SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Securities Act of 1933 File #2-10766
Investment Company Act of 1940 File #811-123
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT NO. ___ / /
POST-EFFECTIVE AMENDMENT NO. 64 /X/
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 64 /X/
COMPOSITE BOND & STOCK FUND, INC.
- --------------------------------------------------------------------------
(Exact name of Registrant as specified in Charter)
601 W. Main Avenue, Suite 801, Spokane, WA 99201
- --------------------------------------------------------------------------
(Address of principal executive offices)
1-509-353-3486
- --------------------------------------------------------------------------
(Registrant's telephone number, including area code)
JOHN T. WEST, CORPORATE SECRETARY
Composite Group of Funds
601 West Main Avenue, Suite 801, Spokane, WA 99201
- ---------------------------------------------------
(Name and address of agent for service)
Approximate Date of Proposed Public Offering January 15, 1996
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[XX] on January 15, 1996 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(i) of Rule 485
[ ] on (date) pursuant to paragraph (a)(i) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(ii) of Rule 485
[ ] on (date) pursuant to paragraph (a)(ii) of Rule 485
[XX] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
- -------------------------------------------------------------------------------
CALCULATION OF REGISTRATIAON FEE UNDER THE SECURITIES ACT OF 1933
Indefinite amount has been registered pursuant to Rule 24f-2. The Rule 24f-2
Notice for the most recent fiscal year was filed on December 14, 1995.
<PAGE>
PART A
TABLE OF CONTENTS
N-1A Item No. Location
Item 1. Cover Page ......................................... Cover Page
Item 2. Synopsis ........................................... Fee Table
About this
Prospectus
Item 3. Condensed Financial Information .................... Financial
Highlights
Performance
Information
Item 4. General Description of the Registrant .............. Cover Page
The Funds'
Objectives
Investment
Practices and
Risk Factors
Investment
Restrictions
Item 5. Management of the Fund ............................. Who We Are
The Cost of
Good
Management
How to Buy
Shares
Item 6. Capital Stock and Other Securities ................. Who We Are
Distribution
of Income and
Capital Gains
Income Taxes on
Dividends and
Capital Gains
We're Here
to Help
You
Item 7. Purchase of Securities Being Offered ............... The Cost of
Good
Management
The Value of a
Single Share
How to Buy
Shares
Item 8. Redemption or Repurchase ........................... How to Sell
Shares
Item 9. Pending Legal Proceedings .......................... *
*Not applicable or negative answer
<PAGE>
PART B
TABLE OF CONTENTS
Item 10. Cover Page ......................................... Cover Page
Item 11. Table of Contents .................................. Table of
Contents
Item 12. General Information and History .................... Organization
and
Authorized
Capital
Item 13. Investment Objectives & Policies ................... See Prospectus
page 7
Investment
Practices
Brokerage
Allocations
and
Portfolio
Transactions
Item 14. Management of the Fund ............................. The Funds and
Their
Management
Item 15. Control Persons and Principal Holders of Securities. Directors &
Officers of
the Funds
Item 16. Investment Advisory and Other Services ............. The Investment
Adviser
Investment
Management
Services
Distribution
Services
Custodian
Item 17. Brokerage Allocation & Other Practices ............. Brokerage
Allocations
and Portfolio
Transactions
Item 18. Capital Stock and Other Securities ................. Organization
and
Authorized
Capital
Voting
Privileges
Item 19. Purchase, Redemption and Pricing of Securities
Being Offered ................................... How Shares are
Valued
How Shares Can
Be Purchased
How to Sell
Shares - See
Prospectus
page 17
Exchange
Privilege
Services
Provided
by the Funds
Specimen Price
Make-up
Sheet
<PAGE>
PART B
TABLE OF CONTENTS
(CONTINUED)
Item 20. Tax Status ......................................... Dividends,
Capital
Gain
Distributions
and Taxes
Item 21. Underwriters ....................................... Distribution
Services
Item 22. Performance Information ............................ Performance
Information
Item 23. Financial Statements ............................... Financial
Statements
and Reports
<PAGE>
COMPOSITE GROUP
EQUITY
FUNDS
COMPOSITE BOND &
STOCK FUND, INC.
COMPOSITE GROWTH &
INCOME FUND
COMPOSITE
NORTHWEST
FUND, INC.
PROSPECTUS
JANUARY 15, 1996
[logo]
COMPOSITE EQUITY FUNDS
Suite 801
601 W. Main Avenue
Spokane, Washington 99201-0613
Telephone (509) 353-3550 Toll Free (800) 543-8072
A SELECTION OF THREE FUNDS WITH DIFFERENT INVESTMENT OBJECTIVES:
The Composite Equity Funds provide a diversified selection of investments in
stocks, bonds, and other securities:
COMPOSITE BOND & STOCK FUND, INC. - This Fund, which was established in
1939, is designed to provide continuity of income, conservation of principal,
and long-term growth of income and principal. Investments are made in bonds,
preferred stocks, common stocks, and convertible bonds.
COMPOSITE GROWTH & INCOME FUND - The primary objective of this Fund is
long-term capital growth. Current income is a secondary consideration.
Investments are made in a diversified pool of common stocks and other
securities. Established in 1949, this is the second oldest mutual fund in the
Composite Group.
COMPOSITE NORTHWEST FUND, INC. - This Fund seeks long-term growth of capital
by investing in common stocks of companies doing business or located in Alaska,
Idaho, Montana, Oregon and Washington.
The "Financial highlights" tables in this Prospectus provide information on
the performance over several years for each of the three Funds. Information that
follows those tables explains the detailed investment criteria.
Please read this Prospectus and retain it for future reference. It sets
forth the information about these Funds that a prospective investor should know
before investing.
OTHER IMPORTANT INFORMATION
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, GUARANTEED OR ENDORSED
BY, ANY BANK AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. THESE
SHARES INVOLVE INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
A STATEMENT OF ADDITIONAL INFORMATION ABOUT THE FUNDS, DATED JANUARY 15, 1996,
IS ON FILE WITH THE SECURITIES AND EXCHANGE COMMISSION. IT IS INCORPORATED BY
REFERENCE INTO THIS PROSPECTUS. YOU MAY OBTAIN A FREE COPY BY CALLING OR WRITING
THE FUNDS AT THE LOCATION LISTED IN THE HEADING OF THIS INTRODUCTION.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<PAGE>
CONTENTS
Page
Fee table ................................... 2
Financial highlights ........................ 4
About this Prospectus ....................... 7
The Funds' objectives ....................... 7
Investment practices and risk factors ....... 8
Investment restrictions ..................... 9
Who we are .................................. 10
The cost of good management ................. 11
The value of a single share ................. 12
How to buy shares ........................... 13
Distribution of income and capital gains .... 16
Income taxes on dividends and capital gains . 16
Exchanges for other Composite funds ......... 17
How to sell shares .......................... 17
IRAs & other tax-sheltered retirement plans . 18
Performance information ..................... 18
Reports to shareholders ..................... 19
We're here to help you ...................... 19
<TABLE>
<CAPTION>
FEE TABLE
The fee table below shows the Funds' costs and expenses that an investor
will bear both directly or indirectly and how they affect share ownership.
Operating expenses are projected, based on historical data.
For further information on costs and expenses, please see "The cost of good
management" on Page 11.
SHAREHOLDER TRANSACTION EXPENSES FOR EACH FUND:
CLASS A CLASS B
SHARES SHARES
------- -------
<S> <C> <C>
Maximum sales charge imposed on purchases (as a percentage of
offering price) 4.50% None
Contingent deferred sales charge (as a percentage of
purchase price or redemption proceeds, whichever is lower) None 4.00%
Redemption fee None None
Exchange fee None None
<CAPTION>
ANNUAL FUND OPERATING GROWTH &
EXPENSES (AS A PERCENTAGE BOND & STOCK INCOME NORTHWEST
OF AVERAGE NET ASSETS) -------------- ------------- -------------
CLASS CLASS CLASS CLASS CLASS CLASS
A B A B A B
SHARES SHARES SHARES SHARES SHARES SHARES
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Advisory fees .63% .63% .63% .63% .63% .63%
12b-1 fees .25% 1.00% .25% 1.00% .25% 1.00%
Other expenses (after reimburse- .21% .21% .27% .28% .22% .32%
ment) ----- ----- ----- ----- ----- -----
Total Fund operating expenses 1.09% 1.84% 1.15% 1.91% 1.10% 1.95%
(after reimbursement) ===== ===== ===== ===== ===== =====
<FN>
Sales charge waivers are available for Class A and Class B shares, and reduced
sales charge purchase plans are available for Class A shares. Class A purchases
of $1 million or more are not subject to a sales charge at the time of purchase
but a contingent deferred sales charge of 1% may apply on redemptions made
within 18 months of purchase. The 4% contingent deferred sales charge on Class B
shares declines 1% annually to 0% after four years. 12b-1 fees include service
fees not to exceed .25% of average net assets with the remainder being
distribution fees. Please see "The cost of good management" for further
information. There is a $10 charge for redemptions paid by Fed Funds wire, but
not for redemptions deposited to your pre-authorized bank account or paid by
check.
Absent reimbursements, Northwest's "Other expenses" would have been .29% for
Class A shares and .39% for Class B shares and its "Total Fund operating
expenses" would have been 1.17% (Class A) and 2.02% (Class B).
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXAMPLE
THIS EXAMPLE ASSUMES YOU HAVE MADE A $1,000 INVESTMENT IN ONE OF THE FUNDS AND YOU RECEIVE A 5% ANNUAL RETURN.
THE TABLE SHOWS THE EXPENSES YOU WOULD PAY OVER VARIOUS TIME PERIODS AND FOR EITHER CLASS OF SHARES.
GROWTH &
BOND & STOCK INCOME NORTHWEST
--------------- --------------- -----------------
CLASS CLASS CLASS CLASS CLASS CLASS
A B A B A B
SHARES SHARES SHARES SHARES SHARES SHARES
------ ------ ------ ------ ------ ------
<C> <C> <C> <C> <C> <C>
ASSUMING REDEMPTION AT
THE END OF EACH PERIOD:
1 Year $56 $49 $56 $49 $56 $50
3 Years $78 $78 $80 $80 $78 $81
5 Years $103 $110 $106 $114 $103 $116
10 Years $172 $177 $178 $184 $173 $184
<CAPTION>
ASSUMING YOU KEEP YOUR
SHARES AND NO REDEMPTIONS
ARE MADE:
<S> <C> <C> <C> <C> <C> <C>
1 Year $56 $19 $56 $19 $56 $20
3 Years $78 $58 $80 $60 $78 $61
5 Years $103 $100 $106 $104 $103 $106
10 Years $172 $177 $178 $184 $173 $184
<FN>
The 5% figure is a constant rate required for comparative purposes by the
Securities and Exchange Commission. THE EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES OR PERFORMANCE. ACTUAL RESULTS WILL BE
GREATER OR LESS THAN THE ILLUSTRATION.
Class B shares automatically convert to Class A shares after six years
without charge or tax impact. Because of that, years seven through ten reflect
Class A operating expenses. Long-term shareholders could pay more than the
economic equivalent of the maximum front-end sales charge permitted by the
National Association of Securities Dealers. The Class B conversion feature is
intended to reduce the likelihood this will occur. See "How to buy shares-Class
B conversion feature" on Page 13 for more information.
</FN>
</TABLE>
FOR FURTHER INFORMATION
* Advisory fees - See "The cost of good management." Page 11
* 12b-1 fees - See "The cost of good management." Page 11
* Sales charge on purchases - See "How to buy shares." Page 13
* Contingent deferred sales charge - See "How to buy shares." Page 13
* Conversion of Class B shares to Class A - See "How to buy shares - Class B
conversion feature." Page 13
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
BOND & STOCK
The supplemental financial information on this page has been audited by independent auditors whose reports thereon appear in the
Fund's annual report which is incorporated by reference into the Statement of Additional Information.
Class A
--------------------------------------------------------------------------------------
Eleven
Months
Years Ended Ended
October 31, Oct. 31 Years Ended November 30,
------------------------------ -------- -------------------------------------------
1995 1994 1993 1992(3) 1991 1990 1989 1988
-------- ------- ------- -------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ........ $ 11.53 $ 12.23 $ 11.27 $ 11.01 $ 9.90 $ 10.86 $ 10.08 $ 8.85
-------- ------- ------- -------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income ...................... 0.50 0.46 0.48 0.44 0.55 0.53 0.58 0.53
Net Gains or Losses on Securities
(both realized and unrealized) ............ 2.02 (0.57) 1.06 0.80 1.10 (0.78) 0.72 1.19
-------- ------- ------- -------- ------- ------- ------- -------
Total from investment operations ......... 2.52 (0.11) 1.54 1.24 1.65 (0.25) 1.30 1.72
-------- ------- ------- -------- ------- ------- ------- -------
LESS DISTRIBUTIONS
Dividends (from net investment income) ..... (0.49) (0.44) (0.46) (0.53) (0.54) (0.61) (0.52) (0.44)
Distributions (from capital gains) ......... (0.08) (0.15) (0.12) (0.45) 0.00 (0.10) 0.00 (0.05)
-------- ------- ------- -------- ------- ------- ------- -------
Total distributions ...................... (0.57) (0.59) (0.58) (0.98) (0.54) (0.71) (0.52) (0.49)
-------- ------- ------- -------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD .............. $ 13.48 $ 11.53 $ 12.23 $ 11.27 $ 11.01 $ 9.90 $ 10.86 $ 10.08
======== ======= ======== ======== ======= ======= ======= =======
TOTAL RETURN (1) ............................ 22.55% -0.90% 13.99% 11.92% 16.96% -2.29% 13.21% 19.67%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (in thousands) ... $208,592 $191,615 $180,281 $102,523 $ 66,090 $63,669 $71,771 $69,230
Ratio of Expenses to Average Net Assets .... 1.02% 1.06% 1.13% 1.13%(6) 1.14% 1.17% 0.96% 0.87%
Ratio of Net Income to Average Net Assets .. 3.98% 3.97% 4.01% 4.30%(6) 4.90% 5.25% 5.42% 5.35%
Portfolio Turnover Rate(2).................. 32% 25% 19% 15%(6) 35% 38% 36% 81%
<PAGE>
<CAPTION>
Class A Class B
------------------------ -------------------
Year March 30,
Years Ended November 30, Ended 1994 To
------------------------ Oct. 31, Oct. 31
1987 1986 1995 1994(4)
------- ------- -------- -------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ........ $ 10.26 $ 9.75 $ 11.51 $ 11.49
------- ------- -------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income ...................... 0.52 0.59 0.39 0.18
Net Gains or Losses on Securities
(both realized and unrealized) ............ (1.23) 1.23 2.03 0.04
------- ------- -------- -------
Total from investment operations ......... (0.71) 1.82 2.42 0.22
------- ------- -------- -------
LESS DISTRIBUTIONS
Dividends (from net investment income) ..... (0.53) (0.60) (0.38) (0.20)
Distributions (from capital gains) ......... (0.17) (0.71) (0.08) 0.00
------- ------- -------- -------
Total distributions ...................... (0.70) (1.31) (0.46) (0.20)
------- ------- -------- -------
NET ASSET VALUE, END OF PERIOD .............. $ 8.85 $ 10.26 $ 13.47 $ 11.51
======= ======= ======= =======
TOTAL RETURN (1) ............................ -7.53% 19.14% 21.60% 1.94%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (in $1,000's) .... $74,407 $ 80,942 $ 7,372 $3,362
Ratio of Expenses to Average Net Assets .... 1.69% 1.78% 1.84% 1.77%(6)
Ratio of Net Income to Average Net Assets(5) 4.99% 5.16% 3.10% 3.22%(6)
Portfolio Turnover Rate(2) ................. 83% 74% 32% 25%
<FN>
(1) Total return does not reflect sales charge. Returns of less than one year are not annualized.
(2) A portfolio turnover rate is the percentage computed by taking the lesser of purchases or sales of portfolio securities
(excluding securities with a maturity date of one year or less at the time of acquisition) for a period and dividing it by
the monthly average of the market value of such securities during the period.
(3) Change in Fund's fiscal year. See note 1.
(4) From the commencement of offering Class B shares.
(5) Ratios for 1995 are based upon total expenses in accordance with Securities and Exchange Commission Release No. FR46 effective
September 1, 1995. Ratios for prior periods were calculated based on net expenses and have not been restated.
(6) Annualized.
</FN>
<PAGE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
GROWTH & INCOME
The supplemental financial information on this page has been audited by independent auditors whose reports thereon appear in the
Fund's annual report which is incorporated by reference into the Statement of Additional Information.
Class A
--------------------------------------------------------------------------------------
YEARS ENDED OCTOBER 31,
--------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ........ $ 12.71 $ 12.81 $ 12.02 $ 11.86 $ 9.18 $ 12.17 $ 11.10 $ 9.77
------- ------- ------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income ...................... 0.22 0.18 0.21 0.29 0.29 0.35 0.46 0.35
Net Gains or Losses on Securities
(both realized and unrealized) ............ 2.31 0.85 1.10 0.80 2.69 (2.19) 0.96 1.32
------- ------- ------- ------- ------- ------- ------- -------
Total from investment operations ......... (2.53) 1.03 1.31 1.09 2.98 (1.84) 1.42 1.67
------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS
Dividends (from net investment income) ..... (0.19) (0.18) (0.21) (0.34) (0.30) (0.50) (0.35) (0.29)
Distributions (from capital gains) ......... (0.40) (0.95) (0.31) (0.59) 0.00 (0.65) 0.00 (0.05)
------- ------- ------- ------- ------- ------- ------- -------
Total Distributions ...................... (0.59) (1.13) (0.52) (0.93) (0.30) (1.15) (0.35) (0.34)
------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD ............. $ 14.65 $ 12.71 $ 12.81 $ 12.05 $ 11.86 $ 9.18 $ 12.17 $ 11.10
======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN (1) ........................... 20.87% 8.55% 11.06% 9.94% 32.69% -16.25% 13.00% 17.36%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (in thousands) ... $130,630 $102,837 $95,229 $81,102 $69,365 $68,297 $72,642 $69,117
Ratio of Expenses to Average Net Assets .... 1.07% 1.10% 1.17% 1.10% 1.12% 1.17% 1.06% 0.89%
Ratio of Net Income to Average Net Assets .. 1.62% 1.45% 1.67% 2.37% 2.73% 3.33% 3.88% 3.33%
Portfolio Turnover Rate(2) ................ 39% 34% 54% 18% 26% 37% 37% 45%
<PAGE>
<CAPTION>
Class A Class B
----------------------- -------------------
Year March 30,
Years Ended October 31, Ended 1994 To
----------------------- Oct. 31, Oct. 31,
1987 1986 1995 1994(4)
------- ------- -------- -------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ........ $ 11.57 $ 10.30 $ 12.68 $ 12.00
------- ------- -------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income ...................... 0.44 0.44 0.11 0.05
Net Gains or Losses on Securities
(both realized and unrealized) ............ (0.45) 2.49 2.31 0.69
------- ------- -------- -------
Total from investment operations ......... (0.01) 2.93 2.42 0.74
------- ------- -------- -------
Less Distributions
DIVIDENDS (FROM NET INVESTMENT INCOME) ..... (0.55) (0.45) (0.11) (0.06)
Distributions (from capital gains) ......... (1.24) (1.21) (0.40) 0.00
------- ------- -------- -------
Total Distributions ...................... (1.79) (1.66) (0.51) (0.06)
------- ------- -------- -------
NET ASSET VALUE, END OF PERIOD ............. $ 9.77 $ 11.57 $ 14.59 $ 12.68
======= ======= ======== =======
TOTAL RETURN (1) ........................... 0.20% 28.95% 19.95% 6.14%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (in $1,000's) .... $67,933 $69,243 $ 8,871 $ 2,082
Ratio of Expenses to Average Net Assets(4).. 0.90% 1.72% 1.91% 1.85%(5)
Ratio of Net Income to Average Net Assets .. 3.70% 3.38% 0.69% 0.65%(5)
Portfolio Turnover Rate(2) ................ 71% 58% 39% 34%
<FN>
(1) Total return does not reflect sales charge. Returns of less than one year are not annualized.
(2) A portfolio turnover rate is the percentage computed by taking the lesser of purchases or sales of portfolio
securities (excluding securities with a maturity date of one year or less at the time of acquisition) for a period and
dividing it by the monthly average of the market value of such securities during the period.
(3) From the commencement of operations Class B shares.
(4) Ratios for 1995 are based upon total expenses in accordance with Securities and Exchange Commission Release No. FR46 effective
September 1, 1995. Ratios for prior periods were calculated based on net expenses and have not been restated.
(5) Annualized.
</FN>
<PAGE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
NORTHWEST
The supplemental financial information on this page has been audited by independent auditors whose reports thereon appear in the
Fund's annual report which is incorporated by reference into the Statement of Additional Information.
Class A
--------------------------------------------------------------------------------------
Years Ended October 31,
--------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ........ $ 14.30 $ 14.50 $ 14.04 $ 13.45 $ 8.43 $ 10.18 $ 7.55 $ 6.02
------- ------- ------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income ...................... 0.07 0.08 0.07 0.08 0.07 0.08 0.08 0.06
Net Gains or Losses on Securities
(both realized and unrealized) ............ 3.10 0.35 0.46 0.69 5.03 (1.76) 2.63 1.52
------- ------- ------- ------- ------- ------- ------- -------
Total from investment operations ......... 3.17 0.43 0.53 0.77 5.10 (1.68) 2.71 1.58
------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS
Dividends (from net investment income) ..... (0.07) (0.08) (0.07) (0.07) (0.08) (0.07) (0.08) (0.05)
Distributions (from capital gains) ......... 0.00 (0.55) 0.00 (0.11) 0.00 0.00 0.00 0.00
------- ------- ------- ------- ------- ------- ------- -------
Total distributions ...................... (0.07) (0.63) (0.07) (0.18) (0.08) (0.07) (0.08) (0.05)
------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD .............. $ 17.40 $ 14.30 $ 14.50 $ 14.04 $13.45 $ 8.43 $10.18 $ 7.55
======= ======= ======= ======= ======= ======= ======= =======
Total Return (1) ........................... 22.24% 2.97% 3.82% 5.77% 60.49% -16.68% 36.14% 26.42%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (in thousands) ... $157,953 $152,622 $168,840 $167,115 $98,754 $42,647 $18,687 $6,994
Ratio of Expenses to Average Net Assets .... 1.10% 1.09%(2) 1.09%(2) 1.11%(2) 1.21%(2) 1.45%(2) 1.50%(2) 1.44%
Ratio of Net Income to Average Net Assets .. 0.44% 0.51% 0.48% 0.53% 0.63% 0.72% 0.81% 0.84%
Portfolio Turnover Rate(3) ................ 11% 11% 8% 4% 8% 7% 12% 17%
<CAPTION>
Class A Class B
------------- ---------------------
Years Year March 30,
Ended Ended 1994 to
October 31, Oct. 31, Oct. 31,
------------- ---------- ---------
1987(4) 1995 1994(5)
------------- ---------- ---------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ........ $ 6.15 $ 14.28 $ 14.42
------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income ...................... 0.07 (0.05) (0.02)
Net Gains or Losses on Securities
(both realized and unrealized) ............ (0.14) 3.08 (0.12)
------- ------- -------
Total from investment operations ......... (0.07) 3.03 (0.14)
------- ------- -------
LESS DISTRIBUTIONS
Dividends (from net investment income) ..... (0.06) 0.00 0.00
Distributions (from capital gains) ......... 0.00 0.00 0.00
------- ------- -------
Total distributions ...................... (0.06) 0.00 0.00
------- ------- -------
NET ASSET VALUE, END OF PERIOD .............. $ 6.02 $ 17.31 $ 14.28
======= ======= =======
TOTAL RETURN (1) ........................... -1.72% 21.25% -0.97%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (in thousands) ... $ 6,589 $7,083 $3,102
Ratio of Expenses to Average Net Assets .... 1.36% 1.95% 1.96%(6)
Ratio of Net Income to Average Net Assets .. 0.48% -0.45% -0.39%(6)
Portfolio Turnover Rate(3) ................ 40% 11% 11%
<FN>
NOTE: Figures representing per-share amounts have been adjusted to retroactively reflect a 2-for-1 stock split
effective December 29, 1992.
(1) Total return does not reflect sales charges. Returns of less than one year are not annualized.
(2) A portfolio turnover rate is the percentage computed by taking the lesser of purchases or sales of portfolio
securities (excluding securities with a maturity date of one year or less at the time of acquisition) for a period
and dividing it by the monthly average of the market value of such securities during the period.
(3) Fund expenses (excluding taxes, interest, portfolio brokerage, and the .75% Class B distribution fee), that exceeded 1.50%
of average daily net assets up to $30 million and 1% of such net assets over $30 million were reimbursed by the investment
adviser, Composite Research & Management Co. Ratios for 1995 are based upon total expenses in accordance with Securities and
Exchange Commission Release No. FR46 effective September 1, 1995. Ratios for prior periods were calculated based on net
expenses and have not been restated.
(4) Class A information is presented from November 24, 1986, the date registration became effective under the
Investment Company Act of 1940, as amended.
(5) From the commencement of offering Class B shares.
(6) Annualized.
</FN>
</TABLE>
<PAGE>
ABOUT THIS PROSPECTUS
In this publication, you will find basic and in-depth information about the
Composite Equity Funds. Included are such subjects as how to buy and sell
shares, as well as details about the Funds' objectives, investment practices and
restrictions, and other vital matters.
If you are not familiar with mutual funds, investment terminology, or the
Composite Group of Funds, you may find it useful to understand the following key
words and terms that appear frequently on these pages:
GLOSSARY OF KEY WORDS AND TERMS
ADVISER. Composite Research & Management Co., which is called the "Adviser"
in this Prospectus, is the manager of the Equity Funds and several other
Composite mutual funds.
CLASS A SHARES. All Composite Equity Funds are available in two classes.
Class A shares include a sales charge at the time of purchase and annual
operating expenses.
CLASS B SHARES. This is the second of the two classes of Composite Equity
Funds. Class B shares do not have an initial sales charge, but they do have
higher operating expenses for six years than Class A shares, and they have a
contingent deferred sales charge (see below).
CONTINGENT DEFERRED SALES CHARGE. If an investor redeems Class B shares
within four years of purchase, he or she normally must pay this charge.
DISTRIBUTOR. Murphey Favre, Inc. distributes the Composite Equity Funds and
other Composite mutual funds and is referred to as the "Distributor" in this
Prospectus.
EXCHANGE. This privilege allows shareholders to transfer their investments
from one fund to another. There is no fee or additional sales charge for an
exchange within the Composite Group of Funds.
FUND. The term "Fund" identifies any one of the three mutual funds offered
through this Prospectus. These "Funds" are identified as follows in this
document:
BOND & STOCK. This Fund's objectives are to provide continuity of income,
conservation of principal, and long-term growth of both the income and the
principal.
GROWTH & INCOME. This Fund's primary objective is to provide long-term
capital growth by investing in common stocks and other securities. Current
income is a secondary consideration.
NORTHWEST. This Fund invests in common stocks of companies located or doing
business in the Northwest states of Alaska, Idaho, Montana, Oregon, and
Washington. The primary objective is long-term growth of capital.
NET ASSET VALUE (NAV). This is the term used in this publication and in
daily newspaper financial tables to report the value of a single share of a
mutual fund. It is determined by adding the value of a fund's securities and
other assets -- and then subtracting any liabilities. Next, the resulting figure
is divided by the number of shares outstanding. That provides the "net asset
value" per share, often referred to as "NAV."
REDEMPTION. This refers to the sale by an investor of shares of a mutual
fund he or she has owned. The investor is said to "redeem" the shares.
REGISTERED REPRESENTATIVE. This person, often called a stockbroker or
broker, buys and sells securities on behalf of investors.
STATEMENT OF ADDITIONAL INFORMATION. This is a document that has more
detailed information about the Funds than what is in this Prospectus. It is on
file with the federal government's Securities and Exchange Commission and also
is available through the Funds.
THE FUNDS' OBJECTIVES
Composite Research & Management Co., referred to as the "Adviser" in this
Prospectus, manages the Funds. The Adviser attempts to maintain Funds that are
responsive to changes in economic trends and developments, government actions
and regulations, and international monetary conditions. Currently, equity
investments are selected from high-quality companies with solid business
fundamentals that the Adviser believes have a competitive advantage.Securities
may be purchased on a recognized exchange, over-the-counter, or through the
NASDAQ system.
The investment objectives and policies of each Fund are described below.
Each Fund's investment objectives are a fundamental policy that cannot be
changed without a majority vote of its outstanding shares. Because risks are
involved, there cannot be any assurance a Fund's objectives will be attained.
BOND & STOCK: This Fund has three objectives: (1) continuity of income, (2)
conservation of principal, and (3) long-term growth of both the income and
principal. The Fund invests in bonds, preferred stocks, common stocks, and
convertible bonds. At least 25% of the Fund's assets are invested in fixed
income securities at all times.
GROWTH & INCOME: The primary objective of this Fund is to provide long-term
capital growth by investing in common stocks and other securities. Current
income is a secondary consideration.
NORTHWEST: This Fund invests with the objective of long-term growth of
capital. Common stocks are selected from companies located or doing business in
the Northwest states of Alaska, Idaho, Montana, Oregon, and Washington. Under
normal circumstances, at least 65% of the Fund's total assets will be invested
in companies whose principal executive offices are located in the Northwest.
INVESTMENT PRACTICES AND RISK FACTORS
There are many factors that influence fluctuations in the market value of
securities owned by the Funds. These include economic trends, government actions
and regulations, and international monetary conditions. Consequently, market
risks are inherent in all investments.
GENERAL
The Funds may employ the following techniques in addition to the primary
investment strategies discussed earlier under "The Funds' objectives."
MONEY MARKET INSTRUMENTS. The Funds are permitted to invest in money market
instruments for temporary or defensive purposes. The money market investments
permitted include obligations of the U.S. government and its agencies and
instrumentalities; short-term corporate-debt securities; commercial paper,
including bank obligations; certificates of deposit; and repurchase agreements.
REPURCHASE AGREEMENTS. The Funds may temporarily invest cash reserves in
repurchase agreements. In a repurchase agreement, a fund buys a security at one
price and agrees to sell it back at a higher price. If the seller defaults on
its agreement to repurchase the security, the Fund may suffer a loss because of
a decline in the value of the underlying debt security.
Repurchase agreements will be entered into only with brokers, dealers or
banks that meet credit guidelines adopted by each Fund's Board of Directors. To
limit risk, repurchase agreements maturing in more than seven days will not
exceed 10% of a Fund's total assets.
REAL ESTATE INVESTMENT TRUSTS. The Funds may invest up to 25% of their
assets in real estate investment trusts, known as "REITs." Factors influencing
the investment performance of REITs include the profitable operation of
properties owned, financial condition of lessees and mortgagors, underlying
value of the real property and mortgages owned, amount of leverage, and amount
of cash flow generated and paid out.
FIXED-INCOME SECURITIES. The Bond & Stock and Growth & Income Funds may
invest in bonds of any maturity, including mortgage-backed securities. All
fixed-income securities are subject to credit risk, which is dependent on the
issuer's ability to maintain timely interest and principal payments. During
periods of low interest rates, mortgage-backed securities may be subject to
accelerated prepayment and possible reinvestment in securities bearing lower
rates of interest.
Both Funds may also invest in below-investment-grade bonds (sometimes called
junk bonds). Any investment of this type may be considered speculative and
involve greater risk of default or price change because of changes in the
issuer's creditworthiness. The market price of these securities may fluctuate
more than higher-rated securities. They also may decline significantly in
periods of general economic difficulty, which may follow periods of rising
interest rates.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. The Bond & Stock and Growth &
Income Funds may purchase or sell U.S. government securities or collateralized
mortgage obligations on what is called a "when-issued" or "delayed-delivery"
basis. In such transactions, securities are bought under an agreement that
payment and delivery will take place in the future. This is done to obtain what
is considered to be an advantageous yield or price at the time of the
transaction.
Delivery of and payment for these securities may take as long as a month or
more after the date of the purchase commitment. However, it must take place no
more than 120 days after the trade date. The payment obligation and interest
rates to be received are fixed at the time the Fund enters into the commitment.
Thus, it is possible that the market value at the time of settlement could be
higher or lower than the purchase price, if the general level of interest rates
has changed. No interest will accrue to the Fund until settlement.
Each Fund is prohibited from entering into when-issued commitments that, in
total, exceed 20% of the market value of its total assets minus total
liabilities (except for the obligations created by these commitments).
COVERED CALL OPTIONS. Each of the Funds may write covered call options on
its securities. A call option is "covered" if the Fund owns the security
underlying the option it has written or it maintains enough cash, cash
equivalents or liquid securities to purchase the underlying security.
If a Fund sells a covered call option, it will become obligated during the
term of the option to deliver the securities underlying the option if the option
holder chooses to exercise the option before its termination date. In return for
the call it has written, the Fund will receive from the purchaser (or option
holder) a premium. This will be the price of the option, less a commission
charged by a broker. The Fund will keep the premium, regardless of whether the
option is exercised.
When a Fund writes covered call options, it gains income from the premiums
received. Because of this, it is protected to the extent of the amount of those
premiums if the price of the underlying securities declines. The premiums will
offset a portion of the Fund's potential loss incurred if the securities
underlying the options are ultimately sold at a loss by the Fund. Also, during
the option period the Fund gives up any possible capital appreciation above the
agreed-upon price if the market price of the underlying security rises.
FOREIGN SECURITIES. The Bond & Stock and Growth & Income Funds may invest up
to 25% of their assets in U.S. dollar-denominated securities of foreign issuers.
Investments in foreign securities may involve somewhat different risks,
including incomplete or inaccurate financial information, foreign taxes and
restrictions, illiquidity, and fluctuations in currency values.
UNIQUE TO THE NORTHWEST FUND. The Northwest Fund concentrates on companies
located or doing business in the Northwest, which ties the performance of a
portion of the Fund to the region's economic conditions. Because of this, the
Fund could be adversely impacted by industrial and business trends within the
five-state area. Some of the companies whose securities are held by the Fund may
have significant national or international markets for their products and
services. Therefore, the Fund's performance could also be affected by national
or international economic conditions.
FOR FURTHER INFORMATION. See the Statement of Additional Information for
further information regarding the investment practices summarized in this
section.
INVESTMENT RESTRICTIONS
Although many of the Adviser's decisions depend on flexibility, there are
certain principles so fundamental to a Fund that they may not be changed without
a vote of a majority of the outstanding shares of that Fund.
IN ADDITION TO OTHER RESTRICTIONS LISTED IN THE STATEMENT OF ADDITIONAL
INFORMATION, EACH FUND MAY NOT:
1) Invest more than 5%* of its total assets in securities of any single issuer
other than U.S. government securities, except that up to 25% of a Fund's
assets may be invested without regard to this 5% limitation.
2) Acquire more than 10%* of the voting securities of any one company.
3) Invest more than 25%* of its total assets in any single industry.
4) Borrow money for investment purposes, although it may borrow up to 5% of
its total net assets for emergency, non-investment purposes.
*Percentage at the time the investment is made.
WHO WE ARE
Composite Bond & Stock Fund, Inc., Composite Equity Series, Inc., and
Composite Northwest Fund, Inc. are open-end, management investment companies.
They were incorporated under the laws of the state of Washington on June 22,
1939; August 10, 1949; and May 27, 1986, respectively. Composite Equity Series,
Inc. does business under the name of "Composite Growth & Income Fund."
Each is a "series" company with the ability to add portfolios, called
"funds," subject to approval by its Board of Directors. Each currently consists
of a single fund.
Bond & Stock and Growth & Income are classified as diversified funds under
the Investment Company Act of 1940., Northwest is presently classified
non-diversified, but is adjusting its investments so as to become diversified
over time.
ADVISER. The Funds are managed by Composite Research & Management Co., which
is referred to as the "Adviser" in this Prospectus.
The Adviser has been in the business of investment management since 1944. It
currently manages more than $1.7 billion for mutual funds and institutional
advisory accounts. These accounts include more than $1 billion within the
Composite Group of Funds, which is made up of the Funds described in this
Prospectus and five other mutual funds with differing objectives.
The Adviser advises the Funds on investment policies and specific
investments. Subject to supervision by each Fund's Board of Directors, the
Adviser determines which securities are to be bought or sold. These decisions
are based on analyses of the economy, sectors of industry and specific
institutions. They are compiled from extensive data provided by some of the
country's largest investment firms, in addition to the Adviser's own research.
William G. Papesh is the president of the Funds and of the Adviser. A team
of the Adviser's investment professionals manages each Fund, under supervision
of the Adviser's investment committee. The Equity team consists of Philip M.
Foreman, chartered financial analyst (CFA); Jeffrey D. Huffman, CFA; and David
W. Simpson, CFA.
Mr. Huffman has 11 years of continuous investment experience and has been
employed by the Adviser since January 1995. Mr. Foreman has been employed by the
Adviser since November 1991 and has 11 years of continuous investment
experience. Mr. Simpson has been employed by the Adviser since March 1993 and
has 10 years of continuous investment experience. Mr. Huffman and Mr. Simpson
are primarily responsible for Bond & Stock. Mr. Foreman and Mr. Simpson are
primarily responsible for Growth & Income and Northwest, respectively.
DISTRIBUTOR. Murphey Favre, Inc. is the "Distributor" for these Funds. The
Distributor is not a bank. Securities and annuities offered by it are not
deposits nor bank obligations, and they are not guaranteed by a bank nor insured
by the FDIC. The value of investments may fluctuate, return on investments is
not guaranteed, and loss of principal is possible.
TRANSFER AGENT. Murphey Favre Securities Services, Inc., which serves as the
"Transfer Agent," acts as the Funds' shareholder servicing and dividend
disbursing agent.
THE ADVISER, DISTRIBUTOR, AND TRANSFER AGENT, WHOSE ADDRESSES ARE LISTED ON THE
BACK COVER, ARE SUBSIDIARIES OF WASHINGTON MUTUAL BANK. THEY ALSO ARE AFFILIATED
WITH WASHINGTON MUTUAL BANK, FSB AND THEY ARE INDIRECT SUBSIDIARIES OF
WASHINGTON MUTUAL, INC.
OTHER IMPORTANT INFORMATION. Each Fund offers two classes of shares, as
described in "How to buy shares":
Bond & Stock has 300 million authorized shares of capital stock, including
200 million Class A and 100 million Class B.
Growth & Income has 40 million authorized shares allocated as follows: 25
million Class A and 15 million Class B.
Northwest has 10 billion authorized shares, consisting of six billion Class
A and four billion Class B.
The shares do not have preemptive rights, and none has preference as to
conversion, exchange, dividends, retirement, liquidation, redemption, or any
other feature, except as described in "How to buy shares." Shares have equal
voting rights on corporate matters submitted for shareholder approval, except
that each class may vote separately on its distribution plan.
Normally, the Funds do not hold annual meetings of shareholders. When
meetings are held, shareholders have the right to vote cumulatively for any
election of directors. In other words, each voting shareholder may cast a number
of votes equal to the number of Fund shares he or she owns multiplied by the
number of directors to be elected. The shareholder may then allocate the total
votes among the director nominees in the amounts he or she chooses.
This Prospectus is consolidated to present information efficiently on each
of the Equity Funds in the Composite Group. There is a remote possibility that
one Fund might become liable for any misstatement in the Prospectus pertaining
to another Fund.
THE COST OF GOOD MANAGEMENT
Composite Research & Management Co. serves as Adviser under investment
management contracts with each Fund. The agreements are renewable every year,
subject to the approval of each Fund's Board of Directors or the shareholders
themselves.
BEFORE READING THIS SECTION, YOU MAY FIND IT USEFUL TO TURN BACK TO PAGE ___
TO REVIEW THE FEE TABLE'S SUMMARY ON "ANNUAL FUND OPERATING EXPENSES." THAT
PROVIDES AN OVERVIEW OF MUCH OF WHAT IS COVERED IN DETAIL HERE.
ADVISORY FEES
Advisory fees are paid to the Adviser for its services. These include
investment management and administrative services and the Adviser's function as
an agent for each Fund when paying a portion of the fee to the Distributor and
Transfer Agent.
Advisory fees are calculated daily and paid monthly.
For Bond & Stock and Growth & Income, advisory fees are equal to an annual
rate of .625% of their respective average daily net assets. Fees are reduced to
.50% of average daily net assets in excess of $250 million.
For Northwest, advisory fees are equal to an annual rate of .625% of the
first $500 million in average daily net assets. The rate is reduced to .50% of
the excess of the net assets over $500 million and up to $1 billion, and to .35%
of the excess of the net assets of more than $1 billion.
DISTRIBUTION PLANS
Each Fund's Board of Directors has approved, and reviews at least
quarterly, a distribution plan that meets the provisions of Rule 12b-1 under the
Investment Company Act of 1940. The plans are intended to benefit shareholders
by stimulating interest in purchasing shares of the Funds and, thus, providing a
consistent flow of investment capital. This allows larger and more diversified
holdings, as well as economies of scale.
CLASS A SHARES. The plans authorize each Fund to reimburse the Distributor
for direct costs of marketing, selling and distributing Class A shares of that
Fund. These costs include service fees, sales literature and prospectuses (other
than those provided to current shareholders), compensation to sales people, and
other costs of sales and marketing, including state business and occupation tax
assessed on the reimbursements. The Distributor pays authorized dealers service
fees in consideration for account maintenance and other shareholder services.
Such dealers receive fees of .25%, annualized, of the average daily value of
shares in the accounts of the dealer or its customers.
The distribution plans allow each Fund to reimburse actual Class A
distribution costs, subject to the directors' approval. Reimbursements are not
to exceed annual limits of .25% of the Fund's average daily net assets
attributable to Class A shares. Unreimbursed expenses which have not been
accrued in the current fiscal year may not be recovered in future periods.
CLASS B SHARES. The plans authorize each Fund to pay the Distributor a
distribution fee at an annual rate of .75% of each Fund's average daily net
assets attributable to Class B shares and a service fee at an annual rate of.25%
of such assets. The distribution fee is designed to permit investors to purchase
Class B shares without a front-end sales charge. At the same time, this allows
compensation to the Distributor in connection with the sales of those shares.
The service fee covers account maintenance and other shareholder services. The
Distributor pays authorized dealers service fees of .25%, annualized, of the
average daily value of shares in the accounts of the dealer or its customers.
Because the Distributor's distribution fee for Class B shares is not tied
directly to its expenses, the amount of compensation may be more or less than
its actual expenses. For this reason, the Class B distribution plan may be
characterized by the staff of the Securities and Exchange Commission as being a
"compensation" plan -- in contrast to the Class A "reimbursement" plan. The
Funds are not liable for any expenses incurred by the Distributor in excess of
the amount of compensation it receives.
TOTAL EXPENSES
Other operating expenses include fees of directors not employed by the
Adviser, custodial fees, auditing and legal expenses, taxes, costs of issuing
and redeeming shares, publishing of reports to shareholders, corporate meetings,
and other normal costs of running a business.
Each Fund pays the Transfer Agent for shareholder servicing and dividend
disbursing services, but not for special services such as producing and mailing
historical account transcripts. You may be required to pay a fee if you need
these special services.
Total expenses, including advisory fees, distribution expenses, and other
operating expenses, can be found under "Ratio of expenses to average net assets"
in the "Financial highlights" section of this Prospectus.
Under terms of Northwest's investment management agreement, the Adviser will
reimburse the Fund if certain expenses in any fiscal year are more than 1.50% of
average daily net assets up to $30 million, and 1% of net assets over $30
million. Expenses excluded from those calculations include taxes, interest,
portfolio brokerage, and the .75% Class B share distribution fee.
The Adviser or Distributor have agreed to waive fees or reimburse expenses
if a Fund exceeds the most stringent, applicable limitation imposed by any
state.
THE VALUE OF A SINGLE SHARE
At the end of each business day of the New York Stock Exchange or at 1:00
p.m. Pacific time, whichever is earlier, the Fund calculates the value of each
class of shares. That figure is determined by adding the value of (1) the
securities in the Fund that are attributable to each class and (2) all other
assets -- and then subtracting any liabilities. Next, the resulting figure is
divided by the number of shares outstanding. That provides the "net asset value"
per share, which frequently is referred to as "NAV."
Security valuations are provided by independent pricing sources approved by
each Fund's Board of Directors. When such valuations are not available, the
Board of Directors will determine how they are to be priced at fair value.
HOW TO BUY SHARES
Shares are offered at the next NAV per share that is calculated as
previously described, plus a sales charge for Class A shares. This section
discusses various options you have in purchasing shares of the Funds.
DISTRIBUTOR AND SECURITIES DEALERS
You may buy shares of the Funds through Murphey Favre, the Distributor, or
through selected securities dealers provided that the Fund and the Distributor
(or dealer) are registered in your state of residence. With certain exceptions,
the minimum initial purchase in a Composite fund is $1,000. IRA accounts may
make initial purchases of $500 in any Fund. Subsequent investments should be at
least $50.
SYSTEMATIC INVESTMENT PROGRAM
For your convenience, you may arrange to have monthly purchases
automatically deducted from your checking account as part of a systematic
investment program. The minimum initial and monthly investments in this program
are $50.
OTHER INFORMATION
The Funds and the Distributor reserve the right to refuse an order to buy
shares. Exceptions to the policies described in this Prospectus are detailed in
the Statement of Additional Information.
In the interest of economy and convenience, physical certificates
representing Fund shares will be issued only upon written request to the Fund or
by request from your broker.
A COMPARISON OF CLASS A AND CLASS B SHARES
Each Fund offers two classes of shares:
1) Class A shares are sold to investors who pay a sales charge at the time of
purchase and who pay ongoing distribution expenses.
2) Class B shares are sold to investors who do not pay a sales charge at the
time of purchase. Instead, they pay a higher ongoing distribution fee for
six years. They also may pay a "contingent deferred sales charge" if they
redeem their shares within four years of purchase.
The two classes of shares each represent an interest in the same portfolio
of investments. Each class has exclusive voting rights with respect to
provisions of the Rule 12b-1 distribution plan regarding which distribution
expenses are paid for a specific class.
Class A shares and Class B shares may be exchanged only for shares of the
same class of other Composite funds. See "Exchanges for other funds" on Page
17 in this Prospectus.
The net income attributable to Class B shares and the dividends payable to
Class B shares will be lower because of the higher expenses. Likewise, NAVs of
the two classes may be different.
Sales personnel of broker-dealers distributing the Funds' shares may receive
differing compensation for selling or servicing Class A or Class B shares.
When purchasing shares, investors are encouraged to choose the class of
shares that will be best for them. Factors to consider include the purchase
amount, the length of time shares are expected to be held, and other individual
circumstances.
Then, this question should be asked: "If I buy Class A or Class B shares for
a given length of time, which will give me the lowest cost: Class A's initial
sales charge and accumulated distribution expenses, or Class B's contingent
deferred sales charges before conversion and its higher accumulated distribution
expenses?"
To assist investors in making that choice, the "Fee table" on Page 2
provides examples of the charges that apply to each class of shares. Normally,
Class A shares will be more beneficial to the investor who qualifies for a
reduced sales charge, as described below.
BUYING CLASS A SHARES
The offering price for Class A shares is the NAV per share, plus an initial
sales charge shown in the table below. Investors also may be entitled to reduced
sales charges as discussed following the table and in the Statement of
Additional Information. (The final column in the table indicates what dealers
receive for selling Class A shares.)
<TABLE>
<CAPTION>
Reallowed
Sales charge to dealers
----------------------- ----------
% of % of net % of
Purchase of offering amount offering
Class A shares price invested price
--------- -------- ----------
<S> <C> <C> <C>
Less than $50,000 4.50% 4.71% 4.00%
$50,000 to $100,000 4.00 4.17 3.50
$100,000 to $250,000 3.00 3.09 2.50
$250,000 to $500,000 2.00 2.04 1.75
$500,000 to $1,000,000 1.00 1.01 0.75
$1,000,000 and above None See "Net Asset Value Purchases" on the
next page
</TABLE>
Example: AN INVESTOR CONSIDERS PUTTING $1,000 INTO A FUND'S CLASS A SHARES.
BASED ON THE FIRST COLUMN IN THE ABOVE TABLE, THE INVESTOR WOULD SEE THAT 4.50%
OF THE $1,000 WOULD PAY FOR A SALES CHARGE. THE CHARGE WOULD BE $45, WHICH IS
4.71 %, OF THE NET INVESTMENT OF $955., AS THE NEXT COLUMN SHOWS. THE DEALER
SELLING THE SHARES WOULD BE PAID $40 OF THE $45, WHICH IS 4.00% OF $1,000, AS
THE LAST COLUMN SHOWS.
Here is a summary of information on reduced sales charges for which an
investor may be qualified. This summary refers to the data in the above table
that cover purchases of $50,000 or more.
CUMULATIVE DISCOUNT. This allows current purchases to qualify for the
foregoing discounts by including the value of existing Composite Group
investments, except for those in Composite Cash Management Company. The discount
will be based on the amount of the new purchase plus the current offering price
of shares owned at the time of the purchase. Those eligible for a cumulative
discount include individuals, traditional family units, or trustees purchasing
for single fiduciary accounts.
LETTER OF INTENT. This discount is for purchases made over an extended
period. It provides for a cumulative discount on the same basis as explained in
the previous paragraph if the following conditions are met: Purchases of Class A
shares must be made within a 13-month period that begins no earlier than 90 days
before the submission of a letter of intent from the investor to the Funds. For
more information about this discount, please contact the Fund offices or a
registered representative.
REINVESTMENT. Redemption proceeds of Class A shares that were subject to a
sales charge when first purchased may be reinvested in Class A shares within 120
days without incurring another initial sales charge.
NET ASSET VALUE PURCHASES. There is no initial sales charge on Class A
purchases of $1 million or more, although a contingent deferred sales charge of
1% will be deducted if such shares are redeemed within 18 months of purchase.
The Distributor will pay authorized dealers commissions on such purchases.
Class A shares may be purchased at net asset value, and in any amount, by
officers, directors and employees of the Adviser, its affiliates or companies
which have entered into selling agreements with the Distributor. The purchase
must be for investment purposes only and may not be resold other than through
redemption by the Funds. The Funds may also offer their shares at net asset
value to investors who purchase with the redemption proceeds from mutual funds
(excluding money market funds), closed-end funds or unit investment trusts; to
certain retirement plans; and to brokers, dealers or registered investment
advisers who have entered into arrangements with the Distributor providing
specifically for the shares to be used in particular investment products made
available to their clients for which they may charge a separate fee.
CONSULT A REGISTERED REPRESENTATIVE OR SEE THE STATEMENT OF ADDITIONAL
INFORMATION IF YOU THINK YOU MAY QUALIFY FOR ANY OF THESE PURCHASE PLANS.
YOU MUST NOTIFY THE FUND WHENEVER A REDUCED SALES CHARGE IS APPLICABLE TO
YOUR PURCHASE TO ENSURE RECEIVING THAT REDUCTION.
BUYING CLASS B SHARES
Class B shares are sold at their NAV per share without an initial sales
charge. The entire amount of the purchase is invested in the Fund selected.
However, Class B shares have a higher distribution fee than Class A shares for
six years. Also, if Class B shares are redeemed within four years of purchase, a
contingent deferred sales charge must be paid.
Those charges and fees help make it possible for the Funds to sell Class B
shares without sales charges at the time of purchase.
The proceeds from any contingent deferred sales charges are paid to the
Distributor to defray expenses for providing the Fund with distribution services
for Class B shares. Examples of such expenses include compensation to sales
people and selected dealers. The Distributor currently expects to pay sales
commissions from its own resources to selected dealers for 4.00% of the purchase
price of shares sold by those dealers.
CONTINGENT DEFERRED SALES CHARGE. Class B shares redeemed within four years
of purchase are subject to a contingent deferred sales charge according to the
following schedule. Shares purchased through reinvestment of dividends or
capital gain distributions are not subject to a contingent deferred sales
charge.
<TABLE>
<CAPTION>
YEAR OF CONTINGENT
REDEMPTION DEFERRED
AFTER PURCHASE SALES CHARGE
-------------- ------------
<S> <C>
First................... 4%
Second.................. 3%
Third................... 2%
Fourth.................. 1%
Fifth................... 0%
Sixth................... 0%
</TABLE>
The contingent deferred sales charge is calculated by applying the above
percentages to whichever of the following is less:
1) The NAV of the redeemed shares at the time they were purchased; or
2) The NAV of the redeemed shares at the time of redemption.
This means that no contingent deferred sales charge will be charged on any
NAV increases above the initial purchase price. Shares are redeemed in the order
that results in the lowest possible rate being charged. In view of that, they
will be redeemed in this order:
1) Shares from reinvested dividends or capital gain distributions
2) Shares from the earliest purchase
Here is an example:
AN INVESTOR PURCHASES 100 CLASS B SHARES AT $10 PER SHARE -- FOR A TOTAL
COST OF $1,000. IN THE SECOND YEAR AFTER THE PURCHASE, THE NAV HAS RISEN TO $12
PER SHARE, AND THE INVESTOR HAS ACQUIRED 10 MORE SHARES THROUGH DIVIDEND
REINVESTMENT.
AT THAT TIME, THE INVESTOR DECIDES TO MAKE THE FIRST REDEMPTION. THE
TRANSACTION INCLUDES 50 SHARES AT $12 PER SHARE -- FOR A TOTAL OF $600.
THE FIRST 10 SHARES TO BE REDEEMED WILL NOT BE SUBJECT TO ANY CHARGE BECAUSE
OF THE 10 SHARES RECEIVED FROM DIVIDEND REINVESTMENT. SEE ITEM 1) JUST ABOVE
THIS EXAMPLE.
AS FOR THE OTHER 40 SHARES, THE CHARGE WILL BE APPLIED ONLY TO THE ORIGINAL
COST OF $10 PER SHARE. THE NAV INCREASE OF $2 PER SHARE WILL NOT BE CONSIDERED.
AS A RESULT, $400 OF THE REDEMPTION PROCEEDS (40 X $10) WILL BE CHARGED AT A
RATE OF 3 %, WHICH IS THE SECOND-YEAR RATE SHOWN IN THE TABLE ABOVE. THE
RESULTING SALES CHARGE WILL BE 3% X $400, WHICH WILL BE $12.
The contingent deferred sales charge may be waived for redemptions of Class
B shares under these circumstances:
1) Following the death or disability of a shareholder, as defined in Section
72(m)(7) of the Internal Revenue Code
2) In connection with certain distributions from an IRA or other retirement
plan, as described in the Statement of Additional Information
3) According to the Fund's systematic withdrawal plan -- but limited to 12%
annually of the value of the Fund account at the time the plan is
established
4) As a result of the right of the Fund to liquidate a shareholder's account as
described under "How to sell shares"
REINVESTMENT. You may reinvest in Class B shares within 120 days of
redemption and receive reimbursement credited to your account for any contingent
deferred sales charge you previously paid. The reinvested shares will be subject
to the holding period of the shares which were originally purchased. This
holding period determines any contingent deferred sales charges on subsequent
redemptions of the reinvested shares or their conversion to Class A shares as
described in the following section.
TO MAKE SURE YOU RECEIVE REIMBURSEMENT FOR THE CONTINGENT DEFERRED SALES
CHARGE, YOU MUST NOTIFY THE FUND WITHIN 120 DAYS WHENEVER YOU REINVEST CLASS B
SHARES.
CLASS B CONVERSION FEATURE. Class B shares that remain outstanding for six
years will convert to Class A shares of the same Fund. The basis for this will
be the relative NAVs of the two classes at the time of conversion.
Some investors buy shares at several different times and reinvest dividends
and capital gains over an extended period. Each time a conversion takes place, a
pro-rata portion of Class B shares acquired through the reinvestment of
dividends and capital gain distributions also will convert to Class A shares.
The conversion of Class B shares to Class A shares is subject to the
continuing availability of a favorable ruling from the Internal Revenue Service
or an opinion of legal counsel that such conversion will not be subject to
federal income taxes. There cannot be any assurance that a ruling or opinion
will be available. If they should not be available, the conversion of Class B
shares to Class A shares would not occur and those shares would continue to be
subject to higher expenses than Class A shares for an indefinite period.
DISTRIBUTION OF INCOME AND CAPITAL GAINS
Each Equity Fund declares income dividends quarterly, generally in March,
June, September and December. Any capital gains normally will be paid in
December.
You have four choices regarding what you want to do with income earned on
your investment. You can make your choice at the time of your initial purchase
or by contacting the Funds' offices or your registered representative. The
options include:
AUTOMATIC REINVESTMENT. Most shareholders elect this procedure. It is
automatically effective unless you choose another option. All income dividends
and capital gain distributions are reinvested into additional shares of the
Fund. Automatic reinvestments generally provide the most capital growth and are
not subject to an initial or a contingent deferred sales charge.
REINVEST DIVIDENDS IN ANOTHER COMPOSITE FUND. Income dividends may be
automatically invested in the same class of shares of another Composite fund
without incurring an initial or contingent deferred sales charge. These
reinvestments are subject to the minimum investment requirements for systematic
investment plans of the Composite fund being acquired and to its availability
for sale in your state of residence.
CASH PAYMENT OF INCOME AND REINVESTMENT OF ANY CAPITAL GAINS. With this
option, income dividends are deposited to your pre-authorized bank account or
paid by check. Any capital gain distributions are reinvested in additional
shares of the Fund and are not subject to an initial or contingent deferred
sales charge.
CASH PAYMENT OF ALL DISTRIBUTIONS. Income dividends and capital gain
distributions are deposited to your pre-authorized bank account or paid by
check.
REINVESTMENTS OF INCOME DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS ARE MADE AT
THE CLOSING NAV PER SHARE ON THE DAY DIVIDENDS OR DISTRIBUTIONS ARE DEDUCTED
FROM THE FUND'S ASSETS.
INCOME TAXES ON DIVIDENDS AND CAPITAL GAINS
You are responsible for federal income tax (and state and local income
taxes, if applicable) on dividends and capital gain distributions. This is true
whether they are paid in cash or reinvested in additional shares. You will be
advised annually as to the tax status of these dividends and distributions.
Generally, dividends paid by the Funds from interest, dividends, or net
short-term capital gains will be taxed as ordinary income. Distributions of net
long-term capital gains are taxable as long-term capital gains, regardless of
how long you have held your shares. If your shares are in an IRA or other
qualified retirement plan, you will not have to pay tax on the reinvested amount
until funds are withdrawn.
Each Fund complies with provisions of the Internal Revenue Code applicable
to regulated investment companies and distributes its taxable income
accordingly. Because of this, the Funds do not anticipate being subject to
federal income or excise taxes on earnings they distribute to shareholders.
Because of tax law requirements, you must provide the Funds an accurate and
certified Social Security number or taxpayer identification number to avoid the
31 % "backup" withholding tax.
EXCHANGES FOR OTHER COMPOSITE FUNDS
You may exchange shares of any Composite fund for the same class of shares
of any other Composite fund. In addition to the Funds described in this
Prospectus, there are Composite funds that invest in other types of securities,
including: income-generating securities, tax-exempt bonds, U.S. government
securities, and money market instruments.
Contact your registered representative or the Fund offices to request a
prospectus for the Composite funds that interest you.
The exchange will be made at the prevailing NAV of the shares being
exchanged. No additional sales charge will be incurred when exchanging shares
purchased with a sales charge. Any contingent deferred sales charge will be
based on the schedule applicable to the original purchase.
All exchanges are subject to the minimum investment requirements of the
Composite fund being acquired and to its availability for sale in your state of
residence. You may arrange for automatic monthly exchanges which are subject to
the minimum investments allowed for systematic investment plans of the acquired
fund. The Funds reserve the right to refuse any order for the purchase of
shares, including those by exchange. In particular, a pattern of exchanges that
coincides with a "market timing" strategy may be disruptive to a Fund and,
consequently, may be disallowed.
HOW TO SELL SHARES
You may redeem shares at any time. The price paid per share will be the
next NAV per share that is calculated. The NAVs are determined at the end of
each business day of the New York Stock Exchange or at 1:00 p.m. Pacific time,
whichever is earlier.
Contingent deferred sales charges, if applicable, will be deducted upon
redemption. (See the table on Page 15 for the sales charge schedule.)
TELEPHONE. You may authorize telephone transactions when you sign your Fund
account application. Or you may choose at that time not to allow such
transactions.
Provided you have pre-authorized these transactions, you may redeem or
exchange shares by telephoning 1-800-543-8072. You may also request these
transactions through your registered representative. Proceeds may be directed to
a pre-authorized bank or broker account or to the address of record for the
account. Exchanges also may be made by telephone. (See the previous section for
more information.)
It may be difficult to reach the Fund offices by telephone during periods of
unusual economic or market activity. Please be persistent if this occurs. The
Transfer Agent is committed to extending its availability beyond regular 7 a.m.
to 6 p.m. (Pacific time) customer service hours during such periods. Calls
requesting telephone redemption or exchanges during periods of unusual market
activity that are received after business hours will be recorded and returned in
the order they were received.
For protection, all telephone instructions are verified. This is done by
requesting personal shareholder information, providing written confirmations of
each telephone transaction, and recording telephone instructions. To initiate
telephone transactions of more than $25,000, the Transfer Agent may require a
Letter of Authorization, other documents, or authorization from your broker. If
reasonable procedures are used, neither the Transfer Agent nor the Funds will be
liable for following telephone instructions which they reasonably believe to be
genuine. Shareholders assume the risk of any losses in such cases. However, the
Transfer Agent or the Funds may be liable for any losses because of unauthorized
or fraudulent telephone instructions if reasonable procedures are not followed.
WRITTEN REQUEST. Redemptions also may be requested by writing the Fund
offices. Written requests may require a signature guarantee, as discussed below,
and the return of any outstanding stock certificates. Changes in preauthorized
redemption instructions or your account registration also require signature
guarantees. For your protection, the signature(s) must be guaranteed by an
officer of a U.S. bank belonging to the Federal Reserve System, a member of the
Stock Transfer Association Medallion Program, or a member of the National
Association of Securities Dealers.
PROMPT PAYMENT. Payment normally will be made on the next business day after
the transaction, but no later than seven days after. However, if you recently
purchased Fund shares by check, redemption proceeds may be delayed until the
Fund verifies collection of that check. Generally, this occurs within 14 days.
Redemption proceeds will be sent by check or Automatic Clearing House transfer
to your bank account without charge. Wire redemption proceeds may be subject to
a $10 fee. The receiving bank also may charge a fee.
SYSTEMATIC WITHDRAWAL PLAN. Shareholders may choose to receive specific cash
withdrawals on a periodic basis. A $5,000 minimum balance is required to
establish a systematic withdrawal plan in a Fund account. Shares of the Fund
will be redeemed to provide the requested payment. Naturally, withdrawals that
continually exceed dividend income and capital gains will eventually exhaust the
account. Class B shareholders may use a systematic withdrawal plan to redeem up
to 12% of the beginning balance annually without incurring a contingent deferred
sales charge. The beginning balance is the Fund account balance at the time the
plan is established.
OTHER CONSIDERATIONS. It is costly to maintain small accounts. Because of
this, an account may be closed after 90 days advance, written notice if the
total account value falls below $700 ($500 in IRAs) when any transfer or
redemption is made. Shares will be redeemed at the share price calculated on the
day the account is closed. To prevent an account closure, investors may increase
holdings to a minimum of $700 during the 90-day grace period.
IRAS AND OTHER TAX-SHELTERED RETIREMENT PLANS
Shares in the Funds are particularly appropriate for many retirement plans,
including IRAs. Although there are some restrictions on the deductibility of
contributions, earnings compound on a tax-deferred basis until withdrawn.
From time to time, Murphey Favre, or its affiliates, may offer " IRA
bonuses" on IRA rollovers and transfers to IRA accounts maintained by them. The
Funds do not pay any portion of these bonuses. If offered, IRA bonuses would be
credited at a uniform rate based on the value of the rollover or transfer.The
products purchased through these rollovers and transfers may include the
Composite Group of Funds. This payment may be considered a reduction in the
sales charge on purchases.
Information about IRAs and other qualified retirement plans is available
from the Fund offices or your registered representative.
PERFORMANCE INFORMATION
While past results are not necessarily indicative of future performance,
history provides a basis for comparisons of mutual fund investment strategies
and their execution. Among the factors that influence the Equity Funds'
performance are the type and quality of investments, operating expenses, and the
net amount of new money coming into the Funds.
Pertinent information follows:
AVERAGE ANNUAL TOTAL RETURN. "Average annual total return" shows the change
in value of an investment in a Fund over a stated period as a steady compound
rate of return. The calculation assumes reinvestment of dividends and capital
gain distributions and payment of the maximum initial sales charge for Class A
shares or the applicable contingent deferred sales charge for Class B shares.
NON-STANDARDIZED TOTAL RETURNS. These "non-standardized total returns"
differ from average annual total returns for the following reasons: First, they
relate to non-standard periods; second, they represent cumulative (rather than
average) total return over a period longer than a year; and/or third, sales
charges are not deducted.
OTHER INFORMATION. Each Fund will include performance data for both Class A
and B shares in any advertisement or promotional material presenting performance
data of that Fund.
Management has included a discussion of the Funds' performance in their
annual report, which is available upon request and without charge by calling the
Fund offices.
The Funds may quote performance results from recognized services and
publications that monitor the performance of mutual funds. Included, too, may be
comparisons of their performance with various published, historical indices.
OF COURSE, THE FUNDS' PERFORMANCE IS NOT FIXED NOR IS THE PRINCIPAL
GUARANTEED. ASSET VALUES MAY FLUCTUATE DAILY SO THAT AN INVESTOR'S SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. ANNUALIZATION OF
RATES SHOULD NOT BE INTERPRETED AS AN INDICATION OF A FUNDS' ACTUAL PERFORMANCE
IN THE FUTURE.
REPORTS TO SHAREHOLDERS
Shareholders receive semiannual and annual reports. The financial statements
in the annual reports are audited by independent accountants.
Shareholders whose accounts are directly with the Funds receive statements
at least quarterly. These statements show transactions in their accounts, the
total number of shares owned, and any dividends or distributions paid.
Shareholders also receive confirmation soon after each transaction except for
dividend reinvestments, systematic investment program purchases, and systematic
withdrawal plan redemptions.
WE'RE HERE TO HELP YOU
Any inquiries you may have about these Funds or your account should be
directed to the Funds at the address or telephone number on the front page and
back cover of this Prospectus. We will be glad to answer your questions.
For further information, please contact:
- --------------------------------------------------------------------------------
FUND OFFICES
601 W. Main Avenue, Suite 801
Spokane, WA 99201-0613
Phone: (509) 353-3550
1-800-543-8072
- --------------------------------------------------------------------------------
ADVISER
Composite Research & Management Co.
1201 Third Avenue, Suite 1220
Seattle, WA 98 10-1-3015
DISTRIBUTOR
Murphey Favre, Inc.
1201 Third Avenue, Suite 780
Seattle,WA 98101
CUSTODIAN
Investors Fiduciary Trust Company
127 W. 1Oth Street
Kansas City, MO 64105-1716
INDEPENDENT PUBLIC ACCOUNTANTS
LeMaster & Daniels
601 W. Riverside Avenue, Suite 800
Spokane, WA 99201-0614
COUNSEL
Paine, Hamblen, Coffin, Brooke & Miller
717 W. Sprague Avenue, Suite 1200
Spokane, WA 99204-0464
BOARD OF DIRECTORS
Leland J. Sahlin, Chairman
Wayne L. Attwood, M.D.
Kristianne Blake
Anne V. Farrell
Edwin J. McWilliams
Michael K. Murphy
William G. Papesh
Jay Rockey
Richard C. Yancey
(Recycled paper logo)
<PAGE>
STATEMENT OF
ADDITIONAL
INFORMATION
JANUARY 15, 1996
COMPOSITE EQUITY FUNDS
601 W. Main Avenue
Suite 801
Spokane, WA 99201-0613
Telephone: 509-353-3550
Toll free: 800-543-8072
COMPOSITE BOND & STOCK FUND, INC. ("Bond & Stock") designed to provide both
income and long-term growth. The Fund has three objectives: (1) continuity of
income; (2) conservation of principal; and (3) long-term growth of both income
and principal. On behalf of these objectives, the Fund invests in bonds,
preferred stocks, common stocks, and convertible bonds.
COMPOSITE NORTHWEST FUND, INC. ("Northwest") is designed to provide long-term
growth of capital by investing in common stocks selected from companies doing
business or located in the Northwest (Alaska, Idaho, Montana, Oregon, and
Washington).
COMPOSITE GROWTH & INCOME FUND ("Growth & Income"), is designed to provide
growth through careful investing in a diversified pool of common stocks and
other securities. The Fund's objective is long-term capital growth, with current
income a secondary consideration.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. IT SHOULD BE READ
IN CONJUNCTION WITH THE FUNDS' PROSPECTUS DATED JANUARY 15, 1996, WHICH CAN BE
OBTAINED WITHOUT CHARGE BY CONTACTING THE FUNDS AT THE ABOVE ADDRESS.
TABLE OF CONTENTS
Page Page
The Funds and Their Management 2-8 Investment Practices 17-20
Distribution Services 8-10 Investment Restrictions 20-21
How Shares Are Valued 10 Performance Information 21-23
How Shares Can Be Purchased 11-13 Brokerage Allocations &
Redemption of Shares 13 Portfolio Transactions 23-24
Exchange Privilege 14-15 General Information 24-25
Services Provided by the Funds 15 Financial Statements and
Tax-Sheltered Retirement Plans 15-16 Reports 25
Dividends, Capital Gain Appendix A 26
Distributions and Taxes 16-17 Appendix B 27-29
<PAGE>
THE FUNDS AND THEIR MANAGEMENT
THE INVESTMENT ADVISER
As discussed under "Who We Are" in the prospectus, the Funds are managed and
investment decisions are made under the supervision of Composite Research &
Management Co. (the "Adviser"). Decisions to buy, sell, or hold a particular
security are made by an investment team of the Adviser, approved by an
investment committee of the Adviser, and subject to the control and final
direction of each Fund's Board of Directors.
Composite Research & Management Co. is Adviser for the eight investment
companies (currently 12 separate portfolios) in the "Composite Group," namely:
Composite Bond & Stock Fund, Inc.; Composite Equity Series, Inc.; Composite
Income Fund, Inc.; Composite Tax-Exempt Bond Fund, Inc.; Composite Cash
Management Company; Composite U.S. Government Securities, Inc.; Composite
Northwest Fund, Inc.; and Composite Deferred Series, Inc. The Adviser also
provides investment advice to institutional clients.
INVESTMENT MANAGEMENT SERVICES
Management fees and services performed by the Adviser are discussed under "The
Cost of Good Management" in the prospectus. The present management agreements
(the "Agreements") with the Adviser to furnish suitable office space, research,
statistical and investment management services to each Fund were approved by
shareholders. These Agreements continue in effect from year-to-year provided
their continuation is specifically approved at least annually by each Fund's
Board of Directors (including a majority of the directors who are not parties to
the Agreements) by votes cast in person at a meeting called for the purpose of
such approval; or by vote of a majority of the outstanding shares of each Fund.
The Agreements can be terminated by either party on sixty (60) days' notice,
without penalty, and each provides for automatic termination upon its
assignment.
Under the provisions of the Investment Company Act of 1940 and as used elsewhere
in the prospectus and this statement of additional information, the phrase "vote
of the majority of the outstanding shares of the Fund" means the vote at any
meeting of shareholders of (a) 67% or more of the shares outstanding or
represented by proxy at such meeting, if the shareholders of more than 50% of
the outstanding shares are present or represented by proxy; or (b) more than 50%
of the outstanding shares, whichever is less.
BOND & STOCK AND GROWTH & INCOME
In payment for its services, the Adviser receives a monthly fee equal to .625%
per annum computed on the average daily net assets of each Fund; should average
daily net assets exceed $250 million, the fee will decrease to .50% of such
assets. Bond & Stock paid fees of $1,230,409, $1,224,676 and $860,990 for the
fiscal years ended October 31, 1995, 1994 and 1993, respectively. Growth &
Income paid fees of $738,064, $ 611,877, and $568,231, respectively, to the
Adviser during the fiscal years ended October 31, 1995, 1994, and 1993.
NORTHWEST
In payment for its services, the Adviser receives a monthly fee equal to .625%
per annum computed on the average daily net assets to $500 million. If average
daily net assets exceed $500 million, the fee will be reduced to an annual rate
of .50% on such assets, and to .375% on average daily net assets in excess of $1
billion. Fees paid to the Adviser, before expense reimbursements, during the
fiscal years ended October 31, 1995, 1994, and 1993 amounted to $973,877,
$1,014,963, and $1,095,371, respectively. The Adviser has agreed that should the
expenses of the Fund (excluding taxes, interest, portfolio brokerage and the
.75% Class B share distribution fee) exceed in any fiscal year 1.50% of the
average net assets of the Fund up to $30 million and 1% of average net assets
over $30 million it will reimburse the Fund for such excess.
The Agreements provide that the advisory fees paid to the Adviser by each Fund
will be based solely on the individual assets of that Fund. Under the terms of
the Agreements, each Fund is required to pay fees of directors not employed by
the Adviser or its affiliates; custodian expenses; brokerage; taxes; auditing
and legal expenses; costs of issue, transfer, registration or redemption of
shares for sale; costs relating to disbursement of dividends, corporate
meetings, corporate reports, and the maintenance of its corporate existence.
Investment decisions for each Fund are made independently of those for other
funds in the Composite Group. However, the Adviser may determine that the same
security is suitable for more than one of the funds. If more than one of the
funds is simultaneously engaged in the purchase or sale of the same security,
the transactions are allocated as to price and amount in accordance with a
formula considered to be equitable to each. It is recognized that in some cases
this system could have a detrimental effect on the price or volume of the
security as far as the funds are concerned. In other cases, however, it is
believed that the ability to participate in volume transactions may provide
better executions for each Fund. It is the opinion of each Fund's Board of
Directors that these advantages, when combined with the personnel and facilities
of the Adviser's organization, outweigh possible disadvantages which may exist
from exposure to simultaneous transactions.
The Funds have adopted a code of ethics which is intended to prevent access
persons from conducting personal securities transactions which interfere with
Fund portfolio transactions or otherwise take unfair advantage of their
relationship to the Funds. In general, the personal securities transactions of
individuals with access to information regarding Fund portfolio transactions
must be pre-cleared by the Adviser's Compliance Officer and must not occur when
similar transactions are contemplated by a Fund.
GLASS-STEAGALL
The Glass-Steagall Act, among other things, generally prohibits member banks of
the Federal Reserve System from engaging to any extent in the business of
issuing, underwriting, selling or distributing securities and generally
prohibits management interlocks and affiliations between member banks and
companies engaged in certain activities. In a Statement of Policy dated
September 1, 1982, the Federal Deposit Insurance Corporation concluded that the
investment restrictions of the Glass-Steagall Act do not apply to banks or their
affiliates if the banks are not members of the Federal Reserve System.
Washington Mutual Bank is not a member bank. The Adviser has advised the Funds
that, in its view, the Glass-Steagall Act does not prohibit the activities of
the Adviser and that it may perform the services for the Funds contemplated by
the Investment Management Agreements without violation of the Glass-Steagall Act
or other applicable banking laws or regulations.
DIRECTORS AND OFFICERS OF THE FUNDS
Each Fund's Board of Directors is elected by its shareholders. Interim vacancies
may be filled by the current directors so long as at least two-thirds were
previously elected by shareholders. The Boards have responsibility for the
overall management of the Funds, including general supervision and review of
their investment activities. The directors, in turn, elect the officers of the
Funds who are responsible for administering the day-to-day operations. All of
the Funds' directors and officers hold identical positions with each of the
funds in the Composite Group. Directors and officers of the Funds and their
business experience for the past five years are set forth below. Unless
otherwise noted, the address of each officer is 601 W. Main Avenue, Suite 801,
Spokane, Washington 99201-0613.
WAYNE L. ATTWOOD, MD
Director
3 E. 40th
Spokane, Washington 99203
Dr. Attwood is a retired doctor of internal medicine and gastroenterology in
Spokane, Washington.
KRISTIANNE BLAKE
Director
705 W. 7th, Suite D
Spokane, Washington 99204
Mrs. Blake is president of Kristianne Gates Blake, PS, an accounting services
firm specializing in personal financial planning and tax planning.
*ANNE V. FARRELL
Director
425 Pike Street, Suite 510
Seattle, Washington 98101
Mrs. Farrell is president & CEO of The Seattle Foundation ( a charitable
foundation). In addition, she serves as a director of Washington Mutual, Inc.
EDWIN J. McWILLIAMS
Director
1717 S. Upper Terrace Road
Spokane, Washington 99203
Mr. McWilliams is former president of both Fidelity Service Corporation (a
mortgage servicing subsidiary of Sterling Savings Association) and Fidelity
Mutual Savings Bank.
* MICHAEL K. MURPHY
Director
PO BOX 3366
Spokane, Washington 99220-3366
Mr. Murphy is Chairman and CEO of CPM Development Corporation (a holding company
which includes Central Pre-Mix Concrete Company). In addition, he serves as a
director of Washington Mutual, Inc.
*WILLIAM G. PAPESH
President and Director
Mr. Papesh is president and a director of the Adviser and Transfer Agent, and a
director and executive vice president of the Distributor.
JAY ROCKEY
Director
2121 - Fifth Avenue
Seattle, Washington 98121
Mr. Rockey is Chairman and CEO of The Rockey Company (a regional public
relations firm).
*LELAND J. SAHLIN
Chairman and Director
Mr. Sahlin is a senior vice president of the Adviser, and served as president of
each of the Funds from 1972 to 1989; of the Distributor from 1972 to 1987; and
of the Adviser from 1972 to 1988.
RICHARD C. YANCEY
Director
535 Madison Avenue
New York, New York 10022
Mr. Yancey is senior advisor to Dillon Read & Co., Inc. (a registered
broker-dealer and investment banking firm), New York, New York.
*These directors are "interested persons" of the Funds as that term is defined
in the Investment Company Act of 1940 because they are affiliated persons of the
Funds, their Adviser, or Distributor.
GENE G. BRANSON
Vice President
Suite 780
1201 Third Avenue
Seattle, Washington 98101
Mr. Branson is a senior vice president and director of the Distributor and
Transfer Agent and a vice president and director of the Adviser.
MONTE D. CALVIN, CPA
Vice President and Treasurer
Mr. Calvin is executive vice president of the Transfer Agent and serves as chief
financial officer of the Funds.
CASSIE L. FOWLER, CPA
Assistant Secretary
Ms. Fowler is an employee of the Transfer Agent.
KERRY K. KILLINGER
Executive Vice President
Suite 1501
1201 Third Avenue
Seattle, Washington 98101
Mr. Killinger is president, chairman of the board, and chief executive officer
of Washington Mutual, Inc. and a director of the Adviser, Distributor, and
Transfer Agent.
JEFFREY L. LUNZER, CPA
Assistant Treasurer
Mr. Lunzer is vice president of the Transfer Agent.
CONNIE M. LYONS
Assistant Secretary
Ms. Lyons is an employee of the Transfer Agent.
DOUGLAS D. SPRINGER
Vice President
Suite 780
1201 Third Avenue
Seattle, Washington 98101
Mr. Springer is president and a director of the Distributor and a director of
the Adviser and the Transfer Agent.
JOHN T. WEST, CPA
Secretary
Mr. West is vice president of the Transfer Agent.
The Funds paid no remuneration to any of its officers, including Mr. Papesh and
Mr. Sahlin, during the fiscal year ended October 31, 1995. The Funds and other
Funds within the Composite Group paid directors' fees and reimbursed expenses,
during the fiscal year ended October 31, 1995, in the amounts indicated below:
<TABLE>
<CAPTION>
<S>
BOND & GROWTH & TOTAL
DIRECTOR STOCK INCOME NORTHWEST COMPLEX (1)
- -------- ------- -------- --------- -----------
<C> <C> <C> <C>
Wayne L. Attwood, MD $1,333 $1,333 $1,333 $16,000
Kristianne Blake 608 608 608 7,300
Edwin J. McWilliams 1,208 1,208 1,208 14,500
Jay Rockey (2) 1,177 1,177 1,177 14,125
Richard C. Yancey 1,208 1,208 1,208 14,500
<FN>
(1) Each of the directors serve in the same capacity with each Fund within the
Composite Group (eight companies) comprising 12 individual investment
portfolios.
(2) Mr. Rockey is Chairman and CEO of the Rockey Company, a public relations
firm which has received revenue from the Funds and Washington Mutual, Inc.,
parent company of the Adviser and Distributor, during the 1995 fiscal year.
</FN>
</TABLE>
As of December 15, 1995, officers, directors and their immediate families as a
group owned of record and beneficially less than 1% of the outstanding shares of
each Fund. On that date no person owned of record or beneficially more than 5%
percent of the outstanding voting securities in any of the three funds.
Wayne L. Attwood, MD, Kristianne Blake, *Anne V. Farrell and *Michael K. Murphy
serve as members of the Boards' audit committee. The committee meets
periodically with each Fund's independent accountants and officers to review
accounting principles used by each Fund and the adequacy of the Fund's internal
controls.
The investment committee performs interim functions for the Board of Directors
of each Fund including dividend declaration and portfolio pricing matters.
Members are *Anne V. Farrell, *Michael K. Murphy, and Richard C. Yancey.
Responsibilities of the Boards' nominating committee include preparing for and
recommending replacements for any vacancies in directors' positions, and initial
review of policy issues regarding the size, composition, and compensation of the
Boards. Members of the nominating committee are Kristianne Blake, Edwin J.
McWilliams and Jay Rockey.
The Boards' distribution committee is responsible for reviewing distribution
activities and 12b-1 expenditures to determine that there is a reasonable
likelihood the 12b-1 plan will benefit each Fund and its shareholders. The
committee meets at least annually and is responsible for making recommendations
to the board regarding renewal or changes to the distribution plan. Committee
members are Wayne L. Attwood, M.D., Edwin J. McWilliams, Jay Rockey , and
Richard C. Yancey.
*These directors are considered "interested persons" of the Funds as that term
is defined in the Investment Company Act of 1940, because they are either
affiliated persons of the Funds, their Adviser, or Distributor.
DISTRIBUTION SERVICES
12b-1 PLAN
As discussed in the prospectus under "The Cost of Good Management," the
directors of each Fund have approved a plan for both classes of shares (the
"Plans") pursuant to Rule 12b-1 under the Investment Company Act of 1940 which
provides that investment companies may pay distribution expenses, directly or
indirectly, according to a plan adopted by each Fund's Board of Directors.
Under each Fund's Plan, the Fund may reimburse Murphey Favre, Inc. (the
"Distributor") for Class A distribution expenses, including the cost of printing
and distributing prospectuses, statements of additional information and other
promotional and sales literature, compensation to registered representatives for
their services, and reimbursement to the Distributor for the direct and indirect
cost of furnishing services of its personnel to assist in the entire
distribution process but excluding general and administrative expenses.
The maximum annual reimbursement allowed by the Plans and authorized by
directors for such Class A distribution expenses may not exceed .25% of the
average daily net assets attributable to Class A shares. Funds in the Composite
Group may benefit from expenditures made for distribution activities for another
Composite fund. Bond & Stock, Growth & Income and Northwest -reimbursed the
Distributor in the amounts of $356,379, $203,566, and $279,851, respectively,
for distribution expenses incurred on behalf of Class A shares during fiscal
1995. Of this amount, $176,642, $101,057, and $159,513 was paid on behalf of
Bond & Stock, Growth & Income and Northwest to registered representatives of the
Distributor and to selected dealers for their shareholder servicing activities;
$7,836, $4,599, and $6,133, respectively, was paid for printing; and $156,743,
$105,861, and $84,783, respectively, was paid for other advertising expenses.
During fiscal years 1994 and 1993, Bond & Stock reimbursed the Distributor
$424,414 and $325,132, respectively; Growth & Income reimbursed the Distributor
210,854$ and $238,029, respectively; and Northwest reimbursed the Distributor
$348,103 and $637,0948, respectively for distribution expenses related to Class
A shares.
Under the Plans, the Funds compensate the Distributor with a distribution fee at
an annual rate of .75% of the Fund's average daily net assets attributable to
Class B shares and a service fee at an annual rate of .25% of such assets.
During the fiscal year ended October 31, 1995, and the period from March 30,
1994 (commencement of public offering) to October 31, 1994, Bond & Stock
compensated the Distributor in the amounts of $46,435 and $12,266, respectively;
Growth & Income compensated the Distributor $49,988 and $4,490, respectively;
and Northwest compensated the Distributor $49,126 and $8,536, respectively, for
distribution expenses related to Class B shares.
Dealers receive an amount equal to an annual rate of .25% of total net assets of
all accounts, of either class, serviced by their representatives.
Under the Plans, each Fund will report at least quarterly to its Board of
Directors the amounts and purposes of all distribution expense payments. During
the continuance of the Plan, as required by Rule 12b-1, the selection and
nomination of the disinterested directors of each Fund will be at the discretion
of the disinterested directors then in office.
Each Plan has been approved unanimously by the directors of each Fund including
a majority of the independent directors who have no direct or indirect interest
in the Plan and by the Distributor. Each Plan will remain in effect for one
year, may be terminated at any time by a vote of a majority of the disinterested
directors or by a vote of a majority of the outstanding voting securities of the
applicable Fund, and may be renewed from year to year thereafter, only if
approved by a vote of independent directors. In approving the Plan and
submitting it to shareholders, directors of the Fund determined, in the exercise
of their business judgment and in light of their fiduciary duties as directors,
that there is a reasonable likelihood that each Plan will benefit its respective
Fund and its shareholders. All material amendments to each Plan must be approved
by a vote of each Fund's Board of Directors including disinterested directors,
and by shareholders.
DISTRIBUTOR
The Distributor purchases shares of each Fund's capital stock in a continuous
offering to fill orders placed with it by investors and investment dealers. It
pays net asset value and resells shares in accordance with terms of the
Distribution Contracts with each Fund. The Distributor acts in a similar
capacity for all other funds in the Composite Group.
During the 1995, 1994, and 1993 fiscal years, the Distributor received $471,479,
$1,143,940, and $2,193,309, respectively, for the sale of Bond & Stock Class A
shares. The Distributor retained $471,445, $1,140,938, and $2,191,438,
respectively, for the same time periods, with the balance paid to dealers for
their sales of Bond & Stock Class A shares.
During the 1995, 1994, 1993, and 1992 fiscal years, the Distributor received
$384,766, $214,750, and $369,154, respectively for the sale of Growth & Income
Class A shares. The Distributor retained $ , $214,340,; and $368,679,
respectively, for the same time periods, with the balance paid to dealers for
their sales of Growth Class A shares.
During the fiscal years 1995, 1994, and 1993, the Distributor received $348,729,
$443,701, and $1,156,713, respectively, for the sale of Northwest Class A
shares. The Distributor retained $337,189, $386,198, and $963,811, respectively,
for the same time periods, with the balance paid to dealers for their sales of
Northwest Class A shares.
The Distributor has not received any earnings or profits from the redemption of
Class A shares. During the fiscal year ended October 31, 1995, the Distributor
received contingent deferred sales charge payments of $7,413, $8,989, and
$11,237 upon redemption of Class B shares of Bond & Stock, Growth & Income, and
Northwest, respectively. No brokerage fees were paid by the Funds to the
Distributor during the year, but it may act as a broker on portfolio purchases
and sales should it become a member of a securities exchange.
The Funds bear the cost of registering their shares with federal and state
securities commissions and printing copies of prospectuses and statements of
additional information used for its shareholders. The Distributor pays for
information intended for potential shareholders but may be reimbursed by the
Funds under the Distribution Plan for such expenses applicable to Class A
shares.
TRANSFER AGENT
Murphey Favre Securities Services, Inc. (the "Transfer Agent") furnishes
necessary personnel and other transfer agent services required by each Fund. The
Shareholders Service Contract for each Fund was originally approved by
shareholders.
During the 1995, 1994, and 1993 fiscal years, Bond & Stock paid $194,112,
$187,827, and $146,585, respectively, for these services. During fiscal years
1995, 1994, and 1993, Growth & Income paid $142,648, $ 110,980, and $110,753,
respectively. Northwest paid $292,144, $284,597, and $307,539, respectively, for
these services.
At the date of this Statement of Additional Information, the monthly shareholder
servicing fee was $1.35 per Class A account and $1.45 per Class B account in
each Fund. All requests for transfer of shares should be directed to the Funds
or to the Transfer Agent.
HOW SHARES ARE VALUED
Investment securities are stated on the basis of valuations provided by an
independent pricing service, approved by each Fund's Board of Directors, which
uses information with respect to 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 not currently quoted as described above will be priced at fair value
as determined in good faith in a manner prescribed by the Boards of Directors.
HOW SHARES CAN BE PURCHASED
Information concerning the purchase of shares is discussed under "How to Buy
Shares" in the prospectus. Shares of each Fund are sold in a continuous offering
and may be purchased from the Distributor or a designated dealer at the public
offering price, which is the net asset value per share next determined after
receipt of a purchase order in Spokane, plus, in the case of Class A shares, an
initial sales charge which is a percentage of the public offering price and
varies as shown in the prospectus. Class B shares are sold without an initial
sales charge but are subject to higher ongoing distribution expenses and may be
subject to a contingent deferred sales charge if redeemed within four years of
purchase. Each Fund receives the entire net asset value of all of its shares
sold. The Distributor or designated dealer retains their appropriate portion of
the initial sales charge. The Distributor pays sales commissions to dealers from
its own resources for Class B sales and retains contingent deferred sales charge
payments. (See Appendix A for a specimen price-make-up sheet.)
There is no initial sales charge on Class A purchases in excess of $1 million or
more, although a contingent deferred sales charge of 1% will be deducted if such
shares are redeemed within 18 months of purchase. The Distributor will pay
authorized dealers commissions of 1% on such purchases. The Class A contingent
deferred sales charge is calculated by applying 1% to the lesser of the NAV of
redeemed shares at the time of purchase or their NAV at the time of redemption.
Shares purchased through the reinvestment of dividends or capital gains are not
subject to a contingent deferred sales charge. Contingent deferred sales charge
waivers are explained in the following section titled "Redemption of Shares."
Shareholders who have redeemed Class A shares initially subject to a sales
charge may reinvest their redemption proceeds in Class A shares of any Composite
Group fund at net asset value provided that reinvestment is effected within 120
days of the redemption. Contingent Deferred Sales Charges assessed may be
reimbursed as they relate to the reinvestment of redemption proceeds in Class B
shares within 120 days. The shareholder is responsible for notifying the
Transfer Agent of such reinvestments. If a loss is realized on the redemption of
Fund shares, the reinvestment may be subject to the "wash sale" rule, resulting
in a disallowance of such loss for federal income tax purposes.
The minimum initial investment for each Fund is $1,000 ($500 in IRA accounts),
and additional investments should be at least $50 (unless the transaction is via
systematic investment programs where minimum initial investments must be at
least $50 and additional monthly investments must be at least $50). Investments
made by an agent or fiduciary (such as a bank trust department, investment
adviser, broker, or employee benefit or retirement plan), pursuant to a periodic
investment plan, may have the minimum purchase requirements on initial and
subsequent investments waived.
Class A shares may be sold at net asset value and in any amount to current and
retired directors, officers and employees of Washington Mutual, Inc., its
affiliates (including the Adviser, the Distributor, and the Transfer Agent, and
their children, grandchildren, and parents), as well as to any trust, pension,
profit-sharing or other benefit plan for such persons. The foregoing privilege
is also extended to directors, officers and employees of other companies which
enter into selling arrangements with the Distributor. Such shares are sold for
investment purposes and on the condition that they will not be resold except
through redemption by the Fund.
Each Fund may also issue Class A shares at net asset value in connection with
the acquisition of assets, merger or consolidation with, another investment
company, or to shareholders in connection with reinvestment of income dividends
and capital gain distributions. Qualified employee benefit plans which have more
than 10 participants or which have more than $25,000 invested in those Composite
funds offered with an initial or contingent deferred sales charge are also
entitled to buy without a sales charge. Individual retirement accounts such as
IRAs or SEP IRAs are not eligible for this privilege. In addition, shareholders
of mutual funds (other than money market funds), closed-end funds or unit
investment trusts may redeem those shares and use their sale proceeds to
purchase Class A shares of a Composite fund at net asset value provided the
proceeds are reinvested within 90 days of such sale and proof of the sale is
provided.
The Distributor may enter into arrangements with brokers, dealers or registered
investment advisers to sell Class A shares at net asset value for use in
particular investment products made available to their clients. The other
parties may charge their clients a fee for these products.
PURCHASE PLANS
CUMULATIVE DISCOUNTS: The initial sales charges on Class A shares are applicable
to purchases made at one time by a "purchaser" who may be one of the following:
an individual or an individual, his spouse or children under age 21; a trustee
or other fiduciary of a single trust estate or single fiduciary account; an
organization exempt from federal income tax under Section 501(c)(3) or (13) of
the Internal Revenue Code; a pension, profit-sharing or other employee benefit
plan qualified or non-qualified under Section 401 of the Internal Revenue Code
or; any other organized group of persons whether incorporated or not, provided
the organization has been in existence for at least six months and has some
purpose other than the purchase of redeemable securities of a registered
investment company at a discount. In order to qualify for a lower sales charge,
all orders from an organized group will have to be identified as originating
from a qualifying "purchaser." Upon such notification, the investor will receive
the lowest applicable sales charge. Discounts may be modified or terminated at
anytime.
Each Fund's Class A shares may also be purchased at the reduced sales charge
based on shares currently owned by the investor (excluding Composite Cash
Management Company Class A shares, unless exchanged from another fund). The
sales charge reduction is determined by adding the value of all Composite Group
Class A shares (at maximum offering price) and Class B shares (at net asset
value) to the amount of the Fund's shares being purchased.
LETTER OF INTENT: This Letter provides for a price adjustment depending upon the
actual amount purchased within a 13-month period. If total investments under the
Letter exceed the intended amount and thereby qualify for a lower initial sales
charge, a retroactive price adjustment is made and the difference is used to
purchase additional shares. A shareholder may include the value of all of their
Class A shares (at maximum offering price) and Class B shares (at net asset
value) held in the Composite Group (excluding Composite Cash Management Company,
unless exchanged from another fund) that were held on the effective date of the
Letter of Intent as an "accumulation credit" toward completion of the Letter.
The Letter of Intent, which imposes no obligation to purchase or sell additional
shares, provides that 5% of the amount of the intended purchase will be held in
escrow (in the form of shares) pending completion of the Letter.
CERTIFICATES
Ordinarily certificates for shares purchased will not be issued unless requested
by the investor. There is no charge for such issuance.
REDEMPTION OF SHARES
When the Fund or Transfer Agent receives: 1) a written request in proper form,
for redemption of shares; and 2) the return of any issued certificates for
shares being redeemed, a check for payment of shares will normally be sent the
next business day, and no later than seven business days, except as indicated
below. If the account is pre-authorized for telephone transfer, payment may be
made to a designated bank account or broker, providing such accounts are
identically registered. Telephone redemptions may also be directed to the
shareholder's address of record. No wire fee will be charged for transfers to
Washington Mutual Bank or Seafirst Bank. There is a $10.00 transmittal wire fee
(which is subject to change) to wire to all other banks. This fee will be
subtracted from the account balance prior to making the transfer. You should be
aware that certain banks also charge a receiving wire fee which is beyond the
control of the Transfer Agent.
If redemption is requested by a corporation, partnership, trust or fiduciary,
written evidence of authority must be submitted before the request will be
accepted.
Shares tendered for redemption will be redeemed at the net asset value next
determined less the appropriate contingent deferred sales charge as described in
the prospectus under "How to Buy Shares." The amount received may be more or
less than the cost of the shares, depending on fluctuations in the market value
of securities owned by the Fund. If the shares have been purchased recently,
this redemption payment may be delayed until the Fund verifies that the
instrument used in the purchase (e.g., a check) has been collected and may take
up to 14 days.
As discussed in the prospectus, the Class B contingent deferred sales charge may
be waived under certain circumstances. The Class A contingent deferred sales
charge may be waived under the same conditions. In addition to the specific
cases outlined in the prospectus, the charge may be waived for any total or
partial redemption in connection with a lump-sum or other distribution from an
Individual Retirement Account ("IRA"), a custodial account maintained pursuant
to Internal Revenue Code of 1986, as amended ("IRC") section 403 (b) (7), or a
qualified pension or profit sharing plan ("Retirement Plans") following
retirement or, in the case of an IRA or Keogh Plan or custodial account pursuant
to IRC section 403 (b) (7), after attaining age 59 1/2. The charge also may be
waived on any redemption which results from a tax-free return of an excess
contribution pursuant to section 408 (d) (4) or (5) of the IRC, the return of
excess deferral amounts pursuant to IRC section 401 (k) (8) or 402 (g) (2), or
from the death or disability of the employee. In sum, the CDSC may be waived on
redemptions of shares which constitute Retirement Plan distributions which are
permitted to be made without penalty pursuant to the IRC, other than tax-free
rollovers or transfers of assets.
EXCHANGE PRIVILEGE
Shareholders may exchange shares of each Fund for the same class of shares in
any other fund in the Composite Group. A brief discussion of such privileges is
in the prospectus under Exchanges for Other Funds. Exchanges will be made at the
respective net asset values in effect on the date of such exchange. Shares
previously subject to a sales charge may be exchanged without incurring any
additional initial or contingent deferred sales charge. Any gains or losses
realized on an exchange should be recognized for federal income tax purposes, as
required. This privilege is not an option or right to purchase securities, but
is a revocable privilege permitted under the present policies of each of the
Funds. The privilege is not available in any state or other jurisdiction where
the shares of the Fund into which the transfer is to be made are not qualified
for sale, or when the value of the shares presented for exchange is less than
the minimum dollar purchase required by the appropriate prospectus. Each Fund
reserves the right to terminate or end the privilege of any shareholder who
attempts to use the privilege to take advantage of short-term swings in the
market.
An investor may exchange some or all of his shares in a Fund for the same class
of any of the following in the Composite Group of Funds, namely:
COMPOSITE GROUP OF FUNDS
I. Composite Bond & Stock Fund: primary objective is continuity of income and
conservation of capital with long-term growth a secondary objective.
II. Composite Growth & Income Fund: primary objective is long-term growth of
principal with current income a secondary objective.
III.Composite Northwest Fund: designed to provide long-term growth of capital
by investing in a broadly diversified portfolio of common stocks selected
from companies located or doing business in the Northwest.
IV. Composite Income Fund: primary objective is current income with preservation
of principal a secondary consideration.
V. Composite U.S. Government Securities: primary objective is to provide a high
level of current income, consistent with safety and liquidity, of U.S.
government-backed securities.
VI. Composite Tax-Exempt Bond Fund: primary objective is a high level of current
income exempt from federal income taxes as is consistent with prudent
investment risk and protection of capital. (Not allowed in IRAs)
VII.Composite Cash Management Company, Money Market Portfolio: invests in high
grades of money market instruments for maximum current income, while
preserving capital and allowing liquidity.
VIII. Composite Cash Management Company, Tax-Exempt Portfolio: invests in high
quality, short-term municipal obligations for maximum current income exempt
from federal income tax while preserving capital and allowing liquidity.
SERVICES PROVIDED BY THE FUNDS
SYSTEMATIC WITHDRAWAL PLAN
As described in the prospectus, each Fund offers a Systematic Withdrawal Plan.
All dividends and distributions on shares owned by shareholders participating in
this plan are reinvested in additional shares. Since withdrawal payments
represent the proceeds from sales of shares, any gain or loss on such
redemptions must be reported for tax purposes. In each case, shares will be
redeemed at the close of business on or about the 25th day of each month
preceding payment, and payments will be distributed within three business days
thereafter.
The Systematic Withdrawal Plan may involve the use of principal and is not a
guaranteed annuity. Payments under such a plan do not represent income or a
return on investment but instead are made from the redemption of Fund shares.
Naturally, withdrawals that continually exceed reinvested dividend income and
capital gains will eventually exhaust the account.
Class B shareholders who establish a Systematic Withdrawal Plan may make annual
redemptions up to 12% of the value of the account, at the time the plan is
established, without paying a contingent deferred sales charge.
A Systematic Withdrawal Plan may be terminated at any time by directing a
written request to the applicable Fund or the Transfer Agent. Upon termination,
all future dividends and capital gain distributions will continue to be
reinvested in additional shares unless a shareholder requests otherwise.
TAX-SHELTERED RETIREMENT PLANS
As described in the prospectus, shares of Bond & Stock, Growth & Income, and
Northwest may be purchased as an investment medium for various tax-sheltered
retirement plans. The amounts of contributions to such plans are generally
limited by the Internal Revenue Code. Each of these plans involve a long-term
commitment of assets, and participants may be subject to possible regulatory
penalties for excess contributions, premature distributions, excess
distributions, or for insufficient distributions after age 70 1/2.
QUALIFIED RETIREMENT PLANS
Self-employed individuals (as sole proprietors or partnerships) or corporations
may wish to purchase Fund shares in a retirement plan. Investors may obtain
information regarding these plans by contacting a registered representative or
the Funds' offices.
INDIVIDUAL RETIREMENT ACCOUNTS (IRAs)
IRA contributions are invested when received. However, individuals establishing
a new IRA plan may rescind their plan within seven days. In the event of such
termination, their entire purchase price will be refunded by the Distributor
provided they notify the Distributor of their desire to rescind the purchase.
Termination during the seven-day period through regular redemption rather than
through rescission will result in adverse tax consequences. Any losses derived
through rescission will be absorbed by the Distributor.
Persons who request information regarding IRA plans will be provided with
application forms and information regarding eligibility and permissible
contributions.
IRA CUSTODY AGREEMENT, SERVICE CHARGES AND TAX ASPECTS
Unless participants elect otherwise, any capital gain distributions and income
dividends are reinvested on the ex-dividend date in full and fractional shares
of the applicable Fund at net asset value.
The IRA plan provides that the Distributor will furnish custodial services
either as agent for Washington Mutual Bank or as the named custodian. There are
set annual fees for IRA plans per participant unless made under an
employer-sponsored plan, in which case the custodial fee is negotiable. If
custodial fees are not paid annually by separate check, shares will
automatically be liquidated to cover such fees.
IRA BONUSES
"IRA Bonuses" may periodically be credited to IRA accounts for contributions,
transfers and/or rollovers. Payments will be made at a uniform rate determined
by the Distributor or its affiliates and will be based on the value of the
rollovers and/or transfers. "IRA Bonuses" are not paid by the applicable Fund.
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES
Each Fund intends to continue to conduct its business and maintain the necessary
diversification of assets and source of income requirements to qualify as a
diversified management investment company under the Internal Revenue Code (the
"Code"). Each Fund so qualified during the 1995 fiscal year. As a result, under
Subchapter M of the Code, each Fund is accorded conduit or "pass through"
treatment for federal income tax purposes during each year in which it
distributes to its shareholders 90% or more of its gross income from dividends,
interest and gains from the sale or other disposition of securities, and in
which it derives less than 30% of its gross income from gains (without deduction
for losses) from the sale or other disposition of securities held for less than
three months. In addition, if each Fund distributes 98% of its ordinary income
and capital gain net income for each calendar year, it will not be subject to
excise tax on undistributed income. Each Fund intends to distribute such amounts
as necessary to avoid federal income and excise taxes.
A portion of dividends paid by Bond & Stock, Growth & Income, or Northwest from
net investment income will generally qualify for the 70% dividends received
deduction for corporate shareholders. The qualifying portion is based on the
aggregate amount of that income derived by the Fund from the dividends of
domestic corporations. Dividends in excess of the foregoing are treated as
non-qualifying income. As such, they are taxed as ordinary income, as are any
net realized short-term capital gains.
Shareholders will usually pay federal income taxes on distributions designated
as net realized long-term capital gains, whether or not received in cash or
shares of the Fund, and regardless of how long the shares have been owned by the
shareholders. Because long-term capital gain distributions reduce the value of
the shares, losses may occur upon subsequent sale. Special holding period
requirements may make the losses long-term rather than short-term under the
Internal Revenue Code.
Advice as to the tax status of each year's dividends and distributions will be
mailed annually to each shareholder. Shareholders are urged to consult their own
tax advisors regarding specific questions about federal, state and local taxes.
Shareholders not subject to tax on their income will not be required to pay tax
on amounts distributed to them.
Income dividends and capital gain distributions recorded and made shortly after
a purchase of shares by an investor will have the effect of reducing the net
asset value per share by the per share amount of the distribution. They are,
nevertheless, subject to income taxes despite the fact that this is, in effect,
a return of capital.
INVESTMENT PRACTICES
ALL FUNDS
In pursuit of the Funds' investment objectives, they may additionally engage in
repurchase agreement transactions. Under the terms of a typical repurchase
agreement, a Fund would acquire an underlying debt obligation for a relatively
short period (usually not more than one week) subject to an obligation of the
seller to repurchase, and the Fund to resell, the obligation at an agreed-upon
price and time, thereby determining the yield during the Fund's holding period.
This arrangement results in a fixed rate of return that is not subject to market
fluctuations during the Fund's holding period. Under each repurchase agreement,
the selling institution will be required to maintain the value of the securities
subject to the repurchase agreement at not less than 102% of their repurchase
price, including accrued interest earned on the underlying securities.
Repurchase agreements could involve certain risks in the event of default or
insolvency of the other party, including possible delays or restrictions upon a
Fund's ability to dispose of the underlying securities. The Adviser, acting
under the supervision of the Boards of Directors, reviews the creditworthiness
of those banks and dealers with which the Fund enters into repurchase agreements
to evaluate these risks, and monitors on an ongoing basis the value of the
securities subject to repurchase agreements to ensure that the collateral is
maintained at the required level.
The Funds may lend their securities to brokers, dealers, domestic and foreign
banks, or other financial institutions to increase their net investment income.
These loans must be secured continuously in one of these ways: (1) by cash, (2)
by equivalent collateral, or (3) by a letter of credit at least equal to the
market value of the securities loaned plus accrued interest or income. There may
be risks of delay in recovery of the securities or even loss of rights in the
collateral if the borrower of the securities fails financially.
A Fund will not enter into securities loan transactions exceeding, in aggregate,
33% of the market value of the Fund's total assets. They would consider such
transactions only with National Association of Securities Dealers' registered
broker or member banks of the Federal Reserve.
A Fund will enter into securities lending and repurchase transactions only with
parties who meet creditworthiness standards approved by its Board of Directors
and monitored by the Adviser. In the event of a default or bankruptcy by a
seller or borrower, the Fund will promptly liquidate collateral. However, the
exercise of the Fund's right to liquidate such collateral could involve certain
costs or delays and, to the extent that proceeds from any sales of collateral on
a default of the seller or borrower were less than the seller's or borrower's
obligation, the Fund could suffer a loss.
BOND & STOCK AND GROWTH & INCOME
Management aims to achieve the Funds' objectives through the use of a flexible
investment policy by attempting to anticipate market conditions and places
emphasis on economic changes. Portfolio investments are adjusted in accordance
with management's evaluation of changing market risks. Thus, the relative
proportion of various types of securities held may vary significantly.
Investments may include mortgage-backed securities including those representing
an undivided ownership interest in a pool of mortgages, e.g., GNMA, FNMA and
FHLMC certificates. The mortgages backing these securities include conventional
fixed rate mortgages, graduated payment mortgages and adjustable rate mortgages.
The U.S. government or the issuing agency guarantees the payment of interest and
principal of these securities. The guarantees, however, do not extend to the
securities' yield or value, which are likely to vary inversely with fluctuation
in interest rates, nor do the guarantees extend to the yield or value of the
Funds' shares. These certificates are, in most cases, "pass-through" instruments
through which the holder receives a share of all interest and principal payments
from the mortgages underlying the certificate, net of certain fees. Because the
prepayment characteristics of the underlying mortgages vary, it is not possible
to predict accurately the average life or realized yield of a particular issue
of pass-through certificates. Mortgage-backed securities are often subject to
more rapid repayment than their stated maturity date would indicate as a result
of the pass-through of prepayments of principal on the underlying mortgage
obligations. For example, securities backed by mortgages with thirty-year
maturities are customarily treated as prepaying fully in the twelfth year, and
securities backed by mortgages with fifteen-year maturities are customarily
treated as prepaying fully in the seventh year. While the timing of prepayments
of graduated-payment mortgages differs somewhat from that of conventional
mortgages, the prepayment experience of graduated-payment mortgages is basically
the same as that of the conventional mortgages of the same maturity dates over
the life of the pool. During periods of declining interest rates, prepayment of
mortgages underlying mortgage-backed securities can be expected to accelerate.
When the mortgage obligations are prepaid, the Funds reinvest the prepaid
amounts in securities whose yields reflect interest rates prevailing at the
time. Therefore, each Fund's ability to maintain high-yielding, mortgage-backed
securities in its portfolio will be adversely affected to the extent that
prepayments of mortgages must be reinvested in securities which have lower
yields than the prepaid mortgages. Moreover, prepayments of mortgages which
underlie securities purchased at a premium could result in capital losses.
Each Fund may also purchase or sell U.S. government securities (including GNMA,
FNMA, and FHLMC certificates) on a when-issued or delayed delivery basis (known
generally as forward commitments). Delayed delivery or when-issued transactions
arise when securities are purchased or sold by a Fund with payment and delivery
taking place in the future in order to secure what is considered to be an
advantageous price and yield to the Fund at the time of entering into the
transaction. However, the yield on a comparable security available when delivery
takes place may vary from the yield on the security at the time that the
when-issued or delayed delivery transaction was entered into. When the Fund
engages in delayed delivery or when-issued transactions, it relies on the seller
or buyer, as the case may be, to consummate the transaction. Failure to
consummate the transaction may result in a missed opportunity by the Fund to
obtain a price or yield considered to be advantageous. When-issued and delayed
delivery transactions may be expected to settle within three months from the
date the transactions are entered into. No payment or delivery, however, is made
by the Fund until it receives delivery or payment from the other party to the
transaction.
Neither fund currently intends to invest more than 35% of its assets in debt
securities rated lower than investment grade.
BOND & STOCK
The investment objective and policies of the Fund are described in the
prospectus. The Fund endeavors to function as a conservative, well-rounded,
investment account with the long-range objectives of: (1) continuity of income;
(2) conservation of principal; and (3) long-term growth of principal and income.
Investments in bonds and preferred stocks are made with the objectives of
continuity of income and conservation of principal. Investments in common stocks
and convertible bonds are made with the objective of long-term growth of
principal and income. The proportion of each will vary because management will
make such changes from time to time as it believes necessary to meet the
objectives of the Fund and the best interests of the shareholders. At least 25%
of its assets will be invested in fixed income senior securities. Investments
are diversified among industries as well as among individual companies.
Depending on market conditions, the Fund may also invest in mortgage-backed
securities including those on a forward commitment basis, and repurchase
agreements, as well as write covered call options.
The average ratings of all debt securities held by the Fund, expressed as a
percentage of total assets, during the fiscal year ended October 31, 1995 is
presented below:
Percentage of Average
S&P Rating Total Assets
---------- ------------
AAA (or US Treasury) 12%
AA 2
A 3
BBB 11
BB 2
B 4
Not Rated 5
GROWTH & INCOME
The investment objective and policies of the Fund are described in the
prospectus. The Fund aims to achieve long-term growth of principal with current
income a secondary consideration. It pursues its objective by placing emphasis
on the selection and ownership of common stocks (although the Fund may also
invest in bonds, preferred stocks, U.S. Treasury bills, certificates of deposit,
mortgage-backed securities including those on a forward commitment basis, and
repurchase agreements, as well as write covered call options). There may be
times when it appears prudent to reduce the proportion of common stocks held.
During such periods, the investment in the above-noted alternative instruments
may exceed that of common stocks.
NORTHWEST
The investment objective and policies of the Fund are described in the
prospectus and are extended below. Portfolio investments are adjusted in
accordance with management's evaluation of changing market risks and economic
conditions. Such changes are made as management believes necessary to meet the
objectives of the Fund and the best interest of shareholders.
The Fund's investment objective is to provide long-term growth of capital by
investing in common stocks of companies doing business or located in the
Northwest region (Alaska, Idaho, Montana, Oregon, and Washington). Under normal
circumstances, at least 65% of its assets will be invested in companies whose
principal executive offices are located in these states.
INVESTMENT RESTRICTIONS
While many of the decisions of the Adviser depend on flexibility, there are
several principles so fundamental to each Fund's philosophy that neither they,
nor the investment objective, may be changed without a vote of a majority of the
outstanding shares of that Fund.
Each Fund may NOT:
o invest more than 5%* of its total assets in securities of any single issuer,
other than U.S. government securities, except that up to 25% of a Fund's
assets may be invested without regard to this 5% limitation;
o acquire more than 10%* of the voting securities of any one company;
o invest in any company for the purpose of management or exercising control;
o invest in real estate (except publicly traded real estate investment
trusts);
o invest in commodities;
o invest in oil, gas or other mineral leases;
o invest in other investment companies (except as part of a merger);
o invest more than 20%* of its total assets in forward commitments or
repurchase agreements;
o invest more than 25%* of its total assets in any single industry;
o act as underwriter of securities issued by others;
o borrow money for investment purposes (it may borrow up to 5% of its total
net assets for emergency, non-investment purposes);
o lend money (except for the execution of repurchase agreements);
o issue senior securities;
o buy or sell options, with the exception of covered call options which must
be limited to 20% of total assets;
o buy or sell futures-related securities;
o invest in securities restricted under federal securities laws;
o invest more than 15%* of its net assets in illiquid securities;
o buy securities on margin, mortgage or pledge its securities, or engage in
"short" sales;
o invest more than 5%* of its net assets in warrants including not more than
2% of such net assets in warrants that are not listed on either New York
Stock Exchange or American Stock Exchange; however, warrants acquired in
units or attached to securities may be deemed to be without value for the
purpose of this restriction;
o invest more than 25%* of its total assets in foreign securities and then
only in U.S dollar-denominated foreign securities.
* Percentage at the time the investment is made.
PERFORMANCE INFORMATION
Total returns quoted in advertising include the effect of applicable sales
charges, reinvesting dividends and capital gain distributions (at net asset
value), and any change in net asset value per share over the period. Total
returns will be quoted for each class of shares in any advertisement presenting
the total return of either class. The following total returns reflect the
maximum 4.5% initial sales charge for Class A shares and the contingent deferred
sales charge appropriate to the period for Class B shares.
Average annual total returns are calculated by determining the change in value
of a hypothetical investment over a stated period of time and then calculating
the annual compounded rate of return that would have produced the same result
had the rate of growth or decline in value been constant over the entire period.
Cumulative total return is the simple change in value of a hypothetical
investment over a stated period of time. The cumulative total return may be
quoted as a percentage or a dollar amount and may be presented numerically or in
a table, graph, or similar illustration.
Northwest operated as a passively managed fund, to reflect the Northwest 50(R)
Index, during the periods presented. Shareholders authorized the Adviser to
fully manage the Fund on December 15, 1995.
PERIODS ENDED OCTOBER 31, 1995
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
AVERAGE ANNUAL TOTAL RETURN
- ---------------------------
Bond & Stock, Class A 17.04% 12.61% 10.06%
Bond & Stock, Class B 18.60% 12.72%**
Growth & Income, Class A 15.43% 15.21% 11.28%
Growth & Income, Class B 16.95% 14.68%**
Northwest, Class A 16.77% 16.19% 13.05%*
Northwest, Class B 18.25% 10.43%**
CUMULATIVE TOTAL RETURN
- -----------------------
Bond & Stock, Class A 17.04% 81.11% 160.68%
Bond & Stock, Class B 18.60% 20.95%**
Growth & Income, Class A 15.43% 103.00% 191.30%
Growth & Income, Class B 16.95% 24.31%**
Northwest, Class A 16.77% 111.77% 198.60%*
Northwest, Class B 18.25% 17.08%**
* SINCE 11/86 (LIFE OF FUND)
**CLASS B SHARES' TOTAL RETURNS FROM THE COMMENCEMENT OF PUBLIC OFFERING ON
MARCH 30, 1994.
The total returns are calculated as follows:
Average annual total return: ERV = P(1+A)n
Cumulative total return (as a percentage): T = (ERV-P)/P
Where:
P = a hypothetical initial investment of $1,000
A = average annual total return
T = total return
n = number of years
ERV = ending redeemable value of a $1,000 hypothetical investment
COMPARATIVE PERFORMANCE DATA
Fund literature may occasionally refer to information about the Fund which is
published by mutual funds rating services. Comparisons of fund performance may
be made to various market, economic or to other indices. Industry publications
may also be referred to from time to time.
BROKERAGE ALLOCATIONS AND PORTFOLIO TRANSACTIONS
Under terms of the Investment Management Agreements, Composite Research &
Management Co. acts as agent for each Fund in entering orders with
broker-dealers to execute portfolio transactions and in negotiating commission
rates where applicable. Decisions as to eligible broker-dealers are approved by
the president of the Funds.
The primary consideration in all portfolio transactions is to seek the most
favorable price and execution and to deal directly with primary market makers in
over-the-counter transactions except when, in the Adviser's opinion, an equal or
better market exists elsewhere.
In executing portfolio transactions and selecting brokers or dealers, the
Adviser shall use its best efforts to seek, on behalf of each Fund, the best
overall terms available. In assessing the best overall terms available for any
transaction, the Adviser may consider all factors it deems relevant, including
the breadth of the market in the security, the price of the security, the
financial condition and execution capability of a broker or dealer, and the
reasonableness of the commission, if any, both for the specific transaction and
on a continuing basis. In evaluating the best overall terms available, and in
selecting the broker or dealer to execute a particular transaction, the Adviser
also may consider the brokerage and research services (as those terms are
defined in Section 28(e) of the Securities Exchange Act of 1934, as amended)
provided to the Fund and/or other accounts over which the Adviser exercises
investment discretion. The Adviser is authorized to pay to a broker or dealer
who provides such brokerage and research services a commission for executing a
portfolio transaction for the Fund. This commission may be in excess of the
amount of commission another broker or dealer would have charged for effecting
the transaction if the Adviser determines in good faith that such commission was
reasonable in relation to the value of the brokerage and research services
provided by such broker or dealer, viewed in terms of that particular
transaction or in terms of the overall responsibilities of the Adviser to each
Fund.
The Adviser estimates that all portfolio transactions during the year were
executed by broker-dealers who provided research services to the Adviser. The
Adviser has advised that it is not possible to place a value on their services
and that research services received do not materially reduce the cost to the
Adviser of fulfilling its contract.
Total Brokerage Commissions Paid by each Fund:
<TABLE>
<CAPTION>
Bond & Stock Growth & Income Northwest
------------ --------------- ---------
<S> <C> <C> <C>
1995 $137,742 $163,180 $37,280
1994 $176,662 $115,573 $76,990
1993 $131,951 $189,257 $37,487
</TABLE>
None of the brokers with whom the Funds deal have any interest in the Adviser or
the Distributor. The Distributor did not execute any portfolio orders for the
Funds during the fiscal year, nor did the Distributor or the Adviser receive any
direct or indirect compensation as a result of portfolio transactions of the
Funds. Shares may be sold by brokers who execute portfolio transactions for the
Fund; however, no brokerage fees will be allocated for such sales.
The Funds do not trade in securities for short-term profits but, if the
circumstances warrant, securities may be sold without regard to the length of
time held. Therefore, the Funds cannot accurately predict their portfolio
turnover rate. The turnover rates for the fiscal years 1995 and 1994 were 32%
and 25%, respectively, for Bond & Stock; 39% and 34% , respectively, for Growth
& Income; and 11% and 11%, respectively, for Northwest.
GENERAL INFORMATION
ORGANIZATION AND AUTHORIZED CAPITAL
Composite Bond & Stock Fund, Inc. was incorporated under the laws of the state
of Washington on June 22, 1939, under a certificate of incorporation granting
perpetual existence. The Fund has an authorized capitalization of 300 million
shares of capital stock, $0.0005 par value.
Composite Equity Series, Inc. (formerly Composite Growth Fund, Inc.)was
incorporated under the laws of the state of Washington on August 10, 1949, under
a certificate of incorporation granting perpetual existence with an authorized
capitalization of 40 million shares of capital stock, $0.0001 par value.
The Northwest Fund, Inc. (formerly Composite Northwest 50 Fund, Inc.) was
incorporated under the laws of the state of Washington on May 27, 1986, as the
Composite Select Fund, Inc., under a certificate of incorporation granting
perpetual existence. The Fund has an authorized capitalization of 10 billion
shares of capital stock, $.00001 par value.
Each Fund offers two classes of shares. Each class of shares represents
interests in the assets of the Fund. The shares do not have preemptive rights,
and none of the shares have any preference to conversion, exchange, dividends,
retirements, liquidation, redemption or any other feature. Class B shares
convert to Class A shares six years after purchase, exchanges are restricted to
shares of the same class, and each class bears different expenses related to
their distribution. Shares have equal voting rights except that each class has
exclusive voting rights with respect to provisions of each Fund's Distribution
Plan that pertains to a particular class.
VOTING PRIVILEGES
The Funds are not required to hold annual meetings. When meetings are called, a
shareholder may exercise cumulative voting privileges for the election of
directors under Washington state law. Using this privilege, shareholders are
entitled to one vote per share for each director candidate. The total number of
votes for directors to which a shareholder is entitled may be accumulated and
cast for each candidate in such proportion that the shareholder may designate.
CUSTODIAN
The securities and cash owned by each Fund are held in safekeeping by Investors
Fiduciary Trust Company (IFTC), 127 West 10th, Kansas City, MO 64105. IFTC is a
wholly owned subsidiary of State Street Bank., The custodian's responsibilities
include collecting dividends, interest and principal payments on each Fund's
investments.
INDEPENDENT PUBLIC ACCOUNTANTS
The firm of LeMaster & Daniels, Certified Public Accountants, has been selected
as the independent public accountants of each Fund. LeMaster & Daniels performs
audit services for each Fund including the examinations of the financial
statements included in annual reports to shareholders which are incorporated by
reference into this Statement of Additional Information.
REGISTRATION STATEMENT
This Statement of Additional Information and the prospectus do not contain all
of the information set forth in the registration statements each Fund has filed
with the Securities & Exchange Commission. Complete registration statements may
be obtained from the Securities & Exchange Commission upon payment of the fee
prescribed by the rules and regulations of the Commission.
FINANCIAL STATEMENTS AND REPORTS
Semiannual reports are issued, one of which shall be an annual summary audited
and certified by independent public accountants.
The Funds' financial statements and schedules for fiscal year 1995 appear in
their annual report to shareholders dated October 31, 1995, which may be
obtained without charge by contacting the Funds' offices.
<PAGE>
<TABLE>
<CAPTION>
APPENDIX A
SPECIMEN PRICE MAKE-UP SHEET
COMPOSITE BOND & STOCK FUND, INC.
COMPOSITE EQUITY SERIES, INC. (GROWTH & INCOME FUND)
COMPOSITE NORTHWEST 50 FUND, INC.
October 31, 1995
GROWTH &
BOND & STOCK INCOME NORTHWEST
------------ ------------ ------------
<S> <C> <C> <C>
Assets $216,747,218 $141,393,935 $165,440,336
Liabilities 783,386 1,892,998 404,050
------------ ------------ ------------
Net Assets $215,963,932 $139,500,937 $165,036,286
============ ============ ============
CLASS A SHARES
Net Assets $208,591,929 $130,629,739 $157,953,013
Shares Outstanding 15,477,791 8,919,303 9,075,219
------------ ------------ ------------
Net Asset Value Per Share $13.48 $14.65 $17.40
============ ============ ============
Maximum Offering Price
(Net Asset Value
Per Share / 955/1000 ) $14.12 $15.34 $18.22
============ ============ ============
CLASS B SHARES
Net Assets $ 7,372,003 $ 8,871,198 $ 7,083,273
Shares Outstanding 547,270 608,089 409,275
------------ ------------ ------------
Net Asset Value Per Share $13.47 $14.59 $17.31
============ ============= ============
</TABLE>
<PAGE>
APPENDIX B
DESCRIPTION OF SECURITY RATINGS
MOODY'S INVESTORS SERVICE, INC. (MOODY'S)
Corporate and Municipal Ratings
Aaa:Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than
in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa:Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack out- standing investment
characteristics and in fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterize bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
Caa:Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
STANDARD & POOR'S CORPORATION (S & P)
Corporate and Municipal Ratings
AAA:Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only to a small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated
categories.
BBB:Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher rated categories.
BB, B, CCC, CC, C: Debt rated BB, B, CCC, CC, and C is regarded, on balance as
predominantly speculative with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest.
While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major
exposures to adverse conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
The BB rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied BBB rating.
B: Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating.
CCC:Debt rated CCC has a currently identifiable vulnerability to default and is
dependent upon favorable business, financial, or economic conditions to meet
timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The CCC rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior debt that
is assigned an actual or implied CCC rating.
C: The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used
to cover a situation where a bankruptcy has been filed but debt service
payments are continued.
CI: The rating CI is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition of debt service payments are
jeopardized.
COMMERCIAL PAPER
A1 and Prime 1 commercial paper ratings issued by Moody's Investors Services,
Inc. (Moody's) and Standard & Poor's Corporation (S&P) are the highest ratings
these corporations issue.
Among factors considered by Moody's in assigning ratings are the following: (1)
evaluation of the management of the issuer; (2) economic evaluation of the
issuer's industry or industries and an appraisal of speculative-type risks which
maybe inherent in certain areas; (3) evaluation of the issuer's products in
relation to competition and customer acceptance; (4) liquidity; (5) amount and
quality of long-term debt; (6) trend of earnings over a period of ten years; (7)
financial strength of a parent company and the relationships which exist with
the issuer; and (8) recognition by the management of obligations which may be
present or may arise as a result of public interest questions and preparation to
meet such obligations.
Commercial paper rated A1 by S&P has the following characteristics: Liquidity
ratios are adequate to meet cash requirements. Long-term senior debt is rated A
or better. The issuer has access to at least two additional channels of
borrowing. Basic earnings and cash flow have an upward trend with allowance made
for unusual circumstances. Typically, the issuer's industry is well established
and the issuer has a strong position within the industry. The reliability and
quality of management are unquestioned. Relative strength or weakness of the
above factors determine whether the issuer's commercial paper is rated A1, A2 or
A3.
ABSENCE OF RATING:
Where no rating has been assigned or where a rating has been suspended or
withdrawn, it may be for reasons unrelated to quality of the issue. Should no
rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not rated as a
matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published.
<PAGE>
PART C
OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements. The annual report to shareholders dated October
31, 1995, was filed with the Securities and Exchange Commission on December 15,
1995. The annual report is incorporated by reference in both Parts B and C.
Filing Date
(b) Exhibits Incorporated With Filed
---------------- ----------------- -----
(1) Articles of Incorporation Form N-SAR 6-22-94
(as amended)
(2) Bylaws Form N-1A 2-28-95
(3) Voting Trust Agreement INAP
(4) Specimen Capital Stock
Certificate Form N-1A 2-19-85
(5) Investment Advisory Contract Form N-SAR 6-22-94
(6a) Distribution Contract Form N-1A 2-28-95
(6b) Specimen Selling Agreement Form N-1A 1-18-94
(7) Bonus, profit sharing, pension
or other similar contracts
for benefit of directors or
officers of the Registrant INAP
(8) Custodial Agreement Form N-1A 1-18-94
(9) Shareholders Service Contract Notice of Annual 12-19-84
Meeting of
Shareholders
(10) Opinion & Consent of Counsel Form N-1A 1-4-96
(11) Accountants' Consent Form N-1A 1-4-96
(12) All financial statements
omitted from Item 23.
Annual Report Form N-1A 2-28-95
(13) Agreements or understandings
made in consideration
for providing initial
capital. Form N-8B-1 8-13-41
(14) Retirement Plan and Forms Form N-8B-1 1-22-85
(15) 12b-1 Plan Notice of Annual 12-29-82
Meeting of
Shareholders
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
The Registrant is operated under the supervision of Composite Research &
Management Co. Composite Research is affiliated with Murphey Favre, Inc. and
Murphey Favre Securities Services, Inc. through common ownership and management.
Murphey Favre serves as principal underwriter and distributor for the
Registrant. Murphey Favre Securities Services serves as transfer agent for the
Registrant. Composite Research, Murphey Favre, and Murphey Favre Securities
Services serve in their same capacities for the seven other investment companies
within the Composite Group of Funds, namely: Composite Income Fund, Inc.;
Composite Tax- Exempt Bond Fund, Inc.; Composite Cash Management Company;
Composite Northwest Fund, Inc.; Composite U.S. Government Securities, Inc.;
Composite Equity Series, Inc.; and Composite Deferred Series, Inc. Composite
Research & Management Company, Murphey Favre, and Murphey Favre Securities
Services are all wholly-owned subsidiaries of Washington Mutual, Inc. All
companies' names are incorporated in the State of Washington.
Item 26. NUMBER OF HOLDERS OF SECURITIES.
As of December 22, 1995, there were 11,858 Class A shareholders and 729 Class
B shareholders.
Item 27. INDEMNIFICATION.
Registrant shall have the power to indemnify any director, officer or former
director or officer of the Corporation, or any person who may have served at the
Corporation's request as a director or officer of another corporation, against
expenses actually and reasonably incurred by such person in connection with the
defense of any action, suit or proceeding, civil or criminal, in which he
becomes a party by reason of being or having been such director or officer, to
the full extent permitted by the laws of the State of Washington, as such laws
at any time may be in force and effect, provided however, that this
indemnification provision shall not protect, or purport to protect, any director
or officer of the corporation against any liability to the corporation or to the
shareholders to which he otherwise would be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of this office.
Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Registrant's Investment Adviser is Composite Research & Management Co., a
wholly-owned subsidiary of Washington Mutual, Inc., which is a Washington
corporation, organized in 1889. The Adviser serves in that capacity for seven
(7) other investment companies with the Composite Group of Funds identified in
Item 25.
Business and other connections of the Investment Adviser were most recently
filed on Form ADV, Securities and Exchange Commission File No. 801-4855, which
was mailed on August 9, 1995, and is incorporated herein by reference.
Item 29. PRINCIPAL UNDERWRITERS.
The principal underwriter for the Registrant is Murphey Favre which also serves
in the same capacity for seven (7) other investement companies identified in
Item 25.
Business and other connections of the underwriter were most recently filed on
Form BD, CRD 599, with the National Association of Securities Dealers on October
25, 1995 and are incorporated herein by reference.
Item 30. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940 and the rules thereunder will be
maintained at the offices of the Registrant at 601 West Main Avenue, Suite 801,
Spokane, Washington 99201. The Registrant's custodian activities are performed
at Investors Fiduciary Trust Company (IFTC), 127 West 10th, Kansas City, MO
64105.
Item 31. MANAGEMENT SERVICES.
Registrant is not a party to any management related service contract, other than
as set forth in the Prospectus.
Item 32C. UNDERTAKINGS.
The management discussion of fund performance required by Item 5A is contained
in the 10/31/95 annual report to shareholders which will be provided to each
person to whom a prospectus is delivered, upon request and without charge.
<PAGE>
SIGNATURES
FORM N-1A
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Spokane, and State of Washington
on the 28 day of November, 1995.
COMPOSITE BOND & STOCK FUND, INC.
--------------------------------
Registrant
[SEAL]
By:/s/ William G. Papesh
------------------------
ATTEST: William G. Papesh
/s/ John T. West President
- -----------------------------
John T. West, CPA /s/ Monte D. Calvin
Secretary ------------------------
Monte D. Calvin, CPA
Principal Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities on
the date indicated:
/s/ Wayne L. Attwood November 28, 1995
- -------------------------------------------
Wayne L. Attwood, Director (Date)
/s/ Kristianne Blake November 28, 1995
- -------------------------------------------
Kristianne Blake, Director (Date)
/s/ Anne V. Farrell November 28, 1995
- -------------------------------------------
Anne V. Farrell, Director (Date)
/s/ Edwin J. McWilliams November 28, 1995
- -------------------------------------------
Edwin J. McWilliams, Director (Date)
/s/ Michael K. Murphy November 28, 1995
- -------------------------------------------
Michael K. Murphy, Director (Date)
/s/ William G. Papesh Novewmber 28, 1995
- -------------------------------------------
William G. Papesh, Director (Date)
/s/ Jay Rockey November 28, 1995
- -------------------------------------------
Jay Rockey, Director (Date)
/s/ Leland J. Sahlin November 28, 1995
- -------------------------------------------
Leland J. Sahlin, Director (Date)
/s/ Richard C. Yancey November 28, 1995
- -------------------------------------------
Richard C. Yancey, Director (Date)
EXHIBIT 10
December 28, 1995
COMPOSITE BOND & STOCK
FUND INC
601 W MAIN AVE STE 801
SPOKANE WA 99201-0694
Gentlemen:
We hereby consent to the use of our written opinion dated December 28, 1995,
upon the validity of the organization of Composite Bond & Stock Fund, Inc., and
upon the designation of authorized capital stock of said company in the Articles
of Incorporation as an exhibit to the amendments to the Registration Statement
now being filed with the Securities and Exchange Commission and any Prospectus
relating to the proposed offer and sale of the capital stock of the corporation.
Very truly yours,
PAINE, HAMBLEN, COFFIN,
BROOKE & MILLER LLP
/s/ Lawrence R. Small
Lawrence R. Small
<PAGE>
EXHIBIT 10
December 28, 1995
Composite Bond & Stock Fund, Inc.
Third Floor
Washington Mutual Building
601 W. Main Avenue
Spokane, WA 99201
Gentlemen:
In connection with an amendment to the Registration Statement now being filed by
your company with the Securities and Exchange Commission relating to an offering
of shares of common stock, we certify that, as attorneys for this corporation,
we have examined the corporate proceedings relating to its incorporation, the
Bylaws, the Distributor and Management Contracts, and such other matters and
documents as we deem necessary. It is our opinion that:
(a) Composite Bond and Stock Fund, Inc. is a corporation duly incorporated and
existing under the laws of the State of Washington, with an authorized
capital stock in the aggregate amount of $150,000.00 consisting of
300,000,000 shares of common stock with 200,000,000 shares denominated as
Class A and 100,000,000 shares denominated as Class B; the par value is
$.0005 per share with all shares having equal voting rights.
(b) All of the 300,000,000 shares have been validly and legally authorized to be
issued by proper corporate action and in conformity with the laws of the
State of Washington applicable thereto. Such authorized shares, upon their
issuance, will be for proceeds to the company of not less than the net asset
value of such shares at the time of sale after adjusting to the nearer full
cent, and will be fully paid and nonassessable.
Very truly yours,
PAINE, HAMBLEN, COFFIN,
BROOKE & MILLER
/s/ Lawrence R. Small
Lawrence R. Small
EXHIBIT 11
ACCOUNTANTS' CONSENT TO USE OF CERTIFICATE
AND FINANCIAL STATEMENTS
We hereby consent to the incorporation by reference into the Prospectus and
Statement of Additional Information in Post-Effective Amendment No. 64 to the
Registration Statement on Form N-1A of Composite Bond & Stock Fund, Inc., of our
report dated November 21, 1995, on the financial statements and financial
highlights included in the October 31, 1995 Annual Report to Shareholders of
Composite Bond & Stock Fund, Inc. We further consent to the reference to our
Firm under the headings "Financial Highlights" in the Prospectus and
"Independent Public Accountants" in the Statement of Additional Information.
/s/ LeMaster & Daniels, PLLC
LeMaster & Daniels, PLLC
Spokane, Washington
November 21, 1995
<PAGE>
EXHIBIT 11
INDEPENDENT PUBLIC ACCOUNTANTS' REPORT
To the Board of Directors and Shareholders of:
Composite Bond & Stock Fund, Inc.
Composite Growth & Income Fund, Inc.
Composite Northwest 50 Fund, Inc.
We have audited the accompanying statements of assets and liabilities of
Composite Bond & Stock Fund, Inc., Composite Growth & Income Fund, Inc., and
Composite Northwest 50 Fund, Inc., including the investment portfolios, as of
October 31, 1995, the related statements of operations for the year then ended,
and the related statements of changes in net assets for the years ended October
31, 1995 and 1994. For Composite Growth & Income Fund, Inc. and Composite
Northwest 50 Fund, Inc., we have audited the financial highlights for each of
the five years in the period ended October 31, 1995. For Composite Bond & Stock
Fund, Inc., we have audited the financial highlights for each of the five fiscal
years in the period ended October 31, 1995. 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 October
31, 1995, by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and the financial highlights referred
to above present fairly, in all material respects, the financial position of
Composite Bond & Stock Fund, Inc., Composite Growth & Income Fund, Inc., and
Composite Northwest 50 Fund, Inc., as of October 31, 1995, 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.
/s/ LeMaster & Daniels
Certified Public Accountants
Spokane, Washington
November 21, 1995
<PAGE>
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EXHIBIT INDEX
- --------------------------------------------------------------------------------
EX-99.B10 OPINION & CONSENT OF COUNSEL
EX-99.B11 ACCOUNTANT'S CONSENT
EX-27.CLASS A FINANCIAL DATA SCHEDULE - CLASS A
EX-27.CLASS B FINANCIAL DATA SCHEDULE - CLASS B
- --------------------------------------------------------------------------------
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S ANNUAL REPORT AND FORM N-SAR WHICH ARE ON FILE WITH THE SECURITIES
AND EXCHANGE COMMISSION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
DOCUMENTS.
</LEGEND>
<CIK> 0000200159
<NAME> COMPOSITE BOND & STOCK FUND, INC.
<SERIES>
<NUMBER> 001
<NAME> CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 180,908,185
<INVESTMENTS-AT-VALUE> 214,955,411
<RECEIVABLES> 1,737,460
<ASSETS-OTHER> 54,347
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 216,747,218
<PAYABLE-FOR-SECURITIES> 466,050
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 317,236
<TOTAL-LIABILITIES> 783,286
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 175,878,941
<SHARES-COMMON-STOCK> 15,477,791
<SHARES-COMMON-PRIOR> 15,422,171
<ACCUMULATED-NII-CURRENT> 933,742
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 5,104,023
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 34,047,226
<NET-ASSETS> 215,963,932
<DIVIDEND-INCOME> 4,590,852
<INTEREST-INCOME> 5,246,073
<OTHER-INCOME> 0
<EXPENSES-NET> (2,035,487)
<NET-INVESTMENT-INCOME> 7,801,438
<REALIZED-GAINS-CURRENT> 5,091,453
<APPREC-INCREASE-CURRENT> 27,020,438
<NET-CHANGE-FROM-OPS> 39,913,329
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (7,611,297)
<DISTRIBUTIONS-OF-GAINS> (1,345,096)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,549,537
<NUMBER-OF-SHARES-REDEEMED> (3,397,944)
<SHARES-REINVESTED> 701,393
<NET-CHANGE-IN-ASSETS> 20,987,074
<ACCUMULATED-NII-PRIOR> 885,666
<ACCUMULATED-GAINS-PRIOR> 1,382,200
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,230,409
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,035,487
<AVERAGE-NET-ASSETS> 197,404,886
<PER-SHARE-NAV-BEGIN> 11.530
<PER-SHARE-NII> 0.500
<PER-SHARE-GAIN-APPREC> 2.020
<PER-SHARE-DIVIDEND> (0.490)
<PER-SHARE-DISTRIBUTIONS> (0.080)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 13.480
<EXPENSE-RATIO> 1.020
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S ANNUAL REPORT AND FORM N-SAR WHICH ARE ON FILE WITH THE SECURITIES
AND EXCHANGE COMMISSION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
DOCUMENTS.
</LEGEND>
<CIK> 0000200159
<NAME> COMPOSITE BOND & STOCK FUND, INC.
<SERIES>
<NUMBER> 002
<NAME> CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 180,908,185
<INVESTMENTS-AT-VALUE> 214,955,411
<RECEIVABLES> 1,737,460
<ASSETS-OTHER> 54,347
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 216,747,218
<PAYABLE-FOR-SECURITIES> 466,050
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 317,236
<TOTAL-LIABILITIES> 783,286
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 175,878,941
<SHARES-COMMON-STOCK> 547,270
<SHARES-COMMON-PRIOR> 338,780
<ACCUMULATED-NII-CURRENT> 933,742
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 5,104,023
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 34,047,226
<NET-ASSETS> 215,963,932
<DIVIDEND-INCOME> 4,590,852
<INTEREST-INCOME> 5,246,073
<OTHER-INCOME> 0
<EXPENSES-NET> (2,035,487)
<NET-INVESTMENT-INCOME> 7,801,438
<REALIZED-GAINS-CURRENT> 5,091,453
<APPREC-INCREASE-CURRENT> 27,020,438
<NET-CHANGE-FROM-OPS> 39,913,329
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (142,065)
<DISTRIBUTIONS-OF-GAINS> (24,534)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 277,347
<NUMBER-OF-SHARES-REDEEMED> (34,621)
<SHARES-REINVESTED> 12,463
<NET-CHANGE-IN-ASSETS> 20,987,074
<ACCUMULATED-NII-PRIOR> 885,666
<ACCUMULATED-GAINS-PRIOR> 1,382,200
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,230,409
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,035,487
<AVERAGE-NET-ASSETS> 197,404,886
<PER-SHARE-NAV-BEGIN> 11.510
<PER-SHARE-NII> 0.390
<PER-SHARE-GAIN-APPREC> 2.030
<PER-SHARE-DIVIDEND> (0.380)
<PER-SHARE-DISTRIBUTIONS> (0.080)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.470
<EXPENSE-RATIO> 1.840
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
