PORTFOLIO
COMPOSITION........3

PORTFOLIO
HIGHLIGHTS.........4

PORTFOLIOS.........7

FINANCIAL
INFORMATION
  INDEPENDENT
  PUBLIC
  ACCOUNTANTS' 
  REPORT..........18

  FINANCIAL
  STATEMENTS......19

  FINANCIAL 
  HIGHLIGHTS......22

  NOTES TO
  FINANCIAL
  STATEMENTS......25



                        IN COMPARISON WITH THE PAST YEAR,
                      MODERATED GROWTH IS EXPECTED FOR 1997

     Looking  back at 1996,  it is easy to see that many equity  investors  were
celebrating a  15-year-long  market that had only a single  downturn - with that
coming in 1987.
     On the fixed-income  side,  investors  experienced more market volatility -
from early  expectations  of a recession - to robust mid-year growth - to almost
perfect conditions as the year ended.
     Ahead,  we expect the economy's  upward  movement  will be moderated,  when
compared to the past year, with inflation continuing at much the same low level.
     Three  portfolios  comprise our  offerings to  Composite  Variable  Annuity
owners:  Growth & Income  and  Northwest,  both of which  focus on  stocks;  and
Income, which is centered on fixed-income investments. Each allows you to invest
according  to  your  investment   objectives  in  a  tax-deferred   environment.
Performance  and prospects  for each are discussed in extensive  detail on these
pages, following this introductory message.
     Many economic conditions  obviously will be felt by all types of investors.
Nevertheless,  it may be useful to touch on a few key market elements and how we
expect they will influence investments in 1997 - a year which we believe will be
quite healthy.

   First, on the equities side:

MANY FACTORS INFLUENCE THE STOCK MARKET

*  Not surprising to us, the rate of savings in the United States has taken at 
   least a short-term upward turn. Money is going into investments and bank 
   accounts, it is paying down debt, and it is being used for other non-spending
   purposes. The reasons for this, we believe, are concerns about retirement and
   large amounts of credit-card debt.
*  Interest rates are expected to remain near today's level.
*  There will continue to be some  investors  who opt for favorable  earnings in
   the companies in which they invest.  At the same time, it is likely they will
   find such securities are selling at a premium.
*  Another continuing trend we anticipate is the growth of good small- 
   and medium-cap companies, and accelerated acquisition of them as they mature,
   by large companies. For the Portfolios we manage, it will be vital that we 
   recognize undervalued stocks, anticipate their growth, and take early action
    to acquire them.
*  On the government front, we applaud possible downsizing, recognizing that 
   such a move would make new dollars available to help boost the economy. 
   Similarly, we are pleased when we hear serious talk about dealing with the 
   federal debt, but we believe that the importance of entitlement programs such
   as Social Security and Medicare cannot be ignored.

FIVE DRIVING FORCES ARE EXPECTED
     Examining the economy from the perspective of a fixed-income investor leads
to some of the same conclusions  expressed above, as well as to unique points of
view. The latter are considered below.
     Our  expectations are that there will be five driving forces that will have
a  significant  impact in the future.  These  factors  should allow the current,
almost perfect conditions of modest growth and low inflation to persist.  Steady
or lower interest rates will complement the situation.
   These five factors are:
     *    Slow  economic  growth,  in large part because U.S.  consumers and our
          federal  government have spent and spent and driven debt levels up and
          up.  Neither  consumers  nor the  government  can  take  on  much  new
          borrowing.
     *    High levels of debt and slow economic  growth are not just an American
          phenomena. Governments everywhere in the world face the same problems,
          often to a much greater degree than our own.
     *    Many new producers and sellers are at work in the global  marketplace,
          particularly  in the countries of the former  Soviet Union,  East Asia
          and Latin  America.  This has helped curb  inflation by allowing  each
          country,  including  ours, to provide the goods for which they are the
          most efficient producer.
     *    The Federal Reserve recognizes the value of low inflation in fostering
          efficient,  stable growth and that  understanding  is reflected in our
          nation's current monetary policy.
     *    As discussed earlier, the need to prepare for retirement appears to
          be on the minds of many  people.  Saving  more and buying  less can be
          expected to have a positive impact on financial markets.
     Certainly,  volatility  also will  continue  to be a  potentially  powerful
influence,  as it was in 1994, when interest rates rose, and in 1995, when rates
fell.  However,  we expect  today's  interest rates to be typical of the average
level of rates until 2000.

A GOOD GROUNDING IN FUNDAMENTALS ALWAYS HELPS
     In view of the positive  financial  prognosis for the new year, it is worth
offering two basics of investing:
     One: Risk, and all that it entails, still is a vital part of the investment
equation.  There's a lot to be said for being prepared for market  fluctuations,
both up and down, and for investing regularly over the long term.
     Two: Portfolios such as the ones in which you invest provide  all-important
diversification,  something that, otherwise, is difficult to achieve effectively
without a personal  portfolio  of several  hundred  thousand  dollars.  And,  of
course,  diversification  is really  just  another  way to  minimize  risk while
seeking growth or income or both.

THANK YOU
     Your  purchase  of a  Composite  Variable  Annuity is  important  to us. We
greatly appreciate the confidence you've placed in us.
 

/s/
ROBERT W. ESCHRICH
PRESIDENT AND CEO
WM LIFE INSURANCE COMPANY

--------------------------------------------------------------------------------
FOOTNOTE TO INVESTMENT PERFORMANCE CHARTS ON PAGES 4, 5, AND 6.
     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, 1996

GROWTH & INCOME PORTFOLIO
TOP TEN HOLDINGS
Wells Fargo & Company - 2%
Federal Home Loan Mortgage Corporation - 2%
Microsoft Corporation - 2%
Johnson & Johnson - 2%
Lockheed/Martin - 2%
AT&T Corporation - 2%
Intel Corporation - 2%
Motorola, Inc. - 2%
Unilever NV - 2%
Raytheon Co. - 2%

[PIE CHART:]
INDUSTRY ALLOCATION
   Technology and Electronics 15%
   Banking and Financial 13%
   Capital Goods and
     Aerospace 12%
   Health Care 12%
   Consumer Staples 11%
   Consumer Cyclicals 10%
   Utilities and Real Estate
     Investment Trusts 9%
   Oils 7%
   Basic Industry and Resources 6%
   Cash and Other 5%

NORTHWEST PORTFOLIO
TOP TEN HOLDINGS
Microsoft Corporation - 6%
Boeing Company - 5%
U.S. Bancorp Oregon - 4%
Fred Meyer, Inc. - 4%
Expeditors International WA - 3%
Nike, Class B - 3%
Albertsons, Inc. - 3%
Price/Costco - 3%
Tektronix, Inc. - 3%
Mentor Graphics - 3%

[PIE CHART:]
INDUSTRY ALLOCATION
   Electronics 15%
   Computer Software and
     Systems 13%
   Banking and Financial 12%
   Consumer Cyclicals 12%
   Capital Goods and
     Aerospace 10%
   Basic Industry and
     Resources 9%
   Health Care 8%
   Cash and Other 8%
   Transportation 7%
   Utilities and Real Estate Investment Trusts 6%

INCOME PORTFOLIO
TOP TEN ISSUERS
U.S. Treasury - 37%
Government National Mortgage Association - 8%
Federal National Mortgage Association - 2%
Weyerhaeuser - 2%
Burlington Northern - 2%
Continental Corporation - 2%
Loral Space & Communications - 2%
Franchise Finance Corporation - 2%
First Nationwide - 2%
Federal Home Loan Mortgage Corporation - 1%

[PIE CHART:]
ASSET ALLOCATION
   Corporate 37%
   Treasury Obligations 37%
   Mortgages 15%
   Cash and Other 11%
<PAGE>
                              PORTFOLIO HIGHLIGHTS
                            GROWTH & INCOME PORTFOLIO

KEY IMPACTS ON 1996 PERFORMANCE
     The stock market  performed well in 1996,  driven higher by news of mergers
and acquisitions,  low inflation,  and solid corporate  earnings.  The Portfolio
benefited from this positive equity environment and posted excellent returns. In
particular, two holdings (FHP Corporation and Loral Space & Communications) were
taken over at prices substantially higher than their trading prices which helped
produce the positive 1996 performance.

WHAT'S AHEAD
     We anticipate that mergers and  acquisitions,  along with the low-inflation
environment, are likely to continue. However, corporate earnings,  especially in
the consumer sector, are unlikely to be as strong in 1997 as in 1996. Therefore,
we intend to take a cautious approach to investments in this area.
     We also believe  that a narrow  group of stocks has been the primary  force
driving the stock  average.  We are trying to take  advantage  of this by buying
desirable companies that have not participated in the market rise.

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,
have a competitive advantage and have barriers to entry.
     We  currently  are finding  good  equities  in the movie and content  area.
Improved means of distributing their products,  which include direct television,
Internet  and  cable  modem  transmissions,  should  provide  increased  revenue
opportunities for these companies.
     The semiconductor  group also is providing  bargains,  as we see oversupply
concerns coming to an end. The demand for semiconductors  remains strong, fueled
by Pentium Pro and Window N.T.  product  cycles,  as well as  telecommunications
deregulation.
     Finally,   spinoff   situations  are  offering   excellent   value  in  the
marketplace.   Many  former  subsidiaries  of  larger  companies  are  excellent
businesses where management owns considerable stock. We are finding that many of
these situations are undervalued.

INVESTMENT PERFORMANCE CHART:

PERFORMANCE INFORMATION * GROWTH & INCOME PORTFOLIO * PERIODS ENDED DECEMBER 31,
1996
ENDING VALUE OF $10,000 INVESTED SINCE INCEPTION ON 6/30/87

KEY:  Growth & Income Portfolio $28,105
      S&P 500 (Stocks) $32,553
      CPI (Inflation) $13,974                                    

PAST PERFORMANCE CANNOT PREDICT FUTURE RESULTS.

Box to the right of chart:  THE CHART DEPICTS THE PORTFOLIO'S PERFORMANCE.  AN
INVESTMENT IN THE PORTFOLIO THROUGH A COMPOSITE VARIABLE ANNUITY CONTRACT WOULD
HAVE RESULTED IN AVERAGE ANNUAL RETURNS OF 12.95%, 12.78% and 10.02% OVER ONE
YEAR, FIVE YEARS AND SINCE INCEPTION, RESPECTIVELY.  ANNUITY RETURNS ARE AFTER
ALL FEES AND ASSUME PAYMENT OF THE CONTINGENT DEFERRED SALES CHARGE WHICH 
DECLINES FROM 7% TO 0%.  SEE FOOTNOTE ON PAGE 2.

COMPOSITE DEFERRED GROWTH      STANDARD & POOR'S 500 INDEX  CONSUMER PRICE INDEX
      & INCOME

6/30/87        10,000              $10,000                       $10,000
9/30/87        10,459              $10,658                       $10,132
12/31/87        8,951               $8,263                       $10,167
3/31/88         9,910               $8,735                       $10,264
6/30/88        10,236               $9,312                       $10,396
9/30/88        10,401               $9,344                       $10,555
12/31/88       10,611               $9,631                       $10,617
3/31/89        11,183              $10,317                       $10,775
6/30/89        11,679              $11,220                       $10,934
9/30/89        12,286              $12,418                       $11,013
12/31/89       11,778              $12,675                       $11,110
3/31/90        11,522              $12,303                       $11,339
6/30/90        11,871              $13,068                       $11,445
9/30/90        10,232              $11,283                       $11,692
12/31/90       11,194              $12,288                       $11,789
3/31/91        12,828              $14,073                       $11,894
6/30/91        13,128              $14,041                       $11,982
9/30/91        13,420              $14,792                       $12,088
12/31/91       14,095              $16,032                       $12,150
3/31/92        14,256              $15,627                       $12,273
6/30/92        14,470              $15,924                       $12,352
9/30/92        14,900              $16,426                       $12,449
12/31/92       15,582              $17,253                       $12,502
3/30/93        16,088              $18,007                       $12,652
6/30/93        16,027              $18,094                       $12,722
9/30/93        16,079              $18,562                       $12,784
12/31/93       16,761              $18,992                       $12,846
3/31/94        16,603              $18,272                       $12,969
6/30/94        16,673              $18,349                       $13,040
9/30/94        17,502              $19,246                       $13,163
12/31/94       17,217              $19,243                       $13,189
3/31/95        18,637              $21,117                       $13,339
6/30/95        19,985              $23,133                       $13,436
9/30/95        21,573              $24,971                       $13,498
12/31/95       23,019              $26,474                       $13,524
3/31/96        24,275              $27,895                       $13,718
6/30/96        25,390              $29,147                       $13,806
9/30/96        26,170              $30,048                       $13,903
12/31/96       28,105              $32,553                       $13,974
             
             


<PAGE>
                              PORTFOLIO HIGHLIGHTS
                              NORTHWEST PORTFOLIO

     The past  year was the  first in which  the  Portfolio  was  fully  managed
without any formal ties to the Northwest  50(R)Index.  During the year, we added
24 new companies to our holdings and eliminated 11. In addition,  we reduced our
concentration  in some of our larger  holdings,  and the  Portfolio is now fully
diversified.

KEY IMPACTS ON 1996 PERFORMANCE
     Many of our major holdings had very strong performance during 1996, such as
Microsoft (up 88%),  Boeing (up 36%) and Nike (up 72%).  However,  the Portfolio
had  significant  exposure  to   small-capitalization   stocks,  some  of  which
underperformed  the market during the year.  Among them were Redhook Ale Brewery
(down 63%), and Mentor Graphics (down 47%).
     Of the  companies  added to our  Portfolio,  some  performed  well and some
lagged.  Among those  performing  well since  purchase  were Red Lion Hotels (up
approximately 75% due to its acquisition by Doubletree Inns) and Intel (up 31%).
Those lagging our  performance  expectations  since  purchase  included  InFocus
Systems (down 40%) and Ostex (down 71%). We continue to like the fundamentals of
the  small-capitalization  stocks in the Portfolio  and we  anticipate  stronger
performance from them in the future.

WHAT'S AHEAD
     We believe the Pacific  Northwest is extremely  well  positioned for future
growth,  thanks in large part to the strength of the  technology  and  aerospace
industries. The Puget Sound region, in particular, may be on the cusp of some of
the strongest growth it has seen in years.  Also, the  Portland-area  technology
boom continues  unabated.  All of this bodes well for companies dependent on the
regional  economy,   notably  retailers  and  banks.  In  addition,  the  strong
competitive  positions of the more global  companies in our  Portfolio,  such as
Microsoft, Boeing, and Nike, provide a diverse economic backbone.
     Although  the   Portfolio  is,  by  nature,   volatile,   we  believe  that
shareholders will be well rewarded over the long run.

KEY INVESTMENT STRATEGIES
     The Portfolio  seeks  long-term  capital  appreciation  by investing in the
stocks of companies  headquartered  or doing business in the Northwest.  Quality
companies  with  strong  growth  characteristics,  competitive  advantages,  and
reasonable valuations are key elements we look for when pursuing this goal.

INVESTMENT PERFORMANCE CHART:

PERFORMANCE INFORMATION * NORTHWEST PORTFOLIO * PERIODS ENDED DECEMBER 31, 1996
ENDING VALUE OF $10,000 INVESTED SINCE INCEPTION ON 1/4/93

KEY:  Northwest Portfolio $15,679
      S&P 500 (Stocks) $18,868
      CPI (Inflation) $11,177                                    

PAST PERFORMANCE CANNOT PREDICT FUTURE RESULTS

Box to the right of chart:  THE CHART DEPICTS THE PORTFOLIO'S PERFORMANCE.  AN
INVESTMENT IN THE PORTFOLIO THROUGH A COMPOSITE VARIABLE ANNUITY CONTRACT WOULD
HAVE RESULTED IN AVERAGE ANNUAL RETURNS OF 13.09% OVER ONE YEAR, AND 9.58% SINCE
INCEPTION, RESPECTIVELY.  ANNUITY RETURNS ARE AFTER ALL FEES AND ASSUME PAYMENT 
OF THE CONTINGENT DEFERRED SALES CHARGE WHICH DECLINES FROM 7% TO 0%.  
SEE FOOTNOTE ON PAGE 2.

COMPOSITE DEFERRED NORTHWEST  STANDARD & POOR'S 500 INDEX  CONSUMER PRICE INDEX

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                  $11,177
 

<PAGE>
                              PORTFOLIO HIGHLIGHTS
                                INCOME PORTFOLIO

KEY IMPACTS ON 1996 PERFORMANCE
     Fixed-income   returns,   although  modest  in  1996,   generally  outpaced
inflation.  Despite  interest  rates being low by recent  historical  standards,
inflation  remained  even  lower.  This  translated  into  positive  returns for
Portfolio holders.
     As it became  apparent that the economy was growing  faster than  expected,
interest  rates  rose for most of the year,  limiting  returns to  investors  in
fixed-income securities. For the year, rates on intermediate-maturity securities
rose 0.85%.
     The  Portfolio's  mortgage-backed  securities  performed  well in  1996.  A
favorable  prepayment  environment - the result of relatively  subdued  interest
rate  volatility  - was the  primary  factor  supporting  this  sector's  strong
relative performance.

WHAT'S AHEAD
     We believe  interest rates at today's levels represent good value. As noted
in the  introduction,  the five structural  forces that we feel will continue to
limit inflation growth for years to come are: excessive build-up of debt, fiscal
austerity worldwide,  increased global competition, U.S. monetary policy focused
on low inflation, and changing demographics.
     It is possible there will be short periods of rising inflation,  but we see
little risk in a sustained,  rising inflationary  environment that would produce
significantly higher rates.

KEY INVESTMENT STRATEGIES
     The  Portfolio  seeks to  provide a high level of  current  income  that is
consistent  with the  protection of capital.  We attempt to  accomplish  this by
selecting investments with an intermediate-maturity  profile and by investing in
a combination of corporate,  mortgage-backed and treasury securities.  By taking
advantage of changing fundamentals between market sectors and anticipating broad
changes  in  interest  rates,  we  feel  we can add  incremental  income  to the
Portfolio while still focusing on the protection of capital.

INVESTMENT PERFORMANCE CHART:

PERFORMANCE INFORMATION * INCOME PORTFOLIO * PERIODS ENDED DECEMBER 31, 1996
ENDING VALUE OF $10,000 INVESTED SINCE INCEPTION ON 6/30/87

KEY:  Income Portfolio $21,360
      LGCB (Gov't./Corp. Bonds) $22,455
      CPI (Inflation) $13,974                                 

PAST PERFORMANCE CANNOT PREDICT FUTURE RESULTS

Box to the right of chart:  THE CHART DEPICTS THE  PORTFOLIO'S  PERFORMANCE.  AN
INVESTMENT IN THE PORTFOLIO THROUGH A COMPOSITE  VARIABLE ANNUITY CONTRACT WOULD
HAVE  RESULTED  IN AVERAGE  ANNUAL  RETURNS OF -5.27%,  4.73% and 7.11% OVER ONE
YEAR, FIVE YEARS AND SINCE  INCEPTION,  RESPECTIVELY.  ANNUITY RETURNS ARE AFTER
ALL FEES AND ASSUME  PAYMENT  OF THE  CONTINGENT  DEFERRED  SALES  CHARGE  WHICH
DECLINES FROM 7% TO 0%. SEE FOOTNOTE ON PAGE 2.

COMPOSITE DEFERRED INCOME   LEHMAN GOVT./CORP. BOND INDEX   CONSUMER PRICE INDEX

6/30/87   $10,000                  $10,000                       $10,000
9/30/87   $10,025                  $ 9,708                       $10,132
12/31/87  $10,214                  $10,274                       $10,167
3/31/88   $10,689                  $10,642                       $10,264
6/30/88   $10,850                  $10,747                       $10,396
9/30/88   $11,036                  $10,948                       $10,555
12/31/88  $11,203                  $11,053                       $10,617
3/31/89   $11,372                  $11,175                       $10,775
6/30/89   $11,834                  $12,073                       $10,934
9/30/89   $12,107                  $12,187                       $11,013
12/31/89  $12,315                  $12,627                       $11,110
3/31/90   $12,341                  $12,482                       $11,339
6/30/90   $12,759                  $12,932                       $11,445
9/30/90   $12,782                  $13,010                       $11,692
12/31/90  $13,373                  $13,673                       $11,789
3/31/91   $13,764                  $14,041                       $11,894
6/30/91   $13,992                  $14,253                       $11,982
9/30/91   $14,722                  $15,073                       $12,088
12/31/91  $15,498                  $15,877                       $12,150
3/31/92   $15,317                  $15,639                       $12,273
6/30/92   $15,933                  $16,273                       $12,352
9/30/92   $16,615                  $17,068                       $12,449
12/31/92  $16,570                  $17,081                       $12,502
3/31/93   $17,324                  $17,875                       $12,652
6/30/93   $17,741                  $18,412                       $12,722
9/30/93   $18,255                  $19,021                       $12,784
12/31/93  $18,230                  $18,966                       $12,846
3/31/94   $17,559                  $18,372                       $12,969
6/30/94   $17,298                  $18,143                       $13,040
9/30/94   $17,373                  $18,233                       $13,163
12/31/94  $17,414                  $18,300                       $13,189
3/31/95   $18,272                  $19,212                       $13,339
6/30/95   $19,553                  $20,459                       $13,436
9/30/95   $19,905                  $20,850                       $13,498
12/31/95  $20,872                  $21,821                       $13,524
3/31/96   $20,304                  $21,311                       $13,718
6/30/96   $20,349                  $21,411                       $13,806
9/30/96   $20,704                  $21,789                       $13,903
12/31/96  $21,360                  $22,455                       $13,974

<PAGE>
COMPOSITE
DEFERRED
SERIES, INC.

PORTFOLIOS OF
INVESTMENTS 
IN SECURITIES
DECEMBER 31, 1996

<TABLE>
<CAPTION>
                           GROWTH & INCOME PORTFOLIO

   PRINCIPAL                                                                     MARKET
    AMOUNT                                                                       VALUE
 -------------                                                                ------------
   <S>         <C>                                                            <C>
                       CONVERTIBLE CORPORATE BONDS-0.47%
   $245,000    Michael Stores, 6.75%, due 01/15/2003 (cost $218,710).......   $  192,938
                                                                              ------------
    SHARES                         
 -------------
                              COMMON STOCKS-96.41%
                             AEROSPACE/DEFENSE-5.00%
      9,639    Lockheed Martin Corporation.................................      881,969
      5,000    Northrop Grumman Corporation................................      413,750
     15,990    Raytheon Company............................................      769,518
                                                                              ------------
                                                                               2,065,237
                                                                              ------------
                            BANK/SAVINGS & LOAN-7.48%
     12,500    Bank of New York Company, Inc. .............................      421,875
      5,107    Mellon Bank Corporation.....................................      362,597
     12,980    Norwest Bancorp.............................................      564,630
     11,000    Signet Banking Corporation..................................      338,250
     16,500    Washington Federal, Inc. ...................................      437,250
      3,600    Wells Fargo & Company.......................................      971,100
                                                                              -------------
                                                                               3,095,702
                                                                              -------------
                                 BEVERAGES-2.06%
     13,900    PepsiCo, Inc. ..............................................      406,575
     11,500    Seagram Company, Ltd. ......................................      445,625
                                                                              -------------
                                                                                 852,200
                                                                              -------------

                               CAPITAL GOODS-1.14%
     14,100    Donaldson Company, Inc. ....................................      472,350
                                                                              -------------
                                                                                    
                                 CHEMICALS-0.87%
     20,257    Millenium Chemicals, Inc.*..................................      359,562
                                                                              -------------
                             COMPUTER SOFTWARE-4.85%
     14,500    Autodesk, Inc. .............................................      406,000
     15,000    Barra, Inc.*................................................      412,500
      7,464    Electronic Data Systems Corporation.........................      322,818
     10,500    Microsoft Corporation* **...................................      867,562
                                                                              -------------
                                                                               2,008,880
                                                                              -------------
                             COMPUTER SYSTEMS-1.81%
     12,000    Cabletron Systems*..........................................      399,000
      7,000    Hewlett-Packard Company.....................................      351,750
                                                                              -------------
                                                                                 750,750
                                                                              -------------
                             CONSUMER DURABLES-2.61%
     27,300    Castle & Cooke, Inc.*.......................................      433,388
      9,700    Mattel, Inc. ...............................................      269,175
     32,000    Tyco Toys, Inc.*............................................      376,000
                                                                              -------------
                                                                               1,078,563
                                                                              -------------

                           ELECTRICAL EQUIPMENT-3.31%
      6,300    Emerson Electric Company....................................      609,525
      7,700    General Electric Company....................................      761,337
                                                                              -------------
                                                                               1,370,862
                                                                              -------------
                            ELECTRONICS/GENERAL-2.94%
     24,000    DSC Communications Corporation*.............................      429,000
     25,500    Loral Space & Communications*...............................      468,563
     32,900    Mentor Graphics*............................................      320,775
                                                                              -------------
                                                                               1,218,338
                                                                              -------------
                   ELECTRONICS-SEMICONDUCTORS/COMPONENTS-5.07%
      6,500    Intel Corporation...........................................      851,094
     12,900    Motorola, Inc. .............................................      791,738
      7,125    Texas Instruments, Inc. ....................................      454,218
                                                                              -------------
                                                                               2,097,050
                                                                              -------------
                            FINANCIAL SERVICES-3.31%
      8,750    Federal Home Loan Mortgage Corporation......................      963,593
     10,514    Legg Mason, Inc. ...........................................      404,789
                                                                              -------------
                                                                               1,368,382
                                                                              -------------
                           FOOD & FOOD RETAILERS-2.79%
      4,500    Campbell Soup Company.......................................      361,125
     12,900    Dole Food Company...........................................      436,988
     12,650    Supervalu, Inc. ............................................      358,943
                                                                              -------------
                                                                               1,157,056
                                                                              -------------
                            HEALTHCARE PRODUCTS-6.27%
     15,000    Abbott Laboratories.........................................      761,250
     11,650    Forest Laboratories, Inc.*..................................      381,538
     18,550    Johnson & Johnson...........................................      922,862
      6,700    Merck & Company, Inc. ......................................      530,975
                                                                              -------------
                                                                               2,596,625
                                                                              -------------
                            HEALTHCARE SERVICES-5.32%
     16,000    Cognizant Corporation.......................................      528,000
     13,700    FHP International Corporation*..............................      508,613
     18,000    Manor Care, Inc. ...........................................      486,000
     32,437    Medpartners, Inc.*..........................................      681,177
                                                                              -------------
                                                                               2,203,790
                                                                              -------------
                            HOUSEHOLD PRODUCTS-4.23%
     10,300    Alberto Culver Company, Class A.............................      424,875
      5,000    Proctor and Gamble Company..................................      537,500
      4,500    Unilever NV.................................................      788,625
                                                                              -------------
                                                                               1,751,000
                                                                              -------------

                                 INSURANCE-2.26%
      4,250    American International Group, Inc...........................      460,063
     10,500    Travelers Group, Inc. ......................................      476,437
                                                                              -------------
                                                                                 936,500
                                                                              -------------
                            LODGING/RESTAURANTS-0.99%
     23,150    Choice Hotels Holdings*.....................................      408,019
                                                                              -------------   
                                 MACHINERY-2.67%
     21,450    Crane Company...............................................      622,050
     11,900    Deere & Company.............................................      483,437
                                                                              -------------
                                                                               1,105,487
                                                                              -------------
                                   MEDIA-4.37%
     25,966    AC Nielson*.................................................      392,736
     18,500    Dun & Bradstreet Corporation................................      439,375
     11,300    Time Warner, Inc. ..........................................      423,750
     16,000    Viacom, Inc., Class A*......................................      552,000
                                                                              -------------
                                                                               1,807,861
                                                                              -------------
                              METALS & MINING-0.71%
     16,300    Worthington Industries......................................      295,437
                                                                              -------------
                                 OIL & GAS-7.15%
      4,000    Exxon Corporation...........................................      392,000
      5,175    Mobil Corporation...........................................      632,644
     21,100    Occidental Petroleum Corporation............................      493,212
      6,050    Phillips Petroleum Company..................................      267,713
      3,600    Royal Dutch Petroleum Company...............................      614,700
      2,500    Texaco, Inc. ...............................................      245,312
     10,791    Union Pacific Resources Group...............................      315,637
                                                                              ------------
                                                                               2,961,218
                                                                              ------------
                          PAPER & FOREST PRODUCTS-3.94%
     15,200    Asia Pulp & Paper*..........................................      172,900
     16,300    Kimberly Clark Mexico - American Depository Receipt.........      631,625
     12,200    Rayonier, Inc. .............................................      468,175
      7,600    Weyerhaeuser Company........................................      360,050
                                                                              ------------
                                                                               1,632,750
                                                                              ------------
                       REAL ESTATE INVESTMENT TRUSTS-3.15%
     13,238    Bank of America Realty......................................      327,640
      6,800    Developers Diversified Realty...............................      252,450
     10,200    Health Care Property Investors, Inc. .......................      357,000
      8,900    Hospitality Properties Trust................................      258,100
      3,700    Shurgard Storage Centers, Inc. .............................      109,613
                                                                              ------------
                                                                               1,304,803
                                                                              ------------
                               RETAIL SALES-1.98%
     14,800    Fred Meyer, Inc., Class A*..................................      525,400
      4,850    Lowe's Companies............................................      172,175
     15,100    Rex Stores*.................................................      122,688
                                                                              ------------
                                                                                 820,263
                                                                              ------------
                                  TOBACCO-1.46%
      3,600    Philip Morris Companies, Inc. ..............................      405,450
      5,800    RJR Nabisco Holding Corporation.............................      197,200
                                                                              ------------
                                                                                 602,650
                                                                              ------------
                          TRANSPORTATION SERVICES-2.94%
     28,900    Expeditors International of Washington, Inc. ...............      664,700
      9,200    Union Pacific Corporation...................................      553,150
                                                                              ------------
                                                                               1,217,850
                                                                              ------------
                        UTILITIES - GAS & ELECTRIC-0.89%
     12,800     MCN Corporation............................................      369,600
                                                                              ------------
                      UTILITIES - TELECOMMUNICATIONS-4.84%
     20,000    A T & T Corporation.........................................      870,000
     23,000    Aliant Communications, Inc. ................................      391,000
     11,500    Frontier Corporation........................................      260,188
     10,650    GTE Corporation.............................................      484,575
                                                                              ------------
                                                                               2,005,763
                                                                              ------------
               TOTAL COMMON STOCKS (cost $31,613,936)......................   39,914,548
                                                                              ------------


                       CONVERTIBLE PREFERRED STOCKS-3.57%
                             COMPUTER SOFTWARE-0.20%
      1,000    Microsoft Preferred.........................................       80,125
                                                                              ------------
                               CAPITAL GOODS-1.04%
      4,600    FHP International Corporation...............................      140,300
     43,200    RJR Nabisco Holding Corporation.............................      291,600
                                                                              ------------
                                                                                 431,900
                                                                              ------------
                                 INSURANCE-2.33%

      6,250    Integon Corporation.........................................      335,937
      7,500    Penncorp Financial Group....................................      630,000
                                                                              ------------
                                                                                 965,937
                                                                              ------------
               TOTAL CONVERTIBLE PREFERRED STOCK (cost $1,394,954).........    1,477,962
                                                                              ------------
               TOTAL INVESTMENTS (cost $33,227,600)........................   41,585,448
               Other assets ($275,483) less liabilities ($459,264).........     (183,781)
                                                                              ------------
               NET ASSETS..................................................  $41,401,667
                                                                              ============

**Non-income producing security.

**The portfolio position subject to and the description and value of written covered call option outstanding at December 31, 1996,
  were as follows:


 OPTION
CONTRACTS   SECURITY     EXPIRATION MONTH  EXERCISE PRICE  VALUE OF CALL OPTIONS
--------------------------------------------------------------------------------
  10  Microsoft Corporation     JAN/97           $80               $4,250


FEDERAL INCOME TAX INFORMATION:
Net unrealized  appreciation  of investments at December 31, 1996 of $8,357,848,
based on aggregate cost of  $33,227,600,  was composed of gross  appreciation of
$9,017,740  for  investments  having  an  excess  of value  over  cost and gross
depreciation of $659,892 for investments having an excess of cost over value.

OTHER INFORMATION:
Purchases and sales of investment securities, other than short-term investments,
aggregated  $25,726,996  and  $11,292,414,  respectively,  during the year ended
December 31, 1996,  including purchases and sales of U.S. government  securities
of $436,024 and 446,393, respectively.

See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                              NORTHWEST PORTFOLIO
                                                                                 MARKET
     SHARES                                                                      VALUE
   -----------                                                                -----------
                              COMMON STOCKS-95.99%
                            AEROSPACE & DEFENSE-6.32%
   <S>         <C>                                                            <C>
      5,950    Boeing Company..............................................      632,931
      3,500    Precision Castparts Corporation ............................      173,687
                                                                              -----------
                                                                                 806,618
                                                                              -----------
                              APPAREL & SHOES-3.13%
      6,700    Nike, Inc., Class B.........................................      400,325
                                                                              -----------
                           BANK/SAVINGS & LOANS-10.18%
      9,700    First Savings Bank of Washington Bancorp, Inc. .............      178,237
        126    Horizon Financial Corporation...............................        1,701
      5,300    Interwest Bancorp, Inc. ....................................      170,925
      6,500    Klamath First Bancorp, Inc. ................................      102,375
      6,100    Sterling Financial Corporation*.............................       86,162
     12,518    US Bancorp Oregon...........................................      562,528
      7,479    Washington Federal, Inc. ...................................      198,193
                                                                              -----------
                                                                               1,300,121
                                                                              -----------
                                 BEVERAGES-0.44%
      5,800    Redhook Ale Brewery, Inc.*..................................       55,825
                                                                              -----------
                               CAPITAL GOODS-0.69%
      1,290    PACCAR, Inc. ...............................................       87,720
                                                                              -----------
                             COMPUTER SOFTWARE-8.11%
      9,100    CFI Proservices, Inc.*......................................      129,675
      8,600    Microsoft Corporation*......................................      710,575
     12,900    Wall Data, Inc.*............................................      195,112
                                                                              -----------
                                                                               1,035,362
                                                                              -----------
                             COMPUTER SYSTEMS-5.36%
      9,700    In Focus Systems, Inc.*.....................................      209,762
     17,100    Sequent Computer Systems, Inc.*.............................      303,525
     14,600    Planar Systems, Inc.*.......................................      171,550
                                                                              -----------
                                                                                 684,837
                                                                              -----------
                           ELECTRICAL EQUIPMENT-1.65%
      3,200    Fluke Corporation...........................................      142,800
      4,500    Merix Corporation*..........................................       68,625
                                                                              -----------
                                                                                 211,425
                                                                              -----------
                           ELECTRONICS/GENERAL-10.06%
      8,500    Electro Scientific Industries, Inc.*........................      221,000
     13,500    FEI Company*................................................      126,562
      8,400    Flir Systems, Inc.*.........................................      115,500
      7,300    Itron, Inc.*................................................      129,575
     35,300    Mentor Graphics Corporation*................................      344,175
      6,800    Tektronix, Inc. ............................................      348,500
                                                                              -----------
                                                                               1,285,312
                                                                              -----------
                                                                           
                  ELECTRONICS - SEMICONDUCTORS/COMPONENTS-4.71%
      1,700    Intel Corporation...........................................      222,594
      4,700    Lattice Semiconductor Corporation*..........................      216,200
        900    Micron Technology, Inc. ....................................       26,212
      5,200    Triquint Semiconductor, Inc.*...............................      137,150
                                                                              -----------
                                                                                 602,156
                                                                              -----------
                         FOODS AND FOOD RETAILERS-3.58%
     10,400    Albertson's, Inc............................................      370,500
      2,590    Quality Food Centers, Inc.*.................................       87,412
                                                                              -----------
                                                                                 457,912
                                                                              -----------
                            HEALTHCARE PRODUCTS-6.12%
      5,500    Advanced Technology Laboratories, Inc.*.....................      170,500
     25,550    Icos Corporation*...........................................      194,819
     11,100    Immunex Corporation*........................................      216,450
     19,500    Ostex International, Inc.*..................................      107,250
      3,200    Pathogenesis Corporation*...................................       69,600
      1,100    Spacelabs Medical, Inc.*....................................       22,550
                                                                              -----------
                                                                                 781,169
                                                                              -----------
                            HEALTHCARE SERVICES-1.87%
      2,400    Foundation Health Corporation*..............................       76,200
      1,900    Pacificare Health Systems, Inc., Class B*...................      161,975
                                                                              -----------
                                                                                 238,175
                                                                              -----------
                                 INSURANCE-2.22%
      7,200    Safeco Corporation..........................................      283,950
                                                                              -----------
                           LODGING & RESTAURANTS-0.92%
      4,100    Starbucks Corporation*......................................      117,363
                                                                              -----------
                                 MACHINERY-1.13%
      8,700    Flow International Corporation*.............................       79,388
      6,300    Greenbrier Companies, Inc. .................................       65,363
                                                                              -----------
                                                                                 144,751
                                                                              -----------
                              METALS & MINING-2.99%
      4,100    Hecla Mining Company*.......................................       23,063
      4,900    Oregon Metallurgical Corporation*...........................      158,025
      1,700    Oregon Steel Mill, Inc. ....................................       28,475
      6,700    Schnitzer Steel Inds., Inc. ................................      171,688
                                                                              -----------
                                                                                 381,251
                                                                              -----------
                          PAPER & FOREST PRODUCTS-6.28%
      1,700    Boise Cascade Corporation...................................       53,975
        900    Georgia-Pacific Corporation.................................       64,800
      1,900    Longview Fibre Company......................................       34,913
      6,100    Louisiana Pacific Corporation...............................      128,863
      5,500    Weyerhaeuser Company........................................      260,563
      3,700    Willamette Industries, Inc. ................................      258,538
                                                                              -----------
                                                                                 801,652
                                                                              -----------
                       REAL ESTATE INVESTMENT TRUSTS-3.41%
      8,900    Pacific Gulf Properties, Inc. ..............................      173,550
      4,000    Shurgard Storage Centers, Inc. .............................      118,500
      5,900    Wellsford Residential Property Trust........................      143,075
                                                                              -----------
                                                                                 435,125
                                                                              -----------
                               RETAIL SALES-7.82%
     13,900    BMC West Corporation*.......................................      170,275
     13,000    Fred Meyer, Inc.*...........................................      461,500
     14,600    Price/Costco, Inc.*.........................................      366,825
                                                                              -----------
                                                                                 998,600
                                                                              -----------
                          TRANSPORTATION SERVICES-6.90%
     11,550    Airborne Freight Corporation................................      269,981
      9,800    Alaska Air Group, Inc.*.....................................      205,800
     17,600    Expeditors International of Washington, Inc. ...............      404,800
                                                                              -----------
                                                                                 880,581
                                                                              -----------
                        UTILITIES - GAS & ELECTRIC-0.53%
     1,600     Portland General Corporation ...............................       67,200
                                                                              -----------
                      UTILITIES - TELECOMMUNICATIONS-1.57%
     9,800     General Communication - Class A*............................       79,625
     8,700     Western Wireless Corporation - Class A*.....................      120,712
                                                                              -----------
                                                                                 200,337
                                                                              -----------
               TOTAL COMMON STOCKS (cost $9,325,706).......................   12,257,767
                                                                              -----------
   PRINCIPAL
    AMOUNT
-------------
                           REPURCHASE AGREEMENT-4.24%
  $541,000     Repurchase agreement with Goldman Sachs, collateralized by a
                U.S. Treasury Note, in a joint trading account at 6.15%, dated
                12/31/1996, due 01/02/1997, with a maturity value of
                $541,185 (cost $541,000)...................................      541,000
                                                                              -----------
               TOTAL INVESTMENTS (cost $9,866,706).........................   12,798,767
               Other assets ($34,363) less liabilities ($63,484)...........      (29,121)
                                                                              -----------
               NET ASSETS..................................................  $12,769,646
                                                                              ===========
*Non-income producing security.

FEDERAL INCOME TAX  INFORMATION:  
Net unrealized  appreciation  of investments at December 31, 1996 of $2,932,061,
based on aggregate cost of  $9,866,706,  was composed of gross  appreciation  of
$3,420,159  for  investments  having  an  excess  of value  over  cost and gross
depreciation of $488,098 for investments having an excess of cost over value.

OTHER  INFORMATION:  
Purchases and sales of investment securities, other than short-term investments,
aggregated  $6,120,192  and  $2,397,715,  respectively,  during  the year  ended
December 31, 1996.

See accompanying notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>                                                              


                                INCOME PORTFOLIO
                                                                
  PRINCIPAL                                                                      MARKET
   AMOUNT                                                                        VALUE
 ------------                                                                -------------

                        U.S. TREASURY OBLIGATIONS-36.96%
<S>            <C>                                                           <C>
    200,000    U.S. Treasury Bond, 7.50%, due 11/15/2024...................  $   218,750
  1,200,000    U.S. Treasury Bond, 6.25%, due 08/15/2023...................    1,125,001
  1,200,000    U.S. Treasury Bond, 7.25%, due 08/15/2022...................    1,269,751
  1,000,000    U.S. Treasury Bond, 7.25%, due 05/15/2016...................    1,056,251
  1,250,000    U.S. Treasury Note, 5.875%, due 02/15/2004..................    1,217,579
  1,000,000    U.S. Treasury Note, 5.75%, due 08/15/2003...................      970,313
    250,000    U.S. Treasury Note, 6.375%, due 08/15/2002..................      251,719
    200,000    U.S. Treasury Note, 7.875%, due 08/15/2001..................      213,250
    100,000    U.S. Treasury Note, 7.125%, due 02/29/2000..................      102,969
                                                                             -------------
               TOTAL U.S. TREASURY OBLIGATIONS (cost $6,404,883)...........    6,425,583
                                                                             -------------
                                                                               
                        MORTGAGE-BACKED SECURITIES-15.03%
                            GOVERNMENT AGENCY-10.21%
     10,236    Federal National Mortgage Association, 9.00%, due 10/01/2004       10,726
    411,156    Federal National Mortgage Association, 8.00%, due 12/01/2026      419,122
    329,420    Government National Mortgage Association, 9.00%, due 05/15/2009   347,539
     14,991    Government National Mortgage Association, 8.50%, due 03/15/2022    15,545
    130,587    Government National Mortgage Association, 8.00%, due 06/15/2022   133,362
    464,671    Government National Mortgage Association, 7.50%, due 06/15/2024   465,542
    390,274    Government National Mortgage Association, 7.00%, due 07/15/2023   382,347
                                                                              ------------
                                                                               1,774,183
                                                                              ------------
                      COLLATERALIZED MORTGAGE OBLIGATIONS -
                         GOVERNMENT AGENCY BACKED-3.82%
    255,000    Federal Home Loan Mortgage Corporation, 7.50%, due 07/15/2020     258,830
    392,885    Weyerhaeuser 1982-C FHA Putable, 7.43%, due 06/01/2022......      403,789
                                                                              ------------
                                                                                 662,619
                                                                              ------------
                    COLLATERALIZED MORTGAGE OBLIGATIONS-1.01%
    241,321    Resolution Trust Corporation - 1991-M2-A-2, 7.55%, due 09/25/2020 175,839
                                                                              ------------
               TOTAL MORTGAGE-BACKED SECURITIES (cost $2,604,220)..........    2,612,641
                                                                              ------------

                     NON-CONVERTIBLE CORPORATE BONDS-34.44%

    150,000    American Home Products, 7.25%, due 03/01/2023...............      150,459
    250,000    American Medical International, zero coupon, due 08/12/1997.      235,965
    200,000    Associates Corporation Senior Notes, 8.80%, due 08/01/1998..      208,085
    195,000    Bank of New York, 7.875%, due 11/15/2022....................      205,878
    175,000    Beneficial Corporation, 9.125%, due 02/15/1998..............      180,733
    300,000    Burlington Northern, 8.75%, due 02/25/2022..................      338,218
    200,000    Burlington Resources, 7.15%, due 05/01/1999.................      203,583
    200,000    Caterpillar Corporation, 9.375%, due 07/15/2001.............      221,586
    200,000    Coastal Corporation, 10.75%, due 10/01/2010.................      256,146
    150,000    Commonwealth Edison, 9.375%, due 02/15/2000.................      160,963
    150,000    Consumers Power, 8.75%, due 02/15/1998......................      153,503
    300,000    Continental Corporation, 8.25%, due 04/15/1999..............      311,144
    250,000    FHP International, 7.00%, due 09/15/2003....................      248,813
    250,000    First Nationwide, 10.00%, due 10/01/2006....................      290,513
    100,000    Franchise Finance Corporation, 7.00%, due 11/30/2000........      100,112
    200,000    Franchise Finance Corporation, 7.875%, due 11/30/2005.......      204,750
    100,000    General Motors Acceptance Corporation, 7.75%, due 01/15/1999      102,839
    200,000    Integon Corporation, 8.00%, due 08/15/1999..................      202,456
    200,000    Kemper Corporation, 6.875%, due 09/15/2003..................      200,263
    300,000    Loral Corporation, 7.625%, due 06/15/2025...................      307,853
    200,000    Mercantile Bank, 7.625%, due 10/15/2002.....................      207,153
    250,000    Morgan Stanley, 6.75%, due 03/04/2003.......................      248,620
    150,000    Niagara Mohawk Power, 9.50%, due 06/01/2000.................      154,121
     50,000    Niagara Mohawk Power, 8.77%, due 01/01/2018.................       48,922
    150,000    Portland General Electric, 8.88%, due 08/12/1999............      159,066
    150,000    Public Service Electric & Gas, 8.875%, due 06/01/2003.......      164,541
    150,000    Public Service Company of New Hampshire, 9.17%, due 05/15/1998    154,477
    150,000    Texas Utilities Electric, 9.50%, due 08/01/1999.............      160,045
    200,000    Time Warner, Inc., 9.15%, due 02/01/2023....................      217,300
    200,000    Westinghouse Corporation, 7.875%, due 09/01/2023............      188,524
                                                                              ------------
               TOTAL NON-CONVERTIBLE CORPORATE BONDS (cost $5,889,800).....    5,986,631
                                                                              ------------


  PRINCIPAL                                                                      MARKET                                             
   AMOUNT                                                                        VALUE
-------------                                                                 ------------
                        CONVERTIBLE CORPORATE BOND-0.83%
$   150,000    Costco Wholesale Corporation, 5.75%, due 05/15/2002
                     (cost $142,123) ......................................     $144,563
                                                                              ------------
                      U.S DOLLAR FOREIGN OBLIGATIONS-1.56%
    150,000    Province of Alberta, 9.25%, due 04/01/2000..................      163,415
    100,000    Province of Manitoba, 9.625%, due 03/15/1999................      107,013
                                                                              ------------
               TOTAL U.S. DOLLAR FOREIGN OBLIGATIONS (cost $256,844).......      270,428
                                                                              ------------
                       CONVERTIBLE PREFERRED STOCK-0.31%
     1,000     Integon Corporation (cost $59,320)..........................       53,750
                                                                              ------------
                           REPURCHASE AGREEMENT-9.51%
 $1,654,000    Repurchase agreement with Goldman Sachs, collateralized by a
               U.S. Treasury Note in a joint trading account  at 6.15%, dated
               12/31/1996, due 01/02/1997, with a maturity value of $1,654,565
               (cost $1,654,000)..........................................     1,654,000
                                                                              -------------
               TOTAL INVESTMENTS (cost $17,011,190)........................   17,147,596
               Other assets ($291,049) less liabilities ($54,141)..........      236,908
                                                                              -------------
               NET ASSETS..................................................  $17,384,504
                                                                              =============

FEDERAL INCOME TAX  INFORMATION:  
Net  unrealized  appreciation  of  investments  at December 31, 1996 of $136,406
based on aggregate cost of  $17,011,190,  was composed of gross  appreciation of
$308,340  for  investments  having  an  excess  of value  over  cost  and  gross
depreciation of $171,934 for investments having an excess of cost over value. As
of December 31, 1996,  the fund had unused  capital loss  carryovers of $141,418
for federal tax purposes  which may be applied  against gains realized in future
years. If not applied, the carryovers will expire by 2004.

OTHER  INFORMATION:  
Purchases and sales of investment securities, other than short-term investments,
aggregated  $3,746,306  and  $1,519,053,  respectively,  during  the year  ended
December 31, 1996,  including purchases and sales of U.S. government  securities
of   $1,903,891   and   $650,000,   respectively.    Principal   repayments   of
mortgage-backed securities aggregated $288,068.

See accompanying notes to financial statements.

</TABLE>
<PAGE>
COMPOSITE
DEFERRED
SERIES, INC.
FINANCIAL
INFORMATION 
DECEMBER 31, 
1996

                     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, 1996,  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,  1996 and 1995.  For the  Growth & Income and Income
Portfolios we have audited the financial  highlights  for each of the five years
in the period ended  December 31, 1996.  For the  Northwest  Portfolio,  we have
audited the financial  highlights for each of the four years in the period ended
December 31, 1996. 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, 1996, 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, 1996, and the results of their operations,  the
changes in their net assets,  and the financial  highlights for the above stated
periods in conformity with generally accepted accounting principles.

LEMASTER & DANIELS PLLC
CERTIFIED PUBLIC ACCOUNTANTS
SPOKANE, WASHINGTON
JANUARY 24, 1997

<PAGE>
<TABLE>
<CAPTION>
                      STATEMENTS OF ASSETS AND LIABILITIES
                                DECEMBER 31, 1996

                                                                          GROWTH &     
                                                                          INCOME        INCOME      NORTHWEST
                                                                          PORTFOLIO    PORTFOLIO    PORTFOLIO
                                                                        ------------ ------------ -------------
<S>                                                                     <C>          <C>          <C>                   
ASSETS
Investments at market (identified cost $33,227,600,
  $9,866,706 and $17,011,190, respectively)..........................   $41,585,448  $12,798,767  $17,147,596
Cash.................................................................        22,340       12,670            -
Prepaid expenses.....................................................         2,071          744        1,211
Receivable for:
  Interest...........................................................         5,376           92      289,838
  Investment securities sold.........................................       191,035            -            -
  Dividends..........................................................        46,461       15,657            -
  Sale of Fund's shares..............................................         8,200        5,200            -
                                                                         ----------- ------------ -------------
Total assets.........................................................    41,860,931   12,833,130   17,438,645
                                                                         ----------- ------------ -------------
LIABILITIES
Bank overdraft.......................................................             -            -       44,957
Covered call options written at market (premiums received - $1,982)..         4,250            -            -
Payable for:
  Investment securities purchased....................................       438,266       54,111            -
  Accrued expenses and other payables................................        10,235        8,574        8,047
  Repurchase of Fund's shares........................................         6,513          799        1,137
                                                                         ----------- ------------ -------------
Total liabilities....................................................       459,264       63,484       54,141
                                                                         ----------- ------------ -------------
NET ASSETS ..........................................................   $41,401,667  $12,769,646  $17,384,504
                                                                         =========== ============ =============
COMPOSITION OF NET ASSETS
Paid-in capital......................................................   $29,948,797  $ 9,505,659  $17,389,846
Undistributed net investment income..................................         1,398          849            -
Accumulated net realized gain (loss).................................     3,095,892      331,077     (141,748)
Net unrealized appreciation of investments...........................     8,355,580    2,932,061      136,406
                                                                         ----------- ------------ -------------
                                                                        $41,401,667  $12,769,646  $17,384,504
NET ASSET VALUE                                                          =========== ============ =============
 Net asset value per share for 1,702,382, 700,316,
 and 1,438,611 shares outstanding, respectively......................        $24.32       $18.23       $12.08
                                                                         =========== ============ =============

 See accompanying notes to financial statements.

</TABLE>
<TABLE>
<CAPTION>
                                                       STATEMENTS OF OPERATIONS
                                                 FOR THE YEAR ENDED DECEMBER 31, 1996

                                                                          GROWTH &
                                                                          INCOME      NORTHWEST    INCOME
                                                                         PORTFOLIO    PORTFOLIO   PORTFOLIO
                                                                        -----------  ----------- -----------
<S>                                                                      <C>          <C>       <C>                
INVESTMENT INCOME
Income:
  Interest............................................................   $ 64,599     $ 33,157  $1,152,458
  Dividends...........................................................    645,607       95,566           -
                                                                        -----------  ----------- -----------
Total income..........................................................    710,206      128,723   1,152,458
                                                                        -----------  ----------- -----------
Expenses:
  Management fees ....................................................    162,589       49,023      80,985
  Custodial fees......................................................     17,896        9,635       7,876
  Directors' fees.....................................................      7,474        7,474       7,390
  Postage, printing and office expense................................      5,832        3,750       7,810
  Auditing and legal fees.............................................      2,344        5,054       3,178
  Insurance...........................................................      1,043          356         608
                                                                        -----------  ----------- -----------
Total expenses........................................................    197,178       75,292     107,847
Fees paid indirectly..................................................     (3,009)      (1,501)     (1,083)
                                                                        -----------  ----------- -----------
Net expenses..........................................................    194,169       73,791     106,764
                                                                        -----------  ----------- -----------
Net investment income.................................................    516,037       54,932   1,045,694
                                                                        -----------  ----------- -----------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Realized gain (loss) from investment transactions.....................  3,102,735      467,828      (8,320)
Unrealized appreciation (depreciation) of investments during the year.  2,982,704    1,538,604    (609,407)
                                                                        -----------  ----------- -----------
Net realized and unrealized gain (loss) on investments................  6,085,439    2,006,432    (617,727)
                                                                        -----------  ----------- -----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ............................................ $6,601,476   $2,061,364   $ 427,967
                                                                        =========    =========== ===========

See accompanying notes to financial statements.

<PAGE>
</TABLE>
<TABLE>
<CAPTION>
                                                  STATEMENTS OF CHANGES IN NET ASSETS

                                     GROWTH & INCOME PORTFOLIO      NORTHWEST PORTFOLIO        INCOME PORTFOLIO
                                   ---------------------------  -------------------------  -------------------------
                                            YEARS ENDED                YEARS ENDED               YEARS ENDED
                                            DECEMBER 31,               DECEMBER 31,              DECEMBER 31,
                                   ---------------------------  -------------------------  -------------------------
                                      1996          1995            1996       1995            1996         1995
                                   -----------   -------------  ------------ ------------  ------------ ------------ 
<S>                                <C>         <C>               <C>        <C>            <C>           <C>               
OPERATIONS
Net investment income...........   $ 516,037   $ 362,736         $ 54,932   $ 40,252       $ 1,045,694   $ 856,335
Realized gain (loss) from
investment transactions.........   3,102,735     441,257          467,828     (8,707)           (8,320)    (49,342)
Unrealized appreciation
 (depreciation) of investments 
  during the year...............   2,982,704   4,414,288        1,538,604  1,309,785          (609,407)  1,529,737
                              
Net increase in net assets resulting
from operations ................   6,601,476   5,218,281        2,061,364  1,341,330           427,967   2,336,730

DISTRIBUTIONS TO
SHAREHOLDERS 
Dividends from net
investment income ..............    (517,216)   (360,327)        (54,083)   (41,043)       (1,045,694)   (856,335)

Distributions from net capital gains
from investment transactions ...           -    (448,100)              -           -                 -           -

NET CAPITAL SHARE
TRANSACTIONS ...................  10,869,247   5,843,803       3,267,052  1,547,792        2,796,633    2,883,031
Total increase in net assets....  16,953,507  10,253,657       5,274,333  2,848,079        2,178,906    4,363,426

NET ASSETS
Beginning of the year...........  24,448,160  14,194,503       7,495,313  4,647,234       15,205,598   10,842,172
End of the year................. $41,401,667 $24,448,160     $12,769,646 $7,495,313      $17,384,504  $15,205,598

UNDISTRIBUTED NET
INVESTMENT INCOME AT
END OF YEAR .................... $     1,398 $     2,577     $       849 $        -      $         -  $         -    

See accompanying notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>

                                                        FINANCIAL HIGHLIGHTS

GROWTH & INCOME PORTFOLIO:
                                                                        YEARS ENDED DECEMBER 31,
                                                       ----------------------------------------------------
                                                         1996       1995       1994       1993       1992 
                                                       --------  ----------  ---------  ---------  --------
<S>                                                     <C>        <C>        <C>        <C>        <C>

NET ASSET VALUE, BEGINNING OF YEAR ..................   $20.22     $15.70     $15.71     $15.26     $14.28

  Income From Investment Operations
  Net Investment Income .............................     0.34       0.35       0.31       0.29       0.36
  Net Gains or Losses on Securities
   (both realized and unrealized)....................     4.10       4.90       0.12       0.84       1.13
   Total From Investment Operations..................     4.44       5.25       0.43       1.13       1.49

LESS DISTRIBUTIONS
  Dividends (from net investment income).............    (0.34)     (0.35)     (0.31)     (0.28)     (0.36)
  Distributions (from capital gains).................     0.00      (0.38)     (0.13)     (0.40)     (0.15)
   Total Distributions...............................    (0.34)     (0.73)     (0.44)     (0.68)     (0.51)

NET ASSET VALUE, END OF YEAR ........................   $24.32     $20.22     $15.70     $15.71     $15.26

TOTAL RETURN (1) ....................................    22.09%     33.70%      2.72%      7.58%     10.56%

RATIOS/SUPPLEMENTAL DATA
  Net Assets, End of Year ($1,000's).................   $41,402    $24,448    $14,195    $11,239     $7,455
  Ratio of Expenses to Average Net Assets (2)  ......     0.61%      0.70%      0.68%      0.76%      0.87%
  Ratio of Net Income to Average Net Assets..........     1.59%      2.01%      1.97%      1.96%      2.51%
  Portfolio Turnover Rate ...........................       45%        36%        25%        38%        13%
  Average Commission Paid (3) .......................   $0.0626

(1)  Total returns do 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.
</TABLE>
<TABLE>
<CAPTION>                     
                                                                                            
                                                                                           JANUARY 4
                                                        YEARS ENDED DECEMBER 31,              TO
                                                      ----------------------------        DECEMBER 31,                           
NORTHWEST PORTFOLIO:                                   1996       1995       1994          1993 (3)
                                                      -------   ---------  -------       -------------
<S>                                                   <C>        <C>        <C>             <C>          
NET ASSET VALUE, BEGINNING OF PERIOD ...............  $14.99     $11.97     $12.19          $12.00

  INCOME FROM INVESTMENT OPERATIONS
  Net Investment Income.............................    0.09       0.09       0.08            0.16
  Net Gains or Losses on Securities (both realized 
      and unrealized)                                   3.24       3.02      (0.21)           0.19
  Total From Investment Operations..................    3.33       3.11      (0.13)           0.35

LESS DISTRIBUTIONS
  Dividends (from net investment income)............   (0.09)     (0.09)     (0.08)          (0.16)
  Distributions (from capital gains)................    0.00       0.00      (0.01)           0.00
   Total Distributions..............................   (0.09)     (0.09)     (0.09)          (0.16)

NET ASSET VALUE, END OF PERIOD......................  $18.23     $14.99     $11.97          $12.19

TOTAL RETURN (1)  ..................................   22.23%     26.03%     -1.12%           2.95%

RATIOS/SUPPLEMENTAL DATA
  Net Assets, End of Period ($1,000's)..............  $12,770    $7,495     $4,647          $2,686
  Ratio of Expenses to Average Net Assets(2) ......     0.77%      0.90%      0.87%           0.00%
  Ratio of Net Income to Average Net Assets.........    0.56%      0.67%      0.76%           1.61%(5)
  Portfolio Turnover Rate (3) ......................      31%        11%        17%              0%
  Average Commission Paid (4) ......................  $0.0639

(1)  Total return does not reflect a sales charge and are 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.

</TABLE>
<TABLE>
<CAPTION>


INCOME PORTFOLIO:
                                                                            Years ended December 31,
                                                             -----------------------------------------------------
                                                                1996       1995       1994       1993       1992 
                                                             ---------- ---------  ---------  ---------- ---------
<S>                                                           <C>        <C>        <C>        <C>        <C>           
NET ASSET VALUE, BEGINNING OF YEAR ......................     $12.59     $11.22     $12.57     $12.22      $12.27
                                                             ---------- ---------  ---------  ---------- ---------                  
 INCOME FROM INVESTMENT OPERATIONS
  Net Investment Income..................................       0.78       0.79       0.79       0.85       0.86
  Net Gains or Losses on Securities (both realized 
  and unrealized) .......................................      (0.51)      1.37      (1.35)      0.35      (0.05)
                                                             ---------- ---------- ---------  ---------- ---------
    Total From Investment Operations.....................       0.27       2.16      (0.56)      1.20       0.81
LESS DISTRIBUTIONS                                           ---------- ---------- ---------  ---------- ---------
  Dividends (from net investment income).................      (0.78)     (0.79)     (0.79)     (0.85)     (0.86)
                                                             ---------- ---------- ---------  ---------- ---------
NET ASSET VALUE, END OF YEAR ............................     $12.08     $12.59     $11.22     $12.57     $12.22
                                                             ========== ========== =========  ========== =========
TOTAL RETURN (1) ........................................       2.34%     19.86%     -4.48%     10.02%      6.91%
RATIOS/SUPPLEMENTAL DATA
  Net Assets, End of Year ($1,000's).....................    $17,385    $15,206    $10,842     $9,113     $6,165
  Ratio of Expenses to Average Net Assets(2)  ...........       0.67%      0.76%      0.74%      0.86%      0.88%
  Ratio of Net Income to Average Net Assets..............       6.46%      6.62%      6.79%      6.75%      7.12%
  Portfolio Turnover Rate................................         11%        14%        15%        29%        37%

(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.

</TABLE>
<PAGE>
                          NOTES TO FINANCIAL STATEMENTS

NOTE 1 - ACCOUNTING POLICIES
     Composite  Deferred  Series,  Inc. (the "Fund"),  is registered  under the
Investment  Company  Act  of  1940,  as  amended,  as  an  open-end  diversified
management  investment company.  The Fund consists of three separate portfolios,
Growth & Income, Northwest, and Income portfolios,  which are designed to meet a
variety of investment objectives.
     WM Life Insurance Company ("Company"), is the sole shareholder of the Fund.
Shares are sold only to Composite  Deferred Series variable accounts to fund the
benefits  under  certain  flexible  premium  variable  annuity   contracts  (the
"Contract")  issued by the Company.  Contract holders have the right to instruct
the Company how to vote Fund shares  attributable to their contracts.  
     Following is a summary of significant  accounting  policies,  in conformity
with generally accepted accounting  principles,  which are consistently followed
by the Fund in the preparation of its financial statements.
     a.   Investment  securities are stated on the basis of valuations  provided
          by an independent pricing service, approved by the 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 Fund  requires the custodian to take  possession,  to have legally
          segregated  in the  Federal  Reserve  Book  Entry  System  or to  have
          segregated  within  the  custodian's  vault,  all  securities  held as
          collateral  for  repurchase  agreements.   The  market  value  of  the
          underlying  securities  is  required to be at least 102% of the resale
          price at the time of purchase. If the seller of the agreement defaults
          and the value of the collateral  declines,  or if the seller enters an
          insolvency  proceeding,  realization of the value of the collateral by
          the Fund may be delayed or limited.
     c.   Interest  income  is earned  from the  settlement  date on  securities
          purchased  and is recorded on the accrual  basis.  Dividend  income is
          recorded on the ex-dividend date.
     d.   Dividends  to the  shareholders  of the Growth & Income and  Northwest
          portfolios  are calculated and paid  quarterly.  The Income  Portfolio
          accrues  shareholder  dividends daily and pays such dividends monthly.
          Any capital gains are paid annually.
     e.   Security  transactions  are accounted for on the trade date (execution
          date of the order to buy or sell). Realized gain or loss from security
          transactions are determined on the basis of identified cost.
     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 treatment for deferral of wash sales.
     g.   Custodial fees have been increased by $3,009,  $1,501,  and $1,083 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  statement and the reported  amounts of revenues
          and expenses during the reporting period.  Actual results could differ
          from those estimates.

NOTE 2 - COVERED CALL OPTIONS WRITTEN

     The Growth & Income and Northwest  portfolios may write listed covered call
options in which premiums received are recorded as a liability,  which is marked
to market to reflect the current value of options written. A covered call option
gives the holder the right to buy the underlying  security,  which the portfolio
owns, at any time during the option period at a  predetermined  exercise  price.
When a portfolio writes a covered call option,  it gains income from the premium
received.  The risk in writing a covered call option is that the portfolio gives
up the opportunity to participate in any increase in the price of the underlying
security  beyond the  exercise  price.  Proceeds  from the covered  call options
exercised are increased by the amount of premium received.  If an option expires
or is canceled in a closing  transaction,  the portfolio  will realize a gain or
loss depending on whether the cost of the closing  transaction,  if any, is less
than or greater than the premium originally  received.  As of December 31, 1996,
portfolio  securities valued at $82,625 were held in a segregated account by the
custodian in connection with covered call options written by the Growth & Income
Portfolio.
     Transactions  in  written  covered  call  options  by the  Growth  & Income
Portfolio during the year ended December 31, 1996, were as follows:


                              NUMBER OF
                              CONTRACTS    PREMIUMS
                             -----------  ----------
OUTSTANDING AT
 December 31, 1995.........        0      $     0
Written.....................      55       13,481
Exercised...................     (40)     (10,516)
Expired.....................      (5)        (983)
                             -----------  ----------
OUTSTANDING AT
DECEMBER 31, 1996                 10     $  1,982
                             ===========  ==========

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.  Both are affiliates of Washington Mutual Bank and
Washington  Mutual fsb and  subsidiaries  of  Washington  Mutual,  Inc.  WM Life
Insurance  Company is also a subsidiary of Washington  Mutual,  Inc.  
     Management  fees were paid by the Fund to the Adviser.  Fees are based upon
an annual rate of 0.50% on average daily net assets as computed daily.
     Directors'  fees and expenses  were paid  directly by the Fund to directors
having no  affiliation  with the Fund other than in their capacity as directors.
Other officers and directors received no compensation from the Fund.

NOTE 4 - CAPITAL STOCK
     At December 31, 1996,  there were 10 billion shares of no par value capital
stock authorized. Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
                                          GROWTH &
                                      INCOME PORTFOLIO          NORTHWEST PORTFOLIO      INCOME PORTFOLIO
                                   ----------------------     ----------------------  ----------------------
                                        YEARS ENDED               YEARS ENDED              YEARS ENDED
                                        DECEMBER 31,              DECEMBER 31,             DECEMBER 31,
                                   ----------------------     ----------------------  ------------------------
                                       1996        1995          1996       1995          1996        1995
                                   -----------  ---------     ---------- -----------  ------------ -----------
<S>                               <C>         <C>          <C>         <C>           <C>          <C>  
SHARES
Sold............................      590,876     400,628      247,127     156,526      376,398       373,491
Issued for reinvestment of
  dividends and capital gains...       22,757      41,600        3,182       2,896       86,907        71,224
                                   -----------  ---------     ---------- -----------  ------------ -----------
                                      613,633     442,228      250,309     159,422      474,305       444,715
Reacquired......................     (120,141)   (137,392)     (49,897)    (47,873)    (243,230)     (203,756)
                                   -----------  ---------     ---------- -----------  ------------ -----------
Net increase ...................      493,492     304,836      200,412     111,549      231,075       240,959
                                   ===========  =========     ========== ===========  ============ ===========
AMOUNT
SOLD............................  $12,978,872 $ 7,442,085  $ 4,028,601 $ 2,152,588  $ 4,679,598   $ 4,456,949

Issued for reinvestment of
dividends and capital gains...        517,216     808,427       54,083     41,043     1,045,694       856,335
                                   -----------  ---------    ----------  -----------  -----------  -----------
                                   13,496,088   8,250,512    4,082,684  2,193,631     5,725,292     5,313,284
Reacquired......................   (2,626,841) (2,406,709)    (815,632)  (645,839)   (2,928,659)   (2,430,253)
                                   -----------  ---------    ----------  -----------  -----------  -----------
Net increase ...................  $10,869,247 $ 5,843,803  $ 3,267,052 $ 1,547,792  $ 2,796,633   $ 2,883,031
                                   ===========  =========    ==========  ===========  ===========  ===========
</TABLE>
<PAGE>

                    FOR FURTHER INFORMATION, PLEASE CONTACT:

                                  FUND OFFICES
                            Composite Group of Funds
                          601 W. Main Avenue, Suite 801
                             Spokane, WA 99201-0613
                              Phone: (509) 353-3550
                            Toll free: (800) 543-8072

                                     ADVISER
                       Composite Research & Management Co.
              1201 Third Avenue, Suite 1400 Seattle, WA 98101-3015

                                   DISTRIBUTOR
                               Murphey Favre, Inc.
               1201 Third Avenue, Suite 780 Seattle, WA 98101-3015

                                    CUSTODIAN
                        Investors Fiduciary Trust Company
                  127 W. 10th Street Kansas City, MO 64105-1716

                         INDEPENDENT PUBLIC ACCOUNTANTS
                             LeMaster & Daniels PLLC
            601 W. Riverside Avenue, Suite 800 Spokane, WA 99201-0614

                                     COUNSEL
                   Paine, Hamblen, Coffin, Brooke & Miller LLP
            717 W. Sprague Avenue, Suite 1200 Spokane, WA 99204-0464
                                                           
                                    OFFICERS

                                   PRESIDENT
                               William G. Papesh
                            Executive Vice President
                               Kerry K. Killinger

                                VICE PRESIDENTS
                                Gene G. Branson
                              Douglas D. Springer

                           VICE PRESIDENT & TREASURER
                                Monte D. Calvin

                                   SECRETARY
                                  John T. West

                               BOARD OF DIRECTORS
                                    MEMBERS
                             Wayne L. Attwood, M.D.
                                Kristianne Blake
                                 Anne V. Farrell
                                Michael K. Murphy
                                William G. Papesh
                               Daniel L. Pavelich
                                   Jay Rockey
                                Leland J. Sahlin
                                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.