<PAGE> 1
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. 17 /X/
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 17 /X/
COMPOSITE DEFERRED SERIES, INC.
(Exact name of Registrant as specified in Charter)
1201 Third Avenue, 22nd Floor, Seattle, WA 98101
(Address of principal executive offices)
1-206-461-8622
(Registrant's telephone number, including area code)
<TABLE>
<S> <C>
John T. West, Corporate Secretary With a copy to:
Composite Deferred Series, Inc. Brian McCabe
1201 Third Avenue Ropes & Gray
22nd Floor One International Place
Seattle, WA 98101 Boston, MA 02110
</TABLE>
(Name and address of agent for service)
Approximate Date of Proposed Public Offering: May 1, 1999
It is proposed that this filing will become effective:
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<S> <C>
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on May 1, 1999 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.
</TABLE>
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May 1, 1999
COMPOSITE DEFERRED SERIES, INC.
22nd Floor
1201 THIRD AVENUE
SEATTLE, WASHINGTON 98101
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. The Portfolios have 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 SAFECO Life Insurance Company for the purpose of funding annuity
contracts issued by the Company. The terms "shareholder" or "shareholders" in
this Prospectus shall refer to the Accounts. The Portfolios are:
- - GROWTH & INCOME PORTFOLIO.
- - NORTHWEST PORTFOLIO.
- - INCOME PORTFOLIO.
This Prospectus describes the Portfolios that are available as underlying
investments through your variable annuity contract. For information about your
variable annuity contract, including information about insurance-related
expenses, see the prospectus for your variable annuity contract, which
accompanies this Prospectus.
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<CAPTION>
CONTENTS PAGE
- -------- ----
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Risk/Return Summary................................................ 2
Investment Practices and Risk Factors.............................. 9
Investment Restrictions............................................ 12
Who We Are......................................................... 13
The Value of a Single Share........................................ 14
How to Buy Shares.................................................. 15
Distribution of Income and Capital Gains........................... 15
Income Taxes on Dividends and Capital Gains........................ 15
How to Sell Shares................................................. 16
Financial Highlights............................................... 16
</TABLE>
The Securities and Exchange Commission has
not approved or disapproved these securities
or passed upon the adequacy of this
prospectus. Any representation to the
contrary is a crime.
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RISK/RETURN SUMMARY
This summary identifies the investment objective, principal
investment strategies and principal risks of each Portfolio. The principal
investment strategies contained in these summaries are not, however, the only
investment strategies available to the Portfolios, and any number of the
principal investment strategies may not be in use at any given time. For a
discussion of all of the investment strategies available to the Portfolios,
please see the Statement of Additional Information (the "SAI").
A "Summary of Principal Risks" describing the principal risks
of investing in the Portfolios begins on page 6. You can find additional
information about each Portfolio, including a more detailed description of the
risks of an investment in each Portfolio, after this summary. Please be sure to
read the more complete descriptions of the Portfolios, and the related risks,
before you invest.
Below the description of each Portfolio is a bar chart showing
how the investment returns of its shares have varied in the past ten years, or
in the years since the Portfolio began if it is less than ten years old. The
table following each bar chart shows how average annual returns of the Portfolio
compare to returns of a broad-based securities market index for the last one,
five and ten years (or, for newer Portfolios, for shorter periods). Performance
shown does not reflect any insurance-related charges or expenses. If
insurance-related charges or expenses had been included, the performance shown
would have been lower. PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF
FUTURE PERFORMANCE.
There can be no assurance that any Portfolio will achieve its
objective. It is possible to lose money on investments in the Portfolios. An
investment in a Portfolio is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
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.
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GROWTH & INCOME PORTFOLIO
- - OBJECTIVE. This Portfolio seeks to provide long-term capital growth.
Current income is a secondary consideration.
- - PRINCIPAL INVESTMENT STRATEGIES. The Portfolio invests primarily in
common stocks.
YEARLY PERFORMANCE
[YEARLY PERFORMANCE BAR GRAPH]
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<CAPTION>
Calendar Year Annual Return
<S> <C>
1989 11.10%
1990 -4.96%
1991 25.95%
1992 10.56%
1993 7.78%
1994 2.72%
1995 33.70%
1996 22.09%
1997 29.66%
1998 11.11%
</TABLE>
During the periods shown above, the highest quarterly return
was 16.14% (for the quarter ended March 31, 1991), and the lowest was -13.81%
(for the quarter ended September 30, 1990). For the quarter ended March 31,
1999, the Portfolio's return was 2.48%.
PERFORMANCE TABLE
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<CAPTION>
AVERAGE ANNUAL TOTAL PAST ONE PAST FIVE PAST TEN
RETURNS (FOR PERIODS ENDING YEAR YEARS YEARS
DECEMBER 31, 1998)
- --------------------------- ---- ----- -----
<S> <C> <C> <C>
Portfolio Shares 11.11% 19.29% 14.33%
Standard & Poor's 500 28.58% 24.06% 19.19%
Composite Index*
</TABLE>
* This index represents an unmanaged weighted index of 500 industrial,
transportation, utility and financial companies widely regarded by investors as
representative of the stock market.
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NORTHWEST PORTFOLIO
- - OBJECTIVE. This Portfolio seeks long-term growth of capital.
- - PRINCIPAL INVESTMENT STRATEGIES. The Portfolio invests primarily in
common stocks of companies located or doing business in Alaska, Idaho,
Montana, Oregon and Washington. The Portfolio's investments may include
REPURCHASE AGREEMENTS and REAL ESTATE INVESTMENT TRUSTS (REITS).
YEARLY PERFORMANCE
[YEARLY PERFORMANCE BAR GRAPH]
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<CAPTION>
Calendar Year Annual Return
<S> <C>
1994 -1.12%
1995 26.03%
1996 22.23%
1997 32.39%
1998 22.78%
</TABLE>
During the periods shown above, the highest quarterly return
was 45.52% (for the quarter ended December 31, 1998), and the lowest was -8.29%
(for the quarter ended September 30, 1998). For the quarter ended March 31,
1999, the Portfolio's return was - 1.14%.
PERFORMANCE TABLE
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<CAPTION>
SINCE
AVERAGE ANNUAL TOTAL RETURNS (FOR PAST ONE PAST FIVE INCEPTION
PERIODS ENDING DECEMBER 31, 1998) YEAR YEARS (1/4/93)
- --------------------------------- -------- --------- ---------
<S> <C> <C> <C>
Portfolio Shares 22.78% 19.98% 16.95%
Standard & Poor's 500 Composite Index* 28.58% 24.06% 21.59%
</TABLE>
* This index represents an unmanaged weighted index of 500 industrial,
transportation, utility and financial companies widely regarded by investors as
representative of the stock market.
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INCOME PORTFOLIO
- - OBJECTIVE. This Portfolio seeks a high level of current income
consistent with protection of capital.
- - PRINCIPAL INVESTMENT STRATEGIES. The Portfolio invests primarily in a
diversified pool of fixed-income securities including U.S. Government
securities and mortgage-backed securities (including collateralized
mortgage obligations), up to 20% of which may be in lower-rated
securities (which are sometimes called "junk bonds"). The Portfolio may
also invest in convertible securities.
YEARLY PERFORMANCE*
[YEARLY PERFORMANCE BAR GRAPH]
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<CAPTION>
Calendar Year Annual Return
<S> <C>
1989 9.93%
1990 8.59%
1991 15.90%
1992 6.91%
1993 10.02%
1994 -4.48%
1995 19.86%
1996 2.34%
1997 10.62%
1998 9.50%
</TABLE>
During the periods shown above, the highest quarterly return was 7.01% (for the
quarter ended June 30, 1995), and the lowest was -3.68% (for the quarter ended
March 31, 1994). For the quarter ended March 31, 1999, the Portfolio's return
was -1.57%.
PERFORMANCE TABLE
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (FOR PERIODS PAST ONE PAST FIVE PAST TEN
ENDING DECEMBER 31, 1998) YEAR YEARS YEARS
- ------------------------- ---- ----- -----
<S> <C> <C> <C>
Portfolio Shares 9.50% 7.25% 8.73%
Lehman Brothers Government/Corporate Bond 9.47% 7.30% 9.34%
Index*
</TABLE>
* This index is generally considered representative of the U.S. government and
corporate bond markets.
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SUMMARY OF PRINCIPAL RISKS
The value of your investment in a Portfolio changes with the
value of the investments held by that Portfolio. Many factors can affect that
value. Factors that can affect a particular Portfolio as a whole are called
"principal risks." They are summarized in this section. The chart at the end of
this section displays similar information. All Portfolios are subject to
principal risks. These risks can change over time, because the types of
investments made by the Portfolios can change over time.
- - MARKET RISK. Each of the Portfolios is subject to market risk, which is
the general risk of unfavorable changes in the market value of a
Portfolio's securities holdings. The Growth & Income and Northwest
Portfolios, by investing in equity securities, such as common stock,
preferred stock and convertible securities, are exposed to the risk of
changes in the value of equity securities. Those risks include the
risks of broader market declines as well as more specific risks
affecting the issuer, such as management performance, financial
leverage, industry problems and reduced demand for the issuer's goods
or services.
Another aspect of market risk is interest rate risk. As interest rates
rise, your investment in a Portfolio is likely to be worth less because
its income-producing equity or debt investments are likely to be worth
less.
The Income Portfolio is subject to interest rate risk, even though it
generally invests its assets in the highest quality debt securities,
such as U.S. Government securities.
Interest rate risk is generally greater for debt securities with longer
maturities. This risk is compounded for the Income Portfolio, which may
invest in mortgage-backed or other asset-backed securities that may be
prepaid. These securities have variable maturities that tend to
lengthen when that is least desirable - when interest rates are rising.
Increased market risk is also likely as a result of the Income
Portfolio's such as the investment in debt securities paying no
interest, such as zero-coupon, principal-only and interest-only
securities.
- - CREDIT RISK. Each of the Portfolios may be subject to credit risk to
the extent it invests in fixed-income securities. This is the risk that
the issuer or the guarantor of a debt security, or the counterparty to
any of a Portfolio's investment transactions (including without
limitation repurchase agreements, reverse repurchase agreements,
securities loans and other over-the-counter transactions), will be
unable or unwilling to make timely principal and/or interest payments,
or to otherwise honor its obligations. Varying degrees of credit risk,
often reflected in credit ratings, apply. Credit risk is particularly
significant for the Income Portfolio's investments in lower-rated
securities. These securities and similar unrated securities (commonly
known as "junk bonds") have speculative elements or are predominantly
speculative credit risks. The Income and Growth & Income Portfolios,
which may make foreign investments denominated in
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U.S. dollars, are also subject to increased credit risk because of the
difficulties of requiring foreign entities to honor their contractual
commitments, and because a number of foreign governments and other
issuers are already in default.
- - CURRENCY RISK. The Income and Growth & Income Portfolios, which may
invest in securities denominated in, and/or receive revenues in,
foreign currencies will be subject to currency risk. This is the risk
that those currencies will decline in value relative to the U.S.
dollar, or, in the case of hedging positions, that the U.S. dollar will
decline in value relative to the currency hedged.
- - FOREIGN INVESTMENT RISK. The Income and Growth & Income Portfolios,
which may make foreign investments, may experience more rapid and
extreme changes in value than funds with investments solely in
securities of U.S. companies. This is because the securities markets of
many foreign countries are relatively small, with a limited number of
companies representing a small number of industries. Additionally,
foreign securities issuers are usually not subject to the same degree
of regulation as U.S. issuers. Reporting, accounting and auditing
standards of foreign countries differ, in some cases significantly,
from U.S. standards. Also, nationalization, expropriation or
confiscatory taxation, currency blockage, political changes or
diplomatic developments could adversely affect a Portfolio's
investments in a foreign country. In the event of nationalization,
expropriation or other confiscation, a Portfolio could lose its entire
investment. Adverse developments in certain regions, such as Southeast
Asia, may adversely affect the markets of other countries whose
economies appear to be unrelated.
- - GEOGRAPHIC CONCENTRATION RISK. The Northwest Portfolio invests
significant portions of its assets in the concentrated geographic areas
of the northwestern United States, and thus generally has more exposure
to regional economic risks than funds making investments more broadly.
- - LEVERAGING RISK. When a Portfolio is borrowing money or otherwise
leveraging its portfolio, the value of an investment in that Portfolio
will be more volatile and all other risks will tend to be compounded.
The Income Portfolio may achieve leverage by using reverse repurchase
agreements, and the Growth & Income Portfolio may achieve leverage
through the use of inverse floating rate investments.
- - DERIVATIVES RISK. Each of the Portfolios may, subject to the
limitations and restrictions stated elsewhere in this Prospectus and
the SAI, use strategic transactions involving derivatives, such as
forward contracts, futures contracts, options, swaps, caps, floors and
collars, which are financial contracts whose value depends on, or is
derived from, the value of something else, such as an underlying asset,
reference rate or index. In addition to other risks, such as the credit
risk of the counterparty, derivatives involve the risk of mispricing or
improper valuation and the risk that changes in the value of the
derivative may not correlate perfectly with relevant assets, rates and
indices.
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- - LIQUIDITY RISK. Liquidity risk exists when particular investments are
difficult to purchase or sell, possibly preventing a Portfolio from
selling out of these illiquid securities at an advantageous price. All
of the Portfolios may be subject to liquidity risk. Portfolios that
engage in strategic transactions, make foreign investments, and invest
in securities involving substantial market and/or credit risk tend to
involve greater liquidity risk.
- - MANAGEMENT RISK. Each Portfolio is subject to management risk because
it is an actively managed investment portfolio. WM Advisors will apply
its investment techniques and risk analyses in making investment
decisions for the Portfolios, but there can be no guarantee that they
will produce the desired results. In some cases derivatives and other
investments may be unavailable or WM Advisors may choose not to use
them under market conditions when their use would have been beneficial
to the Portfolios.
- - SMALLER COMPANY RISK. Market risk and liquidity risk are particularly
pronounced for stocks of companies with relatively small market
capitalizations. These companies may have limited product lines,
markets or financial resources or they may depend on a few key
employees. The Growth & Income and Northwest Portfolios generally have
the greatest exposure to this risk.
PRINCIPAL RISKS BY PORTFOLIO
The following chart summarizes the principal risks of each Portfolio. Risks not
marked for a particular Portfolio may, however, still apply to some extent to
that Portfolio at various times.
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PORTFOLIO MARKET CREDIT CURRENCY FOREIGN LEVERAGING
RISK RISK RISK INVESTMENT RISK RISK
- --------- ---- ---- ---- --------------- ----------
<S> <C> <C> <C> <C> <C>
Income Portfolio X X X X
Growth & X X X X
Income Portfolio
Northwest X X X
Portfolio
<CAPTION>
PORTFOLIO GEOGRAPHIC DERIVATIVES LIQUIDITY MANAGEMENT SMALLER
CONCENTRATION RISK RISK RISK COMPANY
RISK RISK
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income Portfolio X X X
Growth & X X X X
Income Portfolio
Northwest X X X X X
Portfolio
</TABLE>
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INVESTMENT PRACTICES AND RISK FACTORS
This section provides additional information about the
principal investment strategies and principal risks of the Portfolios.
GROWTH & INCOME PORTFOLIO
Currently, equity investments are selected from high-quality
companies with solid business fundamentals that the Advisor 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, the Portfolio is subject to market risk
and financial risk.
NORTHWEST PORTFOLIO
Common stocks are selected from high-quality companies with
solid business fundamentals that the Advisor 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 Advisor 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 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 A, for a detailed description of these ratings.)
2) Debts of the U.S. 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.
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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 should be subject to credit risk, market risk, and to
moderate 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 invest 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 Portfolio'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. The Growth & Income and Northwest Portfolios may,
if the Advisor 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
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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
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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 Advisor may
also invest up to 20% of the Income Portfolio's assets in below investment-grade
securities or in non-rated securities the Advisor 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 Advisor 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 Advisor 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.
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WHO WE ARE
Composite Deferred Series, Inc. was incorporated under the laws of
Washington on December 8, 1986, as an open-end management investment company. It
is a series company consisting of three separate Portfolios, each of which is
classified as diversified under the Investment Company Act of 1940.
Shares of the Portfolios are currently sold only to, and are owned
entirely by, the WM Deferred Variable Accounts (the "Accounts") to fund the
benefits under certain flexible premium variable annuity contracts (the
"Contracts") issued by SAFECO 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 Portfolios are managed by WM Advisors, Inc. (the "Advisor"). The
Advisor and Distributor are indirect wholly owned subsidiaries of Washington
Mutual, Inc. The Advisor 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 Advisor's address is 1201 Third Avenue,
22nd Floor, Seattle, Washington 98101-3015.
The Advisor advises the Portfolios on investment policies and specific
investments. Subject to supervision by the Portfolio's Board of Directors, the
Advisor 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 Advisor's own
investigation.
William G. Papesh is president of the Fund and of the Advisor. A team
of the Advisor's investment professionals manage each Portfolio under
supervision of the Advisor's investment committee. The primary Portfolio
managers are Randall L. Yoakum, CFA, for the Growth & Income Portfolio; Gary J.
Pokrzywinski, CFA, for the Income Portfolio; and David W. Simpson, CFA, for the
Northwest Portfolio. Mr. Yoakum has been employed by the Advisor since February
9, 1999 and has 12 years of continuous investment experience. Prior to assuming
his duties with the Advisor, Mr. Yoakum was the Chief Investment Officer for
D.A. Davison & Co. (DADCO) for two years, and from September 1994 until he
joined DADCO, Mr. Yoakum was the Senior Vice President and Managing Director of
Portfolio Management for Boatmen's Trust Company. Prior to joining Boatmen's
Trust Company, Mr. Yoakum was Senior Vice President and Chief Equity Officer for
Composite Research Management Co. (the predecessor to WM Advisors, Inc.). Mr.
Pokrzywinski has been employed by the Advisor since July 1992 and has 13 years
of continuous experience in fixed-income and financial
-13-
<PAGE> 15
market analysis. Mr. Simpson has been employed by the Advisor 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.)
WM Advisors, Inc. serves as "Advisor" under an investment
management agreement with the Fund. The agreement is renewable every year
subject to the approval of the Fund's Board of Directors.
A fee based on a percentage of average daily net assets is
paid to the Advisor for its services. This includes investment management and
administrative services and the Advisor'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
Advisor.
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 Advisor, 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."
-14-
<PAGE> 16
Investment securities and other assets are valued primarily on
the basis of market quotations or, if quotations are not readily available, by a
method that the Board of Directors believes accurately reflects fair value.
Foreign securities are valued on the basis of quotations from the primary market
in which they are traded, and are translated from the local currency into U.S.
dollars using current exchange rates. As a result, changes in the value of those
currencies in relation to the U.S. dollar may affect the Portfolios' NAV.
Because foreign markets may be open at different times than the New York Stock
Exchange, the value of the Portfolios' shares may change on days when
shareholders are not able to buy or sell them. If events materially affecting
the values of the Portfolios' foreign investments occur between the closed
foreign markets and the close of regular trading on the New York Stock Exchange,
those investments may be valued at their 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 SAFECO 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 conjunction with the Account Prospectus.
Portfolio shares are offered to the Accounts without sales
charge at the NAV next determined after receipt by the Fund of the purchase
order.
DISTRIBUTION OF INCOME AND CAPITAL GAINS
The Portfolios distribute dividends from net investment income
which is essentially interest and dividends from securities held minus expenses.
They also make capital gain distributions if realized gains from the sale of
securities exceed realized losses. Dividends from net investment income and any
distributions of realized capital gains are reinvested in additional shares of
the respective Portfolio at net asset value.
For the Income Portfolio, dividends are accrued daily and paid
monthly, when available; for the Growth & Income Portfolio, dividends are
declared and paid quarterly, when available; and for the Northwest Portfolio,
dividends are declared and paid annually, when available. Any net realized
capital gains will be paid annually.
INCOME TAXES ON DIVIDENDS AND CAPITAL GAINS
The Portfolios qualify as regulated investment companies under
the Internal Revenue Code. As long as they remain qualified, they will not be
subject to federal income tax on income and capital gains distributed to its
shareholders. Portfolios within a series fund are treated separately for federal
income tax purposes.
-15-
<PAGE> 17
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. 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.)
FINANCIAL HIGHLIGHTS
The tables on the following pages present selected financial
information about the Portfolios, including per share data, expense ratios and
other data based on average net assets. Information relating to the year ended
December 31, 1998 has been audited by Deloitte & Touche LLP, the Fund's
independent auditors, and information relating to prior periods has been audited
by LeMaster & Daniels PLLC. The reports of Deloitte & Touche LLP and LeMaster &
Daniels PLLC appear in the Fund's annual reports for the years ended December
31, 1998 and 1997, respectively. The annual reports are incorporated by
reference into the Statement of Additional Information.
-16-
<PAGE> 18
GROWTH & INCOME PORTFOLIO
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1998
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF PERIOD ........................... $29.06 $24.32 $20.22 $15.70 $15.71
INCOME FROM
INVESTMENT
OPERATIONS
Net Investment
Income ...................... 0.26 0.29 0.34 0.35 0.31
Net Gains or
Losses on
Securities (both
realized
and unrealized .............. 2.92 6.49 4.10 4.90 0.12
------ ------ ------ ------ ------
Total from
Investment
Operations ................... 3.18 6.78 4.44 5.25 0.43
------ ------ ------ ------ ------
DISTRIBUTIONS ................. .
Dividends (from
net investment income ........ (0.26) (0.29) (0.34) (0.35) (0.31)
Distributions
(from capital
gains ....................... (2.46) (1.75) -- (0.38) (0.13)
------ ------ ------ ------ ------
Total Distribution ............ (2.72) (2.04) (0.34) (0.73) (0.44)
------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD ................ $29.52 $29.06 $24.32 $20.22 $15.70
====== ====== ====== ====== ======
TOTAL RETURN (1) ............. 11.11% 29.66% 22.09% 33.70% 2.72%
RATIOS/SUPPLEMENTAL
DATA
Net Assets,
End of Period
($1,000's) .............................. $ 54,451 $ 57,255 $ 41,402 $ 24,448 $ 14,195
Ratio of
Expenses to
Average Net Assets (2) ................... 0.60% 0.59% 0.61% 0.70% 0.68%
Ratio of
Net Income to
Average Net Assets ....................... 0.92% 1.07% 1.59% 2.01% 1.97%
Portfolio Turnover
Rate ..................................... 32% 50% 45% 36% 25%
</TABLE>
(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.
-17-
<PAGE> 19
NORTHWEST PORTFOLIO
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF
PERIOD $ 23.55 $ 18.23 $ 14.99 $ 11.97 $ 12.19
INCOME FROM INVESTMENT
OPERATIONS
Net Investment
Income 0.08 0.07 0.09 0.09 0.08
Net Gains or
Losses on
Securities
(both realized and
unrealized) 5.07 5.80 3.24 3.02 (0.21)
Total From
Investment
Operations 5.15 5.87 3.33 3.11 (0.13)
LESS
DISTRIBUTIONS
Dividends (from net investment income) (0.08) (0.07) (0.09) (0.09) (0.08)
Distributions
(from capital gains) (1.84) (0.48) -- -- (0.01)
----- ----- ----- ----- -----
Total Distributions (1.92) (0.55) (0.09) (0.09) (0.09)
----- ----- ----- ----- -----
NET ASSET VALUE,
END OF PERIOD $ 26.78 $ 23.55 $ 18.23 $ 14.99 $ 11.97
========== ========== ========== ========== ==========
TOTAL RETURN(1) $ 22.78 32.92% 22.23% 26.03% (1.12%)
RATIOS/SUPPLEMENTAL DATA
Net Assets,
End of Period ($1,000's) $ 20,993 $ 19,924 $ 12,770 $ 7,495 $ 4,647
Ratio of
Expenses to
Average Net Assets(2) . 0.66% 0.68% 0.77% 0.90% 0.87%
Ratio of Net
Income to
Average Net Assets 0.34% 0.31% 0.56% 0.67% 0.76%
Portfolio Turnover
Rate 38% 31% 31% 11% 17%
</TABLE>
(1) Total returns do not reflect a sales charge. Returns of less than one
year are not annualized.
(2) Ratio of expenses to average net assets includes expenses paid
indirectly beginning in fiscal 1995.
-18-
<PAGE> 20
INCOME PORTFOLIO
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF
PERIOD ................... $ 12.53 $ 12.08 $ 12.59 $ 11.22 $ 12.57
INCOME FROM
INVESTMENT
OPERATIONS
Net Investment
Income ................. 0.78 0.79 0.78 0.79 0.79
Net Gains or
Losses on
Securities
(both realized and
unrealized) ............ 0.38 0.45 (0.51) 1.37 (1.35)
---------- ---------- ---------- ---------- ----------
Total From
Investment
Operations ............. 1.16 1.24 0.27 2.16 (0.56)
---------- ---------- ---------- ---------- ----------
LESS
DISTRIBUTIONS
Dividends (from
net investment income) . (0.78) (0.79) (0.78) (0.79) (0.79)
NET ASSET VALUE,
END OF PERIOD .......... $ 12.91 $ 12.53 $ 12.08 $ 12.59 $ 11.22
========== ========== ========== ========== ==========
TOTAL RETURN (1) ........ 9.50% 10.62% 2.34% 19.86% (4.48%)
RATIOS/SUPPLEMENTAL
DATA
Net Assets,
End of Period ($1,000's) $ 18,560 $ 18,364 $ 17,385 $ 15,206 $ 10,842
Ratio of
Expenses to
Average Net Assets(3) .. 0.67% 0.70% 0.67% 0.76% 0.74%
Ratio of Net
Income to
Average Net Assets ..... 6.11% 6.48% 6.46% 6.62% 6.79%
Ratio of Expenses to
Average Net Assets
Without Fees reduced
by Credits allowed by
Custodian .............. 0.68% 0.70% 0.67% 0.76% 0.74%
Portfolio Turnover
Rate (2) ............... 6% 9% 11% 14% 15%
Average Commission
</TABLE>
(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.
-19-
<PAGE> 21
FOR MORE INFORMATION ABOUT THE COMPOSITE DEFERRED SERIES, INC.
The Portfolios' Statement of Additional Information (SAI) and annual and
semi-annual reports to shareholders include additional information about the
Portfolios. The Portfolio's annual reports discuss the market conditions and
investment strategies that significantly affected performance during the last
fiscal year. The SAI and the Reports of Independent Accountants, along with the
financial statements, included in the Portfolio's annual report are incorporated
by reference into this prospectus, which means that they are part of this
prospectus for legal purposes. You may obtain free copies of these materials,
request other information about the Portfolios and make shareholder inquiries by
contacting your financial advisor or by calling toll-free 1-800-222-5852.
You may review and copy information about the Portfolios, including the SAI, at
the Securities and Exchange Commission's public reference room in Washington,
D.C. You may call the Commission at 1-800-SEC-0330 for information about the
operation of the public reference room. You may also access reports and other
information about the Portfolios on the Commission's Internet site at
http://www.sec.gov. Copies of this information can be obtained, for a fee, by
writing to the Public Reference Section of the Commission in Washington D.C.
20549-6009. You may need to refer to the file number below.
FILE NUMBER 33-11010
-20-
<PAGE> 22
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1999
COMPOSITE DEFERRED SERIES, INC.
A Mutual Fund Formed to Meet a Broad Range of Investment Objectives
1201 Third Avenue, 22nd Floor
Seattle, WA 98101
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
"Advisor") 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, 1999, AS WELL AS THE
PROSPECTUS FOR THE FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACTS ISSUED
BY SAFECO LIFE
<PAGE> 23
INSURANCE COMPANY WHICH MAY BE OBTAINED WITHOUT CHARGE BY CONTACTING SAFECO LIFE
INSURANCE AT THE ADDRESS SHOWN IN THEIR PROSPECTUS. THIS STATEMENT IS INTENDED
TO PROVIDE ADDITIONAL INFORMATION REGARDING THE ACTIVITIES AND OPERATION OF THE
FUND WHEN ALLOCATING AN INVESTMENT UNDER THE FLEXIBLE PREMIUM DEFERRED VARIABLE
ANNUITY CONTRACT TO THE FUND.
<PAGE> 24
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
The Fund and Its Management 2
Distribution Services 8
How Shares Are Valued 9
How Shares Can Be Purchased 9
Redemption of Shares 9
Dividends, Capital Gain 10
Distributions and Taxes
Investment Practices 10
Investment Restrictions 16
Brokerage Allocations and 17
Portfolio Transactions
General Information 19
Financial Statements and 20
Reports
Appendix A 21
</TABLE>
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
SAFECO 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 ADVISOR
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 "Advisor"). Decisions to buy, sell, or
hold a particular security are made by an investment team of the Advisor,
approved by an investment committee of the Advisor, subject to the control and
final direction of the Fund's Board of Directors.
The Advisor 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
-2-
<PAGE> 25
administrative services. The Advisor 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 Advisor are discussed in
the prospectus. The investment management agreement (the "Agreement") between
the Fund and the Advisor requires the Advisor 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 Advisor receives a monthly fee from
each Portfolio equal to .50% per annum computed on the average daily net assets
of each portfolio. For 1998, management fees paid by Growth & Income Portfolio,
Income Portfolio, and Northwest Portfolio were $277,136, $92,577, and $95,723,
respectively. 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.
Under the terms of the Agreement, the Fund is required to pay fees of
directors not employed by the Advisor 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 Advisor
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
-3-
<PAGE> 26
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
hat 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 Advisor'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 Advisor'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 Advisor has advised the Fund
that, in its view, the Glass-Steagall Act does not prohibit the activities of
the Advisor 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 1201 Third
Avenue, 22nd Floor, Seattle, WA 98101.
-4-
<PAGE> 27
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 &
Technology 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.
-5-
<PAGE> 28
*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.
("Washington 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
advisor 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
international 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.
-6-
<PAGE> 29
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 Advisor, 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.
-7-
<PAGE> 30
JOHN T. WEST (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, 1998. The Fund and other Funds within the WM
Group of Funds paid directors' fees during the year ended December 31, 1998, in
the amounts indicated below.
<TABLE>
<CAPTION>
Total Compensation
Growth & Income Northwest Income from the WM
Director Portfolio Portfolio Portfolio Group of Funds*
- -------- --------- --------- --------- ---------------
<S> <C> <C> <C> <C>
Wayne L. Atwood, MD $1,127 $376 $376 $35,000
Kristianne Blake $1,146 $382 $382 $36,000
Daniel L. Pavelich $1,000 $333 $333 $35,000
Jay Rockey $1,178 $393 $393 $31,000
Richard C. Yancey $1,031 $344 $344 $41,000
</TABLE>
* The WM Group of Funds consists of the Trust, WM Trust I, WM Trust II,
WM Variable Trust and WM Strategic Asset Management Portfolios. Each
director serves in the same capacity with each Fund in the WM Group of
Funds.
As of April 15, 1999, 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
SAFECO 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. Currently, shares of the Fund's portfolios may only be sold to the WM
Deferred Variable Accounts or to any future separate account developed by SAFECO
Life Insurance Company.
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<PAGE> 31
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 SAFECO 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.
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.
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<PAGE> 32
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 1998 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. 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 SAFECO Life Insurance Company is the only shareholder of the
Fund, no discussion is included about the federal income tax consequences to
shareholders. For information concerning the federal tax consequences to holders
of variable annuity contracts, see the prospectus for the Flexible Premium
Deferred Variable Annuity Contracts.
INVESTMENT PRACTICES
The investment objectives and policies of the Fund's three separate
portfolios appear in the prospectus and are extended below. Portfolio
investments are adjusted in accordance with management's evaluation of changing
market risks and economic conditions. Such changes are made as management
believes necessary to meet the objectives of the portfolios and the best
interest of investors.
In addition to these policies, the Fund is subject to investment
restrictions which cannot be changed without approval of a majority of
outstanding shares. These restrictions are discussed under "Investment
Restrictions." No significant investment policies can be changed without
shareholder approval.
Because of the many factors which influence fluctuations in the market
value of securities owned by the Fund, including economic trends, government
actions and regulations, and international monetary conditions, there can be no
assurance that the objectives of the Fund's portfolios will be achieved. There
are market risks inherent in all investments. The Fund believes, however, that
through professional management the prospects for investment success are
enhanced.
GROWTH & INCOME PORTFOLIO
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<PAGE> 33
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 (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 Advisor believes to be of comparable quality. This practice may
involve higher risks, but the
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<PAGE> 34
Advisor will only use such practices if it believes the income and
yield is sufficient to justify such risks. See Appendix A 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.
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<PAGE> 35
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 1998 is presented below:
<TABLE>
<CAPTION>
Percentage of Average
S&P Rating Total Assets
--------------------- ---------------------
<S> <C>
AAA (or US Treasury) 68
AA 1
A 10
BBB 17
BB 3
B 1
Not Rated
</TABLE>
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
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<PAGE> 36
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
Advisor. However, the Advisor 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 transactions are allocated as to price and amount in accordance
with a formula considered to be equitable to each. It is recognized that, in
some cases, this system could have a detrimental effect on the price or volume
of the security as far as the Fund is concerned. In other cases, however, it is
believed that the ability to participate in volume transactions will provide
better executions for the Fund. It is the opinion of the Board of Directors of
the Fund that these advantages, when combined with the personnel and facilities
of the Advisor'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
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<PAGE> 37
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.
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<PAGE> 38
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 Advisor
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 Advisor. 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 Advisor 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);
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<PAGE> 39
* 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
Advisor 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 Advisor 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 Advisor 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
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<PAGE> 40
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 Advisor
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 Advisor to the Fund and/or other accounts over which the
Advisor exercises investment discretion. The Advisor 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 Advisor 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 Advisor's staff, and personal visits by such analysts,
brokerage strategists and economists to the Advisor's office.
Some of these services are of value to the Advisor 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 Advisor 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 Advisor 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 Advisor 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 Advisor, Distributor or Administrator. The Distributor will not execute any
portfolio orders for the Fund during the fiscal year, nor will the Distributor
or the Advisor 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 Northwest portfolios for 1998 were 32%, 6% and 38%,
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<PAGE> 41
respectively. The turnover rates for the Growth & Income, Income and Northwest
Portfolios for 1997 were 50%, 9%, 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 Deloitte & Touche LLP, serves as the independent
accountants of the Fund. Deloitte & Touche 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. For years ending prior to December 31, 1998, LeMaster
& Daniels PLLC, Certified Public Accountants, served as independent accountants
of the Fund.
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<PAGE> 42
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 reports to
shareholders dated December 31, 1998 and December 31, 1997, respectively, which
are incorporated by reference into this Statement of Additional Information, may
be obtained without charge by contacting the Fund's offices.
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<PAGE> 43
APPENDIX A
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.
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<PAGE> 44
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 (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.
-22-
<PAGE> 45
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.
-23-
<PAGE> 46
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
-24-
<PAGE> 47
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.
-25-
<PAGE> 48
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS
<TABLE>
<CAPTION>
Filing
Incorporated Date
Exhibits With Filed
-------- ------------ ------
<S> <C> <C>
(a) Articles of Incorporation Form N-1A 4-24-97
(b) Bylaws Form N-1A 2-29-96
(c) Instruments defining the (see (a) and
Rights of Shareholders (b) above) N/A
(d) Investment Management Agreement Form N-1A 4-24-97
(e) Distribution Contract Form N-1A 3-31-87
(f) Bonus, profit sharing, pension or
other similar contracts for
benefit of directors or officers
of the Registrant N/A
(g) Custody Agreement Form N-1A 4-24-97
(h) Shareholders Service Contract Form N-1A 2-29-96
(i) Opinion and Consent of Counsel Form N-1A 4-30-98
(j) Accountants' Consent
(k) All financial statements omitted
from Item 23. N/A
(l) Agreements or understandings made N/A
in consideration for providing
initial capital N/A
(m) 12b-1 Plan N/A
(n) Financial Data Schedules
(o) 18f-3 Plan N/A
</TABLE>
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
REGISTRANT
N/A
ITEM 25. 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
-26-
<PAGE> 49
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 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR.
<TABLE>
<CAPTION>
Directors Past Two Fiscal Years
- --------- ---------------------
<S> <C>
Monte D. Calvin WM Shareholder Services, Inc.
First Vice President, Director 1201 Third Ave., 22nd Floor, Seattle, WA 98101
Treasurer, Director April 1997 - present
WM Advisors, Inc.
1201 Third Ave., 22nd Floor, Seattle, WA 98101
Vice President, Treasurer July 1997 - present
Director WM Funds Distributor, Inc.
1201 Third Ave., 22nd Floor, Seattle, WA 98101
Craig S. Davis July 1997 - present
Director WM Funds Distributor, Inc.
1201 Third Ave., 22nd Floor, Seattle, WA 98101
Director WM Shareholder Services, Inc.
1201 Third Ave., 22nd Floor, Seattle, WA 98101
Director April 1997 - present
WM Advisors, Inc.
1201 Third Ave., 22nd Floor, Seattle, WA 98101
Executive Vice President December - present
Washington Mutual, Inc.
1201 Third Ave., Seattle, WA 98101
Chairman January 1996 - July 1997
ASB Financial Services, Irvin, CA
</TABLE>
-27-
<PAGE> 50
<TABLE>
<S> <C>
J. Pamela Dawson July 1997 - present
Director WM Funds Distributor, Inc.
1201 Third Ave., 22nd Floor, Seattle, WA 98101
Director WM Shareholder Services, Inc.
1201 Third Ave., 22nd Floor, Seattle, WA 98101
Director April 1997 - present
WM Advisors, Inc.
1201 Third Ave., 22nd Floor, Seattle, WA 98101
President March 1997 - present
WM Financial Services
1201 Third Ave., 7th Floor, Seattle, WA 98101
President December 1996 - July 1997
ASB Financial Services, Irvine, CA
Senior Vice President/Regional November 1996 - December 1996
Manager Wells Fargo Securities/First Interstate, Houston, TX
Kerry K. Killinger WM Advisors, Inc.
Director 1201 Third Ave., 22nd Floor, Seattle, WA 98101
CEO, Chairman, Director Washington Mutual Bank
1201 Third Avenue, Seattle, WA 98101
Director July 1997 - present
WM Funds Distributor, Inc.
1201 Third Ave., 22nd Floor, Seattle, WA 98101
Director WM Shareholder Services, Inc.
1201 Third Ave., 22nd Floor, Seattle, WA 98101
Sharon L. Howells WM Advisors, Inc.
First Vice President, 1201 Third Ave., 22nd Floor, Seattle, WA 98101
Corporate Secretary
Vice President, July 1997 - present
Corporate Secretary WM Funds Distributor, Inc.
1201 Third Ave., 22nd Floor, Seattle, WA 98101
Corporate Secretary WM Shareholder Services, Inc.
1201 Third Ave., 22nd Floor, Seattle, WA 98101
Jeffrey D. Huffman WM Advisors, Inc.
Vice President 1201 Third Ave., 22nd Floor, Seattle, WA 98101
</TABLE>
-28-
<PAGE> 51
<TABLE>
<S> <C>
B. Joel King March 1998 - present
Vice President WM Advisors, Inc.
1201 Third Ave., 22nd Floor, Seattle, WA 98101
Vice President January 1996 - February 1998
Bennington Capital Management
1420 Fifth Ave., Seattle, WA 98101
William G. Papesh WM Advisors, Inc.
President, Director 1201 Third Ave., 22nd Floor, Seattle, WA 98101
President, Director WM Shareholder Services, Inc.
1201 Third Ave., 22nd Floor, Seattle, WA 98101
Director WM Insurance Services
1201 Third Ave., Seattle, WA 98101
President, Director WM Group of Funds
1201 Third Ave., 22nd Floor, Seattle, WA 98101
President, Director July 1997 - present
WM Funds Distributor, Inc.
1201 Third Ave., 22nd Floor, Seattle, WA 98101
Brian L. Placzek WM Advisors, Inc.
Vice President 1201 Third Ave., 22nd Floor, Seattle, WA 98101
Gary J. Pokrzywinski WM Advisors, Inc.
Vice President 1201 Third Ave., 22nd Floor, Seattle, WA 98101
Audrey S. Quaye February 1996 - present
Vice President WM Advisors, Inc.
1201 Third Ave., 22nd Floor, Seattle, WA 98101
Credit Analyst January 1996 - February 1996
Tandem Computers, Cupertino, CA
Stephen C. Scott March 1998 - present
Vice President WM Advisors, Inc.
1201 Third Ave., 22nd Floor, Seattle, WA 98101
Senior Investment Advisor Sierra Investment Services Corporation
9301 Corbin Ave., Northridge, CA 91324
President Sierra Investment Services Corporation
9301 Corbin Ave., Northridge, CA 91324
</TABLE>
-29-
<PAGE> 52
<TABLE>
<S> <C>
David W. Simpson WM Advisors, Inc.
Vice President 1201 Third Ave., 22nd Floor, Seattle, WA 98101
Linda C. Walk December 1997 - present
Vice President WM Advisors, Inc.
1201 Third Ave., 22nd Floor,
Seattle, WA 98101
November 1996 - November 1997
Laid Norton Trust
Company Norton Building, Suite
1600, Seattle, WA 98104
January 1996 - July 1996
Ernst & Young LLP
2001 Market Street, 41st Floor, Philadelphia, PA 19103
</TABLE>
ITEM 27. PRINCIPAL UNDERWRITERS.
(a) The principal underwriter for the Registrant is WM Funds
Distributor, Inc. WM Funds Distributor, Inc. also serves as the principal
underwriter for WM Trust I, WM Trust II, WM Strategic Asset Management
Portfolios and WM Variable Trust.
(b) The Directors and Officers of WM Funds Distributor, Inc., their
positions with WM Funds Distributor, Inc. and the WM Group of Funds are set
forth in the table below. The principal business address of WM Funds
Distributor, Inc. and each of its directors and officers is 1201 Third Avenue,
22nd Floor, Seattle, Washington 98101.
<TABLE>
<CAPTION>
Name and Position And Positions And
Principal Business Offices With Offices With
Address Underwriter Registrant
------- ----------- ----------
<S> <C> <C>
William G. Papesh President President
Sandra A. Cavanaugh First Vice President Senior Vice President
Monte D. Calvin Vice President, Chief Financial Officer,
Treasurer Senior Vice President
Sharon L. Howells Vice President, Senior Vice President
Corporate Secretary
</TABLE>
(c) N/A
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
-30-
<PAGE> 53
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 1201 Third Avenue, 22nd Floor,
Seattle, Washington 98101. The Registrant's custodian activities are performed
at Investors Fiduciary Trust Company (IFTC), 127 W. 10th, Kansas City, MO 64105.
ITEM 29. MANAGEMENT SERVICES.
Registrant is not a party to any management related service contract, other than
as set forth in the Prospectus.
ITEM 30. UNDERTAKINGS.
Management has included a discussion of Fund performance in the Fund's annual
report which is available upon request and without charge.
-31-
<PAGE> 54
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(b) 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 Seattle, and State of Washington on the 27th
day of April, 1999.
COMPOSITE DEFERRED SERIES, INC.
By: WILLIAM G. PAPESH*
--------------------------------------
William G. Papesh
President, Principal Executive Officer
MONTE D. CALVIN
--------------------------------------
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:
- -------------------------------------- April ---, 1999
Wayne L. Attwood, Director
ANNE V. FARRELL* April 27, 1999
- --------------------------------------
Anne V. Farrell, Director
KRISTIANNE BLAKE* April 27, 1999
- --------------------------------------
Kristianne Blake, Director
April ---, 1999
- --------------------------------------
Michael K. Murphy, Director
WILLIAM G. PAPESH* April 27, 1999
- --------------------------------------
William G. Papesh, Director
- -------------------------------------- April ---, 1999
Daniel L. Pavelich, Director
-32-
<PAGE> 55
JAY ROCKEY* April 27, 1999
- --------------------------------------
Jay Rockey, Director
RICHARD C. YANCEY* April 27, 1999
- --------------------------------------
Richard C. Yancey, Director
*By WILLIAM G. PAPESH
--------------------------------------
William G. Papesh
Pursuant to Powers of Attorney
previously filed.
-33-
<PAGE> 56
EXHIBIT INDEX
EX-99.J(1) ACCOUNTANT'S CONSENT - LEMASTER & DANIELS, PLLC
EX-99.J(2) ACCOUNTANT'S CONSENT - DELOITTE & TOUCHE, LLC
EX-27.CLASS A FINANCIAL DATA SCHEDULES -
-34-
<PAGE> 1
[LeMASTER & DANIELS PLLC LETTERHEAD]
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. 17 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 heading "Financial Highlights" in the Prospectus and under the
heading "Independent Public Accountants" in the Statement of Additional
Information.
/s/ LeMaster & Daniels PLLC
LeMaster & Daniels PLLC
Spokane, Washington
April 27, 1999
<PAGE> 1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Post-Effective Amendment No. 17
to Registration Statement No. 033-11010 on Form N-1A (the "Registration
Statement") of our report dated February 5, 1999, appearing in the Annual
Report of the Composite Deferred Series, Inc. for the period ended December 31,
1998, and to the references to us under the heading "Financial Highlights" in
the Prospectus and under the heading "Independent Public Accountants" in the
Statement of Additional Information, which is part of such Registration
Statement.
/S/ Deloitte & Touche LLP
San Francisco, California
April 28, 1999
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> COMPOSITE DEFERRED GROWTH & INCOME PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 37,904,292
<INVESTMENTS-AT-VALUE> 54,203,278
<RECEIVABLES> 299,166
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 364
<TOTAL-ASSETS> 54,502,808
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 52,116
<TOTAL-LIABILITIES> 52,116
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 33,429,816
<SHARES-COMMON-STOCK> 1,844,627
<SHARES-COMMON-PRIOR> 1,970,273
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,721,890
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 16,298,986
<NET-ASSETS> 54,450,692
<DIVIDEND-INCOME> 801,073
<INTEREST-INCOME> 39,330
<OTHER-INCOME> 0
<EXPENSES-NET> 332,779
<NET-INVESTMENT-INCOME> 507,624
<REALIZED-GAINS-CURRENT> 4,762,524
<APPREC-INCREASE-CURRENT> 242,333
<NET-CHANGE-FROM-OPS> 5,512,481
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (507,624)
<DISTRIBUTIONS-OF-GAINS> (4,800,946)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 31,924
<NUMBER-OF-SHARES-REDEEMED> (338,938)
<SHARES-REINVESTED> 181,368
<NET-CHANGE-IN-ASSETS> (2,804,807)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 4,760,866
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 277,136
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 333,006
<AVERAGE-NET-ASSETS> 55,427,261
<PER-SHARE-NAV-BEGIN> 29.06
<PER-SHARE-NII> 0.26
<PER-SHARE-GAIN-APPREC> 2.92
<PER-SHARE-DIVIDEND> (0.26)
<PER-SHARE-DISTRIBUTIONS> (2.46)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 29.52
<EXPENSE-RATIO> 0.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 031
<NAME> COMPOSITE DEFERRED INCOME PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 17,053,931
<INVESTMENTS-AT-VALUE> 18,327,311
<RECEIVABLES> 380,380
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 797
<TOTAL-ASSETS> 18,708,488
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 148,878
<TOTAL-LIABILITIES> 148,878
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 17,351,438
<SHARES-COMMON-STOCK> 1,438,071
<SHARES-COMMON-PRIOR> 1,465,212
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (65,208)
<ACCUM-APPREC-OR-DEPREC> 1,273,380
<NET-ASSETS> 18,559,610
<DIVIDEND-INCOME> 13,687
<INTEREST-INCOME> 1,241,424
<OTHER-INCOME> 0
<EXPENSES-NET> 123,519
<NET-INVESTMENT-INCOME> 1,131,592
<REALIZED-GAINS-CURRENT> 39,906
<APPREC-INCREASE-CURRENT> 503,998
<NET-CHANGE-FROM-OPS> 1,675,496
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,131,592)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 109,080
<NUMBER-OF-SHARES-REDEEMED> (224,982)
<SHARES-REINVESTED> 88,761
<NET-CHANGE-IN-ASSETS> 195,437
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (116,477)
<GROSS-ADVISORY-FEES> 92,577
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 125,528
<AVERAGE-NET-ASSETS> 18,515,420
<PER-SHARE-NAV-BEGIN> 12.53
<PER-SHARE-NII> 0.78
<PER-SHARE-GAIN-APPREC> 0.38
<PER-SHARE-DIVIDEND> (0.78)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.91
<EXPENSE-RATIO> 0.67
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 021
<NAME> COMPOSITE DEFERRED NORTHWEST PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 14,436,623
<INVESTMENTS-AT-VALUE> 20,989,037
<RECEIVABLES> 55,423
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 440
<TOTAL-ASSETS> 21,044,900
<PAYABLE-FOR-SECURITIES> 28,069
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 23,750
<TOTAL-LIABILITIES> 51,819
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11,349,787
<SHARES-COMMON-STOCK> 783,847
<SHARES-COMMON-PRIOR> 845,928
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3,090,880
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6,552,414
<NET-ASSETS> 20,993,081
<DIVIDEND-INCOME> 158,413
<INTEREST-INCOME> 31,417
<OTHER-INCOME> 0
<EXPENSES-NET> 125,572
<NET-INVESTMENT-INCOME> 64,258
<REALIZED-GAINS-CURRENT> 3,264,693
<APPREC-INCREASE-CURRENT> 504,331
<NET-CHANGE-FROM-OPS> 3,833,282
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (64,258)
<DISTRIBUTIONS-OF-GAINS> (1,560,748)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11,707
<NUMBER-OF-SHARES-REDEEMED> (140,957)
<SHARES-REINVESTED> 67,169
<NET-CHANGE-IN-ASSETS> 1,068,825
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,386,240
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 95,723
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 125,943
<AVERAGE-NET-ASSETS> 19,144,699
<PER-SHARE-NAV-BEGIN> 23.55
<PER-SHARE-NII> 0.08
<PER-SHARE-GAIN-APPREC> 5.07
<PER-SHARE-DIVIDEND> (0.08)
<PER-SHARE-DISTRIBUTIONS> (1.84)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 26.78
<EXPENSE-RATIO> 0.66
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
