SECURITIES & EXCHANGE COMMISSION
WASHINGTON, DC 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. 14
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 16
WM LIFE DEFERRED VARIABLE ANNUITY ACCOUNT
- --------------------------------------------------------------------------------
(Exact Name of Registrant)
WM LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
(Name of Depositor)
1201 Third Avenue, Suite 600, Seattle, Washington 98001
- --------------------------------------------------------------------------------
(Address of Depositor's Principal Executive Offices)
Name and Address of Agent for Service: Copy to:
Robert Eschrich Frederick R. Bellamy, Esquire
WM Life Insurance Company Sutherland, Asbill & Brennan LLP
1201 Third Avenue, Suite 600 1275 Pennsylvania Avenue, NW
Seattle, WA 98101-3015 Washington, DC 20004-2404
Approximate date of proposed pubic 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, 1996 was
filed on February 27, 1997.
It is proposed that this filing will become effective: [ ] immediately upon
filing pursuant to paragraph (b) [xx] on April 30, 1997, 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 From 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.
Scudder Variable Life Investment Fund
(d) Fund Prospectus Composite Deferred Series, Inc.
Scudder Variable Life Investment Fund
(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 Commissions
(e) Expenses - Registrant Variable Account Expenses
(f) Fund Expenses Composite Deferred Series, Inc.
Expenses
Scudder Variable Life Investment Fund
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 WM Life Deferred Variable Annuity
of Registrant Account 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>
WM LIFE DEFERRED VARIABLE ANNUITY ACCOUNT
INDIVIDUAL FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACTS
offered by
WM LIFE INSURANCE COMPANY
1201 THIRD AVENUE, SUITE 600
SEATTLE, WA 98101-3015
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 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 WM Life Deferred Variable
Annuity 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, 1997, 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.
This Prospectus is valid only when accompanied by current prospectuses for the
Composite Deferred Series, Inc. and the Scudder Variable Life Investment Fund.
Contract Owners may have voting rights in those mutual funds.
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, 1997
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.
i
<PAGE>
TABLE OF CONTENTS
PAGE
GLOSSARY .................................................................1
INTRODUCTION .............................................................2
CONDENSED FINANCIAL INFORMATION...........................................4
FINANCIAL STATEMENTS......................................................4
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
Scudder Variable Life Investment Fund ................................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
Contracts Issued Prior to
or on February 15, 1995 ............................................7
CHARGES AND OTHER DEDUCTIONS .............................................7
Deductions from Purchase Payments ....................................7
Contract Maintenance Charge ..........................................7
Mortality and Expense Risk Charge ....................................8
Contingent Deferred Sales Charge......................................8
Sales Commission .....................................................8
Taxes ................................................................8
Composite Deferred Series, Inc.,
Expenses ...........................................................8
Scudder Variable Life Investment Fund
Expenses ...........................................................8
ANNUITY PAYMENTS..........................................................8
Annuity Date ...........................................................8
Annuity Options ......................................................9
Fixed Annuity Payments ...............................................9
PERFORMANCE DATA .........................................................9
GENERAL MATTERS .........................................................10
Contract Owner ......................................................10
Beneficiary .........................................................10
Death Benefits .....................................................10
Required Distributions ..............................................10
Delay of Payments ...................................................11
Assignments..........................................................11
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.
ii
<PAGE>
GLOSSARY
Accumulation Unit - An accounting unit used to calculate the Contract Value
prior to the Annuity 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.
Annuity Date - The date Annuity Payments are to begin under the Contract.
Annuity Payments - A series of periodic annuity payments made by the Company to
the Annuitant or Beneficiary.
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 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 Annuity 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. and the Scudder Variable Life Investment Fund which are offered by
this prospectus. The Composite Deferred Series, Inc. offers three portfolios:
The Growth & Income Portfolio, the Income Portfolio and the Northwest Portfolio.
Three portfolios are available from the Scudder Variable Life Investment Fund:
the Capital Growth Portfolio, the International Portfolio and the Money Market
Portfolio.
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.
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 Annuity 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 - This charge applies only to transfers from the Fixed Account.
The amount of the charge is the lesser of 6% or the applicable Contingent
Deferred Sales Charge on 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 - WM Life Deferred Variable Account, a separate investment
account established by the Company to receive and invest the Purchase Payments
paid under the Contracts.
1
<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, 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 Units", 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 "Composite Fund"), a mutual fund managed by
Composite Research & Management Co. ("Composite Research"), a wholly owned
subsidiary of Washington Mutual, Inc., and in shares of the Scudder Variable
Life Investment Fund (the "Scudder Fund"). The Composite Fund has three Eligible
Portfolios: The Growth and Income Portfolio, the Northwest Portfolio, and the
Income Portfolio. The Scudder Fund has three Eligible Portfolios: the Capital
Growth Portfolio, the International Portfolio, and the Money Market Portfolio.
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 Prospectuses for the Funds.
3. How do I purchase a Contract?
You may purchase the Contract from any 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 six available Sub-Accounts (i.e., Growth and Income,
Northwest, Income, Capital Growth, International and Money Market). 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 Annuity 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 Transfer Charge. No transfers may be made after the Annuity 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 Annuity Date. Amounts withdrawn may
be subject to a Contingent Deferred Sales Charge of 0% to 7% 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", pages 11 and 12.
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. See "Mortality and Expense Risk
Charge", page 8. Transfers from the Fixed Account may be subject to a charge
equal to 6% of the amount transferred. See "Transfers," pages 6 and 7.
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.
Charges and Deductions
The following table summarizes these charges and deductions, as well as the
fees and expenses of the Funds. These figures assume the entire Contract Value
is in the Variable Account.
Load Imposed on Purchases ..............................None
Contract Owner Transaction Expenses(1)
--------------------------------------
Sales Transfer Fees (2).................................None
Surrender Fees .........................................None
Contingent Deferred Sales Charge
(as a % of purchase payments withdrawn)
First and second year ..................................7%
Third year .............................................6%
Fourth year ............................................5%
Fifth year .............................................3%
Sixth year .............................................1%
Seventh year or later ..................................0%
Annual Contract Maintenance Charge(3)...................$30
(1)Premium taxes are not shown. The current range of premium taxes in
jurisdictions which the Contracts are made available is from 0% to 4%. (See
"Taxes", page 8).
(2)Transfers from the Fixed Account may be subject to a Transfer Charge of up to
6%. (See "Transfers", page 6.) (3)The Company will waive the annual Contract
Maintenance Charge if the account value is $25,000 or greater on the Contract
Anniversary.
2
<PAGE>
Variable Account Annual Expenses
--------------------------------
(as a % of average Contract Value)
Mortality and Expense Risk Charge......................1.20%
Administrative Charge...................................None
Total Variable Account Annual Expenses ................1.20%
Fund Annual Expenses
--------------------
(as a % of average account value)(4)
Advisory 12b-1 Other Total
Fees Fees Expenses Expenses
-------- ----- -------- --------
Composite Deferred Series
- -------------------------
Growth & Income Portfolio .50% -- .11% .61%
Northwest Portfolio .50% -- .27% .77%
Income Portfolio .50% -- .17% .67%
Scudder Life Investment Fund
- ----------------------------
Capital Growth Portfolio .475% .25% .055% .53%
International Portfolio .863% .25% .187% .105%
Money Market Portfolio .370% -- .090% .46%
(4)The Fund expenses shown above are assessed at the underlying Fund level and
are not direct charges against separate account assets or reductions from
Contract Values. These Fund expenses are taken into consideration in computing
each Fund's net asset value, which is the share price used to calculate the
Variable Account's unit value.
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 &
Income, Northwest, Income, Capital Growth, International, and Money Market
Portfolios for year ended December 31, 1996. Charges and expenses may be higher
or lower in future years. Additional deductions may be made for taxes. For more
information on the charges described in this Table, see "Charges and
Deductions", pages 7 and 8, and the Funds' Prospectuses which accompany 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 1996:
1. If you surrender your Policy at the end of the applicable time period:
Sub-Account 1 year 3 years 5 years 10 years
- ----------- ------ ------- ------- --------
Growth & Income 90.22 127.96 162.47 287.89
Northwest 91.92 133.40 172.05 309.87
Income 90.85 129.98 166.03 296.07
Capitol Growth 92.05 133.81 172.76 311.49
International 97.51 151.14 203.07 379.81
Money Market 88.69 123.05 153.78 267.79
2. If you annuitize at the end of the applicable time period, or if you do not
surrender or annuitize your Policy:
Sub-Account 1 year 3 years 5 years 10 years
- ----------- ------ ------- ------- --------
Growth & Income 20.22 65.61 118.26 287.89
Northwest 21.92 71.01 127.79 309.887
Income 20.85 67.61 121.80 296.07
Capital Growth 22.05 71.41 128.50 311.49
International 27.51 88.63 158.66 379.81
Money Market 18.69 60.72 109.63 267.79
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 .120%, BASED ON AN AVERAGE CONTRACT VALUE OF $25,000 DURING 1996.
8. What Annuity Options are available under the Contract?
The Annuitant must receive Annuity Payments on a completely fixed basis.
The Contract Owner has some flexibility in choosing when Annuity Payments begin.
Payments must begin by the later of the month following the Annuitant's 85th
birthday or the 10th Contract Anniversary. See "Annuity Payments", page 8, and
"Annuity 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 Annuity 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
Annuity Date. Death benefits after the Annuity 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
Annuity Date?
If any Contract Owner dies prior to the Annuity 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 11.
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 may have the right to instruct the Company how to vote
shares of any Eligible Portfolio attributable to the Contract. See "Voting
Rights", page 6.
3
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CONDENSED FINANCIAL INFORMATION
-------------------------------
The Accumulation Unit Values and the number of Accumulation Units outstanding
for each Sub-Account are shown below.
GROWTH AND INCOME SUB-ACCOUNT
-----------------------------
Accumulation Accumulation Units
Unit Value at Unit Value at Outstanding
Beginning of End of at End of
Period Period Period
------------- ------------- --------------
From date of
commencement(1)
through December
31, 1987 $ 15.000000 $ 13.268666 53,772.5382
For the years
ended December 31,
1988 $ 13.269666 $ 15.550317 86,088.8700
1989 $ 15.550317 $ 17.066620 112,858.3629
1990 $ 17.066620 $ 16.038440 129,029.0207
1991 $ 16.038440 $ 19.933651 200,515.1720
1992 $ 19.933651 $ 21.779677 337,823.9280
1993 $ 21.779677 $ 23.134830 480,444.5897
1994 $ 23.134830 $ 23.488002 599,699.6262
1995 $ 23.488002 $ 31.036917 784,123.9148
1996 $ 31.036917 $ 37.430940 1,102,088.6226
(1) Date of commencement of operations for the Growth and Income Sub-Account was
June 15, 1987.
INCOME SUB-ACCOUNT
------------------
Accumulation Accumulation Units
Unit Value at Unit Value at Outstanding
Beginning of End of at End of
Period Period Period
------------- ------------- --------------
From date of
commencement(2)
through
December
31, 1987 $ 15.000000 $ 15.405389 87,741.2700
For the years
ended December 31,
1988 $ 15.405389 $ 16.722149 201,358.5798
1989 $ 16.722149 $ 18.195754 196,494.4114
1990 $ 18.195754 $ 19.492740 190,007.4209
1991 $ 19.492740 $ 22.322568 192,692.8965
1992 $ 22.322568 $ 23.585839 257,438.8000
1993 $ 23.585839 $ 25.630161 350,949.9905
1994 $ 25.630161 $ 24.180377 443,479.9661
1995 $ 24.180377 $ 28.646883 526,873.5025
1996 $ 28.646883 $ 28.977614 596,682.7576
(2)Date of commencement of operations for the Income Sub-Account was June 15,
1987.
NORTHWEST SUB-ACCOUNT(3)
---------------------
Accumulation Accumulation Units
Unit Value at Unit Value at Outstanding
Beginning of End of at End of
Period Period Period
------------- ------------- --------------
For the years
ended December 31,
1993 $ 15.000000 $ 15.575019 142,835.7121
1994 $ 15.575019 $ 15.210163 278,028.5056
1995 $ 15.210163 $ 18.953257 366,604.9274
1996 $ 18.953257 $ 22.886917 530,060.0500
(3)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.
Note: No condensed financial information is provided for the three Scudder
Sub-Accounts (Capital Growth, International and Money Market
Sub-Accounts) as those Sub-Accounts commenced operation on April 30,
1997.
FINANCIAL STATEMENTS
--------------------
The financial statements of the WM Life Deferred Variable Annuity 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.
4
<PAGE>
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 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 with 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 six active Sub-Accounts -- Growth and
Income, Northwest, Income, Capital Growth, International and Money Market --
each of which invests solely in its corresponding Portfolio of either the
Composite Deferred Series, Inc. or the Scudder Variable Life Investment Fund.
Additional Sub-Accounts may be added at the discretion of the Company.
The Composite Deferred Series, Inc.
- -----------------------------------
The Variable Account invests in the Composite Deferred Series, Inc. (the
"Composite Fund"). The Composite 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.
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 Composite 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 Composite Fund's Prospectus attached to this Prospectus.
The Scudder Variable Life Investment Fund
- -----------------------------------------
The Variable Account invests in the Scudder Variable Life Investment Fund
(the "Scudder Fund"). The Scudder Fund has three Eligible Portfolios available
for investment: the Capital Growth Portfolio, the International Portfolio and
the Money Market Portfolio. Each Portfolio has different investment objectives
and policies and operates as a separate investment fund.
The Capital Growth Portfolio seeks to maximize long-term capital growth
from a portfolio consisting primarily of equity securities.
The International Portfolio seeks long-term growth of capital, principally
from a diversified portfolio of foreign equity securities.
The Money Market Portfolio seeks stability and current income from a
portfolio of money market instruments. The average portfolio maturity of 90 days
or less is an effort to maintain a constant net asset value of $1.00 per share.
The Scudder Fund retains the investment advisory firm of Scudder, Stevens &
Clark, Inc., a Delaware corporation, to manage each Portfolio's daily investment
and business affairs subject to the policies established by the Scudder Variable
Life Investment Fund Trustees. The Trustees have overall responsibility for the
management of the Scudder Fund.
The Scudder Fund has adopted a plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940 for the Capital Growth and International
Portfolios. Pursuant to the Plan, those portfolios will pay the Scudder Fund's
distributor, for remittance to the Company (and other participating insurance
companies) for various costs incurred by such insurance companies in connection
with the distribution of shares of the portfolio. The Plan provides that the
amount of such expenses paid by a portfolio will not exceed, on an annual basis,
0.25% of the average daily assets of the Portfolio.
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 Prospectuses for the
Funds accompanying this Prospectus.
THE PROSPECTUSES OF THE FUNDS SHOULD BE READ CAREFULLY BEFORE ANY DECISION
IS MADE CONCERNING THE ALLOCATION OF PURCHASE PAYMENTS TO A PARTICULAR
PORTFOLIO.
5
<PAGE>
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 Annuity 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 Annuity
Date.
THE CONTRACTS
-------------
Purchase of the Contracts
- -------------------------
The Contracts may be purchased through any distributor's authorized sales
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 six currently available
Sub-Accounts --Growth and Income, Northwest, Income, Capital Growth,
International and Money Market (the six "Investment Alternatives"). 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
- -------------------------
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 gain
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 six Sub- Accounts without
charge. 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 Annuity 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 the lesser of the
applicable Contingent Deferred Sales Charge or 6% of the amount transferred.
6
<PAGE>
Transfers may be made pursuant to telephone instructions by calling
800-882-8003 or by completing a telephone authorization form provided by the
Company. Telephone transfers may not be permitted by some states for their
residents who purchase variable annuities. All transfer instructions by
telephone are tape recorded. Neither the Company nor its authorized
representatives will be responsible for losses resulting from acting upon
telephone requests reasonably believed to be genuine. The Company will employ
reasonable procedures to confirm that instructions communicated by telephone are
genuine, including, but not limited to, requiring callers to identify themselves
as Contract Owner, or representing the Contract Owner, by providing the Owner's
name and social security number and other information determined by the Company
to be necessary. If the Company fails to follow those procedures, it may be
liable for losses caused by unauthorized or fraudulent transactions. Telephone
transfers received before 1:00 PM Pacific Time are effected the same day (at
that time). Telephone transfers received after 1:00 PM Pacific Time are effected
at 1:00 PM the next day (at the next computed value.) The Company may permit the
Contract Owner to pre-authorize transfers among Sub-Accounts under certain
circumstances. Transfer requests may also be made in writing on a form provided
by the Company. No transfers may be made after the Annuity 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 Annuity 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, any Contract Maintenance
Charge, and 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 11).
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
Annuity 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 Annuity 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 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.
No Contract Maintenance Charge will be deducted if the Contract Value is greater
than $25,000.00 on the Contract Anniversary.
7
<PAGE>
Mortality and Expense Risk Charge
- ---------------------------------
A Mortality and Expense Risk Charge will be deducted daily prior to the
Annuity 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 Annuity 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 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.
Contingent Deferred Sales Charge
- --------------------------------
The Contract Owner may withdraw the Contract Value at any time before or at
the Annuity Date. 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 applies only 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 11) 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:
Applicable Contingent
Deferred Sales Charge
Elapsed Time Since Issue Date 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 5.5% of
Purchase Payments to its authorized sales representatives.
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 Annuity 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. ("Composite 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.
Scudder Variable Life Investment Fund ("Scudder Fund") Expenses
- ---------------------------------------------------------------
A complete description of the expenses of the Portfolios are found in the
Scudder Fund's prospectus, which is attached to this prospectus.
ANNUITY PAYMENTS
----------------
Annuity Date
- ------------
The Annuity Date is the day that Annuity Payments will start under the
Contract. The Contract Owner may change the Annuity Date at any time by
notifying the Company in writing of the change at least 30 days before the
current Annuity Date. The Annuity Date must be: (a) at least two years after the
Issue Date; and (b) no later than the last day of the month following the
Annuitant's 85th birthday, or the 10th Contract Anniversary , if later.
Unless the Contract Owner notifies the Company in writing otherwise, the
Annuity Date will be the later of the first day of the calendar month after the
Annuitant reaches age 85 or the 10th Contract Anniversary .
Annuity Options
- ---------------
The Annuitant must receive Annuity 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
8
<PAGE>
the Annuity 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 Annuity 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 Annuity Payments begin. Premium taxes may
be assessed. The Annuity Options include:
ANNUITY OPTION 1 -- PAYMENT OF LIFE INCOME Payments will continue for the
lifetime of the Annuitant. The Owner may elect to have the payments
guaranteed (Certain) for 10 years and continue thereafter for the lifetime
of the Annuitant. If the Owner makes this election and 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 Annuity Date will be made for
as long as either the Annuitant or Joint Annuitant is living. No Annuity
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 Annuity Date will be made during the specified period
which must be at least 120 months (otherwise, Annuity 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, the Company
reserves the right to use annuity tables which do not distinguish on the basis
of sex, in accordance with applicable state or federal law or regulation.
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 Annuity 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 Annuity Date. Accordingly, Fixed Annuity 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
Payment on the basis of our rates then in effect on the Annuity 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 and Money Market Sub-Accounts;
total returns are calculated for the Income, Growth and Income, Northwest,
Capital Growth, and International 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.
Yield and effective yield are calculated for the Money Market Sub-Account.
Yield for the Money Market Sub-Account refers to the annualized income generated
9
<PAGE>
by an investment in that Sub-Account over a specified seven-day period. The
yield is calculated by assuming that the income generated for that seven-day
period is generated each seven-day period over a 52-week period and is shown as
a percentage of the investment. The effective yield is calculated similarly but,
when annualized, the income earned by an investment in that Sub-Account is
assumed to be reinvested. The effective yield will be slightly higher than the
yield because of the compounding effect of this assumed reinvestment.
Total returns are calculated for the Income, Growth and Income, Northwest,
Capital Growth, International and Money Market Sub-Accounts for various
specified periods. A hypothetical payment is invested in the Sub-Account. At the
end of the specified period, the redeemable value of the payment is compared to
the original payment. 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
- --------------
The Company 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 the
Company receives the Beneficiary's election or the ninetieth day following
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 any Owner under age 80 dies prior to the Annuity Date, the Death Benefit
will be:
1. The Contract Value; or
2. The total amount of Purchase Payments less withdrawals and any
applicable Charges; or 3. The sum of:
a. 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
b. 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
c. 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 Annuity Date, the Death
Benefit will be the Contract Value or the total of the Purchase Payments,
reduced by any previous withdrawals and any applicable Charges, whichever is
greater. All Death Benefits arising prior to the Annuity 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 Benefit until it receives Due Proof of Death.
If any Annuity Option is not elected within 90 days of receipt of notification
and proof of death, the Company will make a lump sum settlement to the
Beneficiary at the end of the 90-day period. The Company guarantees 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, and any applicable charges.
If the Annuitant and any Joint-Annuitant(s) die(s) after the Annuity Date,
the Death Benefit, if any, will be as provided in the Annuity Option elected.
Payments will be made in conformity with applicable laws or regulations.
Required Distributions
- ----------------------
Federal tax law requires that if the Owner or any Joint Owner of the
Contract dies before the Annuity 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.
10
<PAGE>
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 Annuity 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.
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, Annuity 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 Annuity 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 Annuity 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 Annuity Payments is taxable. For
Fixed Annuity 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 Annuity Payments for the term of the payments; however, the
remainder of each Annuity Payment is taxable until recovery of the investment in
the Contract, and thereafter the full amount of each Annuity 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
11
<PAGE>
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.
TABLE OF CONTENTS
PAGE
Introduction
WM Life Insurance Company..................................3
Murphey Favre, Inc.........................................3
Composite Deferred Series, Inc.............................3
Scudder Variable Investment Fund...........................3
Additions, Deletions or Substitutions of Investments.......3
Reinvestment...............................................4
Performance Data
Money Market Sub-Account Yield Calculation.................4
Income Sub-Account Yield Calculation.......................5
Average Annual Total Return Calculations...................5
Calculation Assumptions....................................6
The Contract
Purchase of Contracts .....................................7
Value of Variable Account Accumulation Units ..............7
The Fixed Account .........................................7
Value of Fixed Account Accumulation Units .................8
Tax-Free Exchanges (Section 1035) .........................8
Required Distributions ....................................9
Contracts Issued Prior to February 15, 1995 ...............9
Charges and Other Deductions
Contract Maintenance Charge ..............................10
Premium Taxes ............................................10
Tax Reserves .............................................10
Annuity Payments
Legal Developments Regarding Annuity Tables ..............11
Variable Annuity Payments.................................11
Proof of Survival ........................................12
General Matters
Incontestability..........................................12
Settlements...............................................12
Safekeeping of the Variable Account's Assets .............13
Independent Auditors .....................................13
Legal Matters ............................................13
Federal Tax Matters
Taxation of WM Life Insurance Company ....................13
Tax Status of the Contracts...............................14
Qualified Plans ..........................................14
Voting Rights ................................................15
Financial Statements .........................................16
12
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
WM LIFE DEFERRED VARIABLE ANNUITY 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 WM LIFE DEFERRED VARIABLE ANNUITY 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, or by calling or writing the
Company at the address listed above.
The prospectus, dated April 30, 1997 has been filed with the Securities and
Exchange Commission.
Dated April 30, 1997
1
<PAGE>
TABLE OF CONTENTS
Page
Introduction
WM Life Insurance Company............................................3
Murphey Favre, Inc...................................................3
Composite Deferred Series, Inc.......................................3
Scudder Variable Life Investment Fund................................3
Additions, Deletions or Substitutions of Investments.................3
Reinvestment.........................................................4
Performance Data
Money Market Sub-Account Yield Calculation...........................4
Income Sub-Account Yield Calculation.................................5
Average Annual Total Return Calculations.............................5
Calculation Assumptions..............................................6
The Contract
Purchase of Contracts................................................7
Value of Variable Account Accumulation Units.........................7
The Fixed Account....................................................7
Value of Fixed Account Accumulation Units............................8
Tax-Free Exchanges (Section 1035)....................................8
Required Distributions...............................................9
Contracts Issued Prior to February 15, 1995..........................9
Charges and Other Deductions
Contract Maintenance Charge.........................................10
Premium Taxes.......................................................10
Tax Reserves........................................................10
Annuity Payments
Legal Developments Regarding Annuity Tables.........................11
Variable Annuity Payments...........................................11
Proof of Survival...................................................12
General Matters
Incontestability....................................................12
Settlements.........................................................12
Safekeeping of the Variable Account's Assets........................13
Independent Auditors................................................13
Legal Matters.......................................................13
Federal Tax Matters
Taxation of WM Life Insurance Company...............................13
Tax Status of the Contracts.........................................14
Qualified Plans.....................................................14
Voting Rights................................................................15
Financial Statements.........................................................16
2
<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 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, $851,306, $1,238,048, and
$1,251,291.57 for the years ended December 31, 1994, 1995 and 1996,
respectively.
Composite Deferred Series, Inc., ("Composite Fund")
- ---------------------------------------------------
The Variable Account invests in the Composite Deferred Series, Inc. (the
"Composite 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..
Scudder Variable Life Investment Fund ("Scudder Fund")
- ------------------------------------------------------
The Variable Account invests in the Scudder Variable Life Investment Fund
(the "Scudder Fund"). The Scudder Fund has three currently eligible portfolios
available for investment: the Capital Growth Portfolio, the International
Portfolio and the Money Market Portfolio.
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.
3
<PAGE>
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 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. They 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.
4
<PAGE>
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, 1996, the Income Sub-Account standardized
yield was 4.73% and the Income Sub-Account distribution yield was 5.24%
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.
5
<PAGE>
The average annual total returns for the Growth and Income, Northwest 50,
and Income Sub-Accounts were as follows:
Five Period of
Year-ended Years-ended Inception* through
Sub-Account December 31, 1996 December 31, 1996 December 31, 1996
- ------------------ ------------------ ------------------ -------------------
Income -5.27% 4.73% 7.119%
Growth and Income 12.95% 12.78% 10.02%
Northwest 13.09% * 9.58%
The average annual total returns for continuing contracts for the Growth
and Income, Northwest 50, and Income Sub-Accounts were as follows:
Five Period of
Year-ended Years-ended Inception* through
Sub-Account December 31, 1996 December 31, 1996 December 31, 1996
- ------------------ ------------------ ------------------ -------------------
Income 1.10% 5.31% 7.11%
Growth and Income 20.54% 13.39% 10.02%
Northwest 20.70% * 11.11%
*The Income and Growth and Income Sub-Accounts commenced operations on June
15, 1987. 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. 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 Income Sub-Account yield is
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.
6
<PAGE>
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
7
<PAGE>
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.
8
<PAGE>
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. (Note that
beginning in 1997, the term "Income Payments" was changed in the Contract,
Prospectus, and this Statement of Additional Information. The term "Income
Payments" has been changed to "Annuity Payments". This new term was determined
to be more descriptive. This revision has no effect on the Contract Value or any
other material provisions of the Contract.)
For Contracts issued prior to or on March 13, 1988:
The following Contingent Deferred Sales Charges apply:
Elapsed Time Applicable Contingent
Since Date of Deferred Sales Charge
Purchase Payment 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 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 Payments," page 11.
9
<PAGE>
For Contracts issued after April 30, 1991, and before April 30, 1992:
Annuity Options - The Annuitant may receive Annuity 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
Payments," page 11.
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
- ---------------------------
Record keeping 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, record keeping, 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 record keeping 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.
10
<PAGE>
ANNUITY 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 Payments
- -------------------------
Note that beginning in 1997, the term "Variable Annuity Income Payments"
was changed in this Statement of Additional Information to "Variable Annuity
Payments". This new term was determined to be more descriptive. This revision
has no effect on the Contract Value or any other material provisions of the
Contract.)
Contracts issued prior to April 30, 1992, may be eligible to receive
Variable Annuity Payments. The Contract states which annuity options are
available to the contract holder.
The following information pertains to Variable Annuity Payments:
Amount of Variable Annuity Payments.
------------------------------------
The amount of the first Annuity Payment is calculated by applying
the Contract Value allocated to each Sub-Account, less any
premium tax charge deducted at this time, to the Annuity Payment
tables in the Contract. The first Variable Annuity 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 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 Annuity 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.
11
<PAGE>
After the Annuity 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 Annuity
Date.
After the Annuity Date, persons receiving Variable Annuity Payments have a
voting interest. The votes decrease as Annuity 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 Annuity 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 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 Annuity Payments will not be
affected by (1) actual mortality experience and (2) amount of the Company's
administration expenses.
The Annuity Payments may be more or less than total Purchase Payments made
because (a) Variable Annuity 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 Annuity 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 Annuity Payments, in general, the taxable portion of each
Annuity Payment (prior to recovery of the investment in the contract) is
determined by a formula which establishes the specific dollar amount of each
Annuity Payment that is not taxed. This dollar amount is determined by dividing
the "investment in the contract" by the total number of expected Annuity
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 Annuity 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.
12
<PAGE>
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.
Neither the Composite Deferred Series, Inc. nor the Scudder Variable Life
Investment Fund 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 WM Life Deferred Variable Annuity Account
of WM Life Insurance Company as of December 31, 1996, and for the years ended
December 31, 1996, and 1995, and the consolidated financial statements of WM
Life Insurance Company and subsidiary as of December 31, 1996, and 1995, and for
each of the three years in the period ended December 31, 1996, 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, L.L.P., Washington, DC, 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
Annuity 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.
13
<PAGE>
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 Funds, intends to comply with the diversification
requirements prescribed by the Treasury in Treas. Reg. 1.817-5 which affect how
the Funds' assets may be invested.
Although the Composite Fund's investment adviser and the Company are direct
subsidiaries of Washington Mutual Inc., the Company does not have control over
the Composite Fund or its investments. However, the Company believes that the
Composite 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
14
<PAGE>
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 either of the Funds. 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
15
<PAGE>
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, 1996, the Company did not have control in excess of 10%
in any of the Sub-Accounts.
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 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.
16
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 AUDITOR'S 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 Washington
Mutual, Inc.) (the Company) as of December 31, 1996 and 1995, 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, 1996.
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
misstatement. 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 opinion.
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 L.
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, 1996 and 1995, the results
of it operations or its cash flows for each of the three years in the period
ended December 31, 1996.
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, 1996 and 1995, and the results of its operations and
its cash flows for each of the three years in the period ended December 31, 196,
on the basis of accounting described in Note A.
/s/Deloitte & Touche LLP
March 28, 1997
<PAGE>
WM LIFE INSURANCE COMPANY AND SUBSIDIARY
----------------------------------------
(A Wholly-Owned Subsidiary of Washington Mutual, Inc.)
STATUTORY BASIS BALANCE SHEETS
------------------------------
ADMITTED ASSETS
---------------
December 31,
-------------------------------
1996 1995
-------------- --------------
Cash and Invested Assets:
Debt Securities $ 609,228,840 $ 648,855,314
Mortgage Loans 276,847,458 208,672,059
Common Stock of Subsidiary 12,245,985 6,899,641
Common Stock - FHLB 13,996,800 3,179,400
Cash and Short-term Investments 11,393,054 5,846,383
-------------- --------------
923,712,138 873,452,797
Investment Income Due and Accrued 11,975,264 12,241,435
Premiums Due and Uncollected 220,785 223,034
Other Assets 201,022 1,732,808
Assets Held in Separate Accounts 71,550,867 47,368,335
-------------- --------------
Total Assets $1,007,660,077 $ 935,018,409
============== ==============
<TABLE>
LIABILITIES AND CAPITAL AND SURPLUS
-----------------------------------
<CAPTION>
December 31,
----------------------------------
1996 1995
--------------- ---------------
<S> <C> <C>
Liabilities:
Aggregate Reserve for Life Policies and Contracts $ 772,467,162 $ 770,570,600
Policy and Contract Claims 3,957,644 3,663,059
General Expenses Due and Accrued 815,134 903,015
Taxes, Licenses and Fees Due and Accrued 444,604 140,282
Interest Maintenance Reserve 2,629,851 2,503,696
Asset Valuation Reserve 8,438,084 7,548,604
FHLB Advances 79,693,750 27,750,000
Other (2,409,123) (985,544)
Liabilities Related to Separate Accounts 70,699,408 46,437,469
--------------- ---------------
Total Liabilities 936,736,516 858,531,181
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 8,875,561 14,439,228
--------------- ---------------
Total Capital and Surplus 70,923,561 76,487,228
--------------- ---------------
Total Liabilities and Capital and Surplus $ 1,007,660,077 $ 935,018,409
=============== ===============
</TABLE>
<PAGE>
<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,
------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES:
Premiums and Annuity Considerations $ 96,674,821 $145,689,509 $162,903,539
Investment Income, Net 61,321,964 59,765,690 51,498,527
Other 1,398,994 943,629 761,530
------------ ------------ ------------
Total Revenues 159,395,779 206,398,828 215,163,596
BENEFITS AND EXPENSES:
Annuity Benefits 29,881,647 25,361,823 20,990,726
Death and Disability Benefits 336,770 412,921 499,927
Surrender Benefits 89,909,883 108,904,516 85,689,989
Increase in Aggregate Reserves for Life
Policies and Contracts 1,896,562 40,097,113 80,160,294
Interest on Policy Funds 5,147 5,623 8,733
Commissions 3,738,319 5,101,748 6,121,056
General Insurance Expenses 3,831,090 3,960,344 3,581,860
Taxes, Licenses and Fees 1,587,207 643,546 616,167
Net Transfer to Separate Account 14,932,076 8,550,983 6,832,044
------------ ------------ ------------
Total Benefits and Expenses 146,118,701 193,038,618 204,500,796
------------ ------------ ------------
INCOME FROM OPERATIONS 13,277,078 13,360,210 10,662,800
INCOME TAX PROVISION 3,888,927 4,560,921 4,549,133
------------ ------------ ------------
NET INCOME $ 9,388,151 $ 8,799,289 $ 6,113,667
============ ============ ============
</TABLE>
<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,
--------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Beginning Balance $ 76,487,228 $ 68,211,781 $ 52,143,284
Net Income 9,388,151 8,799,289 6,113,667
Capital Contribution -- -- 12,300,000
Change in Unrealized Gain / (Loss) 1,163,744 872,326 (12,258)
Change in Asset Valuation Reserve (889,480) (1,494,143) (2,356,185)
Dividend Paid to Parent (15,000,000)
Other Increases, Net (226,080) 97,975 23,273
------------ ------------ ------------
Net Change in Capital and Surplus (5,563,667) 8,275,447 16,068,497
------------ ------------ ------------
Ending Balance $ 70,923,561 $ 76,487,228 $ 68,211,781
============ ============ ============
</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,
---------------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
OPERATIONAL ITEMS PROVIDING CASH:
Premiums and Annuity Considerations $ 96,677,069 $ 145,683,718 $ 163,067,688
Investment Income Received 63,726,183 59,870,521 51,922,540
Other Income Received 906,243 661,032 521,855
------------- ------------- -------------
161,309,495 206,215,271 215,512,083
OPERATIONAL ITEMS APPLYING CASH:
Surrender Benefits Paid 89,909,884 108,904,516 85,689,989
Other Benefits Paid 29,928,978 26,466,802 20,428,797
Commissions, Other Expenses and Taxes Paid 9,277,385 9,669,429 10,164,344
Net Transfers to Separate Account 15,846,744 9,125,526 7,207,438
Federal Income Taxes Paid 3,287,461 5,255,473 4,551,345
------------- ------------- -------------
NET CASH FROM OPERATIONS 13,059,043 46,793,525 87,470,170
PROCEEDS FROM INVESTMENTS SOLD,
MATURED OR PREPAID 119,296,943 68,733,992 85,115,474
OTHER CASH PROVIDED:
Capital and Surplus Paid In -- -- 12,300,000
Borrowed Money, Net 51,538,889 27,750,000 --
Other Sources 1,413,546 324,145 1,274,661
COST OF INVESTMENTS ACQUIRED 164,230,377 141,358,260 186,540,657
OTHER CASH APPLIED 15,531,373 484,595 640,452
------------- ------------- -------------
Net Increase (decrease) in Cash and
Short-term Investment 5,546,671 1,758,807 (1,020,804)
CASH AND SHORT-TERM INVESTMENTS:
Beginning of Year 5,846,383 4,087,576 5,108,380
------------- ------------- -------------
End of Year $ 11,393,054 $ 5,846,383 $ 4,087,576
============= ============= =============
</TABLE>
<PAGE>
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and Nature of Business -
- -------------------------------------
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.
Use of Estimates -
- ------------------
The preparation of financial statements 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 by the
Commissioner. Premiums are recognized as revenue when due from
policyholders.
Guaranty fund assessments are recognized as levied by the respective state
guaranty fund.
Investments are carried at values derived from accounting practices
prescribed by the Commissioner, as described under "Investments" below.
Substantially all realized capital gains and losses on investments 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 capital and
surplus.
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). Debt securities, including 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 an anticipated level of
prepayments determined 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 FHA or GNMA
guaranteed and 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 90%.
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 are not derived from the fair value amounts disclosed in notes B and E.
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 or ultimate realization of bonds and residential and
commercial mortgages 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, 1996
-----------------------------------------------------------
Gross Gross
Statement Unrealized Unrealized Fair
Value Gains (Losses) Value
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
US Treasury Notes and
Obligations of US
Government Agencies $ 10,590,739 $ 692,642 $ (33,155) $ 11,250,226
Debt Securities Issued by the
Canadian Government 16,066,416 0 1,019,107 17,085,523
Corporate and Public Utility
Debt Securities 436,901,656 12,754,786 (3,954,324) 445,702,118
Mortgage-backed Securities
- US Government Agencies 56,951,999 556,622 (879,167) 56,629,454
- Privately Issued
88,718,030 1,229,040 (958,627) 88,988,443
------------ ------------ ------------ ------------
Total $609,228,840 $ 16,252,197 $ (5,825,273) $619,655,764
============ ============ ============ ============
</TABLE>
<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
============= ============= ============= =============
</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. 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. In
1996, in an effort to reduce the aforementioned risks, the Company instituted a
policy of performing a credit review on each individual security prior to
purchase. Such a review includes consideration of the collateral
characteristics, borrower payment histories and information concerning loan
delinquencies and losses of the underlying collateral. After a security is
purchased, similar information is monitored on a periodic basis. Furthermore,
the Company has established internal guidelines limiting the geographic
concentration of the underlying collateral.
The statement value and estimated fair value of debt securities at December 31,
1996, 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 $ 12,352,913 $ 12,376,905
Due After One Year Through Five Years
155,499,314 160,660,906
Due After Five Years Through Ten Years
184,485,878 186,524,221
Due After Ten Years
111,220,706 114,475,832
------------ ------------
463,558,811 474,037,864
Mortgage-backed Securities 145,670,029 145,617,900
------------ ------------
$609,228,840 $619,655,764
============ ============
Proceeds from sales of investments in debt securities during 1996, 1995 and 1994
were $36,200,000, $7,000,000, and $9,500,000, respectively. Gross gains of
$779,000, $451,500, and $169,000, were realized for 1996, 1995 and 1994,
respectively. Gross losses of $126,300, $51,000, and $98,100 were realized for
1996, 1995 and 1994 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 $53,466, $15,397, and $0 for 1996, 1995 and 1994 respectively.
Investment Income is recorded net of Investment Expenses of $1,768,000,
$1,835,700, and $1,876,900 for the years ended 1996, 1995 and 1994,
respectively.
NOTE C: MORTGAGE LOANS
December 31,
-------------- ------------
1996 1995
-------------- ------------
Real Estate:
Residential Mortgages $ 221,514,660 $205,080,412
Commercial Mortgages 55,332,798 3,591,647
-------------- ------------
Total $ 276,847,458 $208,672,059
NOTE D: ADVANCES FROM THE FHLB -
- --------------------------------
AS MEMBERS OF THE FEDERAL HOME LOAN BANK, WM LIFE MAINTAINS A CREDIT LINE THAT
IS A PERCENTAGE OF THEIR TOTAL REGULATORY ASSETS, SUBJECT TO COLLATERIZATION
REQUIREMENTS. AT DECEMBER 31, 1996, THE AVAILABLE CREDIT LINE WAS 20% OF
REGULATORY ASSETS. $79.3 MILLION WAS OUTSTANDING AT DECEMBER 31, 1996. $23.1
MILLION MATURES WITHIN ONE YEAR, WITH THE REMAINDER MATURING IN 3 YEARS OR LESS.
ADVANCES ARE COLLATERALIZED IN AGGREGATE, AS PROVIDED FOR IN THE ADVANCES,
SECURITY AND DEPOSIT AGREEMENTS WITH THE FHLB, BY ALL FHLB STOCK OWNED AND BY
CERTAIN MORTGAGES OR DEEDS OF TRUST.
FINANCIAL DATA PERTAINING TO THE WEIGHTED AVERAGE COST, THE LEVEL OF FHLB
ADVANCES AND THE RELATED INTEREST EXPENSE FOR THE YEAR ENDED DEC. 31, 1996 WERE
AS FOLLOWS:
Weighted average interest rate at end of year ...................5.78%
Weighted daily average interest rate at end of year .............5.70%
Daily Average of FHLB Advances ...........................$ 69,380,695
Maximum FHLB Advances at any month end ....................101,269,444
Interest expense during the year ............................4,000,912
NOTE E: 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,
- -----------------------------------------------------------------------------------
1996 1995
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Statement Fair Statement Fair
(dollars in thousands) Value Value Value Value
- -----------------------------------------------------------------------------------
Financial Assets
Cash and Short-term Investments $ 11,393 $ 11,393 $ 5,846 $ 5,846
Common Stock - FHLB
13,997 13,997 3,179 3,179
Debt Securities
609,229 619,656 648,855 678,157
Mortgage Loans
276,847 273,233 208,672 209,090
Assets Held in Separate Account
71,550 71,550 47,368 47,368
- -----------------------------------------------------------------------------------
983,016 989,829 913,920 943,640
Financial Liabilities
FHLB Advances 79,289 79,299 27,750 27,731
Aggregate Reserve for Life
Policies and Contracts 772,467 784,878 770,571 785,439
Liabilities Related to Separate Account 70,699 70,699 46,437 46,437
- -----------------------------------------------------------------------------------
922,455 934,876 844,758 859,607
- -----------------------------------------------------------------------------------
Net Financial Instruments $ 60,561 $ 54,953 $ 69,162 $ 84,033
===================================================================================
</TABLE>
The following methods and assumptions were used to estimate fair value of each
class of financial instrument as of December 31, 1996 and 1995:
Cash and Short-term Investments -
- ---------------------------------
The statement value represented fair value.
Common Stock - FHLB -
- ---------------------
The fair value is based on the $100 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.
<PAGE>
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 F - 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,
---------------------------------------
1996 1995 1994
----------- ----------- -----------
Premium Revenue $ 390,663 $ 308,200 $ 249,300
Policy Benefits and Reserve Changes $ 1,030,969 $ 1,011,400 $ 1,097,700
Future Policy Benefits
Credit $ 426,450 $ 674,000 $ 1,007,200
Annuities $14,342,500 $14,547,800 $15,199,600
Net life insurance in force under reinsured policies were $144,220,000,
$124,772,000, and $117,259,000 as of December 31, 1996, 1995, and 1994
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 G - 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 $3,245,000, $4,348,000, and $5,234,000 for the years ended
December 31, 1996, 1995, and 1994, 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 $598,900,
$554,200, and $492,000 for years ended December 31, 1996, 1995 and 1994
respectively.
The Company maintains some of its cash accounts with the Bank. Interest earned
from funds on deposit with the Bank totaled $498,400, $223,700, and $258,600 for
the years ended December 31, 1996, 1995 and 1994, respectively.
The Company purchased all of its investments in mortgage loans from the Bank.
Service fees on mortgage loans totaled $1,033,200, $1,182,700, and $1,287,200
for the years ended December 31, 1996, 1995 and 1994, respectively.
The amount due to affiliates was $219,400 and $229,100 as of December 31, 1996
and 1995, 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, 1996 and 1995.
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 $126,280, $140,370, and
$134,540 for 1996, 1995 and 1994, respectively.
NOTE H - 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 I - 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 J - 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. In 1996, the Company paid an
extraordinary dividend to Washington Mutual, Inc., its parent, in the amount of
$15,000,000. The dividend was approved by the Arizona State Insurance
Commissioner.
NOTE K -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.
<PAGE>
NOTE L - RECONCILIATION OF STATUTORY NET INCOME AND EQUITY TO GAAP NET INCOME
AND EQUITY:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Statutory Net Income as Reported . $ 9,388,151 $ 8,799,289 $ 6,113,667
Statutory Net Income of Empire
Life, as Reported ............... 366,810 480,422 61,534
------------ ------------ ------------
Total Statutory Income as Reported $ 9,754,961 $ 9,279,711 $ 6,175,201
Adjustments Concerning:
Deferred Policy Acquisition Costs (1,212,819) (344,968) 2,029,124
Deferred Federal Income Taxes .... (1,496,725) 103,430 438,200
Future Policy Benefits ........... 2,946,308 (77,651) 673,675
Write-off of Guarantee Assessments
and Other ....................... 1,158,589 63,526 (651,578)
Interest Maintenance Reserve ..... (409,546) (297,392) (197,232)
Capital Gains / (Losses) ......... 246,335 266,872 53,787
Other, Net ....................... (263,660) 442,677 (236,905)
Net Income in Conformity with
Generally Accepted Accounting ============ ============ ============
Principles ...................... $ 10,723,443 $ 9,436,205 $ 8,284,272
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Statutory Capital and Surplus
as Reported ..................... $ 70,923,561 $ 76,487,228 $ 68,211,781
Adjustment Concerning:
Deferred Policy Acquisition Costs 28,482,008 24,679,413 32,728,969
Future Policy Benefits ........... (16,106,182) (18,189,417) (18,111,768)
Value Ascribed to Licenses
and Charters .................... 1,407,122 1,407,122 1,407,122
Asset Valuation and Interest
Maintenance Reserve ............. 11,452,198 10,414,862 8,933,192
Investment Loss Reserve .......... (549,225) (1,140,000) (1,140,000)
Write-off of Guaranty Assessments
and Other ....................... (3,782,654) (4,993,744) (5,011,427)
Unrealized Gains / (Losses)
Available for Sale .............. 5,250,631 21,926,739 (4,295,818)
Deferred Federal Income Taxes .... (2,511,797) (4,745,276) 1,461,497
Other, Net ....................... 49,249 80,080 85,394
Stockholder's Equity in Conformity
with Generally Accepted ============= ============= =============
Accounting Principles ........... $ 94,614,911 $ 105,927,007 $ 84,268,942
============= ============= =============
</TABLE>
<PAGE>
WM LIFE INSURANCE COMPANY AND SUBSIDIARY
INDEPENDENT AUDITOR'S 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, 1996, 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
DATE
<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, 1996
Investment Income Earned:
Government Bonds $ 4,178,314
------------
Other Bonds (unaffiliated) 42,434,278
------------
Bonds of Affiliates --
------------
Preferred Stocks (unaffiliated) --
------------
Preferred Stocks of Affiliates --
------------
Common Stocks (unaffiliated) 273
------------
Common Stocks of Affiliates --
------------
Mortgage Loans 19,239,882
------------
Real Estate --
------------
Premium Notes, Policy Loans and Liens 153
------------
Collateral Loans --
------------
Cash on Hand and on Deposit 575,186
------------
Short-term Investments 662,937
------------
Other Invested Assets --
------------
Derivatives Instruments --
------------
Aggregate Write-ins for Investment Income 80
------------
Gross Investment Income 67,091,103
============
Real Estate Owned - Book Value less Encumbrances 125,000
============
Mortgage Loans - Book Value:
Farm Mortgages --
------------
Residential Mortgages 221,514,660
------------
Commercial Mortgages 55,332,798
------------
Total Mortgages 276,847,458
============
Mortgage Loans By Standing - Book Value:
Good Standing 275,513,254
============
Good Standing with Restructured Terms --
============
Interest Overdue More Than 3 Months, Not in Foreclosure 994,225
============
Foreclosure in Process 339,980
============
Other Long Term Assets - Statement Value 2,546
============
Collateral Loans --
============
Bonds and Stocks of Parents, Subsidiaries and Affiliates -
Book Value:
Bonds --
============
Preferred Stock --
============
Common Stocks 12,245,985
============
Bonds by Class and Maturity:
Bonds by Maturity - Statement Value:
Due Within One Year or Less $ 30,027,281
------------
Over 1 Year Through 5 Years 215,251,319
------------
Over 5 Year Through 10 Years 226,237,001
------------
Over 10 Year Through 20 Years 82,529,427
------------
Over 20 Years 55,183,813
------------
Total by Maturity 609,228,841
============
Bonds by Class - Statement Value:
Class 1 475,146,885
------------
Class 2 131,528,637
------------
Class 3 --
------------
Class 4 2,553,319
------------
Class 5 --
------------
Class 6 --
------------
Total by Class 609,228,841
============
Total Bonds Publicly Traded 583,785,757
============
Total Bonds Privately Traded 25,373,084
============
Preferred Stocks - Statement Value --
============
Common Stocks - Market Value 13,996,800
============
Short Term Investments - Book Value 6,634,540
============
Financial Options Owned - Statement Value --
============
Financial Options Written and In Force - Statement Value --
============
Financial Contracts Open - Current Price --
============
Cash on Deposit 4,758,514
============
Life Insurance In Force
Industrial
============
Ordinary 400,000
============
Credit Life 4,117,000
============
Group Life 140,104,000
============
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 8,377,213
============
Deferred - Fully Paid Account Balance 821,604,868
============
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 285,269
============
Deposit Funds and Dividend Accumulations:
Deposit Funds - Account Balance --
============
Dividend Accumulations - Account Balance --
============
Claim Payments 1996, 1995 & 1994
Group Accident and Health Year - Ended December 31,
1996 60,562
============
1995 78,543
============
1994 81,315
============
Other Accident & Health
1996 --
============
1995 --
============
1994 --
============
Other Coverages That Use Developmental Methods
to Calculate Claims Reserves
1996 --
============
1995 --
============
1994 --
============
<PAGE>
WM LIFE DEFERRED VARIABLE ANNUITY ACCOUNT
FINANCIAL STATEMENTS
INDEPENDENT AUDITOR'S REPORT
Contractholders
WM Life Deferred Variable Annuity Account
Board of Directors
WM Life Insurance Company
Seattle, Washington
We have audited the accompanying statement of net assets of the WM Life
Deferred Variable Annuity Account (comprising the Money Market, Growth & Income,
Income and Northwest subaccounts) (the Company) as of December 31, 1996, and the
related statement of operations and of changes in net assets for the years ended
December 31, 1996 and 1995. These financial statement 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
statement of the Composite Deferred Series, Inc. (comprising the Money Market
Portfolio, the Growth Portfolio, the Income Portfolio, and the Northwest
Portfolio) as of or for the years ended December 31, 196 and 1995. 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 the accounting principles used and significant estimates made 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 WM Life Deferred Variable
Annuity Account as of December 31, 1996, and the results of their operations and
the changes in their net assets for the periods indicated above in conformity
with generally accepted accounting principles.
/s/Deloitte & Touche LLP
March 28, 1997
<PAGE>
<TABLE>
<CAPTION>
WM LIFE DEFERRED VARIABLE ANNUITY ACCOUNT
-----------------------------------------
STATEMENT OF NET ASSETS
-----------------------
December 31, 1996
-----------------
Sub-Accounts
-------------------------------------------------------------------
Money Growth &
Market Income Income Northwest
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 $71,550,867 $ -- $41,399,979 $17,385,641 $12,765,246
=========== =========== =========== =========== ===========
Net Assets, representing:
Equity of Contract-holders $70,699,408 $ -- $41,276,635 $17,290,553 $12,132,220
Equity of WM Life Insurance Co. 851,459 -- 123,344 95,089 633,025
----------- ----------- ----------- ----------- -----------
$71,550,867 $ -- $41,399,979 $17,385,641 $12,765,246
=========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
WM LIFE DEFERRED VARIABLE ANNUITY ACCOUNT
-----------------------------------------
STATEMENT OF OPERATIONS
-----------------------
YEAR ENDED DECEMBER 31, 1996
----------------------------
Sub-Accounts
-------------------------------------------------------------------
Money Growth &
Market Income Income Northwest
Total Portfolio Portfolio Portfolio Portfolio
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend Distributions $ 1,626,098 $ 3,989 $ 517,216 $ 1,050,810 $ 54,083
EXPENSES
Charges to Contract-holders:
Mortality and Expense Risks 697,759 -- 391,086 195,150 111,523
Surrender Charge 28,000 -- 18,167 7,171 2,662
Contract Maintenance 38,006 -- 26,035 7,588 4,383
----------- ----------- ----------- ----------- -----------
Total Expenses 763,764 -- 435,287 209,909 118,568
----------- ----------- ----------- ----------- -----------
INCOME/(LOSS), NET 862,334 3,989 81,929 840,901 (64,485)
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS, NET
Realized Gain Distributions Received 280,397 -- 188,787 3,063 88,547
Unrealized Increase (Decrease) in Value
of Investments, Net 7,192,133 -- 5,895,061 (620,989) 1,918,060
----------- ----------- ----------- ----------- -----------
NET GAIN (LOSS) ON INVESTMENTS 7,472,530 -- 6,083,848 (617,926) 2,006,607
----------- ----------- ----------- ----------- -----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 8,334,864 $ 3,989 $ 6,165,777 $ 222,976 $ 1,942,122
=========== =========== =========== =========== ===========
</TABLE>
<PAGE>
Reconciliation of Line 1 above (Dividend Distribution)
<TABLE>
<CAPTION>
Sub-Accounts
----------------------------------------------------------------------
Money Growth &
Market Income Income Northwest
From Schedule D: Total Portfolio Portfolio Portfolio Portfolio
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Amount received during year 1,606,489 3,989 517,216 1,031,201 54,083
Investment Income Due 93,393 -- -- 93,393 --
Less: PY Due (73,784) -- -- (73,784) --
----------- ----------- ----------- ----------- -----------
(should equal exhibit 2 AS) 1,626,098 3,989 517,216 1,050,810 54,083
Capital Gains & Losses
Realized Gains & Losses
Schedule D Part 4, Col. 11 295,874 -- 188,787 18,540 88,547
Schedule D Part 4, Col. 12 (15,477) -- -- (15,477) --
----------- ----------- ----------- ----------- -----------
Net Realized Gains & Losses 280,397 -- 188,787 3,063 88,547
Unrealized Gains & Losses
Schedule D Part 2, Col. 5 71,457,473 -- 41,399,979 17,292,248 12,765,246
Schedule D Part 2, Col. 6 (57,338,032) -- (30,482,451) (17,223,034) (9,632,548)
Less: Prior YR Unrealized 6,927,308 -- 5,022,467 690,203 1,214,638
----------- ----------- ----------- ----------- -----------
Net Realized Gains & Losses 7,192,133 -- 5,895,061 (620,989) 1,918,060
Total Capital Gains & Losses 7,472,530 -- 6,083,848 (617,926) 2,006,607
</TABLE>
<TABLE>
WM LIFE DEFERRED VARIABLE ANNUITY ACCOUNT
-----------------------------------------
STATEMENT OF OPERATIONS
-----------------------
YEAR ENDED DECEMBER 31, 1995
----------------------------
Sub-Accounts
-------------------------------------------------------------------
Money Growth &
Market Income Income Northwest
Total Portfolio Portfolio Portfolio Portfolio
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend Distributions Received $ 1,703,729 $ 3,180 $ 808,427 $ 859,167 $ 32,955
EXPENSES
Charges to Contract-holders:
Mortality and Expense Risks 433,274 -- 213,833 153,744 65,697
Surrender Charge 50,117 34,897 11,445 3,775
Contract Maintenance 25,495 -- 15,065 6,973 3,458
----------- ----------- ----------- ----------- -----------
Total Expense 508,886 -- 263,795 172,162 72,930
----------- ----------- ----------- ----------- -----------
INVESTMENT INCOME (LOSS), NET 1,194,843 3,180 544,632 687,005 (39,975)
REALIZED AND UNREALIZED GAIN / (LOSS)
ON INVESTMENTS, NET
Realized Gain (Loss) Distributions Received 190,503 -- 157,349 (11,407) 44,561
Unrealized Increase (Decrease) 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 $ 4,956,319 $ 2,167,573 $ 1,260,945
=========== =========== =========== =========== ===========
</TABLE>
Reconciliation of Line 1 above (Dividend Distribution)
<TABLE>
<CAPTION>
Sub-Accounts
---------------------------------------------------------------------
Money Growth &
Market Income Income Northwest
From Schedule D: Total Portfolio Portfolio Portfolio Portfolio
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Amount received during year 1,096,166 -- 381,314 685,252 29,600
Investment Income Due 65,671 -- -- 65,671 --
Less: PY Due (46,657) (46,657)
----------- ---------- ----------- ----------- -----------
(should equal exhibit 2 AS) 1,115,180 -- 381,314 704,266 29,600
Capital Gains & Losses
Realized Gains & Losses
Schedule D Part 4, Col. 11 113,941 107,880 4,158 1,903
Schedule D Part 4, Col. 12 (78,692) -- (75,506) (3,186)
----------- ---------- ----------- ----------- -----------
Net Realized Gains & Losses 35,249 -- 107,880 (71,348) (1,283)
-----------
Unrealized Gains & Losses
Schedule D Part 2, Col. 5 29,788,991 217,816 14,183,997 10,749,212 4,637,966
Schedule D Part 2, Col. 6 (29,864,356) (217,816) (13,415,869) (11,550,984) (4,679,687)
Less: Prior YR Unrealized 1,345,693 -- 962,612 313,712 69,369
----------- ---------- ----------- ----------- -----------
Net Realized Gains & Losses (1,421,058) -- (194,484) (1,115,484) (111,090)
Total Capital Gains & Losses (1,385,809) -- (86,604) (1,186,832) (112,373)
</TABLE>
<TABLE>
<CAPTION>
WM LIFE DEFERRED VARIABLE ANNUITY ACCOUNT
-----------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
----------------------------------
YEAR ENDED DECEMBER 31, 1996
----------------------------
Sub-Accounts
--------------------------------------------------------------------------
Money Growth &
Market Income Income Northwest
Total Portfolio Portfolio Portfolio Portfolio
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Income, Net $ 862,334 $ 3,989 $ 81,929 $ 840,901 $ (64,485)
Realized Gain Distribution Received 280,397 -- 188,787 3,063 88,547
Unrealized Increase (Decrease) in Value
of Investments, Net 7,192,133 -- 5,895,061 (620,989) 1,918,060
------------ ------------ ------------ ------------ ------------
Net Increase in Net Assets
Resulting from Operations 8,334,864 3,989 6,165,777 222,976 1,942,122
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM PREMIUM
PAYMENTS AND OTHER OPERATING
TRANSFERS 15,847,668 (224,985) 10,783,500 1,960,748 3,328,405
------------ ------------ ------------ ------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 24,182,532 (220,996) 16,949,277 2,183,723 5,270,527
NET ASSETS:
Beginning of Year 47,368,335 220,996 24,450,702 15,201,918 7,494,719
------------ ------------ ------------ ------------ ------------
End of Year $ 71,550,867 $ -- $ 41,399,979 $ 17,385,641 $ 12,765,246
============ ============ ============ ============ ============
</TABLE>
<PAGE>
<TABLE>
WM LIFE DEFERRED VARIABLE ANNUITY ACCOUNT
-----------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
----------------------------------
YEAR ENDED DECEMBER 31, 1995
----------------------------
Sub-Accounts
---------------------------------------------------------------------------
Money Growth &
Market Income Income Northwest
Total Portfolio Portfolio Portfolio Portfolio
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Income(Loss), Net $ 1,194,843 $ 3,180 $ 544,632 $ 687,005 $ (39,975)
Realized 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 4,956,319 2,167,573 1,260,945
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM PREMIUM PAYMENTS AND
OTHER OPERATING TRANSFERS 9,125,655 (857) 5,310,386 2,220,320 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>
WM LIFE DEFERRED VARIABLE ANNUITY
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
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 1996, WM Life Insurance Co. reimbursed the
operating expenses that exceeded the operating revenues for the Money Market
Portfolio in the amount of $510. The Money Market Portfolio was closed during
the latter part of 1996.
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.
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, 1996 were as follows -
<TABLE>
<CAPTION>
Portfolio
-------------------------------------------------------------
Money Growth &
Market Income Income Northwest
Portfolio Portfolio Portfolio Portfolio
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Shares Owned, December 31, 1995 220,996 1,208,994 1,201,367 499,819
Shares Purchased - Deposits -- 508,411 319,017 225,558
Reinvested 3,989 22,920 85,581 3,204
Shares Sold (224,985) (38,012) (174,992) (28,506)
------------ ------------ ------------ ------------
Shares Owned , December 31, 1996 -- 1,702,313 1,430,973 700,075
============ ============ ============ ============
Net Asset Value per Share, at
December 31, 1996 $ 1.00 $ 24.32 $ 12.08 $ 18.23
Actual Cost $ -- $ 30,482,451 $ 17,223,034 $ 9,632,548
</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 Growth &
December 31, Market Income Income Northwest
- --------------------------------------------------------------------------------
1996
- 374,607 162,060 191,512
1995
- 265,216 164,153 113,838
Accumulation Units Withdrawn
-------------------------------------------------------------
Period Ended Money Northwest
December 31, Market Growth Income 50
- --------------------------------------------------------------------------------
1996
- 56,643 92,251 28,057
1995
- 80,792 80,759 25,262
The number of accumulation units and the unit value of such units were as
follows at December 31, 1996 and 1995.
Units - December 31, 1996 1,102,089 596,683 530,060
Unit Value - December 31, 1996 $ 37.43 $ 28.98 $ 22.89
Units - December 31, 1995 784,124 526,874 366,605
Unit Value - December 31, 1995 $ 31.04 $ 28.65 $ 18.95
PART C
OTHER INFORMATION
24a.FINANCIAL STATEMENTS
PART A: Condensed Financial Information
PART B: WM Life Deferred Variable Annuity 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
William A. Longbrake Director
Glen Edward Manheim Senior Vice President and Director
Michael E. James 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
Peter Struck Officer
Marangal Domingo Officer
Paul Packer Assistant Vice President and Supervisor of
Systems and Programming
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
- -------------- ----------------------- ------------- ------------
1996 New American Holdings, Inc. California 100%
1996 New American Capital, Inc. California 100%
1996 N. A. Capital Holdings, Inc. California 100%
1996 American Savings Bank, F. A. California 100%
1996 American Real Estate Group, Inc. California 100%
1996 ASB Financial Services, Inc. California 100%
1996 Irvine Corporate Center, Inc. California 100%
1996 MSS Insurance Services, Inc. California 100%
1996 N. A. Mortgage Services, Inc. California 100%
1996 Stockton Capital Corporation California 100%
1996 ASB Insurance Services, Inc. California 100%
1995 Washington Mutual Financial
Services, Inc. Oregon 100%
1994 Murphey Favre Insurance Services,
Inc. Idaho 100%
1994 Washington Mutual Bank Washington 100%
1994 Washington Mutual, Inc. Washington N/A
1994 Washington Mutual Insurance
Brokerage Services, Inc. Montana 100%
1994 Washington Mutual Insurance
Services of Idaho, Inc. Idaho 100%
1994 WM Enterprises & Holdings, Inc. Washington 100%
1992 Preston Properties California, Inc. Washington 100%
1992 Preston Properties Texas, Inc. Washington 100%
1991 Mill Maple Properties, Inc. Oregon 100%
1991 Mill Plain One, Inc. Washington 100%
1991 Mill Plain Three, Inc. Washington 100%
1991 Van Fed Mortgage Company Washington 100%
1991 Western Aero, Ltd. Oregon 100%
1989 Preston Properties Arizona, Inc. Washington 100%
1988 Columbia Services, Inc. Washington 100%
1988 North American Acceptance Corp. Washington 100%
1988 Washington Mutual, a Federal
Savings Bank Federal 100%
1988 Western Credit Services Co. Oregon 100%
1987 Empire Life Insurance Company Washington 100%
1987 Murphey Favre Housing Managers Inc. Washington 100%
1986 Murphey Favre Securities Washington 100%
Services, Inc.
1985 Benefit Service Corporation Washington 100%
1985 WM Financial, Inc. Washington 100%
1984 Murphey Favre Properties, Inc. Washington 100%
1983 Olympus Development Company Utah 100%
1983 Preston Property Management Company Washington 100%
1983 WM Life Insurance Company Arizona 100%
1982 Composite Research & Management Co. Washington 100%
1982 Murphey Favre, Inc. Washington 100%
1982 Seacoast Management, Inc. Washington 100%
1982 Washington Mutual Insurance
Services Inc. Washington 100%
1980 Preston Ridge Financial Services Washington 100%
Corp.
1976 2425 Service Corporation Utah 100%
1975 GNW Land Company Washington 100%
1973 SS Service Corporation Washington 100%
1971 Pioneer Properties Washington 100%
1965 Western Service Co. Oregon 100%
1925 Pacific First Insurance, Inc. Washington 100%
27. Number of Contract Owners
As of December 31, 1996:
Qualified contracts, 133.
Non-qualified contracts, 1979.
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 eight (8) 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
February 7, 1997, 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. $1,231,291.57 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.
(d) WM Life Insurance Company hereby represents that the fees and charges
deducted under the Contracts, in the aggregate, are reasonable in relation
to the services rendered, the expenses expected to be incurred, and the
risks assumed by WM Life Insurance Company.
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, 1997.
WM LIFE DEFERRED VARIABLE ANNUITY 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 4/30/97 Director
- ------------------------------------
Kerry K. Killinger Date
/s/Craig E. Tall 4/30/97 Director
- ------------------------------------
Craig E. Tall Date
/s/William A. Longbrake 4/30/97 Director
- ------------------------------------
William A. Longbrake Date
/s/Robert W. Eschrich 4/30/97 President and Director
- ------------------------------------ (Chief Executive Officer)
Robert W. Eschrich Date (Chief Financial Officer)
/s/Glen E. Manheim 4/30/97 Senior Vice President and Director
- ------------------------------------
Glen E. Manheim
/s/Michael E. James 4/30/97 Vice President, Treasurer and Controller
- ------------------------------------ (Chief Accounting Officer)
Michael E. James
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Exhibit Description
23.9b Consent of Sutherland, Asbill & Brennan
23.10 Consent of Deloitte & Touche
EXHIBIT 23.9b
Consent of Sutherland, Asbill & Brennan
April 28, 1997
WM Life Insurance Company
1201 Third Avenue
Suite 600
Seattle, WA 98101
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. 14
to Form N-4 for the WM Life Deferred Variable Annuity Account (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 LLP
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. 14 to From N-4
under the Securities Act of 1933 to the Registration Statement no. 33-11011 of
the WM Life Deferred Variable Annuity Account (the Registrant) of (1) our report
dated March 28, 1997, on the audit of the statement of net assets of the WM Life
Deferred Variable Annuity Accont as of December 31, 1996, and the related
statements of operations and of changes in net assets for the years ended
December 31, 19965 and 1995; and (2) our report dated March 28, 1997, 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, 1996 and 1995, and the related statutory basis statements of operations,
change in capital and surplus, and cash flows for each of the three years in the
period ended December 31, 1996, 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, Washington
April 29, 1997
