SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Securities Act of 1933 File #33-11010
Investment Company Act of 1940 File #811-4962
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT NO. ___ / /
POST-EFFECTIVE AMENDMENT NO. 13 /X/
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 13 /X/
COMPOSITE DEFERRED SERIES, INC.
- --------------------------------------------------------------------------
(Exact name of Registrant as specified in Charter)
601 W. Main Avenue, Suite 801, Spokane, WA 99201
- --------------------------------------------------------------------------
(Address of principal executive offices)
1-509-353-3486
- --------------------------------------------------------------------------
(Registrant's telephone number, including area code)
JOHN T. WEST, CORPORATE SECRETARY
Composite Group of Funds
601 West Main Avenue, Suite 801, Spokane, WA 99201
- ---------------------------------------------------
(Name and address of agent for service)
Approximate Date of Proposed Public Offering January 15, 1996
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[ ] on (date) pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(i) of Rule 485
[XX] on April 30, 1996, pursuant to paragraph (a)(i) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(ii) of Rule 485
[ ] on (date) pursuant to paragraph (a)(ii) of Rule 485
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
- -------------------------------------------------------------------------------
CALCULATION OF REGISTRATIAON FEE UNDER THE SECURITIES ACT OF 1933
Indefinite amount has been registered pursuant to Rule 24f-2. The Rule 24f-2
Notice for the most recent fiscal year was filed on December 14, 1995.
<PAGE>
PART A
TABLE OF CONTENTS
N-1A Item No. Location
Item 1. Cover Page ......................................... Cover Page
Item 2. Synopsis ........................................... *
Item 3. Condensed Financial Information .................... Financial
Highlights
Item 4. General Description of the Registrant .............. A Mutual Fund
Formed to
Meet a Broad
Range of
Investment
Objectives
The Fund's
Objectives
How We Plan to
Reach These
Objectives
Investment
Restrictions
Item 5. Management of the Fund ............................. Who We Are
The Cost of
Good
Management
Item 6. Capital Stock and Other Securities ................. Who We Are
Distribution
of Income
and Capital
Gains
Income Taxes
on Dividends
and Capital
Gains
We're Here
to Help
You
Item 7. Purchase of Securities Being Offered ............... The Cost of
Good
Management
The Value of a
Single Share
How to Buy
Shares
Item 8. Redemption or Repurchase ........................... How to Sell
Shares
Item 9. Pending Legal Proceedings .......................... *
*Not applicable or negative answer
<PAGE>
PART B
TABLE OF CONTENTS
Item 10. Cover Page ......................................... Cover Page
Item 11. Table of Contents .................................. Table of
Contents
Item 12. General Information and History .................... Organization
and
Authorized
Capital
Item 13. Investment Objectives & Policies ................... Investment
Practices
Investment
Restrictions
Brokerage
Allocations
and
Portfolio
Transactions
Item 14. Management of the Fund ............................. The Fund and
Its
Management
Item 15. Control Persons and Principal Holders of Securities. Directors &
Officers of
the Fund
Item 16. Investment Advisory and Other Services ............. The Investment
Adviser
Investment
Management
Services
Distribution
Services
Custodian
Item 17. Brokerage Allocation & Other Practices ............. Brokerage
Allocations
and Portfolio
Transactions
Item 18. Capital Stock and Other Securities ................. Organization
and
Authorized
Capital
Item 19. Purchase, Redemption and Pricing of Securities
Being Offered ................................... How Shares are
Valued
How Shares Can
Be Purchased
How to Sell
Shares - See
Prospectus
page 20
Specimen Price
Make-up
Sheet
Item 20. Tax Status ......................................... Dividends,
Capital
Gain
Distributions
and Taxes
Item 21. Underwriters ....................................... Distribution
Services
Item 22. Financial Statements ............................... Financial
Statements
and Reports
<PAGE>
COMPOSITE DEFERRED SERIES, INC.
SUITE 801
601 W. MAIN AVENUE
SPOKANE, WASHINGTON 99201-0613
TELEPHONE (509) 353-3550
TOLL-FREE (800) 543-8072
A MUTUAL FUND FORMED TO MEET A BROAD RANGE OF INVESTMENT OBJECTIVES
Composite Deferred Series, Inc, (the "Fund") is a mutual fund designed to
provide a broad range of investment alternatives with its series of four
separate portfolios. Each of the portfolios has distinct investment objectives
and policies. Currently investments in shares of the Fund's portfolios may only
be made by the Composite Deferred Variable Accounts, separate accounts
established and maintained by WM Life Insurance Company and Empire Life
Insurance Company individually for the purpose of funding annuity contracts
issued by the Company. As long as shares of the Fund are sold only to the
Accounts, the terms "shareholder" or "shareholders" in this Prospectus shall
refer to the Accounts. The four portfolios are:
- - GROWTH & INCOME PORTFOLIO. Common stocks for long-term capital growth with
current income a secondary consideration.
- - NORTHWEST PORTFOLIO. Common stocks of companies located or doing business in
the Northwest for long-term capital growth.
- - INCOME PORTFOLIO. Debt securities for high current income.
- - MONEY MARKET PORTFOLIO. Money market instruments for maximum current income
with liquidity. PORTFOLIO SHARES ARE NEITHER GUARANTEED NOR INSURED BY THE
U.S. GOVERNMENT, AND THERE IS NO ASSURANCE THAT THE $1.00 PER SHARE NET ASSET
VALUE (NAV) WILL BE MAINTAINED.
(See "How We Plan to Reach These Objectives" for more detailed investment
criteria.) There is, of course, no guarantee that these objectives can be met.
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR ENDORSED OR GUARANTEED
BY, ANY BANK, NOR ARE THEY FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY. THESE SHARES
INVOLVE INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This Prospectus describes the investment practices of the Fund's separate
portfolios and provides a basic description of how the Fund operates,
management, fees and other itmes that potential investors should know. PLEASE
RETAIN THE PROSPECTUS FOR FUTURE REFERENCE. A Statement of Additional
Information about this Fund is on file with the Securities and Exchange
Commission and is incorporated by reference into this Prospectus. The Statement
of Additional Information should be read in conjunction with this Prospectus.
You may obtain a free copy by calling or writing the Fund at the above location.
THE DATE OF THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION IS APRIL
30, 1996.
CONTENTS PAGE PAGE
Financial Highlights ............ 14 The Value of a Single Share ... 19
The Fund's Objectives ........... 16 How to Buy Shares ............. 20
How We Plan to Reach Distribution of Income and
These Objectives .............. 16 Capital Gains ............... 20
Investment Restrictions ......... 18 Income Taxes on Dividends and
Who We Are ...................... 18 Capital Gains ............... 20
The Cost of Good Management ..... 19 How to Sell Shares ............ 20
We're Here to Help You ........ 20
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------------
THIS PROSPECTUS MUST BE ACCOMPANIED BY A CURRENT PROSPECTUS FOR THE FLEXIBLE
PREMIUM DEFERRED VARIABLE ANNUITY CONTRACTS ISSUED BY WM LIFE INSURANCE COMPANY
AND EMPIRE LIFE INSURANCE COMPANY.
<PAGE>
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR) The
supplemental financial information on this page has been audited by independent
auditors whose reports thereon appear in the Fund's Annual Report which is
incorporated by reference into the Statement of Additional Information.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
GROWTH & INCOME ----------------------------------------------------------------------------------------
PORTFOLIO 1995 1994 1993 1992 1991 1990 1989 1988 1987(4)
------- ------- ------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR ......... $15.70 $15.71 $15.26 $14.28 $11.82 $12.89 $12.07 $10.53 $12.00
INCOME FROM ------- ------- ------- ------- ------- ------- ------- ------- --------
INVESTMENT OPERATIONS
Net investment income .... 0.35 0.31 0.29 0.36 0.36 0.40 0.51 0.40 0.22
Net gains or losses on
securities (both real-
ized and unrealized) ... 4.90 0.12 0.84 1.13 2.66 (1.04) 0.81 1.54 (1.49)
------- ------- ------- ------- ------- ------- -------- ------- --------
Total from investment
operations ........... 5.25 0.43 1.13 1.49 3.02 (0.64) 1.32 1.94 (1.27)
------- ------- ------- ------- ------- ------- -------- ------- --------
LESS DISTRIBUTIONS
Dividends (from net
investment income) ..... (0.35) (0.31) (0.28) (0.36) (0.35) (0.43) (0.50) (0.40) (0.20)
Distributions (from
capital gains) ......... (0.38) (0.13) (0.40) (0.15) (0.21) - - - -
------- ------- ------- ------- -------- ------- -------- ------- --------
Total distributions ... (0.73) (0.44) (0.68) (0.51) (0.56) (0.43) (0.50) (0.40) (0.20)
------- ------- ------- ------- -------- ------- -------- ------- --------
NET ASSET VALUE,
END OF YEAR ............... $20.22 $15.70 $15.71 $15.26 $14.28 $11.82 $12.89 $12.07 $10.53
======= ======= ======= ======= ======== ======= ======== ======= ========
TOTAL RETURN(1) ............ 33.70% 2.72% 7.58% 10.56% 25.91% -4.96% 11.00% 18.55% 10.57%
RATIOS/SUPPLEMENTAL DATA
Net assets,
end of year (thousands). $24,448 $14,195 $11,239 $7,455 $4,116 $2,140 $1,986 $1,394 $771
Ratio of expenses to
average net assets(3) .... 0.70% 0.68% 0.76% 0.87% 1.16% 1.38% 1.10% 0.69% -%
Ratio of net income to
average net assets ....... 2.01% 1.97% 1.96% 2.51% 2.77% 3.41% 4.12% 3.61% 3.29%
Portfolio turnover rate(2) . 36% 25% 38% 13% 23% 23% 28% 35% 12%
<FN>
(1) Total return does not reflect sales charge or separate account expenses; returns of less than one year are not annualized.
(2) A portfolio turnover rate is the percentage computed by taking the lesser of purchases or sales of portfolio securities
(excluding securities with a maturity date of one year or less at the time of acquisition) for a period and dividing it by the
monthly average of the market value of such securities during the period.
(3) All expenses incurred from incorporation were absorbed by WM Life Insurance Company, the sole shareholder, through April 30,
1988. The ratio of expenses for 1995 is based upon total expenses in accordance with Securities and Exchange Commission
Release No. FR 46 effective September 1, 1995. Ratios for prior periods were calculated based upon net expenses and have not
been restated.
(4) Information for 1987 is presented from April 30, 1987, the date registration became effective under the Investment Company Act
of 1940, as amended.
</FN>
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 4,
DECEMBER 31, 1993 TO
-------------------------- DECEMBER 31,
NORTHWEST PORTFOLIO 1995 1994 1993(3)
---------- --------- -------------
<S> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD ........... $11.97 $12.19 $12.00
---------- --------- -------------
INCOME FROM
INVESTMENT OPERATIONS
Net investment income ........ 0.09 0.08 0.16
Net gains or losses on
securities (both real-
ized and unrealized) ........ 3.02 (0.21) 0.19
---------- --------- -------------
Total from invest-
ment operations ........... 3.11 12.06 0.35
---------- --------- -------------
LESS DISTRIBUTIONS
Dividends (from net
investment income) .......... (0.09) (0.08) (0.16)
Distributions (from
capital gains) .............. - (0.01) -
---------- ---------- -------------
Total distributions ........ (0.09) (0.09) (0.16)
---------- ---------- -------------
NET ASSET VALUE,
END OF PERIOD ................. $14.99 $11.97 $12.19
========== ========== =============
TOTAL RETURN (1) ............... 26.03% -1.12% 2.95%
RATIOS/SUPPLEMENTAL DATA
Net assets,
end of period (thousands) .... $7,495 $4,647 $2,686
Ratio of expenses to
average net assets (4) ....... 0.90% 0.87% -%
Ratio of net income to
average net assets ........... 0.67% 0.76% 1.61%(5)
Portfolio turnover rate(2) .... 11% 17% -%
<FN>
(1) Total return does not reflect sales charge or separate account expenses; returns of less than one year are not annualized.
(2) A portfolio turnover rate is the percentage computed by taking the lesser of purchases or sales of portfolio securities
(excluding securities with a maturity date of one year or less at the time of acquisition) for a period and dividing it by the
monthly average of the market value of such securities during the period.
(3) Operations commenced January 4, 1993.
(4) Management fees were waived and all expenses were absorbed by WM Life Insurance Company, the sole shareholder, through
December 31, 1993. The ratio of expenses for 1995 is based upon total expenses in accordance with Securities and Exchange
Commission Release No. FR 46 effective September 1, 1995. Ratios for prior periods were calculated based upon net expenses
and have not been restated.
(5) Annualized.
</FN>
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
INCOME PORTFOLIO ----------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987(4)
------- ------- ------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR ......... $11.22 $12.57 $12.22 $12.27 $11.44 $11.46 $11.55 $11.72 $12.00
INCOME FROM ------- ------- ------- ------- ------- ------- ------- ------- --------
INVESTMENT OPERATIONS
Net investment income .... 0.79 0.79 0.85 0.86 0.91 0.95 1.18 1.26 0.69
Net gains or losses on
securities (both real-
ized and unrealized) ... 1.37 (1.35) 0.35 (0.05) 0.83 (0.02) (0.09) (0.17) (0.28)
------- ------- ------- ------- ------- ------- -------- ------- --------
Total from investment
operations ........... 2.16 (0.56) 1.20 0.81 1.74 0.93 1.09 1.09 0.41
------- ------- ------- ------- ------- ------- -------- ------- --------
LESS DISTRIBUTIONS
Dividends (from net
investment income) ..... (0.79) (0.79) (0.85) (0.86) (0.91) (0.95) (1.18) (1.26) (0.69)
------- ------- ------- ------- -------- ------- -------- ------- --------
NET ASSET VALUE,
END OF YEAR ............... $12.59 $11.22 $12.57 $12.22 $12.27 $11.44 $11.46 $11.55 $11.72
======= ======= ======= ======= ======== ======= ======== ======= ========
TOTAL RETURN(1) ............ 19.86% -4.48% 10.02% 6.91% 15.90% 8.59% 9.93% 9.69% 3.45%
RATIOS/SUPPLEMENTAL DATA
Net assets,
end of year (thousands). $15,206 $10,842 $9,113 $6,165 $4,407 $3,738 $3,628 $3,414 $1,394
Ratio of expenses to
average net assets(3) .... 0.76% 0.74% 0.86% 0.88% 0.98% 1.06% 0.81% 0.69% -%
Ratio of net income to
average net assets ....... 6.62% 6.79% 6.75% 7.12% 7.78% 8.43% 10.23% 10.65% 7.30%
Portfolio turnover rate(2) . 14% 15% 29% 37% 66% 85% 48% 30% 13%
<FN>
(1) Total return does not reflect sales charge or separate account expenses; returns of less than one year are not annualized.
(2) A portfolio turnover rate is the percentage computed by taking the lesser of purchases or sales of portfolio securities
(excluding securities with a maturity date of one year or less at the time of acquisition) for a period and dividing it by the
monthly average of the market value of such securities during the period.
(3) All expenses incurred from incorporation were absorbed by WM Life Insurance Company, the sole shareholder, through April 30,
1988. The ratio of expenses for 1995 is based upon total expenses in accordance with Securities and Exchange Commission
Release No. FR 46 effective September 1, 1995. Ratios for prior periods were calculated based upon net expenses and have not
been restated.
(4) Information for 1987 is presented from April 30, 1987, the date registration became effective under the Investment Company Act
of 1940, as amended.
</FN>
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
MONEY MARKET ----------------------------------------------------------------------------------------
PORTFOLIO 1995 1994 1993 1992 1991 1990 1989 1988 1987(1)
------ ------ ------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR ......... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
INCOME FROM ------ ------ ------- ------- ------- ------- ------- ------- --------
INVESTMENT OPERATIONS
Net investment income .... 0.01 - - - 0.06 0.08 0.09 0.07 0.04
LESS DISTRIBUTIONS
Dividends (from net
investment income) ..... (0.01) - - - (0.06) (0.08) (0.09) (0.07) (0.04)
NET ASSET VALUE, ------ ------ ------- ------- ------- ------- ------- ------- --------
END OF YEAR ............... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
====== ====== ======= ======= ======= ======= ======= ======= ========
TOTAL RETURN ............... 1.16% -% -% -0.25% 5.92% 8.01% 8.95% 7.60% 3.55%
RATIOS/SUPPLEMENTAL DATA
Net assets,
end of year (thousands). $221 $219 $218 $218 $586 $565 $409 $301 $128
Ratio of expenses to
average net assets(3) .... 4.54% 3.65% 2.87% 2.82% -% -% -% -% -%
Ratio of net income to
average net assets ....... 1.16% 0.39% -% 0.82% 5.77% 7.70% 8.56% 7.22% 4.32%
<FN>
(1) Information for 1987 is presented from April 30, 1987, the date registration became effective under the Investment Company Act
of 1940, as amended.
(2) Total return does not reflect sales charge or separate account expenses; returns of less than one year are not annualized.
(3) The Investment Adviser waived its management fee from inception of the Portfolio through June 30, 1994; and other expenses were
reimbursed to the Portfolio by WM Life Insurance Company (WMLIC) from inception of the Portfolio through February 29, 1992.
Expenses, including the waived management fee, in excess of revenues were reimbursed to the Portfolio by WMLIC during the
period January 1, 1993 through December 31, 1995. The ratio of expenses for 1995 is based upon total expenses in accordance
with Securities and Exchange Commission Release No. FR 46 effective September 1, 1995. Ratios for prior periods were
calculated based upon net expenses and have not been restated.
</FN>
</TABLE>
<PAGE>
THE FUND'S OBJECTIVES
Composite Deferred Series, Inc. (a Washington corporation formed December
8, 1986) is a "series" fund consisting of four separate portfolios. Each
portfolio is a segregated pool of assets and has a different investment
objective which cannot be changed without a majority vote of its outstanding
shares. The investment practices of each portfolio involve a carefully
calculated degree of risk. There is no guarantee that the objectives of the
portfolios can be achieved.
GROWTH & INCOME PORTFOLIO is designed and managed to provide long-term
growth of capital, with current income a secondary consideration, through
investment in common stocks and other securities.
NORTHWEST PORTFOLIO is designed to provide long-term capital growth by
investing in the common stocks of companies located or doing business in the
Northwest states of Alaska, Idaho, Montana, Oregon and Washington. Under normal
circumstances, at least 65% of its total assets will be invested in companies
whose principal executive offices are located in the Northwest.
INCOME PORTFOLIO is designed and managed to provide the highest level of
current income, with protection of capital a secondary consideration, through
investment in higher grades of debt and other securities.
MONEY MARKET PORTFOLIO is designed and maanged to provide maximum current
income while at the same time maintaining liquidity and preserving capital
through investment in short-term, high-grade money market instruments.
Investors ("Contract Owners") should be aware that the market value of the
portfolio selected will affect the value of the Flexible Premium Variable
Annuity Contract (the "Contract") and the amount of annuity payments received
under the Contract. See the attached Prospectus for the Contract which describes
the relationship between increases or decreases in the net asset value of
portfolio shares (and any distributions on such shares) and the benefits
provided under the Contract.
HOW WE PLAN TO REACH THESE OBJECTIVES
We intend to achieve the above objectives by investing in securities and
other instruments specifically chosen to fulfill such objectives, as follows:
GENERAL PORTFOLIO TECHNIQUES
ALL PORTFOLIOS
MONEY MARKET INSTRUMENTS. The Portfolios are permitted to invest in money
market instruments for temporary or defensive purposes. The money market
investments permitted include obligations of the United States government and
its agencies and instrumentalities; commercial paper including bank obligations;
other short-term corporate debt securities; certificates of deposit; and
repurchase agreements.
REPURCHASE AGREEMENTS. The Portfolios may temporarily invest cash reserves
in repurchase agreements. Repurchase agreements are debt instruments subject to
an obligation of the seller to repurchase and of the Portfolio to resell at a
fixed price. In the event the seller defaults on its agreement to repurchase the
instrument, the Portfolio may suffer a loss because of a decline in the value of
the underlying debt instrument. Repurchase agreements will only be entered into
with brokers, dealers or banks that meet credit guidelines adopted by the Fund's
Board of Directors. To limit risk, repurchase agreements maturing in more than
seven days will not exceed 10% of the Portfolio's total assets.
GROWTH & INCOME PORTFOLIO
A broadly diversified portfolio of common stocks is carefully selected
which, in the opinion of the Adviser, has an underlying value and which will be
held for as long as those stocks reflect that value. Frequently, this involves
investment in stocks that the Adviser considers to be undervalued. These are
stocks that may be currently "out of favor" with some investors, and hence, in
management's judgment, are selling at less than they are worth. Some stocks
chosen may pay significant dividends and provide income to the Portfolio and to
its shareholders. Others may pay little or no dividends, but in management's
judgment are valuable for their growth potential alone. During some market
conditions (for example, in general stock market declines) a defensive
investment practice may be used; the Adviser may choose to sell substantial
amounts of common stock, and invest the proceeds in more stable, fixed-income
securities (not to exceed 65% of the Portfolio's total net assets) until the
market for common stocks appears ready to resume its growth. This flexibility --
this capacity to ride the currents of market conditions to its advantage -- is
one of the strengths of the Growth & Income portfolio.
Although the Portfolio is diversified and management believes the Portfolio
to be invested prudently, some securities within the Portfolio, from time to
time, may be subject to moderate-to-high levels of market risk and
low-to-moderate levels of financial risk.
NORTHWEST PORTFOLIO
Common stocks are selected from high-quality companies with solid business
fundamentals that the Adviser believes have a competitive advantage. Since the
Portfolio concentrates on companies located or doing business in the Northwest,
a portion of its performance is dependent on the region's economic conditions.
Because of this, it could be adversely impacted by industrial and business
trends within the five-state area. Some of the companies whose securities are
held by the Portfolio may have significant national or international markets for
their products and services. Therefore, its performance could also be affected
by national or international economic conditions.
GROWTH & INCOME AND NORTHWEST PORTFOLIO
Up to 25% of each Portfolio's assets may be invested in real estate
investment trusts ("REITs"). Among the factors influencing the investment
performance of REITs are the profitable operation of properties owned, the
financial condition of lessees and mortgageors, the underlying value of the real
property and mortgages owned, the amount of leverage, and the amount of cash
flow generated and paid out.
Each Portfolio may, if the Adviser considers it appropriate, use covered
call options to obtain additional income. The total of a Portfolio's assets
subject to options will not exceed 20%.
The principal reason for writing covered call options is to attempt to
realize, through the receipt of premium, a greater return than would be realized
on the underlying securities alone. In return for the premium, the Portfolio has
given up the opportunity for profit from a price increase in the underlying
security above the exercise price, so long as the option remains open, but
retains the risk of loss should the price of the security decline. If an option
expires, the writer realizes a gain in the amount of the premium. Such a gain
may be offset by a decline in the market value of the underlying security during
the option period. If a covered call option is exercised, the writer realizes a
gain or loss from the sale of the underlying security.
INCOME PORTFOLIO
A diversified portfolio of debt issues and other obligations is carefully
selected by the Adviser to provide high current yields consistent with moderate
risk. Accordingly, the Portfolio invests most of its assets in the following:
1) Debt and convertible debt securities which enjoy the four highest ratings
of Standard & Poor's Corporation or Moody's Investor's Service, Inc.
(Securities rated BBB by Standard & Poor's or Baa by Moody's may have
speculative characteristics. See the Statement of Additional Information,
Appendix B, for a detailed description of these ratings.)
2) Debts of the United States government and its agencies, including
mortgage-backed securities.
3) Obligations of U.S. banks that belong to the Federal Reserve System. (The
Portfolio may invest no more than 25% of its total assets in these issues.)
4) Preferred stocks and convertible preferred stocks which enjoy the four
highest ratings of Standard & Poor's or Moody's.
5) The highest grade commercial paper as rated by Standard & Poor's or
Moody's.
6) Short-term repurchase agreements (usually not more than seven days).
7) Deposits in U.S. banks. (Unless these are liquid, they may not exceed 10%
of the Portfolio's total assets.)
To increase the Portfolio's yield, the Adviser may also invest up to 20% of
the Portfolio's assets in lower-rated securities (but no lower than Standard &
Poor's B or Moody's B) or non-rated securities the Adviser believes to be
comparable. Lower-rated and unrated securities are generally subject to greater
financial risk than higher-rated securities, as there is a greater probability
that issuers of lower-rated securities will not be able to pay the principal and
interest due on such securities, especially during periods of adverse economic
conditions. The market price of lower-rated securities generally fluctuates more
than those of higher- rated securities, which may affect the value of the
Portfolio. Securities which are rated lower than BBB or Baa (commonly referred
to as "junk bonds") should be considered speculative as such ratings indicate a
quality of less than investment grade. Securities rated BBB or Baa, although
investment grade, also reflect speculative characteristics. The Adviser will
only invest in these lower-rated securities if it believes the income and yield
are sufficient to justify the incremental risk. In addition, the Portfolio may
purchase or sell U.S. government securities on a when-issued or delayed delivery
basis (known generally as forward commitments).
The Income portfolio invests most of its assets in investment-grade
corporate bonds, and these should be subject to little financial risk, to
moderately high levels of market risk, and to moderately low current income
volatility.
The market value of fixed-income debt securities is affected by changes in
general market interest rates. If interest rates fall, the market value of
fixed- income securities tends to rise; but if interest rates rise, the value of
fixed- income securities tends to fall. This market risk affects all
fixed-income securities, but lower-rated and unrated securities may be subject
to greater market risk than higher-rated (lower-yield) securities. For further
details on risk, see the Statement of Additional Information.
MONEY MARKET PORTFOLIO
At the date of this Prospectus this Portfolio was closed to investors, but
may be offered in the future. A portfolio of fixed-income obligations is
carefully selected by the Adviser to provide the return of money market
instruments along with liquidity. No common stock or other equity securities are
allowed. Such obligations, unless restricted by law, fall into five general
categories:
1) Obligations issued or guaranteed by the United States government, its
agencies or its instrumentalities.
2) Obligations of U.S. and foreign banks with assets of more than $500
million.
3) Short-term commercial notes, issued directly by businesses and banks to
finance short- term cash needs. The Portfolio will only purchase notes
which have the highest rating by Moody's Investor's Service, Inc., or by
Standard & Poor's Corporation. (See the Statement of Additional
Information, Appendix B, for a detailed description of these ratings.)
4) Short-term repurchase agreements (usually not more than one business day.)
At least 80% of the Portfolio's assets will be invested in the higher-rated
money market instruments which mature in less than one year.
The Statement of Additional Information contains details concerning the
types, ratings and nature of the Portfolio's investments, and the criteria used
for evaluation and selection.
The Money Market portfolio invests in short-term, high-quality investments
that should reflect current market interest rates, and therefore the Money
Market portfolio should be subject to relatively little market risk and
financial risk but a high level of current income volatility. Nonetheless,
investors should be aware that the market value of fixed-income debt securities
is affected by changes in general market interest rates. If interest rates fall,
the market value of fixed-income securities tends to rise; but if interest rates
rise, the value of fixed-income securities tends to fall. This market risk
affects all fixed-income securities.
The Portfolio invests less than 25% of its total assets in domestic and
foreign bank obligations (including foreign branches of U.S. domestic banks).
This investment involves risks that are different in some respects from an
investment in an investment company which invests only in debt obligations of
U.S. domestic issuers.
INVESTMENT RESTRICTIONS
While many of the decisions of the Adviser depend on flexibility, there are
certain principles so fundamental that they are required as matters of policy.
These may not be changed without a vote of the majority of the outstanding
shares of the respective Portfolio.
IN ADDITION TO OTHER RESTRICTIONS LISTED IN THE STATEMENT OF ADDITIONAL
INFORMATION, EACH PORTFOLIO MAY NOT:
- - invest more than 5%* of its total assets in the securities of any single
issuer (other than U.S. government securities), except that up to 25% of
Growth & Income, Northwest, and Income Portfolios' assets may be invested
without regard to this 5% limitation;
- - acquire more than 10%* of the voting securities of any company;
- - invest more than 25%* of its assets in any single industry;
- - borrow money (except it may borrow up to 5% of its total assets for emergency,
non-investment purposes, or up to 33 1/3% to meet redemption requests that
would otherwise result in the untimely liquidation of vital parts of its
portfolios).
* Percentage at the time the investment is made.
WHO WE ARE
Composite Deferred Series was incorporated under the laws of Washington on
December 8, 1986, as an open-end management investment company, often called a
"mutual fund." Each Portfolio is classified as "diversified," under the
Investment Company Act of 1940.
Shares of the Fund's portfolios are sold only to, and are owned entirely
by, the Composite Deferred Variable Accounts (the "Accounts") to fund the
benefits under certain flexible premium variable annuity contracts (the
"Contracts") issued by WM Life Insurance Company and Empire Life Insurance
Company, individually the "Company." (In the future, shares may be sold to
certain other separate accounts.) The Accounts for which Murphey Favre, Inc.,
serves as distributor, will invest in shares of the various portfolios of the
Fund as directed by the Contract Owner, whose allocation rights are further
described in the attached Prospectus for the Contracts. The Company may cause
the account to sell shares to the extent necessary to provide benefits under the
Contracts.
The Fund is managed by Composite Research & Management Co. (the "Adviser").
The Adviser and Murphey Favre are subsidiaries of Washington Mutual Bank. They
are also affiliated with Washington Mutual, fsb; WM Life Insurance Company,
Empire Life Insurance Company, and Murphey Favre Securities Services, and are
indirect subsidiaries of Washington Mutual, Inc. The Adviser manages seven other
mutual funds with differing objectives, as well as institutional advisory
accounts, and has been in the business of investment management since 1944. The
Adviser's address is 1201 Third Avenue, Suite 1220, Seattle, Washington
98101-3015.
The Adviser advises the Fund on investment policies and specific
investments. Subject to supervision by the Fund's Board of Directors, the
Adviser determines which securities are to be bought or sold. These decisions
are based on analyses of the nation's economy, sectors of industry and specific
corporations. They are compiled from extensive data provided by some of the
country's largest investment firms, in addition to the Adviser's own
investigation.
William G. Papesh is president of the Fund and of the Adviser. A team of
the Adviser's investment professionals manage each Portfolio. There is an Equity
investment team and a Fixed-Income investment team, each reporting to the
Adviser's investment committee. The Equity team consists of Jeffrey D. Huffman,
Chartered Financial Analyst (CFA); Philip M. Foreman, CFA; and David W. Simpson,
CFA. The Fixed-Income team consists of Brian L. Placzek, CFA; Gary J.
Pokrzywinski, CFA; and Audrey S. Quaye. Mr. Huffman has been employed by the
Adviser since January 1995, and has 11 years of continuous investment
experience. Mr. Foreman has been employed by the Adviser since November 1991 and
has 11 years of continuous investment experience. Mr. Simpson has been employed
by the Adviser since March 1993 and has 10 years of continuous investment
experience. Mr. Placzek has been employed by the Adviser since July 1990 and has
11 years of continuous experience in investment and financial analysis. Mr.
Pokrzywinski has been employed by the Adviser since July 1992 and has 11 years
of continuous experience in fixed-income and financial market analysis. Ms.
Quaye has been employed by the Adviser since February 1996 and has six years of
continuous experience in fixed-income investment and financial analysis.
Management has included a discussion of performance in the Fund's annual
report which is available upon request and without charge by calling the Fund
offices.
The Fund has an authorized capitalization of 10 billion shares of capital
stock. Shares are designated by Portfolio. All shares of the Fund are freely
transferable. The shares do not have preemptive rights, and none of the shares
have any preference to conversion, exchange, dividends, retirements,
liquidation, redemption or any other feature. Normally, the Fund does not hold
annual meetings. When meetings are held, shareholders have the right to vote
their shares cumulatively in any election of directors. With certain exceptions,
such as changes of investment objective and approval of the management contract,
all shares have equal voting rights on any corporate matter requiring
shareholder approval. Investors (contract owners) may instruct the Company on
voting shares at shareholders' meetings. (See the Prospectus for the Account,
"Voting Rights," for a discussion of pass-through voting.)
THE COST OF GOOD MANAGEMENT
A management contract has been executed between the Fund and Composite
Research & Management Co. It is renewable annually subject to the approval of
the Fund's Board of Directors.
Under the contract, a fee based on a percentage of net assets is paid to
the Adviser for its investment advisory and administrative services and as agent
for the Fund in paying that portion of the fee owed to the Distributor. The Fund
is responsible for paying expenses of operation that are not assumed by the
Adviser.
Each Portfolio's advisory fee is calculated and paid monthly. It is equal
to an annual rate of .50% of the average daily net asset value of the Portfolio.
Total expenses, including advisory fees and other operating expenses, can
be found under "Ratio of expenses to average net assets" in the "Financial
highlights" section on pages 14 and 15 of this Prospectus.
THE VALUE OF A SINGLE SHARE
Each Portfolio calculates its net asset value at the close of regular
trading on each day the New York Stock Exchange is open (generally 1:00 p.m.
Pacific time). Net Asset Value per share (NAV) is determined by adding the
market value of the securities in the Portfolio, plus all other assets, minus
any liabilities. That amount, divided by the number of shares outstanding, is
the NAV of the individual Portfolio. Security valuations are provided by
independent pricing sources approved by the Fund's Board of Directors. When such
valuations are not available, the Board of Directors will determine how the
securities are to be priced at fair value.
Investment securities in the Money Market portfolio are valued at cost as
adjusted for amortization of premiums and discounts where applicable. The Board
of Directors regularly and routinely monitors amortized cost value assigned to
these securities to insure that carrying value approximates market valuation.
The NAV per share of most mutual funds fluctuates with the value of the
securities held. However, the Money Market portfolio, like most money market
funds, attempts to maintain the NAV per share at a constant $1.00. When income
to the Portfolio is realized, proportionate numbers of shares are added to each
shareholder's account, in order to maintain the per share value of $1.00. If on
any business day net income should happen to be less than realized and
unrealized losses, rather than reduce the NAV below $1.00 per share, the
Portfolio will reduce the number of shares outstanding. Each shareholder will
automatically contribute shares proportionately to the Portfolio representing
the account's negative net income thereby reducing the number of shares in their
account.
Money Market portfolio shares are neither guaranteed nor insured by the
U.S. government, and there is no assurance that the $1.00 per share NAV will be
maintained.
HOW TO BUY SHARES
Investments in shares of the Fund's portfolios may only be made by the
Composite Deferred Variable Accounts, separate accounts established and
maintained by WM Life Insurance Company and Empire Life Insurance Company
individually for the purpose of funding annuity contracts issued by the Company.
Investors desiring to purchase annuity contracts supported by any of the
portfolios of Composite Deferred Series should read this prospectus in
conjunction with the Account Prospectus.
Portfolio shares are offered to the Accounts without sales charge at the
respective net asset value of the portfolios next determined after receipt by
the Fund of the purchase order.
DISTRIBUTION OF INCOME AND CAPITAL GAINS
The Fund intends to distribute substantially all of the net investment
income, if any, of each Portfolio. (Net investment income is the return on the
securities in each Portfolio, minus expenses and excluding realized and
unrealized capital gains.) Dividends from net investment income and any
distributions of realized capital gains are reinvested in additional shares of
the respective Portfolio at net asset value.
For the Money Market portfolio, net investment income is calculated and
paid daily (dividends will not be earned on the day of purchase but will be
earned on the day of withdrawal); for the Income portfolio, net investment
income is accrued daily and paid monthly; for the Growth & Income and Northwest
portfolios, net investment income is calculated and paid quarterly. Any net
realized capital gains will be paid annually.
INCOME TAXES ON DIVIDENDS AND CAPITAL GAINS
The Portfolios qualify as regulated investment companies under the Internal
Revenue Code. As long as they remain qualified, they will not be subject to
federal income tax on income and capital gains distributed to its shareholders.
Portfolios within a series fund are treated separately for federal income
tax purposes.
Since the Accounts will be the only shareholders of the Fund, no discussion
is included about the federal income tax consequences to shareholders. For
information concerning the federal income tax consequences to holders of
variable annuity contracts, see the attached Prospectus for the Flexible Premium
Deferred Variable Annuity Contracts.
HOW TO SELL SHARES
Shares of the Fund's portfolios may be redeemed for cash at any time by the
Accounts. There is no charge levied by the Fund for redemption of Portfolio
shares, nor is any fee imposed on the exchange of shares of one Portfolio for
those of another. The share price paid on sales or exchanges will be the net
asset value as of the next close of the New York Stock Exchange after receipt of
the request.
Contract Owners should see the Prospectus for the Accounts for information
on surrenders and withdrawals under the annuity contracts and any charges
associated with the annuity contracts. (See the Prospectus for the Accounts for
a discussion of contingent deferred sales charge.)
WE'RE HERE TO HELP YOU
Any inquiries you may have regarding this Fund or your account may be
directed to your investment representative or to the Fund at the address or
telephone number on page 13 of this Prospectus. We will be glad to answer your
questions.
<PAGE>
STATEMENT OF
ADDITIONAL
INFORMATION
APRIL 30, 1996
COMPOSITE DEFERRED SERIES, INC.
A Mutual Fund Formed to Meet a Broad Range of Investment Objectives
601 W Main Avenue, Suite 801
Spokane, WA 99201-0613
Telephone: 509-353-3550
Toll free: 800-543-8072
Composite Deferred Series, Inc. (the "Fund") aims to enable investors to meet a
broad range of investment alternatives by providing a series of four separate
portfolios, each with a different investment objective. Additional portfolios
may be created by the Board of Directors, from time to time, without further
action on the part of existing investors. Investors choose whichever portfolio
best suits their needs and may exchange portfolios within the Fund without
charge as their investment objectives or economic conditions change. The
portfolios are:
- MONEY MARKET PORTFOLIO: Money market instruments for maximum current
income with liquidity.
- GROWTH & INCOME PORTFOLIO: Common stocks for long-term capital growth
with current income a secondary consideration.
- NORTHWEST PORTFOLIO: Common stocks of Northwest companies for long-term
capital growth.
- INCOME PORTFOLIO: Debt securities for high current income.
Individual portfolio investments, carefully chosen to fulfill the diverse
objectives, are adjusted in accordance with Composite Research & Management
Co.'s (the "Adviser") evaluation of changing market risks and economic
conditions. There can be no assurance that these investment objectives will be
achieved.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. IT SHOULD BE READ
IN CONJUNCTION WITH THE FUND'S PROSPECTUS DATED APRIL 30, 1996, AS WELL AS THE
PROSPECTUS FOR THE FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACTS ISSUED
BY WM LIFE INSURANCE COMPANY AND EMPIRE LIFE INSURANCE COMPANY. BOTH MAY BE
OBTAINED WITHOUT CHARGE BY CONTACTING MURPHEY FAVRE, INC., AT THE ABOVE ADDRESS.
THIS STATEMENT IS INTENDED TO PROVIDE ADDITIONAL INFORMATION REGARDING THE
ACTIVITIES AND OPERATION OF THE FUND WHEN ALLOCATING AN INVESTMENT UNDER THE
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACT TO THE FUND.
TABLE OF CONTENTS
The Fund and Its Management 2-8 Brokerage Allocations and
Distribution Services 8 Portfolio Transactions 17-18
How Shares Are Valued 8-9 General Information 18
How Shares Can Be Purchased 9 Financial Statements and
Redemption of Shares 9 Reports 19
Dividends, Capital Gain Appendix A 20
Distributions and Taxes 9-10 Appendix B 21-24
Investment Practices 10-16
Investment Restrictions 16-17
THE FUND AND ITS MANAGEMENT
COMPOSITE DEFERRED SERIES, INC.
Currently, shares of the Fund's portfolios are sold only to the Composite
Deferred Variable Accounts (the "Accounts") to fund the benefits under certain
flexible premium deferred variable annuity contracts (the "Contracts") issued by
WM Life Insurance Company and Empire Life Insurance Company (together or
separately, the "Company"). In the future, shares may be sold to certain other
separate accounts and affiliated entities of the Company. The Accounts will
invest in shares of the various portfolios of the Fund as directed by the
investor (the "Contract Owner"), whose allocation rights are further described
in the attached prospectus for the Contracts. The Company may sell shares to the
extent necessary to provide benefits under the Contracts.
THE INVESTMENT ADVISER
As discussed under "Who We Are" in the prospectus, Composite Deferred Series,
Inc. (the "Fund") is managed and investment decisions are made under the
supervision of Composite Research & Management Co. (the "Adviser"). Decisions to
buy, sell, or hold a particular security are made by an investment team of the
Adviser, approved by an investment committee of the Adviser, and subject to the
control and final direction of the Fund's Board of Directors.
Composite Research & Management Co. is Adviser for the eight investment
companies (currently 12 separate portfolios) in the "Composite Group," namely:
Composite Bond & Stock Fund, Inc.; Composite Equity Series, Inc.; Composite
Income Fund, Inc.; Composite Tax-Exempt Bond Fund, Inc.; Composite Cash
Management Company; Composite U.S. Government Securities, Inc.; Composite
Northwest Fund, Inc.; and Composite Deferred Series, Inc. The Adviser also
provides investment advice to institutional clients.
INVESTMENT MANAGEMENT SERVICES
Management fees and services performed by the Adviser are discussed under "The
Cost of Good Management" in the prospectus. The Investment Management Agreement
(the "Agreement") requires the Adviser to furnish suitable office space,
research, statistical and investment management services to the Fund. It will
continue from year-to-year if continuation is specifically approved at least
annually by the Fund's Board of Directors (including a majority of the directors
who are not parties to the Agreement) by votes cast in person at a meeting
called for the purpose of voting on such approval, or by vote of a majority of
the outstanding shares of the Fund. The Agreement can be terminated by either
party on sixty (60) days' notice, without penalty, and provides for automatic
termination upon its assignment.
Under the provisions of the Investment Company Act of 1940 and as used elsewhere
in the prospectus and this Statement of Additional Information, the phrase "vote
of the majority of the outstanding shares of the Fund" means the vote at any
meeting of shareholders of (a) 67% or more of the shares present by proxy at
such meeting, if the shareholders of more than 50% of the outstanding shares are
present or represented by proxy, or (b) more than 50% of the outstanding shares,
whichever is less. The Accounts will vote shares as directed by Contract Owners.
In payment for its services, the Adviser receives a fee equal to .50% per annum
computed on the average daily net assets of each portfolio. For 1995, management
fees incurred by the Money Market portfolio, Growth & Income portfolio, Income
portfolio and Northwest portfolio, before expense reimbursements, were $1,097,
$90,132, $64,637, and $29,906, respectively. For 1994, management fees incurred
by the Money Market portfolio, Growth & Income portfolio, Income portfolio, and
Northwest portfolio, before expense reimbursements, were $1,088, $67,108,
$51,869, and $18,740, respectively. For 1993, management fees incurred by the
Money Market portfolio, Growth & Income portfolio, Income portfolio, and
Northwest portfolio before expense reimbursements, were $1,088, $43,662,
$34,401, and $8,088, respectively.
From time to time, the Adviser may voluntarily waive fees and WM Life Insurance
Company may voluntarily reimburse expenses. For the 1995, 1994, and 1993, the
total management fee waiver and expense reimbursement for the Money Market
portfolio was $ 3,394, $1,779, and $5,225, respectively. During 1993, the total
management fee waivers and expense reimbursements for the Northwest portfolio
was $23,453. There were no other fee waivers or expense reimbursements during
those periods. If, in any fiscal year, the sum of the Fund's expenses as defined
under the securities regulations of any state having jurisdiction over the Fund
exceeds the expense limitations of any such state, the Adviser shall reimburse
the Fund for a portion of such excess expenses equal to such excess multiplied
by the ratio of the fees otherwise payable under this Agreement. The obligation
of the Adviser to reimburse the Fund hereunder is limited in any fiscal year to
the amount of its fee hereunder for such fiscal year.
Under the terms of the Investment Management Agreement, the Fund is required to
pay fees of directors not employed by the Adviser or its affiliates; custodian
expenses; brokerage; taxes; auditing and legal expenses; costs of issuance,
transfer, registration or redemption of shares for sale; and costs relating to
disbursement of dividends, corporate meetings, corporate reports, and the
maintenance of its corporate existence.
Investment decisions for the Fund are made independently of those for other
funds in the Composite Group. However, the Adviser may determine that the same
security is suitable for more than one of the funds. If more than one of the
funds is simultaneously engaged in the purchase or sale of the same security,
the transactions are allocated as to price and amount in accordance with a
formula considered to be equitable to each. It is recognized that in some cases
this system could have a detrimental effect on the price or volume of the
security as far as the funds are concerned. In other cases, however, it is
believed that the ability to participate in volume transactions may provide
better executions for each fund. It is the opinion of each fund's Board of
Directors that these advantages, when combined with the personnel and facilities
of the Adviser's organization, outweigh possible disadvantages which may exist
from exposure to simultaneous transactions.
The Fund has adopted a code of ethics which is intended to prevent access
persons from conducting personal securities transactions which interfere with
the Fund portfolio transactions or otherwise take unfair advantage of their
relationship to the Fund. In general, the personal securities transactions of
individuals with access to information regarding Fund portfolio transactions
must be pre-cleared by the Adviser's Compliance Officer and must not occur when
similar transactions are contemplated by a Fund.
GLASS STEAGALL
The Glass-Steagall Act, among other things, generally prohibits member banks of
the Federal Reserve System from engaging to any extent in the business of
issuing, underwriting, selling or distributing securities and generally
prohibits management inter-locks and affiliations between member banks and
companies engaged in certain activities. In a Statement of Policy dated
September 1, 1982, the Federal Deposit Insurance Corporation concluded that the
investment restrictions of the Glass-Steagall Act do not apply to banks or their
affiliates if the banks are not members of the Federal Reserve System.
Washington Mutual Bank is not a member bank. The Adviser has advised the Fund
that, in its view, the Glass-Steagall Act does not prohibit the activities of
the Adviser and that it may perform the services for the Fund contemplated by
the Management Agreement without violation of the Glass-Steagall Act or other
applicable banking laws or regulations.
DIRECTORS AND OFFICERS OF THE FUND
The Board of Directors of the Fund is elected by the shareholder as directed by
Contract Owners. Interim vacancies may be filled by the current directors so
long as at least two-thirds were previously elected by the shareholder. The
Board has responsibility for the overall management of the Fund, including
general supervision and review of its investment activities. The directors, in
turn, elect officers who are responsible for administering the Fund's day-to-day
operations. Directors and officers hold identical positions with each investment
company in the Composite Group. Their business experience for the past five
years are set forth below. Unless otherwise noted, the address of each officer
is 601 W. Main Avenue, Suite 801, Spokane, Washington 99201-0613.
WAYNE L. ATTWOOD, MD
Director
3 E. 40th
Spokane, Washington 99203
Dr. Attwood is a retired doctor of internal medicine and gastroenterology in
Spokane, Washington.
KRISTIANNE BLAKE
Director
705 W. 7th, Suite D
Spokane, Washington 99204
Mrs. Blake is president of Kristianne Gates Blake, PS, an accounting services
firm specializing in personal financial planning and tax planning.
*ANNE V. FARRELL
Director
425 Pike Street, Suite 510
Seattle, Washington 98101
Mrs. Farrell is president and CEO of The Seattle Foundation (a charitable
foundation). In addition, she serves as a director of Washington Mutual, Inc.
EDWIN J. McWILLIAMS
Director
1717 S. Upper Terrace Road
Spokane, Washington 99203
Mr. McWilliams is former president of both Fidelity Service Corporation (a
mortgage servicing subsidiary of Sterling Savings Association) and Fidelity
Mutual Savings Bank.
*MICHAEL K. MURPHY
Director
PO Box 3366
Spokane, Washington 99203
Mr. Murphy is Chairman and CEO of CPM Development Corporation (a holding company
which includes Central Pre-Mix Concrete Company). In addition, he serves as a
director of Washington Mutual, Inc.
*WILLIAM G. PAPESH
President and Director
Mr. Papesh is president and a director of the Transfer Agent and is an executive
vice president and a director of the Adviser and Distributor.
JAY ROCKEY
Director
2121 Fifth Avenue
Seattle, Washington 98121
Mr. Rockey is Chairman and CEO of The Rockey Company (a regional public
relations firm).
* LELAND J. SAHLIN
Chairman and Director
Mr. Sahlin is a senior vice president of the Adviser and served as president of
the Fund from inception to 1989; of the Distributor from 1972 to 1987; and of
the Adviser from 1972 to 1988.
RICHARD C. YANCEY
Director
535 Madison Avenue
New York, New York 10022
Mr. Yancey is senior advisor to Dillon, Read & Co., Inc. (a registered
broker-dealer and investment banking firm), New York, New York.
*These directors are "interested persons" of the Fund as that term is defined in
the Investment Company Act of 1940 because they are either affiliated persons of
the Fund, its Adviser, or Distributor.
GENE G. BRANSON
Vice President
Suite 780
1201 - Third Avenue
Seattle WA 98101
Mr. Branson is a senior vice president and director of the Distributor and
Transfer Agent and a vice president and director of the Adviser.
MONTE D. CALVIN, CPA
Vice President and Treasurer
Mr. Calvin is executive vice president of the Transfer Agent and serves as chief
financial officer of the Fund.
CASSIE L. FOWLER, CPA
Assistant Secretary
Ms. Fowler is an employee of the Transfer Agent.
KERRY K. KILLINGER
Executive Vice President
Suite 1501
1201 Third Avenue
Seattle WA 98101
Mr. Killinger is president, chairman of the board, and chief executive officer
of Washington Mutual, Inc. and a director of the Adviser, Distributor, and
Transfer Agent.
JEFFREY L. LUNZER, CPA
Assistant Treasurer
Mr. Lunzer is a vice president of the Transfer Agent.
CONNIE M. LYONS
Assistant Secretary
Ms. Lyons is an employee of the Transfer Agent.
DOUGLAS D. SPRINGER
Vice President
Suite 780
1201 Third Avenue
Seattle WA 98101
Mr. Springer is president and a director of the Distributor and a director of
the Adviser and the Transfer Agent.
JOHN T. WEST, CPA
Secretary
Mr. West is a vice president of the Transfer Agent.
The Fund paid no remuneration to any of its officers, including Mr. Papesh and
Mr. Sahlin during the year ended December 31, 1995. The Fund and other Funds
within the Composite Group paid directors' fees during the year ended December
31, 1995, in the amounts indicated below.
<TABLE>
<CAPTION>
MONEY MARKET GROWTH & INCOME INCOME NORTHWEST TOTAL
DIRECTOR PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO COMPLEX(1)
--------- ------------ --------------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C>
Wayne L. Attwood, MD $1,250 $1,250 $1,250 $1,250 $15,000
Kristianne Blake 775 775 775 775 9,300
Edwin J. McWilliams 1,208 1,208 1,208 1,208 14,500
Jay Rockey (2) 1,177 1,177 1,177 1,177 14,125
Richard C. Yancey 1,208 1,308 1,208 1,308 15,000
<FN>
(1) Each of the directors serve in the same capacity with each Fund within the Composite Group (eight companies) comprising 12
individual investment portfolios.
(2) Mr. Rockey is Chairman and CEO of The Rockey Company, a public relations firm which has received revenue from the Fund and
Washington Mutual, Inc., a parent company of the Adviser and Distributor, during the 1995 fiscal year.
</FN>
</TABLE>
Officers, directors and their immediate families as a group owned of record and
beneficially less than 1% of the shares outstanding of any portfolio of the Fund
as of February 15, 1996. The Composite Deferred Variable Account of WM Life
Insurance Company is the sole shareholder of the Fund.
Wayne L. Attwood, MD, Kristianne Blake, *Anne V. Farrell, and *Michael K. Murphy
serve as members of the Board's audit committee. The committee meets
periodically with the Fund's independent accountants and officers to review
accounting principles used by the Fund and the adequacy of the Fund's internal
controls.
The investment committee performs interim functions for the Board of Directors
of the Fund including dividend declaration and portfolio pricing matters.
Members are *Anne V. Farrell, *Michael K. Murphy, and Richard C. Yancey.
Responsibilities of the Board's nominating committee include preparing for and
recommending replacements for any vacancies in directors' positions, and initial
review of policy issues regarding the size, composition, and compensation of the
Board. Members of the nominating committee are Kristianne Blake, Edwin J.
McWilliams and Jay Rockey.
* These directors are "interested persons" of the Fund as that term is defined
in the Investment Company Act of 1940, because they are either affiliated
persons of the Fund, its Adviser, or Distributor.
DISTRIBUTION SERVICES
DISTRIBUTOR
Murphey Favre, Inc. (the "Distributor") will purchase and resell shares of the
Fund's capital stock to fill orders placed with it by the Accounts. Currently,
shares of the Fund's portfolios may only be sold to the Composite Deferred
Variable Accounts or to any future separate account developed by WM Life
Insurance Company and Empire Life Insurance Company. Shares will also be sold by
the Fund through the Distributor.
The Distributor will not receive any earnings or profits from the redemption of
Fund shares. No brokerage fees will be paid by the Fund to the Distributor
during the year. The Distributor may act as broker on portfolio purchases and
sales should it become a member of a national securities exchange.
HOW SHARES ARE VALUED
As described in the prospectus, the net asset value of shares in each portfolio
of the Fund is determined once daily at 1:00 p.m. PST each day the New York
Stock Exchange is open for trading. It is computed by dividing the market value
of securities in the individual portfolios, plus all other assets, less all
liabilities, by the number of portfolio shares outstanding.
MONEY MARKET PORTFOLIO
Investment securities are valued at cost as adjusted for amortization of
premiums and discounts where applicable. The Board of Directors regularly and
routinely monitors amortized cost value assigned to these securities to insure
that carrying value approximates market valuation.
GROWTH & INCOME, NORTHWEST AND INCOME PORTFOLIOS
Investment securities are stated on the basis of valuations provided by
independent pricing sources, approved by the Fund's Board of Directors, which
use information with respect to valuations based upon transactions of a
security, quotations from dealers, market transactions in comparable securities,
and various relationships between securities, in determining value. Investment
securities with less than 60 days to maturity when purchased are valued at
amortized cost which approximates market value. Investment Securities not
currently quoted as described above will be priced at fair value as determined
in good faith in a manner prescribed by the Board of Directors.
HOW SHARES CAN BE PURCHASED
Information concerning the purchase of shares is discussed under "How to Buy
Shares" in the prospectus. Shares of the Fund are sold in a continuous offering
and may be purchased only by the Composite Deferred Variable Accounts, separate
accounts established and maintained by WM Life Insurance Company and Empire Life
Insurance Company individually for the purpose of funding variable annuity
contract charge at the respective net asset values of the portfolios next
determined after receipt by the Fund of the purchase order and payments. The
Fund receives the entire net asset value of all shares sold. (See Appendix A for
a specimen price make-up sheet.)
REDEMPTION OF SHARES
Shares of any portfolio of the Fund can be redeemed by the Accounts at any time
for cash, without sales charge, at the net asset value next determined after
receipt of the redemption request. Variable Annuity Contract Owners should be
aware, however, that a contingent deferred sales charge may be applied to
surrenders and withdrawals under the Contract as described in the Contract
prospectus.
The Fund reserves the right to suspend the right of redemption or to postpone
the date of payment upon redemption of the shares of any portfolio for any
period during which the New York Stock Exchange is closed (other than weekend
and holiday closings) or trading on that Exchange is restricted, or during which
an emergency exists (as determined by the Securities and Exchange Commission) as
a result of which disposal of portfolio securities is not reasonably practicable
or it is not reasonably practicable for the portfolio to determine the value of
its net assets, or for such other period as the Securities and Exchange
Commission may by order permit for the protection of shareholders.
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES
The Fund intends to continue to conduct its business and maintain the necessary
diversification of assets and source of income requirements to qualify as a
diversified management investment company under the Internal Revenue Code (the
"Code"). The Fund so qualified during the 1995 fiscal year. As a result, under
Subchapter M of the Code, the Fund is accorded conduit or "pass through"
treatment for federal income tax purposes during each year in which it
distributes to its shareholders 90% or more of its gross income from dividends,
interest and gains from the sale or other disposition of securities and derives
less than 30% of its gross income from gains (without deduction for losses) from
the sale or other disposition of securities held for less than three months. The
Fund intends to distribute such amounts as necessary to avoid federal income
taxes.
Dividends from net investment income and any distributions of realized capital
gains will be paid in additional shares of the portfolio paying the dividend or
making the distribution and credited to the Account. Any such reinvestment will
be without charge at the net asset value of the respective portfolio.
Since WM Life Insurance Company and Empire Life Insurance Company will be the
only shareholder of the Fund, no discussion is included about the federal income
tax consequences to shareholders. For information concerning the federal tax
consequences to holders of variable annuity contracts, see the attached
prospectus for the Flexible Premium Deferred Variable Annuity Contracts.
INVESTMENT PRACTICES
The investment objectives and policies of the Fund's four separate portfolios
appear in the prospectus and are extended below. Portfolio investments are
adjusted in accordance with management's evaluation of changing market risks and
economic conditions. Such changes are made as management believes necessary to
meet the objectives of the portfolios and the best interests of investors.
In addition to these policies, the Fund is subject to investment restrictions
which cannot be changed without approval of a majority of outstanding
shareholders. These restrictions are discussed under "Investment Restrictions."
No significant investment policies can be changed without shareholder approval.
Because of the many factors which influence fluctuations in the market value of
securities owned by the Fund, including economic trends, government actions and
regulations and international monetary conditions, there can be no assurance
that the objectives of the Fund's portfolios will be achieved. There are market
risks inherent in all investments. The Fund believes, however, that through
professional management the prospects for investment success are enhanced.
MONEY MARKET PORTFOLIO
Investment objectives and policies of the Money Market portfolio are described
in the prospectus. The investment objective of the portfolio is to provide a
high level of current income while at the same time preserving capital and
maintaining liquidity. This objective cannot be changed without first obtaining
approval of the portfolio's investors. It is a fundamental policy of the
portfolio to invest only in the following money market instruments which at the
time of purchase mature within one year:
1. Obligations issued or guaranteed by the United States government or any
agency or instrumentality thereof. U.S. government obligations are issued
by the Treasury and include bills, certificates of indebtedness, notes, and
bonds. Agencies and instrumentalities of the U.S. government are
established under the authority of an act of Congress and include, but are
not limited to: the Government National Mortgage Association, the Tennessee
Valley Authority, the Bank for Cooperatives, the Farmers Home
Administration, Federal Home Loan Banks, Federal Intermediate Credit Banks,
Federal Land Banks and the Federal National Mortgage Association.
2. Obligations of domestic and foreign banks having total assets in excess of
500 million U.S. dollars as of the date of their most recently published
financial statement:
Certificates of deposit are receipts issued by a bank in exchange for the
deposit of funds. The bank agrees to pay the amount deposited, plus
interest, to the bearer of the receipt on the date specified on the
certificate. Because the certificate is negotiable, it can be traded in the
secondary market before maturity. Certificates of Deposit purchased by the
portfolio will not be fully insured.
Bankers' acceptances are time drafts drawn on a U.S. bank by an exporter or
importer to obtain a stated amount of funds to pay for specific merchandise
or, less frequently, foreign exchange. The draft is then "accepted" by the
U.S. bank (the drawee) which in effect unconditionally guarantees to pay
the face value of the instrument on its maturity date. The face of the
instrument specifies the terms and the nature of the underlying
transaction.
Letters of credit are issued by U.S. banks and authorize the beneficiary to
draw drafts upon such U.S. banks for acceptance and payment under specified
conditions. All of the securities in the portfolio and income thereon are
payable in U.S. dollars.
3. Commercial paper (unsecured, short-term notes of indebtedness issued by
business and banking firms to finance their short-term needs) purchased by
the portfolio will consist only of direct obligations which, at the time of
their purchase, are (a) rated in the highest rating category by Moody's
Investors Service, Inc., or by Standard & Poor's Corporation. (See Appendix
B).
4. Repurchase agreements: The portfolio requires daily valuation of the
underlying debt instrument for any repurchase agreement maturing in more
than one (1) business day and requires that the market value of the
collateral be maintained at a minimum of 102 percent of the transaction
value. The Fund maintains constructive possession of the securities through
a safekeeping arrangement with parties who qualify as custodians under
Section 17(f) of the Investment Company Act of 1940.
The portfolio will invest less than 25% of its total assets in bank
obligations, including foreign banks and foreign branches of U.S. domestic
banks. Any foreign bank obligations purchased will be readily marketable at
the time of purchase; however, such marketability and corresponding
liquidity may change at any time.
The portfolio may attempt to increase yields by trading to take advantage
of short-term market variations. This policy is expected to result in high
portfolio turnover. This turnover may (but in the opinion of management
should not) adversely affect the portfolio since the portfolio does not
usually pay brokerage commissions when it purchases short-term, debt
obligations (see "Brokerage Allocations and Portfolio Transactions").
GROWTH & INCOME PORTFOLIO
The investment objectives and policies of the Growth & Income portfolio are
described in the prospectus. The portfolio aims to achieve long-term growth of
principal with current income a secondary consideration through the use of a
flexible investment policy. Portfolio investments are adjusted in accordance
with management's evaluation of changing market risks. Thus the relative
proportion of various types of securities held may vary significantly. The
portfolio attempts to anticipate market conditions and economic changes. It
pursues its objective by usually placing emphasis on the selection and ownership
of common stocks (although the portfolio may invest in bonds, preferred stocks,
U.S. Treasury bills, certificates of deposit, and repurchase agreements as
well). There may be times when it appears prudent to reduce the proportion of
common stocks held to not less than 35% of the portfolio's total net assets.
During such periods, the investment in fixed income securities, bonds and
preferred stocks may exceed that of common stocks.
NORTHWEST PORTFOLIO
The investment objective and policies of the portfolio are described in the
prospectus. Portfolio investments are adjusted in accordance with management's
evaluation of changing market risks and economic conditions. Such changes are
made as management believes necessary to meet the objectives of the Fund and the
best interest of shareholders.
The portfolio's investment objective is to provide long-term growth of capital
by investing in common stocks of companies doing business or located in the
Northwest region (Alaska, Idaho, Montana, Oregon and Washington). Under normal
circumstances, at least 65% of its assets will be invested in companies whose
principal executive offices are located in these states.
INCOME PORTFOLIO
Investment objectives and policies of the Income portfolio are described in the
prospectus. The investment objective of the portfolio is to provide a high
current yield consistent with moderate risk. The portfolio will invest in the
following:
1. Debt and convertible debt securities (payable in U.S. funds) which have a
rating within the four highest grades as determined by Standard & Poor's
Corporation (AAA, AA, A, or BBB) or Moody's Investors Service, Inc. (Aaa,
Aa, A or Baa). Under present commercial bank regulations, bonds rated in
these categories generally are regarded as eligible for bank investment.
Securities rated BBB or Baa may have speculative characteristics. Up to 20%
of the portfolio's total assets may be invested in debt, convertible debt,
preferred stocks, and convertible preferred stocks which are not rated
within the four highest grades by Standard & Poor's or Moody's. These
issues must be rated B (Standard & Poor's) or B (Moody's) or better, or may
be non-rated obligations which the Adviser believes to be of comparable
quality. This practice may involve higher risks, but the Adviser will only
use such practices if it believes the income and yield is sufficient to
justify such risks. See Appendix B for a detailed description of these
ratings.
2. Debt instruments issued or guaranteed by the United States government or
its agencies or instrumentalities.
3. Obligations of U.S. banks that are members of the Federal Reserve System,
not to exceed 25% of the portfolio's total assets.
4. Preferred stocks and convertible preferred stocks which have a rating
within the four highest grades of Standard & Poor's (AAA, AA, A and BBB) or
Moody's (Aaa, Aa, A and Baa) ratings applicable to such securities.
5. The highest-grade commercial paper as rated by Standard & Poor's (A-1) or
by Moody's (Prime 1).
6. Repurchase agreements: The portfolio may acquire an underlying debt
instrument, secured by the full faith and credit of the United States
government, for a relatively short period (usually not more than one week)
subject to an obligation of the seller to repurchase and the portfolio to
resell the instrument at a fixed price.
7. Time or demand deposits in U.S. banks, but not to exceed 10% of the
portfolio's total assets if they are of an illiquid nature.
The portfolio will not directly purchase common stocks; however, it may retain
up to 10% of the value of the portfolio's total assets in common stocks acquired
either by conversion of fixed-income securities or by the exercise of warrants
or rights attached thereto.
Although no more than 20% of the Fund's total assets may be invested in "high
yield" securities (i.e., not rated among the four highest grades, commonly
referred to as "junk" bonds), these securities, whether rated or unrated, may be
subject to greater market fluctuations and risks of loss of income and principal
than the lower yielding, higher rated, fixed-income securities which comprise
most of the Fund's portfolio. Risks of high yield securities include: (i)
limited liquidity and secondary market support; (ii) substantial market price
volatility resulting from changes in prevailing interest rates; (iii)
subordination to the prior claims of banks and other senior lenders; (iv) the
operation of mandatory sinking fund or call/redemption provisions during periods
of declining interest rates whereby the Fund may reinvest premature redemption
proceeds in lower yielding portfolio securities; (v) the possibility that
earnings of the issuer may be insufficient to meet its debt service; and (vi)
the issuer's low creditworthiness and potential for insolvency during periods of
rising interest rates and economic downturn.
As a result of the limited liquidity of high yield securities, their prices may
decline rapidly in the event a significant number of holders decide to sell. The
high yield bond market has grown primarily during a period of long economic
expansion, and it is uncertain how it would perform during an economic downturn.
An economic downturn or an increase in interest rates could severely disrupt the
market for high yield bonds and adversely affect the value of outstanding bonds
and the ability of the issuers to repay principal and interest. In addition,
there have been several Congressional attempts to limit the use of and/or tax of
high yield bonds, or otherwise diminish their advantages, which, if enacted,
could adversely affect the value of these securities and the Fund's net asset
value.
The portfolio has a policy not to concentrate its investments and accordingly
will not invest more than 25% of its total assets in any one industry. The
portfolio considers the Electric Utilities, Electric and Gas Utilities, Gas
Utilities, and Telephone Utilities to be separate industries. Foreign issues
will also be considered a separate industry. This policy on industry
classification may result in increased risk.
In view of such possible investment in these industries, an investment in the
portfolio should be made with an understanding of their characteristics and the
risks which such an investment may entail. General problems of the utility
industries include the difficulty in obtaining an adequate return on invested
capital (even in spite of frequent increases in rates which have been granted by
the public service commissions having jurisdiction), difficulty in financing
large construction programs during an inflationary period, restrictions on
operations, difficulty in obtaining fuel for electric generation at reasonable
prices, uncertainty in obtaining natural gas for resale, and the effects of
energy conservation.
Federal, state and municipal governmental authorities may, from time to time,
review existing (and impose additional) regulations governing the licensing,
construction and operating of nuclear power plants. Any of these delays or the
suspension of operations of such plants which have been or are being financed by
proceeds of certain obligations held in the portfolio may affect the payment of
interest on or the repayment of principal amount of such obligations. The Fund
is unable to predict the ultimate form any such regulations may take or the
impact such regulations may have on the obligations of the portfolio.
The portfolio does not intend to engage in active portfolio trading; however, in
certain cases, the portfolio will seek to take advantage of market developments
and yield disparities. This may result in the sale of securities held for a
short time.
Such strategies may result in increases or decreases in the portfolio's current
income available for distribution to shareholders and in the sale of debt
securities which may be sold at a gain or loss depending upon their cost.
The net asset value of the shares of an open-end investment company investing
primarily in fixed-income securities changes as the general level of interest
rates fluctuate. When interest rates decline, the market value of a portfolio
can be expected to rise; conversely, when interest rates rise, the market value
of a portfolio can be expected to decline.
INVESTMENT PRACTICES COMMON TO ALL PORTFOLIOS
COMMON MANAGEMENT
Investment decisions for Composite Deferred Series, Inc. are made independently
of those made for other investment companies managed by the Adviser. However,
the Adviser may determine that the same security is held in the portfolio of
more than one of the funds in the Composite Group. If more than one of such
funds is simultaneously engaged in the purchase or sale of the same security,
the transactions are allocated as to price and amount in accordance with a
formula considered to be equitable to each. It is recognized that, in some
cases, this system could have a detrimental effect on the price or volume of the
security as far as the Fund is concerned. In other cases, however, it is
believed that the ability of the Fund to participate in volume transactions will
provide better executions for the Fund. It is the opinion of the Board of
Directors of the Fund that these advantages, when combined with the personnel
and facilities of the Adviser's organization, outweigh possible disadvantages
which may exist from exposure of simultaneous transactions.
MORTGAGE-BACKED SECURITIES AND FORWARD COMMITMENTS
(GROWTH & INCOME AND INCOME PORTFOLIOS ONLY)
The portfolios may invest in mortgage-backed securities including those
representing an undivided ownership interest in a pool of mortgages, e.g., GNMA,
FNMA and FHLMC certificates. The mortgages backing these securities include
conventional thirty-year fixed rate mortgages, fifteen-year fixed rate
mortgages, graduated-payment mortgages and adjustable rate mortgages. The U.S.
government or the issuing agency guarantees the payment of interest and
principal for these securities. The guarantees, however, do not extend to the
securities' yield or value, which are likely to vary inversely with fluctuations
in interest rates, nor do the guarantees extend to the yield or value of the
portfolios' shares. These certificates are, in most cases, "pass-through"
instruments through which the holder receives a share of all interest and
principal payments from the mortgages underlying the certificate, net certain
fees. Because the prepayment characteristics of the underlying mortgages vary,
it is not possible to predict accurately the average life or realized yield of a
particular issue of pass-through certificates. Mortgage-backed securities are
often subject to more rapid repayment than their stated maturity date would
indicate as a result of the pass-through of prepayments of principal on the
underlying mortgage obligations. For example, securities backed by mortgages
with thirty-year maturities are customarily treated as prepaying fully in the
twelfth year, and securities backed by mortgages with fifteen-year maturities
are customarily treated as prepaying fully in the seventh year. While the timing
of prepayments of graduated payment mortgages differs somewhat from that of
conventional mortgages, the prepayment experience of graduated payment mortgages
is basically the same as that of the conventional mortgages of the same maturity
dates over the life of the pool. During periods of declining interest rates,
prepayment of mortgages underlying mortgage-backed securities can be expected to
accelerate. When the mortgage obligations are prepaid, the portfolios reinvest
the prepaid amounts in securities, the yields of which reflect interest rates
prevailing at the time. Therefore, the portfolios' ability to maintain
high-yielding, mortgage-backed securities will be adversely affected to the
extent that prepayments of mortgages must be reinvested in securities which have
lower yields than the prepaid mortgages. Moreover, prepayments of mortgages
which underlie securities purchased at a premium could result in capital losses.
The portfolios may also purchase or sell U.S. government securities (including
GNMA, FNMA, and FHLMC certificates) on a when-issued or delayed delivery basis
(known generally as forward commitments). When-issued or delayed delivery
transactions arise when securities are purchased or sold by the portfolios with
payment and delivery taking place in the future in order to secure what is
considered to be an advantageous price and yield to the portfolios at the time
of entering into the transaction. However, the yield on a comparable security
available when delivery takes place may vary from the yield on the security at
the time that the when-issued or delayed delivery transaction was entered into.
When the portfolios engage in when-issued and delayed delivery transactions, the
portfolios rely on the seller or buyer, as the case may be, to consummate the
transaction. Failure to consummate the transaction may result in the portfolio
missing the opportunity of obtaining a price or yield considered to be
advantageous. When-issued and delayed delivery transactions may be expected to
settle within three months from the date the transactions are entered into. No
payment or delivery, however, is made by the portfolios until they receive
delivery or payment from the other party to the transaction.
LENDING OF SECURITIES
Each portfolio may lend up to 30% of its securities to the National Association
of Securities Dealers, Inc., registered broker-dealers and Federal Reserve
member banks. Such loans will be made pursuant to agreements requiring the
broker/dealer or bank to fully and continuously secure the loan by cash or other
securities in which the portfolio may invest equal to the market value of the
securities loaned.
The portfolios will continue to receive interest and dividend income and any
capital gains (losses) from the loaned securities. The portfolios receive
compensation for lending their securities in the form of fees. The Adviser
believes that each portfolio within the Fund can benefit from such lending
because of added incremental income from lending fees and expanded portfolio
return.
The portfolios will enter into securities lending and repurchase transactions
only with parties who meet creditworthiness standards approved by the Fund's
Board of Directors and monitored by the Adviser. In the event of a default or
bankruptcy by a seller or borrower, the portfolios will promptly liquidate
collateral. However, the exercise of the portfolios' right to liquidate such
collateral could involve certain costs or delays and, to the extent that
proceeds from any sale of collateral on a default of the seller or borrower were
less than the seller's or borrower's obligations, the portfolios could suffer a
loss.
INVESTMENT RESTRICTIONS
WHILE MANY OF THE DECISIONS OF THE ADVISER DEPEND ON FLEXIBILITY, THERE ARE
CERTAIN PRINCIPLES SO FUNDAMENTAL THAT THEY ARE REQUIRED AS MATTERS OF POLICY.
THESE MAY NOT BE CHANGED WITHOUT A VOTE OF THE MAJORITY OF THE OUTSTANDING
SHARES OF THE RESPECTIVE PORTFOLIO.
- - WITH RESPECT TO 75% OF TOTAL ASSETS (100% FOR MONEY MARKET PORTFOLIO),
INVEST MORE THAN 5%* OF ITS TOTAL ASSETS IN THE SECURITIES OF ANY SINGLE
COMPANY OR ISSUER (OTHER THAN U.S. GOVERNMENT SECURITIES);
- - INVEST IN ANY COMPANY FOR THE PURPOSE OF MANAGEMENT OR CONTROL NOR ACQUIRE
MORE THAN 10%* OF THE VOTING SECURITIES OF ANY COMPANY;
- - INVEST IN OTHER INVESTMENT COMPANIES (EXCEPT AS PART OF A MERGER);
- - UNDERWRITE THE SECURITIES OF OTHER ISSUERS (EXCEPT IN CONNECTION WITH THE
SALE OF GNMA CERTIFICATES);
- - BUY SECURITIES SUBJECT TO RESTRICTIONS UNDER FEDERAL SECURITIES LAWS, OR TO
RESTRICTIONS ON DISPOSITION (EXCEPT REPURCHASE AGREEMENTS);
- - INVEST MORE THAN 25%* OF ITS ASSETS IN ANY SINGLE INDUSTRY OR IN FOREIGN
SECURITIES;
- - INVEST MORE THAN 10%* OF ITS ASSETS IN FOREIGN SECURITIES NOT PAYABLE IN
U.S. DOLLARS;
- - BUY SECURITIES ON MARGIN, OR ENGAGE IN "SHORT" SALES;
- - INVEST IN REAL ESTATE, OIL AND GAS INTERESTS, OR COMMODITIES (EXCEPT GROWTH
& INCOME AND NORTHWEST PORTFOLIOS MAY INVEST IN PUBLICLY TRADED REAL ESTATE
INVESTMENT TRUSTS);
- - BUY OR SELL OPTIONS (EXCEPT FOR COVERED CALL OPTIONS IN THE GROWTH & INCOME
AND NORTHWEST PORTFOLIOS);
- - BORROW MONEY (EXCEPT IT MAY BORROW UP TO 5% OF ITS TOTAL ASSETS FOR
EMERGENCY, NON- INVESTMENT PURPOSES, OR UP TO 33 1/3% TO MEET REDEMPTION
REQUESTS THAT WOULD OTHERWISE RESULT IN THE UNTIMELY LIQUIDATION OF VITAL
PARTS OF ITS PORTFOLIOS);
- - LEND MONEY (EXCEPT FOR THE EXECUTION OF REPURCHASE AGREEMENTS);
- - BUY OR SELL FUTURES RELATED SECURITIES (EXCEPT FOR FORWARD COMMITMENTS OF
GNMAS AND OTHER MORTGAGE-BACKED SECURITIES;
- - ISSUE SENIOR SECURITIES.
* PERCENTAGE AT THE TIME THE INVESTMENT IS MADE.
BROKERAGE ALLOCATIONS AND PORTFOLIO TRANSACTIONS
Under terms of the Investment Management Agreement, Composite Research &
Management Co. acts as agent for the Fund in entering orders with broker-dealers
to execute portfolio transactions and in negotiating commission rates where
applicable. Decisions as to eligible broker-dealers are approved by the
president of the Fund.
In executing portfolio transactions and selecting broker- dealers, the Adviser
uses its best efforts to seek, on behalf of the Fund, the best overall terms
available. In assessing the best overall terms available for any transaction,
the Adviser may consider all factors it deems relevant, including the breadth of
the market in the security, the price of the security, the size of the
transaction, the reputation, financial condition, experience and execution
capability of a broker-dealer, and the amount of the commission and the value of
any brokerage and research services (as those terms are defined in Section 28(e)
of the Securities Exchange Act of 1934, as amended) provided by a broker-dealer.
The Adviser is authorized to pay to a broker or dealer who provides such
brokerage and research services a commission for executing a portfolio
transaction for the Fund. This commission may be in excess of the amount of
commission or net price another broker or dealer would have charged for
effecting the transaction if the Adviser determines in good faith that such
commission was reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer, viewed in terms of that particular
transaction or in terms of the overall responsibilities of the Adviser to the
Fund and/or other accounts over which the Adviser exercises investment
discretion. The Adviser may commit to pay commission dollars to brokers or
financial institutions for specific research materials or products that it
considers useful in advising the institutions for specific research materials or
products that it considers useful in advising the Funds and/or its other
clients. Research services furnished to the Adviser include, for example,
written and electronic reports analyzing economic and financial characteristics
of industries and companies, reports concerning portfolio strategies and
characteristics, telephone conversations between brokerage securities analysts
and members of the Adviser's staff, and personal visits by such analysts,
brokerage strategists and economists to the Adviser's office.
Some of these services are of value to the Adviser in advising various clients,
although not all of these services are necessarily useful and of value in
managing the Fund. The advisory fee paid to the Adviser is not reduced because
it receives those services, even though it might otherwise be required to
purchase these services for cash.
The staff of the Securities and Exchange Commission has expressed the view that
the best price and execution of over-the-counter transactions in portfolio
securities may be secured by dealing directly with principal market makers,
thereby avoiding the payment of compensation to another broker. In certain
situations, the Adviser believes that the facilities, expert personnel and
technological systems of a broker often enable the Fund to secure a net price by
dealing with a broker that is as good as or better than the price the Fund could
have received from a principal market maker, even after payment of the
compensation to the broker. The Adviser places its over-the-counter transactions
with principal market makers, but may also deal on a brokerage basis when
utilizing electronic trading networks or as circumstances warrant.
None of the broker-dealers with whom the Fund deals has any interest in the
Adviser, Distributor or Administrator. The Distributor will not execute any
portfolio orders for the Fund during the fiscal year, nor will the Distributor
or the Adviser receive any direct or indirect compensation as a result of
portfolio transactions of the Fund. Although Fund shares may be sold by brokers
who execute portfolio transactions for the Fund, no brokerage will be allocated
for such sales.
Portfolio turnover rate is calculated by dividing the lesser of purchases or
sales of securities, excluding securities having maturity dates at acquisition
of one year or less, by the average value of such portfolio securities during
the fiscal year. Although turnover rate cannot be accurately predicted, the
Adviser does not anticipate that it will be greater than 100% in each portfolio
in any given year. The Adviser expects that the Growth & Income and Income
portfolios' turnover rates will normally not exceed 50% annually. The turnover
rates for the Growth & Income, Income and Northwest portfolios for 1995 were
36%, 14%, and 11%, respectively. The turnover rates for the Growth & Income,
Income and Northwest portfolios for 1994 were 25%, 15% and 17%, respectively.
GENERAL INFORMATION
ORGANIZATION AND AUTHORIZED CAPITAL
As discussed under "Who We Are" in the prospectus, Composite Deferred Series,
Inc. was incorporated under the laws of the state of Washington on December 8,
1986, under a Certificate of Incorporation granting perpetual existence. The
Fund has an authorized capitalization of 10 billion shares of capital stock,
without par value. Shares are issued by class designated by specific portfolio.
All shares of the Fund are freely transferable. The shares do not have
preemptive rights, and none of the shares have any preference to conversion,
exchange, dividends, retirements, liquidation, redemption or any other feature.
Shares have equal voting rights.
VOTING PRIVILEGES
The Accounts will vote their shares as instructed by Contract Owners. The Fund
does not anticipate holding annual meetings solely to elect directors, however,
when directors are nominated for election by Contract Owners, a Contract Owner
may exercise cumulative voting privileges for the election of directors under
Washington state law. Using this privilege, Contract Owners are entitled to one
vote for each contract unit owned by them. The total number of votes for
directors to which a Contract Owner is entitled may be accumulated and cast for
each candidate in such proportion that the Contract Owner may designate. Only
the Contract Owners of a particular portfolio may vote on any change of
investment objective for that portfolio.
CUSTODIAN
The securities and cash owned by each Portfolio are held in safekeeping by
Investors Fiduciary Trust Company (IFTC), 127 West 10th, Kansas City, MO 64105.
IFTC is a wholly-owned subsidiary of State Street Bank. The custodian's
responsibilities include collecting dividends, interest and principal payments
on each Fund's investments.
INDEPENDENT PUBLIC ACCOUNTANTS
The firm of LeMaster & Daniels, Certified Public Accountants, has been selected
as the independent accountant of the Fund. LeMaster & Daniels performs audit
services for the Fund including the examinations of the financial statements
included in the annual report to shareholders which is incorporated by reference
into this Statement of Additional Information.
REGISTRATION STATEMENT
This Statement of Additional Information and the prospectus do not contain all
of the information set forth in the registration statement the Fund has filed
with the Securities and Exchange Commission. The complete registration statement
may be obtained from the Securities and Exchange Commission upon payment of the
fee prescribed by the rules and regulations of the Commission.
FINANCIAL STATEMENTS AND REPORTS
Semiannual and annual reports are issued to shareholders. The annual reports
include audited financial statements. The Fund's annual report to shareholders
dated December 31, 1995, which is incorporated by reference into this Statement
of Additional Information, may be obtained without charge by contacting the
Fund's offices.
<PAGE>
APPENDIX A
SPECIMEN PRICE MAKE-UP SHEET
AT DECEMBER 31, 1995
MONEY MARKET GROWTH & INCOME INCOME NORTHWEST
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------- ----------------- ----------- -----------
Assets $224,091 $24,528,771 $15,277,300 $7,556,830
Liabilities 2,874 80,611 71,702 61,517
--------- ------------ ----------- ----------
Net Assets $221,217 $24,448,610 $15,205,598 $7,495,313
========= ============ =========== ==========
Shares
Outstanding 221,217 1,208,890 1,207,536 499,904
========= ============ =========== ==========
Net Assets Per Share
(Net Assets/Shares
Outstanding) $1.00 $20.22 $12.59 $14.99
========= ============ =========== ==========
<PAGE>
APPENDIX B
DESCRIPTION OF SECURITY RATINGS
BONDS
MOODY'S INVESTORS SERVICE, INC. (MOODY'S):
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are
subject to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and characterize bonds in this
class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
NOTE: Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. Modifier 1
indicates that the security ranks in the higher end of its generic rating
category; Modifier 2 indicates a mid-range ranking; and Modifier 3 indicates
that the issue ranks in the lower end of its generic rating category.
STANDARD & POOR'S CORPORATION (S & P)
AAA: Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only to a small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C: Debt rated BB, B, CCC, CC, and C is regarded, on balance as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB rating.
B: Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default and is
dependent upon favorable business, financial, or economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior debt that
is assigned an actual or implied CCC rating.
C: The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy has been filed but debt service payments
are continued.
CI: The rating CI is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition of debt service payments are jeopardized.
NOTE: Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
categories.
PREFERRED STOCKS
Moody's preferred stock rating symbols and their definitions are as follows:
aaa: An issue which is rated aaa is considered to be a top-quality preferred
stock. This rating indicates good asset protection and the least risk of
dividend impairment within the universe of preferred stocks.
aa: An issue which is rated aa is considered a high-grade preferred stock. This
rating indicates that there is reasonable assurance that earnings and asset
protection will remain relatively well maintained in the foreseeable future.
a: An issue which is rated a is considered to be an upper-medium grade preferred
stock. While risks are judged to be somewhat greater than in the "aaa" and "aa"
classifications, earnings and asset protection are, nevertheless, expected to be
maintained at adequate levels.
An issue which is rated baa is considered to be medium grade, neither highly
protected nor poorly secured. Earnings and asset protection appear adequate at
present but may be questionable over any great length of time.
S&P's quality ratings on preferred stock are expressed by symbols like those
used in rating bonds. They represent a considered judgment of the relative
security of dividends and -- what is thereby implied -- the prospective yield
stability of the stock.
AAA: This is the highest rating that may be assigned by Standard & Poor to a
preferred stock issue and indicates an extremely strong capacity to pay the
preferred stock obligations.
AA: A preferred stock issue rated AA also qualifies as a high-quality fixed
income security. The capacity to pay preferred stock obligations is very strong,
although not as overwhelming as for issues rated AAA.
A: An issue rated A is backed by a sound capacity to pay the preferred stock
obligations although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
BBB: An issue rated BBB is regarded as backed by an adequate capacity to pay the
preferred stock obligations. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to make payments for a preferred stock in
this category than for issues in the A category.
BB, B, CCC: Preferred stock in these categories are regarded, on balance, as
predominately speculative with respect to the issuer's capacity to pay preferred
stock obligations. BB indicates the lowest degree of speculation and CCC the
highest degree of speculation. While such issues will likely have some quality
and protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
COMMERCIAL PAPER
A1 and Prime 1 commercial paper ratings issued by Standard & Poor's Corporation
(S&P) and Moody's Investors Services, Inc. (Moody's) are the highest ratings
these corporations issue.
Commercial paper rated A1 by S&P has the following characteristics: Liquidity
ratios are adequate to meet cash requirements. Long-term senior debt is rated A
or better. The issuer has access to at least two additional channels of
borrowing. Basic earnings and cash flow have an upward trend with allowance made
for unusual circumstances. Typically, the issuer's industry is well established
and the issuer has a strong position within the industry. The reliability and
quality of management are unquestioned. Relative strength or weakness of the
above factors determine whether the issuer's commercial paper is rated A1, A2 or
A3.
Among factors considered by Moody's in assigning ratings are the following: (1)
evaluation of the management of the issuer; (2) economic evaluation of the
issuer's industry or industries and an appraisal of speculative-type risks which
may be inherent in certain areas; (3) evaluation of the issuer's products in
relation to competition and customer acceptance; (4) liquidity; (5) amount and
quality of long-term debt; (6) trend of earnings over a period of ten years; (7)
financial strength of a parent company and the relationships which exist with
the issuer; and (8) recognition by the management of obligations which may be
present or may arise as a result of public interest questions and preparation to
meet such obligations.
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements. The annual report to shareholders dated December 31,
1995, was filed with the Securities and Exchange Commission via EDGAR on
February 15, 1996. The annual report is incorporated by reference in Part
B.
Filing
Incorporated Date
(b) Exhibits With Filed
-------- ------------ ------
(1) Articles of Incorporation Form N-1A 12-26-86
(2) Bylaws Form N-1A 2-29-96
(3) Voting Trust Agreement INAP
(4) Specimen Capital Stock Certificate Form N-1A 12-26-86
(5) Investment Management Agreement Form N-1A 8-19-94
(6) Distribution Contract Form N-1A 3-31-87
(7) Bonus, profit sharing, pension or
other similar contracts for
benefit of directors or officers
of the Registrant INAP
(8) Custody Agreement Form N-1A 2-28-94
(9) Shareholders Service Contract INAP
(10) Opinion and Consent of Counsel Form N-1A 2-29-96
(11) Accountants' Consent Form N-1A 2-29-96
(12) All financial statements omitted
from Item 23. Form N-1A Annual
Report
(13) Agreements or understandings made
in consideration for providing
initial capital INAP
(14) Retirement Plan and Forms INAP
(15) 12b-1 Plan INAP
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
The Registrant is operated under the supervision of Composite Research &
Management Co. which was established in 1944. Composite Research is affiliated
with Murphey Favre and Murphey Favre Securities Services. Murphey Favre serves
as principal underwriter and distributor of the Registrant. Murphey Favre
Securities Services provides administrative and transfer services to WM Life
Insurance Company. All of the preceding are subsidiaries of Washington Mutual,
Inc. of Seattle, Washington.
Composite Research, Murphey Favre, and Murphey Favre Securities Services serve
in the same capacities for the seven other investment companies in the Composite
Group of Funds, namely: Composite Income Fund, Inc.; Composite Equity Series,
Inc.; Composite Cash Management Company; Composite Tax-Exempt Bond Fund, Inc.;
Composite U.S. Government Securities, Inc.; Composite Northwest Fund, Inc.; and
Composite Bond & Stock Fund, Inc.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
As of February 29, 1996, there was one common stock shareholder, the separate
account of WM Life Insurance Company.
ITEM 27. INDEMNIFICATION.
Registrant shall have the power to indemnify any director, officer or former
director or officer of the Corporation, or any person who may have served at the
Corporation's request as a director or officer of another corporation, against
expenses actually and reasonably incurred by such person in connection with the
defense of any action, suit or proceeding, civil or criminal, in which he
becomes a party by reason of being or having been such director or officer, to
the full extent permitted by the laws of the state of Washington, as such laws
at anytime may be in force and effect, provided, however, that this
indemnification provision shall not protect, or purport to protect, any director
or officer of the corporation against any liability to the corporation or to the
shareholders to which he otherwise would be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of this office.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Registrant's Investment Adviser is Composite Research & Management Co., a wholly
owned subsidiary of Washington Mutual, Inc., a Washington corporation organized
in 1889. The Adviser serves in that capacity for the seven (7) other investment
companies with the Composite Group of Funds identified in Item 25.
Business and other connections of the Investment Adviser were most recently
filed on Form ADV, Securities and Exchange Commission File No. 801-4855, which
was mailed on February 23, 1996, and is incorporated herein by reference.
ITEM 29. PRINCIPAL UNDERWRITERS.
The principal underwriter for the Registrant is Murphey Favre which also serves
in the same capacity for seven (7) other investment companies identified in Item
25.
Business and other connections of the underwriter were most recently filed on
Form BD, CRD 599, with the National Association of Securities Dealers on
February 20, 1996, and are incorporated herein by reference.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940 and the rules thereunder will be
maintained at the offices of the Registrant at 601 W. Main Avenue, Suite 801,
Spokane, Washington 99201. The Registrant's custodian activities are performed
at Investors Fiduciary Trust Company (IFTC), 127 W. 10th, Kansas City, MO 64105.
ITEM 31. MANAGEMENT SERVICES.
Registrant is not a party to any management related service contract, other than
as set forth in the Prospectus.
ITEM 32. UNDERTAKINGS.
Management has included a discussion of Fund performance in the Fund's annual
report which is available upon request and without charge.
<PAGE>
SIGNATURES
FORM N-1A
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(a) under the Securities Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Spokane, and State of Washington
on the 28 day of November, 1995.
COMPOSITE DEFERRED SERIES, INC.
--------------------------------
Registrant
[SEAL]
By:/s/ William G. Papesh
------------------------
ATTEST: William G. Papesh
/s/ John T. West President
- -----------------------------
John T. West, CPA /s/ Monte D. Calvin
Secretary ------------------------
Monte D. Calvin, CPA
Principal Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities on
the date indicated:
/s/ Wayne L. Attwood November 28, 1995
- -------------------------------------------
Wayne L. Attwood, Director (Date)
/s/ Anne V. Farrell November 28, 1995
- -------------------------------------------
Anne V. Farrell, Director (Date)
/s/ Kristianne Blake November 28, 1995
- -------------------------------------------
Kristianne Blake, Director (Date)
/s/ Edwin J. McWilliams November 28, 1995
- -------------------------------------------
Edwin J. McWilliams, Director (Date)
/s/ Michael K. Murphy November 28, 1995
- -------------------------------------------
Michael K. Murphy, Director (Date)
/s/ William G. Papesh November 28, 1995
- -------------------------------------------
William G. Papesh, Director (Date)
/s/ Jay Rockey November 28, 1995
- -------------------------------------------
Jay Rockey, Director (Date)
/s/ Leland J. Sahlin November 28, 1995
- -------------------------------------------
Leland J. Sahlin, Director (Date)
/s/ Richard C. Yancey November 28, 1995
- -------------------------------------------
Richard C. Yancey, Director (Date)
<PAGE>
EXHIBIT 27
- --------------------------------------------------------------------------------
EXHIBIT INDEX
- --------------------------------------------------------------------------------
EX-99.B2 BYLAWS
EX-99.B10 OPINION & CONSENT OF COUNSEL
EX-99.B11 ACOUNTANT'S CONSENT
EX-27.CLASS A FINANCIAL DATA SCHEDULE - CLASS A
- --------------------------------------------------------------------------------
EXHIBIT 2
AS REVISED 1/23/96
BYLAWS
OF
COMPOSITE DEFERRED SERIES, INC.
ARTICLE I.
STOCKHOLDERS' MEETINGS
SECTION 1. ANNUAL MEETING: The corporation shall not be required to hold an
annual meeting of the shareholders unless an election of Directors is required
by the Investment Company Act of 1940. This provision shall not prohibit the
President or the Board of Directors from calling an annual meeting of
stockholders for any purpose. (Amended 3/22/94)
SECTION 2. SPECIAL MEETINGS: Special meetings of the shareholders may be
called at any time by the President or by the Board of Directors. At any time,
upon receipt of written request of shareholders holding in the aggregate
one-tenth (1/10) of the voting power of all shareholders, it shall be the duty
of the Secretary or other person duly authorized, to call a special meeting of
shareholders to be held at the registered office at such time as the Secretary
or other duly authorized person may fix; the notice of such meeting shall comply
with the requirements set forth in Section 4 of this Article and shall further
state the purpose or purposes for which the meeting is called. If the Secretary
or other duly authorized person shall neglect or refuse to issue such call, the
shareholders making the request may do so.
SECTION 3. PLACE OF MEETING: The annual meeting of shareholders or any
special meeting of shareholders shall be held at the principal office of the
corporation or at such other place either within or without the State of
Washington as determined by the Board of Directors.
SECTION 4. NOTICE OF MEETINGS: Except as otherwise required by statute,
notice of the time and place of each meeting of shareholders, whether annual or
special, shall be given to each shareholder of record entitled to vote at such
meeting not less than ten (10) nor more than sixty (60) days before the date of
such meeting, by delivering a written or printed notice thereof to him
personally, or by mailing such notice by certified mail, with return receipt
requested, in a postage-prepaid envelope addressed to him at his address as it
appears on the stock transfer books of the corporation.
SECTION 5. WAIVERS: Notice of any meeting of shareholders shall not be
required as to any shareholder who shall attend such meeting in person or by
proxy; and if any shareholder shall, in person or by attorney duly authorized,
waive notice of any meeting, whether before or after such meeting, notice
thereof shall not be required as to him.
SECTION 6. QUORUM: Unless otherwise provided in the Articles of
Incorporation, the presence in person or by proxy duly authorized, of the
holders of the majority of the shares entitled to vote shall constitute a quorum
for the transaction of business; if a quorum be present, the affirmative vote of
the majority of the shares represented at such meeting and entitled to vote on
the subject matter shall be the act of the shareholders, unless the vote of a
greater number is required by law or by the Articles of Incorporation, or other
sections of these Bylaws.
SECTION 7. VOTING: Unless otherwise provided in the Articles of
Incorporation, every shareholder of record shall be entitled to one vote per
share on each matter submitted to a vote at any meeting of shareholders. No
proxy shall be valid after eleven (11) months from the date of its execution,
unless such proxy provides for a longer period. The Board of Directors may fix
in advance a record date for the determination of shareholders entitled to vote
at such meeting, or for any other purpose. No share of stock shall be voted at
any meeting which shall have been transferred on the books of the corporation
subsequent to the record date fixed herein and prior to the date of the meeting.
When a determination of the shareholders entitled to vote at any meeting of
shareholders has been made, such determination shall apply to any adjournment
thereof.
ARTICLE II.
BOARD OF DIRECTORS
SECTION 1. NUMBER AND TERM OF OFFICE: The business of this corporation
shall be managed by a Board of Directors which shall be composed of not less
than three nor more than fifteen directors, the specific number to be set by
Resolution of the Board or the shareholders. The numbers of directors may be
changed from time to time by amendment of these Bylaws, but no decrease in the
number of directors shall have the effect of shortening the term of any
incumbent director. Unless a director dies, resigns, or is removed, his or her
term of office shall continue until his or her successor is elected and
qualified, or until there is a decrease in the authorized number of directors.
Directors need not be stockholders of the corporation or residents of the State
of Washington and need not meet any other qualifications. (Amended 3/22/94)
SECTION 2. PLACE OF MEETING: Meetings of the Board of Directors may be held
either within or without the State of Washington.
SECTION 3. STATED MEETINGS: The Board of Directors may, by resolution
adopted by the affirmative vote of a majority of the whole board, from time to
time, appoint the time and place for holding stated meetings of the Board if it
be deemed advisable and such stated meetings shall thereupon be held at the time
and place so appointed, without the giving of any special notice with regard
thereto. In case the day appointed for a stated meeting shall fall upon a legal
holiday, such meeting shall be held on the next following day not a legal
holiday, at the regularly appointed hour. Except as otherwise provided in the
Bylaws, any type of business may be transacted at any stated meeting.
SECTION 4. SPECIAL MEETINGS: Special meetings of the Board of Directors
shall be held whenever called by the President, or by a majority of the
directors. Notice of any such meeting or any adjournment thereof shall be mailed
to each director, addressed to him at his residence or usual place of business,
not later than five (5) days before the day on which the meeting is to be held,
or shall be sent to him at such place by telegraph, or delivered personally or
by telephone, not later than the day before such day of meeting. Notice of any
meeting of the Board need not, however, be given to any director if waived by
him in writing or if he shall be present at the meeting; and any meeting of the
Board of Directors shall be a legal meeting without any notice thereof having
been given if all the members shall be present thereat except as otherwise
provided in the Bylaws or as may be indicated in the notice thereof, and any and
all business may be transacted at any special meeting.
SECTION 5. QUORUM AND MANNER OF ACTING: A majority of the number of
directors fixed by resolution of the directors shall constitute a quorum for the
transaction of business. The act of the majority of the directors present at a
meeting at which a quorum is present shall be the act of the Board of Directors.
In the absence of a quorum, a majority of the Directors present may adjourn any
meeting, from time to time, until a quorum is present.
SECTION 6. RESIGNATIONS: Any director of the corporation may resign at any
time either by oral tender of resignation at any meeting of the Board or by
giving written notice thereof to the Secretary. Such resignation shall take
effect at the time specified therefor; and unless otherwise specified with
respect thereto, the acceptance of such resignation shall not be necessary to
make it effective.
SECTION 7. FILING OF VACANCIES: In the case of any vacancy or vacancies in
the Board of Directors, such vacancy or vacancies shall be filled by the
remaining directors.
SECTION 8. SALARIES AND BONUSES: The Board of Directors shall have power to
fix salaries of officers, and the Board shall further have power to determine
and authorize payment of bonuses from time to time as may be best determined by
the financial condition of the corporation.
SECTION 9. MEETINGS: Meetings of the Board of Directors or of any
committees thereof may be held by conference telephone or similar communication
equipment so long as all participants can hear each other and participate in
discussion without restriction.
SECTION 10. COMMITTEE DESIGNATION: In addition to the committees designated
in this section, the Board of Directors, by resolution adopted by a majority of
the members, may designate from among its members one or more other committees,
each of which, to the extent provided in such resolution, shall have and may
exercise all the authority of the Board of Directors to the extent permitted by
applicable law. Designated Board of Directors' committees and responsibilities
are:
1) AUDIT COMMITTEE - consisting of three (or more) disinterested Directors:
This committee is responsible for overseeing the financial reporting
process and assuring the objectivity of the independent audit. The
committee will hold periodic meetings with the independent auditors and
make recommendations to the Directors about the adequacy and accuracy of
systems, acceptance of audits and suggestions on internal control
improvements.
2) NOMINATING COMMITTEE - consisting of three (or more) Directors: This
committee will nominate or recommend a slate of Directors each year and
make preparations and recommendations for replacements. Responsibilities
will also include the initial review of policy issues regarding Board
compensation, size of the Board, and composition of the Board.
3) INVESTMENT COMMITTEE - consisting of three (or more) Directors: This
committee will perform interim functions for the Board including, but not
limited to, dividend declaration, investment policy preparation and
recommendations, and portfolio pricing matters. The committee will have the
authority to act on behalf of the Board with any policy recommendations
subsequently reported to the Board for ratification.
4) VALUATION COMMITTEE:
a. Membership. The Board of Directors may annually appoint a Valuation
Committee comprised of two or more individuals. The names of persons
serving on the Committee will be named in the Committee guidelines.
b. Responsibilities and Duties. The purpose of the Valuation Committee shall
be to value any security held by a Fund or any Series which cannot
otherwise be valued under the Fund's guidelines for valuation of portfolio
securities.
c. Rules of Procedures. In determining the fair value of a security, the
Valuation Committee shall consider such factors and follow such procedures
as may be established under guidelines approved by the Board of Directors.
The guidelines shall be reviewed and approved by the Board as frequently as
the Board shall deem appropriate, but in no event less than annually. A
record of each meeting shall be kept. At the next regularly scheduled Board
of Directors meeting following the Valuation Committee's determination of a
fair value for a security, the Board of Directors shall consider ratifying
the Valuation Committee's action.
d. Vote Required. The members of the Valuation Committee must unanimously
approve a fair value for the security.
e. Action Without Meeting. Any action that may be or is required to be taken
at a meeting of the Valuation Committee may be conducted by telephone or
may be taken without a meeting, if a consent in writing setting forth the
action so taken shall be signed by all members of the Valuation Committee.
Such consent shall have the same effect as a unanimous vote.
f. Compensation of Committee Members. Each committee member who is not an
interested person of the Fund may receive such compensation from the Fund
for his or her services and reimbursement for his or her expenses as may be
fixed from time to time by the Directors.
ARTICLE III.
OFFICERS
(Amended 5/31/89) The officers of the Company shall be the Chairman of the
Board of Directors, a President, a Treasurer, and a Secretary. Persons elected
to those offices by the Board of Directors shall serve at the will of the Board
of Directors and continue in office until such time as their successors are
elected and qualified. Any two of the foregoing officers may be united in one
person. A Vice President or Vice Presidents may be added from time to time as
determined by the Board of Directors who may also appoint one or more Assistant
Secretaries and one or more Assistant Treasurers.
The Chairman of the Board of Directors shall preside at all meetings of the
stockholders and of the Board of Directors and shall have further duties and
responsibilities as the Board of Directors may determine. The President, subject
to the general supervision and control of the Board of Directors, shall be
responsible for the affairs of the company and shall perform such other duties
as may be assigned to him from time to time by the Board of Directors.
The Secretary shall issue notices for all meetings, shall have charge of
the seal and the corporate books, shall sign with the President such instruments
as require such signature and shall perform such other duties as are incident to
his office or are particularly required of him by the Board of Directors.
The Treasurer shall have the custody of monies and securities of the
Company. He shall sign and issue checks, notes and other obligations of the
Company not under seal, and shall perform all duties incident to his office or
that are particularly required of him by the Board of Directors.
The Vice Presidents, Assistant Secretaries and Assistant Treasurers shall
perform the duties of the President, Secretary or Treasurer in his or their
offices or during their inability to act; such officer shall have such other and
further powers and perform such other and further duties as may be assigned to
him or them, respectively, by the Board of Directors.
ARTICLE IV.
AUDITS
The accounts and transactions of the Corporation shall be submitted for
audit at least once a year to reputable certified public accountants to be
chosen by the Board of Directors. These audits are to be directed to a
verification as of the date selected of the assets and liabilities and principal
and income accounts and are to include a detailed check of the sales price and
liquidation value make-up sheets for at least one day in each calendar month.
ARTICLE V.
COMMON STOCK
SECTION 1. STOCK CERTIFICATES: Certificates shall not be issued until the
shares represented thereby shall have been fully paid for. Certificates will not
be issued unless requested by the stockholder.
SECTION 2. TRANSFERS: Shares may be transferred by assignment and delivery,
but no such transfer shall be binding upon the Corporation until same shall have
been entered upon the share register as provided in Section 3 of this Article.
SECTION 3. SHARE REGISTER: The Secretary shall keep a stock book and a
record of the shares issued in accordance with procedures established by the
distributor and/or as may be required by the Investment Company Act of 1940 and
rules promulgated thereunder.
ARTICLE VI.
CORPORATE SEAL
The Corporate Seal of this Corporation shall consist of an impression on
paper or wax circular in form, bearing the words:
COMPOSITE DEFERRED SERIES, INC.
CORPORATE SEAL
Spokane, Washington
as indicated by the impression on the margin hereof. The seal shall be prepared
only if requested by an officer and upon a showing of legal necessity.
ARTICLE VII.
BOOKS AND RECORDS
The Corporate Minute Book, Record of Shareholders, Share Register and other
corporate records, shall be kept at the registered office of the Corporation in
Spokane, Washington, and the location of such registered office may be changed
at any time by resolution of the Board of Directors regularly adopted, and by
filing a proper notice of such change in such public office as the law may
require.
ARTICLE VIII.
AMENDMENTS
These Bylaws may be amended or repealed, or new Bylaws may be adopted, by
the Board of Directors at any meeting thereof, provided, however, that notice of
such meeting shall have been given as provided in these Bylaws, which notice
shall mention that amendment or repeal of the Bylaws, or the adoption of new
Bylaws, is one of the purposes of such meeting. Any such Bylaws adopted by the
Board may be amended or repealed, or new Bylaws may be adopted, by vote of the
stockholders of the Corporation, at any annual or special meeting thereof;
provided, however, that the notice of such meeting shall have been given as
provided in these Bylaws, which notice shall mention that amendment or repeal of
these Bylaws, or the adoption of new Bylaws, is one of the purposes of such
meeting.
EXHIBIT 10
February 26, 1996
Composite Deferred Series, Inc.
601 W. Main Avenue, Suite 801
Spokane WA 99201-0613
Gentlemen:
In connection with an amendment to the Registration Statement now being
filed by your company with the Securities and Exchange Commission relating to an
offering of capital stock of the corporation without par value, we hereby
certify that, as attorneys of this corporation, we have examined the corporate
proceedings relating to the incorporation of the company, the By-laws and
Distributor and Management Contract, and all other matters hereinafter referred
to.
It is our opinion that Composite Deferred Series, Inc. is a corporation
duly organized and existing under the laws of the State of Washington, with an
authorized capital stock of 10,000,000,000 shares without par value, all of
which shares are of one class and nonassessable and, upon being issued for
proceeds to the company of not less than the net asset value of such shares at
the time of sale, will be fully paid for under the laws of the State of
Washington.
Very truly yours,
PAINE, HAMBLEN, COFFIN,
BROOKE & MILLER LLP
/s/ Lawrence R. Small
Lawrence R. Small
<PAGE>
EXHIBIT 10
February 26, 1996
Composite Deferred Series, Inc.
601 W. Main Avenue, Suite 801
Spokane, WA 99201-0613
Gentlemen:
We hereby consent to the use of our written opinion dated February 26,
1996, upon the validity of the incorporation of Composite Deferred Series, Inc.
and upon the designation of the authorized common stock of said company in the
Articles of Incorporation. We also consent to the use of our opinion to the
extent it may be necessary to describe the common stock being offered for sale
pursuant to the Prospectus.
Very truly yours,
PAINE, HAMBLEN, COFFIN,
BROOKE & MILLER LLP
/s/ Lawrence R. Small
Lawrence R. Small
EXHIBIT 11
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference into the Prospectus and
Statement of Additional Information in Post-Effective Amendment No. 13 to the
Registration Statement on Form N-1A of Composite Deferred Series, Inc., of our
report dated January 19, 1996, on the financial statements and financial
highlights included in the December 31, 1995 Annual Report to Shareholders of
Composite Deferred Series, Inc. We further consent to the reference to our Firm
under the headings "Financial Highlights" in the Prospectus and "Independent
Public Accountants" in the Statement of Additional Information.
/s/ LeMaster & Daniels, PLLC
LeMaster & Daniels, PLLC
Spokane, Washington
January 19, 1996
<PAGE>
EXHIBIT 11
INDEPENDENT PUBLIC ACCOUNTANTS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDER
COMPOSITE DEFERRED SERIES, INC.
We have audited the accompanying statements of assets and liabilities, including
the investment portfolios, of Composite Deferred Series, Inc. (comprising,
respectively, the Growth, Northwest, Income, and Money Market Portfolios) as of
December 31, 1995, and the related statements of operations for the year then
ended, and the statements of changes in net assets for the years ended December
31, 1995 and 1994. For the Growth, Income, and Money Market Portfolios, we have
audited the financial highlights for each of the five years in the period ended
December 31, 1995. For the Northwest Portfolio, we have audited the financial
highlights for the years ended December 31, 1995, 1994, and 1993. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standarads require that we plan and perform the audit to obtian
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirming securities owned as of December
31, 1995, by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and the financial highlights referred
to above present fairly, in all material respects, the financial position of
each of the respective portfolios constituting Composite Deferred Series, Inc.,
as of December 31, 1995, and the results of their operations, the changes in
their net assets, and their financial highlights for the above stated periods in
conformity with generally accepted accounting principles.
/s/ LeMaster & Daniels, PLLC
Certified Public Accountants
Spokane, Washington
January 19, 1996
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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AND EXCHANGE COMMISSION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
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</LEGEND>
<CIK> 0000808421
<NAME> Composite Deferred Series, Inc.
<SERIES>
<NUMBER> 01
<NAME> Money Market Portfolio
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 213,799
<INVESTMENTS-AT-VALUE> 213,799
<RECEIVABLES> 0
<ASSETS-OTHER> 10,292
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 224,091
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<OTHER-ITEMS-LIABILITIES> 2,874
<TOTAL-LIABILITIES> 2,874
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 221,217
<SHARES-COMMON-STOCK> 221,217
<SHARES-COMMON-PRIOR> 218,872
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<OVERDISTRIBUTION-NII> 0
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<NET-INVESTMENT-INCOME> 2,544
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<DISTRIBUTIONS-OF-GAINS> (12)
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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</LEGEND>
<CIK> 0000808421
<NAME> Composite Deferred Series, Inc.
<SERIES>
<NUMBER> 02
<NAME> Growth Portfolio
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 19,067,330
<INVESTMENTS-AT-VALUE> 24,440,206
<RECEIVABLES> 67,956
<ASSETS-OTHER> 20,609
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 24,528,771
<PAYABLE-FOR-SECURITIES> 67,772
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 12,839
<TOTAL-LIABILITIES> 80,611
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 19,079,550
<SHARES-COMMON-STOCK> 1,208,890
<SHARES-COMMON-PRIOR> 959,776
<ACCUMULATED-NII-CURRENT> 2,577
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (6,843)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,372,876
<NET-ASSETS> 24,448,160
<DIVIDEND-INCOME> 423,199
<INTEREST-INCOME> 63,786
<OTHER-INCOME> 0
<EXPENSES-NET> (124,249)
<NET-INVESTMENT-INCOME> 362,736
<REALIZED-GAINS-CURRENT> 441,257
<APPREC-INCREASE-CURRENT> 4,414,288
<NET-CHANGE-FROM-OPS> 5,218,281
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (360,327)
<DISTRIBUTIONS-OF-GAINS> (448,100)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 400,628
<NUMBER-OF-SHARES-REDEEMED> (137,392)
<SHARES-REINVESTED> 41,600
<NET-CHANGE-IN-ASSETS> 10,253,657
<ACCUMULATED-NII-PRIOR> 168
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<OVERDISTRIB-NII-PRIOR> 0
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<GROSS-ADVISORY-FEES> 90,132
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<GROSS-EXPENSE> 124,249
<AVERAGE-NET-ASSETS> 18,116,733
<PER-SHARE-NAV-BEGIN> 15.70
<PER-SHARE-NII> 0.35
<PER-SHARE-GAIN-APPREC> 4.90
<PER-SHARE-DIVIDEND> (0.35)
<PER-SHARE-DISTRIBUTIONS> (0.38)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 20.22
<EXPENSE-RATIO> 0.70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S ANNUAL REPORT AND FORM N-SAR WHICH ARE ON FILE WITH THE SECURITIES
AND EXCHANGE COMMISSION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
DOCUMENTS.
</LEGEND>
<CIK> 0000808421
<NAME> Composite Deferred Series, Inc.
<SERIES>
<NUMBER> 03
<NAME> Income Portfolio
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<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 14,208,679
<INVESTMENTS-AT-VALUE> 14,954,492
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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</LEGEND>
<CIK> 0000808421
<NAME> Composite Deferred Series, Inc.
<SERIES>
<NUMBER> 04
<NAME> Northwest Portfolio
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