<PAGE> 1
COMPOSITE
DEFERRED SERIES,
INC.
Annual Report for the year ended December 31, 1999
<PAGE> 2
individual portfolio reviews
The investment advisor to Composite Deferred Series, Inc. has general oversight
responsibility for the advisory services provided to the Portfolios. These
services include formulating the Portfolios' investment policies, analyzing
economic trends affecting the Portfolios, and directing and evaluating the
investment services provided by the individual Managers of each Portfolio. WM
Advisors, Inc. supervises the individual Managers in their day-to-day management
of the Portfolios in the Composite Deferred Series, Inc. family to ensure that
policies and guidelines are met, and to determine appropriate investment
performance measures.
UNDERSTANDING THE ACCOMPANYING CHARTS
In order to help you understand the investment performance of each Portfolio of
the Composite Deferred Series, Inc., we have included the following discussions
along with graphs that compare the Portfolio's performance with certain market
indices. Descriptions of these indices are provided next to the individual
graphs on the following pages.
Generally, an index represents the market value of an unmanaged group of
securities, regarded by investors as representative of a particular market. An
index does not reflect any asset-based charges for investment management or
other expenses. Total return is used to measure a Portfolio's performance and
reflects both changes in the unit value of the Portfolio as well as any income
dividend and/or capital gain distributions made by the Portfolio during the
period. Past performance is not a guarantee of future results. A Portfolio's
unit value and investment return will vary with market conditions, and the
principal value of an investment when you redeem your units may be more or less
than the original cost.
The decade, the century,
and the millennium
have simultaneously
drawn to a close.
To the typical investor,
the more recent past
is likely of greatest interest.
In the 1990s,
the value of the
U.S. stock market rose
over 400%, as measured
by the S&P 500.(1)
The 1990s also saw one of the
longest-running economic
expansions on record.
However, compared to other
historic investment events
of this century,
the 1990s are perhaps
not all that remarkable.
(1) Source: Ibbotson Associates. The S&P 500 is an unmanaged index of common
stocks. Results include reinvestment of dividends. Individuals cannot
invest directly in an index.
Past performance is no guarantee of future results.
composite deferred series
1
<PAGE> 3
Composite Deferred Series, Inc.
GROWTH & INCOME PORTFOLIO
PORTFOLIO MANAGER:
RANDALL L. YOAKUM
WM ADVISORS, INC.
An equity team led by Senior Portfolio Manager Randall Yoakum manages the Growth
& Income Portfolio. Mr. Yoakum has 16 years experience in investment and
financial analysis including over eight years with WM Advisors, Inc. He holds a
BBA in Finance/Economics from Pacific Lutheran University, an MBA in
Finance/Economics from Arizona State University, and is a Chartered Financial
Analyst. Mr. Yoakum serves as chairman of WM Advisors' Investment Committee and
leads the equity management team. As of 1/1/00, the Portfolio will be co-managed
by Chartered Financial Analyst Steve Spencer, Portfolio Manager, of WM Advisors,
Inc.
PERFORMANCE REVIEW(2)
For the 12-month period ended December 31, 1999, the Portfolio's total return
was 15.62%; the Portfolio slightly underperformed the S&P 500 Index's return of
21.04%. Longer-term results continue to be very favorable, as the Portfolio has
averaged 22.15% for the past five years.
GROWTH OF A $10,000 INVESTMENT(2,3)
<TABLE>
<CAPTION>
Portfolio Standard & Poor's Inflation (CPL)(1)
(not adjusted for 500 Composite
surrender charge) Index(1)
<S> <C> <C> <C>
Dec 89 10000 10000 10000
9566 9329 10572
9643 9449 10622
9782 9698 10680
9438 9458 10697
10158 10381 10722
Jun 90 10079 10308 10780
9968 10275 10821
9092 9347 10920
8687 8887 11012
8663 8854 11078
9221 9425 11103
Dec 90 9504 9683 11103
9986 10111 11169
10702 10835 11186
10891 11093 11203
11061 11124 11220
11426 11600 11253
Jun 91 11145 11070 11286
11317 11588 11303
11439 11860 11336
11394 11665 11385
11345 11822 11403
10984 11344 11436
Dec 91 11966 12641 11444
12042 12406 11461
12209 12564 11502
12104 12318 11561
12449 12677 11577
12491 12745 11593
Jun 92 12285 12560 11635
12692 13066 11659
12438 12803 11692
12651 12950 11725
12412 12996 11766
12898 13434 11782
Dec 92 13229 13610 11774
13316 13710 11932
13316 13895 11873
13659 14194 11915
13424 13846 11948
13668 14220 11965
Jun 93 13607 14267 11981
13528 14199 11981
13852 14740 12015
13651 14631 12040
13783 14928 12090
13713 14788 12098
Dec 93 14230 14970 12098
14873 15471 12131
14629 15054 12172
14096 14399 12213
14242 14586 12230
14424 14824 12239
Jun 94 14155 14458 12281
14603 14936 12314
15207 15544 12363
14859 15170 12396
15015 15517 12405
14574 14947 12421
Dec 94 14618 15166 12421
14860 15560 12471
15372 16164 12521
15823 16642 12562
16216 17126 12603
16646 17803 12629
Jun 95 16968 18221 12654
17588 18828 12654
17738 18879 12687
18315 19670 12712
18193 19601 12754
18957 20464 12745
Dec 95 19543 20842 12736
20114 21559 12811
20404 21766 12852
20610 21975 12919
21065 22298 12970
21531 22873 12994
Jun 96 21556 22967 13002
20495 21945 13027
21069 22410 13052
22219 23670 13093
22434 24318 13135
24087 26164 13160
Dec 96 23861 25651 13160
24999 27244 13202
25156 27465 13243
24229 26322 13276
25149 27894 13292
26830 29606 13284
Jun 97 28139 30927 13300
30217 33383 13316
28934 31526 13342
30533 33254 13375
29513 32143 13408
30437 33632 13400
Dec 97 30939 34210 13412
30396 34590 13438
32664 37084 13463
34055 38982 13489
33824 39376 13513
32529 38699 13538
Jun 98 33436 40270 13554
31420 39843 13570
26149 34082 13586
28558 36267 13603
30964 39215 13635
32801 41591 13635
Dec 98 34375 43987 13652
35008 45827 13685
34252 44402 13702
35224 46179 13743
37725 47967 13843
37288 46835 13843
Jun 99 39141 49434 13743
37873 47891 13885
36809 47654 13918
35712 46348 13985
37519 49281 14035
38505 50282 14043
Dec 99 39745 53244 14060
</TABLE>
<TABLE>
<CAPTION>
TOTAL AVERAGE RETURNS AS OF 12/31/99(2,3) ONE YEAR FIVE YEAR(4) TEN YEAR(4)
<S> <C> <C> <C>
Portfolio (not adjusted for surrender charge) 15.62% 22.15% 14.80%
Standard & Poor's 500 Composite Index(1) 21.04% 28.55% 18.20%
</TABLE>
(1) The Standard & Poor's 500 Composite Index (S&P 500) represents an unmanaged
weighted index of 500 industrial, transportation, utility and financial
companies widely regarded by investors as representative of the stock
market. The index assumes reinvestment of all dividends/distributions and
does not reflect any asset-based charges for investment management or other
expenses. The Consumer Price Index is a measurement of inflation for all
urban consumers (CPI).
(2) Past investment performance does not guarantee future performance, and
returns and values will fluctuate. The returns for the Portfolio assume
reinvestment of all dividends/distributions.
(3) 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.
(4) Annualized.
WHAT WERE THE MOST SIGNIFICANT FACTORS CONTRIBUTING TO THE PORTFOLIO'S
PERFORMANCE OVER THE 12-MONTH PERIOD ENDED DECEMBER 31, 1999, AND WHAT
INVESTMENT TECHNIQUES WERE USED TO ADDRESS THOSE CONDITIONS?
The domestic economy was very strong, causing concerns over inflation and higher
interest rates. This scenario created a volatile environment for equity
investments. For most of the year, large-cap stocks continued to outperform
smaller company holdings, but the period closed with broader market
participation and strong relative performance for small- and mid-cap companies.
Overall, the 12-month period ended December 31, 1999 was strong for equity
investments, but most of the performance was concentrated in growth stocks of
the Technology and Telecommunications sectors. The narrow performance was such
that more than half the companies in the S&P 500 saw their stock price drop for
the year. This disparity was one of the dominant themes in the domestic equity
markets during the past year. Investment assets have poured into high-growth
technology
2
<PAGE> 4
firms, which have appreciated significantly. The leadership of value stocks
during the second quarter of 1999 was short-lived and shifted back to growth in
recent months. Although the Portfolio benefited from the appreciation of its
Technology holdings, its bias towards value held back performance during the
period. Momentum investing was most pronounced in the second half of the year,
with a narrow group of extremely high-valuation stocks driving overall market
performance. In the fourth quarter alone, the Technology sector advanced 34%,
while many sectors reported negative performance. The Portfolio's focus on
purchasing good businesses at attractive valuations tends to result in
underperformance in a momentum-driven market. Typically our purchases are
triggered by negative price momentum -- prices that have experienced significant
decline. We feel that over the long run, market breadth will be restored and
this style will reward owners of the GROWTH & INCOME PORTFOLIO.
Stocks that not too long ago faced considerable, but not insurmountable,
challenges rebounded dramatically. Adobe Systems, BMC Software and Oracle Corp.
were all considered "broken" early in 1999 -- each lacking both earnings and
price momentum that led to what we considered attractive valuation levels. After
we increased positions in these companies, each stock more than doubled,
surpassing Wall Street earnings expectations and significantly contributing to
overall Portfolio performance. We have taken advantage of this appreciation by
trimming back these holdings and locking in some profits. Conversely, Capital
Goods and Health Care Services stocks within the Portfolio were the major
short-term disappointments. PacifiCare Health Systems and Aetna were down
significantly early in the period, reflecting the turmoil surrounding mounting
political pressures within the managed care industry. Both stocks looked very
attractive at their depressed price levels and we added to the positions, which
subsequently appreciated in December. In addition, rising interest rates hurt
our financial holdings, with the entire sector contributing negative performance
in recent months. However, the Portfolio's financial holdings generally
outperformed the overall market, as positions such as Bank of America Corp. and
Wells Fargo & Company began to see benefits from merger activity.
WERE THERE ANY SHIFTS IN THE PORTFOLIO'S HOLDINGS/SECTORS THAT HAVE HAD A
SIGNIFICANT IMPACT ON PERFORMANCE?
We continued to pare down the number of holdings within the Portfolio, reducing
the portfolio to under 90 stocks. Over the past year, we also reduced the number
of mid-cap holdings in the portfolio in favor of large-cap companies
During the period, we reshaped the portfolio on a sector-by-sector basis. In the
Technology arena, positions in software were increased, while computer hardware
(holdings such as Hewlett-Packard and IBM) was decreased. This boosted
performance as the Software sector increased dramatically. Given our long-term
outlook for lower interest rates and increased productivity, we significantly
overweighted financial stocks, especially banks. We feel that efficiencies
stemming from huge merger activities and recent legislation will help generate
good relative performance for this sector. Although some Health Care positions
had a drag on Portfolio performance, we are positive about the Services sector.
Although we overweighted Health Care Services, we are currently underweighted in
pharmaceutical stocks since we are allowing political turmoil to subside.
However, we intend to take advantage of any price dips to add to positions in
the coming months.
Recent purchases demonstrate our long-term strategy of focusing on companies who
are leaders within their industry but have been experiencing some short-term
price weaknesses, such as supermarket giant Kroger, Tyco International, and Avon
Products. We added to positions in these companies, with the result being a
positive contribution to performance at the close of the period. In addition, we
added a position in Disney in late 1999 and were rewarded with strong
performance. Overall, the Consumer Staples sector has been positive for the
Portfolio and is one of the overweighted sectors.
WHAT IS THE OUTLOOK FOR BOTH THE PORTFOLIO AND THE OVERALL ECONOMY?
Moderate economic growth and low inflation provide a positive environment for
large-cap domestic equity holdings. We expect that economic growth will
continue, with strength in certain areas being offset by weakness in others.
Overall global stability and strength in Europe could bolster current market
sentiment and lead to broader market participation. Because the increase in
equity prices has been very concentrated, we are still able to find companies at
very attractive valuations. We plan to adhere to our strict investment
discipline, scouring the market for good businesses at prices that make sense.
We are cautious with some of our higher-priced Technology holdings and will take
profits where it is financially prudent, but remain positive for prospects in
this sector. Overall, our long-standing focus on research and low portfolio
turnover should reward those owners of the Portfolio that maintain a long-term
investment horizon.
composite deferred series 3
<PAGE> 5
Composite Deferred Series, Inc.
NORTHWEST PORTFOLIO
PORTFOLIO MANAGER:
DAVID SIMPSON
WM ADVISORS, INC.
An equity team lead by David Simpson, Senior Portfolio Manager of WM Advisors,
Inc., has managed the Northwest Portfolio since its inception. Mr. Simpson is a
Chartered Financial Analyst, holds an MBA, and has over 13 years of continuous
investment experience.
PERFORMANCE REVIEW(2)
For the one-year period ended December 31, 1999, the Portfolio returned 43.03%,
significantly outpacing the 21.04% return for the S&P 500 and 21.26% return for
the small-cap Russell 2000 Index for the period.(1)
GROWTH OF A $10,000 INVESTMENT(2,3)
<TABLE>
<CAPTION>
Portfolio Standard & Poor's
(not adjusted for 500 Composite
surrender charge) Index (1) Inflation (CPL)(1)
<S> <C> <C> <C>
Inception|12/00/92 10000 10000 10000
10058 10073 10049
9708 10209 10084
10105 10428 10119
9854 10173 10148
10063 10448 10162
Jun 9800 10482 10176
9456 10433 10176
9850 10830 10205
9611 10750 10226
9965 10968 10268
10200 10865 10275
Dec|93 10293 10999 10275
10631 11367 10303
10758 11061 10338
10369 10579 10373
10318 10717 10388
10470 10892 10395
Jun 10149 10623 10430
10208 10974 10458
10766 11421 10500
10356 11146 10529
10280 11401 10536
10110 10982 10550
Dec|94 10178 11143 10550
10118 11432 10592
10475 11876 10634
10824 12228 10669
11139 12583 10705
11139 13080 10726
Jun 11774 13388 10747
12175 13834 10747
12363 13871 10775
12824 14452 10797
12534 14402 10833
12705 15035 10825
Dec|95 12827 15313 10817
12784 15840 10881
13084 15992 10916
13379 16146 10973
14330 16383 11016
14706 16806 11037
Jun 14090 16875 11043
13173 16124 11064
13970 16466 11085
14360 17391 11121
14343 17868 11156
15314 19224 11177
Dec|96 15679 18847 11177
16659 20017 11213
16625 20179 11248
15987 19340 11276
16553 20495 11290
18293 21753 11283
Jun 19128 22723 11296
20428 24527 11310
20154 23164 11331
21825 24433 11360
20684 23617 11388
21214 24710 11381
Dec|97 20841 25135 11392
20894 25414 11413
22761 27247 11435
23098 28642 11457
23222 28931 11477
21964 28433 11498
Jun 21521 29588 11512
20023 29274 11526
15978 25041 11539
17584 26646 11553
19617 28813 11581
22576 30559 11581
Dec|98 25588 32319 11595
26318 33670 11623
24599 32624 11637
25290 33929 11673
26838 35243 11758
28129 34411 11758
Jun|99 30717 36321 11800
30489 35187 11793
30581 35013 11821
29486 34053 11878
31064 36208 11920
32315 36944 11927
Dec|99 36601 39120 11942
</TABLE>
GROWTH OF A $10,000 INVESTMENT(2,3)
<TABLE>
<CAPTION>
TOTAL AVERAGE RETURNS AS OF 12/31/99(2,3) ONE YEAR FIVE YEAR(4) SINCE INCEPTION(4)
(January 1, 1993)
<S> <C> <C> <C>
Portfolio (not adjusted for surrender charge) 43.03% 29.17% 20.36%
Standard & Poor's 500 Composite Index(1) 21.04% 28.55% 21.51%
</TABLE>
(1) The Standard & Poor's 500 Composite Index (S&P 500) represents an unmanaged
weighted index of 500 industrial, transportation, utility and financial
companies widely regarded by investors as representative of the stock
market. The Russell 2000 Index represents the smallest 2000 companies
followed by Russell and is used to measure the small-cap market. The
indices assume reinvestment of all dividends/distributions and do not
reflect any asset-based charges for investment management or other
expenses. The Consumer Price Index is a measurement of inflation for all
urban consumers (CPI).
(2) Past investment performance does not guarantee future performance, and
returns and values will fluctuate. The returns for the Portfolio assume
reinvestment of all dividends/distributions.
(3) 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.
(4) Annualized.
WHAT WERE THE MOST SIGNIFICANT FACTORS CONTRIBUTING TO THE PORTFOLIO'S
PERFORMANCE OVER THE 12-MONTH PERIOD ENDED DECEMBER 31, 1999, AND WHAT
INVESTMENT TECHNIQUES WERE USED TO ADDRESS THOSE CONDITIONS?
Although volatile, equity markets generally rose throughout the year. During
1999, Technology stocks continued their market leadership, but concern about
increased inflation caused interest rate hikes and general market volatility
during the middle of the period. The decade closed with stellar performance,
which again was concentrated in the high-flying technology-related growth
stocks. This was especially true with small-cap Technology holdings, which had
underperformed large-sized companies until the final quarter. The story of the
fourth quarter was small- and mid-cap growth stocks, and the Portfolio benefited
from its concentration in these holdings. However, the market advance was very
narrow, and we witnessed the second-consecutive large annual disparity between
growth and value stocks.
The Portfolio greatly benefited from its significant overweighting in Technology
stocks of both small- and large-cap companies. Stocks of firms such as TriQuint
Semiconductor, Adobe Systems, RadiSys, and In Focus Systems more than doubled
during the period, contributing to overall
4
<PAGE> 6
Portfolio results. TriQuint develops integrated circuits for the
telecommunications arena, capitalizing on proprietary technology to gain market
share and distribute their product worldwide. Adobe is a software developer
whose stock moved markedly lower during the Asian crisis, but has since
increased over 300% off the lows of last summer. RadiSys, which designs and
manufactures embedded computer solutions for multiple industries, had its stock
price double in the fourth quarter alone. In Focus, which announced an agreement
with IBM during the period, has been held by the Portfolio for quite some time
and is a market leader in the development of data and video projection products.
The Portfolio also benefited from little exposure to Financials, especially
banks, which significantly underperformed the overall market. However, we did
add to our bank stocks late in the fiscal year as the valuations began to appear
very compelling. Microsoft Corp. remains one of our largest holdings despite
recent investigations by the Department of Justice. We remain quite positive on
the company and its prospects for its continuation as the software industry
leader. The company closed the year with very strong performance.
Despite the overall strong performance of the Portfolio, some holdings fell
short of expectations. Our positions in Health Care Service companies such as
PacifiCare Health Systems and Foundation Health Systems underperformed as
political upheaval regarding HMOs created negative sentiment for the entire
sector. We used this price weakness to add to some of these holdings in October
when we felt that prices may have bottomed, and we were rewarded with a rebound
in November and December. Not all medical firms performed poorly during the
period. The Portfolio benefited from its position in SonoSite, Inc., a medical
device manufacturer that developed a handheld ultrasound machine. This position
appreciated significantly, becoming one of the Portfolio's largest holdings
during the latter stages of the period. Conversely, we sold our entire position
in Pathogenesis, a pharmaceutical firm whose sales numbers came in well below
expectations. However, we continue to watch the company and could re-enter if
the outlook improves.
WERE THERE ANY SHIFTS IN THE PORTFOLIO'S HOLDINGS/SECTORS THAT HAVE HAD A
SIGNIFICANT IMPACT ON PERFORMANCE?
We continued our basic philosophy of trimming positions that outperform and
adding to positions that underperform as long as we have confidence in the
underlying fundamentals of the firm. We added to small-cap positions during the
year, as we were able to find some very compelling valuations. We will continue
to closely watch valuation levels and look for strong investment opportunities
across all market capitalizations. Toward the end of the fiscal year, we began
to see very attractive valuations in large-cap Retailing (supermarkets) and
Financials (banks). Given the current interest rate outlook and the benefits of
merger activities, we added to positions in some of these large-cap financial
holdings. Technology remained our largest sector weighting during the period. To
maintain a stable exposure to the sector in light of its considerable
appreciation, we sold stocks and locked in strong profits. We were able to find
good values in certain sectors such as Forestry, which had underperformed in
recent periods. For example, toward the end of the period, we purchased
Louisiana-Pacific when its price was near recent lows, and were rewarded with
strong performance at the close of the year.
WHAT IS THE OUTLOOK FOR BOTH THE PORTFOLIO AND THE OVERALL ECONOMY?
The Portfolio is volatile by nature, and we expect that to continue. We believe
our basic investment style will continue to benefit long-term investors who are
patient and do not concern themselves with short-term market volatility. This
was clearly evident during the summer of 1998, when markets dropped considerably
in response to international economic concerns, then rebounded dramatically
during the fourth quarter. We will adhere to our philosophy of finding strong
companies that are favorably priced. Due to Technology's strong presence in the
Northwest and our positive outlook for its long-term growth, it will continue to
exert a significant influence on the Portfolio's portfolio composition.
The economy may slow if higher interest rates prevail. However, we believe weak
inflation will help keep interest rates relatively low. Consumer spending (and
net consumer borrowing) is a long-term concern. Currently, the market appears to
be weathering higher interest rates, as pervasive price pressures have not
surfaced, and the Federal Reserve is poised to raise interest rates to quell any
signs of increases in inflation.
composite deferred series 5
<PAGE> 7
Composite Deferred Series, Inc.
INCOME PORTFOLIO
PORTFOLIO MANAGER:
GARY POKRZYWINSKI
WM ADVISORS, INC.
The Income Portfolio is managed by a fixed-income team led by Senior Portfolio
Manager Gary Pokrzywinski, who has over 14 years of asset management experience
and has been with WM Advisors, Inc. for more than seven years. Mr. Pokrzywinski
is a Chartered Financial Analyst and holds a Business degree from the University
of Wisconsin.
PERFORMANCE REVIEW(2)
For the 12-month period ended December 31, 1999, the Portfolio's total return
was -3.39%. Interest rates rose throughout the period, which put pressure on
the prices of the bonds in the portfolio. The yield on intermediate-term
Treasury bonds increased significantly, rising 180 basis points (1.80%) over the
course of the year. Rising interest rates offset the income earned by the
Portfolio during the last 12 months. Longer-term results are favorable, however,
as the Portfolio has averaged 7.50% per year over the past five years.
WHAT WERE THE MOST SIGNIFICANT FACTORS CONTRIBUTING TO THE PORTFOLIO'S
PERFORMANCE OVER THE 12-MONTH PERIOD ENDED DECEMBER 31, 1999, AND WHAT
INVESTMENT TECHNIQUES WERE USED TO ADDRESS THOSE CONDITIONS?
Strong economic growth led by consumer spending and capital investment caused a
slight increase in inflation, which in turn pushed interest rates higher. Wage
pressures, as well as steep increases in oil prices, caused concerns in the
fixed-income market. Given the rise in interest rates, many corporate securities
reported negative performance, but generally outperformed Treasuries for the
year. The Portfolio performed relatively well given its marginally long duration
(a measure of price sensitivity to interest rates). Reasons for the performance
included a high concentration in corporate securities, strong income
characteristics, a barbelled maturity structure, and strong performance by
lower-rated securities.
Corporate bonds performed better than Treasuries because their yields increased
less than Treasury securities with similar maturities. In the aftermath of the
global crisis
GROWTH OF A $10,000 INVESTMENT (2), (3)
<TABLE>
<CAPTION>
Portfolio Lehman Brothers
(not adjusted Government/Corporate Inflation
for surrender Bond Index(1) (CPI)(1)
charge)
<S> <C> <C> <C>
Dec|89 10000 10000 10000
9963 10103 9863
9989 10150 9885
10021 10206 9886
9961 10223 9795
10216 10246 10079
June|90 10360 10301 10242
10468 10341 10369
10319 10436 10219
10379 10523 10304
10514 10587 10441
10694 10610 10668
Dec|90 10859 10610 10829
10961 10674 10951
11089 10690 11045
11176 10706 11121
11318 10722 11249
11375 10754 11302
Jun|91 11361 10785 11289
11496 10801 11432
11711 10832 11694
11954 10880 11939
12120 10896 12045
12224 10928 12166
Dec|91 12585 10936 12576
12413 10952 12389
12476 10992 12455
12437 11048 12387
12534 11063 12461
12736 11079 12703
Jun|92 12938 11118 12889
13174 11142 13219
13328 11173 13337
13491 11204 13518
13278 11243 13212
13266 11259 13300
Dec|92 13454 11251 13528
13722 11306 13823
13975 11346 14111
14067 11386 14159
14177 11418 14268
14190 11434 14261
Jun|93 14406 11450 14584
14488 11450 14678
14754 11482 15015
14823 11506 15068
14907 11553 15130
14709 11561 14959
Dec|93 14803 11561 15024
15022 11592 15250
14702 11632 14917
14258 11671 14552
14107 11688 14431
14078 11696 14405
Jun|94 14045 11736 14372
14322 11767 14659
14357 11814 14665
14107 11846 14444
14056 11854 14428
14028 11870 14402
Dec|94 14140 11870 14497
14392 11917 14775
14725 11965 15118
14837 12005 15219
15061 12044 15431
15753 12068 16078
Jun|95 15876 12092 16206
15793 12092 16143
15985 12124 16350
16163 12148 16516
16398 12188 16759
16672 12180 17036
Dec|95 16948 12171 17286
17048 12243 17393
16643 12282 17025
16487 12346 16882
16356 12394 16765
16310 12418 16737
Jun|96 16523 12425 16961
16559 12449 17000
16526 12472 16959
16811 12512 17261
17231 12552 17663
17565 12576 17988
Dec|96 17344 12576 17788
17352 12616 17810
17396 12655 17847
17174 12687 17635
17428 12702 17892
17611 12695 18059
Jun|97 17855 12710 18275
18741 12725 18835
18213 12749 18624
18537 12781 18916
18893 12813 19219
18991 12806 19321
Dec|97 19186 12817 19523
19471 12841 19799
19440 12866 19759
19517 12890 19820
19589 12913 19919
19818 12937 20133
Jun|98 20043 12952 20338
20053 12968 20354
20569 12983 20751
21036 12999 21345
20868 13030 21193
20970 13030 21320
Dec|98 21009 13046 21371
21194 13078 21523
20626 13094 21011
20692 13133 21116
20745 13229 21169
20513 13229 20951
Jun|99 20443 13229 20886
20411 13268 20827
20396 13300 20811
20531 13364 20998
20459 13412 21052
20404 13420 21040
Dec|99 20296 13436 20912
</TABLE>
(1) The Lehman Brothers Government/Corporate Bond Index represents all
government and corporate bonds. The index assumes reinvestment of all
dividends/distributions and does not reflect any asset-based charges for
investment management or other expenses. The Consumer Price Index is a
measurement of inflation for all urban consumers (CPI).
TOTAL AVERAGE RETURNS AS OF 12/31/99 (2), (3)
<TABLE>
<CAPTION>
One Year Five Year(4) Ten Year(4)
<S> <C> <C> <C>
Portfolio (not adjusted for surrender charge) -3.39% 7.50% 7.33%
Lehman Brothers Government/Corporate Bond Index(1) -2.15% 7.60% 7.66%
</TABLE>
2 Past investment performance does not guarantee future performance, and
returns and values will fluctuate. The returns for the Portfolio assume
reinvestment of all dividends/distributions.
3 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.
4 Annualized.
6
<PAGE> 8
and the flight-to-quality in 1998, the difference in yields between corporate
bonds and Treasuries was quite pronounced. As stability returned to the market,
this yield gap narrowed, allowing for better performance for corporate
securities. Yield spreads widened again in early summer as the Federal Reserve
Open Market Committee began to raise rates, and the markets anticipated further
tightening. This coincided with a significant increase in the supply of
corporate securities, as companies rushed to issue debt ahead of Y2K concerns.
These events caused yield spreads to widen, but not nearly to the extent we saw
in 1998. The other benefit of corporate securities is the income flowing to the
Portfolio. Corporate bonds tend to have higher yields than similar maturity
Treasuries, and the weighting in these holdings generated additional income for
owners of the Portfolio.
The Portfolio maintains a barbelled maturity strategy, with the majority of
holdings balanced between the short-and long-term areas, with just a small
percentage invested in intermediate-term holdings. This strategy benefited
Portfolio contract owners as intermediate-term bonds saw the most dramatic
increase in yields (causing negative price performance), and short-term
securities outperformed all other maturity areas. In addition, because the
Portfolio is able to invest a portion of assets in lower-rated bonds,
performance was bolstered for the past 12 months. Higher-yielding bonds were the
strongest performing fixed-income sector for the period.
WERE THERE ANY SHIFTS IN THE PORTFOLIO'S HOLDINGS/SECTORS THAT HAVE HAD A
SIGNIFICANT IMPACT ON PERFORMANCE?
There have been only minor changes to the Portfolio from year to year. We
increased Treasury positions during the period in an effort to lock in rates as
yields increased. Early in the period, we adjusted the holdings to reduce the
maturity structure in anticipation of higher interest rates. When rates
increased substantially, we increased our long-term holdings so as to take
advantage of a stable or declining interest rate environment. We have some
lower-rated securities in the portfolio in an effort to capture higher yields,
and were subsequently rewarded with strong performance. Examples of these types
of holdings were Poland Communications and the Republic of Korea. As market
stability returned, these bonds performed very well, appreciating significantly
and providing high levels of income to the Portfolio. We will likely continue
this strategy if the gap in yields remains wide in the coming months.
In addition, one of our corporate positions, Occidental Petroleum, performed
very well as the bonds were tendered in the fourth quarter and the Portfolio
realized some strong gains. Conversely, we did have some poor performing issues
in the portfolio. Waste Management and Lockheed Martin Corporation both
encountered problems during the course of the year, and their debt positions
consequently suffered. We maintained positions in these firms because we
believed their longer-term outlooks were positive. Mariner Post, a Health Care
firm that specializes in nursing and assisted living, encountered internal
structural problems and their bond prices suffered.
WHAT IS THE OUTLOOK FOR BOTH THE PORTFOLIO AND THE OVERALL ECONOMY?
Our long-term outlook for interest rates is quite positive. We believe that
fundamental structural forces are in place for a continued low global
inflationary environment. Despite the increase in commodity prices, demographic
forces, fiscal austerity, technological enhancements, and excess capacity all
point toward a lack of pervasive price pressures and a positive environment for
fixed-income assets.
We focus the investments of the Portfolio in corporate securities of many
highly-recognizable companies. A smaller percentage of the portfolio is more
bottom-up and research-intensive, concentrating on issuers that can achieve a
higher level of income yet have enough financial strength to limit risk. The
Portfolio moves in and out of sectors and industries based on the ebbs and flows
of the business cycle, finding opportunities domestically and abroad. From an
interest-rate perspective, we manage the Portfolio based on our long-term
secular inflation and rate outlook, which continues to be positive. The
Portfolio currently is long in maturity and overweighted in corporate
securities. Historically, this has proven to be the best combination as long as
inflation does not increase substantially. Overall, we believe this focus will
best serve contract owners and achieve the Portfolio's objectives.
composite deferred series
7
<PAGE> 9
STATEMENTS of ASSETS and LIABILITIES
COMPOSITE DEFERRED SERIES, INC.
DECEMBER 31, 1999
<TABLE>
<CAPTION>
GROWTH &
INCOME NORTHWEST INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS:
Investments, at value
(See portfolios of investments) (a)....................... $52,072,536 $25,151,713 $13,181,459
Cash........................................................ 814,055 285,682 --
Dividends and/or interest receivable........................ 51,944 20,651 263,334
Prepaid expenses and other assets........................... 2,203 784 1,231
----------- ----------- -----------
Total Assets............................................ 52,940,738 25,458,830 13,446,024
----------- ----------- -----------
LIABILITIES:
Investment advisory fee payable............................. 21,997 10,102 5,739
Due to custodian............................................ -- -- 101,705
Custodian fees.............................................. 1,013 1,082 640
Accrued legal and audit fees................................ 13,800 16,200 17,800
Accrued printing and postage fees........................... 9,876 4,022 2,707
Accrued expenses and other payables......................... 3,263 1,538 1,795
----------- ----------- -----------
Total Liabilities....................................... 49,949 32,944 130,386
----------- ----------- -----------
NET ASSETS.................................................. $52,890,789 $25,425,886 $13,315,638
=========== =========== ===========
NET ASSETS CONSIST OF:
Undistributed net investment income......................... $ -- $ 6,752 $ --
Accumulated net realized gain/(loss) on investments......... 8,626,762 3,236,104 (24,448)
Net unrealized appreciation/(depreciation) of investments... 14,932,844 11,041,715 (258,084)
Paid-in capital............................................. 29,331,183 11,141,315 13,598,170
----------- ----------- -----------
Total Net Assets........................................ $52,890,789 $25,425,886 $13,315,638
=========== =========== ===========
NET ASSETS VALUE, offering price
and redemption price per share of beneficial interest
outstanding............................................... $ 30.80 $ 31.79 $ 11.69
=========== =========== ===========
Number of Portfolio shares outstanding...................... 1,717,219 799,713 1,139,055
=========== =========== ===========
- ---------------------
(a) Investments, at cost.................................... $37,139,692 $14,109,998 $13,439,543
=========== =========== ===========
</TABLE>
See Notes to Financial Statements.
8
<PAGE> 10
STATEMENTS of OPERATIONS
COMPOSITE DEFERRED SERIES, INC.
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
GROWTH &
INCOME NORTHWEST INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
----------- ---------- -----------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends................................................... $ 694,101 $ 170,960 $ 13,687
Interest.................................................... 55,763 28,157 1,050,365
----------- ---------- -----------
Total investment income................................. 749,864 199,117 1,064,052
----------- ---------- -----------
EXPENSES:
Investment advisory fee..................................... 266,020 108,520 74,792
Accounting fees............................................. 21,828 8,887 6,153
Printing fees............................................... 13,140 5,024 2,871
Registration and filing fees................................ 3,949 1,479 1,199
Directors' fees............................................. 3,716 1,567 1,015
Legal and audit fees........................................ 23,096 25,301 25,834
Custodian fees.............................................. 7,311 4,935 1,547
Other....................................................... 5,490 2,330 2,688
----------- ---------- -----------
Total expenses.......................................... 344,550 158,043 116,099
Fees reduced by credits allowed by the custodian............ (400) (211) (62)
----------- ---------- -----------
Net expenses............................................ 344,150 157,832 116,037
----------- ---------- -----------
NET INVESTMENT INCOME....................................... 405,714 41,285 948,015
----------- ---------- -----------
NET REALIZED AND UNREALIZED GAIN/(LOSS)
ON INVESTMENTS:
Realized gain from security transactions.................... 8,629,131 3,519,936 34,627
Change in unrealized appreciation/(depreciation) of
investments during the year............................... (1,366,142) 4,489,301 (1,531,464)
----------- ---------- -----------
Net realized and unrealized gain/(loss) on investments...... 7,262,989 8,009,237 (1,496,837)
----------- ---------- -----------
NET INCREASE/(DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS................................. $ 7,668,703 $8,050,522 $ (548,822)
=========== ========== ===========
</TABLE>
See Notes to Financial Statements.
9
<PAGE> 11
STATEMENTS of CHANGES in NET assets
COMPOSITE DEFERRED SERIES, INC.
<TABLE>
<CAPTION>
GROWTH & INCOME PORTFOLIO NORTHWEST PORTFOLIO INCOME PORTFOLIO
--------------------------- --------------------------- ---------------------------
YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998 1999 1998
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net investment income.............. $ 405,714 $ 507,624 $ 41,285 $ 64,258 $ 948,015 $ 1,131,592
Realized gain from investment
transactions..................... 8,629,131 4,762,524 3,519,936 3,264,693 34,627 39,906
Change in unrealized appreciation/
(depreciation) of investments
during the year.................. (1,366,142) 242,333 4,489,301 504,331 (1,531,464) 503,998
----------- ----------- ----------- ----------- ----------- -----------
Net increase/(decrease) in net
assets resulting from
operations....................... 7,668,703 5,512,481 8,050,522 3,833,282 (548,822) 1,675,496
Distributions to shareholders from:
Net investment income............ (404,236) (507,624) (41,503) (64,258) (941,883) (1,131,592)
Distributions in excess of net
investment income.............. -- -- -- -- (6,132) --
Net realized gain on
investments.................... (4,725,737) (4,800,946) (3,367,742) (1,560,748) -- --
Net decrease in net assets from
Portfolio share transactions..... (4,098,633) (3,008,718) (208,472) (1,139,451) (3,747,135) (348,467)
----------- ----------- ----------- ----------- ----------- -----------
Total increase/(decrease) in
net assets................... (1,559,903) (2,804,807) 4,432,805 1,068,825 (5,243,972) 195,437
NET ASSETS:
Beginning of year.................. 54,450,692 57,255,499 20,993,081 19,924,256 18,559,610 18,364,173
----------- ----------- ----------- ----------- ----------- -----------
End of year........................ $52,890,789 $54,450,692 $25,425,886 $20,993,081 $13,315,638 $18,559,610
=========== =========== =========== =========== =========== ===========
Undistributed net investment income
at end of year................... $ -- $ -- $ 6,752 $ -- $ -- $ --
=========== =========== =========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements.
10
<PAGE> 12
STATEMENTS of CHANGES in NET assets -- CAPITAL stock ACTIVITY
COMPOSITE DEFERRED SERIES, INC.
<TABLE>
<CAPTION>
GROWTH & INCOME PORTFOLIO NORTHWEST PORTFOLIO INCOME PORTFOLIO
---------------------------- ---------------------------- ----------------------------
YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998 1999 1998
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
SHARES:
Sold.......................... 45,158 31,924 21,797 11,707 15,108 109,080
Issued as reinvestment of
dividends and capital
gains....................... 186,118 181,368 154,788 67,169 77,265 88,761
Redeemed...................... (358,684) (338,938) (160,719) (140,957) (391,389) (224,982)
------------ ----------- ----------- ----------- ----------- -----------
Net increase/(decrease)....... (127,408) (125,646) 15,866 (62,081) (299,016) (27,141)
============ =========== =========== =========== =========== ===========
AMOUNT:
Sold.......................... $ 1,315,660 $ 924,483 $ 576,982 $ 274,298 $ 202,663 $ 1,392,114
Issued as reinvestment of
dividends and capital
gains....................... 5,129,866 5,308,570 3,409,245 1,625,005 948,109 1,131,596
Redeemed...................... (10,544,159) (9,241,771) (4,194,699) (3,038,754) (4,897,907) (2,872,177)
------------ ----------- ----------- ----------- ----------- -----------
Net decrease.................. $(4,098,633) $(3,008,718) $ (208,472) $(1,139,451) $(3,747,135) $ (348,467)
============ =========== =========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements.
11
<PAGE> 13
FINANCIAL highlights
GROWTH & INCOME PORTFOLIO
For a Portfolio share outstanding throughout each year.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year.......................... $ 29.52 $ 29.06 $ 24.32 $ 20.22 $ 15.70
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income....................................... 0.23 0.26 0.29 0.34 0.35
Net realized and unrealized gain on investments............. 4.02 2.92 6.49 4.10 4.90
------- ------- ------- ------- -------
Total from investment operations............................ 4.25 3.18 6.78 4.44 5.25
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income........................ (0.23) (0.26) (0.29) (0.34) (0.35)
Distributions from net realized gains....................... (2.74) (2.46) (1.75) -- (0.38)
------- ------- ------- ------- -------
Total distributions......................................... (2.97) (2.72) (2.04) (0.34) (0.73)
------- ------- ------- ------- -------
Net asset value, end of year................................ $ 30.80 $ 29.52 $ 29.06 $ 24.32 $ 20.22
======= ======= ======= ======= =======
TOTAL RETURN+............................................... 15.62% 11.11% 29.66% 22.09% 33.70%
======= ======= ======= ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's).......................... $52,891 $54,451 $57,255 $41,402 $24,448
Ratio of operating expenses to average net assets (a)....... 0.65% 0.60% 0.59% 0.61% 0.70%
Ratio of net investment income to average net assets........ 0.76% 0.92% 1.07% 1.59% 2.01%
Portfolio turnover rate..................................... 47% 32% 50% 45% 36%
</TABLE>
- ---------------------
+ Total return does not reflect any applicable sales charges. The total
returns would have been lower if fees had not been reduced by credits
allowed by the custodian.
(a) Ratio of operating expenses to average net assets includes expenses paid
indirectly beginning in fiscal 1995.
See Notes to Financial Statements.
12
<PAGE> 14
FINANCIAL highlights
NORTHWEST PORTFOLIO
For a Portfolio share outstanding throughout each year.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year.......................... $ 26.78 $ 23.55 $ 18.23 $ 14.99 $ 11.97
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income....................................... 0.05 0.08 0.07 0.09 0.09
Net realized and unrealized gain on investments............. 9.46 5.07 5.80 3.24 3.02
------- ------- ------- ------- -------
Total from investment operations............................ 9.51 5.15 5.87 3.33 3.11
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income........................ (0.05) (0.08) (0.07) (0.09) (0.09)
Distributions from net realized gains....................... (4.45) (1.84) (0.48) -- --
------- ------- ------- ------- -------
Total distributions......................................... (4.50) (1.92) (0.55) (0.09) (0.09)
------- ------- ------- ------- -------
Net asset value, end of year................................ $ 31.79 $ 26.78 $ 23.55 $ 18.23 $ 14.99
======= ======= ======= ======= =======
TOTAL RETURN+............................................... 43.03% 22.78% 32.92% 22.23% 26.03%
======= ======= ======= ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's).......................... $25,426 $20,993 $19,924 $12,770 $ 7,495
Ratio of operating expenses to average net assets (a)....... 0.73% 0.66% 0.68% 0.77% 0.90%
Ratio of net investment income to average net assets........ 0.19% 0.34% 0.31% 0.56% 0.67%
Portfolio turnover rate..................................... 43% 38% 31% 31% 11%
</TABLE>
- ---------------------
+ Total return does not reflect any applicable sales charges. The total
returns would have been lower if fees had not been reduced by credits
allowed by the custodian.
(a) Ratio of operating expenses to average net assets includes expenses paid
indirectly beginning in fiscal 1995.
See Notes to Financial Statements.
13
<PAGE> 15
FINANCIAL highlights
INCOME PORTFOLIO
For a Portfolio share outstanding throughout each year.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year.......................... $ 12.91 $ 12.53 $ 12.08 $ 12.59 $ 11.22
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income....................................... 0.79 0.78 0.79 0.78 0.79
Net realized and unrealized gain/(loss) on investments...... (1.22) 0.38 0.45 (0.51) 1.37
------- ------- ------- ------- -------
Total from investment operations............................ (0.43) 1.16 1.24 0.27 2.16
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income........................ (0.79) (0.78) (0.79) (0.78) (0.79)
Distributions in excess of net investment income............ (0.00)# -- -- -- --
------- ------- ------- ------- -------
Total distributions......................................... (0.79) (0.78) (0.79) (0.78) (0.79)
------- ------- ------- ------- -------
Net asset value, end of year................................ $ 11.69 $ 12.91 $ 12.53 $ 12.08 $ 12.59
======= ======= ======= ======= =======
TOTAL RETURN+............................................... (3.39)% 9.50% 10.62% 2.34% 19.86%
======= ======= ======= ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's).......................... $13,316 $18,560 $18,364 $17,385 $15,206
Ratio of operating expenses to average net assets (a)....... 0.78% 0.67% 0.70% 0.67% 0.76%
Ratio of operating expenses to average net assets without
fees reduced by credits allowed by the custodian.......... 0.78% 0.68% 0.70% 0.67% 0.76%
Ratio of net investment income to average net assets........ 6.34% 6.11% 6.48% 6.46% 6.62%
Portfolio turnover rate..................................... 1% 6% 9% 11% 14%
</TABLE>
- ---------------------
+ Total return does not reflect any applicable sales charges. The total
returns would have been lower if fees had not been reduced by credits
allowed by the custodian.
# Amount represents less than $0.01 per share.
(a) Ratio of operating expenses to average net assets includes expenses paid
indirectly beginning in fiscal 1995.
See Notes to Financial Statements.
14
<PAGE> 16
PORTFOLIO of INVESTMENTS
GROWTH & INCOME PORTFOLIO
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
------ -----------
<C> <S> <C>
COMMON STOCKS - 96.4%
COMPUTER SOFTWARE/SERVICES - 13.5%
16,200 Adobe Systems, Inc................... $ 1,089,450
17,000 BMC Software, Inc.+.................. 1,358,937
10,000 Computer Associates International,
Inc................................ 699,375
14,000 First Data Corporation............... 690,375
16,000 Microsoft Corporation+............... 1,868,000
13,000 Oracle Corporation+.................. 1,456,813
-----------
7,162,950
-----------
BANKS/SAVINGS & LOANS - 9.9%
15,000 Bank of America Corporation.......... 752,813
8,700 Chase Manhattan Corporation.......... 675,881
21,050 Citigroup, Inc....................... 1,169,590
14,000 First Union Corporation.............. 459,375
21,428 Mellon Bank Corporation.............. 729,891
15,000 Prime Bancshares, Inc................ 360,000
17,000 U.S. Bancorp......................... 404,813
16,460 Wells Fargo & Company................ 665,601
-----------
5,217,964
-----------
CONSUMER STAPLES - 9.2%
18,700 Avon Products Inc.................... 617,100
7,000 Campbell Soup Company................ 270,813
8,500 Kimberly-Clark Corporation........... 554,625
66,000 Kroger Company+...................... 1,245,750
6,500 Libbey, Inc.......................... 186,874
20,000 PepsiCo, Inc......................... 705,000
3,000 Procter & Gamble Company............. 328,688
10,500 Ralston-Ralston Purina Group......... 292,688
30,100 Sara Lee Corporation................. 664,081
-----------
4,865,619
-----------
OIL & GAS - 7.0%
4,400 BP Amoco Plc, Sponsored ADR.......... 260,975
11,593 Exxon Mobil Corporation.............. 933,948
24,800 Halliburton Company.................. 998,200
9,000 Royal Dutch Petroleum................ 543,938
20,000 Tosco Corporation.................... 543,750
13,000 Unocal Corporation................... 436,313
-----------
3,717,124
-----------
HEALTH CARE PRODUCTS - 6.6%
15,000 Abbott Laboratories.................. 544,687
11,100 American Home Products Corporation... 437,756
7,000 Johnson & Johnson.................... 651,875
7,500 Merck & Company, Inc................. 502,969
47,000 Mylan Laboratories, Inc.............. 1,183,811
6,000 Pfizer, Inc.......................... 194,625
-----------
3,515,723
-----------
UTILITIES/TELECOMMUNICATIONS - 6.0%
18,000 AT&T Corporation..................... 913,500
4,000 Comcast Corporation, Special Class
A.................................. 202,250
10,500 MCI Worldcom+........................ 557,155
10,000 SBC Communications, Inc.............. 487,500
15,000 Sprint Corporation, PCS Group+....... 1,009,687
-----------
3,170,092
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----------
<C> <S> <C>
COMPUTER SYSTEMS - 5.5%
23,550 Compaq Computer Corporation.......... $ 637,322
5,600 EMC Corporation+..................... 611,800
8,100 Hewlett-Packard Company.............. 922,894
7,000 International Business Machines
Corporation........................ 756,000
-----------
2,928,016
-----------
MEDIA - 5.2%
30,000 AT&T Corporation-Liberty Media Group,
Class A+........................... 1,702,500
8,100 Viacom, Inc., Class A+............... 489,544
20,000 Walt Disney Company.................. 585,000
-----------
2,777,044
-----------
INSURANCE - 4.3%
15,000 Allstate Corporation................. 360,000
8,500 American International Group, Inc.... 919,063
27,495 Coseco, Inc.......................... 491,473
21,455 Liberty Financial Companies.......... 492,124
-----------
2,262,660
-----------
CAPITAL GOODS - 4.2%
7,000 Crane Company........................ 139,125
12,900 Donaldson Company, Inc............... 310,406
45,000 Tyco International, Ltd.............. 1,749,374
-----------
2,198,905
-----------
HEALTH CARE SERVICES - 3.6%
9,000 Aetna, Inc........................... 502,313
5,600 Cardinal Health, Inc................. 268,100
10,600 IMS Health, Inc...................... 288,188
15,500 PacifiCare Health Systems, Inc.+..... 821,500
-----------
1,880,101
-----------
RETAIL SALES - 3.2%
9,000 Dayton Hudson Corporation............ 660,938
20,000 Intimate Brands, Inc................. 862,500
6,000 May Department Stores Company........ 193,500
-----------
1,716,938
-----------
CONSUMER DURABLES - 3.1%
29,000 Federal-Mogul Corporation............ 583,625
1,555 Huttig Building Products, Inc.+...... 7,681
42,000 Mattel, Inc.......................... 551,250
22,660 U.S. Industries, Inc................. 317,240
3,550 USG Corporation...................... 167,294
-----------
1,627,090
-----------
AEROSPACE/DEFENSE - 3.1%
14,500 Boeing Company....................... 602,656
4,500 Honeywell International, Inc......... 259,594
28,500 Raytheon Company, Class B............ 757,031
-----------
1,619,281
-----------
</TABLE>
See Notes to Financial Statements.
15
<PAGE> 17
PORTFOLIO of INVESTMENTS (continued)
GROWTH & INCOME PORTFOLIO
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
------ -----------
<C> <S> <C>
COMMON STOCKS - (CONTINUED)
FINANCIAL SERVICES - 2.6%
18,300 Federal Home Loan Mortgage
Corporation........................ $ 861,244
3,800 Merrill Lynch & Company, Inc......... 317,300
5,100 Price (T. Rowe) Associates, Inc...... 188,381
-----------
1,366,925
-----------
ELECTRONICS/SEMICONDUCTORS - 2.2%
13,900 Intel Corporation.................... 1,144,143
-----------
ELECTRICAL EQUIPMENT - 1.8%
3,200 Emerson Electric Company............. 183,600
5,000 General Electric Company............. 773,750
-----------
957,350
-----------
TRANSPORTATION - 1.2%
4,500 Airborne Freight Corporation......... 99,000
7,000 Expeditors International of
Washington, Inc.................... 306,688
5,500 Union Pacific Corporation............ 239,938
-----------
645,626
-----------
BUSINESS SERVICES - 1.2%
11,100 ACNielson Corporation+............... 273,337
11,900 Dun & Bradstreet Corporation......... 351,050
-----------
624,387
-----------
UTILITIES/GAS & ELECTRIC - 1.0%
12,500 Enron Corporation.................... 554,688
-----------
LODGING & RESTAURANTS - 1.0%
12,305 Sunburst Hospitality Corporation+.... 69,216
12,000 Tricon Global Restaurants, Inc.+..... 463,500
-----------
532,716
-----------
BASIC INDUSTRY - 1.0%
29,732 Waste Management, Inc................ 511,019
-----------
Total Common Stocks
(Cost $36,208,491)................. 50,996,361
-----------
CONVERTIBLE PREFERRED STOCK - 0.9%
(Cost $332,500)
5,000 Lehman Brothers Holdings, Series
CSCO, Conv. Pfd., 5.000% due
02/26/2001......................... 468,750
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------- -----------
<C> <S> <C>
CONVERTIBLE BOND - 0.5%
(Cost $200,065)
$370,000 At Home Corporation, Sub. Deb.,
0.525% due 12/28/2018++............ $ 241,425
-----------
U.S. TREASURY OBLIGATION - 0.7%
(Cost $398,636)
400,000 U.S. Treasury Bond,
6.000% due 02/15/2026.............. 366,000
-----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (Cost $37,139,692*)...... 98.5% 52,072,536
OTHER ASSETS AND LIABILITIES (NET)......... 1.5 818,253
----- -----------
NET ASSETS................................. 100.0% $52,890,789
===== ===========
</TABLE>
- ---------------------
* Aggregate cost for federal tax purposes is $37,140,239.
+ Non-income producing security.
++ Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
GLOSSARY OF TERMS
ADR - American Depositary Receipts
See Notes to Financial Statements.
16
<PAGE> 18
PORTFOLIO of INVESTMENTS
NORTHWEST PORTFOLIO
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
------ -----------
<C> <S> <C>
COMMON STOCKS - 98.9%
COMPUTER SOFTWARE/SERVICES - 13.0%
4,590 Adobe Systems, Inc................... $ 308,678
38,200 ARIS Corporation+.................... 448,850
1,300 BSQUARE Corporation+................. 54,519
900 Check Point Software Technologies
Ltd.+.............................. 178,875
6,665 Click2Learn.com, Inc.+............... 74,148
52,475 Mentor Graphics Corporation+......... 692,013
8,905 Microsoft Corporation+............... 1,039,659
10,785 Visio Corporation+................... 512,288
-----------
3,309,030
-----------
HEALTH CARE PRODUCTS - 11.0%
33,400 Corixa Corporation+.................. 567,800
16,805 ICOS Corporation+.................... 491,546
5,860 Immunex Corporation+................. 641,670
41,800 NeoRx Corporation+................... 169,813
29,256 SonoSite, Inc.+...................... 925,221
-----------
2,796,050
-----------
ELECTRICAL EQUIPMENT - 10.0%
6,150 Electro Scientific Industries,
Inc.+.............................. 448,950
54,415 FEI Company+......................... 843,432
25,900 Flir Systems, Inc.+.................. 420,875
17,095 Microvision, Inc.+................... 517,124
8,220 Tektronix, Inc....................... 319,553
-----------
2,549,934
-----------
COMPUTER SYSTEMS - 9.2%
21,240 Apex Inc.+........................... 684,990
29,260 In Focus Systems, Inc.+.............. 678,466
19,305 RadiSys Corporation+................. 984,555
-----------
2,348,011
-----------
CONSUMER CYCLICALS - 8.0%
47,595 Building Materials Holding
Corporation+....................... 487,848
9,450 Columbia Sportswear Company+......... 203,175
21,000 Cutter & Buck Inc.+.................. 317,625
48,895 K2, Inc.............................. 372,824
36,600 Louisiana-Pacific Corporation........ 521,550
2,460 Nike, Inc., Class B.................. 121,924
-----------
2,024,946
-----------
ELECTRONICS/SEMICONDUCTORS - 7.0%
6,470 Credence Systems Corporation+........ 559,655
2,660 Intel Corporation.................... 218,951
13,710 Lattice Semiconductor Corporation+... 646,084
4,145 Micron Technology, Inc.+............. 322,274
385 TriQuint Semiconductor, Inc.+........ 42,831
-----------
1,789,795
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----------
<C> <S> <C>
BANKS/SAVINGS & LOANS - 4.8%
7,400 Bank of America Corporation.......... $ 371,388
8,750 First Washington Bancorp, Inc........ 129,063
144 Horizon Financial Corporation........ 1,368
5,550 Interwest Bancorp, Inc............... 106,838
6,470 Sterling Financial Corporation+...... 74,405
12,481 U.S. Bancorp......................... 297,204
10,276 Washington Federal, Inc.............. 202,951
1,000 Wells Fargo & Company................ 40,438
-----------
1,223,655
-----------
BASIC INDUSTRY - 4.6%
1,800 Boise Cascade Corporation............ 72,900
12,270 Oregon Steel Mills, Inc.............. 97,393
21,335 Schnitzer Steel Industries, Inc.,
Class A............................ 405,365
4,050 Weyerhaeuser Company................. 290,841
6,225 Willamette Industries, Inc........... 289,073
-----------
1,155,572
-----------
HEALTH CARE SERVICES - 4.3%
55,030 Foundation Health Systems, Inc.,
Class A+........................... 546,861
10,300 PacifiCare Health Systems, Inc.,
Class B+........................... 545,900
-----------
1,092,761
-----------
TRANSPORTATION - 4.2%
10,180 Airborne Freight Corporation......... 223,960
7,450 Alaska Air Group, Inc.+.............. 261,681
13,070 Expeditors International of
Washington, Inc.................... 572,628
-----------
1,058,269
-----------
CONSUMER STAPLES - 3.7%
12,640 Albertson's, Inc..................... 407,640
28,176 Kroger Company+...................... 531,822
-----------
939,462
-----------
UTILITIES/TELECOMMUNICATIONS - 3.6%
10,100 AVT Corporation+..................... 474,700
10,600 General Communication, Inc., Class
A+................................. 46,375
5,715 GST Telecommunications, Inc.+........ 51,792
25,730 Metro One Telecommunications,
Inc.+.............................. 334,490
-----------
907,357
-----------
RETAIL SALES - 3.2%
4,750 Costco Wholesale Corporation+........ 433,438
14,900 Hollywood Entertainment
Corporation+....................... 216,050
5,770 Nordstrom, Inc....................... 151,102
-----------
800,590
-----------
AEROSPACE/DEFENSE - 2.6%
10,320 Boeing Company....................... 428,925
9,200 Precision Castparts Corporation...... 241,500
-----------
670,425
-----------
</TABLE>
See Notes to Financial Statements.
17
<PAGE> 19
PORTFOLIO of INVESTMENTS (continued)
NORTHWEST PORTFOLIO
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
------ -----------
<C> <S> <C>
COMMON STOCKS - (CONTINUED)
LODGING & RESTAURANTS - 2.6%
52,755 Cavanaugh's Hospitality
Corporation+....................... $ 435,228
8,775 Starbucks Corporation+............... 212,794
-----------
648,022
-----------
CONSUMER DURABLES - 2.2%
22,315 Monaco Coach Corporation+............ 570,427
-----------
CAPITAL GOODS - 2.1%
24,000 Greenbrier Companies, Inc. .......... 207,000
7,530 PACCAR, Inc.......................... 333,673
-----------
540,673
-----------
REAL ESTATE INVESTMENT TRUSTS - 1.5%
12,600 Pacific Gulf Properties, Inc......... 255,150
5,855 Shurgard Storage Centers, Inc., Class
A.................................. 135,763
-----------
390,913
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----------
<C> <S> <C>
INSURANCE - 1.3%
4,605 SAFECO Corporation................... $ 114,549
8,785 StanCorp Financial Group, Inc........ 221,272
-----------
335,821
-----------
Total Common Stocks
(Cost $14,109,998)................. 25,151,713
-----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (Cost $14,109,998*)...... 98.9% 25,151,713
OTHER ASSETS AND LIABILITIES (NET)......... 1.1 274,173
----- -----------
NET ASSETS................................. 100.0% $25,425,886
===== ===========
</TABLE>
- ---------------------
* Aggregate cost for federal tax purposes is $14,226,670.
+ Non-income producing security.
See Notes to Financial Statements.
18
<PAGE> 20
PORTFOLIO of INVESTMENTS
INCOME PORTFOLIO
DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------- -----------
<C> <S> <C>
U.S. TREASURY OBLIGATIONS - 55.2%
U.S. TREASURY BONDS - 29.4%
$1,200,000 6.250% due 08/15/2023............... $ 1,132,125
250,000 6.500% due 11/15/2026............... 243,750
2,200,000 7.250% due
05/15/2016 - 08/15/2022........... 2,311,250
200,000 7.500% due 11/15/2024............... 218,313
-----------
3,905,438
-----------
U.S. TREASURY NOTES - 25.8%
1,000,000 5.750% due 08/15/2003............... 979,375
1,250,000 5.875% due 02/15/2004............... 1,229,688
1,200,000 7.875% due 08/15/2001............... 1,229,625
-----------
3,438,688
-----------
Total U.S. Treasury Obligations
(Cost $7,381,189)................. 7,344,126
-----------
U.S. GOVERNMENT AGENCY MORTGAGE-
BACKED SECURITIES - 12.3%
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) - 8.0%
381,000 6.500% due 07/15/2026............... 360,451
241,541 7.000% due 07/15/2023............... 233,490
264,082 7.500% due 06/15/2024............... 261,413
79,202 8.000% due 06/15/2022............... 80,076
1,853 8.500% due 03/15/2022............... 1,908
120,089 9.000% due 05/15/2009............... 125,856
-----------
Total GNMAs (Cost $1,074,425)....... 1,063,194
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS (CMO) - 2.7%
(Cost $364,732)
364,111 Weyerhauser Mortgage Corporation,
1982-C, FHA Putable,
7.430% due 06/01/2022............. 364,775
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) - 1.0%
129,797 8.000% due 12/01/2026............... 130,934
3,607 9.000% due 10/01/2004............... 3,723
-----------
Total FNMAs (Cost $137,188)......... 134,657
-----------
COMMERCIAL MORTGAGE-BACKED SECURITIES (CMBS) - 0.6%
(Cost $59,084)
79,352 Resolution Trust Corporation,
1991-M2 A2,
7.131% due 09/25/2020............. 75,944
-----------
Total U.S. Government Agency
Mortgage-Backed Securities
(Cost $1,635,429)................. 1,638,570
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------- -----------
<C> <S> <C>
CORPORATE BONDS AND NOTES - 29.4%
INDUSTRIAL - 6.1%
$200,000 Caterpillar Inc., Deb.,
9.375% due 07/15/2001............. $ 206,766
250,000 Conagra, Inc., Sr. Note,
6.700% due 08/01/2027............. 233,106
300,000 Loral Corporation, Deb.,
7.625% due 06/15/2025............. 269,376
150,000 Veterinary Centers of America,
Conv. Sub. Deb.,
5.250% due 05/01/2006............. 99,562
-----------
808,810
-----------
HEALTH CARE - 5.5%
250,000 American Home Products Corporation,
Deb.,
7.250% due 03/01/2023............. 235,002
175,000 CII Financial, Inc., Conv. Note,
7.500% due 09/15/2001............. 124,250
250,000 FHP International, Sr. Note,
7.000% due 09/15/2003............. 240,345
50,000 Mariner Post-Acute Network,
Sr. Sub. Note,
9.500% due 11/01/2007 (in
default).......................... 250
150,000 Medical Care International Inc.
(Columbia), Conv. Sub. Deb.,
6.750% due 10/01/2006............. 127,875
-----------
727,722
-----------
BANKS - 5.0%
195,000 Bank of New York, Sub. Note,
7.875% due 11/15/2002............. 197,933
250,000 First Nationwide Bank, Sub. Deb.,
10.000% due 10/01/2006............ 272,750
200,000 Mercantile Bank, Sub. Note,
7.625% due 10/15/2002............. 201,868
-----------
672,551
-----------
FINANCIAL - 3.3%
200,000 Kemper Corporation, Note,
6.875% due 09/15/2003............. 197,446
250,000 Morgan Stanley Group, Note,
6.750% due 03/04/2003............. 247,337
-----------
444,783
-----------
UTILITIES - 2.7%
Niagara Mohawk Power Corporation,
Deb.:
150,000 9.500% due 06/01/2000............. 151,828
48,000 8.770% due 01/01/2018............. 50,565
150,000 Public Service Electric & Gas
Company, First Mortgage,
8.875% due 06/01/2003............. 156,358
-----------
358,751
-----------
</TABLE>
See Notes to Financial Statements.
19
<PAGE> 21
PORTFOLIO of INVESTMENTS (continued)
INCOME PORTFOLIO
DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------- -----------
<C> <S> <C>
CORPORATE BONDS AND NOTES - (CONTINUED)
TRANSPORTATION - 2.4%
$300,000 Burlington Northern, Santa Fe, Note,
8.750% due 02/25/2022............. $ 320,499
-----------
REAL ESTATE INVESTMENT TRUSTS - 2.2%
Franchise Finance Corporation, Sr.
Note:
100,000 7.000% due 11/30/2000............. 99,275
200,000 7.875% due 11/30/2005............. 193,457
-----------
292,732
-----------
MEDIA - 1.7%
200,000 Time Warner, Inc., Deb.,
9.150% due 02/01/2023............. 223,702
-----------
FOREIGN (U.S. DOLLAR DENOMINATED) - 0.5%
100,000 @Entertainment Inc., Unit, Sr. Disc.
Note,
Zero coupon to 07/15/2003;
14.500% due 02/01/2009+........... 62,500
-----------
Total Corporate Bonds and Notes
(Cost $4,123,311)................. 3,912,050
-----------
FOREIGN GOVERNMENT BOND - 1.1%
(Cost $149,614)
150,000 Province of Alberta, Government
Guarantee,
9.250% due 04/01/2000............. 151,338
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----------
<C> <S> <C>
PREFERRED STOCK - 1.0%
(Cost $150,000)
6,000 California Federal Savings Bank,
Series A.......................... $ 135,375
-----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (Cost $13,439,543*)...... 99.0% 13,181,459
OTHER ASSETS AND LIABILITIES (NET)......... 1.0 134,179
----- -----------
NET ASSETS................................. 100.0% $13,315,638
===== ===========
</TABLE>
- -------------------------
* Aggregate cost for federal tax purposes.
+ Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
GLOSSARY OF TERMS
FHA - Federal Housing Authority
See Notes to Financial Statements.
20
<PAGE> 22
NOTES to FINANCIAL statements
COMPOSITE DEFERRED SERIES, INC.
1. ORGANIZATION AND BUSINESS
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 (each a "Portfolio"). Each Portfolio is
designed to meet a variety of investment objectives.
SAFECO Life Insurance Company (the "Company"), a subsidiary of SAFECO
Corporation, 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.
WM Advisors, Inc. (the "Advisor" or "WM Advisors"), a wholly-owned subsidiary of
Washington Mutual, Inc. ("Washington Mutual"), a publicly owned financial
services company, serves as investment advisor to the Fund.
2. SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies consistently followed by the Portfolios in the
preparation of their financial statements.
PORTFOLIO VALUATION:
A security that is primarily traded on a U.S. exchange (including securities
traded through the Nasdaq National Market System) is valued at the last sale
price on that exchange or, if there were no sales during the day, at the mean of
the current day's bid and asked prices. Securities traded only on
over-the-counter markets (other than the Nasdaq National Market System and U.S.
Government Securities) are valued at the closing over-the-counter bid prices, or
if no sale occurred on such day, at the mean of the current days bid and asked
prices. An option is generally valued at the last sale price or, in the absence
of a last sale price, at the mean of the current day's bid and asked prices.
Short-term debt securities that mature in 60 days or less are valued at
amortized cost. Debt securities, other than short-term securities, are valued at
prices supplied by the Fund's pricing agent.
REPURCHASE AGREEMENTS:
Each Portfolio may engage in repurchase agreement transactions. Under the terms
of a typical repurchase agreement, the Portfolio, through its custodian, takes
possession of an underlying debt obligation subject to an obligation of the
seller to repurchase. The Portfolio is then obligated to resell the obligation
at an agreed upon price and time, thereby determining the yield during the
Portfolio's holding period. The value of the collateral is at all times at least
equal to the total amount of the repurchase obligation, including interest. In
the event of counterparty default, the Portfolio would seek to use the
collateral to offset losses incurred. There is potential loss to the Portfolio
in the event the Portfolio is delayed or prevented from exercising its right to
dispose of the collateral securities, including the risk of a possible decline
in the value of the underlying securities during the period while the Portfolio
seeks to assert its rights. WM Advisors, acting under the supervision of the
Board of Directors, reviews the value of the collateral and the creditworthiness
of those banks and dealers with whom the Funds and Portfolios enter into
repurchase agreements.
COVERED CALL OPTIONS WRITTEN:
The Growth & Income Portfolio and the Northwest Portfolio may write listed
covered call options in which premiums received by the Portfolios are recorded
as a liability which is marked-to-market daily. 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 may
forego the opportunity to profit if the market price of the underlying security
increases and the option is exercised. Proceeds from the covered call options
exercised are increased by the amount
21
<PAGE> 23
NOTES to FINANCIAL statements (continued)
COMPOSITE DEFERRED SERIES, INC.
of premium received. If an option expires or is cancelled 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 or greater than the premium
originally received.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME:
Securities transactions are recorded as of the trade date (the date the order to
buy or sell is executed). Realized gains and losses from securities sold are
recorded on the identified cost basis. Interest income is recorded on the
accrual basis and consists of interest accrued and, if applicable, discount
accreted less premiums amortized. Premiums on bonds can be amortized on the
basis of any of the following methods: yield-to-maturity, straight-line, or
yield-to-call. Discounts can be accreted using yield-to-maturity or
straight-line methods. Premiums and discount on mortgage-backed securities are
amortized or accreted using only the straight-line method. Dividend income is
recorded on the ex-dividend date, except that certain dividends from foreign
securities are recorded as soon as the Portfolios are informed of the
ex-dividend date.
The Growth & Income Portfolio and the Income Portfolio may purchase securities
on what is called a when-issued or delayed-delivery basis. Securities purchased
or sold on a when-issued or delayed-delivery basis may be settled a month or
more after the trade date; interest income is not accrued until settlement date.
Each Portfolio instructs the custodian to segregate assets of the Portfolio with
a current value at least equal to the amount of its when-issued purchase
commitments.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income of the Growth & Income Portfolio and the
Northwest Portfolio are declared and paid quarterly. Dividends from net
investment income of the Income Portfolio are calculated daily and paid monthly.
Distributions of any net long-term capital gains earned by a Portfolio are made
annually. Distributions of any net short-term capital gains earned by a
Portfolio are distributed no less frequently than annually at the discretion of
the Board of Directors. Income distributions 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 of income and gains on various investment securities held
by the Portfolios, organizational costs, dividends payable, redesignated
distributions and differing characterizations of distributions made by each
Portfolio as a whole. Net investment income per share calculations in the
financial highlights for the year ended December 31, 1999 exclude these
adjustments:
<TABLE>
<CAPTION>
INCREASE/(DECREASE) INCREASE/(DECREASE)
UNDISTRIBUTED NET ACCUMULATED
DECREASE INVESTMENT NET REALIZED
NAME OF PORTFOLIO PAID-IN CAPITAL INCOME/(LOSS) GAIN/(LOSS)
----------------- --------------- ------------------- -------------------
<S> <C> <C> <C>
Growth & Income Portfolio.................. $ -- $(1,478) $ 1,478
Northwest Portfolio........................ -- 6,970 (6,970)
Income Portfolio........................... (6,133) -- 6,133
</TABLE>
FEDERAL INCOME TAXES:
It is the policy of each Portfolio to qualify as a regulated investment company
by complying with the requirements of the Internal Revenue Code of 1986, as
amended, applicable to regulated investment companies by, among other things,
distributing substantially all of its taxable and tax-exempt earnings to its
shareholders. Therefore, no Federal income tax provision is required.
3. INVESTMENT ADVISORY AND OTHER TRANSACTIONS
WM Advisors serves as investment advisor to the Fund. For its services to the
Portfolios, WM Advisors is entitled to a monthly fee, at an annual rate of 0.50%
of each Portfolio's average daily net assets. Advisory fees are calculated daily
and paid monthly.
Custodian fees for the Portfolios have been reduced by credits allowed by the
custodian for uninvested cash balances. These Portfolios could have invested
this cash in income producing securities. Fees reduced by credits allowed by the
custodian for the year ended December 31, 1999 are shown separately in the
Statements of Operations.
22
<PAGE> 24
NOTES to FINANCIAL statements (continued)
COMPOSITE DEFERRED SERIES, INC.
4. DIRECTORS' FEES
No director, officer or employee of Washington Mutual or its subsidiaries
receives any compensation from the Fund for serving as an Officer or Director of
the Fund. 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.
5. PURCHASES AND SALES OF SECURITIES
The aggregate cost of purchases and proceeds from sales of securities, excluding
U.S. Government and short-term investments, for the year ended December 31, 1999
were as follows:
<TABLE>
<CAPTION>
NAME OF PORTFOLIO PURCHASES SALES
- ----------------- ----------- -----------
<S> <C> <C>
Growth & Income Portfolio................................... $24,894,102 $34,052,811
Northwest Portfolio......................................... 9,099,113 11,249,460
Income Portfolio............................................ 84,394 1,268,779
</TABLE>
The aggregate cost of purchases and proceeds from sales of U.S. Government
securities, excluding short-term investments, for the year ended December 31,
1999 were as follows:
<TABLE>
<CAPTION>
NAME OF PORTFOLIO PURCHASES SALES
- ----------------- --------- ----------
<S> <C> <C>
Income Portfolio............................................ $-- $1,062,808
</TABLE>
At December 31, 1999, aggregate gross unrealized appreciation for all securities
in which there is an excess of value over tax cost and aggregate gross
unrealized depreciation for all securities in which there is an excess of tax
cost over value were as follows:
<TABLE>
<CAPTION>
TAX BASIS TAX BASIS
UNREALIZED UNREALIZED
NAME OF PORTFOLIO APPRECIATION DEPRECIATION
- ----------------- ------------ ------------
<S> <C> <C>
Growth & Income Portfolio................................... $19,562,692 $4,630,395
Northwest Portfolio......................................... 11,366,993 441,950
Income Portfolio............................................ 176,623 434,707
</TABLE>
6. CAPITAL LOSS CARRYFORWARDS
As of December 31, 1999, the Income Portfolio had available for Federal income
tax purposes unused capital losses as follows:
<TABLE>
<CAPTION>
NAME OF PORTFOLIO EXPIRING IN 2003 EXPIRING IN 2004
- ----------------- ---------------- ----------------
<S> <C> <C>
Income Portfolio............................................ $16,127 $8,320
</TABLE>
7. GEOGRAPHIC AND INDUSTRY CONCENTRATION AND RISK FACTORS
The Northwest Portfolio concentrates its investments in companies located or
doing business in the Northwest region of the United States. The Northwest
Portfolio is not intended as a complete investment program and could be
adversely impacted by economic trends within the region.
8. SUBSEQUENT EVENT
The Fund's sole shareholder, SAFECO Life Insurance Company, has informed the
Fund of its intent to liquidate its investment in the Fund. It is anticipated
that such liquidation may occur early in 2000. The Fund's Board of Directors
will consider terminating the Fund after the assets of the Fund have been
liquidated.
23
<PAGE> 25
INDEPENDENT auditors' REPORT
To the Board of Directors and Shareholders of
Composite Deferred Series, Inc.:
We have audited the accompanying statements of assets and liabilities of the
Composite Deferred Series, Inc. (the "Fund") (including the Growth and Income
Portfolio, Northwest Portfolio and Income Portfolio), including the portfolios
of investments, as of December 31, 1999, the related statements of operations
for the year then ended and the statements of changes in net assets and
financial highlights for the years ended December 31, 1999 and 1998. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The financial
highlights for each of the years in the three year period ended December 31,
1997 were audited by other auditors whose report, dated January 20, 1998,
expressed an unqualified opinion on those financial highlights.
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 confirmation of securities owned at December
31, 1999, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
As more fully described in Note 8, the Fund's sole shareholder intends to
liquidate its investment in the Fund. The Fund's Board of Directors will
consider terminating the Fund after the distribution to the shareholder.
In our opinion, such financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Composite Deferred Series, Inc. as of December 31, 1999, the results of its
operations, the changes in its net assets and its financial highlights for the
years ended December 31, 1999 and 1998 in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
San Francisco, California
February 23, 2000
24
<PAGE> 26
TAX information (unaudited)
COMPOSITE DEFERRED SERIES, INC.
YEAR ENDED DECEMBER 31, 1999
The amounts of long-term capital gain paid were as follows:
<TABLE>
<CAPTION>
NAME OF PORTFOLIO
- -----------------
<S> <C>
Growth & Income Portfolio................................... $4,477,009
Northwest Portfolio......................................... 3,189,231
</TABLE>
25
<PAGE> 27
This material is not an offer to sell nor a solicitation to buy shares of the
Composite Deferred Series, Inc. It is not authorized for distribution unless
preceded or accompanied by a current prospectus(es) that includes information
regarding the risk factors, expenses, policies and objectives of the Composite
Deferred Series, Inc. Shares of the Composite Deferred Series, Inc. are not
insured by the FDIC. They are not deposits or obligations of, nor are they
guaranteed by, the depository institution or any other agency. These securities
are subject to investment risk, including possible loss of principal amount
invested.
Distributed by WM
Funds Distributor, Inc.
Member NASD
