<PAGE> 1
[60 YEARS INVESTMENT EXPERIENCE GRAPHIC]
[LOGO] WM VARIABLE TRUST
the difference is experience
[VARIOUS BUSINESS GRAPHICS]
Annual Report
for the year ended December 31, 1999
<PAGE> 2
FIXED-INCOME FUND DIVISIONS
money market fund
short term high quality bond fund
u.s. government securities fund
income fund
EQUITY FUND DIVISIONS
bond & stock fund
growth & income fund
growth fund
northwest fund
emerging growth fund
international growth fund
STRATEGIC ASSET
MANAGEMENT
PORTFOLIO DIVISIONS
strategic growth
portfolio
conservative growth
portfolio
balanced portfolio
flexible income portfolio
income portfolio
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
message from the president 1
diversifying your portfolio
and managing risk 2
individual fund reviews 4
statements of assets
and liabilities 34
statements of operations 38
statements of changes
in net assets 40
statements of changes
in net assets - capital
stock activity 44
financial highlights 46
portfolio of investments 61
notes to financial
statements 82
independent
auditor's report 93
special meeting
of shareholders
(unaudited) 94
tax information
(unaudited) 95
</TABLE>
[BACKGROUND GRAPHICS]
<PAGE> 3
[PHOTO WILLIAM G. PAPESH]
Dear Contract Owner,
The decade, the century, and the millennium have simultaneously drawn to a
close. To the typical investor, the more recent past is likely of greatest
interest. In the 1990s, the value of the U.S. stock market rose over 400%, as
measured by the S&P 500. (1) The 1990s also saw one of the longest-running
economic expansions on record. However, compared to other historic investment
events of this century, the 1990s are perhaps not all that remarkable.
In 1999, our fund family celebrated its 60th year in the investment management
business. Our time-honored tradition dates back to 1939 when Composite Research
& Management Co. (now known as WM Advisors, Inc.) launched the Bond & Stock
Fund, which was one of the first 50 mutual funds in the U.S. Today, investors
can choose from more than 7,000 mutual funds. In the intervening 60 years, the
investment landscape has been permanently altered, first by theoretical advances
in finance and then by innovations in computer technology. We have managed stock
and bond investments through six decades of changing market environments,
including World War II, the Vietnam War, wage and price controls, the stock
market crash of 1987, and 10 recessions. Throughout these events, our approach
to investing has remained the same, defined by rigorous research, a commitment
to outstanding performance, and a value-oriented investment philosophy.
From the beginning, the WM Funds has recognized the value of diversification in
managing investment portfolios. By combining bond and stock investments in a
single portfolio in the 1930s, the Bond & Stock Fund sought to offer investors a
convenient and professionally managed investment vehicle designed to weather the
storms of changing market conditions. The theory of diversification - which
created a means to mathematically measure the actual and potential
risk-reduction benefits of investing in a diversified portfolio - did not arise
until the 1950s. Since then, computer technology has led to more sophisticated
asset allocation models such as those employed in managing the WM Strategic
Asset Management (SAM) Portfolios. The addition of the International Growth Fund
to the WM Funds family has provided expanded opportunities for individuals to
craft a well-diversified portfolio.
The importance of diversification in managing investment risk was evident in the
financial market results in 1999. During the 12-month period ended December 31,
1999, both U.S. and foreign stock markets posted strong gains, with the S&P 500
up over 21%(1) and the Morgan Stanley Capital International Europe, Australasia
and the Far East (MSCI EAFE) Index rising over 27%. (2) A combination of low
inflation, strong economic growth and continued consumer spending helped sustain
corporate earnings and the U.S. equity market. Internationally, higher share
prices in Japan and a recovery from the currency crisis in Pacific Rim countries
helped boost the international index. However, U.S. bond markets declined during
the same period in response to the Federal Reserve raising interest rates in an
attempt to forestall any potential increases in inflation.
As is often the case, stock and bond markets moved in opposite directions
throughout much of 1999. Bond investors who included some stock investments in
their portfolios, probably fared better than those who held only fixed-income
investments. Those who invested primarily in stock funds may have experienced a
high degree of volatility throughout the year. Including a small allocation to
bonds and bond funds in an equity portfolio can help temper risk and, over time,
result potentially in higher long-term returns.
Your Investment Representative can help you select an appropriate mix of
investments for your portfolio based on your financial goals. Whether you are
seeking current income or long-term capital appreciation, the WM Funds offer
investment vehicles designed to meet your goals and financial needs. For
example, the SAM Portfolios provide the convenience of immediate diversification
and the advantages of professionally managed asset allocation through changing
market conditions. For more information about additional strategies that can
help you pursue your financial objectives, speak with your Investment
Representative.
We look forward to the ongoing leveraging of our experience and history to meet
the investment challenges of the new millennium. Thank you for your continued
confidence in the WM Funds.
Sincerely,
/S/ William G. Papesh
William G. Papesh
President
(1) Source: Ibbotson Associates. The S&P 500 is an unmanaged index of common
stocks. Results include reinvestment of dividends.
(2) The Morgan Stanley Capital International Europe, Australasia and the Far
East (MSCI EAFE) index is a market capitalization weighted index designed
to measure the performance of 23 developed markets worldwide.
Past performance is no guarantee of future results. Individuals cannot invest
directly in any index.
1
<PAGE> 4
[KEY GRAPHIC]
DIVERSIFYING
YOUR PORTFOLIO CAN HELP YOU
MANAGE INVESTMENT RISK.
Building a diversified portfolio may provide the key to finding a balance
between risk and the pursuit of your investment goals.
Investment risk comes in many forms. The risk that most people think of is the
potential to lose money due to a decline in the value of an investment.
Understanding this type of risk - known as market risk - is critical to making
sound investment decisions. Other types of risk, however, should also be
considered when choosing investments. Those who are investing for current income
or to preserve capital often overlook inflation risk. But over time, inflation
can eat away at your purchasing power. If prices were to rise at an inflation
rate of 4% per year, after 20 years a dollar would buy only half as much as it
does today. Another more subtle form of risk involves the possibility of not
meeting your investment objectives. If you are investing to build a nest egg for
retirement, for example, the consequences of not meeting your goal could be
significant.
Unfortunately, these different types of risk can make it difficult for people to
feel comfortable with their investment choices. For example, if you invest in
growth-oriented stock funds in order to have the best chance of outpacing
inflation, you will generally incur a higher degree of market risk, since stocks
tend to be more volatile than other types of investments. Building a diversified
portfolio may provide the key to finding a balance between risk and the pursuit
of your investment goals.
ASSET ALLOCATION
TAKES THE CONCEPT OF
DIVERSIFICATION
ONE STEP FURTHER.
WHY DIVERSIFICATION CAN HELP REDUCE RISK
Diversification helps put the law of averages to work for you. When you invest
in more than one stock or bond, your portfolio return is based on the average of
all the individual securities in the portfolio. But the variability of your
returns - a way to measure your chance of loss - will likely be less than the
average volatility of the individual securities. This means that by
diversifying, you can potentially reduce risk without having to sacrifice the
opportunity to earn higher returns.
Asset allocation takes the concept of diversification one step further. Because
prices of different types of assets, such as money market instruments, bonds,
and stocks, often don't react the same way to market events, they can provide
potentially greater diversification benefits than securities in the same asset
class. A measure that can help assess the potential risk-reduction afforded is
known as correlation. The lower the corre-
2
<PAGE> 5
lation between two securities, the greater the diversification opportunities. In
general, stocks and bonds have a correlation of less than 0.30.* Perfect
correlation between two securities is 1.0.
CORRELATION IS THE
DEGREE TO WHICH
INVESTMENTS MOVE UP
AND DOWN TOGETHER.
KEEP YOUR
TIME FRAME IN MIND
The individual asset classes that you choose for your investment portfolio will
depend largely on your time frame. Whether you are pursuing a short-term goal or
have a longer-term investment horizon, it's always important to seek to
diversify your investments appropriately. For more information about how to
tailor your portfolio to fit your objectives, speak with your financial
representative.
Fixed-Income Investments Can Help SMOOTH PORTFOLIO RETURNS
Although equity investments have dominated headlines in recent years,
fixed-income securities remain a viable investment alternative that can play an
important part in an overall investment portfolio. Bond investments are
generally less risky than stock investments and have a predictable income stream
that continues even if prices decline. With low inflation creating strong real
returns, the current market environment is quite positive for fixed-income
investments. The real return of an investment is the difference between the
overall return and the current rate of inflation; it measures the change in
wealth or buying power offered by an investment. Even with bond yields that are
less than historical averages, lower inflation can produce very attractive real
returns.
In addition to strong results, fixed-income investments offer diversification
and risk management characteristics as a part of an overall investment
portfolio. Bonds can reduce volatility in your portfolio if combined with stock
investments. Bond investments also offer a safer environment if you are closer
to reaching a long-term goal, such as a college fund or retirement portfolio.
Speak with your representative about your current portfolio and discuss
strategies to incorporate fixed-income investments.
STRONG REAL RETURNS FOR FIXED-INCOME INVESTMENTS
VS. INFLATION (January 1985 - December 1999)
<TABLE>
<S> <C>
Hi-Yield Corporate 11.42%
Corporate 9.81%
Mortgage 9.54%
Government 8.85%
Inflation 3.18%
</TABLE>
[BAR GRAPH]
Source: Ibbotson Associates. Lehman Brothers indices used for Corporate,
Mortgage and Government Bonds; Ibbotson indices used for high-yield bonds and
inflation. Individuals cannot invest directly in an index.
CONSIDER INTERNATIONAL INVESTMENTS
Over the years, the correlation between domestic stocks and bonds has gradually
risen. Therefore, the potential diversification benefits afforded today, while
still quite substantial, may not be as significant as they were in the '40s,
'50s, and '60s. Because the concept of diversification applies to many types of
investments, you can potentially further reduce the variability of your
portfolio returns by investing in additional asset classes.
If you are investing for a long-term goal, including international investments
in your asset allocation may potentially help temper declines in the value of
your domestic stock and bond investments over time. Prices of stocks and bonds
issued by companies or governments in foreign countries often do not move in
tandem with securities prices in the U.S. For example, the foreign stocks that
comprise the Morgan Stanley Capital International EAFE Index have a correlation
of 0.49 with the S&P 500 Index.**
Of course, risk is only part of the equation. The chart to the left shows annual
historical returns for international stock and bond indices since 1985. As in
the U.S. markets, stocks have generally posted higher returns than bonds over
time, but also carry a greater degree of risk.
*Source: Ibbotson Associates. Stocks are represented by the S&P 500. Bonds are
represented by the returns of the Lehman Brothers Aggregate Bond Index. Based on
monthly returns for the 20-year period ended December 31, 1999.
** Source: Ibbotson Associates. Based on monthly returns for the 20-year period
ended December 31, 1999. International investments can carry greater risks
including currency, liquidity and political risks.
PERFORMANCE OF INTERNATIONAL INVESTMENT INDICES
(January 1985 - December 1999)
<TABLE>
<S> <C>
MSCI Nordic Countries 24.62%
MSCI Europe 20.16%
MSCI World 17.07%
MSCI EAFE 16.29%
SB Foreign Government Bonds 12.66%
IFCG Emerging Markets 12.35%
MSCI Far East 12.04%
</TABLE>
[BAR GRAPH]
Source: Ibbotson Associates. Regional equity indices provided by Morgan Stanley
Capital International (MSCI), bond index provided by Salomon Brothers (SB), and
Emerging Markets index provided by the International Finance Corporation (IFCG).
Individuals cannot invest directly in an index. International investments can
carry greater risks including currency, liquidity and political risks.
3
<PAGE> 6
INDIVIDUAL FUND AND PORTFOLIO reviews
TO OUR
CONTRACT OWNERS:
WE ARE PLEASED
TO PROVIDE YOU WITH
AN OVERVIEW OF THE UNDERLYING
FUNDS AND PORTFOLIOS IN THE
WM VARIABLE TRUST
FOR THE 12-MONTH PERIOD
ENDED DECEMBER 31, 1999.
WE HAVE INCLUDED
BIOGRAPHIES OF THE
INVESTMENT PROFESSIONALS
MANAGING THE UNDERLYING
FUNDS AND PORTFOLIOS
TO HELP YOU
BETTER UNDERSTAND THE
INVESTMENT MANAGEMENT
AVAILABLE TO YOU
AS A CONTRACT OWNER OF THE
WM VARIABLE TRUST.
WM Advisors, Inc. is the investment advisor to WM Variable Trust, and has
general oversight responsibility for the advisory services provided to the
underlying Funds and Portfolios. These services include formulating the
underlying Funds' and Portfolios' investment policies, analyzing economic trends
affecting the Funds and Portfolios, and directing and evaluating the investment
services provided by the Sub-Advisors and the individual Portfolio Managers of
each underlying Fund and Portfolio. WM Advisors, Inc. supervises the individual
Portfolio Managers in their day-to-day management of the underlying Funds and
Portfolios in the WM Variable Trust family to ensure that policies and
guidelines are met, and to determine appropriate investment performance
measures.
Understanding the
Accompanying Charts
In order to help you understand the investment performance of each underlying
Fund and Portfolio of the WM Variable Trust, we have included the following
discussions along with graphs that compare their performance to certain market
indices. Descriptions of these indices are provided next to the individual
graphs on the following pages.
Generally, an index represents the market value of an unmanaged group of
securities, regarded by investors as representative of a particular market. An
index does not reflect any asset-based charges for investment management or
other expenses. Total return is used to measure a fund's performance and
reflects both changes in the unit value of the fund as well as any income
dividend and/or capital gain distributions made by a fund during the period.
Past performance is not a guarantee of future results. A fund's unit value and
investment return will vary with market conditions, and the principal value of
an investment when you redeem your units may be more or less than the original
cost.
Where applicable, the total returns of the underlying Funds and Portfolios
reflect the Advisors' voluntary waiver of fees, reimbursement of certain
expenses, and credits allowed by the Custodian. Total returns would have been
lower if these fees, expenses, and credits had not been waived, reimbursed or
reduced by credits.
Both the underlying Funds' and Portfolios' performance results and the market
indices reflect total reinvestment of income, dividends, and capital gains. The
unit values of these variable options will fluctuate with market conditions.
The Funds of the WM Variable Trust may not be purchased directly but are
currently available only through the WM Strategic Asset Manager and WM Advantage
tax-deferred variable annuities issued by American General Life Insurance
Company. Annuity contract owner values will depend not only on the performance
of the Funds, but also on the mortality and expense risk charges and
administrative charges under the WM Strategic Asset Manager and WM Advantage
tax-deferred variable annuity contracts.
4
<PAGE> 7
MONEY MARKET fund
PORTFOLIO MANAGER:
AUDREY QUAYE
WM ADVISORS, INC.
Audrey Quaye has seven years experience in investment management and analysis.
She is a Chartered Financial Analyst and a Certified Public Accountant. She also
holds an MBA from the University of Southern California. She has been with WM
Advisors, Inc. since 1996.
ECONOMIC OVERVIEW
Economic data released during the year indicated continuing strength in the U.S.
economy. Industrial production, which had been moderate at the beginning of the
period, accelerated during the past six months. Consumer confidence remained
relatively high and consumer spending continued unabated. Housing demand began
to slow during the second half of the year, partially due to an increase in
mortgage rates. Also, oil prices rose from a low of $10.50 a barrel in February,
to a high of over $27 in December. Exports also began to show a rising trend.
The labor market remained tight in most regions, and the unemployment rate
declined to a 30-year low of 4.1%.
In response to mounting concerns over inflationary pressures, the Federal
Reserve's Open Market Committee raised its target Fed funds rate (the rate at
which banks borrow from each other) 25 basis points on three separate occasions
in 1999. The benchmark 90-day U.S. Treasury bill yield rose from a low of 4.27%
on April 13, 1999, to a high of over 5.5% in December 1999. This trend benefited
money market contract owners since the average yield on taxable money market
instruments also rose significantly during the period. The spread (difference
between the yields on the 90-day Treasury bill and the money market instruments)
widened from a low of 34 basis points (0.34%) in March to a high of 139 basis
points (1.39%) on October 8, 1999. Thus, the yield advantage of taxable money
market instruments relative to T-bills improved dramatically. The yield spread
widened due to the combined effect of liquidity concerns related to Year 2000
and the effect of normal year-end borrowing by corporations.
ECONOMIC AND INTEREST RATE OUTLOOK
The short-term interest rate outlook is uncertain due to continued tightness in
the U.S. labor market, mounting wage pressures, and a gradual improvement in
global economies, especially in Europe and Asia. We believe that short-term
interest rate increases are possible, but long-term conditions remain positive.
The rate hikes are likely to lead to a more moderate economic growth rate and
lower levels of inflation. However, the weakening of the U.S. dollar versus
other major currencies and the increasing valuation of the stock market remain
as concerns.
PORTFOLIO STRATEGY
MONEY MARKET FUND
We increased the Fund's exposure to domestic money market instruments because of
improved credit quality of domestic issuers. We also maintained our exposure to
the Banking sector above 25% of portfolio assets throughout the period. Finally,
we kept the Fund's weighted average maturity neutral relative to the benchmark
in view of the uncertainty regarding interest rates.
Note: Principal is not guaranteed or insured by the U.S. government, and yields
will fluctuate depending on market conditions. There is no assurance the Fund
will maintain a stable unit value.
money fund 5
<PAGE> 8
SHORT TERM HIGH QUALITY BOND fund
PORTFOLIO MANAGER:
GARY POKRZYWINSKI
WM ADVISORS, INC.
Through December 31, 1999, a fixed-income team led by Senior Portfolio Manager
Gary Pokrzywinski has managed the Short Term High Quality Bond Fund. As of
January 1, 2000, Senior Portfolio Manager Craig Sosey, who has been assisting
with the security selection and analysis of the Fund, will be taking over
primary management responsibilities while Mr. Pokrzywinski continues in his role
as head of the fixed-income team and primary Portfolio Manager of the Income
Fund. Mr. Sosey joined WM Advisors, Inc. in 1998 and has over 15 years banking
and financial analysis experience, and also manages the U.S. Government
Securities Fund. Mr. Sosey has a BS in Finance from the University of the
Pacific and an MBA from the University of California, Berkeley.
PERFORMANCE REVIEW(4)
From the Fund's inception (January 12, 1994) through December 31, 1999, the Fund
returned 4.22% on an average annual total return basis. For the 12-month period
ended December 31, 1999, the Fund's total return was 2.89%. Interest rates
increased throughout the period, with the yield on the two-year Treasury rising
171 basis points (1.71%). Because the Fund invests in short-term assets that are
less sensitive to changes in rates, performance remained positive. However,
rising interest rates did offset some of the income earned by the Fund during
the last 12 months.
WHAT WERE THE MOST SIGNIFICANT FACTORS CONTRIBUTING TO THE FUND'S PERFORMANCE
OVER THE 12-MONTH PERIOD ENDED DECEMBER 31, 1999, AND WHAT INVESTMENT TECHNIQUES
WERE USED TO ADDRESS THOSE CONDITIONS?
Although interest rate movements affect short-term funds less than long-term
funds, the dramatic rise in rates left almost no bonds untouched. The benefits
of reduced volatility, income characteristics, and a
GROWTH OF A $10,000 INVESTMENT(2),(3)
Fund (without annuity expenses)(4)
Lehman Brothers Mutual Fund Short (1-5) Investment
Grade Debt Index(1)
Inflation (CPI)(1)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Inception 1/1 10000 10000 10000
Mar 9785 9920 10049
Jun 9770 9880 10097
Sep 9887 9953 10194
Dec 94 9864 9838 10250
Mar 10291 9999 10346
Jun 10750 10329 10367
Sep 10942 10455 10485
Dec 95 11288 10753 10561
Mar 11279 10710 10610
Jun 11384 10797 10630
Sep 11596 10975 10783
Dec 96 11863 11155 10852
Mar 11901 11247 10928
Jun 12227 11433 10984
Sep 12532 11670 11081
Dec 97 12724 11814 11101
Mar 12935 11940 11164
Jun 13163 12087 11218
Sep 13602 12385 11258
Dec 98 13687 12487 11299
Mar 13795 12589 11375
Jun 13813 12585 11457
Sep 13942 12737 11575
Dec 99 14029 12794 11637
</TABLE>
<TABLE>
<CAPTION>
TOTAL AVERAGE RETURNS AS OF 12/31/99 (2),(3) 1 YEAR 5 YEAR(8) SINCE INCEPTION(8)
(January 12, 1994)
<S> <C> <C> <C>
Fund (without annuity expenses)(4) 2.89% 5.40% 4.22%
Fund (with annuity expenses)(5), (6) 1.45% 3.93% 2.76%
Fund (adjusted for the maximum surrender charge)(5), (7) -4.00% 3.16% 2.05%
Lehman Brothers Mutual Fund Short (1-5) Investment Grade Debt Index(1) 2.50% 7.30% 5.89%
</TABLE>
(1) Index total returns were calculated from 1/31/94 to 12/31/99. The Lehman
Brothers Mutual Fund Short (1-5) Investment Grade Debt Index includes all
investment-grade corporate debt securities with maturities of one to five
years. The index assumes reinvestment of all dividends/distributions and
does not reflect any asset-based charges for investment management or other
expenses. The Consumer Price Index is a measurement of inflation for all
urban consumers (CPI).
(2) Past investment performance does not guarantee future performance. The
returns for the Fund assume reinvestment of all dividends/distributions.
(3) During the period noted, the Advisor waived a portion of its management
fees, and credits were allowed by the Custodian. In the absence of the
waivers or credits, yield and total return would have been lower.
(4) Excludes all annuity expenses (which are itemized in footnote #5) charged
by American General Life Insurance Company Separate Account D through which
shares of the Fund are purchased.
(5) Total returns are based on the change in unit value and reflect expenses
such as mortality and expense risk charges and administrative expense
charges of 1.4%. Returns do not account for income taxes due at withdrawal
or for premium taxes. All of the return information shown prior to April
29, 1998 pre-dates the effective date of the Division's first investment in
the Fund. The return information after that date reflects actual annual
historical performance of the Division. The above values relate only to the
WM Strategic Asset Manager Contract. The total return for the WM Advantage
Contract would have been lower due to higher expenses.
(6) Excludes maximum Surrender Charge of 0%-7% and $35 annual contract fee.
(7) Includes maximum Surrender Charge of 0%-7% and $35 annual contract fee.
(8) Annualized.
6
<PAGE> 9
SHORT TERM HIGH QUALITY BOND fund
portfolio composition++
[PIE CHART]
<TABLE>
<S> <C>
A 10%
AA 13%
AAA 63%
BBB 14%
</TABLE>
relatively stable price of a short-term fund could be seen in the performance
during the past year, as short-term funds generally outperformed longer-term
assets. The bonds in which the Fund invests (corporate, mortgage, and
asset-backed securities) performed better than Treasuries because their yields
increased considerably less than yields of Treasury securities with similar
maturities (bond prices move in the opposite direction of interest rates). In
the aftermath of the global crisis and flight-to-quality seen in 1998, the
difference in yield between corporate bonds and Treasuries was quite pronounced.
As stability returned to the market, this yield gap narrowed, allowing for
better performance by corporate and mortgage-backed securities. Yield spreads,
or differentials, widened again in early summer as the Federal Reserve Open
Market Committee enacted the first of three successive interest-rate increases.
This coincided with a significant increase in the supply of corporate
securities, resulting from companies rushing to issue ahead of Y2K concerns.
These events caused yield spreads to widen somewhat (but not nearly to the level
we saw in 1998), and overall performance for mortgage, asset-backed, and
corporate securities was better than the performance of Treasuries. An
additional benefit of corporate, mortgage and asset-backed securities is the
income they supply to the Fund. These securities tend to have higher yields than
Treasuries with similar maturities, and the weighting in these holdings
generated additional income for contract owners of the Fund.
WERE THERE ANY SHIFTS IN THE FUND'S PORTFOLIO HOLDINGS/SECTORS THAT HAVE HAD A
SIGNIFICANT IMPACT ON PERFORMANCE?
We maintained our core positions during the year, with nearly three-fourths of
portfolio assets in corporate, mortgage, and asset-backed securities. With the
backup in interest rates mentioned above, we used the opportunity to capture
increased yields by increasing our weighting in corporates and mortgage-backed
securities while slightly lengthening maturities. Spreads on corporates,
mortgage-backed and asset-backed securities, especially for short-maturity
securities, offer income and return characteristics that are historically
attractive. Corporate securities are the largest weighting of the Fund,
representing 35% of net assets. These holdings generate the strongest yield
advantage over Treasuries, and the issuing companies have benefited from a
strong economy. Most of the securities rated BBB in the portfolio are corporate
holdings which tend to offer strong yields and limited credit risk.
We took advantage of economic conditions by investing assets in some
non-cyclical businesses during the period. Technology firms such as Sun
Microsystems and cable-provider Cox Communications were added to the portfolio.
In addition, we held positions in large financial firms such as Goldman Sachs
and Wells Fargo & Co.
WHAT IS THE OUTLOOK FOR BOTH THE FUND AND THE OVERALL ECONOMY?
Our long-term outlook for interest rates is quite positive. We believe that
fundamental structural forces are in place for a continued low global
inflationary environment. Despite increasing commodity prices, demographic
forces, fiscal austerity, technological enhancements, and excess capacity all
point toward a lack of pervasive price pressures and a positive environment for
fixed-income assets.
The underlying and ongoing strategy will be to use a mix of mortgage- and
asset-backed investments. Overall, Treasury securities will comprise a
relatively small portion of the Fund due to our outlook, on both a yield and
return basis, for non-Treasury bonds. The Fund will move between sectors based
on historical yield relationships and will minimize risk with its concentration
in short-term assets.
Given reasonable yield relationships, the best long-term approach for the Fund
is to keep the majority of assets in corporate, mortgage-backed, and
asset-backed securities and to keep a short-term maturity profile that can
capture price movements should interest rates fall from current levels.
++ Allocation percentages are based on total investment value of the portfolio
as of 12/31/99. Bond ratings are of portfolio holdings and are provided by a
combination of both Moody's and Standard & Poor's. Past performance is not a
guarantee of future results.
Fixed-income funds 7
<PAGE> 10
U.S. GOVERNMENT SECURITIES fund
PORTFOLIO MANAGER:
CRAIG SOSEY
WM ADVISORS, INC.
A fixed-income team led by senior portfolio manager Craig Sosey, who joined WM
Advisors, Inc. in 1998 and has over 15 years banking and financial analysis
experience, manages the U.S. Government Securities Fund. Mr. Sosey has a BS in
Finance from the University of the Pacific and an MBA from the University of
California, Berkeley. He has extensive experience managing government and
mortgage-backed securities.
PERFORMANCE REVIEW(4)
For the 12-month period ended December 31, 1999, interest rates increased and
caused negative price performance to offset some of the income earned by the
Fund. For the period, the Fund's total return was 0.51%. Long-term results are
very favorable and provide the potential for inflation protection as the Fund
has averaged 7.37% for the past five years. For additional information, see the
accompanying chart below.
WHAT WERE THE MOST SIGNIFICANT FACTORS CONTRIBUTING TO THE FUND'S PERFORMANCE
OVER THE 12-MONTH PERIOD ENDED DECEMBER 31, 1999, AND WHAT INVESTMENT TECHNIQUES
WERE USED TO ADDRESS THOSE CONDITIONS?
Interest rates rose dramatically during the twelve months ended December 31,
1999, as the U.S. economy continued to strengthen and the global economy began
to recover. This caused concerns over rising inflation since wages continued to
increase and commodity prices rebounded from lows reached in previous periods.
Interest rates rose across the yield curve, while the shape of the curve
flattened significantly. This meant that although all interest rates increased,
the difference in yield between short- and long-term maturity bonds diminished.
The two-year Treasury yield rose from 4.53% in December 1998, to 6.24% a year
later. This represented an increase of 171 basis points (1.71%), a very
significant rise in rates and more dramatic than long-
GROWTH OF A $10,000 INVESTMENT (2),(3)
Fund (without annuity expenses)(4)
Lehman Brothers U.S. Government Index(1)
Lehman Brothers U.S. Mortgage Index(1)
Inflation (CPI)(1)
<TABLE>
<S> <C> <C> <C> <C>
Inception, 5/6 10000 10000 10000 10000
June 10076 10222 10093 9993
Sep 10173 10554 10294 10112
Dec, 93 10265 10518 10227 10169
Mar 10026 10201 9921 10219
Jun 9970 10084 9792 10268
Sep 10057 10127 9824 10366
Dec, 94 10100 10163 9813 10423
Mar 10629 10642 10329 10521
Jun 11182 11302 10876 10542
Sep 11418 11501 11031 10662
Dec, 95 11796 12027 11471 10740
Mar 11743 11755 11333 10789
Jun 11838 11810 11321 10810
Sep 12080 12010 11487 10965
Dec, 96 12428 12360 11894 11035
Mar 12443 12260 11833 11113
Jun 12915 12685 12241 11170
Sep 13293 13109 12632 11268
Dec, 97 13607 13545 13015 11288
Mar 13829 13749 13156 11353
Jun 14066 14113 13499 11408
Sep 14440 14893 13929 11449
Dec, 98 14555 14879 13931 11490
Mar 14698 14666 13967 11567
Jun 14631 14542 13837 11651
Sep 14767 14637 13980 11770
Dec, 99 14825 14545 13999 11834
</TABLE>
<TABLE>
<CAPTION>
TOTAL AVERAGE RETURNS AS OF 12/31/99 (2), (3) 1 YEAR 5 YEAR(8) SINCE INCEPTION(8)
(May 6, 1993)
<S> <C> <C> <C>
Fund (without annuity expenses)(4) 0.51% 7.37% 5.19%
Fund (with annuity expenses)(5), (6) -0.90% 5.87% 3.72%
Fund (adjusted for the maximum surrender charge)(5), (7) -6.35% 5.15% 3.21%
Lehman Brothers U.S. Government Index(1) -2.25% 7.43% 5.86%
Lehman Brothers U.S. Mortgage Index(1) 1.85% 7.98% 6.16%
</TABLE>
(1) Index total returns were calculated from 5/31/93 to 12/31/99. The Lehman
Brothers U.S. Government Index represents all U.S. government agency and
Treasury securities. The Lehman Brothers U.S. Mortgage Index includes all
agency mortgage-backed securities. The index assumes reinvestment of all
dividends/distributions and does not reflect any asset-based charges for
investment management or other expenses. The Consumer Price Index is a
measurement of inflation for all urban consumers (CPI).
(2) Past investment performance does not guarantee future performance. The
returns for the Fund assume reinvestment of all dividends/distributions.
(3) During the period noted, the Advisor waived a portion of its management
fees, and credits were allowed by the Custodian. In the absence of the
waivers or credits, yield and total return would have been lower.
(4) Excludes all annuity expenses (which are itemized in footnote #5) charged
by American General Life Insurance Company Separate Account D through which
shares of the Fund are purchased.
(5) Total returns are based on the change in unit value and reflect expenses
such as mortality and expense risk charges and administrative expense
charges of 1.4%. Returns do not account for income taxes due at withdrawal
or for premium taxes. All of the return information shown prior to April
29, 1998 pre-dates the effective date of the Division's first investment in
the Fund. The return information after that date reflects actual annual
historical performance of the Division. The above values relate only to the
WM Strategic Asset Manager Contract. The total return for the WM Advantage
Contract would have been lower due to higher expenses.
(6) Excludes maximum Surrender Charge of 0%-7% and $35 annual contract fee.
(7) Includes maximum Surrender Charge of 0%-7% and $35 annual contract fee.
(8) Annualized.
8
<PAGE> 11
U.S. GOVERNMENT SECURITIES fund
portfolio composition++
<TABLE>
<S> <C>
GNMAs 22%
FHLMC/FGLMCs 18%
Treasuries 4%
Agency Obligations 13%
FNMAs 25%
CMOs 18%
</TABLE>
[PIE CHART]
term Treasuries. The yield on the 30-year Treasury increased 139 basis
points, ending the period only slightly above the yield of the two-year, at
6.48%.
In an attempt to reduce the threat of inflation, the Federal Reserve Board's
Open Market Committee raised the Fed Funds rate 25 basis points on three
occasions during the period. Higher short-term interest rates work to constrict
the economy, thus slowing growth and reducing inflationary pressures. These
moves took back all three reductions in rates undertaken by the Fed in late
1998, which were a response to the global crisis that began in Asia and spread
throughout much of the world. The backup in interest rates far overshadowed any
other factors, contributing to the low total return for the Fund. Bond prices
dropped significantly, which nearly offset the income earned by the Fund.
The strong housing market, buoyed by domestic economic strength, generally
supported the performance of some mortgage-backed holdings in the Fund. Despite
rising interest rates, prepayments were higher than expected (although they did
slow), as consumers were able to afford better homes and retired their old
mortgages. This allowed us to reinvest prepaid proceeds in higher-yielding
mortgages, adding additional income to the Fund. However, near the end of the
period, refinancings slowed significantly in response to higher mortgage rates,
and the overall supply of mortgage-backed securities dropped off in the fourth
quarter.
WERE THERE ANY SHIFTS IN THE FUND'S PORTFOLIO HOLDINGS/SECTORS THAT HAVE HAD A
SIGNIFICANT IMPACT ON PERFORMANCE?
The Fund continued to hold a high percentage of its assets in agency
mortgage-backed securities. Throughout the period, these securities tended to
perform better than Treasuries with comparable durations (a measure of price
sensitivity to changes in interest rates). However, because of the backup in
interest rates and the subsequent slowdown in refinancings, the duration of
nearly all mortgage securities extended. When interest rates rise, the
likelihood of prepayment of mortgages falls, as refinancing would then be at a
higher interest rate. Given this scenario, prices of mortgage-backed securities
would then be affected more significantly by changes in interest rates.
The difference in yield between mortgages and Treasuries (the spread) was
extremely volatile over the period, but ended the year slightly tighter. This
enabled mortgages to outperform Treasuries as Treasury yields increased relative
to mortgage-backed securities, sending their prices lower. However, as we have
mentioned, these relative gains were overshadowed by the dramatic jump in rates.
We continued to purchase mortgage-backed securities that we felt had predictable
prepayment characteristics and would provide a good, stable return over all
interest-rate scenarios. We believe this is especially important now that rates
are higher than in recent history and given that the probability of lower rates
has increased. These bonds should exhibit relative performance strength over a
longer-term time horizon and should benefit Fund contract owners if rates
decline. We used cash flow opportunities to buy GNMA securities near the end of
the period. These bonds tend to prepay a bit slower than other bonds if rates
begin to fall. If mortgage yields tighten from current levels, we may shift
purchases into agency bonds, which could exhibit some relatively strong
performance.
WHAT IS THE OUTLOOK FOR BOTH THE FUND AND THE OVERALL ECONOMY?
Two overriding concerns that affected the bond market at the close of 1999 were
the direction of short-term interest rates and possible problems resulting from
Y2K. With the turn of the century going smoothly, the bond market will be
closely watching the Fed and already may have priced in at least one
interest-rate increase. However, without signs of pervasive inflation, the bond
market should improve. We believe the Fed will keep inflation in check, the
economy will run fairly smoothly, and the long-term direction of interest rates
should be lower. One concern is the effect that a stock market correction could
have on consumers and their ability to continue to flood money into the economy.
However, international economies seem to be improving, which could help offset
any decline in domestic consumption. The Fund, with its emphasis on mortgages,
is positioned to perform well if spreads tighten back toward historic levels, as
well as during times of stable interest rates. In addition, the stable
prepayment characteristics of many of the mortgages in the Fund will become more
valuable in a rally and benefit Fund contract owners. Overall, our long-term
outlook is very positive as inflation should remain under control and hold back
interest-rate levels.
++ Allocation percentages are based on total investment value of the portfolio
as of 12/31/99.
fixed-income funds 9
<PAGE> 12
INCOME fund
PORTFOLIO MANAGER:
GARY POKRZYWINSKI
WM ADVISORS, INC.
The Income Fund is managed by a fixed-income team led by Senior Portfolio
Manager Gary Pokrzywinski, who has over 14 years of asset management experience
and has been with WM Advisors, Inc. for more than seven years. Mr. Pokrzywinski
is a Chartered Financial Analyst and holds a Business degree from the University
of Wisconsin.
PERFORMANCE REVIEW(4)
For the 12-month period ended December 31, 1999, the Fund's total return was
- -2.16%. Interest rates rose throughout the period, which put pressure on the
prices of the bonds in the portfolio. The yield on intermediate-term Treasury
bonds increased significantly, rising 180 basis points (1.80%) over the course
of the year. Rising interest rates offset the income earned by the Fund during
the last 12 months. Longer-term results are favorable, however, as the Fund has
averaged 8.02% per year over the past five years.
WHAT WERE THE MOST SIGNIFICANT FACTORS CONTRIBUTING TO THE FUND'S PERFORMANCE
OVER THE 12-MONTH PERIOD ENDED DECEMBER 31, 1999, AND WHAT INVESTMENT TECHNIQUES
WERE USED TO ADDRESS THOSE CONDITIONS?
Strong economic growth led by consumer spending and capital investment caused a
slight increase in inflation, which in turn pushed interest rates higher. Wage
pressures, as well as steep increases in oil prices, caused concerns in the
fixed-income market. Given the rise in interest rates, many corporate securities
reported negative performance, but generally outperformed Treasuries for the
year. The Fund performed relatively well given its marginally long duration (a
measure of price sensitivity to interest rates). Reasons for the performance
included a high concentration in corporate securities, strong income
characteristics, a barbelled maturity structure,
GROWTH OF A $10,000 INVESTMENT (2,3)
Fund (without annuity expenses)(4)
Lehman Brothers Corporate Debt BBB-Rated Index(1)
Lehman Brothers Government/Corporate Bond Index(1)
Inflation (CPI)1
<TABLE>
<S> <C> <C> <C> <C>
Inception|5/7, 10000 10000 10000 10000
June 10243 10227 10224 9993
Sep 10599 10566 10590 10112
Dec|93 10583 10536 10562 10169
Mar 10210 10204 10010 10219
Jun 10050 10078 9735 10268
Sep 10123 10128 9735 10366
Dec|94 10168 10166 9703 10423
Mar 10770 10672 10271 10521
Jun 11571 11364 11141 10542
Sep 11844 11582 11432 10662
Dec|95 12429 12122 12138 10740
Mar 12108 11838 11559 10789
Jun 12162 11893 11559 10810
Sep 12405 12104 11739 10965
Dec|96 12836 12474 12190 11035
Mar 12707 12366 12016 11113
Jun 13231 12815 12522 11170
Sep 13748 13265 13075 11268
Dec|97 14149 13690 13573 11288
Mar 14366 13899 13746 11353
Jun 14737 14262 14152 11408
Sep 15272 14968 14707 11449
Dec|98 15364 14986 14583 11490
Mar 15256 14807 14465 11567
Jun 15017 14646 14213 11651
Sep 15061 14724 14295 11770
Dec|99 15067 14754 14269 11834
</TABLE>
<TABLE>
<CAPTION>
TOTAL AVERAGE RETURNS AS OF 12/31/99 (2, 3) 1 YEAR 5 YEAR(8) SINCE INCEPTION(8)
(May 7, 1993)
<S> <C> <C> <C>
Fund (without annuity expenses)(4) -2.16% 8.02% 5.49%
Fund (with annuity expenses)(5, 6) -3.54% 6.51% 4.01%
Fund (adjusted for the maximum surrender charge)(5, 7) -8.99% 5.81% 3.51%
Lehman Brothers Corporate Debt BBB-Rated Index(1) -1.94% 8.18% 6.42%
Lehman Brothers Government/Corporate Bond Index(1) -2.15% 7.60% 5.99%
</TABLE>
(1) Index total returns were calculated from 5/31/93 to 12/31/99. The Lehman
Brothers Government/Corporate Bond Index represents all government and
corporate bonds. The Lehman Brothers Corporate Debt BBB-Rated Index
represents all investment grade, corporate debt securities. The indices
assume reinvestment of all dividends/distributions and do not reflect
any asset-based charges for investment management or other expenses. The
Consumer Price Index is a measurement of inflation for all urban
consumers (CPI).
(2) Past investment performance does not guarantee future performance. The
returns for the Fund assume reinvestment of all dividends/distributions.
(3) During the period noted, the Advisor waived a portion of its management
fees, and credits were allowed by the Custodian. In the absence of the
waivers or credits, yield and total return would have been lower.
(4) Excludes all annuity expenses (which are itemized in footnote #5)
charged by American General Life Insurance Company Separate Account D
through which shares of the Fund are purchased.
(5) Total returns are based on the change in unit value and reflect expenses
such as mortality and expense risk charges and administrative expense
charges of 1.4%. Returns do not account for income taxes due at
withdrawal or for premium taxes. All of the return information shown
prior to April 29, 1998 pre-dates the effective date of the Division's
first investment in the Fund. The return information after that date
reflects actual annual historical performance of the Division. The above
values relate only to the WM Strategic Asset Manager Contract. The total
return for the WM Advantage Contract would have been lower due to higher
expenses.
(6) Excludes maximum Surrender Charge of 0%-7% and $35 annual contract fee.
(7) Includes maximum Surrender Charge of 0%-7% and $35 annual contract fee.
(8) Annualized.
10
<PAGE> 13
and strong performance by lower-rated securities.
Corporate bonds performed better than Treasuries because their yields increased
less than Treasury securities with similar maturities. In the aftermath of the
global crisis and the flight-to-quality in 1998, the difference in yields
between corporate bonds and Treasuries was quite pronounced. As stability
returned to the market, this yield gap narrowed, allowing for better performance
for corporate securities. Yield spreads widened again in early summer as the
Federal Reserve Open Market Committee began to raise rates, and the markets
anticipated further tightening. This coincided with a significant increase in
the supply of corporate securities, as companies rushed to issue debt ahead of
Y2K concerns. These events caused yield spreads to widen, but not nearly to the
extent we saw in 1998. The other benefit of corporate securities is the income
supplied to the Fund. Corporate bonds tend to have higher yields than similar
maturity Treasuries, and the weighting in these holdings generated additional
income for owners of the Fund.
The Fund maintains a barbelled maturity strategy, with the majority of holdings
balanced between the short- and long-term areas, with just a small percentage
invested in intermediate-term holdings. This strategy benefited Fund contract
owners as intermediate-term bonds saw the most dramatic increase in yields
(causing negative price performance), and short-term securities outperformed all
other maturity areas. In addition, because the Fund is able to invest a portion
of assets in lower-rated bonds, performance was bolstered for the past 12
months. Higher-yielding bonds were the strongest performing fixed-income sector
for the period.
WERE THERE ANY SHIFTS IN THE FUND'S PORTFOLIO HOLDINGS/SECTORS THAT HAVE HAD A
SIGNIFICANT IMPACT ON PERFORMANCE?
There have been only minor changes to the Fund from year to year. We increased
Treasury positions during the period in an effort to lock in rates as yields
increased. Early in the period, we adjusted the holdings to reduce the maturity
structure in anticipation of higher interest rates. When rates increased
substantially, we increased our long-term holdings so as to take advantage of a
stable or declining interest rate environment. We have some lower-rated
securities in the Portfolio in an effort to capture higher yields and were
subsequently rewarded with strong performance. Examples of these types of
holdings were Poland Communications and the Republic of Korea. As market
stability returned, these bonds performed very well, appreciating significantly
and providing high levels of income to the Fund. We will likely continue this
strategy if the gap in yields remains wide in the coming months. In addition,
one of our corporate positions, Occidental Petroleum, performed very well as the
bonds were tendered in the fourth quarter, and the Fund realized some strong
gains. Conversely, we did have some poor performing issues in the Portfolio.
Waste Management and Lockheed Martin Corporation both encountered problems
during the course of the year, and their debt positions consequently suffered.
We maintained positions in these firms because we believed their longer-term
outlooks were positive. Mariner Post, a healthcare firm that specializes in
nursing and assisted living, encountered internal structural problems and their
bond prices suffered.
WHAT IS THE OUTLOOK FOR BOTH THE FUND AND THE OVERALL ECONOMY?
Our long-term outlook for interest rates is quite positive. We believe that
fundamental structural forces are in place for a continued low global
inflationary environment. Despite the increase in commodity prices, demographic
forces, fiscal austerity, technological enhancements, and excess capacity all
point toward a lack of pervasive price pressures and a positive environment for
fixed-income assets.
We will continue to focus the investments of the Fund in corporate securities of
many highly-recognizable companies. A smaller percentage of the portfolio is
more bottom-up and research-intensive, concentrating on issuers that can achieve
a higher level of income yet have enough financial strength to limit risk. The
Fund moves in and out of sectors and industries based on the ebbs and flows of
the business cycle, finding opportunities domestically and abroad. From an
interest-rate perspective, we manage the Fund based on our long-term secular
inflation and rate outlook, which continues to be positive. The Fund currently
is long in maturity and overweighted in corporate securities. Historically, this
has proven to be the best combination as long as inflation does not increase
substantially. Overall, we believe this focus will best serve contract owners
and achieve the Fund's objectives.
INCOME fund
portfolio composition++
[PIE CHART]
<TABLE>
<S> <C>
Consumer Bonds 3%
Media Bonds 3%
Other Corporate Bonds 3%
Financial Bonds 13%
Transportation Bonds 20%
Energy Bonds 6%
Foreign Bonds 7%
Utilities/Telecommunications Bonds 4%
Industrial Bonds 14%
Treasuries 27%
</TABLE>
++ Allocation percentages are based on total investment value of the
portfolio as of 12/31/99. Bond ratings are of portfolio holdings and are
provided by a combination of both Moody's and Standard & Poor's.
fixed-income funds 11
<PAGE> 14
BOND & STOCK fund
PORTFOLIO MANAGER:
JEFFREY D. HUFFMAN
WM ADVISORS, INC.
An equity team led by Jeffrey D. Huffman, Senior Portfolio Manager of WM
Advisors, Inc. has managed the Bond & Stock Fund since its inception. Mr.
Huffman is a Chartered Financial Analyst, holds an MBA, and has over 14 years of
investment management experience.
PERFORMANCE REVIEW(4)
For the 12-month period ended December 31, 1999, the Fund's total return was
2.49%. Value stocks, which comprise the majority of the Fund's equity holdings,
significantly underperformed growth and momentum stocks. Additionally, interest
rates rose throughout the period, causing negative performance for fixed-income
holdings.
WHAT WERE THE MOST SIGNIFICANT FACTORS CONTRIBUTING TO THE FUND'S PERFORMANCE
OVER THE 12-MONTH PERIOD ENDED DECEMBER 31, 1999, AND WHAT INVESTMENT TECHNIQUES
WERE USED TO ADDRESS THOSE CONDITIONS?
Equity style differences were again the primary factor influencing relative
performance for the Fund during the period. The year began with strong
performance from a group of large growth stocks, but during the second quarter
of 1999, market breadth improved and value stocks significantly outperformed the
growth style. The Fund performed well during this period, but the reversion was
short-lived as growth stocks, led by the high-flying technology issues, resumed
market leadership during the latter stages of the period. Overall, large-cap
growth stocks outperformed large-cap value holdings by more than 15% during the
period as measured by the S&P Barra Indices. (Source: Ibbotson Associates.)
Domestic equity performance was supported by strong economic fundamentals, led
by consumer spending, capital investment, and a strong housing market. However,
strong economic growth also instilled inflationary fears in many market
participants, which led to higher interest rates and heightened volatility
during the summer. This also caused weak performance in the fixed-income
holdings during the period, although corporate positions tended to perform
better than other fixed-income investments.
GROWTH OF A $10,000 INVESTMENT (2), (3)
Fund (without annuity expenses)(4)
Lehman Brothers Government/Corporate Bond Index(1)
Standard & Poor's 500 Composite Index(1)
Inflation (CPI)(1)
<TABLE>
<S> <C> <C> <C> <C>
Inception|4/2 10000 10000 10000 10000
May 9828 9800 10107 10018
June 10227 9820 10210 10030
Jul 10118 9549 10218 10042
Aug 8655 8777 10418 10054
Sep 9210 9248 10715 10066
Oct 9959 9850 10639 10090
Nov 10563 10221 10703 10090
Dec|98 11171 10302 10729 10102
Jan 11639 10432 10805 10127
Feb 11277 10171 10548 10139
Mar 11728 10261 10601 10170
Apr 12182 10552 10627 10244
May 11895 10602 10518 10244
June 12555 10729 10485 10244
Jul 12163 10568 10456 10275
Aug 12103 10327 10447 10300
Sep 11771 10096 10541 10349
Oct 12516 10226 10569 10386
Nov 12770 10417 10562 10392
Dec|99 13522 10558 10498 10405
</TABLE>
<TABLE>
<CAPTION>
TOTAL AVERAGE RETURNS AS OF 12/31/99 (2), (3) 1 YEAR SINCE INCEPTION(8)
(April 28, 1998)
<S> <C> <C>
Fund (without annuity expenses)(4) 2.49% 3.29%
Fund (with annuity expenses)(5), (6) 1.08% 1.88%
Fund (adjusted for the maximum surrender charge)(5), (7) -4.37% -1.70%
Lehman Brothers Government/Corporate Bond Index(1) -2.15% 2.96%
Standard & Poor's 500 Composite Index(1) 21.04% 19.85%
</TABLE>
(1) Index total returns were calculated from 4/30/98 to 12/31/99. The Lehman
Brothers Government/Corporate Bond Index represents all government and
corporate bonds. The Standard & Poor's 500 Composite Index (S&P 500)
represents an unmanaged weighted index of 500 industrial,
transportation, utility and financial companies widely regarded by
investors as representative of the stock market. The indices assume
reinvestment of all dividends/distributions, and do not reflect any
asset-based charges for investment management or other expenses. The
Consumer Price Index is a measurement of inflation for all urban
consumers (CPI).
(2) Past investment performance does not guarantee future performance. The
returns for the Fund assume reinvestment of all dividends/
distributions.
(3) During the period noted, the Advisor waived a portion of its management
fees, and credits were allowed by the Custodian. In the absence of the
waivers or credits, yield and total return would have been lower.
(4) Excludes all annuity expenses (which are itemized in footnote #5)
charged by American General Life Insurance Company Separate Account D
through which shares of the Fund are purchased.
(5) Total returns are based on the change in unit value and reflect expenses
such as mortality and expense risk charges and administrative expense
charges of 1.4%. Returns do not account for income taxes due at
withdrawal or for premium taxes. The above values relate only to the WM
Strategic Asset Manager Contract.
(6) Excludes maximum Surrender Charge of 0%-7% and $35 annual contract fee.
(7) Includes maximum Surrender Charge of 0%-7% and $35 annual contract fee.
(8) Annualized.
12
<PAGE> 15
We continued to adhere to our long-term strategy of "bottom-up" value-driven
stock selection and feel that these stocks will eventually return to favor. We
were able to add some strong companies in the convertible area, where we found
value in a couple of Telecommunications issues.
The Fund benefited from software-maker Adobe Systems, whose stock price had been
battered early in the period, but then rallied considerably and posted a gain of
over 300%. Other technology-related firms also contributed positively to overall
results; companies such as PSInet and Level 3 Communications appreciated
significantly, particularly in the fourth quarter.
The Fund did experience some negative performance in a few of its Technology
holdings. Autodesk, a software manufacturer, released a new product that did not
sell as well as expected, and the stock price suffered. Xerox Corp. had a
similar situation. As the company transitioned to a new product cycle, its
execution was weaker than expected, and the stock lost considerable value. We
continue to hold these positions since our long-term outlook remains positive.
Another company that performed poorly during the year was Conseco, a financial
services provider. The company bought Greentree Financial, whose accounting
practices came under question, and the price of Conseco stock dropped
dramatically. We decided to hold this position because we feel the company has
strong upside potential after working through its problems.
Recent market performance has been driven by computer hardware and wireless
telephone groups, in which the Fund had limited exposure. The Fund was
overweighted in Health Care Services, which was among the weakest performing
sectors during the period. We held firms such as Aetna and PacifiCare Health
Systems that performed well in the spring, but severely underperformed during
the summer. Financial stocks generally performed poorly due to interest rate
increases, and are overweighted in the Fund compared to the S&P 500 stock index.
The fixed-income portion of the portfolio produced slightly negative results for
the period, as rising interest rates hurt many holdings. We held a position in
cash during the period when interest rates were rising, and we continued to look
for compelling valuations. We were able to lock in strong yields near the end of
the period in some corporate bond positions. We feel these positions could add
value to the Fund, given the current interest-rate environment. Fixed-income
assets can help temper overall portfolio price fluctuations during periods of
high equity market volatility as well as garnering consistent income streams.
WERE THERE ANY SHIFTS IN THE FUND'S PORTFOLIO HOLDINGS/SECTORS THAT HAD A
SIGNIFICANT IMPACT ON PERFORMANCE?
We maintained our asset allocation throughout the period, focusing about 50% of
Fund assets in value equities. On a secular basis, we trimmed some Technology
holdings, taking profits on some of the better performing holdings. We were also
able to find value in some consumer stocks, especially in Retail and Media,
where good fundamentals in wage and income growth helped drive very strong
consumer spending. Positions were added in retailing giants Albertsons and
Supervalu late in the period. We took some assets out of Health Care stocks
given the political turmoil surrounding the industry, but we are watching these
companies closely and could move back into the sector if we see significant
improvements. We also found value in the Basic Industry and Energy sectors - oil
refiners in particular. Companies such as Tosco Corp. and Valero Energy Corp.
were added during the period, as we saw the Energy sector near a bottom.
We shifted assets out of government bonds and into corporate-backed securities
during the period. This was done in response to our improved outlook for credits
and the possibility of tightening spreads. As spreads (the difference in yields
between corporate bonds and Treasury bonds) diminish or tighten, corporate
securities tend to outperform Treasuries with similar maturities. These holdings
also provide a yield advantage for the Fund.
WHAT IS THE OUTLOOK FOR BOTH THE FUND AND THE OVERALL ECONOMY?
We are positive in our outlook for both bond and stock markets. Sustained
moderate economic growth coupled with low inflation creates a strong environment
for financial assets. We feel the Fund is positioned to take advantage of
current market conditions. As global economies continue to recover, the overall
earnings outlook for value holdings should improve. Given the sustainability of
the recovery, confidence in these companies' ability to grow their earnings
should also improve and market breadth could then return. Although the Fed's
efforts to quell inflationary concerns could add to short-term interest rate
volatility, our long-term outlook is for lower interest rates. We will look to
put our cash position to work when we find compelling valuations in the equity
markets. We will also slowly build our asset mix to approximately 70% equity and
30% debt, focusing on strong companies that represent good value.
BOND & STOCK fund
portfolio composition++
[PIE CHART]
<TABLE>
<S> <C>
Common Stocks 53%
Treasuries 14%
Mortgage-Backed 1%
Corporate Bonds 11%
Convertible Stocks/Bonds 16%
Agency Obligations 5%
</TABLE>
++ Allocation percentages are based on total investment value of the
portfolio as of 12/31/99.
equity funds 13
<PAGE> 16
GROWTH & INCOME fund
PORTFOLIO MANAGER:
RANDALL L. YOAKUM
WM ADVISORS, INC.
An equity team led by Senior Portfolio Manager Randall Yoakum manages the Growth
& Income Fund. Mr. Yoakum has 16 years experience in investment and financial
analysis including over eight years with WM Advisors, Inc. He holds a BBA in
Finance/Economics from Pacific Lutheran University, an MBA in Finance/ Economics
from Arizona State University, and is a Chartered Financial Analyst. Mr. Yoakum
serves as chairman of WM Advisors' Investment Committee and leads the equity
management team. As of 1/1/00, the Fund will be co-managed with Chartered
Financial Analyst Steve Spencer, Portfolio Manager of WM Advisors, Inc.
PERFORMANCE REVIEW(4)
For the 12-month period ended December 31, 1999, the Fund's total return was
18.11%; the Fund slightly under performed the S&P 500 Index's return of 21.04%.
Long-term results continue to be very favorable, as the Fund has averaged 23.84%
for the past five years.
WHAT WERE THE MOST SIGNIFICANT FACTORS CONTRIBUTING TO THE FUND'S PERFORMANCE
OVER THE 12-MONTH PERIOD ENDED DECEMBER 31, 1999, AND WHAT INVESTMENT TECHNIQUES
WERE USED TO ADDRESS THOSE CONDITIONS?
The domestic economy was very strong, causing concerns over inflation and higher
interest rates. This scenario created a volatile environment for equity
investments. For most of the year, large-cap stocks continued to outperform
smaller company holdings, but the period closed with broader market
participation and strong relative performance for small- and mid-cap companies.
Overall, the 12-month period ended December 31, 1999 was strong for equity
investments, but most of the performance was concentrated in growth stocks of
the Technology and Telecommunications sectors. The narrow performance was such
that more than half the companies in the S&P 500 saw their stock price drop for
the year. This disparity was one of the dominant themes in the domestic equity
markets during the past year. Investment assets have poured into high-growth
technology firms, which have appreciated significantly. The leadership of value
stocks during the second quarter of 1999 was
GROWTH OF A $10,000 INVESTMENT (2), (3)
Fund (without annuity expenses)(4)
Standard & Poor's 500 Composite Index(1)
Inflation (CPI)(1)
<TABLE>
<S> <C> <C> <C>
Inception|1/1, 10000 10000 10000
Mar 9305 9670 10049
June 9344 9660 10097
Sep 9801 10040 10194
Dec|94 9799 9830 10250
Mar 10752 10820 10346
Jun 11777 11646 10367
Sep 12712 12437 10485
Dec|95 13477 13016 10561
Mar 14200 13949 10610
Jun 14836 14213 10630
Sep 15295 14557 10783
Dec|96 16569 15855 10852
Mar 17014 16398 10928
Jun 19982 18639 10984
Sep 21486 20663 11081
Dec|97 22103 20374 11101
Mar 25187 22890 11164
Jun 26019 23082 11218
Sep 23432 19910 11258
Dec|98 28421 24237 11299
Mar 29837 25235 11375
Jun 31940 27964 11457
Sep 29946 25683 11575
Dec|99 34402 28627 11637
</TABLE>
<TABLE>
<CAPTION>
TOTAL AVERAGE RETURNS AS OF 12/31/99 (2), (3) 1 YEAR 5 YEAR(8) SINCE INCEPTION(8)
(January 12, 1994)
<S> <C> <C> <C>
Fund (without annuity expenses)(4) 18.11% 23.84% 19.28%
Fund (with annuity expenses)(5), (6) 16.19% 22.03% 17.54%
Fund (adjusted for the maximum surrender charge)(5, 7) 10.74% 21.63% 17.18%
Standard & Poor's 500 Composite Index(1) 21.04% 28.55% 23.22%
</TABLE>
(1) Index total returns were calculated from 1/31/94 to 12/31/99. The
Standard & Poor's 500 Composite Index (S&P 500) represents an unmanaged
weighted index of 500 industrial, transportation, utility and financial
companies widely regarded by investors as representative of the stock
market. The index assumes reinvestment of all dividends/distributions
and does not reflect any asset-based charges for investment management
or other expenses. The Consumer Price Index is a measurement of
inflation for all urban consumers (CPI).
(2) Past investment performance does not guarantee future performance. The
returns for the Fund assume reinvestment of all dividends/distributions.
(3) During the period noted, the Advisor waived a portion of its management
fees, and credits were allowed by the Custodian. In the absence of the
waivers or credits, yield and total return would have been lower.
(4) Excludes all annuity expenses (which are itemized in footnote #5)
charged by American General Life Insurance Company Separate Account D
through which shares of the Fund are purchased.
(5) Total returns are based on the change in unit value and reflect expenses
such as mortality and expense risk charges and administrative expense
charges of 1.4%. Returns do not account for income taxes due at
withdrawal or for premium taxes. All of the return information shown
prior to April 29, 1998 pre-dates the effective date of the Division's
first investment in the Fund. The return information after that date
reflects actual annual historical performance of the Division. The above
values relate only to the WM Strategic Asset Manager Contract. The total
return for the WM Advantage Contract would have been lower due to higher
expenses.
(6) Excludes maximum Surrender Charge of 0%-7% and $35 annual contract fee.
(7) Includes maximum Surrender Charge of 0%-7% and $35 annual contract fee.
(8) Annualized.
14
<PAGE> 17
short-lived and shifted back to growth in recent months. Although the Fund
benefited from the appreciation of its Technology holdings, its bias towards
value held back performance during the period. Momentum investing was most
pronounced in the second half of the year, with a narrow group of extremely
high-valuation stocks driving overall market performance. In the fourth quarter
alone, the Technology sector advanced 34%, while many sectors reported negative
performance. The Fund's focus on purchasing good businesses at attractive
valuations tends to result in underperformance in a momentum-driven market.
Typically, our purchases are triggered by negative price momentum -- prices that
have experienced significant decline. We feel that over the long run, market
breadth will be restored and this style will reward owners of the GROWTH &
INCOME FUND.
Stocks that not too long ago faced considerable, but not insurmountable,
challenges rebounded dramatically. Adobe Systems, BMC Software and Oracle Corp.
were all considered "broken" early in 1999 -- each lacking both earnings and
price momentum that led to what we considered attractive valuation levels. After
we increased positions in these companies, each stock more than doubled,
surpassing Wall Street earnings expectations and significantly contributing to
overall Fund performance. We have taken advantage of this appreciation by
trimming back these holdings and locking in some profits. Conversely, Capital
Goods and Health Care Services stocks within the Fund were the major short-term
disappointments. PacifiCare Health Systems and Aetna were down significantly
early in the period, reflecting the turmoil surrounding mounting political
pressures within the managed care industry. Both stocks looked very attractive
at their depressed price levels, and we added to the positions, which
subsequently appreciated in December. In addition, rising interest rates hurt
our financial holdings, with the entire sector contributing negative performance
in recent months. However, the Fund's financial holdings generally outperformed
the overall market, as positions such as Bank of America Corp. and Wells Fargo &
Company began to see benefits from merger activity.
WERE THERE ANY SHIFTS IN THE FUND'S PORTFOLIO HOLDINGS/SECTORS THAT HAVE HAD A
SIGNIFICANT IMPACT ON PERFORMANCE?
We continued to pare down the number of holdings within the Fund, reducing the
portfolio to approximately 90 stocks. Over the past year, we also reduced the
number of mid-cap holdings in the portfolio in favor of large-cap companies.
Currently, the Fund has a 75% weighting in large-cap stocks, which is close to
our target.
During the period, we reshaped the portfolio on a sector-by-sector basis. In the
Technology arena, positions in software were increased, while computer hardware
(holdings such as Hewlett-Packard and IBM) was decreased. This boosted
performance as the Software sector increased dramatically. Given our long-term
outlook for lower interest rates and increased productivity, we significantly
overweighted financial stocks, especially banks. We feel that efficiencies
stemming from huge merger activities and recent legislation will help generate
good relative performance for this sector. Although some Health Care positions
had a drag on Fund performance, we are positive about the Services sector.
Although we overweighted Health Care Services, we are currently underweighted in
pharmaceutical stocks since we are allowing political turmoil to subside.
However, we intend to take advantage of any price dips to add to positions in
the coming months.
Recent purchases demonstrate our long-term strategy of focusing on companies who
are leaders within their industry but have been experiencing some short-term
price weaknesses, such as supermarket giant Kroger, Tyco International, and Avon
Products. We added to positions in these companies, with the result being a
positive contribution to performance at the close of the period. In addition, we
added a position in Disney in late 1999 and were rewarded with strong
performance. Overall, the Consumer Staples sector has been positive for the Fund
and is one of the overweighted sectors.
WHAT IS THE OUTLOOK FOR BOTH THE FUND AND THE OVERALL ECONOMY?
Moderate economic growth and low inflation provide a positive environment for
large-cap domestic equity holdings. We expect that economic growth will
continue, with strength in certain areas being offset by weakness in others.
Overall global stability and strength in Europe could bolster current market
sentiment and lead to broader market participation. Because the increase in
equity prices has been very concentrated, we are still able to find companies at
very attractive valuations. We plan to adhere to our strict investment
discipline, scouring the market for good businesses at prices that make sense.
We are cautious with some of our higher-priced Technology holdings and will take
profits where it is financially prudent, but remain positive for prospects of
this sector. Overall, our long-standing focus on research and low portfolio
turnover should reward those owners of the Fund that maintain a long-term
investment horizon.
GROWTH & INCOME fund
portfolio composition++
[PIE CHART]
<TABLE>
<S> <C>
Consumer Stocks 16%
Transportation 1%
Convertibles 1%
Financial Services 17%
Communications 7%
Technology 20%
Electronics/Semiconductors 2%
Health Care 11%
Capital Goods 4%
Utilities 1%
Oil & Gas 7%
Other 5%
Media 5%
Aerospace/Defense 3%
</TABLE>
++ Allocation percentages are based on total investment value of the
portfolio as of 12/31/99. Differences from financial statements are a
result of a consolidation of industries or sectors.
equity funds 15
<PAGE> 18
GROWTH FUND
PORTFOLIO MANAGER:
WARREN LAMMERT
JANUS CAPITAL CORPORATION
Mr. Lammert is a graduate of Yale University and the London School of Economics.
He joined Janus in January 1987 and has been portfolio manager of the Growth
Fund since its inception. He is a Chartered Financial Analyst.
PERFORMANCE REVIEW(4)
For the 12-month period ended December 31, 1999, the Fund advanced
significantly, returning over 97%. These results more than quadrupled the
performance of the S&P 500 Index, outpacing the Index by more than 50% (see
chart below). Long-term results are also very strong, as the Fund has averaged
over 32% per year since its inception (5/7/93).
WHAT WERE THE MOST SIGNIFICANT FACTORS CONTRIBUTING TO THE FUND'S PERFORMANCE
OVER THE 12-MONTH PERIOD ENDED DECEMBER 31, 1999, AND WHAT INVESTMENT TECHNIQUES
WERE USED TO ADDRESS THOSE CONDITIONS?
The U.S. economy remained resilient, continuing its longest run of peacetime
expansion in history. During the last half of the year, the Federal Reserve
increased short-term rates on three occasions in an effort to cool the economy.
There are still a few signs of inflation at the consumer level, and the Fed's
recent actions appear more preemptive than reactive.
Rising rates and the fear of inflation kept markets volatile and allowed
cyclical shares to enjoy a brief period of outperformance during the spring and
early summer. However, this trend proved to be short-lived. A host of factors,
including strong corporate earnings, allowed growth-oriented companies to regain
momentum and widen their already significant lead over their economically-
sensitive counterparts by year-end. Technology stocks were particularly buoyant
during the final months of the year, as an easing of worries related to Y2K
concerns, as well as an increase in corporate technology spending, helped the
tech-heavy NASDAQ Composite outdistance other market indices by a wide margin.
Regardless of the state of the overall market, we remain convinced that our role
as investors is to develop a deep understanding of individual firms that is
largely independent of their response to macroeconomic events, adding only
those shares that we feel are capable of performing well in any environment.
GROWTH OF A $10,000 INVESTMENT (2,3)
Fund (without annuity expenses)(4)
Standard & Poor's 500 Composite Index(1)
Inflation (CPI)(1)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Inception 5/7, 10000 10000 10000
Jun 10410 10033 9993
Sep 10810 10290 10112
Dec/93 11190 10528 10169
Mar 11390 10126 10219
Jun 10560 10167 10268
Sep 11571 10668 10366
Dec/94 11491 10665 10423
Mar 12232 11704 10521
Jun 13934 12814 10542
Sep 15400 13833 10662
Dec/95 15781 14657 10740
Mar 16956 15454 10789
Jun 17392 16152 10810
Sep 18388 16646 10965
Dec/96 18330 18039 11035
Mar 17128 18511 11113
Jun 19386 21750 11170
Sep 21093 23385 11268
Dec/97 20390 24058 11288
Mar 24122 27415 11353
Jun 26627 28320 11408
Sep 24754 25504 11449
Dec/98 32424 30934 11490
Mar 40079 32475 11567
Jun 43027 34765 11651
Sep 44554 32594 11770
Dec/99 63906 37444 11834
</TABLE>
<TABLE>
<CAPTION>
TOTAL AVERAGE RETURNS AS OF 12/31/99 (2, 3) 1 YEAR 5 YEAR(8) SINCE INCEPTION(8)
(May 7, 1993)
<S> <C> <C> <C>
Fund (without annuity expenses)(4) 97.09% 40.95% 32.16%
Fund (with annuity expenses)(5, 6) 93.15% 38.80% 30.19%
Fund (adjusted for the maximum surrender charge)(5, 7) 87.70% 38.56% 30.05%
Standard & Poor's 500 Composite Index(1) 21.04% 28.55% 22.21%
</TABLE>
(1) Index total returns were calculated from 5/31/93 to 12/31/99. The
Standard & Poor's 500 Composite Index (S&P 500) represents an unmanaged
weighted index of 500 industrial, transportation, utility and financial
companies widely regarded by investors as representative of the stock
market. The index assumes reinvestment of all dividends/distributions
and does not reflect any asset-based charges for investment management
or other expenses. The Consumer Price Index is a measurement of
inflation for all urban consumers (CPI).
(2) Past investment performance does not guarantee future performance. The
returns for the Fund assume reinvestment of all dividends/distributions.
(3) During the period noted, the Advisor waived a portion of its management
fees, and credits were allowed by the Custodian. In the absence of the
waivers or credits, yield and total return would have been lower.
(4) Excludes all annuity expenses (which are itemized in footnote #5)
charged by American General Life Insurance Company Separate Account D
through which shares of the Fund are purchased.
(5) Total returns are based on the change in unit value and reflect expenses
such as mortality and expense risk charges and administrative expense
charges of 1.4%. Returns do not account for income taxes due at
withdrawal or for premium taxes. All of the return information shown
prior to April 29, 1998 pre-dates the effective date of the Division's
first investment in the Fund. The return information after that date
reflects actual annual historical performance of the Division. The above
values relate only to the WM Strategic Asset Manager Contract. The total
return for the WM Advantage Contract would have been lower due to higher
expenses.
(6) Excludes maximum Surrender Charge of 0%-7% and $35 annual contract fee.
(7) Includes maximum Surrender Charge of 0%-7% and $35 annual contract fee.
(8) Annualized.
16
<PAGE> 19
WERE THERE ANY SHIFTS IN THE FUND'S PORTFOLIO HOLDINGS/SECTORS THAT HAD A
SIGNIFICANT IMPACT ON FUND PERFORMANCE?
Wireless telecommunications remained an area of emphasis. Worldwide subscriber
growth has continued to accelerate as wireless providers added customers at an
astounding rate of more than 50% per year. Meanwhile, the advent of wireless
data is providing the industry with yet another avenue of growth as companies
position themselves to offer next-generation services, such as cellular Internet
access, to a public that is enthusiastically embracing such value-added
technology. Cellular handset manufacturer Nokia is perhaps the most obvious
beneficiary of this growth. The company's dominance of cellular handset
manufacturing positions it to capitalize on the industry's accelerating
subscribership, while its other businesses, most notably its strong share of the
cellular base station market, continues to underwrite performance. We are also
excited about Mannesmann, a German company that is rapidly becoming a dominant
cellular player in Europe. The company's strong competitive position and
new-found strategic focus attracted a rich bid from rival VodaFone Airtouch late
in the year, and our position gained substantially as a result.
Booming demand for cellular services also helped drive the performance of a
number of our Technology stocks. Microchip manufacturer Texas Instruments, whose
digital signal processing chips will power two-thirds of the nearly 300 million
cellular phones sold in 1999, was one of our best performing stocks during the
period. Other Technology standouts included Maxim Integrated Products, ASM
Lithography and Vitesse Semiconductor, all of which have created a unique and
highly profitable niche in different areas of the micro-chip industry. Elsewhere
in the Technology sector, Cisco Systems and EMC Corp. are acting as enablers of
the Internet's growth by providing the technical infrastructure necessary to
accommodate the growing number of Web users.
Another important Web-related theme in the coming year will be the frenetic
efforts of existing brick-and-mortar retailers and Fortune 500 companies to
establish a functional presence on the Internet. Three new additions to the
Portfolio: I2 Technologies, USweb and Vignette are all acting as enablers of
this trend and are extremely well positioned to capitalize on the ongoing boom
in business-to-business and business-to-consumer electronic commerce. For
example, I2 Technologies is emerging as a dominant player in supply chain
management software, a market that is expected to grow in tandem with ballooning
e-commerce sales. USweb is a software integrator focused on website development
and electronic commerce, while Vignette supplies packaged software that helps
individual companies develop and maintain a website.
Cable has been another important theme for the Fund. We are still extremely
excited about the opportunities that lie ahead for our cable holdings,
particularly as broadband services become part of the consumer mainstream. While
a number of cable stocks paused during the last half of the year as
consolidation cooled and legal battles surrounding the question of open access
were fought, our positions in Comcast, Cox Communications, Time Warner, NTL and
AT&T Liberty Media traded higher.
Unfortunately, not all of our holdings contributed equally to the Fund's
performance. Health Care stocks were our main area of disappointment, as rising
interest rates and uncertainty surrounding Medicare reform pressured the entire
sector. In addition, a number of our large drug companies encountered
pipeline-related difficulties, and we have trimmed our exposure to
pharmaceuticals as a result. Despite a lackluster performance by
Schering-Plough, we remain optimistic about the company's long-term prospects.
The company's research pipeline, led by PEG-Intron, a promising treatment for
hepatitis C and cancer, remains one of the most promising in the industry.
WHAT IS THE OUTLOOK FOR BOTH THE FUND AND THE OVERALL ECONOMY?
Looking forward, the torrid pace of economic growth remains the primary risk to
equity investors. Until recently, the Federal Reserve has been held in check by
Y2K fears and lackluster expansion overseas, but with those constraints
effectively removed, the possibility that the U.S. central bank will adopt a
more aggressive stance is very real. Still, investors have so far shown little
reluctance to pay increasingly higher prices for companies on the cutting edge
of technological change, even as interest rates have risen steadily.
As we head into the year 2000, we are maintaining our focus on companies with
strong business models and outstanding growth opportunities. While we view the
successes of 1999 as a validation of our approach, particularly on the heels of
an outstanding 1998, there will no doubt be bumps in the road as we enter 2000.
However, intensive, collaborative research designed to identify and understand
these individual businesses will continue to define our investment process, as
we will strive to provide the best returns possible regardless of what the
overall market has in store for 2000.
GROWTH FUND
portfolio composition++
[PIE CHART]
<TABLE>
<S> <C>
Utilities/Telecommunications 24%
Media 14%
Capital Goods 4%
Health Care 5%
Utilities 2%
Other 3%
Financial Services 3%
Cash Equivalents 5%
Oil/Gas 3%
Electronics/Semiconductors 7%
Technology 30%
</TABLE>
++ Allocation percentages are based on total investment value of the
portfolio as of 12/31/99. Differences from financial statements are a
result of a consolidation of industries or sectors.
equity funds 17
<PAGE> 20
NORTHWEST FUND
PORTFOLIO MANAGER:
DAVID SIMPSON
WM ADVISORS, INC.
An equity team lead by David Simpson, Senior Portfolio Manager of WM Advisors,
Inc., has managed the Northwest Fund since its inception. Mr. Simpson is a
Chartered Financial Analyst, holds an MBA, and has over 13 years of continuous
investment experience.
PERFORMANCE REVIEW (4)
For the one-year period ended December 31, 1999, the Fund returned 40.37%,
significantly outpacing the 21.04% return for the S&P 500 and 21.26% return for
the small-cap Russell 2000 Index for the period.(1)
WHAT WERE THE MOST SIGNIFICANT FACTORS CONTRIBUTING TO THE FUND'S PERFORMANCE
OVER THE 12-MONTH PERIOD ENDED DECEMBER 31, 1999, AND WHAT INVESTMENT TECHNIQUES
WERE USED TO ADDRESS THOSE CONDITIONS?
Although volatile, equity markets generally rose throughout the year. During
1999, Technology stocks continued their market leadership, but concern about
increased inflation caused interest rate hikes and general market volatility
during the middle of the period. The decade closed with stellar performance,
which again was concentrated in the high-flying technology-related growth
stocks. This was especially true with small-cap Technology holdings, which had
underperformed large-sized companies until the final quarter. The story of the
fourth quarter was small- and mid-cap growth stocks, and the Fund benefited from
its concentration in these holdings. However, the market advance was very
narrow, and we witnessed the second-consecutive large annual disparity between
growth and value stocks.
The Fund greatly benefited from its significant overweighting in Technology
stocks of both small- and large-cap companies. Stocks of firms such as TriQuint
Semiconductor, Adobe Systems, RadiSys, and In Focus Systems more than doubled
during the period, contributing to overall Fund results. TriQuint develops
integrated circuits for the telecommunications arena, capitalizing on
proprietary
GROWTH OF A $10,000 INVESTMENT (2),(3)
Fund (without annuity expenses)(4)
Standard & Poor's 500 Composite Index(1)
Inflation (CPI)(1)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Inception 4/2, 10000 10000 10000
May 9470 9828 10018
Jun 9290 10227 10030
Jul 8720 10118 10042
Aug 7020 8655 10054
Sep 7690 9210 10066
Oct 8500 9959 10090
Nov 9700 10563 10090
Dec/98 10940 11171 10102
Jan 11230 11639 10127
Feb 10540 11277 10139
Mar 10860 11728 10170
Apr 11470 12182 10244
May 11990 11895 10244
Jun 12853 12555 10244
Jul 12903 12163 10275
Aug 12953 12103 10300
Sep 12497 11771 10349
Oct 13126 12516 10386
Nov 13622 12770 10392
Dec/99 15355 13522 10405
</TABLE>
<TABLE>
<CAPTION>
TOTAL AVERAGE RETURNS AS OF 12/31/99 (2),(3) 1 YEAR SINCE INCEPTION(8)
(APRIL 28, 1998)
<S> <C> <C>
Fund (without annuity expenses)(4) 40.37% 29.15%
Fund (with annuity expenses)(5),(6) 38.43% 27.42%
Fund (adjusted for the maximum surrender charge)(5),(7) 32.98% 24.36%
Standard & Poor's 500 Composite Index(1) 21.04% 19.85%
</TABLE>
(1) Index total returns were calculated from 4/30/98 to 12/31/99. The
Standard & Poor's 500 Composite Index (S&P 500) represents an unmanaged
weighted index of 500 industrial, transportation, utility and financial
companies widely regarded by investors as representative of the stock
market. The index assumes reinvestment of all dividends/distributions
and does not reflect any asset-based charges for investment management
or other expenses. The Consumer Price Index is a measurement of
inflation for all urban consumers (CPI).
(2) Past investment performance does not guarantee future performance. The
returns for the Fund assume reinvestment of all
dividends/distributions.
(3) During the period noted, the Advisor waived a portion of its management
fees, and credits were allowed by the Custodian. In the absence of the
waivers or credits, yield and total return would have been lower.
(4) Excludes all annuity expenses (which are itemized in footnote #5)
charged by American General Life Insurance Company Separate Account D
through which shares of the Fund are purchased.
(5) Total returns are based on the change in unit value and reflect
expenses such as mortality and expense risk charges and administrative
expense charges of 1.4%. Returns do not account for income taxes due at
withdrawal or for premium taxes. The above values relate only to the WM
Strategic Asset Manager Contract.
(6) Excludes maximum Surrender Charge of 0%-7% and $35 annual contract fee.
(7) Includes maximum Surrender Charge of 0%-7% and $35 annual contract fee.
(8) Annualized.
18
<PAGE> 21
technology to gain market share and distribute their product worldwide. Adobe is
a software developer whose stock moved markedly lower during the Asian crisis,
but has since increased over 300% off the lows of last summer. RadiSys, which
designs and manufactures embedded computer solutions for multiple industries,
had its stock price double in the fourth quarter alone. In Focus, which
announced an agreement with IBM during the period, has been held by the Fund for
quite some time and is a market leader in the development of data and video
projection products. The Fund also benefited from little exposure to Financials,
especially banks, which significantly underperformed the overall market.
However, we did add to our bank stocks late in the fiscal year as the valuations
began to appear very compelling. Microsoft Corp. remains one of our largest
holdings despite recent investigations by the Department of Justice. We remain
quite positive on the company and its prospects for its continuation as the
software industry leader. The company closed the year with very strong
performance.
Despite the overall strong performance, some holdings in the Fund disappointed
during the period. Our positions in Health Care Service companies such as
PacifiCare Health Systems and Foundation Health Systems underperformed as
political upheaval regarding HMOs created negative sentiment for the entire
sector. We used this price weakness to add to some of these holdings in October
when we felt that prices may have bottomed, and we were rewarded with a rebound
in November and December. Not all medical firms performed poorly during the
period. The Fund benefited from its position in SonoSite, Inc., a medical device
manufacturer that developed a handheld ultrasound machine. This position
appreciated significantly, becoming one of the Fund's largest holdings during
the latter stages of the period. Conversely, we sold our entire position of
Pathogenesis, a pharmaceutical firm whose sales numbers came in well below
expectations. We continue to watch the company and could re-enter if the outlook
improves.
WERE THERE ANY SHIFTS IN THE FUND'S PORTFOLIO HOLDINGS/SECTORS THAT HAVE HAD A
SIGNIFICANT IMPACT ON PERFORMANCE?
We continued our basic philosophy of trimming positions that outperform and
adding to positions that underperform as long as we have confidence in the
underlying fundamentals of the firm. We added to small-cap positions during the
year, as we were able to find some very compelling valuations. We will continue
to closely watch valuation levels and look for strong investment opportunities
across all market capitalizations. Toward the end of the fiscal year, we began
to see very attractive valuations in large-cap Retailing (supermarkets) and
Financials (banks). Given the current interest rate outlook and the benefits of
merger activities, we added to positions in some of these large-cap financial
holdings. Technology remained our largest sector weighting during the period. To
maintain a stable exposure to the sector in light of its considerable
appreciation, we sold stocks and locked in strong profits. We were able to find
good values in certain sectors such as Forestry, which had underperformed in
recent periods. For example, toward the end of the period we purchased
Louisiana-Pacific when its price was near recent lows, and were rewarded with
strong performance at the close of the year.
WHAT IS THE OUTLOOK FOR BOTH THE FUND AND THE OVERALL ECONOMY?
The Fund is volatile by nature, and we expect that to continue. We believe our
basic investment style will continue to benefit long-term investors who are
patient and do not concern themselves with short-term market volatility. This
was clearly evident during the summer of 1998, when markets dropped considerably
in response to international crisis, then rebounded dramatically during the
fourth quarter. We will adhere to our philosophy of finding strong companies
that are favorably priced. Due to Technology's strong presence in the Northwest
and our positive outlook for its long-term growth, it will continue to exert a
significant influence on the Fund's portfolio composition.
The economy may slow if higher interest rates prevail. However, we believe weak
inflation will help keep interest rates relatively low. Consumer spending (and
net consumer borrowing) is a long-term concern. Currently, the market appears to
be weathering higher interest rates, as pervasive price pressures have not
surfaced and the Federal Reserve is poised to raise interest rates to quell any
signs of increases in inflation.
[Pie Chart]
NORTHWEST fund
<TABLE>
<CAPTION>
portfolio composition++
<S> <C>
Consumer 20%
Health Care 15%
Financial Services 6%
Technology 22%
Transportation 4%
Basic industry 5%
Other 5%
Communications 4%
Electronic/Semiconductors 7%
REIT's 2%
Electrical Equipment 10%
</TABLE>
++ Allocation percentages are based on total investment value of the
portfolio as of 12/31/99. Differences from financial statements are a
result of a consolidation of industries or sectors.
equity funds 19
<PAGE> 22
EMERGING GROWTH fund
PORTFOLIO MANAGERS:
DAVID SIMPSON AND
LINDA WALK
WM ADVISORS, INC.
An equity team led by Mr. Simpson and Ms. Walk has been managing the Emerging
Growth Fund since March 23, 1998. As of January 1, 2000, Linda Walk will take
primary management responsibilities. Ms. Walk, Portfolio Manager of WM Advisors,
Inc., is a graduate of the University of Washington Summa Cum Laude and has over
13 years of investment experience. She is a Chartered Financial Analyst, a
Certified Financial Planner, and has participated in the Wharton Executive
Education program.
PERFORMANCE REVIEW(4)
The Fund returned 71.09% for the 12-month period, more than tripling the results
of its benchmark index, the Russell 2000, which advanced 21.26%. The Fund has
averaged over 24% per year for the past five years.
WHAT WERE THE MOST SIGNIFICANT FACTORS CONTRIBUTING TO THE FUND'S PERFORMANCE
OVER THE 12-MONTH PERIOD ENDED DECEMBER 31, 1999, AND WHAT INVESTMENT TECHNIQUES
WERE USED TO ADDRESS THOSE CONDITIONS?
For the first time since 1993, small-cap stocks as a whole outperformed
large-cap stocks with nearly all of this performance strength coming in the
fourth quarter of 1999. After struggling through the Asian Crisis of 1998, the
Fund outperformed all major benchmark indices during the 12-month period ended
December 31, 1999. Small-cap technology stocks performed strongly, as well as
some of the biotech and medical device firms held by the Fund. Growth momentum
stocks led the small-cap market, outperforming value stocks by a significant
amount. However, the Fund, while still paying attention to valuations,
outdistanced both the Russell 2000 Growth and Value Indices by a wide margin. It
also outperformed large-cap stock indices such as the Standard and Poor's 500
Composite Index despite a market in which performance was dominated by large-cap
holdings for much of the period.
Stock selection played a major role in the performance for the period as many of
our
GROWTH OF A $10,000 INVESTMENT (2),(3)
Fund (without annuity expenses)(4)
Standard & Poor's 500 Composite Index(1)
Russell 2000 Index(1)
Inflation (CPI)(1)
<TABLE>
<S> <C> <C> <C> <C>
Inception 1/1: 10,000 10,000 10,000 10,000
Mar 9,307 9,950 9,439 10,049
Jun 9,345 9,530 9,072 10,097
Sep 9,805 10,520 9,701 10,194
Dec/94 9,802 10,530 9,520 10,250
Mar 10,757 10,790 9,959 10,346
Jun 11,777 11,454 10,893 10,367
Sep 12,714 13,261 11,969 10,485
Dec/95 13,471 13,793 12,229 10,561
Mar 14,204 15,319 12,853 10,610
Jun 14,845 15,808 13,496 10,630
Sep 15,299 15,539 13,543 10,783
Dec/96 16,580 15,178 14,248 10,852
Mar 17,013 13,309 13,510 10,928
Jun 19,990 15,678 15,700 10,984
Sep 21,493 16,990 18,037 11,081
Dec/97 22,111 17,090 17,433 11,101
Mar 25,196 19,166 19,186 11,164
Jun 26,028 17,721 18,292 11,218
Sep 23,441 14,064 14,607 11,258
Dec/98 28,431 18,444 16,989 11,299
Mar 29,847 16,443 16,068 11,375
Jun 31,952 19,858 18,566 11,457
Sep 29,957 20,487 17,392 11,575
Dec/99 34,414 31,554 20,600 11,637
</TABLE>
<TABLE>
<CAPTION>
TOTAL AVERAGE RETURNS AS OF 12/31/99 (2),(3) 1 YEAR 5 YEAR(8) SINCE INCEPTION(8)
(January 12, 1994)
<S> <C> <C> <C>
Fund (without annuity expenses)(4) 71.09% 24.54% 21.24%
Fund (with annuity expenses)(5),(6) 68.81% 22.78% 19.51%
Fund (adjusted for the maximum surrender charge)(5),(7) 63.36% 22.38% 19.18%
Standard & Poor's 500 Composite Index(1) 21.04% 28.55% 23.23%
Russell 2000 Index(1) 21.26% 16.69% 12.99%
</TABLE>
(1) Index total returns were calculated from 1/31/94 to 12/31/99. The
Standard & Poor's 500 Composite Index (S&P 500) represents an unmanaged
weighted index of 500 industrial, transportation, utility, and
financial companies widely regarded by investors as representative of
the stock market. The Russell 2000 Index represents the smallest 2000
companies followed by Russell and is used to measure the small-cap
market. The indices assume reinvestment of all dividends/distributions,
and do not reflect any asset-based charges for investment management or
other expenses. The Consumer Price Index is a measurement of inflation
for all urban consumers (CPI).
(2) Past investment performance does not guarantee future performance. The
returns for the Fund assume reinvestment of all dividends/
distributions.
(3) During the period noted, the Advisor waived a portion of its management
fees, and credits were allowed by the Custodian. In the absence of the
waivers or credits, yield and total return would have been lower.
(4) Excludes all annuity expenses (which are itemized in footnote #5)
charged by American General Life Insurance Company Separate Account D
through which shares of the Fund are purchased.
(5) Total returns are based on the change in unit value and reflect
expenses such as mortality and expense risk charges and administrative
expense charges of 1.4%. Returns do not account for income taxes due at
withdrawal or for premium taxes. All of the return information shown
prior to April 29, 1998 pre-dates the effective date of the Division's
first investment in the Fund. The return information after that date
reflects actual annual historical performance of the Division. The
above values relate only to the WM Strategic Asset Manager Contract.
The total return for the WM Advantage Contract would have been lower
due to higher expenses.
(6) Excludes maximum Surrender Charge of 0%-7% and $35 annual contract fee.
(7) Includes maximum Surrender Charge of 0%-7% and $35 annual contract fee.
(8) Annualized.
20
<PAGE> 23
Technology holdings including Onyx Software and Check Point Software appreciated
substantially. Onyx Software Corporation provides customer relationship
management software which allows clients, marketing, sales and service to be
combined into one database accessible across a company. Check Point Software
Technologies emerged as a market leader in Internet and e-commerce security. Its
software enables secure transactions to take place between companies with the
use of an expanded virtual private networking solution. The stocks of both
companies recently skyrocketed, significantly contributing to the Fund's strong
overall performance. While Health Care Service stocks were being battered by
political upheaval, we were able to benefit from other types of Health Care
investments. For example, we took a position in SonoSite, a firm that develops
medical devices. The company created a hand-held portable ultrasound machine
that weighs only five pounds, costs one-tenth as much as the larger models of
the past, and produces high-quality results. SonoSite has just begun to
distribute this product, and its stock has appreciated significantly as a
result. We continue to hold this stock because of the company's upside
potential. Incyte Pharmaceuticals, which provides genomic-based information
tools and services, saw its stock price begin to soar at the end of the period.
In addition, two companies that the Fund held were acquired during the period.
Software developer Visio Corp. was purchased by Microsoft Corp. and Hambrecht &
Quist, a boutique investment bank, was purchased by Chase Manhattan Bank.
Although the Fund performed very well for the period, there were some holdings
that disappointed during the year. Two consulting firms, Aris Corp. and First
Consulting Group, were hurt by Y2K budget freezes on information technology
spending, but did recover late in the period. Pathogenesis, a biotechnology
firm, had disappointing sales of a new drug and its stock price dropped
significantly. We took advantage of drops in valuations to increase our holdings
of those companies, which still have strong long-term outlooks. Our strategy
remains to focus on dominant companies at attractive valuations, adding to
positions if the stock price weakens and trimming positions as valuations
escalate. We believe that over the long-term, this strategy will benefit owners
of the Fund.
WERE THERE ANY SHIFTS IN THE FUND'S PORTFOLIO HOLDINGS/SECTORS THAT HAVE HAD A
SIGNIFICANT IMPACT ON PERFORMANCE?
We took advantage of low valuations in the small-cap technology sector after the
Asian Crisis and added to several positions. Although we have benefited from
investments in semiconductors and other technology hardware, we have been
gradually decreasing our weighting in this sector since many of these stocks
have had significant price appreciation and have reached what we believe are
extended valuations. On the other hand, the relative valuation for small-cap
software stocks is near its decade low. Given the fact that demand for software
is only deferred rather than lost as we approached the Y2K deadline, we
increased our weighting in that sector due to these attractive valuations and
were rewarded with strong performance. We underweighted financial stocks during
the period as interest rates were rising, but we did benefit from the stocks
that we owned.
WHAT IS THE OUTLOOK FOR BOTH THE FUND AND THE OVERALL ECONOMY?
The U.S. economy has been strong with healthy consumer spending and generally
positive profit reports. Recently, however, increasing inflation expectations
and a weaker dollar have exerted pressure on bonds and have caused volatility in
the equity markets. If this trend continues, it will make it difficult to
justify very high stock valuations. Thus, positions in stocks that have had
significant price appreciation and where multiples (price-to-earnings,
price-to-sales), are extended, have been trimmed. Although we remain cautious
about the prospects of some highly-valued stocks, particularly in the
Technology sector, there are a number of positive signs for the small-cap
market.
Relative valuations of small-cap stocks remain depressed versus their long-term
averages, and this has created a good environment for mergers and acquisitions
(as noted by the Visio and Hambrecht & Quist buyouts). In addition, small-cap
companies are buying back their outstanding shares at a rate far greater than
the overall market average. Although small-cap stocks have historically been
more volatile than large-cap stocks, we believe that the risk/return profile
remains very attractive, and current prospects for the Fund are quite positive.
We continue to invest in leading companies that trade at valuations we feel are
less than their intrinsic values. We will continue with our philosophy of
investing in companies with solid growth opportunities and strong management
teams, which we feel will benefit our shareholders over the long-term.
[Pie Chart]
EMERGING GROWTH fund
<TABLE>
<CAPTION>
portfolio composition++
<S> <C>
Consumer Stocks 9%
Oil/Gas 1%
Media 1%
Health Care 19%
Financial Services 4%
Business Services 9%
Electrical Equipment 6%
Transportation 3%
Communications 7%
Electronics/Semiconductors 6%
Technology 35%
</TABLE>
++ Allocation percentages are based on total investment value of the portfolio
as of 12/31/99. Differences from financial statements are a result of a
consolidation of industries or sectors.
equity funds 21
<PAGE> 24
INTERNATIONAL GROWTH fund
PORTFOLIO MANAGER:
CAPITAL GUARDIAN TRUST
COMPANY
As of June 24, 1999, the Fund's investment management was transitioned from
Warburg Pincus to an international equity team at Capital Guardian Trust
Company. Eight portfolio managers and 27 analysts now share the management
responsibilities for the International Growth Fund. The managers average over 26
years of investment experience and have been with CGTC for an average of 20
years.
PERFORMANCE REVIEW(4)
The Fund performed very well during the 12-month period ended December 31, 1999,
returning more than 50% and significantly outperforming the MSCI EAFE Index.
From the Fund's inception through December 31, 1999, the International Growth
Fund has posted an average annual return of 11.68%.
WHAT WERE THE MOST SIGNIFICANT FACTORS CONTRIBUTING TO THE FUND'S PERFORMANCE
OVER THE 12-MONTH PERIOD ENDED DECEMBER 31, 1999, AND WHAT INVESTMENT TECHNIQUES
WERE USED TO ADDRESS THOSE CONDITIONS?
The period was marked by strong results in most international markets,
particularly across Asia. Emerging markets rebounded considerably, posting
strong gains as global stability returned. In recent months, Japanese markets
advanced due primarily to a powerful rally in the yen. Optimism in Japan has
been aided by two consecutive quarters of positive GDP growth. Perhaps more
important for equity investors, news of mergers and restructuring has been on
the rise. This was highlighted by three of Japan's largest banks --Dai-Ichi
Kangyo Bank, Fuji Bank, and the Industrial Bank of Japan -- announcing a merger
that would create the world's first trillion-dollar financial group. The
announcement was a first, reflecting the desire of three healthy banks to join
for strategic reasons. Until now, mergers in the Japanese banking industry had
been defensive, motivated by the desire to prevent bankruptcies among weak
institutions by having them absorbed by stronger ones.
In Europe, the long-awaited economic recovery appears to be underway, with
positive economic news appearing on many fronts. In Germany, business confidence
has grown, and exporters are benefiting from economic improvement in Asia and
from a weak currency (the Deutsche Mark has fallen
GROWTH OF A $10,000 INVESTMENT (2),(3)
Fund (without annuity expenses)(4)
Morgan Stanley Capital International (MSCI) EAFE Index(1)
Inflation (CPI)(1)
<TABLE>
<S> <C> <C> <C>
Inception 5/7: 10,000 10,000 10,000
Jun 9,846 10,120 9,993
Sep 10,505 11,080 10,112
Dec/93 10,602 11,310 10,169
Mar 10,979 11,470 10,219
Jun 11,549 11,784 10,268
Sep 11,567 11,864 10,366
Dec/94 11,457 11,523 10,423
Mar 11,680 11,142 10,521
Jun 11,774 11,392 10,542
Sep 12,274 11,868 10,662
Dec/95 12,781 12,284 10,740
Mar 13,159 12,771 10,789
Jun 13,376 13,045 10,810
Sep 13,368 12,911 10,965
Dec/96 13,591 13,394 11,035
Mar 13,387 13,425 11,113
Jun 15,135 15,169 11,170
Sep 15,037 15,052 11,268
Dec/97 13,870 13,042 11,288
Mar 15,921 14,818 11,353
Jun 16,101 14,594 11,408
Sep 13,822 12,065 11,449
Dec/98 16,690 13,720 11,490
Mar 16,935 14,027 11,567
Jun 17,376 14,922 11,651
Sep 18,151 16,176 11,770
Dec/99 21,246 20,848 11,834
</TABLE>
<TABLE>
<CAPTION>
TOTAL AVERAGE RETURNS AS OF 12/31/99 (2),(3) 1 YEAR 5 YEAR(8) SINCE INCEPTION(8)
(MAY 7, 1993)
<S> <C> <C> <C>
Fund (without annuity expenses)(4) 51.96% 12.59% 11.68%
Fund (with annuity expenses)(5),(6) 49.92% 11.02% 10.12%
Fund (adjusted for the maximum surrender charge)(5),(7) 44.47% 10.43% 9.76%
Morgan Stanley Capital International (MSCI) EAFE Index(1) 27.30% 13.15% 12.13%
</TABLE>
(1) Index total returns were calculated from 5/31/93 to 12/31/99. The
Morgan Stanley Capital International EAFE Index (MSCI EAFE) represents
the stock markets of Europe, Australia, New Zealand and the Far East
weighted by capitalization. MSCI EAFE is a broad-based index of equity
markets representing 18 countries. The index assumes reinvestment of
all dividends/distributions and does not reflect any asset-based
charges for investment management or other expenses. The Consumer Price
Index is a measurement of inflation for all urban consumers (CPI).
(2) Past investment performance does not guarantee future performance. The
returns for the Fund assume reinvestment of all dividends/
distributions.
(3) During the period noted, the Advisor waived a portion of its management
fees, and credits were allowed by the Custodian. In the absence of the
waivers or credits, yield and total return would have been lower.
(4) Excludes all annuity expenses (which are itemized in footnote #5)
charged by American General Life Insurance Company Separate Account D
through which shares of the Fund are purchased.
(5) Total returns are based on the change in unit value and reflect
expenses such as mortality and expense risk charges and administrative
expense charges of 1.4%. Returns do not account for income taxes due at
withdrawal or for premium taxes. All of the return information shown
prior to April 29, 1998 pre-dates the effective date of the Division's
first investment in the Fund. The return information after that date
reflects actual annual historical performance of the Division. The
above values relate only to the WM Strategic Asset Manager Contract.
The total return for the WM Advantage Contract would have been lower
due to higher expenses.
(6) Excludes maximum Surrender Charge of 0%-7% and $35 annual contract fee.
(7) Includes maximum Surrender Charge of 0%-7% and $35 annual contract fee.
(8) Annualized.
22
<PAGE> 25
considerably against the yen over the past 12 months). In France, domestic
demand has led the recovery, with consumer confidence and spending on the rise.
In the U.K., a tight labor market along with concerns about rising residential
real estate prices caused the Bank of England to increase short-term interest
rates in September, despite a notable lack of inflation. Throughout Europe,
mergers and acquisitions continued at a record pace with companies striving for
pan-European size and scope. The primary contributor to this period's strong
relative performance has been stock selection. Fund weightings in regions and
countries are dictated primarily by individual security selection. In Europe, we
began shifting away from financials and increasing our exposure to cyclicals
such as Peugeot SA (automobiles) and BMW AG (automobiles). That move has paid
off with this year's economic improvement and rising interest-rate environment.
In Japan, a reluctance to hold financial stocks has been a hindrance. However,
we have more than made up for that lost opportunity with a focus on holdings in
Japanese Technology firms such as NEC Corp. (electrical & electronics),
Advantest Corp. (electronic instruments) and Tokyo Electron (electronic
instruments). Japan was by far the biggest overall contributor to the Fund's
outperformance during the period. Stocks of companies such as Sony Corp.
(appliances & household durables) and NTT Mobile Communications Network
(wireless telecommunications services) appreciated significantly.
WERE THERE ANY SIGNIFICANT SHIFTS IN THE FUND'S PORTFOLIO HOLDINGS/SECTORS THAT
HAVE HAD A SIGNIFICANT IMPACT ON PERFORMANCE?
Probably the most significant change to the portfolio was an increase in
exposure to the solid exporting countries of Latin America and the Pacific
Basin, such as Mexico, Taiwan and Japan. On a selective basis, we found what we
believe to be attractively valued companies with excellent growth prospects
despite generally weak macro-economic conditions. This shift lowered exposure to
some European countries, where we found securities to be fully valued and faced
with tough economic times ahead. At the sector level, the allocation to Services
was reduced. The Fund was concentrated in the Telecommunications industry with
holdings such as Telemex, NTT Mobile Communications Network, Mannesmann and
Swisscom. We increased the Fund's exposure to Capital Equipment and Consumer
Goods at the expense of the Finance sector. Technology and Telecommunications
Equipment providers dominated these two sectors with companies like Nokia,
Samsung Electronics, Taiwan Semiconductor Manufacturing and ASM Lithography
Holdings.
WHAT IS THE OUTLOOK FOR BOTH THE FUND AND THE OVERALL ECONOMY?
After a strong first half, the Japanese economy held up fairly well in the
second half of 1999. As a result, growth in calendar year 1999 was positive.
Falling inventory/sales ratios and other indicators suggest that a cyclical
recovery in Japan may be underway. However, with unemployment rising, incomes
falling, and industrial sector capacity still ample, domestic private demand
fundamentals remain weak. Restructuring activity will offset much of the benefit
Japan receives from stronger global growth, and with public sector finances in
shambles, the extent of further fiscal stimulus is limited. We believe that
Japan's economic growth will remain sluggish this year and next, and the country
could continue to post some of the lowest growth rates of the developed
countries.
Purchasing manager surveys, data on orders, sentiment indices, and a fair number
of other indicators show that a cyclical recovery in European economic activity
is clearly underway. Significant improvement is evident even in Germany, where
much of the recent weakness has been concentrated. European GDP growth could
reach 3.5% in 2000. While higher commodity prices may exert some moderate upward
pressure on overall price levels, inflation rates across the region still remain
low, in some cases under 1.0%. After a disastrous 1998, emerging countries in
Europe are responding to the numerous currency devaluations that took place over
the past year.
With the exception of Hong Kong and Indonesia, most emerging Asian countries
continue to experience a fairly sharp increase in activity. While the rebound
has been led by exporting activity, improving domestic fundamentals and low
inflation, particularly in Korea and Thailand, suggest that growth should become
increasingly driven by domestic demand. In Latin America, activity is showing
signs of bottoming in response to sharply lower interest rates and a return of
capital inflows. However, interest rates are still high in many countries, and
any recovery in domestic demand should be much more moderate. While we are
cautious in our outlook for international markets, we will continue to seek out
strong companies with healthy growth prospects.
INTERNATIONAL GROWTH fund
portfolio composition++
<TABLE>
<S> <C>
Latin America 2%
Japan 33%
Asia 7%
Other 2%
Australia & New Zealand 3%
North America 5%
Europe 48%
</TABLE>
++ Allocation percentages are based on total investment value of the
portfolio as of 12/31/99.
equity funds 23
<PAGE> 26
STRATEGIC GROWTH portfolio
PORTFOLIO MANAGER:
RANDALL YOAKUM
WM ADVISORS, INC.
Steve Scott, Senior Portfolio Manager, WM Advisors, Inc., managed the SAM
Portfolios through December 31, 1999. As of January 1, 2000, Randall Yoakum,
Senior Portfolio Manager and Chief Investment Officer, will lead the SAM
management team. Mr. Yoakum has 16 years experience in investment and financial
analysis including over eight years with WM Advisors, Inc. He holds a BBA in
Finance/Economics from Pacific Lutheran University, an MBA in Finance/Economics
from Arizona State University, and is a Chartered Financial Analyst. Mr. Yoakum
also serves as chairman of WM Advisors' Investment Committee.
PERFORMANCE REVIEW(4)
The SAM STRATEGIC GROWTH PORTFOLIO returned 47.95% for the 12-month period ended
December 31, 1999. The Portfolio significantly outperformed its benchmark index
for the period, while being managed in an effort to reduce volatility relative
to a single asset-class equity investment. Long-term results have been
favorable. Since inception, the Portfolio has posted an average annual return of
30.75%, or 28.75% above the rate of inflation.+
ECONOMIC/MARKET REVIEW
The domestic economy accelerated over the past 12 months with overall output
projected to top 4% for the 1999 calendar year. Consumer spending continued, as
income increased and unemployment remained very low. Holiday retail sales were
strong and will add positively to overall economic results. The Federal Reserve
responded with three interest-rate increases during the period and is poised to
continue this trend at the first sign of inflation. The inflation fire was
stoked by rising commodity prices throughout the year, especially in energy,
where the price of oil more than doubled from its lowest point. Although
inflation did increase somewhat, overall price pressures remained very tame
during the past year. This is important to the performance of all financial
assets, as weak inflation is very positive for the performance of both bonds and
stocks.
Equity markets advanced during the past year, as the year closed with a very
strong fourth quarter. However, this performance was very narrow. Growth stocks
rose significantly, especially in the Technology and Telecommunications areas.
Value stocks did advance during the period, but significantly underperformed
growth stocks across all capitalization
GROWTH OF A $10,000 INVESTMENT (2),(3)
Portfolio (without annuity expenses)(4)
Capital Market Benchmark(1)
Russell 3000 Index(1)
Inflation (CPI)(1)
<TABLE>
<S> <C> <C> <C> <C>
Inception 6/3, 10000 10000 10000 10000
Jun 10320 10446 10416 10000
Jul 10970 11275 11233 10032
Aug 10550 10648 10777 10063
Sep 11040 11232 11388 10088
Oct 10610 10857 11005 10100
Nov 10630 11359 11426 10094
Dec 97 10700 11555 11655 10106
Jan 10860 11683 11776 10126
Feb 11710 12525 12618 10145
Mar 12170 13167 13244 10164
Apr 12360 13299 13374 10182
May 12060 13071 13044 10201
Jun 12409 13602 13484 10213
Jul 12168 13457 13239 10225
Aug 10423 11511 11211 10238
Sep 11004 12249 11975 10250
Oct 11636 13245 12884 10274
Nov 12389 14048 13672 10274
Dec 98 13503 14857 14541 10287
Jan 14255 15479 15035 10312
Feb 13793 14998 14503 10324
Mar 14645 15598 15035 10356
Apr 15427 16202 15713 10431
May 15136 15819 15414 10431
Jun 16038 16697 16193 10431
Jul 15743 16176 15702 10462
Aug 15752 16096 15524 10487
Sep 15875 15655 15127 10538
Oct 16701 16645 16076 10576
Nov 17801 16984 16525 10582
Dec 99 19973 17984 17580 10594
</TABLE>
<TABLE>
<CAPTION>
TOTAL AVERAGE RETURNS AS OF 12/31/99 (2),(3) 1 YEAR SINCE INCEPTION(8)
(JUNE 3, 1997)
<S> <C> <C>
Portfolio (without annuity expenses)(4) 47.95% 30.75%
Portfolio (with annuity expenses)(5),(6) 45.90% 28.94%
Portfolio (adjusted for the maximum surrender charge)(5),(7) 40.45% 27.53%
Capital Market Benchmark(1) 21.04% 21.95%
</TABLE>
(1) Index total returns were calculated from 6/1/97 to 12/31/99. The
Strategic Growth Portfolio's benchmark is a capital market index that
is intended to represent a proxy for Portfolio performance. The
benchmark allocation is 100% S&P 500. The Russell 3000 Index is a
broad-based index and is intended to represent the equity market as a
whole. The indices assume reinvestment of all dividends/distributions
and do not reflect any asset-based charges for investment management or
other expenses. The Consumer Price Index is a measurement of inflation
for all urban consumers (CPI).
(2) Past investment performance does not guarantee future performance. The
returns for the Portfolio assume reinvestment of all
dividends/distributions.
(3) During the period noted, the Advisor waived a portion of its management
fee and absorbed certain other expenses, and the Custodian allowed
credits. In the absence of the waiver, absorption of other expenses or
credits, total return would have been lower.
(4) Excludes all annuity expenses (which are itemized in footnote #5)
charged by American General Life Insurance Company Separate Account D
through which shares of the Fund are purchased.
(5) Total returns are based on the change in unit value and reflect
expenses such as mortality and expense risk charges and administrative
expense charges of 1.4%. Returns do not account for income taxes due at
withdrawal or for premium taxes.
(6) Excludes maximum Surrender Charge of 0%-7% and $35 annual contract fee.
(7) Includes maximum Surrender Charge of 0%-7% and $35 annual contract fee.
(8) Annualized.
24
<PAGE> 27
levels. For the period, small-, mid-, and large-cap growth stocks performed very
well, outdistancing their value counterparts by significant margins. Cellular,
Networking, and Biotech sector indices drove performance, as each more than
doubled during the past year. International markets rebounded, led by developing
countries and the entire Asian region. Japan reported its best performance in
years, and European stocks were generally solid performers, supported by
improving economic fundamentals. Overall, equity results around the globe were
quite positive for the 12-month period.
INVESTMENT STRATEGY
The STRATEGIC GROWTH PORTFOLIO is diversified in seven funds, representing six
major asset classes. The combination of asset classes increases our ability to
manage risk over a long-term investment horizon. Asset classes ranging in risk
levels from short-term money market instruments to international equities are
intended to shield the Portfolio from dramatic swings in any one specific area
of the equity markets.
The overall investment strategy for the period was to:
- - Maintain core equity focus on large-cap domestic holdings, as strong
momentum continued to push the prices of growth stocks higher.
- - Slightly reduce exposure to international equities to manage risk, but
maintain core position (16%) since markets have stabilized and
rebounded.
- - Initiate a position in the HIGH YIELD FUND to further diversify overall
Portfolio assets.
- - Look to diversify equity holdings with positions in both small- and
mid-cap companies in 2000.
REVIEW OF PORTFOLIO ALLOCATIONS
The major strategies of the past year were to manage risk levels and concentrate
equities in large-cap holdings. We slightly reduced international holdings in
favor of large-cap domestic equities. We achieved this by focusing assets into
the GROWTH FUND (39%), which was the best performing underlying fund over the
past year. Its focus on growth holdings in the Technology sector helped generate
strong results for the STRATEGIC GROWTH PORTFOLIO. Positions in the NORTHWEST
FUND and the EMERGING GROWTH FUND also contributed to the strong overall
results. These Funds are also overweighted in the Technology arena and advanced
throughout 1999, with very strong performance in the fourth quarter. While
international holdings rebounded and positively added to portfolio results, they
were reduced to help manage overall risk levels. The GROWTH & INCOME FUND
remains the second largest holding (27%) in the STRATEGIC GROWTH PORTFOLIO, as
earnings growth in large-cap stocks was very strong and is expected to continue.
In addition, we maintained some assets in cash and took a position in high-yield
bonds to help manage risk during volatile periods in the equity markets.
OUTLOOK
The economy continues to strengthen and, although higher oil prices and wage
pressures spooked the markets, pervasive inflation has not surfaced. While
consumer spending remains strong, the pace in consumption growth seems to be
slowing to a more sustainable level due to a weaker housing sector and the
possibility of slower retail sales. The job market is still very tight, with the
unemployment rate at a 30-year low and the economy continuing to generate new
jobs. Manufacturing has been weaker than previously expected, but very low
levels of inventories may need to be restocked, which would add to overall
output. Global growth is accelerating, but it is not benefiting the overall
trade balance as much as expected. Although exports have been growing, they have
not matched the torrid pace of import growth that has contributed to the growing
trade deficit. International economies are improving, but it may be difficult to
sustain the current levels of improvements in Asia. Europe is strengthening and
Latin America seems to be rebounding and is poised for continued improvement.
The net result of strong economic growth has been fears of inflation and
corresponding increases in interest rates, which has caused equity market
volatility. We do not expect recent increases in inflation indicators to
translate into accelerating price inflation since companies are still unable to
pass on price increases to the consumer. Strong competitive forces make it very
difficult to raise prices without sacrificing market share, while enhancements
in overall productivity have allowed firms to expand their profitability without
raising prices. This economic backdrop of strong growth and low inflation
continues to provide a positive environment for financial assets. Although
volatility could continue, our long-term outlook for both the bond and stock
market is very positive.
[PIE CHART]
STRATEGIC GROWTH portfolio
asset class diversification++
<TABLE>
<CAPTION>
<S> <C>
U.S. Equity Large Cap 47%
Foreign Stocks 16%
Cash 8%
Bonds 3%
U.S. Equity Small Cap 11%
U.S. Equity Mid Cap 15%
</TABLE>
[PIE CHART]
portfolio allocation++
<TABLE>
<CAPTION>
<S> <C>
Emerging Growth Fund 4%
High Yield Fund 4%
International Growth Fund
(Capital Guardian) 10%
Northwest Fund 11%
Money Market Fund 5%
Growth & Income Fund 27%
Growth Fund
(Janus) 39%
</TABLE>
+ Annual rate of inflation: 2.00%
Source: Ibbotson
++ As of 12/31/99 and may not reflect the current Strategic Growth Portfolio
allocation.
25
<PAGE> 28
CONSERVATIVE GROWTH portfolio
PORTFOLIO MANAGER:
RANDALL YOAKUM
WM ADVISORS, INC.
Steve Scott, Senior Portfolio Manager, WM Advisors, Inc., managed the SAM
Portfolios through December 31, 1999. As of January 1, 2000, Randall Yoakum,
Senior Portfolio Manager and Chief Investment Officer, now leads the SAM
management team. Mr. Yoakum has 16 years experience in investment and financial
analysis including over eight years with WM Advisors, Inc. He holds a BBA in
Finance/ Economics from Pacific Lutheran University, an MBA in Finance/Economics
from Arizona State University, and is a Chartered Financial Analyst. Mr. Yoakum
also serves as chairman of WM Advisors' Investment Committee.
PERFORMANCE REVIEW(4)
The SAM CONSERVATIVE GROWTH PORTFOLIO returned 39.36% for the 12-month period
ended December 31, 1999. The Portfolio significantly outperformed its benchmark
index for all periods, while being managed in an effort to reduce volatility
relative to single asset-class investments. Long-term results have been
favorable. Since inception, the Portfolio has posted an average annual return of
24.29%, or 22.27% above the rate of inflation.+
ECONOMIC/MARKET REVIEW
The domestic economy accelerated over the past 12 months with overall output
projected to top 4% for the 1999 calendar year. Consumer spending continued, as
income increased and unemployment remained very low. Holiday retail sales were
strong and will add positively to overall economic results. The Federal Reserve
responded with three interest-rate increases during the period and is poised to
continue this trend at the first sign of inflation. The inflation fire was
stoked by rising commodity prices throughout the year, especially in energy,
where the price of oil more than doubled from its lowest point. Although
inflation did increase somewhat, overall price pressures remained very tame
during the past year.
This is important to the performance of all financial assets since weak
inflation is very positive for the performance of both bonds and stocks. Growth
stocks, especially in the Technology and Telecommunications areas, rose
significantly during the period. Value stocks reported positive performance, but
not nearly to the extent that growth stocks exhibited across all capitalization
levels. Both small- and mid-cap growth stocks led a fierce rally in the fourth
quarter of 1999. In addition, international markets rebounded, led by developing
countries and the entire Asian region. European stocks were generally solid
performers, supported by improving economic
GROWTH OF A $10,000 INVESTMENT (2),(3)
Portfolio (without annuity expenses)(4)
Capital Market Benchmark(1)
Russell 3000 Index(1)
Inflation (CPI)(1)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Inception 6/3, 10000 10000 10000 10000
Jun 10416 10300 10311 10000
Jul 11233 10860 10701 10032
Aug 10777 10420 10347 10063
Sep 11388 10850 10726 10088
Oct 11005 10420 10411 10100
Nov 11426 10400 10556 10094
Dec 97 11655 10490 10668 10106
Jan 11776 10620 10804 10126
Feb 12618 11310 11279 10145
Mar 13244 11710 11595 10164
Apr 13374 11880 11675 10182
May 13044 11590 11541 10201
Jun 13484 11856 11727 10213
Jul 13239 11615 11684 10225
Aug 11211 10030 10677 10238
Sep 11975 10522 10973 10250
Oct 12884 11093 11558 10274
Nov 13672 11746 11980 10274
Dec 98 14541 12578 12378 10287
Jan 15035 13151 12599 10312
Feb 14503 12769 12338 10324
Mar 15035 13461 12682 10356
Apr 15713 14124 13049 10431
May 15414 13813 12815 10431
Jun 16193 14567 13230 10431
Jul 15704 14321 13138 10462
Aug 15524 14311 13115 10487
Sep 15127 14424 13045 10538
Oct 16076 15080 13460 10576
Nov 16525 15931 13746 10582
Dec 99 17580 17530 14415 10594
</TABLE>
<TABLE>
<CAPTION>
TOTAL AVERAGE RETURNS AS OF 12/31/99 (2),(3) 1 YEAR SINCE INCEPTION(8)
(June 3, 1997)
<S> <C> <C>
Portfolio (without annuity expenses)(4) 39.36% 24.29%
Portfolio (with annuity expenses)(5),(6) 37.43% 22.58%
Portfolio (adjusted for the maximum surrender charge)(5),(7) 31.98% 21.04%
Capital Market Benchmark(1) 16.46% 15.21%
</TABLE>
(1) Index total returns were calculated from 6/1/97 to 12/31/99. The
Conservative Growth Portfolio's benchmark is a blended mix of capital
market indices that is intended to represent a proxy for Portfolio
performance. The benchmark allocation is as follows: 35% S&P 500, 20%
MSCI EAFE + Emerging Markets, 20% Lehman Brothers Mutual Fund (1-5)
Gov/Corp Index, 20% Salomon Brothers 90-day T-Bills, and 5% Russell
2000 Growth. The Russell 3000 Index is a broad-based index and is
intended to represent the equity market as a whole. The indices assume
reinvestment of all dividends/distributions and do not reflect any
asset-based charges for investment management or other expenses. The
Consumer Price Index is a measurement of inflation for all urban
consumers (CPI).
(2) Past investment performance does not guarantee future performance. The
returns for the Portfolio assume reinvestment of all
dividends/distributions
(3) During the period noted, the Advisor waived a portion of its management
fee and absorbed certain other expenses, and the Custodian allowed
credits. In the absence of the waiver, absorption of other expenses or
credits, total return would have been lower.
(4) Excludes all annuity expenses (which are itemized in footnote #5)
charged by American General Life Insurance Company Separate Account D
through which shares of the Fund are purchased.
(5) Total returns are based on the change in unit value and reflect
expenses such as mortality and expense risk charges and administrative
expense charges of 1.4%. Returns do not account for income taxes due at
withdrawal or for premium taxes.
(6) Excludes maximum Surrender Charge of 0%-7% and $35 annual contract fee.
(7) Includes maximum Surrender Charge of 0%-7% and $35 annual contract fee.
(8) Annualized.
26
<PAGE> 29
fundamentals. Overall, equity results around the globe were quite positive for
the 12-month period.
Fixed-income assets were negatively affected by rising interest rates throughout
the past 12 months. Interest rates rose across the board, with the yield on the
30-year Treasury bond increasing 139 basis points (1.39%) and intermediate-term
yields increasing even more significantly. Shorter-term assets provided the best
results because their prices are less sensitive to changes in interest rates.
Overall, most fixed-income assets saw price declines that offset some of the
income earned throughout the period.
INVESTMENT STRATEGY
The CONSERVATIVE GROWTH PORTFOLIO is diversified among nine funds, representing
seven major asset classes. The combination of asset classes increases our
ability to manage risk over a long-term investment horizon. Asset classes
ranging in risk levels from short-term money market instruments to international
equities are intended to shield the Portfolio from drastic swings in any one
specific area of the financial markets.
The overall investment strategy for the period was to:
- - Increase equity focus on large-cap domestic holdings, as prospects for
earnings growth improved and technology holdings continued their upward
momentum.
- - Reduce exposure to international equities to manage risk, but maintain a
core position (19%) as markets have stabilized and rebounded.
- - Slightly increase the fixed-income exposure to 20%, while diversifying
these holdings in mortgage-backed securities and some higher-yielding bonds
to generate income.
REVIEW OF PORTFOLIO ALLOCATIONS
The major themes of the past year were to manage risk levels and concentrate
equities in large-cap holdings. In the equity portion of the Portfolio, we
reduced international holdings and small-cap stocks in favor of large-cap
domestic equities. We achieved this by taking advantage of strong momentum in
the GROWTH FUND (32%), which was the best performing underlying fund over the
past year. Its focus on growth holdings in the Technology sector helped generate
strong results for the CONSERVATIVE GROWTH PORTFOLIO. While international
holdings rebounded and contributed to portfolio results, they were reduced to
help manage overall risk levels. The GROWTH & INCOME FUND remains a large
holding (32%) in the CONSERVATIVE GROWTH PORTFOLIO, as earnings growth in
large-cap stocks were very strong and have been forecasted to continue.
We increased the fixed-income positions (20%) to reduce volatility and equity
investment risk, as we moved towards the end of the year and the markets
prepared for Y2K. At the same time, we diversified these positions in
mortgage-backed bonds and some corporate securities. This was done in an effort
to generate additional yield and take advantage of the possibility of
interest-rate declines. We also initiated a position in the HIGH YIELD FUND
during the period, which contributed to overall performance in addition to
income levels generated by the Portfolio.
OUTLOOK
The economy continues to strengthen and, although higher oil prices and wage
pressures spooked the markets, pervasive inflation has not surfaced. Although
consumer spending remains strong, the pace of consumption growth seems to be
slowing to a more sustainable level due to a weaker housing sector and the
possibility of slower retail sales. The labor market is still very tight, with
the unemployment rate at a 30-year low and the economy continuing to generate
new jobs. Manufacturing has been weaker than previously expected, but very low
levels of inventories may need to be restocked, which would add to overall
output. While global growth is accelerating, it is not benefiting the overall
trade balance as much as expected. Although exports have been growing, they have
not matched the torrid pace of import growth that has contributed to the
increasing trade deficit. International economies are improving, but it may be
difficult to sustain the current levels of improvements in Asia. Europe is
strengthening and Latin America seems to be rebounding and is poised for
continued improvement.
The net result of strong economic growth has been fears of inflation and
corresponding increases in interest rates, which has caused equity market
volatility. We do not expect recent increases in inflation indicators to
translate into accelerating price inflation since companies are still unable to
pass on price increases to the consumer. Strong competitive forces make it very
difficult to raise prices without sacrificing market share, while enhancements
in overall productivity have allowed firms to expand their profitability without
raising prices. This economic backdrop of strong growth and low inflation
continues to provide a positive environment for financial assets. Although
volatility could continue, our long-term outlook for both the bond and stock
market is very positive.
[PIE CHART]
CONSERVATIVE GROWTH portfolio
asset class diversification++
<TABLE>
<S> <C>
U.S. Equity Large Cap 44%
Mortgage Bonds 5%
Foreign Stocks 19%
Cash 11%
Corporate Bonds 4%
U.S. Small Cap 4%
U.S. Mid Cap 13%
</TABLE>
portfolio allocation++
<TABLE>
<S> <C>
Growth & Income Fund 32%
U.S. Government Securities Fund 4%
Income Fund 2%
International Growth Fund
(Capital Guardian) 14%
Northwest Fund 4%
Money Market Fund 8%
Short Term High Quality Bond Fund 1%
Growth Fund (Janus) 32%
</TABLE>
+ Annual rate of inflation: 2.00%
Source: Ibbotson
++ As of 12/31/99 and may not reflect the current Conservative Growth Portfolio
allocation.
Sam portfolios 27
<PAGE> 30
BALANCED Portfolio
PORTFOLIO MANAGER:
RANDALL YOAKUM
WM ADVISORS, INC.
Steve Scott, Senior Portfolio Manager, WM Advisors, Inc., managed the SAM
Portfolios through December 31, 1999. As of January 1, 2000, Randall Yoakum,
Senior Portfolio Manager and Chief Investment Officer, now leads the SAM
management team. Mr. Yoakum has 16 years experience in investment and financial
analysis including over eight years with WM Advisors, Inc. He holds a BBA in
Finance/Economics from Pacific Lutheran University, an MBA in Finance/Economics
from Arizona State University, and is a Chartered Financial Analyst. Mr. Yoakum
also serves as chairman of WM Advisors' Investment Committee.
PERFORMANCE REVIEW(4)
The SAM BALANCED PORTFOLIO returned 27.71% (not adjusted for sales charge) for
the 12-month period ended December 31, 1999. The Portfolio significantly
outperformed its benchmark index for all periods, while being managed in an
effort to reduce volatility relative to single asset-class investments.
Long-term results have been favorable. Since inception, the Portfolio has posted
an average annual return of 19.00%, or 17.00% above the rate of inflation.+
ECONOMIC/MARKET REVIEW
The domestic economy accelerated over the past 12 months with overall output
projected to top 4% for the 1999 calendar year. Consumer spending continued, as
income increased and unemployment remained very low. Holiday retail sales were
strong and will add positively to overall economic results. The Federal Reserve
responded with three interest-rate increases during the period and is poised to
continue this trend at the first sign of inflation. The inflation fire was
stoked by rising commodity prices throughout the year, especially in energy,
where the price of oil more than doubled from its lowest point. Although
inflation did increase somewhat, overall price pressures remained very tame
during the past year. This is important to the performance of all financial
assets since weak inflation is very positive for the performance of both bonds
and stocks.
Fixed-income assets were negatively affected by rising interest rates throughout
the past 12 months. Interest rates rose across the board, with the yield on the
30-year Treasury bond increasing 139 basis points (1.39%) and intermediate-term
yields increasing even more significantly. Shorter-term assets provided the best
results because their prices are less sensitive to changes in interest rates.
Long-term Treasuries reported negative performance for the period, with
mortgage-backed securities generally outperforming Treasury bonds with similar
maturities. Higher-yielding corporate bonds performed very well
GROWTH OF A $10,000 INVESTMENT (2),(3)
Portfolio (without annuity expenses)(4)
Capital Market Benchmark(1)
Russell 3000 Index(1)
Lehman Brothers Aggregate Bond Index(1)
Inflation (CPI)(1)
<TABLE>
<S> <C> <C> <C> <C> <C>
Inception |6/: 10000 10000 10000 10000 10000
Jun 10119 10416 10206 10000 10190
Jul 10392 11233 10442 10032 10680
Aug 10304 10777 10235 10063 10350
Sep 10456 11388 10462 10088 10700
Oct 10608 11005 10332 10100 10390
Nov 10657 11426 10409 10094 10390
Dec|97 10764 11655 10502 10106 10470
Jan 10902 11776 10632 10126 10600
Feb 10893 12618 10870 10145 11110
Mar 10931 13244 11036 10164 11410
Apr 10987 13374 11101 10182 11580
May 11092 13044 11083 10201 11440
Jun 11186 13484 11184 10213 11655
Jul 11210 13239 11223 10225 11534
Aug 11392 11211 10818 10238 10378
Sep 11659 11975 10975 10250 10719
Oct 11597 12884 11296 10274 11182
Nov 11663 13672 11510 10274 11655
Dec|98 11698 14541 11701 10287 12268
Jan 11781 15035 11810 10312 12691
Feb 11575 14503 11693 10234 12399
Mar 11639 15035 11898 10356 12929
Apr 11676 15713 12084 10431 13412
May 11573 15414 11939 10431 13103
Jun 11536 16193 12131 10431 13627
Jul 11488 15702 12113 10462 13461
Aug 11482 15524 12129 10487 13450
Sep 11615 15127 12163 10538 13579
Oct 11658 16076 12377 10576 14029
Nov 11657 16525 12505 10582 14614
Dec|99 11601 17580 12795 10594 15666
</TABLE>
<TABLE>
<CAPTION>
TOTAL AVERAGE RETURNS AS OF 12/31/99 (2),(3) 1 YEAR SINCE INCEPTION(8)
(June 3, 1997)
<S> <C> <C>
Portfolio (without annuity expenses)(4) 27.71% 19.00%
Portfolio (with annuity expenses)(5),(6) 25.94% 17.36%
Portfolio (adjusted for the maximum surrender charge)(5),(7) 20.49% 15.72%
Capital Market Benchmark(1) 9.35% 10.01%
</TABLE>
(1) Index total returns were calculated from 6/1/97 to 12/31/99. The Balanced
Portfolio's benchmark is a blended mix of capital market indices that is
intended to represent a proxy for Portfolio performance. The benchmark
allocation is as follows: 25% Lehman Brothers Mutual Fund (1-5) Gov/Corp
Index, 25% Salomon Brothers 90-day T-Bills, 20% Lehman Brothers Mortgage
Index, 15% S&P 500, and 15% MSCI EAFE + Emerging Markets. The Russell 3000
Index is a broad-based index and is intended to represent the equity market
as a whole. The Lehman Brothers Aggregate Bond Index is a broad-based index
intended to represent the fixed-income market as a whole. The indices
assume reinvestment of all dividends/distributions and do not reflect any
asset-based charges for investment management or other expenses. The
Consumer Price Index is a measurement of inflation for all urban consumers
(CPI).
(2) Past investment performance does not guarantee future performance. The
returns for the Portfolio assume reinvestment of all
dividends/distributions.
(3) During the period noted, the Advisor waived its management fee and absorbed
certain other expenses, and the Custodian allowed credits. In the absence
of the waiver, absorption of other expenses or credits, total return would
have been lower.
(4) Excludes all annuity expenses (which are itemized in footnote #5) charged
by American General Life Insurance Company Separate Account D through which
shares of the Fund are purchased.
(5) Total returns are based on the change in unit value and reflect expenses
such as mortality and expense risk charges and administrative expense
charges of 1.4%. Returns do not account for income taxes due at withdrawal
or for premium taxes.
(6) Excludes maximum Surrender Charge of 0%-7% and $35 annual contract fee.
(7) Includes maximum Surrender Charge of 0%-7% and $35 annual contract fee.
(8) Annualized.
28
<PAGE> 31
during the year, as performance was bolstered by strong economic conditions in
the U.S. Overall, most fixed-income assets saw price declines that offset some
of the income earned throughout the period.
Growth stocks rose significantly, especially in the Technology and Tele-
communications areas, while value stocks lagged across all capitalization
levels. International markets rebounded, led by developing countries and the
entire Asian region. European stocks were generally solid performers, supported
by improving economic fundamentals. Overall, equity results around the globe
were quite positive for the 12-month period.
INVESTMENT STRATEGY
The BALANCED PORTFOLIO is diversified among seven funds, representing nine major
asset classes. The combination of asset classes increases our ability to manage
risk over a long-term investment horizon. Asset classes ranging in risk levels
from short-term money market instruments to international equities are intended
to shield the Portfolio from drastic swings in any specific area of the
financial markets.
The overall investment strategy for the period was to:
- - Increase equity focus on large-cap domestic holdings, as prospects for
earnings growth improved and momentum continued in the Technology sector.
- - Slightly increase the fixed-income exposure to (38%) while reducing the
cash position in favor of mortgages and other higher-yielding bonds to
generate income.
- - Slightly reduce exposure to international equities to manage risk, but
maintain a core position (18%) since markets have stabilized and rebounded.
REVIEW OF PORTFOLIO ALLOCATIONS
The major themes of the past year were to manage risk levels and concentrate
equities in large-cap holdings. We slightly increased the fixed-income positions
(38%) to reduce volatility and equity investment risk, as we moved towards the
end of the year and the markets prepared for Y2K. At the same time, the cash
position was dramatically reduced and assets were shifted into mortgage-backed
securities. This was done in an effort to generate additional yield and take
advantage of the possibility of interest-rate declines. We also initiated a
position in the HIGH YIELD FUND during the period, which contributed to overall
performance in addition to income levels generated by the Portfolio.
In the equity portion of the Portfolio, we reduced international holdings in
favor of large-cap domestic equities. We achieved this by focusing assets into
the GROWTH FUND (24%), which was the best performing underlying fund over the
past year. Its focus on growth holdings in the Technology sector helped generate
strong results for the BALANCED PORTFOLIO. While international holdings
rebounded and positively added to portfolio results, they were reduced to help
manage overall risk levels. The GROWTH & INCOME FUND remains the largest holding
(26%) in the BALANCED PORTFOLIO, as earnings growth in large-cap stocks has been
very strong and has been forecasted to continue.
OUTLOOK
The economy continues to strengthen and, although higher oil prices and wage
pressures spooked the markets, pervasive inflation has not surfaced. Although
consumer spending remains strong, the pace of consumption growth seems to be
slowing to a more sustainable level due to a weaker housing sector and the
possibility of slower retail sales. The labor market is still very tight, with
the unemployment rate at a 30-year low and the economy continuing to generate
new jobs. Manufacturing has been weaker than previously expected, but very low
levels of inventories may need to be restocked, which would add to overall
output. While global growth is accelerating, it is not benefiting the overall
trade balance as much as expected. Although exports have been growing, they have
not matched the torrid pace of import growth that has contributed to the
increasing trade deficit. International economies are improving, but it may be
difficult to sustain the current levels of improvements in Asia. Europe is
strengthening and Latin America seems to be rebounding and is poised for
continued improvement.
The net result of strong economic growth has been fears of inflation and
corresponding increases in interest rates, which has caused equity market
volatility. We do not expect recent increases in inflation indicators to
translate into accelerating price inflation since companies are still unable to
pass on price increases to the consumer. Strong competitive forces make it very
difficult to raise prices without sacrificing market share, while enhancements
in overall productivity have allowed firms to expand their profitability without
raising prices. This economic backdrop of strong growth and low inflation
continues to provide a positive environment for financial assets. Although
volatility could continue, our long-term outlook for both the bond and stock
market is very positive.
[PIE CHART]
BALANCED portfolio
asset class diversification++
<TABLE>
<S> <C>
U.S. Equity Large Cap 34%
Cash 3%
Corporate Bonds 9%
Foreign Stocks 18%
Foreign Bonds 1%
Treasuries 2%
U.S. Equity Small Cap 1%
Mortgage-Based 23%
U.S. Equity Mid Cap 9%
</TABLE>
portfolio allocation++
[PIE CHART]
<TABLE>
<S> <C>
Growth & Income Fund 26%
High Yield Fund 2%
International Growth Fund
(Capital Guardian) 14%
U.S. Government Securities Fund 18%
Short Term High Quality Bond Fund 13%
Growth Fund (Janus) 24%
Income Fund 3%
</TABLE>
+ Annual rate of inflation: 2.00%
Source: Ibbotson
++ As of 12/31/99 and may not reflect the current Balanced Portfolio
allocation.
SAM portfolios 29
<PAGE> 32
FLEXIBLE INCOME portfolio
PORTFOLIO MANAGER:
RANDALL YOAKUM
WM ADVISORS, INC.
Steve Scott, Senior Portfolio Manager, WM Advisors, Inc., managed the SAM
Portfolios through December 31, 1999. As of January 1, 2000, Randall Yoakum,
Senior Portfolio Manager and Chief Investment Officer, now leads the SAM
management team. Mr. Yoakum has 16 years experience in investment and financial
analysis including over eight years with WM Advisors, Inc. He holds a BBA in
Finance/ Economics from Pacific Lutheran University, an MBA in Finance/Economics
from Arizona State University, and is a Chartered Financial Analyst. Mr. Yoakum
also serves as chairman of WM Advisors' Investment Committee.
PERFORMANCE REVIEW(4)
The SAM FLEXIBLE INCOME PORTFOLIO returned 8.58% for the 12-month period ended
December 31, 1999. The Portfolio outperformed its benchmark index for all
periods, while being managed in an effort to reduce volatility relative to
single asset-class investments. Long-term results have been favorable. Since
inception, the Portfolio has posted an average annual return of 9.81%, or 7.79%
above the rate of inflation.+
ECONOMIC/MARKET REVIEW
The domestic economy accelerated over the past 12 months with overall output
projected to top 4% for the 1999 calendar year. Consumer spending continued, as
income increased and unemployment remained very low. Holiday retail sales were
strong and will add positively to overall economic results. The Federal Reserve
responded with three interest-rate increases during the period and is poised to
continue this trend at the first sign of inflation. The inflation fire was
stoked by rising commodity prices throughout the year, especially in energy,
where the price of oil more than doubled from its lowest point. Although
inflation did increase somewhat, overall price pressures remained very tame
during the past year. This is important to the performance of all financial
assets since weak inflation is very positive for the performance of both bonds
and stocks.
Fixed-income assets were negatively affected by rising interest rates throughout
the past 12 months. Interest rates rose across the board, with the yield on the
30-year Treasury bond increasing 139 basis points (1.39%) and intermediate-term
yields increasing even more significantly. Shorter-term assets provided the best
results because their prices are less sensitive to changes in interest rates.
Long-term Treasuries reported negative performance for the period, with
mortgage-backed securities generally outperforming Treasury bonds with similar
maturities. Higher-yielding corporate bonds performed very well
GROWTH OF A $10,000 INVESTMENT (2),(3)
Portfolio (without annuity expenses)(4)
Capital Market Benchmark(1)
Lehman Brothers Aggregate Bond Index(1)
Inflation (CPI)(1)
<TABLE>
<S> <C> <C> <C> <C>
Inception/9/8, 10000 10000 10000 10000
Sep 10110 10122 10148 10025
Oct 10110 10154 10295 10037
Nov 10140 10229 10343 10031
Dec/97 10230 10303 10447 10043
Jan 10350 10391 10581 10062
Feb 10540 10485 10572 10081
Mar 10650 10576 10608 10100
Apr 10720 10632 10663 10119
May 10740 10665 10765 10137
Jun 10871 10756 10856 10149
Jul 10831 10786 10879 10161
Aug 10470 10719 11056 10173
Sep 10771 10898 11315 10186
Oct 10961 11015 11255 10210
Nov 11172 11100 11319 10210
Dec/98 11432 11200 11353 10222
Jan 11623 11293 11434 10247
Feb 11452 11231 11234 10260
Mar 11680 11334 11295 10291
Apr 11924 11415 11332 10366
May 11803 11381 11232 10366
Jun 11950 11470 11196 10366
Jul 11847 11449 11149 10397
Aug 11796 11472 11143 10422
Sep 11853 11514 11273 10472
Oct 12019 11625 11314 10509
Nov 12174 11676 11313 10515
Dec/99 12415 11759 11259 10528
</TABLE>
<TABLE>
<CAPTION>
TOTAL AVERAGE RETURNS AS OF 12/31/99 (2),(3) 1 YEAR SINCE INCEPTION(8)
(September 8, 1997)
<S> <C> <C>
Portfolio (without annuity expenses)(4) 8.58% 9.81%
Portfolio (with annuity expenses)(5),(6) 7.08% 8.28%
Portfolio (adjusted for the maximum
surrender charge)(5),(7) 1.63% 6.19%
Capital Market Benchmark(1) 4.99% 7.19%
</TABLE>
(1) Index total returns were calculated from 9/1/97 to 12/31/99. The Flexible
Income Portfolio's benchmark is a blended mix of capital market indices
that are intended to represent a proxy for Portfolio performance. The
benchmark allocation is as follows: 40% Lehman Brothers Mutual Fund Short
(1-5) Gov/Corp Index, 40% Salomon Brothers 90-day T-Bills, 10% Lehman
Brothers Mortgage Index, and 10% S&P 500. The Lehman Brothers Aggregate
Bond Index is a broad-based index intended to represent the fixed-income
market as a whole. The indices assume reinvestment of all dividends/
distributions and do not reflect any asset-based charges for investment
management or other expenses. The Consumer Price Index is a measurement of
inflation for all urban consumers (CPI).
(2) Past investment performance does not guarantee future performance. The
returns for the Portfolio assume reinvestment of all dividends/
distributions.
(3) During the period noted, the Advisor waived its management fee and absorbed
certain other expenses, and the Custodian allowed credits. In the absence
of the waiver, absorption of other expenses or credits, total return would
have been lower.
(4) Excludes all annuity expenses (which are itemized in footnote #5) charged
by American General Life Insurance Company Separate Account D through which
shares of the Fund are purchased.
(5) Total returns are based on the change in unit value and reflect expenses
such as mortality and expense risk charges and administrative expense
charges of 1.4%. Returns do not account for income taxes due at withdrawal
or for premium taxes.
(6) Excludes maximum Surrender Charge of 0%-7% and $35 annual contract fee.
(7) Includes maximum Surrender Charge of 0%-7% and $35 annual contract fee.
(8) Annualized.
30
<PAGE> 33
during the year, as performance was bolstered by strong economic conditions in
the U.S. Overall, most fixed-income assets saw price declines that offset some
of the income earned throughout the period.
Equity markets advanced during the past year, with much of the broad gains
concentrated in the early part of the period. During the closing months of 1998
and early 1999, there were broad-based rallies in domestic equity markets.
However, this performance narrowed considerably during the latter part of the
period. Growth stocks rose significantly, especially in the Technology and
Telecommunications areas, while value stocks lagged across all capitalization
levels.
INVESTMENT STRATEGY
The FLEXIBLE INCOME PORTFOLIO is diversified among seven funds, representing
seven major asset classes. The combination of asset classes increases our
ability to manage risk over a long-term investment horizon. Asset classes
ranging in risk levels from short-term money market instruments to domestic
equities are intended to shield the Portfolio from drastic swings in any
specific area of the financial markets.
The overall investment strategy for the period was to:
- - Reallocate the fixed-income fund assets by reducing the position in
short-term bonds in favor of corporate bonds to generate income.
- - Focus fixed-income holdings on high-quality issues during the second half
of 1999.
- - Increase equity fund focus (27%) on large-cap domestic holdings to take
advantage of continued earnings growth and equity market appreciation.
REVIEW OF PORTFOLIO ALLOCATIONS
The major themes of the past year were to manage risk levels and generate income
by concentrating assets in shorter-term securities while increasing corporate
debt exposure. We increased the equity fund positions to gain performance
strength by focusing almost solely on large-cap holdings. We achieved this by
initiating a position in the GROWTH FUND (7%), which was the best performing
underlying fund over the past year. Its focus on growth holdings in the
Technology sector helped generate strong results for the FLEXIBLE INCOME
PORTFOLIO. In addition, the GROWTH & INCOME FUND (20%) remained a core position
and also contributed strong results for the period. In the fixed-income portion
of the Portfolio, the cash position was slightly reduced and assets were shifted
into mortgage bonds and corporate securities. This was done in an effort to
generate additional yield while not significantly increasing interest-rate risk.
We maintained a position in the HIGH YIELD FUND, which was the best performing
fixed-income fund, and contributed to overall performance in addition to income
levels generated by the Portfolio. We increased the positions in the U.S.
GOVERNMENT SECURITIES FUND and reduced the holdings in the SHORT TERM HIGH
QUALITY BOND FUND. Overall, the allocations made during the past 12 months
benefited shareholders of the Portfolio as most fixed-income assets reported
just slightly positive results, while the FLEXIBLE INCOME PORTFOLIO had nearly a
double-digit return.
OUTLOOK
The economy continues to strengthen and, although higher oil prices and wage
pressures spooked the markets, pervasive inflation has not surfaced. Although
consumer spending remains strong, the pace in consumption growth seems to be
slowing to a more sustainable level due to a weaker housing sector and the
possibility of slower retail sales. The job market is still very tight, with the
unemployment rate at a 30-year low and the economy continuing to generate new
jobs. Manufacturing has been weaker than previously expected, but very low
levels of inventories may need to be restocked, which would add to overall
output. While global growth is accelerating, it is not benefiting the overall
trade balance as much as expected. Although exports have been growing, they have
not matched the torrid pace of import growth that has contributed to the
increasing trade deficit. International economies are improving, but it may be
difficult to sustain the current levels of improvements in Asia. Europe is
strengthening and Latin America seems to be rebounding and is poised for
continued improvement.
The net result of strong economic growth has been fears of inflation and
corresponding increases in interest rates, which has caused equity market
volatility. We do not expect recent increases in inflation indicators to
translate into accelerating price inflation since companies are still unable to
pass on price increases to the consumer. Strong competitive forces make it very
difficult to raise prices without sacrificing market share, while enhancements
in overall productivity have allowed firms to expand their profitability without
raising prices. This economic backdrop of strong growth and low inflation
continues to provide a positive environment for financial assets. Although
volatility could continue, our long-term outlook for both the bond and stock
market is very positive.
FLEXIBLE INCOME portfolio
asset class diversification++
[PIE CHART]
<TABLE>
<S> <C>
Corporate Bonds 24%
Treasuries 4%
Foreign Stocks 2%
Foreign Bonds 4%
Domestic Stocks 25%
Cash 11%
Mortgage-Based 30%
</TABLE>
portfolio allocation++
[PIE CHART]
<TABLE>
<S> <C>
U.S. Government Securities Fund 19%
Growth & Income Fund 20%
Short Term High Quality Bond Fund 20%
Income Fund 19%
Money Market Fund 10%
High Yield Fund 5%
Growth Fund (Janus) 7%
</TABLE>
+ Annual rate of inflation: 2.02%
Source: Ibbotson
++ As of 12/31/99 and may not reflect the current Flexible Income Portfolio
allocation.
SAM portfolios 31
<PAGE> 34
INCOME PORTFOLIO
PORTFOLIO MANAGER:
RANDALL YOAKUM
WM ADVISORS, INC.
Steve Scott, Senior Portfolio Manager, WM Advisors, Inc., managed the SAM
Portfolios through December 31, 1999. As of January 1, 2000, Randall Yoakum,
Senior Portfolio Manager and Chief Investment Officer, now leads the SAM
management team. Mr. Yoakum has 16 years experience in investment and financial
analysis including over eight years with WM Advisors, Inc. He holds a BBA in
Finance/Economics from Pacific Lutheran University, an MBA in Finance/ Economics
from Arizona State University, and is a Chartered Financial Analyst. Mr. Yoakum
also serves as chairman of WM Advisors' Investment Committee.
PERFORMANCE REVIEW(4)
Despite rising interest rates throughout the period, the SAM INCOME PORTFOLIO
returned 1.88% for the 12-months ended December 31, 1999. The Portfolio has
averaged 3.61% per year since its inception (April 23, 1998).
ECONOMIC/MARKET REVIEW
The domestic economy accelerated over the past 12 months with overall output
projected to top 4% for the 1999 calendar year. Consumer spending continued, as
income increased and unemployment remained very low. Holiday retail sales were
strong and will add positively to overall economic results. The Federal Reserve
responded with three interest-rate increases during the period and is poised to
continue this trend at the first sign of inflation. The inflation fire was
stoked by rising commodity prices throughout the year, especially in energy,
where the price of oil more than doubled from its lowest point.
Although inflation did increase somewhat, overall price pressures remained very
tame during the past year. This is important to the performance of financial
assets, as weak inflation is very positive for fixed-income securities.
Fixed-income assets were negatively affected by rising interest rates throughout
the past 12 months. Interest rates rose across the board, with the yield on the
30-year Treasury bond increasing 139 basis points (1.39%) and intermediate-term
yields increased even more significantly. Shorter-term
GROWTH OF A $10,000 INVESTMENT (2,3)
Portfolio (without annuity expenses)(4)
Capital Market Benchmark(1)
Lehman Brothers Aggregate Bond Index(1)
Inflation (CPI)(1)
<TABLE>
<S> <C> <C> <C> <C>
Inception 4/2 10000 10000 10000 10000
Apr 10000 10000 10000 10000
May 10063 10090 10095 10018
Jun 10114 10163 10181 10030
Jul 10147 10183 10202 10042
Aug 10213 10233 10368 10054
Sep 10338 10383 10611 10066
Oct 10334 10323 10555 10090
Nov 10394 10404 10615 10090
Dec 98 10428 10424 10647 10102
Jan 10489 10493 10722 10127
Feb 10444 10363 10535 10139
Mar 10502 10446 10593 10170
Apr 10541 10538 10627 10244
May 10525 10497 10533 10244
Jun 10537 10472 10499 10244
Jul 10544 10482 10455 10275
Aug 10563 10460 10450 10300
Sep 10638 10567 10571 10349
Oct 10681 10599 10610 10386
Nov 10708 10620 10609 10392
Dec 99 10721 10618 10558 10405
</TABLE>
<TABLE>
<CAPTION>
TOTAL AVERAGE RETURNS AS OF 12/31/99 (2,3) 1 YEAR SINCE INCEPTION(8)
(April 23, 1998)
<S> <C> <C>
Portfolio (without annuity expenses)(4) 1.88% 3.61%
Portfolio (with annuity expenses)(5),(6) 0.47% 2.18%
Portfolio (adjusted for the maximum surrender charge)(5),(7) -4.98% -1.35%
Capital Market Benchmark(1) 2.81% 4.27%
</TABLE>
(1) Index total returns were calculated from 4/30/97 to 12/31/99. The Income
Portfolio's benchmark is a blended mix of capital market indices that are
intended to represent a proxy for Portfolio performance. The benchmark
allocation is as follows: 50% Salomon Brothers 90-day T-Bills Index, 30%
Lehman Brothers Mutual Fund Short (1-5) Gov/Corp Index, 10% Lehman Brothers
Mortgage Index and 10% Lehman Brothers BAA LT Corporate Bond Index. The
Lehman Brothers Aggregate Bond Index is a broad-based index intended to
represent the fixed-income market as a whole. The indices assume
reinvestment of all dividends/distributions and do not reflect any
asset-based charges for investment management or other expenses. The
Consumer Price Index is a measurement of inflation for all urban consumers
(CPI).
(2) Past investment performance does not guarantee future performance. The
returns for the Portfolio assume reinvestment of all dividends/
distributions.
(3) During the period noted, the Advisor waived its management fee and absorbed
certain other expenses, and the Custodian allowed credits. In the absence
of the waiver, absorption of other expenses or credits, total return would
have been lower.
(4) Excludes all annuity expenses (which are itemized in footnote #5) charged
by American General Life Insurance Company Separate Account D through which
shares of the Fund are purchased.
(5) Total returns are based on the change in unit value and reflect expenses
such as mortality and expense risk charges and administrative expense
charges of 1.4%. Returns do not account for income taxes due at withdrawal
or for premium taxes.
(6) Excludes maximum Surrender Charge of 0%-7% and $35 annual contract fee.
(7) Includes maximum Surrender Charge of 0%-7% and $35 annual contract fee.
(8) Annualized.
32
<PAGE> 35
assets provided the best results because their prices are less sensitive to
changes in interest rates. Long-term Treasuries reported negative performance
for the period, with mortgage-backed securities generally outperforming Treasury
bonds with similar maturities. Higher-yielding corporate bonds performed very
well during the year, as performance was bolstered by strong economic conditions
in the U.S. Overall, most fixed-income assets saw price declines that offset
some of the income earned throughout the period.
INVESTMENT STRATEGY
The INCOME PORTFOLIO is diversified among five funds, representing five major
asset classes. The combination of asset classes increases our ability to manage
risk over a long-term investment horizon. Asset classes ranging in risk levels
from short-term money market instruments to high-yield bonds are intended to
shield the Portfolio from drastic swings in any specific area of the
fixed-income markets.
The overall investment strategy for the period was to:
- - Maintain a significant position in higher-yielding corporate bonds to
generate income and add to overall results.
- - Focus core fixed-income holdings on high-quality issues during the second
half of 1999.
- - Favor concentration in mortgage-backed securities relative to Treasuries
during period of rising interest rates.
REVIEW OF PORTFOLIO ALLOCATIONS
The major strategies of the past year were to manage risk levels and generate
income by concentrating assets in shorter-term securities and maintaining
high-yield debt exposure. We held a position in the HIGH YIELD FUND, which was
the best performing fixed-income fund, and contributed to overall performance in
addition to income levels generated by the Portfolio. This Fund is less affected
by changes in interest rates and benefits from overall economic strength. We
reduced the position in the SHORT TERM HIGH QUALITY BOND FUND during the period
as our long-term outlook is for lower interest rates. We maintained a core
position in the INCOME FUND (29%) as its corporate holdings provided positive
results during the period. The net results of the allocations throughout the
year were an overall reduction in short-term bonds and an increase in the
allocation of mortgage-backed securities. This helped generate additional income
and some strategic positioning moving into 2000. Overall, the Portfolio reported
positive results as the income generated by the securities in the portfolio
offset the falling prices caused by a steep rise in interest rates.
OUTLOOK
The economy continues to strengthen and, although higher oil prices and wage
pressures spooked the markets, pervasive inflation has not surfaced. Although
consumer spending remains strong, the pace of consumption growth seems to be
slowing to a more sustainable level due to a weaker housing sector and the
possibility of slower retail sales. The job market is still very tight, with the
unemployment rate at a 30-year low and the economy continuing to generate new
jobs. Manufacturing has been weaker than previously expected, but very low
levels of inventories may need to be restocked, which would add to overall
output. In addition, conditions overseas continue to improve, particularly in
Europe, which could bolster U.S. export production.
The net result of strong economic growth has been fears of inflation and
corresponding increases in interest rates, which have caused increased market
volatility. We do not expect recent increases in inflation indicators to
translate into accelerating price inflation because companies are still unable
to pass on price increases to the consumer. Strong competitive forces make it
very difficult to raise prices without sacrificing market share, while
enhancements in overall productivity have allowed firms to expand their
profitability without raising prices. Because of this, our long-term outlook for
interest rates and the bond market is very positive. Although short-term
volatility could continue, the economic backdrop of lower interest rates and low
inflation provides a positive environment for all fixed-income assets.
INCOME portfolio
asset class diversification++
[PIE CHART]
<TABLE>
<S> <C>
Corporate Bonds 31%
Treasuries 6%
Foreign Stocks 6%
Cash 13%
Mortgage-Based 44%
</TABLE>
portfolio allocation++
[PIE CHART]
<TABLE>
<S> <C>
High Yield Fund 11%
Income Fund 29%
U.S. Government Securities Fund 35%
Short Term High Quality Bond Fund 14%
Money Market Fund 11%
</TABLE>
++ As of 12/31/99 and may not reflect the current Income Portfolio allocation.
SAM portfolios 33
<PAGE> 36
STATEMENTS of ASSETS and LIABILITIES
WM VARIABLE TRUST
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHORT TERM U.S.
MONEY HIGH GOVERNMENT BOND & GROWTH &
MARKET QUALITY BOND SECURITIES INCOME STOCK INCOME
FUND FUND FUND FUND FUND FUND
----------- ------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments, at value
(See portfolios of investments):
Securities........................... $31,096,526 $51,110,963 $76,243,514 $52,519,955 $10,180,346 $198,957,353
Repurchase Agreements................ -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ------------
Total Investments (a).............. 31,096,526 51,110,963 76,243,514 52,519,955 10,180,346 198,957,353
Cash and/or foreign currency (b)....... 10,673 1,611,516 3,299,473 2,083,213 1,570,927 6,906,425
Dividends and/or interest receivable... 41,443 505,280 611,990 1,030,455 52,048 148,388
Receivable for investment securities
sold................................. -- 137 -- -- 21,569 --
Receivable for Fund shares sold........ -- -- -- 30,136 -- 202,124
Net unrealized appreciation of forward
foreign currency contracts (See
portfolio of
investments)......................... -- -- -- -- -- --
Unamortized organization costs and/or
offering costs....................... -- -- -- -- -- --
Prepaid expenses and other assets...... 627 961 1,300 1,176 135 3,180
----------- ----------- ----------- ----------- ----------- ------------
Total Assets....................... 31,149,269 53,228,857 80,156,277 55,664,935 11,825,025 206,217,470
----------- ----------- ----------- ----------- ----------- ------------
LIABILITIES:
Payable for investment securities
purchased............................ -- -- -- -- -- --
Net unrealized depreciation of forward
foreign currency contracts (See
portfolio of
investments)......................... -- -- -- -- -- --
Payable for Fund shares redeemed....... -- 23,648 61,499 48,729 1,343 42,290
Due to custodian....................... -- -- -- -- -- --
Investment advisory fee payable........ 17,120 22,240 33,167 23,220 6,059 128,475
Administration fee payable............. 4,484 8,006 11,940 8,359 1,745 29,815
Accrued legal and audit fees........... 17,724 19,440 19,600 19,366 16,058 27,589
Accrued printing and postage fees...... 3,752 6,238 9,530 6,877 1,312 23,593
Custodian fee payable.................. 134 520 1,235 414 525 2,352
Accrued expenses and other payables.... 1,463 4,383 4,686 2,170 1,302 2,930
----------- ----------- ----------- ----------- ----------- ------------
Total Liabilities.................. 44,677 84,475 141,657 109,135 28,344 257,044
----------- ----------- ----------- ----------- ----------- ------------
NET ASSETS............................. $31,104,592 $53,144,382 $80,014,620 $55,555,800 $11,796,681 $205,960,426
=========== =========== =========== =========== =========== ============
- ---------------------
(a) Investments, at cost............... $31,096,526 $51,745,996 $77,171,495 $54,527,217 $10,079,932 $165,159,815
=========== =========== =========== =========== =========== ============
(b) Cash and/or foreign currency, at
cost............................. $ 10,673 $ 1,611,516 $3,299,473 $ 2,083,213 $ 1,570,927 $ 6,906,425
=========== =========== =========== =========== =========== ============
</TABLE>
See Notes to Financial Statements.
34
<PAGE> 37
<TABLE>
<CAPTION>
EMERGING INTERNATIONAL STRATEGIC CONSERVATIVE FLEXIBLE
GROWTH NORTHWEST GROWTH GROWTH GROWTH GROWTH BALANCED INCOME INCOME
FUND FUND FUND FUND PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ----------- ----------- ------------- ----------- ------------ ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$361,381,241 $18,578,728 $52,834,234 $83,342,429 $34,687,252 $155,603,176 $170,140,721 $25,750,042 $7,253,654
-- -- -- -- 728,000 180,000 560,000 -- --
------------ ----------- ----------- ----------- ----------- ------------ ------------ ----------- ----------
361,381,241 18,578,728 52,834,234 83,342,429 35,415,252 155,783,176 170,700,721 25,750,042 7,253,654
64,662 1,840,103 843,390 3,559,576 930 201 825 92,430 --
36,054 14,259 1,749 94,617 71 17 55 -- --
7,476,102 -- -- 6,026 -- -- -- -- --
805,235 26,322 53,786 33,274 87,081 60,644 -- 21,797 --
942,672 -- -- -- -- -- -- -- --
-- -- -- -- 19,913 19,913 19,913 5,067 --
4,391 125 827 1,351 286 597 790 207 72
------------ ----------- ----------- ----------- ----------- ------------ ------------ ----------- ----------
370,710,357 20,459,537 53,733,986 87,037,273 35,523,533 155,864,548 170,722,304 25,869,543 7,253,726
------------ ----------- ----------- ----------- ----------- ------------ ------------ ----------- ----------
235,582 -- -- 1,288 -- -- -- -- --
-- -- -- 248,866 -- -- -- -- --
131,613 -- 49,262 31,225 -- 9,596 121,384 -- --
-- -- -- -- -- -- -- -- 33,524
256,634 9,001 35,826 61,542 6,483 19,569 24,654 8,310 3,520
52,466 2,592 7,362 12,133 3,930 18,587 20,314 3,203 908
33,107 14,454 18,282 25,230 9,862 11,671 12,085 9,587 9,237
39,417 1,759 5,639 9,458 3,252 14,177 15,726 2,625 768
5,618 2,123 1,242 12,138 -- 154 92 38 10
3,966 413 749 2,907 260 549 746 218 72
------------ ----------- ----------- ----------- ----------- ------------ ------------ ----------- ----------
758,403 30,342 118,362 404,787 23,787 74,303 195,001 23,981 48,039
------------ ----------- ----------- ----------- ----------- ------------ ------------ ----------- ----------
$369,951,954 $20,429,195 $53,615,624 $86,632,486 $35,499,746 $155,790,245 $170,527,303 $25,845,562 $7,205,687
============ =========== =========== =========== =========== ============ ============ =========== ==========
$226,989,419 $15,159,813 $32,773,339 $59,730,573 $28,431,855 $138,448,370 $156,097,758 $25,464,725 $7,430,650
============ =========== =========== =========== =========== ============ ============ =========== ==========
$ 64,662 $ 1,840,103 $ 843,390 $ 3,558,909 $ 930 $ 201 $ 825 $ 92,430 $ --
============ =========== =========== =========== =========== ============ ============ =========== ==========
</TABLE>
See Notes to Financial Statements.
35
<PAGE> 38
STATEMENTS of ASSETS and LIABILITIES (continued)
WM VARIABLE TRUST
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHORT TERM U.S.
MONEY HIGH GOVERNMENT BOND & GROWTH &
MARKET QUALITY BOND SECURITIES INCOME STOCK INCOME
FUND FUND FUND FUND FUND FUND
----------- ------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSETS CONSIST OF:
Undistributed net investment
income/(accumulated net investment
loss)................................ $ 23,539 $ 100,806 $ 356,666 $ 93,606 $ 229,543 $ 519,248
Accumulated net realized gain/(loss)
from security transactions, futures
contracts, forward foreign currency
contracts and foreign currency
transactions......................... (892) (659,755) (1,463,983) (2,487,584) (25,353) 10,864,580
Net unrealized
appreciation/(depreciation) of
securities, futures contracts,
forward foreign currency contracts,
foreign currency, and other assets
and liabilities...................... -- (635,033) (927,981) (2,007,262) 100,414 33,797,538
Paid-in capital........................ 31,081,945 54,338,364 82,049,918 59,957,040 11,492,077 160,779,060
----------- ----------- ----------- ----------- ----------- ------------
Total Net Assets................... $31,104,592 $53,144,382 $80,014,620 $55,555,800 $11,796,681 $205,960,426
=========== =========== =========== =========== =========== ============
NET ASSET VALUE, offering price and
redemption price per share of
beneficial interest outstanding...... $ 1.00 $ 2.39 $ 9.62 $ 9.35 $ 10.50 $ 18.58
=========== =========== =========== =========== =========== ============
Number of Fund/Portfolio shares
outstanding.......................... 31,098,221 22,224,048 8,317,716 5,944,229 1,123,238 11,086,634
=========== =========== =========== =========== =========== ============
</TABLE>
See Notes to Financial Statements.
36
<PAGE> 39
<TABLE>
<CAPTION>
EMERGING INTERNATIONAL STRATEGIC CONSERVATIVE FLEXIBLE
GROWTH NORTHWEST GROWTH GROWTH GROWTH GROWTH BALANCED INCOME INCOME
FUND FUND FUND FUND PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ----------- ----------- ------------- ----------- ------------ ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ (711,304) $ 1,058 $ -- $ 1,825,513 $ 413,286 $ 955,549 $ 581,220 $ 67,323 $ --
88,443,950 190,573 5,482,977 622,400 498,305 2,040,807 1,123,829 139,089 (8,144)
135,335,161 3,418,915 20,060,895 23,359,160 6,983,397 17,334,806 14,602,963 285,317 (176,996)
146,884,147 16,818,649 28,071,752 60,825,413 27,604,758 135,459,083 154,219,291 25,353,833 7,390,827
------------ ----------- ----------- ----------- ----------- ------------ ------------ ----------- ----------
$369,951,954 $20,429,195 $53,615,624 $86,632,486 $35,499,746 $155,790,245 $170,527,303 $25,845,562 $7,205,687
============ =========== =========== =========== =========== ============ ============ =========== ==========
$ 38.54 $ 15.14 $ 19.13 $ 17.63 $ 19.59 $ 17.10 $ 14.92 $ 11.86 $ 9.90
============ =========== =========== =========== =========== ============ ============ =========== ==========
9,599,941 1,348,927 2,803,077 4,914,728 1,811,811 9,108,555 11,428,434 2,179,426 727,635
============ =========== =========== =========== =========== ============ ============ =========== ==========
</TABLE>
See Notes to Financial Statements.
37
<PAGE> 40
STATEMENTS of OPERATIONS
WM VARIABLE TRUST
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHORT TERM U.S.
MONEY HIGH GOVERNMENT BOND & GROWTH &
MARKET QUALITY BOND SECURITIES INCOME STOCK INCOME
FUND FUND FUND FUND FUND FUND
---------- ------------ ----------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends................................... $ -- $ -- $ -- $ -- $ 60,444 $ 1,884,663
Foreign withholding tax on dividend
income.................................... -- -- -- -- -- --
Interest.................................... 1,462,938 2,635,951 4,321,079 4,088,349 254,116 281,103
---------- ---------- ----------- ----------- -------- -----------
Total investment income................. 1,462,938 2,635,951 4,321,079 4,088,349 314,560 2,165,766
---------- ---------- ----------- ----------- -------- -----------
EXPENSES:
Investment advisory fee..................... 134,499 217,194 341,645 302,783 44,743 1,224,123
Administration fee.......................... 50,834 78,190 113,608 95,755 12,886 281,789
Trustees' fees and expenses................. (2,174) 3,281 2,555 3,750 553 10,443
Legal and audit fees........................ 22,052 24,877 27,177 25,883 16,040 47,826
Custodian fees.............................. 2,738 6,323 10,896 4,066 4,670 15,457
Registration and filing fees................ (103) 263 341 189 70 1,082
Amortization of organization costs.......... -- -- -- -- -- --
Printing fees............................... 8,306 14,142 19,414 16,305 2,323 51,642
Other....................................... 3,979 7,434 6,882 3,555 3,752 7,806
Fees waived and/or expenses reimbursed by
investment advisor........................ (18,577) -- -- -- -- --
---------- ---------- ----------- ----------- -------- -----------
Subtotal................................ 201,554 351,704 522,518 452,286 85,037 1,640,168
Credits allowed by the custodian............ (1,859) (2,120) (1,200) (1,013) (1,091) (2,967)
---------- ---------- ----------- ----------- -------- -----------
Net expenses............................ 199,695 349,584 521,318 451,273 83,946 1,637,201
---------- ---------- ----------- ----------- -------- -----------
NET INVESTMENT INCOME/(LOSS)................ 1,263,243 2,286,367 3,799,761 3,637,076 230,614 528,565
---------- ---------- ----------- ----------- -------- -----------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON
INVESTMENTS:
Realized gain/(loss) from:
Security transactions..................... (467) (140,607) 23,015 (300,208) (25,419) 10,887,284
Forward foreign currency contracts and
foreign currency transactions........... -- -- -- -- -- --
Futures contracts......................... -- -- -- -- -- --
Capital gain distributions received....... -- -- -- -- -- --
---------- ---------- ----------- ----------- -------- -----------
Subtotal................................ (467) (140,607) 23,015 (300,208) (25,419) 10,887,284
---------- ---------- ----------- ----------- -------- -----------
Change in unrealized
appreciation/(depreciation) of:
Securities................................ -- (858,305) (3,397,768) (4,338,814) 35,866 14,845,356
Forward foreign currency contracts........ -- -- -- -- -- --
Foreign currency, futures contracts and
other assets and liabilities............ -- -- -- -- -- --
---------- ---------- ----------- ----------- -------- -----------
Subtotal................................ -- (858,305) (3,397,768) (4,338,814) 35,866 14,845,356
---------- ---------- ----------- ----------- -------- -----------
Net realized and unrealized gain/(loss) on
investments............................... (467) (998,912) (3,374,753) (4,639,022) 10,447 25,732,640
---------- ---------- ----------- ----------- -------- -----------
NET INCREASE/(DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS................. $1,262,776 $1,287,455 $ 425,008 $(1,001,946) $241,061 $26,261,205
========== ========== =========== =========== ======== ===========
</TABLE>
See Notes to Financial Statements.
38
<PAGE> 41
<TABLE>
<CAPTION>
EMERGING INTERNATIONAL STRATEGIC CONSERVATIVE FLEXIBLE
GROWTH NORTHWEST GROWTH GROWTH GROWTH GROWTH BALANCED INCOME INCOME
FUND FUND FUND FUND PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ---------- ----------- ------------- ---------- ------------ ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 494,816 $ 54,207 $ 103,250 $ 1,354,200 $ 95,162 $ 457,373 $ 1,448,987 $ 576,392 $ 265,020
(189) -- -- (107,205) -- -- -- -- --
355,687 30,871 62,632 157,500 4,179 11,942 15,690 3,132 278
------------ ---------- ----------- ----------- ---------- ----------- ----------- ---------- ---------
850,314 85,078 165,882 1,404,495 99,341 469,315 1,464,677 579,524 265,298
------------ ---------- ----------- ----------- ---------- ----------- ----------- ---------- ---------
2,049,006 42,575 330,726 578,444 14,323 39,271 48,073 10,665 3,575
417,653 12,262 67,389 111,906 21,485 58,907 72,109 15,998 5,362
14,529 423 (742) 2,723 979 1,933 2,513 539 250
61,271 14,333 23,834 46,412 10,284 13,080 13,973 9,431 8,866
39,139 12,864 8,819 75,573 1,083 2,103 1,870 1,160 1,337
2,261 52 162 1,314 105 207 292 78 27
-- -- -- -- 8,240 8,240 8,240 1,900 --
80,181 2,584 13,208 37,641 4,973 17,582 20,159 3,611 1,166
8,187 2,140 3,347 13,276 254 395 422 142 334
-- -- -- -- (10,815) (4,733) -- (5,629) (7,338)
------------ ---------- ----------- ----------- ---------- ----------- ----------- ---------- ---------
2,672,227 87,233 446,743 867,289 50,911 136,985 167,651 37,895 13,579
(5,039) (675) (439) (1,730) (1,083) (1,490) (1,373) (927) (1,092)
------------ ---------- ----------- ----------- ---------- ----------- ----------- ---------- ---------
2,667,188 86,558 446,304 865,559 49,828 135,495 166,278 36,968 12,487
------------ ---------- ----------- ----------- ---------- ----------- ----------- ---------- ---------
(1,816,874) (1,480) (280,422) 538,936 49,513 333,820 1,298,399 542,556 252,811
------------ ---------- ----------- ----------- ---------- ----------- ----------- ---------- ---------
88,668,088 201,317 6,328,907 8,175,265 (27,187) 1,169,719 260,950 20,610 (7,082)
1,108,451 -- -- (1,160,880) -- -- -- -- --
-- -- (122,293) -- -- -- -- -- --
-- -- -- -- 920,547 1,548,689 1,453,326 190,885 --
------------ ---------- ----------- ----------- ---------- ----------- ----------- ---------- ---------
89,776,539 201,317 6,206,614 7,014,385 893,360 2,718,408 1,714,276 211,495 (7,082)
------------ ---------- ----------- ----------- ---------- ----------- ----------- ---------- ---------
84,147,080 3,166,715 15,454,135 20,153,665 6,520,438 16,857,424 14,157,295 263,704 (168,546)
930,791 -- -- 837,085 -- -- -- -- --
681 -- (157,981) (8,901) -- -- -- -- --
------------ ---------- ----------- ----------- ---------- ----------- ----------- ---------- ---------
85,078,552 3,166,715 15,296,154 20,981,849 6,520,438 16,857,424 14,157,295 263,704 (168,546)
------------ ---------- ----------- ----------- ---------- ----------- ----------- ---------- ---------
174,855,091 3,368,032 21,502,768 27,996,234 7,413,798 19,575,832 15,871,571 475,199 (175,628)
------------ ---------- ----------- ----------- ---------- ----------- ----------- ---------- ---------
$173,038,217 $3,366,552 $21,222,346 $28,535,170 $7,463,311 $19,909,652 $17,169,970 $1,017,755 $ 77,183
============ ========== =========== =========== ========== =========== =========== ========== =========
</TABLE>
See Notes to Financial Statements.
39
<PAGE> 42
STATEMENTS of CHANGES in NET assets
WM VARIABLE TRUST
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHORT TERM U.S.
MONEY HIGH GOVERNMENT BOND & GROWTH &
MARKET QUALITY BOND SECURITIES INCOME STOCK INCOME
FUND FUND FUND FUND FUND FUND
----------- ------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net investment income/(loss)........... $ 1,263,243 $ 2,286,367 $3,799,761 $ 3,637,076 $ 230,614 $ 528,565
Net realized gain/(loss) from security
transactions, forward foreign
currency contracts, foreign currency
transactions and futures contracts
during the year...................... (467) (140,607) 23,015 (300,208) (25,419) 10,887,284
Capital gain distributions received.... -- -- -- -- -- --
Net unrealized
appreciation/(depreciation) of
securities, forward foreign currency
contracts, foreign currency, futures
contracts and other assets and
liabilities during the year.......... -- (858,305) (3,397,768) (4,338,814) 35,866 14,845,356
----------- ----------- ----------- ----------- ----------- ------------
Net increase/(decrease) in net assets
resulting from operations............ 1,262,776 1,287,455 425,008 (1,001,946) 241,061 26,261,205
Distributions to shareholders from:
Net investment income................ (1,263,243) (2,187,980) (3,755,167) (3,615,253) (18,789) (305,700)
Net realized gains on investments.... -- -- -- -- -- (11,096,092)
Distributions in excess of net
realized gains on investments...... -- -- -- -- -- --
Net increase/(decrease) in net assets
from Fund share transactions......... (756,992) 16,645,610 41,430,385 10,519,241 8,988,459 65,806,451
----------- ----------- ----------- ----------- ----------- ------------
Net increase/(decrease) in net
assets............................... (757,459) 15,745,085 38,100,226 5,902,042 9,210,731 80,665,864
NET ASSETS:
Beginning of year...................... 31,862,051 37,399,297 41,914,394 49,653,758 2,585,950 125,294,562
----------- ----------- ----------- ----------- ----------- ------------
End of year............................ $31,104,592 $53,144,382 $80,014,620 $55,555,800 $11,796,681 $205,960,426
=========== =========== =========== =========== =========== ============
Undistributed net investment
income/(accumulated net investment
loss) at end of year................. $ 23,539 $ 100,806 $ 356,666 $ 93,606 $ 229,543 $ 519,248
=========== =========== =========== =========== =========== ============
</TABLE>
See Notes to Financial Statements.
40
<PAGE> 43
<TABLE>
<CAPTION>
EMERGING INTERNATIONAL STRATEGIC CONSERVATIVE FLEXIBLE
GROWTH NORTHWEST GROWTH GROWTH GROWTH GROWTH BALANCED INCOME INCOME
FUND FUND FUND FUND PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ----------- ----------- ------------- ----------- ------------ ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ (1,816,874) $ (1,480) $ (280,422) $ 538,936 $ 49,513 $ 333,820 $ 1,298,399 $ 542,556 $ 252,811
89,776,539 201,317 6,206,614 7,014,385 (27,187) 1,169,719 260,950 20,610 (7,082)
-- -- -- -- 920,547 1,548,689 1,453,326 190,885 --
85,078,552 3,166,715 15,296,154 20,981,849 6,520,438 16,857,424 14,157,295 263,704 (168,546)
------------ ----------- ----------- ----------- ----------- ------------ ------------ ----------- ----------
173,038,217 3,366,552 21,222,346 28,535,170 7,463,311 19,909,652 17,169,970 1,017,755 77,183
-- (259) -- (42,338) (124,989) (284,451) (1,625,500) (559,028) (271,227)
(27,262,135) (70,780) (7,665,390) -- (84,670) (288,121) (245,866) (8,409) (1,867)
-- -- -- -- -- -- -- -- (178)
61,208,584 14,820,322 (4,321,174) (2,220,413) 23,296,301 126,380,641 144,067,136 24,287,883 6,572,632
------------ ----------- ----------- ----------- ----------- ------------ ------------ ----------- ----------
206,984,666 18,115,835 9,235,782 26,272,419 30,549,953 145,717,721 159,365,740 24,738,201 6,376,543
162,967,288 2,313,360 44,379,842 60,360,067 4,949,793 10,072,524 11,161,563 1,107,361 829,144
------------ ----------- ----------- ----------- ----------- ------------ ------------ ----------- ----------
$369,951,954 $20,429,195 $53,615,624 $86,632,486 $35,499,746 $155,790,245 $170,527,303 $25,845,562 $7,205,687
============ =========== =========== =========== =========== ============ ============ =========== ==========
(711,304)
$ $ 1,058 $ -- $ 1,825,513 $ 413,286 $ 955,549 $ 581,220 $ 67,323 $ --
============ =========== =========== =========== =========== ============ ============ =========== ==========
</TABLE>
See Notes to Financial Statements.
41
<PAGE> 44
STATEMENTS of CHANGES in NET assets
WM VARIABLE TRUST
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHORT TERM U.S.
MONEY HIGH GOVERNMENT BOND & GROWTH &
MARKET QUALITY BOND SECURITIES INCOME STOCK INCOME
FUND FUND FUND FUND FUND* FUND
----------- ------------ ------------ ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net investment income/(loss)........... $ 1,713,074 $ 1,544,654 $ 3,160,211 $ 3,353,740 $ 21,852 $ 402,061
Net realized gain/(loss) from security
transactions, forward foreign
currency contracts, foreign currency
transactions and futures contracts
during the year...................... (425) (147,154) 932,251 102,179 (293) 11,137,860
Capital gain distributions received.... -- -- -- -- -- --
Net unrealized
appreciation/(depreciation) of
securities, forward foreign currency
contracts, foreign currency, futures
contracts and other assets and
liabilities during the year.......... -- 68,395 (315,062) 161,113 64,548 7,851,129
----------- ----------- ------------ ----------- ---------- ------------
Net increase in net assets resulting
from operations...................... 1,712,649 1,465,895 3,777,400 3,617,032 86,107 19,391,050
Distributions to shareholders from:
Net investment income................ (1,713,074) (1,455,360) (3,143,989) (3,316,492) (3,775) (542,109)
Net realized gains on investments.... -- -- -- -- -- (17,377,595)
Net increase/(decrease) in net assets
from Fund share transactions......... (1,001,938) 25,444,375 (20,375,426) (2,317,248) 2,503,618 22,028,748
----------- ----------- ------------ ----------- ---------- ------------
Net increase/(decrease) in net
assets............................... (1,002,363) 25,454,910 (19,742,015) (2,016,708) 2,585,950 23,500,094
NET ASSETS:
Beginning of year...................... 32,864,414 11,944,387 61,656,409 51,670,466 -- 101,794,468
----------- ----------- ------------ ----------- ---------- ------------
End of year............................ $31,862,051 $37,399,297 $41,914,394 $49,653,758 $2,585,950 $125,294,562
=========== =========== ============ =========== ========== ============
Undistributed net investment income at
end
of year.............................. $ 23,539 $ 10,700 $ 69,065 $ 79,458 $ 18,077 $ 300,109
=========== =========== ============ =========== ========== ============
- ---------------------
* The Bond & Stock Fund and Northwest Fund commenced operations on April 28, 1998.
** The Income Portfolio commenced operations on October 22, 1997, ceased operations on November 6, 1997, and re-commenced
operations on April 23, 1998.
</TABLE>
See Notes to Financial Statements.
42
<PAGE> 45
<TABLE>
<CAPTION>
EMERGING INTERNATIONAL STRATEGIC CONSERVATIVE FLEXIBLE
GROWTH NORTHWEST GROWTH GROWTH GROWTH GROWTH BALANCED INCOME INCOME
FUND FUND* FUND FUND PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO**
------ ---------- ----------- ------------- ---------- ------------ ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ (729,217) $ 259 $ (198,569) $ 349,662 $ 32,594 $ 87,559 $ 156,465 $ 16,132 $ 17,771
27,795,718 62,574 7,278,781 588,160 (72,470) (22,529) 47,203 909 994
-- -- -- -- 211,599 470,107 365,771 7,505 645
36,784,952 252,200 (4,123,547) 537,415 471,041 487,822 452,159 21,612 (8,450)
------------ ---------- ----------- ----------- ---------- ----------- ----------- ---------- --------
63,851,453 315,033 2,956,665 1,475,237 642,764 1,022,959 1,021,598 46,158 10,960
(474,575) -- -- (3,299,318) (5,989) (11,420) (31,215) (486) --
(11,696,897) -- (6,023,693) (2,923,585) (1,797) (5,023) -- (25) (32)
(10,478,327) 1,998,327 2,085,243 15,471,751 3,723,432 7,692,346 7,817,201 961,361 818,216
------------ ---------- ----------- ----------- ---------- ----------- ----------- ---------- --------
41,201,654 2,313,360 (981,785) 10,724,085 4,358,410 8,698,862 8,807,584 1,007,008 829,144
121,765,634 -- 45,361,627 49,635,982 591,383 1,373,662 2,353,979 100,353 --
------------ ---------- ----------- ----------- ---------- ----------- ----------- ---------- --------
$162,967,288 $2,313,360 $44,379,842 $60,360,067 $4,949,793 $10,072,524 $11,161,563 $1,107,361 $829,144
============ ========== =========== =========== ========== =========== =========== ========== ========
$ -- $ 259 $ -- $ 743,574 $ 124,368 $ 283,463 $ 336,666 $ 17,302 $ 18,416
============ ========== =========== =========== ========== =========== =========== ========== ========
</TABLE>
See Notes to Financial Statements.
43
<PAGE> 46
STATEMENTS of CHANGES in NET assets -- CAPITAL stock ACTIVITY
WM VARIABLE TRUST
<TABLE>
<CAPTION>
SHORT TERM HIGH QUALITY
MONEY MARKET FUND BOND FUND
------------------------------------ ------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
12/31/99 12/31/98 12/31/99 12/31/98
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
AMOUNT
Sold................................... $ 30,478,529 $ 17,046,612 $ 36,013,392 $ 12,846,638
Issued in exchange for shares of the
Sierra
Short Term Global Government Fund*... -- -- -- 16,658,370
Issued as reinvestment of dividends.... 1,257,887 1,713,073 2,187,980 1,455,360
Redeemed............................... (32,493,408) (19,761,623) (21,555,762) (5,515,993)
------------ ------------ ------------ ------------
Net increase/(decrease)................ $ (756,992) $ (1,001,938) $ 16,645,610 $ 25,444,375
============ ============ ============ ============
SHARES
Sold................................... 30,478,529 17,046,612 14,893,459 5,220,572
Issued in exchange for shares of the
Sierra
Short Term Global Government Fund*... -- -- -- 6,827,201
Issued as reinvestment of dividends.... 1,257,887 1,713,073 911,275 597,208
Redeemed............................... (32,493,408) (19,761,623) (8,895,716) (2,248,595)
------------ ------------ ------------ ------------
Net increase/(decrease)................ (756,992) (1,001,938) 6,909,018 10,396,386
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
GROWTH & INCOME FUND GROWTH FUND
------------------------------------ ------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
12/31/99 12/31/98 12/31/99 12/31/98
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
AMOUNT
Sold................................... $123,760,622 $ 18,158,872 $120,364,521 $ 7,279,293
Issued as reinvestment of dividends.... 11,401,792 17,919,702 27,262,135 12,171,471
Redeemed............................... (69,355,963) (14,049,826) (86,418,072) (29,929,091)
------------ ------------ ------------ ------------
Net increase/(decrease)................ $ 65,806,451 $ 22,028,748 $ 61,208,584 $(10,478,327)
============ ============ ============ ============
SHARES
Sold................................... 6,867,884 1,106,063 4,039,838 401,445
Issued as reinvestment of dividends.... 650,787 1,122,085 1,111,833 661,853
Redeemed............................... (3,815,714) (859,170) (2,841,490) (1,677,237)
------------ ------------ ------------ ------------
Net increase/(decrease)................ 3,702,957 1,368,978 2,310,181 (613,939)
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
STRATEGIC GROWTH PORTFOLIO CONSERVATIVE GROWTH PORTFOLIO
------------------------------------ ------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
12/31/99 12/31/98 12/31/99 12/31/98
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
AMOUNT
Sold................................... $ 23,328,566 $ 4,002,534 $129,402,449 $ 8,084,221
Issued as reinvestment of dividends.... 209,658 5,990 572,571 16,445
Redeemed............................... (241,923) (285,092) (3,594,379) (408,320)
------------ ------------ ------------ ------------
Net increase........................... $ 23,296,301 $ 3,723,432 $126,380,641 $ 7,692,346
============ ============ ============ ============
SHARES
Sold................................... 1,447,111 335,227 8,487,813 707,885
Issued as reinvestment of dividends.... 13,329 629 40,294 1,391
Redeemed............................... (16,413) (23,364) (222,707) (37,067)
------------ ------------ ------------ ------------
Net increase........................... 1,444,027 312,492 8,305,400 672,209
============ ============ ============ ============
</TABLE>
- ---------------------
* On January 30, 1998 shares were issued in exchange for Sierra Variable Trust
Short Term Global Government Fund.
+ The Bond & Stock Fund and Northwest Fund commenced operations on April 28,
1998.
++ The Income Portfolio commenced operations on October 22, 1997, ceased
operations on November 6, 1997, and re-commenced operations on April 23,
1998.
See Notes to Financial Statements.
44
<PAGE> 47
STATEMENTS of CHANGES in NET assets -- CAPITAL stock ACTIVITY
WM VARIABLE TRUST
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES FUND INCOME FUND
------------------------------------ -----------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
12/31/99 12/31/98 12/31/99 12/31/98
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
$ 67,362,181 $ 3,418,780 $ 24,462,002 $2,636,378
-- -- -- --
3,755,166 3,143,989 3,615,253 3,316,492
(29,686,962) (26,938,195) (17,558,014) (8,270,118)
------------ ------------ ------------ -----------
$ 41,430,385 $(20,375,426) $ 10,519,241 $(2,317,248)
============ ============ ============ ===========
6,804,802 335,691 2,533,035 256,287
-- -- -- --
385,283 311,772 377,063 324,373
(3,019,225) (2,644,591) (1,814,490) (802,650)
------------ ------------ ------------ -----------
4,170,860 (1,997,128) 1,095,608 (221,990)
============ ============ ============ ===========
<CAPTION>
BOND & STOCK FUND
------------------------------------
YEAR ENDED PERIOD ENDED
12/31/99 12/31/98+
------------ ------------
<S> <C> <C>
$ 10,566,110 $ 2,506,015
-- --
18,789 3,775
(1,596,440) (6,172)
------------ -----------
$ 8,988,459 $ 2,503,618
============ ===========
1,020,144 252,138
-- --
1,791 386
(150,602) (619)
------------ -----------
871,333 251,905
============ ===========
</TABLE>
<TABLE>
<CAPTION>
NORTHWEST FUND EMERGING GROWTH FUND
------------------------------------ -----------------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED
12/31/99 12/31/98+ 12/31/99 12/31/98
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
$ 15,542,865 $ 2,102,818 $ 3,656,523 $5,833,895
71,039 -- 7,665,390 6,023,693
(793,582) (104,491) (15,643,087) (9,772,345)
------------ ------------ ------------ -----------
$ 14,820,322 $ 1,998,327 $ (4,321,174) $2,085,243
============ ============ ============ ===========
1,195,360 222,987 259,465 431,126
5,837 -- 676,557 436,500
(63,683) (11,574) (1,174,376) (728,816)
------------ ------------ ------------ -----------
1,137,514 211,413 (238,354) 138,810
============ ============ ============ ===========
<CAPTION>
INTERNATIONAL GROWTH FUND
------------------------------------
YEAR ENDED YEAR ENDED
12/31/99 12/31/98
------------ ------------
<S> <C> <C>
$ 38,311,889 $18,869,153
42,338 6,222,873
(40,574,640) (9,620,275)
------------ -----------
$ (2,220,413) $15,471,751
============ ===========
2,654,883 1,438,878
3,350 507,578
(2,941,642) (797,427)
------------ -----------
(283,409) 1,149,029
============ ===========
</TABLE>
<TABLE>
<CAPTION>
BALANCED PORTFOLIO FLEXIBLE INCOME PORTFOLIO
------------------------------------ -----------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
12/31/99 12/31/98 12/31/99 12/31/98
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
$143,889,800 $ 8,054,479 $ 24,304,488 $1,105,636
1,871,365 31,215 567,437 510
(1,694,029) (268,493) (584,042) (144,785)
------------ ------------ ------------ -----------
$144,067,136 $ 7,817,201 $ 24,287,883 $ 961,361
============ ============ ============ ===========
10,496,408 710,926 2,083,483 100,651
137,471 2,693 48,630 47
(120,120) (23,796) (49,956) (13,236)
------------ ------------ ------------ -----------
10,513,759 689,823 2,082,157 87,462
============ ============ ============ ===========
<CAPTION>
INCOME PORTFOLIO
------------------------------------
YEAR ENDED PERIOD ENDED
12/31/99 12/31/98++
------------ ------------
<S> <C> <C>
$ 6,855,590 $ 934,501
273,272 32
(556,230) (116,317)
------------ -----------
$ 6,572,632 $ 818,216
============ ===========
675,445 90,295
27,313 3
(54,730) (10,691)
------------ -----------
648,028 79,607
============ ===========
</TABLE>
See Notes to Financial Statements.
45
<PAGE> 48
FINANCIAL highlights
MONEY MARKET FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
12/31/99 12/31/98 12/31/97 12/31/96 12/31/95
-------- -------- -------- -------- --------
<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....................................... 0.045 0.049 0.049 0.049 0.053
Net realized gain/(loss) on investments..................... (0.000)# (0.000)# 0.000# 0.000# (0.000)#
------- ------- ------- ------- -------
Total from investment operations............................ 0.045 0.049 0.049 0.049 0.053
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income........................ (0.045) (0.049) (0.049) (0.049) (0.053)
Distributions from net realized capital gains............... -- -- -- (0.000)# --
------- ------- ------- ------- -------
Total distributions......................................... (0.045) (0.049) (0.049) (0.049) (0.053)
------- ------- ------- ------- -------
Net asset value, end of year................................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= =======
TOTAL RETURN+............................................... 4.56% 5.01% 4.99% 4.97% 5.46%
======= ======= ======= ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's).......................... $31,105 $31,862 $32,864 $23,266 $20,373
Ratio of operating expenses to average net assets (a)....... 0.71% 0.65% 0.75% 0.58% 0.50%
Ratio of net investment income to average net assets........ 4.47% 4.90% 4.88% 4.86% 5.30%
Ratio of operating expenses to average net assets without
fee waivers, expenses reimbursed and/or fees reduced by
credits allowed by the custodian.......................... 0.78% 0.81% 0.85% 0.88% 1.01%
</TABLE>
- ---------------------
+ The total return would have been lower if certain fees had not been waived
and/or expenses reimbursed by the investment advisor or if fees had not been
reduced by credits allowed by the custodian.
# Amount represents less than $0.001 per share.
(a) Ratio of operating expenses to average net assets includes expenses paid
indirectly.
See Notes to Financial Statements.
46
<PAGE> 49
FINANCIAL highlights
SHORT TERM HIGH QUALITY BOND FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
12/31/99 12/31/98 12/31/97 12/31/96 12/31/95
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year.......................... $ 2.44 $ 2.43 $ 2.43 $ 2.49 $ 2.39
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income....................................... 0.12 0.12 0.14 0.15 0.12
Net realized and unrealized gain/(loss) on investments...... (0.05) 0.01 0.00# (0.06) 0.10
------- ------- ------- ------- -------
Total from investment operations............................ 0.07 0.13 0.14 0.09 0.22
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income........................ (0.12) (0.12) (0.14) (0.15) (0.12)
------- ------- ------- ------- -------
Total distributions......................................... (0.12) (0.12) (0.14) (0.15) (0.12)
------- ------- ------- ------- -------
Net asset value, end of year................................ $ 2.39 $ 2.44 $ 2.43 $ 2.43 $ 2.49
======= ======= ======= ======= =======
TOTAL RETURN+............................................... 2.89% 5.28% 5.90% 3.74% 9.30%
======= ======= ======= ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's).......................... $53,144 $37,399 $11,944 $12,402 $12,365
Ratio of operating expenses to average net assets (a)....... 0.80% 0.85% 1.00% 0.98% 0.85%
Ratio of net investment income to average net assets........ 5.26% 5.45% 6.04% 6.08% 6.14%
Portfolio turnover rate..................................... 42% 27% 43% 125% 188%
Ratio of operating expenses to average net assets without
fee waivers and/or fees reduced by credits allowed by the
custodian................................................. 0.81% 0.89% 1.03% 1.06% 1.01%
</TABLE>
- ---------------------
+ The total return would have been lower if certain fees had not been waived
by the investment advisor or if fees had not been reduced by credits allowed
by the custodian.
# Amount represents less than $0.01 per share.
(a) Ratio of operating expenses to average net assets includes expenses paid
indirectly.
See Notes to Financial Statements.
47
<PAGE> 50
FINANCIAL highlights
U.S. GOVERNMENT SECURITIES FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
12/31/99 12/31/98 12/31/97 12/31/96 12/31/95
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year.......................... $ 10.11 $ 10.04 $ 9.77 $ 10.00 $ 9.13
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income....................................... 0.54 0.63 0.63 0.58 0.64
Net realized and unrealized gain/(loss) on investments...... (0.49) 0.06 0.26 (0.23) 0.87#
------- ------- ------- ------- -------
Total from investment operations............................ 0.05 0.69 0.89 0.35 1.51
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income........................ (0.54) (0.62) (0.62) (0.58) (0.64)
------- ------- ------- ------- -------
Total distributions......................................... (0.54) (0.62) (0.62) (0.58) (0.64)
------- ------- ------- ------- -------
Net asset value, end of year................................ $ 9.62 $ 10.11 $ 10.04 $ 9.77 $ 10.00
======= ======= ======= ======= =======
TOTAL RETURN+............................................... 0.51% 7.03% 9.42% 3.69% 16.89%
======= ======= ======= ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's).......................... $80,015 $41,914 $61,656 $66,563 $52,303
Ratio of operating expenses to average net assets (a)....... 0.83% 0.89% 0.90% 0.94% 1.00%
Ratio of net investment income to average net assets........ 6.02% 5.85% 6.28% 6.18% 6.68%
Portfolio turnover rate..................................... 15% 22% 194% 282% 273%
Ratio of operating expenses to average net assets without
fee waivers, expenses reimbursed and/or fees reduced by
credits allowed by the custodian.......................... 0.83% 1.03% 0.91% 0.94% 1.03%
Ratio of operating expenses to average net assets including
interest expense.......................................... -- 1.02% 1.54% 1.08% 1.76%
</TABLE>
- ---------------------
+ The total return would have been lower if certain fees had not been waived
and/or expenses reimbursed by the investment advisor or if fees had not been
reduced by credits allowed by the custodian.
# The amount shown may not accord with the change in the aggregate gains and
losses of portfolio securities due to timing of sales and redemptions of Fund
shares.
(a) Ratio of operating expenses to average net assets includes expenses paid
indirectly.
See Notes to Financial Statements.
48
<PAGE> 51
FINANCIAL highlights
INCOME FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
12/31/99 12/31/98 12/31/97 12/31/96 12/31/95
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year.......................... $ 10.24 $ 10.19 $ 9.82 $ 10.48 $ 9.06
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income....................................... 0.67 0.70 0.70 0.68 0.70
Net realized and unrealized gain/(loss) on investments...... (0.89) 0.04 0.37 (0.66) 1.50
------- ------- ------- ------- -------
Total from investment operations............................ (0.22) 0.74 1.07 0.02 2.20
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income........................ (0.67) (0.69) (0.70) (0.68) (0.78)
------- ------- ------- ------- -------
Total distributions......................................... (0.67) (0.69) (0.70) (0.68) (0.78)
------- ------- ------- ------- -------
Net asset value, end of year................................ $ 9.35 $ 10.24 $ 10.19 $ 9.82 $ 10.48
======= ======= ======= ======= =======
TOTAL RETURN+............................................... (2.16)% 7.45% 11.35% 0.43% 25.09%
======= ======= ======= ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's).......................... $55,556 $49,654 $51,670 $59,883 $60,676
Ratio of operating expenses to average net assets (a)....... 0.85% 0.96% 0.96% 0.98% 0.99%
Ratio of net investment income to average net assets........ 6.84% 6.69% 6.95% 6.92% 7.00%
Portfolio turnover rate..................................... 12% 4% 36% 30% 42%
Ratio of operating expenses to average net assets without
fee waivers, expenses reimbursed and/or fees reduced by
credits allowed by the custodian.......................... 0.85% 0.96% 0.96% 0.98% 0.99%
Ratio of operating expenses to average net assets including
interest expense.......................................... -- -- -- -- 0.99%
</TABLE>
- ---------------------
+ The total return would have been lower if certain fees had not been waived
and/or expenses reimbursed by the investment advisor or if fees had not been
reduced by credits allowed by the custodian.
(a) Ratio of operating expenses to average net assets includes expenses paid
indirectly.
See Notes to Financial Statements.
49
<PAGE> 52
FINANCIAL highlights
BOND & STOCK FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
YEAR PERIOD
ENDED ENDED
12/31/99 12/31/98*
-------- ----------
<S> <C> <C>
Net asset value, beginning of period........................ $ 10.27 $10.00
------- ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income....................................... 0.33++ 0.16++
Net realized and unrealized gain/(loss) on investments...... (0.07)# 0.14
------- ------
Total from investment operations............................ 0.26 0.30
------- ------
LESS DISTRIBUTIONS:
Dividends from net investment income........................ (0.03) (0.03)
------- ------
Total distributions......................................... (0.03) (0.03)
------- ------
Net asset value, end of period.............................. $ 10.50 $10.27
======= ======
TOTAL RETURN+............................................... 2.49% 3.02%
======= ======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)........................ $11,797 $2,586
Ratio of operating expenses to average net assets (a)....... 1.17% 1.50%**
Ratio of net investment income to average net assets........ 3.22% 2.26%**
Portfolio turnover rate..................................... 25% 28%
Ratio of operating expenses to average net assets without
fee waivers and fees reduced by credits allowed by the
custodian................................................. 1.19% 2.49%**
</TABLE>
- ---------------------
* The Fund commenced operations on April 28, 1998.
** Annualized.
+ Total return is not annualized for periods less than one year. The total
return would have been lower if certain fees had not been waived by the
investment advisor or if fees had not been reduced by credits allowed by the
custodian.
++ Per share numbers have been calculated using the average shares method.
# The amount shown may not accord with the change in the aggregate gains and
losses of portfolio securities due to timing of sales and redemptions of Fund
shares.
(a) Ratio of operating expenses to average net assets includes expenses paid
indirectly.
See Notes to Financial Statements.
50
<PAGE> 53
FINANCIAL highlights
GROWTH & INCOME FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
12/31/99 12/31/98 12/31/97 12/31/96 12/31/95
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year.......................... $ 16.97 $ 16.92 $ 14.29 $ 12.83 $ 9.83
-------- -------- -------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income....................................... 0.06++ 0.06 0.06 0.12++ 0.12
Net realized and unrealized gain on investments............. 2.93 2.97 3.90 2.54 3.05
-------- -------- -------- ------- -------
Total from investment operations............................ 2.99 3.03 3.96 2.66 3.17
-------- -------- -------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income........................ (0.04) (0.09) (0.10) (0.12) (0.07)
Distributions from net realized gains....................... (1.34) (2.89) (1.23) (1.08) (0.10)
-------- -------- -------- ------- -------
Total distributions......................................... (1.38) (2.98) (1.33) (1.20) (0.17)
-------- -------- -------- ------- -------
Net asset value, end of year................................ $ 18.58 $ 16.97 $ 16.92 $ 14.29 $ 12.83
======== ======== ======== ======= =======
TOTAL RETURN+............................................... 18.11% 18.98% 28.50% 21.81% 32.41%
======== ======== ======== ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's).......................... $205,960 $125,295 $101,794 $62,445 $46,362
Ratio of operating expenses to average net assets (a)....... 1.05% 1.06% 1.08% 1.13% 1.06%
Ratio of net investment income to average net assets........ 0.34% 0.37% 0.55% 0.93% 1.31%
Portfolio turnover rate..................................... 38% 78% 109% 83% 70%
Ratio of operating expenses to average net assets without
fee waivers and/or fees reduced by credits allowed by the
custodian................................................. 1.05% 1.06% 1.08% 1.13% 1.16%
</TABLE>
- ---------------------
+ The total return would have been lower if certain fees had not been waived
by the investment advisor or if fees had not been reduced by credits allowed
by the custodian.
++ Per share numbers have been calculated using the average shares method.
(a) Ratio of operating expenses to average net assets includes expenses paid
indirectly.
See Notes to Financial Statements.
51
<PAGE> 54
FINANCIAL highlights
GROWTH FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
12/31/99 12/31/98 12/31/97 12/31/96 12/31/95
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year.......................... $ 22.36 $ 15.41 $ 16.01 $ 15.72 $ 11.48
-------- -------- -------- -------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income/(loss)................................ (0.19) (0.09) 0.07 0.00++# 0.04++
Net realized and unrealized gain on investments............. 19.89 8.81 1.60 2.42 4.24
-------- -------- -------- -------- -------
Total from investment operations............................ 19.70 8.72 1.67 2.42 4.28
-------- -------- -------- -------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income........................ -- (0.07) (0.02) -- (0.04)
Distributions from net realized gains....................... (3.52) (1.70) (2.25) (2.13) (0.00)#
-------- -------- -------- -------- -------
Total distributions......................................... (3.52) (1.77) (2.27) (2.13) (0.04)
-------- -------- -------- -------- -------
Net asset value, end of year................................ $ 38.54 $ 22.36 $ 15.41 $ 16.01 $ 15.72
======== ======== ======== ======== =======
TOTAL RETURN+............................................... 97.09% 59.04% 11.24% 16.15% 37.34%
======== ======== ======== ======== =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's).......................... $369,952 $162,967 $121,766 $116,064 $99,699
Ratio of operating expenses to average net assets (a)....... 1.15% 1.16% 1.18% 1.22% 1.24%
Ratio of net investment income/(loss) to average net
assets.................................................... (0.78)% (0.55)% 0.07% 0.01% 0.29%
Portfolio turnover rate..................................... 129% 112% 158% 169% 187%
Ratio of operating expenses to average net assets without
fee waivers, expenses reimbursed and/or fees reduced by
credits allowed by the custodian.......................... 1.15% 1.17% 1.19% 1.22% 1.24%
</TABLE>
- ---------------------
+ The total return would have been lower if certain fees had not been waived
and/or expenses reimbursed by the investment advisor or if fees had not been
reduced by credits allowed by the custodian.
++ Per share numbers have been calculated using the average shares method.
# Amount represents less than $0.01 per share.
(a) Ratio of operating expenses to average net assets includes expenses paid
indirectly.
See Notes to Financial Statements.
52
<PAGE> 55
FINANCIAL highlights
NORTHWEST FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
YEAR PERIOD
ENDED ENDED
12/31/99 12/31/98*
-------- ---------
<S> <C> <C>
Net asset value, beginning of period........................ $ 10.94 $10.00
------- ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income/(loss)................................ (0.00)# 0.00#
Net realized and unrealized gain on investments............. 4.37 0.94
------- ------
Total from investment operations............................ 4.37 0.94
------- ------
LESS DISTRIBUTIONS:
Dividends from net investment income........................ (0.00)# --
Distributions from net realized gains....................... (0.17) --
------- ------
Total distributions......................................... (0.17) --
------- ------
Net asset value, end of period.............................. $ 15.14 $10.94
======= ======
TOTAL RETURN+............................................... 40.37% 9.40%
======= ======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)........................ $20,429 $2,313
Ratio of operating expenses to average net assets (a)....... 1.27% 1.50%**
Ratio of net investment income/(loss) to average net
assets.................................................... (0.02)% 0.03%**
Portfolio turnover rate..................................... 36% 28%
Ratio of operating expenses to average net assets without
fee waivers and fees reduced by credits allowed by the
custodian................................................. 1.28% 2.76%**
</TABLE>
- ---------------------
* The Fund commenced operations on April 28, 1998.
** Annualized.
+ Total return is not annualized for periods less than one year. The total
return would have been lower if certain fees had not been waived by the
investment advisor or if fees had not been reduced by credits allowed by the
custodian.
# Amount represents less than $0.01 per share.
(a) Ratio of operating expenses to average net assets includes expenses paid
indirectly.
See Notes to Financial Statements.
53
<PAGE> 56
FINANCIAL highlights
EMERGING GROWTH FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
12/31/99 12/31/98 12/31/97 12/31/96 12/31/95
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year......................... $ 14.59 $ 15.63 $ 14.70 $ 13.74 $ 10.53
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment loss........................................ (0.10)++ (0.07) (0.03) (0.12)++ (0.01)
Net realized and unrealized gain on investments............ 8.07 1.21 1.80 1.52 3.26
------- ------- ------- ------- -------
Total from investment operations........................... 7.97 1.14 1.77 1.40 3.25
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income....................... -- -- -- -- (0.04)
Distributions from net realized gains...................... (3.43) (2.18) (0.84) (0.44) (0.00)#
------- ------- ------- ------- -------
Total distributions........................................ (3.43) (2.18) (0.84) (0.44) (0.04)
------- ------- ------- ------- -------
Net asset value, end of year............................... $ 19.13 $ 14.59 $ 15.63 $ 14.70 $ 13.74
======= ======= ======= ======= =======
TOTAL RETURN+.............................................. 71.09% 8.09% 12.59% 10.04% 30.99%
======= ======= ======= ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's)......................... $53,616 $44,380 $45,362 $55,887 $46,058
Ratio of operating expenses to average net assets (a)...... 1.19% 1.19% 1.20% 1.20% 1.20%
Ratio of net investment loss to average net assets......... (0.75)% (0.48)% (0.58)% (0.82)% (0.35)%
Portfolio turnover rate.................................... 52% 108% 116% 97% 135%
Ratio of operating expenses to average net assets without
fee waivers and/or fees reduced by credits allowed by the
custodian................................................ 1.19% 1.20% 1.21% 1.21% 1.28%
</TABLE>
- ---------------------
+ The total return would have been lower if certain fees had not been waived
by the investment advisor or if fees had not been reduced by credits allowed
by the custodian.
++ Per share numbers have been calculated using the average shares method.
# Amount represents less than $0.01 per share.
(a) Ratio of operating expenses to average net assets includes expenses paid
indirectly.
See Notes to Financial Statements.
54
<PAGE> 57
FINANCIAL highlights
INTERNATIONAL GROWTH FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
12/31/99 12/31/98 12/31/97 12/31/96 12/31/95
-------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year.......................... $ 11.61 $ 12.26 $ 13.02 $ 12.11 $ 11.47
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income....................................... 0.12 0.07++ 0.71 0.07++ 0.18
Net realized and unrealized gain/(loss) on investments...... 5.91 0.64 (0.97) 1.01 0.58
------- ------- ------- ------- -------
Total from investment operations............................ 6.03 0.71 (0.26) 1.08 0.76
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income........................ (0.01) (0.72) (0.26) (0.17) (0.00)#
Distributions from net realized gains....................... -- (0.64) (0.24) -- (0.12)
------- ------- ------- ------- -------
Total distributions......................................... (0.01) (1.36) (0.50) (0.17) (0.12)
------- ------- ------- ------- -------
Net asset value, end of year................................ $ 17.63 $ 11.61 $ 12.26 $ 13.02 $ 12.11
------- ------- ------- ------- -------
------- ------- ------- ------- -------
TOTAL RETURN+............................................... 51.96% 5.20% (2.64)% 9.04% 6.61%
------- ------- ------- ------- -------
------- ------- ------- ------- -------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's).......................... $86,632 $60,360 $49,636 $62,355 $45,909
Ratio of operating expenses to average net assets (a)....... 1.39% 1.36% 1.35% 1.39% 1.47%
Ratio of net investment income to average net assets........ 0.87% 0.61% 0.52% 0.56% 0.91%
Portfolio turnover rate..................................... 161% 118% 84% 98% 72%
Ratio of operating expenses to average net assets without
fee waivers, expenses reimbursed and/or fees reduced by
credits allowed by the custodian.......................... 1.40% 1.48% 1.36% 1.39% 1.48%
</TABLE>
- ---------------------
+ The total return would have been lower if certain fees had not been waived
and/or expenses reimbursed by the investment advisor or if fees had not been
reduced by credits allowed by the custodian.
++ Per share numbers have been calculated using the average shares method.
# Amount represents less than $0.01 per share.
(a) Ratio of operating expenses to average net assets includes expenses paid
indirectly.
See Notes to Financial Statements.
55
<PAGE> 58
FINANCIAL highlights
STRATEGIC GROWTH PORTFOLIO
FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
12/31/99 12/31/98 12/31/97*
-------- -------- ---------
<S> <C> <C> <C>
Net asset value, beginning of period........................ $ 13.46 $10.70 $10.00
------- ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income....................................... 0.05++ 0.17++ 0.10
Net realized and unrealized gain on investments............. 6.35 2.63 0.60#
------- ------ ------
Total from investment operations............................ 6.40 2.80 0.70
------- ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income........................ (0.16) (0.03) --
Distributions from net realized gains....................... (0.11) (0.01) --
------- ------ ------
Total distributions......................................... (0.27) (0.04) --
------- ------ ------
Net asset value, end of period.............................. $ 19.59 $13.46 $10.70
======= ====== ======
TOTAL RETURN+............................................... 47.95% 26.19% 7.00%
======= ====== ======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)........................ $35,500 $4,949 $ 591
Ratio of operating expenses to average net assets (a)(b).... 0.35% 0.35% 0.35%**
Ratio of net investment income to average net assets........ 0.35% 1.42% 0.51%**
Portfolio turnover rate..................................... 7% 39% 11%
Ratio of operating expenses to average net assets without
fee waivers, expenses reimbursed and fees reduced by
credits allowed by the custodian (b)...................... 0.43% 0.80% 15.54%**
</TABLE>
- ---------------------
* The Portfolio commenced operations on June 3, 1997.
** Annualized.
+ Total return is not annualized for periods less than one year. The total
return would have been lower if certain fees had not been waived and
expenses reimbursed by the investment advisor and/or administrator or if
fees had not been reduced by credits allowed by the custodian.
++ Per share numbers have been calculated using the average shares method.
# The amount shown may not accord with the change in the aggregate gains and
losses of portfolio securities due to timing of sales and redemptions of
Portfolio shares.
(a) Ratio of operations expenses to average net assets includes expenses paid
indirectly.
(b) The Portfolio will also indirectly bear its prorated share of expenses of
the Underlying Funds.
See Notes to Financial Statements.
56
<PAGE> 59
FINANCIAL highlights
CONSERVATIVE GROWTH PORTFOLIO
FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
12/31/99 12/31/98 12/31/97*
-------- -------- ---------
<S> <C> <C> <C>
Net asset value, beginning of period........................ $ 12.54 $ 10.49 $ 10.00
-------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income....................................... 0.12++ 0.20++ 0.07
Net realized and unrealized gain on investments............. 4.76 1.89 0.42#
-------- ------- -------
Total from investment operations............................ 4.88 2.09 0.49
-------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income........................ (0.16) (0.03) --
Distributions from net realized gains....................... (0.16) (0.01) --
-------- ------- -------
Total distributions......................................... (0.32) (0.04) --
-------- ------- -------
Net asset value, end of period.............................. $ 17.10 $ 12.54 $ 10.49
======== ======= =======
TOTAL RETURN+............................................... 39.36% 19.91% 4.90%
======== ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)........................ $155,790 $10,072 $ 1,374
Ratio of operating expenses to average net assets (a) (b)... 0.35% 0.35% 0.35%**
Ratio of net investment income to average net assets........ 0.85% 1.79% 1.24%**
Portfolio turnover rate..................................... 12% 35% 42%
Ratio of operating expenses to average net assets without
fee waivers, expenses reimbursed and fees reduced by
credits allowed by the custodian (b)...................... 0.36% 0.57% 6.67%**
</TABLE>
- ---------------------
* The Portfolio commenced operations on June 3, 1997.
** Annualized.
+ Total return is not annualized for periods less than one year. The total
return would have been lower if certain fees had not been waived and/or
expenses reimbursed by the investment advisor and/or administrator or if
fees had not been reduced by credits allowed by the custodian.
++ Per share numbers have been calculated using the average shares method.
# The amount shown may not accord with the change in the aggregate gains and
losses of portfolio securities due to timing of sales and redemptions of
Portfolio shares.
(a) Ratio of operating expenses to average net assets includes expenses paid
indirectly.
(b) The Portfolio will indirectly bear its prorated share of expenses of the
Underlying Funds.
See Notes to Financial Statements.
57
<PAGE> 60
FINANCIAL highlights
BALANCED PORTFOLIO
FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
12/31/99 12/31/98 12/31/97*
-------- -------- ---------
<S> <C> <C> <C>
Net asset value, beginning of period........................ $ 12.20 $ 10.47 $10.00
-------- ------- ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income....................................... 0.34++ 0.31++ 0.13
Net realized and unrealized gain on investments............. 2.95 1.49 0.34#
-------- ------- ------
Total from investment operations............................ 3.29 1.80 0.47
-------- ------- ------
LESS DISTRIBUTIONS:
Dividends from net investment income........................ (0.48) (0.07) --
Distributions from net realized gains....................... (0.09) -- --
-------- ------- ------
Total distributions......................................... (0.57) (0.07) --
-------- ------- ------
Net asset value, end of period.............................. $ 14.92 $ 12.20 $10.47
======== ======= ======
TOTAL RETURN+............................................... 27.71% 17.18% 4.70%
======== ======= ======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)........................ $170,527 $11,161 $2,354
Ratio of operating expenses to average net assets (a)(b).... 0.35% 0.35% 0.35%**
Ratio of net investment income to average net assets........ 2.70% 2.79% 2.34%**
Portfolio turnover rate..................................... 13% 33% 15%
Ratio of operating expenses to average net assets without
fee waivers, expenses reimbursed and fees reduced by
credits allowed by the custodian (b)...................... 0.35% 0.54% 3.97%**
</TABLE>
- ---------------------
* The Portfolio commenced operations on June 3, 1997.
** Annualized.
+ Total return represents aggregate total return for the periods less than one
year. The total return would have been lower if certain fees had not been
waived and/or expenses reimbursed by the investment advisor and/or
administrator of if fees had not been reduced by credits allowed by the
custodian.
++ Per share numbers have been calculated using the average shares method.
# The amount shown may not accord with the change in the aggregate gains and
losses of portfolio securities due to time of sales and redemptions of
Portfolio shares.
(a) Ratio of operating expenses to average net assets includes expenses paid
indirectly.
(b) The Portfolio will indirectly bear its prorated share of expenses of the
Underlying Funds.
See Notes to Financial Statements.
58
<PAGE> 61
FINANCIAL highlights
FLEXIBLE INCOME PORTFOLIO
FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
12/31/99 12/31/98 12/31/97*
-------- -------- ---------
<S> <C> <C> <C>
Net asset value, beginning of period........................ $ 11.38 $10.23 $10.00
------- ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income....................................... 0.58++ 0.48++ 0.04
Net realized and unrealized gain on investments............. 0.41 0.69 0.19#
------- ------ ------
Total from investment operations............................ 0.99 1.17 0.23
------- ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income........................ (0.50) (0.02) --
Distributions from net realized gains....................... (0.01) -- --
------- ------ ------
Total distributions......................................... (0.51) (0.02) --
------- ------ ------
Net asset value, end of period.............................. $ 11.86 $11.38 $10.23
======= ====== ======
TOTAL RETURN+............................................... 8.58% 11.75% 2.30%
======= ====== ======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)........................ $25,846 $1,107 $ 100
Ratio of operating expenses to average net assets (a)(b).... 0.35% 0.35% 0.34%**
Ratio of net investment income to average net assets........ 5.09% 4.90% 7.04%**
Portfolio turnover rate..................................... 4% 78% 5%
Ratio of operating expenses to average net assets without
fee waivers, expenses reimbursed and fees reduced by
credits allowed by the custodian (b)...................... 0.41% 1.51% 116.19%**
</TABLE>
- ---------------------
* The Portfolio commenced operations on September 9, 1997.
** Annualized.
+ Total return is not annualized for periods less than one year. The total
return would have been lower if certain fees had not been waived and
expenses reimbursed by the investment advisor and/or administrator or if
fees had not been reduced by credits allowed by the custodian.
++ Per share numbers have been calculated using the average shares method.
# The amount shown may not accord with the change in the aggregate gains and
losses of portfolio securities due to timing of sales and redemptions of
Portfolio shares.
(a) Ratio of operating expenses to average net assets includes expenses paid
indirectly.
(b) The Portfolio will also bear its prorated share of expenses of the
Underlying Funds.
See Notes to Financial Statements.
59
<PAGE> 62
FINANCIAL highlights
INCOME PORTFOLIO
FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
YEAR PERIOD PERIOD
ENDED ENDED ENDED
12/31/99 12/31/98* 12/31/97*
-------- --------- ---------
<S> <C> <C> <C>
Net asset value, beginning of period........................ $10.42 $10.00 $ 10.00
------ ------ --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income....................................... 0.71++ 0.56++ --
Net realized and unrealized loss on investments............. (0.52) (0.14) --
------ ------ --------
Total from investment operations............................ 0.19 0.42 --
------ ------ --------
LESS DISTRIBUTIONS:
Dividends from net investment income........................ (0.70) -- --
Distributions from net realized gains....................... (0.01) -- --
Distributions in excess of net realized gains............... (0.00)## -- --
------ ------ --------
Total distributions......................................... (0.71) -- --
------ ------ --------
Net asset value, end of period.............................. $ 9.90 $10.42 $ 10.00#
====== ====== ========
TOTAL RETURN+............................................... 1.88% 4.23% 0.00%
====== ====== ========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)........................ $7,206 $ 829 $ 0
Ratio of operating expenses to average net assets (a)(b).... 0.35% 0.35%** 0.35%**
Ratio of net investment income to average net assets........ 7.07% 7.39%** 0.00%**
Portfolio turnover rate..................................... 17% 61% 99%
Ratio of operating expenses to average net assets without
fee waivers, expenses reimbursed and fees reduced by
credits allowed by the custodian (b)...................... 0.59% 5.37%** 7,567.04%**
</TABLE>
- ---------------------
* The Income Portfolio commenced operations on October 22, 1997, ceased
operations on November 4, 1997, and re-commenced operations on April 23,
1998.
** Annualized.
+ Total return is not annualized for periods less than one year. The total
return would have been lower if certain fees had not been waived and
expenses reimbursed by the investment advisor and/or administrator or if
fees had not been reduced by credits allowed by the custodian.
++ Per share numbers have been calculated using the average shares method.
# Represents offering share price.
## Amount represents less than $0.01 per share.
(a) Ratio of operating expenses to average net assets includes expenses paid
indirectly.
(b) The Portfolio will indirectly bear its prorated share of expenses of the
Underlying Funds.
See Notes to Financial Statements.
60
<PAGE> 63
PORTFOLIO of INVESTMENTS
MONEY MARKET FUND
DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------- -----
<C> <S> <C>
COMMERCIAL PAPER (DOMESTIC) - 57.4%
$1,000,000 American Express Credit Corporation,
5.900% due 02/25/2000+................ $ 990,986
1,000,000 AT&T Corporation,
5.820% due 02/24/2000+................ 991,270
1,000,000 Caterpillar Financial Services
Corporation,
5.950% due 03/09/2000+................ 988,761
1,000,000 Citicorp,
6.050% due 01/28/2000+................ 995,462
1,000,000 Columbia University of New York,
5.850% due 03/09/2000+................ 988,950
1,000,000 Ford Motor Credit Corporation,
5.940% due 01/18/2000+................ 997,195
1,000,000 General Electric Capital Corporation,
5.920% due 03/08/2000+................ 988,982
1,000,000 General Motors Acceptance Corporation,
5.980% due 02/23/2000+................ 991,196
1,000,000 Goldman Sachs Group, Inc.,
6.050% due 03/15/2000+................ 987,564
1,000,000 Household Finance Corporation,
5.800% due 02/18/2000+................ 992,267
1,000,000 IBM Credit Corporation,
5.850% due 01/26/2000+................ 995,938
1,000,000 International Lease Finance Corporation,
5.790% due 02/15/2000................. 992,763
1,000,000 Merrill Lynch & Company, Inc.,
5.960% due 01/31/2000................. 995,033
1,000,000 Morgan Stanley Dean Witter Discover,
6.000% due 02/04/2000+................ 994,333
1,000,000 National Rural Utilities Cooperative
Finance Corporation,
5.800% due 02/23/2000+................ 991,461
1,000,000 Private Export Funding Corporation,
5.720% due 03/20/2000+................ 987,448
1,000,000 Wells Fargo & Company,
5.950% due 02/25/2000................. 990,910
1,000,000 Windmill Funding Corporation,
5.850% due 02/09/2000+, ++............ 993,662
-----------
Total Commercial Paper (Domestic) (Cost
$17,854,181).......................... 17,854,181
-----------
COMMERCIAL PAPER (YANKEE) - 12.8%
1,000,000 Abbey National North America
Corporation,
6.050% due 02/22/2000+................ 991,261
1,000,000 Bank of Nova Scotia,
5.950% due 01/31/2000+................ 995,042
1,000,000 Bayerische Landesbank Girozentrale,
5.950% due 01/26/2000+................ 995,868
1,000,000 Toyota Motor Credit Corporation,
5.800% due 02/25/2000+................ 991,139
-----------
Total Commercial Paper (Yankee)
(Cost $3,973,310)..................... 3,973,310
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------- -----
<C> <S> <C>
CERTIFICATES OF DEPOSIT - 3.2% (Cost $1,000,000)
$1,000,000 Bank of America NA
5.800% due 03/15/2000................. $ 1,000,000
-----------
CORPORATE BONDS AND NOTES - 9.7%
1,000,000 First Union National Bank, Note,
6.271% due 09/25/2000+++.............. 1,000,000
1,000,000 National City Bank, Note,
6.286% due 10/16/2000+++.............. 1,000,382
1,000,000 Presbyterian Homes & Services of New
Jersey Obligated Group, Revenue Bonds,
1998 Series B1 (Taxable),
6.850% due 12/01/2028+++.............. 1,000,000
-----------
Total Corporate Bond and Notes
(Cost $3,000,382)..................... 3,000,382
-----------
MUNICIPAL BONDS AND NOTES - 7.3%
1,000,000 Cuyahoga County, Ohio, Hospital Revenue,
University Hospital Cleveland,
4.700% due 01/01/2016+++.............. 1,000,000
1,280,000 Phenix County, Alabama, Industrial
Development Board, Environmental
Improvement Revenue, Mead Coated Board
Project, Series A,
4.900% due 06/01/2028+++.............. 1,280,000
-----------
Total Municipal Bonds and Notes
(Cost $2,280,000)..................... 2,280,000
-----------
U.S. GOVERNMENT AGENCY OBLIGATIONS - 9.6%
FEDERAL FARM CREDIT BANK (FFCB) - 6.4%
1,000,000 5.680% due 05/01/2000................... 1,000,000
1,000,000 5.730% due 06/01/2000................... 1,000,000
-----------
Total FFCBs (Cost $2,000,000)........... 2,000,000
-----------
FEDERAL HOME LOAN BANK (FHLB) - 3.2%
(Cost $988,653)
1,000,000 5.520% due 03/15/2000+.................. 988,653
-----------
Total U.S. Government Agency Obligations
(Cost $2,988,653)..................... 2,988,653
-----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (Cost $31,096,526*)..... 100.0% 31,096,526
OTHER ASSETS AND LIABILITIES (NET)........ 0.0# 8,066
------ -----------
NET ASSETS................................ 100.0% $31,104,592
====== ===========
</TABLE>
- ---------------------
* Aggregate cost for federal tax purposes.
# Amount represents less than 0.1% of net assets.
+ Rate represents discount rate at the date of purchase (unaudited).
++ Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
+++ Floating rate security whose interest rate is reset periodically based on an
index.
See Notes to Financial Statements.
61
<PAGE> 64
PORTFOLIO of INVESTMENTS
SHORT TERM HIGH QUALITY BOND FUND
DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------- -----
<C> <S> <C>
CORPORATE BONDS AND NOTES - 35.4%
FINANCIAL - 8.6%
$ 985,000 Boeing Capital Corporation, MTN,
6.710% due 07/19/2000................. $ 986,074
1,000,000 Citigroup, Inc., Note,
6.125% due 06/15/2000................. 998,370
1,000,000 General Electric Capital Corporation,
MTN,
5.800% due 04/24/2000................. 999,880
1,000,000 Goldman Sachs Group LP, Note,
7.800% due 07/15/2002 ++.............. 1,010,174
325,000 Merrill Lynch & Company, Note,
8.300% due 11/01/2002................. 334,987
250,000 US West Capital Funding, Inc.,
Company Guarantee,
6.125% due 07/15/2002................. 243,829
----------
4,573,314
----------
BANKS - 6.1%
250,000 BB&T Corporation, Sub. Note,
7.050% due 05/23/2003................. 248,722
1,000,000 Chase Manhattan Corporation, Note,
5.500% due 02/15/2001................. 986,242
1,000,000 First Chicago Corporation, Sub. Note,
9.250% due 11/15/2001................. 1,037,934
1,000,000 Wachovia Corporation, Sr. Unsub. Note,
6.700% due 06/21/2004................. 985,361
----------
3,258,259
----------
MEDIA - 5.8%
1,500,000 Cox Communications Inc., Note,
7.000% due 08/15/2001................. 1,497,121
1,500,000 Times Mirror Company, Note,
6.650% due 10/15/2001................. 1,492,698
50,000 Time Warner, Inc., Note,
7.950% due 02/01/2000................. 50,061
----------
3,039,880
----------
RETAIL SALES - 3.8%
250,000 Federated Department Stores, Inc., Bond,
6.790% due 07/15/2027................. 241,321
Wal-Mart Stores, Inc.:
750,000 Note,
5.850% due 06/01/2000................... 749,062
1,000,000 Sr. Note,
6.150% due 08/10/2001................... 993,105
----------
1,983,488
----------
UTILITIES - 3.6%
1,000,000 United Illuminating Company, Note,
6.000% due 12/15/2003................. 936,510
1,000,000 Wisconsin Electric Power Company, Deb.,
6.625% due 12/01/2002................. 991,660
----------
1,928,170
----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------- -----
<C> <S> <C>
REAL ESTATE INVESTMENT TRUSTS - 2.9%
$ 250,000 Camden Property Trust, Note,
6.750% due 11/15/2001................. $ 244,766
100,000 Colonial Realty LP, Note,
7.500% due 07/15/2001................. 99,239
530,000 Dobie Centers Properties, Ltd., Note,
Taxable, (MBIA Insured),
6.010% due 05/01/2000++............... 529,300
600,000 Sun Communities, Inc., Sr. Note,
7.625% due 05/01/2003................. 591,270
100,000 SUSA Partnership LP, Note,
7.125% due 11/01/2003................. 95,981
----------
1,560,556
----------
TRANSPORTATION - 1.9%
1,000,000 CSX Corporation, Deb.,
9.500% due 08/01/2000................. 1,015,670
----------
INDUSTRIAL - 1.4%
500,000 Cendant Corporation, Note,
7.500% due 12/01/2000................. 500,000
100,000 Equistar Chemicals LP, Note,
9.125% due 03/15/2002................. 101,070
150,000 Lyondell Petrochemical Company, MTN,
9.750% due 09/04/2003++............... 154,554
----------
755,624
----------
OIL & GAS - 0.9%
500,000 Occidental Petroleum Company, Sr. Note,
6.400% due 04/01/2003................. 481,931
----------
AEROSPACE/DEFENSE - 0.4%
200,000 Lockheed Martin Corporation,
Company Guarantee,
6.850% due 05/15/2001................. 198,010
----------
Total Corporate Bonds and Notes
(Cost $19,037,169).................... 18,794,902
----------
U.S. TREASURY NOTES - 20.4%
3,500,000 4.000% due 10/31/2000................... 3,443,125
7,000,000 5.250% due 05/31/2001................... 6,914,690
500,000 5.625% due 02/15/2006................... 478,594
----------
Total U.S. Treasury Notes
(Cost $10,944,895).................... 10,836,409
----------
</TABLE>
See Notes to Financial Statements.
62
<PAGE> 65
PORTFOLIO of INVESTMENTS (continued)
SHORT TERM HIGH QUALITY BOND FUND
DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------- -----
<C> <S> <C>
ASSET-BACKED SECURITIES - 16.9%
$2,000,000 ANRC Auto Owner Trust, 1999-A A3,
6.750% due 12/15/2003................. $ 1,990,610
1,500,000 California Infrastructure PG&E, AB
6.320% due 09/25/2005................. 1,476,157
157,831 Carco Auto Loan Master Trust, 1997-1 A,
6.689% due 08/15/2004................. 157,769
981,051 FFCA Secured Lending Corporation,
1999-2 WA1A,
7.130% due 02/18/2009++............... 966,335
500,000 First USA Credit Card Master Trust,
1997-6 A,
6.420% due 03/17/2005................. 495,587
315,433 General Electric Capital Mortgage
Association, 1996-HE3 A3,
7.150% due 09/25/2026................. 314,501
Green Tree Financial Corporation:
250,000 1995-1 B2,
9.200% due 06/15/2025................... 214,309
182,138 1995-6 B1,
7.700% due 09/15/2026................... 182,031
67,993 Green Tree Home Equity Loan Trust,
1997-B A5,
7.150% due 04/15/2027................. 68,189
165,000 Green Tree Home Improvement, 1995-D B2,
7.450% due 09/15/2025................. 156,851
18,705 Green Tree Recreational, Equipment &
Consumer, 1996-A A1,
5.550% due 02/15/2018................. 18,201
350,000 MBNA Master Credit Card Trust, 1995-E A,
6.682% due 01/15/2005................. 351,150
8,697 Merrill Lynch Mortgage Investors, Inc.,
1991-I A,
7.650% due 01/15/2012................. 8,707
237,472 Mid-State Trust, Series 4-A,
8.330% due 04/01/2030................. 243,242
1,500,000 Providian Master Trust, 1997-4 A,
6.250% due 06/15/2007................. 1,477,718
700,000 Standard Credit Card Master Trust,
1994-4 A,
8.250% due 11/07/2003................. 716,720
107,669 World Omni Automobile Lease
Securitization, 1996-B B,
6.850% due 11/15/2002++............... 107,619
----------
Total Asset-Backed Securities
(Cost $9,078,508)..................... 8,945,696
----------
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED
SECURITIES - 9.7%
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) - 5.8%
900,656 #0252214,
6.500% due 01/01/2014................. 874,277
190,465 #313641,
8.500% due 11/01/2017................. 195,592
913,665 #456445,
6.500% due 01/01/2014................. 886,906
1,100,000 #523795,
8.000% due 05/01/2027................. 1,113,233
----------
Total FNMA's (Cost $3,143,637).......... 3,070,008
----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------- -----
<C> <S> <C>
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) - 2.8%
$ 56,184 #001991,
9.000% due 04/20/2025................. $ 58,477
32,342 #140834,
11.000% due 12/15/2015................ 35,673
12,429 #144538,
11.000% due 12/15/2015................ 13,710
50,409 #151670,
11.000% due 12/15/2015................ 55,600
101,561 #213862,
10.000% due 09/15/2018................ 110,304
51,139 #225305,
10.000% due 02/15/2018................ 55,540
16,862 #234561,
10.000% due 12/15/2017................ 18,313
20,237 #254937,
10.000% due 06/15/2019................ 21,979
48,430 #257814,
10.000% due 09/15/2018................ 52,599
163,576 #264735,
10.000% due 02/15/2019................ 177,657
90,670 #289333,
10.000% due 05/15/2020................ 98,475
112,128 #291116,
10.000% due 06/15/2020................ 121,780
45,931 #293511,
10.000% due 07/15/2020................ 49,885
139,956 #400224,
8.000% due 06/15/2009................. 143,002
190,424 #453963,
8.000% due 08/15/2012................. 194,570
99,066 #780081,
10.000% due 02/15/2025................ 107,302
21,861 #780121,
10.000% due 04/15/2025................ 23,668
22,456 #780141,
10.000% due 12/15/2020................ 24,319
143,070 #780317,
9.000% due 12/15/2020................. 150,350
----------
Total GNMAs (Cost $1,522,226)........... 1,513,203
----------
</TABLE>
See Notes to Financial Statements.
63
<PAGE> 66
PORTFOLIO of INVESTMENTS (continued)
SHORT TERM HIGH QUALITY BOND FUND
DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------- -----
<C> <S> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED
SECURITIES - (CONTINUED)
ADJUSTABLE RATE MORTGAGE-BACKED SECURITIES (ARM) - 0.9%
$ 71,801 Federal Home Loan Mortgage Corporation
(FHLMC),
#845988,
7.513% due 11/01/2021+.................. $ 72,890
Federal National Mortgage Association
(FNMA):
129,698 #082247,
6.125% due 04/01/2019+................ 127,220
14,710 #124571,
7.410% due 11/01/2022+................ 15,064
76,090 #141461,
7.466% due 11/01/2021+................ 77,798
41,548 #152205,
7.204% due 01/01/2019+................ 42,371
126,642 #313257,
6.176% due 11/01/2035+................ 124,067
----------
Total ARMs (Cost $464,099).............. 459,410
----------
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) - 0.2%
(Cost $128,215)
119,315 #A01226,
9.500% due 08/01/2016................. 126,287
----------
Total U.S. Government Agency Mortgage-
Backed Securities (Cost $5,258,177)... 5,168,908
----------
COLLATERALIZED MORTGAGE OBLIGATIONS (CMO) - 6.9%
17,038 Countrywide Funding Corporation, 1994-1
A3,
6.250% due 03/25/2024................. 16,460
413,704 Federal Home Loan Mortgage Corporation,
Class VG,
6.250% due 06/25/2004................. 406,499
Prudential Home Mortgage Securities:
5,707 1993-43 A1,
5.400% due 10/25/2023................. 5,687
2,072,000 1993-18 A6,
7.000% due 06/15/2023................. 2,035,999
350,000 Residential Asset Securitization Trust,
1997-A6 A5,
7.250% due 09/25/2012................. 349,925
866,111 Residential Funding Mortgage Security I,
1995-S14 A8,
7.500% due 09/25/2025................. 866,201
----------
Total CMOs (Cost $3,720,033)............ 3,680,771
----------
FOREIGN GOVERNMENT BONDS - 3.3%
1,000,000 Ontario, Province of Canada,
6.125% due 06/28/2000................. 1,001,140
750,000 Province of Alberta, Government
Guarantee,
9.250% due 04/01/2000................. 756,690
----------
Total Foreign Government Bonds
(Cost $1,757,183)..................... 1,757,830
----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------- -----
<C> <S> <C>
COMMERCIAL MORTGAGE-BACKED SECURITIES (CMBS) - 3.6%
$1,000,000 GMAC Commercial Mortgage
Securities, Inc.,
1999 - CTL1A,
7.151% due 02/15/2008++............... $ 991,250
949,848 Morgan Stanley Capital I, 1999 - CAMI
A1,
6.540% due 11/15/2008................. 935,197
----------
Total CMBSs (Cost $1,950,031)........... 1,926,447
----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (Cost $51,745,996*)....... 96.2% 51,110,963
OTHER ASSETS AND LIABILITIES (NET).......... 3.8 2,033,419
----- -----------
NET ASSETS.................................. 100.0% $53,144,382
===== ===========
</TABLE>
- ---------------------
* Aggregate cost for federal tax purposes.
+ Variable rate security. The interest rate shown reflects the rate currently
in effect (unaudited).
++ Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
GLOSSARY OF TERMS
<TABLE>
<S> <C> <C>
MBIA -- Municipal Bond Investors Assurance
MTN -- Medium Term Note
</TABLE>
See Notes to Financial Statements.
64
<PAGE> 67
PORTFOLIO of INVESTMENTS
U.S. GOVERNMENT SECURITIES FUND
DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------- > -----
<C> <S> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED
SECURITIES - 61.7%
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) - 23.6%
$6,789,527 6.500% due 11/01/2028 - 04/01/2029...... $ 6,401,686
6,525,460 7.000% due 08/01/2028 - 04/01/2029...... 6,313,120
2,200,000 7.500% due 11/01/2029................... 2,177,645
3,774,926 8.000% due 05/01/2022 - 09/01/2027...... 3,817,212
169,245 8.500% due 02/01/2023................... 173,801
----------
Total FNMAs (Cost $19,445,322).......... 18,883,464
----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) - 20.7%
971,959 6.000% due 02/20/2029................... 882,571
7,665,914 7.000% due 01/15/2028 - 08/20/2029...... 7,404,820
5,102,468 7.500% due 01/15/2023 - 11/15/2023...... 5,050,913
2,622,550 7.750% due 12/15/2029................... 2,629,054
579,339 8.000% due 07/15/2026 - 06/15/2027...... 586,006
31,902 9.000% due 08/15/2021................... 33,433
----------
Total GNMAs (Cost $17,061,106).......... 16,586,797
----------
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) - 17.4%
GOLD:
799,183 5.500% due 12/01/2008................... 743,073
2,053,483 6.000% due 01/01/2013................... 1,952,519
3,130,382 6.500% due 05/01/2023 - 03/01/2029...... 2,985,812
5,324,132 7.000% due 04/01/2008 - 07/01/2029...... 5,197,386
2,408,827 8.500% due 07/01/2029................... 2,477,175
513,887 8.750% due 01/01/2013................... 536,719
----------
Total FHLMCs (Cost $14,248,071)......... 13,892,684
----------
Total U.S. Government Agency Mortgage-
Backed Securities (Cost
$50,754,499).......................... 49,362,945
----------
COLLATERALIZED MORTGAGE OBLIGATIONS (CMO) - 17.0%
Federal National Mortgage Association,
REMIC, Pass-through Certificates:
432,196 Series 1989-90, Class E,
8.700% due 12/25/2019................. 443,078
5,676,745 Series 1992-55, Class DZ,
>8.000% due 04/25/2022................ 5,826,617
6,751,529 Series 1992-83, Class X,
7.000% due 02/25/2022................. 6,497,523
236,203 Series 1993-159, Class PA, (P/O),
Zero coupon due 01/25/2021............ 231,845
596,842 Residential Funding Mortgage Security,
Series 1992-S39, Class A8,
7.500% due 11/25/2007................. 598,725
----------
Total CMO's (Cost $12,447,171).......... 13,597,788
----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------- > -----
<C> <S> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS - 12.5%
Federal Farm Credit Bank, Note:
$2,000,000 5.700% due 06/18/2003................... $ 1,935,976
1,500,000 5.730% due 04/14/2003................... 1,453,290
Federal Home Loan Bank:
Bond:
2,000,000 5.305% due 03/26/2001................... 1,972,876
1,000,000 6.135% due 02/17/2009................... 916,250
1,000,000 6.810% due 08/20/2007................... 958,091
1,000,000 Federal Home Loan Bank, MTN,
5.705% due 03/19/2003................... 971,350
2,000,000 Housing Urban Development, Series 99-A,
Government Guarantee,
6.160% due 08/01/2011................. 1,804,080
----------
Total U.S. Government Agency Obligations
(Cost $10,591,275).................... 10,011,913
----------
U.S. TREASURY OBLIGATIONS - 4.1%
U.S. TREASURY NOTES - 2.1%
1,000,000 4.875% due 03/31/2001................... 984,688
325,000 6.625% due 03/31/2002................... 327,336
350,000 6.250% due 02/15/2007................... 344,531
----------
Total U.S. Treasury Notes
(Cost $1,670,373)..................... 1,656,555
----------
U.S. TREASURY BONDS - 2.0%
300,000 12.750% due 11/15/2010.................. 387,844
1,300,000 6.250% due 08/15/2023................... 1,226,469
----------
Total U.S. Treasury Bonds
(Cost $1,708,177)..................... 1,614,313
----------
Total U.S. Treasury Obligations
(Cost $3,378,550)..................... 3,270,868
----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (Cost $77,171,495*)....... 95.3% 76,243,514
OTHER ASSETS AND LIABILITIES (NET).......... 4.7 3,771,106
------ -----------
NET ASSETS.................................. 100.0% $80,014,620
====== ===========
</TABLE>
- ---------------------
* Aggregate cost for federal tax purposes.
GLOSSARY OF TERMS
<TABLE>
<S> <C> <C>
GOLD -- Payments are on an accelerated
45-day payment cycle instead of
75-day payment cycle
MTN -- Medium Term Note
P/O -- Principal Only
REMIC -- Real Estate Mortgage Investment
Conduit
</TABLE>
See Notes to Financial Statements.
65
<PAGE> 68
PORTFOLIO of INVESTMENTS
INCOME FUND
DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------- -----
<C> <S> <C>
CORPORATE BONDS AND NOTES - 68.1%
TRANSPORTATION - 13.9%
$1,000,000 Boeing Company, Deb.,
8.750% due 08/15/2021............... $ 1,088,575
1,000,000 Conrail, Inc., Deb.,
9.750% due 06/15/2020............... 1,160,586
884,961 Continental Airlines, Inc.,
Pass-through Certificates, Series
974C,
6.800% due 07/02/2007............... 846,638
1,000,000 Norfolk Southern Corporation, Bond,
7.800% due 05/15/2027............... 979,086
2,000,000 Southwest Airlines Company,
Pass-through
Certificates, 94-A, Class A-4,
9.150% due 07/01/2016............... 2,217,550
1,300,000 United Air Lines, Inc.,
Pass-through Certificates,
9.560% due 10/19/2018............... 1,412,067
----------
7,704,502
----------
INDUSTRIAL - 13.2%
1,750,000 Carnival Corporation, Deb.,
7.200% due 10/01/2023............... 1,616,995
1,500,000 Caterpillar Inc., Sinking Fund Deb.,
9.750% due 06/01/2019............... 1,571,691
1,500,000 Lockheed Martin Corporation, Note,
7.250% due 05/15/2006............... 1,433,814
150,000 Mariner Post-Acute Network,
Sr. Sub. Note,
9.500% due 11/01/2007 (in
default)............................ 750
200,000 Ogden Corporation, Deb.,
9.250% due 03/01/2022............... 220,357
100,000 P&L Coal Holdings Corporation,
Company Guarantee,
8.875% due 05/15/2008............... 98,250
1,800,000 Praxair, Inc., Deb.,
8.700% due 07/15/2022............... 1,924,839
500,000 Waste Management, Inc., Conv. Sub.
Note,
4.000% due 02/01/2002............... 440,000
----------
7,306,696
----------
BANKS - 7.8%
400,000 Banc One Corporation, Sub. Note,
10.000% due 08/15/2010.............. 464,311
82,000 Barnett Banks, Florida, Inc., Sub.
Note,
10.875% due 03/15/2003.............. 90,006
230,000 Citicorp, Sub. Note,
8.625% due 12/01/2002............... 238,487
First Chicago Corporation, Sub. Note:
600,000 11.250% due 02/20/2001................ 627,329
100,000 9.250% due 11/15/2001................. 103,793
1,040,000 Fleet/Norstar Financial Group, Inc.,
Sub. Note,
9.900% due 06/15/2001............... 1,079,649
1,100,000 NCNB Corporation, Sub. Note,
9.375% due 09/15/2009............... 1,227,519
516,000 Security Pacific Corporation, Sub.
Note,
11.500% due 11/15/2000.............. 535,708
----------
4,366,802
----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------- -----
<C> <S> <C>
FOREIGN (U.S. DOLLAR DENOMINATED) - 7.0%
$1,000,000 Abbey National Plc, Global Note,
6.690% due 10/17/2005............... $ 959,153
250,000 HIH Capital Ltd., Conv. Note,
7.500% due 09/25/2006............... 162,500
1,700,000 Northern Telecom Capital, Sub. Note,
7.400% due 06/15/2006............... 1,707,470
500,000 Petro-Canada, Deb.,
9.250% due 10/15/2021............... 533,085
500,000 Trans-Canada Pipeline Corporation,
Deb.,
8.500% due 03/20/2023............... 508,275
----------
3,870,483
----------
OIL & GAS - 6.1%
1,200,000 ANR Pipeline Company, Deb.,
9.625% due 11/01/2021............... 1,376,296
1,000,000 Enron Corporation, Note,
6.450% due 11/15/2001............... 988,512
1,000,000 Phillips Petroleum Company, Deb.,
9.180% due 09/15/2021............... 1,047,451
----------
3,412,259
----------
AUTO - 4.6%
400,000 Ford Holdings, Inc., Deb.,
9.300% due 03/01/2030............... 459,632
Ford Motor Company, Deb.:
600,000 8.875% due 11/15/2022................. 645,095
250,000 8.900% due 01/15/2032................. 281,865
1,000,000 General Motors Corporation, Deb.,
9.400% due 07/15/2021............... 1,162,623
----------
2,549,215
----------
FINANCIAL - 4.5%
500,000 American General Corporation,
Sinking Fund Deb.,
7.500% due 07/15/2025............... 479,729
1,000,000 Barclays North American Capital
Corporation, Deb.,
9.750% due 05/15/2021............... 1,073,795
1,000,000 Hartford Life Insurance Company, Deb.,
7.650% due 06/15/2027............... 970,552
----------
2,524,076
----------
UTILITIES - 4.2%
200,000 Duke Power Company,
First and Refundable Mortgage,
6.875% due 08/01/2023............... 174,922
700,000 Florida Power & Light Company,
First Mortgage,
7.050% due 12/01/2026............... 611,805
Texas Utilities Electric Company:
150,000 First and Collateral Mortgage,
8.500% due 08/01/2024............... 148,282
1,500,000 First Mortgage,
7.875% due 04/01/2024............... 1,402,821
----------
2,337,830
----------
</TABLE>
See Notes to Financial Statements.
66
<PAGE> 69
PORTFOLIO of INVESTMENTS (continued)
INCOME FUND
DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------- -----
<C> <S> <C>
CORPORATE BONDS AND NOTES - (CONTINUED)
RETAIL SALES - 2.9%
May Department Stores Company, Deb.:
$1,000,000 8.375% due 10/01/2022................. $ 1,017,686
600,000 8.375% due 08/01/2024................. 596,067
----------
1,613,753
----------
MEDIA - 2.7%
1,200,000 News America Holdings, Inc., Sr. Deb.,
8.000% due 10/17/2016............... 1,182,954
300,000 Time Warner, Inc., Deb.,
9.150% due 02/01/2023............... 335,553
----------
1,518,507
----------
HEALTH CARE - 0.8%
500,000 Medical Care International Inc.
(Columbia), Conv. Sub. Deb.,
6.750% due 10/01/2006 +............. 430,000
----------
GAMING - 0.4%
250,000 Riviera Holdings Corporation, Company
Guarantee,
10.000% due 08/15/2004.............. 231,875
----------
Total Corporate Bonds and Notes
(Cost $39,376,932).................. 37,865,998
----------
U.S. TREASURY OBLIGATIONS - 25.7%
U.S. TREASURY NOTES - 17.8%
7,000,000 5.500% due 05/31/2003................. 6,814,065
1,500,000 6.125% due 08/15/2007................. 1,462,500
1,650,000 6.000% due 08/15/2009................. 1,598,954
----------
9,875,519
----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------- -----
<C> <S> <C>
U.S. TREASURY BONDS - 7.9%
$2,000,000 13.750% due 08/15/2004................ $ 2,567,500
2,000,000 6.000% due 02/15/2026................. 1,830,000
----------
4,397,500
----------
Total U.S. Treasury Obligations
(Cost $14,774,912).................. 14,273,019
----------
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES - 0.7%
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) - 0.4%
212,264 #386671,
9.000% due 02/15/2025............... 222,458
----------
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) - 0.3%
151,974 #C00385, GOLD,
9.000% due 01/01/2025 158,480
----------
Total U.S. Government Agency Mortgage-
Backed Securities (Cost $375,373)... 380,938
----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (Cost $54,527,217*)....... 94.5% 52,519,955
OTHER ASSETS AND LIABILITIES (NET).......... 5.5 3,035,845
----- -----------
NET ASSETS.................................. 100.0% $55,555,800
===== ===========
</TABLE>
- ---------------------
* Aggregate cost for federal tax purposes.
GLOSSARY OF TERMS
<TABLE>
<S> <C> <C>
GOLD -- Payments are on an accelerated
45-day payment cycle instead of a
75-day payment cycle
</TABLE>
See Notes to Financial Statements.
67
<PAGE> 70
PORTFOLIO of INVESTMENTS
BOND & STOCK FUND
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<C> <S> <C>
COMMON STOCKS - 46.2%
CONSUMER STAPLES - 4.0%
800 Alberto-Culver Company, Class A........... $ 17,400
3,300 Albertson's, Inc. ........................ 106,425
450 Avon Products, Inc. ...................... 14,850
1,900 Libbey, Inc. ............................. 54,625
2,400 PepsiCo, Inc. ............................ 84,600
1,650 Philip Morris Companies, Inc. ............ 38,259
2,900 Ralston-Ralston Purina Group.............. 80,838
3,700 Supervalu, Inc. .......................... 74,000
----------
470,997
----------
OIL & GAS - 3.3%
1,800 Ashland, Inc. ............................ 59,287
5,000 Repsol, Sponsored ADR..................... 116,250
3,625 Tosco Corporation......................... 98,555
2,600 Ultramar Diamond Shamrock Corporation..... 58,988
3,000 Valero Energy Corporation................. 59,625
----------
392,705
----------
COMPUTER SYSTEMS - 3.3%
2,425 Compaq Computer Corporation............... 65,626
4,700 Diebold, Inc. ............................ 110,450
1,500 Hewlett-Packard Company................... 170,906
400 International Business Machines
Corporation............................. 43,200
----------
390,182
----------
HEALTH CARE PRODUCTS - 3.1%
1,800 Abbott Laboratories....................... 65,362
750 Baxter International, Inc. ............... 47,109
3,200 Becton Dickinson & Company................ 85,600
1,850 DENTSPLY International, Inc. ............. 43,706
400 Johnson & Johnson......................... 37,250
3,500 Mylan Laboratories Inc. .................. 88,156
----------
367,183
----------
RETAIL SALES - 3.1%
5,000 Blockbuster Inc., Class A+................ 66,875
750 Dayton Hudson Corporation................. 55,078
2,950 Limited, Inc. ............................ 127,772
1,775 May Department Stores Company............. 57,244
3,300 Ross Stores, Inc. ........................ 59,194
----------
366,163
----------
HEALTH CARE SERVICES - 3.0%
1,200 Aetna, Inc. .............................. 66,975
1,500 Cardinal Health, Inc. .................... 71,813
2,150 Columbia/HCA Healthcare Corporation....... 63,022
8,400 HEALTHSOUTH Corporation+.................. 45,150
700 PacifiCare Health Systems, Inc., Class
B+...................................... 37,100
1,400 United HealthCare Corporation............. 74,375
----------
358,435
----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<C> <S> <C>
BANKS/SAVINGS & LOANS - 2.8%
1,150 Bank One Corporation...................... $ 36,872
400 Chase Manhattan Corporation............... 31,075
1,650 Citigroup, Inc. .......................... 91,678
1,900 Mellon Bank Corporation................... 64,719
2,000 U.S. Bancorp.............................. 47,625
1,500 Wells Fargo & Company..................... 60,656
----------
332,625
----------
COMPUTER SOFTWARE/SERVICES - 2.8%
1,200 Adobe Systems, Inc. ...................... 80,700
4,500 Autodesk, Inc. ........................... 151,875
1,375 Computer Associates International,
Inc. ................................... 96,164
----------
328,739
----------
BASIC INDUSTRY - 2.6%
2,900 Engelhard Corporation..................... 54,738
3,450 Fort James Corporation.................... 94,444
400 Rayonier, Inc. ........................... 19,325
1,925 Republic Services Inc.+................... 27,672
3,700 Sonoco Products Company................... 84,175
1,200 Waste Management, Inc. ................... 20,625
----------
300,979
----------
UTILITIES/TELECOMMUNICATIONS - 2.5%
420 Alltel Corporation........................ 34,729
900 AT&T Corporation.......................... 45,675
1,825 SBC Communications, Inc. ................. 88,969
1,900 Sprint Corporation........................ 127,894
20 WinStar Communications, Inc.+............. 1,505
----------
298,772
----------
FINANCIAL SERVICES - 2.5%
1,200 Federal National Mortgage Association..... 74,925
1,500 Finova Group Inc. ........................ 53,250
1,500 Franklin Resources Inc. .................. 48,094
1,500 Price (T. Rowe) Associates, Inc. ......... 55,406
700 Providian Financial Corporation........... 63,744
----------
295,419
----------
REAL ESTATE INVESTMENT TRUSTS - 2.5%
1,000 Arden Realty, Inc. ....................... 20,063
2,250 CarrAmerica Realty Corporation............ 47,531
200 Essex Property Trust, Inc. ............... 6,800
1,100 Franchise Finance Corporation of
America................................. 26,331
1,000 Health Care Property Investors, Inc. ..... 23,875
1,600 Hospitality Properties Trust.............. 30,500
700 Prison Realty Trust Inc. ................. 3,544
850 Shurgard Storage Centers, Inc., Class A... 19,709
1,900 Simon Property Group Inc. ................ 43,581
1,400 Storage USA Inc. ......................... 42,350
2,250 Taubman Centers, Inc. .................... 24,188
----------
288,472
----------
</TABLE>
See Notes to Financial Statements.
68
<PAGE> 71
PORTFOLIO of INVESTMENTS (continued)
BOND & STOCK FUND
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<C> <S> <C>
COMMON STOCKS - (CONTINUED)
1,450 American Standard Companies Inc.+......... $ 66,519
3,000 Crane Company............................. 59,625
1,200 Grainger (W.W.) Inc. ..................... 57,375
2,720 Xerox Corporation......................... 61,710
----------
245,229
----------
INSURANCE - 1.8%
2,958 Conseco, Inc. ............................ 52,874
1,700 MGIC Investment Corporation............... 102,319
1,900 UnumProvident Corporation................. 60,919
----------
216,112
----------
MEDIA - 1.4%
1,900 Harcourt General Inc. .................... 76,475
1,500 Viacom, Inc., Class A+.................... 90,656
----------
167,131
----------
CONSUMER CYCLICALS - 1.4%
2,000 Liz Claiborne, Inc. ...................... 75,250
7,000 The Warnaco Group, Inc. .................. 86,187
----------
161,437
----------
BUSINESS SERVICES - 1.2%
1,750 Dun & Bradstreet Corporation.............. 51,625
3,300 Cendant Corporation+...................... 87,656
----------
139,281
----------
CONSUMER DURABLES - 0.8%
666 Huttig Building Products, Inc.+........... 3,292
1,435 U.S. Industries Inc. ..................... 20,090
1,600 USG Corporation........................... 75,400
----------
98,782
----------
AEROSPACE/DEFENSE - 0.8%
450 Boeing Company............................ 18,703
1,250 General Dynamics Corporation.............. 65,937
125 Honeywell International, Inc. ............ 7,211
----------
91,851
----------
ELECTRICAL EQUIPMENT - 0.6%
820 Emerson Electric Company.................. 47,048
700 Tektronix, Inc. .......................... 27,213
----------
74,261
----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<C> <S> <C>
LODGING & RESTAURANTS - 0.4%
1,800 Starwood Hotels & Resorts Worldwide
Inc. ................................... $ 42,300
----------
ELECTRONICS/SEMICONDUCTORS - 0.2%
350 Intel Corporation......................... 28,809
----------
Total Common Stocks (Cost $5,372,631)..... 5,455,864
----------
CONVERTIBLE PREFERRED STOCKS - 5.2%
1,060 Bank United Corporation, Conv. Pfd.,
8.000% due 08/16/2004................... 41,605
750 Cendant Corporation, Series CD, Conv.
Pfd.,
1.300% due 02/16/2001................... 25,453
1,500 DECS Trust VI, Conv. Pfd.,
6.250% due 11/15/2002................... 69,750
175 Estee Lauder Aces Trust II, Conv. Pfd.,
6.250% due 02/23/2002................... 16,581
230 Global Crossing Holdings Ltd., Conv. Pfd.,
7.000% due 11/15/2004++................. 64,802
1,300 Loral Space & Communications, Ltd., Series
C, Conv. Pfd.,
6.000% due 11/01/2006++................. 68,250
180 McLeodUSA Inc., Series A, Conv. Pfd.,
6.750% due 08/15/2002................... 92,700
1,350 PSINet Inc., Class S, Conv. Pfd.,
6.750% due 05/15/2002................... 78,806
300 Qwest Trends Trust, Conv. Pfd.,
5.750% due 11/17/2003++................. 21,188
1,000 Sinclair Broadcast Group, Inc., Conv.
Pfd.,
6.000% due 09/20/2000................... 35,062
175 TCI Pacific Communications, Inc., Conv.
Pfd.,
5.000% due 07/31/2006................... 53,950
35 Winstar Communications, Inc., Conv. Pfd.,
7.250% due 06/24/2002++................. 47,469
----------
Total Convertible Preferred Stocks
(Cost $517,311)......................... 615,616
----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
- ---------
<C> <S> <C>
FIXED INCOME SECURITIES - 30.7%
U.S. TREASURY OBLIGATIONS - 11.8%
U.S. TREASURY NOTES - 8.7%
$ 300,000 5.875% due 11/30/2001.................... 298,219
380,000 6.500% due 05/15/2005.................... 380,237
300,000 5.625% due 05/15/2008.................... 282,281
60,000 6.500% due 10/15/2006.................... 59,850
----------
1,020,587
----------
U.S. TREASURY BOND - 3.1%
300,000 9.000% due 11/15/2018.................... 368,719
----------
Total U.S. Treasury Obligations
(Cost $1,450,304)...................... 1,389,306
----------
</TABLE>
See Notes to Financial Statements.
69
<PAGE> 72
PORTFOLIO of INVESTMENTS (continued)
BOND & STOCK FUND
DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------- -----
<C> <S> <C>
FIXED INCOME SECURITIES - (CONTINUED)
CORPORATE BONDS AND NOTES - 9.2%
$ 100,000 Aetna Services, Inc., Company Guarantee,
7.125% due 08/15/2006.................. $ 96,074
45,000 Baxter International Inc., Note,
7.125% due 02/01/2007.................. 43,849
300,000 CBS Corporation, Sr. Note,
7.150% due 05/20/2005.................. 295,814
40,000 Cendant Corporation, Note,
7.750% due 12/01/2003.................. 39,974
50,000 CNA Financial Corporation, Note,
6.600% due 12/15/2008.................. 45,154
50,000 HEALTHSOUTH Corporation, Sr. Note,
6.875% due 06/15/2005.................. 43,788
100,000 Merrill Lynch & Company Inc., Note,
6.000% due 02/17/2009.................. 89,787
100,000 Philip Morris Companies, Inc., Note,
7.500% due 01/15/2002.................. 99,491
100,000 Raytheon Company, Note,
6.150% due 11/01/2008.................. 88,971
100,000 Texas-New Mexico Power Company, Sr. Note,
6.250% due 01/15/2009.................. 85,243
3,850 Tribune Company, Conv. Note,
6.250% due 08/15/2001.................. 67,856
250,000 V2 Music Holdings, Plc, Step coupon,
Sr. Disc. Note,
Zero coupon to 04/01/2003;
14.000% due 04/15/2008++............... 86,250
----------
Total Corporate Bonds and Notes
(Cost $1,058,525)...................... 1,082,251
----------
CONVERTIBLE BONDS AND NOTES - 8.6%
200,000 Chiquita Brands International Inc., Conv.
Note,
7.000% due 03/28/2001++................ 156,000
70,000 Clear Channel Communication, Conv. Sr.
Note,
1.500% due 12/01/2002.................. 71,925
62,000 EXCITE@HOME, Conv. Sub. Note,
4.750% due 12/15/2006++................ 59,210
45,000 Level 3 Communications, Inc., Conv. Note,
6.000% due 09/15/2009.................. 63,225
1,000,000 Network Associates Inc., Conv. Sub. Deb.,
Zero coupon due 02/13/2018............. 377,500
300,000 Veterinary Centers of America.,
Conv. Sub. Deb.,
5.250% due 05/01/2006.................. 199,125
100,000 Waste Management, Inc., Conv. Sub. Note,
4.000% due 02/01/2002.................. 88,000
----------
Total Convertible Bonds and Notes
(Cost $1,052,380)...................... 1,014,985
----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------- -----
<C> <S> <C>
COLLATERALIZED MORTGAGE OBLIGATION (CMO) - 1.1%
(Cost $130,848)
$130,000 Federal Home Loan Mortgage Corporation,
Series 1638-K,
6.500% due 03/15/2023.................. $ 124,391
-----------
Total Fixed Income Securities
(Cost $3,692,057)...................... 3,610,933
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES
------
<C> <S> <C>
WARRANT - 0.0%#
(Cost $3)
250 V2 Music Holdings Plc,
Expires 04/15/2008+, ++................ 3
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
- ---------
<C> <S> <C>
U.S. GOVERNMENT AGENCY DISCOUNT NOTE - 4.2%
(Cost $497,930)
$500,000 Federal Home Loan Bank,
5.520% due 01/28/2000+++............... 497,930
-----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (Cost $10,079,932*)...... 86.3% 10,180,346
OTHER ASSETS AND LIABILITIES (NET)......... 13.7 1,616,335
----- -----------
NET ASSETS................................. 100.0% $11,796,681
===== ===========
</TABLE>
- ---------------------
* Aggregate cost for tax purposes is $10,080,010.
+ Non-income producing security.
++ Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
+++ Rate represents annualized yield at date of purchase (unaudited).
# Amount represents less than 0.1% of net assets.
GLOSSARY OF TERMS
<TABLE>
<S> <C> <C>
ADR -- American Depositary Receipt
</TABLE>
See Notes to Financial Statements.
70
<PAGE> 73
PORTFOLIO of INVESTMENTS
GROWTH & INCOME FUND
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<C> <S> <C>
COMMON STOCKS - 95.9%
COMPUTER SOFTWARE/SERVICES - 11.6%
55,400 Adobe Systems, Inc. ..................... $ 3,725,650
60,000 BMC Software, Inc.+...................... 4,796,250
40,000 Computer Associates International,
Inc. .................................. 2,797,500
45,000 First Data Corporation................... 2,219,063
40,000 Microsoft Corporation+................... 4,670,000
50,000 Oracle Corporation+...................... 5,603,125
----------
23,811,588
----------
BANKS/SAVINGS & LOANS - 8.9%
65,000 Bank of America Corporation.............. 3,262,187
30,000 Chase Manhattan Corporation.............. 2,330,625
77,000 Citigroup, Inc. ......................... 4,278,313
55,000 First Union Corporation.................. 1,804,687
66,200 Mellon Financial Corporation............. 2,254,938
35,000 Prime Bancshares, Inc. .................. 840,000
50,000 U.S. Bancorp............................. 1,190,625
57,000 Wells Fargo & Company.................... 2,304,937
----------
18,266,312
----------
CONSUMER STAPLES - 8.3%
68,000 Avon Products Inc. ...................... 2,244,000
18,000 Campbell Soup Company.................... 696,375
19,000 Gillette Company......................... 782,563
30,000 Kimberly-Clark Corporation............... 1,957,500
250,000 Kroger Company+.......................... 4,718,750
15,000 Libbey, Inc. ............................ 431,250
65,000 PepsiCo, Inc. ........................... 2,291,250
10,000 Proctor & Gamble Company................. 1,095,625
34,800 Ralston-Ralston Purina Group............. 970,050
88,000 Sara Lee Corporation..................... 1,941,500
----------
17,128,863
----------
COMPUTER SYSTEMS - 7.7%
26,000 Cisco Systems, Inc.+..................... 2,785,250
73,500 Compaq Computer Corporation.............. 1,989,094
40,000 EMC Corporation+......................... 4,370,000
30,000 Hewlett-Packard Company.................. 3,418,125
30,000 International Business Machines
Corporation............................ 3,240,000
----------
15,802,469
----------
HEALTH CARE PRODUCTS - 7.2%
33,000 Abbott Laboratories...................... 1,198,313
27,000 ALZA Corporation+........................ 934,875
37,000 American Home Products Corporation....... 1,459,187
25,000 Bristol-Myers Squibb Company............. 1,604,688
25,000 Johnson & Johnson........................ 2,328,125
27,000 Merck & Company, Inc. ................... 1,810,687
185,000 Mylan Laboratories Inc................... 4,659,688
28,500 Pfizer, Inc.............................. 924,469
----------
14,920,032
----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<C> <S> <C>
UTILITIES/TELECOMMUNICATIONS - 6.6%
70,000 AT&T Corporation......................... $ 3,552,500
40,000 Comcast Corporation, Special Class A..... 2,022,500
51,000 MCI Worldcom+............................ 2,706,187
36,000 SBC Communications, Inc. ................ 1,755,000
53,400 Sprint Corporation....................... 3,594,488
----------
13,630,675
----------
OIL & GAS - 6.4%
14,194 BP Amoco Plc, Sponsored ADR.............. 841,882
41,063 Exxon Mobil Corporation.................. 3,308,144
103,000 Halliburton Company...................... 4,145,750
28,100 Royal Dutch Petroleum.................... 1,698,294
66,300 Tosco Corporation........................ 1,802,531
42,000 Unocal Corporation....................... 1,409,625
----------
13,206,226
----------
MEDIA - 5.0%
102,546 AT&T Corporation - Liberty Media Group,
Class A+............................... 5,819,485
20,000 News Corporation Ltd., Sponsored ADR..... 668,750
30,500 Viacom, Inc., Class A+................... 1,843,344
65,000 Walt Disney Company...................... 1,901,250
----------
10,232,829
----------
INSURANCE - 4.5%
50,000 Allstate Corporation..................... 1,200,000
35,000 American International Group, Inc. ...... 3,784,375
75,000 Conseco, Inc. ........................... 1,340,625
39,190 Liberty Financial Companies, Inc. ....... 898,921
22,650 Marsh & McLennan Companies, Inc. ........ 2,167,322
----------
9,391,243
----------
CAPITAL GOODS - 4.3%
21,275 Crane Company............................ 422,841
62,300 Donaldson Company, Inc. ................. 1,499,094
180,000 Tyco International, Ltd.................. 6,997,500
----------
8,919,435
----------
RETAIL SALES - 3.6%
29,000 Dayton Hudson Corporation................ 2,129,687
53,550 Intimate Brands, Inc. ................... 2,309,344
15,787 Limited, Inc. ........................... 683,774
20,625 May Department Stores Company............ 665,156
22,800 Wal-Mart Stores, Inc. ................... 1,576,050
----------
7,364,011
----------
HEALTH CARE SERVICES - 3.5%
37,000 Aetna, Inc. ............................. 2,065,063
25,500 Cardinal Health, Inc. ................... 1,220,812
42,000 IMS Health, Inc. ........................ 1,141,875
53,000 PacifiCare Health Systems, Inc.+......... 2,809,000
----------
7,236,750
----------
</TABLE>
See Notes to Financial Statements.
71
<PAGE> 74
PORTFOLIO of INVESTMENTS (continued)
GROWTH & INCOME FUND
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<C> <S> <C>
COMMON STOCKS - (CONTINUED)
FINANCIAL SERVICES - 3.3%
58,500 Federal Home Loan Mortgage Corporation... $ 2,753,156
20,000 Merrill Lynch & Company, Inc. ........... 1,670,000
13,200 Price (T. Rowe) Associates, Inc. ........ 487,575
20,000 Providian Financial Corporation.......... 1,821,250
----------
6,731,981
----------
AEROSPACE/DEFENSE - 2.9%
46,000 Boeing Company........................... 1,911,875
20,300 Honeywell International Inc. ............ 1,171,056
110,000 Raytheon Company, Class B................ 2,921,875
----------
6,004,806
----------
CONSUMER DURABLES - 2.8%
100,000 Federal-Mogul Corporation................ 2,012,500
4,728 Huttig Building Products, Inc.+.......... 23,343
150,000 Mattel, Inc. ............................ 1,968,750
100,400 Miller Industries, Inc.+................. 288,650
61,000 U.S. Industries, Inc. ................... 854,000
12,700 USG Corporation.......................... 598,487
----------
5,745,730
----------
ELECTRONICS/SEMICONDUCTORS - 2.2%
36,800 General Semiconductor, Inc.+............. 522,100
48,000 Intel Corporation........................ 3,951,000
----------
4,473,100
----------
ELECTRICAL EQUIPMENT - 1.9%
11,500 Emerson Electric Company................. 659,812
21,000 General Electric Company................. 3,249,750
----------
3,909,562
----------
TRANSPORTATION - 1.4%
7,500 Airborne Freight Corporation............. 165,000
42,000 Expeditors International of Washington,
Inc. .................................. 1,840,125
19,000 Union Pacific Corporation................ 828,875
----------
2,834,000
----------
BUSINESS SERVICES - 1.1%
45,000 ACNielson Corporation+................... 1,108,125
40,000 Dun & Bradstreet Corporation............. 1,180,000
----------
2,288,125
----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<C> <S> <C>
BASIC INDUSTRY - 1.0%
120,000 Waste Management, Inc. .................. $ 2,062,500
----------
UTILITIES/GAS & ELECTRIC - 0.9%
42,800 Enron Corporation........................ 1,899,250
----------
LODGING & RESTAURANTS - 0.8%
29,785 Sunburst Hospitality Corporation+........ 167,541
40,000 Tricon Global Restaurants, Inc.+......... 1,545,000
----------
1,712,541
----------
Total Common Stocks
(Cost $164,112,521).................... 197,572,028
----------
CONVERTIBLE PREFERRED STOCK - 0.4%
(Cost $598,500)
9,000 Lehman Brothers Holdings, Series CSCO,
Conv. Pfd.,
5.000% due 02/26/2001.................. 843,750
----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
- ---------
<C> <S> <C>
CONVERTIBLE BOND - 0.3%
(Cost $448,794)
$830,000 At Home Corporation, Sub. Deb.,
0.525% due 12/28/2018++................ 541,575
----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (Cost $165,159,815*).... 96.6.% 198,957,353
OTHER ASSETS AND LIABILITIES (NET)........ 3.4 7,003,073
------ ------------
NET ASSETS................................ 100.0% $205,960,426
====== ============
</TABLE>
- ---------------------
* Aggregate cost for federal tax purposes is $165,160,054.
+ Non-income producing security.
++ Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
GLOSSARY OF TERMS
<TABLE>
<S> <C> <C>
ADR -- American Depositary Receipt
</TABLE>
See Notes to Financial Statements.
72
<PAGE> 75
PORTFOLIO of INVESTMENTS
GROWTH FUND
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
- ------ -----
<C> <S> <C>
COMMON STOCKS - 92.8%
UTILITIES/TELECOMMUNICATIONS - 23.4%
155,755 Comcast Corporation, Special Class A...... $ 7,875,362
74,855 Cox Communications, Inc., Class A+........ 3,855,032
66,300 Level 3 Communications, Inc.+............. 5,428,312
14,780 NEXTLINK Communications, Inc.+............ 1,524,188
213,600 Nokia Corporation, Class A, Sponsored
ADR..................................... 40,584,000
20,486 Nokia Oyj................................. 3,714,215
32,772 NTL, Inc.+................................ 4,088,307
36,560 Sprint Corporation, PCS Group+............ 3,747,400
142,696 Telefonica S.A............................ 3,564,518
3,200 Telefonica S.A., Sponsored ADR............ 252,200
31,215 Telefonos de Mexico S.A., Class L,
Sponsored ADR........................... 3,511,687
37,130 VoiceStream Wireless Corporation+......... 5,284,063
41,925 WinStar Communications, Inc.+............. 3,154,856
-----------
86,584,140
-----------
COMPUTER SOFTWARE/SERVICES - 21.4%
169,195 Amazon.com, Inc.+......................... 12,879,969
45,430 America Online, Inc.+..................... 3,427,126
15,520 DoubleClick, Inc.+........................ 3,927,530
15,615 eBay, Inc.+............................... 1,954,803
97,680 Electronic Arts Inc.+..................... 8,205,120
68,205 Exodus Communications, Inc.+.............. 6,057,457
47,405 i2 Technologies, Inc.+.................... 9,243,975
2,275 InfoSpace.com, Inc.+...................... 486,850
18,650 Inktomi Corporation+...................... 1,655,187
8,780 Internet Capital Group, Inc.+............. 1,492,600
57,760 Microsoft Corporation+.................... 6,743,480
35,150 Phone.com Inc.+........................... 4,075,203
17,270 Software.com, Inc.+....................... 1,657,920
111,060 USWeb Corporation+........................ 4,935,229
32,350 VeriSign, Inc.+........................... 6,176,828
30,305 VERITAS Software Corporation+............. 4,337,403
11,530 Vignette Corporation+..................... 1,879,390
-----------
79,136,070
-----------
MEDIA - 13.5%
359,035 AT&T Corporation-Liberty Media Group,
Class A+................................ 20,375,236
50,870 Cablevision Systems Corporation, Class
A+...................................... 3,840,685
11,080 EchoStar Communications Corporation,
Class A+................................ 1,080,300
84,929 Infinity Broadcasting Corporation, Class
A+...................................... 3,073,359
23,022 Lamar Advertising Company+................ 1,394,270
11,040 Liberty Digital, Inc., Class A+........... 819,720
146,070 Time Warner, Inc.......................... 10,580,946
31,755 TMP Worldwide Inc.+....................... 4,509,210
63,785 UnitedGlobalCom Inc., Class A+............ 4,504,816
-----------
50,178,542
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
- ------ -----
<C> <S> <C>
ELECTRONICS/SEMICONDUCTORS - 7.3%
12,375 Broadcom Corporation, Class A+............ $ 3,370,641
71,450 Conexant Systems, Inc.+................... 4,742,494
31,810 JDS Uniphase Corporation+................. 5,131,351
29,620 Maxim Integrated Products, Inc.+.......... 1,397,694
14,200 Sony Corporation.......................... 4,211,217
53,930 Texas Instruments, Inc. .................. 5,224,469
58,445 Vitesse Semiconductor Corporation+........ 3,064,710
-----------
27,142,576
-----------
COMPUTER SYSTEMS - 6.5%
44,570 ASM Lithography Holding NV+............... 5,069,837
99,390 Cisco Systems, Inc.+...................... 10,647,154
77,545 EMC Corporation+.......................... 8,471,791
-----------
24,188,782
-----------
HEALTH CARE PRODUCTS - 5.4%
176,215 Medtronic, Inc............................ 6,420,834
37,615 MiniMed, Inc.+............................ 2,755,299
26,730 Pfizer, Inc............................... 867,054
231,725 Schering-Plough Corporation............... 9,775,898
-----------
19,819,085
-----------
CAPITAL GOODS - 4.0%
53,520 Applied Materials, Inc.+.................. 6,780,315
32,432 Mannesmann AG............................. 7,905,447
-----------
14,685,762
-----------
OIL & GAS - 3.1%
259,235 Enron Corporation......................... 11,503,553
-----------
BUSINESS SERVICES - 2.4%
51,895 Sapient Corporation+...................... 7,313,952
27,280 Whittman-Hart, Inc.+...................... 1,462,890
-----------
8,776,842
-----------
FINANCIAL SERVICES - 2.0%
31,380 American Express Company.................. 5,216,925
87,990 E*TRADE Group, Inc.+...................... 2,298,739
-----------
7,515,664
-----------
TECHNOLOGY - 1.5%
31,825 PE Biosystems Group....................... 3,828,945
36,560 Pittway Corporation, Class A.............. 1,638,345
-----------
5,467,290
-----------
BANKS/SAVINGS & LOANS - 1.3%
41,440 Fifth Third Bancorp....................... 3,040,660
88,879 Firstar Corporation....................... 1,877,569
-----------
4,918,229
-----------
RETAIL SALES - 1.0%
315,950 Rite Aid Corporation...................... 3,534,691
-----------
Total Common Stocks (Cost $209,012,918)... 343,451,226
-----------
</TABLE>
See Notes to Financial Statements.
73
<PAGE> 76
PORTFOLIO of INVESTMENTS (continued)
GROWTH FUND
DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------- -----
<C> <S> <C>
(Cost $16,895,775)
$16,900,000 Household Finance Corporation,
4.500% due 01/03/2000++............... $16,895,775
----------
CORPORATE NOTE - 0.3%
(Cost $1,080,726)
1,616,000 Amazon.com, Inc., Step coupon,
Sr. Disc. Note, Zero coupon to
05/01/2003;
10.000% due 05/01/2008................ 1,034,240
----------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
TOTAL INVESTMENTS (Cost $226,989,419*)..... 97.7% 361,381,241
OTHER ASSETS AND LIABILITIES (NET)......... 2.3 8,570,713
----- ------------
NET ASSETS................................. 100.0% $369,951,954
===== ============
</TABLE>
- ---------------------
* Aggregate cost for federal tax purposes is $227,702,099.
+ Non-income producing security.
++ Rate represents annualized yield at date of purchase (unaudited).
SCHEDULE OF FORWARD FOREIGN CURRENCY CONTRACTS
U.S. FORWARD FOREIGN CURRENCY CONTRACTS TO BUY
<TABLE>
<CAPTION>
CONTRACTS TO RECEIVE NET
---------------------------------------- UNREALIZED
EXPIRATION LOCAL VALUE IN IN EXCHANGE DEPRECIATION
DATE CURRENCY U.S. $ FOR U.S. $ OF CONTRACTS
- ---------- -------------- ---------- ----------- --------------
<S> <C> <C> <C> <C> <C>
04/07/2000 EMU 2,800,000 2,840,793 2,966,936 $ (126,143)
----------
</TABLE>
U.S. FORWARD FOREIGN CURRENCY CONTRACTS TO SELL
<TABLE>
<CAPTION>
NET
CONTRACTS TO DELIVER UNREALIZED
----------------------------------------- APPRECIATION/
EXPIRATION LOCAL VALUE IN IN EXCHANGE (DEPRECIATION)
DATE CURRENCY U.S. $ FOR U.S. $ OF CONTRACTS
- ---------- ---------------- --------- ----------- --------------
<S> <C> <C> <C> <C> <C>
01/04/2000 EMU 289,818 291,969 291,289 $ (680)
04/07/2000 EMU 14,250,000 14,457,607 15,202,443 744,836
04/14/2000 EMU 3,750,000 3,806,516 3,819,367 12,851
06/09/2000 EMU 13,000,000 13,248,132 13,559,940 311,808
---------
$1,068,815
---------
Net Unrealized Appreciation of Forward Foreign
Currency Contracts.................................. $ 942,672
=========
</TABLE>
GLOSSARY OF TERMS
<TABLE>
<S> <C> <C>
ADR -- American Depositary Receipt
EMU -- European Monetary Unit
</TABLE>
See Notes to Financial Statements.
74
<PAGE> 77
PORTFOLIO of INVESTMENTS
NORTHWEST FUND
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
- ------ -----
<C> <S> <C>
COMMON STOCKS - 90.9%
COMPUTER SOFTWARE/SERVICES - 11.7%
3,370 Adobe Systems, Inc. ......................... $ 226,633
28,425 ARIS Corporation+............................ 333,994
800 BSQUARE Corporation+......................... 33,550
650 Check Point Software Technologies, Ltd.+..... 129,187
4,585 Click2Learn.com, Inc.+....................... 51,008
36,185 Mentor Graphics Corporation+................. 477,190
6,510 Microsoft Corporation+....................... 760,042
8,045 Visio Corporation+........................... 382,137
---------
2,393,741
---------
HEALTH CARE PRODUCTS - 10.1%
24,955 Corixa Corporation+.......................... 424,235
12,455 ICOS Corporation+............................ 364,309
4,210 Immunex Corporation+......................... 460,995
31,000 NeoRx Corporation+........................... 125,937
21,925 SonoSite, Inc.+.............................. 693,378
---------
2,068,854
---------
ELECTRICAL EQUIPMENT - 9.3%
4,700 Electro Scientific Industries, Inc.+......... 343,100
41,090 FEI Company+................................. 636,895
18,510 Flir Systems, Inc.+.......................... 300,788
12,690 Microvision, Inc.+........................... 383,873
6,080 Tektronix, Inc............................... 236,360
---------
1,901,016
---------
COMPUTER SYSTEMS - 8.4%
15,705 Apex Inc.+................................... 506,486
21,305 In Focus Systems, Inc.+...................... 494,010
14,090 RadiSys Corporation+......................... 718,590
---------
1,719,086
---------
CONSUMER CYCLICALS - 7.4%
35,885 Building Materials Holding Corporation+...... 367,821
6,749 Columbia Sportswear Company+................. 145,103
15,695 Cutter & Buck, Inc.+......................... 237,387
36,326 K2, Inc. .................................... 276,986
27,500 Louisiana-Pacific Corporation................ 391,875
1,725 Nike, Inc., Class B.......................... 85,495
---------
1,504,667
---------
ELECTRONICS/SEMICONDUCTORS - 6.8%
5,105 Credence Systems Corporation+................ 441,582
2,015 Intel Corporation............................ 165,860
10,240 Lattice Semiconductor Corporation+........... 482,560
3,060 Micron Technology, Inc.+..................... 237,915
460 TriQuint Semiconductor, Inc.+................ 51,175
---------
1,379,092
---------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
- ------ -----
<C> <S> <C>
BANKS/SAVINGS & LOANS - 4.3%
5,350 Bank of America Corporation.................. $ 268,503
6,425 First Washington Bancorp, Inc. .............. 94,769
3,775 Interwest Bancorp, Inc. ..................... 72,669
4,720 Sterling Financial Corporation+.............. 54,280
9,175 U.S. Bancorp................................. 218,480
7,662 Washington Federal, Inc. .................... 151,324
600 Wells Fargo & Company........................ 24,263
---------
884,288
---------
BASIC INDUSTRY - 4.1%
1,175 Boise Cascade Corporation.................... 47,587
9,150 Oregon Steel Mills, Inc. .................... 72,628
15,610 Schnitzer Steel Industries, Inc., Class A.... 296,590
3,035 Weyerhaeuser Company......................... 217,951
4,555 Willamette Industries, Inc. ................. 211,523
---------
846,279
---------
HEALTH CARE SERVICES - 3.9%
41,080 Foundation Health Systems, Inc., Class A+.... 408,233
7,530 PacifiCare Health Systems, Inc., Class B+.... 399,090
---------
807,323
---------
TRANSPORTATION - 3.8%
7,330 Airborne Freight Corporation................. 161,260
5,460 Alaska Air Group, Inc.+...................... 191,783
9,605 Expeditors International of Washington,
Inc. ...................................... 420,819
---------
773,862
---------
CONSUMER STAPLES - 3.5%
9,190 Albertson's, Inc. ........................... 296,378
21,941 Kroger Company+.............................. 414,136
---------
710,514
---------
UTILITIES/TELECOMMUNICATIONS - 3.3%
7,500 AVT Corporation+............................. 352,500
7,315 General Communication, Inc., Class A+........ 32,003
4,135 GST Telecommunications, Inc.+................ 37,473
19,120 Metro One Telecommunications, Inc.+.......... 248,560
---------
670,536
---------
RETAIL SALES - 2.9%
3,510 Costco Wholesale Corporation+................ 320,287
11,100 Hollywood Entertainment Corporation+......... 160,950
4,195 Nordstrom, Inc. ............................. 109,857
---------
591,094
---------
AEROSPACE/DEFENSE - 2.4%
7,540 Boeing Company............................... 313,381
6,700 Precision Castparts Corporation.............. 175,875
---------
489,256
---------
LODGING & RESTAURANTS - 2.3%
39,360 Cavanaugh's Hospitality Corporation+......... 324,720
6,345 Starbucks Corporation+....................... 153,866
---------
478,586
---------
</TABLE>
See Notes to Financial Statements.
75
<PAGE> 78
PORTFOLIO of INVESTMENTS (continued)
NORTHWEST FUND
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
- ------ -----
<C> <S> <C>
COMMON STOCKS - (CONTINUED)
CONSUMER DURABLES - 2.1%
16,675 Monaco Coach Corporation+.................... $ 426,255
---------
CAPITAL GOODS - 2.0%
17,770 Greenbrier Companies, Inc. .................. 153,266
5,545 PACCAR, Inc. ................................ 245,713
---------
398,979
---------
REAL ESTATE INVESTMENT TRUSTS - 1.4%
9,255 Pacific Gulf Properties, Inc. ............... 187,414
4,220 Shurgard Storage Centers, Inc., Class A...... 97,851
---------
285,265
---------
INSURANCE - 1.2%
3,470 SAFECO Corporation........................... 86,316
6,500 StanCorp Financial Group, Inc. .............. 163,719
---------
250,035
---------
Total Common Stocks (Cost $15,159,813)....... 18,578,728
---------
</TABLE>
<TABLE>
<CAPTION>
VALUE
-----
<S> <C> <C>
TOTAL INVESTMENTS (Cost $15,159,813*)...... 90.9% $18,578,728
OTHER ASSETS AND LIABILITIES (NET)......... 9.1 1,850,467
------ -----------
NET ASSETS................................. 100.0% $20,429,195
====== ===========
</TABLE>
- ---------------------
* Aggregate cost for federal tax purposes is $15,262,726.
+ Non-income producing security.
See Notes to Financial Statements.
76
<PAGE> 79
PORTFOLIO of INVESTMENTS
EMERGING GROWTH FUND
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
- ------ -----
<C> <S> <C>
COMMON STOCK - 98.5%
COMPUTER SOFTWARE/SERVICES - 26.7%
124,550 ARIS Corporation+.......................... $ 1,463,462
28,200 AVT Corporation+........................... 1,325,400
2,200 BSQUARE Corporation+....................... 92,263
124,553 Carreker-Antinori, Inc.+................... 1,128,762
5,200 Check Point Software Technologies, Ltd.+... 1,033,500
135,112 Click2Learn.com, Inc.+..................... 1,503,121
57,511 Harbinger Corporation+..................... 1,829,569
12,600 HNC Software Inc.+......................... 1,332,450
104,948 Made2Manage Systems, Inc.+................. 839,584
43,200 Onyx Software Corporation++................ 1,598,400
26,200 Primus Knowledge Solutions Inc.+........... 1,187,187
28,450 Sterling Commerce, Inc.+................... 969,078
----------
14,302,776
----------
HEALTH CARE PRODUCTS - 18.4%
54,200 ChiRex Inc.+............................... 792,675
65,350 Corixa Corporation+........................ 1,110,950
34,200 Emisphere Technologies Inc.+............... 1,028,138
26,680 ICOS Corporation+.......................... 780,390
38,600 Incyte Pharmaceuticals, Inc.+.............. 2,316,000
74,575 NeoRx Corporation+......................... 302,961
22,450 Pharmacyclics, Inc.+....................... 926,063
45,637 Shire Pharmaceuticals Group, ADR+.......... 1,329,178
39,909 SonoSite, Inc.+............................ 1,262,122
----------
9,848,477
----------
BUSINESS SERVICES - 8.6%
22,200 Cognizant Technology Solutions
Corporation+............................. 2,426,738
92,677 First Consulting Group, Inc.+.............. 1,436,494
86,500 ZapMe! Corporation+........................ 746,062
----------
4,609,294
----------
COMPUTER SYSTEMS - 8.1%
38,000 Apex Inc.+................................. 1,225,500
24,882 In Focus Systems, Inc.+.................... 576,951
12,900 MMC Networks, Inc.+........................ 443,437
22,400 NVIDIA Corporation+........................ 1,051,400
20,801 RadiSys Corporation+....................... 1,060,851
----------
4,358,139
----------
UTILITIES/TELECOMMUNICATIONS - 6.6%
18,100 Gilat Satellite Networks, Ltd.+............ 2,149,375
35,400 Latitude Communications, Inc.+............. 924,825
7,709 Teligent, Inc.+............................ 476,031
----------
3,550,231
----------
ELECTRICAL EQUIPMENT - 5.8%
9,315 Electro Scientific Industries, Inc.+....... 679,995
85,020 FEI Company+............................... 1,317,810
37,565 Microvision, Inc.+......................... 1,136,341
----------
3,134,146
----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
- ------ -----
<C> <S> <C>
CONSUMER CYCLICALS - 5.6%
57,169 Building Materials Holding Corporation+.... $ 585,982
50,600 Cutter & Buck, Inc.+....................... 765,325
175,600 J. Jill Group Inc.+........................ 724,350
51,635 K2, Inc.................................... 393,717
19,151 Nortek, Inc.+.............................. 536,228
----------
3,005,602
----------
ELECTRONICS/SEMICONDUCTORS - 5.5%
19,205 ATMI, Inc.+................................ 634,965
11,620 Credence Systems Corporation+.............. 1,005,130
20,850 Lattice Semiconductor Corporation+......... 982,556
2,860 TriQuint Semiconductor, Inc.+.............. 318,175
----------
2,940,826
----------
FINANCIAL SERVICES - 3.6%
58,308 American Capital Strategies, Ltd........... 1,326,507
21,045 Heller Financial Inc....................... 422,215
7,487 Profit Recovery Group International,
Inc.+.................................... 198,873
----------
1,947,595
----------
TRANSPORTATION - 3.0%
23,656 Airborne Freight Corporation............... 520,432
25,214 Expeditors International of Washington,
Inc...................................... 1,104,688
----------
1,625,120
----------
OIL & GAS - 1.4%
19,664 Hanover Compressor Company+................ 742,316
----------
LODGING & RESTAURANTS - 1.3%
85,951 Cavanaugh's Hospitality Corporation+....... 709,096
----------
CONSUMER STAPLES - 1.3%
17,200 Beringer Wine Estates Holding, Inc., Class
B+....................................... 685,850
----------
MEDIA - 1.2%
45,750 Bowne & Company, Inc....................... 617,625
----------
CONSUMER DURABLES - 1.1%
23,450 Monaco Coach Corporation+.................. 599,441
----------
BASIC INDUSTRY - 0.3%
8,300 Schnitzer Steel Industries, Inc. .......... 157,700
----------
Total Common Stocks (Cost $32,773,339)..... 52,834,234
----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (Cost $32,773,339*)..... 98.5% 52,834,234
OTHER ASSETS AND LIABILITIES (NET)........ 1.5 781,390
------ -----------
NET ASSETS................................ 100.0% $53,615,624
====== ===========
</TABLE>
- ---------------------
* Aggregate cost for federal tax purposes is $32,788,516.
+ Non-income producing security.
GLOSSARY OF TERMS
<TABLE>
<S> <C> <C>
ADR -- American Depositary Receipt
</TABLE>
See Notes to Financial Statements.
77
<PAGE> 80
PORTFOLIO of INVESTMENTS
INTERNATIONAL GROWTH FUND
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<C> <S> <C>
COMMON STOCKS - 95.7%
JAPAN - 31.5%
7,100 Advantest Corporation................... $ 1,876,285
1,050 Aiful Corporation....................... 128,462
18,000 Asahi Breweries Ltd. ................... 196,966
25 DDI Corporation......................... 342,566
4,000 Fanuc Ltd. ............................. 509,347
14,000 Fujitsu Ltd. ........................... 638,544
47,000 Hitachi Ltd. ........................... 754,429
17,000 Jusco Company Ltd. ..................... 296,340
8,000 Kao Corporation......................... 228,247
2,000 Keyence Corporation..................... 812,372
74,000 Mitsubishi Heavy Industries Ltd. ....... 246,981
66,000 Mitsubishi Motors Corporation........... 225,448
36,000 Mitsui Chemicals Inc. .................. 289,987
52,000 Mitsui Marine and Fire Insurance Company
Ltd................................... 308,427
9,000 Murata Manufacturing Company Ltd. ...... 2,114,124
57,000 NEC Corporation......................... 1,358,471
2,700 Nichiei Company Ltd. ................... 58,667
2,200 NIDEC Corporation....................... 635,216
39,000 Nikon Corporation....................... 1,145,150
3,600 Nintendo Company Ltd. .................. 598,297
38 Nippon Telegraph & Telephone
Corporation........................... 650,876
66,000 Nissan Motor Company Ltd.+.............. 259,685
20,000 Nomura Securities Company Ltd. ......... 361,163
71 NTT Mobile Communications Network,
Inc. ................................. 2,731,036
1,500 Orix Corporation........................ 337,966
3,600 Rohm Company Ltd. ...................... 1,479,887
72,000 Sakura Bank Ltd. ....................... 417,187
11,000 Sankyo Company Ltd. .................... 226,094
3,000 Sekisui House Ltd. ..................... 26,573
4,000 Shin-Etsu Chemical Company, Ltd. ....... 172,262
700 Shohkoh Fund & Company, Ltd. ........... 277,136
13,222 Sony Corporation........................ 3,921,028
23,000 Suzuki Motor Corporation................ 335,646
1,000 Taiyo Yuden Company, Ltd. .............. 59,313
8,000 Takeda Chemical Industries Ltd. ........ 395,419
18,000 Tokyo Electron Ltd. .................... 2,466,478
41,000 Toray Industries Inc. .................. 158,912
38,000 Toshiba Corporation..................... 290,105
-----------
27,331,092
-----------
UNITED KINGDOM - 11.2%
14,700 3i Group Plc............................ 262,381
34,300 AstraZeneca Group Plc................... 1,422,795
3,600 AstraZeneca Group Plc, ADR.............. 150,300
48,000 BG Plc.................................. 310,138
13,000 Cable & Wireless Plc.................... 220,278
70,000 Cadbury Schweppes Plc................... 422,886
49,300 Coca-Cola Beverages Plc+................ 94,765
16,000 COLT Telecom Group Plc+................. 819,022
195,000 Corus Group Plc......................... 507,123
66,000 Enterprise Oil Plc...................... 443,497
24,800 GKN Plc................................. 390,580
19,000 Halifax Group Plc....................... 210,692
145,700 Invensys Plc............................ 793,127
33,000 Kingfisher Plc.......................... 366,205
7,100 Laporte Plc............................. 62,504
50,313 Lloyds TSB Group Plc.................... 629,441
66,500 Reuters Group Plc....................... 912,511
47,500 Royal & Sun Alliance Insurance Group
Plc................................... 361,767
49,300 Shell Transport & Trading Company Plc... 409,718
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<C> <S> <C>
32,500 Tate & Lyle Plc......................... $ 213,139
63,000 TI Group Plc............................ 468,114
47,000 Vodafone AirTouch Plc................... 232,882
-----------
9,703,865
-----------
GERMANY - 10.0%
14,300 Bayerische Motoren Werke (BMW) AG....... 436,432
4,000 DaimlerChrysler AG...................... 311,039
5,600 Degussa-Huels AG+....................... 235,213
4,400 Deutsche Bank AG........................ 371,615
12,400 Deutsche Telekom AG..................... 883,036
2,700 Epcos AG+............................... 202,608
5,400 Henkel KGaA-VORZUG...................... 356,264
15,715 Mannesmann AG........................... 3,830,603
3,800 Preussag AG............................. 211,664
10,700 Siemens AG.............................. 1,361,208
16,000 Thyssen Krupp AG+....................... 487,509
-----------
8,687,191
-----------
NETHERLANDS - 6.8%
16,148 ABN - Amro Holding NV................... 403,374
12,669 Aegon NV................................ 1,223,766
7,000 ASM Lithography Holding NV+............. 796,250
3,000 ASM Lithography Holding NV (F)+......... 333,299
11,229 DSM NV.................................. 450,154
4,000 Heineken Holding NV, Class A............ 140,814
10,300 Heineken NV............................. 502,342
4,400 ING Groep NV............................ 265,648
9,000 STMicroelectronics NV................... 1,362,938
1,000 STMicroelectronics, NV (F).............. 153,908
4,000 Unilever NV............................. 220,950
-----------
5,853,443
-----------
FINLAND - 4.5%
16,700 Nokia Oyj............................... 3,027,794
21,700 UPM-Kymmene Oyj......................... 874,293
-----------
3,902,087
-----------
CANADA - 4.5%
18,000 Bank of Nova Scotia..................... 387,184
23,000 Bombardier Inc., Class B................ 472,428
13,000 Clarica Life Insurance Company+......... 234,153
11,000 Inco Ltd.+.............................. 257,187
13,000 Newbridge Networks Corporation+......... 293,312
11,400 Nortel Networks Corporation............. 1,151,846
7,600 Rogers Communications Inc.+............. 185,854
9,500 Teleglobe Inc. ......................... 216,522
6,000 Teleglobe Inc. (F)...................... 136,125
20,000 Thomson Corporation..................... 526,498
-----------
3,861,109
-----------
SWITZERLAND - 4.1%
234 Adecco SA............................... 182,227
200 Compagnie Financiere Richemont AG,
Units................................. 477,296
430 Holderbank Financiere Glarus AG......... 588,708
165 Nestle SA............................... 302,270
395 Norvatis AG............................. 579,985
16 Roche Holding AG........................ 189,914
59 Schweizerische Rueckversicherungs-
Gesellschaft.......................... 121,201
1,901 Swisscom AG............................. 768,853
1,290 UBS AG.................................. 348,364
-----------
3,558,818
-----------
</TABLE>
See Notes to Financial Statements.
78
<PAGE> 81
PORTFOLIO of INVESTMENTS (continued)
INTERNATIONAL GROWTH FUND
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<C> <S> <C>
COMMON STOCKS - (CONTINUED)
FRANCE - 4.0%
6,300 Bic SA.................................. $ 286,698
1,200 Bouygues SA+............................ 762,690
800 Christian Dior SA....................... 198,227
2,500 Compagnie de Saint Gobain............... 470,134
1,550 Groupe Danone SA........................ 365,330
200 LVMH (Louis Vuitton Moet Hennessy)...... 89,585
2,000 PSA Peugeot Citroen..................... 454,068
14,500 Sanofi-Synthelabo SA+................... 603,776
2,000 Total Fina SA........................... 266,921
-----------
3,497,429
-----------
AUSTRALIA - 3.3%
52,000 Australia & New Zealand Banking Group
Ltd................................... 378,283
62,957 Broken Hill Proprietary Company Ltd. ... 826,667
1,600 Broken Hill Proprietary Company Ltd.,
Sponsored ADR......................... 42,500
62,101 Coles Myer Ltd. ........................ 320,773
85,000 Fosters Brewing Group Ltd. ............. 243,857
31,000 Lend Lease Corporation Ltd. ............ 434,301
102,200 Santos Ltd. ............................ 278,441
54,500 Westpac Banking Corporation Ltd. ....... 375,933
-----------
2,900,755
-----------
TAIWAN - 2.2%
23,500 Asustek Computer Inc., GDR.............. 327,237
7,300 Hon Hai Precision Industry Company,
Ltd., GDR*+++......................... 141,072
30,905 Taiwan Semiconductor Manufacturing
Company Ltd., Sponsored ADR+.......... 1,390,725
-----------
1,859,034
-----------
MEXICO - 1.8%
20,500 Cifra SA de CV, ADR+.................... 415,125
10,400 Telefonos de Mexico SA, Sponsored ADR... 1,170,000
-----------
1,585,125
-----------
SOUTH KOREA - 1.8%
17,690 Hyundai Motor Company Ltd., GDR+........ 191,494
9,700 Pohang Iron & Steel Company Ltd.,
Sponsored ADR......................... 339,500
1,875 Samsung Electronics..................... 439,234
4,500 Samsung Electronics, Sponsored GDR...... 548,437
-----------
1,518,665
-----------
HONG KONG - 1.8%
425,000 Amoy Properties Ltd..................... 358,108
86,000 Cable & Wireless HKT Ltd................ 248,370
50,000 Hutchison Whampoa Ltd................... 726,828
27,500 Johnson Electric Holdings Ltd........... 176,529
-----------
1,509,835
-----------
ITALY - 1.6%
14,000 Assicurazioni Generali.................. 462,529
84,500 ENI Spa................................. 464,715
7,800 Fiat Spa+............................... 222,733
48,000 UniCredito Italiano Spa................. 235,938
-----------
1,385,915
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<C> <S> <C>
SINGAPORE - 1.5%
27,000 DBS Group Holdings Ltd.................. $ 442,570
20,000 Singapore Press Holdings Ltd. .......... 433,503
268,000 Singapore Technologies Engineering
Ltd. ................................. 415,155
-----------
1,291,228
-----------
SPAIN - 1.4%
7,500 Banco Bilbao Vizcaya SA................. 106,819
42,780 Telefonica SA+.......................... 1,068,636
-----------
1,175,455
-----------
SWEDEN - 1.3%
7,800 Ericsson LM, B Shares................... 501,481
22,000 ForeningsSparbanken AB.................. 323,225
22,200 Svenska Handelsbanken AB, A Shares...... 279,196
-----------
1,103,902
-----------
SOUTH AFRICA - 0.6%
8,400 De Beers Consolidated Mines, ADR........ 243,075
29,000 South African Breweries Ltd............. 294,947
-----------
538,022
-----------
PORTUGAL - 0.6%
16,800 Portugal Telecom, SA.................... 184,278
20,000 Telecel-Comunicacoes Pessoais, SA....... 348,710
-----------
532,988
-----------
IRELAND - 0.4%
4,200 Allied Irish Banks Plc.................. 52,246
14,000 CRH Plc................................. 301,772
5,200 Eircom Plc.............................. 22,260
-----------
376,278
-----------
NORWAY - 0.4%
8,000 Norsk Hydro ASA......................... 334,352
-----------
BRAZIL - 0.2%
14,000 Companhia Cervejaria Brahma, Sponsored
ADR................................... 196,000
-----------
TURKEY - 0.2%
6,000,000 Yapi ve Kredi Bankasi AS (F)............ 185,288
-----------
Total Common Stocks (Cost
$59,308,746).......................... 82,887,876
-----------
PREFERRED STOCK - 0.1%
(Cost $115,358)
ITALY - 0.1%
6,790 Fiat Spa................................ 98,143
-----------
CONVERTIBLE PREFERRED STOCK - 0.4%
(Cost $272,856)
JAPAN - 0.4%
30,000,000 Sanwa International Financial Bermuda
Trust, Conv. Pfd.,
1.250% due 08/01/2005 (F)............. 323,344
-----------
</TABLE>
See Notes to Financial Statements.
79
<PAGE> 82
PORTFOLIO of INVESTMENTS (continued)
INTERNATIONAL GROWTH FUND
DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------- -----
<C> <S> <C>
CORPORATE BONDS - 0.0%#
UNITED KINGDOM - 0.0%#
BG Transco Holdings, Plc, Bond:
$ 6,912 7.057% due 12/14/2009++................. $ 11,196
6,912 4.188% due 12/14/2022++................. 11,061
6,912 7.000% due 12/16/2024................... 10,809
-----------
Total Corporate Bonds (Cost $33,613).... 33,066
-----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (Cost $59,730,573*)....... 96.2% 83,342,429
OTHER ASSETS AND LIABILITIES (NET).......... 3.8 3,290,057
----- -----------
NET ASSETS.................................. 100.0% $86,632,486
===== ===========
</TABLE>
- ---------------------
* Aggregate cost for federal tax purposes is $59,730,713.
+ Non-income producing security.
++ Variable rate security. The interest rate shown reflects the rate currently
in effect (unaudited).
+++ Security exempt from registration under Rule 144A of the Securities Act of
1933, these securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
# Amount represents less than 0.1% of net assets.
As of December 31, 1999 sector diversification was as follows:
<TABLE>
<CAPTION>
% OF
SECTOR DIVERSIFICATION NET ASSETS VALUE
---------------------- ---------- -----
<S> <C> <C>
COMMON STOCKS:
Technology............................. 22.0% $19,054,474
Telecommunications..................... 17.5 15,203,738
Financial Services..................... 12.3 10,670,472
Producer Durables...................... 10.8 9,326,090
Materials & Processing................. 7.5 6,454,989
Health Care............................ 4.1 3,568,283
Consumer Staples....................... 3.9 3,364,707
Retail................................. 3.9 3,340,117
Autos & Transportation................. 3.0 2,635,631
Energy................................. 2.6 2,240,861
Other.................................. 8.1 7,028,514
----- -----------
TOTAL COMMON STOCKS.................... 95.7 82,887,876
PREFERRED STOCK........................ 0.1 98,143
CONVERTIBLE PREFERRED STOCK............ 0.4 323,344
CORPORATE BONDS........................ 0.0# 33,066
----- -----------
TOTAL INVESTMENTS...................... 96.2 83,342,429
OTHER ASSETS AND LIABILITIES (NET)..... 3.8 3,290,057
----- -----------
NET ASSETS............................. 100.0% $86,632,486
===== ===========
</TABLE>
- ---------------------
# Amount represents less than 0.1% of net assets.
SCHEDULE OF FORWARD FOREIGN CURRENCY CONTRACTS
U.S. FORWARD FOREIGN CURRENCY CONTRACTS TO BUY
<TABLE>
<CAPTION>
NET
CONTRACTS TO RECEIVE UNREALIZED
--------------------------------------- APPRECIATION/
EXPIRATION LOCAL VALUE IN IN EXCHANGE (DEPRECIATION)
DATE CURRENCY U.S. $ FOR U.S. $ OF CONTRACTS
- ---------- -------------- --------- ----------- --------------
<S> <C> <C> <C> <C> <C>
01/19/2000 EMU 316,002 318,754 323,065 $ (4,311)
01/20/2000 EMU 1,069,018 1,078,418 1,142,525 (64,107)
01/28/2000 EMU 359,837 363,248 386,853 (23,605)
02/04/2000 EMU 58,547 59,133 61,998 (2,865)
02/28/2000 EMU 376,729 381,155 384,665 (3,510)
03/07/2000 EMU 148,700 150,533 149,635 898
03/23/2000 EMU 234,176 237,335 248,543 (11,208)
05/26/2000 EMU 387,196 394,198 388,659 5,539
---------
$(103,169)
=========
</TABLE>
U.S. FORWARD FOREIGN CURRENCY CONTRACTS TO SELL
<TABLE>
<CAPTION>
NET
CONTRACTS TO DELIVER UNREALIZED
----------------------------------------- APPRECIATION/
EXPIRATION LOCAL VALUE IN IN EXCHANGE (DEPRECIATION)
DATE CURRENCY U.S. $ FOR U.S. $ OF CONTRACTS
- ---------- ---------------- --------- ----------- --------------
<S> <C> <C> <C> <C> <C>
01/19/2000 AUD 494,353 324,645 323,065 $ (1,580)
01/20/2000 JPY 122,591,400 1,203,898 1,142,525 (61,373)
01/28/2000 CAD 235,824 163,480 159,675 (3,805)
01/28/2000 GBP 136,582 220,639 227,178 6,539
02/04/2000 GBP 37,687 60,880 61,998 1,118
02/28/2000 JPY 117,264,780 1,159,016 1,100,666 (58,350)
03/07/2000 CAD 221,295 153,554 149,635 (3,919)
03/23/2000 CAD 365,856 253,961 248,543 (5,418)
05/26/2000 JPY 40,644,000 407,568 388,659 (18,909)
---------
$(145,697)
---------
Net Unrealized Depreciation of Forward Foreign
Currency Contracts.................................. $(248,866)
=========
</TABLE>
GLOSSARY OF TERMS
<TABLE>
<S> <C> <C>
ADR -- American Depositary Receipt
AUD -- Australian Dollar
CAD -- Canadian Dollar
EMU -- European Monetary Unit
(F) -- Foreign Shares
GBP -- Great Britain Pound Sterling
GBR -- Global Depositary Receipt
JPY -- Japanese Yen
</TABLE>
See Notes to Financial Statements.
80
<PAGE> 83
PORTFOLIO of INVESTMENTS
STRATEGIC GROWTH PORTFOLIO
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<C> <S> <C>
INVESTMENT COMPANY SECURITIES - 97.7%
81,398 WM VT Emerging Growth Fund.............. $ 1,557,147
347,358 WM VT Growth Fund....................... 13,387,175
511,381 WM VT Growth & Income Fund.............. 9,501,454
144,040 WM High Yield Fund...................... 1,307,883
201,257 WM VT International Growth Fund......... 3,548,162
1,594,027 WM VT Money Market Fund................. 1,594,027
250,258 WM VT Northwest Fund.................... 3,791,404
------------
Total Investment Company Securities
(Cost $27,703,855).................... 34,687,252
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
- ---------
<C> <S> <C>
REPURCHASE AGREEMENT - 2.1%
(Cost $728,000)
$728,000 Agreement with Boston Safe Deposit &
Trust Company, 3.500% dated 12/31/1999,
to be repurchased at $728,212 on
01/03/2000, collateralized by $829,608
Federal Home Loan Mortgage Corporation,
6.000% 01/01/2019 (Market Value
$772,314).............................. 728,000
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (Cost $28,431,855*)...... 99.8% 35,415,252
OTHER ASSETS AND LIABILITIES (NET)......... 0.2 84,494
----- ------------
NET ASSETS................................. 100.0% $ 35,499,746
===== ============
</TABLE>
- ---------------------
* Aggregate cost for federal tax purposes is $28,511,267.
CONSERVATIVE GROWTH PORTFOLIO
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<C> <S> <C>
INVESTMENT COMPANY SECURITIES - 99.9%
1,301,224 WM VT Growth Fund...................... $ 50,149,171
2,633,899 WM VT Growth & Income Fund............. 48,937,839
504,563 WM High Yield Fund..................... 4,581,435
316,580 WM VT Income Fund...................... 2,960,023
1,259,314 WM VT International Growth Fund........ 22,201,709
11,916,700 WM VT Money Market Fund................ 11,916,700
443,089 WM VT Northwest Fund................... 6,712,801
621,064 WM VT Short Term High Quality Bond
Fund................................. 1,484,342
692,220 WM VT U.S. Government Securities
Fund................................. 6,659,156
------------
Total Investment Company Securities
(Cost $138,268,370).................. 155,603,176
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
- ---------
<C> <S> <C>
REPURCHASE AGREEMENT - 0.1%
(Cost $180,000)
$180,000 Agreement with Boston Safe Deposit &
Trust Company, 3.500% dated 12/31/1999,
to be repurchased at $180,053 on
01/03/2000, collateralized by $205,123
Federal Home Loan Mortgage Corporation,
6.000% 01/01/2019 (Market Value
$190,956).............................. 180,000
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (Cost $138,448,370*)..... 100.0% 155,783,176
OTHER ASSETS AND LIABILITIES (NET)......... 0.0# 7,069
----- ------------
NET ASSETS................................. 100.0% $155,790,245
===== ============
</TABLE>
- ---------------------
* Aggregate cost for federal tax purposes is $138,509,531.
# Amount represents less than 0.1% of net assets.
BALANCED PORTFOLIO
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<C> <S> <C>
INVESTMENT COMPANY SECURITIES - 99.8%
1,081,277 WM VT Growth Fund....................... $ 41,672,396
2,371,492 WM VT Growth & Income Fund.............. 44,062,318
342,579 WM High Yield Fund...................... 3,110,621
480,501 WM VT Income Fund....................... 4,492,685
1,371,444 WM VT International Growth Fund......... 24,178,557
9,456,179 WM VT Short Term High Quality Bond
Fund.................................. 22,600,267
3,120,985 WM VT U.S. Government Securities Fund... 30,023,877
------------
Total Investment Company Securities
(Cost $155,537,758)................... 170,140,721
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
- ---------
<C> <S> <C>
REPURCHASE AGREEMENT - 0.3%
(Cost $560,000)
$560,000 Agreement with Boston Safe Deposit &
Trust Company, 3.500% dated 12/31/1999,
to be repurchased at $560,163 on
01/03/2000, collateralized by $638,160
Federal Home Loan Mortgage Corporation,
6.000% 01/01/2019 (Market Value
$594,087).............................. 560,000
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (Cost $156,097,758*)..... 100.1% 170,700,721
OTHER ASSETS AND LIABILITIES (NET)......... (0.1) (173,418)
----- ------------
NET ASSETS................................. 100.0% $170,527,303
===== ============
</TABLE>
- ---------------------
* Aggregate cost for federal tax purposes is $156,228,038.
FLEXIBLE INCOME PORTFOLIO
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<C> <S> <C>
INVESTMENT COMPANY SECURITIES - 99.6%
47,918 WM VT Growth Fund........................ $ 1,846,751
274,595 WM VT Growth & Income Fund............... 5,101,970
142,125 WM High Yield Fund....................... 1,290,496
531,542 WM VT Income Fund........................ 4,969,920
2,523,372 WM VT Money Market Fund.................. 2,523,372
2,101,894 WM VT Short Term High Quality Bond Fund.. 5,023,526
519,128 WM VT U.S. Government Securities Fund.... 4,994,007
-----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (Cost $25,464,725*)....... 99.6% 25,750,042
OTHER ASSETS AND LIABILITIES (NET).......... 0.4 95,520
----- -----------
NET ASSETS.................................. 100.0% $25,845,562
===== ===========
</TABLE>
- ---------------------
* Aggregate cost for federal tax purposes is $25,479,546.
INCOME PORTFOLIO
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
- ------ -----
<C> <S> <C>
INVESTMENT COMPANY SECURITIES - 100.7%
90,009 WM High Yield Fund.......................... $ 817,283
222,213 WM VT Income Fund........................... 2,077,689
798,055 WM VT Money Market Fund..................... 798,055
422,604 WM VT Short Term High Quality Bond Fund..... 1,010,024
265,135 WM VT U.S. Government Securities Fund....... 2,550,603
----------
TOTAL INVESTMENTS (Cost $7,430,650*)............ 100.7% 7,253,654
OTHER ASSETS AND LIABILITIES (NET).............. (0.7) (47,967)
-------------------------------------------- ----------
NET ASSETS...................................... 100.0% $7,205,687
============================================ ==========
</TABLE>
- ---------------------
* Aggregate cost for federal tax purposes is $7,439,238.
See Notes to Financial Statements.
81
<PAGE> 84
NOTES to FINANCIAL statements
WM VARIABLE TRUST
1. ORGANIZATION AND BUSINESS
The WM Variable Trust (the "Trust") was organized under the laws of the
Commonwealth of Massachusetts on January 29, 1993 as a business entity commonly
known as a "Massachusetts business trust." The Trust is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. The Trust offers fifteen managed investment
funds, consisting of ten funds: the Money Market Fund (the "Money Fund"); the
Short Term High Quality Bond, U.S. Government Securities and Income Funds (the
"Bond Funds"); the Bond & Stock, Growth & Income, Growth, Northwest, Emerging
Growth and International Growth Funds (the "Equity Funds"); (collectively the
"Funds") and five portfolios: Strategic Growth, Conservative Growth, Balanced,
Flexible Income and Income Portfolios (individually a "Portfolio" and
collectively the "Portfolios"), to the public through certain variable annuity
contracts offered by American General Life Insurance Company ("AG Life").
Through investment in certain of the Funds and WM High Yield Fund (collectively,
the "Underlying Funds"), the Portfolios offer a range of asset allocation
strategies designed to accommodate different investment philosophies and goals.
WM Advisors, Inc. (the "Advisor" or "WM Advisors"), a wholly-owned subsidiary of
Washington Mutual, Inc. ("Washington Mutual"), a publicly owned financial
services company, serves as investment advisor to the Trust.
2. SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies consistently followed by the Funds and
Portfolios in the preparation of their financial statements.
PORTFOLIO VALUATION:
A security that is primarily traded on a U.S. exchange (including securities
traded through the Nasdaq National Market System) is valued at the last sale
price on that exchange or, if there were no sales during the day, at the mean of
the current day's bid and asked prices. Securities traded only on
over-the-counter markets (other than the Nasdaq National Market System and U.S.
Government Securities) are valued at the over-the-counter bid prices, or if no
sale occurred on such day, at the mean of the current bid and asked prices. An
option is generally valued at the last sale price or, in the absence of a last
sale price, at the mean of the current day's bid and asked prices. Short term
debt securities that mature in 60 days or less are valued at amortized cost. The
value of a foreign security is determined in its national currency as of the
close of trading on the foreign exchange on which it is traded or as of 4:00
p.m. Eastern time, if that is earlier, and that value is then converted into its
U.S. dollar equivalent at the foreign exchange rate in effect at noon, Eastern
time, on the day the value of the foreign security is determined. The value of a
futures contract equals the unrealized gain or loss on the contract, which is
determined by marking the contract to the current settlement price for a like
contract acquired on the day on which the futures contract is being valued.
Debt securities of U.S. issuers (other than U.S. Government Securities and
short-term investments) are valued by one or more independent pricing services
(each a "Pricing Service") retained by the Trust. When, in the judgment of a
Pricing Service, market quotations for these securities are readily available,
they are valued at the mean between the quoted bid prices and asked prices.
Securities for which market quotations are not readily available are valued at
fair value as determined by or under the direction of the Board of Trustees,
which may rely on the assistance of one or more Pricing Services. The procedures
of each Pricing Service are reviewed periodically by the officers of the Trust
under the general supervision and responsibility of the Trust's Board of
Trustees (the "Board of Trustees").
MONEY FUND:
The investments of the Money Fund are valued on the basis of amortized cost so
long as the Board of Trustees determines that this method constitutes fair
value. Amortized cost involves valuing a portfolio instrument at its cost
initially, and, thereafter, assuming a constant amortization to maturity of any
discount or premium, regardless of the impact of fluctuating interest rates on
the market value of the instrument. The Money Fund attempts to maintain a
constant net asset value of $1.00 per share.
82
<PAGE> 85
NOTES to FINANCIAL statements (continued)
WM VARIABLE TRUST
THE PORTFOLIOS:
Underlying Funds are valued at their net asset value per share determined as of
the close of the New York Stock Exchange on the valuation date.
REPURCHASE AGREEMENTS:
Each Fund or Portfolio may engage in repurchase agreement transactions. A
repurchase agreement is a purchase of an underlying debt obligation subject to
an agreement by the seller to repurchase the obligation at an agreed upon price
and time. The value of the collateral is at all times at least equal to the
total amount of the repurchase obligation. In the event of counterparty default,
the Fund or Portfolio would seek to use the collateral to offset losses
incurred. There is potential loss in the event the Fund or Portfolio is delayed
or prevented from exercising its right to dispose of the collateral securities,
including the risk of a possible decline in the value of the underlying
securities during the period while the Fund or Portfolio seeks to assert its
rights. WM Advisors, acting under the supervision of the Board of Trustees,
reviews the value of the collateral and the creditworthiness of those banks and
dealers with whom each Fund or Portfolio enters into repurchase agreements.
REVERSE REPURCHASE AGREEMENTS:
Each Fund or Portfolio, except for the Northwest and Bond & Stock Fund may
engage in reverse repurchase agreements. Reverse repurchase agreements are the
same as repurchase agreements except that, in this instance, the Funds or
Portfolios would assume the role of seller/borrower in the transaction. The
Funds or Portfolios may use reverse repurchase agreements to borrow short term
funds. The value of the reverse repurchase agreements that the Funds or
Portfolios have committed to sell are reflected in the Funds' or Portfolios'
Statements of Assets and Liabilities. The Funds or Portfolios require the
Trust's custodian to segregate liquid assets that at all times are in an amount
equal to their obligations under reverse repurchase agreements. Reverse
repurchase agreements involve the risks that the market value of the securities
sold by the Funds or Portfolios may decline below the repurchase price of the
securities and, if the proceeds from the reverse repurchase agreement are
invested in securities, that the market value of the securities bought may
decline below the repurchase price of the securities sold.
OPTIONS CONTRACTS:
All Funds and Portfolios, except the Money Fund, may engage in options
contracts. The Funds and Portfolios may use option contracts to manage their
exposure to the stock and bond markets and to fluctuations in interest rates and
currency values. The underlying principal amounts and option values are shown in
the Portfolio of Investments under the captions "Put Options Purchased on
Foreign Currency," "Call Options Written on Foreign Currency" and "Call Options
Purchased on Stock Indices." These amounts reflect each contract's exposure to
the underlying instrument at December 31, 1999. Writing puts and buying calls
tends to increase the Funds' and/or Portfolios' exposure to the underlying
instrument. Buying puts and writing calls tends to decrease the Funds' and/or
Portfolios' exposure to the underlying instruments or to hedge other Fund and/or
Portfolio investments.
Upon the purchase of a put option or call option by the Funds and/or Portfolios,
the premium paid is recorded as an investment, the value of which is
marked-to-market daily. When a purchased option expires, the Fund or Portfolio
will realize a loss in the amount of the cost of the option. When the Funds
enter into a closing sale transaction, the Funds and/or Portfolios will realize
a gain or loss depending on whether the sales proceeds from the closing sale
transaction are greater or less than the cost of the option. When the Funds
and/or Portfolios exercise a put option, they will realize a gain or loss from
the sale of the underlying security and the proceeds from such sale will be
decreased by the premium originally paid. When the Funds and/or Portfolios
exercise a call option, the cost of the security purchased will be increased by
the premium originally paid.
When the Funds and/or Portfolios write a call option or put option, an amount
equal to the premium received by the Funds and/or Portfolios is recorded as a
liability, the value of which is marked-to-market daily. When a written option
expires, the Funds realize a gain equal to the amount of the premium received.
When the Funds and/or Portfolios enter into a closing purchase transaction, the
Funds and/or Portfolios realize a gain (or loss if the cost of the closing
purchase transaction exceeds the premium received when the option was sold)
without regard to any unrealized gain or loss on the underlying security, and
the liability related to such option is eliminated. When a written call option
is exercised, the Funds and/or Portfolios realize a gain or loss from the sale
of the underlying security and the proceeds from such sale are increased by the
premium originally received. When a written put option is exercised, the amount
of the premium originally received will reduce the cost of the security that the
Funds purchased upon exercise.
83
<PAGE> 86
NOTES to FINANCIAL statements (continued)
WM VARIABLE TRUST
The risk associated with purchasing options is limited to the premium originally
paid. Options written by a Fund and/or Portfolio involve, to varying degrees,
risk of loss in excess of the option value reflected in the Statements of Assets
and Liabilities. The risk in writing a covered call option is that the Funds
and/or Portfolios may forego the opportunity to profit if the market price of
the underlying security increases and the option is exercised. The risk in
writing a covered put option is that the Funds and/or Portfolios may incur a
loss if the market price of the underlying security decreases and the option is
exercised. In addition, there is the risk the Funds and/or Portfolios may not be
able to enter into a closing transaction because of an illiquid secondary market
or, for over-the-counter options, because of a counterparty's inability to
perform.
The Funds and the Portfolios, except the Money Fund, may engage in options on
foreign currency and options on interest rate futures for hedging transactions.
Options on foreign currency and options on interest rate futures act as a hedge
to provide protection against adverse movements in the value of foreign
securities in the portfolio.
Certain risks are associated with the use of options on foreign currency and
options on interest rate futures contracts as hedging devices. The predominant
risk is that the movement in the price of the instrument underlying such options
may not correlate perfectly with the movement in the prices of the assets being
hedged. The lack of correlation could render the Funds' and Portfolios' hedging
strategy unsuccessful and could result in a loss to the Funds and Portfolios. In
addition, there is the risk that the Funds and Portfolios may not be able to
enter into a closing transaction because of an illiquid secondary market or, for
over-the-counter options, because of the counterparty's inability to perform.
Options written by Funds and/or Portfolios involve, to varying degrees, risk of
loss in excess of the option value reflected in the Statements of Assets and
Liabilities.
FUTURES CONTRACTS:
Except for the Money Fund, all Funds and Portfolios may engage in futures
transactions. The Funds and Portfolios may use futures contracts to manage their
exposure to the stock and bond markets and to fluctuations in interest rates and
currency values. The underlying value of a futures contract is incorporated
within the unrealized appreciation/(depreciation) shown in the Portfolio of
Investments under the caption "Futures Contracts." This amount reflects each
contract's exposure to the underlying instrument at December 31, 1999. Buying
futures contracts tends to increase the Fund's or Portfolio's exposure to the
underlying instrument. Selling futures contracts tends to either decrease the
Fund's or Portfolio's exposure to the underlying instrument, or to hedge other
Fund or Portfolio investments.
Upon entering into a futures contract, the Fund or Portfolio is required to
deposit with the broker an amount of cash or cash equivalents equal to a certain
percentage of the contract amount. This is known as the "initial margin."
Subsequent payments ("variation margin") are made or received by the Fund or
Portfolio each day, depending on the daily fluctuation of the value of the
contract. The daily changes in contract value are recorded as unrealized gains
or losses and the Fund or Portfolio recognizes a realized gain or loss when the
contract is closed.
There are several risks in connection with the use of futures contracts as a
hedging device. Futures contracts involve, to varying degrees, risk of loss in
excess of the futures variation margin reflected in the Statements of Assets and
Liabilities. The change in the value of futures contracts primarily corresponds
with the value of their underlying instruments, which may not correlate with the
change in the value of the hedged instruments. In addition, there is the risk
that the Fund or Portfolio may not be able to enter into a closing transaction
because of an illiquid secondary market.
FOREIGN CURRENCY:
The books and records of the Funds and Portfolios are maintained in U.S.
dollars. Foreign currencies, investments and other assets and liabilities are
translated into U.S. dollars at the exchange rates prevailing at the end of the
period. Purchases and sales of investment securities, income and expenses are
translated on the respective dates of such transactions. It is not practicable
to isolate that portion of the results of operations arising as a result of
changes in the foreign exchange rates from the portion arising from changes in
market prices of investments during the period. Accordingly, all such changes
have been reflected as realized and unrealized net gain/(loss) from security
transactions in the Statements of Operations.
Unrealized gains and losses, not relating to securities, which result from
changes in foreign currency exchange rates have been included in unrealized
appreciation/(depreciation) of foreign currency and other assets and
liabilities. Unrealized gains and losses of securities, which result from
changes in foreign currency exchange rates as well as changes in market prices
of securities, have been included in unrealized appreciation/(depreciation) of
securities. Net realized foreign currency gains and losses include foreign
currency gains and losses resulting from changes in exchange rates between trade
date and settlement date on investment securities transactions, gains and losses
on foreign currency transactions and the difference between the
84
<PAGE> 87
NOTES to FINANCIAL statements (continued)
WM VARIABLE TRUST
amounts of interest and dividends recorded on the books of the Funds and/or
Portfolios and the amount actually received. The portion of foreign currency
gains and losses related to fluctuation in exchange rates between the initial
purchase trade date and subsequent sale trade date is included in realized
gains/(losses) from security transactions.
FORWARD FOREIGN CURRENCY CONTRACTS:
The Short Term High Quality Bond, Income, Growth, Emerging Growth and
International Growth Funds may enter into forward foreign currency contracts.
Forward foreign currency contracts are agreements to exchange one currency for
another at a future date and at a specified price. These funds may use forward
foreign currency contracts to facilitate transactions in foreign securities and
to manage the funds' foreign currency exposure. The U.S. dollar market value,
contract value and the foreign currencies the funds have committed to buy or
sell are shown in the Portfolio of Investments under the caption "Schedule of
Forward Foreign Currency Contracts." These amounts represent the aggregate
exposure to each foreign currency the funds have acquired or hedged through
forward foreign currency contracts at December 31, 1999. Forward foreign
currency contracts are reflected as both a forward foreign currency contract to
buy and a forward foreign currency contract to sell. Forward foreign currency
contracts to buy generally are used to acquire exposure to foreign currencies,
while forward foreign currency contracts to sell are used to hedge the funds'
investments against currency fluctuations. Also, a forward foreign currency
contract to buy or sell can offset a previously acquired opposite forward
foreign currency contract.
Forward foreign currency contracts are marked-to-market daily using foreign
currency exchange rates supplied by an independent pricing service. The change
in a contract's market value is recorded by the funds as an unrealized gain or
loss. When the contract is closed or delivery is taken, the funds record a
realized gain or loss equal to the difference between the value of the contract
at the time it was opened and the value at the time it was closed.
The use of forward foreign currency contracts does not eliminate fluctuations in
the underlying prices of the fund's securities, but it does establish a rate of
exchange that can be achieved in the future. These forward foreign currency
contracts involve market risk in excess of the unrealized
appreciation/(depreciation) of forward foreign currency contracts reflected in
the funds' Statements of Assets and Liabilities. Although forward foreign
currency contracts used for hedging purposes limit the risk of loss due to a
decline in the value of the hedged currency, they also limit any potential gain
that might result should the value of the currency increase. In addition, the
funds could be exposed to risks if the counterparties to the contracts are
unable to meet the terms of their contracts.
DOLLAR ROLL TRANSACTIONS:
The Bond Funds, in order to seek a high level of current income, may enter into
dollar roll transactions with financial institutions to take advantage of
opportunities in the mortgage market. The value of the dollar roll transactions
are reflected in the funds' Statements of Assets and Liabilities. A dollar roll
transaction involves a sale by the funds of securities that they hold with an
agreement by the funds to repurchase similar securities at an agreed upon price
and date. The securities repurchased will bear the same interest as those sold,
but generally will be collateralized at time of delivery by different pools of
mortgages with different prepayment histories than those securities sold. The
funds are paid a fee for entering into a dollar roll transaction that is accrued
as income over the life of the dollar roll contract. During the period between
the sale and repurchase, the funds will not be entitled to receive interest and
principal payments on the securities sold. Management anticipates that the
proceeds of the sale will be invested in additional instruments for the funds,
and the income from these investments, together with any additional fee income
received on the dollar roll transaction will generate income for the funds
exceeding the interest that would have been earned on the securities sold.
Dollar roll transactions involve the risk that the market value of the
securities sold by the funds may decline below the repurchase price of those
similar securities which the fund is obligated to purchase or that the return
earned by the fund with the proceeds of a dollar roll may not exceed transaction
costs.
INDEXED SECURITIES:
Each of the Funds, except for the Money Fund, may invest in indexed securities
whose value is linked either directly or inversely to changes in foreign
currencies, interest rates, commodities, inflation, indices, or other reference
instruments. Indexed securities may be more volatile than the reference
instrument itself, but any loss is limited to the amount of the original
investment.
85
<PAGE> 88
NOTES to FINANCIAL statements (continued)
WM VARIABLE TRUST
ILLIQUID INVESTMENTS:
Up to 15% of the assets of each Bond and Equity Fund, and up to 10% of the
assets of the Money Fund, may be invested in securities that are not readily
marketable, including: (1) repurchase agreements with maturities greater than
seven calendar days; (2) time deposits maturing in more than seven calendar
days; (3) except for the Money Fund, futures contracts and options, to the
extent a liquid secondary market does not exist for the instruments, futures
contracts and options thereon; (4) certain over-the-counter options; (5) for the
Money Fund and Growth & Income Fund certain variable rate demand notes having a
demand period of more than seven days; and (6) securities, the disposition of
which are restricted under Federal securities laws, excluding certain Rule 144A
securities as defined below.
Illiquid securities generally cannot be sold or disposed of in the ordinary
course of business (within seven days) at approximately the value at which the
Funds have valued the investments. This may have an adverse effect on the Fund's
ability to dispose of particular illiquid securities at fair market value and
may limit the Fund's ability to obtain accurate market quotations for purposes
of valuing the securities and calculating the net asset value of shares of the
Fund. The Funds may also purchase securities that are not registered under the
Securities Act of 1933, as amended (the "Act"), but that can be sold to
qualified institutional buyers in accordance with Rule 144A under the Act ("Rule
144A Securities"). Rule 144A Securities generally may be resold only to other
qualified institutional buyers. If a particular investment in Rule 144A
Securities is not determined to be liquid under the guidelines established by
the Board of Trustees, that investment will be included within the 15%/10%
limitation, as applicable, on investments in illiquid securities.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME:
Securities transactions are recorded as of the trade date (the date the order to
buy or sell is executed). Realized gains and losses from securities sold are
recorded on the identified cost basis. Interest income is recorded on the
accrual basis and consists of interest accrued and, if applicable, discount
accreted less premiums amortized. Premiums on bonds can be amortized on the
basis of any of the following methods: yield-to-maturity, straight-line, or
yield-to-call. Discounts can be accreted using yield-to-maturity or
straight-line methods. Premiums and discounts on mortgage-backed securities are
amortized or accreted using only the straight-line method. Dividend income is
recorded on the ex-dividend date, except certain dividends from foreign
securities are recorded as soon as the Funds are informed of the ex-dividend
date.
Securities purchased or sold on a when-issued or delayed-delivery basis may be
settled a month or more after the trade date; interest income is not accrued
until settlement date. Each Fund instructs the custodian to segregate assets of
the Fund with a current value at least equal to the amount of its when-issued
purchase commitments.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income of the Money Fund are declared daily and
paid monthly. Dividends from net investment income of the Bond Funds and each of
the Balanced, Flexible Income and Income Portfolios are declared and paid
quarterly. Dividends from net investment income of the Equity Funds and the
Strategic Growth and Conservative Growth Portfolios are declared and paid
annually. Distributions of any net long-term capital gains earned by a Fund or
Portfolio are made annually. Distributions of any net short-term capital gains
earned by a Fund or Portfolio are distributed no less frequently than annually
at the discretion of the Board of Trustees. Income distributions and capital
gain distributions are determined in accordance with income tax regulations,
which may differ from generally accepted accounting principles. These
differences are primarily due to differing treatments of income and gains on
various investment securities held by the Funds or Portfolios, organizational
costs, dividends payable, redesignated distributions and differing
characterizations of distributions made by each Fund or Portfolio as a whole.
86
<PAGE> 89
NOTES to FINANCIAL statements (continued)
WM VARIABLE TRUST
Net investment income per share calculations in the financial highlights for the
year ended December 31, 1999 exclude these adjustments:
<TABLE>
<CAPTION>
INCREASE/(DECREASE) INCREASE/(DECREASE)
UNDISTRIBUTED NET ACCUMULATED
INCREASE/(DECREASE) INVESTMENT NET REALIZED
NAME OF FUND/PORTFOLIO PAID-IN CAPITAL INCOME/(LOSS) GAIN/(LOSS)
---------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C>
Short Term High Quality Bond Fund............. $-- $ (8,281) $ 8,281
U.S. Government Securities Fund............... -- 243,007 (243,007)
Income Fund................................... (1) (7,675) 7,676
Bond & Stock Fund............................. -- (359) 359
Growth & Income Fund.......................... -- (3,726) 3,726
Growth Fund................................... 1,590 1,105,570 (1,107,160)
Northwest Fund................................ -- 2,538 (2,538)
Emerging Growth Fund.......................... (280,423) 280,422 1
International Growth Fund..................... -- 585,341 (585,341)
Strategic Growth Portfolio.................... (4,002) 364,394 (360,392)
Conservative Growth Portfolio................. (4,006) 622,717 (618,711)
Balanced Portfolio............................ (4,003) 571,655 (567,652)
Flexible Income Portfolio..................... 2,337 66,493 (68,830)
Income Portfolio.............................. 2 -- (2)
</TABLE>
FEDERAL INCOME TAXES:
It is the policy of each Fund and Portfolio to qualify as a regulated investment
company by complying with the requirements of the Internal Revenue Code of 1986,
as amended, applicable to regulated investment companies by, among other things,
distributing substantially all of its taxable earnings to its shareholders.
Therefore, no Federal income tax provision is required.
EXPENSES:
Expenses that are directly related to one of the Funds or Portfolios are charged
directly to that Fund or Portfolio. General expenses of the Trust are allocated
to all the Funds or Portfolios based upon the relative net assets of each Fund
or Portfolio. In addition, the Portfolios will indirectly bear their prorated
share of expenses of the Underlying Funds.
OTHER:
The Bond Funds and the Growth & Income Fund may purchase floating rate, inverse
floating rate and variable rate obligations. Floating rate obligations have an
interest rate that changes whenever there is a change in the external interest
rate, while variable rate obligations provide for a specified periodic
adjustment in the interest rate. The interest rate on an inverse floating rate
obligation (an "inverse floater") can be expected to move in the opposite
direction from the market rate of interest to which the inverse floater is
indexed. The fund may purchase floating rate, inverse floating rate and variable
rate obligations that carry a demand feature which would permit the fund to
tender them back to the issuer or remarketing agent at par value prior to
maturity. Frequently, floating rate, inverse floating rate and variable rate
obligations are secured by letters of credit or other credit support
arrangements provided by banks. The Bond Funds may purchase mortgage-backed
securities that are floating rate, inverse floating rate and variable rate
obligations. The Money Fund may purchase variable rate demand notes. Although
variable rate demand notes are frequently not rated by credit rating agencies,
unrated notes purchased by the funds will be of comparable quality at the time
of purchase to rated instruments that may be purchased by such fund, as
determined by the Advisor or Sub-advisor. Moreover, while there may be no active
secondary market with respect to a particular variable rate demand note
purchased by a fund, the fund may, upon the notice specified in the note, demand
payment of the principal and accrued interest on the note at any time and may
resell the note at any time to a third party. The absence of such an active
secondary market, however, could make it difficult for a fund to dispose of a
particular variable rate demand note in the event the issuer of the note
defaulted on its payment obligations, and the fund could, for this or other
reasons, suffer a loss to the extent of the default.
An inverse floater may be considered to be leveraged to the extent that its
interest rate varies by a magnitude that exceeds the magnitude of the change in
the index rate of interest. The higher degree of leverage inherent in inverse
floaters is associated
87
<PAGE> 90
NOTES to FINANCIAL statements (continued)
WM VARIABLE TRUST
with greater volatility in their market values. Accordingly, the duration of an
inverse floater may exceed its stated final maturity.
3. INVESTMENT ADVISORY, SUB-ADVISORY, ADMINISTRATION FEES AND OTHER
TRANSACTIONS
WM Advisors serves as investment advisor to the Trust. The Advisor is entitled
to a monthly fee based upon a percentage of the average daily net assets of each
Fund at the following rates:
<TABLE>
<CAPTION>
FEES ON NET ASSETS FEES ON
EQUAL TO OR NET ASSETS
LESS THAN EXCEEDING
NAME OF FUND $500 MILLION $500 MILLION
------------ ------------------ ------------
<S> <C> <C>
Money Market Fund
(01/01/1999 - 06/30/1999)................................... .500% .400%
(07/01/1999 - 12/31/1999)................................... .450% .450%
U.S. Government Securities Fund
(01/01/1999 - 06/30/1999)................................... .600% .500%
(07/01/1999 - 12/31/1999)................................... .500% .500%
Income Fund
(01/01/1999 - 06/30/1999)................................... .650% .500%
(07/01/1999 - 12/31/1999)................................... .500% .500%
Bond & Stock Fund........................................... .625% .500%
Northwest Fund.............................................. .625% .500%
</TABLE>
<TABLE>
<CAPTION>
FEES ON NET ASSETS
EXCEEDING
FEES ON NET ASSETS $200 MILLION FEES ON
EQUAL TO AND EQUAL TO NET ASSETS
OR LESS THAN OR LESS THAN EXCEEDING
$200 MILLION $500 MILLION $500 MILLION
------------------ ------------------ ------------
<S> <C> <C> <C>
Short Term High Quality Bond Fund............ .500% .450% .400%
</TABLE>
<TABLE>
<CAPTION>
FEES ON FEES ON FEES ON
NET ASSETS NET ASSETS NET ASSETS
FEES ON EXCEEDING EXCEEDING EXCEEDING
NET ASSETS $100 MILLION $200 MILLION $400 MILLION FEES ON
EQUAL TO AND EQUAL TO AND EQUAL TO AND EQUAL TO NET ASSETS
OR LESS THAN OR LESS THAN OR LESS THAN OR LESS THAN EXCEEDING
$100 MILLION $200 MILLION $400 MILLION $500 MILLION $500 MILLION
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Growth & Income Fund....... .800% .750% .700% .650% .575%
</TABLE>
<TABLE>
<CAPTION>
FEES ON NET ASSETS
EQUAL TO OR FEES ON NET ASSETS
LESS THAN EXCEEDING
$25 MILLION $25 MILLION
------------------ ------------------
<S> <C> <C>
Growth Fund............................................... .950% .875%
</TABLE>
<TABLE>
<CAPTION>
FEES ON NET ASSETS
EXCEEDING
FEES ON NET ASSETS $25 MILLION
EQUAL TO AND EQUAL TO FEES ON NET ASSETS
OR LESS THAN OR LESS THAN EXCEEDING
$25 MILLION $500 MILLION $500 MILLION
------------------ ------------------ ------------------
<S> <C> <C> <C>
Emerging Growth Fund....................... .900% .850% .750%
</TABLE>
<TABLE>
<CAPTION>
FEES ON NET ASSETS
EXCEEDING
FEES ON NET ASSETS $50 MILLION
EQUAL TO AND EQUAL TO FEES ON NET ASSETS
OR LESS THAN OR LESS THAN EXCEEDING
$50 MILLION $125 MILLION $125 MILLION
------------------ ------------------ ------------------
<S> <C> <C> <C>
International Growth Fund.............. .950% .850% .750%
</TABLE>
As investment advisor to the Portfolios, WM Advisors provides its proprietary
asset allocation services to the Portfolios, formulates the Portfolios'
investment policies, analyzes economic and market trends, exercises investment
discretion over the
88
<PAGE> 91
NOTES to FINANCIAL statements (continued)
WM VARIABLE TRUST
assets of the Portfolios and monitors the allocation of each Portfolio's assets
and each Portfolio's performance. For its investment advisory services to the
Portfolios, WM Advisors is entitled to a fee, which is calculated daily and paid
monthly, at an annual rate of 0.10% of each Portfolio's average daily net
assets.
WM Shareholder Services, Inc. (the "Administrator"), an indirect wholly-owned
subsidiary of Washington Mutual, serves as administrator to each Fund and
Portfolio. For its services as administrator, each Fund or Portfolio pays the
Administrator a monthly fee of 0.18% and 0.15% respectively, of the value of
each Fund's or Portfolio average daily net assets.
The Advisor has agreed to waive a portion of its management fees and/or
reimburse expenses. Fees waived and/or expenses reimbursed by the Advisor for
the year ended December 31, 1999 were as follows:
<TABLE>
<CAPTION>
NAME OF FUND/PORTFOLIO FEES WAIVED EXPENSES REIMBURSED
---------------------- ----------- -------------------
<S> <C> <C>
Money Market Fund........................................... $18,577 -$-
Strategic Growth Portfolio.................................. 10,815 --
Conservative Growth Portfolio............................... 4,733 --
Flexible Income Portfolio................................... 5,629 --
Income Portfolio............................................ 3,575 3,763
</TABLE>
Custodian fees for certain Funds and Portfolios have been reduced by credits
allowed by the custodian for uninvested cash balances. These Funds and
Portfolios could have invested this cash in income producing securities. Fees
reduced by credits allowed by the custodian for the year ended December 31, 1999
are shown separately in the Statement of Operations.
4. TRUSTEES' FEES
No officer or employee of Washington Mutual or its subsidiaries receives any
compensation from the Trust for serving as an officer or Trustee of the Trust.
The Trust, together with other mutual funds advised by WM Advisors, Inc., pays
each Trustee who is not an officer or employee of Washington Mutual or its
subsidiaries, $18,000 per annum plus $3,000 per board meeting attended or $1,000
per board meeting attended by telephone. Trustees are also reimbursed for travel
and out-of-pocket expenses. The Chairman of each committee receives $500 per
committee meeting attended.
Pursuant to an exemptive order granted by the Securities and Exchange
Commission, the Trust's eligible Trustees may participate in a deferred
compensation plan (the "Plan") which may be terminated at any time. Under the
Plan, Trustees may elect to defer receipt of all or a portion of their fees
which, in accordance with the Plan, are invested in mutual fund shares. Upon
termination of the Plan, Trustees that have deferred accounts under the Plan
will be paid benefits no later than the time the payments would otherwise have
been made without regard to such termination. All benefits provided under these
Plans are funded and any payments to Plan participants are paid solely out of
the Trusts' assets.
5. PURCHASES AND SALES OF SECURITIES
The aggregate cost of purchases and proceeds from sales of securities, excluding
U.S. Government and short-term investments, for the year ended December 31, 1999
were as follows:
<TABLE>
<CAPTION>
NAME OF FUND/PORTFOLIO PURCHASES SALES
---------------------- --------- -----
<S> <C> <C>
Short Term High Quality Bond Fund........................... $ 18,421,470 $ 5,808,315
Income Fund................................................. 447,500 3,192,575
Bond & Stock Fund........................................... 7,963,334 1,327,582
Growth & Income Fund........................................ 105,728,152 56,989,286
Growth Fund................................................. 313,683,340 291,357,900
Northwest Fund.............................................. 15,584,287 2,387,042
Emerging Growth Fund........................................ 19,281,770 28,145,104
International Growth Fund................................... 91,037,274 95,362,862
Strategic Growth Portfolio.................................. 24,316,919 1,050,443
Conservative Growth Portfolio............................... 132,612,118 5,033,899
Balanced Portfolio.......................................... 151,123,492 6,495,286
Flexible Income Portfolio................................... 24,950,271 387,856
Income Portfolio............................................ 7,199,517 601,875
</TABLE>
89
<PAGE> 92
NOTES to FINANCIAL statements (continued)
WM VARIABLE TRUST
The aggregate cost of purchases and proceeds from sales of U.S. Government
securities, excluding short-term investments, for the year ended December 31,
1999 were as follows:
<TABLE>
<CAPTION>
NAME OF FUND PURCHASES SALES
------------ --------- -----
<S> <C> <C>
Short Term High Quality Bond Fund........................... $ 15,018,265 $ 11,449,291
U.S. Government Securities Fund............................. 47,835,765 8,819,934
Income Fund................................................. 14,427,530 2,731,625
Bond & Stock Fund........................................... 1,183,992 --
</TABLE>
At December 31, 1999, aggregate gross unrealized appreciation for all securities
in which there is an excess of value over tax cost and aggregate gross
unrealized depreciation for all securities in which there is an excess of tax
cost over value were as follows:
<TABLE>
<CAPTION>
TAX BASIS TAX BASIS
UNREALIZED UNREALIZED
NAME OF FUND/PORTFOLIO APPRECIATION DEPRECIATION
---------------------- ------------ ------------
<S> <C> <C>
Short Term High Quality Bond Fund........................... $ 20,820 $ 655,853
U.S. Government Securities Fund............................. 1,178,005 2,105,986
Income Fund................................................. 462,210 2,469,472
Bond & Stock Fund........................................... 778,894 678,558
Growth & Income Fund........................................ 49,187,962 15,390,663
Growth Fund................................................. 138,636,711 4,957,569
Northwest Fund.............................................. 3,884,227 568,225
Emerging Growth Fund........................................ 22,066,599 2,020,881
International Growth Fund................................... 25,444,953 1,833,237
Strategic Growth Portfolio.................................. 6,903,985 --
Conservative Growth Portfolio............................... 17,442,050 168,405
Balanced Portfolio.......................................... 15,583,174 1,110,491
Flexible Income Portfolio................................... 676,758 406,262
Income Portfolio............................................ 3,404 188,988
</TABLE>
6. SHARES OF BENEFICIAL INTEREST
The Trust may issue an unlimited number of shares of beneficial interest, each
without par value.
7. ORGANIZATION COSTS
Expenses incurred in connection with the organization of the Portfolios, except
for the Income Portfolio, including the fees and expenses of registering and
qualifying each Portfolio's shares for distribution under Federal and state
securities regulations, are being amortized on a straight-line basis over a
period of five years from commencement of operations of each Portfolio. In the
event any of the initial shares of a Portfolio are redeemed by any holder
thereof during the amortization period, the proceeds of such redemptions will be
reduced by an amount equal to the pro-rata portion of unamortized deferred
organizational expenses in the same proportion as the number of shares being
redeemed bears to the number of initial shares of such Portfolio outstanding at
the time of such redemption.
90
<PAGE> 93
NOTES to FINANCIAL statements (continued)
WM VARIABLE TRUST
8. CAPITAL LOSS CARRYFORWARDS
As of December 31, 1999, the following Funds had available for Federal income
tax purposes unused capital losses as follows:
<TABLE>
<CAPTION>
EXPIRING IN EXPIRING IN EXPIRING IN EXPIRING IN EXPIRING IN
NAME OF FUND 2002 2003 2004 2005 2006
------------ ---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Money Market Fund........ $ -- $ -- $-- $-- $ 425
Short Term High Quality
Bond Fund.............. 87,775 71,035 241,115 75,877 51,627
U.S. Government
Securities Fund........ -- 1,079,738 -- 160,620 --
Income Fund.............. 1,172,218 878,516 144,318 -- --
Bond & Stock Fund........ -- -- -- -- 215
<CAPTION>
EXPIRING IN
NAME OF FUND 2007
------------ ----------------
<S> <C>
Money Market Fund........ $ 467
Short Term High Quality
Bond Fund.............. 132,326
U.S. Government
Securities Fund........ 223,625
Income Fund.............. 292,532
Bond & Stock Fund........ 25,059
</TABLE>
9. GEOGRAPHIC AND INDUSTRY CONCENTRATION AND RISK FACTORS
All Funds, except the U.S. Government Securities Fund, may invest in securities
of foreign companies and foreign governments. There are certain risks involved
in investing in foreign securities. These risks include those resulting from
future adverse political and economic developments and the possible imposition
of currency exchange restrictions or other foreign laws or restrictions.
In addition, the Money Fund invests at least 25% of its assets in bank
obligations. As a result of this concentration policy, the Fund's investments
may be subject to greater risk than a fund that does not concentrate in the
banking industry. In particular, bank obligations may be subject to the risks
associated with interest rate volatility, changes in Federal and state laws and
regulations governing the banking industry and the inability of borrowers to pay
principal and interest when due. In addition, foreign banks present risks
similar to those investing in foreign securities generally and are not subject
to the same reserve requirements and other regulations as U.S. banks.
Investing in the Underlying Funds through the Portfolios involves certain
additional expenses and tax results that would not be present in a direct
investment in the Underlying Funds. Under certain circumstances, an Underlying
Fund may determine to make payment of a redemption request by a Portfolio wholly
or partly by a distribution in kind of securities from its portfolio, instead of
cash, in accordance with the rules of the Securities and Exchange Commission. In
such cases, the Portfolios may hold securities distributed by an Underlying Fund
until WM Advisors determines that it is appropriate to dispose of such
securities.
Certain Underlying Funds may: invest a portion of their assets in foreign
securities; enter into forward foreign currency transactions; lend their
portfolio securities; enter into stock index, interest rate and currency futures
contracts, and options on such contracts; enter into interest rate swaps or
purchase or sell interest rate caps or floors; engage in other types of options
transactions; make short sales; purchase zero coupon and payment-in-kind bonds;
engage in repurchase or reverse repurchase agreements; purchase and sell
"when-issued" securities and engage in "delayed-delivery" transactions; and
engage in various other investment practices each with inherent risks.
The Northwest Fund concentrates its investments in companies located or doing
business in the Northwest region of the United States. The Northwest Fund is not
intended as a complete investment program and could be adversely impacted by
economic trends within the region.
The Strategic Growth Portfolio can invest as much as 50% of its total assets in
the Growth Fund and as much as 50% of its total assets in the Emerging Growth
Fund, each of which Underlying Funds may invest as much as 35% of its total
assets in lower-rated bonds. Securities rated below investment grade generally
involve greater price volatility and risk of principal and income and may be
less liquid than higher rated securities.
Certain Portfolios invest as much as 50% of their total assets in the Growth or
Emerging Growth Funds, each of which may invest up to 25% of its total assets in
foreign equity securities and as much as 5% of its total assets in securities in
developing or emerging markets countries. Certain Portfolios invest as much as
50% of their total assets in the International Growth Fund, which invests
primarily in the foreign equity securities, and may invest as much as 30% of its
total assets in securities in developing or emerging market countries. These
investments will subject such Portfolios to risks associated with investing in
foreign securities including those resulting from future adverse political and
economic developments and the possible imposition of currency exchange blockages
or other foreign governmental laws or restrictions.
91
<PAGE> 94
NOTES to FINANCIAL statements (continued)
WM VARIABLE TRUST
The officers and Trustees of the Trust also serve as officers and Trustees of
the Underlying Funds. In addition, WM Advisors serves as the investment advisor
of each underlying fund and Portfolio. Conflicts may arise as the Advisor seeks
to fulfill its fiduciary responsibilities to both the Portfolios and the
Underlying Funds.
From time to time, one or more of the Underlying Funds used for investment by a
Portfolio may experience relatively large investments or redemptions due to
reallocations or rebalancings by the Portfolios as recommended by the Advisor.
These transactions will affect the Underlying Funds, since the Underlying Funds
that experience redemptions as a result of the reallocations or rebalancings may
have to sell portfolio securities and Underlying Funds that receive additional
cash will have to invest such cash. While it is impossible to predict the
overall impact of these transactions over time, there could be adverse effects
on portfolio management to the extent that the Underlying Funds may be required
to sell securities or invest cash at times when they would not otherwise do so.
These transactions could also have tax consequences if sales of securities
resulted in gains and could also increase transaction costs. The Advisor is
committed to minimizing the impact of Portfolio transactions on the Underlying
Funds.
92
<PAGE> 95
INDEPENDENT AUDITORS' REPORT
To the Trustees and Shareholders of
WM Variable Trust:
We have audited the accompanying statements of assets and liabilities of WM
Variable Trust (the "Trust") (including WM Variable Trust Money Market Fund, WM
Variable Trust Short Term High Quality Bond Fund, WM Variable Trust U.S.
Government Securities Fund, WM Variable Trust Income Fund, WM Variable Trust
Growth & Income Fund, WM Variable Trust Growth Fund, WM Variable Trust Bond &
Stock Fund, WM Variable Trust Northwest Fund, WM Variable Trust Emerging Growth
Fund, WM Variable Trust International Growth Fund, WM Variable Trust Strategic
Growth Portfolio, WM Variable Trust Conservative Growth Portfolio, WM Variable
Trust Balanced Portfolio, WM Variable Trust Flexible Income Portfolio and WM
Variable Trust Income Portfolio), including the portfolios of investments, as of
December 31, 1999, the related statements of operations for the year then ended,
and changes in net assets and financial highlights for the years ended December
31, 1999 and 1998. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits. The financial highlights for each of the years in the three year period
ended December 31, 1997 were audited by other auditors whose report, dated
February 20, 1998, expressed an unqualified opinion on those financial
highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at December
31, 1999, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Trust as of December 31, 1999, the results of its operations for the year then
ended, the changes in its net assets and its financial highlights for the years
ended December 31, 1999 and 1998 in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
San Francisco, California
February 4, 2000
93
<PAGE> 96
SPECIAL MEETING of SHAREHOLDERS (unaudited)
WM VARIABLE TRUST
SHAREHOLDER VOTES
1. A special meeting of shareholders of the Variable Trust International Growth
Fund was convened on June 23, 1999, at which shareholders approved the
proposed Sub-Advisory Agreement relating to the Fund by and between WM
Advisors, Inc. and Capital Guardian Trust Company.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAINED TOTAL
--- ------- --------- -----
<S> <C> <C> <C>
4,258,680 61,333 361,913 4,681,926
</TABLE>
94
<PAGE> 97
TAX information (unaudited)
WM VARIABLE TRUST
YEAR ENDED DECEMBER 31, 1999
The amounts of long-term capital gain paid were as follows:
<TABLE>
<CAPTION>
NAME OF FUND/PORTFOLIO
----------------------
<S> <C>
Growth & Income Fund........................................ $ 7,535,098
Growth Fund................................................. 14,946,667
Emerging Growth Fund........................................ 6,385,569
Strategic Growth Portfolio.................................. 56,447
Conservative Growth Portfolio............................... 222,055
Balanced Portfolio.......................................... 187,072
Flexible Income Portfolio................................... 5,046
</TABLE>
95
<PAGE> 98
(This Page Intentionally Left Blank)
<PAGE> 99
This material is not an offer to sell nor a solicitation to buy the WM Strategic
Asset Manager Variable Annuity, WM Advantage Variable Annuity or shares of the
WM Variable Trust. It is not authorized for distribution unless preceded or
accompanied by a current prospectus(es) that includes information regarding the
risk factors, expenses, policies and objectives of the WM Advantage Variable
Annuity and WM Strategic Asset Manager Variable Annuity programs. Please read it
carefully before investing. WM Advantage and WM Strategic Asset Manager may not
be available for sale in all states.
Shares of the WM Variable Trust are not insured by the FDIC. They are not
deposits or obligations of, nor are they guaranteed by the depository
institution or any other agency. These securities are subject to investment
risk, including possible loss of principal amount invested.
Distributed by WM Funds Distributor, Inc.
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