FUNDS'
HIGHLIGHTS...............4
FUNDS'
PORTFOLIOS...............7
FINANCIAL INFORMATION
INDEPENDENT
PUBLIC
ACCOUNTANTS'
REPORT.............21
FINANCIAL
STATEMENTS.........22
FINANCIAL
HIGHLIGHTS.........25
NOTES TO
FINANCIAL
STATEMENTS.........28
ENTHUSIASM FOR MARKET'S UPWARD RISE
NEEDS A HEALTHY DASH OF CONCERN ABOUT RISK
[PHOTO, WILLIAM PAPESH, PRESIDENT, COMPOSITE FUNDS]
If I could share only two key messages with you, it would be these:
First, our outlook at Composite at the close of the year is for a healthy
1997, with moderated growth likely in comparison with 1996.
Second, we believe that when it comes to investing, it nearly always is to
your advantage to know you are in it for the long term, with an ability and
willingness to take the peaks and valleys in stride.
UNBRIDLED ENTHUSIASM IS NOT THE ANSWER
We currently are in a bull market that is into its 15th year, with only a
single downward movement in 1987. For many investors, the strong market
performance without a significant correction has masked the need to have a
healthy concern for risk.
One underlying cause of this skewed perception of reward relative to risk
is that currently, nearly 80% of all equities are owned by investors who never
have experienced a bear market.
Risk, of course, was, is, and always will be a basic consideration of
performance. It is, in effect, one half of the investment equation: risk vs.
return. Risk is underscored by the fact that, on the average, there has been a
market drop of 10% or more at least every two years since 1900, with dips of 25%
or more on the average approximately every six years.
Market fluctuation is a normal condition. It is a condition no one can
predict with unfailing accuracy. And, for that reason, "timing" personal
investments to an individual's advantage is an impossible task. Multiple studies
have shown that regular investing, as opposed to attempts at pinpointing
purchases, leads to measurably better returns.
WATCH THE LONG TERM
We know that the long-term track for securities is upward. For the long
term, too, stock values are based on the strengths and financial growth of
corporations. And generally, when profits go up, stock prices go up. It's almost
a given -- just as it is widely acknowledged that value-oriented stocks are
likely to provide more protection than other equity alternatives when the market
is at a relatively high level.
It's also nearly a given that stocks will do better than bonds over the
long term. In only one decade of the 20th century has that not been true.
All of the above provides the backdrop for the incredible growth of mutual
funds. When you add the convenience and relative simplicity of mutual funds, it
is easy to see why they have become so popular.
COMPOSITE GOT AN EARLY START
Composite has positioned itself in the market for the long term. Stability
and a solid history DO count for quite a lot. Our Bond & Stock and Growth &
Income Funds were among the country's first 100 mutual funds, with the former
introduced in 1939.
We have a heritage of solid performance in an industry that now has nearly
7,000 funds that account for more than $3 trillion in assets.
Over the years we have added to our Composite product line, yet we
recognize we must continue to maintain our long-term, relatively conservative
approach. Short-term euphoria is no substitute for good sense.
What about the future?
MODERATED GROWTH EXPECTED IN 1997
The consensus of our portfolio managers is that growth in 1997 will be
moderated from that of 1996, with inflation at much the same low level and with
little or no change as the result of the fall elections.
Overall, that still means a healthy, sustainable level of growth.
How that relates to each of our Composite Equity Funds is discussed on
subsequent pages.
INVESTING INFLUENCED BY SEVERAL TRENDS
For 1997, these market influences are worth noting:
* As we had anticipated for some time, the rate of savings in this country
increased considerably this year -- reflecting a very positive, but short-term,
trend. In the 12 months ended September 30, 1996, disposable income remaining
after consumer spending rose approximately 21%. Some of that went into
investments, some paid down debt, and some went into bank accounts and other
non-spending uses.
Why did that happen? We believe it is because more people are concerned
about having enough money for retirement and about coping with their high level
of credit-card debt.
* Interest rates are expected to drop only slightly, remaining close to
today's "fair value."
* Some investors will continue to shift to companies that have maintained
healthy earnings levels. However, the same investors also may find those
securities are selling at a premium.
* With the continued growth of small- to medium-cap companies, large
corporations will continue to find opportunities through acquisitions to improve
their performance. In these and other instances, it is important for Composite
to recognize undervalued stocks and to anticipate their growth. Taking action,
rather than reacting to the market, is vital.
* Among potentially recessionary factors are, first, the after-effects of
increased third-quarter 1996 manufacturer inventories and, second, what might
happen after regulators finish their examination of consumer credit issued by
banks.
GOVERNMENT TRENDS ARE IMPORTANT INFLUENCES
* Potential downsizing of governments at all levels can help boost the
economy. Putting dollars into the more efficient private sector will be a plus,
as greater government fiscal responsibility would be, too.
* While Capitol Hill attention to the federal debt is a very positive note,
that attention by Congress still ignores entitlements, such as Social Security
and Medicare, which are not included in the debt figure.
Nevertheless, returning to our opening view of the economy, our outlook at
the close of the year is for a healthy 1997, although with less growth than in
1996. We are confident the Composite Group will continue to participate in that
growth, and we appreciate your continued confidence in our Funds.
/s/
WILLIAM G. PAPESH
PRESIDENT
- --------------------------------------------------------------------------------
FOOTNOTES TO INVESTMENT PERFORMANCE CHARTS ON PAGES 4, 5, & 6.
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.
COMPARISONS TO FUND PERFORMANCE ON THE FOLLOWING PAGES INCLUDE THE CONSUMER
PRICE INDEX (CPI), AS A MEASURE OF CHANGE IN CONSUMER PRICES AS DETERMINED BY
THE U.S. BUREAU OF LABOR STATISTICS; THE S&P 500 STOCK INDEX (S&P 500), WHICH IS
CONSIDERED GENERALLY REPRESENTATIVE OF THE U.S. STOCK MARKET; AND THE LEHMAN
GOVERNMENT/CORPORATE BOND INDEX (LGCB), WHICH IS CONSIDERED REPRESENTATIVE OF
THE U.S. GOVERNMENT AND CORPORATE BOND MARKETS.
THESE INDICES ARE UNMANAGED AND DO NOT REFLECT ACTUAL INVESTMENT-RELATED
EXPENSES INCURRED BY THE FUNDS WITH WHICH THEY ARE COMPARED. FUND VALUES
PRESENTED IN THE GRAPHS ARE FOR CLASS A SHARES. CLASS B SHARE PERFORMANCE WOULD
VARY DUE TO DIFFERENT EXPENSES. EXCEPT AS NOTED, PERFORMANCE IS CALCULATED AFTER
THE 4.5% MAXIMUM SALES CHARGE FOR CLASS A SHARES AND FOR CLASS B SHARES, A
CONTINGENT DEFERRED SALES CHARGE OF 4% FOR ONE YEAR OR 2% SINCE 3/30/94.
COMPOSITE NORTHWEST CLASS A INFORMATION IS PRESENTED SINCE INCEPTION ON 11/24/86
AND ALL FUNDS' CLASS B INFORMATION IS PRESENTED SINCE 3/30/94, THE COMMENCEMENT
OF OFFERING OF CLASS B SHARES.
<PAGE>
PORTFOLIO COMPOSITION
PERCENTAGE OF NET ASSETS AS OF OCTOBER 31, 1996
COMPOSITE BOND & STOCK FUND
ASSET ALLOCATION
[PIE CHART LOCATED TO RIGHT OF
THE FOLLOWING ALLOCATIONS]
TOP TEN HOLDINGS
U.S. Treasury Note, 7.25%, due 05/15/2004 - 1.90% [ ] COMMON STOCKS (EXCLUDING
U.S. Treasury Note, 5.75%, due 08/15/2003 - 1.75% REITs) 46%
Federal National Mortgage Association - 1.48% [ ] NON-CONVERTIBLE CORPORATE
Mellon Bank Corporation - 1.41% BONDS 11%
Crane Company - 1.34% [ ] CASH & OTHER 11%
Atlantic Richfield Company - 1.19% [ ] CONVERTIBLE SECURITIES 10%
Norwest Corporation - 1.19% [ ] US TREASURY OBLIGATIONS 9%
Abbott Laboratories - 1.09% [ ] REAL ESTATE INVESTMENT
U.S. Treasury Note, 6.50%, due 05/15/2005 - 1.09% TRUSTS (REITS) 7%
J.P. Morgan & Company, Inc. - 1.09% [ ] MORTGAGE-BACKED
SECURITIES 6%
COMPOSITE GROWTH & INCOME FUND
INDUSTRY ALLOCATION
[PIE CHART LOCATED TO THE RIGHT OF
THE FOLLOWING ALLOCATIONS]
TOP TEN HOLDINGS
Dun & Bradstreet Corporation - 2.88% [ ] BANKING & FINANCIAL 15%
Lockheed Martin Corporation - 2.49% [ ] CAPITAL GOODS & AEROSPACE 13%
Wells Fargo & Company - 2.46% [ ] TECHNOLOGY & ELECTRONICS 13%
Intel Corporation - 2.24% [ ] CONSUMER STAPLES 12%
General Electric Company - 2.14% [ ] HEALTH CARE 12%
Abbott Laboratories - 2.14% [ ] CONSUMER CYCLICALS 9%
Microsoft Corporation - 2.05% [ ] OIL & GAS 7%
Johnson & Johnson - 2.01% [ ] UTILITIES & REAL ESTATE INVEST-
Emerson Electric Company - 2.00% MENT TRUSTS 7%
Expeditor's International of Washington, [ ] CASH & OTHER 6%
Inc. - 1.97% [ ] BASIC INDUSTRY & RESOURCES 6%
COMPOSITE NORTHWEST FUND
INDUSTRY ALLOCATION
[PIE CHART LOCATED TO THE RIGHT OF THE
FOLLOWING ALLOCATIONS]
TOP TEN HOLDINGS
Microsoft Corporation - 7.48% [ ] COMPUTER SOFTWARE & SYSTEMS 14%
Boeing Company - 6.26% [ ] BANKING & FINANCIAL 14%
U.S. Bancorp - 5.15% [ ] ELECTRONICS 14%
Expeditor's International of Washington, [ ] CONSUMER CYCLICALS 12%
Inc. - 3.81% [ ] CAPITAL GOODS & AEROSPACE 11%
Albertsons, Inc. - 3.56% [ ] BASIC INDUSTRY & RESOURCES 10%
Fred Meyer, Inc. - 3.34% [ ] HEALTH CARE 7%
Nike, Inc., Class B - 3.22% [ ] TRANSPORTATION 7%
Safeco Corporation - 2.77% [ ] CASH & OTHER 6%
Price/Costco, Inc. - 2.63% [ ] UTILITIES & REAL ESTATE INVEST-
Intel Corporation - 2.43% MENT TRUSTS 5%
<PAGE>
FUND HIGHLIGHTS
COMPOSITE BOND & STOCK FUND
KEY IMPACTS ON 1996 PERFORMANCE
Investors earned generous returns during the past year as the economy grew
moderately without significant inflation pressures. Stocks soared to new records
on solid earnings and unprecedented inflow to mutual funds. Bonds were
characterized by increasing volatility related to concerns the economy was
growing too fast. These concerns did not become reality though, leading to a
bond market rally in early fall 1996.
Our forecast had called for a slowing in the economy that would result in
lower interest rates. We had positioned the Fund to take advantage of such a
scenario by overweighting interest-rate-sensitive financial stocks and by
extending the average maturity in our bond portfolio.
Our largest stock holding during the past year was Federal National
Mortgage Association, or "Fannie Mae," which generated a total return of nearly
50 percent, twice the S&P 500. In contrast, we were disappointed in the
performance of our holdings in telecommunication companies, whose stock prices
declined in reaction to telecommunications reform legislation.
WHAT'S AHEAD
We look for continued moderate growth in the economy and we anticipate low
inflation. We do not foresee a recession in 1997.
That should lead to lower overall interest rates, but it increases the risk
of disappointing corporate earnings. Strong inflows into mutual funds are
expected to continue as people use tax-advantaged vehicles to fund retirement
plans. Additionally, we anticipate more modest returns from financial markets
than experienced in the past two years -- in line with historical average rates
of return.
KEY INVESTMENT STRATEGIES
Our key strategy always has been to maintain a broadly diversified
portfolio of quality investments. We favor equity investments to bonds because
of our belief that stocks will generate superior long-term returns. Our
stock-selection process favors well-established companies that generate high
rates of returns on investment and have growth opportunities they can fund
internally. In choosing bonds, we seek to take advantage of interest rate
changes in two ways: first, by altering the average maturity of the portfolio
based on a forecast of rates and second, by altering the allocation between
market sectors to enhance a portfolio's yield without compromising principal
value.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
[PERFORMANCE CHART]
INVESTMENT PERFORMANCE * COMPOSITE BOND & STOCK FUND AVERAGE ANNUAL
- ----------------------------------------------------- TOTAL RETURNS
COMPARATIVE ENDING VALUES OF $10,000 INVESTED ON 10/31/86
WITH WITHOUT
CLASS A SALES SALES
$45,000 [Legend] SHARES CHARGE CHARGE
Fund Class A Shares $24,776 ------- -------- -------
40,000 S&P 500 (Stocks) $39,268 ONE YEAR 10.45% 15.66%
LGCB (Bonds)$22,553 FIVE YEARS 10.98% 12.01%
35,000 CPI (Inflation) $14,353 TEN YEARS 9.50% 10.00%
30,000 CLASS B
SHARES
25,000 -------
ONE YEAR 10.73% 14.73%
20,000 SINCE
3/30/94 13.93% 14.55%
15,000 -----------------------------
SEE FOOTNOTES ON PAGE 2 FOR
10,000 ADDITIONAL INFORMATION
5,000
10/31/86 10/31/88 10/31/90 10/31/92 10/31/94 10/31/96
</TABLE>
<TABLE>
<CAPTION>
Investment Performance - Composite Bond & Stock Fund
Comparative Ending Values of $10,000 Invested on 10/31/86
Composite
Bond & Stock Fund S&P 500 LGCB CPI
----------------- ------- ------- -------
<S> <C> <C> <C> <C>
10/31/86 $9,550 $10,000 $10,000 $10,000
$9,209 $10,644 $10,188 $10,453
10/31/88 $10,842 $12,227 $11,270 $10,898
$12,174 $15,440 $12,638 $11,387
10/31/90 $11,293 $14,301 $13,334 $12,103
$14,049 $19,065 $15,382 $12,457
10/31/92 $15,472 $20,962 $17,000 $12,856
$17,638 $24,095 $19,318 $13,209
10/31/94 $17,479 $25,027 $18,422 $13,554
$21,422 $31,644 $21,399 $13,935
10/31/96 $24,776 $39,268 $22,553 $14,353
</TABLE>
<PAGE>
COMPOSITE GROWTH & INCOME FUND
KEY IMPACTS ON 1996 PERFORMANCE
The stock market performed well in 1996. The market was driven higher by
news of mergers and acquisitions, low inflation, and solid corporate earnings.
Composite Growth & Income Fund benefited from this positive equity environment
and posted excellent returns. In particular, two of our holdings were taken over
at prices substantially higher than their trading prices (FHP Corporation and
Loral Corporation) which helped produce the positive 1996 performance.
WHAT'S AHEAD
We anticipate that mergers and acquisitions, along with the low inflation
environment, are likely to continue. However, corporate earnings, especially in
the consumer sector, are unlikely to be as strong in 1997 as in 1996. Therefore,
we are cautious when investing in the consumer durable area.
We also believe that a narrow group of stocks has been the primary force
driving the stock market. We intend to capitalize on this condition by
purchasing stocks of desirable companies that have not participated in the
market rise.
KEY INVESTMENT STRATEGIES
Our basic strategy, as always, is to buy stocks of good businesses when
they are at "sale prices." Good businesses generate a high return on investment,
have a competitive advantage and have barriers to entry. We currently are
finding good equities in the movie and content area. Improved means of
distributing their products, which include direct television, Internet and cable
modem transmissions, should provide increased revenue opportunities for these
companies.
The semiconductor group also is providing bargains, as we see oversupply
concerns coming to an end. The demand for semiconductors continues to run
strong, assisted by Pentium Pro and Window N.T. product cycles and
telecommunications deregulation.
Finally, spinoff situations are offering excellent value in the
marketplace. Many of these former subsidiaries of larger companies are excellent
businesses where management owns considerable stock.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
[GRAPH]
INVESTMENT PERFORMANCE * COMPOSITE GROWTH & INCOME FUND AVERAGE ANNUAL
- --------------------------------------------------------- TOTAL RETURNS
COMPARATIVE ENDING VALUES OF $10,000 INVESTED ON 10/31/86
WITH WITHOUT
CLASS A SALES SALES
$45,000 [Legend] SHARES CHARGE CHARGE
Fund Class A Shares $27,920 ------- -------- -------
40,000 S&P 500 (Stocks) $39,268 ONE YEAR 18.05% 23.61%
CPI (Inflation) $14,353 FIVE YEARS 13.59% 14.64%
35,000 TEN YEARS 10.82% 11.33%
30,000 CLASS B
SHARES
25,000 -------
ONE YEAR 18.55% 22.55%
20,000 SINCE
3/30/94 18.13% 18.72%
15,000 -----------------------------
SEE FOOTNOTES ON PAGE 2 FOR
10,000 ADDITIONAL INFORMATION
5,000
10/31/86 10/31/88 10/31/90 10/31/92 10/31/94 10/31/96
</TABLE>
<TABLE>
<CAPTION>
Investment Performance - Composite Growth & Income Fund
Comparative Ending Value of $10,000 Invested on 10/31/86
Composite
Growth & Income Fund S&P 500 CPI
-------------------- ------- -------
<S> <C> <C> <C>
10/31/86 $9,550 $10,000 $10,000
$9,565 $10,644 $10,453
10/31/88 $11,226 $12,227 $10,898
$12,685 $15,440 $11,387
10/31/90 $10,623 $14,301 $12,103
$14,096 $19,065 $12,457
10/31/92 $15,498 $20,962 $12,856
$17,214 $24,095 $13,209
10/31/94 $18,686 $25,027 $13,554
$22,587 $31,644 $13,935
10/31/96 $27,920 $39,268 $14,353
</TABLE>
<PAGE>
COMPOSITE NORTHWEST FUND
On December 15, 1995, the use of the Northwest 50(R) Index as the basis for
this Fund's investments was ended, and it was renamed Composite Northwest Fund.
Since that time, we have added 27 new companies to our portfolio and eliminated
12 companies. In addition, we have reduced our concentration in some of our
largest holdings, and the Fund is now fully diversified.
KEY IMPACTS ON 1996 PERFORMANCE
Many of our major holdings had very strong performance during 1996, such as
Microsoft (up 39.5%), Boeing (up 40.3%), Nike (up 105.7%), and U.S. Bancorp (up
32.8%). However, the Fund has significant exposure to small capitalization
stocks, some of which underperformed the market during the period. Among them
were Itron (down 42.7%) and Mentor Graphics (down 59.8%).
Of the companies added to our portfolio, some performed well and some
lagged. Among those performing well since purchase were Red Lion Hotels (up
80.5%) and Intel (up 113.9%). Those lagging our performance expectations since
purchase included InFocus Systems (down 42.2%) and Ostex (down 50.9%). We
continue to like the fundamentals of the small-capitalization stocks in the
Fund, and we anticipate stronger performance from them over the long run.
WHAT'S AHEAD
We believe the Pacific Northwest is extremely well positioned for future
growth, thanks in large part to the strength of the technology and aerospace
industries. The Puget Sound region, in particular, may be on the cusp of some of
the strongest growth it has seen in years. Also, the Portland-area technology
boom continues unabated. All of this bodes well for companies dependent on the
regional economy, notably retailers and banks. In addition, the strong
competitive positions of the more global companies in our portfolio, such as
Microsoft, Boeing, and Nike, provide a diverse economic backbone.
Although the Fund is, by nature, volatile, we believe shareholders will be
well rewarded over the long run.
KEY INVESTMENT STRATEGIES
The goal of the Fund is to seek long-term capital appreciation while
investing in stocks of companies headquartered or doing business in the Pacific
Northwest. To accomplish this, we seek quality companies with strong growth
characteristics, defensible competitive advantages, and reasonable valuations.
<TABLE>
<CAPTION>
[GRAPH]
<S> <C> <C> <C>
INVESTMENT PERFORMANCE * COMPOSITE NORTHWEST FUND AVERAGE ANNUAL
- --------------------------------------------------------- TOTAL RETURNS
COMPARATIVE ENDING VALUES OF $10,000 INVESTED ON 11/30/86
WITH WITHOUT
CLASS A SALES SALES
$45,000 [Legend] SHARES CHARGE CHARGE
Fund Class A Shares $34,203 ------- -------- -------
40,000 S&P 500 (Stocks) $38,333 ONE YEAR 9.39% 14.54%
CPI (Inflation) $14,340 FIVE YEARS 8.62% 9.62%
35,000 SINCE
11/30/86 13.20% 13.73%
30,000 CLASS B
SHARES
25,000 -------
ONE YEAR 9.54% 13.54%
20,000 SINCE
3/30/94 12.06% 12.70%
15,000 -----------------------------
SEE FOOTNOTES ON PAGE 2 FOR
10,000 ADDITIONAL INFORMATION
5,000
10/31/86 10/31/88 10/31/90 10/31/92 10/31/94 10/31/96
</TABLE>
<TABLE>
<CAPTION>
Investment Performance - Composite Northwest Fund
Comparative Ending Value of $10,000 on 11/30/86
Composite
Northwest Fund S&P 500 CPI
------------------- --------- -------
<S> <C> <C> <C>
11/30/86 $9,550 $10,000 $10,000
$9,387 $10,390 $10,444
10/31/88 $11,866 $11,936 $10,888
$16,156 $15,072 $11,377
10/31/90 $13,461 $13,960 $12,092
$21,604 $18,611 $12,446
10/31/92 $22,851 $20,463 $12,844
$23,724 $23,521 $13,197
10/31/94 $24,428 $24,431 $13,542
$29,861 $30,890 $13,922
10/31/96 $34,203 $38,333 $14,340
</TABLE>
<PAGE>
COMPOSITE
BOND &
STOCK
FUND, INC.
PORTFOLIO OF INVESTMENTS
IN SECURITIES
OCTOBER 31,
1996
<TABLE>
<CAPTION>
<S> <C> <C>
COMPOSITE BOND & STOCK FUND PORTFOLIO
U.S. TREASURY & AGENCY OBLIGATIONS-9.49%
PRINCIPAL MARKET
AMOUNT VALUE
------------ -----------
$1,000,000 U.S. Treasury Bond, 7.50%, due 11/15/2016.................. $ 1,081,875
4,000,000 U.S. Treasury Bond, zero coupon, due 08/15/2012............ 1,389,596
5,000,000 U.S. Treasury Note, 7.25%, due 05/15/2004.................. 5,282,810
1,000,000 U.S. Treasury Note, 7.00%, due 07/15/2006.................. 1,045,000
3,000,000 U.S. Treasury Note, 6.50%, due 05/15/2005.................. 3,033,048
2,000,000 U.S. Treasury Note, 6.375%, due 08/15/2002................. 2,022,266
4,000,000 U.S. Treasury Note, 6.25%, due 08/31/2000-04/30/2001....... 4,029,454
5,000,000 U.S. Treasury Note, 5.75%, due 08/15/2003.................. 4,870,510
500,000 U.S. Treasury Bill, 7.50%, due 12/31/1996.................. 502,031
2,000,000 Federal National Mortgage Association, 8.25%, due 12/18/2000 2,145,752
1,000,000 Federal National Mortgage Association, 5.80%, due 02/22/2006 941,597
-----------
TOTAL U.S. TREASURY & AGENCY OBLIGATIONS (cost $26,091,017) $26,343,939
-----------
MORTGAGE-BACKED SECURITIES - 6.17%
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 3.44%
612,069 10.00%, due 08/15/2019..................................... 671,555
8,346,491 6.50%, due 01/15/2024 - 05/15/2026......................... 7,983,944
972,573 6.00%, due 01/15/2026 - 02/15/2026......................... 905,100
-----------
9,560,599
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS-2.73%
1,250,000 DLJ Mortgage Acceptance Corporation, 1993-M17,
7.35%, due 12/18/2003.................................... 1,228,701
1,000,000 Federal Home Loan Mortgage Corporation - CMO PAC-1(11)
1311H, 7.50%, due 07/15/2020............................. 1,022,050
2,000,000 Federal Home Loan Mortgage Corporation - GNMA PAC-1(11)
2E, 6.85%, due 07/25/2018................................ 2,003,120
180,784 MDC Mortgage Funding Corporation - PAC-P3,
8.20%, due 11/20/2017.................................... 180,963
41,346 Merrill Lynch Mortgage Investors, Inc., 1988-H,
9.70%, due 06/15/2008.................................... 41,757
148,414 Merrill Lynch Mortgage Investors, Inc., 1988-P,
10.05%, due 12/15/2008................................... 161,316
1,180,318 Resolution Trust Corporation - 1991-M2 - A2,
7.673%, due 09/25/2020................................... 859,033
1,995,120 Weyerhaeuser 1982-C FHA Putable, 7.43%, due 06/01/2022..... 2,065,218
-----------
7,562,158
-----------
TOTAL MORTGAGE-BACKED SECURITIES (cost $16,856,314) ....... 17,122,757
-----------
CORPORATE BONDS-14.44%
NON-CONVERTIBLE CORPORATE BONDS-10.64%
AEROSPACE/DEFENSE-0.86%
1,000,000 Boeing Company, 8.75%, due 08/15/2021...................... 1,172,842
1,200,000 Loral Corporation, 7.625%, due 06/15/2025.................. 1,231,168
-----------
2,404,010
-----------
BANKS/SAVINGS & LOANS-1.47%
1,000,000 Bank of New York, 7.875%, due 11/15/2002................... 1,059,092
1,250,000 First Nationwide, 10.00%, due 10/01/2006................... 1,426,930
1,000,000 Mercantile Bank, 7.625%, due 10/15/2002.................... 1,043,056
500,000 Summit Bancorp, 8.625%, due 12/10/2002..................... 545,604
-----------
4,074,682
-----------
FINANCIAL SERVICES-0.11%
300,000 Kemper Corporation, 6.875%, due 09/15/2003................. 301,922
-----------
FOODS & FOOD RETAILERS-0.70%
750,000 Conagra, Inc., 9.75%, due 03/01/2021....................... 918,664
1,000,000 Dart & Kraft Finance, 7.75%, due 11/30/1998................ 1,028,239
-----------
1,946,903
-----------
HEALTHCARE PRODUCTS-0.46%
1,365,000 American Medical Association, zero coupon, due 08/12/1997.. 1,281,904
-----------
HEALTHCARE SERVICES-0.37%
1,000,000 Aetna Services, Inc., 7.625%, due 08/15/2026............... 1,017,291
-----------
INSURANCE-0.92%
1,000,000 Continental Corporation, 7.25%, due 03/01/2003............. 1,018,645
1,500,000 Integon Corporation, 8.00%, due 08/15/1999................. 1,522,830
-----------
2,541,475
-----------
LODGING/GAMING-0.45%
1,250,000 Riviera Holdings Corporation, 11.00%, due 12/31/2002....... 1,256,250
-----------
MEDIA-1.16%
1,500,000 Time Warner, Inc., 9.15%, due 02/01/2023................... 1,643,235
800,000 Western Publishing, 7.65%, due 09/15/2002.................. 684,000
1,000,000 Westinghouse Electric Corporation, 7.875%, due 09/01/2023 901,524
-----------
3,228,759
-----------
OIL & GAS-0.43%
1,000,000 Coastal Corporation, 9.625%, due 05/15/2012................ 1,198,898
-----------
PAPER & FOREST PRODUCTS-0.35%
1,000,000 Weyerhaeuser Company, 7.125%, due 07/15/2023............... 975,970
-----------
REAL ESTATE INVESTMENT TRUSTS-0.91%
500,000 Developers Diversified Realty, 6.58%, due 02/06/2001....... 492,194
1,000,000 Franchise Finance Corporation of America, 7.00%, due 11/30/2000 1,004,424
1,000,000 Franchise Finance Corporation of America, 7.875%, due 11/30/2005 1,029,722
-----------
2,526,340
-----------
RETAIL-0.36%
1,000,000 Price/Costco, Inc., 7.125%, due 06/15/2005................. 997,294
-----------
TRANSPORTATION SERVICES-0.49%
1,200,000 Burlington Northern, 8.75%, due 02/25/2022................. 1,365,259
-----------
UTILITIES-GAS & ELECTRIC-1.60%
1,100,000 Niagara Mohawk Power, 9.50%, due 06/01/2000................ 1,127,760
995,000 Niagara Mohawk Power, 8.77%, due 01/01/2018................ 986,305
1,000,000 Ohio Edison 1st Mortgage, 8.75%, due 02/15/1998............ 1,023,240
500,000 Public Service Company of New Hampshire, 9.17%,
due 05/15/1998........................................... 516,977
221,000 System Energy Resources, 11.375%, due 09/01/2016........... 241,032
500,000 Texas Utilities Electric Company, 9.50%, due 08/01/1999.... 537,858
-----------
4,433,172
-----------
TOTAL NON-CONVERTIBLE CORPORATE BONDS (cost $29,231,722)... 29,550,129
-----------
CONVERTIBLE CORPORATE BONDS-3.80%
CONSUMER PRODUCTS-0.28%
1,000,000 Bell Sports Corporation, 4.25%, due 11/15/2000............. 768,750
-----------
HEALTH & MEDICAL-0.93%
560,000 CII Financial, 7.50%, due 09/15/2001....................... 522,900
2,000,000 Tenet Healthcare Corporation, 6.00%, due 12/01/2005........ 2,052,500
-----------
2,575,400
-----------
REAL ESTATE INVESTMENT TRUSTS - 0.58%
1,500,000 Liberty Property Trust, 8.00%, due 07/01/2001.............. 1,620,000
-----------
TECHNOLOGY/ELECTRONICS-1.09%
2,250,000 EMC Corporation, 4.25%, due 01/01/2001..................... 3,015,000
-----------
TRANSPORTATION & EQUIPMENT-0.92%
1,500,000 Airborne Freight Corporation, 6.75%, due 08/15/2001........ 1,481,250
1,000,000 Varlen Corporation, 6.50%, due 06/01/2003.................. 1,082,500
-----------
2,563,750
-----------
TOTAL CONVERTIBLE CORPORATE BONDS (cost $9,694,967)........ 10,542,900
-----------
TOTAL CORPORATE BONDS (cost $38,926,689)................... 40,093,029
-----------
FOREIGN OBLIGATIONS-0.75%
1,000,000 Province of Alberta, 9.20%, due 11/01/1997................. 1,035,790
1,500,000 United Mexican States, Series A, 6.25%, due 12/31/2019..... 1,055,625
-----------
TOTAL FOREIGN OBLIGATIONS (cost $1,790,679)................ 2,091,415
-----------
MARKET
SHARES VALUE
------------- COMMON STOCKS-53.02% -----------
AEROSPACE/DEFENSE-2.37%
15,000 Boeing Company**........................................... $ 1,430,625
24,551 Lockheed Martin Corporation................................ 2,200,383
60,000 Raytheon Company........................................... 2,955,000
-----------
6,586,008
-----------
APPAREL & SHOES-0.99%
30,000 Nike, Inc.................................................. 1,766,250
120,000 Stride Rite Corporation.................................... 990,000
-----------
2,756,250
-----------
BANKS/SAVINGS & LOANS-3.68%
60,000 Mellon Bank Corporation.................................... 3,907,500
35,000 J.P. Morgan & Company, Inc. ............................... 3,023,125
75,000 Norwest Corporation........................................ 3,290,625
-----------
10,221,250
-----------
BASIC INDUSTRY-0.02%
2,119 Martin Marietta Materials.................................. 50,326
-----------
BEVERAGES-0.89%
65,000 Seagram Company, Ltd....................................... 2,461,875
-----------
CHEMICALS-1.05%
80,000 Nalco Chemical Company..................................... 2,910,000
-----------
COMPUTER SYSTEMS-1.03%
65,000 Hewlett-Packard Company.................................... 2,868,125
-----------
ELECTRICAL EQUIPMENT-1.04%
30,000 General Electric Company................................... 2,902,500
-----------
ELECTRONICS-GENERAL-1.10%
80,000 Loral Space & Communications*.............................. 1,270,000
45,500 Tektronix, Inc. ........................................... 1,780,188
-----------
3,050,188
-----------
ELECTRONICS-SEMICONDUCTORS/COMPONENTS-1.61%
45,000 Texas Instruments, Inc. ................................... 2,165,625
50,000 Motorola, Inc. ............................................ 2,300,000
-----------
4,465,625
-----------
FINANCIAL SERVICES-2.06%
105,000 Federal National Mortgage Association...................... 4,108,125
50,387 Legg Mason, Inc. .......................................... 1,624,981
-----------
5,733,106
-----------
FOODS & FOOD RETAILERS-1.80%
45,000 Dole Food Company.......................................... 1,755,000
45,000 Sara Lee Corporation....................................... 1,597,500
55,000 Supervalu, Inc. ........................................... 1,636,250
-----------
4,988,750
-----------
HEALTHCARE PRODUCTS-5.08%
60,000 Abbott Laboratories........................................ 3,037,500
14,000 Allegiance Corporation*.................................... 262,500
70,000 Bausch & Lomb, Inc. ....................................... 2,362,500
70,000 Baxter International, Inc.................................. 2,913,750
52,000 Johnson & Johnson ......................................... 2,561,000
40,000 Merck & Company, Inc. ..................................... 2,965,000
-----------
14,102,250
-----------
HEALTHCARE SERVICES-2.39%
30,000 Aetna, Inc. ............................................... 2,006,250
18,615 Manor Care, Inc. .......................................... 730,639
108,900 Medpartners, Inc.*......................................... 2,300,512
80,003 Olsten Corporation......................................... 1,600,060
-----------
6,637,461
-----------
HOUSEHOLD PRODUCTS-1.45%
30,000 Procter & Gamble Company................................... 2,970,000
45,000 Rubbermaid................................................. 1,046,250
-----------
4,016,250
-----------
INSURANCE-1.58%
20,000 American International Group, Inc. ........................ 2,172,500
15,000 General Re Corporation..................................... 2,208,750
----------
4,381,250
----------
MACHINERY-1.34%
80,000 Crane Company.............................................. 3,720,000
----------
MEDIA-1.26%
50,000 Time Warner, Inc. ......................................... 1,862,500
50,000 Viacom, Inc., Class A*..................................... 1,631,250
----------
3,493,750
----------
METALS & MINING-0.91%
40,000 Phelps Dodge Corporation................................... 2,515,000
----------
OILS & GAS-4.44%
20,000 Amerada Hess Corporation................................... 1,107,500
25,000 Atlantic Richfield Company................................. 3,312,500
25,000 Mobil Corporation.......................................... 2,918,750
80,000 Occidental Petroleum Corporation........................... 1,960,000
22,500 Shell Transport & Trading Company, American Depository Receipt 2,205,000
29,643 Union Pacific Resources.................................... 815,182
----------
12,318,932
----------
PAPER & FOREST PRODUCTS-2.25%
45,000 Boise Cascade Corporation.................................. 1,395,000
50,000 Rayonier, Inc. ............................................ 1,981,250
62,800 Weyerhaeuser Company....................................... 2,880,950
----------
6,257,200
----------
REAL ESTATE INVESTMENT TRUSTS-7.42%
100,000 BRE Properties, Inc........................................ 2,300,000
30,000 Carramerica Realty Corporation............................. 753,750
50,000 Developers Diversified Realty Corporation.................. 1,681,250
62,500 Duke Realty Investments, Inc. ............................. 2,156,250
75,000 First Industrial Realty Trust.............................. 1,940,625
62,500 Health Care Property Investors, Inc. ...................... 2,195,313
82,500 Hospitality Properties Trust............................... 2,145,000
84,000 Nationwide Health Properties, Inc. ........................ 1,890,000
55,000 Shurgard Storage Centers, Inc. ............................ 1,443,750
50,000 South West Property Trust.................................. 750,000
75,000 United Dominion Realty Trust............................... 1,059,375
100,000 Wellsford Residential Property Trust....................... 2,300,000
----------
20,615,313
----------
TELECOMMUNICATIONS EQUIPMENT -0.33%
19,282 Lucent Technologies, Inc. ................................. 906,254
----------
TOBACCO-1.10%
19,000 Phillip Morris Companies, Inc.............................. 1,759,875
45,000 RJR Nabisco Holdings Corporation........................... 1,299,375
----------
3,059,250
----------
TRANSPORTATION SERVICES-1.22%
29,900 GATX Corporation........................................... 1,427,725
35,000 Union Pacific Corporation.................................. 1,964,375
----------
3,392,100
----------
UTILITIES - GAS & ELECTRIC-0.82%
45,300 DPL, Inc................................................... 1,081,538
31,500 Nipsco Industries, Inc..................................... 1,193,063
----------
2,274,601
----------
UTILITIES - TELECOMMUNICATIONS-3.80%
65,000 AT&T Corporation........................................... 2,266,875
60,000 Aliant Communications, Inc. ............................... 975,000
3,000 Alltel Corporation......................................... 91,500
25,000 Ameritech Corporation...................................... 1,368,750
30,000 Century Telephone Enterprise............................... 963,750
80,900 Frontier Corporation....................................... 2,346,100
60,000 GTE Corporation............................................ 2,527,500
----------
10,539,475
----------
TOTAL COMMON STOCKS (cost $108,661,790).................... 147,223,089
-----------
CONVERTIBLE PREFERRED STOCKS-5.89%
BASIC INDUSTRY-0.63%
35,000 Southdown, Inc., Series D.................................. 1,750,000
----------
HEALTHCARE SERVICES-0.72%
70,000 FHP International Corporation, Series A.................... 2,012,500
----------
INSURANCE-1.67%
31,500 Integon Corporation........................................ 1,811,250
35,000 Penncorp Financial Group................................... 2,835,000
----------
4,646,250
----------
MEDIA-1.25%
16,500 TCI Pacific Communications................................. 1,369,500
54,000 Time Warner Financing - $1.24 Series....................... 2,092,500
----------
3,462,000
----------
TOBACCO-0.41%
200,000 RJR Nabisco Holding, Series C.............................. 1,125,000
----------
TRANSPORTATION SERVICES-0.62%
30,000 GATX Corporation, Series A................................. 1,710,000
----------
UTILITIES-GAS & ELECTRIC-0.60%
20,000 Williams Companies, $3.50 Series........................... 1,655,000
----------
TOTAL CONVERTIBLE PREFERRED STOCKS(cost $14,403,102)....... 16,360,750
----------
Principal
Amount
- -------------
REPURCHASE AGREEMENT-9.36%
$25,981,000 Repurchase agreement with First Boston, collateralized by a
U.S. Treasury Note, in a joint trading account at 5.65%
dated 10/31/1996, due 11/01/1996 with a maturity value of
$25,985,078 (cost $25,981,000)............................. 25,981,000
----------
TOTAL INVESTMENTS (cost $232,710,593)...................... 275,215,979
Other assets ($4,095,861) less liabilities ($1,654,274).... 2,441,587
-----------
NET ASSETS................................................. $277,657,566
===========
**Non-income producing security
**The portfolio position subject to and the description and value of written
call options outstanding at October 31, 1996, were as follows:
OPTION EXPIRATION EXERCISE VALUE OF
CONTRACTS SECURITY MONTH PRICE CALL OPTIONS
- ------------- -------------- ---------- ---------- --------------
150 Boeing Company NOV $95 $32,812
<FN>
FEDERAL INCOME TAX INFORMATION:
Net unrealized appreciation of investments at October 31, 1996, of $42,505,386,
based on aggregate cost of $232,710,593, was composed of gross appreciation of
$44,933,992 for investments having an excess of value over cost and gross
depreciation of $2,428,606 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
$119,050,065 and $106,069,544, respectively, for the year ended October 31,
1996, including purchases and sales of U. S. government securities of
$41,506,256 and $24,073,877, respectively.
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
COMPOSITE
GROWTH & INCOME
FUND, INC.
PORTFOLIO OF
INVESTMENTS
IN SECURITIES
OCTOBER 31,
1996
<TABLE>
<CAPTION>
COMPOSITE GROWTH & INCOME FUND PORTFOLIO
MARKET
SHARES VALUE
---------- -----------
<S> <C> <C>
COMMON STOCKS-96.83%
AEROSPACE/DEFENSE-5.09%
25,000 Boeing Company**........................................... $ 2,384,375
55,802 Lockheed Martin Corporation................................ 5,001,254
58,040 Raytheon Company........................................... 2,858,470
-----------
10,244,099
-----------
BANKS/SAVINGS & LOANS-9.26%
39,800 Bank of New York Company, Inc. ............................ 1,318,375
25,350 First Security Corporation................................. 744,656
25,550 J.P. Morgan & Company, Inc. ............................... 2,206,881
34,000 Mellon Bank Corporation.................................... 2,214,250
67,062 Norwest Corporation........................................ 2,942,345
80,000 Signet Banking Corporation................................. 2,310,000
81,000 Washington Federal, Inc. .................................. 1,944,000
18,500 Wells Fargo & Company...................................... 4,941,812
------------
18,622,319
------------
BASIC INDUSTRY-0.47%
131,700 Hanson Trust Ads, American Depository Receipt.............. 839,588
4,238 Martin Marietta Materials, Inc. ........................... 100,652
------------
940,240
------------
BEVERAGES-2.13%
67,500 PepsiCo, Inc. ............................................. 1,999,687
60,500 Seagram Company, Ltd....................................... 2,291,437
------------
4,291,124
------------
CAPITAL GOODS-1.33%
91,624 Donaldson Company, Inc. ................................... 2,680,002
------------
CHEMICALS-0.71%
11,200 Eastman Chemical Company................................... 590,800
41,500 Millenium Chemicals, Inc.*................................. 840,375
------------
1,431,175
------------
COMPUTER SOFTWARE-4.94%
83,000 Autodesk, Inc. ............................................ 1,898,625
80,800 Barra, Inc.*............................................... 2,261,138
37,010 Electronic Data Systems Corporation........................ 1,665,450
30,000 Microsoft Corporation* **.................................. 4,117,500
------------
9,942,713
------------
COMPUTER SYSTEMS-1.61%
25,000 Cabletron Systems*......................................... 1,559,375
37,900 Hewlett-Packard Company.................................... 1,672,337
------------
3,231,712
------------
CONSUMER DURABLES-1.08%
141,083 Castle & Cooke, Inc.*...................................... 2,169,151
------------
ELECTRICAL EQUIPMENT-4.14%
45,275 Emerson Electric Company................................... 4,029,475
44,500 General Electric Company................................... 4,305,375
------------
8,334,850
------------
ELECTRONICS/GENERAL-1.24%
17,900 DSC Communications Corporation*............................ 248,362
140,950 Loral Space & Communications*.............................. 2,237,581
------------
2,485,943
------------
ELECTRONICS-SEMICONDUCTORS/COMPONENTS-5.06%
41,000 Intel Corporation**........................................ 4,504,875
45,000 Lattice Semiconductor Corporation*......................... 1,541,250
47,000 Motorola, Inc. ............................................ 2,162,000
41,000 Texas Instruments, Inc. ................................... 1,973,125
------------
10,181,250
------------
FINANCIAL SERVICES-2.76%
38,000 Federal Home Loan Mortgage Corporation..................... 3,838,000
53,052 Legg Mason, Inc. .......................................... 1,710,927
------------
5,548,927
------------
FOOD & FOOD RETAILERS-3.61%
33,100 Campbell Soup Company**.................................... 2,648,000
61,000 Dole Food Company.......................................... 2,379,000
75,000 Supervalu, Inc. ........................................... 2,231,250
------------
7,258,250
------------
HEALTHCARE PRODUCTS-6.14%
85,000 Abbott Laboratories........................................ 4,303,125
33,000 Forest Laboratories*....................................... 1,270,500
82,000 Johnson & Johnson.......................................... 4,038,500
36,925 Merck and Company, Inc. ................................... 2,737,066
------------
12,349,191
------------
HEALTHCARE SERVICES-5.67%
29,400 Bausch & Lomb, Inc. ....................................... 992,250
75,600 FHP International Corporation*............................. 2,579,850
99,515 Manor Care, Inc. .......................................... 3,905,964
150,001 Medpartners, Inc.* ........................................ 3,168,777
11,400 Pacificare Health Systems, Class A*........................ 766,650
------------
11,413,491
------------
HOUSEHOLD & BUILDING PRODUCTS-0.50%
30,200 Fleetwood Enterprises...................................... 1,019,250
------------
HOUSEHOLD PRODUCTS-5.82%
54,500 Alberto Culver Company, Class A............................ 2,166,375
28,500 Colgate Palmolive Company.................................. 2,622,000
31,500 Proctor and Gamble Company................................. 3,118,500
78,000 Rubbermaid, Inc. .......................................... 1,813,500
13,000 Unilever N V............................................... 1,987,375
------------
11,707,750
------------
INSURANCE-2.55%
26,332 American International Group, Inc. ........................ 2,860,314
30,000 Penncorp Financial Group, Inc. ............................ 1,038,750
22,800 Travelers Group, Inc. ..................................... 1,236,900
------------
5,135,964
------------
MACHINERY-2.92%
66,100 Crane Company.............................................. 3,073,650
67,000 Deere & Company............................................ 2,797,250
------------
5,870,900
------------
MEDIA-5.17%
100,000 Dun & Bradstreet Corporation............................... 5,787,500
53,600 Time Warner, Inc. ......................................... 1,996,600
80,000 Viacom Inc., Class A*...................................... 2,610,000
------------
10,394,100
------------
METALS & MINING-0.86%
83,000 Worthington Industries..................................... 1,722,250
------------
OILS & GAS-7.23%
15,900 Burlington Resources, Inc. ................................ 800,963
23,830 Exxon Corporation.......................................... 2,111,934
30,000 Mobil Corporation.......................................... 3,502,500
124,900 Occidental Petroleum Corporation........................... 3,060,050
33,000 Phillips Petroleum Company................................. 1,353,000
10,100 Royal Dutch Petroleum Company.............................. 1,670,288
11,450 Shell Transport & Trading Company, American Depository Receipt 1,122,100
33,700 Union Pacific Resources Group.............................. 926,750
------------
14,547,585
------------
PAPER & FOREST PRODUCTS-3.43%
85,000 Kimberly Clark de Mexico, American Depository Receipt...... 3,272,500
44,000 Rayonier, Inc. ............................................ 1,743,500
41,000 Weyerhaeuser Company....................................... 1,880,875
------------
6,896,875
------------
REAL ESTATE INVESTMENT TRUSTS-2.80%
89,926 Bank of America Realty..................................... 2,068,298
25,000 Developers Diversified Realty.............................. 840,625
17,000 Health Care Property Investors, Inc. ...................... 597,125
58,600 Hospitality Properties Trust............................... 1,523,600
23,400 Shurgard Storage Centers, Inc. ............................ 614,250
------------
5,643,898
------------
RETAIL SALES-1.88%
41,600 Lowe's Companies........................................... 1,679,600
60,000 Fred Meyer, Inc., Class A*................................. 2,107,500
------------
3,787,100
------------
TOBACCO-0.88%
19,200 Phillip Morris Companies, Inc. ............................ 1,778,400
------------
TRANSPORTATION SERVICES-3.44%
94,550 Expeditors International of Washington, Inc. .............. 3,959,282
52,700 Union Pacific Corporation.................................. 2,957,788
------------
6,917,070
------------
UTILITIES-GAS & ELECTRIC-0.96%
70,200 MCN Corporation............................................ 1,930,500
------------
UTILITIES-TELECOMMUNICATIONS-3.15%
57,900 AT&T Corporation........................................... 2,019,263
126,000 Aliant Communications, Inc. ............................... 2,047,500
25,000 GTE Corporation............................................ 1,053,125
25,000 SBC Communications, Inc. .................................. 1,215,625
------------
6,335,513
------------
TOTAL COMMON STOCKS (cost $145,956,692).................... 194,811,592
-------------
CONVERTIBLE PREFERRED STOCKS-2.80%
CAPITAL GOODS-0.79%
30,000 FHP International Corporation, Series A.................... 862,500
130,400 RJR Nabisco Holding Company, Series C...................... 733,500
------------
1,596,000
------------
INSURANCE-2.01%
38,000 Integon Corporation........................................ 2,185,000
23,000 Penncorp Financial Group................................... 1,863,000
------------
4,048,000
------------
TOTAL CONVERTIBLE PREFERRED STOCKS (cost $5,408,483)....... 5,644,000
------------
REPURCHASE AGREEMENT-0.78%
$1,577,000 Repurchase agreement with First Boston, collateralized by
a U.S. Treasury Note, in a joint trading account at 5.65%,
dated 10/31/96, due 11/01/96 with a maturity value of
$1,577,247 (cost $1,577,000)............................... 1,577,000
-----------
TOTAL INVESTMENTS (cost $152,942,175)...................... 202,032,592
Other assets ($1,169,883) less liabilities ($2,020,579).... (850,696)
-------------
NET ASSETS................................................. $201,181,896
=============
<FN>
**Non-income producing security.
**The portfolio position subject to and the description and value of written
call options outstanding at October 31, 1996, were as follows:
OPTION EXPIRATION EXERCISE VALUE OF
CONTRACTS SECURITY MONTH PRICE CALL OPTIONS
---------- ---------- ---------- -------- -------------
95 Boeing Company NOV $ 95 $20,781
45 Boeing Company DEC 100 7,875
95 Campbell Soup Company NOV 75 51,063
45 Intel Corporation NOV 110 15,187
25 Microsoft Corporation NOV 150 313
FEDERAL INCOME TAX INFORMATION:
Net unrealized appreciation of investments at October 31, 1996, of $49,090,417,
based on aggregate cost of $152,942,175, was composed of gross appreciation of
$52,380,986 for investments having an excess of value over cost and gross
depreciation of $3,290,569 for investments having an excess of cost over value.
OTHER INFORMATION:
Purchases and sales of investment securities, other than short-term investments,
aggregated $118,374,736 and $88,534,987, respectively, during the year ended
October 31, 1996, including purchases and sales of U.S. government securities of
$4,383,165 and $5,193,910, respectively.
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
COMPOSITE
NORTHWEST FUND, INC.
PORTFOLIO OF
INVESTMENTS
IN SECURITIES
OCTOBER 31,
1996
<TABLE>
<CAPTION>
COMPOSITE NORTHWEST FUND PORTFOLIO
<S> <C> <C>
MARKET
SHARES VALUE
----------- ------------
COMMON STOCKS-98.91%
AEROSPACE/DEFENSE-7.65%
125,637 Boeing Company............................................. $ 11,982,629
56,675 Precision Castparts Corporation............................ 2,649,556
------------
14,632,185
------------
APPAREL & SHOES-3.22%
104,600 Nike, Inc., Class B........................................ 6,158,325
------------
BANKS/SAVINGS & LOANS-11.10%
163,800 First Savings Bank of Washington Bancorp, Inc. ............ 2,784,600
24,302 Horizon Financial Corporation.............................. 328,077
101,600 Interwest Bancorp, Inc. ................................... 3,073,400
113,500 Klamath First Bancorp, Inc. ............................... 1,596,093
79,800 Sterling Financial Corporation............................. 1,117,200
246,210 US Bancorp................................................. 9,848,400
103,926 Washington Federal, Inc. .................................. 2,494,224
------------
21,241,994
------------
BEVERAGES-0.97%
119,200 Redhook Ale Brewery, Inc. ................................. 1,847,600
------------
CAPITAL GOODS-0.62%
21,410 PACCAR, Inc. .............................................. 1,193,607
------------
COMPUTER SOFTWARE-9.27%
19,000 CFI Proservices, Inc.*..................................... 370,500
104,325 Microsoft Corporation*..................................... 14,318,606
222,500 Wall Data, Inc.*........................................... 3,059,375
------------
17,748,481
------------
COMPUTER SYSTEMS-4.76%
166,900 In Focus Systems, Inc.*.................................... 3,171,100
281,200 Sequent Computer Systems, Inc.*............................ 4,165,275
175,700 Planar Systems, Inc.* ..................................... 1,778,962
------------
9,115,337
------------
ELECTRICAL EQUIPMENT-2.07%
53,372 Fluke Corporation.......................................... 2,134,880
86,700 Merix Corporation*......................................... 1,820,700
------------
3,955,580
------------
ELECTRONICS/GENERAL-7.96%
153,000 Electro Scientific Industries, Inc.*....................... 3,136,500
47,800 FEI Company................................................ 579,575
137,800 Flir Systems, Inc.*........................................ 1,929,200
109,500 Itron, Inc.*............................................... 1,820,438
399,900 Mentor Graphics Corporation*............................... 3,399,150
111,500 Tektronix, Inc............................................. 4,362,438
------------
15,227,301
------------
ELECTRONICS - SEMICONDUCTORS-5.82%
42,400 Intel Corporation.......................................... $ 4,658,700
125,200 Lattice Semiconductor Corporation*......................... 4,288,100
14,400 Micron Technology, Inc.*................................... 365,400
105,300 Triquint Semiconductor, Inc.*.............................. 1,829,587
------------
11,141,787
------------
FOOD & FOOD RETAILERS-3.56%
198,200 Albertson's, Inc........................................... 6,813,125
------------
HEALTHCARE PRODUCTS-6.12%
102,000 Advanced Technology Laboratories, Inc.*.................... 3,111,000
422,450 Icos Corporation*.......................................... 3,168,375
148,300 Immunex Corporation*....................................... 2,002,050
265,800 Ostex International, Inc.*................................. 1,760,925
57,800 Pathogenesis Corporation*.................................. 1,213,800
22,200 SpaceLabs Medical, Inc.*................................... 449,550
------------
11,705,700
------------
HEALTHCARE SERVICES-1.19%
32,300 Pacificare Health Systems, Inc., Class B*.................. 2,269,075
------------
INSURANCE-2.77%
140,400 Safeco Corporation......................................... 5,300,100
------------
LODGING & RESTAURANTS-2.44%
89,500 Red Lion Hotels, Inc.*..................................... 2,685,000
61,300 Starbucks Corporation*..................................... 1,992,250
------------
4,677,250
------------
MACHINERY-0.87%
151,550 Flow International Corporation*............................ 1,193,456
42,000 Greenbrier Companies, Inc.................................. 462,000
------------
1,655,456
------------
METALS & MINING-2.88%
18,750 Coeur d'Alene Mines Corporation............................ 274,219
77,350 Hecla Mining Company*...................................... 435,093
50,200 Oregon Metallurgical*...................................... 1,581,300
121,300 Schnitzer Steel Industries Inc., Class A................... 3,229,613
------------
5,520,225
------------
PAPER & FOREST PRODUCTS-6.76%
21,933 Boise Cascade Corporation.................................. 679,923
15,100 Georgia-Pacific Corporation................................ 1,132,500
58,550 Longview Fibre Company..................................... 1,017,306
101,288 Louisiana Pacific Corporation.............................. 2,114,387
89,800 Weyerhaeuser Company....................................... 4,119,575
57,400 Willamette Industries, Inc................................. 3,874,500
------------
12,938,191
------------
REAL ESTATE INVESTMENT TRUSTS-3.32%
123,500 Pacific Gulf Properties, Inc. ............................. 2,300,188
70,700 Shurgard Storage Centers, Inc. ............................ 1,855,875
95,800 Wellsford Residential Property Trust....................... 2,203,400
------------
6,359,463
------------
RETAIL SALES-6.64%
181,800 Fred Meyer, Inc.*.......................................... 6,385,725
253,125 Price/Costco, Inc.*........................................ 5,030,859
35,341 Quality Food Centers, Inc.*................................ 1,289,947
------------
12,706,531
------------
TRANSPORTATION SERVICES-7.16%
144,500 Airborne Freight Corporation............................... 2,871,938
160,900 Alaska Air Group, Inc.*.................................... 3,539,800
174,300 Expeditor's International of Washington, Inc............... 7,298,813
------------
13,710,551
------------
UTILITIES - GAS & ELECTRIC-0.60%
26,100 Portland General Corporation............................... 1,141,875
------------
UTILITIES - TELECOMMUNICATIONS-1.16%
160,500 General Communication, Inc.*............................... 1,103,438
67,700 Western Wireless Corporation, Class A*..................... 1,117,050
------------
2,220,488
------------
TOTAL COMMON STOCKS (cost $127,421,131).................... 189,280,227
------------
PRINCIPAL
AMOUNT
-----------
REPURCHASE AGREEMENT-1.32%
$ 2,518,000 Repurchase agreement with First Boston, collateralized by
a U.S. Treasury Note in a joint trading account at 5.65%, dated
10/31/96, due 11/01/96 with a maturity value of $2,518,395
(cost $2,518,000).......................................... 2,518,000
------------
TOTAL INVESTMENTS (cost $129,939,131)...................... 191,798,227
Other assets ($1,381,129) less liabilities ($1,819,938).... (438,809)
------------
NET ASSETS................................................. $191,359,418
============
<FN>
* Non-income producing security.
FEDERAL INCOME TAX INFORMATION:
Net unrealized appreciation of investments at October 31, 1996, of $61,859,096
based on aggregate cost of $129,939,131 was composed of gross appreciation of
$70,642,593 for investments having an excess of value over cost and gross
depreciation of $8,783,497 for investments having an excess of cost over value.
OTHER INFORMATION:
Purchases and sales of investment securities, other than short-term investments,
aggregated $76,342,508 and $73,613,104, respectively, during the year ended
October 31, 1996.
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
FINANCIAL
INFORMATION
OCTOBER 31,
1996
INDEPENDENT PUBLIC ACCOUNTANTS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF:
COMPOSITE BOND & STOCK FUND, INC.
COMPOSITE GROWTH & INCOME FUND
COMPOSITE NORTHWEST FUND, INC.
We have audited the accompanying statements of assets and liabilities of
Composite Bond & Stock Fund, Inc., Composite Growth & Income Fund, and Composite
Northwest Fund, Inc., including the investment portfolios, as of October 31,
1996, the related statements of operations for the year then ended and the
related statements of changes in net assets for the years ended October 31, 1996
and 1995. For Composite Growth & Income Fund and Composite Northwest Fund, Inc.,
we have audited the financial highlights for each of the five years in the
period ended October 31, 1996. For Composite Bond & Stock Fund, Inc., we have
audited the financial highlights for each of the five fiscal years in the period
ended October 31, 1996. These financial statements and financial highlights are
the responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirming securities owned as of October
31, 1996, by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and the financial highlights
referred to above present fairly, in all material respects, the financial
position of Composite Bond & Stock Fund, Inc., Composite Growth & Income Fund,
and Composite Northwest Fund, Inc., as of October 31, 1996, and the results of
their operations, the changes in their net assets, and the financial highlights
for the above-stated periods in conformity with generally accepted accounting
principles.
LeMASTER & DANIELS PLLC
CERTIFIED PUBLIC ACCOUNTANTS
SPOKANE, WASHINGTON
NOVEMBER 20, 1996
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
OCTOBER 31, 1996
COMPOSITE COMPOSITE COMPOSITE
BOND & STOCK GROWTH & INCOME NORTHWEST FUND,
FUND, INC. FUND INC.
------------- --------------- --------------
<S> <C> <C> <C>
ASSETS
Investments at market (identified cost - $232,710,593,
$152,942,175 and $129,939,131, respectively)............... $275,215,979 $202,032,592 $191,798,227
Cash......................................................... 9,939 9,645 10,196
Prepaid expense.............................................. 17,338 12,871 13,488
Receivable for:
Investment securities sold................................. 1,853,796 340,304 1,109,007
Interest................................................... 1,562,332 247 523
Sale of Fund's shares...................................... 253,575 511,476 169,175
Dividends.................................................. 398,881 275,968 78,740
Premium on covered call options written.................... - 19,372 -
------------ ------------ ------------
Total assets................................................. 279,311,840 203,202,475 193,179,356
------------ ------------ ------------
LIABILITIES
Covered call options written at market
(premiums received - $59,473, $76,899, $0, respectively)... 32,812 95,219 -
Payable for:
Investment securities purchased............................ 1,193,200 1,774,380 1,433,272
Repurchase of Fund's shares................................ 333,881 69,274 291,965
Accrued expenses and other payables........................ 94,381 81,706 94,701
------------ ------------ ------------
Total liabilities............................................ 1,654,274 2,020,579 1,819,938
------------ ------------ ------------
NET ASSETS .................................................. $277,657,566 $201,181,896 $191,359,418
============ ============ ============
COMPOSITION OF NET ASSETS
Capital stock, at par........................................ $ 9,438 $ 1,167 $ 97
Additional paid-in capital................................... 216,073,678 137,821,794 111,320,710
Undistributed net investment income.......................... 1,322,002 275,454 1,446
Accumulated net realized gain................................ 17,720,401 14,011,384 18,178,069
Net unrealized appreciation of investments................... 42,532,047 49,072,097 61,859,096
------------ ------------ ------------
$277,657,566 $201,181,896 $191,359,418
============ ============ ============
SHARES OUTSTANDING .......................................... 18,876,477 11,665,223 9,725,904
============ ============ ============
CLASS A SHARES:
Net asset value and redemption price per share
(net assets of $255,414,120, $178,330,523, and $176,706,441,
respectively, for 17,361,806, 10,334,058, and 8,972,376
shares outstanding, respectively)......................... $14.71 $17.26 $19.69
============= ============ ============
Offering price per share (100/95.5 of net asset
value per share) ..................................... $15.40 $18.07 $20.62
============= ============ ============
CLASS B SHARES:
Net asset value, offering price and redemption price per share
(net assets of $22,243,446, $22,851,373, and $14,652,977,
respectively, for 1,514,671, 1,331,165, and 753,528
shares outstanding, respectively)......................... $14.69 $17.17 $19.45
============= ============ ============
On sales of $25,000 or more, the offering price of Class A shares is reduced.
A contingent deferred sales charge may be imposed on redemptions of Class B shares.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1996
COMPOSITE COMPOSITE COMPOSITE
BOND & STOCK GROWTH & NORTHWEST
FUND, INC. INCOME FUND FUND, INC.
------------- ------------ --------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends................................................... $ 4,829,069 $ 3,570,866 $ 1,995,991
Interest.................................................... 6,819,492 340,632 228,519
------------- ------------ --------------
Total income.................................................. 11,648,561 3,911,498 2,224,510
------------- ------------ --------------
Expenses:
Management fees............................................. 1,555,733 1,065,507 1,123,204
Distribution expenses - Class A............................. 394,279 265,579 360,642
Distribution expenses - Class B............................. 148,688 151,222 106,606
Shareholder servicing - Class A............................. 202,006 165,590 291,455
Shareholder servicing - Class B............................. 20,907 28,194 29,344
Postage, printing and office expense........................ 143,434 118,713 199,180
Registration and filing fees................................ 51,767 48,276 36,859
Custodial fees.............................................. 35,360 32,867 26,296
Auditing and legal fees..................................... 11,643 10,652 9,779
Insurance................................................... 9,658 6,899 7,319
Directors' fees............................................. 7,299 7,299 7,299
Expense reimbursement....................................... - - (166,941)
------------- ------------ --------------
Total expenses................................................ 2,580,774 1,900,798 2,031,042
Fees paid indirectly.......................................... (8,048) (5,368) (3,962)
------------- ------------ --------------
Net expenses.................................................. 2,572,726 1,895,430 2,027,080
------------- ------------ --------------
Net investment income......................................... 9,075,835 2,016,068 197,430
------------- ------------ --------------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS
Realized gain from investment transactions.................... 17,743,293 14,044,609 18,297,956
Unrealized appreciation of
investments during the year................................. 8,484,821 18,741,419 5,491,521
------------- ------------ --------------
Net realized and unrealized gain on investments............... 26,228,114 32,786,028 23,789,477
------------- ------------ --------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS .................................... $35,303,949 $34,802,096 $23,986,907
============= ============ ==============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
COMPOSITE BOND & STOCK COMPOSITE GROWTH COMPOSITE NORTHWEST
FUND, INC. & INCOME FUND FUND, INC.
--------------------------- -------------------------- -------------------------
YEARS ENDED OCTOBER 31, YEARS ENDED OCTOBER 31, YEARS ENDED OCTOBER 31,
--------------------------- -------------------------- -------------------------
1996 1995 1996 1995 1996 1995
------------- ------------- ------------ ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income..................... $ 9,075,835 $ 7,801,438 $ 2,016,068 $ 1,869,353 $ 197,430 $ 647,511
Realized gain from
investment transactions................. 17,743,293 5,091,453 14,044,609 5,167,763 18,297,956 3,535,477
Unrealized appreciation of
investments during the year............. 8,484,821 27,020,438 18,741,419 15,766,081 5,491,521 26,914,344
------------- ------------- ------------ ------------ ----------- -------------
Net increase in net assets
resulting from operations............... 35,303,949 39,913,329 34,802,096 22,803,197 23,986,907 31,097,332
DIVIDENDS TO SHAREHOLDERS
From net investment income:
Class A................................ (8,283,363) (7,611,297) (1,970,751) (1,620,482) (276,041) (691,134)
Class B................................ (404,212) (142,065) (63,860) (37,057) - (1,003)
From net capital gains from
investment transactions:
Class A................................ (4,933,381) (1,345,096) (4,850,669) (3,249,511) (1,664,400) -
Class B................................ (193,534) (24,534) (350,319) (82,370) (80,343) -
NET CAPITAL SHARE
TRANSACTIONS
Class A................................ 26,512,465 (13,056,430) 22,518,259 10,857,705 (2,041,396) (24,088,466)
Class B................................ 13,691,710 3,253,167 11,596,203 5,910,393 6,398,405 2,995,582
------------- ------------- ------------ ------------ ------------ ------------
Total increase in net assets.............. 61,693,634 20,987,074 61,680,959 34,581,875 26,323,132 9,312,311
NET ASSETS
Beginning of the year..................... 215,963,932 194,976,858 139,500,937 104,919,062 165,036,286 155,723,975
------------- ------------- ------------ ------------ ------------ ------------
End of the year........................... $277,657,566 $215,963,932 $201,181,896 $139,500,937 $191,359,418 $165,036,286
============= ============= ============ ============ ============ ============
UNDISTRIBUTED NET INVESTMENT
INCOME AT END OF YEAR ................... $ 1,322,002 $ 933,742 $ 275,454 $ 293,997 $ 1,446 $ 80,057
============= ============= ============ ============ ============ ============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
COMPOSITE BOND & STOCK FUND, INC. ELEVEN
MONTHS
CLASS A ENDED
YEARS ENDED OCTOBER 31, OCTOBER
------------------------------------ 31,
1996 1995 1994 1993 1992(4)
-------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.......................... $13.48 $11.53 $12.23 $11.27 $11.01
-------- ------- ------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income........................................ 0.52 0.50 0.46 0.48 0.44
Net Gains(Losses) on Securities (both realized and unrealized) 1.53 2.02 (0.57) 1.06 0.80
-------- ------- ------- --------- ---------
Total From Investment Operations........................... 2.05 2.52 (0.11) 1.54 1.24
-------- ------- ------- --------- ---------
LESS DISTRIBUTIONS
Dividends (from net investment income)....................... (0.50) (0.49) (0.44) (0.46) (0.53)
Distributions (from capital gains)........................... (0.32) (0.08) (0.15) (0.12) (0.45)
-------- ------- ------- --------- ---------
Total Distributions........................................ (0.82) (0.57) (0.59) (0.58) (0.98)
-------- ------- ------- --------- ---------
NET ASSET VALUE, END OF PERIOD ............................... $14.71 $13.48 $11.53 $12.23 $11.27
======== ======= ======= ========= =========
TOTAL RETURN (1) ............................................. 15.66% 22.55% -0.90% 13.99% 11.92%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period ($1,000's)......................... $255,414 $208,592 $191,615 $180,281 $102,523
Ratio of Expenses to Average Net Assets(2) .................. 0.98% 1.02% 1.06% 1.13% 1.13%(6)
Ratio of Net Income to Average Net Assets.................... 3.68% 3.98% 3.97% 4.01% 4.30%(6)
Portfolio Turnover Rate...................................... 46% 32% 25% 19% 15%(6)
Average Commission Paid(3) .................................. $0.0632 - - - -
</TABLE>
<TABLE>
<CAPTION>
MARCH 30,
CLASS B YEARS ENDED OCTOBER 31, TO
----------------------- OCTOBER 31,
1996 1995 1994(5)
----------- ---------- -------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.......................... $13.47 $11.51 $11.49
----------- ---------- -------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income........................................ 0.41 0.39 0.18
Net Gains on Securities (both realized and unrealized)....... 1.53 2.03 0.04
----------- ---------- -------------
Total From Investment Operations........................... 1.94 2.42 0.22
LESS DISTRIBUTIONS ----------- ---------- -------------
Dividends (from net investment income)....................... (0.40) (0.38) (0.20)
Distributions (from capital gains)........................... (0.32) (0.08) -
----------- ---------- -------------
Total Distributions........................................ (0.72) (0.46) (0.20)
----------- ---------- -------------
NET ASSET VALUE, END OF PERIOD ............................... $14.69 $13.47 $11.51
=========== ========== =============
TOTAL RETURN (1) ............................................. 14.73% 21.60% 1.94%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period ($1,000's)......................... $22,243 $7,372 $3,362
Ratio of Expenses to Average Net Assets(2) .................. 1.86% 1.84% 1.77%(6)
Ratio of Net Income to Average Net Assets.................... 2.80% 3.10% 3.22%(6)
Portfolio Turnover Rate...................................... 46% 32% 25%
Average Commission Paid(3) .................................. $0.0632 - -
<FN>
(1) Total returns do not reflect a sales charge and are not annualized.
(2) Ratio of expenses to average net assets include expenses paid indirectly beginning in fiscal 1995.
(3) Average commission paid disclosure beginning in fiscal 1996.
(4) Change in Fund's fiscal year-end.
(5) From the commencement of offering of Class B shares.
(6) Annualized.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (CONTINUED)
(UNAUDITED)
COMPOSITE GROWTH & INCOME FUND
CLASS A YEARS ENDED OCTOBER 31,
---------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- --------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR............................ $14.65 $12.71 $12.81 $12.02 $11.86
-------- -------- -------- --------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income........................................ 0.20 0.22 0.18 0.21 0.29
Net Gains on Securities (both realized and unrealized)....... 3.16 2.31 0.85 1.10 0.80
-------- -------- -------- --------- -------
Total From Investment Operations........................... 3.36 2.53 1.03 1.31 1.09
-------- -------- -------- --------- -------
LESS DISTRIBUTIONS
Dividends (from net investment income)....................... (0.21) (0.19) (0.18) (0.21) (0.34)
Distributions (from capital gains)........................... (0.54) (0.40) (0.95) (0.31) (0.59)
-------- -------- -------- --------- -------
Total Distributions........................................ (0.75) (0.59) (1.13) (0.52) (0.93)
-------- -------- -------- --------- -------
NET ASSET VALUE, END OF YEAR ............................... $17.26 $14.65 $12.71 $12.81 $12.02
======== ======== ======== ========= =======
TOTAL RETURN (1) ............................................. 23.61% 20.87% 8.55% 11.06% 9.94%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year ($1,000's)......................... $178,331 $130,630 $102,837 $95,229 $81,102
Ratio of Expenses to Average Net Assets(2) .................. 1.03% 1.07% 1.10% 1.17% 1.10%
Ratio of Net Income to Average Net Assets.................... 1.26% 1.62% 1.45% 1.67% 2.37%
Portfolio Turnover Rate...................................... 52% 39% 34% 54% 18%
Average Commission Paid(3) .................................. $ 0.0654 - - - -
</TABLE>
<TABLE>
<CAPTION>
MARCH 30,
CLASS B YEARS ENDED OCTOBER 31, TO
-------------------------- OCTOBER 31,
1996 1995 1994(4)
----------- ---------- ------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.......................... $14.59 $12.68 $12.00
----------- ---------- ------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income........................................ 0.06 0.11 0.05
Net Gain on Securities (both realized and unrealized)........ 3.14 2.31 0.69
----------- ---------- ------------
Total From Investment Operations........................... 3.20 2.42 0.74
----------- ---------- ------------
LESS DISTRIBUTIONS
Dividends (from net investment income)....................... (0.08) (0.11) (0.06)
Distributions (from capital gains)........................... (0.54) (0.40) -
----------- ---------- ------------
Total Distributions........................................ (0.62) (0.51) (0.06)
----------- ---------- ------------
NET ASSET VALUE, END OF PERIOD................................ $17.17 $14.59 $12.68
=========== ========== ============
TOTAL RETURN (1) ............................................. 22.55% 19.95% 6.14%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year ($1,000's)........................... $22,851 $8,871 $2,082
Ratio of Expenses to Average Net Assets(2) .................. 1.94% 1.91% 1.85%(5)
Ratio of Net Income to Average Net Assets.................... 0.34% 0.69% 0.65%(5)
Portfolio Turnover Rate...................................... 52% 39% 34%
Average Commission Paid(3) .................................. $0.0654 - -
<FN>
(1) Total returns do not reflect a sales charge and are not annualized.
(2) Ratio of expenses to average net assets include expenses paid indirectly beginning in fiscal 1995.
(3) Average commission paid disclosure beginning in fiscal 1996.
(4) From the commencement of offering of Class B shares.
(5) Annualized.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COMPOSITE NORTHWEST FUND, INC.
CLASS A
YEARS ENDED OCTOBER 31,
----------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR............................ $17.40 $14.30 $14.50 $14.04 $13.45
-------- -------- -------- -------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income........................................ 0.03 0.07 0.08 0.07 0.08
Net Gains on Securities (both realized and unrealized)....... 2.47 3.10 0.35 0.46 0.69
-------- -------- -------- -------- -------
Total From Investment Operations........................... 2.50 3.17 0.43 0.53 0.77
-------- -------- -------- -------- -------
LESS DISTRIBUTIONS
Dividends (from net investment income)....................... (0.03) (0.07) (0.08) (0.07) (0.07)
Distributions (from capital gains)........................... (0.18) - (0.55) - (0.11)
-------- -------- -------- -------- -------
Total Distributions........................................ (0.21) (0.07) (0.63) (0.07) (0.18)
-------- -------- -------- -------- -------
NET ASSET VALUE, END OF YEAR ................................. $19.69 $17.40 $14.30 $14.50 $14.04
======== ======== ======== ======== =======
TOTAL RETURN (1) ............................................. 14.54% 22.24% 2.97% 3.82% 5.77%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year ($1,000's)........................... $176,706 $157,953 $152,622 $168,840 $167,115
Ratio of Expenses to Average Net Assets(2) .................. 1.08% 1.10% 1.09% 1.09% 1.11%
Ratio of Net Income to Average Net Assets.................... 0.16% 0.44% 0.51% 0.48% 0.53%
Portfolio Turnover Rate...................................... 42% 9% 11% 8% 4%
Average Commission Paid(3) .................................. $0.0665 - - - -
</TABLE>
<TABLE>
<CAPTION>
MARCH 30,
CLASS B YEARS ENDED OCTOBER 31, TO
----------------------- OCTOBER 31,
1996 1995 1994(4)
----------- ---------- -----------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.......................... $17.31 $14.28 $14.42
----------- ---------- -----------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income........................................ (0.08) (0.05) (0.02)
Net Gains (Losses) on Securities (both realized and unrealized) 2.40 3.08 (0.12)
----------- ---------- -----------
Total From Investment Operations........................... 2.32 3.03 (0.14)
----------- ---------- -----------
LESS DISTRIBUTIONS
Dividends (from net investment income)....................... - - -
Distributions (from capital gains)........................... (0.18) - -
----------- ---------- -----------
Total Distributions........................................ (0.18) - -
----------- ---------- -----------
NET ASSET VALUE, END OF PERIOD ............................... $19.45 $17.31 $14.28
=========== ========== ===========
TOTAL RETURN (1) ............................................. 13.54% 21.25% -0.97%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period ($1,000's)......................... $14,653 $7,083 $3,102
Ratio of Expenses to Average Net Assets(2) .................. 1.98% 1.95% 1.96%(5)
Ratio of Net Income to Average Net Assets.................... -0.76% -0.45% -0.39%(5)
Portfolio Turnover Rate...................................... 42% 19% 11%
Average Commission Paid(3) .................................. $0.0665 - -
<FN>
(1) Total returns do not reflect a sales charge and are not annualized.
(2) Ratio of expenses to average net assets include expenses paid indirectly beginning in fiscal 1995.
(3) Average commission paid disclosure beginning in fiscal 1996.
(4) From the commencement of offering of Class B shares.
(5) Annualized.
</FN>
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1996
NOTE 1 - ACCOUNTING POLICIES
Composite Bond & Stock Fund, Inc., Composite Equity Series, Inc., and
Composite Northwest Fund, Inc. (Composite Northwest 50 Fund, Inc. prior to
December 15, 1995), collectively the Funds, are registered under the Investment
Company Act of 1940, as amended, as open-end diversified management investment
companies. Composite Growth & Income Fund is a portfolio of Composite Equity
Series, Inc.
The Funds offer both Class A and Class B shares. The two classes of shares
differ in their respective sales charges, shareholder servicing agent fees, and
distribution and service fees. All shareholders bear the common expenses of each
Fund pro rata, based on value of shares outstanding, without distinction between
share class. Dividends are declared separately for each class. Neither class has
preferential dividend rights; differences in per-share dividend rates are
generally due to differences in separate class expenses, including distribution
and service fees.
Following is a summary of significant accounting policies, in conformity
with generally accepted accounting principles, which are consistently followed
by each Fund in the preparation of its financial statements.
a. Investment securities are stated on the basis of valuations provided by an
independent pricing service, approved by the Boards of Directors, which
uses information with respect to last reported sales price for securities
traded on a national securities exchange (or reported on the National
Association of Securities Dealers Automated Quotation [NASDAQ] National
Market System) or securities traded over-the-counter, or valuations based
upon transactions of a security, quotations from dealers, market
transactions in comparable securities, various relationships between
securities, in determining value. Investment securities with less than 60
days to maturity when purchased are valued at amortized cost which
approximates market value. Investment securities not currently quoted as
described above will be priced at fair market value as determined in good
faith in a manner prescribed by the Boards of Directors.
b. Interest income is earned from the settlement date on securities purchased
and is recorded on the accrual basis. Dividend income is recorded on the
ex-dividend date.
c. Each Fund records dividends to shareholders on the ex-dividend date.
d. Security transactions are accounted for on the trade date (execution date
of the order to buy or sell). Realized gain or loss from security
transactions are determined on the basis of identified cost.
e. Each Fund complies with requirements of the Internal Revenue Code
applicable to regulated investment companies and distributes taxable income
so that no provision for federal income or excise tax is required. Income
dividends and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatment for
deferral of wash sales.
f. Custodial fees have been increased by $8,048, $5,368, and $3,962, for the
Bond & Stock Fund, Growth & Income Fund, and Northwest 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 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.
g. 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 - COVERED CALL OPTIONS WRITTEN
Each Fund may write listed covered call options in which premiums received
are recorded as a liability which is marked to market to reflect the current
value of options written. A covered call option gives the holder the right to
buy the underlying security, which each Fund owns, at any time during the option
period at a predetermined exercise price. The risk in writing a covered call
option is that each Fund gives up the opportunity to participate in any increase
in price of the underlying security beyond the exercise price. Proceeds from the
call options exercised are increased by the amount of premium received. If an
option expires or is canceled in a closing transaction, each Fund will realize a
gain or loss depending on whether the cost of the closing transaction, if any,
is less than or greater than the premium originally received. As of October 31,
1996, portfolio securities valued at $1,430,625 and $2,932,813 were held in a
segregated account by the custodian in connection with covered call options
written by the Bond & Stock Fund and Growth & Income Fund, respectively.
Transactions in written covered call options during the year ended October
31, 1996, were as follows:
<TABLE>
<CAPTION>
COMPOSITE COMPOSITE
BOND & STOCK GROWTH & INCOME
FUND, INC. FUND
------------------- -------------------
<S> <C> <C> <C> <C>
NUMBER OF NUMBER OF
CONTRACTS PREMIUMS CONTRACTS PREMIUMS
--------- -------- --------- --------
Outstanding at October 31, 1995............................... 0 $ 0 0 $ 0
Written....................................................... 450 192,171 440 119,739
Exercised..................................................... (300) (132,698) (135) (42,840)
Expired....................................................... 0 0 0 0
--------- -------- --------- --------
Outstanding at October 31, 1996............................... 150 $ 59,473 305 $ 76,899
========= ======== ========= ========
</TABLE>
NOTE 3 - TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
The amounts of fees and expenses described below are shown on each Fund's
statement of operations. Composite Research & Management Co. (the "Adviser")
manages each Fund; Murphey Favre, Inc. (the "Distributor") is the principal
underwriter; and Murphey Favre Securities Services, Inc. (the "Transfer Agent")
is the shareholder servicing agent. All are affiliates of Washington Mutual Bank
and Washington Mutual fsb and are subsidiaries of Washington Mutual, Inc.
Management fees were paid by each Fund to the Adviser. Management fees for
the Bond & Stock Fund and Growth & Income Fund are equal to an annual rate of
.625% of each Fund's average daily net assets. Fees are reduced to .50% of
average daily net assets in excess of $250 million. The management fee for the
Northwest Fund is equal to an annual rate of .625% of the Fund's average daily
net assets to $500 million. The fee will be reduced to an annual rate of .50% of
average daily net assets of $500 million to $1 billion, and to .375% on average
daily net assets in excess of $1 billion. Also, under terms of the Northwest
Fund's management agreement, the Adviser will reimburse Northwest should fund
expenses (excluding taxes, interest, and portfolio brokerage but including the
management fee) exceed in any fiscal year 1.50% of the average daily net assets
up to $30 million, and 1% of such net assets over $30 million. For the year
ended October 31, 1996, the Northwest Fund was reimbursed $166,941 under this
agreement.
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 Fund distributions and reports. Under the terms of the
shareholder servicing agreement, the authorized monthly shareholder servicing
fees are $1.35 and $1.45 per Class A and Class B shares accounts, respectively.
Distribution expenses were paid to the Distributor in accordance with
separate distribution plans for Class A and Class B. 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 payments 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 year ended October 31, 1996, commissions (sales charges paid by
investors) on the purchases of Class A shares totaled $1,064,004, $586,437, and
$517,022, of which $1,047,926, $563,398, and $465,694 was retained by the
Distributor in the Bond & Stock Fund, Growth & Income Fund, and Northwest Fund,
respectively. For the year ended October 31, 1996, the Distributor received
contingent deferred sales charges of $28,776, $24,626, and $15,160 for the Bond
& Stock Fund, Growth & Income Fund, and Northwest Fund, respectively, upon
redemption of Class B shares as reimbursement for sales commissions advanced by
the Distributor at the time of such sales. Also, under terms of the distribution
contracts, the Distributor will reimburse each Fund if Fund expenses exceed the
most stringent, applicable state blue sky limitation. No such reimbursement was
required during the year ended October 31, 1996.
NOTE 4 - CAPITAL STOCK
COMPOSITE BOND & STOCK FUND, INC.
Capital stock authorized.............. 300,000,000
Designated as:
Class A............................. 200,000,000
Class B............................. 100,000,000
Par value per share................... $0.0005
<TABLE>
<CAPTION>
CLASS A CLASS B
----------------------- ------------------------
YEARS ENDED OCTOBER 31, YEARS ENDED OCTOBER 31,
1996 1995 1996 1995
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
SHARES
Sold..................................................... 3,502,594 1,549,537 1,071,938 277,347
Issued for reinvestment of dividends and capital gains... 551,925 701,393 28,182 12,463
----------- ----------- ----------- ----------
4,054,519 2,250,930 1,100,120 289,810
Reacquired............................................... (2,170,504) (3,397,944) (132,719) (34,621)
----------- ----------- ----------- ----------
Net increase (decrease) ................................. 1,884,015 (1,147,014) 967,401 255,189
AMOUNT =========== =========== =========== ==========
Sold..................................................... $ 44,698,687 $ 19,292,373 $14,984,826 $ 3,517,987
Issued for reinvestment of dividends and capital gains... 12,571,523 8,425,803 592,143 164,801
----------- ----------- ----------- ----------
57,270,210 27,718,176 15,576,969 3,682,788
Reacquired............................................... (30,757,745) (40,774,606) (1,885,259) (429,621)
----------- ----------- ----------- ----------
Net increase (decrease) ................................. $ 26,512,465 $(13,056,430) $13,691,710 $3,253,167
=========== =========== =========== ==========
</TABLE>
COMPOSITE GROWTH & INCOME FUND
Capital stock authorized.............. 40,000,000
Designated as:
Class A............................. 25,000,000
Class B............................. 15,000,000
Par value per share.................. $0.0001
<TABLE>
<CAPTION>
CLASS A CLASS B
------------------------ -----------------------
YEARS ENDED OCTOBER 31, YEARS ENDED OCTOBER 31,
1996 1995 1996 1995
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
SHARES
Sold..................................................... 2,162,456 1,994,187 781,671 477,156
Issued for reinvestment of dividends and capital gains... 424,694 78,845 27,517 2,070
------------ ----------- ----------- -----------
2,587,150 2,073,032 809,188 479,226
Reacquired............................................... (1,172,395) (1,247,093) (86,112) (35,353)
------------ ----------- ----------- -----------
Net increase ............................................ 1,414,755 825,939 723,076 443,873
AMOUNT .................................................. ============ =========== =========== ===========
Sold..................................................... $ 34,852,996 $22,670,694 $12,562,783 $6,269,139
Issued for reinvestment of dividends and capital gains... 6,465,408 4,557,325 413,214 118,471
------------ ----------- ----------- -----------
41,318,404 27,228,019 12,975,997 6,387,610
Reacquired............................................... (18,800,145)(16,370,314) (1,379,794) (477,217)
------------ ----------- ----------- -----------
Net increase ............................................ $ 22,518,259 $10,857,705 $11,596,203 $5,910,393
============ =========== =========== ===========
</TABLE>
NOTE 4 - CAPITAL STOCK
COMPOSITE NORTHWEST FUND, INC.
Capital stock authorized..............10,000,000,000
Designated as:
Class A............................. 6,000,000,000
Class B............................. 4,000,000,000
Par value per share................... $0.00001
<TABLE>
<CAPTION>
CLASS A CLASS B
------------------------- ------------------------
YEARS ENDED OCTOBER 31, YEARS ENDED OCTOBER 31,
1996 1995 1996 1995
------------ ------------- ------------ -----------
<S> <C> <C> <C> <C>
SHARES
Sold..................................................... 1,670,374 2,053,954 384,301 233,910
Issued for reinvestment of dividends and capital gains... 107,929 43,814 4,603 -
------------ ------------- ----------- -----------
1,778,303 2,097,768 388,904 233,910
Reacquired............................................... (1,881,146) (3,693,516) (44,652) (41,868)
------------ ------------- ----------- -----------
Net increase (decrease) ................................. (102,843) (1,595,748) 344,252 192,042
AMOUNT ============ ============= =========== ===========
Sold..................................................... $ 30,838,126 $ 31,637,029 $7,154,271 $3,650,064
Issued for reinvestment of dividends and capital gains... 1,894,196 658,565 80,228 1,003
------------ ------------- ----------- -----------
32,732,322 32,295,594 7,234,499 3,651,067
Reacquired............................................... (34,773,718) (56,384,060) (836,094) (655,485)
------------ ------------- ----------- -----------
Net increase (decrease) ................................. $( 2,041,396)$(24,088,466) $6,398,405 $2,995,582
============ ============= =========== ===========
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
FOR FURTHER INFORMATION, PLEASE CONTACT:
Fund Offices
Composite Group of Funds
601 W. Main Avenue, Suite 801
Spokane, WA 99201-0613
Phone: (509) 353-3550
- --------------------------------------------------------------------------------
ADVISER
Composite Research & Management Co.
1201 Third Avenue, Suite 1220 Seattle, WA 98101-3015
DISTRIBUTOR
Murphey Favre, Inc.
1201 Third Avenue, Suite 780 Seattle, WA 98101-3015
CUSTODIAN
Investors Fiduciary Trust Company
127 W. 10th Street Kansas City, MO 64105-1716
INDEPENDENT PUBLIC ACCOUNTANTS
LeMaster & Daniels PLLC
601 W. Riverside Avenue, Suite 800 Spokane, WA 99201-0614
COUNSEL
Paine, Hamblen, Coffin, Brooke & Miller LLP
717 W. Sprague Avenue, Suite 1200 Spokane, WA 99204-0464
OFFICERS BOARD OF DIRECTORS
PRESIDENT Wayne L. Attwood, M.D.
William G. Papesh Kristianne Blake
Anne V. Farrell
EXECUTIVE VICE PRESIDENT Edwin J. McWilliams
Kerry K. Killinger Michael K. Murphy
William G. Papesh
VICE PRESIDENTS Jay Rockey
Gene G. Branson Leland J. Sahlin
Douglas D. Springer Richard C. Yancey
VICE PRESIDENT & TREASURER
Monte D. Calvin
SECRETARY
John T. West
This report is submitted for the general information of
shareholders of the Funds. For more detailed information
about the Funds, their officers and directors, fees, expenses
and other pertinent information, please see the prospectus
of the Funds. This report is not authorized for distribution
to prospective investors in the Funds unless preceded or
accompanied by an effective prospectus.
12/96
RECYCLE LOGO 7029
COMPOSITE GROUP
EQUITY
FUNDS
ANNUAL
REPORT
OCTOBER 31,
1996
COMPOSITE BOND &
STOCK FUND, INC.
COMPOSITE GROWTH
& INCOME FUND
COMPOSITE
NORTHWEST FUND,
FUND, INC.
COMPOSITE GROUP OF FUNDS LOGO
