<PAGE>
As filed with the Securities and Exchange Commission on March 26, 1998
Securities Act File No. 33-57732
Investment Company Act File No. 811-7462
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [_]
POST-EFFECTIVE AMENDMENT NO. 14 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [_]
AMENDMENT NO. 15 [X]
WM Variable Trust*
______________________________
(Exact Name of Registrant as Specified in Charter)
601 West Main Street, Suite 801
Spokane, Washington 99201-0613
______________________________
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (509)-353-3401
William G. Papesh
WM Variable Trust
601 West Main Street, Suite 801
Spokane, Washington 99201-0613
_______________________
(Name and Address of Agent for Service)
Copy to:
Joseph B. Kittredge, Jr.
Ropes & Gray
One International Place
Boston, Massachusetts 02110
It is proposed that this filing will become effective (check appropriate box):
[_] immediately upon filing pursuant to paragraph (b), or
[X] on April 1, 1998 pursuant to paragraph (b), or
[_] 60 days after filing pursuant to paragraph (a)(1), or
[_] 75 days after filing pursuant to paragraph (a)(2), or
[_] on [date] pursuant to paragraph (a)(ii) of Rule 485.
________________________________________
* Formerly known as The Sierra Variable Trust.
<PAGE>
WM VARIABLE TRUST
FORM N-1A
CROSS REFERENCE SHEET
PART A
Item No. Prospectus Heading
- -------- ------------------
1. Cover Page Cover Page
2. Synopsis........... Highlights
3. Condensed Financial
Information........ Financial Highlights
4. General Description of
Registrant......... Management of the Trust; Investments and
Risk Consideration of the Funds and
Portfolios; Common Investment Practices;
General Information and History
5. Management of the Fund...... Management of the Trust-Investment
Management -- Distributor
and-Administration; Common Investment
Practices
5A. Management's Discussion of
Fund Performance......... Not Applicable
6. Capital Stock and Other
Securities............... Dividends, Distributions and Taxes;
General Information and History--The
Trust
7. Purchase of Securities
Being Offered............ General Information and History --
Purchase and Redemption, and -- Net
Asset Value; Management of the Trust --
Distributor
8. Redemption or Repurchase.. General Information and History --
Purchase and Redemption
9. Pending Legal Proceedings.. Not Applicable
PART B
Heading in Statement of
Item No. Additional Information
- -------- ----------------------
10. Cover Page......... Cover Page
11. Table of Contents...... Contents
12. General Information and
<PAGE>
History............... General Information and History;
Management of the Trust; see
Prospectus -- "General Information
and History"
13. Investment Objectives and
Policies.............. Investment Objective and Policies
of the Funds and Portfolios
14. Management of the Fund.... Management of the Trust
15. Control Persons and Principal
Holders of Securities..... Management of the Trust; see
Prospectus -- "General Information
and History"
16. Investment Advisory and
Other Service ........ Management of the Trust; see
Prospectus-- "Management of
the Trust -- Administration"
17. Brokerage Allocation and
Other Practices....... Investment Objective and Policies
of the Funds and Portfolios
18. Capital Stock and Other
Securities.......... Management of Trust; see
Prospectus -- "Dividends
Distributions and Taxes" and
"General Information and History
19. Purchase, Redemption and
Pricing of Securities Being
Offering............. Purchase and Pricing of Shares;
Net Asset Value
20. Tax Status........... Taxes; see Prospectus --
"Dividends, Distributions and
Taxes"
21. Underwriters......... Purchase and Pricing of Shares;
see Prospectus -- "Management of
the Trust -- Distributor"
22. Calculation of Performance
Data................ Performance; see Prospectus --
"Performance"
23. Financial Statements....... Financial Statements
PART C
Information required to be included in Part C is set forth under
the appropriate item, so numbered, in Part C to this Registration
Statement.
<PAGE>
WM VARIABLE TRUST
PROSPECTUS
APRIL 1, 1998
MONEY MARKET FUND
SHORT TERM HIGH QUALITY BOND FUND
U.S. GOVERNMENT SECURITIES FUND
INCOME FUND
BOND & STOCK FUND
GROWTH & INCOME FUND
GROWTH FUND
NORTHWEST FUND
EMERGING GROWTH FUND
INTERNATIONAL GROWTH FUND
INCOME PORTFOLIO
FLEXIBLE INCOME PORTFOLIO
BALANCED PORTFOLIO
CONSERVATIVE GROWTH PORTFOLIO
STRATEGIC GROWTH PORTFOLIO
WM VARIABLE TRUST
SUITE 300
601 WEST MAIN AVENUE
SPOKANE, WASHINGTON 99201-0613
WM Variable Trust (the "Trust") is a no-load, open-end management investment
company, commonly known as a mutual fund. The Trust consists of fifteen
different investment funds: INCOME PORTFOLIO, FLEXIBLE INCOME PORTFOLIO,
BALANCED PORTFOLIO, CONSERVATIVE GROWTH PORTFOLIO, STRATEGIC GROWTH PORTFOLIO
(the "Portfolios"), and MONEY MARKET, SHORT TERM HIGH QUALITY BOND, U.S.
GOVERNMENT SECURITIES, INCOME, BOND & STOCK, GROWTH & INCOME, GROWTH,
NORTHWEST, EMERGING GROWTH AND INTERNATIONAL GROWTH FUNDS (the "Funds"). The
five Portfolios invest in the Funds (except Bond & Stock Fund), as well as the
High Yield Fund, an open-end management investment company that is a series of
WM Trust I (the "High Yield Fund") and WM Prime Income Fund, a closed-end
management investment company (the "Prime Income Fund") (collectively, the
"Underlying Funds"). Through investment in the Underlying Funds, the Portfolios
offer a range of asset allocation strategies designed to accommodate different
investment philosophies and goals.
Shares of the Funds and Portfolios are currently offered only to American
General Life Insurance Company ("AGL") for the purpose of providing investment
choices under its variable annuity contracts. The Funds (other than the Bond &
Stock and Northwest Funds) are investment choices under the WM Advantage
variable annuity contract issued by AGL (the "WM Advantage Contract"). All of
the Funds and Portfolios are investment choices under the WM Strategic Asset
Manager variable annuity contract issued by AGL (the "WM Strategic Asset
Manager Contract," and together with the WM Advantage Contract, the
"Contracts"). Although each of the Portfolios may invest in shares of the High
Yield Fund and Prime Income Fund, such shares are not available for direct
purchase through the Contracts.
Please read this Prospectus before allocating purchase payments to the Funds or
Portfolios and keep it on file for future reference. It contains useful
information that can help you decide if a Fund's or a Portfolio's investment
goals match your own.
A Statement of Additional Information ("SAI") about the Trust, dated April 1,
1998, has been filed with the Securities and Exchange Commission (the "SEC")
and is incorporated herein by reference. The SAI is available free upon request
by calling AGL at 800-247-6584 or by writing to American General Life Insurance
Company, Attention: Annuity Administration, P.O. Box 1401, Houston, Texas
77251-1401.
INVESTMENTS IN THE FUNDS AND PORTFOLIOS ARE NOT GUARANTEED OR INSURED BY THE
U.S. GOVERNMENT. THERE IS NO ASSURANCE THAT THE MONEY MARKET FUND WILL BE ABLE
TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
THE BOND & STOCK, GROWTH & INCOME, GROWTH AND EMERGING GROWTH FUNDS MAY EACH
INVEST UP TO 35% OF THEIR TOTAL ASSETS IN LOWER-RATED (NON-INVESTMENT GRADE)
BONDS, COMMONLY REFERRED TO AS "JUNK BONDS." THE HIGH YIELD FUND MAY INVEST
ENTIRELY IN LOWER-RATED BONDS AND WILL GENERALLY INVEST AT LEAST 65% OF ITS
ASSETS IN SUCH BONDS. BONDS OF THIS TYPE ARE CONSIDERED TO BE SPECULATIVE WITH
REGARD TO THE PAYMENT OF INTEREST AND RETURN OF PRINCIPAL. INVESTORS SHOULD
CAREFULLY ASSESS THE RISKS ASSOCIATED WITH AN INVESTMENT IN THESE FUNDS AND,
THROUGH THE PORTFOLIOS, THE HIGH YIELD FUND. SEE "COMMON INVESTMENT PRACTICES--
LOWER-RATED SECURITIES."
SHARES OF THE FUNDS AND PORTFOLIOS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT INSURED BY THE
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND INVOLVE RISK, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC NOR HAS THE
SEC PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
CONTENTS PAGE
<S> <C>
HIGHLIGHTS 3
FINANCIAL HIGHLIGHTS 6
INVESTMENTS AND RISK CONSIDERATIONS OF THE
FUNDS AND PORTFOLIOS 15
COMMON INVESTMENT PRACTICES 23
MANAGEMENT OF THE TRUST 30
BOARD OF TRUSTEES 30
INVESTMENT MANAGEMENT 30
DISTRIBUTOR 32
ADMINISTRATION 32
GENERAL INFORMATION AND HISTORY 33
THE TRUST 33
PURCHASE AND REDEMPTION 33
PURCHASE THROUGH THE SAM PROGRAM 34
NET ASSET VALUE 34
DIVIDENDS, DISTRIBUTIONS AND TAXES 35
PERFORMANCE 35
</TABLE>
<PAGE>
HIGHLIGHTS
INTRODUCTION
Owners of the WM Advantage Contract may allocate their account value among
eight different Funds (all of the Funds other than the Bond & Stock Fund and
the Northwest Fund), each of which has a different investment objective and
different investment policies. WM Advantage Annuity owners may also elect to
participate in the WM Strategic Asset Management Program ("SAM Program"), which
periodically reallocates account values in light of financial and investment
objectives and changing economic and market conditions, through WM Funds
Distributor, Inc., the Trust's distributor (the "Distributor").
Owners of the WM Strategic Asset Manager Contract may pursue an asset
allocation strategy through participation in a combination of Funds, designed
to accommodate different investment philosophies and goals (of the Portfolios)
or may select the Funds in which to participate themselves, foregoing the
Portfolios' asset allocation strategies. Investors participating in the
Portfolios bear the operating expenses of the Portfolios (including investment
advisory and administrative fees), as well as the operating expenses of the
Underlying Funds.
INVESTMENT OBJECTIVES AND POLICIES
Each Fund and Portfolio has a distinct investment objective and distinct
investment policies. Each Fund and Portfolio is a diversified series of the
Trust. WM Advisors, Inc. ("WM Advisors," or the "Advisor") serves as investment
advisor to each of the Funds and Portfolios.
MONEY MARKET FUND - seeks to maximize current income while preserving principal
and maintaining liquidity. It will pursue this objective by investing in U.S.
dollar-denominated money market instruments of U.S. and foreign issuers. It
also seeks to maintain a stable net asset value of $1.00 per share, although
there can be no assurance that it will be able to do so.
SHORT TERM HIGH QUALITY BOND FUND - seeks to provide as high a level of current
income as is consistent with prudent investment management and stability of
principal. The Fund invests, under normal market conditions, at least 65% of
its assets in investment-grade short-term bonds and other fixed-income
securities.
U.S. GOVERNMENT SECURITIES FUND - seeks to maximize total return while
providing investors with a high level of current income, consistent with
reasonable safety of principal. The Fund invests primarily in U.S. Government
Securities, including mortgage-backed securities.
INCOME FUND - seeks to provide a high level of current income, consistent with
the preservation of capital. The Fund pursues this objective by investing in a
diversified pool of debt securities.
BOND & STOCK FUND - seeks to provide continuity of income, conservation of
principal, and long-term growth of income and principal. The Fund invests
primarily in bonds, preferred stocks, common stocks and convertible securities.
GROWTH & INCOME FUND - seeks long-term capital growth and current income
consistent with reasonable investment risk. The Fund pursues this objective by
investing primarily in common stocks. The Fund may also invest in fixed-income
obligations and other securities.
GROWTH FUND - seeks long-term capital appreciation. Under normal market
conditions, it pursues this objective by investing primarily in equity
securities of U.S., multinational and foreign companies of all sizes that offer
potential for growth.
NORTHWEST FUND - seeks long-term growth of capital by investing in common
stocks of companies doing business or located in Alaska, Idaho, Montana, Oregon
and Washington.
EMERGING GROWTH FUND - seeks long-term capital appreciation by investing
primarily in equity securities. The Fund invests primarily in equity securities
of small companies that are expected to achieve accelerated growth in earnings
and revenues or that are undervalued in the market.
INTERNATIONAL GROWTH FUND - seeks long-term capital appreciation by investing
primarily in equity securities of foreign issuers.
INCOME PORTFOLIO - seeks long-term total return through reinvestment of current
income consistent with preservation of capital, primarily through participation
in the domestic fixed-income markets with limited participation in
international fixed income markets.
FLEXIBLE INCOME PORTFOLIO - seeks total return consisting of reinvestment of
income with some capital
3
<PAGE>
appreciation, primarily through investments in domestic and international
fixed-income markets, with limited participation in domestic and international
equity markets.
BALANCED PORTFOLIO - seeks total return consisting of a combination of
reinvestment income and capital appreciation, consistent with reasonable risk,
through participation in domestic and international fixed-income and equity
markets.
CONSERVATIVE GROWTH PORTFOLIO - seeks to provide long-term capital appreciation
through participation in domestic and international equity markets, with
limited participation in domestic and international fixed-income markets.
STRATEGIC GROWTH PORTFOLIO - seeks to provide long-term capital appreciation,
primarily through participation in domestic and international equity markets,
with limited participation in domestic and international fixed-income markets.
There is no assurance that any Fund or Portfolio will meet its stated
objective.
4
<PAGE>
EXPENSES
The purpose of the following tables is to help investors in the Funds and
Portfolios understand the annual their operating expenses.
FUND EXPENSES
The following table sets forth the ratios of operating expenses to average net
assets of each of the Funds for the fiscal year ended December 31, 1997/1/,
which have been restated to reflect current expenses, modifications of certain
voluntary waivers and credits allowed by Boston Safe Deposit & Trust Company,
the custodian (the "Custodian").
<TABLE>
<CAPTION>
----------------
Fund Expense Ratios
- ---- ----------------
<S> <C>
Money Market Fund .65%*
------------
Short Term High Quality Bond Fund 1.00%*
------------
U.S. Government Securities Fund .91%
------------
Income Fund .96%
------------
Bond & Stock Fund 1.50%
------------
Growth & Income Fund 1.08%
------------
Growth Fund 1.19%
------------
Northwest Fund 1.50%
------------
Emerging Growth Fund 1.21%
------------
International Growth Fund 1.36%
------------
</TABLE>
- --------------------------------------------------------------------------------
* Absent a voluntary expense waiver, operating expenses would have been .85%
for the Money Market Fund and 1.03% for the Short Term High Quality Bond
Fund, respectively.
(1) The ratios shown for the Bond & Stock Fund and the Northwest Fund are
estimates for such Funds' first full fiscal year.
AGGREGATE PORTFOLIO EXPENSES
The following table sets forth estimated aggregate expenses of the Portfolios
(including expenses of the Underlying Funds) combined, based upon estimated
expenses of each Portfolio for the current year and actual expenses of the
Underlying Funds for the most recent fiscal year (in the case of the Bond &
Stock Fund, the Northwest Fund and the High Yield Fund, estimated expenses for
the first full fiscal year), restated to reflect current expenses,
modifications of certain voluntary waivers and credits allowed by the
Custodian. The estimates assume a constant allocation by each Portfolio (other
than the Income Portfolio) of its assets among the Underlying Funds (other than
the Bond & Stock, Northwest, High Yield and Prime Income Funds) identical to
its actual allocation at December 31, 1997. Estimates for the Income Portfolio
reflect the range of combined expenses assuming allocation by the Income
Portfolio of its assets among the Underlying Funds in a manner that would,
within its permissible asset allocation parameters, result in the lowest and
highest combined expenses. See "Investment and Risk Considerations of the Funds
and Portfolios" for information regarding limitations on the portions of each
Portfolio's assets that may be invested in each of the Underlying Funds.
<TABLE>
<CAPTION>
-------------------------------------
Combined Net Without Fund
Portfolio Expenses Waivers and Credits
-------------------------------------
<S> <C> <C>
Income Portfolio 1.16% to 1.35% 1.27% to 1.38%
------------------------------------
Flexible Income Portfolio 1.25% 1.30%
------------------------------------
Balanced Portfolio 1.36% 1.40%
------------------------------------
Conservative Growth Portfolio 1.45% 1.47%
------------------------------------
Strategic Growth Portfolio 1.49% 1.50%
------------------------------------
</TABLE>
5
<PAGE>
FINANCIAL HIGHLIGHTS
The following information has been audited by Price Waterhouse LLP,
independent accountants. Their report is included in the Trust's Annual Report
to Shareholders (the "Annual Report"). The Financial Statements, Notes to
Financial Statements and Report of Independent Accountants sections of the
Annual Report are incorporated by reference into the SAI. Further information
about the performance of the Funds and the Portfolios is contained in the
Annual Report. The SAI and Annual Report can be obtained at no charge by
calling AGL at 800-247-6584 or writing AGL at the address shown on the cover
page of this Prospectus.
MONEY MARKET FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
---------------------------------------------------------------
Year Year Year Year Period
Ended Ended Ended Ended Ended
12/31/97 12/31/96 12/31/95 12/31/94 12/31/93(a)
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income $ 0.049 0.049 0.053 0.037 0.016
---------------------------------------------------------------
Total from investment
operations 0.049 0.049 0.053 0.037 0.016
LESS DISTRIBUTIONS:
Dividends from net
investment income (0.049) (0.049) (0.053) (0.037) (0.016)
Distributions from net
realized capital gains $ - (0.000)(e) - - -
---------------------------------------------------------------
Total distributions $(0.049) (0.049) (0.053) (0.037) (0.016)
---------------------------------------------------------------
Net asset value, end of
year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------------------------------------------------------------
TOTAL RETURN(C) 4.99% 4.97% 5.46% 3.69% 1.59%
---------------------------------------------------------------
RATIOS TO AVERAGE NET
ASSETS/SUPPLEMENTAL
DATA:
Net assets, end of year
(in 000's) $32,864 $23,266 $20,373 $6,159 $ 1,488
Ratio of operating
expenses to average
net assets 0.75% 0.58% 0.50% 0.49% 0.39%(b)
Ratio of net investment
income to average net
asset 4.88% 4.86% 5.30% 3.84% 2.54%(b)
Ratio of operating
expenses to average
net assets without
credits allowed by the
custodian 0.75%(d) 0.58%(d) 0.51%(d) N/A N/A
Ratio of operating
expenses to average
net assets without fee
waivers, expenses
absorbed and/or
credits allowed by the
custodian 0.85%(d) 0.88%(d) 1.01%(d) 1.25% 6.42%(b)
Net investment
income/(loss) per
share without fee
waivers and/or
expenses absorbed
and/or credits allowed
by the custodian $ 0.048(d) $ 0.046(d) $ 0.048(d) $0.030 $(0.022)
---------------------------------------------------------------
- ---------------------------------------------------------------------------------------
</TABLE>
(a) The Fund commenced operations on May 10, 1993.
(b) Annualized.
(c) 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, if certain expenses had not been
absorbed by the investment advisor or if credits had not been allowed by
the custodian.
(d) Includes custodian fees without credits allowed by the custodian as
required by amended disclosure requirements effective September 1, 1995.
(e) Amount represents less than $0.001 per share.
6
<PAGE>
SHORT TERM HIGH QUALITY BOND FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
--------------------------------------------------
Year Year Year Period
Ended Ended Ended Ended
12/31/97 12/31/96 12/31/95 12/31/94(a)
--------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of year $ 2.43 $ 2.49 $ 2.39 $ 2.50
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.14 0.15 0.12 0.08
Net realized and
unrealized gain/(loss)
on investments 0.00(e) (0.06) 0.10 (0.12)
--------------------------------------------------
Total from investment
operations 0.14 0.09 0.22 (0.04)
LESS DISTRIBUTIONS:
Dividends from net
investment income (0.14) (0.15) (0.12) (0.07)
--------------------------------------------------
Total distributions (0.14) (0.15) (0.12) (0.07)
--------------------------------------------------
Net asset value, end of
year $ 2.43 $ 2.43 $ 2.49 $ 2.39
--------------------------------------------------
TOTAL RETURN(C) 5.90% 3.74% 9.30% (1.62)%
--------------------------------------------------
RATIOS TO AVERAGE NET
ASSETS/SUPPLEMENTAL
DATA:
Net assets, end of year
(in 000's) $11,944 $12,402 $12,365 $15,547
Ratio of operating
expenses to average net
assets 1.00% 0.98% 0.85% 0.77%(b)
Ratio of net investment
income to average net
assets 6.04% 6.08% 6.14% 5.63%(b)
Portfolio turnover rate 43% 125% 188% 80%
Ratio of operating
expenses to average net
assets without credits
allowed by the
custodian 100%(d) 0.98%(d) 0.87%(d) N/A
Ratio of operating
expenses to average net
assets without fee
waivers and/or credits
allowed by the
custodian 1.03%(d) 1.06%(d) 1.01%(d) 1.10%(b)
Net investment income
per share without fee
waivers and/or credits
allowed by the
custodian $ 0.14(d) $ 0.15(d) $ 0.11(d) $ 0.07
--------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
(a) The Fund commenced operations on January 12, 1994.
(b) Annualized.
(c) 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 if credits had not been
allowed by the custodian.
(d) Includes custodian fees without credits allowed by the custodian as
required by amended disclosure requirements effective September 1, 1995.
(e) Amount represents less than $0.01 per share.
7
<PAGE>
U.S. GOVERNMENT SECURITIES FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
---------------------------------------------------------------
Year Year Year Year Period
Ended Ended Ended Ended Ended
12/31/97 12/31/96 12/31/95 12/31/94 12/31/93
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $ 9.77 $ 10.00 $ 9.13 $ 10.04 $ 10.00
---------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.63 0.58 0.64 0.50 0.19
Net realized and
unrealized gain/(loss)
on investments 0.26 (0.23) 0.87(e) (0.90)(e) 0.04(e)
---------------------------------------------------------------
Total from investment
operations 0.89 0.35 1.51 (0.40) 0.23
LESS DISTRIBUTIONS:
Dividends from net
investment income (0.62) (0.58) (0.64) (0.50) (0.19)
Distributions from net
realized gains - - - (0.01) -
---------------------------------------------------------------
Total distributions (0.62) (0.58) (0.64) (0.51) (0.19)
---------------------------------------------------------------
Net asset value, end of
year $ 10.04 $ 9.77 $ 10.00 $ 9.13 $ 10.04
---------------------------------------------------------------
TOTAL RETURN(C) 9.42% 3.69% 16.89% (4.04)% 2.27%
---------------------------------------------------------------
RATIOS TO AVERAGE NET
ASSETS/SUPPLEMENTAL
DATA:
Net assets, end of year
(in 000's) $61,656 $66,563 $52,303 $43,582 $25,069
Ratio of operating
expenses to average net
assets 0.90% 0.94% 1.00% 0.85% 0.44%(b)
Ratio of net investment
income to average net
assets 6.28% 6.18% 6.68% 5.75% 5.37%(b)
Portfolio turnover rate 194% 282% 273% 74% 131%
Ratio of operating
expenses to average net
assets without credits
allowed by the
custodian and/or
interest expense 0.91%(d) 0.94%(d) 1.02%(d) N/A N/A
Ratio of operating
expenses to average net
assets without fee
waivers, expenses
absorbed and/or credits
allowed by the
custodian 0.91%(d) 0.94%(d) 1.03%(d) 1.02% 1.47%(b)
Ratio of operating
expenses to average net
assets including
interest expense 1.54% 1.08% 1.76% 0.86% 0.44%(b)
Net investment income
per share without fee
waivers and/or expenses
absorbed and/or credits
allowed by the
custodian $ 0.63(d) $ 0.58(d) $ 0.63(d) $ 0.49 $ 0.15
---------------------------------------------------------------
- ------------------------------------------------------------------------------------------
</TABLE>
(a) The Fund commenced operations on May 6, 1993.
(b) Annualized.
(c) 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, if certain expenses had not been
absorbed by the investment advisor or if credits had not been allowed by
the custodian.
(d) Includes custodian fees without credits allowed by the custodian as
required by amended disclosure requirements effective September 1, 1995.
(e) 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.
8
<PAGE>
INCOME FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
------------------------------------------------------------
Year Year Year Year Period
Ended Ended Ended Ended Ended
12/31/97 12/31/96 12/31/95 12/31/94 12/31/93(a)
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $ 9.82 $ 10.48 $ 9.06 $ 10.34 $ 10.00
------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.70 0.68 0.70 0.47 0.23
Net realized and
unrealized gain/(loss)
on investments 0.37 (0.66) 1.50 (1.30) 0.33(e)
------------------------------------------------------------
Total from investment
operations 1.07 0.02 2.20 (0.83) 0.56
LESS DISTRIBUTIONS:
Dividends from net
investment income (0.70) (0.68) (0.78) (0.40) (0.22)
Distributions from net
realized gains - - - (0.05) -
------------------------------------------------------------
Total distributions (0.70) (0.68) (0.78) (0.45) (0.22)
------------------------------------------------------------
Net asset value, end of
year $ 10.19 $ 9.82 $ 10.48 $ 9.06 $ 10.34
------------------------------------------------------------
TOTAL RETURN(C) 11.35% 0.43% 25.09% (8.13)% 5.62%
------------------------------------------------------------
RATIOS TO AVERAGE NET
ASSETS/SUPPLEMENTAL
DATA:
Net assets, end of year
(in 000's) $51,670 $59,883 $60,676 $54,705 $28,732
Ratio of operating
expenses to average net
assets 0.96% 0.98% 0.99% 0.93% 0.54%(b)
Ratio of net investment
income to average net
assets 6.95% 6.92% 7.00% 7.28% 6.37%(b)
Portfolio turnover rate 36% 30% 42% 23% 26%
Ratio of operating
expenses to average net
assets without credits
allowed by the
custodian 0.96%(d) 0.98%(d) 0.99%(d) N/A N/A
Ratio of operating
expenses to average net
assets without fee
waivers, expenses
absorbed and/or credits
allowed by the
custodian 0.96%(d) 0.98%(d) 0.99%(d) 1.07% 1.50%(b)
Ratio of operating
expenses to average net
assets including
interest expense - - 0.99% - -
Net investment income
per share without fee
waivers and/or expenses
absorbed and/or credits
allowed by the
custodian $ 0.70(d) $ 0.68(d) $ 0.70(d) $ 0.47 $ 0.19
------------------------------------------------------------
- -----------------------------------------------------------------------------------------
</TABLE>
(a) The Fund commenced operations on May 7, 1993.
(b) Annualized.
(c) 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, if certain expenses had not been
absorbed by the investment advisor or if credits had not been allowed by
the custodian.
(d) Includes custodian fees without credits allowed by the custodian as
required by amended disclosure requirements effective September 1, 1995.
(e) 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.
9
<PAGE>
GROWTH & INCOME FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
------------------------------------------------------
Year Year Year Period
Ended Ended Ended Ended
12/31/97 12/31/96 12/31/95 12/31/94(a)
------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of year $ 14.29 $ 12.83 $ 9.83 $ 10.00
------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.06 0.12(e) 0.12 0.07
Net realized and
unrealized gain/(loss)
on investments 3.90 2.54 3.05 (0.24)
------------------------------------------------------
Total from investment
operations 3.96 2.66 3.17 (0.17)
LESS DISTRIBUTIONS:
Dividends from net
investment income (0.10) (0.12) (0.07) -
Distributions from net
realized gains (1.23) (1.08) (0.10) -
------------------------------------------------------
Total distributions (1.33) (1.20) (0.17) -
------------------------------------------------------
Net asset value, end of
year $ 16.92 $ 14.29 $ 12.83 $ 9.83
------------------------------------------------------
TOTAL RETURN(C) 28.50% 21.81% 32.41% (1.70)%
------------------------------------------------------
RATIOS TO AVERAGE NET
ASSETS/SUPPLEMENTAL
DATA:
Net assets, end of year
(in 000's) $101,794 $62,445 $46,362 $24,905
Ratio of operating
expenses to average
net assets 108% 1.13% 1.06% 1.20%(b)
Ratio of net investment
income to average net
assets 0.55% 0.93% 1.31% 1.63%(b)
Portfolio turnover rate 109% 83% 70% 44%
Ratio of operating
expenses to average
net assets without
credits allowed by the
custodian 1.08%(d) 1.13%(d) 1.06%(d) N/A
Ratio of operating
expenses to average
net assets without fee
waivers and/or credits
allowed by the
custodian 1.08%(d) 1.13%(d) 1.16%(d) 1.55%(b)
Net investment income
per share without fee
waivers and/or credits
allowed by the
custodian $ 0.06(d) $ 0.12(e)(d) $ 0.11(d) $ 0.05
Average commission rate
paid(f) $ 0.0460 $0.0533 N/A N/A
------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
(a) The Fund commenced operations on January 12, 1994.
(b) Annualized.
(c) 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 if credits had not been allowed
by the custodian.
(d) Includes custodian fees without credits allowed by the custodian as
required by amended disclosure requirements effective September 1, 1995.
(e) Per share numbers have been calculated using the average shares method.
(f) Average commission rate paid per share of securities purchased and sold by
the Fund as required by amended disclosure requirements effective for
fiscal years beginning on or after September 1, 1995.
10
<PAGE>
GROWTH FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
---------------------------------------------------------------------
Year Year Year Year Period
Ended Ended Ended Ended Ended
12/31/97 12/31/96 12/31/95 12/31/94 12/31/93(a)
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $ 16.01 $ 15.72 $ 11.48 $ 11.19 $ 10.00
---------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.07 0.00(e)(g) 0.04(e) 0.04 0.02
Net realized and
unrealized gain on
investments 1.60 2.42 4.24 0.26 1.17
---------------------------------------------------------------------
Total from investment
operations 1.67 2.42 4.28 0.30 1.19
LESS DISTRIBUTIONS:
Dividends from net
investment income (0.02) - (0.04) (0.01) -
Distributions from net
realized gains (2.25) (2.13) (0.00)(g) - -
---------------------------------------------------------------------
Total distributions (2.27) (2.13) (0.04) (0.01) -
---------------------------------------------------------------------
Net asset value, end of
year $ 15.41 $ 16.01 $ 15.72 $ 11.48 $ 11.19
---------------------------------------------------------------------
TOTAL RETURN(C) 11.24% 16.15% 37.34% 2.69% 11.90%
---------------------------------------------------------------------
RATIOS TO AVERAGE NET
ASSETS/SUPPLEMENTAL
DATA:
Net assets, end of year
(in 000's) $121,766 $116,064 $99,699 $62,763 $22,795
Ratio of operating
expenses to average
net assets 1.18% 1.22% 1.24% 1.26% 0.78%(b)
Ratio of net investment
income to average net
assets 0.07% 0.01% 0.29% 0.74% 0.70%(b)
Portfolio turnover rate 158% 169% 187% 257% 86%
Ratio of operating
expenses to average
net assets without
credits allowed by the
custodian 1.19%(d) 1.22%(d) 1.24%(d) N/A N/A
Ratio of operating
expenses to average
net assets without fee
waivers, expenses
absorbed and/or
credits allowed by the
custodian 1.19%(d) 1.22%(d) 1.24%(d) 1.32% 1.92%(b)
Net investment
income/(loss) per
share without fee
waivers and/or
expenses absorbed
and/or credits allowed
by the custodian $ 0.07(d) $ 0.00(g)(e)(d) $ 0.04(e)(d) $ 0.04 $ (0.01)
Average commission rate
paid(b) $ 0.0070 $ 0.0460 N/A N/A N/A
---------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
</TABLE>
(a) The Fund commenced operations on May 7, 1993.
(b) Annualized.
(c) 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 if credits had not been allowed
by the custodian.
(d) Includes custodian fees without credits allowed by the custodian as
required by amended disclosure requirements effective September 1, 1995.
(e) Per share numbers have been calculated using the average shares method.
(f) Average commission rate paid per share of securities purchased and sold by
the Fund as required by amended disclosure requirements effective for
fiscal years beginning on or after September 1, 1995.
(g) Amount represents less than $0.01 per share.
11
<PAGE>
EMERGING GROWTH FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
-------------------------------------------------------
Year Year Year Period
Ended Ended Ended Ended
12/31/97 12/31/96 12/31/95 12/31/94(a)
-------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of year $ 14.70 $ 13.74 $ 10.53 $ 10.00
-------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment
income/(loss) (0.03) (0.12)(e) (0.01) 0.06
Net realized and
unrealized gain on
investments 1.80 1.52 3.26 0.47
-------------------------------------------------------
Total from investment
operations 1.77 1.40 3.25 0.53
LESS DISTRIBUTIONS:
Dividends from net
investment income - - (0.04) -
Distributions from net
realized gains (0.84) (0.44) (0.00)(g) -
-------------------------------------------------------
Total distributions (0.84) (0.44) (0.04) -
-------------------------------------------------------
Net asset value, end of
year $ 15.63 $ 14.70 $ 13.74 $ 10.53
-------------------------------------------------------
TOTAL RETURN(C) 12.59% 10.04% 30.99% 5.30%
-------------------------------------------------------
RATIOS TO AVERAGE NET
ASSETS/SUPPLEMENTAL
DATA:
Net assets, end of year
(in 000's) $45,362 $55,887 $46,058 $19,885
Ratio of operating
expenses to average
net assets 1.20% 1.20% 1.20% 1.23%(b)
Ratio of net investment
income/(loss) to
average net assets (0.58)% (0.82)% (0.35)% 1.03%(b)
Portfolio turnover rate 116% 97% 135% 192%
Ratio of operating
expenses to average
net assets without
credits allowed by the
custodian 1.21%(d) 1.21%(d) 1.21%(d) N/A
Ratio of operating
expenses to average
net assets without fee
waivers and/or credits
allowed by the
custodian 1.21%(d) 1.21%(d) 1.28%(d) 1.38%(b)
Net investment
income/(loss) per
share without fee
waivers and/or credits
allowed by the
custodian $ (0.03)(d) $ (0.12)(e)(d) $ (0.01)(d) $ 0.05
Average commission rate
paid(f) $0.0200 $0.0319 N/A N/A
-------------------------------------------------------
- ---------------------------------------------------------------------------------
</TABLE>
(a) The Fund commenced operations on January 12, 1994.
(b) Annualized.
(c) 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 if credits had not been allowed
by the custodian.
(d) Includes custodian fees without credits allowed by the custodian as
required by amended disclosure requirements effective September 1, 1995.
(e) Per share numbers have been calculated using the average shares method.
(f) Average commission rate paid per share of securities purchased and sold by
the Fund as required by amended disclosure requirements effective for
fiscal years beginning on or after September 1, 1995.
(g) Amount represents less than $0.01 per share.
12
<PAGE>
INTERNATIONAL GROWTH FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
----------------------------------------------------------------
Year Year Year Year Period
Ended Ended Ended Ended Ended
12/31/97 12/31/96 12/31/95 12/31/94 12/31/93(a)
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $ 13.02 $ 12.11 $ 11.47 $ 11.31 $ 10.00
----------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.71 0.07(e) 0.18 0.01 0.02
Net realized and
unrealized gain/(loss)
on investments (0.97) 1.01 0.58 0.19(h) 1.29
----------------------------------------------------------------
Total from investment
operations (0.26) 1.08 0.76 0.20 1.31
LESS DISTRIBUTIONS:
Dividends from net
investment income (0.26) (0.17) (0.00)(g) (0.03) -
Distributions from net
realized gains (0.24) - (0.12) (0.01) -
----------------------------------------------------------------
Total distributions (0.50) (0.17) (0.12) (0.04) -
----------------------------------------------------------------
Net asset value, end of
year $ 12.26 $ 13.02 $ 12.11 $ 11.47 $ 11.31
----------------------------------------------------------------
TOTAL RETURN(C) (2.64)% 9.04% 6.61% 1.88% 13.10%
----------------------------------------------------------------
RATIOS TO AVERAGE NET
ASSETS/SUPPLEMENTAL
DATA:
Net assets, end of year
(in 000's) $49,636 $62,355 $45,909 $46,529 $10,638
Ratio of operating
expenses to average net
assets 1.35% 1.39% 1.47% 1.34% 0.83%(b)
Ratio of net investment
income to average net
assets 0.52% 0.56% 0.91% 0.83% 0.61%(b)
Portfolio turnover rate 84% 98% 72% 51% 24%
Ratio of operating
expenses to average net
assets without credits
allowed by the
custodian 1.36%(d) 1.39%(d) 1.47%(d) N/A N/A
Ratio of operating
expenses to average net
assets without fee
waivers, expenses
absorbed and/or credits
allowed by the
custodian 1.36%(d) 1.39%(d) 1.48%(d) 1.50% 2.85%(b)
Net investment
income/(loss) per share
without fee waivers
and/or expenses
absorbed and/or credits
allowed by the
custodian $ 0.71(d) $ 0.07(e)(d) $ 0.17(d) $ 0.01 $ (0.06)
Average commission rate
paid(f) $0.0100 $0.0253 N/A N/A N/A
----------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
</TABLE>
(a) The Fund commenced operations on May 7, 1993.
(b) Annualized.
(c) 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, if certain expenses had not been
absorbed by the investment advisor or if credits had not been allowed by
the custodian.
(d) Includes custodian fees without credits allowed by the custodian as
required by amended disclosure requirements effective September 1, 1995.
(e) Per share numbers have been calculated using the average shares method.
(f) Average commission rate paid per share of securities purchased and sold by
the Fund as required by amended disclosure requirements effective for
fiscal years beginning on or after September 1, 1995.
(g) Amount represents less than $0.01 per share.
(h) 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.
13
<PAGE>
THE PORTFOLIOS
FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT THE PERIOD ENDED DECEMBER 31,
1997(A)
<TABLE>
<CAPTION>
---------------------------------------------------------------
Flexible Conservative Strategic
Income Income Balanced Growth Growth
Portfolio Portfolio Portfolio Portfolio Portfolio
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 10.00 $10.00 $10.00 $10.00 $10.00
---------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.00 0.04 0.13 0.07 0.10
Net realized and
unrealized gain on
investments 0.00 0.19 0.34(f) 0.42(f) 0.60(f)
---------------------------------------------------------------
Total from investment
operations 0.00 0.23 0.47 0.49 0.70
LESS DISTRIBUTIONS:
Dividends from net
investment income - - - - -
Distributions from net
realized gains - - - - -
---------------------------------------------------------------
Total distributions - - - - -
---------------------------------------------------------------
Net asset value, end of
period $ 10.00(d) $10.23 $10.47 $10.49 $10.70
---------------------------------------------------------------
TOTAL RETURN(C) 0.00% 2.30% 4.70% 4.90% 7.00%
---------------------------------------------------------------
RATIOS TO AVERAGE NET
ASSETS/SUPPLEMENTAL
DATA:
Net assets, end of
period (in 000's) $ 0 $ 100 $2,354 $1,374 $ 591
---------------------------------------------------------------
Ratio of operating
expenses to average net
assets(e) 0.35%(b) 0.34%(b) 0.35%(b) 0.35%(b) 0.35%(b)
Ratio of net investment
income to average net
assets 0.00%(b) 7.04%(b) 2.34%(b) 1.24%(b) 0.51%(b)
Portfolio turnover rate 99% 5% 15% 42% 11%
---------------------------------------------------------------
Ratio of operating
expenses to average net
assets without credits
allowed by the
custodian(f) 0.00%(b) 0.49%(b) 0.37%(b) 0.40%(b) 0.43%(b)
---------------------------------------------------------------
Ratio of operating
expenses to average net
assets without fee
waivers, expenses
absorbed and/or credits
allowed by the
custodian(e) 7,567.04%(b) 116.19%(b) 3.97%(b) 6.67%(b) 15.54%(b)
---------------------------------------------------------------
Net investment
income/(loss) per share
without fee waivers
and/or expenses
absorbed and/or credits
allowed by the
custodian $ 0.00 $(0.66) $(0.07) $(0.30) $(2.82)
---------------------------------------------------------------
- --------------------------------------------------------------------------------------------
</TABLE>
(a) Each of the Balanced, Conservative Growth and Strategic Growth Portfolios
commenced operations on June 3, 1997. The Flexible Income Portfolio
commenced operations on September 9, 1997, and the Income Portfolio
commenced operations on October 22, 1997.
(b) Annualized.
(c) 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 investment advisor and administrator, if certain expenses had not
been absorbed by the investment advisor or if credits had not been allowed
by the custodian.
(d) Represents offering share price.
(e) In addition, the Portfolios will indirectly bear their pro rata share of
expenses of the Underlying Funds.
(f) 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.
14
<PAGE>
INVESTMENTS AND RISK CONSIDERATIONS OF THE FUNDS AND PORTFOLIOS
The following section describes the investment objectives and policies of the
Funds and Portfolios as well as some of the risk considerations associated with
each. The "Common Investment Practices" section that follows provides more
detailed information about the common investment practices of the Funds or
Portfolios. Except for the investment objectives of each Fund and Portfolio,
the High Yield Fund and Prime Income Fund policies explicitly identified as
"fundamental" in this Prospectus or the SAI, the investment policies set forth
in this Prospectus and the SAI are not fundamental and may be changed at any
time without shareholder consent by vote of the Board of Trustees of the Trust,
subject to applicable law. A list of investment restrictions that identifies
those restrictions that cannot be changed without the approval of a majority of
an affected Fund's or Portfolio's outstanding shares is contained in the SAI.
New instruments, strategies and techniques, however, are evolving continually
and each Fund and Portfolio reserves authority to invest in or implement them
to the extent consistent with its investment objectives and policies. None of
the Funds or Portfolios is intended to be a complete investment program, and
there is no assurance that any of the Funds or Portfolios will achieve its
investment objective.
THE FUNDS
MONEY MARKET FUND. The Fund's investment objective is to maximize current
income while preserving principal and maintaining liquidity. The Money Market
Fund invests only in U.S. dollar-denominated short-term, money market
securities. The Fund will not purchase a security other than obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities ("U.S.
Government securities") unless the security or the issuer with respect to a
comparable security (i) is rated by at least two nationally recognized
statistical rating organizations ("NRSROs"), such as Standard & Poor's ("S&P")
or Moody's Investors Service, Inc. ("Moody's"), in one of the two highest
rating categories for short-term debt securities, (ii) is rated in one of the
two highest categories for short-term debt by the only NRSRO that has issued a
rating, or (iii) if not so rated, is determined to be of comparable quality. A
description of the rating systems of S&P and Moody's is contained in the SAI.
At the time of investment, no security purchased by the Fund (except securities
subject to repurchase agreements and variable rate demand notes) can have a
maturity exceeding 397 days, and the Fund's average portfolio maturity cannot
exceed 90 days. Although the Fund attempts to maintain a stable net asset value
("NAV") of $1.00, there can be no assurances that the Fund will be able to do
so. The Fund invests solely in money market instruments that are selected from
the following five general categories: (1) U.S. Government securities; (2)
obligations of U.S. and foreign banks with assets in excess of $500 million;
(3) commercial notes issued directly by domestic and foreign non-financial
corporations and governmental entities and banking institutions to finance
short-term cash needs, which may include securities that do not have a short-
term rating but that are issued by companies whose unsecured debt is rated in
one of the two highest rating categories by Moody's or S&P; (4) short-term
corporate obligations rated in one of the two highest rating categories by
Moody's or S&P; and (5) repurchase agreements.
SHORT TERM HIGH QUALITY BOND FUND. The Fund seeks to provide as high a level of
current income as is consistent with prudent investment management and
stability of principal. To accomplish its objective, the Fund will invest
primarily in short-term bonds and other debt securities. Under normal market
conditions, the Fund will maintain a dollar-weighted average portfolio maturity
of three years or less. The Fund may, however, hold individual securities with
remaining maturities of more than three years. For purposes of the weighted
average maturity calculation, a mortgage instrument's average life will be
considered to be its maturity, and a variable rate security's reset date will
be considered to be its maturity.
The Fund will invest substantially all of its assets in investment-grade debt
securities, which are securities that are rated in the top four rating
categories by one or more NRSROs or, if unrated, are judged to be of comparable
quality by WM Advisors. The Fund will invest at least 65% of its total assets
in U.S. Government securities, corporate debt obligations or mortgage-related
securities rated in one of the two highest categories by an NRSRO.
The fixed-income securities in which the Fund may invest include obligations
issued or guaranteed by domestic and foreign governments and government
agencies and instrumentalities and high-grade corporate debt obligations, such
as bonds, debentures, notes, equipment lease and trust certificates, mortgage-
backed securities, collateralized mortgage obligations and asset-backed
securities.
15
<PAGE>
The Fund may invest up to 10% of its assets in foreign fixed-income securities,
primarily bonds of foreign governments or their political subdivisions, foreign
companies and supranational organizations, including non-U.S. dollar-
denominated securities and U.S. dollar-denominated debt securities issued by
foreign issuers and foreign branches of U.S. banks. Investment in foreign
securities is subject to special risks. The Fund may also invest in high-
quality, short-term obligations (with maturities of 12 months or less) such as
commercial paper issued by domestic and foreign corporations, bankers'
acceptances issued by domestic and foreign banks, certificates of deposit and
demand and time deposits of domestic and foreign banks and savings and loan
associations and repurchase agreements. The Fund may engage in certain options
transactions, enter into financial futures contracts and related options for
the purpose of portfolio hedging and enter into currency forwards or futures
contracts and related options for the purpose of currency hedging. The Fund may
invest in certain illiquid investments, such as privately placed obligations,
including restricted securities. The Fund may invest up to 10% of its assets in
securities of unaffiliated mutual funds. The Fund currently may borrow money or
enter into reverse repurchase agreements or dollar roll transactions in the
aggregate up to 10% of its total assets. Dollar rolls and reverse repurchase
agreements entail certain risks such as increasing the market exposure and
potential volatility of the Fund. The Fund may invest up to 25% of its total
assets in asset-backed securities, which represent a participation in, or are
secured by and payable from, a stream of payments generated by particular
assets, most often a pool of similar assets. See "Common Investment Practices--
Foreign Investments, "--Strategic Transactions", "--Holdings in Other
Investment Companies", "--Borrowings", "--Mortgage-Backed and Asset-Backed
Securities."
U.S. GOVERNMENT SECURITIES FUND. The U.S. Government Securities Fund seeks to
achieve its objective by investing primarily in a selection of obligations of
the U.S. Government and its agencies. The Fund may also invest in
collateralized mortgage obligations or repurchase agreements which are secured
by those types of obligations. It is a fundamental policy of the Fund to invest
only in the following securities: (1) U.S. Government obligations issued by the
Treasury, including bills, certificates of indebtedness, notes, and bonds; (2)
obligations secured by the full faith and credit of the U.S. Government or its
instrumentalities; (3) Government National Mortgage Association ("GNMA"),
certificates, which are debt securities representing an undivided ownership
interest in a pool of mortgages; (4) collateralized mortgage obligations which
are fully collateralized by GNMA certificates or by mortgages insured by GNMA;
(5) repurchase agreements which are secured by obligations identified in 1, 2,
and 3 above; and (6) debt securities, including Mortgage-Backed Securities,
issued by government agencies, such as the Federal National Mortgage
Association ("FNMA"), or the Federal Home Loan Mortgage Corporation ("FHLMC"),
which are not supported by the full faith and credit of the U.S. Government
and, accordingly, bear greater credit risk than securities that are backed by
the full faith and credit of the U.S. Government. The Fund may also borrow up
to 5% of its total net assets for emergency, non-investment purposes and may
enter into dollar roll transactions. See "Common Investment Practices--
Borrowing," "--U.S. Government Securities," and "--Government Stripped
mortgage-backed securities" for a more complete discussion of GNMA
certificates, collateralized mortgage obligations and repurchase agreements.
Guarantees of the Fund's securities by the U.S. Government, its agencies or
instrumentalities apply only to the payment of principal and interest on the
guaranteed securities, and do not guarantee the securities' yield or value, or
the yield or value of the Fund's shares.
INCOME FUND. The Fund's investment objective is to provide a high level of
current income, consistent with the preservation of capital. The Income Fund
seeks to achieve its objective by investing in debt issues and obligations that
offer high current yields and that are consistent with a moderate degree of
risk. Accordingly, the Fund invests most of its assets in (1) debt and
convertible debt securities which have a rating within the four highest grades
as determined by S&P or Moody's, (2) U.S. Government Securities, including
mortgage-backed securities issued by GNMA, FNMA, FHLMC and or similar
government agencies; (3) obligations of U.S. banks that belong to the Federal
Reserve System; (4) preferred stocks and convertible preferred stocks rated in
one of the four highest ratings of S&P or Moody's (and in no case below
investment grade); (5) the highest grade commercial paper as rated by S&P or
Moody's; and (6) deposits in U.S. banks.
The Fund may also invest in securities denominated in currencies other than
U.S. dollars and likewise receive interest, dividends and sale proceeds in
currencies other than U.S. dollars. The Fund may engage in foreign currency
exchange transactions for hedging purposes in connection with the purchase and
sale of foreign
16
<PAGE>
securities or to protect against changes in the value of specific securities
held by the Fund, and may purchase and sell currencies on a spot (cash) basis,
enter into forward contracts to purchase or sell foreign currencies at a future
date, and buy and sell foreign currency futures contracts and foreign
currencies. The Fund may also borrow up to 5% of its total net assets for
emergency, non-investment purposes and may enter into dollar roll transactions.
The Fund may purchase securities of issuers which deal in real estate or
securities which are secured by interests in real estate, and it may acquire
and dispose of real estate or interests in real estate acquired through the
exercise of its rights as a holder of debt obligations secured by real estate
or interests therein. The Fund may also purchase and sell interest rate futures
and options. The Fund may invest up to 35% of its assets in lower-rated fixed-
income securities (sometimes called "junk bonds"). See "Common Investment
Practices--Lower-Rated Securities," "--Foreign Investments," "--Foreign
Currency Exchange Transactions and Currency Management," "--Strategic
Transactions," "--Borrowing," and "--Real Estate Investment Trusts."
BOND & STOCK FUND. This Fund has three objectives: continuity of income,
conservation of principal, and long-term growth of both income and principal.
The Fund invests in bonds, preferred stocks, common stocks and convertible
securities. Under normal market conditions, at least 25% of the Fund's assets
will be invested in fixed-income securities. The Fund may invest, without
limit, in money market instruments for temporary or defensive purposes. The
Fund may invest up to 25% of its assets in real estate investment trusts known
as "REITs." The Fund may invest in fixed-income securities of any maturity,
including mortgage-backed and other asset-backed securities and may also invest
in below-investment-grade bonds (sometimes called "junk bonds"). The Fund may
purchase or sell U.S. Government securities or collateralized mortgage
obligations on a "when-issued" or "delayed-delivery" basis in an aggregate up
to 20% of the market value of its total net assets. The Fund may write (sell)
covered call options. A call option is covered if the Fund owns the security
underlying the option it has written or it maintains enough cash, cash
equivalents or liquid securities to purchase the underlying security. The Fund
may invest up to 25% of its assets in U.S. dollar-denominated securities of
foreign issuers. Investments in foreign securities may involve somewhat
different risks. See "Common Investment Practices--Real Estate Investment
Trusts," "--Lower-Rated Securities," "--Mortgage-Backed and Asset-Backed
Securities," "--Foreign Investments."
GROWTH & INCOME FUND. The Fund seeks long term capital growth and current
income consistent with reasonable investment risk. The Growth & Income Fund
invests primarily in common stocks. The Fund may also invest, without limit, in
money market instruments for temporary or defensive purposes. To limit risk,
repurchase agreements maturing more than seven days will not exceed 10% of the
Fund's total assets. The Fund may invest up to 25% of its assets in REITs. The
Fund may invest in fixed-income securities of any maturity, including mortgage-
backed securities and non-investment grade fixed-income securities sometimes
referred to as junk bonds.
The Fund may purchase or sell U.S. Government securities or collateralized
mortgage obligations on a "when-issued" or "delayed-delivery" basis in an
aggregate up to 20% of the market value of its total assets minus total
liabilities (except for the obligations created by these commitments). The Fund
may write (sell) covered call options. See "Common Investment Practices--Real
Estate Investment Trusts," "--Mortgage-Backed and Asset-Backed Securities," "--
Lower Rated Securities," and "--Foreign Investments."
GROWTH FUND. The Fund's primary investment objective is long-term capital
appreciation. Any income received on the Fund's assets will be incidental to
its primary investment objective, which is a fundamental policy of the Fund.
The Fund intends to invest primarily in common stock believed by its sub-
advisor, Janus Capital Corporation ("Janus"), to have significant appreciation
potential. The Fund also may invest in debt securities, bonds, convertible
bonds, preferred stock and convertible preferred stock, including up to 35% of
its assets in non-investment-grade debt securities. See "Common Investment
Practices--Lower-Rated Securities."
The Fund may invest up to 25% of its assets in foreign securities, usually
foreign common stocks, and up to 5% of its assets in securities of companies in
(or governments of) developing or emerging countries (sometimes referred to as
"emerging markets"). See "Common Investment Practices--Foreign Securities." The
Fund may also engage in certain options transactions, enter into financial
futures contracts and related options for the purpose of portfolio hedging and
enter into currency forwards or futures contracts and related options for the
purpose of currency hedging. See "Common Investment Practices--Strategic
Transactions."
17
<PAGE>
Pursuant to an exemptive order granted by the SEC, the Growth Fund may transfer
daily uninvested cash balances into one or more joint trading accounts. Assets
in the joint trading accounts are invested in money market instruments, and the
proceeds are allocated to the participating funds on a pro-rata basis.
NORTHWEST FUND. This Fund invests with the objective of long-term growth of
capital. Common stocks are selected from companies located or doing business in
the northwest states of Alaska, Idaho, Montana, Oregon and Washington. Under
normal circumstances, at least 65% of the Fund's total assets will be invested
in companies whose principal executive offices are located in the Northwest.
The Fund is permitted to invest without limit in money market instruments for
temporary or defensive purposes. The Fund may invest up to 25% of its assets in
real estate investment trusts known as "REITs." The Fund may invest up to 25%
of its assets in U.S. dollar-denominated securities of foreign issuers. The
Fund may write (sell) covered call options. A call option is "covered" if the
Fund owns the security underlying the option it has written or it maintains
enough cash, cash equivalents, or liquid securities to purchase the underlying
security. See "Common Investment Practices--Strategic Transactions."
Because the Fund concentrates its investments in companies located or doing
business in the Northwest, the Fund could be adversely impacted by economic
trends within the five-state area.
EMERGING GROWTH FUND. The Fund's investment objective is long-term capital
appreciation, while income is only an incidental consideration of the Fund. The
Fund invests primarily in equity securities of companies with market
capitalization of less than $1.4 billion at the time of purchase. A company's
market capitalization is calculated by multiplying the total number of shares
of its common stock outstanding by the market price per share of its stock. The
Fund may invest up to 25% of its assets in securities of foreign issuers and up
to 5% of its assets in securities in developing or emerging countries. See
"Common Investment Practices--Foreign Investments."
Small capitalization companies typically are subject to a greater degree of
change in earnings and business prospects than larger, more established
companies. In addition, securities of small capitalization companies are traded
in lower volume than those issued by larger companies and may be more volatile
and less liquid, and consequently bear greater investment risk, than those of
larger companies. Small capitalization companies generally are not as well
known to the investing public and have less of an investor following than
larger companies. In selecting investments for the Fund, WM Advisors seeks
small capitalization companies that it believes are undervalued in the
marketplace, or that WM Advisors believes have earnings that it expects to grow
faster than the U.S. economy in general.
The Fund may invest up to 35% of its assets in non-investment-grade debt
securities (commonly called "junk bonds") if portfolio management believes that
doing so will be consistent with the goal of capital appreciation. See "Common
Investment Practices--Lower-Rated Securities."
The Fund may invest in other equity securities, including convertible bonds,
convertible preferred stock and warrants to purchase common stock, as well as
cash and cash equivalents.
INTERNATIONAL GROWTH FUND. The Fund's investment objective is long-term capital
appreciation. Any income received will be incidental. The Fund invests
primarily in equity securities of issuers located in foreign countries that
Warburg Pincus Asset Management, Inc. ("Warburg"), the Fund's sub-advisor,
deems to have attractive investment opportunities. Criteria for determining the
appropriate distribution of investments among various countries and regions
include prospects for relative economic growth, expected levels of inflation,
government policies influencing business conditions, the outlook for currency
relationships, and the range of investment opportunities available to
international investors. The relative strength or weakness of a particular
country's currency or economy may dictate whether securities of issuers located
in such country will be purchased or sold. More than 25% of the Fund's total
assets may be invested in the securities of issuers located in the same
country. The Fund will emphasize established companies, although it may invest
in companies of varying sizes as measured by assets, sales and capitalization.
The Fund invests in common stock and may invest in other securities with equity
characteristics such as trust or limited partnership interests, preferred
stock, rights and warrants. The Fund may also invest in convertible securities.
The Fund invests in securities listed on foreign or domestic securities
exchanges and securities traded in foreign or domestic over-the-counter
markets, and may invest in restricted or unlisted securities.
The Fund intends to stay invested in the securities described above to the
extent practical. Fund assets may be invested in short-term debt instruments to
meet anticipated day-to-day operating expenses, and for
18
<PAGE>
temporary defensive purposes. In addition, when the Fund experiences large cash
inflows, the Fund may hold short-term investments pending availability of
desirable equity securities. These short-term instruments are generally rated A
or higher by Moody's or S&P, or if unrated, are of comparable quality in the
opinion of the Fund's sub-advisor.
The Fund may invest up to 30% of its assets in the securities of companies in
or governments of developing or emerging countries (sometimes referred to as
"emerging markets") approved by the Trust's Board of Trustees, provided that no
more than 5% of the Fund's total assets are invested in any one such country.
For temporary defensive purposes, the Fund may invest a major portion of its
assets in securities of U.S. issuers. Furthermore, the Fund may invest up to 5%
of its total assets in corporate debt securities having maturities longer than
one year and which are rated BBB or better by S&P or Baa or better by Moody's
or of comparable quality in the opinion of the Fund's sub-advisor, including
Euro-currency instruments and securities.
THE PORTFOLIOS
Each Portfolio typically allocates its assets, within predetermined percentage
ranges, among some or all of the Underlying Funds. Subject to approval of the
Trust's trustees, WM Advisors may alter these percentage ranges when it deems
appropriate. The percentages reflect the extent to which each Portfolio will
invest in the particular market segment represented by each Underlying Fund,
and the varying degrees of potential investment risk and reward represented by
each Portfolio's investments in those market segments and their corresponding
Funds. The assets of each Portfolio will be allocated among each of the
Underlying Funds, in accordance with its investment objective, WM Advisors's
outlook for the economy and the financial markets and the relative market
valuations of the Funds. For purposes of complying with the diversification
requirements of the Internal Revenue Code of 1986, as amended (the "Code"), and
Treasury Regulations applicable to investments of insurance company separate
accounts, no more than 55% of a Portfolio's assets will be represented by
investments in any one Underlying Fund, no more than 70% of the Portfolio's
assets will be represented by investments in any two Underlying Funds, no more
than 80% of the Portfolio's assets will be represented by investments in any
three Underlying Funds and no more than 90% of the Portfolio's assets will be
represented by investments in any four Underlying Funds (see "Dividends,
Distributions and Taxes"). The investments of the Underlying Funds will also
comply with those diversification requirements. In addition to the foregoing
limitations on Portfolio investments in the Underlying Funds, current
investment policies impose further quantitative limitations on investments in
the Underlying Funds (see below).
To meet liquidity needs or for temporary defensive purposes, each Portfolio may
invest its assets directly in cash, stock or bond index futures and options
thereon and the following short-term instruments: (i) short-term obligations of
the U.S. Government, its agencies, instrumentalities, authorities or political
subdivisions; (ii) other short-term debt securities rated A or higher by
Moody's or S&P, or if unrated, of comparable quality in the opinion of WM
Advisors; (iii) commercial paper, including master notes; (iv) bank
obligations, including negotiable certificates of deposit, time deposits and
bankers' acceptances; and (v) repurchase agreements. At the time a Portfolio
invests in any commercial paper, bank obligations or repurchase agreements, the
issuer must have outstanding debt rated A or higher by Moody's or S&P; the
issuer's parent corporation, if any, must have outstanding commercial paper
rated Prime-1 by Moody's or A-1 by S&P; or, if no such ratings are available,
the investment must be of comparable quality in the opinion of WM Advisors. The
investment objective of each Portfolio is set forth below. For purposes of
discussing Portfolio objectives, the "Fixed-Income Underlying Funds" include
the Money Market, Short Term High Quality Bond, U.S. Government Securities and
Income Funds as well as the High Yield Fund and Prime Income Fund, and the
"Equity Underlying Funds" include the Northwest, Growth & Income, Growth,
Emerging Growth and International Growth Funds.
INCOME PORTFOLIO. The Income Portfolio seeks long term total return through
reinvestment of current income consistent with preservation of capital
primarily through participation in the domestic fixed-income markets with
limited participation in international fixed-income markets. In general,
relative to the other Portfolios, the Income Portfolio should offer investors
the potential for a high level of income while maintaining principal and
subjecting investors to a low level of principal risk.
19
<PAGE>
Subject to meeting all applicable diversification requirements under the Code,
the Portfolio may invest in the following Underlying Funds up to the percentage
limits set forth below:
<TABLE>
<CAPTION>
FUNDS PORTFOLIO INVESTMENT LIMIT
----- --------------------------
<S> <C>
Money Market Fund.................................... 50%
Prime Income Fund.................................... 15%
Short Term High Quality Bond Fund.................... 50%
U.S. Government Securities Fund...................... 50%
Income Fund.......................................... 40%
High Yield Fund...................................... 30%
</TABLE>
Except for defensive periods or liquidity needs, the Income Portfolio must
invest 100% of its net assets available for investment in Fixed Income
Underlying Funds. In addition, under normal market conditions the sum of the
Portfolio's investments in the High Yield Fund and Prime Income Fund will not
exceed 30% of its net assets.
FLEXIBLE INCOME PORTFOLIO. The Flexible Income Portfolio seeks total return
consisting of reinvestment of income with some capital appreciation, primarily
through investments in domestic and international fixed-income markets with
limited participation in domestic and international equity markets. In general,
relative to the other Portfolios, the Flexible Income Portfolio should offer
investors the potential for a medium to high level of reinvestment income and
the potential for a low to medium level of capital growth, while subjecting
investors to a low to medium level of principal risk. Subject to meeting all
applicable diversification requirements under the Code, the Portfolio may
invest in the following Underlying Funds up to the percentage limits set forth
below:
<TABLE>
<CAPTION>
FUNDS PORTFOLIO INVESTMENT LIMIT
----- --------------------------
<S> <C>
Money Market Fund.................................... 40%
Prime Income Fund.................................... 15%
Short Term High Quality Bond Fund.................... 40%
U.S. Government Securities Fund...................... 40%
Income Fund.......................................... 40%
High Yield Fund...................................... 30%
Growth & Income Fund................................. 30%
Growth Fund.......................................... 30%
Northwest Fund....................................... 30%
Emerging Growth Fund................................. 30%
</TABLE>
Except for defensive periods or liquidity needs, the Flexible Income Portfolio
must invest no more than 30% of its net assets available for investment in the
Equity Underlying Funds. In addition, under normal market conditions, the sum
of the Portfolio's investments in the High Yield Fund and the Prime Income Fund
will not exceed 30% of its net assets.
BALANCED PORTFOLIO. The Balanced Portfolio seeks total return consisting of a
combination of reinvestment income and capital appreciation, consistent with
reasonable risk through limited participation in domestic and international
fixed-income and equity markets. In general, relative to other Portfolios, the
Balanced Portfolio should offer investors the potential for a medium level of
income and the potential for a medium level of capital growth while subjecting
investors to a medium level of principal risk. Subject to meeting all
applicable diversification requirements under the Code, the Portfolio may
invest in the following underlying Funds up to the percentage limits set forth
below:
<TABLE>
<CAPTION>
FUNDS PORTFOLIO INVESTMENT LIMIT
----- --------------------------
<S> <C>
Money Market Fund.................................... 40%
Prime Income Fund.................................... 15%
Short Term High Quality Bond Fund.................... 40%
U.S. Government Securities Fund...................... 40%
Income Fund.......................................... 40%
High Yield Fund...................................... 30%
Growth & Income Fund................................. 30%
Growth Fund.......................................... 30%
Northwest Fund....................................... 30%
Emerging Growth Fund................................. 30%
International Growth Fund............................ 30%
</TABLE>
Except for defensive periods or liquidity needs, the Balanced Portfolio must
invest no less than 30% and no more than 70% of its net assets available for
investment in the Fixed-Income Underlying Funds and no less than 30% and no
more than 70% of its net assets available for investment in the Equity
Underlying Funds. In addition, under normal market conditions, the sum of the
Balanced Portfolio's investments in the High Yield Fund and the Prime Income
Fund will not exceed 30% of its net assets.
CONSERVATIVE GROWTH PORTFOLIO. The Conservative Growth Portfolio seeks to
provide long-term capital appreciation. In general, relative to the other
Portfolios, the Conservative Growth Portfolio should offer investors the
potential for a low level of income and the potential for a medium to high
level of capital growth while subjecting investors to a medium level of
principal risk. Subject to meeting all applicable diversification requirements
under the Code, the Portfolio may invest in the following Underlying Funds up
to the percentage limits set forth below:
<TABLE>
<CAPTION>
FUNDS PORTFOLIO INVESTMENT LIMIT
----- --------------------------
<S> <C>
Money Market Fund.................................... 30%
Prime Income Fund.................................... 15%
Short Term High Quality Bond Fund.................... 30%
U.S. Government Securities Fund...................... 30%
Income Fund.......................................... 30%
High Yield Fund...................................... 30%
Growth & Income Fund................................. 40%
Growth Fund.......................................... 40%
Northwest Fund....................................... 40%
Emerging Growth Fund................................. 40%
International Growth Fund............................ 40%
</TABLE>
Except for defensive periods or liquidity needs, the Conservative Growth
Portfolio must invest at least 60%
20
<PAGE>
of its net assets available for investment in Equity Funds.
STRATEGIC GROWTH PORTFOLIO. The Strategic Growth Portfolio seeks to provide
long-term capital appreciation. In general, relative to the other Portfolios,
the Strategic Growth Portfolio should offer investors the potential for a
higher level of capital growth while subjecting investors to corresponding
levels of principal risk. Subject to meeting all applicable diversification
requirements under the Code, the Portfolio may invest in the following
Underlying Funds up to the percentage limits set forth below:
<TABLE>
<CAPTION>
FUNDS PORTFOLIO INVESTMENT LIMIT
----- --------------------------
<S> <C>
Money Market Fund.................................... 25%
Short Term High Quality Bond Fund.................... 25%
High Yield Fund...................................... 25%
Growth & Income Fund................................. 50%
Growth Fund.......................................... 50%
Northwest Fund....................................... 50%
Emerging Growth Fund................................. 50%
International Growth Fund............................ 50%
</TABLE>
Except for defensive periods or liquidity needs, the Strategic Growth Portfolio
must invest at least 75% of its net assets available for investment in the
Equity Underlying Funds.
GENERAL INVESTMENT POLICIES OF THE PORTFOLIOS
Each of the Portfolios will attempt to achieve its investment objective by
purchasing shares of the Underlying Funds within the percentage ranges for such
Portfolio. In addition to purchasing shares of the Underlying Funds, a
Portfolio may use futures contracts and options in order to remain effectively
fully invested in proportions consistent with the Advisor's current asset
allocation strategy for the Portfolio in an efficient and cost effective
manner. Specifically, each Portfolio may enter into futures contracts and
options thereon provided that the aggregate deposits required on these
contracts do not exceed 5% of the Portfolio's total assets. A Portfolio may
also use futures contracts and options for bona fide hedging transactions.
Futures contracts and options may also be used to reallocate the Portfolio's
assets among asset categories while minimizing transaction costs, to maintain
cash reserves while simulating full investment, to facilitate trading, to seek
higher investment returns, or to simulate full investment when a futures
contract is priced attractively or is otherwise considered more advantageous
than the underlying security or index. While futures contracts and options can
be used as leveraged instruments, the Portfolios will not use futures contracts
or options to leverage their portfolios, except as indicated above. For more
information, see the SAI.
OTHER UNDERLYING FUNDS
As mentioned above, the Portfolios may invest in the High Yield Fund and the
Prime Income Fund, in addition to the other Funds.
HIGH YIELD FUND. The High Yield Fund, a diversified series of WM Trust I, seeks
to provide investors with high current income by investing primarily in high-
yielding, lower-rated fixed-income securities (including debt securities,
convertible securities and preferred stocks) rated lower than BBB by S&P or Baa
by Moody's or of equivalent quality as determined by WM Advisors, the High
Yield Fund's investment advisor. Under normal market conditions, the High Yield
Fund invests at least 65% of its assets in a diversified portfolio of such
lower-rated fixed-income securities. The remainder of the Fund's assets may be
invested in any other securities WM Advisors believes are consistent with the
Fund's objective, including higher rated fixed-income securities, common stocks
and other equity securities. The Fund may invest in securities of foreign
issuers and engage in hedging strategies involving equity options. See "Common
Investment Practices--Lower Rated Securities," "--Fixed-Income Obligations,"
"--Foreign Investments," and "--Strategic Transactions."
WM PRIME INCOME FUND. The Prime Income Fund's investment objective is to
provide a high level of current income, consistent with preservation of
capital. The Fund seeks to achieve its objective by investing in portfolio of
interests in floating or variable rate senior loans ("Senior Loans") made
primarily to U.S. corporations, partnerships and other entities ("Borrowers").
Senior Loans may take the form of syndicated loans ("Syndicated Loans") or of
debt obligations of Borrowers issued directly to investors in the form of debt
securities ("Senior Notes"). Under normal market conditions, at least 80% of
the Fund's total assets will be invested in interests, participations and
assignments of Senior Loans. The remainder of the Fund's assets may be invested
in high quality, short-term debt, money market instruments, warrants, equity
securities and junior debt securities acquired in connection with the Fund's
investment in Senior Loans.
The Fund will seek to achieve over time a high effective yield. Although the
Fund's net asset value will vary, the Fund's policy of acquiring interests in
floating or variable rate Senior Loans is intended to minimize fluctuations in
the Fund's net asset value as a result of changes in interest rates, although
this result cannot be assured. While the Fund seeks relative NAV stability,
21
<PAGE>
its net asset value may be affected by changes in the credit quality of
Borrowers with respect to Senior Loan interests in which the Fund invests.
Senior Loans in which the Fund will invest generally pay interest at rates
which are periodically redetermined by reference to a base lending rate plus a
premium. These base lending rates are generally the prime rate offered by one
or more major U.S. banks, the London Inter-Bank Offered Rate, the certificate
of deposit rate or other base lending rates used by commercial lenders.
WM Advisors is the Prime Income Fund's investment advisor, and Van Kampen
American Capital Management Inc. is the Fund's sub-advisor. The Prime Income
Fund is a non-diversified investment company.
RISK FACTORS OF THE PORTFOLIOS
Like any investment in an investment company, an investment in the Portfolios
involves risk. Prospective investors in the Portfolios should consider the
following factors:
. Investing in the Underlying Funds through the Portfolios involves certain
additional expenses 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 SEC. In such cases, the Portfolios may hold
securities distributed by the Underlying Fund until WM Advisors determines
that it is appropriate to dispose of such securities.
. If a Portfolio were to invest in the Prime Income Fund, such an investment
would be considered illiquid. No Portfolio is permitted to invest more than
15% of its net assets in the aggregate in the Prime Income Fund and other
illiquid securities. The Prime Income Fund is a closed-end investment
company designed primarily for long-term investors and not as a trading
vehicle, and shares of the Prime Income Fund are not redeemable. The Prime
Income Fund does not intend to list its shares for trading on any national
securities exchange, and there is not expected to be any secondary trading
market in such shares. In order to provide liquidity to the Prime Income
Fund shares, the Board of Trustees of the Prime Income Fund intends, each
quarter, to authorize tender offers for a portion of the then outstanding
shares at the current net asset value. In the event that the Prime Income
Fund's Board of Trustees does not authorize the Prime Income Fund to engage
in tender offers for its shares, it is unlikely that a holder of its shares
will be able to otherwise sell their shares to the Fund or in any secondary
trading market. To the extent redemptions are made from a Portfolio invested
in the Prime Income Fund, such redemptions would be made from the Funds,
thereby increasing the remaining shareholders' allocation to the Prime
Income Fund.
. The Portfolios, through their investments in the Underlying Funds, will be
subject to the risks associated with direct investment in the Underlying
Funds.
. Each of the Portfolios may invest in lower-rated bonds, commonly referred to
as "junk bonds." The STRATEGIC GROWTH PORTFOLIO, in particular, can invest
as much as 50% of its total assets in the Growth Fund, 30% of its total
assets in the High Yield Fund, and as much as 50% of its total assets in the
Emerging Growth Fund, each of which Funds may invest as much as 35% of its
total assets, and in the case of the High Yield Fund, all of its assets, in
lower-rated bonds. As a result, they will be subject to the risks associated
with investing in such lower-rated bonds. See "Common Investment Practices--
Lower-Rated Securities" for additional information about such risks.
. Certain Portfolios may invest as much as 50% of their total assets in the
Growth Fund or Emerging Growth Fund, each of which may invest up to 25% of
its total assets in foreign equity securities and as much as 5% of its total
assets in securities in developing or emerging markets countries. Certain
Portfolios may invest as much as 50% of their total assets in the
International Growth Fund, which invests primarily in foreign equity
securities, and may invest as much as 30% of its total assets in securities
in developing or emerging markets countries. These investments will subject
such Portfolios to risks associated with investing in foreign securities.
See "Common Investment Practices--Foreign Investments" for additional
information about such risks.
. The officers and trustees of the Portfolios also serve as officers and
trustees of the Underlying Funds. In addition, WM Advisors, the investment
advisor of each Portfolio, also serves as the investment advisor of the
Underlying Funds. Conflicts may arise as WM Advisors seeks to fulfill its
fiduciary responsibilities to the Portfolios and the Underlying Funds.
22
<PAGE>
. From time to time, one or more of the Underlying Funds 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. While it is impossible to
predict the overall impact of these transactions over time, there could be
adverse effects on portfolio management to the extent that the Underlying
Funds may be required to sell securities or invest cash at times when they
would not otherwise do so. These transactions could also have tax
consequences if sales of securities resulted in gains, and could also
increase transaction costs. WM Advisors is committed to minimizing the impact
of Portfolio transactions on the Underlying Funds. WM Advisors will
nevertheless face potential conflicts in fulfilling its responsibilities
because of its dual roles. WM Advisors will monitor the impact of Portfolio
transactions on the Underlying Funds.
INVESTMENT LIMITATIONS OF THE PORTFOLIOS
The following investment limitations are fundamental for the Portfolios and may
not be changed without shareholder approval.
1. Each Portfolio will concentrate its investments in shares of management
investment companies.
2. Each Portfolio may borrow money from banks solely for temporary emergency
purposes, but not in an amount exceeding 30% of its total assets. Whenever
borrowings by a Portfolio, including reverse repurchase agreements, exceed
5% of the value of a Portfolio's total assets, the Portfolio will not
purchase any securities.
Each Portfolio is subject to further fundamental and non-fundamental
restrictions, which are described in the SAI.
COMMON INVESTMENT PRACTICES
The following pages contain more detailed information about types of securities
in which the Underlying Funds and the Portfolios may invest, and strategies WM
Advisors may employ in pursuit of the Underlying Funds' and Portfolios'
investment objectives, as well as a summary of risks and restrictions
associated with these securities and investment practices. Each Fund's NAV will
fluctuate as the values of the securities it owns change. There are many
factors that influence fluctuations in the market value of securities owned by
the Underlying Funds and the Portfolios. All policies and limitations, other
than those with respect to illiquid securities, are considered at the time of
purchase; the sale of securities is not required in the event of a subsequent
change in circumstances. For more information, see the SAI.
AMERICAN DEPOSITARY RECEIPTS AND EUROPEAN DEPOSITARY RECEIPTS. All Underlying
Funds, except the U.S. Government Securities, High Yield and the Prime Income
Funds, may invest in securities of foreign issuers directly or in the form of
American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"),
Global Depositary Receipts ("GDRs") or other similar securities representing
securities of foreign issuers. These securities may not necessarily be
denominated in the same currency as the securities they represent. ADRs are
receipts typically issued by a United States bank or trust company evidencing
ownership of the underlying foreign securities. EDRs, which are sometimes
referred to as Continental Depositary Receipts ("CDRs"), are receipts issued by
a European financial institution evidencing a similar arrangement. Generally,
ADRs, in registered form, are designed for use in the United States securities
markets, and EDRs, in bearer form, are designed for use in European securities
markets. These securities generally involve the risks described under "Foreign
Investments" below.
BORROWING. The Underlying Funds may borrow money from banks solely for
temporary or emergency purposes, subject to various limitations. If an
Underlying Fund borrows money, its share price may be subject to greater
fluctuation until the borrowing is paid off. For the Short Term High Quality
Bond, Growth, International Growth and Emerging Growth Funds, and for the
Portfolios, such borrowings may not exceed 30% of total assets. The Money
Market, Income, Bond & Stock, Growth & Income and Northwest Funds may borrow up
to 5% of total assets for emergency purposes. In addition, the Money Market
Fund may borrow up to 33 1/3% of total assets to meet redemption requests. The
Short Term High Quality Bond Fund is prohibited from borrowing money or
entering into reverse repurchase agreements or dollar roll transactions
(described below) in the aggregate in excess of 33 1/3% of the Fund's total
assets (after giving effect to such borrowings and transactions). If an
Underlying Fund makes additional investments while borrowings are outstanding,
this will have the effect of leveraging the Underlying Fund. The Portfolios may
not purchase additional securities when borrowing exceeds 5% of total assets.
Leveraging will magnify
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declines as well as increases in the NAV of an Underlying Fund's or Portfolio's
shares and in the yield on an Underlying Fund's or Portfolio's investments.
Each of the foregoing percentage limitations on borrowings is a fundamental
policy of the respective Underlying Funds and Portfolios.
In addition, the Income, Short Term High Quality Bond and U.S. Government
Securities Funds may enter into DOLLAR ROLLS, subject to the percentage
restrictions on borrowing. A Fund enters into a dollar roll by selling
securities for delivery in the current month and simultaneously contracts to
repurchase, typically in 30 or 60 days, substantially similarly (same type,
coupon and maturity) securities on a specified future date, which, under the
Investment Company Act of 1940, as amended (the "1940 Act") may be considered
borrowings from the counterparty and may produce similar leveraging effects.
The proceeds of the initial sale of securities in the dollar roll transactions,
for example, may be used to purchase long-term securities which will be held
during the roll period. To the extent that the proceeds of the initial sale of
securities are invested in bonds, the Fund will be subject to market risk on
these bonds as well as similar risk with respect to the securities the Fund is
required to repurchase. See "Fixed-Income Obligations" below.
Each of the Underlying Funds other than the Money Market Fund may engage in
REVERSE REPURCHASE AGREEMENTS, subject to the percentage restrictions on
borrowing. Reverse repurchase agreements involve the risk that the market value
of the securities sold by an Underlying Fund may decline below the repurchase
price of the securities and, if the proceeds from the reverse repurchase
agreement are invested in securities, that the market value of the securities
bought may decline at the same time there is a decline in the securities sold
(and required to be repurchased).
EXCHANGE RATE-RELATED SECURITIES. Each of the Underlying Funds, except for the
Money Market Fund and the Prime Income Fund, may invest in securities which are
indexed to certain specific foreign currency exchange rates. These securities
involve the possibility of significant changes in rates of exchange between the
U.S. dollar and any foreign currency to which an exchange rate-related security
is linked. In addition, there is no assurance that sufficient trading interest
to create a liquid secondary market will exist for a particular exchange rate-
related security due to conditions in the debt and foreign currency markets.
Illiquidity in the forward foreign exchange market and the high volatility of
the foreign exchange market may from time to time combine to make it difficult
to sell an exchange rate-related security prior to maturity without incurring a
significant loss.
FIXED-INCOME OBLIGATIONS. The market value of fixed-income securities held by
an Underlying Fund or a Portfolio and, consequently, the value of the
Underlying Funds' or Portfolio's shares can be expected to vary inversely to
changes in prevailing interest rates. Investors should also recognize that, in
periods of declining interest rates, the yield of the Underlying Fund or
Portfolio will tend to be somewhat higher than prevailing market rates and, in
periods of rising interest rates, the Underlying Fund's or Portfolio's yield
will tend to be somewhat lower. Also, when interest rates are falling, any net
inflow of money to the Underlying Fund or Portfolio will likely be invested in
instruments producing lower yields than the balance of its assets, thereby
reducing current yield. In periods of rising interest rates, the opposite can
be expected to occur. The prices of longer maturity securities are also subject
to greater market fluctuations as a result of changes in interest rates. In
addition, these obligations may be subject to the risk of default. Fixed-income
obligations rated in the lower end of the investment-grade category (Baa or
BBB) may have speculative characteristics and may be more sensitive to economic
changes and changes in the financial condition of their issues.
FLOATING RATE, INVERSE FLOATING RATE AND VARIABLE RATE OBLIGATIONS. The Income,
U.S. Government Securities, Short Term High Quality Bond and High Yield Funds
may purchase floating rate, inverse floating rate and variable rate
obligations, including participation interests therein. These Underlying Funds
may also purchase mortgage-backed securities that are floating rate and
variable rate obligations.
The Money Market Fund may purchase floating rate and variable rate obligations,
including participation interests therein.
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FOREIGN CURRENCY EXCHANGE TRANSACTIONS AND CURRENCY MANAGEMENT. All Underlying
Funds, except the U.S. Government Securities, Prime Income and the Money Market
Funds, may engage in foreign currency exchange transactions. Underlying Funds
that buy and sell securities denominated in currencies other than the U.S.
dollar, and receive interest, dividends and sale proceeds in currencies other
than the U.S. dollar, may enter into foreign currency exchange transactions to
convert to and from different foreign currencies and to convert foreign
currencies to and from the U.S. dollar. The Underlying Fund either enters into
these transactions on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign currency exchange market, or uses forward contracts to purchase or
sell foreign currencies.
An Underlying Fund may enter into foreign currency hedging transactions in an
attempt to protect against changes in foreign currency exchange rates between
the trade and settlement dates of specific securities transactions or changes
in foreign currency exchange rates that would adversely affect a portfolio
position or an anticipated portfolio position. These transactions tend to limit
any potential gain that might be realized should the value of the hedged
currency increase. The precise matching of the forward contract amounts and the
value of the securities involved will not generally be possible because the
future value of these securities in foreign currencies will change as a
consequence of market movements in the value of those securities between the
date the forward contract is entered into and the date it matures. The
projection of currency market movements is extremely difficult, and the
successful execution of a hedging strategy is highly uncertain. In addition,
when WM Advisors or the sub-advisor believes that the currency of a specific
country may deteriorate against another currency, it may enter into a forward
contract to sell the less attractive currency and buy the more attractive one.
The amount in question could be less than or equal to the value of the
Underlying Fund's securities denominated in the less attractive currency. The
Underlying Fund may also enter into a forward contract to sell a currency which
is linked to a currency or currencies in which some or all of the Underlying
Fund's portfolio securities are or could be denominated, and to buy U.S.
dollars. These practices are referred to as "cross hedging" and "proxy
hedging."
Forward currency exchange contracts are agreements to exchange one currency for
another--for example, to exchange a certain amount of U.S. dollars for a
certain amount of Japanese yen--at a future date and specified price. Because
there is a risk of loss to the Underlying Fund if the other party does not
complete the transaction, WM Advisors or the sub-advisor will enter into
foreign currency exchange contracts only with parties approved by the Trust's
Board of Trustees or persons acting pursuant to their direction.
An Underlying Fund may maintain "short" positions in forward currency exchange
transactions, which would involve the Underlying Fund's agreeing to exchange
currency that it currently does not own for another currency--for example, to
exchange an amount of Japanese Yen that it does not own for a certain amount of
U.S. dollars--at a future date and specified price in anticipation of a decline
in the value of the currency sold short relative to the currency that the
Underlying Fund has contracted to receive in the exchange.
While such actions are intended to protect the Underlying Fund from adverse
currency movements, there is a risk that currency movements involved will not
be properly anticipated. Use of currency hedging techniques may also be limited
by the need to protect the status of the Underlying Fund as a regulated
investment company under the Code.
If an Underlying Fund invests significantly in securities denominated or traded
in foreign currencies, movements in foreign currency exchange rates versus the
U.S. dollar are likely to impact the Fund's share price stability relative to
funds investing domestically. Fluctuations in foreign currencies can have a
positive or negative impact on returns. Underlying Funds authorized to invest
in securities of foreign issuers may engage in currency management strategies,
which includes the use of futures and options as discussed herein.
Although the Prime Income Fund may not engage in foreign currency exchange
transactions, it may participate in higher yielding debt markets outside of the
United States, as a mean of currency management. Such investments are intended
to allow an Underlying Fund to achieve higher yields than those generally
obtained by domestic money market funds and short-term bond investments.
FOREIGN INVESTMENTS. The Money Market, Bond & Stock, Growth & Income and
Northwest Funds may invest in securities of foreign issuers if such securities
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are denominated in U.S. dollars. The High Yield, Income, Short Term High
Quality Bond, Emerging Growth, Growth and International Growth Funds may invest
in both U.S. dollar denominated and non-U.S. dollar denominated foreign
securities. There are certain risks involved in investing in foreign
securities, including those resulting from (i) fluctuations in currency
exchange rates, (ii) devaluation of currencies, (iii) future political or
economic developments and the possible imposition of currency exchange
blockages or other foreign governmental laws or restrictions, (iv) reduced
availability of public information concerning issuers, and (v) the fact that
foreign companies are not generally subject to uniform accounting, auditing and
financial reporting standards or to other regulatory practices and requirements
comparable to those applicable to domestic companies. Moreover, securities of
many foreign companies may be less liquid and their prices more volatile than
those of securities of comparable domestic companies. In addition, there is the
possibility of expropriation, nationalization, confiscatory taxation and
limitations on the use or removal of funds or other assets of the Underlying
Funds, including the withholding of dividends. The risks associated with
foreign securities are generally greater for securities of issuers in emerging
markets.
In addition, while the volume of transactions effected on foreign stock
exchanges has increased in recent years, in most cases it remains appreciably
below that of the New York Stock Exchange (the "NYSE"). Accordingly, the
Underlying Funds' foreign investments may be less liquid and their prices may
be more volatile than comparable investments in securities of U.S. companies.
Moreover, the settlement periods for foreign securities, which are often longer
than those for securities of U.S. issuers, may affect portfolio liquidity. In
buying and selling securities on foreign exchanges, the Underlying Fund
normally pays fixed commissions that are generally higher than the negotiated
commissions charged in the United States. In addition, there is generally less
governmental supervision and regulation of securities exchanges, brokers and
issuers in foreign countries than in the United States. In addition, foreign
securities generally are denominated and pay dividends or interest in foreign
currencies, and the value of the Funds' net assets as measured in U.S. dollars
will be affected favorably or unfavorably by changes in exchange rates.
GEOGRAPHICAL CONCENTRATION. Potential investors in the Northwest Fund should
consider the possibly greater risk arising from the geographic concentration of
their investments, as well as the current and past financial condition of the
states in the Northwest. See the SAI for a more detailed description of these
risks.
GOVERNMENT STRIPPED MORTGAGE-BACKED SECURITIES. The Income, Short Term High
Quality Bond and U.S. Government Securities Funds may invest in government
stripped mortgage-backed securities issued or guaranteed by GNMA, FNMA and
FHLMC. These securities represent beneficial ownership interests in either
periodic principal distributions (principal-only or "PO strips") or interest
distributions (interest-only or "IO strips") on mortgage-backed certificates
issued by GNMA, FNMA or FHLMC, as the case may be. Investing in government
stripped mortgage-backed securities involves the risks normally associated with
investing in mortgage-backed securities issued by government or government-
related entities. See "Mortgage-Backed Securities" below. In addition, the
yields on PO and IO strips are extremely sensitive to prepayments on the
underlying PO and IO strips mortgage loans. If a decline in the level of
prevailing interest rates results in a higher than anticipated rate of
principal, distributions of principal will be accelerated, thereby reducing the
yield to maturity on IO strips and increasing the yield to maturity on PO
strips. Conversely, if an increase in the level of prevailing interest rates
results in a rate of principal prepayments lower than anticipated,
distributions of principal will be deferred, thereby increasing the yield to
maturity on IO strips and decreasing the yield to maturity on PO strips.
Sufficiently high prepayment rates could result in the Underlying Fund's not
fully recovering its initial investment in an IO strip. There can be no
assurance that the Underlying Funds will be able to effect a trade of a
government stripped mortgage-backed security at a time when it wishes to do so.
The Underlying Funds will acquire government stripped mortgage-backed
securities only if a liquid secondary market for the securities exists at the
time of acquisition.
HOLDINGS IN OTHER INVESTMENT COMPANIES. When WM Advisors or an Underlying
Fund's sub-advisor believes that it would be beneficial to the Underlying Fund,
each of the Short Term High Quality Bond, Emerging Growth, Growth and
International Growth Funds may invest up to 10% of its assets in securities of
mutual funds that are not affiliated with WM Advisors or its sub-advisors, if
any. As a shareholder in any such mutual fund, the Underlying Fund will bear
its ratable share of the mutual fund's expenses, including management fees, and
will remain
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subject to the Underlying Fund's advisory and administration fees with respect
to the assets so invested. In addition, the Growth Fund may invest Underlying
Fund assets in money market funds affiliated with Janus, provided that Janus
remits to the Underlying Fund the amount of any investment advisory and
administrative services fees paid to Janus as the investment manager of the
money market fund.
ILLIQUID SECURITIES. Up to 15% (10% for the Money Market Fund) of the net
assets of an Underlying Fund may be invested in securities that are not readily
marketable. Such illiquid securities may include: (1) repurchase agreements
with maturities greater than seven calendar days; (2) time deposits maturing in
more than seven calendar days; (3) to the extent a liquid secondary market does
not exist for the instruments, futures contracts and options thereon; (4)
certain over-the-counter options, as described in the SAI; (5) certain variable
rate demand notes having a demand period of more than seven days; and (6)
securities the disposition of which is restricted under federal securities laws
(excluding Rule 144A securities, described below). The Underlying Funds will
not include for purposes of the restrictions on illiquid investments securities
sold pursuant to Rule 144A under the Securities Act of 1933, as amended, so
long as such securities meet liquidity guidelines established by the Trust's
Board of Trustees. The Prime Income Fund may invest without limit in illiquid
securities.
LENDING OF SECURITIES. Short Term High Quality Bond, Emerging Growth, Growth
and International Growth Funds, each may lend portfolio securities up to 20% of
total assets to brokers and other financial organizations. The Bond & Stock,
Growth & Income, and Northwest Funds have the ability to lend portfolio
securities up to 33% of total assets. These transactions involve a risk of loss
to the Fund if the counterparty should fail to return such securities to the
Fund upon demand.
LOWER-RATED SECURITIES. The Income, Growth & Income, Bond & Stock, Growth and
Emerging Growth Funds may each invest up to 35% of the total assets of the Fund
in non-investment grade debt securities sometimes referred to as "junk bonds."
The High Yield Fund may invest its assets without limit in such securities and
will generally invest 65% of its assets in such securities.
Non-investment-grade securities usually entail greater risk (including the
possibility of default or bankruptcy of the issuers), generally involve greater
price volatility and risk of principal and income, and may be less liquid than
securities in higher rated categories. Both price volatility and illiquidity
may make it difficult for an Underlying Fund to value or to sell certain of
these securities under certain market conditions. Non-investment-grade debt
securities are often considered to be speculative and involve greater risk of
default or price changes due to changes in the issuer's creditworthiness. The
market prices of these securities may fluctuate more than higher-rated
securities and may decline significantly in periods of general economic
difficulty, which may follow periods of rising interest rates. For further
information, see the SAI.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. The Short Term High Quality Bond,
U.S. Government Securities, Emerging Growth and International Growth Funds may
invest in mortgage-backed U.S. Government securities that represent interests
in a pool of mortgage loans. In addition, the Bond & Stock and Growth & Income
Funds may invest in commercial mortgage-backed securities, which are issued by
non-governmental entities. Commercial mortgage-backed securities include
collateralized mortgage obligations and real estate mortgage investment
conduits ("REMICs"). While commercial mortgage-backed securities are generally
structured with one or more types of credit enhancement, they typically lack a
guarantee by an entity having the credit status of a governmental agency or
instrumentality.
To the extent that an Underlying Fund purchases mortgage-related or mortgage-
backed securities at a premium, mortgage foreclosures and prepayments of
principal (which may be made at any time without penalty) may result in a loss
of the principal investment. The yield of the Underlying Fund may be affected
by reinvestment of prepayments at higher or lower rates than the original
investment. In addition, like other debt securities, the value of mortgage-
related securities, including government and government-related mortgage pools,
will generally fluctuate in response to market interest rates.
The Money Market, Emerging Growth, High Yield and Short Term High Quality Bond
Funds may purchase asset-backed securities. These Underlying Funds will not
invest more than 10% of their total assets in asset-backed securities, except
that the Short Term High Quality Bond Fund may invest up to 25% of its total
assets in such securities. Asset-backed securities are structured like
mortgage-backed securities, but instead of mortgage loans or interests in
mortgage loans, the underlying assets may include such items as motor vehicle
installment sales or installment loan contracts,
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leases of various types of real and personal property, and receivables from
credit card agreements. The ability of an issuer of asset-backed securities to
enforce its security interest in the underlying assets may be limited.
NON-DIVERSIFIED STATUS. The Prime Income Fund is classified as "non-
diversified" under the 1940 Act, which means that it is not limited by the 1940
Act in the proportion of its assets that may be invested in the obligations of
a single issuer. The Underlying Fund must, however, meet certain
diversification standards to qualify as a regulated investment company under
the Code. See the "Taxes" section in the SAI. The Underlying Fund may assume
large positions in the obligations of a small number of issuers, which may
subject the Underlying Fund to greater credit and other risks than a more
broadly diversified portfolio.
REAL ESTATE INVESTMENT TRUSTS. The Income, Bond & Stock, Growth & Income and
Northwest Funds may invest in real estate investment trusts, known as "REITs."
REITs involve certain unique risks in addition to those risks associated with
investing in the real estate industry in general (such as possible declines in
the value of real estate, lack of availability of mortgage funds or extended
vacancies of property). Equity REITs may be affected by changes in the value of
the underlying property owned by the REITs, while mortgage REITs may be
affected by the quality of any credit extended. REITs are dependent upon
management skills, are not diversified, are subject to heavy cash flow
dependency, default by borrowers, and self-liquidation. REITs are also subject
to the possibilities of failing to qualify for tax free pass-through of income
under the Code, and failing to maintain their exemptions from registration
under the 1940 Act.
Investment in REITs involves risks similar to those associated with investing
in small capitalization companies. REITs may have limited financial resources,
may trade less frequently and in a limited volume and may be subject to more
abrupt or erratic price movements than larger company securities.
REPURCHASE AGREEMENTS. All of the Underlying Funds may invest in repurchase
agreements, which are agreements to purchase underlying debt obligations from
financial institutions, such as banks and broker-dealers, subject to the
seller's agreement to repurchase the obligations at an established time and
price. Default by the seller would expose the Underlying Fund to possible loss
because of adverse market action or delay in connection with the disposition of
the underlying obligations. In addition, if bankruptcy proceedings are
commenced with respect to the seller of the obligations, the Underlying Fund
may be delayed or limited in its ability to sell the collateral.
RESTRICTED SECURITIES. Each of the Underlying Funds may purchase restricted
securities, including securities eligible for resale pursuant to Rule 144A
under the Securities Act of 1933, as amended. Although recent and ongoing
developments in the securities markets have resulted in greater trading of
restricted securities, making restricted securities, in many instances, more
liquid than they once were considered to be, investing in restricted securities
could have the effect of increasing the level of illiquidity of the portfolio
securities of an Underlying Fund. While such conditions are in effect, it could
be more difficult for an Underlying Fund to fulfill shareholder redemption
orders on a timely basis. If an Underlying Fund were required to sell illiquid
securities on short notice, it would generally be unable to obtain fair market
value.
STRATEGIC TRANSACTIONS. Subject to the investment limitations and restrictions
stated elsewhere in this prospectus and SAI, each of the Portfolios, and each
of the Underlying Funds, except the Money Market Fund and the Prime Income
Fund, may, but is not required to, utilize various other investment strategies
as described below to hedge various market risks, to manage the effective
maturity or duration of fixed-income securities, or to seek potentially higher
returns. Utilizing these investment strategies, an Underlying Fund or a
Portfolio may purchase and sell, to the extent not otherwise limited or
restricted, exchange-listed and over-the-counter put and call options on
securities, equity and fixed-income indices and other financial instruments,
purchase and sell financial futures contracts and options thereon, enter into
various interest rate transactions such as swaps, caps, floors or collars, and
enter into various currency transactions such as currency forward contracts,
currency futures contracts, currency swaps or options on currencies or currency
futures. All of the above are collectively referred to as "strategic
transactions."
Strategic transactions may be used to attempt to protect against possible
changes in the market value of securities held or to be purchased resulting
from securities markets or currency exchange rate fluctuations, to protect
unrealized gains, to facilitate the sale of portfolio securities for investment
purposes, to manage effective maturity or duration, or to establish a
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position in the derivatives markets as a temporary substitute for purchasing or
selling particular securities. Some strategic transactions may also be used to
seek potentially higher returns. Any or all of these investment techniques may
be used at any time, as use of any strategic transaction is a function of
numerous variables including market conditions. The use of strategic
transactions involves special considerations and risks, for example (1) the
ability of an Underlying Fund or Portfolio to utilize these strategic
transactions successfully will depend on the ability of WM Advisors or the sub-
advisor to predict pertinent market movements; and (2) there might be imperfect
correlation, or even no correlation, between price movements of strategic
transactions and price movements of the related portfolio positions. Strategic
transactions can reduce risk of loss by wholly or partially offsetting the
negative effect of unfavorable price movements or of unfavorable currency
fluctuations in the related portfolio or currency positions, but can also
reduce opportunity for gain by offsetting the positive effect of favorable
price movements in positions. Strategic transactions involving financial
futures and options thereon will be purchased, sold or entered into only for
bona fide hedging, risk management or portfolio management purposes. For more
information see the SAI.
U.S. GOVERNMENT SECURITIES. All of the Underlying Funds may invest in U.S.
Government securities, which include direct obligations of the U.S. Treasury
(such as U.S. Treasury bills, notes and bonds) and obligations directly issued
or guaranteed by U.S. Government agencies or instrumentalities. Some
obligations issued or guaranteed by agencies or instrumentalities of the U.S.
Government are backed by the full faith and credit of the U.S. Government (such
as GNMA Bonds), others are backed only by the right of the issuer to borrow
from the U.S. Treasury (such as securities of Federal Home Loan Banks) and
still others are backed only by the credit of the instrumentality (such as FNMA
and FHLMC Bonds).
WHEN-ISSUED SECURITIES AND DELAYED-DELIVERY TRANSACTIONS. In order to secure
yields or prices deemed advantageous at the time, each of the Underlying Funds,
except for the Money Market Fund, may purchase or sell securities on a when-
issued or a delayed-delivery basis. The Underlying Funds will enter into a
when-issued transaction for the purpose of acquiring portfolio securities and
not for the purpose of leverage. Due to fluctuations in the value of securities
purchased on a when-issued or a delayed-delivery basis, the yields obtained on
such securities may be higher or lower than the yields available in the market
on the dates when the investments are actually delivered to the buyers.
Similarly, the sale of securities for delayed-delivery can involve the risk
that the prices available in the market when delivery is made may actually be
higher than those obtained in the transaction itself.
The use of when-issued transactions and forward commitments enables the
Underlying Funds to hedge against anticipated changes in interest rates and
prices. However, if WM Advisors or the relevant Underlying Fund's sub-advisor
were to forecast incorrectly the direction of interest rate movements, the
Underlying Fund might be required to complete such when-issued or forward
transactions at prices inferior to then-current market values.
YEAR 2000
Many computer software systems in use today cannot properly process date-
related information from and after January 1, 2000. Should any of the computer
systems employed by the Underlying Fund's or Portfolio's major service
providers fail to process this type of information properly, that could have a
negative impact on the Underlying Fund's or Portfolio's operations and the
services that are provided to the Underlying Fund's or Portfolio's
shareholders. WM Advisors and WM Shareholder Services Inc. (the
"Administrator") have advised the Underlying Funds and Portfolios that they are
reviewing all of their computer systems with the goal of modifying or replacing
such systems prior to January 1, 2000 to the extent necessary to avoid any such
negative impact. In addition, WM Advisors have been advised by the Custodian
that it is also in the process of reviewing its systems with the same goal. As
of the date of this prospectus, the Underlying Funds and Portfolios and WM
Advisors have no reason to believe that these goals will not be achieved.
Similarly, the values of certain of the Underlying Funds' or Portfolio's assets
may be adversely affected by the inability of their issues or their parties to
properly process date-related information from and after January 1, 2000.
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MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES
The Board of Trustees is responsible for the management of the business and
affairs of the Trust as provided in the laws of the Commonwealth of
Massachusetts and the Trust's Declaration of Trust and By-Laws.
INVESTMENT MANAGEMENT
INVESTMENT ADVISOR. The Funds and Portfolios are managed by WM Advisors, Inc.,
which is referred to as WM Advisors or the Advisor in this Prospectus. WM
Advisors, located at 1201 Third Avenue, Suite 1400, Seattle, Washington 98101,
has been in the business of investment management since 1944. WM Advisors's
responsibilities include formulating each Fund's and each Portfolio's
investment policies (subject to the terms of this Prospectus), analyzing
economic trends, directing and evaluating the investment services provided by
the sub-advisors and monitoring each Fund's and each Portfolio's investment
performance and reporting to the Board of Trustees, as well as providing
certain administrative services to the Funds and Portfolios. In connection with
its service as investment advisor to each Fund, WM Advisors may engage one or
more sub-advisors to provide investment advisory services to any of the Funds
and may change or eliminate any such sub-advisor if it deems such action to be
in the best interests of a Fund or Portfolio and its shareholders. Where WM
Advisors has not delegated such duties to a sub-advisor, it is responsible for
managing the investment and reinvestment of the Fund's portfolio. In addition,
the Trust is seeking an order from the Securities and Exchange Commission which
would permit the Funds and Portfolios, subject to certain conditions, to enter
into sub-advisory agreements with other sub-advisors approved by the Trust's
Board of Trustees without shareholder approval. The exemptive request also
seeks to permit, without shareholder approval, the terms of an existing sub-
advisory agreement to be changed or the employment of an existing sub-advisor
to be continued after events that would otherwise cause an automatic
termination of a sub-advisory agreement when such changes or continuation are
approved by the Trust's Board of Trustees. Shareholders would be notified of
any sub-advisor changes. WM Advisors is an indirect wholly owned subsidiary of
Washington Mutual, Inc. ("Washington Mutual"), a publicly owned financial
services company.
INVESTMENT SUB-ADVISORS. In accordance with each Fund's investment objective
and policies and under the supervision of WM Advisors and the Trust's Board of
Trustees, each sub-advisor below is responsible for the day-to-day investment
management of its respective Fund, makes investment decisions for the Fund and
places orders on behalf of the Fund to effect the investment decisions made.
Janus Capital Corporation, ("Janus"), serves as investment sub-advisor to the
Growth Fund. Janus, located at 100 Fillmore Street, Denver, Colorado 80206,
provides investment advice to mutual funds and other large institutional
clients. As of December 31, 1997, Janus' assets under management were in excess
of $68.5 billion. WM Advisors pays Janus a fee at the annual rate of 0.55% of
the first $25 million of the average net assets of the Fund and 0.50% of such
assets over $25 million.
Warburg Pincus Asset Management, Inc. ("Warburg") serves as sub-advisor of the
International Growth Fund. Warburg, located at 466 Lexington Avenue, New York,
New York 10017-3147, is a professional investment counseling firm which
provides investment services to investment endowment funds, foundations and
other institutions and individuals. As of January 31, 1998, Warburg managed
approximately $21 billion of assets. WM Advisors pays Warburg a fee at the
annual rate of 0.50% of the average net assets of the International Growth
Fund.
THE INDIVIDUAL FUND MANAGERS
Gary J. Pokrzywinski, CFA, Vice President and Senior Portfolio Manager of WM
Advisors is primarily responsible for the day-to-day management of the Income,
U.S. Government Securities, and Short Term High Quality Bond Funds. He has
managed similar funds since 1992, and has been employed by WM Advisors since
1992.
Jeffrey D. Huffman, CFA, Vice President and Senior Portfolio Manager of WM
Advisors, has had primary responsibility for the day-to-day management of the
Bond & Stock Fund since its inception. He has managed a similar fund and has
been employed by WM Advisors since 1995. Prior to 1995, Mr. Huffman was Vice
President of Trust Investments for First Interstate Bank until 1996 and a
portfolio manager at Safeco Corporation since 1992.
Philip M. Foreman, CFA, Vice President and Senior Portfolio Manager of WM
Advisors, is primarily responsible for the day-to-day management of the
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Growth & Income Fund. He has managed a similar Fund since 1991 and has been
employed by WM Advisors since 1991.
Audrey S. Quaye, CPA, Vice President and Portfolio Manager of WM Advisors, is
primarily responsible for the day-to-day management of the Money Market Fund.
She has managed similar funds since 1997 and has been employed at WM Advisors
since 1996. Prior to 1996, Ms. Quaye worked at the Benham Group as a municipal
credit analyst since 1992.
David W. Simpson, CFA, Vice President and Senior Portfolio Manager of WM
Advisors, has had primary responsibility for the day-to-day management of the
Northwest Fund since its inception. He has managed a similar fund and has been
employed by WM Advisors since 1993. Prior to 1993, Mr. Simpson was a senior
consultant at Management Advising Services since 1987. Mr. Simpson has also
been co-manager of the Emerging Growth Fund since March, 1998.
Linda C. Walk, CFA, Vice President and Portfolio Manager of WM Advisors, is co-
manager of the Emerging Growth Fund. Ms. Walk, together with Mr. Simpson, has
had primary responsibility for the day-to-day management of the Emerging Growth
Fund's portfolio since March, 1998, and has been employed by WM Advisors since
1997. Prior to 1997, Ms. Walk was a portfolio manager at Laird Norton Trust
Company since 1996, a valuation consultant for Ernst & Young LLP since 1994,
and a valuation consultant for Management Advisory Services since 1990.
Warren B. Lammert has had primarily responsibility for the day-to-day
management of the Growth Fund since its inception. Mr. Lammert is a Vice
President of Janus. Mr. Lammert joined Janus in 1987 and his duties at Janus
include the management of separate equity accounts.
The following people have been primarily responsible for the day-to-day
management of the International Growth Fund since April 1996: Richard H. King,
Senior Managing Director, joined Warburg to found the international equity
department and has 31 years of investment experience. Harold W. Ehrlich, CFA,
CIC, Managing Director, has 14 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.
ADVISORY FEES
For investment advisory services, monthly fees are paid to WM Advisors by each
Fund and Portfolio based upon a percentage of the average net assets of such
Fund or Portfolio. Absent fee waivers, WM Advisors is paid the following
effective annual rates:
<TABLE>
<CAPTION>
AMOUNT OF ASSETS
($ MILLIONS)
---------------------------------------------------------------------------------
AFTER 25; AFTER 50; AFTER 100; AFTER 125; AFTER 200; AFTER 400;
FIRST 25 NEXT 25 NEXT 50 NEXT 25 NEXT 75 NEXT 200 NEXT 100 OVER 500
-------- --------- --------- ---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FUND
Money Market Fund....... .50% .50% .50% .50% .50% .50% .50% .40%
Short Term High Quality
Bond Fund.............. .50% .50% .50% .50% .50% .45% .45% .40%
U.S. Government
Securities Fund........ .60% .60% .60% .60% .60% .60% .60% .50%
Income Fund............. .65% .65% .65% .65% .65% .65% .65% .50%
Growth & Income Fund.... .80% .80% .80% .75% .75% .70% .65% .575%
Growth Fund............. .95% .875% .875% .875% .875% .875% .875% .875%
Emerging Growth Fund.... .90% .85% .85% .85% .85% .85% .85% .75%
International Growth
Fund................... .95% .95% .85% .85% .75% .75% .75% .75%
Bond & Stock Fund....... .625% .625% .625% .625% .625% .625% .625% .50%
Northwest Fund.......... .625% .625% .625% .625% .625% .625% .625% .50%
Income Portfolio........ .10% .10% .10% .10% .10% .10% .10% .10%
Flexible Income
Portfolio.............. .10% .10% .10% .10% .10% .10% .10% .10%
Balanced Portfolio...... .10% .10% .10% .10% .10% .10% .10% .10%
Conservative Growth
Portfolio.............. .10% .10% .10% .10% .10% .10% .10% .10%
Strategic Growth
Portfolio.............. .10% .10% .10% .10% .10% .10% .10% .10%
</TABLE>
31
<PAGE>
WM Advisors has voluntarily undertaken to waive, through December 31, 1998, a
portion of the annual management fees of the Money Market Fund and the Short
Term High Quality Bond Fund if and to the extent that total Fund expenses would
otherwise exceed the Fund's level of expenses as of June 30, 1997.
TRUST EXPENSES. In addition to investment advisory and certain administrative
expenses paid to WM Advisors and the Administrator, each Fund and Portfolio
pays all expenses not assumed by WM Advisors. Such expenses include or could
include investment-related expenses, such as brokers' commissions, transfer
taxes and fees related to the purchase, sale, or loan of securities; fees and
expenses for Trustees not affiliated with WM Advisors or the sub-advisors; fees
and expenses of its independent accountants and legal counsel; costs of Trustee
and shareholder meetings; SEC fees; expenses of preparing and filing
registration statements; the cost of the printing and mailing to existing
Contract owners of proxy statements, prospectuses and statements of additional
information; proxy solicitors' fees; expenses of preparation, printing and
mailing to Contract owners of semi-annual shareholder reports; bank transaction
charges and certain Custodians' fees and expenses; federal, state or local
income or other taxes; costs of maintaining the Trust's corporate existence;
membership fees for the Investment Company Institute and similar organizations;
fidelity bond and Trustees' liability insurance premiums; and any extraordinary
expenses such as indemnification payments or damages awarded in litigation or
settlements made. All these expenses will be passed on to the shareholders
through a daily charge made to the assets held in the Funds and Portfolios,
which will be reflected in share prices.
PORTFOLIO TRANSACTIONS AND TURNOVER. All orders for the purchase or sale of
securities on behalf of a Fund or Portfolio are placed by WM Advisors or its
sub-advisor with broker-dealers that it selects. A Fund or Portfolio may, at
the discretion of WM Advisors or its sub-advisor, utilize broker-dealers
affiliated with WM Advisors or a sub-advisor in connection with a purchase or
sale of securities, in accordance with procedures adopted by Trustees and in
accordance with the 1940 Act which require periodic review of these
transactions.
Under certain market conditions, a Fund or Portfolio may experience high
portfolio turnover as a result of its investment strategies. For example, the
purchase or sale of securities by a Fund or Portfolio in anticipation of a rise
or decline in interest rates or to take advantage of yield disparities among
different issues of U.S. Government securities could result in high portfolio
turnover. As a result of their investment strategies, the Bond & Stock and
Northwest Funds' annual portfolio turnover rates are expected to be as high as
95%. Higher portfolio turnover rates for the Funds can result in corresponding
increases in expenses such as brokerage commissions and transaction costs. The
Funds will not consider portfolio turnover rate a limiting factor in making
investment decisions consistent with their respective objectives and policies.
DISTRIBUTOR
WM Funds Distributor, Inc., referred to as the Distributor herein, distributes
the Funds' shares to AGL's separate accounts, which purchase and redeem these
shares at net asset value without sales or redemption charges. The Distributor
is located at 601 West Main Avenue, Suite 801, Spokane, Washington 99201-0613
and is a wholly-owned subsidiary of Washington Mutual, the parent of WM
Advisors. The Distributor, as principal underwriter, or insurance companies
whose variable products are funded by the Trust, will bear all of the Trust's
marketing expenses. This includes the cost of reproducing prospectuses,
statements of additional information or any other Trust documents (such as
semi-annual reports) used as sales materials.
ADMINISTRATION
WM Shareholder Services, Inc., which is referred to as the Administrator
herein, serves as the administrator and transfer agent to the Trust and has
responsibility for the Trust's administrative functions. Subject to the
authority of the Board of Trustees, the Administrator, located at 601 West Main
Avenue, Suite 300, Spokane, Washington 98201, is responsible for all
administrative and some record keeping functions of the Trust. It provides
office facilities and supplies; provides clerical, executive, accounting and
administrative services; prepares reports to shareholders and filings with
regulatory authorities; prepares materials for the Board of Trustees' meetings;
and provides securities accounting and calculates net assets. Boston Safe
Deposit & Trust Co., the custodian, is located at One Boston Place, Boston,
Massachusetts 02108.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP serves as the independent accountants of the Trust.
32
<PAGE>
GENERAL INFORMATION AND HISTORY
THE TRUST
The Trust is an open-end management investment company that offers diversified
and non-diversified series. It was organized on January 29, 1993 under the laws
of the Commonwealth of Massachusetts as a "Massachusetts business trust." Prior
to March 20, 1998, the Trust was known as "The Sierra Variable Trust." The
Trust has the power to issue separate series of shares and has authorized the
following fifteen separate series: Money Market Fund, Short Term High Quality
Bond Fund, U.S. Government Securities Fund, Income Fund, Bond & Stock Fund,
Growth & Income Fund, Growth Fund, Northwest Fund, Emerging Growth Fund,
International Growth Fund, Income Portfolio, Flexible Income Portfolio,
Balanced Portfolio, Conservative Growth Portfolio and Strategic Growth
Portfolio. The Trust offers shares of beneficial interest, each without par
value. Additional series may be established. Prior to January 30, 1998, the
Money Market Fund was known as the Global Money Fund. Prior to March 20, 1998,
the U.S. Government Securities Fund was known as the U.S. Government Fund, the
Income Fund was known as the Corporate Income Fund, the Growth & Income Fund
was known as the Growth and Income Fund, the Strategic Growth Portfolio was
known as the Capital Growth Portfolio, the Conservative Growth Portfolio was
known as the Growth Portfolio, and the Flexible Income Portfolio was known as
the Value Portfolio.
Currently, the shares of the Funds and Portfolios are sold only to AGL and its
separate accounts to fund Contracts or to other series of the Trust, which are
also sold to AGL and its separate accounts. In the future, the Trust may,
subject to receipt of an order from the SEC, offer its shares to separate
accounts funding variable annuities of insurance companies affiliated or
unaffiliated with AGL and to separate accounts which fund variable life
insurance or other variable funding arrangements. The Trust's Board of Trustees
will monitor potential conflicts between variable life insurance policies and
variable annuity contracts or among insurance company shareholders and will
determine what, if any, action should be taken to resolve any conflicts. Until
other insurance companies have made investments in the series of the Trust, AGL
directly or indirectly, will be the sole shareholder of the Trust and therefore
may be deemed to control the Trust.
SHAREHOLDER MEETINGS AND VOTING OF SHARES
As a Massachusetts business trust, the Trust is not required to hold annual
shareholders' meetings. On occasion, however, special meetings may be called to
elect or remove trustees, change fundamental policies, approve management
contracts, or for other purposes. Generally, shares of the Trust vote by
individual series on all matters except when the 1940 Act permits shares of the
series to be voted in the aggregate. The shareholders of the Trust are the
insurance companies whose separate accounts invest in it. The Trust expects
that its shareholders will offer their Contract owners the opportunity to
instruct them as to how shares allocable to their Contracts will be voted with
respect to certain matters, such as approval of investment advisory agreements.
AGL has advised the Trust that, whenever a shareholder vote is taken, AGL will
give Contract owners and annuitants the opportunity to instruct them how to
vote the shares attributable to such Contracts. AGL also stated that it will
vote any shares that it is entitled to vote directly, because of their
attributable interests in the Trust, and any shares attributable to Contracts
for which instructions are not received, in the same proportion that Contract
owners vote.
Under Massachusetts law, in certain circumstances, shareholders may be held
personally liable as partners for the obligations of a business trust such as
the Trust. The Trust's Declaration of Trust contains provisions designed to
protect shareholders from such liability to the extent of each Fund's and each
Portfolio's assets. As a result, the risk of personal liability for the
insurance company shareholders is remote.
PURCHASE AND REDEMPTION
The shares of the Funds and Portfolios are sold in a continuous offering to
insurance companies for their separate accounts to fund Contracts. Net purchase
payments under the Contracts are placed in one or more of the divisions of the
insurance company separate accounts and are invested in the shares of the Funds
corresponding to such divisions. Shares of the Funds and Portfolios are
purchased and redeemed by the insurance company at net asset value without
sales or redemption charges.
For each day on which a Fund's or Portfolio's net asset value is calculated,
each separate account
33
<PAGE>
transmits to the Trust any orders to purchase or redeem shares of the Fund(s)
and Portfolio(s) based on the purchase payments, redemption (surrender)
requests and transfer requests from Contract owners, annuitants or
beneficiaries which are priced as of that day. Purchases and redemptions are
affected at the net asset value next-determined after receipt by the Trust of a
properly completed purchase or redemption order.
All purchase and redemption orders will be processed in accordance with
applicable regulations. The Trust may also suspend redemption, if permitted
under the 1940 Act, for any period during which the NYSE is closed or during
which trading is restricted by the SEC or the SEC declares that an emergency
exists. Redemption may also be suspended during other periods permitted by the
SEC for the protection of the Trust's shareholders.
PURCHASE THROUGH THE SAM PROGRAM
Owners of the WM Advantage Annuity may elect to participate in the WM Strategic
Asset Management Program, which is referred to as the SAM Program in this
Prospectus. The SAM Program is an active investment management service offered
through WM Advisors that allocates separate account values across a number of
investment divisions selected to meet different long-term investment
objectives. Depending on market conditions, WM Advisors from time to time
changes or reallocates the combination of separate account divisions, or the
amount invested in each, to implement the various SAM strategies. In addition,
account balances of Contract owners participating in the SAM Program will be
periodically rebalanced to maintain the chosen strategy's current asset
allocation mix, if and when Fund performance unbalances the strategy's mix.
Normally, WM Advisors will reallocate once a quarter.
From time to time, one or more of the separate account investment divisions may
experience relatively large investments or redemptions due to SAM Program
allocations or rebalancings recommended by WM Advisors. These transactions will
affect the Funds that are available through the SAM Program, since Funds that
experience redemptions as a result of reallocations or rebalancings in the
separate account may have to sell portfolio securities and Funds that receive
additional cash will have to invest it. 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 Funds may be required to sell
securities or invest cash at times when they would not otherwise do so. These
transactions could also increase transaction costs. WM Advisors, representing
the interests of the Trust, is committed to minimizing the impact of SAM
Program transactions on the Funds, to the extent it is consistent with pursuing
the investment objective of the SAM Program. The SAM Program is currently being
offered at no additional cost to Contract owners, although the Distributor has
reserved the right to impose a charge for this service in the future. All of
the Funds and Portfolios (as well as the High Yield and Prime Income Funds) are
available through the SAM Program.
WM Advisors may restrict or terminate the participation of WM Advantage
Contract owners in the SAM Program at any time. In addition, AGL has reserved
the right to place restrictions on transactions permitted by the WM Advantage
Annuity that could result in restrictions or terminations of the SAM Program.
NET ASSET VALUE
The net asset value (the current market value of a Fund or Portfolio share) of
each Fund's or Portfolio's shares is determined at the close of regular trading
on the NYSE (currently 1:00 p.m., Pacific Time), each business day the NYSE is
open, except as noted. The NYSE is currently scheduled to be closed on New
Year's Day, Martin Luther King Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day, and on the
preceding Friday or subsequent Monday when one of these holidays falls on a
Saturday or Sunday, respectively. In addition, net asset values will not be
calculated on the Friday following Thanksgiving. Net asset value per share is
calculated for purchases and redemptions of shares of each Fund or Portfolio by
dividing the value of its total assets, less liabilities (including Trust
expenses, which are accrued daily), by the total number of shares of that Fund
or Portfolio outstanding. The net asset value per share of each Fund and
Portfolio is determined each business day at the close of business. Values of
assets in each Fund's or Portfolio's portfolio (except the Money Market Fund
and certain short-term debt securities) are determined on the basis of their
market values or valuations, determined as described in the SAI. The Money
Market Fund values its assets by the amortized cost method, which approximates
market value.
34
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
The tax consequences of your investment in the Trust depend upon the specific
provisions of your Contract. For more tax information regarding your Contract,
see the attached prospectus for that Contract. The following discussion is only
a brief summary of the federal income tax consequences to the Funds and
Portfolios and their insurance company shareholders based on current tax laws
and regulations, which may be changed by subsequent legislative, judicial, or
administrative action.
Each Fund and Portfolio intends to qualify separately each year as a "regulated
investment company" ("RIC") as defined under Subchapter M of the Code. The
requirements for qualification may cause a Fund or Portfolio to restrict the
extent of its short-term trading or its transactions in options or futures
contracts.
As a RIC, each Fund and Portfolio will not be subject to federal income tax on
its net investment income and net realized capital gains which are timely
distributed to its insurance company shareholders. Accordingly, each Fund and
Portfolio intends to distribute all or substantially all of its net investment
income and net realized capital gains to its shareholders. Very generally, an
insurance company which is a shareholder of a Fund or Portfolio will determine
its federal income tax liability with respect to distributions from that Fund
or Portfolio pursuant to the special rules of Subchapter L of the Code.
Although the Trust intends that it and each Fund and Portfolio will be operated
so that they will have no federal income tax liability, if any such liability
is nevertheless incurred, the investment performance of that Fund or Portfolio
incurring such liability will be adversely affected. In addition, Funds or
Portfolios investing in foreign securities and currencies may be subject to
foreign taxes. These taxes would reduce the investment performance of such
Funds or Portfolios.
Because the Trust funds certain types of variable annuities, each Fund or
Portfolio is also subject to the investment diversification requirements of
Subchapter L of the Code. Were any Fund or Portfolio to fail to comply with
those requirements, owners of annuity contracts (other than certain tax-
qualified retirement Contracts) funded through the Trust would be taxed on
investment earnings under their Contracts and would thereby lose any benefit of
tax deferral. Accordingly, the Trust will carefully monitor compliance with the
diversification requirements. For additional tax information, see "Taxes" in
the SAI.
The amounts of dividends of net investment income (i.e., all income other than
capital gains) and distributions of net realized capital gains on securities
held for less than one year ("short-term capital gain"), at least one year but
less than 18 months ("28% Rate Gain"), and longer than 18 months ("20% Rate
Gain") payable to shareholders will be determined separately for each Fund and
Portfolio. Dividends and distributions paid by a Fund or Portfolio will be
automatically reinvested (at current net asset value) in additional full and
fractional shares of that Fund or Portfolio. The Money Market Fund intends to
distribute its net income as dividends for each day that net asset value is
determined. Such dividends will be declared daily and paid monthly. The Short
Term High Quality Bond, U.S. Government Securities and Income Funds will
declare and pay quarterly dividends from net investment income, and the Bond &
Stock, Northwest, Growth & Income, Growth, Emerging Growth and International
Growth Funds will declare and pay such dividends annually. Each of the
Balanced, Flexible Income and Income Portfolios will declare and pay dividends
quarterly. Both the Strategic Growth Portfolio and Conservative Growth
Portfolio will declare and pay dividends annually. All Funds and Portfolios
will distribute any net long-term capital gains (i.e., 20% Rate Gains and 28%
Rate Gains) annually. Distributions of any net short-term capital gains earned
by a Fund or Portfolio will be distributed no less frequently than annually at
the discretion of the Board of Trustees.
PERFORMANCE
The Trust may, from time to time, calculate the yield and effective yield of
the Money Market Fund, the yield of other Funds or Portfolios or total return
of all Funds or Portfolios, and may include such information in reports to
shareholders. Performance information should be considered in light of the
Fund's or Portfolio's investment objectives and policies, characteristics and
quality of the portfolios, and the market conditions during the given time
period, and should not be considered as a representation of what may be
achieved in the future.
Current yield for the Money Market Fund will be based on income received by a
hypothetical investment over a given 7-day period (less expenses accrued during
the period), and then annualized (i.e., assuming that the
35
<PAGE>
7-day yield would be received for 52 weeks, stated in terms of an annual
percentage return on the investment). Effective yield for the Money Market Fund
is calculated in a manner similar to that used to calculate yield, but reflects
the compounding effect of earnings on reinvested dividends. For the remaining
Funds and Portfolios, any quotations of yield will be based on all investment
income per share earned during a given 30-day period (including dividends and
interest), less expenses accrued during the period (net investment income), and
will be computed by dividing net investment income by the maximum public
offering price per share on the last day of the period. Quotations of average
annual total return for a Fund or Portfolio will be expressed in terms of the
average annual compounded rate of return on a hypothetical investment in the
Fund or Portfolio over certain periods that will include periods of 1, 5, and
10 years (up to the life of the Fund or Portfolio), will reflect the deduction
of a proportional share of Trust's expenses (on an annual basis), and will
assume that all dividends and distributions are reinvested when paid.
Total returns and yields quoted for the Funds or Portfolios include each Fund's
or Portfolio's expenses, but may not include charges and expenses attributable
to any particular insurance product. Since shares of the Funds and Portfolios
may only be purchased through variable annuity and variable life insurance
contracts, you should carefully review the prospectus of the insurance product
you have chosen for information on relevant charges and expenses. Excluding
these charges from quotations of each Fund's or Portfolio's performance has the
effect of increasing the performance quoted. You should bear in mind the effect
of these charges when comparing a performance to that of other mutual funds.
For a description of the methods used to determine yield and total return for
the Funds and Portfolios, see the SAI.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN THE FUNDS'
OR PORTFOLIOS' OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFERING OF THE
FUNDS' AND PORTFOLIOS' SHARES, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUNDS
OR PORTFOLIOS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN
WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER MAY NOT LAWFULLY BE MADE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
36
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
April 1, 1998
WM VARIABLE TRUST/1/
601 WEST MAIN AVENUE, SUITE 300
SPOKANE, WASHINGTON 99201-0613
MONEY MARKET FUND GROWTH & INCOME FUND
SHORT TERM HIGH QUALITY BOND FUND GROWTH FUND
U.S. GOVERNMENT SECURITIES FUND NORTHWEST FUND
INCOME FUND EMERGING GROWTH FUND
BOND & STOCK FUND INTERNATIONAL GROWTH FUND
- --------------------------------------------------------------------------------
INCOME PORTFOLIO * FLEXIBLE INCOME PORTFOLIO * BALANCED PORTFOLIO
CONSERVATIVE GROWTH PORTFOLIO * STRATEGIC GROWTH PORTFOLIO
This Statement of Additional Information ("SAI") is not a prospectus but
supplements the information contained in the Prospectus relating to the Money
Market Fund, Short Term High Quality Bond Fund, U.S. Government Securities Fund,
Income Fund, Bond & Stock Fund, Growth & Income Fund, Growth Fund, Northwest
Fund, Emerging Growth Fund, and International Growth Fund (the "Funds"), and
Income Portfolio, Flexible Income Portfolio, Balanced Portfolio, Conservative
Growth Portfolio and Strategic Growth Portfolio (the "Portfolios") of WM
Variable Trust (the "Trust"), dated April 1, 1998, as revised from time to time.
The SAI should be read in conjunction with the Prospectus, as amended or
supplemented from time to time. The Trust's Prospectus may be obtained without
charge by writing to American General Life Insurance Company ("AGL"), Attention:
Annuity Administration, P.O. Box 1401, Houston, Texas 77251-1401 or by calling
AGL at 800-247-6584.
- ---------------------------
/1/ Formerly known as The Sierra Variable Trust.
<PAGE>
TABLE OF CONTENTS
For ease of reference, the same section headings are used in the Prospectus and
in this Statement of Additional Information, except as indicated below.
<TABLE>
<CAPTION>
<S> <C>
GENERAL INFORMATION AND HISTORY........................................... 3
MANAGEMENT OF THE TRUST................................................... 3
INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS........................... 10
PURCHASE AND PRICING OF SHARES............................................ 40
PERFORMANCE............................................................... 42
TAXES..................................................................... 45
FINANCIAL STATEMENTS...................................................... -
DESCRIPTION OF S&P, MOODY'S, DUFF AND FITCH RATINGS....................... 47
</TABLE>
-2-
<PAGE>
GENERAL INFORMATION AND HISTORY
The Trust is an open-end management investment company. Some of the
information required to be in this SAI is also included in the Trust's current
Prospectus relating to the Funds and Portfolios. As discussed in the Prospectus,
the five Portfolios invest in the other Funds (except the Bond & Stock Fund),
the High Yield Fund, a series of WM Trust I (the "High Yield Fund") and the WM
Prime Income Fund, a closed end management investment company (the "Prime Income
Fund") (collectively, the "Underlying Funds"). To avoid unnecessary repetition,
reference is made to related sections of the Prospectus. Copies of the
Registration Statement as filed, including Part C, may be obtained from the
Securities and Exchange Commission (the "SEC") by paying the charges prescribed
under its rules and regulations.
MANAGEMENT OF THE TRUST
TRUSTEES AND OFFICERS OF THE TRUST
The names of the Trustees and executive officers of the Trust, together with
information as to their dates of birth and principal business occupations during
the past five years, are set forth below. The executive officers of the Trust
are employees of organizations that provide services to the Trust. Each Trustee
who is an "interested person" of the Trust, as defined in the Investment Act of
1940, as amended (the "1940 Act"), is indicated by an asterisk.
TRUSTEES:
- ---------
DAVID E. ANDERSON (11/17/26)
Trustee
17960 Seabreeze Drive
Pacific Palisades, California 90272
Former President and CEO of GTE California, Inc. from 1979 to 1988, retired in
1988. Director of Barclay's Bank of California until 1988. Currently involved
in the following charitable organizations as a director on the following boards:
Board chairman, Children's Bureau Foundation; Board member, Upward Bound House
of Santa Monica; Past campaign chairman of United Way, former chairman, Los
Angeles Area Chamber of Commerce.
WAYNE L. ATTWOOD, MD (1/28/29)
Trustee
2931 S. Howard
Spokane, Washington 99203
Retired doctor of internal medicine and gastroenterology. Former president,
Medical Staff - Sacred Heart Medical Center; former president of Spokane Society
of Internal Medicine; and former president of Spokane Physicians for Social
Responsibility.
ARTHUR H. BERNSTEIN, ESQ. (6/8/25)
Trustee
11661 San Vicente Blvd., Suite 701
Los Angeles, California 90049
President of Bancorp Capital Group, Inc., and Bancorp Venture Capital, Inc.
Previously served on the board of directors of Great Western Leasing
Corporation, subsidiary of Great Western Financial
-3-
<PAGE>
Corporation ("GWFC"), until the subsidiary was sold in 1987. Director of Ryder
System, Inc., chairman of the board of trustees of the California Family Studies
Center and Phillips Graduate Institute since 1984.
KRISTIANNE BLAKE (1/22/54)
Trustee
705 W. 7th, Suite D
Spokane, Washington 99204
CPA specializing in personal financial and tax planning since 1975. Served as a
partner with the accounting firm of Deloitte, Haskins & Sells prior to starting
own firm in 1987. Community activities include: United Way of Spokane County -
board chair, YMCA of the Inland Northwest - treasurer, Junior League of Spokane
- - past president, Spokane Intercollegiate Research & Technology Institute
Foundation - board member, Spokane Joint Center for Higher Education - board
member, Spokane Area Chamber of Commerce - board member and St. George's School
- - board member.
EDMOND R. DAVIS, ESQ. (9/24/28)
Trustee
550 South Hope Street, 21st Floor
Los Angeles, California 90071-2604
Joined the law firm of Brobeck, Phleger & Harrison as a partner in 1987 and
responsible for estate planning, and trusts and estate matters in the Los
Angeles office. Prior to joining the firm, had a similar position for 20 years
with the law firm of Overton, Lyman & Prince in Los Angeles. His expertise has
been recognized in Who's Who in California, the Best Lawyers of America, and
Who's Who in American Law.
JOHN W. ENGLISH (3/27/33)
Trustee
50 H New England Ave.
P.O. Box 640
Summit, New Jersey 07902-0640
Retired vice president and chief investment officer of the Ford Foundation (a
non-profit charitable organization). Chairman of the board and director, the
China Fund, Inc., (closed-end mutual fund). Director, Paribas Trust for
Institutions (an open-end mutual fund). Trustee, Retail Property Trust (a
company providing management services for a shopping center).
*ANNE V. FARRELL (07/17/35)
Trustee
425 Pike Street, Suite 510
Seattle, Washington 98101
Joined the Seattle Foundation (a charitable foundation) in 1980 as executive
vice president. Became president in 1984. Also serves on the board of
Washington Mutual Bank and Blue Cross of Washington and Alaska. Listed in Who's
Who in America. Past President of the Nature Conservancy of Washington Lakeside
School and Seattle Rotary Club. Currently a Regent at Seattle University and
president of the Rainier Club in Seattle.
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*MICHAEL K. MURPHY (1/14/37)
Trustee
PO Box 3366
Spokane, Washington 99220-3366
Chairman and CEO of CPM Development Corporation (a holding company which
includes Central Pre-mix Concrete Company) and president of Inland Asphalt
Company. Member of the board of directors for Washington Mutual, Inc.
("Washington Mutual"), and Momentum, Inc. Former president and director of
Inland Empire Chapter - Associated General Contractors, and former director of
National Aggregates Associates.
ALFRED E. OSBORNE, JR. PH.D. (12/7/44)
Trustee
110 Westwood Plaza, Suite C305
Los Angeles, California 90095-1481
University professor, researcher and administrator at University of California
Los Angeles since 1972. Director, Times Mirror Company (newspaper publisher),
United States Filer Corporation, Nordstrom Inc. (clothing retailer) and
Greyhound Lines, Inc. (bus company). Independent general partner, Technology
Funding Venture Partners V, and former Governor of the National Association of
Securities Dealers, Inc.
*WILLIAM G. PAPESH (1/21/43)
President and Trustee
601 W. Main Avenue
Suite 300
Spokane, WA 99201
President and director of WM Advisors, Inc. ("WM Advisors" or the "Advisor") and
-------
WM Shareholder Services, Inc. ("Shareholder Services"), WM Funds Distributor,
Inc. (the "Distributor") and WM Services, Inc., (a registered Investment Advisor
and broker/dealer).
DANIEL L. PAVELICH (9/12/44)
Trustee
Two Prudential Plaza
180 North Stetson Avenue, Suite 4300
Chicago, Illinois 60601
Chairman and CEO of BDO Seidman, a leading national accounting and consulting
firm. Worked in Seidman's Spokane office for 27 years and is a former presiding
member of the firm's board of directors. A member of the American Institute of
CPAs and served as a vice president of the Washington Society of CPAs board of
directors.
JAY ROCKEY (1/5/28)
Trustee
2121 Fifth Avenue
Seattle, Washington 98121
Founder and chairman of The Rockey Company, a public relations and marketing
communications consulting firm with headquarters in Seattle and offices in
Portland and Spokane. Founder and director of RXL Pulitzer, an international
multimedia company that is a joint venture with Pulitzer Publishing Co. of St.
Louis. History includes managing New York City public relations for Aluminum
Company
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<PAGE>
of America, director of public relations for the Seattle World's Fair and the
presidency of the Public Relations Society of America.
RICHARD C. YANCEY (5/28/26)
Trustee
535 Madison Avenue
New York, New York 10022
Investment Banker - Dillion, Read & Co., Inc., New York City, 1952 through 1992.
Served as vice president, managing director and director and senior advisor at
Dillion, Read & Co. Member of the boards of directors of AdMedia Partners,
Inc., CapMAC Holdings Inc., Fiberite, Inc., The Scoreboard, Inc., and Dzech and
Slovak American Enterprise Fund.
OFFICERS:
GREG G. BRANSON (12/26/45)
Vice President
601 W. Main Street
Spokane, Washington 99201
Mr. Branson is a senior vice president and director of the Distributor and
Shareholder Services, and a vice president and director of WM Advisors.
MONTE D. CALVIN, CPA (1/22/44)
Sr. Vice President and Chief Financial Officer
601 W. Main Avenue
Suite 300
Spokane, WA 99201
Mr. Calvin is an executive vice president of Shareholder Services, and serves as
the chief financial officer of the Trust.
SANDY CAVANAUGH
Sr. Vice President
1631 Broadway
Sacramento, CA 95818
Ms. Cavanaugh is a senior vice president of the Distributor.
THERESE M. HOGAN
Assistant Secretary
First Data Investor Services Group
One Exchange Place
53 State Street
Boston, MA 02109
Ms. Hogan is a vice president of First Data Investor Services Group.
JEFFREY L. LUNZER, CPA (1/4/61)
Vice President and Treasurer
601 W. Main Avenue
Suite 300
Spokane, WA 99201
Mr. Lunzer is a vice president of Shareholder Services.
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<PAGE>
WILLIAM G. PAPESH
President
601 W. Main Avenue
Suite 300
Spokane, WA 99201
RICHARD H. ROSE
Assistant Treasurer
First Data Investor Services Group
One Exchange Place
53 State Street
Boston, MA 02109
Mr. Rose currently acts as Senior Vice President of First Data Investor Services
Group, Inc., a subsidiary of First Data Corp. (prior to May 6, 1994, a
subsidiary of The Boston Company Advisors, Inc. ("Boston Advisors")).
LAWRENCE R. SMALL, ESQ.
Assistant Secretary
717 West Sprague Avenue
Suite 1200
Spokane, Washington 99201
Mr. Small is a partner with the law firm of Paine, Hamblin, Coffin, Brooke &
Miller in Spokane, Washington.
JOHN T. WEST (1/21/55)
Vice President, Secretary and Compliance Officer
601 W. Main Avenue
Suite 300
Spokane, WA 99201
Mr. West is a vice president of Shareholder Services.
Each of the Trustees and each of certain officers of the Trust is also a
trustee or officer of WM Trust I and WM Trust II, the Prime Income Fund and WM
Strategic Asset Management Portfolios ("SAMP"). WM Trust I, WM Trust II and SAMP
are investment companies advised by WM Advisors.
REMUNERATION. No director, officer or employee of WM Advisors, the advisor to
the Funds and Portfolios the sub-advisors of the Funds (the "sub-advisors"), or
any of their affiliates will receive any compensation from the Trust for serving
as an officer or Trustee of the Trust. The Trust pays each Trustee who is not a
director, officer or employee of WM Advisors, the sub-advisors, or any of their
affiliates, a fee of $3,000 per day for each Board meeting attended (except that
the lead Trustee, presently Mr. Yancey, receives an additional $6,000 per annum
and each committee chairman receives $500 per committee meeting attended), and
reimburses them for travel and out-of-pocket expenses.
As of December 31, 1997, the Trustees and officers of the Trust owned, in the
aggregate, less than 1% of the outstanding shares of each of the Funds and
Portfolios.
The following Compensation Table shows aggregate compensation paid to each of
the Trust's Trustees by the Trust and the Fund Complex, respectively, in the
year ended December 31, 1997.
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<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
Aggregate Compensation Pension or Total Compensation From the Trust
Name of Person, From the Trust for Retirement and the Fund Complex* Paid to
Position fiscal year ended Benefits Accrued as Estimated Trustees for fiscal year ended
December 31, 1997 Part of Fund Benefits Upon December 31, 1997
Expenses Retirement
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
David E. Anderson, Trustee+ $12,250 $0 $0 $41,450
- ------------------------------------------------------------------------------------------------------------------------------------
Wayne L. Attwood, M.D., Trustee $0 $0 $0 $15,000
- ------------------------------------------------------------------------------------------------------------------------------------
Arthur H. Bernstein, Esq. $17,750 $0 $0 $59,889
Chairman and Trustee
- ------------------------------------------------------------------------------------------------------------------------------------
Kristianne Blake, Trustee $0 $0 $0 $16,500
- ------------------------------------------------------------------------------------------------------------------------------------
Edmond R. Davis, Esq., Trustee $12,250 $0 $0 $41,450
- ------------------------------------------------------------------------------------------------------------------------------------
John W. English, Trustee $12,250 $0 $0 $41,450
- ------------------------------------------------------------------------------------------------------------------------------------
Anne V. Farrell** $0 $0 $0 $0
- ------------------------------------------------------------------------------------------------------------------------------------
Michael K. Murphy** $0 $0 $0 $0
- ------------------------------------------------------------------------------------------------------------------------------------
Alfred E. Osborne, Jr., Ph.D., $12,250 $0 $0 $41,450
Trustee
- ------------------------------------------------------------------------------------------------------------------------------------
William G. Papesh** $0 $0 $0 $0
- ------------------------------------------------------------------------------------------------------------------------------------
Daniel L. Pavelich, Trustee $0 $0 $0 $14,000
- ------------------------------------------------------------------------------------------------------------------------------------
Jay Rockey, Trustee $0 $0 $0 $15,000
- ------------------------------------------------------------------------------------------------------------------------------------
Richard C. Yancey, Trustee $0 $0 $0 $15,000
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* The Fund Complex consists of the Trust, WM Trust I, WM Trust II, the Prime
Income Fund and SAMP.
** A Trustee who is an "interested person" as defined in the 1940 Act.
+ Mr. Anderson was paid $1,000 for Audit Committee Meetings held by the
Trust.
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INVESTMENT ADVISOR AND SUB-ADVISORS
WM Advisors, located at 1201 Third Avenue, Suite 1400 Seattle, Washington
98101, serves as investment advisor to each of the Funds and Portfolios, and
each sub-advisor serves as investment sub-advisor to one or more Funds, pursuant
to separate written agreements. Certain of the services provided by, and the
fees paid to, WM Advisors and the sub-advisors, are described in the Prospectus
under "Management - Investment Advisor." WM Advisors and the sub-advisors each
(i) compensates its respective directors and pays the salaries of its respective
officers and employees, (ii) compensates its respective officers and employees
that are employed by the Trust, and (iii) maintains office facilities for the
Trust.
CUSTODIAN, ADMINISTRATOR, TRANSFER AGENT AND DISTRIBUTOR
The assets of the Trust are held under bank custodianship in accordance
with the 1940 Act. Boston Safe Deposit and Trust Company, located at One Boston
Place, Boston, Massachusetts 02108, serves as custodian for the Funds (the
"custodian"). In addition, the Trust may employ foreign sub-custodians that are
approved by the Board of Trustees to hold foreign assets. Shareholder Services,
located at 601 West Main Avenue, Suite 300, Spokane, Washington 99201, serves as
the Trust's administrator and transfer agent. The distributor is located at
1201 Third Avenue, Suite 780, Seattle, Washington 98101. The distributor
receives no compensation from the Trust for acting as the distributor.
COUNSEL AND INDEPENDENT ACCOUNTANTS
Ropes & Gray, located at One International Place, Boston, Massachusetts
02110, and Paine, Hamblen, Coffin, Brooke & Miller, located at 717 West Sprague
Avenue, Suite 1200, Spokane, Washington 99201, serve as co-counsel to the Trust.
Price Waterhouse LLP, located at 160 Federal Street, Boston, Massachusetts
02110, serves as independent accountants to the Trust.
ORGANIZATION OF THE TRUST
The Trust is organized as an unincorporated business trust under the laws
of The Commonwealth of Massachusetts pursuant to an Agreement and Declaration of
Trust dated January 27, 1993, as amended from time to time (the "Declaration of
Trust"). Prior to March 20, 1998, the Trust was known as The Sierra Variable
Trust. Certificates representing shares in the Trust are not physically issued.
The Trust's custodian and the Trust's transfer agent maintain a record of each
shareholder's ownership of Trust shares. Shares do not have cumulative voting
rights, which means that holders of more than 50% of the shares voting for the
election of Trustees can elect all Trustees. Shares are transferable but have no
preemptive, conversion or subscription rights. Shareholders generally vote by
Fund or Portfolio except with respect to the election of Trustees and the
selection of independent accountants.
Under normal circumstances, there will be no meetings of shareholders for
the purpose of electing Trustees unless and until such time as less than a
majority of the Trustees holding office have been elected by shareholders, at
which time the Trustees then in office promptly will call a shareholders'
meeting for the election of Trustees. Under the 1940 Act, shareholders of record
of no less than two-thirds of the outstanding shares of the Trust may remove a
Trustee through a declaration in writing or by vote cast in person or by proxy
at a meeting called for that purpose. Under the Declaration of Trust, the
Trustees are required to call a meeting of shareholders for the purpose of
voting upon the question of removal of any such Trustee when requested in
writing to do so by the shareholders of record of not less than 10% of the
Trust's outstanding shares.
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<PAGE>
The record owner of all the Trust's shares is Separate Account D of AGL.
Thus, AGL may be deemed to control the Trust. However, Contract owners may be
deemed to have beneficial ownership of shares allocable to their Contracts. As
of February 28, 1998, to the Trust's knowledge, no Contract owner had shares
allocable to Contracts equal to more than five percent of any Fund.
Massachusetts law provides that the shareholders, under certain
circumstances, could be held personally liable for the obligations of the Trust.
However, the Declaration of Trust disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of such disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Trust
or a Trustee. The Declaration of Trust provides for indemnification from the
Trust's property for all losses and expenses of any shareholder held personally
liable for the obligations of the Trust. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Trust would be unable to meet its obligations, a
possibility that the Trust's management believes is remote. Upon payment of any
liability incurred by the Trust, the shareholder paying the liability will be
entitled to reimbursement from the assets of the relevant Fund or Portfolio. The
Trustees intend to conduct the operations of the Trust in such a way so as to
avoid, to the extent possible, ultimate liability of the shareholders for
liabilities of the Trust.
INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS AND PORTFOLIOS
The Prospectus discusses the investment objective or objectives of each of
the Underlying Funds, the Bond & Stock Fund and the Portfolios and the policies
to be employed to achieve such objectives. This section contains supplemental
information concerning the types of securities and other instruments in which
the Underlying Funds, the Bond & Stock Fund and the Portfolios may invest, the
investment policies and portfolio strategies that the Underlying Funds, the Bond
& Stock Fund and the Portfolios may utilize and certain risks attendant to such
investments, policies and strategies.
STRATEGIES AVAILABLE TO ALL UNDERLYING FUNDS
- --------------------------------------------
RATINGS AS INVESTMENT CRITERIA. In general, the ratings of nationally
recognized statistical rating organization ("NSROs"), such as Moody's Investors
Service, Inc. ("Moody's") Standard & Poor's Corporation ("S&P"), and Duff and
Fitch, represent the opinions of these agencies as to the quality of securities
which they rate. It should be emphasized, however, that such ratings are
relative and subjective and are not absolute standards of quality. These
ratings will be used by the For this section only, the Underlying Funds as
initial criteria for the selection of portfolio securities, but the Underlying
Funds will also rely upon the independent advice of WM Advisors or their
respective sub-advisors if such sub-advisor is employed to evaluate potential
investments. The Appendix to this SAI contains further information concerning
the ratings of these services and their significance.
To the extent that the rating given by Moody's or S&P for securities may
change as a result of changes in such organizations or their rating systems,
each Underlying Fund will attempt to use comparable ratings as standards for its
investments in accordance with the investment policies contained in the
Prospectus and in this SAI.
U.S. GOVERNMENT SECURITIES. U.S. Government Securities include debt
obligations of varying maturities issued or guaranteed by the U.S. Government,
its agencies or instrumentalities. U.S. Government Securities include direct
obligations of the U.S. Treasury, and securities issued or guaranteed by the
Federal Housing Administration, Farmers Home Administration, Export-Import Bank
of the United States, Small Business Administration, Government National
Mortgage Association ("GNMA"), General Services Administration, Central Bank for
Cooperatives, Federal Farm Credit
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<PAGE>
Banks, Federal Home Loan Banks, Federal Home Loan Mortgage Corporation
("FHLMC"), Federal Intermediate Credit Banks, Resolution Trust Corporation,
Federal Land Banks, Federal National Mortgage Association ("FNMA"), Maritime
Administration, Tennessee Valley Authority, District of Columbia Armory Board
and Student Loan Marketing Association. Direct obligations of the U.S. Treasury
include a variety of securities that differ in their interest rates, maturities
and dates of issuance. Because the U.S. Government is not obligated by law to
provide support to an instrumentality it sponsors, an Underlying Fund will
invest in obligations issued by such an instrumentality only if WM Advisors or
the Underlying Fund's sub-advisor determines that the credit risk with respect
to the instrumentality does not make its securities unsuitable for investment by
the Underlying Fund.
ILLIQUID INVESTMENTS. These securities generally cannot be sold or disposed
of in the ordinary course of business at approximately the value at which the
Underlying Fund has valued the investments within seven days. This may have an
adverse effect upon the Underlying Fund's ability to dispose of the particular
securities at fair market value and may limit the Underlying Fund's ability to
obtain accurate market quotations for purposes of valuing the securities and
calculating the net asset value of shares of the Underlying Fund. The
Underlying 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 that Act
("Rule 144A securities"). Rule 144A securities generally must be sold to other
qualified institutional buyers. If a particular investment in Rule 144A
securities is not determined to be liquid, that investment will be treated as an
illiquid security.
COMBINED TRANSACTIONS. As permitted by each Underlying Fund's investment
polices and restrictions, the Underlying Funds may enter into multiple
transactions, including multiple options transactions, multiple futures
transactions, multiple foreign currency transactions (including forward foreign
currency exchange contracts) and any combination of futures, options and foreign
currency transactions (each separately, a "component" transaction), instead of a
single transaction, as part of a single hedging strategy when, in the opinion of
WM Advisors or the sub-advisor, it is in the best interest of the Underlying
Fund to do so. A combined transaction, while part of a single hedging strategy,
may contain elements of risk that are present in each of its component
transactions.
BANK OBLIGATIONS. Domestic commercial banks organized under federal law
are supervised and examined by the Comptroller of the Currency and are required
to be members of the Federal Reserve System and to be insured by the Federal
Deposit Insurance Corporation (the "FDIC"). Domestic banks organized under state
law are supervised and examined by state banking authorities but are members of
the Federal Reserve System only if they elect to join. Most state banks are
insured by the FDIC (although such insurance may not be of material benefit to
an Underlying Fund, depending upon the principal amount of certificates of
deposit ("CDs") of each state bank held by an Underlying Fund) and are subject
to federal examination and to a substantial body of federal law and regulation.
As a result of federal and state laws and regulations, domestic branches of
domestic banks are, among other things, generally required to maintain specific
levels of reserves, and are subject to other supervision and regulation designed
to promote financial soundness.
Obligations of foreign branches of U.S. banks and of foreign branches of
foreign banks, such as CDs and time deposits ("TDs"), may be general obligations
of the parent bank in addition to the issuing branch, or may be limited by the
terms of a specific obligation and governmental regulation. Obligations of
foreign branches of U.S. banks and foreign banks are subject to the risks
associated with investing in foreign securities generally. Foreign branches of
U.S. banks and foreign branches of foreign banks are not necessarily subject to
the same or similar regulatory requirements that apply to U.S. banks, such as
mandatory reserve requirements, loan limitations, and accounting, auditing and
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<PAGE>
financial recordkeeping requirements. In addition, less information may be
publicly available about a foreign branch of a U.S. bank or about a foreign bank
than about a U.S. bank.
Obligations of U.S. branches of foreign banks may be general obligations of
the parent bank in addition to the issuing branch, or may be limited by the
terms of a specific obligation and by federal and state regulation as well as
governmental action in the country in which the foreign bank has its head
office. A U.S. branch of a foreign bank may or may not be subject to reserve
requirements imposed by the Federal Reserve System or by the state in which the
branch is located if the branch is licensed in that state. The deposits of
branches licensed by certain states may not necessarily be insured by the FDIC.
In addition, there may be less publicly available information about a U.S.
branch of a foreign bank than about a U.S. bank.
In view of the foregoing factors associated with the purchase of CDs and
TDs issued by foreign banks and foreign branches of U.S. banks, WM Advisors or
the Underlying Funds' respective sub-advisors will carefully evaluate such
investments on a case-by-case basis.
An Underlying Fund, the Bond & Stock Fund or a Portfolio may purchase a CD,
TD or bankers' acceptances issued by a bank, savings and loan association or
other banking institution with less than $1 billion in assets (a "Small Issuer
Bank Obligation") only so long as the issuer is a member of the FDIC or
supervised by the Office of Thrift Supervision (the "OTS") and so long as the
principal amount of the Small Issuer Bank Obligation is fully insured by the
FDIC and is no more than $100,000. Each of the Underlying Funds will at any one
time hold only one Small Issuer Bank Obligation from any one issuer.
MORTGAGE-BACKED SECURITIES. The mortgage-backed securities in which the
Underlying Funds may invest may be classified as governmental or government-
related, depending on the issuer or guarantor. Governmental mortgage-backed
securities are backed by the full faith and credit of the United States. GNMA,
the principal U.S. guarantor of such securities, is a wholly-owned U.S.
Government corporation within the Department of Housing and Urban Development.
Government-related mortgage-backed securities which are not backed by the full
faith and credit of the United States include those issued by FNMA and FHLMC.
FNMA is a government-sponsored corporation owned entirely by private
stockholders, which is subject to general regulation by the Secretary of Housing
and Urban Development. Pass-through securities issued by FNMA are guaranteed as
to timely payment of principal and interest by FNMA. FHLMC is a corporate
instrumentality of the United States, the stock of which is owned by the Federal
Home Loan Banks. Participation certificates representing interests in mortgages
from FHLMC's national portfolio are guaranteed as to the timely payment of
interest and ultimate collection of principal by FHLMC. In addition, the
Income, Bond & Stock and Growth & Income Funds may invest in commercial
mortgage-backed securities. While these securities generally are structured
with one or more types of credit enhancement, they are issued by non-
governmental entities and are not guaranteed by a governmental agency or
instrumentality.
Entities may create mortgage loan pools offering pass-through investments
in addition to those described above. The mortgages underlying these securities
may be alternative mortgage instruments, that is, mortgage instruments in which
principal or interest payments may vary or terms to maturity may be shorter than
previously customary. As new types of mortgage-backed securities are developed
and offered to investors, the Underlying Funds will, consistent with their
respective investment objectives and policies, consider making investments in
such new types of securities.
The average maturity of pass-through pools of mortgage-backed securities
varies with the maturities of the underlying mortgage instruments. In addition,
a pool's stated maturity may be
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shortened by unscheduled payments on the underlying mortgages. Factors affecting
mortgage prepayments include the level of interest rates, general economic and
social conditions, the location of the mortgaged property and the age of the
mortgage. Because prepayment rates of individual mortgage pools vary widely, it
is not possible to accurately predict the average life of a particular pool.
Common industry practice, for example, is to assume that prepayments will result
in a 7- to 9-year average life for pools of fixed-rate 30-year mortgages. Pools
of mortgages with other maturities of different characteristics will have
varying average life assumptions.
REPURCHASE AGREEMENTS. The Short Term High Quality Bond and Emerging
Growth Funds may invest in repurchase agreements without limitation. The Money
Market, U.S. Government Securities, Income, Bond & Stock, Growth & Income and
Northwest Funds may enter into repurchase agreements with brokers, dealers and
banks to temporarily invest cash reserves provided that repurchase agreements
maturing in greater than 7 days cannot exceed 10% of each Underlying Fund's
total assets.
STRATEGIES AVAILABLE TO ALL UNDERLYING FUNDS EXCEPT MONEY MARKET FUND
- ---------------------------------------------------------------------
OVER-THE-COUNTER OPTIONS. An over-the-counter option (an option not traded
on a national securities exchange) may be closed out only with the other party
to the original option transaction. While an Underlying Fund will seek to enter
into over-the-counter options only with dealers who agree to or are expected to
be capable of entering into closing transactions with the Underlying Fund, there
can be no assurance that the Underlying Fund will be able to liquidate an over-
the-counter option at a favorable price at any time prior to its expiration.
Accordingly, the Underlying Fund might have to exercise an over-the-counter
option it holds in order to realize any profit thereon and thereby would incur
transactions costs on the purchase or sale of the underlying assets. If the
Underlying Fund cannot close out a covered call option written by it, it will
not be able to sell the underlying security until the option expires or is
exercised. Furthermore, over-the-counter options are not subject to the
protections afforded purchasers of listed options by the Options Clearing
Corporation or other clearing organizations.
REVERSE REPURCHASE AGREEMENTS. Each of the Underlying Funds other than the
Money Market Fund may engage in reverse repurchase agreements, subject to the
percentage restrictions on borrowing, as under the 1940 Act, reverse repurchase
agreements may be considered borrowings by the seller. Accordingly, for the
Short Term High Quality Bond, Growth, International Growth and Emerging Growth
Funds and for the Portfolios, borrowing may not exceed 30% of total assets. In
addition, the Portfolios may not purchase additional securities when borrowing
exceeds 5% of total assets. The Money Market, U. S. Government Securities,
Income, Bond & Stock, Growth & Income and Northwest Funds may borrow up to 5% of
total assets for emergency purposes. In addition, the Money Market Fund may
borrow up to 33-1/3% of total assets to meet redemption requests. The Short
Term High Quality Bond Fund is prohibited from borrowing money or entering into
reverse repurchase agreements or dollar roll transactions in the aggregate in
excess of 33-1/3% of the Fund's total assets (after giving effect to such
borrowings). An Underlying Fund will not engage in reverse repurchase
transactions for the purpose of leverage.
WHEN-ISSUED SECURITIES AND DELAYED DELIVERY TRANSACTIONS. In order to
secure yields or prices deemed advantageous at the time, each of the Underlying
Funds may purchase or sell securities on a when-issued or a delayed-delivery
basis. The Underlying Funds will enter into a when-issued transactions for the
purpose of acquiring portfolio securities and not for the purpose of leverage.
Due to fluctuations in the value of securities purchased on a when-issued or a
delayed-delivery basis, the yields obtained on such securities may be higher or
lower than the yields available in the market on the dates when the securities
are actually delivered to the Underlying Fund. Similarly, the sale of securities
for delayed delivery can involve the risk that the prices available in the
market when delivery is made may actually be higher than those obtained in the
transaction itself.
A segregated account in the name of the Underlying Fund consisting of cash
or other liquid assets equal to the amount of when-issued or delayed-delivery
commitments will be established at Boston Safe, the Trust's Custodian. For the
purpose of determining the adequacy of the securities in the accounts, the
deposited securities will be valued at market or fair value daily. If the market
or fair value of the securities declines, additional cash or securities will be
placed in the account daily so that the value of the account at all times will
equal the amount of such commitments by the Underlying Fund. On the settlement
date, the Underlying Fund will meet its obligations from then-available cash
flow, the sale of securities held in the segregated account, the sale of other
securities or, although it would not normally expect to do so, from the sale of
securities purchased on a when-issued or delayed-delivery basis themselves
(which may have a greater or lesser value than the Underlying Fund's payment
obligations).
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STRATEGIC TRANSACTIONS. Subject to the investment limitations and
restrictions for each of the Underlying Funds stated elsewhere in this SAI and
in the Prospectus, each of the Underlying Funds, except for the Money Market
Fund and the Prime Income Fund, may utilize various other investment strategies
as described below to hedge various market risks, to manage the effective
maturity or duration of fixed-income securities or for other bona fide hedging
purposes. No Underlying Fund currently intends to enter into Strategic
Transactions, excluding Strategic Transactions that are "covered" or entered
into for bona fide hedging purposes, that are in the aggregate principal amount
in excess of 15% of the Underlying Fund's net assets.
Strategic Transactions have associated risks including possible default by
the other party to the transaction, illiquidity and, to the extent that WM
Advisors or the sub-advisor's view as to certain market movements is incorrect,
losses greater than if they had not been used. Use of put and call options,
currency transactions or options and futures transactions entails certain risks
as described herein and the Prospectus in sections relating to such investment
or instruments. Losses resulting from the use of Strategic Transactions would
reduce net asset value, and possibly income, and such losses can be greater than
if the Strategic Transactions had not been utilized.
The Underlying Funds may enter into multiple transactions, including
multiple options transactions, multiple futures transactions, multiple foreign
currency transactions (including forward foreign currency exchange contracts)
and any combination of futures, options and foreign currency transactions (each
separately, a "component" transaction), instead of a single transaction, as part
of a single strategy when, in the opinion of WM Advisors or the Underlying
Fund's sub-advisor, it is in the best interest of the Underlying Fund to do so.
A combined transaction may contain elements of risk that are present in each of
its component transactions.
The use of Strategic Transactions for portfolio management purposes
involves special considerations and risks. Additional risks pertaining to
particular strategies that make up Strategic Transactions are described in other
sections of this SAI. Successful use of most Strategic Transactions depends
upon WM Advisors or the sub-advisor's ability to predict movements of the
overall securities and interest rate markets, which requires different skills
than predicting changes in the prices of individual securities. There can be no
assurance that any particular strategy adopted will succeed. There may be
imperfect correlation, or even no correlation, between price movements of
Strategic Transactions and price movements of the related portfolio or currency
positions. Such a lack of correlation might occur due to factors unrelated to
the value of the related portfolio or currency positions, such as speculative or
other pressures on the markets in which Strategic Transactions are traded.
Strategic Transactions, if successful, can reduce risk of loss or enhance
income, by wholly or partially offsetting the negative effect of, or accurately
predicting, unfavorable price movements or currency fluctuations in the related
portfolio or currency position. However, Strategic Transactions can also reduce
the opportunity for gain by offsetting the positive effect of favorable price
movements in the positions. In addition, an Underlying Fund might be required
to maintain assets as "cover," maintain segregated accounts or make margin
payments when it takes positions in Strategic Transactions involving obligations
to third parties (i.e., Strategic Transactions other than purchased options).
These requirements might impair the Underlying Fund's ability to sell a
portfolio security or currency position or make an investment at a time when it
would otherwise be favorable to do so, or require that the Underlying Fund sell
a portfolio security or currency position at a disadvantageous time.
SWAPS, CAPS, FLOORS AND COLLARS. Among the Strategic Transactions into
which an Underlying Fund engaging in Strategic Transactions may enter,
consistent with the Underlying Fund's investment policies and restrictions, are
interest rate, currency and index swaps and the purchase or sale of related
caps, floors and collars. An Underlying Fund would enter into these
transactions
-14-
<PAGE>
primarily to preserve a return or spread on a particular investment or portion
of its portfolio, to protect against currency fluctuations, as a duration
management technique or to protect against any increase in the price of
securities the Underlying Fund anticipates purchasing at a later date. An
Underlying Fund will use these transactions as hedges and not speculative
investments and will not sell interest rate caps or floors where it does not own
securities or other instruments providing the income stream the Underlying Fund
may be obligated to pay. Interest rate swaps involve the exchange by an
Underlying Fund with another party of their respective commitments to pay or
receive interest, e.g., an exchange of floating rate payments for fixed rate
payments with respect to a notional amount of principal. A currency swap is an
agreement to exchange cash flows on a notional amount of two or more currencies
based on the relative value differential among them and an index swap is an
agreement to swap cash flows on a notional amount based on changes in the values
of the reference indices. The purchase of a cap entitles the purchaser to
receive payments on a notional principal amount from the party selling such cap
to the extent that a specified index exceeds a predetermined interest rate or
amount. The purchase of a floor entitles the purchaser to receive payments on a
notional principal amount from the party selling such floor to the extent that a
specified index falls below a predetermined interest rate or amount. A collar is
a combination of a cap and a floor that preserves a certain return within a
predetermined range of interest rates or value.
An Underlying Fund will usually enter into swaps on a net basis, i.e., the
two payment streams are netted out in a cash settlement on the payment date or
dates specified in the instrument, with the Underlying Fund receiving or paying,
as the case may be, only the net amount of the two payments. Inasmuch as these
swaps, caps, floors and collars are entered into for good faith hedging
purposes, WM Advisors and the Trusts believe that such obligations do not
constitute senior securities under the 1940 Act and, accordingly, will not treat
them as being subject to the Underlying Fund's borrowing restrictions. If there
is a default by the counterpart, an Underlying Fund may have contractual
remedies pursuant to the agreements related to the transaction. The swap market
has grown substantially in recent years with a large number of banks and
investment banking firms acting both as principles and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Caps, floors and collars are more recent innovations for
which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.
FUTURES ACTIVITIES. Each of the Underlying Funds permitted to engage in
Strategic Transactions and each of the Portfolios may enter into futures
contracts and options on futures contracts that are traded on a U.S. exchange or
board of trade. These investments may be made by the Underlying Fund involved
for the purpose of hedging against changes in the value of its portfolio
securities due to anticipated changes in interest rates and market conditions,
and for otherwise permitted Strategic Transactions. The ability of an
Underlying Fund to trade in futures contracts and options on futures contracts
may be materially limited by the requirement of the Internal Revenue Code of
1986, as amended, (the "Code"), applicable to a regulated investment company.
See "Taxes" below. See "Strategic Transactions."
FUTURES CONTRACTS. An interest rate futures contract provides for the
future sale by one party and the purchase by the other party of a certain amount
of a specific financial instrument (debt security) at a specified price, date,
time and place. A bond index futures contract is an agreement pursuant to which
two parties agree to take or make delivery of an amount of cash equal to the
difference between the value of the index at the close of the last trading day
of the contract and the price at which the index contract was originally
written. No physical delivery of the underlying securities in the index is
made.
The purpose of entering into a futures contract by an Underlying Fund is to
protect the Underlying Fund from fluctuations in the value of its securities
caused by anticipated changes in interest rates or market conditions without
necessarily buying or selling the securities.
-15-
<PAGE>
No consideration is paid or received by an Underlying Fund upon entering
into a futures contract. Initially, an Underlying Fund would be required to
deposit with the broker an amount of cash or cash equivalents equal to
approximately 1% to 10% of the contract amount (this amount is subject to change
by the board of trade on which the contract is traded and members of such board
of trade may charge a higher amount). This amount is known as "initial margin"
and is in its nature the equivalent of a performance bond or good faith deposit
on the contract, which is returned to an Underlying Fund upon termination of the
futures contract, assuming all contractual obligations have been satisfied.
Subsequent payments, known as "variation margin," to and from the broker, will
be made daily as the price of the index or securities underlying the futures
contract fluctuates, making the long and short positions in the futures contract
more or less valuable, a process known as "marking-to-market." At any time
prior to the expiration of a futures contract, an Underlying Fund may elect to
close the position by taking an opposite position, which will operate to
terminate the Underlying Fund's existing position in the contract.
There are several risks in connection with the use of futures contracts as
a hedging device. Successful use of futures contracts by a Underlying Fund is
subject to the ability of WM Advisors or the Underlying Fund's sub-advisor to
correctly predict movements in the direction of interest rates or changes in
market conditions. These predictions involve skills and techniques that may be
different from those involved in the management of the portfolio being hedged.
In addition, there can be no assurance that there will be a correlation between
movements in the price of the underlying index or securities and movements in
the price of the securities which are the subject of the hedge. A decision of
whether, when and how to hedge involves the exercise of skill and judgment, and
even a well-conceived hedge may be unsuccessful to some degree because of market
behavior or unexpected trends in interest rates.
Although the Underlying Funds intend to enter into futures contracts only
if there is an active market for such contracts, there is no assurance that an
active market will exist for the contracts at any particular time. Most U.S.
futures exchanges and boards of trade limit the amount of fluctuation permitted
in futures contract prices during a single trading day. Once the daily limit
has been reached in a particular contract, no trades may be made that day at a
price beyond that limit. It is possible that futures contract prices would move
to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of futures positions and
subjecting some futures traders to substantial losses. In such event, and in
the event of adverse price movements, an Underlying Fund would be required to
make daily cash payments of variation margin. In such circumstances, an
increase in the value of the portion of the portfolio being hedged, if any, may
partially or completely offset losses on the futures contract. However, as
described above, there is no guarantee that the price of the securities being
hedged will, in fact, correlate with the price movements in a futures contract
and thus provide an offset to losses on the futures contract.
To ensure that transactions constitute bona fide hedges in instances
involving the purchase or sale of a futures contract, the Underlying Funds will
be required to either (i) segregate sufficient cash or high-grade liquid assets
to cover the outstanding position or (ii) cover the futures contract by either
owning the instruments underlying the futures contract or by holding a portfolio
of securities with characteristics substantially similar to the underlying index
or stock index comprising the futures contract or by holding a separate option
permitting it to purchase or sell the same futures contract. Because of the
imperfect correlation between the movements in the price of underlying indexes
or stock indexes of various futures contracts and the movement of the price of
securities in the Underlying Funds' portfolios, the Underlying Funds will
periodically make adjustments to its index futures contracts positions to
appropriately reflect the relationship between the underlying portfolio and the
indexes. The Underlying Fund will not maintain short positions in index or
stock index futures contracts, options written on index or stock index futures
contracts and options written on indexes or
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<PAGE>
stock indexes, if in the aggregate, the value of these positions exceeds the
current market value of its securities portfolio.
OPTIONS ON FUTURES CONTRACTS. An option on a futures contract, as
contrasted with the direct investment in such a contract, gives the purchaser
the right, in return for the premium paid, to assume a position in the futures
contract at a specified exercise price at any time prior to the expiration date
of the option. Upon exercise of an option, the delivery of the futures position
by the writer of the option to the holder of the option will be accompanied by
delivery of the accumulated balance in the writer's futures margin account,
which represents the amount by which the market price of the futures contract
exceeds, in the case of a call, or is less than, in the case of a put, the
exercise price of the option on the futures contract. The potential loss
related to the purchase of an option on futures contracts is limited to the
premium paid for the option (plus transaction costs). Because the price of the
option to the purchaser is fixed at the point of sale, there are no daily cash
payments to reflect changes in the value of the underlying contract. The value
of the option does however change daily and that change would be reflected in
the net asset value of the Underlying Fund holding the options.
When engaging in Strategic Transactions, the Underlying Funds and the
Portfolios may purchase and write put and call options on futures contracts that
are traded on a U.S. exchange or board of trade as a hedge against changes in
the value of its portfolio securities, and may enter into closing transactions
with respect to such options to terminate existing positions. There is no
guarantee that such closing transactions can be effected.
There are several risks relating to options on futures contracts. The
ability to establish and close out positions on such options will be subject to
the existence of a liquid market. In addition, the purchase of put or call
options will be based upon predictions as to anticipated interest rate and
market trends by WM Advisors or the Underlying Funds' sub-advisors, which could
prove to be inaccurate. Even if the expectations of WM Advisors or the sub-
advisors are correct, there may be an imperfect correlation between the change
in the value of the options and the portfolio securities hedged.
STRATEGIES AVAILABLE TO SHORT TERM HIGH QUALITY BOND, BOND & STOCK, GROWTH &
- ----------------------------------------------------------------------------
INCOME, GROWTH, INTERNATIONAL GROWTH, NORTHWEST AND EMERGING GROWTH FUNDS
- -------------------------------------------------------------------------
OPTIONS ON SECURITIES. The Underlying Funds referenced above may write
covered put options and covered call options on securities, purchase put and
call options on securities and enter into closing transactions.
Options written by an Underlying Fund will normally have expiration dates
between one and nine months from the date written. The exercise price of the
options may be below, equal to or above the market values of the underlying
securities at the times the options are written. In the case of call options,
these exercise prices are referred to as "in-the-money," "at-the-money" and
"out-of-the-money," respectively. An Underlying Fund may write (1) in-the-money
call options when WM Advisors or its sub-advisor expects that the price of the
underlying security will remain flat or decline moderately during the option
period, (2) at-the-money call options when WM Advisors or its sub-advisor
expects that the price of the underlying security will remain flat or advance
moderately during the option period and (3) out-of-the-money call options when
WM Advisors or its sub-advisor expects that the premiums received from writing
the call option plus the appreciation in the market price of the underlying
security up to the exercise price will be greater than the appreciation in the
price of the underlying security alone. In any of the preceding situations, if
the market price of the underlying security declines and the security is sold at
this lower price, the amount of any realized loss will be offset wholly or in
part by the premium received. Out-of-the-money, at-the-money and
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<PAGE>
in-the-money put options (the reverse of call options as to the relation of
exercise price to market price) may be utilized in the same market environments
as such call options described above.
So long as the obligation of the Underlying Fund as the writer of an option
continues, the Underlying Fund may be assigned an exercise notice by the broker-
dealer through which the option was sold, requiring the Underlying Fund to
deliver, in the case of a call, or take delivery of, in the case of a put, the
underlying security against payment of the exercise price. This obligation
terminates when the option expires or the Underlying Fund effects a closing
purchase transaction. The Underlying Fund can no longer effect a closing
purchase transaction with respect to an option once it has been assigned an
exercise notice. To secure its obligation to deliver the underlying security
when it writes a call option, or to pay for the underlying security when it
writes a put option, the Underlying Fund will be required to deposit in escrow
the underlying security or other assets in accordance with the rules of the
Options Clearing Corporation (the "OCC") and of the securities exchange on which
---
the option is written.
An option may be closed out only when there exists a secondary market for
an option of the same series on a recognized securities exchange or in the over-
the-counter market. In light of this fact and current trading conditions, the
Underlying Fund expects to purchase or write call or put options issued by the
OCC, except that options on U.S. Government Securities may be purchased or
written in the over-the-counter market. Over-the-counter options can be closed
out only by agreement with the primary dealer in the transaction. National
--------------
securities exchanges on which options are traded are: The Chicago Board Options
Exchange (CBOE), The Board of Trade of the City of Chicago (CBT), American Stock
Exchange (AMEX), Philadelphia Stock Exchange (PHLX), Pacific Stock Exchange
(PSE) and the New York Stock Exchange (NYSE). Any over-the-counter option
written by an Underlying Fund will be with a qualified dealer pursuant to an
agreement under which the Underlying Fund may repurchase the option at a formula
price at which the Underlying Fund would have the absolute right to repurchase
an over-the-counter option it has sold. Such options will be considered
illiquid in an amount equal to the formula price, less the amount by which the
option is "in-the-money." In the event of the insolvency of the primary dealer,
the Underlying Fund may not be able to liquidate its position in over-the-
counter options, and the ability of the Underlying Fund to enter into closing
purchase transactions on options written by the Underlying Fund may result in a
material loss to the Underlying Fund.
The Underlying Fund may realize a profit or loss upon entering into closing
transactions. In cases where the Underlying Fund has written an option, it will
realize a profit if the cost of the closing purchase transaction is less than
the premium received upon writing the original option, and will incur a loss if
the cost of the closing purchase transaction exceeds the premium received upon
writing the original option. Similarly, when the Underlying Fund has purchased
an option and engages in a closing sale transaction, the Underlying Fund will
realize a profit or loss to the extent that the amount received in the closing
sale transaction is more or less than the premium the Underlying Fund initially
paid for the original option plus the related transaction costs.
To facilitate closing transactions, the Underlying Fund will generally
purchase or write only those options for which WM Advisors or its sub-advisor
believes there is an active secondary market although there is no assurance that
sufficient trading interest to create a liquid secondary market on a securities
exchange will exist for any particular option or at any particular time, and for
some options no such secondary market may exist. A liquid secondary market in
an option may cease to exist for a variety of reasons. In the past, for
example, higher than anticipated trading activity or order flow, or other
unforeseen events, have at times rendered certain of the facilities of the OCC
and the securities exchanges inadequate and resulted in the institution of
special procedures, such as trading rotations, restrictions on certain types of
orders or trading halts or suspensions in one or more options. There
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<PAGE>
can be no assurance that similar events, or events that may otherwise interfere
with the timely execution of customers' orders, will not recur. In such events,
it might not be possible to effect closing transactions in particular options.
If as a covered call option writer the Underlying Fund is unable to effect a
closing purchase transaction in a secondary market, it will not be able to sell
the underlying security until the option expires or it delivers the underlying
security upon exercise.
Securities exchanges have established limitations governing the maximum
number of calls and puts of each class which may be held or written, or
exercised within certain time periods, by an investor or group of investors
acting in concert (regardless of whether the options are written on the same or
different securities exchanges or are held, written or exercised in one or more
accounts or through one or more brokers). It is possible that the particular
Underlying Fund and other clients of WM Advisors and its sub-advisors and
certain of their affiliates may be considered to be such a group. A securities
exchange may order the liquidation of positions found to be in violation of
these limits and it may impose certain other sanctions.
In the case of options written by an Underlying Fund that are deemed
covered by virtue of the Underlying Fund's holding convertible or exchangeable
preferred stock or debt securities, the time required to convert or exchange and
obtain physical delivery of the underlying security with respect to which the
Underlying Fund has written options may exceed the time within which the
Underlying Fund must make delivery in accordance with an exercise notice. In
these instances, the Underlying Fund may purchase or temporarily borrow the
underlying securities for purposes of physical delivery. By so doing, the
Underlying Fund will not bear any market risk, since the Underlying Fund will
have the absolute right to receive from the issuer of the underlying security an
equal number of shares to replace the borrowed stock. The Underlying Fund may
however, incur additional transaction costs or interest expenses in connection
with any such purchase or borrowing.
Additional risks exist with respect to mortgage-backed U.S. Government
Securities for which the Underlying Fund may write covered call options. If an
Underlying Fund writes covered call options on a mortgage-backed security, the
security that it holds as cover may, because of scheduled amortization of
unscheduled prepayments, cease to be sufficient cover. In such an instance, the
Underlying Fund will compensate by purchasing an appropriate additional amount
of mortgage-backed securities.
STRATEGIES AVAILABLE TO SHORT TERM HIGH QUALITY, GROWTH, INTERNATIONAL GROWTH
- -----------------------------------------------------------------------------
AND EMERGING GROWTH FUNDS
- -------------------------
OPTIONS ON SECURITIES INDEXES. The Underlying Funds set forth above may
also purchase and sell call and put options on securities indexes. Such options
give the holder the right to receive a cash settlement during the term of the
option based upon the difference between the exercise price and the value of the
index.
Options on securities indexes entail risks in addition to the risks of
options on securities. Because exchange trading of options on securities indexes
is relatively new, the absence of a liquid secondary market to close out an
option position is more likely to occur, although the Underlying Fund generally
will purchase or write such an option only if WM Advisors or its sub-advisor
believes the option can be closed out.
Use of options on securities indexes also entails the risk that trading in
such options may be interrupted if trading in certain securities included in the
index is interrupted. The Underlying Fund will not purchase such options unless
WM Advisors or its sub-advisor believes the market is sufficiently
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<PAGE>
developed for the risk of trading in such options to be no greater than the risk
of trading in options on securities.
Price movements in the Underlying Fund's portfolio may not correlate
precisely with movements in the level of an index and, therefore, the use of
options on securities indexes cannot serve as a complete hedge. Because options
on securities indexes require settlement in cash, the Underlying Fund may be
forced to liquidate portfolio securities to meet settlement obligations.
STRATEGIES AVAILABLE TO SHORT TERM HIGH QUALITY BOND, INCOME, GROWTH,
- ---------------------------------------------------------------------
INTERNATIONAL GROWTH AND EMERGING GROWTH FUNDS
- ----------------------------------------------
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. The Underlying Funds set forth
above may engage in currency exchange transactions to protect against
uncertainty in the level of future exchange rates. The Underlying Funds'
dealings in forward currency exchange contracts will be limited to hedging
involving either specific transactions or portfolio positions. Transaction
hedging is the purchase or sale of forward foreign currency with respect to
specific receivables or payables of the Underlying Fund generally arising in
connection with the purchase or sale of its portfolio securities. Position
hedging is the sale of forward foreign currency with respect to portfolio
security positions denominated or quoted in such foreign currency. An
Underlying Fund may not position hedge with respect to a particular currency to
an extent greater than the aggregate market value (at the time of making such
sale) of the securities held in its portfolio denominated or quoted in or
currently convertible into that particular currency.
If an Underlying Fund enters into a position hedging transaction, the
Trusts' Custodian will, except in circumstances where segregated accounts are
not required by the 1940 Act and the rules adopted thereunder, place cash or
other liquid assets in a segregated account for the Underlying Fund in an amount
at least equal to the value of the Underlying Fund's total assets committed to
the consummation of the forward contract. For each forward foreign currency
exchange contract that is used to hedge a securities position denominated in a
foreign currency, but for which the hedging position no longer provides, in the
opinion of WM Advisors or the sub-advisor, sufficient protection to consider the
contract to be a hedge, the Underlying Fund maintains with the Custodian a
segregated account of cash or other liquid assets in an amount at least equal to
the portion of the contract that is no longer sufficiently covered by such
hedge. If the value of the securities placed in the segregated account
declines, additional cash or securities will be placed in the account so that
the value of the account will equal the amount of the Underlying Fund's unhedged
exposure (in the case of securities denominated in a foreign currency) or
commitment with respect to the contract. Hedging transactions may be made from
any foreign currency into U.S. dollars or into other appropriate currencies.
At or before the maturity of a forward contract, an Underlying Fund may
either sell a portfolio security and make delivery of the currency, or retain
the security and offset its contractual obligation to deliver the currency by
purchasing a second contract pursuant to which the Underlying Fund will obtain,
on the same maturity date, the amount of the currency that it is obligated to
deliver. If the Underlying Fund retains the portfolio security and engages in
an offsetting transaction, the Underlying Fund, at the time of execution of the
offsetting transaction, will incur a gain or a loss to the extent that movement
has occurred in forward contract prices. Should forward prices decline during
the period between the Underlying Fund's entering into a forward contract for
the sale of currency and the date it enters into an offsetting contract for the
purchase of the currency, the Underlying Fund will realize a gain to the extent
the price of the currency it has agreed to sell exceeds the price of the
currency it has agreed to purchase. Should forward prices increase, the
Underlying Fund will suffer a loss to the extent the price of the currency it
has agreed to purchase exceeds the price of the currency it has agreed to sell.
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<PAGE>
The cost to an Underlying Fund of engaging in currency transactions with
factors such as, the currency involved, the length of the contract period and
the prevailing market conditions. Because transactions in currency exchange are
usually conducted on a principal basis, no fees or commissions are involved.
The use of forward currency contracts does not eliminate fluctuations in the
underlying prices of the securities, but it does establish a rate of exchange
that can be achieved in the future. In addition, forward currency contracts may
limit the risk of loss due to a decline in the value of the hedged currency
increase.
If a devaluation of a currency is generally anticipated, an Underlying Fund
may not be able to contract to sell the currency at a price above the
devaluation level it anticipates.
The Underlying Funds, in addition, may combine forward currency exchange
contracts with investments in securities denominated in other currencies in an
attempt to create a combined investment position, the overall performance of
which will be similar to that of a security denominated in an Underlying Fund's
underlying currency. For instance, an Underlying Fund could purchase a U.S.
dollar-denominated security and at the same time enter into a forward currency
exchange contract to exchange U.S. dollars for its underlying currency at a
future date. By matching the amount of U.S. dollars to be exchanged with the
anticipated value of the U.S. dollar-denominated security, the Underlying Fund
may be able to "lock in" the foreign currency value of the security and adopt a
synthetic investment position whereby the Underlying Fund's overall investment
return from the combined position is similar to the return from purchasing a
foreign currency-denominated instrument.
There is a risk in adopting a synthetic investment position. It is
impossible to forecast with absolute precision what the market value of a
particular security will be at any given time. If the value of a security
denominated in the U.S. dollar or other foreign currency is not exactly matched
with an Underlying Fund's obligation under a forward currency exchange contract
on the date of maturity, the Underlying Fund may be exposed to some risk of loss
from fluctuations in that currency. Although WM Advisors and each sub-advisor
will attempt to hold such mismatching to a minimum, there can be no assurance
that WM Advisors or the Underlying Fund's sub-advisor will be able to do so.
Although the foreign currency market is not believed to be necessarily more
volatile than the market in other commodities, there is less protection against
defaults in the forward trading to currencies than there is in trading such
currencies on an exchange because such forward contracts are not guaranteed by
an exchange or clearing house. The CFTC has indicated that it may assert
jurisdiction over forward contracts in foreign currencies and attempt to
prohibit certain entities from engaging in such transactions. In the event that
such prohibition included the Underlying Fund, it would cease trading such
contracts. Cessation of trading might adversely affect the performance of an
Underlying Fund.
STRATEGIES AVAILABLE TO SHORT TERM HIGH QUALITY BOND, GROWTH, INTERNATIONAL
- ---------------------------------------------------------------------------
GROWTH AND EMERGING GROWTH FUNDS
- --------------------------------
OPTIONS ON FOREIGN CURRENCIES. The Underlying Funds set forth above may
purchase and write put and call options on foreign currencies for the purpose of
hedging against declines in the U.S. dollar value of foreign currency-
denominated portfolio securities and against increases in the U.S. dollar cost
of such securities to be acquired. Such hedging includes cross hedging and
proxy hedging where the options to buy or sell currencies involve other
currencies besides the U.S. dollar. As one example, a decline in the U.S.
dollar value of a foreign currency in which securities are denominated will
reduce the U.S. dollar value of the securities, even if their value in the
foreign currency remains constant. To protect against diminutions in the value
of securities held by an Underlying Fund in a particular foreign currency, the
Underlying Fund may purchase put options on the foreign currency. If
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<PAGE>
the value of the currency does decline, the Underlying Fund will have the right
to sell the currency for a fixed amount in U.S. dollars and will thereby offset,
in whole or in part, the adverse effect on its portfolio that otherwise would
have resulted. When an increase in the U.S. dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of the securities, the Underlying Fund conversely may purchase call options
on the currency. The purchase of such options could offset, at least partially,
the effects of the adverse movements in exchange rates. As in the case of other
types of options, however, the benefit to the Underlying Fund deriving from
purchases of foreign currency options will be reduced by the amount of the
premium and related transaction costs. In addition, if currency exchange rates
do not move in the direction, or to the extent anticipated, the Underlying Fund
could sustain losses on transactions in foreign currency options that would
require it to forego a portion or all of the benefits of advantageous changes in
the rates.
The Underlying Funds may also write covered call options on foreign
currencies for the types of hedging purposes described above. As one example,
when WM Advisors or Underlying Fund's sub-advisor anticipate a decline in the
U.S. dollar value of foreign currency-denominated securities due to adverse
fluctuations in exchange rates it could, instead of purchasing a put option,
write a covered call option on the relevant currency. If the expected decline
occurs, the option will most likely not be exercised, and the diminution in
value of portfolio securities will be offset by the amount of the premium
received. As in the case of other types of options, however, the writing of a
foreign currency option will constitute only a partial hedge up to the amount of
the premium, and only if rates move in the expected direction. If this does not
occur, the option may be exercised and the Underlying Fund would be required to
purchase or sell the underlying currency at a loss that may not be offset-by the
amount of the premium. Through the writing of options on foreign currencies,
the Underlying Fund may also be required to forego all or a portion of the
benefits that might otherwise have been obtained from favorable movements in
exchange rates.
A call option written on a foreign currency by an Underlying Fund is
"covered" if the Underlying Fund owns the underlying foreign currency covered by
the call or has an absolute and immediate right to acquire the foreign currency
without additional cash consideration (or for additional cash consideration held
in a segregated account by Boston Safe upon conversion or exchange of other
foreign currency held by the Underlying Fund. A call option also is covered if
the Underlying Fund has a call on the same foreign currency and in the same
principal amount as the call written when the exercise price of the call held
(1) is equal to or less than the exercise price of the call written or (2) is
greater than the exercise price of the call written if the difference is
maintained by the Underlying Fund in cash, U.S. Government Securities and other
high-grade liquid debt securities in a segregated account with Boston Safe.
Options on foreign currencies traded on national securities exchanges are
within the jurisdiction of the SEC, as are other securities traded on those
exchanges. As a result, many of the projections provided to traders on
organized exchanges will be available with respect to those transactions. In
particular, all foreign currency option positions entered into on a national
securities exchange are cleared and guaranteed by the OCC, thereby reducing the
risk of counterpart default. Further, a liquid secondary market in options
traded on a national securities exchange may exist, potentially permitting the
Underlying Fund to liquidate open positions at a profit prior to their exercise
or expiration, or to limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options are
subject to the risks of the availability of a liquid secondary market described
above, as well as the risks regarding adverse market movements, margining of
options written, the nature of the foreign currency market, possible
intervention by governmental authorities and the effects of other political and
economic events. In addition, exercise and settlement of exchange-traded
foreign currency options must be made exclusively
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<PAGE>
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the orderly
settlement of foreign currency option exercises, or would result in undue
burdens on the OCC or its clearing member, impose special procedures on exercise
and settlement, such as technical changes in the mechanics of delivery of
currency, the fixing of dollar settlement prices or prohibitions on exercise.
SPECIAL CONSIDERATIONS RELATING TO BOND & STOCK, GROWTH, INTERNATIONAL GROWTH
- -----------------------------------------------------------------------------
AND EMERGING GROWTH FUNDS
- --------------------------
SECURITIES IN DEVELOPING COUNTRIES. Although most of the investments of
the Bond & Stock, Growth, International Growth and Emerging Growth Funds are
made in securities of companies in (or governments of) developed countries the
Underlying Funds set forth above may invest in securities of companies in (or
governments of) developing or emerging countries (sometimes referred to as
"emerging markets") as well. The Growth and Emerging Growth Funds may invest up
to 5% of their total assets in emerging markets and the International Growth
Fund may invest up to 5% of total assets in emerging markets and up to 5% of
total assets in any one country. A developing or emerging country is generally
considered to be a country that is in the initial stages of its
industrialization cycle. Investing in the equity and fixed-income markets of
developing or emerging countries involves exposure to economic structures that
are generally less diverse and mature, and to political systems that can be
expected to have less stability than those of developed countries. Historical
experience indicates that the markets of developing or emerging countries have
been more volatile than the markets of the more mature economies of developed
countries; however, such markets often have provided higher rates of return to
investors.
Price movements in the Underlying Fund's portfolio may not correlate
precisely with movements in the level of an index and, therefore, the use of
options on securities indexes cannot serve as a complete hedge. Because options
on securities indexes require settlement in cash, the Underlying Fund may be
forced to liquidate portfolio securities to meet settlement obligations.
STRATEGY AVAILABLE TO SHORT TERM HIGH QUALITY BOND, INCOME, GROWTH,
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INTERNATIONAL GROWTH, AND EMERGING GROWTH FUNDS
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LENDING OF PORTFOLIO SECURITIES. Each of the Underlying Funds will adhere
to the following conditions whenever its portfolio securities are loaned: (1)
the Underlying Fund must receive at least 100% cash collateral or equivalent
securities from the borrower; (2) the borrower must increase the collateral
whenever the market value of the securities rises above the level of the
collateral; (3) the Underlying Fund must be able to terminate the loan at any
time; (4) the Underlying Fund must receive reasonable interest on the loan, as
well as any dividends, interest or other distributions on the loaned securities
and any increase in market value; (5) the Underlying Fund may pay only
reasonable custodian fees in connection with the loan; and (6) voting rights on
the loaned securities may pass to the borrower, provided that if a material
event adversely affecting the investment occurs, the Trusts' Board of Trustees
must terminate the loan and regain the right to vote the securities. From time
to time, the Underlying Funds may pay a part of the interest earned from the
investment of the collateral received for securities loaned to the borrower
and/or a third party that is unaffiliated with the Trust and that is acting as a
"finder". The Underlying Funds will not lend more than 20% of their respective
total assets.
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STRATEGIES AVAILABLE TO PRIME INCOME FUND
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As previously discussed, each of the Portfolios (other than the Strategic
Growth Portfolio) may invest in the Prime Income Fund as well as the other
Underlying Funds.
CERTAIN CHARACTERISTICS OF SENIOR LOAN INTERESTS. Senior Loans generally
are arranged through private negotiations between a Borrower and several
financial institutions ("Lenders") represented in each case by one or more such
Lenders acting as agent ("Agent") of the several Lenders. On behalf of the
several Lenders, the Agent, which is frequently the commercial bank or other
entity that originates the Senior Loan and the person that invites other parties
to join the lending syndicate, will be primarily responsible for negotiating the
loan agreement or agreements ("Loan Agreement") that establish the relative
terms, conditions and rights of the Borrower and the several Lenders.
The Prime Income Fund will invest in participations ("Participations") in
Senior Loans, will purchase assignments ("Assignments") of portions of Senior
Loans from third parties and may act as one of the group of Lenders originating
a Senior Loan (an "Original Lender").
It is anticipated that the proceeds of the Senior Loans in which the Prime
Income Fund will acquire interests primarily will be used to finance leveraged
buyouts, recapitalizations, mergers, acquisitions, stock repurchases, and, to a
lesser extent, to finance internal growth and for other corporate purposes of
Borrowers. The Prime Income Fund currently does not intend to acquire interests
in Senior Loans the proceeds of which would be used primarily to finance
construction or real estate development projects. Senior Loans have the most
senior position in a Borrower's capital structure, although some Senior Loans
may hold an equal ranking with other senior securities of the Borrower. The
capital structure of Borrowers may include Senior Loans, senior and junior
subordinated debt (which may include "junk bonds"), preferred stock and common
stock issued by the Borrower, typically in descending order of seniority with
respect to claims on the Borrower's assets. Senior Loans generally are secured
by specific collateral, which may include guarantees. In connection with the
acquisition of collateralized Senior Loans, the Prime Income Fund may invest up
to 5% of its total assets in Senior Loans which are not secured by any
collateral. Such unsecured Senior Loans would constitute an interim financing
intended to be refinanced through, in whole or in part, a collateralized Senior
Loan. In the event that the Prime Income Fund invests a portion of its assets
in Senior Loans that are not secured by specific collateral, the Prime Income
Fund will not enjoy the benefits associated with collateralization with respect
to such Senior Loans and such Senior Loans may pose a grater risk of nonpayment
of interest or loss of principal than do collateralized Senior Loans.
As discussed below, the Prime Income Fund may also acquire warrants and
equity securities issued by the Borrower or its affiliates as part of a package
of investments in the Borrower or its affiliates. Warrants and equity
securities will not be treated as Senior Loans and thus assets invested in such
securities will not count toward the 80% of the Prime Income Fund's total assets
that normally will be invested in Senior Loans. The Prime Income Fund will
acquire such interests in unsecured Senior Loans, warrants and equity securities
only as an incident to the intended purchase of interests in collateralized
Senior Loans. Loan Agreements may also include various restrictive covenants
designed to limit the activities of the Borrower in an effort to protect the
right of the Lenders to receive timely payments of interest on and repayment of
principal of the Senior Loans. In order to borrow money pursuant to
collateralized Senior Loans, a Borrower will frequently, for the term of the
Senior Loan, pledge as collateral assets, including but not limited to,
trademarks, accounts receivable, inventory, buildings, real estate, franchises,
and common and preferred stock in its subsidiaries. In addition, in the case of
some Senior Loans, there may be additional collateral pledged in the form of
guarantees by and/or securities of affiliates of the Borrowers. In certain
instances, a Senior Loan may be secured only by stock in the Borrower or its
subsidiaries. Such collateral may consist of assets that may not be readily
liquidated, and there is no assurance that the liquidation of such assets would
satisfy fully a Borrower's obligations under a Senior Loan.
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<PAGE>
Restrictive covenants may include mandatory prepayment provisions arising
from excess cash flows and typically include restrictions on dividend payments,
specific mandatory minimum financial ratios, limits on total debt and other
financial tests. Breach of such covenants, if not waived by the Lenders, is
generally an event of default under the applicable Loan Agreement and may give
the Lenders the right to accelerate principal and interest payments. WM
Advisors will consider the terms of such restrictive covenants in deciding
whether to invest in Senior Loans for the Prime Income Fund's portfolio. When
the Prime Income Fund holds a Participation in a Senior Loan it may not have the
right to vote to waive enforcement of any restrictive covenant breached by a
Borrower. Lenders voting in connection with a potential waiver of a restrictive
covenant may have interests different from those of the Prime Income Fund and
such Lenders may not consider the interests of the Prime Income Fund in
connection with their votes.
Senior Loans in which the Prime Income Fund will invest generally pay
interest at rates which are periodically redetermined by reference to a base
lending rate plus a premium. These base lending rates are generally the prime
rate offered by a Major United States Bank "Prime Rate", LIBOR, the CD rate or
other base lending rates used by commercial lenders. As a result Lenders will
pay more than the Prime Rate to the Prime Income Fund on their Senior Loans.
The Prime Rate quoted by a major U.S. bank is the interest rate at which such
bank is willing to lend U.S. dollars to its most creditworthy borrowers. LIBOR,
as provided for in Loan Agreements, is an average of the interest rates quoted
by several designated banks as the rates at which such banks would offer to pay
interest to major financial institutional depositors in the London interbank
market on U.S. dollar-denominated deposits for a specified period of time. The
CD rate, as generally provided for in Loan Agreements, is the average rate paid
on large certificates of deposit traded in the secondary market.
At least 80% of the Prime Income Fund's total assets normally will be
invested in Senior Loans. In normal market conditions, at least 65% of the
Prime Income Fund's assets will be invested in Senior Loans which, at the time
of the Prime Income Fund's initial investment in such Senior Loans, provide the
Prime Income Fund with a rate of return which was at least equal to the Prime
Rate existing on the date of such initial investments. The Prime Income Fund is
not subject to any restrictions with respect to the maturity of Senior Loans
held in its portfolio. It is currently anticipated that the Prime Income Fund's
assets invested in Senior Loans will consist of Senior Loans with stated
maturities of between three and seven years, inclusive, and with rates of
interest which are periodically reset with reset periods typically ranging from
30 days to one year. Investment in Senior Loans with longer interest rate
redetermination periods may increase fluctuations in the Prime Income Fund's net
asset value as a result of changes in interest rates. The Senior Loans in the
Prime Income Fund's portfolio will at all times have a dollar-weighted average
time until the next interest rate redetermination of 90 days or less. As a
result, as short-term interest rates increase, interest payable to the Prime
Income Fund from its investments in Senior Loans should increase, and as short-
term interest rates decrease, interest payable to the Prime Income Fund from its
investments in Senior Loans should decrease. The amount of time required to
pass before the Prime Income Fund will realize the effects of changing short-
term market interest rates on its portfolio will vary with the dollar-weighted
average time until the next interest rate redetermination on the Senior Loans in
the Prime Income Fund's portfolio. The Prime Income Fund may utilize certain
investment practices to, among other things, shorten the effective interest rate
redetermination period of Senior Loans in its portfolio. In such event, the
Prime Income Fund will consider such shortened period to be the interest rate
redetermination period of the Senior Loan; provided, however, that the Prime
Income Fund will not invest in Senior Loans which permit the Borrower to select
an interest rate redetermination period in excess of one year. Because most
Senior Loans in the Prime Income Fund's portfolio will be subject to mandatory
and/or optional prepayment and there may be significant economic incentives for
a Borrower to prepay its loans, prepayments of Senior Loans in the Prime Income
Fund's portfolio may occur. Accordingly, the actual remaining maturity of the
Prime Income Fund's portfolio invested in Senior Loans may vary
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<PAGE>
substantially from the average stated maturity of the Senior Loans held in the
Prime Income Fund's portfolio. As a result of expected prepayments from time to
time of Senior Loans in the Prime Income Fund's portfolio, the Prime Income Fund
estimates that the actual average maturity of the Senior Loans held in its
portfolio will be approximately 18-24 months.
When interest rates decline, the value of a portfolio invested in fixed-
rate obligations can be expected to rise. Conversely, when interest rates rise,
the value of a portfolio invested in fixed-rate obligations can be expected to
decline. Although the Prime Income Fund's net asset value will vary, the Prime
Income Fund's management expects the Prime Income Fund's policy of acquiring
interests in floating or variable rate Senior Loans to minimize fluctuations in
net asset value as a result of changes in interest rates. Accordingly, the
Prime Income Fund's management expects the value of the Prime Income Fund's
portfolio to fluctuate significantly less than a portfolio of fixed-rate, longer
term obligations as a result of interest rate changes. However, changes in
prevailing interest rates can be expected to cause some fluctuation in the Prime
Income Fund's net asset value. In addition to changes in interest rates,
changes in the credit quality of Borrowers will also affect the Prime Interest
Fund's net asset value. Further, a serious deterioration in the credit quality
of a Borrower could cause a prolonged or permanent decrease in the Prime Income
Fund's net asset value.
Senior Loans generally are not rated by nationally recognized statistical
rating organizations. Because of the collateralized and/or guaranteed nature of
most Senior Loans, the Prime Income Fund and WM Advisors believe that ratings of
other securities issued by a Borrower do not necessarily reflect adequately the
relative quality of a Borrower's Senior Loans. Therefore, although WM Advisors
may consider such ratings in determining whether to invest in a particular
Senior Loan, WM Advisors is not required to consider such ratings and such
ratings will not be the determinative factor in WM Advisors's analysis. The
Prime Income Fund may invest in Senior Loans, the Borrowers with respect to
which have outstanding debt securities which are rated below investment grade by
a nationally recognized statistical rating organization or are unrated but of
comparable quality to such securities. Such Borrowers are more likely to
experience difficulty in meeting payment obligations under such debt and other
subordinated obligations. These difficulties could detract from the Borrower's
perceived creditworthiness or its ability to obtain financing to cover short-
term cash flow needs and may force the Borrower into bankruptcy or other forms
of credit restrictions. The Prime Income Fund will invest only in those Senior
Loans with respect to which the Borrower, in the opinion of WM Advisors,
demonstrates certain of the following characteristics: sufficient cash flow to
service debt; adequate liquidity, successful operating history; strong
competitive position; experienced management; and, with respect to
collateralized Senior Loans, collateral; coverage that equals or exceeds the
outstanding principal amount of the Senior Loan. In addition, WM Advisors will
consider, and may rely in part, on the analyses performed by the Agent and other
Lenders, including such persons' determinations with respect to collateral
securing a Senior Loan.
The Prime Income Fund may invest up to 100% of its assets in
Participations. The selling Lenders and other persons interpositioned between
such Lenders and the Prime Income Fund with respect to such Participations will
likely conduct their principal business activities in the banking, finance and
financial services industries. Although, as discussed below, the Prime Income
Fund has taken measures which it believes significantly reduce its exposure to
any risks incident to such policy, the Prime Income Fund may be more susceptible
than an investment company without such a policy to any single economic,
political or regulatory occurrence affecting such industries. Persons engaged
in such industries may be more susceptible than are persons engaged in some
other industry to, among other things, fluctuations in interest rates, changes
in the Federal Open Market Committee's monetary policy, governmental regulations
concerning such industries and concerning capital raising activities generally
and fluctuations in the financial markets generally.
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<PAGE>
Loan Agreements typically provide for the termination of the Agent's agency
status in the event that it fails to act as required under the relevant Loan
Agreement, becomes insolvent, enters FDIC receivership, or if not FDIC insured,
enters into bankruptcy. Should such an Agent, Lender or assignor with respect
to an Assignment interpositioned between the Prime Income Fund and the Borrower
become insolvent or enter FDIC receivership or bankruptcy, any interest in the
Senior Loan of such person and any loan payment held by such person for the
benefit of the Prime Income Fund should not be included in such person's estate.
If, however, any such amount were included in such person's estate, the Prime
Income Fund would incur certain costs and delays in realizing payment or could
suffer a loss of principal and/or interest. In such event, the Prime Income
Fund could experience a decrease in net asset value.
The Prime Income Fund may be required to pay and may receive various fees
and commissions in connection with purchasing, selling and holding interests in
Senior Loans. The fees normally paid by Borrowers may include three types:
facility fees, commitment fees and prepayment penalties. Facility fees are paid
to Lenders upon origination of a Senior Loan. Commitment fees are paid to
Lenders on an ongoing basis based upon the undrawn portion committed by the
Lenders of the underlying Senior Loan. Lenders may receive prepayment penalties
when a Borrower prepays all or part of a Senior Loan. The Prime Income Fund
will receive these fees directly from the Borrower if the Prime Income Fund is
an Original Lender, or, in the case of commitment fees and prepayment penalties,
if the Prime Income Fund acquires an interest in a Senior Loan by way of
Assignment. Whether or not the Prime Income Fund receives a facility fee from
the Lender in the case of an Assignment, or any fees in the case of a
Participation, depends upon negotiations between the Prime Income Fund and the
Lender selling such interests. When the Prime Income Fund is an assignee, it
may be required to pay a fee, or forgo a portion of interest and any fees
payable to it, to the Lender selling the Assignment. Occasionally, the assignor
will pay a fee to the assignee based on the portion of the principal amount of
the Senior Loan which is being assigned. A Lender selling a Participation to
the Prime Income Fund may deduct a portion of the interest and any fees payable
to the Prime Income Fund as an administrative fee prior to payment thereof to
the Prime Income Fund. The Prime Income Fund may be required to pay over or
pass along to a purchaser of an interest in a Senior Loan from the Prime Income
Fund a portion of any fees that the Prime Income Fund would otherwise be
entitled to.
Pursuant to the relevant Loan Agreement, a Borrower may be required in
certain circumstances, and may have the option at any time, to prepay the
principal amount of a Senior Loan, often without incurring a prepayment penalty.
Because the interest rates on Senior Loans are periodically redetermined at
relatively short intervals, the Prime Income Fund and WM Advisors believe that
the prepayment of, and subsequent reinvestment by the Prime Income Fund in,
Senior Loans will not have a materially adverse impact on the yield on the Prime
Income Fund's portfolio and may have a beneficial impact on income due to
receipt of prepayment penalties, if any, and any facility fees earned in
connection with reinvestment.
A Lender may have certain obligations pursuant to a Loan Agreement, which
may include the obligation to make additional loans in certain circumstances.
The Prime Income Fund currently intends to reserve against such contingent
obligations by segregating sufficient investments in high quality short-term,
liquid investments. The Prime Income Fund will not purchase interests in Senior
Loans that would require the Prime Income Fund to make any such additional loans
if such additional loan commitments would exceed 20% of the Prime Income Fund's
total assets or would cause the Prime Income Fund to fail to meet the
diversification requirements set forth under the heading "Investment
Restrictions."
During normal market conditions, the Prime Income Fund may invest up to 20%
of its total assets in (i) high quality, short-term debt securities with
remaining maturities of one year or less
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(including assets maintained by the Prime Income Fund as a reserve against any
additional loan commitments) and (ii) warrants, equity securities and, in
certain limited circumstances discussed above, junior debt securities acquired
in connection with the Prime Income Fund's investments in Senior Loans. If WM
Advisors determines that market conditions temporarily warrant a defensive
investment policy, the Prime Income Fund may invest, subject to its ability to
liquidate its relatively illiquid portfolio of Senior Loans, up to 100% of its
assets in cash and such high quality, short-term debt securities. The Prime
Income Fund will acquire such warrants and equity securities only as an incident
to the purchase or intended purchase of interests in collateralized Senior
Loans. Warrants and equity securities will not qualify as assets required to be
maintained as a reserve against additional loan commitments. Although the Prime
Income Fund generally will acquire interests in warrants and equity securities
only when WM Advisors believes that the relative value being given by the Prime
Income Fund in exchange for such interests is substantially outweighed by the
potential value of such instruments, investment in warrants and equity
securities entail certain risks in addition to those associated with investments
in Senior Loans. Warrants and equity securities have a subordinate claim on a
Borrower's assets as compared with debt securities, and junior debt securities
have a subordinate claim on such assets as compared with Senior Loans. As such,
the values of warrants and equity securities generally are more dependent on the
financial condition of the Borrower and less dependent on fluctuations in
interest rates than are the values of many debt securities. The values of
warrants, equity securities and junior debt securities may be more volatile than
those of Senior Loans and thus may have an adverse impact on the ability of the
Prime Income Fund to minimize fluctuations in its net asset value.
SPECIAL RISK CONSIDERATIONS. On behalf of the several Lenders, the Agent
generally will be required to administer and manage the Senior Loan and, with
respect to collateralized Senior Loans, to service or monitor the collateral.
In this connection, the valuation of assets pledged as collateral will reflect
market value and the Agent may rely on independent appraisals as to the value of
specific collateral. The Agent, however, may not obtain an independent
appraisal as to the value of assets pledged as collateral in all cases. The
Prime Income Fund normally will rely primarily on the Agent (where the Prime
Income Fund is an Original Lender or owns an Assignment) or the selling Lender
(where the Prime Income Fund owns a Participation) to collect principal of and
interest on a Senior Loan. Furthermore, the Prime Income Fund usually will rely
on the Agent (where the Prime Income Fund is an Original Lender or owns an
Assignment) or the selling Lender (where the Prime Income Fund owns a
Participation) to monitor compliance by the Borrower with the restrictive
covenants in the Loan Agreement and notify the Prime Income Fund of any adverse
change in the Borrower's financial condition or any declaration of insolvency.
Collateralized Senior Loans will frequently be secured by all assets of the
Borrower that qualify as collateral, which may include common stock of the
Borrower or its subsidiaries. Additionally, the terms of the Loan Agreement may
require the Borrower to pledge additional collateral to secure the Senior Loan,
and enable the Agent, upon proper authorization of the Lenders, to take
possession of and liquidate the collateral and to distribute the liquidation
proceeds pro rata among the Lenders. If the terms of a Senior Loan do not
require the Borrower to pledge additional collateral in the event of a decline
in the value of the original collateral, the Prime Income Fund will be exposed
to the risk that the value of the collateral will not at all times equal or
exceed the amount of the Borrower's obligations under the Senior Loan. Lenders
that have sold Participation interests in such Senior Loan will distribute
liquidation proceeds received by the Lenders pro rata among the holders of such
Participations. WM Advisors will also monitor these aspects of the Prime Income
Fund's investments and, where the Prime Income Fund is an Original Lender or
owns an Assignment, will be directly involved with the Agent and the other
Lenders regarding the exercise of credit remedies. Senior Loans, like other
corporate debt obligations, are subject to the risk of non-payment of scheduled
interest or principal. Such non-payment would result in a reduction of income
to the Prime Income Fund, a reduction in the value of the Senior Loan
experiencing non-payment and a potential decrease in the net asset value of the
Prime Income Fund. Although, with respect to collateralized Senior Loans,
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the Prime Income Fund generally will invest only in Senior Loans that WM
Advisors believes are secured by specific collateral which may include
guarantees, the value of which exceeds the principal amount of the Senior Loan
at the time of initial investment, there can be no assurance that the
liquidation of any such collateral would satisfy the Borrower's obligation in
the event of non-payment of scheduled interest or principal payments, or that
such collateral could be readily liquidated. In the event of bankruptcy of a
Borrower, the Prime Income Fund could experience delays or limitations with
respect to its ability to realize the benefits of the collateral securing a
Senior Loan. To the extent that a Senior Loan is collateralized by stock in the
Borrower or its subsidiaries, such stock may lose all or substantially all of
its value in the event of bankruptcy of the Borrower. The Agent generally is
responsible for determining that the Lenders have obtained a perfected security
interest in the collateral securing the Senior Loan. In the event that the Prime
Income Fund does not believe that a perfected security interest has been
obtained with respect to a collateralized Senior Loan, the Prime Income Fund
will only obtain an interest in such Senior Loan if the Agent is a Designated
Custodian. Some Senior Loans in which the Prime Income Fund may invest are
subject to the risk that a court, pursuant to fraudulent conveyance or other
similar laws, could subordinate such Senior Loans to presently existing or
future indebtedness of the Borrower or take other action detrimental to the
holders of Senior Loans, such as the Prime Income Fund, including, under certain
circumstances, invalidating such Senior Loans. Lenders commonly have certain
obligations pursuant to the Loan Agreement, which may include the obligation to
make additional loans or release collateral in certain circumstances.
Senior Loans in which the Prime Income Fund will invest generally will not
be rated by a nationally recognized statistical rating organization, will not be
registered with the SEC or any state securities commission and will not be
listed on any national securities exchange. Although the Prime Income Fund will
generally have access to financial and other information made available to the
Lenders in connection with Senior Loans, the amount of public information
available with respect to Senior Loans will generally be less extensive than
that available for rated, registered and/or exchange listing securities. As a
result, the performance of the Prime Income Fund and its ability to meet its
investment objective is more dependent on the analytical ability of WM Advisors
than would be the case for an investment company that invests primarily in
rated, registered and/or exchange listed securities.
Senior Loans are, at present, not readily marketable and may be subject to
restrictions on resale. Interests in Senior Loans generally are not listed on
any national securities exchange or automated quotation system and no regular
market has developed for such interests. Any secondary market purchases and
sales of Senior Loans generally are conducted in private transactions between
buyers and sellers. Senior Loans are thus relatively illiquid, which
illiquidity may impair the Prime Income Fund's ability to realize the full value
of its assets in the event of a voluntary or involuntary liquidation of such
assets. Liquidity relates to the ability of the Prime Income Fund to sell an
investment in a timely manner. The market for relatively illiquid securities
tends to be more volatile than the market for more liquid securities. The Prime
Income Fund has no limitation on the amount of its assets which may be invested
in securities which are not readily marketable or are subject to restrictions on
resale. The substantial portion of the Prime Income Fund's assets invested in
relatively illiquid Senior Loan interests may restrict the ability of the Prime
Income Fund to dispose of its investments in Senior Loans in a timely fashion
and at a fair price, and could result in capital losses to the Prime Income Fund
and holders of Common Shares. However, many of the Senior Loans in which the
Prime Income Fund expects to purchase interests are of a relatively large
principal amount and are held by a relatively large number of owners which
should, in WM Advisors's opinion, enhance the relative liquidity of such
interests. The risks associated with illiquidity are particularly acute in
situations where the Prime Income Fund's operations require cash, such as when
the Prime Income Fund tenders for its Common Shares, and may result in the Prime
Income Fund borrowing to meet short-term cash requirements.
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To the extent that legislation or state or federal regulators that regulate
certain financial institutions impose additional requirements or restrictions
with respect to the ability of such institutions to make loans in connection
with highly leveraged transactions, the availability of Senior Loan interests
for investment by the Prime Income Fund may be adversely affected. In addition,
such requirements or restrictions may reduce or eliminate sources of financing
for certain Borrowers. Further, to the extent that legislation or federal or
state regulators that regulate certain financial institutions require such
institutions to dispose of Senior Loan interests relating to highly leveraged
transactions or subject such Senior Loan interests to increase regulatory
scrutiny, such financial institutions may determine to sell such Senior Loan
interests in a manner that results in a price which, in the opinion of WM
Advisors, is not indicative of fair value. Were the Prime Income Fund to
attempt to sell a Senior Loan interest at a time when a financial institution
was engaging in such a sale with respect to such Senior Loan interest, the price
at which the Prime Income Fund could consummate such a sale might be adversely
affected.
The Prime Income Fund may use various investment practices that involve
special considerations including engaging in interest rate and other hedging
transactions, lending its portfolio securities, entering into when-issued and
delayed delivery transactions and entering into repurchase and reverse
repurchase agreements. For further discussion of these practices and associated
special considerations, see "Investment Practices and Special Risks" in the
Prospectus.
SPECIAL CONSIDERATIONS RELATING TO INCOME, HIGH YIELD, BOND & STOCK, GROWTH &
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INCOME, GROWTH AND EMERGING GROWTH FUNDS
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LOWER-RATED SECURITIES. The Income, Growth & Income, Growth and Emerging
Growth Funds may each invest up to 35% of their total assets, respectively, in
non-investment grade securities (rated Ba and lower by Moody's and BB and lower
by Standard & Poor's) or unrated securities. The High Yield Fund may invest
entirely in junk bonds and will generally invest at least 65% of its assets in
junk bonds. Such securities carry a high degree of risk (including the
possibility of default or bankruptcy of the issuer of such securities),
generally involve greater volatility of price and risk of principal and income,
and may be less liquid, than securities in the higher rating categories and are
considered speculative. See the Appendix to this Statement of Additional
Information for a more complete description of the ratings assigned by ratings
organizations and their respective characteristics.
Historically, economic downturns have disrupted the high yield market and
impaired the ability of issuers to repay principal and interest. Also, an
increase in interest rates could adversely affect the value of such obligations
held by any of the Underlying Funds set forth above. Prices and yields of high
yield securities will fluctuate over time and may affect an Fund's net asset
value. In addition, investments in high yield zero coupon or pay-in-kind bonds,
rather than income-bearing high yield securities, may be more speculative and
may be subject to greater fluctuations in value due to changes in interest
rates.
The trading market for high yield securities may be thin to the extent that
there is no established retail secondary market or because of a decline in the
value of such securities. A thin trading market may limit the ability of the
Trustees to accurately value high yield securities in the Fund's portfolio and
to dispose of those securities. Adverse publicity and investor perceptions may
decrease the value and liquidity of high yield securities. These securities may
also involve special registration responsibilities, liabilities and costs.
Credit quality in the high yield securities market can change suddenly and
unexpectedly, and even recently-issued credit ratings may not fully reflect the
actual risks posed by a particular high yield
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security. For these reasons, it is the policy of WM Advisors and the sub-advisor
of each of the Underlying Funds not to rely exclusively on ratings issued by
established credit rating agencies, but to supplement such ratings with its own
independent and ongoing review of credit quality. The achievement of an
Underlying Fund's investment objectives by investment in such securities may be
more dependent on WM Advisors or its sub-advisor's credit analysis than is the
case for higher quality bonds. Should the rating of a portfolio security be
downgraded WM Advisors or the Underlying Fund's sub-advisor will determine
whether it is in the best interest of the Underlying Fund to retain or dispose
of the security.
Prices for below investment-grade securities may be affected by legislative
and regulatory developments. For example, new federal rules require savings and
loan institutions to gradually reduce their holdings of this type of security.
Also, Congress from time to time has considered legislation which would restrict
or eliminate the corporate tax deduction for interest payments on these
securities and would regulate corporate restructurings. Such legislation may
significantly depress the prices of outstanding securities of this type.
INVESTMENT RESTRICTIONS
-----------------------
The following section discusses the investment policies and restrictions
of the Funds and Portfolios. A fundamental policy affecting a particular Fund
or Portfolio may not be changed without the vote of a majority of the
outstanding shares of the affected Fund or Portfolio. Majority is defined in the
1940 Act as the lesser of (a) 67% or more of the shares present at a Trust
meeting, if the holders of more than 50% of the outstanding shares of the Trust
are present or represented by proxy, or (b) more than 50% of the outstanding
shares.
INVESTMENT RESTRICTIONS OF THE FUNDS, OTHER THAN THE NORTHWEST AND BOND & STOCK
FUNDS
The investment restrictions numbered 1 through 15 below have been adopted
by the Trust with respect to the Funds (other than the Bond & Stock and
Northwest Funds) as fundamental policies.
The investment policies adopted by the Trust prohibit a Fund (other than the
Bond & Stock and Northwest Funds) from:
1. Purchasing the securities of any issuer (other than U.S. Government
securities) if as a result more than 5% of the value of the Fund's
total assets would be invested in the securities of the issuer (the
"5% Limitation"), except that up to 25% of the value of the Fund's
total assets may be invested without regard to the 5% limitation;
provided that the entire investment portfolio of the Money Market Fund
is subject to the 5% limitation. However, the Money Market Fund will
be able to invest more than 5% of its total assets in the securities
of a single issuer for a period of up to three Business Days after the
purchase thereof; provided that the Money Market Fund may not hold
more than one such investment at any time.
2. Purchasing more than 10% of the securities of any class of any one
issuer; provided that this limitation shall not apply to investments
in U.S. Government securities; provided further that this restriction
shall not apply to the Growth Fund; and provided further that the
Growth Fund shall not own more than 10% of the outstanding voting
securities of a single issuer.
3. Purchasing securities on margin, except that the Fund may obtain any
short- term credits necessary for the clearance of purchases and sales
of securities. For purposes of
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<PAGE>
this restriction, the deposit or payment of initial or variation
margin in connection with futures contracts or related options will
not be deemed to be a purchase of securities on margin.
4. Making short sales of securities or maintaining a short position;
provided that this restriction shall not apply to the Growth and
International Growth Funds.
5. Borrowing money, except that (a) the Fund may (i) enter into reverse
repurchase agreements or (ii) borrow from banks for temporary (not
leveraging) purposes, including the meeting of redemption requests
that might otherwise require the untimely disposition of securities or
pending settlement of securities transactions or for emergency or
extraordinary purposes in an aggregate amount not exceeding 30% of the
value of the Fund's total assets (including the amount borrowed)
valued at market less liabilities (not including the amount borrowed)
at the time the borrowing is made, (b) all of the Funds except the
Money Market Fund may enter into (i) futures contracts, and (ii)
dollar roll transactions. Whenever borrowings pursuant to (a) above
(except that with respect to the Short Term High Quality Bond, U.S.
Government Securities, Income, Growth & Income and Emerging Growth
Funds, pursuant to (a)(ii) above) exceed 5% of the value of a Fund's
total assets, (w) continuous asset coverage of at least 300% is
required; (x) in the event such asset coverage falls below 300% due to
market fluctuations or otherwise, the Fund must within 3 days reduce
the amount of its borrowings so that asset coverage will again be at
least 300%, even if disadvantageous from an investment standpoint; (y)
borrowing pursuant to (a) over 5% must be repaid before making
additional investments; and (z) any interest paid on such borrowings
will reduce income. The Short Term High Quality Bond, U.S. Government
Securities, Income, Growth & Income and Emerging Growth Funds may not
borrow money or enter into reverse repurchase agreements or dollar
roll transactions in the aggregate in excess of 33 1/3% of the Fund's
total assets (after giving effect to any such transaction).
6. Pledging, hypothecating, mortgaging or otherwise encumbering more than
30% of the value of the Fund's total assets. For purposes of this
restriction, (a) the deposit of assets in escrow in connection with
the writing of covered put or call options and the purchase of
securities on a when-issued or delayed-delivery basis and (b)
collateral arrangements with respect to (i) the purchase and sale of
options on securities, options on indexes and options on foreign
currencies, and (ii) initial or variation margin for futures contracts
will not be deemed to be pledges of a Fund's assets.
7. Underwriting the securities of other issuers, except insofar as the
Fund may be deemed an underwriter under the Securities Act of 1933, as
amended, by virtue of disposing of portfolio securities.
8. Purchasing or selling real estate or interests in real estate, except
that the Fund may purchase and sell securities that are secured,
directly or indirectly, by real estate and may purchase securities
issued by companies that invest or deal in real estate.
9. Investing in commodities, except that all of the Funds except the
Money Market Fund may invest in futures contracts and options on
futures contracts. The entry into forward foreign currency exchange
contracts is not and shall not be deemed to involve investing in
commodities.
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<PAGE>
10. Investing in oil, gas or other mineral exploration or development
programs.
11. Making loans to others, except through the purchase of qualified debt
obligations, loans of portfolio securities (except in the case of the
U.S. Government Securities Fund) and the entry into repurchase
agreements.
12. Purchasing any securities that would cause more than 25% of the value
of the Fund's total assets at the time of purchase to be invested in
the securities of issuers conducting their principal business
activities in the same industry, except in the case of the Money
Market Fund, which under normal market conditions shall have at least
25% of its total assets invested in bank obligations; provided that
this limitation shall not apply to the purchase of U.S. Government
Securities.
13. Purchasing, writing or selling puts, calls, straddles, spreads or
combinations thereof; provided that this restriction shall not apply
to any of the Funds except the Money Market Fund; and provided further
that (a) all of the Funds except the Money Market Fund may purchase,
write and sell covered put and call options on securities, (b) all of
the Funds except the Money Market Fund may purchase, write and sell
futures contracts and options on futures contracts, (c) all of the
Funds except the Money Market Fund may purchase and write put and call
options on stock indexes, and (d) the International Growth Fund may
purchase put and call options and write covered call options on
foreign currency contracts.
14. With respect to the Growth and Emerging Growth Funds, investing more
than 35% of the Fund's assets in non-investment grade debt securities.
15. With respect to the Short Term High Quality Bond Fund, having a
dollar-weighted average portfolio maturity in excess of five years.
In addition, each of the Funds (other than the Bond & Stock and Northwest
Funds) has adopted non-fundamental investment limitations as stated below and in
its prospectus. Such limitations may be changed without shareholder approval.
Each of the Funds (other than the Bond & Stock and Northwest Funds) may not:
1. With respect to the Growth and Emerging Growth Funds, invest more than
25% of the Fund's assets in foreign securities.
2. Purchase securities that are not readily marketable if more than 10%
of the total assets of the Money Market Fund, or more than 15% of the
total assets of the Short Term High Quality Bond, U.S. Government
Securities, Income, Growth & Income, Growth, Emerging Growth and
International Growth Funds, would be invested in such securities,
including, but not limited to: (1) repurchase agreements with
maturities greater than seven calendar days; (2) time deposits
maturing in more than seven calendar days; (3) to the extent a liquid
secondary market does not exist for the instruments, futures contracts
and options thereon; (4) certain over-the-counter options; (5) certain
variable rate demand notes having a demand period of more than seven
days; and (6) certain Rule 144A restricted securities that are deemed
to be illiquid.
3. Make investments for the purpose of exercising control or management.
4. Purchase or selling interests in real estate limited partnerships.
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<PAGE>
The percentage limitations contained in the restrictions listed above,
except with respect to "illiquid securities," apply at the time of purchases of
securities.
INVESTMENT RESTRICTIONS OF THE BOND & STOCK AND NORTHWEST FUNDS
The Bond & Stock and Northwest Funds have adopted the fundamental investment
restrictions below. Each of the Bond & Stock and Northwest Funds may not:
1. Invest more than 5%* of its total assets in securities of any single
issuer other than U.S. Government Securities, except that up to 25% of
a Fund's assets may be invested without regard to this 5% limitation.
2. Acquire more than 10%* of the voting securities of any one company.
3. Invest in real estate (except publicly traded real estate investment
trusts) or commodities.
4. Invest in oil, gas or other mineral leases.
5. Invest more than 25%* of its total assets in any single industry.
6. Act as underwriter of securities issued by others.
7. Buy securities on margin, mortgage or pledge its securities.
8. Borrow money for investment purposes (it may borrow up to 5% of its
total net assets for emergency, non-investment purposes).
9. Lend money (except for the execution of repurchase agreements).
10. Issue senior securities.
* Percentage at the time the investment is made.
INVESTMENT RESTRICTIONS OF THE PORTFOLIOS
The following investment restrictions have been adopted by the Trust with
respect to the Portfolios as fundamental policies. Each Portfolio will not:
1. Purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (except this shall not
prevent the Portfolio from purchasing or selling options or futures
contracts or from investing in securities or other instruments backed
by physical commodities);
2. Purchase or sell real estate including limited partnership interests,
although it may purchase and sell securities of companies that deal in
real estate and may purchase and sell securities that are secured by
interests in real estate;
3. Make loans to any person, except loans of portfolio securities to the
extent that no more than 33 1/3% of its total assets would be lent to
other parties, but this limitation does not apply to purchases of debt
securities or repurchase agreements;
4. (i) Purchase more than 10% of any class of the outstanding voting
securities of any issuer (except other investment companies as defined
in the 1940 Act) and (ii) purchase securities of an issuer (except
obligations of the U.S. Government and its agencies and
instrumentalities and securities of other investment companies as
defined in the 1940 Act) if as a result, with respect to 75% of its
total assets, more than 5% of the
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<PAGE>
Portfolio's total assets, at market value, would be invested in the
securities of such issuer;
5. Issue senior securities (as defined in the 1940 Act) except as
permitted by rule, regulation or order of the SEC;
6. Will not borrow, except from banks for temporary or emergency (not
leveraging) purposes including the meeting of redemption requests that
might otherwise require the untimely disposition of securities in an
aggregate amount not exceeding 30% of the value of the Portfolio's
total assets (including the amount borrowed) valued at market less
liabilities (not including the amount borrowed) at the time the
borrowing is made; and whenever borrowings by a Portfolio, including
reverse repurchase agreements, exceed 5% of the value of a Portfolio's
total assets, the Portfolio will not purchase any securities;
7. Underwrite securities issued by others, except to the extent that the
Portfolio may be considered an underwriter within the meaning of the
1933 Act in the disposition of restricted securities; and
8. Write or acquire options or interests in oil, gas or other mineral
exploration or development programs.
In addition, each Portfolio has adopted non-fundamental investment
limitations as stated below and in its prospectus. Such limitations may be
changed without shareholder approval. Each Portfolio will not:
1. Pledge, mortgage, or hypothecate any of its assets except to secure
borrowings permitted by the Portfolio's fundamental limitation on
borrowing;
2. Invest for the purpose of exercising control over management of any
company;
3. Invest its assets in securities of any investment company, except (i)
by purchase in the open market involving only customary brokers'
commissions; (ii) in connection with mergers, acquisitions of assets
or consolidations; (iii) as permitted by SEC exemptive order; or (iv)
as otherwise permitted by the 1940 Act;
4. Purchase warrants if, by reason of such purchase, more than 5% of the
value of the Portfolio's net assets (taken at market value) would be
invested in warrants, valued at the lower of cost or market; included
within this amount, but not to exceed 2% of the value of the Fund's
net assets, may be warrants that are not listed on a recognized stock
exchange;
5. Purchase or hold illiquid securities, which are securities that cannot
be disposed of for their approximate market value in seven days or
less (which terms include repurchase agreements and time deposits
maturing in more than seven days) if, in the aggregate, more than 15%
of its net assets would be invested in illiquid securities; and
6. Purchase securities on margin, except that a Portfolio may obtain any
short-term credits necessary for the clearance of purchases and sales
of securities. For purposes of this restriction, the deposit or
payment of initial or variation margin in connection with
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<PAGE>
futures contracts or related options will not be deemed to be a
purchase of securities on margin.
PORTFOLIO TURNOVER
Portfolio turnover considerations for the Portfolios are addressed in the
Trust's prospectus.
The Money Market Fund, attempts to increase yields by trading to take
advantage of short-term market variations, which results in high portfolio
turnover. Because purchases and sales of money market instruments are usually
effected as principal transactions, this policy does not result in high
brokerage commissions to the Fund. The Growth & Income, Bond & Stock, Northwest,
Growth, Emerging Growth and International Growth Funds (together, the "Equity
Funds") and the Short Term High Quality Bond, the U.S. Government Securities and
Income Funds (collectively, the "Bond Funds") do not intend to seek profits
through short- term trading. Nevertheless, the Funds will not consider
portfolio turnover rate a limiting factor in making investment decisions.
Under certain market conditions, the Equity Funds and the Bond Funds may
experience increased portfolio turnover as a result of such Fund's options
activities. For instance, the exercise of a substantial number of options
written by the Fund (due to appreciation of the underlying security in the case
of call options or depreciation of the underlying security in the case of put
options) could result in a turnover rate in excess of 100%. A portfolio
turnover rate of 100% would occur if all of the Fund's securities that are
included in the computation of turnover were replaced once during a period of
one year. The portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the year by the monthly average
value of portfolio securities. Securities with remaining maturities of one year
or less at the date of acquisition are excluded from the calculation.
Certain other practices that may be employed by the Funds could result in
high portfolio turnover. For example, portfolio securities may be sold in
anticipation of a rise in interest rates (market decline) or purchased in
anticipation of a decline in interest rates (market rise) and later sold. In
addition, a security may be sold and another of comparable quality purchased at
approximately the same time to take advantage of what WM Advisors or a Fund's
sub-advisor believes to be a temporary disparity in the normal yield
relationship between the two securities. These yield disparities may occur for
reasons not directly related to the investment quality of particular issues or
the general movement of interest rates, such as changes in the overall demand
for, or supply of, various types of securities.
PORTFOLIO TRANSACTIONS
Purchases and sales of Underlying Fund shares by a Portfolio are effected
directly through the Trust's distributor. In addition, all decisions to buy and
sell securities, including Underlying Fund shares, are made by WM Advisors,
subject to the overall review of the Trustees.
Most of the purchases and sales of securities for a Fund, whether
transacted on a securities exchange or over-the-counter, will be effected in the
primary trading market for the securities. Decisions to buy and sell securities
for a Fund are made by WM Advisors or the Fund's sub-advisor, which also is
responsible for placing these transactions, subject to the overall review of the
Trust's Trustees. Although investment decisions for each Fund are made
independently from those of the other accounts managed by WM Advisors or its
sub-advisor, those other accounts may make investments of the same type as the
Fund. When a Fund and one or more other accounts managed by WM Advisors or its
sub-advisor are prepared to invest in, or desire to dispose of, the same
security, available investments or opportunities for sales will be allocated in
a manner believed by WM Advisors or the
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<PAGE>
sub-advisor to be equitable to each. In some cases, this procedure may adversely
affect the price paid or received by a Fund or the size of the position obtained
or disposed of by the Fund. In other cases, however, it is believed that the
coordination and the ability to participate in volume transactions will be to
the benefit of the Fund.
Transactions on U.S. exchanges involve the payment of negotiated brokerage
commissions. With respect to exchanges on which commissions are negotiated, the
cost of transactions may vary among different brokers. There is generally no
stated commission in the case of securities traded in the over-the-counter
markets, but the prices of those securities include undisclosed commissions or
concessions, and the prices at which securities are purchased from and sold to
dealers include a dealer's mark-up or mark-down U.S. Government Securities may
be purchased directly from the U.S. Treasury or from the issuing agency or
instrumentality.
In selecting brokers or dealers to execute portfolio transactions on behalf
of a Fund, WM Advisors or the Fund's sub-advisor seeks the best overall terms
available. In assessing the best overall terms available for any transaction, WM
Advisors or the sub-advisor will consider the factors WM Advisors or the sub-
advisor deems relevant, including the breadth of the market in the security, the
price of the security, the financial condition and execution capability of the
broker or dealer and the reasonableness of the commission, if any, for the
specific transaction and on a continuing basis. In addition, each Advisory
agreement between the Trust and WM Advisors and each sub-advisory agreement
between WM Advisors and a sub-advisor authorizes WM Advisors or sub-advisor, in
selecting brokers or dealers to execute a particular transaction and in
evaluating the best overall terms available, to consider the brokerage and
research services (as those terms are defined in Section 28(e) of the Securities
Exchange Act of 1934, as amended) provided to the Trust, the other Funds and/or
other accounts over which WM Advisors or the sub-advisors or its affiliates
exercise investment discretion. As a result, WM Advisors or a sub-advisor may
cause an Fund to pay a broker-dealer, which provides brokerage and research
services to WM Advisors or the sub-advisor, an amount of disclosed commission
for effecting a securities transaction in excess of the commission that another
broker-dealer would have charged for effecting that transaction. The fees under
the Advisory agreements between the Trust and WM Advisors are not reduced by
reason of the receipt by WM Advisors or sub-advisors of brokerage and research
services. The Trust's Trustees will periodically review the commissions paid by
the Funds to determine if the commissions paid over representative periods of
time were reasonable in relation to the benefits received by the Trust.
Over-the-counter purchases and sales are transacted directly with principal
market makers except in those cases in which better prices and executions may be
obtained elsewhere.
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<PAGE>
For the fiscal years ended December 31, 1995, 1996 and 1997, the Funds paid
the following brokerage commissions:
<TABLE>
<CAPTION>
1997
---------------------------------------------------
Amount Paid for Aggregate
Brokerage Brokerage and Transaction
Fund Commissions Research Amount
- ---- ----------- -------------- ----------
<S> <C> <C> <C>
Money Market Fund $ 0 $0 $ 0
Short Term High Quality Bond Fund $ 3,690 $0 $ 46,498,326
U.S. Government Securities Fund $ 0 $0 $ 0
Income Fund $ 0 $0 $ 0
Growth & Income Fund $159,577 $0 $160,277,446
Growth Fund $277,280 $0 $271,503,994
Emerging Growth Fund $104,980 $0 $ 78,329,505
International Growth Fund $307,998 $0 $ 90,930,692
Total for Trust $853,465 $0 $647,539,963
Amount Paid to Affiliated
Broker-Dealers $ 0 $0 $ 0
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
1996
---------------------------------------------------
Amount Paid for Aggregate
Brokerage Brokerage and Transaction
Fund Commissions Research Amount
- ---- ----------- -------------- ----------
<S> <C> <C> <C>
Money Market Fund $ 0 $0 $ 0
Short Term High Quality Bond Fund $ 3,514 $0 $ 20,845,613
Short Term Global Government Fund $ 1,000 $0 $ 49,500
U.S. Government Securities Fund $ 9,844 $0 $206,916,397
Income Fund $ 0 $0 $ 0
Growth & Income Fund $106,187 $0 $ 78,909,538
Growth Fund $215,458 $0 $226,603,698
Emerging Growth Fund $ 79,295 $0 $ 48,481,530
International Growth Fund $345,365 $0 $ 99,133,129
Total for Trust $760,663 $0 $680,939,405
Amount Paid to Affiliated
Broker-Dealers $ 6,031 $0 $ 3,405,755
</TABLE>
<TABLE>
<CAPTION>
1995
---------------------------------------------------
Amount Paid for Aggregate
Brokerage Brokerage and Transaction
Fund Commissions Research Amount
- ---- ----------- -------------- ----------
<S> <C> <C> <C>
Global Money Fund $ 0 $0 $ 0
Short Term High Quality Bond Fund $ 2,332 $0 $ 164,272
Short Term Global Government Fund $ 0 $0 $ 0
U.S. Government Securities Fund $ 2,430 $0 $ 75,222,018
Income Fund $ 0 $0 $
Growth & Income Fund $108,464 $0 $ 61,223,495
Growth Fund $283,404 $0 $1,281,740,556
Emerging Growth Fund $114,232 $0 $ 372,208,173
International Growth Fund $164,195 $0 $ 535,107,481
Total for Trust $675,057
Amount Paid to Affiliated
Broker-Dealers $ 0
</TABLE>
The Trust is required to identify any securities of its "regular brokers or
dealers" (as such term is defined in the 1940 Act) which the Trust has acquired
during its most recent fiscal year. As of December 31, 1996, the Growth of
Income Fund held common stock of Dean Witter, Discover & Company valued at
$669,125.
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<PAGE>
PURCHASE AND PRICING OF SHARES
Shares in the Funds are purchased and redeemed and net asset value is
calculated in the manner described in the Prospectus.
REDEMPTIONS
The right of redemption of shares of a Fund may be suspended or the date of
payment postponed (1) for any periods during which the NYSE is closed (other
than for customary weekend and holiday closings), (2) when trading in the
markets a Fund normally utilizes is restricted, or an emergency, as defined by
the rules and regulations of the SEC, exists making disposal of the Fund's
investments or determination of its net asset value not reasonably practicable
or (3) for such other periods as the SEC by order may permit for protection of
the Fund's shareholders.
DISTRIBUTIONS IN KIND. If the Board of Trustees determines that it would
be detrimental to the best interests of the shareholders of a Fund to make a
redemption payment wholly in cash, the Trust may pay any portion of a redemption
by distribution in kind of portfolio securities in lieu of cash. Securities
issued in a distribution in kind will be readily marketable, although
shareholders receiving distributions in kind may incur brokerage commissions
when subsequently redeeming shares of those securities.
NET ASSET VALUE
The Trust will not calculate the net asset value of the Funds and
Portfolios on certain holidays. On those days, securities held by a Fund may
nevertheless be actively traded, and the value of the Fund's shares could be
significantly affected.
The assets of each Fund and Portfolio are valued according to generally accepted
accounting principles and applicable law. Generally, a Fund's or Portfolio's
investments are valued at market value or, in the absence of a market value with
respect to any portfolio securities, at fair value as determined by or under the
direction of the Trust's Board of Trustees:
o A security that is primarily traded on a U.S. or foreign exchange
(including securities traded through the National Association of
Securities Dealers, Inc. Automated Quotation System ("NASDAQ")) is
valued at the last sale price on that exchange or, if there were no
sales during the day, at the current quoted bid price.
o Securities that are primarily traded on foreign exchanges are
generally valued at the preceding closing values of such securities on
their respective exchanges, except that when an occurrence subsequent
to the time a value was so established is determined by the Trust's
Board of Trustees or its delegates.
o Over-the-counter securities that are not reported on the NASDAQ System
and securities listed or traded on certain foreign exchanges whose
operations are similar to the U.S. over-the-counter market are valued
on the basis of the bid price at the close of business on each day.
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<PAGE>
o An option is generally valued at the last sale price or, in the
absence of a last sale price, the last offer price.
o Investments in U.S. Government securities (other than short-term
securities) are valued at the average of the quoted bid and asked
prices in the over-the-counter market.
o Short-term investments that mature in 60 days or less are valued at
amortized cost when the Board of Trustees determines that this
constitutes fair value; assets of the Money Market Fund are also
valued at amortized cost.
o 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. A settlement price may
not be used if the market makes a limited move with respect to the
security or index underlying the futures contract. In such event, the
futures contract will be valued at a fair market price to be
determined by or under the direction of the Trust's Board of Trustees.
o Shares of open-end investment companies are valued at the net asset
value per share last or contemporaneously calculated.
In carrying out the Board's valuation policies, First Data Investor
Services Group, Inc. ("FDISG"), a wholly-owned subsidiary of First Data
Corporation, as sub-administrator, may consult with one or more independent
pricing services ("Pricing Services") retained by the Trust. Debt securities of
U.S. issuers (other than U.S. Government securities and short-term investments)
are valued by FDISG, as sub-administrator, after consultation with a Pricing
Service. The procedures of the Pricing Services are reviewed periodically by
the officers of the Trust under the general supervision and responsibility of
the Board of Trustees.
VALUATION OF THE MONEY MARKET FUND. The valuation of the portfolio
securities of the Money Market Fund is based upon amortized costs, which does
not take into account unrealized capital gains or losses. Amortized cost
valuation involves initially valuing an instrument at its cost and thereafter
assuming a constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the market value of
the instrument. While this method provides certainty in valuation, it may result
in periods during which value, as determined by amortized cost, is higher or
lower than the price the Fund would receive if it sold the instrument.
The use by the Money Market Fund of the amortized cost method of valuing
its respective portfolio securities is permitted by a rule adopted by the SEC.
Under this rule, the Money Market Fund must maintain a dollar-weighted average
portfolio maturity of 90 days or less, purchase only
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<PAGE>
instruments having remaining maturities of thirteen months or less and invest
only in securities determined by the Board of Trustees of the Trust to present
minimal credit risks and meet certain rating criteria described in the
Prospectus above. Pursuant to the rule, the Board of Trustees also has
established procedures designed to stabilize, to the extent reasonably possible,
the Fund's price per share as computed for the purpose of sales and redemptions
at $1.00. Such procedures include review of the Fund's portfolio holdings by the
Board of Trustees, at such intervals as it may deem appropriate, to determine
whether the Fund's net asset values calculated by using available market
quotations or market equivalents deviates from $1.00 per share based on
amortized cost.
The rule also provides that the extent of any deviation between the Fund's
net asset values based upon available market quotations or market equivalents
and the $1.00 per share net asset values based on amortized cost must be
examined by the Board of Trustees. In the event the Board of Trustees
determines that a deviation exists which may result in material dilution or
other unfair results to investors or existing shareholders, pursuant to the rule
the Board of Trustees must cause the Trust to take such corrective action as the
Board deems necessary and appropriate including: selling portfolio instruments
prior to maturity to realize capital gains or losses or shorten average
portfolio maturity; withholding dividends or paying distributions from capital
or capital gains; redeeming shares in kind; or establishing a net asset value
per share by using available market quotations.
PERFORMANCE
From time to time, the Trust may quote the performance of a Portfolio or
Fund in terms of yield, effective yield, actual distributions, total return or
capital appreciation in reports or other communications to shareholders or in
advertising material. Fund or Portfolio performance will be advertised only if
accompanied by the comparable performance for the corresponding separate
account.
ANNUITY CONTRACT OWNER VALUES WILL DEPEND NOT ONLY ON THE PERFORMANCE OF
THE FUNDS, BUT ALSO ON THE MORTALITY AND EXPENSE RISK CHARGES, THE
ADMINISTRATIVE CHARGES, AND ANY APPLICABLE SALES CHARGES UNDER THE ANNUITY
CONTRACTS. THE TOTAL RETURNS OF THE FUNDS REFLECT THE AGREEMENT OF THE FUNDS'
INVESTMENT ADVISOR TO VOLUNTARILY WAIVE FEES AND BEAR CERTAIN EXPENSES. TOTAL
RETURNS WOULD HAVE BEEN LOWER IF THESE FEES AND EXPENSES HAD NOT BEEN WAIVED.
MONEY MARKET FUND YIELD INFORMATION
The "yield" of the Money Market Fund refers to the income generated by an
investment in the Fund over a 7-day period (which period will be stated in the
advertisement). This income is then "annualized." That is, the amount of
income generated by the investment during that week is assumed to be generated
each week over a 52-week period and is shown as a percentage of the investment.
The "effective yield" is calculated similarly but, when annualized, the income
earned by an investment in an Underlying Fund is assumed to be reinvested. The
"effective yield" will be slightly higher than the "yield" because of the
compounding effect of this assumed reinvestment.
The yield for the Money Market Fund is computed by: (1) determining the
net change, exclusive of capital changes, in the value of a hypothetical pre-
existing account in the Fund having a balance of one share at the beginning of a
seven calendar day period for which yield is to be quoted, (2) subtracting a
hypothetical charge reflecting deductions from shareholder accounts, (3)
dividing the net change by the value of the account at the beginning of the
period to obtain the base period return, and (4) annualizing the results (i.e.,
multiplying the base period return by 365/7). The net change in the value of
the account reflects the value of additional share purchased with dividends
declared on the
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<PAGE>
original share and any such additional shares and income received or accrued but
not declared as a dividend, but does not include realized gains and losses or
unrealized appreciation or depreciation. In addition, the Money Market Fund may
calculate a compounded effective annualized yield by adding 1 to the base period
return (calculated as described above), raising the sum to a power equal to
365/7 and subtracting 1.
Based upon the foregoing calculation, for the 7-day period ended December
31, 1997, the yield for the Money Market Fund was 5.18%, and the effective yield
for the Money Market Fund for the same period was 4.94%.
The Money Market Fund yield may be compared with the yields of other
investments. It should not, however, be compared to the return on fixed rate
investments which guarantee rates of interest for specified periods, such as the
interest guarantees in an annuity contract or bank deposits.
TOTAL RETURN INFORMATION
From time to time, a Fund, other than the Money Market Fund, or Portfolio
may advertise its "average annual total return" or "aggregate total return" over
various periods of time. Such average annual total return figures show the
average percentage change in value of an investment in the Fund or Portfolio
from the beginning date of the measuring period to the end of the measuring
period. These figures reflect changes in the price of the Fund's or Portfolio's
shares and assume that any income dividends and/or capital gains distributions
made by the Fund or Portfolio during the period were reinvested in shares of
that Fund or Portfolio. Figures will be given for recent one-, five- and ten-
year periods (if applicable), and may be given for other periods as well (such
as from commencement of the Fund's or Portfolio's operations, or on a year-by-
year basis).
When considering "average" total return figures for periods longer than one
year, it is important to note that the relevant Fund's or Portfolio's annual
total return for any one year in the period might have been greater or less than
the average for the entire period. An Fund or Portfolio may also use "aggregate"
total return figures for various periods representing the cumulative change in
value of an investment in the Fund or Portfolio for a specific period (again
reflecting changes in the Fund's or Portfolio's share prices and assuming
reinvestment of dividends and distributions). Aggregate total returns may be
shown by means of schedules, charts or graphs and may indicate subtotals of the
various components of total return (i.e., change in value of initial investment,
income dividends and capital gains distributions).
Average annual total return is computed according to a formula prescribed
by the SEC. The formula can be expressed as follows: P(1 + T)n = ERV, where P
= a hypothetical initial payment of $1,000; T = average annual total return; n =
number of years; and ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the designated time period as of the end of
such period or the life of the fund. The formula for calculating aggregate
total return can be expressed as (ERV/P)-1.
Based on the foregoing, the average annual total returns for the fiscal
year ended December 31, 1997 and from inception through December 31, 1997 and
the aggregate total returns for the Funds from inception through December 31,
1997, were as follows*:
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<TABLE>
<CAPTION>
AVERAGE ANNUAL
TOTAL RETURN AVERAGE AGGREGATE
FOR FISCAL ANNUAL TOTAL TOTAL RETURN
YEAR ENDED RETURN SINCE SINCE
Fund* 12/31/97 INCEPTION INCEPTION
- ----- ------------ ------------ -------------
<S> <C> <C> <C>
Money Market Fund 4.99% 4.46% 22.46%
Emerging Growth Fund 12.59% 14.46% 70.88%
Bond & Stock Fund --- --- ---
International Growth Fund (2.64)% 5.88% 20.42%
Short Term High Quality Bond Fund 5.90% 4.89% 18.13%
U.S. Government Securities Fund 9.42% 5.83% 30.15%
Income Fund 11.35% 6.79% 35.73%
Growth & Income Fund 28.50% 19.640% 103.73%
Growth Fund 11.24% 16.57% 103.91%
Northwest Fund --- --- ---
Strategic Growth Portfolio N/A N/A 7.00%
Conservative Growth Portfolio N/A N/A 4.90%
Balanced Portfolio N/A N/A 4.70%
Value Portfolio N/A N/A 2.30%
Income Portfolio N/A N/A 0.00%
</TABLE>
- ---------------------
* As of December 31, 1997, the Bond & Stock and Northwest Funds had not yet
commenced operations.
(a) Commenced operations on May 10, 1993.
The total returns shown for the Funds are not an estimate or guarantee of
future performance and do not take into account charges at the annuity and
separate account level.
The performance of any or all of the Funds may be compared in
advertisements and sales literature to the performance of other variable annuity
issuers in general and to the performance of particular types of variable
annuities investing in mutual funds, or series of mutual funds, with investment
objectives similar to each of the Funds. Lipper Analytical Services, Inc.
("Lipper") and the Variable Annuity Research and Data Service ("VARDS/(R)/") are
independent services which monitor and rank the performance of variable annuity
issuers in each of the major categories of investment objectives on an industry-
wide basis. Lipper's rankings include variable life issuers as well as variable
annuity issuers. VARDS/(R)/ rankings compare only variable annuity issuers. The
performance analyses prepared by Lipper and VARDS/(R)/ rank such issuers on the
basis of total return, assuming reinvestment of dividends and distributions, but
do not take sales charges, redemption fees or certain expense deductions at the
separate account level into consideration. In addition, VARDS/(R)/ prepares risk
adjusted rankings, which consider the effects of market risk on total return
performance.
In addition, performance of each Fund may be compared in advertisements and
sales literature to the following benchmarks: (1) the Standard & Poor's 500
Index, which represents an unmanaged weighted index of 500 industrial,
transportation, utility and financial companies that represent approximately 80%
of the market capitalization of the U.S. equity markets, widely regarded by
investors as representative of the stock market; (2) the Consumer Price Index,
published by the U.S. Bureau of Labor Statistics, a statistical measure of
change, over time, in the prices of goods and services in major expenditure
groups and generally considered to be a measure of inflation; (3) the Lehman
Brothers Mutual Fund Short World Multi-Market Index, which includes all debt
instruments of the United States and 12 major countries (determined by Lehman)
denominated in dollars with
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<PAGE>
maturities of one to five years; (4) the Lehman Brothers Mutual Fund U.S.
Mortgage Index, which includes all agency mortgage-backed securities; (5) the
Lehman Brothers Mutual Fund Debt BBB-Rated Index, which represents all
investment-grade corporate debt securities; (6) the Morgan Stanley Capital
International EAFE (Europe, Australia, Far East) Index, which includes 1050
companies representing the stock markets of Europe, Australia, New Zealand and
the Far East; and (7) the U.S. Government 90-Day Treasury Bill rate. 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.
The performance information may also include evaluations of the funds published
by nationally recognized ranking services and by financial publications that are
nationally recognized, such as Business Week, Forbes, Institutional Investor,
Money and The Wall Street Journal.
TAXES
The following discussion of federal income tax consequences is based on the
Code and the regulations issued thereunder as in effect on the date of this SAI.
New legislation, as well as administrative changes or court decisions, may
significantly change the conclusions expressed herein and may have a retroactive
effect with respect to the transactions contemplated herein.
Each of the Funds and Portfolios intends to qualify as a "regulated
investment company" ("RIC") under Subchapter M of the Code. A Fund that is a RIC
and distributes to its shareholders at least 90% of its taxable net investment
income (including, for this purpose, its net realized short-term capital gains)
and 90% of its tax-exempt interest income (reduced by certain expenses), will
not be liable for federal income taxes to the extent its taxable net investment
income and its net realized long-term and short-term capital gains, if any, are
distributed to its shareholders.
A number of technical rules are prescribed for computing net investment
income and net capital gains. For example, the Fund is generally treated as
receiving dividends on the ex-dividend date. Also, certain foreign currency
losses and capital losses arising after October 31 of a given year may be
treated as if they arise on the first day of the next taxable year.
In order to qualify as a RIC under the Code, in addition to satisfying the
distribution requirement described above, each Fund must (a) derive at least 90%
of its gross income each taxable year from dividends, interest, payments with
respect to securities loans, gains from the sale or other disposition of stock,
securities, or foreign currencies, and certain other related income, including,
generally, certain gains from options, futures, and forward contracts; and (b)
diversify its holdings so that, at the end of each fiscal quarter of the Fund's
taxable year, (i) at least 50% of the market value of the Fund's assets is
represented by cash and cash items, U.S. Government Securities, securities of
other Registered Investment Companies ("RICs"), and other securities, with such
other securities limited, in respect of any one issuer, to an amount that does
not exceed 10% of the voting securities of such issuer or 5% of the value of the
Fund's total assets; and (ii) not more than 25% of the value of its assets is
invested in the securities (other than U.S. Government Securities and securities
of other RICs) of any one issuer or two or more issuers which the Fund controls
and which are engaged in the same, similar or related trades or businesses.
If a Fund fails to qualify as a RIC for any year, all of its income will be
subject to tax at corporate rates, and its distributions (including capital gain
distributions) will be taxable as ordinary income dividends to its shareholders
to the extent of the Fund's current and accumulated earnings and profits.
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<PAGE>
In addition to qualifying under subchapter M by meeting the requirements
described above, each Fund intends to qualify as diversified under Subchapter L
so that non-qualified variable annuity contracts funded by the Trust will not
fail to qualify as annuities for tax purposes. In general, for a Fund to meet
the investment diversification requirements of Subchapter L of the Code,
Treasury regulation 1.817-5 requires that no more than 55% of the total value of
the assets of the Fund be represented by any one investment, no more than 70% by
any two investments, no more than 80% by three investments and no more than 90%
by four investments. Generally, for purposes of the regulations, all securities
of the same issuer are treated as one investment. In the context of U.S.
Government securities (including any security that is issued, guaranteed or
insured by the United States or an instrumentality of the United States), each
U.S. Government agency or instrumentality is treated as a separate issuer. In
the context of shares of registered investment companies (including shares of
the Trust), each series, fund or portfolio is treated as a separate issuer.
Compliance with the Subchapter L regulations is tested on the last day of each
calendar year quarter.
Notwithstanding the distribution requirement described above, which only
requires a Fund to distribute at least 90% of its annual investment company
taxable income and does not require any minimum distribution of net capital
gain, a regulated investment company is generally subject to a nondeductible 4%
excise tax to the extent it fails to distribute by the end of any calendar year
at least 98% of its ordinary income for that year and 98% of its capital gain
net income for the one-year period ending on October 31 of that year, plus
certain other amounts.
The excise tax is inapplicable to any RIC all of the shareholders of which
are either tax-exempt pension trusts or separate accounts of life insurance
companies funding variable contracts. Although each Fund and Portfolio believes
that it is not subject to the excise tax, each Fund intends to make the
distributions required to avoid the imposition of the tax, provided such
payments and distributions are determined to be in the best interest of such
Fund's or Portfolio's shareholders.
Dividends declared by Fund in October, November, or December of any year
and payable to shareholders of record on a date in such month will be deemed to
have been paid by the Fund and received by the shareholders on December 31 of
that year if paid by the Fund at any time during the following January.
FINANCIAL STATEMENTS
The Trust's financial statements for the fiscal year ended December 31,
1997, including notes thereto and the Report of Price Waterhouse LLP,
Independent Accountants, dated February 20, 1998, are incorporated herein by
reference to the Trust's Annual Report, which was filed with the Securities and
Exchange Commission by the Trust on Form N-30D on March 11, 1998 (Accession No.
0000927356-98-000294). The December 31, 1997 audited financial statements
incorporated by reference into this SAI and the financial highlights included in
Part A of this registration statement and incorporated by reference into this
SAI have been so included and incorporated in reliance upon the report of the
independent accountants, given on their authority as experts in auditing and
accounting.
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<PAGE>
DESCRIPTION OF S&P, MOODY'S, DUFF AND FITCH RATINGS
DESCRIPTION OF S&P CORPORATE BOND RATINGS
AAA-Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA-Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated debt only in small degree.
A-Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
BBB-Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.
BB, B, CCC, CC or C-Debt rated BB, B, CCC, CC or C is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. BB indicates the least degree of speculation and
C the highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
BB Debt rated 'BB' has less near-term vulnerability to default than other
speculative grade debt. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions that could lead
to inadequate capacity to meet timely interest and principal payments. The 'BB'
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied 'BBB-' rating.
B Debt rate 'B' has greater vulnerability to default but presently
has the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions would likely impair capacity or
willingness to pay interest and repay principal. The 'B' rating category also is
used for debt subordinated to senior debt that is assigned an actual or implied
'BB' or 'BB-' rating.
CCC Debt rated 'CCC' has a current identifiable vulnerability to
default, and is dependent on favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal. In
the event of adverse business, financial, or economic conditions, it is not
likely to have the capacity to pay interest and repay principal. The 'CCC'
rating category also is used for debt subordinated to senior debt that is
assigned an actual or implied 'B' or 'B-' rating.
CC The rating 'CC' is typically applied to debt subordinated to senior
debt which is assigned an actual or implied 'CCC' rating.
C The rating 'C' is typically applied to debt subordinated to senior
debt which is assigned an actual or implied 'CCC-' debt rating. The 'C' rating
may be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
C1-Debt rated C1 is reserved for income bonds on which no interest is being
paid.
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<PAGE>
D- Debt is rated D when the issue is in payment default, or the obligor
has filed for bankruptcy. The D rating is used when interest or principal
payments are not made on the date due, even if the applicable grace period has
not expired, unless S&P believes that such payments will be made during such
grace period.
Plus (+) or minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS
Aaa-Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt- edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa-Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risk appear somewhat larger than the Aaa securities.
A-Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa-Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba-Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B-Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa-Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca-Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C-Bonds which are rated C are the lowest class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
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<PAGE>
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the security ranks in the lower end of its generic rating
category.
DESCRIPTION OF DUFF CORPORATE BOND RATINGS
AAA-Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA-High credit quality. Protection factors are strong. Risk is modest but
may vary slightly from time to time because of economic conditions.
A-Protection factors are average but adequate. However, risk factors are
more variable and greater in periods of economic stress.
BBB-Below average protection factors but still considered sufficient for
prudent investment. Considerable variability in risk during economic cycles.
BB+ Below investment grade but deemed likely to meet obligations when
due.
BB Present or prospective financial protection factors fluctuate
according to industry conditions or company fortunes.
BB- Overall quality may move up or down frequently within this
category.
B+ Below investment grade and possessing risk that obligations will
not be met when due.
B Financial protection factors will fluctuate widely according to
economic cycles, industry conditions and/or company fortunes.
B- Potential exists for frequent changes in the rating within this
category or into a higher or lower rating grade.
CCC Well below investment grade securities. Considerable uncertainty
exists as to timely payment of principal, interest or preferred dividends.
Protection factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.
DD Defaulted debt obligations. Issuer failed to meet scheduled
principal and/or interest payments.
DP Preferred stock with dividend arrearages.
DESCRIPTION OF FITCH CORPORATE BOND RATINGS
AAA-Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
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<PAGE>
AA-Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+.
A-Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and to repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB-Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and to repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
BB Bonds are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified which
could assist the obligor in satisfying its debt service requirements.
B Bonds are considered highly speculative. While bonds in this class
are currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited margin
of safety and the need for reasonable business and economic activity
throughout the life of the issue.
CCC Bonds have certain identifiable characteristics which, if not
remedied, may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.
CC Bonds are minimally protected. Default in payment of interest
and/or principal seems probable over time.
C Bonds are in imminent default in payment of interest or principal.
DDD, DD, and D Bonds are in default on interest and/or principal
payments. Such bonds are extremely speculative and should be valued on the basis
of their ultimate recovery value in liquidation or reorganization of the
obligor. 'DDD' represents the highest potential for recovery on these bonds, and
'D' represents the lowest potential for recovery.
PLUS (+) MINUS (-)
Plus and minus signs are used with a rating symbol to indicate the relative
position of a credit within the rating category. Plus and minus signs, however,
are not used in the DDD, DD, or D categories.
DESCRIPTION OF S&P COMMERCIAL PAPER RATINGS
A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Debt determined to possess extremely strong safety
characteristics is denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated 'A-1'.
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A-3 Debt carrying this designation has an adequate capacity for timely
payment. It is, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B Debt rated 'B' is regarded as having only speculative capacity for
timely payment.
C This rating is assigned to short-term debt obligations with a
doubtful capacity for payment.
D This rating indicates that the obligation is in payment default.
DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS
PRIME-1 Issuers rated Prime-1 (or supporting institutions) have superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
-- Leading market positions in well established industries. -- High rates
of return on funds employed. -- Conservative capitalization structure with
moderate reliance on debt and ample asset protection. -- Broad margins in
earnings coverage of fixed financial charges and high internal cash generation.
- -- Well-established access to a range of financial markets and assured sources
of alternate liquidity.
PRIME-2 Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
PRIME-3 Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term obligations. The effect
of industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
NOT PRIME Issuers rate Not Prime do not fall within any of the Prime
rating categories.
DESCRIPTION OF DUFF'S COMMERCIAL PAPER RATINGS
Duff 1+ Highest certainty of timely payment. Short-term liquidity,
including internal operating factors and/or access to alternative sources of
funds, is outstanding, and safety is just below risk-free U.S. Treasury short-
term obligations.
Duff 1 Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors. Risk factors are
minor.
Duff 1- High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.
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<PAGE>
GOOD GRADE
Duff 2 Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
SATISFACTORY GRADE
Duff 3 Satisfactory liquidity and other protection factors qualify issue
as to investment grade. Risk factors are larger and subject to more variation.
Nevertheless, timely payment is expected.
NON-INVESTMENT GRADE
Duff 4 Speculative investment characteristics. Liquidity is not
sufficient to insure against disruption in debt service. Operating factors and
market access may be subject to a high degree of variation.
DEFAULT
Duff 5 Issuer failed to meet scheduled principal and/or interest
payments.
DESCRIPTION OF FITCH'S COMMERCIAL PAPER RATINGS
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating
are regarded as having the strongest degree of assurance for timely payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated 'F-
1+'.
F-2 Good Credit Quality. Issues assigned this rating have a
satisfactory degree of assurance for timely payment, but the margin of safety is
not as great as for issues assigned 'F-1+' and 'F-1' ratings.
F-3 Fair Credit Quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance for timely payment is
adequate, however, near-term adverse changes could cause these securities to be
rated below investment grade.
F-S Weak Credit Quality. Issues assigned this rating have
characteristics suggesting a minimal degree of assurance for timely payment and
are vulnerable to near-term adverse changes in financial and economic
conditions.
D Default. Issues assigned this rating are in actual or imminent
payment default.
LOC The symbol LOC indicates that the rating is based on a letter of
credit issued by a commercial bank.
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<PAGE>
THE SIERRA VARIABLE TRUST
FORM N-1A
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Index to Financial Statements and Supporting Schedules
The following Audited financial statements as of December 31, 1997 and
the report of Price Waterhouse, LLP dated February 20, 1998 are hereby
incorporated by reference from the Trust's Form N-30D, the Annual
Report, filed electronically with the Securities and Exchange
Commission on March 11, 1998 (Accession No. 0000927356-98-000294).
Statements of Assets and Liabilities -- December 31, 1997/a/
Statements of Operations -- period ended December 31, 1997/a/
Statements of Changes in Net Assets -- year ended December 31,
1996 and period ended December 31, 1997/a/
Statement of Cash Flows -- year ended December 31, 1997/a/
Financial Highlights -- year ended December 31, 1997/a//b/
Portfolio of Investments -- December 31, 1997/a/
Notes to Financial Statements -- December 31, 1997/a/
Report of Independent Accountants -- period ended December 31,
1997/a/
/a/ Incorporated by reference into Parts A and B.
/(b)/ Included in Part A.
(b) Exhibits:
1(a) Agreement and Declaration of Trust, dated January 29, 1993, originally
filed as exhibit to Registration Statement on Form N-1A February 2,
1993, is incorporated by reference to Post-Effective Amendment No. 7
filed on February 28, 1997.
1(b) Amendment No. 1 to the Trust's Agreement and Declaration of Trust,
dated April 27, 1993, originally filed as an exhibit to Post-Effective
Amendment No. 1 October 13, 1993, is incorporated by reference to
Post-Effective Amendment No. 7 filed on February 28, 1997.
1(c) Amendment No. 2 to the Trust's Agreement and Declaration of Trust,
dated September 22, 1993, originally filed as an exhibit to Post-
Effective Amendment No. 1 October 13, 1993, is incorporated by
reference to Post-Effective Amendment No. 7 filed on February 28,
1997.
2 By-Laws of the Trust, originally filed as exhibit to
<PAGE>
Registration Statement on Form N-1A February 2, 1993, is incorporated
by reference to Post-Effective Amendment No. 7 filed on February 28,
1997.
3 Not applicable.
4 See Exhibits 1(a)-(c) and 2.
5(a) Management Agreement, dated as of January 30, 1998, between the Trust
and WM Advisors, Inc. ("WM Advisors") (formerly known as Composite
Research & Management Co.) is incorporated by reference to Post -
Effective Amendment No. 13, filed on February 27, 1998.
5(b) Sub-Adviser Agreement, dated as of January 30, 1998 between WM
Advisors and Janus Capital Corporation ("Janus") with respect to the
Growth Fund and the Emerging Growth Fund is incorporated by reference
to Post - Effective Amendment No. 13, filed on February 27, 1998.
5(b) Sub-Adviser Agreement, dated as of January 30, 1998, between WM
Advisors and Warburg, Pincus Counsellors, Inc. ("Warburg") with
respect to the International Growth Fund is incorporated by reference
to Post - Effective Amendment No. 13, filed on February 27, 1998.
6(a) Distribution Agreement, dated January 30, 1998, between the Trust and
WM Funds Distributor, Inc. (formerly known as Composite Funds
Distributor, Inc.) is incorporated by reference to Post - Effective
Amendment No. 13, filed on February 27, 1998.
6(b) Participation Agreement among the Trust, WM Advisors, WM Shareholder
Services, Inc. (formerly known as Murphey Favre Security Services,
Inc.) ("Shareholder Services"), American General Life Insurance
Company ("American General") and American General Securities
Incorporated ("American General Securities"), dated as of January 30,
1998 is incorporated by reference to Post - Effective Amendment No.
13, filed on February 27, 1998.
7 Not applicable.
8 Custody Agreement, dated as of March 20, 1998, between the Trust and
Boston Safe Deposit & Trust Company is incorporated by reference to
Post-Effective Amendment No. 7, filed on February 28, 1997.
9(a) Transfer Agent Contract, dated as of March 20, 1998, between
the Trust and Shareholder Services.*
9(b) Administration Agreement dated January 30, 1998 between the Trust and
Shareholder Services is incorporated by reference to Post - Effective
Amendment No. 13, filed on February 27, 1998.
10 Consent and Opinion of Counsel is incorporated by reference to
Post-Effective Amendment No. 7 filed on February 28, 1997.
11(a) Consent of Independent Accountants.*
11(b) Powers of Attorney with respect to Registration Statements and
Amendments thereto signed by the following persons in their capacities
as Trustees, and where applicable, officers of the Trust: Wayne L.
Attwood, Arthur H. Bernstein, Kristianne Blake, Edward R. Davis, John
W. English, Michael K. Murphy, Alfred E. Osborne, William G. Papesh,
Daniel L. Pavelich and Jay Rockey.
12 Not applicable.
13 Not applicable.
14 Not applicable.
<PAGE>
15 Not applicable.
16 Certain Performance Data relating to the Funds, originally filed as an
exhibit to Post-Effective Amendment No. 2 on April 22, 1994, is
incorporated by reference to Post-Effective No. 7 filed on February
28, 1997.
17 Financial data schedules.*
* Filed herewith
Item 25. Persons Controlled by or Under Common Control with Registrant
The Trust is a business trust organized under the laws of the
Commonwealth of Massachusetts. Prior to March 20, 1998, the Trust was known as
The Sierra Variable Trust. Separate Account D of American General Life
Insurance Company is the sole shareholder of, and may be deemed to control, the
Trust. American General Life Insurance Company is a subsidiary of American
General Corporation.
The list of American General Corporation's active subsidiaries is
hereby incorporated by reference to Item 26 of the Form N-4 registration
statement of American General Life Insurance Company and its Separate Account D,
File Nos. 33-57730 and 811-2441.
The Registrant is operated under the supervision of WM Advisors.
WM Advisors is affiliated with Shareholder Services, which serves as transfer
agent for the Registrant. An affiliate of WM Advisors, WM Funds Distributor,
Inc. ("WM Funds Distributor") serves as the principal underwriter and
distributor for the Registrant, WM Advisors, Shareholder Services and WM Funds
Distributor serve in their same capacities for the four other registered
investment companies.
WM Advisors, Shareholder Services and WM Funds Distributor are
all wholly-owned subsidiaries of Washington Mutual, Inc. and are all
incorporated under the laws of the State of Washington.
Item 26. Number of Holders of Securities
(2)
(1) No. of Record Holders at
Title of Class December 31, 1997
- -----------------------------------------------------------------------------
Shares of the Money Market Fund, without par 5
value
- -----------------------------------------------------------------------------
Shares of the Short Term High Quality Bond 3
Fund, without par value
- -----------------------------------------------------------------------------
Bond & Stock Fund 0
- -----------------------------------------------------------------------------
Shares of the U.S. Government Securities Fund, without 4
<PAGE>
par value
- -----------------------------------------------------------------------------
Shares of the Income Fund, without 4
par value
- -----------------------------------------------------------------------------
Shares of the Growth & Income Fund, without 2
par value
- -----------------------------------------------------------------------------
Shares of the Growth Fund, without par value 3
- -----------------------------------------------------------------------------
Shares of the Emerging Growth Fund, without 5
par value
- -----------------------------------------------------------------------------
Shares of the International Growth Fund, 1
without par value
- -----------------------------------------------------------------------------
Shares of the Northwest Fund, without par value 0
- -----------------------------------------------------------------------------
Shares of the Strategic Growth Portfolio, 1
without par value
- -----------------------------------------------------------------------------
Shares of the Conservative Growth Portfolio, 1
without par value
- -----------------------------------------------------------------------------
Shares of the Balanced Portfolio, without par 1
value
- -----------------------------------------------------------------------------
Shares of the Flexible Income Portfolio, without 1
par value
- -----------------------------------------------------------------------------
Shares of the Income Portfolio, without 0
par value
- -----------------------------------------------------------------------------
Item 27. Indemnification
Article VIII of the Registrant's Agreement and Declaration of Trust
provides in relevant part:
The Trust shall indemnify each of its Trustees and officers (including
persons who serve at the Trust's request as directors, officers or trustees
of another organization in which the Trust has any interest as a
shareholder, creditor or otherwise) (hereinafter referred to as a "Covered
Person") against all liabilities and expenses, including but not limited to
amounts paid in satisfaction of judgments, in compromise or as fines and
penalties, and counsel fees reasonably incurred by any Covered Person in
connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, before any court or administrative
or legislative body, in which such Covered Person may be or may have been
involved as a party or otherwise or with which such Covered person may be
or may have been threatened, while in office or thereafter, by
<PAGE>
reason of being or having been such a Covered Person except with respect to
any matter as to which such Covered Person shall have been finally
adjudicated in any such action, suit or other proceeding to be liable to
the Trust to its Shareholders by reason of wilful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the
conduct of such Covered Person's office. Expenses, including counsel fees
so incurred by any such Covered Person (but excluding amounts paid in
satisfaction of judgments, in compromise or as fines or penalties), shall
be paid from time to time by the Trust in advance of the final disposition
of any such action, suit or proceeding upon receipt of an undertaking by or
on behalf of such Covered Person to repay amounts so paid to the Trust if
it is ultimately determined that indemnification of such expenses is not
authorized under this Article; provided, however, that either (a) such
Covered Person shall have provided appropriate security for such
undertaking, (b) the Trust shall be insured against losses arising from any
such advance payments or (c) either a majority of the disinterested
Trustees acting on the matter (provided that a majority of the
disinterested Trustees then in office act on the matter), or independent
legal counsel in a written opinion, shall have determined, based upon a
review of readily available facts (as opposed to a full trial type inquiry)
that there is reason to believe that such Covered Person will be found
entitled to indemnification under this Article.
As to any matter disposed of (whether by a compromise payment, pursuant to
a consent decree or otherwise) without an adjudication by a court, or by
any other body before which the proceeding was brought, that such Covered
Person is liable to the Trust or its Shareholders by reason of wilful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his or her office, indemnification shall
be provided if (a) approved, after notice that it involves such
indemnification, by at least a majority of the disinterested Trustees
acting on the matter (provided that a majority of the disinterested
Trustees then in office act on the matter) upon a determination, based upon
a review of readily available facts (as opposed to a full trial type
inquiry) that such Covered Person is not liable to the Trust or its
Shareholders by reasons of wilful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in the conduct of his or her
office, or (b) there has been obtained an opinion in writing of independent
legal counsel, based upon a review of readily available facts (as opposed
to a full trial type inquiry) to the effect that such indemnification would
not protect such Person against any liability to the Trust to which he or
she would otherwise be subject by reason of wilful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the
conduct of his office. Any approval pursuant to this Section shall not
prevent the recovery from any Covered Person of any amount paid to such
Covered Person in accordance with this Section as indemnification if such
Covered Person is subsequently adjudicated by a court of competent
jurisdiction to have been liable to the Trust or its Shareholders by reason
of wilful misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of such Covered Person's office.
Item 28. Business and Other Connections of Investment Adviser --
<PAGE>
Registrant's Investment Adviser is WM Advisors, a wholly-owned subsidiary
of Washington Mutual, Inc., a Washington corporation. The list of officers and
directors of WM Advisors required by this Item 28 is as follows:
<TABLE>
<CAPTION>
OFFICERS
- --------
DIRECTORS
- ---------
<S> <C>
Monte D. Calvin Past two fiscal years
First Vice President, Director WM Shareholder Services, Inc.
601 West Main Ave., Suite 300, Spokane, WA 98201
Treasurer, Director April 1997 - present
WM Advisors, Inc.
1201 Third Ave., Suite 1400, Seattle, WA 98101
Vice President, Treasurer, July 1997 - present
Director WM Funds Distributor, Inc.
601 West Main Ave., Suite 300, Spokane, WA 98201
Craig S. Davis July 1997 - present
Director WM Funds Distributor, Inc.
601 West Main Ave., Suite 300, Spokane, WA 98201
Director WM Shareholder Services, Inc.
601 West Main Ave., Suite 300, Spokane, WA 98201
Director April 1997 - present
WM Advisors, Inc.
1201 Third Ave., Suite 1400, Seattle, WA 98101
Executive Vice President December - present
Washington Mutual, Inc.
1201 Third Ave., Seattle, WA 98101
Chairman January 1996 - July 1997
ASB Financial Services, Irvine, CA
J. Pamela Dawson July 1997 - present
WM Funds Distributor, Inc.
601 West Main Ave., Suite 300, Spokane, WA 98201
Director WM Shareholder Services, Inc.
601 West Main Ave., Suite 300, Spokane, WA 98201
Director April 1997 - present
WM Advisors, Inc.
1201 Third Ave., Suite 1400, Seattle, WA 98101
President March 1997 - present
WM Financial Services
1201 Third Ave., 7th Floor, Seattle, WA 98101
President December 1996 - July 1997
ASB Financial Services, Irvine, CA
Senior Vice President/Regional November 1996 - December 1996
Manager Wells Fargo Securities/First Interstate, Houston, TX
Kerry K. Killinger Past two fiscal years
Director WM Advisors, Inc.
1201 Third Ave., Suite 1400, Seattle, WA 98101
CEO, Chairman, Director Washington Mutual Bank
1201 Third Avenue, Suite 1400, Seattle, WA 98101
Director July 1997 - present
WM Funds Distributor, Inc.
601 West Main Ave., Suite 300, Spokane, WA 98201
Director WM Shareholder Services, Inc.
601 West Main Ave., Suite 300, Spokane, WA 98201
Philip M. Foreman Past two fiscal years
Vice President WM Advisors, Inc.
1201 Third Ave., Suite 1400, Seattle, WA 98101
Sharon L. Howells Past two fiscal years
First Vice President, WM Advisors, Inc.
Corporate Secretary 1201 Third Ave., Suite 1400, Seattle, WA 98101
July 1997 - present
Vice President, WM Funds Distributor, Inc.
Corporate Secretary 601 West Main Ave., Suite 300, Spokane, WA 98201
WM Shareholder Services, Inc.
Corporate Secretary 601 West Main Ave., Suite 300, Spokane, WA 98201
Jeffrey D. Huffman Past two fiscal years
Vice President WM Advisors, Inc.
1201 Third Ave., Suite 1400, Seattle, WA 98101
B. Joel King March 1998 - present
Vice President WM Advisors, Inc.
1201 Third Ave., Suite 1400, Seattle, WA 98101
Vice President January 1996 - February 1998
Bennington Capital Management
1420 Fifth Ave., Seattle, WA 98101
William G. Papesh Past two fiscal years
President, Director WM Advisors, Inc.
1201 Third Ave., Suite 1400, Seattle, WA 98101
President, Director WM Shareholder Services, Inc.
601 West Main Ave., Suite 300, Spokane, WA 98201
Director WM Insurance Services
1201 Third Ave., Seattle, WA 98101
President, Director WM Group of Funds
601 West Main Ave., Suite 300, Spokane, WA 98201
President, Director July 1997 - present
WM Funds Distributor, Inc.
601 West Main Ave., Suite 300, Spokane, WA 98201
Brian L. Placzek Past two fiscal years
Vice President WM Advisors, Inc.
1201 Third Ave., Suite 1400, Seattle, WA 98101
Gary J. Pokrzywinski Past two fiscal years
Vice President WM Advisors, Inc.
1201 Third Ave., Suite 1400, Seattle, WA 98101
Audrey S. Quaye February 1996 - present
Vice President WM Advisors, Inc.
1201 Third Ave., Suite 1400, Seattle, WA 98101
Credit Analyst January 1996 - February 1996
Tandem Computers, Cupertino, CA
Stephen C. Scott March 1998 - present
Vice President WM Advisors, Inc.
1201 Third Ave., Suite 1400, Seattle, WA 98101
Senior Investment Advisor Sierra Investment Services Corporation
9301 Corbin Ave., Northridge, CA 91324
President Sierra Investment Advisors Corporation
9301 Corbin Ave., Northridge, CA 91324
David W. Simpson Past two fiscal years
Vice President WM Advisors, Inc.
1201 Third Ave., Suite 1400, Seattle, WA 98101
Linda C. Walk December 1997 - present
Vice President WM Advisors, Inc.
1201 Third Ave., Suite 1400, Seattle, WA 98101
November 1996 - November 1997
Laid Norton Trust Company
Norton Building, Suite 1600, Seattle, Wa 98104
January 1996 - July 1996
Ernst & Young LLP
2001 Market Street, 41st Floor, Philadelphia, PA 19103
</TABLE>
Item 28(b). Business and Other Connections of Investment Sub-Advisor -- Janus
Capital Corporation
Janus Capital Corporation ("Janus") is an investment advisor registered
under the Advisers Act, and acts as investment advisor for registered investment
companies. Janus provides a variety of investment management and investment
advisory services.
The list required by this Item 28 of officers and directors of Janus,
together with any information as to any other business, profession, vocation or
employment of a substantial nature engaged in by such officers and directors
during the past two years, is incorporated by reference to Schedules A and D of
Form ADV, as amended through the date hereof, filed by Janus pursuant to the
Advisers Act (SEC File No. 801-13991).
Item 28(c). Business and Other Connections of Investment Sub-Advisor --
Warburg Pincus Asset Management, Inc.
Warburg Pincus Asset Management, Inc. ("Warburg") is an investment advisor
registered under the Advisers Act, and acts as investment advisor for investment
companies, employee benefit plans, endowment funds, foundations and other
institutions and individuals.
The list required by this Item 28 of officers and directors of Warburg,
together with information as to any other business, profession, vocation or
employment of a substantial nature engaged in by such officers and directors
during the past two years, is incorporated by reference to Schedules A and D of
Form ADV, as amended through the date hereof, filed by Warburg pursuant to the
Advisers Act (SEC File No. 801-07321).
(a) Janus Capital Corporation
100 Fillmore Street, Suite 300
Denver, Colorado 80206
(with respect to their services as investment sub-advisor)
(b) Warburg Pincus Asset Management, Inc.
466 Lexington Avenue
New York, New York 10017-3147
(with respect to their services as investment sub-advisor)
Item 29. Principal Underwriter
(a) WM Funds Distributor, the Distributor of the Trust, currently acts as
distributor for the WM Trust I, WM Trust II, WM Prime Income and WM Strategic
Asset Management Portfolios.
(b) The directors and officers of WM Funds Distributor and their positions
with WM Funds Distributor are set forth below. The principal business address of
WM Funds Distributor, and each of its directors and officers is 601 West Main
Avenue, Suite 300, Spokane, Washington 99201.
Name And Position And Positions And
Principal Business Offices With Offices With
Address Underwriter Registrant
------- ----------- ----------
William G. Papesh President President
Sandra A. Cavanaugh First Vice President Senior Vice President
Monte D. Calvin Vice President, Chief Financial Officer,
Treasurer, Senior Vice President
Sharon L. Howells Vice President, Senior Vice President
Corporate Secretary
(c) Not applicable.
Item 30. Location of Accounts and Records
All accounts, books and other documents required to be maintained by
Section 3(a) of the Investment Company Act of 1940, as amended, and the
rules thereunder are maintained at the offices of the Trust, 9301 Corbin
Avenue, Northridge, CA and 601 West Main Avenue, Suite 801, Spokane,
Washington 99201.
Item 31. Management Services
Registrant is not a party to any management related contract, other than as
set forth in the Prospectus.
Item 32. Undertakings
(a) Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest annual report to Shareholders,
upon request and without charge.
<PAGE>
**********
NOTICE
**********
A copy of the Agreement and Declaration of Trust of WM Variable Trust
(formerly The Sierra Variable Trust) (the "Trust") is on file with the Secretary
of State of the Commonwealth of Massachusetts and notice is hereby given that
this Registration Statement has been executed on behalf of the Trust by an
officer of the Trust as an officer and by its Trustees as trustees and not
individually and the obligations of or arising out of this Registration
Statement are not binding upon any of the Trustees, officers or shareholders
individually but are binding only upon the assets and property of the
Trust.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended
(the "1933 Act"), and the Investment Company Act of 1940, as amended, the
Registrant certifies that it meets all the requirements for effectiveness of
this Post-Effective Amendment pursuant to Rule 485(b) of the Securities Act of
1933 and has duly caused this Post-Effective Amendment to the Registrant's
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of Spokane, in the State of Washington on the 25th
day of March, 1998.
WM VARIABLE TRUST
By: /s/ WILLIAM G. PAPESH*
--------------------------------
William G. Papesh
President
Pursuant to the requirements of the 1933 Act, as amended, this
Post-Effective Amendment No. 14 has been signed below by the following persons
in their capacities and on the date(s) indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ WILLIAM G. PAPESH* President and Trustee March 25, 1998
- -------------------------------------
William G. Papesh
(Principal Executive Officer)
/s/ Monte D. Calvin Chief Financial Officer March 25, 1998
- -------------------------------------
Monte D. Calvin
(Principal Financial and Accounting
Officer)
Trustee
- -------------------------------------
David E. Anderson
/s/ WAYNE L. ATTWOOD, MD* Trustee March 25, 1998
- -------------------------------------
Wayne L. Attwood, MD
/s/ ARTHUR H. BERNSTEIN* Trustee March 25, 1998
- -------------------------------------
Arthur H. Bernstein
/s/ KRISTIANNE BLAKE* Trustee March 25, 1998
- -------------------------------------
Kristianne Blake
/s/ EDMOND R. DAVIS* Trustee March 25, 1998
- -------------------------------------
Edmond R. Davis
/s/ JOHN W. ENGLISH* Trustee March 25, 1998
- -------------------------------------
John W. English
Trustee
- -------------------------------------
Anne V. Farrell
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
/s/ MICHAEL K. MURPHY* Trustee March 25, 1998
- -------------------------------------
Michael K. Murphy
/s/ ALFRED E. OSBORNE JR. PH.D.* Trustee March 25, 1998
- -------------------------------------
Alfred E. Osborne, Jr., Ph.D.
/s/ DANIEL L. PAVELICH* Trustee March 25, 1998
- -------------------------------------
Daniel L. Pavelich
/s/ Jay Rockey Trustee March 25, 1998
- -------------------------------------
Jay Rockey
Trustee March 25, 1998
- -------------------------------------
Richard C. Yancey
</TABLE>
*By: /s/ MONTE D. CALVIN
---------------------------------
Monte D. Calvin
Attorney-in-Fact pursuant to the powers of
attorney filed herewith
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
9(a) Transfer Agent Contract, dated as of March 20, 1998, between the Trust
and WM Shareholder Services, Inc.
11 Consent of Independent Accountants.
11(b) Powers of Attorney with respect to Registration Statements and
Amendments thereto signed by the following persons in their capacities
as Trustees, and where applicable, officers of the Trust: Wayne L.
Attwood, Arthur H. Bernstein, Kristianne Blake, Edward R. Davis, John
W. English, Michael K. Murphy, Alfred E. Osborne, William G. Papesh,
Daniel L. Pavelich and Jay Rockey.
17 Financial Data Schedules.
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and the
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 14 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated February 20, 1998, relating to the financial
statements and financial highlights appearing in the December 31, 1997 Annual
Report to Shareholders of WM Variable Trust (formerly known as The Sierra
Variable Trust), which are also incorporated by reference into the Registration
Statement. We also consent to the references to us under the headings "Financial
Highlights" and "Independent Accountants" in the Prospectus and under the
headings "Counsel and Independent Accountants" and "Financial Statements" in the
Statement of Additional Information.
PRICE WATERHOUSE LLP
Boston, Massachusetts
March 23, 1998
<PAGE>
TRANSFER AGENT CONTRACT
-----------------------
TRANSFER AGENT CONTRACT (this "Agreement"), dated, March 20, 1998,
between WM Variable Trust (the "Trust"), a Massachusetts business trust, and WM
Shareholder Services, Inc. (the "Transfer Agent"), a Washington corporation.
W I T N E S S E T H
-------------------
WHEREAS, the Trust is authorized to issue shares in separate series,
with each series representing a separate portfolio of securities and other
assets (each a "Series");
WHEREAS, the Trust initially intends to offer shares in those Series
identified in the attached Exhibit 1, each such Series, together with all other
Series subsequently established by the Trust shall be subject to this Agreement
in accordance with Section 8;
WHEREAS, the Trust desires the Transfer Agent to perform the services
set forth in Schedule A attached hereto and incorporated herein by reference,
and the Transfer Agent is willing to perform such services;
NOW THEREFORE, in consideration of the premises and the mutual
agreements set forth herein, the parties hereto agree as follows:
1. The Transfer Agent shall perform for the Trust the services set
forth in Schedule A for a monthly fee as set forth in Schedule B attached hereto
and incorporated herein by reference.
2. The Trust agrees to reimburse the Transfer Agent for postage, the
procurement and/or printing of statements, envelopes, checks, reports, tax
forms, proxies, or other forms of printed material required in the performance
of its services to the Trust under this Agreement.
3. The Trust agrees to reimburse the Transfer Agent for all freight and
other delivery charges and insurance or bonding charges incurred by the Transfer
agent in delivering materials to and from the Trust and its shareholders
("Shareholders").
4. The Trust agrees to reimburse the Transfer Agent for all direct
telephone expenses incurred by the Trust in calling Shareholders regarding their
Trust transactions, accounts, and for any other Trust business.
5. The Trust agrees that all computer programs and procedures developed
to perform services required under this Agreement are the property of the
Transfer Agent and the Transfer Agent agrees that all records and other data,
except computer programs and procedures, are the property of the Trust. The
Transfer Agent agrees that it will furnish
<PAGE>
all records and other data as may be requested to the Trust immediately upon
termination of this Agreement for any reason whatsoever.
6. The Transfer Agent agrees to treat all records and other information
relative to the Trust with utmost confidence and further agrees that all records
maintained by the Transfer Agent for the Trust shall be open to inspection and
audit at reasonable times by the officers, agents or auditors employed by the
Trust and that such records shall be preserved and retained by the Transfer
Agent so long as this agreement shall remain in effect.
7. The Transfer Agent shall not be liable for any damage, loss of data,
delay or any other loss caused by any such power failure or machine breakdown,
except that the Transfer Agent shall be liable for actual out-of-pocket costs
caused by any such power failure or machine breakdown, and the Transfer Agent
shall recover the data in process that is assumed lost during any power failure
or machine breakdown.
8. In the event that the Trust establishes one or more Series in addition
to those identified in Exhibit 1, with respect to which the Trust desires to
have Transfer Agent render services as transfer agent under the terms hereof,
the Trust shall so notify Transfer Agent in writing, and Exhibit 1 shall be
amended to include such additional Series.
9. The Transfer Agent will maintain in force through the duration of this
Agreement a fidelity bond in a face amount not less than $1,000,000 written by
a reputable insurance company, covering theft, embezzlement, forgery and other
acts of malfeasance by the Transfer Agent, it employees, or agents in connection
with services performed for the Trust.
10. This agreement may be terminated without the payment of any penalty by
either party upon (180) days' written notice thereof given by the Trust to the
Transfer Agent and upon one hundred eighty (180) days' written notice thereof
given by the Transfer Agent to the Trust.
11. Any notice shall be officially given when sent by registered or
certified mail by either party to the appropriate address listed in the Trust's
current registration statement, provided that either party may notify the other
by regular mail of any changed address to which such notice should be sent.
12. This Agreement constitutes the entire Agreement between the parties
and shall be governed by, and construed in accordance with, the laws of the
Commonwealth of Massachusetts and shall inure to the benefit of the parties
hereto and their respective successors.
13. A copy of the Declaration of Trust of the Trust is on file with the
Secretary of State of The Commonwealth of Massachusetts, and notice is hereby
given that this Agreement is executed by an officer of the Trust on behalf of
the trustees of the Trust, as
2
<PAGE>
trustees and not individually, on further behalf of the Trust, and that the
obligations of this Agreement shall be binding upon the assets and properties of
the Trust only and shall not be binding upon the assets and properties of any
other series of the Trust or upon any of the trustees, officers, employees,
agents or shareholders of the Trust or the Trust individually.
IN WITNESS WHEREOF, the parties hereto cause this Agreement to be executed
by their officers designated below as of the date first above-written.
WM VARIABLE TRUST
By: /s/ Keith B. Pipes
-----------------------------------
Keith B. Pipes
President
WM SHAREHOLDER SERVICES, INC.
By: /s/ William G. Papesh
-----------------------------------
William G. Papesh
President
3
<PAGE>
SCHEDULE A
I. Shareholder Services
A. Maintain all Shareholder records on electronic data processing
equipment, including:
1. Share balances
2. Account transaction history
3. Names and addresses
4. Distribution records
5. Transfer records
6. Overall control records
B. New Accounts
1. Deposit all monies received into a Trust custody account
maintained by the Trust's custodian.
2. Set up account according to Shareholders' instructions
3. Issue and mail shareholder confirmations
C. Additional Purchases
1. Deposit monies received into a Trust custody account maintained
by the Trust's custodian.
2. Issue Shareholder confirmations
D. Redemptions
1. Liquidate shares upon Shareholder request
2. Make payments of redemption proceeds in accordance with the
Trust's then current prospectus.
3. Issue and mail Shareholder confirmation
E. Transfer shares as requested, including obtaining necessary papers
and documents to satisfy transfer requirements. On irregular
transfers requiring
4
<PAGE>
special legal opinions, such special legal fees, if any, are to be
paid for by the Trust.
F. Process changes, corrections of addresses and registrations
G. Maintain service with Shareholders as follows:
1. Activity required to receive, process and reply to
Shareholders' correspondence regarding account matters
2. Refer correspondence regarding investment matters to the Trust
with sufficient account data to answer
3. Contact Shareholders directly to settle problems and answer
questions
H. Compute distributions, dividends and capital gains
1. Make payment or reinvest in additional shares as directed by
shareholders according to provisions of the Trust's then
current prospectus
2. Advise each Shareholder of the amount of dividends received and
tax status annually
I. Produce transcripts of shareholder account history is required
J. Maintain the controls associated with the computer programs and
manual systems to arrive at the Trust's total shares outstanding
K. Receive mail and perform other administrative functions relating to
transfer agent work
II. Other Services
A. Mailing services to shareholders
B. Services in connection with any stock splits
C. Develop special reports for Trust officers regarding statistical and
accounting data pertaining to the Trust. Trust shall pay for out-of-
pocket expenses charged by vendors to develop such reports or
portions thereof
D. Voice response unit
E. NSCC support
5
<PAGE>
SCHEDULE B: MONTHLY SHAREHOLDER SERVICING FEES
March 20, 1998
Fee Per Account Per Month
-------------------------
Money Market Fund
US Government Securities Fund
Growth & Income Fund
Income Fund
Emerging Growth Fund
International Growth Fund
Growth Fund
Short Term High Quality Bond Fund
Bond and Stock Fund
Northwest Fund
Strategic Growth Portfolio
Conservative Growth Portfolio
Balanced Portfolio
Flexible Income Portfolio
Income Portfolio
Fees Income
Shareholder and Broker Services
Transaction Processing, Correspondence, and Research
. Settlement and Reconciliation
. Corporate Actions
. Tax Reporting and Compliance
. NSCC Support
. Management Company and Broker/Dealer Support
. Asset Allocation Processing for all distribution channels
Additional charges will be made for out-of-pocket expenses according to
Schedule C.
6
<PAGE>
SCHEDULE C
OUT-OF-POCKET EXPENSES
The Trust shall reimburse the Transfer Agent monthly for applicable
out-of-pocket expenses, including, but not limited to the following items:
. NSCC charges
. Banking fees
. Voice response unit
. Microfiche/Microfilm/Image production
. Magnetic media tapes and freight
. Printing costs, including certificates, envelopes, checks and stationery
. Postage (bulk, presort, ZIP+4, bar coding, first class) direct pass through
to the Funds
. Due diligence mailings
. Telephone and telecommunication costs, including all lease, maintenance and
line costs
. Ad hoc reports
. Shareholder transcripts
. Proxy solicitations, mailings and tabulations
. Daily & Distribution advice mailings
. Terminals, communication lines, printers and other equipment and any expenses
incurred in connection with such terminals and lines
. Duplicating services
. Incoming and outgoing wire charges
. Federal Reserve charges for check clearance
. Overtime, as approved by the Funds
. Temporary staff, as approved by the Funds
. Travel and entertainment, as approved by the Funds
. Record retention, retrieval and destruction costs, including, but not limited
to exit fees charged by third party record keeping vendors
. Third party audit reviews
. Ad hoc programming time
. Insurance
. Such other miscellaneous expenses reasonably incurred by the Transfer Agent
in performing its duties and responsibilities under this Agreement
7
<PAGE>
EXHIBIT 1
LIST OF SERIES
--------------
Money Market Fund
US Government Securities Fund
Growth & Income Fund
Income Fund
Emerging Growth Fund
International Growth Fund
Growth Fund
Short Term High Quality Bond Fund
Bond & Stock Fund
Northwest Fund
Strategic Growth Portfolio
Conservative Growth Portfolio
Balanced Portfolio
Flexible Income Portfolio
Income Portfolio
8
<PAGE>
WM Trust I
WM Trust II
WM Variable Trust
WM Prime Income Fund
WM Strategic Asset Management Portfolios
POWER OF ATTORNEY
-----------------
The individual whose signature appears below does hereby constitute and
appoint Monte D. Calvin, Sandra A. Cavanaugh, William G. Papesh and John T.
West, and each of them acting alone, as his/her true and lawful attorney and
agent, with power of substitution or resubstitution, to do any and all acts and
things and to execute any and all instruments which said attorney and agent may
deem necessary or advisable or which may be required to enable each of WM Trust
I, WM Trust II, WM Variable Trust, WM Prime Income Fund, WM Strategic Asset
Management Portfolios (collectively, the "Registrants") to comply with the
Securities Act of 1933, as amended (the "1933 Act") and the Investment Company
Act of 1940, as amended (the "1940 Act"), and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with each Registrant's Registration Statement(s) on Form N-1A or N-2
pursuant to the 1933 Act and/or the 1940 Act, together with any and all
amendments thereto, including specifically, but without limiting the generality
of the foregoing, the power and authority to sign in the name and on behalf of
the undersigned as a trustee or director (as appropriate) of each Registrant
each such Registration Statement and any and all such amendments filed with the
Securities and Exchange Commission under the 1933 Act and/or the 1940 Act, and
any other instruments or documents related thereto, and the undersigned does
hereby ratify and confirm all that said attorney and agent shall do or cause to
be done by virtue hereof.
Date: March 10, 1998
/s/ Arthur Bernstein
- ----------------------------
Trustee
<PAGE>
WM Trust I
WM Trust II
WM Variable Trust
WM Prime Income Fund
WM Strategic Asset Management Portfolios
POWER OF ATTORNEY
-----------------
The individual whose signature appears below does hereby constitute and
appoint Monte D. Calvin, Sandra A. Cavanaugh, William G. Papesh and John T.
West, and each of them acting alone, as his/her true and lawful attorney and
agent, with power of substitution or resubstitution, to do any and all acts and
things and to execute any and all instruments which said attorney and agent may
deem necessary or advisable or which may be required to enable each of WM Trust
I, WM Trust II, WM Variable Trust, WM Prime Income Fund, WM Strategic Asset
Management Portfolios (collectively, the "Registrants") to comply with the
Securities Act of 1933, as amended (the "1933 Act") and the Investment Company
Act of 1940, as amended (the "1940 Act"), and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with each Registrant's Registration Statement(s) on Form N-1A or N-2
pursuant to the 1933 Act and/or the 1940 Act, together with any and all
amendments thereto, including specifically, but without limiting the generality
of the foregoing, the power and authority to sign in the name and on behalf of
the undersigned as a trustee or director (as appropriate) of each Registrant
each such Registration Statement and any and all such amendments filed with the
Securities and Exchange Commission under the 1933 Act and/or the 1940 Act, and
any other instruments or documents related thereto, and the undersigned does
hereby ratify and confirm all that said attorney and agent shall do or cause to
be done by virtue hereof.
Date: March 10, 1998
/s/ Kristianne Blake
- ----------------------------
Trustee
<PAGE>
WM Trust I
WM Trust II
WM Variable Trust
WM Prime Income Fund
WM Strategic Asset Management Portfolios
POWER OF ATTORNEY
-----------------
The individual whose signature appears below does hereby constitute and
appoint Monte D. Calvin, Sandra A. Cavanaugh, William G. Papesh and John T.
West, and each of them acting alone, as his/her true and lawful attorney and
agent, with power of substitution or resubstitution, to do any and all acts and
things and to execute any and all instruments which said attorney and agent may
deem necessary or advisable or which may be required to enable each of WM Trust
I, WM Trust II, WM Variable Trust, WM Prime Income Fund, WM Strategic Asset
Management Portfolios (collectively, the "Registrants") to comply with the
Securities Act of 1933, as amended (the "1933 Act") and the Investment Company
Act of 1940, as amended (the "1940 Act"), and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with each Registrant's Registration Statement(s) on Form N-1A or N-2
pursuant to the 1933 Act and/or the 1940 Act, together with any and all
amendments thereto, including specifically, but without limiting the generality
of the foregoing, the power and authority to sign in the name and on behalf of
the undersigned as a trustee or director (as appropriate) of each Registrant
each such Registration Statement and any and all such amendments filed with the
Securities and Exchange Commission under the 1933 Act and/or the 1940 Act, and
any other instruments or documents related thereto, and the undersigned does
hereby ratify and confirm all that said attorney and agent shall do or cause to
be done by virtue hereof.
Date: March 10, 1998
/s/ Edward R. Davis
- ----------------------------
Trustee
<PAGE>
WM Trust I
WM Trust II
WM Variable Trust
WM Prime Income Fund
WM Strategic Asset Management Portfolios
POWER OF ATTORNEY
-----------------
The individual whose signature appears below does hereby constitute and
appoint Monte D. Calvin, Sandra A. Cavanaugh, William G. Papesh and John T.
West, and each of them acting alone, as his/her true and lawful attorney and
agent, with power of substitution or resubstitution, to do any and all acts and
things and to execute any and all instruments which said attorney and agent may
deem necessary or advisable or which may be required to enable each of WM Trust
I, WM Trust II, WM Variable Trust, WM Prime Income Fund, WM Strategic Asset
Management Portfolios (collectively, the "Registrants") to comply with the
Securities Act of 1933, as amended (the "1933 Act") and the Investment Company
Act of 1940, as amended (the "1940 Act"), and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with each Registrant's Registration Statement(s) on Form N-1A or N-2
pursuant to the 1933 Act and/or the 1940 Act, together with any and all
amendments thereto, including specifically, but without limiting the generality
of the foregoing, the power and authority to sign in the name and on behalf of
the undersigned as a trustee or director (as appropriate) of each Registrant
each such Registration Statement and any and all such amendments filed with the
Securities and Exchange Commission under the 1933 Act and/or the 1940 Act, and
any other instruments or documents related thereto, and the undersigned does
hereby ratify and confirm all that said attorney and agent shall do or cause to
be done by virtue hereof.
Date: March 11, 1998
/s/ John W. English
- ----------------------------
Trustee
<PAGE>
WM Trust I
WM Trust II
WM Variable Trust
WM Prime Income Fund
WM Strategic Asset Management Portfolios
POWER OF ATTORNEY
-----------------
The individual whose signature appears below does hereby constitute and
appoint Monte D. Calvin, Sandra A. Cavanaugh, William G. Papesh and John T.
West, and each of them acting alone, as his/her true and lawful attorney and
agent, with power of substitution or resubstitution, to do any and all acts and
things and to execute any and all instruments which said attorney and agent may
deem necessary or advisable or which may be required to enable each of WM Trust
I, WM Trust II, WM Variable Trust, WM Prime Income Fund, WM Strategic Asset
Management Portfolios (collectively, the "Registrants") to comply with the
Securities Act of 1933, as amended (the "1933 Act") and the Investment Company
Act of 1940, as amended (the "1940 Act"), and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with each Registrant's Registration Statement(s) on Form N-1A or N-2
pursuant to the 1933 Act and/or the 1940 Act, together with any and all
amendments thereto, including specifically, but without limiting the generality
of the foregoing, the power and authority to sign in the name and on behalf of
the undersigned as a trustee or director (as appropriate) of each Registrant
each such Registration Statement and any and all such amendments filed with the
Securities and Exchange Commission under the 1933 Act and/or the 1940 Act, and
any other instruments or documents related thereto, and the undersigned does
hereby ratify and confirm all that said attorney and agent shall do or cause to
be done by virtue hereof.
Date: March 10, 1998
/s/ Michael K. Murphy
- ----------------------------
Trustee
<PAGE>
WM Trust I
WM Trust II
WM Variable Trust
WM Prime Income Fund
WM Strategic Asset Management Portfolios
POWER OF ATTORNEY
-----------------
The individual whose signature appears below does hereby constitute and
appoint Monte D. Calvin, Sandra A. Cavanaugh, William G. Papesh and John T.
West, and each of them acting alone, as his/her true and lawful attorney and
agent, with power of substitution or resubstitution, to do any and all acts and
things and to execute any and all instruments which said attorney and agent may
deem necessary or advisable or which may be required to enable each of WM Trust
I, WM Trust II, WM Variable Trust, WM Prime Income Fund, WM Strategic Asset
Management Portfolios (collectively, the "Registrants") to comply with the
Securities Act of 1933, as amended (the "1933 Act") and the Investment Company
Act of 1940, as amended (the "1940 Act"), and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with each Registrant's Registration Statement(s) on Form N-1A or N-2
pursuant to the 1933 Act and/or the 1940 Act, together with any and all
amendments thereto, including specifically, but without limiting the generality
of the foregoing, the power and authority to sign in the name and on behalf of
the undersigned as a trustee or director (as appropriate) of each Registrant
each such Registration Statement and any and all such amendments filed with the
Securities and Exchange Commission under the 1933 Act and/or the 1940 Act, and
any other instruments or documents related thereto, and the undersigned does
hereby ratify and confirm all that said attorney and agent shall do or cause to
be done by virtue hereof.
Date: March 11, 1998
/s/ William G. Papesh
- ----------------------------
Trustee
<PAGE>
WM Trust I
WM Trust II
WM Variable Trust
WM Prime Income Fund
WM Strategic Asset Management Portfolios
POWER OF ATTORNEY
-----------------
The individual whose signature appears below does hereby constitute and
appoint Monte D. Calvin, Sandra A. Cavanaugh, William G. Papesh and John T.
West, and each of them acting alone, as his/her true and lawful attorney and
agent, with power of substitution or resubstitution, to do any and all acts and
things and to execute any and all instruments which said attorney and agent may
deem necessary or advisable or which may be required to enable each of WM Trust
I, WM Trust II, WM Variable Trust, WM Prime Income Fund, WM Strategic Asset
Management Portfolios (collectively, the "Registrants") to comply with the
Securities Act of 1933, as amended (the "1933 Act") and the Investment Company
Act of 1940, as amended (the "1940 Act"), and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with each Registrant's Registration Statement(s) on Form N-1A or N-2
pursuant to the 1933 Act and/or the 1940 Act, together with any and all
amendments thereto, including specifically, but without limiting the generality
of the foregoing, the power and authority to sign in the name and on behalf of
the undersigned as a trustee or director (as appropriate) of each Registrant
each such Registration Statement and any and all such amendments filed with the
Securities and Exchange Commission under the 1933 Act and/or the 1940 Act, and
any other instruments or documents related thereto, and the undersigned does
hereby ratify and confirm all that said attorney and agent shall do or cause to
be done by virtue hereof.
Date: March 11, 1998
/s/ Daniel Pavelich
- ----------------------------
Trustee
<PAGE>
WM Trust I
WM Trust II
WM Variable Trust
WM Prime Income Fund
WM Strategic Asset Management Portfolios
POWER OF ATTORNEY
-----------------
The individual whose signature appears below does hereby constitute and
appoint Monte D. Calvin, Sandra A. Cavanaugh, William G. Papesh and John T.
West, and each of them acting alone, as his/her true and lawful attorney and
agent, with power of substitution or resubstitution, to do any and all acts and
things and to execute any and all instruments which said attorney and agent may
deem necessary or advisable or which may be required to enable each of WM Trust
I, WM Trust II, WM Variable Trust, WM Prime Income Fund, WM Strategic Asset
Management Portfolios (collectively, the "Registrants") to comply with the
Securities Act of 1933, as amended (the "1933 Act") and the Investment Company
Act of 1940, as amended (the "1940 Act"), and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with each Registrant's Registration Statement(s) on Form N-1A or N-2
pursuant to the 1933 Act and/or the 1940 Act, together with any and all
amendments thereto, including specifically, but without limiting the generality
of the foregoing, the power and authority to sign in the name and on behalf of
the undersigned as a trustee or director (as appropriate) of each Registrant
each such Registration Statement and any and all such amendments filed with the
Securities and Exchange Commission under the 1933 Act and/or the 1940 Act, and
any other instruments or documents related thereto, and the undersigned does
hereby ratify and confirm all that said attorney and agent shall do or cause to
be done by virtue hereof.
Date: March 10, 1998
/s/ Jay Rockey
- ----------------------------
Trustee
<PAGE>
WM Trust I
WM Trust II
WM Variable Trust
WM Prime Income Fund
WM Strategic Asset Management Portfolios
POWER OF ATTORNEY
-----------------
The individual whose signature appears below does hereby constitute and
appoint Monte D. Calvin, Sandra A. Cavanaugh, William G. Papesh and John T.
West, and each of them acting alone, as his/her true and lawful attorney and
agent, with power of substitution or resubstitution, to do any and all acts and
things and to execute any and all instruments which said attorney and agent may
deem necessary or advisable or which may be required to enable each of WM Trust
I, WM Trust II, WM Variable Trust, WM Prime Income Fund, WM Strategic Asset
Management Portfolios (collectively, the "Registrants") to comply with the
Securities Act of 1933, as amended (the "1933 Act") and the Investment Company
Act of 1940, as amended (the "1940 Act"), and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with each Registrant's Registration Statement(s) on Form N-1A or N-2
pursuant to the 1933 Act and/or the 1940 Act, together with any and all
amendments thereto, including specifically, but without limiting the generality
of the foregoing, the power and authority to sign in the name and on behalf of
the undersigned as a trustee or director (as appropriate) of each Registrant
each such Registration Statement and any and all such amendments filed with the
Securities and Exchange Commission under the 1933 Act and/or the 1940 Act, and
any other instruments or documents related thereto, and the undersigned does
hereby ratify and confirm all that said attorney and agent shall do or cause to
be done by virtue hereof.
Date: March 10, 1998
/s/ Alfred Osborne
- ----------------------------
Trustee
<PAGE>
WM Trust I
WM Trust II
WM Variable Trust
WM Prime Income Fund
WM Strategic Asset Management Portfolios
POWER OF ATTORNEY
-----------------
The individual whose signature appears below does hereby constitute and
appoint Monte D. Calvin, Sandra A. Cavanaugh, William G. Papesh and John T.
West, and each of them acting alone, as his/her true and lawful attorney and
agent, with power of substitution or resubstitution, to do any and all acts and
things and to execute any and all instruments which said attorney and agent may
deem necessary or advisable or which may be required to enable each of WM Trust
I, WM Trust II, WM Variable Trust, WM Prime Income Fund, WM Strategic Asset
Management Portfolios (collectively, the "Registrants") to comply with the
Securities Act of 1933, as amended (the "1933 Act") and the Investment Company
Act of 1940, as amended (the "1940 Act"), and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with each Registrant's Registration Statement(s) on Form N-1A or N-2
pursuant to the 1933 Act and/or the 1940 Act, together with any and all
amendments thereto, including specifically, but without limiting the generality
of the foregoing, the power and authority to sign in the name and on behalf of
the undersigned as a trustee or director (as appropriate) of each Registrant
each such Registration Statement and any and all such amendments filed with the
Securities and Exchange Commission under the 1933 Act and/or the 1940 Act, and
any other instruments or documents related thereto, and the undersigned does
hereby ratify and confirm all that said attorney and agent shall do or cause to
be done by virtue hereof.
Date: March 10, 1998
/s/ Wayne L. Attwood
- ----------------------------
Trustee
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> MONEY MARKET FUND (FORMERLY SIERRA VT GLOBAL MONEY FUND)
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 32,782,551
<INVESTMENTS-AT-VALUE> 32,782,551
<RECEIVABLES> 134,151
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 10,670
<TOTAL-ASSETS> 32,927,372
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 62,958
<TOTAL-LIABILITIES> 62,958
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 32,841,858
<SHARES-COMMON-STOCK> 32,845,149
<SHARES-COMMON-PRIOR> 23,261,642
<ACCUMULATED-NII-CURRENT> 22,556
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 32,864,414
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,697,307
<OTHER-INCOME> 0
<EXPENSES-NET> 226,296
<NET-INVESTMENT-INCOME> 1,471,011
<REALIZED-GAINS-CURRENT> 3,305
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 1,474,316
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,467,623)
<DISTRIBUTIONS-OF-GAINS> (3,305)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 17,390,619
<NUMBER-OF-SHARES-REDEEMED> (9,266,038)
<SHARES-REINVESTED> 1,470,928
<NET-CHANGE-IN-ASSETS> 9,598,897
<ACCUMULATED-NII-PRIOR> 15,877
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 150,657
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 255,814
<AVERAGE-NET-ASSETS> 30,131,373
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> (0.00)
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> (0.00)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 021
<NAME> GROWTH FUND (FORMERLY SIERRA VT GROWTH FUND)
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 112,121,892
<INVESTMENTS-AT-VALUE> 125,629,198
<RECEIVABLES> 1,944,488
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 49,160
<TOTAL-ASSETS> 127,622,846
<PAYABLE-FOR-SECURITIES> 5,631,986
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 225,226
<TOTAL-LIABILITIES> 5,857,212
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 96,153,232
<SHARES-COMMON-STOCK> 7,903,699
<SHARES-COMMON-PRIOR> 7,247,908
<ACCUMULATED-NII-CURRENT> 593,054
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 11,547,691
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 13,471,657
<NET-ASSETS> 121,765,634
<DIVIDEND-INCOME> 693,347
<INTEREST-INCOME> 794,750
<OTHER-INCOME> 0
<EXPENSES-NET> 1,402,035
<NET-INVESTMENT-INCOME> 86,062
<REALIZED-GAINS-CURRENT> 12,732,367
<APPREC-INCREASE-CURRENT> (216,443)
<NET-CHANGE-FROM-OPS> 12,601,986
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (138,925)
<DISTRIBUTIONS-OF-GAINS> (15,601,296)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 412,682
<NUMBER-OF-SHARES-REDEEMED> (838,693)
<SHARES-REINVESTED> 1,081,802
<NET-CHANGE-IN-ASSETS> 5,701,850
<ACCUMULATED-NII-PRIOR> 145,343
<ACCUMULATED-GAINS-PRIOR> 14,913,903
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,055,947
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,408,455
<AVERAGE-NET-ASSETS> 118,536,821
<PER-SHARE-NAV-BEGIN> 16.01
<PER-SHARE-NII> 0.07
<PER-SHARE-GAIN-APPREC> 1.60
<PER-SHARE-DIVIDEND> (0.02)
<PER-SHARE-DISTRIBUTIONS> (2.25)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 15.41
<EXPENSE-RATIO> 1.18
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 031
<NAME> INTERNATIONAL GROWTH FUND
(FORMERLY SIERRA VT INTERNATIONL GROWTH FUND)
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 47,028,402
<INVESTMENTS-AT-VALUE> 48,386,747
<RECEIVABLES> 687,002
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 928,553
<TOTAL-ASSETS> 50,002,302
<PAYABLE-FOR-SECURITIES> 206,701
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 159,619
<TOTAL-LIABILITIES> 366,320
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 47,575,007
<SHARES-COMMON-STOCK> 4,049,108
<SHARES-COMMON-PRIOR> 4,790,516
<ACCUMULATED-NII-CURRENT> 2,359,423
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (2,138,344)
<ACCUM-APPREC-OR-DEPREC> 1,839,896
<NET-ASSETS> 49,635,982
<DIVIDEND-INCOME> 943,423
<INTEREST-INCOME> 200,190
<OTHER-INCOME> 0
<EXPENSES-NET> 825,046
<NET-INVESTMENT-INCOME> 318,567
<REALIZED-GAINS-CURRENT> 390,662
<APPREC-INCREASE-CURRENT> (2,047,041)
<NET-CHANGE-FROM-OPS> (1,337,812)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,127,686)
<DISTRIBUTIONS-OF-GAINS> (1,036,604)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 166,404
<NUMBER-OF-SHARES-REDEEMED> (1,058,739)
<SHARES-REINVESTED> 150,927
<NET-CHANGE-IN-ASSETS> (12,718,534)
<ACCUMULATED-NII-PRIOR> 619,142
<ACCUMULATED-GAINS-PRIOR> 1,053,707
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 567,918
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 826,108
<AVERAGE-NET-ASSETS> 60,931,483
<PER-SHARE-NAV-BEGIN> 13.02
<PER-SHARE-NII> 0.71
<PER-SHARE-GAIN-APPREC> (0.97)
<PER-SHARE-DIVIDEND> (0.26)
<PER-SHARE-DISTRIBUTIONS> (0.24)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.26
<EXPENSE-RATIO> 1.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 041
<NAME> U.S. GOVERNMENT SECURITIES FUND
(FORMERLY SIERRA VT U.S. GOVERNMENT FUND)
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 68,398,203
<INVESTMENTS-AT-VALUE> 71,277,688
<RECEIVABLES> 533,082
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 60,526
<TOTAL-ASSETS> 71,871,296
<PAYABLE-FOR-SECURITIES> 7,239,952
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,937,247
<TOTAL-LIABILITIES> 10,214,887
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 60,995,874
<SHARES-COMMON-STOCK> 6,143,984
<SHARES-COMMON-PRIOR> 6,815,332
<ACCUMULATED-NII-CURRENT> 72,796
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,197,110)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,784,849
<NET-ASSETS> 61,656,409
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,843,933
<OTHER-INCOME> 0
<EXPENSES-NET> 967,902
<NET-INVESTMENT-INCOME> 3,942,935
<REALIZED-GAINS-CURRENT> 117,793
<APPREC-INCREASE-CURRENT> 1,427,909
<NET-CHANGE-FROM-OPS> 5,488,637
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,881,167)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 207,040
<NUMBER-OF-SHARES-REDEEMED> (1,274,529)
<SHARES-REINVESTED> 396,141
<NET-CHANGE-IN-ASSETS> (4,906,886)
<ACCUMULATED-NII-PRIOR> 25,240
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (2,332,406)
<GROSS-ADVISORY-FEES> 376,599
<INTEREST-EXPENSE> 400,422
<GROSS-EXPENSE> 971,000
<AVERAGE-NET-ASSETS> 62,766,417
<PER-SHARE-NAV-BEGIN> 9.77
<PER-SHARE-NII> 0.63
<PER-SHARE-GAIN-APPREC> 0.26
<PER-SHARE-DIVIDEND> (0.62)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.04
<EXPENSE-RATIO> 0.90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 051
<NAME> INCOME FUND (FORMERLY SIERRA VT CORPORATE INCOME FUND)
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 48,588,822
<INVESTMENTS-AT-VALUE> 50,759,261
<RECEIVABLES> 983,668
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 7,947
<TOTAL-ASSETS> 51,750,876
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 80,410
<TOTAL-LIABILITIES> 80,410
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 51,755,980
<SHARES-COMMON-STOCK> 5,070,611
<SHARES-COMMON-PRIOR> 6,095,560
<ACCUMULATED-NII-CURRENT> 58,392
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,314,345)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,170,439
<NET-ASSETS> 51,670,466
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,177,785
<OTHER-INCOME> 0
<EXPENSES-NET> 510,031
<NET-INVESTMENT-INCOME> 3,689,786
<REALIZED-GAINS-CURRENT> (82,245)
<APPREC-INCREASE-CURRENT> 1,706,635
<NET-CHANGE-FROM-OPS> 5,314,176
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,679,274)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 116,943
<NUMBER-OF-SHARES-REDEEMED> (1,516,352)
<SHARES-REINVESTED> 374,460
<NET-CHANGE-IN-ASSETS> (8,212,734)
<ACCUMULATED-NII-PRIOR> 55,812
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (2,243,323)
<GROSS-ADVISORY-FEES> 345,006
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 510,657
<AVERAGE-NET-ASSETS> 53,077,873
<PER-SHARE-NAV-BEGIN> 9.82
<PER-SHARE-NII> 0.70
<PER-SHARE-GAIN-APPREC> 0.37
<PER-SHARE-DIVIDEND> (0.70)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.19
<EXPENSE-RATIO> 0.96
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 081
<NAME> GROWTH & INCOME FUND
(FORMERLY SIERRA VT GROWTH & INCOME FUND)
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 90,831,633
<INVESTMENTS-AT-VALUE> 101,932,686
<RECEIVABLES> 143,190
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 6,614
<TOTAL-ASSETS> 102,082,490
<PAYABLE-FOR-SECURITIES> 151,361
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 136,661
<TOTAL-LIABILITIES> 288,022
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 72,943,861
<SHARES-COMMON-STOCK> 6,014,699
<SHARES-COMMON-PRIOR> 4,370,788
<ACCUMULATED-NII-CURRENT> 440,157
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 17,309,397
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 11,101,053
<NET-ASSETS> 101,794,468
<DIVIDEND-INCOME> 1,279,993
<INTEREST-INCOME> 146,794
<OTHER-INCOME> 0
<EXPENSES-NET> 944,012
<NET-INVESTMENT-INCOME> 482,775
<REALIZED-GAINS-CURRENT> 17,343,219
<APPREC-INCREASE-CURRENT> 3,441,585
<NET-CHANGE-FROM-OPS> 21,267,579
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (539,740)
<DISTRIBUTIONS-OF-GAINS> (6,617,216)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,556,541
<NUMBER-OF-SHARES-REDEEMED> (372,884)
<SHARES-REINVESTED> 460,254
<NET-CHANGE-IN-ASSETS> 39,349,933
<ACCUMULATED-NII-PRIOR> 497,122
<ACCUMULATED-GAINS-PRIOR> 6,583,394
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 697,411
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 945,427
<AVERAGE-NET-ASSETS> 87,180,513
<PER-SHARE-NAV-BEGIN> 14.29
<PER-SHARE-NII> 0.06
<PER-SHARE-GAIN-APPREC> 3.90
<PER-SHARE-DIVIDEND> (0.10)
<PER-SHARE-DISTRIBUTIONS> (1.23)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 16.92
<EXPENSE-RATIO> 1.08
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 091
<NAME> SHORT-TERM HIGH QUALITY BOND FUND
(FORMERLY SIERRA VT SHORT-TERM HIGH QUALITY BOND)
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 11,724,348
<INVESTMENTS-AT-VALUE> 11,885,725
<RECEIVABLES> 97,822
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 1,192
<TOTAL-ASSETS> 11,984,739
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 40,352
<TOTAL-LIABILITIES> 40,352
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 12,248,379
<SHARES-COMMON-STOCK> 4,918,644
<SHARES-COMMON-PRIOR> 5,099,390
<ACCUMULATED-NII-CURRENT> 14,926
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (473,795)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 154,877
<NET-ASSETS> 11,944,387
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 859,503
<OTHER-INCOME> 0
<EXPENSES-NET> 122,027
<NET-INVESTMENT-INCOME> 737,476
<REALIZED-GAINS-CURRENT> (117,087)
<APPREC-INCREASE-CURRENT> 60,370
<NET-CHANGE-FROM-OPS> 680,759
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (687,795)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 406,817
<NUMBER-OF-SHARES-REDEEMED> (871,194)
<SHARES-REINVESTED> 283,631
<NET-CHANGE-IN-ASSETS> (457,495)
<ACCUMULATED-NII-PRIOR> 3,803
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (395,266)
<GROSS-ADVISORY-FEES> 61,044
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 126,208
<AVERAGE-NET-ASSETS> 12,208,759
<PER-SHARE-NAV-BEGIN> 2.43
<PER-SHARE-NII> 0.14
<PER-SHARE-GAIN-APPREC> (0.00)
<PER-SHARE-DIVIDEND> (0.14)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 2.43
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 101
<NAME> STRATEGIC GROWTH PORTFOLIO (FORMERLY SIERRA VT CAPITAL
GROWTH PORTFOLIO)
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 618,893
<INVESTMENTS-AT-VALUE> 610,811
<RECEIVABLES> 3,563
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 37,393
<TOTAL-ASSETS> 651,767
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 60,384
<TOTAL-LIABILITIES> 60,384
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 593,033
<SHARES-COMMON-STOCK> 55,292
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 5,393
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,039
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (8,082)
<NET-ASSETS> 591,383
<DIVIDEND-INCOME> 1,510
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 612
<NET-INVESTMENT-INCOME> 898
<REALIZED-GAINS-CURRENT> 3,198
<APPREC-INCREASE-CURRENT> (8,082)
<NET-CHANGE-FROM-OPS> (3,986)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 57,065
<NUMBER-OF-SHARES-REDEEMED> (1,773)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 591,383
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 177
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 27,484
<AVERAGE-NET-ASSETS> 305,904
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.10
<PER-SHARE-GAIN-APPREC> 0.60
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.70
<EXPENSE-RATIO> 0.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 111
<NAME> CONSERVATIVE GROWTH PORTFOLIO (FORMERLY SIERRA VT GROWTH
PORTFOLIO)
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 1,238,045
<INVESTMENTS-AT-VALUE> 1,227,605
<RECEIVABLES> 167,853
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 39,888
<TOTAL-ASSETS> 1,435,346
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 61,684
<TOTAL-LIABILITIES> 61,684
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,394,108
<SHARES-COMMON-STOCK> 130,946
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 9,484
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (19,490)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (10,440)
<NET-ASSETS> 1,373,662
<DIVIDEND-INCOME> 6,953
<INTEREST-INCOME> 85
<OTHER-INCOME> 0
<EXPENSES-NET> 1,542
<NET-INVESTMENT-INCOME> 5,496
<REALIZED-GAINS-CURRENT> (17,838)
<APPREC-INCREASE-CURRENT> (10,440)
<NET-CHANGE-FROM-OPS> (22,782)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 154,598
<NUMBER-OF-SHARES-REDEEMED> (23,652)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1,373,662
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 443
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 29,560
<AVERAGE-NET-ASSETS> 766,693
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.07
<PER-SHARE-GAIN-APPREC> 0.42
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.49
<EXPENSE-RATIO> 0.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 121
<NAME> BALANCED PORTFOLIO (FORMERLY SIERRA VT BALANCED PORTFOLIO)
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 2,377,987
<INVESTMENTS-AT-VALUE> 2,371,496
<RECEIVABLES> 7,967
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 38,432
<TOTAL-ASSETS> 2,417,895
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 63,916
<TOTAL-LIABILITIES> 63,916
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,342,963
<SHARES-COMMON-STOCK> 224,852
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 29,960
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (12,453)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (6,491)
<NET-ASSETS> 2,353,979
<DIVIDEND-INCOME> 22,609
<INTEREST-INCOME> 201
<OTHER-INCOME> 0
<EXPENSES-NET> 2,945
<NET-INVESTMENT-INCOME> 19,865
<REALIZED-GAINS-CURRENT> (4,694)
<APPREC-INCREASE-CURRENT> (6,491)
<NET-CHANGE-FROM-OPS> 8,680
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 235,893
<NUMBER-OF-SHARES-REDEEMED> (11,041)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 2,353,979
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 849
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 33,701
<AVERAGE-NET-ASSETS> 1,468,918
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.13
<PER-SHARE-GAIN-APPREC> 0.34
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.47
<EXPENSE-RATIO> 0.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 131
<NAME> FLEXIBLE INCOME PORTFOLIO
(FORMERLY SIERRA VT VALUE PORTFOLIO)
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 116,030
<INVESTMENTS-AT-VALUE> 116,031
<RECEIVABLES> 2,223
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 9,273
<TOTAL-ASSETS> 127,527
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 27,174
<TOTAL-LIABILITIES> 27,174
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 99,918
<SHARES-COMMON-STOCK> 9,807
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 416
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 18
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1
<NET-ASSETS> 100,353
<DIVIDEND-INCOME> 1,253
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 58
<NET-INVESTMENT-INCOME> 1,195
<REALIZED-GAINS-CURRENT> 18
<APPREC-INCREASE-CURRENT> 1
<NET-CHANGE-FROM-OPS> 1,214
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9,950
<NUMBER-OF-SHARES-REDEEMED> (143)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 100,353
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 17
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 19,729
<AVERAGE-NET-ASSETS> 54,846
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 0.19
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.23
<EXPENSE-RATIO> 0.34
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 141
<NAME> INCOME PORTFOLIO (FORMERLY SIERRA VT INCOME PORTFOLIO)
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 5,791
<TOTAL-ASSETS> 5,791
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,791
<TOTAL-LIABILITIES> 5,791
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 23
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 23
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 291
<NUMBER-OF-SHARES-REDEEMED> (291)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,469
<AVERAGE-NET-ASSETS> 2,931
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 0.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
