SECURITIES & EXCHANGE COMMISSION
WASHINGTON, DC 20549
Securities Act of 1933 File
#33-11011/Investment
Company Act of 1940
File #811-04961 Form
N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT NO.__
POST-EFFECTIVE AMENDMENT NO. 15
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 17
WM LIFE DEFERRED VARIABLE ANNUITY ACCOUNT
- -----------------------------------------
(Exact Name of Registrant)
WM LIFE INSURANCE COMPANY
- -----------------------------------------
(Name of Depositor)
15411 NE 51st Street, Redmond Washington 98032
- --------------------------------------------------------------------------------
(Address of Depositor's Principal Executive Offices)
Name and Address of Agent for Service: Copy to:
Julie Bell Frederick R. Bellamy, Esquire
WM LIFE INSURANCE CO. Sutherland, Asbill & Brennan LLP
15411 NE 51st Street 1275 Pennsylvania Avenue NW
Redmond, Washington 98032 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, 1997 was
filed on March 26, 1998.
It is proposed that this filing will become effective: [ ] immediately upon
filing pursuant to paragraph (b) of Rule 485 [xx] on May 1, 1998, pursuant to
paragraph (b) of Rule 485 [ ] 60 days after filing pursuant to paragraph
(a)(1)of Rule 485[ ] on (date) pursuant to paragraph (a)(1) 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.
Title of Securities Being Registered: Variable Annuity Contracts
<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 Composite Funds Distributor, 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 Accountants SAI: Independent Auditors
(d) Assets of Registrant SAI: Safekeeping of Variable
Account Assets
(e) Affiliated Persons N/A
(f) Principal Underwriter Composite Funds Distributor, 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: Composite Funds Distributor,
Inc.
(b) Continuous offering SAI: Purchase of Contracts
(c) Commissions SAI: Sales Commissions; Composite
Funds Distributor, 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: Annuity 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 Companies Underwriter to Other
Investment Companies
29b. Principal Underwriters Part C: Principal Underwriters
29c. Compensation of Underwriter Part C: Compensation of Composite
Funds Distributor, Inc.
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
15411 NE 51st STREET
REDMOND, WA 98052
This Prospectus describes the Flexible Premium Deferred Variable Annuity
Contract ("Contract") offered by WM Life Insurance Company ("Company").
Composite Funds Distributor, Inc. ("CFDI) or other authorized representatives
("Distributor") are the distributors of the Contracts. The Company is a direct
subsidiary of SAFECO Life Insurance Company.
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 May 1, 1998, 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 CFDI 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 11 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.
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 May 1, 1998
The Contracts Are Not Available In All States.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER, SALESPERSON, OR OTHER PERSON
IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
<PAGE>
TABLE OF CONTENTS
PAGE
GLOSSARY ................................................1
INTRODUCTION ............................................2
CONDENSED FINANCIAL INFORMATION..........................4
FINANCIAL STATEMENTS.....................................5
WM LIFE INSURANCE COMPANY
AND THE VARIABLE ACCOUNT ..............................5
WM Life Insurance Company ...........................5
Composite Funds Distributor, 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 ...................7
Contingent Deferred Sales Charge.....................7
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 .....................................8
Fixed Annuity Payments ..............................9
GENERAL MATTERS .........................................9
Contract Owner ......................................9
Beneficiary .........................................9
Death Benefits .....................................9
Required Distributions ..............................9
Delay of Payments ...................................9
Assignments.........................................10
Modifications ......................................10
Customer Inquiries .................................10
FEDERAL TAX MATTERS ...................................10
Introduction .......................................10
Taxation of Annuities in General ...................10
OTHER CONSIDERATIONS ...................................11
STATEMENT OF ADDITIONAL INFORMATION ....................12
Table of Contents ..................................12
This Prospectus generally describes only the Contracts and the Variable Account,
and not the Fixed Account. The Statement of Additional Information contains more
information regarding the Fixed Account.
<PAGE>
GLOSSARY
Accumulation Unit - An accounting unit used to calculate the Contract Value
prior to the 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 SAFECO Life Insurance Company.
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.
<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") and in shares of the Scudder
Variable Life Investment Fund (the "Scudder Fund"). The Composite Fund is
managed by Composite Research & Management Co. ("Composite Research"), a wholly
owned subsidiary of Washington Mutual, Inc. It 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?
The Contract is no longer available for purchase. You may continue to make
subsequent Purchase Payments of at least $100 or more at any time.
4. How do I allocate Purchase Payments?
On your application, you allocated 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). Allocations may be
changed by notifying the Company in writing. All allocations must be in whole
numbers and must total 100%. 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 8, and "Taxation
of Annuities in General", pages 10 and 11.
7. What are the charges and deductions under the Contract?
The Company currently does not deduct sales charges at the time of
investment. However, a Contingent Deferred Sales Charge of up to 7% may apply to
certain withdrawals. The Company deducts an annual charge of $30.00 for
maintaining the Contract ("Contract Maintenance Charge"). See "Contract
Maintenance Charge", page 7, for how and when this charge is deducted. To meet
its death benefit obligations and to pay expenses not covered by the Contract
Maintenance Charge, the Company deducts a daily charge equal on an annual basis
to 1.20% of the Contract's daily net assets. See "Mortality and Expense Risk
Charge", page 7. Transfers from the Fixed Account may be subject to a charge of
up 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.
Contract Owner Transaction Expenses(1)
- --------------------------------------
Load Imposed on Purchases ......................None
Sales Transfer Fee(2)...........................None
Surrender Fees .................................None
Contingent Deferred Sales Charge
(as a % of purchase payments withdrawn)
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%
Annual Contract Maintenance Charge(3)............$30
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% -- .09% .59%
Northwest Portfolio 50% -- .18% .68%
Income Portfolio 50% -- .20% .70%
Scudder Life Investment Fund
Capital Growth Portfolio .47% .25% .03% .75%
International Portfolio .83% .25% .16% 1.24%
Money Market Portfolio .37% .00 .09% .46%
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 Growth & Income,
Northwest, Income, Capital Growth, International, and Money Market Portfolios
for year ended December 31, 1997. 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 1997:
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 84.34 119.16 134.59 223.27
Northwest 85.19 121.75 139.08 232.72
Income 85.38 122.33 140.07 234.80
Capitol Growth 85.85 123.76 142.55 240.00
International 90.45 137.70 166.50 289.51
Money Market 83.12 115.41 128.08 209.46
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 19.40 60.00 103.16 223.27
Northwest 20.30 62.75 107.78 232.72
Income 20.50 63.35 108.80 234.80
Capital Growth 21.00 64.87 111.35 240.00
International 25.91 79.65 136.04 289.51
Money Market 18.09 56.03 96.45 209.46
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 1997.
- ----------
(1) Premium taxes are not shown. The current range of premium taxes in
jurisdictions in which the Contracts was 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.
(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.
- ----------
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 9.
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 9.
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.
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
------ ------ ------
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
1997 $ 37.430940 $ 47.956752 1,188,292.7224
INCOME SUB-ACCOUNT
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,
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
1997 $ 28.977614 $ 31.676875 577,882.8896
NORTHWEST SUB-ACCOUNT(1)
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
1997 $ 22.886917 $ 30.058266 633,794.7227
- ----------
(1)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.
CAPITAL GROWTH SUB-ACCOUNT(1)
Accumulation Accumulation Units
Unit Value at Unit Value at Outstanding
Beginning of End of at End of
Period Period Period
------ ------ ------
For the year
ended December 31,
1997 $ 15.00 $ 18.441781 30,619.3146
- ----------
(1)The Capital Growth Sub-Account was not available to Contract Owners prior to
1997.
INTERNATIONAL SUB-ACCOUNT(1)
Accumulation Accumulation Units
Unit Value at Unit Value at Outstanding
Beginning of End of at End of
Period Period Period
------ ------ ------
For the year
ended December 31,
1997 $ 15.00 $ 15.658668 22,194.9609
- ----------
(1)The International Sub-Account was not available to Contract Owners prior to
1997.
MONEY MARKET SUB-ACCOUNT(1)
Accumulation Accumulation Units
Unit Value at Unit Value at Outstanding
Beginning of End of at End of
Period Period Period
------ ------ ------
For the year
ended December 31,
1997 $15.00 15.407070 9,728.7527
- ----------
(1)The Money Market Sub-Account was not available to Contract Owners prior to
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.
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 15411 NE 51st Street, Redmond,
Washington 98052. Effective January 1, 1998, the Company is a wholly owned
subsidiary of SAFECO Life Insurance Company..
Composite Funds Distributor, Inc.
Composite Funds Distributor, Inc. ("CFDI") is the principal distributor of
the Contract. It is a wholly owned subsidiary of Washington Mutual, Inc. CFDI is
located at 601 West Main Avenue, Suite 801, Spokane, Washington. CFDI 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") 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 also 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 Kemper
Investments, 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.
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 are no longer available for purchase. Subsequent Purchase
Payments of at least $100 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 used 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 instructed 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 seven "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.
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 9).
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 10.
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.
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 9) and Annuity 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. For purposes of calculating the
contingent deferred sales charge, all purchase payments are deemed to be
withdrawn before any earnings. Once all purchase payments have been withdrawn,
earnings can be withdrawn without any contingent deferred sales charge.
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 10.
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 Option
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
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.
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.
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
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. As of the date of this
prospectus, Congress is not considering additional legislation regarding
taxation of annuities. However, 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).
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.
Other Considerations
Like other insurance, mutual fund, financial and business organizations and
individuals around the world, WM Life and the Variable Account could be
adversely affected if the computer systems used by WM Life, its principal
underwriter, underlying mutual fund managers and investment advisors or other
companies that provide services to the Separate Account do not properly process
and calculate date related information from and after January 1, 2000. This is
commonly called the "Year 2000 problem." WM Life is taking steps it believes are
reasonably designed to address the Year 2000 problem with respect to the
computer systems that each of them uses and to obtain satisfactory assurances
that comparable steps are being taken by each of WM Life's other, major service
providers. It is not anticipated that the Variable Account will incur any
charges or that there will be any difficulties in accurate and timely reporting
resulting from the change in year from 1999 to 2000.
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
Introduction
WM Life Insurance Company................................3
Composite Funds Distributor, Inc.........................3
Composite Deferred Series, Inc...........................3
Scudder Variable Investment Fund.........................3
Additions, Deletions or Substitutions of Investments.....3
Reinvestment.............................................4
The Contract
Purchase of Contracts....................................4
Value of Variable Account Accumulation Units.............4
The Fixed Account........................................4
Value of Fixed Account Accumulations Units...............5
Tax-Free Exchanges (Section 1035)........................5
Required Distributions...................................6
Contracts Issued Prior to February 15, 1995..............6
Charges and Other Deductions
Contract Maintenance Charge..............................7
Premium Taxes............................................7
Tax Reserves.............................................7
Annuity Payments
Legal Developments Regarding Annuity Tables..............7
Variable Annuity Payments................................8
Proof of Survival........................................9
General Matters
Incontestability.........................................9
Settlements..............................................9
Safekeeping of the Variable Account's Assets.............9
Independent Auditors.....................................9
Legal Matters............................................9
Federal Tax Matters
Taxation of WM Life Insurance Company...................10
Tax Status of the Contracts.............................10
Qualified Plans.........................................11
Voting Rights...............................................12
Financial Statements........................................12
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
WM LIFE DEFERRED VARIABLE ANNUITY ACCOUNT
of
WM LIFE INSURANCE COMPANY
15411 NE 51st Street
Redmond, Washington 98052
Distributed by
COMPOSITE FUNDS DISTRIBUTOR, INC.
601 West Main, Suite 300
Spokane, Washington 99201-0613
(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 SAFECO Life Insurance Company. 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 Composite Funds Distributor,
Inc. ("CFDI"), the principal distributor of the Contract, or by calling or
writing the Company at the address listed above.
The prospectus, dated May 1, 1998 has been filed with the Securities and
Exchange Commission.
Dated May 1, 1998
<PAGE>
TABLE OF CONTENTS
Page
Introduction
WM Life Insurance Company..............................3
CFDI, Inc..............................................3
Composite Deferred Series, Inc.........................3
Scudder Variable Life Investment Fund..................3
Additions, Deletions or Substitutions of Investments...3
Reinvestment...........................................4
The Contract
Purchase of Contracts..................................4
Value of Variable Account Accumulation Units...........4
The Fixed Account......................................4
Value of Fixed Account Accumulation Units..............5
Tax-Free Exchanges (Section 1035)......................5
Required Distributions.................................6
Contracts Issued Prior to February 15, 1995............6
Charges and Other Deductions
Contract Maintenance Charge............................7
Premium Taxes..........................................7
Tax Reserves...........................................7
Annuity Payments
Legal Developments Regarding Annuity Tables............7
Variable Annuity Payments..............................8
Proof of Survival......................................9
General Matters
Incontestability.......................................9
Settlements............................................9
Safekeeping of the Variable Account's Assets...........9
Independent Auditors...................................9
Legal Matters..........................................9
Federal Tax Matters
Taxation of WM Life Insurance Company.................10
Tax Status of the Contracts...........................10
Qualified Plans.......................................11
Voting Rights..................................................12
Financial Statements...........................................12
<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 15411 NE
51st Street, Redmond Washington. Effective January 1, 1998, the Company is a
wholly owned subsidiary of SAFECO Life Insurance Company.
Composite Funds Distributor, Inc.
Composite Funds Distributor, Inc. ("CFDI") 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 CFDI and Composite Research are wholly owned subsidiaries of
Washington Mutual, Inc. CFDI is located at 601 West Main Avenue, Spokane,
Washington. CFDI 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 CFDI, $1,238,048, $1,251,291.57, and
$787,040.00 for the years ended December 31, 1995, 1996 and 1997, 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 Composite Fund or the Scudder Fund, or of another
open-end, registered investment company, if the shares of the Portfolio are no
longer available for investment, or if, in the Company's judgment, investment in
any Portfolio would become inappropriate in view of the purposes of the Variable
Account. Substitutions of shares attributable to a Contract Owner's interest in
a Sub-Account will not be made until the Owner has been notified of the change,
and until the Securities and Exchange Commission has approved the change, to the
extent such notification and approval is required by the Investment Company Act
of 1940. Nothing contained in the prospectus or Statement of Additional
Information shall prevent the Variable Account from purchasing other securities
for other series or classes of contracts, or from effecting a conversion between
series or classes of contracts on the basis of requests made by Contract Owners.
The Company may also establish additional Sub-Accounts of the Variable
Account. Each additional Sub-Account would purchase shares in a new portfolio of
the Composite Fund or the Scudder 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.
THE CONTRACT
Purchase of Contracts
The Contracts are no longer offered to the public.
Value of Variable Account Accumulation Units
The value of Variable Account Accumulation Units will vary in accordance
with investment experience of the Eligible Portfolio in which the Sub-Account
invests. The number of such Accumulation Units credited to a Contract will not,
however, change as a result of any fluctuations in the value of the Accumulation
Unit.
The Accumulation Units in each Sub-Account of the Variable Account are
valued separately. The value of Accumulation Units in any Valuation Period will
depend upon the investment performance of the shares purchased by each
Sub-Account in a particular Eligible Portfolio.
The value of an Accumulation Unit in a Sub-Account for any Valuation Period
equals the value of such a unit as of the immediately preceding Valuation
Period, multiplied by the "Net Investment Factor" for that Sub-Account for the
current Valuation Period. The Net Investment Factor for each Sub-Account for any
Valuation Period is determined by dividing (A) by (B) and subtracting (C),
where:
(A) is calculated to be:
(1) the value of the Sub-Account's assets at the end of the prior
Valuation Period after any allocations to, or withdrawals from,
the Sub-Account at the end of the prior Valuation Period; plus
(2) the sum of any investment income and realized or unrealized
capital gains credited to the Sub- Account during the current
Valuation Period; minus
(3) any realized or unrealized capital losses charged against the
Sub-Account during the current Valuation Period; minus
(4) any amount charged for taxes associated with the operation of the
Variable Account during the current Valuation Period; plus (or
minus)
(5) the decrease (or increase) in amounts, if any, set aside as a
reserve for taxes associated with the operation of the Variable
Account during the current Valuation Period.
(B) is the value of the Sub-Account's assets at the end of the prior
Valuation Period after any allocations to, or withdrawals from, the
Sub-Account at the end of the prior Valuation Period
(C) is the daily charge of 0.000032877 times the number of calendar days
in the current Valuation Period for assuming the mortality and expense
risks under the Contract.
The Fixed Account
Contributions under the fixed portion of the annuity contracts and
transfers to the fixed portion become part of the general account of the
Company, which supports insurance and annuity obligations. Because of exemptive
and exclusionary provisions, interests in the general account have not been
registered under the Securities Act of 1933 ("1933 Act"), nor is the general
account registered as an investment company under the Investment Company Act of
1940 ("1940 Act"). Accordingly, neither the general account nor any interests
therein are generally subject to the provisions of the 1933 or 1940 Acts and the
Company has been advised that the staff of the Securities and Exchange
Commission has not reviewed the disclosures in this prospectus which relate to
the fixed portion.
The Company will credit the amounts allocated to the Fixed Account in the
form of Fixed Account Accumulation Units. The interest factors declared on any
day are guaranteed to be equivalent to at least an effective annual yield of
4.2%. For a given Contract, interest factors are guaranteed for one year and may
change only on the Contract Anniversary. A daily charge for the mortality and
expense risks equivalent to an annual yield of 1.2% applies to the Fixed
Account. Hence, the Company guarantees that the value of Fixed Account
Accumulation Units will increase at an effective annual yield of at least 3%.
ANY INTEREST CREDITED TO AMOUNTS ALLOCATED TO THE FIXED ACCOUNT IN EXCESS
OF THE GUARANTEED YIELD OF 4.2% PER YEAR WILL BE DETERMINED AT THE SOLE
DISCRETION OF THE COMPANY.
The Contract Owner assumes the risk that interest credited to Fixed Account
Accumulation Units may not exceed the guaranteed minimum yield of 4.2% per year.
The Company guarantees that, at any time prior to the Annuity 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 0.000032877 for assuming the mortality and
expense risks under this Contract, times the number of days in the
current Valuation Period.
The interest factor declared on any day is guaranteed to be equivalent to
at least an effective annual yield of 4.2%, resulting in a Net Interest Factor
equivalent to at least an effective annual yield of 3% (because the daily charge
in (B) above is equivalent to an annual yield of 1.2%). Different interest
factors may be declared, and different Net Interest Factors may be used for
different Accumulation Units based upon the date(s) of your Purchase Payment(s).
Tax-Free Exchanges (Section 1035)
The Company accepts Purchase Payments which are the proceeds of a Contract
in a transaction qualifying for a tax-free exchange under Section 1035 of the
Internal Revenue Code. Except as required by federal law in calculating the
basis of the Contract, the Company does not differentiate between Section 1035
Purchase Payments and non-Section 1035 Purchase Payments
The Company also accepts "rollovers" from Contracts qualifying as
individual retirement annuities or accounts (IRAs), or any other qualified
contract which is eligible to "rollover" into an IRA (except 403(b) contracts).
The Company differentiates between non-qualified Contracts and IRAs to the
extent necessary to comply with federal tax laws. For example, the Company
restricts the assignment, transfer or pledge of IRAs to anyone except the
Company, so the Contracts will continue to qualify for special tax treatment.
Required Distributions
If the Owner or any Joint Owner of the Contract dies before the Annuity
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, 1995, 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.
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.
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.
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 the Contract, Prospectus, and this Statement of Additional
Information. This term was changed 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.
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.
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
Ernst & Young LLP, 999 Third Avenue, Suite 3500, Seattle, WA 98104, are the
independent auditors of the financial statements of the WM Life Deferred
Variable Annuity Account and the financial statements of the WM Life Insurance
Company.
Legal Matters
Sutherland, Asbill & Brennan LLP, Washington, DC, has provided legal
advice regarding certain matters relating to the federal securities laws
relating to 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.
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.
In certain circumstances, owners of variable annuity contracts may be
considered the owners, for federal income tax purposes, of the assets of the
separate accounts used to support their contracts. In those circumstances,
income and gains from the separate account assets would be includable in the
variable contract owner's gross income. The IRS has stated in published rulings
that a variable contract owner will be considered the owner of separate account
assets if the contract owner possesses incidents of ownership in those assets,
such as the ability to exercise investment control over the assets. The Treasury
Department has also announced, in connection with the issuance of regulations
concerning diversification, that those regulations "do not provide guidance
concerning the circumstances in which investor control for the investments of a
segregated asset account may cause the investor (i.e., the Owner), rather than
the insurance company, to be treated as the owner of the assets in the account."
This announcement also stated that guidance would be issued by way of
regulations or rulings on the "extent to which policyholders may direct their
investments to particular sub-accounts without being treated as owners of the
underlying assets."
The ownership rights under the Contract are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that owners were not owners of separate account assets. For example,
the Owner has additional flexibility in allocating premium payments and account
values. These differences could result in an Owner being treated as the owner of
a pro rata portion of the assets of the Variable Account. In addition, the
Company does not know what standards will be set forth, if any, in the
regulations or rulings which the Treasury Department might issue in the future.
The Company, therefore, reserves the right to modify the Contract as necessary
to attempt to prevent an Owner from being considered the owner of a pro rata
share of the assets of the Variable Account.
Federal tax laws also require that annuity contracts contain specific
provisions for distribution of the policy proceeds upon the death of the
contract holder. The Company believes that because of the Required Distribution
provision of the Contracts (see "Required Distributions" above), it has complied
with the federal tax laws, and the Contracts will qualify as annuities under
section 72 of the Internal Revenue Code. The sales representative may use sales
literature which contains charts or other illustrations demonstrating the
effects of tax-deferral applicable to the contract.
Qualified Plans
The Contract is designed for use with several types of Qualified Plans. The
tax rules applicable to participants in such Qualified Plans vary according to
the type of plan and the terms and conditions of the plan itself. Special
favorable tax treatment may be available for certain types of contributions and
distributions (including certain lump sum distributions). Adverse tax
consequences may result from contributions in excess of specified limits,
distributions prior to age 59 1/2 (subject to certain exceptions), distributions
that do not conform to specified minimum distribution rules, aggregate
distributions in excess of a specified annual amount, and in certain other
circumstances. Therefore, the Company makes no attempt to provide more than
general information about the use of the Contracts with the various types of
Qualified Plans. Contract Owners and participants under Qualified Plans, as well
as Annuitants and Beneficiaries, are cautioned that the right of any person to
any benefits under Qualified Plans may be subject to the terms and conditions of
the plans themselves, regardless of the terms and conditions of the Contract
issued in connection therewith. Those purchasing Contracts for use with any
Qualified Plan should seek competent advice regarding the suitability of the
Contract therefore. The Contracts cannot be used for Section 403(b) plans.
(a) H.R. 10 Plans. The Self-Employed Individuals Tax Retirement Act of
1962, as amended, commonly referred to as "H.R. 10" or "Keogh," permits
self-employed individuals to establish Qualified Plans for themselves and their
employees. These plans are limited by law to maximum permissible contributions,
distribution dates, and non-forfeitability 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.
Section 408A of the Internal Revenue Code of 1986 (as amended) permits
eligible individuals to make nondeductible contributions to an individual
retirement program known as a Roth Individual Retirement Annuity. Section 408A
includes limits on how much you may contribute to a Roth Individual Annuity and
when distributions may commence. Qualified distributions from Roth Individual
Retirement Annuities are excluded from taxable gross income. "Qualified
distributions" are distributions which (a) are made more than five years after
the taxable year of the first contribution to the Roth Individual Retirement
Annuity, and (b) meet any of the following conditions; (1) the annuity owner has
reached age 59 1/2; (2) the distribution is paid to a beneficiary after the
owner's death; (3) the annuity owner is disabled; or (4) the distribution will
be used for a first time home purchase. (Qualified distributions for first time
home purchases may not exceed $10,000.) Non-qualified distributions are
includible in taxable gross income only to the extent that they exceed the
contributions made to the Roth Individual Retirement Annuity. The taxable
portion of a non-qualified distribution may distribution may be subject to the
10% penalty tax.
Subject to certain limitations, you may convert a traditional Individual
Retirement Account or Annuity to a Roth Individual Retirement Annuity. You will
be required to include the taxable portion of the conversion in your taxable
gross income, but you will not be required to pay the 10% penalty tax.
(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
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
Report of Ernst & Young LLP, Independent Auditors
Board of Directors
WM Life Insurance Company
We have audited the accompanying statutory basis balance sheet of WM Life
Insurance Company (the Company) as of December 31, 1997 and the related
statutory basis statements of operations, changes in capital and surplus, and
cash flow for the year then ended. 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 audit. The statutory basis
financial statements of the company as of December 31, 1996, and for the year
then ended, were audited by other auditors whose report, dated March 28, 1997,
expressed an unqualified opinion on those financial statements.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
As described in Note 1, the accompanying financial statements have been prepared
in conformity with accounting practices prescribed or permitted by the Insurance
Department of the State if Arizona, which is a comprehensive basis of accounting
other than generally accepted accounting principles
In our opinion, the 1997 financial statements referred to above present fairly,
in all material respects, the financial position of WM Life Insurance Company at
December 31, 1997, and the results of its operations and its cash flows for the
year then ended in conformity with accounting practices prescribed or permitted
by the Insurance Department of the State of Arizona.
This report is intended solely for the use of the Company and for filing with
stated insurance regulatory authorities and should not be used for any other
purpose.
\s\ Ernst & Young LLP
Seattle, Washington
March 20, 1998
WM LIFE INSURANCE COMPANY
(A Wholly Owned Subsidiary of SAFECO Life Insurance ompany)
STATUTORY BASIS BALANCE SHEETS
ADMITTED ASSETS
December 31,
-----------------------------------------
1997 1996
------------------ -------------------
Cash and invested assets:
Debt securities $ 599,219,702 $ 609,228,840
Mortgage loans - 276,847,459
Common stock of subsidiary 12,000,830 12,245,985
Common stock - FHLB - 13,996,800
Cash and short-term investments 210,751,394 11,393,054
------------------ -------------------
821,971,926 923,712,138
Investment income due and accrued 9,978,007 11,975,264
Premiums deferred and uncollected 412,334 220,785
Other assets 68,911 201,023
Assets held in separate account 96,587,144 71,550,867
------------------ -------------------
Total admitted assets $ 929,018,322 $ 1,007,660,077
================== ===================
<TABLE>
<CAPTION>
LIABILITIES AND CAPITAL AND SURPLUS
December 31,
-----------------------------------------
1997 1996
------------------ -------------------
<S> <C> <C>
Liabilities:
Aggregate reserve for life policies and con $ 743,166,637 $ 772,467,162
Policy and contract claims 5,668,323 3,957,644
General expenses, due and accrued 18,600 815,134
Transfers to separate account, due and accr (3,187,494) (2,941,353)
Federal income taxes, due and accrued 1,392,193 336,706
Taxes, licenses and fees, due and accrued 74,411 107,898
Interest maintenance reserve 5,301,244 2,629,851
Asset valuation reserve 3,619,776 8,438,084
FHLB advances - 79,693,750
Other 408,187 532,232
Liabilities related to separate account 95,442,724 70,699,408
------------------ -------------------
Total liabilities 851,904,601 936,736,516
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 15,065,721 8,875,561
------------------ -------------------
Total capital and surplus 77,113,721 70,923,561
------------------ -------------------
Total liabilities and capital and surplus $ 929,018,322 $ 1,007,660,077
================== ===================
</TABLE>
<TABLE>
<CAPTION>
WM LIFE INSURANCE COMPANY (A Wholly
Owned Subsidiary of SAFECO Life Insurance Company)
STATUTORY BASIS STATEMENTS OF OPERATIONS
Year Ended December 31,
--------------------------------------
1997 1996
------------------ ------------------
<S> <C> <C>
REVENUES:
Premiums and annuity considerations $ 86,015,815 $ 96,674,821
Investment income, net 60,216,145 61,321,964
Other 2,158,049 1,444,261
------------------ ------------------
Total revenues 148,390,009 159,441,046
BENEFITS AND EXPENSES:
Annuity benefits 32,889,090 29,881,647
Death and disability benefits 667,392 336,770
Surrender benefits 116,207,541 89,909,883
Increase (decrease) in aggregate reserves for life
policies and contracts (29,300,525) 1,896,562
Interest on policy funds 2,200 5,147
Commissions 3,145,745 3,738,319
Other operating expenses 3,777,923 3,831,090
Taxes, licenses and fees 444,034 1,587,207
Net transfers to separate account 6,485,371 14,932,076
------------------ ------------------
Total benefits and expenses 134,318,771 146,118,701
------------------ ------------------
Net gain from operations before federal income
taxes and realized capital gain (loss) 14,071,238 13,322,345
Federal income taxes 4,378,256 3,888,927
------------------ ------------------
Net gain from operations before net realized capital gain (loss) 9,692,982 9,433,418
Net realized capital gain (loss) (net of federal income taxes
and transfer to interest maintenance reserve) 1,134,335 (45,267)
------------------ ------------------
Net income $ 10,827,317 $ 9,388,151
================== ==================
</TABLE>
WM LIFE INSURANCE COMPANY
(A Wholly Owned Subsidiary of SAFECO Life Insurance Company)
STATUTORY BASIS STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS
Year Ended December 31,
-------------------------------------------
1997 1996
-------------------- -------------------
Beginning balance $ 70,923,561 $ 76,487,228
Net income 10,827,317 9,388,151
Change in unrealized gain (loss) (1,307,755) 1,163,744
Change in asset valuation reserve 4,818,308 (889,480)
Dividend paid to former parent (8,144,000) (15,000,000)
Other decreases, net (3,710) (226,082)
-------------------- -------------------
Net change in capital and surplus 6,190,160 (5,563,667)
-------------------- -------------------
Ending balance $ 77,113,721 $ 70,923,561
==================== ===================
<TABLE>
<CAPTION>
WM LIFE INSURANCE COMPANY
(A Wholly Owned Subsidiary of SAFECO Life Insurance Company)
STATUTORY BASIS STATEMENTS OF CASH FLOW
Year Ended December 31,
----------------------------------------
1997 1996
------------------ ------------------
<S> <C> <C>
OPERATIONAL ITEMS PROVIDING CASH:
Premiums and annuity considerations $ 85,816,266 $ 96,677,069
Investment income received 63,109,832 63,726,183
Other income received 1,269,531 906,243
------------------ ------------------
150,195,629 161,309,495
OPERATIONAL ITEMS APPLYING CASH:
Surrender benefits paid 116,207,541 89,909,884
Other benefits paid 31,848,004 29,928,978
Commissions, other expenses and taxes paid 8,091,507 9,277,385
Net transfers to separate account 6,731,512 15,846,744
Federal income taxes paid 3,322,769 3,287,461
------------------ ------------------
Net cash provided by (used in) operations (16,005,704) 13,059,043
INVESTING ACTIVITIES:
Investments sold, matured or repaid 353,591,233 119,296,943
Cost of investments acquired (50,682,556) (164,230,377)
------------------ ------------------
Net cash provided by (used in) investing activities 302,908,677 (44,933,434)
OTHER SOURCES AND USES:
Borrowed money, net (79,288,889) 51,538,889
Other sources 11,903 1,413,546
Other uses (8,267,647) (15,531,373)
------------------ ------------------
Net cash provided by (used in) other sources and uses (87,544,633) 37,421,062
Net increase in cash and short-term investments 199,358,340 5,546,671
CASH AND SHORT-TERM INVESTMENTS:
Beginning of year 11,393,054 5,846,383
------------------ ------------------
End of year $ 210,751,394 $ 11,393,054
================== ==================
</TABLE>
Note: Cash and short-term investments consist of balances on-hand, deposits in
banks, and money market funds.
WM LIFE INSURANCE COMPANY
(A Wholly-Owned Subsidiary of SAFECO Life Insurance Company)
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Business
- -----------------------------------
WM Life Insurance Company (the Company), along with its wholly-owned subsidiary
Empire Life Insurance Company (Empire Life), is a wholly-owned subsidiary of
SAFECO Life Insurance Company (SAFECO Life). SAFECO Life is a wholly owned
subsidiary of SAFECO Corporation, which is a Washington corporation whose
subsidiaries engage primarily in insurance and financial service businesses.
On December 31, 1997, SAFECO Life acquired WM Life and Empire Life from
Washington Mutual Inc. (the Bank) for $105.8 million.
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 the Bank. The Company is currently
licensed in seven states, primarily in the Western region of the United States.
Basis of Presentation
- ---------------------
The financial statements have been prepared in conformity with accounting
practices prescribed or permitted by the Insurance Department of the State of
Arizona, (the Department), and include such amounts based on the best estimates
and judgments of management. Certain reclassifications have been made to prior
year financial information to conform to the current year classification.
"Prescribed" statutory accounting 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. However, the Company has
no material permitted accounting practices.
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 that insurance enterprises use to prepare their statutory
basis financial statements. Those changes are not expected to have a material
effect on the financial statements of the Company. Statutory accounting
practices differ in certain respects from generally accepted accounting
principles. The most significant differences, as relates to the Company, are as
follows:
The investment in Empire Life 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 or account value.
For all products except annuities with income now payable, tabular interest
was set equal to the increase in policy value due to interest credited. For
all annuities with income now payable, tabular interest was determined by
the formulas as described in the instructions of the annual statement (the
instructions). tabular less actual reserve released and tabular cost were
determined by the formulas as described in the instructions.
The Company determines Tabular Interest for funds not involving life
contingencies using the formulas as described in the instructions.
Premiums due are recorded based on accounting practices prescribed by the
Department. Premiums are recognized as revenue when due from policyholders.
Assumed reinsurance premiums and claims are accounted for on a basis
consistent with the terms of the reinsurance contracts.
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 Department, 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 30 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.
Certain assets designated as "non-admitted" have been charged against
unassigned surplus.
Investments
- -----------
Investments are valued in accordance with the requirements of the NAIC. Debt
securities, primarily 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.
The Company owned no mortgage loans at December 31, 1997.
In the prior year, residential mortgage loans were stated at the aggregate
unpaid balance less unaccreted discounts plus unamortized premiums. All loans
were 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
were located in the Pacific Northwest.
In the prior year, commercial mortgage loans were stated at the aggregate unpaid
balance less unaccreted discounts plus unamortized premiums. All loans were 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%.
The Company owned no Federal Home Loan Bank (FHLB) common stock at December 31,
1997.
In the prior year, FHLB stock was carried at estimated market value, which was
the original cost plus any stock dividends. The difference between market and
book was treated as an unrealized gain and was included in capital and surplus.
Realized gains and losses from sales of securities are determined on a specific
identification method.
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 C.
Aggregate Reserve for Life Policies and Contracts
- -------------------------------------------------
The aggregate reserve for life policies and contracts is comprised substantially
of annuities. 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 5.25% to 8.40%, as prescribed or permitted by
state regulatory authorities.
Asset Valuation Reserve
- -----------------------
The Asset Valuation Reserve (AVR) 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 the AVR is
reflected as a direct increase or decrease in the Company's surplus.
Interest Maintenance Reserve
- ----------------------------
The Interest Maintenance Reserve (IMR) 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. These gains and losses are amortized to
income, using the grouped method, over the approximate remaining periods to
maturity of the securities sold. The Company changed from the seriatim to the
grouped method in 1997.
The change in the IMR is reflected as a direct charge against realized gains or
losses. Amortization of the IMR is included in other income on the statutory
statement of operations.
Federal Income Taxes
- --------------------
The Company qualifies as a life insurance company under current tax regulations.
Beginning with 1989, the Company joined in the filing of a consolidated income
tax return with the Bank. The allocation of federal income tax liability to the
Company approximates the tax that would be due if the Company filed a separate
return. The Company will continue to participate in the filing of a consolidated
income tax return with the Bank for year ended December 31, 1997. Although the
Company was purchased by SAFECO Life Insurance Company on December 31, 1997, the
Company will not file a consolidated return with SAFECO Life for a period of
five years from the date of purchase.
Separate Account Assets and Liabilities
- ---------------------------------------
Separate Account assets and liabilities relate to the Company's Cascade Variable
Annuity (formerly the Composite Deferred Variable Annuity), which was formed on
December 23, 1986 and commenced operations in 1987. The Company added the
Scudder International Fund, the Scudder Capital Growth Fund and the Scudder
Money Market Fund to the Separate Account in 1997. The Separate Account is
registered under the Investment Company act of 1940, as amended, as a unit
investment trust. The assets of the Separate Account, which consist of common
stocks, are the property of the Company and are reported at market. The
liabilities of the Separate Account represent reserves established to meet
withdrawal and future benefit payment provisions of variable annuity contracts.
The assets of the Separate Account are not subject to liabilities arising out of
any other business the Company may conduct. Investment risks associated with
market value changes are borne by the clients. The operations of the Separate
Account, excluding investment gains and losses allocable solely to the contract
holders, are combined with the general account of the Company in the Statements
of Operations under the appropriate captions. These amounts are offset by a
corresponding increase or decrease in net transfers to Separate Account. This
presentation has no effect on the net income of the Company. The net asset
balance of the Separate Account represents the net contribution of the Company
to the Account.
NOTE B - DEBT SECURITIES:
The statement value, gross unrealized gains and losses, and estimated fair value
of investments in debt securities are as follows:
<TABLE>
<CAPTION>
December 31, 1997
---------------------------------------------------------------------------------
Gross Gross Estimated
Statement Unrealized Unrealized Fair
Value Gains Losses Value
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
US Treasury Notes and
Obligations of US
Government Agencies $ 8,522,187 $ 696,653 $ (13,043) $ 9,205,797
Debt Securities Issued by the
Canadian Government 11,666,729 585,979 (48,840) 12,203,868
Corporate and Public Utility
Debt Securities 445,298,670 19,433,071 (683,700) 464,048,041
Mortgage-backed Securities:
- US Government Agencies 58,519,180 1,094,999 (111,066) 59,503,113
- Privately Issued 75,212,936 3,024,292 (678,905) 77,558,323
----------------- ------------------ ------------------ ------------------
Total $ 599,219,702 $ 24,834,994 $ (1,535,554) $ 622,519,142
================= ================== ================== ==================
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
----------------------------------------------------------------------------------
Gross Gross Estimated
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 1,019,107 0 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>
Certain bonds with statement values of $1,096,831 and $1,095,977 were on deposit
with various regulatory authorities at December 31, 1997 and 1996, respectively.
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,
1997, by contractual maturity, are shown below. Expected maturities may differ
from contractual maturities because certain borrowers have the right to call or
prepay obligations, with or without prepayment penalties.
Estimated
Statement Fair
Value Value
----------------- -----------------
Due in One Year or Less $ 34,459,939 $ 34,618,035
Due After One Year Through Five Years 170,402,682 175,321,585
Due After Five Years Through Ten Years 166,282,131 173,147,100
Due After Ten Years 94,342,834 102,370,986
---------------- ----------------
465,487,586 485,457,706
Mortgage-backed Securities 133,732,116 137,061,436
---------------- ----------------
$ 599,219,702 $ 622,519,142
================ ================
Proceeds from sales of investments in debt securities during 1997 and 1996 were
$13,600,000 and $36,200,000, respectively. Gross gains of $612,900 and $779,000
were realized in 1997 and 1996, respectively. Gross losses of $35,500 and
$126,300 were realized in 1997 and 1996, 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 in 1996. Since the Company owned no mortgage loans at December 31,
1997, there was no past due interest for 1997.
Investment Income is recorded net of investment expenses of $5,822,221 and
$5,769,138 for the years ended December 31, 1997 and 1996, respectively.
NOTE C - 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 as of December 31 were as follows:
<TABLE>
<CAPTION>
1997 1996
- -------------------------------------------------------------------------------------------------------------
Statement Fair Statement Fair
(dollars in thousands) Value Value Value Value
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial Assets
Cash and Short-term Investments $ 210,751 $ 210,751 $ 11,393 $ 11,393
Common Stock - FHLB 0 0 13,997 13,997
Debt Securities 599,220 622,519 609,229 619,656
Mortgage Loans 0 0 276,847 273,233
Assets Held in Separate Account 96,587 96,587 71,551 71,551
- ------------------------------------------------------------------------------------------------------------
906,558 929,857 983,017 989,830
Financial Liabilities
FHLB Advances 0 0 79,694 79,694
Aggregate Reserve for Life
Policies and Contracts 743,167 740,222 772,467 784,878
Liabilities Related to Separate Account 95,443 95,443 70,699 70,699
- ------------------------------------------------------------------------------------------------------------
838,610 835,665 922,860 935,271
- ------------------------------------------------------------------------------------------------------------
Net Financial Instruments $ 67,948 $ 94,192 $ 60,157 $ 54,559
============================================================================================================
</TABLE>
The following methods and assumptions were used to estimate fair value of each
class of financial instrument as of December 31, 1997 and 1996:
Cash and Short-term Investments - The statement value represented fair value.
- -------------------------------
Common Stock - FHLB - The fair value is based on the $100 par value. The Company
- -------------------
sold all FHLB Stock prior to December 31, 1997.
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 is
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.
The Company sold all mortgage loans prior to December 31, 1997.
Aggregate Reserve for Life Policies and Contracts - 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. The
Company had no advances outstanding at December 31, 1997.
Assets Held in Separate Accounts and Liabilities Related to Separate Account -
- -----------------------------------------------------------------------------
The statement value is a reasonable estimate of fair value since assets and
liabilities of the separate account are carried at market value.
NOTE D - LIFE AND ANNUITY RESERVES
The Company's annuity reserves and deposit fund liabilities at December 31 are
summarized as follows:
Subject to discretionary withdrawal
(with adjustment): $ - 0.0% $ - 0.0%
With market value adjustment
At book value, less surrender charge
of 5% or more 117,991,994 14.1 76,063,075 9.0
At market value 95,442,725 11.4 70,699,408 8.4
----------------------------------------
Total with adjustment or at market value 213,434,719 25.5 146,762,483 17.4
Subject to discretionary withdrawal
(without adjustment):
At book value (minimal or no charge
or adjustment 582,976,922 69.5 661,649,853 78.5
Not subject to discretionary withdrawal 41.800,346 5.0 34,232,182 4.1
----------------------------------------
Total annuity actuarial reserves and
deposit fund liabilities $838,211,987 100.0% $842,644,518 100.0%
========================================
NOTE E - REINSURANCE
All of the Company's credit and mortgage insurance business is obtained through
reinsurance agreements which generally limit the Company's assumed liability for
benefits to a maximum of $20,000. In 1988, the Company entered into a
reinsurance agreement with Midwestern United Life Insurance Company 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 accept subsequent premiums on existing contracts.
Included in the accompanying consolidated financial statements are the following
amounts relating to business obtained through reinsurance.
1997 1996
-------------- --------------
Premium Revenue $ 1,105,430 $ 390,663
Policy Benefits and Reserve Changes 1,487,601 1,030,969
Future Policy Benefits
Credit 297,000 426,450
Annuities 13,752,000 14,342,500
Net life insurance in force under reinsured policies were $157,528,000 and
$144,220,000 as of December 31, 1997 and 1996, respectively. The Company's
insurance in force is comprised primarily of life insurance assumed. The
Company's reinsurance treaties are predominantly written on a yearly renewable
term basis.
NOTE F - FEDERAL INCOME TAXES:
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 G - SEPARATE ACCOUNT
Funds received from sales of individual variable annuities are held in
segregated asset accounts, all of which are non-guaranteed. The assets of these
accounts are held at market value.
Information regarding the Separate Account of the Company for the year ended
December 31, 1997 follows:
Premiums and other deposit funds $ 12,329,022
=============
Reserves at December 31, 1997:
For accounts with assets at market value $ 92,217,570
=============
A reconciliation of the amounts transferred to and from the Separate Account for
the year ended December 31, 1997, follows:
Transfers as reported in the Summary of
Operations of the Separate Account Annual Statement:
Transfers to Separate Account $ 12,347,667
Transfers from Separate Account (6,985,804)
Reserve adjustment 1,123,508
--------------
Transfers as reported in the Summary of Operations $ 6,485,371
==============
NOTE H - DIVIDEND AVAILABILITY
The Company is restricted as to the amount of dividends which can be paid to its
shareholder without prior approval of the State of Arizona Insurance
Commissioner. The amount is the lesser of 10% of the Company's unassigned
surplus or the net gain from operations.
In 1997 and 1996, the Company paid a dividend to the Bank in the amount of
$8,144,000 and $15,000,000 respectively.
NOTE I - TRANSACTIONS WITH AFFILIATES
The Company has an agreement to share cost of certain administrative services
and overhead with Empire Life. Under the terms of the agreement, Empire Life
paid fees aggregating $150,000 to the Company for the years ended December 31,
1997 and 1996.
There were no amounts due to / from affiliates as of December 31, 1997 and 1996.
NOTE J - IMPACT OF YEAR 2000 (Unaudited)
The Company will rely upon the computer systems of its parent, SAFECO Life by
the year 2000. Some of SAFECO Life's older computer programs were written using
two digit rather than four to define the applicable year. As a result, those
computer programs have time sensitive software that recognize a date using "00"
as the year 1900 rather than the year 2000. This is commonly called the "Year
2000 problem." SAFECO Life has completed its assessment and has been modifying
and replacing portions of its software so that its computer systems will
function properly with respect to dates in the year 2000 and thereafter. No
costs related to the Year 2000 will be directly charged to the Company. Based on
the current progress and continuing modifications, SAFECO Life believes that it
will be Year 2000 compliant and that the Year 2000 problem will not pose
significant operational problems for its computer systems.
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
Other Financial Information
Board of Directors
WM Life Insurance Company
Our audit was conducted for the purpose of forming an opinion on the statutory
basis financial statements taken as a whole. The accompanying Supplemental
Schedule of Selected Financial Data is presented to comply with the National
Association of Insurance Commissioners' Annual Statement Instructions and is not
a required part of the statutory basis financial statements. Such information
has been subjected to the auditing procedures applied in our audit of the
statutory basis financial statements and, in our opinion, is fairly stated, in
all material respects, in relation to the statutory basis financial statements
taken as a whole.
This report is intended solely for the use of the Company and for filing with
stated insurance regulatory authorities and should not be used for any other
purpose.
\s\ Ernst & Young LLP
Seattle, Washington
March 20, 1998
<PAGE>
WM LIFE INSURANCE COMPANY
(A Wholly Owned Subsidiary of SAFECO Life Insurance Company)
Supplemental Schedule of Selected Financial Data
Year Ended Decemeber 31, 1997
Investment Income Earned:
Government Bonds $ 4,564,177
--------------
Other Bonds (unaffiliated) 41,044,918
--------------
Bonds of Affiliates -
--------------
Preferred Stocks (unaffiliated) -
--------------
Preferred Stocks of Affiliates -
--------------
Common Stocks (unaffiliated) 168
--------------
Common Stocks of Affiliates -
--------------
Mortgage Loans 18,944,460
--------------
Real Estate -
--------------
Premium Notes, Policy Loans and Liens 146
--------------
Collateral Loans -
--------------
Cash on Hand and on Deposit 209,375
--------------
Short-term Investments 1,274,747
--------------
Other Invested Assets -
--------------
Derivatives Instruments -
--------------
Aggregate Write-ins for Investment Income 375
--------------
Gross Investment Income $ 66,038,366
==============
Real Estate Owned - Book Value less Encumbrances $ -
==============
Mortgage Loans - Book Value:
Farm Mortgages $ -
--------------
Residential Mortgages -
--------------
Commercial Mortgages -
--------------
Total Mortgages $ -
==============
Mortgage Loans By Standing - Book Value:
Good Standing $ -
==============
Good Standing with Restructured Terms $ -
==============
Interest Overdue More Than 3 Months, Not in Foreclosure $ -
==============
Foreclosure in Process $ -
==============
Other Long Term Assets - Statement Value $ 2,709
==============
Bonds and Stocks of Parents, Subsidiaries and Affiliates-Book Value:
Bonds $ -
==============
Preferred Stock $ -
==============
Common Stocks $ 12,000,830
==============
Bonds by Class and Maturity:
Bonds by Maturity - Statement Value:
Due Within One Year or Less $ 43,237,076
--------------
Over 1 Year Through 5 Years 200,556,044
--------------
Over 5 Year Through 10 Years 198,091,206
--------------
Over 10 Year Through 20 Years 76,302,631
--------------
Over 20 Years 81,032,745
--------------
Total by Maturity $ 599,219,702
==============
Bonds by Class - Statement Value:
Class 1 $ 424,279,676
--------------
Class 2 173,178,008
--------------
Class 3 -
--------------
Class 4 1,762,018
--------------
Class 5 -
--------------
Class 6 -
--------------
Total by Class $ 599,219,702
==============
Total Bonds Publicly Traded $ 574,860,418
==============
Total Bonds Privately Traded $ 24,359,284
==============
Preferred Stocks - Statement Value $ -
==============
Common Stocks - Market Value $ -
==============
Short Term Investments - Book Value $ 207,178,875
==============
Financial Options Owned - Statement Value $ -
==============
Financial Options Written and In Force - Statement Value $ -
==============
Financial Contracts Open - Current Price $ -
==============
Cash on Deposit $ 3,572,519
==============
Life Insurance In Force
Industrial
==============
Ordinary $ 400,000
==============
Credit Life $ 2,983,000
==============
Group Life $ 139,885,000
==============
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 $ 8,839,736
==============
Deferred - Fully Paid Account Balance $ 37,438,730
==============
Deferred - Not Fully Paid - Account Balance $ 673,909,081
==============
Group
Amount of Income Payable $ -
==============
Fully Paid Account Balance $ -
==============
Not Fully Paid - Account Balance $ -
==============
Accident and Health Insurance - Premiums In Force
Ordinary $ -
==============
Group $ -
==============
Credit $ 234,730
==============
Deposit Funds and Dividend Accumulations:
Deposit Funds - Account Balance $ -
==============
Dividend Accumulations - Account Balance $ -
==============
Claim Payments 1997, 1996 & 1995
Group Accident and Health Year - Ended December 31,
1997 $ 33,526
==============
1996 $ 60,562
==============
1995 $ 78,543
==============
Other Accident & Health
1997 $ -
==============
1996 $ -
==============
1995 $ -
==============
Other Coverages That Use Developmental Methods
to Calculate Claims Reserves
1997 $ -
==============
1996 $ -
==============
1995 $ -
==============
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
To the Board of Directors of WM Life Insurance Company and
Participants of WM Life Deferred Variable Annuity Account
We have audited the accompanying statement of net assets and liabilities of WM
Life Deferred Variable Annuity Account (comprising, respectively, the Growth and
Income, Income, Northwest, International, Capital Growth, and Money Market
Sub-Accounts) as of December 31, 1997, and the related statements of operations
and changes in net assets for each of the periods indicated therein. These
financial statements are the responsibility of WM Life Deferred Variable Annuity
Account's management. Our responsibility is to express an opinion on these
financial statements based on our audits. The financial statements of WM Life
Deferred Variable Annuity Account for the year ended December 31, 1996, were
audited by other auditors whose report, dated March 28, 1997, expressed an
unqualified opinion on the statements.
We conducted our audit 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. Our procedures included
confirmation of portfolio shares owned as of December 31, 1997, by
correspondence with the underlying portfolio of each sub-account. 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 audit provides a reasonable basis for our
opinion.
In our opinion, the 1997 financial statements referred to above present fairly,
in all material respects, the financial position of each of the sub-accounts
constituting WM Life Deferred Variable Annuity Account at December 31, 1997, the
results of their operations, and the changes in their net assets for each of the
periods indicated therein, in conformity with generally accepted accounting
principles.
Seattle, Washington
March 20, 1998
<PAGE>
CASCADE DEFERRED VARIABLE ACCOUNT
OF WM LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS
December 31, 1997
<TABLE>
<CAPTION>
Composite Sub-Accounts
------------------------------------------------------
Northwest
Growth Income 50
Portfolio Portfolio Portfolio
---------------- ----------------- ----------------
<S> <C> <C> <C>
Investment In Shares of the Composite
Deferred Series, Inc. portfolios at
net asset value $ 57,254,686 $ 18,364,173 $ 19,923,975
================ ================= ================
Net Assets, representing:
Equity of Contract-holders $ 57,023,289 $ 18,324,355 $ 19,050,770
Equity of WM Life Insurance Co. 231,397 39,818 873,205
---------------- ----------------- ----------------
$ 57,254,686 $ 18,364,173 $ 19,923,975
================ ================= ================
</TABLE>
<TABLE>
<CAPTION>
Scudder Sub-Accounts
---------------------------------------------------
Capital Money
International Growth Market
Portfolio Portfolio Portfolio
---------------- ----------------- ----------------
<S> <C> <C> <C>
Investment In Shares of the Scudder
Variable Life Investment Fund
portfolios at net asset value $ 348,094 $ 546,304 $ 149,914
================ ================= ================
Net Assets, representing:
Equity of Contract-holders $ 348,094 $ 546,304 $ 149,914
Equity of WM Life Insurance Co. 0 0 0
---------------- ----------------- ----------------
$ 348,094 $ 546,304 $ 149,914
================ ================= ================
</TABLE>
<TABLE>
<CAPTION>
CASCADE DEFERRED VARIABLE ACCOUNT
OF WM LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
December 31, 1997
Composite Sub-Accounts
------------------------------------------------------
Northwest
Growth Income 50
Portfolio Portfolio Portfolio
----------------- ----------------- -----------------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividend Distributions $ 3,658,611 $ 1,136,580 $ 410,113
EXPENSES
Charges to Contract-holders:
Mortality and Expense Risks 610,070 210,912 195,334
Surrender Charge 48,365 11,188 16,696
Contract Maintenance 19,763 4,195 6,133
----------------- ----------------- -----------------
Total Expenses 678,198 226,295 218,163
----------------- ----------------- -----------------
INCOME/(LOSS) ,NET 2,980,413 910,285 191,950
REALIZED AND UNREALIZED GAIN / (LOSS)
ON INVESTMENTS, NET
Capital Gain / (Loss) Distributions Received 869,463 20,072 312,864
Unrealized Increase in Value of Investments, Net 8,493,421 644,931 3,857,133
----------------- ----------------- -----------------
NET GAIN ON INVESTMENTS 9,362,884 665,003 4,169,997
----------------- ----------------- -----------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 12,343,297 $ 1,575,288 $ 4,361,947
================= ================= =================
</TABLE>
<TABLE>
<CAPTION>
Scudder Sub-Accounts*
----------------------------------------------------
Capital Money
International Growth Market
Portfolio Portfolio Portfolio
----------------- ----------------- ----------------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividend Distributions $ - $ - $ 3,439
EXPENSES
Charges to Contract-holders:
Mortality and Expense Risks 1,589 2,598 933
Surrender Charge - - -
Contract Maintenance - - -
----------------- ----------------- ----------------
Total Expenses 1,589 2,598 933
----------------- ----------------- ----------------
INCOME/(LOSS) ,NET (1,589) (2,598) 2,506
REALIZED AND UNREALIZED GAIN / (LOSS)
ON INVESTMENTS, NET
Capital Gain / (Loss) Distributions Received 77 76 -
Unrealized Increase in Value of Investments, Net (10,247) 18,724 668
----------------- ----------------- ----------------
NET GAIN ON INVESTMENTS (10,170) 18,800 668
----------------- ----------------- ----------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ (11,759) $ 16,202 $ 3,174
================= ================= ================
*For the period from May 1, 1997 (inception date) to December 31, 1997
</TABLE>
<TABLE>
<CAPTION>
CASCADE DEFERRED VARIABLE ACCOUNT
OF WM LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
December 31, 1996
Composite Sub-Accounts
-------------------------------------------------------------------
Money Northwest
Market Growth Income 50
Portfolio Portfolio Portfolio Portfolio
--------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend Distributions $ 3,989 $ 517,216 $ 1,050,810 $ 54,083
EXPENSES
Charges to Contract-holders:
Mortality and Expense Risks 391,086 195,150 111,523
Surrender Charge 18,167 7,171 2,662
Contract Maintenance 26,035 7,588 4,383
--------------- ---------------- ---------------- ----------------
Total Expenses - 435,287 209,909 118,568
--------------- ---------------- ---------------- ----------------
INCOME/(LOSS) ,NET $ 3,989 81,929 840,901 (64,485)
REALIZED AND UNREALIZED GAIN / (LOSS)
ON INVESTMENTS, NET
Capital Gain / (Loss) Distributions Received - 188,787 3,063 88,547
Unrealized Increase in Value of Investments, Net - 5,895,061 (620,989) 1,918,060
--------------- ---------------- ---------------- ----------------
NET GAIN ON INVESTMENTS 6,083,848 (617,926) 2,006,607
--------------- ---------------- ---------------- ----------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 3,989 $ 6,165,777 $ 222,976 $ 1,942,122
=============== ================ ================ ================
</TABLE>
<TABLE>
<CAPTION>
CASCADE DEFERRED VARIABLE ACCOUNT
OF WM LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
December 31, 1997
Composite Sub-Accounts
------------------------------------------------------
Northwest
Growth Income 50
Portfolio Portfolio Portfolio
---------------- ---------------- ----------------
<S> <C> <C> <C>
OPERATIONS:
Income/(Loss), Net $ 2,980,413 $ 910,285 $ 191,950
Capital Gain / (Loss) Distribution Received 869,463 20,072 312,864
Unrealized Increase in Value of
Investments, Net 8,493,421 644,931 3,857,133
---------------- ---------------- ----------------
Net Increase in Net Assets
Resulting from Operations 12,343,297 1,575,288 4,361,947
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM PREMIUM
PAYMENTS AND OTHER OPERATING
TRANSFERS 3,511,410 (596,756) 2,796,782
---------------- ---------------- ----------------
TOTAL INCREASE IN NET ASSETS 15,854,707 978,532 7,158,729
NET ASSETS:
Beginning of Year 41,399,979 17,385,641 12,765,246
---------------- ---------------- ----------------
End of Year $ 57,254,686 $ 18,364,173 $ 19,923,975
================ ================ ================
</TABLE>
<TABLE>
<CAPTION>
Scudder Sub-Accounts*
------------------------------------------------------
Capital Money
International Growth Market
Portfolio Portfolio Portfolio
---------------- ---------------- ----------------
<S> <C> <C> <C>
OPERATIONS:
Income/(Loss), Net $ (1,589) $ (2,598) $ 2,506
Capital Gain / (Loss) Distribution Received 77 76 -
Unrealized Increase in Value of
Investments, Net (10,247) 18,724 668
---------------- ---------------- ----------------
Net Increase in Net Assets
Resulting from Operations (11,759) 16,202 3,174
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM PREMIUM
PAYMENTS AND OTHER OPERATING
TRANSFERS 359,853 530,102 146,740
---------------- ---------------- ----------------
TOTAL INCREASE IN NET ASSETS 348,094 546,304 149,914
NET ASSETS:
Beginning of Year - - -
---------------- ---------------- ----------------
End of Year $ 348,094 $ 546,304 $ 149,914
================ ================ ================
*For the period from May 1, 1997 (inception date) to December 31, 1997
</TABLE>
<TABLE>
<CAPTION>
CASCADE DEFERRED VARIABLE ACCOUNT
OF WM LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
December 31, 1996
Composite Sub-Accounts
------------------------------------------------------------------------
Money Northwest
Market Growth Income 50
Portfolio Portfolio Portfolio Portfolio
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
OPERATIONS:
Income/(Loss), Net $ 3,989 $ 81,929 $ 840,901 $ (64,485)
Capital Gain / (Loss) Distribution Received 188,787 3,063 88,547
Unrealized Increase in Value of
Investments, Net 5,895,061 (620,989) 1,918,060
----------------- ----------------- ----------------- -----------------
Net Increase in Net Assets
Resulting from Operations $ 3,989 6,165,777 222,976 1,942,122
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM PREMIUM
PAYMENTS AND OTHER OPERATING
TRANSFERS (224,985) 10,783,500 1,960,748 3,328,405
----------------- ----------------- ----------------- -----------------
TOTAL INCREASE IN NET ASSETS (220,996) 16,949,277 2,183,723 5,270,527
NET ASSETS:
Beginning of Year 220,996 24,450,702 15,201,918 7,494,719
----------------- ----------------- ----------------- -----------------
End of Year - $ 41,399,979 $ 17,385,641 $ 12,765,246
================= ================= ================= =================
</TABLE>
CASCADE DEFERRED VARIABLE ACCOUNT
OF WM LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
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 Safeco Life Insurance Company. 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 six sub-accounts within the Account, three of
which invest only in a corresponding portfolio of the Composite Deferred Series,
Inc. and three that invest only in a corresponding portfolio of the Scudder
Variable Life Investment Fund. The underlying investments of the Funds are
valued at fair value on the last day of the year. The Composite Fund is managed
by Composite Research & Management Co. The Scudder Fund is managed by Scudder
Insurance Asset Management.
On January 1, 1993, the Company added the fourth sub-account which invests in
shares of the Northwest Fund 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. The Money Market Portfolio was closed during the
latter part of 1996. On May 1, 1997, the Company added three Scudder
sub-accounts which invest in shares of the International Portfolio - Class B,
Capital Growth Portfolio - Class B, and the Money Market Portfolio,
respectively.
Assets of the Account are recorded at fair value, as determined by the fair
value of the individual portfolios of the Funds. Unrealized gains (losses) are
determined based on the change in fair value of the portfolios of the Funds
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 AND THE SCUDDER
LIFE INVESTMENT FUND PORTFOLIOS
The net asset value per share for each portfolio of the Funds, 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, 1997 were as follows -
<TABLE>
<CAPTION>
Shares Shares NAV Per
Owned Owned Share at
December 31, Shares Shares December 31, December 31, Actual
1996 Purchased Sold 1997 1997 Cost
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Composite Growth & Income Portfolio $1,702,313 $367,205 $(99,245) $1,970,273 $29.06 $37,843,737
Composite Income Portfolio 1,430,974 235,062 (208,808) 1,457,228 12.53 17,556,634
Composite North Portfolio 700,075 184,533 (38,680) 845,928 23.55 12,934,144
Scudder International Portfolio - 24,872* (202)* 24,670 14.11 358,340
Scudder Capital Growth Portfolio - 26,566* (21)* 26,545 20.58 527,580
Scudder Money Market Portfolio - 219,825* (70,580)* 149,245 1.00 149,245
</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 seven 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 affected 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 -
<TABLE>
<CAPTION>
1997 1996
----------------- ---------------- ----------------- -----------------
Accumulation Accumulation Accumulation Accumulation
Units Units Units Units
Sub-Account Purchased Withdrawn Purchased Withdrawn
- -------------------------- ----------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Composite Money Market* - - - -
Composite Growth & Income 180,381 94,177 374,607 56,643
Composite Income 74,857 93,657 162,060 92,251
Composite Northwest 143,464 39,729 191,512 28,057
Scudder International** 22,195 - - -
Scudder Capital Growth** 30,619 - - -
Scudder Money Market** 14,281 4,552 - -
</TABLE>
*Sub-account closed in 1996. No contractholder activity during 1996 or 1997. See
Note 1
**For the period from May 1, 1997 (inception date) to December 31, 1997.
The number of accumulation units and the unit value of such units were as
follows at December 31, 1997 and 1996.
<TABLE>
<CAPTION>
---------------- --------------- ----------- -------------
Sub-Account Units Unit Value Units Unit Value
- -------------------------- ---------------- --------------- ----------- -------------
<S> <C> <C> <C> <C>
Composite Growth & Income 1,188,292.7224 $47.96 1,102,089 $37.43
Composite Income 577,882.8896 31.68 596,683 28.98
Composite Northwest 633,794.7227 30.06 530,060 22.89
Scudder International 22,194.9609 15.66 - -
Scudder Capital Growth 30,619.3146 18.44 - -
Scudder Money Market 9,728.7527 15.41 - -
</TABLE>
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 LLP.
(10) Consent of Independent Auditors
(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 (WM Life Insurance Company)
Name and Principal Position and Offices
Business Address With Depositor
---------------- --------------
Roger H. Eigsti Chairman of the Board
Richard E. Zunker Vice Chairman
Randall H. Talbot President
John P. Fenlason Sr. V.P.
Roger F. Harbin Sr. V.P., Actuary
Rod A. Pierson Sr. V.P., Secretary
James T. Flynn V.P., Controller, Asst. Secy.
Michelle M. Kemper V.P.
Michael J. Kinzer V.P., Chief Actuary
George C. Pagos V.P., Assoc. General Counsel, Assistant Secretary
Ronald L. Spaulding V.P. Treasurer
Stephen D. Collier Asst. Secy.
Ray M. Egan Asst. Secy.
David W. Kraft Asst. Secy.
H. Paul Lowver Asst. Secy.
Daniel B. Schaaf Asst. Secy.
George P. Yonker Asst. Secy.
Bradford K. Young Asst. Secy.
Donald S. Chapman Director
Boh A. Dickey Director
Dale E. Lauer Director
James W. Ruddy Director
W. Randall Stoddard Director
The principal business address of the foregoing, for business relating to the
Depositor, is 15411 NE 51st Street, Redmond, Washington 98052
26. Persons Controlled by or Under Common Control With Depositor or Registrant
Excluding inactive or dormant subsidiaries:
SAFECO Corporation, a Washington Corporation, owns 100% of the following
Washington corporations: SAFECO Insurance Company of America, General Insurance
Company of America, First National Insurance Company of America, SAFECO Life
Insurance Company, SAFECO Assigned Benefits Service Company, SAFECO
Administrative Services, Inc., SAFECO Properties Inc., SAFECO Credit Company,
Inc., SAFECO Asset Management Company, SAFECO Securities, Inc., SAFECO Services
Corporation, SAFECO Trust Company and General America Corporation. SAFECO
Corporation owns 100% of SAFECO National Insurance Company, a Missouri
corporation, SAFECO Insurance Company of Illinois, an Illinois corporation and
SAFECO Insurance Company of Pennsylvania, a Pennsylvania corporation. SAFECO
Insurance Company of America owns 100% of SAFECO Surplus Lines Insurance
Company, a Washington corporation, and Market Square Holding, Inc., a Minnesota
corporation. SAFECO Life Insurance Company owns 100% of SAFECO National Life
Insurance Company, a Washington corporation, ^ First SAFECO National Life
Insurance Company of New York, a New York corporation, and WM Life Insurance
Company, an Arizona corporation. WM Life Insurance Company owns 100% of Empire
Life Insurance Company, a Washington corporation. SAFECO Administrative
Services, Inc. owns 100% of Employee Benefit Claims of Wisconsin, Inc. and
Wisconsin Pension and Group Services, Inc., each a Wisconsin corporation.
General America Corporation owns 100% of COMAV Managers, Inc., an Illinois
corporation, F.B. Beattie & Co., Inc., a Washington corporation, General America
Corp. of Texas, a Texas corporation, Talbot Financial Corporation, a Washington
corporation, Goldware & Taylor Insurance Service, a California corporation and
SAFECO Select Insurance Services, Inc., a California corporation. F.B. Beattie &
Co., Inc. owns 100% of F.B. Beattie Insurance Services, Inc., a California
corporation. General America Corp. of Texas is Attorney-in-fact for SAFECO
Lloyds Insurance Company, a Texas corporation. Talbot Financial Corporation owns
100% of Talbot Agency, Inc., a New Mexico corporation. Talbot Agency, Inc. owns
100% of PNMR Securities, Inc., a Washington corporation. SAFECO Properties Inc.
owns 100% of the following, each a Washington corporation: SAFECARE Company,
Inc. and Winmar Company, Inc. SAFECARE Company, Inc. owns 100% of the following,
each a Washington corporation: RIA Development, Inc., S.C. Arkansas, Inc., S.C.
Bellevue/Lynn, S.C. Bellevue, Inc., S.C. Everett, Inc., S.C. Everett/Lynn, S.C.
Lynden, Inc., S.C. Lynden/Lynn, S.C. Marysville, Inc., S.C. Northgate, Inc.,
S.C. Northgate/LR1, L.L.C., S.C. Vancouver, Inc., S.C. Vancouver/Lynn (Joint
Venture), SAFECARE S.C. Bakersfield, Inc. and SAFECARE S.C. Bakersfield/Lynn
Limited Partnership. SAFECARE Company, Inc. owns 50% of Lifeguard Ventures,
Inc., a California corporation, and S.C. River Oaks, Inc., a Washington
corporation. Winmar Company, Inc. owns 100% of the following: C-W Properties,
Inc., Gem State Investors, Inc., Kitsap Mall, Inc., WNY Development, Inc.,
Winmar Cascade, Inc., Winmar Metro, Inc., Winmar Northwest, Inc., Winmar
Redmond, Inc. and Winmar of Kitsap, Inc., each a Washington corporation, and
Capitol Court Corp., a Wisconsin corporation, SAFECO Properties of Boise, Inc.,
an Idaho corporation, SCIT, Inc., a Massachusetts corporation, Valley Fair
Shopping Centers, Inc., a Delaware corporation, WDI Golf Club, Inc., a
California corporation, Winmar Oregon, Inc., an Oregon corporation, Winmar of
Texas, Inc., a Texas corporation, and Winmar of the Desert, Inc., a California
corporation. Winmar Oregon, Inc. owns 100% of the following, each an Oregon
corporation: North Coast Management, Inc., Pacific Surfside Corp., Winmar of
Jantzen Beach, Inc. and W-P Development, Inc., and 100% of the following, each a
Washington corporation: Washington Square, Inc. and Winmar Pacific, Inc.
SAFECO Corporation, a Washington corporation, owns 100% of American States
Financial Corporation, an Indiana corporation. American States Financial
Corporation owns 100% of American States Insurance Company, an Indiana
corporation. American States Insurance Company owns 100% of the following
Indiana corporations: American Economy Insurance Company, American States
Preferred Insurance Company, American States Life Insurance company, and City
Insurance Agency, Inc. American States Insurance Company owns 100% of Insurance
Company of Illinois, an Illinois corporation, and American States Lloyds
Insurance Company, a Texas corporation. American Economy Insurance Company owns
100% of American States Insurance Company of Texas, a Texas corporation.
27. Number of Contract Owners
As of December 31, 1997: Qualified contracts, 166
Non-qualified contracts, 2131.
28. Indemnification
The Company indemnifies actions against all officers, directors and employees to
the full extent permitted by the Arizona Business Corporation Act (as limited by
the Investment Company Act of 1940). 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
Composite Funds Distributor, Inc., the principal underwriter of the Depositor,
is also principal underwriter for the following investment companies:
Composite Research & Management, Inc. (The name of this investment company was
changed to WM Advisors, Inc. on March 20, 1998.)
29b.Principal Underwriters
The principal underwriter for the Registrant is Composite Funds Distributor,
Inc. which also serves in the same capacity for the investment company
identified in Item 29a.
Business and other connections of the underwriter were most recently filed on
Form BD, CRD 599, with the National Association of Securities Dealers on March
24, 1998, and are incorporated herein by reference.
29c.Compensation of Composite Funds Distributor, 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 (1997):
(1) (2) (3) (4) (5)
Net
Name of Underwriting
Principal Discount and Compensation Brokerage
Underwriter Commissions on Redemption Commissions Compensation
Composite Funds
Distributor, Inc. $787,040.00 0 0 0
30. Location of Accounts and Records
Roger Harbin
SAFECO Life Insurance Company
15411 NE 51st Street
Redmond, Washington 98052
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 Redmond, and State of Washington, on this 30th day
of April, 1998.
WM LIFE DEFERRED VARIABLE ANNUITY ACCOUNT
(Registrant)
WM LIFE INSURANCE COMPANY
(Depositor)
(SEAL)
Attest: /s/ Rod A. Pierson By: /s/Randall Talbot
------------------------------- ----------------------------
Rod A. Pierson Randall Talbot
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/ Roger H. Eigsti 4/30/98 Chairman of the Board
- ------------------------------------
Roger H. Eigsti Date
/s/ Randall H. Talbot 4/30/98 President
- ------------------------------------
Randall H. Talbot Date
/s/ James T. Flynn 4/30/98 V.P., Controller, Asst. Secy.
- ------------------------------------
James T. Flynn Date
/s/ Ronald L. Spaulding 4/30/98 V.P. Treasurer
- ------------------------------------
Ronald L. Spaulding Date
/s/ Donald S. Chapman 4/30/98 Director
- ------------------------------------
Donald S. Chapman Date
/s/ Boh A. Dickey 4/30/98 Director
- ------------------------------------
Boh A. Dickey Date
/s/ Dale E. Lauer 4/30/98 Director
- ------------------------------------
Dale E. Lauer Date
/s/ James W. Ruddy 4/30/98 Director
- ------------------------------------
James W. Ruddy Date
/s/ W. Randall Stoddard 4/30/98 Director
- ------------------------------------
W. Randall Stoddard Date
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Exhibit Description
- ----------- -------------------
23.9(b) Consent of Sutherland, Asbill & Brennan
23.10 Consent of Independent Auditors
EXHIBIT 23.9(b)
Consent of Sutherland, Asbill & Brennan LLP
April 28, 1998
WM Life Insurance Company
15411 NE 51st Street
Redmond, Washington 98032
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. 15
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 INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Independent Auditors"
in the Statement of Additional Information and to the use of our report on the
financial statements of WM Life Deferred Variable Annuity Account, dated April
9, 1998, and our report on the financial statements of WM Life Insurance
Company, dated March 20, 1998, in Post-Effective Amendment Number 15 to the
Registration Statement (Form N-4, No. 33-11-11) and related Prospectus of WM
Life Deferred Variable Annuity Account.
Seattle, Washington
April 27, 1998
/s/ Ernst & Young LLP
Ernst & Young LLP
