SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Securities Act of 1933 File #33-11011
Form N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /x/
PRE-EFFECTIVE AMENDMENT NO. __ / /
POST-EFFECTIVE AMENDMENT NO. 13 /x/
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /x/
AMENDMENT NO. 15 /X/
COMPOSITE DEFERRED VARIABLE ACCOUNT
- - --------------------------------------------------------------------------------
(Exact Name of Registrant)
WM LIFE INSURANCE COMPANY
- - --------------------------------------------------------------------------------
(Name of Depositor)
1201 Third Avenue, Suite 600 Seattle, Washington 98101-3015
- - --------------------------------------------------------------------------------
(Address of Depositor's Principal Executive Offices)
Depositor's Telephone Number, including Area Code:
(206)461-2500
Name and Address of Agent for Service: Copy to:
Robert Eschrich Frederick R. Bellamy, Esquire
WM Life Insurance Company Sutherland, Asbill & Brennan
1201 Third Avenue, Suite 600 1275 Pennsylvania Avenue, NW
Seattle, Washington 98101-3015 Washington, D.C. 20004-2404
Approximate date of proposed public offering:
As soon as practicable after effectiveness of the Registration Statement.
This Registrant has previously filed a declaration of indefinite
registration of its shares pursuant to Rule 24f-2 under the Investment Company
Act of 1940. The Rule 24F-2 Notice for the year ended December 31, 1995 was
filed on February 22, 1996.
It is proposed that this filing will become effective: [ ] immediately upon
filing pursuant to paragraph (b) [xx] on April 30, 1996, pursuant to paragraph
(b) [ ] 60 days after filing pursuant to paragraph (a)(i) [ ]
on_______________pursuant to paragraph (a)(i) [ ] 75 days after filing pursuant
to paragraph (a)(ii) [ ] on_______________pursuant to paragraph (a)(ii) of Rule
485
If appropriate, check the following box:
[ ] this Post-Effective Amendment designates a new effective date for a
previously filed Post-Effective Amendment.
<PAGE>
Registration No. 33-11011
CROSS REFERENCE SHEET
Showing Location in Part A (Prospectus) and Part B (Statement
of Additional Information) of Registration Statement Required
By Form N-4
Item of Form N-4 Prospectus Caption
- - ---------------- ------------------
1. Cover Page Cover Page
2. Definitions Glossary
3. Synopsis Introduction
4. Condensed Financials
(a) Chart Not Applicable
(b) MM Yield Not Applicable
(c) Location of Others Financial Statements
5. General
(a) Depositor WM Life Insurance Company
(b) Registrant Variable Account
(c) Portfolio Company Composite Deferred Series, Inc.
(d) Fund Prospectus Composite Deferred Series, Inc.
(e) Voting Rights Voting Rights
(f) Administrators Charges and Other Deductions -
Contract Maintenance Charge
6. Deductions & Expenses
(a) General Charges and Other Deductions
(b) Sales Load % Contingent Deferred Sales Charge
(c) Special Purchase Plans N/A
(d) Commissions Sales Commission
(e) Expenses - Registrant Variable Account Expenses
(f) Fund Expenses Composite Deferred Series, Inc.,
Expenses
(g) Organizational Expenses N/A
7. Contracts
(a) Persons with Rights The Contracts; Benefits; Income
Payments; Voting Rights; Assignments;
Beneficiaries; Contract Owners
(b) (i) Allocation of Allocation of Purchase Payments
Purchase Payments
(ii) Transfers Transfers
(iii) Exchanges N/A
(c) Changes Modification
(d) Inquiries Customer Inquiries
8. Annuity Period Income Payments
(a) Material Factors N\A
(b) Dates N\A
(c) Frequency, duration & level N\A
(d) AIR N\A
(e) Minimum N\A
(f) - Change Options Transfers
- Transfer
9. Death Benefit Death Benefits
10. Purchase & Contract Value
(a) Purchases Purchase of Contracts; Crediting of
Purchase Payments
(b) Valuation Value of Variable Account
Accumulation Units
(c) Daily Calculation Value of Variable Account
Accumulation Units; Allocation of
Purchase Payments
(d) Underwriter Murphey Favre, Inc.
11. Redemptions
(a) - By Owners Surrenders and Withdrawals
(b) - By Annuitant Annuity Option 3
(c) Texas ORP N/A
(d) Lapse N/A
(e) Free Look Introduction
12. Taxes Federal Tax Matters
13. Legal Proceedings N/A
14. SAI Contents SAI Table of Contents
15. Cover Page Cover Page
16. Table of Contents Table of Contents
17. General Information & History
(a) Depositor's Name WM Life Insurance Company
(b) Assets of Sub-Account Variable Account
(c) Control of Depositor WM Life Insurance Company
18. Services
(a) Fees & Expenses of Registrant Contract Maintenance Charge
(b) Management Contracts Contract Maintenance Charge - Sales
Commission
(c) Custodian SAI: Safekeeping of Variable
Account's Assets
Independent Public SAI: Independent Auditors
Accountants
(d) Assets of Registrant SAI: Safekeeping of Variable Account
Assets
(e) Affiliated Persons N/A
(f) Principal Underwriter Murphey Favre, Inc.
19. Purchase of Securities Being Offered
(a) Offering SAI: Purchase of Contracts
(b) Sales load SAI: Sales Commissions
20. Underwriters
(a) Principal Underwriter SAI: Murphey Favre, Inc.
(b) Continuous offering SAI: Purchase of Contracts
(c) Commissions SAI: Sales Commissions; Murphey
Favre, Inc.
(d) Unaffiliated Underwriters N/A
21. Calculation of Yield Quotations SAI: Money Market Yield Calculation
of Money Market Sub-Account
22. Annuity Payments SAI: Income Payments
23. Financial Statements
(a) Financial Statements Composite Deferred Variable Account
of Registrant Financial Statements
(b) Financial Statements WM Life Insurance Company and
of Depositor subsidiary Financial Statements
24a. Financial Statements Part C: Financial Statements
24b. Exhibits Part C: Exhibits
25. Directors and Officers Part C: Directors & Officers of
Depositor
26. Persons Controlled By or Part C: Persons Controlled By or
Under Common Control with Under Common Control with Depositor
Depositor or Registrant or Registrant.
27. Number of Contract Owners Part C: Number of Contract Owners
28. Indemnification Part C: Indemnification
29a. Relationship of Principal Part C: Relationship of Principal
Underwriter to Other Underwriter to Other Investment
Companies Companies
29b. Principal Underwriters Part C: Principal Underwriters
29c. Compensation of Underwriter Part C: Compensation of Murphey
Favre
30. Location of Accounts & Records Part C: Location of Accounts &
Records
31. Management Services Part C: Management Services
32. Undertakings Part C: Undertakings
<PAGE>
COMPOSITE DEFERRED VARIABLE ACCOUNT
of
WM LIFE INSURANCE COMPANY
1201 THIRD AVENUE, SUITE 600
SEATTLE, WA 98101-3015
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACT
Distributed By
Murphey Favre, Inc.
1201 Third Avenue
Suite 780
Seattle, Washington 98101-3015
(800) 543-8072
This Prospectus describes the Flexible Premium Deferred Variable Annuity
Contract ("Contract") offered by WM Life Insurance Company ("Company"). Murphey
Favre, Inc. ("Murphey Favre") or other authorized representatives
("Distributor") are the distributor of the Contracts. Both the Company and
Murphey Favre are direct or indirect subsidiaries of Washington Mutual, Inc.
and are affiliates of Washington Mutual Bank and Washington Mutual, a Federal
Savings Bank.
The Contract is primarily designed to aid you in long-term financial
planning and generally can be used for retirement planning regardless of whether
your plan qualifies for special federal income tax treatment. It has the
flexibility to allow you to shape an annuity to fit your particular needs. Under
the Contract you can allocate your cash value to the Composite Deferred Variable
Account ("Variable Account"), where it will reflect the investment experience of
one or more selected mutual fund portfolios, or to the Fixed Account, where it
will earn at least a guaranteed minimum rate.
This Prospectus is a concise statement of the relevant information about
the Variable Account which you should know before making a decision to purchase
the Contract.
The Company has prepared and filed a Statement of Additional Information
dated April 30, 1996, with the Securities and Exchange Commission. If you wish
to receive the Statement of Additional Information, you may obtain a free copy
by calling or writing Murphey Favre or the Company at the address above. Before
ordering, you may wish to review the Table of Contents of the Statement of
Additional Information on page 12 of this Prospectus. The Statement of
Additional Information has been incorporated by reference into this Prospectus.
This Prospectus and the Statement of Additional Information generally describe
only the variable portion of the Contract.
Administrative Service Center:
WM Life Insurance Company
1201 Third Avenue
Suite 600
Seattle, Washington 98101-3015
(206) 461-2500
This Prospectus is valid only when accompanied by a current prospectus for the
Composite Deferred Series, Inc. Contract Owners may have voting rights in that
mutual fund.
Contracts are not deposits or obligations of, or endorsed or guaranteed by, any
bank, nor are they federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other agency. Contracts involve
certain investment risks including possible loss of principal amount invested.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Please Read This Prospectus Carefully
and Retain It For Future Reference
The Date Of This Prospectus Is April 30, 1996
The Contracts Are Not Available In All States.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER, SALESPERSON, OR OTHER PERSON
IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
<PAGE>
TABLE OF CONTENTS
PAGE
Glossary ...................................................................1
Introduction ...............................................................2
Condensed Financial Information ............................................4
Financial Statements .......................................................5
WM Life Insurance Company and the Variable Account .........................5
WM Life Insurance Company ...............................................5
Murphey Favre, Inc. .....................................................5
The Variable Account ....................................................5
Composite Deferred Series, Inc. .........................................5
Voting Rights ..............................................................6
The Contracts ..............................................................6
Purchase of the Contracts ...............................................6
Crediting of Purchase Payments ..........................................6
Allocation of Purchase Payments .........................................6
Value of Variable Account Accumulation Units ............................6
Transfers ...............................................................6
Surrenders and Withdrawals ..............................................7
Default .................................................................7
Contracts Issued Prior to February 15, 1994 .............................7
Charges and Other Deductions ...............................................7
Deductions from Purchase Payments .......................................7
Contract Maintenance Charge .............................................7
Mortality and Expense Risk Charge .......................................7
Contingent Deferred Sales Charge ........................................8
Sales Commission ........................................................8
Taxes ...................................................................8
Composite Deferred Series, Inc., Expenses ...............................8
Income Payments ............................................................8
Income Starting Date ....................................................8
Annuity Options .........................................................8
Fixed Income Payments ...................................................9
Performance Data ...........................................................9
General Matters ...........................................................10
Contract Owner .........................................................10
Beneficiary ............................................................10
Death Benefits .........................................................10
Required Distributions .................................................10
Delay of Payments ......................................................10
Assignments ............................................................10
Modifications ..........................................................11
Customer Inquiries .....................................................11
Federal Tax Matters .......................................................11
Introduction ...........................................................11
Taxation of Annuities in General .......................................11
Other Considerations ...................................................12
Statement of Additional Information........................................12
Table of Contents ......................................................12
This Prospectus generally describes only the Contracts and the Variable Account,
and not the Fixed Account. The Statement of Additional Information contains more
information regarding the Fixed Account.
<PAGE>
GLOSSARY
Accumulation Unit--An accounting unit used to calculate the Contract Value prior
to the Income Starting date. The Fixed Account and each Sub-Account of the
Variable Account have their own distinct Accumulation Unit values.
Age--Age on last birthday.
Annuitant--A person whose life determines the duration of annuity payments
involving life contingencies. "Annuitant" may include a Joint Annuitant.
Beneficiary--The person to whom benefits will be paid upon the Owner's death. In
the event a beneficiary is not named, the Company will treat the estate of the
Contract Owner as the beneficiary.
Company--The issuer of the Contract, WM Life Insurance Company, which is a
wholly owned subsidiary of Washington Mutual, Inc.
Contingent Deferred Sales Charge--The charge that may be assessed by the
Company on surrender or partial withdrawals of the Contract Value.
Contract--The Flexible Premium Deferred Variable Annuity Contract, known as the
"Composite Deferred Annuity", that is described in this prospectus.
Contract Anniversary--An anniversary of the date that the Contract was issued to
the Contract Owner.
Contract Owner ("Owner")--Unless otherwise provided by notice to the Company,
the Owner is as stated in the application. The Owner may, during his or her
lifetime and while this policy is in force:
(a) Assign or surrender the policy;
(b) Amend the policy, with the Company's consent;
(c) Exercise any right conferred by the policy;
(d) Exchange the policy for another annuity policy issued by the Company,
subject to the Company's requirements;
(e) Within thirty days of the death of any Annuitant prior to the Annuity
Date, name a new Annuitant upon notice to the Company. If an Annuitant
is not named in this time, the Owner will be deemed the Annuitant
Contract Value--The sum of the value of all Accumulation Units under a Contract.
Contract Year--The year commencing on either the Issue Date or a Contract
Anniversary.
Death Benefit--The amount payable to the Beneficiary on the death of the Owner
so long as the death occurs on or before the Income Starting Date.
Designated Beneficiary--The Internal Revenue Code may require distribution of
the Contract Value to the Designated Beneficiary. This is the person who is
a) the named Beneficiary, or b) if no Beneficiary is named, the Joint Owner who
becomes Owner, or c) if neither of the above, the Owner's estate.
Due Proof of Death--One of the following:
(a) A copy of a certified death certificate.
(b) A copy of a certified decree of a court of competent jurisdiction as to
the finding of death.
(c) A written statement by a medical doctor who attended the deceased.
(d) Any other proof satisfactory to the Company.
Eligible Portfolios--The mutual fund portfolios of the Composite Deferred
Series, Inc. The Composite Deferred Series, Inc., currently offers three
portfolios: The Growth and Income Portfolio, the Northwest Portfolio, and the
Income Portfolio. A fourth portfolio, the Money Market Portfolio, currently is
not available for new investments.
Fixed Account--All assets of the Company other than those in a separate
investment account.
Fixed Annuity--An annuity with payments having a guaranteed amount
Income Payments--A series of periodic annuity payments made by the Company to
the Annuitant or Beneficiary.
Income Starting Date--The date Income Payments are to begin under the Contract.
Investment Alternative--The Fixed Account or any of the available Sub-Accounts
of the Variable Account.
Joint Annuitant--The person, along with the Annuitant, whose life determines the
duration of annuity payments under a joint and last survivor annuity. The Joint
Annuitant is the person who will become the Annuitant if the Annuitant dies
prior to the Income Starting Date.
Net Investment Factor--The factor for a particular Sub-Account used to determine
the value of an Accumulation Unit in any Valuation Period.
Non-Qualified Contracts--Contracts that do not qualify for special federal
income tax treatment.
Purchase Payments--The amounts paid by the Contract Owner to the Company.
Qualified Contracts--Contracts issued under plans that qualify for special
federal income tax treatment.
Sub-Account--A sub-division of the Variable Account. Each Sub-Account invests
exclusively in shares of an Eligible Portfolio. Transfer Charge--Applies only to
transfers from the Fixed Account. Equals 6% of amounts transferred in excess of
the 25% which may be transferred without charge under certain circumstances.
Valuation Date--Each day that the New York Stock Exchange is open for trading.
Valuation Period--The period between successive Valuation Dates, commencing at
the close of business of each Valuation Date (1:00 p.m. Pacific Time) and ending
at the close of business of the next succeeding Valuation Date
Variable Account--Composite Deferred Account, a separate investment account
established by the Company to receive and invest the Purchase Payments paid
under the Contracts.
<PAGE>
INTRODUCTION
1. What is the purpose of the Contract?
The Contract allows you to accumulate funds at rates that reflect the
investment performance of one or more mutual fund portfolios and to receive
annuity payments ("Income Payments"), if desired. THERE IS NO ASSURANCE THAT
THIS GOAL WILL BE ACHIEVED. In attempting to achieve this goal, the Contract
Owner can allocate Purchase Payments to the Fixed Account or to one or more of
the Variable Account Eligible Portfolios. Because Contract Values may depend on
the investment experience of selected Eligible Portfolios, the Contract Owner
may bear the entire investment risk under this contract. See "Value of Variable
Account Accumulation Unit" page 6.
2. What types of investments underlie the Variable Account?
The Variable Account invests exclusively in shares of the Composite
Deferred Series, Inc., (the "Fund"), a mutual fund managed by Composite Research
& Management Co. ("Composite Research"), a wholly owned subsidiary of WM
Financial, Inc. The Fund has three currently Eligible Portfolios: The Growth and
Income Portfolio, the Northwest Portfolio, and the Income Portfolio. A fourth
portfolio, the Money Market Portfolio, currently is not available for new
investments. The assets of each Portfolio are held separately from the other
Portfolios and each has distinct investment objectives and policies which are
described in the accompanying Prospectus for the Fund.
3. How do I purchase a Contract?
You may purchase the Contract from Murphey Favre, or any other authorized
sales representative. The first Purchase Payment must be at least $1,000.
Subsequent Purchase Payments must be $100 or more and may be made at any time.
4. How do I allocate Purchase Payments?
On your application, you will allocate your Purchase Payment among the
Fixed Account and the three available Sub-Accounts (i.e., Growth and Income,
Northwest, and Income). All allocations must be in whole numbers and must total
100%. Allocations may be changed by notifying the Company in writing. See
"Allocation of Purchase Payments," page 6.
5. Can I transfer amounts between the Investment Alternatives?
Prior to the Income Starting Date, unlimited free transfers may be made
from the Sub-Accounts of the Variable Account at any time. These transfers must
be at least $1,000 or the entire amount in that Sub-Account if it is less than
$1,000. Limited free transfers may also be made from the Fixed Account. Any time
six months after the issue date and once each policy year, up to 25% of the
Fixed Account portion of the Contract Value may be transferred to the Variable
Account free of charge, so long as no transfer from the Fixed Account has
occurred in the previous six month period. Other transfers from the Fixed
Account will be subject to a 6% Transfer Charge. No transfers may be made after
the Income Starting Date. See "Transfers" page 6.
6. Can I get my money if I need it?
All or part of the Contract Value can be withdrawn at any time prior to or
at the earlier of the Owner's death or the Income Starting Date. Amounts
withdrawn may be subject to a contingent deferred sales charge of 0% to 7%
("Contingent Deferred Sales Charge") depending on the year of withdrawal. Up to
ten percent of the total Contract Value may be withdrawn without a contingent
deferred sales charge once per Contract Year each year after the first.
Withdrawals may be taxable and a penalty tax may be imposed on withdrawals. See
"Surrenders and Withdrawals," page 7, and "Taxation of Annuities in General."
page 11.
7. What are the charges and deductions under the Contract?
The Company currently does not deduct sales charges at the time of
investment. However, a contingent deferred sales charge of up to 7% may apply to
certain withdrawals. The Company deducts an annual charge of $30.00 for
maintaining the Contract ("Contract Maintenance Charge"). See "Contract
Maintenance Charge," page 7, for how and when this charge is deducted. To meet
its death benefit obligations and to pay expenses not covered by the Contract
Maintenance Charge, the Company deducts a daily charge equal on an annual basis
to 1.20% of the Contract's daily net assets of the contract. See "Mortality and
Expense Risk Charge," page 7. Transfers from the Fixed Account may be subject to
a charge equal to 6% of the amount transferred. See "Transfers," page 6.
Additional deductions may be made for premium taxes at the time such taxes are
incurred. The Company reserves the right to deduct charges for other types of
taxes, although currently no such deductions are made. See "Taxes," page 8.
Composite Variable Annuity Fee Table
The following table summarizes these charges and deductions, as well as the
fees and expenses of the Fund. These figures assume the entire Contract Value is
in the Variable Account.
Composite Variable Annuity Fee Table
Growth Money
& Income Northwest Income Market
Portfolio Portfolio Portfolio Portfolio
Owner Transactions Expenses
- - --------------------------
Sales Load Imposed on Purchases 0 0 0 0
Maximum Contingent Deferred
Sales Load (as a % of Purchase 7% 7% 7% 7%
Payments Withdrawn
Surrender Fees 0 0 0 0
Transfer Fees (Transfers from
the Fixed Account may be
subject to a fee of 6%
of the amount transferred.) 0 0 0 0
---------------------------------------------
Annual Contract Maintenance Charge $30 Per Contract
---------------------------------------------
Variable Account Annual Expenses
(as a % of average account value)
- - ---------------------------------
Mortality and Expense Risk Fees 1.20% 1.20% 1.20% 1.20%
Account Fees and Expenses 0% 0% 0% 0%
Total Variable Account Annual
Expenses 1.20% 1.20% 1.20% 1.20%
Fund Annual Expenses
(as a % of average net assets)
- - ---------------------------------
Advisory Fees 0.50% 0.50% 0.50% 0.50%
Other Expenses 0.20% 0.40% 0.26% 4.04%
Total Portfolio Annual Expenses 0.70% 0.90% 0.76% 4.54%
Note: because portfolio expenses and variable account Mortality and Expense
Risk Fees currently exceed total revenues in the Money Market Sub-Account, this
portfolio is being maintained and will be offered in the future if net income
exceeds such expenses and fees.
The purpose of this Table is to assist the Owner in understanding the
various costs and expenses that an Owner will bear directly and indirectly. The
Table reflects historical charges and expenses of the Separate Account of the
Growth and Income, Northwest, Income and Money Market Portfolios for the year
ended December 31, 1995. Charges and expenses may be higher or lower in future
years. Additional deductions may be made for taxes. Management fees were waived
for the Money Market portfolio during 1995. Additionally, the Company
voluntarily reimbursed operating expenses that exceeded operating revenues for
the Money Market Portfolio during 1995. This practice will continue until it is
changed by the Company's Board of Directors. Without reimbursement, Money Market
total portfolio expenses were 6.09%. The Company voluntarily reimbursed the
Northwest Portfolio for all its operating expenses and waived the Mortality and
Expense Risk Fees during 1993. Composite Research voluntarily charged no
management fees to the Northwest Portfolio during 1993. These practices were
discontinued on January 1, 1994. For more information on the charges described
in this Table, see "Charges and Deductions" on page 7 and the Fund Prospectus
which accompanies this Prospectus.
Examples
An Owner would pay the following expenses on a $1,000 investment, assuming
a 5% annual return on assets and expenses of the Portfolios for 1995:
1. If you surrender your Policy at the end of the applicable time period:
Example of expenses
1 year 3 years 5 years 10 years
------ ------- ------- --------
Growth & Income Sub-Account $90.62 $129.24 $164.72 $293.07
Northwest Sub-Account $92.69 $135.83 $176.32 $319.61
Income Sub-Account $91.16 $130.97 $167.76 $300.05
Money Market Sub-Account $130.95 $253.34 $375.11 $733.14
2. If you annuitize at the end of the applicable time period, or if you do not
surrender or annuitize your Policy:
Example of Expenses
1 year 3 years 5 years 10 years
------ ------- ------- --------
Growth & Income Sub-Account $20.62 $66.87 $120.50 $293.07
Northwest Sub-Account $22.69 $73.42 $132.04 $319.61
Income Sub-Account $21.16 $68.59 $123.53 $300.05
Money Market Sub-Account $60.95 $190.11 $329.84 $733.14
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES AND THE ACTUAL EXPENSES PAID MAY BE GREATER OR LESSER THAN THOSE SHOWN.
THE $30 ANNUAL CONTRACT MAINTENANCE CHARGE IS REFLECTED IN THESE EXAMPLES AS A
CHARGE OF 0.600%, BASED ON AN AVERAGE CONTRACT VALUE OF $50,380 DURING 1995.
8. What Annuity Options are available under the Contract?
The Annuitant must receive annuity payments ("Income Payments") on a completely
fixed basis. The Contract Owner has some flexibility in choosing when Income
Payments begin. Payments must begin by the later of the month following the
Annuitant's 85th birthday or the 10th Contract Anniversary. See "Income
Payments", page 8, and "Income Starting Date," page 8.
Three Annuity Options are listed in the Contract: 1) payments for life but with
120 monthly payments certain; 2) payments for the life of the Annuitant and
Joint Annuitant; and 3) payments for a specified period. Other options are
available at the Company's discretion; however, Contingent Deferred Sales
Charges may apply if Income Payments are made for a specified period of less
than 120 months.
Federal tax law may limit the availability of annuity options. See "Annuity
Options," page 8.
9. Does the Contract pay any death benefits?
Death benefits will be paid to the Beneficiary if the Owner dies before the
Income Starting Date. Death benefits after the Income Starting Date, if any,
depend on the Annuity Option chosen. See "Death Benefits," page 10.
10. Is there any time when the Contract Value must be distributed prior to
the Income Starting Date?
If any Contract Owner dies prior to the Income Starting Date and the Designated
Beneficiary is not the spouse of the deceased owner, federal tax laws require
distribution of the Contract Value within five years after the death of the
Contract Owner. Contingent Deferred Sales Charges may apply to distributions not
qualifying as a death benefit. See "Required Distribution," page 10.
11. Are there any short-term cancellation rights?
Contract Owners may cancel a Contract any time within 10 days after receipt (or
longer, if required by law) of the Contract. Subject to the requirements of any
tax-qualified plan, and in accordance with applicable state law, the Company
will return either the Purchase Payment or any Purchase Payments allocated to
the Fixed Account, plus any Purchase Payments allocated to the Variable Account,
adjusted to reflect net investment gain or loss that occurred from the date of
allocation through the date of cancellation.
12. Does the Contract Owner have any voting rights under the Contract?
The Contract Owner can instruct the Company how to vote shares of any Eligible
Portfolio attributable to the Contract. See "Voting Rights," page 6.
<PAGE>
CONDENSED FINANCIAL INFORMATION
The Accumulation Unit Values and the number of Accumulation Units
outstanding for each Sub-Account in 1987, 1988, 1989, 1990, 1991, 1992, 1993,
1994,and 1995:
<TABLE>
Condensed Financial Information
<CAPTION>
For the
Period Of
June 15,
1987 <F1>
Through
December 31,
1987 1988 1989 1990 1991 1992 1993 1994 1995
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Growth
& Income
Sub-Account:
- - ------------
Accumulation
Unit Value
at Beginning
of Period $15.000000 $13.268666 $15.550317 $17.066620 $16.038440 $19.933651 $21.779677 $23.134830 $23.488002
Accumulation
Unit Value
at End of
Period $13.268666 $15.550317 $17.066620 $16.038440 $19.933651 $21.779677 $23.134830 $23.488002 $31.036917
Number of
Units
Outstanding
at End of
Period 53,772.5382 86,088.8700 112,858.3629 129,029.0207 200,515.1720 337,823.9280 480,444.5897 599,699.6262 784,123.9148
Income
Sub-Account:
- - ------------
Accumulation
Unit Value at
Beginning of
Period $15.000000 $15.405389 $16.722149 $18.195754 $19.492740 $22.322568 $23.585839 $25.630161 $24.180377
Accumulation
Unit Value at
End of Period
$15.405389 $16.722149 $18.195754 $19.492740 $22.322568 $23.585839 $25.630161 $24.180377 $28.646883
Number of
Units
Outstanding
at End of
Period 87,741.2700 201,358.5798 196,494.4114 190,007.4209 192,692.8965 257,438.8000 350,949.9905 443,479.9661 526,873.5025
Money Market
Sub-Account:
- - ------------
Accumulation
Unit Value at
Beginning of
Period $15.000000 $15.423721 $16.404750 $17.663792 $18.865989 $19.748494 $19.462988 $19.462988 0.000
Accumulation
Unit Value at
End of Period $15.423721 $16.404750 $17.663792 $18.865989 $19.748494 $19.462988 $19.462988 $19.462988 0.000
Number of Units
Outstanding at
End of Period 5,703.9763 14,937.1953 19,692.0956 25,281.3496 24,311.9650 0.0000 0.0000 0.0000 0.000
Northwest
Sub-Account:
- - ------------
Accumulation
Unit Value at
Beginning of
Period - - - - - - $15.000000 $15.575019 $15.210163
Accumulation
Unit Value at
End of Period - - - - - - $15.575019 $15.210163 $18.953257
Number of Units
Outstanding at
End of Period - - - - - - 142,835.7121 278,028.5056 366,604.9274
<FN>
<F1>
Date of commencement of operations for the Growth, Income, and Money Market
Sub-Accounts.
</FN>
</TABLE>
Note: During the period from June 15, 1987, through April 30, 1988, the
Company voluntarily reimbursed the Fund for all its operating expenses, and
Composite Research voluntarily charged no management fees to the Fund. This
practice continued uninterrupted for the Money Market Portfolio until March 1,
1992, when the Company discontinued reimbursing the portfolio's operating
expenses. During 1995, the Company voluntarily reimbursed operating expenses
that exceed operating revenues for the Money Market Portfolio. This practice
will continue until it is changed by the Company's Board of Directors. Composite
Research continues to voluntarily charge no management fees to the Money Market
Portfolio. Also, for the period from November 1, 1987, through January 31, 1988,
the Company voluntarily charged no Contract Maintenance Charge and no Mortality
and Expense Risk Charge. The Northwest Portfolio commenced operations on January
1, 1993, and was not available to Contract Owners prior to 1993. The Company
voluntarily reimbursed the Northwest Portfolio for all its operating expenses
and waived the Mortality and Expense Risk Fees during 1993. Composite Research
voluntarily charged no management fees to the Northwest Portfolio during 1993.
These practices were discontinued on January 1, 1994. (See page ___.)
<PAGE>
FINANCIAL STATEMENTS
The financial statements of the Composite Deferred Variable Account and WM
Life Insurance Company are not part of this prospectus, but may be found in the
Statement of Additional Information, which is available upon request.
WM LIFE INSURANCE COMPANY AND THE VARIABLE ACCOUNT
WM Life Insurance Company
- - -------------------------
The Company is the issuer of the Contract. Incorporated in 1975 as a stock
life insurance company under the laws of Arizona, the Company sells individual
annuities. The Company is currently licensed to operate in the states of Alaska,
Arizona, Idaho, Indiana, Montana, Oregon, and Washington. The Company's
administrative service center is located at 1201 Third Avenue, Seattle,
Washington. The Company is a wholly owned subsidiary of Washington Mutual, Inc.
Murphey Favre, Inc.
- - -------------------
Murphey Favre, Inc., ("Murphey Favre") is the principal distributor of the
Contract. It is a wholly owned subsidiary of WM Financial, Inc., a subsidiary of
Washington Mutual, Inc. Murphey Favre is located at 1201 Third Avenue, Suite
780, Seattle, Washington. Murphey Favre is a member of the National Association
of Securities Dealers, and is registered with the Securities and Exchange
Commission as a broker/dealer.
The Variable Account
- - --------------------
The Variable Account was established on December 23, 1986, and is
registered the Securities and Exchange Commission as a unit Investment trust
under the Investment Company Act of 1940 and meets the definition of a Separate
Account under Federal Securities laws. Such registration does not signify that
the Commission supervises the management or investment practices or policies of
the Variable Account. The investment performance of the Variable Account is
entirely independent of both the investment performance of the Company's general
account and the performance of any other separate account.
The assets of the Variable Account are held separately from the other
assets of the Company. They are not chargeable with liabilities incurred in the
Company's other business operations (except to the extent that they exceed the
reserves and other liabilities of the Account). Accordingly, the income, capital
gains and capital losses, realized or unrealized, incurred on the assets of the
Variable Account are credited to or charged against the assets of the Variable
Account, without regard to the income, capital gains or capital losses arising
out of any other business the Company may conduct.
The Variable Account currently has three active Sub-Accounts- Growth and
Income, Northwest, and Income--each of which invests solely in its corresponding
Portfolio of the Composite Deferred Series, Inc. Additional Sub-Accounts may be
added at the discretion of the Company.
The Composite Deferred Series, Inc.
- - -----------------------------------
The Variable Account will invest exclusively in the Composite Deferred
Series, Inc. (the "Fund"). The Fund has three Eligible Portfolios available for
investment: the Growth and Income Portfolio, the Northwest Portfolio, and the
Income Portfolio. Each portfolio has different investment objectives and
policies and operates as a separate investment fund.
The Growth and Income Portfolio seeks, as its primary objective, growth of
capital through investments in common stock and as a secondary objective income
when consistent with its primary objective.
The Northwest Portfolio invests in a portfolio of common stocks selected
from companies doing business in or located in the Northwest (Alaska, Idaho,
Montana, Oregon, and Washington).
The Income Portfolio seeks, as its primary objective, to earn a high level
of current income by investing in a professionally managed portfolio consisting
principally of fixed-income securities and, as a secondary objective, capital
appreciation when consistent with its primary objective.
The Money Market Portfolio seeks high current income, preservation of
capital, and liquidity by investing in certain money market instruments. The
Money Market Portfolio currently is not available for new investments because
portfolio expenses and variable account Mortality and Expense Risk Fees
currently exceed total revenues in the Money Market Sub-Account. The portfolio
is being maintained and will be offered in the future if net income exceeds such
expenses and fees.
THERE IS NO ASSURANCE THAT ANY OF THE PORTFOLIOS WILL ATTAIN THEIR
RESPECTIVE STATED OBJECTIVES. Fund shares are not deposits or obligations of, or
endorsed or guaranteed by, any bank, nor are they insured or guaranteed by the
Federal Deposit Insurance Corporation, the United States government, or any
other agency. Additional information concerning the investment objectives and
policies of the Portfolios can be found in the current Prospectus for the Fund
accompanying this Prospectus.
THE PROSPECTUS OF THE FUND SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS
MADE CONCERNING THE ALLOCATION OF PURCHASE PAYMENTS TO A PARTICULAR PORTFOLIO.
Composite Research & Management Co. ("Composite Research"), an affiliate of
the Company, is the investment manager of the Composite Deferred Series, Inc. As
compensation for investment management services, the Fund pays Composite
Research a monthly advisory fee at an annual rate of 0.5% of the daily net
assets of the respective Portfolios. These expenses are more fully described in
the Fund's Prospectus attached to this Prospectus.
VOTING RIGHTS
The Contract Owner or anyone with a voting interest in the Sub-Account of
the Variable Account may instruct the Company on how to vote at shareholder
meetings of the Fund. The Company will solicit and cast each vote according to
the procedures set up by the Fund and to the extent required by law. The Company
reserves the right to vote the Eligible Shares in its own right, if subsequently
permitted by the Investment Company Act of 1940, its regulations or
interpretations thereof.
Before the Income Starting Date, the Contract Owner holds the voting
interest in the Sub-Account. (The number of votes for the Contract Owner will be
determined by dividing the Contract Value attributable to a Sub-Account by the
net asset value per share of the applicable Eligible Portfolio.) There are no
voting rights attributable to Contract Values in the Fixed Account or after the
Income Starting Date.
THE CONTRACTS
Purchase of the Contracts
- - -------------------------
The Contracts may be purchased through sales representatives of Murphey
Favre or other authorized representatives. The first Purchase Payment must be at
least $1,000. All subsequent Purchase Payments must be $100 or more and may be
made at any time. Purchase Payments allocated to the Fixed Account may exceed
$100,000 in any Contract Year only with prior approval of the Company. The
Contracts can be purchased for both non-qualified and qualified retirement plans
or for other financial planning purposes, except that the Contracts cannot be
purchased for Section 403(b) Tax Sheltered Annuities.
Crediting of Purchase Payments
- - ------------------------------
A Purchase Payment accompanied by a duly completed application will be
credited to the Contract within two business days of receipt by the Company at
its home office. If an application is not duly completed, the Company will
credit the Purchase Payments to the Contract within five business days or return
it at that time unless the applicant specifically consents to the Company
holding the Purchase Payment until the application is complete. The Company
reserves the right to reject any application. Subsequent Purchase Payments will
be credited to the Contract at the close of the Valuation Period during which
the Purchase Payment is received.
Allocation of Purchase Payments
- - -------------------------------
On the application the Contract Owner instructs the Company how to allocate
the Purchase Payment among the Fixed Account and the three currently available
Sub-Accounts--Growth and Income, Northwest, and Income (the four "Investment
Alternatives"). Currently, allocations to the Money Market Sub-Account are not
permitted. Purchase Payments may be allocated in whole percents, from 0% to
100%, to any Investment Alternative so long as the total allocation equals 100%.
Unless the Contract Owner notifies the Company otherwise, subsequent Purchase
Payments are allocated according to the instructions in the application.
Each Purchase Payment will be credited to the Contract as Fixed Account or
Variable Account Accumulation Units equal to the amount of Purchase Payment
allocated to each Investment Alternative divided by the Accumulation Unit value
for that Investment Alternative next computed after the Purchase Payment is
credited to the Contract. For example, if a $10,000 Purchase Payment is credited
to the Contract when the Accumulation Value equals $10, then 1,000 Accumulation
Units would be credited to the Contract. The Variable Account, in turn,
purchases shares of the corresponding Portfolio.
Value of Variable Account Accumulation Units
- - --------------------------------------------
The Accumulation Units in each Sub-Account of the Variable Account are
valued separately. The value of Accumulation Units may change each Valuation
Period according to the investment performance of the shares purchased by each
Sub-Account and the deduction of certain expenses and charges.
A Valuation Period is the period between successive Valuation Dates. It
begins at the close of business of each Valuation Date and ends at the close of
business of the next succeeding Valuation Date. A Valuation Date is each day
that the New York Stock Exchange is open for business.
The value of an Accumulation Unit in a Sub-Account for any Valuation Period
equals the value of the Accumulation Unit as of the immediately preceding
Valuation Period, multiplied by the Net Investment Factor for that Sub-Account
for the current Valuation Period. The Net Investment Factor is a number
representing the change on successive Valuation Dates in the value of
Sub-Account assets due to investment income, realized or unrealized capital
gains or loss, deductions for taxes, if any, and deductions for the Mortality
and Expense Risk charge. The Net Investment Factor is described in detail in the
Statement of Additional Information.
The value of Fixed Account Accumulation Units is also discussed in detail
in the Statement of Additional Information.
Transfers
- - ---------
The Contract Owner may transfer funds from the three Sub- Accounts without
charge. Currently, transfers are not permitted into the Money Market
Sub-Account. These transfers must be at least $1,000 or the total amount in the
Sub-Account, whichever is less. THE COMPANY GUARANTEES THAT NO CHARGE WILL EVER
BE IMPOSED FOR TRANSFERS FROM THE VARIABLE ACCOUNT.
Once each policy year a portion of Contract Value in the Fixed Account may
be transferred to the Variable Account without charge at any time six months
after the Issue Date (and prior to the Income Starting Date). Up to 25% may be
transferred without charge so long as no transfer from the Fixed Account has
occurred in the previous six month period. Otherwise, amounts transferred from
the Fixed Account will be charged a Transfer Charge of 6% of the amount
transferred.
Transfers may be pursuant to telephone instructions if the Contract Owner
completes the telephone authorization form provided by the Company. Telephone
transfers received before 1:00 p.m. Pacific Time are effected the same day (at
that time). Telephone transfers received after 1:00 p.m. Pacific Time are
effected at 1:00 p.m. the following day (at the next computed value). Transfer
requests may also be made in writing on a form provided by the Company. No
transfers may be made after the Income Starting Date.
Transfers from the Fixed Account or from Sub-Accounts of the Variable
Account will be made based on the Accumulation Unit values next computed after
the Company receives the transfer request at its Administrative Service Center.
Surrenders and Withdrawals
- - --------------------------
The Contract Owner may withdraw all or part of the Contract Value at any
time prior to or at the earlier of the Owner's death or the Income Starting
Date. The amount available for withdrawal is the Contract Value next computed
after the Company receives the request for a withdrawal at its Administrative
Service Center, less any Contingent Deferred Sales Charges or any remaining
charge for premium taxes. Withdrawals from the Variable Account will be paid
within seven days of receipt of the request, subject to postponement in certain
circumstances (see "Delay of Payments," see page 10).
The minimum partial withdrawal is $1,000. If the Contract Value is less
than $1,000, or if the Contract Value after a partial withdrawal would be less
than $1,000, then the Company will treat the request as one for a total
surrender of the Contract and the entire Contract Value, less any charges and
any premium taxes, will be paid out.
Withdrawals and surrenders may be taxable and subject to a 10% tax penalty.
This tax is explained in "Federal Tax Matters" on page 11.
The total amount paid at surrender may be more or less than the total
Purchase Payments due to prior withdrawals, any deductions, and investment
performance.
To complete partial withdrawals, the Company will cancel Accumulation Units
in an amount equal to the withdrawal and any Contingent Deferred Sales Charge
and premium taxes. The Contract Owner must name the Investment Alternative from
which the withdrawal is to be made. If none is named, then the withdrawal will
be made first from the Investment Alternative with the largest value, then
successively from the next largest Investment Alternative.
Default
- - -------
So long as the Contract Value is not reduced to zero or a withdrawal does
not reduce it to less than $1,000, the Contract will stay in force until the
Income Starting Date even if no Purchase Payments are made after the first
Purchase Payment.
Contracts Issued Prior to February 15, 1995
- - -------------------------------------------
Contracts issued prior to or on February 15, 1995, although essentially
similar, differ in some respects from the contracts described in this
prospectus. In general, the Contingent Deferred Sales Charge, Death Benefit,
annuity options and other general provisions of the contract have been modified.
The Statement of Additional Information contains more descriptive information on
the nature of these modifications.
CHARGES AND OTHER DEDUCTIONS
Deductions from Purchase Payments
- - ---------------------------------
No deductions other than premium taxes, if any, are currently made from
Purchase Payments. Therefore, except for any premium taxes, the full amount of
every Purchase Payment is invested in the Investment Alternatives to increase
the potential for investment gain. Partial withdrawals or full surrenders,
however, may be subject to a Contingent Deferred Sales Charge, as described
below.
Contract Maintenance Charge
- - ---------------------------
A Contract Maintenance Charge of $30.00 is deducted annually on each
Contract Anniversary from the Contract Value to reimburse the Company for its
costs in maintaining each Contract and the Variable Account. The Contract
Maintenance Charge will also be deducted in full if the contract is surrendered
in its entirety. Prior to the Income Starting Date, the Contract Maintenance
Charge will be deducted as follows: (a) If the contract contains one or more
Sub-Accounts of the Variable Account, the Contract more Sub-Accounts of the
Variable Account, the Contract Maintenance Charge will be deducted from the
Sub-Account with the largest value; or (b) If the contract contains only a Fixed
Account, the Contract Maintenance Charge will be deducted from the Fixed
Account, provided Purchase Payments or transferred amounts have been applied to
the Fixed Account during the Contract Year. THE COMPANY GUARANTEES THAT THE
AMOUNT OF THIS CHARGE WILL NOT INCREASE OVER THE LIFE OF THE CONTRACT.
Maintenance costs include, but are not limited to, expenses incurred in billing
and collecting Purchase Payments; keeping records; processing death benefit
claims and cash surrender; policy changes and proxy statements; calculating
Accumulation Unit values; and issuing reports to owners and regulatory agencies.
Mortality and Expense Risk Charge
- - ---------------------------------
A Mortality and Expense Risk Charge will be deducted daily prior to the
Income Starting Date at a rate equal on an annual basis to 1.20% of the assets
in the Variable Account and the Fixed Account allocable to your contract.
Interest rates declared by the Company for the Fixed Account are net of the
1.20% Mortality and Expense Risk Charge. There will be no Mortality and Expense
Risk Charge after the Income Starting Date. THE COMPANY GUARANTEES THAT THE
AMOUNT OF THIS CHARGE WILL NOT INCREASE OVER THE LIFE OF THE CONTRACT. The
mortality risk arises from the Company's guarantee to cover all death benefits
and to make Income Payments in accordance with the annuity tables, thus
relieving the Annuitants of the risk of outliving funds accumulated for
retirement. The mortality risk accounts for approximately two- thirds of the
Charge, or 0.80%.
The expense risk arises from the possibility that the Contract Maintenance
and Contingent Deferred Sales Charges, both of which are guaranteed not to
increase, will be insufficient to cover maintenance and distribution costs.
Since the Company anticipates these charges will fail to cover all the
distribution expenses, any deficiency will be met from the Company's general
corporate funds, including amounts derived from the Mortality and Expense Risk
Charge. The expense risk accounts for approximately one- third of the Charge, or
0.40%.
Contingent Deferred Sales Charge
- - --------------------------------
The Contract Owner may withdraw the Contract Value at any time before the
Income Starting Date or at the death of the Owner. Amounts surrendered may be
subject to a Contingent Deferred Sales Charge. Up to ten percent of the total
Contract Value (on the date of withdrawal) may be withdrawn without Contingent
Deferred Sales Charge once each Contract Year after the first. This free partial
withdrawal only applies to the first withdrawal of each contract year, and not
using any or all of the free partial withdrawal in one year does not increase
the amount that can be withdrawn free of charge in subsequent years. Contingent
Deferred Sales Charges, if any, will be deducted from the amount paid.
In certain cases, distributions required by federal tax law (see "Required
Distributions" on page 10) and Income Payments under Annuity Options with a
specified period of less than 120 months may be subject to a Contingent Deferred
Sales Charge.
Except as provided under the "Penalty Free Partial Withdrawal" section of
the contract, a Contingent Deferred Sales Charge will be applied to amounts
withdrawn as set forth below until the total amounts withdrawn equal the total
amount of Purchase Payments under this contract:
Elapsed Time Since Applicable Contingent Deferred
Issue Date Sales Charge Percentage
------------------------ ------------------------------
Less than 3 years 7%
3 years, but less than 4 years 6%
4 years, but less than 5 years 5%
5 years, but less than 6 years 3%
6 years, but less than 7 years 1%
7 years or more 0%
Contingent Deferred Sales Charges will be used to pay sales commissions and
other promotional or distribution expenses associated with the marketing of the
Contracts.
Certain surrenders or withdrawals may also be taxable and subject to a
federal tax penalty. See "Federal Tax Matters," page 11.
Sales Commission
- - ----------------
From its profits the Company may pay a maximum sales commission of 6% of
Purchase Payments to Murphey Favre, the principal Distributor of the Contracts.
Taxes
- - -----
The Company will deduct state premium taxes or other taxes relative to the
Contract (collectively referred to as "premium taxes") when incurred by the
Company. Premium taxes vary from 0% to 4%, although many states do not impose a
premium tax on annuities.
If incurred at the Income Starting Date, the charge for premium taxes will
be deducted from each Investment Alternative in the proportion that the Contract
Owner's interest in the Investment Alternative bears to the total Contract
Value.
The Company reserves the right to deduct charges for other types of taxes,
or any such economic burden resulting from such taxes, although currently no
such deductions are made.
Composite Deferred Series, Inc. ("Fund") Expenses
- - -------------------------------------------------
A complete description of the expenses and deductions from the Portfolios
are found in the Fund's prospectus which is attached to this Prospectus.
INCOME PAYMENTS
Income Starting Date
- - --------------------
The Income Starting Date is the day that Income Payments will start under
the Contract. The Contract Owner may change the Income Starting Date at any time
by notifying the Company in writing of the change at least 30 days before the
current Income Starting Date. The Income Starting Date must be: (a) at least a
month after the Issue Date; and (b) no later than the first day of the calendar
month after the Annuitant reaches age 85, or the 10th anniversary date, if
later.
Unless the Contract Owner notifies the Company in writing otherwise, the
Income Starting Date will be the later of the first day of the calendar month
after the Annuitant reaches age 85 or the 10th anniversary date.
Annuity Options
- - ---------------
The Annuitant must receive annuity payments ("Income Payments") on a
completely fixed basis. If no election has been made by the Contract Owner, a
fixed annuity for life with payments for 120 months certain will automatically
apply. Up to 30 days before the Income Starting Date, the Contract Owner may
change the Annuity Option or request any other form of annuity agreeable to both
the Company and the Owner. If the Contract Value to be applied to an Annuity
Option is less than $2,000, or if the monthly payments determined under the
Annuity Option are less than $60, the Company may pay the Contract Value in a
lump sum or change the payment frequency to an interval which results in Income
Payments of at least $60. If an Annuity Option is chosen which depends on the
Annuitant's or Joint Annuitant's life, proof of age will be required before
Income Payments begin. Premium taxes may be assessed. The Annuity Options
include:
ANNUITY OPTION 1 - LIFE WITH PAYMENTS FOR 120 MONTHS CERTAIN
Monthly payments beginning on the Income Starting Date will be made for as
long as the Annuitant is living. However, if the Annuitant dies before 120
monthly payments have been made, the remainder of the 120 guaranteed
payments will be made to the Beneficiary, if living; otherwise to the
Annuitant's estate.
ANNUITY OPTION 2 - JOINT AND LAST SURVIVOR
The Owner must select a Joint Annuitant. Monthly payments beginning on the
Starting Date will be made for as long as either the Annuitant or Joint
Annuitant is living. No Income Payments will be made after the deaths of
both the Annuitant and Joint Annuitant. It is possible under this option
that only one monthly payment will be made if the Annuitant and Joint
Annuitant both die before the second payment is made, or only two monthly
payments will be made if they both die before the third payment, and so
forth.
ANNUITY OPTION 3 - PAYMENTS FOR A SPECIFIED PERIOD
Monthly payments beginning on the Income Starting Date will be made during
the specified period which must be at least 120 months (otherwise, Income
Payments may be subject to a Contingent Deferred Sales Charge). Such
payments do not depend on the continuation of the life of the Annuitant.
At the Company's discretion, other Annuity Options may be available. The
Company currently uses sex-distinct annuity tables. However, if legislation is
passed by Congress or the states, the Company reserves the right to use annuity
tables which do not distinguish on the basis of sex.
The level of annuity payments will not be affected by the mortality
experience (death rate) of persons receiving such payments or of the general
population. The Company assumes the "mortality risk" by virtue of annuity rates
incorporated in the Contract. In addition, the Company guarantees that it will
not increase charges for maintenance of the Contracts regardless of its actual
expenses.
Fixed Income Payments
- - ---------------------
A fixed annuity is an annuity with payments which are guaranteed by the
Company as to dollar amount during the annuity payment period. The amount of the
annuity payments, if any, will be determined by applying the Contract Value to
the applicable Annuity Table in accordance with the Annuity Option elected. This
will be done at the Income Starting Date. Accordingly, Fixed Income Payments
have a fixed and guaranteed amount that is not in any way dependent upon the
investment experience of the Fund. The amount of the monthly payments depends
only on the Annuity Option chosen, the age (and possibly sex) of the Annuitant,
and the total amount applied to purchase the annuity.
The Company does not credit discretionary interest to fixed annuity
payments during the annuity payment period. The annuitant must rely on the
Annuity Tables contained in the Contracts to determine the guaranteed amount of
such fixed annuity payments. However, if you could obtain a larger Fixed Annuity
Income Payment on the basis of our rates then in effect on the Income Starting
Date for fully guaranteed Single Premium Immediate Annuities, the Company will
provide such higher payments.
PERFORMANCE DATA
Yields and total returns are used to measure the performance of the various
Sub-Accounts. Yield is calculated for the Income Sub-Account; total returns are
calculated for the Income, Growth and Income, and Northwest Sub-Accounts. Both
yields and total returns are calculated in accordance with rules adopted by and
required by the Securities and Exchange Commission. In addition to these
standardized yields and total returns, the Company may calculate a current
distribution yield and total return for continuing contracts. All yields and
total returns are based on historical earnings and are not intended to indicate
future performance. In all cases, current distribution yields and total returns
for continuing contracts will be accompanied by corresponding yields and total
returns calculated in accordance with the rules of the Securities and Exchange
Commission.
Both the SEC standardized yield and the current distribution yield for the
Income Sub-Account refer to annualized current income generated by an investment
in the Sub-Account over a specified thirty-day period. In the SEC calculation,
current income is calculated according to a formula prescribed by the SEC. The
current distribution yield calculated by the Company substitutes current
distributable income for the SEC prescribed current income. Current
distributable income differs from current income in the following respects: (1)
it may include distributions to shareholders from sources other than dividends
and interest, such as short-term capital gains, (2) it may be calculated over a
different time period, and (3) it does not include deductions for portfolio
expenses. Both the SEC standardized yield and the current distribution yield are
calculated by assuming that the current income for the specified thirty-day
period is generated for each thirty-day period over a twelve-month period. The
yield is the annualized income expressed as a percentage of the investment.
Total returns are calculated for the Income, Growth and Income, and
Northwest Sub-Accounts for various specified periods. A hypothetical initial
payment of $1,000 is invested in the Sub- Account. At the end of the specified
period, the redeemable value of the $1,000 payment is compared to the original
$1,000. The total return is the average annual compounded rate at which the
initial payment must increase in order to equal the redeemable value at the end
of the period. The total return for continuing contracts substitutes the full
value in the Sub-Account for the redeemable value. The full value differs from
the redeemable value by the amount of the Contingent Deferred Sales Charge at
the end of the specified period.
Performance data may be provided for periods prior to the commencement of
operations of the Sub-Accounts, if the corresponding Portfolio has a prior
operating history. In this event, the Portfolio's performance would be adjusted
to reflect the Variable Account and Contract Charges.
Performance data calculations are discussed in detail in the Statement of
Additional Information.
GENERAL MATTERS
Contract Owner
- - --------------
The Contract Owner, which may be a person or entity, has the sole right to
exercise all rights and privileges under the Contract, except as otherwise
provided in the Contract.
Beneficiary
- - -----------
The Beneficiary is the person named as such in the application. Subject to
the terms of any existing assignment or the rights of any irrevocable
Beneficiary, the Contract Owner may change the Beneficiary by notifying the
Company in writing. Any change will be effective when it is endorsed in the
Company's records but will relate back and take effect as of the date the Owner
signed it. The Company will not, however, be liable as to any payment or
settlement made prior to receiving the written notice.
Unless otherwise provided in the Beneficiary designation, the right of any
Beneficiary predeceasing the Owner will revert to the Contract Owner. Multiple
Beneficiaries may be named. Unless otherwise provided in the Beneficiary
designation, if more than one Beneficiary survives, the surviving Beneficiaries
will share equally in any amounts due.
Death Benefits
- - --------------
If any Owner under age 80 dies prior to the Income Starting Date, the Death
Benefit will be:
(a) The Contract Value as of the date the Company receives Due Proof of
Death; or
(b) The total amount of Purchase Payments less withdrawals and any
applicable Charges; or
(c) The sum of:
1. The total amount of Purchase Payments, less withdrawals and any
applicable Charges, as of the Specified Contract Anniversary
immediately preceding the date of the Owner's death; plus
2. Fifty percent of the excess, if any, of the Contract Value over the
total amount of Purchase Payments, less withdrawals and any
applicable Charges, as of the Specified Contract Anniversary
immediately preceding the date of the Owner's death; plus
3. The total amount of Purchase Payments, less withdrawals and any
applicable Charges, after the Specified Contract Anniversary
immediately preceding the date of the Owner's death,
whichever is greatest. For purposes of this section, Specified Contract
Anniversary means every fifth Contract Anniversary.
If any Owner age 80 and over dies prior to the Income Starting Date, the
Death Benefit will be the Contract Value or the total of the Purchase Payments,
determined as of the date of the Owner's death, reduced by any previous
withdrawals and any applicable Charges, whichever is greater. All Death Benefits
arising prior to the Income Starting Date will be paid upon the Company's
receipt of Due Proof of Death and a request for a lump sum payment or an Annuity
Option. Federal law may limit the availability of Annuity Options. The Company
will not pay any Death Benefits until it receives Due Proof of Death.
We will determine the value of the Death Benefit at the end of the
Valuation Period coinciding with or next following the earlier of the date we
receive the Beneficiary's election or the ninetieth day following our receipt of
Due Proof of Death. Interest will be paid on the Death Proceeds from this date
to the date of settlement at a rate not less than that required by law.
If an Annuity Option is not elected within 90 days of our receipt of
notification and proof of death, we will make a lump sum settlement to the
Beneficiary at the end of the 90 day period. We guarantee that the Death Benefit
within this 90-day period will never be less than the total of the Purchase
Payments, determined as of the date of the Owner's death, reduced by any
previous withdrawals, any previous Contract Maintenance Charges and any
Contingent Deferred Sales Charges.
If the Annuitant and any Joint Annuitant(s) die(s) after the Income
Starting Date, the Death Benefit, if any, will be as provided in the Annuity
Option elected. Payments will be made in conformity with applicable laws and or
regulations.
Required Distributions
- - ----------------------
Federal tax law requires that if the Owner or any Joint Owner of the
Contract dies before the Income Starting Date, the entire value of the Contract
must be distributed within five (5) years of the date of death of the Owner.
Special rules may apply to spouses of the deceased owner. See the Statement of
Additional Information or the Contract for a detailed description of these
rules. Other required distribution rules apply to Qualified Contracts.
Delay of Payments
- - -----------------
Payment of any amounts due from the Variable Account under the Contract
will occur within seven days, unless:
1. The New York Stock Exchange is closed for other than usual weekends or
holidays, or trading on the Exchange is otherwise restricted; or
2. An emergency exists as defined by the Securities and Exchange
Commission; or
3. The Securities and Exchange Commission permits delay for the protection
of the security holders.
The Company reserves the right to postpone payments or transfers from the
Fixed Account for up to six months.
Assignments
- - -----------
The Contract may be assigned prior to the Income Starting Date and during
the Owner's lifetime, subject to the rights of any irrevocable Beneficiary. Any
assignment will not be binding until received in writing by the Company. The
Company will not be responsible for deciding if an assignment is valid or the
extent of an assignee's interest. An assignment may result in income tax
liability to the Owner.
No Beneficiary may assign benefits under the Contract until they are due
and, to the extent permitted by law, payments are not subject to the debts of
any Beneficiary or to any judicial process for payment of the Beneficiary's
debts.
Modifications
- - -------------
The Company may not modify the Contract without the consent of the Contract
Owner except to make the Contract meet the requirements of the Investment
Company Act of 1940, or to make the Contracts conform with any changes in the
Internal Revenue Code, or as required by the Code or by any other applicable law
in order to continue treatment of the Contract as an annuity.
Customer Inquiries
- - ------------------
The Contract Owners or any other persons with an interest in the Contract
may make inquiries regarding the Contract by calling or writing the Company or
Murphey Favre.
FEDERAL TAX MATTERS
Introduction
- - ------------
The ultimate effect of federal income taxes on Contracts or the individuals
with rights under the Contracts depends on the purpose for which the Contract is
purchased, on the tax and employment status of the individual concerned and on
the Company's tax status. THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT
INTENDED AS TAX ADVICE. If you are concerned about these tax implications, you
should consult a competent tax adviser.
Taxation of Annuities in General
- - --------------------------------
The following discussion assumes that the Contract will qualify as an
annuity contract for federal income tax purposes. The Statement of Additional
Information discusses such qualifications.
Generally, an annuity contract owner who is a natural person is not taxed
on increases in the Contract Value until a distribution occurs. For federal
income tax purposes, distributions include the receipt of proceeds from loans
and an assignment or pledge of any portion of the value of the Contract, as well
as withdrawals, surrenders, Income Payments, or Death Benefits. Contract Owners
who are not natural persons generally must include in income any increase during
the taxable year in the excess of the Contract Value over the Contract Owner's
investment in the contract. However, there are exceptions to this exception and
you should discuss these with your tax counsel. The following discussion applies
only to Contracts owned by natural persons.
Generally, in the case of a surrender or withdrawal under a Non-Qualified
Contract, amounts received are first treated as taxable income to the extent
that the cash value of the Contract immediately before the surrender exceeds the
"investment in the contract" at that time. Any additional amount is not taxable.
The "investment in the contract" equals the portion, if any, of any Purchase
Payments paid by or on behalf of an individual under a Contract that was not
excluded from the individual's gross income.
In case of a surrender or withdrawal under a Qualified Contract, the
portion of the amount received which bears the same ratio to the total amount
received that the "investment in the contract" bears to the total Contract
Value, can be excluded from income. For Contracts issued in connection with
qualified plans, the "investment in the contract" can be zero.
In the case of Income Payments, although the tax consequences may vary
depending on the Annuity Option elected under the Contract, until the investment
in the contract is recovered generally, only the portion of the Income Payment
that represents the amount by which the Contract Value exceeds the "investment
in the contract" will be taxed; after the investment in the Contract is
recovered, the full amount of any additional Income Payments is taxable. For
Fixed Income Payments, until recovery of the investment in the Contract,
generally there is no tax on the amount of each payment which represents the
same ratio that the "investment in the contract" bears to the total expected
value of the Income Payments for the term of the payments; however, the
remainder of each Income Payment is taxable until recovery of the investment in
the Contract, and thereafter the full amount of each Income Payment is taxable.
Amounts may be distributed from a Contract because of the death of an
Owner. Generally, such amounts are includable in the income of the recipient as
follows: (1) if distributed in a lump sum, they are taxed in the same manner as
a full surrender of the Contract, as described above, or (2) if distributed
under an Annuity Option, they are taxed in the same manner as annuity payments,
as described above. For these purposes, the investment in the contract is not
affected by the owner's death. That is, the investment in the contract remains
the amount of any purchase payments paid which were not excluded from gross
income.
The taxable portion of a distribution (in the form of an annuity or a lump
sum payment) is taxed as ordinary income. All non-qualified annuity contracts
issued by the Company, or an affiliated insurance company, to the same Contract
Owner during any calendar year will be treated as one annuity contract, and
therefore aggregated for purposes of determining the amount includable in gross
income.
Premature distributions from both Qualified and Non-Qualified Contracts may
be subject to a penalty tax. For Non-Qualified Contracts, the penalty tax is
equal to ten percent (10%) of the amount treated as taxable income. However, for
Non-Qualified Contracts there should be no penalty tax on distributions to
Contract Owners (1) made on or after the owner attains age 59-1/2; (2) made as a
result of the Owner's death or disability; or (3) received in substantially
equal installments as a life annuity. Other tax penalties may apply to
distributions pursuant to a Qualified Contract.
The Company is required to withhold federal and, where required, state
income taxes on all distributions unless the recipient elects not to have taxes
withheld and properly notifies the Company of that election. However, effective
January 1, 1993, certain distributions from Section 401(a), 403(a) and 401(b)
annuity contracts or plans are subject to mandatory withholding.
In past years, legislation has been proposed that would have adversely
modified the federal taxation of certain annuities. For example, one such
proposal would have changed the tax treatment of non-qualified annuities that
did not have "substantial life contingencies" by taxing income as it is credited
to the annuity. Although as of the date of this prospectus Congress is not
considering any legislation regarding taxation of annuities, there is always the
possibility that the tax treatment of annuities could change by legislation or
other means (such as IRS regulation, revenue rulings, judicial decision, etc.).
Moreover, it is also possible that any change could be retroactive (that is,
effective prior to the date of the change).
Other Considerations
- - --------------------
It should be understood that the foregoing comments on the federal tax
consequences under the Contract are not exhaustive and that special rules apply
to other tax situations not discussed in this Prospectus. Before making an
investment, a qualified tax adviser should be consulted.
STATEMENT OF ADDITIONAL INFORMATION
More detailed information is available from the Company. The following is
the Table of Contents of that more detailed information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
PAGE
Introduction .....................................................
WM Life Insurance Company ............................
Murphey Favre, Inc. ..................................
Composite Deferred Series, Inc. ......................
Additions, Deletions or Substitutions of Investments..
Reinvestment .........................................
Performance Data .................................................
Money Market Sub-Account Yield Calculation ...........
Income Sub-Account Yield Calculation .................
Average Annual Total Return Calculations .............
Calculation Assumptions ..............................
The Contract .....................................................
Purchase of Contracts ................................
Value of Variable Account Accumulation Units .........
The Fixed Account ....................................
Value of Fixed Account Accumulation Units ............
Tax-Free Exchanges (Section 1035) ....................
Required Distributions ...............................
Contracts Issued Prior to February 15, 1995 ..........
Charges and Other Deductions .....................................
Contract Maintenance Charge ..........................
Premium Taxes ........................................
Tax Reserves .........................................
Income Payments ..................................................
Legal Developments Regarding Annuity Tables ..........
Variable Annuity Income Payments......................
Proof of Survival ....................................
General Matters ..................................................
Incontestability .....................................
Settlements ..........................................
Safekeeping of the Variable Account's Assets .........
Independent Auditors .................................
Legal Matters ........................................
Federal Tax Matters ..............................................
Taxation of WM Life Insurance Company ................
Tax Status of the Contracts ..........................
Qualified Plans ......................................
Voting Rights ....................................................
Financial Statements .............................................
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
COMPOSITE DEFERRED VARIABLE ACCOUNT
of
WM LIFE INSURANCE COMPANY
1201 Third Avenue
Suite 600
Seattle, Washington 98101-3015
Distributed by
Murphey Favre, Inc.
1201 Third Avenue
Suite 780
Seattle, Washington 98101-0315
(800) 543-8072
This Statement of Additional Information supplements the information in the
prospectus for the Flexible Premium Deferred Variable Annuity Contract
("Contract") offered by WM Life Insurance Company, which in turn is a wholly
owned subsidiary of Washington Mutual, Inc. The Contract is primarily designed
to aid individuals in long-term financial planning, and it can be used for
retirement planning regardless of whether your plan qualifies for special
federal income tax treatment.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE
READ ONLY WITH THE COMPOSITE DEFERRED VARIABLE ACCOUNT PROSPECTUS FOR THE
CONTRACT.
You may obtain a copy of the prospectus from Murphey Favre, Inc. ("Murphey
Favre"), the principal distributor of the Contract, by calling or writing
Murphey Favre at the address listed above.
The prospectus, dated April 30, 1996 has been filed with the Securities and
Exchange Commission.
Dated April 30, 1996
<PAGE>
TABLE OF CONTENTS
Page
Introduction .............................................................
WM Life Insurance Company .......................................
Murphey Favre, Inc. .............................................
Composite Deferred Series, Inc. .................................
Additions, Deletions or Substitutions of Investments ............
Reinvestment ....................................................
Performance Data .........................................................
Money Market Sub-Account Yield Calculation ......................
Income Sub-Account Yield Calculation ............................
Average Annual Total Return Calculations.........................
Calculation Assumptions .........................................
The Contract .............................................................
Purchase of Contracts ...........................................
Value of Variable Account Accumulation Units ....................
The Fixed Account ...............................................
Value of Fixed Account Accumulation Units .......................
Tax-Free Exchanges (Section 1035) ...............................
Required Distributions ..........................................
Contracts Issued Prior to February 15, 1995 .....................
Charges and Other Deductions .............................................
Contract Maintenance Charge .....................................
Premium Taxes ...................................................
Tax Reserves ....................................................
Income Payments ..........................................................
Legal Developments Regarding Annuity Tables .....................
Variable Annuity Income Payments ................................
Proof of Survival ...............................................
General Matters ..........................................................
Incontestability ................................................
Settlements .....................................................
Safekeeping of the Variable Account's Assets ....................
Independent Auditors ............................................
Legal Matters ...................................................
Federal Tax Matters ......................................................
Taxation of WM Life Insurance Company ...........................
Tax Status of the Contracts .....................................
Qualified Plans .................................................
Voting Rights ............................................................
Financial Statements .....................................................
<PAGE>
INTRODUCTION
WM Life Insurance Company
- - -------------------------
The Company is the issuer of the Contract. It was incorporated as E.J. Life
Insurance Company in 1975 as a stock life insurance company under the laws of
Arizona. The Company sells individual annuities. In 1986 the name of the Company
was changed to WM Life Insurance Company. It is currently licensed to operate in
the states of Alaska, Arizona, Idaho, Indiana, Montana, Oregon, and Washington.
The Company's Administrative Service Center is located at 1201 Third Avenue,
Seattle, Washington. The Company is a wholly owned subsidiary of Washington
Mutual, Inc.
Murphey Favre, Inc.
- - -------------------
Murphey Favre, Inc. ("Murphey Favre") is the principal distributor of the
Contract, and its affiliate, Composite Research & Management Co. ("Composite
Research") is the investment manager of the Composite Deferred Series, Inc. Both
Murphey Favre and Composite Research are wholly owned subsidiaries of WM
Financial, Inc., which is a wholly owned subsidiary of Washington Mutual, Inc.
Murphey Favre is located at 1201 Third Avenue, Suite 780, Seattle, Washington.
Murphey Favre is a member of the National Association of Securities Dealers, and
is registered with the Securities and Exchange Commission as a broker-dealer. As
compensation for investment management services, the Fund pays Composite
Research a monthly advisory fee at an annual rate of 0.5% of the daily net
assets of the respective Portfolios. These expenses are more fully described in
the Fund's prospectus attached to this prospectus. As compensation for its
distribution services, the Company paid Murphey Favre, $795,353, $851,306, and
$1,238.048 for the years ended December 31, 1993, 1994 and 1995, respectively.
Composite Deferred Series, Inc., ("Fund")
- - -----------------------------------------
The Variable Account invests exclusively in the Composite Deferred Series,
Inc. (the "Fund"), a mutual fund managed by Composite Research & Management Co.
and registered with the Securities and Exchange Commission. The Fund has three
currently eligible portfolios: The Growth and Income Portfolio, the Northwest
Portfolio, and the Income Portfolio. A fourth portfolio, the Money Market
Portfolio, currently is not available for new investments.
Additions, Deletions or Substitutions of Investments
- - ----------------------------------------------------
The Company cannot guarantee and does not represent that shares of the
currently Eligible Portfolios will always be available for new investments or
for transfers. The Company retains the right, subject to any applicable law, to
make additions to, deletions from, or substitutions for the Portfolio shares
held by any Sub-Account of the Variable Account. The Company reserves the right
to eliminate the shares of any of the Portfolios and to substitute shares of
another Portfolio of the Fund, or of another open-end, registered investment
company, if the shares of the Portfolio are no longer available for investment,
or if, in the Company's judgment, investment in any Portfolio would become
inappropriate in view of the purposes of the Variable Account. Substitutions of
shares attributable to a Contract Owner's interest in a Sub-Account will not be
made until the Owner has been notified of the change, and until the Securities
and Exchange Commission has approved the change, to the extent such notification
and approval is required by the Investment Company Act of 1940. Nothing
contained in the prospectus or Statement of Additional Information shall prevent
the Variable Account from purchasing other securities for other series or
classes of contracts, or from effecting a conversion between series or classes
of contracts on the basis of requests made by Contract Owners.
The Company may also establish additional Sub-Accounts of the Variable
Account. Each additional Sub-Account would purchase shares in a new portfolio of
the Fund or in another mutual fund. New Sub-Accounts may be established when, in
the sole discretion of the Company, marketing needs or investment conditions
warrant. Any new Sub-Accounts will be made available to existing Contract Owners
on a basis to be determined by the Company. The Company may also eliminate one
or more Sub-Accounts, if, in its sole discretion, marketing, tax, investment or
other conditions so warrant.
In the event of any such substitution or change, the Company may, by
appropriate endorsement, make such changes in this and other contracts as may be
necessary or appropriate to reflect such substitution or change. If deemed to be
in the best interests of persons having voting rights under the policies, the
Variable Account may be operated as a management company under the Investment
Company Act of 1940 or it may be de-registered under such Act in the event such
registration is no longer required.
Reinvestment
- - ------------
All dividends and capital gain distributions from Eligible Portfolios are
automatically reinvested in shares of the distributing Portfolio at their net
asset value.
PERFORMANCE DATA
Money Market Sub-Account Yield Calculation
- - ------------------------------------------
In accordance with regulations adopted by the Securities and Exchange
Commission, WM Life is required to compute the Money Market Sub-Account's
current annualized yield for a seven-day period in a manner that does not take
into consideration any realized or unrealized gains or losses on shares of the
Money Market Portfolio or on its portfolio securities. This current annualized
yield is computed by determining the net change (exclusive of realized gains and
losses on the sale of securities and unrealized appreciation and depreciation)
in the value of a hypothetical account having a balance of one unit of the Money
Market Sub-Account at the beginning of such seven-day period, dividing such net
change in account value by the value of the account at the beginning of the
period to determine the base period return and annualizing this quotient on a
365-day basis. The net change in account value reflects the deductions for
administrative expenses, the mortality and expense risk charge, and income and
expenses accrued during the period. Because of these deductions, the yield for
the Money Market Sub-Account of the Separate Account will be lower than the
yield for the Money Market Portfolio of the Fund.
The Securities and Exchange Commission also permits WM Life to disclose the
effective yield of the Money Market Sub-Account for the same seven-day period,
determined on a compounded basis. The effective yield is calculated by
compounding the annualized base period return by adding one to the base period
return, raising the sum to a power equal to 365 divided by 7, and subtracting
one from the result. The yield figures do not reflect the contingent deferred
sales charge.
The Money Market Sub-Account was not available to policyholder for
investment during 1995. At no time during 1995 were any policyholder funds
allocated to the Money Market Sub-Account. As such, no Money Market Sub-Account
yields were calculated during 1995.
The yield on amounts held in the Money Market Sub-Account normally will
fluctuate on a daily basis. Therefore, the disclosed yield for any given past
period is not an indication or representation of future yields or rates of
return. The Money Market Sub-Account's actual yield is affected by changes in
interest rates on money market securities, average portfolio maturity of the
Money Market Portfolio, the types and quality of portfolio securities held by
the Money Market Portfolio, and its operating expenses.
Income Sub-Account Yield Calculation
- - ------------------------------------
Yields for the Income Sub-Account will be calculated based on a one month
period. The computation is accomplished by dividing the net investment income
per accumulation unit earned during the period by the price per unit on the last
day of the period, according to the following formula:
6
YIELD = 2 [(a - b + 1) - 1]
-----
cd
Where:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of accumulation units outstanding during the
period.
d = the maximum offering price per accumulation unit on the last day of
the period.
Interest earned will be determined in accordance with rules established by
the Securities and Exchange Commission. Accrued expenses will include all
recurring fees that are charged to all contract owner accounts. The yield
figures does not reflect the contingent deferred sales charge.
The Securities and Exchange Commission also permits the Company to
calculate and disclose the Current Distribution Yield for the Income
Sub-Account. The Current Distribution Yield is calculated using the same formula
used in the Income Sub-Account yield calculation, except that current
distributable income during the period is substituted for current income
calculated according to the rules prescribed by the SEC. Current distributable
income differs from current income in the following respects: (1) it may include
distributions to shareholders from sources other than dividends and interest,
such as short-term capital gains, (2) it may be calculated over a different time
period, and (3) it does not include deductions for portfolio expenses.
Disclosure of the Current Distribution Yield will always be accompanied by the
SEC prescribed yield.
During the month of December, 1995, the Income Sub-Account standardized
yield was 4.41% and the Income Sub-Account distribution yield was 5.08%.
Average Annual Total Return Calculations
- - ----------------------------------------
An average annual total return may be calculated for a given period. It is
computed by finding the average annual compounded rate of return over the period
that would equate the initial amount invested to the redeemable value, according
to the following formula:
n
P (1 + T) = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
N = number of years in the period
ERV = ending redeemable value at the end of the period of a hypothetical
$1,000 payment made at the beginning of the period
All recurring fees that are charged to all contract owner accounts are
recognized in the ending redeemable value.
The Securities and Exchange Commission also permits the Company to disclose
an Average Annual Total Return for Continuing Contracts. The Average Annual
Total Return for Continuing Contracts is calculated using the same formula as
the Average Annual Return except that EV, the Ending Value of the account is
substituted for ERV, the Ending Redeemable Value of the Account. The EV is equal
to the ERV plus the Contingent Deferred Sales Charge. The Average Annual Total
Return for Continuing Contracts will always be accompanied by the Securities and
Exchange Commission standardized Average Annual Total Return.
The average annual total returns for the Growth, Northwest 50, and Income
Sub-Accounts were as follows:
Period of
June 15, 1987
Five (inception)
Year-ended Years-ended through
December 31, 1995 December 31, 1995 December 31, 1996
----------------- ----------------- ------------------
Sub-Account
- - -----------
Income 10.95% 7.37% 7.83%
Growth and Income 23.76% 13.46% 8.85%
Northwest 16.70% * *
The average annual total returns for continuing contracts for the Growth,
Northwest 50, and Income Sub-Accounts were as follows:
Period of
June 15, 1987
Five (inception)
Year-ended Years-ended through
December 31, 1995 December 31, 1995 December 31, 1995
----------------- ----------------- -----------------
Sub-Account
- - -----------
Income 18.41% 7.96% 7.83%
Growth and Income 32.08% 14.08% 8.85%
Northwest 24.55% * *
*The Northwest Sub-Account commenced operations on January 1, 1993.
Calculation Assumptions
- - -----------------------
The Company voluntarily charged no Contract Maintenance Charge and no
Mortality and Expense Risk Charge for the period from November 1, 1987, through
January 31, 1988. From June 15, 1987, through April 30, 1988, the Company also
voluntarily reimbursed the Fund for all its operating expenses and Composite
Research voluntarily charged no management fees to the Fund. This practice
continued uninterrupted for the Money Market Portfolio until March 1, 1992, when
the Company discontinued reimbursing the portfolio's operating expenses. During
1995, the Company voluntarily reimbursed operating expenses that exceeded
operating revenues for the Money Market Portfolio. This practice will continue
until it is changed by the Company's Board of Directors. Composite Research
continues to voluntarily charge no management fees to the Money Market
Portfolio. The Company voluntarily reimbursed the Northwest Portfolio for all
its operating expenses and waived the Mortality and Expense Fees during 1993.
Composite Research voluntarily charged no management fees to the Northwest
Portfolio during 1993. These practices were discontinued on January 1, 1994.
In the sub-sections above, yields and total annual average returns were
calculated as if the Contract Maintenance Charge and Mortality and Expense Risk
Charge had been applied since inception. In no case were premium taxes deducted.
The Contract Maintenance Charge of $30.00 is deducted annually from the
Investment Alternative with the largest value. When Money Market Sub-Account or
Income Sub-Account yields are calculated, this charge is recognized as an
accrued expense. For a period of an exact number of months, the accrued expense
is calculated as (a) x (b) x (c) x (d) where:
(a) = number of months in period
(b) = 1 year per 12 months
(c) = $30.00 per contract per year
(d) = number of contracts, as of the end of the period, for which the
Sub-Account is largest
For any period not an exact number of months, the accrued expense will be
calculated as (e) x (f) x (c) x (d) where (c) and (d) are as above and
(e) = number of days in period
(f) = 1 year per 365 days
To calculate Income Sub-Account yield for a given month, the accrued
Mortality and Expense Risk Charge is calculated to be .000032877, times the
number of days in the month, times the average number of dollars in the
Sub-Account attributable to annuity holders.
THE CONTRACT
Purchase of Contracts
- - ---------------------
The Contracts are offered to the public through brokers or other sales
representatives licensed under the federal securities laws or state insurance
laws. The offering of the Contracts is continuous and the Company does not
anticipate discontinuing the offering of the Contracts. The Company reserves the
right to discontinue the offering of the Contracts.
Value of Variable Account Accumulation Units
- - --------------------------------------------
The value of Variable Account Accumulation Units will vary in accordance
with investment experience of the Eligible Portfolio in which the Sub-Account
invests. The number of such Accumulation Units credited to a Contract will not,
however, change as a result of any fluctuations in the value of the Accumulation
Unit.
The Accumulation Units in each Sub-Account of the Variable Account are
valued separately. The value of Accumulation Units in any Valuation Period will
depend upon the investment performance of the shares purchased by each
Sub-Account in a particular Eligible Portfolio.
The value of an Accumulation Unit in a Sub-Account for any Valuation Period
equals the value of such a unit as of the immediately preceding Valuation
Period, multiplied by the "Net Investment Factor" for that Sub-Account for the
current Valuation Period. The Net Investment Factor for each Sub-Account for any
Valuation Period is determined by dividing (A) by (B) and subtracting (C),
where:
(A) is calculated to be:
(1) the value of the Sub-Account's assets at the end of the prior
Valuation Period after any allocations to, or withdrawals from, the
Sub-Account at the end of the prior Valuation Period; plus
(2) the sum of any investment income and realized or unrealized capital
gains credited to the Sub-Account during the current Valuation Period;
minus
(3) any realized or unrealized capital losses charged against the
Sub-Account during the current Valuation Period; minus
(4) any amount charged for taxes associated with the operation of the
Variable Account during the current Valuation Period; plus (or minus)
(5) the decrease (or increase) in amounts, if any, set aside as a
reserve for taxes associated with the operation of the Variable Account
during the current Valuation Period.
(B) is the value of the Sub-Account's assets at the end of the prior
Valuation Period after any allocations to, or withdrawals from, the
Sub-Account at the end of the prior Valuation Period.
(C) is the daily charge of 0.000032877 times the number of calendar days in
the current Valuation Period for assuming the mortality and expense risks
under the Contract.
The Fixed Account
- - -----------------
Contributions under the fixed portion of the annuity contracts and
transfers to the fixed portion become part of the general account of the
Company, which supports insurance and annuity obligations. Because of exemptive
and exclusionary provisions, interests in the general account have not been
registered under the Securities Act of 1933 ("1933 Act"), nor is the general
account registered as an investment company under the Investment Company Act of
1940 ("1940 Act"). Accordingly, neither the general account nor any interests
therein are generally subject to the provisions of the 1933 or 1940 Acts and the
Company has been advised that the staff of the Securities and Exchange
Commission has not reviewed the disclosures in this prospectus which relate to
the fixed portion.
The Company will credit the amounts allocated to the Fixed Account in the
form of Fixed Account Accumulation Units. The interest factors declared on any
day are guaranteed to be equivalent to at least an effective annual yield of
4.2%. For a given Contract, interest factors are guaranteed for one year and may
change only on the Contract Anniversary. A daily charge for the mortality and
expense risks equivalent to an annual yield of 1.2% applies to the Fixed
Account. Hence, the Company guarantees that the value of Fixed Account
Accumulation Units will increase at an effective annual yield of at least 3%.
ANY INTEREST CREDITED TO AMOUNTS ALLOCATED TO THE FIXED ACCOUNT IN EXCESS
OF THE GUARANTEED YIELD OF 4.2% PER YEAR WILL BE DETERMINED AT THE SOLE
DISCRETION OF THE COMPANY.
The Contract Owner assumes the risk that interest credited to Fixed Account
Accumulation Units may not exceed the guaranteed minimum yield of 4.2% per year.
The Company guarantees that, at any time prior to the Income Starting Date,
the Contract Value in the Fixed Account will not be less than the amount of the
Purchase Payments allocated or transferred to the Fixed Account, plus interest
at the yield of 4.2% per year, plus any excess interest which the Company
credits to the Fixed Account Accumulation Units, less the sum of all Contract
Maintenance Charges, Mortality and Expense Risk Charges, and any applicable
premium taxes allocable to the Fixed Account, and less any amounts deducted from
the Fixed Account, in connection with partial surrenders or transfers to the
Variable Account.
Value of Fixed Account Accumulation Units
- - -----------------------------------------
The value of Fixed Account Accumulation Units will vary in accordance with
the Company's declared interest factor. At the end of any Valuation Period, the
value is calculated by multiplying the prior value by the declared Net Interest
Factor during the Valuation Period. The value of Fixed Account Accumulation
Units is guaranteed to increase at an effective annual yield of at least 3%.
The Net Interest Factor for any Valuation Period is (A) minus (B) where:
(A) is 1.0 plus the number of days in the current Valuation Period times
the declared interest factor for the current Valuation Period, and
(B) is the daily charge of .000032877 for assuming the mortality and
expense risks under this Contract, times the number of days in the
current Valuation Period.
The interest factor declared on any day is guaranteed to be equivalent to
at least an effective annual yield of 4.2%, resulting in a Net Interest Factor
equivalent to at least an effective annual yield of 3% (because the daily charge
in (B) above is equivalent to an annual yield of 1.2%). Different interest
factors may be declared, and different Net Interest Factors may be used for
different Accumulation Units based upon the date(s) of your Purchase Payment(s).
Tax-Free Exchanges (Section 1035)
- - ---------------------------------
The Company accepts Purchase Payments which are the proceeds of a Contract
in a transaction qualifying for a tax-free exchange under Section 1035 of the
Internal Revenue Code. Except as required by federal law in calculating the
basis of the Contract, the Company does not differentiate between Section 1035
Purchase Payments and non-Section 1035 Purchase Payments.
The Company also accepts "rollovers" from Contracts qualifying as
individual retirement annuities or accounts (IRAs), or any other qualified
contract which is eligible to "rollover" into an IRA (except 403(b) contracts).
The Company differentiates between non-qualified Contracts and IRAs to the
extent necessary to comply with federal tax laws. For example, the Company
restricts the assignment, transfer or pledge of IRAs to anyone except the
Company, so the Contracts will continue to qualify for special tax treatment.
Required Distributions
- - ----------------------
If the Owner or any Joint Owner of the Contract dies before the Income
Starting Date, the entire value of the Contract must be distributed to the
Designated Beneficiary as described in this section so that the Contracts
qualify as annuities under the Internal Revenue Code.
Where a Death Benefit is payable, unless prohibited by federal tax laws,
the Company will make a lump sum settlement to the Designated Beneficiary if the
Designated Beneficiary does not select an Annuity Option as described in this
section within 90 days of the Company's receipt of notification and proof of
death.
The Company must make a required distribution as described in this section.
In such instances, the Designated Beneficiary must select an Annuity Option
within one (1) year of the Owner's death, or surrender the Contract no later
than five (5) years after the death of the Owner or Joint Owner. A Contingent
Deferred Sales Charge may be imposed on each surrender.
If the Designated Beneficiary selects an Annuity Option, payments must
start within one year of the death of the Owner or Joint Owner and must be
payable for the life of the Designated Beneficiary or for a period not exceeding
the life expectancy of the Designated Beneficiary.
The distribution rules described in this section shall not apply if the
Designated Beneficiary is the spouse of the deceased Owner or Joint Owner. If
the spouse is the Designated Beneficiary, that person may continue the Contract
as Owner without regard to the required distribution rules.
Contracts Issued Prior to February 15, 1995
- - -------------------------------------------
Contracts issued prior to or on February 15, 1992, although essentially
similar, differ in some respects from contracts issued after that date. The
following provisions apply to contracts issued prior to that date:
For Contracts issued prior to or on March 13, 1988:
---------------------------------------------------
The following Contingent Deferred Sales Charges apply:
Applicable Contingent
Elapsed Time Since Deferred Sales
Date of Purchase Payment Charge Percentage
------------------------ -------------------
Less than 1 year 6%
1 year, but less than 2 years 5%
2 years, but less than 3 years 4%
3 years, but less than 4 years 3%
4 years, but less than 5 years 2%
5 years, but less than 6 years 1%
6 years or more 0%
In addition, allocations to the Fixed Account are not permitted.
For Contracts issued prior to or on April 30, 1991:
---------------------------------------------------
Death Benefits - The Death Benefit will be the Contract Value. There is no
minimum death benefit since the Contract Value depends on the investment
performance of the Eligible Portfolios and may be reduced to zero.
Annuity Options - The Annuitant may receive annuity payments ("Income
Payments") on a completely variable basis, a completely fixed basis, or a
combination variable and fixed basis. If no election is made, a completely
Variable Annuity for life with payments for 120 months certain will
automatically apply. See "Variable Annuity Income Payments," page __.
For Contracts issued after April 30, 1991, and before April 30, 1992:
---------------------------------------------------------------------
Annuity Options - The Annuitant may receive annuity payments ("Income
Payments") on a completely variable basis, a completely fixed basis, or a
combination variable and fixed basis. If no election is made, an annuity in
such form and allocation by percentage as the Owner's selected investment
base, for Life with Payments for 120 Months Certain will automatically
apply. See "Variable Annuity Income Payments," page __.
For Contracts issued after April 30, 1992 and before February 15, 1995:
-----------------------------------------------------------------------
Death Benefits - The Death Benefit will be the Contract Value without
enhancements and dependent entirely on the investment performance of the
eligible portfolios.
Contingent Deferred Sales Charges - Contingent Deferred Sales Charges will
apply to withdrawals from the Contract Value based on the time elapsed
since the Purchase Payment.
CHARGES AND OTHER DEDUCTIONS
Contract Maintenance Charge
- - ---------------------------
Recordkeeping and operations functions are performed by and are the
responsibility of the Company. These functions include, but are not limited to:
billing and collecting Purchase Payments, recordkeeping, processing death
claims, processing surrenders and withdrawals, processing policy changes,
preparing proxy statements, calculating Accumulation Unit values, and issuing
reports to Owners and regulatory agencies. The Contract Maintenance Charge is
designed to reimburse the Company for the expenses of performing these
maintenance functions. The expenses of the Manager of the Fund (Composite
Research & Management Co.) and the Fund's administrator (Murphey Favre
Securities Services, Inc.), are neither added to nor deducted from the Contract
Maintenance Charge.
As an alternative to performing recordkeeping and operations functions, the
Company may secure similar services from other sources. At the Company's sole
discretion, these services will be purchased on a basis which affords the best
service at the lowest cost. The Company reserves the right to select a purveyor
of services which it deems best able to perform these services in a satisfactory
manner, even though the costs for these services may be higher than would
prevail elsewhere. The Company may also elect to perform all or any part of the
maintenance services directly or through a subsidiary or an affiliate.
Premium Taxes
- - -------------
Applicable premium tax rates on Purchase Payments depend on the Contract
Owner's state of residence, and the insurance laws and status of the Company in
those states where premium taxes are incurred. Premium tax rates may be changed
by legislation, administrative interpretations or judicial acts.
Tax Reserves
- - ------------
Currently, the Company does not establish capital gains tax reserves for
the Sub-Account, nor deduct charges for tax reserves because the Company
believes that capital gains attributable to the Variable Account will not be
taxable. However, the Company reserves the right to establish tax reserves for
potential taxes on realized or unrealized capital gains. If such reserves are
established, then Sub-Account Values would be reduced to reflect deductions for
maintaining any such reserves.
INCOME PAYMENTS
Legal Developments Regarding Annuity Tables
- - -------------------------------------------
On July 6, 1983, the Supreme Court held in Arizona Governing Committee v.
Norris that annuity benefits provided by employers' retirement and fringe
benefit plans may not vary on the basis of sex. The Norris decision expressly
applies only to employment practices, not to insurance or annuity practices.
However, it is unclear at this time which employment benefit plans may be
subject to Norris. The Contracts offered by this prospectus contain life annuity
tables that provide for different benefit payments to men and women of the same
age. Nevertheless, in accordance with Norris, in certain employment related
situations, annuity tables that do not vary on the basis of sex may be used.
Accordingly, if the Contract is to be used in connection with an
employment-related retirement or benefit plan, consideration should be given, in
consultation with legal counsel, to the impact of Norris on any such plan before
making any contributions under these Contracts.
In addition, legislation has been introduced in Congress and some states,
which, if enacted, could require the use of tables that do not vary on the basis
of sex for some or all annuity contracts.
Variable Annuity Income Payments
- - --------------------------------
Contracts issued prior to April 30, 1992, may be eligible to receive
Variable Annuity Income Payments. The Contract states which annuity options are
available to the contract holder.
The following information pertains to Variable Annuity Income Payments:
Amount of Variable Annuity Income Payments.
The amount of the first Income Payment is calculated by applying the
Contract Value allocated to each Sub-Account, less any premium tax charge
deducted at this time, to the income payment tables in the Contract. The
first Variable Annuity Income Payment is divided by the Sub-Account's then
current Annuity Unit Value to determine the number of Annuity Units upon
which later Income payments will be based. Variable Annuity Income Payments
after the first will be equal to the sum of the number of Annuity Units
determined in this manner for each Sub-Account times the then current
Annuity Unit Value for each respective Sub-Account.
The value of an Annuity Unit in each Sub-Account of the Variable Account
was initially set at $100. Annuity Units in each Sub-Account are valued
separately and Annuity Unit Values will depend upon the investment
experience of the Eligible Portfolios in which the Sub-Account invests. The
value of the Annuity Unit for each Sub-Account at the end of any Valuation
Period is calculated by: (a) multiplying the prior value by the
Sub-Account's Net Investment Factor during the period; and then (b)
dividing the product by the sum of 1.0 plus the assumed investment rate for
the period. The assumed investment rate adjusts for the interest rate
assumed in the annuity table used to determine the dollar amount of the
first Variable Annuity Income Payment, and is an effective annual yield of
4.0%.
Currently, the amount of the first Income Payment paid under an Annuity
Option is determined using 4% interest and the 1983 Table a for Individual
Annuity Valuation. Due to judicial or legislative developments regarding
the use of tables which do not differentiate on the basis of sex, in some
cases a different annuity table may be used.
After the Income Starting Date, transfers from a Sub-Account may not be
made until six months after that date, and may be made thereafter only once in
any six month period. No transfers may be made from the Fixed Account after the
Income Starting Date.
After the Income Starting Date, persons receiving variable annuity income
payments have a voting interest. The votes decrease as Income Payments are made
and as the reserves for the Contract decrease. That person's number of votes
will be determined by dividing the reserve for such Contract allocated to the
applicable Sub-Account by the net asset value per share of the corresponding
Eligible Portfolio.
No transfers may be made for six months after the Income Starting Date and
may be made thereafter only once in any six month period. Amounts used to
purchase a fixed annuity may not later be transferred to a variable annuity.
The amount of Variable Annuity Income Payments depends upon the investment
experience of the Eligible Portfolios selected by the Contract Owner, any
premium taxes, the age (and possibly sex) of the Annuitant, and the Annuity
Option chosen. The Company guarantees that the Income Payments will not be
affected by (1) actual mortality experience and (2) amount of the Company's
administration expenses.
The Income Payments may be more or less than total Purchase Payments made
because (a) Variable Annuity Income Payments vary with the investment results of
the underlying Portfolios, (b) the Contract Owner bears the investment risk, and
(c) Annuitants may die before the actuarially predicted date of death. As such,
the amount of Income Payments cannot be predicted.
If the actual net investment experience is less than the assumed investment
rate, then the dollar amount of variable annuity payments will decrease. The
dollar amount of variable annuity payments will stay level if the net investment
experience equals the assumed investment rate and the dollar amount of the
annuity payments will increase if the net investment experience exceeds the
assumed investment rate.
For Variable Annuities, after payments begin, the Contract may be
surrendered at any time for the commuted value of remaining payments. The
commuted value shall be calculated using the same interest rate as was used to
determine the amount of the monthly payments.
If ANNUITY OPTION 3 - PAYMENTS FOR A SPECIFIED PERIOD is selected for a
Variable Annuity, the Mortality and Expense Risk Charge will apply, even though
the Company would no longer be assuming any mortality risk under this Contract.
For Variable Income Payments, in general, the taxable portion of each
Income Payment (prior to recovery of the investment in the contract) is
determined by a formula which establishes the specific dollar amount of each
Income Payment that is not taxed. This dollar amount is determined by dividing
the "investment in the contract" by the total number of expected income
payments.
Proof of Survival
- - -----------------
If an Annuity Option which depends on one or more persons being alive on a
payment date is elected, satisfactory proof of survival may be required before
any Income Payments or death benefits will be paid.
GENERAL MATTERS
Incontestability
- - ----------------
The Contract will not be contested after it is issued.
Settlements
- - -----------
The Contract must be returned to the Company prior to any settlement. Due
proof of death must be received prior to settlement of a death claim.
Safekeeping of the Variable Account's Assets
- - --------------------------------------------
The Company holds title to the assets of the Variable Account. The assets
are kept physically segregated and held separate and apart from the Company's
general corporate assets. Records are maintained of all purchases and
redemptions of the Portfolio shares held by each of the Sub-Accounts.
The Composite Deferred Series, Inc., does not issue certificates and,
therefore, the Company holds the Account's assets in open account in lieu of
stock certificates.
Independent Auditors
- - --------------------
The financial statements of the Composite Deferred Variable Account of WM
Life Insurance Company as of December 31, 1995, and for the years ended December
31, 1995, and 1994, and the consolidated financial statements of WM Life
Insurance Company and subsidiary as of December 31, 1995, and 1994, and for each
of the three years in the period ended December 31, 1995, included herein, have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports appearing elsewhere herein, and have been so included in reliance upon
the reports of such firm given upon their authority as experts in accounting and
auditing.
Legal Matters
- - -------------
Messrs. Sutherland, Asbill & Brennan, Washington, D.C., have provided legal
advice regarding certain matters relating to the federal securities laws and
have passed upon certain other legal matters relating to the validity of the
Contracts.
FEDERAL TAX MATTERS
The ultimate effect of federal income taxes on the Contract Value, on
Income Payments, and on the economic benefit to the Contract Owner, the
Annuitant, or the Beneficiary depends on the type of retirement plan for which
the Contract is purchased, on the tax and employment status of the individual
concerned, and on the Company's tax status. THE FOLLOWING DISCUSSION IS GENERAL
AND IS NOT INTENDED AS TAX ADVICE. Any person concerned about these tax
implications should consult a competent tax adviser. This discussion is based
upon the Company's understanding of the present federal income tax laws as they
are currently interpreted by the Internal Revenue Service. No representation is
made as to the likelihood of continuation of these present federal income tax
laws or of the current interpretations by the Internal Revenue Service.
Moreover, no attempt has been made to consider any applicable state or other tax
laws.
Taxation of WM Life Insurance Company
- - -------------------------------------
The Company is taxed as a life insurance company under Part I of Subchapter
L of the Internal Revenue Code. Since the Variable Account is not an entity
separate from the Company, and its operations form a part of the Company, it
will not be taxed separately as a "regulated investment company" under
Subchapter M of the Code. Investment income and realized capital gains are
automatically applied to increase reserves under the Contract. Under existing
federal income tax law, the Company believes that the Variable Account
investment income and realized net capital gains will not be taxed to the extent
that such income and gains are applied to increase the reserves under the
Contract.
Accordingly, the Company does not anticipate that it will incur any federal
income tax liability attributable to the Variable Account, and therefore the
Company does not intend to make provisions for any such taxes. However, if
changes in the federal tax laws or interpretations thereof result in the Company
being taxed on income or gains attributable to the Variable Account, then the
Company may impose a charge against the Variable Account (with respect to some
or all Contracts) in order to set aside provisions to pay such taxes.
Tax Status of the Contracts
- - ---------------------------
Section 817(h) of the Code provides that a variable annuity based on a
separate account (such as the Contracts) will not qualify as an annuity contract
under section 72 of the Code unless the investments of the separate account are
"adequately diversified" in accordance with Treasury regulations. The Variable
Account, through the Fund, intends to comply with the diversification
requirements prescribed by the Treasury in Treas. Reg. 1.817-5 which affect how
the Fund's assets may be invested.
Although the Fund's investment adviser and the Company are both direct or
indirect subsidiaries of Washington Mutual Bank, the Company does not have
control over the Fund or its investments. However, the Company believes that the
Fund will meet the diversification requirements.
In certain circumstances, owners of variable annuity contracts may be
considered the owners, for federal income tax purposes, of the assets of the
separate accounts used to support their contracts. In those circumstances,
income and gains from the separate account assets would be includable in the
variable contract owner's gross income. The IRS has stated in published rulings
that a variable contract owner will be considered the owner of separate account
assets if the contract owner possesses incidents of ownership in those assets,
such as the ability to exercise investment control over the assets. The Treasury
Department has also announced, in connection with the issuance of regulations
concerning diversification, that those regulations "do not provide guidance
concerning the circumstances in which investor control for the investments of a
segregated asset account may cause the investor (i.e., the Owner), rather than
the insurance company, to be treated as the owner of the assets in the account."
This announcement also stated that guidance would be issued by way of
regulations or rulings on the "extent to which policyholders may direct their
investments to particular sub-accounts without being treated as owners of the
underlying assets."
The ownership rights under the Contract are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that owners were not owners of separate account assets. For example,
the Owner has additional flexibility in allocating premium payments and account
values. These differences could result in an Owner being treated as the owner of
a pro rata portion of the assets of the Variable Account. In addition, the
Company does not know what standards will be set forth, if any, in the
regulations or rulings which the Treasury Department might issue in the future.
The Company, therefore, reserves the right to modify the Contract as necessary
to attempt to prevent an Owner from being considered the owner of a pro rata
share of the assets of the Variable Account.
Federal tax laws also require that annuity contracts contain specific
provisions for distribution of the policy proceeds upon the death of the
contract holder. The Company believes that because of the Required Distribution
provision of the Contracts (see "Required Distributions" above), it has complied
with the federal tax laws, and the Contracts will qualify as annuities under
section 72 of the Internal Revenue Code. The sales representative may use sales
literature which contains charts or other illustrations demonstrating the
effects of tax-deferral applicable to the contract.
Qualified Plans
- - ---------------
The Contract is designed for use with several types of Qualified Plans. The
tax rules applicable to participants in such Qualified Plans vary according to
the type of plan and the terms and conditions of the plan itself. Special
favorable tax treatment may be available for certain types of contributions and
distributions (including certain lump sum distributions). Adverse tax
consequences may result from contributions in excess of specified limits,
distributions prior to age 59 1/2 (subject to certain exceptions), distributions
that do not conform to specified minimum distribution rules, aggregate
distributions in excess of a specified annual amount, and in certain other
circumstances. Therefore, the Company makes no attempt to provide more than
general information about the use of the Contracts with the various types of
Qualified Plans. Contract Owners and participants under Qualified Plans, as well
as Annuitants and Beneficiaries, are cautioned that the right of any person to
any benefits under Qualified Plans may be subject to the terms and conditions of
the plans themselves, regardless of the terms and conditions of the Contract
issued in connection therewith. Those purchasing Contracts for use with any
Qualified Plan should seek competent advice regarding the suitability of the
Contract therefore. The Contracts cannot be used for Section 403(b) plans.
(a) H.R. 10 Plans. The Self-Employed Individuals Tax Retirement Act of
1962, as amended, commonly referred to as "H.R. 10" or "Keogh," permits
self-employed individuals to establish Qualified Plans for themselves and their
employees. These plans are limited by law to maximum permissible contributions,
distribution dates, and nonforfeitability of interests. In order to establish
such a plan, a plan document, usually in a form approved in advance by the
Internal Revenue Service, is adopted and implemented by the employer.
(b) Individual Retirement Annuities. Sections 219 and 408 of the Code
permit individuals or their employers to contribute to an individual retirement
program known as an "Individual Retirement Annuity." Individual Retirement
Annuities are subject to limitations on the amount which may be contributed, and
on the time when distributions may commence. In addition, distributions from
certain other types of Qualified Plans may be placed into an Individual
Retirement Annuity on a tax deferred basis. The Internal Revenue Service has not
reviewed the Contract for qualification as an IRA, and has not addressed in a
ruling of general applicability whether a death benefit provision such as the
provision in the Contract comports with IRA qualification requirements.
(c) Corporate Pension and Profit-Sharing Plans. Sections 401(a) and 403(a)
of the Code permit corporate employers to establish various types of retirement
plans for employees. Such retirement plans may permit the purchase of the
Contracts to provide benefits under the plans. Adverse tax consequences to the
plan, to the participant or to both may result if this Contract is assigned or
transferred to any individual as a means to provide benefit payments.
(d) Certain Deferred Compensation Plans. Section 457 of the Code, while not
actually providing for a Qualified Plan as that term is normally used, provides
for certain Deferred Compensation Plans with respect to service for state
governments, local governments and political subdivisions, agencies,
instrumentalities and certain affiliates of such entities and certain tax exempt
organizations which enjoy special treatment. The Contracts can be used with such
plans. Under such plans, a participant may specify the form of investment in
which his or her participation will be made. All such investments are owned by,
and subject to, the claims of general creditors of the sponsoring employer.
Depending on the terms of the particular plan, the employer may be entitled to
draw on deferred amounts for purposes unrelated to its section 457 plan
obligations. In general, all amounts received under a section 457 plan are
taxable.
Other restrictions with respect to the election, commencement, or
distribution of benefits may apply under Qualified Contracts or under the terms
of the plans in respect of which Qualified Contracts are issued.
VOTING RIGHTS
The number of votes which a person has the right to instruct will be
calculated separately for each Sub-Account. That number will be determined by
applying his/her percentage interest, if any, in a particular Sub-Account to the
total number of votes attributable to the Sub-Account.
The number of votes of the Portfolio which a Contract Owner has a right to
instruct will be determined as of the date coincident with the date established
by that Portfolio for determining shareholders eligible to vote at the meeting
of the Fund. Voting instructions will be solicited by written communication
prior to such meeting, in accordance with procedures established by the Fund.
The Company reserves the right to vote Eligible Shares in its own right, if
subsequently permitted by the Investment Company Act of 1940, its regulations or
interpretations thereof. The Company may control a majority of the Eligible
Shares through its ownership of seed money used to establish the Fund. As of
December 31, 1995, the Sub-Account(s) in which the Company had control in excess
of 10% were: the Money Market, where the percentage was 100.0%.
Fund shares, as to which no timely instructions are received, will be voted
in proportion to the voting instructions which are received with respect to all
Contracts participating in that Sub- Account. Voting instructions to abstain on
any item to be voted upon will be applied on a pro rata basis to reduce the
votes eligible to be cast.
Each person having a voting interest in a Sub-Account will receive proxy
material, reports and other materials relating to the appropriate Eligible
Portfolio.
FINANCIAL STATEMENTS
The financial statements of the Company, which are included in this
Statement of Additional Information, should be considered as bearing only on the
ability of the Company to meet its obligations under the Contracts. They should
not be considered as bearing on the investment performance of the Variable
Account.
<PAGE>
WM LIFE INSURANCE COMPANY AND SUBSIDIARY
FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT
Board of Directors
WM Life Insurance Company
Seattle, Washington
We have audited the accompanying statutory basis balance sheets of WM Life
Insurance Company and subsidiary (a wholly owned subsidiary of WM Financial,
Inc.) (the Company) as of December 31, 1995 and 1994, and the related statutory
basis statements of operations, changes in capital and surplus, and cash flows
for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits of the accompanying statutory basis financial
statements in accordance with generally accepted auditing standards. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatements. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our pinion.
As described more fully in Note A to the financial statements, the Company
prepared these financial statements in conformity with the accounting practices
prescribed or permitted by the Insurance Commissioner of the State of Arizona,
which practices differ from generally accepted accounting principles. The
effects on such financial statements of the differences between the statutory
basis of accounting and generally accepted accounting principles are described
in Note K.
In our opinion, because of the effects of the matter discussed in the
preceding paragraph, the financial statements referred to above do not present
fairly, in conformity with generally accepted accounting principles, the
financial position of the Company as of December 31, 1995 and 1994, the results
of its operations or its cash flows for each of the three years in the period
ended December 31, 1995.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the admitted assets, liabilities, and surplus of the
Company as of December 31, 1995 and 1994, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1995, on the basis of accounting described in Note A.
/S/Deloitte & Touche LLP
March 29, 1996
<PAGE>
<TABLE>
WM LIFE INSURANCE COMPANY AND SUBSIDIARY
(A Wholly-Owned Subsidiary of Washington Mutual, Inc.)
STATUTORY BASIS BALANCE SHEETS
ADMITTED ASSETS
<CAPTION>
December 31,
---------------------------------------
1995 1994
----------------- ------------------
<S> <C> <C>
Cash and Invested Assets:
Debt Securities $ 648,855,314 $ 544,434,946
Mortgage Loans 208,672,059 241,871,261
Common Stock of Subsidiary 6,899,641 6,272,515
Common Stock - FHLB 3,179,400 2,978,400
Cash and Short-term Investments 5,846,383 4,087,576
----------------- ------------------
873,452,797 799,644,698
Investment Income Due and Accrued 12,241,435 10,649,241
Premiums Due and Uncollected 223,034 209,243
Other Assets 1,732,808 1,788,952
Assets Held in Separate Accounts 47,368,335 29,854,662
----------------- ------------------
Total Assets $ 935,018,409 $ 842,146,796
================= ==================
</TABLE>
<PAGE>
<TABLE>
LIABILITIES AND CAPITAL AND SURPLUS
<CAPTION>
December 31,
---------------------------------------
1995 1994
----------------- ------------------
<S> <C> <C>
Liabilities:
Aggregate Reserve for Life Policies and Contracts $ 770,570,600 $ 730,473,486
Policy and Contract Claims 3,663,059 4,349,494
General Expenses Due and Accrued 903,015 769,193
Taxes, Licenses and Fees Due and Accrued 140,282 637,748
Interest Maintenance Reserve 2,503,696 2,522,170
Asset Valuation Reserve 7,548,604 6,054,461
FHLB Advances 27,750,000 -
Other (985,544) 64,797
Liabilities Related to Separate Accounts 46,437,469 29,063,666
----------------- ------------------
Total Liabilities 858,531,181 773,935,015
Capital and Surplus:
Capital Stock, $10 par value -
Authorized, 150,000 shares
Issued and Outstanding, 120,000 shares 1,200,000 1,200,000
Gross Paid-In and Contributed Surplus 60,848,000 60,848,000
Unassigned Surplus 14,439,228 6,163,781
----------------- ------------------
Total Capital and Surplus 76,487,228 68,211,781
----------------- ------------------
Total Liabilities and Capital and Surplus $ 935,018,409 $ 842,146,796
================= ==================
</TABLE>
<TABLE>
WM LIFE INSURANCE COMPANY AND SUBSIDIARY
(A Wholly-Owned Subsidiary of Washington Mutual, Inc.)
STATUTORY BASIS STATEMENTS OF OPERATIONS
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------
1995 1994 1993
------------------ ------------------ -----------------
<S> <C> <C> <C>
REVENUES:
Premiums and Annuity Considerations $ 145,689,509 $ 162,903,539 $ 145,251,897
Investment Income, Net 59,765,690 51,498,527 46,496,672
Other 943,629 761,530 554,982
------------------ ------------------ -----------------
Total Revenues 206,398,828 215,163,596 192,303,551
BENEFITS AND EXPENSES:
Annuity Benefits 25,361,823 20,990,726 13,052,635
Death and Disability Benefits 412,921 499,927 716,190
Surrender Benefits 108,904,516 85,689,989 31,254,860
Increase in Aggregate Reserves for Life
Policies and Contracts 40,097,113 80,160,294 123,897,823
Interest on Policy Funds 5,623 8,733 (28,145)
Commissions 5,101,748 6,121,056 5,559,118
General Insurance Expenses 3,960,344 3,581,860 3,525,412
Taxes, Licenses and Fees 643,546 616,167 395,279
Net Transfer to Separate Account 8,550,983 6,832,044 7,784,458
------------------ ------------------ -----------------
Total Benefits and Expenses 193,038,618 204,500,796 186,157,630
------------------ ------------------ -----------------
INCOME FROM OPERATIONS 13,360,210 10,662,800 6,145,921
INCOME TAX PROVISION 4,560,921 4,549,133 2,939,706
------------------ ------------------ -----------------
NET INCOME $ 8,799,289 $ 6,113,667 $ 3,206,215
================== ================== =================
</TABLE>
<PAGE>
<TABLE>
WM LIFE INSURANCE COMPANY AND SUBSIDIARY
(A Wholly-Owned Subsidiary of Washington Mutual, Inc.)
STATUTORY BASIS STATEMENTS OF CASH FLOWS
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------
1995 1994 1993
------------------ ------------------ -----------------
<S> <C> <C> <C>
OPERATIONAL ITEMS PROVIDING CASH:
Premiums and Annuity Considerations $ 145,683,718 $ 163,067,688 $ 145,076,130
Investment Income Received 59,870,521 51,922,540 45,444,229
Other Income Received 661,032 521,855 379,148
------------------ ------------------ -----------------
206,215,271 215,512,083 190,899,507
OPERATIONAL ITEMS APPLYING CASH:
Surrender Benefits Paid 108,904,516 85,689,989 31,254,860
Other Benefits Paid 26,466,802 20,428,797 12,267,835
Commissions, Other Expenses and Taxes Paid 9,669,429 10,164,344 9,435,258
Net Transfers to Separate Account 9,125,526 7,207,438 8,234,243
Federal Income Taxes Paid 5,255,473 4,551,345 2,377,087
------------------ ------------------ -----------------
NET CASH FROM OPERATIONS 46,793,525 87,470,170 127,330,224
PROCEEDS FROM INVESTMENTS SOLD,
MATURED OR PREPAID 68,733,992 85,115,474 235,224,698
OTHER CASH PROVIDED:
Capital and Surplus Paid In - 12,300,000 10,000,000
Borrowed Money, Net 27,750,000 - -
Other Sources 324,145 1,274,661 533,864
COST OF INVESTMENTS ACQUIRED 141,358,260 186,540,657 378,642,564
OTHER CASH APPLIED 484,595 640,452 1,463,142
------------------ ------------------ -----------------
Net Increase (decrease) in Cash and
Short-term Investment 1,758,807 (1,020,804) (7,016,920)
CASH AND SHORT-TERM INVESTMENTS:
Beginning of Year 4,087,576 5,108,380 12,125,300
------------------ ------------------ -----------------
End of Year $ 5,846,383 $ 4,087,576 $ 5,108,380
================== ================== =================
</TABLE>
<PAGE>
<TABLE>
WM LIFE INSURANCE COMPANY AND SUBSIDIARY
(A Wholly-Owned Subsidiary of Washington Mutual, Inc.)
STATUTORY BASIS STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------
1995 1994 1993
-------------------- ------------------- --------------------
<S> <C> <C> <C>
Beginning Balance $ 68,211,781 $ 52,143,284 $ 39,969,781
Net Income 8,799,289 6,113,667 3,206,215
Capital Contribution - 12,300,000 10,000,000
Change in Unrealized Gain / (Loss) 872,326 (12,258) -
Change in Asset Valuation Reserve (1,494,143) (2,356,185) (1,501,277)
Other Increases, Net 97,976 23,273 468,565
-------------------- ------------------- --------------------
Net Change in Capital and Surplus 8,275,447 16,068,497 12,173,503
-------------------- ------------------- --------------------
Ending Balance $ 76,487,228 $ 68,211,781 $ 52,143,284
==================== =================== ====================
</TABLE>
<PAGE>
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Affiliation -
WM Life Insurance Company and subsidiary (the Company) is a wholly-owned
subsidiary of Washington Mutual, Inc.
The Company concentrates its activities in the annuity market. The Company
issues flexible and single premium deferred annuities and single premium
immediate annuities. These products are distributed to individuals primarily
through the various distribution channels of Washington Mutual Bank, Inc. (the
Bank). The Company is currently licensed in 7 states, primarily in the western
region of the United States.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Basis of Financial Statement Presentation -
The statutory basis financial statements have been prepared in conformity
with accounting practices prescribed or permitted by the Insurance Commissioner
of the State of Arizona, (The Commissioner). Such statutory insurance accounting
practices differ in certain respects from generally accepted accounting
principles. The most significant differences are:
The investment in subsidiary is accounted for under the equity method. The
investment was originally recorded at the cost to acquire and was subsequently
adjusted for amortization of goodwill and is increased or decreased by changes
in capital and surplus of the subsidiary.
Commissions and other acquisition costs relating to the issuance of new
policies are charged to expense as incurred except to the extent allowed for in
the calculation of the provision for policy benefit reserves.
Reserves for future policy benefits are based on statutory mortality,
morbidity, and interest requirements without consideration of withdrawals,
rather than on estimates reflecting historical experience.
Premiums due are recorded based on accounting practices prescribed or
permitted by the Insurance Commissioner of the State of Arizona. Premiums are
recognized as revenue when due from policyholders.
Guaranty fund assessments are recognized as levied by the respective state
guaranty fund. Assessments are reported as an admitted asset and amortized in
accordance with applicable state regulations.
Substantially all realized capital gains and losses are excluded from
statutory income and are charged to either the Asset Valuation Reserve or the
Interest Maintenance Reserve, depending on their classification. The Interest
Maintenance Reserve is reported as a liability and is amortized into income over
a period of up to thirty years. The Asset Valuation Reserve is reported as a
liability and as an appropriation of surplus.
The provision for income taxes is based upon income that is estimated to be
currently taxable.
Federal Home Loan Bank (FHLB) stock dividends are not included in statutory
income. The asset is carried at estimated market value, which is the original
cost plus any stock dividends. The difference between market and book is treated
as a unrealized gain and is included in the equity section.
Certain assets designated as "non-admitted" have been charged against
unassigned surplus.
Investments -
Investments are valued in accordance with the requirements of the National
Association of Insurance Commissioners (NAIC). Bonds eligible for amortization
are valued at amortized cost. Bonds which the NAIC determines are ineligible for
amortization are valued at the investment value as determined by the NAIC.
Bonds not backed by other loans are valued at amortized cost using the
scientific method. Loan-backed bonds and structured securities are valued at
amortized cost using the interest method including anticipated prepayments at
the date of purchase. Significant changes in estimated cash flows or prepayment
rates are incorporated quarterly and are accounted for using the retrospective
adjustment method.
Residential mortgage loans are stated at the aggregate unpaid balance less
unaccreted discounts plus unamortized premiums. All loans are fully
collateralized by a deed of trust on residential real property with a maximum
loan to value ratio on any individual loan at inception of 75%. Substantially
all of the collateral for the Company's residential mortgage loans is located in
the Pacific Northwest.
Commercial mortgage loans are stated at the aggregate unpaid balance less
unaccreted discounts plus unamortized premiums. All loans are fully
collateralized by a deed of trust on commercial real property with a maximum
loan to value ratio on any individual loan at inception of 75%.
Unrealized investment gains and losses were accounted for as direct
increases or decreases in the Company's surplus. Income tax effects of
unrealized gains and losses were not recognized. Unrealized investment gains and
losses have been determined based on values prescribed by valuation procedures
established by the NAIC and differ from those amounts disclosed in notes B and
D.
Aggregate Reserve for Life Policies and Contracts -
The reserve for annuity contracts is calculated using the Commissioner's
Annuity Reserve Valuation Method (CARVM) on an issue year basis with interest
rates ranging from 5.00% to 8.40% as prescribed or permitted by state regulatory
authorities.
Asset Valuation Reserve -
The Asset Valuation Reserve is maintained as prescribed by the NAIC for the
purpose of stabilizing the Company's surplus against realized capital gains and
losses on disposition of bonds for which the asset quality has deteriorated and
unrealized losses from bonds ineligible for amortization. The change in Asset
Valuation Reserve is reflected as a direct increase or decrease in the Company's
surplus.
Interest Maintenance Reserve -
The Interest Maintenance Reserve is maintained as prescribed by the NAIC
for the purpose of stabilizing the Company's net income for realized capital
gains and losses on disposition of bonds for which the interest rate has
fluctuated since they were purchased. The change in the Interest Maintenance
Reserve is reflected as a direct charge against realized gains or losses.
Amortization of the Interest Maintenance Reserve is included in other income on
the statutory statement of operations.
<PAGE>
NOTE B - DEBT SECURITIES:
The statement value and estimated fair values of investments in debt
securities are as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1995
--------------------------------------------------------------------------------------
Gross Gross
Statement Unrealized Unrealized Fair
Value Gains (Losses) Value
------------------- --------------- ------------------- -------------------
<S> <C> <C> <C> <C>
US Treasury Notes and
Obligations of US
Government Agencies $ 8,601,962 $ 966,085 $ 0 $ 9,568,047
Debt Securities Issued by the
Canadian Government 18,125,558 2,033,990 0 20,159,548
Corporate and Public Utility
Debt Securities 452,531,043 25,306,833 (1,099,766) 476,738,110
Mortgage-backed Securities
- US Government Agencies 70,941,529 845,312 (1,652,427) 70,134,414
- Privately Issued 98,655,222 4,237,980 (1.336,052) 101,557,150
------------------- --------------- ------------------- ------------------
Total $ 648,855,314 $ 33,390,200 $ (4,088,245) $ 678,157,269
=================== =============== =================== ===================
Year Ended December 31, 1994
------------------------------------------------------------------------------------
Gross Gross
Statement Unrealized Unrealized Fair
Value Gains (Losses) Value
------------------- --------------- ------------------- -------------------
US Treasury Notes and
Obligations of US
Government Agencies $ 8,579,226 $ 3,134 $ (79,517) $ 8,502,844
Debt Securities Issued by the
Canadian Government 23,202,768 507,548 (283,091) 23,427,225
Corporate and Public Utility
Debt Securities 400,431,372 1,673,852 (27,801,878) 374,303,346
Mortgage-backed Securities
- US Government Agencies 70,015,770 38,100 (5,033,798) 65,020,072
- Privately Issued 42,205,810 357,868 (578,161) 41,985,517
------------------- --------------- -------------------- ------------------
Total $ 544,434,946 $ 2,580,502 $ (33,776,445) $ 513,239,004
=================== =============== ==================== ===================
</TABLE>
The mortgage-backed securities portfolio contains adjustable and fixed-rate
private issue mortgage backed securities ("private issue securities") and
collateralized mortgage obligations that expose the Company to certain risks
that are not inherent in U.S. government agency securities, primarily credit
risk and liquidity risk. Because of this added risk, private issue securities
have historically paid a greater rate of interest than agency securities,
enhancing the overall yield of the portfolio. Such securities are not guaranteed
by the U.S. government or one of its agencies because of the loan size,
underwriting or underlying collateral of these securities often does not meet
established industry standards. Consequently, there is the possibility of loss
of the principal investment. For this reason, it is possible that the Company
will not receive an enhanced overall yield on the portfolio and, in fact, could
incur a loss. Additionally, the Company may not be able to sell such securities
in certain market conditions as the number of interested buyers may be limited
at that time. Furthermore, the complex structure of certain collateralized
mortgage obligations in the Company's portfolio increases the difficulty in
assessing the portfolio's risk and its fair value. Examples of some of the more
complex structures include certain collateralized mortgage obligations where the
Company holds subordinated traunches and certain securities that contain a
significant number of jumbo, nonconforming loans.
The statement value and estimated fair value of debt securities at December
31, 1995, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without prepayment penalties.
Statement Fair
Value Value
--------------- ---------------
Due in One Year or Less $ 10,487,683 $ 10,492,919
Due After One Year Through Five Years 151,674,050 159,776,042
Due After Five Years Through Ten Years 205,168,620 215,737,638
Due After Ten Years 111,928,210 120,459,106
--------------- ---------------
479,258,563 506,465,705
Mortgage-backed Securities 169,596,751 171,691,564
--------------- ---------------
$ 648,855,314 $ 678,157,269
=============== ===============
Proceeds from sales of investments in debt securities and mortgage loans
during 1995, 1994 and 1993 were $31,500,000, $39,500,000 and $44,000,000,
respectively. Gross gains of $451,500, $169,000, and $2,540,000 were realized
for 1995, 1994 and 1993, respectively. Gross losses of $51,000, $98,098 and
$12,400 were realized for 1995, 1994 and 1993 respectively.
Due and accrued income was excluded from investment income on mortgage
loans and bonds where interest is past due more than 90 days. The total amount
excluded was $15,397, $0 and $11,435 for 1995, 1994 and 1993 respectively.
Investment Income is recorded net of Investment Expenses of $1,835,700,
$1,876,900 and $1,746,600, for the years ended 1995, 1994 and 1993,
respectively.
NOTE C: ADVANCES FROM THE FHLB -
The Company was approved to be a member of the Federal Home Loan Bank on
September 30, 1994 and became a member on October 5, 1994, the date of its
initial stock purchase.
As members of the FHLB, WM Life maintains a credit line that is a
percentage of their total regulatory assets, subject to collaterization
requirements. At December 31, 1995, the available credit line was 19% of
regulatory assets. No advance was taken prior to 1995 and all advances
outstanding at December 31, 1995 mature within one year. Advances are
collateralized in aggregate, as provided for in the Advances, Security and
Deposit Agreements with the FHLB, by all FHLB stock owned and by certain
mortgages or deeds of trust.
Financial data pertaining to the weighted average cost, the level of FHLB
advances and the related interest expense for the year ended Dec. 31, 1995 were
as follows:
Weighted average interest rate at end of year 5.88%
Weighted daily average interest rate at end of year 6.14%
Daily Average of FHLB Advances $22,641,000
Maximum FHLB Advances at any month end 28,420,000
Interest expense during the year 1,046,730
NOTE D: FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following estimated fair value amounts have been determined by the
Company using available market information and appropriate valuation
methodologies. However, considerable judgment is required to interpret market
data to develop the estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts the Company could
realize in a current market exchange. The use of different market assumptions
and / or estimation methodologies may have a material effect on the estimated
fair value amounts.
The fair value of financial instruments were as follows:
<TABLE>
<CAPTION>
December 31,
- - --------------------------------------------------------------------------------------------
1995 1994
- - --------------------------------------------------------------------------------------------
Statement Fair Statement Fair
(dollars in thousands) Value Value Value Value
- - --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial Assets
Cash and Short-term Investments $ 5,846 $ 5,846 $ 4,088 $ 4,088
Common Stock - FHLB 3,179 3,179 2,978 2,978
Debt Securities 648,855 678,157 554,435 513,239
Mortgage Loans 208,672 209,090 241,871 226,717
Assets Held in Separate Account 47,368 47,368 29,855 29,855
- - --------------------------------------------------------------------------------------------
913,920 943,640 833,227 776,877
Financial Liabilities
FHLB Advances 27,750 27,731 0 0
Aggregate Reserve for Life
Policies and Contracts 770,571 766,890 730,473 727,280
Liabilities Related to Separate Account 46,437 46,437 29,064 29,064
- - --------------------------------------------------------------------------------------------
844,758 841,058 759,537 756,344
- - --------------------------------------------------------------------------------------------
Net Financial Instruments $ 69,162 $ 102,582 $ 73,690 $ 20,533
============================================================================================
</TABLE>
The following methods and assumptions were used to estimate fair value of
each class of financial instrument as of December 31, 1995 and 1994:
Cash and Short-term Investments - The statement value represented fair
value.
Common Stock - FHLB - The fair value is based on the $100 per par value.
Debt Securities - The fair value of debt securities were based on quoted
market prices or dealer quotes. If a quoted price was not available, fair value
was estimated using quoted market prices for similar securities.
Mortgage Loans - The fair value of conforming residential and commercial
first mortgage loans was determined by using the market price for loans with
similar coupons and maturities. For nonconforming or "JUMBO" loans with
maturities similar to conforming loans, an additional adjustment was made for
credit risk.
Aggregate Reserve for Life Policies and Contracts - The aggregate reserve
for life policies and contracts is comprised substantially of annuities. The
fair value of annuities with defined maturities is estimated by discounting
projected cash flows using rates that would be offered for similar contracts
with the same remaining maturities. For annuities with no defined maturities,
fair value is estimated to be the present surrender value.
FHLB Advances - These were valued using the discounted cash flow method.
The discount rate was equal to the rate currently offered on similar borrowings.
Assets Held in Separate Accounts and Liabilities Related to Separate
Account - The carrying values are a reasonable estimate of their fair values
since assets and liabilities of separate accounts are carried at market value.
NOTE E - REINSURANCE:
All of the Company's credit and mortgage insurance business is obtained
through reinsurance agreements which generally limit the Company's assumed
liability for benefits to a maximum of $20,000. In 1988 the Company entered into
a reinsurance agreement whereby the Company assumed 80% of the flexible premium
annuity business written under the contract. In 1990, the contract was
terminated as to the writing of new business. However, the Company continues to
administer the policies written under the contract and to accept subsequent
premiums on existing contracts.
Included in the accompanying consolidated financial statements are the
following amounts relating to business obtained through reinsurance.
Year Ended December 31,
-------------------------------------------------------------
1995 1994 1993
----------------- ------------------ ------------------
Premium Revenue $ 308,200 $ 249,300 $ 383,800
Policy Benefits
and Reserve Changes $ 1,011,400 $ 1,097,700 $ 1,174,300
Future Policy Benefits
Credit $ 674,000 $ 1,007,200 $ 1,462,800
Annuities $ 14,547,800 $ 15,199,600 $ 15,911,600
Net life insurance in force under reinsured policies were $124,772,000,
$117,259,000 and $146,193,000 as of December 31, 1995, 1994, and 1993
respectively. The Company's insurance in force is comprised primarily of life
insurance assumed. The Company's reinsurance treaties are predominantly written
on a yearly renewable term basis.
NOTE F - TRANSACTIONS WITH AFFILIATES
The Company pays commissions to Washington Mutual Insurance Services, Inc.,
Murphey Favre, Inc., and Columbia Services Corporation, affiliates through
common ownership, for sales of the Company's life and annuity products. Such
commissions totaled $4,348,000, $5,234,000 and $4,588,000 for the years ended
December 31, 1995, 1994, and 1993, respectively.
The Company has retained both Washington Mutual Bank, (The Bank) and
Composite Research & Management Co., affiliates through common ownership, to
provide investment advisory and management services, fees for which aggregated
$554,200, $492,000 and $380,800 for years ended December 31, 1995, 1994 and 1993
respectively.
The Company maintains some of its cash accounts with the Bank. Interest
earned from funds on deposit with the Bank totaled $223,700, $258,600 and
$236,900 for the years ended December 31, 1995, 1994 and 1993, respectively.
The Company purchased all of its investments in mortgage loans from the
Bank. Service fees on mortgage loans totaled $1,182,700, $1,287,200 and
$1,263,700 for the years ended December 31, 1995, 1994 and 1993, respectively.
The amount due to affiliates was $229,100 and $232,400 as of December 31,
1995 and 1994, respectively, and represents the Company's liability to
affiliates for administrative fees and other expenses paid on behalf of the
Company. There were no amounts due from affiliates as of December 31, 1995 and
1994.
The Bank maintains a noncontributory "cash balance" defined benefit pension
plan (the Plan) which covers substantially all eligible employees of the
Company. Benefits earned for each year of service are based primarily on the
level of compensation in that year plus a stipulated rate of return on the
benefit balance. It is the Bank's policy to fund the Plan on a current basis to
the extent deductible under federal income tax regulations. Plan costs are
allocated to the Company by the Bank based on eligible employee's salaries.
Actuarial information is prepared annually for the Plan taken as a whole,
however, actuarial information attributable to separate affiliated companies is
not determined.
The Bank also maintains a savings plan for substantially all eligible
employee of the Company which allows participants to make contributions by
salary deduction equal to 15 percent or less of their salary pursuant to section
401(k) of the Internal Revenue Code. Employees' contributions vest immediately;
the Company's partial matching contributions vest over five years.
Total Pension and 401(k) Savings Plan expense was $140,370, $134,540 and
$102,870 for 1995, 1994 and 1993, respectively.
NOTE G - FEDERAL INCOME TAXES:
WM Life qualifies as a life insurance company under current tax
regulations. Beginning with 1989, WM Life joined in the filing of a consolidated
income tax return with the Bank. The allocation of Federal Income Tax Liability
to WM Life approximates the tax that would be due if WM Life filed a separate
return.
The difference between taxes as provided at statutory rates and the current
effective rate is caused primarily by differences in conventions under which
policy and contract reserves are established on a tax basis as compared to those
utilized in preparing statutory basis financial statements, along with
differences in timing of recognition of policy acquisition costs.
NOTE H - SEPARATE ACCOUNT ASSETS AND LIABILITIES:
Separate account assets and liabilities relate to the Company's Composite
Deferred Variable Account (the Account), which was formed on December 23, 1986
and commenced operations in 1987. The Account is registered under the Investment
Company act of 1940, as amended, as a unit investment trust. The net asset
balance of the separate account represents the net contribution of the Company
to the Account.
NOTE I - DIVIDEND AVAILABILITY:
The amount of dividends which can be paid by the Company without prior
approval of the Insurance Commissioners is the lesser of 10% of the Company's
unassigned surplus or the net gain from operations.
NOTE J -PERMITTED STATUTORY ACCOUNTING PRACTICES
The Company, which is domiciled in the State of Arizona, prepares it's
statutory financial statements in accordance with accounting principles and
practices prescribed or permitted by the Arizona State Insurance Department.
Prescribed statutory practices include state laws, regulations, and general
administrative rules, as well as a variety of publications of the National
Association of Insurance Commissioners (NAIC). Permitted statutory accounting
practices encompass all accounting practices that are not prescribed; such
practices differ from state to state, and may differ from company to company
within a state, and may change in the future. Furthermore, the NAIC has a
project to codify statutory accounting practices, the result of which is
expected to constitute the only source of "prescribed" statutory accounting
practices. Accordingly, that project, which is expected to be completed in the
near future, will likely change the definitions of what comprises prescribed
statutory practices, and may result in changes to the accounting policies the
insurance enterprises use to prepare their statutory financial statements.
NOTE K - RECONCILIATION OF STATUTORY NET INCOME AND EQUITY TO GAAP NET INCOME
AND EQUITY:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------
1995 1994 1993
---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Statutory Net Income as Reported $ 8,799,289 $ 6,113,667 $ 3,206,215
Statutory Net Income of Empire
Life, as Reported 480,422 61,534 89,768
---------------- ---------------- -----------------
Total Statutory Income as Reported $ 9,279,711 $ 6,175,201 $ 3,295,983
Adjustments Concerning:
Deferred Policy Acquisition Costs (344,968) 2,029,124 3,284,640
Deferred Federal Income Taxes 103,430 438,200 695,000
Future Policy Benefits (77,651) 673,675 (1,663,253)
Write-off of Guarantee Assessments
and Other 63,526 (651,578) (818,502)
Interest Maintenance Reserve (297,392) (197,232) 1,551,909
Capital Gains / (Losses) 266,872 53,787 1,738,817
Other, Net 442,677 (236,905) (1,409,201)
Net Income in Conformity with
Generally Accepted Accounting ---------------- ---------------- -----------------
Principles $ 9,436,205 $ 8,284,272 $ 6,675,393
================ ================ =================
Year Ended December 31,
------------------------------------------------------------
1995 1994 1993
---------------- ---------------- -----------------
Statutory Capital and Surplus
as Reported $ 76,487,228 $ 68,211,781 $ 52,143,284
Adjustment Concerning:
Deferred Policy Acquisition Costs 24,679,413 32,728,969 29,438,134
Future Policy Benefits (18,189,417) (18,111,768) (18,785,443)
Value Ascribed to Licenses
and Charters 1,407,122 1,407,122 1,407,122
Asset Valuation and Interest
Maintenance Reserve 10,414,862 8,933,192 6,729,902
Investment Loss Reserve (1,140,000) (1,140,000) (1,140,000)
Write-off of Guaranty Assessments
and Other (4,993,744) (5,011,427) (4,238,905)
Unrealized Gains / (Losses)
Available for Sale 21,926,739 (4,295,818) -
Deferred Federal Income Taxes (4,745,276) 1,461,497 (8,000)
Other, Net 80,080 85,394 141,087
Stockholder's Equity in Conformity
with Generally Accepted ---------------- --------------- -----------------
Accounting Principles $ 105,927,007 $ 84,268,942 $ 65,687,181
================ ================ =================
</TABLE>
<PAGE>
WM LIFE INSURANCE COMPANY AND SUBSIDIARY
INDEPENDENT AUDITORS' REPORT ON
SUPPLEMENTAL SCHEDULE OF ASSETS AND LIABILITIES
Our audits were conducted for the purpose of forming an opinion on the
basic statutory financial statements taken as a whole. The supplemental schedule
of selected financial data for the year ended December 31, 1995, is presented
for complying with the National Association of Insurance Commissioners'
instructions to Annual Audited Financial Reports and is not a required part of
the basic statutory financial statements. This additional information is the
responsibility of WM Life Insurance Company's management. Such information has
been subjected to the auditing procedures applied in our audit of the basic
statutory financial statements and, in our opinion, is fairly stated in all
material respects when considered in relation to the basic statutory financial
statements taken as a whole.
/s/Deloitte & Touche LLP
Seattle, Washington
March 29, 1996
<PAGE>
WM LIFE INSURANCE COMPANY AND SUBSIDIARY
(A Wholly-Owned Subsidiary of Washington Mutual, Inc.)
Supplemental Schedule of Selected Financial Data
Year Ended December 31, 1995
Investment Income Earned:
Government Bonds $ 3,933,471
Other Bonds (unaffiliated) 40,649,768
Bonds of Affiliates -
Preferred Stocks (unaffiliated) -
Preferred Stocks of Affiliates -
Common Stocks (unaffiliated) 216
Common Stocks of Affiliates -
Mortgage Loans 17,658,141
Real Estate -
Premium Notes, Policy Loans and Liens 136
Collateral Loans -
Cash on Hand and on Deposit 232,880
Short-term Investments 183,361
Other Invested Assets -
Derivatives Instruments -
Aggregate Write-ins for Investment Income 4,252
Gross Investment Income 62,662,225
============
Real Estate Owned - Book Value less Encumbrances -
============
Mortgage Loans - Book Value:
Farm Mortgages
Residential Mortgages 205,080,412
Commercial Mortgages 3,591,647
Total Mortgages 208,672,059
============
Mortgage Loans By Standing - Book Value:
Good Standing 208,261,515
============
Good Standing with Restructured Terms -
============
Interest Overdue More Than 3 Months, Not in Foreclosure 367,563
============
Foreclosure in Process 42,981
============
Other Long Term Assets - Statement Value 2,393
============
Collateral Loans -
============
Bonds and Stocks of Parents, Subsidiaries and Affiliates
- Book Value:
Bonds -
============
Preferred Stock -
============
Common Stocks 6,899,641
============
Bonds by Class and Maturity:
Bonds by Maturity - Statement Value:
Due Within One Year or Less 33,035,574
Over 1 Year Through 5 Years 211,132,953
Over 5 Year Through 10 Years 245,396,731
Over 10 Year Through 20 Years 95,396,164
Over 20 Years 63,893,892
Total by Maturity 648,855,314
============
Bonds by Class - Statement Value:
Class 1 497,449,123
Class 2 143,994,348
Class 3 4,176,586
Class 4 3,235,257
Class 5 -
Class 6 -
============
============
============
Total Bonds Privately Traded 14,202,543
============
Preferred Stocks - Statement Value -
============
Common Stocks - Market Value 3,179,400
============
Short Term Investments - Book Value 2,827,026
============
Financial Options Owned - Statement Value -
============
Financial Options Written and In Force
- Statement Value -
============
Financial Contracts Open - Current Price -
============
Cash on Deposit 3,019,357
============
Life Insurance In Force
Industrial
============
Ordinary 400,000
============
Credit Life 6,301,000
============
Group Life 118,471,000
============
Amount of Accidental Death Insurance
In Force Under Ordinary Policies -
============
Life Insurance Polices with Disability Provisions
In Force
Industrial -
============
Ordinary -
============
Credit Life -
============
Group Life -
============
Supplementary Contracts In Force
Ordinary - Not Involving Life
Contingencies -
============
Amount on Deposit -
============
Income Payable -
============
Ordinary - Involving Life Contingencies
Income Payable -
============
Group - Not Involving Life Contingencies
Amount of Deposit -
============
Income Payable -
============
Group - Involving Life Contingencies
Income Payable -
============
Annuities:
Ordinary
Immediate - Amount of Income Payable 6,480,193
============
Deferred - Fully Paid Account Balance 804,292,357
============
Deferred - Not Fully Paid -
Account Balance -
============
Group
Amount of Income Payable -
============
Fully Paid Account Balance -
============
Not Fully Paid - Account Balance -
============
Accident and Health Insurance - Premiums In Force
Ordinary -
============
Group -
============
Credit 403,935
============
Deposit Funds and Dividend Accumulations:
Deposit Funds - Account Balance -
============
Dividend Accumulations - Account Balance -
============
Claim Payments 1995, 1994 & 1993
Group Accident and Health Year -
Ended December 31,
1995 78,543
============
1994 81,315
============
1993 108,906
============
Other Accident & Health
1995 -
============
1994 -
============
1993 -
============
Other Coverages That Use Developmental Methods
to Calculate Claims Reserves
1995 -
============
1994 -
============
1993 -
============
<PAGE>
COMPOSITE DEFERRED VARIABLE ACCOUNT OF WM LIFE INSURANCE COMPANY
FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT
Contractholders
Composite Deferred Variable Account
of WM Life Insurance Company
Board of Directors
WM Life Insurance Company
Seattle, Washington
We have audited the accompanying statement of net assets of the Composite
Deferred Variable Account of WM Life Insurance Company (comprising the Money
Market, Growth, Income, and Northwest 50 subaccounts)(the Company) as of
December 31, 1995, and the related statement of operations for the year then
ended and the statements of changes in net assets for the years ended December
31, 1995 and 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the financial
statements of the Composite Deferred Series, Inc. (comprising the Money Market
Portfolio, the Growth Portfolio, the Income Portfolio, and the Northwest 50
Portfolio) as of or for the years ended December 31, 1995 and 1994. Those
statements were audited by other auditors whose report has been furnished to us,
and our opinion, insofar as it relates to the amounts included for the Composite
Deferred Series, Inc., is based solely upon the report of such other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing accounting principles used and significant estimates m,ad3e by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of other auditors, such
financial statements present fairly, in all material respects, the financial
position of each of the subaccounts constituting the Composite Deferred Variable
Account of WM Life Insurance Company as of December 31, 1995, and the results of
their operations and the changes in their net assets for the periods indicated
above in conformity with generally accepted account principles.
/s/Deloitte & Touche LLP
March 29, 1996
<PAGE>
<TABLE>
COMPOSITE DEFERRED VARIABLE ACCOUNT
OF WM LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS
December 31, 1995
<CAPTION>
Sub-Accounts
-------------------------------------------------------------------------
Money Northwest
Market Growth Income 50
Total Portfolio Portfolio Portfolio Portfolio
---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Investment In Shares of the Composite
Deferred Series, Inc. portfolios at
net asset value $ 47,368,335 $ 220,996 $ 24,450,702 $ 15,201,918 $ 7,494,719
================ ================ ================ ================ ================
Net Assets, representing:
Equity of Contract-holders $ 46,437,469 $ - $ 24,349,706 $ 15,109,484 $ 6,978,279
Equity of WM Life Insurance Co. 930,866 220,996 100,996 92,435 516,440
---------------- ---------------- ---------------- ---------------- ----------------
$ 47,368,335 $ 220,996 $ 24,450,702 $ 15,201,918 $ 7,494,719
================ ================ ================ ================ ================
</TABLE>
<PAGE>
<TABLE>
COMPOSITE DEFERRED VARIABLE ACCOUNT
OF WM LIFE INSURANCE COMPANY
STATEMENT OF OPERATION
YEAR ENDED DECEMBER 31, 1995
<CAPTION>
Sub-Accounts
----------------------------------------------------------------------
Money Northwest
Market Growth Income 50
Total Portfolio Portfolio Portfolio Portfolio
----------------- ----------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend Distributions 1,703,729 3,180 808,427 859,167 32,955
EXPENSES
Charges to Contract-holders:
Mortality and Expense Risks 433,273 - 213,833 153,744 65,697
Surrender Charge 50,118 - 34,897 11,445 3,775
Contract Maintenance 25,495 - 15,065 6,973 3,458
----------------- ----------------- ---------------- ---------------- -----------------
Total Expenses 508,886 - 263,795 172,162 72,930
----------------- ----------------- ---------------- ---------------- -----------------
INCOME/(LOSS),NET 1,194,843 3,180 544,633 687,006 (39,975)
REALIZED AND UNREALIZED GAIN/(LOSS)
ON INVESTMENTS, NET
Capital Gain/(Loss) Distributions
Received 190,503 - 157,349 (11,407) 44,561
Unrealized Increase in Value of
Investments, Net 7,002,672 - 4,254,338 1,491,975 1,256,359
----------------- ----------------- ---------------- ---------------- -----------------
NET GAIN ON INVESTMENTS 7,193,175 - 4,411,687 1,480,568 1,300,920
----------------- ----------------- ---------------- ---------------- -----------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 8,388,018 3,180 4,956,320 2,167,574 1,260,945
================= ================= ================ ================ =================
</TABLE>
<PAGE>
<TABLE>
COMPOSITE DEFERRED VARIABLE ACCOUNT
OF WM LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1995
<CAPTION>
Sub-Accounts
------------------------------------------------------------------------
Money Northwest
Market Growth Income 50
Total Portfolio Portfolio Portfolio Portfolio
------------------ ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Income/(Loss), Net 1,194,843 3,180 544,633 687,006 (39,975)
Capital Gain/(Loss) Distribution
Received 190,503 - 157,349 (11,407) 44,561
Unrealized Increase in Value of
Investments, Net 7,002,672 - 4,254,338 1,491,975 1,256,359
------------------ ----------------- ----------------- ----------------- -----------------
Net Increase in Net Assets
Resulting from Operations 8,388,018 3,180 4,956,320 2,167,574 1,260,945
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM PREMIUM
PAYMENTS AND OTHER OPERATING
TRANSFERS 9,125,655 (857) 5,310,385 2,220,319 1,595,807
------------------ ----------------- ----------------- ----------------- -----------------
TOTAL INCREASE IN NET ASSETS 17,513,673 2,323 10,266,705 4,387,893 2,856,752
NET ASSETS:
Beginning of Year 29,854,662 218,673 14,183,997 10,814,025 4,637,967
------------------ ----------------- ----------------- ----------------- -----------------
End of Year $ 47,368,335 $ 220,996 $ 24,450,702 $ 15,201,918 $ 7,494,719
================== ================= ================= ================= =================
</TABLE>
<PAGE>
<TABLE>
COMPOSITE DEFERRED VARIABLE ACCOUNT
OF WM LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1994
<CAPTION>
Sub-Accounts
--------------------------------------------------------------------------
Money Northwest
Market Growth Income 50
Total Portfolio Portfolio Portfolio Portfolio
------------------ ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Income/(Loss), Net 763,281 - 205,655 569,748 (12,122)
Capital Gain Distribution Received 35,249 - 107,880 (71,348) (1,283)
Unrealized Decrease in Value of
Investments, Net (1,421,058) - (194,484) (1,115,484) (111,090)
------------------ ----------------- ----------------- ----------------- -----------------
Net Increase (Decrease) in Net
Assets Resulting from Operations (622,528) - 119,051 (617,084) (124,495)
NET INCREASE IN NET ASSETS
RESULTING FROM PREMIUM
PAYMENTS AND OTHER OPERATING
TRANSFERS 7,214,205 857 2,805,067 2,331,631 2,076,650
------------------ ----------------- ----------------- ----------------- -----------------
TOTAL INCREASE IN NET ASSETS 6,591,677 857 2,924,118 1,714,547 1,952,155
NET ASSETS:
Beginning of Year 23,262,985 217,816 11,259,879 9,099,478 2,685,812
------------------ ----------------- ----------------- ----------------- -----------------
End of Year 29,854,662 218,673 14,183,997 10,814,025 4,637,967
================== ================= ================= ================= =================
</TABLE>
<PAGE>
NOTE A - GENERAL:
The Composite Deferred Variable Account of WM Life Insurance Company (the
Account) was established on December 23, 1986 under Arizona law as a separate
investment account of WM Life Insurance Company (WM Life), which is a
wholly-owned subsidiary of Washington Mutual, Inc. The assets of the Account are
segregated from WM Life's other assets.
The Account is registered under the Investment Act of 1940, as amended, as
a unit investment trust. There are four sub-accounts within the Account, each of
which invests only in a corresponding portfolio of the Composite Deferred
Series, Inc. (the Fund). The underlying investments of the Fund are valued at
fair value on the last day of the year. The Fund is managed by Composite
Research & Management Co., an entity affiliated with WM Life through common
ownership.
On January 1, 1993, the Company added the fourth sub-account which invests
in shares of the Northwest 50 Portfolio. At the same time, future deposits into
the Money Market sub-account were temporarily suspended because the portfolio
expenses and variable account charges currently exceeded the total investment
income in that sub-account. During 1995, WM Life Insurance Co. reimbursed the
operating expenses that exceeded the operating revenues for the Money Market
Portfolio in the amount of $2,286.
Assets of the Account are recorded at fair value, as determined by the fair
value of the individual portfolios of the Fund. Unrealized gains (losses) are
determined based on the change in fair value of the portfolios of the Fund
during the year. Dividend distributions are recorded as Investment Income when
received by the Account.
The increase in net assets resulting from premium payments and other
operating transfers represents the net effect of premiums, surrenders and other
transfers.
Certain reclassifications of prior year balances have been made to conform
to the current year presentation.
NOTE B - INVESTMENT INFORMATION FOR THE COMPOSITE DEFERRED SERIES, INC.
PORTFOLIOS:
The net asset value per share for each portfolio of the Fund, the number of
and activity in shares of each portfolio held by the sub-accounts of the
Account, and the aggregate cost of investments in such shares as of and for the
year ended December 31, 1995 were as follows -
<TABLE>
<CAPTION>
Portfolio
---------------------------------------------------------------------------
Money Northwest
Market Growth Income 50
Portfolio Portfolio Portfolio Portfolio
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Shares Owned, December 31, 1994 218,673 903,380 958,290 387,574
Shares Purchased - Deposits - 367,075 307,119 144,437
- Reinvested 2,323 19,241 70,811 2,943
Shares Sold - (80,702) (134,853) (35,135)
------------------ ------------------ ------------------ ------------------
Shares Owned , December 31, 1995 220,996 1,208,994 1,201,367 499,819
================== ================== ================== ==================
Net Asset Value per Share, at
December 31, 1995 $ 1.00 $ 20.22 $ 12.59 $ 14.99
Actual Cost $ 220,996 $ 19,428,235 $ 14,437,931 $ 6,280,081
</TABLE>
NOTE C - CHARGES AND EXPENSES:
A. Mortality and Expense Risk Charges -
The variable annuity contract specifies mortality risk and expense
risk charges at an effective annual rate of 1.2% applied daily against
the net assets representing equity of contractholders held in each
account.
B. Contract Maintenance Charge -
The variable annuity contract specifies that a contract maintenance
charge be deducted from each contract, and assessed against the
sub-account with the largest value. The maintenance charge for all
contracts issued prior to April 29, 1988 was $2.50 per month. All
contracts issued on or after April 29, 1988 are charged $30 annually
on the anniversary date of the contract.
C. Contingent Deferred Sales Charge -
A contingent deferred sales charge (surrender charge) is imposed
upon the withdrawal of funds from certain variable annuity contracts
to compensate WM Life for sales and other marketing expenses during the
first five policy years. The amount of any sales charge will depend on
the amount withdrawn and the number of contract years that have elapsed
since the deposit date. No deferred sales charge is imposed on death
benefits.
NOTE D - TAXES:
The operations of the sub-accounts form a part of, and are taxed with, the
operations of WM Life. Under the Internal Revenue Code, all ordinary income and
capital gains allocated to the contract owners are not taxed to WM Life. As a
result, the net asset values of the sub-accounts and the Account in total, are
not effected by federal income taxes on distributions received by the
sub-accounts.
NOTE E - ACCUMULATION UNIT TRANSACTIONS:
The number of accumulation units purchased and withdrawn throughout the
periods ended December 31 were as follows:
Accumulation Units Purchased
----------------------------------------------------------
Period Ended Money Northwest
December 31, Market Growth Income 50
- - --------------------------------------------------------------------------------
1995 - 265,216 164,153 113,838
1994 - 191,705 161,079 158,169
Accumulation Units Withdrawn
----------------------------------------------------------
Period Ended Money Northwest
December 31, Market Growth Income 50
- - --------------------------------------------------------------------------------
1995 - 80,792 80,759 25,262
1994 - 72,189 68,386 22,977
The number of accumulation units and the unit value of such units were as
follows at December 31, 1995 and 1994.
Units - December 31, 1995 784,124 526,874 366,605
Unit Value - December 31, 1995 $ 31.04 $ 28.65 $ 18.95
Units - December 31, 1994 599,700 443,480 278,029
Unit Value - December 31, 1994 $ 23.49 $ 24.18 $ 15.21
PART C
OTHER INFORMATION
24a.FINANCIAL STATEMENTS
PART A: Condensed Financial Information
PART B: Composite Deferred Variable Account
WM Life Insurance Company and subsidiary
24b.EXHIBITS
(1) Resolution of the Board of Directors of WM Life Insurance Company
authorizing establishment of the Composite Deferred Variable Account.1/
(2) Not applicable.
(3) Agent Agreement.3/
(4) Specimen Contract.5/
(5) Form of application for a Contract.5/
(6) (a) Amended Certificate of Incorporation of WM Life Insurance Company.1/
(b) By-laws of WM Life Insurance Company.1/
(7) Not applicable.
(8) Not applicable.
(9) (a) Opinion of Sutherland, Asbill & Brennan.2/
(b) Consent of Sutherland, Asbill & Brennan.
(10)Consent of Deloitte & Touche.
(11)Not Applicable.
(12)Agreement to Purchase Shares.2/
(13)Data Performance Computation Schedules.4/
1/ Filed with the initial registration statement (File No. 33-11011) on December
29, 1986, and incorporated herein by reference.
2/ Filed with Pre-Effective Amendment No. 1 (File No. 33-11011) on April 10,
1987, and incorporated herein by reference.
3/ Filed with Post-Effective Amendment No. 1 (File No. 33-11011) on January 19,
1988, and incorporated herein by reference.
4/ Filed with Post-Effective Amendment No. 3 (File No. 33-11011) on April 29,
1988, and incorporated herein by reference.
5/ Filed with Post-Effective Amendment No. 12 (File No. 33-11011) on April 28,
1995, and incorporated herein by reference.
25. Directors and Officers of the Depositor
Name and Principal Position and Offices
Business Address With Depositor
Robert William Eschrich President, Chief Executive Officer and
Director
Kerry Kent Killinger Director
Craig Elliott Tall Director
Thomas J. Kappock Director
Glen Edward Manheim Senior Vice President and Director
Charles William Dishion Vice President, Treasurer and Controller
Wayland Michael Hubbart Vice President and Actuary
Brian Frederick Kreger Vice President, General Counsel and
Secretary
James Ronald Hearldson Senior Vice President
Charles Henry Leber, III Vice President
Laurence Eugene Devall Vice President
The principal business address of the foregoing, for business relating to
the Depositor, is 1201 Third Avenue, Seattle, Washington 98101.
26. Persons Controlled by or Under Common Control With Depositor or Registrant
Excluding inactive or dormant subsidiaries:
Date Organized State of Percentage of
Or Acquired Entity Incorporation Ownership
- - -------------- ----------------------- ------------- ------------
1994 Washington Mutual, Inc. Washington N/A
1994 Washington Mutual Bank Washington 100%
1985 WM Financial, Inc. Washington 100%
1985 Benefit Service Corporation Washington 100%
1982 Composite Research & Management Co. Washington 100%
1982 Murphey Favre, Inc. Washington 100%
1986 Murphey Favre Securities Washington 100%
Services, Inc.
1983 WM Life Insurance Company Arizona 100%
1987 Empire Life Insurance Company Washington 100%
1984 Murphey Favre Properties, Inc. Washington 100%
1987 Murphey Favre Housing Managers Inc. Washington 100%
1982 Washington Mutual Insurance
Services Inc. Washington 100%
1980 Preston Ridge Financial Services Washington 100%
Corp.
1989 Preston Properties Arizona, Inc. Washington 100%
1983 Preston Property Management Company Washington 100%
1992 Preston Properties California, Inc. Washington 100%
1992 Preston Properties Texas, Inc. Washington 100%
1988 Washington Mutual, a Federal
Savings Bank Federal 100%
1988 Columbia Services, Inc. Washington 100%
1988 North American Acceptance Corp. Washington 100%
1991 Van Fed Mortgage Company Washington 100%
1991 Mill Plain One, Inc. Washington 100%
1991 Mill Plain Three, Inc. Washington 100%
1991 Mill Maple Properties, Inc. Oregon 100%
27. Number of Contract Owners
As of December 31, 1995:
Qualified contracts, 67.
Nonqualified contracts, 1621.
28. Indemnification
The Company indemnifies actions against all officers, directors and
employees to the full extent permitted by the Arizona Business Corporation
Act. This includes any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative, or investigative. Such
indemnification includes expenses, judgments, fines and amounts paid in
settlement of such actions, suits or proceedings.
29a.Relationship of Principal Underwriter to Other Investment Companies
Murphey Favre, Inc., the principal underwriter of the Depositor, is also
principal underwriter for the following investment companies:
Composite Deferred Series, Inc.
Composite Growth and Income Fund, Inc.
Composite Income Fund, Inc.
Composite Bond & Stock Fund, Inc.
Northwest Fund, Inc.
Composite Tax-Exempt Bond Fund, Inc.
Composite U.S. Government Securities, Inc.
Composite Cash Management Company
29b.Principal Underwriters
The principal underwriter for the Registrant is Murphey Favre which also
serves in the same capacity for seven (7) other investment companies
identified in Item 29a.
Business and other connection of the underwriter were most recently filed on
Form BD, CRD 599, with the National Association of Securities Dealers on
March 12, 1996, and are incorporated herein by reference.
29c.Compensation of Murphey Favre, Inc.
The following commissions and other compensation were received by each
principal underwriter, directly or indirectly, from the Registrant during
the Registrant's last fiscal year (1995):
(1) (2) (3) (4) (5)
Net
Name of Underwriting
Principal Discount and Compensation Brokerage
Underwriter Commissions On Redemption Commissions Compensation
Murphey
Favre Inc. $1,289,048 0 0 0
30. Location of Accounts and Records
Glen E. Manheim, Senior Vice President
WM Life Insurance Company
1201 Third Avenue
Seattle, Washington 98101-3015
31. Management Services
No management related services are provided to the Registrant, except as
discussed in Parts A and B.
32. Undertakings
(a) A post-effective amendment to this registration statement will be filed
as frequently as is necessary to ensure that the audited financial
statements in the registration statement are never more than 16 months old
for so long as payments under the variable annuity contracts may be
accepted.
(b) Any application to purchase a contract offered by the prospectus will
include a space that an applicant can check to request a Statement of
Additional Information.
(c) Any Statement of Additional Information and any financial statements
required to be made available under this form will be delivered promptly
upon written or oral request.
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant certifies that it meets the requirements of Rule 485(b) for
immediate effectiveness and has caused this Registration Statement to be signed
on its behalf, in the City of Seattle, and State of Washington, on this 30th day
of April, 1996.
COMPOSITE DEFERRED VARIABLE ACCOUNT
(Registrant)
WM LIFE INSURANCE COMPANY
(Depositor)
(SEAL)
Attest: /s/Brian F. Kreger By: /s/Robert W. Eschrich
------------------------------- ----------------------------
Brian F. Kreger Robert W. Eschrich
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following Directors
and Officers of WM Life Insurance Company.
/s/Kerry K. Killinger 4/30/96 Director
- - ------------------------------------
Kerry K. Killinger Date
/s/Criag E. Tall 4/30/96 Director
- - ------------------------------------
Craig E. Tall Date
/s/Thomas J. Kappock 4/30/96 Director
- - ------------------------------------
Thomas J. Kappock Date
/s/Robert W. Eschrich 4/30/96 President and Director
- - ------------------------------------ (Chief Executive Officer)
Robert W. Eschrich Date (Chief Financial Officer)
/s/Glen E. Manheim 4/30/96 Senior Vice President and Director
- - ------------------------------------
Glen E. Manheim
/s/Charles W. Dishion 4/30/96 Treasurer and Controller
- - ------------------------------------ (Chief Accounting Officer)
Charles W. Dishion
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Exhibit Description Page No.
23.9b Consent of Sutherland, Asbill & Brennan
23.10 Consent of Deloitte & Touche
EXHIBIT 23.9b
Consent of Sutherland, Asbill & Brennan
April 17, 1996
WM Life Insurance Company
1201 Third Avenue
Suite 600
Seattle, WA 98101-3105
Ladies and Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Matters" in the Prospectus filed as part of the Post-Effective Amendment No. 13
to Form N-4 for the Composite Deferred Variable Account of WM Life Insurance
Company (File No. 33-11011). In giving this consent, we do not admit that we are
in the category of persons whose consent is required under Section 7 of the
Securities Act of 1933.
Very truly yours,
SUTHERLAND, ASBILL & BRENNAN
By: /s/Fred R. Bellamy
------------------
Frederick R. Bellamy
EXHIBIT 23.10
Consent of Deloitte & Touche
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 13 to Form N-4
under the Securities Act of 1933 to the Registration statement No. 33-11011 of
the Composite Deferred Variable Account of WM Life Insurance Company (the
Registrant) of (1) our report dated March 29, 1996, on the audit of the
statement of net assets of the Composite Deferred Variable Account of WM Life
Insurance Company as of December 31, 1995, and the related statement of
operations for the year then ended and the statements of changes in net assets
for the years ended December 31, 1995 and 1994; and (2) our report dated March
29, 1996, on the audit of the statutory basis balance sheets of WM Life
Insurance Company and subsidiary (a wholly owned subsidiary of Washington
Mutual, Inc.) as of December 31, 1995 and 1994, and the related statutory basis
statements of operations, changes in capital and surplus, and cash flows for
each of the three years in the period ended December 31, 1995, and to the
reference to us as experts under the heading Independent Auditors in the
Registration Statement.
/s/Deloitte & Touche LLP
- - ------------------------
Deloitte & Touche LLP
Seattle, WA
April 29, 1996
