N-CSR 1 v27702nvcsr.txt FORM N-CSR SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-07462 WM Variable Trust (Exact name of registrant as specified in charter) 1201 Third Avenue, 8th Floor, Seattle, WA 98101 (Address of principal executive offices) (Zip code) Jeffrey L. Lunzer 1201 Third Avenue, 8th Floor, Seattle, WA 98101 (Name and address of agent for service) Registrant's telephone number, including area code: (206) 913-5822 Date of fiscal year end: December 31, 2006 Date of reporting period: December 31, 2006 ITEM 1. REPORTS TO STOCKHOLDERS (WM VARIABLE TRUST LOGO) Common sense. Uncommon solutions.(R) WM VARIABLE TRUST Annual Report December 31, 2006 WM Variable Trust Table of Contents 1 Letter from the President 2 Economy & Financial Markets: Review & Outlook WM Variable Trust Performance and Investment Strategy: 4 VT REIT Fund 6 VT Equity Income Fund 8 VT Growth & Income Fund 10 VT West Coast Equity Fund 12 VT Mid Cap Stock Fund 14 VT Growth Fund 16 VT Small Cap Value Fund 18 VT Small Cap Growth Fund 20 VT International Growth Fund 22 VT Short Term Income Fund 24 VT U.S. Government Securities Fund 26 VT Income Fund 28 VT Money Market Fund 29 Glossary 30 Expense Information 32 Financial Statements 97 Notes to Financial Statements 105 Report of Independent Registered Public Accounting Firm 106 Supplemental Information The WM Variable Trust (VT) Funds may not be purchased directly, but are currently available through the WM Strategic Asset Manager and the WM Advantage variable annuities issued by American General Life. They are also available through the WM Diversified Strategies and WM Diversified Strategies(III) variable annuities issued by AIG SunAmerica Life Assurance Company, the WM Diversified Strategies(III) (New York) variable annuity issued by First SunAmerica Life Insurance Company, and the WM LifeAccumulator variable universal life insurance policy issued by Farmers New World Life Insurance Company. They may also be available through other select variable insurance products and retirement plans. The VT Funds may not have been available for sale for all products for the time periods shown on pages 4-28. Withdrawals made prior to age 59 1/2 may be subject to a 10% IRS tax penalty. -------------------------------------------------------- NOT FDIC OR NCUA/NCUSIF INSURED -------------------------------------------------------- MAY LOSE VALUE - NOT A DEPOSIT - NO BANK OR CREDIT UNION GUARANTEE - NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY -------------------------------------------------------- (PHOTO OF WILLIAM G. PAPESH) Dear Investor, The end of the 2006 fiscal year coincided with the acquisition of WM Advisors, Inc. and its subsidiaries by the Principal Financial Group(R) (The Principal(R)). We are extremely enthusiastic about joining a company where asset management and accumulation form the core of its business and where the advisory group, Principal Global Investors, shares our expertise in asset allocation. Just as the WM Group of Funds is the 4th largest manager of target-risk asset allocation funds, The Principal is the 4th largest manager of target-date asset allocation funds.(1) Together, we will rank 4th in the overall management of asset allocation funds nationally. I'd like to briefly explain below how the WM Group of Funds will transition through this process. EVOLUTION OF A FUND COMPLEX To summarize, the 18 WM Variable Trust Funds will become part of the Principal Variable Contracts Fund, Inc.(2) Other notable changes are as follows: - 11 funds will continue to be managed by their current portfolio management teams. - 7 funds will be combined into existing Principal Variable Contract (PVC) Accounts and thereafter will be managed by Principal Global Investors(3) or another premier asset management firm. After the fund mergers in January 2007, the combined PVC lineup will consist of 41 funds spanning a broad array of asset allocation, equity, and fixed-income investments. CONTINUITY OF MANAGEMENT AND STEWARDSHIP The Principal Funds complex has also retained many of the people who have served you and your investment needs over the previous years: - WM ADVISORS: Our investment management group has a new name--Edge Asset Management, Inc.--but it remains in Seattle and employs all of WM Advisors' portfolio managers. - WM FUNDS DISTRIBUTOR, INC. AND WM SHAREHOLDER SERVICES, INC.: These groups form the management and staff of Principal Funds Distributor, Inc. and Principal Shareholder Services, Inc. - WM GROUP OF FUNDS BOARD OF TRUSTEES: Four members of our current Board are proposed for election to the board of Principal Variable Contracts Fund, Inc. This group includes Dick Yancey (our Chairman and a Board member for over 30 years), Dan Pavelich (head of the Audit Committee), Kristi Blake (head of the Operations and Distribution Committee), and myself. I would also like to express my deep gratitude to Ed Davis, Carrol McGinnis, Al Osborne, Jay Rockey, and Anne Farrell for their many years of diligent service on behalf of investors. The Principal has embraced our management and staff, and I think you'll find the combined fund family reflects our best qualities, plus new capabilities and resources. On behalf of everyone at the WM Group of Funds, thank you for the support and trust that you and other investors have honored us with for over 65 years. Sincerely, /s/ William G. Papesh ------------------------------------ William G. Papesh President (1) Source: FRC. Based on assets as of September 30, 2006. (2) For more information about these funds, including their full names, please see the Principal Variable Contract Fund, Inc. prospectus. (3) Principal Global Investors, one of the primary asset management divisions of Principal Financial Group(R), consists of Principal Global Investors, LLC; Principal Real Estate Investors, LLC; Spectrum Asset Management, Inc.; Post Advisory Group, LLC; Columbus Circle Investors; Principal Global Investors (Europe) Limited; Principal Global Investors (Singapore) Ltd; Principal Global Investors (Australia) Ltd; and Principal International, Inc., its subsidiaries and affiliates. Economy & Financial Markets: Review & Outlook ECONOMY ENTERS MID-CYCLE SLOWDOWN We began 2006 with the view that U.S. economic growth would be moderate but weaker than consensus projections. Although corporate profits and consumer spending looked healthy, a slowdown in the housing market appeared likely. We thought when this housing pullback took hold, it would curtail consumers' ability to maintain refinancing-fueled spending. Our 2006 outlook also recognized that a variety of short-term and long-term forces had aligned to indicate that growth would slow. One cyclical measure that attracted widespread headlines during the period was crude oil prices which, through elevated fuel costs, can act as a tax on consumers. The U.S. benchmark price of oil ended 2005 at $61.04 per barrel, reached a high closing price of $77.03 in July 2006, and then retreated to end 2006 at $61.05. Like crude oil prices, the rate of economic growth climbed and peaked before retreating during the year. Inflation-adjusted (real) growth increased 3.2% in 2005, but with a weaker 1.8% increase in the final quarter. Strong consumer and business spending sent real growth surging 5.6% in the first quarter of 2006. Evidence of a housing sector correction became clearer in the following months, and real growth decelerated to 2.0% in the third quarter. (See text highlights in chart below.) Since housing is a lagging indicator, we believe that the full economic effects of its pullback have yet to play out. However, we expect solid job markets to mitigate the pain that housing causes consumers. Our 2007 outlook is for real growth to keep to the lower end of a 2-3% range as the economy works through a mid-cycle slowdown. INFLATION GIVES FED PAUSE For this kind of "soft landing" to occur, we believe that lower interest rates courtesy of the Federal Reserve (the Fed) will be a requirement. The Fed began steadily raising short-term interest rates in June 2004. Like many market participants, we entered 2006 believing that a housing-led slowdown in growth would soon spur the Fed to halt this monetary tightening campaign. However, concerns about rising inflation dominated the Fed's mindset during the year. A price index that measures core personal consumption1 stood at 2.0% for January 2006, but inflation picked up steam and sent this (1) Source: Bureau of Economic Analysis. Monthly data measures the price index for personal consumption expenditures excluding food and energy as a percent change from the same month one year ago. (2) Indices are unmanaged, and individuals cannot invest directly in an index. See page 29 for definitions of indices. A WRAP-UP OF THE YEAR JANUARY 1, 2006 - DECEMBER 31, 2006 (PERFORMANCE GRAPH) Source: Bloomberg L.P. (S&P 500 data). 2 gauge to 2.4% in August. Inflation fears eased somewhat after energy prices headed downward and the housing market cooled. These developments allowed the Fed to leave its target for the federal funds rate at 5.25% from June 29 through the end of the year. This rate is slightly restrictive in our view. We expect the lagging effects of monetary tightening to contain inflation going forward by combining with significant deflationary forces. We also believe that the economic system has become somewhat self-regulating in recent years, alleviating the need for a highly active Fed. However, as fears of inflation continue to subside, we think the Fed will turn its sights on potential deflation and recession. We don't regard either of these conditions as likely, but we would welcome Fed actions that begin cutting interest rates early in 2007. STOCKS RALLY FROM MID-YEAR ON Uncertainty about inflation and interest rates often determined investor behavior during the year. As shown in the chart below, stock markets achieved muted gains within the early months of 2006 before retreating in May and June--a span that was framed by the year's final two Fed rate increases. The growing likelihood and then arrival of the Fed's pause kindled a rally in stocks and also benefited bonds, causing yields to fall. The S&P 500 advanced 15.80% for 2006, and the Lehman Brothers Aggregate Bond Index ended the year with a total return of 4.33%.(2) The outlook for subdued growth and inflation described above, and the potential for monetary easing by the Fed, lead us to expect that bond yields will continue inching lower in 2007. Any incoming data that sparks recession fears could create some volatility for fixed-income securities. However, we regard corporate and mortgage issues as reasonably valued and believe that they will perform in line with this risk. Potentially lower bond yields are also among the factors that support the prospects for moderate but positive gains by equities in 2007. Stocks continue to appear attractive relative to bonds and are likely to be assisted by fair valuations, the global flow of funds, and the generally healthy state of corporations. Cyclical economic and valuation indicators also suggest that large-cap stocks could outperform small caps and growth could outperform value. A less restrictive stance by the Fed could also accommodate the appreciation of stock prices. This economic and financial market analysis represents the opinions of WM Advisors. It should not be considered as investment advice. No forecast based on the opinions expressed can be guaranteed, and they may be subject to change without notice. (PERFORMANCE GRAPH) 3 VT REIT Fund INVESTMENT STRATEGY Real estate investment trusts (REITs) have enjoyed enormous market enthusiasm in recent years, and this positive trend continued during 2006. The benchmark REIT index rose strongly over the period and ended with more than double the total return of the broad stock market. These results were fueled, in part, by the activity of hedge funds and institutional investors who continue to favor REITs as a diversification tool. Stock selection was the primary source of positive performance for the WM VT REIT Fund during the year. The industrial/office sector advanced strongly within the market, benefiting the Fund. Many leases that these REITs hold reset at higher levels during the period and boosted earnings. Strong contributors included SL Green Realty, Boston Properties, and ProLogis. The Fund also benefited from several specialty REITs such as Entertainment Properties, which rose on an improved valuation. The Fund's one mortgage position (sold late in the year) and several of its residential holdings also had a positive impact on performance. However, the Fund's underweighting of the residential sector proved to be problematic. As the housing sector cooled this year, the Data shown is past performance and does not guarantee future results. Current performance, including the most recent month-end results, which may be higher or lower than the data shown, can be obtained by calling 800-222-5852. Your investment's return and principal value will fluctuate, so it may be worth more or less upon redemption. Performance shown below does not account for fees, expenses, and charges of any variable insurance contract or retirement plan. If these fees were reflected, performance would be lower. REIT securities are subject to risk factors associated with the real estate industry and tax factors of REIT registration. AVERAGE ANNUAL TOTAL RETURNS (1) AS OF DECEMBER 31, 2006
1-Year Since Inception Inception Date ------ --------------- -------------- CLASS 1 SHARES 33.21% 28.75% 5/1/03 CLASS 2 SHARES 32.90% 26.68% 8/5/03 FTSE NAREIT All REITs Index(2) 34.35% 28.21%
VALUE OF A $10,000 INVESTMENT' MAY 1, 2003 - DECEMBER 31, 2006 (PERFORMANCE GRAPH)
VT FTSE NAREIT DATE REIT FUND ALL REITS INDEX ------ --------- --------------- Dec-96 Jan-97 Feb-97 Mar-97 Apr-97 May-97 Jun-97 Jul-97 Aug-97 Sep-97 Oct-97 Nov-97 Dec-97 Jan-98 Feb-98 Mar-98 Apr-98 May-98 Jun-98 Jul-98 Aug-98 Sep-98 Oct-98 Nov-98 Dec-98 Jan-99 Feb-99 Mar-99 Apr-99 May-99 Jun-99 Jul-99 Aug-99 Sep-99 Oct-99 Nov-99 Dec-99 Jan-00 Feb-00 Mar-00 Apr-00 May-00 Jun-00 Jul-00 Aug-00 Sep-00 Oct-00 Nov-00 Dec-00 Jan-01 Feb-01 Mar-01 Apr-01 May-01 Jun-01 Jul-01 Aug-01 Sep-01 Oct-01 Nov-01 Dec-01 Jan-02 Feb-02 Mar-02 Apr-02 May-02 Jun-02 Jul-02 Aug-02 Sep-02 Oct-02 Nov-02 Dec-02 Jan-03 Feb-03 Mar-03 Apr-03 10,000 10,000 May-03 10,510 10,612 Jun-03 10,730 10,888 Jul-03 11,340 11,458 Aug-03 11,421 11,508 Sep-03 11,791 11,870 Oct-03 12,061 12,125 Nov-03 12,571 12,673 Dec-03 13,041 13,108 Jan-04 13,631 13,672 Feb-04 13,951 13,971 Mar-04 14,740 14,754 Apr-04 12,640 12,502 May-04 13,420 13,385 Jun-04 13,915 13,785 Jul-04 13,946 13,791 Aug-04 14,927 14,877 Sep-04 14,989 14,906 Oct-04 15,756 15,584 Nov-04 16,462 16,307 Dec-04 17,352 17,093 Jan-05 15,890 15,741 Feb-05 16,309 16,095 Mar-05 15,931 15,796 Apr-05 16,770 16,535 May-05 17,466 17,127 Jun-05 18,160 17,932 Jul-05 19,462 19,110 Aug-05 18,724 18,298 Sep-05 18,801 18,279 Oct-05 18,269 17,780 Nov-05 19,040 18,552 Dec-05 18,986 18,511 Jan-06 20,376 19,807 Feb-06 20,615 20,092 Mar-06 21,582 21,097 Apr-06 20,951 20,443 May-06 20,354 19,875 Jun-06 21,134 20,866 Jul-06 21,711 21,494 Aug-06 22,642 22,229 Sep-06 22,936 22,670 Oct-06 24,420 24,102 Nov-06 25,598 25,177 Dec-06 25,290 24,870
(1) Performance reflects ongoing fund expenses, which may have been waived, and assumes reinvestment of all dividends and capital gains. Performance does not reflect the impact of federal, state, or municipal taxes. If it did, performance would be lower. (2) See glossary on page 29 for definitions of indices. On 3/6/06,the National Association of Real Estate Investment Trusts (NAREIT) changed the name of the NAREIT All REITs Index to the FTSE NAREIT All REITs Index. Returns shown for the index assume reinvestment of all dividends and distributions, and the since-inception return shown for the index is calculated from 4/30/03. Indices are unmanaged, and individuals cannot invest directly in an index. 4 PORTFOLIO MANAGER David W. Simpson, CFA (PHOTO OF DAVID W. SIMPSON) WM Advisors, Inc. "rent vs. buy" decision increasingly favored rentals. We underweighted the sector, believing that the housing slowdown would result in fewer speculative condominium sales and leading these units to eventually re-enter the supply of rentals. We believe that the market began to price this activity into residential REITs later in the year, but the Fund missed out on some of the sector's earlier gains. Relative performance was also negatively impacted by the Fund's allocation to common stocks. In a year when REITs significantly outperformed the broad equity markets, devoting even a small portion of the Fund to common stocks was detrimental to relative results. We trimmed this allocation during the year, but liquidating almost all of it was one of several changes made to the Fund in December as preparation for a January 2007 merger. Other large allocation changes shown in the table below were similarly directed at aligning our portfolio with that of the fund that will be the surviving entity. Overall,we believe that REIT fundamentals remain strong but valuations also seem quite rich. Assessments of this market can be somewhat clouded since REIT fundamentals and stock price appreciation have often diverged in the past. REITs have outperformed the S&P 500 every year since 1999, and we feel that this lengthy period of strong gains may be contributing to some market complacency. As a result, we tend to favor higher quality holdings and anticipate that investors may not be rewarded for moving down the quality spectrum. PORTFOLIO COMPOSITION(3) As of 12/31/06 (PIE CHART)
As of As of Asset Class 12/31/06 12/31/05 Change ----------- -------- -------- ------ Industrial/Office 37% 24% +13% Residential 24% 11% +13% Retail 16% 26% -10% Lodging/Resorts 6% 6% 0% Diversified 5% 3% +2% Self Storage 4% 2% +2% Health Care 3% 6% -3% Common Stock 2% 8% -6% Specialty 1% 5% -4% Hybrid 0% 1% -1% Mortgage/Financial 0% 1% -1% Cash Equivalents 2% 7% -5%
(3) May not reflect the current portfolio composition. 5 VT Equity Income Fund* INVESTMENT STRATEGY U.S. equities posted solid returns for 2006 amid economic growth and inflationary pressures that decelerated as the year progressed. During the first half of the period, the Federal Reserve (the Fed) continued its two-year campaign of increases in short-term interest rates. The Fed's August decision to suspend this campaign, coupled with a decline in energy prices, spurred a rally in equity markets that continued through the close of the year. The relative performance of the WM VT Equity Income Fund benefited from overweighted allocations to financials, telecommunications, technology, consumer discretionaries, and real estate investment trusts (REITs). Financials were led by brokers such as Goldman Sachs and Morgan Stanley. BellSouth (which was acquired by AT&T in December) and a turnaround at Vodafone assisted telecom results. Technology was supported by Apple, Hewlett-Packard,and Cisco Systems. As consumer spending bottomed out, the Fund benefited from the strong results of Hilton Hotels, Nordstrom, and McGraw-Hill. The stellar year enjoyed by REITs also helped the Fund through such firms as Health Care Data shown is past performance and does not guarantee future results. Current performance, including the most recent month-end results, which may be higher or lower than the data shown, can be obtained by calling 800-222-5852. Your investment's return and principal value will fluctuate, so it may be worth more or less upon redemption. Performance shown below does not account for fees, expenses, and charges of any variable insurance contract or retirement plan. If these fees were reflected, performance would be lower. REIT securities are subject to risk factors associated with the real estate industry and tax factors of REIT registration. * As of 8/1/00, the WM VT Bond & Stock Fund became the WM VT Equity Income Fund, and the Fund's objectives and strategies changed. This information should be considered when reviewing past performance. Please see the prospectus for detailed information. AVERAGE ANNUAL TOTAL RETURNS(1) AS OF DECEMBER 31, 2006
Since Inception 1-Year 5-Year Inception Date ------ ------ --------- --------- CLASS 1 SHARES 18.17% 12.06% 10.40% 4/28/98 CLASS 2 SHARES 17.86% 11.77% 10.96% 5/1/01 S&P 500/Citigroup Value Index(2) 20.80% 10.43% 6.12% S&P 500(2) 15.80% 6.19% 4.48%
VALUE OF A $10,000 INVESTMENT (1) APRIL 28, 1998 - DECEMBER 31, 2006 (PERFORMANCE GRAPH)
VT EQUITY S&P 500/ INCOME CITIGROUP DATE FUND VALUE INDEX S&P 500 ---- ------ ----------- ------- DEC-96 Jan-97 Feb-97 Mar-97 Apr-97 May-97 Jun-97 Jul-97 Aug-97 Sep-97 Oct-97 Nov-97 Dec-97 Jan-98 Feb-98 Mar-98 Apr-98 10,000 10,000 10,000 May-98 9,800 9,859 9,828 Jun-98 9,821 9,934 10,227 Jul-98 9,550 9,718 10,119 Aug-98 8,777 8,156 8,655 Sep-98 9,248 8,652 9,210 Oct-98 9,850 9,329 9,959 Nov-98 10,222 9,815 10,563 Dec-98 10,302 10,159 11,171 Jan-99 10,433 10,365 11,638 Feb-99 10,172 10,142 11,276 Mar-99 10,263 10,449 11,727 Apr-99 10,554 11,350 12,181 May-99 10,605 11,149 11,893 Jun-99 10,732 11,577 12,553 Jul-99 10,571 11,221 12,162 Aug-99 10,330 10,937 12,101 Sep-99 10,099 10,509 11,769 Oct-99 10,230 11,102 12,514 Nov-99 10,422 11,036 12,768 Dec-99 10,562 11,451 13,521 Jan-00 10,240 11,087 12,842 Feb-00 10,180 10,394 12,599 Mar-00 10,804 11,478 13,831 Apr-00 10,773 11,401 13,415 May-00 10,924 11,437 13,140 Jun-00 10,824 10,985 13,463 Jul-00 10,803 11,205 13,253 Aug-00 11,079 11,956 14,076 Sep-00 11,396 11,954 13,333 Oct-00 11,856 12,178 13,277 Nov-00 11,682 11,554 12,231 Dec-00 12,377 12,149 12,291 Jan-01 12,653 12,662 12,727 Feb-01 12,581 11,822 11,566 Mar-01 12,447 11,355 10,834 Apr-01 12,918 12,125 11,676 May-01 13,205 12,253 11,754 Jun-01 13,149 11,856 11,469 Jul-01 13,408 11,650 11,356 Aug-01 13,305 10,977 10,645 Sep-01 12,672 9,934 9,785 Oct-01 12,630 9,934 9,972 Nov-01 13,159 10,565 10,737 Dec-01 13,356 10,726 10,831 Jan-02 13,304 10,432 10,673 Feb-02 13,242 10,338 10,467 Mar-02 13,853 10,867 10,861 Apr-02 13,407 10,323 10,203 May-02 13,449 10,364 10,127 Jun-02 12,736 9,710 9,406 Jul-02 11,791 8,660 8,672 Aug-02 12,025 8,720 8,730 Sep-02 10,868 7,723 7,781 Oct-02 11,345 8,365 8,465 Nov-02 12,035 8,953 8,964 Dec-02 11,684 8,488 8,437 Jan-03 11,409 8,255 8,216 Feb-03 11,207 8,031 8,093 Mar-03 11,335 8,020 8,171 Apr-03 12,130 8,813 8,845 May-03 12,873 9,462 9,311 Jun-03 13,112 9,531 9,430 Jul-03 13,233 9,743 9,596 Aug-03 13,430 9,953 9,783 Sep-03 13,551 9,773 9,679 Oct-03 14,163 10,442 10,227 Nov-03 14,415 10,536 10,317 Dec-03 15,202 11,187 10,858 Jan-04 15,585 11,385 11,057 Feb-04 15,991 11,642 11,211 Mar-04 16,024 11,562 11,042 Apr-04 15,619 11,276 10,868 May-04 15,761 11,406 11,017 Jun-04 16,216 11,653 11,231 Jul-04 15,837 11,432 10,859 Aug-04 16,049 11,555 10,903 Sep-04 16,428 11,775 11,021 Oct-04 16,673 11,953 11,189 Nov-04 17,520 12,536 11,642 Dec-04 18,110 12,945 12,038 Jan-05 17,710 12,630 11,744 Feb-05 18,378 12,859 11,991 Mar-05 18,133 12,630 11,779 Apr-05 18,055 12,372 11,555 May-05 18,590 12,763 11,922 Jun-05 18,928 12,956 11,939 Jul-05 19,551 13,364 12,383 Aug-05 19,404 13,264 12,271 Sep-05 19,552 13,402 12,370 Oct-05 19,325 13,167 12,163 Nov-05 19,924 13,659 12,623 Dec-05 19,970 13,763 12,627 Jan-06 20,750 14,173 12,962 Feb-06 20,717 14,326 12,997 Mar-06 21,057 14,570 13,158 Apr-06 21,590 14,977 13,334 May-06 21,056 14,692 12,950 Jun-06 21,090 14,742 12,968 Jul-06 21,322 14,889 13,049 Aug-06 21,651 15,117 13,359 Sep-06 22,101 15,519 13,704 Oct-06 22,733 16,036 14,151 Nov-06 23,219 16,323 14,419 Dec-06 23,598 16,717 14,621
(1) Performance reflects ongoing fund expenses, which may have been waived, and assumes reinvestment of all dividends and capital gains. Performance does not reflect the impact of federal, state, or municipal taxes. If it did, performance would be lower. The Fund's performance in 1998 benefited from the agreement of WM Advisors and its affiliates to limit the Fund's expenses. (2) See glossary on page 29 for definitions of indices. On 12/16/05, Standard & Poor's changed the name of the S&P 500/BARRA Value Index to the S&P 500/Citigroup Value Index and changed its calculation methodology. Returns shown for the indices assume reinvestment of all dividends and distributions, and since-inception returns shown for the indices are calculated from 4/30/98. Indices are unmanaged, and individuals cannot invest directly in an index. 6 PORTFOLIO MANAGER Joseph T. Suty, CFA (PHOTO OF JOSEPH T. SUTY) WM Advisors, Inc. Property Investors, Vornado Realty, and Kimco Realty. Certain allocation weightings and adjustments were more detrimental to Fund performance. For example, we began trimming the energy sector at mid-year, but these volatile securities declined very quickly in subsequent months. It helped the Fund to reduce its overall energy exposure, but holdings such as GlobalSantaFe continued to prove problematic. An under-weighting in utilities early in the year caused the Fund to miss out on the sector's gains, and when this sector deteriorated in the year's second half, we were a little too slow in trimming it. Allocation decisions that favored drug stocks also hurt results. Although we judged these holdings to be inexpensive and high yielding, market concerns about the potential consequences of a Democrat-controlled Congress depressed this group's results. We believe these concerns will fade in 2007. Following the easing of inflationary pressures and the Fed's pause, we began looking at opportunities in more economically sensitive areas of the market. We anticipate that the slowing of economic growth will reach a trough in the near term and then return to slightly higher, sustainable levels. However, we also feel that interest-rate cuts by the Fed in 2007 will be necessary to avoid a prolonged deceleration of growth. In an environment of subdued growth and inflation, we believe larger companies that are diversified, financially strong, and cash rich look most attractive going forward. We continue to search across all sectors for undervalued firms that we believe demonstrate strong balance sheets, cash flow, and dividend growth prospects. PORTFOLIO COMPOSITION(3) As of 12/31/06 (PIE CHART)
As of As of Asset Class 12/31/06 12/31/05 Change ----------- -------- -------- ------ Financials 27% 25% +2% Information Technology 11% 9% +2% Consumer Discretionary 10% 6% +4% Industrials 10% 9% +1% Health Care 8% 9% -1% Telecommunication Services 8% 4% +4% Energy 7% 12% -5% Consumer Staples 6% 6% 0% REITs 4% 6% -2% Materials 3% 4% -1% Utilities 3% 3% 0% Other 1% 2% -1% Cash Equivalents 2% 5% -3%
(3) May not reflect the current portfolio composition. 7 VT Growth & Income Fund INVESTMENT STRATEGY During 2006,corporations continued to generate strong earnings growth while economic growth slowed following a first-quarter surge. To control inflationary pressures, the Federal Reserve (the Fed) continued its two-year streak of increases in short-term interest rates. The Fed's August decision to pause this tightening campaign spurred a rally in equities. Although large caps dominated in the rally's early months, small caps rebounded in the fourth quarter. As economic growth decelerated, we emphasized holdings that rely on business spending and deemphasized those that rely on consumer spending. Several industrial firms provided the WM VT Growth & Income Fund with gains during the period. Lockheed Martin rose on increased defense spending. Honeywell International advanced on improvements in the aviation sector. AMR and Boeing also contributed positively to Fund performance. Within other sectors, utilities benefited from the Fed's pause and the market's anticipation of lower interest rates, which could improve financial conditions for utilities that typically have high debt levels. Overweighted alloca- Data shown is past performance and does not guarantee future results. Current performance, including the most recent month-end results, which may be higher or lower than the data shown, can be obtained by calling 800-222-5852. Your investment's return and principal value will fluctuate, so it may be worth more or less upon redemption. Performance shown below does not account for fees, expenses, and charges of any variable insurance contract or retirement plan. If these fees were reflected, performance would be lower. AVERAGE ANNUAL TOTAL RETURNS(1) AS OF DECEMBER 31, 2006
1-Year 5-Year 10-Year Since Inception Inception Date ------ ------ ------- --------------- -------------- CLASS 1 SHARES 11.87% 4.73% 8.44% 10.30% 1/12/94 CLASS 2 SHARES 11.66% 4.47% -- 5.05% 11/6/01 S&P 500(2) 15.80% 6.19% 8.42% 10.92%
VALUE OF A $10,000 INVESTMENT(1) DECEMBER 31, 1996 - DECEMBER 31, 2006 (PERFORMANCE GRAPH)
VT GROWTH & DATE INCOME FUND S&P 500 ---- ----------- ------- DEC-96 10,000 10,000 Jan-97 10,644 10,621 Feb-97 10,679 10,707 Mar-97 10,343 10,262 Apr-97 10,735 10,874 May-97 11,463 11,542 Jun-97 11,757 12,057 Jul-97 12,859 13,014 Aug-97 12,464 12,290 Sep-97 13,034 12,964 Oct-97 12,434 12,531 Nov-97 12,662 13,111 Dec-97 12,852 13,337 Jan-98 12,912 13,485 Feb-98 13,915 14,457 Mar-98 14,440 15,197 Apr-98 14,561 15,351 May-98 14,150 15,087 Jun-98 14,561 15,699 Jul-98 13,957 15,533 Aug-98 11,578 13,287 Sep-98 12,560 14,138 Oct-98 13,713 15,288 Nov-98 14,606 16,214 Dec-98 15,291 17,148 Jan-99 15,760 17,865 Feb-99 15,418 17,309 Mar-99 15,923 18,002 Apr-99 16,986 18,698 May-99 16,796 18,257 Jun-99 17,642 19,270 Jul-99 17,078 18,669 Aug-99 16,620 18,576 Sep-99 16,203 18,067 Oct-99 16,922 19,210 Nov-99 17,390 19,600 Dec-99 18,061 20,755 Jan-00 17,196 19,713 Feb-00 16,632 19,340 Mar-00 18,401 21,232 Apr-00 18,460 20,593 May-00 18,752 20,171 Jun-00 18,517 20,667 Jul-00 17,929 20,344 Aug-00 19,135 21,608 Sep-00 18,800 20,467 Oct-00 19,327 20,381 Nov-00 18,018 18,775 Dec-00 18,485 18,867 Jan-01 20,047 19,537 Feb-01 19,155 17,755 Mar-01 18,201 16,631 Apr-01 19,113 17,923 May-01 19,579 18,043 Jun-01 19,154 17,605 Jul-01 19,124 17,432 Aug-01 18,076 16,341 Sep-01 16,581 15,021 Oct-01 16,778 15,308 Nov-01 17,693 16,482 Dec-01 17,838 16,627 Jan-02 17,224 16,384 Feb-02 16,840 16,068 Mar-02 17,722 16,672 Apr-02 16,487 15,662 May-02 16,705 15,546 Jun-02 15,547 14,439 Jul-02 14,271 13,313 Aug-02 14,490 13,401 Sep-02 12,975 11,944 Oct-02 13,947 12,995 Nov-02 14,658 13,760 Dec-02 14,061 12,951 Jan-03 13,800 12,612 Feb-03 13,475 12,423 Mar-03 13,517 12,543 Apr-03 14,615 13,577 May-03 15,451 14,292 Jun-03 15,786 14,475 Jul-03 15,775 14,730 Aug-03 15,975 15,017 Sep-03 15,964 14,858 Oct-03 16,568 15,699 Nov-03 16,780 15,837 Dec-03 17,827 16,667 Jan-04 18,144 16,974 Feb-04 18,429 17,210 Mar-04 18,121 16,950 Apr-04 18,121 16,684 May-04 18,248 16,912 Jun-04 18,664 17,240 Jul-04 17,904 16,670 Aug-04 18,085 16,736 Sep-04 18,139 16,917 Oct-04 18,150 17,176 Nov-04 18,835 17,872 Dec-04 19,445 18,479 Jan-05 19,155 18,028 Feb-05 19,477 18,407 Mar-05 19,189 18,081 Apr-05 18,910 17,738 May-05 19,370 18,302 Jun-05 19,502 18,327 Jul-05 19,782 19,009 Aug-05 19,630 18,836 Sep-05 19,467 18,989 Oct-05 19,348 18,672 Nov-05 20,159 19,377 Dec-05 20,083 19,383 Jan-06 20,396 19,897 Feb-06 20,373 19,951 Mar-06 20,557 20,198 Apr-06 20,968 20,469 May-06 20,276 19,879 Jun-06 20,114 19,907 Jul-06 20,367 20,030 Aug-06 20,752 20,507 Sep-06 21,213 21,036 Oct-06 21,807 21,722 Nov-06 22,247 22,135 Dec-06 22,468 22,444
(1) Performance reflects ongoing fund expenses, which may have been waived, and assumes reinvestment of all dividends and capital gains. Performance does not reflect the impact of federal, state, or municipal taxes. If it did, performance would be lower. The Fund's performance in 1995 benefited from the agreement of WM Advisors and its affiliates to limit the Fund's expenses. (2) See glossary on page 29 for definitions of indices. Returns shown for the index assume reinvestment of all dividends and distributions, and the since-inception return shown for the index is calculated from 12/31/93. Indices are unmanaged, and individuals cannot invest directly in an index. 8 PORTFOLIO MANAGER Stephen Q. Spencer, CFA (PHOTO OF STEPHEN Q. SPENCER) WM Advisors, Inc. tions to energy and technology also assisted results. However, the lagging performance of large-and mega-cap firms for much of 2006 was detrimental to the Fund, as were certain health care holdings. Omnicare, a provider of pharmacy services to nursing facilities, declined in the wake of legal and business headwinds, so we exited the position. Teva and Medtronic also endured a variety of short-term problems. As a whole, the health care sector was negatively impacted by a change in Medicare reimbursement policies (that subsequently was modified) and elevated market fears after Democrats won control of Congress. In terms of allocation changes, we reduced consumer discretionaries due to our outlook for decelerating consumer spending. We also trimmed the health care and energy sectors. Changing valuations led us to increase the Fund's technology exposure in the second half of the year. Additional portfolio adjustments were made in December as preparation for a January 2007 merger. We believe that the market has begun to acknowledge that economic growth is likely to continue slowing. We anticipate that this will lead investors to reduce their risk exposure and gravitate toward large-cap companies, which typically fare better than small firms as growth slows. Large caps tend to have greater cash flow, stronger balance sheets, and broader market exposure that often includes international markets. All these factors can support large-cap firms through slower economic conditions. Should economic growth and inflation remain subdued, we believe stocks of high-quality large- and mega-cap firms could continue advancing. PORTFOLIO COMPOSITION(3) As Of 12/31/06 (PIE CHART)
As of As of Asset Class 12/31/06 12/31/05 Change ----------- -------- -------- ------ Financials 21% 22% -1% Information Technology 18% 13% +5% Industrials 13% 12% +1% Consumer Staples 10% 9% +1% Health Care 10% 13% -3% Energy 9% 10% -1% Consumer Discretionary 7% 10% -3% Telecommunication Services 3% 1% +2% Utilities 3% 5% -2% Materials 2% 2% 0% Cash Equivalents 4% 3% +1%
(3) May not reflect the current portfolio composition. 9 VT West Coast Equity Fund INVESTMENT STRATEGY Speculation about interest rates and inflation dominated the financial markets during the first half of 2006,and this served to restrain equity returns. To combat inflationary pressures, the Federal Reserve (the Fed) continued its two-year streak of increases in short-term interest rates before deciding in August to hold rates steady. Economic growth slowed as the year progressed, but the Fed's pause coupled with falling oil prices fueled a rally in stocks that extended through the close of the year. Challenges endured by certain holdings resulted in some of the WM VT West Coast Equity Fund's relative underperformance for the period. The Fund received positive contributions from Franklin Resources and PACCAR, but several other long-term holdings had adverse results during 2006. Getty Images, Nabors Industries, and SonoSite all performed poorly as their earnings failed to meet lofty market expectations. However, we continue to believe that these firms exhibit solid fundamentals, with the potential to grow faster than the overall economy. Data shown is past performance and does not guarantee future results. Current performance, including the most recent month-end results, which may be higher or lower than the data shown, can be obtained by calling 800-222-5852. Your investment's return and principal value will fluctuate, so it may be worth more or less upon redemption. Performance shown below does not account for fees, expenses, and charges of any variable insurance contract or retirement plan. If these fees were reflected, performance would be lower. Small-cap and mid-cap stocks may have additional risks, including greater price volatility. There may be additional investment risks due to the Fund's concentration in West Coast companies. AVERAGE ANNUAL TOTAL RETURNS(1) AS OF DECEMBER 31, 2006
1-Year 5-Year Since Inception Inception Date ------ ------ --------------- -------------- CLASS 1 SHARES 12.03% 8.83% 11.95% 4/28/98 CLASS 2 SHARES 11.75% 8.56% 9.84% 11/6/01 Russell 3000(R) Index(2) 15.72% 7.17% 4.97%
VALUE OF A $10,000 INVESTMENT(1) APRIL 28, 1998 - DECEMBER 31, 2006 (PERFORMANCE GRAPH)
VT WEST COAST RUSSELL 3000 DATE EQUITY FUND INDEX ---- ------------- ------------ DEC-96 Jan-97 Feb-97 Mar-97 Apr-97 May-97 Jun-97 Jul-97 Aug-97 Sep-97 Oct-97 Nov-97 Dec-97 Jan-98 Feb-98 Mar-98 Apr-98 10,000 10,000 May-98 9,470 9,753 Jun-98 9,290 10,083 Jul-98 8,720 9,899 Aug-98 7,019 8,383 Sep-98 7,689 8,954 Oct-98 8,499 9,634 Nov-98 9,699 10,224 Dec-98 10,938 10,874 Jan-99 11,228 11,243 Feb-99 10,539 10,845 Mar-99 10,859 11,243 Apr-99 11,469 11,751 May-99 11,989 11,527 Jun-99 12,852 12,109 Jul-99 12,902 11,742 Aug-99 12,952 11,609 Sep-99 12,496 11,311 Oct-99 13,125 12,021 Nov-99 13,621 12,357 Dec-99 15,354 13,146 Jan-00 15,232 12,630 Feb-00 17,473 12,748 Mar-00 17,961 13,746 Apr-00 16,734 13,262 May-00 16,115 12,889 Jun-00 17,576 13,271 Jul-00 17,504 13,036 Aug-00 18,992 14,003 Sep-00 17,697 13,369 Oct-00 16,748 13,179 Nov-00 15,311 11,964 Dec-00 16,320 12,165 Jan-01 17,686 12,581 Feb-01 15,983 11,431 Mar-01 15,138 10,686 Apr-01 16,708 11,543 May-01 18,064 11,635 Jun-01 19,731 11,421 Jul-01 18,279 11,233 Aug-01 17,872 10,570 Sep-01 14,612 9,638 Oct-01 15,624 9,862 Nov-01 16,931 10,622 Dec-01 17,442 10,771 Jan-02 17,254 10,637 Feb-02 16,877 10,420 Mar-02 17,870 10,876 Apr-02 17,243 10,305 May-02 16,594 10,186 Jun-02 15,784 9,452 Jul-02 14,092 8,701 Aug-02 13,581 8,742 Sep-02 12,538 7,823 Oct-02 13,347 8,446 Nov-02 14,401 8,957 Dec-02 13,507 8,451 Jan-03 13,304 8,243 Feb-03 13,176 8,107 Mar-03 12,996 8,193 Apr-03 13,976 8,862 May-03 15,380 9,397 Jun-03 15,712 9,524 Jul-03 16,300 9,742 Aug-03 17,047 9,958 Sep-03 16,834 9,850 Oct-03 18,254 10,446 Nov-03 18,681 10,590 Dec-03 19,365 11,074 Jan-04 19,803 11,305 Feb-04 19,941 11,458 Mar-04 19,760 11,322 Apr-04 19,066 11,087 May-04 19,387 11,248 Jun-04 20,133 11,472 Jul-04 19,084 11,038 Aug-04 19,019 11,084 Sep-04 19,630 11,254 Oct-04 19,962 11,439 Nov-04 21,043 11,971 Dec-04 21,889 12,397 Jan-05 21,044 12,067 Feb-05 21,505 12,333 Mar-05 21,088 12,124 Apr-05 20,264 11,861 May-05 21,259 12,311 Jun-05 21,599 12,397 Jul-05 22,741 12,905 Aug-05 22,741 12,782 Sep-05 22,891 12,894 Oct-05 22,644 12,652 Nov-05 23,948 13,145 Dec-05 23,764 13,157 Jan-06 24,745 13,596 Feb-06 24,810 13,620 Mar-06 25,457 13,856 Apr-06 25,371 14,006 May-06 24,455 13,558 Jun-06 24,621 13,582 Jul-06 24,080 13,570 Aug-06 24,501 13,902 Sep-06 24,976 14,214 Oct-06 25,795 14,725 Nov-06 26,482 15,046 Dec-06 26,625 15,227
(1) Performance reflects ongoing fund expenses, which may have been waived, and assumes reinvestment of all dividends and capital gains. Performance does not reflect the impact of federal, state, or municipal taxes. If it did, performance would be lower. The Fund's performance in 1998 benefited from the agreement of WM Advisors and its affiliates to limit the Fund's expenses. (2) See glossary on page 29 for definitions of indices. Returns shown for the index assume reinvestment of all dividends and distributions, and the since-inception return shown for the index is calculated from 4/30/98. Indices are unmanaged, and individuals cannot invest directly in an index. 10 PORTFOLIO MANAGER Philip M. Foreman, CFA (PHOTO OF PHILIP M. FOREMAN) WM Advisors, Inc. Certain sector allocations also had a negative impact on Fund performance. An overweighting in health care, which typically does well as the economy slows, hurt results as this sector lagged the broad equity market advance. Congressional gains by Democrats may have created some uncertainty in this sector that trumped the support of economic fundamentals and demographic trends. Underweightings in utilities and telecommunications, both due to regulatory concerns, also hurt performance. Changes in sector allocations during the period were somewhat limited, and this kept turnover low for the year. Slowing economic growth led us to add to the consumer staples sector. However, the Fund remains underweighted in this sector due to a lack of West Coast firms. Technology, which was an underperformer early in 2006, was increased to take advantage of later changes in the economic environment. The Fund closed the year with positioning that seeks to benefit from the recent decline in oil prices and the Fed's pause. We continue to favor large-cap equities, particularly those that we believe demonstrate good earnings but have lagged in the year-ending rally. We anticipate that economic growth will continue to slow while avoiding a recession. However, we also believe that eventual interest-rate cuts by the Fed will be necessary to achieve sustainable growth. Over the long term, we continue to view the West Coast as the premier hub for U.S. technology and biotech development. Accordingly, we believe we have constructed the Fund to take advantage of these opportunities. PORTFOLIO COMPOSITION(3) As of 12/31/06 (PIE CHART)
As of As of Asset Class 12/31/06 12/31/05 Change ----------- -------- -------- ------ Information Technology 19% 16% +3% Financials 17% 17% 0% Health Care 15% 17% -2% Industrials 15% 15% 0% Consumer Discretionary 11% 13% -2% Energy 7% 7% 0% Consumer Staples 6% 5% +1% Materials 3% 3% 0% REITs 3% 3% 0% Telecommunication Services 1% 1% 0% Utilities 1% 0% +1% Cash Equivalents 2% 3% -1%
(3) May not reflect the current portfolio composition. 11 VT Mid Cap Stock Fund INVESTMENT STRATEGY As 2006 progressed, economic growth gradually decelerated from a strong first quarter, while inflationary pressures followed a similar path, inching down from earlier highs. An August decision by the Federal Reserve (the Fed) to pause its monetary tightening campaign, plus a decline in oil prices, spurred a rally in equity markets. Although large caps dominated the rally's early months, mid caps outperformed large caps in the fourth quarter. The WM VT Mid Cap Stock Fund built relative outperformance for the year through holdings that demonstrated earnings growth, particularly among industrial positions. Airline holdings such as Continental Airlines and AMR benefited from improving financial conditions within the industry as airlines trimmed their fleets and reduced overall capacity. Subsequent fare increases had a more profoundly positive impact on earnings than the negative effects of elevated fuel costs. Lincoln Electric Holdings advanced on greater-than-expected sales and earnings growth. As a manufacturer of arc-welding products and welding supplies, Lincoln Electric has benefited from industrial growth in emerging markets. Another industrial Data shown is past performance and does not guarantee future results. Current performance, including the most recent month-end results, which may be higher or lower than the data shown, can be obtained by calling 800-222-5852. Your investment's return and principal value will fluctuate, so it may be worth more or less upon redemption. Performance shown below does not account for fees, expenses, and charges of any variable insurance contract or retirement plan. If these fees were reflected, performance would be lower. Small-cap and mid-cap stocks may have additional risks, including greater price volatility. AVERAGE ANNUAL TOTAL RETURNS(1) AS OF DECEMBER 31, 2006
Since Inception 1-Year 5-Year Inception Date ------ ------ --------- --------- CLASS 1 SHARES 16.88% 11.70% 13.20% 5/1/00 CLASS 2 SHARES 16.56% 11.43% 11.22% 5/1/01 S&P MidCap 400(2) 10.32% 10.89% 9.22%
VALUE OF A $10,000 INVESTMENT(1) MAY 1, 2000 - DECEMBER 31, 2006 (PERFORMANCE GRAPH)
VT MID CAP S&P DATE STOCK FUND MIDCAP 400 ---- ---------- ---------- DEC-96 Jan-97 Feb-97 Mar-97 Apr-97 May-97 Jun-97 Jul-97 Aug-97 Sep-97 Oct-97 Nov-97 Dec-97 Jan-98 Feb-98 Mar-98 Apr-98 May-98 Jun-98 Jul-98 Aug-98 Sep-98 Oct-98 Nov-98 Dec-98 Jan-99 Feb-99 Mar-99 Apr-99 May-99 Jun-99 Jul-99 Aug-99 Sep-99 Oct-99 Nov-99 Dec-99 Jan-00 Feb-00 Mar-00 Apr-00 10,000 10,000 May-00 10,210 9,875 Jun-00 9,980 10,020 Jul-00 10,150 10,178 Aug-00 10,860 11,314 Sep-00 10,751 11,236 Oct-00 10,951 10,855 Nov-00 10,651 10,036 Dec-00 11,741 10,804 Jan-01 12,171 11,044 Feb-01 12,141 10,414 Mar-01 11,700 9,640 Apr-01 12,350 10,703 May-01 12,780 10,953 Jun-01 13,188 10,909 Jul-01 13,127 10,746 Aug-01 12,737 10,395 Sep-01 11,487 9,102 Oct-01 11,897 9,504 Nov-01 12,407 10,211 Dec-01 13,148 10,739 Jan-02 12,698 10,683 Feb-02 12,698 10,696 Mar-02 13,469 11,461 Apr-02 13,379 11,407 May-02 13,508 11,214 Jun-02 12,803 10,393 Jul-02 11,870 9,386 Aug-02 11,993 9,433 Sep-02 11,070 8,673 Oct-02 11,387 9,048 Nov-02 11,983 9,572 Dec-02 11,788 9,179 Jan-03 11,583 8,911 Feb-03 11,429 8,699 Mar-03 11,480 8,772 Apr-03 11,881 9,409 May-03 12,794 10,189 Jun-03 12,866 10,318 Jul-03 13,092 10,684 Aug-03 13,431 11,170 Sep-03 13,266 10,999 Oct-03 14,192 11,830 Nov-03 14,594 12,242 Dec-03 15,057 12,449 Jan-04 15,263 12,719 Feb-04 15,695 13,024 Mar-04 15,541 13,080 Apr-04 15,396 12,651 May-04 15,777 12,913 Jun-04 16,299 13,207 Jul-04 15,627 12,591 Aug-04 15,459 12,558 Sep-04 15,741 12,930 Oct-04 15,941 13,136 Nov-04 16,791 13,919 Dec-04 17,253 14,503 Jan-05 16,644 14,133 Feb-05 17,085 14,608 Mar-05 17,399 14,445 Apr-05 16,896 13,884 May-05 17,694 14,719 Jun-05 18,131 15,061 Jul-05 18,909 15,852 Aug-05 18,875 15,676 Sep-05 18,909 15,796 Oct-05 18,684 15,457 Nov-05 19,304 16,212 Dec-05 19,563 16,324 Jan-06 20,545 17,286 Feb-06 20,364 17,141 Mar-06 21,189 17,569 Apr-06 21,415 17,817 May-06 20,670 17,013 Jun-06 20,699 17,017 Jul-06 20,376 16,532 Aug-06 20,674 16,720 Sep-06 20,996 16,832 Oct-06 21,937 17,532 Nov-06 22,788 18,097 Dec-06 22,865 18,008
(1) Performance reflects ongoing fund expenses, which may have been waived, and assumes reinvestment of all dividends and capital gains.Performance does not reflect the impact of federal, state, or municipal taxes. If it did, performance would be lower. (2) See glossary on page 29 for definitions of indices. Returns shown for the index assume reinvestment of all dividends and distributions, and the since-inception return shown for the index is calculated from 4/30/00. Indices are unmanaged, and individuals cannot invest directly in an index. 12 PORTFOLIO MANAGER Daniel R. Coleman (PHOTO OF DANIEL R. COLEMAN) WM Advisors, Inc. position, PACCAR, achieved above-consensus earnings through profitable truck financing and aftermarket parts sales. The Fund also benefited from a general lack of problematic positions. We diligently monitor the portfolio's holdings, seeking to avoid earnings surprises on the downside, and we were able to accomplish that this year. During the period, we saw few significant over- or under-valuations in sectors, so we did not make any dramatic adjustments to weightings. A split by Fidelity National Financial into two companies, both of which the Fund continues to own, created a reduction in financials and an increase in technology. However, most portfolio adjustments consisted of trimming or building core positions based on changing valuations. For example, the strong performance of energy holdings in the first half of 2006 led us to pare these positions, moving the energy sector to a moderate underweighting. Falling oil prices later in the year reduced valuations, and we added to this sector during the year's final quarter. Our outlook for mid-cap equities is generally positive,but we anticipate that economic growth will continue to slow from its strong pace in early 2006. This anticipated slowdown should produce a benign economic and interest-rate environment. On the negative side, many companies may find it hard to sustain strong earnings growth. Therefore, we are redoubling our research efforts to identify companies that we believe can generate strong sales and earnings growth without the benefit of a robust economy. PORTFOLIO COMPOSITION(3) As of 12/31/06 (PIE CHART)
As of As of Asset Class 12/31/06 12/31/05 Change ----------- -------- -------- ------ Financials 17% 20% -3% Industrials 17% 17% 0% Information Technology 14% 11% +3% Consumer Discretionary 13% 13% 0% Health Care 11% 12% -1% Energy 9% 8% +1% Materials 6% 5% +1% Utilities 5% 5% 0% REITs 2% 2% 0% Consumer Staples 1% 2% -1% Telecommunication Services 1% 1% 0% Cash Equivalents 4% 4% 0%
(3) May not reflect the current portfolio composition. 13 VT Growth Fund INVESTMENT STRATEGY Salomon Brothers Asset Management, Inc, Janus Capital Management LLC, and Oppenheimer Funds, Inc. share management responsibilities for the WM VT Growth Fund. U.S. equities performed well during the year, and after early weakness in the first and second quarters, large-cap stocks improved. Appreciation in the year's second half was largely fueled by a more dovish Federal Reserve (Fed), declining commodity prices, record share buybacks, strong merger and acquisition activity, and record corporate profits. The Fund lagged the broader market, however, in an investment climate that continued to favor value equities over growth. Salomon reported that stock selection accounted for the majority of its portfolio's underperformance. Significant detractors included technology holdings and, to a lesser degree, positions in health care, industrials, and consumer discretionaries. An overweighting in technology and underweightings in industrials and materials also had a negative impact. For the period, leading stock detractors included Yahoo!, eBay, Amazon.com, and Genentech. Leading contributors to performance included stock selection among Data shown is past performance and does not guarantee future results. Current performance, including the most recent month-end results, which may be higher or lower than the data shown, can be obtained by calling 800-222-5852. Your investment's return and principal value will fluctuate, so it may be worth more or less upon redemption. Performance shown below does not account for fees, expenses, and charges of any variable insurance contract or retirement plan. If these fees were reflected, performance would be lower. International investing involves increased risks due to currency fluctuations, political or social instability, and differences in accounting standards. AVERAGE ANNUAL TOTAL RETURNS(1) AS OF DECEMBER 31, 2006
1-Year 5-Year 10-Year Since Inception Inception Date ------ ------ ------- --------------- -------------- CLASS 1 SHARES 4.94% 1.68% 7.69% 10.37% 5/7/93 CLASS 2 SHARES 4.63% 1.44% -- 2.45% 11/6/01 Russell 1000(R) Growth Index(2) 9.07% 2.69% 5.44% 8.84%
VALUE OF A $10,000 INVESTMENT(1) DECEMBER 31, 1996 - DECEMBER 31, 2006 (PERFORMANCE GRAPH)
RUSSELL 1000 DATE VT GROWTH FUND GROWTH INDEX ------ -------------- ------------ Dec-96 10,000 10,000 Jan-97 10,487 10,701 Feb-97 10,012 10,628 Mar-97 9,343 10,053 Apr-97 9,506 10,721 May-97 10,174 11,495 Jun-97 10,575 11,955 Jul-97 11,469 13,011 Aug-97 10,871 12,250 Sep-97 11,506 12,853 Oct-97 11,195 12,377 Nov-97 11,151 12,903 Dec-97 11,122 13,048 Jan-98 11,490 13,438 Feb-98 12,559 14,449 Mar-98 13,158 15,025 Apr-98 13,671 15,232 May-98 13,267 14,800 Jun-98 14,526 15,706 Jul-98 14,478 15,602 Aug-98 12,032 13,260 Sep-98 13,504 14,278 Oct-98 13,971 15,426 Nov-98 14,928 16,600 Dec-98 17,690 18,098 Jan-99 20,039 19,160 Feb-99 19,390 18,285 Mar-99 21,866 19,248 Apr-99 22,996 19,273 May-99 21,732 18,681 Jun-99 23,475 19,989 Jul-99 22,552 19,353 Aug-99 23,159 19,669 Sep-99 24,307 19,256 Oct-99 26,135 20,710 Nov-99 29,057 21,826 Dec-99 34,866 24,096 Jan-00 34,939 22,966 Feb-00 39,226 24,089 Mar-00 39,822 25,814 Apr-00 36,214 24,585 May-00 32,959 23,346 Jun-00 33,924 25,115 Jul-00 33,320 24,068 Aug-00 35,876 26,246 Sep-00 34,089 23,763 Oct-00 32,562 22,639 Nov-00 27,255 19,302 Dec-00 27,184 18,692 Jan-01 28,461 19,984 Feb-01 23,022 16,591 Mar-01 20,587 14,786 Apr-01 24,348 16,656 May-01 23,686 16,411 Jun-01 22,774 16,030 Jul-01 21,489 15,630 Aug-01 19,347 14,351 Sep-01 17,491 12,919 Oct-01 17,749 13,597 Nov-01 18,920 14,904 Dec-01 19,291 14,876 Jan-02 18,691 14,612 Feb-02 17,020 14,006 Mar-02 17,547 14,490 Apr-02 16,391 13,308 May-02 16,134 12,986 Jun-02 14,564 11,785 Jul-02 13,364 11,137 Aug-02 13,550 11,170 Sep-02 12,392 10,012 Oct-02 13,535 10,930 Nov-02 14,363 11,523 Dec-02 13,306 10,727 Jan-03 13,020 10,466 Feb-03 12,805 10,418 Mar-03 12,963 10,612 Apr-03 14,048 11,396 May-03 14,833 11,965 Jun-03 14,933 12,130 Jul-03 15,333 12,432 Aug-03 15,803 12,742 Sep-03 15,475 12,605 Oct-03 16,332 13,314 Nov-03 16,531 13,453 Dec-03 17,188 13,919 Jan-04 17,530 14,203 Feb-04 17,587 14,294 Mar-04 17,431 14,028 Apr-04 17,046 13,865 May-04 17,346 14,123 Jun-04 17,674 14,300 Jul-04 16,889 13,492 Aug-04 16,745 13,426 Sep-04 17,045 13,553 Oct-04 17,331 13,765 Nov-04 17,974 14,238 Dec-04 18,603 14,796 Jan-05 18,103 14,303 Feb-05 18,246 14,455 Mar-05 17,989 14,192 Apr-05 17,717 13,922 May-05 18,660 14,596 Jun-05 18,387 14,542 Jul-05 19,450 15,253 Aug-05 19,250 15,056 Sep-05 19,336 15,126 Oct-05 19,135 14,979 Nov-05 20,054 15,625 Dec-05 19,982 15,576 Jan-06 20,369 15,850 Feb-06 20,153 15,825 Mar-06 20,411 16,059 Apr-06 20,223 16,037 May-06 19,275 15,493 Jun-06 19,227 15,433 Jul-06 18,723 15,139 Aug-06 19,513 15,612 Sep-06 20,073 16,041 Oct-06 20,505 16,606 Nov-06 20,950 16,935 Dec-06 20,964 16,992
(1) Performance reflects ongoing fund expenses, which may have been waived, and assumes reinvestment of all dividends and capital gains. Performance does not reflect the impact of federal, state, or municipal taxes. If it did, performance would be lower. (2) See glossary on page 29 for definitions of indices. Returns shown for the index assume reinvestment of all dividends and distributions, and the since-inception return shown for the index is calculated from 4/30/93. Indices are unmanaged, and individuals cannot invest directly in an index. 14 PORTFOLIO MANAGERS Alan Blake E. Marc Pinto, CFA William L. Wilby, CFA & Salomon Brothers Asset Janus Capital Management LLC Marc L. Baylin, CFA Management Inc OppenheimerFunds, Inc. financials, as well as an overweighting in that sector and an underweighting in energy. Janus noted that the two sectors which detracted most from its portfolio's performance were technology and health care. Yahoo! was the single largest detractor from performance. Advanced Micro Devices, UnitedHealth Group, and XM Satellite Radio also hurt results. On the positive side, energy holdings like Occidental Petroleum and Exxon Mobil contributed to performance. Select technology holdings, such as Research in Motion and Apple, also performed handsomely. Like the other subadvisors, Oppenheimer found that individual stock performance proved to be the primary influence, both positive and negative, on its portfolio's returns. Among the largest contributors to performance was Cisco Systems. Positive results also came from Goldman Sachs, Comcast, Cognizant Tech Solutions, and Schlumberger. Conversely, Yahoo!, XM Satellite Radio, and Medtronic proved to be among the largest detractors. All three subadvisors are generally optimistic about the prospects for large-cap growth stocks. Oppenheimer notes that as we head into a profit deceleration environment and a slowing economic cycle, higher quality companies tend to outperform lower quality companies and growth tends to outperform value. Janus has a constructive outlook for equity prices, but it also cautions that a rebound in energy prices and a more severe correction in the housing market could exacerbate the economic slowdown. Salomon believes that weakness in the housing market, an inverted yield curve, and the Fed's balancing act suggest that 2007 could be very much like 2006. PORTFOLIO COMPOSITION(3) As of 12/31/06 (PIE CHART)
As of As of Asset Class 12/31/06 12/31/05 Change ----------- -------- -------- ------ Information Technology 28% 28% 0% Consumer Discretionary 17% 18% -1% Financials 15% 10% +5% Health Care 15% 19% -4% Consumer Staples 11% 8% +3% Industrials 5% 5% 0% Energy 4% 4% 0% Materials 3% 2% +1% Telecommunication Services 0% 1% -1% Cash Equivalents 2% 5% -3%
(3) May not reflect the current portfolio composition. 15 VT Small Cap Value Fund INVESTMENT STRATEGY Many market participants entered 2006 predicting that small-cap stocks would rotate out of favor during the year. However, as economic growth slowed over the period, small caps maintained their multi-year trend of outperformance, and investors continued to favor value over growth across all capitalizations. A brief market pullback in May and June abated as oil prices began declining and the Federal Reserve (the Fed) halted its two-year campaign of interest-rate increases. These factors helped ignite a rally in equity markets that continued through the close of the year. Individual stock performance was the primary determinant of results for the WM VT Small Cap Value Fund. Certain problematic holdings offset the gains of strong performers. Negative contributions came primarily from consumer discretionaries. Movie Gallery, a video rental retailer, enjoyed a brief advance in the spring before dropping on lower-than-expected earnings. Other poor results among Data shown is past performance and does not guarantee future results. Current performance, including the most recent month-end results, which may be higher or lower than the data shown, can be obtained by calling 800-222-5852. Your investment's return and principal value will fluctuate, so it may be worth more or less upon redemption. Performance shown below does not account for fees, expenses, and charges of any variable insurance contract or retirement plan. If these fees were reflected, performance would be lower. Small-cap and mid-cap stocks may have additional risks, including greater price volatility. International investing involves increased risks due to currency fluctuations, political or social instability, and differences in accounting standards. AVERAGE ANNUAL TOTAL RETURNS(1) AS OF DECEMBER 31, 2006
1-Year Since Inception Inception Date ------ --------------- -------------- CLASS 1 SHARES 12.22% 14.79% 5/3/04 CLASS 2 SHARES 11.87% 8.56% 7/1/05 Russell 2000(R) Value Index(2) 23.48% 18.11%
VALUE OF A $10,000 INVESTMENT(1) MAY 3, 2004 - DECEMBER 31, 2006 (PERFORMANCE GRAPH)
VT SMALL CAP RUSSELL 2000 DATE VALUE FUND VALUE INDEX ------ ------------ ------------ DEC-96 Jan-97 Feb-97 Mar-97 Apr-97 May-97 Jun-97 Jul-97 Aug-97 Sep-97 Oct-97 Nov-97 Dec-97 Jan-98 Feb-98 Mar-98 Apr-98 May-98 Jun-98 Jul-98 Aug-98 Sep-98 Oct-98 Nov-98 Dec-98 Jan-99 Feb-99 Mar-99 Apr-99 May-99 Jun-99 Jul-99 Aug-99 Sep-99 Oct-99 Nov-99 Dec-99 Jan-00 Feb-00 Mar-00 Apr-00 May-00 Jun-00 Jul-00 Aug-00 Sep-00 Oct-00 Nov-00 Dec-00 Jan-01 Feb-01 Mar-01 Apr-01 May-01 Jun-01 Jul-01 Aug-01 Sep-01 Oct-01 Nov-01 Dec-01 Jan-02 Feb-02 Mar-02 Apr-02 May-02 Jun-02 Jul-02 Aug-02 Sep-02 Oct-02 Nov-02 Dec-02 Jan-03 Feb-03 Mar-03 Apr-03 May-03 Jun-03 Jul-03 Aug-03 Sep-03 Oct-03 Nov-03 Dec-03 Jan-04 Feb-04 Mar-04 Apr-04 10,000 10,000 May-04 9,840 10,121 Jun-04 10,260 10,635 Jul-04 10,180 10,146 Aug-04 10,280 10,245 Sep-04 10,820 10,651 Oct-04 11,050 10,816 Nov-04 12,020 11,776 Dec-04 12,270 12,057 Jan-05 12,090 11,590 Feb-05 12,430 11,821 Mar-05 12,489 11,578 Apr-05 12,070 10,980 May-05 12,420 11,650 Jun-05 12,724 12,165 Jul-05 13,314 12,857 Aug-05 13,045 12,561 Sep-05 12,735 12,540 Oct-05 12,071 12,225 Nov-05 12,610 12,722 Dec-05 12,880 12,624 Jan-06 13,418 13,668 Feb-06 13,159 13,666 Mar-06 13,635 14,328 Apr-06 13,417 14,366 May-06 13,106 13,772 Jun-06 13,200 13,941 Jul-06 12,861 13,747 Aug-06 13,130 14,158 Sep-06 13,235 14,297 Oct-06 13,972 15,025 Nov-06 14,334 15,453 Dec-06 14,452 15,587
(1) Performance reflects ongoing fund expenses, which may have been waived, and assumes reinvestment of all dividends and capital gains. Performance does not reflect the impact of federal, state, or municipal taxes. If it did, performance would be lower. (2) See glossary on page 29 for definitions of indices. Returns shown for the index assume reinvestment of all dividends and distributions, and the since-inception return shown for the index is calculated from 4/30/04.Indices are unmanaged, and individuals cannot invest directly in an index. 16 PORTFOLIO MANAGER David W. Simpson, CFA (PHOTO OF DAVID W. SIMPSON) WM Advisors, Inc. consumer discretionaries came from Rocky Brands and Lenox Group. Conversely, holdings from the materials sector advanced strongly on the widespread runup in commodity prices. The standout performer within this sector was Minara Resources, an Australian nickel miner that benefited from a surge in nickel prices plus production improvements. Century Aluminum, Randgold Resources, and Metal Management also benefited Fund performance. Airline holdings, particularly Continental Airlines and AMR, contributed to positive Fund results. These firms benefited from improving financial conditions within the industry as airlines trimmed their fleets and reduced overall capacity. Subsequent fare increases had a more profoundly positive impact on earnings than the negative effects of elevated fuel costs. Several of the holdings highlighted in preceding paragraphs were sold in December to prepare for the Fund's January 2007 merger. Other large allocation changes shown in the table below were similarly directed at aligning our portfolio with that of the fund that will be the surviving entity. Our outlook anticipates that the actions of the Fed, as determined by incoming growth and inflation data, will help to set the market direction for small-cap equities. The Fed's pause could prove beneficial for small caps in the short term, but any mixed economic data that creates uncertainty about the Fed's next move could provoke some volatility. PORTFOLIO COMPOSITION(3) As of 12/31/06 (PIE CHART)
As of As of Asset Class 12/31/06 12/31/05 Change ----------- -------- -------- ------ Financials 23% 13% +10% Industrials 15% 15% 0% Consumer Discretionary 11% 13% -2% REITs 10% 5% +5% Information Technology 9% 10% -1% Energy 6% 9% -3% Materials 6% 12% -6% Health Care 5% 5% 0% Consumer Staples 4% 8% -4% Telecommunication Services 3% 3% 0% Utilities 1% 1% 0% Options 0% 3% -3% Cash Equivalents 7% 3% +4%
(3) May not reflect the current portfolio composition. 17 VT Small Cap Growth Fund INVESTMENT STRATEGY Delaware Management Company and Oberweis Asset Management, Inc. share management responsibilities for the WM VT Small Cap Growth Fund. Stocks rose strongly in 2006, with nearly all major domestic indices posting double digit returns. Value significantly outperformed growth across all capitalizations, and this reflected, in part, a shift in investor sentiment that took place in the spring amid fears about continuing inflationary pressure extending the Federal Reserve's tightening cycle. The ramifications of this extension led investors to flee riskier assets. Growth stocks suffered the most, especially among lower-cap stocks. Investor pessimism gave way in the third quarter, however, as commodity prices experienced a significant drop and the Federal Reserve finally paused its regimen of successive rate hikes. Large-cap stocks were the initial beneficiaries, but small-cap stocks broke out and generated the strongest returns for the fourth quarter and, as a result, for the full year. Delaware observed that the entirety of its portfolio's relative underperformance occurred between late March and early August when fear of inflation and future Data shown is past performance and does not guarantee future results. Current performance, including the most recent month-end results, which may be higher or lower than the data shown, can be obtained by calling 800-222-5852. Your investment's return and principal value will fluctuate, so it may be worth more or less upon redemption. Performance shown below does not account for fees, expenses, and charges of any variable insurance contract or retirement plan. If these fees were reflected, performance would be lower. Small-cap and mid-cap stocks may have additional risks, including greater price volatility. AVERAGE ANNUAL TOTAL RETURNS(1) AS OF DECEMBER 31, 2006
1-Year 5-Year 10-Year Since Inception Inception Date ------ ------ ------- --------------- -------------- CLASS 1 SHARES 6.82% -0.09% 4.91% 7.16% 1/12/94 CLASS 2 SHARES 6.58% -0.34% -- -0.83% 5/1/01 Russell 2000(R) Growth Index(2) 13.35% 6.93% 4.88% 6.58%
VALUE OF A $10,000 INVESTMENT(1) DECEMBER 31, 1996 - DECEMBER 31, 2006 (PERFORMANCE GRAPH)
VT SMALL CAP RUSSELL 2000 DATE GROWTH FUND GROWTH INDEX ---- ------------ ------------ DEC-96 10,000 10,000 Jan-97 9,667 10,250 Feb-97 9,429 9,631 Mar-97 8,769 8,951 Apr-97 8,817 8,847 May-97 9,830 10,177 Jun-97 10,330 10,522 Jul-97 10,388 11,061 Aug-97 10,496 11,392 Sep-97 11,195 12,301 Oct-97 11,008 11,562 Nov-97 11,109 11,287 Dec-97 11,260 11,294 Jan-98 11,137 11,144 Feb-98 12,110 12,128 Mar-98 12,628 12,637 Apr-98 12,548 12,714 May-98 11,641 11,790 Jun-98 11,676 11,910 Jul-98 10,834 10,915 Aug-98 8,524 8,396 Sep-98 9,267 9,248 Oct-98 9,967 9,730 Nov-98 11,035 10,485 Dec-98 12,153 11,434 Jan-99 12,019 11,949 Feb-99 10,893 10,855 Mar-99 10,834 11,242 Apr-99 11,318 12,235 May-99 12,119 12,254 Jun-99 13,086 12,900 Jul-99 13,466 12,501 Aug-99 13,237 12,034 Sep-99 13,498 12,266 Oct-99 14,183 12,580 Nov-99 16,422 13,910 Dec-99 20,790 16,361 Jan-00 22,377 16,209 Feb-00 29,875 19,980 Mar-00 26,529 17,880 Apr-00 21,181 16,074 May-00 19,452 14,666 Jun-00 23,856 16,561 Jul-00 22,754 15,142 Aug-00 25,132 16,735 Sep-00 23,531 15,903 Oct-00 21,999 14,612 Nov-00 18,497 11,958 Dec-00 18,589 12,690 Jan-01 21,489 13,717 Feb-01 17,361 11,836 Mar-01 14,554 10,760 Apr-01 16,711 12,077 May-01 17,812 12,358 Jun-01 19,848 12,695 Jul-01 16,623 11,612 Aug-01 15,481 10,886 Sep-01 11,628 9,130 Oct-01 13,054 10,009 Nov-01 14,967 10,844 Dec-01 16,222 11,520 Jan-02 14,582 11,110 Feb-02 12,999 10,391 Mar-02 14,696 11,294 Apr-02 12,627 11,050 May-02 11,157 10,404 Jun-02 10,213 9,521 Jul-02 8,402 8,058 Aug-02 8,058 8,054 Sep-02 7,558 7,472 Oct-02 8,449 7,851 Nov-02 9,667 8,629 Dec-02 8,574 8,033 Jan-03 8,683 7,815 Feb-03 8,293 7,606 Mar-03 8,152 7,721 Apr-03 9,042 8,451 May-03 10,666 9,404 Jun-03 10,837 9,585 Jul-03 11,649 10,310 Aug-03 12,290 10,863 Sep-03 12,369 10,589 Oct-03 13,993 11,504 Nov-03 14,305 11,879 Dec-03 14,695 11,932 Jan-04 15,850 12,558 Feb-04 15,788 12,540 Mar-04 15,679 12,599 Apr-04 14,587 11,966 May-04 14,493 12,204 Jun-04 14,742 12,611 Jul-04 12,743 11,478 Aug-04 12,666 11,231 Sep-04 13,322 11,852 Oct-04 13,603 12,140 Nov-04 14,478 13,166 Dec-04 15,384 13,639 Jan-05 14,681 13,025 Feb-05 14,384 13,204 Mar-05 13,432 12,709 Apr-05 12,355 11,900 May-05 13,354 12,739 Jun-05 13,916 13,151 Jul-05 14,948 14,070 Aug-05 14,744 13,872 Sep-05 14,995 13,981 Oct-05 14,683 13,464 Nov-05 15,370 14,226 Dec-05 15,120 14,205 Jan-06 16,713 15,575 Feb-06 16,479 15,493 Mar-06 17,058 16,246 Apr-06 16,901 16,199 May-06 15,557 15,058 Jun-06 15,371 15,067 Jul-06 14,261 14,285 Aug-06 14,605 14,704 Sep-06 14,745 14,804 Oct-06 15,479 15,763 Nov-06 16,135 16,140 Dec-06 16,151 16,101
(1) Performance reflects ongoing fund expenses, which may have been waived, and assumes reinvestment of all dividends and capital gains. Performance does not reflect the impact of federal, state, or municipal taxes. If it did, performance would be lower. The Fund's performance in 1995 benefited from the agreement of WM Advisors and its affiliates to limit the Fund's expenses. (2) See glossary on page 29 for definitions of indices. Returns shown for the index assume reinvestment of all dividends and distributions, and the since-inception return shown for the index is calculated from 12/31/93. Indices are unmanaged, and individuals cannot invest directly in an index. 18 PORTFOLIO MANAGERS Emerging Growth Team James W. Oberweis, CFA Delaware Management Company Oberweis Asset Management, Inc. rate hikes sent investors fleeing from riskier assets. Solidly positive stock selection in the energy, consumer services, financial, and business services sectors was negated by weakness among technology, health care, and consumer non-durable holdings. Positive individual contributors included Akamai Technologies, Micrus Endovascular, and Input/Output. Detractors from Fund performance included Telik, Ixia, and Urban Outfitters. Oberweis noted that as the value style dominated the small-cap market in 2006, its portfolio of high-growth companies fared poorly relative to the rest of the small-cap marketplace. In general, its allocations tend to be overweighted in sectors that offer rapid and ongoing change due to new technologies, patents, and unique market positioning. Sectors that offer these characteristics include technology, health care, and consumer discretionaries. Top performers for the year included Focus Media Holdings, Veritas DCG, and Rackable Systems. In contrast, the leading detractors for the year included Blue Coat Systems, Openwave, and ASV. Delaware anticipates that in the absence of a sudden, unexpected spike in inflation and energy prices, consumer-related stocks should continue to do well. Additionally, major new product launches from some of the largest technology firms, coupled with the potential for infrastructure replacement, should bode well for the technology sector. Oberweis expects growth stocks to begin to outperform value and regards the relative price/earnings ratios of value stocks (at all market capitalizations) as expensive relative to growth stocks. That disparity increased in 2006, and Oberweis believes this portends a rotation toward the growth style in the near future. PORTFOLIO COMPOSITION(3) As of 12/31/06 (PIE CHART)
As of As of Asset Class 12/31/06 12/31/05 Change ----------- -------- -------- ------ Health Care 20% 25% -5% Consumer Discretionary 16% 14% +2% Industrials 12% 13% -1% Energy 8% 7% +1% Semiconductors & Semiconductor Equipment 7% 6% +1% Communications Equipment 6% 7% -1% Financials 5% 5% 0% Software 5% 5% 0% Internet Software & Services 4% 7% -3% Computers & Peripherals 2% 2% 0% IT Services 2% 3% -1% Consumer Staples 1% 2% -1% Electronic Equipment & Instruments 1% 0% +1% REITs 1% 1% 0% Other 1% 1% 0% Cash Equivalents 9% 2% +7%
(3) May not reflect the current portfolio composition. 19 VT International Growth Fund INVESTMENT STRATEGY The global stock market capped off an exceptional year in which all developed markets except Japan posted double-digit gains. Stocks benefited from strong earnings, a supportive global economy, and a high level of liquidity. Returns for U.S.-based investors were even stronger as European currencies gained sharply on the dollar. Japanese equities rose but lagged behind stronger gains in North America, Europe, and elsewhere in the Pacific. While earnings for Japanese exporters remained solid, the domestic economy showed little improvement. Equities were also held back by comments from the Bank of Japan, which suggested that it might again raise interest rates--a move seen as premature by most investors. Emerging market stocks sustained their four-year winning streak, with strong gains in the fourth quarter. A spurt in merger-and-acquisition activity, low long-term interest rates in the major economies, and robust corporate earnings growth fueled the rally. Absolute returns were strong on the back of the global rally in equities. Stock selection among information technology stocks was the Data shown is past performance and does not guarantee future results. Current performance, including the most recent month-end results, which may be higher or lower than the data shown, can be obtained by calling 800-222-5852. Your investment's return and principal value will fluctuate, so it may be worth more or less upon redemption. Performance shown below does not account for fees, expenses, and charges of any variable insurance contract or retirement plan. If these fees were reflected, performance would be lower. International investing, especially in emerging markets, involves increased risks due to currency fluctuations, political or social instability, and differences in accounting standards. AVERAGE ANNUAL TOTAL RETURNS (1) AS OF DECEMBER 31, 2006
Since Inception 1-Year 5-Year 10-Year Inception Date ------ ------ ------- --------- --------- CLASS 1 SHARES 20.54% 13.01% 6.58% 7.05% 5/7/93 CLASS 2 SHARES 20.27% 12.73% -- 13.27% 11/6/01 MSCI All Country World Index ex-USA(2) 27.16% 16.87% 8.59% 8.80% MSCI EAFE Index(2) 26.86% 15.43% 8.06% 8.41%
VALUE OF A $10,000 INVESTMENT (1) DECEMBER 31, 1996 - DECEMBER 31, 2006 (PERFORMANCE GRAPH)
MORGAN STANLEY MSCI AC WORLD CAPITAL VT INTERNATIONAL INDEX EX INTERNATIONAL DATE GROWTH FUND USA EAFE INDEX ---- ---------------- ------------- -------------- DEC-96 10,000 10,000 10,000 Jan-97 10,046 9,816 9,652 Feb-97 10,107 9,996 9,812 Mar-97 10,022 9,975 9,850 Apr-97 10,230 10,058 9,905 May-97 10,852 10,680 10,551 Jun-97 11,325 11,270 11,136 Jul-97 11,675 11,497 11,319 Aug-97 10,666 10,592 10,475 Sep-97 11,238 11,165 11,064 Oct-97 10,039 10,215 10,217 Nov-97 9,722 10,088 10,114 Dec-97 9,737 10,204 10,205 Jan-98 9,840 10,509 10,675 Feb-98 10,492 11,210 11,362 Mar-98 11,064 11,597 11,715 Apr-98 11,341 11,681 11,809 May-98 11,254 11,470 11,755 Jun-98 10,896 11,426 11,847 Jul-98 10,949 11,534 11,970 Aug-98 9,493 9,908 10,489 Sep-98 9,008 9,699 10,170 Oct-98 9,476 10,715 11,233 Nov-98 10,005 11,290 11,812 Dec-98 10,243 11,679 12,281 Jan-99 10,376 11,667 12,248 Feb-99 10,058 11,405 11,959 Mar-99 10,472 11,956 12,461 Apr-99 10,869 12,554 12,968 May-99 10,428 11,964 12,303 Jun-99 11,141 12,514 12,785 Jul-99 11,636 12,808 13,169 Aug-99 11,813 12,853 13,220 Sep-99 12,078 12,941 13,356 Oct-99 12,634 13,422 13,860 Nov-99 13,615 13,959 14,345 Dec-99 15,566 15,290 15,634 Jan-00 14,770 14,460 14,643 Feb-00 15,309 14,851 15,040 Mar-00 15,680 15,409 15,626 Apr-00 14,948 14,549 14,808 May-00 14,206 14,177 14,449 Jun-00 15,037 14,781 15,017 Jul-00 14,233 14,197 14,391 Aug-00 14,526 14,373 14,519 Sep-00 13,383 13,575 13,815 Oct-00 12,779 13,143 13,492 Nov-00 12,267 12,553 12,988 Dec-00 12,477 12,983 13,453 Jan-01 12,778 13,177 13,447 Feb-01 11,663 12,134 12,439 Mar-01 11,069 11,276 11,616 Apr-01 12,093 12,043 12,430 May-01 11,582 11,710 12,001 Jun-01 11,043 11,261 11,515 Jul-01 10,702 11,011 11,307 Aug-01 10,360 10,738 11,023 Sep-01 9,074 9,598 9,909 Oct-01 9,516 9,867 10,162 Nov-01 10,099 10,318 10,537 Dec-01 10,259 10,451 10,601 Jan-02 9,788 10,004 10,038 Feb-02 9,878 10,076 10,109 Mar-02 10,480 10,623 10,661 Apr-02 10,470 10,692 10,738 May-02 10,509 10,809 10,884 Jun-02 9,988 10,342 10,455 Jul-02 8,992 9,333 9,424 Aug-02 8,860 9,334 9,405 Sep-02 7,925 8,345 8,398 Oct-02 8,566 8,792 8,850 Nov-02 9,105 9,215 9,252 Dec-02 8,648 8,917 8,942 Jan-03 8,302 8,604 8,569 Feb-03 8,108 8,430 8,373 Mar-03 7,844 8,266 8,215 Apr-03 8,616 9,063 9,030 May-03 9,104 9,640 9,585 Jun-03 9,318 9,907 9,822 Jul-03 9,679 10,171 10,062 Aug-03 9,967 10,474 10,306 Sep-03 10,143 10,767 10,626 Oct-03 10,842 11,465 11,289 Nov-03 10,987 11,715 11,542 Dec-03 11,717 12,609 12,444 Jan-04 11,840 12,812 12,621 Feb-04 12,046 13,137 12,915 Mar-04 12,119 13,219 12,992 Apr-04 11,727 12,807 12,709 May-04 11,738 12,848 12,764 Jun-04 11,862 13,127 13,048 Jul-04 11,466 12,745 12,627 Aug-04 11,570 12,847 12,685 Sep-04 11,747 13,261 13,019 Oct-04 12,113 13,722 13,464 Nov-04 12,801 14,675 14,387 Dec-04 13,311 15,304 15,019 Jan-05 13,020 15,041 14,744 Feb-05 13,520 15,783 15,384 Mar-05 13,166 15,355 15,004 Apr-05 12,822 14,976 14,668 May-05 12,853 15,070 14,690 Jun-05 13,007 15,353 14,891 Jul-05 13,464 15,920 15,348 Aug-05 14,046 16,327 15,741 Sep-05 14,576 17,170 16,445 Oct-05 14,290 16,545 15,966 Nov-05 14,693 17,101 16,361 Dec-05 15,690 17,923 17,123 Jan-06 16,654 19,173 18,176 Feb-06 16,295 19,117 18,140 Mar-06 16,761 19,671 18,746 Apr-06 17,471 20,686 19,655 May-06 16,538 19,733 18,916 Jun-06 16,457 19,713 18,924 Jul-06 16,564 19,914 19,113 Aug-06 17,103 20,478 19,644 Sep-06 17,178 20,490 19,678 Oct-06 17,910 21,324 20,445 Nov-06 18,384 22,098 21,062 Dec-06 18,912 22,787 21,726
(1) Performance reflects ongoing fund expenses, which may have been waived, and assumes reinvestment of all dividends and capital gains. Performance does not reflect the impact of federal, state, or municipal taxes. If it did, performance would be lower. The Fund's performance in 1998 benefited from the agreement of WM Advisors and its affiliates to limit the Fund's expenses. (2) See glossary on page 29 for definitions of indices. Effective 3/1/06, the Morgan Stanley Capital International (MSCI) All Country World Index (ACWI) ex-USA replaced the MSCI EAFE Index because WM Advisors and the Fund's subadvisor believe the new benchmark more accurately reflects the Fund's performance characteristics. Returns shown for the indices assume reinvestment of all dividends and distributions, and since-inception returns shown for the indices are calculated from 4/30/93. Indices are unmanaged, and individuals cannot invest directly in an index. 20 PORTFOLIO MANAGERS Non-U.S. Equity Team & Emerging Market Equity Team Capital Guardian Trust Company biggest detractor to relative results in 2006. Most of the portfolio's technology holdings that provided large negative returns were Japanese firms, such as SOFTBANK (reclassified to telecom at year-end), Nitto Denko,and Yahoo! Japan. Stock selection within the financial sector also detracted from results. Portfolio returns were positively impacted by stock selection in the consumer discretionary and utility sectors and from being overweighted in telecommunications and underweighted in energy. Looking at the portfolio by country, allocations to Canada, Mexico, and the Netherlands were the top contributors. Within the emerging markets portion of the Fund, stock selection was strong in several sectors, including consumer discretionaries, materials, information technology, utilities, and telecommunication services. Telekomunikasi Indonesia and Hon Hai Precision were among the top contributors. Compared to its benchmark, the Fund was marginally underweighted in emerging markets, which detracted from results. The portfolio was overweighted in telecommunications and technology. We tried to avoid areas where valuations have risen sharply due to buyout excitement rather than earnings prospects. Japan continues to be overweighted within the portfolio. While corporate health has improved greatly, consumer demand has yet to recover. We think corporate profits will ultimately find their way to the consumer, and pent-up demand will trigger a revival in consumer spending.In our view, the risk that zealous central bank policies might trigger a cyclical downturn in Japan may be exaggerated. GEPGRAPHIC BREAKDOWN (3) As of 12/31/06 (PIE CHART)
As of As of Asset Class 12/31/06 12/31/05 Change ----------- -------- -------- ------ Japan 20% 33% -13% United Kingdom 16% 16% 0% France 9% 8% +1% Switzerland 9% 8% +1% Germany 6% 6% 0% Canada 5% 4% +1% Australia 4% 2% +2% Belgium 3% 1% +2% Netherlands 3% 5% -2% Spain 3% 4% -1% China 2% 0% +2% Hong Kong 2% 1% +1% Italy 2% 0% +2% Other Countries 13% 10% +3% Cash Equivalents 3% 2% +1%
(3) May not reflect the current portfolio composition. 21 VT Short Term Income Fund INVESTMENT STRATEGY Bond markets entered 2006 with a flat yield curve in which 2-year Treasury yields stood 2 basis points higher than those of 10-year Treasuries. During the first half of 2006, the Federal Reserve (the Fed) continued its two-year campaign of raising short-term interest rates. The yield curve responded by becoming more inverted as short-term yields rose. The Fed paused in August and held its target federal funds rate at 5.25% for the remainder of the year. Bond markets closed 2006 with 2-year Treasury yields having climbed 41 basis points and standing 11 basis points above yields on 10-year Treasuries. Within this environment, positioning on the yield curve drove performance. The best-performing holdings of the WM VT Short Term Income Fund were corporate issues with very short maturities, a feature that left little doubt that the issuers would pay on these securities when they came due. For example, the portfolio holds Ford Motor Credit Company notes that are due in January 2007. These issues were heavily discounted a year ago and benefited Fund Data shown is past performance and does not guarantee future results. Current performance, including the most recent month-end results, which may be higher or lower than the data shown, can be obtained by calling 800-222-5852. Your investment's return and principal value will fluctuate, so it may be worth more or less upon redemption. Performance shown below does not account for fees, expenses, and charges of any variable insurance contract or retirement plan. If these fees were reflected, performance would be lower. Fixed-income investments are subject to interest rate risk, and their value will decline as interest rates rise. There may be additional credit and default risks associated with lower-rated securities. REIT securities are subject to risk factors associated with the real estate industry and tax factors of REIT registration. AVERAGE ANNUAL TOTAL RETURNS (1) AS OF DECEMBER 31, 2006
Since Inception 1-Year 5-Year 10-Year Inception Date ------ ------ ------- --------- --------- CLASS 1 SHARES 4.59% 4.00% 5.03% 4.74% 1/12/94 CLASS 2 SHARES 4.24% 3.77% -- 3.66% 11/6/01 Citigroup Broad Investment-Grade Credit 1-3 Years Index(2) 4.88% 4.12% 5.61% 5.73%
VALUE OF A $10,000 INVESTMENT (1) DECEMBER 31, 1996 - DECEMBER 31, 2006
CITIGROUP BROAD INVESTMENT VT SHORT TERM GRADE CREDIT DATE INCOME FUND 1-3 YR INDEX ---- ------------- ------------ DEC-96 10,000 10,000 Jan-97 10,041 10,056 Feb-97 10,082 10,079 Mar-97 10,082 10,077 Apr-97 10,124 10,159 May-97 10,207 10,233 Jun-97 10,248 10,310 Jul-97 10,375 10,441 Aug-97 10,375 10,445 Sep-97 10,461 10,531 Oct-97 10,503 10,599 Nov-97 10,546 10,617 Dec-97 10,590 10,686 Jan-98 10,633 10,795 Feb-98 10,677 10,809 Mar-98 10,703 10,862 Apr-98 10,747 10,921 May-98 10,791 10,985 Jun-98 10,836 11,041 Jul-98 10,880 11,099 Aug-98 10,969 11,185 Sep-98 11,103 11,336 Oct-98 11,149 11,352 Nov-98 11,149 11,389 Dec-98 11,150 11,444 Jan-99 11,195 11,518 Feb-99 11,150 11,481 Mar-99 11,242 11,583 Apr-99 11,288 11,636 May-99 11,242 11,621 Jun-99 11,285 11,657 Jul-99 11,285 11,674 Aug-99 11,332 11,705 Sep-99 11,422 11,793 Oct-99 11,422 11,832 Nov-99 11,469 11,871 Dec-99 11,474 11,902 Jan-00 11,474 11,911 Feb-00 11,570 11,999 Mar-00 11,590 12,060 Apr-00 11,639 12,058 May-00 11,639 12,096 Jun-00 11,761 12,246 Jul-00 11,860 12,347 Aug-00 11,958 12,454 Sep-00 12,042 12,576 Oct-00 12,093 12,581 Nov-00 12,244 12,699 Dec-00 12,420 12,853 Jan-01 12,573 13,097 Feb-01 12,624 13,203 Mar-01 12,762 13,326 Apr-01 12,814 13,370 May-01 12,865 13,492 Jun-01 12,917 13,554 Jul-01 13,072 13,748 Aug-01 13,175 13,860 Sep-01 13,331 14,007 Oct-01 13,435 14,132 Nov-01 13,382 14,118 Dec-01 13,434 14,112 Jan-02 13,487 14,157 Feb-02 13,538 14,187 Mar-02 13,435 14,120 Apr-02 13,642 14,236 May-02 13,746 14,360 Jun-02 13,793 14,410 Jul-02 13,793 14,492 Aug-02 13,900 14,611 Sep-02 14,061 14,759 Oct-02 13,953 14,720 Nov-02 14,061 14,829 Dec-02 14,276 15,056 Jan-03 14,384 15,118 Feb-03 14,492 15,245 Mar-03 14,546 15,297 Apr-03 14,707 15,436 May-03 14,869 15,584 Jun-03 14,893 15,648 Jul-03 14,778 15,537 Aug-03 14,778 15,563 Sep-03 15,007 15,747 Oct-03 14,950 15,698 Nov-03 14,950 15,715 Dec-03 15,065 15,835 Jan-04 15,122 15,895 Feb-04 15,180 15,987 Mar-04 15,295 16,059 Apr-04 15,124 15,897 May-04 15,066 15,872 Jun-04 15,080 15,884 Jul-04 15,140 15,962 Aug-04 15,260 16,112 Sep-04 15,319 16,112 Oct-04 15,379 16,172 Nov-04 15,319 16,099 Dec-04 15,379 16,146 Jan-05 15,379 16,146 Feb-05 15,319 16,115 Mar-05 15,319 16,092 Apr-05 15,379 16,186 May-05 15,439 16,263 Jun-05 15,507 16,322 Jul-05 15,507 16,299 Aug-05 15,569 16,410 Sep-05 15,569 16,367 Oct-05 15,506 16,361 Nov-05 15,568 16,407 Dec-05 15,631 16,472 Jan-06 15,693 16,525 Feb-06 15,693 16,548 Mar-06 15,756 16,575 Apr-06 15,756 16,636 May-06 15,817 16,663 Jun-06 15,830 16,693 Jul-06 15,960 16,836 Aug-06 16,089 16,972 Sep-06 16,154 17,067 Oct-06 16,218 17,153 Nov-06 16,283 17,256 Dec-06 16,348 17,275
(1) Performance reflects ongoing fund expenses, which may have been waived, and assumes reinvestment of all dividends and capital gains. Performance does not reflect the impact of federal, state, or municipal taxes. If it did, performance would be lower. The Fund's performance between 1995 and 1998 benefited from the agreement of WM Advisors and its affiliates to limit the Fund's expenses. (2) See glossary on page 29 for definitions of indices. Returns shown for the index assume reinvestment of all dividends and distributions, and the since-inception return shown for the index is calculated from 12/31/93. Indices are unmanaged, and individuals cannot invest directly in an index. 22 PORTFOLIO MANAGER Craig V. Sosey (PHOTO OF CRAIG V. SOSEY) WM Advisors, Inc. performance as they neared maturity. Several Fund holdings in the financial services and banking sectors have similar positions on the yield curve, and consequently they had a positive impact on performance during the year. A variety of Fund holdings in the 5-year range also assisted performance as this maturity segment outperformed 2-year and 3-year issues. In contrast, certain corporate holdings suffered in the wake of leveraged buyout (LBO) offers or rumors. Issues of Harrah's, a casino operator, and Univision Communications, a U.S. Spanish-language broadcaster, detracted from Fund performance as these companies considered LBO deals. Univision's acquisition was approved by its shareholders in September, and Harrah's agreed to a buyout deal in December. Despite these difficulties, corporate issues also offered some of the more attractive opportunities during the period. We added to the financial services, technology, telecommunications, and building products sectors. New names included General Electric Capital, Western Union, Cisco, KPN, and Mohawk Industries. Our outlook for 2007 anticipates that the Fed's next move will be to cut short-term interest rates, although the timing of this policy change is difficult to assess. In the interim, there is a good possibility that the front end of the yield curve will remain inverted, with some volatility if economic data presents mixed signals. As conditions evolve and the market gains confidence that a Fed rate cut is imminent, we believe the investment environment for short-term bonds, particularly 2-year and 3-year issues, could be favorable. PORTFOLIO COMPOSITION(3) As of 12/31/06 (PIE CHART)
As of As of Asset Class 12/31/06 12/31/05 Change ----------- -------- -------- ------ Domestic Corporate Bonds 64% 58% +6% Mortgage-Backed Bonds/CMOs 16% 17% -1% U.S. Government Agency 7% 7% 0% Foreign Corporate Bonds (U.S. $) 7% 5% +2% Asset-Backed Bonds 3% 5% -2% U.S. Treasuries 1% 4% -3% Cash Equivalents 2% 4% -2%
(3) May not reflect the current portfolio composition. 23 VT U.S. Government Securities Fund INVESTMENT STRATEGY Bond markets entered 2006 with a flat yield curve in which 2-year Treasury yields stood 2 basis points higher than those of 10-year Treasuries. During the first half of 2006, the Federal Reserve (the Fed) continued its two-year campaign of raising short-term interest rates. The yield curve responded by becoming more inverted. The Fed paused in August and held its target federal funds rate at 5.25% for the remainder of the year. Bond markets closed 2006 with 10-year Treasury yields 32 basis points above the previous year, while 2-year Treasury yields had climbed 41 basis points, leaving the yield curve inverted by 11 basis points. Mortgage-backed securities (MBS), which comprise the majority of the WM VT U.S. Government Securities Fund, tend to do fairly well in a rising-rate environment. This held true during the period, particularly among issues with lower coupon rates. The Fund's overweighting in lower coupon issues benefited performance. A variety of other over- and underweightings also impacted the Fund during the year. For Data shown is past performance and does not guarantee future results. Current performance, including the most recent month-end results, which may be higher or lower than the data shown, can be obtained by calling 800-222-5852.Your investment's return and principal value will fluctuate, so it may be worth more or less upon redemption. Performance shown below does not account for fees, expenses, and charges of any variable insurance contract or retirement plan. If these fees were reflected, performance would be lower. Fixed-income investments are subject to interest rate risk, and their value will decline as interest rates rise. Neither the principal of government bond funds nor their yields are guaranteed by the U.S. government. AVERAGE ANNUAL TOTAL RETURNS(1) AS OF DECEMBER 31, 2006
1-Year 5-Year 10-Year Since Inception Inception Date ------ ------ ------- --------------- -------------- CLASS 1 SHARES 4.45% 4.27% 5.55% 5.37% 5/6/93 CLASS 2 SHARES 4.22% 4.03% -- 3.62% 11/6/01 Citigroup Mortgage Index(2) 5.17% 4.90% 6.18% 6.22%
VALUE OF A $10,000 INVESTMENT(1) DECEMBER 31, 1996 - DECEMBER 31, 2006 (PERFORMANCE GRAPH)
VT CITIGROUP U.S. GOVERNMENT MORTGAGE DATE SECURITIES FUND INDEX ---- --------------- --------- DEC-96 10,000 10,000 Jan-97 10,031 10,085 Feb-97 10,072 10,096 Mar-97 9,949 10,012 Apr-97 10,074 10,164 May-97 10,177 10,259 Jun-97 10,291 10,377 Jul-97 10,556 10,569 Aug-97 10,461 10,550 Sep-97 10,620 10,675 Oct-97 10,813 10,791 Nov-97 10,824 10,827 Dec-97 10,942 10,926 Jan-98 11,084 11,028 Feb-98 11,051 11,061 Mar-98 11,061 11,104 Apr-98 11,127 11,166 May-98 11,249 11,244 Jun-98 11,349 11,294 Jul-98 11,394 11,349 Aug-98 11,597 11,452 Sep-98 11,710 11,590 Oct-98 11,768 11,577 Nov-98 11,665 11,630 Dec-98 11,712 11,688 Jan-99 11,771 11,769 Feb-99 11,655 11,725 Mar-99 11,744 11,806 Apr-99 11,791 11,864 May-99 11,697 11,785 Jun-99 11,635 11,758 Jul-99 11,599 11,678 Aug-99 11,563 11,671 Sep-99 11,755 11,869 Oct-99 11,791 11,932 Nov-99 11,815 11,942 Dec-99 11,771 11,902 Jan-00 11,698 11,810 Feb-00 11,821 11,950 Mar-00 11,933 12,078 Apr-00 11,933 12,084 May-00 11,933 12,093 Jun-00 12,160 12,355 Jul-00 12,211 12,434 Aug-00 12,376 12,618 Sep-00 12,491 12,753 Oct-00 12,568 12,847 Nov-00 12,735 13,037 Dec-00 12,921 13,246 Jan-01 13,090 13,451 Feb-01 13,195 13,525 Mar-01 13,282 13,613 Apr-01 13,269 13,628 May-01 13,322 13,712 Jun-01 13,375 13,732 Jul-01 13,613 13,987 Aug-01 13,745 14,114 Sep-01 13,942 14,322 Oct-01 14,153 14,517 Nov-01 13,995 14,383 Dec-01 13,929 14,331 Jan-02 14,035 14,472 Feb-02 14,179 14,629 Mar-02 14,008 14,482 Apr-02 14,259 14,751 May-02 14,377 14,859 Jun-02 14,491 14,979 Jul-02 14,683 15,148 Aug-02 14,834 15,282 Sep-02 14,999 15,393 Oct-02 15,013 15,452 Nov-02 14,972 15,438 Dec-02 15,164 15,600 Jan-03 15,177 15,644 Feb-03 15,287 15,750 Mar-03 15,273 15,745 Apr-03 15,328 15,805 May-03 15,424 15,813 Jun-03 15,415 15,846 Jul-03 15,055 15,559 Aug-03 15,155 15,661 Sep-03 15,429 15,928 Oct-03 15,356 15,874 Nov-03 15,370 15,920 Dec-03 15,486 16,076 Jan-04 15,572 16,179 Feb-04 15,687 16,320 Mar-04 15,760 16,392 Apr-04 15,500 16,103 May-04 15,442 16,052 Jun-04 15,561 16,191 Jul-04 15,681 16,343 Aug-04 15,907 16,612 Sep-04 15,923 16,635 Oct-04 16,028 16,778 Nov-04 15,968 16,729 Dec-04 16,074 16,853 Jan-05 16,133 16,939 Feb-05 16,074 16,866 Mar-05 16,029 16,821 Apr-05 16,224 17,019 May-05 16,330 17,157 Jun-05 16,377 17,217 Jul-05 16,298 17,136 Aug-05 16,440 17,289 Sep-05 16,346 17,193 Oct-05 16,252 17,083 Nov-05 16,299 17,136 Dec-05 16,441 17,315 Jan-06 16,457 17,358 Feb-06 16,520 17,450 Mar-06 16,409 17,291 Apr-06 16,392 17,295 May-06 16,376 17,248 Jun-06 16,412 17,294 Jul-06 16,627 17,552 Aug-06 16,842 17,807 Sep-06 16,973 17,924 Oct-06 17,071 18,059 Nov-06 17,237 18,261 Dec-06 17,172 18,208
(1) Performance reflects ongoing fund expenses, which may have been waived, and assumes reinvestment of all dividends and capital gains. Performance does not reflect the impact of federal, state, or municipal taxes. If it did, performance would be lower. The Fund's performance in 1995 and 1998 benefited from the agreement of WM Advisors and its affiliates to limit the Fund's expenses. On 3/1/04, the investment policies of the Fund were modified. As a result, the Fund's performance for periods prior to that date may not be representative of the performance it would have achieved had its current investment policies been in place. (2) See glossary on page 29 for definitions of indices. Returns shown for the index assume reinvestment of all dividends and distributions, and the since-inception return shown for the index is calculated from 4/30/93. Indices are unmanaged, and individuals cannot invest directly in an index. 24 PORTFOLIO MANAGER Craig V. Sosey (PHOTO OF CRAIG V. SOSEY) WM Advisors, Inc. example, an overweighting in Freddie Mac MBS compared to Fannie Mae issues benefited the Fund, as Fannie Maes appeared relatively rich going into 2006. This was also true of Ginnie Mae issues. As last year's strong support of Ginnie Maes by foreign investors waned in 2006, the Fund's underweighting in them helped it avoid some of the sector's damage. The Fund's underweighting in 15-year MBS also assisted relative performance, as these issues underperformed longer-term bonds. Holdings among whole-loan collateralized mortgage obligations (CMOs) also had a positive impact. These issues benefited from their position on the long end of the yield curve. In contrast, the Fund was negatively affected by the underperformance of Treasury and agency issues relative to mortgages. The Fund's lack of hybrid adjustable rate mortgages (ARMs) during most of the period also proved problematic. The Fund missed out on gains by these issues because we waited until December to enter this sector. However, we continue to examine opportunities within hybrid ARMs and may expand the Fund's position in them next year. Looking forward, we believe mortgage securities are likely to be range-bound in the near term while the Fed delays a change in monetary policy. These conditions could be somewhat beneficial, since mortgages tend to perform better when volatility is limited. However, there is also the potential for any mixed economic data to increase uncertainty about the Fed's next course of action, and uncertainty can be detrimental to mortgages. PORTFOLIO COMPOSITION(3) As of 12/31/06 (PIE CHART)
As of As of Asset Class 12/31/06 12/31/05 Change ----------- -------- -------- ------ FHLMC/FGLMC 35% 34% +1% FNMA 29% 24% +5% CMOs 18% 22% -4% U.S. Treasuries 8% 5% +3% GNMA 5% 6% -1% U.S. Government Agency 4% 6% -2% Cash Equivalents 1% 3% -2%
(3) May not reflect the current portfolio composition. 25 VT Income Fund INVESTMENT STRATEGY Over the course of 2006, corporate earnings remained healthy while economic growth slowed from a strong first-quarter pace. To rein in inflationary pressures, the Federal Reserve (the Fed) continued its two-year campaign of interest-rate increases before pausing at a target rate of 5.25%. Within the overall fixed-income market, corporate, mortgage, and agency issues outperformed Treasuries. Security selection, particularly among corporate issues, contributed to the WM VT Income Fund's relative outperformance for the year. TexCal, a small oil exploration and production firm, was bought out at a premium following a runup in energy prices. El Paso, a natural gas pipeline company, benefited from asset sales that funded debt reduction. Mirant, an energy producer and marketer, also advanced as it used cash flow to pay down debt and benefited from assets positioned in advantageous locations. Issue selection among mortgage-backed bonds also contributed to Fund performance. The Fund's mortgage holdings generally have a higher duration, and their prices followed the period's outperformance by longer-dated Treasuries. Data shown is past performance and does not guarantee future results. Current performance, including the most recent month-end results, which may be higher or lower than the data shown, can be obtained by calling 800-222-5852. Your investment's return and principal value will fluctuate, so it may be worth more or less upon redemption. Performance shown below does not account for fees, expenses, and charges of any variable insurance contract or retirement plan. If these fees were reflected, performance would be lower. Fixed-income investments are subject to interest rate risk, and their value will decline as interest rates rise. Lower-rated securities are subject to additional credit and default risks. International investing involves increased risks due to currency fluctuations, political or social instability, and differences in accounting standards. AVERAGE ANNUAL TOTAL RETURNS(1) AS OF DECEMBER 31, 2006
Since Inception 1-Year 5-Year 10-Year Inception Date ------ ------ ------- --------- --------- CLASS 1 SHARES 4.90% 6.41% 6.67% 6.37% 5/7/93 CLASS 2 SHARES 4.59% 6.13% -- 5.66% 11/6/01 Citigroup Broad Investment-Grade Bond Index(2) 4.33% 5.10% 6.26% 6.26%
VALUE OF A $10,000 INVESTMENT(1) DECEMBER 31, 1996 - DECEMBER 31, 2006 (PERFORMANCE GRAPH)
CITIGROUP BROAD VT INCOME INVESTMENT DATE FUND GRADE BOND INDEX ------ --------- ---------------- Dec-96 10,000 10,000 Jan-97 9,980 10,039 Feb-97 10,021 10,050 Mar-97 9,858 9,949 Apr-97 10,023 10,091 May-97 10,116 10,186 Jun-97 10,271 10,307 Jul-97 10,715 10,586 Aug-97 10,524 10,495 Sep-97 10,725 10,649 Oct-97 10,929 10,803 Nov-97 10,993 10,854 Dec-97 11,133 10,964 Jan-98 11,276 11,106 Feb-98 11,243 11,098 Mar-98 11,275 11,141 Apr-98 11,319 11,199 May-98 11,486 11,307 Jun-98 11,609 11,399 Jul-98 11,586 11,423 Aug-98 11,721 11,598 Sep-98 12,062 11,872 Oct-98 11,798 11,818 Nov-98 11,948 11,883 Dec-98 11,961 11,920 Jan-99 12,078 12,008 Feb-99 11,751 11,798 Mar-99 11,864 11,866 Apr-99 11,923 11,905 May-99 11,756 11,795 Jun-99 11,657 11,755 Jul-99 11,633 11,708 Aug-99 11,608 11,700 Sep-99 11,724 11,840 Oct-99 11,774 11,876 Nov-99 11,737 11,875 Dec-99 11,703 11,820 Jan-00 11,666 11,787 Feb-00 11,779 11,925 Mar-00 11,965 12,080 Apr-00 11,876 12,044 May-00 11,812 12,033 Jun-00 12,095 12,284 Jul-00 12,211 12,396 Aug-00 12,391 12,573 Sep-00 12,451 12,659 Oct-00 12,491 12,740 Nov-00 12,674 12,946 Dec-00 12,927 13,191 Jan-01 13,207 13,408 Feb-01 13,260 13,528 Mar-01 13,308 13,598 Apr-01 13,185 13,534 May-01 13,253 13,622 Jun-01 13,294 13,667 Jul-01 13,659 13,983 Aug-01 13,849 14,137 Sep-01 13,809 14,311 Oct-01 14,147 14,600 Nov-01 14,038 14,398 Dec-01 13,971 14,313 Jan-02 14,106 14,426 Feb-02 14,242 14,565 Mar-02 14,038 14,324 Apr-02 14,309 14,597 May-02 14,404 14,721 Jun-02 14,376 14,830 Jul-02 14,347 15,006 Aug-02 14,660 15,269 Sep-02 14,845 15,511 Oct-02 14,817 15,442 Nov-02 14,916 15,439 Dec-02 15,313 15,760 Jan-03 15,455 15,772 Feb-03 15,724 15,996 Mar-03 15,767 15,982 Apr-03 16,050 16,123 May-03 16,546 16,421 Jun-03 16,555 16,391 Jul-03 15,954 15,837 Aug-03 16,029 15,946 Sep-03 16,525 16,364 Oct-03 16,466 16,214 Nov-03 16,571 16,261 Dec-03 16,812 16,423 Jan-04 16,992 16,560 Feb-04 17,143 16,737 Mar-04 17,294 16,864 Apr-04 16,813 16,426 May-04 16,677 16,355 Jun-04 16,833 16,451 Jul-04 17,010 16,614 Aug-04 17,362 16,943 Sep-04 17,458 16,987 Oct-04 17,634 17,137 Nov-04 17,539 16,993 Dec-04 17,748 17,156 Jan-05 17,827 17,266 Feb-05 17,763 17,162 Mar-05 17,587 17,068 Apr-05 17,779 17,307 May-05 17,987 17,501 Jun-05 18,122 17,600 Jul-05 18,002 17,445 Aug-05 18,240 17,669 Sep-05 18,052 17,481 Oct-05 17,883 17,347 Nov-05 17,984 17,423 Dec-05 18,172 17,596 Jan-06 18,206 17,594 Feb-06 18,292 17,657 Mar-06 18,121 17,477 Apr-06 18,121 17,442 May-06 18,087 17,421 Jun-06 18,105 17,460 Jul-06 18,304 17,704 Aug-06 18,594 17,978 Sep-06 18,774 18,131 Oct-06 18,900 18,256 Nov-06 19,170 18,468 Dec-06 19,061 18,357
(1) Performance reflects ongoing fund expenses, which may have been waived, and assumes reinvestment of all dividends and capital gains. Performance does not reflect the impact of federal, state, or municipal taxes. If it did, performance would be lower. (2) See glossary on page 29 for definitions of indices. Returns shown for the index assume reinvestment of all dividends and distributions, and the since-inception return shown for the index is calculated from 4/30/93. Indices are unmanaged, and individuals cannot invest directly in an index. 26 PORTFOLIO MANAGERS John R. Friedl, CFA and Gary J. Pokrzywinski, CFA (PHOTO OF JOHN R. FRIEDL AND GARY J. POKRZYWINSKI) WM Advisors, Inc. However, several corporates slightly detracted from Fund results, particularly those that were affected by leveraged buyouts (LBOs). Issues of Harrah's, a casino operator, and HCA, a hospital operator, declined as these companies considered LBO deals, one of which closed during the period. Other health care positions fell in sympathy with the HCA news. Allocation changes were generally based on security- or industry-specific considerations. We sold the last of the Fund's auto positions due to our negative view of their long-term prospects. In contrast, we added a high-yield position (Mirant) to the Fund's utilities holdings, and we continue to favor utilities as a sector that can offer protection from LBOs. Near the middle of the year, the economy reached an inflection point when a pause by the Fed looked imminent. In anticipation of this change, we added to Treasuries to help slightly extend the Fund's duration. This strategy and the timing of it proved beneficial to the Fund. As economic conditions evolved later in the year, we eased the Fund back to a neutral duration stance. Our outlook anticipates that subdued economic growth and contained inflation will permit the Fed to begin cutting short-term interest rates in 2007. Should conditions deteriorate, with the economy edging closer to a recession, we would look to favor corporates over mortgages as spreads widened out. However, we believe that a recession is unlikely. For the near term, the Fund will continue to hold an overweighted position in mortgages and a neutral weighting in corporate issues. PORTFOLIO COMPOSITION(3) As of 12/31/06 (PIE CHART)
As of As of Asset Class 12/31/06 12/31/05 Change ----------- -------- -------- ------ Domestic Corporate Bonds 59% 58% +1% Mortgage-Backed Bonds 22% 22% 0% U.S. Treasuries 10% 7% +3% Foreign Corporate Bonds (U.S. $) 7% 8% -1% Foreign Government Bonds (U.S. $) 1% 1% 0% Equities 0% 1% -1% Cash Equivalents 1% 3% -2%
(3) May not reflect the current portfolio composition. 27 VT Money Market Fund PORTFOLIO MANAGER Scott J. Peterson, CFA (PHOTO OF SCOTT J. PETERSON) WM Advisors, Inc. INVESTMENT STRATEGY Yields on money market investments closely follow monetary policy set by the Federal Reserve (the Fed). During 2006, the Fed raised its target for the federal funds rate four times. These moves were part of a tightening campaign that began in June 2004, after the target rate had stood at 1.00% during the previous year. The Fed continued raising short-term interest rates through the first half of 2006 as it sought to rein in elevated inflation levels. The target rose from 4.25% at the start of the year to 5.25% at the end of June. At subsequent meetings, the Fed held the target rate at 5.25% and noted that "...inflation pressures seem likely to moderate over time..." Many market participants anticipate that the Fed's next move will be to cut rates sometime in 2007, although its decision to do so, and market speculation about it, will depend upon evolving economic conditions. Over the twelve-month period, the Fund's annualized 7-day simple yield increased from 3.52% to 4.64%. Most of the difference between the Fund's yield and the Fed's target rate was due to Fund expenses. The Fund's assets decreased from $16.4 million on December 31, 2005, to $15.7 million on December 31, 2006. Data shown is past performance and does not guarantee future results. Current performance, including the most recent month-end results, which may be higher or lower than the data shown, can be obtained by calling 800-222-5852. Your investment's return and principal value will fluctuate, so it may be worth more or less upon redemption. Performance shown below does not account for fees, expenses, and charges of any variable insurance contract or retirement plan. If these fees were reflected, performance would be lower. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund. The 7-day simple yield more closely reflects current Fund earnings than the total return data. AVERAGE ANNUAL TOTAL RETURNS(1) AS OF DECEMBER 31, 2006
Since Inception 1-Year 5-Year 10-Year Inception Date ------ ------ ------- --------- --------- CLASS 1 SHARES 4.39% 1.96% 3.37% 3.62% 5/10/93 CLASS 2 SHARES 4.13% 1.71% -- 1.70% 11/6/01
FUND YIELDS AND AVERAGE MATURITY(2) AS OF DECEMBER 31, 2006
7-Day 7-Day Weighted Simple Yield Effective Yield Average Maturity (Class 1 Shares) (Class 1 Shares) (Days) ---------------- ---------------- ---------------- VT MONEY MARKET FUND 4.64% 4.75% 35
PORTFOLIO COMPOSITION(3) AS OF DECEMBER 31, 2006 Taxable Municipal Bonds 30% Corporate Bonds and Notes 26% Repurchase Agreement 19% Commercial Paper (Domestic and Yankee) 15% Certificates of Deposit (Domestic and Yankee) 10%
(1) Performance reflects ongoing fund expenses, which may have been waived, and assumes reinvestment of all dividends and capital gains. Performance does not reflect the impact of federal, state, or municipal taxes. If it did, performance would be lower. The Fund's performance between 1995 and 1999 benefited from the agreement of WM Advisors and its affiliates to limit the Fund's expenses. (2) The 7-day simple yield is calculated based on the income generated by an investment in the Fund over a 7-day period and is expressed as an annual percentage rate. The 7-day effective yield is calculated similarly to the 7-day simple yield but assumes that income earned from the Fund's investments is reinvested and compounded. (3) May not reflect the current portfolio composition. 28 Glossary DEFINITIONS OF INDICES CITIGROUP BROAD INVESTMENT-GRADE BOND INDEX: Measures the performance of bonds, including U.S. and non-U.S. corporate securities and non-U.S. sovereign and provincial securities. It includes institutionally traded U.S. Treasury, government-sponsored, mortgage, asset-backed, and investment-grade securities. CITIGROUP BROAD INVESTMENT-GRADE CREDIT 1-3 YEARS INDEX: Measures the performance of bonds, including U.S. and non-U.S. corporate securities and non-U.S. sovereign and provincial securities, with maturities between one and three years. CITIGROUP MORTGAGE INDEX: Represents the mortgage-backed securities component of Citigroup's Broad Investment-Grade Bond Index. It consists of 30- and 15-year agency-issued (GNMA, FNMA, and FHLMC) pass-through securities as well as FNMA and FHLMC balloon mortgages. FTSE NAREIT ALL REITS INDEX: Reflects the aggregate performance of all publicly traded REITs that own, develop, and manage properties. LEHMAN BROTHERS AGGREGATE BOND INDEX: A broad-based index intended to represent the U.S. fixed-income market. MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) ALL COUNTRY WORLD INDEX (ACWI) EX-USA: A float-adjusted market-capitalization index that is designed to measure equity market performance in the global developed and emerging markets, excluding the United States. The index consists of 47 developed and emerging market country indices. MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) EAFE INDEX: A broad-based, capitalization-weighted index of equity markets representing 21 countries in Europe, Australasia, and the Far East. RUSSELL 1000(R) GROWTH INDEX: Measures the performance of those Russell 1000(R) Index securities with higher price-to-book ratios and higher forecasted growth values. RUSSELL 2000(R) GROWTH INDEX: Measures the performance of those Russell 2000(R) Index securities with higher price-to-book ratios and higher forecasted growth values. RUSSELL 2000(R) VALUE INDEX: Measures the performance of those Russell 2000(R) Index securities with lower price-to-book ratios and lower forecasted growth values. RUSSELL 3000(R) INDEX: Measures the performance of the 3,000 largest U.S. companies based on total market capitalization, which represents approximately 98% of the investable U.S. equity market. S&P 500: A broad-based index intended to represent the U.S. equity market. S&P 500/CITIGROUP VALUE INDEX: A float-adjusted market-capitalization-weighted index comprised of stocks representing approximately half the market capitalization of the S&P 500 that have been identified as being on the value end of the growth-value spectrum. Until 12/16/05, when Standard & Poor's changed the name of the index and its calculation methodology, the index was called the S&P 500/BARRA Value Index. S&P MIDCAP 400: A weighted index of the common stocks of 400 mid-size companies. 29 Expense Information WM VARIABLE TRUST As a shareholder of the VT REIT Fund, VT Equity Income Fund, VT Growth & Income Fund, VT West Coast Equity Fund, VT Mid Cap Stock Fund, VT Growth Fund, VT Small Cap Value Fund, VT Small Cap Growth Fund, VT International Growth Fund, VT Short Term Income Fund, VT U.S. Government Securities Fund, VT Income Fund, or VT Money Market Fund, (collectively, the "Funds"), you incur ongoing costs, including management fees, distribution and/or service fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Funds and to compare these costs with the ongoing costs of investing in other mutual funds. Expenses shown below and on the following page do not account for fees, expenses and charges of any variable insurance contract or retirement plan. If these fees had been reflected, expenses would have been higher. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period July 1, 2006, to December 31, 2006. ACTUAL EXPENSES: The first section of the table below provides information about actual account values and actual expenses. You may use the information in these columns, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = $8.60), then multiply the result by the number in the third column under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES: The second section of the table below provides information about hypothetical account values and hypothetical expenses based on each Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses (rather than each Fund's actual rate of return). The hypothetical account values and expenses may not be used to estimate the actual ending balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Funds and other mutual funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other mutual funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as separate account expenses. Therefore, the hypothetical section of the table is useful in comparing ongoing costs only, and will not help you compare the relative total costs of owning different mutual funds. In addition, if these transactional costs were included, the cost shown would have been higher.
HYPOTHETICAL ACTUAL EXPENSES (5% RETURN BEFORE EXPENSES) ---------------------------------- ---------------------------------- EXPENSES EXPENSES BEGINNING ENDING PAID DURING BEGINNING ENDING PAID DURING ACCOUNT ACCOUNT PERIOD* ACCOUNT ACCOUNT PERIOD* VALUE VALUE 7/1/06- VALUE VALUE 7/1/06- EXPENSE 7/1/06 12/31/06 12/31/06 7/1/06 12/31/06 12/31/06 RATIO --------- -------- ----------- --------- -------- ----------- ------- VT REIT Fund Class 1 .......................... $1,000 $1,197 $ 4.82 $1,000 $1,021 $ 4.43 0.87% Class 2 .......................... 1,000 1,196 6.20 1,000 1,020 5.70 1.12% VT Equity Income Fund Class 1 .......................... $1,000 $1,119 $ 3.52 $1,000 $1,022 $ 3.36 0.66% Class 2 .......................... 1,000 1,117 4.86 1,000 1,021 4.63 0.91% VT Growth & Income Fund Class 1 .......................... $1,000 $1,117 $ 4.06 $1,000 $1,021 $ 3.87 0.76% Class 2 .......................... 1,000 1,116 5.39 1,000 1,020 5.14 1.01% VT West Coast Equity Fund Class 1 .......................... $1,000 $1,081 $ 3.51 $1,000 $1,022 $ 3.41 0.67% Class 2 .......................... 1,000 1,080 4.82 1,000 1,021 4.69 0.92% VT Mid Cap Stock Fund Class 1 .......................... $1,000 $1,105 $ 4.24 $1,000 $1,021 $ 4.08 0.80% Class 2 .......................... 1,000 1,103 5.57 1,000 1,020 5.35 1.05% VT Growth Fund Class 1 .......................... $1,000 $1,090 $ 4.00 $1,000 $1,021 $ 3.87 0.76% Class 2 .......................... 1,000 1,089 5.32 1,000 1,020 5.14 1.01% VT Small Cap Value Fund Class 1 .......................... $1,000 $1,095 $ 5.07 $1,000 $1,020 $ 4.89 0.96% Class 2 .......................... 1,000 1,092 6.38 1,000 1,019 6.16 1.21% VT Small Cap Growth Fund Class 1 .......................... $1,000 $1,051 $ 4.96 $1,000 $1,020 $ 4.89 0.96% Class 2 .......................... 1,000 1,049 6.25 1,000 1,019 6.16 1.21%
30 Expense Information (continued) WM VARIABLE TRUST
HYPOTHETICAL ACTUAL EXPENSES (5% RETURN BEFORE EXPENSES) ---------------------------------- ---------------------------------- EXPENSES EXPENSES BEGINNING ENDING PAID DURING BEGINNING ENDING PAID DURING ACCOUNT ACCOUNT PERIOD* ACCOUNT ACCOUNT PERIOD* VALUE VALUE 7/1/06- VALUE VALUE 7/1/06- EXPENSE 7/1/06 12/31/06 12/31/06 7/1/06 12/31/06 12/31/06 RATIO --------- -------- ----------- --------- -------- ----------- ------- VT International Growth Fund Class 1 .......................... $1,000 $1,149 $5.53 $1,000 $1,020 $5.19 1.02% Class 2 .......................... 1,000 1,148 6.88 1,000 1,019 6.46 1.27% VT Short Term Income Fund Class 1 .......................... $1,000 $1,033 $3.13 $1,000 $1,022 $3.11 0.61% Class 2 .......................... 1,000 1,029 4.40 1,000 1,021 4.38 0.86% VT U.S. Government Securities Fund Class 1 .......................... $1,000 $1,046 $2.68 $1,000 $1,023 $2.65 0.52% Class 2 .......................... 1,000 1,046 3.97 1,000 1,021 3.92 0.77% VT Income Fund Class 1 .......................... $1,000 $1,053 $2.74 $1,000 $1,023 $2.70 0.53% Class 2 .......................... 1,000 1,050 4.03 1,000 1,021 3.97 0.78% VT Money Market Fund Class 1 .......................... $1,000 $1,023 $3.62 $1,000 $1,022 $3.62 0.71% Class 2 .......................... 1,000 1,022 4.89 1,000 1,020 4.89 0.96%
* Expenses are equal to each Fund's annualized expense ratio, multiplied by the average account value over the period, multiplied by the 184 days in the most recent fiscal half-year, divided by 365 days in the year (to reflect the one-half year period). 31 Financial Statements: Portfolio of Investments VT REIT FUND December 31, 2006
VALUE SHARES (000S) --------- -------- REAL ESTATE INVESTMENT TRUSTS (REITS) - 95.3% DIVERSIFIED - 4.8% 22,600 Vornado Realty Trust .................................... $ 2,746 -------- HEALTH CARE - 2.7% 8,000 Health Care Property Investors, Inc. .................... 294 29,200 Ventas, Inc. ............................................ 1,236 -------- Total Health Care ....................................... 1,530 -------- INDUSTRIAL/OFFICE - 37.5% INDUSTRIAL - 10.6% 19,000 AMB Property Corporation ................................ 1,114 28,500 Brookfield Properties Corporation ....................... 1,120 16,900 DCT Industrial Trust Inc. ............................... 199 3,900 EastGroup Properties, Inc. .............................. 209 56,800 ProLogis ................................................ 3,452 -------- 6,094 -------- OFFICE - 26.9% 9,500 Alexandria Real Estate Equities, Inc. ................... 954 29,100 BioMed Realty Trust, Inc. ............................... 832 31,900 Boston Properties, Inc. ................................. 3,569 23,700 Corporate Office Properties Trust ....................... 1,196 57,100 Douglas Emmett, Inc. .................................... 1,519 56,200 Equity Office Properties Trust .......................... 2,707 15,900 Kilroy Realty Corporation ............................... 1,240 25,200 SLGreen Realty Corporation .............................. 3,346 -------- 15,363 -------- Total Industrial/Office ................................. 21,457 -------- LODGING/RESORTS - 5.5% 72,800 Host Hotels & Resorts, Inc. ............................. 1,787 25,100 LaSalle Hotel Properties ................................ 1,151 8,300 Sunstone Hotel Investors, Inc. .......................... 222 -------- Total Lodging/Resorts ................................... 3,160 -------- RESIDENTIAL - 23.9% APARTMENTS - 23.9% 53,500 Archstone-Smith Trust ................................... 3,114 28,500 AvalonBay Communities, Inc. ............................. 3,707 15,600 BRE Properties, Inc. Class A ............................ 1,014 18,200 Camden Property Trust ................................... 1,344 37,900 Equity Residential ...................................... 1,923 18,700 Essex Property Trust, Inc. .............................. 2,417 2,300 Mid-America Apartment Communities, Inc. ................. 132 -------- Total Residential ....................................... 13,651 -------- RETAIL - 15.9% REGIONAL MALLS - 6.3% 35,600 Simon Property Group, Inc. .............................. 3,606 --------
VALUE SHARES (000S) --------- -------- SHOPPING CENTERS - 9.6% 25,400 Acadia Realty Trust ..................................... $ 635 22,600 Federal Realty Investment Trust ......................... 1,921 60,400 Kimco Realty Corporation ................................ 2,715 5,600 Tanger Factory Outlet Centers, Inc. ..................... 219 -------- 5,490 -------- Total Retail ............................................ 9,096 -------- SELF STORAGE - 4.4% 26,000 Public Storage, Inc. .................................... 2,535 -------- SPECIALTY - 0.6% 6,100 Entertainment Properties Trust .......................... 357 -------- Total REITs (Cost $40,712) ....................................... 54,532 -------- COMMON STOCKS - 2.0% (Cost $1,128) CONSUMER DISCRETIONARY - 2.0% CONSUMER SERVICES - 2.0% 17,900 Starwood Hotels & Resorts Worldwide, Inc. ............... 1,119 --------
PRINCIPAL AMOUNT (000S) --------- REPURCHASE AGREEMENT - 2.5% (Cost $1,414) $ 1,414 Agreement with Morgan Stanley, 4.750% dated 12/29/2006, to be repurchased at $1,415,000 on 01/03/2007 (collateralized by U.S. Treasury Bond, 3.625% due on 04/15/2028, market value $1,457,000) ..................... 1,414 -------- TOTAL INVESTMENTS (Cost $43,254*) ........................... 99.8% 57,065 OTHER ASSETS (LIABILITIES) (NET) ............................ 0.2 128 ----- -------- NET ASSETS .................................................. 100.0% $ 57,193 ===== ========
---------- * Aggregate cost for federal tax purposes is $43,254. See Notes to Financial Statements. 32 Portfolio of Investments VT EQUITY INCOME FUND December 31, 2006
VALUE SHARES (000S) --------- -------- COMMON STOCKS - 92.8% CONSUMER DISCRETIONARY - 9.9% AUTOMOBILES & COMPONENTS - 0.2% 6,600 Johnson Controls, Inc. .................................. $ 567 -------- CONSUMER DURABLES & APPAREL - 0.9% 10,000 Black & Decker Corporation** ............................ 799 27,000 NIKE Inc., Class B ...................................... 2,674 -------- 3,473 -------- CONSUMER SERVICES - 1.6% 92,800 Hilton Hotels Corporation ............................... 3,239 57,500 McDonald's Corporation .................................. 2,549 -------- 5,788 -------- MEDIA - 4.0% 48,300 CBS Corporation, Class B ................................ 1,506 7,520 Idearc Inc.+ ............................................ 215 97,300 McGraw-Hill Companies, Inc. ............................. 6,618 84,100 News Corporation, Class B ............................... 1,872 134,800 Time Warner Inc. ........................................ 2,936 49,400 Tribune Company ......................................... 1,521 -------- 14,668 -------- RETAILING - 3.2% 140,600 Lowe's Companies, Inc. .................................. 4,380 67,800 Nordstrom, Inc. ......................................... 3,345 73,300 Target Corporation ...................................... 4,182 -------- 11,907 -------- Total Consumer Discretionary ............................ 36,403 -------- CONSUMER STAPLES - 6.4% FOOD & STAPLES RETAILING - 0.7% 71,300 Sysco Corporation ....................................... 2,621 -------- FOOD, BEVERAGE & TOBACCO - 4.4% 51,300 Altria Group, Inc. ...................................... 4,403 11,200 Anheuser-Busch Companies, Inc. .......................... 551 8,400 Cadbury Schweppes PLC, Sponsored ADR** .................. 361 37,600 Coca-Cola Company ....................................... 1,814 41,700 Diageo PLC, Sponsored ADR ............................... 3,307 25,000 Hershey Company ......................................... 1,245 40,900 Kroger Company .......................................... 943 65,400 SABMiller PLC, Sponsored ADR** .......................... 1,504 37,800 Wm. Wrigley Jr. Company** ............................... 1,955 -------- 16,083 -------- HOUSEHOLD & PERSONAL PRODUCTS - 1.3% 58,300 Colgate-Palmolive Company ............................... 3,804 13,100 Kimberly-Clark Corporation .............................. 890 -------- 4,694 -------- Total Consumer Staples .................................. 23,398 --------
VALUE SHARES (000S) --------- -------- ENERGY - 6.7% 40,800 Baker Hughes Incorporated ............................... $ 3,046 51,284 Chevron Corporation ..................................... 3,771 14,800 Devon Energy Corporation ................................ 993 49,600 El Paso Corporation ..................................... 758 14,800 Enterprise Products Partners LP** ....................... 429 67,100 ExxonMobil Corporation .................................. 5,142 35,600 GlobalSantaFe Corporation ............................... 2,092 17,700 Hess Corporation ........................................ 877 22,400 Kinder Morgan Energy Partners LP** ...................... 1,073 29,000 Schlumberger Ltd. ....................................... 1,832 68,100 Williams Companies, Inc. ................................ 1,779 55,300 XTO Energy Inc. ......................................... 2,602 -------- Total Energy ............................................ 24,394 -------- FINANCIALS - 27.4% BANKS - 6.3% 85,502 Bank of America Corporation ............................. 4,565 17,000 Barclays PLC, Sponsored ADR ............................. 988 96,200 Countrywide Financial Corporation ....................... 4,084 71,600 Mellon Financial Corporation ............................ 3,018 26,500 PNC Financial Services Group, Inc.** .................... 1,962 20,100 SunTrust Banks, Inc.** .................................. 1,698 52,200 U.S. Bancorp ............................................ 1,889 140,000 Wells Fargo & Company ................................... 4,978 -------- 23,182 -------- DIVERSIFIED FINANCIALS - 12.0% 13,800 AllianceBernstein Holding LP** .......................... 1,110 18,000 Ameriprise Financial, Inc. .............................. 981 52,000 Bank of New York Company, Inc.** ........................ 2,047 13,771 Capital One Financial Corporation ....................... 1,058 59,800 Citigroup, Inc. ......................................... 3,331 47,400 Franklin Resources, Inc. ................................ 5,222 29,800 Freddie Mac ............................................. 2,023 25,700 Goldman Sachs Group, Inc. ............................... 5,123 67,600 ING Groep N.V., Sponsored ADR ........................... 2,986 102,800 JPMorgan Chase & Company ................................ 4,965 25,000 Legg Mason, Inc. ........................................ 2,376 38,400 Lehman Brothers Holdings Inc. ........................... 3,000 58,400 Morgan Stanley .......................................... 4,756 58,400 T. Rowe Price Group, Inc. ............................... 2,556 37,100 UBS AG .................................................. 2,238 -------- 43,772 -------- INSURANCE - 9.1% 93,400 ACE Ltd. ................................................ 5,657 26,400 AFLAC, Inc.** ........................................... 1,215 48,000 Allstate Corporation .................................... 3,125 52,000 American International Group, Inc. ...................... 3,726 34,800 Chubb Corporation ....................................... 1,841 76,566 Fidelity National Financial, Inc., Class A .............. 1,828 37,100 Hartford Financial Services Group, Inc. ................. 3,462 11,850 HCC Insurance Holdings, Inc. ............................ 380
See Notes to Financial Statements. 33 Portfolio of Investments (continued) VT EQUITY INCOME FUND December 31, 2006
VALUE SHARES (000S) --------- -------- COMMON STOCKS (CONTINUED) FINANCIALS (CONTINUED) INSURANCE (CONTINUED) 22,900 Lincoln National Corporation ............................ $ 1,521 43,500 Loews Corporation ....................................... 1,804 38,800 Marsh & McLennan Companies, Inc. ........................ 1,190 63,300 MetLife, Inc. ........................................... 3,735 31,700 Prudential Financial, Inc. .............................. 2,722 55,700 UnumProvident Corporation ............................... 1,158 -------- 33,364 -------- Total Financials ........................................ 100,318 -------- HEALTH CARE - 7.6% HEALTH CARE EQUIPMENT & SERVICES - 2.4% 40,000 Becton, Dickinson & Company ............................. 2,806 22,000 Caremark Rx, Inc. ....................................... 1,257 88,900 Medtronic, Inc. ......................................... 4,757 -------- 8,820 -------- PHARMACEUTICALS & BIOTECHNOLOGY - 5.2% 64,200 Abbott Laboratories ..................................... 3,127 51,400 AstraZeneca PLC, Sponsored ADR .......................... 2,752 27,100 Eli Lilly & Company ..................................... 1,412 35,900 GlaxoSmithKline PLC, Sponsored ADR ...................... 1,894 48,000 Johnson & Johnson ....................................... 3,169 38,000 Novartis AG, ADR ........................................ 2,183 24,500 Roche Holding Ltd., Sponsored ADR ....................... 2,193 19,000 Sanofi-Aventis, ADR ..................................... 877 62,400 Schering-Plough Corporation ............................. 1,475 -------- 19,082 -------- Total Health Care ....................................... 27,902 -------- INDUSTRIALS - 10.1% CAPITAL GOODS - 8.2% 46,300 3M Company .............................................. 3,608 36,300 Boeing Company .......................................... 3,225 33,100 Dover Corporation ....................................... 1,623 78,000 Emerson Electric Company ................................ 3,439 12,200 General Dynamics Corporation ............................ 907 174,800 General Electric Company ................................ 6,504 41,200 Honeywell International, Inc. ........................... 1,864 71,400 ITT Corporation ......................................... 4,057 31,400 L-3 Communications Holdings, Inc. ....................... 2,568 22,500 Siemens AG, Sponsored ADR ............................... 2,217 -------- 30,012 -------- COMMERCIAL SERVICES & SUPPLIES - 0.6% 56,500 Waste Management, Inc. 2,077 -------- TRANSPORTATION - 1.3% 23,700 FedEx Corporation ....................................... 2,574 141,800 Southwest Airlines Company .............................. 2,173 -------- 4,747 -------- Total Industrials ....................................... 36,836 --------
VALUE SHARES (000S) --------- -------- INFORMATION TECHNOLOGY - 11.2% COMMUNICATIONS EQUIPMENT - 2.3% 116,700 Cisco Systems, Inc.+ .................................... $ 3,189 181,400 Nokia Oyj, Sponsored ADR ................................ 3,686 38,100 QUALCOMM, Inc. .......................................... 1,440 -------- 8,315 -------- COMPUTERS & PERIPHERALS - 2.2% 24,300 Apple Computer, Inc.+ ................................... 2,062 92,300 Hewlett-Packard Company ................................. 3,802 -------- 23,300 International Business Machines Corporation ............. 2,263 -------- 8,127 -------- INTERNET SOFTWARE & SERVICES - 0.5% 72,900 Yahoo! Inc.+** .......................................... 1,862 -------- IT SERVICES - 1.5% 76,100 Automatic Data Processing, Inc. ......................... 3,748 43,530 Fidelity National Information Services, Inc. ............ 1,745 -------- 5,493 -------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 3.0% 140,900 Applied Materials, Inc. ................................. 2,600 101,600 Intel Corporation ....................................... 2,057 38,900 Linear Technology Corporation** ......................... 1,179 81,000 Microchip Technology, Inc. .............................. 2,649 4,100 Samsung Electronics Company Ltd., GDR++ ................. 1,351 43,500 Texas Instruments Inc. .................................. 1,253 -------- 11,089 -------- SOFTWARE - 1.7% 210,100 Microsoft Corporation ................................... 6,274 -------- Total Information Technology ............................ 41,160 -------- MATERIALS - 3.0% 24,800 Alcoa Inc................................................ 744 21,300 Allegheny Technologies, Inc. ............................ 1,931 41,600 Anglo American PLC, Unsponsored ADR ..................... 1,015 59,700 Barrick Gold Corporation (F) ............................ 1,833 15,100 E.I. du Pont de Nemours & Company ....................... 736 39,900 International Paper Company ............................. 1,361 26,800 Vulcan Materials Company ................................ 2,408 14,700 Weyerhaeuser Company .................................... 1,039 -------- Total Materials ......................................... 11,067 -------- TELECOMMUNICATION SERVICES - 7.6% 46,500 Alltel Corporation ...................................... 2,812 208,800 AT&T Inc. ............................................... 7,464 18,800 Deutsche Telekom AG, Sponsored ADR ...................... 342 14,500 Embarq Corporation ...................................... 762 22,500 France Telecom SA, Sponsored ADR ........................ 623 113,800 Sprint Nextel Corporation ............................... 2,150 5,000 Telefonica SA, Sponsored ADR ............................ 319 39,000 Telstra Corporation Ltd., ADR ........................... 639
See Notes to Financial Statements. 34 Portfolio of Investments (continued) VT EQUITY INCOME FUND December 31, 2006
VALUE SHARES (000S) --------- -------- COMMON STOCKS (CONTINUED) TELECOMMUNICATION SERVICES (CONTINUED) 180,200 Verizon Communications Inc. ............................. $ 6,711 89,600 Vodafone Group PLC, Sponsored ADR ....................... 2,489 236,907 Windstream Corporation** ................................ 3,369 -------- Total Telecommunication Services ........................ 27,680 -------- UTILITIES - 2.9% 12,600 Dominion Resource Inc. .................................. 1,056 62,400 FPL Group, Inc.** ....................................... 3,396 51,000 Pinnacle West Capital Corporation ....................... 2,585 38,100 Progress Energy, Inc.** ................................. 1,870 74,000 Xcel Energy Inc.** ...................................... 1,707 -------- Total Utilities ......................................... 10,614 -------- Total Common Stocks (Cost $275,116) ...................................... 339,772 -------- REAL ESTATE INVESTMENT TRUSTS (REITS) - 4.4% 20,300 AMB Property Corporation ................................ 1,190 14,000 Archstone-Smith Trust ................................... 815 10,500 Brookfield Properties Corporation ....................... 413 12,100 Developers Diversified Realty Corporation ............... 762 12,200 Duke Realty Corporation ................................. 499 29,500 Equity Residential ...................................... 1,497 11,700 General Growth Properties, Inc. ......................... 611 26,900 Health Care Property Investors, Inc.** .................. 990 61,900 Host Hotels & Resorts, Inc. ............................. 1,520 17,300 Kimco Realty Corporation ................................ 778 7,900 Macerich Company ........................................ 684 24,000 Plum Creek Timber Company, Inc. ......................... 956 42,000 ProLogis ................................................ 2,552 12,100 Public Storage, Inc. .................................... 1,180 5,900 Simon Property Group, Inc. .............................. 597 10,000 Vornado Realty Trust .................................... 1,215 -------- Total REITs (Cost $8,764) ........................................ 16,259 --------
PRINCIPAL AMOUNT VALUE (000S) (000S) --------- -------- CONVERTIBLE BONDS AND NOTES - 0.2% (Cost $594) $ 600 Echostar Communications, Conv. Sub. Note, 5.750% due 05/15/2008 ................................ $ 611 -------- FIXED-INCOME SECURITIES - 0.8% CORPORATE BONDS AND NOTES - 0.8% 500 Aetna Inc., Sr. Note, 7.875% due 03/01/2011 ................................ 545 45 Baxter International Inc., Note, 7.125% due 02/01/2007 ................................ 45 1,000 ERAC USA Finance Company, Note, 7.350% due 06/15/2008++ .............................. 1,025 59 Raytheon Company, Sr. Note, 6.150% due 11/01/2008 ................................ 60 1,000 TELUS Corporation, Note, 8.000% due 06/01/2011 ................................ 1,094 100 Texas-New Mexico Power Company, Sr. Note, 6.250% due 01/15/2009 ................................ 101 -------- Total Corporate Bonds and Notes (Cost $2,730) ........................................ 2,870 -------- U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES - 0.0% FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) - 0.0% 38 6.500% due 09/01/2030 ................................... 39 16 7.000% due 09/01/2030 ................................... 16 -------- Total U.S. Government Agency Mortgage- Backed Securities (Cost $52) ........................................... 55 -------- Total Fixed-Income Securities (Cost $2,782) ........................................ 2,925 --------
SHARES --------- WARRANT - 0.0% (Cost $0) 250 V2 Music Holdings PLC, Expires 05/07/2008+,++ ............................... 0 --------
See Notes to Financial Statements. 35 Portfolio of Investments (continued) VT EQUITY INCOME FUND December 31, 2006
PRINCIPAL AMOUNT VALUE (000S) (000S) --------- -------- REPURCHASE AGREEMENT - 2.4% (Cost $8,724) $ 8,724 Agreement with Morgan Stanley, 4.750% dated 12/29/2006, to be repurchased at $8,730,000 on 01/03/2007 (collateralized by U.S. Treasury Bond, 3.625% due 04/15/2028, market value $8,990,000) ..................... $ 8,724 -------- SHORT-TERM INVESTMENT - 5.6% (Cost $20,666) 20,666 Mellon GSL DBT II Collateral Fund+++ ........................... 20,666 -------- TOTAL INVESTMENTS (Cost $316,646*) .......................... 106.2% 388,957 OTHER ASSETS (LIABILITIES) (NET) ............................ (6.2) (22,681) ----- -------- NET ASSETS .................................................. 100.0% $366,276 ===== ========
---------- * Aggregate cost for federal tax purposes is $316,776. ** Some or all of these securities are on loan at December 31, 2006, and have an aggregate market value of $19,999,000 representing 5.5% of the total net assets of the Fund (collateral value $20,666,000). (See Note 7 to Financial Statements). + Non-income producing security. ++ Security acquired in a transaction exempt from registration under Rule 144A of the Securities Act of 1933, as amended. +++ Represents investment purchased with cash collateral for securities loaned. GLOSSARY OF TERMS ADR -- American Depositary Receipt (F) -- Foreign Shares GDR -- Global Depositary Receipt See Notes to Financial Statements. 36 Portfolio of Investments VT GROWTH & INCOME FUND December 31, 2006
VALUE SHARES (000S) --------- -------- COMMON STOCKS - 96.0% CONSUMER DISCRETIONARY - 6.6% CONSUMER SERVICES - 1.9% 97,000 Carnival Corporation** .................................. $ 4,758 -------- MEDIA - 3.3% 65,000 CBS Corporation, Class B ................................ 2,026 94,000 Comcast Corporation, Class A+ ........................... 3,979 60,000 Viacom Inc., Class B+ ................................... 2,462 -------- 8,467 -------- RETAILING - 1.4% 53,000 Kohl's Corporation+ ..................................... 3,627 -------- Total Consumer Discretionary ............................ 16,852 -------- CONSUMER STAPLES - 9.8% FOOD & STAPLES RETAILING - 3.6% 58,000 Costco Wholesale Corporation ............................ 3,066 83,400 Kroger Company .......................................... 1,924 88,000 Wal-Mart Stores, Inc. ................................... 4,064 -------- 9,054 -------- FOOD, BEVERAGE & TOBACCO - 4.2% 32,000 Altria Group, Inc. ...................................... 2,746 56,700 Hershey Company ......................................... 2,824 82,000 PepsiCo, Inc. ........................................... 5,129 -------- 10,699 -------- HOUSEHOLD & PERSONAL PRODUCTS - 2.0% 80,000 Procter & Gamble Company ................................ 5,142 -------- Total Consumer Staples .................................. 24,895 -------- ENERGY - 8.8% 46,400 ENSCO International, Inc. ............................... 2,323 81,000 ExxonMobil Corporation .................................. 6,207 91,000 GlobalSantaFe Corporation ............................... 5,349 49,000 National Oilwell Varco, Inc.+ ........................... 2,998 86,000 Schlumberger Ltd. ....................................... 5,431 -------- Total Energy ............................................ 22,308 -------- FINANCIALS - 21.5% BANKS - 5.9% 83,000 Bank of America Corporation ............................. 4,431 95,000 Wachovia Corporation .................................... 5,410 146,000 Wells Fargo & Company ................................... 5,192 -------- 15,033 -------- DIVERSIFIED FINANCIALS - 8.6% 120,000 Citigroup, Inc. ......................................... 6,684 11,000 Franklin Resources, Inc. ................................ 1,212 79,000 Freddie Mac ............................................. 5,364 130,000 JPMorgan Chase & Company ................................ 6,279 109,000 Western Union Company ................................... 2,444 -------- 21,983 --------
VALUE SHARES (000S) --------- -------- INSURANCE - 7.0% 29,900 ACE Ltd. ................................................ $ 1,811 47,000 AFLAC, Inc. ............................................. 2,162 83,000 Allstate Corporation .................................... 5,404 66,000 American International Group, Inc. ...................... 4,730 50,565 Fidelity National Financial, Inc., Class A .............. 1,207 26,000 Hartford Financial Services Group, Inc. ................. 2,426 -------- 17,740 -------- Total Financials ........................................ 54,756 -------- HEALTH CARE - 9.6% HEALTH CARE EQUIPMENT & SERVICES - 4.9% 20,000 Becton, Dickinson & Company ............................. 1,403 39,000 Cardinal Health, Inc. ................................... 2,513 56,000 Health Net Inc.+** ...................................... 2,725 62,000 Medtronic, Inc. ......................................... 3,318 34,000 WellPoint Inc.+ ......................................... 2,675 -------- 12,634 -------- PHARMACEUTICALS & BIOTECHNOLOGY - 4.7% 24,000 Eli Lilly & Company ..................................... 1,250 48,000 Johnson & Johnson ....................................... 3,169 52,000 Pfizer Inc. ............................................. 1,347 118,000 Teva Pharmaceutical Industries Ltd., Sponsored ADR ........................................ 3,668 49,000 Wyeth ................................................... 2,495 -------- 11,929 -------- Total Health Care ....................................... 24,563 -------- INDUSTRIALS - 13.5% CAPITAL GOODS - 11.4% 58,000 Boeing Company .......................................... 5,153 63,000 Caterpillar, Inc. ....................................... 3,864 135,000 General Electric Company ................................ 5,023 149,000 Honeywell International, Inc. ........................... 6,741 29,000 Lockheed Martin Corporation ............................. 2,670 20,000 Rockwell Automation, Inc. ............................... 1,222 146,000 Tyco International Ltd. ................................. 4,438 -------- 29,111 -------- COMMERCIAL SERVICES & SUPPLIES - 0.5% 36,000 Waste Management, Inc. .................................. 1,324 -------- TRANSPORTATION - 1.6% 132,600 AMR Corporation+** ...................................... 4,008 -------- Total Industrials ....................................... 34,443 -------- INFORMATION TECHNOLOGY - 17.8% COMMUNICATIONS EQUIPMENT - 4.9% 78,000 Cisco Systems, Inc.+ .................................... 2,132 214,000 Motorola, Inc. .......................................... 4,400 143,000 Nokia Oyj, Sponsored ADR ................................ 2,906 80,000 QUALCOMM, Inc. .......................................... 3,023 -------- 12,461 --------
See Notes to Financial Statements. 37 Portfolio of Investments (continued) VT GROWTH & INCOME FUND December 31, 2006
VALUE SHARES (000S) --------- -------- COMMON STOCKS (CONTINUED) INFORMATION TECHNOLOGY (CONTINUED) COMPUTERS & PERIPHERALS - 4.7% 20,000 Apple Computer, Inc.+ ................................... $ 1,697 139,000 Hewlett-Packard Company ................................. 5,725 47,000 International Business Machines Corporation ............. 4,566 -------- 11,988 -------- INTERNET SOFTWARE & SERVICES - 0.9% 79,000 eBay Inc.+ .............................................. 2,375 -------- IT SERVICES - 1.7% 23,000 Electronic Data Systems Corporation ..................... 633 18,755 Fidelity National Information Services, Inc. ............ 752 109,000 First Data Corporation .................................. 2,782 -------- 4,167 -------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 0.8% 64,300 Microchip Technology, Inc. .............................. 2,103 -------- SOFTWARE - 4.8% 78,000 Adobe Systems, Inc.+ .................................... 3,207 110,400 Autodesk, Inc.+ ......................................... 4,467 153,000 Microsoft Corporation ................................... 4,569 -------- 12,243 -------- Total Information Technology ............................ 45,337 -------- MATERIALS - 1.8% 135,000 Alcoa Inc. .............................................. 4,051 26,300 Anglo American PLC, ADR ................................. 642 -------- Total Materials ......................................... 4,693 -------- TELECOMMUNICATION SERVICES - 3.1% 117,000 AT&T Inc. ............................................... 4,183 112,000 Sprint Nextel Corporation ............................... 2,116 43,000 Verizon Communications Inc. ............................. 1,601 -------- Total Telecommunication Services ........................ 7,900 -------- UTILITIES - 3.5% 98,000 FPL Group, Inc.** ....................................... 5,333 70,000 Pinnacle West Capital Corporation ....................... 3,549 -------- Total Utilities ......................................... 8,882 -------- Total Common Stocks (Cost $173,471) ...................................... 244,629 --------
PRINCIPAL AMOUNT VALUE (000S) (000S) --------- -------- REPURCHASE AGREEMENT - 1.8% (Cost $4,598) $ 4,598 Agreement with Morgan Stanley, 4.750% dated 12/29/2006, to be repurchased at $4,601,000 on 01/03/2007 (collateralized by U.S. Treasury Bond, 3.625% due 04/15/2028, market value $4,738,000) .................................. $ 4,598 -------- SHORT-TERM INVESTMENT - 5.8% (Cost $14,666) 14,666 Mellon GSL DBT II Collateral Fund++ ............................ 14,666 -------- TOTAL INVESTMENTS (Cost $192,735*) .......................... 103.6% 263,893 OTHER ASSETS (LIABILITIES) (NET) ............................ (3.6) (9,193) ----- -------- NET ASSETS .................................................. 100.0% $254,700 ===== ========
---------- * Aggregate cost for federal tax purposes is $194,185. ** Some or all of these securities are on loan at December 31, 2006, and have an aggregate market value of $14,098,000, representing 5.5% of the total net assets of the Fund (collateral value $14,666,000). (See Note 7 to Financial Statements.) + Non-income producing security. ++ Represents investment purchased with cash collateral for securities loaned. GLOSSARY OF TERMS ADR -- American Depositary Receipt See Notes to Financial Statements. 38 Portfolio of Investments VT WEST COAST EQUITY FUND December 31, 2006
VALUE SHARES (000S) --------- -------- COMMON STOCKS - 94.7% CONSUMER DISCRETIONARY - 11.0% AUTOMOBILES & COMPONENTS - 1.8% 72,000 Monaco Coach Corporation** .............................. $ 1,019 15,900 Toyota Motor Corporation, Sponsored ADR ................. 2,136 -------- 3,155 -------- CONSUMER DURABLES & APPAREL - 1.9% 11,624 Columbia Sportswear Company** ........................... 647 8,400 KB Home ................................................. 431 10,500 Mattel, Inc. ............................................ 238 19,025 NIKE Inc., Class B ...................................... 1,884 -------- 3,200 -------- CONSUMER SERVICES - 4.0% 18,788 Ambassadors Group, Inc. ................................. 570 59,000 Hilton Hotels Corporation ............................... 2,059 104,960 Red Lion Hotels Corporation+ ............................ 1,337 78,240 Starbucks Corporation+ .................................. 2,772 -------- 6,738 -------- MEDIA - 2.2% 21,000 Getty Images, Inc.+** ................................... 899 19,450 McClatchy Company, Class A .............................. 842 58,670 Walt Disney Company ..................................... 2,011 -------- 3,752 -------- RETAILING - 1.1% 15,200 Blue Nile, Inc.+** ...................................... 561 14,270 Building Materials Holding Corporation .................. 352 18,000 Nordstrom, Inc. ......................................... 888 -------- 1,801 -------- Total Consumer Discretionary ............................ 18,646 -------- CONSUMER STAPLES - 6.6% FOOD & STAPLES RETAILING - 2.1% 54,220 Costco Wholesale Corporation ............................ 2,867 1,150 Dairy Farm International Holdings Ltd., Unsponsored ADR .................................................. 20 29,090 Kroger Company .......................................... 671 -------- 3,558 -------- FOOD, BEVERAGE & TOBACCO - 1.2% 12,200 Archer Daniels Midland Company ........................... 390 26,800 PepsiCo, Inc. ............................................ 1,676 -------- 2,066 -------- HOUSEHOLD & PERSONAL PRODUCTS - 3.3% 2,700 American Oriental Bioengineering, Inc.+** ............... 31 14,200 Central Garden & Pet Company+** ......................... 688 25,870 Clorox Company .......................................... 1,660 11,100 Colgate-Palmolive Company ............................... 724 15,900 Estee Lauder Companies Inc., Class A .................... 649 27,500 Procter & Gamble Company ................................ 1,767 -------- 5,519 -------- Total Consumer Staples .................................. 11,143 --------
VALUE SHARES (000S) --------- -------- ENERGY - 7.0% 14,100 Apache Corporation ...................................... $ 938 40,800 Berry Petroleum Company, Class A ........................ 1,265 2,700 CARBO Ceramics Inc.** ................................... 101 50,688 Chevron Corporation ..................................... 3,727 16,000 ExxonMobil Corporation .................................. 1,226 77,200 Nabors Industries Ltd. (F)+ ............................. 2,299 47,600 Occidental Petroleum Corporation ........................ 2,324 -------- Total Energy ............................................ 11,880 -------- FINANCIALS - 16.7% BANKS - 10.2% 13,300 Bank of America Corporation ............................. 710 11,000 Banner Corporation ...................................... 488 16,500 City National Corporation ............................... 1,175 41,000 Countrywide Financial Corporation ....................... 1,740 44,900 East West Bancorp, Inc. ................................. 1,590 2,850 First Republic Bank ..................................... 111 27,100 Greater Bay Bancorp ..................................... 714 8,600 Pacific Capital Bancorp ................................. 289 61,100 U.S. Bancorp ............................................ 2,211 17,400 UCBH Holdings, Inc.** ................................... 306 12,600 UnionBanCal Corporation ................................. 772 7,000 United PanAm Financial Corporation+ ..................... 96 80,997 Washington Federal, Inc.** .............................. 1,906 146,146 Wells Fargo & Company ................................... 5,197 -------- 17,305 -------- DIVERSIFIED FINANCIALS - 5.0% 133,000 Charles Schwab Corporation .............................. 2,572 41,800 Citigroup, Inc. ......................................... 2,328 30,100 Franklin Resources, Inc. ................................ 3,316 4,155 Piper Jaffray Companies, Inc.+ .......................... 271 -------- 8,487 -------- INSURANCE - 1.5% 150 eHealth, Inc.+** ........................................ 3 3,500 Safeco Corporation** .................................... 219 49,700 StanCorp Financial Group, Inc. .......................... 2,239 -------- 2,461 -------- Total Financials ........................................ 28,253 -------- HEALTH CARE - 15.0% HEALTH CARE EQUIPMENT & SERVICES - 7.6% 8,000 Affymetrix, Inc.+** ..................................... 185 25,000 AMN Healthcare Services, Inc.+ .......................... 689 21,500 Applera Corporation-Applied Biosystems Group ............ 789 4,000 C.R. Bard, Inc. ......................................... 332 10,600 Caremark Rx, Inc. ....................................... 605 20,400 DaVita, Inc.+ ........................................... 1,160 6,280 Health Net Inc.+** ...................................... 306 19,200 McKesson Corporation .................................... 973 20,400 Mentor Corporation ...................................... 997
See Notes to Financial Statements. 39 Portfolio of Investments (continued) VT WEST COAST EQUITY FUND December 31, 2006
VALUE SHARES (000S) --------- -------- COMMON STOCKS (CONTINUED) HEALTH CARE (CONTINUED) HEALTH CARE EQUIPMENT & SERVICES (CONTINUED) 76,000 OraSure Technologies, Inc.+** ........................... $ 628 22,800 ResMed Inc.+** .......................................... 1,122 57,725 SonoSite, Inc.+** ....................................... 1,785 5,500 Stryker Corporation ..................................... 303 34,500 Varian Medical Systems, Inc.+ ........................... 1,641 28,000 VCA Antech, Inc.+ ....................................... 901 5,000 Zimmer Holdings, Inc.+ .................................. 392 -------- 12,808 -------- PHARMACEUTICALS & BIOTECHNOLOGY - 7.4% 21,300 Abbott Laboratories ..................................... 1,037 26,312 Allergan, Inc. .......................................... 3,151 31,607 Amgen Inc.+ ............................................. 2,159 8,200 Amylin Pharmaceuticals, Inc.+** ......................... 296 27,500 CV Therapeutics, Inc.+** ................................ 384 41,000 Dendreon Corporation+** ................................. 171 14,441 Eden Bioscience Corporation+ ............................ 8 19,400 Genentech, Inc.+ ........................................ 1,574 8,100 Gilead Sciences, Inc.+ .................................. 526 26,000 Johnson & Johnson ....................................... 1,716 11,800 Martek Biosciences Corporation+** ....................... 275 23,000 Pfizer Inc. ............................................. 596 24,000 Watson Pharmaceuticals, Inc.+ ........................... 625 -------- 12,518 -------- Total Health Care ....................................... 25,326 -------- INDUSTRIALS - 15.2% CAPITAL GOODS - 10.9% 40,611 Boeing Company .......................................... 3,608 17,100 Cascade Corporation ..................................... 905 2,200 Ceradyne, Inc.+ ......................................... 124 29,500 Dionex Corporation+ ..................................... 1,673 25,803 Electro Scientific Industries, Inc.+ .................... 520 33,500 General Electric Company ................................ 1,246 33,500 Greenbrier Companies, Inc. .............................. 1,005 30,900 Jacobs Engineering Group Inc.+ .......................... 2,520 18,100 Northrop Grumman Corporation ............................ 1,225 48,200 PACCAR Inc.** ........................................... 3,128 17,100 Precision Castparts Corporation ......................... 1,339 39,000 Simpson Manufacturing Company, Inc.** ................... 1,234 -------- 18,527 -------- COMMERCIAL SERVICES & SUPPLIES - 1.6% 5,500 Avery Dennison Corporation .............................. 374 24,000 Copart, Inc.+ ........................................... 720 30,000 Robert Half International Inc. .......................... 1,113 12,300 Waste Connections, Inc.+** .............................. 511 -------- 2,718 --------
VALUE SHARES (000S) --------- -------- TRANSPORTATION - 2.7% 37,760 Alaska Air Group, Inc.+ ................................. $ 1,492 63,100 Cathay Pacific Airways Ltd., Sponsored ADR .............. 778 57,000 Expeditors International of Washington, Inc. ............ 2,308 -------- 4,578 -------- Total Industrials ....................................... 25,823 -------- INFORMATION TECHNOLOGY - 18.9% COMMUNICATIONS EQUIPMENT - 2.4% 120,900 Cisco Systems, Inc.+ .................................... 3,304 10,300 Polycom, Inc.+** ........................................ 319 13,500 QUALCOMM, Inc. .......................................... 510 -------- 4,133 -------- COMPUTERS & PERIPHERALS - 2.2% 8,300 Apple Computer, Inc.+ ................................... 704 46,900 Hewlett-Packard Company ................................. 1,932 5,700 InFocus Corporation+ .................................... 15 18,000 Intermec Inc.+** ........................................ 437 5,400 Network Appliance, Inc.+ ................................ 212 21,000 QLogic Corporation+ ..................................... 461 -------- 3,761 -------- ELECTRONIC EQUIPMENT & INSTRUMENTS - 1.1% 3,800 Itron, Inc.+** .......................................... 197 40,020 Tektronix, Inc. ......................................... 1,167 10,600 Trimble Navigation Ltd.+ ................................ 538 -------- 1,902 -------- INTERNET SOFTWARE & SERVICES - 2.5% 284,340 Art Technology Group, Inc.+** ........................... 663 3,550 Google Inc., Class A+ ................................... 1,635 19,074 WebEx Communications, Inc.+ ............................. 665 47,000 Yahoo! Inc.+ ............................................ 1,200 -------- 4,163 -------- IT SERVICES - 0.0% 2,100 VeriFone Holdings, Inc.+ ................................ 74 -------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 3.6% 2,500 Agere Systems Inc.+ ..................................... 48 30,725 Applied Materials, Inc.** ............................... 567 6,700 Exar Corporation+ ....................................... 87 31,460 FEI Company+** .......................................... 830 76,230 Intel Corporation ....................................... 1,544 6,700 International Rectifier Corporation+ .................... 258 11,100 KLA-Tencor Corporation .................................. 552 73,780 Lattice Semiconductor Corporation+ ...................... 478 1,700 Linear Technology Corporation ........................... 51 36,700 LSI Logic Corporation+** ................................ 330 4,800 Maxim Integrated Products, Inc. ......................... 147 10,400 Novellus Systems, Inc.+** ............................... 358 7,300 NVIDIA Corporation+ ..................................... 270
See Notes to Financial Statements. 40 Portfolio of Investments (continued) VT WEST COAST EQUITY FUND December 31, 2006
VALUE SHARES (000S) --------- -------- COMMON STOCKS (CONTINUED) INFORMATION TECHNOLOGY (CONTINUED) SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT (CONTINUED) 77,300 Pixelworks, Inc.+ ....................................... $ 177 12,800 SiRF Technology Holdings, Inc.+** ....................... 327 -------- 6,024 -------- SOFTWARE - 7.1% 70,600 Actuate Corporation+ .................................... 420 63,940 Adobe Systems, Inc.+ .................................... 2,629 4,200 Autodesk, Inc.+ ......................................... 170 13,100 Electronic Arts, Inc.+ .................................. 660 23,000 Fair Isaac Corporation** ................................ 935 1,500 Hyperion Solutions Corporation+ ......................... 54 5,400 Mentor Graphics Corporation+ ............................ 97 172,330 Microsoft Corporation ................................... 5,146 46,000 Quest Software, Inc.+** ................................. 674 22,890 RadiSys Corporation+ .................................... 382 19,000 Sybase, Inc.+ ........................................... 469 16,800 Symantec Corporation+** ................................. 350 2,600 Websense, Inc.+ ......................................... 59 -------- 12,045 -------- Total Information Technology ............................ 32,102 -------- MATERIALS - 3.0% 5,500 Cemex SA de CV, Sponsored ADR+ .......................... 187 3,000 Reliance Steel & Aluminum Company ....................... 118 43,130 Schnitzer Steel Industries, Inc., Class A ............... 1,712 15,700 Symyx Technologies, Inc.+ ............................... 339 37,635 Weyerhaeuser Company .................................... 2,659 -------- Total Materials ......................................... 5,015 -------- TELECOMMUNICATION SERVICES - 0.7% 66,100 Sprint Nextel Corporation ............................... 1,249 -------- UTILITIES - 0.6% 19,000 Sempra Energy ........................................... 1,065 -------- Total Common Stocks (Cost $113,996) ...................................... 160,502 -------- REAL ESTATE INVESTMENT TRUSTS (REITS) - 3.4% 28,400 AMB Property Corporation ................................ 1,664 11,200 Essex Property Trust, Inc. .............................. 1,448 35,000 Health Care Property Investors, Inc. .................... 1,289 6,500 Nationwide Health Properties, Inc.** .................... 196 29,700 Plum Creek Timber Company, Inc. ......................... 1,184 -------- Total REITs (Cost $3,913) ........................................ 5,781 --------
PRINCIPAL AMOUNT VALUE (000S) (000S) --------- -------- REPURCHASE AGREEMENT - 1.4% (Cost $2,325) $ 2,325 Agreement with Morgan Stanley, 4.750% dated 12/29/2006, to be repurchased at $2,327,000 on 01/03/2007 (collateralized by U.S. Treasury Bond, 3.625% due 04/15/2028, market value $2,396,000) .................................. $ 2,325 -------- SHORT-TERM INVESTMENT - 11.4% (Cost $19,400) 19,400 Mellon GSL DBT II Collateral Fund++ ............................ 19,400 -------- TOTAL INVESTMENTS (Cost $139,634*) .......................... 110.9% 188,008 OTHER ASSETS (LIABILITIES) (NET) ............................ (10.9) (18,462) ----- -------- NET ASSETS .................................................. 100.0% $169,546 ===== ========
---------- * Aggregate cost for federal tax purposes is $140,005. ** Some or all of these securities are on loan at December 31, 2006, and have an aggregate market value of $18,331,000, representing 10.8% of the total net assets of the Fund (collateral value $19,400,000). (See Note 7 to Financial Statements.) + Non-income producing security. ++ Represents investment purchased with cash collateral for securities loaned. GLOSSARY OF TERMS ADR -- American Depositary Receipt (F) -- Foreign Shares See Notes to Financial Statements. 41 Portfolio of Investments VT MID CAP STOCK FUND December 31, 2006
VALUE SHARES (000S) --------- -------- COMMON STOCKS - 93.8% CONSUMER DISCRETIONARY - 13.7% AUTOMOBILES & COMPONENTS - 2.0% 29,200 Magna International Inc., Class A(F) .................... $ 2,352 -------- CONSUMER DURABLES & APPAREL - 1.3% 64,800 Mattel, Inc. ............................................ 1,468 -------- CONSUMER SERVICES - 2.1% 31,600 Papa John's International, Inc.+ ........................ 917 25,000 Yum! Brands, Inc. ....................................... 1,470 -------- 2,387 -------- RETAILING - 8.3% 74,000 Aaron Rents, Inc. ....................................... 2,130 56,000 Nordstrom, Inc. ......................................... 2,763 54,200 Tiffany & Company ....................................... 2,127 49,500 Weight Watchers International, Inc. ..................... 2,600 -------- 9,620 -------- Total Consumer Discretionary ............................ 15,827 -------- CONSUMER STAPLES - 1.3% FOOD, BEVERAGE & TOBACCO - 0.9% 13,600 Dean Foods Company+ ..................................... 575 8,700 J.M. Smucker Company .................................... 422 -------- 997 -------- HOUSEHOLD & PERSONAL PRODUCTS - 0.4% 12,700 Estee Lauder Companies Inc., Class A .................... 518 -------- Total Consumer Staples .................................. 1,515 -------- ENERGY - 8.8% 56,700 Cimarex Energy Company** ................................ 2,069 78,300 Nabors Industries Ltd. (F)+ ............................. 2,332 51,500 Noble Energy, Inc. ...................................... 2,527 11,500 Tesoro Corporation ...................................... 756 50,800 Tidewater Inc.** ........................................ 2,457 -------- Total Energy ............................................ 10,141 -------- FINANCIALS - 16.7% BANKS - 4.0% 84,400 TCF Financial Corporation ............................... 2,314 97,750 Washington Federal, Inc. ................................ 2,300 -------- 4,614 -------- DIVERSIFIED FINANCIALS - 4.2% 38,800 A.G. Edwards, Inc. ...................................... 2,456 23,500 Ambac Financial Group, Inc. ............................. 2,093 4,108 Capital One Financial Corporation ....................... 316 -------- 4,865 --------
VALUE SHARES (000S) --------- -------- INSURANCE - 8.5% 112,526 Fidelity National Financial, Inc., Class A .............. $ 2,687 97,500 HCC Insurance Holdings, Inc. ............................ 3,129 48,600 Max Re Capital Ltd. (F) ................................. 1,206 27,200 MGIC Investment Corporation** ........................... 1,701 24,891 PMI Group, Inc. ......................................... 1,174 -------- 9,897 -------- Total Financials ........................................ 19,376 -------- HEALTH CARE - 10.9% HEALTH CARE EQUIPMENT & SERVICES - 9.4% 16,200 AmerisourceBergen Corporation ........................... 728 36,400 Covance, Inc.+ .......................................... 2,144 45,000 Edwards Lifesciences Corporation+ ....................... 2,117 18,600 Express Scripts, Inc.+ .................................. 1,332 76,202 IMS Health Inc. ......................................... 2,094 44,300 Universal Health Services, Inc., Class B ................ 2,456 -------- 10,871 -------- PHARMACEUTICALS & BIOTECHNOLOGY - 1.5% 87,625 Mylan Laboratories Inc. ................................. 1,749 -------- Total Health Care ....................................... 12,620 -------- INDUSTRIALS - 17.2% CAPITAL GOODS - 6.3% 73,300 Federal Signal Corporation .............................. 1,176 35,400 Lincoln Electric Holdings, Inc. ......................... 2,139 33,850 PACCAR Inc.** ........................................... 2,197 27,300 Teleflex Inc. ........................................... 1,762 -------- 7,274 -------- COMMERCIAL SERVICES & SUPPLIES - 4.5% 78,300 Allied Waste Industries, Inc.+** ........................ 962 48,900 HNI Corporation ......................................... 2,172 50,500 Republic Services, Inc. ................................. 2,054 -------- 5,188 -------- TRANSPORTATION - 6.4% 36,800 Alaska Air Group, Inc.+ ................................. 1,453 100,900 AMR Corporation+** ...................................... 3,050 70,200 Continental Airlines, Inc., Class B+** .................. 2,896 -------- 7,399 -------- Total Industrials ....................................... 19,861 -------- INFORMATION TECHNOLOGY - 14.4% COMPUTERS & PERIPHERALS - 3.9% 72,000 Electronics for Imaging, Inc.+ .......................... 1,914 65,300 Network Appliance, Inc.+ ................................ 2,565 -------- 4,479 -------- ELECTRONIC EQUIPMENT & INSTRUMENTS - 2.4% 40,700 Arrow Electronics, Inc.+ ................................ 1,284 31,900 Diebold, Inc. ........................................... 1,487 -------- 2,771 --------
See Notes to Financial Statements. 42 Portfolio of Investments (continued) VT MID CAP STOCK FUND December 31, 2006
VALUE SHARES (000S) --------- -------- COMMON STOCKS (CONTINUED) INFORMATION TECHNOLOGY (CONTINUED) IT SERVICES - 3.7% 63,100 Acxiom Corporation ...................................... $ 1,619 18,900 Convergys Corporation+ .................................. 449 55,353 Fidelity National Information Services, Inc. ............ 2,219 -------- 4,287 -------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 2.5% 86,650 Microchip Technology, Inc.** 2,833 -------- SOFTWARE - 1.9% 53,500 BMC Software Inc.+ ...................................... 1,723 19,600 Synopsys, Inc.+ ......................................... 524 -------- 2,247 -------- Total Information Technology ............................ 16,617 -------- MATERIALS - 5.6% 26,900 Cabot Corporation** ..................................... 1,172 52,900 Lubrizol Corporation .................................... 2,652 94,900 Valspar Corporation ..................................... 2,623 -------- Total Materials ......................................... 6,447 -------- TELECOMMUNICATION SERVICES - 0.5% 8,600 United States Cellular Corporation+ ..................... 598 -------- UTILITIES - 4.7% 105,800 NiSource Inc. ........................................... 2,550 57,700 Pinnacle West Capital Corporation ....................... 2,925 -------- Total Utilities ......................................... 5,475 -------- Total Common Stocks (Cost $70,075) ....................................... 108,477 -------- REAL ESTATE INVESTMENT TRUST (REIT) - 2.3% (Cost $1,561) 51,000 General Growth Properties, Inc. ......................... 2,664 --------
PRINCIPAL AMOUNT VALUE (000S) (000S) --------- -------- REPURCHASE AGREEMENT - 4.2% (Cost $4,823) $ 4,823 Agreement with Morgan Stanley, 4.750% dated 12/29/2006, to be repurchased at $4,826,000 on 01/03/2007 (collateralized by U.S. Treasury Bond, 3.625% due 04/15/2028, market value $4,970,000) .................................. $ 4,823 -------- SHORT-TERM INVESTMENT - 13.3% (Cost $15,369) 15,369 Mellon GSL DBT II Collateral Fund++ ............................ 15,369 -------- TOTAL INVESTMENTS (Cost $91,828*) 113.6% 131,333 OTHER ASSETS (LIABILITIES) (NET) ............................ (13.6) (15,721) ----- -------- NET ASSETS .................................................. 100.0% $115,612 ===== ========
---------- * Aggregate cost for federal tax purposes is $92,153. ** Some or all of these securities are on loan at December 31, 2006, and have an aggregate market value of $14,739,000, representing 12.7% of the total net assets of the Fund (collateral value $15,369,000). (See Note 7 to Financial Statements). + Non-income producing security. ++ Represents investment purchased with cash collateral for securities loaned. GLOSSARY OF TERMS (F) -- Foreign Shares See Notes to Financial Statements. 43 Portfolio of Investments VT GROWTH FUND December 31, 2006
VALUE SHARES (000S) --------- -------- COMMON STOCKS - 97.7% CONSUMER DISCRETIONARY - 16.7% CONSUMER DURABLES & APPAREL - 2.1% 116,973 Newell Rubbermaid, Inc. ................................. $ 3,387 36,985 Polo Ralph Lauren Corporation ........................... 2,872 -------- 6,259 -------- CONSUMER SERVICES - 7.1% 110,695 International Game Technology ........................... 5,114 43,225 Las Vegas Sands Corporation+ ............................ 3,868 45,506 Marriott International, Inc., Class A ................... 2,171 130,062 McDonald's Corporation .................................. 5,766 40,614 MGM Mirage+ ............................................. 2,329 63,351 Starbucks Corporation+ .................................. 2,244 -------- 21,492 -------- MEDIA - 2.2% 50,090 Comcast Corporation, Special Class A+ ................... 2,098 68,599 Lamar Advertising Company, Class A+ ..................... 4,485 -------- 6,583 -------- RETAILING - 5.3% 102,331 Kohl's Corporation+ ..................................... 7,003 141,153 Limited Brands, Inc. .................................... 4,085 31,671 Nordstrom, Inc. ......................................... 1,563 201,594 Saks, Inc. .............................................. 3,592 -------- 16,243 -------- Total Consumer Discretionary ............................ 50,577 -------- CONSUMER STAPLES - 11.5% FOOD & STAPLES RETAILING - 4.1% 255,629 CVS Corporation ......................................... 7,902 78,261 Sysco Corporation ....................................... 2,877 32,480 Whole Foods Market, Inc. ................................ 1,524 -------- 12,303 -------- FOOD, BEVERAGE & TOBACCO - 4.8% 130,606 Coca-Cola Company ....................................... 6,302 95,040 PepsiCo, Inc. ........................................... 5,945 44,639 Wm. Wrigley Jr. Company ................................. 2,308 -------- 14,555 -------- HOUSEHOLD & PERSONAL PRODUCTS - 2.6% 123,562 Procter & Gamble Company ................................ 7,941 -------- Total Consumer Staples .................................. 34,799 -------- ENERGY - 3.9% 27,767 Apache Corporation ...................................... 1,847 55,950 Devon Energy Corporation ................................ 3,753 37,763 EOG Resources, Inc. ..................................... 2,358 71,230 Halliburton Company ..................................... 2,212 26,350 Schlumberger Ltd. ....................................... 1,664 -------- Total Energy ............................................ 11,834 --------
VALUE SHARES (000S) --------- -------- FINANCIALS - 14.5% BANKS - 4.4% 63,807 Bank of America Corporation ............................. $ 3,407 63,176 PNC Financial Services Group, Inc. ...................... 4,678 75,986 State Street Corporation ................................ 5,124 -------- 13,209 -------- DIVERSIFIED FINANCIALS - 9.2% 3,240 Chicago Mercantile Exchange Holdings, Inc. .............. 1,652 36,324 Fannie Mae .............................................. 2,157 48,894 Goldman Sachs Group, Inc. ............................... 9,747 37,510 Merrill Lynch & Company, Inc. ........................... 3,492 113,127 Morgan Stanley .......................................... 9,212 28,260 UBS AG .................................................. 1,705 -------- 27,965 -------- INSURANCE - 0.9% 39,996 American International Group, Inc. ...................... 2,866 -------- Total Financials ........................................ 44,040 -------- HEALTH CARE - 14.5% HEALTH CARE EQUIPMENT & SERVICES - 7.2% 82,782 Baxter International Inc. ............................... 3,840 43,215 C.R. Bard, Inc. ......................................... 3,586 77,262 Caremark Rx, Inc. ....................................... 4,413 40,977 Coventry Health Care, Inc.+ ............................. 2,051 53,783 DaVita, Inc.+ ........................................... 3,059 30,411 Intuitive Surgical, Inc.+ ............................... 2,916 36,664 Medtronic, Inc. ......................................... 1,962 -------- 21,827 -------- PHARMACEUTICALS & BIOTECHNOLOGY - 7.3% 38,830 Biogen Idec, Inc.+ ...................................... 1,910 107,124 Celgene Corporation+ .................................... 6,163 77,766 Genentech, Inc.+ ........................................ 6,309 118,841 Gilead Sciences, Inc.+ .................................. 7,716 -------- 22,098 -------- Total Health Care ....................................... 43,925 -------- INDUSTRIALS - 5.4% CAPITAL GOODS - 3.3% 22,134 Danaher Corporation ..................................... 1,603 81,012 Emerson Electric Company ................................ 3,572 52,500 Textron Inc. ............................................ 4,923 -------- 10,098 -------- TRANSPORTATION - 2.1% 145,283 UAL Corporation+ ........................................ 6,393 -------- Total Industrials ....................................... 16,491 --------
See Notes to Financial Statements. 44 Portfolio of Investments (continued) VT GROWTH FUND December 31, 2006
VALUE SHARES (000S) --------- -------- COMMON STOCKS (CONTINUED) INFORMATION TECHNOLOGY - 27.7% COMMUNICATIONS EQUIPMENT - 7.0% 302,961 Cisco Systems, Inc.+ .................................... $ 8,280 148,373 Nokia Oyj, Sponsored ADR ................................ 3,015 158,554 QUALCOMM, Inc. .......................................... 5,992 30,555 Research In Motion Ltd.+ ................................ 3,904 -------- 21,191 -------- COMPUTERS & PERIPHERALS - 8.4% 108,509 Apple Computer, Inc.+ ................................... 9,206 141,591 EMC Corporation+ ........................................ 1,869 188,643 Hewlett-Packard Company ................................. 7,770 40,985 International Business Machines Corporation ............. 3,982 64,797 Network Appliance, Inc.+ ................................ 2,545 -------- 25,372 -------- INTERNET SOFTWARE & SERVICES - 3.7% 24,376 Google Inc., Class A+ ................................... 11,225 -------- IT SERVICES - 2.4% 115,292 Alliance Data Systems Corporation+ ...................... 7,202 -------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 3.7% 141,495 Broadcom Corporation, Class A+ .......................... 4,572 120,945 Intel Corporation ....................................... 2,449 116,334 NVIDIA Corporation+ ..................................... 4,305 -------- 11,326 -------- SOFTWARE - 2.5% 139,953 Microsoft Corporation ................................... 4,179 194,455 Oracle Corporation+ ..................................... 3,333 -------- 7,512 -------- Total Information Technology ............................ 83,828 -------- MATERIALS - 3.5% 46,927 Allegheny Technologies, Inc. ............................ 4,255 74,132 E.I. du Pont de Nemours & Company ....................... 3,611 18,327 Potash Corporation of Saskatchewan Inc. ................. 2,630 -------- Total Materials ......................................... 10,496 -------- Total Common Stocks (Cost $274,579) ...................................... 295,990 --------
PRINCIPAL AMOUNT VALUE (000S) (000S) --------- -------- REPURCHASE AGREEMENT - 2.5% (Cost $7,444) $ 7,444 Agreement with Morgan Stanley, 4.750% dated 12/29/2006, to be repurchased at $7,449,000 on 01/03/2007 (collateralized by U.S. Treasury Bond, 3.625% due 04/15/2028, market value $7,671,000) .................................. $ 7,444 -------- TOTAL INVESTMENTS (Cost $282,023*) .......................... 100.2% 303,434 OTHER ASSETS (LIABILITIES) (NET) ............................ (0.2) (644) ----- -------- NET ASSETS .................................................. 100.0% $302,790 ===== ========
---------- * Aggregate cost for federal tax purposes is $283,365. + Non-income producing security. GLOSSARY OF TERMS ADR -- American Depositary Receipt (F) -- Foreign Shares See Notes to Financial Statements. 45 Portfolio of Investments VT SMALL CAP VALUE FUND December 31, 2006
VALUE SHARES (000S) --------- -------- COMMON STOCKS - 80.0% CONSUMER DISCRETIONARY - 11.0% AUTOMOBILES & COMPONENTS - 1.9% 16,859 Accuride Corporation+ ................................... $ 190 9,173 Aftermarket Technology Corporation+ ..................... 195 7,271 Tenneco, Inc.+ .......................................... 180 5,148 TRW Automotive Holdings Corporation+ .................... 133 -------- 698 -------- CONSUMER DURABLES & APPAREL - 3.4% 2,808 Brown Shoe Company, Inc. ................................ 134 4,867 Carter's, Inc.+ ......................................... 124 8,144 Furniture Brands International Inc. ..................... 132 8,635 K2 Inc.+ ................................................ 114 3,557 Kellwood Company ........................................ 116 40,700 Lenox Group, Inc.+ ...................................... 260 4,587 Movado Group Inc. ....................................... 133 4,867 Oakley Inc. ............................................. 98 2,434 Phillips-Van Heusen Corporation ......................... 122 -------- 1,233 -------- CONSUMER SERVICES - 1.2% 2,600 Jack in the Box Inc.+ ................................... 159 14,109 Multimedia Games Inc.+ .................................. 136 6,552 O'Charleys Inc.+ ........................................ 139 -------- 434 -------- MEDIA - 0.7% 9,080 Cox Radio Inc.+ ......................................... 148 23,027 Harris Interactive Inc.+ ................................ 116 -------- 264 -------- RETAILING - 3.8% 3,557 AnnTaylor Stores Corporation+ ........................... 117 20,405 Blockbuster Inc., Class A ............................... 108 6,982 Building Materials Holding Corporation .................. 172 7,208 Cato Corporation ........................................ 165 4,119 Charlotte Russe Holding, Inc.+ .......................... 127 2,307 Children's Place Retail Stores, Inc.+ ................... 147 3,487 Group 1 Automotive Inc. ................................. 180 4,830 RC2 Corporation+ ........................................ 212 5,148 Rent-A-Center Inc.+ ..................................... 152 -------- 1,380 -------- Total Consumer Discretionary ............................ 4,009 -------- CONSUMER STAPLES - 3.7% FOOD & STAPLES RETAILING - 0.9% 2,308 Longs Drug Stores Corporation ........................... 98 4,867 The Pantry, Inc.+ ....................................... 228 -------- 326 -------- FOOD, BEVERAGE & TOBACCO - 1.4% 9,922 Flowers Foods Inc. ...................................... 268 2,340 Ralcorp Holdings, Inc.+ ................................. 119 4,100 TreeHouse Foods, Inc.+ .................................. 128 -------- 515 --------
VALUE SHARES (000S) --------- -------- HOUSEHOLD & PERSONAL PRODUCTS - 1.4% 3,141 Central Garden & Pet Company+ ........................... $ 152 10,296 Elizabeth Arden Inc.+ ................................... 196 3,880 NBTY Inc.+ .............................................. 161 -------- 509 -------- Total Consumer Staples .................................. 1,350 -------- ENERGY - 4.6% 4,774 Basic Energy Services, Inc.+ ............................ 118 16,500 Cimarex Energy Company .................................. 602 6,525 Comstock Resources, Inc.+ ............................... 203 10,539 Encore Acquisition Company+ ............................. 258 7,208 RPC, Inc. ............................................... 122 5,950 St. Mary Land & Exploration Company ..................... 219 3,557 Swift Energy Company+ ................................... 159 -------- Total Energy ............................................ 1,681 -------- FINANCIALS - 22.7% BANKS - 13.0% 9,173 BankUnited Financial Corporation, Class A ............... 256 5,223 Capital Corporation of the West ......................... 168 6,459 Corus Bankshares Inc. ................................... 149 12,000 Dime Community Bancshares ............................... 168 5,897 East West Bancorp, Inc. ................................. 209 25,200 F.N.B. Corporation ...................................... 460 4,399 First Community Bancorp Inc. ............................ 230 12,934 First Niagara Financial Group Inc. ...................... 192 2,808 FirstFed Financial Corporation+ ......................... 188 20,236 FirstMerit Corporation .................................. 489 6,108 Fremont General Corporation ............................. 99 15,258 Sterling Bancshares Inc. ................................ 199 4,680 SVB Financial Group+ .................................... 218 36,990 TrustCo Bank Corporation NY ............................. 411 16,329 U.S.B. Holding Company, Inc. ............................ 394 3,744 United Community Banks, Inc. ............................ 121 14,719 Washington Federal, Inc. ................................ 346 6,927 Whitney Holding Corporation ............................. 226 5,055 Wilmington Trust Corporation ............................ 213 -------- 4,736 -------- DIVERSIFIED FINANCIALS - 2.5% 4,667 Asta Funding Inc. ....................................... 142 4,399 Calamos Asset Management Inc. ........................... 118 3,412 CompuCredit Corporation+ ................................ 136 5,484 Investment Technology Group Inc.+ ....................... 235 15,632 Knight Capital Group, Inc., Class A+ .................... 300 -------- 931 -------- INSURANCE - 7.2% 6,927 Horace Mann Educators Corporation ....................... 140 1,821 LandAmerica Financial Group, Inc. ....................... 115 4,025 National Financial Partners Corporation ................. 177 7,762 Navigators Group, Inc.+ ................................. 374 8,144 Phoenix Companies, Inc. ................................. 129 6,552 ProAssurance Corporation+ ............................... 327
See Notes to Financial Statements. 46 Portfolio of Investments (continued) VT SMALL CAP VALUE FUND December 31, 2006
VALUE SHARES (000S) --------- -------- COMMON STOCKS (CONTINUED) FINANCIALS (CONTINUED) INSURANCE (CONTINUED) 4,860 Safety Insurance Group, Inc. ............................ $ 247 7,976 State Auto Financial Corporation ........................ 277 4,754 Stewart Information Services Corporation ................ 206 10,104 United Fire & Casualty Company .......................... 356 5,710 Zenith National Insurance Corporation ................... 268 -------- 2,616 -------- Total Financials ........................................ 8,283 -------- HEALTH CARE - 4.7% HEALTH CARE EQUIPMENT & SERVICES - 3.1% 3,357 AMERIGROUP Corporation+ ................................. 121 6,355 Greatbatch Inc.+ ........................................ 171 3,370 Haemonetics Corporation+ ................................ 152 8,528 Kindred Healthcare, Inc.+ ............................... 215 5,137 LifePoint Hospitals, Inc.+ .............................. 173 2,808 Magellan Health Services Inc.+ .......................... 121 5,242 Sierra Health Services, Inc.+ ........................... 189 -------- 1,142 -------- PHARMACEUTICALS & BIOTECHNOLOGY - 1.6% 6,876 Alpharma Inc., Class A .................................. 166 6,981 Par Pharmaceutical Companies, Inc.+ ..................... 156 5,391 PAREXEL International Corporation+ ...................... 156 5,097 Perrigo Company ......................................... 88 -------- 566 -------- Total Health Care ....................................... 1,708 -------- INDUSTRIALS - 14.0% CAPITAL GOODS - 8.0% 3,370 AO Smith Corporation .................................... 127 2,495 Belden CDT Inc. ......................................... 97 6,178 Briggs & Stratton Corporation ........................... 166 13,947 Comfort Systems USA Inc. ................................ 176 3,655 DRS Technologies, Inc. .................................. 193 9,641 EnPro Industries Inc.+ .................................. 320 9,641 Federal Signal Corporation .............................. 155 5,215 Gardner Denver, Inc.+ ................................... 195 2,995 General Cable Corporation+ .............................. 131 2,340 Granite Construction Inc. ............................... 118 4,961 Greenbrier Companies, Inc. .............................. 149 7,791 Griffon Corporation+ .................................... 199 6,216 Ladish Company, Inc.+ ................................... 230 10,203 Orbital Sciences Corporation+ ........................... 188 4,025 Shaw Group Inc.+ ........................................ 135 3,931 URS Corporation+ ........................................ 168 2,621 Washington Group International Inc.+ .................... 157 -------- 2,904 -------- COMMERCIAL SERVICES & SUPPLIES - 3.1% 6,552 ABM Industries Inc. ..................................... 149 4,025 American Reprographics Company+ ......................... 134
VALUE SHARES (000S) --------- -------- 16,568 CBIZ, Inc.+ ............................................. $ 116 5,055 FTI Consulting, Inc.+ ................................... 141 3,370 Heidrick & Struggles International Inc.+ ................ 143 600 John H. Harland Company ................................. 30 8,363 McGrath RentCorp ........................................ 256 3,557 United Stationers Inc.+ ................................. 166 -------- 1,135 -------- TRANSPORTATION - 2.9% 5,188 Alaska Air Group, Inc.+ ................................. 205 7,419 AMR Corporation+ ........................................ 224 3,557 Atlas Air Worldwide Holdings, Inc.+ ..................... 158 6,317 OMI Corporation ......................................... 134 5,562 Pacer International Inc. ................................ 165 7,276 Skywest Inc. ............................................ 186 -------- 1,072 -------- Total Industrials ....................................... 5,111 -------- INFORMATION TECHNOLOGY - 9.2% COMMUNICATIONS EQUIPMENT - 1.0% 10,765 Andrew Corporation+ ..................................... 110 7,114 Avocent Corporation+ .................................... 241 -------- 351 -------- COMPUTERS & PERIPHERALS - 1.7% 16,194 Brocade Communications Systems, Inc.+ ................... 133 6,317 Electronics for Imaging, Inc.+ .......................... 168 8,144 Emulex Corporation+ ..................................... 159 6,833 Hutchinson Technology, Inc.+ ............................ 161 -------- 621 -------- ELECTRONIC EQUIPMENT & INSTRUMENTS - 2.2% 18,159 Aeroflex Inc.+ .......................................... 213 5,429 Coherent Inc.+ .......................................... 171 6,272 Insight Enterprises Inc.+ ............................... 118 2,340 Itron, Inc.+ ............................................ 121 2,808 Rofin-Sinar Technologies, Inc.+ ......................... 170 -------- 793 -------- INTERNET SOFTWARE & SERVICES - 1.0% 24,244 Earthlink Inc.+ ......................................... 172 11,607 SonicWALL Inc.+ ......................................... 98 14,790 webMethods Inc.+ ........................................ 109 -------- 379 -------- IT SERVICES - 0.5% 13,479 MPS Group, Inc.+ ........................................ 191 -------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 1.2% 31,135 Axcelis Technologies, Inc.+ ............................. 182 4,212 Cabot Microelectronics Corporation+ ..................... 143 7,582 OmniVision Technologies, Inc.+ .......................... 103 -------- 428 --------
See Notes to Financial Statements. 47 Portfolio of Investments (continued) VT SMALL CAP VALUE FUND December 31, 2006
VALUE SHARES (000S) --------- -------- COMMON STOCKS (CONTINUED) INFORMATION TECHNOLOGY (CONTINUED) SOFTWARE - 1.6% 4,680 Kronos Inc.+ ............................................ $ 172 14,141 RealNetworks, Inc.+ ..................................... 155 14,696 Secure Computing Corporation+ ........................... 96 18,440 TIBCO Software Inc.+ .................................... 174 -------- 597 -------- Total Information Technology ............................ 3,360 -------- MATERIALS - 5.9% 9,375 CF Industries Holdings, Inc. ............................ 240 2,340 Chaparral Steel Company ................................. 104 3,557 Greif Inc. .............................................. 421 12,356 H.B. Fuller Company ..................................... 319 6,607 Headwaters, Inc.+ ....................................... 158 6,208 Metal Management, Inc. .................................. 235 3,557 Quanex Corporation ...................................... 123 6,431 Randgold Resources Ltd., ADR+ ........................... 151 3,744 Reliance Steel & Aluminum Company ....................... 147 5,342 Silgan Holdings, Inc. ................................... 235 -------- Total Materials ......................................... 2,133 -------- TELECOMMUNICATION SERVICES - 3.1% 27,800 Asia Satellite Telecommunications Holdings Ltd., Sponsored ADR .................................. 509 7,582 Consolidated Communications Holdings, Inc. .............. 159 7,515 Iowa Telecommunications Services Inc. ................... 148 16,765 Premiere Global Services, Inc.+ ......................... 158 7,189 USA Mobility, Inc.+ ..................................... 161 -------- Total Telecommunication Services ........................ 1,135 -------- UTILITIES - 1.1% 5,148 Great Plains Energy Inc. ................................ 164 7,892 PNM Resources Inc. ...................................... 245 -------- Total Utilities ......................................... 409 -------- Total Common Stocks (Cost $26,878) ....................................... 29,179 -------- CANADIAN INCOME TRUSTS - 2.8% CONSUMER STAPLES - 0.7% FOOD, BEVERAGE & TOBACCO - 0.7% 22,051 Arctic Glacier Income Fund (F) .......................... 237 -------- ENERGY - 0.9% 8,280 Vermilion Energy Trust (F) .............................. 249 3,547 Zargon Energy Trust (F) ................................. 75 -------- 324 --------
VALUE SHARES (000S) --------- -------- INDUSTRIALS - 1.2% COMMERCIAL SERVICES & SUPPLIES - 1.2% 58,505 Versacold Income Fund (F) ............................... $ 451 -------- Total Canadian Income Trusts (Cost $822) .......................................... 1,012 -------- REAL ESTATE INVESTMENT TRUSTS (REITS) - 9.9% 5,752 BioMed Realty Trust, Inc. ............................... 165 12,169 Cedar Shopping Centers Inc. ............................. 194 7,340 Entertainment Properties Trust .......................... 429 24,300 Equity Inns, Inc. ....................................... 388 11,233 FelCor Lodging Trust, Inc. .............................. 245 18,253 Highland Hospitality Corporation ........................ 260 12,637 Medical Properties Trust Inc. ........................... 193 8,705 National Retail Properties, Inc. ........................ 200 9,400 Nationwide Health Properties, Inc. ...................... 284 5,242 Newcastle Investment Corporation ........................ 164 17,047 OMEGA Healthcare Investors, Inc. ........................ 302 6,459 Pennsylvania Real Estate Investment Trust ............... 254 4,155 Redwood Trust, Inc. ..................................... 241 23,694 Winston Hotels, Inc. .................................... 314 -------- Total REITs (Cost $2,883) ........................................ 3,633 --------
CONTRACTS --------- PURCHASED PUT OPTIONS - 0.0% 3,950 iShares Russell 2000 Index, Expires January 2007 @ $49 ........................... 10 400 iShares Russell 2000 Index, Expires January 2007 @ $56 ........................... 1 -------- Total Purchased Put Options (Cost $604) .......................................... 11 --------
PRINCIPAL AMOUNT --------- REPURCHASE AGREEMENT - 6.1% (Cost $2,215) $ 2,215 Agreement with Morgan Stanley, 4.750% dated 12/29/2006, to be repurchased at $2,216,000 on 01/03/2007 (collateralized by U.S. Treasury Bond, 3.625% due 04/15/2028, market value $2,283,000) ..................... 2,215 -------- TOTAL INVESTMENTS (Cost $33,402*). .......................... 98.8% 36,050 OTHER ASSETS (LIABILITIES) (NET) ............................ 1.2 426 ----- -------- NET ASSETS .................................................. 100.0% $ 36,476 ===== ========
---------- * Aggregate cost for federal tax purposes is $33,436. + Non-income producing security. GLOSSARY OF TERMS ADR -- American Depositary Receipt (F) -- Foreign Shares See Notes to Financial Statements. 48 Portfolio of Investments VT SMALL CAP GROWTH FUND December 31, 2006
VALUE SHARES (000S) --------- -------- COMMON STOCKS - 90.1% CONSUMER DISCRETIONARY - 15.5% CONSUMER DURABLES & APPAREL - 4.9% 2,800 Carter's, Inc.+ ......................................... $ 71 11,100 Coach, Inc.+ ............................................ 477 5,512 Desarrolladora Homex SA de CV, ADR+ ..................... 325 3,100 Heelys, Inc.+** ......................................... 99 15,400 Iconix Brand Group, Inc.+ ............................... 299 4,500 Steven Madden, Ltd. ..................................... 158 8,300 Under Armour, Inc., Class A+** .......................... 419 16,700 Volcom, Inc.+ ........................................... 494 -------- 2,342 -------- CONSUMER SERVICES - 4.3% 12,600 BJ's Restaurants Inc.+ .................................. 255 6,700 Chipotle Mexican Grill, Inc., Class A+ .................. 382 3,500 Ctrip.com International Ltd., ADR ....................... 219 4,300 LIFE TIME FITNESS, Inc.+ ................................ 208 3,300 Nutri System, Inc.+** ................................... 209 7,400 Shuffle Master, Inc.+ ................................... 194 12,453 Sonic Corporation+ ...................................... 298 8,400 WMS Industries Inc.+ .................................... 293 -------- 2,058 -------- MEDIA - 1.5% 10,944 Focus Media Holding Ltd., ADR+ .......................... 727 -------- RETAILING - 4.8% 6,800 Citi Trends Inc.+ ....................................... 270 19,500 GMARKET Inc., ADR+ ...................................... 467 5,083 Guitar Center, Inc.+ .................................... 231 9,200 Gymboree Corporation+ ................................... 351 12,622 Hibbett Sporting Goods, Inc.+ ........................... 385 4,400 Priceline.com Inc.+ ..................................... 192 3,403 Tractor Supply Company+** ............................... 152 9,100 Zumiez Inc.+ ............................................ 269 -------- 2,317 -------- Total Consumer Discretionary ............................ 7,444 -------- CONSUMER STAPLES - 1.1% FOOD & STAPLES RETAILING - 0.9% 14,400 Central European Distribution Corporation+ .............. 428 -------- FOOD, BEVERAGE & TOBACCO - 0.2% 10,500 SunOpta, Inc.+ .......................................... 92 -------- Total Consumer Staples .................................. 520 -------- ENERGY - 8.6% 8,800 Allis-Chalmers Energy Inc.+** ........................... 203 5,900 ATP Oil & Gas Corporation+ .............................. 233 13,700 Basic Energy Services, Inc.+ ............................ 338 6,200 Bronco Drilling Company, Inc.+ .......................... 107 20,300 Cal Dive International, Inc.+ ........................... 255 10,000 Canadian Solar Inc.+ .................................... 105
VALUE SHARES (000S) --------- -------- 6,400 CARBO Ceramics Inc. ..................................... $ 239 18,431 Carrizo Oil & Gas, Inc.+ ................................ 535 5,600 Dril-Quip, Inc.+ ........................................ 219 6,200 First Solar, Inc.+ ...................................... 185 3,000 Goodrich Petroleum Corporation+ ......................... 108 8,200 Hercules Offshore, Inc.+ ................................ 237 25,400 Input/Output, Inc.+ ..................................... 346 3,200 Lufkin Industries, Inc. ................................. 186 19,900 Petrohawk Energy Corporation+ ........................... 229 4,200 Pioneer Drilling Company+ ............................... 56 6,756 Veritas DGC, Inc.+ ...................................... 578 -------- Total Energy ............................................ 4,159 -------- FINANCIALS - 5.3% BANKS - 1.4% 10,300 Midwest Banc Holdings, Inc.** ........................... 245 8,500 Signature Bank+ ......................................... 263 4,900 Sterling Financial Corporation .......................... 166 -------- 674 -------- DIVERSIFIED FINANCIALS - 1.2% 12,800 First Cash Financial Services, Inc.+ .................... 331 16,300 TradeStation Group, Inc.+ ............................... 224 -------- 555 -------- INSURANCE - 2.7% 11,000 American Equity Investment Life Holding Company** ....... 144 29,700 Amerisafe Inc.+ ......................................... 459 10,136 Delphi Financial Group, Inc., Class A ................... 410 2,500 eHealth, Inc.+ .......................................... 50 7,300 United Fire & Casualty Company .......................... 257 -------- 1,320 -------- Total Financials ........................................ 2,549 -------- HEALTH CARE - 19.4% HEALTH CARE EQUIPMENT & SERVICES - 10.9% 7,200 Abaxis, Inc.+ ........................................... 139 5,800 Advisory Board Company+ ................................. 311 10,894 Align Technology, Inc.+ ................................. 152 14,534 Allscripts Healthcare Solutions, Inc.+ .................. 392 6,994 ArthroCare Corporation+** ............................... 279 13,400 Conceptus, Inc.+ ........................................ 285 6,600 Foxhollow Technologies Inc.+ ............................ 142 11,500 HealthExtras, Inc.+ ..................................... 277 15,900 Healthspring, Inc.+ ..................................... 324 4,978 Healthways, Inc.+ ....................................... 238 7,900 Home Diagnostics, Inc.+ ................................. 84 8,800 Immucor, Inc.+ .......................................... 257 6,366 inVentiv Health, Inc.+ .................................. 225 10,748 Kyphon, Inc.+ ........................................... 434 4,400 LHC Group, Inc.+ ........................................ 125 22,300 Micrus Endovascular Corporation+ ........................ 426 12,600 Natus Medical Inc.+ ..................................... 209
See Notes to Financial Statements. 49 Portfolio of Investments (continued) VT SMALL CAP GROWTH FUND December 31, 2006
VALUE SHARES (000S) --------- -------- COMMON STOCKS (CONTINUED) HEALTH CARE (CONTINUED) HEALTH CARE EQUIPMENT & SERVICES (CONTINUED) 13,600 Nighthawk Radiology Holdings, Inc.+ ..................... $ 347 3,558 Palomar Medical Technologies, Inc.+** ................... 180 12,000 Spectranetics Corporation+ .............................. 135 2,497 Syneron Medical Ltd. (F)+ ............................... 68 6,000 Vital Images, Inc.+ 209 -------- 5,238 -------- PHARMACEUTICALS & BIOTECHNOLOGY - 8.5% 10,500 Adams Respiratory Therapeutics, Inc.+ ................... 428 9,300 Cardiome Pharma Corporation+ ............................ 104 7,800 Combinatorx Inc.+** ..................................... 68 16,166 CV Therapeutics, Inc.+ .................................. 226 6,100 Digene Corporation+ ..................................... 292 16,500 Keryx Biopharmaceuticals, Inc.+ ......................... 219 4,300 LifeCell Corporation+ ................................... 104 13,138 MGI Pharma, Inc.+ ....................................... 242 25,800 Nastech Pharmaceutical Company Inc.+** .................. 390 8,269 Nektar Therapeutics+ .................................... 126 9,742 Omrix Biopharmaceuticals, Inc.+ ......................... 295 16,102 PDL BioPharma, Inc.+ .................................... 324 18,000 Rigel Pharmaceuticals, Inc.+ ............................ 214 18,237 Salix Pharmaceuticals Ltd.+ ............................. 222 12,046 Sciele Pharma, Inc.+ .................................... 289 21,500 Telik, Inc.+** .......................................... 95 8,268 United Therapeutics Corporation+ ........................ 450 -------- 4,088 -------- Total Health Care ....................................... 9,326 -------- INDUSTRIALS - 12.1% CAPITAL GOODS - 8.9% 3,850 Bucyrus International, Inc.** ........................... 199 19,214 Ceradyne, Inc.+ ......................................... 1,086 21,800 Dynamic Materials Corporation ........................... 613 6,100 ESCO Technologies Inc.+ ................................. 277 14,000 Essex Corporation+ ...................................... 335 9,200 Hexcel Corporation+ ..................................... 160 6,600 Kadant Inc.+ ............................................ 161 7,500 Ladish Company, Inc.+ ................................... 278 8,433 Lincoln Electric Holdings, Inc. ......................... 509 6,800 NCI Building Systems, Inc.+ ............................. 352 8,301 TurboChef Technologies, Inc.+ ........................... 141 9,100 Williams Scotsman International Inc.+** ................. 179 -------- 4,290 -------- COMMERCIAL SERVICES & SUPPLIES - 3.2% 7,700 American Ecology Corporation** .......................... 142 5,126 CRA International Inc.+ ................................. 268 10,600 Exlservice Holdings Inc.+ ............................... 223 8,900 Kenexa Corporation+ ..................................... 296 12,103 LECG Corporation+ ....................................... 224 8,200 Portfolio Recovery Associates, Inc.+** .................. 383 -------- 1,536 -------- Total Industrials ....................................... 5,826 --------
VALUE SHARES (000S) --------- -------- INFORMATION TECHNOLOGY - 26.8% COMMUNICATIONS EQUIPMENT - 5.5% 18,614 Acme Packet, Inc.+ ...................................... $ 384 69,100 Finisar Corporation+** .................................. 223 7,600 Occam Networks, Inc.+ ................................... 125 16,600 Oplink Communinications, Inc.+ .......................... 341 15,000 Polycom, Inc.+ .......................................... 464 44,100 Powerwave Technologies, Inc.+** ......................... 285 18,800 Redback Networks Inc.+** ................................ 469 18,600 Sierra Wireless+ ........................................ 262 11,000 Symmetricom, Inc.+ ...................................... 98 -------- 2,651 -------- COMPUTERS & PERIPHERALS - 2.4% 12,400 Cray, Inc.+ ............................................. 147 12,900 Emulex Corporation+ ..................................... 252 19,100 Rackable Systems Inc.+ .................................. 591 12,200 SimpleTech, Inc. ........................................ 155 -------- 1,145 -------- ELECTRONIC EQUIPMENT & INSTRUMENTS - 0.8% 10,800 Daktronics, Inc. ........................................ 398 -------- INTERNET SOFTWARE & SERVICES - 4.1% 7,306 Akamai Technologies, Inc.+** ............................ 388 22,689 aQuantive, Inc.+ ........................................ 560 13,500 DealerTrack Holdings Inc.+ .............................. 397 6,000 Travelzoo Inc.+ ......................................... 180 19,303 ValueClick, Inc.+ ....................................... 456 -------- 1,981 -------- IT SERVICES - 2.1% 9,100 Euronet Worldwide, Inc.+ ................................ 270 6,186 Infocrossing, Inc.+ ..................................... 101 12,350 RightNow Technologies, Inc.+ ............................ 213 12,100 VeriFone Holdings, Inc.+ ................................ 428 -------- 1,012 -------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 7.0% 12,700 Atheros Communications, Inc.+ ........................... 271 5,200 Cymer, Inc.+ ............................................ 228 1,900 IPG Photonics Corporation+ .............................. 46 15,700 Microsemi Corporation+ .................................. 308 13,254 PLX Technology, Inc.+ ................................... 173 8,500 Sigma Designs, Inc.+** .................................. 216 8,400 SiRF Technology Holdings, Inc.+** ....................... 214 6,900 Supertex, Inc.+ ......................................... 271 16,625 Tessera Technologies, Inc.+ ............................. 671 38,898 Trident Microsystems, Inc.+ ............................. 707 6,100 Varian Semiconductor Equipment Associates, Inc.+ ........ 278 -------- 3,383 --------
See Notes to Financial Statements. 50 Portfolio of Investments (continued) VT SMALL CAP GROWTH FUND December 31, 2006
VALUE SHARES (000S) --------- -------- COMMON STOCKS (CONTINUED) INFORMATION TECHNOLOGY (CONTINUED) SOFTWARE - 4.9% 18,000 Concur Technologies, Inc.+ .............................. $ 289 9,800 DivX, Inc.+** ........................................... 226 11,500 Emageon Inc.+ ........................................... 177 3,700 FactSet Research Systems Inc. ........................... 209 16,100 FalconStor Software, Inc.+ .............................. 139 11,900 Informatica Corporation+** .............................. 145 6,600 Interactive Intelligence, Inc.+ ......................... 148 18,436 Online Resources Corporation+ ........................... 188 3,800 Open Solutions Inc.+ .................................... 143 4,780 Systems Xcellence, Inc.+ ................................ 96 31,000 TIBCO Software Inc.+ .................................... 293 26,200 VASCO Data Security International, Inc.+ ................ 311 -------- 2,364 -------- Total Information Technology ............................ 12,934 -------- MATERIALS - 0.4% 10,700 Zoltek Companies, Inc.+** ............................... 210 -------- TELECOMMUNICATION SERVICES - 0.9% 5,384 Atlantic Tele-Network, Inc. ............................. 158 10,800 Optium Corporation+ ..................................... 269 -------- Total Telecommunication Services ........................ 427 -------- Total Common Stocks (Cost $34,811) ....................................... 43,395 -------- REAL ESTATE INVESTMENT TRUST (REIT) - 0.8% (Cost $292) 10,950 RAIT Investment Trust ................................... 378 --------
PRINCIPAL AMOUNT VALUE (000S) (000S) --------- -------- REPURCHASE AGREEMENT - 9.2% (Cost $4,428) $ 4,428 Agreement with Morgan Stanley, 4.750% dated 12/29/2006 to be repurchased at $4,431,000 on 01/03/2007 (collateralized by U.S. Treasury Bond, 3.625% due 04/15/2028, market value $4,563,000) .................................. $ 4,428 -------- SHORT-TERM INVESTMENT - 9.3% (Cost $4,462) 4,462 Mellon GSLDBT II Collateral Fund++ ............................ 4,462 -------- TOTAL INVESTMENTS (Cost $43,993*) ........................... 109.4% 52,663 OTHER ASSETS (LIABILITIES) (NET) ............................ (9.4) (4,503) ----- -------- NET ASSETS .................................................. 100.0% $ 48,160 ===== ========
---------- * Aggregate cost for federal tax purposes is $44,199. ** Some or all of these securities are on loan at December 31, 2006, and have an aggregate market value of $4,241,000, representing 8.8% of the total net assets of the Fund (collateral value $4,462,000). (See Note 7 to Financial Statements.) + Non-income producing security. ++ Represents investment purchased with cash collateral for securities loaned. GLOSSARY OF TERMS ADR -- American Depositary Receipt (F) -- Foreign Shares See Notes to Financial Statements. 51 Portfolio of Investments VT INTERNATIONAL GROWTH FUND December 31, 2006
VALUE SHARES (000S) --------- -------- COMMON STOCKS - 97.0% JAPAN - 19.6% ** 1,100 Advantest Corporation ................................... $ 63 18,600 AEON Company Ltd. ....................................... 402 100 Ahresty Corporation ..................................... 3 1,200 Aichi Corporation ....................................... 12 1,200 AOC Holdings, Inc. ...................................... 20 71 Ardepro Company, Ltd. ................................... 23 1,400 Asahi Pretec Corporation ................................ 28 12,600 Astellas Pharma, Inc. ................................... 571 400 Atrium Company Ltd.+ .................................... 11 23,100 Bank of Yokohama Ltd. ................................... 180 200 BML, Inc. ............................................... 4 100 C. Uyemura & Company, Ltd. .............................. 6 750 Canon Electronics, Inc. ................................. 26 23,900 Canon, Inc. ............................................. 1,346 15,100 Capcom Company Ltd. ..................................... 271 18,800 Casio Computer Company Ltd. ............................. 426 1,000 Daiki Aluminium Industry Company Ltd. ................... 7 3,000 Daimaru, Inc. ........................................... 41 6,000 Daiwa House Industry Company Ltd. ....................... 104 21,600 DENSO CORPORATION ....................................... 856 400 Disco Corporation ....................................... 28 900 Dodwell BMS Ltd. ........................................ 6 8,400 Eisai Company, Ltd. ..................................... 461 1,100 FANUC Ltd. .............................................. 108 300 Fujimi Inc. ............................................. 9 700 Hirose Electric Company Ltd. ............................ 79 12,000 Hitachi Construction Machinery Company, Ltd. ............ 322 2,000 Hitachi Koki Company, Ltd. .............................. 28 12,200 Hokkaido Electric Power Company, Inc. ................... 312 6,600 Honda Motor Company Ltd. ................................ 261 9,400 IBIDEN Company, Ltd. .................................... 473 1,800 Idemitsu Kosan Company Ltd.+, ++ ........................ 181 300 Information Services International-Dentsu Ltd. .......... 4 18 INPEX Holdings, Inc.+ ................................... 148 100 Iriso Electronics Company Ltd. .......................... 4 56,000 ITOCHU Corporation ...................................... 459 90 Japan Tobacco, Inc. ..................................... 435 9,600 Joint Corporation ....................................... 369 300 Kadokawa Group Holdings, Inc. ........................... 10 4,900 Kansai Electric Power Company Inc. ...................... 132 37,200 Komatsu Ltd. ............................................ 753 1,000 Kyorin Company Ltd. ..................................... 12 13,000 Makita Corporation ...................................... 398 200 Marubun Corporation ..................................... 3 400 Matsuda Sangyo Company, Ltd. ............................ 8 74,000 Meiji Dairies Corporation ............................... 582 100 Milbon Company, Ltd. .................................... 3 5,100 Millea Holdings, Inc. ................................... 181 6,700 Mitsubishi Corporation .................................. 126 8,000 Mitsubishi Estate Company Ltd. .......................... 207 53,000 Mitsubishi Gas Chemical Company, Inc. ................... 555
VALUE SHARES (000S) --------- -------- 36,100 Mitsubishi Heavy Industries Ltd. ........................ $ 164 4,000 Mitsubishi Steel Manufacturing Company, Ltd. ............ 20 59 Mitsubishi UFJ Financial Group, Inc. .................... 732 8,600 Mitsui & Company Ltd. ................................... 129 34,000 Mitsui Fudosan Company Ltd. ............................. 828 41,300 Mitsui O.S.K. Lines, Ltd. ............................... 408 2,800 Mitsui Sumitomo Insurance Company Ltd. .................. 31 24,500 Mitsumi Electric Company, Ltd. .......................... 538 112 Mizuho Financial Group, Inc. ............................ 799 15,400 Mori Seiki Company, Ltd. ................................ 344 200 Murata Manufacturing Company Ltd. ....................... 14 700 NEC Fielding, Ltd. ...................................... 10 2,000 Nichias Corporation ..................................... 15 600 Nihon Kohden Corporation ................................ 14 4,400 Nintendo Company Ltd. ................................... 1,139 900 Nippon Seiki Company Ltd. ............................... 21 1,000 Nippon Shinyaku Company, Ltd. ........................... 8 134,000 Nippon Steel Corporation ................................ 769 53 Nippon Telegraph & Telephone Corporation ................ 261 30,000 Nissan Motor Company Ltd. ............................... 362 2,000 Nittetsu Mining Company, Ltd. ........................... 15 200 Nitto Denko Corporation ................................. 10 6,200 Nomura Holdings, Inc. ................................... 117 2,400 Nomura Research Institute, Ltd. ......................... 348 100 NSD Company, Ltd. ....................................... 3 46,000 NSK Ltd. ................................................ 453 55 NTT Urban Development Corporation ....................... 106 200 Ohara Inc. .............................................. 9 200 Oiles Corporation ....................................... 5 11,700 Olympus Corporation ..................................... 367 400 Osaka Steel Company Ltd. ................................ 8 3,000 Pacific Metals Company Ltd. ............................. 29 1,100 Rohm Company Ltd. ....................................... 109 2,000 Ryobi Ltd. .............................................. 17 400 Santen Pharmaceutical Company Ltd. ...................... 11 7,700 Shin-Etsu Chemical Company Ltd. ......................... 514 1,400 SOFTBANK Corporation .................................... 27 4,042 Sony Corporation ........................................ 173 1,400 Star Micronics Company Ltd. ............................. 28 300 Sumco Techxiv Corporation ............................... 16 66,100 Sumitomo Corporation .................................... 990 64,000 Sumitomo Heavy Industries, Ltd. ......................... 671 60,000 Sumitomo Metal Industries, Ltd. ......................... 261 104 Sumitomo Mitsui Financial Group, Inc. ................... 1,065 21,000 Sumitomo Realty & Development Company Ltd. .............. 673 800 Sumitomo Seika Chemicals Company, Ltd. .................. 5 26,000 Suruga Bank Ltd. ........................................ 322 18,300 Suzuki Motor Corporation ................................ 516 1,200 T&D Holdings, Inc. ...................................... 79 13,400 Takeda Pharmaceutical Company Ltd. ...................... 918 400 Takeuchi Manufacturing Company, Ltd. .................... 19 900 TDK Corporation ......................................... 72 100 The Bank of Iwate, Ltd. ................................. 6
See Notes to Financial Statements. 52 Portfolio of Investments (continued) VT INTERNATIONAL GROWTH FUND December 31, 2006
VALUE SHARES (000S) --------- -------- COMMON STOCKS (CONTINUED) JAPAN (CONTINUED) 1,000 The Bank of Nagoya, Ltd. ................................ $ 6 1,000 The Kagoshima Bank, Ltd. ................................ 7 1,000 The San-In Godo Bank, Ltd. .............................. 9 29,000 The Shizuoka Bank, Ltd. ................................. 287 74,000 The Sumitomo Trust & Banking Company Ltd. ............... 775 200 Tocalo Company Ltd. ..................................... 7 3,000 Tokuyama Corporation .................................... 45 3,000 Tokyo Electric Power Company Inc. ....................... 97 800 Tokyo Electron Ltd. ..................................... 63 22,400 Tokyu Corporation ....................................... 143 8 Tosei Corporation ....................................... 9 8,700 Toshiba Corporation ..................................... 57 3,000 Toshiba Machine Company Ltd. ............................ 27 200 Towa Pharmaceutical Company Ltd. ........................ 7 27,600 Toyota Motor Corporation (F) ............................ 1,847 5,700 Trend Micro, Inc.+ ...................................... 167 400 Trusco Nakayama Corporation ............................. 8 2,700 USHIO Inc. .............................................. 55 214 Yahoo! Japan Corporation ................................ 85 9,200 Yakult Honsha Company Ltd. .............................. 264 -------- 29,590 -------- UNITED KINGDOM - 16.1% 900 Admiral Group PLC ....................................... 19 119,000 Aegis Group PLC ......................................... 325 7,168 Aggreko PLC ............................................. 61 1,000 Anglo American PLC ...................................... 49 5,900 Anglo American PLC (F) .................................. 287 2,399 Anite Group PLC ......................................... 4 6,400 ARM Holdings PLC ........................................ 16 21,500 AstraZeneca PLC ......................................... 1,152 29,100 Aviva PLC ............................................... 467 273 Axon Group PLC .......................................... 3 81,400 Barclays PLC ............................................ 1,162 55,200 BG Group PLC ............................................ 751 44,837 BHP Billiton PLC ........................................ 821 800 Big Yellow Group PLC .................................... 11 73,300 BP PLC .................................................. 817 7,100 Bradford & Bingley PLC .................................. 65 10,500 British American Tobacco PLC ............................ 294 22,700 British Land Company PLC ................................ 759 190,600 BT Group PLC ............................................ 1,126 43 Cadbury Schweppes PLC ................................... 1 37,000 Charter PLC+ ............................................ 653 13,200 Dana Petroleum PLC+ ..................................... 323 30,800 FirstGroup PLC .......................................... 345 11,700 GlaxoSmithKline PLC ..................................... 308 68,300 Halma PLC ............................................... 308 21,300 Hammerson PLC ........................................... 656 25,400 HSBC Holdings PLC ....................................... 462 2,054 Hunting PLC ............................................. 24 1,300 IG Group Holdings PLC ................................... 7
VALUE SHARES (000S) --------- -------- 22,700 Inchcape PLC ............................................ $ 224 115,769 International Power PLC ................................. 862 16,963 Ishaan Real Estate PLC+ ................................. 35 11,700 Johnston Press PLC ...................................... 90 500 Kazakhmys PLC ........................................... 11 18,200 Kelda Group PLC ......................................... 329 1,200 Lonmin PLC .............................................. 71 93,100 Man Group PLC ........................................... 950 61,400 Marks & Spencer Group PLC ............................... 860 44,800 Michael Page International PLC .......................... 396 400 Micro Focus International PLC ........................... 2 30,900 Mitchells & Butlers PLC ................................. 429 900 Morgan Sindall PLC ...................................... 23 2,400 N Brown Group PLC ....................................... 13 34,500 National Grid PLC ....................................... 499 500 Nikanor PLC+ ............................................ 6 2,100 Persimmon PLC ........................................... 63 2,500 Petrofac Ltd. ........................................... 20 39,900 Punch Taverns PLC ....................................... 998 11,600 Reckitt Benckiser PLC ................................... 529 3,544 Rio Tinto PLC ........................................... 188 500 Robert Wiseman Dairies PLC .............................. 6 37,711 Royal Dutch Shell PLC, A Shares ......................... 1,329 14,400 Royal Dutch Shell PLC, B Shares ......................... 504 2,900 Royal Dutch Shell PLC, Class A, ADR ..................... 205 2,583 Savills PLC ............................................. 34 2,700 Scottish & Southern Energy PLC .......................... 82 9,800 Shire PLC ............................................... 202 2,600 Stagecoach Group PLC .................................... 8 38,000 Tate & Lyle PLC ......................................... 571 59,880 Tullow Oil PLC .......................................... 465 2,200 Unite Group PLC ......................................... 24 600,043 Vodafone Group PLC ...................................... 1,657 38,900 William Morrison Supermarkets PLC ....................... 194 21,703 Xstrata PLC ............................................. 1,080 -------- 24,235 -------- FRANCE - 9.1% 3,100 Accor SA ................................................ 240 9,900 Air France-KLM .......................................... 416 972 Air Liquide ............................................. 230 499 Alten+ .................................................. 19 30,333 AXA SA .................................................. 1,223 12,716 BNP Paribas SA .......................................... 1,383 77 Bonduelle SCA ........................................... 9 7,308 Bouygues SA++ ........................................... 468 95 Carrere Group+ .......................................... 3 1,700 Cie Generale d'Optique Essilor International SA ......... 183 100 Ciments Francais SA ..................................... 19 1,000 Compagnie Generale des Etablissements Michelin, Class B .............................................. 96 1,400 Dassault Systemes SA .................................... 74 2,100 Eutelsat Communications ................................. 40 6,864 Groupe Danone ........................................... 1,038
See Notes to Financial Statements. 53 Portfolio of Investments (continued) VT INTERNATIONAL GROWTH FUND December 31, 2006
VALUE SHARES (000S) --------- -------- COMMON STOCKS (CONTINUED) FRANCE (CONTINUED) 100 Groupe Steria SCA ....................................... $ 6 1,100 Haulotte Group .......................................... 29 159 IMS International Metal Service ......................... 5 200 Ingenico SA ............................................. 5 200 Kaufman & Broad SA ...................................... 12 600 L'Oreal SA .............................................. 60 5,800 Lafarge SA .............................................. 862 3,500 Neopost SA .............................................. 439 380 Nexans SA ............................................... 48 657 Nexity .................................................. 48 170 Orpea+ .................................................. 16 61 Pierre &Vacances ........................................ 7 100 Provimi SA .............................................. 4 400 Safran SA ............................................... 9 2,800 Sanofi-Aventis Group .................................... 258 6,900 Schneider Electric SA ................................... 764 6,576 Societe Generale Group .................................. 1,112 3,800 Thales SA ............................................... 189 7,257 Total SA+ ............................................... 524 12,460 Total SA ................................................ 897 363 Unibail ................................................. 89 3,287 Vallourec, SA ........................................... 950 2,900 Veolia Environnement SA ................................. 221 7,000 Vinci SA ................................................ 892 20,100 Vivendi SA .............................................. 784 -------- 13,671 -------- SWITZERLAND - 8.6% 66,800 ABB Ltd. ................................................ 1,196 2,300 Actelion Ltd.+ .......................................... 505 700 Adecco SA ............................................... 48 3,600 Baloise Holding AG ...................................... 359 3,083 Compagnie Financiere Richemont AG, A Units .............. 179 19,594 Credit Suisse Group ..................................... 1,366 288 Geberit AG .............................................. 443 11,407 Holcim Ltd.++ ........................................... 1,043 368 Julius Baer Holding Ltd. ................................ 40 1,100 Logitech International SA+ .............................. 32 4,842 Nestle SA(F) ............................................ 1,717 17,865 Novartis AG (F) ......................................... 1,026 8,300 Phonak Holding AG ....................................... 659 9,779 Roche Holding AG-Genusschein (F) ........................ 1,750 177 Schmolz + Bickenbach AG ................................. 13 3,073 Swatch Group AG ......................................... 677 200 Swiss Life Holding ...................................... 50 3,282 Swiss Reinsurance Company ............................... 278 690 Swisscom AG ............................................. 260 1,200 Synthes, Inc. ........................................... 143 8,742 UBS AG .................................................. 529 362 Vontobel Holding AG ..................................... 16 2,683 Zurich Financial Services AG ............................ 720 -------- 13,049 --------
VALUE SHARES (000S) --------- -------- GERMANY - 5.5% 169 Aareal Bank AG+ ......................................... $ 8 3,600 Allianz SE .............................................. 733 1,500 Bayer AG ................................................ 80 7,600 Bayerische Motoren Werke (BMW) AG ....................... 437 2,900 Commerzbank AG .......................................... 110 500 Continental AG .......................................... 58 7,300 Deutsche Bank AG ........................................ 972 5,389 Deutsche Boerse AG ...................................... 992 1,875 Deutsche Lufthansa AG ................................... 51 565 Deutsche Postbank AG .................................... 48 400 Deutz AG+ ............................................... 5 10,200 E.ON AG ................................................. 1,385 69 Gerry Weber International AG ............................ 2 800 Gildemeister AG ......................................... 10 200 H&R WASAG AG ............................................ 10 300 IKB Deutsche Industriebank AG ........................... 12 1,200 IVG Immobilien AG ....................................... 52 278 Landesbank Berlin Holding AG+ ........................... 3 1,096 Lanxess AG+ ............................................. 61 692 Leoni AG ................................................ 28 100 Loewe AG+ ............................................... 2 11,100 MAN AG .................................................. 1,002 87 MVV Energie AG .......................................... 3 86 Puma AG Rudolf Dassler Sport ............................ 33 7,100 RWE AG .................................................. 781 4,300 Salzgitter AG ........................................... 561 2,000 SAPAG ................................................... 106 2,500 SAPAG, Sponsored ADR .................................... 133 300 Siemens AG .............................................. 30 286 Sixt AG ................................................. 16 171 Software AG ............................................. 13 90 Takkt AG ................................................ 2 7,893 ThyssenKrupp AG ......................................... 371 1,989 United Internet AG ...................................... 33 1,000 Volkswagen AG ........................................... 113 200 Wacker Chemie AG+ ....................................... 26 185 Wincor Nixdorf AG ....................................... 29 -------- 8,311 -------- CANADA - 5.1% 7,200 Abitibi-Consolidated Inc. ............................... 18 1,400 Alcan Inc. .............................................. 68 10,400 Alimentation Couche-Tard Inc. ........................... 226 400 Aur Resources Inc. ...................................... 8 900 Banro Corporation+,++ ................................... 12 900 Barrick Gold Corporation (F) ............................ 28 100 Boardwalk Real Estate Investment Trust .................. 4 20,700 Brookfield Asset Management Inc. ........................ 1,000 700 Cameco Corporation ...................................... 28 1,400 Canadian Imperial Bank of Commerce ...................... 118 16,800 Canadian National Railway Company ....................... 721 100 Canadian Natural Resources Ltd. ......................... 5 4,000 CIC Energy Corporation+ ................................. 48
See Notes to Financial Statements. 54 Portfolio of Investments (continued) VT INTERNATIONAL GROWTH FUND December 31, 2006
VALUE SHARES (000S) --------- -------- COMMON STOCKS (CONTINUED) CANADA (CONTINUED) 400 Corus Entertainment Inc. ................................ $ 14 3,100 Denison Mines Corporation+ .............................. 32 13,600 EnCana Corporation ...................................... 626 400 Energy Metals Corporation+ .............................. 4 1,200 Finning International Inc. .............................. 49 10,100 Fortis, Inc. ............................................ 258 5,700 Gildan Activewear Inc.+ ................................. 266 2,500 HudBay Minerals Inc.+ ................................... 47 5,700 Husky Energy Inc. ....................................... 381 8,400 Inmet Mining Corporation (F) ............................ 450 4,400 IPSCO Inc. .............................................. 413 900 Lundin Mining Corporation+ .............................. 33 600 Magna International Inc., Class A ....................... 48 2,600 Manulife Financial Corporation .......................... 88 1,500 Methanex Corporation .................................... 41 900 Oilexco Inc.+ ........................................... 6 1,100 Potash Corporation of Saskatchewan Inc. ................. 158 1,800 Rogers Communications Inc., Class B ..................... 54 18,200 Royal Bank of Canada .................................... 866 5,400 Shoppers Drug Mart Corporation .......................... 232 7,700 Suncor Energy, Inc. ..................................... 606 6,100 Teck Cominco Ltd., Class B .............................. 460 7,000 TELUS Corporation ....................................... 321 300 Trican Well Service Ltd. ................................ 5 -------- 7,742 -------- AUSTRALIA - 4.4% ** 25,000 Amcor Ltd. .............................................. 143 400 Anvil Mining Ltd.+ ...................................... 4 45,787 Australia & New Zealand Banking Group Ltd. .............. 1,016 2,470 Babcock & Brown Ltd. .................................... 48 4,400 Boom Logistics Ltd. ..................................... 14 900 Bradken Ltd. ............................................ 6 5,676 Brambles Ltd.+ .......................................... 57 5,466 Challenger Financial Services Group Ltd. ................ 18 1,100 FKP Property Group ...................................... 6 6,812 Foster's Group Ltd. ..................................... 37 3,300 Healthscope Ltd. ........................................ 14 8,700 IBA Health Ltd. ......................................... 9 600 Incitec Pivot Ltd. ...................................... 17 1,200 Independence Group NL ................................... 4 80,111 Insurance Australia Group Ltd. .......................... 400 1,700 Iress Market Technology Ltd. ............................ 9 6,069 Just Group Ltd. ......................................... 18 2,972 Kagara Zinc Ltd. ........................................ 16 13,900 Leighton Holdings Ltd. .................................. 222 7,399 Macquarie Bank Ltd. ..................................... 460 3,073 MFS Ltd. ................................................ 11 6,973 Mincor Resources NL ..................................... 12 23,900 National Australia Bank Ltd. ............................ 761 69,656 Paladin Resources Ltd.+ ................................. 487
VALUE SHARES (000S) --------- -------- 3,100 Perilya Ltd. ............................................ $ 13 25,905 Promina Group Ltd. ...................................... 141 40,800 QBE Insurance Group Ltd. ................................ 926 6,828 Rinker Group Ltd. ....................................... 97 7,900 Rio Tinto Ltd. .......................................... 460 3,500 Sally Malay Mining Ltd.+ ................................ 6 9,500 SP Ausnet ............................................... 10 500 Sunland Group Ltd. ...................................... 1 55,121 Telstra Corporation Ltd. ................................ 180 7,377 Woolworths Ltd. ......................................... 139 18,000 WorleyParsons Ltd. ...................................... 302 35,500 Zinifex Ltd. ............................................ 523 -------- 6,587 -------- NETHERLANDS - 3.4% 13,861 ABN AMRO Holding NV ..................................... 444 16,859 AEGON NV ................................................ 320 100 Draka Holding NV+ ....................................... 3 751 Efes Breweries International, GDR+,++ ................... 25 974 Endemol NV .............................................. 22 571 Euronext NV ............................................. 67 9,800 Fugro NV ................................................ 468 3,950 Heineken Holding NV ..................................... 161 15,200 Heineken NV ............................................. 722 29,131 ING Groep NV ............................................ 1,287 66,700 Koninklijke (Royal) KPN NV .............................. 947 795 Koninklijke DSM NV ...................................... 39 17,800 Reed Elsevier NV ........................................ 303 200 Sligro Food Group NV .................................... 14 188 Smit Internationale NV .................................. 10 8,200 Unilever NV ............................................. 224 -------- 5,056 -------- SPAIN - 3.2% 15,000 ACS, Actividades de Construccion y Servicios, SA ........ 843 93 Adolfo Dominguez SA ..................................... 6 6,200 Altadis, SA ............................................. 324 98,700 Banco Santander Central Hispano SA ...................... 1,838 1,500 Duro Felguera, SA ....................................... 15 6,500 Fomento de Construcciones y Contratas SA ................ 661 400 Grupo Catalana Occidente, SA ............................ 14 900 Iberdrola SA ............................................ 39 1,369 Indra Sistemas, SA ...................................... 33 11,863 Industria de Diseno Textil SA(Inditex) .................. 638 300 Mecalux, SA ............................................. 12 6,300 Natraceutical SA+ ....................................... 15 865 Red Electrica de Espana ................................. 37 4,900 Repsol YPF SA ........................................... 169 1,400 Sol Melia, SA ........................................... 28 100 Telecomunicaciones y Energia, SA+ ....................... 2 7,869 Telefonica SA ........................................... 167 100 Union Fenosa, SA ........................................ 5 200 Viscofan SA ............................................. 4 -------- 4,850 --------
See Notes to Financial Statements. 55 Portfolio of Investments (continued) VT INTERNATIONAL GROWTH FUND December 31, 2006
VALUE SHARES (000S) --------- -------- COMMON STOCKS (CONTINUED) BELGIUM - 2.5% 4,700 Belgacom SA ............................................. $ 207 100 Cumerio ................................................. 2 200 Euronav NV .............................................. 6 24,500 Fortis .................................................. 1,042 13,000 InBev NV ................................................ 855 6,200 KBC Groep NV ............................................ 759 12,000 SES GLOBAL, FDR ......................................... 209 200 Telenet Group Holding NV+ ............................... 6 2,900 UCB SA .................................................. 199 2,900 Umicore ................................................. 493 -------- 3,778 -------- HONG KONG - 2.2% ** 24,000 AAC Acoustic Technology Holdings Inc.+ .................. 25 73,300 Bank of East Asia, Ltd. ................................. 414 65,900 BOC Hong Kong (Holdings) Ltd. ........................... 179 36,100 Clear Media Ltd.+ ....................................... 44 54,500 CLP Holdings Ltd. ....................................... 402 73,900 CNOOC Ltd. .............................................. 70 2,400 Dah Sing Banking Group Ltd. ............................. 5 174,000 Denway Motors Ltd. ...................................... 71 53,500 Esprit Holdings Ltd. .................................... 596 39,000 Foxconn International Holdings Ltd.+ .................... 127 21,800 Guangdong Investment Ltd. ............................... 10 59,500 Hang Lung Properties Ltd. ............................... 149 8,000 Hengan International Group Company Ltd. ................. 20 2,000 Jinhui Shipping & Transportation Ltd. ................... 10 73,300 Johnson Electric Holdings Ltd. .......................... 50 11,500 Kingboard Chemical Holdings Ltd. ........................ 45 19,282 Kingboard Laminates Holdings Ltd.+ ...................... 21 6,000 Kowloon Development Company Ltd. ........................ 11 11,700 Li & Fung Ltd. .......................................... 36 1,000 Melco International Development Ltd. .................... 2 69,000 Pacific Basin Shipping Ltd. ............................. 43 9,200 Parkson Retail Group Ltd. ............................... 46 10,000 Peace Mark Holdings Ltd. ................................ 9 16,000 Prime Success International Group Ltd. .................. 15 17,100 Shangri-La Asia Ltd. .................................... 44 161,300 Shenzhen Investment Ltd. ................................ 67 23,000 Sung Hung Kai Properties Ltd.++ ......................... 264 8,300 Swire Pacific Ltd., Class A ............................. 89 121,000 The Wharf (Holdings) Ltd. ............................... 446 24,000 TPV Technology Ltd. ..................................... 15 2,000 Vtech Holdings Ltd. ..................................... 12 1,500 Wing Hang Bank Ltd. ..................................... 18 -------- 3,355 -------- CHINA - 2.1% ** 11,200 Agile Property Holdings Ltd. ............................ 10 76,000 Angang New Steel Company Ltd., Class H .................. 111 24,300 Anhui Conch Cement Company Ltd., Class H ................ 81
VALUE SHARES (000S) --------- -------- 101,000 Bank of Communications Company Ltd., Class H ............ $ 122 109,900 Beijing Capital International Airport Company Ltd., Class H .............................................. 86 10,000 Beijing Enterprises Holdings Ltd. ....................... 21 21,000 China Communications Construction Company Ltd., Class H+ ............................................. 21 12,000 China Communications Services Corporation Ltd., Class H+ ............................................. 7 148,000 China Construction Bank, Class H++ ...................... 94 61,700 China Life Insurance Company Ltd., Class H .............. 211 18,800 China Mengniu Dairy Company Ltd. ........................ 49 101,300 China Mobile Ltd. ....................................... 873 32,000 China Oilfield Services Ltd., Class H ................... 22 10,000 China Overseas Land & Investment Ltd. ................... 13 196,900 China Petroleum & Chemical Corporation, Class H ......... 182 21,200 China Power International Development Ltd. .............. 12 11,500 China Resources Enterprise Ltd. ......................... 33 48,000 China Resources Power Holdings Company Ltd. ............. 72 56,600 China Shenhua Energy Company Ltd., Class H .............. 136 18,000 China Ting Group Holdings Ltd. .......................... 4 27,000 China Water Affairs Group Ltd.+ ......................... 10 4,000 China Yurun Food Group Ltd. ............................. 4 300 Ctrip.com International Ltd., ADR ....................... 19 44,500 Dongfeng Motor Corporation Ltd., Class H+ ............... 21 76,594 GOME Electrical Appliances Holdings Ltd. ................ 60 18,000 Guangzhou Shipyard International Company Ltd., Class H+ ............................................. 30 162,100 Lenovo Group Ltd. ....................................... 66 22,900 Li Ning Company Ltd. .................................... 37 22,000 Lianhua Supermarket Holdings Company Ltd., Class H ...... 26 138,000 Maanshan Iron and Steel Company Ltd., Class H ........... 76 36,700 Nine Dragons Paper Holdings Ltd.+ ....................... 63 236,000 PetroChina Company Ltd., Class H ........................ 333 40,000 Shanghai Forte Land Company Ltd., Class H ............... 18 94,000 Shanghai Prime Machinery Company Ltd., Class H+ ......... 33 52,300 Tsingtao Brewery Company Ltd., Class H .................. 88 8,000 Weiqiao Textile Company Ltd., Class H ................... 11 68,000 Wumart Stores, Inc., Class H ............................ 51 9,800 ZTE Corporation, Class H ................................ 45 -------- 3,151 -------- ITALY - 2.1% 4,900 Banca CR Firenze ........................................ 16 36,600 Banca Intesa SpA ........................................ 282 1,400 Banca Popolare di Milano Scarl .......................... 24 700 Banco di Desio e della Brianza SpA ...................... 8 854 Brembo SpA .............................................. 10 1,100 Buzzi Unicem SpA ........................................ 31
See Notes to Financial Statements. 56 Portfolio of Investments (continued) VT INTERNATIONAL GROWTH FUND December 31, 2006
VALUE SHARES (000S) --------- -------- COMMON STOCKS (CONTINUED) ITALY (CONTINUED) 800 Cementir SpA ............................................ $ 7 300 Danieli & C. Officine Meccaniche SpA .................... 6 43,016 Eni SpA ................................................. 1,447 1,169 Fondiaria-SAI SpA ....................................... 56 100 Italjolly - Compagnia Italiana dei Jolly Hotels SpA+ .... 3 200 MARR SpA ................................................ 2 8,000 SanPaolo IMI SpA ........................................ 186 10,900 Terna Rete Elettrica Nationale SpA ...................... 37 111,600 UniCredito Italiano SpA ................................. 976 491 Valentino Fashion Group SpA ............................. 20 -------- 3,111 -------- NORWAY - 1.3% 3,000 ABG Sundal Collier ASA .................................. 6 4,500 Acta Holding ASA ........................................ 24 6,160 Aker Kvaerner ASA+ ...................................... 764 4,000 Deep Sea Supply ASA+ .................................... 12 10,600 DnB NOR ASA ............................................. 150 3,000 Ementor ASA+ ............................................ 17 2,984 Norske Skogindustrier ASA ............................... 51 24,000 Petrolia Drilling ASA+ .................................. 14 500 Sparebanken Midt-Norge .................................. 7 2,100 Tandberg ASA ............................................ 31 49,800 Telenor ASA ............................................. 933 250 Veidekke ASA ............................................ 9 -------- 2,018 -------- SWEDEN - 1.3% 700 Alfa Laval AB ........................................... 32 1,200 Assa Abloy AB, B Shares ................................. 26 4,600 Atlas Copco AB, Class A+ ................................ 155 7,000 Atlas Copco AB, Class A ................................. 234 200 Bergman & Beving AB, B Shares ........................... 6 21,400 ForeningsSparbanken AB .................................. 775 2,200 JM AB ................................................... 53 800 Meda AB, A Shares ....................................... 32 7,500 Modern Times Group AB, B Shares ......................... 491 500 Protect Data AB ......................................... 14 9,100 Telefonaktiebolaget LM Ericsson, B Shares ............... 37 11,000 TeliaSonera AB .......................................... 90 -------- 1,945 -------- SINGAPORE - 1.3% ** 30,000 Banyan Tree Holdings Ltd.+, ++ .......................... 30 10,000 CapitaRetail China Trust+ ............................... 14 37,000 DBS Group Holdings Ltd. ................................. 543 1,000 Ezra Holdings Ltd. ...................................... 3 12,000 Ho Bee Investment Ltd. .................................. 11 12,000 K1 Ventures Ltd. ........................................ 3 20,000 Labroy Marine Ltd. ...................................... 24 25,000 MMI Holdings Ltd. ....................................... 17 91,600 Oversea-Chinese Banking Corporation Ltd. ................ 459
VALUE SHARES (000S) --------- -------- 6,000 Raffles Education Corporation Ltd. ...................... $ 7 11,654 Singapore Telecommunications Ltd.++ ..................... 25 211,000 StarHub Ltd. ............................................ 362 21,000 United Overseas Bank Ltd. ............................... 265 51,400 UOL Group Ltd. .......................................... 145 4,000 Wheelock Properties (Singapore) Ltd. .................... 6 13,000 Yanlord Land Group Ltd.+, ++ ............................ 21 -------- 1,935 -------- IRELAND - 1.2% 26,764 Allied Irish Banks PLC .................................. 798 15,900 Bank of Ireland ......................................... 366 34,800 C&C Group PLC ........................................... 618 168 FBD Holdings PLC ........................................ 9 700 IAWS Group PLC .......................................... 18 1,455 Kingspan Group PLC ...................................... 39 -------- 1,848 -------- SOUTH AFRICA - 1.2% 4,800 ABSA Group Ltd. ......................................... 85 1,200 Anglo Platinum Ltd. ..................................... 146 900 AngloGold Ashanti Ltd. .................................. 42 700 AngloGold Ashanti Ltd., Sponsored ADR ................... 33 17,700 Aveng Ltd. .............................................. 85 3,000 Bidvest Group Ltd. ...................................... 57 1,828 Cashbuild Ltd. .......................................... 13 8,400 Edgars Consolidated Stores Ltd. ......................... 47 1,400 Exxaro Resources Ltd. ................................... 11 14,700 FirstRand Ltd. .......................................... 46 4,300 Gold Fields Ltd. ........................................ 81 5,800 Harmony Gold Mining Company Ltd.+ ....................... 92 4,900 Impala Platinum Holdings Ltd. ........................... 128 9,793 Investec Ltd. ........................................... 122 2,100 Mittal Steel South Africa Ltd. .......................... 29 1,000 Mr. Price Group Ltd. .................................... 4 13,784 Murray & Roberts Holdings Ltd. .......................... 79 11,540 Mvelaphanda Resources Ltd.+ ............................. 64 1,600 Naspers Ltd., N Shares .................................. 38 3,161 Nedbank Group Ltd. ...................................... 60 27,000 Sanlam Ltd. ............................................. 70 3,000 Sappi Ltd. .............................................. 50 1,200 Sappi Ltd., Sponsored ADR ............................... 20 5,200 Sasol Ltd. .............................................. 192 16,900 Shoprite Holdings Ltd. .................................. 62 4,100 Standard Bank Group Ltd. ................................ 55 2,400 Telkom SA Ltd. .......................................... 48 2,600 Truworths International Ltd. ............................ 12 3,841 Wilson Bayly Holmes-Ovcon Ltd. .......................... 40 -------- 1,811 -------- RUSSIA - 1.1% 9,200 Gazprom, Sponsored ADR .................................. 423 3,618 Gazprom, Sponsored ADR (F) .............................. 166 3,600 LUKOIL, Sponsored ADR ................................... 317 900 Mining and Metallurgical Company Norilsk Nickel, ADR .......................................... 141
See Notes to Financial Statements. 57 Portfolio of Investments (continued) VT INTERNATIONAL GROWTH FUND December 31, 2006
VALUE SHARES (000S) --------- -------- COMMON STOCKS (CONTINUED) RUSSIA (CONTINUED) 2,200 Mobile TeleSystems, Sponsored ADR ....................... $ 110 100 Novolipetsk Steel, GDR++ ................................ 2 2,159 OAO TMK, GDR+ ........................................... 76 1,700 Unified Energy System of Russia, GDR .................... 184 300 Vimpel-Communications, Sponsored ADR+ ................... 24 1,700 Wimm-Bill-Dann Foods, ADR ............................... 113 1,400 X 5 Retail Group NV, GDR+ ............................... 36 -------- 1,592 -------- FINLAND - 1.0% 1,500 Elisa OyJ ............................................... 41 24,700 Fortum Oyj .............................................. 701 386 HK Ruokatalo Oyj, Class A ............................... 7 1,793 KCI Konecranes Oyj+ ..................................... 53 8,800 Metso Corporation ....................................... 443 1,900 Neste Oil Oyj ........................................... 58 6,900 Nokia Oyj ............................................... 140 299 Poyry Oyj ............................................... 5 4,100 UPM-Kymmene Oyj ......................................... 103 -------- 1,551 -------- MEXICO - 0.7% 2,000 Alsea SA de CV .......................................... 11 4,700 America Movil SA de CV, ADR ............................. 213 39,700 Carso Infraestructura y Construccion SA de CV+ .......... 38 60,000 Cemex SAB de CV, CPO+ ................................... 203 1,500 Coca-Cola Femsa, SA de CV ............................... 6 800 Consorcio ARA, SA de CV ................................. 5 20,900 Controladora Comercial Mexicana SA de CV ................ 54 1,200 Grupo Aeroportuario del Centro Norte, SA de CV, ADR+ .... 27 23,042 Grupo Financiero Banorte SA de CV ....................... 90 7,700 Grupo Financiero Inbursa SA de CV ....................... 15 3,200 Grupo Mexico SAB de CV .................................. 12 5,400 Grupo Televisa SA, Sponsored ADR ........................ 146 13,600 Impulsora del Desarrollo y el Empleo en America Latina, SA de CV+ ............................................ 17 11,800 Industrias CH SA, Series B+ ............................. 50 18,800 Kimberly-Clark de Mexico, SA de CV ...................... 87 18,600 Wal-Mart de Mexico SA de CV, Series V ................... 82 -------- 1,056 -------- TAIWAN - 0.6% ** 11,384 AU Optronics Corporation, ADR ........................... 157 22,800 Fubon Financial Holding Company, Ltd., GDR .............. 213 31,800 Hon Hai Precision Industry Company, Ltd., GDR++ ......... 454 10,320 Taiwan Semiconductor Manufacturing Company Ltd., Sponsored ADR ........................................ 113 -------- 937 --------
VALUE SHARES (000S) --------- -------- BRAZIL - 0.5% 2,600 Cia Vale do Rio Doce, Sponsored ADR ..................... $ 77 4,000 Petroleo Brasileiro SA, Sponsored ADR ................... 412 1,400 Petroleo Brasiliero SA, Sponsored ADR ................... 130 800 Telemig Celular Participacoes SA, ADR ................... 31 400 Unibanco - Uniao de Bancos Brasileiros SA, GDR .......... 37 3,500 Votorantim Celulose e Papel SA, ADR+ .................... 69 -------- 756 -------- INDONESIA - 0.4% ** 52,000 PT Astra Agro Lestari Tbk ............................... 73 95,500 PT Bank Central Asia Tbk ................................ 55 219,700 PT Bank Mandiri Persero Tbk ............................. 71 239,500 PT Bank Rakyat Indonesia ................................ 138 119,000 PT Ciputra Surya Tbk .................................... 13 142,000 PT Medco Energi Internasional Tbk ....................... 56 167,000 PT Ramayana Lestari Sentosa Tbk ......................... 16 124,100 PT Telekomunikasi Indonesia Tbk ......................... 140 -------- 562 -------- DENMARK - 0.3% 200 Almindelig Brand AS+ .................................... 14 8,400 Danske Bank AS .......................................... 372 300 East Asiatic Company Ltd. AS ............................ 17 80 Rockwool International AS, Class B ...................... 12 900 Sydbank AS .............................................. 43 800 TK Development AS+ ...................................... 12 -------- 470 -------- AUSTRIA - 0.3% 491 Boehler-Uddeholm AG ..................................... 34 1,900 Erste Bank der Oesterreichischen Sparkassen AG .......... 146 1,000 Raiffeisen International Bank Holding AG ................ 152 180 Schoeller-Bleckmann Oilfield Equipment AG ............... 8 70 Semperit AG Holding ..................................... 3 4,200 Telekom Austria AG ...................................... 112 -------- 455 -------- PORTUGAL - 0.3% 1,500 Altri, SGPS, SA ......................................... 8 21,600 Banco Espirito Santo, SA ................................ 388 2,790 Portucel Empresa Produtora de Pasta e Papel, SA ......... 9 -------- 405 -------- THAILAND - 0.3% ** 6,200 Advanced Info Service PCL (F) ........................... 13 3,800 Advanced Info Service PCL, NVDR ......................... 8 12,900 Banpu PCL, NVDR ......................................... 68 51,900 Bumrungrad Hospital PCL (F) ............................. 54 12,300 Electricity Generating PCL, NVDR ........................ 33 33,300 Glow Energy PCL ......................................... 31
See Notes to Financial Statements. 58 Portfolio of Investments (continued) VT INTERNATIONAL GROWTH FUND December 31, 2006
VALUE SHARES (000S) --------- -------- COMMON STOCKS (CONTINUED) THAILAND (CONTINUED) 17,200 Kasikornbank PCL (F) .................................... $ 31 1,600 Siam City Cement PCL (F) ................................ 12 13,600 Siam Commercial Bank PCL ................................ 23 388,600 Thai Beverage PCL++ ..................................... 68 14,000 TISCO Bank PCL (F) ...................................... 9 49,600 TISCO Bank PCL, NVDR .................................... 31 -------- 381 -------- INDIA - 0.3% 2,600 Infosys Technologies Ltd., Sponsored ADR ................ 142 11,600 United Spirits Ltd., GDR ................................ 121 7,200 Wipro Ltd., ADR ......................................... 116 -------- 379 -------- SOUTH KOREA - 0.2% ** 1,100 Kookmin Bank, Sponsored ADR ............................. 89 600 LG.Philips LCD Company Ltd., ADR+ ....................... 9 2,000 Macquarie Korea Infrastructure Fund, GDR++ .............. 14 2,000 POSCO, ADR .............................................. 165 105,000 STX Pan Ocean Company, Ltd.+ ............................ 71 -------- 348 -------- TURKEY - 0.2% 3,922 Akbank AS ............................................... 23 891 Anadolu Efes Biracilik ve Malt Sanayii AS ............... 27 600 BIM Birlesik Magazalar AS ............................... 32 13,000 Coca-Cola Icecek Uretim AS+, ++ ......................... 98 307 Dogan Yayin Holding AS+ ................................. 1 907 Migros Turk AS+ ......................................... 12 6,000 Selcuk Ecza Deposu Ticaret ve Sanayi AS+ ................ 20 5,074 Tupras-Turkiye Petrol Rafinerileri AS ................... 86 13,982 Turkiye Garanti Bankasi AS .............................. 46 -------- 345 -------- ISRAEL - 0.2% 881 Bank Leumi Le-Israel BM ................................. 4 38,300 Bezeq Israeli Telecommunication Corporation Ltd. ..................................... 62 900 Orbotech Ltd.+ .......................................... 23 2,300 Partner Communications Company Ltd. ..................... 26 4,000 Supersol Ltd.+ .......................................... 15 6,600 Teva Pharmaceutical Industries Ltd., Sponsored ADR ........................................ 205 -------- 335 -------- UNITED STATES - 0.1% 1,900 CTC Media, Inc.+ ........................................ 46 5,432 News Corporation (F), CDI ............................... 117 1,900 Transmeridian Exploration Inc.+ ......................... 7 -------- 170 --------
VALUE SHARES (000S) --------- -------- HUNGARY - 0.1% 9,500 Magyar Telekom Telecommunications+ ...................... $ 53 600 MOL Hungarian Oil and Gas NyRT .......................... 68 -------- 121 -------- CHILE - 0.1% 500 Banco Santander Chile SA, ADR ........................... 24 100 Cia de Telecomunicaciones de Chile SA, ADR .................................................. 1 4,300 Embotelladora Andina SA, Class A, ADR ................... 66 24,084 Ripley Corporation SA ................................... 29 -------- 120 -------- LUXEMBOURG - 0.1% 1,800 Tenaris SA, ADR ......................................... 90 -------- PHILIPPINES - 0.0% ** 1,400 Philippine Long Distance Telephone Company, Sponsored ADR ............................... 72 -------- OMAN - 0.0% 3,300 Bank Muscat SA OG, GDR++ ................................ 41 -------- UNITED ARAB EMIRATES - 0.0% 900 Kingdom Hotel Investments+ .............................. 8 3,700 Kingdom Hotel Investments, GDR+ ......................... 32 -------- 40 -------- PAKISTAN - 0.0% 1,300 Oil & Gas Development Company Ltd.++ .................... 24 -------- BERMUDA - 0.0% 8,000 Golden Ocean Group Ltd.+ ................................ 14 -------- EGYPT - 0.0% 100 Orascom Construction Industries, GDR++ .................. 10 -------- Total Common Stocks (Cost $123,803) ...................................... 146,317 -------- RIGHTS - 0.0% (Cost $4) GERMANY - 0.0% 200 H&R Wasag Rights ........................................ 4 -------- PREFERRED STOCKS - 0.4% BRAZIL - 0.0% 900 Companhia de Bebidas das Americas, ADR .................. 44 -------- GERMANY - 0.4% 2,382 Fresenius AG ............................................ 512 100 Fuchs Petrolub AG ....................................... 8 1,800 ProSiebenSat.1 Media AG ................................. 58 -------- 578 -------- Total Preferred Stocks (Cost $614) .......................................... 622 --------
See Notes to Financial Statements. 59 Portfolio of Investments (continued) VT INTERNATIONAL GROWTH FUND December 31, 2006
PRINCIPAL AMOUNT VALUE (000S) (000S) --------- -------- REPURCHASE AGREEMENT - 3.3% (Cost $4,993) $ 4,993 Agreement with Morgan Stanley, 4.750% dated 12/29/2006, to be repurchased at $4,996,000 on 01/03/2007 (collateralized by U.S. Treasury Bond, 3.625% due 04/15/2028, market value $5,145,000) ..................... $ 4,993 -------- TOTAL INVESTMENTS (Cost $129,414*) .......................... 100.7% 151,936 OTHER ASSETS (LIABILITIES) (NET) ............................ (0.7) (1,081) ----- -------- NET ASSETS .................................................. 100.0% $150,855 ===== ========
---------- * Aggregate cost for federal tax purposes is $130,151. ** Investments in the areas of the Pacific Rim at December 31, 2006, are 28.9% of the total net assets of the Fund. + Non-income producing security. ++ Security acquired in a transaction exempt from registration under Rule 144Aof the Securities Act of 1933, as amended. AT DECEMBER 31, 2006, SECTOR DIVERSIFICATION WAS AS FOLLOWS:
% OF VALUE SECTOR DIVERSIFICATION NET ASSETS (000S) ---------------------- ---------- -------- COMMON STOCKS: Banks ................................................. 17.6% $ 26,545 Capital Goods ......................................... 9.7 14,577 Materials ............................................. 9.2 13,913 Energy ................................................ 8.8 13,348 Telecommunication Services ............................ 5.9 8,915 Food, Beverage & Tobacco .............................. 5.6 8,376 Diversified Financials ................................ 5.2 7,825 Pharmaceuticals & Biotechnology ....................... 5.1 7,720 Utilities ............................................. 4.3 6,524 Insurance ............................................. 4.2 6,389 Automobiles & Components .............................. 3.1 4,723 Consumer Durables & Apparel ........................... 2.8 4,211 Retailing ............................................. 2.6 3,870 Commercial Services & Supplies ........................ 2.0 3,027 Media ................................................. 1.8 2,697 Electronic Equipment & Instruments .................... 1.6 2,462 Transportation ........................................ 1.5 2,312 Real Estate Investment Trusts (REITs) ................. 1.5 2,164 Other ................................................. 4.5 6,719 ----- -------- TOTAL COMMON STOCKS ................................... 97.0 146,317 RIGHTS ................................................ 0.0 4 PREFERRED STOCKS ...................................... 0.4 622 REPURCHASE AGREEMENT .................................. 3.3 4,993 ----- -------- TOTAL INVESTMENTS ..................................... 100.7 151,936 OTHER ASSETS (LIABILITIES) (NET) ...................... (0.7) (1,081) ----- -------- NET ASSETS ............................................ 100.0% $150,855 ===== ========
GLOSSARY OF TERMS ADR -- American Depositary Receipt CDI -- CHESS Depositary Interest CPO -- Ordinary Participation Certificate (F) -- Foreign Shares FDR -- Fiduciary Depositary Receipt GDR -- Global Depositary Receipt NVDR -- Non-Voting Depositary Receipt See Notes to Financial Statements. 60 Portfolio of Investments VT SHORT TERM INCOME FUND December 31, 2006
PRINCIPAL AMOUNT VALUE (000S) (000S) --------- -------- CORPORATE BONDS AND NOTES - 69.4% FINANCIAL SERVICES - 19.7% $ 1,000 Berkshire Hathaway Inc., Note, 3.375% due 10/15/2008 ................................ $ 969 1,000 CIT Group, Inc., Sr. Note, 7.375% due 04/02/2007 ................................ 1,005 750 Fidelity National Financial, Inc. Note, 7.300% due 08/15/2011 ................................ 788 1,000 General Electric Capital Corporation, MTN, 5.720% due 08/22/2011 ................................ 1,006 500 Goldman Sachs Group, Inc., Note, 4.125% due 01/15/2008 ................................ 494 Household Finance Corporation, Note: 1,500 5.750% due 01/30/2007 ................................ 1,500 250 7.875% due 03/01/2007 ................................ 251 500 Nuveen Investments, Inc., Sr. Note, 5.000% due 09/15/2010 ................................ 492 1,500 Rollins Truck Leasing Corporation, Deb., 8.375% due 02/15/2007 ................................ 1,505 1,000 Western Union Company, Bond, 5.400% due 11/17/2011** .............................. 986 -------- 8,996 -------- REAL ESTATE INVESTMENT TRUSTS/PROPERTY - 6.9% 1,000 CPG Partners LP, Note, 3.500% due 03/15/2009 ................................ 962 750 Developers Diversified Realty Corporation, Sr. Note, 6.625% due 01/15/2008 ................................ 758 800 Duke-Weeks Realty Corporation, Note, 7.375% due 08/01/2007 ................................ 807 600 EOP Operating LP, Note, 7.750% due 11/15/2007 ................................ 613 -------- 3,140 -------- BANKS - 6.7% 1,000 Fifth Third Bank, Note, 2.700% due 01/30/2007 ................................ 998 1,000 JPMorgan Chase & Company, Note, 5.350% due 03/01/2007 ................................ 1,000 1,000 SB Treasury Company LLC, Bond, 9.400% to 06/30/2008, 10.925% due 12/29/2049** ............................. 1,052 -------- 3,050 -------- CABLE TV - 6.0% 1,250 AOL Time Warner Inc., Note, 6.150% due 05/01/2007 ................................ 1,252 1,000 Cox Enterprises, Inc., Note, 4.375% due 05/01/2008** .............................. 983 500 Univision Communications Inc., Company Guarantee, 7.850% due 07/15/2011 ................................ 504 -------- 2,739 -------- HEALTH CARE - 5.4% 1,500 Amgen Inc., Sr. Note, 4.000% due 11/18/2009 ................................ 1,456
PRINCIPAL AMOUNT VALUE (000S) (000S) --------- -------- $ 1,000 Cardinal Health, Inc., Note, 6.250% due 07/15/2008 ................................ $ 1,011 -------- 2,467 -------- UTILITIES - 5.3% 1,000 Constellation Energy Group, Inc., Note, 6.350% due 04/01/2007 ................................ 1,001 350 Pacific Gas & Electric Company, First Mortgage, 3.600% due 03/01/2009 ................................ 338 350 Sempra Energy, Note, 4.750% due 05/15/2009 ................................ 346 750 Texas-New Mexico Power Company, Sr. Note, 6.250% due 01/15/2009 ................................ 759 -------- 2,444 -------- TELECOMMUNICATIONS - 4.4% 500 Koninklijke (Royal) KPN NV, Sr. Note, 8.000% due 10/01/2010 ................................ 539 500 TELUS Corporation, Note, 7.500% due 06/01/2007 ................................ 504 1,000 Verizon Global Funding Corporation, Note, 4.000% due 01/15/2008 ................................ 987 -------- 2,030 -------- AUTO MANUFACTURING & PARTS - 4.4% 1,000 Ford Motor Credit Company, Note, 6.500% due 01/25/2007 ................................ 1,000 1,000 Toyota Motor Credit Corporation, Note, 5.650% due 01/15/2007 ................................ 1,000 -------- 2,000 -------- GAMING/LEISURE - 4.3% 1,000 Carnival Corporation, Company Guarantee, 3.750% due 11/15/2007 ................................ 987 1,000 Harrah's Operating Company, Inc., Company Guarantee, 5.500% due 07/01/2010 ................................ 980 -------- 1,967 -------- SERVICES - 2.2% 1,000 PHH Corporation, Note, 6.000% due 03/01/2008 ................................ 1,001 -------- INFORMATION TECHNOLOGY - 1.6% 750 Cisco Systems, Inc., Note, 5.250% due 02/22/2011 ................................ 752 -------- BUILDING PRODUCTS - 1.4% 600 Mohawk Industries, Inc., Note, Series D, 7.200% due 04/15/2012 ................................ 623 -------- FOOD - 1.1% 500 CVS Corporation, Note, 4.000% due 09/15/2009 ................................ 483 -------- Total Corporate Bonds and Notes (Cost $32,024) ....................................... 31,692 --------
See Notes to Financial Statements. 61 Portfolio of Investments (continued) VT SHORT TERM INCOME FUND December 31, 2006
PRINCIPAL AMOUNT VALUE (000S) (000S) --------- -------- COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS) - 13.7% $ 1,000 Banc of America Mortgage Securities, Inc., Pass-through Certificates, Series 2003-6, Class 1A30, 4.750% due 08/25/2033 ........................ $ 983 815 Cendant Mortgage Corporation, Series 2003-3P, Class A1, 5.500% due 04/25/2020** ...................... 806 836 Chase Mortgage Finance Corporation, Series 2005-S1, Class 1A8, 5.500% due 05/25/2035 ........................ 834 472 Credit Suisse First Boston Mortgage Securities Corporation, Pass-through Certificates, Series 2003-29, Class 4A1, 6.000% due 12/25/2033 ........................ 477 Federal Home Loan Mortgage Corporation: 326 Series 2552, Class KB, 4.250% due 06/15/2027 ........................ 323 1,000 Series 2811, Class NU, 4.500% due 05/15/2030 ........................ 970 749 Federal National Mortgage Association, Series 2005-100, Class QA, 5.000% due 11/25/2035 ........................ 739 518 Government National Mortgage Association, Series 2002-70, Class PA, 4.500% due 08/20/2032 ........................ 501 623 GSR Mortgage Loan Trust, Pass-through Certificates, Series 2005-1F, Class 2A1, 6.000% due 02/25/2035 ........................ 625 -------- Total CMOs (Cost $6,355) ................................ 6,258 -------- U.S. GOVERNMENT AGENCY OBLIGATIONS - 7.3% 863 Federal Home Loan Bank, Series 00-0606, Class Y, 5.270% due 12/28/2012 ........................ 862 Federal Home Loan Mortgage Corporation Note: 1,000 4.125% due 07/12/2010 ........................ 975 1,000 5.250% due 07/18/2011 ........................ 1,012 500 Federal National Mortgage Association, Note, 5.800% due 07/16/2013 ........................ 498 -------- Total U.S. Government Agency Obligations (Cost $3,366) ................................ 3,347 -------- ASSET-BACKED SECURITIES (ABSS) - 3.4% 375 Atlantic City Electric Transition Funding LLC, Series 2003-1, Class A1, 2.890% due 07/20/2011 ........................ 364 80 Green Tree Financial Corporation, Series 1995-6, Class B1, 7.700% due 09/15/2026 ........................ 74 33 Green Tree Home Improvement, Series 1995-D, Class B2, 7.450% due 09/15/2025 ........................ 33 87 Mid-State Trust, Series 4, Class A, 8.330% due 04/01/2030 ........................ 89
PRINCIPAL AMOUNT VALUE (000S) (000S) --------- -------- $ 1,000 WFS Financial Owner Trust, Series 2004-3, Class A4, 3.930% due 02/17/2012 ........................ $ 987 -------- Total ABSs (Cost $1,573) ................................ 1,547 -------- U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES - 2.1% FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) - 0.7% 139 6.500% due 01/01/2014 ........................... 142 135 8.000% due 05/01/2027 ........................... 142 18 8.500% due 11/01/2017 ........................... 19 -------- Total FNMA (Cost $292) .................................. 303 -------- ADJUSTABLE RATE MORTGAGE-BACKED SECURITIES (ARMS) - 0.5% 15 Federal Home Loan Mortgage Corporation (FHLMC), 5.478% due 11/01/2021+ ....................... 16 Federal National Mortgage Association (FNMA): 190 4.670% due 11/01/2032+ ....................... 191 5 6.125% due 04/01/2019+ ....................... 5 14 6.132% due 11/01/2035+ ....................... 14 6 7.204% due 01/01/2019+ ....................... 6 1 7.411% due 11/01/2022+ ....................... 1 9 7.466% due 11/01/2021+ ....................... 9 -------- Total ARMs (Cost $247) .................................. 242 -------- FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) - 0.5% 200 6.000% due 05/01/2017 ........................... 203 9 9.500% due 08/01/2016 ........................... 10 -------- Total FHLMC (Cost $211) .................................. 213 -------- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) - 0.4% 12 8.000% due 06/15/2009--08/15/2012 ............... 12 17 9.000% due 12/15/2020--04/20/2025 ............... 18 134 10.000% due 02/15/2018--04/15/2025 .............. 147 10 11.000% due 12/15/2015 .......................... 12 -------- Total GNMA (Cost $182) .................................. 189 -------- Total U.S. Government Agency Mortgage-Backed Securities (Cost $932) .................................. 947 -------- U.S. TREASURY NOTE - 0.6% (Cost $268) 275 3.250% due 08/15/2008 ........................... 268 -------- COMMERCIAL MORTGAGE-BACKED SECURITIES (CMBS) - 0.3% (Cost $153) 154 GMAC Commercial Mortgage Securities Inc., Series 1999-CTL1, Class A, 7.151% due 02/15/2008** ...................... 155 --------
See Notes to Financial Statements. 62 Portfolio of Investments (continued) VT SHORT TERM INCOME FUND December 31, 2006
PRINCIPAL AMOUNT VALUE (000S) (000S) --------- -------- REPURCHASE AGREEMENT - 1.8% (Cost $841) $ 841 Agreement with Morgan Stanley, 4.750% dated 12/29/2006, to be repurchased at $842,000 on 01/03/2007 (collateralized by U.S. Treasury Bond, 3.625% due 04/15/2028, market value $867,000) .................................... $ 841 -------- TOTAL INVESTMENTS++ (Cost $45,512*) ......................... 98.6% 45,055 OTHER ASSETS (LIABILITIES) (NET) ............................ 1.4 632 ----- -------- NET ASSETS .................................................. 100.0% $ 45,687 ===== ========
---------- * Aggregate cost for federal tax purposes is $45,516. ** Security acquired in a transaction exempt from registration under Rule 144A of the Securities Act of 1933, as amended. + Variable rate security. The interest rate shown reflects the rate in effect at December 31, 2006. ++ All securities segregated as collateral for futures contracts. GLOSSARY OF TERMS MTN -- Medium-Term Note
UNREALIZED NUMBER OF VALUE APPRECIATION CONTRACTS (000S) (000S) --------- ------ ----------- FUTURES CONTRACTS-SHORT POSITION 35 U.S. 5 Year Treasury Note, March 2007........ $3,677 $ 31 ====== ===========
See Notes to Financial Statements. 63 Portfolio of Investments VT U.S. GOVERNMENT SECURITIES FUND December 31, 2006
PRINCIPAL AMOUNT VALUE (000S) (000S) --------- -------- U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES - 67.9% FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) - 34.0% $ 2,680 4.000% due 08/01/2018 ........................... $ 2,528 12,530 4.500% due 04/01/2018--06/01/2035 ............... 11,937 30,883 5.000% due 04/01/2018--06/01/2036 ............... 29,854 25,619 5.500% due 12/01/2008--09/01/2035 ............... 25,413 10,584 6.000% due 01/01/2013--05/01/2034 ............... 10,690 3,074 6.500% due 11/01/2016--01/01/2032 ............... 3,157 5,905 7.000% due 04/01/2008--07/01/2036 ............... 6,060 82 7.500% due 02/01/2031 ........................... 86 29 8.000% due 12/01/2030 ........................... 30 63 8.500% due 07/01/2029 ........................... 67 7 8.750% due 01/01/2013 ........................... 7 -------- Total FHLMC (Cost $91,828) ............................... 89,829 -------- FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) - 27.3% 4,330 4.500% due 12/01/2018--11/01/2019 ............... 4,185 18,486 5.000% due 04/01/2018--12/01/2035 ............... 18,044 27,972 5.500% due 01/01/2017--11/01/2035 ............... 27,698 8,343 6.000% due 12/01/2016--10/01/2035 ............... 8,419 12,047 6.500% due 09/01/2024--05/01/2036 ............... 12,309 710 7.000% due 08/01/2028--11/01/2031 ............... 731 64 7.500% due 11/01/2029 ........................... 66 277 8.000% due 05/01/2022--09/01/2027 ............... 291 138 8.500% due 02/01/2023--10/01/2027 ............... 147 61 9.000% due 09/01/2030 ........................... 67 -------- Total FNMA (Cost $73,260) ............................... 71,957 -------- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) - 4.8% 6,124 5.500% due 07/20/2033--03/20/2034 ............... 6,085 4,758 6.000% due 02/20/2029--08/15/2034 ............... 4,826 1,084 6.500% due 03/20/2031--04/20/2034 ............... 1,110 272 7.000% due 01/15/2028--06/20/2031 ............... 281 380 7.500% due 01/15/2023--11/15/2023 ............... 399 33 7.750% due 12/15/2029 ........................... 35 25 8.000% due 07/15/2026--06/15/2027 ............... 26 -------- Total GNMA (Cost $12,970) ............................... 12,762 -------- ADJUSTABLE RATE MORTGAGE-BACKED SECURITIES (ARMS) - 1.8% 1,749 Federal Home Loan Mortgage Corporation, 5.849% due 01/01/2037+ ....................... 1,750 2,975 Federal National Mortgage Association, 5.988% due 10/01/2036+ ....................... 2,998 -------- Total Adjustable Rate Mortgage-Backed Securities (ARMs) (Cost $4,761) ................................ 4,748 -------- Total U.S. Government Agency Mortgage-Backed Securities (Cost $182,819) .............................. 179,296 --------
PRINCIPAL AMOUNT VALUE (000S) (000S) --------- -------- COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS) - 18.4% Banc of America Mortgage Securities, Inc., Pass-through Certificates: $ 3,500 Series 2003-6, Class 1A30, 4.750% due 08/25/2033 ........................ $ 3,440 1,222 Series 2004-4, Class 2A1, 5.500% due 05/25/2034 ........................ 1,201 2,365 Chase Mortgage Finance Corporation, Series 2005-S1, Class 1A15, 6.000% due 05/25/2035 ........................ 2,366 746 Countrywide Alternative Loan Trust, Series 2003-13T1, Class A1, 4.000% due 08/25/2033 ........................ 732 Countrywide Home Loans: 2,552 Series 2003-50, Class A1, 5.000% due 11/25/2018 ........................ 2,494 4,000 Series 2004-4, Class A5, 5.250% due 05/25/2034 ........................ 3,933 Credit Suisse First Boston Mortgage Securities Corporation, Pass-through Certificates: 1,924 Series 2003-11, Class 1A3, 4.500% due 06/25/2033 ........................ 1,893 1,992 Series 2003-8, Class 1A1, 5.750% due 04/25/2033 ........................ 1,978 Federal Home Loan Mortgage Corporation: 2,387 Series 2449, Class ND, 6.500% due 05/15/2030 ........................ 2,396 1,382 Series 2551, Class QK, 5.500% due 01/15/2033 ........................ 1,368 1,203 Series 2575, Class LM, 4.500% due 05/15/2032 ........................ 1,175 2,000 Series 2981, Class PC, 5.500% due 10/15/2031 ........................ 1,991 Federal National Mortgage Association: 3,000 Grantor Trust, Series 2000-T5, Class B, 7.300% due 05/25/2010 ........................ 3,214 1,649 Series 2002-16, Class TM, 7.000% due 04/25/2032 ........................ 1,708 2,635 Series 2002-86, Class JC, 5.500% due 02/25/2032 ........................ 2,622 3,317 Series 2003-58, Class PI, Zero Coupon due 02/25/2027 ................... 161 Federal National Mortgage Association, REMIC, Pass-through Certificates: 26 Series 1989-90, Class E, 8.700% due 12/25/2019 ........................ 28 477 Series 1992-55, Class DZ, 8.000% due 04/25/2022 ........................ 487 GSR Mortgage Loan Trust, Pass-through Certificates: 1,337 Series 2003-4F, Class 2A3, 5.000% due 05/25/2033 ........................ 1,328 2,492 Series 2005-1F, Class 2A1, 6.000% due 02/25/2035 ........................ 2,499 Prime Mortgage Trust: 2,517 Series 2004-2, Class A2, 4.750% due 11/25/2019 ........................ 2,432 2,540 Series 2005-4, Class 1A1, 4.750% due 10/25/2020 ........................ 2,486
See Notes to Financial Statements. 64 Portfolio of Investments (continued) VT U.S. GOVERNMENT SECURITIES FUND December 31, 2006
PRINCIPAL AMOUNT VALUE (000S) (000S) --------- -------- COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS) (CONTINUED) $ 3,000 Residential Funding Mortgage Security, Series 2003-S20, Class 1A4, 5.500% due 12/25/2033 ........................ $ 2,938 2,400 Structured Asset Securities Corporation, Series 2005-6, Class 4A1, 5.000% due 05/25/2035 ........................ 2,308 1,378 Vendee Mortgage Trust, Series 2000-3, Class 2H, 7.500% due 11/15/2014 ........................ 1,378 -------- Total CMOs (Cost $49,325) ............................... 48,556 -------- U.S. TREASURY OBLIGATIONS - 8.0% U.S. TREASURY NOTES - 8.0% 2,000 4.000% due 02/15/2014 ........................... 1,914 2,000 4.250% due 11/15/2013 ........................... 1,947 10,000 4.500% due 02/28/2011 ........................... 9,926 1,000 4.500% due 02/15/2036 ........................... 951 5,000 4.750% due 05/15/2014 ........................... 5,013 1,000 4.875% due 08/15/2016 ........................... 1,012 350 6.250% due 02/15/2007 ........................... 351 -------- Total U.S. Treasury Obligations (Cost $21,217) ............................... 21,114 -------- U.S. GOVERNMENT AGENCY OBLIGATIONS - 4.4% Federal Home Loan Bank, Bond: 2,000 4.500% due 09/16/2013 ........................ 1,946 2,500 6.500% due 08/14/2009 ........................ 2,592 3,000 7.375% due 02/12/2010 ........................ 3,204 2,000 Federal National Mortgage Association, Note, 6.000% due 02/03/2020 ........................ 1,968 2,000 Housing Urban Development, Government Guarantee, Series 99-A, 6.160% due 08/01/2011 ........................ 2,024 -------- Total U.S. Government Agency Obligations (Cost $11,664) ............................... 11,734 --------
PRINCIPAL AMOUNT VALUE (000S) (000S) --------- -------- REPURCHASE AGREEMENT - 0.8% (Cost $2,030) $ 2,030 Agreement with Morgan Stanley, 4.750% dated 12/29/2006, to be repurchased at $2,031,000 on 01/03/2007 (collateralized by U.S. Treasury Bond, 3.625% due 04/15/2028, market value $2,091,000) .................................. $ 2,030 -------- TOTAL INVESTMENTS (Cost $267,055*) .......................... 99.5% 262,730 OTHER ASSETS (LIABILITIES) (NET) ............................ 0.5 1,365 ----- -------- NETA SSETS .................................................. 100.0% $264,095 ===== ========
---------- * Aggregate cost for federal tax purposes is $267,315. + Variable rate security. The interest rate shown reflects the rate in effect at December 31, 2006. GLOSSARY OF TERMS REMIC -- Real Estate Mortgage Investment Conduit See Notes to Financial Statements. 65 Portfolio of Investments VT INCOME FUND December 31, 2006
PRINCIPAL AMOUNT VALUE (000S) (000S) --------- -------- CORPORATE BONDS AND NOTES - 65.5% FINANCIAL SERVICES/BANKS - 11.7% $ 500 American General Corporation, Note, 7.500% due 07/15/2025 ........................ $ 593 1,000 American General Finance, Inc., MTN, Series I, 4.625% due 05/15/2009 ........................ 984 500 Aspen Insurance Holdings Ltd., Sr. Note, 6.000% due 08/15/2014 ........................ 492 400 Banc One Corporation, Sub. Note, 10.000% due 08/15/2010 ....................... 457 1,000 Bank of America Corporation, 5.420% due 03/15/2017** ...................... 985 CIT Group Inc.: 1,000 Bond, 5.400% due 01/30/2016 ........................ 982 500 Sr. Note, 7.750% due 04/02/2012 ........................ 551 3,000 Citigroup Inc., Note, 6.500% due 01/18/2011 ........................ 3,139 1,000 Farmers Insurance Exchange, Note, 6.000% due 08/01/2014** ...................... 989 2,500 Goldman Sachs Group, Inc., Bond, 6.875% due 01/15/2011 ........................ 2,646 Jefferies Group, Inc.: 500 Sr. Deb., 6.250% due 01/15/2036 ........................ 485 1,500 Sr. Note, 7.750% due 03/15/2012 ........................ 1,633 1,000 JPMorgan Chase & Company, Sub. Note, 5.125% due 09/15/2014 ........................ 983 1,000 Legg Mason, Inc., Sr. Note, 6.750% due 07/02/2008 ........................ 1,020 2,000 Merrill Lynch & Company Inc., Note, 6.000% due 02/17/2009 ........................ 2,033 Morgan Stanley: 1,000 Sr. Note, 6.250% due 08/09/2026 ........................ 1,046 1,000 Sub. Note, 4.750% due 04/01/2014 ........................ 956 1,100 NCNB Corporation, Sub. Note, 9.375% due 09/15/2009 ........................ 1,213 2,250 Wells Fargo & Company, Sub. Note, 4.625% due 04/15/2014 ........................ 2,131 -------- 23,318 -------- UTILITIES - 8.6% 1,000 Arizona Public Service Company, Note, 6.500% due 03/01/2012 ........................ 1,033 1,850 Illinois Power Company, First Mortgage, 7.500% due 06/15/2009 ........................ 1,923 1,000 Metropolitan Edison Company, Sr. Note, 4.950% due 03/15/2013 ........................ 962 2,000 Mirant Americas Generation, LLC, Sr. Note, 8.500% due 10/01/2021 ........................ 2,025 1,000 Ohio Edison Company, Sr. Note, 5.450% due 05/01/2015 ........................ 980 2,000 Oncor Electric Delivery Company, Deb., 7.000% due 09/01/2022 ........................ 2,151
PRINCIPAL AMOUNT VALUE (000S) (000S) --------- -------- $ 2,250 Pacific Gas & Electric Company, First Mortgage, 4.200% due 03/01/2011 ........................ $ 2,154 PacifiCorp, First Mortgage: 1,500 4.950% due 08/15/2014 ........................ 1,450 1,000 5.250% due 06/15/2035 ........................ 916 500 Public Service Company of New Mexico, Sr. Note, 4.400% due 09/15/2008 ........................ 491 1,500 Southwestern Electric Power Company, Note, 5.375% due 04/15/2015 ........................ 1,467 1,500 Texas-New Mexico Power Company, Sr. Note, 6.250% due 01/15/2009 ........................ 1,519 -------- 17,071 -------- OIL & GAS - 6.9% 1,200 ANR Pipeline Company, Deb., 9.625% due 11/01/2021 ........................ 1,593 1,750 Consolidated Natural Gas Company, Sr. Note, 6.850% due 04/15/2011 ........................ 1,841 2,500 El Paso Natural Gas Company, Deb., 7.500% due 11/15/2026 ........................ 2,802 1,000 Enterprise Products Partners LP, Company Guarantee, 6.375% due 02/01/2013 ........................ 1,027 1,345 Express Pipeline LP, Sub. Note, 7.390% due 12/31/2017** ...................... 1,426 775 Hanover Compressor Company, Sr. Note, 8.625% due 12/15/2010 ........................ 810 Petro-Canada: 500 Deb., 9.250% due 10/15/2021 ........................ 642 1,000 Note, 4.000% due 07/15/2013 ........................ 908 1,000 Southern Natural Gas Company, Sr. Note, 8.000% due 03/01/2032 ........................ 1,169 1,500 XTO Energy Inc., Sr. Note, 6.250% due 04/15/2013 ........................ 1,547 -------- 13,765 -------- CONSUMER PRODUCTS/SERVICES - 5.9% 2,000 Allied Waste North America, Inc., Sr. Note, 7.250% due 03/15/2015 ........................ 2,002 1,750 Carnival Corporation, Deb., 7.200% due 10/01/2023 ........................ 1,934 1,000 Mattel, Inc., Note, 7.300% due 06/13/2011 ........................ 1,056 1,500 Reed Elsevier Capital Inc., Company Guarantee, 6.750% due 08/01/2011 ........................ 1,571 Royal Caribbean Cruises Ltd.: Sr. Note: 1,000 6.875% due 12/01/2013 ........................ 1,014 1,000 8.750% due 02/02/2011 ........................ 1,093 1,500 Sealed Air Corporation, Conv. Sr. Note, 3.000% due 06/30/2033** ...................... 1,556 1,500 Waste Management Inc., Sr. Note, 7.375% due 08/01/2010 ........................ 1,596 -------- 11,822 --------
See Notes to Financial Statements. 66 Portfolio of Investments (continued) VT INCOME FUND December 31, 2006
PRINCIPAL AMOUNT VALUE (000S) (000S) --------- -------- CORPORATE BONDS AND NOTES (CONTINUED) TELECOMMUNICATIONS - 4.9% $ 4,000 Deutsche Telephone Finance, Company Guarantee, 8.000% due 06/15/2010 ........................ $ 4,331 2,000 Qwest Corporation, Note, 8.875% due 03/15/2012 ........................ 2,228 1,000 TELUS Corporation, Note, 8.000% due 06/01/2011 ........................ 1,094 2,000 Vodafone Group PLC, Note, 7.750% due 02/15/2010 ........................ 2,131 -------- 9,784 -------- REAL ESTATE INVESTMENT TRUSTS (REITS) - 4.9% Arden Realty LP, Note: 1,000 5.200% due 09/01/2011 ........................ 998 1,000 5.250% due 03/01/2015 ........................ 987 1,000 Developers Diversified Realty Corporation, Note, 4.625% due 08/01/2010 ........................ 973 2,000 Health Care Property Investors, Inc., Note, 6.000% due 03/01/2015 ........................ 1,989 2,000 Health Care REIT, Inc., Sr. Note, 6.200% due 06/01/2016 ........................ 2,010 2,500 Healthcare Realty Trust, Inc., Sr. Note, 8.125% due 05/01/2011 ........................ 2,711 -------- 9,668 -------- GAMING - 4.6% 1,000 155E Tropicana Hooters LLC, Sr. Note, 8.750% due 04/01/2012 ........................ 860 2,000 CCM Merger Inc., Note, 8.000% due 08/01/2013** ...................... 1,955 1,000 Harrahs Operating Company Inc., Note, 6.500% due 06/01/2016 ........................ 895 1,350 Old Evangeline Downs LLC / Diamond Jo LLC, Company Guarantee, 8.750% due 04/15/2012 ........................ 1,337 2,000 Park Place Entertainment Corporation, Sr. Note, 7.500% due 09/01/2009 ........................ 2,075 2,000 Riviera Holdings Corporation, Company Guarantee, 11.000% due 06/15/2010 ....................... 2,120 -------- 9,242 -------- HEALTH CARE - 4.4% 2,000 Cardinal Health, Inc., Note, 6.750% due 02/15/2011 ........................ 2,095 DVI, Inc., Sr. Note, (in default): 900 9.875% due 02/01/2004+ ....................... 91 400 9.875% due 02/01/2004+ ....................... 41 2,000 HCA Inc., Sr. Note, 8.750% due 09/01/2010 ........................ 2,085 1,500 HealthSouth Corporation, Sr. Note, 10.750% due 06/15/2016** ..................... 1,614 3,000 Tenet Healthcare Corporation, Sr. Note, 6.375% due 12/01/2011 ........................ 2,745 -------- 8,671 --------
PRINCIPAL AMOUNT VALUE (000S) (000S) --------- -------- MEDIA - 3.8% $ 1,500 Comcast Cable Communications Inc., Sr. Note, 7.125% due 06/15/2013 ........................ $ 1,617 2,500 Cox Communications, Inc., Note, 7.875% due 08/15/2009 ........................ 2,646 1,200 News America Holdings Inc., Sr. Deb., 8.000% due 10/17/2016 ........................ 1,378 1,000 News America Inc, Company Guarantee, 6.400% due 12/15/2035 ........................ 993 500 Tele-Communications, Inc., Sr. Deb., 7.875% due 08/01/2013 ........................ 556 300 Time Warner Inc., Deb., 9.150% due 02/01/2023 ........................ 371 -------- 7,561 -------- TRANSPORTATION/AUTO - 3.0% 110 Continental Airlines Inc., Pass-through Certificates, Series 1997-4C, 6.800% due 07/02/2007 ........................ 110 2,500 Norfolk Southern Corporation, Sr. Note, 6.200% due 04/15/2009 ........................ 2,547 2,000 Southwest Airlines Company, Pass-through Certificates, Series A-4, 9.150% due 07/01/2016 ........................ 2,336 1,000 Trailer Bridge, Inc., Sr. Sec. Note, 9.250% due 11/15/2011 ....................... 1,031 -------- 6,024 -------- RETAIL - 1.8% 1,000 Fred Meyer Inc., Company Guarantee, 7.450% due 03/01/2008 ........................ 1,022 2,500 Safeway Inc., Note, 7.500% due 09/15/2009 ........................ 2,623 -------- 3,645 -------- INDUSTRIAL PRODUCTS - 1.3% 2,000 Noranda Inc., Note, 6.000% due 10/15/2015 ........................ 2,040 500 Weyerhaeuser Company, Deb., 7.375% due 03/15/2032 ........................ 522 -------- 2,562 -------- INFORMATION TECHNOLOGY - 1.3% 2,500 Conexant Systems Inc., Conv. Sub. Note, 4.000% due 02/01/2007 ........................ 2,491 -------- INDEX PRODUCT - 1.0% 2,000 Dow Jones CDX High Yield Series 7 Trust 1, Pass-through Certificates, 8.375% due 12/29/2011** ...................... 2,044 -------- FOREIGN GOVERNMENT - 0.7% Federal Republic of Brazil: 750 Bond, 9.250% due 10/22/2010 ........................ 847 500 Note, 8.750% due 02/04/2025 ........................ 618 -------- 1,465 --------
See Notes to Financial Statements. 67 Portfolio of Investments (continued) VT INCOME FUND December 31, 2006
PRINCIPAL AMOUNT VALUE (000S) (000S) --------- -------- CORPORATE BONDS AND NOTES (CONTINUED) AEROSPACE/DEFENSE - 0.7% $ 1,000 Boeing Company, Deb., 8.750% due 08/15/2021......................... $ 1,314 -------- Total Corporate Bonds and Notes (Cost $127,013)............................... 130,447 -------- U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES - 22.2% FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) - 12.7% 2,808 4.500% due 08/01/2033............................ 2,637 11,706 5.000% due 04/01/2018--11/01/2035................ 11,391 9,900 5.500% due 11/01/2017--04/01/2036................ 9,809 854 6.000% due 03/01/2031--05/01/2032................ 862 338 6.500% due 06/01/2029--08/01/2029................ 347 182 7.000% due 01/01/2032............................ 187 16 9.000% due 01/01/2025............................ 18 -------- Total FHLMC (Cost $25,686)................................ 25,251 -------- FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) - 9.2% 6,085 4.000% due 09/01/2018--10/01/2018................ 5,746 1,333 5.000% due 01/01/2018............................ 1,314 7,410 5.500% due 03/01/2033--02/01/2035................ 7,333 714 6.000% due 04/01/2032............................ 721 1,064 6.500% due 05/01/2031--05/01/2032................ 1,087 36 7.000% due 01/01/2030............................ 37 2,000 7.630% due 02/01/2010............................ 2,102 -------- Total FNMA (Cost $18,734)................................ 18,340 -------- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) - 0.3% 421 6.000% due 05/20/2032............................ 426 264 7.000% due 06/20/2031............................ 272 20 9.000% due 02/15/2025............................ 22 -------- Total GNMA (Cost $705)................................... 720 -------- Total U.S. Government Agency Mortgage- Backed Securities (Cost $45,125)................................ 44,311 -------- U.S. TREASURY OBLIGATIONS - 9.7% U.S. TREASURY BONDS - 6.1% 5,000 4.500% due 02/15/2036............................ 4,755 7,000 5.375% due 02/15/2031............................ 7,498 -------- 12,253 -------- U.S. TREASURY NOTES - 3.6% 1,000 4.500% due 11/15/2015............................ 985 6,000 5.125% due 05/15/2016............................ 6,180 -------- 7,165 -------- Total U.S. Treasury Obligations (Cost $19,514)................................ 19,418 --------
PRINCIPAL AMOUNT VALUE (000S) (000S) --------- -------- REPURCHASE AGREEMENT - 1.2% (Cost $2,310) $ 2,310 Agreement with Morgan Stanley, 4.750% dated 12/29/2006, to be repurchased at $2,312,000 on 01/03/2007 (collateralized by U.S. Treasury Bond, 3.625% due 04/15/2028, market value $2,381,000)................................... $ 2,310 -------- TOTAL INVESTMENTS (Cost $193,962*)........................... 98.6% 196,486 OTHER ASSETS (LIABILITIES) (NET)............................. 1.4 2,716 ----- -------- NET ASSETS................................................... 100.0% $199,202 ===== ========
---------- * Aggregate cost for federal tax purposes is $194,955. ** Security acquired in a transaction exempt from registration under Rule 144A of the Securities Act of 1933, as amended. + Defaulted security is past maturity but continues to be valued in recognition of future potential worth. GLOSSARY OF TERMS MTN -- Medium-Term Note See Notes to Financial Statements. 68 Portfolio of Investments VT MONEY MARKET FUND December 31, 2006
PRINCIPAL AMOUNT VALUE (000S) (000S) --------- -------- COMMERCIAL PAPER (DOMESTIC) - 3.8% (Cost $592) $ 600 Bank of America Corp, 5.250% due 04/03/2007+++...................... $ 592 -------- COMMERCIAL PAPER (YANKEE) - 11.0% 641 BNP Paribas Finance, 5.190% due 04/11/2007+++...................... 632 500 Societe Generale, 5.200% due 03/26/2007+++...................... 494 600 UBS Finance (D.E) LLC, 5.240% due 03/08/2007+++...................... 594 -------- Total Commercial Paper (Yankee) (Cost $1,720)................................. 1,720 -------- CERTIFICATE OF DEPOSIT (DOMESTIC) - 3.2% (Cost $500) 500 Suntrust Bank, 5.290% due 06/28/2007++....................... 500 -------- CERTIFICATES OF DEPOSIT (YANKEE) - 6.4% 500 Canadian Imperial Bank of Commerce, NY, 5.550% due 04/27/2007++....................... 500 500 Toronto Dominion Bank, 5.300% due 04/13/2007......................... 500 -------- Total Certificates of Deposit (Yankee) (Cost $1,000)................................. 1,000 -------- CORPORATE BONDS AND NOTES - 26.5% 800 ACF Parking Ltd., Note, (LOC: Fifth Third Bank), 5.370% due 05/01/2022+........................ 800 710 Bank of New York Company, Inc., Sr. Note, 5.200% due 07/01/2007......................... 709 600 Branch Banking & Trust, Note, 5.461% due 06/04/2007++....................... 600 500 Citigroup Global Markets, Note, Series K, 5.739% due 05/18/2007......................... 501 700 Household Finance Corporation, Note, 5.750% due 01/30/2007......................... 700 855 Lauren Company LLC, Bond, (LOC: Wells Fargo Bank), 5.370% due 07/01/2033+**...................... 855 -------- Total Corporate Bonds and Notes (Cost $4,165)................................. 4,165 -------- TAXABLE MUNICIPAL BONDS - 30.2% 750 California Statewide Communities Development Authority, MFHR, (Hallmark House Apartments), Series ZZ-T, (FNMA Collateral), 5.420% due 12/15/2036+........................ 750 390 Michigan State Housing Development Authority, Revenue Bonds, Series D, (FSA Insured), 5.260% due 06/01/2034+........................ 390 720 New York State Housing Finance Agency, Housing Revenue, (West 20th Street Project), Series B, (FNMA Collateral), 5.280% due 05/15/2033+........................ 720
PRINCIPAL AMOUNT VALUE (000S) (000S) --------- -------- $ 600 Oakland-Alameda County, California, Coliseum Authority, Lease Revenue, (Coliseum Project), Series D, (LOC: Wachovia Bank), 5.280% due 02/01/2011+........................ $ 600 705 Sacramento County, Pension Funding, Revenue Bonds, Seies C, (LOC: Bayerische Landesbank), 5.360% due 07/01/2022+........................ 705 525 San Jose, California, Redevelopment Agency, Revenue Bonds, (Merged Area Redevelopment Project), Series A, (LOC: JPMorgan Chase Bank), 5.310% due 08/01/2028+................. 525 405 Washington State Housing Finance Commission, MFHR, (Bremerton Project), Series B, (FNMACollateral), 5.350% due 05/15/2033+........................ 405 645 Washington State Housing Finance Commission, Nonprofit Community College Foundation Revenue, Series B, (Community College Spokane Foundation), (LOC: Bank of America), 5.300% due 07/01/2030+........................ 645 -------- Total Taxable Municipal Bonds (Cost $4,740)................................. 4,740 -------- REPURCHASE AGREEMENT - 18.6% (Cost $2,912) 2,912 Agreement with Morgan Stanley, 4.750% dated 12/29/2006, to be purchased at $2,914,000 on 01/03/2007 (collateralized by U.S. Treasury Bond, 3.625% due 04/15/2028, market value $3,001,000)...................... 2,912 -------- TOTAL INVESTMENTS (Cost $15,629*)............................ 99.7% 15,629 OTHER ASSETS (LIABILITIES) (NET)............................. 0.3 45 ----- -------- NET ASSETS................................................... 100.0% $ 15,674 ===== ========
---------- * Aggregate cost for federal tax purposes is $15,629. ** Security acquired in a transaction exempt from registration under Rule 144A of the Securities Act of 1933, as amended. + Securities with a maturity date of more than thirteen months have variable rates and/or demand features which qualify them as short-term securities. Securities are secured by bank letters of credit or guarantees by certain corporations. The interest rate shown are those in effect at December 31, 2006. These rates change periodically based on specified market rates or indicies. ++ Floating rate security whose interest rate is reset periodically based on an index. +++ Rate represents discount rate on purchase date. GLOSSARY OF TERMS FNMA -- Federal National Mortgage Association FSA -- Financial Security Assurance LOC -- Letter of Credit MFHR -- Multi-family Housing Revenue See Notes to Financial Statements. 69 Statements of Assets and Liabilities WM VARIABLE TRUST December 31, 2006 (In thousands)
VT EQUITY VT GROWTH VT WEST VT MID VT VT REIT INCOME & INCOME COAST EQUITY CAP STOCK GROWTH FUND FUND FUND FUND FUND FUND ------- --------- --------- ------------ --------- -------- ASSETS: Investments, at cost ........................ $43,254 $316,646 $192,735 $139,634 $ 91,828 $282,023 ======= ======== ======== ======== ======== ======== Investments, at value: Securities ............................... $55,651 $359,567 $244,629 $166,283 $111,141 $295,990 Repurchase agreements .................... 1,414 8,724 4,598 2,325 4,823 7,444 Investments held as collateral for securities loaned ..................... -- 20,666 14,666 19,400 15,369 -- ------- -------- -------- -------- -------- -------- Total Investments ........................ 57,065 388,957 263,893 188,008 131,333 303,434 Cash ........................................ -- -- -- 1 -- -- Dividends and/or interest receivable ........ 425 560 259 268 163 170 Receivable for Fund shares sold ............. -- 9 -- 82 22 5 Variation margin ............................ -- -- -- -- -- -- Receivable for investment securities sold ... 256 -- 5,788 1,505 53 -- ------- -------- -------- -------- -------- -------- Total Assets ............................. 57,746 389,526 269,940 189,864 131,571 303,609 ------- -------- -------- -------- -------- -------- LIABILITIES: Payable upon return of securities loaned .... -- 20,666 14,666 19,400 15,369 -- Payable for Fund shares redeemed ............ 222 529 365 177 196 276 Payable for investment securities purchased . -- 1,784 -- 597 278 -- Investment advisory fee payable ............. 39 195 161 90 74 195 Distribution fees payable ................... 1 14 1 4 2 -- Due to custodian ............................ 256 -- -- -- -- 299 Accrued legal and audit fees ................ 31 35 35 34 28 35 Accrued printing and postage expenses ....... 3 24 9 13 10 12 Accrued expenses and other payables ......... 1 3 3 3 2 2 ------- -------- -------- -------- -------- -------- Total Liabilities ........................ 553 23,250 15,240 20,318 15,959 819 ------- -------- -------- -------- -------- -------- NET ASSETS .................................. $57,193 $366,276 $254,700 $169,546 $115,612 $302,790 ======= ======== ======== ======== ======== ========
See Notes to Financial Statements. 70
VT U.S. VT SMALL VT SMALL VT VT SHORT GOVERNMENT VT VT MONEY CAP VALUE CAP GROWTH INTERNATIONAL TERM INCOME SECURITIES INCOME MARKET FUND FUND GROWTH FUND FUND FUND FUND FUND --------- ---------- ------------- ----------- ---------- -------- -------- ASSETS: Investments, at cost ......................... $33,402 $43,993 $129,414 $45,512 $267,055 $193,962 $15,629 ======= ======= ======== ======= ======== ======== ======= Investments, at value: Securities ................................ $33,835 $43,773 $146,943 $44,214 $260,700 $194,176 $12,717 Repurchase agreements ..................... 2,215 4,428 4,993 841 2,030 2,310 2,912 Investments held as collateral for securities loaned ...................... -- 4,462 -- -- -- -- -- ------- ------- -------- ------- -------- -------- ------- Total Investments ......................... 36,050 52,663 151,936 45,055 262,730 196,486 15,629 Cash ......................................... -- 1 -- -- 1 -- 2 Dividends and/or interest receivable ......... 81 23 290 693 1,612 2,802 94 Receivable for Fund shares sold .............. -- 18 1 16 20 153 1 Variation margin ............................. -- -- -- 2 -- -- -- Receivable for investment securities sold .... 2,206 36 174 -- -- -- -- ------- ------- -------- ------- -------- -------- ------- Total Assets .............................. 38,337 52,741 152,401 45,766 264,363 199,441 15,726 ------- ------- -------- ------- -------- -------- ------- LIABILITIES: Payable upon return of securities loaned ..... -- 4,462 -- -- -- -- -- Payable for Fund shares redeemed ............. 48 8 265 18 97 100 10 Payable for investment securities purchased .. 1,657 32 80 -- -- -- -- Investment advisory fee payable .............. 26 35 228 20 113 85 5 Distribution fees payable .................... -- 1 1 1 1 4 1 Due to custodian ............................. 90 -- 895 -- -- -- -- Accrued legal and audit fees ................. 35 34 36 33 34 34 31 Accrued printing and postage expenses ........ 3 4 6 6 20 15 4 Accrued expenses and other payables .......... 2 5 35 1 3 1 1 ------- ------- -------- ------- -------- -------- ------- Total Liabilities ......................... 1,861 4,581 1,546 79 268 239 52 ------- ------- -------- ------- -------- -------- ------- NET ASSETS ................................... $36,476 $48,160 $150,855 $45,687 $264,095 $199,202 $15,674 ======= ======= ======== ======= ======== ======== =======
See Notes to Financial Statements. 71 Statements of Assets and Liabilities (continued) WM VARIABLE TRUST December 31, 2006 (In thousands)
VT EQUITY VT GROWTH VT WEST VT MID VT VT REIT INCOME & INCOME COAST CAP STOCK GROWTH FUND FUND FUND EQUITY FUND FUND FUND ------- --------- --------- ----------- --------- -------- NET ASSETS CONSIST OF: Undistributed net investment income .......... $ 1,378 $ 5,638 $ 3,099 $ 1,033 $ 878 $ 564 Accumulated net realized gain/(loss) on investment transactions ................ 16,992 26,829 (12,418) 4,655 5,985 (66,196) Net unrealized appreciation/(depreciation) of investments ............................ 13,811 72,311 71,158 48,374 39,505 21,411 Paid-in capital .............................. 25,012 261,498 192,861 115,484 69,244 347,011 ------- -------- -------- -------- -------- -------- Total Net Assets .......................... $57,193 $366,276 $254,700 $169,546 $115,612 $302,790 ======= ======== ======== ======== ======== ======== NET ASSETS: Class 1 Shares ............................... $54,481 $296,113 $250,929 $152,592 $103,824 $301,607 ======= ======== ======== ======== ======== ======== Class 2 Shares ............................... $ 2,712 $ 70,163 $ 3,771 $ 16,954 $ 11,788 $ 1,183 ======= ======== ======== ======== ======== ======== SHARES OUTSTANDING: Class 1 Shares ............................... 2,642 15,272 12,267 6,342 5,855 20,675 ======= ======== ======== ======== ======== ======== Class 2 Shares ............................... 133 3,646 185 709 670 82 ======= ======== ======== ======== ======== ======== CLASS 1 SHARES:* Net asset value, offering and redemption price per share of beneficial interest outstanding ............................... $ 20.62 $ 19.39 $ 20.45 $ 24.06 $ 17.73 $ 14.59 ======= ======== ======== ======== ======== ======== CLASS 2 SHARES:* Net asset value, offering and redemption price per share of beneficial interest outstanding ............................... $ 20.46 $ 19.24 $ 20.34 $ 23.91 $ 17.60 $ 14.47 ======= ======== ======== ======== ======== ========
---------- * Net asset values are not shown in thousands. See Notes to Financial Statements. 72
VT U.S. VT SMALL VT SMALL VT VT SHORT GOVERNMENT VT MONEY CAP VALUE CAP GROWTH INTERNATIONAL TERM INCOME SECURITIES VT INCOME MARKET FUND FUND GROWTH FUND FUND FUND FUND FUND --------- ---------- ------------- ----------- ---------- --------- -------- NET ASSETS CONSIST OF: Undistributed net investment income .......... $ 689 $ -- $ 2,328 $ 2,131 $ 13,582 $ 12,105 $ -- Accumulated net realized gain/(loss) on investment transactions ................ 5,437 (21,731) 21,940 (500) (5,367) (889) 16 Net unrealized appreciation/(depreciation) of investments ............................ 2,648 8,670 22,513 (426) (4,325) 2,524 -- Paid-in capital .............................. 27,702 61,221 104,074 44,482 260,205 185,462 15,658 ------- -------- -------- ------- -------- -------- ------- Total Net Assets .......................... $36,476 $ 48,160 $150,855 $45,687 $264,095 $199,202 $15,674 ======= ======== ======== ======= ======== ======== ======= NET ASSETS: Class 1 Shares ............................... $36,216 $ 44,152 $145,512 $42,466 $259,054 $182,728 $12,841 ======= ======== ======== ======= ======== ======== ======= Class 2 Shares ............................... $ 260 $ 4,008 $ 5,343 $ 3,221 $ 5,041 $ 16,474 $ 2,833 ======= ======== ======== ======= ======== ======== ======= SHARES OUTSTANDING: Class 1 Shares ............................... 2,930 4,268 8,297 16,865 24,883 17,317 12,841 ======= ======== ======== ======= ======== ======== ======= Class 2 Shares ............................... 21 393 307 1,285 485 1,570 2,833 ======= ======== ======== ======= ======== ======== ======= CLASS 1 SHARES:* Net asset value, offering and redemption price per share of beneficial interest outstanding ............................... $ 12.36 $ 10.34 $ 17.54 $ 2.52 $ 10.41 $ 10.55 $ 1.00 ======= ======== ======== ======= ======== ======== ======= CLASS 2 SHARES:* Net asset value, offering and redemption price per share of beneficial interest outstanding ............................... $ 12.32 $ 10.20 $ 17.39 $ 2.51 $ 10.39 $ 10.49 $ 1.00 ======= ======== ======== ======= ======== ======== =======
See Notes to Financial Statements. 73 Statements of Operations WM VARIABLE TRUST For the Year Ended December 31, 2006 (In thousands)
VT VT VT WEST VT EQUITY GROWTH COAST MID CAP VT VT REIT INCOME & INCOME EQUITY STOCK GROWTH FUND FUND FUND FUND FUND FUND ------- ------- -------- ------- ------- -------- INVESTMENT INCOME: Dividends ................................... $ 1,432 $ 6,980 $ 4,773 $ 1,833 $ 1,496 $ 2,535 Interest .................................... 117 837 293 219 262 361 Foreign withholding taxes ................... (12) (31) (9) (2) (7) (42) Securities lending income ................... 51 77 9 45 16 16 ------- ------- ------- ------- ------- -------- Total investment income .................. 1,588 7,863 5,066 2,095 1,767 2,870 ------- ------- ------- ------- ------- -------- EXPENSES: Investment advisory fee ..................... 435 2,049 1,874 981 828 2,205 Class 2 Shares distribution fees ............ 5 138 9 34 24 3 Custodian fees .............................. 4 10 9 13 6 32 Legal and audit fees ........................ 30 36 36 33 27 36 Trustees' fees .............................. 1 6 5 3 2 5 Other ....................................... 11 58 20 22 20 28 ------- ------- ------- ------- ------- -------- Total expenses ........................... 486 2,297 1,953 1,086 907 2,309 Fees reduced by custodian credits ........... (1) (1) --* --* --* (12) ------- ------- ------- ------- ------- -------- Net expenses ............................. 485 2,296 1,953 1,086 907 2,297 ------- ------- ------- ------- ------- -------- NET INVESTMENT INCOME/(LOSS) ................ 1,103 5,567 3,113 1,009 860 573 ------- ------- ------- ------- ------- -------- NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS: Net realized gain/(loss) on: Security transactions .................... 16,613 26,866 12,566 4,884 6,509 27,247 Forward foreign currency contracts and foreign currency transactions ......... -- -- -- -- -- 2 Futures contracts ........................ -- -- -- -- -- -- Options contracts ........................ -- -- -- -- -- -- ------- ------- ------- ------- ------- -------- Net realized gain/(loss) on investment transactions .......................... 16,613 26,866 12,566 4,884 6,509 27,249 ------- ------- ------- ------- ------- -------- Capital gain distributions received ......... 668 179 -- 116 -- -- ------- ------- ------- ------- ------- -------- Net increase from payment by the Advisor** .. -- -- -- -- -- -- ------- ------- ------- ------- ------- -------- Net change in unrealized appreciation/ depreciation of: Securities ............................... (2,602) 22,207 12,784 11,800 10,059 (13,986) Foreign currency, futures contracts and other assets and liabilities .......... -- -- -- -- -- -- ------- ------- ------- ------- ------- -------- Net change in unrealized appreciation/ depreciation of investment transactions .. (2,602) 22,207 12,784 11,800 10,059 (13,986) ------- ------- ------- ------- ------- -------- Net realized and unrealized gain/(loss) on investments .............................. 14,679 49,252 25,350 16,800 16,568 13,263 ------- ------- ------- ------- ------- -------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ............................... $15,782 $54,819 $28,463 $17,809 $17,428 $ 13,836 ======= ======= ======= ======= ======= ========
---------- * Amount represents less than $500. ** See Note 3 in Notes to Financial Statements. See Notes to Financial Statements. 74
VT VT VT SMALL SMALL VT SHORT VT U.S. CAP CAP INTERNATIONAL TERM GOVERNMENT VT MONEY VALUE GROWTH GROWTH INCOME SECURITIES VT INCOME MARKET FUND FUND FUND FUND FUND FUND FUND ------- ------ ------------- ------ ---------- --------- -------- INVESTMENT INCOME: Dividends ................................... $ 1,001 $ 77 $ 2,940 $ -- $ -- $ -- $ -- Interest .................................... 79 86 174 2,438 13,913 12,894 766 Foreign withholding taxes ................... (65) -- (264) -- -- -- -- Securities lending income ................... 44 72 68 -- -- -- -- ------- ------ ------- ------ ------- ------- ---- Total investment income .................. 1,059 235 2,918 2,438 13,913 12,894 766 ------- ------ ------- ------ ------- ------- ---- EXPENSES: Investment advisory fee ..................... 300 404 1,196 248 1,372 1,019 69 Class 2 Shares distribution fees ............ -- 10 9 11 17 45 9 Custodian fees .............................. 7 22 147 6 14 7 2 Legal and audit fees ........................ 33 33 35 32 34 34 29 Trustees' fees .............................. 1 1 2 1 5 4 -- Other ....................................... 7 12 24 14 30 37 9 ------- ------ ------- ------ ------- ------- ---- Total expenses ........................... 348 482 1,413 312 1,472 1,146 118 Fees reduced by custodian credits ........... --* (1) --* --* (1) (7) --* ------- ------ ------- ------ ------- ------- ---- Net expenses ............................. 348 481 1,413 312 1,471 1,139 118 ------- ------ ------- ------ ------- ------- ---- NET INVESTMENT INCOME/(LOSS) ................ 711 (246) 1,505 2,126 12,442 11,755 648 ------- ------ ------- ------ ------- ------- ---- NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS: Net realized gain/(loss) on: Security transactions .................... 5,419 1,000 33,155 (42) (32) 722 -- Forward foreign currency contracts and foreign currency transactions ......... (17) -- 405 -- -- -- -- Futures contracts ........................ -- -- -- 1 -- -- -- Options contracts ........................ (456) -- -- -- -- -- -- ------- ------ ------- ------ ------- ------- ---- Net realized gain/(loss) on investment transactions .......................... 4,946 1,000 33,560 (41) (32) 722 -- ------- ------ ------- ------ ------- ------- ---- Capital gain distributions received ......... 15 1 -- -- -- -- -- ------- ------ ------- ------ ------- ------- ---- Net increase from payment by the Advisor** .. -- -- -- -- -- -- 16 ------- ------ ------- ------ ------- ------- ---- Net change in unrealized appreciation/ depreciation of: Securities ............................... (1,509) 2,325 (9,819) (12) (449) (2,885) -- Foreign currency, futures contracts and other assets and liabilities .......... -- -- 30 43 -- -- -- ------- ------ ------- ------ ------- ------- ---- Net change in unrealized appreciation/ depreciation of investment transactions .. (1,509) 2,325 (9,789) 31 (449) (2,885) -- ------- ------ ------- ------ ------- ------- ---- Net realized and unrealized gain/(loss) on investments .............................. 3,452 3,326 23,771 (10) (481) (2,163) 16 ------- ------ ------- ------ ------- ------- ---- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ............................... $ 4,163 $3,080 $25,276 $2,116 $11,961 $ 9,592 $664 ======= ====== ======= ====== ======= ======= ====
See Notes to Financial Statements. 75 Statements of Changes in Net Assets WM VARIABLE TRUST (In thousands)
VT GROWTH & VT REIT FUND VT EQUITY INCOME FUND INCOME FUND ---------------------- ---------------------- ---------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 12/31/06 12/31/05 12/31/06 12/31/05 12/31/06 12/31/05 ---------- ---------- ---------- ---------- ---------- ---------- Net investment income .............. $ 1,103 $ 1,506 $ 5,567 $ 5,563 $ 3,113 $ 3,645 Net realized gain on investment transactions .................... 16,613 4,000 26,866 17,515 12,566 7,943 Capital gain distributions received ........................ 668 414 179 165 -- -- Net change in unrealized appreciation/depreciation of investments ..................... (2,602) (917) 22,207 (306) 12,784 (2,342) ------- ------- -------- -------- -------- -------- Net increase/(decrease) in net assets resulting from operations ...................... 15,782 5,003 54,819 22,937 28,463 9,246 Distributions to shareholders from: Net investment income: Class 1 Shares ............... (1,340) (1,095) (4,715) (3,268) (3,616) (3,393) Class 2 Shares ............... (38) (22) (838) (459) (43) (33) Net realized gains on investments: Class 1 Shares ............... (4,409) (2,005) (13,881) -- -- -- Class 2 Shares ............... (135) (41) (2,700) -- -- -- Net increase/(decrease) in net assets from Fund share transactions: Class 1 Shares ............... (6,590) (1,847) 31,700 31,403 (38,623) (11,414) Class 2 Shares ............... 1,099 861 22,433 15,234 (23) (64) ------- ------- -------- -------- -------- -------- Net increase/(decrease) in net assets .......................... 4,369 854 86,818 65,847 (13,842) (5,658) NET ASSETS: Beginning of year .................. 52,824 51,970 279,458 213,611 268,542 274,200 ------- ------- -------- -------- -------- -------- End of year ........................ $57,193 $52,824 $366,276 $279,458 $254,700 $268,542 ======= ======= ======== ======== ======== ======== Undistributed net investment income at end of year .................. $ 1,378 $ 1,653 $ 5,638 $ 5,619 $ 3,099 $ 3,645 ======= ======= ======== ======== ======== ======== TAX CHARACTER OF DISTRIBUTIONS PAID: Ordinary income .................... $ 1,875 $ 1,622 $ 6,004 $ 3,727 $ 3,659 $ 3,426 Long-term capital gains ............ 4,047 1,541 16,130 -- -- -- ------- ------- -------- -------- -------- -------- Total ........................... $ 5,922 $ 3,163 $ 22,134 $ 3,727 $ 3,659 $ 3,426 ======= ======= ======== ======== ======== ========
See Notes to Financial Statements. 76
VT WEST COAST VT SMALL CAP EQUITY FUND VT MID CAP STOCK FUND VT GROWTH FUND VALUE FUND ---------------------- ---------------------- ---------------------- ---------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 12/31/06 12/31/05 12/31/06 12/31/05 12/31/06 12/31/05 12/31/06 12/31/05 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net investment income .............. $ 1,009 $ 774 $ 860 $ 1,883 $ 573 $ 365 $ 711 $ 401 Net realized gain on investment transactions .................... 4,884 5,774 6,509 11,521 27,249 12,221 4,946 3,772 Capital gain distributions received ........................ 116 92 -- -- -- -- 15 1 Net change in unrealized appreciation/depreciation of investments ..................... 11,800 4,125 10,059 1,652 (13,986) 4,143 (1,509) (2,091) -------- -------- -------- -------- -------- -------- ------- ------- Net increase/(decrease) in net assets resulting from operations ...................... 17,809 10,765 17,428 15,056 13,836 16,729 4,163 2,083 Distributions to shareholders from: Net investment income: Class 1 Shares ............... (725) (864) (1,711) (519) (344) (1,293) (402) (202) Class 2 Shares ............... (42) (46) (142) (18) -- (3) (1) -- Net realized gains on investments: Class 1 Shares ............... (2,854) -- (10,408) (7,313) -- -- (3,463) (1,350) Class 2 Shares ............... (254) -- (966) (431) -- -- (13) -- Net increase/(decrease) in net assets from Fund share transactions: Class 1 Shares ............... 9,891 1,547 (3,553) (11,193) 16,655 10,517 (2,407) (4,853) Class 2 Shares ............... 4,827 1,851 3,729 1,226 (136) (163) 238 15 -------- -------- -------- -------- -------- -------- ------- ------- Net increase/(decrease) in net assets .......................... 28,652 13,253 4,377 (3,192) 30,011 25,787 (1,885) (4,307) NET ASSETS: Beginning of year .................. 140,894 127,641 111,235 114,427 272,779 246,992 38,361 42,668 -------- -------- -------- -------- -------- -------- ------- ------- End of year ........................ $169,546 $140,894 $115,612 $111,235 $302,790 $272,779 $36,476 $38,361 ======== ======== ======== ======== ======== ======== ======= ======= Undistributed net investment income at end of year .................. $ 1,033 $ 791 $ 878 $ 1,871 $ 564 $ 333 $ 689 $ 397 ======== ======== ======== ======== ======== ======== ======= ======= TAX CHARACTER OF DISTRIBUTIONS PAID: Ordinary income .................... $ 823 $ 910 $ 2,607 $ 1,258 $ 344 $ 1,296 $ 1,470 $ 1,552 Long-term capital gains ............ 3,052 -- 10,620 7,023 -- -- 2,409 -- -------- -------- -------- -------- -------- -------- ------- ------- Total ........................... $ 3,875 $ 910 $ 13,227 $ 8,281 $ 344 $ 1,296 $ 3,879 $ 1,552 ======== ======== ======== ======== ======== ======== ======= =======
See Notes to Financial Statements. 77 Statements of Changes in Net Assets (continued) WM VARIABLE TRUST (In thousands)
VT SMALL CAP VT INTERNATIONAL VT SHORT TERM GROWTH FUND GROWTH FUND INCOME FUND ----------------------- ----------------------- ----------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 12/31/06 12/31/05 12/31/06 12/31/05 12/31/06 12/31/05 ---------- ---------- ---------- ---------- ---------- ---------- Net investment income/(loss) ................ $ (246) $ (294) $ 1,505 $ 1,211 $ 2,126 $ 2,149 Net realized gain/(loss) on investment transactions ............................. 1,000 756 33,560 4,044 (41) 114 Capital gain distributions received ......... 1 189 -- -- -- -- Net increase from payment by the Advisor* ... -- -- -- -- -- -- Net change in unrealized appreciation/ depreciation of investments .............. 2,325 (2,232) (9,789) 11,434 31 (1,310) ------- -------- -------- -------- ------- ------- Net increase/(decrease) in net assets resulting from operations ................ 3,080 (1,581) 25,276 16,689 2,116 953 Distributions to shareholders from: Net investment income: Class 1 Shares ........................ -- -- (2,003) (1,503) (2,030) (1,866) Class 2 Shares ........................ -- -- (54) (9) (181) (227) Net realized gains on investments: Class 1 Shares ........................ -- -- -- -- -- -- Class 2 Shares ........................ -- -- -- -- -- -- Net increase/(decrease) in net assets from Fund share transactions: Class 1 Shares ........................ (1,371) (8,823) 13,837 2,110 (4,677) (351) Class 2 Shares ........................ 10 170 3,682 645 (1,918) (1,802) ------- -------- -------- -------- ------- ------- Net increase/(decrease) in net assets ....... 1,719 (10,234) 40,738 17,932 (6,690) (3,293) NET ASSETS: Beginning of year ........................... 46,441 56,675 110,117 92,185 52,377 55,670 ------- -------- -------- -------- ------- ------- End of year ................................. $48,160 $ 46,441 $150,855 $110,117 $45,687 $52,377 ======= ======== ======== ======== ======= ======= Undistributed net investment income at end of year ........................... $ -- $ -- $ 2,328 $ 575 $ 2,131 $ 2,196 ======= ======== ======== ======== ======= ======= TAX CHARACTER OF DISTRIBUTIONS PAID: Ordinary income ............................. $ -- $ -- $ 2,057 $ 1,512 $ 2,211 $ 2,093 Long-term capital gains ..................... -- -- -- -- -- -- -------- -------- -------- -------- ------- ------- Total .................................... $ -- $ -- $ 2,057 $ 1,512 $ 2,211 $ 2,093 ======== ======== ======== ======== ======= =======
---------- * See Note 3 in Notes to Financial Statements. See Notes to Financial Statements. 78
VT U.S. GOVERNMENT SECURITIES FUND VT INCOME FUND VT MONEY MARKET FUND ----------------------- ----------------------- ----------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 12/31/06 12/31/05 12/31/06 12/31/05 12/31/06 12/31/05 ---------- ---------- ---------- ---------- ---------- ---------- Net investment income/(loss) ................ $ 12,442 $ 12,151 $ 11,755 $ 11,358 $ 648 $ 441 Net realized gain/(loss) on investment transactions ............................. (32) 496 722 893 -- -- Capital gain distributions received ......... -- -- -- -- -- -- Net increase from payment by the Advisor* ... -- -- -- -- 16 -- Net change in unrealized appreciation/ depreciation of investments .............. (449) (6,425) (2,885) (7,462) -- -- -------- -------- -------- -------- ------- ------- Net increase/(decrease) in net assets resulting from operations ................ 11,961 6,222 9,592 4,789 664 441 Distributions to shareholders from: Net investment income: Class 1 Shares ........................ (13,081) (11,782) (10,799) (10,718) (496) (339) Class 2 Shares ........................ (294) (436) (957) (1,267) (152) (102) Net realized gains on investments: Class 1 Shares ........................ -- -- (105) -- -- -- Class 2 Shares ........................ -- -- (10) -- -- -- Net increase/(decrease) in net assets from Fund share transactions: Class 1 Shares ........................ (6,504) 8,857 (320) 5,960 (306) (1,528) Class 2 Shares ........................ (3,631) (3,790) (3,713) (2,178) (483) (2,089) -------- -------- -------- -------- ------- ------- Net increase/(decrease) in net assets ....... (11,549) (929) (6,312) (3,414) (773) (3,617) NET ASSETS: Beginning of year ........................... 275,644 276,573 205,514 208,928 16,447 20,064 -------- -------- -------- -------- ------- ------- End of year ................................. $264,095 $275,644 $199,202 $205,514 $15,674 $16,447 ======== ======== ======== ======== ======= ======= Undistributed net investment income at end of year ........................... $ 13,582 $ 13,350 $ 12,105 $ 11,752 $ -- $ -- ======== ======= = ======== ======== ======= ======= TAX CHARACTER OF DISTRIBUTIONS PAID: Ordinary income ............................. $ 13,375 $ 12,218 $ 11,760 $ 11,985 $ 648 $ 441 Long-term capital gains ..................... -- -- 111 -- -- -- -------- -------- -------- -------- ------- ------- Total .................................... $ 13,375 $ 12,218 $ 11,871 $ 11,985 $ 648 $ 441 ======== ======== ======== ======== ======= =======
See Notes to Financial Statements. 79 Statements of Changes in Net Assets -- Capital Stock Activity WM VARIABLE TRUST (In thousands) VT REIT FUND
ISSUED AS REINVESTMENT NET INCREASE/ SOLD OF DIVIDENDS REDEEMED (DECREASE) --------------- --------------- ----------------- ---------------- AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES ------ ------ ------ ------ -------- ------ ------- ------ YEAR ENDED 12/31/06: Class 1 Shares .. $1,224 65 $5,749 343 $(13,563) (715) $(6,590) (307) Class 2 Shares .. 1,224 66 173 10 (298) (15) 1,099 61 YEAR ENDED 12/31/05: Class 1 Shares .. $ 819 49 $3,100 186 $ (5,766) (330) $(1,847) (95) Class 2 Shares .. 1,393 84 63 4 (595) (36) 861 52
VT EQUITY INCOME FUND
ISSUED AS REINVESTMENT SOLD OF DIVIDENDS REDEEMED NET INCREASE/ ---------------- ---------------- ----------------- ---------------- AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES ------- ------ ------- ------ -------- ------ ------- ------ YEAR ENDED 12/31/06: Class 1 Shares .. $42,142 2,299 $18,596 1,091 $(29,038) (1,582) $31,700 1,808 Class 2 Shares .. 23,272 1,283 3,538 209 (4,377) (241) 22,433 1,251 YEAR ENDED 12/31/05: Class 1 Shares .. $34,607 2,002 $ 3,268 194 $ (6,472) (386) $31,403 1,810 Class 2 Shares .. 19,058 1,134 459 28 (4,283) (256) 15,234 906
VT GROWTH & INCOME FUND
ISSUED AS REINVESTMENT SOLD OF DIVIDENDS REDEEMED NET INCREASE/ ---------------- --------------- ----------------- ----------------- AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES ------- ------ ------ ------ -------- ------ -------- ------ YEAR ENDED 12/31/06: Class 1 Shares .. $10,686 561 $3,616 199 $(52,925) (2,779) $(38,623) (2,019) Class 2 Shares .. 1,088 58 43 2 (1,154) (61) (23) (1) YEAR ENDED 12/31/05: Class 1 Shares .. $13,104 724 $3,393 187 $(27,911) (1,510) $(11,414) (599) Class 2 Shares .. 861 48 33 2 (958) (53) (64) (3)
VT WEST COAST EQUITY FUND
ISSUED AS REINVESTMENT SOLD OF DIVIDENDS REDEEMED NET INCREASE/ ---------------- --------------- ----------------- ----------------- AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES ------- ------ ------ ------ -------- ------ -------- ------ YEAR ENDED 12/31/06: Class 1 Shares .. $17,748 773 $3,579 164 $(11,436) (497) $9,891 440 Class 2 Shares .. 6,682 296 296 14 (2,151) (95) 4,827 215 YEAR ENDED 12/31/05: Class 1 Shares .. $ 8,492 400 $ 864 43 $ (7,809) (378) $1,547 65 Class 2 Shares .. 3,299 159 46 2 (1,494) (73) 1,851 88
See Notes to Financial Statements. 80 Statements of Changes in Net Assets -- Capital Stock Activity (continued) WM VARIABLE TRUST (In thousands) VT MID CAP STOCK FUND
ISSUED AS REINVESTMENT NET INCREASE/ SOLD OF DIVIDENDS REDEEMED (DECREASE) ---------------- ---------------- ----------------- ----------------- AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES ------- ------ ------- ------ -------- ------ -------- ------ YEAR ENDED 12/31/06: Class 1 Shares .. $4,124 231 $12,119 775 $(19,796) (1,123) $ (3,553) (117) Class 2 Shares .. 3,976 232 1,108 72 (1,355) (80) 3,729 224 YEAR ENDED 12/31/05: Class 1 Shares .. $1,809 110 $ 7,832 487 $(20,834) (1,214) $(11,193) (617) Class 2 Shares .. 1,747 105 449 28 (970) (59) 1,226 74
VT GROWTH FUND
ISSUED AS REINVESTMENT NET INCREASE/ SOLD OF DIVIDENDS REDEEMED (DECREASE) ---------------- --------------- ----------------- ----------------- AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES ------- ------ ------ ------ -------- ------ -------- ------ YEAR ENDED 12/31/06: Class 1 Shares .. $36,591 2,594 $ 344 26 $(20,280) (1,444) $ 16,655 1,176 Class 2 Shares .. 267 19 -- -- (403) (29) (136) (10) YEAR ENDED 12/31/05: Class 1 Shares .. $30,450 2,171 $1,293 99 $(21,226) (1,628) $ 10,517 642 Class 2 Shares .. 172 13 3 -- (338) (26) (163) (13)
VT SMALL CAP VALUE FUND
ISSUED AS REINVESTMENT NET INCREASE/ SOLD OF DIVIDENDS REDEEMED (DECREASE) --------------- --------------- ---------------- ---------------- AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES ------ ------ ------ ------ ------- ------ ------- ------ YEAR ENDED 12/31/06: Class 1 Shares .. $1,072 85 $3,865 350 $(7,344) (590) $(2,407) (155) Class 2 Shares .. 251 21 14 1 (27) (2) 238 20 YEAR ENDED 12/31/05: Class 1 Shares .. $ 310 26 $1,552 126 $(6,715) (544) $(4,853) (392) Class 2 Shares .. 15 1 -- -- -- -- 15 1
VT SMALL CAP GROWTH FUND
ISSUED AS REINVESTMENT NET INCREASE/ SOLD OF DIVIDENDS REDEEMED (DECREASE) --------------- --------------- ----------------- ---------------- AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES ------ ------ ------ ------ -------- ------ ------- ------ YEAR ENDED 12/31/06: Class 1 Shares .. $2,365 228 $-- -- $ (3,736) (367) $(1,371) (139) Class 2 Shares .. 710 71 -- -- (700) (71) 10 -- YEAR ENDED 12/31/05: Class 1 Shares .. $1,315 145 $-- -- $(10,138) (1,122) $(8,823) (977) Class 2 Shares .. 835 96 -- -- (665) (74) 170 22
See Notes to Financial Statements. 81 Statements of Changes in Net Assets -- Capital Stock Activity (continued) WM VARIABLE TRUST (In thousands) VT INTERNATIONAL GROWTH FUND
ISSUED AS REINVESTMENT SOLD OF DIVIDENDS REDEEMED NET INCREASE/ ---------------- --------------- ----------------- ---------------- AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES ------- ------ ------ ------ -------- ------ ------- ------ YEAR ENDED 12/31/06: Class 1 Shares .. $24,580 1,584 $2,003 137 $(12,746) (790) $13,837 931 Class 2 Shares .. 3,835 242 54 4 (207) (13) 3,682 233 YEAR ENDED 12/31/05: Class 1 Shares .. $ 2,995 228 $1,503 123 $ (2,388) (182) $ 2,110 169 Class 2 Shares .. 694 53 9 1 (58) (4) 645 50
VT SHORT TERM INCOME FUND
ISSUED AS REINVESTMENT SOLD OF DIVIDENDS REDEEMED NET DECREASE/ --------------- --------------- ---------------- ---------------- AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES ------ ------ ------ ------ ------- ------ ------- ------ YEAR ENDED 12/31/06: Class 1 Shares .. $2,013 793 $2,030 832 $(8,720) (3,486) $(4,677) (1,861) Class 2 Shares .. 609 243 181 74 (2,708) (1,088) (1,918) (771) YEAR ENDED 12/31/05: Class 1 Shares .. $1,650 651 $1,866 750 $(3,867) (1,525) $ (351) (124) Class 2 Shares .. 782 308 227 91 (2,811) (1,112) (1,802) (713)
VT U. S. GOVERNMENT SECURITIES FUND
ISSUED AS REINVESTMENT NET INCREASE/ SOLD OF DIVIDENDS REDEEMED (DECREASE) ---------------- ---------------- ----------------- ---------------- AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES ------- ------ ------- ------ -------- ------ ------- ------ YEAR ENDED 12/31/06: Class 1 Shares .. $18,790 1,800 $13,081 1,315 $(38,375) (3,730) $(6,504) (615) Class 2 Shares .. 492 48 294 30 (4,417) (431) (3,631) (353) YEAR ENDED 12/31/05: Class 1 Shares .. $12,473 1,188 $11,782 1,135 $(15,398) (1,468) $ 8,857 855 Class 2 Shares .. 645 62 436 42 (4,871) (462) (3,790) (358)
VT INCOME FUND
ISSUED AS REINVESTMENT NET INCREASE/ SOLD OF DIVIDENDS REDEEMED (DECREASE) ---------------- ---------------- ----------------- ---------------- AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES ------- ------ ------- ------ -------- ------ ------- ------ YEAR ENDED 12/31/06: Class 1 Shares .. $15,658 1,481 $10,904 1,087 $(26,882) (2,576) $ (320) (8) Class 2 Shares .. 2,953 286 967 97 (7,633) (731) (3,713) (348) YEAR ENDED 12/31/05: Class 1 Shares .. $ 7,235 674 $10,718 1,015 $(11,993) (1,113) $ 5,960 576 Class 2 Shares .. 3,002 279 1,267 120 (6,447) (602) (2,178) (203)
See Notes to Financial Statements. 82 Statements of Changes in Net Assets -- Capital Stock Activity (continued) WM VARIABLE TRUST (In thousands) VT MONEY MARKET FUND
ISSUED AS REINVESTMENT OF SOLD DIVIDENDS REDEEMED NET DECREASE ---------------- --------------- ------------------ ---------------- AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES ------- ------ ------ ------ -------- ------- ------- ------ YEAR ENDED 12/31/06: Class 1 Shares ..... $10,796 10,796 $496 496 $(11,598) (11,598) $ (306) (306) Class 2 Shares ..... 8,845 8,845 152 152 (9,480) (9,480) (483) (483) YEAR ENDED 12/31/05: Class 1 Shares ..... $10,489 10,489 $339 339 $(12,356) (12,356) $(1,528) (1,528) Class 2 Shares ..... 6,537 6,537 102 102 (8,728) (8,728) (2,089) (2,089)
See Notes to Financial Statements. 83 Financial Highlights VT REIT FUND For a Fund share outstanding throughout each period.
INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS -------------------------------------- ------------------------------------------ NET NET REALIZED ASSET AND DIVIDENDS DISTRIBUTIONS VALUE NET UNREALIZED TOTAL FROM FROM NET FROM NET BEGINNING INVESTMENT GAIN ON INVESTMENT INVESTMENT REALIZED TOTAL OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME CAPITAL GAINS DISTRIBUTIONS --------- ---------- ------------ ---------- ---------- ------------- ------------- CLASS 1 SHARES Year Ended: 12/31/06 $17.49 $0.38(5) $4.93 $5.31 $(0.51) $(1.67) $(2.18) 12/31/05 16.96 0.47(5) 1.08 1.55 (0.36) (0.66) (1.02) 12/31/04 13.04 0.49(5) 3.74 4.23 (0.20) (0.11) (0.31) 12/31/03(3) 10.00 0.36(5) 2.68 3.04 -- -- -- CLASS 2 SHARES Year Ended: 12/31/06 $17.38 $0.33(5) $4.90 $5.23 $(0.48) $(1.67) $(2.15) 12/31/05 16.90 0.44(5) 1.05 1.49 (0.35) (0.66) (1.01) 12/31/04 13.03 0.45(5) 3.73 4.18 (0.20) (0.11) (0.31) 12/31/03(4) 11.20 0.28(5) 1.55 1.83 -- -- -- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA ---------------------------------------------------------------- RATIO OF RATIO OF EXPENSES EXPENSES TO AVERAGE TO AVERAGE RATIO OF NET NET ASSETS NET ASSETS NET ASSET BEFORE AFTER INVESTMENT VALUE NET ASSETS REIMBURSE- REIMBURSE- INCOME TO PORTFOLIO END OF TOTAL END OF PERIOD MENTS/ MENTS/ AVERAGE TURNOVER PERIOD RETURN(1) (IN 000S) WAIVERS WAIVERS(2) NET ASSETS RATE ------ --------- ------------- ---------- ---------- ---------- --------- CLASS 1 SHARES Year Ended: 12/31/06 $20.62 33.21% $54,481 0.88% 0.88% 2.04% 72%(7) 12/31/05 17.49 9.40 51,570 0.89 0.89 2.82 25 12/31/04 16.96 33.08 51,632 0.88 0.88 3.43 13 12/31/03(3) 13.04 30.40 38,593 1.00(6) 1.00(6) 4.21(6) 3 CLASS 2 SHARES Year Ended: 12/31/06 $20.46 32.90% $ 2,712 1.13% 1.13% 1.79% 72%(7) 12/31/05 17.38 9.10 1,254 1.14 1.14 2.57 25 12/31/04 16.90 32.72 338 1.13 1.13 3.18 13 12/31/03(4) 13.03 16.34 1 1.25(6) 1.25(6) 3.96(6) 3
(1) Total return is not annualized for periods of 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 or if fees had not been reduced by credits allowed by the custodian. (2) Ratio of operating expenses to average net assets includes expenses paid indirectly. (3) The VT REIT Fund commenced operations on May 1, 2003. (4) The VT REIT Fund commenced selling Class 2 shares on August 5, 2003. See Notes to Financial Statements. 84 Financial Highlights VT EQUITY INCOME FUND For a Fund share outstanding throughout each period.
INCOME/(LOSS) FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS -------------------------------------- ------------------------------------------ NET REALIZED NET AND ASSET UNREALIZED DIVIDENDS DISTRIBUTIONS VALUE NET GAIN/(LOSS) TOTAL FROM FROM NET FROM NET BEGINNING INVESTMENT ON INVESTMENT INVESTMENT REALIZED TOTAL OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME CAPITAL GAINS DISTRIBUTIONS --------- ---------- ------------ ---------- ---------- ------------- ------------- CLASS 1 SHARES Year Ended: 12/31/06 $17.64 $0.32(5) $ 2.71 $ 3.03 $(0.33) $(0.95) $(1.28) 12/31/05 16.26 0.40(5) 1.26 1.66 (0.28) -- (0.28) 12/31/04 13.90 0.32(5) 2.30 2.62 (0.26) -- (0.26) 12/31/03 11.01 0.31(5) 2.95 3.26 (0.31) (0.06) (0.37) 12/31/02 12.87 0.36(5) (1.95) (1.59) (0.25) (0.02) (0.27) CLASS 2 SHARES Year Ended: 12/31/06 $17.53 $0.27(5) $ 2.69 $ 2.96 $(0.30) $(0.95) $(1.25) 12/31/05 16.18 0.36(5) 1.24 1.60 (0.25) -- (0.25) 12/31/04 13.85 0.28(5) 2.30 2.58 (0.25) -- (0.25) 12/31/03 10.99 0.29(5) 2.93 3.22 (0.30) (0.06) (0.36) 12/31/02 12.87 0.32(5) (1.93) (1.61) (0.25) (0.02) (0.27) RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA ---------------------------------------------------------------- RATIO OF RATIO OF EXPENSES EXPENSES TO AVERAGE TO AVERAGE RATIO OF NET NET ASSETS NET ASSETS NET ASSET BEFORE AFTER INVESTMENT VALUE NET ASSETS REIMBURSE- REIMBURSE- INCOME TO PORTFOLIO END OF TOTAL END OF PERIOD MENTS/ MENTS/ AVERAGE TURNOVER PERIOD RETURN(1) (IN 000S) WAIVERS WAIVERS(2) NET ASSETS RATE ------ --------- ------------- ---------- ---------- ---------- --------- CLASS 1 SHARES Year Ended: 12/31/06 $19.39 18.17% $296,113 0.66% 0.66% 1.74% 87%(8) 12/31/05 17.64 10.27 237,482 0.66 0.66 2.40 46 12/31/04 16.26 19.12 189,517 0.67 0.67 2.15 26 12/31/03 13.90 30.10 149,603 0.70 0.70 2.63 23 12/31/02 11.01 (12.51) 112,304 0.70 0.70 3.04 16 CLASS 2 SHARES Year Ended: 12/31/06 $19.24 17.86% $70,163 0.91% 0.91% 1.49% 87%(8) 12/31/05 17.53 9.97 41,976 0.91 0.91 2.15 46 12/31/04 16.18 18.82 24,094 0.92 0.92 1.90 26 12/31/03 13.85 29.73 12,619 0.95 0.95 2.38 23 12/31/02 10.99 (12.67) 6,460 0.95 0.95 2.79 16
(5) Per share numbers have been calculated using the average shares method. (6) Annualized. (7) The VT REIT Fund had unusually high portfolio turnover due to the transitioning of Fund holdings for a planned fund merger. See Note 1 in Notes to Financial Statements. (8) The VT Equity Income Fund had unusually high portfolio turnover due a change in the portfolio manager. See Notes to Financial Statements. 85 Financial Highlights VT GROWTH & INCOME FUND For a Fund share outstanding throughout each period.
INCOME/(LOSS) FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS -------------------------------------- ------------------------------------------ NET REALIZED NET AND ASSET UNREALIZED DIVIDENDS DISTRIBUTIONS VALUE NET GAIN/(LOSS) TOTAL FROM FROM NET FROM NET BEGINNING INVESTMENT ON INVESTMENT INVESTMENT REALIZED TOTAL OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME CAPITAL GAINS DISTRIBUTIONS --------- ---------- ------------ ---------- ---------- ------------- ------------- CLASS 1 SHARES Year Ended: 12/31/06 $18.56 $0.24(3) $ 1.93 $ 2.17 $(0.28) $-- $(0.28) 12/31/05 18.19 0.25 0.35 0.60 (0.23) -- (0.23) 12/31/04 16.85 0.23(3) 1.29 1.52 (0.18) -- (0.18) 12/31/03 13.45 0.19(3) 3.39 3.58 (0.18) -- (0.18) 12/31/02 17.18 0.15(3) (3.77) (3.62) (0.11) -- (0.11) CLASS 2 SHARES Year Ended: 12/31/06 $18.46 $0.19(3) $ 1.92 $ 2.11 $(0.23) $-- $(0.23) 12/31/05 18.10 0.20 0.34 0.54 (0.18) -- (0.18) 12/31/04 16.79 0.19(3) 1.28 1.47 (0.16) -- (0.16) 12/31/03 13.42 0.15(3) 3.39 3.54 (0.17) -- (0.17) 12/31/02 17.18 0.11(3) (3.76) (3.65) (0.11) -- (0.11) RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA ---------------------------------------------------------------- RATIO OF RATIO OF EXPENSES EXPENSES TO AVERAGE TO AVERAGE RATIO OF NET NET ASSETS NET ASSETS NET ASSET BEFORE AFTER INVESTMENT VALUE NET ASSETS REIMBURSE- REIMBURSE- INCOME TO PORTFOLIO END OF TOTAL END OF PERIOD MENTS/ MENTS/ AVERAGE TURNOVER PERIOD RETURN(1) (IN 000S) WAIVERS WAIVERS(2) NET ASSETS RATE ------ --------- ------------- ---------- ---------- ---------- --------- CLASS 1 SHARES Year Ended: 12/31/06 $20.45 11.87% $250,929 0.77% 0.77% 1.23% 34% 12/31/05 18.56 3.30 265,115 0.77 0.77 1.32 24 12/31/04 18.19 9.08 270,775 0.79 0.79 1.33 11 12/31/03 16.85 26.80 245,820 0.83 0.83 1.28 16 12/31/02 13.45 (21.16) 209,337 0.81 0.81 1.01 20 CLASS 2 SHARES Year Ended: 12/31/06 $20.34 11.66% $ 3,771 1.02% 1.02% 0.98% 34% 12/31/05 18.46 2.97 3,427 1.02 1.02 1.07 24 12/31/04 18.10 8.78 3,425 1.04 1.04 1.08 11 12/31/03 16.79 26.49 2,712 1.08 1.08 1.03 16 12/31/02 13.42 (21.33) 1,301 1.06 1.06 0.76 20
(1) Total return is not annualized for periods of 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 or if fees had not been reduced by credits allowed by the custodian. (2) Ratio of operating expenses to average net assets includes expenses paid indirectly. (3) Per share numbers have been calculated using the average shares method. See Notes to Financial Statements. 86 Financial Highlights VT WEST COAST EQUITY FUND For a Fund share outstanding throughout each period.
INCOME/(LOSS) FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS -------------------------------------- ------------------------------------------ NET REALIZED NET AND ASSET UNREALIZED DIVIDENDS DISTRIBUTIONS VALUE NET GAIN/(LOSS) TOTAL FROM FROM NET FROM NET BEGINNING INVESTMENT ON INVESTMENT INVESTMENT REALIZED TOTAL OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME CAPITAL GAINS DISTRIBUTIONS --------- ---------- ------------ ---------- ---------- ------------- ------------- CLASS 1 SHARES Year Ended: 12/31/06 $22.04 $0.15(3) $ 2.45 $ 2.60 $(0.12) $(0.46) $(0.58) 12/31/05 20.45 0.13(3) 1.61 1.74 (0.15) -- (0.15) 12/31/04 18.14 0.16(3) 2.20 2.36 (0.05) -- (0.05) 12/31/03 12.69 0.06(3) 5.43 5.49 (0.04) -- (0.04) 12/31/02 16.70 0.06(3) (3.79) (3.73) (0.08) (0.20) (0.28) CLASS 2 SHARES Year Ended: 12/31/06 $21.92 $0.10(3) $ 2.43 $ 2.53 $(0.08) $(0.46) $(0.54) 12/31/05 20.35 0.08(3) 1.60 1.68 (0.11) -- (0.11) 12/31/04 18.08 0.11(3) 2.19 2.30 (0.03) -- (0.03) 12/31/03 12.67 0.02(3) 5.41 5.43 (0.02) -- (0.02) 12/31/02 16.70 0.02(3) (3.77) (3.75) (0.08) (0.20) (0.28) RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA ---------------------------------------------------------------- RATIO OF RATIO OF EXPENSES EXPENSES TO AVERAGE TO AVERAGE RATIO OF NET NET ASSETS NET ASSETS NET ASSET BEFORE AFTER INVESTMENT VALUE NET ASSETS REIMBURSE- REIMBURSE- INCOME TO PORTFOLIO END OF TOTAL END OF PERIOD MENTS/ MENTS/ AVERAGE TURNOVER PERIOD RETURN(1) (IN 000S) WAIVERS WAIVERS(2) NET ASSETS RATE ------ --------- ------------- ---------- ---------- ---------- --------- CLASS 1 SHARES Year Ended: 12/31/06 $24.06 12.03% $152,592 0.67% 0.67% 0.66% 18% 12/31/05 22.04 8.57 130,071 0.68 0.68 0.62 18 12/31/04 20.45 13.03 119,371 0.69 0.69 0.87 17 12/31/03 18.14 43.35 105,160 0.71 0.71 0.42 16 12/31/02 12.69 (22.55) 68,227 0.71 0.71 0.42 20 CLASS 2 SHARES Year Ended: 12/31/06 $23.91 11.75% $ 16,954 0.92% 0.92% 0.41% 18% 12/31/05 21.92 8.30 10,823 0.93 0.93 0.37 18 12/31/04 20.35 12.72 8,270 0.94 0.94 0.62 17 12/31/03 18.08 42.93 5,202 0.96 0.96 0.17 16 12/31/02 12.67 (22.67) 2,313 0.96 0.96 0.17 20
See Notes to Financial Statements. 87 Financial Highlights VT MID CAP STOCK FUND For a Fund share outstanding throughout each period.
INCOME/(LOSS) FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS -------------------------------------- ------------------------------------------ NET REALIZED NET AND ASSET UNREALIZED DIVIDENDS DISTRIBUTIONS VALUE NET GAIN/(LOSS) TOTAL FROM FROM NET FROM NET BEGINNING INVESTMENT ON INVESTMENT INVESTMENT REALIZED TOTAL OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME CAPITAL GAINS DISTRIBUTIONS --------- ---------- ------------ ---------- ---------- ------------- ------------- CLASS 1 SHARES Year Ended: 12/31/06 $17.34 $0.14(3) $ 2.49 $ 2.63 $(0.32) $(1.92) $(2.24) 12/31/05 16.44 0.27(3) 1.84 2.11 (0.08) (1.13) (1.21) 12/31/04 14.63 0.08(3) 2.03 2.11 (0.05) (0.25) (0.30) 12/31/03 11.49 0.06(3) 3.12 3.18 (0.04) -- (0.04) 12/31/02 13.14 0.04(3) (1.36) (1.32) (0.03) (0.30) (0.33) CLASS 2 SHARES Year Ended: 12/31/06 $17.24 $0.09(3) $ 2.47 $ 2.56 $(0.28) $(1.92) $(2.20) 12/31/05 16.36 0.22(3) 1.84 2.06 (0.05) (1.13) (1.18) 12/31/04 14.58 0.04(3) 2.02 2.06 (0.03) (0.25) (0.28) 12/31/03 11.46 0.03(3) 3.11 3.14 (0.02) -- (0.02) 12/31/02 13.13 0.01(3) (1.36) (1.35) (0.02) (0.30) (0.32) RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA ---------------------------------------------------------------- RATIO OF RATIO OF EXPENSES EXPENSES RATIO OF TO AVERAGE TO AVERAGE NET NET NET ASSETS NET ASSETS INVESTMENT ASSET BEFORE AFTER INCOME/ VALUE NET ASSETS REIMBURSE- REIMBURSE- (LOSS) TO PORTFOLIO END OF TOTAL END OF PERIOD MENTS/ MENTS/ AVERAGE TURNOVER PERIOD RETURN(1) (IN 000S) WAIVERS WAIVERS(2) NET ASSETS RATE ------ --------- ------------- ---------- ---------- ---------- --------- CLASS 1 SHARES Year Ended: 12/31/06 $17.73 16.88% $103,824 0.80% 0.80% 0.80% 14% 12/31/05 17.34 13.39 103,543 0.81 0.81 1.62 27 12/31/04 16.44 14.59 108,347 0.81 0.81 0.54 32 12/31/03 14.63 27.73 84,408 0.83 0.83 0.47 37 12/31/02 11.49 (10.35) 63,119 0.84 0.84 0.32 28 CLASS 2 SHARES Year Ended: 12/31/06 $17.60 16.56% $ 11,788 1.05% 1.05% 0.55% 14% 12/31/05 17.24 13.12 7,692 1.06 1.06 1.37 27 12/31/04 16.36 14.28 6,080 1.06 1.06 0.29 32 12/31/03 14.58 27.45 3,725 1.08 1.08 0.22 37 12/31/02 11.46 (10.54) 1,962 1.09 1.09 0.07 28
(1) Total return is not annualized for periods of 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 or if fees had not been reduced by credits allowed by the custodian. (2) Ratio of operating expenses to average net assets includes expenses paid indirectly. (3) Per share numbers have been calculated using the average shares method. (4) Amount represents less than $0.01 per share. See Notes to Financial Statements. 88 Financial Highlights VT GROWTH FUND For a Fund share outstanding throughout each period.
INCOME/(LOSS) FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS ------------------------------------- ------------------------------------------ NET REALIZED NET AND ASSET NET UNREALIZED DIVIDENDS DISTRIBUTIONS VALUE INVESTMENT GAIN/(LOSS) TOTAL FROM FROM NET FROM NET BEGINNING INCOME/ ON INVESTMENT INVESTMENT REALIZED TOTAL OF PERIOD (LOSS) INVESTMENTS OPERATIONS INCOME CAPITAL GAINS DISTRIBUTIONS --------- ---------- ----------- ---------- ---------- ------------- ------------- CLASS 1 SHARES Year Ended: 12/31/06 $13.92 $ 0.03(3) $ 0.66 $ 0.69 $(0.02) $-- $(0.02) 12/31/05 13.03 0.02 0.94 0.96 (0.07) -- (0.07) 12/31/04 12.04 0.07 0.92 0.99 -- -- -- 12/31/03 9.32 (0.00)(4) 2.72 2.72 -- -- -- 12/31/02 13.51 (0.01)(3) (4.18) (4.19) -- -- -- CLASS 2 SHARES Year Ended: 12/31/06 $13.83 $(0.01)(3) $ 0.65 $ 0.64 $ -- $-- $ -- 12/31/05 12.94 (0.01) 0.94 0.93 (0.04) -- (0.04) 12/31/04 11.98 0.04 0.92 0.96 -- -- -- 12/31/03 9.30 (0.03) 2.71 2.68 -- -- -- 12/31/02 13.51 (0.03)(3) (4.18) (4.21) -- -- -- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA ---------------------------------------------------------------- RATIO OF RATIO OF EXPENSES EXPENSES RATIO OF TO AVERAGE TO AVERAGE NET NET NET ASSETS NET ASSETS INVESTMENT ASSET BEFORE AFTER INCOME/ VALUE NET ASSETS REIMBURSE- REIMBURSE- (LOSS) TO PORTFOLIO END OF TOTAL END OF PERIOD MENTS/ MENTS/ AVERAGE TURNOVER PERIOD RETURN(1) (IN 000S) WAIVERS WAIVERS(2) NET ASSETS RATE ------ --------- ------------- ---------- ---------- ---------- --------- CLASS 1 SHARES Year Ended: 12/31/06 $14.59 4.94% $301,607 0.78% 0.78% 0.20% 108%(5) 12/31/05 13.92 7.41 271,508 0.87 0.87 0.15 81 12/31/04 13.03 8.22 245,637 0.94 0.95 0.58 66 12/31/03 12.04 29.18 189,837 0.98 0.98 (0.04) 75 12/31/02 9.32 (31.01) 135,422 1.00 1.00 (0.05) 171 CLASS 2 SHARES Year Ended: 12/31/06 $14.47 4.63% $ 1,183 1.03% 1.03% (0.05)% 108%(5) 12/31/05 13.83 7.17 1,271 1.12 1.12 (0.10) 81 12/31/04 12.94 8.01 1,355 1.19 1.20 0.33 66 12/31/03 11.98 28.82 1,274 1.23 1.23 (0.29) 75 12/31/02 9.30 (31.16) 622 1.25 1.25 (0.30) 171
(5) The VT Growth Fund had unusually high portfolio turnover due to the transitioning of Fund holdings for a planned fund merger. See Note 1 in Notes to Financial Statements. See Notes to Financial Statements. 89 Financial Highlights VT SMALL CAP VALUE FUND For a Fund share outstanding throughout each period.
INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS ------------------------------------- ------------------------------------------ NET NET REALIZED ASSET AND DIVIDENDS DISTRIBUTIONS VALUE NET UNREALIZED TOTAL FROM FROM NET FROM NET BEGINNING INVESTMENT GAIN ON INVESTMENT INVESTMENT REALIZED TOTAL OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME CAPITAL GAINS DISTRIBUTIONS --------- ---------- ----------- ---------- ---------- ------------- ------------- CLASS 1 SHARES Year Ended: 12/31/06 $12.43 $0.24(5) $1.11 $1.35 $(0.15) $(1.27) $(1.42) 12/31/05 12.27 0.11(5) 0.50 0.61 (0.06) (0.39) (0.45) 12/31/04(3) 10.00 0.06 2.21 2.27 -- -- -- CLASS 2 SHARES Year Ended: 12/31/06 $12.41 $0.21(5) $1.12 $1.33 $(0.15) $(1.27) $(1.42) 12/31/05(4) 12.28 0.08(5) 0.05 0.13 -- -- -- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA ---------------------------------------------------------------- RATIO OF RATIO OF EXPENSES EXPENSES TO AVERAGE TO AVERAGE RATIO OF NET NET ASSETS NET ASSETS NET ASSET BEFORE AFTER INVESTMENT VALUE NET ASSETS REIMBURSE- REIMBURSE- INCOME TO PORTFOLIO END OF TOTAL END OF PERIOD MENTS/ MENTS/ AVERAGE TURNOVER PERIOD RETURN(1) (IN 000S) WAIVERS WAIVERS(2) NET ASSETS RATE ------ --------- ------------- ---------- ---------- ---------- --------- CLASS 1 SHARES Year Ended: 12/31/06 $12.36 12.22% $36,216 0.98% 0.98% 2.02% 93%(7) 12/31/05 12.43 4.97 38,346 0.97 0.97 0.93 59 12/31/04(3) 12.27 22.70 42,668 1.08(6) 1.08(6) 0.83(6) 50 CLASS 2 SHARES Year Ended: 12/31/06 $12.32 11.87% $ 260 1.23% 1.23% 1.77% 93%(7) 12/31/05(4) 12.41 1.14 15 1.22(6) 1.22(6) 0.68(6) 59
(1) Total return is not annualized for periods of 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 or if fees had not been reduced by credits allowed by the custodian. (2) Ratio of operating expenses to average net assets includes expenses paid indirectly. (3) The VT Small Cap Value Fund commenced operations on May 3, 2004. (4) The VT Small Cap Value Fund commenced selling Class 2 shares on July 1, 2005. See Notes to Financial Statements. 90 Financial Highlights VT SMALL CAP GROWTH FUND For a Fund share outstanding throughout each period.
INCOME/(LOSS) FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS ------------------------------------- ------------------------------------------ NET REALIZED NET AND ASSET UNREALIZED DIVIDENDS DISTRIBUTIONS VALUE NET GAIN/(LOSS) TOTAL FROM FROM NET FROM NET BEGINNING INVESTMENT ON INVESTMENT INVESTMENT REALIZED TOTAL OF PERIOD LOSS INVESTMENTS OPERATIONS INCOME CAPITAL GAINS DISTRIBUTIONS --------- ---------- ----------- ---------- ---------- ------------- ------------- CLASS 1 SHARES Year Ended: 12/31/06 $ 9.68 $(0.05) $ 0.71 $ 0.66 $-- $ -- $ -- 12/31/05 9.85 (0.06) (0.11) (0.17) -- -- -- 12/31/04 9.41 (0.05) 0.49 0.44 -- -- -- 12/31/03 5.49 (0.02)(5) 3.94 3.92 -- -- -- 12/31/02 11.37 (0.02)(5) (5.27) (5.29) -- (0.59) (0.59) CLASS 2 SHARES Year Ended: 12/31/06 $ 9.57 $(0.07) $ 0.70 $ 0.63 $-- $ -- $ -- 12/31/05 9.77 (0.08) (0.12) (0.20) -- -- -- 12/31/04 9.35 (0.07) 0.49 0.42 -- -- -- 12/31/03 5.47 (0.04)(5) 3.92 3.88 -- -- -- 12/31/02 11.36 (0.03)(5) (5.27) (5.30) -- (0.59) (0.59) RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA ---------------------------------------------------------------- RATIO OF RATIO OF EXPENSES EXPENSES TO AVERAGE TO AVERAGE RATIO OF NET NET ASSETS NET ASSETS NET ASSET BEFORE AFTER INVESTMENT VALUE NET ASSETS REIMBURSE- REIMBURSE- LOSS TO PORTFOLIO END OF TOTAL END OF PERIOD MENTS/ MENTS/ AVERAGE TURNOVER PERIOD RETURN(1) (IN 000S) WAIVERS WAIVERS(2) NET ASSETS RATE ------ --------- ------------- ---------- ---------- ---------- --------- CLASS 1 SHARES Year Ended: 12/31/06 $10.34 6.82% $44,152 0.99% 0.99% (0.50)% 64% 12/31/05 9.68 (1.73) 42,679 1.11 1.11 (0.61) 172(8) 12/31/04 9.85 4.68 53,049 0.98 0.98 (0.56) 41 12/31/03 9.41 71.40 70,806 1.00 1.00 (0.31) 67 12/31/02 5.49 (47.15) 39,476 1.00 1.00 (0.31) 29 CLASS 2 SHARES Year Ended: 12/31/06 $10.20 6.58% $ 4,008 1.24% 1.24% (0.75)% 64% 12/31/05 9.57 (2.05) 3,762 1.36 1.36 (0.86) 172(8) 12/31/04 9.77 4.49 3,626 1.23 1.23 (0.81) 41 12/31/03 9.35 70.93 2,710 1.25 1.25 (0.56) 67 12/31/02 5.47 (47.28) 1,068 1.25 1.25 (0.56) 29
(5) Per share numbers have been calculated using the average shares method. (6) Annualized. (7) The VT Small Cap Value Fund had unusually high portfolio turnover due to the transitioning of Fund holdings for a planned fund merger. See Note 1 in Notes to Financial Statements. (8) The VT Small Cap Growth Fund had unusually high portfolio turnover due to a change in sub-advisors. See Notes to Financial Statements. 91 Financial Highlights VT INTERNATIONAL GROWTH FUND For a Fund share outstanding throughout each period.
INCOME/(LOSS) FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS -------------------------------------- ------------------------------------------ NET REALIZED NET AND ASSET UNREALIZED DIVIDENDS DISTRIBUTIONS VALUE NET GAIN/(LOSS) TOTAL FROM FROM NET FROM NET BEGINNING INVESTMENT ON INVESTMENT INVESTMENT REALIZED TOTAL OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME CAPITAL GAINS DISTRIBUTIONS --------- ---------- ------------ ---------- ---------- ------------- ------------- CLASS 1 SHARES Year Ended: 12/31/06 $14.80 $0.18(3) $ 2.79 $ 2.97 $(0.23) $-- $(0.23) 12/31/05 12.77 0.17(3) 2.07 2.24 (0.21) -- (0.21) 12/31/04 11.38 0.12(3) 1.41 1.53 (0.14) -- (0.14) 12/31/03 8.51 0.09(3) 2.91 3.00 (0.13) -- (0.13) 12/31/02 10.21 0.04(3) (1.63) (1.59) (0.11) -- (0.11) CLASS 2 SHARES Year Ended: 12/31/06 $14.71 $0.14(3) $ 2.77 $ 2.91 $(0.23) $-- $(0.23) 12/31/05 12.71 0.13(3) 2.07 2.20 (0.20) -- (0.20) 12/31/04 11.34 0.09(3) 1.41 1.50 (0.13) -- (0.13) 12/31/03 8.49 0.06(3) 2.90 2.96 (0.11) -- (0.11) 12/31/02 10.21 0.02(3) (1.63) (1.61) (0.11) -- (0.11) RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA ---------------------------------------------------------------- RATIO OF RATIO OF EXPENSES EXPENSES TO AVERAGE TO AVERAGE RATIO OF NET NET ASSETS NET ASSETS NET ASSET BEFORE AFTER INVESTMENT VALUE NET ASSETS REIMBURSE- REIMBURSE- INCOME TO PORTFOLIO END OF TOTAL END OF PERIOD MENTS/ MENTS/ AVERAGE TURNOVER PERIOD RETURN(1) (IN 000S) WAIVERS WAIVERS(2) NET ASSETS RATE ------ --------- ------------- ---------- ---------- ---------- --------- CLASS 1 SHARES Year Ended: 12/31/06 $17.54 20.54% $ 145,512 1.03% 1.03% 1.11% 105%(5) 12/31/05 14.80 17.87 109,029 1.11 1.11 1.27 32 12/31/04 12.77 13.60 91,875 1.16 1.16 0.99 23 12/31/03 11.38 35.51 74,138 1.21 1.21 0.94 22 12/31/02 8.51 (15.71) 50,625 1.26 1.26 0.49 30 CLASS 2 SHARES Year Ended: 12/31/06 $17.39 20.27% $ 5,343 1.28% 1.28% 0.86% 105%(5) 12/31/05 14.71 17.59 1,088 1.36 1.36 1.02 32 12/31/04 12.71 13.33 310 1.41 1.41 0.74 23 12/31/03 11.34 35.10 182 1.46 1.46 0.69 22 12/31/02 8.49 (15.91) 93 1.51 1.51 0.24 30
(1) Total return is not annualized for periods of 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 or if fees had not been reduced by credits allowed by the custodian. (2) Ratio of operating expenses to average net assets includes expenses paid indirectly. (3) Per share numbers have been calculated using the average shares method. (4) Amount represents less than $0.01 per share. (5) The VT International Growth Fund had unusually high portfolio turnover due to the transitioning of Fund holdings for a planned fund merger. See Note 1 in Notes to Financial Statements. See Notes to Financial Statements. 92 Financial Highlights VT SHORT TERM INCOME FUND For a Fund share outstanding throughout each period.
INCOME/(LOSS) FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS -------------------------------------- ------------------------------------------ NET REALIZED NET AND ASSET UNREALIZED DIVIDENDS DISTRIBUTIONS VALUE NET GAIN/(LOSS) TOTAL FROM FROM NET FROM NET BEGINNING INVESTMENT ON INVESTMENT INVESTMENT REALIZED TOTAL OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME CAPITAL GAINS DISTRIBUTIONS --------- ---------- ------------ ---------- ---------- ------------- ------------- CLASS 1 SHARES Year Ended: 12/31/06 $2.52 $0.11(3) $(0.00)(4) $0.11 $(0.11) $-- $(0.11) 12/31/05 2.58 0.10(3) (0.06) 0.04 (0.10) -- (0.10) 12/31/04 2.63 0.10(3) (0.05) 0.05 (0.10) -- (0.10) 12/31/03 2.65 0.11(3) 0.04 0.15 (0.17) -- (0.17) 12/31/02 2.60 0.14(3) 0.02 0.16 (0.11) -- (0.11) CLASS 2 SHARES Year Ended: 12/31/06 $2.51 $0.10(3) $(0.00)(4) $0.10 $(0.10) $-- $(0.10) 12/31/05 2.56 0.09(3) (0.05) 0.04 (0.09) -- (0.09) 12/31/04 2.62 0.09(3) (0.05) 0.04 (0.10) -- (0.10) 12/31/03 2.64 0.10(3) 0.04 0.14 (0.16) -- (0.16) 12/31/02 2.60 0.13(3) 0.02 0.15 (0.11) -- (0.11) RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA ---------------------------------------------------------------- RATIO OF RATIO OF EXPENSES EXPENSES TO AVERAGE TO AVERAGE RATIO OF NET NET ASSETS NET ASSETS NET ASSET BEFORE AFTER INVESTMENT VALUE NET ASSETS REIMBURSE- REIMBURSE- INCOME TO PORTFOLIO END OF TOTAL END OF PERIOD MENTS/ MENTS/ AVERAGE TURNOVER PERIOD RETURN(1) (IN 000S) WAIVERS WAIVERS(2) NET ASSETS RATE ------ --------- ------------- ---------- ---------- ---------- --------- CLASS 1 SHARES Year Ended: 12/31/06 $2.52 4.59% $42,466 0.61% 0.61% 4.30% 13% 12/31/05 2.52 1.64 47,221 0.60 0.60 4.01 22 12/31/04 2.58 2.07 48,574 0.61 0.61 3.74 17 12/31/03 2.63 5.52 46,628 0.63 0.63 4.31 38 12/31/02 2.65 6.26 41,592 0.62 0.62 5.42 41 CLASS 2 SHARES Year Ended: 12/31/06 $2.51 4.24% $ 3,221 0.86% 0.86% 4.05% 13% 12/31/05 2.51 1.76 5,156 0.85 0.85 3.76 22 12/31/04 2.56 1.60 7,096 0.86 0.86 3.49 17 12/31/03 2.62 5.46 6,157 0.88 0.88 4.06 38 12/31/02 2.64 5.86 1,188 0.87 0.87 5.17 41
See Notes to Financial Statements. 93 Financial Highlights VT U.S. GOVERNMENT SECURITIES FUND For a Fund share outstanding throughout each period.
INCOME/(LOSS) FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS -------------------------------------- ------------------------------------------ NET REALIZED NET AND ASSET UNREALIZED DIVIDENDS DISTRIBUTIONS VALUE NET GAIN/(LOSS) TOTAL FROM FROM NET FROM NET BEGINNING INVESTMENT ON INVESTMENT INVESTMENT REALIZED TOTAL OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME CAPITAL GAINS DISTRIBUTIONS --------- ---------- ------------ ---------- ---------- ------------- ------------- CLASS 1 SHARES Year Ended: 12/31/06 $10.47 $0.47(3) $(0.03) $0.44 $(0.50) $-- $(0.50) 12/31/05 10.71 0.46(3) (0.22) 0.24 (0.48) -- (0.48) 12/31/04 10.75 0.45(3) (0.06) 0.39 (0.43) -- (0.43) 12/31/03 11.05 0.46(3) (0.23) 0.23 (0.53) -- (0.53) 12/31/02 10.55 0.59(3) 0.33 0.92 (0.42) -- (0.42) CLASS 2 SHARES Year Ended: 12/31/06 $10.43 $0.44(3) $(0.02) $0.42 $(0.46) $-- $(0.46) 12/31/05 10.66 0.43(3) (0.22) 0.21 (0.44) -- (0.44) 12/31/04 10.70 0.42(3) (0.06) 0.36 (0.40) -- (0.40) 12/31/03 11.02 0.44(3) (0.23) 0.21 (0.53) -- (0.53) 12/31/02 10.55 0.56(3) 0.33 0.89 (0.42) -- (0.42) RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA ---------------------------------------------------------------- RATIO OF RATIO OF EXPENSES EXPENSES TO AVERAGE TO AVERAGE RATIO OF NET NET ASSETS NET ASSETS NET ASSET BEFORE AFTER INVESTMENT VALUE NET ASSETS REIMBURSE- REIMBURSE- INCOME TO PORTFOLIO END OF TOTAL END OF PERIOD MENTS/ MENTS/ AVERAGE TURNOVER PERIOD RETURN(1) (IN 000S) WAIVERS WAIVERS(2) NET ASSETS RATE ------ --------- ------------- ---------- ---------- ---------- --------- CLASS 1 SHARES Year Ended: 12/31/06 $10.41 4.45% $259,054 0.53% 0.53% 4.54% 16% 12/31/05 10.47 2.27 266,902 0.54 0.54 4.39 33 12/31/04 10.71 3.78 263,816 0.54 0.54 4.21 28 12/31/03 10.75 2.14 204,193 0.56 0.56 4.26 46 12/31/02 11.05 8.87 173,770 0.56 0.56 5.45 41 CLASS 2 SHARES Year Ended: 12/31/06 $10.39 4.22% $ 5,041 0.78% 0.78% 4.29% 16% 12/31/05 10.43 2.02 8,742 0.79 0.79 4.14 33 12/31/04 10.66 3.59 12,757 0.79 0.79 3.96 28 12/31/03 10.70 1.87 16,323 0.81 0.81 4.01 46 12/31/02 11.02 8.57 12,264 0.81 0.81 5.20 41
(1) Total return is not annualized for periods of 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 or if fees had not been reduced by credits allowed by the custodian. (2) Ratio of operating expenses to average net assets includes expenses paid indirectly. (3) Per share numbers have been calculated using the average shares method. See Notes to Financial Statements. 94 Financial Highlights VT INCOME FUND For a Fund share outstanding throughout each period.
INCOME/(LOSS) FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS -------------------------------------- ------------------------------------------ NET REALIZED NET AND ASSET UNREALIZED DIVIDENDS DISTRIBUTIONS VALUE NET GAIN/(LOSS) TOTAL FROM FROM NET FROM NET BEGINNING INVESTMENT ON INVESTMENT INVESTMENT REALIZED TOTAL OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME CAPITAL GAINS DISTRIBUTIONS --------- ---------- ------------ ---------- ---------- ------------- ------------- CLASS 1 SHARES Year Ended: 12/31/06 $10.69 $0.61(3) $(0.13) $0.48 $(0.61) $(0.01) $(0.62) 12/31/05 11.08 0.60(3) (0.34) 0.26 (0.65) -- (0.65) 12/31/04 11.18 0.61(3) (0.03) 0.58 (0.68) -- (0.68) 12/31/03 10.79 0.63(3) 0.42 1.05 (0.66) -- (0.66) 12/31/02 10.31 0.69(3) 0.27 0.96 (0.48) -- (0.48) CLASS 2 SHARES Year Ended: 12/31/06 $10.62 $0.58(3) $(0.12) $0.46 $(0.58) $(0.01) $(0.59) 12/31/05 11.01 0.57(3) (0.34) 0.23 (0.62) -- (0.62) 12/31/04 11.12 0.58(3) (0.03) 0.55 (0.66) -- (0.66) 12/31/03 10.77 0.60(3) 0.41 1.01 (0.66) -- (0.66) 12/31/02 10.31 0.65(3) 0.29 0.94 (0.48) -- (0.48) RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA ---------------------------------------------------------------- RATIO OF RATIO OF EXPENSES EXPENSES TO AVERAGE TO AVERAGE RATIO OF NET NET ASSETS NET ASSETS NET ASSET BEFORE AFTER INVESTMENT VALUE NET ASSETS REIMBURSE- REIMBURSE- INCOME TO PORTFOLIO END OF TOTAL END OF PERIOD MENTS/ MENTS/ AVERAGE TURNOVER PERIOD RETURN(1) (IN 000S) WAIVERS WAIVERS(2) NET ASSETS RATE ------ --------- ------------- ---------- ---------- ---------- --------- CLASS 1 SHARES Year Ended: 12/31/06 $10.55 4.90% $182,728 0.54% 0.54% 5.79% 24% 12/31/05 10.69 2.40 185,140 0.54 0.54 5.50 13 12/31/04 11.08 5.56 185,570 0.55 0.55 5.53 20 12/31/03 11.18 9.78 193,953 0.56 0.56 5.74 24 12/31/02 10.79 9.61 179,844 0.56 0.56 6.64 21 CLASS 2 SHARES Year Ended: 12/31/06 $10.49 4.59% $ 16,474 0.79% 0.79% 5.54% 24% 12/31/05 10.62 2.06 20,374 0.79 0.79 5.25 13 12/31/04 11.01 5.31 23,358 0.80 0.80 5.28 20 12/31/03 11.12 9.47 21,188 0.81 0.81 5.49 24 12/31/02 10.77 9.40 8,186 0.81 0.81 6.39 21
See Notes to Financial Statements. 95 Financial Highlights VT MONEY MARKET FUND For a Fund share outstanding throughout each period.
INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS -------------------------------------- ------------------------------------------ NET REALIZED NET AND ASSET UNREALIZED DIVIDENDS DISTRIBUTIONS VALUE NET LOSS TOTAL FROM FROM NET FROM NET BEGINNING INVESTMENT ON INVESTMENT INVESTMENT REALIZED TOTAL OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME CAPITAL GAINS DISTRIBUTIONS --------- ---------- ------------ ---------- ---------- ------------- ------------- CLASS 1 SHARES Year Ended: 12/31/06 $1.00 $0.043 $-- $0.043 $(0.043) $-- $(0.043) 12/31/05 1.00 0.026 -- 0.026 (0.026) -- (0.026) 12/31/04 1.00 0.008 -- 0.008 (0.008) -- (0.008) 12/31/03 1.00 0.006 -- 0.006 (0.006) -- (0.006) 12/31/02 1.00 0.014(3) -- 0.014 (0.014) -- (0.014) CLASS 2 SHARES Year Ended: 12/31/06 $1.00 $0.041 $-- $0.041 $(0.041) $-- $(0.041) 12/31/05 1.00 0.023 -- 0.023 (0.023) -- (0.023) 12/31/04 1.00 0.006 -- 0.006 (0.006) -- (0.006) 12/31/03 1.00 0.004 -- 0.004 (0.004) -- (0.004) 12/31/02 1.00 0.011(3) -- 0.011 (0.011) -- (0.011) RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA ------------------------------------------------------- RATIO OF RATIO OF EXPENSES EXPENSES TO AVERAGE TO AVERAGE RATIO OF NET NET ASSETS NET ASSETS NET ASSET BEFORE AFTER INVESTMENT VALUE NET ASSETS REIMBURSE- REIMBURSE- INCOME TO END OF TOTAL END OF PERIOD MENTS/ MENTS/ AVERAGE PERIOD RETURN(1) (IN 000S) WAIVERS WAIVERS(2) NET ASSETS ------ --------- ------------- ---------- ---------- ---------- CLASS 1 SHARES Year Ended: 12/31/06 $1.00 4.39% $12,841 0.71% 0.71% 4.31% 12/31/05 1.00 2.59 13,132 0.70 0.70 2.53 12/31/04 1.00 0.85 14,660 0.63 0.63 0.84 12/31/03 1.00 0.65 20,198 0.60 0.60 0.67 12/31/02 1.00 1.39 33,766 0.57 0.57 1.32 CLASS 2 SHARES Year Ended: 12/31/06 $1.00 4.13% $ 2,833 0.96% 0.96% 4.06% 12/31/05 1.00 2.33 3,315 0.95 0.95 2.28 12/31/04 1.00 0.59 5,404 0.88 0.88 0.59 12/31/03 1.00 0.40 3,068 0.85 0.85 0.42 12/31/02 1.00 1.13 4,679 0.82 0.82 1.07
(1) Total return is not annualized for periods of 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 or if fees had not been reduced by credits allowed by the custodian. (2) Ratio of operating expenses to average net assets includes expenses paid indirectly. (3) Per share numbers have been calculated using the average shares method. See Notes to Financial Statements. 96 Notes to Financial Statements WM VARIABLE TRUST 1. ORGANIZATION AND BUSINESS WM Variable Trust (the "Trust") was organized as a Massachusetts business trust on January 29, 1993. 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 consists of 13 funds (each a "Fund" and collectively, the "Funds") and 5 portfolios ("Portfolios"). The VT REIT, VT Equity Income, VT Growth & Income, VT West Coast Equity, VT Mid Cap Stock, VT Growth, VT Small Cap Value, VT Small Cap Growth, VT International Growth, VT Short Term Income, VT U.S. Government Securities, VT Income and VT Money Market Funds are included in this report. The Trust is authorized to issue an unlimited number of shares of beneficial interest, each without par value. Each Fund offers two classes of shares: Class 1 shares and Class 2 shares. These shares are issued and redeemed only in connection with investments in, and payments under, variable annuity and variable life insurance contracts (collectively "Variable Insurance Contracts"), as well as certain qualified retirement plans. WM Advisors, Inc., (the "Advisor") serves as investment advisor to the Trust. On July 25, 2006, the Principal Financial Group, Inc. ("PFG"), a publicly owned financial services company, and its subsidiary Principal Management Corporation ("PMC") entered into an agreement with Washington Mutual, Inc. to acquire all of the outstanding stock of the Advisor, WM Shareholder Services, Inc. (the "Transfer Agent"), and WM Funds Distributor, Inc. (the "Distributor") (the "Transaction"). The Transaction closed on December 31, 2006. On August 11, 2006, the Board of Trustees approved proposed reorganizations (the "Reorganizations") pursuant to which each of the Funds (each, an "Acquired Fund") would combine with and into the corresponding separate series (each, an "Acquiring Fund") of Principal Variable Contracts Fund, Inc. ("PVC"), subject to various conditions including the approval of shareholders of each Acquired Fund. Under the Reorganizations (i) all the assets and the stated liabilities of each Acquired Fund would be transferred to its corresponding Acquiring Fund in exchange for Class 1 and Class 2 shares of the Acquiring Fund; (ii) holders of Class 1 and Class 2 shares of the Acquired Fund would receive, respectively, that number of Class 1 and Class 2 shares of the corresponding Acquiring Fund equal in value at the time of the exchange to the value of the holder's Acquired Fund shares at such time; and (iii) the Acquired Fund would be liquidated and dissolved. A special meeting of shareholders was held on December 15, 2006. 2. SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies, in conformity with accounting principles generally accepted in the United States of America ("generally accepted accounting principles"), which are consistently followed by the Funds in the preparation of their financial statements. PORTFOLIO VALUATION: Securities that are primarily traded on a U.S. exchange (excluding securities traded through the NASDAQ National Market System, which are valued at the NASDAQ official closing price) are valued at the last reported sales price on that exchange or, if there were no sales during the day (and no official closing price on such 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 the U.S. Government Securities System) are valued at the mean of the current day's bid and asked prices. The value of a foreign security is determined in its functional currency as of the close of trading on the foreign exchange on which it is traded or at the close of the New York Stock Exchange, if that is earlier, or if there has been movement in the U.S. market and/or other economic indicators that exceed a specified threshold, the foreign security is fair valued. The value is then converted into its U.S. dollar equivalent using prevailing exchange rates on the day the value of the foreign security is determined. Options are 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. 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 short-term investments), including municipal securities, are valued by one or more independent pricing services 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 and asked prices. Short-term debt securities that mature in 60 days or less are valued at amortized cost, which approximates market value. Securities for which market quotations are not readily available are valued at fair value as determined by, or under the direction of, the Funds' Board of Trustees, which may rely on the assistance of one or more pricing services. The investments of the VT Money Market Fund are valued on the basis of amortized cost in accordance with Rule 2a-7 of the 1940 Act, which approximates market value and does not take into account unrealized capital gains or losses. Amortized cost valuation involves initially valuing an instrument at its cost and thereafter assuming a constant amortization to maturity of any discount or premium, as long as the amortized cost fairly reflects the market-based net asset value per share. Certain other assets may be valued by the Advisor under the supervision of the VT Money Market Fund's Board of Trustees. 97 Notes to Financial Statements (Continued) WM VARIABLE TRUST REPURCHASE AGREEMENTS: Each Fund may enter into 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. It is each Fund's policy that its custodian take possession of the underlying collateral securities. The fair 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 would seek to use the collateral to offset losses incurred. There is potential loss to the Fund in the event the Fund 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 seeks to assert its rights. The Advisor, acting under the supervision of the Board of Trustees of the Trust, reviews the value of the collateral and the creditworthiness of those banks and broker/dealers with whom each Fund enters into repurchase agreements. FUTURES CONTRACTS: Certain Funds may enter into futures transactions. 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." Upon entering into a futures contract, the Fund is required to deposit with the broker an amount of cash or cash equivalents equal to a certain percentage of the contract amount (known as an initial margin deposit). Subsequent payments (known as variation margins) are made or received by the Fund 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 recognizes a realized gain or loss when the contract is closed. Should market conditions change unexpectedly, the Funds may not achieve the anticipated benefits of the futures contracts and may realize a loss. The use of futures transactions involves the risk of imperfect correlation in movements in the price of futures contracts, interest rates and the underlying hedged assets. PURCHASED OPTION CONTRACTS: Certain Funds may enter into put and call option contracts. These Funds may use option contracts to manage their exposure to the stock and bond markets and to fluctuations in interest rates and currency values. Upon entering into a put or call option, the premium paid is recorded as an investment. The daily changes in contract value are recorded as unrealized gains or losses. When a purchased option expires, the Fund will realize a loss in the amount of the cost of the option. When the Fund enters into a closing sale transaction, the Fund 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 plus related transaction costs. When the Fund exercises a put option, the Fund 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 Fund exercises a call option, the cost of the security, which the Fund purchases upon exercise, will be increased by the premium originally paid. The risk associated with purchasing options is limited to the premium originally paid. FOREIGN CURRENCY: The books and records of the Funds are maintained in U.S. dollars. Foreign currencies, investments and other assets and liabilities are translated into U.S. dollars on a daily basis using prevailing exchange rates. Purchases and sales of investment securities, income and expenses are translated on the respective dates of such transactions. 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 investments. 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 investments. Net realized foreign currency gains and losses, which result from changes in exchange rates between trade date and settlement date on investment transactions as well as the difference between the amounts of interest and dividends recorded on the books of the Funds and the amount actually received, have been included in realized gains/(losses) on investment transactions. Foreign currency gains and losses, which result from fluctuations in exchange rates between the initial purchase trade date and subsequent sale trade date, have been included in realized gains/(losses) on investment transactions. FORWARD FOREIGN CURRENCY CONTRACTS: Certain 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. These contracts are valued daily, and a Fund's net equity therein, representing unrealized gain or loss on the contracts as measured by the difference between the forward foreign exchange rates at the dates of entry into the contracts and the forward rates at the reporting date, is included in the "Statements of Assets and Liabilities." Realized and unrealized gains and losses are included in the "Statements of Operations." Due to the risks, the Funds could incur losses up to the entire contract amount, which may exceed the net unrealized value shown in the "Statements of Assets and Liabilities." 98 Notes to Financial Statements (Continued) WM VARIABLE TRUST ILLIQUID INVESTMENTS: Each Fund may invest a portion of its net assets 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) certain futures contracts and options; (4) certain variable rate demand notes having a demand period of more than seven calendar days; (5) securities, the disposition of which are restricted under federal securities laws, excluding certain Rule 144A securities, as defined in the following paragraph; and (6) certain over-the-counter options. Illiquid securities generally cannot be sold or disposed of in the ordinary course of business (within seven calendar days) at approximately the value at which each Fund has valued the investments. This may have an adverse effect on each 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 per share 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 must be sold 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, the investment will be subject to a Fund's limitation on investment in illiquid securities as indicated above. SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are recorded on a trade date basis. Realized gains and losses from securities sold are recorded on the identified cost basis. 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. Interest income on debt securities is accrued daily. Premiums and discounts are amortized using the interest method. Paydown gains and losses on mortgage-backed and asset-backed securities are presented as an adjustment to interest income. Dividend income is recorded on the ex-dividend date, except certain dividends from foreign securities are recorded as soon as the information is available to the Funds if informed after the ex-dividend date. The Funds estimate components of distributions from real estate investment trusts (REITs). Distributions received in excess of income are recorded as a reduction of the cost of the related investments. Distributions received from capital gains are presented as an adjustment to dividend income and recorded as capital gain distributions received. Each Fund's investment income and realized and unrealized gains and losses are allocated among the classes of that Fund based upon the relative average net assets of each class. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: Dividends from net investment income and distributions of any net capital gains earned by a Fund are declared and paid annually, with the exception of the VT Money Market Fund, from which dividends from net investment income are declared daily and paid monthly. Distributions from income and capital gains 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, redesignated distributions and differing characterization of distributions made by each Fund. At December 31, 2006, the following adjustments have been reflected in the components of net assets on the "Statements of Assets and Liabilities" to present these balances on an income tax basis, excluding certain temporary differences:
INCREASE/ INCREASE/ (DECREASE) (DECREASE) UNDISTRIBUTED ACCUMULATED DECREASE NET INVESTMENT NET REALIZED PAID-IN CAPITAL INCOME/(LOSS) GAIN/(LOSS) NAME OF FUND (000S) (000S) (000S) ------------ --------------- -------------- ------------ VT Equity Income Fund ................ $ -- $ 5 $ (5) VT Growth Fund ....................... -- 2 (2) VT Small Cap Value Fund .............. -- (16) 16 VT Small Cap Growth Fund ............. (246) 246 -- VT International Growth Fund ......... -- 2,306 (2,306) VT Short Term Income Fund ............ (52) 20 32 VT U.S. Government Securities Fund ... -- 1,165 (1,165) VT Income Fund ....................... -- 354 (354)
The above adjustments are not reflected in the calculation of net investment income per share presented in the Financial Highlights. 99 Notes to Financial Statements (continued) WM VARIABLE TRUST FEDERAL INCOME TAXES: It is each Fund's policy to qualify as a regulated investment company by complying with the requirements of Sub-Chapter M of the Internal Revenue Code of 1986, as amended (the "Code"), applicable to regulated investment companies and by distributing substantially all of its earnings to its shareholders. Therefore, no federal income or excise tax provision is required. It is each Fund's policy to meet the diversification requirements of the Code so that variable annuity and variable life contracts funded by the Trust will not fail to qualify as annuities and life insurance contracts for tax purposes. EXPENSES: General expenses of the Trust are allocated to all the Funds of the Trust based upon the relative average net assets of each Fund. Operating expenses directly attributable to a class of shares are charged to the operations of that class of shares. Expenses of each Fund not directly attributable to the operations of any class of shares are prorated among the classes to which the expenses relate based on the relative average net assets of each class of shares. Custodian fees for certain Funds have been reduced by credits allowed by the Funds'custodian for uninvested cash balances. The Funds could have invested this cash in income producing securities. Fees reduced by credits allowed by the custodian for the year ended December 31, 2006, are shown separately in the "Statements of Operations." USE OF ESTIMATES: 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. 3. INVESTMENT ADVISORY AND OTHER TRANSACTIONS The Advisor is entitled to a monthly fee at an annual rate based upon a percentage of the average daily net assets of each Fund at the following rates:
FROM FROM FROM FROM FROM FROM FROM $50 $100 $125 $200 $250 $400 $500 FROM $1 FROM $2 FROM $0 MILLION MILLION MILLION MILLION MILLION MILLION MILLION BILLION BILLION TO $50 TO $100 TO $125 TO $200 TO $250 TO $400 TO $500 TO $1 TO $2 TO $3 OVER $3 NAME OF FUND MILLION MILLION MILLION MILLION MILLION MILLION MILLION BILLION BILLION BILLION BILLION ------------ ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- VT REIT Fund ........ 0.800% 0.800% 0.800% 0.800% 0.800% 0.800% 0.800% 0.750% 0.750% 0.700% 0.650% VT Equity Income Fund ............. 0.625% 0.625% 0.625% 0.625% 0.625% 0.625% 0.625% 0.500% 0.500% 0.500% 0.500% VT Growth & Income Fund ...... 0.750% 0.750% 0.750% 0.750% 0.700% 0.700% 0.650% 0.575% 0.575% 0.575% 0.575% VT West Coast Equity Fund ...... 0.625% 0.625% 0.625% 0.625% 0.625% 0.625% 0.625% 0.500% 0.500% 0.500% 0.500% VT Mid Cap Stock Fund ............. 0.750% 0.750% 0.750% 0.750% 0.750% 0.750% 0.750% 0.750% 0.700% 0.650% 0.600% VT Growth Fund ...... 0.750% 0.750% 0.750% 0.750% 0.750% 0.750% 0.750% 0.700% 0.700% 0.650% 0.600% VT Small Cap Value Fund ....... 0.850% 0.850% 0.850% 0.850% 0.850% 0.850% 0.850% 0.750% 0.750% 0.750% 0.700% VT Small Cap Growth Fund ...... 0.850% 0.850% 0.850% 0.850% 0.850% 0.850% 0.850% 0.750% 0.750% 0.750% 0.700% VT International Growth Fund ...... 0.950% 0.850% 0.850% 0.750% 0.750% 0.750% 0.750% 0.750% 0.750% 0.750% 0.700% VT Short Term Income Fund ...... 0.500% 0.500% 0.500% 0.500% 0.450% 0.450% 0.450% 0.400% 0.400% 0.400% 0.400% VT U.S. Government Securities Fund .. 0.500% 0.500% 0.500% 0.500% 0.500% 0.500% 0.500% 0.500% 0.500% 0.450% 0.450% VT Income Fund ...... 0.500% 0.500% 0.500% 0.500% 0.500% 0.500% 0.500% 0.500% 0.500% 0.450% 0.450% VT Money Market Fund ............. 0.450% 0.450% 0.450% 0.450% 0.450% 0.450% 0.450% 0.450% 0.400% 0.400% 0.400%
On December 18, 2006, the Advisor reimbursed $16,623 for capital losses incurred in previous years for the VT Money Market Fund. 100 Notes to Financial Statements (continued) WM VARIABLE TRUST 4. TRUSTEES' FEES No officer or employee of PFG or its subsidiaries, or Washington Mutual or its subsidiaries prior to December 31, 2006, received any compensation from the Trust for serving as an officer or Trustee of the Trust. The Trust, together with other mutual funds advised by the Advisor, pays each Trustee who is not an officer or employee of PFG or its subsidiaries, or Washington Mutual or its subsidiaries prior to December 31, 2006, a per annum retainer plus attendance fees for each meeting at which they are present. The Chairman, Committee Chairs and Committee Members receive additional remuneration for these services to the Trust. Trustees are also reimbursed for travel and out-of-pocket expenses. Each Trustee serves in the same capacity for all 40 funds within the WM Group of Funds. 5. DISTRIBUTION PLANS Each of the Funds has adopted a distribution plan, pursuant to Rule 12b-1 under the 1940 Act, applicable to Class 2 shares of the Funds (a "Rule 12b-1 Plan"). Under the Rule 12b-1 Plan, the Distributor, a registered broker/dealer, may receive a fee at an annual rate of 0.25% of the average daily net assets attributable to Class 2 shares. This fee may be used to cover the expenses of the Distributor primarily intended to result in the sale of such shares, including payments to the Distributor's representatives or others for selling shares. The Rule 12b-1 Plan shall remain in effect from year to year, provided such continuance is approved annually by vote of the Board of Trustees, including a majority of those Trustees who are not "interested persons" of the Trust, as defined in the 1940 Act, and who have no direct or indirect financial interest in the operation of the distribution plan, or any agreements related to the plan. 6. 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, 2006, are as follows:
PURCHASES SALES NAME OF FUND (000S) (000S) ------------ --------- -------- VT REIT Fund ........................ $ 37,619 $ 46,108 VT Equity Income Fund ............... 319,471 275,583 VT Growth & Income Fund ............. 83,730 126,308 VT West Coast Equity Fund ........... 38,730 26,089 VT Mid Cap Stock Fund ............... 14,337 25,900 VT Growth Fund ...................... 333,486 308,912 VT Small Cap Value Fund ............. 31,588 38,545 VT Small Cap Growth Fund ............ 29,239 34,181 VT International Growth Fund ........ 153,955 138,873 VT Short Term Income Fund ........... 6,251 8,358 VT U.S. Government Securities Fund .. -- 3,731 VT Income Fund ...................... 27,722 36,077
The aggregate cost of purchases and proceeds from sales of U.S. government securities, excluding short-term investments, for the year ended December 31, 2006, are as follows:
PURCHASES SALES NAME OF FUND (000S) (000S) ------------ --------- ------- VT Equity Income Fund ............... $ -- $ 8 VT West Coast Equity Fund ........... 717 766 VT Short Term Income Fund ........... 267 3,203 VT U.S. Government Securities Fund .. 43,468 42,031 VT Income Fund ...................... 20,066 14,776
7. LENDING OF SECURITIES Certain Funds may lend securities to brokers, dealers and other financial organizations to earn additional income. The Funds also continue to receive interest or dividends on the securities loaned. Each security loan is collateralized with assets in an amount equal to or greater than the current market value of the loaned securities. There is a risk of delay in receiving collateral, that the collateral could lose value or become valueless, or in recovering the securities loaned or even a loss of rights in collateral should the borrower fail financially. 101 Notes to Financial Statements (continued) WM VARIABLE TRUST At December 31, 2006, each of the Funds with outstanding loans of securities to certain brokers, dealers or other financial institutions has segregated cash and/or securities at least equal to the market value of securities loaned with the Funds' custodian. The Funds currently invest the segregated cash in Mellon GSL DBT II, which is a common collective trust that invests in high-grade short-term investments. 8. PORTFOLIO OWNERSHIP AND OTHER FACTORS At December 31, 2006, the Portfolios hold investments in a number of the Funds. The figures presented below represent the percentage of shares outstanding of each Fund owned by the Portfolios:
PORTFOLIOS ------------------------------------------------------------------------------------ VT FLEXIBLE VT CONSERVATIVE VT CONSERVATIVE VT STRATEGIC INCOME BALANCED VT BALANCED GROWTH GROWTH NAME OF FUND PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO TOTAL ------------ ----------- --------------- ----------- --------------- ------------ ----- VT REIT Fund .................. 3.5% 2.9% 40.1% 29.5% 15.8% 91.8% VT Equity Income Fund ......... 2.3% 1.9% 24.3% 18.0% 10.1% 56.6% VT Growth & Income Fund ....... 4.5% 2.4% 34.8% 25.7% 14.4% 81.8% VT West Coast Equity Fund ..... 1.5% 1.8% 25.8% 18.9% 11.3% 59.3% VT Mid Cap Stock Fund ......... 4.7% 2.3% 32.0% 23.1% 14.9% 77.0% VT Growth Fund ................ 4.5% 2.5% 38.4% 26.6% 16.4% 88.4% VT Small Cap Value Fund ....... 6.0% 2.6% 40.5% 31.8% 17.8% 98.7% VT Small Cap Growth Fund ...... 4.4% 1.8% 28.8% 22.6% 12.6% 70.2% VT International Growth Fund .. -- 2.8% 40.4% 27.9% 16.9% 88.0% VT Short Term Income Fund ..... 48.7% 9.0% 15.9% -- -- 73.6% VT U.S. Government Securities Fund ....................... 22.2% 7.3% 47.3% 11.1% -- 87.9% VT Income Fund ................ 23.4% 6.6% 37.8% 7.9% -- 75.7%
From time to time, one or more of the 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 Funds, since the Funds that experience redemptions as a result of the reallocations or rebalancings may have to sell portfolio securities. At the same time, the Funds that receive additional cash will have to invest such cash. This may be particularly important when one or more Portfolios owns a substantial portion of any Underlying Fund. While it is impossible to predict the overall impact of these transactions over time, there could be adverse effects on Fund performance to the extent that the Funds may be required to sell securities or invest cash at times when they would not otherwise do so. These transactions could also accelerate the realization of taxable income if sales of securities resulted in gains and could also increase transaction costs. Because the Portfolios own substantial portions of some of the Funds, redemptions and reallocations by the Portfolios away from a Fund could cause the Fund's expenses to increase and may result in a Fund becoming too small to be economically viable. The Advisor is committed to minimizing such impact on the Funds to the extent it is consistent with pursuing the investment objectives of the Portfolios. The Advisor may nevertheless face conflicts in fulfilling its dual responsibilities to the Portfolios and Funds. The Advisor will, at all times, monitor the impact on the Funds of transactions by the Portfolios. 9. CAPITAL LOSS CARRYFORWARDS At December 31, 2006, the following Funds have available for federal income tax purposes unused capital losses as follows:
(IN THOUSANDS) ------------------------------------------------------------------------------------- EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING NAME OF FUND IN 2007 IN 2008 IN 2009 IN 2010 IN 2011 IN 2012 IN 2013 IN 2014 ------------ -------- -------- -------- -------- -------- -------- -------- -------- VT Growth & Income Fund .............. $ -- $-- $ -- $ 1,851 $ 9,117 $ -- $ -- $ -- VT Growth Fund ....................... -- -- 21,289 37,621 5,944 -- -- -- VT Small Cap Growth Fund ............. -- -- -- 931 13,089 -- 7,505 -- VT Short Term Income Fund ............ 115 76 35 -- 112 85 -- 42 VT U.S. Government Securities Fund ... -- 17 -- -- 1,673 1,119 782 1,308
102 Notes to Financial Statements (continued) WM VARIABLE TRUST 10. POST OCTOBER LOSS Under the current tax law, capital and currency losses realized after October 31 may be deferred and treated as occurring on the first day of the following fiscal year. For the year ended December 31, 2006, the following Funds have elected to defer capital and currency losses occurring between November 1, 2006, and December 31, 2006, as follows:
CAPITAL LOSSES CURRENCY LOSSES NAME OF FUND (000S) (000S) ------------ -------------- --------------- VT Small Cap Value Fund .............. $ -- $12 VT U.S. Government Securities Fund ... 208 -- VT Income Fund ....................... 179 --
11. COMPONENTS OF DISTRIBUTABLE EARNINGS At December 31, 2006, the components of distributable earnings on a tax basis are as follows:
(IN THOUSANDS) ------------------------------------------------------------------------- VT VT VT VT VT VT EQUITY GROWTH & WEST COAST MID CAP VT SMALL CAP REIT INCOME INCOME EQUITY STOCK GROWTH VALUE FUND FUND FUND FUND FUND FUND FUND ------- ------- -------- ---------- ------- ------- --------- Gross tax unrealized appreciation ... $13,828 $73,025 $71,512 $52,538 $39,247 $23,358 $3,518 Gross tax unrealized depreciation ... (17) (844) (1,804) (4,535) (67) (3,289) (904) ------- ------- ------- ------- ------- ------- ------ Net tax unrealized appreciation ..... $13,811 $72,181 $69,708 $48,003 $39,180 $20,069 $2,614 ======= ======= ======= ======= ======= ======= ====== Undistributed ordinary income ....... $ 2,691 $ 8,681 $ 3,099 $ 1,182 $ 1,262 $ 564 $1,026 Undistributed long-term gains ....... $15,679 $23,916 $ -- $ 4,877 $ 5,927 $ -- $4,554 Net unrealized appreciation/ (depreciation)* .................. $13,811 $72,181 $69,708 $48,003 $39,180 $20,069 $2,614
VT VT VT VT U.S. VT SMALL CAP INTERNATIONAL SHORT TERM GOVERNMENT VT MONEY GROWTH GROWTH INCOME SECURITIES INCOME MARKET FUND FUND FUND FUND FUND FUND --------- ------------- ---------- ---------- ------- ------ Gross tax unrealized appreciation ... $10,210 $22,819 $ 99 $ 851 $ 4,905 $-- Gross tax unrealized depreciation ... (1,746) (1,034) (560) (5,436) (3,374) -- ------- ------- ------ ------- ------- --- Net tax unrealized appreciation ..... $ 8,464 $21,785 $ (461) $(4,585) $ 1,531 $-- ======= ======= ====== ======= ======= === Undistributed ordinary income ....... $ -- $ 2,991 $2,131 $13,582 $12,389 $16 Undistributed long-term gains ....... $ -- $22,015 $ -- $ -- $ -- $-- Net unrealized appreciation/ (depreciation)* .................. $ 8,464 $21,776 $ (461) $(4,585) $ 1,531 $--
* Net unrealized appreciation/(depreciation) may not agree due to foreign currency. 12. INDUSTRY AND GEOGRAPHIC CONCENTRATION AND OTHER RISK FACTORS While no individual fund is intended as a complete investment program, this is especially true for funds that concentrate their investments such as those investing in particular industries or regions. The VT REIT Fund concentrates its investments in real estate investment trust ("REIT") securities or debt securities of issuers that are principally engaged in the U.S. real estate or related industries. The VT REIT Fund could be adversely impacted by economic trends within this industry. The VT West Coast Equity Fund concentrates its investments in companies located or doing business in Alaska, California, Oregon, and Washington. The VT West Coast Equity Fund could be adversely impacted by economic trends within this region. The VT International Growth Fund concentrates its investments in foreign securities in both developed and emerging market countries. Additional risks may involve foreign currency exchange rate fluctuations, adverse political and economic developments, and the possible prevention of currency exchange or other foreign governmental laws or restrictions. Investments in emerging markets are subject to additional risk as less developed countries are more likely to experience high levels of inflation, deflation, or currency devaluation, which could harm their economies and securities markets. 103 Notes to Financial Statements (continued) WM VARIABLE TRUST The WM High Yield Fund concentrates its investments in lower-rated debt securities, which may be more susceptible to adverse economic conditions than investment grade holdings. These securities are often subordinated to the prior claims of other senior lenders, and uncertainties exist as to an issuer's ability to meet principal and interest payments. Certain Funds may invest a portion of their assets in foreign securities of developing or emerging market countries; 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; enter into other types of options transactions; make short sales; purchase zero coupon and payment-in-kind bonds; enter into repurchase or reverse repurchase agreements; purchase and sell "when-issued" securities and engage in "delayed-delivery" transactions; and enter into various other investment practices, each with inherent risks. The risks involved in investing in a high concentration of a single sector include those resulting from future adverse political and economic developments or regulatory occurrences and the potential for adverse effects to the financial conditions of the industries within the sector due to market fluctuations. 13. NEW ACCOUNTING PRONOUNCEMENTS In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48 (FIN 48), "Accounting for Uncertainty in Income Taxes." This pronouncement provides guidance on the recognition, measurement, classification, and disclosures related to uncertain tax positions, along with any related interest and penalties. FIN 48 is effective June 29, 2007. The impact from the adoption of FIN 48 is being evaluated, but is not anticipated to have a material effect on the financial statements. In addition, in September 2006, Statement of Financial Accounting Standards No. 157 Fair Value Measurements ("SFAS 157") was issued and is effective for fiscal years beginning after November 15, 2007. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact the adoption of SFAS 157 will have on the Funds' financial statement disclosures. 14. SUBSEQUENT EVENT The Reorganizations occurred as of the end of business on January 5, 2007, and as a result, shareholders of the Acquired Funds became shareholders of the Acquiring Funds as follows: WM ACQUIRED FUND: PVC ACQUIRING FUND: VT REIT Fund Real Estate Securities Account VT Equity Income Fund Equity Income Account I* VT Growth & Income Fund Disciplined LargeCap Blend Account VT West Coast Equity Fund West Coast Equity Account* VT Mid Cap Stock Fund MidCap Stock Account* VT Growth Fund LargeCap Growth Account VT Small Cap Value Fund SmallCap Value Account VT Small Cap Growth Fund SmallCap Growth Account VT International Growth Fund Diversified International Account VT Short Term Income Fund Short-Term Income Account* VT U.S. Government Securities Fund Mortgage Securities Account* VT Income Fund Income Account* VT Money Market Fund Money Market Account
* These Acquiring Funds are newly-organized funds that commenced operations in connection with the Reorganization and the Acquired Fund is the survivor for accounting and performance reporting purposes. The other Acquiring Funds are existing PVC Accounts into which the relevant WM Fund merged and the Acquiring Fund is the survivor for accounting and performance reporting purposes. 104 Report of Independent Registered Public Accounting Firm THE TRUSTEES AND SHAREHOLDERS OF WM VARIABLE TRUST: We have audited the accompanying statements of assets and liabilities of WM Variable Trust REIT Fund, WM Variable Trust Equity Income Fund, WM Variable Trust Growth & Income Fund, WM Variable Trust West Coast Equity Fund, WM Variable Trust Mid Cap Stock Fund, WM Variable Trust Growth Fund, WM Variable Trust Small Cap Value Fund, WM Variable Trust Small Cap Growth Fund, WM Variable Trust International Growth Fund, WM Variable Trust Short Term Income Fund, WM Variable Trust U.S. Government Securities Fund, WM Variable Trust Income Fund and WM Variable Trust Money Market Fund (collectively, "the Funds"), including the portfolios of investments, as of December 31, 2006, and the related statements of operations, statements of changes in net assets and financial highlights for the year then ended. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit. The statement of changes in net assets for the periods presented through December 31, 2005 and the financial highlights for the periods presented through December 31, 2005 were audited by other auditors whose report dated February 17, 2006, expressed an unqualified opinion on those statements. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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. We were not engaged to perform an audit of the Funds' internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Portfolios' internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2006, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Funds at December 31, 2006, the results of their operations, changes in their net assets, and their financial highlights for the year then ended, in conformity with U.S. generally accepted accounting principles. Ernst & Young LLP Des Moines, Iowa February 22, 2007 105 Supplemental Information (unaudited) WM VARIABLE TRUST CONSIDERATION BY THE BOARD OF TRUSTEES OF ADVISORY AND SUB-ADVISORY AGREEMENTS The Trust's investment advisory agreements with the Advisor and sub-advisory agreements (each an "Agreement" and together the "Agreements") with Salomon Brothers Asset Management, Inc., Janus Capital Management LLC, Oppenheimer Funds, Inc., Delaware Management Company, Oberweis Asset Management, Inc., and Capital Guardian Trust Company (each a "Sub-Advisor" and collectively the "Sub-Advisors") were approved in May and August, 2006. In connection with their approval in August 2006 of investment advisory agreements for the Funds substantially identical to the Trust's current Agreements, except with respect to dates and in contemplation of the acquisition of the Advisor by PFG, the Board of Trustees, Independent Trustees and the Investment Committee of the Board (the "Committee") relied on the information provided in connection with the approval of the corresponding Agreements in May 2006, as supplemented by expense and performance information provided by Lipper Inc., a third-party data provider ("Lipper"), for the period ended June 30, 2006. The material factors and conclusions that formed the basis for the Committee's recommendation and the subsequent approval by the Board and the Independent Trustees in August 2006 were the same as those in May 2006, which are discussed below, except that the Board, the Independent Trustees and the Committee also considered the supplemental expense and performance information for periods ended June 30, 2006; representations by PFG that, subsequent to its acquisition of the Advisor in the Transaction, there is not expected to be any reduction in the nature, quality and extent of services provided to the Funds by the Advisor; the fact that the substantive terms of the Agreements, including the advisory and sub-advisory fees payable thereunder, were not changing; and representations by PFG that, except as discussed with the Board of Trustees, no changes were expected in either the Advisor's investment professionals who would be providing services to the Funds or the amount of time and attention that would be devoted by such investment professionals to the Funds. BOARD APPROVAL OF INVESTMENT ADVISORY AGREEMENT: Each year, the Board, including a majority of the Independent Trustees, is required to determine whether to continue the Agreements. The 1940 Act requires that the Board request and evaluate, and that the investment advisor furnish, such information as may reasonably be necessary to evaluate the terms of the Agreements. In May 2006, the Board and the Independent Trustees approved the continuation of the Agreements with, respectively, the Advisor and each of the Sub-Advisors, in each case following the recommendation of the Committee, a majority of the members of which are Independent Trustees, and the recommendations of the Independent Trustees as a whole. The material factors and conclusions that formed the basis for the Committee's recommendation and the subsequent approval by the Board and the Independent Trustees are discussed below. REVIEW PROCESS: The Independent Trustees received assistance and advice, including a written memorandum, regarding the legal standards applicable to the consideration of advisory arrangements from independent counsel to the Trust and the Independent Trustees. The Independent Trustees discussed the continuation of the Agreements with representatives of the Advisor and in private session with independent legal counsel at which no representatives of the Advisor were present. The Committee, in deciding to recommend continuation of the Agreements, and the Board and the Independent Trustees, in approving such continuation, did not identify any particular information that was all-important or controlling, and each Trustee attributed different weights to the various factors. The Trustees evaluated all information available to them on a Fund-by-Fund basis, and their deliberations were made separately in respect of each Fund. This summary describes the most important, but not all, of the factors considered by the Board, the Independent Trustees and the Committee. The Board, the Independent Trustees and the Committee considered the fact that each of the Funds is managed in a style substantially identical to that of a corresponding series of WM Trust I or WM Trust II (each, a "Retail Fund") and reviewed the Funds simultaneously with their review of the corresponding Retail Funds. MATERIALS REVIEWED: During the course of each year, the Board receives a wide variety of materials relating to the services provided by the Advisor and its affiliates, including reports on: each Fund's investment results; portfolio construction; portfolio composition; performance attribution; shareholder services; the Advisor's views on the economy and capital markets; and other information relating to the nature, extent and quality of services provided by the Advisor and its affiliates to the Funds. In addition, in connection with its annual consideration of the Agreements, the Board requests and reviews supplementary information regarding the terms of the Agreements, performance and expense information for other investment companies derived from data compiled by Lipper, data on pre- and post-marketing profit margins for investment advisory subsidiaries of publicly-traded companies prepared by Lipper, as well as additional information prepared by the Advisor, including financial and profitability information regarding the Advisor and its affiliates, descriptions of various functions undertaken by the Advisor, such as compliance monitoring practices, and information about the personnel providing investment management to the Funds. The Board, the Independent Trustees and the Committee also considered information regarding "revenue sharing" arrangements that the Advisor and its affiliates have entered into with various intermediaries that sell shares of the Funds. The Board also requested and reviewed information relating to other services provided to the Funds by the Advisor and its affiliates under other agreements, including information regarding 106 Supplemental Information (unaudited) (continued) WM VARIABLE TRUST so-called "fall-out" benefits to the Advisor and its affiliates due to their other relationships with the Funds, such as the administrative services contract with the Advisor described below. The Board and the Committee also received and reviewed comparative performance information regarding the Retail Funds at each of the quarterly Board and Committee meetings. NATURE, EXTENT AND QUALITY OF SERVICES: Nature and Extent of Services -- In considering the continuation of the Agreements, the Board, the Independent Trustees and the Committee evaluated the nature and extent of the services provided by the Advisor, its affiliates and the Sub-Advisors. For each Fund, the Advisor or the relevant Sub-Advisor, as applicable, formulates the Fund's investment policies (subject to the terms of the prospectus); analyzes economic trends and capital market developments; evaluates the risk/return characteristics of the Fund; constructs the Fund's portfolio; monitors the Fund's investment performance; and reports to the Board and the Committee. The Board, the Independent Trustees and the Committee considered information concerning the investment philosophy and investment process used by the Advisor and the Sub-Advisors in managing the Funds. In this context, the Board, the Independent Trustees and the Committee considered the in-house research capabilities of the Advisor and the Sub-Advisors as well as other resources available to the Advisor and the Sub-Advisors, including research services available to the Advisor and the Sub-Advisors as a result of securities transactions effected for the Funds. The Board, the Independent Trustees and the Committee considered the managerial and financial resources available to the Advisor and the Sub-Advisors and concluded that they would be sufficient to meet any reasonably foreseeable obligations under the Agreements. The Board, the Independent Trustees and the Committee noted that the standard of care under the Agreements was comparable to that typically found in mutual fund investment advisory agreements, and considered the record of the Advisor in resolving potential disputes arising under its investment advisory agreements with the WM Group of Funds in the best interests of shareholders. Quality of Services -- The Board, the Independent Trustees and the Committee considered the quality of the services provided by the Advisor and the Sub-Advisors and the quality of their resources that are available to the Funds. The Board, the Independent Trustees and the Committee considered the investment experience and professional qualifications of the personnel of the Advisor, its affiliates and the Sub-Advisors, and the size and functions of their staffs as well as the reputation of the Advisor and the Sub-Advisors. The Board, the Independent Trustees and the Committee considered the complexity of managing the Funds relative to other types of funds. In evaluating the scope and quality of the services provided by the Advisor to the Funds, the Board, the Independent Trustees and the Committee members also drew on their experiences as directors or Trustees of the Retail Funds and, for certain Trustees, other funds. The Board, the Independent Trustees and the Committee also received and reviewed information regarding the quality of non-investment advisory services provided to the Funds by the Advisor and its affiliates under other agreements. The Board, the Independent Trustees and the Committee concluded that the services provided by the Advisor and the Sub-Advisors have benefited and should continue to benefit the Funds and their shareholders. The Board, the Independent Trustees and the Committee concluded that the investment philosophies, processes, and research capabilities of the Advisor and the Sub-Advisors were well suited to the Funds, given their investment objectives and policies. The Board, the Independent Trustees and the Committee concluded that the scope of the services provided to the Funds by the Advisor and the Sub-Advisors was consistent with the Funds' operational requirements, including, in addition to their investment objectives, compliance with the Funds' investment restrictions, tax and reporting requirements and related shareholder services. The Board, the Independent Trustees and the Committee concluded that the nature, scope and quality of the services provided by the Advisor and the Sub-Advisors were sufficient, in light of the resources dedicated by the Advisor and the Sub-Advisors and their integrity, personnel, systems and financial resources, to merit approval of the continuation of the Agreements. PORTFOLIO MANAGEMENT SERVICES AND PERFORMANCE: In their evaluation of the quality of the portfolio management services provided by the Advisor and the Sub-Advisors, the Board, the Independent Trustees and the Committee considered the professional credentials and investment experience of the Funds' portfolio managers. The Board, the Independent Trustees and the Committee considered the Funds' record of compliance with investment restrictions. The Board, the Independent Trustees and the Committee reviewed information comparing the Funds' historical performance to relevant market indices for the 1-, 3- and 5-year (or since inception) periods ended March 31, 2006, and to average performance information for peer groups prepared by Lipper based on the performance of other investment companies with similar investment objectives over the 1-, 3-, 5- and 10-year periods (to the extent applicable) ended December 31, 2005. In the case of each Fund that had performance that lagged that of a relevant peer group for certain (although not necessarily all) periods, the Board, the Independent Trustees and the Committee concluded that other factors relevant to performance were sufficient, in light of other considerations, to warrant continuation of the Agreements. Those factors varied from Fund to Fund, but included one or more of the following: (i) that the Fund's performance, although lagging in certain recent periods, was stronger over the longer term; (ii) that the underperformance was attributable, to a significant extent, to investment decisions that were reasonable and consistent with the Fund's investment strategy and policies and that the Fund was performing as expected, given market conditions and the Fund's investment strategy; (iii) that the Fund's performance was competitive when compared to other 107 Supplemental Information (unaudited) (continued) WM VARIABLE TRUST relevant performance benchmarks or peer groups; and (iv) that the Advisor had taken or was taking steps designed to improve the Fund's investment performance. After reviewing those and related factors, the Board, the Independent Trustees and the Committee concluded that the Advisor's and the Sub-Advisors' performance records and investment processes used in managing the Funds were sufficient, in light of other considerations, to warrant the continuation of the Agreements. MANAGEMENT FEES AND EXPENSES: The Board, the Independent Trustees and the Committee reviewed information, including comparative information provided by Lipper, regarding the advisory, service and distribution fees paid to the Advisor, its affiliates and the Sub-Advisors, and the total expenses borne by the Funds. They discussed trends in total expense ratios for the Funds. The Board, the Independent Trustees and the Committee reviewed the distribution (12b-1) fees paid to the Distributor. They considered the Funds' management fees relative to those of their respective peer groups as determined by Lipper. The Board, the Independent Trustees and the Committee concluded that the fees to be charged under the Agreements bore a reasonable relationship to the scope and quality of the services provided. PROFITABILITY AND ECONOMIES OF SCALE: Profitability -- The Board, the Independent Trustees and the Committee reviewed information regarding the cost of services provided by the Advisor and its affiliates and the profitability (before and after distribution expenses and prior to taxes) of their relationships with the Funds. The Board, the Independent Trustees and the Committee considered trends in the profitability of the Advisor and its affiliates, and information provided by Lipper regarding the pre- and post-marketing profitability of other investment advisers with publicly-traded parent companies. The Board, the Independent Trustees and the Committee considered that the Advisor must be able to pay and retain experienced professional personnel at competitive rates to provide services to the Funds (and in connection therewith, reviewed information regarding the structure of compensation of the Advisor's investment professionals), and that maintaining the financial viability of the Advisor is important in order for it to continue to provide significant services to the Funds and their shareholders. In addition, the Board, the Independent Trustees and the Committee considered information regarding the direct and indirect benefits the Advisor receives as a result of its relationship with the Funds, including compensation paid to the Advisor and its affiliates, such as transfer agency fees to the Transfer Agent and 12b-1 fees to the Distributor, as well as research provided to the Advisor in connection with portfolio transactions effected on behalf of the Funds (soft dollar arrangements) and reputational benefits. The Trustees considered the fact that the structure of breakpoints for the Advisor's fees and the fees of the Sub-Advisors for Funds with multiple Sub-Advisors was such that, assuming relatively equal allocation of Fund assets among all Sub-Advisors, the Advisor's fee would be reduced by breakpoints at lower asset levels than those at which the Advisor might benefit from breakpoints in the fees of the Sub-Advisors. The Trustees did not evaluate the profitability to the Sub-Advisors of their relationships with the Fund because the structure of the Agreements is such that the fees payable to the Advisor are reduced by any fees payable to the Sub-Advisors and they concluded that negotiations between the Advisor and the Sub-Advisors had been entirely at arm's-length. Economies of Scale -- The Board, the Independent Trustees and the Committee reviewed the extent to which the Advisor may realize economies of scale in managing and supporting the Funds and the current level of Fund assets in relation to the breakpoints in the Funds' advisory fees. The Board, the Independent Trustees and the Committee considered the extent to which economies of scale might be realized by the Advisor across a variety of products and services included within the WM Group of Funds. The Board, the Independent Trustees and the Committee concluded that the Funds' cost structure was reasonable given the scope and quality of the services provided to the Funds and that the Advisor was sharing any economies of scale with the Funds and their shareholders. ADDITIONAL CONSIDERATIONS: The Board, the Independent Trustees and the Committee also considered possible conflicts of interest associated with the provision of investment advisory services by the Advisor to other clients. The Trustees considered the procedures of the Advisor designed to fulfill its fiduciary duties to its advisory clients with respect to possible conflicts of interest, including the codes of ethics, the integrity of the systems in place to ensure compliance with the foregoing, and the record of the Advisor in these matters. CONCLUSIONS: Based on their review, including their consideration of each of the factors referred to above, the Board, the Independent Trustees and the Committee concluded that the Agreements and the fees payable to the Advisor and the Sub-Advisors are fair and reasonable to the Funds and their shareholders, given the scope and quality of the services provided to the Funds and such other considerations as the Trustees considered relevant in the exercise of their reasonable business judgment, and that the continuation of the Agreements was in the best interests of the Funds and their shareholders. The Board and the Independent Trustees unanimously approved the continuation of the Agreements. 108 Supplemental Information (unaudited) (continued) WM VARIABLE TRUST SPECIAL MEETING OF SHAREHOLDERS A special meeting of shareholders was convened on December 15, 2006, at which shareholders approved the following: Approval of the Agreement and Plan of Reorganization providing for the combination of the WM VT REIT Fund into the PVC Real Estate Securities Account.
AFFIRMATIVE AGAINST ABSTAIN TOTAL ------------- ---------- ----------- ------------- Voted Shares .............. 2,548,886.571 46,489.620 330,508.958 2,925,885.149 % of Outstanding Shares ... 87.115% 1.589% 11.296% 100.000% % of Shares Voted ......... 87.115% 1.589% 11.296% 100.000%
Approval of the Agreement and Plan of Reorganization providing for the combination of the WM VT Equity Income Fund into the PVC Equity Income Account I.
AFFIRMATIVE AGAINST ABSTAIN TOTAL -------------- ----------- ------------- -------------- Voted Shares .............. 16,776,524.185 293,045.408 1,896,339.337 18,965,908.930 % of Outstanding Shares ... 88.456% 1.545% 9.999% 100.000% % of Shares Voted ......... 88.456% 1.545% 9.999% 100.000%
Approval of the Agreement and Plan of Reorganization providing for the combination of the WM VT Growth & Income Fund into the PVC LargeCap Blend Account.
AFFIRMATIVE AGAINST ABSTAIN TOTAL -------------- ----------- ----------- -------------- Voted Shares .............. 11,401,913.615 774,335.229 719,123.368 12,895,372.212 % of Outstanding Shares ... 88.418% 6.005% 5.577% 100.000% % of Shares Voted ......... 88.418% 6.005% 5.577% 100.000%
Approval of the Agreement and Plan of Reorganization providing for the combination of the WM VT West Coast Equity Fund into the PVC West Coast Equity Account.
AFFIRMATIVE AGAINST ABSTAIN TOTAL ------------- ----------- ----------- ------------- Voted Shares .............. 6,249,537.989 208,588.432 664,515.671 7,122,642.092 % of Outstanding Shares ... 87.741% 2.929% 9.330% 100.000% % of Shares Voted ......... 87.741% 2.929% 9.330% 100.000%
Approval of the Agreement and Plan of Reorganization providing for the combination of the WM VT Mid Cap Stock Fund into the PVC MidCap Stock Account.
AFFIRMATIVE AGAINST ABSTAIN TOTAL ------------- ----------- ----------- ------------- Voted Shares .............. 5,498,954.481 248,674.939 921,190.251 6,668,819.671 % of Outstanding Shares ... 82.458% 3.729% 13.813% 100.000% % of Shares Voted ......... 82.458% 3.729% 13.813% 100.000%
Approval of the Agreement and Plan of Reorganization providing for the combination of the WM VT Growth Fund into the PVC Growth Account.
AFFIRMATIVE AGAINST ABSTAIN TOTAL -------------- ------------- ------------- -------------- Voted Shares .............. 19,064,543.591 1,096,612.217 1,178,687.929 21,339,843.737 % of Outstanding Shares ... 89.311% 5.137% 5.522% 99.970% % of Shares Voted ......... 89.338% 5.139% 5.523% 100.000%
109 Supplemental Information (unaudited) (continued) WM VARIABLE TRUST Approval of the Agreement and Plan of Reorganization providing for the combination of the WM VT Small Cap Value Fund into the PVC SmallCap Value Account.
AFFIRMATIVE AGAINST ABSTAIN TOTAL ------------- ------- ---------- ------------- Voted Shares .............. 3,000,902.052 2.995 31,098.271 3,032,003.318 % of Outstanding Shares ... 98.974% 0.000% 1.026% 100.000% % of Shares Voted ......... 98.974% 0.000% 1.026% 100.000%
Approval of the Agreement and Plan of Reorganization providing for the combination of the WM VT Small Cap Growth Fund into the PVC SmallCap Growth Account.
AFFIRMATIVE AGAINST ABSTAIN TOTAL ------------- ----------- ----------- ------------- Voted Shares .............. 4,314,188.572 188,948.782 218,931.788 4,722,069.142 % of Outstanding Shares ... 91.363% 4.001% 4.636% 100.000% % of Shares Voted ......... 91.363% 4.001% 4.636% 100.000%
Approval of the Agreement and Plan of Reorganization providing for the combination of the WM VT International Growth Fund into the PVC Diversified International Account.
AFFIRMATIVE AGAINST ABSTAIN TOTAL ------------- ------------- ----------- ------------- Voted Shares .............. 7,331,536.037 1,006,926.687 487,988.920 8,826,451.644 % of Outstanding Shares ... 83.014% 11.401% 5.525% 99.940% % of Shares Voted ......... 83.063% 11.408% 5.529% 100.000%
Approval of the Agreement and Plan of Reorganization providing for the combination of the WM VT Short Term Income Fund into the PVC Short-Term Income Account.
AFFIRMATIVE AGAINST ABSTAIN TOTAL -------------- ----------- ------------- -------------- Voted Shares .............. 16,672,390.191 412,419.183 1,822,704.241 18,907,513.615 % of Outstanding Shares ... 88.171% 2.181% 9.639% 99.991% % of Shares Voted ......... 88.179% 2.181% 9.640% 100.000%
Approval of the Agreement and Plan of Reorganization providing for the combination of the WM VT U.S. Government Securities Fund into the PVC Mortgage Securities Account.
AFFIRMATIVE AGAINST ABSTAIN TOTAL -------------- ----------- ------------- -------------- Voted Shares .............. 22,832,235.535 460,874.399 2,879,851.835 26,172,961.769 % of Outstanding Shares ... 87.233% 1.761% 11.003% 99.997% % of Shares Voted ......... 87.236% 1.761% 11.003% 100.000%
Approval of the Agreement and Plan of Reorganization providing for the combination of the WM VT Income Fund into the PVC Income Account.
AFFIRMATIVE AGAINST ABSTAIN TOTAL -------------- ----------- ------------- -------------- Voted Shares .............. 16,932,780.023 188,158.587 2,221,324.459 19,342,263.069 % of Outstanding Shares ... 87.521% 0.973% 11.481% 99.975% % of Shares Voted ......... 87.543% 0.973% 11.484% 100.000%
110 Supplemental Information (unaudited) (continued) WM VARIABLE TRUST Approval of the Agreement and Plan of Reorganization providing for the combination of the WM VT Money Market Fund into the PVC Money Market Account.
AFFIRMATIVE AGAINST ABSTAIN TOTAL -------------- ----------- ----------- -------------- Voted Shares .............. 13,783,142.665 723,287.174 190,160.318 14,696,590.157 % of Outstanding Shares ... 93.163% 4.889% 1.285% 99.337% % of Shares Voted ......... 93.785% 4.921% 1.294% 100.000%
Approval of the proposed advisory agreement with WM Advisors, Inc. for the WM VT REIT Fund.
AFFIRMATIVE AGAINST ABSTAIN TOTAL -------------- ---------- ----------- ------------- Voted Shares .............. 2,548,886.571 46,489.620 330,508.958 2,925,885.149 % of Outstanding Shares ... 87.115% 1.589% 11.296% 100.000% % of Shares Voted ......... 87.115% 1.589% 11.296% 100.000%
Approval of the proposed advisory agreement with WM Advisors, Inc. for the WM VT Equity Income Fund.
AFFIRMATIVE AGAINST ABSTAIN TOTAL -------------- ----------- ------------- -------------- Voted Shares .............. 17,053,325.838 236,801.101 1,675,781.991 18,965,908.930 % of Outstanding Shares ... 89.915% 1.249% 8.836% 100.000% % of Shares Voted ......... 89.915% 1.249% 8.836% 100.000%
Approval of the proposed advisory agreement with WM Advisors, Inc. for the WM VT Growth & Income Fund.
AFFIRMATIVE AGAINST ABSTAIN TOTAL -------------- ----------- ----------- -------------- Voted Shares .............. 11,535,761.070 792,327.591 567,283.551 12,895,372.212 % of Outstanding Shares ... 89.457% 6.144% 4.399% 100.000% % of Shares Voted ......... 89.457% 6.144% 4.399% 100.000%
Approval of the proposed advisory agreement with WM Advisors, Inc. for the WM VT West Coast Equity Fund.
AFFIRMATIVE AGAINST ABSTAIN TOTAL -------------- ----------- ----------- ------------- Voted Shares .............. 6,177,356.288 242,720.095 702,565.709 7,122,642.092 % of Outstanding Shares ... 86.728% 3.408% 9.864% 100.000% % of Shares Voted ......... 86.728% 3.408% 9.864% 100.000%
Approval of the proposed advisory agreement with WM Advisors, Inc. for the WM VT Mid Cap Stock Fund.
AFFIRMATIVE AGAINST ABSTAIN TOTAL -------------- ----------- ----------- ------------- Voted Shares .............. 5,546,799.964 252,086.429 869,933.278 6,668,819.671 % of Outstanding Shares ... 83.175% 3.780% 13.045% 100.000% % of Shares Voted ......... 83.175% 3.780% 13.045% 100.000%
Approval of the proposed advisory agreement with WM Advisors, Inc. for the WM VT Growth Fund.
AFFIRMATIVE AGAINST ABSTAIN TOTAL -------------- ------------- ----------- -------------- Voted Shares .............. 19,323,352.841 1,193,406.805 823,084.091 21,339,843.737 % of Outstanding Shares ... 90.523% 5.591% 3.856% 99.970% % of Shares Voted ......... 90.551% 5.592% 3.857% 100.000%
111 Supplemental Information (unaudited) (continued) WM VARIABLE TRUST Approval of the proposed advisory agreement with WM Advisors, Inc. for the WM VT Small Cap Value Fund.
AFFIRMATIVE AGAINST ABSTAIN TOTAL ------------- ------- ---------- ------------- Voted Shares .............. 3,000,902.052 2.995 31,098.271 3,032,003.318 % of Outstanding Shares ... 98.974% 0.000% 1.026% 100.000% % of Shares Voted ......... 98.974% 0.000% 1.026% 100.000%
Approval of the proposed advisory agreement with WM Advisors, Inc. for the WM VT Small Cap Growth Fund.
AFFIRMATIVE AGAINST ABSTAIN TOTAL ------------- ----------- ----------- ------------- Voted Shares .............. 4,306,017.342 206,587.292 209,464.508 4,722,069.142 % of Outstanding Shares ... 91.189% 4.375% 4.436% 100.000% % of Shares Voted ......... 91.189% 4.375% 4.436% 100.000%
Approval of the proposed advisory agreement with WM Advisors, Inc. for the WM VT International Growth Fund.
AFFIRMATIVE AGAINST ABSTAIN TOTAL ------------- ------------- ----------- ------------- Voted Shares .............. 7,372,260.021 1,006,926.688 447,264.935 8,826,451.644 % of Outstanding Shares ... 83.475% 11.401% 5.064% 99.940% % of Shares Voted ......... 83.525% 11.408% 5.067% 100.000%
Approval of the proposed advisory agreement with WM Advisors, Inc. for the WM VT Short Term Income Fund.
AFFIRMATIVE AGAINST ABSTAIN TOTAL -------------- ----------- ------------- -------------- Voted Shares .............. 17,269,344.732 472,648.949 1,165,519.934 18,907,513.615 % of Outstanding Shares ... 91.327% 2.500% 6.164% 99.991% % of Shares Voted ......... 91.336% 2.500% 6.164% 100.000%
Approval of the proposed advisory agreement with WM Advisors, Inc. for the WM VT U.S. Government Securities Fund.
AFFIRMATIVE AGAINST ABSTAIN TOTAL -------------- ----------- ------------- -------------- Voted Shares .............. 23,057,832.998 525,047.428 2,590,081.343 26,172,961.769 % of Outstanding Shares ... 88.095% 2.006% 9.896% 99.997% % of Shares Voted ......... 88.098% 2.006% 9.896% 100.000%
Approval of the proposed advisory agreement with WM Advisors, Inc. for the WM VT Income Fund.
AFFIRMATIVE AGAINST ABSTAIN TOTAL -------------- ----------- ------------- -------------- Voted Shares .............. 16,832,326.629 220,494.891 2,289,441.549 19,342,263.069 % of Outstanding Shares ... 87.001% 1.140% 11.834% 99.975% % of Shares Voted ......... 87.024% 1.140% 11.836% 100.000%
Approval of the proposed advisory agreement with WM Advisors, Inc. for the WM VT Money Market Fund.
AFFIRMATIVE AGAINST ABSTAIN TOTAL -------------- ----------- ----------- -------------- Voted Shares .............. 12,984,897.677 723,287.056 988,405.424 14,696,590.157 % of Outstanding Shares ... 87.767% 4.889% 6.681% 99.337% % of Shares Voted ......... 88.354% 4.921% 6.725% 100.000%
112 Supplemental Information (unaudited) (continued) WM VARIABLE TRUST Approval of the proposed sub-advisory agreement with ClearBridge Advisors, LLC for the WM VT Growth Fund.
AFFIRMATIVE AGAINST ABSTAIN TOTAL -------------- ------------- ------------- -------------- Voted Shares .............. 17,995,603.739 1,270,016.033 2,074,223.965 21,339,843.737 % of Outstanding Shares ... 84.303% 5.950% 9.717% 99.970% % of Shares Voted ......... 84.329% 5.951% 9.720% 100.000%
Approval of the proposed sub-advisory agreement with Janus Capital Management LLC for the WM VT Growth Fund.
AFFIRMATIVE AGAINST ABSTAIN TOTAL -------------- ------------- ------------- -------------- Voted Shares .............. 18,303,558.158 1,156,293.724 1,879,991.855 21,339,843.737 % of Outstanding Shares ... 85.746% 5.417% 8.807% 99.970% % of Shares Voted ......... 85.772% 5.418% 8.810% 100.000%
Approval of the proposed sub-advisory agreement with OppenheimerFunds, Inc. for the WM VT Growth Fund.
AFFIRMATIVE AGAINST ABSTAIN TOTAL -------------- ------------- ------------- -------------- Voted Shares .............. 19,078,384.776 1,122,956.770 1,138,502.191 21,339,843.737 % of Outstanding Shares ... 89.375% 5.261% 5.334% 99.970% % of Shares Voted ......... 89.403% 5.262% 5.335% 100.000%
Approval of the proposed sub-advisory agreement with Delaware Management Company for the WM VT Small Cap Growth Fund.
AFFIRMATIVE AGAINST ABSTAIN TOTAL ------------- ----------- ----------- ------------- Voted Shares .............. 4,234,322.368 235,006.270 252,740.504 4,722,069.142 % of Outstanding Shares ... 89.671% 4.977% 5.352% 100.000% % of Shares Voted ......... 89.671% 4.977% 5.352% 100.000%
Approval of the proposed sub-advisory agreement with Oberweis Asset Management, Inc. for the WM VT Small Cap Growth Fund.
AFFIRMATIVE AGAINST ABSTAIN TOTAL ------------- ----------- ----------- ------------- Voted Shares .............. 4,207,210.792 249,710.498 265,147.852 4,722,069.142 % of Outstanding Shares ... 89.097% 5.288% 5.615% 100.000% % of Shares Voted ......... 89.097% 5.288% 5.615% 100.000%
Approval of the proposed sub-advisory agreement with Capital Guardian Trust Company for the WM VT International Growth Fund.
AFFIRMATIVE AGAINST ABSTAIN TOTAL ------------- ------------- ----------- ------------- Voted Shares .............. 7,116,540.729 1,211,165.988 498,744.927 8,826,451.644 % of Outstanding Shares ... 80.579% 13.714% 5.647% 99.940% % of Shares Voted ......... 80.627% 13.722% 5.651% 100.000%
113 Supplemental Information (unaudited) (continued) WM VARIABLE TRUST OTHER FUND INFORMATION TAX INFORMATION: The following tax information for the fiscal year ended December 31, 2006, is provided pursuant to the provisions of the Code. The amounts of long-term capital gains designated are as follows (in thousands):
NAME OF FUND ------------ VT REIT Fund.................. $17,591 VT Equity Income Fund......... 24,357 VT West Coast Equity Fund..... 5,003 VT Mid Cap Stock Fund......... 6,012 VT Small Cap Value Fund....... 4,692 VT International Growth Fund.. 22,015 VT Income Fund................ 111
Of each distribution made by the following Funds, these are the amounts which may qualify for the dividends received deduction available to corporate shareholders.
NAME OF FUND ------------ VT REIT Fund.................. 7.52% VT Equity Income Fund......... 100.00% VT Growth & Income Fund....... 100.00% VT West Coast Equity Fund..... 100.00% VT Mid Cap Stock Fund......... 55.46% VT Growth Fund................ 100.00% VT Small Cap Value Fund....... 30.24% VT International Growth Fund.. 2.51%
If the Fund meets the requirements of Section 853 of the Code, the Fund may elect to pass through to its shareholders credits for foreign taxes paid. The total amount of income received by the VT International Growth Fund from sources within the foreign countries and possessions of the United States was $0.3356 per share (representing a total of $2,887,914). The total amount of taxes paid to such countries was $0.0297 per share (representing a total of $255,901). SCHEDULES OF INVESTMENTS: The Trust files its complete schedules of portfolio holdings with the Securities and Exchange Commission ("SEC") for the first and third quarters of each fiscal year on Form N-Q. The Trust's Form N-Q is available at http://www.sec.gov and also may be reviewed and copied at the SEC's Public Reference Room ("PRR") in Washington, DC. Information regarding the operation of the PRR may be obtained by calling 800-SEC-0330. PROXY VOTING INFORMATION: The policies and procedures that the Trust uses to determine how to vote proxies relating to portfolio securities held by the Funds are included in the Trust's Statement of Additional Information which is available, without charge and upon request, by calling 800-222-5852. Information regarding how the Funds voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available by calling 800-222-5852 or at http://www.sec.gov. 114 Supplemental Information (unaudited) (continued) WM VARIABLE TRUST TRUSTEES AND OFFICERS INFORMATION
NAME, AGE, AND ADDRESS(1) LENGTH OF PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIPS OF NON-INTERESTED TRUSTEE(4) TIME SERVED(2) DURING PAST 5 YEARS HELD BY TRUSTEE ---------------------------- -------------- ----------------------- ------------------- Kristianne Blake Composite Funds-3 years CPA specializing in personal Avista Corporation; Frank Age 52 WM Group of Funds-8 years financial and tax planning. Russell Investment Company; Russell Investment Funds; University of Washington. Edmond R. Davis, Esq. Sierra Funds-8 years Partner at the law firm of Davis & Braille Institute of America, Age 78 WM Group of Funds-8 years Whalen LLP. Prior thereto, partner at Inc; Children's Bureau of the law firm of Brobeck, Phlegar & Southern California, Children's Harrison, LLP. Bureau Foundation; Fifield Manors, Inc. Carrol R. McGinnis Griffin Funds-3 years Private investor since 1994. Prior Baptist Foundation of Texas; Age 63 WM Group of Funds-7 years thereto, President and Chief Concord Trust Company. Operating Officer of Transamerica Fund Management Company. Alfred E. Osborne, Jr., Ph.D. Sierra Funds-7 years Senior Associate Dean, University of K2, Inc.; First Pacific Age 62 WM Group of Funds-8 years California at Los Angeles Anderson Advisors' Funds; EMAK Worldwide, Graduate School of Management, and Inc.; Investment Company Faculty Director of the Harold Price Institute; Independent Directors Center for Entrepreneurial Studies, Council University of California at Los Angeles. Daniel L. Pavelich Composite Funds-1 year Retired Chairman and CEO of BDO Catalytic, Inc.; Vaagen Bros. Age 62 WM Group of Funds-8 years Seidman. Lumber, Inc. Jay Rockey Composite Funds-3 years Founder and Senior Counsel of The Age 78 WM Group of Funds-8 years Rockey Company, now Rockey, Hill & Knowlton. Richard C. Yancey Composite Funds-23 years Retired Managing Director of Dillon AdMedia Partners Inc.; Czech and (Chairman) WM Group of Funds-8 years Read & Co., an investment bank now Slovak American Enterprise Fund Age 80 part of UBS.
NAME, AGE, AND ADDRESS(1) LENGTH OF PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIPS OF INTERESTED TRUSTEE(3)(4) TIME SERVED(2) DURING PAST 5 YEARS HELD BY TRUSTEE --------------------------- -------------- ----------------------- ------------------- Anne V. Farrell Composite Funds-4 years President Emeritus of the Seattle Washington Mutual, Inc.; Age 71 WM Group of Funds-8 years Foundation. Recreational Equipment, Inc. William G. Papesh Composite Funds-9 years President and Director of the Advisor; Member of Investment Company (President and CEO) WM Group of Funds-8 years Sr. Vice President and Director of the Institute Board of Governors. Age 63 Transfer Agent and Distributor.
NAME, AGE, AND ADDRESS(1) POSITION(S) HELD WITH REGISTRANT & PRINCIPAL OCCUPATION(S) OF OFFICER(4) LENGTH OF TIME SERVED DURING PAST 5 YEARS ------------------------- ---------------------------------- ----------------------- Wendi B. Bernard Vice President and Assistant Secretary Vice President of the Advisor. Age 38 since 2006. Prior to 2006, various other officer positions since 2003. Jeffrey L. Lunzer, CPA First Vice President, Chief Financial Officer First Vice President of the Advisor, Transfer Agent and Age 46 and Treasurer since 2003. Distributor. Prior to 2003, senior level positions at the Columbia Funds and Columbia Management Company. William G. Papesh President and CEO since 1987. President and Director of the Advisor; Sr. Vice Age 63 Prior to 1987, other officer positions since President and Director of the Transfer Agent and 1972. Distributor. Gary Pokrzywinski Senior Vice President since 2004. First Vice Senior Vice President and Director of the Advisor, Age 45 President since 2001. Prior to 2001, Vice Transfer Agent and Distributor. President since 1999. Debra Ramsey Senior Vice President since 2004. President and Director of the Transfer Agent and Age 53 Distributor; Sr. Vice President and Director of the Advisor. John T. West First Vice President, Secretary, Chief First Vice President of the Advisor, Transfer Agent Age 51 Compliance Officer and Anti-Money Laundering and Distributor. Compliance Officer since 2004. Prior to 2004, various other officer positions since 1993. Randall L. Yoakum Senior Vice President since 2001. Senior Vice President and Chief Investment Strategist of Age 47 Prior to 2001, First Vice President since the Advisor. 1999.
Note: The Statement of Additional Information includes additional information about Fund Trustees and Officers and is available, without charge, upon request by calling 800-222-5852. (1) The address for all Trustees and Officers is 1201 Third Avenue, 8th Floor, Seattle, WA, 98101. (2) The Sierra Funds merged with the Composite Funds on March 23, 1998, to form the WM Group of Funds. The Griffin Funds merged with the WM Group of Funds on March 5, 1999. (3) Trustees are considered interested due to their affiliation with PFG, Washington Mutual, Inc. (prior to December 31, 2006), the Advisor, the Distributor, or the Transfer Agent. (4) The Trustees and Officers serve in these capacities for the 40 Portfolios and Funds in the Fund Complex. Each Trustee and Officer shall hold the indicated positions until his or her resignation, retirement or removal. 115 (WM VARIABLE TRUST LOGO) A variable insurance product's unit value and investment returns will vary with market conditions, and an investor's units when redeemed may be worth more or less than their original cost. This annual report is published as general information for the shareholders of the WM Variable Trust. This material is not authorized for distribution unless preceded or accompanied by a current prospectus that includes more information regarding the risk factors, expenses, policies, and objectives of the contract. Investors should read the prospectus carefully before investing. To obtain an additional prospectus, please call 800-222-5852. The WM Variable Trust Funds are advised by WM Advisors, Inc. (WMAI). They are available through variable insurance products distributed by WM Funds Distributor, Inc. (WMFD) and sold through WM Financial Services, Inc. (WMFS) and independent broker/dealers. WMAI, WMFD, and WMFS are affiliates of Washington Mutual, Inc. Distributed by: WM Funds Distributor, Inc. Member NASD (WM VARIABLE TRUST LOGO) MM 3487 (2/28/07) (WM VARIABLE TRUST LOGO) The sophistication of a managed account with the simplicity of a mutual fund. WM VT STRATEGIC ASSET MANAGEMENT PORTFOLIOS Annual Report December 31, 2006 WM VT Strategic Asset Management Portfolios Table of Contents 1 Letter from the President 2 Economy & Financial Markets: Review & Outlook WM VT SAM Portfolio Performance and Investment Strategy: 4 VT Flexible Income Portfolio 6 VT Conservative Balanced Portfolio 8 VT Balanced Portfolio 10 VT Conservative Growth Portfolio 12 VT Strategic Growth Portfolio 14 Glossary 15 Expense Information 17 Financial Statements 31 Notes to Financial Statements 37 Report of Independent Registered Public Accounting Firm 38 Supplemental Information
The WM Variable Trust (VT) Funds may not be purchased directly, but are currently available through the WM Strategic Asset Manager and the WM Advantage variable annuities issued by American General Life. They are also available through the WM Diversified Strategies and WM Diversified Strategies (III) variable annuities issued by AIG SunAmerica Life Assurance Company, the WM Diversified Strategies (III) (New York) variable annuity issued by First SunAmerica Life Insurance Company, and the WM Life Accumulator variable universal life insurance policy issued by Farmers New World Life Insurance Company. They may also be available through other select variable insurance products and retirement plans. The VT SAM Portfolios may not have been available for sale for all products for the time periods shown on pages 4-13. Withdrawals made prior to age 59 1/2 may be subject to a 10% IRS tax penalty. -------------------------------------------------------- NOT FDIC OR NCUA/NCUSIF INSURED -------------------------------------------------------- MAY LOSE VALUE - NOT A DEPOSIT - NO BANK OR CREDIT UNION GUARANTEE - NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY -------------------------------------------------------- (PHOTO OF WILLIAM G. PAPESH) Dear Investor, The end of the 2006 fiscal year coincided with the acquisition of WM Advisors, Inc. and its subsidiaries by the Principal Financial Group(R) (The Principal(R)). We are extremely enthusiastic about joining a company where asset management and accumulation form the core of its business and where the advisory group, Principal Global Investors, shares our expertise in asset allocation. Just as the WM Group of Funds is the 4th largest manager of target-risk asset allocation funds, The Principal is the 4th largest manager of target-date asset allocation funds.(1) Together, we will rank 4th in the overall management of asset allocation funds nationally. I'd like to briefly explain below how the WM Group of Funds will transition through this process. EVOLUTION OF A FUND COMPLEX To summarize, the 18 WM Variable Trust Funds will become part of the Principal Variable Contracts Fund, Inc.(2) Other notable changes are as follows: - 11 funds will continue to be managed by their current portfolio management teams. These funds include the VT SAM Portfolios. - 7 funds will be combined into existing Principal Variable Contract (PVC) Accounts and thereafter will be managed by Principal Global Investors(3) or another premier asset management firm. After the fund mergers in January 2007, the combined PVC lineup will consist of 41 funds spanning a broad array of asset allocation, equity, and fixed-income investments. CONTINUITY OF MANAGEMENT AND STEWARDSHIP The Principal Funds complex has also retained many of the people who have served you and your investment needs over the previous years: - WM ADVISORS: Our investment management group has a new name--Edge Asset Management, Inc. -- but it remains in Seattle and employs all of WM Advisors' portfolio managers. - WM FUNDS DISTRIBUTOR, INC. AND WM SHAREHOLDER SERVICES, INC.: These groups form the management and staff of Principal Funds Distributor, Inc. and Principal Shareholder Services, Inc. - WM GROUP OF FUNDS BOARD OF TRUSTEES: Four members of our current Board are proposed for election to the board of Principal Variable Contracts Fund, Inc. This group includes Dick Yancey (our Chairman and a Board member for over 30 years), Dan Pavelich (head of the Audit Committee), Kristi Blake (head of the Operations and Distribution Committee), and myself. I would also like to express my deep gratitude to Ed Davis, Carrol McGinnis, Al Osborne, Jay Rockey, and Anne Farrell for their many years of diligent service on behalf of investors. The Principal has embraced our management and staff, and I think you'll find the combined fund family reflects our best qualities, plus new capabilities and resources. On behalf of everyone at the WM Group of Funds, thank you for the support and trust that you and other investors have honored us with for over 65 years. Sincerely, /s/ William G. Papesh ------------------------------------- William G. Papesh President (1) Source: FRC. Based on assets as of September 30, 2006. (2) For more information about these funds, including their full names, please see the Principal Variable Contract Fund, Inc. prospectus. (3) Principal Global Investors, one of the primary asset management divisions of Principal Financial Group(R), consists of Principal Global Investors, LLC; Principal Real Estate Investors, LLC; Spectrum Asset Management, Inc.; Post Advisory Group, LLC; Columbus Circle Investors; Principal Global Investors (Europe) Limited; Principal Global Investors (Singapore) Ltd; Principal Global Investors (Australia) Ltd; and Principal International, Inc., its subsidiaries and affiliates. Economy & Financial Markets: Review & Outlook ECONOMY ENTERS MID-CYCLE SLOWDOWN We began 2006 with the view that U.S. economic growth would be moderate but weaker than consensus projections. Although corporate profits and consumer spending looked healthy, a slowdown in the housing market appeared likely. We thought when this housing pullback took hold, it would curtail consumers' ability to maintain refinancing-fueled spending. Our 2006 outlook also recognized that a variety of short-term and long-term forces had aligned to indicate that growth would slow. One cyclical measure that attracted widespread headlines during the period was crude oil prices which, through elevated fuel costs, can act as a tax on consumers. The U.S. benchmark price of oil ended 2005 at $61.04 per barrel, reached a high closing price of $77.03 in July 2006, and then retreated to end 2006 at $61.05. Like crude oil prices, the rate of economic growth climbed and peaked before retreating during the year. Inflation-adjusted (real) growth increased 3.2% in 2005, but with a weaker 1.8% increase in the final quarter. Strong consumer and business spending sent real growth surging 5.6% in the first quarter of 2006. Evidence of a housing sector correction became clearer in the following months, and real growth decelerated to 2.0% in the third quarter. (See text highlights in chart below.) Since housing is a lagging indicator, we believe that the full economic effects of its pullback have yet to play out. However, we expect solid job markets to mitigate the pain that housing causes consumers. Our 2007 outlook is for real growth to keep to the lower end of a 2-3% range as the economy works through a mid-cycle slowdown. INFLATION GIVES FED PAUSE For this kind of "soft landing" to occur, we believe that lower interest rates courtesy of the Federal Reserve (the Fed) will be a requirement. The Fed began steadily raising short-term interest rates in June 2004. Like many market participants, we entered 2006 believing that a housing-led slowdown in growth would soon spur the Fed to halt this monetary tightening campaign. However, concerns about rising inflation dominated the Fed's mindset during the year. A price index that measures core personal consumption (1) stood at 2.0% for January 2006, but inflation picked up steam and sent this (1) Source: Bureau of Economic Analysis. Monthly data measures the price index for personal consumption expenditures excluding food and energy as a percent change from the same month one year ago. (2) Indices are unmanaged, and individuals cannot invest directly in an index. See page 14 for definitions of indices. A WRAP-UP OF THE YEAR JANUARY 1, 2006 - DECEMBER 31, 2006 (PERFORMANCE GRAPH) 2 gauge to 2.4% in August. Inflation fears eased somewhat after energy prices headed downward and the housing market cooled. These developments allowed the Fed to leave its target for the federal funds rate at 5.25% from June 29 through the end of the year. This rate is slightly restrictive in our view. We expect the lagging effects of monetary tightening to contain inflation going forward by combining with significant deflationary forces. We also believe that the economic system has become somewhat self-regulating in recent years, alleviating the need for a highly active Fed. However, as fears of inflation continue to subside, we think the Fed will turn its sights on potential deflation and recession. We don't regard either of these conditions as likely, but we would welcome Fed actions that begin cutting interest rates early in 2007. STOCKS RALLY FROM MID-YEAR ON Uncertainty about inflation and interest rates often determined investor behavior during the year. As shown in the chart below, stock markets achieved muted gains within the early months of 2006 before retreating in May and June--a span that was framed by the year's final two Fed rate increases. The growing likelihood and then arrival of the Fed's pause kindled a rally in stocks and also benefited bonds, causing yields to fall. The S&P 500 advanced 15.80% for 2006, and the Lehman Brothers Aggregate Bond Index ended the year with a total return of 4.33%. (2) The outlook for subdued growth and inflation described above, and the potential for monetary easing by the Fed, lead us to expect that bond yields will continue inching lower in 2007. Any incoming data that sparks recession fears could create some volatility for fixed-income securities. However, we regard corporate and mortgage issues as reasonably valued and believe that they will perform in line with this risk. Potentially lower bond yields are also among the factors that support the prospects for moderate but positive gains by equities in 2007. Stocks continue to appear attractive relative to bonds and are likely to be assisted by fair valuations, the global flow of funds, and the generally healthy state of corporations. Cyclical economic and valuation indicators also suggest that large-cap stocks could outperform small caps and growth could outperform value. A less restrictive stance by the Fed could also accommodate the appreciation of stock prices. This economic and financial market analysis represents the opinions of WM Advisors. It should not be considered as investment advice. No forecast based on the opinions expressed can be guaranteed, and they may be subject to change without notice. (PERFORMANCE GRAPH) 3 VT Flexible Income Portfolio INVESTMENT STRATEGY The WM VT Strategic Asset Management (SAM) Flexible Income Portfolio ended 2006 invested in 12 underlying funds that provide diversification across 14 equity and fixed-income asset classes. We began the 12-month period with an outlook for the economy and financial markets that judged stocks to be more attractive than bonds. In response, we slightly increased the Portfolio's 26% allocation to equities. Despite a short-lived stock market retreat during May and June, this addition to equities proved beneficial to performance during the year. As we strengthened the Portfolio's equity allocation, we also shifted its equity style and capitalization weightings to favor large-cap growth stocks. These adjustments ultimately proved to be ahead of a market rotation away from value and smaller capitalization assets. However, large-cap growth stocks enjoyed improved performance late in the period, and we believe the Portfolio is well-positioned for the upcoming year. Other equity asset classes that drove Portfolio performance included real estate investment trusts (REITs) and international equities, which realized strong absolute returns. Data shown is past performance and does not guarantee future results. Current performance, including the most recent month-end results, which may be higher or lower than the data shown, can be obtained by calling 800-222-5852. Your investment's return and principal value will fluctuate, so it may be worth more or less upon redemption. Performance shown below does not account for fees, expenses, and charges of any variable insurance contract or retirement plan. If these fees were reflected, performance would be lower. Equity investments involve greater risk, including heightened volatility, than fixed-income investments. Fixed-income investments are subject to interest rate risk, and their value will decline as interest rates rise. AVERAGE ANNUAL TOTAL RETURNS (1) AS OF DECEMBER 31, 2006
1-Year 5-Year Since Inception Inception Date ------ ------ --------------- -------------- CLASS 1 SHARES 6.84% 6.36% 6.98% 9/9/97 CLASS 2 SHARES 6.61% 6.10% 6.00% 11/6/01 Lehman Brothers Aggregate Bond Index (2) 4.33% 5.06% 6.14% S&P 500 (2) 15.80% 6.19% 6.67% Capital Market Benchmark (2) 6.56% 5.45% 6.47%
VALUE OF A $10,000 INVESTMENT (1) SEPTEMBER 9, 1997 - DECEMBER 31, 2006 (PERFORMANCE GRAPH) WM GROUP OF FUNDS VT ANNUAL REPORT UPDATE MATERIAL PERFORMANCE NAV -- MOUNTAIN CHARTS (VALUE OF $10,000 INVESTMENT OVER 10-YEARS) DATA AS OF 12/31/2006 CLASS 1 SHARES
LEHMAN VT FLEXIBLE BROTHERS CAPITAL INCOME AGGREGATE MARKET DATE PORTFOLIO S&P 500 BOND INDEX BENCHMARK ------ ----------- ------- ---------- --------- DEC-96 Jan-97 Feb-97 Mar-97 Apr-97 May-97 Jun-97 Jul-97 Aug-97 10,000 10,000 10,000 10,000 Sep-97 10,110 10,548 10,148 10,228 Oct-97 10,110 10,196 10,295 10,278 Nov-97 10,140 10,668 10,343 10,411 Dec-97 10,231 10,851 10,447 10,530 Jan-98 10,350 10,972 10,581 10,662 Feb-98 10,541 11,763 10,572 10,809 Mar-98 10,650 12,365 10,608 10,950 Apr-98 10,721 12,490 10,663 11,018 May-98 10,741 12,275 10,765 11,064 Jun-98 10,872 12,773 10,856 11,229 Jul-98 10,832 12,638 10,879 11,223 Aug-98 10,471 10,811 11,056 11,045 Sep-98 10,772 11,504 11,315 11,393 Oct-98 10,962 12,439 11,255 11,529 Nov-98 11,173 13,193 11,319 11,722 Dec-98 11,433 13,952 11,353 11,885 Jan-99 11,624 14,536 11,434 12,051 Feb-99 11,453 14,084 11,234 11,808 Mar-99 11,681 14,647 11,295 11,954 Apr-99 11,925 15,214 11,332 12,077 May-99 11,804 14,855 11,232 11,935 Jun-99 11,951 15,679 11,196 12,036 Jul-99 11,848 15,190 11,149 11,921 Aug-99 11,797 15,114 11,143 11,904 Sep-99 11,854 14,700 11,273 11,949 Oct-99 12,020 15,630 11,314 12,136 Nov-99 12,175 15,948 11,313 12,184 Dec-99 12,416 16,887 11,259 12,280 Jan-00 12,280 16,039 11,222 12,124 Feb-00 12,437 15,736 11,357 12,196 Mar-00 12,720 17,275 11,507 12,563 Apr-00 12,603 16,755 11,474 12,459 May-00 12,529 16,412 11,468 12,403 Jun-00 12,737 16,815 11,707 12,671 Jul-00 12,737 16,553 11,813 12,724 Aug-00 13,082 17,581 11,985 13,029 Sep-00 13,041 16,653 12,060 12,958 Oct-00 13,064 16,583 12,140 13,015 Nov-00 12,878 15,276 12,339 12,981 Dec-00 13,134 15,351 12,568 13,187 Jan-01 13,565 15,896 12,773 13,452 Feb-01 13,366 14,446 12,884 13,300 Mar-01 13,205 13,532 12,949 13,184 Apr-01 13,361 14,583 12,894 13,345 May-01 13,484 14,681 12,972 13,427 Jun-01 13,510 14,324 13,021 13,403 Jul-01 13,656 14,184 13,313 13,617 Aug-01 13,622 13,296 13,466 13,572 Sep-01 13,374 12,222 13,622 13,478 Oct-01 13,633 12,455 13,907 13,755 Nov-01 13,734 13,410 13,715 13,814 Dec-01 13,768 13,528 13,627 13,767 Jan-02 13,768 13,331 13,737 13,816 Feb-02 13,779 13,073 13,871 13,870 Mar-02 13,836 13,565 13,640 13,790 Apr-02 13,847 12,743 13,905 13,837 May-02 13,904 12,649 14,023 13,910 Jun-02 13,701 11,748 14,145 13,809 Jul-02 13,486 10,832 14,316 13,727 Aug-02 13,655 10,903 14,558 13,930 Sep-02 13,531 9,718 14,794 13,808 Oct-02 13,746 10,573 14,726 14,000 Nov-02 14,008 11,196 14,722 14,161 Dec-02 14,064 10,538 15,026 14,229 Jan-03 14,086 10,262 15,040 14,165 Feb-03 14,154 10,108 15,247 14,278 Mar-03 14,210 10,206 15,235 14,296 Apr-03 14,595 11,047 15,362 14,627 May-03 15,049 11,629 15,647 14,998 Jun-03 15,132 11,778 15,616 15,013 Jul-03 14,923 11,985 15,091 14,662 Aug-03 15,052 12,219 15,191 14,797 Sep-03 15,295 12,089 15,594 15,079 Oct-03 15,493 12,773 15,449 15,138 Nov-03 15,609 12,886 15,486 15,194 Dec-03 15,935 13,561 15,644 15,477 Jan-04 16,157 13,811 15,769 15,633 Feb-04 16,284 14,003 15,939 15,811 Mar-04 16,343 13,791 16,059 15,859 Apr-04 15,995 13,575 15,641 15,480 May-04 15,971 13,761 15,579 15,472 Jun-04 16,159 14,028 15,667 15,602 Jul-04 16,100 13,563 15,822 15,622 Aug-04 16,317 13,617 16,125 15,874 Sep-04 16,438 13,765 16,168 15,942 Oct-04 16,582 13,975 16,304 16,098 Nov-04 16,727 14,541 16,174 16,126 Dec-04 16,967 15,036 16,322 16,355 Jan-05 16,883 14,669 16,425 16,358 Feb-05 16,918 14,977 16,328 16,350 Mar-05 16,786 14,712 16,245 16,225 Apr-05 16,835 14,432 16,464 16,339 May-05 17,099 14,891 16,642 16,584 Jun-05 17,208 14,912 16,734 16,662 Jul-05 17,332 15,467 16,581 16,665 Aug-05 17,419 15,326 16,794 16,805 Sep-05 17,332 15,450 16,621 16,694 Oct-05 17,195 15,192 16,489 16,533 Nov-05 17,420 15,766 16,562 16,716 Dec-05 17,546 15,771 16,719 16,845 Jan-06 17,721 16,189 16,721 16,936 Feb-06 17,758 16,233 16,776 16,990 Mar-06 17,771 16,434 16,612 16,898 Apr-06 17,808 16,654 16,582 16,918 May-06 17,621 16,174 16,564 16,807 Jun-06 17,642 16,197 16,598 16,840 Jul-06 17,746 16,298 16,822 17,042 Aug-06 18,032 16,685 17,080 17,332 Sep-06 18,239 17,116 17,230 17,544 Oct-06 18,473 17,674 17,344 17,751 Nov-06 18,746 18,010 17,545 17,983 Dec-06 18,746 18,262 17,443 17,951
(1) Performance reflects ongoing expenses and assumes reinvestment of all dividends and capital gains. It also reflects ongoing fund expenses paid by the Portfolio's applicable Funds, which include the effects of expense reimbursement. Performance does not reflect the impact of federal, state, or municipal taxes. If it did, performance would be lower. The Portfolio's performance between 1997 and 1999 benefited from the agreement of WM Advisors and its affiliates to limit the Portfolio's expenses. (2) See glossary on page 14 for definitions of indices. Returns shown for the indices assume reinvestment of all dividends and distributions, and 4 since-inception returns shown for the indices are calculated from 8/31/97. Indices are unmanaged, and individuals cannot invest directly in an index. 4 PORTFOLIO MANAGER Asset Allocation Team WM Advisors, Inc. Among fixed-income assets, high-yield bonds had a positive impact on performance, while mortgage- and asset-backed bonds provided a slight benefit. Through small adjustments in allocations, the Portfolio ended the period with neutral weightings in corporate and mortgage securities. Looking forward, we believe that the economy will continue to slow while inflation fears subside, subsequently leading the Federal Reserve to cut short-term interest rates. We anticipate that in 2007, these cuts will begin earlier and occur more often than the market expects. Lower interest rates should bring down bond yields and could support the expansion of equity price multiples. The Portfolio's asset class allocations are designed to take advantage of this soft landing scenario. However, we also feel that choppy market performance is apt to occur in reaction to mixed economic data. In the near term, we are analyzing the Portfolio's five underlying equity funds that will be changing management as a result of fund mergers scheduled for January 2007. Given our asset allocation discipline, we are focused on proactively identifying and executing adjustments that might be necessary to keep allocations aligned with our targets and our outlook. PORTFOLIO COMPOSITION (3)
As of As of Asset Class 12/31/06 12/31/05 Change ----------- -------- -------- ------ Mortgage- & Asset-Backed Bonds 35% 36% -1% Investment-Grade Corporate Bonds 20% 20% 0% High-Yield Corporate Bonds 9% 8% +1% U.S. Government Securities 7% 6% +1% U.S. Large-Cap Growth Stocks 8% 7% +1% U.S. Large-Cap Value Stocks 6% 7% -1% U.S. Mid-Cap Growth Stocks 5% 3% +2% REITs 2% 2% 0% U.S. Mid-Cap Value Stocks 2% 2% 0% Convertible Securities 1% 2% -1% Non-U.S. Developed Market Stocks 1% 1% 0% U.S. Small-Cap Growth Stocks 1% 2% -1% U.S. Small-Cap Value Stocks 1% 1% 0% Cash Equivalents 2% 3% -1%
Note: Pages 44 and 45 provide information about those WM Funds in which the VT Flexible Income Portfolio invests a significant portion of its assets. For additional information about these and other WM Funds, please see the WM Variable Trust annual report, which is available online. (3) May not reflect the current portfolio composition. 5 VT Conservative Balanced Portfolio* INVESTMENT STRATEGY The WM VT Strategic Asset Management (SAM) Conservative Balanced Portfolio ended 2006 invested in 13 underlying funds that provide diversification across 15 equity and fixed-income asset classes. We began the 12-month period with an outlook for the economy and financial markets that judged stocks to be more attractive than bonds. In response, we built on the Portfolio's equity allocation by raising it from 45% to 46%. Despite a short-lived stock market retreat during May and June, this overweighting in equities proved beneficial to performance during the year. As we strengthened the Portfolio's equity allocation, we also shifted its equity style and capitalization weightings to favor large-cap growth stocks. These adjustments ultimately proved to be ahead of a market rotation away from value and smaller capitalization assets. However, large-cap growth stocks enjoyed improved performance late in the period, and we believe the Portfolio is well-positioned for the upcoming year. Other equity asset classes that drove Portfolio performance included real estate investment trusts (REITs) and international equities, which realized strong absolute returns. In March, Data shown is past performance and does not guarantee future results. Current performance, including the most recent month-end results, which may be higher or lower than the data shown, can be obtained by calling 800-222-5852. Your investment's return and principal value will fluctuate, so it may be worth more or less upon redemption. Performance shown below does not account for fees, expenses, and charges of any variable insurance contract or retirement plan. If these fees were reflected, performance would be lower. Equity investments involve greater risk, including heightened volatility, than fixed-income investments. Fixed-income investments are subject to interest rate risk, and their value will decline as interest rates rise. * As of 8/1/00, the VT Income Portfolio became the VT Conservative Balanced Portfolio, and the Portfolio's objectives and strategies changed. This information should be considered when reviewing past performance. Please see the prospectus for detailed information. AVERAGE ANNUAL TOTAL RETURNS(1) AS OF DECEMBER 31, 2006
1-Year 5-Year Since Inception Inception Date ------ ------ --------------- -------------- CLASS 1 SHARES 8.83% 7.11% 5.63% 4/23/98 CLASS 2 SHARES 8.50% 6.83% 6.87% 11/6/01 Lehman Brothers Aggregate Bond Index(2) 4.33% 5.06% 5.84% S&P 500(2) 15.80% 6.19% 4.48% Capital Market Benchmark(2) 8.82% 5.76% 5.64%
VALUE OF A $10,000 INVESTMENT (1) APRIL 23, 1998 - DECEMBER 31, 2006 (PERFORMANCE GRAPH) WM GROUP OF FUNDS VT ANNUAL REPORT UPDATE MATERIAL PERFORMANCE NAV -- MOUNTAIN CHARTS (VALUE OF $10,000 INVESTMENT OVER 10-YEARS) DATA AS OF 12/31/2006 CLASS 1 SHARES
LEHMAN VT CONSERVATIVE BROTHERS CAPITAL BALANCED AGGREGATE MARKET DATE PORTFOLIO S&P 500 BOND INDEX BENCHMARK ------ --------------- ------- ---------- --------- DEC-96 Jan-97 Feb-97 Mar-97 Apr-97 May-97 Jun-97 Jul-97 Aug-97 Sep-97 Oct-97 Nov-97 Dec-97 Jan-98 Feb-98 Mar-98 Apr-98 10,000 10,000 10,000 10,000 May-98 10,090 9,828 10,095 9,988 Jun-98 10,163 10,227 10,181 10,201 Jul-98 10,183 10,119 10,202 10,170 Aug-98 10,233 8,655 10,368 9,681 Sep-98 10,383 9,210 10,611 10,065 Oct-98 10,323 9,959 10,555 10,361 Nov-98 10,404 10,563 10,615 10,648 Dec-98 10,423 11,171 10,647 10,912 Jan-99 10,493 11,638 10,722 11,141 Feb-99 10,363 11,276 10,535 10,886 Mar-99 10,446 11,727 10,593 11,096 Apr-99 10,538 12,181 10,627 11,289 May-99 10,497 11,893 10,533 11,124 Jun-99 10,472 12,553 10,499 11,349 Jul-99 10,482 12,162 10,455 11,179 Aug-99 10,461 12,101 10,450 11,153 Sep-99 10,568 11,769 10,571 11,109 Oct-99 10,600 12,514 10,610 11,414 Nov-99 10,621 12,768 10,609 11,507 Dec-99 10,619 13,521 10,558 11,745 Jan-00 10,597 12,842 10,524 11,485 Feb-00 10,694 12,599 10,651 11,482 Mar-00 10,787 13,831 10,792 12,023 Apr-00 10,787 13,415 10,760 11,857 May-00 10,744 13,140 10,755 11,756 Jun-00 10,918 13,463 10,979 12,018 Jul-00 10,995 13,253 11,078 12,009 Aug-00 11,360 14,076 11,239 12,411 Sep-00 11,251 13,333 11,310 12,196 Oct-00 11,217 13,277 11,385 12,224 Nov-00 10,905 12,231 11,571 11,959 Dec-00 11,153 12,291 11,787 12,116 Jan-01 11,581 12,727 11,979 12,406 Feb-01 11,255 11,566 12,083 12,018 Mar-01 11,012 10,834 12,143 11,750 Apr-01 11,285 11,676 12,092 12,086 May-01 11,399 11,754 12,165 12,162 Jun-01 11,422 11,469 12,211 12,071 Jul-01 11,456 11,356 12,485 12,186 Aug-01 11,342 10,645 12,628 11,965 Sep-01 10,956 9,785 12,775 11,662 Oct-01 11,171 9,972 13,042 11,898 Nov-01 11,365 10,737 12,862 12,165 Dec-01 11,422 10,831 12,779 12,161 Jan-02 11,364 10,673 12,883 12,149 Feb-02 11,319 10,467 13,008 12,126 Mar-02 11,456 10,861 12,792 12,187 Apr-02 11,376 10,203 13,040 12,034 May-02 11,399 10,127 13,151 12,060 Jun-02 11,128 9,406 13,265 11,779 Jul-02 10,819 8,672 13,426 11,498 Aug-02 10,934 8,730 13,653 11,645 Sep-02 10,635 7,781 13,874 11,251 Oct-02 10,922 8,465 13,810 11,616 Nov-02 11,233 8,964 13,806 11,888 Dec-02 11,164 8,437 14,092 11,756 Jan-03 11,153 8,216 14,104 11,639 Feb-03 11,164 8,093 14,299 11,666 Mar-03 11,199 8,171 14,288 11,706 Apr-03 11,601 8,845 14,406 12,150 May-03 12,048 9,311 14,674 12,541 Jun-03 12,135 9,430 14,645 12,590 Jul-03 12,053 9,596 14,153 12,425 Aug-03 12,194 9,783 14,246 12,571 Sep-03 12,358 9,679 14,624 12,718 Oct-03 12,628 10,227 14,488 12,936 Nov-03 12,745 10,317 14,522 13,001 Dec-03 13,074 10,858 14,671 13,353 Jan-04 13,284 11,057 14,788 13,516 Feb-04 13,413 11,211 14,948 13,678 Mar-04 13,448 11,042 15,060 13,657 Apr-04 13,132 10,868 14,668 13,358 May-04 13,156 11,017 14,609 13,400 Jun-04 13,345 11,231 14,693 13,550 Jul-04 13,201 10,859 14,838 13,451 Aug-04 13,357 10,903 15,122 13,627 Sep-04 13,489 11,021 15,162 13,708 Oct-04 13,644 11,189 15,290 13,861 Nov-04 13,872 11,642 15,167 14,019 Dec-04 14,147 12,038 15,307 14,287 Jan-05 14,002 11,744 15,403 14,201 Feb-05 14,098 11,991 15,313 14,271 Mar-05 13,954 11,779 15,234 14,127 Apr-05 13,941 11,555 15,440 14,134 May-05 14,205 11,922 15,607 14,405 Jun-05 14,317 11,939 15,693 14,461 Jul-05 14,513 12,383 15,550 14,597 Aug-05 14,574 12,271 15,749 14,656 Sep-05 14,538 12,370 15,587 14,613 Oct-05 14,403 12,163 15,464 14,446 Nov-05 14,672 12,623 15,532 14,704 Dec-05 14,795 12,627 15,679 14,789 Jan-06 15,053 12,962 15,681 14,947 Feb-06 15,040 12,997 15,733 14,993 Mar-06 15,138 13,158 15,578 14,980 Apr-06 15,212 13,334 15,550 15,044 May-06 14,943 12,950 15,533 14,861 Jun-06 14,952 12,968 15,566 14,888 Jul-06 15,015 13,049 15,776 15,045 Aug-06 15,293 13,359 16,017 15,327 Sep-06 15,495 13,704 16,158 15,566 Oct-06 15,772 14,151 16,265 15,830 Nov-06 16,050 14,419 16,454 16,062 Dec-06 16,101 14,621 16,358 16,095
(1) Performance reflects ongoing expenses and assumes reinvestment of all dividends and capital gains. It also reflects ongoing fund expenses paid by the Portfolio's applicable Funds, which include the effects of expense reimbursement. Performance does not reflect the impact of federal, state, or municipal taxes. If it did, performance would be lower. The Portfolio's performance between 1998 and 2003 benefited from the agreement of WM Advisors and its affiliates to limit the Portfolio's expenses. (2) See glossary on page 14 for definitions of indices. Returns shown for the indices assume reinvestment of all dividends and distributions, and since-inception returns shown for the indices are calculated from 4/30/98. Indices are unmanaged, and individuals cannot invest directly in an index. 6 PORTFOLIO MANAGER Asset Allocation Team WM Advisors, Inc. we slightly expanded the Portfolio's exposure to emerging market stocks and believe that the Portfolio's small core position can provide broader diversification going forward. However, in December, the underlying fund temporarily trimmed this allocation in preparation for fund mergers scheduled for January 2007. Among fixed-income assets, high-yield bonds had a positive impact on performance, while mortgage- and asset-backed bonds provided a slight benefit. The Portfolio ended the period with neutral weightings in corporate and mortgage securities. Looking forward, we believe that the economy will continue to slow while inflation fears subside, subsequently leading the Federal Reserve to cut short-term interest rates. We anticipate that in 2007, these cuts will begin earlier and occur more often than the market expects. Lower interest rates should bring down bond yields and could support the expansion of equity price multiples. The Portfolio's asset class allocations are designed to take advantage of this soft landing scenario. However, we also feel that choppy market performance is apt to occur in reaction to mixed economic data. In the near term, we are analyzing the Portfolio's six underlying equity funds that will be changing management as a result of the upcoming fund mergers. Given our asset allocation discipline, we are focused on proactively identifying and executing adjustments that might be necessary to keep allocations aligned with our targets and our outlook. PORTFOLIO COMPOSITION (3)
As of As of Asset Class 12/31/06 12/31/05 Change ----------- -------- -------- ------ Mortgage- & Asset-Backed Bonds 28% 28% 0% Investment-Grade Corporate Bonds 12% 13% -1% High-Yield Corporate Bonds 7% 6% +1% U.S. Government Securities 5% 5% 0% U.S. Large-Cap Growth Stocks 12% 11% +1% U.S. Large-Cap Value Stocks 9% 11% -2% U.S. Mid-Cap Growth Stocks 7% 5% +2% Non-U.S. Developed Market Stocks 6% 5% +1% REITs 3% 3% 0% U.S. Mid-Cap Value Stocks 3% 3% 0% U.S. Small-Cap Growth Stocks 2% 2% 0% U.S. Small-Cap Value Stocks 2% 2% 0% Emerging Market Stocks 1% 1% 0% Convertible Securities 1% 2% -1% Cash Equivalents 2% 3% -1%
Note: Page 44 provides information about a WM Fund in which the VT Conservative Balanced Portfolio invests a significant portion of its assets. For additional information about this and other WM Funds, please see the WM Variable Trust annual report, which is available online. (3) May not reflect the current portfolio composition. 7 VT Balanced Portfolio INVESTMENT STRATEGY The WM VT Strategic Asset Management (SAM) Balanced Portfolio ended 2006 invested in 13 underlying funds that provide diversification across 15 equity and fixed-income asset classes. We began the 12-month period with an outlook for the economy and financial markets that judged stocks to be more attractive than bonds. In response, we built on the Portfolio's equity allocation by raising it from 65% to 66%. Despite a short-lived stock market retreat during May and June, this overweighting in equities proved beneficial to performance during the year. As we strengthened the Portfolio's equity allocation, we also shifted its equity style and capitalization weightings to favor large-cap growth stocks. These adjustments ultimately proved to be ahead of a market rotation away from value and smaller capitalization assets. However, large-cap growth stocks enjoyed improved performance late in the period, and we believe the Portfolio is well-positioned for the upcoming year. Other equity asset classes that drove Portfolio performance included real estate investment trusts (REITs) and international equities, which realized strong absolute returns. In March, Data shown is past performance and does not guarantee future results. Current performance, including the most recent month-end results, which may be higher or lower than the data shown, can be obtained by calling 800-222-5852. Your investment's return and principal value will fluctuate, so it may be worth more or less upon redemption. Performance shown below does not account for fees, expenses, and charges of any variable insurance contract or retirement plan. If these fees were reflected, performance would be lower. Equity investments involve greater risk, including heightened volatility, than fixed-income investments. Fixed-income investments are subject to interest rate risk, and their value will decline as interest rates rise. AVERAGE ANNUAL TOTAL RETURNS (1) AS OF DECEMBER 31, 2006
1-Year 5-Year Since Inception Inception Date ------ ------ --------------- -------------- CLASS 1 SHARES 10.61% 7.65% 8.98% 6/3/97 CLASS 2 SHARES 10.38% 7.39% 7.75% 11/6/01 S&P 500(2) 15.80% 6.19% 7.19% Lehman Brothers Aggregate Bond Index(2) 4.33% 5.06% 6.31% Capital Market Benchmark(2) 11.11% 5.98% 7.17%
VALUE OF A $10,000 INVESTMENT(1) JUNE 3, 1997 - DECEMBER 31, 2006 (PERFORMANCE GRAPH) WM GROUP OF FUNDS VT ANNUAL REPORT UPDATE MATERIAL PERFORMANCE NAV -- MOUNTAIN CHARTS (VALUE OF $10,000 INVESTMENT OVER 10-YEARS) DATA AS OF 12/31/2006 CLASS 1 SHARES
LEHMAN VT BROTHERS BALANCED AGGREGATE CAPITAL MARKET DATE PORTFOLIO S&P 500 BOND INDEX BENCHMARK ---- --------- ------- ---------- -------------- DEC-96 Jan-97 Feb-97 Mar-97 Apr-97 May-97 10,000 10,000 10,000 10,000 Jun-97 10,190 10,446 10,119 10,315 Jul-97 10,680 11,275 10,392 10,917 Aug-97 10,350 10,648 10,304 10,516 Sep-97 10,700 11,232 10,456 10,924 Oct-97 10,390 10,857 10,608 10,769 Nov-97 10,390 11,360 10,657 11,087 Dec-97 10,470 11,555 10,764 11,247 Jan-98 10,599 11,683 10,902 11,380 Feb-98 11,109 12,526 10,893 11,869 Mar-98 11,409 13,167 10,931 12,250 Apr-98 11,579 13,300 10,987 12,349 May-98 11,439 13,071 11,092 12,269 Jun-98 11,654 13,602 11,186 12,610 Jul-98 11,533 13,458 11,210 12,541 Aug-98 10,376 11,512 11,392 11,535 Sep-98 10,718 12,250 11,659 12,086 Oct-98 11,181 13,245 11,597 12,651 Nov-98 11,654 14,048 11,663 13,139 Dec-98 12,267 14,857 11,698 13,609 Jan-99 12,689 15,478 11,781 13,989 Feb-99 12,397 14,997 11,575 13,631 Mar-99 12,927 15,597 11,639 13,988 Apr-99 13,409 16,200 11,676 14,331 May-99 13,101 15,818 11,573 14,077 Jun-99 13,625 16,696 11,536 14,528 Jul-99 13,459 16,175 11,488 14,231 Aug-99 13,448 16,094 11,482 14,186 Sep-99 13,577 15,653 11,615 14,018 Oct-99 14,027 16,644 11,658 14,571 Nov-99 14,611 16,982 11,657 14,748 Dec-99 15,664 17,982 11,601 15,241 Jan-00 15,349 17,079 11,563 14,761 Feb-00 15,915 16,757 11,703 14,665 Mar-00 16,432 18,395 11,857 15,604 Apr-00 15,956 17,842 11,823 15,304 May-00 15,691 17,476 11,817 15,113 Jun-00 16,027 17,906 12,063 15,462 Jul-00 15,844 17,627 12,172 15,374 Aug-00 16,562 18,721 12,349 16,036 Sep-00 16,244 17,733 12,427 15,568 Oct-00 16,158 17,658 12,509 15,569 Nov-00 15,371 16,267 12,714 14,936 Dec-00 15,738 16,346 12,950 15,091 Jan-01 16,509 16,927 13,161 15,511 Feb-01 15,728 15,383 13,276 14,717 Mar-01 15,186 14,409 13,342 14,187 Apr-01 15,776 15,529 13,286 14,824 May-01 15,996 15,633 13,366 14,919 Jun-01 16,033 15,253 13,417 14,723 Jul-01 15,930 15,104 13,717 14,769 Aug-01 15,613 14,158 13,875 14,281 Sep-01 14,751 13,014 14,036 13,656 Oct-01 15,090 13,263 14,329 13,926 Nov-01 15,566 14,280 14,132 14,490 Dec-01 15,759 14,406 14,041 14,529 Jan-02 15,521 14,195 14,155 14,450 Feb-02 15,339 13,921 14,292 14,338 Mar-02 15,736 14,445 14,055 14,566 Apr-02 15,397 13,569 14,328 14,150 May-02 15,363 13,469 14,449 14,135 Jun-02 14,804 12,510 14,575 13,580 Jul-02 14,097 11,534 14,751 13,011 Aug-02 14,224 11,610 15,001 13,150 Sep-02 13,553 10,348 15,244 12,378 Oct-02 14,109 11,259 15,174 13,010 Nov-02 14,676 11,922 15,169 13,467 Dec-02 14,375 11,221 15,483 13,104 Jan-03 14,258 10,927 15,497 12,902 Feb-03 14,177 10,763 15,711 12,857 Mar-03 14,200 10,868 15,698 12,928 Apr-03 14,917 11,763 15,829 13,610 May-03 15,658 12,383 16,123 14,142 Jun-03 15,829 12,541 16,091 14,240 Jul-03 15,888 12,762 15,550 14,199 Aug-03 16,148 13,011 15,653 14,402 Sep-03 16,266 12,873 16,068 14,462 Oct-03 16,847 13,602 15,918 14,899 Nov-03 17,072 13,721 15,956 14,991 Dec-03 17,641 14,440 16,119 15,524 Jan-04 17,985 14,706 16,248 15,744 Feb-04 18,186 14,911 16,423 15,944 Mar-04 18,186 14,685 16,547 15,847 Apr-04 17,735 14,455 16,116 15,533 May-04 17,831 14,653 16,052 15,635 Jun-04 18,157 14,937 16,143 15,853 Jul-04 17,771 14,443 16,303 15,601 Aug-04 17,939 14,501 16,615 15,757 Sep-04 18,169 14,657 16,660 15,876 Oct-04 18,411 14,881 16,799 16,075 Nov-04 18,930 15,484 16,665 16,414 Dec-04 19,426 16,011 16,818 16,810 Jan-05 19,088 15,620 16,924 16,606 Feb-05 19,330 15,948 16,824 16,776 Mar-05 19,100 15,666 16,739 16,563 Apr-05 18,955 15,368 16,965 16,463 May-05 19,450 15,857 17,148 16,848 Jun-05 19,619 15,879 17,242 16,901 Jul-05 20,111 16,470 17,085 17,217 Aug-05 20,111 16,320 17,304 17,210 Sep-05 20,124 16,452 17,126 17,222 Oct-05 19,890 16,177 16,990 16,995 Nov-05 20,445 16,789 17,065 17,411 Dec-05 20,592 16,794 17,227 17,481 Jan-06 21,109 17,239 17,229 17,758 Feb-06 21,061 17,285 17,286 17,810 Mar-06 21,307 17,500 17,117 17,872 Apr-06 21,443 17,734 17,086 18,003 May-06 20,877 17,223 17,067 17,684 Jun-06 20,890 17,247 17,103 17,714 Jul-06 20,890 17,354 17,334 17,875 Aug-06 21,343 17,767 17,599 18,240 Sep-06 21,682 18,226 17,754 18,587 Oct-06 22,211 18,820 17,871 18,999 Nov-06 22,678 19,178 18,078 19,303 Dec-06 22,780 19,446 17,973 19,421
(1) Performance reflects ongoing expenses and assumes reinvestment of all dividends and capital gains. It also reflects ongoing fund expenses paid by the Portfolio's applicable Funds, which include the effects of expense reimbursement. Performance does not reflect the impact of federal, state, or municipal taxes. If it did, performance would be lower. The Portfolio's performance between 1997 and 1998 benefited from the agreement of WM Advisors and its affiliates to limit the Portfolio's expenses. (2) See glossary on page 14 for definitions of indices. Returns shown for the indices assume reinvestment of all dividends and distributions, and since-inception returns shown for the indices are calculated from 5/31/97. Indices are unmanaged, and individuals cannot invest directly in an index. 8 PORTFOLIO MANAGER Asset Allocation Team WM Advisors, Inc. we expanded the Portfolio's exposure to emerging market stocks and believe that the Portfolio's core position can provide broader diversification going forward. However, in December, the underlying fund temporarily trimmed this allocation in preparation for fund mergers scheduled for January 2007. Among fixed-income assets, high-yield bonds had a positive impact on performance, while mortgage- and asset-backed bonds provided a slight benefit. The Portfolio ended the period with neutral weightings in corporate and mortgage securities. Looking forward, we believe that the economy will continue to slow while inflation fears subside, subsequently leading the Federal Reserve to cut short-term interest rates. We anticipate that in 2007, these cuts will begin earlier and occur more often than the market expects. Lower interest rates should bring down bond yields and could support the expansion of equity price multiples. The Portfolio's asset class allocations are designed to take advantage of this soft landing scenario. However, we also feel that choppy market performance is apt to occur in reaction to mixed economic data. In the near term, we are analyzing the Portfolio's six underlying equity funds that will be changing management as a result of the upcoming fund mergers. Given our asset allocation discipline, we are focused on proactively identifying and executing adjustments that might be necessary to keep allocations aligned with our targets and our outlook. PORTFOLIO COMPOSITION (3)
As of As of Asset Class 12/31/06 12/31/05 Change ----------- -------- -------- ------ U.S. Large-Cap Growth Stocks 18% 16% +2% U.S. Large-Cap Value Stocks 13% 16% -3% U.S. Mid-Cap Growth Stocks 10% 8% +2% Non-U.S. Developed Market Stocks 9% 8% +1% REITs 5% 4% +1% U.S. Mid-Cap Value Stocks 4% 5% -1% U.S. Small-Cap Growth Stocks 3% 3% 0% U.S. Small-Cap Value Stocks 2% 3% -1% Convertible Securities 1% 1% 0% Emerging Market Stocks 1% 1% 0% Mortgage- & Asset-Backed Bonds 17% 17% 0% Investment-Grade Corporate Bonds 6% 6% 0% High-Yield Corporate Bonds 5% 5% 0% U.S. Government Securities 3% 3% 0% Cash Equivalents 3% 4% -1%
Note: For information about the underlying WM Funds of the VT SAM Portfolios, please see the WM Variable Trust annual report, which is available online. (3) May not reflect the current portfolio composition. 9 VT Conservative Growth Portfolio INVESTMENT STRATEGY The WM VT Strategic Asset Management (SAM) Conservative Growth Portfolio ended 2006 invested in 12 underlying funds that provide diversification across 14 equity and fixed-income asset classes. We began the 12-month period with an outlook for the economy and financial markets that judged stocks to be more attractive than bonds. In response, we built on the Portfolio's equity allocation by raising it from 83% to 84%. Despite a short-lived stock market retreat during May and June, this overweighting in equities proved beneficial to performance during the year. As we strengthened the Portfolio's equity allocation, we also shifted its equity style and capitalization weightings to favor large-cap growth stocks. These adjustments ultimately proved to be ahead of a market rotation away from value and smaller capitalization assets. However, large-cap growth stocks enjoyed improved performance late in the period, and we believe the Portfolio is well-positioned for the upcoming year. Other equity asset classes that drove Portfolio performance included real estate investment trusts (REITs) and international equities, which realized strong absolute returns. In March, Data shown is past performance and does not guarantee future results. Current performance, including the most recent month-end results, which may be higher or lower than the data shown, can be obtained by calling 800-222-5852. Your investment's return and principal value will fluctuate, so it may be worth more or less upon redemption. Performance shown below does not account for fees, expenses, and charges of any variable insurance contract or retirement plan. If these fees were reflected, performance would be lower. Equity investments involve greater risk, including heightened volatility, than fixed-income investments. Fixed-income investments are subject to interest rate risk, and their value will decline as interest rates rise. AVERAGE ANNUAL TOTAL RETURNS (1) AS OF DECEMBER 31, 2006
1-Year 5-Year Since Inception Inception Date ------ ------ --------------- -------------- CLASS 1 SHARES 12.20% 7.86% 9.60% 6/3/97 CLASS 2 SHARES 11.95% 7.59% 8.26% 11/6/01 S&P 500(2) 15.80% 6.19% 7.19% Lehman Brothers Aggregate Bond Index(2) 4.33% 5.06% 6.31% Capital Market Benchmark(2) 13.44% 6.13% 7.24%
VALUE OF A $10,000 INVESTMENT(1) JUNE 3, 1997 - DECEMBER 31, 2006 (PERFORMANCE GRAPH) WM GROUP OF FUNDS VT ANNUAL REPORT UPDATE MATERIAL PERFORMANCE NAV -- MOUNTAIN CHARTS (VALUE OF $10,000 INVESTMENT OVER 10-YEARS) DATA AS OF 12/31/2006 CLASS 1 SHARES
VT LEHMAN CONSERVATIVE BROTHERS CAPITAL GROWTH AGGREGATE MARKET DATE PORTFOLIO S&P 500 BOND INDEX BENCHMARK ---- ------------ ------- ---------- --------- Dec-96 Jan-97 Feb-97 Mar-97 Apr-97 May-97 10,000 10,000 10,000 10,000 Jun-97 10,300 10,446 10,119 10,381 Jul-97 10,860 11,275 10,392 11,096 Aug-97 10,420 10,648 10,304 10,584 Sep-97 10,851 11,232 10,456 11,079 Oct-97 10,421 10,857 10,608 10,815 Nov-97 10,401 11,360 10,657 11,226 Dec-97 10,492 11,555 10,764 11,404 Jan-98 10,622 11,683 10,902 11,534 Feb-98 11,312 12,526 10,893 12,197 Mar-98 11,713 13,167 10,931 12,704 Apr-98 11,883 13,300 10,987 12,820 May-98 11,593 13,071 11,092 12,667 Jun-98 11,859 13,602 11,186 13,100 Jul-98 11,619 13,458 11,210 12,994 Aug-98 10,034 11,512 11,392 11,534 Sep-98 10,525 12,250 11,659 12,178 Oct-98 11,097 13,245 11,597 12,958 Nov-98 11,750 14,048 11,663 13,601 Dec-98 12,583 14,857 11,698 14,236 Jan-99 13,155 15,478 11,781 14,733 Feb-99 12,774 14,997 11,575 14,314 Mar-99 13,466 15,597 11,639 14,788 Apr-99 14,128 16,200 11,676 15,255 May-99 13,818 15,818 11,573 14,941 Jun-99 14,572 16,696 11,536 15,595 Jul-99 14,326 16,175 11,488 15,193 Aug-99 14,316 16,094 11,482 15,131 Sep-99 14,429 15,653 11,615 14,834 Oct-99 15,085 16,644 11,658 15,597 Nov-99 15,936 16,982 11,657 15,849 Dec-99 17,536 17,982 11,601 16,582 Jan-00 17,168 17,079 11,563 15,903 Feb-00 17,999 16,757 11,703 15,701 Mar-00 18,706 18,395 11,857 16,972 Apr-00 17,937 17,842 11,823 16,553 May-00 17,485 17,476 11,817 16,279 Jun-00 17,900 17,906 12,063 16,668 Jul-00 17,588 17,627 12,172 16,490 Aug-00 18,596 18,721 12,349 17,358 Sep-00 18,066 17,733 12,427 16,646 Oct-00 17,911 17,658 12,509 16,611 Nov-00 16,643 16,267 12,714 15,618 Dec-00 17,100 16,346 12,950 15,736 Jan-01 18,118 16,927 13,161 16,234 Feb-01 16,891 15,383 13,276 15,078 Mar-01 16,050 14,409 13,342 14,328 Apr-01 17,007 15,529 13,286 15,207 May-01 17,277 15,633 13,366 15,307 Jun-01 17,291 15,253 13,417 15,021 Jul-01 16,992 15,104 13,717 14,970 Aug-01 16,404 14,158 13,875 14,254 Sep-01 15,073 13,014 14,036 13,366 Oct-01 15,473 13,263 14,329 13,625 Nov-01 16,205 14,280 14,132 14,424 Dec-01 16,493 14,406 14,041 14,506 Jan-02 16,094 14,195 14,155 14,360 Feb-02 15,750 13,921 14,292 14,166 Mar-02 16,405 14,445 14,055 14,545 Apr-02 15,795 13,569 14,328 13,897 May-02 15,706 13,469 14,449 13,838 Jun-02 14,885 12,510 14,575 13,073 Jul-02 13,876 11,534 14,751 12,290 Aug-02 13,967 11,610 15,001 12,396 Sep-02 13,005 10,348 15,244 11,358 Oct-02 13,715 11,259 15,174 12,148 Nov-02 14,425 11,922 15,169 12,718 Dec-02 13,932 11,221 15,483 12,173 Jan-03 13,748 10,927 15,497 11,920 Feb-03 13,587 10,763 15,711 11,810 Mar-03 13,610 10,868 15,698 11,900 Apr-03 14,492 11,763 15,829 12,704 May-03 15,375 12,383 16,123 13,287 Jun-03 15,593 12,541 16,091 13,417 Jul-03 15,804 12,762 15,550 13,517 Aug-03 16,120 13,011 15,653 13,745 Sep-03 16,178 12,873 16,068 13,701 Oct-03 16,962 13,602 15,918 14,296 Nov-03 17,232 13,721 15,956 14,403 Dec-03 17,935 14,440 16,119 15,037 Jan-04 18,333 14,706 16,248 15,282 Feb-04 18,568 14,911 16,423 15,485 Mar-04 18,533 14,685 16,547 15,321 Apr-04 18,042 14,455 16,116 15,048 May-04 18,206 14,653 16,052 15,202 Jun-04 18,601 14,937 16,143 15,456 Jul-04 18,007 14,443 16,303 15,077 Aug-04 18,150 14,501 16,615 15,183 Sep-04 18,435 14,657 16,660 15,322 Oct-04 18,707 14,881 16,799 15,535 Nov-04 19,443 15,484 16,665 16,014 Dec-04 20,047 16,011 16,818 16,478 Jan-05 19,584 15,620 16,924 16,178 Feb-05 19,917 15,948 16,824 16,431 Mar-05 19,644 15,666 16,739 16,181 Apr-05 19,383 15,368 16,965 15,979 May-05 19,988 15,857 17,148 16,420 Jun-05 20,196 15,879 17,242 16,456 Jul-05 20,868 16,470 17,085 16,915 Aug-05 20,820 16,320 17,304 16,835 Sep-05 20,856 16,452 17,126 16,909 Oct-05 20,591 16,177 16,990 16,657 Nov-05 21,311 16,789 17,065 17,175 Dec-05 21,456 16,794 17,227 17,213 Jan-06 22,141 17,239 17,229 17,578 Feb-06 22,032 17,285 17,286 17,627 Mar-06 22,405 17,500 17,117 17,768 Apr-06 22,597 17,734 17,086 17,953 May-06 21,840 17,223 17,067 17,537 Jun-06 21,836 17,247 17,103 17,563 Jul-06 21,762 17,354 17,334 17,696 Aug-06 22,286 17,767 17,599 18,088 Sep-06 22,678 18,226 17,754 18,493 Oct-06 23,350 18,820 17,871 18,999 Nov-06 23,901 19,178 18,078 19,332 Dec-06 24,073 19,446 17,973 19,527
(1) Performance reflects ongoing expenses and assumes reinvestment of all dividends and capital gains. It also reflects ongoing fund expenses paid by the Portfolio's applicable Funds, which include the effects of expense reimbursement. Performance does not reflect the impact of federal, state, or municipal taxes. If it did, performance would be lower. The Portfolio's performance between 1997 and 1998 benefited from the agreement of WM Advisors and its affiliates to limit the Portfolio's expenses. (2) See glossary on page 14 for definitions of indices. Returns shown for the indices assume reinvestment of all dividends and distributions, and 10 since-inception returns shown for the indices are calculated from 5/31/97. Indices are unmanaged, and individuals cannot invest directly in an index. 10 PORTFOLIO MANAGER Asset Allocation Team WM Advisors, Inc. we expanded the Portfolio's exposure to emerging market stocks and believe that the Portfolio's core position can provide broader diversification going forward. However, in December, the underlying fund temporarily trimmed this allocation in preparation for fund mergers scheduled for January 2007. Among fixed-income assets, high-yield bonds had a positive impact on performance, while mortgage- and asset-backed bonds provided a slight benefit. The Portfolio ended the period with neutral weightings in corporate and mortgage securities. Looking forward, we believe that the economy will continue to slow while inflation fears subside, subsequently leading the Federal Reserve to cut short-term interest rates. We anticipate that in 2007, these cuts will begin earlier and occur more often than the market expects. Lower interest rates should bring down bond yields and could support the expansion of equity price multiples. The Portfolio's asset class allocations are designed to take advantage of this soft landing scenario. However, we also feel that choppy market performance is apt to occur in reaction to mixed economic data. In the near term, we are analyzing the Portfolio's six underlying equity funds that will be changing management as a result of the upcoming fund mergers. Given our asset allocation discipline, we are focused on proactively identifying and executing adjustments that might be necessary to keep allocations aligned with our targets and our outlook. PORTFOLIO COMPOSITION(3)
As of As of Asset Class 12/31/06 12/31/05 Change ----------- -------- -------- ------ U.S. Large-Cap Growth Stocks 24% 20% +4% U.S. Large-Cap Value Stocks 18% 21% -3% U.S. Mid-Cap Growth Stocks 13% 10% +3% Non-U.S. Developed Market Stocks 11% 10% +1% REITs 6% 5% +1% U.S. Mid-Cap Value Stocks 5% 7% -2% U.S. Small-Cap Growth Stocks 3% 4% -1% U.S. Small-Cap Value Stocks 3% 3% 0% Emerging Market Stocks 1% 2% -1% Convertible Securities 0% 1% -1% Mortgage- & Asset-Backed Bonds 7% 7% 0% High-Yield Corporate Bonds 3% 3% 0% Investment-Grade Corporate Bonds 2% 2% 0% U.S. Government Securities 1% 1% 0% Cash Equivalents 3% 4% -1%
Note: For information about the underlying WM Funds of the VT SAM Portfolios, please see the WM Variable Trust annual report, which is available online. (3) May not reflect the current portfolio composition. 11 VT Strategic Growth Portfolio INVESTMENT STRATEGY The WM VT Strategic Asset Management (SAM) Strategic Growth Portfolio ended 2006 invested in 10 underlying funds that provide diversification across 12 equity and fixed-income asset classes. We began the 12-month period with an outlook for the economy and financial markets that judged stocks to be more attractive than bonds. In response, we built on the Portfolio's equity allocation by raising it from 93% to 94%. Despite a short-lived stock market retreat during May and June, this addition to equities proved beneficial to performance during the year. As we strengthened the Portfolio's equity allocation, we also shifted its equity style and capitalization weightings to favor large-cap growth stocks. These adjustments ultimately proved to be ahead of a market rotation away from value and smaller capitalization assets. However, large-cap growth stocks enjoyed improved performance late in the period, and we believe the Portfolio is well-positioned for the upcoming year. Other asset classes that drove Portfolio performance included real estate investment trusts (REITs) and international equities, which realized strong absolute returns. In March, Data shown is past performance and does not guarantee future results. Current performance, including the most recent month-end results, which may be higher or lower than the data shown, can be obtained by calling 800-222-5852. Your investment's return and principal value will fluctuate, so it may be worth more or less upon redemption. Performance shown below does not account for fees, expenses, and charges of any variable insurance contract or retirement plan. If these fees were reflected, performance would be lower. Equity investments involve greater risk, including heightened volatility, than fixed-income investments. AVERAGE ANNUAL TOTAL RETURNS(1) AS OF DECEMBER 31, 2006
1-Year 5-Year Since Inception Inception Date ------ ------ --------------- -------------- CLASS 1 SHARES 13.06% 7.76% 10.58% 6/3/97 CLASS 2 SHARES 12.77% 7.53% 8.49% 11/6/01 S&P 500(2) 15.80% 6.19% 7.19% Russell 3000(R) Index(2) 15.72% 7.17% 7.65%
VALUE OF A $10,000 INVESTMENT(1) JUNE 3, 1997 - DECEMBER 31, 2006 (PERFORMANCE GRAPH) WM GROUP OF FUNDS VT ANNUAL REPORT UPDATE MATERIAL PERFORMANCE NAV -- MOUNTAIN CHARTS (VALUE OF $10,000 INVESTMENT OVER 10-YEARS) DATA AS OF 12/31/2006 CLASS 1 SHARES
VT STRATEGIC GROWTH RUSSELL 3000 DATE PORTFOLIO S&P 500 INDEX ------ ------------ ------- ------------ DEC-96 Jan-97 Feb-97 Mar-97 Apr-97 May-97 10,000 10,000 10,000 Jun-97 10,320 10,446 10,416 Jul-97 10,970 11,275 11,233 Aug-97 10,550 10,648 10,777 Sep-97 11,041 11,232 11,388 Oct-97 10,610 10,857 11,005 Nov-97 10,630 11,360 11,426 Dec-97 10,700 11,555 11,655 Jan-98 10,861 11,683 11,716 Feb-98 11,711 12,526 12,553 Mar-98 12,171 13,167 13,176 Apr-98 12,361 13,300 13,305 May-98 12,061 13,071 12,976 Jun-98 12,411 13,602 13,415 Jul-98 12,170 13,458 13,171 Aug-98 10,424 11,512 11,153 Sep-98 11,005 12,250 11,914 Oct-98 11,637 13,245 12,818 Nov-98 12,390 14,048 13,602 Dec-98 13,504 14,857 14,468 Jan-99 14,256 15,478 14,959 Feb-99 13,794 14,997 14,430 Mar-99 14,646 15,597 14,959 Apr-99 15,429 16,200 15,634 May-99 15,137 15,818 15,337 Jun-99 16,039 16,696 16,112 Jul-99 15,744 16,175 15,623 Aug-99 15,755 16,094 15,445 Sep-99 15,878 15,653 15,050 Oct-99 16,704 16,644 15,994 Nov-99 17,804 16,982 16,441 Dec-99 19,976 17,982 17,490 Jan-00 19,639 17,079 16,805 Feb-00 20,923 16,757 16,961 Mar-00 21,697 18,395 18,289 Apr-00 20,617 17,842 17,645 May-00 20,015 17,476 17,149 Jun-00 20,595 17,906 17,657 Jul-00 20,130 17,627 17,345 Aug-00 21,442 18,721 18,631 Sep-00 20,677 17,733 17,787 Oct-00 20,408 17,658 17,535 Nov-00 18,661 16,267 15,918 Dec-00 19,230 16,346 16,186 Jan-01 20,522 16,927 16,739 Feb-01 18,827 15,383 15,209 Mar-01 17,649 14,409 14,218 Apr-01 19,054 15,529 15,358 May-01 19,395 15,633 15,481 Jun-01 19,453 15,253 15,196 Jul-01 18,871 15,104 14,945 Aug-01 18,016 14,158 14,063 Sep-01 16,132 13,014 12,823 Oct-01 16,592 13,263 13,122 Nov-01 17,600 14,280 14,132 Dec-01 18,028 14,406 14,331 Jan-02 17,458 14,195 14,152 Feb-02 16,966 13,921 13,863 Mar-02 17,897 14,445 14,471 Apr-02 17,031 13,569 13,711 May-02 16,900 13,469 13,552 Jun-02 15,824 12,510 12,576 Jul-02 14,464 11,534 11,576 Aug-02 14,522 11,610 11,631 Sep-02 13,254 10,348 10,408 Oct-02 14,123 11,259 11,237 Nov-02 15,014 11,922 11,917 Dec-02 14,329 11,221 11,243 Jan-03 14,078 10,927 10,968 Feb-03 13,828 10,763 10,787 Mar-03 13,851 10,868 10,900 Apr-03 14,879 11,763 11,791 May-03 15,929 12,383 12,503 Jun-03 16,186 12,541 12,672 Jul-03 16,534 12,762 12,962 Aug-03 16,939 13,011 13,250 Sep-03 16,915 12,873 13,105 Oct-03 17,912 13,602 13,898 Nov-03 18,236 13,721 14,090 Dec-03 19,069 14,440 14,734 Jan-04 19,532 14,706 15,042 Feb-04 19,798 14,911 15,245 Mar-04 19,693 14,685 15,063 Apr-04 19,207 14,455 14,752 May-04 19,416 14,653 14,966 Jun-04 19,894 14,937 15,263 Jul-04 19,136 14,443 14,686 Aug-04 19,241 14,501 14,747 Sep-04 19,580 14,657 14,974 Oct-04 19,883 14,881 15,219 Nov-04 20,804 15,484 15,927 Dec-04 21,515 16,011 16,494 Jan-05 20,932 15,620 16,055 Feb-05 21,353 15,948 16,408 Mar-05 21,050 15,666 16,131 Apr-05 20,677 15,368 15,781 May-05 21,388 15,857 16,379 Jun-05 21,626 15,879 16,494 Jul-05 22,471 16,470 17,170 Aug-05 22,388 16,320 17,007 Sep-05 22,458 16,452 17,155 Oct-05 22,163 16,177 16,834 Nov-05 23,021 16,789 17,489 Dec-05 23,173 16,794 17,505 Jan-06 24,007 17,239 18,089 Feb-06 23,866 17,285 18,122 Mar-06 24,348 17,500 18,436 Apr-06 24,572 17,734 18,635 May-06 23,655 17,223 18,038 Jun-06 23,648 17,247 18,071 Jul-06 23,506 17,354 18,055 Aug-06 24,101 17,767 18,497 Sep-06 24,552 18,226 18,911 Oct-06 25,347 18,820 19,592 Nov-06 25,988 19,178 20,019 Dec-06 26,202 19,446 20,259
(1) Performance reflects ongoing expenses and assumes reinvestment of all dividends and capital gains. It also reflects ongoing fund expenses paid by the Portfolio's applicable Funds, which include the effects of expense reimbursement. Performance does not reflect the impact of federal, state, or municipal taxes. If it did, performance would be lower. The Portfolio's performance between 1997 and 1999 benefited from the agreement of WM Advisors and its affiliates to limit the Portfolio's expenses. (2) See glossary on page 14 for definitions of indices. Returns shown for the indices assume reinvestment of all dividends and distributions, and since-inception returns shown for the indices are calculated from 5/31/97. Indices are unmanaged, and individuals cannot invest directly in an index. 12 PORTFOLIO MANAGER Asset Allocation Team WM Advisors, Inc. we expanded the Portfolio's exposure to emerging market stocks and believe that the Portfolio's core position can provide broader diversification going forward. However, in December, the underlying fund temporarily trimmed this allocation in preparation for fund mergers scheduled for January 2007. The Portfolio's fixed-income allocation in high-yield bonds had a positive impact on performance, as the underlying fund achieved strong relative results. Looking forward, we believe that the economy will continue to slow while inflation fears subside, subsequently leading the Federal Reserve to cut short-term interest rates. We anticipate that in 2007, these cuts will begin earlier and occur more often than the market expects. Lower interest rates should bring down bond yields and could support the expansion of equity price multiples. The Portfolio's asset class allocations are designed to take advantage of this soft landing scenario. However, we also feel that choppy market performance is apt to occur in reaction to mixed economic data. In the near term, we are analyzing the Portfolio's six underlying equity funds that will be changing management as a result of the upcoming fund mergers. Given our asset allocation discipline, we are focused on proactively identifying and executing adjustments that might be necessary to keep allocations aligned with our targets and our outlook. PORTFOLIO COMPOSITION (3)
As of As of Asset Class 12/31/06 12/31/05 Change ----------- -------- -------- ------ U.S. Large-Cap Growth Stocks 26% 23% +3% U.S. Large-Cap Value Stocks 19% 23% -4% U.S. Mid-Cap Growth Stocks 15% 11% +4% Non-U.S. Developed Market Stocks 13% 12% +1% U.S. Mid-Cap Value Stocks 6% 8% -2% REITs 6% 5% +1% U.S. Small-Cap Growth Stocks 4% 5% -1% U.S. Small-Cap Value Stocks 3% 3% 0% Emerging Market Stocks 1% 2% -1% Convertible Securities 1% 1% 0% High-Yield Corporate Bonds 3% 3% 0% Cash Equivalents 3% 4% -1%
Note: For information about the underlying WM Funds of the VT SAM Portfolios, please see the WM Variable Trust annual report, which is available online. (3) May not reflect the current portfolio composition. 13 Glossary DEFINITIONS OF INDICES CAPITAL MARKET BENCHMARK: A benchmark intended to represent a relevant proxy for market and Portfolio performance. It is allocated as follows: VT Flexible Income Portfolio: 20% S&P 500 and 80% Lehman Brothers Aggregate Bond Index; VT Conservative Balanced Portfolio: 40% S&P 500 and 60% Lehman Brothers Aggregate Bond Index; VT Balanced Portfolio:60% S&P 500 and 40% Lehman Brothers Aggregate Bond Index; and VT Conservative Growth Portfolio: 80% S&P 500 and 20% Lehman Brothers Aggregate Bond Index. CITIGROUP BROAD INVESTMENT-GRADE BOND INDEX: Measures the performance of bonds, including U.S. and non-U.S. corporate securities and non-U.S. sovereign and provincial securities. It includes institutionally traded U.S. Treasury, government-sponsored, mortgage, asset-backed, and investment-grade securities. CITIGROUP MORTGAGE INDEX: Represents the mortgage-backed securities component of Citigroup's Broad Investment-Grade Bond Index. It consists of 30- and 15-year agency-issued (GNMA, FNMA, and FHLMC) pass-through securities as well as FNMA and FHLMC balloon mortgages. LEHMAN BROTHERS AGGREGATE BOND INDEX: A broad-based index intended to represent the U.S. fixed-income market. RUSSELL 3000(R) INDEX: Measures the performance of the 3,000 largest U.S. companies based on total market capitalization, which represents approximately 98% of the investable U.S. equity market. S&P 500: A broad-based index intended to represent the U.S. equity market. 14 Expense Information WM VARIABLE TRUST STRATEGIC ASSET MANAGEMENT PORTFOLIOS As a shareholder of the VT Flexible Income Portfolio, VT Conservative Balanced Portfolio, VT Balanced Portfolio, VT Conservative Growth Portfolio or VT Strategic Growth Portfolio (collectively, the "Portfolios"), you incur ongoing costs, including management fees, distribution and/or service fees, and other Portfolio expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolios and to compare these costs with the ongoing costs of investing in other mutual funds. This example does not include expenses of Class 1 shares of various funds in the WM Group of Funds and Class I shares of the WM High Yield Fund (collectively, the "Underlying Funds") (see Notes to Financial Statements - note 1). An example including expenses of the Underlying Funds appears on the following page. Also note expenses shown below and on the following page do not account for fees, expenses, and charges of any variable insurance contract or retirement plan. If these fees had been reflected, expenses would have been higher. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period July 1, 2006, to December 31, 2006. ACTUAL EXPENSES: The first section of the table below provides information about actual account values and actual expenses. You may use the information in these columns, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = $8.60), then multiply the result by the number in the third column under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES: The second section of the table below provides information about hypothetical account values and hypothetical expenses based on each Portfolio's actual expense ratio and an assumed rate of return of 5% per year before expenses (rather than each Portfolio's actual rate of return). The hypothetical account values and expenses may not be used to estimate the actual ending balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Portfolios and other mutual funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other mutual funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as separate account expenses. Therefore, the hypothetical section of the table is useful in comparing ongoing costs only, and will not help you compare the relative total costs of owning different mutual funds. In addition, if these transactional costs were included, the cost shown would have been higher.
ACTUAL HYPOTHETICAL EXPENSES (5% RETURN BEFORE EXPENSES) ---------------------------------- ---------------------------------- EXPENSES EXPENSES BEGINNING ENDING PAID DURING BEGINNING ENDING PAID DURING ACCOUNT ACCOUNT PERIOD* ACCOUNT ACCOUNT PERIOD* VALUE VALUE 7/1/06- VALUE VALUE 7/1/06- EXPENSE 7/1/06 12/31/06 12/31/06 7/1/06 12/31/06 12/31/06 RATIO --------- -------- ----------- --------- -------- ----------- ------- VT Flexible Income Portfolio Class 1 ............................ $1,000 $1,068 $1.46 $1,000 $1,024 $1.43 0.28% Class 2 ............................ 1,000 1,066 2.76 1,000 1,023 2.70 0.53% VT Conservative Balanced Portfolio Class 1 ............................ $1,000 $1,088 $1.63 $1,000 $1,024 $1.58 0.31% Class 2 ............................ 1,000 1,085 2.94 1,000 1,022 2.85 0.56% VT Balanced Portfolio Class 1 ............................ $1,000 $1,106 $1.43 $1,000 $1,024 $1.38 0.27% Class 2 ............................ 1,000 1,104 2.76 1,000 1,023 2.65 0.52% VT Conservative Growth Portfolio Class 1 ............................ $1,000 $1,122 $1.44 $1,000 $1,024 $1.38 0.27% Class 2 ............................ 1,000 1,119 2.78 1,000 1,023 2.65 0.52% VT Strategic Growth Portfolio Class 1 ............................ $1,000 $1,131 $1.50 $1,000 $1,024 $1.43 0.28% Class 2 ............................ 1,000 1,128 2.84 1,000 1,023 2.70 0.53%
* Expenses are equal to each Portfolio's annualized expense ratio, multiplied by the average account value over the period, multiplied by the 184 days in the most recent fiscal half-year, divided by 365 days in the year (to reflect the one-half year period). 15 Expense Information (continued) WM VARIABLE TRUST STRATEGIC ASSET MANAGEMENT PORTFOLIOS The following table sets forth the estimated ongoing aggregate expenses of the Portfolios, including expenses of the Underlying Funds, based upon expenses shown in the table above for each Portfolio and corresponding expenses for each Underlying Fund's Class 1 shares or Class I shares. These estimates assume a constant allocation by each Portfolio of its assets among the Underlying Funds identical to the actual allocation of the Portfolio at December 31, 2006. A Portfolio's actual expenses may be higher as a result of changes in the allocation of the Portfolio's assets among the Underlying Funds, the expenses of the Underlying Funds and/or the Portfolio's own expenses.
ACTUAL HYPOTHETICAL EXPENSES (5% RETURN BEFORE EXPENSES) ---------------------------------- ---------------------------------- ESTIMATED ESTIMATED AGGREGATE AGGREGATE EXPENSES EXPENSES BEGINNING ENDING PAID DURING BEGINNING ENDING PAID DURING ESTIMATED ACCOUNT ACCOUNT PERIOD* ACCOUNT ACCOUNT PERIOD* AGGREGATE VALUE VALUE 7/1/06- VALUE VALUE 7/1/06- EXPENSE 7/1/06 12/31/06 12/31/06 7/1/06 12/31/06 12/31/06 RATIO --------- -------- ----------- --------- -------- ----------- ---------- VT Flexible Income Portfolio Class 1 ............................ $1,000 $1,068 $4.54 $1,000 $1,021 $4.43 0.87% Class 2 ............................ 1,000 1,066 5.83 1,000 1,020 5.70 1.12% VT Conservative Balanced Portfolio Class 1 ............................ $1,000 $1,088 $4.95 $1,000 $1,020 $4.79 0.94% Class 2 ............................ 1,000 1,085 6.25 1,000 1,019 6.06 1.19% VT Balanced Portfolio Class 1 ............................ $1,000 $1,106 $5.04 $1,000 $1,020 $4.84 0.95% Class 2 ............................ 1,000 1,104 6.36 1,000 1,019 6.11 1.20% VT Conservative Growth Portfolio Class 1 ............................ $1,000 $1,122 $5.46 $1,000 $1,020 $5.19 1.02% Class 2 ............................ 1,000 1,119 6.78 1,000 1,019 6.46 1.27% VT Strategic Growth Portfolio Class 1 ............................ $1,000 $1,131 $5.75 $1,000 $1,020 $5.45 1.07% Class 2 ............................ 1,000 1,128 7.08 1,000 1,019 6.72 1.32%
* Expenses are equal to each Portfolio's annualized expense ratio, multiplied by the average account value over the period, multiplied by the 184 days in the most recent fiscal half-year, divided by 365 days in the year (to reflect the one-half year period). 16 Financial Statements: Portfolios of Investments VT FLEXIBLE INCOME PORTFOLIO December 31, 2006
VALUE SHARES (000S) ------ -------- INVESTMENT COMPANY SECURITIES -- 99.1% EQUITY FUNDS -- 25.2% 442,423 WM VT Equity Income Fund ............................. $ 8,579 554,994 WM VT Growth & Income Fund ........................... 11,350 923,910 WM VT Growth Fund .................................... 13,480 308,381 WM VT Mid Cap Stock Fund ............................. 5,468 95,928 WM VT REIT Fund ...................................... 1,978 203,515 WM VT Small Cap Growth Fund+ ......................... 2,104 176,401 WM VT Small Cap Value Fund ........................... 2,180 104,959 WM VT West Coast Equity Fund ......................... 2,525 -------- Total Equity Funds (Cost $30,969) .................................... 47,664 -------- FIXED-INCOME FUNDS -- 73.9% 1,427,830 WM High Yield Fund ................................... 12,436 4,423,594 WM VT Income Fund .................................... 46,713 8,831,301 WM VT Short Term Income Fund ......................... 22,255 5,636,978 WM VT U.S. Government Securities Fund ................ 58,681 -------- Total Fixed-Income Funds (Cost $135,204) ................................... 140,085 -------- Total Investment Company Securities (Cost $166,173) ................................... 187,749 --------
PRINCIPAL AMOUNT (000S) --------- REPURCHASE AGREEMENT -- 1.0% (Cost $1,927) $ 1,927 Agreement with Morgan Stanley, 4.750% dated 12/29/2006, to be repurchased at $1,928,000 on 01/03/2007 (collateralized by U.S. Treasury Bond, 3.625% due 04/15/2028, market value $1,986,000) ............................... 1,927 ----- -------- TOTAL INVESTMENTS (Cost $168,100*) .......................... 100.1% 189,676 OTHER ASSETS (LIABILITIES) (NET) ............................ (0.1) (123) ----- -------- NET ASSETS .................................................. 100.0% $189,553 ===== ========
---------- * Aggregate cost for federal tax purposes is $169,332. + Non-income producing security. VT CONSERVATIVE BALANCED PORTFOLIO December 31, 2006
VALUE SHARES (000S) ------ -------- INVESTMENT COMPANY SECURITIES -- 98.5% EQUITY FUNDS -- 44.6% 355,930 WM VT Equity Income Fund ............................. $ 6,902 297,217 WM VT Growth & Income Fund ........................... 6,078 514,764 WM VT Growth Fund .................................... 7,510 237,056 WM VT International Growth Fund ...................... 4,156 150,437 WM VT Mid Cap Stock Fund ............................. 2,667 81,158 WM VT REIT Fund ...................................... 1,673 83,391 WM VT Small Cap Growth Fund+ ......................... 862 77,395 WM VT Small Cap Value Fund ........................... 957 126,550 WM VT West Coast Equity Fund ......................... 3,045 -------- Total Equity Funds (Cost $24,359) .................................... 33,850 -------- FIXED-INCOME FUNDS -- 53.9% 499,433 WM High Yield Fund.................................... 4,350 1,251,641 WM VT Income Fund .................................... 13,217 1,630,858 WM VT Short Term Income Fund ......................... 4,110 1,851,130 WM VT U.S. Government Securities Fund ................ 19,270 -------- Total Fixed-Income Funds (Cost $40,240) .................................... 40,947 -------- Total Investment Company Securities (Cost $64,599) .................................... 74,797 --------
PRINCIPAL AMOUNT (000S) ----------- REPURCHASE AGREEMENT -- 1.4% (Cost $1,102) $ 1,102 Agreement with Morgan Stanley, 4.750% dated 12/29/2006, to be repurchased at $1,103,000 on 01/03/2007 (collateralized by U.S. Treasury Bond, 3.625% due 04/15/2028, market value $1,136,000)................... 1,102 -------- TOTAL INVESTMENTS (Cost $65,701*) ........................... 99.9% 75,899 OTHER ASSETS (LIABILITIES) (NET) ............................ 0.1 66 ----- -------- NET ASSETS .................................................. 100.0% $ 75,965 ===== ========
---------- * Aggregate cost for federal tax purposes is $66,700. + Non-income producing security. See Notes to Financial Statements. 17 Portfolios of Investments VT BALANCED PORTFOLIO December 31, 2006
VALUE SHARES (000S) ------ -------- INVESTMENT COMPANY SECURITIES -- 99.5% EQUITY FUNDS -- 66.6% 4,587,979 WM VT Equity Income Fund ............................. $ 88,961 4,334,030 WM VT Growth & Income Fund ........................... 88,631 7,967,100 WM VT Growth Fund .................................... 116,240 3,476,020 WM VT International Growth Fund ...................... 60,935 2,089,232 WM VT Mid Cap Stock Fund ............................. 37,042 1,112,143 WM VT REIT Fund ...................................... 22,932 1,343,417 WM VT Small Cap Growth Fund+ ......................... 13,891 1,193,805 WM VT Small Cap Value Fund ........................... 14,756 1,819,754 WM VT West Coast Equity Fund ......................... 43,783 -------- Total Equity Funds (Cost $348,425) ................................... 487,171 -------- FIXED-INCOME FUNDS -- 32.9% 3,820,680 WM High Yield Fund ................................... 33,278 7,133,449 WM VT Income Fund .................................... 75,329 2,878,170 WM VT Short Term Income Fund ......................... 7,253 12,007,961 WM VT U.S. Government Securities Fund ................ 125,003 -------- Total Fixed-Income Funds (Cost $228,055) ................................... 240,863 -------- Total Investment Company Securities (Cost $576,480) ................................... 728,034 --------
PRINCIPAL AMOUNT (000S) ----------- REPURCHASE AGREEMENT -- 0.4% (Cost $2,910) $ 2,910 Agreement with Morgan Stanley, 4.750% dated 12/29/2006, to be repurchased at $2,912,000 on 01/03/2007 (collateralized by U.S. Treasury Bond, 3.625% due 04/15/2028, market value $2,999,000) .................. 2,910 -------- TOTAL INVESTMENTS (Cost $579,390*) .......................... 99.9% 730,944 OTHER ASSETS (LIABILITIES) (NET) ............................ 0.1 452 ----- -------- NETASSETS ................................................... 100.0% $731,396 ===== ========
---------- * Aggregate cost for federal tax purposes is $592,223. + Non-income producing security. VT CONSERVATIVE GROWTH PORTFOLIO December 31, 2006
VALUE SHARES (000S) ------ -------- INVESTMENT COMPANY SECURITIES -- 99.7% EQUITY FUNDS -- 86.1% 3,395,910 WM VT Equity Income Fund ............................. $ 65,847 3,198,057 WM VT Growth & Income Fund ........................... 65,400 5,519,663 WM VT Growth Fund .................................... 80,532 2,399,860 WM VT International Growth Fund ...................... 42,070 1,505,941 WM VT Mid Cap Stock Fund ............................. 26,700 817,370 WM VT REIT Fund ...................................... 16,854 1,054,894 WM VT Small Cap Growth Fund+ ......................... 10,908 939,388 WM VT Small Cap Value Fund ........................... 11,611 1,331,568 WM VT West Coast Equity Fund ......................... 32,037 -------- Total Equity Funds (Cost $262,728) ................................... 351,959 -------- FIXED-INCOME FUNDS -- 13.6% 1,174,208 WM High Yield Fund ................................... 10,227 1,486,627 WM VT Income Fund .................................... 15,699 2,825,718 WM VT U.S. Government Securities Fund 29,416 -------- Total-Fixed Income Funds (Cost $51,399) .................................... 55,342 -------- Total Investment Company Securities (Cost $314,127) ................................... 407,301 --------
PRINCIPAL AMOUNT (000S) --------- REPURCHASE AGREEMENT -- 0.2% (Cost $921) $ 921 Agreement with Morgan Stanley, 4.750% dated 12/29/2006, to be repurchased at $922,000 on 01/03/2007 (collateralized by U.S. Treasury Bond, 3.625% due 04/15/2028, market value $949,000) .................................... 921 -------- TOTAL INVESTMENTS (Cost $315,048*) .......................... 99.9% 408,222 OTHER ASSETS (LIABILITIES) (NET) ............................ 0.1 416 ----- -------- NET ASSETS .................................................. 100.0% $408,638 ===== ========
---------- * Aggregate cost for federal tax purposes is $325,478. + Non-income producing security. See Notes to Financial Statements. 18 Portfolio of Investments VT STRATEGIC GROWTH PORTFOLIO December 31, 2006
VALUE SHARES (000S) ------ -------- INVESTMENT COMPANY SECURITIES -- 99.5% EQUITY FUNDS -- 95.5% 1,912,486 WM VT Equity Income Fund ............................. $ 37,083 1,794,010 WM VT Growth & Income Fund ........................... 36,687 3,409,658 WM VT Growth Fund .................................... 49,747 1,454,402 WM VT International Growth Fund ...................... 25,496 973,416 WM VT Mid Cap Stock Fund ............................. 17,258 438,644 WM VT REIT Fund ...................................... 9,045 589,485 WM VT Small Cap Growth Fund+ ......................... 6,095 525,060 WM VT Small Cap Value Fund ........................... 6,490 796,328 WM VT West Coast Equity Fund ......................... 19,160 -------- Total Equity Funds (Cost $160,312) ................................... 207,061 -------- FIXED-INCOME FUND -- 4.0% (Cost $7,864) 993,897 WM High Yield Fund ................................... 8,657 -------- Total Investment Company Securities (Cost $168,176) ................................... 215,718 --------
PRINCIPAL AMOUNT (000S) ----------- REPURCHASE AGREEMENT -- 0.1% (Cost $171) $ 171 Agreement with Morgan Stanley, 4.750% dated 12/29/2006, to be repurchased at $171,000 on 01/03/2007 (collateralized by U.S. Treasury Bond, 3.625% due 04/15/2028, market value $176,000) .................... 171 -------- TOTAL INVESTMENTS (Cost $168,347*) .......................... 99.6% 215,889 OTHER ASSETS (LIABILITIES) (NET) ............................ 0.4 865 ----- -------- NET ASSETS .................................................. 100.0% $216,754 ===== ========
---------- * Aggregate cost for federal tax purposes is $173,194. + Non-income producing security. See Notes to Financial Statements. 19 Statements of Assets and Liabilities WM VARIABLE TRUST STRATEGIC ASSET MANAGEMENT PORTFOLIOS December 31, 2006 (In thousands)
VT FLEXIBLE VT CONSERVATIVE VT CONSERVATIVE VT STRATEGIC INCOME BALANCED VT BALANCED GROWTH GROWTH PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO ----------- --------------- ----------- --------------- ------------ ASSETS: Investments, at cost ................................. $168,100 $65,701 $579,390 $315,048 $168,347 ======== ======= ======== ======== ======== Investments, at value ................................ $189,676 $75,899 $730,944 $408,222 $215,889 Dividends and/or interest receivable ................. 1 -- 1 -- -- Receivable for Portfolio shares sold ................. 152 147 411 230 386 Receivable for investment securities sold ............ -- -- 700 500 600 Prepaid expenses and other assets .................... 1 1 1 1 -- -------- ------- -------- -------- -------- Total Assets ...................................... 189,830 76,047 732,057 408,953 216,875 -------- ------- -------- -------- -------- LIABILITIES: Payable for Portfolio shares redeemed ................ 178 24 371 141 15 Investment advisory fee payable ...................... 16 6 62 35 18 Administration fee payable ........................... 24 10 94 52 28 Distribution fees payable ............................ 14 7 47 26 14 Accrued legal and audit fees ......................... 26 26 27 26 26 Accrued printing and postage expenses ................ 18 8 59 34 19 Accrued expenses and other payables .................. 1 1 1 1 1 -------- ------- -------- -------- -------- Total Liabilities ................................. 277 82 661 315 121 -------- ------- -------- -------- -------- NET ASSETS ........................................... $189,553 $75,965 $731,396 $408,638 $216,754 ======== ======= ======== ======== ======== NET ASSETS CONSIST OF: Undistributed net investment income .................. $ 8,157 $ 2,415 $ 17,470 $ 6,427 $ 2,492 Accumulated net realized gain/(loss) on investment transactions ...................................... 1,421 (69) (15,005) (26,828) (9,177) Net unrealized appreciation of investments ........... 21,576 10,198 151,554 93,174 47,542 Paid-in capital ...................................... 158,399 63,421 577,377 335,865 175,897 -------- ------- -------- -------- -------- Total Net Assets .................................. $189,553 $75,965 $731,396 $408,638 $216,754 ======== ======= ======== ======== ======== NET ASSETS: Class 1 Shares ....................................... $126,456 $43,249 $507,193 $284,083 $146,789 ======== ======= ======== ======== ======== Class 2 Shares ....................................... $ 63,097 $32,716 $224,203 $124,555 $ 69,965 ======== ======= ======== ======== ======== SHARES OUTSTANDING: Class 1 Shares ....................................... 8,770 3,396 28,037 14,422 6,651 ======== ======= ======== ======== ======== Class 2 Shares ....................................... 4,406 2,588 12,479 6,368 3,188 ======== ======= ======== ======== ======== CLASS 1 SHARES:* Net asset value, offering and redemption price per share of beneficial interest outstanding .......... $ 14.42 $ 12.74 $ 18.09 $ 19.70 $ 22.07 ======== ======= ======== ======== ======== CLASS 2 SHARES:* Net asset value, offering and redemption price per share of beneficial interest outstanding .......... $ 14.32 $ 12.64 $ 17.97 $ 19.56 $ 21.95 ======== ======= ======== ======== ========
---------- * Net asset values are not shown in thousands. See Notes to Financial Statements. 20 Statements of Operations WM VARIABLE TRUST STRATEGIC ASSET MANAGEMENT PORTFOLIOS For the Year Ended December 31, 2006 (In thousands)
VT FLEXIBLE VT CONSERVATIVE VT CONSERVATIVE VT STRATEGIC INCOME BALANCED VT BALANCED GROWTH GROWTH PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO ----------- --------------- ----------- --------------- ------------ INVESTMENT INCOME: Dividends from investment company securities ......... $ 8,757 $2,651 $18,763 $ 7,004 $ 2,770 Interest ............................................. 31 22 180 33 32 ------- ------ ------- ------- ------- Total investment income ........................... 8,788 2,673 18,943 7,037 2,802 ------- ------ ------- ------- ------- EXPENSES: Investment advisory fee .............................. 205 75 712 397 202 Administration fee ................................... 308 113 1,067 595 302 Class 2 Shares distribution fees ..................... 178 80 538 275 147 Custodian fee ........................................ 3 2 2 3 2 Legal and audit fees ................................. 26 24 32 28 26 Registration and filing fees ......................... 18 17 25 19 18 Trustees'fees ........................................ 4 1 13 7 4 Printing and postage expenses ........................ 21 12 68 40 24 Other ................................................ 7 5 16 11 7 ------- ------ ------- ------- ------- Total expenses .................................... 770 329 2,473 1,375 732 Fees reduced by custodian credits .................... --* --* --* --* --* ------- ------ ------- ------- ------- Net expenses ...................................... 770 329 2,473 1,375 732 ------- ------ ------- ------- ------- NET INVESTMENT INCOME ................................ 8,018 2,344 16,470 5,662 2,070 ------- ------ ------- ------- ------- NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS: Net realized gain/(loss) on investment transactions .. 706 (148) (1,069) 1,847 384 Capital gain distributions received from investment company securities ................................ 1,815 1,006 13,068 9,355 5,255 Net change in unrealized appreciation/depreciation of investments ....................................... 2,559 3,013 42,134 28,620 17,187 ------- ------ ------- ------- ------- Net realized and unrealized gain on investments ...... 5,080 3,871 54,133 39,822 22,826 ------- ------ ------- ------- ------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ......................... $13,098 $6,215 $70,603 $45,484 $24,896 ======= ====== ======= ======= =======
---------- * Amount represents less than $500. See Notes to Financial Statements. 21 Statements of Changes in Net Assets WM VARIABLE TRUST STRATEGIC ASSET MANAGEMENT PORTFOLIOS (In thousands)
VT FLEXIBLE VT CONSERVATIVE INCOME PORTFOLIO BALANCED PORTFOLIO VT BALANCED PORTFOLIO ----------------------- ----------------------- ----------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 12/31/06 12/31/05 12/31/06 12/31/05 12/31/06 12/31/05 ---------- ---------- ---------- ---------- ---------- ---------- Net investment income ......................... $ 8,018 $ 8,050 $ 2,344 $ 1,929 $ 16,470 $ 13,960 Net realized gain/(loss) on investment transactions ............................... 706 (438) (148) (107) (1,069) 1,400 Capital gain distributions received ........... 1,815 639 1,006 259 13,068 4,091 Net change in unrealized appreciation/ depreciation of investments ................ 2,559 (1,105) 3,013 926 42,134 17,751 -------- -------- ------- ------- -------- -------- Net increase in net assets resulting from operations ............................ 13,098 7,146 6,215 3,007 70,603 37,202 Distributions to shareholders from: Net investment income: Class 1 Shares .......................... (5,441) (4,878) (1,175) (980) (10,811) (8,714) Class 2 Shares .......................... (2,747) (2,294) (815) (534) (4,176) (3,132) Net realized gains on investments: Class 1 Shares .......................... (76) (186) (117) -- -- -- Class 2 Shares .......................... (41) (93) (88) -- -- -- Net increase/(decrease) in net assets from Portfolio share transactions: Class 1 Shares .......................... (20,124) (5,428) (2,894) 2,467 6,161 (22,572) Class 2 Shares .......................... (17,970) 11,780 1,037 8,539 8,901 26,056 -------- -------- ------- ------- -------- -------- Net increase in net assets .................... (33,301) 6,047 2,163 12,499 70,678 28,840 NET ASSETS: Beginning of year ............................. 222,854 216,807 73,802 61,303 660,718 631,878 -------- -------- ------- ------- -------- -------- End of year ................................... $189,553 $222,854 $75,965 $73,802 $731,396 $660,718 ======== ======== ======= ======= ======== ======== Undistributed net investment income at end of year ............................. $ 8,157 $ 8,185 $ 2,415 $ 1,989 $ 17,470 $ 14,964 ======== ======== ======= ======= ======== ======== TAX CHARACTER OF DISTRIBUTIONS PAID: Ordinary income ............................... $ 8,247 $ 7,173 $ 2,009 $ 1,514 $ 14,987 $ 11,846 Long-term capital gains ....................... 58 278 186 -- -- -- -------- -------- ------- ------- -------- -------- Total ...................................... $ 8,305 $ 7,451 $ 2,195 $ 1,514 $ 14,987 $ 11,846 ======== ======== ======= ======= ======== ========
See Notes to Financial Statements. 22
VT CONSERVATIVE VT STRATEGIC GROWTH PORTFOLIO GROWTH PORTFOLIO ----------------------- ----------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 12/31/06 12/31/05 12/31/06 12/31/05 ---------- ---------- ---------- ---------- Net investment income ......................... $ 5,662 $ 5,298 $ 2,070 $ 1,633 Net realized gain/(loss) on investment transactions ............................... 1,847 (9,831) 384 (1,690) Capital gain distributions received ........... 9,355 3,091 5,255 1,761 Net change in unrealized appreciation/ depreciation of investments ................ 28,620 26,819 17,187 11,390 -------- -------- -------- -------- Net increase in net assets resulting from operations ............................ 45,484 25,377 24,896 13,094 Distributions to shareholders from: Net investment income: Class 1 Shares .......................... (4,557) (3,689) (1,524) (868) Class 2 Shares .......................... (1,537) (914) (523) (207) Net realized gains on investments: Class 1 Shares .......................... -- -- -- -- Class 2 Shares .......................... -- -- -- -- Net increase/(decrease) in net assets from Portfolio share transactions: Class 1 Shares .......................... (37,408) (26,037) (6,181) (2,087) Class 2 Shares .......................... 18,616 15,889 14,707 11,249 -------- -------- -------- -------- Net increase in net assets .................... 20,598 10,626 31,375 21,181 NET ASSETS: Beginning of year ............................. 388,040 377,414 185,379 164,198 -------- -------- -------- -------- End of year ................................... $408,638 $388,040 $216,754 $185,379 ======== ======== ======== ======== Undistributed net investment income at end of year ............................. $ 6,427 $ 6,081 $ 2,492 $ 2,044 ======== ======== ======== ======== TAX CHARACTER OF DISTRIBUTIONS PAID: Ordinary income ............................... $ 6,094 $ 4,603 $ 2,047 $ 1,075 Long-term capital gains ....................... -- -- -- -- -------- -------- -------- -------- Total ...................................... $ 6,094 $ 4,603 $ 2,047 $ 1,075 ======== ======== ======== ========
See Notes to Financial Statements. 23 Statements of Changes in Net Assets -- Capital Stock Activity WM VARIABLE TRUST STRATEGIC ASSET MANAGEMENT PORTFOLIOS (In thousands) VT FLEXIBLE INCOME PORTFOLIO
ISSUED AS REINVESTMENT NET INCREASE/ SOLD OF DIVIDENDS REDEEMED (DECREASE) ---------------- --------------- ----------------- ----------------- AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES ------- ------ ------ ------ -------- ------ -------- ------ YEAR ENDED 12/31/06: Class 1 Shares ....... $ 8,512 604 $5,517 409 $(34,153) (2,428) $(20,124) (1,415) Class 2 Shares ....... 3,941 281 2,788 208 (24,699) (1,768) (17,970) (1,279) YEAR ENDED 12/31/05: Class 1 Shares ....... $12,734 911 $5,064 367 $(23,226) (1,664) $ (5,428) (386) Class 2 Shares ....... 17,886 1,289 2,387 174 (8,493) (611) 11,780 852
VT CONSERVATIVE BALANCED PORTFOLIO
ISSUED AS REINVESTMENT NET INCREASE/ SOLD OF DIVIDENDS REDEEMED (DECREASE) ---------------- --------------- ----------------- ----------------- AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES ------- ------ ------ ------ -------- ------ -------- ------ YEAR ENDED 12/31/06: Class 1 Shares ....... $ 6,380 521 $1,292 110 $(10,566) (866) $(2,894) (235) Class 2 Shares ....... 7,523 618 903 77 (7,389) (609) 1,037 86 YEAR ENDED 12/31/05: Class 1 Shares ....... $ 9,437 799 $ 980 84 $ (7,950) (674) $ 2,467 209 Class 2 Shares ....... 11,296 963 534 46 (3,291) (280) 8,539 729
VT BALANCED PORTFOLIO
ISSUED AS REINVESTMENT NET INCREASE/ SOLD OF DIVIDENDS REDEEMED (DECREASE) ---------------- ---------------- ----------------- ----------------- AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES ------- ------ ------- ------ -------- ------ -------- ------ YEAR ENDED 12/31/06: Class 1 Shares ....... $78,952 4,580 $10,811 660 $(83,602) (4,861) $ 6,161 379 Class 2 Shares ....... 31,517 1,858 4,176 256 (26,792) (1,570) 8,901 544 YEAR ENDED 12/31/05: Class 1 Shares ....... $29,514 1,831 $ 8,714 546 $(60,800) (3,774) $(22,572) (1,397) Class 2 Shares ....... 39,460 2,461 3,132 197 (16,536) (1,032) 26,056 1,626
See Notes to Financial Statements. 24 Statements of Changes in Net Assets -- Capital Stock Activity (continued) WM VARIABLE TRUST STRATEGIC ASSET MANAGEMENT PORTFOLIOS (In thousands) VT CONSERVATIVE GROWTH PORTFOLIO
ISSUED AS REINVESTMENT NET INCREASE/ SOLD OF DIVIDENDS REDEEMED (DECREASE) ---------------- --------------- ----------------- ----------------- AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES ------- ------ ------ ------ -------- ------ -------- ------ YEAR ENDED 12/31/06: Class 1 Shares ....... $17,041 923 $4,557 260 $(59,006) (3,201) $(37,408) (2,018) Class 2 Shares ....... 29,855 1,634 1,537 88 (12,776) (693) 18,616 1,029 YEAR ENDED 12/31/05: Class 1 Shares ....... $16,106 947 $3,689 219 $(45,832) (2,698) $(26,037) (1,532) Class 2 Shares ....... 23,764 1,410 914 54 (8,789) (521) 15,889 943
VT STRATEGIC GROWTH PORTFOLIO
ISSUED AS REINVESTMENT NET INCREASE/ SOLD OF DIVIDENDS REDEEMED (DECREASE) ---------------- --------------- ----------------- ----------------- AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES ------- ------ ------ ------ -------- ------ -------- ------ YEAR ENDED 12/31/06: Class 1 Shares ....... $19,197 936 $1,524 78 $(26,902) (1,302) $ (6,181) (288) Class 2 Shares ....... 20,332 997 523 26 (6,148) (300) 14,707 723 YEAR ENDED 12/31/05: Class 1 Shares ....... $18,421 989 $ 868 47 $(21,376) (1,147) $ (2,087) (111) Class 2 Shares ....... 16,216 876 207 11 (5,174) (279) 11,249 608
See Notes to Financial Statements. 25 Financial Highlights VT FLEXIBLE INCOME PORTFOLIO For a Portfolio share outstanding throughout each period.
INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS ------------------------------------- ------------------------------------------ NET REALIZED NET AND ASSET UNREALIZED DIVIDENDS DISTRIBUTIONS VALUE NET GAIN/(LOSS) TOTAL FROM FROM NET FROM NET BEGINNING INVESTMENT ON INVESTMENT INVESTMENT REALIZED TOTAL OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME(1) CAPITAL GAINS DISTRIBUTIONS --------- ---------- ----------- ---------- ---------- ------------- ------------- CLASS 1 SHARES Year Ended: 12/31/06 $14.08 $0.56(5) $ 0.36 $0.92 $(0.57) $(0.01) $(0.58) 12/31/05 14.10 0.52(5) (0.05) 0.47 (0.47) (0.02) (0.49) 12/31/04 13.71 0.51(5) 0.35 0.86 (0.47) -- (0.47) 12/31/03 12.41 0.56(5) 1.08 1.64 (0.34) -- (0.34) 12/31/02 12.23 0.41(5) (0.15) 0.26 (0.08) -- (0.08) CLASS 2 SHARES Year Ended: 12/31/06 $13.98 $0.53(5) $ 0.36 $0.89 $(0.54) $(0.01) $(0.55) 12/31/05 14.02 0.49(5) (0.07) 0.42 (0.44) (0.02) (0.46) 12/31/04 13.65 0.47(5) 0.36 0.83 (0.46) -- (0.46) 12/31/03 12.38 0.53(5) 1.07 1.60 (0.33) -- (0.33) 12/31/02 12.23 0.38(5) (0.15) 0.23 (0.08) -- (0.08) RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA --------------------------------------------------------------- RATIO OF RATIO OF EXPENSES EXPENSES TO AVERAGE TO AVERAGE RATIO OF NET NET NET ASSETS NET ASSETS NET ASSET ASSETS BEFORE AFTER INVESTMENT VALUE TOTAL END OF REIMBURSE- REIMBURSE- INCOME TO PORTFOLIO END OF RETURN PERIOD MENTS/ MENTS/ AVERAGE TURNOVER PERIOD (2) (IN 000S) WAIVERS(3) WAIVERS(3)(4) NET ASSETS RATE ------ ------ --------- ---------- ------------- ---------- --------- CLASS 1 SHARES Year Ended: 12/31/06 $14.42 6.84% $126,456 0.29% 0.29% 3.99% 6% 12/31/05 14.08 3.41 143,367 0.30 0.30 3.74 5 12/31/04 14.10 6.47 149,055 0.28 0.28 3.67 5 12/31/03 13.71 13.30 143,283 0.30 0.30 4.33 4 12/31/02 12.41 2.14 125,992 0.30 0.30 3.37 9 CLASS 2 SHARES Year Ended: 12/31/06 $14.32 6.61% $ 63,097 0.54% 0.54% 3.74% 6% 12/31/05 13.98 3.09 79,487 0.55 0.55 3.49 5 12/31/04 14.02 6.24 67,752 0.53 0.53 3.42 5 12/31/03 13.65 13.02 34,501 0.55 0.55 4.08 4 12/31/02 12.38 1.89 9,416 0.55 0.55 3.12 9
(1) Includes dividends paid from the short-term portion of capital gain distributions received from the Underlying Funds. (2) Total return is not annualized for periods of less than one year and does not reflect any applicable sales charges. The total return would have been lower if certain fees had not been waived and/or expenses reimbursed by the investment advisor or if fees had not been reduced by credits allowed by the custodian. (3) The Portfolio also will indirectly bear its prorated share of expenses of the Underlying Funds. Such expenses are excluded from the expense ratio. (4) Ratio of operating expenses to average net assets includes expenses paid indirectly. (5) Per share numbers have been calculated using the average shares method. See Notes to Financial Statements. 26 Financial Highlights VT CONSERVATIVE BALANCED PORTFOLIO For a Portfolio share outstanding throughout each period.
INCOME/(LOSS) FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS ---------------------------------------- ------------------------------------------ NET REALIZED NET AND ASSET UNREALIZED DIVIDENDS DISTRIBUTIONS VALUE NET GAIN/(LOSS) TOTAL FROM FROM NET FROM NET BEGINNING INVESTMENT ON INVESTMENT INVESTMENT REALIZED TOTAL OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME(1) CAPITAL GAINS DISTRIBUTIONS --------- ---------- ----------- ---------- ---------- ------------- ------------- CLASS 1 SHARES Year Ended: 12/31/06 $12.07 $0.39(5) $ 0.64 $ 1.03 $(0.33) $(0.03) $(0.36) 12/31/05 11.82 0.35(5) 0.18 0.53 (0.28) -- (0.28) 12/31/04 11.15 0.34(5) 0.56 0.90 (0.23) -- (0.23) 12/31/03 9.73 0.36(5) 1.29 1.65 (0.23) -- (0.23) 12/31/02 10.04 0.31(5) (0.54) (0.23) (0.07) (0.01) (0.08) CLASS 2 SHARES Year Ended: 12/31/06 $11.98 $0.36(5) $ 0.64 $ 1.00 $(0.31) $(0.03) $(0.34) 12/31/05 11.75 0.32(5) 0.17 0.49 (0.26) -- (0.26) 12/31/04 11.11 0.31(5) 0.55 0.86 (0.22) -- (0.22) 12/31/03 9.71 0.33(5) 1.29 1.62 (0.22) -- (0.22) 12/31/02 10.04 0.29(5) (0.54) (0.25) (0.07) (0.01) (0.08) RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA --------------------------------------------------------------- RATIO OF RATIO OF EXPENSES EXPENSES TO AVERAGE TO AVERAGE RATIO OF NET NET NET ASSETS NET ASSETS NET ASSET ASSETS BEFORE AFTER INVESTMENT VALUE TOTAL END OF REIMBURSE- REIMBURSE- INCOME TO PORTFOLIO END OF RETURN PERIOD MENTS/ MENTS/ AVERAGE TURNOVER PERIOD (2) (IN 000S) WAIVERS(3) WAIVERS(3)(4) NET ASSETS RATE ------ ------ --------- ---------- ------------- ---------- --------- CLASS 1 SHARES Year Ended: 12/31/06 $12.74 8.83% $43,249 0.33% 0.33% 3.22% 11% 12/31/05 12.07 4.59 43,818 0.38 0.38 3.00 4 12/31/04 11.82 8.21 40,458 0.33 0.33 3.02 1 12/31/03 11.15 17.09 31,600 0.36 0.31 3.48 6 12/31/02 9.73 (2.26) 20,759 0.41 0.30 3.20 9 CLASS 2 SHARES Year Ended: 12/31/06 $12.64 8.50% $32,716 0.58% 0.58% 2.97% 11% 12/31/05 11.98 4.37 29,984 0.63 0.63 2.75 4 12/31/04 11.75 7.88 20,845 0.58 0.58 2.77 1 12/31/03 11.11 16.83 9,128 0.61 0.56 3.23 6 12/31/02 9.71 (2.47) 2,244 0.66 0.55 2.95 9
(1) Includes dividends paid from the short-term portion of capital gain distributions received from the Underlying Funds. (2) Total return is not annualized for periods of less than one year and does not reflect any applicable sales charges. The total return would have been lower if certain fees had not been waived and/or expenses reimbursed by the investment advisor or if fees had not been reduced by credits allowed by the custodian. (3) The Portfolio also will indirectly bear its prorated share of expenses of the Underlying Funds. Such expenses are excluded from the expense ratio. (4) Ratio of operating expenses to average net assets includes expenses paid indirectly. (5) Per share numbers have been calculated using the average shares method. See Notes to Financial Statements. 27 Financial Highlights VT BALANCED PORTFOLIO For a Portfolio share outstanding throughout each period.
INCOME/(LOSS) FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS ------------------------------------- ------------------------------------------ NET REALIZED NET AND ASSET UNREALIZED DIVIDENDS DISTRIBUTIONS VALUE NET GAIN/(LOSS) TOTAL FROM FROM NET FROM NET BEGINNING INVESTMENT ON INVESTMENT INVESTMENT REALIZED TOTAL OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME(1) CAPITAL GAINS DISTRIBUTIONS --------- ---------- ----------- ---------- ---------- ------------- ------------- CLASS 1 SHARES Year Ended: 12/31/06 $16.72 $0.41(5) $ 1.33 $ 1.74 $(0.37) $-- $(0.37) 12/31/05 16.08 0.36(5) 0.59 0.95 (0.31) -- (0.31) 12/31/04 14.88 0.32(5) 1.16 1.48 (0.28) -- (0.28) 12/31/03 12.42 0.33(5) 2.46 2.79 (0.33) -- (0.33) 12/31/02 13.91 0.32(5) (1.53) (1.21) (0.28) -- (0.28) CLASS 2 SHARES Year Ended: 12/31/06 $16.61 $0.37(5) $ 1.32 $ 1.69 $(0.33) $-- $(0.33) 12/31/05 15.99 0.32(5) 0.58 0.90 (0.28) -- (0.28) 12/31/04 14.82 0.28(5) 1.16 1.44 (0.27) -- (0.27) 12/31/03 12.39 0.30(5) 2.45 2.75 (0.32) -- (0.32) 12/31/02 13.91 0.29(5) (1.53) (1.24) (0.28) -- (0.28) RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA ------------------------------------------------------------------- RATIO OF RATIO OF EXPENSES EXPENSES TO AVERAGE TO AVERAGE RATIO OF NET NET ASSETS NET ASSETS NET ASSET BEFORE AFTER INVESTMENT VALUE NET ASSETS REIMBURSE- REIMBURSE- INCOME TO PORTFOLIO END OF TOTAL END OF PERIOD MENTS/ MENTS/ AVERAGE TURNOVER PERIOD RETURN(2) (IN 000S) WAIVERS(3) WAIVERS(3)(4) NET ASSETS RATE ------ --------- ------------- ---------- ------------- ---------- --------- CLASS 1 SHARES Year Ended: 12/31/06 $18.09 10.61% $507,193 0.27% 0.27% 2.39% 11% 12/31/05 16.72 6.01 462,438 0.28 0.28 2.26 4 12/31/04 16.08 10.12 467,076 0.28 0.28 2.13 4 12/31/03 14.88 22.74 419,273 0.29 0.29 2.50 7 12/31/02 12.42 (8.78) 334,605 0.29 0.29 2.52 22 CLASS 2 SHARES Year Ended: 12/31/06 $17.97 10.38% $224,203 0.52% 0.52% 2.14% 11% 12/31/05 16.61 5.72 198,280 0.53 0.53 2.01 4 12/31/04 15.99 9.83 164,802 0.53 0.53 1.88 4 12/31/03 14.82 22.46 91,631 0.54 0.54 2.25 7 12/31/02 12.39 (9.00) 31,335 0.54 0.54 2.27 22
(1) Includes dividends paid from the short-term portion of capital gain distributions received from the Underlying Funds. (2) Total return is not annualized for periods of less than one year and does not reflect any applicable sales charges. The total return would have been lower if certain fees had not been waived and/or expenses reimbursed by the investment advisor or if fees had not been reduced by credits allowed by the custodian. (3) The Portfolio also will indirectly bear its prorated share of expenses of the Underlying Funds. Such expenses are excluded from the expense ratio. (4) Ratio of operating expenses to average net assets includes expenses paid indirectly. (5) Per share numbers have been calculated using the average shares method. See Notes to Financial Statements. 28 Financial Highlights VT CONSERVATIVE GROWTH PORTFOLIO For a Portfolio share outstanding throughout each period.
INCOME/(LOSS) FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS ------------------------------------- ------------------------------------------ NET REALIZED NET AND ASSET UNREALIZED DIVIDENDS DISTRIBUTIONS VALUE NET GAIN/(LOSS) TOTAL FROM FROM NET FROM NET BEGINNING INVESTMENT ON INVESTMENT INVESTMENT REALIZED TOTAL OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME(1) CAPITAL GAINS DISTRIBUTIONS --------- ---------- ----------- ---------- ---------- ------------- ------------- CLASS 1 SHARES Year Ended: 12/31/06 $17.85 $0.28(5) $ 1.86 $ 2.14 $(0.29) $ -- $(0.29) 12/31/05 16.89 0.25(5) 0.93 1.18 (0.22) -- (0.22) 12/31/04 15.32 0.21(5) 1.58 1.79 (0.22) -- (0.22) 12/31/03 12.16 0.23(5) 3.23 3.46 (0.30) -- (0.30) 12/31/02 14.87 0.23(5) (2.51) (2.28) (0.41) (0.02) (0.43) CLASS 2 SHARES Year Ended: 12/31/06 $17.73 $0.23(5) $ 1.86 $ 2.09 $(0.26) $ -- $(0.26) 12/31/05 16.80 0.21(5) 0.91 1.12 (0.19) -- (0.19) 12/31/04 15.25 0.17(5) 1.58 1.75 (0.20) -- (0.20) 12/31/03 12.13 0.20(5) 3.20 3.40 (0.28) -- (0.28) 12/31/02 14.87 0.19(5) (2.50) (2.31) (0.41) (0.02) (0.43) RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA ------------------------------------------------------------------- RATIO OF RATIO OF EXPENSES EXPENSES TO AVERAGE TO AVERAGE RATIO OF NET NET ASSETS NET ASSETS NET ASSET BEFORE AFTER INVESTMENT VALUE NET ASSETS REIMBURSE- REIMBURSE- INCOME TO PORTFOLIO END OF TOTAL END OF PERIOD MENTS/ MENTS/ AVERAGE TURNOVER PERIOD RETURN(2) (IN 000S) WAIVERS(3) WAIVERS(3)(4) NET ASSETS RATE ------ --------- ------------- ---------- ------------- ---------- --------- CLASS 1 SHARES Year Ended: 12/31/06 $19.70 12.20% $284,083 0.28% 0.28% 1.50% 8% 12/31/05 17.85 7.04 293,378 0.29 0.29 1.47 9 12/31/04 16.89 11.78 303,584 0.28 0.28 1.36 10 12/31/03 15.32 28.74 284,165 0.30 0.30 1.75 11 12/31/02 12.16 (15.52) 229,564 0.29 0.29 1.77 19 CLASS 2 SHARES Year Ended: 12/31/06 $19.56 11.95% $124,555 0.53% 0.53% 1.25% 8% 12/31/05 17.73 6.71 94,662 0.54 0.54 1.22 9 12/31/04 16.80 11.58 73,830 0.53 0.53 1.11 10 12/31/03 15.25 28.36 40,576 0.55 0.55 1.50 11 12/31/02 12.13 (15.72) 14,610 0.54 0.54 1.52 19
(1) Includes dividends paid from the short-term portion of capital gain distributions received from the Underlying Funds. (2) Total return is not annualized for periods of less than one year and does not reflect any applicable sales charges. The total return would have been lower if certain fees had not been waived and/or expenses reimbursed by the investment advisor or if fees had not been reduced by credits allowed by the custodian. (3) The Portfolio also will indirectly bear its prorated share of expenses of the Underlying Funds. Such expenses are excluded from the expense ratio. (4) Ratio of operating expenses to average net assets includes expenses paid indirectly. (5) Per share numbers have been calculated using the average shares method. See Notes to Financial Statements. 29 Financial Highlights VT STRATEGIC GROWTH PORTFOLIO For a Portfolio share outstanding throughout each period.
INCOME/(LOSS) FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS ------------------------------------- ------------------------------------------ NET REALIZED NET AND ASSET UNREALIZED DIVIDENDS DISTRIBUTIONS VALUE NET GAIN/(LOSS) TOTAL FROM FROM NET FROM NET BEGINNING INVESTMENT ON INVESTMENT INVESTMENT REALIZED TOTAL OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME(1) CAPITAL GAINS DISTRIBUTIONS --------- ---------- ----------- ---------- ---------- ------------- ------------- CLASS 1 SHARES Year Ended: 12/31/06 $19.74 $0.23(5) $ 2.32 $ 2.55 $(0.22) $ -- $(0.22) 12/31/05 18.45 0.19(5) 1.22 1.41 (0.12) -- (0.12) 12/31/04 16.46 0.14(5) 1.96 2.10 (0.11) -- (0.11) 12/31/03 12.55 0.14(5) 3.98 4.12 (0.21) -- (0.21) 12/31/02 16.45 0.15(5) (3.47) (3.32) (0.54) (0.04) (0.58) CLASS 2 SHARES Year Ended: 12/31/06 $19.64 $0.17(5) $ 2.32 $ 2.49 $(0.18) $ -- $(0.18) 12/31/05 18.38 0.14(5) 1.22 1.36 (0.10) -- (0.10) 12/31/04 16.42 0.09(5) 1.97 2.06 (0.10) -- (0.10) 12/31/03 12.54 0.10(5) 3.98 4.08 (0.20) -- (0.20) 12/31/02 16.45 0.11(5) (3.44) (3.33) (0.54) (0.04) (0.58) RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA ------------------------------------------------------------------- RATIO OF RATIO OF EXPENSES EXPENSES TO AVERAGE TO AVERAGE RATIO OF NET NET ASSETS NET ASSETS NET ASSET BEFORE AFTER INVESTMENT VALUE NET ASSETS REIMBURSE- REIMBURSE- INCOME TO PORTFOLIO END OF TOTAL END OF PERIOD MENTS/ MENTS/ AVERAGE TURNOVER PERIOD RETURN(2) (IN 000S) WAIVERS(3) WAIVERS(3)(4) NET ASSETS RATE ------ --------- ------------- ---------- ------------- ---------- --------- CLASS 1 SHARES Year Ended: 12/31/06 $22.07 13.06% $146,789 0.29% 0.29% 1.10% 7% 12/31/05 19.74 7.71 136,966 0.31 0.31 1.01 9 12/31/04 18.45 12.83 130,069 0.29 0.29 0.80 4 12/31/03 16.46 33.07 105,077 0.31 0.31 0.99 9 12/31/02 12.55 (20.53) 73,936 0.32 0.32 1.06 16 CLASS 2 SHARES Year Ended: 12/31/06 $21.95 12.77% $ 69,965 0.54% 0.54% 0.85% 7% 12/31/05 19.64 7.47 48,413 0.56 0.56 0.76 9 12/31/04 18.38 12.54 34,129 0.54 0.54 0.55 4 12/31/03 16.42 32.76 14,766 0.56 0.56 0.74 9 12/31/02 12.54 (20.59) 2,676 0.57 0.57 0.81 16
(1) Includes dividends paid from the short-term portion of capital gain distributions received from the Underlying Funds. (2) Total return is not annualized for periods of less than one year and does not reflect any applicable sales charges. The total return would have been lower if certain fees had not been waived and/or expenses reimbursed by the investment advisor or if fees had not been reduced by credits allowed by the custodian. (3) The Portfolio also will indirectly bear its prorated share of expenses of the Underlying Funds. Such expenses are excluded from the expense ratio. (4) Ratio of operating expenses to average net assets includes expenses paid indirectly. (5) Per share numbers have been calculated using the average shares method. See Notes to Financial Statements. 30 Notes to Financial Statements WM VARIABLE TRUST STRATEGIC ASSET MANAGEMENT PORTFOLIOS 1. ORGANIZATION AND BUSINESS WM Variable Trust (the "Trust") was organized as a Massachusetts business trust on January 29, 1993. 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 consists of 13 funds (each a "Fund" and collectively, the "Funds") and 5 portfolios (each a "Portfolio" and collectively, the "Portfolios"). The VT Flexible Income, VT Conservative Balanced, VT Balanced, VT Conservative Growth and VT Strategic Growth Portfolios are included in this report. The Trust is authorized to issue an unlimited number of shares of beneficial interest, each without par value. Each Portfolio offers two classes of shares: Class 1 shares and Class 2 shares. These shares are issued and redeemed only in connection with investments in, and payments under, variable annuity and variable life insurance contracts (collectively "Variable Insurance Contracts"), as well as certain qualified retirement plans including affiliated plans of Washington Mutual, Inc. ("Washington Mutual"), a publicly owned financial services company. At December 31, 2006, "The Washington Mutual Savings Plan" held approximately 48%, 34%, 22%, 18% and 50% of the outstanding shares in the VT Flexible Income, VT Conservative Balanced, VT Balanced, VT Conservative Growth and VT Strategic Growth Portfolios, respectively. Each of the Portfolios invests, within certain percentage ranges, in Class 1 shares of various funds in the Trust and Class I shares of the WM High Yield Fund (collectively, the "Underlying Funds"). WM Advisors, Inc. (the "Advisor") serves as investment advisor to the Portfolios and the Underlying Funds. The Advisor may alter these percentage ranges when it deems appropriate. The assets of each Portfolio will be allocated among the Underlying Funds in accordance with its investment objective based on the Advisor's outlook for the economy, the financial markets and the relative market valuations of the Underlying Funds. In addition, in order to meet liquidity needs or for temporary defensive purposes, each Portfolio may invest its assets directly in cash, stock or bond index futures, options, money market securities and certain short-term debt instruments, including repurchase agreements. On July 25, 2006, the Principal Financial Group, Inc. ("PFG"), a publicly owned financial services company, and its subsidiary Principal Management Corporation ("PMC") entered into an agreement with Washington Mutual, Inc. to acquire all of the outstanding stock of the Advisor, WM Shareholder Services, Inc. (the "Transfer Agent"), and WM Funds Distributor, Inc. (the "Distributor") (the "Transaction"). The Transaction closed on December 31, 2006. On August 11, 2006, the Board of Trustees approved proposed reorganizations (the "Reorganizations") pursuant to which each of the Portfolios (each, an "Acquired Fund") would combine with and into the corresponding separate series (each, an "Acquiring Fund") of Principal Variable Contracts Fund, Inc. ("PVC"), subject to various conditions including the approval of shareholders of each Acquired Fund. Under the Reorganizations (i) all the assets and the stated liabilities of each Acquired Fund would be transferred to its corresponding Acquiring Fund in exchange for Class 1 and Class 2 shares of the Acquiring Fund; (ii) holders of Class 1 and Class 2 shares of the Acquired Fund would receive, respectively, that number of Class 1 and Class 2 shares of the corresponding Acquiring Fund equal in value at the time of the exchange to the value of the holder's Acquired Fund shares at such time; and (iii) the Acquired Fund would be liquidated and dissolved. A special meeting of shareholders was held on December 15, 2006. 2. SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies, in conformity with accounting principles generally accepted in the United States of America ("generally accepted accounting principles"), which are consistently followed by the Portfolios and the Underlying Funds in the preparation of their financial statements. PORTFOLIO VALUATION: Investments in the Underlying Funds are valued at net asset value per Class 1 share or Class I share of the respective Underlying Funds determined as of the close of the New York Stock Exchange on each valuation date. Short-term debt securities that mature in 60 days or less are valued at amortized cost, which approximates market value. REPURCHASE AGREEMENTS: Each Portfolio may enter into 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. It is each Portfolio's policy that its custodian take possession of the underlying collateral securities. The fair 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 Portfolio would seek to use the collateral to offset losses incurred. There is potential loss to the Portfolio in the event the 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 Portfolio seeks to assert its rights. The Advisor, acting under the supervision of the Board of Trustees of the Trust, reviews the value of the collateral and the creditworthiness of those banks and broker/dealers with whom each Portfolio enters into repurchase agreements. 31 Notes to Financial Statements (continued) WM VARIABLE TRUST STRATEGIC ASSET MANAGEMENT PORTFOLIOS SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are recorded on a trade date basis. Realized gains and losses from securities sold are recorded on the identified cost basis. Interest income on debt securities is accrued daily. Dividend income and capital gain distributions received from the Underlying Funds are recorded on the ex-dividend date. Each Portfolio's investment income and realized and unrealized gains and losses are allocated among the classes of that Portfolio based upon the relative average net assets of each class. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: Dividends from net investment income and distributions of any net capital gains earned by a Portfolio are declared and paid annually. Distributions from income and capital gains 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 investments held by the Portfolios, redesignated distributions and differing characterization of distributions made by each Portfolio. At December 31, 2006, the following reclassifications have been reflected in the components of net assets on the "Statements of Assets and Liabilities" to present these balances on an income tax basis, excluding certain temporary differences:
INCREASE DECREASE UNDISTRIBUTED ACCUMULATED NET NET INVESTMENT REALIZED INCOME GAIN/(LOSS) NAME OF PORTFOLIO (000S) (000S) ----------------- -------------- --------------- VT Flexible Income Portfolio ......... $ 142 $ (142) VT Conservative Balanced Portfolio ... 72 (72) VT Balanced Portfolio ................ 1,023 (1,023) VT Conservative Growth Portfolio ..... 778 (778) VT Strategic Growth Portfolio ........ 425 (425)
The above reclassifications did not impact net assets and are not reflected in the calculation of net investment income presented in the Financial Highlights. FEDERAL INCOME TAXES: It is each Portfolio's policy to qualify as a regulated investment company by complying with the requirements of the Internal Revenue Code of 1986, as amended (the "Code"), applicable to regulated investment companies and by distributing substantially all of its earnings to its shareholders. Therefore, no federal income or excise tax provision is required. It is each Portfolio's policy to meet the diversification requirements of the Code so that variable annuity and variable life contracts funded by the Trust will not fail to qualify as annuities and life insurance contracts for tax purposes. EXPENSES: General expenses of the Trust are allocated to all the Portfolios based upon the relative average net assets of each Portfolio. In addition, the Portfolios will indirectly bear their prorated share of the expenses of the Underlying Funds. Operating expenses directly attributable to a class of shares are charged to the operations of that class of shares. Expenses of each Portfolio not directly attributable to the operations of any class of shares are prorated among the classes to which the expenses relate based on the relative average net assets of each class of shares. Custodian fees for certain Portfolios have been reduced by credits allowed by the Portfolio's custodian for uninvested cash balances. The Portfolios could have invested this cash in income producing investments. Fees reduced by credits allowed by the custodian for the year ended December 31, 2006, are shown separately in the "Statements of Operations." USE OF ESTIMATES: 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. 32 Notes to Financial Statements (continued) WM VARIABLE TRUST STRATEGIC ASSET MANAGEMENT PORTFOLIOS 3. INVESTMENT ADVISORY AND OTHER TRANSACTIONS The Advisor provides its proprietary asset allocation services to the Portfolios, formulates the Portfolios' investment policies, analyzes economic and market trends, exercises investment discretion over the assets of the Portfolios and monitors the allocation of each Portfolio's assets and each Portfolio's performance. For its investment advisory services to the Portfolios, the Advisor is entitled to a monthly fee at an annual rate of 0.100% of each Portfolio's average daily net assets up to $1 billion and 0.075% of each Portfolio's average daily net assets over $1 billion. The Advisor also serves as administrator to the Portfolios. For its administrative services to the Portfolios, the Advisor is entitled to a monthly fee at an annual rate of 0.150% of each Portfolio's average daily net assets up to $1 billion and 0.125% of each Portfolio's average daily net assets over $1 billion. 4. TRUSTEES' FEES No officer or employee of PFG or its subsidiaries, or Washington Mutual or its subsidiaries prior to December 31, 2006, received any compensation from the Trust for serving as an officer or Trustee of the Trust. The Trust, together with other mutual funds advised by the Advisor, pays each Trustee who is not an officer or employee of PFG or its subsidiaries, or Washington Mutual or its subsidiaries prior to December 31, 2006, a per annum retainer plus attendance fees for each meeting at which they are present. The Chairman, Committee Chairs and Committee Members receive additional remuneration for these services to the Trust. Trustees are also reimbursed for travel and out-of-pocket expenses. Each Trustee serves in the same capacity for all 40 funds within the WM Group of Funds. 5. DISTRIBUTION PLANS Each of the Portfolios has adopted a distribution plan, pursuant to Rule 12b-1 under the 1940 Act, applicable to Class 2 shares of the Portfolios (a "Rule 12b-1 Plan"). Under the Rule 12b-1 Plan, the Distributor, a registered broker/dealer, may receive a fee at an annual rate of 0.25% of the average daily net assets attributable to Class 2 shares. This fee may be used to cover the expenses of the Distributor primarily intended to result in the sale of such shares, including payments to the Distributor's representatives or others for selling shares. The Rule 12b-1 Plan shall remain in effect from year to year, provided such continuance is approved annually by vote of the Board of Trustees, including a majority of those Trustees who are not "interested persons" of the Trust, as defined in the 1940 Act, and who have no direct or indirect financial interest in the operation of the distribution plan, or any agreements related to the plan, respectively. 6. PURCHASES AND SALES OF INVESTMENTS The aggregate cost of purchases and proceeds from sales of Underlying Funds for the year ended December 31, 2006, are as follows:
PURCHASES SALES NAME OF PORTFOLIO (000S) (000S) ----------------- --------- ------- VT Flexible Income Portfolio ......... $ 12,151 $49,840 VT Conservative Balanced Portfolio ... 8,220 9,765 VT Balanced Portfolio ................ 111,671 80,965 VT Conservative Growth Portfolio ..... 33,442 43,615 VT Strategic Growth Portfolio ........ 28,201 14,815
7. CAPITAL LOSS CARRYFORWARDS At December 31, 2006, the following Portfolios have available for federal income tax purposes unused capital losses as follows:
(IN THOUSANDS) ------------------------------ EXPIRING EXPIRING EXPIRING NAME OF PORTFOLIO IN 2011 IN 2012 IN 2013 ----------------- -------- -------- -------- VT Balanced Portfolio .............. $ -- $1,870 $ -- VT Conservative Growth Portfolio ... 809 8,756 6,832 VT Strategic Growth Portfolio ...... -- 4,215 116
33 Notes to Financial Statements (continued) WM VARIABLE TRUST STRATEGIC ASSET MANAGEMENT PORTFOLIOS 8. POST OCTOBER LOSS Under the current tax law, capital and currency losses realized after October 31 may be deferred and treated as occurring on the first day of the following fiscal year. For the year ended December 31, 2006, the following Portfolios have elected to defer capital losses occurring between November 1, 2006, and December 31, 2006, as follows:
CAPITAL LOSSES NAME OF PORTFOLIO (000S) ----------------- ------- VT Balanced Portfolio ... $303
9. COMPONENTS OF DISTRIBUTABLE EARNINGS At December 31, 2006, the components of distributable earnings on a tax basis are as follows:
(IN THOUSANDS) --------------------------------------------------------------- VT VT VT VT FLEXIBLE CONSERVATIVE VT CONSERVATIVE STRATEGIC INCOME BALANCED BALANCED GROWTH GROWTH PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO --------- ------------ --------- ------------ --------- Gross tax unrealized appreciation ................ $20,344 $9,278 $138,721 $82,744 $42,695 Gross tax unrealized depreciation ................ -- (79) -- -- -- ------- ------ -------- ------- ------- Net tax unrealized appreciation/(depreciation) ... $20,344 $9,199 $138,721 $82,744 $42,695 ======= ====== ======== ======= ======= Undistributed ordinary income .................... $ 8,328 $2,535 $ 17,470 $ 6,427 $ 2,492 Undistributed long-term gains .................... $ 2,480 $ 811 $ -- $ -- $ --
10. UNDERLYING FUNDS The following is a summary of investment objectives and risk factors of the Underlying Funds, and Portfolio ownership in the Underlying Funds. The WM Variable Trust annual report, which is available online or by calling 800-222-5852, contains more information regarding the Underlying Funds. INVESTMENT OBJECTIVES OF UNDERLYING FUNDS: The investment objectives of the Underlying Funds are as follows: WM VT REIT Fund Seeks to provide a high level of current income and intermediate- to long-term capital appreciation. WM VT Equity Income Fund Seeks to provide a relatively high level of current income and long-term growth of income and capital. WM VT Growth & Income Fund Seeks to provide long-term capital growth. Current income is a secondary consideration. WM VT West Coast Equity Fund Seeks to provide long-term growth of capital. WM VT Mid Cap Stock Fund Seeks to provide long-term capital appreciation. WM VT Growth Fund Seeks to provide long-term capital appreciation. WM VT Small Cap Value Fund Seeks to provide long-term capital appreciation. WM VT Small Cap Growth Fund Seeks to provide long-term capital appreciation. WM VT International Growth Fund Seeks to provide long-term capital appreciation. WM VT Short Term Income Fund Seeks to provide as high a level of current income as is consistent with prudent investment management and stability of principal. WM VT U.S. Government Seeks to provide a high level of current Securities Fund income consistent with safety and liquidity. WM VT Income Fund Seeks to provide a high level of current income consistent with preservation of capital. WM High Yield Fund Seeks to provide a high level of current income.
34 Notes to Financial Statements (continued) WM VARIABLE TRUST STRATEGIC ASSET MANAGEMENT PORTFOLIOS RISK FACTORS OF UNDERLYING FUNDS: While no individual fund is intended as a complete investment program, this is especially true for funds that concentrate their investments such as those investing in particular industries or regions. The VT REIT Fund concentrates its investments in real estate investment trust ("REIT") securities or debt securities of issuers that are principally engaged in the U.S. real estate or related industries. The VT REIT Fund could be adversely impacted by economic trends within this industry. The VT West Coast Equity Fund concentrates its investments in companies located or doing business in Alaska, California, Oregon, and Washington. The VT West Coast Equity Fund could be adversely impacted by economic trends within this region. The VT International Growth Fund concentrates its investments in foreign securities in both developed and emerging market countries. Additional risks may involve foreign currency exchange rate fluctuations, adverse political and economic developments, and the possible prevention of currency exchange or other foreign governmental laws or restrictions. Investments in emerging markets are subject to additional risk as less developed countries are more likely to experience high levels of inflation, deflation, or currency devaluation, which could harm their economies and securities markets. The WM High Yield Fund concentrates its investments in lower rated debt securities, which may be more susceptible to adverse economic conditions than investment grade holdings. These securities are often subordinated to the prior claims of other senior lenders, and uncertainties exist as to an issuer's ability to meet principal and interest payments. Certain Underlying Funds may invest a portion of their assets in foreign securities of developing or emerging market countries; 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; enter into other types of options transactions; make short sales; purchase zero coupon and payment-in-kind bonds; enter into repurchase or reverse repurchase agreements; purchase and sell "when-issued" securities and engage in "delayed-delivery" transactions; and enter into various other investment practices, each with inherent risks. The risks involved in investing in a high concentration of a single sector include those resulting from future adverse political and economic developments or regulatory occurrences and the potential for adverse effects to the financial conditions of the industries within the sector due to market fluctuations. PORTFOLIO OWNERSHIP IN THE UNDERLYING FUNDS: At December 31, 2006, the Portfolios hold investments in a number of the Underlying Funds. The figures presented below represent the percentage of shares outstanding of each Fund owned by the Portfolios:
PORTFOLIOS ------------------------------------------------------------------------------------ VT FLEXIBLE VT CONSERVATIVE VT CONSERVATIVE VT STRATEGIC INCOME BALANCED VT BALANCED GROWTH GROWTH NAME OF FUND PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO TOTAL ------------ ----------- --------------- ----------- --------------- ------------ ----- VT REIT Fund ........................ 3.5% 2.9% 40.1% 29.5% 15.8% 91.8% VT Equity Income Fund ............... 2.3% 1.9% 24.3% 18.0% 10.1% 56.6% VT Growth & Income Fund ............. 4.5% 2.4% 34.8% 25.7% 14.4% 81.8% VT West Coast Equity Fund ........... 1.5% 1.8% 25.8% 18.9% 11.3% 59.3% VT Mid Cap Stock Fund ............... 4.7% 2.3% 32.0% 23.1% 14.9% 77.0% VT Growth Fund ...................... 4.5% 2.5% 38.4% 26.6% 16.4% 88.4% VT Small Cap Value Fund ............. 6.0% 2.6% 40.5% 31.8% 17.8% 98.7% VT Small Cap Growth Fund ............ 4.4% 1.8% 28.8% 22.6% 12.6% 70.2% VT International Growth Fund ........ -- 2.8% 40.4% 27.9% 16.9% 88.0% VT Short Term Income Fund ........... 48.7% 9.0% 15.9% -- -- 73.6% VT U.S. Government Securities Fund .. 22.2% 7.3% 47.3% 11.1% -- 87.9% VT Income Fund ...................... 23.4% 6.6% 37.8% 7.9% -- 75.7% High Yield Fund* .................... 1.0% 0.3% 2.7% 0.8% 0.7% 5.5%
---------- * Does not include approximately 40.4% of the High Yield Fund held by WM Strategic Asset Management Portfolios, LLC, which is managed in a style substantially identical to that of the Portfolios. 35 Notes to Financial Statements (continued) WM VARIABLE TRUST STRATEGIC ASSET MANAGEMENT PORTFOLIOS OTHER FACTORS OF UNDERLYING FUNDS: 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. For example, 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 the Advisor determines that it is appropriate to dispose of such securities. The officers and Trustees, the Advisor, the Distributor, and the Transfer Agent of the Portfolios serve in the same capacity for the Underlying Funds. Conflicts may arise as these persons and companies seek to fulfill their fiduciary responsibilities to both the Portfolios and the Underlying Funds. From time to time, one or more of a Portfolio's Underlying Funds used for investment 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. At the same time, the 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 Underlying Fund performance 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 accelerate the realization of taxable income if sales of securities resulted in gains and could also increase transaction costs. Because the Portfolios own substantial portions of the Underlying Funds, redemptions and reallocations by the Portfolios away from an Underlying Fund could cause the Underlying Fund's expenses to increase and may result in an Underlying Fund becoming too small to be economically viable. The Advisor is committed to minimizing such impact on the Underlying Funds to the extent it is consistent with pursuing the investment objectives of the Portfolios. The Advisor may nevertheless face conflicts in fulfilling its dual responsibilities to the Portfolios and Underlying Funds. The Advisor will, at all times, monitor the impact on the Underlying Funds of transactions by the Portfolios. 11. NEW ACCOUNTING PRONOUNCEMENTS In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48 (FIN 48), "Accounting for Uncertainty in Income Taxes." This pronouncement provides guidance on the recognition, measurement, classification, and disclosures related to uncertain tax positions, along with any related interest and penalties. FIN 48 is effective June 29, 2007. The impact from the adoption of FIN 48 is being evaluated, but is not anticipated to have a material effect on the financial statements. In addition, in September 2006, Statement of Financial Accounting Standards No. 157 Fair Value Measurements ("SFAS 157") was issued and is effective for fiscal years beginning after November 15, 2007. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact the adoption of SFAS 157 will have on the Portfolios' financial statement disclosures. 12. SUBSEQUENT EVENT The Reorganizations occurred as of the end of business on January 5, 2007, and as a result, shareholders of the Acquired Funds became shareholders of the Acquiring Funds as follows:
WM ACQUIRED FUND: PVC ACQUIRING FUND: ----------------- ------------------- VT Flexible Income Portfolio SAM Flexible Income Portfolio VT Conservative Balanced Portfolio SAM Conservative Balanced Portfolio VT Balanced Portfolio SAM Balanced Portfolio VT Conservative Growth Portfolio SAM Conservative Growth Portfolio VT Strategic Growth Portfolio SAM Strategic Growth Portfolio
The PVC Acquiring Funds are newly-organized funds that commenced operations in connection with the Reorganization and the WM Acquired Fund is the survivor for accounting and performance reporting purposes. 36 Report of Independent Registered Public Accounting Firm TO THE TRUSTEES AND SHAREHOLDERS OF WM VARIABLE TRUST: We have audited the accompanying statements of assets and liabilities of WM Variable Trust Flexible Income Portfolio, WM Variable Trust Conservative Balanced Portfolio, WM Variable Trust Balanced Portfolio, WM Variable Trust Conservative Growth Portfolio and WM Variable Trust Strategic Growth Portfolio (collectively, "the Portfolios"), including the portfolios of investments, as of December 31, 2006, and the related statements of operations, statements of changes in net assets and financial highlights for the year then ended. These financial statements and financial highlights are the responsibility of the Portfolios' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit. The statement of changes in net assets for the year ended December 31, 2005 and the financial highlights for the four years ended December 31, 2005 were audited by other auditors whose report dated February 17, 2006, expressed an unqualified opinion on those statements. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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. We were not engaged to perform an audit of the Portfolios' internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Portfolios' internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2006, by correspondence with the custodian. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Portfolios at December 31, 2006, the results of their operations, changes in their net assets, and their financial highlights for the year then ended, in conformity with U.S. generally accepted accounting principles. Ernst & Young LLP Des Moines, Iowa February 22, 2007 37 Supplemental Information (unaudited) WM VARIABLE TRUST STRATEGIC ASSET MANAGEMENT PORTFOLIOS CONSIDERATION BY THE BOARD OF TRUSTEES OF ADVISORY AGREEMENT The Trust's investment advisory agreement (the "Agreement") was approved in May and August, 2006. In connection with their approval in August 2006 of investment advisory agreements for the Portfolios substantially identical to the Trust's current Agreement, except with respect to dates and in contemplation of the acquisition of the Advisor by PFG, the Board of Trustees, Independent Trustees and the Investment Committee of the Board (the "Committee") relied on the information provided in connection with the approval of the Agreement in May 2006, as supplemented by expense and performance information provided by Lipper Inc., a third-party data provider ("Lipper") for the period ended June 30, 2006. The material factors and conclusions that formed the basis for the Committee's recommendation and the subsequent approval by the Board and the Independent Trustees in August 2006 were the same as those in May 2006, which are discussed below, except that the Board, the Independent Trustees and the Committee also considered the supplemental expense and performance information for periods ended June 30, 2006; representations by PFG that, subsequent to its acquisition of the Advisor in the Transaction, there is not expected to be any reduction in the nature, quality and extent of services provided to the Portfolios by the Advisor; the fact that the substantive terms of the Agreement, including the advisory fees payable thereunder, were not changing; and representations by PFG that, except as discussed with the Board of Trustees, no changes were expected in either the Advisor's investment professionals who would be providing services to the Portfolios or the amount of time and attention that would be devoted by such investment professionals to the Portfolios. BOARD APPROVAL OF INVESTMENT ADVISORY AGREEMENT: Each year, the Board, including a majority of the Independent Trustees, is required to determine whether to continue the Trust's Agreement. The 1940 Act requires that the Board request and evaluate, and that the investment advisor furnish, such information as may reasonably be necessary to evaluate the terms of the advisory agreement. In May 2006, the Board and the Independent Trustees approved the continuation of the Agreement with the Advisor, in each case following the recommendation of the Committee, a majority of the members of which are Independent Trustees, and the recommendations of the Independent Trustees as a whole. The material factors and conclusions that formed the basis for the Committee's recommendation and the subsequent approval by the Board and the Independent Trustees are discussed below. REVIEW PROCESS: The Independent Trustees received assistance and advice, including a written memorandum, regarding the legal standards applicable to the consideration of advisory arrangements from independent counsel to the Trust and the Independent Trustees. The Independent Trustees discussed the continuation of the Agreement with representatives of the Advisor and in private session with independent legal counsel at which no representatives of the Advisor were present. The Committee, in deciding to recommend continuation of the Agreement, and the Board and the Independent Trustees, in approving such continuation, did not identify any particular information that was all-important or controlling, and each Trustee attributed different weights to the various factors. The Trustees evaluated all information available to them on a Portfolio-by-Portfolio basis, and their deliberations were made separately in respect of each Portfolio. This summary describes the most important, but not all, of the factors considered by the Board, the Independent Trustees and the Committee. The Board, the Independent Trustees and the Committee considered the fact that each of the Portfolios is managed in a style substantially identical to that of a corresponding series of WM Strategic Asset Management Portfolios, LLC (each, a "SAM Portfolio") and reviewed the Portfolios simultaneously with their review of the corresponding SAM Portfolios. MATERIALS REVIEWED: During the course of each year, the Board receives a wide variety of materials relating to the services provided by the Advisor and its affiliates, including reports on: each SAM Portfolio's investment results; portfolio construction; portfolio composition; performance attribution; shareholder services; the Advisor's views on the economy and capital markets; and other information relating to the nature, extent and quality of services provided by the Advisor and its affiliates to the Portfolios. With respect to performance attribution, the Board, the Independent Trustees and the Committee focused in particular on the SAM Balanced Portfolio, as the corresponding performance attribution for the other Portfolios typically varies in proportion to the greater or lesser risk profiles of those Portfolios. In addition, in connection with its annual consideration of the Agreement, the Board requests and reviews supplementary information regarding the terms of the Agreement, performance and expense information for other investment companies derived from data compiled by Lipper, data on pre- and post-marketing profit margins for investment advisory subsidiaries of publicly traded companies prepared by Lipper, as well as additional information prepared by the Advisor, including financial and profitability information regarding the Advisor and its affiliates, descriptions of various functions undertaken by the Advisor, such as compliance monitoring practices, and information about the personnel providing investment management to the Portfolios. The Board, the Independent Trustees and the Committee also considered information regarding "revenue sharing" arrangements that the Advisor and its affiliates have entered into with various intermediaries that sell shares of the Portfolios. The Board also requested and reviewed information relating to other services provided to the Portfolios by the Advisor and its affiliates under other agreements, including information regarding so-called "fall-out" benefits to the 38 Supplemental Information (unaudited) (continued) WM VARIABLE TRUST STRATEGIC ASSET MANAGEMENT PORTFOLIOS Advisor and its affiliates due to their other relationships with the Portfolios, such as the administrative services contract with the Advisor described below. The Board and the Committee also received and reviewed comparative performance information regarding the SAM Portfolios at each of the quarterly Board and Committee meetings. NATURE, EXTENT AND QUALITY OF SERVICES: Nature and Extent of Services -- In considering the continuation of the Agreement for the current year, the Board, the Independent Trustees and the Committee evaluated the nature and extent of the services provided by the Advisor and its affiliates. For each Portfolio, the Advisor formulates the Portfolio's investment policies (subject to the terms of the prospectus); analyzes economic trends and capital market developments (with a view to optimizing the Portfolio's asset allocations); evaluates the consistency, style and quality of the investment services provided to the Underlying Funds in which the Portfolio invests; evaluates the risk/return characteristics of each of the Underlying Funds by reference to the specific security holdings of each Underlying Fund; constructs the Portfolio (including actively managing the Portfolio's asset allocation through daily cash flows); monitors the Portfolio's investment performance; and reports to the Board and the Committee. The Board, the Independent Trustees and the Committee considered information concerning the investment philosophy and investment process used by the Advisor in managing the Portfolios. The Board, the Independent Trustees and the Committee considered the extent to which the investment style employed for the Portfolios differs from that of funds that are simply rebalanced periodically to specific static allocations, including performance attribution information showing the effect on performance of the Advisor's asset allocation decisions. In this context, the Board, the Independent Trustees and the Committee considered the in-house research capabilities of the Advisor as well as other resources available to the Advisor, including research services available to the Advisor as a result of securities transactions effected for the Underlying Funds. The Board, the Independent Trustees and the Committee considered the managerial and financial resources available to the Advisor and concluded that they would be sufficient to meet any reasonably foreseeable obligations under the Agreement. The Board, the Independent Trustees and the Committee noted that the standard of care under the Agreement was comparable to that typically found in mutual fund investment advisory agreements, and considered the record of the Advisor in resolving potential disputes arising under its investment advisory agreements with the WM Group of Funds in the best interests of shareholders. Quality of Services -- The Board, the Independent Trustees and the Committee considered the quality of the services provided by the Advisor and the quality of the Advisor's resources that are available to the Portfolios. The Board, the Independent Trustees and the Committee considered the investment experience and professional qualifications of the personnel of the Advisor and its affiliates and the size and functions of their staffs, as well as the reputation of the Advisor. The Board, the Independent Trustees and the Committee considered the complexity of managing the Portfolios relative to other types of funds, including other funds that pursue their objectives through investments in mutual funds (so-called "funds-of-funds"), other funds that pursue their objectives by investing directly in portfolio securities, and mutual fund wrap accounts that offer asset allocation services. In evaluating the scope and quality of the services provided by the Advisor to the Portfolios, the Board, the Independent Trustees and the Committee members also drew on their experiences as directors or Trustees of the Underlying Funds and, for certain Trustees, other funds. The Board, the Independent Trustees and the Committee also received and reviewed information regarding the quality of non-investment advisory services provided to the Portfolios by the Advisor and its affiliates under other agreements. The Board, the Independent Trustees and the Committee concluded that the services provided by the Advisor have benefited and should continue to benefit the Portfolios and their shareholders. The Board, the Independent Trustees and the Committee concluded that the investment philosophies, processes, and research capabilities of the Advisor were well suited to the Portfolios, given their investment objectives and policies. The Board, the Independent Trustees and the Committee concluded that the scope of the services provided to the Portfolios by the Advisor under the Agreement was consistent with the Portfolios' operational requirements, including, in addition to their investment objectives, compliance with the Portfolios' investment restrictions, tax and reporting requirements and related shareholder services. The Board, the Independent Trustees and the Committee concluded that the nature, scope and quality of the services provided by the Advisor were sufficient, in light of the resources dedicated by the Advisor and its integrity, personnel, systems and financial resources, to merit approval of the continuation of the Agreement. PORTFOLIO MANAGEMENT SERVICES AND PERFORMANCE: In their evaluation of the quality of the portfolio management services provided by the Advisor, the Board, the Independent Trustees and the Committee considered the professional credentials and investment experience of the Portfolios' portfolio managers. The Board, the Independent Trustees and the Committee considered the Portfolios' record of compliance with investment restrictions. The Board, the Independent Trustees and the Committee reviewed information comparing the Portfolios' historical performance to relevant market indices or blends of market indices for the 1-, 3- and 5-year periods ended March 31, 2006, and to average performance information for peer groups prepared by Lipper based on the performance of other investment companies with similar investment objectives (including, separately, both funds-of-funds and funds investing directly in portfolio securities) over the 1-, 3- and 5-year periods ended December 31, 2005. The Board, the Independent Trustees and the Committee focused, in particular, on the performance comparisons of the Balanced Portfolio as compared to other mutual funds categorized by Lipper as "balanced funds." The Board, the Independent Trustees and the Committee considered the difficulty in identifying peer groups for the Portfolios other than the Balanced Portfolio. The Board, the Independent Trustees and the Committee determined that 39 Supplemental Information (unaudited) (continued) WM VARIABLE TRUST STRATEGIC ASSET MANAGEMENT PORTFOLIOS the Portfolios other than the Balanced Portfolio performed consistently with their risk profiles relative to the Balanced Portfolio and that such Portfolios' performance should be and was symmetrically arrayed around the performance of the Balanced Portfolio. The Board, the Independent Trustees and the Committee noted that the Portfolios had performed well relative to their respective blended index benchmarks over the 1-, 3- and 5-year periods and that the Balanced Portfolio had outperformed its peer average (for both funds-of-funds and funds investing directly in portfolio securities) for the 1-, 3- and 5-year periods. The Board, the Independent Trustees and the Committee noted that the other Portfolios had outperformed their peer averages (for both funds-of-funds and funds investing directly in portfolio securities) for the 5-year period, although they had generally underperformed their peer averages (for both funds-of-funds and funds investing directly in portfolio securities) for the 1- and 3-year periods. The Board, the Independent Trustees and the Committee discussed with the Advisor the reasons for this recent relative underperformance, and the conditions under which the Portfolios other than the Balanced Portfolio should be expected to outperform or underperform relative to their Lipper peer averages, given the "core" allocations of such Portfolios. The Board, the Independent Trustees and the Committee concluded that the Advisor's performance record and investment process used in managing the Portfolios were sufficient to merit approval of the continuation of the Agreement. MANAGEMENT FEES AND EXPENSES: The Board, the Independent Trustees and the Committee reviewed information, including comparative information provided by Lipper, regarding the advisory, administrative, transfer agent, and service and distribution fees paid to the Advisor and its affiliates and the total expenses borne by the Portfolios. The Board, the Independent Trustees and the Committee considered both the total expenses borne directly by the Portfolios and the total expenses borne on an aggregate basis, including the expenses borne indirectly through the Portfolios' investments in the Underlying Funds. They discussed trends in total expense ratios for the Portfolios. The Board, the Independent Trustees and the Committee reviewed the administrative fees paid by the Portfolios to the Advisor and the distribution (12b-1) fees paid to the Distributor. The Board, the Independent Trustees and the Committee considered average expenses for peer groups identified by Lipper for the Portfolios, including Lipper peer groups comprised of funds that invest directly in portfolio securities and Lipper peer groups comprised exclusively of funds-of-funds. The Board, the Independent Trustees and the Committee noted that the number of funds-of-funds identified by Lipper had increased from prior years, and considered the relative merits of broader and more focused expense comparison groups. The Board, the Independent Trustees and the Committee considered the similarity of the Portfolios to mutual fund wrap accounts, and reviewed and considered a report provided by Cerulli on mutual fund wrap accounts, including data on average annual advisory fees. The Board, the Independent Trustees and the Committee considered information provided by Lipper comparing the total expenses of funds-of-funds, including and excluding underlying fund expenses, to those of the Portfolios. The Board, the Independent Trustees and the Committee concluded that the total expenses of funds-of-funds, including underlying fund expenses, represented the best comparison for the expenses of the Portfolios, because they reflected all of the expenses borne directly and indirectly by investors. The Board, the Independent Trustees and the Committee concluded that the fees to be charged under the Agreement bore a reasonable relationship to the scope and quality of the services provided. PROFITABILITY AND ECONOMIES OF SCALE: Profitability -- The Board, the Independent Trustees and the Committee reviewed information regarding the cost of services provided by the Advisor and its affiliates and the profitability (before and after distribution expenses and prior to taxes) of their relationships with the Portfolios. The Board, the Independent Trustees and the Committee considered trends in the profitability of the Advisor and its affiliates, and information provided by Lipper regarding the pre- and post-marketing profitability of other investment advisers with publicly-traded parent companies. The Board, the Independent Trustees and the Committee considered that the Advisor must be able to pay and retain experienced professional personnel at competitive rates to provide services to the Portfolios (and in connection therewith, reviewed information regarding the structure of compensation of the Advisor's investment professionals) and that maintaining the financial viability of the Advisor is important in order for it to continue to provide significant services to the Portfolios and their shareholders. In addition, the Board, the Independent Trustees and the Committee considered information regarding the direct and indirect benefits the Advisor receives as a result of its relationship with the Portfolios, including compensation paid to the Advisor and its affiliates under other agreements, such as administrative fees to the Advisor, and 12b-1 fees and sales charges to the Distributor, as well as research provided to the Advisor in connection with portfolio transactions effected on behalf of the Underlying Funds (soft dollar arrangements) and reputational benefits. Economies of Scale -- The Board, the Independent Trustees and the Committee reviewed the extent to which the Advisor may realize economies of scale in managing and supporting the Portfolios and the current level of Portfolio assets in relation to the breakpoints in each Portfolio's advisory fees. The Board, the Independent Trustees and the Committee considered the extent to which economies of scale might be realized (if at all) by the Advisor across a variety of products and services included within the WM Group of Funds. The Board, the Independent Trustees and the Committee concluded that the Portfolios' cost structure was reasonable given the scope and quality of the services provided to the Portfolios and that the Advisor was sharing any economies of scale with the Portfolios and their shareholders. 40 Supplemental Information (unaudited) (continued) WM VARIABLE TRUST STRATEGIC ASSET MANAGEMENT PORTFOLIOS ADDITIONAL CONSIDERATIONS: The Board, the Independent Trustees and the Committee also considered possible conflicts of interest associated with the provision of investment advisory services by the Advisor to other clients. The Trustees considered the procedures of the Advisor designed to fulfill its fiduciary duties to its advisory clients with respect to possible conflicts of interest, including the codes of ethics, the integrity of the systems in place to ensure compliance with the foregoing, and the record of the Advisor in these matters. CONCLUSIONS: Based on their review, including their consideration of each of the factors referred to above, the Board, the Independent Trustees and the Committee concluded that the Agreement and the fees payable to the Advisor are fair and reasonable to the Portfolios and their shareholders, given the scope and quality of the services provided to the Portfolios and such other considerations as the Trustees considered relevant in the exercise of their reasonable business judgment, and that the continuation of the Agreement was in the best interests of the Portfolios and their shareholders. The Board and the Independent Trustees unanimously approved the continuation of the Agreement. 41 Supplemental Information (unaudited) (continued) WM VARIABLE TRUST STRATEGIC ASSET MANAGEMENT PORTFOLIOS SPECIAL MEETING OF SHAREHOLDERS A special meeting of shareholders was convened on December 15, 2006, at which shareholders approved the following: Approval of the Agreement and Plan of Reorganization providing for the combination of the WM VT Flexible Income Portfolio into the PVC SAM Flexible Income Portfolio.
AFFIRMATIVE AGAINST ABSTAIN TOTAL ------------- ----------- ------------- ------------- Voted Shares .............. 8,609,775.816 124,388.084 1,223,429.818 9,957,593.718 % of Outstanding Shares ... 62.202% 0.899% 8.839% 71.939% % of Shares Voted ......... 86.464% 1.249% 12.286% 100.000%
Approval of the Agreement and Plan of Reorganization providing for the combination of the WM VT Conservative Balanced Portfolio into the PVC SAM Conservative Balanced Portfolio.
AFFIRMATIVE AGAINST ABSTAIN TOTAL ------------- ----------- ----------- ------------- Voted Shares .............. 4,672,857.148 126,629.947 181,182.170 4,980,669.265 % of Outstanding Shares ... 77.148% 2.091% 2.991% 82.230% % of Shares Voted ......... 93.820% 2.542% 3.638% 100.000%
Approval of the Agreement and Plan of Reorganization providing for the combination of the WM VT Balanced Portfolio into the PVC SAM Balanced Portfolio.
AFFIRMATIVE AGAINST ABSTAIN TOTAL ------------- ------------- ------------- -------------- Voted Shares .............. 29,904,067.660 1,516,777.731 4,720,297.006 36,141,142.397 % of Outstanding Shares ... 71.416% 3.622% 11.273% 86.312% % of Shares Voted ......... 82.742% 4.197% 13.061% 100.000%
Approval of the Agreement and Plan of Reorganization providing for the combination of the WM VT Conservative Growth Portfolio into the PVC SAM Conservative Growth Portfolio.
AFFIRMATIVE AGAINST ABSTAIN TOTAL -------------- ----------- ------------- -------------- Voted Shares .............. 16,959,622.452 464,509.659 1,346,637.598 18,770,769.709 % of Outstanding Shares ... 80.095% 2.194% 6.360% 88.648% % of Shares Voted ......... 90.351% 2.475% 7.174% 100.000%
Approval of the Agreement and Plan of Reorganization providing for the combination of the WM VT Strategic Growth Portfolio into the PVC SAM Strategic Growth Portfolio.
AFFIRMATIVE AGAINST ABSTAIN TOTAL ------------- ----------- ----------- ------------- Voted Shares .............. 6,365,459.410 143,452.551 212,055.811 6,720,967.772 % of Outstanding Shares ... 63.654% 1.435% 2.121% 67.209% % of Shares Voted ......... 94.711% 2.134% 3.155% 100.000%
42 Supplemental Information (unaudited) (continued) WM VARIABLE TRUST STRATEGIC ASSET MANAGEMENT PORTFOLIOS Approval of the proposed advisory agreement with WM Advisors, Inc. for the WM VT Flexible Income Portfolio.
AFFIRMATIVE AGAINST ABSTAIN TOTAL ------------- ----------- ----------- ------------- Voted Shares .............. 8,864,441.490 110,281.184 982,871.044 9,957,593.718 % of Outstanding Shares ... 64.042% 0.797% 7.101% 71.939% % of Shares Voted ......... 89.022% 1.108% 9.871% 100.000%
Approval of the proposed advisory agreement with WM Advisors, Inc. for the WM VT Conservative Balanced Portfolio.
AFFIRMATIVE AGAINST ABSTAIN TOTAL ------------- ----------- ----------- ------------- Voted Shares .............. 4,678,221.443 124,060.253 178,387.569 4,980,669.265 % of Outstanding Shares ... 77.236% 2.048% 2.945% 82.230% % of Shares Voted ......... 93.928% 2.491% 3.582% 100.000%
Approval of the proposed advisory agreement with WM Advisors, Inc. for the WM VT Balanced Portfolio.
AFFIRMATIVE AGAINST ABSTAIN TOTAL -------------- ----------- ------------- -------------- Voted Shares .............. 31,308,063.285 862,196.371 3,970,882.741 36,141,142.397 % of Outstanding Shares ... 74.769% 2.059% 9.483% 86.312% % of Shares Voted ......... 86.627% 2.386% 10.987% 100.000%
Approval of the proposed advisory agreement with WM Advisors, Inc. for the WM VT Conservative Growth Portfolio.
AFFIRMATIVE AGAINST ABSTAIN TOTAL -------------- ----------- ------------- -------------- Voted Shares .............. 17,292,855.190 357,365.732 1,120,548.787 18,770,769.709 % of Outstanding Shares ... 81.668% 1.688% 5.292% 88.648% % of Shares Voted ......... 92.127% 1.904% 5.970% 100.000%
Approval of the proposed advisory agreement with WM Advisors, Inc. for the WM VT Strategic Growth Portfolio.
AFFIRMATIVE AGAINST ABSTAIN TOTAL ------------- ----------- ----------- ------------- Voted Shares .............. 6,355,899.332 144,084.008 220,984.432 6,720,967.772 % of Outstanding Shares ... 63.558% 1.441% 2.210% 67.209% % of Shares Voted ......... 94.568% 2.144% 3.288% 100.000%
43 Supplemental Information (unaudited) (continued) VT U.S. GOVERNMENT SECURITIES FUND PORTFOLIO MANAGER Craig V. Sosey WM Advisors, Inc. Note: Pages 44 and 45 provide information about certain WM Funds in which the VT SAM Portfolios invest a significant portion of their assets. For additional information about these and other WM Funds, please see the WM Variable Trust annual report, which is available online. Data shown is past performance and does not guarantee future results. Current performance, including the most recent month-end results, which may be higher or lower than the data shown, can be obtained by calling 800-222-5852. Your investment's return and principal value will fluctuate, so it may be worth more or less upon redemption. Performance shown below does not account for fees, expenses, AVERAGE ANNUAL TOTAL RETURNS(1) AS OF DECEMBER 31, 2006
1-Year 5-Year 10-Year Since Inception Inception Date ------ ------ ------- --------------- -------------- CLASS 1 SHARES 4.45% 4.27% 5.55% 5.37% 5/6/93 CLASS 2 SHARES 4.22% 4.03% -- 3.62% 11/6/01 Citigroup Mortgage Index(2) 5.17% 4.90% 6.18% 6.22%
PROTFOLIO COMPOSITION(3) As of 12/31/06 (PIE CHART)
As of As of Asset Class 12/31/06 12/31/05 Change ----------- -------- -------- ------ FHLMC/FGLMC 35% 34% +1% FNMA 29% 24% +5% CMOs 18% 22% -4% U.S. Treasuries 8% 5% +3% GNMA 5% 6% -1% U.S. Government Agency 4% 6% -2% Cash Equivalents 1% 3% -2%
(1) Performance reflects ongoing fund expenses, which may have been waived, and assumes reinvestment of all dividends and capital gains. Performance does not reflect the impact of federal, state, or municipal taxes. If it did, performance would be lower. The VT U.S. Government Securities Fund's performance in 1995 and 1998 benefited from the agreement of WM Advisors and its affiliates to limit the Fund's expenses. On 3/1/04, the investment policies of the Fund were modified. As a result, the Fund's performance for periods prior to that date may not be representative of the performance it would have achieved had its current investment policies been in place. 44 PORTFOLIO MANAGERS VT Income Fund John R.Friedl, CFA and Gary J. Pokrzywinski, CFA WM Advisors, Inc. and charges of any variable insurance contract or retirement plan. If these fees were reflected, performance would be lower. Fixed-income investments are subject to interest rate risk, and their value will decline as interest rates rise. VT U.S. Government Securities Fund: Neither the principal of government bond funds nor their yields are guaranteed by the U.S. government. VT Income Fund: Lower-rated securities are subject to additional credit and default risks. AVERAGE ANNUAL TOTAL RETURNS(1) AS OF DECEMBER 31, 2006
1-Year 5-Year 10-Year Since Inception Inception Date ------ ------ ------- --------------- -------------- CLASS 1 SHARES 4.90% 6.41% 6.67% 6.37% 5/7/93 CLASS 2 SHARES 4.59% 6.13% -- 5.66% 11/6/01 Citigroup Broad Investment-Grade Bond Index(2) 4.33% 5.10% 6.26% 6.26%
PROTFOLIO COMPOSITION(3) As of 12/31/06 (PIE CHART)
As of As of Asset Class 12/31/06 12/31/05 Change ----------- -------- -------- ------ Domestic Corporate Bonds 59% 58% +1% Mortgage-Backed Bonds 22% 22% 0% U.S. Treasuries 10% 7% +3% Foreign Corporate Bonds (U.S.$) 7% 8% -1% Foreign Government Bonds (U.S.$) 1% 1% 0% Equities 0% 1% -1% Cash Equivalents 1% 3% -2%
(2) See page 14 for definitions of indices. Returns shown for the indices assume reinvestment of all dividends and distributions, and since-inception returns shown for the indices are calculated from 4/30/93. Indices are unmanaged, and individuals cannot invest directly in an index. (3) May not reflect the current portfolio composition. 45 Supplemental Information (unaudited) (continued) WM VARIABLE TRUST STRATEGIC ASSET MANAGEMENT PORTFOLIOS OTHER PORTFOLIO INFORMATION TAX INFORMATION: The following tax information for the fiscal year ended December 31, 2006, is provided pursuant to provisions of the Code. The amounts of long-term capital gains designated are as follows (in thousands):
NAME OF PORTFOLIO ----------------- VT Flexible Income Portfolio........ $2,493 VT Conservative Balanced Portfolio.. 815
Of the distributions made by the following Portfolios, the corresponding percentages represent the amount of each distribution which may qualify for the dividends received deduction available to corporate shareholders.
NAME OF PORTFOLIO ----------------- VT Flexible Income Portfolio........ 6.25% VT Conservative Balanced Portfolio.. 15.00% VT Balanced Portfolio............... 27.19% VT Conservative Growth Portfolio.... 48.40% VT Strategic Growth Portfolio....... 79.45%
SCHEDULES OF INVESTMENTS: The Trust files its complete schedules of portfolio holdings with the Securities and Exchange Commission ("SEC") for the first and third quarters of each fiscal year on Form N-Q. The Trust's Form N-Q is available at http://www.sec.gov and also may be reviewed and copied at the SEC's Public Reference Room ("PRR") in Washington, DC. Information regarding the operation of the PRR may be obtained by calling 800-SEC-0330. PROXY VOTING INFORMATION: The policies and procedures that the Trust uses to determine how to vote proxies relating to portfolio securities held by the Portfolios are included in the Trust's Statement of Additional Information which is available, without charge and upon request, by calling 800-222-5852. Information regarding how the Portfolios voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available by calling 800-222-5852 or at http://www.sec.gov. 46 Supplemental Information (unaudited) (continued) WM VARIABLE TRUST STRATEGIC ASSET MANAGEMENT PORTFOLIOS TRUSTEES AND OFFICERS INFORMATION
NAME, AGE, AND ADDRESS(1) LENGTH OF PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIPS OF NON-INTERESTED TRUSTEE(4) TIME SERVED(2) DURING PAST 5 YEARS HELD BY TRUSTEE ---------------------------- -------------- ----------------------- ------------------- Kristianne Blake Composite Funds-3 years CPA specializing in personal Avista Corporation; Frank Russell Age 52 WM Group of Funds-8 years financial and tax planning. Investment Company; Russell Investment Funds; University of Washington. Edmond R. Davis, Esq. Sierra Funds-8 years Partner at the law firm of Braille Institute of America, Inc; Age 78 WM Group of Funds-8 years Davis & Whalen LLP. Prior Children's Bureau of Southern California, thereto, partner at the law Children's Bureau Foundation; Fifield firm of Brobeck, Phlegar & Manors, Inc. Harrison, LLP. Carrol R. McGinnis Griffin Funds-3 years Private investor since 1994. Baptist Foundation of Texas; Concord Age 63 WM Group of Funds-7 years Prior thereto, President and Trust Company. Chief Operating Officer of Transamerica Fund Management Company. Alfred E. Osborne, Jr., Ph.D. Sierra Funds-7 years Senior Associate Dean, K2, Inc.; First Pacific Advisors' Funds; Age 62 WM Group of Funds-8 years University of California at EMAK Worldwide, Inc.; Investment Company Los Angeles Anderson Institute; Independent Directors Council Graduate School of Management, and Faculty Director of the Harold Price Center for Entrepreneurial Studies, University of California at Los Angeles. Daniel L. Pavelich Composite Funds-1 year Retired Chairman and CEO of Catalytic, Inc.; Vaagen Bros. Lumber, Age 62 WM Group of Funds-8 years BDO Seidman. Inc. Jay Rockey Composite Funds-3 years Founder and Senior Counsel Age 78 WM Group of Funds-8 years of The Rockey Company, now Rockey, Hill & Knowlton. Richard C. Yancey Composite Funds-23 years Retired Managing Director of AdMedia Partners Inc.; Czech and Slovak (Chairman) WM Group of Funds-8 years Dillon Read & Co., an American Enterprise Fund Age 80 investment bank now part of UBS.
NAME, AGE, AND ADDRESS(1) LENGTH OF PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIPS OF INTERESTED TRUSTEE(3)(4) TIME SERVED(2) DURING PAST 5 YEARS HELD BY TRUSTEE --------------------------- -------------- ----------------------- ------------------- Anne V. Farrell Composite Funds-4 years President Emeritus of the Washington Mutual, Inc.; Recreational Age 71 WM Group of Funds-8 years Seattle Foundation. Equipment, Inc. William G. Papesh Composite Funds-9 years President and Director of Member of Investment Company Institute (President and CEO) WM Group of Funds-8 years the Advisor; Sr. Vice Board of Governors. Age 63 President and Director of the Transfer Agent and Distributor.
NAME, AGE, AND ADDRESS(1) POSITION(S) HELD WITH REGISTRANT & PRINCIPAL OCCUPATION(S) OF OFFICER(4) LENGTH OF TIME SERVED DURING PAST 5 YEARS ------------------------- ---------------------------------- ----------------------- Wendi B. Bernard Vice President and Assistant Secretary since Vice President of the Advisor. Age 38 2006. Prior to 2006, various other officer positions since 2003. Jeffrey L. Lunzer, CPA First Vice President, Chief Financial Officer First Vice President of the Advisor, Transfer Agent Age 46 and Treasurer since 2003. and Distributor. Prior to 2003, senior level positions at the Columbia Funds and Columbia Management Company. William G. Papesh President and CEO since 1987. Prior to 1987, President and Director of the Advisor; Sr. Vice Age 63 other officer positions since 1972. President and Director of the Transfer Agent and Distributor. Gary Pokrzywinski Senior Vice President since 2004. First Vice Senior Vice President and Director of the Advisor, Age 45 President since 2001. Prior to 2001, Vice Transfer Agent and Distributor. President since 1999. Debra Ramsey Senior Vice President since 2004. President and Director of the Transfer Agent and Age 53 Distributor; Sr. Vice President and Director of the Advisor. John T. West First Vice President, Secretary, Chief First Vice President of the Advisor, Transfer Agent Age 51 Compliance Officer and Anti-Money Laundering and Distributor. Compliance Officer since 2004. Prior to 2004, various other officer positions since 1993. Randall L. Yoakum Senior Vice President since 2001. Prior to Senior Vice President and Chief Investment Age 47 2001, First Vice President since 1999. Strategist of the Advisor.
Note: The Statement of Additional Information includes additional information about Fund Trustees and Officers and is available, without charge, upon request by calling 800-222-5852. (1) The address for all Trustees and Officers is 1201 Third Avenue, 8th Floor, Seattle, WA, 98101. (2) The Sierra Funds merged with the Composite Funds on March 23, 1998, to form the WM Group of Funds. The Griffin Funds merged with the WM Group of Funds on March 5, 1999. (3) Trustees are considered interested due to their affiliation with PFG, Washington Mutual, Inc. (prior to December 31, 2006), the Advisor, the Distributor, or the Transfer Agent. (4) The Trustees and Officers serve in these capacities for the 40 Portfolios and Funds in the Fund Complex. Each Trustee and Officer shall hold the indicated positions until his or her resignation, retirement or removal. 47 (WM VARIABLE TRUST LOGO) A variable insurance product's unit value and investment returns will vary with market conditions, and an investor's units when redeemed may be worth more or less than their original cost. This annual report is published as general information for the shareholders of the WM Variable Trust. This material is not authorized for distribution unless preceded or accompanied by a current prospectus that includes more information regarding the risk factors, expenses, policies, and objectives of the contract. Investors should read the prospectus carefully before investing. To obtain an additional prospectus, please contact your Investment Representative or call 800-222-5852. The WM Variable Trust Funds are advised by WM Advisors, Inc. (WMAI). They are available through variable insurance products distributed by WM Funds Distributor, Inc. (WMFD) and sold through WM Financial Services, Inc. (WMFS) and independent broker/dealers. WMAI, WMFD, and WMFS are affiliates of Washington Mutual, Inc. Distributed by: WM Funds Distributor, Inc. Member NASD (WM VARIABLE TRUST LOGO) MM 3488 (2/28/07) ITEM 2. CODE OF ETHICS The registrant has adopted a code of ethics that applies to the registrant's principal executive officer, principal financial officer and principal accounting officer, a copy of which is attached hereto. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT The Board of Trustees of the registrant has determined that there is at least one Trustee who is an audit committee financial expert serving on its Audit Committee and has designated Daniel L. Pavelich as an "audit committee financial expert." Mr. Pavelich is "independent," as such term has been defined by the Securities and Exchange Commission (the "SEC") for purposes of implementing Section 407 of the Sarbanes Oxley Act of 2002. The SEC has stated that the designation or identification of a person as an audit committee financial expert pursuant to this Item 3 of Form N-CSR does not impose on such person any duties, obligations or liability that are greater than the duties, obligations and liability imposed on such person as a member of the Audit Committee and the Board of Trustees in the absence of such designation or identification. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES (a) Audit Fees
2005 2006 ---- ---- $472,800 $489,500
(b) Audit-Related Fees
2005 2006 ---- ---- None None
For the last two fiscal years, no audit-related fees were required to be approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X. (c) Tax Fees
2005 2006 ---- ---- $42,912 $46,800
The tax fees consist of fees billed in connection with reviewing the federal regulated investment company income tax returns for WM Variable Trust for the tax years ended December 31, 2005 and December 31, 2006. (d) All Other Fees For the last two fiscal years, no other fees were required to be approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X. (e) (1) Pre-approval Policies and Procedures Pursuant to the Audit Committee charter, the Audit Committee of the registrant will review and pre-approve or disapprove its principal accountant's engagement for all services with the registrant and its principal accountant's engagement for non-audit services with the registrant's investment advisor (not including a sub-advisor whose role is primarily portfolio management and is sub-contracted or overseen by another investment advisor) and any entity controlling, controlled by or under common control with the investment advisor that provides ongoing services to the funds in accordance with paragraph (c)(7)(i) of Rule 2-01 of Regulation S-X, if the engagement relates directly to the operations and financial reporting of the registrant. (2) None of the services described in paragraphs (b) through (d) of this Item 4 were approved by the Audit Committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. (f) Not applicable. (g) For the fiscal year ended December 31, 2006, the registrant's principal accountant billed aggregate non-audit fees in the amount of $158,800 for services rendered to the registrant, WM Advisors, Inc., WM Funds Distributor, Inc., WM Shareholder Services, Inc. and WM Financial Services, Inc. For the fiscal year ended December 31, 2005, the registrant's principal accountant billed aggregate non-audit fees in the amount of $42,912 for services rendered to the registrant, WM Advisors, Inc., WM Funds Distributor, Inc., WM Shareholder Services, Inc. and WM Financial Services, Inc. (h) The Audit Committee has considered whether the provision of non-audit services that were rendered to the registrant's investment advisor (not including any sub-advisor whose role is primarily portfolio management and is subcontracted with or overseen by another investment advisor), and any entity controlling, controlled by, or under common control with the investment advisor that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant's independence. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS Not Applicable. ITEM 6. SCHEDULE OF INVESTMENTS Schedule is included as part of the report to shareholders filed under Item 1 of this Form. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES Not Applicable. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES Not Applicable. ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANIES AND AFFILIATED PURCHASERS Not Applicable. ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable. ITEM 11. CONTROLS AND PROCEDURES: (a) The registrant's principal executive officer and principal financial officer have concluded, based on their evaluation of the effectiveness of the design and operation of the registrant's disclosure controls and procedures as of a date within 90 days of the filing date of this report on Form N-CSR, that the design and operation of such procedures are effective to provide reasonable assurance that information required to be disclosed by the registrant in the reports that it files or submits on Form N-CSR is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms. (b) There have been no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940, as amended) that occurred during the registrant's second fiscal half-year that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting. ITEM 12. EXHIBITS (a) Registrant's Code of Ethics. The registrant's code of ethics required to be disclosed under Item 2 of Form N-CSR attached hereto at Exhibit 99.CODE ETH. (b) A separate certification for each principal executive officer and principal financial officer of the registrant as required by Rule 30a-2 of the Investment Company Act of 1940 attached hereto as Exhibit 99.CERT. (c) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 attached hereto as Exhibit 99.906 CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. WM Variable Trust By: /s/William G. Papesh William G. Papesh President and Chief Executive Officer Date: March 1, 2007 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities an on the dates indicated. By: /s/Jeffrey L. Lunzer Jeffrey L. Lunzer Treasurer and Chief Financial Officer Date: March 1, 2007 By: /s/William G. Papesh William G. Papesh President and Chief Executive Officer Date: March 1, 2007