ECONOMIC AND INTEREST RATE OUTLOOK
FUNDS' INVESTMENT HIGHLIGHTS
FUNDS' PORTFOLIOS
FINANCIAL INFORMATION
FINANCIAL STATEMENTS
FINANCIAL HIGHLIGHTS
NOTES TO FINANCIAL STATEMENTS
PRESIDENT'S MESSAGE
Six-Month Performance Improvement
Economic forces continued to provide investors with opportunities for
financial achievement during the past six months. While the equity markets
received the majority of press attention, fixed income investors found ample
reason to stay the course. Our Bond Fund portfolios performed well in a period
of low and stabilized inflation.
For the six-month period ended June 30, 1997, Class A share total returns
at net asset value were 2.87% from U.S. Government Fund, 3.76% from Income Fund,
and 2.62% 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.
California, Here We Come
In recent months, Washington Mutual, Inc., the parent company of both our
principal distributor and investment adviser, made two exceptionally important
acquisitions. American Savings Bank and Great Western Bank will greatly expand
the organization, more than doubling Washington Mutual's total number of retail
branches to more than 700 - most of them in California. The key benefit to the
Composite Group will be the opportunity to make our Funds available to a vastly
expanded population base through financial consultants in these branches. Our
success in this effort should bring greater economies of scale to our
operations. Over time, this should result in a reduction of Fund expenses to the
benefit of shareholders.
A Salute To Lee Sahlin
I want to make special note of the retirement of Chairman Lee Sahlin from
our Board this past January. Armed with a graduate degree in economics from
Washington State University, Lee joined our distributor in 1955. Since then, he
has been at various times, the CEO of that organization as well as the Composite
Group of Funds and Composite Research & Management Co., the Funds' adviser.
[PHOTO - RETIRING CHAIRMAN OF THE BOARD, LEE SAHLIN]
Lee was instrumental in organizing most of our Funds and in developing a
cadre of professionals committed to a conservative, long-term approach to the
accumulation and protection of wealth. Our shareholders and staff have been the
beneficiaries of his strengths and integrity.
/s/ William G. Papesh
WILLIAM G. PAPESH
PRESIDENT
<PAGE>
ECONOMIC AND INTEREST RATE OUTLOOK
THE FIRST HALF OF 1997 STARTED off strongly with the economy growing
exceptionally fast during the first quarter. In fact, the situation was
pronounced enough to prompt the Federal Reserve to raise short-term interest
rates for the first time since February, 1995. After that, however, the economy
slowed appreciably, resulting in second quarter growth that was expected to be
below average. Overall, interest rates moved up at the beginning of the year
but then fell as the middle of the year approached. Despite some volatility,
rates ended the period little changed.
In the near term, there are a number of factors that could push up interest
rates. Because we are in the latter stages of a business cycle, there is a
growing concern that the forward momentum in the economy will produce excessive
growth and inflation. The Fed's response is typically to increase interest
rates. Furthermore, unemployment remains low and it is becoming increasingly
difficult to balance rising wages with benefit reductions. Inflationary
pressures may be felt from overseas as well, as Japan and Germany have been
stimulating their economies, potentially increasing inflationary pressures from
overseas.
Offsetting these concerns in the longer term is the Federal Reserve's
commitment to a low inflation environment and the still very positive structural
forces in the economy that should keep interest rates contained on the upside.
Additionally, the level of intermediate interest rates (6.35% - 6.50%)
presently offers a very good historical return versus inflation. For all
investors, especially fixed income investors, inflation is the biggest nemesis
because it erodes purchasing power. By having a real return of approximately
3.65% better than inflation, investors are being amply rewarded for purchasing
fixed income securities.
In summary, we anticipate an environment of contained inflation and,
despite the potential for a near-term rise in interest rates, we believe fixed
income investments currently offer very good value.
<PAGE>
INVESTMENT HIGHLIGHTS
COMPOSITE U.S. GOVERNMENT SECURITIES, INC.
[CHART]
FUND PERFORMANCE
PERIODS ENDED 6/30/97
- ------------------------------------------------
SIX MONTHS
CLASS A CLASS B
SHARES SHARES
------- -------
TOTAL RETURN
Without sales charge 2.87% 2.43%
PER SHARE
Dividends $0.313 $0.269
NET ASSET VALUES
Beginning $10.46 $10.46
Ending $10.44 $10.44
30-DAY YIELD 5.77% 5.20%
- ------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
WITH WITHOUT
CLASS A SALES SALES
SHARES CHARGE CHARGE
- ------- ------ -------
ONE YEAR 3.67% 8.01%
FIVE YEARS 5.19% 6.05%
TEN YEARS 7.62% 8.06%
CLASS B
SHARES
- -------
ONE YEAR 4.04% 7.04%
LIFE OF CLASS 5.76% 6.03%
(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.
Impacts on recent performance
During the first half of 1997 interest rates were relatively stable. This
was positive for mortgage-backed securities which make up 75% of the Fund. The
major uncertainty with mortgage securities is deviation from expected prepay-
ments. These mortgage-backed securities are essentially a group of homeowner
mortgage loans that have been pooled and guaranteed against default by a
government agency.
Homeowners have the luxury of prepaying their mortgage at any time. Often,
they will do so at the most opportune time, which for the purchaser of the
securities tends to be the least opportune time. If interest rates fall,
homeowners will refinance, resulting in mortgage-backed securities with high
interest rates being called away from the purchasers; if interest rates rise,
homeowners will not refinance, causing purchasers to be stuck with low interest
rate securities. Therefore, if interest rates are stable, prepayments become
less volatile, which in turn has historically caused mortgage-backed securities
to perform very well.
Given that the Fund invests only in some of the safest instruments, which
are government-guaranteed or government-backed, the performance shown in the
chart has been quite good, especially considering the low level of inflation
over those time periods.
What's Ahead?
As a strategy we look for the best profile of yield versus prepayment risk
in mortgages. While a good portion of the time that will keep us away from the
highest-yielding securities, at the same time it will help us avoid the
potential for significant under-performance which plagued some funds in 1994.
Diversification in the portfolio's mortgage-backed securities also spreads
prepayment risk over a wide range of issues.
We continue to believe that by focusing on controlling prepayments,
mortgage-backed securities can be used to create a portfolio with above-average
yield and relatively stable income characteristics.
With the outlook for inflation benign, we feel today's interest rate levels
continue to offer very good value. There can and will be periods when rates will
rise but the long-term trend, in our opinion, is for rates to continue edging
downward. Because of our long-term focus in managing the Funds, we continue to
have the portfolio skewed to capture the benefits of falling rates while
controlling prepayments.
Key investment strategies
The Fund's objective is to provide a high level of current income that is
consistent with safety and liquidity. We seek to accomplish this by investing in
a combination of intermediate-maturity mortgage-backed and U.S. Treasury
securities. By taking advantage of changing fundamentals between different
segments of the mortgage market and by anticipating broad changes in interest
rates, we feel we can add additional income to the Fund while clearly meeting
the safety and liquidity objectives.
<PAGE>
INVESTMENT HIGHLIGHTS (CONTINUED)
COMPOSITE INCOME FUND
[CHART]
FUND PERFORMANCE
PERIODS ENDED 6/30/97
- ------------------------------------------------
SIX MONTHS
CLASS A CLASS B
SHARES SHARES
------- -------
TOTAL RETURN
Without sales charge 3.76% 3.34%
PER SHARE
Dividends $0.296 $0.259
NET ASSET VALUES
Beginning $ 9.15 $9.17
Ending $ 9.19 $9.21
30-DAY YIELD 6.14% 5.57%
- ------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
WITH WITHOUT
CLASS A SALES SALES
SHARES CHARGE CHARGE
- ------- ------ -------
ONE YEAR 5.63% 10.01%
FIVE YEARS 6.62% 7.49%
TEN YEARS 7.74% 8.18%
CLASS B
SHARES
- -------
ONE YEAR 6.18% 9.18%
LIFE OF CLASS 7.05% 7.31%
(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.
Impacts on recent performance
Performance during the first half of the year was spurred by the health of
the two sectors that make up the majority of the Fund's holdings: corporate
bonds and mortgage-backed securities. An economy that grew very nicely, coupled
with stable inflation, produced an ideal environment for improving corporate
credit quality. Consequently, corporate bond performance was very good.
Mortgage-backed securities benefited from the limited range interest rates have
been in for quite some time, helping to alleviate prepayment volatility, a major
risk to mortgage-backed securities.
Interest rates were basically unchanged for the first six months of 1997,
but the net asset value still managed to rise slightly because of the fine
performance of the aforementioned sectors.
Although bond returns have not captured the headlines like stock returns,
performance of the Fund as shown in the chart is impressive, especially when
compared to the low level of inflation.
What's Ahead?
Our portfolio is comprised of 58% corporate securities, 23% mortgage-backed
securities and 19% U.S. Treasury obligations, a composition we feel comfortable
with as we move into the latter half of 1997. The combined credit quality of the
portfolio is an "A-" as rated by Standard & Poor's.
In the corporate bond portion of the portfolio, we continue to concentrate
on non-cyclical industries, such as health care, utilities and defense. Our
feeling is that we are in the latter stages of a business cycle in which the
risk/reward profile is not as favorable for cyclical companies. Nonetheless, we
continue to believe that interest rates at today's levels are a good value.
Key investment strategies
The Fund's objective is to provide a high level of current income that is
consistent with the protection of capital. We seek to accomplish this by
investing in intermediate-maturity corporate, mortgage-backed and Treasury
securities. By taking advantage of changing fundamentals between market sectors
and anticipating broad changes in interest rates, we feel we can add additional
income to the Fund while maintaining protection of capital.
<PAGE>
INVESTMENT HIGHLIGHTS (CONTINUED)
COMPOSITE TAX-EXEMPT BOND FUND
[CHART]
FUND PERFORMANCE
PERIODS ENDED 6/30/97
- ------------------------------------------------
SIX MONTHS
CLASS A CLASS B
SHARES SHARES
------- -------
TOTAL RETURN
Without sales charge 2.62% 2.19%
PER SHARE
Dividends $0.192 $0.159
NET ASSET VALUES
Beginning $ 7.83 $ 7.83
Ending $ 7.84 $ 7.84
30-DAY YIELD 4.31% 3.64%
- ------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
WITH WITHOUT
CLASS A SALES SALES
SHARES CHARGE CHARGE
- ------- ------ -------
ONE YEAR 2.83% 7.11%
FIVE YEARS 5.70% 6.56%
TEN YEARS 7.06% 7.49%
CLASS B
SHARES
- -------
ONE YEAR 3.14% 6.14%
LIFE OF CLASS 5.48% 5.77%
(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.
Impacts on recent performance
During the first half of 1997, municipal bonds performed very well
relative to U.S. Treasury securities. Dramatic economic growth in the first
quarter heightened inflation concerns and pushed the 30-year Treasury bond yield
up 1/2% to a peak in April of 7.17%. This was slightly higher than peak rates
of 1996. During this turmoil, the yield for a "Aaa" 30-year municipal also rose
a more modest 0.30% to 5.75%.
Municipals outperformed in another direction as well. Evidence of a
slowing economy pulled the Treasury yield back down and at the end of June
yields stood only 0.05% above the 1996 year-end level of 6.64%. Municipals, on
the other hand, gave up less yield than Treasuries, falling to 5.40%.
Strength in the municipal market was also helped by a lower level of supply
during the first six months of 1997 as compared to 1996. This pushed municipal
bond prices up and yields to new lows compared to Treasuries.
What's ahead?
Going forward, municipals are generally driven by the underlying level of
Treasury yields, which we continue to believe represent an attractive value for
the long term. Near term, maturities and calls will significantly reduce supply
and may further enhance the relative performance of municipals compared to
Treasuries.
Independent of this, the length and strength of economic growth is boosting
the quality of municipal credits. For example, California--once hobbled by
defense cutbacks and a slowdown in aerospace--is showing strong evidence of
growth throughout the state. We have significantly increased holdings of
California issues in the Fund.
Key investment strategies
In pursuit of a high level of current income exempt from federal taxes and
protection of investor's capital, we continue to target a longer maturity range
and high quality--currently averaging 12.5 years in maturity and a "Aa" credit
quality rating by Moody's. We also continue to hold about 50% of the portfolio
in noncallable bonds to help lock in attractive yields for the long run.
<PAGE>
COMPOSITE
U.S. GOVERNMENT
SECURITIES, INC.
PORTFOLIO OF INVESTMENTS
IN SECURITIES
JUNE 30, 1997
<TABLE>
<CAPTION>
COMPOSITE U.S. GOVERNMENT SECURITIES PORTFOLIO (UNAUDITED)
PRINCIPAL MARKET
AMOUNT VALUE
--------- U.S. TREASURY BONDS-26.19% ------------
<S> <C> <C>
$ 1,000,000 U.S. Treasury Bond, 5.625%, due 02/15/2006................. $ 939,376
18,250,000 U.S. Treasury Bond, 7.25%, due 05/15/2016, 08/15/2022...... 19,039,706
6,500,000 U.S. Treasury Bond, 7.50%, due 11/15/2016.................. 6,948,910
5,000,000 U.S. Treasury Bond, 6.25%, due 08/15/2024.................. 4,628,130
500,000 U.S. Treasury Bond, 6.50%, due 11/15/2026.................. 479,375
------------
TOTAL U.S. TREASURY OBLIGATIONS (cost $33,701,719)......... 32,035,497
------------
MORTGAGE-BACKED SECURITIES-71.76%
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION-50.44%
4,907,768 6.00%, due 04/20/2026...................................... 4,533,565
21,843,195 6.50%, due 08/15/2023 to 04/15/2026........................ 20,908,087
2,594,064 6.875%, due 12/20/2022..................................... 2,663,219
19,204,665 7.00%, due 07/15/2008 to 08/15/2023........................ 19,010,415
7,495,594 7.125%, due 05/20/2022 to 09/20/2022....................... 7,720,648
1,577,897 8.00%, due 04/15/2022...................................... 1,613,894
1,782,200 8.50%, due 05/15/2022...................................... 1,852,932
3,038,238 9.50%, due 07/15/2016 to 09/15/2020........................ 3,278,451
16,100 11.50%, due 07/15/2015..................................... 18,173
43,128 13.50%, due 09/15/2014 to 12/15/2014....................... 50,150
40,211 14.00%, due 06/15/2011..................................... 46,859
------------
61,696,393
------------
COLLATERALIZED MORTGAGE OBLIGATIONS -
GNMA-BACKED-21.32%
8,500,000 Federal Home Loan Mortgage Corporation,
6.85%, due 07/25/2018.................................... 8,485,380
1,950,000 Federal National Mortgage Association, 7.50%,
due 08/25/2001........................................... 1,990,790
943,584 Federal National Mortgage Association - ACES,
6.783%, due 01/17/2003................................... 945,943
6,408,000 Federal National Mortgage Association, 8.00%,
due 06/25/2005........................................... 6,510,970
2,230,000 Federal National Mortgage Association, 6.00%,
due 08/25/2007........................................... 2,185,868
95,853 Federal National Mortgage Association, 8.50%,
due 02/25/2018........................................... 95,695
4,900,000 Merrill Lynch, 6.50%, due 08/27/2015....................... 4,785,776
1,053,442 Mortgage Capital Trust, 9.25%, due 06/01/2017.............. 1,085,692
------------
26,086,114
------------
TOTAL MORTGAGE-BACKED SECURITIES (cost $86,711,490)........ 87,782,507
------------
SHORT-TERM INVESTMENT-1.42%
$ 1,739,000 Repurchase agreement with Goldman Sachs, collateralized
by a U.S. Treasury Note, in a joint trading account at
5.75% dated 06/30/1997, due 07/01/1997 with a maturity
value of $1,739,278 (cost $1,739,000)...................... $ 1,739,000
------------
TOTAL INVESTMENTS (cost $122,152,208)...................... 121,557,004
Other assets, net of liabilities........................... 771,249
------------
NET ASSETS................................................. $122,328,253
============
FEDERAL INCOME TAX INFORMATION:
Net unrealized depreciation of investments at June 30, 1997, of $595,204, based
on aggregate cost of $122,152,208, was composed of gross depreciation of
$2,675,634 for investments having an excess of cost over value and gross
appreciation of $2,080,430 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 $6,136,289 and $24,950,892, respectively,
during the six months ended June 30, 1997. Principal repayments of mortgage-
backed securities aggregated $4,989,307.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
COMPOSITE INCOME FUND, INC.
PORTFOLIO OF INVESTMENTS
IN SECURITIES
JUNE 30, 1997
<TABLE>
<CAPTION>
COMPOSITE INCOME FUND PORTFOLIO (UNAUDITED)
PRINCIPAL MARKET
AMOUNT VALUE
--------- U.S. TREASURY OBLIGATIONS-19.14% ------------
<S> <C> <C>
$ 5,225,000 U.S. Treasury Bond, 7.25%, due 08/15/2022.................. $ 5,453,599
6,325,000 U.S. Treasury Bond, 6.25%, due 08/15/2023.................. 5,854,584
1,250,000 U.S. Treasury Bond, 6.50%, due 11/15/2026.................. 1,198,439
1,000,000 U.S. Treasury Note, 9.00%, due 05/15/1998.................. 1,027,501
1,000,000 U.S. Treasury Note, 7.75%, due 01/31/2000.................. 1,036,563
1,000,000 U.S. Treasury Note, 6.25%, due 10/31/2001.................. 995,938
1,250,000 U.S. Treasury Note, 5.875%, due 11/15/2005................. 1,196,485
------------
TOTAL U.S. TREASURY OBLIGATIONS (cost $16,594,531)......... 16,763,109
------------
MORTGAGE-BACKED SECURITIES-25.40%
GOVERNMENT AGENCY-16.38%
238,498 Federal Home Loan Mortgage Corporation, 9.00%,
due 12/01/2004........................................... 247,815
1,707,367 Federal National Mortgage Association, 8.00%,
due 12/01/2026........................................... 1,746,317
2,528,679 Government National Mortgage Association, 6.00%,
due 02/15/2024........................................... 2,351,679
8,908,907 Government National Mortgage Association,
6.50%, due 08/15/2023 to 04/15/2026...................... 8,527,517
1,504,354 Government National Mortgage Association, 7.00%,
due 07/15/2023........................................... 1,478,502
------------
14,351,830
------------
COLLATERALIZED MORTGAGE OBLIGATIONS -
GOVERNMENT AGENCY BACKED-5.37%
705,322 Federal Home Loan Mortgage Corporation, 8.75%,
due 06/15/2005........................................... 720,083
1,000,000 Federal Home Loan Mortgage Corporation, 7.50%,
due 07/15/2020........................................... 1,014,036
2,918,692 Weyerhaeuser 1982-C FHA Putable, 7.43%, due 06/01/2022..... 2,967,747
------------
4,701,866
------------
COLLATERALIZED MORTGAGE OBLIGATIONS-3.65%
1,750,000 Donaldson, Lufkin & Jenrette, 7.35%, due 12/18/2003........ 1,743,865
862,557 Resolution Trust Corporation - 1991-M2 - A-2,
7.55%, due 09/25/2020.................................... 654,924
850,000 Ryland Mortgage Securities Corporation - 1992-12A,
6.50%, due 09/25/2023.................................... 801,448
------------
3,200,237
------------
TOTAL MORTGAGE-BACKED SECURITIES (cost $22,346,939)........ 22,253,933
------------
CORPORATE BONDS-42.00%
1,000,000 Aetna Services, Inc., 7.625%, due 08/15/2026............... 996,825
850,000 American Home Products Corporation, 7.25%, due 03/01/2023.. 831,880
1,000,000 AMR Corporation, 9.75%, due 03/15/2000..................... 1,076,115
1,000,000 Bank of New York, 7.875%, due 11/15/2002................... 1,042,813
1,000,000 Boeing Company, 8.75%, due 08/15/2021...................... 1,163,085
1,500,000 Burlington Northern, 8.75%, due 02/25/2022................. 1,668,647
1,600,000 Burlington Resources, 9.125%, due 10/01/2021............... 1,870,570
750,000 Conagra, Inc., 9.75%, due 03/01/2021....................... 920,309
2,000,000 Continental Corporation, 7.25%, due 03/01/2003............. 2,011,354
500,000 Crane Company, 8.50%, due 03/15/2004....................... 539,596
2,000,000 Dart & Kraft Finance NV, 7.75%, due 11/30/1998............. 2,033,882
500,000 Developers Diversified Realty, 6.58%, due 02/06/2001....... 490,174
1,250,000 FHP International, 7.00%, due 09/15/2003................... 1,238,041
1,000,000 First Nationwide, 10.00%, due 10/01/2006................... 1,149,191
1,000,000 Fleming Companies, Inc., 5.77%, due 08/06/1998............. 954,506
900,000 Franchise Finance Corporation, 7.00%, due 11/30/2000....... 902,890
1,100,000 Franchise Finance Corporation, 7.875%, due 11/30/2005...... 1,139,030
850,000 Golden Books Publishing, 7.65%, due 09/15/2002............. 805,375
1,450,000 Integon Corporation, 8.00%, due 08/15/1999................. 1,463,713
1,250,000 Kemper Corporation, 6.875%, due 09/15/2003................. 1,243,249
1,000,000 Loral Corporation, 8.375%, due 06/15/2024.................. 1,094,546
1,000,000 Loral Corporation, 7.625%, due 06/15/2025.................. 1,012,056
1,000,000 Manufacturers and Traders Trust Company, 8.125%,
due 12/01/2002........................................... 1,050,083
500,000 Mercantile Bank, 7.625%, due 10/15/2002.................... 515,709
1,000,000 Niagara Mohawk Power, 9.75%, due 11/01/2005................ 1,093,328
1,445,000 Niagara Mohawk Power, 8.77%, due 01/01/2018................ 1,489,672
1,000,000 Norwest Corporation, 6.65%, due 10/15/2023................. 894,630
1,000,000 Pacific Gas and Electric, 9.08%, due 12/15/1997............ 1,014,265
1,400,000 Riviera Holdings Corporation, 11.00%, due 12/31/2002....... 1,477,000
500,000 Summit Bancorp, 8.625%, due 12/10/2002..................... 535,380
1,200,000 Texas Utilities Electric, 9.50%, due 08/01/1999............ 1,263,511
500,000 Time Warner, Inc., 9.15%, due 02/01/2023................... 553,280
300,000 U S West Capital Funding, Inc., 6.95%, due 01/15/2037...... 297,514
1,000,000 Weyerhaeuser Corporation, 7.125%, due 07/15/2023........... 959,691
------------
TOTAL NON-CONVERTIBLE CORPORATE BONDS (cost $36,232,838)... 36,791,910
------------
CONVERTIBLE CORPORATE BONDS-4.78%
250,000 Battle Mountain Gold Company, 6.00%, due 01/04/2005........ 201,875
1,000,000 CII Financial, 7.50%, due 09/15/2001....................... 945,000
200,000 First State Bancorporation, 7.50%, due 04/30/2017.......... 216,750
1,400,000 Integrated Device Technology, Inc., 5.50%, due 06/01/2002.. 1,195,250
350,000 Jumbosports, Inc., 4.25%, due 11/01/2000................... 242,375
750,000 Spectrum Holobyte, Inc., 6.50%, due 09/15/2002............. 544,688
1,200,000 Veterinary Centers of America, 5.25%, due 05/01/2006....... 838,500
------------
TOTAL CONVERTIBLE CORPORATE BONDS (cost $4,103,142)........ 4,184,438
------------
U.S. DOLLAR FOREIGN OBLIGATIONS-2.77%
1,000,000 Province of Alberta, 9.25%, due 04/01/2000................. 1,073,010
1,750,000 United Mexican States, Series B, 6.25%, due 12/31/2019..... 1,356,250
------------
TOTAL FOREIGN OBLIGATIONS (cost $2,048,522)................ 2,429,260
------------
SHARES PREFERRED STOCK-3.63%
---------
2,000 California Federal Bank, Series B.......................... 220,500
4,700 Equity Residential Properties Trust,
Series E (Convertible)................................... 125,138
15,100 First Industrial Realty Trust, Series A.................... 396,375
17,500 Integon Corporation (Convertible).......................... 1,161,562
13,000 Microsoft Corporation (Convertible)........................ 1,131,000
5,500 Pacificare Health Systems, Inc., Series A (Convertible).... 147,812
------------
TOTAL PREFERRED STOCK (cost $2,718,147).................... 3,182,387
------------
PRINCIPAL
AMOUNT
--------- REPURCHASE AGREEMENT-0.90%
$ 789,000 Repurchase agreement with Goldman Sachs, collateralized
by a U.S. Treasury Note, in a joint trading account at
5.75% dated 06/30/1997, due 07/01/1997 with a maturity
value of $789,126 (cost $789,000)......................... 789,000
------------
TOTAL INVESTMENTS (cost $84,833,119)....................... 86,394,037
Other assets, net of liabilities........................... 1,210,413
------------
NET ASSETS................................................. $ 87,604,450
============
FEDERAL INCOME TAX INFORMATION:
Net unrealized appreciation of investments at June 30, 1997, of $1,560,918,
based on aggregate cost of $84,833,119, was composed of gross appreciation of
$2,500,805 for those investments having an excess of value over cost and gross
depreciation of $939,887 for investments having an excess of cost over value.
OTHER INFORMATION:
Purchases and sales (including maturities and principal repayments) of
investment securities, other than short-term investments, aggregated $8,259,220
and $10,154,277, respectively, during the six months ended June 30, 1997,
including purchases and sales of U. S. government securities of $3,388,320 and
$668,458, respectively. Principal repayments of mortgage-backed securities
aggregated $1,006,610.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
COMPOSITE TAX-EXEMPT
BOND FUND, INC.
PORTFOLIO OF INVESTMENTS
IN SECURITIES
JUNE 30, 1997
<TABLE>
<CAPTION>
COMPOSITE TAX-EXEMPT BOND FUND PORTFOLIO (UNAUDITED)
PRINCIPAL MARKET
AMOUNT VALUE
---------- LONG-TERM MUNICIPAL OBLIGATIONS-94.03% --------
EDUCATION FACILITIES REVENUE-1.79%
<S> <C> <C>
$ 785,000 University of Washington (MBIA), 7.00%, due 12/01/2021..... $ 864,575
2,750,000 Washington State Higher Education Facilities,
Pacific Lutheran University Project (CONNIE LEE),
5.70%, due 11/02/2026.................................... 2,697,888
------------
3,562,463
------------
GENERAL OBLIGATION-26.16%
5,000,000 California State General Obligation (FGIC), 5.625%,
due 10/01/2023........................................... 4,999,500
5,000,000 Cook County Illinois (FGIC), 5.875%, due 11/15/2022........ 5,065,850
5,000,000 Georgia State, 6.30%, due 03/01/2009....................... 5,604,300
5,555,000 Hawaii State, 6.40%, due 03/01/2009........................ 6,227,988
2,000,000 Honolulu City & County, 6.00%, due 01/01/2012.............. 2,133,120
4,000,000 King County Washington Ref-Sewer, Series C,
5.25%, due 01/01/2021.................................... 3,861,320
4,500,000 King County Washington School District #415-Kent,
Series C, 6.30%, due 12/01/2008.......................... 4,993,740
6,230,000 Washington County, Oregon (Criminal Justice Facilities),
6.00%, due 12/01/2012.................................... 6,550,845
7,570,000 Washington State, Series B, 5.00%, due 05/01/2017.......... 7,146,383
4,900,000 Washington State, Series B, 6.40%, due 06/01/2017.......... 5,502,847
------------
52,085,893
------------
HOSPITAL REVENUE-2.46%
1,750,000 Washington Health Care Facilities Authority, Fred
Hutchinson Cancer Center, LOC, 7.20%, due 01/01/2007..... 1,903,230
1,750,000 Washington Health Care Facilities Authority, Fred
Hutchinson Cancer Center, LOC, 7.375%, due 01/01/2018.... 1,910,598
1,000,000 Wisconsin Health & Education Facility Authority,
Waukesha Memorial Hospital, Series A (AMBAC), 7.125%,
due 08/15/2007........................................... 1,085,570
------------
4,899,398
------------
INDUSTRY DEVELOPMENT/
POLLUTION CONTROL REVENUE-15.72%
5,000,000 Mayor & City Council of Baltimore Port Facility (DuPont),
6.50%, due 10/01/2011.................................... 5,403,100
3,665,000 Chicago Gas Supply (Peoples Gas), 6.875%, due 03/01/2015... 3,959,666
1,500,000 Lordsburg Pollution Control (Phelps Dodge), 6.50%,
due 04/01/2013........................................... 1,596,690
4,000,000 Lowndes County Solid Waste Disposal & Pollution Control
(Weyerhaeuser), 6.80%, due 04/01/2022.................... 4,660,880
4,370,000 Mercer County Pollution Control (Otter Tail Power),
6.90%, due 02/01/2019.................................... 4,647,145
6,000,000 San Diego Industrial Development (San Diego Gas & Electric),
Series A (AMBAC), 5.90%, due 06/01/2018.................. 6,130,860
5,000,000 Valdez Marine Term (Mobil Alaska Pipeline), 5.75%,
due 11/01/2028........................................... 4,910,500
------------
31,308,841
------------
LEASE RENTAL/MUNICIPAL LEASE-2.78%
1,250,000 California State Public Works Board Lease, Department of
Corrections, State Prison, Series E, 5.50%,
due 06/01/2015........................................... 1,244,300
3,000,000 Orange County Recovery Certificate of Participation,
Series A (MBIA), 6.00%, due 07/01/2026................... 3,116,310
1,173,000 Sacramento California Certificate of Participation,
5.55%, due 09/15/2004.................................... 1,172,132
------------
5,532,742
------------
PUBLIC FACILITIES REVENUE-3.54%
4,000,000 Metropolitan Pier and Exposition Authority Dedicated
State Tax (FGIC), zero coupon, due 06/15/2008............ 2,259,640
6,000,000 Metropolitan Pier and Exposition Authority Dedicated
State Tax (FGIC), zero coupon, due 06/15/2009............ 3,180,060
1,500,000 Santa Fe County New Mexico Correctional System (FSA),
6.00%, due 02/01/2027.................................... 1,612,350
------------
7,052,050
------------
PREREFUNDED-16.53%
4,000,000 Chicago Wastewater Transmission Revenue, 6.75%,
due 11/15/2020........................................... 4,377,160
2,225,000 Colorado Springs Utilities System Revenue, 6.75%,
due 11/15/2021........................................... 2,470,017
5,000,000 Illinois State Sales Tax Revenue, Series N, 7.00%,
due 06/15/2020........................................... 5,558,350
7,000,000 Omaha Public Power District Electric, Series B,
6.15%, due 02/01/2012.................................... 7,642,810
2,750,000 Snohomish County School District #2 - Everett
General Obligation, 7.20%, due 12/01/2020................ 3,024,835
2,000,000 Spokane County Water District #3 Revenue, 7.60%,
due 01/01/2008........................................... 2,101,460
3,500,000 University of Washington Revenue Bond (MBIA), 7.00%,
due 12/01/2021........................................... 3,812,590
3,500,000 Washington Public Power Supply System Nuclear Project #2
Revenue, Series C, 7.625%, due 07/01/2010................ 3,930,745
------------
32,917,967
------------
TRANSPORTATION FACILITIES REVENUE-6.11%
3,000,000 Massachusetts Bay Transportation Authority Revenue (FSA),
5.25%, due 03/01/2026.................................... 2,861,010
5,000,000 San Francisco California City & County Airport Commission
International Airport (FGIC), 5.625%, due 05/01/2021..... 4,999,550
4,500,000 Texas State Turnpike Authority, Dallas Northway, President
George Bush Turnpike (FGIC), 5.25%, due 01/01/2023....... 4,308,075
------------
12,168,635
------------
UTILITY REVENUE-18.94%
1,235,000 Anchorage Electric Utility (MBIA), 6.50%, due 12/01/2013... 1,396,822
2,775,000 Colorado Springs Utilities System, 6.75%, due 11/15/2021... 3,037,515
6,000,000 Indiana Municipal Power Agency, Series A (MBIA),
6.125%, due 01/01/2013................................... 6,522,180
5,000,000 Memphis Electric System, 5.625%, due 01/01/2002............ 5,236,300
5,000,000 North Carolina Eastern Municipal Power Agency,
Series B, 7.00%, due 01/01/2008.......................... 5,575,400
2,000,000 Omaha Public Power District Electric, Series C,
5.50%, due 02/01/2014.................................... 2,051,460
5,000,000 Orlando Utilities Commission Water & Electric,
6.00%, due 10/01/2010.................................... 5,431,700
5,000,000 Salt River Project Agricultural Improvement & Power District
Electrical System, Series C, 6.25%, due 01/01/2019....... 5,259,800
3,000,000 Salt River Project Agriculture, Series A, 5.75%,
due 01/01/2009........................................... 3,207,210
------------
37,718,387
------------
TOTAL LONG-TERM MUNICIPAL OBLIGATIONS (cost $172,512,217).. 187,246,376
------------
SHORT-TERM MUNICIPAL OBLIGATIONS-3.62%
2,200,000 Ascension Parish LA Pollution Control Revenue,
Variable Rate Demand Obligation, 4.15%*, due 12/01/2009.. 2,200,000
500,000 Garfield County, Oklahoma Industrial Authority,
Pollution Control Revenue, Variable Rate Demand
Obligation, 4.20%*, due 01/01/2025....................... 500,000
1,500,000 Huntington Beach, California Multifamily Housing Revenue,
Variable Rate Demand Obligation, 4.00%*, due 07/01/2014.. 1,500,000
400,000 L.A. California Regional Airports, Improvement Corporate
Lease Revenue, Variable Rate Demand Obligation,
4.10%*, due 12/01/2024................................... 400,000
1,100,000 Mansfield Texas Industrial Development, Variable Rate
Demand Obligation, 4.20%*, due 11/01/2026................ 1,100,000
1,500,000 Wilmington Hospital Revenue, Franciscan Health, Series A,
Variable Rate Demand Obligation, 4.10%*, due 07/01/2011.. 1,500,000
------------
TOTAL SHORT-TERM INVESTMENTS (cost $7,200,000)............. 7,200,000
------------
OTHER INVESTMENT-1.26%
2,515,907 Nuveen Tax-Exempt Money Market Fund,
3.56% (cost $2,515,907).................................. 2,515,907
------------
TOTAL INVESTMENTS (cost $182,228,123)...................... 196,962,283
Other assets, net of liabilities........................... 2,167,088
------------
NET ASSETS................................................. $199,129,371
============
*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.
AMBAC = AMBAC Indemnity Corporation
CONNIE LEE = College Construction Loan Insurance Association
FGIC = Financial Guaranty Insurance Company
FSA = Financial Security Assurance
LOC = Letter of Credit
MBIA = Municipal Bond Insurance Association
FEDERAL INCOME TAX INFORMATION:
Net unrealized appreciation of investments at June 30, 1997, of $14,734,160, based on
aggregate cost of $182,228,123, was composed of gross appreciation of $14,742,285 for
investments having an excess of value over cost and gross depreciation of $8,125 for
investments having an excess of cost over value.
OTHER INFORMATION:
Purchases and sales of investment securities, other than short-term investments,
aggregated $15,724,032 and $26,902,917, respectively, during the six months ended
June 30, 1997.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
FINANCIAL
INFORMATION
JUNE 30, 1997
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 1997 (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
$122,152,208, $84,833,119, and
$182,228,123, respectively)............... $121,557,004 $ 86,394,037 $196,962,283
Cash........................................ 11,580 6,143 10,427
Prepaid expenses............................ 12,337 11,777 8,861
Receivable for:
Interest.................................. 980,086 1,426,228 3,087,772
Sale of Fund shares....................... 119,829 107,716 47,719
----------- ----------- -----------
Total assets................................ 122,680,836 87,945,901 200,117,062
----------- ----------- -----------
LIABILITIES
Payable for:
Repurchase of Fund shares................. 138,636 187,075 751,449
Dividends................................. 158,012 117,410 178,316
Accrued expenses and other payables....... 55,935 36,966 57,926
----------- ----------- -----------
Total liabilities........................... 352,583 341,451 987,691
----------- ----------- -----------
NET ASSETS.................................. $122,328,253 $ 87,604,450 $199,129,371
=========== =========== ===========
COMPOSITION OF NET ASSETS
Capital stock, at par....................... $ 1,171 $ 95,276 $ 2,539
Additional paid-in capital.................. 130,505,042 100,146,085 185,938,755
Accumulated net realized loss............... (7,582,756) (14,197,829) (1,546,083)
Net unrealized appreciation (depreciation)
of investments............................ (595,204) 1,560,918 14,734,160
----------- ----------- -----------
$122,328,253 $ 87,604,450 $199,129,371
=========== =========== ===========
SHARES OUTSTANDING.......................... 11,714,902 9,527,625 25,389,185
=========== =========== ===========
CLASS A SHARES:
Net asset value and redemption price per share
(net assets of $119,430,672, $80,301,577, and
$192,464,935, respectively, for 11,437,387,
8,734,395, and 24,539,546 shares outstanding,
respectively)............................ $10.44 $ 9.19 $ 7.84
====== ====== ======
Maximum sales charge...................... 4.00% 4.00% 4.00%
====== ====== ======
Maximum offering price per share.......... $10.88 $ 9.57 $ 8.17
====== ====== ======
CLASS B SHARES:
Net asset value, offering price and redemption
price per share (net assets of $2,897,581,
$7,302,873, and $6,664,436, respectively, for
277,515, 793,230, and 849,640 shares outstanding,
respectively)............................. $10.44 $ 9.21 $ 7.84
====== ====== ======
On sales of $50,000 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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (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........................... $ 4,610,844 $ 3,382,296 $ 5,805,302
----------- ----------- -----------
Expenses:
Management fees........................... 405,280 277,115 496,566
Distribution expenses - Class A........... 115,176 74,059 180,466
Distribution expenses - Class B........... 14,439 35,477 29,073
Shareholder servicing - Class A........... 57,287 46,189 42,896
Shareholder servicing - Class B........... 1,431 4,133 2,272
Postage, printing and office expense...... 38,042 29,476 33,733
Custodial fees............................ 19,161 8,420 9,093
Registration and filing fees.............. 10,714 11,019 8,237
Auditing and legal fees................... 6,241 5,843 6,658
Directors' fees........................... 5,057 5,057 5,057
Insurance................................. 2,278 1,862 3,517
----------- ----------- -----------
Total expenses.............................. 675,106 498,650 817,568
Fees paid indirectly........................ (889) (807) (1,179)
----------- ----------- -----------
Net expenses................................ 674,217 497,843 816,389
----------- ----------- -----------
Net investment income....................... 3,936,627 2,884,453 4,988,913
----------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss).................... (747,914) 639,526 445,364
Net change in unrealized appreciation
or depreciation........................... 326,683 (328,204) (183,704)
Net realized and unrealized ----------- ----------- -----------
gain (loss) on investments................ (421,231) 311,322 261,660
----------- ----------- -----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ................... $ 3,515,396 $ 3,195,775 $ 5,250,573
=========== =========== ===========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)
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
1997 DECEMBER 31, 1997 DECEMBER 31, 1997 DECEMBER 31,
(UNAUDITED) 1996 (UNAUDITED) 1996 (UNAUDITED) 1996
------------ ------------ ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income........... $ 3,936,627 $ 9,447,418 $ 2,884,453 $ 6,205,553 $ 4,988,913 $ 10,608,652
Realized gain (loss)............ (747,914) (386,962) 639,526 1,098,430 445,364 (1,336,656)
Net change in unrealized
appreciation or depreciation.. 326,683 (6,198,006) (328,204) (4,354,365) (183,704) (4,335,561)
Net increase in net assets ------------ ------------ ------------- ------------ ------------- ------------
resulting from operations..... 3,515,396 2,862,450 3,195,775 2,949,618 5,250,573 4,936,435
DIVIDENDS TO SHAREHOLDERS
Dividends from net investment income:
Class A....................... (3,860,714) (9,312,060) (2,680,346) (5,877,677) (4,868,975) (10,445,418)
Class B....................... (75,913) (135,358) (204,107) (327,876) (119,938) (163,235)
NET CAPITAL
SHARE TRANSACTIONS
Class A....................... (18,312,597) (32,648,901) (6,633,642) (7,741,496) (11,387,189) (20,829,678)
Class B....................... (59,913) 840,035 147,492 2,790,064 1,383,117 2,636,917
------------ ------------ ------------- ------------ ------------- ------------
Total decrease in net assets.... (18,793,741) (38,393,834) (6,174,828) (8,207,367) (9,742,412) (23,864,979)
NET ASSETS
Beginning of the period......... 141,121,994 179,515,828 93,779,278 101,986,645 208,871,783 232,736,762
------------ ------------ ------------- ------------ ------------- ------------
End of the period............... $122,328,253 $141,121,994 $ 87,604,450 $ 93,779,278 $199,129,371 $208,871,783
============ ============ ============= ============ ============= ============
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
JUNE 30, YEARS ENDED DECEMBER 31, ENDED
1997 ------------------------------------ DEC. 31,
(UNAUDITED) 1996 1995 1994 1993 1992(3)
--------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ........... $ 10.46 $ 10.84 $ 9.64 $ 10.79 $ 10.63 $ 10.53
INCOME FROM INVESTMENT OPERATIONS ------ ------ ------ ------ ------ ------
Net investment income.......................... 0.31 0.63 0.63 0.63 0.69 0.62
Net realized and unrealized gain (loss)........ (0.02) (0.38) 1.20 (1.15) 0.16 0.10
------ ------ ------ ------ ------ ------
Total from investment operations............. 0.29 0.25 1.83 (0.52) 0.85 0.72
------ ------ ------ ------ ------ ------
DIVIDENDS TO SHAREHOLDERS
Dividends from net investment income........... (0.31) (0.63) (0.63) (0.63) (0.69) (0.62)
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD ................. $ 10.44 $ 10.46 $ 10.84 $ 9.64 $ 10.79 $ 10.63
====== ====== ====== ====== ====== ======
TOTAL RETURN (1) ............................... 2.87% 2.48% 19.45% -4.91% 8.12% 7.03%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($1,000's)........... $119,431 $138,159 $177,310 $188,068 $268,112 $207,501
Ratio of expenses to average net assets(2) .... 1.02%(5) 0.97% 1.01% 0.97% 0.99% 0.99%(5)
Ratio of net income to average net assets...... 6.09%(5) 6.01% 6.08% 6.19% 6.29% 6.98%(5)
Portfolio turnover rate ...................... 10%(5) 16% 8% 34% 51% 11%(5)
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEARS ENDED MARCH 30,
CLASS B JUNE 30, DECEMBER 31, TO
1997 ---------------- DEC. 31,
(UNAUDITED) 1996 1995 1994(4)
--------- ------ ------ ------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ........... $10.46 $10.84 $ 9.64 $10.24
INCOME FROM INVESTMENT OPERATIONS ------ ------ ------ ------
Net investment income.......................... 0.27 0.54 0.54 0.41
Net realized and unrealized gain (loss)........ (0.02) (0.38) 1.20 (0.60)
------ ------ ------ ------
Total from investment operations............. 0.25 0.16 1.74 (0.19)
------ ------ ------ ------
DIVIDENDS TO SHAREHOLDERS
Dividends from net investment income........... (0.27) (0.54) (0.54) (0.41)
------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD ................. $10.44 $10.46 $10.84 $ 9.64
====== ====== ====== ======
TOTAL RETURN (1) ............................... 2.43% 1.58% 18.48% -1.86%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($1,000's)........... $2,898 $2,963 $2,206 $1,063
Ratio of expenses to average net assets(2) .... 1.85%(5) 1.85% 1.84% 1.76%(5)
Ratio of net income to average net assets...... 5.24%(5) 5.14% 5.20% 5.43%(5)
Portfolio turnover rate ...................... 10%(5) 16% 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>
<PAGE>
<TABLE>
<CAPTION>
COMPOSITE INCOME FUND, INC.
CLASS A
SIX MONTHS THREE
ENDED MONTHS
JUNE 30, YEARS ENDED DECEMBER 31, ENDED
1997 ------------------------------------ DEC. 31,
(UNAUDITED) 1996 1995 1994 1993 1992(3)
--------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ........... $ 9.15 $ 9.44 $ 8.29 $ 9.33 $ 8.99 $ 9.17
INCOME FROM INVESTMENT OPERATIONS ------ ------ ------ ------ ------ ------
Net investment income.......................... 0.30 0.59 0.59 0.60 0.61 0.16
Net realized and unrealized gain (loss)........ 0.04 (0.29) 1.15 (1.04) 0.34 (0.18)
------ ------ ------ ------ ------ ------
Total from investment operations............. 0.34 0.30 1.74 (0.44) 0.95 (0.02)
------ ------ ------ ------ ------ ------
DIVIDENDS TO SHAREHOLDERS
Dividends from net investment income........... (0.30) (0.59) (0.59) (0.60) (0.61) (0.16)
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD ................. $ 9.19 $ 9.15 $ 9.44 $ 8.29 $ 9.33 $ 8.99
====== ====== ====== ====== ====== ======
TOTAL RETURN (1) ............................... 3.76% 3.46% 21.58% -4.82% 10.82% -0.23%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($1,000's)........... $80,302 $86,657 $97,534 $88,102 $104,876 $86,425
Ratio of expenses to average net assets(2) .... 1.06%(5) 1.03% 1.08% 1.04% 1.08% 0.95%(5)
Ratio of net income to average net assets...... 6.57%(5) 6.52% 6.59% 6.83% 6.58% 6.94%(5)
Portfolio turnover rate ...................... 19%(5) 42% 43% 26% 51% 87%(5)
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEARS ENDED MARCH 30,
CLASS B JUNE 30, DECEMBER 31, TO
1997 ---------------- DEC. 31,
(UNAUDITED) 1996 1995 1994(4)
--------- ------ ------ ------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ........... $ 9.17 $ 9.46 $ 8.30 $ 8.85
INCOME FROM INVESTMENT OPERATIONS ------ ------ ------ ------
Net investment income.......................... 0.26 0.52 0.51 0.40
Net realized and unrealized gain (loss)........ 0.04 (0.29) 1.16 (0.55)
------ ------ ------ ------
Total from investment operations............. 0.30 0.23 1.67 (0.15)
------ ------ ------ ------
DIVIDENDS TO SHAREHOLDERS
Dividends from net investment income........... (0.26) (0.52) (0.51) (0.40)
------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD ................. $ 9.21 $ 9.17 $ 9.46 $ 8.30
====== ====== ====== ======
TOTAL RETURN (1) ............................... 3.34% 2.59% 20.70% -1.67%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($1,000's)........... $7,303 $7,122 $4,452 $2,299
Ratio of expenses to average net assets(2) .... 1.88%(5) 1.89% 1.91% 1.80%(5)
Ratio of net income to average net assets...... 5.74%(5) 5.69% 5.73% 6.25%(5)
Portfolio turnover rate ...................... 19%(5) 42% 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>
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
COMPOSITE TAX-EXEMPT BOND FUND, INC.
CLASS A
SIX MONTHS
ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
1997 --------------------------------------------
(UNAUDITED) 1996 1995 1994 1993 1992
--------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ........... $ 7.83 $ 8.02 $ 7.13 $ 8.04 $ 7.58 $ 7.42
INCOME FROM INVESTMENT OPERATIONS ------ ------ ------ ------ ------ ------
Net investment income.......................... 0.19 0.38 0.38 0.39 0.40 0.42
Net realized and unrealized gain (loss)........ 0.01 (0.19) 0.89 (0.91) 0.54 0.23
------ ------ ------ ------ ------ ------
Total from investment operations............. 0.20 0.19 1.27 (0.52) 0.94 0.65
------ ------ ------ ------ ------ ------
DIVIDENDS TO SHAREHOLDERS
Dividends from net investment income........... (0.19) (0.38) (0.38) (0.39) (0.40) (0.42)
Distributions from net realized gains.......... - - - - (0.08) (0.07)
------ ------ ------ ------ ------ ------
Total from distributions..................... (0.19) (0.38) (0.38) (0.39) (0.48) (0.49)
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD ................. $ 7.84 $ 7.83 $ 8.02 $ 7.13 $ 8.04 $ 7.58
====== ====== ====== ====== ====== ======
TOTAL RETURN (1) ............................... 2.62% 2.52% 18.25% -6.53% 12.54% 9.00%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($1,000's)........... $192,465 $203,606 $230,055 $215,438 $259,045 $186,861
Ratio of expenses to average net assets(2) .... 0.79%(4) 0.75% 0.81% 0.79% 0.81% 0.78%
Ratio of net income to average net assets...... 4.97%(4) 4.90% 5.03% 5.23% 4.97% 5.56%
Portfolio turnover rate ...................... 17%(4) 22% 8% 12% 19% 30%
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEARS ENDED MARCH 30,
CLASS B JUNE 30, DECEMBER 31, TO
1997 ---------------- DEC. 31,
(UNAUDITED) 1996 1995 1994(3)
--------- ------ ------ ------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ........... $ 7.83 $ 8.02 $ 7.13 $ 7.49
INCOME FROM INVESTMENT OPERATIONS ------ ------ ------ ------
Net investment income.......................... 0.16 0.31 0.32 0.25
Net realized and unrealized gain (loss)........ 0.01 (0.19) 0.89 (0.36)
------ ------ ------ ------
Total from investment operations............. 0.17 0.12 1.21 (0.11)
------ ------ ------ ------
DIVIDENDS TO SHAREHOLDERS
Dividends from net investment income........... (0.16) (0.31) (0.32) (0.25)
------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD ................. $ 7.84 $ 7.83 $ 8.02 $ 7.13
====== ====== ====== ======
TOTAL RETURN (1) ............................... 2.19% 1.61% 17.30% -1.46%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($1,000's)........... $6,664 $5,266 $2,682 $1,258
Ratio of expenses to average net assets(2) .... 1.63%(4) 1.65% 1.62% 1.58%(4)
Ratio of net income to average net assets...... 4.11%(4) 4.01% 4.18% 4.53%(4)
Portfolio turnover rate ...................... 17%(4) 22% 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.
Each Fund offers 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.
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 last reported sales price for securities traded
on a national securities exchange or securities traded over-the-counter, or
valuations based upon transactions of a security, quotations from dealers,
market transactions in comparable securities, and various relationships
between securities, in determining value. Investment securities with less
than 60 days to maturity when purchased are valued at amortized cost which
approximates market value. Investment securities not currently quoted as
described above will be priced at fair market value as determined in good
faith in a manner prescribed by the Boards of Directors.
b. Each Fund requires the custodian to take possession, to have legally
segregated in the Federal Reserve Book Entry System or to have segregated
within the custodian's vault, all securities held as collateral for
repurchase agreements. The market value of the underlying securities is
required to be at least 102% of the resale price at the time of purchase. If
the seller of the agreement defaults and the value of collateral declines,
or if the seller enters an insolvency proceeding, realization of the value of
the collateral by the Fund may be delayed or limited.
c. Income and expenses (other than expenses attributable to a specific class)
are allocated daily to each class based on the value of settled shares
outstanding. Gains and losses are allocated daily to each class based on
value of shares outstanding. 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.
d. Interest income is earned from the settlement date on securities purchased
and is recorded on the accrual basis.
e. Dividends to shareholders are recorded on a daily basis and distributed
monthly.
f. Security transactions are accounted for on the trade date (execution date of
the order to buy or sell). The cost of investments sold is determined by use
of the specific identification method for both financial reporting and
federal income tax purposes.
g. 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 regu-
lations 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.
h. Custodial fees have been increased by $889, $807, and $1,179 for U.S.
Government Securities, Income Fund, and Tax-Exempt Bond Fund, respectively,
as a result of "expense offset arrangements." The Funds could have otherwise
employed the assets to produce income if they had not entered into such
arrangements. In accordance with the regulations, such amounts are added to
net custodial fees and then reflected as a deduction, "fees paid indirectly"
to derive net expenses. There were no "expense offset arrangements" other
than custodial fees.
i. The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
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 distributor, and Murphey Favre Securities Services, Inc. (the
"Transfer Agent") is the shareholder servicing agent. Murphey Favre, Inc.,
recently formed Composite Funds Distributor, Inc. (CFDI) as successor in
interest for the underwriter and distributor functions. The Board of Directors
approved the transfer of the distribution contract to CFDI, effective July 14,
1997. All are affiliates of Washington Mutual Bank and Washington Mutual fsb and
are subsidiaries of Washington Mutual, Inc.
Management fees were paid by each Fund to the Adviser. For the U.S.
Government Securities and Income Fund, the fees are based on an annual rate of
0.625% of average daily net assets and is reduced to 0.50% of average daily net
assets in excess of $250 million. For the Tax-Exempt Bond Fund, the fee is based
on an annual rate of 0.50% of average daily net assets and is reduced to 0.40%
of average daily net assets in excess of $250 million. Under terms of each
Fund's management contract, the Adviser has agreed to reimburse a Fund for
expenses in excess of 1.50% of average daily net assets up to $30 million, and
1% of such assets over $30 million. The Income Fund and 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, 1997.
Directors' fees and expenses were paid directly by each Fund to directors
having no affiliation with the Funds other than in their capacity as directors.
Other officers and directors received no compensation from the Funds.
Shareholder servicing fees were paid to the Transfer Agent for services
incidental to issuance and transfer of shares, maintaining shareholder lists,
and issuing and mailing distributions and reports. Under terms of the
shareholder servicing agreement, the authorized monthly shareholder servicing
fees are $1.45 and $1.55 ($1.60 and $1.70 prior to April 1, 1997) per Class A
and Class B share accounts, respectively.
Distribution expenses were paid to the Distributor in accordance with
separate distribution plans for Class A and Class B shares. Each Fund's Board of
Directors adopted the Plans pursuant to Rule 12b-1 of the Investment Company Act
of 1940. The Class A distribution plan provides that each Fund will reimburse
the Distributor up to 0.25% of the average daily net assets attributable to
Class A shares annually for a portion of its expenses incurred in distributing
each Fund's Class A shares, including payment to brokers. The Class B
distribution plan provides that the Funds will pay the Distributor 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, 1997, commissions (sales charges paid by
investors) on the purchases of Class A shares totaled $34,723, $56,274, and
$110,842, of which $30,811, $53,164, and $104,469 was retained by the
Distributor in the U.S. Government Securities, Income Fund, and Tax-Exempt Bond
Fund, respectively. For the six months ended June 30, 1997, the Distributor
received contingent deferred sales charges of $4,937, $11,590, and $7,803, for
the U.S. Government Securities, Income Fund, and Tax-Exempt Bond Fund,
respectively, upon redemption of Class B shares as reimbursement for sales
commissions advanced by the Distributor at the time of such sales.
NOTE 3 - CAPITAL STOCK
COMPOSITE U.S. GOVERNMENT SECURITIES, INC.
Capital stock 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, 1997 DEC. 31, JUNE 30, 1997 DEC. 31,
(UNAUDITED) 1996 (UNAUDITED) 1996
SHARES ------------- ------------ ------------- -----------
<S> <C> <C> <C> <C>
Sold.................................................. 256,211 749,623 17,080 113,842
Issued for reinvestment of dividends.................. 272,103 655,835 5,917 10,765
------------- ------------ ------------- -----------
528,314 1,405,458 22,997 124,607
Reacquired............................................ (2,295,144) (4,553,107) (28,633) (44,911)
------------- ------------ ------------- -----------
Net increase (decrease)............................... (1,766,830) (3,147,649) (5,636) 79,696
============= ============ ============= ===========
AMOUNT
Sold.................................................. $ 2,656,563 $ 7,854,380 $ 175,999 $1,194,334
Issued for reinvestment of dividends.................. 2,817,210 6,819,272 61,269 111,800
------------- ------------ ------------- -----------
5,473,773 14,673,652 237,268 1,306,134
Reacquired............................................ (23,786,370) (47,322,553) (297,181) (466,099)
------------- ------------ ------------- -----------
Net increase (decrease)............................... $(18,312,597) $(32,648,901) $ (59,913) $ 840,035
============= ============ ============== ===========
</TABLE>
<PAGE>
NOTE 3 - CAPITAL STOCK (CONTINUED)
COMPOSITE INCOME FUND, INC.
Capital stock 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, 1997 DEC. 31, JUNE 30, 1997 DEC. 31,
(UNAUDITED) 1996 (UNAUDITED) 1996
SHARES ------------- ------------ ------------- -----------
<S> <C> <C> <C> <C>
Sold.................................................. 490,968 1,208,364 147,806 383,465
Issued for reinvestment of dividends.................. 216,615 477,619 19,060 30,990
------------- ------------ ------------- -----------
707,583 1,685,983 166,866 414,455
Reacquired............................................ (1,440,448) (2,547,839) (150,609) (108,355)
------------- ------------ ------------- -----------
Net increase (decrease)............................... (732,865) (861,856) 16,257 306,100
============= ============ ============= ===========
AMOUNT
Sold.................................................. $ 4,462,003 $10,996,951 $1,344,867 $3,492,257
Issued for reinvestment of dividends.................. 1,964,830 4,323,174 173,178 280,728
------------- ------------ ------------- -----------
6,426,833 15,320,125 1,518,045 3,772,985
Reacquired............................................ (13,060,475) (23,061,621) (1,370,553) (982,921)
------------- ------------ ------------- -----------
Net increase (decrease)............................... $ (6,633,642) $(7,741,496) $ 147,492 $2,790,064
============= ============ ============= ===========
</TABLE>
COMPOSITE TAX-EXEMPT BOND FUND, INC.
Capital stock 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, 1997 DEC. 31, JUNE 30, 1997 DEC. 31,
(UNAUDITED) 1996 (UNAUDITED) 1996
SHARES ------------- ------------ ------------- -----------
<S> <C> <C> <C> <C>
Sold.................................................. 652,450 1,460,406 231,138 390,317
Issued for reinvestment of dividends.................. 486,451 1,037,464 11,712 26,578
------------- ------------ ------------- -----------
1,138,901 2,497,870 242,850 416,895
Reacquired............................................ (2,601,765) (5,197,278) (65,585) (79,060)
------------- ------------ ------------- -----------
Net increase (decrease)............................... (1,462,864) (2,699,408) 177,265 337,835
============= ============ ============= ===========
AMOUNT
Sold.................................................. $ 5,096,603 $ 11,398,132 $1,799,162 $3,119,779
Issued for reinvestment of dividends.................. 3,765,486 8,078,800 92,067 128,510
------------- ------------ ------------- -----------
8,862,089 19,476,932 1,891,229 3,248,289
Reacquired............................................ (20,249,278) (40,306,611) (508,112) (611,372)
------------- ------------ ------------- -----------
Net increase (decrease)............................... $(11,387,189) $(20,829,679) $1,383,117 $2,636,917
============= ============ ============= ===========
</TABLE>
<PAGE>
===========================================
-------------------------------------------
For further information, please contact:
FUND OFFICES
Composite Group of Funds
601 W. Main Avenue, Suite 300
Spokane, WA 99201-0613
Phone: (509) 353-3550
Toll free: (800) 543-8072
-------------------------------------------
===========================================
ADVISER
Composite Research & Management Co.
1201 Third Avenue, Suite 1400 Seattle, WA 98101-3015
DISTRIBUTOR
Composite Funds Distributor, Inc.
601 W. Main Avenue, Suite 300 Spokane, WA 99201-0613
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 700 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
Vice President
Gene G. Branson
Vice President & Treasurer
Monte D. Calvin
Secretary
John T. West
BOARD OF DIRECTORS
Members
Wayne L. Attwood, M.D.
Kristianne Blake
Anne V. Farrell
Michael K. Murphy
William G. Papesh
Dan Pavelich
Jay Rockey
Richard C. Yancey
This report is submitted for the general information of
shareholders of the Fund. For more detailed information
about the Fund, its officers and directors, fees, expenses
and other pertinent information, please see the prospectus
of the Fund. This report is not authorized for distribution
to prospective investors in the Fund unless preceded or
accompanied by an effective prospectus.
[RECYCLE LOGO]
(8/97)
50035
COMPOSITE GROUP
BOND
FUNDS
SEMIANNUAL
REPORT
JUNE 30,
1997
COMPOSITE
U.S. GOVERNMENT
SECURITIES, INC.
COMPOSITE
INCOME FUND, INC.
COMPOSITE
TAX-EXEMPT BOND
FUND, INC.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S SEMIANNUAL REPORT AND FORM N-SAR WHICH ARE ON FILE WITH THE
SECURITIES AND EXCHANGE COMMISSION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH DOCUMENTS.
</LEGEND>
<CIK> 0000701379
<NAME> Composite U.S. Government Securities
<SERIES>
<NUMBER> 001
<NAME> Class A
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 122,152,208
<INVESTMENTS-AT-VALUE> 121,557,004
<RECEIVABLES> 1,099,915
<ASSETS-OTHER> 23,917
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 122,680,836
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 352,583
<TOTAL-LIABILITIES> 352,583
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 130,506,213
<SHARES-COMMON-STOCK> 11,437,387
<SHARES-COMMON-PRIOR> 13,204,217
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (7,582,756)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (595,204)
<NET-ASSETS> 122,328,253
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,610,844
<OTHER-INCOME> 0
<EXPENSES-NET> (674,217)
<NET-INVESTMENT-INCOME> 3,936,627
<REALIZED-GAINS-CURRENT> (747,914)
<APPREC-INCREASE-CURRENT> 326,683
<NET-CHANGE-FROM-OPS> 3,515,396
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,860,714)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 256,211
<NUMBER-OF-SHARES-REDEEMED> (2,295,144)
<SHARES-REINVESTED> 272,103
<NET-CHANGE-IN-ASSETS> 3,515,396
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (6,834,842)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 405,280
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 674,217
<AVERAGE-NET-ASSETS> 130,909,084
<PER-SHARE-NAV-BEGIN> 10.46
<PER-SHARE-NII> 0.31
<PER-SHARE-GAIN-APPREC> (0.02)
<PER-SHARE-DIVIDEND> (0.31)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.44
<EXPENSE-RATIO> 1.02
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S SEMIANNUAL REPORT AND FORM N-SAR WHICH ARE ON FILE WITH THE
SECURITIES AND EXCHANGE COMMISSION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH DOCUMENTS.
</LEGEND>
<CIK> 0000701379
<NAME> Composite U.S. Government Securities
<SERIES>
<NUMBER> 002
<NAME> Class B
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 122,152,208
<INVESTMENTS-AT-VALUE> 121,557,004
<RECEIVABLES> 1,099,915
<ASSETS-OTHER> 23,917
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 122,680,836
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 352,583
<TOTAL-LIABILITIES> 352,583
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 130,506,213
<SHARES-COMMON-STOCK> 277,515
<SHARES-COMMON-PRIOR> 283,151
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (7,582,756)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (595,204)
<NET-ASSETS> 122,328,253
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,610,844
<OTHER-INCOME> 0
<EXPENSES-NET> (674,217)
<NET-INVESTMENT-INCOME> 3,936,627
<REALIZED-GAINS-CURRENT> (747,914)
<APPREC-INCREASE-CURRENT> 326,683
<NET-CHANGE-FROM-OPS> 3,515,396
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (75,913)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 17,080
<NUMBER-OF-SHARES-REDEEMED> (28,633)
<SHARES-REINVESTED> 5,917
<NET-CHANGE-IN-ASSETS> 3,515,396
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (6,834,842)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 405,280
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 674,217
<AVERAGE-NET-ASSETS> 130,909,084
<PER-SHARE-NAV-BEGIN> 10.46
<PER-SHARE-NII> 0.27
<PER-SHARE-GAIN-APPREC> (0.02)
<PER-SHARE-DIVIDEND> (0.27)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.44
<EXPENSE-RATIO> 1.85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
