ECONOMIC AND INTEREST RATE OUTLOOK
FUNDS' INVESTMENT HIGHLIGHTS
FUNDS' PORTFOLIOS
FINANCIAL INFORMATION
INDEPENDENT PUBLIC ACCOUNTANTS' REPORT
FINANCIAL STATEMENTS
FINANCIAL HIGHLIGHTS
NOTES TO FINANCIAL STATEMENTS
MORE ABOUT THE COMPOSITE GROUP
PRESIDENT'S MESSAGE
[PHOTO, WILLIAM PAPESH, PRESIDENT, COMPOSITE FUNDS]
Without doubt, 1995 can best be characterized as a year of joy for
fixed-income investors. All sectors of the bond market - U.S. government,
corporate, and municipals - experienced dramatically improved results. This came
as a welcome turnaround from the one-year unprecedented decline experienced by
those markets in 1994.
Investors in Composite Group's three bond funds were well rewarded for
their patience and long-term approach to investing. For the year ended December
31, 1995, total returns (including reinvestment of dividends and capital gains)
to Class A shareholders were 19.45% from Composite U.S. Government Securities,
21.58% from Composite Income Fund, and 18.25% from Composite Tax-Exempt Bond
Fund. These returns do not include the initial sales charge. For a more complete
discussion of performance, you'll want to read the Investment Highlights section
of this report which includes returns to Class B shareholders and the effect of
maximum sales charges to both classes.
A question I'm always asked on the heels of an eminently successful year is
whether or not we can do it again. Will the performance of 1996 mirror that of
1995? It's a question I can't answer with precision and neither can anyone else.
Right now, I'd have to say no. While I have positive feelings about the bond
markets in the years ahead, I remind you that the past two years were periods of
substantial market volatility: downward in 1994 and upward in 1995. And
generally speaking, extremes in market direction don't last for extended
periods.
One other thing to keep in mind is that, as good as they are, Composite
Group portfolio managers do not and cannot create the economic conditions that
drive markets one way or the other. What they can do, however, is anticipate
direction and attempt to capitalize on the potential that exists at the time.
While future performance cannot be guaranteed, their decisions are always based
on individual fund investment objectives and prudence in portfolio selection for
long-term investment opportunity.
In working to help meet your financial goals, the management of risk is of
fundamental importance. Our job is to stay attentive to such factors as credit
and interest rate risk and reduce it through the development of a diversified
portfolio of securities. But shareholders have a stake in the management of risk
over which we have no control. It is reinvestment risk, and in today's
environment it attaches itself primarily to money market funds and bank
certificates of deposit. If you are currently invested in these instruments and
look to them primarily for the production of LONG-TERM income, you may wish to
shift some of those assets into one of our bond funds. While this could work to
your advantage, please keep in mind that although CD returns may be less than
what you'd like, their rates are fixed and accounts are FDIC-insured.
Despite the inevitability of shorter-range market change, we believe our
income funds remain well suited for the long-term investor. By all means, be
sure to consult with your investment representative if you have questions
concerning the funds or if you are contemplating a change in your personal
investment objectives.
/s/ William G. Papesh
WILLIAM G. PAPESH
PRESIDENT
<PAGE>
ECONOMIC & INTEREST RATE OUTLOOK
Although buffeted by a host of challenges, the U.S. economy ended 1995 in
relatively sound condition. Some early indicators suggest that 1996, however,
could be a year of diminished strength with economic growth at a much slower
rate. Nonetheless, we are optimistic that progress will be made by Congress and
the Administration toward meaningful deficit reduction and this should provide a
foundation for moderated growth, stable to declining interest rates, and reduced
inflationary pressures for the next several years. These scenarios give us a
bullish long-term view of the potential for both bonds and stocks.
Near term, we do not anticipate securities to appreciate at the same pace
experienced this past year. History suggests we should be wary of simply
extrapolating recent events into the near future, especially after a virtually
unprecedented period of prosperity in the financial markets. While this could
cause concern for individuals who move in and out of the market, prudent
investors with long-term goals should remain diversified and stay the course.
Two positive trends support our contention that the years ahead should be
rewarding for investors. The first, an economic trend, is the continued control
of inflation. Although the yields of bonds are lower, we believe their real
returns (e.g. after inflation) will remain attractive in the years ahead given
the consensus that inflation will stabilize at under 3%. The second trend is one
of considerable demographic importance: the aging baby boom generation. As this
segment of the population moves through their 40's and alters their pattern of
consumption, they will be entering their peak earnings and savings years. Their
recognition that even larger proportions of their net worth need to be committed
to the financial markets should have positive effects not only on their
retirement goals, but should also stimulate the markets in general.
To be sure, there are other factors which contribute to market direction.
But in our view, the wise investor should continue to focus on the long term. As
pointed out in our semiannual report this past June, we continue to believe that
shareholders will be well-rewarded by owning investments in a diversified and
professionally managed portfolio of quality bonds in the years ahead.
COMPOSITE RESEARCH & MANAGEMENT CO.
INVESTMENT TEAM
- --------------------------------------------------------------------------------
FOOTNOTES TO INVESTMENT PERFORMANCE CHARTS ON PAGES 3, 4 & 5.
INVESTMENT RETURNS AND PRINCIPAL VALUES OF FUND SHARES WILL FLUCTUATE SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FUND SHARES ARE NOT GUARANTEED BY ANY AGENCY OF THE U.S.
GOVERNMENT.
COMPARISONS TO FUND PERFORMANCE ON THE FOLLOWING PAGES INCLUDE THE CONSUMER
PRICE INDEX (CPI), AS A MEASURE OF CHANGE IN CONSUMER PRICES, AND THE LEHMAN
BROTHERS GOVERNMENT (LBG), GOVERNMENT/CORPORATE (LGCB), AND MUNICIPAL BOND
INDICES (LMB), WHICH ARE CONSIDERED REPRESENTATIVE OF THE U.S. GOVERNMENT AND
CORPORATE, AND MUNICIPAL BOND MARKETS.
THESE INDICES ARE UNMANAGED AND DO NOT REFLECT ACTUAL INVESTMENT-RELATED
EXPENSES INCURRED BY THE FUNDS WITH WHICH THEY ARE COMPARED. AVERAGE ANNUAL
TOTAL RETURNS AND GRAPH VALUES INCLUDE CHANGES IN SHARE PRICE, AND REINVESTMENT
OF DIVIDENDS AND CAPITAL GAINS. UNLESS OTHERWISE INDICATED, ALL FUND PERFORMANCE
IS CALCULATED AFTER DEDUCTING THE MAXIMUM 4% SALES CHARGE FOR CLASS A SHARES,
AND MAXIMUM 3% CONTINGENT DEFERRED SALES CHARGE FOR CLASS B SHARES. FUND VALUES
PRESENTED IN THE GRAPHS ARE FOR CLASS A SHARES. CLASS B PERFORMANCE WOULD VARY
DUE TO DIFFERENT EXPENSES. CLASS B INFORMATION IS PRESENTED SINCE 3/30/94, THE
COMMENCEMENT OF THEIR OFFERING.
<PAGE>
INVESTMENT HIGHLIGHTS
COMPOSITE U.S. GOVERNMENT SECURITIES, INC.
Near perfect market conditions this past year as characterized by a slowing
economy, contained inflation, the expectation of fiscal austerity, and lower
interest rates combined to produce good news for investors. Shareholders of
Composite U.S. Government Securities, Inc. were rewarded with returns that
substantially outpaced inflation and overall were the best in nearly a decade.
And as indicated in the performance chart below, net asset value per share was
up as well.
The contrasts between the negative results of 1994 and the positive
achievements of 1995 provide an illustration of one of the tenets of long-term
investing: that of remaining invested throughout periods of market volatility.
Presently, the Fund is composed of 71% mortgage-backed securities: 42% in
fixed-rate Government National Mortgage Association (GNMA) securities, 10% in
adjustable-rate GNMAs, and 19% in collateralized mortgage obligations which are
backed by GNMAs. The remainder of the portfolio is invested predominantly in
Treasury notes and bonds. The Fund's heavy weighting in mortgage-backed
securities produces a high level of current income relative to other securities.
In exchange for this higher income, the holder of the mortgage security assumes
the risk that homeowners will prepay or refinance their mortgages. Normally the
refinancing occurs in a declining rate environment with the prepayment causing
the security holder to reinvest at lower rates. We continue to favor
mortgage-backed securities because of the belief that, with an intermediate to
long-term time horizon, more often than not the extra income far outweighs the
prepayment option. Additionally, by structuring a diverse portfolio and
continually searching for the best relative value in the market, we believe we
can prudently increase the yield to shareholders. As an example, throughout the
year in anticipation of falling interest rates, the Fund was heavily weighted in
adjustable-rate and lower-coupon mortgages which were well insulated from major
prepayments.
The Fund's average maturity was at the longer end of its intermediate range
for most of the year. This was clearly positive for shareholders, as it allowed
us to take advantage of the decline in interest rates this year.
While Fund shares themselves are not guaranteed by the U.S. government, the
Fund's objective is to provide a high level of current income consistent with
safety and liquidity. Portfolio investments are either direct obligations of or
guaranteed by the U.S. government, or collateralized by such securities. And
although we seek attractive returns, the Fund continues to avoid owning
extremely volatile mortgage derivative securities. Over time, we believe this
prudent approach to investing offers distinct benefits to shareholders.
[GRAPH]
<TABLE>
<CAPTION>
INVESTMENT PERFORMANCE - COMPOSITE U.S. GOVERNMENT SECURITIES
COMPARATIVE ENDING VALUES OF $10,000 INVESTED ON 12/31/85
Composite
U.S. Government Securities LGB CPI
Class A Shares (Bonds) (Inflation)
-------------------------- ------- -----------
<S> <C> <C> <C>
12/31/85 $ 9,600 $10,000 $10,000
$10,524 $11,531 $10,110
12/31/87 $10,813 $11,785 $10,558
$11,605 $12,613 $11,025
12/31/89 $13,148 $14,408 $11,537
$14,391 $15,663 $12,242
12/31/91 $16,509 $18,062 $12,617
$17,519 $19,368 $12,983
12/31/93 $18,942 $21,432 $13,339
$18,011 $20,709 $13,696
12/31/95 $21,514 $24,507 $14,044
Past performance cannot predict future results.
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
CLASS A WITH SALES WITHOUT SALES
SHARES CHARGE CHARGE
--------- ------------ ---------------
<S> <C> <C>
One Year 14.69% 19.45%
Five Years 7.50% 8.37%
Ten Years 7.97% 8.41%
CLASS B
SHARES
---------
One Year 15.48% 18.48%
Since 3/94 7.36% 8.97%
----------------------------------------------
30-DAY CURRENT YIELDS
Class A Shares 5.49%
Class B Shares 4.87%
----------------------------------------------
See footnotes on page 2 for additional information.
</TABLE>
<PAGE>
INVESTMENT HIGHLIGHTS
COMPOSITE INCOME FUND
Led by the bond market as a whole, Composite Income Fund produced
significant returns in 1995. A host of factors, including reduced government
spending, large domestic productivity gains, and slower worldwide economic
growth, were largely responsible for low inflation, falling interest rates and
stable to improving corporate credit-quality. This in turn produced overall
fixed income returns that were the best in almost a decade.
By combining an asset mix of principally corporate bonds, mortgage-backed
securities, and Treasury notes with an intermediate maturity profile (currently
12 years), the Fund seeks to accomplish its objectives of providing a high
level of current income consistent with protection of shareholders' capital.
The intermediate maturity profile of the Fund was especially beneficial
this year as it aided us in generating both substantially greater returns and an
increased net asset value per share. The higher income-producing positions in
the Fund (corporate bonds and mortgage-backed securities for example) provided
extra yield for shareholders while the diversification within those sectors
proved positive as the number of improving situations offset the laggards.
During the year the Fund upgraded credit-quality to Aa3/AA- as rated by
Moody's and Standard & Poor's, respectively. This level of credit-quality is at
the upper end of the Fund's spectrum. It is anticipated, however, that the
market over the next year will provide us an opportunity to capture potential
increases in yields from bonds with slightly lower credit-quality. In taking any
such action, we will continue to carefully evaluate risk/reward characteristics
of securities in our search for the best relative value.
Especially in times like this, we believe shareholders of Composite Income
Fund have an important advantage over investors who own only callable bonds.
Should the issuer elect to redeem its bonds before maturity, investors find it
difficult - if not impossible - to reinvest for similar returns. With
approximately 75% of the portfolio currently invested in non-callable bonds, the
Fund remains well structured to avoid the substantial risk of bonds being called
or refinanced in the lower rate environment we see ahead.
The Fund's adherence to its investment practices allows shareholders with
longer-term time horizons to survive the inevitable market corrections such as
experienced in 1994 and to participate in gains such as those provided this past
year. This, we submit, is the very essence of mutual fund investing. And it is
why Composite Income Fund continues to pursue a course designed to bring
long-term value to our shareholders.
[GRAPH]
<TABLE>
<CAPTION>
INVESTMENT PERFORMANCE - COMPOSITE INCOME FUND
COMPARATIVE ENDING VALUES OF $10,000 INVESTED ON 12/31/85
Composite Income Fund LGCB CPI
Class A shares (Bonds) (Inflation)
-------------------------- ------- -----------
<S> <C> <C> <C>
12/31/85 $ 9,600 $10,000 $10,000
$10,574 $11,562 $10,110
12/31/87 $11,210 $11,827 $10,558
$12,000 $12,723 $11,025
12/31/89 $12,811 $14,535 $11,537
$13,863 $15,739 $12,242
12/31/91 $16,260 $18,276 $12,617
$17,460 $19,662 $12,983
12/31/93 $19,350 $21,831 $13,339
$18,416 $21,065 $13,696
12/31/95 $22,389 $25,119 $14,044
Past performance cannot predict future results.
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
CLASS A WITH SALES WITHOUT SALES
SHARES CHARGE CHARGE
--------- ------------ ---------------
<S> <C> <C>
One Year 16.65% 21.58%
Five Years 9.16% 10.06%
Ten Years 8.39% 8.84%
CLASS B
SHARES
---------
One Year 17.70% 20.70%
Since 3/94 8.65% 10.25%
----------------------------------------------
30-DAY CURRENT YIELDS
Class A Shares 5.69%
Class B Shares 5.08%
----------------------------------------------
See footnotes on page 2 for additional information.
</TABLE>
<PAGE>
INVESTMENT HIGHLIGHTS
COMPOSITE TAX-EXEMPT BOND FUND
What a difference a year makes. In sharp contrast to the negative
performance of 1994, Composite Tax-Exempt Bond Fund's most recent 12-month
results were cause for celebration. For the year ended December 31, 1995 total
return to Class A shareholders was a VERY positive 18.25% without sales charges
and a STILL VERY positive 13.48% even after paying a maximum sales charge. The
30-day current yield was 4.15%. (For Class B shares the 1995 total return was
17.30% and 14.30%, respectively, with a 30-day current yield of 3.52%.)
At the end of a disappointing market in 1994 we extended the average
maturity of the Fund and thereby enhanced the performance when rates fell
dramatically in 1995. Since the end of 1994 the yield of the 15-year AAA
municipal bond has fallen 1.20% from 6.30% to 5.10%. Although yields look low,
we believe the municipal bond market at year-end offers outstanding value
relative to the taxable bond market.
First, some statistics. The Fund ended the year with a strong average
quality of Aa/AA, as measured by Moody's and Standard and Poor's, respectively,
and an average maturity of 12.8 years. Furthermore, 64% of the portfolio is
noncallable, which we believe compares quite favorably with other funds and
provides significant protection against the risk of reinvesting called bonds at
lower yields in an environment of declining rates.
Relative to treasuries, municipal bonds with long maturities are at some of
the most attactive levels of the past six years. At year-end the 15-year
AAA-rated noncallable municipal bond yield was 87% of the corresponding treasury
yield, implying an unlikely average future tax rate of only 13%. If the
investor's expected marginal tax rate is 28%, then the 5.10% yield of the
municipal bond translates to 7.08% on a taxable equivalent yield basis. This is
calculated as 5.10% divided by (1 minus the investor's marginal tax rate). And
that is 23% more than the 5.75% yield on a 15-year treasury bond at year-end.
The spread between municipal bond yields and treasury yields diminished
because investors fear radical tax reform, in particular the flat-rate tax.
While we anticipate some type of tax reform--probably a simplification of the
current tax structure--we also believe that municipal bonds will retain their
favorable tax status.
Based on what we see ahead, we believe the municipal bond market represents
good relative value for the long-term investor. But as amply demonstrated over
the past two years especially, market volatility can and should be expected. For
these reasons, shareholders should continue to take a long-term perspective and
keep in mind the benefits found in the Fund's strategy of investing in a
diversified portfolio of tax-exempt securities.
[GRAPH]
<TABLE>
<CAPTION>
INVESTMENT PERFORMANCE - COMPOSITE TAX-EXEMPT BOND FUND
COMPARATIVE ENDING VALUES OF $10,000 INVESTED ON 12/31/85
Composite
Tax-Exempt Bond Fund LMB CPI
Class A shares (Bonds) (Inflation)
-------------------------- ------- -----------
<S> <C> <C> <C>
12/31/85 $ 9,600 $10,000 $10,000
$11,180 $11,902 $10,110
12/31/87 $11,320 $12,278 $10,558
$12,527 $13,235 $11,025
12/31/89 $13,548 $14,648 $11,537
$14,457 $15,723 $12,242
12/31/91 $16,104 $17,626 $12,617
$17,552 $19,199 $12,983
12/31/93 $19,761 $21,650 $13,339
$18,470 $20,617 $13,696
12/31/95 $21,841 $24,156 $14,044
Past performance cannot predict future results.
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
CLASS A WITH SALES WITHOUT SALES
SHARES CHARGE CHARGE
--------- ------------ ---------------
<S> <C> <C>
One Year 13.48% 18.25%
Five Years 7.70% 8.59%
Ten Years 8.11% 8.56%
CLASS B
SHARES
---------
One Year 14.30% 17.30%
Since 3/94 6.98% 8.60%
----------------------------------------------
30-DAY CURRENT YIELDS
Class A Shares 4.15%
Class B Shares 3.52%
----------------------------------------------
See footnotes on page 2 for additional information.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COMPOSITE U.S. GOVERNMENT SECURITIES, INC.
PORTFOLIO OF INVESTMENTS IN SECURITIES
DECEMBER 31, 1995
COMPOSITE U.S. GOVERNMENT SECURITIES PORTFOLIO
PRINCIPAL MARKET
AMOUNT VALUE
------------ -------------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS - 27.25%
$ 3,000,000 U.S. Treasury Note, 7.50%, due 01/31/1996 .................... $ 3,008,436
6,500,000 U.S. Treasury Bond, 7.50%, due 11/15/2016 .................... 7,627,340
15,000,000 U.S. Treasury Bond, 7.25%, due 05/15/2016 .................... 17,132,805
9,500,000 U.S. Treasury Bond, 7.25%, due 08/15/2022 .................... 11,002,187
7,500,000 U.S. Treasury Bond, 6.25%, due 08/15/2023 .................... 7,710,937
4,000,000 U.S. Treasury Bond, Zero coupon, due 08/15/2004 .............. 2,441,568
--------------
TOTAL U.S. TREASURY OBLIGATIONS (COST $46,685,203) ........... 48,923,273
--------------
MORTGAGE BACKED SECURITIES - 71.12%
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 52.10%
74,637 14.00%, due 06/15/2011 to 03/15/2012 ......................... 88,212
132,400 13.50%, due 08/15/2014 to 12/15/2014 ......................... 155,913
41,330 11.50%, due 07/15/2015 ....................................... 47,220
4,351,686 9.50%, due 07/15/2016 to 09/15/2020 .......................... 4,673,985
2,469,832 8.50%, due 05/15/2022 ........................................ 2,594,867
2,025,920 8.00%, due 04/15/2022 ........................................ 2,112,021
16,418,708 7.50%, due 12/15/2022 to 06/15/2024 .......................... 16,901,008
25,677,499 7.00%, due 07/15/2008 to 08/15/2023 .......................... 26,064,269
4,103,441 6.875%, due 09/20/2022 ....................................... 4,188,021
30,046,400 6.50%, due 03/20/2022 to 03/15/2024 .......................... 29,932,503
3,390,879 6.125%, due 12/20/2022 ....................................... 3,427,972
3,281,212 5.875%, due 09/20/2022 ....................................... 3,348,844
--------------
93,534,835
--------------
GNMA COLLATERALIZED MORTGAGE OBLIGATIONS - 19.02%
8,500,000 Federal Home Loan Mortgage Corporation, 6.85%, due 07/25/2018. 8,596,135
1,686,496 Federal National Mortgage Association, 8.50%, due 02/25/2018 . 1,709,298
4,000,000 Federal National Mortgage Association, 8.25%, due 05/25/2020 . 4,154,920
6,408,000 Federal National Mortgage Association, 8.00%, due 06/25/2005 . 6,623,181
1,950,000 Federal National Mortgage Association, 7.50%, due 08/25/2001 . 2,029,423
2,230,000 Federal National Mortgage Association, 6.00%, due 08/25/2007 . 2,214,948
1,067,097 Federal National Mortgage Association, 5.75%, due 10/25/2010 . 1,065,849
4,900,000 Merrill Lynch, 6.50%, due 08/27/2015 ......................... 4,875,451
941,233 Morgan Stanley, 8.975%, due 06/01/2001 ....................... 955,624
1,843,991 Mortgage Capital Trust, 9.25%, due 06/01/2017 ................ 1,914,616
--------------
34,139,445
--------------
TOTAL MORTGAGE-BACKED SECURITIES (cost $124,636,232) ......... 127,674,280
--------------
PRINCIPAL MARKET
AMOUNT VALUE
--------------- --------------
SHORT-TERM INVESTMENT - 1.12%
$ 2,015,000 Repurchase agreement with Goldman Sachs, collateralized
by a U.S. Treasury Note, in a joint trading account at
5.70%, dated 12/29/1995, due 01/02/1996 with a maturity value
of $2,016,276 (cost $2,015,000) .............................. $ 2,015,000
---------------
TOTAL INVESTMENTS (cost $173,336,435) 178,612,553
Other assets ($1,576,750) less liabilities ($673,475) ........ 903,275
---------------
NET ASSETS ................................................... $179,515,828
---------------
---------------
<FN>
FEDERAL INCOME TAX INFORMATION:
Net unrealized appreciation of investments at December 31, 1995, of $5,276,118, based on
aggregate cost of $173,336,435, was composed of gross appreciation of $5,804,414 for
investments having an excess of value over cost and gross depreciation of $528,296 for
investments having an excess of cost over value. As of December 31, 1995, the Fund had
unused capital loss carryovers of $6,447,880 for federal tax purposes which may be applied
against gains realized in future years. If not applied, the carryovers will expire by 2003.
OTHER INFORMATION
Purchases and sales (including maturities and principal repayments) of investment securities,
all of which were U.S. government securities, other than short-term investments, aggregated
$14,986,328 and $46,794,348, respectively, during the year ended December 31, 1995.
Principal repayments of mortgage-backed securities aggregated $10,580,337.
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COMPOSITE INCOME FUND, INC.
PORTFOLIO OF INVESTMENTS IN SECURITIES
DECEMBER 31, 1995
COMPOSITE INCOME FUND PORTFOLIO
PRINCIPAL MARKET
AMOUNT VALUE
--------------- --------------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS - 24.19%
$ 1,000,000 U.S. Treasury Bill, 7.50%, due 12/31/1996 ....................... $ 1,022,500
1,300,000 U.S. Treasury Note, 7.875%, due 08/15/2001 ...................... 1,453,968
2,000,000 U.S. Treasury Note, 7.75%, due 01/31/2000 ....................... 2,173,750
1,000,000 U.S. Treasury Note, 7.125%, due 02/29/2000 ...................... 1,065,312
1,000,000 U.S. Treasury Note, 6.125%, due 07/31/2000 ...................... 1,030,000
1,000,000 U.S. Treasury Note, 5.875%, due 03/31/1999 ...................... 1,018,125
500,000 U.S. Treasury Note, 5.875%, due 02/15/2004 ...................... 510,313
500,000 U.S. Treasury Note, 4.00%, due 01/31/1996 ....................... 499,844
2,100,000 U.S. Treasury Bond, 7.50%, due 11/15/2024 ....................... 2,523,280
4,225,000 U.S. Treasury Bond, 7.25%, due 08/15/2022 ....................... 4,893,078
8,250,000 U.S. Treasury Bond, 6.25%, due 08/15/2023 ....................... 8,482,031
--------------
TOTAL U.S. TREASURY OBLIGATIONS (cost $21,846,128) .............. 24,672,201
--------------
MORTGAGE-BACKED SECURITIES - 17.29%
FEDERAL HOME LOAN MORTGAGE CORPORATION - 0.38%
373,254 9.00%, due 12/01/2004 ........................................... 387,601
--------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 11.90%
2,187,419 7.00%, due 08/15/2008 ........................................... 2,240,056
1,666,822 7.00%, due 07/15/2023 ........................................... 1,688,179
2,308,727 6.50%, due 12/15/2023 ........................................... 2,292,855
892,718 6.50%, due 08/15/2023 ........................................... 886,581
2,407,428 6.50%, due 03/15/2024 ........................................... 2,390,877
2,720,238 6.00%, due 02/15/2024 ........................................... 2,643,732
---------------
12,142,280
---------------
COLLATERALIZED MORTGAGE OBLIGATIONS - 5.01%
1,750,000 Donaldson, Lufkin & Jenrette, 7.35%, due 12/18/2003 ............. 1,787,812
1,000,000 Federal Home Loan Mortgage Corporation, 8.75%, due 06/15/2005 ... 1,037,800
1,000,000 Federal Home Loan Mortgage Corporation, 7.50%, due 07/15/2020 ... 1,026,290
109,628 Merrill Lynch Mortgage Investors, 9.70%, due 06/15/2008 ......... 113,130
860,241 Morgan Stanley Mortgage Trust, 9.30%, due 07/01/2017 ............ 869,489
269,848 Shearson Lehman, 8.75%, due 08/27/2017 .......................... 272,102
--------------
5,106,623
--------------
TOTAL MORTGAGE-BACKED SECURITIES (cost $17,439,531) .............. 17,636,504
--------------
CORPORATE BONDS - 45.42%
NON-CONVERTIBLE CORPORATE BONDS - 41.78%
AEROSPACE/DEFENSE - 3.63%
2,000,000 Boeing Company, 8.75%, due 08/15/2021 ............................ 2,538,736
1,000,000 Loral Corporation, 8.375%, due 06/15/2024 ........................ 1,159,488
--------------
3,698,224
--------------
--------------
BANKING - 3.65%
1,000,000 Bank of New York, 7.875%, due 11/15/2002 ......................... 1,099,376
1,000,000 Manufacturers and Traders Trust Company, 8.125%, due 12/01/2002 .. 1,104,814
500,000 Mercantile Bank, 7.625%, due 10/15/2002 .......................... 532,190
1,000,000 Norwest Corporation, 6.65%, due 10/15/2023 ....................... 988,264
--------------
3,724,644
--------------
BROADCAST/MEDIA - 4.54%
750,000 Tele-Communications, Inc., 9.25%, due 01/15/2023 ................. 821,649
2,000,000 Time Warner, Inc., 9.15%, due 02/01/2023 ......................... 2,280,620
850,000 Western Publishing Group, 7.65%, due 09/15/2002 .................. 616,250
1,000,000 Westinghouse Corporation, 7.875%, due 09/01/2023 ................. 912,082
--------------
4,630,601
--------------
CONSUMER PRODUCTS & SERVICES - 3.96%
750,000 Conagra, Inc., 9.75%, due 03/01/2021 ............................. 975,476
2,000,000 Dart & Kraft Finance NV, 7.75%, due 11/30/1998 ................... 2,081,638
1,000,000 Fleming Companies, Inc., 5.77%, due 08/06/1998 ................... 977,001
---------------
4,034,115
---------------
FINANCE - 2.27%
1,000,000 General Motors Acceptance Corporation, 8.00%, due 04/10/1997 ..... 1,029,640
1,250,000 Kemper Corporation, 6.875%, due 09/15/2003 ....................... 1,287,780
---------------
2,317,420
---------------
HEALTH & MEDICAL - 4.96%
850,000 American Home Products Corporation, 7.25%, due 03/01/2023 ....... 915,327
3,534,000 American Medical International, Zero coupon, due 08/12/1997 ..... 3,155,685
1,000,000 FHP International, 7.00%, due 09/15/2003 ........................ 990,683
----------------
5,061,695
----------------
INSURANCE - 3.50%
2,000,000 Continental Corporation, 7.25%, due 03/01/2003 .................. 2,075,546
1,450,000 Integon Corporation, 8.00%, due 08/15/1999 ...................... 1,498,121
----------------
3,573,667
----------------
OILS & GAS - 3.34%
1,600,000 Burlington Resources, 9.125%, due 10/01/2021 .................... 2,045,874
1,000,000 Coastal Corporation, 10.75%, due 10/01/2010 ..................... 1,362,736
---------------
3,408,610
---------------
PAPER & FOREST PRODUCTS - 1.04%
1,000,000 Weyerhaeuser Corporation, 7.125%, due 07/15/2023 ................ 1,060,858
---------------
TRANSPORTATION - 2.70%
1,000,000 AMR Corporation, 9.75%, due 03/15/2000 .......................... 1,114,757
1,350,000 Burlington Northern, 8.75%, due 02/25/2022 ...................... 1,637,244
---------------
2,752,001
---------------
UTILITIES/ELECTRIC - 8.19%
3,000,000 Commonwealth Edison, 9.375%, due 02/15/2000 ...................... 3,345,018
500,000 Niagra Mowhawk Power, 8.00%, due 06/01/2004 ...................... 485,438
1,000,000 Pacific Gas and Electric, 9.08%, due 12/15/1997 .................. 1,063,398
2,000,000 Public Service Company of New Hampshire, 9.17%, due 05/15/1998 ... 2,124,882
1,200,000 Texas Utilities Electric, 9.50%, due 08/01/1999 .................. 1,332,817
--------------
8,351,553
--------------
TOTAL NON-CONVERTIBLE CORPORATE BONDS (cost $40,113,674) .......... 42,613,388
--------------
CONVERTIBLE CORPORATE BONDS - 3.64%
FINANCIAL SERVICES - 0.86%
500,000 Liberty Property Trust, 8.00%, due 07/01/2001 .................... 515,625
350,000 Meditrust, 7.50%, due 03/01/2001 ................................. 363,125
--------------
878,750
--------------
RETAIL SALES - 2.35%
2,500,000 Costco Wholesale Corporation, 5.75%, due 05/15/2002 .............. 2,390,625
--------------
TRANSPORTATION - 0.18%
200,000 Air Wisconsin, 7.75%, due 06/15/2010 ............................. 183,250
--------------
UTILITIES - ELECTRIC - 0.25%
250,000 Potomac Electric Power Company, 7.00%, due 01/15/2018 ............ 257,500
--------------
TOTAL CONVERTIBLE CORPORATE BONDS (cost $3,609,094) .............. 3,710,125
--------------
TOTAL CORPORATE BONDS (cost $43,722,768) ......................... 46,323,513
--------------
U.S. DOLLAR FOREIGN OBLIGATIONS - 6.69%
1,350,000 Empressas La Moderna, 10.25%, due 11/12/1997 ..................... 1,333,125
1,600,000 Fomento Economico Mexicano SA, 9.50%, due 07/22/1997 ............. 1,588,501
2,000,000 Province of Alberta, 9.25%, due 04/01/2000 ....................... 2,273,100
1,500,000 United Mexican States, Series A, 6.25%, due 12/31/2019 ........... 975,001
1,000,000 United Mexican States, Series B, 6.25%, due 12/31/2019 ........... 650,001
--------------
TOTAL FOREIGN OBLIGATIONS (cost $6,377,366) ...................... 6,819,728
--------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------------ --------------
<C> <C> <C>
PREFERRED STOCK - 0.92%
INSURANCE - 0.82%
14,000 Integon Corporation ............................................. 840,000
--------------
REAL ESTATE INVESTMENT TRUST - 0.10%
5,000 Wellsford Residential Property Trust ............................ 98,125
--------------
TOTAL PREFERRED STOCK (cost $760,790) ........................... 938,125
--------------
PRINCIPAL MARKET
AMOUNT VALUE
------------- ---------------
REPURCHASE AGREEMENT - 4.02%
4,101,000 Repurchase agreement with Goldman Sachs, collateralized by a
U.S. Treasury Note, in a joint trading account at 5.70%, dated
12/29/1995, due 01/02/1996, with a maturity value of $4,103,597
(cost $4,101,000) .............................................. 4,101,000
---------------
TOTAL INVESTMENTS (cost $94,247,583) ........................... 100,491,071
Other assets ($1,861,268), less liabilities ($365,694) ........ 1,495,574
----------------
NET ASSETS ..................................................... $101,986,645
================
<FN>
FEDERAL INCOME TAX INFORMATION:
Net unrealized appreciation of investments at December 31, 1995, of $6,243,488, based on aggregate cost of
$94,247,583, was composed of gross appreciation of $6,715,364 for those investments having an excess of
value over cost and gross depreciation of $471,876 for investments having an excess of cost over value. As of
December 31, 1995, the Fund had unused capital loss carryovers of $15,565,281 for federal tax purposes which may
be applied against gains realized in future years. If not applied, the carryovers will expire by 2003.
OTHER INFORMATION:
Purchases and sales (including maturities and principal repayments) of investment securities, other than short-term
investments, aggregated $39,111,201 and $42,433,397, respectively, during the year ended December 31, 1995, including purchases and
sales of U.S. government securities of $24,708,652 and $7,960,444, respectively. Principal repayments of mortgage-
backed securities aggregated $2,312,459.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COMPOSITE TAX-EXEMPT BOND FUND, INC.
PORTFOLIO OF INVESTMENTS IN SECURITIES
DECEMBER 31, 1995
COMPOSITE TAX-EXEMPT BOND FUND PORTFOLIO
PRINCIPAL MARKET
AMOUNT VALUE
------------- --------------
<S> <C> <C>
STATE AND MUNICIPAL SECURITIES - 94.50%
ALASKA - 2.16%
$ 5,000,000 Valdez Marine Term Revenue (Mobil Alaska Pipeline),
5.75, due 11/01/2028 ..................................... $ 5,017,800
---------------
ARIZONA - 6.83%
7,000,000 Phoenix General Obligation, 5.55%, due 07/01/2009 .......... 7,409,360
5,000,000 Salt River Project Agricultural Improvement & Power
District Electrical System Revenue, Series C, 6.25%,
due 01/01/2019 ............................................. 5,281,600
3,000,000 Salt River Project Agricultural Improvement & Power District
Electrical System Revenue, Series A, 5.75%, due 01/01/2009 . 3,211,770
---------------
15,902,730
---------------
CALIFORNIA - 4.12%
6,000,000 San Diego Industrial Development Revenue (San Diego
Gas & Electric), Series A, 5.90%, due 06/01/2018 ........... 6,203,280
3,000,000 Santa Barbara County Certificate of Participation,
7.40%, due 02/01/2007 ...................................... 3,388,440
---------------
9,591,720
---------------
COLORADO - 2.43%
2,225,000 Colorado Springs Utilities System Revenue Prerefunded,
6.75%, due 11/15/2021 ...................................... 2,547,514
2,775,000 Colorado Springs Utilities System Revenue, 6.75%, due
11/15/2021 ................................................. 3,097,899
---------------
5,645,413
---------------
FLORIDA - 4.61%
5,000,000 Jacksonville Electric Authority Revenue
(St. Johns River Power-2-Series 7), 5.75%, due 10/01/2012 .. 5,181,300
5,000,000 Orlando Utilities Commission Water & Electric Revenue,
6.00%, due 10/01/2010 ...................................... 5,547,450
---------------
10,728,750
---------------
GEORGIA - 5.99%
5,000,000 Georgia State General Obligation, 6.30%, due 03/01/2009 .... 5,675,700
8,000,000 Georgia Municipal Electric Authority Power Revenue,
Series C, 5.70%, due 01/01/2019 ............................ 8,265,760
---------------
13,941,460
---------------
HAWAII - 3.65%
2,000,000 Honolulu City & County General Obligation, 6.00%,
due 01/01/2012 ............................................. 2,208,040
5,555,000 Hawaii State General Obligation, 6.40%, due 03/01/2009 ..... 6,295,426
---------------
8,503,466
---------------
ILLINOIS - 9.23%
3,665,000 Chicago Gas Supply Revenue (Peoples Gas),
6.875%, due 03/01/2015 ..................................... 4,006,065
4,000,000 Chicago Wastewater Transmission Revenue, 6.75%, due
11/15/2020 ................................................. 4,520,200
2,000,000 Illinois Education Facilities Authority Revenue,
(University of Chicago), 7.10%, due 12/01/2020 ............. 2,104,000
5,000,000 Illinois State Sales Tax Revenue Series N, 7.00%, due
06/15/2020 ................................................. 5,745,900
6,000,000 Metropolitan Pier and Exposition Authority Dedicated
State Tax Revenue, Zero coupon, due 06/15/2009 ............. 2,982,780
4,000,000 Metropolitan Pier and Exposition Authority Dedicated
State Tax Revenue, Zero coupon, due 06/15/2008 ............. 2,118,520
---------------
21,477,465
---------------
INDIANA - 2.89%
6,000,000 Indiana Municipal Power Agency Revenue, Series A,
6.125%, due 01/01/2013 ..................................... 6,719,280
---------------
MARYLAND - 4.50%
5,000,000 Maryland State General Obligation, 4.30%, due 07/15/2003 ... 4,957,000
5,000,000 Mayor & City Council of Baltimore Port Facility
Revenue (DuPont), 6.50%, due 10/01/2011 .................... 5,525,450
---------------
10,482,450
---------------
MISSISSIPPI - 2.00%
4,000,000 Lowndes County Solid Waste Disposal & Pollution Control
Revenue (Weyerhaueser), 6.80%, due 04/01/2022 .............. 4,655,640
---------------
NEBRASKA - 4.26%
7,000,000 Omaha Public Power District Electic Revenue Series B,
6.15%, due 02/01/2012 ...................................... 7,828,520
2,000,000 Omaha Public Power District Electric Revenue, Series C,
5.50%, due 02/01/2014 ...................................... 2,094,900
---------------
9,923,420
---------------
NEW MEXICO - 0.68%
1,500,000 Lordsburg Pollution Control Revenue (Phelps Dodge),
6.50%, due 04/01/2013 ...................................... 1,591,860
---------------
NORTH CAROLINA - 2.43%
5,000,000 North Carolina Eastern Municipal Power,
7.00%, due 01/01/2008 ...................................... 5,657,450
---------------
NORTH DAKOTA - 2.03%
4,370,000 Mercer County Pollution Control Revenue (Otter Tail
Power), 6.90%, due 02/01/2019 .............................. 4,722,615
---------------
OREGON - 2.86%
6,230,000 Washington County, Oregon (Criminal Justice Facilities)
General Oblication, 6.00%, due 12/01/2012 .................. 6,662,175
---------------
TENNESSEE - 2.29%
5,000,000 Memphis Electric System Revenue, 5.625%, due 01/01/2002 .... 5,318,800
---------------
TEXAS - 3.26%
3,000,000 Harris County Toll Road Revenue, 8.25%, due 08/15/2007 ..... 3,399,990
4,250,000 San Antonio Electric & Gas Revenue, 5.00%, due 02/01/2012 .. 4,196,662
---------------
7,596,652
---------------
UTAH - 3.78%
6,000,000 Intermountain Power Agency Power Supply Revenue, Series C,
5.25%, due 07/01/2014 ...................................... 6,003,480
3,000,000 Intermountain Power Agency Power Supply Revenue, Series A,
5.00%, due 07/01/2023 ...................................... 2,790,600
---------------
8,794,080
---------------
WASHINGTON - 18.46%
4,500,000 King County Washington School District #415 Kent, General
Obligation, Series C, 6.30%, due 12/01/2008 ................ 5,004,000
2,750,000 Snohomish County School District #2-Everett General
Obligation, 7.20,% due 12/01/2010 .......................... 3,133,378
2,000,000 Spokane County Water District #3 Revenue, 7.60%, due
01/01/2008 ................................................. 2,201,400
4,000,000 University of Washington Housing and Dining Revenue
Bond, 7.00, due 12/01/2021 ................................. 4,534,680
7,000,000 Vancouver Water & Sewer Revenue, 5.50, due 06/01/2013 ...... 7,181,720
1,750,000 Washington Health Care Facilities Authority Revenue,
Fred Hutchinson Cancer Center, 7.375%, due 01/01/2018 ...... 1,926,225
1,750,000 Washington Health Care Facilities Authority Revenue,
Fred Hutchinson Cancer Center, 7.20%, due 01/01/2007 ....... 1,934,888
3,500,000 Washington Public Power Supply System Nuclear Project
Number 2 Revenue, 7.625%, due 07/01/2010 ................... 4,089,505
4,900,000 Washington State General Obligation, Series B,
6.40%, due 06/01/2017 ...................................... 5,636,666
7,570,000 Washington State General Obligation, Series B,
5.00%, due 05/01/2017 ...................................... 7,314,134
--------------
42,956,596
--------------
WISCONSIN - 4.23%
1,000,000 Wisconsin Health & Education Facility Authority Revenue,
Waukesha Memorial Hospital, Series A, 7.125%,due 08/15/2007 1,126,790
3,750,000 Wisconsin State Refunding, Series 3, 5.30%, due 11/01/2011 . 3,857,325
5,000,000 Wisconsin State Transportation Revenue, Series A,
4.90%, due 07/01/2010 ...................................... 4,865,900
--------------
9,850,015
--------------
WYOMING - 1.81%
4,000,000 Sweetwater County Pollution Control Revenue
(Idaho Power Co. Project-A), 7.625, due 12/01/2014 ......... 4,202,200
--------------
TOTAL STATE AND MUNICIPAL SECURITIES (cost $200,688,612) ... 219,942,037
--------------
--------------
SHORT -TERM INVESTMENTS - 4.04%
700,000 Delaware State Economic Development, Variable Rate Demand
Obligation, 5.20%* ......................................... 700,000
3,000,000 Massachusetts Daily Commonwealth, Variable Rate Demand
Obligation, 5.90%* ......................................... 3,000,000
500,000 Garfield County, Oklahoma Variable Rate Demand Obligation,
5.20%* ..................................................... 500,000
5,207,000 Nuveen Tax-Exempt Money Market Fund ........................ 5,207,000
--------------
TOTAL SHORT-TERM INVESTMENTS (cost $9,407,000) ............. 9,407,000
--------------
TOTAL INVESTMENTS (cost $210,095,612) ...................... 229,349,037
Other assets ($3,870,758) less liabilities ($483,033) ...... 3,387,725
--------------
NET ASSETS ................................................ $232,736,762
--------------
--------------
<FN>
*Variable Rate Demand Obligations are payable on demand and are secured by letters of credit or other
credit support. The interest rate, which is subject to change periodically, is based on an index of
market interest rates.
FEDERAL INCOME TAX INFORMATION:
Net unrealized appreciation of investments at December 31, 1995, of $19,253,425 based on
aggregate cost of $210,095,612 was composed of gross appreciation of $19,266,425 for
investments having an excess of value over cost and gross depreciation of $13,000 for
investments having an excess of cost over value. As of December 31, 1995, the Fund had unused
capital loss carryovers of $654,791 for federal tax purposes which may be applied against gains
realized in future years. If not applied, the carryovers will expire by 2002.
OTHER INFORMATION
Purchases and sales of investment securities, other than short-term investments, aggregated
$16,298,234 and $32,821,791, respectively, during the year ended December 31, 1995.
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
FINANCIAL INFORMATION
DECEMBER 31,
1995
INDEPENDENT PUBLIC ACCOUNTANTS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF:
COMPOSITE U.S. GOVERNMENT SECURITIES, INC.
COMPOSITE INCOME FUND, INC.
COMPOSITE TAX-EXEMPT BOND FUND, INC.
We have audited the accompanying statements of assets and liabilities of
Composite U.S. Government Securities, Inc., Composite Income Fund, Inc., and
Composite Tax-Exempt Bond Fund, Inc., including the investment portfolios, as of
December 31, 1995, and the related statements of operations for the year then
ended and the statements of changes in net assets for the years ended December
31, 1995 and 1994. For Composite Tax-Exempt Bond Fund, Inc., we have audited the
financial highlights for each of the five years in the period ended December 31,
1995. For Composite U.S. Government Securities, Inc., and Composite Income Fund,
Inc., we have audited the financial highlights for each of the five fiscal years
in the period ended December 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 December
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 U.S. Government Securities, Inc., Composite Income Fund,
Inc., and Composite Tax-Exempt Bond Fund, Inc., as of December 31, 1995, and the
results of their operations, the changes in their net assets, and their
financial highlights for the above-stated periods in conformity with generally
accepted accounting principles.
LEMASTER & DANIELS, PLLC
CERTIFIED PUBLIC ACCOUNTANTS
SPOKANE, WASHINGTON
JANUARY 19, 1996
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
COMPOSITE COMPOSITE COMPOSITE
U.S. GOVERNMENT INCOME TAX-EXEMPT
SECURITIES, INC. FUND, INC. BOND FUND, INC.
--------------------- ------------------- --------------------
<S> <C> <C> <C>
ASSETS
Investments at market (identified cost $173,336,435,
$94,247,583, and $210,095,612, respectively) .................. $178,612,553 $100,491,071 $229,349,037
Cash ............................................................ - 4,911 -
Prepaid expenses ................................................ 22,233 16,706 20,415
Receivable for:
Interest ...................................................... 1,492,276 1,759,647 3,789,226
Sale of Fund's shares ......................................... 62,241 80,004 61,117
--------------------- ------------------ ------------------
Total assets .................................................... 180,189,303 102,352,339 233,219,795
--------------------- ------------------ ------------------
LIABILITIES
Payable for:
Repurchase of Fund's shares .................................... 380,825 190,012 80,372
Dividends ...................................................... 229,935 133,972 209,429
Accrued expenses and other payables ............................ 62,715 41,710 193,232
--------------------- ------------------ ------------------
Total liabilities ................................................ 673,475 365,694 483,033
--------------------- ------------------ ------------------
NET ASSETS ....................................................... $179,515,828 $101,986,645 $232,736,762
===================== ================== ==================
COMPOSITION OF NET ASSETS
Capital stock, at par ............................................ $1,656 $108,000 $2,904
Additional paid-in capital ....................................... 180,685,934 111,330,545 214,135,224
Accumulated net realized loss .................................... (6,447,880) (15,695,388) (654,791)
Net unrealized appreciation of investments ....................... 5,276,118 6,243,488 19,253,425
--------------------- ------------------ ------------------
$179,515,828 $101,986,645 $232,736,762
===================== ================== ==================
SHARES OUTSTANDING ............................................... 16,555,321 10,799,991 29,036,358
===================== ================== ==================
CLASS A SHARES:
Net asset value and redemption price per share
(net assets of $177,309,898, $97,534,484, and $230,055,028,
respectively, for 16,351,866, 10,329,116, and 28,701,818 shares
outstanding, respectively) .................................. $10.84 $9.44 $8.02
===================== ================== ==================
Offering price per share (100/96 of net asset value per share) . $11.29 $9.83 $8.35
===================== ================== ==================
CLASS B SHARES:
Net asset value, offering price and redemption price per share
(net assets of $2,205,930, $4,452,161, and $2,681,734
respectively, for 203,455, 470,873, and 334,540 shares
outstanding, respectively) .................................. $10.84 $9.46 $8.02
===================== ================== ==================
<FN>
On sales of $25,000 or more, the offering price of Class A is reduced.
A contingent deferred sales charge may be imposed on redemptions for Class B shares.
See accompanying notes to the financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
For The Year Ended December 31, 1995
COMPOSITE COMPOSITE COMPOSITE
U.S. GOVERNMENT INCOME TAX-EXEMPT
SECURITIES, INC. FUND, INC. BOND FUND, INC.
---------------------- -------------------- -------------------
<S> <C> <C> <C>
INVESTMENT INCOME
Interest income .............................................. $13,117,117 $7,340,494 $13,215,754
---------------------- -------------------- ------------------
Expenses:
Management fees .............................................. 1,156,052 598,377 1,120,096
Distribution expenses - Class A .............................. 343,633 168,531 432,854
Distribution expenses - Class B .............................. 15,425 32,833 18,879
Shareholder servicing ........................................ 165,595 114,938 107,114
Postage, printing and office expenses ........................ 132,328 84,155 85,550
Registration and filing fees ................................. 20,926 21,056 26,512
Custodial fees ............................................... 25,675 19,165 24,240
Auditing and legal fees ...................................... 16,524 14,113 14,477
Directors' fees .............................................. 8,387 8,387 8,401
Insurance .................................................... 4,522 2,221 5,205
---------------------- -------------------- -------------------
Total expenses .................................................. 1,889,067 1,063,776 1,843,328
Fees paid indirectly ............................................ (4,601) (4,551) (7,982)
---------------------- -------------------- -------------------
Net expenses .................................................... 1,884,466 1,059,225 1,835,346
---------------------- -------------------- -------------------
Net investment income ........................................... 11,232,651 6,281,269 11,380,408
---------------------- -------------------- ------------------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS
Realized gain (loss) from investment transactions ............... (248,406) (964,092) 709,951
Unrealized appreciation of investments during the year .......... 22,057,802 13,282,886 25,628,133
---------------------- -------------------- ------------------
Net realized and unrealized gain on investments ................. 21,809,396 12,318,794 26,338,084
---------------------- -------------------- ------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ....................................... $33,042,047 $18,600,063 $37,718,492
====================== ==================== ==================
<FN>
See accompanying notes to the financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
COMPOSITE U.S. GOVERNMENT SECURITIES, INC. COMPOSITE INCOME FUND, INC.
------------------------------------------- -----------------------------------------
FOR THE YEARS ENDED DECEMBER 31, FOR THE YEARS ENDED DECEMBER 31,
1995 1994 1995 1994
---------------- ------------------- ------------------ ------------------
<S> <C> <C> <C> <C>
OPERATIONS
Net investment income ...................... $11,232,651 $14,064,719 $6,281,269 $6,698,839
Realized gain (loss) from
investment transactions .................. (248,406) (4,397,627) (964,092) (225,532)
Unrealized appreciation (depreciation)
of investments during the year ........... 22,057,802 (22,453,803) 13,282,886 (11,673,357)
----------------- -------------------- ------------------ ------------------
Net increase (decrease) in net assets
resulting from operations ................ 33,042,047 (12,786,711) 18,600,063 (5,200,050)
DIVIDENDS TO SHAREHOLDERS
From net investment income:
Class A ............................... (11,152,866) (14,032,268) (6,093,671) (6,629,826)
Class B ............................... (79,785) (32,451) (187,598) (69,013)
NET CAPITAL SHARE TRANSACTIONS
Class A ............................... (32,402,457) (53,233,173) (2,476,599) (4,954,098)
Class B ............................... 977,583 1,103,596 1,743,650 2,378,233
------------------ -------------------- ------------------ ------------------
Total increase (decrease) in net assets .... (9,615,478) (78,981,007) 11,585,845 (14,474,754)
NET ASSETS
Beginning of the year ...................... 189,131,306 268,112,313 90,400,800 104,875,554
------------------ -------------------- ------------------ ------------------
End of the year ............................ $179,515,828 $189,131,306 $101,986,645 $90,400,800
================== =================== ================== ==================
UNDISTRIBUTED NET INVESTMENT
INCOME AT END OF YEAR $0 $0 $0 $0
================== =================== ================== ==================
<FN>
See accompanying notes to the financial statements.
</FN>
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
COMPOSITE TAX-EXEMPT BOND FUND, INC.
-------------------------------------------
FOR THE YEARS ENDED DECEMBER 31,
1995 1994
---------------- -------------------
<S> <C> <C>
OPERATIONS
Net investment income ..................... $11,380,408 $12,448,608
Realized gain (loss) from
investment transactions ................. 709,951 (1,364,723)
Unrealized appreciation (depreciation)
of investments during the year .......... 25,628,133 (28,088,153)
----------------- --------------------
Net increase (decrease) in net assets
resulting from operations ............... 37,718,492 (17,004,268)
DIVIDENDS TO SHAREHOLDERS
From net investment income
Class A .............................. (11,301,739) (12,418,016)
Class B .............................. (78,669) (30,572)
NET CAPITAL SHARE TRANSACTIONS
Class A .............................. (11,515,781) (14,201,390)
Class B .............................. 1,218,551 1,304,849
------------------ --------------------
Total increase (decrease) in net assets ... 16,040,854 (42,349,397)
NET ASSETS
Beginning of the year ..................... 216,695,908 259,045,305
------------------- --------------------
End of the year ........................... $232,736,762 $216,695,908
=================== ====================
UNDISTRIBUTED NET INVESTMENT
INCOME AT END OF YEAR ..................... $0 $0
=================== ====================
<FN>
See accompanying notes to the financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
COMPOSITE U.S. GOVERNMENT SECURITIES, INC.
Class A
--------------------------------------------------------------------------------------
TEN MONTHS
ENDED YEAR ENDED
DECEMBER 31, FEBRUARY 29,
YEARS ENDED DECEMBER 31,
------------------------------------------------
1995 1994 1993 1992 (3) 1992
-------------- -------------- ------------- ----------------- -------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ...... $ 9.64 $10.79 $10.63 $10.53 $10.17
-------------- -------------- ------------- ----------------- -------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income .................... 0.63 0.63 0.69 0.62 0.79
Net Gains or Losses on Securities (both
realized and unrealized) ............... 1.20 (1.15) 0.16 0.10 0.36
-------------- -------------- ------------- ----------------- -------------
Total From Investment Operations ......... 1.83 (0.52) 0.85 0.72 1.15
-------------- -------------- ------------- ----------------- -------------
LESS DISTRIBUTIONS
Dividends(from net investment income) .... (0.63) (0.63) (0.69) (0.62) (0.79)
-------------- -------------- ------------- ----------------- -------------
NET ASSET VALUE, END OF PERIOD ............ $10.84 $9.64 $10.79 $10.63 $10.53
============== ============== ============= ================= =============
TOTAL RETURN (1) ............................ 19.45% -4.91% 8.12% 7.03% 11.72%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period ($1,000's) ...... $177,310 $188,068 $268,112 $207,501 $141,377
Ratio of Expenses to Average Net Assets (5) 1.01% 0.97% 0.99% 0.99% (6) 1.01%
Ratio of Net Income to Average Net Assets . 6.08% 6.19% 6.29% 6.98% (6) 7.63%
Portfolio Turnover Rate (2) ............... 8% 34% 51% 11% (6) 17%
<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-end. 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 & Exchange Commission Release No. FR 46 effective
September 1, 1995. Ratios for prior periods were calculated based on net expenses and have not been restated.
(6) Annualized.
</FN>
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
COMPOSITE U.S. GOVERNMENT SECURITIES, INC.
Class B
----------------------------------
MARCH 30, 1994
YEAR ENDED TO
DECEMBER 31, DECEMBER 31,
1995 1994 (4)
-------------- --------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ...... $ 9.64 $10.24
-------------- --------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income .................... 0.54 0.41
Net Gains or Losses on Securities (both
realized and unrealized) ............... 1.20 (0.60)
-------------- --------------
Total From Investment Operations ......... 1.74 (0.19)
-------------- --------------
LESS DISTRIBUTIONS
Dividends(from net investment income) .... (0.54) (0.41)
-------------- --------------
NET ASSET VALUE, END OF PERIOD ............ $10.84 $9.64
============== ==============
TOTAL RETURN (1) ........................... 18.48% -1.86%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period ($1,000's) ..... $2,206 $1,063
Ratio of Expenses to Average Net Assets (5) 1.84% 1.76% (6)
Ratio of Net Income to Average Net Assets 5.20% 5.43% (6)
Portfolio Turnover Rate (2) .............. 8% 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) Change in Fund's fiscal year-end. 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 & Exchange Commission Release No. FR 46 effective
September 1, 1995. Ratios for prior periods were calculated based on net expenses and have not been restated.
(6) Annualized.
</FN>
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
COMPOSITE INCOME FUND, INC.
Class A
------------------------------------------------------------------------------
THREE MONTHS
ENDED YEAR ENDED
DECEMBER 31, SEPTEMBER
YEARS ENDED DECEMBER 31, 30,
------------------------------------------------
1995 1994 1993 1992 (3) 1992
-------------- -------------- ------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ............... $8.29 $9.33 $8.99 $9.17 $8.68
-------------- -------------- ------------- --------------- -----------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income ............................. 0.59 0.60 0.61 0.16 0.65
Net Gains or Losses on Securities (both
realized and unrealized) ........................ 1.15 (1.04) 0.34 (0.18) 0.49
-------------- -------------- ------------- --------------- -----------
Total From Investment Operations .................. 1.74 (0.44) 0.95 (0.02) 1.14
-------------- -------------- ------------- --------------- -----------
LESS DISTRIBUTIONS
Dividends(from net investment income) ............. (0.59) (0.60) (0.61) (0.16) (0.65)
-------------- -------------- ------------- --------------- -----------
NET ASSET VALUE, END OF PERIOD ..................... $9.44 $8.29 $9.33 $8.99 $9.17
============== ============== ============= =============== ===========
TOTAL RETURN (1) .................................... 21.58% -4.82% 10.82% -0.23% 13.57%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period ($1,000's) .............. $97,534 $88,102 $104,876 $86,425 $84,995
Ratio of Expenses to Average Net Assets (5) ....... 1.08% 1.04% 1.08% 0.95% (6) 1.05%
Ratio of Net Income to Average Net Assets ......... 6.59% 6.83% 6.58% 6.94% (6) 7.26%
Portfolio Turnover Rate (2) ....................... 43% 26% 51% 87% (6) 47%
<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-end. 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 & Exchange Commission Release No. FR 46 effective
September 1, 1995. Ratios for prior periods were calculated based on net expenses and have not been restated.
(6) Annualized.
</FN>
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
COMPOSITE INCOME FUND, INC.
Class B
-------------------------------
MARCH 30, 1994
YEAR ENDED TO
DECEMBER 31, DECEMBER 31,
1995 1994 (4)
-------------- --------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ............. $8.30 $8.85
-------------- --------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income ........................... 0.51 0.40
Net Gains or Losses on Securities (both
realized and unrealized ....................... 1.16 (0.55)
-------------- --------------
Total From Investment Operations ................ 1.67 (0.15)
-------------- --------------
LESS DISTRIBUTIONS
Dividends(from net investment income ............ (0.51) (0.40)
-------------- --------------
NET ASSET VALUE, END OF PERIOD ................... $9.46 $8.30
============== ==============
TOTAL RETURN (1) .................................. 20.70% -1.67%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period ($1,000's) ............ $4,452 $2,299
Ratio of Expenses to Average Net Assets (5) ..... 1.91% 1.80% (6)
Ratio of Net Income to Average Net Assets ....... 5.73% 6.25% (6)
Portfolio Turnover Rate (2) ..................... 43% 26%
<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-end. 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 & Exchange Commission Release No. FR 46 effective
September 1, 1995. Ratios for prior periods were calculated based on net expenses and have not been restated.
(6) Annualized.
</FN>
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
COMPOSITE TAX-EXEMPT BOND FUND, INC.
CLASS A
-----------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------------------
1995 1994 1993 1992 1991
-------------- -------------- ------------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD .......... $7.13 $8.04 $7.58 $7.42 $7.16
-------------- -------------- ------------- ----------------- ------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income ........................ 0.38 0.39 0.40 0.42 0.45
Net Gains or Losses on Securities (both
realized and unrealized) ................... 0.89 (0.91) 0.54 0.23 0.34
-------------- -------------- ------------- ----------------- ------------
Total From Investment Operations ......... 1.27 (0.52) 0.94 0.65 0.79
-------------- -------------- ------------- ----------------- ------------
LESS DISTRIBUTIONS
Dividends(from net investment income) ........ (0.38) (0.39) (0.40) (0.42) (0.45)
Distributions (from capital gains) ........... 0.00 0.00 (0.08) (0.07) (0.08)
-------------- -------------- ------------- ----------------- ------------
Total Distributions .......................... (0.38) (0.39) (0.48) (0.49) (0.53)
-------------- -------------- ------------- ----------------- ------------
NET ASSET VALUE, END OF PERIOD ................ $8.02 $7.13 $8.04 $7.58 $7.42
============== ============== ============= ================= ============
TOTAL RETURN (1) ............................... 18.25% -6.53% 12.54% 9.00% 11.36%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period ($1,000's) ......... $230,055 $215,438 $259,045 $186,861 $140,154
Ratio of Expenses to Average Net Assets (4) .. 0.81% 0.79% 0.81% 0.78% 0.77%
Ratio of Net Income to Average Net Assets .... 5.03% 5.23% 4.97% 5.56% 6.16%
Portfolio Turnover Rate (2) .................. 8% 12% 19% 30% 83%
<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 offering Class B shares.
(4) Ratios for 1995 are based upon total expenses in accordance with Securities & Exchange Commission Release No. FR 46 effective
September 1, 1995. Ratios for prior periods were calculated based on net expenses and have not been restated.
(5) Annualized.
</FN>
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
COMPOSITE TAX-EXEMPT BOND FUND, INC.
CLASS B
-------------------------------
MARCH 30, 1994
YEAR ENDED TO
DECEMBER 31, DECEMBER 31,
1995 1994 (3)
-------------- --------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ......... $7.13 $7.49
-------------- --------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income ....................... 0.32 0.25
Net Gains or Losses on Securities (both
realized and unrealized) .................. 0.89 (0.36)
-------------- --------------
Total From Investment Operations ........ 1.21 (0.11)
-------------- --------------
LESS DISTRIBUTIONS
Dividends(from net investment income) ....... (0.32) (0.25)
Distributions (from capital gains) .......... 0.00 0.00
-------------- --------------
Total Distributions ......................... (0.32) (0.25)
-------------- --------------
NET ASSET VALUE, END OF PERIOD ............... $8.02 $7.13
============== ==============
TOTAL RETURN (1) .............................. 17.30% -1.46%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period ($1,000's) ........ $2,682 $1,258
Ratio of Expenses to Average Net Assets (4) . 1.62% 1.58% (5)
Ratio of Net Income to Average Net Assets ... 4.18% 4.53% (5)
Portfolio Turnover Rate (2) ................. 8% 12%
<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 offering Class B shares.
(4) Ratios for 1995 are based upon total expenses in accordance with Securities & Exchange Commission Release No. FR 46 effective
September 1, 1995. Ratios for prior periods were calculated based on net expenses and have not been restated.
(5) Annualized.
</FN>
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ACCOUNTING POLICIES
Composite U.S. Government Securities, Inc., Composite Income Fund, Inc.,
and Composite Tax-Exempt Bond Fund, Inc. (together the "Funds") are registered
under the Investment Company Act of 1940, as amended, as open-end diversified
management investment companies.
On January 28, 1992, the Composite U.S. Government Securities, Inc. and
Composite Income Fund, Inc. Board of Directors approved a change in their fiscal
year ends to December 31. Accordingly, information for the fiscal year ended
December 31, 1992, is presented for the ten-month period from March 1, 1992, for
Composite U.S. Government Securities, Inc. and the three-month period from
October 1, 1992, for Composite Income Fund, Inc.
The Funds offer both Class A and Class B shares. Class B shares were first
offered March 30, 1994. The two classes of shares differ in their respective
sales charges, shareholder servicing fees, and distribution and service fees.
All shareholders bear the common expenses of the Fund pro rata, based on value
of settled shares outstanding, without distinction between share class.
Dividends are declared separately for each class. Neither class has preferential
dividend rights; differences in per-share dividend rates are generally due to
differences in separate class expenses, including distribution and service fees.
Following is a summary of significant accounting policies, in conformity
with generally accepted accounting principles, which are consistently followed
by each Fund in the preparation of its financial statements.
a. Investment securities are stated on the basis of valuations provided by an
independent pricing service, approved by the Boards of Directors, which uses
information with respect to transactions, quotations from dealers, market
transactions in comparable securities, and various relationships between
securities in determining value. Investment securities with less than 60
days to maturity when purchased are valued at amortized cost which
approximates market value. Investment securities not currently quoted as
described above will be priced at fair market value as determined in good
faith in a manner prescribed by the Boards of Directors.
b. Interest income is earned from the settlement date on securities purchased
and is recorded on the accrual basis.
c. Dividends to shareholders are recorded on a daily basis and distributed
monthly. The Funds distribute substantially all of their income monthly.
d. Security transactions are accounted for on trade date (execution date of the
order to buy or sell). Realized gain or loss from security transactions and
change in unrealized appreciation or depreciation are determined on the
basis of identified cost.
e. Each Fund complies with requirements of the Internal Revenue Code applicable
to regulated investment companies and distributes taxable income so that no
provision for federal income or excise tax is required. Income dividends and
capital gain distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments for expiring
capital loss carry forwards, deferral of wash sales, and post-October
losses. Expiring capital loss carryforwards are charged to additional
capital.
f. In accordance with Securities and Exchange Commission Release No. FR. 46
effective September 1, 1995, custodian fees have been increased by $4,601,
$4,551, and $7,982 for Composite U.S. Government Securities, Inc., Composite
Income Fund, Inc., and Composite Tax-Exempt Bond Fund, Inc., respectively.
Such amounts relate to "expense offset arrangements." The Funds could have
otherwise employed the assets to produce income if they had not entered into
such arrangements. In accordance with the regulations, such amounts are
added to custodian fees actually incurred to arrive at gross custodian fees
and then reflected as a deduction, "fees paid indirectly" to derive net
expenses. There were no "expense offset arrangements" other than custodian
fees.
NOTE 2 - TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
The amounts of fees and expenses described below are shown on each Fund's
statement of operations.
Management fees were paid by each Fund to Composite Research & Management
Co.(CRMCo), the investment adviser. The fees are based on an annual rate of
.625% of average daily net assets for Composite U.S. Government Securities and
Composite Income Fund, and on an annual rate of .50% for Composite Tax-Exempt
Bond Fund. An individual Fund's management fees will be reduced if that Fund's
net assets exceed $250 million. Under terms of each Fund's management contract,
CRMCo. has agreed to reimburse a Fund for its expenses in excess of 1.50% of
average daily net assets up to $30 million, and 1% of such assets over $30
million. Composite Income Fund and Composite Tax-Exempt Bond Fund will be
further reimbursed for expenses exceeding .75% of average daily net assets
exceeding $130 million. No such reimbursement was required during the year ended
December 31, 1995.
Directors' fees and expenses were paid directly by each Fund to directors
having no affiliation with the Funds other than in their capacity as directors.
Other officers and directors received no compensation from the Funds.
Shareholder servicing fees were paid to Murphey Favre Securities Services,
Inc., (MFSSI) the transfer and shareholder servicing agent, for services
incidental to issuance and transfer of shares, maintaining shareholder lists,
and issuing and mailing distributions and reports. The authorized monthly
shareholder servicing fees are $1.60 and $1.70 per Class A and Class B share
accounts, respectively.
Distribution expenses were paid to Murphey Favre, Inc. (MFI), the principal
underwriter and distributor, in accordance with separate Distribution Plans for
Class A and Class B. The Funds' Board of Directors adopted the Plans pursuant to
Rule 12b-1 of the Investment Company Act of 1940. The Class A Distribution Plan
provides that the Fund will reimburse MFI up to 0.25% of the average daily net
assets attributable to Class A shares annually for a portion of its expenses
incurred in distributing each Fund's Class A shares, including payment to
brokers. The Class B Distribution Plan provides that the Funds will pay MFI a
distribution fee, equal to 0.75% annually, and a service fee of 0.25%, of the
Funds' average daily net assets attributable to Class B shares.
For the year ended December 31, 1995, commissions (sales charges paid by
investors) on the purchases of Class A shares totaled $150,970, $209,703, and
$341,454, of which $150,848, $209,674, and $341,403 was retained by MFI, in the
Composite U.S. Government Securities, Ince., Composite Income Fund, Inc., and
Composite Tax-Exempt Bond Fund, Inc., respectively. For the year ended December
31, 1995, MFI received contingent deferred sales charges of $1,682, $5,047, and
$1,893, for Composite U.S. Government Securities, Composite Income Fund, and
Composite Tax-Exempt Bond Fund, respectively, upon redemption of Class B shares
as reimbursement for sales commissions advanced by MFI at the time of such
sales.
Under terms of the distribution contracts, MFI will reimburse each Fund if
its expenses exceed the most stringent applicable state blue sky limitation. No
such reimbursement was required during the six-month year ended December 31,
1995.
NOTE 3 - CAPITAL STOCK
COMPOSITE U.S. GOVERNMENT SECURITIES
Capital stock authorized ............. 1,000,000,000
Designated as:
Class A ......................... 600,000,000
Class B ......................... 400,000,000
Par value per share .................. $0.0001
<TABLE>
<CAPTION>
CLASS A CLASS B
------------------------------------------ -------------------------------------
YEAR MARCH 30, 1994
ENDED TO
YEARS ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1995 1994 (1)
---------------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C>
SHARES
Sold ..................................... 810,845 1,450,548 106,878 120,824
Issued for reinvestment of dividends and
capital gains ........................... 784,736 954,531 6,046 2,342
---------------------- ----------------- ---------------- ----------------
1,595,581 2,405,079 112,924 123,166
Reacquired ............................... (4,752,653) (7,733,340) (19,778) (12,857)
---------------------- ----------------- ---------------- ----------------
Net increase (decrease) .................. (3,157,072) (5,328,261) 93,146 110,309
====================== ================= ================ ================
AMOUNT
Sold ..................................... $8,364,834 $14,056,664 $1,115,018 $1,201,752
Issued for reinvestment of dividends ..... 8,133,434 10,395,143 63,184 26,998
---------------------- ----------------- ---------------- ----------------
16,498,268 24,451,807 1,178,202 1,228,750
Reacquired ............................... (48,900,725) (77,684,980) (200,619) (125,154)
---------------------- ----------------- ---------------- ----------------
$ (32,402,457) $(53,233,173) $ 977,583 $1,103,596
====================== ================= ================ ================
<FN>
(1) From the commencement of offering Class B shares.
</FN>
</TABLE>
COMPOSITE INCOME FUND, INC.
Capital stock authorized ................... 50,000,000
Designated as:
Class A ................................ 30,000,000
Class B ................................ 20,000,000
Par value per share ........................ $0.01
<TABLE>
<CAPTION>
CLASS A CLASS B
-------------------------------------------- -------------------------------------
YEAR MARCH 30, 1994
ENDED TO
YEARS ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1995 1994 (1)
---------------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C>
SHARES
Sold ....................................... 1,400,247 1,783,466 219,399 290,683
Issued for reinvestment of dividends ....... 499,570 565,488 16,941 6,610
---------------------- ----------------- ---------------- ----------------
1,899,817 2,348,954 236,340 297,293
Reacquired ................................. (2,194,039) (2,963,495) (42,305) (20,455)
---------------------- ----------------- ---------------- ----------------
Net increase (decrease) .................... (294,222) (614,541) 194,035 276,838
====================== ================= ================ ================
AMOUNT
Sold ....................................... $ 12,466,219 $ 15,792,705 $1,972,074 $2,494,055
Issued for reinvestment of dividends ....... 4,473,957 4,889,312 152,542 55,679
---------------------- ----------------- ---------------- ----------------
16,940,176 20,682,017 2,124,616 2,549,734
Reacquired ................................. (19,416,775) (25,636,115) (380,966) (171,501)
---------------------- ----------------- ---------------- ----------------
Net increase (decrease) .................... $ (2,476,599) $ (4,954,098) $1,743,650 $2,378,233
====================== ================= ================ ================
<FN>
(1) From the commencement of offering Class B shares.
</FN>
</TABLE>
<PAGE>
COMPOSITE TAX-EXEMPT BOND FUND, INC.
Capital stock authorized ................... 5,000,000,000
Designated as:
Class A ................................ 3,000,000,000
Class B ................................ 2,000,000,000
Par value per share ........................ $0.0001
<TABLE>
<CAPTION>
CLASS A CLASS B
-------------------------------------------- -------------------------------------
YEAR MARCH 30, 1994
ENDED TO
YEARS ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1995 1994 (1)
---------------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C>
SHARES
Sold ....................................... 2,542,933 3,556,878 161,616 181,155
Issued for reinvestment of dividends ....... 1,034,551 1,310,239 7,241 3,539
---------------------- ----------------- ---------------- ----------------
3,577,484 4,867,117 168,857 184,694
Reacquired ................................. (5,093,734) (6,888,578) (10,688) (8,323)
---------------------- ----------------- ---------------- ----------------
(1,516,250) (2,021,461) 158,169 176,371
====================== ================= ================ ================
AMOUNT
Sold ....................................... $ 18,646,519 $ 25,964,330 $1,240,802 $1,340,880
Issued for reinvestment of dividends ....... 8,716,895 9,728,020 60,160 25,691
---------------------- ----------------- ---------------- ----------------
27,363,414 35,692,350 1,300,962 1,366,571
Reacquired ................................. (38,879,195) (49,893,740) (82,411) (61,722)
---------------------- ----------------- ---------------- ----------------
Net increase (decrease) .................... $ (11,515,781) $ (14,201,390) $1,218,551 $1,304,849
====================== ================= ================ ================
<FN>
(1) From the commencement of offering Class B shares.
</FN>
</TABLE>
<PAGE>
NOTE 4 - SHAREHOLDER MEETING
A special meeting of the Funds' shareholders was held March 21, 1995. Each
matter voted upon at the meeting, as well as the number of votes cast for,
against or withheld, and abstained, are set forth below:
1. The Funds' shareholders elected the following nine directors:
<TABLE>
<CAPTION>
COMPOSITE U.S. GOVERNMENT COMPOSITE COMPOSITE TAX-EXEMPT
SECURITIES, INC. INCOME FUND, INC. BOND FUND, INC.
------------------------- -------------------- ------------------------
SHARES SHARES SHARES
SHARES WITHHOLDING SHARES WITHHOLDING SHARES WITHHOLDING
VOTED AUTHORITY VOTED AUTHORITY VOTED AUTHORITY
"FOR" TO VOTE "FOR" TO VOTE "FOR" TO VOTE
----------- ------------- ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Wayne L. Attwood, M.D. ........ 9,874,047 148,350 5,743,458 63,821 18,201,299 257,223
Kristianne Blake .............. 9,839,099 183,298 5,735,002 72,277 18,162,651 295,871
Anne V. Farrell ............... 9,870,287 152,110 5,735,341 71,938 18,164,549 293,973
Edwin J. McWilliams ........... 9,881,774 140,623 5,730,823 76,456 18,194,645 263,877
Michael K. Murphy ............. 9,868,638 153,759 5,753,880 53,399 18,202,937 255,585
William G. Papesh ............. 9,884,799 137,598 5,747,323 59,956 18,237,998 220,524
Jay Rockey .................... 9,870,080 152,317 5,731,850 75,429 18,191,564 266,958
Leland J. Sahlin .............. 9,881,485 140,912 5,744,235 63,044 18,234,027 224,495
Richard C. Yancey ............. 9,879,972 142,425 5,746,767 60,512 18,211,479 247,043
</TABLE>
2. The Funds' shareholders ratified the selection by a majority of the
independent members of the Funds' Board of Directors of LeMaster & Daniels,
PLLC, as independent accountants for each Fund for the current year,
subject to termination at any time without penalty.
<TABLE>
<CAPTION>
SHARES SHARES
VOTED VOTED
"FOR" "AGAINST" ABSTAINED
----------- --------------- ------------
<S> <C> <C> <C>
Composite U.S. Government Securities, Inc. ...... 9,563,799 56,805 401,792
Composite Income Fund, Inc. ..................... 5,556,031 31,439 219,808
Composite Tax-Exempt Bond Fund, Inc. ............ 17,965,642 44,466 448,414
</TABLE>
<PAGE>
MORE ABOUT THE COMPOSITE GROUP
DISCIPLINED INVESTMENT MANAGEMENT
With more than a half-century of experience investing in all types of
market conditions, we are convinced that discipline and patience are far better
friends than greed. For many investors, short-term "opportunities" have resulted
in longer-term problems.
The Composite Group of Funds takes a long-term view toward the management
of your assets. Each fund is managed with specific investment objectives in
mind, and contains a diversified and carefully chosen portfolio of securities
that, in our opinion, best meets those objectives. We believe our focus on
discipline - on sensible investment strategies - offers investors a greater
potential for reward over time in an environment of reduced risk.
FUNDS FOR GROWTH
In addition to our bond funds which are designed to primarily provide
income, the Composite Group also includes three funds developed to offer
investors the potential for growth of assets.
COMPOSITE BOND & STOCK FUND is managed to provide the potential for steady
income from bonds and long-term growth of principal from stocks. Taking a
conservative approach to meeting these objectives, we place as much emphasis on
credit-quality as on yields in choosing bonds, and on fundamental values and the
potential for appreciation in choosing stocks.
COMPOSITE GROWTH & INCOME FUND has as its objective the long-term growth of
capital, with current income a secondary consideration. In pursuit of this
objective, the Fund invests principally in high-quality common stocks which, in
our opinion, are undervalued.
COMPOSITE NORTHWEST FUND seeks to provide long-term growth of capital by
investing in a portfolio whose common stocks are exclusively those of companies
located or doing business in the Northwest (Washington, Oregon, Idaho, Montana
and Alaska).
TWO WAYS YOUR CASH CAN EARN ITS KEEP
COMPOSITE CASH MANAGEMENT CO. seeks to provide current money market rates
of return, liquidity, and preservation of capital through its two portfolios.
The MONEY MARKET portfolio invests in high-quality, short-term money market
obligations of banks, businesses, and the U.S. government.
The TAX-EXEMPT MONEY MARKET portfolio invests in high-quality, short-term
municipal bonds that are exempt from federal income tax.
Both portfolios are intended as repositories for future cash needs and
offer draft-writing privileges. Shares of the Fund are free of any sales charge.
Please note that an investment in either portfolio is not insured or
guaranteed by the U.S. government, nor can there be any assurance that a stable
net asset value of $1.00 per share can be maintained.
WE'RE HERE TO HELP
If you have questions, we encourage you to visit with your investment
representative or call Composite Customer Service toll-free at 1-800-543-8072,
Monday through Friday, 7:00 a.m. - 6:00 p.m., Pacific Time.
- --------------------------------------------------------------------------------
FOR MORE INFORMATION ON ANY OF THE COMPOSITE GROUP FUNDS, INCLUDING CHARGES AND
EXPENSES, WRITE OR CALL FOR A FREE PROSPECTUS. PLEASE READ IT CAREFULLY BEFORE
YOU INVEST OR SEND MONEY.
- --------------------------------------------------------------------------------
<PAGE>
FOR FURTHER INFORMATION, PLEASE CONTACT:
FUND OFFICES
Composite Group of Funds
601 W. Main Avenue, Suite 801
Spokane, WA 99201-0613
Phone: (509) 353-3550
Toll free: (800) 543-8072
ADVISER
Composite Research & Management Co.
1201 Third Avenue, Suite 1220 Seattle, WA 98101-3015
DISTRIBUTOR
Murphey Favre, Inc.
1201 Third Avenue, Suite 780 Seattle, WA 98101-3015
CUSTODIAN
Investors Fiduciary Trust Company
127 W. 10th Street Kansas City, MO 64105-1716
INDEPENDENT PUBLIC ACCOUNTANTS
LeMaster & Daniels, PLLC
601 W. Riverside, Suite 800 Spokane, WA 99201-0614
COUNSEL
Paine, Hamblen, Coffin, Brooke & Miller
717 W. Sprague Avenue, Suite 1200 Spokane, WA 99204-0464
OFFICERS
PRESIDENT
William G. Papesh
EXECUTIVE VICE PRESIDENT
Kerry K. Killinger
VICE PRESIDENTS
Gene G. Branson
Douglas D. Springer
VICE PRESIDENT & TREASURER
Monte D. Calvin
SECRETARY
John T. West
BOARD OF DIRECTORS
CHAIRMAN
Leland J. Sahlin
MEMBERS
Wayne L. Attwood, M.D.
Kristianne Blake
Anne V. Farrell
Edwin J. McWilliams
Michael K. Murphy
William G. Papesh
Jay Rockey
Richard C. Yancey
This report is submitted for the general information of shareholders of the
Funds. For more detailed information about the Funds, their officers and
directors, fees, expenses and other pertinent information, please see the
prospectus of the Funds. This report is not authorized for distribution to
prospective investors in the Funds unless preceded or accompanied by an
effective prospectus.
COMPOSITE GROUP
BOND FUNDS
ANNUAL REPORT
December 31, 1995
COMPOSITE
U.S. GOVERNMENT
SECURITIES, INC.
COMPOSITE
INCOME FUND, INC.
COMPOSITE
TAX-EXEMPT BOND
FUND, INC.
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