INVESTMENT HIGHLIGHTS
PORTFOLIOS
FINANCIAL INFORMATION
FINANCIAL STATEMENTS
FINANCIAL HIGHLIGHTS
NOTES TO FINANCIAL STATEMENTS
MESSAGE TO ANNUITYHOLDERS
Coming off an exceptionally strong investment year in fiscal 1995, the
six-month period ended June 30, 1996 has been fraught with activity. Significant
changes were made in the Northwest Portfolio, the Growth & Income Portfolio
continued to post strong gains, and the Income Portfolio weathered volatile
interest rate movements. In times like this, especially, we're most appreciative
of the professionalism and dedication of the investment managers of our Adviser,
Composite Research & Management Company.
The Northwest Portfolio was broadened to include a wide range of investment
opportunities, rather than just those which constituted the Northwest 50 (R)
Index. This allowed the addition of 20 new companies, the deletion of 12
positions, and the modification of a number of other positions. Now that these
changes have been made, however, we expect the portfolio to remain relatively
stable and to provide increased returns over time.
[PHOTO]
COMPOSITE GROUP EQUITY FUNDS INVESTMENT TEAM (L TO R): DAVID W. SIMPSON,
PHILIP M. FOREMAN, JEFFREY D. HUFFMAN.
The Growth & Income Portfolio saw several large gains, particularly profiting
from the takeover of Loral Corporation by Lockheed Martin, which has become the
leader in defense electronics. While we expect the portfolio to be neutrally
weighted across most industries, it continues to be overweighted in the
telephone equipment area. The passage of the Telecom bill leads us to believe
that capital spending will pick up, making this a potentially profitable sector.
Over the next few months, we anticipate the economic environment to pick up,
resulting in the kind of long-term capital growth which is the foundation of our
investment strategy.
[PHOTO]
COMPOSITE GROUP BOND FUNDS INVESTMENT TEAM (L TO R): AUDREY S. QUAYE,
BRIAN L. PLACZEK, GARY J. POKRZYWINSKI.
The Income Portfolio experienced negative performance due to the volatility
of interest rate movement. Intermediate-maturity interest rates rose 1 1/4% and
economic growth has outstripped early expectations. Despite the difficulty of
the last few months and some slightly negative returns, average quality of the
investments remains high. Finally, although we have experienced increased
short-term fluctuation, in the long run stability and profitable returns bear
out the soundness of our long-term investment philosophy.
Your business with us is greatly appreciated.
Sincerely,
/s/ Robert W. Eschrich
ROBERT W. ESCHRICH
PRESIDENT AND CHIEF EXECUTIVE OFFICER
WM LIFE INSURANCE COMPANY
<PAGE>
INVESTMENT HIGHLIGHTS
GROWTH & INCOME PORTFOLIO
THE EQUITY MARKETS CONTINUED TO post gains for the six-month period ended
June 30, 1996. As shown in the Financial Highlights on page 18, the Growth &
Income Portfolio participated well in this market environment, which was fueled
by Federal Reserve discount rate cuts and by decent corporate earnings.
Through most of the period, defensive stocks (foods, drugs, finance, and
aerospace) were the best performing industries. In the past few months, however,
cyclical stocks have become the market leaders. In response, the portfolio
slowly moved out of its defensive holdings throughout the period into a more
neutrally weighted industry position between cyclical and defensive holdings.
The portfolio had several holdings with particularly large gains during the
period, including Barra, Dole Foods, Nike, and First Security Corporation. The
portfolio particularly benefited from the takeover of Loral Corporation by
Lockheed Martin. Lockheed took the opportunity to become the clear leader in
defense electronics. In contrast, the poor performers for the period were
Burlington Resources and Nalco Chemical. We are hopeful that the market will
soon recognize their underlying value and price these companies accordingly. As
expected, most of our holdings raised their dividends in excess of inflation.
Looking ahead, we expect the portfolio to be neutrally weighted across most
industries. The only notable overweighting is in the telephone equipment area,
where we believe capital spending will pick up now that the Telecom bill has
passed. We anticipate an environment in which economic growth picks up from its
low level early in the year. Cyclical stocks should be more attractive in this
environment.
As annuityholders know, we are long-term investors. We avoid the risks
associated with trading stocks for a quick profit. Rather, we seek rewards from
the growth of the businesses in our portfolio.
The portfolio's investment strategy will continue to focus on buying sound
businesses at attractive valuation levels. This approach is at the heart of our
investment philosophy - balancing risk and return to achieve the portfolio's
primary objective of producing long-term capital growth.
<PAGE>
NORTHWEST PORTFOLIO
IT HAS BEEN AN EVENTFUL SIX months for the Northwest Portfolio. On December
15, 1995, shareholders approved a proposal to "de-couple" the Composite
Northwest 50 Fund from the Northwest 50 (R) Index. Shortly thereafter a number
of changes were made to the portfolio. Twenty new companies were added, 12
positions were deleted, and the weighting of a number of other positions was
modified between December 15, 1995 and June 30, 1996. We do not anticipate
adding or deleting as many stocks during subsequent six-month periods.
As we have mentioned before, our change from a portfolio indexed to the
Northwest economy to a fully managed portfolio will inevitably lead to higher
turnover than in previous years. Accordingly, capital gain distributions are
also likely to be higher than in the past. Our intent is to structure a
portfolio which offers solid long-term growth opportunity.
As shown in the Financial Highlights on page 19, the Northwest Portfolio
produced positive results for the six-month period ended June 30, 1996.
Performance was led by Itron and Advanced Technology Laboratories, which rose
103% and 81%, respectively. The portfolio continues to have significant exposure
to the technology sector although results were mixed. In contrast, Mentor
Graphics, Tektronix and Electro Scientific Industries declined 33%, 24%, and
23%, respectively.
Because of earnings growth concerns, we moderately reduced exposure to the
retail industry and significantly reduced exposure to the utility industry. In
contrast, we added small positions in two real estate investment trusts
(Shurgard Storage Centers and Wellsford Residential Properties), which have
reasonable growth prospects and respectable yields.
In December 1995, West One Bancorp merged with US Bancorp, reducing once
again the number of large financial institutions in the Northwest. New positions
were taken in InterWest Bancorp and First Savings Bank of Washington Bancorp,
two smaller community banks with interesting growth prospects.
Looking forward, we continue to believe that the Northwest is well positioned
for strong economic growth over the next few years. The commercial aircraft
cycle clearly is on an upswing which bodes well for Boeing as well as its many
suppliers. Technology companies, led by Microsoft and Intel, continue to be a
source of regional strength, while a variety of other industries such as trade,
agriculture, and tourism help keep the region's economy diversified. While
vulnerable to trade and natural resource disputes, we think the region has
better opportunities for growth than most other regions of the country. We hope
to participate in this growth by owning stocks of high-quality Northwest
companies.
<PAGE>
INVESTMENT HIGHLIGHTS (CONTINUED)
INCOME PORTFOLIO
AS INDICATED EARLIER IN THIS REPORT, interest rate movements in the past six
months produced disappointing short-term results across the broad spectrum of
the bond markets. While we are pleased with the relative positive performance of
the Income Portfolio over the longer-term, returns for the six-month period
ended June 30, 1996 were slightly negative.
At the start of the year the market was expecting weak economic growth and a
consequent reduction in interest rates by the Federal Reserve. But such was not
the case. Long-term interest rates increased 1 1/4% during the period and, now
with a change in the outlook for the economy, there is the possibility of
further credit tightening by the Fed.
Fortunately, 1995 produced exceptionally positive results for the portfolio
and, although the latest period has been difficult, it has provided attractive
long-term returns.
Currently, the average quality of the portfolio is A1/A+ as rated by Moody's
and Standard & Poor's, respectively. Portfolio composition includes 37% in
high-quality corporate bonds; 20% in below-investment grade securities
(sometimes called "junk bonds") for the higher yields they provide; 20% in
mortgage-backed securities; and 23% in U.S. Treasury notes and cash equivalents.
While the credit spread - the extra income received by owning corporate bonds
instead of Treasuries - has narrowed over the last few years, we feel there are
sufficient opportunities offering attractive income. Our credit research and
relative value analysis lead us to favor bonds of companies whose earnings are
less sensitive to economic activity, such as those in the health care, defense
and media sectors.
We continue to employ an intermediate-term average maturity profile of
approximately 12 years for two reasons that are especially important in the
current environment. The first is our quest to capture a maximum amount of
current income consistent with preservation of capital. And the second is to
make appropriate investments consistent with the intermediate to long-term time
horizon of the portfolio.
The fixed income investor has had to learn to accept a higher level of
short-term volatility over the last several years. But as the investor's time
horizon lengthens, volatility can be reduced and the potential for meeting
investment objectives has a greater opportunity for success.
<PAGE>
COMPOSITE
DEFERRED
SERIES, INC.
PORTFOLIO OF
INVESTMENTS
IN SECURITIES
JUNE 30,
1996
GROWTH & INCOME PORTFOLIO (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
- ------------ -----------
<S> <C> <C>
U.S. TREASURY BOND-1.10%
$400,000 6.25%, due 08/15/2023 (cost $364,391) .................... $ 362,500
-----------
CONVERTIBLE CORPORATE BONDS - 1.25%
RETAIL-0.64%
245,000 Michael Stores, 4.75%, due 01/15/2003 .................... 210,700
-----------
TRANSPORTATION & EQUIPMENT-0.61%
200,000 Airborne Freight, 6.75%, due 08/15/2001................... 200,250
-----------
TOTAL CONVERTIBLE CORPORATE BONDS (cost $412,744)......... 410,950
-----------
SHARES
- -----------
COMMON STOCKS-94.76%
AEROSPACE/DEFENSE-6.20%
6,600 Boeing Company** ......................................... 575,025
9,500 Lockheed Martin Corporation .............................. 789,000
22,500 Loral Space & Communications.............................. 306,563
6,840 Raytheon Company ......................................... 353,115
----------
2,032,703
----------
BANK/FINANCE-10.39%
2,000 Bank of New York Company, Inc. .......................... 102,500
7,150 Federal Home Loan Mortgage Corporation .................. 611,325
8,500 First Security Corporation .............................. 204,000
2,600 Franklin Resources, Inc. ................................ 158,600
7,000 J.P. Morgan & Company, Inc. ............................. 592,375
10,514 Legg Mason, Inc. ........................................ 339,076
7,907 Mellon Bank Corporation ................................. 450,699
13,180 Norwest Corporation...................................... 459,653
11,064 U.S. Bancorp Oregon...................................... 399,687
4,500 Washington Federal, Inc. ................................ 92,250
----------
3,410,165
----------
BEVERAGES-2.17%
10,600 PepsiCo, Inc. ........................................... 374,975
10,000 Seagram Company, Ltd. ................................... 336,250
----------
711,225
----------
BUILDING & FOREST PRODUCTS-2.09%
9,000 Rayonier, Inc. .......................................... 342,000
8,100 Weyerhaeuser Company .................................... 344,250
----------
686,250
----------
COMPUTER SYSTEMS & SOFTWARE-5.71%
10,500 Autodesk, Inc. ......................................... 313,688
13,000 Barra, Inc.*............................................ 334,750
7,164 Electronic Data Systems Corporation..................... 385,065
5,250 Microsoft Corporation* ................................. 630,656
15,600 Sequent Computer Systems, Inc.*......................... 210,600
----------
1,874,759
----------
CONSUMER DURABLES-2.26%
25,300 Castle & Cooke, Inc.*................................... 404,800
10,900 Fleetwood Enterprises .................................. 337,900
----------
742,700
----------
CONSUMER NON-DURABLES/SERVICES-5.52%
10,300 Alberto Culver Company, Class A ........................ $ 412,000
4,900 Colgate Palmolive Company .............................. 415,275
11,400 Kimberly Clark Mexico, American Depository Receipt ..... 413,250
2,300 Nike, Inc. - Class B** ................................ 236,325
3,700 Proctor & Gamble Company................................ 335,313
----------
1,812,163
----------
ELECTRONICS/GENERAL-6.64%
6,400 Arrow Electronics, Inc.* .............................. 276,000
10,500 DSC Communications Corporation* ....................... 316,312
7,650 Emerson Electric Company............................... 691,369
7,000 General Electric Company............................... 605,500
2,900 Hewlett-Packard Company................................ 288,912
----------
2,178,093
----------
ELECTRONICS/SEMI-CONDUCTORS-3.86%
5,600 Intel Corporation...................................... 411,250
7,000 Lattice Semiconductor Corporation* .................... 168,875
10,900 Motorola, Inc. ........................................ 685,338
----------
1,265,463
----------
FOODS-3.52%
5,050 Campbell Soup Company ................................. 356,025
10,900 Dole Food Company ..................................... 468,700
10,500 Supervalu, Inc. ....................................... 330,750
----------
1,155,475
----------
HEALTH & MEDICAL-10.63%
14,700 Abbott Laboratories ................................... 639,450
6,400 Bausch & Lomb, Inc. ................................... 272,000
19,937 Caremark International, Inc. .......................... 503,409
13,700 FHP International Corporation* ........................ 375,038
5,650 Forest Laboratories, Inc.* ............................ 218,231
8,300 Johnson & Johnson ..................................... 410,850
17,000 Manor Care, Inc. ...................................... 669,375
6,200 Merck & Company, Inc. ................................. 400,675
----------
3,489,028
----------
INDUSTRIAL PRODUCTS/SERVICES-3.42%
10,200 Crane Company ......................................... 418,200
13,000 Donaldson Company, Inc. ............................... 334,750
26,000 Hanson Trust, American Depository Receipt.............. 370,500
----------
1,123,450
----------
INSURANCE-2.66%
4,250 American International Group, Inc. .................... 419,156
11,750 Integon Corporation ................................... 236,469
6,800 Penncorp Financial Group, Inc. ........................ 215,900
----------
871,525
----------
MACHINERY/DIVERSIFIED-1.22%
10,000 Deere & Company ........................................ 400,000
----------
MEDIA-2.76%
9,000 Dun & Bradstreet Corporation ........................... 562,500
9,000 Viacom, Inc.* .......................................... 343,125
----------
905,625
----------
NATURAL GAS/OILS-7.48%
13,000 Burlington Resources, Inc. ............................. 559,000
3,700 Exxon Corporation....................................... 321,438
3,375 Mobil Corporation ...................................... 378,422
14,500 Occidental Petroleum Corporation ....................... 358,875
6,050 Phillips Petroleum Company.............................. 253,343
3,600 Royal Dutch Petroleum Company .......................... 553,500
350 Shell Transport & Trading Company,
American Depository Receipt .......................... 30,800
----------
2,455,378
----------
RAILROADS-1.96%
9,200 Union Pacific Corporation .............................. 642,850
----------
REAL ESTATE INVESTMENT TRUSTS-3.68%
17,638 Bank of America Realty ................................. 343,941
1,500 Developers Diversified Realty........................... 47,812
200 Duke Realty............................................. 6,050
3,600 Health Care Property Investors, Inc. ................... 121,500
8,600 Nationwide Health Properties, Inc. ..................... 181,675
20,100 Shurgard Storage Centers, Inc. ......................... 507,525
----------
1,208,503
----------
RETAIL SALES-2.82%
12,000 Fred Meyer, Inc. - Class A* ............................ 352,500
9,500 Lowe's Companies........................................ 343,187
15,000 Rex Stores Corporation* ................................ 230,625
----------
926,312
----------
STEEL & IRON-1.04%
16,300 Worthington Industries ................................. 340,263
----------
TOBACCO-1.87%
3,400 Phillip Morris Companies, Inc. ......................... 353,600
8,400 RJR Nabisco Holding Corporation ........................ 260,400
----------
614,000
----------
TRANSPORTATION & EQUIPMENT-1.70%
17,950 Expeditors International of Washington, Inc. ........... 556,450
----------
UTILITIES - GAS & ELECTRIC-0.74%
10,000 MCN Corporation ........................................ 243,750
----------
UTILITIES - TELECOMMUNICATIONS-4.42%
9,550 AT&T Corporation ....................................... 592,100
7,100 GTE Corporation ........................................ 317,725
18,000 Lincoln Telecommunications Company ..................... 294,750
5,000 SBC Communications, Inc. ............................... 246,250
----------
1,450,825
----------
TOTAL COMMON STOCKS (cost $24,241,206) ................. 31,096,955
----------
CONVERTIBLE PREFERRED STOCKS-1.89%
INDUSTRIAL PRODUCTS/SERVICES-0.19%
600 GATX Corporation, Series A ............................. 34,950
4,200 RJR Nabisco Holding Corporation ........................ 27,300
----------
62,250
----------
INSURANCE-1.70%
5,650 Integon Corporation .................................... 326,287
3,100 Penncorp Financial Group ............................... 230,563
----------
556,850
----------
TOTAL CONVERTIBLE PREFERRED STOCK (cost $590,293) ...... 619,100
----------
PRINCIPAL
AMOUNT
------------
REPURCHASE AGREEMENT-0.73%
$239,000 Repurchase agreement with First Boston, collateralized by a
U.S. Treasury Note, in a joint trading account at 5.25% dated
06/28/1996, due 07/01/1996 with a maturity value of $239,105
(cost $239,000) ........................................... 239,000
----------
TOTAL INVESTMENTS (cost $25,847,636) ...................... 32,728,505
Other assets ($264,805) less liabilities ($178,044) ....... 86,761
----------
NET ASSETS ................................................ $32,815,266
==========
*Non-income producing security.
**The portfolio positions subject to and the descriptions and values of written
covered call options outstanding at June 30, 1996, were as follows:
OPTION EXPIRATION EXERCISE VALUE OF
CONTRACTS SECURITY MONTH/YEAR PRICE CALL OPTIONS
- ------------------------------------------------------------------------------------------
10 Boeing Company AUG/96 $90 $3,000
5 Nike, Inc. JUL/96 $95 $4,750
</TABLE>
FEDERAL INCOME TAX INFORMATION:
Net unrealized appreciation of investments at June 30, 1996, of $6,877,879,
based on aggregate cost of $25,847,636, was composed of gross appreciation of
$7,120,407, for investments having an excess of value over cost and gross
depreciation of $242,528 for investments having an excess of cost over value.
OTHER INFORMATION:
Purchases and sales of investment securities, other than short-term investments,
aggregated $10,430,651 and $4,683,934, respectively, during the six-month
period ended June 30, 1996, including purchases of U.S. government securities of
$364,297.
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
COMPOSITE
DEFERRED
SERIES, INC.
PORTFOLIO OF
INVESTMENTS
IN SECURITIES
JUNE 30,
1996
NORTHWEST PORTFOLIO (UNAUDITED)
MARKET
SHARES VALUE
- ----------- ----------
<S> <C> <C>
COMMON STOCKS-94.45%
AEROSPACE/DEFENSE-6.87%
5,950 Boeing Company ............................................. $ 518,394
3,825 Precision Castparts Corporation ............................ 164,475
-----------
682,869
-----------
BANK/FINANCE-12.39%
8,700 First Savings Bank of Washington ........................... 135,937
126 Horizon Financial Corporation .............................. 1,669
5,400 Interwest Bancorp, Inc. .................................... 128,925
7,200 Safeco Corporation ......................................... 254,700
4,200 Sterling Financial Corporation*............................. 61,950
15,118 US Bancorp.................................................. 546,138
4,979 Washington Federal, Inc. ................................... 102,069
----------
1,231,388
----------
BEVERAGES-0.89%
3,800 Redhook Ale Brewery, Inc.* ................................. 88,350
----------
BUILDING & FOREST PRODUCTS-6.42%
1,700 Boise Cascade Corporation .................................. 62,262
800 Georgia-Pacific Corporation................................. 56,800
1,900 Longview Fibre Company...................................... 32,300
4,900 Louisiana Pacific Corporation .............................. 108,412
4,700 Weyerhaeuser Company........................................ 199,750
3,000 Willamette Industries, Inc. ................................ 178,500
-----------
638,024
-----------
COMPUTER SYSTEMS & SOFTWARE-13.29%
800 CFI Proservices, Inc.* ..................................... 20,400
10,300 In Focus Systems, Inc.*..................................... 249,775
5,750 Microsoft Corporation*...................................... 690,719
15,800 Sequent Computer Systems, Inc.*............................. 213,300
2,100 Sierra On-Line, Inc.*....................................... 92,137
2,500 Wall Data, Inc.* ........................................... 55,000
-----------
1,321,331
-----------
CONSUMER NONDURABLES/SERVICES-3.72%
3,600 Nike, Inc., Class B ....................................... 369,900
-----------
ELECTRONICS/GENERAL-11.12%
4,500 Electro Scientific Industries, Inc.* ...................... 94,500
7,200 Flir Systems, Inc.* ....................................... 88,200
2,700 Fluke Corporation ......................................... 109,012
3,000 Itron, Inc.* .............................................. 85,125
14,800 Mentor Graphics Corporation*............................... 240,500
4,600 Merix Corporation*......................................... 92,000
9,300 Planar Systems, Inc.*...................................... 132,525
5,900 Tektronix, Inc. ........................................... 264,025
-----------
1,105,887
-----------
ELECTRONICS - SEMICONDUCTORS/COMPONENTS-5.47%
2,200 Intel Corporation ........................................ $ 161,563
6,800 Lattice Semiconductor Corporation*........................ 164,050
3,300 Micron Technology, Inc. .................................. 85,388
6,400 Triquint Semiconductor, Inc.*............................. 132,800
-----------
543,801
-----------
HEALTH & MEDICAL-7.11%
4,600 Advanced Technology Laboratories, Inc.* .................. 167,900
21,150 ICOS Corporation* ........................................ 185,063
7,900 Immunex Corporation*...................................... 107,638
8,900 Ostex International, Inc.* ............................... 93,450
1,700 Pacificare Health Systems- Class B* ...................... 115,175
800 Pathogenesis Corporation* ................................ 12,400
1,100 Spacelabs Medical, Inc.* ................................. 25,575
-----------
707,201
-----------
HOTELS/MOTELS-1.04%
4,900 Red Lion Hotels, Inc.* ................................... 102,900
-----------
INDUSTRIAL PRODUCTS/SERVICES-0.54%
6,700 Flow International Corporation* .......................... 53,600
-----------
MINING-0.95%
3,200 Coeur d'Alene Mines Corporation .......................... 58,800
5,100 Hecla Mining Company*..................................... 35,700
-----------
94,500
-----------
REAL ESTATE INVESTMENT TRUST-1.99%
3,900 Shurgard ................................................. 98,475
4,400 Wellsford Residential..................................... 99,000
-----------
197,475
-----------
RETAIL SALES-12.55%
10,400 Albertsons, Inc. ........................................ 430,300
9,300 Fred Meyer, Inc.*........................................ 273,188
16,400 Price/Costco, Inc.* ..................................... 354,650
890 Quality Food Centers, Inc.* ............................. 22,918
5,900 Starbucks Corporation* .................................. 166,675
-----------
1,247,731
-----------
STEEL & IRON-2.13%
7,900 Schnitzer Steel Inds., Inc. ............................. 211,325
-----------
TRANSPORTATION & EQUIPMENT-7.14%
7,250 Airborne Freight Corporation ............................ 188,500
7,000 Alaska Air Group, Inc.* ................................. 191,625
9,200 Expeditors International of Washington, Inc. ............ 285,200
2,200 Greenbrier Companies, Inc. .............................. 30,525
290 PACCAR, Inc. ............................................ 14,210
-----------
710,060
-----------
UTILITIES - TELECOMMUNICATIONS-0.83%
8,200 General Communication - Class A* ........................ 65,600
800 Western Wireless Corporation - Class A*.................. 17,100
-----------
82,700
-----------
TOTAL COMMON STOCKS (cost $7,370,843) ................... 9,389,042
-----------
PRINCIPAL
AMOUNT
- -------------
REPURCHASE AGREEMENT-6.62%
$658,000 Repurchase agreement with First Boston, collateralized by a
U.S. Treasury Note, in a joint trading account at 5.25% dated
06/28/1996, due 07/01/1996 with a maturity value of $658,288
(cost $658,000) ............................................ 658,000
------------
TOTAL INVESTMENTS (cost $8,028,843) ........................ 10,047,042
Other assets ($57,220) less liabilities ($163,248) ......... (106,028)
------------
NET ASSETS ................................................. $ 9,941,014
============
*Non-income producing security.
See accompanying notes to financial statements.
</TABLE>
FEDERAL INCOME TAX INFORMATION:
Net unrealized appreciation of investments at June 30, 1996, of $2,018,199,
based on aggregate cost of $8,028,843, was composed of gross appreciation of
$2,370,228 for investments having an excess of value over cost and gross
depreciation of $352,029 for investments having an excess of cost over value.
OTHER INFORMATION:
Purchases and sales of investment securities, other than short-term investments,
aggregated $3,099,730 and $1,494,802, respectively, during the six-months ended
June 30, 1996.
<TABLE>
<CAPTION>
COMPOSITE
DEFERRED
SERIES, INC.
PORTFOLIO OF
INVESTMENTS
IN SECURITIES
JUNE 30,
1996
INCOME PORTFOLIO (UNAUDITED)
PRINCIPAL MARKET
AMOUNT VALUE
- ----------- -----------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS-37.29%
$1,000,000 U.S. Treasury Note, 5.75%, due 08/15/2003 ............... $ 951,875
1,250,000 U.S. Treasury Note, 5.875%, due 02/15/2004 .............. 1,193,750
250,000 U.S. Treasury Note, 6.375, due 08/15/2002 ............... 247,734
100,000 U.S. Treasury Note, 7.125%, due 02/29/2000 .............. 102,313
500,000 U.S. Treasury Note, 7.25%, due 11/30/1996 ............... 503,594
200,000 U.S. Treasury Note, 7.875%, due 08/15/2001............... 211,875
1,200,000 U.S. Treasury Bond, 6.25%, due 08/15/2023 ............... 1,087,500
1,000,000 U.S. Treasury Bond, 7.25%, due 05/15/2016 ............... 1,024,687
450,000 U.S. Treasury Bond, 7.25%, due 08/15/2022 ............... 461,250
200,000 U.S. Treasury Bond, 7.50%, due 11/15/2024 ............... 212,062
-----------
TOTAL U.S. TREASURY OBLIGATIONS (cost $6,103,224) ....... 5,996,640
-----------
MORTGAGE-BACKED SECURITIES-10.64%
FEDERAL NATIONAL MORTGAGE ASSOCIATION-0.07%
11,642 9.00%, due 10/01/2004 ................................... 12,137
-----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION-8.93%
389,934 9.00%, due 05/15/2009 ................................... 408,454
16,850 8.50%, due 03/15/2022 ................................... 17,345
156,581 8.00%, due 06/15/2022 ................................... 158,146
406,105 7.00%, due 07/15/2023 ................................... 389,985
467,589 7.50%, due 06/01/2024.................................... 461,303
-----------
1,435,233
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS-1.64%
255,000 Federal Home Loan Mortgage Corporation, 7.50%,
due 07/15/2020 ........................................ 258,032
2,728 MDC Funding, 8.20%, due 11/20/2017...................... 2,730
2,330 Shearson Lehman, 8.75%, due 08/27/2017.................. 2,341
-----------
263,103
-----------
TOTAL MORTGAGE-BACKED SECURITIES (cost $1,729,600) .... 1,710,473
-----------
CORPORATE BONDS-36.96%
AEROSPACE/DEFENSE-1.83%
300,000 Loral Corporation, 7.625%, due 06/15/2025 .............. 294,266
-----------
BANK/FINANCE-10.08%
200,000 Associates Corp. Senior Notes, 8.80%, due 08/01/1998 ... 208,973
195,000 Bank of New York, 7.875%, due 11/15/2002 ............... 203,008
175,000 Beneficial Corp., 9.125%, due 02/15/1998 ............... 182,344
250,000 First Nationwide, 10.0%, due 10/01/2006 ................ 279,067
100,000 General Motors Acceptance Corp., 7.75%, due 01/15/1999 . 102,774
200,000 Kemper Corp., 6.875%, due 09/15/2003.................... 196,078
200,000 Mercantile Bank, 7.625%, due 10/15/2002................. 204,752
250,000 Morgan Stanley, 6.75%, due 03/04/2003 .................. 244,783
-----------
1,621,779
-----------
BROADCAST/MEDIA-2.33%
200,000 Time Warner, Inc., 9.15%, due 02/01/2023 ............... 206,598
200,000 Westinghouse Corporation, 7.875%, due 09/01/2023 ....... 167,715
-----------
374,313
-----------
HEALTH & MEDICAL-3.76%
150,000 American Home Products, 7.25%, due 03/01/2023 .......... 144,152
250,000 American Medical International, zero coupon,
due 08/12/1997 ........................................ 226,443
250,000 FHP International, 9.00%, due 09/15/2003 ............... 233,571
----------
604,166
----------
INSURANCE-3.18%
300,000 Continental Corporation, 8.25%, due 04/15/1999 ......... 311,020
200,000 Integon Corporation, 8.00%, due 08/15/1999 ............. 200,670
----------
511,690
----------
MACHINERY-1.37%
200,000 Caterpillar Corporation, 9.375%, due 07/15/2001 ........ 220,183
----------
OIL AND GAS-2.83%
200,000 Burlington Resources, 7.15%, due 05/01/1999 ............ 202,718
200,000 Coastal Corporation, 10.75%, due 10/01/2010 ............ 252,376
-----------
455,094
-----------
REAL ESTATE INVESTMENT TRUSTS-1.81%
100,000 Franchise Finance Corporation, 7.00%, due 11/30/2000 ... 97,433
200,000 Franchise Finance Corporation, 7.875%, due 11/30/2005 .. 193,699
-----------
291,132
-----------
RETAIL-0.87%
150,000 Costco Wholesale Corporation, 5.75%, due 05/15/2002
(Convertible) ......................................... 140,063
-----------
TRANSPORTATION-2.05%
300,000 Burlington Northern, 8.75%, due 02/25/2022 .............. 329,368
-----------
UTILITIES - GAS & ELECTRIC-6.85%
150,000 Commonwealth Edison, 9.375%, due 02/15/2000 ............. 160,574
150,000 Consumers Power, 8.75%, due 02/15/1998................... 154,180
150,000 Niagara Mohawk Power, 9.50%, due 06/01/2000 ............. 149,998
150,000 Portland General Electric, 8.88%, due 08/12/1999......... 158,854
150,000 Public Service Electric & Gas, 8.875%, due 06/01/2003.... 162,038
150,000 Public Service Company of New Hampshire, 9.17%,
due 05/15/1998 ........................................ 155,106
150,000 Texas Utilities Electric, 9.50%, due 08/01/1999.......... 160,445
-----------
1,101,195
-----------
TOTAL CORPORATE BONDS (cost $5,970,558) ................. 5,943,249
-----------
U.S.DOLLAR FOREIGN OBLIGATIONS-1.69%
150,000 Province of Alberta, 9.25%, due 04/01/2000 .............. 163,104
100,000 Province of Manitoba, 9.625%, due 03/15/1999............. 107,811
-----------
TOTAL U.S. DOLLAR FOREIGN OBLIGATIONS (cost $256,844) ... 270,915
-----------
Shares
---------
CONVERTIBLE PREFERRED STOCK-0.36%
1,000 Integon Corp. (cost $59,320) ............................ 57,750
-----------
REPURCHASE AGREEMENT-11.85%
1,906,000 Repurchase agreement with First Boston collateralized by
a U.S. Treasury Note, in a joint trading account at 5.25%
dated 06/28/1996, due 07/01/1996 with a maturity value of
$1,906,834 (cost $1,906,000) 1,906,000
------------
TOTAL INVESTMENTS (cost $16,025,548) ..................... 15,885,027
Other assets ($264,771) less liabilities ($70,752) ....... 194,019
------------
NET ASSETS ............................................... $16,079,046
============
See accompanying notes to financial statements.
</TABLE>
FEDERAL INCOME TAX INFORMATION:
Net unrealized depreciation of investments at June 30, 1996, of $140,521, based
on aggregate cost of $16,025,548, was composed of gross depreciation of $357,875
for investments having an excess of cost over value and gross appreciation of
$217,354 for investments having an excess of value over cost.
OTHER INFORMATION:
Purchases and sales including principal repayments of investment securities,
other than short-term investments, aggregated $1,806,816 and $802,052,
respectively, during the six-month period ended June 30, 1996, including
purchases and sales of U.S. government securities of $185,594 and $150,000,
respectively. Principal repayments of mortgage-backed securities aggregated
$71,455.
<PAGE>
COMPOSITE
DEFERRED
SERIES, INC.
FINANCIAL
INFORMATION
JUNE 30,
1996
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
GROWTH & INCOME NORTHWEST INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
ASSETS -------------- ----------- -----------
<S> <C> <C> <C>
Investments at market (identified cost $25,847,636,
$8,028,843, and $16,025,548, respectively)......... $32,728,505 $10,047,042 $15,885,027
Cash................................................. 63,933 218 -
Prepaid Expense...................................... 1,583 487 960
Receivable for:
Investment securities sold......................... 71,479 38,109 -
Interest........................................... 20,022 287 259,667
Sale of Fund's shares.............................. 53,030 9,144 4,144
Dividends............................................ 54,758 8,975 -
----------- ----------- ----------
Total assets......................................... 32,993,310 10,104,262 16,149,798
----------- ----------- ----------
LIABILITIES
Covered call options written at market
(Premium received $4,760)............................ 7,750 - -
Payable for:
Investment securities purchased.................... 120,635 155,488 60,571
Repurchase of Fund's shares........................ 37,818 950 -
Accrued expenses and other payables 11,841 6,810 10,181
----------- ----------- -----------
Total liabilities.................................... 178,044 163,248 70,752
----------- ----------- -----------
NET ASSETS ......................................... $32,815,266 $ 9,941,014 $16,079,046
=========== =========== ===========
COMPOSITION OF NET ASSETS
Additional paid-in capital.......................... $24,880,343 $ 7,905,339 $16,358,396
Undistributed net investment income................. 622 319 -
Accumulated net realized gain (loss)................ 1,056,422 17,157 (138,829)
Net unrealized appreciation (depreciation) of
investments ..................................... 6,877,879 2,018,199 (140,521)
----------- ----------- ------------
$32,815,266 $ 9,941,014 $16,079,046
=========== =========== ============
NET ASSET VALUE
Net asset value per share for 1,481,951, 605,021,
and 1,352,251 shares outstanding, respectively..... $22.14 $16.43 $11.89
=========== =========== ============
See accompanying notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1996 (UNAUDITED)
GROWTH & INCOME NORTHWEST INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
-------------- --------- ------------
<S> <C> <C> <C>
INVESTMENT INCOME
Income:
Interest.............................................................. $ 32,612 $ 13,464 $ 552,142
Dividends............................................................. 284,000 42,883 1,938
---------- --------- ---------
Total income............................................................ 316,612 56,347 554,080
---------- --------- ---------
Expenses:
Management fees....................................................... 72,340 21,793 39,006
Custodial fees........................................................ 10,574 4,776 4,363
Postage, printing and office expense.................................. 3,917 3,841 5,591
Directors' fees....................................................... 3,984 3,984 3,901
Auditing and legal fees............................................... 1,857 1,745 1,792
Insurance............................................................. 837 252 462
---------- --------- --------
Total expenses.......................................................... 93,449 36,391 55,115
Fees paid indirectly.................................................... (2,218) (1,212) (339)
---------- --------- --------
Net expenses............................................................ 91,231 35,179 54,776
---------- --------- --------
Net investment income................................................... 225,381 21,168 499,304
---------- --------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain (loss) from investment transactions....................... 1,063,265 153,907 (5,400)
Unrealized appreciation (depreciation) of investments during the period 1,505,003 624,741 (886,335)
---------- --------- --------
Net realized and unrealized gain (loss) on investments................. 2,568,268 778,648 (891,735)
---------- --------- --------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ............................................ . $2,793,649 $799,816 $(392,431)
========== ========= =========
See accompanying notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
GROWTH & INCOME NORTHWEST
PORTFOLIO PORTFOLIO INCOME PORTFOLIO
------------------------- ------------------------- ------------------------
SIX MONTHS SIX MONTHS SIX MONTHS
ENDED YEAR ENDED YEAR ENDED YEAR
JUNE 30, ENDED JUNE 30, ENDED JUNE 30, ENDED
1996 DECEMBER 31, 1996 DECEMBER 31, 1996 DECEMBER 31,
(UNAUDITED) 1995 (UNAUDITED) 1995 (UNAUDITED) 1995
-------------- ----------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income............... $ 225,381 $ 362,736 $ 21,168 $ 40,252 $ 499,304 $ 856,335
Realized gain (loss) from
investment transactions .......... 1,063,265 441,257 153,907 (8,707) (5,400) (49,342)
Unrealized appreciation
(depreciation) of investments
during the period................. 1,505,003 4,414,288 624,741 1,309,785 (886,335) 1,529,737
-------------- ------------ ------------ ------------ ------------ -------------
Net increase (decrease) in net assets
resulting from operations......... 2,793,649 5,218,281 799,816 1,341,330 (392,431) 2,336,730
DIVIDENDS TO
SHAREHOLDER
From net investment income.......... (227,336) (360,327) (20,849) (41,043) (499,304) (856,335)
From net capital gains from
investment transactions........... - (448,100) - - - -
NET CAPITAL SHARE
TRANSACTIONS ....................... 5,800,793 5,843,803 1,666,734 1,547,792 1,765,183 2,883,031
-------------- ------------ ------------ ------------ ------------ ------------
Total increase in net assets........ 8,367,106 10,253,657 2,445,701 2,848,079 873,448 4,363,426
NET ASSETS
Beginning of the period........... 24,448,160 14,194,503 7,495,313 4,647,234 15,205,598 10,842,172
-------------- ------------ ------------ ------------ ------------ ------------
End of the period................. $32,815,266 $24,448,160 $ 9,941,014 $ 7,495,313 $16,079,046 $15,205,598
============== ============ ============ ============ ============ ============
UNDISTRIBUTED NET
INVESTMENT INCOME AT
END OF PERIOD ...................... $ 622 $ 2,577 $ 319 $ 0 $ 0 $ 0
============== ============ ============ ============ ============ ============
See accompanying notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SIX MONTHS
ENDED
JUNE30, YEARS ENDED DECEMBER 31,
1996 ----------------------------------------------
(UNAUDITED) 1995 1994 1993 1992 1991
---------- -------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
GROWTH & INCOME PORTFOLIO:
NET ASSET VALUE, BEGINNING OF PERIOD .................. $20.22 $15.70 $15.71 $15.26 $14.28 $11.82
---------- -------- ---------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income................................ 0.16 0.35 0.31 0.29 0.36 0.36
Net Gains on Securities (both realized and
unrealized) ...................................... 1.92 4.90 0.12 0.84 1.13 2.66
---------- -------- ---------- -------- -------- --------
Total From Investment Operations.................. 2.08 5.25 0.43 1.13 1.49 3.02
---------- -------- ---------- -------- -------- --------
LESS DISTRIBUTIONS
Dividends (from net investment income).............. (0.16) (0.35) (0.31) (0.28) (0.36) (0.35)
Distributions (from capital gains).................. - (0.38) (0.13) (0.40) (0.15) (0.21)
---------- -------- ---------- -------- -------- --------
Total Distributions............................... (0.16) (0.73) (0.44) (0.68) (0.51) (0.56)
---------- -------- ---------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD ...................... $22.14 $20.22 $15.70 $15.71 $15.26 $14.28
========== ======== ========== ======== ======== ========
TOTAL RETURN (1) .................................... 10.30% 33.70% 2.72% 7.58% 10.56% 25.91%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period ($1,000's)............... $32,815 $24,448 $14,195 $11,239 $7,455 $4,116
Ratio of Expenses to Average Net Assets (2) ....... 0.65%(4) 0.70% 0.68% 0.76% 0.87% 1.16%
Ratio of Net Income to Average Net Assets.......... 1.56%(4) 2.01% 1.97% 1.96% 2.51% 2.77%
Portfolio Turnover Rate ........................... 33%(4) 36% 25% 38% 13% 23%
Average Commission Paid (3) ....................... $0.0649
(1) Total returns do not reflect sales charge and are not annualized.
(2) Ratio of expenses to average net assets includes expenses paid indirectly
beginning in fiscal 1995.
(3) Average commission paid disclosure is required beginning in fiscal 1996.
(4) Annualized.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SIX MONTHS YEARS ENDED JANUARY 4,
ENDED DECEMBER 31, TO
JUNE 30, 1996 ------------------ DEC. 31,
(UNAUDITED) 1995 1994 1993(3)
------------- ------- -------- ------------
<S> <C> <C> <C> <C>
NORTHWEST PORTFOLIO:
NET ASSET VALUE, BEGINNING OF PERIOD ................... $14.99 $11.97 $12.19 $12.00
------------- ------- -------- ------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income................................ 0.04 0.09 0.08 0.16
Net Gains (Losses) on Securities (both realized and
unrealized) ....................................... 1.44 3.02 (0.21) 0.19
` ------------- ------- -------- ------------
Total From Investment Operations..................... 1.48 3.11 (0.13) 0.35
------------- ------- -------- ------------
LESS DISTRIBUTIONS
Dividends (from net investment income)............... (0.04) (0.09) (0.08) (0.16)
Distributions (from capital gains)................... - - (0.01) -
------------- ------- -------- ------------
Total Distributions................................. (0.04) (0.09) (0.09) (0.16)
------------- ------- -------- ------------
NET ASSET VALUE, END OF PERIOD ........................ $16.43 $14.99 $11.97 $12.19
============= ======= ======== ============
TOTAL RETURN (1) ...................................... 9.85% 26.03% -1.12% 2.95%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period ($1,000's)................. $9,941 $7,495 $4,647 $2,686
Ratio of Expenses to Average Net Assets (2) ......... 0.83%(5) 0.90% 0.87% -%
Ratio of Net Income to Average Net Assets............ 0.49%(5) 0.67% 0.76% 1.61%(5)
Portfolio Turnover Rate ............................. 36%(5) 11% 17% -%
Average Commission Paid (4) ......................... $0.0690
(1) Total returns do not reflect sales charge and are not annualized.
(2) Ratio of expenses to average net assets includes expenses paid indirectly
beginning in fiscal 1995. Management fees were voluntarily waived and all
expenses were absorbed by WM Life Insurance Company, the sole shareholder,
through December 31, 1993. Absent such waiver and expense reimbursement,
the ratio was 1.45%.
(3) From commencement of operations.
(4) Average commission paid disclosure is required beginning in fiscal 1996.
(5) Annualized.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (CONTINUED)
,
SIX MONTHS
ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
1996 ------------------------------------------------
(UNAUDITED) 1995 1994 1993 1992 1991
INCOME PORTFOLIO: ----------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ...... $12.59 $11.22 $12.57 $12.22 $12.27 $11.44
----------- -------- -------- ------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income..................... 0.39 0.79 0.79 0.85 0.86 0.91
Net Gains(Losses) on Securities (both
realized and unrealized) ............... (0.70) 1.37 (1.35) 0.35 (0.05) 0.83
----------- -------- -------- ------- -------- --------
Total From Investment Operations....... (0.31) 2.16 (0.56) 1.20 0.81 1.74
----------- -------- -------- ------- -------- --------
LESS DISTRIBUTIONS
Dividends (from net investment income).... (0.39) (0.79) (0.79) (0.85) (0.86) (0.91)
----------- -------- -------- ------- -------- --------
NET ASSET VALUE, END OF PERIOD ............ $11.89 $12.59 $11.22 $12.57 $12.22 $12.27
=========== ======== ======== ======= ======== ========
TOTAL RETURN (1) ......................... -2.51% 19.86% -4.48% 10.02% 6.91% 15.90%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period ($1,000's).... $16,079 $15,206 $10,842 $9,113 $6,165 $4,407
Ratio of Expenses to Average Net
Assets (2) ........................... 0.71%(3) 0.76% 0.74% 0.86% 0.88% 0.98%
Ratio of Net Income to Average Net
Assets................................ 6.40%(3) 6.62% 6.79% 6.75% 7.12% 7.78%
Portfolio Turnover Rate ................ 12%(3) 14% 15% 29% 37% 66%
(1) Total returns do not reflect sales charge and are not annualized.
(2) Ratio of expenses to average net assets includes expenses paid indirectly
beginning in fiscal 1995.
(3) Annualized.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 (UNAUDITED)
NOTE 1 - ACCOUNTING POLICIES
Composite Deferred Series, Inc. (the "Fund"), is registered under the
Investment Company Act of 1940, as amended, as an open-end management investment
company. The Fund consists of four separate portfolios, Growth & Income,
Northwest, Income, and Money Market portfolios, which are designed to meet a
variety of investment objectives. The Money Market Portfolio is currently not
offered to contract owners.
WM Life Insurance Company ("the Company"), is the sole shareholder of the
Fund. Shares are used only as funding vehicles for the Flexible Premium Deferred
Variable Annuity Contract (the "Contract") issued by the Company. Contract
owners have the right to instruct the Company how to vote Fund shares
attributable to their contracts.
Following is a summary of significant accounting policies, in conformity with
generally accepted accounting principles, which are consistently followed by the
Fund in the preparation of its financial statements.
a. Investment securities are stated on the basis of valuations provided by an
independent pricing service, approved by the Board of Directors, which uses
information with respect to last reported sales price for securities traded
on a national securities exchange (or reported on the National Association of
Securities Dealers Automated Quotation [NASDAQ] National Market System) or
securities traded over-the-counter, or valuations based upon transactions of
a security, quotations from dealers, market transactions in comparable
securities, and various relationships between securities, in determining
value. Investment securities with less than 60 days to maturity when
purchased are valued at amortized cost which approximates market value.
Investment securities not currently quoted as described above will be priced
at fair market value as determined in good faith in a manner prescribed by
the Board of Directors.
b. Interest income is earned from the settlement date on securities purchased
and is recorded on the accrual basis. Dividend income is recorded on the
ex-dividend date.
c. Dividends to the shareholders of the Growth & Income and Northwest portfolios
are calculated and paid quarterly. The Income Portfolio accrues shareholder
dividends daily and pays such dividends monthly. Any capital gains are paid
annually.
d. Security transactions are accounted for on the trade date (execution date of
the order to buy or sell). Realized gain or loss from security transactions
are determined on the basis of identified cost.
e. The Fund complies with requirements of the Internal Revenue Code applicable
to regulated investment companies and distributes taxable income so that no
provision for federal income tax is required. Income dividends and capital
gain distributions are determined with income tax regulations which may
differ from generally accepted accounting principles. These differences are
primarily due to differing treatments for deferral of wash sales.
f. Custodial fees have been increased by $2,218, $1,212, and $339 for the Growth
& Income, Northwest, and Income portfolios, respectively. Such amounts relate
to "expense offset arrangements." The Fund could have otherwise employed the
assets to produce income if it had not entered into such arrangements. In
accordance with the regulations, such amounts are added to custodial fees
actually incurred to arrive at gross custodial fees and then reflected as a
deduction, "fees paid directly," to derive net expenses. There were no
"expense offset arrangements" other than custodial fees.
NOTE 2 - COVERED CALL OPTIONS WRITTEN
The Growth & Income and Northwest portfolios may write listed covered call
options in which premiums received are recorded as a liability which is marked
to market to reflect the current value of options written. A covered call option
gives the holder the right to buy the underlying security which the portfolio
owns at any time during the option period at a predetermined exercise price.
When a portfolio writes a covered call option, it gains income from the premium
received. The risk in writing a covered call option is that the portfolio gives
up the opportunity to participate in any increase in the price of the underlying
security beyond the exercise price. Proceeds from the covered call options
exercised are increased by the amount of premium received. If an option expires
or is canceled in a closing transaction, the portfolio will realize a gain or
loss depending on whether the cost of the closing transaction, if any, is less
than or greater than the premium originally received. As of June 30, 1996,
portfolio securities valued at $138,500 were held in a segregated account by the
custodian in connection with covered call options written by the Growth & Income
Portfolio.
Transactions of covered call options written by the Growth & Income Portfolio
during the six-month period ended June 30, 1996, were as follows:
AMOUNT OF NUMBER OF
PREMIUMS SHARES OPTIONED
----------- ---------------
Options outstanding at
December 31, 1995..... $ - -
Options written....... $4,760 1,500
----------- ---------
Options outstanding at
June 30, 1996 ....... $4,760 1,500
----------- ---------
NOTE 3 - TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
The amounts of fees and expenses described below are shown on the Fund's
statements of operations.
Composite Research & Management Co. ("Adviser"), manages the Fund, and
Murphey Favre, Inc., is the principal underwriter and distributor of the
Contracts. Both are affiliates of Washington Mutual Bank and Washington Mutual
fsb and subsidiaries of Washington Mutual, Inc. WM Life Insurance Company is
also a subsidiary of Washington Mutual, Inc.
Management fees were paid by the Fund to the Adviser. Fees are based upon an
annual rate of 0.50% on average daily net assets as computed daily.
Directors' fees and expenses were paid directly by the Fund to directors
having no affiliation with the Fund other than in their capacity as directors.
Other officers and directors received no compensation from the Fund.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 (UNAUDITED) (CONTINUED)
NOTE 4 - CAPITAL STOCK
At June 30, 1996, there were 10 billion shares of no par value capital stock
authorized. Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
GROWTH & INCOME PORTFOLIO NORTHWEST PORTFOLIO INCOME PORTFOLIO
------------------------- ------------------------ ------------------------
SIX MONTHS SIX MONTHS SIX MONTHS
ENDED YEAR ENDED YEAR ENDED YEAR
JUNE 30, ENDED JUNE 30, ENDED JUNE 30, ENDED
1996 DECEMBER 31, 1996 DECEMBER 31, 1996 DECEMBER 31,
(UNAUDITED) 1995 (UNAUDITED) 1995 (UNAUDITED) 1995
----------- ------------ ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
SHARES
Sold........................ 328,845 400,628 122,596 156,526 207,128 373,491
Issued for reinvestment of
dividends and capital gains 10,399 41,600 1,289 2,896 41,390 71,224
----------- ------------ ----------- ------------ ------------ -----------
339,244 442,228 123,885 159,422 248,518 444,715
Reacquired.................. (66,183) (137,392) (18,768) (47,873) (103,803) (203,756)
----------- ------------ ----------- ------------ ------------ -----------
Net increase................ 273,061 304,836 105,117 111,549 144,715 240,959
=========== ============ =========== ============ ============ ===========
AMOUNT
Sold........................ $6,990,318 $7,442,085 $1,947,058 $2,152,588 $2,519,128 $4,456,949
Issued for reinvestment of
dividends and capital gains 227,336 808,427 20,849 41,043 499,304 856,335
----------- ------------ ----------- ------------ ------------ -----------
7,217,654 8,250,512 1,967,907 2,193,631 3,018,432 5,313,284
Reacquired.................. (1,416,861) (2,406,709) (301,173) (645,839) (1,253,249) (2,430,253)
----------- ------------ ----------- ------------ ------------ -----------
$5,800,793 $5,843,803 $1,666,734 $1,547,792 $1,765,183 $2,883,031
=========== ============ =========== ============ ============ ===========
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
For further information, please contact:
FUND OFFICES
Composite Group of Funds
601 W. Main Avenue, Suite 801
Spokane, WA 99201-0613
Phone: (509) 353-3550
Toll free: (800) 543-8072
- --------------------------------------------------------------------------------
ADVISER
Composite Research & Management Co.
1201 Third Avenue, Suite 1220 Seattle, WA 98101-3015
DISTRIBUTOR
Murphey Favre, Inc.
1201 Third Avenue, Suite 780 Seattle, WA 98101-3015
CUSTODIAN
Investors Fiduciary Trust Company
127 W. 10th Street Kansas City, MO 64105-1716
INDEPENDENT PUBLIC ACCOUNTANTS
LeMaster & Daniels PLLC
601 W. Riverside Avenue, Suite 800 Spokane, WA 99201-0614
COUNSEL
Paine, Hamblen, Coffin, Brooke & Miller LLP
717 W. Sprague Avenue, Suite 1200 Spokane, WA 99204-0464
OFFICERS
PRESIDENT
William G. Papesh
EXECUTIVE VICE PRESIDENT
Kerry K. Killinger
VICE PRESIDENTS
Gene G. Branson
Douglas D. Springer
VICE PRESIDENT & TREASURER
Monte D. Calvin
SECRETARY
John T. West
BOARD OF DIRECTORS
CHAIRMAN
Leland J. Sahlin
MEMBERS
Wayne L. Attwood, M.D.
Kristianne Blake
Anne V. Farrell
Edwin J. McWilliams
Michael K. Murphy
William G. Papesh
Jay Rockey
Richard C. Yancey
This report is submitted for the general information of
shareholders of the Fund. For more detailed information
about the Fund, its officers and directors, fees, expenses
and other pertinent information, please see the prospectus
of the Fund. This report is not authorized for distribution
to prospective investors in the Fund unless preceded or
accompanied by an effective prospectus.
RECYCLE LOGO (8/96)
COMPOSITE DEFERRED SERIES, INC.
SEMIANNUAL
REPORT
JUNE 30,
1996
