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. 15 /X/
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 15 /X/
COMPOSITE DEFERRED SERIES, INC.
- --------------------------------------------------------------------------
(Exact name of Registrant as specified in Charter)
601 W. Main Avenue, Suite 801, Spokane, WA 99201
- --------------------------------------------------------------------------
(Address of principal executive offices)
1-509-353-3486
- --------------------------------------------------------------------------
(Registrant's telephone number, including area code)
JOHN T. WEST, CORPORATE SECRETARY
Composite Deferred Series, Inc.
601 West Main Avenue, Suite 300, Spokane, WA 99201
- ---------------------------------------------------
(Name and address of agent for service)
Approximate Date of Proposed Public Offering May 1, 1998
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[xx] on May 1, 1998, 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.
- -------------------------------------------------------------------------------
CALCULATION OF REGISTRATION 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 April 14, 1998.
<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 300
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 WM Deferred Variable Accounts, separate accounts established and
maintained by WM Life Insurance Company for the purpose of funding annuity con-
tracts 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
WM Life Insurance Company at the location listed in their prospectus.
THE DATE OF THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION IS
MAY 1, 1998.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
CONTENTS PAGE PAGE
Financial Highlights ..................... 13 The Value of a Single Share ............ 18
The Portfolio's Objectives ............... 15 How to Buy Shares ...................... 19
Investment Practices and Distribution of Income and
Risk Factors............................ 15 Capital Gains ........................ 19
Investment Restrictions .................. 17 Income Taxes on Dividends and
Who We Are ............................... 17 Capital Gains ........................ 19
The Cost of Good Management .............. 18 How to Sell Shares ..................... 19
We're Here to Help You ................. 19
</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.
- --------------------------------------------------------------------------------
THIS PROSPECTUS MUST BE ACCOMPANIED BY A CURRENT PROSPECTUS FOR THE FLEXIBLE
PREMIUM DEFERRED VARIABLE ANNUITY CONTRACTS ISSUED BY WM LIFE INSURANCE COMPANY.
<PAGE>
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.
<TABLE>
<CAPTION>
GROWTH &
INCOME
PORTFOLIO
YEARS ENDED DECEMBER 31,
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF PERIOD ........... $24.32 $20.22 $15.70 $15.71 $15.26 $14.28 $11.82 $12.89 $12.07 $10.53
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
INCOME FROM
INVESTMENT
OPERATIONS
Net Investment
Income.................... 0.29 0.34 0.35 0.31 0.29 0.36 0.36 0.40 0.51 0.40
Net Gains or
Losses on
Securities (both
realized
and unrealized) ........... 6.49 4.10 4.90 0.12 0.84 1.13 2.66 (1.04) 0.81 1.54
Total From ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Investment
Operations ................. 6.78 4.44 5.25 0.43 1.13 1.49 3.02 (0.64) 1.32 1.94
DISTRIBUTIONS ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Dividends (from
net investment income ....... (0.29) (0.34) (0.35) (0.31) (0.28) (0.36) (0.35) (0.43) (0.50) (0.40)
Distributions
(from capital
gains) ..................... (1.75) - (0.38) (0.13) (0.40) (0.15) (0.21) - - -
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total Distributions .......... (2.04) (0.34) (0.73) (0.44) (0.68) (0.51) (0.56) (0.43) (0.50) (0.40)
NET ASSET VALUE, ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
END OF PERIOD .............. $29.06 $24.32 $20.22 $15.70 $15.71 $15.26 $14.28 $11.82 $12.89 $12.07
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN (1)............. 29.66% 22.09% 33.70% 2.72% 7.58% 10.56% 25.91% -4.96% 11.00% 18.55%
RATIOS/SUPPLEMENTAL
DATA
Net Assets,
End of Period
($1,000's) ............... $57,255 $41,402 $24,448 $14,195 $11,239 $7,455 $4,116 $2,140 $1,986 $1,394
Ratio of
Expenses to
Average Net Assets (2).... 0.59% 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.......... 1.07% 1.59% 2.01% 1.97% 1.96% 2.51% 2.77% 3.41% 4.12% 3.61%
Portfolio Turnover
Rate ....................... 50% 45% 36% 25% 38% 13% 23% 23% 28% 35%
Average Commission Paid(3) .. $0.0582 $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
PORTFOLIO
YEARS ENDED DECEMBER 31,
1997 1996 1995 1994 1993(1)
NET ASSET VALUE -------- -------- -------- -------- ---------
BEGINNING OF
PERIOD................... $18.23 $14.99 $11.97 $12.19 $12.00
INCOME FROM -------- -------- -------- -------- ---------
INVESTMENT
OPERATIONS
Net Investment
Income................ 0.07 0.09 0.09 0.08 0.16
Net Gains or
Losses on
Securities
(both realized and
unrealized)........... 5.80 3.24 3.02 (0.21) 0.19
Total From -------- -------- -------- -------- ---------
Investment
Operations ........... 5.87 3.33 3.11 (0.13) 0.35
-------- -------- -------- -------- ---------
LESS
DISTRIBUTIONS
Dividends (from
net investment income). (0.07) (0.09) (0.09) (0.08) (0.16)
Distributions
(from capital gains) ... (0.48) - - (0.01) -
-------- -------- -------- --------- ---------
Total Distributions..... (0.55) (0.09) (0.09) (0.09) (0.16)
-------- -------- -------- --------- ---------
NET ASSET VALUE,
END OF PERIOD $23.55 $18.23 $14.99 $11.97 $12.19
======== ======== ======== ========= =========
TOTAL RETURN(2) 32.92% 22.23% 26.03% -1.12% 2.95%
RATIOS/SUPPLEMENTAL
DATA
Net Assets,
End of Period ($1,000's) $19,924 $12,770 $7,495 $4,647 $2,686
Ratio of
Expenses to
Average Net Assets(3).. 0.68% 0.77% 0.90% 0.87% 0.00%
Ratio of Net
Income to
Average Net Assets ... 0.31% 0.56% 0.67% 0.76% 1.61%(5)
Portfolio Turnover
Rate ................ 31% 31% 11% 17% 0%
Average Commission
Paid(4) ................ $0.0552 $0.0639
(1) From commencement of operations on January 4, 1993.
(2) Total returns do not reflect a sales charge. Returns of less than one year
are not annualized.
(3) 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.
(4) Average commission paid disclosure is required beginning in fiscal year
1996.
(5) Annualized.
<TABLE>
<CAPTION>
INCOME PORTFOLIO YEARS ENDED DECEMBER 31,
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
------- ------- -------- -------- ------- ------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF
PERIOD............................ $12.08 $12.59 $11.22 $12.57 $12.22 $12.27 $11.44 $11.46 $11.55 $11.72
INCOME FROM ------- ------- ------- -------- -------- -------- ------- ------- -------- -------
INVESTMENT
OPERATIONS
Net Investment Income........... 0.79 0.78 0.79 0.79 0.85 0.86 0.91 0.95 1.18 1.26
Net Gains or
Losses on
Securities
(both realized and unrealized). 0.45 (0.51) 1.37 (1.35) 0.35 (0.05) 0.83 (0.02) (0.09) (0.17)
Total From ------- ------- ------- -------- ------- -------- ------- ------- -------- --------
Investment
Operations ................... 1.24 0.27 2.16 (0.56) 1.20 0.81 1.74 0.93 1.09 1.09
LESS ------- ------- ------- -------- ------- -------- ------- ------- -------- --------
DISTRIBUTIONS
Dividends (from
net investment income).......... (0.79) (0.78) (0.79) (0.79) (0.85) (0.86) (0.91) (0.95) (1.18) (1.26)
NET ASSET VALUE, ------- ------- ------- -------- ------- -------- ------- ------- -------- --------
END OF PERIOD .................. $12.53 $12.08 $12.59 $11.22 $12.57 $12.22 $12.27 $11.44 $11.46 $11.55
======= ======= ======= ======== ======= ======== ======= ======= ======== ========
TOTAL RETURN (1) ............... 10.62% 2.34% 19.86% -4.48% 10.02% 6.91% 15.90% 8.59% 9.93% 9.69%
RATIOS/SUPPLEMENTAL
DATA
Net Assets,
End of Period ($1,000's)....... $18,364 $17,385 $15,206 $10,842 $9,113 $6,165 $4,407 $3,738 $3,628 $3,414
Ratio of
Expenses to
Average Net Assets (2) ........ 0.70% 0.67% 0.76% 0.74% 0.86% 0.88% 0.98% 1.06% 0.81% 0.69%
Ratio of Net
Income to
Average Net Assets............. 6.48% 6.46% 6.62% 6.79% 6.75% 7.12% 7.78% 8.43% 10.23% 10.65%
Portfolio Turnover Rate (2)....... 9% 11% 14% 15% 29% 37% 66% 85% 48% 30%
(1) Total returns do not reflect a sales charge.
(2) The ratio of expenses to average net assets includes expenses paid
indirectly beginning in fiscal 1995.
</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 on 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 Washing-
ton 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 WM Deferred Variable Accounts (the "Accounts") to fund the benefits
under certain flexible premium variable annuity contracts (the "Contracts")
issued by WM Life Insurance Company, the "Company." The Accounts, for which
WM Funds Distributor, 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 WM Advisors, Inc. (the "Adviser"). The Adviser and
Distributor are indirect wholly owned subsidiaries of Washington Mutual, Inc.
The Adviser manages 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 13 years of continuous investment experience. Mr. Pokrzywinski has been
employed by the Adviser since July 1992 and has 13 years of continuous
experience in fixed-income and financial market analysis. Mr. Simpson has been
employed by the Adviser since March 1993 and has 12 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
WM Advisors, Inc. serves as "Adviser" under an investment management agree-
ment 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 WM Deferred
Variable Accounts, separate accounts established and maintained by WM Life
Insurance Company 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 con-
junction 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 WM Life Insurance Company at
the address or telephone number on Page i of their Prospectus.
<PAGE>
STATEMENT OF
ADDITIONAL
INFORMATION
May 1, 1998
COMPOSITE DEFERRED SERIES, INC.
A Mutual Fund Formed to Meet a Broad Range of Investment Objectives
601 W Main Avenue, Suite 300
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 WM Advisors, Inc.'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 MAY 1, 1998, AS WELL AS THE
PROSPECTUS FOR THE FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACTS ISSUED
BY WM LIFE INSURANCE COMPANY WHICH MAY BE OBTAINED WITHOUT CHARGE BY CONTACTING
WM LIFE INSURANCE AT THE ADDRESS SHOWN IN THEIR PROSPECTUS. THIS STATEMENT IS
INTENDED TO PROVIDE ADDITIONAL INFORMATION REGARDING THE ACTIVITIES AND OPERA-
TION 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
WM DEFERRED VARIABLE ACCOUNT
Currently, shares of the Fund's portfolios are sold only to the WM 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 (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 WM Advisors, Inc. (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.
The Adviser has been in the business of investment management since 1944. Its
responsibilities include formulating each Portfolio's investment policies
(subject to terms of the Prospectus and this SAI), analyzing economic trends,
directing and evaluating the investment services provided by the sub-advisors
and monitoring each Portfolio's investment performance and reporting to the
Board of Directors, as well as providing certain administrative services. The
Adviser is an indirect wholly owned subsidiary of Washington Mutual, Inc., a
publicly owned financial services company.
`
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 1997, management fees paid by Growth & Income Portfolio,
Income Portfolio and Northwest Portfolio were, $255,114, $88,173, and $85,274
respectively. For 1996, management fees paid by Growth & Income Portfolio,
Income Portfolio and Northwest Portfolio were $162,589, $80,985, and $49,023,
respectively. For 1995, management fees paid by Growth & Income Portfolio,
Income Portfolio, and Northwest Portfolio were, $90,132, $64,637, and $29,906,
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 WM Group of Funds. 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 WM 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 300, Spokane, Washington 99201-0613.
WAYNE L. ATTWOOD, MD (1/28/29)
Director
2931 S. Howard
Spokane, Washington 99203
Dr. Attwood is a retired doctor of internal medicine and gastroenterology.
Former president, Medical Staff - Sacred Heart Medical Center; former president
of Spokane Society of Internal Medicine; and former president of Spokane
Physicians for Social Responsibility.
KRISTIANNE BLAKE (1/22/54)
Director
705 W. 7th, Suite D
Spokane, Washington 99204
Mrs. Blake is a CPA specializing in personal financial and tax planning since
1975. Served as a partner with the accounting firm of Deloitte, Haskins & Sells
prior to starting own firm in 1987. Community activities include: United Way of
Spokane County - board chair; YMCA of the Inland Northwest - treasurer; Junior
League of Spokane - past president; Spokane Intercollegiate Research & Tech-
nology Institute Foundation - board member; Spokane Joint Center for Higher
Education - board member; Spokane Area Chamber of Commerce - board member; and
St. George's School - board member.
*ANNE V. FARRELL (7/17/35)
Director
425 Pike Street, Suite 510
Seattle, Washington 98101
Mrs. Farrell joined the Seattle Foundation (a charitable foundation) in 1980 as
executive vice president. Became president in 1984. Also serves on the board of
Washington Mutual Bank and Blue Cross of Washington and Alaska. Listed in Who's
Who in America. Past President of the Nature Conservancy of Washington, Lakeside
School and Seattle Rotary Club. Currently a Regent at Seattle University and
president of the Rainier Club in Seattle.
*MICHAEL K. MURPHY (1/14/37)
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) and president of Inland Asphalt
Company. Member of the board of directors for Washington Mutual, Inc. ("Washing-
ton Mutual"), and Momentum, Inc. Former president and director of Inland Empire
Chapter - Associated General Contractors, and former director of National
Aggregates Associates.
*WILLIAM G. PAPESH (1/21/43)
President and Director
Mr. Papesh is president and director of WM Advisors, Inc. (the "Advisor"), WM
Shareholder Services, Inc. ("Shareholder Services"), WM Funds Distributor, Inc.
(the "Distributor") and WM Financial Services, Inc. (a registered investment
adviser and broker/dealer).
DANIEL L. PAVELICH (9/12/44)
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. Worked in Seidman's Spokane office for 27 years and is a
former presiding member of the firm's board of directors. A member of the
American Institute of CPAs and served as a vice president of the Washington
Society of CPAs' board of directors.
JAY ROCKEY (1/5/28)
Director
2121 - Fifth Avenue
Seattle, Washington 98121
Mr. Rockey is founder and chairman of The Rockey Company, a public relations and
marketing communications consulting firm with headquarters in Seattle and
offices in Portland and Spokane. Founder and director of RXL Pulitzer, an inter-
national multimedia company that is a joint venture with Pulitzer Publishing Co.
of St. Louis. History includes managing New York City public relations for
Aluminum Company of America, director of public relations for the Seattle
World's Fair and the presidency of the Public Relations Society of America.
RICHARD C. YANCEY (5/28/26)
Director
535 Madison Avenue
New York, New York 10022
Investment Banker - Dillon, Read & Co., Inc., New York City, 1952 through 1992.
Served as vice president, managing director and director and senior advisor at
Dillon, Read & Co. Member of the boards of directors of AdMedia Partners, Inc.,
CapMAC Holdings Inc., Fiberite, Inc., The Scoreboard, Inc., and Czech and Slovak
American Enterprise Fund.
*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 (12/26/45)
Vice President
11th Floor
601 W. Main Street
Spokane WA 99201
Senior Vice President and Director of the Distributor and Shareholder Services
and Vice President and Director of the Advisor.
MONTE D. CALVIN, CPA (1/22/44)
Senior Vice President and Chief Financial Officer
601 W. Main Avenue
Suite 300
Spokane WA 99201
Executive Vice President and Director of Shareholder Services; Director of the
Advisor and the Distributor.
SANDRA CAVANAUGH (5/10/54)
Senior Vice President
1631 Broadway
Sacramento CA 95818
First Vice President and Director of the Distributor since September 1997.
Director of Advisor and Shareholder Services. Prior to joining the Distributor,
Ms. Cavanaugh held senior level positions with AIM Funds Distributor, First
Interstate Investments and ASB Financial Services.
JEFFREY L. LUNZER, CPA (1/4/61)
Vice President and Treasurer
601 W. Main Avenue
Suite 300
Spokane WA 99201
Vice President of Shareholder Services.
JOHN T. WEST, CPA (1/21/55)
Vice President, Secretary and Compliance Officer
601 W. Main Avenue
Suite 300
Spokane WA 99201
Vice President of Shareholder Services.
The Fund paid no remuneration to any of its officers, including Mr. Papesh
during the year ended December 31, 1997. 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 $1,364 $1,364 $1,364 $15,000
Kristianne Blake 1,500 1,500 1,500 16,500
Daniel L. Pavelich 1,273 1,273 1,273 14,000
Jay Rockey 1,364 1,364 1,364 15,000
Richard C. Yancey 1,364 1,364 1,364 15,000
</TABLE>
(1) Each director serves in the same capacity with each Fund in the WM Group of
Funds.
As of April 6, 1998, 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 WM Deferred Variable Account of WM Life Insurance
Company is the sole shareholder of the Fund.
DISTRIBUTION SERVICES
DISTRIBUTOR
WM Funds Distributor, Inc. (the "Distributor") will purchase and resell shares
of the Fund's capital stock to fill orders placed with it by the Accounts. Cur-
rently, shares of the Fund's portfolios may only be sold to the WM Deferred
Variable Accounts or to any future separate account developed by WM 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 WM Deferred Variable Accounts, separate
accounts established and maintained by WM Life Insurance Company 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 1997 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 is the only shareholder of the Fund, no discus-
sion 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) 63%
AA 2
A 11
BBB 19
BB 2
B 1
Not Rated 2
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 WM Group. If more than one of such funds is
simultaneously engaged in the purchase or sale of the same security, the trans-
actions 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, WM Advisors, Inc. 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. The turnover rates for the Growth & Income, Income and North-
west Portfolios for 1997 were 50%, 9%, and 31%, respectively. The turnover
rates for the Growth & Income, Income and Northwest portfolios for 1996 were
45%, 11% and 31%, 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, 1997, 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, 1997
Growth & Income Northwest Income
Portfolio Portfolio Portfolio
---------------- ------------- -------------
Assets $57,582,836 $20,074,962 $18,503,081
Liabilities 327,337 150,706 138,908
---------------- ------------- -------------
Net Assets $57,255,499 $19,924,256 $18,364,173
================ ============= =============
Shares
Outstanding 1,970,273 845,928 1,465,212
================ ============= =============
Net Assets Per Share
(Net Assets/Shares
Outstanding) $29.06 $23.55 $12.53
====== ====== ======
<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,
1997, was filed with the Securities and Exchange Commission via EDGAR on
February 27, 1998. 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 4-30-98
(11) Accountants' Consent Form N-1A 4-30-98
(12) All financial statements omitted
from Item 23. Annual Report 2-27-98
(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 WM Advisors, Inc., ("WMAI")
which was established in 1944. WMAI is affiliated with WM Funds Distributor,
Inc., ("WMFD") and WM Securities Services, Inc. ("WMSS"). WMFD serves as prin-
cipal underwriter and distributor of the Registrant. All of the preceding are
subsidiaries of Washington Mutual, Inc. of Seattle, Washington.
WMAI, WMFD, and WMSS serve in the same capacities for other investment companies
in the WM Group of Funds, namely: WM Trust I, WM Trust II, WM Strategic Asset
Management Portfolios, WM Prime Income Fund, and WM Variable Trust.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
As of March 14, 1998, 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 WMAI, a wholly owned subsidiary of Washington
Mutual, Inc., a Washington corporation organized in 1889. The Adviser serves in
that capacity for the other investment companies within the WM 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 24, 1998, and is incorporated herein by reference.
ITEM 29. PRINCIPAL UNDERWRITERS.
The principal underwriter for the Registrant is WMFD which also serves in the
same capacity for the 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
March 24, 1998, 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 300,
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 22 day of
April, 1998.
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:
- -------------------------------------------
Wayne L. Attwood, Director (Date)
/s/ Anne V. Farrell April 22, 1998
- -------------------------------------------
Anne V. Farrell, Director (Date)
/s/ Kristianne Blake April 22, 1998
- -------------------------------------------
Kristianne Blake, Director (Date)
/s/ Michael K. Murphy April 22, 1998
- -------------------------------------------
Michael K. Murphy, Director (Date)
/s/ William G. Papesh April 22, 1998
- -------------------------------------------
William G. Papesh, Director (Date)
/s/ Daniel L. Pavelich April 22, 1998
- -------------------------------------------
Daniel L. Pavelich, Director (Date)
/s/ Jay Rockey April 23, 1998
- -------------------------------------------
Jay Rockey, Director (Date)
/s/ Richard C. Yancey April 22, 1998
- -------------------------------------------
Richard C. Yancey, Director (Date)
<PAGE>
- --------------------------------------------------------------------------------
EXHIBIT INDEX
- --------------------------------------------------------------------------------
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 10
April 17, 1998
Composite Deferred Series, Inc.
601 W. Main Avenue, Suite 300
Spokane WA 99201-0613
Gentlemen:
In connection with Post-Effective Amendment No. 15 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 17, 1998
Composite Deferred Series, Inc.
601 W. Main Avenue, Suite 300
Spokane, WA 99201-0613
Gentlemen:
We hereby consent to the use of our written opinion dated April 17, 1998,
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. 15 to the
Registration Statement on Form N-1A of Composite Deferred Series, Inc., of our
report dated January 20, 1998, on the financial statements and financial
highlights included in the December 31, 1997 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, 1998
<PAGE>
EXHIBIT 11
INDEPENDENT PUBLIC ACCOUNTANTS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDER OF
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, 1997, 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, 1997 and 1996 and the financial highlights for each of
the five years in the period ended December 31, 1997. 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 standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirming securities owned as of December
31, 1997, 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, 1997, 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.
LEMASTER & DANIELS PLLC
CERTIFIED PUBLIC ACCOUNTANTS
SPOKANE, WASHINGTON
JANUARY 20, 1998
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S SEMIANNUAL 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> 12-mos
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 41,450,326
<INVESTMENTS-AT-VALUE> 57,506,979
<RECEIVABLES> 73,695
<ASSETS-OTHER> 2,162
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 57,582,836
<PAYABLE-FOR-SECURITIES> 264,330
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 63,007
<TOTAL-LIABILITIES> 327,337
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 36,437,980
<SHARES-COMMON-STOCK> 1,970,273
<SHARES-COMMON-PRIOR> 1,702,382
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,760,866
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 16,056,653
<NET-ASSETS> 57,255,499
<DIVIDEND-INCOME> 810,222
<INTEREST-INCOME> 33,860
<OTHER-INCOME> 0
<EXPENSES-NET> (297,813)
<NET-INVESTMENT-INCOME> 546,269
<REALIZED-GAINS-CURRENT> 4,774,997
<APPREC-INCREASE-CURRENT> 7,701,072
<NET-CHANGE-FROM-OPS> 13,022,338
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (547,667)
<DISTRIBUTIONS-OF-GAINS> (3,110,023)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 291,319
<NUMBER-OF-SHARES-REDEEMED> (174,893)
<SHARES-REINVESTED> 151,465
<NET-CHANGE-IN-ASSETS> 15,853,832
<ACCUMULATED-NII-PRIOR> 1,398
<ACCUMULATED-GAINS-PRIOR> 3,095,892
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 255,114
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 297,813
<AVERAGE-NET-ASSETS> 50,645,624
<PER-SHARE-NAV-BEGIN> 24.32
<PER-SHARE-NII> 0.29
<PER-SHARE-GAIN-APPREC> 6.49
<PER-SHARE-DIVIDEND> (0.29)
<PER-SHARE-DISTRIBUTIONS> (1.75)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 29.06
<EXPENSE-RATIO> 0.59
<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 SEMIANNUAL 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> 12-mos
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 17,428,073
<INVESTMENTS-AT-VALUE> 18,197,455
<RECEIVABLES> 304,741
<ASSETS-OTHER> 885
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 18,503,081
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 138,908
<TOTAL-LIABILITIES> 138,908
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 17,711,268
<SHARES-COMMON-STOCK> 1,465,212
<SHARES-COMMON-PRIOR> 1,438,611
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (116,477)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 769,382
<NET-ASSETS> 18,364,173
<DIVIDEND-INCOME> 15,491
<INTEREST-INCOME> 1,250,584
<OTHER-INCOME> 0
<EXPENSES-NET> (122,833)
<NET-INVESTMENT-INCOME> 1,143,242
<REALIZED-GAINS-CURRENT> 25,271
<APPREC-INCREASE-CURRENT> 632,976
<NET-CHANGE-FROM-OPS> 1,801,489
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,143,242)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 187,345
<NUMBER-OF-SHARES-REDEEMED> (254,747)
<SHARES-REINVESTED> 94,003
<NET-CHANGE-IN-ASSETS> 979,669
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (141,748)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 88,173
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 122,833
<AVERAGE-NET-ASSETS> 17,719,639
<PER-SHARE-NAV-BEGIN> 12.08
<PER-SHARE-NII> 0.79
<PER-SHARE-GAIN-APPREC> 0.45
<PER-SHARE-DIVIDEND> (0.79)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.53
<EXPENSE-RATIO> 0.70
<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 SEMIANNUAL 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> 12-mos
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 13,967,040
<INVESTMENTS-AT-VALUE> 20,015,123
<RECEIVABLES> 54,366
<ASSETS-OTHER> 5,473
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 20,074,962
<PAYABLE-FOR-SECURITIES> 140,409
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 10,297
<TOTAL-LIABILITIES> 150,706
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 12,489,933
<SHARES-COMMON-STOCK> 845,928
<SHARES-COMMON-PRIOR> 700,316
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,386,240
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6,048,083
<NET-ASSETS> 19,924,256
<DIVIDEND-INCOME> 137,430
<INTEREST-INCOME> 31,062
<OTHER-INCOME> 0
<EXPENSES-NET> (115,962)
<NET-INVESTMENT-INCOME> 52,530
<REALIZED-GAINS-CURRENT> 1,411,838
<APPREC-INCREASE-CURRENT> 3,116,022
<NET-CHANGE-FROM-OPS> 4,580,390
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (53,379)
<DISTRIBUTIONS-OF-GAINS> (356,675)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 181,653
<NUMBER-OF-SHARES-REDEEMED> (57,730)
<SHARES-REINVESTED> 21,689
<NET-CHANGE-IN-ASSETS> 7,154,610
<ACCUMULATED-NII-PRIOR> 849
<ACCUMULATED-GAINS-PRIOR> 331,077
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 85,274
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 115,962
<AVERAGE-NET-ASSETS> 16,961,615
<PER-SHARE-NAV-BEGIN> 18.23
<PER-SHARE-NII> 0.07
<PER-SHARE-GAIN-APPREC> 5.80
<PER-SHARE-DIVIDEND> (0.07)
<PER-SHARE-DISTRIBUTIONS> (0.48)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 23.55
<EXPENSE-RATIO> 0.68
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
