INVESTMENT HIGHLIGHTS
PORTFOLIOS
FINANCIAL INFORMATION
FINANCIAL STATEMENTS
FINANCIAL HIGHLIGHTS
NOTES TO FINANCIAL STATEMENTS
PRESIDENT'S MESSAGE
Portfolio Investment Values Were
Decidedly Positive Through Mid-Year
The six-month period ended June 30, 1997 was characterized by exceptional
gains in the equities market and a strengthened bond market. To be sure, there
were volatile periods but the trend was positive in both areas.
As you can imagine, the question I've been asked most frequently in recent
months is, "How much longer can this last?" Frankly, I have no idea. And
neither does anyone else. Market timing is probably the riskiest element of
investing and those who practice it are more often wrong than right. From our
point of view, long-term strategies are preferred.
[PHOTO- COMPOSITE GROUP EQUITY FUNDS INVESTMENT TEAM (L TO R): DAVID W. SIMPSON,
PHILIP M. FOREMAN, JEFFREY D. HUFFMAN.]
As investment adviser, Composite Research & Management Co. has structured
three portfolios within the Composite Deferred Series.
Two are in the equity sector: Growth & Income Portfolio seeks to provide
both long-term capital growth and income from investment in companies from a
wide range of industries, and Northwest Portfolio which invests in stocks of
companies headquartered or doing business in the Pacific Northwest - an area
[PHOTO - COMPOSITE GROUP BOND FUNDS INVESTMENT TEAM (L TO R): AUDREY S. QUAYE,
BRIAN L. PLACZEK, GARY J. POKRZYWINSKI.]
with an increasing number of successful and growing organizations. The third
is the Income Portfolio which seeks to provide a high level of current income
consistent with the protection of capital.
Our dedicated and professional investment teams pride themselves on hard
work and thorough research, resulting in decisions aimed at adding value to the
portfolios over the long term.
/s/ William G. Papesh
WILLIAM G. PAPESH
PRESIDENT
COMPOSITE RESEARCH & MANAGEMENT CO.
<PAGE>
FUND HIGHLIGHTS
GROWTH & INCOME PORTFOLIO
Impacts on recent performance
The stock market ended 1996 and started off 1997 invigorated. This strength
was produced by favorable corporate earnings and expectations of moderate
inflation. By the end of February 1997, the market retreated and gave up most of
the 1997 gains. This sell-off was triggered by fear that the Federal Reserve
would choose to raise interest rates due to an overheated economy. But stocks
rallied in the latter days of April, and the Portfolio benefited from the over-
all strength in blue chip stocks. Sixty-five percent of the Portfolio is
invested in large capitalization securities. Investors flocked to strong multi-
national companies that have produced consistent earnings in the period. This
trend particularly benefited our holdings in General Electric, Intel and Federal
Home Loan Mortgage Corporation.
What's ahead?
We anticipate that mergers and acquisitions, along with low to very mod-
erate inflation, will continue. However, the Federal Reserve is now on a mission
to preemptively slow down economic growth by increasing interest rates
incrementally. Historically, when the Federal Reserve raises interest rates,
stock volatility increases and consumer confidence may become a problem in
certain investment sectors. We expect that any short-term rate increases will
have a slowing effect on the economy six months out. Therefore, we are very
cautious when investing in companies whose stock values are dependent on high
consumer confidence.
We also believe a narrow group of stocks that have led the market higher in
the last three years are generally fully priced. In contrast, we are finding
many good businesses that have not participated in the market rise at all. Many
of these companies are considered mid-capitalization companies.
Key investment strategies
Our basic strategy, as always, is to buy stocks of good businesses when
they appear to be undervalued. These businesses generate a high return on
investment, have a competitive advantage and have barriers to entry. We are
finding such values in the computer networking area, where leading companies are
helping businesses become more productive by allowing data sharing among net-
worked employees.
The healthcare industry is filled with good companies whose stocks are
currently at attractive levels. This situation has been created by fears of deep
budget cuts in Medicaid and Medicare. We believe an aging population should fuel
the demand for healthcare services for many years to come.
Finally, companies involved in restructuring should be good investments in
1997. Many companies have trapped asset value that can only be realized by
partial or full sale.
<PAGE>
FUND HIGHLIGHTS (CONTINUED)
NORTHWEST PORTFOLIO
Impacts on recent performance
The Composite Deferred Series Northwest Portfolio returned 22.0% during the
six-month period ended June 30, 1997. This compares favorably to the unmanaged
Standard & Poor's 500 which was up 20.6% over the same period. Although smaller
capitalization stocks continued to under-perform large capitalization stocks, we
find the current valuations of some smaller capitalization companies compelling
and expect to eventually be rewarded for owning them.
Shorter range, some of the best and worst performers in the Portfolio came
from the biotechnology industry which was not unexpected given the volatile
nature of this sector. Immunex, which at June 30, 1997, represented 2.27% of the
Portfolio's holdings, was up 85.9% due to encouraging results on a potential
blockbuster drug to treat rheumatoid arthritis. Ostex, however, (0.26% of
Portfolio) declined a painful 56.8% due to slow market acceptance of its test
for bone loss associated with osteoporosis.
Significant winners over the period included Wall Data (2.28% of Portfolio)
which rose 74.4% due to a pronounced turnaround in sales and earnings, and
Airborne Freight (2.44% of Portfolio) which rose 80.0% thanks to sharply
improved earnings. Our software powerhouse, Microsoft (4.42% of Portfolio),
continued to best analyst estimates and rose a very respectable 52.9%. The
period was not without disappointments, however. Competition beset the craft
brewing industry, and Redhook Ale Breweries lost 44% of its value before we
eliminated the last 0.13% of this stock remaining in our Portfolio. Competitive
concerns also impacted the wireless communications industry, and Western
Wireless (1.32% of Portfolio) declined 14.4%.
Portfolio holdings, including those shown above, are subject to change
without notice.
What's ahead?
The Northwest economy continues to fare well. Our two powerhouse indust-
ries, aerospace (led by Boeing) and technology (led by Microsoft and Intel),
show continued strength, and the regional economy should continue to benefit as
a result. We believe that the Portfolio is well positioned to take advantage of
the market's interest in companies that have global growth opportunities as well
as those that benefit from a robust local economy.
Key investment strategies
The goal of the Portfolio is to seek long-term capital appreciation from
investment in stocks of companies headquartered or doing business in the
Northwest which offer quality growth characteristics, defensible competitive
advantages, and reasonable valuations.
<PAGE>
INVESTMENT HIGHLIGHTS (CONTINUED)
INCOME PORTFOLIO
Impacts on recent performance
Performance during the first half of the year was helped by the health of
the two sectors that make up the majority of the Portfolio's holdings: corporate
securities and mortgage-backed securities. An economy that grew very nicely
coupled with stable inflation produced an ideal environment for improving
corporate credit quality. Consequently, corporate bond performance was very
good. Mortgage-backed securities benefited from the limited range interest rates
have been in for quite some time, helping to alleviate prepayment volatility, a
major risk to mortgage-backed securities.
Interest rates were basically unchanged for the first six months of 1997
but the net asset value still managed to rise slightly because of the fine
performance of the aforementioned sectors.
Although bond returns have not captured the headlines like stock returns,
performance of the Portfolio was impressive, especially when compared to the low
level of inflation.
What's ahead?
Our Portfolio is comprised of 38% corporate securities, 17% mortgage-backed
securities, 45% U.S. Treasury obligations, an allocation we feel comfortable
with as we move into the latter half of 1997. The combined credit quality of the
portfolio is "A-" as rated by Standard & Poor's.
In the corporate bond portion of the Portfolio, we continue to concentrate
on noncyclical companies and industries, such as health care, utilities and
defense. Our feeling is that we are in the latter stages of a business cycle in
which the risk/reward profile is not as favorable for cyclical companies.
We continue to believe that interest rates at today's levels are a good
value.
Key investment strategies
The Portfolio's objective is to provide a high level of current income that
is consistent with the protection of capital. We accomplish this by selecting
investments with an intermediate-maturity profile and by investing in a
combination of corporate, mortgage-backed and treasury securities. By taking
advantage of changing fundamentals between market sectors and anticipating broad
changes in interest rates, we feel we can add additional income to the Portfolio
while maintaining protection of capital.
<PAGE>
COMPOSITE DEFERRED SERIES, INC.
PORTFOLIO OF INVESTMENTS
IN SECURITIES
JUNE 30, 1997
<TABLE>
<CAPTION>
GROWTH & INCOME PORTFOLIO (UNAUDITED)
MARKET
SHARES COMMON STOCKS-96.67% VALUE
-------- AEROSPACE/DEFENSE-3.84% ------------
<S> <C> <C>
13,139 Lockheed Martin Corporation................................. $ 1,360,708
7,500 Northrop Grumman Corporation................................ 658,593
------------
2,019,301
------------
BANK/SAVINGS & LOAN-5.71%
12,300 Bank of New York Company, Inc. ............................. 535,050
10,214 Mellon Bank Corporation..................................... 460,907
12,980 Norwest Bancorp............................................. 730,125
18,150 Washington Federal, Inc. ................................... 466,228
3,000 Wells Fargo & Company....................................... 808,500
------------
3,000,810
------------
BASIC INDUSTRY-1.15%
18,800 Waste Management, Inc. ..................................... 603,950
------------
BEVERAGES-2.27%
19,600 PepsiCo, Inc. .............................................. 736,225
11,400 Seagram Company, Ltd. ...................................... 458,850
------------
1,195,075
------------
BUSINESS SERVICES-1.43%
13,000 HFS, Inc.*.................................................. 754,000
------------
CAPITAL GOODS-1.54%
21,300 Donaldson Company, Inc. .................................... 809,400
------------
CHEMICALS-0.94%
21,757 Millenium Chemicals, Inc.*.................................. 494,972
------------
COMPUTER SOFTWARE-6.30%
10,400 Autodesk, Inc. ............................................. 398,450
20,500 Barra, Inc.*................................................ 676,500
12,000 Computer Associates International, Inc...................... 668,250
39,500 Mentor Graphics............................................. 365,375
9,500 Microsoft Corporation*...................................... 1,200,562
------------
3,309,137
------------
COMPUTER SYSTEMS-2.76%
9,900 Cabletron Systems*.......................................... 280,294
5,000 Cisco Systems, Inc.*........................................ 335,625
9,464 Electronic Data Systems Corporation......................... 388,024
8,000 Hewlett-Packard Company..................................... 448,000
------------
1,451,943
------------
CONSUMER DURABLES-3.17%
11,700 Black & Decker Corporation.................................. 435,093
24,500 Castle & Cooke, Inc.*....................................... 405,781
24,362 Mattel, Inc. ............................................... 825,263
------------
1,666,137
------------
ELECTRICAL EQUIPMENT-3.55%
15,600 Emerson Electric Company.................................... $ 858,975
15,400 General Electric Company.................................... 1,006,775
------------
1,865,750
------------
ELECTRONICS - GENERAL-1.77%
24,000 DSC Communications Corporation*............................. 534,000
26,500 Loral Space & Communications*............................... 397,500
------------
931,500
------------
ELECTRONICS - SEMICONDUCTORS/COMPONENTS-3.78%
8,500 Integrated Device Technology, Inc.*......................... 89,250
4,600 Intel Corporation........................................... 652,337
16,400 Motorola, Inc. ............................................. 1,246,400
------------
1,987,987
------------
FINANCIAL SERVICES-4.87%
36,100 Federal Home Loan Mortgage Corporation...................... 1,240,938
16,000 Green Tree Financial Corporation............................ 570,000
9,214 Legg Mason, Inc. ........................................... 495,828
5,100 Liberty Financial Companies................................. 254,362
------------
2,561,128
------------
FOOD & FOOD RETAILERS-2.14%
8,100 Campbell Soup Company....................................... 405,000
7,000 Dole Food Company........................................... 299,250
1,000 Smith's Food & Drug Centers, Class B........................ 53,625
10,650 Supervalu, Inc. ............................................ 367,425
------------
1,125,300
------------
HEALTHCARE PRODUCTS-6.92%
14,300 Abbott Laboratories......................................... 954,525
12,150 Forest Laboratories, Inc.*.................................. 505,744
19,850 Johnson & Johnson........................................... 1,277,843
6,800 Merck & Company, Inc.**..................................... 703,800
2,100 Smithkline Beecham Place - American Depository Receipt...... 192,413
------------
3,634,325
------------
HEALTHCARE SERVICES-5.14%
16,000 Cognizant Corporation....................................... 648,000
1,000 Columbia/HCA Healthcare Corporation......................... 39,312
16,800 Manor Care, Inc. ........................................... 548,100
31,937 Medpartners, Inc.*.......................................... 690,638
12,806 Pacificare Health Systems, Class A.......................... 775,564
------------
2,701,614
------------
HOUSEHOLD PRODUCTS-4.76%
7,000 Alberto Culver Company, Class A............................. 163,187
30,000 Kimberly Clark de Mexico, American Depository Receipt....... 581,250
4,550 Proctor and Gamble Company.................................. 642,688
5,100 Unilever Group.............................................. 1,111,800
------------
2,498,925
------------
INSURANCE-4.34%
5,250 American International Group, Inc. ......................... $ 784,219
14,000 Integon Corporation......................................... 350,000
16,500 TIG Holdings, Inc. ......................................... 515,625
10,000 Travelers Group, Inc. ...................................... 630,625
------------
2,280,469
------------
LODGING/RESTAURANTS-0.91%
28,350 Choice Hotels Holdings*..................................... 480,178
------------
MACHINERY-2.80%
20,950 Crane Company............................................... 875,972
10,900 Deere & Company............................................. 598,137
------------
1,474,109
------------
MEDIA-5.18%
29,166 ACNielson*.................................................. 572,383
18,500 Dun & Bradstreet Corporation................................ 485,625
16,000 Time Warner, Inc. .......................................... 772,000
30,125 Viacom, Inc., Class A* ..................................... 894,336
------------
2,724,344
------------
OIL & GAS-6.22%
10,800 Exxon Corporation........................................... 664,200
9,350 Mobil Corporation........................................... 653,331
21,700 Occidental Petroleum Corporation............................ 543,856
10,800 Royal Dutch Petroleum Company............................... 587,250
4,500 Texaco, Inc. ............................................... 489,375
13,291 Union Pacific Resources Group............................... 330,614
------------
3,268,626
------------
PAPER & FOREST PRODUCTS-2.30%
28,500 Asia Pulp & Paper Company, Ltd.*............................ 431,063
4,300 Boise Cascade Corporation................................... 151,843
12,000 Weyerhaeuser Company........................................ 624,000
------------
1,206,906
------------
REAL ESTATE INVESTMENT TRUSTS-1.20%
3,875 Equity Residential Properties Trust......................... 184,063
12,700 Health Care Property Investors, Inc. ....................... 447,675
------------
631,738
------------
RETAIL SALES-2.24%
22,800 Intimate Brands, Inc. ...................................... 478,800
11,950 Fred Meyer, Inc., Class A*.................................. 617,666
7,900 Rex Stores*................................................. 79,987
------------
1,176,453
------------
TOBACCO-1.77%
20,900 Phillip Morris Companies, Inc. ............................ 927,438
------------
TRANSPORTATION SERVICES-3.62%
30,000 Expeditors International of Washington, Inc. ............... $ 851,250
12,000 Sabre Group Holdings, Inc.*................................. 325,500
10,300 Union Pacific Corporation................................... 726,150
------------
1,902,900
------------
UTILITIES - GAS & ELECTRIC-0.96%
5,500 Enron Corporation........................................... 224,469
7,000 Portland General Corporation................................ 277,813
------------
502,282
------------
UTILITIES - TELECOMMUNICATIONS-3.08%
14,000 A T & T Corporation......................................... 490,875
23,000 Aliant Communications, Inc. ................................ 448,500
5,500 Bell Atlantic Corporation................................... 417,313
5,000 Sprint Corporation.......................................... 263,125
------------
1,619,813
------------
TOTAL COMMON STOCKS (cost $36,511,415)...................... 50,806,510
------------
CONVERTIBLE PREFERRED STOCKS-2.38%
2,250 Integon Corporation......................................... 149,344
1,000 Microsoft Corporation....................................... 87,000
13,350 Pacificare Health Systems, Inc., Series A................... 358,781
7,500 Penncorp Financial Group.................................... 656,250
------------
TOTAL CONVERTIBLE PREFERRED STOCK (cost $1,196,819)......... 1,251,375
------------
PRINCIPAL
AMOUNT
------ CONVERTIBLE BOND-0.71%
$250,000 Alberto-Culver Corporation, 5.50%, due 06/30/2005
(cost $383,562)........................................... 373,750
------------
TOTAL INVESTMENTS (cost $38,091,798)........................ 52,431,635
Other assets, net of liabilities............................ 125,627
------------
NET ASSETS.................................................. $52,557,262
============
*Non-income producing security.
**The portfolio position subject to and the description and value of written covered
call option outstanding at June 30, 1997, were as follows:
OPTION EXPIRATION EXERCISE VALUE OF
CONTRACTS SECURITY MONTH/YEAR PRICE CALL OPTIONS
- --------------------------------------------------------------------------------
10 Merck & Company JULY/97 $100 $3,875
FEDERAL INCOME TAX INFORMATION:
Net unrealized appreciation of investments at June 30, 1997, of $14,338,427, based
on aggregate cost of $38,091,798, was composed of gross appreciation of $14,677,628
for investments having an excess of value over cost and gross depreciation of $339,201
for investments having an excess of cost over value.
OTHER INFORMATION:
Purchases and sales of investment securities, other than short-term investments,
aggregated $13,931,425 and $10,562,471, respectively, during the six months ended
June 30, 1997, including purchases and sales of U.S. government securities of
$795,195 and $805,859, respectively.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
COMPOSITE
DEFERRED SERIES, INC.
PORTFOLIO OF INVESTMENTS
IN SECURITIES
JUNE 30, 1997
<TABLE>
<CAPTION>
NORTHWEST PORTFOLIO (UNAUDITED)
MARKET
SHARES COMMON STOCKS-95.38% VALUE
-------- AEROSPACE/DEFENSE-5.04% ---------
<S> <C> <C>
12,500 Boeing Company.............................................. $ 663,281
3,600 Precision Castparts Corporation ............................ 214,650
------------
877,931
------------
APPAREL & SHOES-1.74%
5,200 Nike, Inc., Class B......................................... 303,550
------------
BANK/SAVINGS & LOANS-8.69%
10,500 First Savings Bank of Washington Bancorp, Inc. ............. 233,625
144 Horizon Financial Corporation............................... 2,340
4,800 Interwest Bancorp, Inc. .................................... 189,600
8,700 Klamath First Bancorp, Inc. ................................ 166,388
6,100 Sterling Financial Corporation*............................. 113,613
7,718 US Bancorp.................................................. 494,917
12,266 Washington Federal, Inc. ................................... 315,083
------------
1,515,566
------------
BASIC INDUSTRY-0.37%
4,700 Morrison Knudsen Corporation*............................... 64,038
------------
BUSINESS SERVICES-1.06%
13,600 Barrett Business Services, Inc.*............................ 185,300
------------
CAPITAL GOODS-0.95%
3,580 PACCAR, Inc................................................. 166,246
------------
COMPUTER SOFTWARE-9.61%
9,400 CFI Proservices, Inc.*...................................... 169,200
36,500 Mentor Graphics Corporation*................................ 337,625
6,100 Microsoft Corporation*...................................... 770,888
15,100 Wall Data, Inc.*............................................ 398,263
------------
1,675,976
------------
COMPUTER SYSTEMS-6.00%
12,400 In Focus Systems, Inc.*..................................... 317,750
15,200 Planar Systems, Inc.*....................................... 157,700
6,600 Radisys Corporation*........................................ 262,350
14,600 Sequent Computer Systems, Inc.*............................. 307,513
------------
1,045,313
------------
CONSUMER DURABLES-0.46%
3,300 Monaco Coach Corporation*................................... 80,025
------------
ELECTRICAL EQUIPMENT-1.85%
3,400 Fluke Corporation........................................... 201,450
7,300 Merix Corporation*.......................................... 121,363
------------
322,813
------------
ELECTRONICS/GENERAL-7.55%
8,000 Electro Scientific Industries, Inc.*........................ 335,000
21,100 FEI Company*................................................ 332,325
8,400 Flir Systems, Inc.*......................................... 132,300
2,800 Itron, Inc.*................................................ 72,450
7,400 Tektronix, Inc. ............................................ 444,000
------------
1,316,075
------------
ELECTRONICS - SEMICONDUCTORS/COMPONENTS-2.71%
1,000 Intel Corporation........................................... 141,813
3,500 Lattice Semiconductor Corporation*.......................... 197,750
900 Micron Technology, Inc.*.................................... 35,944
2,800 Triquint Semiconductor, Inc.*............................... 96,250
------------
471,757
------------
FOODS AND FOOD RETAILERS-3.24%
11,200 Albertson's, Inc. .......................................... 408,800
4,090 Quality Food Centers, Inc.*................................. 155,420
------------
564,220
------------
HEALTHCARE PRODUCTS-6.87%
5,600 Advanced Technology Laboratories, Inc.*..................... 240,800
32,250 Icos Corporation*........................................... 266,063
10,900 Immunex Corporation*........................................ 395,125
29,000 Neorx Corporation*.......................................... 128,687
19,200 Ostex International, Inc.*.................................. 45,600
3,200 Pathogenesis Corporation*................................... 93,200
1,100 Spacelabs Medical, Inc.* ................................... 28,050
------------
1,197,525
------------
HEALTHCARE SERVICES-2.18%
6,240 Foundation Health Systems, Inc., Class A*................... 189,150
3,000 Pacificare Health Systems, Inc., Class B*................... 191,625
------------
380,775
------------
INSURANCE-2.20%
8,200 Safeco Corporation.......................................... 382,837
------------
LODGING & RESTAURANTS-1.21%
5,400 Starbucks Corporation*...................................... 210,262
------------
MACHINERY-1.36%
7,100 Flow International Corporation*............................. 69,225
14,900 Greenbrier Companies, Inc. ................................. 168,556
------------
237,781
------------
METALS & MINING-4.89%
17,500 Oregon Metallurgical Corporation*........................... 492,187
8,500 Oregon Steel Mills, Inc. ................................... 169,469
6,400 Schnitzer Steel Industries, Inc., Class A................... 190,400
------------
852,056
------------
PAPER & FOREST PRODUCTS-4.86%
2,000 Boise Cascade Corporation................................... 70,625
900 Georgia-Pacific Corporation................................. 76,837
2,800 Louisiana-Pacific Corporation............................... 59,150
3,300 TJ International, Inc. ..................................... 77,550
5,700 Weyerhaeuser Company........................................ 296,400
3,800 Willamette Industries, Inc. ................................ 266,000
------------
846,562
------------
REAL ESTATE INVESTMENT TRUSTS-2.85%
3,625 Equity Residential Properties Trust......................... 172,187
9,700 Pacific Gulf Properties, Inc. .............................. 213,400
4,000 Shurgard Storage Centers, Inc., Class A..................... 112,000
------------
497,587
------------
RETAIL SALES-9.38%
19,200 BMC West Corporation*....................................... 235,200
15,700 Costco Companies, Inc.*..................................... 516,137
9,700 Hollywood Entertainment Corporation*........................ 221,887
12,800 Fred Meyer, Inc., Class A*.................................. 661,600
------------
1,634,824
------------
TRANSPORTATION SERVICES-6.83%
10,150 Airborne Freight Corporation................................ 425,031
9,700 Alaska Air Group, Inc.*..................................... 248,562
18,200 Expeditors International of Washington, Inc. ............... 516,425
------------
1,190,018
------------
UTILITIES - GAS & ELECTRIC-1.25%
5,500 Portland General Corporation................................ 218,281
------------
UTILITIES - TELECOMMUNICATIONS-2.23%
2,400 Century Telephone Enterprise................................ 80,850
9,800 General Communication, Inc., Class A*....................... 78,400
14,500 Western Wireless Corporation, Class A*...................... 230,188
------------
389,438
------------
TOTAL COMMON STOCKS (cost $11,194,991)...................... 16,626,756
------------
PRINCIPAL
AMOUNT
--------- REPURCHASE AGREEMENT-4.11%
$716,000 Repurchase agreement with Goldman Sachs, collateralized by a
U.S. Treasury Note, in a joint trading account at 5.75% dated
06/30/1997, due 07/01/1997 with a maturity value of
$716,114 (cost $716,000).................................... 716,000
------------
TOTAL INVESTMENTS (cost $11,910,991)........................ 17,342,756
Other assets, net of liabilities............................ 89,794
------------
NET ASSETS.................................................. $17,432,550
============
*Non-income producing security.
FEDERAL INCOME TAX INFORMATION:
Net unrealized appreciation of investments at June 30, 1997, of $5,431,765, based
on aggregate cost of $11,910,991, was composed of gross appreciation of $5,735,108
for investments having an excess of value over cost and gross depreciation of
$303,343 for investments having an excess of cost over value.
OTHER INFORMATION:
Purchases and sales of investment securities, other than short-term investments,
aggregated $3,142,798 and $1,749,268, respectively, during the six months ended
June 30, 1997.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
COMPOSITE
DEFERRED SERIES, INC.
PORTFOLIO OF INVESTMENTS
IN SECURITIES
JUNE 30, 1997
<TABLE>
<CAPTION>
INCOME PORTFOLIO (UNAUDITED)
PRINCIPAL MARKET
AMOUNT VALUE
--------- U.S. TREASURY OBLIGATIONS-38.69% -----------
<S> <C> <C>
$ 100,000 U.S. Treasury Note, 7.125%, due 02/29/2000.................. $ 102,219
200,000 U.S. Treasury Note, 7.875%, due 08/15/2001.................. 210,938
250,000 U.S. Treasury Note, 6.375%, due 08/15/2002.................. 249,922
1,000,000 U.S. Treasury Note, 5.75%, due 08/15/2003................... 965,938
1,500,000 U.S. Treasury Note, 5.875%, due 02/15/2004, 11/15/2005...... 1,450,626
2,200,000 U.S. Treasury Bond, 7.25%, due 05/15/2016, 08/15/2022....... 2,295,627
1,200,000 U.S. Treasury Bond, 6.25%,m due 08/15/2023.................. 1,110,751
200,000 U.S. Treasury Bond, 7.50%, due 11/15/2024................... 215,750
250,000 U.S. Treasury Bond, 6.50%, due 11/15/2026................... 239,688
------------
TOTAL U.S. TREASURY OBLIGATIONS (cost $6,881,944)........... 6,841,459
------------
MORTGAGE-BACKED SECURITIES-17.35%
GOVERNMENT AGENCY-12.15%
401,443 Federal National Mortgage Association, 8.00%,
due 12/01/2026............................................ 410,602
8,972 Federal National Mortgage Association, 9.00%,
due 10/01/2004............................................ 9,345
495,000 Government National Mortgage Association, 6.50%,
due 07/15/2026............................................ 473,809
376,088 Government National Mortgage Association, 7.00%,
due 07/15/2023............................................ 369,626
439,855 Government National Mortgage Association, 7.50%,
due 06/15/2024............................................ 441,506
119,988 Government National Mortgage Association, 8.00%,
due 06/15/2022............................................ 122,726
14,872 Government National Mortgage Association, 8.50%,
due 03/15/2022............................................ 15,463
288,135 Government National Mortgage Association, 9.00%,
due 05/15/2009............................................ 304,613
------------
2,147,690
------------
COLLATERALIZED MORTGAGE OBLIGATIONS -
GOVERNMENT AGENCY BACKED-3.64%
255,000 Federal Home Loan Mortgage Corporation, 7.50%,
due 07/15/2020............................................ 258,579
378,925 Weyerhaeuser 1982-c FHA Putable, 7.43%, due 06/01/2022...... 385,294
------------
643,873
------------
COLLATERALIZED MORTGAGE OBLIGATIONS-1.56%
176,632 Resolution Trust Corporation-1991-M2-A-2, 7.55%,
due 09/25/2020............................................ 134,114
150,000 Ryland Mortgage Securities Corporation-1992-12A,
6.50%, due 09/25/2023..................................... 141,432
------------
275,546
------------
TOTAL MORTGAGE-BACKED SECURITIES (cost $3,054,391).......... 3,067,109
------------
NON-CONVERTIBLE
CORPORATE BONDS-32.35%
150,000 American Home Products, 7.25%, due 03/01/2023............... 146,802
250,000 American Medical International, 0%, due 08/12/1997.......... 247,687
200,000 Associates Corp. Senior Notes, 8.80%, due 08/01/1998........ 205,561
195,000 Bank of New York, 7.875%, due 11/15/2002.................... 203,349
175,000 Beneficial Corporation, 9.125%, due 02/15/1998.............. 178,256
300,000 Burlington Northern, 8.75%, due 02/25/2022.................. 333,729
200,000 Burlington Resources, 7.15%, due 05/01/1999................. 202,938
200,000 Caterpillar Corporation, 9.375%, due 07/15/2001............. 217,882
150,000 Commonwealth Edison, 9.375%, due 02/15/2000................. 159,130
150,000 Consumers Power, 8.75%, due 02/15/1998...................... 152,025
300,000 Continental Corporation, 8.25%, due 04/15/1999.............. 308,451
250,000 FHP International, 7.00%, due 09/15/2003.................... 247,608
250,000 First Nationwide, 10.00%, due 10/01/2006.................... 287,298
100,000 Franchise Finance Corporation, 7.00%, due 11/30/2000........ 100,321
200,000 Franchise Finance Corporation, 7.875%, due 11/30/2005....... 207,096
100,000 General Motors Acceptance Corporation, 7.75%,
due 01/15/1999............................................ 102,153
200,000 Integon Corporation, 8.00%, due 08/15/1999.................. 201,891
200,000 Kemper Corporation, 6.875%, due 09/15/2003.................. 198,920
300,000 Loral Corporation, 7.625%, due 06/15/2025................... 303,617
200,000 Mercantile Bank, 7.625%, due 10/15/2002..................... 206,284
250,000 Morgan Stanley, 6.75%, due 03/04/2003....................... 248,304
150,000 Niagara Mohawk Power, 9.50%, due 06/01/2000................. 156,970
50,000 Niagara Mohawk Power, 8.77%, due 01/01/2018................. 51,546
150,000 Portland General Electric, 8.88%, due 08/12/1999............ 157,119
150,000 Public Services Electric & Gas, 8.875%, due 06/01/2003...... 164,258
150,000 Public Service Company of New Hampshire, 9.17%,
due 05/15/1998............................................ 152,719
150,000 Texas Utilities Electric, 9.50%, due 08/01/1999............. 157,939
200,000 Time Warner, Inc., 9.15%, due 02/01/2023.................... 221,312
200,000 U S West Capital Corporation, 6.95%, due 01/15/2037......... 198,343
------------
TOTAL NON-CONVERTIBLE CORPORATE BONDS (cost $5,661,175)..... 5,719,508
------------
CONVERTIBLE CORPORATE BONDS-1.94%
175,000 CII Financial, Inc., 7.50%, due 09/15/2001.................. 165,375
100,000 Spectrum Holobyte, Inc., 6.50%, due 09/15/2002.............. 72,625
150,000 Veterinary Centers of America, Inc., 5.25%, due 05/01/2006.. 104,812
------------
TOTAL CONVERTIBLE CORPORATE BONDS (cost $341,764)........... 342,812
------------
U.S.DOLLAR FOREIGN OBLIGATIONS-1.51%
150,000 Province of Alberta, 9.25%, due 04/01/2000.................. 160,951
100,000 Province of Manitoba, 9.625%, due 03/15/1999................ 105,608
------------
TOTAL U.S. DOLLAR FOREIGN OBLIGATIONS (cost $256,844)....... 266,559
------------
SHARES
------ CONVERTIBLE PREFERRED STOCK-1.25%
6,000 California Federal Savings, Series A........................ 154,875
1,000 Integon Corporation......................................... 66,375
------------
TOTAL CONVERTIBLE PREFERRED STOCKS (cost $209,320).......... 221,250
------------
PRINCIPAL
AMOUNT
---------- REPURCHASE AGREEMENT-5.26%
$ 930,000 Repurchase agreement with Goldman Sachs collateralized by a
U.S. Treasury Note, in a joint trading account at 5.75% dated
06/30/1997, due 07/01/1997 with a maturity value of $930,149
(cost $930,000)............................................. 930,000
------------
TOTAL INVESTMENTS (cost $17,335,440)........................ 17,388,697
Other assets, net of liabilities............................ 292,232
------------
NET ASSETS.................................................. $17,680,929
============
FEDERAL INCOME TAX INFORMATION:
Net unrealized appreciation of investments at June 30, 1997, of $53,257, based on
aggregate cost of $17,335,440, was composed of gross appreciation of $278,177 for
investments having an excess of value over cost and gross depreciation of $224,920
for investments having an excess of cost over value.
OTHER INFORMATION:
Purchases and sales (including maturities and principal repayments) of investment
securities, other than short-term investments, aggregated $1,778,663 and $778,195,
respectively, during the six months ended June 30, 1997, including purchases and
sales of U.S. government securities of $474,414 and $115,507, respectively.
Principal repayments of mortgage-backed securities aggregated $179,952.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
COMPOSITE
DEFERRED SERIES, INC.
FINANCIAL INFORMATION
JUNE 30, 1997
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 1997 (UNAUDITED)
GROWTH & INCOME NORTHWEST INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
ASSETS ----------- ----------- -----------
<S> <C> <C> <C>
Investments at market (identified cost $38,091,798,
$11,910,991, and $17,335,440, respectively)........ $52,431,635 $17,342,756 $17,388,697
Cash................................................. - 30,220 4,395
Prepaid expenses..................................... 701 251 409
Receivable for:
Investment securities sold......................... 536,716 186,496 -
Interest........................................... 6,912 114 292,987
Sale of Fund shares................................ 340 - 330
Dividends.......................................... 57,693 11,310 3,422
----------- ----------- -----------
Total assets......................................... 53,033,997 17,571,147 17,690,240
----------- ----------- -----------
LIABILITIES
Bank overdraft....................................... 41,160 - -
Covered call options written at market
(premium received $2,465).......................... 3,875 - -
Payable for:
Investment securities purchased.................... 423,125 132,651 -
Repurchase of Fund shares.......................... 1,842 606 4,160
Accrued expenses and other payables................ 6,733 5,340 5,151
----------- ----------- -----------
Total liabilities.................................... 476,735 138,597 9,311
----------- ----------- -----------
NET ASSETS .......................................... $52,557,262 $17,432,550 $17,680,929
=========== =========== ===========
COMPOSITION OF NET ASSETS
Additional paid-in capital........................... $36,734,150 $11,550,854 $17,740,740
Overdistributed net investment income................ (215) (226) -
Accumulated net realized gain (loss)................. 1,484,900 450,157 (113,068)
Net unrealized appreciation of investments........... 14,338,427 5,431,765 53,257
----------- ----------- -----------
$52,557,262 $17,432,550 $17,680,929
NET ASSET VALUE =========== =========== ===========
Net asset value per share for 1,980,419, 805,519,
and 1,467,976 shares outstanding, respectively..... $26.54 $21.64 $12.04
=========== =========== ===========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1997 (UNAUDITED)
GROWTH & INCOME NORTHWEST INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
INVESTMENT INCOME ----------- ----------- ---------
<S> <C> <C> <C>
Income:
Interest............................................................. $ 23,681 $ 16,045 $615,937
Dividends............................................................ 422,165 64,131 7,679
---------- ---------- --------
Total income........................................................... 445,846 80,176 623,616
---------- ---------- --------
Expenses:
Management fees...................................................... 114,416 36,406 42,930
Custodial fees....................................................... 7,424 4,960 3,816
Postage, printing and office expense................................. 2,829 1,340 4,773
Directors' fees...................................................... 5,057 5,057 5,057
Auditing and legal fees.............................................. 3,829 2,683 2,628
Insurance............................................................ 716 292 431
---------- ---------- --------
Total expenses......................................................... 134,271 50,738 59,635
Fees paid indirectly................................................... (542) (256) (278)
---------- ---------- --------
Net expenses........................................................... 133,729 50,482 59,357
---------- ---------- --------
Net investment income.................................................. 312,117 29,694 564,259
---------- ---------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS)
Realized gain from investment transactions............................. 1,499,031 475,755 28,681
Net change in unrealized appreciation or depreciation.................. 5,982,847 2,499,704 (83,149)
---------- ---------- --------
Net realized and unrealized gain (loss)................................ 7,481,878 2,975,459 (54,468)
---------- ---------- --------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ............................................. $7,793,995 $3,005,153 $509,791
========== ========== ========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
GROWTH & INCOME NORTHWEST INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
----------------------- ------------------------ -----------------------
SIX MONTHS SIX MONTHS SIX MONTHS
ENDED YEAR ENDED YEAR ENDED YEAR
JUNE 30, ENDED JUNE 30, ENDED JUNE 30, ENDED
1997 DECEMBER 31, 1997 DECEMBER 31, 1997 DECEMBER 31,
(UNAUDITED) 1996 (UNAUDITED) 1996 (UNAUDITED) 1996
OPERATIONS ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net investment income.................. $ 312,117 $ 516,037 $ 29,694 $ 54,932 $ 564,259 $ 1,045,694
Realized gain (loss)................... 1,499,031 3,102,735 475,755 467,828 28,681 (8,320)
Net change in unrealized
appreciation or depreciation......... 5,982,847 2,982,704 2,499,704 1,538,604 (83,149) (609,407)
Net increase in net assets ---------- ----------- ---------- ----------- ----------- -----------
resulting from operations............ 7,793,995 6,601,476 3,005,153 2,061,364 509,791 427,967
DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS
Dividends from net investment income... (313,730) (517,216) (30,769) (54,083) (564,259) (1,045,694)
Distributions from net capital gains... (3,110,023) - (356,675) - - -
NET CAPITAL SHARE
TRANSACTIONS........................... 6,785,353 10,869,247 2,045,195 3,267,052 350,893 2,796,633
---------- ----------- ----------- ---------- ----------- -----------
Total increase in net assets........... 11,155,595 16,953,507 4,662,904 5,274,333 296,425 2,178,906
NET ASSETS
Beginning of the period................ 41,401,667 24,448,160 12,769,646 7,495,313 17,384,504 15,205,598
---------- ----------- ----------- ----------- ----------- -----------
End of the period...................... $52,557,262 $41,401,667 $17,432,550 $12,769,646 $17,680,929 $17,384,504
=========== =========== =========== =========== =========== ===========
UNDISTRIBUTED
(OVERDISTRIBUTED)
NET INVESTMENT INCOME.................. $ (215) $ 1,398 $ (226) $ 849 $ - $ -
=========== =========== =========== =========== =========== ===========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SIX MONTHS
ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
1997 ------------------------------------------
GROWTH & INCOME PORTFOLIO: (UNAUDITED) 1996 1995 1994 1993 1992
--------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD .................. $24.32 $20.22 $15.70 $15.71 $15.26 $14.28
------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income................................ 0.17 0.34 0.35 0.31 0.29 0.36
Net realized and unrealized gain..................... 3.97 4.10 4.90 0.12 0.84 1.13
------ ------ ------ ------ ------ ------
Total income from investment operations............ 4.14 4.44 5.25 0.43 1.13 1.49
------ ------ ------ ------ ------ ------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income................. (0.17) (0.34) (0.35) (0.31) (0.28) (0.36)
Distributions from net realized capital gains........ (1.75) - (0.38) (0.13) (0.40) (0.15)
------ ------ ------ ------ ------ ------
Total dividends and distributions to shareholders.. (1.92) (0.34) (0.73) (0.44) (0.68) (0.51)
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD ........................ $26.54 $24.32 $20.22 $15.70 $15.71 $15.26
====== ====== ====== ====== ====== ======
TOTAL RETURN (1) ...................................... 17.93% 22.09% 33.70% 2.72% 7.58% 10.56%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($1,000's)................. $52,557 $41,402 $24,448 $14,195 $11,239 $7,455
Ratio of expenses to average net assets (2) ......... 0.59%(4) 0.61% 0.70% 0.68% 0.76% 0.87%
Ratio of net income to average net assets............ 1.36%(4) 1.59% 2.01% 1.97% 1.96% 2.51%
Portfolio turnover rate ............................. 46%(4) 45% 36% 25% 38% 13%
Average commission paid (3) ......................... $0.0595 $0.0626 - - - -
(1) Total return does not reflect sales charge and is 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 year 1996.
(4) Annualized.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SIX MONTHS JANUARY 4,
ENDED YEARS ENDED DECEMBER 31, TO
JUNE 30, 1997 ------------------------ DEC.31,
NORTHWEST PORTFOLIO: (UNAUDITED) 1996 1995 1994 1993(4)
--------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD .................. $18.23 $14.99 $11.97 $12.19 $12.00
------- ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income................................ 0.04 0.09 0.09 0.08 0.16
Net realized and unrealized gain (loss).............. 3.89 3.24 3.02 (0.21) 0.19
------- ------ ------ ------ ------
Total income from investment operations............ 3.93 3.33 3.11 (0.13) 0.35
------- ------ ------ ------ ------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income................. (0.04) (0.09) (0.09) (0.08) (0.16)
Distributions from net realized capital gains........ (0.48) - - (0.01) -
------- ------ ------ ------ ------
Total dividends and distributions to shareholders.. (0.52) (0.09) (0.09) (0.09) (0.16)
------- ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD ........................ $21.64 $18.23 $14.99 $11.97 $12.19
======= ====== ====== ====== ======
TOTAL RETURN (1) ...................................... 22.00% 22.23% 26.03% -1.12% 2.95%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($1,000's)................. $17,433 $12,770 $7,495 $4,647 $2,686
Ratio of expenses to average net assets (2) ......... 0.70%(5) 0.77% 0.90% 0.87% -
Ratio of net income to average net assets............ 0.41%(5) 0.56% 0.67% 0.76% 1.61%(5)
Portfolio turnover rate ............................. 25%(5) 31% 11% 17% -
Average commission paid (3) ......................... $0.0572 $0.0639 - - -
(1) Total return does not reflect sales charge and is not annualized.
(2) Ratio of expenses to average net assets includes expenses paid indirectly beginning in fiscal 1995.
The ratio of expenses before management fee waiver and expense reimbursements was 1.45% for fiscal 1993.
(3) Average commission paid disclosure is required beginning in fiscal 1996.
(4) From commencement of operations.
(5) Annualized.
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
1997 -----------------------------------------
INCOME PORTFOLIO: (UNAUDITED) 1996 1995 1994 1993 1992
--------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ................. $12.08 $12.59 $11.22 $12.57 $12.22 $12.27
------- ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income............................... 0.39 0.78 0.79 0.79 0.85 0.86
Net realized and unrealized gain (loss)............. (0.04) (0.51) 1.37 (1.35) 0.35 (0.05)
------- ------ ------ ------ ------ ------
Total income from investment operations........... 0.35 0.27 2.16 (0.56) 1.20 0.81
------- ------ ------ ------ ------ ------
DIVIDENDS TO SHAREHOLDERS
Dividends from net investment income................ (0.39) (0.78) (0.79) (0.79) (0.85) (0.86)
------- ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD ....................... $12.04 $12.08 $12.59 $11.22 $12.57 $12.22
====== ====== ====== ====== ====== ======
TOTAL RETURN (1) ..................................... 2.95% 2.34% 19.86% -4.48% 10.02% 6.91%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($1,000's)................ $17,681 $17,385 $15,206 $10,842 $9,113 $6,165
Ratio of expenses to average net assets (2) ........ 0.69%(3) 0.67% 0.76% 0.74% 0.86% 0.88%
Ratio of net income to average net assets........... 6.57%(3) 6.46% 6.62% 6.79% 6.75% 7.12%
Portfolio turnover rate ............................ 10%(3) 11% 14% 15% 29% 37%
(1) Total return does not reflect sales charge and is not annualized.
(2) Ratio of expenses to average net assets includes expenses paid indirectly beginning in fiscal 1995.
(3) Annualized.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1997
(UNAUDITED)
NOTE 1 - ACCOUNTING POLICIES
Composite Deferred Series, Inc. (the "Fund") is registered under the Invest-
ment Company Act of 1940, as amended, as an open-end diversified management
investment company. The Fund consists of three separate portfolios: the Growth
& Income, Northwest, and Income Portfolios are designed to meet a variety of
investment objectives.
WM Life Insurance Company (the "Company") 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
"Contract") issued by the Company. Contract holders 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 Boards 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 pur-
chased are valued at amortized cost which approximates market value. Invest-
ment 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
Boards of Directors.
b. The Fund requires the custodian to take possession, to have legally
segregated in the Federal Reserve Book Entry System or to have segregated
within the custodian's vault, all securities held as collateral for
repurchase agreements. The market value of the underlying securities is
required to be at least 102% of the resale price at the time of purchase. If
the seller of the agreement defaults and the value of the collateral
declines, or if the seller enters an insolvency proceeding, realization of
the value of the collateral by the Fund may be delayed or limited.
c. 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.
d. Dividends to the shareholder of the Growth & Income and Northwest Portfolios
are calculated and paid quarterly. Dividends to the shareholder of the Income
Portfolio are calculated daily and paid monthly. Any capital gains are paid
annually.
e. Security transactions are accounted for on the trade date (execution date of
the order to buy or sell). The cost of investments sold is determined by use
of the specific identification method for both financial reporting and
federal income tax purposes.
f. 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 in accordance 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.
g. Custodial fees have been increased by $542, $256, and $278 for the Growth &
Income, Northwest, and Income Portfolios, respectively, as a result of
"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 regulations, such amounts are added to net custodial fees and
then reflected as a deduction, "fees paid indirectly," to derive net
expenses. There were no "expense offset arrangements" other than custodial
fees.
h. The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
<PAGE>
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 a 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 a 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, 1997,
Portfolio securities valued at $103,500 were held in a segregated account by the
custodian in connection with covered call options written by the Growth & Income
Portfolio.
Transactions in written covered call options during the six months ended June
30, 1997, were as follows:
GROWTH & INCOME
PORTFOLIO
-------------------
NUMBER OF
CONTRACTS PREMIUMS
--------- --------
Outstanding at Dec. 31, 1996.. 10 $1,982
Written....................... 10 2,465
Exercised..................... (10) (1,982)
Expired....................... - -
--------- --------
Outstanding at June 30, 1997.. 10 $2,465
========= ========
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., recently formed Composite Funds Distributor, Inc. (CFDI) as its
successor in interest for the underwriter and distributor functions. The Board
of Directors approved the transfer of the distribution contract to CFDI
effective July 14, 1997. All 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.
<PAGE>
NOTE 4 - CAPITAL STOCK
At June 30, 1997, there were 10 billion shares of no par value capital stock
authorized. Transactions in capital stock were as follows:
<TABLE>
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
1997 DECEMBER 31, 1997 DECEMBER 31, 1997 DECEMBER 31,
(UNAUDITED) 1996 (UNAUDITED) 1996 (UNAUDITED) 1996
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Shares
Sold........................... 188,884 590,876 105,205 247,127 119,961 387,398
Issued for reinvestment of
dividends and capital gains.. 143,257 22,757 20,723 3,182 47,265 86,907
----------- ----------- ----------- ----------- ----------- -----------
332,141 613,633 125,928 250,309 167,226 474,305
Reacquired..................... (54,104) (120,141) (20,725) (49,897) (137,861) (243,230)
----------- ----------- ----------- ----------- ----------- -----------
278,037 493,492 105,203 200,412 29,365 231,075
=========== =========== =========== =========== =========== ===========
Amount
Sold........................... $4,714,490 $12,978,872 $2,063,417 $4,028,601 $1,432,044 $4,679,598
Issued for reinvestment of
dividends and capital gains.. 3,423,753 517,216 387,444 54,083 564,259 1,045,694
----------- ----------- ----------- ----------- ----------- -----------
8,138,243 13,496,088 2,450,861 4,082,684 1,996,303 5,725,292
Reacquired..................... (1,352,890) (2,626,841) (405,666) (815,632) (1,645,410) (2,928,659)
----------- ----------- ----------- ----------- ----------- -----------
$6,785,353 $10,869,247 $2,045,195 $3,267,052 $ 350,893 $2,796,633
=========== =========== =========== =========== =========== ===========
</TABLE>
<PAGE>
==================================================
--------------------------------------------------
For further information, please contact:
FUND OFFICES
Composite Group of Funds
601 W. Main Avenue, Suite 300
Spokane, WA 99201-0613
Phone: (509) 353-3550
Toll free: (800) 543-8072
--------------------------------------------------
==================================================
ADVISER
Composite Research & Management Co.
1201 Third Avenue, Suite 1400 Seattle, WA 98101-3015
DISTRIBUTOR
Composite Funds Distributor, Inc.
601 W. Main Avenue, Suite 300 Spokane, WA 99201-0613
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 700 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
Vice President
Gene G. Branson
Vice President & Treasurer
Monte D. Calvin
Secretary
John T. West
BOARD OF DIRECTORS
Members
Wayne L. Attwood, M.D.
Kristianne Blake
Anne V. Farrell
Michael K. Murphy
William G. Papesh
Dan Pavelich
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] (8/97)
50036
COMPOSITE
DEFERRED
SERIES,
INC.
SEMIANNUAL
REPORT
JUNE 30, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S SEMIANNUAL REPORT AND FORM N-SAR WHICH ARE ON FILE WITH THE
SECURITIES AND EXCHANGE COMMISSION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH DOCUMENTS.
</LEGEND>
<CIK> 0000808421
<NAME> Composite Deferred Series, Inc.
<SERIES>
<NUMBER> 01
<NAME> Growth & Income Portfolio
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 38,091,798
<INVESTMENTS-AT-VALUE> 52,431,635
<RECEIVABLES> 601,661
<ASSETS-OTHER> 701
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 53,033,997
<PAYABLE-FOR-SECURITIES> 423,125
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 53,610
<TOTAL-LIABILITIES> 476,735
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 36,734,150
<SHARES-COMMON-STOCK> 1,980,419
<SHARES-COMMON-PRIOR> 1,702,382
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (215)
<ACCUMULATED-NET-GAINS> 1,484,900
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 14,338,427
<NET-ASSETS> 52,557,262
<DIVIDEND-INCOME> 422,165
<INTEREST-INCOME> 23,681
<OTHER-INCOME> 0
<EXPENSES-NET> (133,729)
<NET-INVESTMENT-INCOME> 312,117
<REALIZED-GAINS-CURRENT> 1,499,031
<APPREC-INCREASE-CURRENT> 5,985,847
<NET-CHANGE-FROM-OPS> 7,793,995
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (313,730)
<DISTRIBUTIONS-OF-GAINS> (3,110,023)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 188,884
<NUMBER-OF-SHARES-REDEEMED> (54,104)
<SHARES-REINVESTED> 143,257
<NET-CHANGE-IN-ASSETS> 11,155,595
<ACCUMULATED-NII-PRIOR> 1,398
<ACCUMULATED-GAINS-PRIOR> 3,095,892
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 114,416
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 133,729
<AVERAGE-NET-ASSETS> 46,090,684
<PER-SHARE-NAV-BEGIN> 24.32
<PER-SHARE-NII> 0.17
<PER-SHARE-GAIN-APPREC> 3.97
<PER-SHARE-DIVIDEND> (0.17)
<PER-SHARE-DISTRIBUTIONS> (1.75)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 26.54
<EXPENSE-RATIO> 0.59
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S SEMIANNUAL REPORT AND FORM N-SAR WHICH ARE ON FILE WITH THE
SECURITIES AND EXCHANGE COMMISSION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH DOCUMENTS.
</LEGEND>
<CIK> 0000808421
<NAME> Composite Deferred Series, Inc.
<SERIES>
<NUMBER> 02
<NAME> Income Portfolio
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 17,335,440
<INVESTMENTS-AT-VALUE> 17,388,697
<RECEIVABLES> 296,739
<ASSETS-OTHER> 4,804
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 17,690,240
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 9,311
<TOTAL-LIABILITIES> 9,311
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 17,740,740
<SHARES-COMMON-STOCK> 1,467,976
<SHARES-COMMON-PRIOR> 1,438,611
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (113,068)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 53,257
<NET-ASSETS> 17,680,929
<DIVIDEND-INCOME> 7,679
<INTEREST-INCOME> 615,937
<OTHER-INCOME> 0
<EXPENSES-NET> (59,357)
<NET-INVESTMENT-INCOME> 564,259
<REALIZED-GAINS-CURRENT> 28,681
<APPREC-INCREASE-CURRENT> (83,149)
<NET-CHANGE-FROM-OPS> 509,791
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (564,259)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 119,961
<NUMBER-OF-SHARES-REDEEMED> (137,861)
<SHARES-REINVESTED> 47,265
<NET-CHANGE-IN-ASSETS> 296,425
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (141,748)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 42,930
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 59,357
<AVERAGE-NET-ASSETS> 17,413,580
<PER-SHARE-NAV-BEGIN> 12.08
<PER-SHARE-NII> 0.39
<PER-SHARE-GAIN-APPREC> (0.04)
<PER-SHARE-DIVIDEND> (0.39)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.04
<EXPENSE-RATIO> 0.69
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S SEMIANNUAL REPORT AND FORM N-SAR WHICH ARE ON FILE WITH THE
SECURITIES AND EXCHANGE COMMISSION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH DOCUMENTS.
</LEGEND>
<CIK> 0000808421
<NAME> Composite Deferred Series, Inc.
<SERIES>
<NUMBER> 03
<NAME> Northwest Portfolio
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 11,910,991
<INVESTMENTS-AT-VALUE> 17,342,756
<RECEIVABLES> 197,920
<ASSETS-OTHER> 30,471
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 17,571,147
<PAYABLE-FOR-SECURITIES> 132,651
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,946
<TOTAL-LIABILITIES> 138,597
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11,550,854
<SHARES-COMMON-STOCK> 805,519
<SHARES-COMMON-PRIOR> 700,316
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (226)
<ACCUMULATED-NET-GAINS> 450,157
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,431,765
<NET-ASSETS> 17,432,550
<DIVIDEND-INCOME> 64,131
<INTEREST-INCOME> 16,045
<OTHER-INCOME> 0
<EXPENSES-NET> (50,482)
<NET-INVESTMENT-INCOME> 29,694
<REALIZED-GAINS-CURRENT> 475,755
<APPREC-INCREASE-CURRENT> 2,499,704
<NET-CHANGE-FROM-OPS> 3,005,153
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (30,769)
<DISTRIBUTIONS-OF-GAINS> (356,675)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 105,205
<NUMBER-OF-SHARES-REDEEMED> (20,725)
<SHARES-REINVESTED> 20,723
<NET-CHANGE-IN-ASSETS> 4,662,904
<ACCUMULATED-NII-PRIOR> 849
<ACCUMULATED-GAINS-PRIOR> 331,077
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 36,406
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 50,482
<AVERAGE-NET-ASSETS> 14,708,931
<PER-SHARE-NAV-BEGIN> 18.23
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 3.89
<PER-SHARE-DIVIDEND> (0.04)
<PER-SHARE-DISTRIBUTIONS> (0.48)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 21.64
<EXPENSE-RATIO> 0.70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
