ECONOMIC AND
INTEREST RATE
OUTLOOK
FUNDS' INVESTMENT HIGHLIGHTS
FUNDS' PORTFOLIOS
FINANCIAL INFORMATION
FINANCIAL STATEMENTS
FINANCIAL HIGHLIGHTS
NOTES TO FINANCIAL STATEMENTS
MORE ABOUT
THE COMPOSITE
GROUP
PRESIDENT'S MESSAGE
Shorter range, bond investors have experienced some dramatic changes in
market direction. At the end of 1994 the fixed income markets had experienced an
unprecedented one-year decline. Was this to become longer-term market direction?
No way. Twelve months later, 1995 closed with significantly improved results. It
was an occasion of joy for traders and investors alike, from Wall Street to Main
Street. And then came 1996.
In my message to shareholders in the December 31, 1995 Annual Report, you may
recall that my satisfaction with 1995 results was tempered by a note of caution
about 1996 market direction. Unfortunately, this caution was well-founded as you
will discover in the pages ahead.
Although long-term returns were quite positive, investment performance of the
three Composite Group bond funds was slightly negative for the six-month period
ended June 30, 1996. Class A share total returns at net asset value (before the
deduction of the maximum sales charge but including reinvestment of dividends)
were -2.40% from U.S. Government Securities Fund, -2.42% from Income Fund, and
- -1.77% from Tax-Exempt Bond Fund. For a more complete discussion of performance
including returns to Class B shareholders and the effect of maximum sales
charges, please refer to the Investment Highlights section of this report.
While we take a long-term view toward investment management, we always have
to be sensitive to shorter-range challenges. We're entering just such a period
in the months ahead. The uncertainty of the economy and the likely increase in
interest rates if the Federal Reserve sees overheated growth is a concern. When
coupled with the ongoing debate about deficit reduction and the market's
reaction to the outcome of the presidential and congressional elections later
this fall, you can come away with some sense of what's facing investment
managers.
Portfolio management - never an easy task - requires the talents of
experienced people working with fund investment objectives and the market
conditions handed them. Although our bond fund managers are responsible for
specific funds, they work as a team.
[COMPOSITE GROUP BOND FUNDS INVESTMENT TEAM PHOTO (L TO R): AUDREY S. QUAYE,
BRIAN L. PLACZEK, GARY J. POKRZYWINSKI.]
With Fund objectives uppermost in mind, the managers monitor economic and
market conditions, immerse themselves in relevant research, evaluate all
portfolio holdings and, when circumstances dictate, bring their recommendations
for portfolio additions or deletions to the group. This shared scrutiny on
securities selection is a process we have followed since the introduction of our
first mutual fund in 1939 - one of the first 50 in the nation. We're proud of
the work of our team, especially in periods that can be most charitably
described as difficult.
We appreciate your business and continued faith in the long-term potential of
Composite Funds.
/s/ William G. Papesh
WILLIAM G. PAPESH
PRESIDENT
<PAGE>
ECONOMIC AND INTEREST RATE OUTLOOK
INTEREST RATES HAVE TAKEN FIXED income investors for quite a roller coaster
ride. After declining to nearly a 20-year low of 5.80% in 1993, yields from
30-year treasury bonds rose rapidly to 8.16% in 1994, then worked their way down
to 5.95% at the end of 1995. By June 30 of this year, the 30-year Treasury yield
has moved back up to 6.89%.
At the end of 1995 the debate was whether the economy could produce some
moderate growth or whether it would actually slip into a recession. Then the
government's February report that 624,000 non-farm payroll jobs were created
during the month took the market by surprise. This has since been followed by
several more indicators which document a healthy economy: record auto sales, a
high level of home sales, and good retail sales. The first quarter Gross
Domestic Product was growing at an annual rate of 2.3% and many believe the
second quarter may approach 4%.
Most economists do not believe the economy can long support such growth.
There are concerns that unemployment is already so low that general labor
shortages may develop and that factories, already utilized at high levels, may
not have enough capacity to meet demand. It is feared that this tightness in
factory capacity and labor markets will result in renewed inflation.
On the bright side, however, the Federal Reserve's targets for growth and
inflation, combined with the trend in interest rates, demographics and fiscal
policy, give us reason to believe the markets are creating a buying opportunity
in the months ahead.
First, the Federal Reserve, under the recently reconfirmed leadership of Alan
Greenspan, has the will, the means and the track record to slow an overheating
economy. The Federal Reserve has targeted an average growth rate of about 2.5%
and an inflation rate of no more than 3%. Long-term rates should approximate the
simple addition of those two numbers, but one could add another 1% as a fudge
factor to get a fair value of 6.5% for long-term rates. If one has confidence in
the Federal Reserve, then a 30-year Treasury note yielding around 6.5%
constitutes a solid value.
Second, the trend of interest rates has been towards both lower highs and
lower lows. The 30-year Treasury note was recently below a 6% yield without a
recession. Empirically, this seems to indicate that should a recession occur,
Treasury yields significantly below 6% may become a real possibility.
Finally, along with the steady hand of the Federal Reserve, a major force in
this long-term downward trend of interest rates is the aging of the baby
boomers. Evolving into middle age, they are forcing Congress to consider
enacting more conservative fiscal measures. With retirement approaching, the
baby boomers are pumping record levels of savings into the capital markets. All
things equal, reducing federal borrowing and increasing the supply of savings
should reduce the cost of capital and, therefore, interest rates.
<PAGE>
INVESTMENT HIGHLIGHTS
COMPOSITE U.S.GOVERNMENT SECURITIES,INC.
[CHART]
FUND PERFORMANCE
PERIODS ENDED 6/30/96
- ---------------------------------------------------------
SIX MONTHS
CLASS A CLASS B
SHARES SHARES
--------- ----------
TOTAL RETURN
(NOT ANNUALIZED)
With sales charge -6.29% -6.58%
Without sales charge -2.40% -2.79%
PER SHARE
Dividends $0.311 $0.269
NET ASSET VALUES
Beginning $10.84 $10.84
Ending $10.27 $10.27
30-DAY YIELD 5.87% 5.27%
- ----------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
WITH WITHOUT
CLASS A SALES SALES
SHARES CHARGE CHARGE
- ----------- --------- ---------
ONE YEAR -0.59% 3.57%
FIVE YEARS 6.12% 6.98%
TEN YEARS 7.28% 7.72%
CLASS B
SHARES
- -----------
ONE YEAR -1.17% 2.74%
LIFE OF CLASS 4.75% 5.58%
(SINCE 3/30/94)
- ----------------------------------------------------------
REFERENCE TO SALES CHARGES ABOVE IS BASED ON THE MAXIMUM 4% INITIAL SALES CHARGE
FOR CLASS A SHARES OR APPLICABLE CLASS B CONTINGENT DEFERRED SALES CHARGES OF 4%
FOR ONE YEAR AND 2% SINCE MARCH 1994. INFORMATION PRESENTED REPRESENTS PAST
PERFORMANCE WHICH CANNOT PREDICT FUTURE RESULTS. 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.
AFTER SMOOTH SAILING FOR ALL OF 1995, the first half of 1996 was difficult
for fixed income investors. Although longer-term performance continued positive,
the six-month period ended June 30, 1996 produced negative returns. Indeed, the
significant 1 1/4% rise in long-term interest rates produced negative returns
for any U.S. Treasury security with a maturity over 2 1/2 years.
Notwithstanding the short-range returns, Composite U.S. Government Securities
benefited from its substantial weighting in mortgage-backed securities which
represented 70% of the Fund's portfolio. When interest rates were lower,
homeowners had a much greater incentive to refinance. As refinancing occurred,
mortgage-backed securities were paid off earlier than expected and security
holders likely reinvested at lower rates. With interest rates moving higher the
prepayment risk was reduced and mortgage-backed securities posted positive
relative returns.
The Fund's significant position in mortgage-backed securities demanded that
we develop a strategy to control the prepayment risk even though there is some
slight yield reduction. Experience shows that homeowners with low-rate mortgages
are much less likely to refinance even in periods of much lower interest rates
than today. Our decision then, was to position over 40% of the Fund in
mortgage-backed securities that are well protected from prepayments. This,
combined with our non-callable U.S. Treasury obligation (24%) and cash (6%)
positions, produces a favorable call structure for the Fund.
The average maturity of the Fund remains in an intermediate range at 10.6
years. This maturity structure allows the Fund to capture the majority of the
income or yield available in fixed income securities while being consistent with
the intermediate to long-term investment time horizon of shareholders.
In times like this it is important to keep in mind that while market
direction can negatively impact short-term investment returns, long-term
performance and security ought to be of principal concern to shareholders of
this Fund. In our quest to meet the Fund's investment objectives, we continue to
avoid any excessively volatile securities and, although Fund shares themselves
are not guaranteed, portfolio investments are either direct obligations of or
are guaranteed by the U.S. government, or collateralized by such securities.
<PAGE>
COMPOSITE INCOME FUND
INVESTMENT HIGHLIGHTS
[CHART]
FUND PERFORMANCE
PERIODS ENDED 6/30/96
- -----------------------------------------------------
SIX MONTHS
CLASS A CLASS B
SHARES SHARES
--------- ---------
TOTAL RETURN
(NOT ANNUALIZED)
With sales charge -6.29% -6.68%
Without sales charge -2.42% -2.90%
PER SHARE
Dividends $0.292 $0.256
NET ASSET VALUES
Beginning $ 9.44 $ 9.46
Ending $ 8.92 $ 8.93
30-DAY YIELD 6.22% 5.67%
- -----------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
WITH WITHOUT
CLASS A SALES SALES
SHARES CHARGE CHARGE
- ----------- -------- ---------
ONE YEAR 0.22% 4.41%
FIVE YEARS 7.49% 8.37%
TEN YEARS 7.64% 8.07%
CLASS B
SHARES
- -----------
ONE YEAR -0.36% 3.56%
LIFE OF CLASS 5.67% 6.50%
(SINCE 3/30/94)
- --------------------------------------------------------
REFERENCE TO SALES CHARGES ABOVE IS BASED ON THE MAXIMUM 4% INITIAL SALES CHARGE
FOR CLASS A SHARES OR APPLICABLE CLASS B CONTINGENT DEFERRED SALES CHARGES OF 4%
FOR ONE YEAR AND 2% SINCE MARCH 1994. INFORMATION PRESENTED REPRESENTS PAST
PERFORMANCE WHICH CANNOT PREDICT FUTURE RESULTS. 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.
AS INDICATED EARLIER IN THIS REPORT, interest rate movements in the past six
months produced disappointing short-term results across the broad spectrum of
the bond markets. While we are pleased with the relative positive performance of
Composite Income Fund over the longer-term, returns for the six-month period
ended June 30, 1996 were slightly negative.
At the start of the year the market was expecting weak economic growth and a
consequent reduction in interest rates by the Federal Reserve. But such was not
the case. Long-term interest rates increased 1 1/4% during the period and, now
with a change in the outlook for the economy, there is the possibility of
further credit tightening by the Federal Reserve.
Fortunately, 1995 produced exceptionally positive results for shareholders
and, although the latest period has been difficult, the Fund has provided
attractive returns longer-term as the chart shows.
Currently, the average quality of the portfolio is A1/A+ as rated by Moody's
and Standard & Poor's, respectively. Portfolio composition includes 37% in
high-quality corporate bonds; 20% in below-investment grade securities as rated
by either agency (sometimes called "junk bonds") for the higher yields they
provide; 20% in mortgage-backed securities; and 23% in U.S. Treasury notes and
cash equivalents.
While the credit spread - the extra income received by owning corporate bonds
instead of Treasuries - has narrowed over the last few years, we feel there are
sufficient opportunities offering attractive income. Our credit research and
relative value analysis lead us to favor bonds of companies whose earnings are
less sensitive to economic activity, such as those in the health care, defense
and media sectors.
We continue to employ an intermediate-term average maturity profile of
approximately 12 years for two reasons that are especially important in the
current environment. The first is our quest to capture a maximum amount of
current income consistent with preservation of capital. And the second is to
make appropriate investments consistent with the intermediate to long-term time
horizon of shareholders.
The fixed income investor has had to learn to accept a higher level of
short-term volatility over the last several years. But as the investor's time
horizon lengthens, volatility can be reduced and the potential for meeting
investment objectives has a greater opportunity for success.
<PAGE>
INVESTMENT HIGHLIGHTS (CONTINUED)
COMPOSITE TAX-EXEMPT BOND FUND
THE FIRST HALF OF 1996 HAS HAD a rough start and, although municipals
performed relatively better than taxable bonds, their yields were generally down
for the period. Composite Tax-Exempt Bond Fund's total return for the six-months
ended June 30, 1996 was slightly negative.
In the Investment Highlights for year-end 1995, we spoke of the greater
relative value that municipals offered in comparison to taxable bonds. As we
anticipated, during the first half of 1996 municipal yields declined relative to
the yields of taxable bonds, as marketplace fears of radical tax reform
subsided. Although the 10-year U.S. Treasury bond yield climbed 1.09% to 6.71%,
the 10-year AAA municipal bond's yield ratio to Treasury yields declined from
83.7% to 76.0%. That ratio decline lessened the potential decline in municipal
prices by about 0.60%.
The Fund maintains a strong average quality of Aa/AA, as measured by Moody's
and Standard and Poor's, respectively, and has an average maturity of 10.5
years. Looking forward, we positioned the portfolio to take advantage of near
term uncertainties. We reduced the Fund's exposure to bonds that were
particularly sensitive to rising interest rates and increased the holdings of
short-term securities to permit us to more easily take advantage of market
opportunities. We hold 57% of the portfolio in non-callable bonds, which we
believe compares quite favorably with other funds. Given a trend of lower highs
and lower lows in interest rates, non-callable bonds provide valuable protection
in the long run against the risk of reinvesting called bonds at lower yields.
In the near term, supply constraints in municipal bonds may create a better
relative value in municipal bonds compared to taxable bonds. It is estimated
that maturities and scheduled calls of prerefunded bonds will substantially
increase the liquidity for municipal bond holders while creating a net reduction
of $10 billion in the supply of municipal bonds during July. The general prices
of municipal bonds may receive extra support if those investors seek to reinvest
in what will be a smaller municipal pie.
If the investor's expected marginal tax rate is 28%, then the 5.10% yield of
a AAA 10-year municipal bond translates to 7.08% on a taxable equivalent basis.
On a taxable equivalent basis this is .37% over the 10-year treasury yield of
6.71%. Consistent with Fund investment objectives, we will attempt to capture
these and other yield values we see ahead.
[CHART]
FUND PERFORMANCE
PERIODS ENDED 6/30/96
- -----------------------------------------------------------
SIX MONTHS
CLASS A CLASS B
SHARES SHARES
----------- -----------
TOTAL RETURN
(NOT ANNUALIZED)
With sales charge -5.65% -6.00%
Without sales charge -1.77% -2.17%
PER SHARE
Dividends $0.188 $0.157
NET ASSET VALUES
Beginning $ 8.02 $ 8.02
Ending $ 7.69 $ 7.69
30-DAY YIELD 4.28% 3.61%
- -----------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
WITH WITHOUT
CLASS A SALES SALES
SHARES CHARGE CHARGE
- ----------- --------- ---------
ONE YEAR 1.42% 5.66%
FIVE YEARS 6.57% 7.45%
TEN YEARS 7.11% 7.55%
CLASS B
SHARES
- ------------
ONE YEAR 0.82% 4.82%
LIFE OF CLASS 4.77% 5.60%
(SINCE 3/30/94)
- -----------------------------------------------------------
REFERENCE TO SALES CHARGES ABOVE IS BASED ON THE MAXIMUM 4% INITIAL SALES CHARGE
FOR CLASS A SHARES OR APPLICABLE CLASS B CONTINGENT DEFERRED SALES CHARGES OF 4%
FOR ONE YEAR AND 2% SINCE MARCH 1994. INFORMATION PRESENTED REPRESENTS PAST
PERFORMANCE WHICH CANNOT PREDICT FUTURE RESULTS. 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. IN CERTAIN
CIRCUMSTANCES, THE ALTERNATIVE MINIMUM TAX, AS WELL AS STATE AND LOCAL TAXES,
MAY APPLY.
<TABLE>
<CAPTION>
COMPOSITE
U.S.
GOVERNMENT
SECURITIES, INC.
PORTFOLIO OF
INVESTMENTS
IN SECURITIES
JUNE 30,
1996
COMPOSITE U.S. GOVERNMENT SECURITIES PORTFOLIO (UNAUDITED)
PRINCIPAL MARKET
AMOUNT VALUE
- ------------ ------------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS-24.50%
$ 6,500,000 U.S. Treasury Bond, 7.50%, due 11/15/2016.................. $ 6,829,063
15,000,000 U.S. Treasury Bond, 7.25%, due 05/15/2016.................. 15,370,305
9,500,000 U.S. Treasury Bond, 7.25%, due 08/15/2022.................. 9,737,500
6,500,000 U.S. Treasury Bond, 6.25%, due 08/15/2023.................. 5,890,625
------------
TOTAL U.S. TREASURY OBLIGATIONS (cost $40,237,579)......... 37,827,493
------------
MORTGAGE-BACKED SECURITIES-69.47%
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION-48.97%
73,274 14.00%, due 06/15/2011..................................... 86,372
109,339 13.50%, due 08/15/2014 to 12/15/2014....................... 128,473
16,494 11.50%, due 07/15/2015..................................... 18,773
3,816,262 9.50%, due 07/15/2016 to 09/15/2020........................ 4,082,191
2,038,190 8.50%, due 05/15/2022...................................... 2,098,048
1,849,393 8.00%, due 04/15/2022...................................... 1,867,874
27,194,842 7.00%, due 07/15/2008 to 08/15/2023........................ 26,461,285
6,680,692 6.875%, due 09/20/2022..................................... 6,746,003
31,622,210 6.50%, due 03/20/2022 to 04/15/2026........................ 29,639,613
4,989,624 6.00%, due 04/20/2026...................................... 4,490,627
------------
75,619,259
------------
GNMA COLLATERALIZED MORTGAGE OBLIGATIONS-20.50%
1,041,329 Federal National Mortgage Association, 8.50%, due 02/25/2018 1,054,117
4,000,000 Federal National Mortgage Association, 8.25%, due 05/25/2020 4,126,640
6,408,000 Federal National Mortgage Association, 8.00%, due 06/25/2005 6,576,915
1,950,000 Federal National Mortgage Association, 7.50%, due 08/25/2001 1,989,371
2,230,000 Federal National Mortgage Association, 6.00%, due 08/25/2007 2,156,499
610,855 Federal National Mortgage Association, 5.75%, due 10/25/2010 608,828
8,500,000 Federal Home Loan Mortgage Corporation,
6.85%, due 07/25/2018.................................... 8,405,310
4,900,000 Merrill Lynch, 6.50%, due 08/27/2015....................... 4,652,354
1,521,000 Mortgage Capital Trust, 9.25%, due 06/01/2017.............. 1,578,038
492,016 Morgan Stanley, 8.975%, due 06/01/2001..................... 497,468
------------
31,645,540
------------
TOTAL MORTGAGE-BACKED SECURITIES (cost $108,434,260)....... 107,264,799
------------
REPURCHASE AGREEMENT-5.67%
$ 8,749,000 Repurchase agreement with First Boston, collateralized by
a U.S. Treasury Note, in a joint trading account at 5.25%
dated 06/28/1996, due 07/01/1996 with a maturity value
of $8,752,828 (cost $8,749,000)............................ 8,749,000
------------
TOTAL INVESTMENTS (cost $157,420,839)...................... 153,841,292
Other assets ($1,443,392) less liabilities ($879,536)...... 563,856
------------
NET ASSETS................................................. $154,405,148
============
</TABLE>
FEDERAL INCOME TAX INFORMATION:
Net unrealized depreciation of investments at June 30, 1996, of $3,579,547,
based on aggregate cost of $157,420,839, was composed of gross depreciation of
$5,219,101 for investments having an excess of cost over value and gross
appreciation of $1,639,554 for investments having an excess of value over cost.
OTHER INFORMATION:
Purchases and sales (including maturities and principal repayments) of
investment securities other than short-term investments, all of which were U.S.
government securities, aggregated $24,635,702 and $46,870,907, respectively,
during the six-months ended June 30, 1996. Principal repayments of
mortgage-backed securities aggregated $7,144,151.
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
COMPOSITE
INCOME
FUND, INC.
PORTFOLIO OF
INVESTMENTS
IN SECURITIES
JUNE 30,
1996
COMPOSITE INCOME FUND PORTFOLIO (UNAUDITED)
PRINCIPAL MARKET
AMOUNT VALUE
- ------------- -------------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS-15.38%
$ 2,100,000 U.S. Treasury Bond, 7.50%, due 11/15/2024.................. $ 2,226,655
4,225,000 U.S. Treasury Bond, 7.25%, due 08/15/2022.................. 4,330,625
5,425,000 U.S. Treasury Bond, 6.25%, due 08/15/2023.................. 4,916,406
1,000,000 U.S. Treasury Note, 7.75%, due 01/31/2000.................. 1,042,812
1,000,000 U.S. Treasury Note, 5.875%, due 03/31/1999................. 990,312
1,000,000 U.S. Treasury Bill, 7.50%, due 12/31/1996.................. 1,010,312
-----------
TOTAL U.S. TREASURY OBLIGATIONS (cost $14,189,398)......... 14,517,122
-----------
MORTGAGE-BACKED SECURITIES-20.42%
FEDERAL HOME LOAN MORTGAGE CORPORATION-0.34%
311,171 9.00%, due 12/01/2004....................................... 322,743
-----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION-15.65%
3,647,754 7.00%, due 08/15/2008, 07/15/2023.......................... 3,564,305
9,468,184 6.50%, due 08/15/2023 to 03/15/2024........................ 8,824,398
2,627,276 6.00%, due 02/15/2024...................................... 2,377,667
-----------
14,766,370
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS-4.43%
1,750,000 Donaldson, Lufkin & Jenrette, 7.35%, due 12/18/2003........ 1,687,684
1,000,000 Federal Home Loan Mortgage Corporation, 8.75%, due 06/15/2005 1,031,150
1,000,000 Federal Home Loan Mortgage Corporation, 7.50%, due 07/15/2020 1,011,890
69,345 Merrill Lynch Mortgage Investors, 9.70%, due 06/15/2008.... 70,610
215,881 Morgan Stanley Mortgage Trust, 9.30%, due 07/01/2017....... 216,756
158,015 Shearson Lehman, 8.75%, due 08/27/2017..................... 158,704
-----------
4,176,794
-----------
TOTAL MORTGAGE-BACKED SECURITIES (cost $19,915,226)........ 19,265,907
-----------
CORPORATE BONDS-47.60%
AEROSPACE/DEFENSE-3.37%
$ 1,000,000 Boeing Company, 8.75%, due 08/15/2021...................... $ 1,134,334
1,000,000 Loral Corporation, 8.375%, due 06/15/2024.................. 1,063,219
1,000,000 Loral Corporation, 7.625%, due 06/15/2025.................. 980,887
------------
3,178,440
------------
BANKING/FINANCE-7.48%
1,000,000 Bank of New York, 7.875%, due 11/15/2002................... 1,041,068
1,200,000 First Nationwide, 10.00%, due 10/01/2006................... 1,339,519
1,000,000 General Motors Acceptance Corporation, 8.00%, due 04/10/1997 1,014,958
1,250,000 Kemper Corporation, 6.875%, due 09/15/2003................. 1,225,490
1,000,000 Manufacturers and Traders Trust Company, 8.125%, due 12/01/2002 1,049,746
500,000 Mercantile Bank, 7.625%, due 10/15/2002.................... 511,880
1,000,000 Norwest Corporation, 6.65%, due 10/15/2023................. 878,388
-----------
7,061,049
-----------
BROADCAST/MEDIA-4.60%
850,000 Golden Books Publishing, Inc., 7.65%, due 09/15/2002....... 701,250
750,000 Tele-Communications, Inc., 9.25%, due 01/15/2023........... 738,515
2,000,000 Time Warner, Inc., 9.15%, due 02/01/2023................... 2,065,982
1,000,000 Westinghouse Corporation, 7.875%, due 09/01/2023........... 838,573
-----------
4,344,320
-----------
CONSUMER PRODUCTS & SERVICES-3.10%
750,000 Conagra, Inc., 9.75%, due 03/01/2021....................... 882,353
2,000,000 Dart & Kraft Finance NV, 7.75%, due 11/30/1998............. 2,045,364
-----------
2,927,717
-----------
ENTERTAINMENT/GAMING-0.53%
500,000 Riviera Holdings Corporation, 11.00%, due 12/31/2002........ 497,500
-----------
HEALTH & MEDICAL-2.75%
850,000 American Home Products Corporation, 7.25%, due 03/01/2023.. 816,861
678,000 American Medical International, zero coupon, due 08/12/1997 614,113
1,250,000 FHP International, 7.00%, due 09/15/2003................... 1,167,855
-----------
2,598,829
-----------
INDUSTRIAL PRODUCTS/SERVICES-0.57%
500,000 Crane Company, 8.50%, due 03/15/2004....................... 535,100
-----------
INSURANCE-3.94%
300,000 CII Financial, 7.50%, due 09/15/2001 (Convertible)......... 273,750
2,000,000 Continental Corporation, 7.25%, due 03/01/2003............. 1,990,208
1,450,000 Integon Corporation, 8.00%, due 08/15/1999................. 1,454,855
-----------
3,718,813
-----------
OILS & GAS-3.27%
$ 1,600,000 Burlington Resources, 9.125%, due 10/01/2021............... $ 1,818,715
1,000,000 Coastal Corporation, 10.75%, due 10/01/2010................ 1,261,880
-----------
3,080,595
-----------
PAPER & FOREST PRODUCTS-0.99%
1,000,000 Weyerhaeuser Corporation, 7.125%, due 07/15/2023........... 938,406
-----------
REAL ESTATE INVESTMENT TRUST-2.94%
500,000 Developers Diversified Realty, 6.58%, due 02/06/2001....... 478,996
1,100,000 Franchise Finance Corporation, 7.875%, due 11/30/2005...... 1,065,342
900,000 Franchise Finance Corporation, 7.00%, due 11/30/2000....... 876,900
350,000 Meditrust, 7.50%, due 03/01/2001 (Convertible)............. 350,438
-----------
2,771,676
-----------
RETAIL/WHOLESALE SALES-3.40%
2,500,000 Costco Wholesale Corporation, 5.75%,
due 05/15/2002 (Convertible)............................. 2,334,375
1,000,000 Fleming Companies, Inc., 5.77%, due 08/06/1998............. 876,122
-----------
3,210,497
-----------
TRANSPORTATION-3.30%
398,000 Air Wisconsin, 7.75%, due 06/15/2010 (Convertible)......... 370,638
1,000,000 AMR Corporation, 9.75%, due 03/15/2000..................... 1,091,468
1,500,000 Burlington Northern, 8.75%, due 02/25/2022................. 1,646,843
-----------
3,108,949
-----------
UTILITIES/ELECTRIC-7.36%
1,131,000 El Paso Electric Company, 7.25%, due 02/01/1999............ 1,119,690
1,000,000 Niagara Mohawk Power, 9.75%, due 11/01/2005................ 994,356
500,000 Niagara Mohawk Power, 8.77%, due 01/01/2018................ 445,246
1,000,000 Pacific Gas and Electric, 9.08%, due 12/15/1997............ 1,037,169
2,000,000 Public Service Company of New Hampshire, 9.17%, due 05/15/1998 2,068,074
1,200,000 Texas Utilities Electric, 9.50%, due 08/01/1999............ 1,283,562
-----------
6,948,097
-----------
TOTAL CORPORATE BONDS (cost $45,264,775)................... 44,919,988
-----------
U.S. DOLLAR FOREIGN OBLIGATIONS-5.90%
$ 1,100,000 Fomento Economico Mexicano SA, 9.50%, due 07/22/1997....... 1,116,721
2,000,000 Province of Alberta, 9.25%, due 04/01/2000................. 2,174,720
1,750,000 United Mexican States, Series A, 6.25%, due 12/31/2019..... 1,137,500
1,750,000 United Mexican States, Series B, 6.25%, due 12/31/2019..... 1,137,500
-----------
TOTAL FOREIGN OBLIGATIONS (cost $5,191,866)................ 5,566,441
-----------
PREFERRED STOCK-1.31%
INSURANCE-0.86%
Shares
--------
14,000 Integon Corporation (Convertible).......................... 808,500
-----------
REAL ESTATE INVESTMENT TRUST-0.46%
13,600 First Industrial Realty Trust.............................. 329,800
5,000 Wellsford Residential Property Trust (Convertible)......... 101,250
-----------
431,050
-----------
TOTAL PREFERRED STOCK (cost $1,101,470).................... 1,239,550
-----------
REPURCHASE AGREEMENT-7.80%
Principal
Amount
- -------------
$ 7,359,000 Repurchase agreement with First Boston, collateralized
by a U.S. Treasury Note, in a joint trading account at 5.25%
dated 06/28/1996, due 07/01/1996 with a maturity value
of $7,362,220 (cost $7,359,000)............................ 7,359,000
-----------
TOTAL INVESTMENTS (cost $93,021,735)....................... 92,868,008
Other assets ($1,878,697), less liabilities ($376,097)..... 1,502,600
-----------
NET ASSETS................................................. $ 94,370,608
===========
</TABLE>
FEDERAL INCOME TAX INFORMATION:
Net unrealized depreciation of investments at June 30, 1996, of $153,727, based
on aggregate cost of $93,021,735, was composed of gross depreciation of
$1,851,043 for those investments having an excess of cost over value and gross
appreciation of $1,697,316 for investments having an excess of value over cost.
OTHER INFORMATION:
Purchases and sales (including maturities and principal repayments) of
investment securities, other than short-term investments, aggregated $20,434,432
and $25,790,116, respectively, during the six-month period ended June 30, 1996,
including purchases and sales of U. S. government securities of $6,496,614 and
$11,192,452, respectively. Principal repayments of mortgage-backed securities
aggregated $1,298,701.
See accompanying notes to financial statements.
<PAGE>
COMPOSITE
TAX-EXEMPT
BOND FUND,
INC.
PORTFOLIO OF
INVESTMENTS
IN SECURITIES
JUNE 30,
1996
COMPOSITE TAX-EXEMPT BOND FUND PORTFOLIO (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
- ------------- ------------
<S> <C> <C>
STATE AND MUNICIPAL SECURITIES-85.20%
ALASKA-2.20%
$ 5,000,000 Valdez Marine Term Revenue (Mobil Alaska Pipeline),
5.75%, due 11/01/2028.................................... $ 4,734,900
-----------
ARIZONA-7.15%
7,000,000 Phoenix General Obligation, 5.55%, due 07/01/2009.......... 7,113,540
5,000,000 Salt River Project Agricultural Improvement & Power District
Electrical System Revenue, Series C, 6.25%, due 01/01/2019 5,149,150
3,000,000 Salt River Project Agricultural Improvement & Power District
Electrical System Revenue, Series A, 5.75%, due 01/01/2009 3,084,960
------------
15,347,650
------------
CALIFORNIA-5.72%
6,000,000 San Diego Industrial Development Revenue (San Diego
Gas & Electric), Series A, AMBAC, 5.90%, due 06/01/2018.. 5,988,720
3,000,000 Santa Barbara County Certificate of Participation,
Prerefunded, 7.40%, due 02/01/2007....................... 3,309,180
3,000,000 Orange County Recovery Certificate Participation,
Series A, MBIA, 6.00%, due 07/01/2026.................... 2,985,510
------------
12,283,410
------------
COLORADO-2.54%
2,225,000 Colorado Springs Utilities System Revenue,
Prerefunded, 6.75%, due 11/15/2021....................... 2,467,970
2,775,000 Colorado Springs Utilities System Revenue, 6.75%, due
11/15/2021 .............................................. 2,991,395
------------
5,459,365
------------
FLORIDA-4.79%
5,000,000 Jacksonville Electric Authority Revenue (St. Johns River
Power-2-Series 7), 5.75%, due 10/01/2012................. 5,024,500
5,000,000 Orlando Utilities Commission Water & Electric Revenue,
6.00%, due 10/01/2010.................................... 5,262,050
------------
10,286,550
------------
GEORGIA-6.13%
5,000,000 Georgia State General Obligation, 6.30%, due 03/01/2009.... 5,435,100
8,000,000 Georgia Municipal Electric Authority Power Revenue,
Series C, 5.70%, due 01/01/2019.......................... 7,739,200
------------
13,174,300
------------
HAWAII-3.78%
2,000,000 Honolulu City & County General Obligation,
6.00%, due 01/01/2012.................................... 2,098,080
5,555,000 Hawaii State General Obligation, 6.40%, due 03/01/2009..... 6,019,676
------------
8,117,756
------------
ILLINOIS-9.67%
$ 3,665,000 Chicago Gas Supply Revenue (Peoples Gas),
6.875%, due 03/01/2015................................... $ 3,910,775
4,000,000 Chicago Wastewater Transmission Revenue,
Prerefunded, 6.75%, due 11/15/2020....................... 4,385,400
2,000,000 Illinois Education Facilities Authority Revenue (University
of Chicago), Prerefunded, 7.10%, due 12/01/2025.......... 2,068,200
5,000,000 Illinois State Sales Tax Revenue Series N,
Prerefunded, 7.00%, due 06/15/2020....................... 5,567,850
6,000,000 Metropolitan Pier and Exposition Authority Dedicated State
Tax Revenue, FGIC, zero coupon, due 06/15/2009.......... 2,823,420
4,000,000 Metropolitan Pier and Exposition Authority Dedicated State
Tax Revenue, FGIC, zero coupon, due 06/15/2008.......... 2,018,320
------------
20,773,965
------------
INDIANA-2.95%
6,000,000 Indiana Municipal Power Agency Revenue,
Series A, 6.125%, MBIA, due 01/01/2013................... 6,326,460
------------
MARYLAND-2.53%
5,000,000 Mayor & City Council of Baltimore Port Facility Revenue
(DuPont), 6.50%, due 10/01/2011.......................... 5,423,150
------------
MISSISSIPPI-2.04%
4,000,000 Lowndes County Solid Waste Disposal & Pollution Control
Revenue (Weyerhaeuser), 6.80%, due 04/01/2022............ 4,384,120
------------
NEBRASKA-4.40%
7,000,000 Omaha Public Power District Electric Revenue, Series B,
6.15%, due 02/01/2012.................................... 7,483,210
2,000,000 Omaha Public Power District Electric Revenue, Series C,
5.50%, due 02/01/2014.................................... 1,976,580
------------
9,459,790
------------
NEW MEXICO-0.73%
1,500,000 Lordsburg Pollution Control Revenue (Phelps Dodge),
6.50%, due 04/01/2013.................................... 1,556,550
------------
NORTH CAROLINA-2.50%
5,000,000 North Carolina Eastern Municipal Power, 7.00%,
due 01/01/2008........................................... 5,363,950
------------
NORTH DAKOTA-2.16%
4,370,000 Mercer County Pollution Control Revenue (Otter Tail Power),
6.90%, due 02/01/2019.................................... 4,646,446
------------
OREGON-3.44%
$ 6,230,000 Washington County, Oregon (Criminal Justice Facilities)
General Obligation, 6.00%, due 12/01/2012................ $ 6,431,104
1,000,000 Oregon State Dept. of Administrative Services, Certificate of
Participation, Series A, MBIA, 5.50%, due 11/01/2020..... 962,940
------------
7,394,044
------------
TENNESSEE-2.42%
5,000,000 Memphis Electric System Revenue, 5.625%, due 01/01/2002.... 5,193,900
------------
TEXAS-1.55%
3,000,000 Harris County Toll Road Revenue, Prerefunded,
8.25%, due 08/15/2007.................................... 3,328,590
------------
WASHINGTON-16.06%
4,500,000 King County Washington School District #415 Kent,
General Obligation Series C, 6.30%, due 12/01/2008....... 4,827,060
2,750,000 Snohomish County School District #2 - Everett General
Obligation, Prerefunded, 7.20%, due 12/01/2010........... 3,036,935
2,000,000 Spokane County Water District #3 Revenue,
Prerefunded, 7.60%, due 01/01/2008....................... 2,150,180
3,185,000 University of Washington Housing and Dining Revenue Bond,
Prerefunded, 7.00%, due 12/01/2021....................... 3,566,085
1,000,000 University of Washington Housing and Dining Revenue Bond,
7.00%, due 12/01/2021.................................... 1,091,030
1,750,000 Washington Health Care Facilities Authority Revenue,
Fred Hutchinson Cancer Center, 7.375%, due 01/01/2018.... 1,886,098
1,750,000 Washington Health Care Facilities Authority Revenue,
Fred Hutchinson Cancer Center, 7.20%, due 01/01/2007..... 1,893,675
3,500,000 Washington Public Power Supply System Nuclear Project
Number 2 Revenue, Prerefunded, 7.625%, due 07/01/2010.... 3,958,430
4,900,000 Washington State General Obligation,
Series B, 6.40%, due 06/01/2017.......................... 5,268,921
7,570,000 Washington State General Obligation,
Series B, 5.00%, due 05/01/2017.......................... 6,829,729
------------
34,508,143
------------
WISCONSIN-0.51%
1,000,000 Wisconsin Health & Education Facility Authority Revenue,
Waukesha Memorial Hospital Series A, AMBAC,
7.125%, due 08/15/2007................................... 1,089,750
------------
WYOMING-1.93%
4,000,000 Sweetwater County Pollution Control Revenue (Idaho Power
Co. Project-A), 7.625%, due 12/01/2014................... 4,149,400
------------
TOTAL STATE AND MUNICIPAL SECURITIES (cost $171,605,103)... 183,002,189
------------
SHORT-TERM INVESTMENTS-11.18%
700,000 Delaware State Economic Development,
Variable Rate Demand Obligation, 3.60%*.................. 700,000
500,000 Garfield County, Oklahoma Industrial Authority,
Variable Rate Demand Obligation, 3.45%*.................. 500,000
1,500,000 Huntington Beach, California, Multifamily Housing Revenue,
Variable Rate Demand Obligation, 3.35%*.................. 1,500,000
1,500,000 Irvine California Improvement Bond Act 1915, Assessment
District #89-10, Variable Rate Demand Obligation, 3.50%*. 1,500,000
400,000 L.A. California Regional Airports, Improvement Corp
Lease Revenue, Variable Rate Demand Obligation, 3.65%*... 400,000
3,500,000 Louisiana State Recovery District Sales Tax Revenue,
Variable Rate Demand Obligation, 3.65%*.................. 3,500,000
1,600,000 Mesa, Arizona, Municipal Development General Obligation,
Commercial Paper, 3.55%, due 07/24/1996.................. 1,600,000
3,500,000 Michigan State Strategic Fund Pollution Control Revenue,
Variable Rate Demand Obligation, 3.40%*.................. 3,500,000
4,200,000 Michigan State Hospital Financial Authority Hospital Equipment
Loan Program Insured, Variable Rate Demand Obligation, 3.65%* 4,200,000
4,890,000 New Jersey State General Obligation, Prerefunded,
6.50%, due 08/15/1996.................................... 4,979,007
125,500 Nuveen Tax-Exempt Money Market Fund, 3.11%................. 125,500
1,500,000 Wilmington Hospital Revenue, Franciscan Health, Series A,
Variable Rate Demand Obligation, 3.65%*.................. 1,500,000
------------
TOTAL SHORT TERM INVESTMENTS (cost $24,004,507)............ 24,004,507
------------
TOTAL INVESTMENTS (cost $195,609,610)...................... 207,006,696
Other assets ($8,216,289) less liabilities ($435,989)...... 7,780,300
------------
NET ASSETS................................................. $214,786,996
============
</TABLE>
*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 June 30, 1996, of $11,397,086,
based on aggregate cost of $195,609,610, was composed of gross appreciation of
$11,624,578 for investments having an excess of value over cost and gross
depreciation of $227,492 for investments having an excess of cost over value.
OTHER INFORMATION:
Purchases and sales of investment securities, other than short-term investments,
aggregated $4,107,249 and $31,589,983, respectively, during the six-month period
ended June 30, 1996.
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL
INFORMATION
JUNE 30,
1996
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 1996 (UNAUDITED)
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
$157,420,839, $93,021,735, and
$195,609,610, respectively).................. $153,841,292 $ 92,868,008 $207,006,696
Cash........................................... 91 8,600 38,478
Prepaid expense................................ 18,918 17,061 19,561
Receivable for:
Interest..................................... 1,278,630 1,629,567 3,337,890
Investment securities sold................... - 203,065 4,719,229
Sale of Fund's shares........................ 145,753 20,405 101,131
--------------- ------------- -----------------
Total assets................................... 155,284,684 94,746,706 215,222,985
--------------- ------------- -----------------
LIABILITIES
Payable for:
Repurchase of Fund's shares.................. 580,107 186,733 139,433
Dividends.................................... 204,135 127,422 190,775
Accrued expenses and other payables.......... 95,294 61,943 105,781
--------------- ------------- -----------------
Total liabilities.............................. 879,536 376,098 435,989
--------------- ------------- -----------------
NET ASSETS .................................... $154,405,148 $ 94,370,608 $214,786,996
=============== ============= =================
COMPOSITION OF NET ASSETS
Capital stock, at par.......................... $ 1,503 $ 105,820 $ 2,794
Additional paid-in capital..................... 164,891,383 109,413,445 205,768,122
Accumulated net realized loss.................. (6,908,191) (14,994,930) (2,381,006)
Net unrealized appreciation (depreciation)
of investments............................... (3,579,547) (153,727) 11,397,086
--------------- ------------- -----------------
$154,405,148 $ 94,370,608 $214,786,996
=============== ============= =================
SHARES OUTSTANDING............................. 15,029,575 10,582,025 27,943,916
=============== ============= =================
CLASS A SHARES:
Net asset value and redemption price per share
(net assets of $151,754,661, $88,567,696, and
$210,359,092, respectively, for 14,771,551,
9,932,191, and 27,367,896 shares outstanding,
respectively.................................... $10.27 $ 8.92 $ 7.69
====== ======= =======
Offering price per share (100/96 of net asset
value per share)................................ $10.70 $ 9.29 $ 8.01
====== ======= =======
CLASS B SHARES:
Net asset value, offering price and redemption price
per share (net assets of $2,650,487, $5,802,912, and
$4,427,904, respectively, for 258,024, 649,834,
and 576,020 shares outstanding, respectively.... $10.27 $ 8.93 $ 7.69
====== ======= ========
</TABLE>
On sales of $25,000 or more, the offering price of Class A shares is reduced.
A contingent deferred sales charge may be imposed on redemptions for
Class B shares.
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
COMPOSITE COMPOSITE COMPOSITE
U.S. GOVERNMENT INCOME TAX-EXEMPT
SECURITIES, INC. FUND, INC. BOND FUND, INC.
---------------- ------------ ----------------
<S> <C> <C> <C>
INVESTMENT INCOME
Interest income............................................... $ 5,809,152 $ 3,674,482 $ 6,303,689
---------------- ------------ ----------------
Expenses:
Management fees............................................... 519,469 304,350 546,504
Distribution expenses - Class A............................... 162,180 91,365 219,121
Distribution expenses - Class B............................... 12,368 25,584 17,917
Shareholder servicing - Class A............................... 75,946 55,421 51,843
Shareholder servicing - Class B............................... 1,288 3,219 1,141
Postage, printing and office expense.......................... 52,225 37,660 40,444
Registration and filing fees.................................. 12,065 12,187 8,174
Custodial fees................................................ 13,623 10,933 12,923
Auditing and legal fees....................................... 4,217 3,697 4,872
Directors' fees............................................... 3,901 3,901 3,984
Insurance..................................................... 2,886 2,026 4,285
---------------- ------------ --------------
Total expenses.................................................. 860,168 550,343 911,208
Fees paid indirectly............................................ (1,912) (2,612) (1,903)
---------------- ------------ --------------
Net expenses.................................................... 858,256 547,731 909,305
---------------- ------------ --------------
Net investment income........................................... 4,950,896 3,126,751 5,394,384
---------------- ------------ --------------
NET REALIZED AND UNREALIZED
LOSS ON INVESTMENTS
Realized gain (loss) from investment transactions............... (460,311) 700,457 (1,726,215)
Unrealized depreciation of investments during the period........ (8,855,665) (6,397,215) (7,856,338)
---------------- ------------ --------------
Net realized and unrealized loss on investments................. (9,315,976) (5,696,758) (9,582,553)
---------------- ------------ --------------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS ...................................... $ (4,365,080) $ (2,570,007) $ (4,188,169)
================ ============ ==============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
COMPOSITE COMPOSITE COMPOSITE
U.S. GOVERNMENT INCOME TAX-EXEMPT BOND
SECURITIES, INC. FUND, INC. FUND, INC.
----------------------- ------------------------ ----------------------------
SIX MONTHS SIX MONTHS SIX MONTHS
ENDED YEAR ENDED YEAR ENDED YEAR
JUNE 30, ENDED JUNE 30, ENDED JUNE 30, ENDED
1996 DECEMBER 31, 1996 DECEMBER 31, 1996 DECEMBER 31,
(UNAUDITED) 1995 (UNAUDITED) 1995 (UNAUDITED) 1995
------------ ---------- ------------ ------------ ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income............... $ 4,950,896 $ 11,232,651 $ 126,751 $ 6,281,269 $ 5,394,384 $ 11,380,408
Realized gain (loss) from investment
transactions...................... (460,311) (248,406) 700,457 (964,092) (1,726,215) 709,951
Unrealized appreciation (depreciation)
of investments during the period.. (8,855,665) 22,057,802 (6,397,215) 13,282,886 (7,856,338) 25,628,133
------------- ----------- ------------- ------------ ------------ -------------
Net increase (decrease) in net assets
resulting from operations......... (4,365,080) 33,042,047 (2,570,007) 18,600,063 (4,188,169) 37,718,492
DIVIDENDS TO SHAREHOLDERS
From net investment income:
Class A........................... (4,887,148) (11,152,866) (2,981,578) (6,093,671) (5,321,974) (11,301,739)
Class B........................... (63,748) (79,785) (145,173) (187,598) (72,410) (78,669)
NET CAPITAL
SHARE TRANSACTIONS
Class A........................... (16,372,806) (32,402,457) (3,551,999) (2,476,599) (10,248,923) (11,515,781)
Class B........................... 578,102 977,583 1,632,720 1,743,650 1,881,710 1,218,551
Total increase (decrease) in net ------------- ------------ ------------- ----------- ------------ ------------
assets (25,110,680) (9,615,478) (7,616,037) 11,585,845 (17,949,766) 16,040,854
NET ASSETS
Beginning of the period............. 179,515,828 189,131,306 101,986,645 90,400,800 232,736,762 216,695,908
------------- ------------ ------------- ----------- ------------ ------------
End of the period................... $154,405,148 $179,515,828 $ 94,370,608 $101,986,645 $214,786,996 $232,736,762
============= ============ ============= =========== ============ ============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
COMPOSITE U.S. GOVERNMENT SECURITIES, INC.
CLASS A
SIX MONTHS
ENDED TEN MONTHS YEAR
JUNE 30, YEARS ENDED DEC. 31, ENDED ENDED
1996 --------------------------- DEC. 31, FEB. 29,
(UNAUDITED) 1995 1994 1993 1992(3) 1992
----------- ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD .................. $10.84 $ 9.64 $10.79 $10.63 $10.53 $10.17
INCOME FROM ----------- ------- ------- -------- -------- --------
INVESTMENT OPERATIONS
Net Investment Income................ 0.31 0.63 0.63 0.69 0.62 0.79
Net Gains (Losses) on Securities
(both realized and unrealized)...... (0.57) 1.20 (1.15) 0.16 0.10 0.36
----------- ------- -------- -------- -------- --------
Total From Investment Operations .. (0.26) 1.83 (0.52) 0.85 0.72 1.15
----------- ------- -------- -------- -------- --------
LESS DISTRIBUTIONS
Dividends (from
net investment income).............. (0.31) (0.63) (0.63) (0.69) (0.62) (0.79)
----------- ------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD ....... $10.27 $10.84 $ 9.64 $10.79 $10.63 $10.53
=========== ======= ======== ======== ======== ========
TOTAL RETURN (1) ..................... -2.40% 19.45% -4.91% 8.12% 7.03% 11.72%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period ($1,000's). $151,755 $177,310 $188,068 $268,112 $207,501 $141,377
Ratio of Expenses to
Average Net Assets(2) .............. 1.02% 1.01% 0.97% 0.99% 0.99% 1.01%
Ratio of Net Income to
Average Net Assets.................. 5.97% 6.08% 6.19% 6.29% 6.98% 7.63%
Portfolio Turnover Rate ............ 31% 8% 34% 51% 11% 17%
</TABLE>
CLASS B
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR MARCH 30,
JUNE 30, ENDED TO
1996 DEC. 31, DEC. 31,
(UNAUDITED) 1995 1994(4)
------------ -------- -----------
<S> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD .................. $10.84 $ 9.64 $10.24
INCOME FROM ------------ -------- -----------
INVESTMENT OPERATIONS
Net Investment Income................ 0.27 0.54 0.41
Net Gains (Losses) on Securities
(both realized and unrealized)...... (0.57) 1.20 (0.60)
------------ -------- -----------
Total From Investment Operations (0.30) 1.74 (0.19)
------------ -------- -----------
LESS DISTRIBUTIONS
Dividends (from
net investment income).............. (0.27) (0.54) (0.41)
------------ -------- -----------
NET ASSET VALUE, END OF PERIOD ....... $10.27 $10.84 $99.64
============ ======== ===========
TOTAL RETURN (1) ..................... -2.79% 18.48% -1.86%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period ($1,000's). $2,650 $2,206 $1,063
Ratio of Expenses to
Average Net Assets(2) .............. 1.84%(5) 1.84% 1.76%(5)
Ratio of Net Income to
Average Net Assets.................. 5.18%(5) 5.20% 5.43%(5)
Portfolio Turnover Rate ............ 31%(5) 8% 34%
(1) Total returns do not reflect a sales charge and are not annualized.
(2) Ratio of expenses to average net assets includes expenses paid indirectly
beginning in fiscal 1995.
(3) Change in Fund's fiscal year-end.
(4) From the commencement of offering Class B shares.
(5) Annualized.
</TABLE>
<TABLE>
<CAPTION>
COMPOSITE INCOME FUND, INC.
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
CLASS A
SIX MONTHS THREE
ENDED MONTHS YEAR
JUNE 30, YEARS ENDED DECEMBER 31, ENDED ENDED
1996 ------------------------ DEC. 31, SEPT. 30,
(UNAUDITED) 1995 1994 1993 1992(3) 1992
----------- ------- ------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD .............. $ 9.44 $ 8.29 $ 9.33 $ 8.99 $ 9.17 $ 8.68
INCOME FROM ----------- ------- ------- -------- --------- ---------
INVESTMENT OPERATIONS
Net Investment Income............ 0.29 0.59 0.60 0.61 0.16 0.65
Net Gains (Losses) on Securities
(both realized and unrealized).. (0.52) 1.15 (1.04) 0.34 (0.18) 0.49
----------- ------- ------- -------- --------- ---------
Total From Investment Operations (0.23) 1.74 (0.44) 0.95 (0.02) 1.14
----------- ------- ------- -------- --------- ---------
LESS DISTRIBUTIONS
Dividends (from
net investment income).......... (0.29) (0.59) (0.60) (0.61) (0.16) (0.65)
----------- ------- ------- -------- --------- ---------
NET ASSET VALUE, END OF PERIOD ... $ 8.92 $ 9.44 $ 8.29 $ 9.33 $ 8.99 $ 9.17
=========== ======= ======= ======== ========= =========
TOTAL RETURN (1) ................. -2.42% 21.58% -4.82% 10.82% -0.23% 13.57%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period ($1,000's)$88,568 $97,534 $88,102 $104,876 $86,425 $84,995
Ratio of Expenses to
Average Net Assets(2) .......... 1.09%(5) 1.08% 1.04% 1.08% 0.95%(5) 1.05%
Ratio of Net Income to
Average Net Assets.............. 6.46%(5) 6.59% 6.83% 6.58% 6.94%(5) 7.26%
Portfolio Turnover Rate ........ 45%(5) 43% 26% 51% 87%(5) 47%
CLASS B
SIX MONTHS
ENDED YEAR MARCH 30,
JUNE 30, ENDED TO
1996 DEC. 31, DEC. 31,
(UNAUDITED) 1995 1994(4)
--------- -------- ----------
<S> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD .............. $ 9.46 $ 8.30 $ 8.85
--------- -------- ----------
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income............ 0.26 0.51 0.40
Net Gains (Losses) on Securities
(both realized and unrealized).. (0.53) 1.16 (0.55)
--------- -------- ----------
Total From Investment Operations (0.27) 1.67 (0.15)
--------- -------- ----------
LESS DISTRIBUTIONS
Dividends (from
net investment income).......... (0.26) (0.51) (0.40)
--------- -------- ----------
NET ASSET VALUE, END OF PERIOD ... $ 8.93 $ 9.46 $ 8.30
========= ======== ==========
TOTAL RETURN (1) ................. -2.90% 20.70% -1.67%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period ($1,000's)$5,803 $4,452 $2,299
Ratio of Expenses to
Average Net Assets(2) .......... 1.90%(5) 1.91% 1.80%(5)
Ratio of Net Income to
Average Net Assets.............. 5.69%(5) 5.73% 6.25%(5)
Portfolio Turnover Rate ........ 45%(5) 43% 26%
(1) Total returns do not reflect a sales charge and are not annualized.
(2) Ratio of expenses to average net assets includes expenses paid indirectly
beginning in fiscal 1995.
(3) Change in Fund's fiscal year-end.
(4) From the commencement of offering Class B shares.
(5) Annualized.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (CONTINUED)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
COMPOSITE TAX-EXEMPT BOND FUND, INC.
CLASS A
SIX MONTHS
ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
1996 -----------------------------------------
(UNAUDITED) 1995 1994 1993 1992 1991
----------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD .............. $ 8.02 $ 7.13 $ 8.04 $ 7.58 $ 7.42 $ 7.16
INCOME FROM ----------- -------- -------- ------- ------- -------
INVESTMENT OPERATIONS
Net Investment Income............ 0.19 0.38 0.39 0.40 0.42 0.45
Net Gains (Losses) on Securities
(both realized and unrealized).. (0.33) 0.89 (0.91) 0.54 0.23 0.34
----------- -------- -------- ------- ------- -------
Total From Investment Operations (0.17) 1.27 (0.52) 0.94 0.65 0.79
----------- -------- -------- ------- ------- -------
Less Distributions
Dividends (from
net investment income).......... (0.19) (0.38) (0.39) (0.40) (0.42) (0.45)
Distributions (from net capital
gains 0.00 0.00 0.00 (0.08) (0.07) (0.08)
----------- -------- -------- ------- ------- -------
(0.16) (0.38) (0.39) (0.48) (0.49) (0.53)
----------- -------- -------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD ... $ 7.69 $ 8.02 $ 7.13 $ 8.04 $ 7.58 $ 7.42
=========== ======== ======== ======= ======= =======
TOTAL RETURN (1) ................. -1.77% 18.25% -6.53% 12.54% 9.00% 11.36%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period
($1,000's) $210,359 $230,055 $215,438 $259,045 $186,861 $140,154
Ratio of Expenses to
Average Net Assets(2) .......... 0.81%(4) 0.81% 0.79% 0.81% 0.78% 0.77%
Ratio of Net Income to
Average Net Assets.............. 4.86%(4) 5.03% 5.23% 4.97% 5.56% 6.16%
Portfolio Turnover Rate ........ 4%(4) 8% 12% 19% 30% 83%
CLASS B
SIX MONTHS
ENDED YEAR MARCH 30,
JUNE 30, ENDED TO
1996 DEC. 31, DEC. 31,
(UNAUDITED) 1995 1994(3)
--------- ---------- ----------
<S> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD .............. $ 8.02 $ 7.13 $ 7.49
INCOME FROM --------- ---------- ----------
INVESTMENT OPERATIONS
Net Investment Income............ 0.16 0.32 0.25
Net Gains (Losses) on Securities
(both realized and unrealized).. (0.33) 0.89 (0.36)
--------- ---------- ----------
Total From Investment Operations (0.17) 1.21 (0.11)
--------- ---------- ----------
LESS DISTRIBUTIONS
Dividends (from
net investment income).......... (0.16) (0.32) (0.25)
Distributions (from net capital
gains) ........................ 0.00 0.00 0.00
--------- ---------- ----------
(0.16) (0.32) (0.25)
--------- ---------- ----------
NET ASSET VALUE, END OF PERIOD ... $ 7.69 $ 8.02 $ 7.13
========= ========== ==========
TOTAL RETURN (1) ................. -2.17% 17.30% -1.46%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period
($1,000's) ..................... $4,428 $2,682 $1,258
Ratio of Expenses to
Average Net Assets(2) .......... 1.62%(4) 1.62% 1.58%(4)
Ratio of Net Income to
Average Net Assets.............. 4.07%(4) 4.18% 4.53%(4)
Portfolio Turnover Rate ........ 4%(4) 8% 12%
(1) Total returns do not reflect a sales charge and are not annualized.
(2) Ratio of expenses to average net assets includes expenses paid indirectly
beginning in fiscal 1995.
(3) From the commencement of offering Class B shares.
(4) Annualized.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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.
The Funds offer both Class A and Class B shares. 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 dividends are
distributed monthly.
d. Security transactions are accounted for on the trade date (execution date of
the order to buy or sell). Realized gain or loss from security transactions
are determined on the basis of identified cost.
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 carry forwards are charged to additional paid in
capital.
f. Custodial fees have been increased by $1,912, $2,612, and $1,903 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 custodial fees
actually incurred to arrive at gross custodial fees and then reflected as a
deduction, "fees paid indirectly," to derive net expenses. There were no
"expense offset arrangements" other than custodial fees.
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. Composite Research & Management Co. (the "Adviser")
manages each Fund, Murphey Favre, Inc. (the "Distributor") is the principal
underwriter, and Murphey Favre Securities Services, Inc. (the "Transfer Agent")
is the shareholder servicing agent. All are affiliates of Washington Mutual Bank
and Washington Mutual fsb and subsidiaries of Washington Mutual, Inc.
a. Management fees were paid by each Fund to the 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, the Adviser has agreed to reimburse a Fund
for fund 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 six-months ended June 30, 1996.
b. 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.
c. Shareholder servicing fees were paid to the Transfer 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.
d. Distribution expenses were paid to the Distributor in accordance with
separate Distribution Plans for Class A and Class B shares. The Funds' Boards
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 Funds
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 Funds' 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 six-months ended June 30, 1996, commissions (sales charges paid by
investors) on the purchases of Class A shares totaled $64,193, $99,435, and
$173,539, of which $63,648, $99,258, and $170,265 was retained by the
Distributor, in the Composite U.S. Government Securities, Composite Income
Fund, and Composite Tax-Exempt Bond Fund, respectively. For the six-months
ended June 30, 1996, the Distributor received contingent deferred sales
charges of $740, $1,911, and $2,194, from 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 sale.
Under terms of the distribution contracts, MFI will reimburse the Funds if
their expenses exceed the most stringent applicable state blue sky
limitation. No such reimbursement was required during the six-month period
ended June 30, 1996.
<PAGE>
NOTE 3 - CAPITAL STOCK
COMPOSITE U.S. GOVERNMENT SECURITIES, INC.
Capital stock shares authorized...... 1,000,000,000
Designated as:
Class A shares...................... 600,000,000
Class B shares...................... 400,000,000
Par value per share................... $0.0001
<TABLE>
<CAPTION>
CLASS A CLASS B
--------------------------- --------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
JUNE 30, 1996 DEC. 31, JUNE 30, 1996 DEC. 31,
(UNAUDITED) 1995 (UNAUDITED) 1995
---------------- ---------- --------------- ----------
<S> <C> <C> <C> <C>
SHARES
Sold..................................................... 422,043 810,845 64,297 106,878
Issued for reinvestment of dividends..................... 342,807 784,736 5,075 6,046
---------------- ---------- --------------- ----------
764,850 1,595,581 69,372 112,924
Reacquired............................................... (2,345,165) (4,752,653) (14,803) (19,778)
---------------- ---------- --------------- ----------
Net increase (decrease).................................. (1,580,315) (3,157,072) 54,569 93,146
================ ========== =============== ==========
AMOUNT
Sold .................................................... $ 4,445,679 $ 8,364,834 $679,251 $1,115,018
Issued for reinvestment of dividends..................... 3,572,311 8,133,434 52,747 63,184
---------------- ----------- --------------- ----------
8,017,990 16,498,268 731,998 1,178,202
Reacquired............................................... (24,390,796) (48,900,725) (153,896) (200,619)
---------------- ----------- --------------- ----------
Net increase (decrease).................................. $(16,372,806) $(32,402,457) $578,102 $ 977,583
================ =========== =============== ==========
</TABLE>
<PAGE>
COMPOSITE INCOME FUND, INC.
Capital stock shares authorized....... 50,000,000
Designated as:
Class A shares....................... 30,000,000
Class B shares....................... 20,000,000
Par value per share.................... $0.01
<TABLE>
<CAPTION>
CLASS A CLASS B
------------------------- ------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
JUNE 30, 1996 DEC. 31, JUNE 30, 1996 DEC. 31,
(UNAUDITED) 1995 (UNAUDITED) 1995
-------------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
SHARES
Sold.................................................... 640,784 1,400,247 200,242 219,399
Issued for reinvestment of dividends.................... 242,735 499,570 13,656 16,941
-------------- ---------- -------------- ----------
883,519 1,899,817 213,898 236,340
Reacquired.............................................. (1,280,444) (2,194,039) (34,937) (42,305)
-------------- ---------- -------------- ----------
Net increase (decrease)................................. (396,925) (294,222) 178,961 194,035
============== ========== ============== ==========
AMOUNT
Sold.................................................... $ 5,856,342 $12,466,219 $1,827,041 $1,972,074
Issued for reinvestment of dividends.................... 2,198,091 4,473,957 123,505 152,542
-------------- ----------- -------------- ----------
8,054,433 16,940,176 1,950,546 2,124,616
Reacquired.............................................. (11,606,432) (19,416,775) (317,826) (380,966)
-------------- ----------- -------------- ----------
Net increase (decrease)................................. $(3,551,999) $(2,476,599) $1,632,720 $1,743,650
============== =========== ============== ==========
</TABLE>
<PAGE>
COMPOSITE TAX-EXEMPT BOND FUND, INC.
Capital stock shares authorized..... 500,000,000
Designated as:
Class A shares..................... 300,000,000
Class B shares..................... 200,000,000
Par value per share.................. $0.0001
<TABLE>
<CAPTION>
CLASS A CLASS B
--------------------------- -------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
JUNE 30, 1996 DEC. 31, JUNE 30, 1996 DEC.31,
(UNAUDITED) 1995 (UNAUDITED) 1995
--------------- ----------- -------------- ----------
<S> <C> <C> <C> <C>
SHARES
Sold.................................................. 933,817 2,542,933 250,543 161,616
Issued for reinvestment of dividends.................. 526,600 1,034,551 17,386 7,241
--------------- ----------- -------------- ----------
1,460,417 3,577,484 267,929 168,857
Reacquired............................................ (2,794,339) (5,093,734) (26,449) (10,688)
--------------- ----------- -------------- ----------
Net increase (decrease)............................... (1,333,922) (1,516,250) 241,480 158,169
--------------- ----------- -------------- ----------
AMOUNT
Sold............ ..................................... $ 7,312,444 $ 18,646,519 $2,028,365 $1,240,802
Issued for reinvestment of dividends.................. 4,101,003 8,716,895 56,907 60,160
--------------- ----------- -------------- ----------
11,413,447 27,363,414 2,085,272 1,300,962
Reacquired............................................ (21,662,370) (38,879,195) (203,562) (82,411)
--------------- ----------- -------------- ----------
Net increase (decrease)............................... $(10,248,923) $(11,515,781) $1,881,710 $1,218,551
=============== =========== ============== ==========
</TABLE>
<PAGE>
A FAMILY OF
FUNDS TO MEET
MOST ANY NEED
MORE ABOUT THE COMPOSITE GROUP
A RANGE OF OPPORTUNITY
The Composite Group offers investors eight distinct portfolios whose
securities range from value-oriented common stocks and income-producing
government and corporate bonds, to tax-exempt municipal obligations and money
market instruments. An investment in one or more of these portfolios allows you
to more closely match your objectives with sensible investment opportunities.
COMPOSITE BOND & STOCK FUND
COMPOSITE BOND & STOCK FUND is managed to provide the potential for steady
income from bonds and long-term growth of income and 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
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
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 (Oregon, Washington, Idaho, Montana
and Alaska).
COMPOSITEU.S.GOVERNMENT
SECURITIES,INC.
COMPOSITE U.S. GOVERNMENT SECURITIES is designed and managed to provide a
high level of current income, consistent with safety and liquidity. The Fund
seeks to achieve this objective by investing in a careful selection of
obligations issued or backed by the full faith and credit of the United States
government and in repurchase agreements secured by these types of obligations.
Investors should understand that individual shares of the Fund are not
guaranteed by the U.S. government and share values will fluctuate.
COMPOSITE INCOME FUND
COMPOSITE INCOME FUND seeks to provide an attractive level of current income
primarily from investments in corporate bonds and mortgage-backed securities.
Securities with intermediate-term maturities and carefully selected
credit-quality characteristics provide the foundation for this investment
strategy.
COMPOSITE TAX-EXEMPT BOND FUND
COMPOSITE TAX-EXEMPT BOND FUND seeks to provide current income, free from
federal income tax. The Fund invests in high-quality municipal bonds which have
received one of the four highest ratings from Standard & Poor's Corporation or
Moody's Investor Service, Inc. In certain circumstances the alternative minimum
tax, as well as state and local taxes, may apply.
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 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.
OUR FEATURES WORK
TO YOU ADVANTAGE
* Distinct portfolios to fit your objectives.
* Professional management.
* Portfolio diversification.
* Ease of exchange among funds.
* Most funds appropriate for IRAs.
* Periodic investment programs.*
* Level Payment Withdrawal programs.
* Automatic reinvestment of earnings.
*Regular monthly or quarterly investment programs do not assure a profit or
protect against loss in a declining market.
WE'RE HERE TO HELP
We encourage you to visit with your registered representative when you have
questions about your investments or a new goal you have in mind.
But help is as close as your phone, as well. You may call Composite Customer
Service toll-free at 1-800-543-8072, Monday through Friday, 7:00 a.m. - 6:00
p.m., Pacific Time.
Or, if you prefer, you can have virtual 24-hour access to account information
by calling the Composite INFO-LINE at 1-800-662-3533 on your touch-tone
telephone. When calling, please be sure to have your account number and personal
identification number (the last four digits of your Social Security or tax ID
number) handy. Both are listed on your statement.
When calling INFO-LINE, press the appropriate number on your touch-tone
phone.
Account Balance: 2 Acct. # PIN # 1
Fund Prices: 1 1 1
Speak with Customer Service: 0
Last Transaction: 2 Acct. # PIN # 2 4
Money Market Yields: 1 1 2
Choose a New Option: 5
- --------------------------------------------------------------------------------
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 Avenue, Suite 800 Spokane, WA 99201-0614
COUNSEL
Paine, Hamblen, Coffin, Brooke & Miller LLP
717 W. Sprague Avenue, Suite 1200 Spokane, WA 99204-0464
OFFICERS
PRESIDENT
William G. Papesh
EXECUTIVE VICE PRESIDENT
Kerry K. Killinger
VICE PRESIDENTS
Gene G. Branson
Douglas D. Springer
VICE PRESIDENT & TREASURER
Monte D. Calvin
SECRETARY
John T. West
BOARD OF DIRECTORS
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.
[RECYCLE LOGO] (8/96)
COMPOSITE GROUP
BOND
FUNDS
SEMIANNUAL
REPORT
JUNE 30,
1996
COMPOSITE
U.S. GOVERNMENT
SECURITIES, INC.
COMPOSITE
INCOME
FUND, INC.
COMPOSITE
TAX-EXEMPT
BOND FUND, INC.
[COMPOSITE
GROUP LOGO]
