks 22%
</TABLE>
* This is a sample only and will not reflect current market positions.
SAM PORTFOLIOS
27
<PAGE> 30
CONSERVATIVE GROWTH PORTFOLIO
PORTFOLIO MANAGER: STEVE SCOTT
The Strategic Asset Management Portfolios are managed by Senior Portfolio
Manager Steve Scott. Mr. Scott is a pioneer in the asset allocation business,
with over 28 years experience. He is the architect and founder of the SAM
Portfolios and holds both a B.S. and an MBA.
PERFORMANCE REVIEW
The Strategic Asset Management ("SAM") Conservative Growth Portfolio returned
13.02% for the six months ended June 30, 1998. The period was marked with market
volatility and change. In March of 1998, the WM Group of Funds were introduced
as a result of the merger between Sierra and Composite Funds. We are pleased to
report that the architectural design, fundamental policies, and management of
the SAM Portfolios continued to provide benefit to shareholders. In addition,
the continuity of asset management personnel for the SAM Portfolios remained in
place. The Fund beat its benchmark index for all periods(1), while being managed
with an effort to reduce volatility relative to single asset class investments.
Long-term results continue to provide a premium over inflation; since inception,
the Fund returned 15.40% above the rate of inflation(3).
ECONOMIC/MARKET REVIEW
Strong economic fundamentals drove the financial markets forward in 1998. Low
unemployment, strong consumer spending, low interest rates, and a booming
housing market provided some of the positive backdrop for economic growth. While
both fixed-income and equity investments posted very positive results, it was
not without volatility. The crisis in the Far East sent shock waves throughout
the financial markets worldwide in the fourth quarter of 1997. The extent to
which the Asian collapse ultimately impacts U.S. and European growth is not yet
known, but the uncertainty is likely to
<TABLE>
<S> <C> <C> <C>
Inception*|7/00/98 10000 10000 10000
Jun 10300 10311 10416
Jul 10860 10702 11233
Aug 10420 10349 10777
Sep 10851 10728 11388
Oct 10421 10413 11005
Nov 10401 10559 11426
Dec 97 10492 10671 11655
Jan 10622 10807 11716
Feb 11312 11280 12553
Mar 11713 11598 13176
Apr 11883 11680 13305
May 11593 11549 12976
Jun 98 11859 11741 13415
</TABLE>
(1) The Conservative Growth Portfolio's benchmark is a blended mix of
capital market indices that is intended to represent a proxy for
Portfolio performance. The benchmark allocation is as follows: 35% S&P
500, 20% MSCI EAFE + Emerging Markets, 20% Lehman Brothers Mutual Fund
(1-5) Gov/Corp Index, 20% Salomon Bros. 90-day T-Bills, and 5% Russell
2000 Growth. Past investment performance does not guarantee future
performance. The returns shown for the Portfolio assume reinvestment of
all dividends/distributions by the shareholder.
(2) The Russell 3000 Index is a broad-based index and is intended to
represent the equity market as a whole.
(3) The stated goals may or may not be met and are in no way a guarantee.
Annual rate of inflation: 1.73%. Source: Ibbotson
The line graph above and the following total returns do not reflect
administrative fees or other expenses charged by American General Life Insurance
Company Separate Account D through which shares of the Fund are purchased.
<TABLE>
<CAPTION>
SINCE INCEPTION
AVERAGE ANNUAL TOTAL RETURNS AS OF 6/30/98 SIX MONTH ONE YEAR (June 3, 1997)
<S> <C> <C> <C>
Fund 13.02% 15.11% 17.13%
Capital Market Benchmark(1) 10.03% 13.87% 15.97%
</TABLE>
For the period November 1, 1996 to June 30, 1998, the Advisor waived its
management fee and absorbed certain other expenses, and the Custodian allowed
credits. Prior to November 1, 1996, the Advisor waived a portion of its
management fee, the Advisor and Administrator absorbed certain other expenses,
and the Custodian allowed credits. In the absence of the waivers, absorption of
other expenses, or credits, total return would have been lower.
28
<PAGE> 31
increase market volatility until a turnaround becomes visible.
Although there are pockets of slowing, the U.S. economy continues to move
forward.
In the equity markets, a dichotomy of results relative to market capitalization
continued throughout the period. Large capitalization companies (S&P 500) have
appreciated three times as much as small-caps (Russell 2000) in 1998. Style
differences also provided a disparity in results in 1998 as growth stocks
significantly outperformed value stocks in both the large- and the mid-sized
capitalization areas. Small-cap growth continued to be the worst performing
domestic equity sector. The backlash of the Asian crisis on global equity
markets was quite pronounced, as results across Asia and Latin America were very
poor. Europe on the other hand, proved resilient, outpacing even the high-flying
large-cap domestic markets in the period.
INVESTMENT STRATEGY
The SAM Conservative Growth Portfolio remained diversified in six funds,
representing seven major asset classes. This broad diversification enables the
Portfolio to manage risk during periods of market volatility. Asset classes
ranging in risk levels from cash to foreign stocks shield the Portfolio from
drastic market swings in one specific area of the financial markets.
The overall investment strategy for the period was to:
o Increase exposure to European holdings to take advantage of prospects
for strength in the region.
o Overweight the equity portion of the portfolio in core domestic mid- to
large-capitalization stocks.
REVIEW OF PORTFOLIO ALLOCATIONS
We have positioned the Portfolio to take advantage of current market trends as
well as manage overall portfolio risk levels. The Fund benefited from its
emphasis in mid- to large-cap holdings, whose strong performance offset
underperformance by the small-cap position. Prior to the Asian collapse, the
Portfolio was underweighted in international stocks which aided both performance
and the overall risk of the Portfolio. Recently, we have increased exposure
overseas due to a positive outlook in Europe. We also reduced our concentration
in the very highly-valued U.S. domestic market. These moves further diversify
the assets and, in conjunction with the cash position, should work to manage the
overall risk levels of the Conservative Growth Portfolio given the high
valuation levels of domestic equities.
OUTLOOK
Inflation remains weak and interest rates are low. Both the Bundesbank (Europe)
and the Federal Reserve Board (U.S.) have announced they are closely watching
inflation and maintaining a bias towards raising interest rates. If the negative
impact from Asia is less than expected and if consumption remains strong, the
Federal Reserve may be forced to adjust rates later in the year. This would be
done to prevent the economy from overheating. We believe that inflation is
manageable and Chairman Greenspan has been very effective in interest rate
policy during this new paradigm.
We maintain our long-term positive outlook on the equity markets. Although there
will always be periods of volatility, the overriding economic fundamentals
provided by globalization and efficiency improvements brought about by
technological enhancements create a dynamically positive environment for stocks.
Current low levels of interest rates and inflation also provide support for
equities. We are also bullish on foreign equities, especially Europe, where an
improving structural foundation also furnishes a positive long-term forecast. By
the same respect, we are reluctant to extend portfolio risk much beyond current
levels due to the high equity valuations. We prefer to make allocation changes
only if diversification can be maintained and portfolio risk is not measurably
extended.
CONSERVATIVE GROWTH PORTFOLIO
PORTFOLIO ALLOCATION
1 - Money Market Fund 10%
2 - U.S. Government Securities Fund 5%
3 - Growth & Income Fund 35%
4 - Growth Fund 20%
5 - Emerging Growth Fund 10%
6 - International Growth Fund 20%
PORTFOLIO COMPOSITION*
1 - Cash 12%
2 - Mortgage-Backed 4%
3 - Treasuries 1%
4 - Small-Cap 10%
5 - Mid-Cap 17%
6 - Large-Cap 33%
7 - Foreign Stocks 23%
*This is a sample only and will not reflect current market positions.
SAM PORTFOLIOS
29
<PAGE> 32
STRATEGIC GROWTH portfolio
PORTFOLIO MANAGER:
STEVE SCOTT
The Strategic Asset Management Portfolios are managed by Senior Portfolio
Manager Steve Scott. Mr. Scott is a pioneer in the asset allocation business,
with over 28 years experience. He is the architect and founder of the SAM
Portfolios and holds both a B.S. and an MBA.
PERFORMANCE REVIEW
The Strategic Asset Management ("SAM") Strategic Growth Portfolio returned
15.97% for the six months ended June 30, 1998. The period was marked with market
volatility and change. In March of 1998, the WM Group of Funds were introduced
as a result of the merger between Sierra and Composite Funds. We are pleased to
report that the architectural design, fundamental policies, and management of
the SAM Portfolios continued to provide benefit to shareholders. In addition,
the continuity of asset management personnel for the SAM Portfolios remained in
place. Although the Fund underperformed its benchmark index(3) (the S&P 500), it
is managed with an effort to reduce volatility relative to single asset class
investments. The Fund participated in the appreciation of the large-cap market,
but the underperformance of small-caps and international stocks hurt overall
performance.
ECONOMIC/MARKET REVIEW
Strong economic fundamentals drove the financial markets forward in the period
ended June 30, 1998. Low unemployment, strong consumer spending, low interest
rates, and a booming housing market provided some of the positive backdrop for
economic growth. While both fixed-income and equity investments posted very
positive results, it was not without volatility. The crisis in the Far East sent
shock waves throughout the financial markets worldwide in the fourth quarter of
1997. The extent to which the Asian collapse ultimately impacts U.S. and
European growth is not yet known, but the uncertainty is likely to increase
market volatility until a turnaround becomes visible.
Although there are pockets of slowing, the U.S. economy continues to move
forward.
<TABLE>
<S> <C> <C> <C>
Inception*|7/00/98 10000 10000 10000
Jun 10320 10446 10119
Jul 10970 11275 10912
Aug 10550 10648 10469
Sep 11040 11232 11063
Oct 10610 10857 10691
Nov 10630 11360 11101
Dec 97 10700 11555 11323
Jan 10861 11683 11382
Feb 11711 12526 12195
Mar 12263 13167 12800
Apr 12454 13300 12926
May 12152 13071 12606
Jun 98 12503 13602 13032
</TABLE>
The line graph above and the following total returns do not reflect
administrative fees or other expenses charged by American General Life Insurance
Company Separate Account D through which shares of the Fund are purchased.
1 The Strategic Growth Portfolio's benchmark is a capital market index
that is intended to represent a proxy for Portfolio performance. The
benchmark allocation is as follows: 100% S&P 500. For additional
information regarding the individual index, see page 7. Source: Ibbotson
Associates. Past investment performance does not guarantee future
performance. The returns shown for the Portfolio assume reinvestment of
all dividends/distributions by the shareholder.
2 The Russell 3000 Index is a broad-based index and is intended to
represent the equity market as a whole.
3 The stated goals may or may not be met and are in no way a guarantee.
<TABLE>
<CAPTION>
Since Inception
Average Annual Total Returns as of 6/30/98 Six Month One Year (June 3, 1997)
<S> <C> <C> <C>
Fund 15.97% 20.24% 22.20%
Capital Market Benchmark(1) 17.72% 30.21% 32.84%
</TABLE>
For the period November 1, 1996 to June 30, 1998, the Advisor waived its
management fee and absorbed certain other expenses, and the Section Custodian
allowed credits. Prior to November 1, 1996, the Advisor waived a portion of its
management fee and absorbed other expenses, and the Custodian allowed credits.
In the absence of the waivers, absorption of other expenses, or credits, total
return would have been lower.
30
<PAGE> 33
In the equity markets, a dichotomy of results relative to market capitalization
continued throughout the period. Large capitalization companies (S&P 500) have
appreciated three times as much as small-caps (Russell 2000) in 1998. Style
differences also provided a disparity in results in 1998 as growth stocks
significantly outperformed value stocks in both the large- and the mid-sized
capitalization areas. Small-cap growth continued to be the worst performing
domestic equity sector. The backlash of the Asian currency crisis on global
equity markets was quite pronounced, as results across Asia and Latin America
were very poor. Europe on the other hand, proved resilient, outpacing even the
high flying large-cap domestic markets in the period.
INVESTMENT STRATEGY
The SAM Strategic Growth Portfolio remained
diversified in six funds, representing six major asset classes. This
diversification enables the Portfolio to manage risk during periods of market
volatility. The diversified portfolio of equity classes shield the Portfolio
from drastic swings in one specific area of the global markets.
The overall investment strategy for the period was to:
o Decreased domestic equity exposure while increasing foreign positions
and maintaining fixed-income concentration in an attempt to manage risk.
o Increase exposure to European holdings to take advantage of prospects
for strength in the region.
o Overweight the equity portion of the portfolio in core domestic mid- to
large-capitalization stocks.
REVIEW OF PORTFOLIO ALLOCATIONS
We have positioned the Portfolio to take advantage of current market trends as
well as to manage overall portfolio risk levels. The Fund benefited from its
emphasis in mid- to large-cap holdings, whose strong performance offset
underperformance by the small-cap position. Prior to the Asian collapse, the
Portfolio was underweighted in international stocks which aided both performance
and the overall risk of the Portfolio. Recently, we have increased exposure
overseas due to a positive outlook in Europe. We also reduced our concentration
in the very highly-valued U.S. domestic market. We reduced our position in
fixed-income and now maintain a nearly fully invested Portfolio. This reflects
our positive long-term outlook on equities, and we feel the diversified
positions should help to manage the overall risk levels of the Strategic Growth
Portfolio given the high valuation levels of domestic equities.
OUTLOOK
Inflation remains weak and interest rates are low. Both the Bundesbank (Europe)
and the Federal Reserve Board (U.S.) have announced they are closely watching
inflation and maintaining a bias towards raising interest rates. If the negative
impact from Asia is less than expected and if consumption remains strong, the
Federal Reserve may be forced to adjust rates later in the year. This would be
done to prevent the economy from overheating. We believe inflation is
manageable, and Chairman Greenspan has been very effective in interest rate
policy during this new paradigm.
We maintain our long-term positive outlook on the equity markets. Although there
will always be periods of volatility, the overriding economic fundamentals
provided by globalization and efficiency improvements brought about by
technological enhancements create a dynamically positive environment for stocks.
Current low levels of interest rates and inflation also provide support for
equities. We are also bullish on foreign equities, especially Europe, where an
improving structural foundation also furnishes a positive long-term forecast. By
the same respect, we are reluctant to extend portfolio risk much beyond current
levels due to the high equity valuations. We prefer to make allocation changes
only if diversification can be maintained and portfolio risk is not measurably
extended.
<TABLE>
<CAPTION>
STRATEGIC GROWTH portfolio
portfolio allocation
<S> <C>
1 Money Market Fund 5%
2 Short Term High Quality 6%
Bond Fund
3 Growth & Income Fund 30%
4 Growth Fund 29%
5 Emerging Growth Fund 10%
6 International Growth Fund 20%
portfolio composition*
1 Cash 7%
2 Bonds 6%
3 Small-Cap 10%
4 Mid-Cap 18%
5 Large-Cap 35%
6 Foreign Stocks 24%
</TABLE>
* This is a sample only and will not reflect current market positions.
SAM PORTFOLIOS
31
<PAGE> 34
PORTFOLIO of INVESTMENTS
MONEY MARKET FUND
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
--------- --------
<C> <S> <C>
COMMERCIAL PAPER - (DOMESTIC) - 35.8%
$ 1,500,000 American Express Credit Corporation,
5.510% due 7/23/1998................. $ 1,494,949
1,500,000 Beneficial Corporation,
5.580% due 7/17/1998................. 1,496,300
750,000 Columbus University New York,
5.600% due 8/07/1998................. 745,722
1,500,000 Deere & Company,
5.500% due 7/27/1998................. 1,494,042
1,500,000 Ford Motor Company,
5.540% due 7/28/1998................. 1,493,767
1,500,000 General Electric Capital Corporation,
5.510% due 8/05/1998................. 1,491,964
1,500,000 Goldman Sachs Group, L.P.,
5.520% due 8/26/1998................. 1,487,120
1,100,000 National Rural Utilities Cooperative
Finance Corporation,
5.550% due 7/28/1998................. 1,095,421
1,500,000 Weyerhaeuser Real Estate Company,
5.530% due 7/24/1998................. 1,494,700
----------
Total Commercial Paper - (Domestic)
(Cost $12,293,985)................... 12,293,985
----------
COMMERCIAL PAPER - (FOREIGN) - 16%
1,500,000 Statoil, (Den Norske Stats
Oeljelselskap A/S)
5.520% due 8/20/98................... 1,497,930
1,000,000 Toshiba America Capital Corporation,
5.600% due 8/10/1998................. 993,778
1,500,000 Toyota Motor Credit Corporation,
5.500% due 7/24/1998................. 1,494,672
1,500,000 Xerox Capital (Europe) PLC,
5.530% due 8/06/1998................. 1,491,705
----------
Total Commercial Paper - (Foreign)
(Cost $5,478,085).................... 5,478,085
----------
CERTIFICATES OF DEPOSIT - (YANKEE) - 10.2%
1,000,000 Creditanstalt Bankverein, NY,
5.890% due 11/17/1998................ 1,000,527
1,000,000 Credit Suisse First Boston, NY,
5.740 due 1/07/1999.................. 1,000,000
1,500,000 Societe Generale NY,
5.570% due 5/07/1999................. 1,499,306
----------
Total Certificates of
Deposit - (Yankee)
(Cost $3,499,833).................... 3,499,833
----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
--------- --------
<C> <S> <C>
MEDIUM TERM NOTES - 30.1%
$ 1,000,000 Bank Boston, N.A.
5.760% due 10/06/1998+............... $ 999,857
1,500,000 Federal Farm Credit Bank, (FFCB),
5.510% due 08/03/1998................ 1,500,000
Federal Home Loan Bank, (FHLB),
1,000,000 5.625% due 03/02/1999.................. 1,000,000
1,000,000 5.650% due 03/12/1999.................. 1,000,000
1,500,000 Federal National Mortgage Association
(FNMA),
5.530% due 3/11/1999................. 1,498,772
1,500,000 IBM Credit Corporation,
5.520% due 7/15/1998................. 1,496,780
1,175,000 Keystone Group Inc., Prerefunded to
09/02/1998,
9.750% due 9/01/2003................. 1,222,360
1,000,000 Keybank, N.A.,
5.690% due 07/31/1998+............... 999,944
600,000 Student Loan Marketing Association,
(SLMA)
5.820% due 9/16/1998................. 600,126
----------
Total Medium-Term Notes (Cost
$10,317,839)......................... 10,317,839
----------
TAXABLE VARIABLE RATE DEMAND OBLIGATION - 4.4%
1,500,000 DBSI First Mortgage 1998 Corporation,
(LOC: U.S. Bank, N.A.)
5.600% due 7/15/2005+
(Cost $1,500,000).................... 1,500,000
----------
REPURCHASE AGREEMENT - 3.0%
1,038,000 Agreement with Goldman Sachs Group,
5.500% dated 6/30/1998, to be
repurchased at $1,038,159 on
7/01/1998, collateralized by $763,278
U.S. Treasury Note, 8.875% due
08/15/2017 (Market Value
$1,064,462)(Cost $1,038,000)......... 1,038,000
----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (Cost $34,127,742*)....... 99.5% 34,127,742
OTHER ASSETS AND LIABILITIES (NET).......... 0.5 159,078
----- -----------
NET ASSETS.................................. 100.0% $34,286,820
===== ===========
</TABLE>
- ---------------------
* Aggregate cost for federal tax purposes.
+ Variable rate security. The interest rate shown reflects the rate currently in
effect.
See Notes to Financial Statements.
32
<PAGE> 35
PORTFOLIO of INVESTMENTS
SHORT TERM HIGH QUALITY BOND FUND
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- --------- --------
<C> <S> <C>
CORPORATE NOTES - 31.0%
$ 100,000 Colonial Realty, Sr. Note,
7.500% due 07/15/2001................. $ 103,500
720,000 Crane Company, Note,
7.250% due 06/15/1999................. 728,287
1,000,000 CSX Corporation, Deb.,
9.500% due 08/01/2000................. 1,064,480
100,000 ERP Operating LP,
8.500% due 05/15/1999++............... 101,886
250,000 Federated Department Stores,
6.790% due 07/15/2027................. 255,762
1,000,000 General Electric Capital Corporation,
MTN,
5.800% due 04/24/2000................. 1,000,000
300,000 GMAC, Notes,
8.625% due 06/15/1999................. 307,431
200,000 Lockheed Martin Corporation,
6.850% due 05/15/2001................. 204,250
Lyondell Petrochemical Company:
100,000 9.125% due 03/15/2002................... 107,954
150,000 9.750% due 09/04/2003++................. 169,192
985,000 McDonnell Douglas Financial, MTN, Sub.
Note,
6.710% due 07/19/2000................. 995,648
1,000,000 Merrill Lynch, MTN,
6.100% due 10/04/1999................. 1,004,580
100,000 Nabisco Pass Through Assets, Bond,
6.300% due 08/26/1999++............... 99,920
250,000 Oasis Residential Inc.,
6.750% due 11/15/2001................. 252,813
250,000 Southern National Corporation, Sub.
Note,
7.050% due 05/23/2003................. 258,925
600,000 Sun Communities, Inc., Sr. Note,
7.625% due 05/01/2003................. 621,684
100,000 Susa Partnership LP,
7.125% due 11/01/2003................. 102,500
Taubman Realty Corporation:
100,000 8.000% due 06/15/1999................... 101,638
100,000 MTN,
7.500% due 06/15/2002................. 103,279
50,000 Time Warner, Inc.,
7.950% due 02/01/2000................. 51,378
1,000,000 Travelers, Inc., Note,
6.125% due 06/15/2000................. 1,005,000
250,000 US West Capital Funding, Inc.,
6.125% due 07/15/2002................. 250,005
----------
Total Corporate Notes
(Cost $9,303,845)..................... 8,890,112
----------
U.S. TREASURY NOTES - 17.3%
1,550,000 6.375% due 01/15/1999................... 1,557,998
600,000 6.250% due 08/31/2002................... 615,654
650,000 5.250% due 01/31/2001................... 645,938
650,000 5.625% due 02/28/2001................... 651,625
1,500,000 5.625% due 02/15/2006................... 1,506,090
----------
Total U.S. Treasury Notes
(Cost $4,971,612)..................... 4,977,305
----------
ASSET-BACKED SECURITIES - 16.4%
1,200,000 BankBoston RV Trust 1997-1 A4,
6.330% due 04/15/2004................. 1,200,000
250,000 Carco Auto Loan Master Trust, 1997-1-A,
6.689% due 08/15/2004................. 253,279
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- --------- --------
<C> <S> <C>
Green Tree Financial Corporation:
$ 250,000 1995-1-B2,
9.200% due 06/15/2025................. $ 277,174
200,000 1995-6-B1,
7.700% due 09/15/2026................. 203,609
100,000 Green Tree Home Equity Loan Trust,
1997-B-A5,
7.150% due 04/15/2027................. 102,167
165,000 Green Tree Home Improvement, 1995-DB2,
7.450% due 09/15/2025................. 167,214
45,449 Green Tree Recreational, Equipment &
Consumer, 1996-A, Class A1,
5.550% due 02/15/2018................. 45,249
100,000 H & T Master Trust,
8.430% due 08/15/2002++............... 100,141
350,000 MBNA Master Credit Card Trust, 1995-E,
Class A,
5.876% due 1/15/2005.................. 351,638
Merrill Lynch Mortgage Investors, Inc.:
4,688 1991-B-A,
9.200% due 04/15/2011................. 4,712
37,841 1991-I-A,
7.650% due 01/15/2012................. 38,150
74,043 1992-B-A4,
7.850% due 04/15/2012................. 76,045
322,695 Mid-State Trust, Series 4, Class A,
8.330% due 04/01/2030................. 352,081
30,885 Sec Pac Manufacturing Housing, 95-1,
Class A1,
6.500% due 04/10/2020................. 30,946
700,000 Standard Credit Card Master Trust,
1994-4, Class A
8.250% due 11/07/2003................. 745,934
500,000 The Money Store, Inc. 1997-C,
6.307% due 08/15/2012................. 500,625
248,723 World Omni Automobile Lease
Securitization, 1996-B,
6.850% due 11/15/2002++............... 252,609
----------
Total Asset-Backed Securities (Cost
$4,184,539)........................... 4,701,573
----------
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED
SECURITIES - 15.4%
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) - 10.2%
125,095 #1991, Seasoned,
9.000% due 04/20/2025................. 133,121
42,451 #121425, Seasoned,
11.000% due 04/15/2015................ 47,711
91,158 #140834, Seasoned,
11.000% due 12/15/2015................ 102,454
23,809 #144538, Seasoned,
11.000% due 12/15/2015................ 26,812
87,418 #151670, Seasoned,
11.000% due 12/15/2015................ 98,251
271,952 #213862, Seasoned,
10.000% due 09/15/2018................ 298,399
146,800 #225305, Seasoned,
10.000% due 02/15/2018................ 161,076
26,101 #234561, Seasoned,
10.000% due 12/15/2017................ 28,611
36,151 #254937, Seasoned,
10.000% due 06/15/2019................ 39,627
79,924 #257814, Seasoned,
10.000% due 09/15/2018................ 87,696
</TABLE>
See Notes to Financial Statements.
33
<PAGE> 36
PORTFOLIO of INVESTMENTS (continued)
SHORT TERM HIGH QUALITY BOND FUND
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- --------- --------
<C> <S> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED
SECURITIES - (CONTINUED)
$ 232,217 #264735, Seasoned,
10.000% due 02/15/2019................ $ 254,800
142,171 #289333, Seasoned,
10.000% due 05/15/2020................ 156,258
206,748 #291116, Seasoned,
10.000% due 06/15/2020................ 227,054
72,928 #293511, Seasoned,
10.000% due 07/15/2020................ 80,209
267,073 #400224, Seasoned,
8.000% due 06/15/2009................. 277,505
328,220 #453963, Seasoned,
8.000% due 08/15/2012................. 340,013
174,993 #780081, Seasoned,
10.000% due 02/15/2025................ 192,011
43,220 #780121, Seasoned,
10.000% due 04/15/2025................ 47,535
41,869 #780141, Seasoned,
10.000% due 12/15/2020................ 45,982
262,261 #780317, Seasoned,
9.000% due 12/15/2020................. 282,421
----------
Total GNMAs (Cost $2,918,680)........... 2,927,546
----------
ADJUSTABLE RATE MORTGAGE-BACKED SECURITIES (ARM) - 2.7%
109,905 Federal Home Loan Mortgage Corporation
(FHLMC),
#845988,
7.859% due 11/01/2021+................ 114,353
Federal National Mortgage Association
(FNMA):
202,300 #82247,
6.250% due 04/01/2019+................ 203,564
44,837 #124571,
7.649% due 11/01/2022+................ 46,378
144,737 #141461,
7.577% due 11/01/2021................. 147,202
58,540 #152205,
7.398% due 01/01/2019+................ 60,433
197,497 #313257,
6.258% due 11/01/2035................. 198,732
----------
Total ARMs (Cost $764,988).............. 770,662
----------
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) - 1.2%
121,316 5 Year Balloon, GOLD, #G50135,
5.500% due 03/01/1999................. 120,792
204,133 #A01226, Seasoned,
9.500% due 08/01/2016................. 221,282
----------
Total FHLMCs (Cost $341,916)............ 342,074
----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- --------- --------
<C> <S> <C>
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) - 1.3%
$ 352,876 #313641, Seasoned,
8.500% due 11/01/2017 (Cost
$369,946)............................. $ 370,298
----------
Total U.S. Government Agency Mortgage-
Backed Securities (Cost $4,395,530)... 4,410,580
----------
COLLATERALIZED MORTGAGE OBLIGATIONS - 9.6%
Countrywide Funding Corporation:
24,927 1994-1-A3,
6.250% due 03/25/2024................. 24,701
500,000 1994-2-A8,
6.500% due 02/25/2009................. 498,905
106,083 Federal Home Loan Mortgage Corporation
(FHLMC), P/O, REMIC, #1719-C,
Zero coupon due 04/15/1999............ 102,901
General Electric Capital Mortgage
Services:
79,082 1994-27-A1,
6.500% due 07/25/2024................. 78,918
1,150,000 1996-HE3 A3,
7.150% due 09/25/2026................. 1,181,886
248,666 Norwest Asset Securities Corporation,
1996-5-A13,
7.500% due 11/25/2026................. 250,143
126,780 Prudential Home Mortgage Security,
1993-43-A1,
5.400% due 10/25/2023................. 125,869
350,000 Residential Asset Securitization Trust,
1997-A6,
7.250% due 12/12/2012................. 355,031
145,780 Residential Funding Mortgage
Securitazation, 1997-S13-A8,
7.100% due 09/25/2027................. 146,990
13,034 Ryland Acceptance Corporation,
8.950% due 08/20/2019................. 13,046
----------
Total Collateralized Mortgage
Obligations (Cost $2,751,859)......... 2,778,390
----------
</TABLE>
See Notes to Financial Statements.
34
<PAGE> 37
PORTFOLIO of INVESTMENTS (continued)
SHORT TERM HIGH QUALITY BOND FUND
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- --------- --------
<C> <S> <C>
FOREIGN GOVERNMENT BONDS - 3.5%
$1,000,000 Ontario (Province of Canada),
6.125% due 06/28/2000 (Cost
$1,004,007)........................... $ 1,005,350
----------
REPURCHASE AGREEMENT - 5.8%
1,663,000 Agreement with Goldman Sachs Group,
5.500% dated 06/30/1998, to be
repurchased at $1,663,254 on
07/01/1998, collateralized by
$1,216,820 U.S. Treasury Note, 8.875%
due 08/15/2017. (Market Value
$1,696,968) (Cost $1,663,000)......... 1,663,000
----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (Cost $28,274,392*)....... 99.0% 28,426,310
OTHER ASSETS AND LIABILITIES (NET).......... 1.0 278,111
----- -----------
NET ASSETS.................................. 100.0% $28,704,421
===== ===========
</TABLE>
- ---------------------
* Aggregate cost for federal tax purposes.
+ Variable rate security. The interest rate shown reflects the rate currently
in effect.
++ Security exempt from registration under Rule 144A of the Securities Act of
1933. This security may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
<TABLE>
<CAPTION>
NUMBER OF UNREALIZED
CONTRACTS (DEPRECIATION)
- --------- --------------
<C> <S> <C>
FUTURES CONTRACTS - SHORT POSITION
11 U.S. Treasury Note, Five Year,
September 1998....................... $ (6,179)
============
</TABLE>
GLOSSARY OF TERMS
<TABLE>
<S> <C> <C>
BALLOON -- Five- and seven-year mortgages
with larger dollar amounts of
payments falling due in the later
years of the obligation
GOLD -- Payments are on accelerated 45-day
payment cycle instead of 75-day
payment cycle
LP -- Limited Partnership
MTN -- Medium Term Note
P/O -- Principal Only
REMIC -- Real Estate Mortgage Investment
Conduit
</TABLE>
See Notes to Financial Statements.
35
<PAGE> 38
PORTFOLIO of INVESTMENTS
U.S. GOVERNMENT SECURITIES FUND
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- --------- --------
<C> <S> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED
SECURITIES - 38.6%
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) - 21.5%
$2,698,844 7.000% due 11/01/2012-01/15/2028........ $ 2,741,837
7,603,055 7.500% due 01/15/2023-11/15/2023........ 7,821,567
1,110,191 8.000% due 07/15/2026-06/15/2027........ 1,150,435
60,227 9.000% due 08/15/2021................... 64,743
----------
Total GNMAs (Cost $11,557,473).......... 11,778,582
----------
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) - 15.5%
GOLD:
1,028,333 5.500% due 12/01/2008................... 1,006,255
2,440,603 6.000% due 01/01/2013................... 2,416,953
978,026 6.500% due 01/01/2028................... 975,268
3,143,813 7.000% due 04/01/2008-01/01/2013........ 3,204,939
852,932 8.750% due 01/01/2013................... 893,361
----------
Total FHLMCs (Cost $8,409,550).......... 8,496,776
----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) - 1.6%
564,328 8.000% due 05/01/2022................... 587,606
290,722 8.500% due 02/01/2023................... 305,075
----------
Total FNMAs (Cost $890,953)............. 892,681
----------
Total U.S. Government Agency Mortgage-
Backed Securities (Cost
$20,857,976).......................... 21,168,039
----------
COLLATERALIZED MORTGAGE OBLIGATIONS - 37.3%
Federal National Mortgage Association
(FNMA), REMIC, Pass-through
certificates:
857,072 Trust 89-90, Class E,
8.700% due 12/25/2019................. 902,600
5,003,470 Trust 92-55, Class DZ,
8.000% due 04/25/2022................. 5,363,070
6,045,158 Trust 92-83, Class X,
7.000% due 02/25/2022................. 6,081,007
1,111,119 Trust 93-159, Class PA, (P/O),
Zero coupon due 01/25/2021............ 1,045,140
620,391 Trust 94-57, Class C, (P/O),
Zero coupon due 01/25/2024............ 584,135
5,000,000 Trust 98-32, Class E
6.500% due 05/17/2026................. 5,004,688
489,313 Guaranteed Mortgage Corporation III,
(GNMA-CMB), Trust B, Class 1,
9.000% due 12/01/2007................. 486,406
1,000,000 Residential Funding Mortgage Security,
Trust 92-S39, Class A8,
7.500% due 11/25/2007................. 1,024,060
----------
Total Collateralized Mortgage
Obligations (Cost $18,707,628)........ 20,491,106
----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- --------- --------
<C> <S> <C>
U.S. TREASURY OBLIGATIONS - 15.4%
U.S. TREASURY BONDS - 11.2%
$ 300,000 12.750% due 11/15/2010.................. $ 427,266
3,300,000 6.250% due 08/15/2023................... 3,533,046
1,939,000 6.625% due 02/15/2027**................. 2,189,558
----------
Total U.S. Treasury Bonds
(Cost $5,676,667)..................... 6,149,870
----------
U.S. TREASURY NOTES - 4.2%
1,400,000 6.375% due 05/15/2000................... 1,420,776
150,000 6.500% due 08/15/2000................... 151,430
325,000 6.625% due 03/31/2002................... 336,629
350,000 6.250% due 02/15/2007................... 366,517
----------
Total U.S. Treasury Notes
(Cost $2,236,199)..................... 2,275,352
----------
Total U.S. Treasury Obligations
(Cost $7,912,866)..................... 8,425,222
----------
REPURCHASE AGREEMENT - 8.0%
4,381,000 Agreement with Goldman Sachs, 5.500%
dated 06/30/1998, to be repurchased at
$4,381,669 on 07/01/1998,
collateralized by $3,207,980 U.S.
Treasury Note 8.875% due 08/15/2017.
(Market Value - $4,473,825) (Cost
$4,381,000)........................... 4,381,000
----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (Cost $51,859,470*)....... 99.3% 54,465,367
OTHER ASSETS AND LIABILITIES (NET).......... 0.7 400,888
----- -----------
NET ASSETS.................................. 100.0% $54,866,255
===== ===========
</TABLE>
- ---------------------
* Aggregate cost for federal tax purposes.
** A portion or all of the securities are pledged as collateral for reverse
repurchase agreements (Note 4).
GLOSSARY OF TERMS
<TABLE>
<S> <C> <C>
GOLD -- Payments are on an accelerated
45-day payment cycle instead of
75-day payment cycle
P/O -- Principal Only
REMIC -- Real Estate Mortgage Investment
Conduit
</TABLE>
See Notes to Financial Statements.
36
<PAGE> 39
PORTFOLIO of INVESTMENTS
INCOME FUND
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
--------- --------
<C> <S> <C>
CORPORATE BONDS AND NOTES - 90.0%
TRANSPORTATION - 18.8%
$ 1,750,000 Carnival Corporation, Deb.,
7.200% due 10/01/2023................ $ 1,833,125
1,000,000 Conrail, Inc., Deb.,
9.750% due 06/15/2020................ 1,346,250
1,000,000 Continental Airlines, Inc.,
Pass-through certificates, Series
974C,
6.800% due 01/02/2007................ 1,016,250
1,000,000 Norfolk Southern Corporation,
7.800% due 05/15/2027................ 1,160,000
2,000,000 Southwest Airlines Company,
Pass-through certificates, 94-A,
Class A-4,
9.150% due 07/01/2016................ 2,395,000
1,300,000 United Air Lines, Inc., Pass-through
certificates,
9.560% due 10/19/2018................ 1,621,750
----------
9,372,375
----------
FINANCIAL - 18.5%
500,000 American General Corporation,
Sinking Fund Deb.,
7.500% due 07/15/2025................ 556,250
400,000 Banc One Corporation, Sub. Note,
10.000% due 08/15/2010............... 521,500
1,000,000 Barclays North American Capital
Corporation, Capital Note,
9.750% due 05/15/2021................ 1,142,500
82,000 Barnett Banks, Florida, Inc., Sub.
Note,
10.875% due 03/15/2003............... 97,580
50,000 Chase Manhattan Corporation, Sub. Note,
8.000% due 06/15/1999................ 50,937
230,000 Citicorp, Sub. Note,
8.625% due 12/01/2002................ 251,850
First Chicago Corporation, Sub. Note:
600,000 11.250% due 02/20/2001................. 675,750
100,000 9.250% due 11/15/2001.................. 109,500
40,000 First Interstate Bancorp, MTN,
9.375% due 11/15/1998................ 40,456
1,000,000 First Tennessee National Corporation,
Sub. Capital Note,
10.375% due 06/01/1999............... 1,037,500
1,040,000 Fleet/Norstar Financial Group Inc.,
Sub. Note,
9.900% due 06/15/2001................ 1,144,000
400,000 Ford Holdings, Inc., Deb.,
9.375% due 03/01/2030................ 532,000
1,000,000 Hartford Life Insurance Company,
7.650% due 06/15/2027................ 1,121,250
1,100,000 NCNB Corporation, Sub. Note:
9.375% due 09/15/2009................ 1,368,125
516,000 Security Pacific Corporation, Sub.
Note,
11.500% due 11/15/2000............... 577,275
----------
9,226,473
----------
INDUSTRIAL - 18.4%
1,000,000 Boeing Company, Deb.,
8.750% due 08/15/2021................ 1,282,500
1,500,000 Caterpillar, Inc., Sinking Fund Deb.,
9.750% due 06/01/2019................ 1,620,000
Ford Motor Company, Deb.:
250,000 8.875% due 01/15/2032.................. 322,812
600,000 8.875% due 11/15/2022.................. 666,750
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
--------- --------
<C> <S> <C>
$ 1,000,000 General Motors Corporation, Deb.,
9.400% due 07/15/2021................ $ 1,311,250
250,000 HIH Capital LTD
7.50% due 9/25/2006.................. 180,000
1,500,000 Lockheed Martin Corporation,
7.250% due 05/15/2006................ 1,595,625
200,000 Ogden Corporation, Deb.,
9.250% due 03/01/2022................ 247,250
1,800,000 Praxair, Inc., Deb.,
8.700% due 07/15/2022................ 1,993,500
----------
9,219,687
----------
ENERGY - 11.2%
1,100,000 ANR Pipeline Company, Deb.,
9.625% due 11/01/2021................ 1,599,000
1,000,000 Enron Corporation, Notes,
6.450% due 11/15/2001................ 1,010,000
1,300,000 Occidental Petroleum Corporation, Sr.
Deb.,
11.125% due 08/01/2010............... 1,771,250
100,000 P&L Coal Holdings
8.875% due 5/15/2008................. 103,125
1,000,000 Phillips Petroleum Company, Deb.,
9.180% due 09/15/2021................ 1,110,000
----------
5,593,375
----------
YANKEE (U.S. DOLLAR DENOMINATED) - 8.2%
1,000,000 Abbey National Plc, Global Note,
6.690% due 10/17/2005................ 1,026,250
1,700,000 Northern Telecom Capital, Sub. Note,
7.400% due 06/15/2006................ 1,833,875
500,000 Petro-Canada, Deb.,
9.250% due 10/15/2021................ 656,250
500,000 Trans-Canada Pipeline Corporation,
Deb.,
8.500% due 03/20/2023................ 566,875
----------
4,083,250
----------
ELECTRIC - 5.6%
200,000 Duke Power Company,
First and Refundable Mortgage,
6.875% due 08/01/2023................ 201,250
700,000 Florida Power & Light Company,
First Mortgage,
7.050% due 12/01/2026................ 715,750
100,000 Philadelphia Electric Company, First
and Refundable Mortgage,
8.250% due 09/01/2022................ 105,250
Texas Utilities Electric Company:
150,000 First and Collateral Mortgage,
8.500% due 08/01/2024................ 166,688
1,500,000 First Mortgage,
7.875% due 04/01/2024................ 1,595,625
----------
2,784,563
----------
MEDIA - 4.1%
1,200,000 News America Holdings,
8.000% due 10/17/2016................ 1,318,500
350,000 Poland Communications INC
9.875% due 11/01/2003................ 345,188
300,000 Time Warner, Inc., Deb.,
9.150% due 02/01/2023................ 381,000
----------
2,044,688
----------
</TABLE>
See Notes to Financial Statements.
37
<PAGE> 40
PORTFOLIO of INVESTMENTS (continued)
INCOME FUND
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
--------- --------
<C> <S> <C>
CORPORATE BONDS AND NOTES - (CONTINUED)
RETAIL - 3.5%
May Department Stores Company, Deb.:
$ 1,000,000 8.375% due 10/01/2022.................. $ 1,085,000
600,000 8.375% due 08/01/2024.................. 687,750
----------
1,772,750
----------
HEALTH CARE - 1.2%
500,000 Medical Care, Int.,
6.75% due 10/01/2006................. 465,625
150,000 Paragon Health Networks,
9.5% due 11/01/2007.................. 153,000
----------
618,625
----------
GAMING - 0.5%
250,000 Riviera Holdings,
10% due 8/15/2004.................... 252,500
----------
Total Corporate Bonds and Notes
(Cost $42,929,442)................... 44,968,286
----------
PREFERRED STOCK - 0.8%
4,500 Microsoft A
Convertible (Cost $415,125).......... 427,500
----------
U.S. TREASURY BOND - 5.7%
2,000,000 13.750% due 08/15/2004
(Cost $2,849,688).................... 2,839,840
----------
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED
SECURITIES - 2.0%
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) - 1.3%
615,741 #386671,
9.000% due 02/15/2025
(Cost $635,368)...................... 659,420
----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
--------- --------
<C> <S> <C>
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) - 0.7%
$ 306,562 #C00385, GOLD,
9.000% due 01/01/2025
(Cost $315,376)...................... $ 324,573
----------
Total U.S. Government Agency Mortgage-
Backed Securities
(Cost $950,744)...................... 983,993
----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (Cost $46,729,874*)....... 98.5% 49,219,619
OTHER ASSETS AND LIABILITIES (NET).......... 1.5 755,752
----- -----------
NET ASSETS.................................. 100.0% $49,975,371
===== ===========
</TABLE>
- ---------------------
* Aggregate cost for federal tax purposes.
GLOSSARY OF TERMS
<TABLE>
<S> <C> <C>
GOLD -- Payments are on an accelerated
45-day payment cycle instead of
75-day payment cycle
MTN -- Medium Term Note
</TABLE>
See Notes to Financial Statements.
38
<PAGE> 41
PORTFOLIO of INVESTMENTS
GROWTH & INCOME FUND
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<C> <S> <C>
COMMON STOCKS - 94.9%
CONSUMER STAPLES - 12.1%
39,000 Alberto-Culver Company.................. $ 989,625
44,000 Anheuser-Busch Companies, Inc. ......... 2,076,250
13,000 Campbell Soup Company................... 690,625
4,225 Estee Lauder Companies, Inc. ........... 283,075
30,000 Kimberly-Clark Corporation.............. 1,376,250
48,000 Kimberly-Clark de Mexico, ADR........... 849,498
5,000 Libbey, Inc. ........................... 191,562
30,000 PepsiCo, Inc. .......................... 1,235,625
28,800 Philip Morris Companies, Inc. .......... 1,134,000
15,000 Procter & Gamble Company................ 1,365,937
12,100 Ralston-Ralston Purina Group............ 1,413,431
22,000 Sara Lee Corporation.................... 1,230,625
15,000 Unilever NV............................. 1,184,063
-----------
14,020,566
-----------
HEALTHCARE PRODUCTS - 8.2%
40,000 Abbott Laboratories..................... 1,635,000
30,000 ALZA Corporation+....................... 1,297,500
14,600 American Home Products Corporation...... 755,550
14,000 Bristol-Myers Squibb Company............ 1,609,125
12,000 Johnson & Johnson....................... 885,000
10,000 Merck & Co., Inc. ...................... 1,337,500
28,300 Warner Lambert Company.................. 1,963,313
-----------
9,482,988
-----------
COMPUTER SOFTWARE/SERVICES - 6.3%
24,500 Adobe Systems, Inc.+.................... 1,039,719
60,300 Barra, Inc.+............................ 1,477,350
16,000 Computer Associates International,
Inc. ................................. 889,000
26,000 Microsoft Corporation+.................. 2,817,750
42,850 Oracle Corporation...................... 1,052,503
-----------
7,276,322
-----------
BANKS/SAVINGS & LOANS - 6.2%
3,700 Citicorp................................ 552,225
40,000 First Union Corporation................. 2,330,000
5,500 Keycorp New............................. 195,938
43,000 Liberty Financial Companies............. 1,472,750
7,000 Mellon Bank Corporation................. 487,375
40,000 Prime Bancshares, Inc. ................. 1,015,000
3,000 Wells Fargo & Company................... 1,107,000
-----------
7,160,288
-----------
FINANCIAL SERVICES - 6.2%
20,000 AMBAC Inc. ............................. 1,170,000
55,000 Federal Home Loan Mortgage
Corporation........................... 2,588,438
23,400 Green Tree Financial Corporation........ 1,001,813
34,050 Heller Financial, Inc.+................. 1,021,500
22,650 Marsh & McLennan Companies, Inc. ....... 1,368,909
-----------
7,150,660
-----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<C> <S> <C>
CAPITAL GOODS - 5.4%
35,300 Allied Signal, Inc. .................... $ 1,566,438
60,000 Donaldson Company, Inc. ................ 1,413,750
39,700 International Game Technology........... 962,725
65,600 Waste Management, Inc. ................. 2,296,000
-----------
6,238,913
-----------
MEDIA - 4.8%
35,000 Dun & Bradstreet Corporation............ 1,264,375
151,488 Tele-Communications TCI Ventures
Group................................. 3,039,227
22,000 Viacom, Inc., Class A................... 1,287,000
-----------
5,590,602
-----------
COMPUTER SYSTEMS - 4.7%
24,800 Cabletron Systems, Inc.+................ 333,250
50,000 EMC Corporation+........................ 2,240,625
15,000 Hewlett-Packard Company................. 898,125
17,500 International Business Machines
Corporation........................... 2,009,219
-----------
5,481,219
-----------
OIL & GAS - 4.6%
27,700 Enron Corporation....................... 1,497,531
32,200 Exxon Corporation....................... 2,296,263
13,000 Mobil Corporation....................... 996,125
7,300 Pennzoil Company........................ 369,562
3,000 Royal Dutch Petroleum................... 164,437
-----------
5,323,918
-----------
HEALTHCARE SERVICES - 4.5%
10,000 Columbia/HCA Healthcare Corporation..... 291,250
50,000 Humana, Inc.+........................... 1,559,375
72,000 Medpartners, Inc. ...................... 760,500
30,000 Pacificare Health Systems, Inc., Class
A..................................... 2,535,000
-----------
5,146,125
-----------
BASIC INDUSTRY - 3.9%
25,200 Albemarle Corporation................... 555,975
35,300 Allegheny Teledyne, Inc. ............... 805,281
29,494 Tyco International Ltd.................. 1,858,099
52,160 U.S. Industries, Inc. .................. 1,290,960
-----------
4,510,315
-----------
RETAIL SALES - 3.4%
22,300 Federated Department Stores............. 1,200,018
47,500 Intimate Brands, Inc. .................. 1,309,219
24,400 Wal-Mart Stores, Inc. .................. 1,482,300
-----------
3,991,537
-----------
ELECTRONICS/SEMICONDUCTORS - 2.9%
3,000 General Semiconductor, Inc.+............ 29,625
19,000 Intel Corporation....................... 1,408,375
16,000 Motorola, Inc. ......................... 841,000
18,000 Perkin Elmer Corporation................ 1,119,375
-----------
3,398,375
-----------
</TABLE>
See Notes to Financial Statements.
39
<PAGE> 42
PORTFOLIO of INVESTMENTS (continued)
GROWTH & INCOME FUND
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<C> <S> <C>
COMMON STOCKS - (CONTINUED)
INSURANCE - 2.7%
9,100 American International Group, Inc.+..... $ 1,328,600
30,000 PennCorp Financial Group, Inc. ......... 615,000
20,000 Travelers Group, Inc. .................. 1,212,500
-----------
3,156,100
-----------
AEROSPACE/DEFENSE - 2.5%
9,000 Lockheed Martin Corporation............. 952,875
19,000 Northrop Grumman Corporation............ 1,959,375
-----------
2,912,250
-----------
TRANSPORTATION - 2.2%
40,000 Expeditors International of
Washington, Inc. ..................... 1,760,000
19,000 Union Pacific Corporation............... 838,375
-----------
2,598,375
-----------
UTILITIES/GAS/ELECTRIC - 2.2%
97 British Petroleum....................... 8,560
86,100 Tosco Corporation....................... 2,529,188
-----------
2,537,748
-----------
ELECTRICAL EQUIPMENT - 1.9%
5,000 Emerson Electric Company................ 301,563
21,000 General Electric Company................ 1,911,000
-----------
2,212,563
-----------
CONSUMER DURABLES - 1.8%
19,100 Sony Corporation........................ 1,643,794
8,454 BF Goodrich Company..................... 419,535
-----------
2,063,329
-----------
CONSUMER CYCLICALS - 1.7%
22,100 Goodyear Tire & Rubber Company.......... 1,424,068
76,000 Miller Industries....................... 589,000
-----------
2,013,068
-----------
REAL ESTATE INVESTMENT TRUSTS - 1.7%
18,500 CCA Prison Realty Trust................. 566,563
31,722 Equity Office Properties Trust.......... 900,111
13,000 Health Care Property Investors, Inc. ... 468,813
-----------
1,935,487
-----------
BUSINESS SERVICES - 1.4%
43,000 AC Nielson Corporation+................. 1,085,750
25,000 Cendant Corporation..................... 521,875
-----------
1,607,625
-----------
UTILITIES/TELECOMMUNICATIONS - 1.4%
3,000 Loral Space & Communications............ 84,750
21,400 Sprint Corporation...................... 1,508,700
-----------
1,593,450
-----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
COMPUTER SOFTWARE/SERVICES - 1.3%
45,000 First Data Corporation.................. $ 1,499,062
-----------
LODGING & RESTAURANTS - 0.9%
65,500 Choice Hotels International, Inc.+...... 888,344
30,500 Sunburst Hospitality Corporation........ 211,594
-----------
1,099,938
-----------
Total Common Stocks
(Cost $96,563,022).................... 110,000,823
-----------
PRINCIPAL
AMOUNT
- --------
<C> <S> <C>
CONVERTIBLE NOTES - 1.1%
$688,000 Berkshire Hathaway, Senior,
1.000% due 12/03/2001 (Cost
$713,096)............................. 1,256,460
-----------
U.S. TREASURY BOND - 0.6%
700,000 6.000% due 02/15/2026 (Cost $692,647)... 727,699
-----------
SHARES
- --------
PREFERRED STOCK - 2.6%
10,000 Cendant Corporation..................... 289,375
9,000 Lehman Brothers Holdings, 5.00%......... 693,000
10,000 Loral Space & Communications,
Convertible
6.00% due 11/01/2006.................. 762,500
13,500 Nextlink Communications, Convertible
6.5% due 3/31/2010.................... 664,875
10,000 Penncorp Financial, 3.375%.............. 520,000
1,600 TCI Communications, Inc. ............... 129,200
-----------
Total Preferred Stocks (Cost
$3,062,562)........................... 3,058,950
-----------
PRINCIPAL
AMOUNT
- --------
REPURCHASE AGREEMENT - 0.6%
$630,000 Agreement with Goldman Sachs, 5.500%,
dated 6/30/1998, to be repurchased at
$630,096 on 7/01/1998, collateralized
by $459,073 U.S. Treasury Note, 8.875%
due 08/15/2017 (Market Value
$640,220)(Cost $630,000).............. 630,000
-----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (Cost $101,661,327*)..... 99.8% 115,673,932
OTHER ASSETS AND LIABILITIES (NET)......... 0.2 279,825
---- -----------
NET ASSETS................................. 100.0% $115,953,757
===== ============
</TABLE>
- ---------------------
* Aggregate cost for federal tax purposes.
+ Non-income producing security.
GLOSSARY OF TERMS
ADR -- American Depository Receipt
See Notes to Financial Statements.
40
<PAGE> 43
PORTFOLIO of INVESTMENTS
GROWTH FUND
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<C> <S> <C>
COMMON STOCKS - 97.8%
COMPUTER SOFTWARE & SERVICES - 20.1%
14,460 Amazon.com, Inc.+...................... $ 1,442,385
44,569 America Online, Inc.+.................. 4,724,314
3,340 Aspect Development, Inc.+.............. 252,587
56,220 Aspen Technology, Inc.+................ 2,839,110
78,460 Cadence Design Systems, Inc.+.......... 2,451,875
27,715 Intuit, Inc.+.......................... 1,697,544
25,260 JDA Software Group, Inc.+.............. 1,105,125
60,075 Microsoft Corporation+................. 6,510,628
172,485 Parametric Technology Company+......... 4,678,656
28,050 Peoplesoft, Inc.+...................... 1,318,350
20,935 Wind River Systems+.................... 751,043
-----------
27,771,617
-----------
UTILITIES/TELECOMMUNICATIONS - 18.7%
38,165 At Home Corporation+................... 1,805,682
161,780 Comcast Corporation, Class A........... 6,567,257
37,670 Cox Communications, Inc., Class A+..... 1,824,641
130,885 MediaOne Group, Inc.+.................. 5,750,760
165,633 Tele-Communications, Inc., Class A..... 6,366,518
29,885 Tele-Communications Liberty Media,
Group A.............................. 1,159,912
171,919 Telecom Italia SPA+.................... 1,266,109
54,990 Western Wireless Corporation+.......... 1,096,363
-----------
25,837,242
-----------
HEALTH CARE PRODUCTS - 13.1%
39,870 ALZA Corporation+...................... 1,724,377
17,615 Centocor, Inc.+........................ 638,544
40,200 Eli Lilly and Company+................. 2,655,713
37,515 Omnicare, Inc.......................... 1,430,259
23,340 Pfizer, Inc.+.......................... 2,536,766
20,985 Sofamor Danek Group, Inc.+............. 1,816,514
1,010 United States Surgical Corporation..... 46,081
103,965 Warner Lambert Company................. 7,212,572
-----------
18,060,826
-----------
MEDIA - 10.0%
61,320 CBS Corporation........................ 1,946,910
28,815 Chancellor Media Corporation+.......... 1,430,845
161,130 TCI Ventures, Class A+................. 3,232,671
83,698 Time Warner, Inc....................... 7,150,948
3,350 United International Holdings, Inc.+... 53,600
-----------
13,814,974
-----------
COMPUTER SYSTEMS - 6.7%
54,922 Cisco Systems, Inc.+................... 5,056,256
22,840 Dell Computer Corporation+............. 2,119,838
31,910 General Instrument Corporation......... 867,553
35,915 HBO & Company.......................... 1,266,004
-----------
9,309,651
-----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<C> <S> <C>
CAPITAL GOODS - 5.4%
33,905 Federal-Mogul Corporation.............. $ 2,288,588
42,165 Monsanto Company....................... 2,355,969
39,065 Solutia, Inc. ......................... 1,120,677
28,605 Tyco International Ltd. ............... 1,802,115
-----------
7,567,349
-----------
BANKS/SAVINGS & LOANS - 4.7%
5,980 Ambanc Holding Company, Inc. .......... 106,145
21,155 Bank of New York Company, Inc. ........ 1,283,844
30,090 BankAmerica Corporation................ 2,600,904
8,825 First Defiance Financial Corporation... 123,550
5,240 Provident Financial Holdings, Inc.+.... 108,730
14,400 Star Banc Corporation.................. 919,800
31,440 U.S. Bancorp+.......................... 1,351,920
-----------
6,494,893
-----------
BUSINESS SERVICES - 4.1%
7,570 Apollo Group, Inc.+.................... 250,283
23,500 Cognizant Corporation.................. 1,483,437
28,807 Lamar Advertising Company+............. 1,033,451
45,073 Outdoor Systems, Inc.+................. 1,262,044
17,405 Sapient Corporation+................... 918,114
17,260 Snyder Communications.................. 759,440
-----------
5,706,769
-----------
ELECTRONIC/SEMICONDUCTORS - 4.1%
13,907 Analog Devices, Inc.+.................. 341,591
32,480 Maxim Integrated Products, Inc.+....... 1,029,210
59,025 Nokia Corporation, Class A,
Sponsored ADR........................ 4,283,002
-----------
5,653,803
-----------
CONSUMER STAPLES - 2.5%
26,240 Delta and Pine Land Company............ 1,167,680
125,010 Raisio Group Plc.+..................... 2,272,059
-----------
3,439,739
-----------
FINANCIAL SERVICES - 2.5%
26,510 Associates First Capital Corporation,
Class A.............................. 2,037,956
27,825 Household International................ 1,384,294
-----------
3,422,250
-----------
TECHNOLOGY - 2.4%
12,330 Orbital Science Corporation+........... 460,834
38,930 Pittway Corporation, Class A........... 2,875,954
-----------
3,336,788
-----------
INSURANCE - 2.2%
55,268 UNUM Corporation....................... 3,067,374
-----------
RETAIL SALES - 1.1%
24,355 Costco Companies, Inc.+................ 1,535,887
-----------
OIL & GAS - 0.2%
424,533 Ocean Rig ASA+......................... 315,761
-----------
Total Common Stocks (Cost
$101,280,267)........................ 135,334,923
-----------
</TABLE>
See Notes to Financial Statements.
41
<PAGE> 44
PORTFOLIO of INVESTMENTS (continued)
GROWTH FUND
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ---------- ------------
<S> <C>
DISCOUNT COMMERCIAL PAPER - 1.0%
$1,400,000 Household Finance,
Zero Coupon due 07/01/98+............ $ 1,400,000
-----------
Total Commercial Paper
(Cost $1,400,000).................... 1,400,000
-----------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
TOTAL INVESTMENTS
(Cost $102,680,267*)..................... 98.8% 136,734,923
OTHER ASSETS AND LIABILITIES (NET)......... 1.2 1,656,800
----- ------------
NET ASSETS................................. 100.0% $138,391,723
===== ============
</TABLE>
- ---------------------
* Aggregate cost for federal tax purposes.
+ Non-income producing security.
See Notes to Financial Statements.
42
<PAGE> 45
PORTFOLIO of INVESTMENTS (continued)
GROWTH FUND
JUNE 30, 1998 (UNAUDITED)
SCHEDULE OF FORWARD FOREIGN CURRENCY CONTRACTS
U. S. FORWARD FOREIGN CURRENCY CONTRACTS TO BUY
<TABLE>
<CAPTION>
CONTRACTS TO RECEIVE UNREALIZED
------------------------------ APPRECIATION/
EXPIRATION VALUE IN IN EXCHANGE (DEPRECIATION)
DATE LOCAL CURRENCY U.S. $ FOR U.S. $ OF CONTRACTS
---------- ------------------- --------- ----------- --------------
<C> <S> <C> <C> <C> <C>
07/02/1998 NLG 1,700,000 836,354 842,843 $ (6,489)
07/10/1998 NLG 1,250,000 615,207 614,489 718
07/10/1998 ITL 1,870,000,000 1,052,584 1,049,167 3,417
07/17/1998 NLG 600,000 295,494 293,658 1,836
07/17/1998 FIM 1,500,000 273,993 279,502 (5,509)
07/23/1998 FIM 2,100,000 383,726 381,603 2,123
07/31/1998 NLG 400,000 197,176 196,153 1,023
07/31/1998 FIM 9,000,000 1,645,312 1,648,082 (2,770)
08/07/1998 SEK 200,000 25,118 24,917 201
08/07/1998 ITL 450,000,000 253,426 253,807 (381)
08/07/1998 GBP 115,000 192,162 187,968 4,194
08/13/1998 GBP 45,000 75,203 74,790 413
08/14/1998 SEK 2,600,000 326,623 325,406 1,217
10/07/1998 GBP 255,000 426,636 417,615 9,021
11/04/1998 FIM 1,900,000 349,108 346,981 2,127
11/12/1998 ITL 650,000,000 366,940 372,077 (5,137)
--------
$ 6,004
--------
</TABLE>
U. S. FORWARD FOREIGN CURRENCY CONTRACTS TO SELL
<TABLE>
<CAPTION>
CONTRACTS TO DELIVER UNREALIZED
------------------------------ APPRECIATION/
EXPIRATION VALUE IN IN EXCHANGE (DEPRECIATION)
DATE LOCAL CURRENCY U.S. $ FOR U.S. $ OF CONTRACTS
---------- ------------------- --------- ----------- --------------
<C> <S> <C> <C> <C> <C>
07/01/1998 FIM 133,551 24,370 24,256 $ (114)
07/02/1998 NLG 1,700,000 836,354 828,460 (7,894)
07/10/1998 ITL 1,970,000,000 1,108,872 1,106,617 (2,255)
07/10/1998 NLG 1,250,000 615,206 618,200 2,994
07/17/1998 NLG 600,000 295,494 294,695 (799)
07/17/1998 FIM 1,500,000 273,993 271,247 (2,746)
07/23/1998 FIM 2,100,000 383,726 386,349 2,623
07/31/1998 FIM 20,000,000 3,656,248 3,644,759 (11,489)
07/31/1998 NLG 400,000 197,176 197,570 394
08/07/1998 ITL 670,000,000 377,322 369,784 (7,538)
08/07/1998 SEK 200,000 25,117 24,993 (124)
08/07/1998 GBP 115,000 192,161 188,072 (4,089)
08/07/1998 FIM 1,500,000 274,327 270,236 (4,091)
08/13/1998 GBP 45,000 75,203 72,720 (2,483)
08/14/1998 SEK 2,600,000 326,623 324,866 (1,757)
10/07/1998 GBP 255,000 426,636 422,790 (3,846)
11/04/1998 FIM 1,900,000 349,108 358,489 9,381
11/12/1998 ITL 1,960,000,000 1,106,468 1,110,041 3,573
--------
$(30,260)
--------
Net Unrealized Depreciation of Forward Foreign
Currency Contracts................................. $(24,256)
========
</TABLE>
GLOSSARY OF TERMS
<TABLE>
<S> <C> <C>
ADR -- American Depositary Receipt
FIM -- Finnish Markks
GBP -- Great British Pound
ITL -- Italian Lira
NLG -- Netherlands Guider
SEK -- Swedish Krons
</TABLE>
See Notes to Financial Statements.
43
<PAGE> 46
PORTFOLIO of INVESTMENTS
BOND & STOCK FUND
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<C> <S> <C>
COMMON STOCKS - 43.4%
CONSUMER STAPLES - 4.6%
550 Phillip Morris Companies, Inc. ........... $ 21,656
150 Ralston-Ralston Purina Group.............. 17,522
450 Supervalu, Inc. .......................... 19,967
---------
59,145
---------
ELECTRONICS/SEMICONDUCTORS - 4.0%
500 AMP, Inc. ................................ 17,188
350 Motorola, Inc. ........................... 18,397
450 Tektronix, Inc. .......................... 15,919
---------
51,504
---------
BANKS/SAVINGS & LOANS - 3.9%
100 Citicorp.................................. 14,925
250 Mellon Bank Corporation................... 17,406
50 Wells Fargo & Company..................... 18,450
---------
50,781
---------
COMPUTER SOFTWARE/SERVICES - 3.8%
400 Adobe Systems, Inc.+...................... 16,975
400 Autodesk, Inc. ........................... 15,450
300 Computer Associates International,
Inc. ................................... 16,669
---------
49,094
---------
RETAIL SALES - 3.4%
347 Abercrombie & Fitch Company, Class A...... 15,257
550 Dillards, Inc. Class A.................... 22,791
200 Limited, Inc. ............................ 6,625
---------
44,673
---------
UTILITIES/TELECOMMUNICATIONS - 3.1%
300 Southern New England Telecommunications... 19,650
300 Sprint Corporation........................ 21,150
---------
40,800
---------
AEROSPACE/DEFENSE - 3.1%
400 Crane Company............................. 19,425
200 Northrop Grumman Corporation.............. 20,625
---------
40,050
---------
HEALTHCARE PRODUCTS - 3.0%
500 Abbott Laboratories....................... 20,438
350 Baxter International, Inc. ............... 18,834
---------
39,272
---------
OIL & GAS - 3.0%
400 Ashland, Inc. ............................ 20,650
600 YPF S.A. - Sponsored ADR.................. 18,038
---------
38,688
---------
HEALTHCARE SERVICES - 2.8%
250 Aetna, Inc. .............................. 19,031
600 Columbia/HCA Healthcare Corporation....... 17,475
---------
36,506
---------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<C> <S> <C>
COMPUTER SYSTEMS - 2.5%
250 Hewlett-Packard Company................... $ 14,968
150 International Business Machines
Corporation............................. 17,222
---------
32,190
---------
FINANCIAL SERVICES - 1.7%
500 Green Tree Financial Corporation.......... 21,406
---------
MEDIA - 1.6%
350 Viacom, Inc., Class A+.................... 20,475
---------
CONSUMER CYCLICALS - 1.5%
400 Nike, Inc., Class B....................... 19,475
---------
BASIC INDUSTRY - 1.4%
400 Rayonier, Inc. ........................... 18,400
---------
Total Common Stocks (Cost $612,720)....... 562,459
---------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
- ---------
<C> <S> <C>
FIXED INCOME SECURITIES - 34.6%
U.S. TREASURY OBLIGATIONS - 31.0%
$380,000 U.S. Treasury Note,
6.500% due 05/15/2005 (Cost $396,750)..... 401,256
---------
CORPORATE BONDS - 3.6%
45,000 Aetna Services, Inc.,
7.125% due 08/15/2006 (Cost $19,642)...... 46,961
---------
Total Fixed Income Securities (Cost
$416,392)............................... 448,217
---------
</TABLE>
<TABLE>
<CAPTION>
SHARES
------
<C> <S> <C>
CONVERTIBLE PREFERRED STOCKS - 1.7%
600 Cendant Corporation,
1.300%.................................... 17,363
60 Estee Lauder Company,
6.250%.................................... 4,020
---------
Total Convertible Preferred Stock (Cost
$24,548)................................ 21,383
---------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
- ---------
<C> <S> <C>
REPURCHASE AGREEMENT - 18.1%
$235,000 Agreement with Goldman Sachs, 5.500% dated
06/30/1998, to be repurchased at
$235,036 on 07/01/1998, collateralized
by $171,461 U.S. Treasury Note, 8.875%
due 08/15/2017 (Market Value $239,118)
(Cost $235,000)......................... 235,000
---------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (Cost $1,288,660*)......... 97.8% 1,267,059
OTHER ASSETS AND LIABILITIES (NET)........... 2.2 27,981
----- ----------
NET ASSETS................................... 100.0% $1,295,040
===== ==========
</TABLE>
- ---------------------
* Aggregate cost for federal tax purposes.
+ Non-income producing security.
GLOSSARY OF TERMS
ADR -- American Depository Receipt
See Notes to Financial Statements.
44
<PAGE> 47
PORTFOLIO of INVESTMENTS
NORTHWEST FUND
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<C> <S> <C>
COMMON STOCKS - 87.8%
COMPUTER SOFTWARE & SERVICES - 11.4%
400 Adobe Systems, Inc........................ $ 16,975
1,650 Mentor Graphics Corporation+.............. 17,428
580 Microsoft Corporation+.................... 62,858
700 Orcad, Inc.+.............................. 6,825
100 Visio Corporation+........................ 4,775
1,020 Wall Data, Inc.+.......................... 16,320
---------
125,181
---------
HEALTHCARE PRODUCTS - 9.8%
400 ATL Ultrasound, Inc.+..................... 18,250
1,300 Corixa Corporation+....................... 8,938
1,400 ICOS Corporation+......................... 26,775
345 Immunex Corporation+...................... 22,856
1,500 NeoRx Corporation+........................ 7,406
460 PathoGenesis Corporation+................. 13,340
1,390 SonoSight, Inc.+.......................... 10,164
---------
107,729
---------
BANK/SAVINGS & LOANS - 7.2%
500 First Savings Bank of Washington Bancorp,
Inc. ................................... 12,625
200 Interwest Bancorp, Inc. .................. 8,675
200 KeyCorp. ................................. 7,125
500 Sterling Financial Corporation+........... 11,375
525 US Bancorp................................ 22,575
600 Washington Federal, Inc. ................. 16,575
---------
78,950
---------
RETAIL SALES - 7.1%
1,275 Building Materials Holding Corporation+... 17,611
435 Costco Companies, Inc.+................... 27,432
640 Fred Meyer, Inc., Class A+................ 27,200
2,200 Multiple Zones International, Inc.+....... 6,325
---------
78,568
---------
BASIC INDUSTRY - 6.6%
500 Allegheny Teledyne, Inc. ................. 11,406
150 Boise Cascade Corporation................. 4,913
200 Morrisson Knudsen Corporation+............ 2,813
570 Oregon Steel Mills, Inc. ................. 10,616
700 Schnitzer Steel Industries, Inc., Class
A....................................... 16,538
300 Weyerhaeuser Company...................... 13,856
400 Willamette Industries, Inc. .............. 12,800
---------
72,942
---------
ELECTRONICS/SEMICONDUCTORS - 6.1%
760 Credence Systems Corporation+............. 14,440
160 Intel Corporation......................... 11,860
255 Lattice Semiconductor Corporation+........ 7,244
790 Micron Technology, Inc.+.................. 19,601
750 TriQuint Semiconductor, Inc.+............. 14,250
---------
67,395
---------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<C> <S> <C>
ELECTRONICS/GENERAL - 5.9%
500 Electro Scientific Industries, Inc.+...... $ 15,781
1,000 FEI Company+.............................. 9,312
500 Flir Systems, Inc.+....................... 8,625
840 Innova Corporation+....................... 4,305
770 Tektronix, Inc............................ 27,239
---------
65,262
---------
TRANSPORTATION - 5.3%
460 Airborne Freight Corporation.............. 16,071
300 Alaska Air Group, Inc.+................... 16,350
600 Expeditors International of Washington,
Inc..................................... 26,400
---------
58,821
---------
COMPUTER SYSTEMS - 4.3%
2,000 In Focus Systems, Inc.+................... 14,125
1,000 Radisys Corporation+...................... 21,500
1,000 Sequent Computer Systems, Inc.+........... 12,063
---------
47,688
---------
AEROSPACE/DEFENSE - 3.4%
600 Boeing Company............................ 26,737
200 Precision Castparts Corporation........... 10,675
---------
37,412
---------
UTILITIES/TELECOMMUNICATIONS - 3.1%
600 General Communication, Inc., Class A+..... 3,637
1,570 Metro One Telecommunications+............. 12,364
350 Nextel Communication, Inc.+............... 8,706
500 Western Wireless Corporation, Class A+.... 9,969
---------
34,676
---------
LODGING & RESTAURANTS - 2.5%
735 Cavanaughs Hospitality Corporation+....... 9,601
340 Starbucks Corporation+.................... 18,169
---------
27,770
---------
CONSUMER STAPLES - 2.3%
500 Albertson's, Inc. ........................ 25,875
---------
HEALTHCARE SERVICES - 1.7%
310 Foundation Health Systems, Inc., Class
A+...................................... 8,176
120 Pacificare Health Systems, Inc., Class
B+...................................... 10,605
---------
18,781
---------
INSURANCE - 1.6%
400 Safeco Corporation........................ 18,175
---------
CAPITAL GOODS - 1.6%
600 Greenbrier Companies, Inc. ............... 10,350
145 PACCAR, Inc. ............................. 7,576
---------
17,926
---------
</TABLE>
See Notes to Financial Statements.
45
<PAGE> 48
PORTFOLIO of INVESTMENTS (continued)
NORTHWEST FUND
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<C> <S> <C>
COMMON STOCKS - (CONTINUED)
ELECTRICAL EQUIPMENT - 1.6%
300 Fluke Corporation......................... $ 9,863
750 Merix Corporation+........................ 7,453
---------
17,316
---------
REAL ESTATE INVESTMENT TRUSTS - 1.5%
500 Pacific Gulf Properties, Inc. ............ 10,656
200 Shurgard Storage Centers, Inc. Class A.... 5,550
---------
16,206
---------
CONSUMER DURABLES - 1.1%
400 Monaco Coach Corporation*................. 11,700
---------
CONSUMER CYCLICALS - 1.0%
225 Nike, Inc., Class B....................... 10,955
---------
OIL & GAS - 1.0%
200 Enron Corporation......................... 10,813
---------
MEDIA - 1.0%
350 Lee Enterprises, Inc...................... 10,719
---------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<C> <S> <C>
BUSINESS SERVICES - 0.7%
800 Barrett Business Services, Inc.+.......... $ 7,900
---------
Total Common Stocks (Cost $1,045,279)..... 968,760
---------
PRINCIPAL
AMOUNT
- --------
REPURCHASE AGREEMENT - 10.3%
$114,000 Agreement with Goldman Sachs, 5.500% dated
06/30/1998, to be repurchased at
$114,017 on 07/01/1998, collateralized
by $82,965 U.S. Treasury Note, 8.875%
due 08/15/2017 (Market Value
$115,702)(Cost $114,000)................ 114,000
---------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (Cost $1,159,279*)......... 98.1% 1,082,760
OTHER ASSETS AND LIABILITIES (NET)........... 1.9 20,807
----- ----------
NET ASSETS................................... 100.0% $1,103,567
===== ==========
</TABLE>
- ---------------------
* Aggregate cost for federal tax purposes.
+ Non-income producing security.
See Notes to Financial Statements.
46
<PAGE> 49
PORTFOLIO of INVESTMENTS
EMERGING GROWTH FUND
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
- ------ --------
<C> <S> <C>
COMMON STOCKS - 82.3%
HEALTHCARE PRODUCTS - 11.3%
14,300 ATL Ultrasound, Inc.+...................... $ 652,438
44,200 Corixa Corporation+........................ 303,875
10,900 ESC Medical Systems Ltd.+.................. 367,875
34,400 ICOS Corporation+.......................... 657,900
44,075 NeoRx Corporation+......................... 217,620
34,980 Omnicare, Inc. ............................ 1,333,613
22,621 1-800 Contacts, Inc.+...................... 344,970
19,100 PathoGenesis Corporation+.................. 553,900
6,950 Sofamor Danek Group, Inc.+................. 601,609
4,766 SonoSight, Inc.+........................... 34,851
----------
5,068,651
----------
COMPUTER SOFTWARE/SERVICES - 9.5%
17,450 ARIS Corporation+.......................... 488,600
21,375 Cadence Design Systems, Inc.+.............. 667,969
35,450 Carreker-Antinori, Inc.+................... 372,225
16,900 Check Point Software Technologies Ltd.+.... 553,475
18,700 Harbinger Corporation+..................... 452,306
11,850 Made2Manage Systems, Inc.+................. 137,756
23,575 Tier Technologies, Inc.+................... 419,930
11,900 Visio Corporation+......................... 568,225
36,275 Wall Data, Inc.+........................... 580,400
----------
4,240,886
----------
FINANCIAL SERVICES - 8.7%
47,590 American Capital Strategies, Ltd........... 1,088,621
18,115 HealthCare Financial Partners, Inc.+....... 1,110,676
31,180 Paychex, Inc. ............................. 1,268,636
16,025 Profit Recovery Group International,
Inc.++................................... 447,698
----------
3,915,631
----------
ELECTRONICS/SEMICONDUCTORS - 7.9%
24,390 ATMI, Inc. ................................ 365,850
17,125 Berg Electronics Corporation+.............. 335,008
34,320 Credence Systems Corporation+.............. 652,080
40,850 FEI Company+............................... 380,415
45,600 General Semiconductor, Inc.+............... 450,300
41,900 Innova Corporation+........................ 214,738
15,825 Lattice Semiconductor Corporation+......... 449,529
6,350 Maxim Integrated Products, Inc.+........... 201,216
24,700 TriQuint Semiconductor, Inc.+.............. 469,300
----------
3,518,436
----------
RETAIL SALES - 6.7%
9,236 Duane Reade, Inc.+......................... 277,080
18,280 Fastenal Company........................... 848,877
176,783 J.D. Wetherspoon Plc Ord................... 863,386
16,515 MSC Industrial Direct Company, Inc.,
Class A+................................. 470,678
27,275 Petco Animal Supplies, Inc.+............... 543,795
----------
3,003,816
----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
- ------ --------
<C> <S> <C>
MEDIA - 6.5%
11,700 Chancellor Media Corporation............... $ 580,978
24,795 HA-LO Industries, Inc. .................... 771,744
5,540 Jacor Communication, Inc.+................. 326,860
17,195 Lamar Advertising Company+................. 616,871
21,964 Outdoor Systems, Inc.+..................... 614,992
----------
2,911,445
----------
LODGING & RESTAURANTS - 4.8%
29,895 Cavanaughs Hospitality Corporation+........ 390,503
13,300 JP Foodservice, Inc.+...................... 466,331
11,112 Papa John's International, Inc.+........... 438,230
23,100 PJ America, Inc.+.......................... 421,575
4,190 Premier Parks, Inc.+....................... 279,159
13,410 Royal Olympic Cruise Lines, Inc.+.......... 134,100
----------
2,129,898
----------
COMPUTER SYSTEMS - 4.3%
20,000 Apex PC Solutions, Inc.+................... 557,500
71,200 In Focus Systems, Inc.+.................... 502,850
39,700 Radisys Corporation+....................... 853,550
----------
1,913,900
----------
CONSUMER CYCLICALS - 4.2%
29,400 Building Materials Holding Corporation+.... 406,087
14,600 Cutter & Buck, Inc.+....................... 394,200
17,475 Family Golf Centers, Inc.+................. 442,336
20,750 Nortek, Inc.+.............................. 638,063
----------
1,880,686
----------
TRANSPORTATION - 3.0%
12,700 Expeditors International of Washington,
Inc. .................................... 558,800
22,675 Ryanair Holdings PLC-Sponsored ADR+........ 807,797
----------
1,366,597
----------
HEALTHCARE SERVICES - 2.4%
14,675 Concentra Managed Care, Inc.+.............. 381,550
9,005 Medallion Financial Corporation............ 247,638
12,675 Pediatrix Medical Group, Inc+.............. 471,352
----------
1,100,540
----------
INSURANCE - 2.4%
33,550 PennCorp Financial Group, Inc. ............ 687,775
11,040 Protective Life Corporation................ 405,030
----------
1,092,805
----------
BUSINESS SERVICES - 2.3%
22,092 Apollo Group, Inc., Class A+............... 730,416
11,205 First Consulting Group, Inc.+.............. 294,131
----------
1,024,547
----------
UTILITIES/GAS/ELECTRIC - 1.9%
60,325 Trigen Energy Corporation.................. 833,239
----------
ELECTRICAL EQUIPMENT - 1.8%
16,600 Electro Scientific Industries, Inc.+....... 523,937
11,450 Littelfuse, Inc.+.......................... 289,113
----------
813,050
----------
</TABLE>
See Notes to Financial Statements.
47
<PAGE> 50
PORTFOLIO of INVESTMENTS (continued)
EMERGING GROWTH FUND
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
- ------ --------
<C> <S> <C>
COMMON STOCKS - (CONTINUED)
OIL & GAS - 1.3%
20,705 Hanover Compressor Company+................ $ 560,329
----------
UTILITIES/TELECOMMUNICATIONS - 1.1%
12,300 Teligent, Inc.+............................ 362,081
5,900 US LEC Corp.+.............................. 123,163
----------
485,244
----------
CONSUMER STAPLES - 1.0%
16,200 Renters Choice, Inc.+...................... 459,675
----------
BASIC INDUSTRY - 0.6%
7,675 Sealed Air Corporation+.................... 282,056
----------
BANKS/SAVINGS & LOANS - 0.6%
14,260 Richmond County Financial Corp. ........... 266,484
----------
Total Common Stocks (Cost $33,690,519)..... 36,867,915
----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- --------- --------
<C> <S> <C>
REPURCHASE AGREEMENT - 15.8%
$7,081,000 Agreement with Goldman Sachs, 5.500%
dated 06/30/1998, to be repurchased at
$7,082,082 on 07/01/1998,
collateralized by $5,188,078 U.S.
Treasury Note, 8.875% due 08/15/2017
(Market Value $7,235,255) (Cost
$7,081,000)........................... $ 7,081,000
----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (Cost $40,771,519*)....... 98.1% 43,948,915
OTHER ASSETS AND LIABILITIES (NET).......... 1.9 863,798
----- -----------
NET ASSETS.................................. 100.0% $44,812,713
===== ===========
</TABLE>
- ---------------------
* Aggregate cost for federal tax purposes.
+ Non-income producing security.
GLOSSARY OF TERMS
ADR -- American Depositary Receipt
SCHEDULE OF FORWARD FOREIGN CURRENCY CONTRACTS
U.S. FORWARD FOREIGN CURRENCY CONTRACTS TO BUY
<TABLE>
<CAPTION>
CONTRACTS TO DELIVER
-------------------------------------- NET UNREALIZED
EXPIRATION LOCAL VALUE IN IN EXCHANGE APPRECIATION
DATE CURRENCY U.S. $ FOR U.S. $ OF CONTRACTS
- ---------- -------------- -------- ----------- --------------
<S> <C> <C> <C> <C> <C>
07/10/1998 GBP 136,000 227,106 226,230 $ 876
08/07/1998 GBP 75,000 125,323 124,620 703
08/13/1998 GBP 175,000 292,456 290,745 1,711
08/14/1998 GBP 50,000 83,561 83,015 546
--------
$ 3,836
--------
</TABLE>
U.S. FORWARD FOREIGN CURRENCY CONTRACTS TO SELL
<TABLE>
<CAPTION>
CONTRACTS TO DELIVER
-------------------------------------- NET UNREALIZED
EXPIRATION LOCAL VALUE IN IN EXCHANGE (DEPRECIATION)
DATE CURRENCY U.S. $ FOR U.S. $ OF CONTRACTS
- ---------- -------------- -------- ----------- --------------
<S> <C> <C> <C> <C> <C>
07/03/1998 GBP 12,934 21,596 21,470 $ (126)
07/07/1998 GBP 157,253 262,579 262,283 (296)
07/10/1998 GBP 136,000 227,106 220,891 (6,215)
08/07/1998 GBP 75,000 125,323 122,778 (2,545)
08/13/1998 GBP 175,000 292,456 282,800 (9,656)
08/14/1998 GBP 50,000 83,561 81,670 (1,891)
--------
$(20,729)
--------
Net Unrealized Depreciation of Forward Foreign
Currency Contracts.......................... $(16,893)
========
</TABLE>
GLOSSARY OF TERMS
<TABLE>
<S> <C> <C>
GBP -- Great Britain Pound Sterling
</TABLE>
See Notes to Financial Statements.
48
<PAGE> 51
PORTFOLIO of INVESTMENTS
INTERNATIONAL GROWTH FUND
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<C> <S> <C>
COMMON STOCKS - 95.1%
UNITED KINGDOM - 14.7%
22,200 Barclays Plc+........................... $ 640,524
34,400 Bass Plc................................ 645,025
13,700 Biocompatibles International Plc+....... 27,679
33,151 British Airport Authority............... 358,129
95,900 British Energy Plc...................... 839,051
63,500 British Sky Broadcasting Group Plc...... 456,442
174,591 Cookson Group Plc....................... 600,520
69,700 Dixons Group Plc........................ 556,286
27,500 Galaxo Welcome.......................... 826,042
57,524 Guardian Royal Exchange Plc............. 337,127
47,100 London Forfaiting Company Plc........... 214,302
123,600 Medeva Plc.............................. 352,901
70,600 Orange Plc+............................. 748,543
4,400 Perpetual Plc........................... 296,990
247,300 Pilkington Plc.......................... 458,338
126,900 Rolls Royce Plc......................... 524,415
25,900 Royal & Sun Alliance Insurance Group
Plc................................... 267,904
22,500 Safeway Inc. ........................... 147,455
44,800 Standard Chartered Plc.................. 509,405
65,000 Williams Holdings Plc................... 417,842
-----------
9,224,920
-----------
GERMANY - 14.1%
17,400 Commerzbank AG.......................... 662,958
15,600 Degussa SA.............................. 999,279
5,600 Fresenius Medical Care AG+.............. 350,951
1,800 GEA AG.................................. 703,788
6,200 Hannover Rueckversicherungs AG.......... 715,213
21,100 Hoechst AG.............................. 1,061,963
2,152 KSB (Klein Schanzlin & Becker) AG+...... 537,075
3,320 Mannesmann AG........................... 341,556
12,800 Moebel Walther AG....................... 603,405
2,700 Muenchener
Rueckversicherungs-Geseuschaft AG..... 1,341,689
2,300 Preussag AG............................. 824,025
1,040 Viag AG................................. 716,366
-----------
8,858,268
-----------
FRANCE - 12.6%
7,720 Banque Nationale de Paris............... 630,809
3,560 Compagnie de St. Gobain................. 660,099
15,557 La Gardere Group........................ 647,683
3,600 PSA Peugeot Citroen..................... 774,104
16,900 Rhone-Poulenc Rorer, Inc. .............. 953,223
8,100 SCOR.................................... 513,811
20,700 Societe Generale Ord.................... 978,899
12,400 Societe National Elf Aqutaine SA........ 1,743,388
2,900 Total SA................................ 377,028
34,900 TRANSGENE SA, Sponsored ADR+............ 606,388
-----------
7,885,432
-----------
JAPAN - 8.4%
12,100 Advantest Corporation................... 652,824
46,000 Fujitsu Ltd............................. 485,716
27,000 Hankyu Realty........................... 119,310
90,000 Minebea Company Ltd. ................... 898,893
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<C> <S> <C>
2,370 Nichiei Company Ltd. ................... $ 161,805
8,000 Orix Corporation........................ 542,128
6,000 Rohm Company............................ 618,355
1,400 Shohkoh Fund & Company Ltd. ............ 345,267
6,400 Sony Corporation........................ 553,121
800 Sumitomo Bank Ltd....................... 7,811
5,000 Takefuji Corporation++.................. 231,431
7,000 TDK Corporation......................... 518,912
4,000 Tokyo Electron Ltd. .................... 122,948
-----------
5,258,521
-----------
NETHERLANDS - 6.0%
2,300 CSM NV.................................. 110,550
13,300 Hagemeyer NV............................ 575,800
14,232 ING Groep NV............................ 932,626
16,600 Pakhoed NV.............................. 539,001
10,100 Philips Electronics NV.................. 849,679
11,546 Vedior NV,.............................. 326,603
11,700 Vendex NV............................... 440,337
-----------
3,774,596
-----------
SWEDEN - 5.7%
40,500 ABB AB, B Shares........................ 563,699
8,500 Biora AB, Sponsored ADR................. 225,250
33,611 Electrolux AB, B shares................. 577,393
15,500 Ericsson LM, B shares................... 452,853
9,200 Kinnevik, B Shares...................... 299,360
92,100 Nordbanken AB........................... 675,592
41,700 SKF AB, B Shares........................ 758,182
-----------
3,552,329
-----------
ITALY - 5.5%
28,400 Assicurazioni Generali Spa+............. 923,889
209,700 Parmalat Finanziaria Spa+............... 427,839
1,351,000 Seat Spa+............................... 638,717
200,300 Telecom Italia Spa...................... 1,475,123
-----------
3,465,568
-----------
AUSTRIA - 4.1%
12,300 Bank Austria AG......................... 1,001,353
4,370 OMV AG.................................. 585,881
4,435 VA Technologie AG....................... 552,300
1,890 Wienerberger Baustoffindustrie AG....... 457,622
-----------
2,597,156
-----------
SWITZERLAND - 3.7%
298 Schweiz Ruckversicherungs AG............ 754,889
640 SIG Schweizerische
Industrie-Gesellschaft Holding AG..... 521,957
663 Sulzer AG............................... 524,078
5,700 TAG Heuer International SA.............. 541,092
-----------
2,342,016
-----------
DENMARK - 3.6%
12,200 International Service Systems A/S, Class
B..................................... 710,386
17,400 SAS Denmark A/S......................... 349,545
13,600 Unidemark A/S........................... 1,223,495
-----------
2,283,426
-----------
</TABLE>
See Notes to Financial Statements.
49
<PAGE> 52
PORTFOLIO of INVESTMENTS (continued)
INTERNATIONAL GROWTH FUND
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<C> <S> <C>
COMMON STOCKS - (CONTINUED)
HONG KONG - 2.4%
656,000 Cosco Pacific Ltd. ..................... $ 234,951
328,262 First Pacific Company................... 137,694
19,400 Guangshen Railway Ltd., ADR............. 132,163
26,800 HSBC Holdings Plc....................... 655,472
143,000 Samartone Telecommunications............ 348,826
-----------
1,509,106
-----------
ISRAEL - 2.3%
19,300 Blue Square-Israel Ltd., ADR............ 297,944
17,400 ECI Telecommunications Ltd., ADR........ 659,025
13,800 Orbotech, Ltd., ADR+.................... 501,975
-----------
1,458,944
-----------
FINLAND - 1.9%
14,590 Huhtamaki Group, I Shares 830,664
17,714 Rauma Group............................. 363,651
-----------
1,194,315
-----------
ARGENTINA - 1.5%
11,100 Telefonica de Argentina, ADR............ 360,056
20,200 YPF Sociedad Anonima, Sponsored ADR..... 607,263
-----------
967,319
-----------
NORWAY - 1.3%
34,600 Fred Olsen Energy....................... 460,521
21,700 Smedvig ASA, B Shares................... 240,686
825 Smedvig ASA, B Shares, Sponsored ADR.... 9,384
4,300 Sparebanken NOR......................... 123,442
-----------
834,033
-----------
SPAIN - 1.3%
37,100 Endesa SA............................... 811,676
-----------
SINGAPORE - 1.2%
1,980 Development Bank of Singapore, ADR...... 44,303
113,490 Development Bank of Singapore (F)....... 629,752
74,000 Keppel Bank............................. 61,045
-----------
735,100
-----------
KOREA - 1.0%
5,500 Hyundai Heavy Industry.................. 116,169
16,600 LG Electronics.......................... 136,016
6,410 Samsung Display Devices Company......... 175,073
39,700 Samsung Heavy Industry+................. 198,066
-----------
625,324
-----------
NEW ZEALAND - 0.9%
665,400 Brierly Investments Ltd., Ord........... 332,391
176,200 Fletcher Challenge -- Building
Division.............................. 220,046
34,500 Wrightson Ltd........................... 6,642
-----------
559,079
-----------
IRELAND - 0.8%
29,400 Greensource Group Plc................... 160,157
23,300 Kerry Group Plc......................... 322,200
----------
482,357
----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<C> <S> <C>
MEXICO - 0.7%
14,200 Fomento Economico Mexico, SA,
Sponsored ADR+........................ $ 447,300
----------
BRAZIL - 0.6%
1,075,600 Cia Saneamento Basico Estado............ 129,271
2,400 Telebras, Sponsored ADR................. 262,050
----------
391,321
----------
INDIA - 0.5%
23,500 State Bank of India, GDR+ ++............ 277,300
----------
PORTUGAL - 0.2%
10,700 Banco Mello, SA......................... 131,982
----------
AUSTRALIA - 0.1%
14,100 Foodland Associated Ltd................. 85,775
----------
Total Common Stocks (Cost
$58,632,297).......................... 59,753,163
----------
PREFERRED STOCKS - 1.0%
BRAZIL - 1.0%
21,200 CIA Vale Do Rio Doce, PFD............... 421,599
1,045,000 Telerj Cellular SA-PFD B................ 62,155
1,757,000 Telesp Cellular SA-PFD B................ 145,841
----------
Total Preferred Stocks (Cost
$726,853)............................. 629,595
----------
RIGHTS - 0.1%#
12,300 Bank Austria AG Rights.................. 638
9,200 Kinnevik AB Rights...................... 42,107
----------
Total Rights (Cost $0).................. 42,745
----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
- ---------
<C> <S> <C>
REPURCHASE AGREEMENT - 3.3%
$2,089,000 Agreement with State Street Corp.,
5.750% dated 07/01/1998, to be
repurchased at $2,089,334 on
07/01/1998, collateralized by
$1,535,000 U.S. Treasury Note, 8.875%
due 08/15/2017. (Market Value
$2,182,818) (Cost $2,089,000)......... 2,089,000
----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (Cost $61,448,150*)....... 99.4% 62,514,503
OTHER ASSETS AND LIABILITIES (NET).......... 0.6 346,119
----- -----------
NET ASSETS.................................. 100.0% $62,860,622
===== ===========
</TABLE>
- ---------------------
* Aggregate cost for federal tax purposes.
+ Non-income producing security.
++ A portion or all of this security is exempt from registration under Rule
144A of the Securities Act of 1933. This security may be resold in
transactions exempt from registration, normally to qualified institutional
buyers.
# Amount represents less than 0.1% of net assets.
See Notes to Financial Statements.
50
<PAGE> 53
PORTFOLIO of INVESTMENTS (continued)
INTERNATIONAL GROWTH FUND
JUNE 30, 1998 (UNAUDITED)
As of June 30, 1998 sector diversification was as follows:
<TABLE>
<CAPTION>
% OF VALUE
SECTOR DIVERSIFICATION NET ASSETS (NOTE 2)
---------------------- ---------- --------
<S> <C> <C>
COMMON STOCKS:
Financial Services..................... 25.1% $15,752,238
Materials & Processing................. 12.3 7,752,478
Energy................................. 10.1 6,354,112
Producer Durables...................... 7.6 4,780,418
Technology............................. 7.5 4,675,726
Telecommunications..................... 6.9 4,306,476
Health Care............................ 5.5 3,451,174
Consumer Discretionary................. 4.8 2,993,873
Consumer Staples....................... 3.4 2,150,212
Autos & Transportation................. 3.4 2,138,356
Retail................................. 1.5 971,511
Other.................................. 7.0 4,426,589
----- -----------
TOTAL COMMON STOCKS.................... 95.1 59,753,163
OTHER INVESTMENTS...................... 4.4 2,761,340
----- -----------
TOTAL INVESTMENTS...................... 99.4 62,514,503
OTHER ASSETS AND LIABILITIES (NET)..... 0.6 346,119
----- -----------
NET ASSETS............................. 100.0% $62,860,622
===== ===========
</TABLE>
See Notes to Financial Statements.
51
<PAGE> 54
PORTFOLIO of INVESTMENTS (continued)
INTERNATIONAL GROWTH FUND
JUNE 30, 1998 (UNAUDITED)
SCHEDULE OF FORWARD FOREIGN CURRENCY CONTRACTS
U. S. FORWARD FOREIGN CURRENCY CONTRACTS TO BUY
<TABLE>
<CAPTION>
CONTRACTS TO RECEIVE
------------------------------ UNREALIZED
EXPIRATION VALUE IN IN EXCHANGE APPRECIATION
DATE LOCAL CURRENCY U.S. $ FOR U.S. $ OF CONTRACTS
---------- ------------------- --------- ----------- ------------
<C> <S> <C> <C> <C> <C>
07/01/1998 GBP 61,840 103,254 103,072 $ 182
08/31/1998 JPY 165,000,000 1,204,402 1,191,599 12,803
-------
$12,985
-------
</TABLE>
U. S. FORWARD FOREIGN CURRENCY CONTRACTS TO SELL
<TABLE>
<CAPTION>
CONTRACTS TO DELIVER UNREALIZED
------------------------------ APPRECIATION/
EXPIRATION VALUE IN IN EXCHANGE (DEPRECIATION)
DATE LOCAL CURRENCY U.S. $ FOR U.S. $ OF CONTRACTS
---------- ------------------- --------- ----------- --------------
<C> <S> <C> <C> <C> <C>
07/01/1998 NZD 18,238 9,490 9,375 $ (115)
07/02/1998 NZD 84,350 43,893 43,105 (788)
07/02/1998 ATS 111,300 8,772 8,750 (22)
07/02/1998 CHF 6,419 4,239 4,227 (12)
07/02/1998 ESP 1,082,495 7,059 7,054 (5)
07/02/1998 FIM 11,759 2,146 2,137 (9)
07/02/1998 FRF 201,511 33,331 33,250 (81)
07/02/1998 NLG 36,813 18,110 18,063 (47)
07/02/1998 PTE 8,643 47 47 (0)
07/02/1998 SEK 52,833 6,625 6,612 (13)
07/06/1998 NZD 1,139 593 585 (8)
07/07/1998 AUD 566,648 351,703 350,050 (1,653)
08/31/1998 JPY 832,000,000 6,073,108 6,129,576 56,468
-------
$53,715
-------
Net Unrealized Appreciation of Forward Foreign
Currency Contracts................................. $66,700
=======
</TABLE>
GLOSSARY OF TERMS
<TABLE>
<S> <C> <C>
ADR -- American Depositary Receipt
ATS -- Austrian Schilling
AUD -- Australian Dollar
CHF -- Swiss Franc
ESP -- Spanish Peseta
FIM -- Finnish Markka
FRF -- French Franc
GBP -- Great British Pound
JPY -- Japanese Yen
NLG -- Netherlands Guilder
NZD -- New Zealand Dollar
PTE -- Portuguesse Escudo
SEK -- Swedish Krona
</TABLE>
See Notes to Financial Statements.
52
<PAGE> 55
PORTFOLIO of INVESTMENTS
STRATEGIC GROWTH PORTFOLIO
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<C> <S> <C>
INVESTMENT COMPANY SECURITIES - 97.3%
17,529 WM Emerging Growth Fund.................... $ 245,408
45,475 WM Growth & Income Fund.................... 734,872
39,659 WM Growth Fund............................. 728,132
38,553 WM International Growth Fund............... 476,127
118,127 WM Money Market Fund....................... 118,127
58,334 WM Short Term High Quality Bond Fund....... 141,753
---------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (Cost $2,573,733*)......... 97.3% 2,444,419
OTHER ASSETS AND LIABILITIES (NET)........... 2.7 67,766
----- ----------
NET ASSETS................................... 100.0% $2,512,185
===== ==========
</TABLE>
- ---------------------
* Aggregate cost for federal tax purposes.
CONSERVATIVE GROWTH PORTFOLIO
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<C> <S> <C>
INVESTMENT COMPANY SECURITIES - 96.8%
38,678 WM Emerging Growth Fund.................... $ 541,490
117,088 WM Growth & Income Fund.................... 1,892,144
60,225 WM Growth Fund............................. 1,105,724
85,147 WM International Growth Fund............... 1,051,567
521,539 WM Money Market Fund....................... 521,539
25,943 WM US Government Securities Fund........... 261,762
----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (Cost $5,657,762*)......... 96.8% 5,374,226
OTHER ASSETS AND LIABILITIES (NET)........... 3.2 176,117
----- ----------
NET ASSETS................................... 100.0% $5,550,343
===== ==========
</TABLE>
- ---------------------
* Aggregate cost for federal tax purposes.
BALANCED PORTFOLIO
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<C> <S> <C>
INVESTMENT COMPANY SECURITIES - 97.6%
104,359 WM Growth & Income Fund.................. $1,686,443
47,474 WM Growth Fund........................... 871,621
88,632 WM International Growth Fund............. 1,094,606
1,086,094 WM Money Market Fund..................... 1,086,095
81,046 WM US Government Securities Fund......... 817,751
---------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (Cost $5,741,909*)......... 97.6% 5,556,516
OTHER ASSETS AND LIABILITIES (NET)........... 2.4 138,876
----- ----------
NET ASSETS................................... 100.0% $5,695,392
===== ==========
</TABLE>
- ---------------------
* Aggregate cost for federal tax purposes.
FLEXIBLE INCOME PORTFOLIO
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
- ------ --------
<C> <S> <C>
INVESTMENT COMPANY SECURITIES - 99.4%
2,502 WM Growth & Income Fund...................... $ 40,436
751 WM Growth Fund............................... 13,788
3,802 WM Income Fund............................... 39,048
64,960 WM Money Market Fund......................... 64,960
10,693 WM Short Term High Quality Bond Fund......... 25,984
7,755 WM US Government Securities Fund............. 78,253
--------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (Cost $267,532*)............ 99.4% 262,469
OTHER ASSETS AND LIABILITIES (NET)............ 0.6 1,564
----- --------
NET ASSETS.................................... 100.0% $264,033
===== ========
</TABLE>
- ---------------------
* Aggregate cost for federal tax purposes.
INCOME PORTFOLIO
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
- ------ --------
<C> <S> <C>
INVESTMENT COMPANY SECURITIES - 89.0%
2,692 WM Income Fund............................... $ 27,650
11,029 WM Money Market Fund......................... 11,028
5,446 WM Short Term High Quality Bond Fund......... 13,235
4,385 WM US Government Securities Fund............. 44,249
--------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (Cost $95,889*)............. 89.0% 96,162
OTHER ASSETS AND LIABILITIES (NET)............ 11.0 11,877
----- --------
NET ASSETS.................................... 100.0% $108,039
===== ========
</TABLE>
- ---------------------
* Aggregate cost for federal tax purposes.
See Notes to Financial Statements.
53
<PAGE> 56
STATEMENTS of ASSETS and LIABILITIES
WM VARIABLE TRUST
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
SHORT TERM U.S.
MONEY HIGH GOVERNMENT GROWTH &
MARKET QUALITY BOND SECURITIES INCOME INCOME GROWTH
FUND FUND FUND FUND FUND FUND
----------- ------------ ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments, at value
See portfolios of investments:
Securities........................ $33,089,742 $26,763,310 $50,084,367 $49,219,619 $115,043,932 $136,734,923
Repurchase Agreements............. 1,038,000 1,663,000 4,381,000 -- 630,000 --
----------- ----------- ----------- ----------- ------------ ------------
Total Investments (a)................. 34,127,742 28,426,310 54,465,367 49,219,619 115,673,932 136,734,923
Cash and/or foreign currency (b)...... 764 -- 59,464 -- -- 99,475
Dividends and/or interest
receivable.......................... 216,647 326,206 464,398 952,495 119,848 66,354
Receivable for investment securities
sold................................ -- -- -- -- 1,923,842 1,888,778
Receivable for Fund shares sold....... 143,776 -- 3,295 1,146 -- --
Net unrealized appreciation of forward
foreign currency contracts
See portfolios of investments....... -- -- -- -- -- --
Unamortized organization costs and/or
offering costs...................... -- -- -- -- -- --
Receivable from investment advisor.... 7,276 -- -- -- -- --
Other assets.......................... 182 5,336 455 400 503 820
----------- ----------- ----------- ----------- ------------ ------------
Total Assets...................... 34,496,387 28,757,852 54,992,979 50,173,660 117,718,125 138,790,350
----------- ----------- ----------- ----------- ------------ ------------
LIABILITIES:
Payable for investment securities
purchased........................... -- -- -- -- 1,560,149 184,853
Net unrealized depreciation of forward
foreign currency contracts
See portfolios of investments....... -- -- -- -- -- 24,256
Payable for Fund shares redeemed...... 36,443 1,604 46,140 52,598 -- 6,279
Due to Custodian...................... -- 386 -- 80,734 68,099 --
Dividends payable..................... 140,393 -- -- -- -- --
Investment advisory fee payable....... -- 24,558 25,178 23,889 70,254 95,115
Administration fee payable............ 5,072 4,264 8,105 7,392 16,549 19,250
Variation Margin payable.............. -- 1,547 -- -- -- --
Accrued expenses and other payables... 27,659 21,072 47,301 33,676 49,317 68,874
----------- ----------- ----------- ----------- ------------ ------------
Total Liabilities................. 209,567 53,431 126,724 198,289 1,764,368 398,627
----------- ----------- ----------- ----------- ------------ ------------
NET ASSETS............................ $34,286,820 $28,704,421 $54,866,255 $49,975,371 $115,953,757 $138,391,723
=========== =========== =========== =========== ============ ============
NET ASSETS CONSIST OF:
Undistributed net investment income/
(distributions in excess of net
investment income).................. $ 22,556 $ 59,729 $ 4,891 $ 47,251 $ 90,049 $ (194,358)
Accumulated net realized gain/(loss)
from security transactions, futures
contracts, forward foreign currency
contracts, foreign currency
transactions and written options.... 108 (565,163) (1,610,071) (2,208,829) 10,148,859 14,597,341
Net unrealized
appreciation/(depreciation) of
securities, futures contracts,
forward foreign currency contracts,
foreign currency, written options
and other assets and liabilities.... -- 145,740 2,605,897 2,489,745 14,012,605 34,030,132
Paid-in capital....................... 34,264,156 29,064,115 53,865,538 49,647,204 91,702,244 89,958,608
----------- ----------- ----------- ----------- ------------ ------------
Total Net Assets.................. $34,286,820 $28,704,421 $54,866,255 $49,975,371 $115,953,757 $138,391,723
=========== =========== =========== =========== ============ ============
NET ASSET VALUE, offering price and
redemption price per share of
beneficial interest outstanding..... $ 1.00 $ 2.43 $ 10.09 $ 10.27 $ 16.16 $ 18.36
=========== =========== =========== =========== ============ ============
Number of Fund/Portfolio shares
outstanding......................... 34,279,449 11,801,324 5,437,961 4,865,909 7,175,179 7,538,005
=========== =========== =========== =========== ============ ============
- ---------------------
(a) Investments, at cost.............. $34,127,742 $28,274,392 $51,859,470 $46,729,874 $101,661,327 $102,680,267
(b) Cash and/or foreign currency, at
cost............................ $ 764 $ -- $ 59,464 $ -- $ -- $ 99,475
</TABLE>
=================================
See Notes to Financial Statements.
54
<PAGE> 57
<TABLE>
<CAPTION>
BOND & EMERGING INTERNATIONAL STRATEGIC CONSERVATIVE FLEXIBLE
STOCK NORTHWEST GROWTH GROWTH GROWTH GROWTH BALANCED INCOME INCOME
FUND FUND FUND FUND PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ---------- ------------ ------------- ----------- ------------ ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$1,032,059 $ 968,760 $36,867,915 $60,425,503 $2,444,419 $5,374,226 $5,556,516 $262,469 $ 96,162
235,000 114,000 7,081,000 2,089,000 -- -- -- -- --
---------- ---------- ----------- ----------- ---------- ---------- ---------- -------- --------
1,267,059 1,082,760 43,948,915 62,514,503 2,444,419 5,374,226 5,556,516 262,469 96,162
897 24,715 499,598 998,847 7,904 51,028 24,043 700 14,795
5,017 413 3,644 173,211 16 72 150 9 22
-- 457 548,283 1,409,856 -- -- -- -- 507
23,944 -- 2,925 5,850 42,579 134,605 131,038 510 32
-- -- -- 66,700 -- -- -- -- --
-- -- -- -- 32,273 32,273 32,273 7,917 --
-- 332 -- -- 4,712 5,458 1,872 214 36
365 445 4 -- 125 -- --
---------- ---------- ----------- ----------- ---------- ---------- ---------- -------- --------
1,296,917 1,108,677 45,003,730 65,169,412 2,531,907 5,597,662 5,746,017 271,819 111,554
---------- ---------- ----------- ----------- ---------- ---------- ---------- -------- --------
-- -- 72,550 2,183,122 -- 29,248 -- -- 3,437
-- -- 16,893 -- -- -- -- -- --
-- -- 30,830 24,657 -- -- -- -- --
-- -- -- -- -- -- -- -- --
-- 3,078 -- -- 7,787 -- 31,215 510 32
743 -- 31,608 14,988 -- -- -- -- --
174 152 6,476 9,325 81 171 192 9 7
-- -- -- -- -- -- -- -- --
960 1,880 32,660 76,698 11,854 17,900 19,218 7,267 39
---------- ---------- ----------- ----------- ---------- ---------- ---------- -------- --------
1,877 5,110 191,017 2,308,790 19,722 47,319 50,625 7,786 3,515
---------- ---------- ----------- ----------- ---------- ---------- ---------- -------- --------
$1,295,040 $1,103,567 $44,812,713 $62,860,622 $2,512,185 $5,550,343 $5,695,392 $264,033 $108,039
========== ========== =========== =========== ========== ========== ========== ======== ========
$ 537 $ 961 $ (69,419) $ (553,712) $ 29,742 $ 71,422 $ 98,347 $ 3,807 $ 584
(231) 316 7,374,542 572,600 220,476 475,355 391,251 9,367 (34)
(21,601) (76,519) 3,160,617 1,146,679 (129,314) (283,536) (185,393) (5,063) 273
1,316,335 1,178,809 34,346,973 61,695,055 2,391,281 5,287,102 5,391,187 255,922 107,216
---------- ---------- ----------- ----------- ---------- ---------- ---------- -------- --------
$1,295,040 $1,103,567 $44,812,713 $62,860,622 $2,512,185 $5,550,343 $5,695,392 $264,033 $108,039
========== ========== =========== =========== ========== ========== ========== ======== ========
$ 9.79 $ 9.29 $ 14.00 $ 12.35 $ 12.37 $ 11.82 $ 11.59 $ 10.85 $ 10.16
========== ========== =========== =========== ========== ========== ========== ======== ========
132,259 118,828 3,201,083 5,087,931 203,098 469,567 491,541 24,328 10,630
========== ========== =========== =========== ========== ========== ========== ======== ========
$1,288,660 $1,159,279 $40,771,519 $61,448,150 $2,573,733 $5,657,762 $5,741,909 $267,532 $ 95,889
$ 897 $ 24,715 $ 499,598 $ 993,797 $ 7,904 $ 51,028 $ 24,043 $ 700 $ 14,795
</TABLE>
See Notes to Financial Statements.
55
<PAGE> 58
STATEMENTS of OPERATIONS
WM VARIABLE TRUST
FOR THE PERIOD ENDED JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
SHORT TERM U.S.
MONEY HIGH GOVERNMENT GROWTH &
MARKET QUALITY BOND SECURITIES INCOME INCOME GROWTH
FUND FUND FUND FUND FUND FUND
-------- ------------ ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.................................... $ -- $ -- $ -- $ 5,018 $ 710,198 $ 329,156
Foreign withholding tax on dividend income... -- -- -- -- -- (6,873)
Interest..................................... 923,390 833,868 2,059,778 1,924,287 58,585 134,420
Fee income................................... -- -- 3,422 -- -- --
-------- --------- ---------- ---------- ----------- -----------
Total Investment Income.................. 923,390 833,868 2,063,200 1,929,305 768,783 456,703
-------- --------- ---------- ---------- ----------- -----------
EXPENSES:
Investment advisory fee...................... 65,144 78,539 173,590 163,171 432,252 576,412
Administration fee........................... 29,588 23,441 52,077 45,186 97,790 116,663
Trustees' fees and expenses.................. 805 442 1,152 255 3,062 3,589
Legal and audit fees......................... 8,341 10,968 12,117 10,417 10,804 11,400
Transfer agent fees.......................... 558 243 439 480 288 207
Custodian fees............................... 3,807 14,424 2,551 6,698 17,921 19,912
Registration and filing fees................. 1,228 963 2,034 1,816 4,065 4,859
Amortization of organization costs........... 2,170 1,691 2,102 2,119 -- 2,119
Printing fees................................ 5,234 4,185 9,628 8,915 16,823 21,467
Other........................................ 1,283 5,467 2,917 5,961 2,824 7,452
Interest expense............................. -- -- 68,542 -- -- --
Fees waived and/or expenses absorbed by
investment advisor and administrator....... (10,161) (711) (1,839) (1,946) (2,809) --
-------- --------- ---------- ---------- ----------- -----------
Subtotal................................. 107,997 139,652 325,310 243,072 583,020 764,080
Fees reduced by credits allowed by the
custodian.................................. (556) (12,073) (209) (491) (6,238) (2,140)
-------- --------- ---------- ---------- ----------- -----------
Net expenses............................. 107,441 127,579 325,101 242,581 576,782 761,940
-------- --------- ---------- ---------- ----------- -----------
NET INVESTMENT INCOME/(LOSS)................. 815,949 706,289 1,738,099 1,686,724 192,001 (305,237)
-------- --------- ---------- ---------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON
INVESTMENTS:
Realized gain/(loss) from:
Security transactions...................... 108 (52,238) 875,904 105,516 10,217,056 14,695,426
Forward foreign currency contracts and
foreign currency transactions............ -- (7) -- -- -- (1,035)
Futures contracts.......................... -- (39,123) (288,865) -- -- --
Other...................................... -- -- -- -- -- 44,556
Capital gain distributions received........ -- -- -- -- -- --
Net unrealized appreciation/(depreciation)
of:
Securities................................. -- (9,459) (178,952) 319,306 2,911,552 20,547,350
Forward foreign currency contracts......... -- -- -- -- -- 22,568
Foreign currency, written options, futures
contracts and other assets and
liabilities.............................. -- 322 -- -- -- (11,443)
-------- --------- ---------- ---------- ----------- -----------
Net realized and unrealized gain/(loss) on
investments................................ 108 (100,505) 408,087 424,822 13,128,608 35,297,422
-------- --------- ---------- ---------- ----------- -----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................. $816,057 $ 605,784 $2,146,186 $2,111,546 $13,320,609 $34,992,185
======== ========= ========== ========== =========== ===========
</TABLE>
- ---------------------
* The Bond & Stock Fund and Northwest Fund commenced operations on April 28,
1998.
** The Income Portfolio commenced operations on October 22, 1997, ceased
operations on November 4, 1997 and re-commenced operations on April 23, 1998.
See Notes to Financial Statements.
56
<PAGE> 59
<TABLE>
<CAPTION>
BOND & EMERGING INTERNATIONAL STRATEGIC CONSERVATIVE FLEXIBLE
STOCK NORTHWEST GROWTH GROWTH GROWTH GROWTH BALANCED INCOME INCOME
FUND* FUND* FUND FUND PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO**
-------- --------- ---------- ------------- --------- ------------ --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 1,536 $ 914 $ 58,979 $ 695,609 $ 32,276 $ 78,249 $105,796 $ 4,125 $616
-- -- -- -- -- -- -- -- --
5,391 2,470 101,312 72,869 18 119 37 -- --
-- -- -- -- -- -- -- -- --
-------- -------- ---------- ---------- -------- -------- -------- ------- ----
6,927 3,384 160,291 768,478 32,294 78,368 105,833 4,125 616
-------- -------- ---------- ---------- -------- -------- -------- ------- ----
1,295 1,073 202,128 266,377 609 1,413 4,426 72 13
333 309 41,491 51,159 914 2,119 2,696 134 13
39 26 1,110 1,634 62 150 158 5 2
551 825 11,025 14,719 3,300 4,132 4,737 276 6
-- -- 502 478 690 690 690 -- --
431 1,108 6,861 73,134 676 1,035 953 -- 84
8 15 1,068 2,321 -- 1,013 1,260 -- 23
-- -- -- 2,119 4,120 4,120 4,120 -- --
173 75 7,586 10,523 885 5,236 6,743 -- 8
-- -- 5,328 7,060 27 556 77 16 10
-- -- -- -- -- -- -- -- --
-- (860) -- (44,424) (8,764) (14,722) (18,868) (216) (43)
-------- -------- ---------- ---------- -------- -------- -------- ------- ----
2,830 2,571 277,099 385,100 2,519 5,742 6,992 287 116
(215) (148) (644) (359) (411) (732) (761) (39) (84)
-------- -------- ---------- ---------- -------- -------- -------- ------- ----
2,615 2,423 276,455 384,741 2,108 5,010 6,231 248 32
-------- -------- ---------- ---------- -------- -------- -------- ------- ----
4,312 961 (116,164) 383,737 30,186 73,358 99,602 3,877 584
-------- -------- ---------- ---------- -------- -------- -------- ------- ----
(231) 316 7,615,624 4,698,134 9,635 29,763 37,934 2,125 (2)
-- -- (54,233) 899,023 -- -- -- -- --
-- -- -- -- -- -- -- -- --
-- -- (1,644) 39,788 211,599 470,107 365,770 7,248 --
(21,601) (76,519) (5,757,604) (291,992) (121,232) (273,096) (178,902) (5,064) 273
-- -- 29,852 (436,860) -- -- -- -- --
-- -- 81 35,635 -- -- -- -- --
-------- -------- ---------- ---------- -------- -------- -------- ------- ----
)
(21,832 (76,203) 1,832,076 4,943,728 100,002 226,774 224,802 4,309 271
-------- -------- ---------- ---------- -------- -------- -------- ------- ----
$(17,520) $(75,242) $1,715,912 $5,327,465 $130,188 $300,132 $324,404 $ 8,186 $855
======== ======== ========== ========== ======== ======== ======== ======= ====
</TABLE>
See Notes to Financial Statements.
57
<PAGE> 60
STATEMENTS of CHANGES in NET assets
WM VARIABLE TRUST
FOR THE PERIOD ENDED JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
SHORT TERM U.S.
MONEY HIGH GOVERNMENT GROWTH &
MARKET QUALITY BOND SECURITIES INCOME INCOME GROWTH
FUND FUND FUND FUND FUND FUND
----------- ------------ ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net investment income/(loss).......... $ 815,949 $ 706,289 $1,738,099 $ 1,686,724 $ 192,001 $ (305,237)
Net realized gain/(loss) from security
transactions, forward foreign
currency contracts, foreign currency
transactions, futures contracts and
written options during the year..... 108 (91,368) 587,039 105,516 10,217,056 14,738,947
Capital gain distributions received... -- -- -- -- -- --
Net unrealized appreciation/
(depreciation) of securities,
forward foreign currency contracts,
foreign currency, written options,
futures contracts and other assets
and liabilities during the year..... -- (9,137) (178,952) 319,306 2,911,552 20,558,475
----------- ----------- ----------- ----------- ------------ ------------
Net increase/decrease in net assets
resulting from operations........... 816,057 605,784 2,146,186 2,111,546 13,320,609 34,992,185
Distributions to shareholders from:
Net investment income............... (815,949) (661,486) (1,806,004) (1,697,865) (542,109) (482,175)
Net realized gains on investments... -- -- -- -- (17,377,594) (11,689,297)
Net increase/(decrease) in net assets
from Fund share transactions........ 1,422,298 16,815,736 (7,130,336) (2,108,776) 18,758,383 (6,194,624)
----------- ----------- ----------- ----------- ------------ ------------
Net increase/(decrease) in net
assets.............................. 1,422,406 16,760,034 (6,790,154) (1,695,095) 14,159,289 16,626,089
NET ASSETS:
Beginning of period................... 32,864,414 11,944,387 61,656,409 51,670,466 101,794,468 121,765,634
----------- ----------- ----------- ----------- ------------ ------------
End of period......................... $34,286,820 $28,704,421 $54,866,255 $49,975,371 $115,953,757 $138,391,723
=========== =========== =========== =========== ============ ============
Undistributed net investment income at
end of period....................... $ 22,556 $ 59,729 $ 4,891 $ 47,251 $ 90,049 $ (194,358)
=========== =========== =========== =========== ============ ============
- ---------------------
* The Bond & Stock Fund and Northwest Fund commenced operations on April 28, 1998.
** The Income Portfolio commenced operations on October 22, 1997, ceased operations on November 4, 1997 and re-commenced
operations on April 23, 1998.
</TABLE>
See Notes to Financial Statements.
58
<PAGE> 61
<TABLE>
<CAPTION>
BOND & EMERGING INTERNATIONAL STRATEGIC CONSERVATIVE FLEXIBLE
STOCK NORTHWEST GROWTH GROWTH GROWTH GROWTH BALANCED INCOME INCOME
FUND* FUND* FUND FUND PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO**
---------- ---------- ----------- ------------- ---------- ------------ ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 4,312 $ 961 $ (116,164) $ 383,737 $ 30,186 $ 73,358 $ 99,602 $ 3,877 $ 584
)
(231 316 7,559,747 5,636,945 9,635 29,763 37,934 2,125 (2)
-- -- -- -- 211,599 470,107 365,770 7,248 --
)
(21,601 (76,519) (5,727,671) (693,217) (121,232) (273,096) (178,902) (5,064) 273
---------- ---------- ----------- ----------- ---------- ---------- ---------- -------- --------
)
(17,520 (75,242) 1,715,912 5,327,465 130,188 300,132 324,404 8,186 855
(3,775) -- -- (3,296,872) (5,837) (11,420) (31,215) (486) --
-- -- (6,023,693) (2,926,001) (1,797) (5,025) -- (24) (32)
1,316,335 1,178,809 3,758,867 14,120,048 1,798,248 3,892,994 3,048,224 156,004 107,216
---------- ---------- ----------- ----------- ---------- ---------- ---------- -------- --------
1,295,040 1,103,567 (548,914) 13,224,640 1,920,802 4,176,681 3,341,413 163,680 108,039
0 0 45,361,627 49,635,982 591,383 1,373,662 2,353,979 100,353 --
---------- ---------- ----------- ----------- ---------- ---------- ---------- -------- --------
$1,295,040 $1,103,567 $44,812,713 $62,860,622 $2,512,185 $5,550,343 $5,695,392 $264,033 $108,039
========== ========== =========== =========== ========== ========== ========== ======== ========
$ 537 $ 961 $ (69,419) $ (553,712) $ 29,742 $ 71,422 $ 98,347 $ 3,807 $ 584
========== ========== =========== =========== ========== ========== ========== ======== ========
</TABLE>
59
<PAGE> 62
STATEMENTS of CHANGES in NET assets
WM VARIABLE TRUST
FOR THE PERIOD ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHORT TERM U.S.
MONEY HIGH GOVERNMENT
MARKET QUALITY BOND SECURITIES INCOME
FUND FUND FUND FUND
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Net investment income/(loss)................................ $ 1,471,011 $ 737,476 $3,942,935 $ 3,689,786
Net realized gain/(loss) from security transactions, forward
foreign currency contracts, foreign currency transactions,
futures contracts and written options during the year..... 3,305 (117,087) 117,793 (82,245)
Capital gain distributions received......................... -- -- -- --
Net unrealized appreciation/(depreciation) of securities,
forward foreign currency contracts, foreign currency,
written options, futures contracts and other assets and
liabilities during the year............................... -- 60,370 1,427,909 1,706,635
----------- ----------- ----------- -----------
Net increase in net assets resulting from operations........ 1,474,316 680,759 5,488,637 5,314,176
Distributions to shareholders from:
Net investment income..................................... (1,467,623) (687,795) (3,881,167) (3,679,274)
Net realized gains on investments......................... (3,305) -- -- --
Net increase/(decrease) in net assets from Fund share
transactions.............................................. 9,595,509 (450,459) (6,514,356) (9,847,636)
----------- ----------- ----------- -----------
Net increase/(decrease) in net assets....................... 9,598,897 (457,495) (4,906,886) (8,212,734)
NET ASSETS:
Beginning of period......................................... 23,265,517 12,401,882 66,563,295 59,883,200
----------- ----------- ----------- -----------
End of period............................................... $32,864,414 $11,944,387 $61,656,409 $51,670,466
=========== =========== =========== ===========
Undistributed net investment income/(distributions in excess
of net investment income) at end of period................ $ 22,556 $ 14,926 $ 72,796 $ 58,392
=========== =========== =========== ===========
- ---------------------
* The Strategic Growth, Conservative Growth and Balanced Portfolios commenced operations on June 3, 1997.
+ The Flexible Income Portfolio commenced operations on
September 9, 1997.
++ The Income Portfolio commenced operations on October 22,
1997.
</TABLE>
See Notes to Financial Statements.
60
<PAGE> 63
<TABLE>
<CAPTION>
GROWTH & EMERGING INTERNATIONAL STRATEGIC CONSERVATIVE FLEXIBLE
INCOME GROWTH GROWTH GROWTH GROWTH GROWTH BALANCED INCOME INCOME
FUND FUND FUND FUND PORTFOLIO* PORTFOLIO* PORTFOLIO* PORTFOLIO+ PORTFOLIO++
------------ ------------ ------------ ------------- ---------- ------------ ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 482,775 $ 86,062 $ (276,135) $ 318,567 $ 898 $ 5,496 $ 19,865 $ 1,195 -$-
17,343,219 12,732,367 5,888,420 390,662 (104) (20,465) (17,764) 18 23
-- -- -- -- 3,302 2,627 13,070 -- --
3,441,585 (216,443) (974,715) (2,047,041) (8,082) (10,440) (6,491) 1 --
------------ ------------ ------------ ------------ -------- ----------- ---------- -------- ----
21,267,579 12,601,986 4,637,570 (1,337,812) (3,986) (22,782) 8,680 1,214 23
(539,740) (138,925) -- (1,127,686) -- -- -- -- --
(6,617,216) (15,601,296) (2,594,503) (1,036,604) -- -- -- -- --
25,239,310 8,840,085 (12,568,929) (9,216,432) 595,369 1,396,444 2,345,299 99,139 (23)
------------ ------------ ------------ ------------ -------- ----------- ---------- -------- ----
39,349,933 5,701,850 (10,525,862) (12,718,534) 591,383 1,373,662 2,353,979 100,353 --
62,444,535 116,063,784 55,887,489 62,354,516 -- -- -- -- --
------------ ------------ ------------ ------------ -------- ----------- ---------- -------- ----
$101,794,468 $121,765,634 $ 45,361,627 $ 49,635,982 $591,383 $ 1,373,662 $2,353,979 $100,353 -$-
============ ============ ============ ============ ======== =========== ========== ======== ====
$ 440,157 $ 593,054 $ 46,745 $ 2,359,423 $ 5,393 $ 9,484 $ 29,960 $ 416 -$-
============ ============ ============ ============ ======== =========== ========== ======== ====
</TABLE>
See Notes to Financial Statements.
61
<PAGE> 64
STATEMENTS of CHANGES in NET assets -- CAPITAL stock ACTIVITY
WM VARIABLE TRUST
FOR THE PERIOD ENDED JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
SHORT TERM U.S.
MONEY HIGH GOVERNMENT GROWTH &
MARKET QUALITY BOND SECURITIES INCOME INCOME GROWTH
FUND(A) FUND* FUND(B) FUND(C) FUND FUND
----------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
AMOUNT:
Sold................................ $ 6,029,104 $ 1,723,201 $ 1,381,702 $ 421,123 $7,137,176 $ 1,962,035
Issued in exchange for shares of the
Sierra Short Term Global
Government Fund................... -- 16,658,370 -- -- -- --
Issued as reinvestment of
dividends......................... 815,949 661,486 1,806,004 1,697,892 17,919,702 12,171,471
Redeemed............................ (5,422,755) (2,227,321) (10,318,042) (4,227,791) (6,298,495) (20,328,130)
----------- ----------- ------------ ----------- ----------- ------------
Net increase/(decrease)............. $ 1,422,298 $16,815,736 $(7,130,336) $(2,108,776) $18,758,383 $ (6,194,624)
=========== =========== ============ =========== =========== ============
SHARES:
Sold................................ 6,029,104 694,395 136,652 40,863 384,578 108,209
Issued in exchange for shares of the
Sierra Short Term Global
Government Fund................... -- 6,827,201 -- -- -- --
Issued as reinvestment of
dividends......................... 815,949 272,217 179,900 166,656 1,122,085 661,853
Redeemed............................ (5,422,755) (911,133) (1,022,575) (412,221) (346,183) (1,135,756)
----------- ----------- ------------ ----------- ----------- ------------
Net increase/(decrease)............. 1,422,298 6,882,680 (706,023) (204,702) 1,160,480 (365,694)
=========== =========== ============ =========== =========== ============
</TABLE>
- ---------------------
* On January 30, 1998 shares were issued in exchange for the shares of the
Sierra Short Term Global Government Fund (Note 10).
+ The Bond & Stock and Northwest Funds commenced operations on April 28, 1998.
(a) Formerly, Sierra Global Money Fund
(b) Formerly, Sierra U.S. Government Fund
(c) Formerly, Sierra Corporate Income Fund
(d) Formerly, Sierra Capital Growth Portfolio
(e) Formerly, Sierra Growth Portfolio
(f) Formerly, Sierra Value Portfolio
FOR THE PERIOD ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHORT TERM U.S.
MONEY HIGH GOVERNMENT
MARKET QUALITY BOND SECURITIES INCOME
FUND FUND FUND FUND
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
AMOUNT:
Sold...................................................... $17,390,619 $ 988,207 $ 2,062,800 $ 1,172,700
Issued as reinvestment of dividends....................... 1,470,928 687,795 3,881,166 3,679,274
Redeemed.................................................. (9,266,038) (2,126,461) (12,458,322) (14,699,610)
----------- ----------- ------------ ------------
Net increase/(decrease)................................... $ 9,595,509 $ (450,459) $(6,514,356) $ (9,847,636)
=========== =========== ============ ============
SHARES:
Sold...................................................... 17,390,619 406,817 207,040 116,943
Issued as reinvestment of dividends....................... 1,470,928 283,631 396,141 374,460
Redeemed.................................................. (9,266,038) (871,194) (1,274,529) (1,516,352)
----------- ----------- ------------ ------------
Net increase/(decrease)................................... 9,595,509 (180,746) (671,348) (1,024,949)
=========== =========== ============ ============
</TABLE>
- ---------------------
* The Strategic Growth, Conservative Growth and Balanced Portfolios commenced
operations on June 3, 1997.
+ The Flexible Income Portfolio commenced operations on September 9, 1997.
++ The Income Portfolio commenced operations on October 22, 1997, ceased
operations on November 4, 1997, and re-commenced operations on April 23,
1998.
See Notes to Financial Statements.
62
<PAGE> 65
<TABLE>
<CAPTION>
BOND & EMERGING INTERNATIONAL STRATEGIC CONSERVATIVE FLEXIBLE
STOCK NORTHWEST GROWTH GROWTH GROWTH GROWTH BALANCED INCOME INCOME
FUND+ FUND+ FUND FUND PORTFOLIO(D) PORTFOLIO(E) PORTFOLIO PORTFOLIO(F) PORTFOLIO++
---------- ---------- ----------- ------------- ------------ ------------ ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$1,312,560 $1,178,809 $ 1,043,776 $12,636,104 $1,837,714 $4,065,954 $3,130,128 $212,632 $107,216
-- -- -- -- -- -- -- -- --
3,775 -- 6,023,693 6,222,903 5,990 11,420 31,215 510 --
-- -- (3,308,602) (4,738,959) (45,456) (184,380) (113,119) (57,138) --
---------- ---------- ----------- ----------- ---------- ---------- ---------- -------- --------
$1,316,335 $1,178,809 $ 3,758,867 $14,120,048 $1,798,248 $3,892,994 $3,048,224 $156,004 $107,216
========== ========== =========== =========== ========== ========== ========== ======== ========
131,873 118,828 63,460 885,954 151,424 353,446 273,832 19,799 10,630
-- -- -- -- -- -- -- -- --
386 -- 436,500 507,578 629 1,391 2,693 47 --
-- -- (201,498) (354,709) (4,247) (16,216) (9,836) (5,325) --
---------- ---------- ----------- ----------- ---------- ---------- ---------- -------- --------
132,259 118,828 298,462 1,038,823 147,806 338,621 266,689 14,521 10,630
========== ========== =========== =========== ========== ========== ========== ======== ========
</TABLE>
<TABLE>
<CAPTION>
GROWTH & EMERGING INTERNATIONAL STRATEGIC CONSERVATIVE FLEXIBLE
INCOME GROWTH GROWTH GROWTH GROWTH GROWTH BALANCED INCOME INCOME
FUND FUND FUND FUND PORTFOLIO* PORTFOLIO* PORTFOLIO* PORTFOLIO+ PORTFOLIO++
----------- ------------ ------------ ------------- ---------- ------------ ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$24,113,296 $ 6,294,103 $ 1,446,618 $ 2,252,533 $614,521 $1,639,678 $2,461,288 $100,589 $ 2,910
7,156,956 15,740,221 2,594,503 2,164,290 -- -- -- -- --
(6,030,942) (13,194,239) (16,610,050) (13,633,255) (19,152) (243,234) (115,989) (1,450) (2,933)
----------- ------------ ------------ ------------ -------- ---------- ---------- -------- -------
$25,239,310 $ 8,840,085 $(12,568,929) $ (9,216,432) $595,369 $1,396,444 $2,345,299 $ 99,139 $ (23)
=========== ============ ============ ============ ======== ========== ========== ======== =======
1,556,541 412,682 98,128 166,404 57,065 154,598 235,893 9,950 291
460,254 1,081,802 182,070 150,927 -- -- -- -- --
(372,884) (838,693) (1,178,715) (1,058,739) (1,773) (23,652) (11,041) (143) (291)
----------- ------------ ------------ ------------ -------- ---------- ---------- -------- -------
1,643,911 655,791 (898,517) (741,408) 55,292 130,946 224,852 9,807 0
=========== ============ ============ ============ ======== ========== ========== ======== =======
</TABLE>
See Notes to Financial Statements.
63
<PAGE> 66
FINANCIAL highlights
MONEY MARKET FUND(A)
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR YEAR YEAR PERIOD
06/30/98 ENDED ENDED ENDED ENDED ENDED
(UNAUDITED) 12/31/97 12/31/96 12/31/95 12/31/94 12/31/93*
----------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period..................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................................... 0.020 0.049 0.049 0.053 0.037 0.016
-------- ------- ------- ------- ------- -------
Total from investment operations......................... 0.020 0.049 0.049 0.053 0.037 0.016
LESS DISTRIBUTIONS:
Dividends from net investment income..................... (0.020) (0.049) (0.049) (0.053) (0.037) (0.016)
Distributions from net realized capital gains............ -- -- (0.000)# -- -- --
-------- ------- ------- ------- ------- -------
Total distributions...................................... (0.020) (0.049) (0.049) (0.053) (0.037) (0.016)
-------- ------- ------- ------- ------- -------
Net asset value, end of period........................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======= ======= ======= ======= =======
TOTAL RETURN+ 2.49% 4.99% 4.97% 5.46% 3.69% 1.59%
======== ======= ======= ======= ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)..................... $34,287 $32,864 $23,266 $20,373 $6,159 $1,488
Ratio of operating expenses to average net assets........ 0.65%** 0.75% 0.58% 0.50% 0.49% 0.39%**
Ratio of net investment income to average net assets..... 4.96%** 4.88% 4.86% 5.30% 3.84% 2.54%**
Ratio of operating expenses to average net assets without
credits allowed by the custodian....................... 0.72%**(b) 0.75%(b) 0.58%(b) 0.51%(b) N/A N/A
Ratio of operating expenses to average net assets without
fee waivers, expenses absorbed and/or credits allowed
by the custodian....................................... 0.72%**(b) 0.85%(b) 0.88%(b) 1.01%(b) 1.25% 6.42%**
</TABLE>
- ---------------------
* The Fund commenced operations on May 10, 1993.
** Annualized.
+ Total return represents aggregate total return for the years indicated. The
total return would have been lower if certain fees had not been waived by
the investment advisor and administrator and if certain expenses had not
been absorbed by the investment advisor or without credits allowed by the
custodian.
# Amount represents less than $0.01 per share.
(a) Formerly, Sierra Global Money Fund.
(b) The ratio and per share number include custodian fees without credits
allowed by the custodian as required by amended disclosure requirement
effective September 1, 1995.
See Notes to Financial Statements.
64
<PAGE> 67
FINANCIAL highlights
SHORT TERM HIGH QUALITY BOND FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR YEAR PERIOD
06/30/98 ENDED ENDED ENDED ENDED
(UNAUDITED) 12/31/97 12/31/96 12/31/95 12/31/94*
----------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 2.43 $ 2.43 $ 2.49 $ 2.39 $ 2.50
------- ------ ------ ------ -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income....................................... 0.06 0.14 0.15 0.12 0.08
Net realized and unrealized gain/(loss) on investments...... -- 0.00# (0.06) 0.10 (0.12)
------- ------ ------ ------ -------
Total from investment operations............................ 0.06 0.14 0.09 0.22 (0.04)
LESS DISTRIBUTIONS:
Dividends from net investment income........................ (0.06) (0.14) (0.15) (0.12) (0.07)
------- ------ ------ ------ -------
Total distributions......................................... (0.06) (0.14) (0.15) (0.12) (0.07)
------- ------ ------ ------ -------
Net asset value, end of period.............................. $ 2.43 $ 2.43 $ 2.43 $ 2.49 $ 2.39
======= ====== ====== ====== =======
TOTAL RETURN+ 2.32% 5.90% 3.74% 9.30% (1.62)%
======= ====== ====== ====== =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)........................ $28,704 $11,944 $12,402 $12,365 $15,547
Ratio of operating expenses to average net assets........... 0.98%** 1.00% 0.98% 0.85% 0.77%**
Ratio of net investment income to average net assets........ 5.42%** 6.04% 6.08% 6.14% 5.63%**
Portfolio turnover rate..................................... 9% 43% 125% 188% 80%
Ratio of operating expenses to average net assets without
credits allowed by the custodian.......................... 0.99%**(a) 1.00%(a) 0.98%(a) 0.87%(a) N/A
Ratio of operating expenses to average net assets without
fee waivers and/or credits allowed by the custodian....... 1.08%**(a) 1.03%(a) 1.06%(a) 1.01%(a) 1.10%**
</TABLE>
- ---------------------
* The Fund commenced operations on January 12, 1994.
** Annualized.
+ Total return represents aggregate total return for the years indicated. The
total return would have been lower if certain fees had not been waived by
the investment advisor and administrator or without credits allowed by the
custodian.
# Amount represents less than $.01 per share.
(a) The ratio and per share number include custodian fees without credits
allowed by the custodian as required by amended disclosure requirements
effective September 1, 1995.
See Notes to Financial Statements.
65
<PAGE> 68
FINANCIAL highlights
U.S. GOVERNMENT SECURITIES FUND(a)
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR YEAR YEAR PERIOD
06/30/98 ENDED ENDED ENDED ENDED ENDED
(UNAUDITED) 12/31/97 12/31/96 12/31/95 12/31/94 12/31/93*
----------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period................... $10.04 $ 9.77 $10.00 $ 9.13 $ 10.04 $10.00
------- ------ ------ ------- ------- ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................................. 0.32 0.63 0.58 0.64 0.50 0.19
Net realized and unrealized gain/(loss) on
investments.......................................... 0.05 0.26 (0.23) 0.87## (0.90)## 0.04##
------- ------ ------ ------- ------- ------
Total from investment operations....................... 0.37 0.89 0.35 1.51 (0.40) 0.23
LESS DISTRIBUTIONS:
Dividends from net investment income................... (0.32) (0.62) (0.58) (0.64) (0.50) (0.19)
Distributions from net realized gains.................. -- -- -- -- (0.01) --
------- ------ ------ ------- ------- ------
Total distributions.................................... (0.32) (0.62) (0.58) (0.64) (0.51) (0.19)
------- ------ ------ ------- ------- ------
Net asset value, end of period......................... $10.09 $10.04 $ 9.77 $ 10.00 $ 9.13 $10.04
======= ====== ====== ======= ======= ======
TOTAL RETURN+ 3.73% 9.42% 3.69% 16.89% (4.04)% 2.27%
======= ====== ====== ======= ======= ======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)................... $54,866 $61,656 $66,563 $52,303 $43,582 $25,069
Ratio of operating expenses to average net assets...... 0.89%** 0.90% 0.94% 1.00% 0.85% 0.44%**
Ratio of net investment income to average net assets... 6.01%** 6.28% 6.18% 6.68% 5.75% 5.37%**
Portfolio turnover rate................................ 13% 194% 282% 273% 74% 131%
Ratio of operating expenses to average net assets
without credits allowed by the custodian............. 0.89%**(b) 0.91%(b) 0.94%(b) 1.02%(b) N/A N/A
Ratio of operating expenses to average net assets
without fee waivers, expenses absorbed and/or credits
allowed by the custodian............................. 0.89%**(b) 0.91%(b) 0.94%(b) 1.03%(b) 1.02% 1.47%**
Ratio of operating expenses to average net assets
including interest expense........................... 1.13%** 1.54% 1.08% 1.76% 0.86% 0.44%**
</TABLE>
- ---------------------
* The Fund commenced operations on May 6, 1993.
** Annualized.
+ Total return represents aggregate total return for the years indicated. The
total return would have been lower if certain fees had not been waived by
the investment advisor and administrator and if certain expenses had not
been absorbed by the investment advisor or without credits allowed by the
custodian.
## The amount shown may not accord with the change in the aggregate gains and
losses of portfolio securities due to timing of sales and redemptions of Fund
shares.
(a) Formerly, Sierra U.S. Government Fund.
(b) The ratio and per share number include custodian fees without credits
allowed by the custodian as required by amended disclosure requirements
effective September 1, 1995.
See Notes to Financial Statements.
66
<PAGE> 69
FINANCIAL highlights
INCOME FUND(a)
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR YEAR YEAR PERIOD
06/30/98 ENDED ENDED ENDED ENDED ENDED
(UNAUDITED) 12/31/97 12/31/96 12/31/95 12/31/94 12/31/93*
----------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period................... $ 10.19 $ 9.82 $ 10.48 $ 9.06 $ 10.34 $ 10.00
-------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................................. 0.34++ 0.70 0.68 0.70 0.47 0.23
Net realized and unrealized gain/(loss) on
investments.......................................... 0.08 0.37 (0.66) 1.50 (1.30) 0.33##
-------- ------- ------- ------- ------- -------
Total from investment operations....................... 0.42 1.07 0.02 2.20 (0.83) 0.56
LESS DISTRIBUTIONS:
Dividends from net investment income................... (0.34) (0.70) (0.68) (0.78) (0.40) (0.22)
Distributions from net realized gains.................. -- -- -- -- (0.05) --
-------- ------- ------- ------- ------- -------
Total distributions.................................... (0.34) (0.70) (0.68) (0.78) (0.45) (0.22)
-------- ------- ------- ------- ------- -------
Net asset value, end of period......................... $ 10.27 $ 10.19 $ 9.82 $ 10.48 $ 9.06 $ 10.34
======== ======= ======= ====== = ======= =======
TOTAL RETURN+ 4.28% 11.35% 0.43% 25.09% (8.13)% 5.62%
======== ======= ======= ====== = ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)................... $49,975 $51,670 $59,883 $60,676 $54,705 $28,732
Ratio of operating expenses to average net assets...... 0.97%** 0.96% 0.98% 0.99% 0.93% 0.54%**
Ratio of net investment income to average net assets... 6.72%** 6.95% 6.92% 7.00% 7.28% 6.37%**
Portfolio turnover rate................................ 4% 36% 30% 42% 23% 26%
Ratio of operating expenses to average net assets
without credits allowed by the custodian............. 0.97%**(b) 0.96%(b) 0.98%(b) 0.99%(b) N/A N/A
Ratio of operating expenses to average net assets
without fee waivers, expenses absorbed and/or credits
allowed by the custodian............................. 0.98%**(b) 0.96%(b) 0.98%(b) 0.99%(b) 1.07% 1.50%**
Ratio of operating expenses to average net assets
including interest expense........................... -- -- -- 0.99% -- --
</TABLE>
- ---------------------
* The Fund commenced operations on May 7, 1993.
** Annualized.
+ Total return represents aggregate total return for the years indicated. The
total return would have been lower if certain fees had not been waived by
the investment advisor and administrator and if certain expenses had not
been absorbed by the investment advisor or without credits allowed by the
custodian.
++ Per share numbers have been calculated using the average shares method.
## The amount shown may not accord with the change in the aggregate gains and
losses of portfolio securities due to the timing of sales and redemptions of
Fund shares.
(a) Formerly, Sierra Corporate Income Fund.
(b) The ratio and per share number include custodian fees without credits
allowed by the custodian as required by amended disclosure requirements
effective September 1, 1995.
See Notes to Financial Statements.
67
<PAGE> 70
FINANCIAL highlights
GROWTH & INCOME FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR YEAR PERIOD
06/30/98 ENDED ENDED ENDED ENDED
(UNAUDITED) 12/31/97 12/31/96 12/31/95 12/31/94*
----------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 16.92 $ 14.29 $ 12.83 $ 9.83 $ 10.00
--------- -------- ------- ------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income....................................... 0.03++ 0.06 0.12++ 0.12 0.07
Net realized and unrealized gain/(loss) on investments...... 2.19 3.90 2.54 3.05 (0.24)
--------- -------- ------- ------- --------
Total from investment operations............................ 2.22 3.96 2.66 3.17 (0.17)
LESS DISTRIBUTIONS:
Dividends from net investment income........................ (0.09) (0.10) (0.12) (0.07) --
Distributions from net realized gains....................... (2.89) (1.23) (1.08) (0.10) --
--------- -------- ------- ------- --------
Total distributions......................................... (2.98) (1.33) (1.20) (0.17) --
--------- -------- ------- ------- --------
Net asset value, end of period.............................. $ 16.16 $ 16.92 $ 14.29 $ 12.83 $ 9.83
========= ======== ======= ======= ========
TOTAL RETURN+ 13.30% 28.50% 21.81% 32.41% (1.70)%
========= ======== ======= ======= ========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)........................ $115,954 $101,794 $62,445 $46,362 $24,905
Ratio of operating expenses to average net assets........... 1.06%** 1.08% 1.13% 1.06% 1.20%**
Ratio of net investment income to average net assets........ 0.35%** 0.55% 0.93% 1.31% 1.63%**
Portfolio turnover rate..................................... 62% 109% 83% 70% 44%
Ratio of operating expenses to average net assets without
credits allowed by the custodian.......................... 1.07%**(a) 1.08%(a) 1.13%(a) 1.06%(a) N/A
Ratio of operating expenses to average net assets without
fee waivers and/or credits allowed by the custodian....... 1.08%**(a) 1.08%(a) 1.13%(a) 1.16%(a) 1.55%**
</TABLE>
- ---------------------
* The Fund commenced operations on January 12, 1994.
** Annualized.
+ Total return represents aggregate total return for the years indicated. The
total return would have been lower if certain fees had not been waived by
the investment advisor and administrator or without credits allowed by the
custodian.
++ Per share numbers have been calculated using the average shares method.
(a) The ratio and per share number include custodian fees without credits
allowed by the custodian as required by amended disclosure requirements
effective September 1, 1995.
See Notes to Financial Statements.
68
<PAGE> 71
FINANCIAL highlights
GROWTH FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR YEAR YEAR PERIOD
06/30/98 ENDED ENDED ENDED ENDED ENDED
(UNAUDITED) 12/31/97 12/31/96 12/31/95 12/31/94 12/31/93*
----------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.............. $ 15.41 $ 16.01 $ 15.72 $ 11.48 $11.19 $ 10.00
--------- ------- ------- ------- ------ --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............................. (0.03) 0.07 0.00++# 0.04++ 0.04 0.02
Net realized and unrealized gain on investments... 4.75 1.60 2.42 4.24 0.26 1.17
--------- ------- ------- ------- ------ --------
Total from investment operations.................. 4.72 1.67 2.42 4.28 0.30 1.19
LESS DISTRIBUTIONS:
Dividends from net investment income.............. (0.07) (0.02) -- (0.04) (0.01) --
Distributions from net realized gains............. (1.70) (2.25) (2.13) (0.00)# -- --
--------- ------- ------- ------- ------ --------
Total distributions............................... (1.77) (2.27) (2.13) (0.04) (0.01) --
--------- ------- ------- ------- ------ --------
Net asset value, end of period.................... $ 18.36 $ 15.41 $ 16.01 $ 15.72 $11.48 $ 11.19
========= ======= = ====== = ======= ======= ========
TOTAL RETURN+ 30.59% 11.24% 16.15% 37.34% 2.69% 11.90%
========= ======= = ====== = ======= ======= ========
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)............. $138,392 $121,766 $116,064 $99,699 $62,763 $22,795
Ratio of operating expenses to average
net assets..................................... 1.18%** 1.18% 1.22% 1.24% 1.26% 0.78%**
Ratio of net investment income to average
net assets..................................... (0.47)%** 0.07% 0.01% 0.29% 0.74% 0.70%**
Portfolio turnover rate.......................... 69% 158% 169% 187% 257% 86%
Ratio of operating expenses to average net
assets without credits allowed by the
custodian...................................... 1.18%**(a) 1.19%(a) 1.22%(a) 1.24%(a) N/A N/A
Ratio of operating expenses to average net
assets without fee waivers, expenses absorbed
and/or credits allowed by the custodian........ 1.18%**(a) 1.19%(a) 1.22%(a) 1.24%(a) 1.32% 1.92%**
</TABLE>
- ---------------------
* The Fund commenced operations on May 7, 1993.
** Annualized.
+ Total return represents aggregate total return for the years indicated. The
total return would have been lower if certain fees had not been waived by
the investment advisor and administrator and if certain expenses had not
been absorbed by the investment advisor or without credits allowed by the
custodian.
++ Per share numbers have been calculated using the average shares method.
# Amount represents less than $0.01 per share.
(a) The ratio and per share number include custodian fees without credits
allowed by the custodian as required by amended disclosure requirements
effective September 1, 1995.
See Notes to Financial Statements.
69
<PAGE> 72
FINANCIAL highlights
BOND & STOCK FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT THE PERIOD.
<TABLE>
<CAPTION>
PERIOD
ENDED
06/30/98
(UNAUDITED)*
------------
<S> <C>
Net asset value, beginning of period........................ $ 10.00
---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income....................................... 0.03
Net realized and unrealized gain on investments............. (0.21)
---------
Total from investment operations............................ (0.18)
LESS DISTRIBUTIONS:
Dividends from net investment income........................ (0.03)
Distributions from net realized gains....................... --
---------
Total distributions......................................... (0.03)
---------
Net asset value, end of period.............................. $ 9.79
=========
TOTAL RETURN+ (1.80)%
=========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)........................ $1,295
Ratio of operating expenses to average net assets........... 1.37%**
Ratio of net investment income to average net assets........ 2.26%**
Portfolio turnover rate..................................... 21%
Ratio of operating expenses to average net assets without
credits allowed by the custodian.......................... 1.49%**
Ratio of operating expenses to average net assets without
fee waivers and credits allowed by the custodian.......... 1.49%**
</TABLE>
- ---------------------
* The Portfolio commenced operations on April 28, 1998.
** Annualized.
+ Total return represents aggregate total return for the period indicated. The
total return would have been lower if certain fees had not been waived by
the administrator or without credits allowed by the custodian.
See Notes to Financial Statements.
70
<PAGE> 73
FINANCIAL highlights
NORTHWEST FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT THE PERIOD.
<TABLE>
<CAPTION>
PERIOD
ENDED
06/30/98
(UNAUDITED)*
------------
<S> <C>
Net asset value, beginning of period........................ $ 10.00
---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income....................................... 0.01
Net realized and unrealized gain on investments............. (0.72)
---------
Total from investment operations............................ (0.71)
LESS DISTRIBUTIONS:
Dividends from net investment income........................ --
Distributions from net realized gains....................... --
---------
Total distributions......................................... --
---------
Net asset value, end of period.............................. $ 9.29
---------
---------
TOTAL RETURN+ (7.10)%
---------
---------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)........................ $1,104
Ratio of operating expenses to average net assets........... 1.37%**
Ratio of net investment income to average net assets........ 0.54%**
Portfolio turnover rate..................................... 4%
Ratio of operating expenses to average net assets without
credits allowed by the custodian.......................... 1.85%**
Ratio of operating expenses to average net assets without
fee waivers and credits allowed by the custodian.......... 1.94%**
</TABLE>
- ---------------------
* The Portfolio commenced operations on April 28, 1998.
** Annualized.
+ Total return represents aggregate total return for the period indicated. The
total return would have been lower if certain fees had not been waived by
the administrator or without credits allowed by the custodian.
See Notes to Financial Statements.
71
<PAGE> 74
FINANCIAL highlights
EMERGING GROWTH FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR YEAR PERIOD
06/30/98 ENDED ENDED ENDED ENDED
(UNAUDITED) 12/31/97 12/31/96 12/31/95 12/31/94*
----------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period................... $ 15.63 $ 14.70 $ 13.74 $ 10.53 $ 10.00
-------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income/(loss)........................... (0.04) (0.03) (0.12)++ (0.01) 0.06
Net realized and unrealized gain on investments........ 0.59 1.80 1.52 3.26 0.47
-------- ------- ------- ------- -------
Total from investment operations....................... 0.55 1.77 1.40 3.25 0.53
LESS DISTRIBUTIONS:
Dividends from net investment income................... -- -- -- (0.04) --
Distributions from net realized gains.................. (2.18) (0.84) (0.44) (0.00)# --
-------- ------- ------- ------- -------
Total distributions.................................... (2.18) (0.84) (0.44) (0.04) --
-------- ------- ------- ------- -------
Net asset value, end of period......................... $ 14.00 $ 15.63 $ 14.70 $ 13.74 $ 10.53
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
TOTAL RETURN+ 3.70% 12.59% 10.04% 30.99% 5.30%
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)................... $44,813 $45,362 $55,887 $46,058 $19,885
Ratio of operating expenses to average net assets...... 1.20%** 1.20% 1.20% 1.20% 1.23%**
Ratio of net investment income/(loss) to average net
assets............................................... (0.50)%** (0.58)% (0.82)% (0.35)% 1.03%**
Portfolio turnover rate................................ 64% 116% 97% 135% 192%
Ratio of operating expenses to average net assets
without credits allowed by the custodian............. 1.20%**(a) 1.21%(a) 1.21%(a) 1.21%(a) N/A
Ratio of operating expenses to average net assets
without fee waivers and/or credits allowed by the
custodian............................................ 1.20%**(a) 1.21%(a) 1.21%(a) 1.28%(a) 1.38%**
</TABLE>
- ---------------------
* The Fund commenced operations on January 12, 1994.
** Annualized.
+ Total return represents aggregate total return for the years indicated. The
total return would have been lower if certain fees had not been waived by
the investment advisor and administrator or without credits allowed by the
custodian.
++ Per share numbers have been calculated using the average shares method.
# Amount represents less than $0.01 per share.
(a) The ratio and per share number include custodian fees without credits
allowed by the custodian as required by amended disclosure requirements
effective September 1, 1995.
See Notes to Financial Statements.
72
<PAGE> 75
FINANCIAL highlights
INTERNATIONAL GROWTH FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR YEAR YEAR PERIOD
06/30/98 ENDED ENDED ENDED ENDED ENDED
(UNAUDITED) 12/31/97 12/31/96 12/31/95 12/31/94 12/31/93*
----------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.............. $ 12.26 $ 13.02 $12.11 $11.47 $11.31 $10.00
-------- ------- ------ ------ ------ -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............................. 0.03 0.71 0.07++ 0.18 0.01 0.02
Net realized and unrealized gain/(loss) on
investments..................................... 1.42 (0.97) 1.01 0.58 0.19## 1.29
-------- ------- ------ ------ ------ -------
Total from investment operations.................. 1.45 (0.26) 1.08 0.76 0.20 1.31
LESS DISTRIBUTIONS:
Dividends from net investment income.............. (0.72) (0.26) (0.17) (0.00)# (0.03) --
Distributions from net realized gains............. (0.64) (0.24) -- (0.12) (0.01) --
-------- ------- ------ ------ ------ -------
Total distributions............................... (1.36) (0.50) (0.17) (0.12) (0.04) --
-------- ------- ------ ------ ------ -------
Net asset value, end of period.................... $ 12.35 $ 12.26 $13.02 $12.11 $11.47 $11.31
-------- ------- ------ ------ ------ -------
-------- ------- ------ ------ ------ -------
TOTAL RETURN+ 11.90% (2.64)% 9.04% 6.61% 1.88% 13.10%
-------- ------- ------ ------ ------ -------
-------- ------- ------ ------ ------ -------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's).............. $62,861 $49,636 $62,355 $45,909 $46,529 $10,638
Ratio of operating expenses to average net
assets.......................................... 1.35%** 1.35% 1.39% 1.47% 1.34% 0.83%**
Ratio of net investment income to average net
assets.......................................... 1.35%** 0.52% 0.56% 0.91% 0.83% 0.61%**
Portfolio turnover rate........................... 61% 84% 98% 72% 51% 24%
Ratio of operating expenses to average net assets
without credits allowed by the custodian........ 1.35%**(a) 1.36%(a) 1.39%(a) 1.47%(a) N/A N/A
Ratio of operating expenses to average net assets
without fee waivers, expenses absorbed and/or
credits allowed by the custodian................ 1.51%**(a) 1.36%(a) 1.39%(a) 1.48%(a) 1.50% 2.85%**
</TABLE>
- ---------------------
* The Fund commenced operations on May 7, 1993.
** Annualized.
+ Total return represents aggregate total return for the years indicated. The
total return would have been lower if certain fees had not been waived by
the investment advisor and administrator and if certain expenses had not
been absorbed by the investment advisor or without credits allowed by the
custodian.
++ Per share numbers have been calculated using the average shares method.
# Amount represents less than $0.01 per share.
## The amount shown may not accord with the change in the aggregate gains and
losses of portfolio securities due to timing of sales and redemptions of Fund
shares.
(a) The ratio and per share number include custodian fees without credits
allowed by the custodian as required by amended disclosure requirements
effective September 1, 1995.
See Notes to Financial Statements.
73
<PAGE> 76
FINANCIAL highlights
STRATEGIC GROWTH PORTFOLIO(a)
FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT THE PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED PERIOD
06/30/98 ENDED
(UNAUDITED) 12/31/97*
----------- ---------
<S> <C> <C>
Net asset value, beginning of period........................ $ 10.70 $ 10.00
--------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income....................................... 2.30(b) 0.10
Net realized and unrealized gain on investments............. (0.59) 0.60##
--------- --------
Total from investment operations............................ 1.71 0.70
LESS DISTRIBUTIONS:
Dividends from net investment income........................ (0.03) --
Distributions from net realized gains....................... (0.01) --
--------- --------
Total distributions......................................... (0.04) --
--------- --------
Net asset value, end of period.............................. $ 12.37 $ 10.70
--------- --------
--------- --------
TOTAL RETURN+ 15.97% 7.00%
--------- --------
--------- --------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)........................ $2,512 $591
Ratio of operating expenses to average net assets++......... 0.35%** 0.35%**
Ratio of net investment income to average net assets........ 4.96%** 0.51%**
Portfolio turnover rate..................................... 11% 11%
Ratio of operating expenses to average net assets without
credits allowed by the custodian++........................ 0.41%** 0.43%**
Ratio of operating expenses to average net assets without
fee waivers and credits allowed by the custodian++........ 1.85%** 15.54%**
</TABLE>
- ---------------------
* The Portfolio commenced operations on June 3, 1997.
** Annualized.
+ Total return represents aggregate total return for the period indicated. The
total return would have been lower if certain fees had not been waived by
the administrator or without credits allowed by the custodian.
++ The Portfolio will also indirectly bear its prorated share of expenses of
the Underlying Funds.
## The amount shown may not accord with the change in the aggregate gains and
losses of portfolio securities due to timing of sales and redemptions of
Portfolio shares.
(a) Formerly, Sierra Capital Growth Portfolio.
(b) Per share numbers have been calculated using the average shares method.
See Notes to Financial Statements.
74
<PAGE> 77
FINANCIAL highlights
CONSERVATIVE GROWTH PORTFOLIO(a)
FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT THE PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED PERIOD
06/30/98 ENDED
(UNAUDITED) 12/31/97*
----------- ---------
<S> <C> <C>
Net asset value, beginning of period........................ $ 10.49 $10.00
--------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income....................................... 0.29(b) 0.07
Net realized and unrealized gain on investments............. 1.08 0.42##
--------- -------
Total from investment operations............................ 1.37 0.49
LESS DISTRIBUTIONS:
Dividends from net investment income........................ (0.03) --
Distributions from net realized gains....................... (0.01) --
--------- -------
Total distributions......................................... (0.04) --
--------- -------
Net asset value, end of period.............................. $ 11.82 $10.49
--------- -------
--------- -------
TOTAL RETURN+ 13.02% 4.90%
--------- -------
--------- -------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)........................ $5,551 $1,374
Ratio of operating expenses to average net assets++......... 0.35%** 0.35%**
Ratio of net investment income to average net assets........ 5.19%** 1.24%**
Portfolio turnover rate..................................... 16% 42%
Ratio of operating expenses to average net assets without
credits allowed by the custodian++........................ 0.41%** 0.40%**
Ratio of operating expenses to average net assets without
fee waivers and credits allowed by the custodian++........ 1.45%** 6.67%**
</TABLE>
- ---------------------
* The Portfolio commenced operations on June 3, 1997.
** Annualized.
+ Total return represents aggregate total return for the period indicated. The
total return would have been lower if certain fees had not been waived by
the administrator or without credits allowed by the custodian.
++ The Portfolio will also indirectly bear its prorated share of expenses of
the Underlying Funds.
## The amount shown may not accord with the change in the aggregate gains and
losses of portfolio securities due to timing of sales and redemptions of
Portfolio shares.
(a) Formerly, Sierra Growth Portfolio.
(b) Per share numbers have been calculated using the average shares method.
See Notes to Financial Statements.
75
<PAGE> 78
FINANCIAL highlights
BALANCED PORTFOLIO
FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT THE PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED PERIOD
06/30/98 ENDED
(UNAUDITED) 12/31/97*
----------- ---------
<S> <C> <C>
Net asset value, beginning of period........................ $10.47 $10.00
-------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income....................................... 0.30(a) 0.13
Net realized and unrealized gain on investments............. 0.89 0.34##
-------- -------
Total from investment operations............................ 1.19 0.47
LESS DISTRIBUTIONS:
Dividends from net investment income........................ (0.07) --
Distributions from net realized gains....................... -- --
-------- -------
Total distributions......................................... (0.07) --
-------- -------
Net asset value, end of period.............................. $11.59 $10.47
======== =======
TOTAL RETURN+ 11.32% 4.70%
======== =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)........................ $5,695 $2,354
Ratio of operating expenses to average net assets++......... 0.35%** 0.35%**
Ratio of net investment income to average net assets........ 25.89%** 2.34%**
Portfolio turnover rate..................................... 12% 15%
Ratio of operating expenses to average net assets without
credits allowed by the custodian++........................ 0.35%** 0.37%**
Ratio of operating expenses to average net assets without
fee waivers and credits allowed by the custodian++........ 1.44%** 3.97%**
</TABLE>
- ---------------------
* The Portfolio commenced operations on June 3, 1997.
** Annualized.
+ Total return represents aggregate total return for the period indicated. The
total return would have been lower if certain fees had not been waived by
the administrator or without credits allowed by the custodian.
++ The Portfolio will also indirectly bear its prorated share of expenses of
the Underlying Funds.
## The amount shown may not accord with the change in the aggregate gains and
losses of portfolio securities due to timing of sales and redemptions of
Portfolio shares.
(a) Per share numbers have been calculated using the average shares method.
See Notes to Financial Statements.
76
<PAGE> 79
FINANCIAL highlights
FLEXIBLE INCOME PORTFOLIO(a)
FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT THE PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED PERIOD
06/30/98 ENDED
(UNAUDITED) 12/31/97*
----------- ---------
<S> <C> <C>
Net asset value, beginning of period........................ $10.23 $10.00
-------- ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income....................................... 0.13 0.04
Net realized and unrealized gain on investments............. 0.51 0.19##
-------- ------
Total from investment operations............................ 0.64 0.23
LESS DISTRIBUTIONS:
Dividends from net investment income........................ (0.02) --
Distributions from net realized gains....................... (0.00)# --
-------- ------
Total distributions......................................... (0.02) --
-------- ------
Net asset value, end of period.............................. $10.85 $10.23
======== ======
TOTAL RETURN+ 6.27% 2.30%
======== ======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)........................ $264 $100
Ratio of operating expenses to average net assets++......... 0.35%** 0.34%**
Ratio of net investment income to average net assets........ 5.40%** 7.04%**
Portfolio turnover rate..................................... 51% 5%
Ratio of operating expenses to average net assets without
credits allowed by the custodian++......................... 0.65%** 0.49%**
Ratio of operating expenses to average net assets without
fee waivers and credits allowed by the custodian++......... $0.70%** 116.19%**
</TABLE>
- ---------------------
* The Portfolio commenced operations on September 9, 1997.
** Annualized.
+ Total return represents aggregate total return for the period indicated. The
total return would have been lower if certain fees had not been waived by
the administrator or without credits allowed by the custodian.
++ The Portfolio will also indirectly bear its prorated share of expenses of
the Underlying Funds.
# Amount represents less than $0.01 per share.
## The amount shown may not accord with the change in the aggregate gains and
losses of portfolio securities due to timing of sales and redemptions of
Portfolio shares.
(a) Formerly, Sierra Value Portfolio.
See Notes to Financial Statements.
77
<PAGE> 80
FINANCIAL highlights
INCOME PORTFOLIO
FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT THE PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED PERIOD
06/30/98 ENDED
(UNAUDITED) 12/31/97*
----------- ----------
<S> <C> <C>
Net asset value, beginning of period........................ $10.00 $10.00
-------- -----
INCOME FROM INVESTMENT OPERATIONS:
Net investment income....................................... 0.10(a) 0.00
Net realized and unrealized gain on investments............. 0.06 0.00
-------- -----
Total from investment operations............................ 0.16 0.00
LESS DISTRIBUTIONS:
Dividends from net investment income........................ -- --
Distributions from net realized gains....................... (0.00)# --
-------- -----
Total distributions......................................... -- --
-------- -----
Net asset value, end of period.............................. $10.16 $10.00
======== ======
TOTAL RETURN+ 1.63% 0.00%
======== ======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)........................ $108 0
Ratio of operating expenses to average net assets++......... 0.35%** 0.35%**
Ratio of net investment income to average net assets........ 6.40%** 0.00%**
Portfolio turnover rate..................................... 1% 99%
Ratio of operating expenses to average net assets without
credits allowed by the custodian++........................ 0.83%** 0.00%**
Ratio of operating expenses to average net assets without
fee waivers and credits allowed by the custodian++........ 1.75%** 7,567.04%**
</TABLE>
- ---------------------
* The Income Portfolio commenced operations on October 22, 1997, ceased
operations on November 4, 1997, and re-commenced operations on April 23,
1998.
** Annualized.
+ Total return represents aggregate total return for the period indicated. The
total return would have been lower if certain fees had not been waived by
the administrator or without credits allowed by the custodian.
++ The Portfolio will also indirectly bear its prorated share of expenses of
the Underlying Funds.
# Amount represents less than $0.01 per share.
(a) Per share numbers have been calculated using the average shares method.
See Notes to Financial Statements.
78
<PAGE> 81
NOTES to FINANCIAL statements (unaudited)
WM VARIABLE TRUST
1. ORGANIZATION AND BUSINESS
The WM Variable Trust (the "Trust") was organized under the laws of the
Commonwealth of Massachusetts on January 29, 1993 as a business entity commonly
known as a "Massachusetts Business Trust." The Trust is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), an open-end
management investment company. The Trust offers fifteen managed investment
funds, consisting of ten funds: the Money Market Fund (the "Money Fund"); the
Short Term High Quality Bond, U.S. Government Securities and Income Funds (the
"Bond Funds"); the Bond & Stock, Growth & Income, Growth, Northwest, Emerging
Growth and International Growth Funds (the "Equity Funds"); (collectively the
"Funds") and five portfolios: Income, Flexible Income, Balanced, Conservative
Growth and Strategic Growth Portfolios (individually a "Portfolio" and
collectively the "Portfolios"), to the public through certain variable annuity
contracts offered by American General Life Insurance Company ("AG Life"). The
Income Portfolio commenced operations on October 22, 1997 and discontinued the
offering of shares on November 4, 1997. The Income Portfolio re-commenced
operations on April 23, 1998. Through investment in the certain of the Funds and
certain other funds (Collectively, the "Underlying Funds"), the Portfolios offer
a range of asset allocation strategies designed to accommodate different
investment philosophies and goals. Prior to April 1, 1998, the Trust was known
as Sierra Variable Trust.
WM Advisors, Inc. (the "Advisor" or "WM Advisor"), a wholly-owned subsidiary of
Washington Mutual, Inc. (Washington Mutual), a publicly owned financial services
company serves as investment advisor to the Trust. Sierra Investment Advisors
Corporation ("Sierra Advisors") served as investment advisor to the Trust prior
to January 30, 1998. Sierra Advisors became an indirect wholly-owned subsidiary
of Washington Mutual as a result of a merger between its parent, Great Western
Financial Corporation, and Washington Mutual.
The Money Fund invests directly in money market instruments of foreign and U.S.
issuers. The Bond Funds and the Equity Funds invest directly in securities or
other financial instruments. Each Portfolio typically allocates its assets,
within determined percentage ranges, among certain of the Underlying Funds. The
percentages reflect the extent to which each Portfolio will invest in the
particular market segment represented by each Underlying Fund, and the varying
degrees of potential investment risk and reward represented by each Portfolio's
investments in those market segments and their corresponding Underlying Funds.
The Advisor may alter these percentage ranges when it deems appropriate. The
assets of each Portfolio will be allocated among the Underlying Funds in
accordance with its investment objective and WM Advisor's outlook for the
economy and the financial markets. In addition, generally in order to meet
liquidity needs or for temporary defensive purposes, each Portfolio may invest
its assets directly in cash, stock or bond index futures, options, money market
securities and certain short-term debt instruments.
2. SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies consistently followed by the Funds and
Portfolios in the preparation of their financial statements.
PORTFOLIO VALUATION:
A security that is primarily traded on a U.S. exchange (including securities
traded through the Nasdaq National Market System) is valued at the last sale
price on that exchange or, if there were no sales during the day, at the mean of
the current day's bid and asked prices. Over-the-counter securities that are not
traded through the Nasdaq National Market System and U.S. Government Securities
are valued at the mean of the current day's bid and asked prices. An option is
generally valued at the last sale price or, in the absence of a last sale price,
at the mean of the current day's bid and asked prices. Short term debt
securities that mature in 60 days or less are valued at amortized cost; assets
of the Money Funds are also valued at amortized cost. The value of a foreign
security is determined in its national currency as of the close of trading on
the foreign exchange on which it is traded or as of 4:00 p.m. Eastern Standard
Time, if that is earlier, and that value is then converted into its U.S. dollar
equivalent at the foreign exchange rate in effect at noon, Eastern Standard
Time, on the day the value of the foreign security is determined. The value of a
futures contract equals the unrealized gain or loss on the contract, which is
determined by marking the contract to the current settlement price for a like
contract acquired on the day on which the futures contract is being valued. If
the market makes a limit move with respect to the security or index underlying
the futures contract, the futures contract will be valued at a fair market
valued as determined by or under the direction of the Board of Trustees.
79
<PAGE> 82
NOTES to FINANCIAL statements (unaudited) (continued)
WM VARIABLE TRUST
Debt securities of U.S. issuers (other than U.S. Government Securities and
short-term investments), including municipal securities, are valued by one or
more independent pricing services (each a "Pricing Service") retained by the
Trusts. When, in the judgment of a Pricing Service, market quotations for these
securities are readily available, they are valued at the mean between the quoted
bid prices and asked prices. Securities for which market quotations are not
readily available are valued at fair value as determined by or under the
direction of the Board of Trustees, which may rely on the assistance of one or
more Pricing Services. The procedures of each Pricing Service are reviewed
periodically by the officers of the Trusts under the general supervision and
responsibility of the Board of Trustees.
The Income, Flexible Income, Balanced, Conservative Growth and Strategic Growth
Portfolios are valued at the net asset value per share of each Underlying Fund
determined as of the close of the New York Stock Exchange on the valuation date.
Money Fund: The investments of the Money Fund are valued on the basis of
amortized cost so long as the Trust's Board of Trustees (the "Board of
Trustees") determines that this method constitutes fair value. Amortized cost
involves valuing a portfolio instrument at its cost initially, and, thereafter,
assuming a constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the market value of
the instrument. The Money Fund attempts to maintain a constant net asset value
of $1.00 per share.
Corporate debt securities and debt securities of U.S. issuers (other than U.S.
Government securities and short-term investments) are valued by an independent
pricing service which utilizes market quotations and transactions, quotations
from dealers and various relationships among securities in determining value. If
not valued by a pricing service, such securities are valued at prices obtained
from independent brokers. Investments with prices that cannot be readily
obtained, if any, are carried at fair value as determined in good faith under
consistently applied procedures established by and under the supervision of the
Board of Trustees.
REPURCHASE AGREEMENTS:
Each Fund or Portfolio may engage in repurchase agreement transactions. Under
the terms of a typical repurchase agreement, the Fund or Portfolio, through its
custodian, takes possession of an underlying debt obligation subject to an
obligation of the seller to repurchase, and the Fund or Portfolio to resell, the
obligation at an agreed upon price and time, thereby determining the yield
during the Fund's or Portfolio's holding period. This arrangement results in a
fixed rate of return that is not subject to market fluctuations during the
Fund's or Portfolio's holding period. The value of the collateral is at least
equal at all times to the total amount of the repurchase obligation, including
interest. In the event of counterparty default, the Fund or Portfolio has the
right to use the collateral to offset losses incurred. There is potential loss
to the Fund or Portfolio in the event the Fund or Portfolio is delayed or
prevented from exercising its right to dispose of the collateral securities,
including the risk of a possible decline in the value of the underlying
securities during the period while the Fund or Portfolio seeks to assert its
rights. WM advisors or the sub-advisor if any, acting under the supervision of
the Board of Trustees, reviews the value of the collateral and the
creditworthiness of those banks and dealers with which the Funds and Portfolios
enter into repurchase agreements to evaluate potential risks.
REVERSE REPURCHASE AGREEMENTS:
Except for the Money Fund, all Funds and Portfolios may engage in reverse
repurchase agreements. Reverse repurchase agreements are the same as repurchase
agreements except that, in this instance, the Funds or Portfolios would assume
the role of seller/borrower in the transaction. The Funds or Portfolios may use
reverse repurchase agreements to borrow short-term funds. The value of the
reverse repurchase agreements that the Funds or Portfolios have committed to
sell are reflected in the Funds' or Portfolios' Statements of Assets and
Liabilities. The Funds or Portfolios will segregate with the Trust's custodian
liquid assets that, at all times, are at least equal in value to their
obligations under reverse repurchase agreements. Reverse repurchase agreements
involve the risks that the market value of the securities sold by the Funds or
Portfolios may decline below the repurchase price of the securities and, if the
proceeds from the reverse repurchase agreements are invested in securities, that
the market value of the securities bought may decline below the repurchase price
of the securities sold.
OPTIONS CONTRACTS:
All Funds and portfolios, except the Money Fund, may purchase and sell in
options contracts. The Funds may use options contracts to manage their exposure
to the stock and bond markets and to fluctuations in interest rates and currency
values. The underlying principal amounts and options values are shown in the
Portfolio of Investments under the captions "Put Options Purchased on Foreign
Currency," "Call Options Purchased on Stock Indices" and "Call Options Written
on Foreign
80
<PAGE> 83
NOTES to FINANCIAL statements (unaudited) (continued)
WM VARIABLE TRUST
Currency." These amounts reflect each contract's exposure to the underlying
instrument at June 30, 1998. Writing puts and buying calls tends to increase the
Funds' exposure to the underlying instrument. Buying puts and writing calls
tends to decrease the Funds' exposure to the underlying instrument or to hedge
other Fund investments.
Upon the purchase of put options or call options by the Fund, the premium paid
is recorded as an investment, the value of which is marked-to-market daily. When
purchased options expire, the Funds will realize a loss in the amount of the
cost of the options. When the Funds enter into a closing sale transaction, the
Funds will realize a gain or loss depending on whether the sales proceeds from
the closing sale transaction are greater or less than the cost of the options.
When the Funds exercise put options, they will realize a gain or loss from the
sale of the underlying security and the proceeds from such sale will be
decreased by the premium originally paid. When the Funds exercise call options,
the cost of the security which the Funds purchase upon exercise will be
increased by the premium originally paid.
When the Funds write call options or put options, an amount equal to the premium
received by the Funds is recorded as a liability, the value of which is
marked-to-market daily. When written options expire, the Funds realize a gain
equal to the amount of the premium received. When the Funds enter into a closing
purchase transaction, the Funds realize a gain (or loss if the cost of the
closing purchase transaction exceeds the premium received when the options are
sold) without regard to any unrealized gain or loss on the underlying security,
and the liability related to such options is eliminated. When a written call
option is exercised, the Funds realize a gain or loss from the sale of the
underlying security and the proceeds from such sale are increased by the premium
originally received. When a written put option is exercised, the amount of the
premium originally received will reduce the cost of the security that the Funds
purchased upon exercise.
The risk associated with purchasing options is limited to the premium originally
paid. Options written by Funds involve, to varying degrees, risk of loss in
excess of the option value reflected in the Statements of Assets and
Liabilities. The risk in writing a covered call option is that the Funds may
forego the opportunity to profit if the market price of the underlying security
increases and the option is exercised. The risk in writing a covered put option
is that the Funds may incur a loss if the market price of the underlying
security decreases and the option is exercised. In addition, there is the risk
the Funds may not be able to enter into a closing transaction because of an
illiquid secondary market or, for over-the-counter options, because of a
counterparty's inability to perform.
The Underlying Funds and the Portfolios, except the Money Fund, may engage in
options on foreign currency and options on interest rate futures for hedging
transactions.
Certain risks are associated with the use of options on foreign currency and
options on interest rate futures contracts as hedging devices. The predominant
risk is that the movement in the price of the instrument underlying such options
may not correlate perfectly with the movement in the prices of the assets being
hedged. The lack of correlation could render the Portfolios' hedging strategy
unsuccessful and could result in a loss to the Portfolios. In addition, there is
the risk that the Portfolios may not be able to enter into a closing transaction
because of an illiquid secondary market or, for over-the-counter options,
because of the counterparty's inability to perform. Options written by
Portfolios involve, to varying degrees, risk of loss in excess of the option
value reflected in the Statements of Assets and Liabilities.
FUTURES CONTRACTS:
Except for the Money Fund, all Funds and Portfolios may engage in futures
transactions. The Funds and Portfolios may use futures contracts to manage their
exposure to the stock and bond markets and to fluctuations in interest rates and
currency values. The underlying value of a futures contract is incorporated
within the unrealized appreciation/(depreciation) shown in the Portfolio of
Investments under the caption "Futures Contracts." This amount reflects each
contract's exposure to the underlying instrument at June 30, 1998. Buying
futures contracts tends to increase the Fund's or Portfolio's exposure to the
underlying instrument. Selling futures contracts tends to either decrease the
Fund's or Portfolio's exposure to the underlying instrument, or to hedge other
Fund or Portfolio investments.
Upon entering into a futures contract, the Fund or Portfolio is required to
deposit with the broker an amount of cash or cash equivalents equal to a certain
percentage of the contract amount. This is known as the "initial margin."
Subsequent payments ("variation margin") are made or received by the Fund or
Portfolio each day, depending on the daily fluctuation of the value of the
contract. The daily changes in contract value are recorded as unrealized gains
or losses and the Fund or Portfolio recognizes a realized gain or loss when the
contract is closed. Futures contracts are valued at the settlement price
established by the board of trade or exchange on which they are traded.
81
<PAGE> 84
NOTES to FINANCIAL statements (unaudited) (continued)
WM VARIABLE TRUST
There are several risks in connection with the use of futures contracts as a
hedging device. Futures contracts involve, to varying degrees, risk of loss in
excess of the futures variation margin reflected in the Statements of Assets and
Liabilities. The change in the value of futures contracts primarily corresponds
with the value of their underlying instruments, which may not correlate with the
change in the value of the hedged instruments. In addition, there is the risk
that the Fund or Portfolio may not be able to enter into a closing transaction
because of an illiquid secondary market.
FOREIGN CURRENCY:
The books and records of the Funds and Portfolios are maintained in U.S.
dollars. Foreign currencies, investments and other assets and liabilities are
translated into U.S. dollars at the exchange rates prevailing at the end of the
period, and purchases and sales of investment securities, income and expenses
are translated on the respective dates of such transactions. It is not
practicable to isolate that portion of the results of operations arising as a
result of changes in the foreign exchange rates from the portion that arises
from changes in market prices of investments during the period. Accordingly, all
such changes have been reflected as net gain/(loss) from security transactions
in the Statements of Operations.
Unrealized gains and losses, not relating to securities, which result from
changes in foreign currency exchange rates have been included in unrealized
appreciation/(depreciation) of foreign currency and other assets and
liabilities. Unrealized gains and losses of securities, which result from
changes in foreign currency exchange rates as well as changes in market prices
of securities, have been included in unrealized appreciation/(depreciation) of
securities. Net realized foreign currency gains and losses include foreign
currency gains and losses resulting from changes in exchange rates between trade
date and settlement date on investment securities transactions, gains and losses
on foreign currency transactions and the difference between the amounts of
interest and dividends recorded on the books of the Funds and the amount
actually received. The portion of foreign currency gains and losses related to
fluctuation in exchange rates between the initial purchase trade date and
subsequent sale trade date is included in realized gain/(loss) from security
transactions.
FORWARD FOREIGN CURRENCY CONTRACTS:
The Short Term High Quality Bond, Income, Growth & Income, Growth, Emerging
Growth and International Growth Funds may enter into forward foreign currency
contracts. Forward foreign currency contracts are agreements to exchange one
currency for another at a future date and at a specified price. The Funds may
use forward foreign currency contracts to facilitate transactions in foreign
securities and to manage the Funds' foreign currency exposure. The U.S. dollar
market value, contract value and the foreign currencies the Funds have committed
to buy or sell are shown in the Portfolio of Investments under the caption
"Schedule of Forward Foreign Currency Contracts." These amounts represent the
aggregate exposure to each foreign currency the Funds have acquired or hedged
through forward foreign currency contracts at June 30, 1998. Forward foreign
currency contracts are reflected as both a forward foreign currency contract to
buy and a forward foreign currency contract to sell. Forward foreign currency
contracts to buy generally are used to acquire exposure to foreign currencies,
while forward foreign currency contracts to sell are used to hedge the Funds'
investments against currency fluctuations. Also, a forward foreign currency
contract to buy or sell can offset a previously acquired opposite forward
foreign currency contract.
Forward foreign currency contracts are marked-to-market daily using foreign
currency exchange rates supplied by an independent pricing service. The change
in a contract's market value is recorded by the Funds as an unrealized gain or
loss. When the contract is closed or delivery is taken, the Funds record a
realized gain or loss equal to the difference between the value of the contract
at the time it was opened and the value at the time it was closed.
The use of forward foreign currency contracts does not eliminate fluctuations in
the underlying prices of the Fund's securities, but it does establish a rate of
exchange that can be achieved in the future. These forward foreign currency
contracts involve market risk in excess of the unrealized
appreciation/(depreciation) of forward foreign currency contracts reflected in
the Funds' Statements of Assets and Liabilities. Although forward foreign
currency contracts used for hedging purposes limit the risk of loss due to a
decline in the value of the hedged currency, they also limit any potential gain
that might result should the value of the currency increase. In addition, the
Funds could be exposed to risks if the counterparties to the contracts are
unable to meet the terms of their contracts.
DOLLAR ROLL TRANSACTIONS:
The Bond Funds, in order to seek a high level of current income, may enter into
dollar roll transactions with financial institutions to take advantage of
opportunities in the mortgage market. The value of the dollar roll transactions
are reflected in the Funds' Statements of Assets and Liabilities. A dollar roll
transaction involves a sale by the Funds of securities that they
82
<PAGE> 85
NOTES to FINANCIAL statements (unaudited) (continued)
WM VARIABLE TRUST
hold with an agreement by the Funds to repurchase similar securities at an
agreed upon price and date. The securities repurchased will bear the same
interest as those sold, but generally will be collateralized at time of delivery
by different pools of mortgages with different prepayment histories than those
securities sold. The Funds are paid a fee for entering into a dollar roll
transaction, the fee is accrued as income over the life of the dollar roll
contract. During the period between the sale and repurchase, the Funds will not
be entitled to receive interest and principal payments on the securities sold.
Dollar roll transactions involve the risk that the market value of the
securities sold by the Funds may decline below the repurchase price of those
similar securities which the Fund is obligated to purchase, or that the return
earned by the Fund with the proceeds of a dollar roll may not exceed transaction
costs.
INDEXED SECURITIES:
Each of the Funds, except for the Money Fund, may invest in indexed securities
whose value is linked either directly or inversely to changes in foreign
currencies, interest rates, commodities, inflation, indices, or other reference
instruments. Indexed securities may be more volatile than the reference
instrument itself, but any loss is limited to the amount of the original
investment.
ILLIQUID INVESTMENTS:
Up to 15% of the assets of each Bond and Equity Fund, and up to 10% of the
assets of the Money Fund, may be invested in securities that are not readily
marketable, including: (1) repurchase agreements with maturities greater than
seven calendar days; (2) time deposits maturing in more than seven calendar
days; (3) except for the Money Fund, to the extent a liquid secondary market
does not exist for the instruments, futures contracts and options thereon; (4)
certain over-the-counter options; (5) for the Money Fund and Growth & Income
Fund certain variable rate demand notes having a demand period of more than
seven days; and (6) securities, the disposition of which are restricted under
Federal securities laws, excluding certain Rule 144A securities as defined
below.
Illiquid securities generally cannot be sold or disposed of in the ordinary
course of business within seven days at approximately the value at which the
investments have been valued. This may have an adverse effect on the Fund's
ability to dispose of particular illiquid securities at fair market value and
may limit the Fund's ability to obtain accurate market quotations for purposes
of valuing the securities and calculating the net asset value of shares of the
Fund. The Funds may also purchase securities that are not registered under the
Securities Act of 1933, as amended (the "Act"), but that can be sold to
qualified institutional buyers in accordance with Rule 144A under the Act ("Rule
144A securities"). If a particular investment in Rule 144A securities is
determined to be illiquid under guidelines established by the Board of Trustees,
that investment will be included within the 15% or 10% limitation, as
applicable, on investments in illiquid securities.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME:
Securities transactions are recorded as of the trade date (the date the order to
buy or sell is executed). Realized gains and losses from securities sold are
recorded on the identified cost basis. Interest income is recorded on the
accrual basis and consists of interest accrued and, if applicable, discount
accreted less premiums amortized. Dividend income is recorded on the ex-
dividend date, except that certain dividends from foreign securities are
recorded as soon as the Funds are informed of the ex-dividend date.
Securities purchased or sold on a when-issued or delayed-delivery basis may be
settled a month or more after the trade date; interest income is not accrued
until settlement date. Each Fund instructs the custodian to segregate assets of
the Fund with a current value at least equal to the amount of its when-issued
purchase commitments.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income of the Money Fund are declared daily and
paid monthly. Dividends from net investment income of the Bond Funds and each of
the Balanced, Flexible Income and Income Portfolios are declared and paid
quarterly. Dividends from net investment income of the Equity Funds and the
Strategic Growth and Conservative Growth Portfolios are declared and paid
annually. Distributions of any net long-term capital gains earned by a Fund or
Portfolio are made annually. Distributions of any net short-term capital gains
earned by a Fund or Portfolio are distributed no less frequently than annually
at the discretion of the Board of Trustees. Income distributions and capital
gain distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
differences are primarily
83
<PAGE> 86
NOTES to FINANCIAL statements (unaudited) (continued)
WM VARIABLE TRUST
due to differing treatments of income and gains on various investment securities
held by the Funds or Portfolios, timing differences and differing
characterizations of distributions made by each Fund or Portfolio as a whole.
As of December 31, 1997, permanent differences resulting from book and tax
accounting for organizational costs and redesignated distributions were
reclassified to paid-in capital at year end as stated in the table to follow.
Certain reclassification adjustments were also made between undistributed net
investment income and realized gains due to different book and tax accounting
for currency gains and losses, market discounts, net operating losses, and
paydowns of certain debt instruments. Per share information in the Financial
Highlights reflects the effect of these reclassifications.
<TABLE>
<CAPTION>
INCREASE/(DECREASE) INCREASE/(DECREASE)
UNDISTRIBUTED NET ACCUMULATED
INCREASE/(DECREASE) INVESTMENT NET REALIZED
PAID-IN CAPITAL INCOME/(LOSS) GAIN/(LOSS)
------------------- ------------------- -------------------
<S> <C> <C> <C>
Money Market Fund........................... $ (3,291) $ 3,291 $ --
Short Term High Quality Bond Fund........... -- (38,558) 38,558
U.S. Government Securities Fund............. (3,291) (14,212) 17,503
Income Fund................................. (3,291) (7,932) 11,223
Growth Fund................................. (3,291) 500,574 (497,283)
Emerging Growth Fund........................ (114,513) 162,766 (48,253)
International Growth Fund................... (3,291) 2,549,400 (2,546,109)
Strategic Growth Portfolio.................. (2,336) 4,495 (2,159)
Conservative Growth Portfolio............... (2,336) 3,988 (1,652)
Balanced Portfolio.......................... (2,336) 10,095 (7,759)
Flexible Income Portfolio................... 779 (779) --
</TABLE>
FEDERAL INCOME TAXES:
It is each Fund's and Portfolio's policy to qualify as a regulated investment
company by complying with the requirements of the Internal Revenue Code of 1986,
as amended, applicable to regulated investment companies by, among other things,
distributing substantially all of its taxable and tax-exempt earnings to its
shareholders. Therefore, no Federal income tax provision is required.
EXPENSES:
Expenses that are directly related to one of the Funds or Portfolios are charged
directly to that Fund or Portfolio. General expenses of the Trust are allocated
to the Funds or Portfolios based upon the relative net assets of each Fund or
Portfolio. In addition, the Portfolios will indirectly bear their prorated share
of expenses of the Underlying Funds.
OTHER:
The Bond Funds may purchase floating rate, inverse floating rate and variable
rate obligations. Floating rate obligations have an interest rate that changes
whenever there is a change in the external interest rate, while variable rate
obligations provide for a specified periodic adjustment in the interest rate.
The interest rate on an inverse floating rate obligation (an "inverse floater")
can be expected to move in the opposite direction from the market rate of
interest to which the inverse floater is indexed. The Fund may purchase floating
rate, inverse floating rate and variable rate obligations that carry a demand
feature which would permit the Fund to tender them back to the issuer or
remarketing agent at par value prior to maturity. Frequently, floating rate,
inverse floating rate and variable rate obligations are secured by letters of
credit or other credit support arrangements provided by banks. The Short Term
High Quality Bond, U.S. Government Securities, Emerging Growth and International
Growth Funds may purchase mortgage-backed securities that are floating rate,
inverse floating rate and variable rate obligations. The Money Fund and Growth &
Income Fund may purchase variable rate demand notes. Although variable rate
demand notes are frequently not rated by credit rating agencies, unrated notes
purchased by the Funds will be of comparable quality at the time of purchase to
rated instruments that may be purchased by such Fund, as determined by the
Advisor. Moreover, while there may be no active secondary market with respect to
a particular variable rate demand note purchased by a Fund, the Fund may, upon
the notice specified in the note, demand payment of the principal and accrued
interest on the note at any time and may resell the note at any time to a third
party. The absence of such an active secondary market, however, could make it
difficult for a Fund to dispose of a particular variable rate demand note in the
event the issuer of the note defaulted on its payment obligations, and the Fund
could, for this or other reasons, suffer a loss to the extent of the default.
84
<PAGE> 87
NOTES to FINANCIAL statements (unaudited) (continued)
WM VARIABLE TRUST
An inverse floater may be considered to be leveraged to the extent that its
interest rate varies by a magnitude that exceeds the magnitude of the change in
the index rate of interest. The higher degree of leverage inherent in inverse
floaters is associated with greater volatility in their market values.
Accordingly, the duration of an inverse floater may exceed its stated final
maturity. Inherent in these instruments is the risk of potential loss should the
Fund be delayed or prevented from exercising the put feature.
3. INVESTMENT ADVISORY, ADMINISTRATION FEES AND OTHER TRANSACTIONS
WM Advisors serves as investment advisor to the Trust. Sierra Advisors served as
investment advisor to the Trust prior to January 30, 1998.
The Advisor is entitled to a monthly fee, in arrears, based on a percentage of
the average daily net assets of each Fund during the month at annual rates as
follows:
<TABLE>
<CAPTION>
FEES ON FEES ON
NET ASSETS EQUAL TO NET ASSETS
OR LESS THAN EXCEEDING
NAME OF FUND $500 MILLION $500 MILLION
------------ ------------------- ------------
<S> <C> <C>
Money Market Fund........................................... .50% .40%
U.S. Government Securities Fund............................. .60% .50%
Income Fund................................................. .65% .50%
Bond & Stock Fund........................................... .625% .50%
Northwest Fund.............................................. .625% .50%
</TABLE>
<TABLE>
<CAPTION>
FEES ON
NET ASSETS EXCEEDING
FEES ON $200 MILLION AND FEES ON
NET ASSETS EQUAL TO EQUAL TO OR NET ASSETS
OR LESS THAN LESS THAN EXCEEDING
$200 MILLION $500 MILLION $500 MILLION
------------------- -------------------- ------------
<S> <C> <C> <C>
Short Term High Quality Bond Fund.............. .50% .45% .40%
</TABLE>
<TABLE>
<CAPTION>
FEES ON FEES ON FEES ON
NET ASSETS NET ASSETS NET ASSETS
FEES ON EXCEEDING EXCEEDING EXCEEDING
NET ASSETS $100 MILLION $200 MILLION $400 MILLION FEES ON
EQUAL TO AND EQUAL TO AND EQUAL TO AND EQUAL TO NET ASSETS
OR LESS THAN OR LESS THAN OR LESS THAN OR LESS THAN EXCEEDING
$100 MILLION $200 MILLION $400 MILLION $500 MILLION $500 MILLION
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Growth & Income Fund............ .80% .75% .70% .65% .575%
</TABLE>
<TABLE>
<CAPTION>
FEES ON
FEES ON NET
NET ASSETS EQUAL TO ASSETS
OR LESS THAN EXCEEDING
$25 MILLION $25 MILLION
------------------- -----------
<S> <C> <C>
Growth Fund................................................. .95% .875%
</TABLE>
<TABLE>
<CAPTION>
FEES ON
NET ASSETS EXCEEDING
FEES ON $25 MILLION FEES ON
NET ASSETS EQUAL TO AND EQUAL TO NET ASSETS
OR LESS THAN OR LESS THAN EXCEEDING
$25 MILLION $500 MILLION $500 MILLION
------------------- -------------------- ------------
<S> <C> <C> <C>
Emerging Growth Fund........................... .90% .85% .75%
</TABLE>
85
<PAGE> 88
NOTES to FINANCIAL statements (unaudited) (continued)
WM VARIABLE TRUST
<TABLE>
<CAPTION>
FEES ON
NET ASSETS EXCEEDING
FEES ON $50 MILLION FEES ON
NET ASSETS EQUAL TO AND EQUAL TO NET ASSETS
OR LESS THAN OR LESS THAN EXCEEDING
$50 MILLION $125 MILLION $125 MILLION
------------------- -------------------- ------------
<S> <C> <C> <C>
International Growth Fund...................... .95% .85% .75%
</TABLE>
As investment advisor to the Portfolios, WM Advisors provides its proprietary
asset allocation services to the Portfolios, formulates the Portfolios'
investment policies, analyzes economic and market trends, exercises investment
discretion over the assets of the Portfolios and monitors the allocation of each
Portfolio's assets and each Portfolio's performance. For its investment advisory
services to the Portfolios, WM Advisors is entitled to a fee, which is
calculated daily and paid monthly, at an annual rate of 0.10% of each
Portfolio's average daily net assets.
WM Shareholder Services, Inc. (the "Administrator"), an indirect wholly-owned
subsidiary of Washington Mutual, serves as administrator to each Fund and
Portfolio. For its services as administrator, each Fund or Portfolio pays the
Administrator a monthly fee of 0.18% and 0.15%, respectively, of the value of
each Fund's or Portfolio's average daily net assets. Prior to January 30, 1998,
Sierra Fund Administration Corporation served as administrator to the Portfolios
for the same fee.
The Advisor has agreed to waive and absorb a portion of its management fees for
the six months ended June 30, 1998. Fees voluntarily waived and expenses
absorbed by WM Advisors for the six months ended June 30, 1998 are as follows:
<TABLE>
<CAPTION>
NAME OF FUND FEES WAIVED EXPENSES ABSORBED
------------ ----------- -----------------
<S> <C> <C>
Money Market Fund.......................................... $10,161 $ --
Short Term High Quality Bond Fund.......................... 711 --
U.S. Government Securities Fund............................ -- 1,839
Income Fund................................................ -- 1,946
Growth & Income Fund....................................... -- 2,809
Growth Fund................................................ -- --
Bond & Stock Fund.......................................... -- --
Northwest Fund............................................. -- 860
Emerging Growth Fund....................................... -- --
International Growth Fund.................................. 24,774 19,650
Strategic Growth Portfolio................................. 6,094 2,670
Conservative Growth Portfolio.............................. 10,192 4,530
Balanced Portfolio......................................... 18,868 --
Flexible Income Portfolio.................................. 91 125
Income Portfolio........................................... 3 40
</TABLE>
86
<PAGE> 89
NOTES to FINANCIAL statements (unaudited) (continued)
WM VARIABLE TRUST
Custodian fees have been reduced by credits allowed by the custodian for the six
months ended June 30, 1998 as follows:
<TABLE>
<CAPTION>
CREDITS
ALLOWED BY THE
NAME OF FUND CUSTODIAN
------------ --------------
<S> <C>
Money Market Fund........................................... $ 556
Short Term High Quality Bond Fund........................... 12,073
U.S. Government Fund........................................ 209
Income Fund................................................. 491
Growth & Income Fund........................................ 6,238
Growth Fund................................................. 2,140
Bond & Stock Fund........................................... 215
Northwest Fund.............................................. 148
Emerging Growth Fund........................................ 644
International Growth Fund................................... 359
Strategic Growth Portfolio.................................. 411
Conservative Growth Portfolio............................... 732
Balanced Portfolio.......................................... 761
Flexible Income Portfolio................................... 39
Income Portfolio............................................ 84
</TABLE>
4. TRUSTEES' FEES
On March 20, 1998, the board of trustees of the Trust combined with the board of
trustees for the WM Group of Funds.
No director, officer or employee of Washington Mutual or its subsidiaries
receives any compensation from the Trust for serving as an Officer or Trustee of
the Trust. The Trust, together with other Trusts advised by WM Advisors, pays
each Trustee who is not a director, officer or employee of Washington Mutual or
its subsidiaries, $18,000 per annum plus $3,000 per board meeting attended in
person and $1,000 per board meeting attended by telephone and reimbursement for
travel and out-of-pocket expenses. The Chairman of the Audit Committee receives
$500 per audit committee meeting attended.
Pursuant to an exemptive order granted by the Securities and Exchange
Commission, the Trust's eligible Trustees may participate in a deferred
compensation plan (the "Plan") which may be terminated at any time. Under the
Plan, Trustees may elect to defer receipt of all or a portion of their fees
which, in accordance with the Plan, are invested in mutual fund shares. Upon
termination of the Plan, Trustees that have deferred compensation accounts under
the Plan will be paid benefits no later than the time the payments would
otherwise have been made without regard to such termination. All benefits
provided under these Plans are funded and any payments to plan participants are
paid solely out of the Trust's assets.
87
<PAGE> 90
NOTES to FINANCIAL statements (unaudited) (continued)
WM VARIABLE TRUST
5. PURCHASES AND SALES OF SECURITIES
The aggregate cost of purchases and proceeds from sales of securities, excluding
U.S. Government and short-term investments, for the six months ended June 30,
1998 were as follows:
<TABLE>
<CAPTION>
NAME OF FUND PURCHASES SALES
------------ ----------- ------------
<S> <C> <C>
Short Term High Quality Bond Fund........................... $ 9,337,974 $ 402,133
U.S. Government Securities Fund............................. -- 7,267,683
Income Fund................................................. 1,911,314 2,086,099
Growth & Income Fund........................................ 67,767,957 67,163,676
Growth Fund................................................. 86,703,283 102,142,172
Bond & Stock Fund........................................... 673,984 17,055
Northwest Fund.............................................. 1,069,732 24,769
Emerging Growth Fund........................................ 27,098,193 33,921,388
International Growth Fund................................... 42,889,216 32,831,602
Strategic Growth Portfolio.................................. 2,082,496 137,443
Conservative Growth Portfolio............................... 4,852,637 462,683
Balanced Portfolio.......................................... 3,770,508 444,520
Flexible Income Portfolio................................... 228,955 79,578
Income Portfolio............................................ 96,398 507
</TABLE>
The aggregate cost of purchases and proceeds from sales of U.S. Government
securities, excluding short-term investments, for the six months ended June 30,
1998 were as follows:
<TABLE>
<CAPTION>
NAME OF FUND PURCHASES SALES
------------ ---------- -----------
<S> <C> <C>
Short Term High Quality Bond Fund........................... $1,505,859 $ 1,495,469
U.S. Government Securities Fund............................. 7,826,196 21,896,127
Income Fund................................................. -- 953,143
</TABLE>
At June 30, 1998, aggregate gross unrealized appreciation for all securities in
which there is an excess of value over tax cost and aggregate gross unrealized
depreciation for all securities in which there is an excess of tax cost over
value were as follows:
<TABLE>
<CAPTION>
TAX BASIS TAX BASIS
UNREALIZED UNREALIZED
NAME OF FUND APPRECIATION DEPRECIATION
------------ ------------ ------------
<S> <C> <C>
Short Term High Quality Bond Fund........................... $ 190,391 $ 38,473
U.S. Government Securities Fund............................. 2,648,095 42,198
Income Fund................................................. 3,038,137 548,392
Growth & Income Fund........................................ 18,875,525 4,862,920
Growth Fund................................................. 34,934,065 879,409
Bond & Stock Fund........................................... 16,177 37,778
Northwest Fund.............................................. 33,684 110,203
Emerging Growth Fund........................................ 6,745,206 3,567,810
International Growth Fund................................... 6,562,716 5,496,363
Strategic Growth Portfolio.................................. 31,862 161,176
Conservative Growth Portfolio............................... 54,734 338,270
Balanced Portfolio.......................................... 71,924 257,317
Flexible Income Portfolio................................... 186 5,249
Income Portfolio............................................ 296 23
</TABLE>
88
<PAGE> 91
NOTES to FINANCIAL statements (unaudited) (continued)
WM VARIABLE TRUST
Information regarding dollar roll transactions by the U.S. Government Securities
Fund is as follows:
<TABLE>
<CAPTION>
U.S. GOVERNMENT
SECURITIES FUND
DOLLAR ROLL TRANSACTIONS: ---------------
<S> <C>
Maximum amount outstanding during the period................ $7,213,723
Average amount outstanding during the period*............... $ 755,229
Average monthly shares outstanding during the period........ 5,785,485
Average debt per share outstanding during the period........ $ 0.13
</TABLE>
- ---------------
* The average amount outstanding during the period was calculated by adding the
borrowings at the end of each day and dividing the sum by the number of days
in the six months ended June 30, 1998.
Fee income earned for the six months ended June 30, 1998 by the U.S. Government
Securities Fund for dollar roll transactions aggregated $3,422.
Information regarding reverse repurchase agreement transactions by the U.S.
Government Securities Fund is as follows:
Reverse Repurchase Agreement for the U.S. Government Securities Fund:
<TABLE>
<CAPTION>
REVERSE REPURCHASE AGREEMENTS:
<S> <C>
Maximum amount outstanding during the period................ $20,698,000
Average amount outstanding during the period*............... $ 1,862,863
Average monthly shares outstanding during the period........ 5,785,485
Average debt per share outstanding during the period........ $ 0.32
</TABLE>
- ---------------
* The average amount outstanding during the period was calculated by adding the
borrowings at the end of each day and dividing the sum by the number of days
in the six months ended June 30, 1998.
Interest rates ranged from 5.40% to 6.30% during the period. Interest incurred
for the six months ended June 30, 1998, on borrowings by the Fund under reverse
repurchase agreements aggregated $68,542.
6. SHARES OF BENEFICIAL INTEREST
The Trust may issue an unlimited number of shares of beneficial interest, each
without par value.
7. ORGANIZATION COSTS
Expenses incurred in connection with the organization of the Money Market, Short
Term High Quality Bond, U.S. Government Securities, Income, Growth and
International Growth Funds and the Portfolios, including the fees and expenses
of registering and qualifying each Fund's and Portfolio's shares for
distribution under Federal and state securities regulations, are being amortized
on a straight-line basis over a period of 60 months from commencement of
operations of each Fund and Portfolio. In the event any of the initial shares of
a Fund or Portfolio are redeemed by any holder thereof during the amortization
period, the proceeds of such redemptions will be reduced by an amount equal to
the pro-rata portion of the applicable Fund's and Portfolio's unamortized
deferred organizational expenses in the same proportion as the number of shares
being redeemed bears to the number of initial shares of such Fund or Portfolio
outstanding at the time of such redemption.
8. CAPITAL LOSS CARRYFORWARDS
As of June 30, 1998, the following Funds had available for Federal income tax
purposes unused capital losses as follows:
<TABLE>
<CAPTION>
NAME OF FUND EXPIRING IN 2002 EXPIRING IN 2003 EXPIRING IN 2004 EXPIRING IN 2005
------------ ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Short Term High Quality Bond Fund......... $ 87,775 $ 71,035 $241,115 $ 75,877
U.S. Government Securities Fund........... 750,083 1,366,480 -- 151,690
Income Fund............................... 1,219,634 878,516 144,318 --
</TABLE>
Under current tax law, capital losses realized after October 31 may be deferred
and treated as occurring on the first day of the following fiscal year.
89
<PAGE> 92
NOTES to FINANCIAL statements (unaudited) (continued)
WM VARIABLE TRUST
For the fiscal six months ended June 30, 1998, the following Funds have elected
to defer losses occurring between November 1, 1997 and December 31, 1997 under
these rules, as follows:
<TABLE>
<CAPTION>
CAPITAL
LOSSES
NAME OF FUND DEFERRED
------------ ----------
<S> <C>
Corporate Income Fund....................................... $ 71,877
International Growth Fund................................... 4,907,818
Short Term High Quality Bond Fund........................... 4,360
U.S. Government Securities Fund............................. 45,358
</TABLE>
Such deferred losses will be treated as arising on the first day of the fiscal
year ending December 31, 1997.
9. GEOGRAPHIC AND INDUSTRY CONCENTRATION AND RISK FACTORS
All Funds, except the U.S. Government Securities Fund, may invest in securities
of foreign companies and foreign governments. There are certain risks involved
in investing in foreign securities that are in addition to the usual risks
inherent in domestic investments. These risks include those resulting from
future adverse political and economic developments and the possible imposition
of currency exchange blockages or other foreign governmental laws or
restrictions.
In addition, the Money Fund may invest at least 25% of its assets in bank
obligations. As a result of this concentration policy, the Fund's investments
may be subject to greater risk than a fund that does not concentrate in the
banking industry. In particular, bank obligations may be subject to the risks
associated with interest rate volatility, changes in Federal and state laws and
regulations governing the banking industry and the inability of borrowers to pay
principal and interest when due. In addition, foreign banks present risks
similar to those investing in foreign securities generally and are not subject
to the same reserve requirements and other regulations as U.S. banks.
Investing in the Underlying Funds through the Portfolios involves certain
additional expenses and tax results that would not be present in a direct
investment in the Underlying Funds. Under certain circumstances, an Underlying
Fund may determine to make payment of a redemption request by a Portfolio wholly
or partly by a distribution in kind of securities from its portfolio, instead of
cash, in accordance with the rules of the Securities and Exchange Commission. In
such cases, the Portfolios may hold securities distributed by an Underlying Fund
until WM Advisors determines that it is appropriate to dispose of such
securities.
Certain Underlying Funds may: invest a portion of their assets in foreign
securities; enter into forward foreign currency transactions; lend their
portfolio securities; enter into stock index, interest rate and currency futures
contracts, and options on such contracts; enter into interest rate swaps or
purchase or sell interest rate caps or floors; engage in other types of options
transactions; make short sales; purchase zero coupon and payment-in-kind bonds;
engage in repurchase or reverse repurchase agreements; purchase and sell
"when-issued" securities and engage in "delayed-delivery" transactions; and
engage in various other investment practices each with inherent risks.
The Strategic Growth Portfolio can invest as much as 50% of its total assets in
the Growth Fund and as much as 50% of its total assets in the Emerging Growth
Fund, each of which Underlying Funds may invest as much as 35% of its total
assets in lower-rated bonds. Securities rated below investment grade generally
involve greater price volatility and risk of principal and income and may be
less liquid than higher rated securities.
Certain Portfolios invest as much as 50% of their total assets in the Growth or
Emerging Growth Funds, each of which may invest up to 25% of its total assets in
foreign equity securities and as much as 5% of its total assets in securities in
developing or emerging markets countries. Certain Portfolios invest as much as
50% of their total assets in the International Growth Fund, which invests
primarily in the foreign equity securities, and may invest as much as 30% of its
total assets in securities in developing or emerging market countries. These
investments will subject such Portfolios to risks associated with investing in
foreign securities including those resulting from future adverse political and
economic developments and the possible imposition of currency exchange blockages
or other foreign governmental laws or restrictions.
The officers and Trustees of the Trust also serve as officers and Trustees of
the Underlying Funds. In addition, WM Advisors serves as, the investment advisor
of each underlying fund and Portfolio. Conflicts may arise as the Advisor seeks
to fulfill its fiduciary responsibilities to both the Portfolios and the
Underlying Funds.
90
<PAGE> 93
NOTES to FINANCIAL statements (unaudited) (continued)
WM VARIABLE TRUST
From time to time, one or more of the Underlying Funds used for investment by a
Portfolio may experience relatively large investments or redemptions due to
reallocations or rebalancings by the Portfolios as recommended by the Advisor.
These transactions will affect the Underlying Funds, since the Underlying Funds
that experience redemptions as a result of the reallocations or rebalancings may
have to sell portfolio securities and Underlying Funds that receive additional
cash will have to invest such cash. While it is impossible to predict the
overall impact of these transactions over time, there could be adverse effects
on portfolio management to the extent that the Underlying Funds may be required
to sell securities or invest cash at times when they would not otherwise do so.
These transactions could also have tax consequences if sales of securities
resulted in gains and could also increase transactions costs. The Advisor is
committed to minimizing the impact of Portfolio transactions on the Underlying
Funds. The Advisor will nevertheless face conflicts in fulfilling its respective
responsibilities.
10. REORGANIZATION
On January 30, 1998, the Short Term High Quality Bond Fund acquired the assets
and certain liabilities of the Short Term Global Government Fund, in a taxable
exchange for shares of the Short Term High Quality Bond Fund, pursuant to a plan
of reorganization approved by the Short Term Global Government Fund's
shareholders. Total shares issued by, the value of the shares issued by, and the
total net assets of the Short Term High Quality Bond Fund were $7,335,547,
$17,927,046 and $11,943,903 respectively. The total net assets of the Short Term
Global Government Fund were $17,927,046. The total net assets of the Short Term
High Quality Bond Fund after the acquisition were $29,870,949.
91
This material is not an offer to sell nor a solicitation to buy the WM
Strategic Asset Manager Variable Annuity. VM Advantage Variable Annuity or
shares of the WM Variable Trust is not authorized for distribution unless
preceded or accompanied by a current prospectus(es) that includes information
regarding the risk factors, expenses, policies and objectives of the WM
Advantage Variable Annuity and WM Strategic Asset Manager Variable Annuity
programs. Please read it carefully before investing. WM Advantage and WM
Strategic Asset Manager may not be available for sale in all states.
Shares of the WM Variable Trust are not insured by the FDIC. They are not
deposits or obligations of nor are they guaranteed by the depository
institution or any other agency. These securities are subject to investment
risk, including possible loss of principal amount invested.
Distributed by WM Fund Services, Inc. Member NASD
