INVESTMENT HIGHLIGHTS
PORTFOLIOS
FINANCIAL INFORMATION
INDEPENDENT PUBLIC ACCOUNTANTS' REPORT
FINANCIAL STATEMENTS
FINANCIAL HIGHLIGHTS
NOTES TO FINANCIAL STATEMENTS
MESSAGE TO ANNUITY OWNERS
On the whole, 1995 was a magnificent year for investors. The first half of
the year saw the stock market soar to unprecedented levels, and that prosperity
continued through year-end. Across the board, the bond market improved
dramatically, and a long-term approach to investing coupled with patience, paid
off for Composite Variable Annuity owners.
The Growth portfolio was deliberately overweighted in finance and health
care, and had good exposure to technology throughout the year. It had several
stocks with particularly large gains in 1995 and, as expected, most of the
Portfolio's holdings raised their dividends at rates in excess of inflation in
1995. In the coming year, we plan to sustain a slight overweighting in health
care, finance, and defense-aerospace industries. We believe our investors will
be best served by our long-term philosophy of balancing risk and return to
achieve the Portfolio's primary objective of long-term capital growth.
The Northwest Portfolio also saw a change in 1995. While it rose a
respectable 26.03% for the year, shareholders approved a proposal in December to
change the manner in which the Portfolio intends to meet its investment
objective. Still exclusively dedicated to investing in companies located or
doing business in the Northwest, the Portfolio will no longer be limited only to
those companies comprising the Northwest 50(R) Index. All told, we see a number
of significant positive elements in the Northwest economy, including a
turnaround in the aerospace cycle, a strong base of technology companies, and
our proximity to the growing Pacific Rim economies. The new flexibility will
allow us to capitalize on these circumstances.
Led by the bond market as a whole, the Income Portfolio produced overall
fixed income returns which were the best in almost a decade. The intermediate
maturity profile of the Portfolio was especially beneficial this year, as it
aided in generating both substantially greater returns and an increased net
asset value per share. During the year, the Portfolio upgraded the average
credit-quality of its securities to Aa2/AA as rated by Moody's and Standard &
Poor's, respectively. It is anticipated, however, that the market over the next
year will provide an opportunity to capture potential increases in yields from
bonds with slightly lower credit-quality.
Although the volatility of the market precludes our making any claims about
seeing this kind of performance repeat itself in the coming year, certain
factors give us confidence that the years ahead should be rewarding for
investors. One of them is a trend toward controlled inflation. Another is the
increased awareness among the aging baby boom generation of the need to prepare
for retirement. As the baby boomers commit larger proportions of their resources
to financial markets, not only should they achieve their retirement goals, but
they can be expected, in so doing, to stimulate the markets in general.
The Composite Variable Annuity has many advantages which we believe will
serve you well in the years to come. Should you have any questions, I urge you
to contact your investment representative for helpful information.
We appreciate your business and the confidence you have placed in us.
- --------------------------------------------------------------------------------
FOOTNOTES TO INVESTMENT PERFORMANCE CHARTS ON PAGES 3, 4, AND 5.
INVESTMENT RETURNS AND PRINCIPAL VALUES OF PORTFOLIO SHARES WILL FLUCTUATE
SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN
THEIR ORIGINAL COST.
COMPARISONS TO PORTFOLIO PERFORMANCE ON THE FOLLOWING PAGES INCLUDE THE
CONSUMER PRICE INDEX (CPI) AS A MEASURE OF CHANGE IN CONSUMER PRICES AS
DETERMINED BY THE U.S. BUREAU OF LABOR STATISTICS, THE STANDARD & POOR'S 500
STOCK INDEX (S&P 500), WHICH IS CONSIDERED REPRESENTATIVE OF THE U.S. STOCK
MARKET, AND THE LEHMAN GOVERNMENT/CORPORATE BOND INDEX (LGCB), WHICH IS
CONSIDERED REPRESENTATIVE OF THE U.S. GOVERNMENT AND CORPORATE BOND MARKETS.
THESE INDICES ARE UNMANAGED AND DO NOT REFLECT ACTUAL INVESTMENT-RELATED
EXPENSES INCURRED BY THE PORTFOLIOS WITH WHICH THEY ARE COMPARED. AVERAGE ANNUAL
TOTAL RETURNS AND GRAPH VALUES INCLUDE CHANGES IN SHARE PRICE, AND REINVESTMENT
OF DIVIDENDS AND CAPITAL GAINS.
PERFORMANCE INFORMATION IS PRESENTED SINCE THE COMMENCEMENT OF OPERATIONS
OF EACH PORTFOLIO WHICH IS JUNE 1987 FOR THE INCOME AND GROWTH PORTFOLIOS AND
JANUARY 1993 FOR THE NORTHWEST PORTFOLIO.
<PAGE>
INVESTMENT HIGHLIGHTS
COMPOSITE DEFERRED SERIES GROWTH PORTFOLIO
The equity market, to use the vernacular of the street, was "red hot" this
past year and the Composite Deferred Series Growth Portfolio shared in that
performance. Total return for the year ended December 31, 1995, was 33.70%
before sales charges. The best performing industry sectors were technology,
finance and portions of health care. The Portfolio was purposely overweighted in
finance and health care and had selective exposure to technology throughout the
year.
The Portfolio had several stocks with particularly large gains throughout
the year, including Barra, Merck, Hewlett Packard, Johnson & Johnson, and
Federal Home Loan Mortgage Corporation. The largest position throughout the
year, West One Bancorp, performed particularly well. Its operations proved
irresistible to U.S. Bancorp who acquired it to form a more powerful bank. In
contrast, in the health care industry, for example, a number of the Portfolio's
holdings including FHP, Caremark, and Manor Care underperformed the market, very
likely because of fears of cuts in Medicaid reimbursements to the companies.
Notwithstanding the recent performance of these companies, we believe in the
long-term viability of the sector. As expected, most of the Portfolio's holdings
raised their dividends at rates in excess of inflation in 1995.
Looking ahead, we expect to maintain a slight overweighting in health care,
finance and defense-aerospace industries, and to maintain our underweighting in
the consumer durable sector. Although we continue to anticipate an environment
of slowing corporate earnings, we expect merger and consolidation activity to
remain high as companies continue to structure their businesses to remain
competitive globally. Cyclical stocks may become good buys if the Federal
Reserve lowers interest rates materially in 1996.
We are long-term investors and 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 when they represent good value. Over the
long term, we believe you will be well served by our philosophy of buying good
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 long-term capital growth.
<TABLE>
<CAPTION>
Investment Performance - Growth Portfolio - Periods Ended December 31, 1995
Ending Value of $10,000 invested since inception on 6/30/87
COMPOSITE DEFERRED STANDARD & POOR'S CONSUMER
GROWTH 500 INDEX PRICE INDEX
------------------ ----------------- ------------
<S> <C> <C> <C>
6/30/87 $10,000 $10,000 $10,000
12/31/87 $ 8,951 $ 8,263 $10,167
12/31/88 $10,611 $ 9,631 $10,617
12/31/89 $11,778 $12,675 $11,110
12/31/90 $11,194 $12,288 $11,789
12/31/91 $14,095 $16,032 $12,150
12/31/92 $15,582 $17,253 $12,502
12/31/93 $16,761 $18,992 $12,846
12/31/94 $17,217 $19,243 $13,189
12/31/95 $23,019 $26,474 $13,524
</TABLE>
<TABLE>
<CAPTION>
FUND LIFE
ONE YEAR FIVE YEARS (SINCE 6/87)
------------- ------------- ---------------
<S> <C> <C> <C>
Average Annual Total Returns 33.70% 15.51% 10.23%
Past performance cannot predict future results.
</TABLE>
AN INVESTMENT IN THIS PORTFOLIO THROUGH A COMPOSITE VARIABLE ANNUITY CONTRACT
WOULD HAVE RESULTED IN AVERAGE ANNUAL TOTAL RETURNS OF 23.76%, 13.46% AND 8.85%
OVER ONE YEAR, FIVE YEARS AND SINCE INCEPTION, RESPECTIVELY. THESE RETURNS ARE
AFTER ALL FEES AND CHARGES AND ASSUME PAYMENT OF THE APPLICABLE CONTINGENT
DEFERRED SALES CHARGE WHICH RANGES FROM 7% TO 0%. PLEASE SEE FOOTNOTE ON PAGE 2.
<PAGE>
INVESTMENT HIGHLIGHTS
COMPOSITE DEFERRED SERIES NORTHWEST PORTFOLIO
Composite Deferred Series Northwest Portfolio rose a respectable 26.03%
before sales charges, for the year ended December 31, 1995 - less than the
unmanaged S&P 500 Stock Index which had a return of 37.58% for the year.
The most robust sectors in the Portfolio were technology and finance.
Microsoft, one of the portfolio's largest holdings, was a star performer with a
total return of 43.6% during the year. Other successful technology stocks in our
portfolio include Lattice Semiconductor (up 94.8%) and Tektronix (up 45.3%).
West One Bancorp saw its stock rise 95.6% during the year as it agreed to be
acquired by U.S. Bancorp (another Portfolio holding), which rose 54.3%. Fickle
consumers and excessive expansion of stores caused retailing to be a poor
performing industry. The retail-wholesale sector underperformed the market
averages. Fred Meyer was the Portfolio's lowest performing retailing stock,
sinking 26.8% in 1995.
We see a number of significant positive elements in the Northwest economy,
including a turnaround in the aerospace cycle, a strong base of technology
companies, and our proximity to the growing Pacific Rim economies. We are
somewhat cautious, however, about the stock market given its stellar performance
this past year. While a short-term correction sometime in the next year would
not startle us, we believe the attempts of short-term market timing are
generally fruitless. Rather, despite inevitable market fluctuations, we much
prefer investing for the long term in companies whose growth potential appears
attractive.
On December 15, 1995, annuity owners approved a proposal to change the
manner in which the portfolio intends to meet its investment objective. While we
will continue to invest exclusively in Northwest companies, we will no longer be
limited to those companies comprising the Northwest 50(R) Index. This new
flexibility will enable us to construct a diversified portfolio that can be
fully managed. Consequently, a few changes to the portfolio were made in the
last two weeks of the year, and more can be anticipated in 1996. Among the
immediate changes were the elimination of Univar and Wholesome and Hearty Foods
from the Portfolio. Modest positions were taken in several technology companies,
including Merix, a manufacturer of complex circuit boards based in Forest Grove,
Oregon, and Adaptive Solutions, a Beaverton, Oregon company with exciting
technology in super-fast computer co-processors. We continue to believe that the
Northwest offers excellent investment opportunities, and we will be working hard
to participate in many of them.
<TABLE>
<CAPTION>
Performance Information - Northwest Portfolio - Periods Ended December 31, 1995
Ending Value of $10,000 invested since inception on 1/4/93
COMPOSITE DEFERRED NORTHWEST S&P 500 CPI
---------------------------- ------------ ------------
<S> <C> <C> <C>
12/31/92 $10,000 $10,000 $10,000
12/31/93 $10,293 $11,008 $10,275
12/31/94 $10,178 $11,153 $10,550
12/31/95 $12,827 $15,344 $10,817
</TABLE>
<TABLE>
<CAPTION>
FUND LIFE
ONE YEAR (THREE YEARS)
------------- -------------
<S> <C> <C>
Average Annual Total Return 26.03% 8.69%
Past performance cannot predict future results.
</TABLE>
AN INVESTMENT IN THIS PORTFOLIO THROUGH A COMPOSITE VARIABLE ANNUITY CONTRACT
WOULD HAVE RESULTED IN AN AVERAGE ANNUAL TOTAL RETURN OF 16.70% AND 5.76% OVER
ONE YEAR AND SINCE INCEPTION, RESPECTIVELY. THESE RETURNS ARE AFTER ALL FEES AND
CHARGES AND ASSUME PAYMENT OF THE APPLICABLE CONTINGENT DEFERRED SALES CHARGE
WHICH RANGES FROM 7% TO 0%. PLEASE SEE FOOTNOTE ON PAGE 2.
<PAGE>
INVESTMENT HIGHLIGHTS
COMPOSITE DEFERRED SERIES INCOME PORTFOLIO
Led by the bond market as a whole, Composite Deferred Series Income
Portfolio produced significant returns in 1995. A host of factors, including
reduced government spending, large domestic productivity gains, and slower
worldwide economic growth, were largely responsible for low inflation, falling
interest rates and stable to improving corporate credit-quality. This, in turn,
produced overall fixed income returns that were the best in almost a decade.
By combining an asset mix of principally corporate bonds, mortgage-backed
securities, and Treasury notes with an intermediate-maturity profile (currently
10 years), the Portfolio seeks to accomplish its objectives of providing a high
level of current income consistent with protection of shareholders' capital.
The intermediate-maturity profile of the Portfolio was especially
beneficial this year as it aided us in generating both substantially greater
returns and an increased net asset value per share. The higher income-producing
positions in the Portfolio (corporate bonds and mortgage-backed securities, for
example) provided extra yield while the diversification within those sectors
proved positive as the number of improving situations offset the laggards.
During the year the Portfolio upgraded credit-quality to Aa2/AA as rated by
Moody's and Standard & Poor's, respectively. This is at the upper end of the
Portfolio's spectrum. It is anticipated, however, that the market over the next
year will provide us an opportunity to capture potential increases in yields
from boonds with slightly lower credit-quality. In taking any such action, we
will continue to carefully evaluate risk/reward characteristics of securities in
our search for the best relative value.
Especially in times like this, we believe our Income Portfolio offers an
important advantage over callable bonds. Should the issuer elect to redeem its
bonds before maturity, investors find it difficult - if not impossible - to
reinvest for similar returns. With approximately 85% of the Portfolio currently
invested in non-callable bonds, it remains well structured to avoid the
substantial risk of bonds being called or refinanced in the lower rate
environment we see ahead.
The Portfolio's adherence to its investment practices allows those with
longer-term time horizons to survive the inevitable market corrections such as
experienced in 1994 and to participate in gains such as those provided this past
year. This, we submit, is the very essence of mutual fund investing. And it is
why Composite Deferred Series Income Portfolio continues to pursue a course
designed to provide long-term value.
<TABLE>
<CAPTION>
Performance Information - Income Portfolio - Periods Ended December 31, 1995
Ending Value of $10,000 invested since inception on 6/30/87
COMPOSITE DEFERRED LEHMAN GOVERNMENT/ CONSUMER
INCOME CORPORATE BOND INDEX PRICE INDEX
------------------ -------------------- -----------
<S> <C> <C> <C>
6/30/87 $10,000 $10,000 $10,000
12/31/87 $10,214 $10,274 $10,167
12/31/88 $11,203 $11,053 $10,617
12/31/89 $12,315 $12,627 $11,110
12/31/90 $13,373 $13,673 $11,789
12/31/91 $15,498 $15,877 $12,150
12/31/92 $16,570 $17,081 $12,502
12/31/93 $18,230 $18,966 $12,846
12/31/94 $17,414 $18,300 $13,189
12/31/95 $20,872 $21,821 $13,524
</TABLE>
<TABLE>
<CAPTION>
FUND LIFE
ONE YEAR FIVE YEARS (SINCE 6/87)
------------- --------------- -------------
<S> <C> <C> <C>
Average Annual Total Return 19.86% 9.31% 9.15%
Past performance cannot predict future results.
</TABLE>
AN INVESTMENT IN THIS PORTFOLIO THROUGH A COMPOSITE VARIABLE ANNUITY CONTRACT
HAVE RESULTED IN AVERAGE ANNUAL TOTAL RETURNS OF 10.95%, 7.37% AND 7.83% OVER
ONE YEAR, FIVE YEARS, AND SINCE INCEPTION, RESPECTIVELY. THESE RETURNS ARE AFTER
ALL FEES AND CHARGES AND ASSUME PAYMENT OF THE APPLICABLE CONTINGENT DEFERRED
SALES CHARGE WHICH RANGES FROM 7% TO 0%. PLEASE SEE FOOTNOTE ON PAGE 2.
<PAGE>
<TABLE>
<CAPTION>
COMPOSITE DEFERRED SERIES PORTFOLIOS
COMPOSITE
DEFERRED
SERIES, INC.
PORTFOLIOS OF
INVESTMENTS
IN SECURITIES
DECEMBER 31,
1995
GROWTH PORTFOLIO
PRINCIPAL MARKET
AMOUNT VALUE
---------------- -----------------
<C> <C> <C>
CONVERTIBLE CORPORATE BONDS - 2.95%
COMMUNICATIONS - 0.69%
$ 160,000 LDDS Communications, 5.00%, due 08/15/2003 ............. $ 168,800
-----------------
MEDIA - 0.63%
450,000 Time Warner, Inc., Zero coupon, due 12/17/2012 ......... 155,250
-----------------
RETAIL - 0.80%
245,000 Michael Stores, 4.75%, due 01/15/2003 .................. 196,000
-----------------
TRANSPORTATION & EQUIPMENT 0.83%
200,000 Airborne Freight, 6.75%, due 08/15/2001 ................ 201,750
-----------------
TOTAL CONVERTIBLE CORPORATE BONDS (cost $692,101) ...... 721,800
-----------------
SHARES
------------
COMMON STOCKS - 93.59%
AEROSPACE/DEFENSE - 7.98%
6,700 Boeing Company ......................................... 525,113
8,450 Lockheed Martin Corporation ............................ 667,550
11,900 Loral Corporation ...................................... 420,962
7,140 Raytheon Company ...................................... 337,365
-----------------
1,950,990
-----------------
BANK/FINANCE - 13.45%
6,620 Federal Home Loan Mortgage Corporation ................. 552,770
6,400 First Security Corporation ............................. 246,400
5,000 Franklin Resources, Inc. ............................... 251,875
5,900 J.P. Morgan & Company, Inc. ............................ 473,475
8,314 Legg Mason, Inc. ....................................... 228,635
7,907 Mellon Bank Corporation ................................ 425,001
13,180 Norwest Corporation .................................... 434,940
5,500 State Street Boston Corporation ........................ 247,500
12,789 U.S. Bancorp Oregon .................................... 430,030
-----------------
3,290,626
-----------------
BEVERAGES - 3.10%
8,200 Coca Cola Femsa, S.A., American Depository Receipt ..... 151,700
5,200 PepsiCo, Inc. .......................................... 290,550
9,100 Seagram Company, Ltd. .................................. 315,087
-----------------
757,337
-----------------
BUILDING & FOREST PRODUCTS - 2.32%
7,000 Rayonier, Inc. ......................................... 233,625
7,700 Weyerhaeuser Company ................................... 333,025
-----------------
566,650
-----------------
CAPITAL GOODS - 2.47%
2,900 Emerson Electric Company ............................... 237,075
5,100 General Electric Company ............................... 367,200
-----------------
604,275
-----------------
CHEMICALS - 1.32%
10,700 Nalco Chemical Company ................................. 322,337
-----------------
COMPUTER SYSTEMS & SOFTWARE - 4.03%
19,400 Barra, Inc.* ........................................... 329,800
5,050 Microsoft Corporation* ................................. 443,138
14,600 Sequent Computer Systems, Inc.* ........................ 211,700
-----------------
984,638
-----------------
CONSUMER DURABLES - 1.37%
10,000 Fleetwood Enterprises .................................. 257,500
4,600 Castle & Cooke, Inc. ................................... 77,050
-----------------
334,550
-----------------
CONSUMER NON-DURABLES/SERVICES - 4.70%
10,200 Alberto Culver Company, Class A ........................ 311,100
4,800 Colgate Palmolive Company .............................. 337,200
3,600 Nike, Inc. ............................................. 250,650
3,000 Proctor and Gamble Company ............................. 249,000
-----------------
1,147,950
-----------------
ELECTRONICS/GENERAL - 2.90%
5,500 Arrow Electronics, Inc.* ............................... 237,188
6,800 DSC Communications Corporation* ........................ 250,750
2,640 Hewlett-Packard Company ................................ 221,100
-----------------
709,038
-----------------
ELECTRONICS/SEMI-CONDUCTORS - 1.73%
7,400 Motorola, Inc. ......................................... 421,800
-----------------
FOODS - 3.26%
5,250 Campbell Soup Company .................................. 315,000
13,800 Dole Food Company ...................................... 483,000
-----------------
798,000
-----------------
HEALTH & MEDICAL - 11.60%
7,700 Abbott Laboratories .................................... 321,475
6,300 Bausch & Lomb, Inc. .................................... 249,638
19,737 Caremark International, Inc. ........................... 357,733
12,100 FHP International Corporation* ......................... 344,850
5,600 Forest Laboratories, Inc*. ............................. 253,400
3,950 Johnson & Johnson ...................................... 338,219
14,600 Manor Care, Inc. ....................................... 511,000
7,000 Merck & Company, Inc. .................................. 460,250
-----------------
2,836,565
-----------------
INDUSTRIAL PRODUCTS/SERVICES - 1.45%
9,600 Crane Company .......................................... 354,000
-----------------
INSURANCE - 3.56%
3,600 American International Group, Inc. ..................... 333,000
12,250 Integon Corporation .................................... 252,656
9,700 Penncorp Financial Group, Inc. ......................... 284,938
-----------------
870,594
-----------------
MACHINERY - 0.16%
1,000 Applied Materials, Inc. ................................ 39,375
-----------------
NATURAL GAS/OILS - 7.80%
9,000 Burlington Resources, Inc. ............................. 353,250
3,000 Exxon Corporation ...................................... 240,375
3,175 Mobil Corporation ...................................... 355,600
11,600 Occidental Petroleum Corporation ....................... 247,950
7,000 Phillips Petroleum Company ............................. 238,875
5,800 Shell Transport & Trading Company, American
Depository Receipt ..................................... 471,975
-----------------
1,908,025
-----------------
POLLUTION CONTROL - 1.38%
13,400 Donaldson Company, Inc. ................................ 336,675
-----------------
REAL ESTATE INVESTMENT TRUSTS - 4.02%
7,100 Health Care Property Investors, Inc. ................... 249,387
4,500 Nationwide Health Properties, Inc. ..................... 189,000
1,900 Real Estate Investment Trust of California ............. 37,763
18,800 Shurgard Storage Centers, Inc. ......................... 507,600
-----------------
983,750
-----------------
RETAIL SALES - 1.51%
7,300 Lowe's Companies ....................................... 244,550
5,500 Fred Meyer, Inc. ....................................... 123,750
-----------------
368,300
-----------------
RAILROADS - 2.51%
9,300 Union Pacific Corporation .............................. 613,800
-----------------
STEEL & IRON - 1.03%
12,100 Worthington Industries ................................. 251,831
-----------------
TOBACCO - 2.21%
4,000 Phillip Morris Companies, Inc. ......................... 362,000
5,750 RJR Nabisco Holdings Corporation ....................... 177,531
-----------------
539,531
-----------------
TRANSPORTATION & EQUIPMENT - 1.26%
11,750 Expeditors International of Washington, Inc. .......... 306,969
-----------------
UTILITIES-GAS AND ELECTRIC - 0.68%
7,200 MCN Corporation ........................................ 167,400
-----------------
UTILITIES-TELECOMMUNICATIONS - 5.79%
9,250 A T & T Corporation .................................... 598,938
6,800 GTE Corporation ........................................ 299,200
13,600 Lincoln Telecommunications Company ..................... 287,300
4,000 SBC Communications, Inc. ............................... 230,000
-----------------
1,415,438
-----------------
TOTAL COMMON STOCKS (cost $17,616,492) ................. 22,880,444
-----------------
CONVERTIBLE PREFERRED STOCKS - 2.35%
COMPUTER SYSTEMS & SOFTWARE - 1.33%
4,450 General Motors, Class E-Series C ....................... 325,962
-----------------
INSURANCE - 1.02%
4,150 Integon Corporation .................................... 249,000
-----------------
TOTAL CONVERTIBLE PREFERRED STOCKS (cost $495,737) ..... 574,962
-----------------
PRINCIPAL
AMOUNT
-------------
REPURCHASE AGREEMENT - 1.08%
263,000 Repurchase agreement with Goldman Sachs, collateralized
by a U.S. Treasury Note, in a joint trading account at
5.70%, dated 12/29/1995, due 01/02/1996 with a maturity
value of $263,167 (cost $263,000) ...................... 263,000
-----------------
TOTAL INVESTMENTS (cost $19,067,330) 24,440,206
Other assets ($88,565) less liabilities ($80,611) ...... 7,954
-----------------
NET ASSETS ............................................ $24,448,160
=================
<FN>
* Non-income producing security.
FEDERAL INCOME TAX INFORMATION:
Net unrealized appreciation of investments at December 31, 1995, of $5,372,876, based on aggregate cost of $19,067,330, was
composed of gross appreciation of $5,526,287 for investments having an excess of value over cost and gross depreciation of $153,411
for investments having an excess of cost over value.
OTHER INFORMATION:
Purchases and sales of investment securities, other than short-term investments, aggregated $12,004,179 and $6,323,746,
respectively, during the year ended December 31, 1995, including purchases and sales of U.S. government securities of $355,507 and
$251,920.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NORTHWEST PORTFOLIO
MARKET
SHARES VALUE
------------- --------------
<C> <C> <C>
COMMON STOCKS - 93.46%
AEROSPACE/DEFENSE - 8.04%
5,950 Boeing Company ............................ $466,331
3,425 Precision Castparts Corporation ........... 136,144
--------------
602,475
--------------
BANK/FINANCE - 12.05%
126 Horizon Financial Corporation ............. 1,638
1,100 Interwest Bancorp, Inc. ................... 22,412
6,200 Safeco Corporation ........................ 213,900
16,618 US Bancorp ................................ 558,780
4,163 Washington Federal, Inc. .................. 106,677
--------------
903,407
--------------
BEVERAGES - .83%
2,400 Redhook Ale Brewery* ...................... 62,400
--------------
BUILDING AND FOREST PRODUCTS - 8.17%
700 Boise Cascade Corporation ................. 24,237
500 Georgia- Pacific Corporation .............. 34,312
1,900 Longview Fibre Company .................... 30,875
4,900 Louisiana Pacific Corporation ............. 118,825
250 Pope and Talbot, Inc. ..................... 3,312
5,100 T.J. International, Inc. .................. 94,350
3,700 Weyerhaeuser Company ...................... 160,025
2,600 Willamette Industries, Inc. ............... 146,250
---------------
612,186
---------------
CHEMICALS - .20%
600 Penwest Ltd. .............................. 14,850
---------------
COMPUTER SYSTEMS AND SOFTWARE - 11.43%
12,200 Mentor Graphics Corporation* .............. 222,650
5,750 Microsoft Corporation* .................... 504,563
8,950 Sequent Computer Systems, Inc.* ........... 129,775
---------------
856,988
---------------
CONSUMER NON-DURABLES - 5.67%
6,100 Nike, Inc., Class B ....................... 424,712
---------------
ELECTRONICS/GENERAL - 7.68%
2,400 Fluke Corporation ......................... 90,600
3,600 Itron, Inc.* .............................. 121,500
2,300 Merix Corporation* ........................ 69,000
6,000 Textronix, Inc. ........................... 294,750
---------------
575,850
---------------
ELECTRONICS/SEMICONDUCTORS - 5.32%
11,000 Adaptive Solutions, Inc.* ................. 59,125
3,400 Electro Scientific Industries* ............ 99,450
4,800 Lattice Semiconductor Corporation* ........ 156,600
2,100 Micron Technology, Inc. ................... 83,212
---------------
398,387
---------------
HEALTH & MEDICAL - 4.30%
4,100 Advanced Technology Laboratories, Inc.* ... 100,450
3,700 ICOS Corporation* ......................... 27,288
5,700 Immunex Corporation* ...................... 94,050
3,500 Spacelabs Medical, Inc.* .................. 100,625
---------------
322,413
---------------
INDUSTRIAL PRODUCTS/SERVICES - 1.16%
5,700 Flow International Corporation* ........... 53,438
2,400 Oregon Steel Mills, Inc. .................. 33,600
---------------
87,038
---------------
MINING - .97%
2,700 Coeur D'Alene Mines Corporation ........... 46,238
3,800 Hecla Mining Company* ..................... 26,125
---------------
72,363
---------------
RETAIL SALES - 17.12%
14,600 Albertson's, Inc. ......................... 479,975
8,100 Fred Meyer, Inc.* ......................... 182,250
5,400 Nordstrom, Inc. ........................... 218,700
12,400 Price/Costco, Inc.* ....................... 189,100
3,765 Quality Food Centers, Inc. ................ 82,830
6,200 Starbucks Corporation* .................... 130,200
---------------
1,283,055
---------------
TRANSPORTATION & EQUIPMENT - 7.90%
8,050 Airborne Freight Corporation .............. 214,331
7,000 Alaska Air Group, Inc.* ................... 113,750
8,200 Expeditors International of Washington, Inc. 214,225
1,190 PACCAR, Inc. .............................. 50,129
---------------
592,435
---------------
UTILITIES - GAS & ELECTRIC - 1.24%
750 Montana Power Company ..................... 16,969
1,000 Portland General Corporation .............. 29,125
1,350 Puget Sound Power & Light Company ......... 31,388
900 Washington Water Power Company ............ 15,750
---------------
93,232
---------------
UTILITIES - TELECOMMUNICATIONS - 1.38%
2,900 US West Communications Group .............. 103,675
---------------
TOTAL COMMON STOCKS (cost $5,612,009) ..... 7,005,466
---------------
PRINCIPAL MARKET
AMOUNT VALUE
------------- ---------------
REPURCHASE AGREEMENT - 7.06%
529,000 Repurchase agreement with Goldman Sachs,
collateralized by a U.S. Treasury Note, in a joint
trading account at 5.70%, dated 12/29/1995, due
01/02/1996 with a maturity value of $529,335
(cost $529,000) ...................................... 529,000
---------------
TOTAL INVESTMENTS (cost $6,141,009) 7,534,466
Other Assets ($22,364) less liabilities ($61,517) .. (39,153)
---------------
NET ASSETS ......................................... $7,495,313
===============
<FN>
*Non-income producing security.
FEDERAL INCOME TAX INFORMATION:
Net unrealized appreciation of investments at December 31, 1995 of $1,393,457 based on aggregate cost of $6,141,009 was composed of
gross appreciation of $1,669,782 for investments having an excess of value over cost and gross depreciation of $276,325 for
investments having an excess of cost over value. As of December 31, 1995, the Fund had unused capital loss carryovers of $136,750
for federal tax purposes which may be applied against gains realized in future years. If not applied, the carryovers will expire
by 2003.
OTHER INFORMATION:
Purchases and sales of investment securities, other than short-term investments, aggregated $1,881,354 and $624,335
respectively, during the year ended December 31, 1995.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INCOME PORTFOLIO
PRINCIPAL MARKET
AMOUNT VALUE
------------- ----------------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS - 42.56%
$ 200,000 U.S. Treasury Note, 7.875%, due 08/15/2001 .......... $ 223,688
500,000 U.S. Treasury Note, 7.25%, due 11/30/1996 ........... 508,907
100,000 U.S. Treasury Note, 7.125%, due 02/29/2000 .......... 106,531
250,000 U.S. Treasury Note, 6.375%, due 08/15/2002 .......... 262,734
1,250,000 U.S. Treasury Note, 5.875%, due 02/15/2004 .......... 1,275,781
1,000,000 U.S. Treasury Note, 5.75%, due 08/15/2003 ........... 1,012,500
150,000 U.S. Treasury Note, 4.00%, due 01/31/1996 ........... 149,953
200,000 U.S. Treasury Bond, 7.50%, due 11/15/2024 ........... 240,313
1,000,000 U.S. Treasury Bond, 7.25%, due 05/15/2016 ........... 1,142,187
450,000 U.S. Treasury Bond, 7.25%, due 08/15/2022 ........... 521,156
1,000,000 U.S. Treasury Bond, 6.25%, due 08/15/2023 ........... 1,028,125
---------------
TOTAL U.S. TREASURY OBLIGATIONS( cost $6,064,410) ... 6,471,875
---------------
MORTGAGE - BACKED SECURITIES - 12.10%
FEDERAL NATIONAL MORTGAGE ASSOCIATION - .09%
13,601 9.00%, due 10/01/2004 ............................... 14,324
---------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 10.23%
409,309 9.00%, due 05/15/2009 ............................... 433,996
32,174 8.50%, due 03/15/2022 ............................... 33,803
168,378 8.00%, due 06/15/2022 ............................... 175,535
476,697 7.50%, due 06/01/2024 ............................... 490,701
416,705 7.00%, due 07/15/2023 ............................... 422,045
---------------
1,556,080
---------------
COLLATERALIZED MORTGAGE OBLIGATIONS - 1.78%
255,000 Federal Home Loan Mortgage Corporation, 7.50%, due
07/15/2020 .......................................... 261,704
4,370 MDC Funding, 8.20%, due 11/20/2017 .................. 4,402
3,980 Shearson Lehman, 8.75%, due 08/27/2017 .............. 4,014
---------------
270,120
---------------
TOTAL MORTGAGE-BACKED SECURITIES (cost $1,801,803) .. 1,840,524
---------------
CORPORATE BONDS - 34.16%
NON-CONVERTIBLE CORPORATE BONDS - 33.22%
AEROSPACE/DEFENSE - 1.67%
200,000 Boeing Company, 8.75%, due 08/15/2021 ............... $ 253,874
---------------
BANKING - 2.81%
195,000 Bank of New York, 7.875%, due 11/15/2002 ............ 214,378
200,000 Mercantile Bank, 7.625%, due 10/15/2002 ............. 212,876
---------------
427,254
---------------
BROADCAST/MEDIA - 2.70%
200,000 Time Warner, Inc., 9.15%, due 02/01/2023 ............ 228,062
200,000 Westinghouse Corporation, 7.875%, due 09/01/2023 .... 182,416
---------------
410,478
---------------
FINANCE - 7.39%
200,000 Associates Corporation Senior Notes, 8.80%,
due 08/01/1998 ...................................... 215,315
150,000 Avco Financial Services, 8.85%, due 02/01/1996 ...... 150,373
175,000 Beneficial Corporation, 9.125%, due 02/15/1998 ...... 187,220
100,000 General Motors Acceptance Corporation, 7.75%,
due 01/15/1999 ...................................... 105,618
200,000 Kemper Corp., 6.875%, due, 09/15/2003 ............... 206,045
250,000 Morgan Stanley, 6.75, due, 03/04/2003 ............... 258,396
---------------
1,122,967
---------------
HEALTH & MEDICAL - 2.53%
150,000 American Home Products, 7.25%, due 03/01/2023 ....... 161,528
250,000 American Medical International, 0%, due 08/12/1997 .. 223,237
384,765
---------------
INSURANCE - 1.36%
200,000 Integon Corporation, 8.00%, due 08/15/1999 .......... 206,637
---------------
MACHINERY -1.53%
200,000 Caterpillar Corporation, 9.375%, due 07/15/2001 ..... 233,110
---------------
OIL & GAS - 4.52%
165,000 British Petroleum, 9.875%, due 03/15/2004 ........... 206,646
200,000 Burlington Resources, 7.15%, due 05/01/1999 ......... 208,555
200,000 Coastal Corporation, 10.75%, due 10/01/2010 ......... 272,547
---------------
687,748
---------------
TRANSPORTATION - 1.20%
150,000 Burlington Northern, 8.75%, due 02/25/2022 .......... 181,916
---------------
UTILITIES - GAS & ELECTRIC - 7.51%
150,000 Commonwealth Edison, 9.375%, due 02/15/2000 ......... $ 167,251
150,000 Consumers Power, 8.75%, due 02/15/1998 ............. 157,544
150,000 Niagara Mohawk Power, 9.50%, due 06/01/2000 ......... 154,111
150,000 Portland General Electric, 8.88%, due 08/12/1999 .... 164,885
150,000 Public Service Electric & Gas 8.875%, due 06/01/2003. 172,764
150,000 Public Service Company of New Hampshire, 9.17%,
due 05/15/1998 ................................... .. 159,366
150,000 Texas Utilities Electric, 9.50%, due 08/01/1999 ..... 166,602
---------------
1,142,523
---------------
TOTAL NON-CONVERTIBLE CORPORATE BONDS
(cost $4,780,353) ................................... 5,051,272
PRINCIPAL MARKET
AMOUNT VALUE
--------------- ---------------
CONVERTIBLE CORPORATE BOND - 0.94%
RETAIL SALES - 0.94%
150,000 Costco Wholesale Corporation, 5.75%, due 05/15/2002
(cost $140,948) ...................................... 143,437
---------------
TOTAL CORPORATE BONDS (cost $4,921,302) .............. 5,194,709
---------------
U.S. DOLLAR FOREIGN OBLIGATIONS - 1.86%
$ 150,000 Province of Alberta, 9.25%, due 04/01/2000 .......... 170,482
100,000 Province of Manitoba, 9.625%, due 03/15/1999 ........ 111,902
---------------
TOTAL U.S. DOLLAR FOREIGN OBLIGATIONS (cost $256,845) 282,384
---------------
SHARES
---------------
PREFERRED STOCK - 0.39%
1,000 Integon Corp (cost $59,320).......................... 60,000
---------------
PRINCIPAL
AMOUNT
---------------
REPURCHASE AGREEMENT - 7.27%
$1,105,000 Repurchase agreement with Goldman Sachs,collateralized
by a U.S. Treasury Note in a joint trading account at
5.70%, dated 12/29/1995, due 01/02/1996 with a maturity
value of $1,105,700 (cost $1,105,000)................ 1,105,000
---------------
TOTAL INVESTMENTS (cost $14,208,679) ................ 14,954,492
Other assets ($322,808) less liabilities ($71,702) .. 251,106
---------------
NET ASSETS .......................................... $15,205,598
---------------
<FN>
FEDERAL INCOME TAX INFORMATION:
Net unrealized appreciation of investments at December 31, 1995 of $745,813 based on aggregate cost of $14,208,679, was composed
of gross appreciation of $785,331 for investments having an excess of value over cost and gross depreciation of $39,518 for
investments having an excess of cost over value. As of December 31, 1995, the Fund had unused capital loss carryovers of $133,428
for federal tax purposes which may be applied against gains realized in future years. If not applied, the carryovers will expire
by 2003.
OTHER INFORMATION:
Purchases and sales of investment securities, other than short-term investments, aggregated $3,799,881 and $1,568,597, respectively,
during the year ended December 31, 1995, including purchases and sales of U.S. government securities of $3,226,883 and $206,624,
respectively. Principal repayments of mortgage-backed securities aggregated $121,955.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MONEY MARKET
PORTFOLIO
PRINCIPAL MARKET
AMOUNT VALUE
------------ --------------
<C> <C> <C>
U.S. TREASURY BILL - 8.89%
$ 20,000 U.S. Treasury Bill, 4.96%, due 05/02/1996 (cost $19,664) ........ 19,664
--------------
GOVERNMENTAL AGENCY OBLIGATIONS - 87.76%
25,000 Federal Agricultural Mortgage Assoc. Discount Note, 5.60%,
due 01/02/1996 .................................................. 24,996
120,000 Federal Farm Credit Bank Discount Note, 5.55%, due 02/02/1996 ... 119,408
30,000 Federal Home Loan Mortgage Corp. Discount Note, 5.50%,
due 02/26/1996 .................................................. 29,743
20,000 Federal National Mortgage Assoc. Discount Note, 5.55%,
due 01/05/1996 .................................................. 19,988
--------------
TOTAL GOVERNMENTAL AGENCY OBLIGATIONS (cost $194,135) ........... 194,135
--------------
TOTAL INVESTMENTS (cost $213,799) ............................... 213,799
Other assets ($10,292) less liabilities ($2,874) ................ 7,418
--------------
NET ASSETS ...................................................... $ 221,217
==============
<FN>
OTHER INFORMATION:
Purchases and maturities of investment securities, all of which were U.S. government securities, aggregated $1,826,089 and
$1,837,464, respectively, during the year ending December 31, 1995.
</FN>
</TABLE>
<PAGE>
INDEPENDENT PUBLIC ACCOUNTANTS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDER OF
COMPOSITE DEFERRED SERIES, INC.
We have audited the accompanying statements of assets and liabilities,
including the investment portfolios, of Composite Deferred Series (comprising,
respectively, the Growth, Northwest, Income, and Money Market Portfolios) as of
December 31, 1995, and the related statements of operations for the year then
ended and the statements of changes in net assets for the years ended December
31, 1995 and 1994. For the Growth , Income, and Money Market Portfolios we have
audited the financial highlights for each of the five years in the period ended
December 31, 1995. For the Northwest Portfolio, we have audited the financial
highlights for the years ended December 31, 1995 , 1994 and 1993. These
financial statements and financial highlights are the responsibility of the
Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights 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 confirming securities owned as of December
31, 1995, by correspondence with the custodian. 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 our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and the financial highlights
referred to above present fairly, in all material respects, the financial
position of each of the respective portfolios constituting the Composite
Deferred Series, Inc. as of December 31, 1995, and the results of their
operations, the changes in their net assets, and their financial highlights for
the above stated periods in conformity with generally accepted accounting
principles.
LEMASTER & DANIELS, PLLC
CERTIFIED PUBLIC ACCOUNTANTS
SPOKANE, WASHINGTON
JANUARY 19, 1996
<PAGE>
<TABLE>
<CAPTION>
COMPOSITE DEFERRED SERIES, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
MONEY
GROWTH NORTHWEST INCOME MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------------ ------------------ ------------------ -----------
<S> <C> <C> <C> <C>
ASSETS
Investments at market (identified cost $19,067,330,
$6,141,009, $14,208,679 and $213,799, respectively) .......... $24,440,206 $7,534,466 $14,954,492 $213,799
Cash ........................................................... 19,600 10,231 69,776 10,278
Prepaid Expenses................................................ 1,009 333 773 14
Receivable for:
Interest ..................................................... 13,621 251 252,009 -
Dividends .................................................... 54,085 9,594 - -
Sale of Fund's shares ........................................ 250 1,955 250 -
------------------ ------------------ ------------------ -----------
Total assets ................................................... 24,528,771 7,556,830 15,277,300 224,091
================== ================== ================== ===========
LIABILITIES
Payable for:
Investment securities purchased .............................. 67,772 54,661 59,320 -
Accrued expenses and other payables .......................... 10,482 6,169 10,893 2,874
Repurchase of Fund's shares .................................. 2,357 687 1,489 -
------------------ ------------------ ------------------ -----------
Total liabilities .............................................. 80,611 61,517 71,702 2,874
------------------ ------------------ ------------------ -----------
NET ASSETS ..................................................... $24,448,160 $7,495,313 $15,205,598 $221,217
================== ================== ================== ===========
COMPOSITION OF NET ASSETS
Additional paid-in capital ..................................... $19,079,550 $6,238,606 $14,593,213 $221,217
Undistributed net investment income ............................ 2,577 - - -
Accumulated net realized loss .................................. (6,843) (136,750) (133,428) -
Net unrealized appreciation of investments ..................... 5,372,876 1,393,457 745,813 -
------------------ ------------------ ------------------ -----------
$24,448,160 $7,495,313 $15,205,598 $221,217
================== ================== ================== ===========
NET ASSET VALUE
Net asset value per share for 1,208,890, 499,904,
1,207,536, and 221,217 shares outstanding,
respectively ................................................. $20.22 $14.99 $12.59 $1.00
================== ================== ================== ===========
<FN>
See accompanying notes to the financial statements.
</FN>
</TABLE>
<TABLE>
<CAPTION>
COMPOSITE DEFERRED SERIES, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
GROWTH NORTHWEST INCOME MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------------ ----------------- ----------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Income:
Interest ....................................................... $63,786 $9,810 $953,376 $12,061
Dividends .................................................... 423,199 81,827 - -
------------------ ----------------- ----------------- -------------
Total income ................................................... 486,985 91,637 953,376 12,061
------------------ ----------------- ----------------- -------------
Expenses:
Management fees ............................................. 90,132 29,906 64,637 1,097
Directors' fees ............................................. 8,486 8,486 8,386 8,386
Postage, printing and office expense ........................ 9,725 8,325 12,693 1,724
Custodial fees .............................................. 9,171 4,295 5,418 802
Auditing and legal fees ..................................... 6,932 1,984 5,058 1,258
Registration and filing fees ................................ 2,121 769 1,192 92
Insurance ................................................... 331 97 262 6
Expense reimbursement ....................................... - - - (3,394)
------------------ ----------------- ----------------- -------------
Total expenses ................................................. 126,898 53,862 97,646 9,971
Fees paid indirectly ........................................... (2,649) (2,477) (605) (454)
------------------ ----------------- ----------------- -------------
Net expenses ................................................... 124,249 51,385 97,041 9,517
------------------ ----------------- ----------------- -------------
Net investment income .......................................... 362,736 40,252 856,335 2,544
------------------ ----------------- ----------------- -------------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS
Realized gain (loss) from investment transactions ............. 441,257 (8,707) (49,342) 12
Unrealized appreciation of investments during the year ......... 4,414,288 1,309,785 1,529,737 -
------------------ ----------------- ----------------- -------------
Net realized and unrealized gain on investments ................ 4,855,545 1,301,078 1,480,395 12
------------------ ----------------- ----------------- -------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ........... $5,218,281 $1,341,330 $2,336,730 $2,556
================== ================= ================= =============
<FN>
See accompanying notes to the financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COMPOSITE DEFERRED SERIES, INC.
STATEMENT OF CHANGES IN NET ASSETS
GROWTH PORTFOLIO NORTHWEST PORTFOLIO
------------------------------------- ------------------------------------
Years ended December 31, Years ended December 31,
------------------------------------- ------------------------------------
1995 1994 1995 1994
------------------ ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
OPERATIONS
Net investment income ....................... $362,736 $264,291 $40,252 $28,558
Realized gain (loss) from investment
transactions ................................ 441,257 113,710 (8,707) (128,043)
Unrealized appreciation (depreciation)
of investments during the year ............ 4,414,288 (83,368) 1,309,785 16,642
------------------ ----------------- ----------------- -----------------
Net increase (decrease) in net assets
resulting from operations ................. 5,218,281 294,633 1,341,330 (82,843)
DIVIDENDS TO SHAREHOLDERS
From net investment income ................ (360,327) (267,604) (41,043) (28,056)
From net capital gains from
investment transactions ................. (448,100) (113,710) - (1,543)
NET CAPITAL SHARE
TRANSACTIONS ................................ 5,843,803 3,041,942 1,547,792 2,073,984
------------------ ----------------- ----------------- -----------------
Total increase in net assets ................ 10,253,657 2,955,261 2,848,079 1,961,542
NET ASSETS
Beginning of the year ....................... 14,194,503 11,239,242 4,647,234 2,685,692
------------------ ----------------- ----------------- -----------------
End of the year ............................ $24,448,160 $14,194,503 $7,495,313 $4,647,234
================== ================= ================= =================
UNDISTRIBUTED NET INVESTMENT
INCOME AT END OF YEAR ...................... $2,577 $168 $ - $791
================== ================= ================= =================
<FN>
See accompanying notes to the financial statements.
</FN>
</TABLE>
<TABLE>
<CAPTION>
COMPOSITE DEFERRED SERIES, INC.
STATEMENT OF CHANGES IN NET ASSETS
INCOME PORTFOLIO MONEY MARKET PORTFOLIO
------------------------------------- -------------------------------------
Years Ended December 31, Years ended December 31,
------------------------------------- -------------------------------------
1995 1994 1995 1994
----------------- ------------------ ----------------- -----------------
<S> <C> <C> <C> <C>
OPERATIONS
Net investment income ....................... $856,335 $704,261 $2,544 $857
Realized gain (loss) from investment
transactions ................................ (49,342) (65,570) 12 -
Unrealized appreciation (depreciation)
of investments during the year ............ 1,529,737 (1,121,284) - -
----------------- ------------------ ----------------- -----------------
Net increase (decrease) in net assets
resulting from operations ................. 2,336,730 (482,593) 2,556 857
DIVIDENDS TO SHAREHOLDERS
From net investment income ................ (856,335) (704,261) (2,544) (857)
From net capital gains from
investment transactions ................. - - (12) -
NET CAPITAL SHARE
TRANSACTIONS ................................ 2,883,031 2,915,753 2,544 857
----------------- ------------------ ----------------- -----------------
Total increase in net assets ................ 4,363,426 1,728,899 2,544 857
NET ASSETS
Beginning of the year ....................... 10,842,172 9,113,273 218,673 217,816
----------------- ------------------ ----------------- -----------------
End of the year ............................ $15,205,598 $10,842,172 $221,217 $218,673
================= ================== ================= =================
UNDISTRIBUTED NET INVESTMENT
INCOME AT END OF YEAR ...................... $ - $ - $ - $ -
================= ================== ================= =================
<FN>
See accompanying notes to the financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
GROWTH PORTFOLIO:
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------------------
1995 1994 1993 1992 1991
------------------ ----------------- ------------------ ----------------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ......... $15.70 $15.71 $15.26 $14.28 $11.82
------------------ ----------------- ------------------ ----------------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income ..................... 0.35 0.31 0.29 0.36 0.36
Net Gains on Securities (both realized and
unrealized) ............................. 4.90 0.12 0.84 1.13 2.66
------------------ ----------------- ------------------ ----------------- -------
Total From Investment Operations ........ 5.25 0.43 1.13 1.49 3.02
------------------ ----------------- ------------------ ----------------- -------
LESS DISTRIBUTIONS
Dividends(from net investment income) ..... (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 ..................... (0.73) (0.44) (0.68) (0.51) (0.56)
------------------ ----------------- ------------------ ----------------- -------
NET ASSET VALUE, END OF YEAR ............... $20.22 $15.70 $15.71 $15.26 $14.28
================== ================= ================== ================= =======
TOTAL RETURN (1) ............................ 33.70% 2.72% 7.58% 10.56% 25.91%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year ($1,000's) ........ $24,448 $14,195 $11,239 $7,455 $4,116
Ratio of Expenses to Average Net Assets (2) 0.70% 0.68% 0.76% 0.87% 1.16%
Ratio of Net Income to Average Net Assets . 2.01% 1.97% 1.96% 2.51% 2.77%
Portfolio Turnover Rate (3) ............... 36% 25% 38% 13% 23%
<FN>
(1) Total return does not reflect sales charge or separate account expenses.
(2) The ratio of expenses for 1995 is based upon total expenses in accordance with Securities and Exchange Commission Release
No. FR 46 effective September 1, 1995. Ratios for prior periods were calculated based on net expenses and have not been
restated.
(3) A portfolio turnover rate is the percentage computed by taking the lesser of purchases or sales of portfolio securities
(excluding securities with a maturity date of one year or less at the time of acquisition) for a period and dividing it by
the monthly average of the market value of such securities during the period.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
NORTHWEST PORTFOLIO:
JANUARY 4, 1993
TO
DECEMBER 31,
YEARS ENDED DECEMBER 31,
----------------------------------------
1995 1994 1993 (4)
------------------ ----------------- ------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ............... $11.97 $12.19 $12.00
------------------ ----------------- ------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income ............................. 0.09 0.08 0.16
Net Gains or Losses on Securities (both
realized and unrealized ......................... 3.02 (0.21) 0.19
------------------ ----------------- ------------------
Total From Investment Operations ................ 3.11 (0.13) 0.35
------------------ ----------------- ------------------
LESS DISTRIBUTIONS
Dividends(from net investment income) ............. (0.09) (0.08) (0.16)
Distributions (from capital gains) ................ 0.00 (0.01) 0.00
------------------ ----------------- ------------------
Total Distributions ............................. (0.09) (0.09) (0.16)
------------------ ----------------- ------------------
NET ASSET VALUE, END OF PERIOD ..................... $14.99 $11.97 $12.19
================== ================= ==================
TOTAL RETURN (1) .................................... 26.03% -1.12% 2.95%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period ($1,000's) .............. $7,495 $4,647 $2,686
Ratio of Expenses to Average Net Assets (2) ....... 0.90% 0.87% 0.00% (5)
Ratio of Net Income to Average Net Assets ......... 0.67% 0.76% 1.61% (5)
Portfolio Turnover Rate (3) ....................... 11% 17% 0% (5)
<FN>
(1) Total return does not reflect sales charge or separate account expenses. Returns of less than one year are not annualized.
(2) Management fees were waived and all expenses were absorbed by WM Life Insurance Company, the sole shareholder, through
December 31, 1993. The ratio of expenses for 1995 is based upon total expenses in accordance with Securities and Exchange
Commission Release No. FR 46 effective September 1, 1995. Ratios for prior periods were calculated based on net expenses and
have not been restated.
(3) A portfolio turnover rate is the percentage computed by taking the lesser of purchases or sales of portfolio securities
(excluding securities with a maturity date of one year or less at the time of acquisition) for a period and dividing it by
the monthly average of the market value of such securities during the period.
(4) From commencement of operations. See Note 1.
(5) Annualized.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
INCOME PORTFOLIO:
YEARS ENDED DECEMBER 31,
------------------------------------------------------------
1995 1994 1993 1992 1991
---------- --------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ................. $11.22 $12.57 $12.22 $12.27 $11.44
---------- --------- ---------- ----------- ------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income ............................. 0.79 0.79 0.85 0.86 0.91
Net Gains or Losses on Securities (both
realized and unrealized) ........................ 1.37 (1.35) 0.35 (0.05) 0.83
---------- --------- ---------- ----------- ------------
Total From Investment Operations .................. 2.16 (0.56) 1.20 0.81 1.74
---------- --------- ---------- ----------- ------------
LESS DISTRIBUTIONS
Dividends(from net investment income) ............. (0.79) (0.79) (0.85) (0.86) (0.91)
---------- --------- ---------- ----------- ------------
NET ASSET VALUE, END OF YEAR ....................... $12.59 $11.22 $12.57 $12.22 $12.27
========== ========= ========== =========== ============
TOTAL RETURN (1) .................................... 19.86% -4.48% 10.02% 6.91% 15.90%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year ($1,000's) ................ $15,206 $10,842 $9,113 $6,165 $4,407
Ratio of Expenses to Average Net Assets (2) ....... 0.76% 0.74% 0.86% 0.88% 0.98%
Ratio of Net Income to Average Net Assets ......... 6.62% 6.79% 6.75% 7.12% 7.78%
Portfolio Turnover Rate (3) ....................... 14% 15% 29% 37% 66%
<FN>
(1) Total return does not reflect sales charge or separate account expenses.
(2) The ratio of expenses for 1995 is based upon total expenses in accordance with Securities and Exchange Commission
Release No. FR 46 effective September 1, 1995. Ratios for prior periods were calculated based on net expenses and have not
been restated.
(3) A portfolio turnover rate is the percentage computed by taking the lesser of purchases or sales of portfolio securities
(excluding securities with a maturity date of one year or less at the time of acquisition) for a period and dividing
it by the monthly average of the market value of such securities during the period.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
MONEY MARKET PORTFOLIO:
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------------
1995 1994 1993 1992 1991
------------------ ----------------- ----------------- ---------------- ------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ................. $1.00 $1.00 $1.00 $1.00 $1.00
------------------ ----------------- ----------------- ---------------- ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income ............................. 0.01 0.00 0.00 (0.00) 0.06
------------------ ----------------- ----------------- ---------------- ------
LESS DISTRIBUTIONS
Dividends(from net investment income) ............. (0.01) 0.00 0.00 0.00 (0.06)
------------------ ----------------- ----------------- ---------------- ------
NET ASSET VALUE, END OF YEAR ....................... $1.00 $1.00 $1.00 $1.00 $1.00
================== ================= ================= ================ ======
TOTAL RETURN (1) .................................... 1.16% 0.00% 0.00% -0.25% 5.92%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year ($1,000's) ................ $221 $219 $218 $218 $586
Ratio of Expenses to Average Net Assets (2) ....... 4.54% 3.65% 2.87% 2.82% 0.00%
Ratio of Net Income to Average Net Assets ......... 1.16% 0.39% 0.00% 0.82% 5.77%
<FN>
(1) Total return does not reflect sales charge or separate account expenses.
(2) The Investment Adviser waived its management fee from inception of the Portfolio through June 30, 1994; and other expenses were
reimbursed to the Portfolio by WM Life Insurance Company (WMLIC) from inception of the Portfolio through February 29, 1992.
Expenses, including the waived managment fee, in excess of revenues were reimbursed to the Portfolio by WMLIC during the period
January 1, 1993 through December 31, 1995. The ratio of expenses for 1995 is based upon total expenses in accordance with
Securities and Exchange Commission Release No. FR 46 effective September 1, 1995. Ratios for prior periods were calculated
based on net expenses and have not been restated.
</FN>
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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 which are designed to
meet a variety of investment objectives. The Growth and Income Portfolios are
diversified and the Money Market and Northwest Portfolios are non diversified.
WM Life Insurance Company ("WMLIC"), an affiliate of the investment
adviser, is the sole shareholder of the Fund. Shares are sold only to Composite
Deferred Series variable accounts to fund the benefits under certain flexible
premium variable annuity contracts (the "contracts"), also known as the
Composite Variable Annuity, issued by WMLIC. Contract owners have the right to
instruct WMLIC 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, transactions of a security,
quotations from dealers, market transactions in comparable securities, and
various relationships between securities, in determining value. Investment
securities in the Money Market Portfolio and investment securities with less
than 60 days to maturity when purchased in the Growth, Income and Northwest
Portfolios 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 shareholder of the Growth 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. The Money Market Portfolio calculates and pays dividends to its
shareholder daily (dividends are not earned on the day of purchase but are
earned on the day of withdrawal).
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
and the change in unrealized appreciation or depreciation 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 treatment for deferral of wash sales.
f. In accordance with Securities and Exchange Commission Release No. FR. 46
effective September 1, 1995, custodian fees have been increased by $2,649,
$2,477, $605 and $454 for the Growth, Northwest, Income and Money Market
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 custodian fees actually incurred to
arrive at gross custodian fees and then reflected as a deduction, "fees paid
indirectly" to derive net expenses. There were no "expense offset
arrangements" other than custodian fees.
NOTE 2 - TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
The amounts of fees and expenses described below are shown on each
Portfolio's statement of operations.
Management fees were paid by each Portfolio to Composite Research &
Management Co., the investment adviser. Fees are based upon an annual rate of
0.50% on average daily net assets as computed daily. For the Money Market
Portfolio, the investment adviser waived its management fee of $1,097 for the
year ended December 31, 1995.
Directors' fees and expenses were paid directly by each 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 Funds.
WMLIC, the sole shareholder, reimbursed the Money Market Portfolio for a
portion of the other expenses. During the year ended December 31, 1995, WMLIC
reimbursed the Money Market Portfolio $2,297.
NOTE 3 - CAPITAL STOCK
<TABLE>
<CAPTION>
At December 31, 1995, there were 10 billion shares of no par value capital stock authorized. Transactions in capital stock were as
follows:
GROWTH PORTFOLIO NORTHWEST PORTFOLIO
--------------------------------------------- ---------------------------------
Years ended December 31, Years Ended December 31,
------------------------ ------------------------
1995 1994 1995 1994
----------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
SHARES
Sold 400,628 298,482 156,526 208,140
Issued for reinvestment of
dividends and capital gains ............. 41,600 24,096 2,896 2,331
----------------- --------------- -------------- --------------
442,228 322,578 159,422 210,471
Reacquired ................................ (137,392) (134,063) (47,873) (42,389)
----------------- --------------- -------------- --------------
304,836 188,515 111,549 168,082
================= =============== ============== ==============
AMOUNT
Sold ...................................... $7,442,085 $4,756,061 $2,152,588 $2,554,986
Issued for reinvestment of
dividends and capital gains ............. 808,427 381,314 41,043 29,600
----------------- --------------- -------------- --------------
8,250,512 5,137,375 2,193,631 2,584,586
Reacquired ................................ (2,406,709) (2,095,433) (645,839) (510,602)
----------------- --------------- -------------- --------------
Net increase .............................. $5,843,803 $3,041,942 $1,547,792 $2,073,984
================= =============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
INCOME PORTFOLIO MONEY MARKET PORTFOLIO
--------------------------------- -----------------------------------
Years ended December 31, Years ended December 31,
------------------------ ------------------------
1995 1994 1995 1994
-------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
SHARES
Sold 373,491 371,388 0 0
Issued for reinvestment of
dividends and capital gains ............... 71,224 60,183 2,544 857
-------------- -------------- --------------- ---------------
444,715 431,571 2,544 857
Reacquired .................................. (203,756) (189,983) 0 0
-------------- -------------- --------------- ---------------
Net increase ................................ 240,959 241,588 2,544 857
============== ============== =============== ===============
AMOUNT
Sold ........................................ $4,456,949 $4,435,898 $0 $0
Issued for reinvestment of
dividends and capital gains ............... 856,335 704,261 2,544 857
-------------- -------------- --------------- ---------------
5,313,284 5,140,159 2,544 857
Reacquired .................................. (2,430,253) (2,224,406) 0 0
-------------- -------------- --------------- ---------------
$2,883,031 $2,915,753 $2,544 $857
============== ============== =============== ===============
</TABLE>
NOTE 4 - SHAREHOLDER MEETING RESULTS
A special meeting of the Fund's shareholder (WMLIC) was held March 21, 1995.
Each matter voted upon as instructed by Contract Owners, as well as the number
of votes cast for, against or withheld, and abstained, are set forth below:
1. The Fund's shareholder elected the following nine directors:
<TABLE>
<CAPTION>
GROWTH PORTFOLIO NORTHWEST PORTFOLIO INCOME PORTFOLIO
------------------------------- ----------------------------- -----------------------------
SHARES SHARES SHARES
SHARES WITHHOLDING SHARES WITHHOLDING SHARES WITHHOLDING
VOTED AUTHORITY VOTED AUTHORITY VOTED AUTHORITY
"FOR" TO VOTE "FOR" TO VOTE "FOR" TO VOTE
------------- --------------- -------------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Wayne L. Attwood, MD ... 498,433 6,619 206,969 0 510,651 7,305
Kristianne Blake ....... 499,197 5,855 206,969 0 516,034 1,922
Anne V. Farrell ........ 499,197 5,855 205,102 1,867 516,034 1,922
Edwin J. McWilliams .... 497,225 7,827 206,969 0 516,034 1,922
Michael K. Murphy ...... 499,197 5,855 205,102 1,867 516,034 1,922
William G. Papesh ...... 499,197 5,855 206,969 0 516,034 1,922
Jay Rockey ............. 499,197 5,855 206,969 0 515,701 2,255
Leland J. Sahlin ....... 497,225 7,827 206,969 0 516,034 1,922
Richard C. Yancey ...... 499,197 5,855 206,969 0 516,034 1,922
</TABLE>
2. The Fund's shareholder ratified the selection by a majority of the
independent members of the Fund's Board of Directors of LeMaster &
Daniels, PLLC, as independent accountants for the Fund for the current
year, subject to termination at any time without penalty.
<TABLE>
<CAPTION>
SHARES SHARES
VOTED VOTED
"FOR" "AGAINST" ABSTAINED
---------- ----------- -----------
<S> <C> <C> <C>
Growth Portfolio ................ 487,934 0 17,118
Northwest Portfolio ............. 204,062 0 2,906
Income Portfolio ................ 506,297 705 10,955
</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, Suite 800 Spokane, WA 99201-0614
COUNSEL
Paine, Hamblen, Coffin, Brooke & Miller
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 Composite Variable
Annuity owners. 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.
COMPOSITE
DEFERRED
SERIES,
INC.
ANNUAL REPORT
December 31, 1995
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