<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 1,
1996
Registration Nos. 2-74561 and 811-3299
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. ___ [ ]
Post-Effective Amendment No. 15 [X]
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AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 15 [X]
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STATE BOND MONEY FUNDS, INC.
(FORMERLY STATE BOND CASH MANAGEMENT FUND, INC.)
(Exact Name of Registrant as Specified in Charter)
100 North Minnesota Street
P.O. Box 69
New Ulm, Minnesota 56073-0069
(Address of Registrant's Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (507) 354-2144
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<CAPTION>
<S> <C>
Kevin L. Howard, Esq. Copies to:
515 Market Street, 8th floor Joel H. Goldberg, Esq.
Louisville, KY 40202-3319 Shereff, Friedman, Hoffman & Goodman, LLP
(Name and Address of Agent for Service) 919 Third Avenue
New York, New York 10022
</TABLE>
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It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[X] on December 1, 1996 pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
Pursuant to Rule 24f-2(a)(1) under the Investment Company Act of 1940, the
Registrant has registered an indefinite number or amount of its securities under
the Securities Act of 1933. Registrant has filed a notice under such rule for
its fiscal year ended July 31, 1996 within 60 days of such date.
<PAGE>
CROSS-REFERENCE SHEET PURSUANT TO RULE 481(a) UNDER THE SECURITIES ACT OF 1933
N-IA Item No.
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Part A
Item 1. Cover Page..............................................Cover Page
Item 2. Synopsis...................................Shareholder Transaction
and Operating Expense Table
Item 3. Condensed Financial Information...............Financial Highlights
Item 4. General Description of Registrant..............General Information
About State Bond Tax Exempt Fund; What Are
the Fund's Investment Objectives, Policies and Risks?
Item 5. Management of the Fund....................How Is the Fund Managed?
Item 6. Capital Stock and Other Securities.......General Information About
State Bond Cash Management Fund;
How Does the Fund Pay Dividends?
What Is the Federal Tax Status of Dividends?
Item 7. Purchase of Securities Being Offered............How Can You Invest
in the Fund?
When Does Your Purchase Begin Earning Dividends?
How Does the Fund's Exchange Privilege Work?
How Does the Fund Pay Distribution Expenses?
Item 8. Redemption of Repurchase...............How Can Shares Be Redeemed?
Item 9. Legal Proceedings...................................Not Applicable
Part B
Item 10. Cover Page.............................................Cover Page
Item 11. Table of Contents...............................Table of Contents
Item 12. General Information and History.........General Information About
State Bond Cash Management Fund
Item 13. Investment Objectives and Policies............What Are the Fund's
Investment Objectives
and Policies?
What Are the Funds Investment Limitations?
Item 14. Management of the Registrant..........................Who Manages
the Fund?
Item 15. Control Persons and Principal Holders of Securities...Who Manages
the Fund?
Item 16. Investment Advisory and Other Services................Who Manages
the Fund?; The Manager;
Management Agreement and Expenses;
Transfer Agent; Custodian;
Independent Auditors
Item 17. Brokerage Allocation..........See "What Are the Fund's Investment
Objectives, Policies
and Risks? -Securities Trading" in the Prospectus.
Item 18. Capital Stock and Other Securities.......See "What Kind of Shares
Does the Fund Offer?" in the Prospectus
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Item 19. Purchase, Redemption and Pricing of Securities
Being Offered..............See "How Can You Invest in the Fund?"
In the Prospectus; Redemption of Shares; How
Is Net Asset Value Per Share Determined?
Item 20. Tax Status........................................What Is the Tax
Status of the Fund?
Will the Fund Withhold Taxes on Distributions?
Item 21. Underwriters............Does the Fund Bear Distribution Expenses?
Item 22. Calculation of Performance Data..............Calculation of Yield
Item 23. Financial Statements.........................Financial Statements
Part C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Post-Effective Amendment to the
Registration Statement.
<PAGE>
PROSPECTUS
STATE BOND CASH MANAGEMENT FUND
100 North Minnesota Street
P.O. Box 69
New Ulm, Minnesota 56073-0069.
Phone: (507) 354-2144
December 1, 1996
State Bond Cash Management Fund (the "Fund") is a mutual fund which seeks high
current income, preservation of capital, and liquidity. The Fund is a money
market mutual fund. The Fund is the only investment portfolio of State Bond
Money Funds, Inc. In pursuing its goals, the Fund invests in high-quality money
market instruments. To the extent the Fund emphasizes preservation of capital
and liquidity, current income could be lessened. Shares of the Fund are issued
at net asset value without a sales charge or redemption fee.
This Prospectus concisely sets forth information about the Fund which investors
should know before investing. Please read it carefully before you invest and
keep it for future reference.
Additional information about the Fund is contained in a Statement of Additional
Information filed with the Securities and Exchange Commission, and is available
upon request and without charge by calling or writing the Fund at 800-328-4735,
100 North Minnesota Street, P.O. Box 69, New Ulm, Minnesota 56073-0069. The
Statement of Additional Information is dated the same date as this Prospectus
and is incorporated herein by reference in its entirety.
An investment in the Fund is neither insured nor guaranteed by the U.S.
Government. There can be no assurance that the Fund will be able to maintain a
stable net asset value of $1.00 per share.
AN INVESTMENT IN THE FUND IS NOT A DEPOSIT OR OBLIGATION OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK AND IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT,
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY
OTHER FEDERAL AGENCY. AN INVESTMENT IN THE FUND INVOLVES INVESTMENT RISK,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
Page
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Shareholder Transaction And Operating Expense Table
Financial Highlights
What Are The Fund's Investment Objectives, Policies and Risks?
How Is The Fund Managed?
How Can You Invest In The Fund?
When Is Your Purchase Effective?
When Does Your Purchase Begin Earning Dividends?
How Can Shares Be Redeemed?
How Does the Fund's Exchange Privilege Work?
How Does the Fund Pay Dividends?
What Is The Federal Tax Status Of Dividends You Receive?
How Does The Fund Pay Distribution Expenses?
Who Are the Fund's Accounting Agent and Custodian?
What Services Does the Fund Provide?
General Information About State Bond Cash Management Fund
Yield
2
<PAGE>
SHAREHOLDER TRANSACTION AND OPERATING EXPENSE TABLE
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchase (as a percentage of offer price)... 0.00%
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average daily net assets)
Management Fee (After Expense Reimbursement).............................. .09%
12b-1 Fee (After Expense Reimbursement)................................... .04%
Other Expenses (After Expense Reimbursement).............................. .67%
---
Total Fund Operating Expenses (After Expense Reimbursements)........... .80%
===
A fee of $10 will be charged upon any redemption by wire transfer. See "How Can
Shares Be Redeemed?"
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EXAMPLE: 1 Year 3 Years 5 Years 10 Years
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You would pay the following aggregate expenses on a
$1,000 investment, assuming: (1) 5% annual return and
(2) redemption at the end of each time period: ................... $8 $26 $44 $99
</TABLE>
Note: This Example is not a representation of past or future expenses and
actual expenses may be more or less than those shown above.
The purpose of the above table is to assist you in understanding the various
costs and expenses that you will bear directly or indirectly as an investor in
the Fund. The expense information in the above table is based upon expenses
incurred by the Fund during its fiscal year ended July 31, 1996. The above
operating expenses are net of expense reimbursements. Without such
reimbursements, the management fee would have been .40%, the 12b-1 fee would
have been .20%, the other expenses would have been 2.97% and total expenses
would have been 3.57%. For more information concerning fees and expenses, see
"How Is The Fund Managed?" and "Does The Fund Bear Distribution Expenses?"
3
<PAGE>
FINANCIAL HIGHLIGHTS
The information presented below for the fiscal years ended July 31, 1996 and
1995 has been audited by Ernst & Young LLP, independent auditors for the Fund,
and the financial statements of the Fund, along with the report of Ernst & Young
LLP thereon, are set forth in the Statement of Additional Information. The
information presented below for each fiscal year in the eight-year period ended
July 31, 1994 has been audited by the previous auditors for the Fund. Further
information about the Fund is contained in the Fund's most recent annual report
to shareholders which may be obtained, without charge, by calling or writing the
Fund at the telephone number or address on the front cover of this Prospectus.
PER SHARE INVESTMENT INCOME AND CAPITAL CHANGES
(For a share outstanding throughout the year)
YEAR ENDED JULY 31
<TABLE>
<CAPTION>
1996 1995# 1994 1993 1992 1991 1990 1989 1988 1987
------- ------- -------- ------- ------- ------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year..... 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment operations
Net investment income................ .05 .04 .03 .02 .04 .06 .08 .08 .06 .05
Less distributions:
From net investment income.......... (.05) (.04) (.03) (.02) (.04) (.06) (.08) (.08) (.06) (.05)
------ ------ ------ ------ ------ ------ ------- ------ ------ ------
Net asset value, end of year....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ====== ====== ====== ====== ======= ====== ====== ======
Total Return........................... 4.72% 4.51% 2.54% 2.40% 3.74% 6.28% 7.82% 8.34% 6.20% 5.31%
Ratios and Supplemental Data
Net assets, end of year (in
thousands)......................... $3,219 $2,718 $2,020 $3,657 $4,770 $9,378 $11,750 $8,742 $6,971 $4,704
Ratio of expenses to average
net assets......................... .80% .80% .80% .80% .90% 1.00% 1.00% 1.00% 1.00% 1.00%
Ratio of net investment income
to average net assets.............. 4.58% 4.49% 2.55% 2.38% 3.71% 6.19% 7.52% 8.10% 6.05% 5.17%
Ratio of expenses to average net
assets before voluntary
reimbursements..................... 3.57% 3.83% 3.38% 2.54% 1.99% 1.54% 1.52% 1.63% 1.58% 2.01%
Ratio of net investment income to
average net assets before
voluntary reimbursements........... 1.81% 1.46% (.01%) .64% 2.91% 5.64% 7.00% 7.47% 5.46% 4.10%
</TABLE>
# ARM Capital Advisors, Inc. began managing the investment operations of the
Fund on June 14, 1995.
4
<PAGE>
WHAT ARE THE FUND'S INVESTMENT OBJECTIVES, POLICIES AND RISKS?
The Fund's investment objectives are high current income, preservation
of capital, and liquidity. There can be no assurance that the Fund's investment
objectives will be attained. The value of securities in the Fund's portfolio
generally can be expected to vary inversely to changes in prevailing interest
rates. The Fund attempts to maintain a constant net asset value of $1.00 per
share, although there is no assurance that it will always be able to do so.
The Fund invests in high quality money market instruments, including
the following:
U.S. Government Obligations: Obligations issued by or guaranteed as to
principal and interest by the United States, its agencies or instrumentalities,
including Treasury bills, notes, and bonds. U.S. Treasury obligations differ
mainly in their maturities. Treasury bills have a maturity of one year or less,
Treasury notes have maturities of one to ten years, and Treasury bonds generally
have maturities greater than five years. Some obligations of U.S. Government
agencies and instrumentalities are supported by the full faith and credit of the
U.S. Treasury; others are supported by the right of the issuer to borrow from
the Treasury. Securities of some U.S. Government instrumentalities are
supported only by the credit of the issuer, to which the U.S. Government may not
be legally obligated to provide financial support.
Bank Obligations: Obligations, or instruments secured by such
obligations, issued by U.S. domestic banks (including foreign branches), savings
institutions, and foreign banks (including U.S. branches or agencies). These
obligations include negotiable and non-negotiable certificates of deposit,
bankers' acceptances, fixed time deposits, and letters of credit. Investments in
such obligations will be limited to the obligations of (a) domestic banks and
savings institutions having total assets over one billion dollars which are
subject to regulatory supervision by the U.S. Government or state governments,
(b) domestic banks and savings institutions which are fully insured by the
Federal Deposit Insurance Corporation, but only in an aggregate amount not to
exceed 10% of the value of the Fund's total assets, and (c) the 50 largest
foreign banks, in terms of assets, having branches or agencies in the United
States. Fixed time deposits, unlike negotiable certificates of deposit,
generally do not have a market and may be subject to penalties for early
withdrawal of funds. However, it is the current policy of the Fund not to
invest in fixed time deposits subject to withdrawal penalties, other than
overnight deposits, if more than 10% of its assets would be invested in such
deposits.
Investments in foreign banks and foreign branches of United States
banks involve certain risks. While domestic banks are required to maintain
certain reserves and are subject to other regulations, those requirements and
regulations may not apply to foreign branches. Investments in foreign banks and
branches also may be subject to other risks, including future political and
economic developments, the possible imposition of withholding taxes on interest
income, the seizure or nationalization of foreign deposits, and the
establishment of exchange controls or other restrictions. Also, accounting and
reporting standards may be different for foreign banks.
Commercial Paper: Short-term unsecured promissory notes with
maturities not exceeding nine months. Investments in rated commercial paper
will be limited to those rated at the time of investment within the two highest
grades by Standard & Poor's Ratings Services, a division of the McGraw-Hill
Companies, Inc. ("S&P") or by Moody's Investors Service, Inc. ("Moody's") or
such other rating organizations as may be approved by the Fund's Board of
Directors. Investments in unrated commercial paper will be limited to those
issued or guaranteed as to payment of principal and interest by companies which
have an existing debt security rated at the time of investment within the two
highest grades by S&P or Moody's or such other rating organizations as may be
approved by the Fund's Board of Directors.
Corporate Debt Securities: Corporate debt securities (other than
commercial paper). As is discussed below, Rule 2a-7 imposes a number of
requirements upon investments in long-term securities.
Rule 2a-7: The Fund is subject to the investment restrictions of Rule
2a-7 under the Investment Company Act of 1940 in addition to its other policies
and restrictions discussed below. Rule 2a-7 requires that the Fund maintain an
average weighted maturity of not more than 90 days and invest exclusively in
securities that mature within 397 days. Rule 2a-7 also requires that all
investments by the Fund be limited to United States dollar-denominated
investments that: (1) present
5
<PAGE>
"minimal credit risks," and (2) are at the time of acquisition "Eligible
Securities." Eligible Securities include, among others,
securities that are rated by two Nationally Recognized Statistical Rating
Organizations ("NRSROs") in one of the two highest categories for short-term
debt obligations, such as A-1 or A-2 by S&P, or P-1 or P-2 or MIG-1 or MIG-2 by
Moody's. Eligible Securities also include a long-term security if its issuer has
received from two NRSROs a rating, with respect to a class of short-term debt
obligations that currently is comparable in priority and security with the long-
term security, in one of the two highest rating categories. It is the
responsibility of the Manager of the Fund (see "How Is The Fund Managed?") to
determine that the Fund's investments present only "minimal credit risks" and
are Eligible Securities. The Board of Directors of the Fund has established
written guidelines and procedures for the Manager and oversees the Manager's
determination that the Fund's portfolio securities present only "minimal credit
risk" and are Eligible Securities.
Under Rule 2a-7, 95% of the assets of the Fund must be invested in
Eligible Securities that are deemed First Tier Securities, which include, among
others, securities rated by two NRSROs in the highest category (such as A-1 and
P-1). Rule 2a-7 also requires that: (1) the Fund may not (with certain
exceptions) invest more than 5% of its total assets in securities of a single
issuer; and (2) the Fund's investment in Second Tier Securities of a single
issuer may not exceed the greater of 1% of the Fund's total assets or
$1,000,000. Repurchase agreements can be entered into only with regard to
Government securities or securities that are rated in the highest rating
category by two NRSROs.
The Fund may engage in the following investment activities:
Repurchase Agreements: The Fund may enter into repurchase agreements
with broker-dealers and commercial banks. A repurchase agreement is an agreement
under which the Fund will acquire a money market instrument, qualified for
purchase by the Fund, subject to resale to the seller at an agreed upon price
and date. Such resale price reflects an agreed upon return for the period of
time the instrument is held by the Fund and is unrelated to the coupon (stated
interest rate paid by the issuer) on the instrument. Repurchase agreements
usually are for one week or less, but may be for longer periods. The Fund will
not invest more than 10% of its net assets in repurchase agreements of more than
one week's duration. Repurchase agreements will be fully collateralized. If,
however, the seller defaults on its obligation to repurchase the underlying
security, the Fund may experience delay or difficulty in exercising its rights
to realize upon the security and might incur a loss if the value of the security
has declined. The Fund might also incur disposition costs in liquidating the
security. The Fund does not currently invest in repurchase agreements and it has
no current intention of entering into such agreements.
Lending of Portfolio Securities: The Fund may lend portfolio
securities to brokers, dealers, and financial institutions provided that cash or
equivalent collateral (fixed-income securities for which there is an established
market) equal to at least 100% of the market value of the securities loaned is
maintained by the borrower with the Fund. Lending of portfolio securities
involves certain risks. As with other extensions of credit, there are risks of
delay in recovery of loaned securities, or even loss of rights in collateral
pledged by the borrower, should the borrower fail financially. The Fund also
may experience a loss if upon the failure of a borrower to return loaned
securities, the collateral is not sufficient in value or liquidity to cover the
value of the loaned securities. During the time securities are on loan, the
borrower will pay the Fund any income accruing thereon and the Fund may invest
the cash collateral and earn additional income or may receive an agreed upon fee
from the borrower who has delivered equivalent collateral. To the extent that
the Fund invests cash collateral, the Fund may incur additional risk associated
with the change in value of the invested collateral during the term of the loan.
The Fund will not lend more than 25% of the value of its total assets, and it is
not intended that payments received on account of interest paid on securities
loaned will exceed 10% of the annual gross income of the Fund without offset for
realized short-term capital losses, if any.
Securities Trading: The Fund may trade investments to take advantage
of short-term market movements. This may result in high portfolio turnover.
The Fund does not anticipate incurring significant brokerage or transaction
expenses since portfolio transactions ordinarily will be made directly with the
issuer, a money market dealer or other dealers or other financial institutions
on a net price basis.
Investment Restrictions: In addition to the policies and limitations
set forth above, the Fund is subject to certain other investment policies and
limitations set forth more fully in the Statement of Additional Information. As
a matter of fundamental policy, the Fund may not: (1) borrow money, except for
temporary purposes and in an aggregate amount not
6
<PAGE>
in excess of 10% of the value of the total assets of the Fund, provided that
borrowings in excess of 5% of such value are permitted from banks only, and that
the Fund will not purchase securities when borrowings exceed 5% of such value;
(2) invest more than 25% of its assets in securities of issuers in any one
industry (provided that the Fund can concentrate its investments in money market
instruments issued by the U.S. government or its agencies or domestic banks);
(3) mortgage or pledge assets, except that up to 10% of the Fund's assets can be
used to secure borrowings; (4) invest more than 5% of its assets in any one
issuer other than the U.S. Government or its agencies; or (5) invest more than
5% of its assets in the securities of issuers in operation less than three
continuous years.
Except as specifically noted above, the investment policies described
above are not fundamental and the Board of Directors may change such policies
without the vote of a majority of its outstanding voting securities. The Board
would not change the Fund's investment objectives, nor any other fundamental
policy, without such a vote. Under the Investment Company Act of 1940, a "vote
of a majority of the outstanding voting securities" of the Fund means the
affirmative vote of the lesser of (1) more than 50% of the outstanding shares of
the Fund or (2) 67% or more of the shares of the Fund present at a shareholder's
meeting if more than 50% of the outstanding shares of the Fund are represented
at the meeting in person or by proxy.
HOW IS THE FUND MANAGED?
The Board of Directors provides broad supervision over the affairs of
the Fund. Pursuant to an Investment Advisory and Management Agreement approved
by the Board and the shareholders of the Fund, ARM Capital Advisors, Inc. (the
"Manager") manages the investments of the Fund and administers its business and
other affairs. The Manager's address is 200 Park Avenue, 20th Floor, New York,
New York 10166.
The Manager is a wholly-owned subsidiary of ARM Financial Group, Inc.
("ARM"), a Delaware corporation. ARM is a financial services company providing
retail and institutional products and services to the long-term savings and
retirement market. The Morgan Stanley Leveraged Equity Fund II, L.P., Morgan
Stanley Capital Partners III, L.P., Morgan Stanley Capital Investors, L.P. and
MSCP III 892 Investors, L.P., investment funds sponsored by Morgan Stanley
Group, Inc. ("Morgan Stanley"), own approximately 91% of the outstanding shares
of voting stock of ARM. The Manager currently provides investment management
services to institutional and individual clients, including ARM and its
subsidiaries, with combined assets in excess of $6.0 billion.
The Manager commenced investment advisory operations on January 5,
1995, on which date it acquired the domestic fixed income unit of Kleinwort
Benson Investment Management Americas Inc. The Manager has managed the Fund
since June 14, 1995 and since that date has also managed the other mutual funds
in the State Bond Group of mutual funds: State Bond Minnesota Tax-Free Income
Fund, State Bond Common Stock Fund, State Bond Diversified Fund, State Bond Tax
Exempt Fund, and State Bond U.S. Government and Agency Securities Fund.
Keith O. Martens, Senior Vice President and Senior Portfolio Manager
of the Manager and Vice President of the Fund, is responsible for selection of
investments and management of the Fund. Mr. Martens is also the principal
manager of the State Bond Minnesota Tax-Free Income Fund, State Bond Common
Stock Fund, State Bond Diversified Fund, State Bond Tax Exempt Fund and State
Bond U.S. Government and Agency Securities Fund.
The Fund pays the Manager a management fee for its services,
calculated daily and payable monthly, equal to .6 of 1% of the average daily net
assets of the Fund up to and including $500 million, .55 of 1% of the next $250
million, .5 of 1% of the next $250 million and .45 of 1% of such assets in
excess of $1 billion. A portion of this fee is paid to ARM Financial Services,
Inc. (the "Distributor") in connection with the Fund's Plan of Distribution (the
"Plan") (See "How Does the Fund Pay Distribution Expenses?"). The Fund pays all
its expenses other than those assumed by the Manager. For its fiscal year ended
July 31, 1996, total expenses of the Fund, after expense reimbursements,
amounted to .80% of its average daily net assets.
Proposed Reorganization of the Fund
7
<PAGE>
The Board of Directors of the Fund has approved a proposal to
reorganize the Fund. The reorganization will involve the sale of the Fund's
assets, subject to certain liabilities, to Automated Cash Management Trust (the
"Federated Fund"), a mutual fund advised by Federated Investors. Shares of the
Fund would be exchanged at net asset value for shares of equivalent value of the
Federated Fund. The reorganization transaction is subject to approval by Fund
shareholders and to certain other conditions prior to closing, including the
receipt of an opinion as to the tax-free nature of the reorganization for the
Fund and its shareholders by outside counsel for the Federated Fund. It is
anticipated that the proxy statement/prospectus relating to the proposed
reorganization will be mailed to shareholders in October 1996 and that the
meeting of shareholders will be held in early December 1996. No sales charges
would be imposed on the proposed reorganization.
Federated Investors, a Pittsburgh-based money management firm, was
founded in 1955. Federated is a global investment manager with $90 billion in
mutual fund assets under management or administration across more than 250
funds.
HOW CAN YOU INVEST IN THE FUND?
ARM Financial Services, Inc. (the "Distributor"), and ARM Transfer
Agency, Inc. (the "Shareholder Servicing Agent"), each a subsidiary of ARM, act
as distributor and transfer agent, respectively, of the Fund's shares. Their
address is 100 North Minnesota Street, P.O. Box 69, New Ulm, Minnesota 56073-
0069.
The minimum initial investment in the Fund is $1,000 and subsequent
investments must be in an amount of at least $100 unless the subsequent
investment is made by means of the Automatic Investment Plan, in which case the
subsequent minimum is $50. The minimums for IRA, Keogh, and other tax-deferred
pension plans are $250 for initial investment and $50 for subsequent
investments.
The purchase price for shares of the Fund is their net asset value
next determined after the receipt of a purchase order in proper form.
The net asset value per share of the Fund is determined as of 3:00
p.m. Central Time on days in which the Fund is open for business. Net asset
value is computed by dividing the value of the total assets of the Fund, less
liabilities, by the number of shares outstanding. The Fund's assets are valued
on the basis of amortized cost, which involves initially valuing a portfolio
instrument at its cost and thereafter assuming a constant amortization to
maturity of any discount or premium regardless of the impact of fluctuating
interest rates on the market value of the instrument. The Fund follows certain
investment policies in order to seek to maintain a constant net asset value of
$1.00 per share, although there is no assurance that those policies will always
achieve such a result. See "What Are The Fund's Investment Objectives, Policies
and Risks?"
The Fund reserves the right to reject any order for the purchase of
its shares. In addition, the offering of Fund shares may be suspended by the
Fund at any time and resumed at any time thereafter.
Investments in the Fund may be made in any of the following ways:
By Mail: Checks or negotiable bank drafts payable to State Bond Cash
Management Fund should be mailed with the account application to ARM Financial
Services, Inc., 100 North Minnesota Street, P.O. Box 69, New Ulm, Minnesota
56073-0069.
By Wire Transfer: Call the Fund's Shareholder Servicing Agent at
(800) 328-4735 to advise of your investments and, for your initial investment,
to obtain an account number. If you do not have an account number prior to the
wire transfer, your wire will be returned to your bank. You should then
instruct a commercial bank to wire your money to "Credit account of State Bank &
Trust Company of New Ulm at the Federal Reserve Bank of Minneapolis - Account
#091901202, for further credit to Account #780, for benefit of Account Number
(your Fund account #) of (your name)." Be sure to include your Fund account
number and your name. If the wire transfer is for an initial investment,
promptly send a completed
8
<PAGE>
account application to ARM Financial Services, Inc., 100 North Minnesota Street,
P.O. Box 69, New Ulm, Minnesota 56073-0069.
Through ARM Financial Services, Inc. or Your Broker: You may invest in
the Fund by purchasing shares through a representative of ARM Financial
Services, Inc., the Fund's Distributor, or from certain registered securities
broker-dealers. Broker-dealers who process orders on behalf of their customers
may charge a fee for their services. The broker is responsible for transmitting
the purchase order to the Distributor. Investments made directly or through the
Distributor, without the assistance of a broker-dealer, are without charge.
Automatic Investment Plan: The Fund offers an automatic investment
plan for existing shareholders. Once you have established your account you may
automatically make additional investments ($50 minimum) by authorizing monthly
withdrawals directly from your personal bank checking account. You pay no charge
to the Fund for this service, which you may terminate at any time by calling the
Fund's Shareholder Servicing Agent at (800) 328-4735. For more information about
the Automatic Investment Plan, request the appropriate forms from the Fund by
calling (800) 328-4735 or a representative of the Distributor.
Do Shares of the Fund Count Toward the Right of Accumulation for
Purchases of Shares of the Other State Bond Funds? Because shares of the Fund
are offered to investors with no sales charge, only those shares of the Fund
obtained as a result of an exchange from another mutual fund in the State Bond
Group in which sales charges are paid will be included for purposes of
determining eligibility for rights of accumulation. To receive any reduced sales
charge under the right of accumulation, the shareholder or his or her dealer
must notify the Distributor at the time of investment of the shareholder's
eligibility for the reduced sales charge.
WHEN DOES YOUR PURCHASE BEGIN EARNING DIVIDENDS?
Your purchase of Fund shares will begin to earn dividends on the day
that your order is considered effective. Many of the types of instruments in
which the Fund invests must be paid for in immediately available money, called
"federal funds." Therefore, your payments for the purchase of shares must be
converted into federal funds before your purchase is considered effective.
Payments transmitted by check or draft drawn on a member bank of the
Federal Reserve System will normally be effective, and shares will be credited
to your account, within two business days after receipt by the Shareholder
Servicing Agent. Checks drawn on banks which are not members of the Federal
Reserve System may take longer to be converted. All checks are accepted subject
to collection at full face value in United States funds and must be drawn in
U.S. dollars on a domestic bank.
Payments transmitted by wire and received and reported to the Fund by
the Shareholder Servicing Agent prior to 3:00 p.m. Central Time on any day which
is a business day of the Fund are normally effective on the same day as
received. Wire payments received or reported by the Shareholder Servicing Agent
to the Fund after that time, or on a day which is not a business day of the
Fund, will be effective depending upon the time and method payments are
transmitted to the Fund and available in federal funds.
HOW CAN SHARES BE REDEEMED?
You may convert all or any part of your investment into cash at any
time by redeeming shares. All redemptions will be made at the net asset value
per share next determined after receipt of a redemption request in proper form
(or as next determined on the next business day of the Fund if the request is
made by telephone and received after 3:00 p.m. Central Time), including all
stock certificates, signature guarantees and other documentation that may be
required by the Shareholder Servicing Agent. Shares purchased by uncertified
check may not be redeemed for up to 15 days of receipt of the check in order to
allow time for the check to clear. You will not receive dividends on shares
which are redeemed from your account for the day that the redemption is
effected.
9
<PAGE>
Your account will remain open, even after all shares are redeemed, for
the remainder of the year in which the redemption is made and for the following
year. This permits you to resume investments in the Fund, conveniently and at
any time, during that period, provided that the information on your original
account application remains accurate.
Because of the relatively high cost of handling small accounts, the
Fund reserves the right to redeem, upon not less than 30 days' written notice,
the shares in an account which has a value of less than $500. You will be
allowed to make additional investments prior to the date fixed for such a
redemption to avoid liquidation of your account.
You may use any of the following methods to redeem shares:
Regular Redemption by Mail: You may redeem your shares without charge
at any time by sending a letter, signed by all of the registered owners of the
account and identifying your account number, to the Shareholder Servicing Agent
at 100 North Minnesota Street, P.O. Box 69, New Ulm, Minnesota 56073-0069. For
share redemptions valued at $20,000 or more, or when the proceeds of the
redemption are to be paid to someone other than you, your signature must be
guaranteed by a national securities exchange, a member firm of a principal stock
exchange, a registered securities association, a clearing agency, a savings
association, a credit union, a broker, a dealer, a municipal broker or dealer, a
government securities broker or dealer, or a representative of the Distributor.
The Distributor may request further documentation from corporations, executors,
partnerships, administrators, trustees or custodians.
A check for the proceeds of regular redemptions ordinarily will be
mailed within seven calendar days after a redemption request is received in
proper form. However, where shares purchased by means of an uncertified check
are redeemed before the fifteenth day after purchase, proceeds will not be
mailed until the check clears, which may be up to fifteen days after purchase.
Proceeds will be sent to your address of record or, in accordance with your
request, to some other person (if the request is in writing with your signature
guaranteed).
Quick Redemption by Wire Transfer: If you have elected the Quick
Redemption service, you may request that the proceeds of a redemption of shares
having a value of $5,000 or more be wired to your account at a commercial bank
in the United States which is a member of the Federal Reserve System. This
service is available only if you have designated such a bank in your Investment
Application and no certificates have been issued for the shares to be redeemed.
Redemption proceeds of less than $5,000 will not be wired, but instead will be
mailed to the shareholder's address of record. A request for Quick Redemption
may be made to the Shareholder Servicing Agent by mail at 100 North Minnesota
Street, P.O. Box 69, New Ulm, Minnesota 56073-0069 or by telephone at (800) 328-
4735. Each request must include your name and account number. There is currently
a $10.00 charge for each wire transfer, which is deducted from the redemption
proceeds. The fee is waived for banks for their fiduciary accounts. The Fund
reserves the right to modify the Quick Redemption service at any time.
Quick Redemption requests received before 3:00 p.m. Central Time on a
business day of the Fund will be effected at the net asset value determined on
that day. Quick Redemption requests received after the close of the New York
Stock Exchange will be effected at the net asset value determined on the next
business day of the Fund. Proceeds sent by wire will be transmitted on the next
business day after the day that the redemption is effected. Proceeds sent by
mail will be transmitted within seven days of receipt of your request.
If your bank is not a member of the Federal Reserve System, Quick
Redemption proceeds may be wired to a member bank which has a correspondent
relationship with your bank, provided you designate such a correspondent bank in
the Investment Application and note that your bank should be immediately advised
of the wire transfer. The failure of a correspondent bank to notify your bank of
the wire transfer immediately could delay the crediting of redemption proceeds
to your bank.
The Fund is not liable for any loss arising from telephone redemptions
that the Fund reasonably believes to be genuine. The Fund will employ reasonable
procedures to confirm that instructions communicated by telephone are genuine;
if it does not, it may be liable for any losses due to unauthorized or
fraudulent instructions. The procedures used by the Fund will include requesting
several items of personal identification information prior to acting upon
telephone instructions and sending a written confirmation on all such
transactions.
10
<PAGE>
If you are already a Fund shareholder, you may elect the Quick
Redemption service or change a designation of a bank account for the Quick
Redemption service by writing to the Shareholder Servicing Agent at 100 North
Minnesota Street, P.O. Box 69, New Ulm, Minnesota 56073-0069. The designation
must be signed by all of the registered owners of the Fund account, with
signature(s) guaranteed by a national securities exchange, a member firm of a
principal stock exchange, a registered securities association, a clearing
agency, a bank or trust company, a savings association, a credit union, a
broker, a dealer, a municipal securities broker or dealer, a government
securities broker or dealer, or a representative of the Distributor.
Check Redemptions: You may elect to participate in the Fund's free
Check Redemption service, which permits you to write checks payable to any
person in amounts of $100 or more. You may elect this service on the account
application or by later written request to the Shareholder Servicing Agent at
100 North Minnesota Street, P.O. Box 69, New Ulm, Minnesota 56073-0069. The
Shareholder Servicing Agent will supply you with blank checks which can be drawn
on your account with the Fund. The checks will be paid from the redemption of
shares in your account. When honoring a check presented for payment, the
Shareholder Servicing Agent will cause the Fund to redeem exactly enough full
and fractional shares in your account to cover the amount of the check. Shares
for which certificates have been issued may not be redeemed by check. Check
redemption is subject to bank rules and regulations governing checking accounts.
Checks for less than $100 will be returned and a fee may be charged. If there
are insufficient shares in your account to cover a check written under this
service, the check will be returned marked "insufficient funds" and a return fee
may be charged. Checks should not be used to close a Fund account because when
the check is written you will not know the exact total value of the account on
the day the check clears. Fund dividends and distributions continue to be earned
until a check clears for payment. The Fund reserves the right to terminate or
modify the Check Redemption service at any time upon written notice to the
Fund's shareholders. Check redemption is subject to State Bank & Trust Company
of New Ulm's rules and regulations governing checking accounts.
HOW DOES THE FUND'S EXCHANGE PRIVILEGE WORK?
Shares of the Fund purchased directly (i.e., not through an exchange
from another mutual fund in the State Bond Group) may be exchanged for shares in
any other mutual fund in the State Bond Group at the next determined public
offering price (i.e., net asset value plus the applicable sales charge) for that
fund.
If you have been a shareholder of one of the other funds in the State
Bond Group for seven days or more, you may exchange any or all of your shares in
that mutual fund for shares of the Fund. The value of the shares being exchanged
must equal the minimum investment amounts provided for direct purchases of the
Fund's shares. Shares of the Fund which you acquire through such an exchange
which have been held in your account for seven calendar days or more may later
be exchanged for shares of any of the other mutual funds in the State Bond Group
at the Fund's next determined net asset value; however, if such exchange is for
shares of any fund in the State Bond Group which has a higher sales charge than
the fund you originally purchased and you held the shares of the original fund
for less than six months, you must pay the difference in the sales charge
applicable to the purchase of shares of the original fund and the higher sales
charge applicable to the purchase of shares of the new fund. If you desire to
exchange a portion of your shares of the Fund that are attributable to exchanges
from different funds, those shares of the Fund that may be exchanged for shares
of the new fund at net asset value without a sales charge will be exchanged
first.
Exchanges of shares are sales and may result in a gain or loss for
federal income tax purposes. Before making an exchange, you should obtain and
read the prospectus for the fund you are considering. The Fund reserves the
right to terminate or modify the terms of this exchange privilege upon 60 days'
notice to shareholders. The exchange privilege is only available in states in
which the shares of the fund to be acquired are available for purchase.
Exchange requests may be made in writing, signed by all registered
owners, to the Shareholder Servicing Agent at 100 North Minnesota Street, P.O.
Box 69, New Ulm, Minnesota 56073-0069. Shares may also be exchanged by telephone
by calling (800) 328-4735, provided you have on file an Agreement for Exchange
of Shares by Telephone (included on the account application or available from
the Shareholder Servicing Agent). Shares held by trustees of retirement plans
may not be exchanged by telephone. During times of drastic economic or market
changes the telephone exchange privilege may
11
<PAGE>
be difficult to implement. In order to implement an exchange, you will need to
provide the name in which your account is registered, your account number, such
other personal identification information as the Fund may request, the dollar
amount or share amount you wish to exchange, the name of the fund into which you
wish to exchange and, if you already have an account with the fund into which
you wish to exchange, the account registration and account number of such
account.
The Fund is not liable for any loss arising from telephone exchanges
that the Fund reasonably believes to be genuine. The Fund will employ reasonable
procedures to confirm that instructions communicated by telephone are genuine;
if it does not, it may be liable for any losses due to unauthorized or
fraudulent instructions. The procedures used by the Fund will include requesting
several items of personal identification information prior to acting upon
telephone instructions and sending a written confirmation on all such
transactions.
HOW DOES THE FUND PAY DIVIDENDS?
The Fund declares daily dividends on all outstanding shares (dividends
are declared on the day a purchase is effective but are not declared on redeemed
shares for the day of redemption). Dividends are paid monthly. A shareholder who
redeems all of his or her Fund shares receives with the redemption proceeds
(other than redemptions by check) the amount of all dividends declared for the
month up to and including the date of redemption of shares. Dividends in respect
of all other redemptions are paid on the regular dividend payment date.
Dividends are invested in additional shares of the Fund at net asset
value, or, at the shareholder's election, paid in cash. Shares received from the
investment of dividends are credited to the shareholder's account.
Distribution from taxable net realized investment gains, if any, will
generally be declared at least once each year, in shares of the Fund, or in cash
if so elected by the shareholder.
WHAT IS THE FEDERAL TAX STATUS OF DIVIDENDS YOU RECEIVE?
Dividends paid from net investment income and any distributions from
net realized short-term investment gain, if any, are taxed to shareholders as
ordinary income, whether received in cash or reinvested in additional shares.
Any distributions of net realized long-term capital gains will be taxed as such,
regardless of how long you have held your shares.
Shareholders are sent a quarterly statement of account reflecting all
transactions during the period, including dividends and gain distributions.
Also, at year-end, all shareholders are sent a statement of account and
information on the aggregate amount and tax status of dividends and gain
distributions paid during the calendar year.
HOW DOES THE FUND PAY DISTRIBUTION EXPENSES?
The Fund has adopted a Plan of Distribution (the "Plan") pursuant to
Rule 12b-1 under the Act. Under the terms of the Plan and the Investment
Advisory and Management Agreement (the "Agreement"), a portion of the management
fee paid to the Manager is paid to the Distributor. Under the Plan and the
Agreement, the Fund pays the Distributor, indirectly through the Manager, a
monthly fee equivalent on an annual basis to .2 of 1% of the average daily net
assets of the Fund. The fee may be used by the Distributor to (i) provide
initial and ongoing sales compensation to its investment executives and to other
broker-dealers in connection with the sale of Fund shares and to pay for other
advertising and promotional expenses in connection with the sale of Fund shares
("distribution expenses"), and (ii) to provide compensation to entities
("Service Entities") in connection with the provision of certain personal and
account maintenance services to Fund shareholders including, but not limited to,
responding to shareholder inquiries and providing information on their
investments ("shareholder servicing expenses").
In the future Service Entities may include banks and other depository
institutions which, under the Glass Steagall Act and other applicable laws and
regulations, are prohibited from engaging in the business of underwriting,
selling or distributing
12
<PAGE>
certain types of securities. Such institutions will only be allowed to provide
such assistance if the scope of the assistance is such that, in the opinion of
the Manager, it does not fall within the aforementioned prohibition.
WHO ARE THE FUND'S FUND ACCOUNTING AGENT AND ITS CUSTODIAN?
Investors Fiduciary Trust Company ("IFTC") serves as the Fund's fund
accounting agent, and in that capacity, maintains certain books and records
pursuant to an agreement with the Fund. IFTC's address is 127 West 10th Street,
Kansas City, Missouri 64105. IFTC also serves as custodian for the Fund's
portfolio securities and cash, and in that capacity, maintains certain financial
and accounting books and records pursuant to a separate agreement with the Fund.
WHAT SERVICES DOES THE FUND PROVIDE?
Information about various shareholder services is included above under "How Can
Shares Be Redeemed?" In addition, the Fund also provides the following services:
What About Shareholder Information?
For general information about the Fund, call or write ARM Financial
Services, Inc., 100 North Minnesota Street, P.O. Box 69, New Ulm, Minnesota
56073-0069. Its telephone number is (800) 328-4735. For information about your
account, call or write the Shareholder Servicing Agent at 100 North Minnesota
Street, P.O. Box 69, New Ulm, Minnesota 56073-0069, telephone number 800-328-
4735.
What Reports Will You Receive From the Fund?
As a shareholder, you will receive the Fund's annual and semi-annual
reports. You will also receive statements confirming each transaction in your
account as well as quarterly statements confirming dividends paid by the Fund,
all transactions in your account for the quarter and the current balance of
shares you own.
Are Certificates Issued For Shares?
All shares will be issued as book credits by the Shareholder Servicing
Agent. Certificates will not be issued.
Other Services
The Automatic Investment Plan enables you to authorize withdrawals
from your bank checking account at regular intervals for fixed amounts to
purchase shares. See "How Can You Invest in the Fund?"
Payments at regular intervals can be made to you from your Fund
account under the Automatic Cash Withdrawal Plan if you own or purchase shares
held as book credits worth $5,000 or more.
Further information on these services and others is available by
contacting the Distributor.
What About Tax-Deferred Retirement Plans?
Shares of the Fund may be purchased by all types of tax-deferred
retirement plans. By contacting your investment dealer or the Distributor, you
may obtain plans, plan forms, and custody agreements for: Individual Retirement
Accounts (IRAs) for persons who are employed and wish to make limited tax-
deductible contributions to a tax-deferred account for retirement; 403(b)(7)
Custodial accounts; Simplified Employee Pension Plans (SEPs); Keogh Plans for
self-employed individuals; and Corporate Pension and Profit Sharing Plans.
GENERAL INFORMATION ABOUT STATE BOND CASH MANAGEMENT FUND
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<PAGE>
State Bond Cash Management Fund is an investment portfolio of State
Bond Money Funds, Inc., a diversified, open-end investment company, or mutual
fund, incorporated in Maryland on October 26, 1981. The Fund has one class of
Capital Stock, $.00001 par value. Each outstanding share has one vote and an
equal right to dividends and distributions of its portfolio. All shares have
non-cumulative voting rights for the election of directors. Each share is fully
paid and non-assessable, and each is freely transferable.
Shares of the Fund offer individuals, fiduciaries, corporations, and
institutions a liquid investment in professionally-managed portfolios invested
in money market instruments. By combining the assets of shareholders, the Fund
seeks the higher yields offered by money market instruments of larger
denominations which are not available to smaller investors. Moreover,
shareholders of the Fund are relieved of the detailed bookkeeping and operating
procedures normally associated with investments in money market instruments,
such as scheduling maturities, surveying markets to obtain favorable yields,
evaluating credit risks and safeguarding the receipt, custody, and delivery of
securities.
YIELD
The Fund's yield is computed by determining the net change exclusive
of capital changes in the value of a hypothetical pre-existing account having a
balance of one share at the beginning of a seven-day calendar period, dividing
the net change in account value by the value of the account at the beginning of
the period, and multiplying the return over the seven-day period by 365/7.
Effective yield is computed by annualizing the seven-day return with all
dividends reinvested in additional Fund shares. The Statement of Additional
Information describes the methods used to calculate the Fund's current and
effective yields in more detail.
Yields may fluctuate daily and do not provide a basis for determining
future yields. Because yields fluctuate, they cannot be used to compare the
yields on an investment in Fund shares with yields on savings accounts or other
investment alternatives which provide an agreed to or guaranteed fixed yield for
a stated period of time. However, yield information may be useful to an investor
considering temporary investments in money market instruments. In comparing the
yield of one money market fund to another, consideration should be given to each
fund's investment policies, including the votes and quality of investments
owned, lengths of maturities of the portfolios, and whether there are any
special charges which may reduce the yield.
NO DEALER, SALES REPRESENTATIVE OR OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS (AND/OR IN THE STATEMENT OF ADDITIONAL INFORMATION REFERRED
TO ON THE COVER PAGE OF THIS PROSPECTUS), AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE FUND, THE MANAGER OR ARM FINANCIAL SERVICES, INC. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN A STATE OR JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. THE DELIVERY OF THIS
PROSPECTUS AT ANY TIME SHALL NOT IMPLY THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE FUND SINCE THE DATE HEREOF.
14
<PAGE>
STATE BOND
CASH MANAGEMENT PROSPECTUS
FUND DECEMBER 1, 1996
- -----------------------------------
100 North Minnesota Street STATE BOND
P.O. Box 69 CASH MANAGEMENT
New Ulm, Minnesota 56073-0069. FUND
INVESTMENT MANAGER:
ARM Capital Advisors, Inc.
200 Park Avenue, 20th Floor
New York, New York 10166
DISTRIBUTOR: [LOGO]
ARM Financial Services, Inc.
100 North Minnesota Street
P.O. Box 69
New Ulm, Minnesota 56073-0069
TRANSFER, REDEMPTION, AND
OTHER SHAREHOLDER
ACCOUNT SERVICES:
ARM Financial Services, Inc.
100 North Minnesota Street
P.O. Box 69
New Ulm, Minnesota 56073-0069 A NO-LOAD MONEY MARKET
MUTUAL FUND
CUSTODIAN:
Investors Fiduciary Trust Company
127 West 10th Street
Kansas City, Missouri 64105
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
December 1, 1996
STATE BOND CASH MANAGEMENT FUND
100 North Minnesota Street
--------------------------
P.O. Box 69
-----------
New Ulm, Minnesota 56073-0069.
------------------------------
Telephone No. (507) 354-2144
============================
This Statement of Additional Information supplements the information
contained in the current Prospectus of State Bond Cash Management Fund (the
"Fund") dated December 1, 1996. This Statement of Additional Information is not
a Prospectus, but should be read in conjunction with the Fund's Prospectus,
which may be obtained by contacting the Fund at the address or telephone number
noted above.
TABLE OF CONTENTS
Page
What are the Fund's Investment Objectives and Policies?
(See "What are The Fund's Investment Objectives,
Policies and Risks?" in the Prospectus)
Calculation of Yield
What Are The Fund's Investment Limitations?
Who Manages the Fund?
(See "How Is The Fund Managed?" in the Prospectus)
The Manager
Management Agreement and Expenses
(See "How is the Fund Managed?" in the Prospectus)
Transfer Agent
Custodian
Independent Auditors
Redemption Of Shares
(See "How Can Shares Be Redeemed?" in the Prospectus)
What Is The Tax Status of The Fund?
Will The Fund Withhold Taxes On Distributions?
How Is Net Asset Value Per Share Determined?
Does The Fund Bear Distribution Expenses?
General Information about the State Bond Cash Management Fund
APPENDIX A
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS STATEMENT OF ADDITIONAL
INFORMATION OR THE PROSPECTUS DATED DECEMBER 1, 1996, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MAY NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE FUND. THIS STATEMENT OF ADDITIONAL INFORMATION DOES NOT
CONSTITUTE AN OFFER TO SELL SECURITIES IN ANY STATE OR JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. THE DELIVERY OF THIS STATEMENT OF
ADDITIONAL INFORMATION AT ANY TIME SHALL NOT IMPLY THAT THERE HAS BEEN NO CHANGE
IN THE AFFAIRS OF THE FUND SINCE THE DATE HEREOF.
<PAGE>
WHAT ARE THE FUND'S INVESTMENT OBJECTIVES AND POLICIES?
The Fund's objectives are high current income, preservation of capital, and
liquidity.
The Fund invests in high-quality money market instruments, including
securities issued or guaranteed by the U.S. Government or its agencies and
instrumentalities, obligations of domestic and foreign commercial banks,
commercial paper, and high-grade short-term debt securities (such as bonds and
notes). The Fund may enter into repurchase agreements with respect to U.S.
Government or Government agency securities. A more complete description of the
investments and ratings of investments the Fund may make is contained in the
Appendix.
In addition to its other policies and restrictions, the Fund is subject to
the investment restrictions of Rule 2a-7 under the Investment Company Act of
1940. Rule 2a-7 requires that the Fund maintain an average weighted maturity of
not more than 90 days and invest exclusively in securities that mature within
397 days. Rule 2a-7 also requires that all investments by the Fund be limited to
United States dollar-denominated investments that: (1) present "minimal credit
risks," and (2) are at the time of acquisition "Eligible Securities." Eligible
Securities include, among others, securities that are rated by two Nationally
Recognized Rating Organizations ("NRSROs") in one of the two highest categories
for short-term debt obligations, such as A-1 or A-2 by Standard and Poor's
Ratings Group ("S&P") or P-1 or P-2, or MIG-1 or MIG-2 by Moody's Investors
Service, Inc. ("Moody's"). It is the responsibility of the Manager to determine
that the Fund's investments present only "minimal credit risks" and are Eligible
Securities. The Board of Directors of the Fund has established written
guidelines and procedures for the Manager and oversees the Manager's
determination that the Funds' portfolio securities present only "minimal credit
risk" and are Eligible Securities.
Under Rule 2a-7, 95% of the assets of the Fund must be invested in Eligible
Securities that are deemed First Tier Securities, which include, among others,
securities rated by two NRSROs in the highest category (such as A-1 and P-1).
Rule 2a-7 also requires that with regard to funds such as the Fund: (1) a fund
may not (with certain exceptions) invest more than 5% of its total assets in
securities of a single issuer; and (2) a fund's investment in Second Tier
Securities of a single issuer may not exceed the greater of 1% of the fund's
total assets or $1,000,000.
Lending of Portfolio Securities
- -------------------------------
As stated in the Prospectus, the Fund may lend portfolio securities to
certain institutional borrowers of securities and may invest the cash collateral
and obtain additional income or receive an agreed upon amount of interest from
the borrower. Loans are subject to termination at the option of the Fund or the
borrower. The Fund may pay reasonable administrative and custodial fees in
connection with a loan and may pay a negotiated portion of the interest earned
on the cash or equivalent collateral to the borrower or placing broker. The Fund
has not loaned any portfolio securities to date.
CALCULATION OF YIELD
The current and effective yields of the Fund may be quoted in reports,
sales literature, and advertisements published by the Fund. Current yield is
computed by determining the net change exclusive of capital changes in the value
of a hypothetical pre-existing account having a balance of one share at the
beginning of a seven-day calendar period, dividing the net change in account
value by the value of the account at the beginning of the period, and
multiplying the return over the seven-day period by 365/7. For purposes of the
calculation, net change in account value reflects the value of additional shares
purchased with dividends from the original share and dividends declared on both
the original share and any such additional shares, but does not reflect realized
gains or losses or unrealized appreciation or depreciation. Effective yield is
computed by annualizing the seven-day return with all dividends reinvested in
additional Fund shares.
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The following is an example of the yield calculation for the seven-day
period ended July 31, 1996:
Total dividends per share from net
investment income (seven days ended
July 31, 1996) $.0005155
Annualized (365 day basis) .02688
Average net asset value per share 1.000
Annualized historical net yield per
share for seven calendar days ended
July 31, 1996 = 2.69%*
Effective yield (seven days ended
July 31, 1996) 2.72%**
Weighted average life to maturity of
investments was 18.9 days.
*This represents the average of annualized net investment income per share
for the seven days ended July 31, 1996.
**Average of annualized net investment income for the seven days ended July
31, 1996 with dividends reinvested.
WHAT ARE THE FUND'S INVESTMENT LIMITATIONS?
Under the Fund's fundamental policies, which cannot be changed except by a
vote of a majority of its outstanding voting securities, the Fund may not:
1. Borrow money, except for temporary purposes in an aggregate amount not
to exceed 10% of the value of the total assets of the Fund; provided,
that borrowings in excess of 5% of such value will be only from banks,
and the Fund will not purchase additional portfolio securities while
its borrowings exceed 5%;
2. Underwrite the securities of other issuers;
3. Invest more than 25% of the market value of its total assets in
securities of issuers in any one industry, except that the Fund
reserves the right to concentrate investments in money market
instruments issued by the U.S. Government or its agencies or
instrumentalities or by domestic banks;
4. Buy or hold any real estate, except that the Fund may buy and hold
marketable securities of companies which invest in real estate or
interests therein;
5. Buy or hold any commodity or commodity futures contracts, or any oil,
gas or mineral exploration or development program;
6. Make loans, except loans of portfolio securities and except to the
extent that the purchase of
3
<PAGE>
notes, bonds or debt obligations, or the entry into repurchase
agreements or deposits may be considered loans;
7. Mortgage or pledge any of its assets, except to the extent, up to a
maximum of 10% of the value of its total assets, necessary to secure
borrowings permitted by paragraph 1;
8. Buy securities on "margin" or make "short" sales of securities;
9. Write or purchase put or call options;
10. Invest more than 5% of its total assets (taken at market value) in the
securities of any one issuer, other than the U.S. Government, its
agencies or instrumentalities;
11. Buy more than 10% of the securities of any one issuer, other than the
U.S. Government, its agencies or instrumentalities;
12. Invest more than 5% of its total assets (taken at market value) in the
securities of issuers which (including predecessors) have been in
operation fewer than three continuous years, but this restriction will
not apply to such securities which are guaranteed by a company which
(including predecessors) has been in operation at least three
continuous years;
13. Buy securities which have legal or contractual restrictions on resale,
except in connection with repurchase agreements;
14. Buy or hold the securities of any issuer if, to its knowledge,
directors or officers of the Fund or of its investment adviser
individually owning beneficially more than 1/2 of 1% of the securities
of that issuer, own in the aggregate more than 5% of such securities;
or
15. Buy securities of any issuer for the purpose of exercising control or
management; or buy securities issued by any other investment company,
except in connection with a merger, consolidation, acquisition or
reorganization.
Under the Investment Company Act of 1940, a "vote of a majority of the
outstanding voting securities" of the Fund means the affirmative vote of the
lesser of (1) more than 50% of the outstanding shares of the Fund or (2) 67% or
more of the shares of the Fund present at a shareholders' meeting if more than
50% of the outstanding shares of the Fund are represented at the meeting in
person or by proxy.
During the past twelve months the Fund has not borrowed any money and has
no current intention of doing so in the foreseeable future.
WHO MANAGES THE FUND?
Directors and officers of the Fund, together with information as to their
principal business occupations during the past five years, are shown below.
Each Director who is an "interested person" of the Fund, as defined in the
Investment Company Act of 1940, is indicated by an asterisk. Unless otherwise
indicated, their addresses are 515 W. Market Street, Louisville, Kentucky 40202.
4
<PAGE>
<TABLE>
<CAPTION>
Name, Age and Address Position with the Fund Other Business Activities in Past 5 Years
- --------------------- ---------------------- -----------------------------------------
<S> <C> <C>
William B. Faulkner (68) Director President, William Faulkner &
Associates, business and institutional
adviser since 1986; Consultant to
American Hoist & Derrick Company,
construction equipment manufacturer,
from 1986 to 1989; prior thereto, Vice
President and Assistant to the President,
American Hoist & Derrick Company.
Director of the other mutual funds in the
State Bond Group
Chris L. Mahai (40) Director Senior Vice President, Strategic
Integration Unit, Star Tribune/Cowles
Media Company, since August 1993;
Vice President, Marketing Director, Star
Tribune, since September 1992; from
1990 to 1992, self-employed consultant,
marketing services; prior thereto, Senior
Vice President of Corporate Relations
and marketing, First Bank System, Inc.
Director of the other mutual funds in the
State Bond Group
John Katz (57) Director Investment banker since January 1991;
10 Hemlock Road Chairman and Chief Executive Officer,
Hartsdale, NY Sam's Restaurant Group, Inc. (a restaurant
holding company), from June 1991 to
August 1992; Executive Vice President
(from January 1989 to January 1991) and
Senior Vice President (from December
1985 to January 1989), Equitable
Investment Corporation (an indirect
wholly-owned subsidiary of The Equitable
Life Assurance Society of the United
States, through which it owns and manages
its investment operations). Director of the
other mutual funds in the State Bond
Group and of The Legends Fund, Inc.
Theodore S. Rosky (59) Director Retired since April 1992; Executive Vice
2304 Speed Avenue President, Capital Holding Corporation
Louisville, KY (from December 1991 to April 1992);
prior thereto, Executive Vice President and
Chief Financial Officer, Capital Holding
Corporation. Director of the other mutual
funds in the State Bond Group and of The
Legends Fund, Inc.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Name, Age and Address Position with the Fund Other Business Activities in Past 5 Years
<S> <C> <C>
John R. Lindholm (47)* Director President of Integrity Life Insurance
Company ("Integrity") and Vice
President-Chief Marketing Officer of
National Integrity Life Insurance
Company ("National Integrity") since
November 26, 1993; Executive Vice
President-Chief Marketing Officer of
ARM Financial Group, Inc. since July
27, 1993; since March 1992 Chief
Marketing Officer of Analytical Risk
Management, L.P.; from June 1990 to
February 1992, Chief Marketing Officer
and a Managing Director of the ICH
Capital Management Group, ICH
Corporation, Louisville, Kentucky; prior
thereto, Chief Marketing Officer and
Managing Director for Capital Holding
Corporation's Accumulation and
Investment Group. Director of the other
mutual funds in the State Bond Group
and of The Legends Fund, Inc.
Dale C. Bauman (59) President Vice President and Sales Manager, ARM
8400 Normandale Lake Blvd. Financial Services, Inc., since June 1992;
Suite 1150 prior thereto, Vice President and Division
Minneapolis, Minnesota 55437 Manager, ARM Financial Services, Inc.,
1980 to June 1992. President of the other
mutual funds in the State Bond Group.
Keith O. Martens (57) Vice President Senior Portfolio Manager, ARM Capital
Advisors, Inc. since June 14, 1995; prior to
June 14, 1995, Executive Vice President -
Investments, SBM Company; Vice
President State Bond and Mortgage Life
Insurance Company and SBM Certificate
Company. Vice President of the other
mutual funds in the State Bond Group.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Name, Age and Address Position with the Fund Other Business Activites in Past 5 Years
<S> <C> <C>
Barry G. Ward (35) Controller Controller of ARM Financial Group, Inc.
since April 1996. From October 1993 to
April 1996, Mr. Ward was directly
responsible for the Company's financial
reporting function. From January 1989 to
October 1993, Mr. Ward served in various
positions within Ernst & Young LLP's
Insurance Industry Accounting and
Auditing Practice, the last of which was
Manager. Controller of the other mutual
funds in the State Bond Group and of The
Legends Fund, Inc.
Kevin L. Howard (32) Vice President and Assistant General Counsel of ARM
Secretary Financial Group, Inc. since January 31,
1994; Assistant General Counsel of
Capital Holding Corporation from April
1992 to January 1994; Attorney,
Greenebaum Doll & McDonald, 1989 to
April 1992. Vice President and Secretary
of the other mutual funds in the State Bond
Group and Secretary of The Legends Fund,
Inc.
Peter S. Resnik (35) Treasurer Treasurer of ARM Financial Group, Inc.,
Integrity and National Integrity since
December 1993; employed in various
financial and operational capacities by
Analytical Risk Management Ltd. from
December 1992 to December 1993;
Assistant Vice President of the
Commonwealth Life Insurance Company
subsidiary of Capital Holding Corporation
from 1986 to December 1992. Treasurer
of the other mutual funds in the State Bond
Group and of The Legends Fund, Inc.
Pamela R. Freeman (29) Assistant Secretary Financial Analyst with ARM Financial
Group, Inc. since October 1993; Senior
Accountant and various other capacities
with Ernst & Young LLP from 1989 to
September 1993.
- ------
* Mr. Lindholm is an interested person, as defined in the 1940 Act, by virtue of his positions with
ARM Financial Group, Inc.
</TABLE>
Directors of the Fund (including former Directors) received aggregate
remuneration of $4,906 during
7
<PAGE>
the Fund's fiscal year ended July 31, 1996. Directors and officers of the Fund
as a group owned directly or indirectly 20,692 shares, or .64% of the Fund's
capital stock at July 31, 1996.
The following table sets forth, for the fiscal year ended July 31, 1996,
compensation paid by the Fund to the non-interested Directors and, for the 1995
calendar year, the aggregate compensation paid to the non-interested Directors
by all of the funds in the fund complex including the six funds in the State
Bond Group of mutual funds. Directors who are interested persons, as defined in
the 1940 Act, received no compensation from the Fund.
<TABLE>
<CAPTION>
Total Compensation
Aggregate from fund complex
Compensation including the State
Name of Director from Fund (a) Bond Group of Mutual
- ---------------- ------------- Funds and The
Legends Fund, Inc.(b)
---------------------
<S> <C> <C>
William B. Faulkner $1,189 $5,778
Patrick M. Finley* $ 75 $3,096
Arthur Gartland* $ 75 $6,900
Chris L. Mahai $1,189 $3,528
John Katz $1,189 $9,264
Theodore S. Rosky $1,189 $9,264
</TABLE>
_________________________
(a) There were no pension or retirement benefits accrued for any of the named
persons by any of the funds.
(b) Messrs. Faulkner, Katz and Rosky are directors of The Legends Fund, Inc., a
mutual fund which is advised by the Manager, the compensation from which is
included in the above amounts of total compensation.
* Messrs. Finley and Gartland resigned as Directors in January 1996 and
November 1995, respectively.
THE MANAGER
ARM Capital Advisors, Inc. (the "Manager") manages the investments of the
Fund and administers its business and other affairs. The address of the Manager
is 200 Park Avenue, 20th Floor, New York, New York 10166. The predecessor to the
Manager was SBM Company, which served as manager of the Fund from the Fund's
inception until June 13, 1995. The Manager assumed management of the Fund on
June 14, 1995, effective for accounting purposes as of June 1, 1995, following
the acquisition of substantially all of the business operations of SBM Company
by ARM.
The Manager is a wholly-owned subsidiary of ARM Financial Group, Inc.
("ARM"), a Delaware corporation. ARM is a financial services company providing
retail and institutional products and services to the long-term savings and
retirement market. The Morgan Stanley Leveraged Equity Fund II, L.P., Morgan
Stanley Capital Partners III, L.P., Morgan Stanley Capital Investors, L.P. and
MSCP III 892 Investors, L.P., investment
8
<PAGE>
funds sponsored by Morgan Stanley Group, Inc. ("Morgan Stanley"), own
approximately 91% of the outstanding shares of voting stock of ARM. The Manager
currently provides investment management services to institutional and
individual clients, including ARM and its subsidiaries, with combined assets in
excess of $6.0 billion.
The Manager is also manager of the other mutual funds in the State Bond
Group of mutual funds: State Bond Common Stock Fund, State Bond Diversified
Fund, State Bond Minnesota Tax-Free Fund, State Bond Tax Exempt Fund, and State
Bond U.S. Government and Agency Securities Fund.
MANAGEMENT AGREEMENT AND EXPENSES
Under the Investment Advisory and Management Agreement (the "Agreement"),
dated June 14, 1995 subject to the control of the Board of Directors, the
Manager manages the investment of the assets of the Fund, including making
purchases and sales of portfolio securities consistent with the Fund's
investment objectives and policies and administers its business and other
affairs. The Manager provides the Fund with such office space, administrative
and other services, and executive and other personnel as are necessary for Fund
operations. The Manager pays all the compensation of the directors of the Fund
who are employees of the Manager and of the officers and employees of the Fund.
The Fund pays the Manager a management fee for its services, calculated
daily and payable monthly, based upon the Fund's average daily net assets as set
forth in the following table:
<TABLE>
<CAPTION>
Average Daily Net Assets Annual Investment Advisory and Management Fee
------------------------ ---------------------------------------------
<S> <C>
For the first $500 million .60 of 1%
For the next $250 million .55 of 1%
For the next $250 million .50 of 1%
For assets over $1 billion .45 of 1%
</TABLE>
The Manager received a management fee of $11,817 during the fiscal year
ended July 31, 1996, and a management fee of $1,771 for the period June 1, 1995,
the effective date for accounting purposes on which the Manager commenced its
duties as the Fund's investment adviser, through July 31, 1995. SBM Company,
the previous investment manager of the Fund, received as a management fee $7,998
and $10,334, respectively, for the fiscal periods ended July 31, 1995 and 1994.
The Manager has voluntarily undertaken, and SBM Company previously voluntarily
undertook, to reimburse the Fund for any expenses incurred by the Fund to the
extent the Fund's total expenses exceeded .80% of average daily net assets,
despite the fact that higher expenses may be permitted by state law. For the
fiscal year ended July 31, 1996 and the period June 1, 1995 to July 31, 1995,
the Manager reimbursed the Fund in the amount of $81,687 and $14,411,
respectively. SBM Company reimbursed the Fund during the fiscal periods ended
July 31, 1995 and 1994 in the following amounts: $59,605 and $64,232,
respectively.
The Fund pays all its expenses other than those assumed by the Manager,
including outside legal, auditing, and accounting expenses; bookkeeping, record
keeping, and Fund portfolio and Fund share pricing expenses; interest, taxes,
and governmental fees; expenses incurred in connection with membership in
investment company organizations; brokerage commissions or charges, if any;
fees of custodians, transfer agents, registrars, accounting services agents, or
other agents; expense of preparing share certificates; expenses relating to the
redemption or repurchase of the Fund's shares; investor services expenses;
expenses of registering and qualifying Fund shares for sale under applicable
Federal and State law; expenses of preparing, setting in print, printing, and
9
<PAGE>
distributing prospectuses, reports, notices, and dividends to Fund shareholders;
cost of stationery; costs of stockholder and other meetings of the Fund;
traveling expenses of officers, directors, and employees of the Fund, if any;
fees of the Fund's independent directors and salaries of any officers or
employees who are not affiliated with the Manager; the Fund's pro rata portion
of premiums on any fidelity bond and insurance covering the Fund; and general
corporate fees and expenses.
Under the regulations of various states in which the Fund's shares are
qualified for sale, the amount of annual expenses which the Fund may pay are
limited to certain percentages of its average net assets. The most stringent of
such requirements limits such expenses, with certain limited categories of
expenses excepted, to 2 1/2% of the first $30 million of average net assets, 2%
of the next $70 million, and 1 1/2% of the remaining average net assets.
The Agreement may be terminated at any time on 60 days' written notice by
the Board of Directors, or by vote of a majority of the outstanding shares or by
the Manager. The Agreement will terminate automatically upon assignment. The
Agreement will continue in effect from year to year so long as continuance is
approved annually by either the Board of Directors of the Fund or by a vote of a
majority of the outstanding voting shares, provided that in either event such
continuance is also approved by the vote of a majority of the directors who are
not parties to such Agreement, or interested persons of such parties, cast in
person at a meeting called for the purpose of voting on such approval.
TRANSFER AGENT
ARM Transfer Agency, Inc. acts as the transfer and dividend disbursing
agent for the Fund pursuant to an agreement with the Fund and is compensated on
a transactional basis under a schedule approved by the Fund's Board of
Directors. The transfer agent maintains shareholders lists, processes requested
account registration changes and stock certificate issuance and redemption
requests, administers withdrawal plans, administers mailing and tabulation of
Fund proxy solicitations, and administers payment of distributions declared by
the Fund. ARM Transfer Agency, Inc. received $10,323 in transfer agency fees
from the Fund for the fiscal year ended July 31, 1996. SBM Financial Services,
Inc. acted as the Fund's transfer and dividend disbursing agent for the period
June 1, 1995 to July 31, 1995 and for the period August 1, 1995 to January 31,
1996, and received transfer agency fees of $4,067 and $13,939 during such
periods, respectively. SBM Company, the Fund's previous transfer and dividend
disbursing agent, received the following amounts from the Fund for the fiscal
years ended July 31, 1995 and 1994, respectively; $16,933 and $21,600.
CUSTODIAN
Investors Fiduciary Trust Company serves as custodian for the Fund's
portfolio securities and cash, and in that capacity, maintains certain financial
and accounting books and records pursuant to a separate agreement with the Fund.
INDEPENDENT AUDITORS
Ernst & Young LLP, One Kansas City Place, 1200 Main Street, Kansas City,
Missouri 64105-2143, independent auditors, have been selected as auditors of the
Fund and issue a report on the Fund's financial statements.
REDEMPTION OF SHARES
Whether shares are redeemed pursuant to the Regular or the Quick Redemption
Service (if less than $500), a check for the proceeds ordinarily will be sent
within seven calendar days following redemption. The
10
<PAGE>
Fund intends to pay all redemptions in cash. However, payment may be made in
securities, subject to the review of some state securities commissions, if the
Board of Directors believes that economic conditions exist which would make the
practice of redemption for cash detrimental to the best interests of the Fund.
If requests for redemption are paid in portfolio securities, such securities
would be valued in accordance with procedures described under "How Is Net Asset
Value Per Share Determined?". If payment were to be made in securities,
shareholders receiving securities could incur certain transaction costs.
The Fund reserves the right to suspend redemptions or postpone the date of
payment (1) for any periods during which the New York Stock Exchange is closed
(other than for the customary weekend and holiday closings), (2) when trading in
the markets the Fund usually utilizes is restricted or an emergency exists, as
determined by the Securities and Exchange Commission, so that disposal of the
Fund's investments or the determination of the Fund's net asset value is not
reasonably practicable, or (3) for such other periods as the Securities and
Exchange Commission by order may permit for the protection of the Fund's
shareholders.
WHAT IS THE TAX STATUS OF THE FUND?
The Fund has fulfilled during its most recent fiscal year, and intends to
continue to fulfill, the requirements of subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"), to qualify as a regulated investment
company, and so long as it remains so qualified, it will not be liable for
Federal income tax to the extent that it distributes all of its net taxable and
non-taxable income to shareholders.
WILL THE FUND WITHHOLD TAXES ON DISTRIBUTIONS?
Under federal law, the Fund is required, subject to certain exceptions, to
withhold and remit to the U.S. Treasury 31% of dividends paid and other
reportable payments on an account if the holder of the account provides the Fund
with either an incorrect tax identification number or no number at all, or fails
to certify to the Fund that he is not subject to such withholding.
HOW IS NET ASSET VALUE PER SHARE DETERMINED?
The net asset value per share of the Fund is determined as of 3 p.m.
Central time, on days on which the Fund is open for business. It is computed by
dividing the value of the net assets of the Fund (i.e., the value of its assets
less liabilities) by the total number of outstanding shares of the Fund. All
expenses of the Fund, including the Manager's fee, are accrued daily and taken
into account for the purpose of determining its net asset value.
Pursuant to an exemptive rule of the Securities and Exchange Commission,
the Fund's portfolio securities are valued by the amortized cost method. This
method of valuation involves valuing a security at its cost at the time of
purchase and thereafter assuming a constant amortization to maturity of any
discount or premium, regardless of the impact of fluctuating interest rates on
the market value of the security. While this method provides certainty in
valuation, it may result in periods during which value, as determined by
amortized cost, is higher or lower than the price the Fund would receive if it
sold the security. During periods of declining interest rates, the quoted yield
on shares of the Fund may tend to be higher than that of a fund with identical
investments which uses a method of valuation based on market prices and
estimates of market prices for all its portfolio securities. Thus, if the use
of amortized cost by the Fund resulted in lower aggregate portfolio value on a
particular day, a prospective investor in the Fund would be able to obtain a
somewhat higher yield if he purchased shares on that day than he would be able
to receive from a fund using solely market values and existing investors in the
Fund would receive less investment income. The converse is true in a period of
rising interest rates.
The rule permitting the Fund to use the amortized cost method of valuation
requires that, under the direction of the Board of Directors, certain procedures
be adopted to monitor and stabilize the price per share of
11
<PAGE>
the Fund. Calculations are made to compare the value of its investments valued
at amortized cost with market values. Market valuations are obtained by using
actual quotations provided by issuers or market makers, estimates of market
value, or values obtained from yield data relating to classes of money market
instruments or U.S. Government securities published by reputable sources at the
mean between the bid and asked prices for the instruments. In the event that a
deviation of 1/2 of 1% or more exists between the Fund's $1.00 per share net
asset value and the net asset value calculated by reference to market
quotations, or if there is any other deviation which the Board of Directors
believes would result in a material dilution of shareholders or purchasers, the
Board of Directors will promptly consider what action, if any, should be
initiated.
Under the exemptive rule of the Securities and Exchange Commission allowing
the Fund to use the amortized cost method of valuation of portfolio securities,
the Fund must maintain a dollar-weighted average portfolio maturity of 90 days
or less. In addition, all investments in securities must be in First Tier
Securities or Second Tier Securities (as defined in the exemptive rule) and,
with certain limited exceptions, the Fund cannot invest more than 5% of its
assets in the securities of a single issuer (other than government securities).
Investments in Second Tier securities in the aggregate must be limited to 5% of
the Fund's total assets, and investment in a single Second Tier Security cannot
exceed the greater of 1% of total assets or $1 million. See "What Are The Fund's
Investment Objectives and Policies?"
The Fund can only invest in instruments having remaining maturities of 397
days or less and can only invest in securities determined by the Board of
Directors to be of high quality with minimal credit risks.
DOES THE FUND BEAR DISTRIBUTION EXPENSES?
The Fund has adopted a Plan of Distribution (the "Plan") pursuant to Rule
12b-1 under the Investment Company Act of 1940 pursuant to which a portion of
the advisory fee the Fund pays the Manager is paid by the Manager to the
Distributor, as described below. The Plan as amended was approved by the Board
of Directors of the Company on September 23, 1994 and was most recently approved
by the Fund's shareholders on March 17, 1993.
Under the Investment Advisory and Management Agreement (the "Agreement"), a
portion of the advisory fee the Fund pays the Manager is paid by the Manager to
the Distributor to be used to pay for account servicing, to compensate those who
sell Fund shares, and to pay certain other expenses of selling Fund shares. As
noted above, for the first $500 million of Fund assets, the Manager will receive
a monthly fee equivalent on an annual basis to .6 of 1% of the average daily net
assets of the Fund. From this amount, of which .2 of 1% of the average daily
net assets of the Fund will be paid under the Plan to the Distributor to pay for
account servicing and to compensate those who sell Fund shares and to pay
certain other selling expenses. This .2 of 1% paid to the Distributor remains
constant, although the percentage fee paid to the Manager decreases when the
Fund attains average daily net assets in excess of $500 million. A portion of
the fee paid to the Distributor may be used for advertising and promotional
expenses including, by way of example but not by way of limitation, costs of
printing and mailing prospectuses, statements of additional information and
shareholder reports to prospective investors; preparation and distribution of
sales literature; advertising of any type; an allocation of overhead and other
expenses of the Distributor related to the distribution of Fund shares; and
payments to, and expenses of, officers, employees or representatives of the
Distributor, of other broker-dealers, banks or other financial institutions, and
of any other person who provides support services in connection with the
distribution of Fund shares, including travel, entertainment, and telephone
expenses.
The Prospectus outlines the general uses to which the Distributor is
authorized to apply the fees received by it. During the Fund's last fiscal year
the Distributor received $5,908 in such fees and incurred $15,587 in expenses.
The Distributor used these fees toward the following expenses: compensation of
sales personnel - $4,347; compensation of marketing and sales administration
personnel- $1,517; marketing materials - $9,551; promotion and travel - $172.
12
<PAGE>
The Plan provides:
(i) That it shall continue in effect for a period of more than one year
from the date of its execution or adoption only so long as such
continuance is specifically approved at least annually by the Board
of Directors in the manner described above for its original approval;
(ii) That any person authorized to direct the disposition of monies paid
or payable by the Fund pursuant to the Plan or any related agreement
shall provide to the Fund's Board of Directors, and the Directors
shall review, at least quarterly, a written report of the amounts so
expended and the purposes for which such expenditures were made; and
(iii) That it may be terminated at any time by vote of a majority of the
members of the Board of Directors of the Fund who are not interested
persons of the Fund and have no direct or indirect financial interest
in the operation of the Plan or in any agreements related to the Plan
or by vote of a majority of the outstanding voting shares of the
Fund.
The Plan provides that it may not be amended to increase materially the
amount to be spent for distribution without shareholder approval and that all
material amendments of the Plan must be approved by the Fund's Board of
Directors and shareholders in the manner described above for its original
approval. The Fund may implement the Plan only if the selection and nomination
of the Fund's disinterested directors are committed to the discretion of the
Fund's existing disinterested directors. Under the terms of the referenced Rule
12b-1, the Fund must preserve copies of any plan, agreement or report made
pursuant to the rule for a period of not less than six years from the date of
such plan, agreement, or report, the first two years in an easily accessible
place.
GENERAL INFORMATION ABOUT STATE BOND CASH MANAGEMENT FUND
State Bond Money Funds, Inc. is a diversified, open-end investment
company, or mutual fund, incorporated in Maryland in 1981. State Bond Money
Funds, Inc. currently consists of one investment portfolio, the State Bond Cash
Management Fund (the "Fund").
13
<PAGE>
APPENDIX A
Description of Investments:
- --------------------------
U.S. GOVERNMENT, AGENCY AND INSTRUMENTALITY OBLIGATIONS - are securities issued
or guaranteed as to principal and interest by the United States government or by
agencies or instrumentalities thereof and include a variety of obligations,
which differ in their interest rates, maturities, and dates of issue. Some of
these obligations are issued directly by the United States Treasury such as U.S.
Treasury bills, notes, and bonds; others are guaranteed by the U.S. Treasury,
such as securities issued by the Small Business Administration, the General
Services Administration, and Farmers Home Administration; others are supported
by the right of the issuer to borrow from the Treasury, such as securities
issued by Federal Home Loan Banks; while others are supported only by the credit
of the agency or instrumentality and not by the Treasury, such as securities
issued by the Federal National Mortgage Association. There can be no assurance
that the U.S. Government will provide financial support to such an agency or
instrumentality if it is not obligated to do so by law.
REPURCHASE AGREEMENTS - involve the purchase of obligations which the Fund is
qualified to purchase and the simultaneous agreement to resell the same
obligations on demand or at a future specified date and at an agreed upon price.
Such transactions afford an opportunity for the Fund to earn a return which is
only temporarily available.
NEGOTIABLE CERTIFICATES OF DEPOSIT - are certificates issued against funds
deposited in a bank. They are for a definite period of time, earn a specified
rate of return, and are negotiable.
BANKERS' ACCEPTANCES - are short-term credit instruments primarily used to
finance the import, export, transfer or storage of goods. They are termed
"accepted" when a bank guarantees their payment at maturity.
FIXED TIME DEPOSITS - represent funds deposited in a bank. They are for a
definite period of time and earn a specified rate of return. Unlike negotiable
certificates of deposit, they do not have a market, and they may be subject to
penalties for early withdrawal of funds. Fixed time deposits are made in
foreign branches of domestic banks and in foreign banks.
COMMERCIAL PAPER - refers to promissory notes issued by corporations to finance
short-term credit needs.
CORPORATE DEBT SECURITIES - include bonds and notes issued by corporations to
finance longer-term credit needs.
Description of A-1, A-2, and P-1, P-2 Commercial Paper Ratings:
- --------------------------------------------------------------
Commercial paper rated A-1 or A-2 by Standard & Poor's Ratings Services has
the following characteristics: Liquidity ratios are adequate to meet cash
requirements. Long-term senior debt is rated "A" or better. The issuer has
access to at least two additional channels of borrowing. Basic earnings and
cash flow have an upward trend with allowance made for unusual circumstances.
Typically, the issuer's industry is well established and the issuer has a strong
position within the industry. The reliability and quality of management are
unquestioned. The relative strength or weakness of the above factors determines
whether the issuer's commercial paper is rated A-1, A-2 or A-3.
The ratings Prime-1 and Prime-2 are the two highest commercial paper
ratings assigned by Moody's. Among the factors considered by Moody's in
assigning ratings are the following: (1) evaluation of the management of the
issuer; (2) economic evaluation of the issuer's industry or industries and an
appraisal of speculative-type risks which may be inherent in certain areas; (3)
evaluation of the issuer's products in relation
14
<PAGE>
to competition and customer acceptance; (4) liquidity; (5) amount and quality of
long-term debt; (6) trend of earnings over a period of ten years; (7) financial
strength of a parent company and the relationships which exist with the issuer;
and (8) recognition by the management of obligations which may be present or may
arise as a result of public interest questions and preparations to meet such
obligations. Relative strength or weakness of the above factors determines
whether the issuer's commercial paper is rated Prime-1, 2 or 3.
Description of Bond Ratings:
- ---------------------------
Bonds rated AAA have the highest rating Standard & Poor's Ratings Services
assigns to a debt obligation. Such a rating indicates an extremely strong
capacity to pay principal and interest. Bonds rated AA also qualify as high-
quality debt obligations. Capacity to pay principal and interest is very
strong, and in the majority of instances they differ from AAA issues only in a
small degree.
Bonds rated Aa by Moody's are judged by Moody's to be of high quality by
all standards. Together with the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower than Aaa bonds because margins
of protection may not be as large or fluctuations of protective elements may be
of greater amplitude, or there may be other elements present which make the
long-term risks appear somewhat large.
15
<PAGE>
State Bond Cash Management Fund
AUGUST 23, 1996
TO THE SHAREHOLDERS:
On July 31, 1996, the State Bond Cash Management Fund (the "Fund") completed
fourteen years of operations. We welcome the new shareholders who joined us
during the year and thank all of our shareholders for their interest and
support.
The Fund's investment objectives continue to be current income, preservation of
principal, and liquidity. The Fund seeks to achieve these objectives through
diversification and strong credit quality investments. At July 31, 1996, the
portfolio held investments in fourteen different companies and U.S. Treasury
Bills. The Fund's commercial paper holdings are all ranked in the top rating
category by two or more of the following nationally recognized rating services:
Moody's Investor Services, Inc., Standard & Poor's Corporation, Fitch Investor
Service, and Duff & Phelps Credit Rating Company.
During the Fund's fiscal year ended July 31, 1996, the Federal Reserve reversed
its position of the previous year and became more accommodative, with reductions
of .25% in December 1995 and January 1996 to the Federal Funds discount rate.
These reductions in the Federal Funds discount rate also had the effect of
reducing interest rates received on the Fund's investments.
Many investors have a portion of their assets in a money market fund because it
offers good current yields, liquidity, and a number of shareholder services. We
appreciate your investment in the Fund and look forward to continuing to serve
your investment needs. Should you desire additional information, we welcome
your inquiries.
Sincerely,
/s/ Keith O. Martens
- -----------------------------------------
Keith O. Martens
Vice President
<PAGE>
State Bond Cash Management Fund
Schedule of Investments
July 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-------------------------------
<S> <C> <C>
COMMERCIAL PAPER (63.5%)
American Express Credit Corporation, 5.30%, due 8/7/96 $ 122,000 $ 121,892
Associates Corporation of North America, 5.27%, due 8/9/96 161,000 160,811
Beneficial Corporation, 5.28%, due 8/6/96 143,000 142,895
CIT Group Holdings, Inc., 5.25%, due 8/2/96 119,000 118,983
Chevron Oil Finance Corporation, 5.28%, due 8/19/96 161,000 160,575
Deere and Company, 5.36%, due 8/5/96 140,000 139,916
Ford Motor Credit Company, 5.35%, due 8/6/96 156,000 155,884
General Electric Capital Corporation, 5.27%, due 8/9/96 160,000 159,813
GMAC, 5.52%, due 11/18/96 175,000 172,075
Household Finance Corporation, 5.32%, due 8/20/96 108,000 107,697
IBM Corporation, 5.12%, due 8/1/96 160,000 160,000
Norwest Financial, 5.34%, due 8/14/96 148,000 147,715
Prudential Funding, 5.33%, due 8/26/96 145,000 144,463
Sears, 5.35%, due 8/12/96 161,000 160,737
-------------
TOTAL COMMERCIAL PAPER (Cost $2,053,456) 2,053,456
U.S. TREASURY BILLS (36.5%)
4.86%, due 8/8/96 500,000 499,527
5.02%, due 8/22/96 135,000 134,605
4.91%, due 8/29/96 550,000 547,900
-------------
TOTAL U.S. TREASURY BILLS (Cost $1,182,032) 1,182,032
-------------
TOTAL INVESTMENTS (100%) (Cost $3,235,488) $ 3,235,488
=============
</TABLE>
See accompanying notes.
2
<PAGE>
State Bond Cash Management Fund
Statement of Assets and Liabilities
July 31, 1996
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Investment in securities, at amortized cost -
see accompanying schedule $3,235,488
Cash 3,085
Receivable for reimbursable expenses 6,333
----------
TOTAL ASSETS 3,244,906
LIABILITIES
Payable to affiliates 1,645
Accrued expenses 24,493
----------
TOTAL LIABILITIES 26,138
----------
NET ASSETS, for 3,218,768 shares outstanding $3,218,768
==========
NET ASSET VALUE, offering and redemption price per
share $ 1.00
==========
</TABLE>
See accompanying notes.
3
<PAGE>
<TABLE>
<CAPTION>
State Bond Cash Management Fund
Statement of Operations
Year Ended July 31, 1996
<S> <C>
INVESTMENT INCOME
Interest $ 158,922
EXPENSES
Investment advisory and management fees, net of Rule 12b-1
plan fees 11,817
Rule 12b-1 plan fees 5,908
Professional fees 12,131
Printing expenses 10,924
Transfer agent fees 24,262
Custodian fees 17,198
Directors' fees and expenses 4,774
Registration fees 18,369
---------
Total expenses before reimbursement 105,383
Less: expense reimbursement (81,687)
---------
Net expenses 23,696
---------
Net investment income 135,226
---------
Net increase in net assets resulting from operations $ 135,226
=========
</TABLE>
See accompanying notes.
4
<PAGE>
State Bond Cash Management Fund
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
1996 1995
---------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 135,226 $ 109,688
Distributions to shareholders from:
Net investment income (135,226) (109,688)
Capital share transactions at net
asset value of $1.00 per share:
Proceeds from sales of shares 4,963,558 5,107,717
Proceeds from reinvested distributions 165,074 98,558
Cost of shares redeemed (4,627,488) (4,508,194)
---------------------------
Net increase in net assets resulting
from share transactions 501,144 698,081
---------------------------
Total increase in net assets 501,144 698,081
NET ASSETS
Beginning of year 2,717,624 2,019,543
---------------------------
End of year $3,218,768 $2,717,624
===========================
</TABLE>
See accompanying notes.
5
<PAGE>
State Bond Cash Management Fund
Financial Highlights
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
1996 1995 1994 1993 1992
--------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of year $1.00 $1.00 $1.00 $1.00 $1.00
Income from investment operations:
Net investment income .05 .04 .03 .02 .04
Less distributions:
From net investment income (.05) (.04) (.03) (.02) (.04)
-----------------------------------------
Net asset value, end of year $1.00 $1.00 $1.00 $1.00 $1.00
=========================================
TOTAL RETURN 4.72% 4.51% 2.54% 2.40% 3.74%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in thousands) $3,219 $2,718 $2,020 $3,657 $4,770
Ratio of expenses to average net assets .80% .80% .80% .80% .90%
Ratio of net investment income to average net assets 4.58% 4.49% 2.55% 2.38% 3.71%
Ratio of expenses to average net assets before
voluntary expense reimbursement 3.57% 3.83% 3.38% 2.54% 1.99%
Ratio of net investment income to average net
assets before voluntary expense reimbursement 1.81% 1.46% (.01%) .64% 2.91%
</TABLE>
See accompanying notes.
6
<PAGE>
State Bond Cash Management Fund
Notes to Financial Statements
July 31, 1996
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The State Bond Cash Management Fund (the "Fund") is the only investment
portfolio of State Bond Money Funds, Inc., which is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
diversified management investment company. The primary investment
objective of the Fund is to maximize current income, preserve capital, and
maintain liquidity. The Fund invests exclusively in money market instruments
maturing in twelve months or less.
ARM Financial Group, Inc. ("ARM") completed the acquisition of substantially all
of the assets and business operations of SBM Company ("SBM") on June 14, 1995.
As part of this acquisition, ARM Capital Advisors, Inc. ("ARM Capital
Advisors"), a subsidiary of ARM, assumed the responsibilities of SBM as manager
of the Fund. The Investment Advisory and Management Agreement between the Fund
and ARM Capital Advisors contains the same material terms and conditions
(including the fees payable to ARM Capital Advisors) as were contained in the
Fund's prior Investment Advisory and Management Agreement with SBM.
As part of the acquisition, ARM acquired all of the issued and outstanding
common stock of SBM Financial Services, Inc. ("SBM Financial Services"), the
Fund's distributor. Effective February 1, 1996, ARM Transfer Agency, Inc. ("ARM
Transfer Agency") replaced SBM Financial Services as transfer agent for the
Fund. ARM Transfer Agency assumed SBM Financial Services' responsibility
pursuant to a transfer agency agreement with the Fund. ARM Transfer Agency is a
wholly owned subsidiary of ARM.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles for investment companies.
INVESTMENTS IN SECURITIES
The Fund uses the amortized cost method for valuing portfolio securities in
accordance with Rule 2a-7 of the 1940 Act. Security transactions are accounted
for as of the trade date. Interest income, which includes amortization of
premium and accretion of original issue discount, is accrued as earned.
7
<PAGE>
State Bond Cash Management Fund
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAX STATUS AND RELATED MATTERS
The Fund complied with the requirements of the Internal Revenue Code applicable
to regulated investment companies and distributed its taxable net investment
income. Therefore, no provision for federal or state income tax is required.
The aggregate cost of investments in securities is the same for book and tax
purposes.
DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income are declared daily and distributed monthly.
Dividends are recorded on the ex-dividend date.
2. INVESTMENT ADVISORY AGREEMENT AND PAYMENTS TO RELATED PARTIES
ARM Capital Advisors is the Fund's investment adviser. The investment advisory
fee is computed at the annual rate of .60% of average daily net assets of the
Fund. Included in the investment advisory fee is .20% of the average daily net
assets which ARM Capital Advisors pays to SBM Financial Services under a Rule
12b-1 plan of share distribution. ARM Capital Advisors has voluntarily
undertaken to reimburse the Fund for any expenses in excess of .80% of the
average daily net assets for the fiscal years ended 1996, 1995, 1994, and 1993
and .90% for the fiscal year ended 1992, despite the fact that higher expenses
may be permitted by state law.
Certain officers and directors of the Fund are also officers of ARM, ARM Capital
Advisors, ARM Transfer Agency, and SBM Financial Services.
3. CAPITAL SHARES
At July 31, 1996, the Fund had authority to issue twenty billion shares of
common stock, each with a par value of $.00001.
8
<PAGE>
4. SUBSEQUENT EVENT
On August 26, 1996, the Board of Directors of the Fund approved a proposal to
reorganize the Fund. The reorganization will involve the sale of the Fund's
assets, subject to certain liabilities, to Automated Cash Management Trust (the
"Federated Fund"), a mutual fund advised by Federated Investors. Shares of the
Fund would be exchanged at net asset value for shares of equivalent value of the
Federated Fund. The reorganization transaction is subject to approval by Fund
shareholders and to certain other conditions prior to closing, including the
receipt of an opinion as to the tax-free nature of the reorganization for the
Fund, the Federated Fund and their respective shareholders. No sales charges
would be imposed on the proposed reorganization.
9
<PAGE>
Report of Independent Auditors
Board of Directors and Shareholders
State Bond Cash Management Fund
We have audited the accompanying statement of assets and liabilities including
the schedule of investments of the State Bond Cash Management Fund (the "Fund")
as of July 31, 1996 and the related statements of operations for the year then
ended and changes in net assets and financial highlights for each of the two
years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audit. The financial highlights for each of the three years in the
period ended July 31, 1994 of the State Bond Cash Management Fund were audited
by other auditors whose report dated August 26, 1994 expressed an unqualified
opinion.
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 confirmation of securities owned at July 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 that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
State Bond Cash Management Fund at July 31, 1996, and the results of its
operations for the year then ended, and changes in its net assets and financial
highlights for each of the two years in the period then ended in conformity with
generally accepted accounting principles.
/s/Ernst & Young LLP
Kansas City, Missouri
August 28, 1996
10
<PAGE>
PART C
OTHER INFORMATION
STATE BOND CASH MANAGEMENT FUND
Item 24. Financial Statements and Exhibits
- -------------------------------------------
(a) Financial Statements and Report of Independent Auditors:
Contained in Part A:
Financial Highlights for each year in the ten year
period ended July 31, 1996
Contained in Part B:
Schedule of Investments - July 31, 1996
Statement of Assets and Liabilities - July 31, 1996
Statement of Operations - Year ended July 31, 1996
Statement of Changes in Net Assets - Years ended July
31, 1996 and 1995
Financial Highlights for each year in the five year
period ended July 31, 1996
Notes to Financial Statements
Report of Independent Auditors
(b) Exhibits
(1) Articles of Incorporation - filed as an exhibit to Post-
Effective Amendment No. 14 to Form N1-A Registration Statement
of this Registrant on September 29, 1995, File Nos. 2-74561 and
811-3299.
(2) By-laws - filed as an exhibit to Post-Effective Amendment
No. 14 to Form N1-A Registration Statement of this Registrant
on September 29, 1995, File Nos. 2-74561 and 811-3299.
(3) Not applicable.
(4) See generally Article IV of the Articles of Incorporation, and
Articles II and VII of the Bylaws, filed as exhibits to Post-
Effective Amendment No. 14 to Form N1-A Registration Statement
of this Registrant on September 29, 1995, File Nos. 2-74561 and
811-3299.
(5) Investment Advisory Contract - filed as an exhibit to Post-
Effective Amendment No. 14 to Form N1-A Registration Statement
of this Registrant on September 29, 1995, File Nos. 2-74561 and
811-3299.
(6) (a) Underwriting Agreement - filed as an exhibit to Post-
Effective Amendment No. 14 to Form N1-A Registration
Statement of this Registrant on September 29, 1995, File
Nos. 2-74561 and 811-3299.
(b) Form of Agreements between principal underwriter and
dealers -filed as an exhibit to the Registration Statement
on Form N-1A of State Bond Securities Funds, Inc., on
September 28, 1993, File No. 2-30162 and incorporated
herein by reference.
(7) Not applicable.
(8) Custodian Agreement - filed as an Exhibit hereto.
(9) Transfer Agent Agreement - filed as an Exhibit hereto.
(10) Opinion of Counsel - filed as an exhibit to Post-Effective
Amendment No. 14 to Form N1-A Registration Statement of this
Registrant on September 29, 1995, File Nos. 2-74561 and 811-
3299.
(11) Consent of Ernst & Young LLP dated September 30, 1996, filed as
an Exhibit hereto.
(12) Not applicable.
(13) Agreement Regarding Initial Capital - filed as an exhibit to
Pre-Effective Amendment No. 1 to Form N-1A on February 23,
1982, File No. 2-74561, and incorporated herein by reference.
(14) Copy of prototype defined contribution plan - filed as an
exhibit to the Registration Statement on Form N-1A of State
Bond Securities Funds, Inc., on September 28, 1993, File No. 2-
30162 and incorporated herein by reference.
<PAGE>
(15) Plan pursuant to Rule 12b-1 - filed as an exhibit to Post-
Effective Amendment No. 14 to Form N1-A Registration Statement
of this Registrant on September 29, 1995, File Nos. 2-74561 and
811-3299.
(16) Not applicable.
(17) Other Exhibits - Power of Attorney dated July 31, 1995, filed as
an exhibit to Post-Effective Amendment No. 14 to Form N1-A
Registration Statement of this Registrant on September 29, 1995,
File Nos. 2-74561 and 811-3299.
(18) Not applicable.
(27) Financial Data Schedule - filed as an Exhibit hereto.
Item 25. Persons Controlled by or under Common Control with Registrant
- -----------------------------------------------------------------------
None
Item 26. Number of Holders of Securities
- -----------------------------------------
Number of Record Holders
Title of Class (within last 90 days)
-------------- ------------------------
Capital Stock--$.00001 par value 599 as of August 31, 1996
Item 27. Indemnification
- -------------------------
Article VII, Section 1 of the Amended and Restated Articles of
Incorporation of the Registrant provides that the Registrant shall indemnify its
directors and officers, whether serving the Registrant or at its request any
other entity, to the full extent permitted by the laws of the State of Maryland.
This indemnification shall not protect any director or officer against liability
to the Registrant or its shareholders to which he otherwise would be subject by
reason of willful misfeasance, gross negligence, or reckless disregard of the
duties involved in the conduct of his office.
Section 6.01 of the By-Laws of the Registrant provides that the Registrant
shall indemnify any person who was or is a party or is threatened to be made a
party to any action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than a proceeding by or in the right of the Registrant
in which such person shall have been adjudged to be liable to the Registrant),
by reason of being or having been a director or officer of the Registrant, or
serving or having served at the request of the Registrant as a director,
officer, partner, trustee, employee or agent of another entity in which the
Registrant has an interest as a shareholder, creditor or otherwise (a "Covered
Person"), against all liabilities and penalties, and reasonable expenses
(including attorney's fees) actually incurred by the Covered Person in
connection with such action, suit or proceeding, except (i) liability in
connection with any proceeding in which it is determined that (A) the act or
omission of the Covered Person was material to the matter giving rise to the
proceeding, and was committed in bad faith or was the result of active and
deliberate dishonesty, or (B) the Covered Person actually received an improper
personal benefit in money, property or services, or (C) in the case of any
criminal proceeding, the Covered Person had reasonable cause to believe that the
act or omission was unlawful and (ii) liability to the Corporation or its
security holders to which the Covered Person would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office.
Article VII, Section 2 of the Amended and Restated Articles of
Incorporation of the Registrant provides that no director or officer of the
Registrant shall be personally liable to the Registrant or its security holders
for money damages, to the full extent permitted by Maryland law and the
Investment Company Act of 1940.
Pursuant to the Registrant's agreement with its principal underwriter, the
Registrant has agreed to indemnify the underwriter from and against any and all
claims, demands, liabilities and expenses (including the cost of investigating
or defending such claims, demands or liabilities and any counsel fees incurred
in connection therewith) which it or any controlling person may incur, under the
Investment Company Act of 1940, or under common law or otherwise, arising out of
or based upon any alleged untrue statement of a
<PAGE>
material fact contained in the Registrant's registration statement or prospectus
or arising out of or based upon any alleged omission to state a material fact
required to be stated in either thereof or necessary to make the statements in
either thereof not misleading; provided, however, that the indemnity agreement,
to the extent that it might require indemnity of any person who is a controlling
person and who is also a director of the Registrant, may not inure to the
benefit of such person unless a court of competent jurisdiction shall determine,
or it shall have been determined by controlling precedent, that such result
would not be against public policy as expressed in the Investment Company Act of
1940; and further provided that in no event shall any thing contained in the
indemnity agreement be so construed as to protect the underwriter against any
liability to the Registrant or its security holders to which the underwriter
would otherwise be subject by reason of willful misfeasance, bad faith, or gross
negligence, in the performance of its duties, or by reason of its reckless
disregard of any obligations and duties under the underwriting agreement.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provision, or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The Registrant, its investment adviser, and its principal underwriter have
obtained directors and officers and errors and omissions liability insurance
insuring the activities of the Registrant, the investment advisory activities of
the investment adviser, and the activities of the principal underwriter as
distributor of investment company securities.
Item 28. Business and Other Connections of Investment Adviser
- --------------------------------------------------------------
ARM Capital Advisors, Inc., the Registrant's investment adviser, is a registered
investment adviser providing investment management services to investment
companies and institutional and individual companies.
The business, profession, vocation or employment of a substantial nature which
each director or officer of the investment adviser, is or has been, at any time
during the past two fiscal years, engaged for his own account or in the capacity
of director, officer, employee, partner, or trustee is as follows:
Position and Offices
Name and Principal Business Address* with Adviser
- ------------------------------------ --------------------
John Franco Director and Co-Chief
Co-Chief Executive Officer Executive Officer
Martin H. Ruby Director and Co-Chief
Co-Chief Executive Officer Executive Officer
Emad A. Zikry Director, President and
Since October 1994: Chief Investment Officer
Executive Vice President-Chief
Investment Officer
200 Park Avenue, 20th Floor
New York NY 10166
1992-October 1994:
President-Chief Investment Officer
Klienwort Benson Investment Management
Americas Inc.
<PAGE>
200 Park Avenue, 20th Floor
New York NY 10166
Keith O. Martens Senior Vice President
Since June 1995: and Senior Portfolio
200 Park Avenue, 20th Floor Manager
New York NY 10166
1969-June 1995:
Executive Vice President-Investments
SBM Company
8400 Normandale Lake Boulevard
Suite 1150
Minneapolis MN 55437
Robert E. Mackey Chief Operating Officer
Since January 1995:
200 Park Avenue, 20th Floor
New York NY 10166
1993-December 1994:
Sr. Portfolio Manager-Client
Services Manager-Managing Director
Kleinwort Benson Investment Management
Americas Inc.
200 Park Aveneu, 20th Floor
New York NY 10166
Robert L. Maddox Chief Compliance Officer
Since October 1995: and Secretary
Legal Officer and Assistant Counsel
1994-October 1995:
Assistant General Counsel
Providian Corp.
400 West Market Street
Louisville KY 40202
Peter S. Resnik Treasurer
Treasurer
Barry G. Ward Controller
Controller
Rose M. Culbertson Tax Officer
Tax Officer
Kevin Howard Assistant Secretary
Legal Officer and Assistant Counsel
*All addresses are ARM Financial Group, Inc., 515 W. Market Street, 8th Floor,
Louisville KY 40202. Unless otherwise indicated, each individual has been
employed by ARM Financial Group or its predecessor-in-interest, Analytical Risk
Management, Ltd., for the last two years.
Item 29. Principal Underwriters
- --------------------------------
(a) SBM Financial Services, Inc. acts as principal underwriter for
the Fund, and for each of the following investment companies:
<PAGE>
State Bond Investment Funds, Inc.
(State Bond Diversified Fund Portfolio)
State Bond Equity Funds, Inc.
(State Bond Common Stock Fund Portfolio)
State Bond Income Funds, Inc.
(State Bond U.S. Government and Agency Securities Fund Portfolio)
State Bond Tax-Free Income Funds, Inc.
(State Bond Minnesota Tax-Free Income Fund Portfolio)
State Bond Municipal Funds, Inc.
(State Bond Tax Exempt Fund Portfolio)
SBM Certificate Company
(b) The following table sets forth information concerning each director,
officer or partner of the principal underwriter.
<TABLE>
<CAPTION>
Name and Principal Positions & Offices Positions & Offices
Business Address with Underwriter with Registrant
- ------------------ ------------------- -------------------
<S> <C> <C>
John R. McGeeney* Director, Secretary, None
General Counsel and
Compliance Officer
Edward J. Haines* Director and President None
Walter W. Balek*** Vice President None
Dale C. Bauman*** Vice President President
Robert Bryant Vice President None
1550 East Shaw, #120
Fresno CA 93710
Ronald Geiger*** Vice President None
Peter S. Resnik* Treasurer Treasurer
Barry G. Ward* Controller Controller
William H. Guth** Operations Officer None
David L. Anders** Marketing Officer None
Rose M. Culbertson* Tax Officer None
Robert L. Maddox* Assistant Secretary None
Sheri L. Bean* Assistant Secretary None
</TABLE>
* Address is 515 W. Market Street, 8th Floor, Louisville KY 40202
** Address is 200 East Wilson Bridge Road, Worthington OH 43085
*** Address is 100 North Minnesota Street, New Ulm, MN 56073
(c) Not applicable.
Item 30. Location of Accounts and Records
- ------------------------------------------
<PAGE>
Investors Fiduciary Trust Company
127 West 10th Street
Kansas City, MO 64105-1716
SBM Financial Services, Inc
100 North Minnesota Street
New Ulm, MN 56073
Item 31. Management Services
- -----------------------------
None
Item 32. Undertakings
- ----------------------
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(a) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Louisville and State of Kentucky, on the 30th day of September, 1996.
STATE BOND MONEY FUNDS, INC.
By: /s/ Kevin L. Howard
------------------------------------------
Kevin Howard, Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment to the Registration Statement has been signed by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ Dale Bauman President September 30,
- -------------------- (Principal Executive 1996
Officer)
/s/ Peter Resnik Treasurer September 30,
- -------------------- (Principal Financial 1996
Officer)
/s/ Barry G. Ward Controller September 30,
- -------------------- (Principal Accounting 1996
Officer)
* Director
- --------------------
(William B. Faulkner)
* Director
- --------------------
(John R. Lindholm)
* Director
- --------------------
(John Katz)
* Director
- --------------------
(Theodore S. Rosky)
</TABLE>
<PAGE>
* This Amendment has been signed
by each of the persons so indicated
by the undersigned as Attorney-in-Fact.
*By: /s/ Kevin L. Howard September 30, 1996
---------------------------------------
<PAGE>
CUSTODY AND INVESTMENT ACCOUNTING AGREEMENT
-------------------------------------------
THIS AGREEMENT made the 30th day of October, 1995, by and between INVESTORS
FIDUCIARY TRUST COMPANY, a trust company chartered under the laws of the state
of Missouri, having its trust office located at 127 West 10th Street, Kansas
City, Missouri 64105 ("Custodian"), and STATE BOND MONEY FUNDS, INC., a Maryland
corporation, having its principal office and place of business at 100 North
Minnesota Street, P.O. Box 69, New Ulm, Minnesota 56073-0069 ("Fund").
WITNESSETH:
WHEREAS, Fund desires to appoint Investors Fiduciary Trust Company as
custodian of the securities and monies of Fund's investment portfolio and as its
agent to perform certain investment accounting and recordkeeping functions; and
WHEREAS, Investors Fiduciary Trust Company is willing to accept such
appointment;
NOW THEREFORE, for and in consideration of the mutual promises contained
herein, the parties hereto, intending to be legally bound, mutually covenant and
agree as follows:
1. APPOINTMENT OF CUSTODIAN. Fund hereby constitutes and appoints Custodian
as:
A. Custodian of the securities and monies at any time owned by the Fund;
and
B. Agent to perform certain accounting and recordkeeping functions
relating to portfolio transactions required of a duly registered
investment company under Rule 31a of the Investment Company Act of
1940 (the "1940 Act") and to calculate the net asset value of the
Fund.
2. REPRESENTATIONS AND WARRANTIES.
A. Fund hereby represents, warrants and acknowledges to Custodian:
1. That it is a corporation or trust (as specified above) duly
organized and existing and in good standing under the laws of its
state of organization, and that it is registered under the 1940
Act; and
<PAGE>
2. That it has the requisite power and authority under applicable
law, its articles of incorporation and its bylaws to enter into
this Agreement; that it has taken all requisite action necessary
to appoint Custodian as custodian and investment accounting and
recordkeeping agent for the Fund; that this Agreement has been
duly executed and delivered by Fund; and that this Agreement
constitutes a legal, valid and binding obligation of Fund,
enforceable in accordance with its terms.
B. Custodian hereby represents, warrants and acknowledges to Fund:
1. That it is a trust company duly organized and existing and in
good standing under the laws of the State of Missouri; and
2. That it has the requisite power and authority under applicable
law, its charter and its bylaws to enter into and perform this
Agreement; that this Agreement has been duly executed and
delivered by Custodian; and that this Agreement constitutes a
legal, valid and binding obligation of Custodian, enforceable in
accordance with its terms.
3. DUTIES AND RESPONSIBILITIES OF CUSTODIAN.
A. Delivery of Assets
Except as permitted by the 1940 Act, Fund will deliver or cause to be
delivered to Custodian on the effective date of this Agreement, or as
soon thereafter as practicable, and from time to time thereafter, all
portfolio securities acquired by it and monies then owned by it or
from time to time coming into its possession during the time this
Agreement shall continue in effect. Custodian shall have no
responsibility or liability whatsoever for or on account of securities
or monies not so delivered.
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<PAGE>
B. Delivery of Accounts and Records
Fund shall turn over or cause to be turned over to Custodian all of
the Fund's relevant accounts and records previously maintained.
Custodian shall be entitled to rely conclusively on the completeness
and correctness of the accounts and records turned over to it, and
Fund shall indemnify and hold Custodian harmless of and from any and
all expenses, damages and losses whatsoever arising out of or in
connection with any error, omission, inaccuracy or other deficiency of
such accounts and records or in the failure of Fund to provide, or to
provide in a timely manner, any accounts, records or information
needed by the Custodian to perform its functions hereunder.
C. Delivery of Assets to Third Parties
Custodian will receive delivery of and keep safely the assets of Fund
delivered to it from time to time segregated in a separate account,
and if Fund is comprised of more than one portfolio of investment
securities (each a "Portfolio") Custodian shall keep the assets of
each Portfolio segregated in a separate account. Custodian will not
deliver, assign, pledge or hypothecate any such assets to any person
except as permitted by the provisions of this Agreement or any
agreement executed by it according to the terms of Section 3.S. of
this Agreement. Upon delivery of any such assets to a subcustodian
pursuant to Section 3.S. of this Agreement, Custodian will create and
maintain records identifying those assets which have been delivered to
the subcustodian as belonging to the Fund, by Portfolio if applicable.
The Custodian is responsible for the safekeeping of the securities and
monies of Fund only until they have been transmitted to and received
by other persons as permitted under the terms of this Agreement,
except for securities and monies transmitted to subcustodians
appointed under Section 3.S. of this Agreement, for which Custodian
remains responsible to the extent provided in Section 3.S. hereof.
Custodian may participate directly or indirectly through a
subcustodian in the Depository Trust Company
-3-
<PAGE>
(DTC), Treasury/Federal Reserve Book Entry System (Fed System),
Participant Trust Company (PTC) or other depository approved by the
Fund (as such entities are defined at 17 CFR Section 270.17f-4(b))
(each a "Depository" and collectively, the "Depositories").
D. Registration of Securities
The Custodian shall at all times hold registered securities of the
Fund in the name of the Custodian, the Fund, or a nominee of either of
them, unless specifically directed by instructions to hold such
registered securities in so-called "street name," provided that, in
any event, all such securities and other assets shall be held in an
account of the Custodian containing only assets of the Fund, or only
assets held by the Custodian as a fiduciary or custodian for
customers, and provided further, that the records of the Custodian at
all times shall indicate the Fund or other customer for which such
securities and other assets are held in such account and the
respective interests therein. If, however, the Fund directs the
Custodian to maintain securities in "street name", notwithstanding
anything contained herein to the contrary, the Custodian shall be
obligated only to utilize its best efforts to timely collect income
due the Fund on such securities and to notify the Fund of relevant
corporate actions including, without limitation, pendency of calls,
maturities, tender or exchange offers. All securities, and the
ownership thereof by Fund, which are held by Custodian hereunder,
however, shall at all times be identifiable on the records of the
Custodian. The Fund agrees to hold Custodian and its nominee harmless
for any liability as a shareholder of record of securities held in
custody, except to the extent attributable to any negligence or
willful misconduct of the Custodian.
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<PAGE>
E. Exchange of Securities
----------------------
Upon receipt of instructions as defined herein in Section 4.A.,
Custodian will exchange, or cause to be exchanged, portfolio
securities held by it for the account of Fund for other securities or
cash issued or paid in connection with any reorganization,
recapitalization, merger, consolidation, split-up of share, change of
par value, conversion or otherwise, and will deposit any such
securities in accordance with the terms of any reorganization or
protective plan. Without instructions, Custodian is authorized to
exchange securities held by it in temporary form for securities in
definitive form, to effect an exchange of shares when the par value of
the stock is changed, and, upon receiving payment therefor, to
surrender bonds or other securities held by it at maturity or when
advised of earlier call for redemption, except that Custodian shall
receive instructions prior to surrendering any convertible security.
F. Purchases of Investments of the Fund -- Other Than Options and Futures
----------------------------------------------------------------------
Fund will, on each business day on which a purchase of securities
(other than options and futures) shall be made by it, deliver to
Custodian instructions which shall specify with respect to each such
purchase:
1. If applicable, the name of the Portfolio making such purchase;
2. The name of the issuer and description of the security;
3. The number of shares and the principal amount purchased, and
accrued interest, if any;
4. The trade date;
5. The settlement date;
6. The purchase price per unit and the brokerage commission, taxes
and other expenses payable in connection with the purchase;
7. The total amount payable upon such purchase;
-5-
<PAGE>
8. The name of the person from whom or the broker or dealer through whom
the purchase was made; and
9. Whether the security is to be received in certificated form or via a
specified Depository.
In accordance with such instructions, Custodian will pay for such securities
held for the account of Fund, but only insofar as such monies are available for
such purpose, and receive the portfolio securities so purchased by or for the
account of Fund, except that Custodian may in its sole discretion advance funds
to the Fund which may result in an overdraft because the monies held by the
Custodian on behalf of the Fund are insufficient to pay the total amount payable
upon such purchase. Except as otherwise instructed by Fund, such payment shall
be made by the Custodian only upon receipt of securities: (a) by the Custodian;
(b) by a clearing corporation of a national exchange of which the Custodian is a
member; or (c) by a Depository. Notwithstanding the foregoing, (i) in the case
of a repurchase agreement, the Custodian may release funds to a Depository prior
to the receipt of advice from the Depository that the securities underlying such
repurchase agreement have been transferred by book-entry into the account
maintained with such Depository by the Custodian, on behalf of its customers,
provided that the Custodian's instructions to the Depository require that the
Depository make payment of such finds only upon transfer by book-entry of the
securities underlying the repurchase agreement in such account; (ii) in the case
of time deposits, call account deposits, currency deposits and other deposits,
foreign exchange transactions, futures contracts or options, the Custodian may
make payment therefor before receipt of an advice or confirmation evidencing
said deposit or entry into such transaction; and (iii) in the case of the
purchase of securities, the settlement of which occurs outside of the United
States of America, the Custodian may make, or cause a subcustodian appointed
pursuant to Section 3.S.2. of this Agreement to
-6-
<PAGE>
make, payment therefor in accordance with generally accepted local
custom and market practice.
G. Sales and Deliveries of Investments of the Fund -- Other than Options
and Futures
---------------------------------------------------------------------
Fund will, on each business day on which a sale of investment
securities (other than options and futures) of Fund has been made,
deliver to Custodian instructions specifying with respect to each such
sale:
1. If applicable, the name of the Portfolio making such sale;
2. The name of the issuer and description of the securities;
3. The number of shares and principal amount sold, and accrued
interest, if any;
4. The date on which the securities sold were purchased or other
information identifying the securities sold and to be delivered;
5. The trade date;
6. The settlement date;
7. The sale price per unit and the brokerage commission, taxes or
other expenses payable in connection with such sale;
8. The total amount to be received by Fund upon such sale; and
9. The name and address of the broker or dealer through whom or
person to whom the sale was made.
In accordance with such instructions, Custodian will deliver or cause to be
delivered the securities thus designated as sold for the account of Fund to the
broker or other person specified in the instructions relating to such sale.
Except as otherwise instructed by Fund, such delivery shall be made upon receipt
of payment therefor: (a) in such form as is satisfactory to the Custodian; (b)
credit to the account of the Custodian with a clearing corporation of a national
securities exchange of which the Custodian is a member; or (c) credit to the
account of the Custodian, on behalf of its customers, with a Depository.
Notwithstanding the foregoing: (i) in the case of
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<PAGE>
securities held in physical form, such securities shall be delivered
in accordance with "street delivery custom" to a broker or its
clearing agent; or (ii) in the case of the sale of securities, the
settlement of which occurs outside of the United States of America,
the Custodian may make, or cause a subcustodian appointed pursuant to
Section 3.S.2. of this Agreement to make, payment therefor in
accordance with generally accepted local custom and market practice.
H. Purchases or Sales of Options and Futures
-----------------------------------------
Fund will, on each business day on which a purchase or sale of the
following options and/or futures shall be made by it, deliver to
Custodian instructions which shall specify with respect to each such
purchase or sale:
1. If applicable, the name of the Portfolio making such purchase or
sale;
2. Security Options
a. The underlying security:
b. The price at which purchased or sold;
c. The expiration date;
d. The number of contracts;
e. The exercise price;
f. Whether the transaction is an opening, exercising, expiring
or closing transaction;
g. Whether the transaction involves a put or call;
h. Whether the option is written or purchased;
i. Market on which option traded; and
j. Name and address of the broker or dealer through whom the
sale or purchase was made.
-8-
<PAGE>
3. Options on Indices
a. The index;
b. The price at which purchased or sold;
c. The exercise price;
d. The premium;
e. The multiple;
f. The expiration date;
g. Whether the transaction is an opening, exercising, expiring
or closing transaction;
h. Whether the transaction involves a put or call;
i. Whether the option is written or purchased; and
j. The name and address of the broker or dealer through whom
the sale or purchase was made, or other applicable
settlement instructions.
4. Security Index Futures Contracts
a. The last trading date specified in the contract and, when
available, the closing level, thereof;
b. The index level on the date the contract is entered into;
c. The multiple;
d. Any margin requirements;
e. The need for a segregated margin account (in addition to
instructions, and if not already in the possession of
Custodian, Fund shall deliver a substantially complete and
executed custodial safekeeping account and procedural
agreement which shall be incorporated by reference into this
Custody Agreement); and
-9-
<PAGE>
f. The name and address of the futures commission merchant
through whom the sale or purchase was made, or other
applicable settlement instructions.
5. Options on Index Future Contracts
a. The underlying index future contract;
b. The premium;
c. The expiration date;
d. The number of options;
e. The exercise price;
f. Whether the transaction involves an opening, exercising,
expiring or closing transaction;
g. Whether the transaction involves a put or call;
h. Whether the option is written or purchased; and
i. The market on which the option is traded.
I. Securities Pledged or Loaned
----------------------------
If specifically allowed for in the prospectus of Fund, and subject to
such additional terms and conditions as Custodian may require:
1. Upon receipt of instructions, Custodian will release or cause to
be released securities held in custody to the pledgee designated
in such instructions by way of pledge or hypothecation to secure
any loan incurred by Fund; provided, however, that the securities
shall be released only upon payment to Custodian of the monies
borrowed, except that in cases where additional collateral is
required to secure a borrowing already made, further securities
may be released or caused to be released for that purpose upon
receipt of instructions. Upon receipt of instructions, Custodian
will pay, but only from funds available for such purpose, any
such loan upon redelivery to it of the
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<PAGE>
securities pledged or hypothecated therefor and upon surrender of
the note or notes evidencing such loan.
2. Upon receipt of instructions, Custodian will release securities
held in custody to the borrower designated in such instructions;
provided, however, that the securities will be released only upon
deposit with Custodian of full cash collateral as specified in
such instructions, and that Fund will retain the right to any
dividends, interest or distribution on such loaned securities.
Upon receipt of instructions and the loaned securities, Custodian
will release the cash collateral to the borrower.
J. Routine Matters
---------------
Custodian will, in general, attend to all routine and mechanical
matters in connection with the sale, exchange, substitution, purchase,
transfer, or other dealings with securities or other property of Fund
except as may be otherwise provided in this Agreement or directed from
time to time by the Fund in writing.
K. Deposit Accounts
----------------
Custodian will open and maintain one or more special purpose deposit
accounts in the name of Custodian ("Accounts"), subject only to draft
or order by Custodian upon receipt of instructions. All monies
received by Custodian from or for the account of Fund shall be
deposited in said Accounts. Barring events not in the control of the
Custodian such as strikes, lockouts or labor disputes, riots, war or
equipment or transmission failure or damage, fire, flood, earthquake
or other natural disaster, action or inaction of governmental
authority or other causes beyond its control, at 9:00 a.m., Kansas
City time, on the second business day after deposit of any check into
an Account, Custodian agrees to make Fed Funds available to the Fund
in the amount of the check. Deposits made by Federal Reserve wire will
be available to the Fund immediately and ACH wires will be available
to the Fund on the next business
-11-
<PAGE>
day. Income earned on the portfolio securities will be credited to the
Fund based on the schedule attached as Exhibit A. The Custodian will
be entitled to reverse any credited amounts were credits have been
made and monies are not finally collected. If monies are collected
after such reversal, the Custodian will credit the Fund in that
amount. Custodian may open and maintain Accounts in its own banking
department, or in such other banks or trust companies as may be
designated by it or by Fund in writing, all such Accounts, however, to
be in the name of Custodian and subject only to its draft or order.
Funds received and held for the account of different Portfolios shall
be maintained in separate Accounts established for each Portfolio.
L. Income and Other Payments to Fund
---------------------------------
Custodian will:
1. Collect, claim and receive and deposit for the account of Fund
all income and other payments which become due and payable on or
after the effective date of this Agreement with respect to the
securities deposited under this Agreement, and credit the account
of Fund in accordance with the schedule attached hereto as
Exhibit A. If, for any reason, the Fund is credited with income
that is not subsequently collected, Custodian may reverse that
credited amount.
2. Execute ownership and other certificates and affidavits for all
federal, state and local tax purposes in connection with the
collection of bond and note coupons; and
3. Take such other action as may be necessary or proper in
connection with:
a. the collection, receipt and deposit of such income and other
payments, including but not limited to the presentation for
payment of:
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<PAGE>
1. all coupons and other income items requiring
presentation; and
2. all other securities which may mature or be called,
redeemed, retired or otherwise become payable and
regarding which the Custodian has actual knowledge, or
should reasonably be expected to have knowledge; and
b. the endorsement for collection, in the name of the Fund,
of all checks, drafts or other negotiable instruments.
Custodian, however, will not be required to institute suit or take
other extraordinary action to enforce collection except upon receipt
of instructions and upon being indemnified to its satisfaction against
the costs and expenses of such suit or other actions. Custodian will
receive, claim and collect all stock dividends, rights and other
similar items and will deal with the same pursuant to instructions.
Unless prior instructions have been received to the contrary,
Custodian will, without further instructions, sell any rights held for
the account of Fund on the last trade date prior to the date of
expiration of such rights.
M. Payment of Dividends and other Distributions
--------------------------------------------
On the declaration of any dividend or other distribution on the shares
of capital stock of Fund ("Fund Shares") by the Board of Directors of
Fund, Fund shall deliver to Custodian instructions with respect
thereto. On the date specified in such instructions for the payment of
such dividend or other distribution, Custodian will pay out of the
monies held for the account of Fund, insofar as the same shall be
available for such purposes, and credit to the account of the Dividend
Disbursing Agent for Fund, such amount as may be specified in such
instructions.
13
<PAGE>
N. Shares of Fund Purchased by Fund
--------------------------------
Whenever any Fund Shares are repurchased or redeemed by Fund, Fund or
its agent shall advise Custodian of the aggregate dollar amount to be
paid for such shares and shall confirm such advice in writing. Upon
receipt of such advice, Custodian shall charge such aggregate dollar
amount to the account of Fund and either deposit the same in the
account maintained for the purpose of paying for the repurchase or
redemption of Fund Shares or deliver the same in accordance with such
advice. Custodian shall not have any duty or responsibility to
determine that Fund Shares have been removed from the proper
shareholder account or accounts or that the proper number of Fund
Shares have been cancelled and removed from the shareholder records.
O. Shares of Fund Purchased from Fund
----------------------------------
Whenever Fund Shares are purchased from Fund, Fund will deposit or
cause to be deposited with Custodian the amount received for such
shares. Custodian shall not have any duty or responsibility to
determine that Fund Shares purchased from Fund have been added to the
proper shareholder account or accounts or that the proper number of
such shares have been added to the shareholder records.
P. Proxies and Notices
-------------------
Custodian will promptly deliver or mail or have delivered or mailed to
Fund all proxies properly signed, all notices of meetings, all proxy
statements and other notices, requests or announcements affecting or
relating to securities held by Custodian for Fund and will, upon
receipt of instructions, execute and deliver or cause its nominee to
execute and deliver or mail or have delivered or mailed such proxies
or other authorizations as may be required. Except as provided by this
Agreement or pursuant to instructions hereafter received by Custodian,
neither it nor its nominee will exercise any power inherent in any
such securities, including any
14
<PAGE>
power to vote the same, or execute any proxy, power of attorney, or
other similar instrument voting any of such securities, or give any
consent, approval or waiver with respect thereto, or take any other
similar action.
Q. Disbursements
-------------
Custodian will pay or cause to be paid, insofar as funds are available
for the purpose, bills, statements and other obligations of Fund
(including but not limited to obligations in connection with the
conversion, exchange or surrender of securities owned by Fund,
interest charges, dividend disbursements, taxes, management fees,
custodian fees, legal fees, auditors' fees, transfer agents' fees,
brokerage commissions, compensation to personnel, and other operating
expenses of Fund0 pursuant to instructions of Fund setting forth the
name of the person to whom payment is to be made, the amount of the
payment, and the purpose of the payment.
R. Daily Statement of Accounts
---------------------------
Custodian will, within a reasonable time, render to Fund a detailed
statement of the amounts received or paid and of securities received
or delivered for the account of Fund during each business day.
Custodian will, from time to time, upon request by Fund, render a
detailed statement of the securities and monies held for Fund under
this Agreement, and Custodian will maintain such books and records as
are necessary to enable it to do so. Custodian will permit such
persons as are authorized by Fund, including Fund's independent public
accountants, reasonable access to such records or will provide
reasonable confirmation of the contents of such records, and if
demanded, Custodian will permit federal and state regulatory agencies
to examine the securities, books and records. Upon the written
instructions of Fund or as demanded by federal or state regulatory
agencies, Custodian will instruct any subcustodian to permit such
persons as are authorized by Fund, including Fund's independent public
accountants, reasonable access to such records or to provide
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<PAGE>
reasonable confirmation of the contents of such records, and to permit
such agencies to examine the books, records and securities held by
such subcustodian which relate to the Fund.
S. Appointment of Subcustodian
---------------------------
1. Notwithstanding any other provisions of this Agreement, all or
any of the monies or securities of Fund may be held in
Custodian's own custody or in the custody of one or more other
banks or trust companies acting as sub custodians as may be
selected by Custodian. Any such subcustodian selected by the
Custodian must have the qualifications required for a custodian
under the 1940 Act, as amended. Custodian shall be responsible to
the Fund for any loss, damage or expense suffered or incurred by
the Fund resulting from the actions or omissions of any
subcustodians selected and appointed by Custodian (except
subcustodians appointed at the request of Fund and as provided in
Subsection 2 below) to the same extent Custodian would be
responsible to the Fund under Section 5. of this Agreement if it
committed the act or omission itself. Upon request of the Fund,
Custodian shall be willing to contract with other subcustodians
reasonably acceptable to the Custodian for purposes of (i)
effecting third-party repurchase transactions with banks,
brokers, dealers, or other entities through the use of a common
custodian or subcustodian, or (ii) providing depository and
clearing agency services with respect to certain variable rate
demand note securities, or (iii) for other reasonable purposes
specified by Fund; provided, however, that the Custodian shall be
responsible to the Fund for any loss, damage or expense suffered
or incurred by the Fund resulting from the actions or omissions
of any such subcustodian only to the same extent such
subcustodian is responsible to the Custodian. The Fund shall be
entitled to review the
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<PAGE>
Custodian's contracts with any such subcustodians appointed at
the request of Fund. Custodian shall be responsible to the Fund
for any loss, damage or expense suffered or incurred by the Fund
resulting from the actions or omissions of any Depository only to
the same extent such Depository is responsible to Custodian.
2. Notwithstanding any other provisions of this Agreement, Fund's
foreign securities (as defined in Rule 17f-5(c)(1) under the 1940
Act) and Fund's cash or cash equivalents, in amounts deemed by
the Fund to be reasonably necessary to effect Fund's foreign
securities transactions, may be held in the custody of one or
more banks or trust companies acting as subcustodians, and
thereafter, pursuant to a written contract or contracts as
approved by Fund's Board of Directors, may be transferred to
accounts maintained by any such subcustodian with eligible
foreign custodians, as defined in Rule 17f-5(c)(2). Custodian
shall be responsible to the Fund for any loss, damage or expense
suffered or incurred by the Fund resulting from the actions or
omissions of any foreign subcustodian only to the same extent the
foreign subcustodian is liable to the domestic subcustodian with
which the Custodian contracts for foreign subcustody purposes.
T. Accounts and Records
--------------------
Custodian will prepare and maintain, with the direction and as
interpreted by the Fund, Fund's accountants and/or other advisors, in
complete, accurate and current form all accounts and records (i)
required to be maintained by Fund with respect to portfolio
transactions under Rule 31a of the 1940 Act, (ii) required to be
maintained as a basis for calculation of the Fund's net asset value,
and (iii) as otherwise agreed upon between the parties. The Custodian
shall also perform such accounting and recordkeeping functions and
other ministerial administrative services as are necessary
-17-
<PAGE>
to enable it to complete on a timely basis worksheets in the forms
attached hereto as Exhibit B, as they may be amended by agreement of
the parties from time to time (the "Worksheets"); provided, however,
that the Custodian shall not be responsible for rendering any legal or
tax advice or opinions in connection therewith, or for advising the
Fund as to the resolution of any compliance issues thereby identified.
Custodian will preserve all records prepared hereunder in the manner
and for the periods prescribed in the 1940 Act or for such longer
period as is agreed upon by the parties. Custodian relies upon Fund to
furnish, in writing or its electronic digital equivalent, accurate and
timely information needed by Custodian to complete Fund's records and
the Worksheets and perform daily calculation of the Fund's net asset
value. Custodian shall incur no liability and Fund shall indemnify and
hold harmless Custodian from and against any liability arising from
any failure of Fund to furnish such information in a timely and
accurate manner, even if Fund subsequently provides accurate but
untimely information. It shall be the responsibility of Fund to
furnish Custodian with the declaration, record and payment dates and
amounts of any dividends or income and any other special actions
required concerning each of its securities when such information is
not readily available from generally accepted securities industry
services or publications.
U. Accounts and Records Property of Fund
Custodian acknowledges that all of the accounts and records maintained
by Custodian pursuant to this Agreement are the property of Fund, and
will be made available to Fund for inspection or reproduction within a
reasonable period of time, upon demand. Custodian will assist Fund's
independent auditors, or upon approval of Fund, or upon demand, any
regulatory body, in any requested review of Fund's accounts and
records but shall be reimbursed by Fund for all expenses and employee
time invested in any such review outside of routine and normal
periodic reviews.
-18-
<PAGE>
Upon receipt from Fund of the necessary information or instructions,
Custodian will supply information from the books and records it
maintains for Fund that Fund needs for tax returns, questionnaires,
period reports to shareholders and such other reports and information
requests as Fund and Custodian shall agree upon from time to time.
V. Adoption of Procedures
Custodian and Fund may from time to time adopt procedures as they
agree upon, and Custodian may conclusively assume that no procedure
approved or directed by Fund or its accountants or other advisors
conflicts with or violates any requirements of its prospectus,
articles of incorporation, bylaws, any applicable law, rule or
regulation, or any order, decree or agreement by which Fund may be
bound. Fund will be responsible to notify Custodian of any changes in
statutes, regulations, rules, require ments or policies which might
necessitate changes in Custodian's responsibilities or procedures.
W. Calculation of Net Asset Value
Custodian will calculate Fund's net asset value, in accordance with
Fund's prospectus. Custodian will price the securities and foreign
currency holdings of Fund for which market quotations are available by
the use of outside services designated by Fund which are normally used
and contracted with for this purpose; all other securities and foreign
currency holdings will be priced in accordance with Fund's
instructions. Custodian will have no responsibility for the accuracy
of the prices quoted by these outside services or for the information
supplied by Fund or for acting upon such instructions, except to the
extent attributable to the negligence or willful misconduct of the
Custodian.
-19-
<PAGE>
X. Advances
In the event Custodian or any subcustodian shall, in its sole
discretion, advance cash or securities for any purpose (including but
not limited to securities settlements, purchase or sale of foreign
exchange or foreign exchange contracts and assumed settlement) for the
benefit of any Portfolio, the advance shall be payable by the Fund on
demand. Any such cash advance shall be subject to an overdraft charge
at the rate set forth in the then-current fee schedule from the date
advanced until the date repaid. As security for each such advance,
Fund hereby grants Custodian and such subcustodian a lien on and
security interests in all property at any time held for the account of
the applicable Portfolio, including without limitation all assets
acquired with the amount advanced. Should the Fund fail to promptly
repay the advance, the Custodian and each subcustodian shall be
entitled to utilize available cash and to dispose of such Portfolio's
assets pursuant to applicable law to the extent necessary to obtain
reimbursement of the amount advanced and any related overdraft
charges.
Y. Exercise of Rights; Tender Offers
Upon receipt of instructions, the Custodian shall: (a) deliver
warrants, puts, calls, rights or similar securities to the issuer or
trustee thereof, or to the agent of such issuer or trustee, for the
purpose of exercise or sale, provided that the new securities, cash or
other assets, if any, are to be delivered to the Custodian; and (b)
deposit securities upon invitations for tenders thereof, provided that
the consideration for such securities is to be paid or delivered to
the Custodian or the tendered securities are to be returned to the
Custodian.
4. INSTRUCTIONS.
A. The term "instructions," as used herein, means written (including
telecopied or telexed) or oral instructions which Custodian reasonably
believes were given by a designated representative of Fund. Fund shall
deliver to Custodian, prior to delivery
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<PAGE>
of any assets to Custodian and thereafter from time to time as changes
therein are necessary, written instructions naming one or more
designated representatives to give instructions in the name and on
behalf of the Fund, which instructions may be received and accepted by
Custodian as conclusive evidence of the authority of any designated
representative to act for Fund and may be considered to be in full
force and effect (and Custodian will be fully protected in acting in
reliance thereon) until receipt by Custodian of notice to the
contrary. Unless such written instructions delegating authority to any
person to give instructions specifically limit such authority to
specific matters or require that the approval of anyone else will
first have been obtained, Custodian will be under no obligation to
inquire into the right of such person, acting alone, to give any
instructions whatsoever which Custodian may receive from such person.
If Fund fails to provide Custodian any such instructions naming
designated representatives, any instructions received by Custodian
from a person reasonably believed to be an appropriate representative
of Fund shall constitute valid and proper instructions hereunder.
B. No later than the next business day immediately following each oral
instruction, Fund will send Custodian written confirmation of such
oral instruction. At Custodian's sole discretion, Custodian may record
on tape, or otherwise, any oral instruction whether given in person or
via telephone, each such recording identifying the parties, the date
and the time of the beginning and ending of such oral instruction.
C. If Custodian shall provide Fund direct access to any computerized
recordkeeping and reporting system used hereunder or if Custodian and
Fund shall agree to utilize any electronic system of communication,
Fund shall be fully responsible for any and all consequences of the
use or misuse of the terminal device, passwords, access instructions
and other means of access to such system(s) which are utilized by,
assigned to or otherwise made available to the Fund. Fund agrees to
implement and
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<PAGE>
enforce appropriate security policies and procedures to prevent
unauthorized or improper access to or use of such system(s). Custodian
shall be fully protected in acting hereunder upon any instructions,
communications, data or other information received by Custodian by
such means as fully and to the same effect as if delivered to
Custodian by written instrument signed by the requisite authorized
representative(s) of Fund. Fund shall indemnify and hold Custodian
harmless from and against any and all losses, damages, payments,
liability and reasonable costs and expenses, including reasonable
attorney's fees, which may be suffered or incurred by Custodian as a
result of the use or misuse, whether authorized or unauthorized, of
any such system(s) by Fund or by any person who acquires access to
such system(s) through the terminal device, passwords, access
instructions or other means of access to such system(s) which are
utilized by, assigned to or otherwise made available to the Fund,
except to the extent attributable to any negligence or willful
misconduct by Custodian.
5. LIMITATION OF LIABILITY OF CUSTODIAN.
A. Custodian shall at all times use reasonable care and due diligence and
act in good faith in performing its duties under this Agreement.
Custodian shall not be responsible for, and the Fund shall indemnify
and hold Custodian harmless from and against, any and all losses,
damages, payments, liability and reasonable costs and expenses,
including reasonable attorney's fees, which may be asserted against
Custodian, incurred by Custodian or for which Custodian may be held to
be liable, arising out of or attributable to:
1. All actions taken by Custodian pursuant to this Agreement or any
instructions provided to it hereunder, provided that Custodian
has acted in good faith and with due diligence and reasonable
care, except to the extent attributable to the negligence or
willful misconduct of the Custodian; and
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<PAGE>
2. The Fund's refusal or failure to comply with the terms of this
Agreement (including without limitation the Fund's failure to pay
or reimburse Custodian under this indemnification provision), the
Fund's negligence or willful misconduct, or the failure of any
representation or warranty of the Fund hereunder to be and remain
true and correct in all respects at all times.
B. Custodian may request and obtain, at the expense of Fund, the advice
and opinion of counsel for Fund or, of its own expense, the advice and
opinion of its own counsel with respect to questions or matters of
law, and it shall be without liability to Fund for any action taken or
omitted by it in good faith, in conformity with such advice or
opinion. If Custodian reasonably believes that it could not prudently
act according to the instructions of the Fund or the Fund's
accountants or counsel, it may in its discretion, with notice to the
Fund, not act according to such instructions.
C. Custodian may rely upon the advice and statements of Fund, Fund's
accountants and officers or other authorized individuals, and other
persons believed by it in good faith to be expert in matters upon
which they are consulted, and Custodian shall not be liable for any
actions taken, in good faith, upon such advice and statements.
D. If Fund requests Custodian in any capacity to take any action which
involves the payment of money by Custodian, or which might make it or
its nominee liable for payment of monies or in any other way,
Custodian shall be indemnified and held harmless by Fund against any
liability on account of such action; provided, however, that nothing
herein shall obligate Custodian to take any such action except in its
sole discretion.
E. Custodian shall be protected in acting as custodian hereunder upon any
instructions, advice, notice, request, consent, certificate or other
instrument or paper appearing to it to be genuine and to have been
properly executed. Custodian shall be entitled to receive upon request
as conclusive proof of any fact or matter required to be
-23-
<PAGE>
ascertained from Fund hereunder a certificate signed by an officer or
designated representative of Fund. Fund shall also provide Custodian
instructions with respect to any matter concerning this Agreement
requested by Custodian.
F. Custodian shall be under no duty or obligation to inquire into, and
shall not be liable for:
1. The validity of the issue of any securities purchased by or for
Fund, the legality of the purchase of any securities or foreign
currency positions or evidence of ownership required by Fund to
be received by Custodian, or the propriety of the decision to
purchase or amount paid therefor;
2. The legality of the sale of any securities or foreign currency
positions by or for Fund, or the propriety of the amount for
which the same are sold;
3. The legality of the issue or sale of any Fund Shares, or the
sufficiency of the amount to be received therefor;
4. The legality of the repurchase or redemption of any Fund Shares,
or the propriety of the amount to be paid therefor; or
5. The legality of the declaration of any dividend by Fund, or the
legality of the issue of any Fund Shares in payment of any stock
dividend.
G. Custodian shall not be liable for, or considered to be Custodian of,
any money represented by any check, draft, wire transfer,
clearinghouse funds, uncollected funds, or instrument for the payment
of money to be received by it on behalf of Fund until Custodian
actually receives such money; provided, however, that it shall advise
Fund promptly if it fails to receive any such money in the ordinary
course of business and shall cooperate with Fund toward the end that
such money shall be received.
H. Except as provided in Section 3.S., Custodian shall not be responsible
for loss occasioned by the acts, neglects, defaults or insolvency of
any broker, bank, trust company, or any other person with whom
Custodian may deal.
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<PAGE>
I. Custodian shall not be responsible or liable for the failure or delay
in performance of its obligations under this Agreement, or those of
any entity for which it is responsible hereunder, arising out of or
caused, directly or indirectly, by circumstances beyond the affected
entity's reasonable control, including, without limitation: any
interruption, loss or malfunction of any utility, transportation,
computer (hardware or software) or communication service; inability to
obtain labor, material, equipment or transportation, or a delay in
mails; governmental or exchange action, statute, ordinance, rulings,
regulations or direction; war, strike, riot, emergency, civil
disturbance, terrorism, vandalism, explosions, labor disputes,
freezes, floods, fires, tornados, acts of God or public enemy,
revolutions, or insurrection.
J. IN NO EVENT AND UNDER NO CIRCUMSTANCES SHALL EITHER PARTY TO THIS
AGREEMENT BE LIABLE TO ANYONE, INCLUDING, WITHOUT LIMITATION TO THE
OTHER PARTY, FOR CONSEQUENTIAL, SPECIAL OR PUNITIVE DAMAGES FOR ANY
ACT OR FAILURE TO ACT UNDER ANY PROVISION OF THIS AGREEMENT EVEN IF
ADVISED OF THIS POSSIBILITY THEREOF.
6. COMPENSATION. In consideration for its services hereunder as Custodian and
investment accounting and recordkeeping agent, Fund will pay to Custodian
such compensation as shall be set forth in a separate fee schedule to be
agreed to by Fund and Custodian from time to time. A copy of the initial
fee schedule is attached hereto and incorporated herein by reference.
Custodian shall also be entitled to receive, and Fund agrees to pay to
Custodian, on demand, reimbursement for Custodian's cash disbursements and
reasonable out-of-pocket costs and expenses, including attorney's fees,
incurred by Custodian in connection with the performance of services
hereunder. Custodian may charge such compensation against monies held by it
for the account of Fund. Custodian will also be
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<PAGE>
entitled to charge against any monies held by it for the account of Fund
the amount of any loss, damage, liability, advance, overdraft or expense
for which it shall be entitled to reimbursement from Fund, including but
not limited to fees and expenses due to Custodian for other services
provided to the Fund by Custodian. Custodian will be entitled to
reimbursement by the Fund for the losses, damages, liabilities, advances,
overdrafts and expenses of subcustodians only to the extent that (i)
Custodian would have been entitled to reimbursement hereunder if it had
incurred the same itself directly, and (ii) Custodian is obligated to
reimburse the subcustodian therefor.
7. TERM AND TERMINATION. The initial term of this Agreement shall be for a
period of one (1) year. Thereafter, either party to this Agreement may
terminate the same by notice in writing, delivered or mailed, postage
prepaid, to the other party hereto and received not less than sixty (60)
days prior to the date upon which such termination will take effect. Upon
termination of this Agreement, Fund will pay Custodian its fees and
compensation due hereunder and its reimbursable disbursements, costs and
expenses paid or incurred to such date and Fund shall designate a successor
custodian by notice in writing to Custodian by the termination date. In the
event no written order designating a successor custodian has been delivered
to Custodian on or before the date when such termination becomes effective,
then Custodian may, at its option, deliver the securities, funds and
properties of Fund to a bank or trust company at the selection of
Custodian, and meeting the qualifications for custodian set forth in the
1940 Act and having not less than Two Million Dollars ($2,000,000)
aggregate capital, surplus and undivided profits, as shown by its last
published report, or apply to a court of competent jurisdiction for the
appointment of a successor custodian or other proper relief, or take any
other lawful action under the circumstances; provided, however, that Fund
shall reimburse Custodian for its costs and expenses, including reasonable
attorney's fees, incurred in connection therewith. Custodian will, upon
termination of this Agreement and payment of all sums due to Custodian from
Fund
-26-
<PAGE>
hereunder or otherwise, deliver to the successor custodian so specified or
appointed, or as specified by the court, at Custodian's office, all
securities then held by Custodian hereunder, duly endorsed and in form for
transfer, and all funds and other properties of Fund deposited with or held
by Custodian hereunder, and Custodian will co-operate in effecting changes
in book-entries at all Depositories. Upon delivery to a successor custodian
or as specified by the court, Custodian will have no further obligations or
liabilities under this Agreement. Thereafter such successor will be the
successor custodian under this Agreement and will be entitled to reasonable
compensation for its services. In the event that securities, funds and
other properties remain in the possession of the Custodian after the date
of termination hereof owing to failure of the Fund to appoint a successor
custodian, the Custodian shall be entitled to compensation as provided in
the then-current fee schedule hereunder for its services during such period
as the Custodian retains possession of such securities, funds and other
properties, and the provisions of this Agreement relating to the duties and
obligations of the Custodian shall remain in full force and effect.
8. NOTICES. Notices, requests, instructions and other writings addressed to
Fund at 239 South Fifth Street, 12th Floor, Louisville, Kentucky 40202,
Attention: Kevin Howard, or at such other address as Fund may have
designated to Custodian in writing, will be deemed to have been properly
given to Fund hereunder; and notices, requests, instructions and other
writings addressed to Custodian at its offices at 127 West 10th Street,
Kansas City, Missouri 64105, Attention: Custody Department, or to such
other address as it may have designated to Fund in writing, will be deemed
to have been properly given to Custodian hereunder.
9. CONFIDENTIALITY.
A. Fund shall preserve the confidentiality of the computerized investment
portfolio recordkeeping and accounting system used by Custodian (the
"Portfolio Accounting System") and the tapes, books, reference
manuals, instructions, records, programs, documentation and
information of, and other materials relevant to, the Portfolio
-27-
<PAGE>
Accounting System and the business of Custodian ("Confidential
Information"). Fund shall not voluntarily disclose any such
Confidential Information to any other person other than its own
employees who reasonably have a need to know such information pursuant
to this Agreement. Fund shall return all such Confidential Information
to Custodian upon termination or expiration of this Agreement.
B. Fund has been informed that the Portfolio Accounting System is
licensed for use by Custodian from DST Systems, Inc. ("Licensor"), and
Fund acknowledges that Custodian and Licensor have proprietary rights
in and to the Portfolio Accounting System and all other Custodian or
Licensor programs, code, techniques, know-how, databases, supporting
documentation, data formats, and procedures, including without
limitation any changes or modifications made at the request or expense
or both of Fund (collectively, the "Protected Information"). Fund
acknowledges that the Protected Information constitutes confidential
material and trade secrets of Custodian and Licensor. Fund shall
preserve the confidentiality of the Protected Information, and Fund
hereby acknowledges that any unauthorized use, misuse, disclosure or
taking of Protected Information, residing or existing internal or
external to a computer, computer system, or computer network, or the
knowing and unauthorized accessing or causing to be accessed of any
computer, computer system, or computer network, may be subject to
civil liabilities and criminal penalties under applicable law. Fund
shall so inform employees and agents who have access to the Protected
Information or to any computer equipment capable of accessing the
same. Licensor is intended to be and shall be a third party
beneficiary of the Fund's obligations and undertakings contained in
this paragraph.
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<PAGE>
10. MULTIPLE PORTFOLIOS. If Fund is comprised of more than one Portfolio:
A. Each Portfolio shall be regarded for all purposes hereunder as a
separate party apart from each other Portfolio. Unless the context
otherwise requires, with respect to every transaction covered by this
Agreement, every reference herein to the Fund shall be deemed to
relate solely to the particular Portfolio to which such transaction
relates. Under no circumstances shall the rights, obligations or
remedies with respect to a particular Portfolio constitute a right,
obligation or remedy applicable to any other Portfolio. The use of
this single document to memorialize the separate agreement of each
Portfolio is understood to be for clerical convenience only and shall
not constitute any basis for joining the Portfolios for any reason.
B. Additional Portfolios may be added to this Agreement, provided that
Custodian consents to such addition, which consent shall not be
unreasonably withheld. Rates or charges for each additional Portfolio
shall be as agreed upon by Custodian and Fund in writing.
11. MISCELLANEOUS.
A. This Agreement shall be construed according to, and the rights and
liabilities of the parties hereto shall be governed by, the laws of
the State of Missouri, without reference to the choice of laws
principles thereof.
B. All terms and provisions of this Agreement shall be binding upon,
inure to the benefit of and be enforceable by the parties hereto and
their respective successors and permitted assigns.
C. The representations and warranties, the indemnifications extended
hereunder, and the provisions of Section 9. hereof are intended to and
shall continue after and survive the expiration, termination or
cancellation of this Agreement.
D. No provisions of the Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed
by each party hereto.
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<PAGE>
E. The failure of either party to insist upon the performance of any
terms or conditions of this Agreement or to enforce any rights
resulting from any breach of any of the terms or conditions of this
Agreement, including the payment of damages, shall not be construed as
a continuing or permanent waiver of any such terms, conditions, rights
or privileges, but the same shall continue and remain in full force
and effect as if no such forbearance or waiver had occurred. No
waiver, release or discharge of any party's rights hereunder shall be
effective unless contained in a written instrument signed by the party
sought to be charged.
F. The captions in the Agreement are included for convenience of
reference only, and in no way define or limit any of the provisions
hereof or otherwise affect their construction or effect.
G. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which together shall
constitute one and the same instrument.
H. If any provision of this Agreement shall be determined to be invalid
or unenforceable, the remaining provisions of this Agreement shall not
be affected thereby, and every provision of this Agreement shall
remain in full force and effect and shall remain enforceable to the
fullest extent permitted by applicable law.
I. This Agreement may not be assigned by either party hereto without the
prior written consent of the other party.
J. Neither the execution nor performance of this Agreement shall be
deemed to create a partnership or joint venture by and between
Custodian and Fund.
K. Except as specifically provided herein, this Agreement does not in any
way affect any other agreements entered into among the parties hereto
and any actions taken or omitted by either party hereunder shall not
affect any rights or obligations of the other party hereunder.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their respective duly authorized officers.
INVESTORS FIDUCIARY TRUST COMPANY
By: /s/ Allen Strain
---------------------------
Title: Executive Vice President
------------------------
STATE BOND MONEY FUNDS, INC.
By: /s/ Kevin L. Howard
---------------------------
Kevin L. Howard
Title: Secretary
------------------------
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<PAGE>
EXHIBIT A
---------
INVESTORS FIDUCIARY TRUST COMPANY
AVAILABILITY SCHEDULE BY TRANSACTION TYPE
<TABLE>
<CAPTION>
====================================================================================================================================
TRANSACTION DTC PHYSICAL FED
----------- --- -------- ---
- ------------------------------------------------------------------------------------------------------------------------------------
TYPE CREDIT DATE FUNDS TYPE CREDIT DATE FUNDS TYPE CREDIT DATE FUNDS TYPE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Calls Puts As Received C or F* As Received C or F*
- -----------------------------------------------------------------------------------------------------------------------------------
Maturities As Received C or F* Mat. Date C or F* Mat. Date F
- -----------------------------------------------------------------------------------------------------------------------------------
Tender Reorgs. As Received C As Received C N/A
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends Paydate C Paydate C N/A
- -----------------------------------------------------------------------------------------------------------------------------------
Floating Rate Int. Paydate C Paydate C N/A
- -----------------------------------------------------------------------------------------------------------------------------------
Floating Rate Int. N/A As Rate Received C N/A
(No Rate)
- -----------------------------------------------------------------------------------------------------------------------------------
Mtg. Backed P&I Paydate C Paydate + 1 C Paydate F
Bus. Day
- -----------------------------------------------------------------------------------------------------------------------------------
Fixed Rate Int. Paydate C Paydate C Paydate F
- -----------------------------------------------------------------------------------------------------------------------------------
Euroclear N/A C Paydate C
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Legend
- ------
C = Clearinghouse Funds
F = Fed Funds
N/A = Not Applicable
* Availability based on how received.
<PAGE>
TRANSFER AGENCY AGREEMENT
This Agreement, dated as of the 1st day of February, 1996, made by and between
State Bond Money Funds, Inc. (the "Fund"), a corporation operating as an open-
end investment company, duly organized and existing under the laws of the State
of Maryland, and ARM Transfer Agency, Inc. (the "Agent"), a Delaware
corporation;
WITNESSETH THAT:
WHEREAS, the Agent has agreed to act as Transfer Agent and Dividend Disbursing
Agent of the Fund, as Administrator of Plans, and to perform certain check
redemption procedures.
NOW, THEREFORE, in consideration of the premises and mutual covenants contained
herein, the parties hereto, intending to be legally bound, do hereby agree as
follows:
Section 1. The terms as defined in this Section wherever used in this
Agreement, or in any amendment or supplement hereto, shall have the meanings
herein specified, unless the context otherwise requires.
Bank: The term Bank shall mean the entity that maintains the Fund's check
redemption account.
Custodian: The term Custodian shall mean that entity which is acting as
Custodian of the Fund's assets from time to time.
Share Certificates: The term Share Certificates shall mean the stock
certificates for the Shares of the Fund.
Shareholders: The term Shareholders shall mean the registered owners from
time to time of the Shares of the Fund in accordance with the stock registry
records of the Fund.
Shares: The term Shares shall mean the issued and outstanding shares of
common stock of the Fund.
Plan: The term Plan shall include such investment plans, dividend or
capital gains reinvestment plans, systematic withdrawal plans or other types of
plans set forth in the prospectus of the Fund, in form acceptable to the Agent,
which the Fund may from time to time adopt and made available to its
Shareholders, including plans or accounts established for pension and profit-
sharing plans established by self-employed individuals and partnerships.
Planholder: The term Planholder shall mean a Shareholder who, at the time
of reference, is participating in a Plan, and shall include any underwriter,
representative or broker-dealer.
Section 2. The Fund hereby appoints the Agent as its Transfer, Redemption
and Dividend Disbursing Agent and as Administrator of its Plans, and the Agent
accepts such appointment and agrees to act in such capacities upon the terms set
forth in this Agreement.
TRANSFER AGENCY
Section 3. The Fund shall furnish to the Agent, as Transfer Agent, a
sufficient supply of blank Share Certificates and from time to time will renew
such supply upon the request of the Agent. Such blank Share Certificates shall
be signed manually or by facsimile signatures of officers of the Fund authorized
by law or the bylaws of the Fund to sign Share Certificates and, if required,
shall bear the corporate seal or a facsimile thereof.
Section 4. The Agent, as Transfer Agent, shall make original issues of
Shares in accordance with the provisions of Sections 14 and 15 below and the
Fund's prospectus.
Section 5. Transfers of Shares shall be registered and new shares issued
by the Agent upon surrender of outstanding shares (a) in form deemed by the
Agent to be properly endorsed for transfer, (b) with all necessary endorsers'
signatures guaranteed in such manner and form as the Agent may require by a
guarantor reasonably believed by the Agent to be responsible, accompanied by (c)
such assurances as the Agent shall deem necessary or appropriate to evidence the
genuineness and effectiveness of each necessary endorsement, and (d)
satisfactory evidence of compliance with all applicable laws relating to the
payment or collection of taxes.
<PAGE>
Section 6. When mail is used for delivery of Share Certificates, the Agent
shall forward Share Certificates in "non-negotiable" form by first-class mail,
and Share Certificates in "negotiable" form by registered mail, all mail
deliveries to be covered while in transit to the addressee by insurance arranged
for by the Agent.
Section 7. In registering transfers, the Agent, as Transfer Agent, may
rely upon the Uniform Commercial Code or any other statutes which in the opinion
of counsel protect the Agent and the Fund in not requiring complete
documentation, in registering transfer without inquiry into adverse claims, in
delaying registration for purposes of such inquiry, or in refusing registration
where in its judgment an adverse claim requires such refusal.
Section 8. The Agent, as Transfer Agent, may issue new Share Certificates
in place of Share Certificates represented to have been lost, destroyed or
stolen, upon receiving indemnity satisfactory to the Agent and may issue new
Share Certificates in exchange for, and upon surrender of, mutilated Share
Certificates.
Section 9. In case any officer of the Fund who shall have signed manually
or whose facsimile signature shall have been affixed to blank Share Certificates
shall die, resign or be removed prior to the issuance of such Share
Certificates, the Agent, as Transfer Agent, may issue or register such Share
Certificates as the Share Certificates of the Fund notwithstanding such death,
resignation or removal; and the Fund shall file promptly with the Agent such
approval, adoption or ratification as may be required by law.
Section 10. The Agent will maintain stock registry records in the usual
form in which it will note the issuance and redemption of Shares and the
issuance and transfer of Share Certificates, and is also authorized to maintain
an account entitled Unissued Certificate Account in which it will record the
Shares and fractions issued and outstanding from time to time for which issuance
of Share Certificates is deferred. The Agent is authorized to keep records,
which will be part of the stock transfer records, as well as its records of the
Plans, in which it will note the names and registered addresses of Planholders,
and the number of Shares and fractions from time to time owned by them for which
no Share Certificates are outstanding. Each Shareholder or Planholder, whether
he holds one or more Share Certificates or owns Shares held under one or more
Plans, or whether he holds or owns Shares by both methods, will be assigned a
single account number. Whenever a Shareholder deposits Shares represented by
Share Certificates in a Plan permitting the deposit of Shares thereunder, the
Agent, as Transfer Agent, upon receipt of the Share Certificates registered in
the name of the Shareholder (or, if not so registered, in proper form for
transfer), shall cancel such Share Certificates, debit the Shareholder's
individual stock account and credit the Shares to the Unissued Certificate
Account. The Agent, as Plan Administrator, shall credit the Shares so deposited
to the proper Plan account.
Section 11. The Agent will issue Share Certificates for Shares of the Fund
only upon receipt of a written request from a Shareholder. In all other cases,
the Fund authorizes the Agent to dispense with the issuance and countersignature
of Share Certificates whenever Shares are purchased. In such case, the Agent,
as Transfer Agent, shall merely note on its stock registry records the issuance
of the Shares and fractions (if any), shall credit the Unissued Certificate
Account with the Shares and fractions issued and shall credit the proper number
of Shares and fractions to the respective Shareholders. Likewise, whenever a
Shareholder requests the redemption of Shares for which the Agent's records
indicate that no Share Certificates have been issued, the Agent may cause said
Shares to be redeemed without tender of Share Certificates for same. The Fund
authorizes the Agent in such cases to process the transactions by appropriate
entries in its stock transfer records, and debiting of the Unissued Certificate
Account and the records of issued Shares outstanding.
Section 12. The Agent in its capacity as Transfer Agent will, in addition
to the duties and functions above-mentioned, perform the usual duties and
functions of a stock transfer agent for a corporation. It will countersign for
issuance or reissuance Share Certificates representing original issue or
reissued treasury shares, and will transfer Share Certificates, and Shareholder
account registrations where no Share Certificates are outstanding, registered in
the name of Shareholders from one Shareholder to another in the usual manner.
The Agent may rely conclusively and act without further investigation upon any
list, instruction, certification, authorization, Share Certificate or other
instrument or paper believed by it in good faith to be genuine and unaltered,
and to have been signed, countersigned or executed by duly authorized person or
persons, or upon the instructions of any officer of the Fund, or upon the advice
of counsel for the Fund or for the Agent. The Agent may record any transfer of
Share Certificates which is reasonably believed by it in good faith to have been
duly authorized or may refuse to record any transfer of Share Certificates if in
good faith the Agent in its capacity as Transfer Agent reasonable deems such
refusal necessary in order to avoid any liability either to the Fund or to the
Agent. The Fund agrees to indemnify and hold harmless the Agent from and
against any and all losses, costs, claims and liability which it may suffer or
incur by reason of so relying or acting or refusing to act.
Section 13. In case of any request or demand for the inspection of the
share records of the Fund, the Agent, as Transfer Agent, shall endeavor to
notify the Fund and to secure instructions as to permitting or refusing such
inspection. However, the Agent may exhibit such records to any person in any
case where it is advised by its counsel that it may be held liable for failure
to do so.
<PAGE>
ISSUANCE OF SHARES
Section 14. Prior to the daily determination of net asset value in
accordance with the Fund's prospectus, the Agent shall process all payments by
Shareholders and Planholders received in Federal Funds since the last
determination of the Fund's net asset value for which the Agent has sufficient
information to establish a new Shareholder account or purchase Shares for an
existing account. For purposes of this Section 14, the Fund hereby instructs
the Agent to consider Shareholder and Planholder payments as Federal Fund
according to the following schedule and the Fund's cash account with the
Custodian shall be deemed to have Federal Funds in accordance with the same
schedule:
a. Wire received prior to 3:00 p.m., Central time -- on the same day if
it is a business day of the Fund, otherwise on the next business day
which is both a business day of the Fund and the Agent;
b. Wire received on or after 3:00 p.m., Central time -- on the next day
which is a business day of both the Fund and the Agent;
c. Check received prior to 3:00 p.m., Central time -- on the second
following business day of both the Fund and the Agent;
d. Check received on or after 3:00 p.m., Central time -- on the third
following business day of both the Fund and the Agent.
Immediately after 3:00 p.m., Central time, on each day that both the Fund
and the Agent are open for business, the Agent shall obtain from the Fund a
quotation (on which it may conclusively rely) of the net asset value per Share
determined as of 3:00 p.m., Central time, on that day. The Agent shall proceed
to calculate the amount available for investment in Shares at the quoted net
asset value, the number of Shares and fractional Shares to be purchased and the
net asset value to be deposited with the Custodian. The Agent, as agent for the
Shareholder and Planholders, shall place a purchase order on each day that both
the Fund and Agent are open for business with the Fund for the proper number of
Shares and fractional Shares to be purchased and confirm such number to the Fund
in writing.
Section 15. The proper number of Shares and fractional Shares shall then
be issued daily and credited by the Agent to the Unissued Certificate Account.
The Shares and fractional Shares purchased for each Shareholder and Planholder
will be credited by the Agent to such Shareholder's or Planholder's separate
account. The Agent shall then cause to be mailed to each Shareholder and
Planholder a confirmation of each purchase, with copies to the Fund if
requested. Such confirmations will show the prior Share balance, the new Share
balance, the Shares held under a Plan (if any), the Shares for which Stock
Certificates are outstanding (if any), the amount invested and the price paid
for the newly purchased Shares.
REDEMPTIONS
Section 16. Except for check redemptions, which all shall be governed by
the check redemption procedures provided for in Sections 18 through 24, the
Agent shall, prior to the daily determination of net asset value in accordance
with the Fund's prospectus, process all requests from Shareholders to redeem
Shares received in accordance with the procedures set forth in the Fund's
prospectus. The Fund shall then quote to the Agent the applicable net asset
value, whereupon the Agent shall determine the number of Shares required to be
redeemed to make monthly payments, automatic payments or the like. The Agent
shall then advise the Fund of the number of Shares and fractional Shares
requested to be redeemed and shall process the redemption by filing with the
Custodian an appropriate statement and making the proper distribution and
application of the redemption proceeds in accordance with the Fund's prospectus.
The stock registry books recording outstanding Shares, the Unissued Certificate
Account and the individual account of the Shareholder or Planholder shall be
properly debited.
Section 17. The proceeds of redemption shall be remitted by the Agent in
accordance with the Fund's prospectus as follow:
(a) By check mailed to the Shareholder or Planholder at this registered
address. If a request for redemption of Shares is valued at $20,000 or more, or
the proceeds of the redemption are to be paid to someone other than the
Shareholder, a signature guarantee of a of a national securities exchange, a
member firm of a principal stock exchange, a registered securities association,
a clearing agency, a bank or trust company, a savings association, a credit
union, a broker, a dealer, a municipal securities broker or dealer, a government
securities broker or dealer, or a representative of the Distributor, the Agent
shall accompany the redemption request.
<PAGE>
(b) By wire to a designated bank upon telephone request without signature
guarantee, if such redemption procedure has been elected by the Shareholder or
Planholder's on an authorized form filed with the Agent and the redemption
proceeds are $500 or more. If a telephone redemption request is received before
3:00 p.m., Central time, the redemption shall be affected at the net asset value
determined on that same day and the redemption proceeds wired out, if $500 or
more, on that same day. If a telephone redemption request is received after
3:00 p.m., Central time, the redemption shall be affected at the net asset value
determined on the next business day and wired out, if $500 or more, on said next
business day. Any change in the designated bank account will be accepted by the
Agent only if made in writing by the Planholder or Shareholder with signature
guaranteed as required by paragraph (a) of this Section 17.
(c) By check redemption procedures as provided for in Sections 18 through
24.
(d) By other procedures commonly followed by mutual funds and mutually
agreed upon by the Fund and the Agent.
For the purposes of redemption of Shares which have been purchased by
uncertified check, such Shares may not be redeemed within 15 days after
purchase.
CHECK REDEMPTION
Section 18. The Agent shall perform check redemption services for the Fund
subject to the terms and conditions set forth in the Fund's prospectus. The
duties and obligations of the Agent with respect to check redemptions are
limited to those specifically set forth in Sections 18 through 24 of this
Agreement.
Section 19. The Fund shall maintain balances in a check redemption account
with the Bank which shall be sufficient to pay all checks received by the Bank
drawn against the check redemption account. The balance to be maintained in the
check redemption account shall be estimated from time to time by the Fund and
the Agent, based on redemption experience.
Section 20. The Agent shall provide, at the Fund's expense, check blank
forms for the check redemption account to Shareholders of the Fund who
appropriately request the same on the Fund's investment application form and
shall process checks drawn by said Shareholders on the check redemption account
in accordance with applicable laws and rules governing checks; provided,
however, that the Agent shall be required, in verifying the drawer's signature,
only to ascertain whether the signature(s) on the check reasonably appear to be
the signature(s) on the Shareholder's signature card, but shall not be required,
either as drawee or as redemption agent for any Shareholder, to obtain any
guarantee of any Shareholder signature.
Section 21. If there are not sufficient Shares in the drawer's Share
account which have been held for 15 days or more which are not represented by
issued Share Certificates to cover the check, the Agent shall direct the Bank
not to pay the check and shall immediately notify the Fund of such fact.
Section 22. The Agent shall, from time to time as often as necessary for
the purpose of properly performing its check redemption duties hereunder,
determine whether the Fund has deposited in the check redemption account
sufficient balances to pay all checks received by the Bank drawn against the
check redemption account. If the Fund has not deposited sufficient balances to
pay all such checks, the Bank shall pay checks only to the extent balances are
in the check redemption account. The Agent may select those checks to be paid
and those to be returned arbitrarily by any method selected by the Agent. If
checks received by the Bank drawn against the check redemption account exceed
the balances in the check redemption account, the Agent shall immediately notify
the Fund of such fact and give the Fund reasonable time to provide sufficient
collected balances. In no event shall "reasonable time" for the Fund to provide
sufficient collected balances extend beyond 10:00 a.m. on the day of the Bank's
midnight deadline with respect to any check. In no event shall the Agent
authorize the Bank to honor or pay checks drawn on the check redemption account
for which balances are not on hand in the check redemption account, and the Fund
hereby agrees to indemnify, defend and hold the Bank and the Agent harmless from
any loss, claim or expense arising out of the return of redemption checks due to
any such insufficiency of collected balances of which the Agent gave the Fund
immediate notices as required below.
Section 23. The Agent shall notify the Fund, as of the morning of the next
business day, of the balances in the check redemption account and a list of all
redemptions paid the preceding day, by name of Shareholder and amount.
Section 24. The Fund may terminate the check redemption procedure at any
time upon 30 days' written notice to the Agent, and in the event of such
termination, the effect shall be to delete all references to check redemption
procedures in this Agreement.
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
Section 25. It is mutually understood by the parties that the Fund intends
to declare daily dividends payable to Shareholders and Planholders of record as
of the close of business each day, and that all dividends are to be payable and
automatically reinvested in additional Shares as of the last business day of the
Fund each month, except in cases where Shareholders have elected to receive
dividends in cash, in which case checks will be mailed within three business
days after the payable date. On each business day, the Fund shall notify the
Agent of the amount of net income of the Fund earned for that business day and
the amount of net income that will be earned for the ensuing days that will not
be business days. Based on the number of Shares outstanding as of the close of
business on each such business day, the Agent shall thereupon compute the
dividends per Share payable with respect to the account of each Shareholder and
Planholder and monthly the number of additional Shares and fractional Shares to
be issued with respect to such dividends. The Agent shall notify the Fund
monthly of the total number of additional Shares and fractional Share issued and
the amount of dividends to be paid in cash. On or before the payment date for
each dividend, the Fund shall transfer, or cause the Custodian to transfer, to
the Agent sufficient cash to pay those dividends payable in cash on that payment
date. Dividend checks will be mailed by the Agent within three days after the
payment date. The Agent shall maintain records as to the additional Shares and
fractional Shares issued with respect to dividends which are reinvested in
additional Shares by crediting each Shareholder's or Planholder's account for
Shares purchased by them by means of reinvestment of dividends payable on Shares
in their account. The Agent shall cause to be mailed to each Shareholder and
Planholder a confirmation of each such purchase by reinvestment of such
dividend.
Section 26. In the event that the Fund changes its dividend policy or the
Fund orders the distribution of any extraordinary long-term gains, the Fund
shall notify the Agent of each resolution of the Fund's Board of Directors
declaring such distribution or change in its dividend policy, the amount payable
per share, the record date for determining Shareholders or Planholders entitled
to payment, the net asset value to be used for reinvestments of such other
distribution or dividends, and the payment date. The Agent shall, prior to the
designated payment date, calculate the amount of such dividend or other
distribution to be reinvested in Shares and fractional Shares of each
Shareholder and Planholder and the amount to be paid in cash. On or before each
payment date the Fund shall transfer, or cause the Custodian to transfer, to the
Agent sufficient cash to pay any such dividends or other distributions payable
in cash. Checks for such dividends or distributions payable in cash will be
mailed by the Agent within three business days after the payment date. The
Agent shall maintain records as to additional Shares and fractional Shares
issued with respect to such dividends or other distributions which are
reinvested in additional Shares by crediting each Shareholder's or Planholder's
account for Shares purchased by them by means of reinvestment of such dividends
or distributions payable on Shares in their account. The Agent shall cause to
be mailed to each Shareholder and Planholder a confirmation of each such
purchase by reinvestment of such dividend or distribution.
GENERAL PROVISIONS
Section 27. The Agent shall maintain records (which may be part of the
stock transfer records) in connection with the issuance and redemption of
Shares, the disbursement of dividends and the administration of the Plans and
dividend reinvestments, in which will be noted the transactions effected for
each Shareholder and Planholder and the number of Shares and fractional Shares
owned by each for which no Share Certificates are outstanding.
Section 28. In addition to the services provided for in this Agreement,
the Agent will perform other services for the Fund as agreed from time to time,
including but not limited to, preparation of and mailing Federal 1099 Forms,
mailing semi-annual reports of the Fund, preparation of an annual list of
Shareholders and Planholders, mailing notices of Shareholders' meetings, proxies
and proxy statements, and examination and tabulation of returned proxies and
certification of the vote to the Fund.
Section 29. Nothing contained in this Agreement is intended to or shall
require the Agent, in any capacity hereunder, to perform any functions or duties
on any holiday or other day of special observance on which the Agent is closed.
Functions or duties normally scheduled to be performed on such days shall be
performed on, and as of, the next business day on which the Fund and the Agent
are open.
Section 30. The Fund agrees to pay the Agent compensation for its services
and to reimburse the Agent for its expenses as shall be agreed upon from time to
time.
Section 31. The Agent shall not be liable for any taxes, assessments or
governmental charges which may be levied or assessed on any basis whatsoever,
upon the securities held or processed hereunder, or otherwise in connection with
the Agent's activities of status under this Agreement.
Section 32. The Agent, at any time, may apply to the Fund for instructions
with respect to any matter in connection with the Agent's performance of its
duties under this Agreement, and the Agent shall be entitled to rely
conclusively on such instructions from the Fund.
<PAGE>
The Fund will indemnify and hold the Agent harmless from all loss, cost,
damage and expense, including reasonable expenses for counsel, incurred by it
resulting from any claim, demand, action or omission by it in the performance of
its duties hereunder, or as a result of acting upon any instruction believed by
it to have been given by a duly authorized officer of the Fund; provided that
this indemnification shall not apply to actions or omissions of the Agent in
cases of its own willful misfeasance, bad faith, gross negligence or reckless
disregard of its duties hereunder; and further provided that, prior to
confessing any claim against it which may be the subject of this
indemnification, the Agent shall give the Fund reasonable opportunity to defend
against said claim in its own name or in the name of the Agent.
The Agent will indemnify and hold the Fund harmless from all loss, cost,
damage and expense, including reasonable expenses for counsel, incurred or
sustained by it as a result of or in connection with the Agent's failure to give
the Bank instructions to refuse acceptance and payment of any check under the
Fund's check redemption service which is wrongfully paid either when a signature
on a particular check is not authentic according to the applicable authorized
signature card supplied by the Shareholder or when the number of Shares in a
Shareholder's account is insufficient to cover the amount of the check.
Section 33. The practices and procedures of the Agent and the Fund set
forth in this Agreement, or any other terms or conditions of this Agreement, may
be altered or modified from time to time as may be mutually agreed by the
parties to this Agreement without the consent of any Shareholder or Planholder,
so long as the intent and purposes of the Plans, as stated from time to time in
the prospectus of the Fund, or other applicable limitations of the prospectus,
are observed. In special cases the parties hereto may adopt such procedures as
may be appropriate or practical under the circumstances, and the Agent may
conclusively assume that any special procedure which has been approved by the
Fund does not conflict with or violate any requirements of its Articles of
Incorporation, Bylaws or prospectus, or any rule, regulation or requirement of
any regulatory body.
Section 34. This Agreement may be amended from time to time by a
supplemental agreement executed by the Fund and the Agent.
Section 35. Either the Fund or the Agent may give 60 days' written notice
to the other of the termination of this Agreement, such termination to take
effect at the time specified in the notice.
Section 36. Any notice or other communication required by or permitted to
be given in connection with this Agreement shall be in writing, and shall be
delivered in person or sent by first-class mail, postage prepaid, to the
respective parties as follows:
If to the Fund:
State Bond Money Funds, Inc.
100 N. Minnesota Street
New Ulm, Minnesota 56073
ARM Transfer Agency, Inc.
100 N. Minnesota Street
New Ulm, Minnesota 56073
Section 37. This Agreement may be executed in two or more counterparts,
each of which when so executed shall be deemed an original, but such
counterparts shall together but one and the same instrument.
Section 38. This Agreement shall be governed by the laws of the State of
Minnesota.
Section 39. This Agreement shall extend and be binding upon the parties
hereto and their respective successor and assigns; provided, however, that this
Agreement shall not be assignable by the Fund without the written consent of the
Agent or by the Agent without the written consent of the Fund, authorized or
approved by a resolution of its Board of Directors.
Section 40. The accounts and records, in the agreed upon format, specified
herein to be maintained by the Bank shall be preserved for the period specified
by Rule 31a-2 under the Investment Company Act of 1940 and shall be the property
of the Fund and shall be made available to the Fund within a reasonable period
of time upon proper demand. The Agent shall assist the Fund's independent
auditors, or upon approval of the Fund or upon demand, any regulatory
<PAGE>
body, in any requested review of the Fund's accounts and records, but shall be
reimbursed for all expenses and employee time invested in any such review
outside of routine and normal periodic reviews. Upon receipt from the Fund of
the necessary information, the Agent shall supply the necessary data for the
Fund or accountant's completion of any necessary tax returns, questionnaires,
periodic reports to Shareholders and such other reports and information requests
as the Fund and the Agent shall agree upon from time to time.
IN WITNESS WHEREOF, the Fund and the Agent have caused this Agreement to be
signed by their receptive duly authorized officers as of the day and year first
above written.
STATE BOND MONEY FUNDS, INC.
By: __________________________________
Kevin L. Howard
Its: Secretary
__________________________
ARM TRANSFER AGENCY, INC.
By: __________________________________
John R. McGeeney
Its: Secretary
___________________________
<PAGE>
Consent of Independent Auditors
We consent to the references to our firm under the captions "Financial
Highlights" and "Independent Auditors" and to the use of our report dated
August 28, 1996, in the Post-Effective Amendment No. 15 to the Registration
Statement (Form N-1A) and related Prospectus of the State Bond Cash Management
Fund.
/s/ Ernst & Young LLP
Ernst & Young LLP
Kansas City, Missouri
September 30, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE ANNUAL REPORT
TO SHAREHOLDERS FOR THE STATE BOND CASH MANAGEMENT FUND AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000355988
<NAME> STATE BOND MONEY FUNDS, INC.
<SERIES>
<NUMBER> 01
<NAME> STATE BOND CASH MANAGEMENT FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-01-1995
<PERIOD-END> JUL-31-1996
<INVESTMENTS-AT-COST> 3,235,488
<INVESTMENTS-AT-VALUE> 3,235,488
<RECEIVABLES> 6,333
<ASSETS-OTHER> 3,085
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,244,906
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 26,138
<TOTAL-LIABILITIES> 26,138
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,218,768
<SHARES-COMMON-STOCK> 3,218,768
<SHARES-COMMON-PRIOR> 2,717,624
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 3,218,768
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 158,922
<OTHER-INCOME> 0
<EXPENSES-NET> 23,696
<NET-INVESTMENT-INCOME> 135,226
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 135,226
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,963,558
<NUMBER-OF-SHARES-REDEEMED> 4,627,488
<SHARES-REINVESTED> 165,074
<NET-CHANGE-IN-ASSETS> 501,144
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 11,817
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 105,383
<AVERAGE-NET-ASSETS> 2,954,250
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .05
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
