January 26, 1998
Dear Shareholder:
As you are aware, Composite Fund shareholders were asked to vote on a number of
proposals recently. We are happy to announce that four of the five proposals
have been approved by the shareholders of all the Composite Funds and are being
implemented with the distribution of the attached Prospectus Supplement. The
fifth proposal, which would change the corporate structure of the Funds to a
Massachusetts business trust, requires the approval of two-thirds of share-
holders of each Fund. Most of the Funds have approved this. We are confident
that the change will be approved in the remaining Funds very soon. Please vote
promptly if you have not yet done so.
Although the proposals approved by shareholders are not specifically related to
the merger of the Sierra Funds with our Composite Funds, many of the changes
will support a combined Fund group with a greatly expanded shareholder base and
enhanced operating efficiencies. It is our belief that the Fund families will
provide shareholders with additional investment opportunities while maintaining
or reducing fund expenses to benefit shareholders.
We will continue to be associated with Washington Mutual - the largest thrift
institution in the country. We are proud it is also now the eleventh largest
bank in the United States with more than 700 financial centers and total assets
of more than $96 billion. This provides us with a significant base of financial
strength and a greatly expanded distribution channel for our Funds.
We look forward to the opportunities that the changes will offer to all share-
holders and we appreciate your continued support. This supplement is designed to
complement the current prospectus. It should not be viewed as a replacement. We
encourage you to retain it for future reference.
Sincerely,
/s/ William G. Papesh
William G. Papesh, President
<PAGE>
Supplement dated January 26, 1998 to the following Prospectuses:
COMPOSITE EQUITY FUNDS (dated February 28, 1997)
COMPOSITE BOND FUNDS (dated April 30, 1997)
COMPOSITE CASH MANAGEMENT COMPANY (dated April 30, 1997)
Suite 300
601 W. Main Avenue
Spokane Washington 99201-0613
Telephone (509) 353-3550 Toll Free (800) 543-8072
The Prospectuses are revised as follows (capitalized terms used herein and not
otherwise defined have the meanings given them in the Prospectuses):
1. The following information replaces the section entitled "Expense information"
in each of the Prospectuses:
Expense information
The table below shows the Funds' costs and expenses that an investor will
bear both directly or indirectly and how they affect share ownership. Operating
expenses are based on the Funds' expenses during the most recent fiscal year.
SHAREHOLDER TRANSACTION EXPENSES FOR EACH FUND:
Class A Class B
shares shares
------- -------
Maximum sales charge imposed on purchases
(as a percentage of offering price) 4.50%* None
Maximum contingent deferred sales charge
(as a percentage of purchase price or
redemption proceeds, whichever is lower) None 4.00%
Redemption fee None None
Exchange fee None None
*4.00% for the Income, Tax-Exempt Bond and U.S. Government Securities Funds, and
0.00% for the Money Market and Tax-Exempt Money Market Funds (although regular
sales charges apply when Class A shares of the Money Market or Tax-Exempt Money
Market Funds are exchanged for shares of any other Composite Fund).
<TABLE>
<CAPTION>
Annual fund operating
expenses (as a
percentage of average
net assets) Bond & Stock Growth & Income Northwest
======================== =================== =================== ===================
Class A Class B Class A Class B Class A Class B
shares shares shares shares shares shares
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Advisory fees 0.60% 0.60% 0.61% 0.61% 0.63%1 0.63%1
12b-1 fees 0.25%2 1.00% 0.25% 1.00% 0.25% 1.00%
Other expenses 0.15% 0.19% 0.19% 0.27% 0.23% 0.33%
--------- --------- --------- --------- --------- ---------
Total Fund operating
expenses 1.00% 1.79% 1.05% 1.88% 1.11%1 1.96%1
========= ========= ========= ========= ========= =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Annual fund operating
expenses (as a U.S.
percentage of average Government Tax-Exempt
net assets) Securities Income Bond
======================== ========= ========= ========= ========= ========= =========
Class A Class B Class A Class B Class A Class B
shares shares shares shares shares shares
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Advisory fees 0.63% 0.63% 0.63% 0.63% 0.50% 0.50%
12b-1 fees 0.25%2 1.00% 0.25%2 1.00% 0.25%2 1.00%
Other expenses 0.21% 0.21% 0.24% 0.23% 0.09% 0.12%
--------- --------- --------- --------- --------- ---------
Total Fund operating
expenses 1.09% 1.84% 1.12% 1.86% 0.84% 1.62%
========= ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Annual fund operating Tax-Exempt
expenses (as a Money Money
percentage of average Market Market
net assets) Portfolio Portfolio
======================== ========= ========= ========= =========
Class A Class B Class A Class B
shares shares shares shares
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Advisory fees 0.45% 0.45% 0.45% 0.45%
12b-1 fees 0.00%3,4 1.00% 0.00%3 1.00%
Other expenses (after 0.28%4 0.14%4 0.12%5 0.05%5
expense reimbursement
where indicated) --------- --------- --------- ---------
Total Fund operating
expenses (after expense 0.73%4 1.59%4 0.57%5 1.50%5
reimbursement where
indicated) ========= ========= ========= =========
</TABLE>
(1) Restated to reflect the termination of a waiver of advisory fees. Actual
Advisory Fees and Total Fund Operating Expenses were, respectively, 0.57%
and 1.05% for Class A shares and 0.57% and 1.91% for Class B shares.
(2) Restated to reflect the maximum amount payable under the Fund's Class A Rule
12b-1 plan.
(3) Class A shares of the Fund currently pay no 12b-fees, but the Directors of
each Fund have the authority, without shareholder approval, to authorize the
payment of up to 0.15% annually of the Fund's average net assets.
(4) Restated to reflect the suspension of payments under the Class A 12b-1 plan,
the termination of a reimbursement of expenses, and changes in transfer
agency arrangements. Actual 12b-1 fees and Total Fund operating expenses
were, respectively, .02% and .75%, for Class A shares.
(5) Absent expense reimbursements, Other expenses and Total Fund operating
expenses would have been, respectively, 0.26% and 0.71% for Class A shares,
and .82% and 2.27% for Class B shares.
Sales charge waivers are available under certain circumstances for Class A
and Class B shares, and reduced sales charge purchase plans are available for
Class A shares. The 4.00% contingent deferred sales charge on Class B shares
declines over time and is eliminated after four years. There is a $10 charge for
redemptions paid by Fed Funds wire, but not for redemptions deposited to your
pre-authorized bank account or paid by check.
Example
You would pay the following expenses on a $1,000 investment in one of the
Funds, assuming you receive a 5% annual return and that the Fund's expenses are
the same as those shown in the Annual Fund Operating Expenses table above. The
5% figure is a constant rate required for comparative purposes by the Securities
and Exchange Commission. The example should not be considered a representation
of past or future expenses or performance. Actual results will be greater or
less than the illustration.
<PAGE>
Example (continued)
<TABLE>
<CAPTION>
Bond & Stock Growth & Income Northwest
========= ========= ========= ========= ========= =========
Class A Class B Class A Class B Class A Class B
Assuming redemption at shares shares shares shares shares shares
the end of each period: --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
1 Year $ 55 $ 48 $ 55 $ 49 $ 56 $ 50
3 Years $ 75 $ 66 $ 76 $ 69 $ 78 $ 72
5 Years $ 97 $ 98 $100 $102 $103 $106
10 Years $160 $173 $166 $178 $172 $185
Assuming you keep your
shares and no redemptions
are made:
1 Year $ 55 $ 18 $ 55 $ 19 $ 56 $ 20
3 Years $ 75 $ 56 $ 76 $ 59 $ 78 $ 62
5 Years $ 97 $ 98 $100 $102 $103 $106
10 Years $160 $173 $166 $178 $172 $185
</TABLE>
<TABLE>
<CAPTION>
U.S. Government Tax-Exempt
Securities Income Bond
========= ========= ========= ========= ========= =========
Class A Class B Class A Class B Class A Class B
Assuming redemption at shares shares shares shares shares shares
the end of each period: --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
1 Year $ 50 $ 49 $ 51 $ 49 $ 48 $ 46
3 Years $ 73 $ 68 $ 74 $ 68 $ 65 $ 61
5 Years $ 97 $100 $ 99 $100 $ 84 $ 89
10 Years $165 $177 $168 $179 $138 $152
Assuming you keep your
shares and no redemptions
are made:
1 Year $ 50 $ 19 $ 51 $ 19 $ 48 $ 16
3 Years $ 73 $ 58 $ 74 $ 58 $ 65 $ 51
5 Years $ 97 $100 $ 99 $100 $ 84 $ 89
10 Years $165 $177 $168 $179 $138 $152
</TABLE>
<TABLE>
<CAPTION>
Tax-Exempt
Money Market Money Market
========= ========= ========= =========
Class A Class B Class A Class B
Assuming redemption at shares shares shares shares
the end of each period: --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1 Year $ 7 $ 46 $ 5 $ 46
3 Years $22 $ 60 $17 $ 59
5 Years $39 $ 97 $29 $ 85
10 Years $85 $144 $65 $132
Assuming you keep your
shares and no redemptions
are made:
1 Year $ 7 $ 16 $ 5 $ 16
3 Years $22 $ 50 $17 $ 49
5 Years $39 $ 97 $29 $ 85
10 Years $85 $144 $65 $132
</TABLE>
<PAGE>
Class B shares automatically convert to Class A shares after six years
without charge or tax impact. Because of that, years seven through ten reflect
Class A operating expenses. Long-term Class B shareholders could pay more than
the economic equivalent of the maximum front-end sales charge permitted by the
National Association of Securities Dealers, Inc. The Class B conversion feature
is intended to reduce the likelihood this will occur.
2. The following information supplements the information contained in the
section entitled "Financial Highlights" of the Equity Funds' Prospectus and has
been audited by LeMaster & Daniels PLLC, the Funds' independent public
accountants.
<TABLE>
<CAPTION>
Year Ended October 31, 1997
Bond & Stock Growth & Income Northwest
========= ========= ========= ========= ========= =========
Class A Class B Class A Class B Class A Class B
shares shares shares shares shares shares
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $14.71 $14.69 $17.26 $17.17 $19.69 $19.45
--------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) 0.50 0.39 0.12 (0.02) (0.02) (0.08)
Net gains on securities
(both realized and unrealized) 2.37 2.36 4.98 4.93 8.13 7.85
--------- --------- --------- --------- --------- ---------
Total from investment operations 2.87 2.75 5.10 4.91 8.11 7.77
--------- --------- --------- --------- --------- ---------
LESS DISTRIBUTIONS:
Dividends (from net investment income) (0.51) (0.40) (0.14) (0.02) - -
Distributions (from capital gains) (0.94) (0.94) (1.21) (1.21) (1.88) (1.88)
--------- --------- --------- --------- --------- ---------
Total distributions (1.45) (1.34) (1.35) (1.23) (1.88) (1.88)
--------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF YEAR $16.13 $16.10 $21.01 $20.85 $25.92 $25.34
========= ========= ========= ========= ========= =========
TOTAL RETURNS1 20.81% 19.86% 31.24% 30.20% 44.47% 43.17%
RATIOS/SUPPLEMENTAL DATA
Net Assets, end of year ($1,000's) $307,018 $46,556 $299,928 $49,994 $256,908 $39,627
Ratio of expenses to average net assets 0.99% 1.79% 1.05% 1.88% 1.05% 1.91%
Ratio of net income to average net assets 3.31% 2.48% 0.66% -0.19% -0.08% -0.96%
Portfolio turnover rate 54% 54% 71% 71% 37% 37%
Average commission paid $0.0561 $0.0561 $0.0581 $0.0581 $0.0557 $0.0557
(1) Total returns do not reflect sales charges.
</TABLE>
For further information, see the financial statements included in the Funds'
1997 Annual Report, which are incorporated by reference into the Statement of
Additional Information.
3. Subject to shareholder approval, it is expected that each of the Funds,
currently organized as a Washington corporation or series thereof, will be reor-
ganized as a separate series of The Composite Funds, a Massachusetts business
trust, on or about March 20, 1998.
4. The third paragraph of the section of the Equity Funds' Prospectus entitled
"Total expenses" is deleted.
5. The following sections are added to the section entitled "Investment
practices and risk factors" in each of the Prospectuses:
<PAGE>
BORROWING. A Fund may borrow up to 5% of its assets from banks solely or
temporary or emergency purposes. In addition, each of Composite Cash Management
Company: Money Market Portfolio and Tax-Exempt Money Market Portfolio may borrow
up to 33% of total assets to meet redemption requests. If the Fund makes
additional investments while borrowings are outstanding, this may be construed
as a form of leverage. Such borrowings may be considered leverage, which is
speculative. Leveraging will magnify declines as well as increases in the net
asset value of a Fund's shares.
RULE 144A SECURITIES. Each of the Funds may not invest in securities
restricted as to resale under Federal Securities laws, other than securities
eligible for resale pursuant to Rule 144A under the Securities Act of 1933, as
amended. Investing in Rule 144A securities could have the effect of increasing
the level of illiquidity of the portfolio securities of a Fund, if and to the
extent that the institutional markets become less active. While such conditions
are in effect, it could be more difficult to value the shares of a Fund and it
could also be more difficult for a Fund to fulfill shareholder redemption orders
on a timely basis. If a Fund were required to sell illiquid securities on short
notice, it would generally be unable to obtain fair market value.
6. The following paragraphs are added to the Bond Funds' Prospectus:
DOLLAR ROLLS. In order to seek a high level of current income, the Income
and U.S. Government Securities Funds may enter into dollar rolls, in which the
Fund sells securities for delivery in the current month and simultaneously
contracts to repurchase, typically in 30 or 60 days, substantially similar (same
type, coupon and maturity) securities on a specified future date, which, under
the Investment Company Act of 1940 (the "1940 Act"), may be considered borrow-
ings from the counterparty. Dollar roll transactions may have the effect of
leveraging, i.e. increasing the market exposure and potential volatility of the
Fund. The obligation to repurchase the securities on a specified future date
(which may include or be considered to be a forward commitment) involves the
risk that the market value of the securities that the Fund is obligated to
repurchase may decline below the repurchase price. In the event the other party
to a dollar roll transaction files for bankruptcy, becomes insolvent or defaults
on its obligations, the Fund's use of the proceeds of the transaction may be
delayed, impaired or restricted pending a determination by the other party, its
trustee or receiver, whether to enforce the Fund's obligation to repurchase the
securities. There also is the risk that the return earned by the Fund with the
proceeds of the dollar roll transaction may not exceed its transaction costs.
REITs. The Income Fund may invest in real estate investment trusts, known
as "REITs," which involve the risks associated with investing in the real estate
industry in general, such as possible declines in the value of real estate, lack
of availability of mortgage funds or extended vacancies of property. REITs
are also subject to certain additional risks. Equity REITs may be affected by
changes in the value of the underlying property owned by the REITs, while mort-
gage REITs may be affected by the quality of any credit extended. REITs are
dependent upon management skills, may not be diversified, and are subject to
heavy cash flow dependency, default by borrowers, and self-liquidation.
REITs are also subject to the possibilities of failing to qualify for tax
free pass-through of income under the Internal Revenue Code of 1986, as amended,
and failing to maintain their exemptions from registration under the 1940 Act.
Investment in REITs involves risks similar to those associated with investing in
small capitalization companies. REITs may have limited financial resources, may
trade less frequently and in limited volume and may be subject to more abrupt or
erratic price movements than larger company securities.
INTEREST RATE FUTURES. The Income and Tax-Exempt Bond Funds may enter into
interest rate futures as a hedge against the effects of changes in the value of
the portfolio securities due to changes in interest rates and market conditions
without necessarily buying or selling these securities. There can be no
assurance that there will be a correlation between price movements in the under-
lying securities and price movements in the securities which are the subject of
the hedge. These transactions involve a risk that the interest rates could move
in an unexpected manner resulting in a loss on the futures transaction.
LOWER-RATED SECURITIES. Each of the Income and Tax-Exempt Bond Funds may
invest up to 35% of its total assets in debt securities rated lower than BBB by
Standard & Poor's or Baa by Moody's Investors Service, Inc., or in securities of
equivalent quality as determined by Composite. These non-investment-grade debt
securities are commonly referred to as "junk bonds." Securities rated below
investment-grade, as well as comparable unrated securities, usually entail
greater risk (including the possibility of default or bankruptcy of the
issuers), generally involve greater price volatility and risk of principal and
income, and may be less liquid than securities in higher rated categories. Both
price volatility and illiquidity may make it difficult for the Fund to value or
to sell some of these securities under certain market conditions.
Non-investment-grade debt securities are often considered to be speculative and
involve greater risk of default or price volatility due to changes in the
issuer's creditworthiness. The market prices of these securities may fluctuate
more than higher-rated securities and may decline significantly in periods of
general economic difficulty, which may follow periods of rising interest rates.
7. The following paragraph replaces the section of the Bond Funds' Prospectus
entitled "Other investment practices- Foreign securities":
The Income Fund may purchase securities denominated in currencies other than
U.S. dollars, or that pay interest or dividends in currencies other than U.S.
dollars. The Fund may also engage in foreign currency exchange transactions for
hedging purposes in connection with the purchase and sale of foreign securities
or to protect against changes in the value of specific securities held by the
Fund, to purchase and sell currencies on a spot (cash) basis, to enter into
forward contracts to purchase or sell foreign currencies at a future date, and
to buy and sell foreign currency future contracts and put and call options on
foreign currency futures contracts and foreign currencies.
8. The U.S. Government Securities Fund may invest in securities issued by
agencies or instrumentalities of the U.S. Government whether or not payment of
the principal and interest is supported by the full faith and credit of the U.S.
Government. In the case of securities not backed by the full faith and credit
of the United States, the Fund must look principally to the agency issuing or
guaranteeing the obligation for ultimate repayment and will not be able to
assert a claim against the United States itself if the agency or instrumentality
does not meet its commitment.
9. The Money Market Portfolio may invest in short-term commercial notes
(including asset-backed securities) issued directly by U.S. and foreign busi-
nesses, banking institutions, financial institutions (including brokerage,
finance and insurance companies), and state and local governments and munici-
palities, as well as in securities issued by foreign governments, their agencies
or instrumentalities or by supranational entities.
10. The following paragraphs replace the section entitled "Distribution plans"
in each of the Prospectuses:
Each of the Funds has adopted distribution plans pursuant to Rule 12b-1
under the 1940 Act applicable, respectively, to the Class A and Class B shares
of the Fund (each, a "Rule 12b-1 Plan"). Under the applicable Rule 12b-1 Plans,
the Distributor receives a service fee at an annual rate of .25% of the average
daily net assets of each class (up to .15%, but currently 0%, in the case of
Class A shares of the Money Market Portfolio and the Tax-Exempt Money Market
Portfolio). In addition, the Distributor is paid an annual fee as compensation
in connection with the offering and sale of Class B shares of the Funds at an
annual rate of .75% of the average daily net assets of such shares. These fees
may be used to cover the expenses of the Distributor primarily intended to re-
sult in the sale of such shares of the Funds, including payments to the
Distributor's representatives or others for selling shares. Because the Distri-
butor may retain any amount of its fee that is not so expended, these Rule 12b-1
Plans are characterized by the Securities and Exchange Commission as "compensa-
tion-type" plans.
In addition to providing for the expenses discussed above, each Rule 12b-1
Plan also recognizes that Composite may use its investment advisory fees or
other resources to pay expenses associated with activities primarily intended to
result in the promotion and distribution of the Fund's shares. The Distributor
may, from time to time, pay to other dealers, in connection with retail sales or
the distribution of shares of a Fund, material compensation in the form of
merchandise or trips. Salespersons and any other person entitled to receive any
compensation for selling or servicing Fund shares may receive different compen-
sation with respect to one particular class of shares over another. In addition,
the Distributor may from time to time pay additional cash compensation or other
promotional incentives to authorized dealers or agents who sell shares of the
Funds. In some instances, such cash compensation may be offered only to certain
dealers or agents, or their registered representatives who have sold or may sell
significant amounts of shares of the Funds and/or other "Composite Funds"
managed by the Advisor during a specified period of time.
11. The following sentence replaces the first sentence of the section entitled
"Who we are - Distributor" in each of the Prospectuses:
Composite Funds Distributor, Inc. is the Funds' "Distributor."
12. The following sentence replaces the second paragraph of the section of each
Prospectus entitled "How to buy shares - Other information":
In the interest of economy and convenience, physical certificates
representing fund shares will not be issued.
13. The following paragraph replaces the second paragraph of the section
entitled "How to buy shares - Net asset value purchases" in the Equity and Bond
Funds' Prospectuses:
The Funds may also offer their shares at NAV to investors who use the sales
proceeds from mutual funds advised by Composite or its affiliates (excluding
money market funds); to certain retirement plans; and to brokers, dealers or
registered investment advisers who have entered into arrangements with the
Distributor providing specifically for the shares to be used in particular
investment products made available to their clients for which they may charge a
separate fee.
<PAGE>
Supplement dated January 26, 1998 to the following
Statements of Additional Information:
COMPOSITE EQUITY FUNDS (dated February 28, 1997)
COMPOSITE BOND FUNDS (dated April 30, 1997)
COMPOSITE CASH MANAGEMENT COMPANY
(dated April 30, 1997 and revised June 18, 1997)
Suite 300
601 W. Main Avenue
Spokane Washington 99201-0613
Telephone (509) 353-3550 Toll Free (800) 543-8072
The Statements of Additional Information are revised as follows (all capitalized
terms not specifically defined in this Supplement are defined as set forth in
each of the above-referenced Statements of Additional Information):
1. The financial statements and "Report of Independent Accountants" contained in
the Composite Equity Funds' 1997 Annual Report, filed with the Securities and
Exchange Commission on December 29, 1997 are incorporated by reference into the
Composite Equity Funds' Statement of Additional Information.
2. The following sentence replaces the sixteenth investment restriction in the
Equity Funds' Statement of Additional Information and the sixth investment
restriction in the Bond Funds' Statement of Additional Information under the
section entitled "Investment Restrictions":
Each Fund may NOT:
- buy securities restricted as to resale under federal securities laws
(other than securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933, as amended).
3. The following sentence replaces the sixth investment restriction in the
Cash Management Company Statement of Additional Information under the section
entitled "Investment Restrictions":
Each Portfolio within the Fund may NOT:
- buy securities subject to restriction on resale (other than
securities eligible for resale pursuant to Rule 144A under the Securities Act of
1933, as amended, and except in connection with repurchase agreements).
<PAGE>
4. The following sentence replaces the fourteenth investment restriction in the
Bond Funds' Statement of Additional Information under the section entitled
"Investment Restrictions":
Each Fund may NOT:
- borrow money for investment purposes (it may borrow up to 5% of its
total assets for emergency, non-investment purposes); except that the Income
Fund and the U.S. Government Securities Fund may enter into transactions in
which the Fund sells securities for delivery in the current month and
simultaneously contracts to repurchase substantially similar securities on a
specified future date.
5. The following sentence replaces the fourth investment restriction in the Bond
Funds' Statement of Additional Information under the section entitled
"Investment Restrictions":
Each Fund may NOT:
- invest in real estate or commodities; except that the Income Fund
may purchase securities of issuers which deal in real estate, securities which
are secured by interests in real estate, and/or securities which represent
interests in real estate, and it may acquire and dispose of real estate or
interests in real estate acquired through the exercise of its rights as a holder
of debt obligations secured by real estate or interests therein and the Income
Fund and Tax-Exempt Bond Fund may purchase and sell interest rate futures and
options.
6. The following sentence replaces the tenth investment restriction in the Bond
Funds' Statement of Additional Information under the section entitled
"Investment Restrictions":
Each Fund may NOT:
- buy foreign securities not payable in U.S. dollars; except that this
restriction shall not apply to the Income Fund.
7. The following paragraph replaces the first numbered paragraph in the Bond
Funds' Statement of Additional Information under the section entitled "Invest-
ment Practices -- U.S. Government Securities":
<PAGE>
It is a fundamental policy of the Fund to invest in the following
securities:
1. Obligations issued by the U.S. Government, its agencies or
instrumentalities.
8. The following paragraphs replace the first two paragraphs, and the first two
sentences of the third paragraph, of the section entitled "Distribution Services
- -- 12b-1 Plan" in each of the Statements of Additional Information:
Each of the Funds has distribution plans, pursuant to Rule 12b-1 under the
1940 Act, applicable, respectively, to Class A and Class B shares of the Fund
(each, a "Rule 12b-1 Plan"). Under the applicable Rule 12b-1 Plans, the Distri-
butor receives a service fee at an annual rate of .25% of the average daily net
assets of each class (up to .15%, but currently 0%, in the case of Class A
shares of the Money Market Portfolio and the Tax-Exempt Money Market Portfolio).
In addition, the Distributor is paid an annual fee as compensation in connection
with the offering and sale of Class B shares of the Funds at an annual rate of
.75% of the average daily net assets of such shares. These fees may be used to
cover the expenses of the Distributor primarily intended to result in the sale
of such shares of the Funds, including payments to the Distributor's representa-
tives or others for selling shares. Because the Distributor may retain any
amount of its fee that is not so expended, these Rule 12b-1 Plans are
characterized by the Securities and Exchange Commission as "compensation-type"
plans.
In addition to providing for the expenses discussed above, each Rule 12b-1
Plan also recognizes that Composite may use its investment advisory fees or
other resources to pay expenses associated with activities primarily intended to
result in the promotion and distribution of the Fund's shares. The Distributor
may, from time to time, pay to other dealers, in connection with retail sales or
the distribution of shares of a Fund, material compensation in the form of mer-
chandise or trips. Salespersons and any other person entitled to receive any
compensation for selling or servicing Fund shares may receive different compen-
sation with respect to one particular class of shares over another. In addition,
the distributor may from time to time pay additional cash compensation or other
promotional incentives to authorized dealers or agents who sell shares of the
Funds. In some instances, such cash compensation may be offered only to certain
dealers or agents, or their registered representatives who have sold or may sell
significant amounts of shares of the Funds and/or other "Composite Funds"
managed by the Advisor during a specified period of time.
<PAGE>
9. The following sentence is added to the beginning of the section entitled
"Distribution Services" in each of the Statements of Additional Information:
Composite Funds Distributor, Inc. is the Funds' "Distributor."
10. The following paragraph replaces the paragraph in the Equity Funds' State-
ment of Additional Information under the section "The Funds and Their Management
- -- Bond & Stock and Growth & Income":
In payment for its services, the Adviser receives a monthly fee equal to
.625% per annum computed on the average daily net assets of each Fund; should
average daily net assets exceed $250 million, the fee will decrease to .50% of
such assets. Bond & Stock paid fees of $1,912,341, $1,555,733 and $1,230,409 for
the fiscal years ended October 31, 1997, 1996 and 1995, respectively. Growth &
Income paid fees of $1,630,777, $1,065,507 and $738,064, respectively, to the
Adviser during the fiscal years ended October 31, 1997, 1996 and 1995.
11. The following paragraph replaces the first paragraph in the Equity Funds'
Statement of Additional Information under the section "The Funds And Their
Management -- Northwest":
In payment for its services, the Adviser receives a monthly fee equal to
.625% per annum computed on the average daily net assets to $500 million. Fees
paid to the Adviser, before expense reimbursements in effect prior to January 1,
1998, during the fiscal years ended October 31, 1997, 1996 and 1995 amounted to
$1,538,183, $1,123,204 and $973,877, respectively.
12. The following persons (with their birthdays shown in parentheses) have been
elected to the Boards of Directors of the Composite Funds, and the following
paragraphs are added to the Statements of Additional Information under the
section "Directors and Officers of the Funds":
Arthur H. Bernstein, Esq. (6/8/25)
Director
11661 San Vincente Blvd., #405
Los Angeles, California 90049
<PAGE>
Mr. Bernstein is President of Bancorp Capital Group, Inc. and President of
Bancorp Venture Capital, Inc. since 1988. He has been a Trustee of Sierra Trust
Funds since 1989.
David E. Anderson (11/17/26)
Director
17960 Seabreeze Drive
Pacific Palisades, California 90272
Retired, Former President & CEO GTE California, Inc. Currently involved in
the following charitable organizations as a director on the following boards:
Board Chairman, Children's Bureau Foundation; Board member, Upward Bound House
of Santa Monica; Past Campaign Chairman of United Way; Past Chairman, Los
Angeles Area Chamber of Commerce. Holds BSEE degree from Iowa State.
Edmond R. Davis, Esq. (9/24/28)
Director
550 South Hope Street, 21st Floor
Los Angeles, California 90071-2604
Partner, Brobeck, Phleger & Harrison. Joined the firm as a Partner in 1987
and is responsible for estate planning, and trusts and estate matters in the Los
Angeles office.
John W. English (3/27/33)
Director
50 H New England Ave.
P.O. Box 640
Summit, New Jersey 07902-0640
Retired Vice President and Chief Investment Officer, the Ford Foundation (a
non-profit charitable organization). Chairman of the Board and Director, The
China Fund, Inc. (a closed-end mutual fund). Director, The Northern Trust
Company's Benchmark Funds (an open-end mutual fund).
Alfred E. Osborne, Jr. Ph.D. (12/7/44)
Director
110 Westwood Plaza, Suite C305
Los Angeles, California 90095-1481
<PAGE>
University professor, researcher and administrator at UCLA since 1972.
Director, Times Mirror Company, ReadiCare, Inc., United States Filter Corpora-
tion, Nordstrom, Inc., Seda Specialty Packing Corporation and Greyhound Lines,
Inc. Independent general partner, Technology Funding Venture Partners V.
Governor of the National Association of Securities Dealers, Inc.
13. The following paragraphs replace the portion of the section entitled
"Directors and Officers of the Funds" of the Equity Funds' Statement of
Additional Information beginning immediately following the list of Directors and
Officers of the Funds and the last six paragraphs replace the last six
paragraphs of the section entitled "Directors and Officers of the Funds" of the
Bond Funds' and Cash Management Company Statements of Information:
The Funds paid no remuneration to any of its officers, including Mr.
Papesh, during the fiscal year ended October 31, 1997. The Funds and other Funds
within the Composite Group paid directors' fees during the fiscal year ended
October 31, 1997, in the amounts indicated below:
<TABLE>
<CAPTION>
Director Bond & Stock Growth & Income Northwest Total Complex(1)
- --------------------- ------------ --------------- --------- ----------------
<S> <C> <C> <C> <C>
Wayne L. Attwood, MD $1,250 $1,250 $1,250 $15,000
Kristianne Blake $1,333 $1,333 $1,333 $15,000
*Anne V. Farrell $ 0 $ 0 $ 0 $ 0
*Michael K. Murphy $ 0 $ 0 $ 0 $ 0
Edwin J. McWilliams $ 167 $ 167 $ 167 $ 1,837
Daniel L. Pavelich $1,000 $1,000 $1,000 $11,000
Jay Rockey(2) $1,208 $1,208 $1,208 $15,000
Richard C. Yancey $1,125 $1,125 $1,125 $14,000
Arthur H. Bernstein, Esq.(3) $ 0 $ 0 $ 0 $ 0
David E. Anderson(3) $ 0 $ 0 $ 0 $ 0
Edmond R. Davis, Esq.(3) $ 0 $ 0 $ 0 $ 0
John W. English(3) $ 0 $ 0 $ 0 $ 0
Alfred E. Osborne, Jr. Ph.D.(3) $ 0 $ 0 $ 0 $ 0
</TABLE>
<PAGE>
(1) Each Director serves in the same capacity with each fund within the
Composite Group (eight companies) comprising 11 individual investment
portfolios. In addition, effective December 23, 1997 each of the Directors
serves in the same capacity of each Fund advised by various affiliates of
Composite. "Total Complex" compensation relates solely to Funds advised by
Composite during the fiscal year ended October 31, 1997.
(2) Mr. Rockey is Chairman of the Rockey Company, a public relations firm
which has received revenue from the Funds and Washington Mutual, Inc., parent
company of the Adviser and Distributor, during the 1997 fiscal year.
(3) Each indicated Director received no compensation during the fiscal year
ended October 31, 1997 because each Trustee was not elected to the Composite
Funds Boards of Directors until December 23, 1997.
* Denotes an individual who is an "interested person" as defined in the
Investment Company Act of 1940.
As of December 31, 1998, officers, directors and their immediate families
as a group owned of record and beneficially less than 1% of the outstanding
shares of each Fund. The Retirement Savings and Investment Plan of Washington
Mutual, Inc. owned of record 1,419,622 shares of Bond & Stock, 3,677,591 shares
of Growth & Income, and 871,372 shares of Northwest for the benefit of plan par-
ticipants. These shares amounted to 5.8%, 20.5% and 6.5%, respectively, of each
Fund's outstanding shares. The Retirement Savings and Investment Plan retains
voting rights to these shares.
*These directors are considered "interested persons" of the Funds as that
term is defined in the Investment Company Act of 1940, because they are either
affiliated persons of the Funds, their Adviser, or Distributor.
14. The following three paragraphs replace the third, fourth and fifth para-
graphs of the section of the Equity Funds' Statement of Additional Information
entitled "Distribution Services -- 12b-1 Plan":
Bond & Stock, Growth & Income and Northwest reimbursed the Distributor in
the amounts of $701,288, $563,809, and $537,269, respectively, for distribution
expenses incurred on behalf of Class A shares during fiscal 1997. Of this
amount, $431,891, $340,825, and $246,856 was paid on behalf of Bond & Stock,
Growth & Income and Northwest to sales personnel of the Distributor and to
selected dealers for their shareholder servicing activities and $269,397,
$222,984 and $290,413, respectively, was paid for other advertising expenses.
During fiscal years 1996 and 1995, Bond & Stock reimbursed the Distributor
$394,279 and $356,379, respectively; Growth & Income reimbursed the Distributor
$265,579 and $203,566, respectively; and Northwest reimbursed the Distributor
$360,642 and $279,851, respectively for distribution expenses related to Class A
shares.
During fiscal years 1997, 1996 and 1995, Bond & Stock compensated the Dis-
tributor in the amounts of $334,855, $148,688 and $46,435, respectively; Growth
& Income compensated the Distributor in the amounts of $365,290, $151,222 an
$49,988, respectively; and Northwest compensated the Distributor in the amounts
of $247,630, $106,606 and $49,126, respectively, for distribution expenses
related to Class B shares.
<PAGE>
15. The following four paragraphs replace the third through sixth paragraphs of
the section of the Equity Funds' Statement of Additional Information entitled
"Distribution Services -- Distributor":
During the 1997, 1996 and 1995 fiscal years, the Distributor received
$885,598, $1,064,004 and $471,479, respectively, for the sale of Bond & Stock
Class A shares. The Distributor retained $710,403, $1,047,926 and $471,445,
respectively, for the same time periods, with the balance paid to dealers for
their sales of Bond & Stock Class A shares.
During the 1997, 1996 and 1995 fiscal years, the Distributor received
$825,142, $586,437 and $384,766, respectively, for the sale of Growth & Income
Class A shares. The Distributor retained $666,246, $563,398 and $384,647,
respectively, for the same time periods, with the balance paid to dealers for
their sales of Growth & Income Class A shares.
During the fiscal years 1997, 1996 and 1995 the Distributor received
$799,120, $517,022 and $348,729, respectively, for the sale of Northwest Class A
shares. The Distributor retained $551,530, $465,694 and $337,189, respectively,
for the same time periods, with the balance paid to dealers for their sales of
Northwest Class A shares.
The Distributor has not received any earnings or profits from the
redemption of Class A shares. During the fiscal year ended October 31, 1997, the
Distributor received contingent deferred sales charge payments of $63,218,
$63,310 and $37,195 upon redemption of Class B shares of Bond & Stock, Growth &
Income, and Northwest, respectively. No brokerage fees were paid by the Funds to
the Distributor during the year, but the Distributor may act as broker on
portfolio purchases and sales should it become a member of a securities
exchange.
16. The following paragraph replaces the second paragraph of the section of the
Equity Funds' Statement of Additional Information entitled "Distribution
Services -- Transfer Agent":
During the 1997, 1996 and 1995 fiscal years, Bond & Stock paid $235,936,
$222,913 and $194,112, respectively, for these services. During fiscal years
1997, 1996 and 1995, Growth & Income paid $245,357, $193,784 and $142,648,
respectively. Northwest paid $347,561, $320,799 and $292,144, respectively, for
these services.
17. The following sentence replaces the second sentence of the first paragraph
of the section of the Equity Funds' Statement of Additional Information entitled
"Dividends, Capital Gain Distributions and Taxes":
<PAGE>
Each Fund so qualified during the 1997 fiscal year.
18. The following sentence and the accompanying table replaces the second
paragraph and the accompanying table in the section of the Equity Funds'
Statement of Additional Information entitled "Investment Practices -- Bond &
Stock":
The average ratings of all debt securities held by the Fund, expressed as a
percentage of total assets, during the fiscal year ended October 31, 1997 is
presented below:
Percentage of Average
S&P Rating Total Assets
------------------- ---------------------
AAA (or US Treasury) 24%
AA 0%
A 1%
BBB 6%
BB 2%
B 2%
Not Rated 1%
19. The following tables and accompanying footnotes replaces the tables in the
section of the Equity Funds' Statement of Additional Information entitled
"Performance Information":
Periods Ended October 31, 1997
Average Annual Total Return 1 Year 5 Years 10 Years
- --------------------------- -------- --------- --------
Bond & Stock, Class A 15.37% 13.06% 11.99%
Bond & Stock, Class B 16.86% 15.82%*
Growth & Income, Class A 25.34% 17.69% 13.85%
Growth & Income, Class B 27.20% 21.65%*
Northwest, Class A 37.95% 15.60% 17.53%*
Northwest, Class B 40.17% 20.29%*
Cumulative Total Return
- -----------------------
Bond & Stock, Class A 15.37% 84.07% 207.81%
Bond & Stock, Class B 16.86% 69.70%*
Growth & Income, Class A 25.34% 125.79% 261.27%
Growth & Income, Class B 27.20% 102.76%*
Northwest, Class A 37.95% 106.44% 402.71%
Northwest, Class B 40.17% 94.66%*
*Class B shares total returns from the commencement of public offering on March
30, 1994.
<PAGE>
20. The following table replaces the table following the fifth paragraph under
the section of the Equity Funds' Statement of Additional Information entitled
"Brokerage Allocations and Portfolio Transactions":
Total Brokerage Commissions Paid by each Fund:
Bond & Stock Growth & Income Northwest
-------------- ----------------- -----------
1997 $307,372 $502,688 $ 98,599
1996 $199,663 $292,486 $123,164
1995 $137,742 $163,180 $ 37,280
21. The following sentence replaces the first sentence of the second paragraph
in the Bond Funds' Statement of Additional Information under the section
entitled "Investment Practices -- Income":
Although the Fund's total assets invested in "high-yield" securities (i.e.,
not rated among the four highest grades and sometimes referred to as "junk"
bonds) may not equal or exceed 35%, these securities, whether rated or unrated,
may be subject to greater market fluctuations and risks of loss of income and
principal than the lower yielding, higher-rated, fixed-income securities which
comprise most of the Fund's portfolio.
22. The following sentence replaces the first sentence of the fifth paragraph
in the Bond Funds' Statement of Additional Information under the section
entitled "Investment Practices -- Municipal Bonds":
Although the Tax-Exempt Fund's total assets invested in "high-yield"
securities (i.e., not rated among the four highest grades and sometimes referred
to as "junk" bonds) may not equal or exceed 35%, these securities, whether rated
or unrated, may be subject to greater market fluctuations and risks of loss of
income and principal than the lower yielding, higher-rated, fixed-income
securities which comprise most of the Tax-Exempt Fund's portfolio.
23. The following paragraph replaces the third numbered paragraph in the Cash
Management Company Statement of Additional Information under the section
entitled "Investment Practices -- Money Market Portfolio":
<PAGE>
Short-term commercial notes (including asset-backed securities) issued
directly by U.S. and foreign businesses, banking institutions, financial
institutions (including brokerage, finance and insurance companies), and state
and local governments and municipalities to finance short-term cash needs.
24. The following Specimen Price Make-Up Sheet will replace Appendix A of the
Equity Funds' Statement of Additional Information in its entirety:
APPENDIX A
SPECIMEN PRICE MAKE-UP SHEET
COMPOSITE BOND & STOCK FUND INC.
GROWTH & INCOME FUND
COMPOSITE NORTHWEST FUND
October 31, 1997
BOND & STOCK GROWTH & INCOME NORTHWEST
-------------- ----------------- -------------
Assets $356,121,022 $357,313,715 $297,983,813
Liabilities $ 2,547,271 $ 7,391,347 $ 1,449,129
------------ ------------ ------------
Net Assets $353,573,751 $349,922,358 $296,534,684
============ ============ ============
CLASS A SHARES
Net Assets $307,017,592 $299,928,414 $256,908,052
Shares Outstanding $ 19,030,734 $ 14,278,462 $ 9,912,061
Net Asset Value
Per Share $ 16.13 $ 21.01 $ 25.92
============ ============ ============
Maximum Offering Price
(Net Asset Value
Per Share /955/1000) $ 16.89 $ 22.00 $ 27.14
============ ============ ============
CLASS B SHARES
Net Assets $ 46,556,159 $ 49,993,944 $ 39,626,632
Shares Outstanding $ 2,892,519 $ 2,367,638 $ 1,563,580
Net Asset Value and
Offering Price Per Share $ 16.10 $ 20.85 $ 25.34
============ ============ ============
