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. 14 /X/
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 14 /X/
COMPOSITE DEFERRED SERIES, INC.
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(Exact name of Registrant as specified in Charter)
601 W. Main Avenue, Suite 801, Spokane, WA 99201
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(Address of principal executive offices)
1-509-353-3486
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(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
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(Name and address of agent for service)
Approximate Date of Proposed Public Offering April 30, 1997
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[xx] on April 30, 1997, pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(i) of Rule 485
[ ] on (date) 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.
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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 February 24, 1997.
<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 three
separate Portfolios. Each of the Portfolios has distinct investment objectives
and policies. Currently investments in shares of the 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.
The terms "shareholder" or "shareholders" in this Prospectus shall refer to the
Accounts. The Portfolios are:
- GROWTH & INCOME PORTFOLIO. The primary objective of this Portfolio is
long-term capital growth. Current income is a secondary consideration.
Investments are made in a diversified pool of common stocks and other
securities.
- NORTHWEST PORTFOLIO. This Portfolio seeks long-term growth of capital
by investing in common stocks of companies located or doing business
in Alaska, Idaho, Montana, Oregon and Washington.
- INCOME PORTFOLIO. The objective of this Portfolio is to provide a high
level of current income that is consistent with protection of
shareholders' capital. It pursues this objective through careful
investment in a diversified pool of debt securities.
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR ENDORSED OR GUARANTEED
BY, ANY BANK, AND THE SHARES ARE NOT 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.
PLEASE READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE. It sets
forth information about the Portfolios that a prospective shareholder should
know before investing. 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. You may obtain a free copy by calling or writing
the Fund at the location listed in the heading of this introduction.
THE DATE OF THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION IS
APRIL 30, 1997.
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<CAPTION>
<S> <C> <C> <C>
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
</TABLE>
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.
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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.
FINANCIAL HIGHLIGHTS
The tables on this and the following page presents selected financial
information about the Portfolios, including per share data, expense ratios and
other data based on average net assets. This information has been audited by
LeMaster & Daniels PLLC, the Fund's independent auditors, whose reports appear
in the Fund's annual report. The annual report is incorporated by reference into
the Statement of Additional Information.
<PAGE>
<TABLE>
<CAPTION>
GROWTH &
INCOME
PORTFOLIO
APRIL 30,
YEARS ENDED DECEMBER 31, TO
DEC. 31,
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
------- -------- -------- -------- -------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF PERIOD ........... $20.22 $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.................... 0.34 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
realized
and unrealized) ........... 4.10 4.90 0.12 0.84 1.13 2.66 (1.04) 0.81 1.54 (1.49)
Total From ------- -------- --------- -------- --------- --------- --------- --------- --------- --------
Investment
Operations ................. 4.44 5.25 0.43 1.13 1.49 3.02 (0.64) 1.32 1.94 (1.27)
DISTRIBUTIONS ------- -------- --------- -------- --------- --------- --------- --------- --------- --------
Dividends (from
net investment income ....... (0.34) (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 .......... (0.34) (0.73) (0.44) (0.68) (0.51) (0.56) (0.43) (0.50) (0.40) (0.20)
NET ASSET VALUE, ------- -------- --------- -------- --------- --------- --------- --------- --------- --------
END OF PERIOD .............. $24.32 $20.22 $15.70 $15.71 $15.26 $14.28 $11.82 $12.89 $12.07 $10.53
======= ======== ========= ======== ========= ========= ========= ========= ========= ========
TOTAL RETURN (1)............. 22.09% 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 Period
($1,000's) ............... $41,402 $24,448 $14,195 $11,239 $7,455 $4,116 $2,140 $1,986 $1,394 $771
Ratio of
Expenses to
Average Net Assets (2).... 0.61% 0.70% 0.68% 0.76% 0.87% 1.16% 1.38% 1.10% 0.69% -%
Ratio of Net
Income to
Average Net Assets.......... 1.59% 2.01% 1.97% 1.96% 2.51% 2.77% 3.41% 4.12% 3.61% 3.29%
Portfolio Turnover
Rate ....................... 45% 36% 25% 38% 13% 23% 23% 28% 35% 12%
Average Commission Paid(3) .. $0.0626
(1) Total returns do not reflect a sales charge.
(2) Ratio of expenses to average net assets includes expenses paid indirectly
beginning in fiscal 1995.
(3) Average commission paid disclosure is required beginning in fiscal year
1996.
</TABLE>
NORTHWEST JANUARY 4,
PORTFOLIO 1993 TO
YEARS ENDED DECEMBER 31, DECEMBER 31,
1996 1995 1994 1993(3)
NET ASSET VALUE -------- -------- -------- ---------
BEGINNING OF
PERIOD................... $14.99 $11.97 $12.19 $12.00
INCOME FROM -------- -------- -------- ---------
INVESTMENT
OPERATIONS
Net Investment
Income................ 0.09 0.09 0.08 0.16
Net Gains or
Losses on
Securities
(both realized and
unrealized)........... 3.24 3.02 (0.21) 0.19
Total From -------- -------- -------- ---------
Investment
Operations ........... 3.33 3.11 (0.13) 0.35
-------- -------- -------- ---------
LESS
DISTRIBUTIONS
Dividends (from
net investment income). (0.09) (0.09) (0.08) (0.16)
Distributions
(from capital gains) ... - - (0.01) -
-------- -------- --------- ---------
Total Distributions..... (0.09) (0.09) (0.09) (0.16)
-------- -------- --------- ---------
NET ASSET VALUE,
END OF PERIOD $18.23 $14.99 $11.97 $12.19
TOTAL RETURN(1) 22.23% 26.03% -1.12% 2.95%
RATIOS/SUPPLEMENTAL
DATA
Net Assets,
End of Period ($1,000's) $12,770 $7,495 $4,647 $2,686
Ratio of
Expenses to
Average Net Assets(2).. 0.77% 0.90% 0.87% 0.00%
Ratio of Net
Income to
Average Net Assets ... 0.56% 0.67% 0.76% 1.61%(5)
Portfolio Turnover
Rate (2) ............. 31% 11% 17% 0%
Average Commission
Paid(4) ................ $0.0639
(1) Total returns do not reflect a sales charge and are not annualized.
(2) Ratio of expenses to average net assets includes expenses paid indirectly
beginning in fiscal 1995. The ratio of expenses before management fee
waiver and expense reimbursements was 1.45% for fiscal 1993.
(3) From commencement of operations.
(4) Average commission paid disclosure is required beginning in fiscal year
1996.
(5) Annualized.
<TABLE>
<CAPTION>
APRIL 30,
TO
INCOME PORTFOLIO YEARS ENDED DECEMBER 31, DEC. 31,
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
------- -------- -------- ------- ------- ------- ------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF
PERIOD............................ $12.59 $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........... 0.78 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 realized and unrealized). (0.51) 1.37 (1.35) 0.35 (0.05) 0.83 (0.02) (0.09) (0.17) (0.28)
Total From ------- ------- -------- ------- -------- ------- ------- -------- -------- ---------
Investment
Operations ................... 0.27 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).......... (0.78) (0.79) (0.79) (0.85) (0.86) (0.91) (0.95) (1.18) (1.26) (0.69)
NET ASSET VALUE, ------- ------- -------- ------- -------- ------- ------- -------- -------- ---------
END OF PERIOD .................. $12.08 $12.59 $11.22 $12.57 $12.22 $12.27 $11.44 $11.46 $11.55 $11.72
======= ======= ======== ======= ======== ======= ======= ======== ======== =========
TOTAL RETURN (1) ............... 2.34% 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 Period ($1,000's)....... $17,385 $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) ........ 0.67% 0.76% 0.74% 0.86% 0.88% 0.98% 1.06% 0.81% 0.69% -%
Assets(3)
Ratio of Net
Income to
Average Net Assets............. 6.46% 6.62% 6.79% 6.75% 7.12% 7.78% 8.43% 10.23% 10.65% 7.30%
Portfolio Turnover Rate (2)....... 11% 14% 15% 29% 37% 66% 85% 48% 30% 13%
(1) Total returns do not reflect a sales charge or separate account expenses
and are not annualized.
(2) Ratio of expenses to average net assets includes expenses paid indirectly
beginning in fiscal 1995.
(3) All expenses incurred from incorporation were absorbed by WM Life Insurance
Company, the sole shareholder, through April 30, 1988.
</TABLE>
<PAGE>
THE PORTFOLIOS' OBJECTIVES
Composite Deferred Series, Inc. consists of three 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 involve a carefully calculated degree of risk.
There is no guarantee that the following objectives can be achieved.
GROWTH & INCOME PORTFOLIO: The primary objective of this Portfolio is to
provide long-term capital growth by investing in common stocks and other
securities. Current income is a secondary consideration.
NORTHWEST PORTFOLIO: This Portfolio invests with the objective of long-term
growth of capital. Common stocks are selected from companies located or doing
business in the Northwest states of Alaska, Idaho, Montana, Oregon and
Washington. Under normal circumstances, at least 65% of its total assets will be
invested in companies whose principal executive offices are located in the
Northwest.
INCOME PORTFOLIO: The objective for this Portfolio is to provide a high
level of current income that is consistent with protection of capital.
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.
INVESTMENT PRACTICES AND RISK FACTORS
We intend to achieve the above objectives by investing in securities and
other instruments specifically chosen to fulfill such objectives, as follows:
GROWTH & INCOME PORTFOLIO
Currently, equity investments are selected from high-quality companies with
solid business fundamentals that the Adviser believes have a competitive
advantage. Securities may be purchased or a recognized exchange,
over-the-counter, or through the NASDAQ system.
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.
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.)
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.
OTHER INVESTMENT PRACTICES
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 U.S. government and its
agencies and instrumentalities; short-term corporate debt securities; commercial
paper including bank obligations; certificates of deposit; and repurchase
agreements.
REPURCHASE AGREEMENTS. The Portfolios may temporarily invest cash reserves
in repurchase agreements. In a repurchase agreement, the Portfolio buys a
security at one price and agrees to sell it back at a higher price. If the
seller defaults on its agreement to repurchase the security, the Portfolio may
suffer a loss because of a decline in the value of the underlying debt security.
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.
REAL ESTATE INVESTMENT TRUSTS. Up to 25% of Growth & Income or Northwest
Portfolio's assets may be invested in real estate investment trusts ("REITs").
Factors influencing the investment performance of REITs include the profitable
operation of properties owned, financial condition of lessees and mortgagors,
underlying value of the real property and mortgages owned, amount of financial
leverage, and the amount of cash flow generated and paid out.
COVERED CALL OPTIONS. Growth & Income and Northwest Portfolios may, if the
Adviser considers it appropriate, write (sell) covered call options. A call
option is "covered" if the Portfolio owns the security underlying the option it
has written or it maintains enough cash, cash equivalents or liquid securities
to purchase the underlying security. If a Portfolio sells a covered call option,
it becomes obligated to deliver the securities underlying the option if the
purchaser chooses to exercise the option before its termination date. In return,
the Portfolio receives a premium from the purchaser which it keeps, regardless
of whether the option is exercised. During the option period, the Portfolio
gives up any possible capital appreciation above the agreed-upon price if the
market price of the underlying security rises.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. The Growth & Income and Income
Portfolios may purchase securities on what is called a "when-issued" or
"delayed-delivery" basis. This is done to obtain what is considered to be an
advantageous yield or price at the time of the transaction. With these
transactions, securities are bought under an agreement that payment and delivery
will take place no more than 120 days in the future.
The payment obligation and interest rates to be received are fixed at the
time the Portfolio enters into the commitment. Thus, it is possible that the
market value at the time of settlement could be higher or lower than the
purchase price, if the general level of interest rates has changed. No interest
will accrue to the Portfolio until settlement.
The Portfolios are prohibited from entering into when-issued or
delayed-delivery commitments that, in total, exceed 20% of the market value of
its total assets minus all other liabilities (except for the obligations created
by these commitments).
MORTGAGE-BACKED SECURITIES. The Growth & Income and Income Portfolios may
invest in mortgage-backed securities. These may include "pass-through"
instruments or collateralized mortgage obligations. The holder of a pass-through
instrument receives a share of all interest and principal payments from the
mortgages underlying the certificate, net of certain fees. Collateralized
mortgage obligations differ from traditional pass-through instruments in that
they generally distribute principal and interest from their underlying pool of
mortgages sequentially rather than on a pro-rata basis. Generally there are
multiple classes of ownership providing for successively longer expected
maturities.
Mortgage-backed securities, because of the pass-through of prepayments of
principal on the underlying mortgage obligations, almost always have an
effective maturity that is shorter than the stated maturity. The prepayment
characteristics of the underlying mortgages vary, so it is not possible to
accurately predict the life of a particular mortgage-backed security.
During periods of declining interest rates, prepayment of mortgages
underlying mortgage-backed securities can be expected to slow.
When the mortgage obligations are prepaid, the Portfolio reinvests the
prepaid amounts in securities whose yields reflect interest rates prevailing at
the time. Therefore, the Portfolio's 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. In addition, prepayments of mortgages which
underlie securities purchased at a premium could result in capital losses.
During periods of rising interest rates, slower prepayments limit the ability to
reinvest in higher yielding securities.
LOWER-RATED SECURITIES. To increase yield, the Adviser may also invest up
to 20% of the Income Portfolio's assets in below investment-grade securities or
in 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.
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 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, Inc. was incorporated under the laws of
Washington on December 8, 1986, as an open-end management investment company. It
is a series company consisting of three separate Portfolios, each of which is
classified as diversified under the Investment Company Act of 1940.
Shares of the Portfolios are currently 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." The Accounts, for which Murphey Favre, Inc.
serves as "Distributor," will invest in shares of the Portfolios as directed by
the Contract Owner, whose allocation rights are further described in the
attached Prospectus for the Contracts. The Company may cause the Accounts 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 Distributor 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, Inc., 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 1400, 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 under supervision
of the Adviser's investment committee. The primary Portfolio managers are Philip
M. Foreman, CFA, for the Growth & Income Portfolio; Gary J. Pokrzywinski, CFA,
for the Income Portfolio; and David W. Simpson, CFA, for the Northwest
Portfolio. Mr. Foreman has been employed by the Adviser since November 1991 and
has 12 years of continuous investment experience. Mr. Pokrzywinski has been
employed by the Adviser since July 1992 and has 12 years of continuous
experience in fixed-income and financial market analysis. Mr. Simpson has been
employed by the Adviser since March 1993 and has 11 years of continuous
investment experience.
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. They do not have preemptive rights, and none of the shares have
any preference to conversion, exchange, dividends, retirements, liquidation,
redemption or any other feature. The Fund does not normally hold annual
meetings. It may hold shareholder meetings from time to time on important
matters. 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
Composite Research & Management Co. serves as "Adviser" under an investment
management agreement with the Fund. The agreement is renewable every year
subject to the approval of the Fund's Board of Directors.
A fee based on a percentage of average daily net assets is paid to the
Adviser for its services. This includes investment management and administrative
services and the Adviser's function as an agent for the Fund in paying that
portion of the fee owed to the Distributor for its services. The Fund is
responsible for paying expenses of operation that are not assumed by the
Adviser.
Each Portfolio pays advisory fees equal to an annual rate of .50% of the
average daily net asset value of the Portfolio. Advisory fees are calculated
daily and paid monthly.
Other operating expenses include fees of directors not employed by the
Adviser, custodial fees, auditing and legal fees, publishing reports to
shareholders, corporate meetings, and other normal costs of running a business.
THE VALUE OF A SINGLE SHARE
The value of each Portfolio is calculated at the end of each business day
the New York Stock Exchange is open or 1:00 p.m. Pacific time, whichever is
earlier. That figure is determined by adding the value of the securities and
other assets and subtracting any liabilities of the Portfolio. That amount,
divided by the number of shares outstanding, is the net asset value per share,
which is commonly referred to as "NAV."
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.
HOW TO BUY SHARES
Investments in shares of the 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
NAV next determined after receipt by the Fund of the purchase order.
DISTRIBUTION OF INCOME AND CAPITAL GAINS
The Portfolios distribute dividends from net investment income which is
essentially interest and dividends from securities held minus expenses. They
also make capital gain distributions if realized gains from the sale of
securities exceed realized losses. 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 Income Portfolio, dividends are accrued daily and paid monthly,
when available; for the Growth & Income Portfolio, dividends are declared and
paid quarterly, when available; and for the Northwest Portfolio, dividends are
declared and paid annually, when available. 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 NAV
next determined 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, 1997
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 three 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:
- - GROWTH & INCOME PORTFOLIO: The primary objective of this Portfolio is long-
term capital growth. Current income is a secondary consideration.
Investments are made in a diversified pool of common stocks and other
securities.
- - NORTHWEST PORTFOLIO: This Portfolio seeks long-term growth of capital by
investing in common stocks of companies located or doing business in
Alaska, Idaho, Montana, Oregon and Washington.
- - INCOME PORTFOLIO: The objective of this Portfolio is to provide a high
level of current income that is consistent with protection of shareholders'
capital. It pursues this objective through careful investment in a
diversified pool of debt securities.
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, 1997, 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
Page Page
The Fund and Its Management 2-8 Brokerage Allocations and
Distribution Services 8 Portfolio Transactions 15-16
How Shares Are Valued 8 General Information 17
How Shares Can Be Purchased 8 Financial Statements and
Redemption of Shares 8-9 Reports 18
Dividends, Capital Gain Appendix A 19
Distributions and Taxes 9 Appendix B 20-23
Investment Practices 9-14
Investment Restrictions 14-15
THE FUND AND ITS MANAGEMENT
COMPOSITE DEFERRED VARIABLE ACCOUNT
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 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, 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 11 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
Advisory fees and services performed by the Adviser are discussed under "The
Cost of Good Management" in the prospectus. The investment management agreement
(the "Agreement") between the Fund and the Adviser requires the Adviser to
furnish suitable office space, research, statistical and investment management
services to the Fund. It was approved by the Fund's shareholder and will
continue if 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 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 monthly fee from each
Portfolio equal to .50% per annum computed on the average daily net assets of
each portfolio. For 1996, management fees paid by Growth & Income Portfolio,
Income Portfolio and Northwest Portfolio, before expense reimbursements, were
$162,589, $80,985, and $49,023, respectively. For 1995, management fees paid by
Growth & Income Portfolio, Income Portfolio, and Northwest Portfolio, before
expense reimbursements, were , $90,132, $64,637, and $29,906, respectively. For
1994, management fees paid by Growth & Income Portfolio, Income Portfolio, and
Northwest Portfolio before expense reimbursements, were $67,108, $51,869, and
$18,740, respectively.
Under the terms of the Agreement, the Fund is required to pay fees of directors
not employed by the Adviser or its affiliates, custodial expenses, brokerage
fees, taxes, auditing and legal expenses, costs of issue, transfer, registration
or redemption of shares for sale, and costs relating to disbursement of
dividends, corporate meetings, corporate reports, and the maintenance of the
Fund's corporate existence.
Investment decisions for each Portfolio are made independently of those for
other funds (or portfolios) 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 Portfolios are concerned. In other cases,
however, it is believed that the ability to participate in volume transactions
may provide better executions for each Portfolio. It is the opinion of the
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
Fund portfolio transactions or otherwise take unfair advantage of their
relationship with 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 the 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 interlocks 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 Investment Management Agreement without violation of the Glass-Steagall Act
or other applicable banking laws or regulations.
DIRECTORS AND OFFICERS OF THE FUND
The Fund's Board of Directors 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 of the
funds in the Composite Group. Their business experience for the past five years
is 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
2931 S. Howard
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.
*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 Adviser and Transfer Agent, and an
executive vice president and a director of the Distributor.
DANIEL L. PAVELICH
Director
Two Prudential Plaza
180 North Stetson Avenue, Suite 4300
Chicago, Illinois 60601
Mr. Pavelich is Chairman and CEO of BDO Seidman, a leading national accounting
and consulting firm.
JAY ROCKEY
Director
2121 - Fifth Avenue
Seattle, Washington 98121
Mr. Rockey is Chairman and CEO of The Rockey Company (a regional public
relations firm).
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.
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, 1996. The Fund and other Funds
within the Composite Group paid directors' fees during the year ended December
31, 1996, in the amounts indicated below.
<TABLE>
<CAPTION>
GROWTH &
INCOME NORTHWEST INCOME TOTAL
DIRECTOR PORTFOLIO PORTFOLIO PORTFOLIO COMPLEX(1)
- --------------------------- ---------------- ------------- ------------ -----------
<S> <C> <C> <C> <C>
Wayne L. Attwood, MD $1,265 $1,265 $1,265 $15,000
Kristianne Blake 1,265 1,265 1,265 15,000
Edwin J. McWilliams 1,265 1,265 1,265 15,000
Jay Rockey (2) 1,265 1,265 1,265 15,000
Richard C. Yancey 1,178 1,178 1,178 14,000
</TABLE>
(1)Each director serves in the same capacity with each Fund in the Composite
Group (eight companies) comprising 11 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.,
parent company of the Adviser and Distributor, during the 1996 fiscal year.
As of April 24, 1997, 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. The Composite Deferred Variable Account of WM Life
Insurance Company is the sole shareholder of the Fund.
Kristianne Blake, *Anne V. Farrell, *Michael K. Murphy, and Daniel L. Pavelich
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.
The valuation committee is comprised of any two directors or officers of the
Fund and one or more portfolio managers, as designated by the Fund chairman,
president or vice president/treasurer of the Fund. The committee is called upon
to value any security held by the Fund whenever the security cannot otherwise be
valued under the Fund's guidelines for valuation.
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 Wayne L. Attwood, MD, Daniel L.
Pavelich, and Jay Rockey.
* These directors are considered "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.
The Distributor has not received any earnings or profits from the redemption of
Fund shares. No brokerage fees were 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
Investment securities are stated on the basis of valuations provided by an
independent pricing service, approved by the Fund's Board of Directors, which
uses 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 market 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
contracts. The Accounts pay the net asset value next determined after the Fund
receives the purchase order. 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 1996 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 are 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 prospectus for
the Flexible Premium Deferred Variable Annuity Contracts.
INVESTMENT PRACTICES
The investment objectives and policies of the Fund's three 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 interest 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 shares.
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.
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 also invest in bonds, preferred
stocks, U.S. Treasury bills, certificates of deposit, and repurchase
agreements). 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 Northwest 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 investors.
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 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 Fund's average portfolio quality during 1996 is presented below:
Percentage of Average
S&P Rating Total Assets
--------------------- ----------------------
AAA (or US Treasury) 60%
AA 3
A 11
BBB 18
BB 6
B 1
Not Rated 1
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 the 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, it 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 income available for
distribution to shareholders and the recognition of gain or loss on the sale of
securities.
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 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 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 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, they 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 to obtain 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. They 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 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.
EACH PORTFOLIO MAY NOT:
* with respect to 75% of total assets, 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
shall use 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 Fund 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 management 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 Portfolios' turnover rates will
normally not exceed 50% annually. The turnover rates for the Growth & Income,
Income and Northwest Portfolios for 1996 were %, %, and %, respectively. The
turnover rates for the Growth & Income, Income and Northwest portfolios for 1995
were 36%, 14% and 11%, 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 the Portfolio. All
shares of the Fund are freely transferable. The shares do not have preemptive
rights, and none of the shares has any preference as 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
is not required to hold annual meetings. When meetings are called to elect
directors, Contract Owners may exercise cumulative voting privileges for the
election of directors under Washington state law in the election of directors.
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 PLLC, Certified Public Accountants, has been
selected as the independent accountant of the Fund. LeMaster & Daniels performs
audit services for the Fund including the examination 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, 1996, 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, 1996
Growth & Income Northwest Income
Portfolio Portfolio Portfolio
---------------- ------------- -------------
Assets $41,860,931 $12,833,130 $17,438,645
Liabilities 459,264 63,484 54,141
---------------- ------------- -------------
Net Assets $41,401,667 $12,769,646 $17,384,504
================ ============= =============
Shares
Outstanding 1,702,382 700,316 1,438,611
================ ============= =============
Net Assets Per Share
(Net Assets/Shares
Outstanding) $24.32 $18.23 $12.08
====== ====== ======
<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,
1996, was filed with the Securities and Exchange Commission via EDGAR on
February 19, 1997. The annual report is incorporated by reference in Part
B.
Filing
Incorporated Date
(b) Exhibits With Filed
-------- ------------ ------
(1) Articles of Incorporation Form N-1A 4-24-97
(2) Bylaws Form N-1A 2-29-96
(3) Voting Trust Agreement INAP
(4) Specimen Capital Stock Certificate Form N-1A 4-24-97
(5) Investment Management Agreement Form N-1A 4-24-97
(6a) Distribution Contract Form N-1A 3-31-87
(6b) Specimen Selling Agreement INAP
(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 4-24-97
(9) Shareholders Service Contract Form N-1A 2-29-96
(10) Opinion and Consent of Counsel Form N-1A 4-24-97
(11) Accountants' Consent Form N-1A 4-24-97
(12) All financial statements omitted
from Item 23. Annual Report 2-19-97
(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 March 14, 1997, 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 March 11, 1997, 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 7, 1997, 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 24 day of April, 1997.
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 March 25, 1997
- -------------------------------------------
Wayne L. Attwood, Director (Date)
/s/ Anne V. Farrell March 25, 1997
- -------------------------------------------
Anne V. Farrell, Director (Date)
/s/ Kristianne Blake March 25, 1997
- -------------------------------------------
Kristianne Blake, Director (Date)
/s/ Michael K. Murphy March 25, 1997
- -------------------------------------------
Michael K. Murphy, Director (Date)
/s/ William G. Papesh March 25, 1997
- -------------------------------------------
William G. Papesh, Director (Date)
/s/ Daniel L. Pavelich March 25, 1997
- -------------------------------------------
Daniel L. Pavelich, Director (Date)
/s/ Jay Rockey March 25, 1997
- -------------------------------------------
Jay Rockey, Director (Date)
/s/ Richard C. Yancey March 25, 1997
- -------------------------------------------
Richard C. Yancey, Director (Date)
<PAGE>
- --------------------------------------------------------------------------------
EXHIBIT INDEX
- --------------------------------------------------------------------------------
EX-99.B1 CHARTER
EX-99.B4 HOLDERS RTS
EX-99.B5 ADVSR CONTR
EX-99.B8 CUST CONTR
EX-99.B10 OPINION & CONSENT OF COUNSEL
EX-99.B11 ACCOUNTANT'S CONSENT
EX-27.CLASS A FINANCIAL DATA SCHEDULE - CLASS A
EX-27.CLASS B FINANCIAL DATA SCHEDULE - CLASS B
- --------------------------------------------------------------------------------
EXHIBIT 1
ARTICLES OF INCORPORATION
OF
COMPOSITE DEFERRED SERIES, INC.
The undersigned being of legal age and a citizen of the United States of
America and the State of Washington, does this day form a corporation under the
general laws of the State of Washington, and does hereby make, execute,
acknowledge and deliver the following Articles of Incorporation:
ARTICLE I.
NAME
The name of this corporation shall be:
COMPOSITE DEFERRED SERIES, INC.
ARTICLE II.
PURPOSES
The general nature of the business of this corporation and the objects and
purposes proposed to be transacted, promoted and carried on by the corporation
are as follows:
A. To conduct and carry on the business of an investment company of the
management type, and exercise all powers necessary and appropriate thereto.
B. To invest and reinvest the property and assets of the corporation in
securities of different types and classes, including but not limited to,
annuities, notes, common stock, preferred stock, bonds, options to purchase or
sell stock, obligations issued or guaranteed by any state or federal government
or any agency or instrumentality thereof, obligations of U.S. and foreign banks,
commercial paper, mortgage-backed securities, forward commitments for
mortgage-backed securities, repurchase agreements and all other stocks, bonds,
notes, debentures, and certificates of interest or participation of any type.
C. To purchase, retire, redeem, hold, sell, reissue, transfer, and
otherwise deal in, shares of its own common stock; and to apply to such
purchase, retirement, or redemption, any funds or property of the corporation,
whether capital, capital surplus, earned surplus, or otherwise, as may be
permitted by law.
D. To engage in any lawful act or activity for which corporations may be
organized under the general corporation laws of the State of Washington as such
laws may now be in effect or as they may at any time hereafter be amended, and
to conduct and carry on its business in any other states, territories, or
foreign countries.
The foregoing statement of purposes shall be construed as a statement of
both purposes and powers, and the purposes and powers stated in each clause
shall not be limited or restricted by reference to or inference from the terms
or provisions of any other clause, but shall be regarded as independent purposes
and powers.
ARTICLE III.
REGULATION OF THE INTERNAL AFFAIRS OF
THE CORPORATION
A. PREEMPTIVE RIGHTS.
No shareholder of the corporation shall have any prior, preemptive or other
preferential right to subscribe to, purchase, or otherwise acquire any share(s)
of stock of the corporation, debentures, bonds or other certificates of
indebtedness whether now or hereafter authorized, and whenever issued, and the
Board of Directors may issue capital stock of the corporation for cash or other
lawful consideration without offering the same either in whole or in part to
present shareholders.
B. NET ASSET VALUE FOR SALES.
The Board of Directors from time to time may issue and sell or provide for
the issuance and sale of the authorized but unissued shares of common stock of
the corporation in accordance with the then applicable provisions of the laws of
the State of Washington and the Investment Company Act of 1940 and the rules
promulgated thereunder. The corporation shall receive not less than the net
asset value thereof, as determined by the provisions of the corporation's
prospectus.
C. PURCHASE OR REDEMPTION AT NET ASSET VALUE.
Any owner of shares of stock of the corporation desiring to dispose of all
or any part thereof may present the shares owned of record by that owner to the
corporation by depositing with the corporation the certificate or certificates
therefore or a delivery undertaking satisfactory to the corporation, or, as to
any unissued but fully paid for shares, other evidence of assignment and
transfer of the ownership of common stock in the corporation satisfactory to the
corporation; the corporation shall purchase the common stock so presented at the
net asset value thereof in accordance with the provisions of the corporation's
prospectus.
The Board of Directors may delegate any of its powers and duties under this
article with respect to appraisal of assets and liabilities and determination of
net asset value to an officer or officers or agent or agents of the corporation
designated from time to time by the Board of Directors, provided that such
delegation is not prohibited by the laws of the State of Washington, or the
Investment Company Act of 1940, and any rules or regulations promulgated
pursuant thereto then in effect.
The Board of Directors may establish such procedures as may be appropriate
providing for the automatic redemption of shares of common stock owned by any
investor whose total ownership of shares falls below a designated minimum
amount.
ARTICLE IV.
AUTHORIZED SHARES
There shall be one class of capital stock only, known as common stock. The
aggregate number of shares of common stock which the corporation shall have
authority to issue is ten billion (10,000,000,000) shares of common stock,
without par value. All shares have equal voting rights.
ARTICLE V.
DESIGNATION OF REGISTERED AGENT
AND REGISTERED OFFICE
The registered office of the corporation shall be:
Ninth Floor
W. 601 Riverside Avenue
Seafirst Financial Center
Spokane, WA 99201
and the registered agent of this corporation shall be William G. Papesh, his
address being the same as that of the registered office of this corporation.
ARTICLE VI.
INDEMNIFICATION OF DIRECTORS
The corporation shall have the power to indemnify any directors, officers,
or former directors or officers 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 any time 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 his office.
ARTICLE VII.
DESIGNATION OF INVESTMENT ADVISOR
AND DISTRIBUTOR
The Board of Directors may enter into contracts for management or advisory
services with corporations or firms selected by the Board of Directors, so long
as every such contract complies with applicable requirements and restrictions
set forth in or required by the Investment Company Act of 1940 and rules
promulgated thereunder. The Board of Directors further may enter into contracts
with corporations or firms selected by the Board of Directors for the
distribution of capital stock of this corporation, and for other administrative,
shareholder, or custodial services, so long as every such contract complies with
applicable requirements and restrictions set forth in and required by the
Investment Company Act of 1940 and rules promulgated thereunder. The validity of
any such contract shall not be affected by the fact that any director or officer
of this corporation shall be a shareholder, director, or officer of such other
corporation and any director or officer of this corporation shall not be
disqualified from voting upon or executing such contracts, provided that any
such interest be disclosed to the directors prior to their action thereon and
provided further that such contracts shall be approved by a majority of those
directors designated as "disinterested," as that term is defined by the
Investment Company Act of 1940.
The corporation may employ a custodian to perform such services as may be
required by law and designated by the directors.
ARTICLE VIII.
DIRECTORS
The management of this corporation shall be vested in a Board of Directors;
the number of directors shall not be less than the minimum number required by
law. The qualifications, compensation, terms of office, manner of election, time
and place of meeting, powers and duties of the directors shall be such as are
prescribed by the Bylaws of this corporation. The authority to make Bylaws for
the corporation and to designate the number of directors is expressly vested in
the Board of Directors of this corporation. The directors may adopt, alter,
amend, or repeal such Bylaws and provisions for the regulation and management of
the affairs of the corporation as shall be consistent with the laws of the State
of Washington and these Articles of Incorporation.
The names and post office addresses of the directors who shall first manage
the affairs of this corporation are as follows:
NAME ADDRESS
Paul J. Chumrau 112 University Avenue
Missoula, MT 59801
Leonard W. Maxey E. 620 High Drive
Spokane, WA 99203
Edwin J. McWilliams N. 120 Wall
Spokane, WA 99201
Leland J. Sahlin Ninth Floor
W. 601 Riverside Ave.
Seafirst Financial Center
Spokane, WA 99201
Dr. Wayne L. Attwood W. 105 Eighth Ave.
Spokane, WA 99204
Richard C. Yancey 535 Madison Ave.
New York, NY 10022
Harry M. Strong 1111 Third Ave.
Seattle WA 98101
Janet H. Skadan E. 1514 Woodcliff Rd.
Spokane, WA 99203
Each director shall hold offices until the first meeting of shareholders of
the corporation and until the annual meeting thereafter or until his or her
successor has been elected and qualified in the manner prescribed by law.
ARTICLE IX.
RESERVATION OF AMENDMENT POWERS
The corporation reserves the right to amend, alter, change or repeal any
provisions contained in these Articles of Incorporation in the manner now or
hereafter prescribed by statute, and all rights conferred herein are granted
subject to this reservation.
ARTICLE X.
TERM OF EXISTENCE
The corporation shall have perpetual existence.
ARTICLE XI.
INCORPORATOR
William G. Papesh shall be the incorporator of this corporation, whose address
is Ninth Floor, W. 601 Riverside Ave., Seafirst Financial Center, Spokane, WA
99201.
IN WITNESS WHEREOF, the incorporator has hereunto set his hand this 5th day
of December, 1986.
/s/
-----------------------------------
WILLIAM G. PAPESH
STATE OF WASHINGTON )
) ss.
County of Spokane )
I, the undersigned, a Notary Public in and for the above-named County and
State, do hereby certify that on the 5th day of December, 1986, personally
appeared before me, William G. Papesh, to me known to be the individual and
incorporator described in and who executed the foregoing instrument, and
acknowledged that he signed and sealed the same as his free and voluntary act
and deed for the uses and purposes therein mentioned.
GIVEN under my hand and official seal the day and year last above written.
/s/
------------------------------
LAWRENCE R. SMALL
Notary Public in and for the State of
Washington, residing at Spokane
NOTARY SEAL
EXHIBIT 4
SPECIMEN CAPITAL STOCK CERTIFICATE
Certificate No. Date Shares Account No.
COMPOSITE GROUP OF FUNDS
THIS IS TO CERTIFY THAT
See Reverse for
Certain Definitions
is the registered holder of
fully paid and non-assessable shares, of the par value of each of the
CAPITAL STOCK of the
incorporated under the laws of the state of Washington, transferable on the
books of the Corporation by said owner in person or by duly authorized attorney,
upon surrender of this certificate properly endorsed. This certificate is not
valid until countersigned by the Fund.
WITNESS the seal of the Corporation and the signatures of its duly
authorized officers.
Affixed: At Spokane, Washington
----------------------- --------------------------
Signature Signature
----------------------- --------------------------
Title Title
Composite Group of Funds
AUTHORIZED SIGNATURES
EXHIBIT 5
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT, dated July 23, 1996, between Composite Deferred Series, Inc., a
Washington corporation (the "Fund") and Composite Research & Management Co., a
Washington corporation (the "Manager").
W I T N E S S E T H
WHEREAS, the Fund is a diversified, open-end management investment company,
registered under the Investment Company Act of 1940, as amended (the "1940
Act"); and
WHEREAS, the Fund desires to retain the Manager to render investment
management services to the Fund, and the Manager is willing to render such
services;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the parties hereto agree as follows:
1. Appointment. The Fund hereby appoints the Manager to act as investment
manager to the Fund for the period and on the terms set forth in this
Agreement. The Manager accepts such appointment and agrees to render
the services herein described, for the compensation herein provided.
2. Management. Subject to the supervision of the Board of Directors of
the Fund, the Manager shall manage the investment operations of the
Fund and the composition of the Fund's portfolios, including the
purchase, retention and disposition of securities therefor, in
accordance with the Fund's investment objectives, policies and
restrictions as stated in the Prospectus and Statement of Additional
Information (as such terms are hereinafter defined) and resolutions of
the Fund's Board of Directors and subject to the following
understandings:
(a) The Manager shall provide supervision of the Fund's investments,
furnish a continuous investment program for the Fund's portfolios
and determine from time to time what securities will be
purchased, retained, or sold by the Fund, and what portion of the
assets will be invested or held as cash.
(b) The Manager shall use reasonable care and judgment in the
management of the Fund's portfolios.
(c) The Manager, in the performance of its duties and obligations
under this Agreement, shall act in conformity with the Articles
of Incorporation (as hereinafter defined) of the Fund and by the
investment policies of the Fund as determined by the Board of
Directors of the Fund and set forth in the Prospectus and
Statement of Additional Information. All acts of the Manager
shall conform to and comply with the requirements of the 1940 Act
and all other applicable federal and state laws and regulations.
(d) The Manager shall determine the securities to be purchased or
sold by the Fund and at the Fund's expense, and shall place
orders for the purchase and sale of portfolio securities pursuant
to its determinations with brokers or dealers selected by the
Manager. In executing portfolio transactions and selecting
brokers or dealers, the Manager shall use 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 Manager may consider all factors it deems relevant, including
the breadth of the market in the security, the price of the
security, the financial condition and execution capability of the
broker or dealer, and the reasonableness of the commission, if
any, both for the specific transaction and on a continuing basis.
In evaluating the best overall terms available, and in selecting
the broker or dealer to execute a particular transaction, the
Manager also may consider the brokerage and research services (as
those terms are defined in Section 28(e) of the Securities
Exchange Act of 1934, as amended) provided to the Fund and/or
other accounts over which the Manager exercises investment
discretion. The Manager 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
which is in excess of the amount of commission another broker or
dealer would have charged for effecting the transaction if the
Manager 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 Manager to the Fund and/or other accounts
over which the Manager exercises investment discretion.
(e) On occasions when the Manager deems the purchase or sale of a
security to be in the best interest of the Fund as well as other
fiduciary accounts for which it has investment responsibility,
the Manager, to the extent permitted by applicable laws and
regulations, may aggregate the securities to be so sold or
purchased in order to obtain the best execution, most favorable
net price or lower brokerage commissions. In such event,
allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction, shall be made by the
Manager in the manner it considers to be the most equitable and
consistent with its fiduciary obligations to the Fund and to such
other fiduciary accounts.
(f) On each business day the Manager shall provide a list of all
transactions concerning the Fund's assets.
(g) When the Manager makes investment recommendations for the Fund,
its personnel shall not inquire or take into consideration
whether the issuer of the securities proposed for purchase or
sale for the Fund's account is a customer of any affiliate of the
Manager. In dealing with commercial customers, the Manager's
affiliates shall not inquire or take into consideration whether
securities of those customers are held by the Fund.
3. Services Not Exclusive. The investment management services rendered by
the Manager hereunder to the Fund are not to be deemed exclusive, and
the Manager shall have the right to render similar services to others,
including, without limitation, other investment companies.
4. Expenses. During the term of this Agreement, the Manager shall pay all
expenses incurred by it in connection with its activities under this
Agreement including the salaries and expenses of any of its officers
or employees who act as officers, directors or employees of the Fund
but excluding the cost of securities purchased for the Fund and the
amount of any brokerage fees and commissions incurred in executing
portfolio transactions for the Fund, and provide the Fund with
suitable office space. Other expenses to be incurred in the operation
of the Fund (other than those borne by any third party), including
taxes, interest, brokerage fees and commissions, if any, fees of
directors who are not officers, directors, employees or holders of 5%
or more of the outstanding voting securities of the Manager or the
Fund's administrator or any of their affiliates, Securities and
Exchange Commission fees and state Blue Sky qualification fees,
advisory and administration fees, charges of custodians, transfer and
dividend disbursing agents' fees, certain insurance premiums, industry
association fees, outside auditing and legal expenses, costs of
maintaining corporate existence, costs of independent pricing
services, costs attributable to investor services (including, without
limitation, telephone and personnel expenses), costs of preparing,
printing and distributing prospectuses, costs of stockholders' reports
and corporate meetings, costs of implementing and operating the Fund's
service plan, and any extraordinary expenses will be borne by the
Fund. 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 Manager shall reimburse the Fund for a portion of such
excess expenses equal to such excess multiplied by the ratio of the
fees otherwise payable to the Manager hereunder to the sum of the
aggregate fees otherwise payable to (i) the Fund's administrator under
the Administration Agreement between it and the Fund and (ii) the
Manager under this Agreement. The obligation of the Manager to
reimburse the Fund hereunder is limited in any fiscal year to the
amount of its fee hereunder for such fiscal year. Such reimbursement,
if any, shall be estimated daily and reconciled and paid on a monthly
basis.
5. Compensation. For the services provided pursuant to this Agreement,
the Fund shall pay to the Manager as full compensation therefor a
monthly fee equal to .50% per annum computed on the average daily net
assets of the Fund. The Fund acknowledges that the Manager, as agent
for the Fund, will allocate a portion of the fee equal to .125% of
such assets to Murphey Favre, Inc. for shareholder servicing
activities.
6. Limitation of Liability. The Manager shall not be liable for any error
of judgment or mistake of law or for any loss suffered by the Fund in
connection with the matters to which this Agreement relates, except a
loss resulting from a breach of fiduciary duty with respect to the
receipt of compensation for services (in which case any award of
damages shall be limited to the period and the amount set forth in
Section 36(b) of the 1940 Act) or a loss resulting from willful
misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard by it of its
obligations and duties under this Agreement.
7. Delivery of Documents. The Fund has heretofore delivered to the
Manager true and complete copies of each of the following documents
and shall promptly deliver to it all future amendments and supplements
thereto, if any:
(a) Articles of Incorporation of the Fund (such Articles as presently
in effect and as amended from time to time, the "Articles of
Incorporation");
(b) Bylaws of the Fund;
(c) Resolutions of the Board of Directors of the Fund authorizing the
appointment of the Manager and approving the form of this
Agreement;
(d) Registration Statement under the Securities Act of 1933 and under
the 1940 Act of the Fund on Form N-1A, and all amendments
thereto, as filed with the Securities and Exchange Commission
(the "Registration Statement") relating to the Fund and the
shares of the Fund's common stock;
(e) Notification of Registration of the Fund under the 1940 Act on
Form N-8A;
(f) Prospectus of the Fund (such prospectus as presently in effect
and/or as amended or supplemented from time to time, the
"Prospectus"); and
(g) Statement of Additional Information of the Fund (such statement
as presently in effect and/or as amended or supplemented from
time to time, the "Statement of Additional Information").
8. Duration and Termination. This Agreement is a continuation of the
agreement dated March 31, 1987. Unless terminated herein, this
Agreement shall continue in effect provided such continuance is
specifically approved at least annually (a) by the vote of a majority
of those members of the Fund's Board of Directors who are not parties
to the Contract or "interested persons" to any such party, cast in
person at a meeting called for that purpose, or by vote of a majority
of the outstanding voting securities of the Fund. Notwithstanding the
foregoing, (a) this Agreement may be terminated at any time, without
the payment of any penalty, by either the Fund (by vote of the Fund's
Board of Directors or by vote of a majority of the outstanding voting
securities of the Fund) or the Manager, on sixty (60) days prior
written notice to the other and (b) shall automatically terminate in
the event of its assignment. As used in this Agreement, the terms
"majority of the outstanding voting securities", "interested persons"
and "assignment" shall have the meanings assigned to such terms in the
1940 Act.
9. Amendments. No provision of this Agreement may be amended, modified,
waived or supplemented except by a written instrument signed by the
party against which enforcement is sought. No amendment of this
Agreement shall be effective until approved in accordance with the
provisions of the 1940 Act.
10. Use of Manager's Name and Logo. The Fund agrees that it shall furnish
to the Manager, prior to any use or distribution thereof, copies of
all prospectuses, statements of additional information, proxy
statements, reports to stockholders, sales literature, advertisements,
and other material prepared for distribution to stockholders of the
Fund or to the public, which in any way refer to or describe the
Manager or which include any trade names, trademarks or logos of the
Manager or of any affiliate of the Manager. The Fund further agrees
that it shall not use or distribute any such material if the Manager
reasonably objects in writing to such use or distribution within five
(5) business days after the date such material is furnished to the
Manager. The provisions of this section shall survive termination of
this Agreement.
11. Notices. Any notice or other communication required to be given
pursuant to this Agreement shall be deemed duly given if delivered or
mailed by registered mail, postage prepaid, if to the Fund: 601 W.
Main Ave., Suite 801, Spokane, Washington 99201; or if to the Manager:
1201 Third Avenue, Suite 1220, Seattle, Washington 98101; or to either
party at such other address as such party shall designate to the other
by a notice given in accordance with the provisions of this section.
12. Miscellaneous.
(a) Except as otherwise expressly provided herein or authorized by
the Board of Directors of the Fund from time to time, the Manager
for all purposes herein shall be deemed to be an independent
contractor and shall have no authority to act for or represent
the Fund in any way or otherwise be deemed an agent of the Fund.
(b) The Fund shall furnish or otherwise make available to the Manager
such information relating to the business affairs of the Fund as
the Manager at any time or from time to time reasonably requests
in order to discharge its obligations hereunder.
(c) This Agreement shall be governed by and construed in accordance
with the laws of the State of Washington and shall inure to the
benefit of the parties hereto and their respective successors.
(d) If any provision of this Agreement shall be held or made invalid
or by any court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the date first above-written.
COMPOSITE DEFERRED SERIES, INC.
/s/ WILLIAM G. PAPESH Date----------------------------
President
COMPOSITE RESEARCH & MANAGEMENT CO.
/s/ WILLIAM G. PAPESH Date----------------------------
President
EXHIBIT 8
CUSTODY AGREEMENT
THIS AGREEMENT made the 1st day of September, 1992 by and between INVESTORS
FIDUCIARY TRUST COMPANY, a trust company chartered under the laws of the state
of Missouri, having its trust office located at 127 West 10th Street, Kansas
City, Missouri 64105 ("Custodian"), and COMPOSITE DEFERRED SERIES, a Washington
corporation, having its principal office and place of business at 601 West
Riverside Avenue, Spokane Washington 99201 ("Fund").
WITNESSETH:
WHEREAS, Fund desires to appoint Investors Fiduciary Trust Company as
Custodian of the securities and monies of Fund's investment portfolio; and
WHEREAS, Investors Fiduciary Trust Company is willing to accept such
appointment;
NOW THEREFORE, for and in consideration of the mutual promises contained
herein, the parties hereto, intending to be legally bound, mutual covenant and
agree as follows:
1. APPOINTMENT OF CUSTODIAN. Fund hereby constitutes and appoints
Custodian as custodian of the securities and monies at any time owned
by the Fund.
2. DELIVERY OF CORPORATE DOCUMENTS. Fund has delivered or will deliver to
Custodian prior to the effective date of this Agreement, copies of the
following documents and all amendments or supplements thereto,
properly certified or authenticated:
A. Resolutions of the Board of Directors of the Fund appointing
Custodian as custodian hereunder and approving the form of this
Agreement; and
B. Resolutions of the Board of Directors of the Fund designating
certain persons to give instructions on behalf of the Fund to
Custodian and authorizing Custodian to rely upon written
instructions over their signatures.
3. DUTIES AND RESPONSIBILITIES OF CUSTODIAN.
A. Delivery of Assets. Fund will deliver or cause to be delivered to
Custodian on the effective date of this Agreement, or as soon
thereafter as practicable, and from time to time thereafter, all
portfolio securities acquired by it and monies then owned by it
except as permitted by the Investment Company Act of 1940 or from
time to time coming into its possession during the time this
Agreement shall continue in effect. Custodian shall have no
responsibility or liability whatsoever for or on account of
securities or monies not so delivered. All securities so
delivered to Custodian (other than bearer securities) shall be
registered in the name of Fund or its nominee, or of a nominee of
Custodian, or shall be properly endorsed and in form for transfer
satisfactory to Custodian.
B. Delivery of Accounts and Records. Fund shall turn over to
Custodian all of the Fund's relevant custody accounts and records
previously maintained by it or a prior custodian in order to
perform its duties hereunder. Custodian shall be entitled to rely
conclusively on the completeness and correctness of the accounts
and records turned over to it by Fund, and Fund shall indemnify
and hold Custodian harmless of and from any and all expenses,
damages and losses whatsoever arising out of or in connection
with any error, omission, inaccuracy or other deficiency of such
accounts and records or in the failure of Fund to provide any
portion of such or to provide any information needed by the
Custodian knowledgeably to perform its function hereunder.
C. Delivery of Assets to Third Parties. Custodian will receive
delivery of and keep safely the assets of Fund delivered to it
from time to time and the assets of each Portfolio segregated in
a separate account. Custodian will not deliver, assign, pledge or
hypothecate any such assets to any person except as permitted by
the provisions of this Agreement or any agreement executed by it
according to the terms of Section 3.S. of this Agreement. Upon
delivery of any such assets to a subcustodian pursuant to Section
3.S. of this Agreement, Custodian will create and maintain
records identifying those assets which have been delivered to the
subcustodian as belonging to the applicable Portfolio of the
Fund. The Custodian is responsible for the safekeeping of the
securities and monies of Fund only until they have been
transmitted to and received by other persons as permitted under
the terms of this Agreement, except for securities and monies
transmitted to United Missouri Bank of Kansas City, N.A. (UMBKC),
United Missouri Trust Company of New York (UMBTC), and First
National Bank of Chicago (FNBC) for which Custodian remains
responsible. Custodian shall be responsible for the monies and
securities of Fund(s) held by eligible foreign subcustodians to
the extent the domestic subcustodian with which the Custodian
contracts is responsible to Custodian. Custodian may participate
directly or indirectly through a subcustodian in the Depository
Trust Company, Treasury/Federal Reserve Book Entry System,
Participant Trust Company, Treasury/Federal Reserve Book Entry
System, Participant Trust Company or other depository approved by
the Fund (as such entities are defined at 17 CFR Section
270.17f(b)).
D. Registration of Securities. Custodian will hold stocks and other
registerable portfolio securities of Fund registered in the name
of the Fund or in the name of any nominee of Custodian for whose
fidelity and liability Custodian will be fully responsible, or in
street certificate form, so-called, with or without any
indication of fiduciary capacity. Unless otherwise instructed,
Custodian will register all such portfolio securities in the name
of its authorized nominee. All securities, and the ownership
thereof by Fund, which are held by Custodian hereunder, however,
shall at all times be identifiable on the records of the
Custodian. The Fund agrees to hold Custodian and its nominee
harmless for any liability as a record holder of securities held
in custody.
E. Exchange of Securities. Upon receipt of instructions as defined
herein in Section 4.A, Custodian will exchange, or cause to be
exchanged, portfolio securities held by it for the account of
Fund for other securities or cash issued or paid in connection
with any reorganization, recapitalization, merger, consolidation,
split-up of shares, change of par value, conversion or otherwise,
and will deposit any such securities in accordance with the terms
of any reorganization or protective plan. Without instructions,
Custodian is authorized to exchange securities held by it in
temporary form for securities in definitive form, to effect an
exchange of shares when the par value of the stock is changed,
and upon receiving payment therefor, to surrender bonds or other
securities held by it at maturity or when advised of earlier call
for redemption, except that Custodian shall receive instructions
prior to surrendering any convertible security.
F. Purchases of Investments of the Fund. Fund will, on each business
day on which a purchase of securities shall be made by it,
deliver to Custodian instructions which shall specify with
respect to each such purchase:
1. The name of the Portfolio making such purchase;
2. The name of the issuer and description of the security;
3. The number of shares or the principal amount purchased, and
accrued interest, if any;
4. The trade date;
5. The settlement date;
6. The purchase price per unit and the brokerage commission,
taxes and other expenses payable in connection with the
purchase;
7. The total amount payable upon such purchase; and
8. The name of the person from whom or the broker or dealer
through whom the purchase was made.
In accordance with such instructions, Custodian will pay for
out of monies held for the account of Fund, but only insofar
as monies are available therein for such purpose, and
receive the portfolio securities so purchased by or for the
account of Fund except that Custodian may in its sole
discretion advance funds to the Fund which may result in an
overdraft because the monies held by the Custodian on behalf
of the Fund are insufficient to pay the total amount payable
upon such purchase. Such payment will be made only upon
receipt by Custodian of the securities so purchased in form
for transfer satisfactory to Custodian.
G. Sales and Deliveries of Investments of the Fund - Other than
Options and Futures Fund will, on each business day on which a
sale of investment securities of Fund has been made, deliver to
Custodian instructions specifying with respect to each such sale:
1. The name of the Portfolio making such sale;
2. The name of the issuer and description of the securities;
3. The number of shares or principal amount sold, and accrued
interest, if any;
4. The date on which the securities sold were purchased or
other information identifying the securities sold and to be
delivered;
5. The trade date;
6. The settlement date;
7. The sale price per unit and the brokerage commission, taxes
or other expenses payable in connection with such sale;
8. The total amount to be received by Fund upon such sale; and
9. The name and address of the broker or dealer through whom or
person to whom the sale was made.
In accordance with such instructions, Custodian will deliver
or cause to be delivered the securities thus designated as
sold for the account of Fund to the broker or other person
specified in the instructions relating to such sale, such
delivery to be made only upon receipt of payment therefor in
such form as is satisfactory to Custodian, with the
understanding that Custodian may deliver or cause to be
delivered securities for payment in accordance with the
customs prevailing among dealers in securities.
H. Purchases or Sales of Security Options, Options on Indices and
Security Index Futures Contracts Fund will, on each business day
on which a purchase or sale of the following options and/or
futures shall be made by it, deliver to Custodian instructions
which shall specify with respect to each such purchase or sale:
1. The name of the Portfolio making such purchase or sale;
2. Security Options
a. The underlying security;
b. The price at which purchased or sold;
c. The expiration date;
d. The number of contracts;
e. The exercise price;
f. Whether the transaction is an opening, exercising,
expiring or closing transaction;
g. Whether the transaction involves a put or call;
h. Whether the option is written or purchased;
i. Market on which option traded;
j. Name and address of the broker or dealer through whom
the sale or purchase was made.
3. Options on Indices
a. The index;
b. The price at which purchased or sold;
c. The exercise price;
d. The premium;
e. The multiple;
f. The expiration date;
g. Whether the transaction is an opening, exercising,
expiring or closing transaction;
h. Whether the transaction involves a put or call;
i. Whether the option is written or purchased;
j. The name and address of the broker or dealer through
whom the sale or purchase was made, or other applicable
settlement instructions.
4. Security Index Futures Contracts
a. The last trading date specified in the contract and,
when available, the closing level, thereof;
b. The index level on the date the contract is entered
into;
c. The multiple;
d. Any margin requirements;
e. The need for a segregated margin account (in addition
to instructions, and if not already in the possession
of Custodian, Fund shall deliver a substantially
complete and executed custodial safekeeping account and
procedural agreement which shall be incorporated by
reference into this Custody Agreement); and
f. The name and address of the futures commission merchant
through whom the sale or purchase was made, or other
applicable settlement instructions.
5. Option on Index Future Contracts
a. The underlying index futures contract;
b. The premium;
c. The expiration date;
d. The number of options;
e. The exercise price;
f. Whether the transaction involves an opening,
exercising, expiring or closing transaction;
g. Whether the transaction involves a put or call;
h. Whether the option is written or purchased; and
i. The market on which the option is traded.
I. Securities Pledged or Loaned
If specifically allowed for in the prospectus of Fund:
1. Upon receipt of instructions, Custodian will release or
cause to be released securities held in custody to the
pledgee designated in such instructions by way of pledge or
hypothecation to secure any loan incurred by Fund; provided,
however, that the securities shall be released only upon
payment to Custodian of the monies borrowed, except that in
cases where additional collateral is required to secure a
borrowing already made, further securities may be released
or caused to be released for that purpose upon receipt of
instructions. Upon receipt of instructions, Custodian will
pay, but only from funds available for such purpose, any
such loan upon redelivery to it of the securities pledged or
hypothecated therefor and upon surrender of the note or
notes evidencing such loan.
2. Upon receipt of instructions, Custodian will release
securities held in custody to the borrower designated in
such instructions; provided, however, that the securities
will be released only upon deposit with Custodian of full
cash collateral as specified in such instructions, and that
Fund will retain the right to any dividends, interest or
distribution on such loaned securities. Upon receipt of
instructions and the loaned securities, Custodian will
release the cash collateral to the borrower.
J. Routine Matters. Custodian will, in general, attend to all
routine and mechanical matters in connection with the sale,
exchange, substitution, purchase, transfer, or other dealings
with securities or other property of Fund except as may be
otherwise provided in this Agreement or directed from time to
time by the Board of Directors of Fund.
K. Deposit Account. Custodian will open and maintain a special
purpose deposit accounts in the name of Custodian ("Account"),
subject only to draft or order by Custodian upon receipt of
instructions. All monies received by Custodian from or for the
account of a portfolio shall be deposited in said Account,
barring events not in the control of the Custodian such as
strikes, lockouts or labor disputes, riots, war or equipment or
transmission failure or damage, fire, flood, earthquake or other
natural disaster, action or inaction of governmental authority or
other causes beyond its control, at 9:00 a.m., Kansas City time,
on the second business day after deposit of any check into Fund's
Account, Custodian agrees to make Fed Funds available to the Fund
in the amount of the check. Deposits made by Federal Reserve wire
will be available to the Fund immediately and ACH wires will be
available to the Fund on the next business day. Income earned on
the portfolio securities will be credited to the applicable
portfolio of the Fund based on the schedule attached as Exhibit
A. The Custodian will be entitled to reverse any credited amounts
where credits have been made and monies are not finally
collected. If monies are collected after such reversal, the
Custodian will credit the applicable portfolio in that amount.
Custodian may open and maintain an Account in such other banks or
trust companies as may be designated by it or by properly
authorized resolution of the Board of Directors of Fund, such
Account, however, to be in the name of custodian and subject only
to its draft or order.
L. Income and other Payments to Fund.
Custodian will:
1. Collect, claim and receive and deposit for the Account of
Fund all income and other payments which become due and
payable on or after the effective date of this Agreement
with respect to the securities deposited under this
Agreemenet, and credit the account of Fund in accordance
with the schedule attached hereto as Exhibit A. If for any
reason, the Fund is credited with income that is not
subsequently collected, Custodian may reverse that credited
amount;
2. Execute ownership and other certificates and affidavits for
all federal, state and local tax purposes in connection with
the collection of bond and note coupons; and
3. Take such other action as may be necessary or proper in
connection with:
a. The collection, receipt and deposit of such income and
other payments, including but not limited to the
presentation for payment of:
1. all coupons and other income items requiring
presentation; and
2. all other securities which may mature or be
called, redeemed, retired or otherwise become
payable and regarding which the Custodian has
actual knowledge, or notice of which is contained
in publications of the type to which it normally
subscribes for such purpose; and
b. the endorsement for collection, in the name of the
Fund, of all checks, drafts or other negotiable
instruments.
Custodian, however, will not be required to institute suit
or take other extraordinary action to enforce collection
except upon receipt of instructions and upon being
indemnified to its satisfaction against the costs and
expenses of such suit or other actions. Custodian will
receive, claim and collect all stock dividends, rights or
other similar items and will deal with the same pursuant to
instructions. Unless prior instructions have been received
to the contrary, Custodian will, without further
instructions, sell any rights held for the account of Fund
on the last trade date prior to the date of expiration of
such rights.
M. Payment of Dividends and other Distributions. On the declaration
of any dividend or other distribution on the shares of Capital
Stock of Fund ("Fund Shares") by the Board of Directors of Fund,
Fund shall deliver to Custodian instructions with respect
thereto, including a copy of the Resolution of said Board of
Directors certified by the Secretary or Assistant Secretary of
Fund wherein there shall be set forth the record date as of which
shareholders entitled to receive such dividend or other
distribution shall be determined, the date of payment of such
dividend or distribution, and the amount payable per share on
such dividend or distribution. Except if the ex-dividend date and
the reinvestment date of any dividend are the same, in which case
funds shall remain in the Custody Account, on the date specified
in such Resolution for the payment of such dividend or other
distribution, Custodian will pay out of the monies held for the
account of Fund, insofar as the same shall be available for such
purposes, and credit to the account of the Dividend Disbursing
Agent for Fund, such amount as may be necessary to pay the amount
per share payable in cash on Fund Shares issued and outstanding
on the record date established by such Resolution.
N. Shares of Fund Purchased by Fund. Whenever any Fund Shares are
repurchased or redeemed by Fund, Fund or its agent shall advise
Custodian of the aggregate dollar amount to be paid for such
shares and shall confirm such advice in writing. Upon receipt of
such advice, Custodian shall charge such aggregate dollar amount
to the Account of Fund and either deposit the same in the account
maintained for the purpose of paying for the repurchase or
redemption of Fund Shares or deliver the same in accordance with
such advice. Custodian shall not have any duty or responsibility
to determine that Fund Shares have been removed from the proper
shareholder account or accounts or that the proper number of such
shares have been cancelled and removed from the shareholder
records.
O. Shares of Fund Purchased from Fund. Whenever Fund Shares are
purchased from Fund, Fund will deposit or cause to be deposited
with Custodian the amount received for such shares. Custodian
shall not have any duty or responsibility to determine that Fund
Shares purchased from Fund have been added to the proper
shareholder account or accounts or that the proper number of such
shares have been added to the shareholder records.
P. Proxies and Notices. Custodian will promptly deliver or mail or
have delivered or mailed to Fund all proxies properly signed, all
notices of meetings, all proxy statements and other notices,
requests or announcements affecting or relating to securities
held by Custodian for Fund and will, upon receipt of
instructions, execute and deliver or cause its nominee to execute
and deliver or mail or have delivered or maield such proxies or
other authorizations as may be required. Except as provided by
this Agreement or pursuant to instructions hereafter received by
Custodian, neither it nor its nominee will exercise any power
inherent in any such securities, including any power to vote the
same, or execute any proxy, power of attorney, or other similar
instrument voting any of such securities, or give any consent,
approval or waiver with respect thereto, or take any other
similar action.
Q. Disbursements. Custodian will pay or cause to be paid insofar as
funds are available for the purpose, bills, statements and other
obligations of Fund (including but not limited to obligations in
connection with the conversion, exchange or surrender of
securities owned by Fund, interest charges, dividend
disbursements, taxes, management fees, custodian fees, legal
fees, auditors' fees, transfer agents' fees, brokerage
commissions, compensation to personnel, and other operating
expenses of Fund) pursuant to instructions of Fund setting forth
the name of the person to whom payment is to be made, the amount
of the payment, and the purpose of the payment.
R. Daily Statement of Accounts. Custodian will, within a reasonable
time, render to Fund as of the close of business on each day, a
detailed statement of the amounts received or paid and of
securities received or delivered for the account of Fund during
said day. Custodian will, from time to time, upon request by
Fund, render a detailed statement of the securities and monies
held for Fund under this Agreement, and Custodian will maintain
such books and records as are necessary to enable it to do so and
will permit such persons as are authorized by Fund including
Fund's independent public accountants, access to such records or
confirmation of the contents of such records; and if demanded,
will permit federal or state regulatory agencies to examine the
securities, books and records. Upon the written instructions of
Fund or as demanded by federal or state regulatory agencies,
Custodian will instruct any subcustodian to give such persons as
are authorized by Fund including Fund's independent public
accountants, access to such records or confirmation of the
contents of such records; and if demanded, to permit federal and
state regulatory agencies to examine the books, records and
securities held by subcustodian which relate to Fund.
S. Appointment of Subcustodians.
1. Notwithstanding any other provisions of this Agreement, all
or any of the monies or securities if Fund may be held in
Custodian's own custody or in the custody of one or more
other banks or trust companies selected by Custodian. Any
such subcustodian selected by the Custodian must have the
qualifications required for custodian under the Investment
Company Act of 1940, as amended. The Custodian may
participate directly or indirectly in the Depository Trust
Company, Treasury/Federal Reserve Book Entry System,
Participant Trust Company (as such entities are defined at
17 CFR Sec. 270.17f-4(b)), or other depository approved by
the Fund and with which Custodian has a satisfactory direct
or indirect contractual relationship. Custodian will appoint
UMBKC and UMBNY as subcustodians and Custodian shall be
responsible for UMBKC and UMBNY to the same extent it is
responsible to the Fund under Section 5 of this Agreement.
Custodian is not responsible for DTC, the Treasury/Federal
Reserve Book Entry System, and PTC except to the extent such
entities are responsible to Custodian. Upon instruction of
the Fund, Custodian shall be willing to contract with such
entities as Bank of New York (BONY), Morgan Guaranty and
Trust Company (MGTC), Chemical Bank (CB), and Bankers Trust
Company (BT) for variable rate securities and Custodian will
be responsible to the Fund to the same extent those entities
are responsible to Custodian. The Fund shall be entitled to
review Custodian's contracts with BONY, MGTC, CB, and BT.
T. Accounts and Records Property of Fund. Custodian acknowledges
that all of the accounts and records maintained by Custodian
pursuant to this Agreement are the property of Fund, and will be
made available to Fund for inspection or reproduction within a
reasonable period of time, upon demand. Custodian will assist
Fund's independent auditors, or upon approval of Fund, or upon
demand, any regulatory body having jurisdiction over the Fund or
Custodian, in any requested review of Fund's accounts and records
but shall be reimbursed for all expenses and employee time
invested in any such review outside of routine and normal
periodic reviews.
U. Adoption of Procedures. Custodian and Fund may from time to time
adopt procedures as they agree upon, and Custodian may
conclusively assume that no procedure approved by Fund, or
directed by Fund, conflicts with or violates any requirements of
its prospectus, "Articles of Incorporation," Bylaws, or any rule
or regulation of any regulatory body or governmental agency. Fund
will be responsible to notify Custodian of any changes in
statutes, regulations, rules or policies which might necessitate
changes in Custodian's responsibilities or procedures.
V. Overdrafts. If Custodian shall in its sole discretion advance
funds to the account of the Fund which results in an overdraft
because the monies held by Custodian on behalf of the Fund are
insufficient to pay the total amount payable upon a purchase of
securities as specified in a Fund's instructions or for some
other reason, the amount of the overdraft shall be payable by the
Fund to Custodian upon demand and shall bear an interest rate
determined by Custodian from the date advanced until the date of
payment. Custodian shall have a lien on the assets of Fund in the
amount of any outstanding overdraft.
4. INSTRUCTIONS.
A. The term "instructions," as used herein, means written or oral
instructions to Custodian from a designated representative of
Fund. Certified copies of resolutions of the Board of Directors
of Fund naming one or more designated representatives to give
instructions in the name and on behalf of Fund, may be received
and accepted from time to time by Custodian as conclusive
evidence of the authority of any designated representative to act
for Fund and may be considered to be in full force and effect
(and Custodian will be fully protected in acting in reliance
thereon) until receipt by Custodian of notice to the contrary.
Unless the resolution delegating authority to any person to give
instructions specifically requires that the approval of anyone
else will first have been obtained, Custodian will be under no
obligation to inquire into the right of the person giving such
instructions to do so. Notwithstanding any of the foregoing
provisions of this Section 4. no authorizations or instructions
received by Custodian from Fund, will be deemed to authorize or
permit any director, trustee, officer, employee, or agent of Fund
to withdraw any of the securities or similar investments of Fund
upon the mere receipt of such authorization or instructions from
such director, trustee, officer, employee or agent.
B. No later than the next business day immediately following each
oral instruction, Fund will send Custodian written confirmation
of such oral instruction. At Custodian's sole discretion,
Custodian may record on tape, or otherwise, any oral instruction
whether given in person or via telephone, each such recording
identifying the parties, the date and the time of the beginning
and ending of such oral instruction.
5. LIMITATION OF LIABILITY OF CUSTODIAN.
A. Custodian shall hold harmless and indemnify Fund from and against
any loss or liability arising out of Custodian's negligence or
bad faith. Custodian shall not be liable for consequential
damages, special, or punitive damages. Custodian may request and
obtain the advice and opinion of counsel for Fund, or of its own
counsel with respect to questions or matters of law, and it shall
be without liability to Fund for any action taken or omitted by
it in good faith, in conformity with such advice or opinion. If
Custodian reasonably believes that it could not prudently act
according to the instructions of the Fund or the Fund's counsel,
it may in its discretion, with notice to the Fund, not act
according to such instructions.
B. Custodian may rely upon the advice of Fund and upon statements of
Fund's accountants and other persons believed by, it in good
faith, to be expert in matters upon which they are consulted, and
Custodian shall not be liable for any actions taken, in good
faith, upon such statements.
C. If Fund requires Custodian in any capacity to take, with respect
to any securities, any action which involves the payment of money
by it, or which in Custodian's opinion might make it or its
nominee liable for payment of monies or in any other way,
Custodian, upon notice to Fund given prior to such actions, shall
be and be kept indemnified by Fund in an amount and form
satisfactory to Custodian against any liability on account of
such action.
D. Custodian shall be entitled to receive, and Fund agrees to pay
Custodian, on demand, reimbursement for such cash disbursements,
costs and expenses as may be agreed upon from time to time by
Custodian and Fund.
E. Custodian shall be protected in acting as custodian hereunder
upon any instructions, advice, notice, request, consent,
certificate or other instrument or paper reasonably appearing to
it to be genuine and to have been properly executed and shall,
unless otherwise specifically provided herein, be entitled to
receive as conclusive proof of any fact or matter required to be
ascertained from Fund hereunder, a certificate signed by the
Fund's President, or other officer specifically authorized for
such purpose.
F. Without limiting the generality of the foregoing, Custodian shall
be under no duty or obligation to inquire into, and shall not be
liable for:
1. The validity of the issue of any securities purchased by or
for Fund, the legality of the purchase thereof or evidence
of ownership required by Fund to be received by Custodian,
or the propriety of the decision to purchase or amount paid
therefor;
2. The legality of the sale of any securities by or for Fund,
or the propriety of the amount for which the same are sold;
3. The legality of the issue or sale of any shares of the
Capital Stock of Fund, or the sufficiency of the amount to
be received therefor;
4. The legality of the repurchase or redemption of any Fund
Shares, or the propriety of the amount to be paid therefor;
or
5. The legality of the declaration of any dividend by Fund, or
the legality of the issue of any Fund Shares in payment of
any stock dividend.
G. Custodian shall not be liable for, or considered to be Custodian
of, any money represented by any check, draft, wire transfer,
clearing house funds, uncollected funds, or instrument for the
payment of money received by it on behalf of the Fund, until
Custodian actually receives such money, provided only that it
shall advise Fund promptly if it fails to receive any such money
in the ordinary course of business, and use its best efforts and
cooperate with Fund toward the end that such money shall be
received.
H. Custodian shall not be responsible for loss occasioned by the
acts, neglects, defaults or insolvency of any broker, bank, trust
company, or any other person with whom Custodian may deal in the
absence of negligence, or bad faith on the part of the Custodian.
I. Notwithstanding anything herein to the contrary, Custodian may,
and with respect to any foreign subcustodian appointed under
Section 3.S.2. must, provide the Fund for its approval,
agreements with banks or trust companies which will act as
subcustodians for Fund pursuant to Section 3.S of this Agreement.
6. COMPENSATION. Fund will pay Custodian such compensation as is stated
in the Fee Schedule attached hereto as Exhibit B which may be changed
from time to time as agreed to in writing by Custodian and Fund.
Custodian may charge such compensation against monies held by it for
the account of Fund. Custodian will also be entitled, notwithstanding
the provisions of Sections 5.C. or 5.D. hereof, to charge against any
monies held by it for the account of Fund the amount of any loss,
damage, liability, advance, or expense for which it shall be entitled
to reimbursement under the provisions of this Agreement including fees
or expenses due to Custodian for other services provided to the Fund
by the Custodian.
7. TERMINATION. Either party to this Agreement may terminate the same by
notice in writing, delivered or mailed, postage prepaid, to the other
party hereto and received not less than ninety (90) days prior to the
date upon which such termination will take effect. Upon termination of
this Agreement, Fund will pay to Custodian such compensation for its
reimbursable disbursements, costs and expenses paid or incurred to
such date and Fund will use its best efforts to obtain a successor
custodian. Unless the holders of a majority of the outstanding shares
of "Capital Stock" of Fund vote to have the securities, funds and
other properties held under this Agreement delivered and paid over to
some other person, firm or corporation specified in the vote, having
not less than Two Million Dollars ($2,000,000) aggregate capital,
surplus and undivided profits, as shown by its last published report,
and meeting such other qualifications for custodian as set forth in
the Bylaws of Fund, the Board of Directors of Fund will, forthwith
upon giving or receiving notice of termination of this Agreement,
appoint as successor custodian a bank or trust company having such
qualifications. Custodian will, upon termination of this Agreement,
deliver to the successor custodian so specified or appointed, at
Custodian's office, all securities then held by Custodian hereunder,
duly endorsed and in form for transfer, all funds and other properties
of Fund deposited with or held by Custodian hereunder, or will
cooperate in effecting changes in book-entries at the Depository Trust
Company or in the Treasury/Federal Reserve Book-Entry System pursuant
to 31 CFR Sec. 306.118. In the event no such vote has been adopted by
the stockholders of Fund and no written order designating a successor
custodian has been delivered to Custodian on or before the date when
such termination becomes effective, then Custodian will deliver the
securities, funds and properties of Fund to a bank or trust company at
the selection of Custodian and meeting the qualifications for
custodian, if any, set forth in the Bylaws of Fund and having not less
than Two Million Dollars ($2,000,000) aggregate capital, surplus and
undivided profits, as shown by its last published report. Upon either
such delivery to a successor custodian, Custodian will have no further
obligations or liabilities under this Agreement. Thereafter such bank
or trust company will be the successor custodian under this Agreement
and will be entitled to reasonable compensation for its services. In
the event that no such successor custodian can be found, Fund will
submit to its shareholders, before permitting delivery of the cash and
securities owned by Fund to anyone other than a successor custodian,
the question of whether Fund will be liequidated or function without a
custodian. Notwithstanding the foregoing requirement as to delivery
upon termination of this Agreement, Custodian may make any other
delivery of the securities, funds and property of Fund which is
permitted by the Investment Company Act of 1940, Fund's Certificate of
Incorporation and Bylaws then in effect or apply to a court of
competent jurisdiction for the appointment of a successor custodian.
8. NOTICES. Notices, requests, instructions and other writings received
by Fund at 601 West Riverside Avenue, Suite 900, Spokane, Washington,
99201 or at such other address as Fund may have designated to
Custodian in writing, will be deemed to have been properly given to
Fund hereunder; and notices, requests, instructions and other writings
received by Custodian at its offices at 127 West 10th Street, Kansas
City, Missouri 64105, or to such other address as it may have
designated to Fund in writing, will be deemed to have been properly
given to Custodian hereunder.
9. MISCELLANEOUS.
A. This Agreement is executed and delivered in the State of Missouri
and shall be governed by the laws of said state.
B. All the terms and provisions of this Agreement shall be binding
upon, inure to the benefit of, and be enforceable by the
respective successor and assigns of the parties hereto.
C. No provisions of the Agreement may be amended or modified, in any
manner except by a written agreement properly authorized and
executed by both parties hereto.
D. The captions in this Agreement are included for convenience of
reference only, and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or
effect.
E. This Agreement may be executed simultaneously in two or more
counterparts, each of which will be deemed an original but all of
which together will constitute one and the same instrument.
F. If any part, term or provision of this Agreement is by the courts
held to be illegal, in conflict with any law or otherwise
invalid, the remaining portion or portions shall be considered
severable and not be affected, and the rights and obligations of
the parties shall be construed and enforced as if the Agreement
did not contain the particular part, term or provision held to be
illegal or invalid.
G. Custodian will not release the identity of Fund to an issuer
which requests such information pursuant to the Shareholder
Communications Act of 1985 for the specific purpose of direct
communications between such issuer and Fund unless the Fund
directs the Custodian otherwise.
H. This Agreement may not be assigned by either party without prior
written consent of the other party.
I. If any provision of the Agreement, either in its present form or
as amended from time to time, limits, qualifies, or conflicts
with the Investment Company Act of 1940, as amended, and the
rules and regulations promulgated thereunder, such statutes,
rules and regulations shall be deemed to control and supercede
such provision without nullifying or terminating the remainder of
the provisions of this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly respective authorized officers.
INVESTORS FIDUCIARY TRUST
COMPANY
By: Allen Strain
Title: Senior V.P.
COMPOSITE DEFERRED SERIES
By: William G. Papesh
Title: President
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
TRANSACTION DTC PHYSICAL FED
TYPE CR DATE FDS TYPE CR DATE FDS TYPE CR DATE FDS TYPE
Calls Puts As Received C of F* As Received C or F*
Maturities As Received C or F* Mat. Date C or F* Mat. Date F
Tender Reorgs. As Received C or F* As Received C N/A
Dividends Paydate C Paydate C N/A
Floating Rate Paydate C Paydate C N/A
Int.
Floating Rate N/A As Rate C N/A
Int. (No Rate) Received
Mtg. Backed P&I Paydate C Paydate + 1 C Paydate F
Bus. Day
Fixed Rate Int. Paydate C Paydate C Paydate F
Euroclear N/A C Paydate C
Legend
C = Clearinghouse Funds
F = Fed Funds
N/A = Not Applicable
* Availability based on how received.
</TABLE>
EXHIBIT 10
April 22, 1997
Composite Deferred Series, Inc.
601 W. Main Avenue, Suite 801
Spokane WA 99201-0613
Gentlemen:
In connection with an Post-Effective Amendment No. 14 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 have equal voting power. The capital stock
referred to herein is 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
April 22, 1997
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 April 22, 1997,
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. 14 to the
Registration Statement on Form N-1A of Composite Deferred Series, Inc., of our
report dated January 24, 1997, on the financial statements and financial
highlights included in the December 31, 1996 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
April 21, 1997
<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 & Income, Northwest, and Income Portfolios) as of
December 31, 1996, 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, 1996 and 1995. For the Growth & Income and Income Portfolios, we have
audited the financial highlights for each of the five years in the period ended
December 31, 1996. For the Northwest Portfolio, we have audited the financial
highlights for each of the four years in the period ended December 31, 1996.
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, 1996, 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, 1996, 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 24, 1997
<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> 02
<NAME> Growth & Income Portfolio
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 33,227,600
<INVESTMENTS-AT-VALUE> 41,585,448
<RECEIVABLES> 251,072
<ASSETS-OTHER> 24,411
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 41,860,931
<PAYABLE-FOR-SECURITIES> 438,266
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 20,998
<TOTAL-LIABILITIES> 459,264
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 29,948,797
<SHARES-COMMON-STOCK> 1,702,382
<SHARES-COMMON-PRIOR> 1,208,890
<ACCUMULATED-NII-CURRENT> 1,398
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3,095,892
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8,355,580
<NET-ASSETS> 41,401,667
<DIVIDEND-INCOME> 645,607
<INTEREST-INCOME> 64,599
<OTHER-INCOME> 0
<EXPENSES-NET> (194,169)
<NET-INVESTMENT-INCOME> 516,037
<REALIZED-GAINS-CURRENT> 3,102,735
<APPREC-INCREASE-CURRENT> 2,982,704
<NET-CHANGE-FROM-OPS> 6,601,476
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (517,216)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 590,876
<NUMBER-OF-SHARES-REDEEMED> (120,141)
<SHARES-REINVESTED> 22,757
<NET-CHANGE-IN-ASSETS> 16,953,507
<ACCUMULATED-NII-PRIOR> 2,577
<ACCUMULATED-GAINS-PRIOR> (6,843)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 162,589
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 194,169
<AVERAGE-NET-ASSETS> 32,557,541
<PER-SHARE-NAV-BEGIN> 20.22
<PER-SHARE-NII> 0.34
<PER-SHARE-GAIN-APPREC> 4.10
<PER-SHARE-DIVIDEND> (0.34)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 24.32
<EXPENSE-RATIO> 0.61
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<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
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 17,011,190
<INVESTMENTS-AT-VALUE> 17,147,596
<RECEIVABLES> 289,838
<ASSETS-OTHER> 1,211
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 17,438,645
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 54,141
<TOTAL-LIABILITIES> 54,141
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 17,389,846
<SHARES-COMMON-STOCK> 1,438,611
<SHARES-COMMON-PRIOR> 1,207,536
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (141,748)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 136,406
<NET-ASSETS> 17,384,504
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,152,458
<OTHER-INCOME> 0
<EXPENSES-NET> (106,764)
<NET-INVESTMENT-INCOME> 1,045,694
<REALIZED-GAINS-CURRENT> (8,320)
<APPREC-INCREASE-CURRENT> (609,407)
<NET-CHANGE-FROM-OPS> 427,967
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,045,694)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 387,398
<NUMBER-OF-SHARES-REDEEMED> (243,230)
<SHARES-REINVESTED> 86,907
<NET-CHANGE-IN-ASSETS> 2,178,906
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (133,428)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 80,985
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 106,764
<AVERAGE-NET-ASSETS> 16,264,025
<PER-SHARE-NAV-BEGIN> 12.59
<PER-SHARE-NII> 0.78
<PER-SHARE-GAIN-APPREC> (0.51)
<PER-SHARE-DIVIDEND> (0.78)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.08
<EXPENSE-RATIO> 0.67
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<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> 04
<NAME> Northwest Portfolio
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 9,866,706
<INVESTMENTS-AT-VALUE> 12,798,767
<RECEIVABLES> 20,949
<ASSETS-OTHER> 13,414
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 12,833,130
<PAYABLE-FOR-SECURITIES> 54,111
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 9,373
<TOTAL-LIABILITIES> 63,484
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 9,505,659
<SHARES-COMMON-STOCK> 700,316
<SHARES-COMMON-PRIOR> 499,904
<ACCUMULATED-NII-CURRENT> 849
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 331,077
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,932,061
<NET-ASSETS> 12,769,646
<DIVIDEND-INCOME> 95,566
<INTEREST-INCOME> 33,157
<OTHER-INCOME> 0
<EXPENSES-NET> (73,791)
<NET-INVESTMENT-INCOME> 54,932
<REALIZED-GAINS-CURRENT> 467,828
<APPREC-INCREASE-CURRENT> 1,538,604
<NET-CHANGE-FROM-OPS> 2,061,364
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (54,083)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 247,127
<NUMBER-OF-SHARES-REDEEMED> (49,897)
<SHARES-REINVESTED> 3,182
<NET-CHANGE-IN-ASSETS> 5,274,333
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (136,750)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 49,023
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 73,791
<AVERAGE-NET-ASSETS> 9,850,359
<PER-SHARE-NAV-BEGIN> 14.99
<PER-SHARE-NII> 0.09
<PER-SHARE-GAIN-APPREC> 3.24
<PER-SHARE-DIVIDEND> (0.09)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.23
<EXPENSE-RATIO> 0.77
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
