PORTFOLIO COMPOSITION.......................2
PORTFOLIO HIGHLIGHTS........................3
PORTFOLIOS..................................6
FINANCIAL INFORMATION
INDEPENDENT PUBLIC ACCOUNTANTS' REPORT...17
FINANCIAL STATEMENTS.....................18
FINANCIAL HIGHLIGHTS.....................21
NOTES TO FINANCIAL STATEMENTS............24
ANOTHER SOLID YEAR FOR OUR PORTFOLIOS.
ARE YOU KEEPING UP?
Ongoing studies show that consumer confidence in our economy remains at
high levels. More to the point, there has been a decided shift in attitudes
concerning investing. Given the strength of both the stock and bond markets for
more than a dozen years, investing for one's future has become recognized as not
only prudent, but potentially quite rewarding.
[PHOTO - WILLIAM G. PAPESH, PRESIDENT COMPOSITE GROUP OF FUNDS]
There is a message in all of this beyond the obvious. While it may be
difficult for some to anticipate the need to revisit portfolio asset allocation,
this is a crucial step. Age and personal circumstances change over time, and a
serious look at how well you are positioned to deal with new challenges and
opportunities is critical to maximizing investment returns.
For example, there are obvious benefits to be gained from the growth of
compounded earnings in a tax-deferred environment. But where investment options
exist, it is important to determine whether the current mix of equity and fixed
income investments is right for you. A weighting of one sector over the other 10
years ago may not be appropriate today. By all means, seek the opportunity to
discuss this matter with your investment or insurance professional and make any
appropriate changes.
Regardless of your preferences, I commend the strategies, qualities and
performance of our three portfolios in Composite Deferred Series. With careful
planning they can continue to be important segments of your financial program.
Thank you so much for your business and hearty good wishes for the new year.
/s/ William G. Papesh
WILLIAM G. PAPESH
PRESIDENT
FOOTNOTE 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 generally 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 Growth & Income and Income Portfolios,
and January 1993 for the Northwest Portfolio.
<PAGE>
PORTFOLIO COMPOSITION
PERCENTAGE OF NET ASSETS AS OF DECEMBER 31, 1997
[PIE CHARTS]
GROWTH & INCOME PORTFOLIO
TOP TEN HOLDINGS
Northrop Grumman Corporation - 3%
Federal Home Loan Mortgage Corporation - 3%
Johnson & Johnson - 2%
Viacom Inc., Class A - 2%
Microsoft Corporation - 2%
General Electric Company - 2%
Sprint Corporation - 2%
Donaldson Company - 2%
Royal Dutch Petroleum - 2%
Wells Fargo & Company - 2%
INDUSTRY ALLOCATION
Capital Goods 19%
Financial Services 18%
Consumer Goods 16%
Health Care 13%
Computer 10%
Media 7%
Electrical/Electronic
Semi-Conductor 7%
Utilities 4%
Convertible Preferred Stock 3%
Miscellaneous 3%
NORTHWEST PORTFOLIO
TOP TEN HOLDINGS
Microsoft Corporation - 4%
Fred Meyer, Inc. - 4%
Costco Companies, Inc. - 3%
Boeing Company - 3%
Albertsons Inc. - 3%
U.S. Bancorp Oregon - 3%
ICOS Corporation - 3%
In Focus Systems - 2%
Tektronix, Inc. - 2%
Safeco Corporation - 2%
INDUSTRY ALLOCATION
Consumer Goods 19%
Computer 15%
Capital Goods 14%
Electrical Equipment & Electronics 14%
Financial Services 12%
Health Care 11%
Transportation 6%
Utilities 4%
Cash & Other Assets 3%
REITs 2%
INCOME PORTFOLIO
TOP TEN ISSUERS
U.S. Treasury - 40%
Government National Mortgage Association - 9%
Federal National Mortgage Association - 2%
Weyerhaeuser - 2%
Burlington Northern - 2%
Continental Corporation - 2%
First Nationwide - 2%
Loral Space - 2%
American Home Products - 1%
Conagra, Inc. - 1%
ASSET ALLOCATION
U.S. Treasury Obligations 40%
Non-Convertible Corporate Bonds 31%
Government Agency 11%
Cash & Other Assets 7%
Collateralized Mortgage Obligation -
Government Agency Backed 4%
Convertible Corporate Bonds 3%
Collateralized Mortgage Obligations 2%
U.S. Dollar Foreign Obligations 1%
Convertible Preferred Stock 1%
<PAGE>
PORTFOLIO HIGHLIGHTS
GROWTH & INCOME PORTFOLIO
IMPACTS ON RECENT PERFORMANCE
The stock market was strong during most of 1997. This performance was fueled
by continued economic growth with very modest inflation. The month of October
ended with the stock market's first 10% correction in over three years. This
correction stemmed from fear that the collapse of Asian currencies would have an
effect on corporate earnings here in the U.S. Corporate mergers and acquisitions
were strong all year. Our performance was positively impacted by our holdings in
Northrop (3.01% of the Portfolio) and Integon Corp. (0.36% of the Portfolio when
held). Conversely, our new position in Waste Management (1.73% of the Portfolio)
and Columbia Hospital (0.82% of the Portfolio) performed poorly. The market has
yet to realize the substantial undervaluation that we believe is inherent in
these stocks. Of course Portfolio holdings, including those shown above, are
subject to change without notice.
WHAT'S AHEAD?
We look for slower economic growth in 1998 than what was achieved globally in
1997. Inflation should remain low, as Asian countries try to export their way
out of their currency problems. The Federal Reserve should not have to take much
action to keep the economy from overheating in 1998. Investors in the stock
market may become very concerned about earnings growth with cyclical issues in
1998. Consumer non-durables and stocks that do well in a low interest rate
environment should continue to perform well, as interest rates should remain
stable.
KEY INVESTMENT STRATEGIES
Our basic strategy, as always, is to buy stocks of good businesses when they
are at "sale prices." Good businesses generate a high return on investment,
generate positive cash flow, benefit from competitive advantage and are in
industries with barriers to entry.
For example, the healthcare industry is filled with good companies that
represent attractive values. This situation has been created by fears of deep
budget cuts in Medicaid and Medicare. We believe the aging of the population
should fuel the demand for healthcare services for many years to come. Many
investors who have ignored this area in favor of technology stocks could come
rushing back as the economy slows.
Finally, restructuring situations should provide attractive investment
opportunities in 1998. Many companies have trapped asset value that can only be
realized by partial or full sale.
[PERFORMANCE CHART]
PERFORMANCE INFORMATION - GROWTH & INCOME PORTFOLIO
- ----------------------------------------------------------------------------
PERIODS ENDED DECEMBER 31, 1997 Ending Value of $10,000 invested on 12/31/87
$50,000 [LEGEND]
Growth & Income Portfolio $40,713
$40,000 S&P 500 (Stocks) $52,535
CPI (Inflation) $14,029
$30,000
Past performance cannot predict future results.
$20,000
$10,000
0
12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/...12/31/97
- --------------------------------------------------------------------------------
ONE YEAR FIVE YEARS TEN YEARS
-------- ---------- ---------
AVERAGE ANNUAL TOTAL RETURNS 29.66% 18.52% 8.87%
The chart depicts the Portfolio's performance. An investment in the Portfolio
through a variable annuity contract will result in lower returns because annuity
returns are typically net of all fees and assume payment of a contingent
deferred sales charge. See footnote on page 1.
<TABLE>
<CAPTION>
Performance Information - Growth & Income Portfolio periods ended Dec. 31, 1997
Ending Value of $10,000 invested on 12/31/87
Composite Standard & Poor's Consumer
Deferred Growth 500 Index Price Index
--------------- ----------------- -----------
<S> <C> <C> <C>
12/31/87 10,000 $10,000 $10,000
3/31/88 11,072 $10,571 $10,095
6/30/88 11,436 $11,269 $10,225
9/30/88 11,620 $11,308 $10,381
12/31/88 11,855 $11,655 $10,442
3/31/89 12,493 $12,486 $10,598
6/30/89 13,048 $13,578 $10,754
9/30/89 13,727 $15,027 $10,832
12/31/89 13,159 $15,339 $10,927
3/31/90 12,873 $14,889 $11,153
6/30/90 13,263 $15,815 $11,256
9/30/90 11,432 $13,654 $11,499
12/31/90 12,506 $14,871 $11,594
3/31/91 14,332 $17,031 $11,698
6/30/91 14,666 $16,992 $11,785
9/30/91 14,994 $17,901 $11,889
12/31/91 15,747 $19,402 $11,950
3/31/92 15,928 $18,912 $12,071
6/30/92 16,166 $19,271 $12,149
9/30/92 16,647 $19,879 $12,244
12/31/92 17,409 $20,880 $12,296
3/30/93 17,974 $21,791 $12,444
6/30/93 17,906 $21,897 $12,513
9/30/93 17,964 $22,463 $12,574
12/31/93 18,726 $22,984 $12,634
3/31/94 18,550 $22,112 $12,756
6/30/94 18,627 $22,205 $12,825
9/30/94 19,553 $23,291 $12,946
12/31/94 19,235 $23,288 $12,972
3/31/95 20,822 $25,555 $13,120
6/30/95 22,328 $27,995 $13,215
9/30/95 24,101 $30,219 $13,276
12/31/95 25,718 $32,039 $13,302
3/31/96 27,121 $33,758 $13,492
6/30/96 28,366 $35,273 $13,579
9/30/96 29,238 $36,363 $13,674
12/31/96 31,399 $39,395 $13,795
3/31/97 31,884 $40,446 $13,856
6/30/97 37,029 $47,507 $13,891
9/30/97 40,179 $51,069 $13,977
12/31/97 40,713 $52,535 $14,029
</TABLE>
<PAGE>
NORTHWEST PORTFOLIO
KEY IMPACTS ON 1997 PERFORMANCE
During 1997, the Portfolio returned 32.92%, a strong return by most
standards, although slightly less than the unmanaged Standard & Poor's 500 Index
which returned 33.4% over the same period. Early in the year, large
capitalization stocks performed well, while many smaller capitalization issues
performed well later in the year, contributing a nice balance to total returns
for the year.
The biotechnology sector provided plenty of action in 1997. Immunex (1.6% of
the Portfolio) was our best performing stock, vaulting 177% with a successful
trial for its arthritis drug candidate. Icos (2.6% of the Portfolio) also
performed handsomely, providing a 140% return, due to stronger recognition of
the company's solid research pipeline. However, Ostex (0.1% of the Portfolio)
was the worst performing stock in the Portfolio, losing 52.3%. The company had
disappointing sales of its key product. Corixa is a biotechnology company that
had its initial public offering in October, and subsequently lost 34% of its
value. We continue to be encouraged by research prospects at the company.
Volatile results are characteristic of the biotechnology sector, which accounts
for less than 7% of our holdings.
Other successes in the Portfolio included Airborne Freight (1.6% of the
Portfolio) which rose 166% with sharply improved earnings, and Fred Meyer (3.6%
of the Portfolio) rose 105% due to a series of promising acquisitions. Losers
for the year included Pacificare Health Systems and Nike. Pacificare encountered
difficulties with a large acquisition, losing 38.6%, and Nike lost 34.9% of its
value when growth slowed dramatically. Portfolio holdings, including those
discussed above, are subject to change without notice.
WHAT'S AHEAD?
We believe that the Northwest economy will be strong for the next several
years. Boeing continues to increase production rates. Although it has
encountered significant difficulties with the production ramp, the company is
expected to maintain high employment levels which should support the Northwest
economy. The other growth engine in the region, technology, continues to run
smoothly, led by Microsoft and Intel. Both companies are expected to spend
billions to support their ambitious business plans.
KEY INVESTMENT STRATEGIES
We continue to pursue good investment opportunities in the Northwest.
Increasingly, performance of the Portfolio is influenced not only by our
regional economy, but by national and global economies as well. In late October,
concerns over global currency and economic issues caused significant volatility
in the stock market and your Portfolio. Such volatility, while unsettling, is a
normal part of investing. We continue to believe that shareholders with a long
investment horizon will be well rewarded.
[PERFORMANCE CHART]
PERFORMANCE INFORMATION - NORTHWEST PORTFOLIO - PERIODS ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
Ending Value of $10,000 invested since inception on 1/4/93
$35,000 [LEGEND]
Northwest Portfolio $20,841
$30,000 S&P 500 (Stocks) $25,161
CPI (Inflation) $11,409
$25,000
Past performance cannot predict future results.
$20,000
$15,000
$10,000
$ 5,000
$ 0
1/4/93 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
FUND LIFE
ONE YEAR (SINCE 1/4/93)
-------- --------------
AVERAGE ANNUAL TOTAL RETURNS 32.92% 18.52%
The chart depicts the Portfolio's performance. An investment in the Portfolio
through a variable annuity contract will result in lower returns because annuity
returns are typically net of all fees and assume payment of a contingent
deferred sales charge. See footnote on page 1.
<TABLE>
<CAPTION>
Performance Information - Northwest Portfolio - Periods ended Dec. 31, 1997
Ending Value of $10,000 invested since inception on 1/4/93
Composite Deferred
Northwest S & P 500 CPI
------------------ --------- -------
<S> <C> <C> <C>
1/4/93 $10,000 $10,000 $10,000
3/31/93 $10,105 $10,437 $10,120
6/30/93 $ 9,800 $10,487 $10,176
9/30/93 $ 9,611 $10,758 $10,226
12/31/93 $10,293 $11,008 $10,275
3/31/94 $10,369 $10,590 $10,374
6/30/94 $10,149 $10,635 $10,430
9/30/94 $10,356 $11,155 $10,529
12/31/94 $10,178 $11,153 $10,550
3/31/95 $10,824 $12,239 $10,669
6/30/95 $11,774 $13,408 $10,747
9/30/95 $12,824 $14,473 $10,796
12/31/95 $12,827 $15,344 $10,817
3/31/96 $13,379 $16,168 $10,973
6/30/96 $14,090 $16,894 $11,043
9/30/96 $14,360 $17,416 $11,121
12/31/96 $15,679 $18,868 $11,219
3/31/97 $15,987 $19,371 $11,268
6/30/97 $19,128 $22,753 $11,297
9/30/97 $21,825 $24,459 $11,367
12/31/97 $20,841 $25,161 $11,409
</TABLE>
<PAGE>
INCOME PORTFOLIO
IMPACTS ON RECENT PERFORMANCE
The income produced from the Portfolio's intermediate investments, a decline
in interest rates, strong performance by mortgage-backed securities, and stable
results from the corporate bond holdings produced double digit returns for 1997.
Just as impressive as the one-year return is the annualized return for the last
three and five years. Returns during all periods have well outpaced inflation
and rewarded the shareholder with increased purchasing power.
A significant sector of the Portfolio (34.44%) is debt issued by
corporations. Solid economic growth, rising productivity, and low inflation
produced improved credit quality for corporations. Although the Portfolio has
some corporate bond holdings that produced exceptional returns, a few were
disappointing. Overall, however, the corporate bond portfolio produced returns
that were very similar to the industry.
The mortgage-backed securities portion of the Portfolio (16.24%) had
above-average returns for 1997. Last year proved opportune to invest in
mortgage-backed securities because interest rates were relatively stable
(intermediate rates declined about 1/2 of 1% for the year). Stable rates reduce
the incentive for home-owners to refinance and consequently the higher-yielding
mortgage-backed securities tend to remain in the Portfolio.
The Portfolio's investments are of an intermediate maturity and will
generally rise in value when interest rates fall and decline in value when rates
rise. Because interest rates declined in 1997, albeit rather modestly, a
positive capital appreciation was generated for shareholders.
WHAT'S AHEAD?
We feel comfortable with the diversified mix of corporate, mortgage-backed,
and Treasury securities that make up the Portfolio and will continue to target
an average quality of A to BBB as rated by Standard & Poor's.
As we enter 1998, the majority of our corporate bond investments will be
concentrated in non-cyclical industries such as health care, defense and
utilities. Also, we feel that there are currently some situations worldwide
which offer a unique opportunity for excess returns for the long-term investor
and they should be included as a portion of the Portfolio's investments.
The mortgage-backed portfolio, as always, seeks to add extra yield to the
Portfolio while concentrating on controlling prepayments. Although rates have
fallen and are relatively low by recent historical standards, we believe that
excess worldwide capacity, fiscal austerity, and changing demographics will con-
tinue to keep inflation under control and the long-term trend in rates down.
Because of our long-term focus in managing the funds, we have the Portfolio
structured to take advantage of this trend.
[PERFORMANCE CHART]
PERFORMANCE INFORMATION - INCOME PORTFOLIO - PERIODS ENDED DECEMBER 31, 1997
- ----------------------------------------------------------------------------
Ending Value of $10,000 invested since inception on 1/4/93
$35,000 [LEGEND]
Income Portfolio $23,135
$30,000 LGCB (Gov't/Corp. Bonds) $23,988
CPI (Inflation) $14,029
$25,000
Past performance cannot predict future results.
$20,000
$15,000
$10,000
$ 5,000
$ 0
12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 .....12/31/97
ONE YEAR FIVE YEARS TEN YEARS
-------- ---------- ---------
AVERAGE ANNUAL TOTAL RETURNS 10.62% 7.36% 3.61%
The chart depicts the Portfolio's performance. An investment in the Portfolio
through a variable annuity contract will result in lower returns because annuity
returns are typically net of all fees and assume payment of a contingent
deferred sales charge. See footnote on page 1.
<TABLE>
<CAPTION>
Performance Information - Income Portfolio - Periods ended Dec. 31, 1997
Ending Value of $10,000 invested since 12/31/87
Composite Lehman Government/ Consumer
Deferred Income Corporate Bond Index Price Index
--------------- -------------------- -----------
<S> <C> <C> <C>
12/31/87 $10,000 $10,000 $10,000
3/31/88 $10,465 $10,358 $10,095
6/30/88 $10,623 $10,460 $10,225
9/30/88 $10,805 $10,655 $10,381
12/31/88 $10,969 $10,758 $10,442
3/31/89 $11,134 $10,877 $10,598
6/30/89 $11,586 $11,751 $10,754
9/30/89 $11,854 $11,861 $10,832
12/31/89 $12,058 $12,290 $10,927
3/31/90 $12,083 $12,149 $11,153
6/30/90 $12,492 $12,586 $11,256
9/30/90 $12,515 $12,662 $11,499
12/31/90 $13,093 $13,307 $11,594
3/31/91 $13,476 $13,666 $11,698
6/30/91 $13,699 $13,873 $11,785
9/30/91 $14,414 $14,670 $11,889
12/31/91 $15,174 $15,453 $11,950
3/31/92 $14,997 $15,221 $12,071
6/30/92 $15,600 $15,838 $12,149
9/30/92 $16,267 $16,612 $12,244
12/31/92 $16,223 $16,625 $12,296
3/31/93 $16,962 $17,398 $12,444
6/30/93 $17,370 $17,920 $12,513
9/30/93 $17,873 $18,513 $12,574
12/31/93 $17,849 $18,459 $12,634
3/31/94 $17,192 $17,881 $12,756
6/30/94 $16,936 $17,658 $12,825
9/30/94 $17,010 $17,746 $12,946
12/31/94 $17,050 $17,811 $12,972
3/31/95 $17,890 $18,699 $13,120
6/30/95 $19,144 $19,912 $13,215
9/30/95 $19,489 $20,293 $13,276
12/31/95 $20,436 $21,238 $13,302
3/31/96 $19,880 $20,742 $13,492
6/30/96 $19,924 $20,839 $13,579
9/30/96 $20,271 $21,207 $13,674
12/31/96 $20,913 $21,855 $13,756
3/31/97 $20,708 $21,666 $13,856
6/30/97 $21,529 $22,455 $13,891
9/30/97 $22,352 $23,242 $13,977
12/31/97 $23,135 $23,988 $14,029
</TABLE>
<PAGE>
COMPOSITE DEFERRED SERIES, INC.
PORTFOLIOS OF INVESTMENTS IN SECURITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
GROWTH & INCOME PORTFOLIO
MARKET
SHARES VALUE
-------- -----------
<S> <C>
COMMON STOCKS - 96.22%
AEROSPACE/DEFENSE - 3.01%
15,000 Northrop Grumman Corporation................................ $ 1,725,000
-----------
APPAREL & SHOES - 0.25%
3,600 Nike, Inc., Class B......................................... 141,300
-----------
BANK/SAVINGS & LOAN - 6.82%
8,800 Bank of New York Company, Inc. ............................. 508,750
10,214 Mellon Bank Corporation..................................... 619,224
25,960 Norwest Bancorp............................................. 1,002,705
7,300 Prime Bancshares, Inc. ..................................... 152,388
19,150 Washington Federal, Inc. ................................... 602,028
3,000 Wells Fargo & Company....................................... 1,018,313
-----------
3,903,408
-----------
BASIC INDUSTRY - 1.73%
36,100 Waste Management, Inc. ..................................... 992,750
-----------
BEVERAGES - 2.12%
19,900 PepsiCo, Inc. .............................................. 725,106
15,100 Seagram Company, Ltd. ...................................... 487,919
-----------
1,213,025
-----------
BUSINESS SERVICES - 2.21%
26,434 Cendant Corporation......................................... 908,671
12,200 First Data Corporation...................................... 356,851
-----------
1,265,522
-----------
CAPITAL GOODS - 1.79%
22,800 Donaldson Company, Inc. .................................... 1,027,425
-----------
COMPUTER SOFTWARE - 6.53%
15,100 Adobe Systems, Inc. ........................................ 622,875
34,250 Barra, Inc.*................................................ 826,281
13,200 Computer Associates International, Inc. .................... 697,950
9,500 Microsoft Corporation*...................................... 1,227,875
16,300 Oracle Corporation.......................................... 363,694
-----------
3,738,675
-----------
COMPUTER SYSTEMS - 3.03%
22,600 Cabletron Systems*.......................................... 339,000
6,300 Cisco Systems, Inc.*........................................ 351,225
12,364 Electronic Data Systems Corporation......................... 543,243
8,000 Hewlett-Packard Company..................................... 500,000
-----------
1,733,468
-----------
CONSUMER DURABLES - 2.03%
17,500 Castle & Cooke, Inc.*....................................... $ 295,313
6,862 Mattel, Inc. ............................................... 255,609
19,450 Zurn Industries, Inc. ...................................... 611,459
-----------
1,162,381
-----------
CONSUMER NONDURABLES/SERVICES - 1.08%
12,500 Kimberly Clark Corporation.................................. 616,406
-----------
ELECTRICAL EQUIPMENT - 3.55%
14,700 Emerson Electric Company.................................... 829,631
16,400 General Electric Company.................................... 1,203,350
-----------
2,032,981
-----------
ELECTRONICS/GENERAL - 0.89%
23,900 Loral Space & Communications*............................... 512,356
-----------
ELECTRONICS-SEMICONDUCTORS/COMPONENTS - 2.71%
9,200 Intel Corporation........................................... 646,300
15,900 Motorola, Inc. ............................................. 907,294
-----------
1,553,594
-----------
FINANCIAL SERVICES - 5.37%
36,100 Federal Home Loan Mortgage Corporation...................... 1,513,944
29,150 Green Tree Financial Corporation............................ 763,366
21,100 Liberty Financial Companies................................. 796,525
-----------
3,073,835
-----------
FOOD & FOOD RETAILERS - 1.86%
4,000 Campbell Soup Company....................................... 232,500
7,550 Sara Lee Corporation........................................ 425,159
6,100 Quality Food Centers, Inc. ................................. 408,700
-----------
1,066,359
-----------
HEALTHCARE PRODUCTS - 7.11%
14,300 Abbott Laboratories......................................... 937,544
12,650 Forest Laboratories, Inc.*.................................. 623,803
19,850 Johnson & Johnson........................................... 1,307,619
8,050 Merck & Company, Inc. ..................................... 855,312
6,700 Smithkline Beecham PLC - American Depository Receipt........ 344,631
-----------
4,068,909
-----------
HEALTHCARE SERVICES - 6.15%
4,000 Aetna Life & Casualty Company............................... 282,250
16,500 Cognizant Corporation....................................... 735,281
15,900 Columbia/HCA Healthcare Corporation......................... 471,038
16,800 Manor Care, Inc. ........................................... 588,000
31,937 Medpartners, Inc.*.......................................... 714,590
14,506 Pacificare Health Systems - Class A......................... 728,927
-----------
3,520,086
-----------
HOUSEHOLD PRODUCTS - 3.97%
7,000 Alberto Culver Company, Class A............................. $ 189,000
33,300 Kimberly Clark de Mexico - American Depository Receipt...... 782,550
8,500 Proctor & Gamble Company.................................... 678,406
10,000 Unilever Group.............................................. 624,375
-----------
2,274,331
-----------
INSURANCE - 3.88%
7,875 American International Group, Inc........................... 856,406
300 Penncorp Financial Group, Inc. ............................. 10,706
16,500 TIG Holdings, Inc. ......................................... 547,594
15,000 Travelers Group, Inc. ...................................... 808,125
-----------
2,222,831
-----------
LODGING/RESTAURANTS - 1.70%
30,150 Choice Hotels Holdings*..................................... 482,400
49,483 Sunburst Hospitality Corporation............................ 488,645
-----------
971,045
-----------
MACHINERY - 2.03%
14,750 Crane Company............................................... 639,781
9,000 Deere & Company............................................. 524,813
-----------
1,164,594
-----------
MEDIA - 6.78%
29,866 AC Nielson*................................................. 727,984
21,000 Dun & Bradstreet Corporation................................ 649,688
12,000 Lee Enterprises, Inc. ...................................... 354,750
14,500 Time Warner, Inc. .......................................... 899,000
30,625 Viacom, Inc., Class A*...................................... 1,251,797
-----------
3,883,219
-----------
OIL & GAS - 7.11%
10,800 Exxon Corporation........................................... 660,825
8,850 Mobil Corporation........................................... 638,859
21,700 Occidental Petroleum Corporation............................ 636,081
10,400 Pennzoil Company............................................ 694,850
18,800 Royal Dutch Petroleum Company - American Depository Receipt. 1,018,725
17,291 Union Pacific Resources Group............................... 419,307
-----------
4,068,647
-----------
PAPER & FOREST PRODUCTS - 0.95%
11,100 Weyerhaeuser Company........................................ 544,594
-----------
REAL ESTATE INVESTMENT TRUSTS - 2.08%
12,750 CCA Prison Realty Trust..................................... 568,969
16,400 Health Care Property Investors, Inc. ...................... 620,125
-----------
1,189,094
-----------
RETAIL SALES - 1.54%
25,000 Intimate Brands, Inc. ...................................... $ 601,563
7,700 Fred Meyer, Inc., Class A*.................................. 280,087
-----------
881,650
-----------
TOBACCO - 1.77%
22,400 Philip Morris Companies, Inc. .............................. 1,015,000
-----------
TRANSPORTATION SERVICES - 2.35%
20,800 Expeditors International of Washington, Inc. ............... 800,800
8,700 Union Pacific Corporation................................... 543,206
-----------
1,344,006
-----------
UTILITIES - GAS & ELECTRIC - 0.17%
2,374 Enron Corporation........................................... 98,669
-----------
UTILITIES - TELECOMMUNICATIONS - 3,65%
14,200 Aliant Communications, Inc. ................................ 445,525
3,200 Bell Atlantic Corporation................................... 291,200
6,900 MCI Communication Corporation............................... 295,406
18,000 Sprint Corporation.......................................... 1,055,250
-----------
2,087,381
-----------
TOTAL COMMON STOCKS (cost $39,039,658)...................... 55,092,541
-----------
CONVERTIBLE PREFERRED STOCKS - 3.12%
2,100 Medpartners, Inc., 6.5% .................................... 46,200
2,500 Loral Space & Communications, 3%............................ 154,375
15,350 Pacificare Health Systems, Inc., $1.00, Series A ........... 349,213
7,000 Penncorp Financial Group, $3.375 Series..................... 567,875
950 PLC Capital Trust II, 6.50%, 02/16/2001 Series.............. 52,250
10,825 Sinclair Broadcasting Group, Inc., 6%....................... 617,025
-----------
TOTAL CONVERTIBLE PREFERRED STOCKS (cost $1,822,105)........ 1,786,938
-----------
PRINCIPAL MARKET
AMOUNT VALUE
----------- ----------
CONVERTIBLE BOND - 0.74%
$250,000 Alberto-Culver Corporation, 5.50%, due 06/30/2005
(cost $383,562)........................................... $ 422,500
-----------
REPURCHASE AGREEMENT - 0.36%
205,000 Credit Suisse First Boston, collateralized by a U.S.
Treasury Note, in a joint trading account at 6.00%,
dated 12/31/1997, due 01/02/1998, with a maturity value of
$205,068 (cost $205,000).................................... 205,000
-----------
TOTAL INVESTMENTS (cost $41,450,326)........................ 57,506,979
Other assets net of liabilities............................. (251,480)
-----------
NET ASSETS.................................................. $57,255,499
===========
</TABLE>
*Non-income producing security.
FEDERAL INCOME TAX INFORMATION:
Net unrealized appreciation of investments at December 31, 1997 of $16,056,653,
based on aggregate cost of $41,450,326, was composed of gross appreciation of
$17,089,392 for investments having an excess of value over cost and gross
depreciation of $1,032,739 for investments having an excess of cost over value.
OTHER INFORMATION:
Purchases and sales of investment securities, other than short-term investments,
aggregated $28,657,215 and $25,408,928, respectively, during the year ended
December 31, 1997, including purchases and sales of U.S. government securities
of $696,117 and $707,703, respectively.
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
NORTHWEST PORTFOLIO
MARKET
SHARES VALUE
---------- ------------
<S> <C>
COMMON STOCKS - 97.96%
AEROSPACE & DEFENSE - 4.20%
12,400 Boeing Company.............................................. $ 606,825
3,800 Precision Castparts Corporation ............................ 229,188
-----------
836,013
-----------
APPAREL & SHOES - 1.12%
5,700 Nike, Inc., Class B......................................... 223,725
-----------
BANK/SAVINGS & LOANS - 8.80%
10,700 First Savings Bank of Washington Bancorp, Inc. ............. 294,250
144 Horizon Financial Corporation............................... 2,556
5,000 Interwest Bancorp, Inc. .................................... 188,750
8,700 Klamath First Bancorp, Inc. ................................ 187,050
6,800 Sterling Financial Corporation*............................. 147,900
4,627 US Bancorp.................................................. 517,935
13,166 Washington Federal, Inc. ................................... 413,906
-----------
1,752,347
-----------
BASIC INDUSTRY - 0.23%
4,700 Morrison Knudsen Corporation*............................... 45,825
-----------
BUSINESS SERVICES - 0.87%
14,800 Barrett Business Services, Inc.*............................ 173,900
-----------
CAPITAL GOODS - 2.25%
14,400 Greenbrier Companies, Inc. ................................. 249,300
3,780 PACCAR, Inc. ............................................... 198,450
-----------
447,750
-----------
COMPUTER SOFTWARE - 9.27%
9,800 Adobe Systems, Inc. ........................................ 404,250
29,900 Mentor Graphics Corporation*................................ 289,656
5,700 Microsoft Corporation*...................................... 736,725
14,300 Orcad, Inc.*................................................ 121,550
900 Visio Corporation*.......................................... 34,538
19,100 Wall Data, Inc.*............................................ 260,237
-----------
1,846,956
-----------
COMPUTER SYSTEMS - 6.10%
15,700 In Focus Systems, Inc.*..................................... 476,888
10,100 Radisys Corporation*........................................ 376,225
18,100 Sequent Computer Systems, Inc.*............................. 362,000
-----------
1,215,113
-----------
CONSUMER DURABLES - 1.20%
9,400 Monaco Coach Corporation*................................... 239,700
-----------
ELECTRICAL EQUIPMENT - 1.37%
6,000 Fluke Corporation........................................... 156,375
7,700 Merix Corporation*.......................................... 116,462
-----------
272,837
-----------
ELECTRONICS/GENERAL - 8.14%
11,000 Electro Scientific Industries, Inc.*........................ 418,000
25,200 FEI Company*................................................ 313,425
10,300 Flir Systems, Inc.*......................................... 213,725
2,800 Itron, Inc.*................................................ 50,400
12,800 Semitool, Inc.*............................................. 167,200
11,550 Tektronix, Inc. ............................................ 458,391
-----------
1,621,141
-----------
ELECTRONICS - SEMICONDUCTORS/COMPONENTS - 4.05%
2,400 Intel Corporation........................................... 168,600
4,100 Lattice Semiconductor Corporation*.......................... 194,237
9,800 Micron Technology, Inc.* ................................... 254,800
9,400 Triquint Semiconductor, Inc.*............................... 190,350
-----------
807,987
-----------
FOODS AND FOOD RETAILERS - 4.50%
11,300 Albertson's, Inc............................................ 535,338
5,390 Quality Food Centers, Inc.*................................. 361,130
-----------
896,468
-----------
HEALTHCARE PRODUCTS - 8.48%
6,800 ATL Ultrasound, Inc.*....................................... 312,800
24,400 Corixa Corporation*......................................... 218,075
28,150 Icos Corporation*........................................... 515,497
5,800 Immunex Corporation*........................................ 313,200
33,000 Neorx Corporation*.......................................... 185,625
5,300 Ostex International, Inc.*.................................. 13,912
3,500 Pathogenesis Corporation*................................... 129,938
-----------
1,689,047
-----------
HEALTHCARE SERVICES - 2.52%
11,940 Foundation Health Systems, Inc., Class A*................... 267,157
4,500 Pacificare Health Systems, Inc., Class B*................... 235,688
-----------
502,845
-----------
INSURANCE - 2.13%
8,700 Safeco Corporation.......................................... 424,125
-----------
LODGING & RESTAURANTS - 1.31%
6,800 Starbucks Corporation*...................................... 260,950
-----------
MEDIA - 1.01%
6,800 Lee Enterprises, Inc. ...................................... 201,025
-----------
METALS & MINING - 4.16%
11,800 Oregon Metallurgical Corporation*........................... 393,825
11,100 Oregon Steel Mills, Inc. ................................... 236,569
7,100 Schnitzer Steel Industries, Inc., Class A .................. 199,244
-----------
829,638
-----------
PAPER & FOREST PRODUCTS - 3.67%
3,000 Boise Cascade Corporation................................... 90,750
3,300 TJ International, Inc. ..................................... 81,675
6,000 Weyerhaeuser Company........................................ 294,375
8,200 Willamette Industries, Inc. ................................ 263,937
-----------
730,737
-----------
REAL ESTATE INVESTMENT TRUSTS - 2.35%
1,425 Equity Residential Properties Trust......................... $ 72,052
11,300 Pacific Gulf Properties, Inc. .............................. 268,375
4,400 Shurgard Storage Centers, Inc., Class A..................... 127,600
-----------
468,027
-----------
RETAIL SALES - 10.38%
24,000 Building Materials Holding Corporation*..................... 252,000
13,800 Costco Companies, Inc.*..................................... 615,825
27,200 Hollywood Entertainment Corporation*........................ 289,000
19,900 Fred Meyer, Inc., Class A*.................................. 723,862
39,000 Multiple Zones International, Inc.*......................... 151,125
600 Nordstrom, Inc. ............................................ 36,225
-----------
2,068,037
-----------
TRANSPORTATION SERVICES - 5.64%
5,100 Airborne Freight Corporation................................ 316,837
10,400 Alaska Air Group, Inc.*..................................... 403,000
10,500 Expeditors International of Washington, Inc. ............... 404,250
-----------
1,124,087
-----------
UTILITIES - GAS & ELECTRIC - 1.06%
5,103 Enron Corporation........................................... 212,093
-----------
UTILITIES - TELECOMMUNICATIONS - 3.15%
2,400 Century Telephone Enterprise................................ 119,550
13,100 General Communication, Inc., Class A*....................... 86,788
24,800 Metro One Telecommunications*............................... 207,700
12,300 Western Wireless Corporation - Class A*..................... 213,712
-----------
627,750
-----------
TOTAL COMMON STOCKS (cost $13,470,040)...................... 19,518,123
-----------
PRINCIPAL
AMOUNT
-----------
REPURCHASE AGREEMENT - 2.50%
$497,000 Credit Suisse First Boston, collateralized by a U.S.
Treasury Note, in a joint trading account at 6.00%, dated
12/31/1997, due 01/02/1998, with a maturity value of
$497,166 (cost $497,000)................................... 497,000
-----------
TOTAL INVESTMENTS (cost $13,967,040)........................ 20,015,123
Other assets net of liabilities............................. (90,867)
-----------
NET ASSETS.................................................. $19,924,256
===========
</TABLE>
*Non-income producing security.
FEDERAL INCOME TAX INFORMATION:
Net unrealized appreciation of investments at December 31, 1997 of $6,048,083,
based on aggregate cost of $13,967,040, was composed of gross appreciation of
$6,619,940 for investments having an excess of value over cost and gross
depreciation of $571,857 for investments having an excess of cost over value.
OTHER INFORMATION:
Purchases and sales of investment securities, other than short-term investments,
aggregated $7,862,860 and $5,130,364, respectively, during the year ended
December 31, 1997.
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
INCOME PORTFOLIO
PRINCIPAL MARKET
AMOUNT VALUE
----------- ------------
<S> <C>
U.S. TREASURY OBLIGATIONS - 40.06%
$2,200,000 U.S. Treasury Bond, 7.25%, due 05/15/2016, 08/15/2022....... $ 2,525,127
1,200,000 U.S. Treasury Bond, 6.25%, due 08/15/2023................... 1,237,126
200,000 U.S. Treasury Bond, 7.50%, due 11/15/2024................... 239,250
250,000 U.S. Treasury Bond, 6.50%, due 11/15/2026................... 266,953
100,000 U.S. Treasury Note, 7.125%, due 02/29/2000.................. 102,938
200,000 U.S. Treasury Note, 7.875%, due 08/15/2001.................. 213,938
250,000 U.S. Treasury Note, 6.375%, due 08/15/2002.................. 256,562
1,000,000 U.S. Treasury Note, 5.75%, due 08/15/2003................... 1,001,251
1,500,000 U.S. Treasury Note, 5.875%, due 02/15/2004, 11/15/2005...... 1,513,126
-----------
TOTAL U.S. TREASURY OBLIGATIONS (cost $6,884,866)........... 7,356,271
-----------
MORTGAGE-BACKED SECURITIES - 16.24%
GOVERNMENT AGENCY - 11.13%
368,506 Federal National Mortgage Association, 8.00%,
due 12/01/2026........................................... 381,865
7,954 Federal National Mortgage Association, 9.00%,
due 10/01/2004........................................... 8,320
483,965 Government National Mortgage Association, 6.50%,
due 07/15/2026........................................... 479,278
362,789 Government National Mortgage Association, 7.00%,
due 07/15/2023........................................... 365,964
406,643 Government National Mortgage Association, 7.50%,
due 06/15/2024........................................... 416,937
115,262 Government National Mortgage Association, 8.00%,
due 06/15/2022........................................... 119,656
9,523 Government National Mortgage Association, 8.50%,
due 03/15/2022........................................... 10,015
243,815 Government National Mortgage Association, 9.00%,
due 05/15/2009........................................... 261,033
------------
2,043,068
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS -
GOVERNMENT AGENCY BACKED - 3.55%
255,000 Federal Home Loan Mortgage Corporation, 7.50%,
due 07/15/2020........................................... 259,066
375,711 Weyerhaeuser 1982-C FHA Putable, 7.43%, due 06/01/2022..... 394,233
-----------
653,299
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS - 1.56%
175,459 Resolution Trust Corporation - 1991-M2-A-2, 7.375%,
due 09/25/2020............................................ 139,623
150,000 Ryland Mortgage Securities Corporation - 1992-12A,
6.50%, due 09/25/2023..................................... 146,462
-----------
286,085
-----------
TOTAL MORTGAGE-BACKED SECURITIES (cost $2,903,286).......... 2,982,452
-----------
NON-CONVERTIBLE CORPORATE BONDS - 31.48%
$ 250,000 American Home Products, 7.25%, due 03/01/2023............... $ 265,472
200,000 Associates Corporation Senior Notes, 8.80%, due 08/01/1998.. 203,198
195,000 Bank of New York, 7.875%, due 11/15/2022.................... 207,946
175,000 Beneficial Corporation, 9.125%, due 02/15/1998.............. 175,585
300,000 Burlington Northern, 8.75%, due 02/25/2022.................. 365,663
200,000 Burlington Resources, 7.15%, due 05/01/1999................. 202,970
200,000 Caterpillar Corporation, 9.375%, due 07/15/2001............. 219,658
150,000 Commonwealth Edison, 9.375%, due 02/15/2000................. 159,137
250,000 Conagra, Inc., 6.70%, due 08/01/2027........................ 258,320
150,000 Consumers Power, 8.75%, due 02/15/1998...................... 150,358
300,000 Continental Corporation, 8.25%, due 04/15/1999.............. 307,430
250,000 FHP International, 7.00%, due 09/15/2003.................... 255,246
250,000 First Nationwide, 10.00%, due 10/01/2006.................... 296,907
100,000 Franchise Finance Corporation, 7.00%, due 11/30/2000........ 101,599
200,000 Franchise Finance Corporation, 7.875%, due 11/30/2005....... 213,687
100,000 General Motors Acceptance Corporation, 7.75%,
due 01/15/1999............................................ 101,730
200,000 Kemper Corporation, 6.875%, due 09/15/2003.................. 205,313
300,000 Loral Corporation, 7.625%, due 06/15/2025................... 329,149
200,000 Mercantile Bank, 7.625%, due 10/15/2002..................... 210,536
250,000 Morgan Stanley, 6.75%, due 03/04/2003....................... 255,015
150,000 Niagara Mohawk Power, 9.50%, due 06/01/2000................. 158,893
49,000 Niagara Mohawk Power, 8.77%, due 01/01/2018................. 52,200
150,000 Portland General Electric, 8.88%, due 08/12/1999............ 156,504
150,000 Public Service Electric & Gas, 8.875%, due 06/01/2003....... 166,653
150,000 Public Service Company of New Hampshire, 9.17%,
due 05/15/1998............................................ 151,428
150,000 Texas Utilities Electric, 9.50%, due 08/01/1999............. 156,746
200,000 Time Warner, Inc., 9.15%, due 02/01/2023.................... 246,530
200,000 U S West Capital Corporation, 6.95%, due 01/15/2037......... 207,442
------------
TOTAL NON-CONVERTIBLE CORPORATE BONDS (cost $5,552,532)..... 5,781,315
------------
CONVERTIBLE CORPORATE BONDS - 2.96%
175,000 CII Financial, Inc., 7.50%, due 09/15/2001.................. 164,281
150,000 Medical Care International (Columbia Medical),
6.75%, due10/01/2006...................................... 139,500
200,000 Spectrum Holobyte, Inc., 6.50%, due 09/15/2002.............. 128,250
150,000 Veterinary Centers of America, Inc., 5.25%, due 05/01/2006.. 111,188
-----------
TOTAL CONVERTIBLE CORPORATE BONDS (cost $568,545)........... 543,219
-----------
PRINCIPAL MARKET
AMOUNT VALUE
------------ U.S DOLLAR FOREIGN OBLIGATIONS - 1.44% ----------
$ 150,000 Province of Alberta, 9.25%, due 04/01/2000.................. $ 160,371
100,000 Province of Manitoba, 9.625%, due 03/15/1999................ 104,327
-----------
TOTAL U.S. DOLLAR FOREIGN OBLIGATIONS (cost $256,844)....... 264,698
-----------
SHARES
---------- CONVERTIBLE PREFERRED STOCK - 0.86%
6,000 California Federal Bank Series A (cost $150,000)............ 157,500
-----------
PRINCIPAL
AMOUNT
------------ REPURCHASE AGREEMENT - 6.06%
$1,112,000 Credit Suisse First Boston, collateralized by a U.S.
Treasury Note in a joint trading account at 6.00%,
dated 12/31/1997, due 01/02/1998, with a maturity
value of $1,112,371 (cost $1,112,000)....................... 1,112,000
-----------
TOTAL INVESTMENTS (cost $17,428,073)........................ 18,197,455
Other assets net of liabilities............................. 166,718
-----------
NET ASSETS.................................................. $18,364,173
===========
</TABLE>
FEDERAL INCOME TAX INFORMATION:
Net unrealized appreciation of investments at December 31, 1997 of $769,382,
based on aggregate cost of $17,428,073, was composed of gross appreciation of
$870,564 for investments having an excess of value over cost and gross depre-
ciation of $101,182 for investments having an excess of cost over value.
OTHER INFORMATION:
Purchases and sales including principal repayments of investment securities,
other than short-term investments, aggregated $2,350,920 and $1,140,015, respec-
tively, during the year ended December 31, 1997, including purchases and sales
of U.S. government securities of $474,414 and $263,335, respectively. Principal
repayments of mortgage-backed securities aggregated $315,922.
See accompanying notes to financial statements.
<PAGE>
COMPOSITE DEFERRED SERIES, INC.
FINANCIAL INFORMATION
DECEMBER 31, 1997
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, Inc.
(comprising, respectively, the Growth & Income, Northwest, and Income
Portfolios) as of December 31, 1997, 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, 1997 and 1996 and the financial highlights for each of
the five years in the period ended December 31, 1997. 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, 1997, 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 Composite Deferred
Series, Inc., as of December 31, 1997, 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 20, 1998
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
GROWTH &
INCOME NORTHWEST INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Investments at market (identified cost $41,450,326,
$13,967,040, and $17,428,073, respectively)........................ $57,506,979 $20,015,123 $18,197,455
Cash................................................................. - 4,673 -
Prepaid expenses..................................................... 2,162 800 885
Receivable for:
Interest........................................................... 6,947 82 301,319
Investment securities sold......................................... - 39,149 -
Dividends.......................................................... 66,748 15,135 3,422
---------- ---------- ----------
Total assets......................................................... 57,582,836 20,074,962 18,503,081
---------- ---------- ----------
LIABILITIES
Bank overdraft....................................................... 48,837 - 128,361
Payable for:
Investment securities purchased.................................... 264,330 140,409 -
Accrued expenses and other payables................................ 14,170 10,297 10,547
---------- ---------- ----------
Total liabilities.................................................... 327,337 150,706 138,908
---------- ---------- ----------
NET ASSETS.......................................................... $57,255,499 $19,924,256 $18,364,173
========== ========== ==========
COMPOSITION OF NET ASSETS
Paid-in capital...................................................... $36,437,980 $12,489,933 $17,711,268
Accumulated net realized gain (loss)................................. 4,760,866 1,386,240 (116,477)
Net unrealized appreciation of investments........................... 16,056,653 6,048,083 769,382
---------- ---------- ----------
$57,255,499 $19,924,256 $18,364,173
========== ========== ==========
NET ASSET VALUE
Net asset value per share for 1,970,273, 845,928,
and 1,465,212 shares outstanding, respectively..................... $29.06 $23.55 $12.53
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
GROWTH &
INCOME NORTHWEST INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
----------- ---------- ----------
<S> <C> <C> <C>
INVESTMENT INCOME
Income:
Interest............................................................. $ 33,860 $ 31,062 $1,250,584
Dividends............................................................ 810,222 137,430 15,491
---------- --------- ---------
Total income........................................................... 844,082 168,492 1,266,075
---------- --------- ---------
Expenses:
Management fees ..................................................... 255,114 85,274 88,173
Custodial fees....................................................... 15,793 11,240 7,474
Postage, printing and office expense................................. 11,343 6,183 13,607
Directors' fees...................................................... 8,499 8,499 8,499
Auditing and legal fees.............................................. 6,560 4,879 4,817
Insurance............................................................ 1,367 569 774
---------- --------- ---------
Total expenses......................................................... 298,676 116,644 123,344
Fees paid indirectly................................................... (863) (682) (511)
---------- --------- ---------
Net expenses........................................................... 297,813 115,962 122,833
---------- --------- ---------
Net investment income.................................................. 546,269 52,530 1,143,242
---------- --------- ---------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS
Realized gain from investment transactions............................. 4,774,997 1,411,838 25,271
Unrealized appreciation of investments during the year................. 7,701,072 3,116,022 632,976
---------- --------- ---------
Net realized and unrealized gain on investments........................ 12,476,069 4,527,860 658,247
---------- --------- ---------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS.............................................. $13,022,338 $4,580,390 $1,801,489
========== ========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
GROWTH &
INCOME PORTFOLIO NORTHWEST PORTFOLIO INCOME PORTFOLIO
---------------------- ----------------------- -----------------------
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
---------------------- ----------------------- -----------------------
1997 1996 1997 1996 1997 1996
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income........... $ 546,269 $ 516,037 $ 52,530 $ 54,932 $ 1,143,242 $ 1,045,694
Realized gain (loss) from
investment transactions........ 4,774,997 3,102,735 1,411,838 467,828 25,271 (8,320)
Unrealized appreciation (depreciation)
of investments during the year. 7,701,072 2,982,704 3,116,022 1,538,604 632,976 (609,407)
Net increase in net assets resulting ---------- ---------- ---------- ---------- ---------- ----------
from operations................ 13,022,338 6,601,476 4,580,390 2,061,364 1,801,489 427,967
DISTRIBUTIONS TO
SHAREHOLDERS
Dividends from net
investment income............. (547,667) (517,216) (53,379) (54,083) (1,143,242) (1,045,694)
Distributions from net capital gains
from investment transactions.. (3,110,023) - (356,675) - - -
MET CAPITAL SHARE
TRANSACTIONS.................... 6,489,184 10,869,247 2,984,274 3,267,052 321,422 2,796,633
---------- ---------- ---------- ---------- ---------- ----------
Total increase in net assets.... 15,853,832 16,953,507 7,154,610 5,274,333 979,669 2,178,906
NET ASSETS
Beginning of the year........... 41,401,667 24,448,160 12,769,646 7,495,313 17,384,504 15,205,598
---------- ---------- ---------- ---------- ---------- ----------
End of the year................. $57,255,499 $41,401,667 $19,924,256 $12,769,646 $18,364,173 $17,384,504
========== ========== ========== ========== ========== ==========
UNDISTRIBUTED NET
INVESTMENT INCOME AT
END OF YEAR..................... $ - $ 1,398 $ - $ 849 $ - $ -
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1997 1996 1995 1994 1993
GROWTH & INCOME PORTFOLIO: ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR.................... $24.32 $20.22 $15.70 $15.71 $15.26
------ ------ ------ ------ ------
Income from investment operations
Net investment income............................... 0.29 0.34 0.35 0.31 0.29
Net gains or losses on securities
(both realized and unrealized)..................... 6.49 4.10 4.90 0.12 0.84
------ ------ ------ ------ ------
Total from investment operations.................. 6.78 4.44 5.25 0.43 1.13
------ ------ ------ ------ ------
LESS DISTRIBUTIONS
Dividends (from net investment income).............. (0.29) (0.34) (0.35) (0.31) (0.28)
Distributions (from capital gains).................. (1.75) - (0.38) (0.13) (0.40)
------ ------ ------ ------ ------
Total distributions............................... (2.04) (0.34) (0.73) (0.44) (0.68)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF YEAR.......................... $29.06 $24.32 $20.22 $15.70 $15.71
====== ====== ====== ====== ======
TOTAL RETURN(1)....................................... 29.66% 22.09% 33.70% 2.72% 7.58%
RATIONS/SUPPLEMENTAL DATA
Net assets, end of year ($1,000's).................. $57,255 $41,402 $24,448 $14,195 $11,239
Ratio of expenses to average net assets (2) ....... 0.59% 0.61% 0.70% 0.68% 0.76%
Ratio of net income to average net assets........... 1.07% 1.59% 2.01% 1.97% 1.96%
Portfolio turnover rate ............................ 50% 45% 36% 25% 38%
Average commission paid (3) ........................ $0.0582 $0.0626
</TABLE>
(1) Total return does not reflect a sales charge.
(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.
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (CONTINUED)
JANUARY 4
YEAR ENDED DECEMBER 31, TO
----------------------------------------- DECEMBER 31,
1997 1996 1995 1994 1993(3)
NORTHWEST PORTFOLIO -------- -------- -------- -------- --------
<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............................. 0.07 0.09 0.09 0.08 0.16
Net gains or losses on securities
(both realized and unrealized).................... 5.80 3.24 3.02 (0.21) 0.19
-------- -------- -------- -------- --------
Total from investment operations................ 5.87 3.33 3.11 (0.13) 0.35
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS
Dividends (from net investment income)............ (0.07) (0.09) (0.09) (0.08) (0.16)
Distributions (from capital gains)................ (0.48) - - (0.01) -
-------- -------- -------- -------- --------
Total distributions............................. (0.55) (0.09) (0.09) (0.09) (0.16)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD...................... $23.55 $18.23 $14.99 $11.97 $12.19
======== ======== ======== ======== ========
TOTAL RETURN(1)..................................... 32.92% 22.23% 26.03% -1.12% 2.95%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($1,000's).............. $19,924 $12,770 $ 7,495 $ 4,647 $ 2,686
Ratio of expenses to average net assets (2) .... 0.68% 0.77% 0.90% 0.87% 0%
Ratio of net income to average net assets......... 0.31% 0.56% 0.67% 0.76% 1.61%(5)
Portfolio turnover rate ......................... 31% 31% 11% 17% 0%
Average commission paid (4) ...................... $0.0552 $0.0639
</TABLE>
(1) Total return does not reflect sales charge. Returns of less than one year
are aggregate returns and 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) From commencement of operations.
(4)Average commission paid disclosure is required beginning in fiscal year 1996.
(5) Annualized.
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (CONTINUED)
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1997 1996 1995 1994 1993
INCOME PORTFOLIO: -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR.................. $12.08 $12.59 $11.22 $12.57 $12.22
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income............................. 0.79 0.78 0.79 0.79 0.85
Net gains or losses on securities
(both realized and unrealized).................... 0.45 (0.51) 1.37 (1.35) 0.35
-------- -------- -------- -------- --------
Total from investment operations................ 1.24 0.27 2.16 (0.56) 1.20
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS
Dividends (from net investment income)............ (0.79) (0.78) (0.79) (0.79) (0.85)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF YEAR........................ $12.53 $12.08 $12.59 $11.22 $12.57
======== ======== ======== ======== ========
TOTAL RETURN(1)..................................... 10.62% 2.34% 19.86% -4.48% 10.02%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year ($1,000's)................ $18,364 $17,385 $15,206 $10,842 $ 9,113
Ratio of expenses to average net assets(2) ...... 0.70% 0.67% 0.76% 0.74% 0.86%
Ratio of net income to average net assets......... 6.48% 6.46% 6.62% 6.79% 6.75%
Portfolio turnover rate........................... 9% 11% 14% 15% 29%
</TABLE>
(1) Total return does not reflect sales charge.
(2) Ratio of expenses to average net assets includes expenses paid indirectly
beginning in fiscal 1995.
<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 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 ("Company") is the sole shareholder of the Fund.
On December 31, 1997, WM Life Insurance Company was acquired by Safeco Life
Insurance Company, a subsidiary of Safeco Corporation. 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 Board of Directors, which uses
information with respect to last reported sales price for securities traded
on a national securities exchange (or reported on the National Association
of Securities Dealers Automated Quotation [NASDAQ] National Market System)
or securities traded over-the-counter, or valuations based upon transactions
of a security, quotations from dealers, market transactions in comparable
securities, and various relationships between securities, in determining
value. Investment securities with less than 60 days to maturity when
purchased are valued at amortized cost which approximates market value.
Investment securities not currently quoted as described above will be priced
at fair market value as determined in good faith in a manner prescribed by
the Board of Directors.
b. The Company 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 repur-
chase 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 Company 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 its 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 $863, $682, and $511 for the Growth &
Income, Northwest, and Income Portfolios, respectively, as a result of
"expense offset arrangements." The Funds could have otherwise employed the
assets to produce income if they had not entered into such arrangements. In
accordance with the 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 the portfolio
owns, at any time during the option period at a predetermined exercise price.
When a portfolio writes a covered call option, it gains income from the premium
received. The risk in writing a covered call option is that the portfolio gives
up the opportunity to participate in any increase in the price of the underlying
security beyond the exercise price. Proceeds from the covered call options
exercised are increased by the amount of premium received. If an option expires
or is canceled in a closing transaction, the portfolio will realize a gain or
loss depending on whether the cost of the closing transaction, if any, is less
than or greater than the premium originally received.
Transactions in written covered call options by the Growth & Income Portfolio
during the year ended December 31, 1997, were as follows:
NUMBER OF
CONTRACTS PREMIUMS
---------- --------
Outstanding at
December 31, 1996......... 10 $ 1,982
Options written............. 15 6,697
Options closed.............. (5) (4,232)
Options exercised........... (20) (4,447)
Outstanding at ---------- ---------
December 31, 1997......... 0 $ 0
========== =========
NOTE 3 - TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
The amounts of fees and expenses described below are shown on the Fund's
statement of operations.
Composite Research & Management Co. ("Adviser"), manages the Fund, and Murphey
Favre, Inc., is the principal underwriter and distributor of the Contracts.
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 Wash-
ington Mutual fsb and subsidiaries of Washington Mutual, Inc.
Management fees were paid by the Fund to the Adviser. Fees are based upon an
annual rate of 0.50% of 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 December 31, 1997, there were 10 billion shares of no par value capital
stock authorized. Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
GROWTH &
INCOME PORTFOLIO NORTHWEST PORTFOLIO INCOME PORTFOLIO
-------------------- -------------------- --------------------
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
-------------------- -------------------- --------------------
1997 1996 1997 1996 1997 1996
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
SHARES
Sold............................ 291,319 590,876 181,653 247,127 187,345 387,398
Issued for reinvestment of
dividends and capital gains... 151,465 22,757 21,689 3,182 94,003 86,907
--------- --------- --------- --------- --------- ---------
442,784 613,633 203,342 250,309 281,348 474,305
Reacquired...................... (174,893) (120,141) (57,730) (49,897) (254,747) (243,230)
--------- --------- --------- --------- --------- ---------
Net increase ................... 267,891 493,492 145,612 200,412 26,601 231,075
========= ========= ========= ========= ========= =========
AMOUNT
Sold............................$ 7,614,916 $12,978,872 $3,869,744 $4,028,601 $2,265,856 $4,679,598
Issued for reinvestment of
dividends and capital gains... 3,658,611 517,216 410,111 54,083 1,143,078 1,045,694
--------- --------- --------- --------- --------- ---------
11,273,527 13,496,088 4,279,855 4,082,684 3,408,934 5,725,292
Reacquired...................... (4,784,343) (2,626,841) (1,295,581) (815,632) (3,087,512) (2,928,659)
--------- --------- --------- --------- --------- ---------
Net increase ...................$ 6,489,184 $10,869,247 $2,984,274 $3,267,052 $ 321,422 $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
801 Pennsylvania Avenue Kansas City, MO 64105
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 BOARD OF DIRECTORS
President Members
William G. Papesh Wayne L. Attwood, M.D.
Vice President Kristianne Blake
Gene G. Branson Anne V. Farrell
Vice President & Treasurer Michael K. Murphy
Monte D. Calvin William G. Papesh
Secretary Daniel L. Pavelich
John T. West 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.
[RECYCLE LOGO]
COMPOSITE
DEFERRED
SERIES,
INC.
ANNUAL
REPORT
DECEMBER 31,
1997
[COMPOSITE LOGO]
<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> Growth & Income Portfolio
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 41,450,326
<INVESTMENTS-AT-VALUE> 57,506,979
<RECEIVABLES> 73,695
<ASSETS-OTHER> 2,162
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 57,582,836
<PAYABLE-FOR-SECURITIES> 264,330
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 63,007
<TOTAL-LIABILITIES> 327,337
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 36,437,980
<SHARES-COMMON-STOCK> 1,970,273
<SHARES-COMMON-PRIOR> 1,702,382
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,760,866
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 16,056,653
<NET-ASSETS> 57,255,499
<DIVIDEND-INCOME> 810,222
<INTEREST-INCOME> 33,860
<OTHER-INCOME> 0
<EXPENSES-NET> (297,813)
<NET-INVESTMENT-INCOME> 546,269
<REALIZED-GAINS-CURRENT> 4,774,997
<APPREC-INCREASE-CURRENT> 7,701,072
<NET-CHANGE-FROM-OPS> 13,022,338
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (547,667)
<DISTRIBUTIONS-OF-GAINS> (3,110,023)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 291,319
<NUMBER-OF-SHARES-REDEEMED> (174,893)
<SHARES-REINVESTED> 151,465
<NET-CHANGE-IN-ASSETS> 15,853,832
<ACCUMULATED-NII-PRIOR> 1,398
<ACCUMULATED-GAINS-PRIOR> 3,095,892
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 255,114
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 297,813
<AVERAGE-NET-ASSETS> 50,645,624
<PER-SHARE-NAV-BEGIN> 24.32
<PER-SHARE-NII> 0.29
<PER-SHARE-GAIN-APPREC> 6.49
<PER-SHARE-DIVIDEND> (0.29)
<PER-SHARE-DISTRIBUTIONS> (1.75)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 29.06
<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> 03
<NAME> Income Portfolio
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 17,428,073
<INVESTMENTS-AT-VALUE> 18,197,455
<RECEIVABLES> 304,741
<ASSETS-OTHER> 885
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 18,503,081
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 138,908
<TOTAL-LIABILITIES> 138,908
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 17,711,268
<SHARES-COMMON-STOCK> 1,465,212
<SHARES-COMMON-PRIOR> 1,438,611
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (116,477)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 769,382
<NET-ASSETS> 18,364,173
<DIVIDEND-INCOME> 15,491
<INTEREST-INCOME> 1,250,584
<OTHER-INCOME> 0
<EXPENSES-NET> (122,833)
<NET-INVESTMENT-INCOME> 1,143,242
<REALIZED-GAINS-CURRENT> 25,271
<APPREC-INCREASE-CURRENT> 632,976
<NET-CHANGE-FROM-OPS> 1,801,489
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,143,242)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 187,345
<NUMBER-OF-SHARES-REDEEMED> (254,747)
<SHARES-REINVESTED> 94,003
<NET-CHANGE-IN-ASSETS> 979,669
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (141,748)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 88,173
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 122,833
<AVERAGE-NET-ASSETS> 17,719,639
<PER-SHARE-NAV-BEGIN> 12.08
<PER-SHARE-NII> 0.79
<PER-SHARE-GAIN-APPREC> 0.45
<PER-SHARE-DIVIDEND> (0.79)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.53
<EXPENSE-RATIO> 0.70
<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> 04
<NAME> Northwest Portfolio
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 13,967,040
<INVESTMENTS-AT-VALUE> 20,015,123
<RECEIVABLES> 54,366
<ASSETS-OTHER> 5,473
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 20,074,962
<PAYABLE-FOR-SECURITIES> 140,409
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 10,297
<TOTAL-LIABILITIES> 150,706
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 12,489,933
<SHARES-COMMON-STOCK> 845,928
<SHARES-COMMON-PRIOR> 700,316
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,386,240
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6,048,083
<NET-ASSETS> 19,924,256
<DIVIDEND-INCOME> 137,430
<INTEREST-INCOME> 31,062
<OTHER-INCOME> 0
<EXPENSES-NET> (115,962)
<NET-INVESTMENT-INCOME> 52,530
<REALIZED-GAINS-CURRENT> 1,411,838
<APPREC-INCREASE-CURRENT> 3,116,022
<NET-CHANGE-FROM-OPS> 4,580,390
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (53,379)
<DISTRIBUTIONS-OF-GAINS> (356,675)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 181,653
<NUMBER-OF-SHARES-REDEEMED> (57,730)
<SHARES-REINVESTED> 21,689
<NET-CHANGE-IN-ASSETS> 7,154,610
<ACCUMULATED-NII-PRIOR> 849
<ACCUMULATED-GAINS-PRIOR> 331,077
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 85,274
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 115,962
<AVERAGE-NET-ASSETS> 16,961,615
<PER-SHARE-NAV-BEGIN> 18.23
<PER-SHARE-NII> 0.07
<PER-SHARE-GAIN-APPREC> 5.80
<PER-SHARE-DIVIDEND> (0.07)
<PER-SHARE-DISTRIBUTIONS> (0.48)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 23.55
<EXPENSE-RATIO> 0.68
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
