As filed with the Securities and Exchange Commission on August 29, 1995
Registration Nos. 2-77156 and 811-3454
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 16
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 16
STATE BOND MUNICIPAL FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
8400 Normandale Lake Boulevard, Suite 1150
Minneapolis, Minnesota 55473
(Address of Registrant's Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (612) 835-0097
Kevin L. Howard, Esq. Copies to:
239 S. Fifth Street, 12th floor Joel H. Goldberg, Esq.
Louisville, KY 40202-3271 Shereff, Friedman, Hoffman & Goodman,LLP
(Name and Address of Agent for Service) 919 Third Avenue
New York, New York 10022
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 NOVEMBER 1, 1995 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. The Rule 24f-2 Notice of the Registrant for the
fiscal year ended June 30, 1995 was filed on August 24, 1995.
CROSS-REFERENCE SHEET PURSUANT TO RULE 481(a) UNDER THE SECURITIES ACT OF 1933
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N-1A Item No.
<S> <C> <C>
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 5a. Management's Discussion of Fund Performance
Item 6. Capital Stock and other Securities................... GENERAL INFORMATION ABOUT
..................................................... STATE BOND TAX EXEMPT FUND;
..................................................... WHAT IS THE TAX STATUS OF THE
..................................................... DIVIDENDS AND DISTRIBUTIONS
..................................................... YOU RECEIVE? INVESTMENT
..................................................... PERFORMANCE
Item 7. Purchase of Securities Being Offered................. HOW CAN YOU INVEST IN THE
..................................................... FUND? HOW ARE THE FUND'S
..................................................... SALES CHARGES DETERMINED?
..................................................... WHAT IS THE FUND'S PLAN OF
..................................................... DISTRIBUTION? HOW DOES THE
..................................................... FUND'S EXCHANGE PRIVILEGE
..................................................... WORK? WHAT SERVICES DOES THE
..................................................... FUND OFFER?
Item 8. Redemption of Repurchase............................. HOW CAN YOU "SELL" YOUR
..................................................... SHARES?
Item 9. Legal Proceedings.................................... NOT APPLICABLE
Part B
Item 10. Cover Page........................................... COVER PAGE
Item 11. Table of Contents.................................... COVER PAGE
Item 12. General Information and History...................... GENERAL INFORMATION ABOUT
..................................................... TAX EXEMPT FUND
Item 13. Investment Objectives and Policies................... WHAT ARE THE FUND'S
..................................................... INVESTMENT OBJECTIVES,
..................................................... POLICIES AND RISKS? WHERE ARE
..................................................... FUND'S 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? THE
..................................................... MANAGER
Item 16. Investment Advisory and Other Services............... WHO MANAGES THE FUND?;
..................................................... TRANSFER AGENT; MANAGEMENT
..................................................... AGREEMENT AND EXPENSES; PLAN
..................................................... OF DISTRIBUTION; CUSTODIAN;
..................................................... INDEPENDENT AUDITORS
Item 17. Brokerage Allocation................................. PORTFOLIO TRANSACTIONS
Item 18. Capital Stock and Other Securities................... PURCHASE OF SHARES
Item 19. Purchase, Redemption and Pricing of Securities
Being Offered........................................ PURCHASE OF SHARES; HOW IS THE
..................................................... OFFERING PRICE DETERMINED?
..................................................... HOW CAN YOU "SELL" YOUR
..................................................... 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......................................... PLAN OF DISTRIBUTION; HOW ARE
..................................................... SHARES DISTRIBUTED?
Item 22. Calculation of Performance Data...................... CALCULATION OF PERFORMANCE
..................................................... DATA
Item 23. Financial Statements................................. FINANCIAL STATEMENTS
</TABLE>
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.
PROSPECTUS
STATE BOND TAX EXEMPT FUND
8400 Normandale Lake Blvd.
Suite 1150
Minneapolis, Minnesota 55437-3807
Phone (612) 835-0097
November 1, 1995
The State Bond Tax Exempt Fund (the "Fund") is a mutual fund which seeks to
maximize current income exempt from federal income taxes to the extent
consistent with preservation of capital, with consideration given to the
opportunity for capital gain. The Fund is the only investment portfolio of State
Bond Municipal Funds, Inc.
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,
8400 Normandale Lake Boulevard, Suite 1150, Minneapolis, Minnesota 55437-3807.
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 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.
TABLE OF CONTENTS
Page
SHAREHOLDER TRANSACTION AND OPERATING EXPENSE TABLE
FINANCIAL HIGHLIGHTS
WHAT ARE THE FUND'S INVESTMENT OBJECTIVES, POLICIES, AND RISKS?
HOW IS THE FUND MANAGED?
WHAT ARE THE FUND'S BROKERAGE COMMISSIONS?
HOW CAN YOU INVEST IN THE FUND?
HOW IS THE OFFERING PRICE OF THE FUND'S SHARES DETERMINED?
HOW ARE THE FUND'S SALES CHARGES DETERMINED?
HOW CAN YOU "SELL" YOUR SHARES?
HOW DOES THE FUND'S EXCHANGE PRIVILEGE WORK?
HOW DOES THE FUND PAY DIVIDENDS AND DISTRIBUTIONS?
WHAT IS THE TAX STATUS OF DIVIDENDS AND DISTRIBUTIONS YOU RECEIVE?
WHAT IS THE FUND'S PLAN OF DISTRIBUTION?
WHO ARE THE FUND'S FUND ACCOUNTING AGENT AND ITS CUSTODIAN?
WHAT SERVICES DOES THE FUND OFFER?
GENERAL INFORMATION ABOUT STATE BOND TAX EXEMPT FUND
INVESTMENT PERFORMANCE
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
SHAREHOLDER TRANSACTION AND OPERATING EXPENSE TABLE
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)4.50%
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average daily net assets)
Management Fee............................................................. .50%
12b-1 Fee.................................................................. .25%
Other Expenses............................................................. .18%
Total Fund Operating Expenses............................................ .93%
A fee will be charged for certain redemptions by wire transfer. See "How Can You
'Sell' Your Shares?"
EXAMPLE:
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:
1 Year 3 Years 5 Years 10 Years
- ------ ------- ------- --------
$54 $73 $94 $154
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 Fund's shares have an asset-based sales fee which may result in long-term
shareholders paying more than the economic equivalent of the maximum front-end
sales charge permitted by NASD regulations.
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 June 30, 1995. For more
information concerning fees and expenses, see "What Is The Fund's Plan Of
Distribution?" and "How Is The Fund Managed?" See "How Does The Exchange
Privilege Work?" for information on additional sales charges that may be payable
upon exchange into a fund in the State Bond Group which has a higher sales
charge.
FINANCIAL HIGHLIGHTS
The information presented below for the fiscal year ended June 30, 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 four-year period ended
June 30, 1994 has been audited by Deloitte & Touche LLP, the previous auditors
for the Fund. Further information about the performance of 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)
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<CAPTION>
YEAR ENDED JUNE 30
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995* 1994 1993 1992 1991 1990 1989 1988 1987 1986
Net asset value, beginning
of year $10.58 $11.09 $10.86 $10.52 $10.39 $10.56 $10.06 $10.13 $10.25 $9.75
Income from investment operations:
Net investment income .58 .59 .63 .68 .71 .72 .74 .74 .74 .80
Net realized and unrealized
gain (loss) on
investments .19 (.41) .34 .36 .13 (.12) .54 (.02) (.07) .50
------- ------- ------ ------- ------ -------- ------- -------- -------- -----
Total from investment
operations .77 .18 .97 1.04 .84 .60 1.28 .72 .67 1.30
Less distributions:
From net investment income
(.58) (.59) (.63) (.68) (.71) (.72) (.74) (.74) (.74) (.80)
From net realized
gain - (.10) (.11) .02 - (.05) (.04) (.05) (.05) -
------- ------- ------ ------- ------ -------- ------- -------- -------- -----
Total distributions (.58) (.69) (.74) (.70) (.71) (.77) (.78) (.79) (.79) (.80)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net asset value, end of
year $10.77 $10.58 $11.09 $10.86 $10.52 $10.39 $10.56 $10.06 $10.13 $10.25
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total Return** 7.53% 1.55% 9.30% 10.18% 8.39% 5.96% 13.24% 7.49% 6.62% 13.87%
Ratios and Supplemental Data:
Net assets, end of year
(in thousands) $81,642 $81,149 $80,055 $70,565 $60,841 $54,093 $48,307 $40,233 $33,977 $18,922
Ratio of expenses to
average net assets .93% .94% .93% .87% .73% .75% .77% .85% .96% 1.00%
Ratio of net investment
income to average net
assets 5.52% 5.37% 5.75% 6.33% 6.81% 6.95% 7.24% 7.40% 7.12% 7.93%
Portfolio turnover rate 15% 17% 21% 16% 8% 5% 12% 8% 1% 6%
- --------------------------------
* ARM Capital Advisors, Inc. began managing the investment operations of
the Fund on June 14, 1995.
** Total return does not consider the effects of the one time sales charge.
*** During fiscal 1986, the Fund's investment adviser voluntarily reimbursed
the Fund on a monthly basis for expenses incurred by it in excess of 1%
of average daily net assets. Without such voluntary reimbursement, the
ratio of expenses to average net assets in fiscal 1986 would have been
1.20%.
</TABLE>
WHAT ARE THE FUND'S INVESTMENT OBJECTIVES, POLICIES AND RISKS?
The Fund seeks to maximize current income exempt from federal income taxes to
the extent consistent with preservation of capital, with consideration given to
the opportunity for capital gain. In pursuing these goals, the Fund invests at
least 80% of the value of its assets in securities of states, territories, and
possessions of the United States and the District of Columbia, and their
political subdivisions, agencies, and instrumentalities, the interest on which
is exempt from federal income taxes ("Tax Exempt Securities"). Generally, the
values of the securities in which the Fund will invest, and accordingly the
value of the Fund's shares, will fall as interest rates rise and rise as
interest rates fall. There is no assurance that the Fund's goals will be
achieved.
The Tax Exempt Securities in which the Fund invests primarily consist of a
diversified portfolio of bonds rated Aaa, Aa, A, or Baa by Moody's Investors
Service, Inc. ("Moody's") or rated AAA, AA, A, or BBB by Standard & Poor's
Ratings Group ("S&P"), notes rated MIG-1, MIG-2, MIG-3 or MIG-4 by Moody's or
SP-1, SP-2 or SP-3 by S&P, and commercial paper rated Prime-1 or Prime-2 by
Moody's or A-1 or A-2 by S&P. The risk of default, including of nonpayment of
principal or interest, on bonds and notes rated in the lowest of these grades
(Baa or MIG-4 by Moody's or BBB or SP-3 by S&P) is higher than the risk on such
securities rated in the higher grades. Such securities are more speculative and
more sensitive to economic changes than higher rated bonds and notes. Although
it does not presently do so, and does not intend to do so in the foreseeable
future, the Fund may invest in bonds rated below A, or below MIG-3 and SP-2 in
the case of notes, including bonds and notes rated below investment grade. The
Fund may invest in Tax Exempt Securities which are not rated if, in the judgment
of ARM Capital Advisors, Inc. (the "Manager"), such securities are of comparable
quality to rated securities in which the Fund may invest.
As a matter of fundamental policy, at least 80% of the value of the Fund's
assets will be invested in Tax Exempt Securities. Up to 20% of the assets of the
Fund may generate interest that is an item of tax preference for purposes of the
federal alternative minimum tax ("AMT").
In addition, while the Fund attempts, under normal market conditions, to invest
100% of the value of its assets in Tax Exempt Securities, the Fund temporarily
may invest up to 20% of the value of its assets in taxable obligations (i) when
the Manager believes abnormal market conditions dictate a temporary defensive
posture in taxable obligations; (ii) pending investment of proceeds of sales of
shares or reinvestment of proceeds of sales of portfolio securities; or (iii) to
meet redemptions of shares by shareholders. The taxable obligations in which the
Fund may invest are obligations of the U. S. government, its agencies or
instrumentalities; other debt securities rated within the two highest grades by
either Moody's or S&P (or if unrated, of comparable quality in the opinion of
the Manager); commercial paper rated in the two highest grades by either of such
rating services (or of comparable quality); certificates of deposit, letters of
credit and bankers' acceptances of domestic banks and savings institutions
having total assets over one billion dollars or certificates of deposit of other
domestic banks or savings institutions which are fully insured by the Federal
Deposit Insurance Corporation; and repurchase agreements with respect to any of
the foregoing investments or Tax Exempt Securities which qualify for investment
by the Fund. The Fund may also hold its assets in cash.
TAX EXEMPT SECURITIES. The Tax Exempt Securities in which the Fund invests
consist of bonds, notes, and commercial paper issued by states, territories, and
possessions of the United States and the District of Columbia, and their
political subdivisions, agencies, and instrumentalities.
Bonds are debt obligations issued to obtain funds for various public purposes,
such as the construction or improvement of public facilities including airports,
highways, hospitals, housing, nursing homes, parks, public buildings,
recreational facilities, school facilities, and sewer and water works. Other
public purposes for which bonds may be issued include the refunding of
outstanding obligations, the anticipation of taxes or state aids, the payment of
judgments, the funding of student loans, community redevelopment, district
heating, the purchase of street maintenance and fire fighting equipment, or any
authorized corporate purpose of the issuer, except the payment of current
expenses. Notes and commercial paper are generally used to provide for
short-term capital needs and ordinarily have a maturity of up to one year. Notes
are frequently issued in anticipation of tax revenue, revenue from other
government sources or revenue from bond offerings. Short-term, unsecured
commercial paper is often used to finance seasonal working capital needs or to
provide interim construction financing. In addition, certain types of securities
(generally referred to as "private activity bonds") may be issued by or on
behalf of public authorities to finance privately operated pollution control
facilities, certain local water supply, gas, electricity or waste disposal
facilities, and the construction or improvement of certain other privately
operated facilities.
Tax Exempt Securities may also be classified into two types of obligations:
general obligation and limited obligation (or revenue) securities. General
obligation securities involve the pledge of the full faith and credit of an
issuer possessing taxing power and are payable from the issuer's general
unrestricted revenues and not from any particular fund or revenue source. The
characteristics and methods of enforcement of general obligation securities vary
according to the law applicable to the particular issuer. Limited obligation
(revenue) securities are payable only from the revenues derived from a
particular facility or class of facilities, or a specific revenue source, such
as the user of the facility. Private activity bonds are in most cases limited
obligation bonds payable solely from specific revenues of the project to be
financed. The credit quality of private activity bonds is therefore usually
directly related to the credit standing of the user of the facility (or the
credit standing of a third-party guarantor or other credit enhancement
participant, if any).
Like all debt obligations, Tax Exempt Securities are subject to credit risk and
market risk. Credit risk relates to the issuer's ability to make timely payments
of principal and interest. Market risk relates to the changes in market values
that occur as a result of variations in the level of prevailing interest rates,
yield relationships and other factors in the Tax Exempt Securities market.
Generally, higher quality Tax Exempt Securities will provide a lower yield than
lower quality Tax Exempt Securities of similar maturity and are subject to
lesser credit risk than lower quality Tax Exempt Securities. Furthermore, for
any given change in the level of interest rates, prices tend to fluctuate less
for higher quality issues than for lower quality issues, and more for longer
maturity issues than for shorter maturity issues.
FLOATING RATE, VARIABLE RATE, AND INVERSE FLOATING RATE SECURITIES. The Fund may
purchase floating and variable rate Tax Exempt Securities, which are Tax Exempt
Securities having a coupon (stated interest rate paid by the issuer) that is
adjusted or reset from time to time. Certain of these securities ("floating or
variable rate demand notes") have a stated maturity in excess of one year, but
permit the holder to demand payment of principal plus accrued interest upon a
specified number of days' notice. The issuer of floating or variable rate demand
notes normally has a corresponding right, after a given period, to prepay at its
discretion the outstanding principal amount of the notes plus accrued interest
upon a specified number of days' notice to the noteholders. The interest rate on
a floating rate demand note is based on a known lending rate, such as a bank's
prime rate and is adjusted automatically each time such rate is adjusted. The
interest rate on a variable rate demand note is adjusted at specified intervals,
based on a known lending rate, generally the rate on 90-day U.S. Treasury bills.
Frequently, floating or variable rate demand notes are secured by letters of
credit or other credit support arrangements provided by banks. The Fund will
invest in floating or variable rate demand notes so long as the letters of
credit or other credit support arrangements do not adversely affect the tax
exempt status of these obligations. The Manager will rely upon the opinion of
the issuer's bond counsel to determine whether such obligations are exempt from
federal income taxes.
The Fund also may invest in inverse or reverse floating rate Tax Exempt
Securities. Inverse or reverse floating rate Tax Exempt Securities are
securities with a coupon that moves in the reverse direction to an applicable
index, such as the London Interbank Offered Rate ("LIBOR"). Accordingly, the
coupon thereon will increase as interest rates decrease. Inverse or reverse
floating rate securities are typically more volatile than fixed rate or other
types of floating rate securities. Investments in inverse or reverse floating
rate securities may be made by the Fund to attempt to protect against a
reduction in the income earned on the Fund's investments due to a decline in
interest rates. The Fund would be adversely affected by the purchase of such
securities in the event of an increase in interest rates since the coupon
thereon will decrease as interest rates increase and the value of the securities
may decrease more than would other debt securities, including in some instances
to zero.
The Manager will monitor the creditworthiness of the issuers of floating rate,
variable rate, and inverse or reverse floating rate Tax Exempt Securities. Such
obligations are not as liquid as many other types of Tax Exempt Securities.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
broker-dealers and financial institutions. A repurchase agreement is an
agreement under which the Fund acquires an instrument subject to resale to the
seller at an agreed price and date. The resale price reflects an agreed-upon
return for the period the instrument is held by the Fund and is unrelated to the
coupon provided by the instrument. Repurchase agreements are usually for periods
of one week or less, but may be for longer periods. The Fund will not enter into
repurchase agreements of more than one week's duration if more than 10% of its
net assets would be invested in such agreements and other securities deemed to
be illiquid. 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.
WHEN-ISSUED SECURITIES. The Fund may enter into commitments to purchase new
issues of Tax Exempt Securities on a when-issued basis. Delivery and payment for
these securities normally take place 15 to 45 days after the date of commitment.
There is a risk that due to changes in interest rates between the commitment
date and settlement date the market value of the security on the settlement date
may be less than its purchase price. With regard to each commitment agreement
for when-issued securities, the Fund will maintain in a segregated account with
its custodian commencing on the commitment date, cash or Tax Exempt Securities
equal in value to the purchase price due on the settlement date under such
agreement.
The Fund will only make commitments to purchase when-issued Tax Exempt
Securities with the intention of actually acquiring the securities, but if
deemed advisable the Fund may sell these securities before the settlement date
or may meet its payment obligations from proceeds of the sale of the when-issued
securities themselves (which may then have a market value greater or less than
the Fund's payment obligation).
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 in an amount not 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; (2) mortgage or pledge assets, except that up to 10% of the
value of the Fund's total assets can be used to secure borrowings; or (3)
purchase securities of any issuer if immediately thereafter more than 5% of the
Fund's total assets would be invested in the securities of any one issuer,
except that this limitation does not apply to obligations issued or guaranteed
as to principal and interest either by the U.S. government or its agencies or
instrumentalities.
Except as specifically noted above, the investment policies described above are
not fundamental and the Board of Directors of the Fund may change them without
the vote of majority of the Fund's outstanding voting securities. The Board may
not change the Fund's investment objective, 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 present at a shareholders' meeting if more than
50% of the outstanding shares 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 address of the Manager 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 $3 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 Cash Management Fund, State Bond Common Stock Fund, State Bond Diversified
Fund, State Bond Minnesota Tax-Free Income Fund, and State Bond U.S. Government
and Agency Securities Fund.
Keith O. Martens, Executive Vice President-Investments of the Manager and Vice
President of the Fund, is responsible for selection of investments and
management of the Fund. Mr. Martens has managed the Fund since the Fund's
inception in April of 1982. Mr. Martens is also the principal manager of the
State Bond Common Stock Fund, State Bond Diversified Fund, State Bond U.S.
Government and Agency Securities Fund, State Bond Cash Management Fund and State
Bond Minnesota Tax-Free Income Fund.
The Fund pays the Manager a management fee, calculated daily and payable
monthly, equal to an annual fee of .5 of 1% of the average daily net assets of
the Fund. The Fund pays all its expenses other than those assumed by the
Manager. Total expenses of the Fund for its fiscal year ended June 30, 1995,
amounted to .93% of average daily net assets.
WHAT ARE THE FUND'S BROKERAGE COMMISSIONS?
The Manager places orders for the Fund's portfolio securities transactions. As
the Fund's portfolio is exclusively composed of debt (rather than equity)
securities, most of the Fund's portfolio transactions are effected with dealers
without the payment of brokerage commissions, but at net prices which usually
include a spread or markup. Most Fund transactions are with the issuer, or with
major dealers acting for their own account and not as brokers. In effecting
portfolio transactions the Fund seeks the most favorable net price consistent
with the best execution. However, frequently the Fund selects a dealer to effect
a particular transaction without contacting all dealers who might be able to
effect such transaction, because of the volatility of the market and the desire
of the Fund to accept a particular price for a security because the price
offered by the dealer meets its guidelines for profit, yield, or both. No
brokerage is allocated for the sale of Fund shares. The Fund will not deal with
affiliates of the Manager and Distributor in any transaction in which such
affiliate acts as principal.
While it is not expected that the Fund will effect any transactions on an agency
basis, if it does so the Manager will seek to obtain the best price and
execution of orders. Commission rates, being a component of price, are
considered together with other relevant factors. When consistent with these
criteria, business may be placed with broker-dealers who furnish investment
research services to the Manager. Such research services include advice, both
directly and in writing, as to the value of securities, the advisability of
investing in, purchasing, or selling securities, and the availability of
securities or purchasers or sellers of securities, as well as analyses and
reports concerning issues, industries, securities, economic factors and trends,
portfolio strategy, and the performance of accounts. This allows the Manager to
supplement its own investment research activities and enables it to obtain the
views and information of individuals and research staffs of many different
securities research firms prior to making investment decisions for the Fund. To
the extent portfolio transactions are effected with broker-dealers who furnish
research services to the Manager, the Manager receives a benefit, not capable of
evaluation in dollar amounts.
The Manager has not entered into any formal or informal agreements with any
broker-dealers, and it does not maintain any "formula" which must be followed in
connection with the placement of Fund portfolio transactions in exchange for
research services provided the Manager, except as noted below. If it is believed
to be in the best interests of the Fund, the Manager may place portfolio
transactions with brokers who provide the types of services described above,
even if it means the Fund will have to pay a higher commission (or, if the
broker's profit is part of the cost of the security, will have to pay a higher
price for the security) than would be the case if no weight were given to the
broker's furnishing of those services. This will be done, however, only if, in
the opinion of the Manager, the amount of additional commission or increased
cost is reasonable in relation to the value of the services. The Manager also
serves as investment adviser for other mutual funds. To the extent that the Fund
may pay a somewhat higher brokerage commission or somewhat higher price on a
trade because such trade is executed by a broker-dealer which also provides
research and statistical services, it is possible that said research and
statistical services may also be of value to one of the other mutual funds.
However, it is felt that this possibility of mutual benefit is not capable of
measurement.
HOW CAN YOU INVEST IN THE FUND?
SBM Financial Services, Inc. (the "Distributor"), a subsidiary of ARM, acts as
distributor and transfer agent of the Fund's shares. Its address is 8400
Normandale Lake Blvd., Suite 1150, Minneapolis, Minnesota 55437-3807.
Shares of the Fund are offered for sale through the Distributor and through
certain broker-dealers under contract with the Distributor. After you become a
shareholder, you may buy additional shares by sending a check drawn to State
Bond Tax Exempt Fund directly to the Fund's Shareholder Servicing Agent, SBM
Financial Services, Inc. at 8400 Normandale Lake Blvd., Suite 1150, Minneapolis,
Minnesota 55437-3807. Orders for the purchase of shares will be executed at the
offering price based upon the net asset value next determined after receipt and
acceptance of the order by the Distributor or the Shareholder Servicing Agent.
Orders for shares placed through broker-dealers will be executed at the offering
price next determined after the receipt of the order by the broker-dealer,
provided that the broker-dealer promptly transmits the order to the Distributor
the same day. The broker-dealer is responsible for transmitting the purchase
order to the Distributor. Shares will begin to earn dividends on the day when
payment for such shares is received by the Fund or the Distributor. The Fund
reserves the right to reject any order for the purchase of its shares. The
minimum initial investment is $500 and subsequent investments must be in the
amount of at least $50. The Fund reserves the right to change these minimum
investments. The Fund will not be responsible for the consequences of delays in
the banking or Federal Reserve wire systems.
HOW CAN YOU INVEST IN THE FUND?
The price you pay for shares of the Fund is the offering price, that is, the
next determined net asset value of the shares plus the applicable sales charge.
Net asset value per share is determined as of the time of close of the New York
Stock Exchange (generally 3:00 p.m. Central Time) on each day that the New York
Stock Exchange is open for business. Net asset value is determined by dividing
the value of the total assets of the Fund, less liabilities, by the number of
shares outstanding. In determining net asset value, the Fund utilizes the
valuations of its portfolio securities furnished by a pricing service approved
by the Board of Directors. The pricing service values portfolio securities which
have remaining maturities of more than sixty days from the date of valuation at
quoted bid prices or the yield equivalents when quotations are readily
available. Such securities for which quotations are not readily available (which
constitute a majority of the Fund's portfolio securities) are valued at fair
value as determined by the pricing service using methods which include
consideration of yields or prices of municipal bonds of comparable quality, type
of issue, coupon, maturity, and rating, indications as to value from dealers,
and general market conditions. The pricing service may employ electronic data
processing techniques and/or a matrix system to determine valuations. Short-term
holdings maturing in 60 days or less are valued at cost plus accrued interest
which approximates market value.
HOW ARE THE FUND'S SALES CHARGES DETERMINED?
Sales charges are determined in accordance with the following schedule:
<TABLE>
<CAPTION>
Regular Dealer Discount
% of Net Amount as % of
% of Offering Price Invested Offering Price
------------------- ------------------- --------------------
<S> <C> <C> <C>
Less than $50,000 4.50% 4.71% 4.00%
$50,000 but less than $100,000 4.00% 4.17% 3.50%
$100,000 but less than $250,000 3.00% 3.09% 2.50%
$250,000 but less than $500,000 2.50% 2.56% 2.00%
$500,000 but less than $1,000,000 2.00% 2.04% 1.50%
$1,000,000 but less than $2,000,000 1.00% 1.01% 0.50%
$2,000,000 or more 0.50% 0.50% 0.25%
</TABLE>
The sales charge varies depending on the size of the purchase, the number of
shares of the mutual funds in the State Bond Group you already own, whether you
have entered into a Letter of Intent to purchase additional shares during a
13-month period, or any special purchase programs in effect. Complete details of
how you may purchase shares at reduced sales charges under Volume Discounts,
Rights of Accumulation or Letters of Intent are contained in the Statement of
Additional Information and are available from your investment agent or dealer,
or the Distributor.
Shares may be sold at net asset value without a sales charge to present and
retired directors, present and retired officers, and present and retired
employees (and their spouses and minor children) of the Fund, the other
investment companies in the State Bond Group, and ARM and its subsidiaries. Such
sales also may be made to employee benefit plans for such persons. Also, shares
may be sold at net asset value to sales representatives of the Distributor and
registered representatives of broker-dealers who have signed dealer agreements
with the Distributor for sale of the shares of the Fund (including employee
benefit plans for such persons and their spouses and minor children). Shares may
be sold to any investment advisory, custodial, trust or other fiduciary account
managed or advised by the Manager or any affiliate wherein such entity has
discretionary investment authority at a maximum sales charge of 3% or such
lesser sales charge as such account would otherwise qualify for under the Fund's
sales charge schedule and the Volume Discount, Right of Accumulation, and Letter
of Intent provisions. These sales may be made for investment purposes only, and
shares may be resold only to the Fund.
HOW CAN YOU "SELL" YOUR SHARES?
You may redeem your shares without charge at any time by writing to the
Shareholder Servicing Agent at 8400 Normandale Lake Blvd., Suite 1150,
Minneapolis, Minnesota 55437-3807. You will receive the net asset value per
share next determined after receipt of your request in proper form by the
Shareholder Servicing Agent. The written redemption request should identify the
account number and be signed by the shareholder(s) exactly as the shares are
registered. For share redemptions valued at $20,000 or more, your signature or
signatures must be 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. Further
documentation may be required from corporations, executors, partnerships,
administrators, trustees or custodians. If stock certificates have been issued
for the shares that you wish to redeem, you must surrender the certificates in
proper form, endorsed for transfer or accompanied by an endorsed stock power.
For your protection, any certificates should be sent by registered mail.
Shares may also be redeemed through authorized dealers and through
representatives of the Distributor. Requests for redemption received by the
Shareholder Servicing Agent from authorized dealers or representatives of the
Distributor prior to the close of the New York Stock Exchange will be executed
at the net asset value per share determined at the close of the New York Stock
Exchange on that day. Dealers and representatives are responsible for promptly
submitting such redemption requests to the Shareholder Servicing Agent in order
to obtain that day's closing price. Requests for redemption received by the
Shareholder Servicing Agent from dealers or representatives of the Distributor
after the close of the New York Stock Exchange will be executed at the net asset
value determined at the close of the New York Stock Exchange on the next trading
day.
A check for the proceeds of the redemption of your shares ordinarily will be
mailed to you 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 fifteen days after purchase in order to allow the uncertified check
to clear. Proceeds of a redemption may be more or less than the cost of the
shares when purchased. You will not receive dividends on shares which are
redeemed from your account for the day that the redemption is effected.
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 have 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. Shares will not be involuntarily redeemed if
the value of the shares drops below $500 due to market value changes.
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 8400 Normandale Lake Blvd., Suite 1150, Minneapolis, Minnesota
55437-3807 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 the close of the New York Stock
Exchange 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.
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 8400 Normandale Lake Blvd., Suite
1150, Minneapolis, Minnesota 55437-3807. 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 $250 or more
(but not more that $100,000), provided that you have an account balance of
$5,000 or more. You may elect this service on the Investment Application or by
later written request to the Shareholder Servicing Agent at 8400 Normandale Lake
Blvd., Suite 1150, Minneapolis, Minnesota 55437-3807. 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 $250 or
more than $100,000 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.
HOW CAN YOU REINSTATE YOUR INVESTMENT?
If you redeem shares and then decide you should not have redeemed them, or that
you prefer to shift your investment to one of the other mutual funds in the
State Bond Group, you may, within 30 calendar days of the date of redemption,
use all or any part of the proceeds of the redemption to reinstate, free of
sales charge, your investment in shares of the Fund, or, if you held the shares
redeemed for seven calendar days or longer before redemption, invest in shares
of any of the other mutual funds (except the Cash Management Fund) in the State
Bond Group. To make such an investment free of sales charges in shares of the
State Bond Funds which have a higher sales charge than the Fund, you also must
have held the shares of the Fund for six months or longer before their
redemption. Your investment will be reinstated or made at the net asset value
per share next determined after your request is received. You may use this
privilege to reinstate an investment in the Fund only once.
Exercise of the Reinstatement Privilege does not alter the Federal income tax
status of any capital gain realized on a sale of Fund shares, but to the extent
that any shares are sold at a loss and the proceeds are reinvested in shares of
the same Fund, some or all of the loss will not be allowed as a deduction,
depending upon the percentage of the proceeds reinvested.
HOW DOES THE FUND'S EXCHANGE PRIVILEGE WORK?
If you have been a shareholder for seven calendar days or more, you may exchange
any or all of your investment for shares of the other mutual funds in the State
Bond Group. Any exchange for shares of other mutual funds in the State Bond
Group will be at the next determined respective net asset values after receipt
of the request for exchange. Exchanges generally will be made without any sales
charges; except that if, within six months of your investment in the Fund, you
exchange for shares of any fund in the State Bond Group which has a higher sales
charge, you must pay the difference in the sales charge applicable to the
purchase of shares of the Fund and the higher sales charge applicable to the
purchase of shares of such other fund. Exchanges of Fund 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 8400 Normandale Lake Blvd., Suite 1150,
Minneapolis, Minnesota 55437-3807. Shares also may 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 Investment 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 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 AND DISTRIBUTIONS?
The Fund declares daily dividends on all outstanding shares (dividends are
declared for the day on which shares are purchased but are not declared for
redeemed shares on the day of redemption). A shareholder who redeems all of his
of her Fund shares receives with the redemption proceeds the amount of all
dividends declared for the month to and including the date of redemption of
shares. Dividends in respect of all other redemptions are paid on the regular
dividend payment date. Distributions from taxable net realized investment gains,
if any, will generally be declared at least once each year.
WHAT ARE YOUR DIVIDEND AND GAIN DISTRIBUTION OPTIONS?
You may elect to:
1. Receive both dividends and gain distributions in additional shares of the
Fund.
2. Receive dividends in cash and gain distributions in additional shares of
the Fund.
3. Receive both dividends and gain distributions in cash.
If no election is made, dividends from investment income and gain distributions
will be reinvested and credited to your account as additional shares. Dividends
and gain distributions reinvestments are made at net asset value. To change your
election at any time, write to the Shareholder Servicing Agent at 8400
Normandale Lake Blvd., Suite 1150, Minneapolis, Minnesota 55437-3807.
WHAT IS THE TAX STATUS OF DIVIDENDS AND DISTRIBUTIONS YOU RECEIVE?
The Fund has fulfilled, and intends to continue to fulfill, the requirements of
the Internal Revenue Code of 1986, as amended (the "Code") which will enable it
to designate distributions from the interest income generated by its investments
in Tax Exempt Securities, which income is exempt from Federal income tax when
received by the Fund, as "Exempt Interest Dividends." Shareholders receiving
Exempt Interest Dividends will not be subject to Federal income tax on the
amount of such dividends.
Distributions by the Fund of net interest income received from certain temporary
investments and net short-term capital gains realized by the Fund, if any, will
be taxable to shareholders as ordinary income whether received in cash or
additional shares. Any distributions of net long-term capital gains will be
taxed as such, regardless of how long you have held your shares. Distributions
to shareholders will not qualify for the dividends received deduction for
corporations. Market discount recognized on taxable investments and Tax Exempt
Securities is taxable as ordinary income.
Up to 20% of the assets of the Fund may be invested in securities which generate
interest that is an item of tax preference for purposes of the Federal
alternative minimum tax ("AMT"). Moreover, all Exempt Interest Dividends
received by corporate shareholders will be a component of "adjusted current
earnings" for purposes of the corporate AMT. Individual and corporate taxpayers
whose taxable income plus certain tax preference items less an exemption amount
multiplied by the applicable alternative minimum tax rate exceeds regular
individual or corporate income tax liability (with certain adjustments) are
subject to AMT. Because AMT liability is dependent upon the regular tax
liability and tax preference items of a specific taxpayer, investors should
consult their tax advisers regarding the AMT consequences of an investment in
the Fund.
In addition, shareholders who are or may become recipients of Social Security
should be aware that exempt-interest dividends are includable in computing
"modified adjusted gross income" for purposes of determining the amount, if any,
of social security benefits required to be included in gross income for federal
and Minnesota personal income tax purposes.
The exemption from Federal income tax for distributions of interest income from
Tax Exempt Securities which are designated Exempt Interest Dividends will not
necessarily result in exemption under the income or other tax laws of any state
or local taxing authority. The laws of the several states and local taxing
authorities vary with respect to the taxation of such distributions, and
shareholders of the Fund are advised to consult their own tax advisors in that
regard.
Upon a sale or exchange of his or her shares, a shareholder will realize a
taxable gain or loss depending on his or her basis in the shares. Such gains or
loss will be treated as a capital gain or loss if the shares are capital assets
in the shareholder's hands and will be a long-term capital gain or loss if the
shares have been held for more than one year. Generally, any loss realized on a
sale or exchange will be disallowed to the extent shares disposed of are
replaced within a period of sixty-one days beginning thirty days before and
ending thirty days after the shares are disposed of. Any loss realized by a
shareholder on the sale of shares of the Fund held by the shareholder for six
months or less will be disallowed to the extent of any Exempt Interest Dividends
received by the shareholder with respect to such shares, and will be treated for
tax purposes as a long-term capital loss to the extent of any distributions of
net capital gains received by the shareholder with respect to such shares.
In certain circumstances (such as the exercise of an exchange privilege), a load
charge may not be taken into account in determining the gain or loss on the sale
on redemption of shares in the Fund within 90 days of their acquisition. In such
case, the load charge is treated as incurred with respect to the shares
subsequently purchased.
Under the Internal Revenue Code, interest on indebtedness incurred or continued
to purchase or carry Fund shares which is deemed to relate to exempt-interest
dividends is not deductible.
Entities or persons who are "substantial users" (or related persons) of
facilities financed by "private activity" bonds (some of which were formerly
referred to as "industrial development" bonds) should consult their tax advisers
before purchasing shares of the Fund. "Substantial user" is defined generally as
including a "non-exempt person" who regularly uses in its trade or business a
part of a facility financed from the proceeds of industrial development bonds.
Statements as to the tax status of dividends and distributions, and as to the
portion thereof attributable to each state of the United States, will be mailed
annually to shareholders. Shareholders should consult their own tax advisers
with respect to their own tax situations, including with respect to any
applicable state taxes applicable to an investment in the Fund.
WHAT IS THE FUND'S PLAN OF DISTRIBUTION?
The Fund has adopted a Plan of Distribution (the "Plan") pursuant to Rule 12b-1
under the Investment Company Act of 1940. Under the terms of the Plan, the Fund
pays the Distributor a monthly fee equivalent on an annual basis to .25 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, currently are prohibited from engaging in the business of
underwriting, selling or distributing certain types of securities. Such
institutions will only be allowed to provide administration, shareholder
service, and distribution assistance if the scope of the assistance is such
that, in the opinion of the Distributor, it does not fall within the
aforementioned prohibition.
WHO ARE THE FUND'S FUND ACCOUNTING AGENT AND ITS CUSTODIAN?
Investors Fiduciary Trust Company serves as the Fund's fund accounting agent,
and in that capacity, maintains certain books and records pursuant to an
agreement with the Fund. Its address is 127 West 10th Street, Kansas City,
Missouri 64105.
First Bank National Association, Minneapolis, Minnesota 55440 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 an
agreement with the Fund.
WHAT SERVICES DOES THE FUND OFFER?
Information about various shareholder services is included above under "How Can
You Sell' Your Shares?" In addition, the Fund also provides the following
services:
WHAT ABOUT SHAREHOLDER INFORMATION?
For general information about the Fund, call or write SBM Financial Services,
Inc., 8400 Normandale Lake Boulevard, Suite 1150, Minneapolis, Minnesota 55437.
Its telephone number is (800) 328-4735. For information about your account, call
or write the Shareholder Servicing Agent at 8400 Normandale Lake Blvd., Suite
1150, Minneapolis, Minnesota 55437-3807.
WHAT REPORTS WILL YOU RECEIVE FROM THE FUND?
As a shareholder, you will receive the Fund's annual and semi-annual reports.
You also will receive quarterly account statements confirming dividends paid by
the Fund, transactions in your account 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. Any existing certificates may be sent to the
Shareholder Servicing Agent to be transferred in your account to book credits.
OTHER SERVICES
Pre-Authorized Payments enable you to purchase Fund shares by authorizing your
bank to make regular payments from your bank account in fixed amounts.
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.
GENERAL INFORMATION ABOUT STATE BOND TAX EXEMPT FUND
State Bond Tax Exempt Fund is an investment portfolio of State Bond Municipal
Funds, Inc., a diversified open-end investment company, or mutual fund,
incorporated in Maryland on April 23, 1982. The Fund has only one class of
capital stock, common shares par value $.00001 per share. Each outstanding share
has one vote and an equal right to dividends and distributions, if any. All
shares have noncumulative voting rights for the election of directors. Each
share is fully paid and nonassessable, and each is freely transferable.
INVESTMENT PERFORMANCE
Advertisements and other sales literature for the Fund may refer to "yield,"
"tax equivalent yield," "average annual total return," "cumulative total return"
or data concerning the Fund's performance since its inception. When the Fund
advertises yield, it also will advertise its average annual total return for the
most recent one year, five year, and ten year periods.
When the advertised yield of the Fund is characterized as the "SEC 30-day
yield," it will be based upon a 30-day period stated in the advertisement and
calculated in accordance with a standardized method promulgated by regulations
of the Securities and Exchange Commission. Such yield is calculated by dividing
the net investment income per share (as defined in such regulations) earned
during the period by the maximum offering price per share on the last day of the
period. Maximum offering price includes the maximum sales charge and any other
nonrecurring charges. The result is then annualized using a formula that
provides for semi-annual compounding of income. The tax-equivalent yield is
calculated based on the Fund's yield, except that the yield is increased by
using a stated income tax to demonstrate the taxable yield necessary to produce
an after-tax yield equivalent to the Fund's yield.
Average annual total return is calculated by finding the average annual
compounded rate of return over the period that would equate the initial
investment to the ending redeemable value. Cumulative total return is the
percentage change between the public offering price of one Fund share at the
beginning of a period and the net asset value of that share at the end of the
period with dividend and capital gain distributions treated as reinvested. In
calculating the average annual total return and cumulative total return, the
maximum sales charge is deducted from the hypothetical investment and all
dividends and distributions during the period are assumed to be reinvested.
The Fund may from time to time compare its investment results to various
unmanaged indices or other mutual funds in reports to shareholders, sales
literature, and advertisements. This may include comparisons of relative
performance based upon data provided by services such as Lipper Analytical
Services, Incorporated. The results may be calculated on a total return and/or
yield basis for various periods, with or without sales charges. Results without
a sales charge will be higher. Total returns assume the reinvestment of all
dividends and capital gain distributions. The Fund also may refer to
publications which have mentioned the Fund, its Manager, or their personnel.
For additional information regarding the calculation of the Fund's yield, tax
equivalent yield and total return, see "Calculation of Performance Data" in the
Statement of Additional Information.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
The total return for the Fund's most recent fiscal year ended June 30, 1995 was
7.53%. This total return assumes the reinvestment of all distributions and does
not include the effects of the one time sales charge. The Fund's average annual
total return for its most recent one, five, and ten-year periods is shown in the
chart that follows.
The Fund's investment performance in its most recent fiscal year was primarily
affected by the changes in interest rates and investment decisions related to
these changes. During this fiscal year ended June 30, 1995, the Federal Reserve
continued its efforts to curb future inflationary pressures by increasing
short-term interest rates in August, November, and February by a total of 1.75%.
With these increases, the 30 year Treasury Bond yield, which began the fiscal
year at 7.60%, increased to over 8% in November, and held near that level
through December. However, even though the Federal Reserve increased short-term
interest rates by an additional 0.5% in February, the 30 year Treasury Bond
yield began to decrease in January and continued its downward trend, closing the
fiscal year near the 6.60% level as weaker economic data suggested a slowing
economy.
Beginning in mid-November and continuing to mid-February the Fund, using cash
balances and sales of some securities, took advantage of these higher rates and
purchased quality issues with coupons rates of 6.70% to 7.25% having maturities
between 16 and 28 years. This extension of duration aided the Fund's total
return for this reporting period as these bonds appreciated in value as the
interest rates declined, while also producing higher yields.
The Fund continued its practice of maintaining a conservative, high quality
investment portfolio by limiting its investments to A-rated securities or
better, and of selling any securities that received a downgrade to a rating
below A quality. The Fund also continued its practice of not purchasing or
holding securities that are subject to the Alternative Minimum Tax.
The following chart compares the performance of a hypothetical $10,000
investment in the Fund over the last ten years to the performance of an
investment in the Lehman Brothers Municipal Bond Index (the "Index"). The
information in the chart assumes that the maximum current sales charge was paid
upon acquisition of the Fund shares and reflects all expenses during the period
covered. The information in the chart regarding the performance of the
hypothetical investment in the Index assumes that no sales charge was paid upon
an investment in the Index and that there were no expenses associated with an
investment in the Index.
Funds average annual total return for the period ending June 30, 1995:
One Year.......................................... 2.68%
Five Years........................................ 6.36%
Life of Fund (since 1-28-88)...................... 7.86%
Past performance is not predictive of future performance.
The following table represents a graphical presentation comparing Fund and Index
Performance for the years 1986-1995.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year: 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
Fund Performance $10,885 $11,594 $12,462 $14,112 $14,953 $16,208 $17,859 $19,520 $19,823 $21,316
Index Performance $11,774 $12,789 $13,738 $15,303 $16,345 $17,818 $19,915 $22,297 $22,335 $24,305
</TABLE>
All performance data and figures are based upon past performance. The investment
return on and principal value of an investment in the Fund will fluctuate, so
that an investor's shares, when redeemed, may be worth more or less than their
original cost.
The above performance data for the Fund assumes the applicability of the current
maximum sales charge and does not include adjustments for expenses which have
changed during the periods reflected. The performance of the Fund is affected by
the imposition of the Rule 12b-1 plan, effective November 1, 1991, under which
Fund assets are used to pay distribution and account servicing costs. See "What
Is The Plan of Distribution?" above. In prior periods the Manager of the Fund
paid a portion of the Fund's expenses. See "Financial Highlights" above.
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 SBM Financial Services, Inc. This Prospectus does not constitute
an offer or solicitation by anyone in a state 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 State Bond Group of Mutual Funds
GENERAL AUTHORIZATION FORM
TO OPEN A NEW ACCOUNT BY MAIL:
1. Complete the General Authorization Form. Be sure to indicate the Fund
in which your Account should be opened. Also indicate the services you
will want to use. Special attention should be given to Section 11 of
the Form. Be sure to sign the certification in Section 11.
2. Send the completed Form and your check, payable to SBM Financial
Services, Inc. to: SBM Financial Services, Inc. - 100 N. Minnesota St.
- P.O. Box 69 New Ulm, MN 56073-0069 - (800) 328-4735
TO OPEN A NEW ACCOUNT BY BANK WIRE:
1. Call the fund at 800-328-4735 to obtain an Account Number in advance.
2. Instruct your bank to wire monies to:
The account of State Bank & Trust Company of New Ulm at the Federal
Reserve
Bank of Minneapolis, Account #091901202
For further credit to Account #780
(Name of Fund)
(Your name as your account is registered)
(Your new Account Number)
3. Complete the Investment Application, indicating the services you will
want to use. Special attention should be given to Section 3B of the
Form, where you should indicate appropriate wire information. Mail the
completed Form to: SBM Financial Services, Inc. - 100 N. Minnesota
Street - P.O. Box 69 - New Ulm, MN 56073-0069
PLEASE CHECK:
___ State Bond Tax Exempt Fund Date_______________
___ State Bond U.S. Government and Agency Securities Fund
___ State Bond Cash Management Fund
___ State Bond Minnesota Tax-Free Income Fund
THIS FORM MAY NOT BE USED TO ESTABLISH OR REVISE AN ACCOUNT OR SERVICE IN STATE
BOND COMMON STOCK FUND OR STATE BOND DIVERSIFIED FUND. FORMS FOR THOSE FUNDS ARE
INCLUDED IN THEIR PROSPECTUSES, COPIES OF WHICH MAY BE OBTAINED FROM SBM
FINANCIAL SERVICES, INC., 100 N. MINNESOTA ST., P.O. BOX 69, NEW ULM, MN
56073-0069.
- --------------------------------------------------------------------------------
I wish to establish ___ or revise ___ an Account (No. _______________) ___ check
enclosed for $___________ in the mutual fund checked above in accordance with
these instructions, the terms and conditions of this Form and the current
prospectus of the Fund, a copy of which I have received.
- --------------------------------------------------------------------------------
1. REGISTRATION:
PLEASE PRINT NAME(S) IN WHICH AGE SHARES ARE TO BE REGISTERED WITH TRUST NAME IF
APPLICABLE______________________________________________________________________
MAILING ADDRESS:________________________________________________________________
STREET OR P.O. BOX______________________________________________________________
CITY____________________________ STATE______ ZIP CODE_________
HOME PHONE______________________
BUSINESS PHONE__________________
AGE_____
BIRTHDATE_____
- --------------------------------------------------------------------------------
2. LEGAL FORM OF OWNERSHIP (check one)
1. ___ Individual ownership
2. ___ Joint tenants with right of survivorship
3. ___ Tenants in common
4. ___ Corporate ownership
5. ___ Partnership ownership
6. ___ Uniform Gifts/Transfers to Minors Act of State of
7. ___ IRA*
8. ___ Tax-Qualified Retirement Plan*
9. ___ Trust (date trust established )
* Additional documentation may be required.
OBJECTIVE SUITABILITY INFORMATION
_______ Conservation of Capital Approx. income $______________
_______ Income Approx. Net Worth (exclusive
_______ Long term growth of property, home, furnishings
_______ Speculative capital gains and automobiles)$_____________
_______ Deferral of taxes Approx. Tax Bracket___________
Employer_________________________________________
Business Address_________________________________
_________________________________
Occupation_______________________________________
Is client of legal age? ___ Yes ___ No
Is client employed by or registered with another securities firm? ___ No
____ Yes with_________________________________________
Prior investment experience years_____
NOTE: if client refuses to provide information have client initial here_________
- --------------------------------------------------------------------------------
3. INITIAL INVESTMENT
A. If purchase is by check: attach it to application and mail to the Fund.
Enclosed is my check payable to SBM Financial Services, Inc. for $__________
B. If purchase is by wire, instruct your bank to follow the wire instructions.
Wire sent in the amount of $________ through (NAME OF BANK)__________________
Fund Account Number_______________ Date of Wire__________ Branch_____________
- --------------------------------------------------------------------------------
4. DIVIDENDS AND GAIN DISTRIBUTIONS
I elect to receive: ___ 1. Dividends in shares, gain distributions in
shares.
___ 2. Dividends in cash, gain distributions
in shares.
___ 3. Dividends in cash, gain distributions
in cash.
NOTE: IF NO ELECTION IS MADE, OPTION NO. 1 AUTOMATICALLY
WILL BE PUT INTO EFFECT.
Dividends and gain distributions will be invested at net asset value.
These options do not apply for Automatic Cash Withdrawal Service.
- --------------------------------------------------------------------------------
5. PRE-AUTHORIZED PAYMENTS
___ Please arrange with my bank to draw pre-authorized
payments and invest $ __________________in my Account
___ Monthly ___ Twice a Month ___ Every Other Month ___
Quarterly on the: ___ 1st of Month ___ 16th of Month
I have completed the attached "Bank Authorization to Honor Pre-Authorized
Payments." (Also complete Section 4 above)
- --------------------------------------------------------------------------------
6. AUTOMATIC CASH WITHDRAWAL
___ Please send a check for $________beginning on the 15th day of_____________
19____, and thereafter on the 15th day of every:
___ Month ___3rd Month___ 6th Month ___ 12th Month
Make payments to:
Name_________________________________________
Address _____________________________________
City___________________ State_______ Zip_____
Shares having a current value at offering price of $5,000 or more must be held
in the Account at initiation of Service, and all shares must be in "book credit"
form.
- --------------------------------------------------------------------------------
7. LETTER OF INTENT
I intend to purchase, although I am not obligated to do so, shares of the
above-designated Fund, and one or more of the other mutual funds in the State
Bond Group which bear a sales charge as written in below, within a 13-month
period which, together with the present net total asset value of sharesnow
owned, by me, will aggregate at least:
___ $50,000 ___ $100,000 ___ $250,000
___ $500,000 ___ $1,000,000 ___ $2,000,000
I agree to the escrowprovisions contained in this application.
___ This Letter of Intent may bebackdated up to 90 days to include shares
previously purchased. Backdate to_________________.
- --------------------------------------------------------------------------------
8. DIVIDEND DIRECTION OPTION
If you wish to have your dividend payments made to another party
please complete the following:
I hereby authorize and request that my dividend payments be made to:
Name____________________________________________________________________________
Address _______________________________________________________________________
City__________________________________ State______________________Zip___________
Signature Investor______________________________________________________________
Signature Co-Investor___________________________________________________________
- --------------------------------------------------------------------------------
9. CHECK REDEMPTION SERVICE
All registered owners of your Fund Account (as listed in Section 1) must sign
below. I (we) understand if this Check Redemption Service is elected, that no
certificates for shares will be issued. By signing this section, I (we) agree to
all of the terms and conditions set forth in the prospectus and application.
1.____________________________ 2.___________________________
3.____________________________ 4.___________________________
___ Check here if only one signature is required on checks
___ Check here if a combination is required and specify number
ACCOUNTS IN THE NAMES OF CORPORATIONS, TRUSTS, PARTNERSHIPS, ETC. MUST INDICATED
THE LEGAL TITLES OF ALL AUTHORIZED SIGNATORIES. SHAREHOLDERS ELECTING THIS
SERVICE ARE SUBJECT TO THE CONDITIONS CONTAINED IN THIS APPLICATION.
- --------------------------------------------------------------------------------
10. QUICK REDEMPTION SERVICE
NO REDEMPTION OF SHARES PURCHASED BY CHECK WILL BE PERMITTED WITHIN 15 DAYS OF
THE CREDIT OF THOSE SHARES TO YOUR ACCOUNT.
I hereby authorize the Fund to honor telephone or written instructions received
from me for the redemption of Fund shares without a signature and believed by
the Fund to be genuine. To provide me with the proceeds of the redemption
quickly, proceeds in the minimum amount indicated in the Fund's current
Prospectus will be sent ONLY to the commercial bank listed below for credit to
my account. I understand that records of such instructions will be binding.
Please wire proceeds to______________________________________
Name of Commercial Bank
(Savings Bank May Not Be Used)
Account Name__________________________
Account Number________________________
Address of Bank_________________________________________
City_________________________State_____Zip Code_________
Date_________________
SIGN HERE: Signature(s) of Investor(s) (x)_______________(x)____________________
- --------------------------------------------------------------------------------
11. SIGNATURE
Under penalties of perjury I certify that the number shown on this form is my
correct taxpayer identification number/social security number and that I am not
subject to backup withholding either because I have not been notified that I am
subject to backup withholding as a result of a failure to report all interest or
dividends, or the Internal Revenue Service has notified me that I am no longer
subject to backup withholding. I (we) certify that I (we) are of legal age and
that I (we) have legal capacity to purchase or redeem shares of the Fund for my
(our) own Account, or for the Account of the organization named below. I (we)
have received a current Prospectus of the Fund and appoint SBM Financial
Services, Inc. as my (our) agent to act in accordance with my (our) instructions
herein.
SIGNATURE (x)__________________________ SIGNATURE (x)___________________________
SOC. SEC. NO. OR TAXPAYER SOC. SEC. NO. OR TAXPAYER
IDENTIFICATION NO._____________________IDENTIFICATION NO._______________________
- --------------------------------------------------------------------------------
12. DEALER INFORMATION ONLY
Please establish the Account specified by the investor and purchase through SBM
Financial Services, Inc., general distributor, at the public offering price,
shares which you are authorized to purchase from us for the investor. The
investor is authorized To send any future payments directly to you for
investment. Confirm each transaction to the investor and to us. We guarantee the
genuineness of the investor's signature. We are a duly registered and licensed
dealer and have a sales agreement with SBM Financial Services, Inc.
Dealer Name __________________________________________
Address_______________________________________________
City___________________State________Zip Code__________
Representative's Name__________________________________Number___________________
Address_______________________________________________
City___________________State________Zip Code__________
(x) Authorized Signature of Broker/Dealer________________________Date___________
Representative's Phone Number (____ )________
- --------------------------------------------------------------------------------
FOR INTERNAL USE ONLY
Accepted by: SBM Financial Services, Inc.
# of shares owned:
Net asset value as of date of LOI:
Value as of date of LOI
By_________________________________________
Authorized Signature
Accounts eligible for the Rights of Accumulation or to be used toward completion
of a Letter of Intent.
Name Fund Account No.
Name Fund Account No.
Name Fund Account No.
Name Fund Account No.
Name Fund Account No.
The State Bond Group of Mutusl Funds
Request and Authorization for Pre-Authorization Payments
To: SBM Financial Services, Inc.
100 North Minnesota Street
P.O. Box 69
New Ulm, MN 58073-0069
To Start your Pre-Authorized Payment Service, fill out Section A and the
"Bank Authorization to Honor Pre-Authorized Payments" below, and forward it with
an unsigned blank check from your regular checking account (marked "void").
================================================================================
A. PRE-AUTHORIZED PAYMENTS
Please arrange with my bank to draw pre-authorized payments and invest
$________________ in my Account:
_____Monthly _____ Twice a Month _____ Every Other Month ______ Quarterly
On the ___1st of Month ___16th of Month
I have completed the "Bank Authorization To Honor Pre-Authorized Payments"
below.
If notcompleted, the 1st will be assumed.
Starting Month______________Signature(s) of Investor(s)_________________________
================================================================================
BANK AUTHORIZATION TO HONOR PRE-AUTHORIZED PAYMENTS
AUTHORIZATION TO HONOR DEBITS (INCLUDING CHECKS, DRAFTS, AND OTHER ORDERS
WHETHER BY ELECTRONIC OR PAPER MEANS) BY SBM Financial Services, Inc..
Depositor's Name:_______________________________________________________________
(Print name(s) exactly as shown on my Bank, or other Financial Institution,
Account)
Depository Name:_______________________________________________________________
(Print name of Bank or Financial Institution and Branch, if any)
________________________________________________________________________________
(Print address of Bank, Financial Institution or Branch where Account is
maintained)
I hereby authorize SBM Financial Services, Inc. to initiate debt entries to my
account as listed below and the depository named above to debit the same to such
account. This authorization will remain in full force and effect until SBM
Financial Services, Inc. and depository receive written notification from either
of them to the other and in such time and in such manner so as to afford SBM
Financial Services, Inc. and depository a reasonable opportunity to act on it.
Signature of Depositor X____________________________________________________
If required by the Financial Institution,
Signature of Joint Depositor X_________________________________________________
My Account Number at said Financial Institution is_______________Date___________
SBM Financial Services, Inc.
100 North Minnesota Street
P.O. Box 69
New Ulm, Minnesota 56073-0069
TERMS AND CONDITIONS
OPEN ACCOUNT
Investments will be made in as many shares of the Fund, including fractions
to the third decimal place, as can be purchased at the public offering price at
the close of business on the day the order is accepted. Shareholders will
receive dividends from investment income and any distributions from long-term
gain realized on investments in shares or in cash according to the option
elected. Dividend and gain options may be changed at any time by notifying the
Fund in writing. Stock certificates will not be issued.
PRE-AUTHORIZED PAYMENT SERVICE
The Pre-Authorized Payment Service is available to all shareholders. Your
application is subject to acceptance by your bank and the Fund. Payments in the
amount specified will be drawn automatically on your bank on the day of each
month in which an investment is scheduled and invested at the public offering
price at the close of business on the same date. If a payment is not honored by
your bank, the Service will be suspended. It will be reinstated upon written
request indicating that the cause of interruption has been corrected. This
Service may be terminated by you or the Fund at any time by written notice. You
agree to hold the Fund and its agents free from all liability which may result
from acts done in good faith and pursuant to these terms. Instructions for
establishing Pre-Authorized Payment Service are given on the following page.
AUTOMATIC CASH WITHDRAWAL SERVICE
All income and gain distributions on shares held in your account subject to
this withdrawal service will be reinvested in additional shares. A sufficient
number of full and fractional shares will be redeemed to provide the amount
requested. You may change the amount of scheduled payments or you may suspend
payments for not more than one year by written notice to the Fund at least ten
days prior to the effective date of such a change or suspension. Your service
may be terminated by you or the Fund at any time by written notice. It will be
terminated upon proper notification of the death or legal incapacity of the
shareholder. The Service may be considered terminated in the event a withdrawal
of shares, other than to make scheduled withdrawal payments, reduces the value
of shares remaining on deposit to less than $5,000. Redeeming shares to make
these payments represents a return of capital and will result in tax
consequences. Withdrawals, concurrently with purchases of shares of this or any
other investment company will be disadvantageous to you because of the payment
of duplicative sales charges. For this reason, additional purchases of Fund
shares when the Withdrawal Service is in effect are discouraged.
LETTER OF INTENT
SBM Financial Services, Inc. will hold in escrow shares equal to 5% of the
minimum purchase amount specified. Dividends and distributions on the escrowed
shares will be paid to you or credited to your Account. Upon completion of the
specified minimum purchase within the thirteen-month period, all shares held in
escrow will be deposited in your account or delivered to you. You may include
the total asset value of shares of the State Bond Funds (except State Bond Cash
Management Fund shares) owned as of the date of a Letter of Intent toward the
completion of the Letter. If the total amount invested within the thirteen-month
period does not equal or exceed the specified minimum purchase, you will be
requested to pay the difference between the amount of the sales charge paid and
the amount of the sales charge applicable to the total purchase made. If, within
20 days following the mailing of a written request, you have not paid this
additional sales charge to SBM Financial Services, Inc., sufficient escrowed
shares will be redeemed for payment of the additional sales charge. Shares
remaining in escrow after this payment will be released to your Account. The
Letter of Intent may be backdated by as much as 90 days to change the purchase
price for previous purchases. The thirteen-month period begins on the date to
which you have backdated.
Shares of the State Bond Cash Management Fund, which have been acquired by
an exchange may be taken into account in completing a Letter of Intent or for
Rights of Accumulation. However, shares of that Fund which have been purchased
directly may not be used for purposes of determining reduced sales charges on
additional purchases of the other Mutual Funds in the State Bond Group.
CHECK REDEMPTION SERVICE
1. REDEMPTION AUTHORIZATION: The signatory(ies) whose signature(s) appear
on the general authorization form, intending to be legally bound, hereby agree
each with the other and with State Bank & Trust Company of New Ulm, Minnesota
("Bank") that the Bank is appointed agent for such person(s) and, as such agent,
is directed to request the Transfer Agent of the "Fund" to redeem shares of the
Fund, registered in the name of such Signatory(ies) upon receipt of, and in the
amount of checks drawn upon his (their) Fund account. The Fund or its Transfer
Agent shall deposit the proceeds of such redemptions in said account or
otherwise arrange for application of such proceeds to payments of said checks.
The Bank is expressly authorized to commingle such proceeds in this account with
the proceeds of the redemption of the shares of other stockholders of the Fund.
The Bank is expressly authorized to honor checks as redemption instructions
hereunder without requiring signature guarantees, and neither the Fund's
Transfer Agent nor the Bank shall be liable for any loss or liability resulting
from the absence of any such guarantee.
2. CHECK PAYMENT. The Signatory(ies) authorizes and directs the Bank to pay
each check presented hereunder, subject to all laws and Bank rules and
regulations pertaining to checking accounts. In addition, the Signatory(ies)
agree(s) that:
(a) No check shall be issued or honored, or any redemption effected,
in an amount less than the minimum amount indicated in the Fund's
current Prospectus.
(b) No check shall be issued or honored, or redemption effected, for
any amounts represented by shares for which certificates have been
issued.
(c) No check shall be issued or honored, or redemption effected, for
any amounts represented by shares unless payment for such shares has
been made in full and any checks given in such payment have been
collected through normal banking channels.
(d) No check shall be honored unless the Fund has provided the Bank,
from the proceeds of redemption or otherwise, collected funds for the
payment of such check.
(e) Checks issued hereunder cannot be cashed over the counter at State
Bank & Trust Company of New Ulm, Minnesota.
(f) Check redemption of fund shares purchased within 15 days prior to
the redemption may be limited as further described in the prospectus;
and
(g) Checks shall be subject to any further limitations set forth in
the prospectus issued by the Fund including without limitation any
additions, amendments and supplements thereto.
3. DUAL OWNERSHIP: If more than one person is indicated as a registered
owner of the shares of the Fund, as by joint ownership, ownership in common, or
tenants by the entireties, then (a) each registered owner must sign this form,
(b) all checks will require all signatures unless a lesser number is indicated
on the face of this form and (c) each signatory guarantees to the Bank the
genuineness and accuracy of the signature of the other Signatory(ies).
4. CHARGES: Bank is authorized to redeem sufficient Fund shares each month,
or from time to time, to cover the prevailing applicable charges on this
account. You will be notified in advance of any changes in charges for this
service.
5. TERMINATION: The Bank or the Fund may at any time terminate this
account, related share redemption service and Bank's agency for the
Signatory(ies) hereto without prior notice by Bank to any of the Signatory(ies).
6. HEIRS AND ASSIGNS: These terms and conditions shall bind the respective
heirs, executors, administrators and assigns of the Signatory(ies).
PROSPECTUS
NOVEMBER 1, 1995
STATE BOND
TAX EXEMPT
FUND
- ---------------------------------
8400 Normandale Lake Blvd.
Suite 1150
Minneapolis, Minnesota 55437-3807 STATE BOND
TAX EXEMPT FUND
[LOGO]
A MUTUAL FUND SEEKING
TO MAXIMIZE
CURRENT INCOME
EXEMPT FROM FEDERAL
INCOME TAXES TO THE
EXTENT CONSISTENT WITH
PRESERVATION OF CAPITAL
INVESTMENT MANAGER:
ARM Capital Advisors, Inc.
200 Park Avenue
20th Floor
New York, New York 10166
GENERAL DISTRIBUTOR
SBM Financial Services, Inc.
8400 Normandale Lake Blvd.
Suite 1150
Minneapolis, Minnesota 55437-3807
TRANSFER, REDEMPTION AND
OTHER SHAREHOLDER
ACCOUNT SERVICES:
SBM Financial Services, Inc.
8400 Normandale Lake Blvd.
Suite 1150
Minneapolis, Minnesota 55437-3807
PORTFOLIO SECURITIES
CUSTODIAN:
First Bank National Association
Minneapolis, Minnesota 55440
STATEMENT OF ADDITIONAL INFORMATION
November 1, 1995
STATE BOND TAX EXEMPT FUND
8400 Normandale Lake Boulevard
Suite 1150
Minneapolis, Minnesota 55437-3807
Telephone No. (612) 835-0097
This Statement of Additional Information supplements the information
contained in the current Prospectus of State Bond Tax Exempt Fund, (the "Fund")
dated November 1, 1995. 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, POLICIES, AND RISKS?
CALCULATION OF PERFORMANCE DATA
WHAT ARE THE FUND'S INVESTMENT LIMITATIONS?
WHO MANAGES THE FUND?
(See in the Prospectus "How is the Fund Managed?")
THE MANAGER
MANAGEMENT AGREEMENT AND EXPENSES
(See in the Prospectus "How is the Fund Managed?")
TRANSFER AGENT
PLAN OF DISTRIBUTION
CUSTODIAN
INDEPENDENT AUDITORS
PORTFOLIO TRANSACTIONS
(See in the Prospectus "What Are the Fund's Brokerage Commission?")
PURCHASE OF SHARES
HOW IS THE OFFERING PRICE DETERMINED?
HOW ARE SHARES DISTRIBUTED?
HOW CAN YOU "SELL" YOUR SHARES?
HOW IS NET ASSET VALUE PER SHARE DETERMINED?
WHAT IS THE TAX STATUS OF THE FUND?
WILL THE FUND WITHHOLD TAXES ON DISTRIBUTIONS?
GENERAL INFORMATION
ACCOUNTANTS' REPORT
FINANCIAL STATEMENTS
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 NOVEMBER 1, 1995, 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.
WHAT ARE THE FUND'S INVESTMENT OBJECTIVES, POLICIES, AND RISKS?
The Fund seeks to maximize current income exempt from federal income taxes
to the extent consistent with preservation of capital, with consideration given
to the opportunity for capital gain. In pursuing its goals, the Fund invests at
least 80% of the value of its assets in securities of states, territories, and
possessions of the United States and the District of Columbia, and their
political subdivisions, agencies, and instrumentalities, the interest on which
is exempt from federal income taxes ("Tax Exempt Securities").
The Tax Exempt Securities in which the Fund invests primarily consist of a
diversified portfolio of bonds rated Aaa, Aa, A, or Baa by Moody's Investors
Service, Inc. ("Moody's") or rated AAA, AA, A, or BBB by Standard & Poor's
Ratings Group ("S&P"), notes rated MIG-1, MIG-2, MIG-3 or MIG-4 by Moody's or
SP-1, SP-2 or Sp-3 by S&P, and commercial paper rated Prime-1 or Prime-2 by
Moody's or A-1 or A-2 by S&P. The Fund will under no circumstances invest more
than 25% of its assets in securities not rated at the time of purchase within
the grades referred to above.
The Fund may, however, invest in Tax Exempt Securities which are not rated
if, in the judgment of ARM Capital Advisors, Inc. the Fund's investment manager
(the "Manager"), the securities are of comparable quality to the rated
securities in which the Fund may invest. In determining suitability of
investment in an unrated security, the Manager will take into consideration
asset and debt service coverage, the purpose of the financing, history of the
issuer, existence of other rated securities of the issuer and other
considerations as may be relevant, including comparability to other issuers.
As a matter of fundamental policy, at least 80% of the value of the Fund's
assets will be invested in Tax Exempt Securities. Up to 20% of the assets of the
Fund may generate interest that is an item of tax preference for purposes of the
federal alternative minimum tax ("AMT").
In addition, while the Fund attempts, under normal market conditions, to
invest 100% of the value of its assets in Tax Exempt Securities, the Fund
temporarily may invest up to 20% of the value of its assets in taxable
obligations (i) when the Manager believes abnormal market conditions dictate a
temporary defensive posture in taxable obligations; (ii) pending investment of
proceeds of sales of shares or reinvestment of proceeds of sales of portfolio
securities; or (iii) to meet redemptions of shares by investors. The taxable
obligations in which the Fund may invest are obligations of the United States
government, its agencies or instrumentalities; other debt securities rated
within the two highest grades by either Moody's or S&P (or if unrated, of
comparable quality in the opinion of the Manager); commercial paper rated in the
two highest grades by either of such rating services (or of comparable quality);
certificates of deposits, letters of credit and bankers' acceptances of domestic
banks and savings institutions having total assets over one billion dollars or
certificates of deposit of other domestic banks or savings institutions which
are fully insured by the Federal Deposit Insurance Corporation; and repurchase
agreements with respect to any of the foregoing investments or Tax Exempt
Securities which qualify for investment by the Fund. The Fund may also hold its
assets in cash.
A description of the grades of Tax Exempt Securities, debt securities, and
commercial paper in which the Fund may invest is set forth in Appendix A to this
Statement of Additional Information. The ratings of Moody's and S&P represent
their respective opinions of the qualities of the securities they undertake to
rate and such ratings are general and are not absolute standards of quality.
TAX EXEMPT SECURITIES.
The Tax Exempt Securities in which the Fund invests consist of bonds,
notes, and commercial paper issued by states, territories, and possessions of
the United States and the District of Columbia, and their political
subdivisions, agencies, and instrumentalities.
Bonds are debt obligations issued to obtain funds for various public
purposes, such as the construction or improvement of public facilities including
airports, highways, hospitals, housing, nursing homes, parks, public buildings,
recreational facilities, school facilities, and sewer and water works. Other
public purposes for which bonds may be issued include the refunding of
outstanding obligations, the anticipation of taxes or state aids, the payment of
judgments, the funding of student loans, community redevelopment, district
heating, the purchase of street maintenance and fire fighting equipment, or any
authorized corporate purpose of the issuer, except the payment of current
expenses. Notes and commercial paper are generally used to provide for
short-term capital needs and ordinarily have a maturity of up to one year. Notes
are frequently issued in anticipation of tax revenue, revenue from other
government sources or revenue from bond offerings. Short-term, unsecured
commercial paper is often used to finance seasonal working capital needs or to
provide interim construction financing.
In addition, certain types of securities (generally referred to as "private
activity bonds") may be issued by or on behalf of public authorities to finance
privately operated pollution control facilities, certain local water supply,
gas, electricity or waste disposal facilities, and the construction or
improvement of certain other privately operated facilities.
Tax Exempt Securities may also be classified into two types of obligations:
general obligation and limited obligation (or revenue) securities. General
obligation securities involve the pledge of the full faith and credit of an
issuer possessing taxing power and are payable from the issuer's general
unrestricted revenues and not from any particular fund or revenue source. The
characteristics and methods of enforcement of general obligation securities vary
according to the law applicable to the particular issuer. Limited obligation
(revenue) securities are payable only from the revenues derived from a
particular facility or class of facilities, or a specific revenue source, such
as the user of the facility. Private activity bonds are in most cases limited
obligation bonds payable solely from specific revenues of the project to be
financed. The credit quality of private activity bonds is therefore usually
directly related to the credit standing of the user of the facility (or the
credit standing of a third-party guarantor or other credit enhancement
participant, if any).
Like all debt obligations, Tax Exempt Securities are subject to credit risk
and market risk. Credit risk relates to the issuer's ability to make timely
payments of principal and interest. Market risk relates to the changes in market
values that occur as a result of variations in the level of prevailing interest
rates, yield relationships and other factors in the tax exempt securities
market. Generally, higher quality tax exempt securities will provide a lower
yield than lower quality tax exempt securities of similar maturity and are
subject to lesser credit risks than lower quality tax exempt securities.
Furthermore, for any given change in the level of interest rates, prices tend to
fluctuate less for higher quality issues than for lower quality issues, and more
for longer maturity issues than for shorter maturity issues.
For the purpose of the Fund's investment restrictions, the identification
of the "issuer" of Tax Exempt Securities which are not general obligation bonds
is made by the Fund's Manager on the basis of characteristics of the obligation,
the most significant of which is the source of funds for the payment of
principal of and interest on such securities. If the assets and revenues of an
agency, authority, instrumentality or other political subdivision are separate
from those of the government creating the subdivision and the obligation is
backed only by the assets and revenues of the subdivision, such subdivision is
regarded as the sole issuer. Similarly, in the case of a private activity bond,
if the bond is backed only by the assets and revenues of the nongovernmental
user, the nongovernmental user is regarded as the sole issuer. If in either case
the creating government or another entity guarantees an obligation, the guaranty
is regarded as a separate security and treated as an issue of such guarantor.
From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on Tax Exempt Securities. Similar proposals may be introduced in the
future. If such a proposal were enacted, the availability of Tax Exempt
Securities for investment by the Fund would be reduced, and the value of the
Fund's portfolio may be affected. In such event, the Fund may re-evaluate its
investment goals, policies, and limitations.
FIXED-INCOME SECURITIES
Although the Manager seeks to manage the Fund with a view toward reducing
the price volatility of its portfolio, it can be expected that the net asset
value of the Fund will change with changes in the value of its portfolio
securities. When interest rates decline, the value of a fixed-income portfolio
can be expected to rise. Conversely, when interest rates rise, the value of a
fixed-income portfolio can be expected to decline.
Interest rate fluctuations may affect payment expectations on fixed-income
securities. For example, certain municipal obligations may contain redemption or
call provisions. If an issuer exercises these provisions in a declining interest
rate market, the Fund would likely have to replace the security with a lower
yielding security, resulting in a decreased return for investors. Conversely, a
municipal obligation's value will decrease in a rising interest rate market,
resulting in a decrease in the value of the Fund's assets. If the Fund
experiences unexpected net redemptions, this may force it to sell its portfolio
securities without regard to their investment merits, thereby decreasing the
asset base upon which the Fund's expenses can be spread and possibly reducing
the Fund's rate of return.
HIGH-YIELD SECURITIES
The Fund currently does not invest in securities rated below A by S&P or
Moody's, and has no current intention of investing in such securities. The Fund
is not, however, prohibited by any fundamental policy from investing in such
securities.
Securities rated BB or B by S&P or Ba or B by Moody's (or equivalently
rated by another nationally recognized statistical rating organization) are
below investment grade and generally will involve more credit risk than
securities in the higher rating categories. Such bonds are commonly known as
"junk" bonds. In some cases such securities are subordinated to the prior
payment of senior indebtedness, thus potentially limiting the holder's ability
to receive payments or to recover full principal when senior securities are in
default. Also, during an economic downturn or substantial period of rising
interest rates, highly leveraged issuers may experience financial stress which
would adversely affect their ability to service their principal and interest
payment obligations, to meet projected business goals, and to obtain additional
financing. If the Fund did acquire any such securities, upon any default, the
Fund could incur additional expenses to the extent it is required to seek
recovery of the payment of principal or interest on the relevant portfolio
holding.
In addition, lower rated securities may be thinly traded, which may have an
adverse impact on market price and the ability of the holder to dispose of
particular issues when necessary to meet its liquidity needs or in response to a
specific economic event such as a deterioration in the creditworthiness of the
issuer. A thinly traded market also may interfere with the ability of the holder
to accurately value high-yield securities and, consequently, value the Fund's
assets. Furthermore, adverse publicity and investor perceptions, whether or not
based on fundamental analysis, may decrease the value and liquidity of
high-yield securities, especially in a thinly traded market.
Yields on high-yield securities will fluctuate over time. The prices of
high-yielding securities have been found to be less sensitive to interest rate
changes than higher-rated investments, but more sensitive to adverse economic
changes or developments affecting the issuer. In addition, periods of economic
uncertainty and changes can be expected to result in increased volatility of
market prices of high-yielding securities and, to the extent the Fund acquires
such securities, the Fund's asset value.
PORTFOLIO TURNOVER
Portfolio transactions will be undertaken principally to accomplish the
Fund's goals in relation to anticipated movements in the general level of
interest rates, but the Fund may also engage in short-term trading consistent
with its goals. Securities may be sold in anticipation of a market decline (a
rise in interest rates) or purchased in anticipation of a market rise (a decline
in interest rates) and later sold. In addition, a security may be sold and
another purchased at approximately the same time to take advantage of what the
Manager believes to be a temporary disparity in the normal yield relationship
between the two securities. Yield disparities may occur for reasons not directly
related to the investment quality of particular issues or the general movement
of interest rates, due to such factors as changes in the overall demand for or
supply of various types of Tax Exempt Securities or changes in the investment
objectives of investors.
The Fund's investment policies may lead to frequent changes in investment,
particularly in periods of rapidly fluctuating interest rates. A change in
securities held by the Fund is known as "portfolio turnover" and may involve the
payment by the Fund of dealer mark-ups or underwriting commissions, and other
transaction costs, on the sale of securities, including Tax Exempt Securities,
as well as on the reinvestment of the proceeds in other securities. Portfolio
turnover rate for a fiscal year is the ratio of the lesser of purchases or sales
of portfolio securities to the monthly average of the value of portfolio
securities, excluding securities whose maturities at acquisition were one year
or less. The Fund's portfolio turnover rate will not be a limiting factor when
the Fund deems it desirable to sell or purchase securities. The Fund's portfolio
turnover rate was 15% for the Fund's fiscal year ended June 30, 1995.
CALCULATION OF PERFORMANCE DATA
Advertisements and other sales literature for the Fund may quote "SEC
30-day yield," "tax-equivalent yield," and "total return" data. Such performance
data is computed on a standardized basis pursuant to formulas established by the
rules and regulations of the Securities and Exchange Commission.
SEC 30-DAY YIELD
The Fund's SEC 30-day yield for the 30-day period ended June 30, 1995 was
4.74%. Such yield is computed by dividing the net investment income per share
(as defined under Securities and Exchange Commission rules and regulations)
earned during the computation period by the maximum offering price per share on
the last day of the period, according to the following formula:
6
YIELD = 2[(a-b +1)-1]
---
cd
Where: a = dividends and interest earned during the period;
b = expenses accrued for the period (net of reimbursements);
c the average daily number of shares outstanding during the period
that were entitled to receive dividends; and
d = the maximum offering price per share on the last day of the
period.
TAX EQUIVALENT YIELD
The Fund's tax equivalent yield for the 30-day period ended June 30, 1995
was 7.63%. The Fund calculates its tax equivalent yield over a 30-day period.
The tax equivalent yield will be determined by first computing the yield as
discussed above. The Fund will then determine what portion of the yield is
attributable to securities, the income of which is exempt for federal tax
purposes. This portion of the yield will then be divided by one minus 39.6% (the
assumed maximum tax rate for individual taxpayers not subject to the Alternative
Minimum Tax) and then added to the portion of the yield that is attributable to
other securities.
The Fund's tax equivalent yield is calculated according to the following
formula:
Tax Equivalent Yield = Yield
-----
1-.396
AVERAGE ANNUAL TOTAL RETURN
The Fund's average total annual return over the one, five, and ten-year
periods ended June 30, 1995 were as follows:
One Year Five Years Ten Years
-------- ---------- ---------
Average Annual
Total Return 2.68% 6.36% 7.86%
The average annual total return figures are computed by finding the average
annual compounded rates of return over the periods indicated that would equate
the initial amount invested to the ending redeemable value, according to the
following formula:
n
P(1+T) = ERV
Where: P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
ERV = ending redeemable value at the end of the period of a
hypothetical $1,000 payment made at the beginning of
such period.
This calculation deducts the maximum sales charge from the initial
hypothetical $1,000 investment, assumes all dividends and capital gains
distributions are reinvested at net asset value on the appropriate reinvestment
dates as described in the Prospectus, and includes all recurring fees, such as
investment advisory and management fees, charged to all shareholder accounts.
CUMULATIVE TOTAL RETURN
Cumulative total return is computed by finding the cumulative compound rate
of return over the period indicated in the advertisement that would equate the
initial amount invested to the ending redeeming value, according to the
following formula:
CTR = ERV - P
------- x 100
P
Where: CTR = Cumulative total return
ERV = ending redeepaymentalue at the end of the period of a
hypothetical $1,000 made at the beginning of period.
P = initial payment of $1,000
This calculation assumes all dividends and capital gains distributions are
reinvested at net asset value on the appropriate reinvestment dates as described
in the Prospectus and includes all recurring fees, such as investment advisory
and management fees, charged to all shareholder accounts.
OTHER YIELDS
Current and effective yields of the Fund, not calculated in accordance with
the guidelines of the SEC as explained above, also may be quoted in reports and
sales literature. Non-SEC current yield is computed based upon a recent
seven-calendar-day period 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 the period, dividing the net change in account
value by the value of the account at the beginning of the period to obtain a
base period return, and multiplying the base period return by 365/7. Non-SEC
effective yield is computed by annualizing the seven-day return with all
dividends reinvested in additional Fund shares. The Fund's non-SEC yield
quotation may be inclusive or exclusive of taxable income, if any, as indicated
in such quotation. The Fund's non-SEC yield may fluctuate daily depending upon
such factors as market conditions, the composition of the Fund's portfolio, and
operating expenses. Therefore, the Fund's non-SEC yield in the future may be
higher or lower than its past non-SEC yields and there can be no assurance that
historical yields will continue. That the Fund's non-SEC current yield will
fluctuate and that shareholders' principal is not guaranteed or insured should
be taken into account when comparing the yield on an investment in Fund shares
with yields on fixed-yield investments, such as insured savings accounts. These
factors and possible differences in the methods used in calculating non-SEC
yield should be considered when comparing the Fund's non-SEC current yield to
non-SEC yields published for other investment companies and other investment
vehicles. Yield also should be considered relative to changes in the value of
the Fund's shares and the Fund's investment goals and policies.
WHAT ARE THE FUND'S INVESTMENT LIMITATIONS?
Under the Fund's fundamental policies, which cannot be changed except by
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. As to 100% of the value of its total assets, purchase securities of any
issuer if immediately thereafter more than 5% of total assets at market
value would be invested in the securities of any one issuer, except that
this limitation does not apply to obligations issued or guaranteed as to
principal and interest either by the U.S. Government or its agencies or
instrumentalities;
4. Buy or hold any real estate or real estate investment trust securities;
5. Buy or hold any commodity or commodity futures contracts, or any oil, gas
or mineral exploration or development program;
6. Make loans except to the extent that the purchase of notes, bonds or debt
obligations or the entry into repurchase agreements 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. Buy securities which have legal or contractual restrictions on resale,
except in connection with repurchase agreements; or
11. 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.
If a percentage restriction described above is complied with at the time an
investment is made, a later increase or decrease in percentage resulting from a
change in values of portfolio securities or in the amount of net assets of the
Fund will not be considered a violation of any of those restrictions. During the
past fiscal year the Fund did not borrow any money, and the Fund has no current
intention of borrowing in the foreseeable future.
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 present at a shareholders' meeting if more than 50% of the
outstanding shares are represented at the meeting in person or by proxy.
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 239 S. Fifth Street, Louisville, Kentucky.
<TABLE>
<CAPTION>
NAME, AGE AND ADDRESS POSITION WITH THE FUND OTHER BUSINESS ACTIVITIES IN
PAST 5 YEARS
<S> <C> <C>
William B. Faulkner ( ) Director President, William Faulkner &
240 East Plato Blvd. Associates, business and institutional
St. Paul, Minnesota 55107 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
Patrick M. Finley (57) Director President, Universal Cooperatives, Inc.
5603 Bernard Place a farmers' cooperative, Director of the
Edina, Minnesota 55436 other mutual funds in the State Bond Group
Chris L. Mahai (39) Director Senior Vice President, Strategic Integration
425 Portland Avenue Unit, Star Tribune/Cowles Media Company,
Minneapolis, Minnesota since August 1995; 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. Direcotr of the other
Mutual funds in the State Bond Group
John R. Lindholm (46)* Director President 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
Funds, Inc.
Arthur J. Gartland, Jr. (48) Director President and a founder of Benedetto, Gartland &
1330 Avenue of the Americas Greene, Inc. (an investment banking firm). Director
New York, NY of the other mutual funds in the State Bond Group
and The Legends Fund, Inc.
John Katz (56) Director Investment banker since January 1991; Chairman, and
10 Hemlock Road Chief Executive Officer, Sam's Restaurant Group, Inc.
Hartsdale, NY (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 (57) Director Retired since 1992; Executive Vice President, Capital
2304 Speed Avenue Holding Corporation (from December 1991 to April 1992);
Louisville, KY 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.
Dale C. Bauman (58) President Vice President and Sales Manager, SBM Financial Services,
8400 Normandale Lake Blvd. Inc., since June 1992; prior thereto, Vice President and
Suite 1150 Division Manager, SBM Financial Services, Inc., 1980 to June 1992.
Minneapolis, Minnesota 55437 President of the other mutual funds in the State Bond Group.
Keith O. Martens (56) Vice President Senior Portfolio Manager, ARM Capital Advisors, Inc., since
200 Park Avenue, 20th Floor June 14, 1995, Executive Vice President-Investments, SBM Company;
New York, New York 10166 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.
Don W. Cummings (32) Controller Controller of ARM Financial Gorup, Inc. since July 15, 1993,
and Integrity and National Integrity since November 26, 1993.
Prior to November 26, 1993 he served as Controller of ARM, Ltd,
a position he held from July 1992. Form 1985 to June 1992, Mr.
Cummings served in various positions within Ernst & Young's
Insurance Industry Accounting and Auditing Practice, the last
of which was Manager. Controller of the other mutual funds
in the State Bond Gorup and of The Legends Fund, Inc.
Kevin L. Howard (31) Vice President and Assistant General Counsel of ARM Financial Group, Inc. since
Secretary 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 (34) Treasurer Treasurer of ARM Financial Group, Inc., Integrity and National
Integrity since December 1993; employed in various financial and
operational capacities by Analytical Risk Managment Litd. since
December 14, 1992; 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.
Pam Freeman (28) 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.
</TABLE>
___________________
* Mr. Lindholm is an INTERESTED PERSON as defined in the 1940 Act, by virtue
of his positions with ARM Financial Group, Inc.
Directors of the Fund (including former Directors) received aggregate
remuneration of $4,044 during the Fund's fiscal year ended June 30, 1995.
Directors and officers of the Fund as a group owned directly or indirectly 2,624
shares, or 0.035%, of the Fund's capital stock at June 30, 1995.
The following table sets forth, for the fiscal year ended June 30, 1995,
compensation paid by the Fund to the non-interested Directors and, for the 1994
calendar year, the aggregate compensation paid by the six funds in the State
Bond Group of mutual funds to the non-interested Directors.
TOTAL
AGGREGATE FROM STATE BOND
COMPENSATION GROUP OF MUTUAL
NAME OF DIRECTOR FROM FUND (a) FUNDS (b)
William B. Faulkner $588.00 $3,528.00
Patrick M. Finley $516.00 $2,232.00
Chris L. Mahai $588.00 $3,528.00
________________________
(a) There were no pension or retirement benefits accrued for any of the named
persons by any of the funds.
(b) This includes the aggregate compensation paid to the named persons by all
of the funds and also the amounts paid to such persons in calendar year
1994 by the State Bond Progress Fund ("Progress Fund"). The Progress Fund
formerly was a member of the State Bond Group of Funds. All of the assets
of Progress Fund were acquired by State Bond Common Stock Fund on June 24,
1994.
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 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 $3 billion.
The Manager is also manager of the other mutual funds in the State Bond
Group of mutual funds: State Bond Cash Management Fund, State Bond Common Stock
Fund, State Bond Diversified Fund, State Bond Minnesota Tax-Free Income 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, equal to an annual fee of .5 of 1% of the average
daily net assets of the Fund. The predecessor to the Manager, SBM Company, was
paid the following amounts by the Fund as a management fee during its fiscal
years ended June 30, 1995, 1994, and 1993, respectively: $369,459; $408,475; and
$373,562. The Manager received a management fee of $35,996 from June 1, 1995,
the effective date for accounting purposes on which the Manager commenced its
duties as the Fund's investment adviser, through June 30, 1995. The Manager has
voluntarily undertaken, and SBM Company previously voluntarily undertook, to
reimburse the Fund for any expenses incurred by it in excess of 1% of average
daily net assets, despite the fact that higher expenses may be permitted by
state law. No reimbursements by SBM Company or the Manager were required for the
Fund's fiscal years ended June 30, 1995, 1994, and 1993.
The Fund pays all its expenses other than those assumed by the Manager,
including the investment advisory and management fee; the charges of custodians,
transfer agents, accounting services agents and other agents; bookkeeping,
recordkeeping and Fund portfolio and share pricing expenses; expenses of issue,
repurchase and redemption of shares; the expenses of registering and qualifying
shares for sale; the cost of reports by SBM Company or the Manager and notices
to shareholders; costs of shareholder and other meetings of the Fund; travel
expenses of officers, directors, and employees of the Fund; the expenses of
preparing, setting in print, printing, and distributing prospectuses and
Statements of Additional Information, if any, to existing shareholders; outside
auditing and legal fees; interest, taxes, and governmental fees; expenses
incurred in connection with membership in investment company organizations;
brokerage commissions; the fees of independent directors and the salaries of any
officers or employees who are not affiliated with the Manager; its pro rata
portion of the 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 was approved by the directors of the Fund, including a
majority of the disinterested directors, at a meeting held March 24, 1995, and
by the shareholders of the Fund and a meeting held May 15, 1995. 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 for a period of more than two years from the date of its
execution only so long as such continuance is specifically approved at least
annually by either the Board of Directors or by a vote of the majority of the
outstanding voting shares of the Fund, 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.
ACCOUNTING SERVICES AGREEMENT
Prior to June 1, 1995 SBM Company also acted as the accounting services
agent for the Fund pursuant to a separate agreement. Under this agreement, SBM
Company was paid a fee for keeping current the books, accounts, records,
journals, and other records of original entry relating to the business of the
Fund. The Manager received $1,125 from the Fund for accounting services the
Manager provided from June 1, 1995 to June 14, 1995. SBM Company, as the Fund's
previous accounting services agent, received the following amounts from the Fund
for its fiscal years ended June 30, 1995, 1994, and 1993, respectively: $24,750;
$27,000; and $24,000.
TRANSFER AGENT
SBM Financial Services, 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. SBM Financial Services, Inc. received $3,135 in transfer agency fees
from the Fund for the period June 1, 1995 to June 30, 1995. SBM Company served
as the Fund's previous transfer agent, for which it received the following
amounts from the Fund for the Fund's fiscal years ended June 30, 1995, 1994, and
1993, respectively: $27,965; $32,300; and $31,000.
PLAN OF DISTRIBUTION
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 the Fund pays
certain expenses of distribution of the Fund's shares and shareholder servicing,
as described below.
SBM Financial Services, Inc. (the "Distributor"), a subsidiary of ARM, acts
as distributor of the shares of the Fund and of the other mutual funds in the
State Bond Group. Under the Plan the Fund pays to the Distributor a fee to be
used to compensate those who provide administration, shareholder service, and
distribution assistance and to pay other expenses of selling Fund shares. The
Distributor receives a monthly fee equivalent on an annual basis to .25 of 1% of
the average daily net assets of the Fund. A portion of the fee 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.
During the fiscal year ended June 30, 1995, the Distributor received
$201,900 in such fees. The Distributor used these fees to cover the following
expenses: compensation of sales personnel - $145,756; compensation of sales
administration personnel - $73,658; sales meetings and training - $589;
marketing materials - $5,707; promotion and travel - $14,719; telephone and
postage - $1,043, and branch office expenses - $327.
The arrangements under which the Fund compensates, indirectly, those who
provide administration, shareholder service, and distribution assistance, as
described above, are set forth in the Plan. 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 and by the Directors 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 agreement related to the Plan;
(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 holders of a majority of the Fund's outstanding shares. 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 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.
CUSTODIAN
First Bank National Association, Minneapolis, Minnesota 55440 serves as the
custodian for 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.
PORTFOLIO TRANSACTIONS
As the Fund's portfolio is exclusively composed of debt (rather than
equity) securities, most of the Fund's portfolio transactions are effected with
dealers without the payment of brokerage commissions, but at net prices which
usually include a spread or markup. Most Fund transactions are with the issuer,
or with major dealers acting for their own account and not as brokers. In
effecting portfolio transactions the Fund seeks the most favorable net price
consistent with the best execution. However, frequently the Fund selects a
dealer to effect a particular transaction without contacting all dealers who
might be able to effect such transaction, because of the volatility of the
market and the desire of the Fund to accept a particular price for a security
because the price offered by the dealer meets its guidelines for profit, yield,
or both. No brokerage is allocated for the sale of Fund shares.
While it is not expected that the Fund will effect any transactions on an
agency basis, if it does so the Manager will seek to obtain the best price and
execution of orders. Commission rates, being a component of price, are
considered together with other relevant factors. When consistent with these
criteria, business may be placed with broker-dealers who furnish investment
research services to the Manager. Such research services include advice, both
directly and in writing, as to the value of securities, the advisability of
investing in, purchasing, or selling securities, and the availability of
securities or purchasers or sellers of securities, as well as analyses and
reports concerning issues, industries, securities, economic factors and trends,
portfolio strategy, and the performance of accounts. This allows the Manager to
supplement its own investment research activities and enables it to obtain the
views and information of individuals and research staffs of many different
securities research firms prior to making investment decisions for the Fund. To
the extent portfolio transactions are effected with broker-dealers who furnish
research services to the Manager, the Manager receives a benefit, not capable of
evaluation in dollar amounts.
The Manager has not entered into any formal or informal agreements with any
broker-dealers, and it does not maintain any "formula" which must be followed in
connection with the placement of Fund portfolio transactions in exchange for
research services provided the Manager, except as noted below. If it is believed
to be in the best interests of the Fund, the Manager may place portfolio
transactions with brokers who provide the types of services described above,
even if it means the Fund will have to pay a higher commission (or, if the
broker's profit is part of the cost of the security, will have to pay a higher
price for the security) than would be the case if no weight were given to the
broker's furnishing of those services. This will be done, however, only if, in
the opinion of the Manager, the amount of additional commission or increased
cost is reasonable in relation to the value of the services. The Manager also
serves as investment adviser for other mutual funds. To the extent that the Fund
may pay a somewhat higher brokerage commission or somewhat higher price on a
trade because such trade is executed by a broker-dealer which also provides
research and statistical services, it is possible that said research and
statistical services may also be of value to one of the other mutual funds.
However, it is felt that this possibility of mutual benefit is not capable of
measurement.
No brokerage commissions were paid by the Fund in any of the fiscal years
ended June 30, 1995, 1994 and 1993.
PURCHASE OF SHARES
WHAT REDUCTIONS ARE PROVIDED?
Volume Discounts are provided if the total amount being invested in shares
of the Fund alone, or in any combination of shares of the Fund and the other
funds in the State Bond Group having a sales charge, reaches levels indicated in
the sales charge schedule set forth in the Prospectus.
The Right of Accumulation allows you to combine the amount being invested
in shares of the Fund and the other mutual funds in the State Bond Group having
a sales charge with the total net asset value of shares of those mutual funds
already owned and the total net asset value of shares you own of State Bond Tax
Exempt Fund which were acquired through an exchange of shares of another mutual
fund in the State Bond Group to determine reduced sales charges in accordance
with the schedule in the Prospectus. The value of the shares owned, including
the value of shares of State Bond Tax Exempt Fund acquired in an exchange, will
be taken into account in orders placed, however, only if the Distributor is
notified by you or your dealer of the amount owned at the time your purchase is
made and is furnished sufficient information to permit confirmation.
The schedule of sales charges is also applicable to the aggregate amount of
purchases made by a single person within a period of 13 months pursuant to a
written Purchase Intention and Price Agreement (the "Letter of Intent"), a form
of which is available from the Distributor. The Letter of Intent provides for a
price adjustment applicable to the amount of intended purchases specified in the
Letter of Intent based upon the amount of purchases specified plus the total net
asset value of the shares of the other mutual funds in the State Bond Group
already owned that have a sales charge and the total net asset value of the
shares owned of State Bond Tax Exempt Fund which were acquired through an
exchange of shares. The investor considering the possibility of signing a Letter
of Intent should read it carefully. The schedule of sales charges applicable to
all amounts invested under the Letter of Intent is computed as if the aggregate
amount had been invested immediately. Reduced sales charges also may apply to
purchases made within a 13-month period starting up to 90 days before the date
of execution of the Letter of Intent. Shares with a net asset value equal to 5%
of the minimum purchase amount specified are held in escrow to be applied toward
any sales charge deficiency that might result if the Letter of Intent is not
completed. The shares so held may be redeemed and proceeds thereof used as
required to pay additional sales charges which may be due if the amount of
purchases by such person during the 13 month period aggregates less than the
amount specified in the Letter of Intent. Escrow shares not redeemed will be
delivered to the investor upon completion of purchases under the Letter of
Intent.
If the gross amount invested within the 13 month period covered by the
Letter of Intent exceeds the specified purchase amount and reaches a level
allowing a smaller sales charge, a price adjustment will be made on the day it
reaches the new level. The Letter of Intent is not a binding agreement upon the
investor to purchase, or the Fund to sell, the full indicated amount.
WHO IS ENTITLED TO REDUCTIONS?
Reductions in sales charges apply to purchases by a "single person,"
including an individual; members of a family unit comprising husband, wife, and
minor children; or a trustee or other fiduciary purchasing for a single
fiduciary account, including employee benefit plans qualified under Section 401
of the Internal Revenue Code.
HOW IS THE OFFERING PRICE DETERMINED?
The public offering price is determined by dividing the Fund's current net
asset value per share (as described under "How is Net Asset Value Per Share
Determined?") by the sales charge percentage applicable to the transaction. The
following sample calculation is based upon the total net assets of the Fund on
June 30, 1995 of $81,642,371 and the total shares of the Fund outstanding as of
that date of 7,578,854 and a transaction with an applicable sales charge of the
maximum 4.5%.
Net Asset Value Per Share $10.77
($81,642,371 divided by 7,578,854
shares outstanding)
Maximum Offering Price Per Share $11.28
($10.77 divided by .955)
HOW ARE SHARES DISTRIBUTED?
SBM Financial Services, Inc., a subsidiary of ARM, acts as distributor of
the shares of the Fund and of the other mutual funds in the State Bond Group. As
distributor of the Fund's capital stock, SBM Financial Services, Inc. allows
concessions to all dealers up to 4.0% on purchases to which the 4.5% sales
charge applies. The Distributor also pays sales commissions to its own agents
who sell Fund shares. The Distributor retains the balance of sales charges paid
by investors. The sales charges paid by investors and received by the
Distributor amounted to the following amounts during the Fund's fiscal years
ended June 30, 1995, 1994, and 1993, respectively: $138,549; $191,037; and
$260,657. The Distributor retained these entire amounts.
The agreement between the Fund and the Distributor provides that the
Distributor will pay certain expenses such as printing costs of prospectuses and
Statements of Additional Information used in offering shares to prospective
investors, applications and confirmations, and all other expenses in connection
with the issuance and sale of the Fund's shares. The Fund will pay the costs of
registering and qualifying shares for sale and of preparing, setting in print,
and printing and distributing prospectuses to existing shareholders.
HOW CAN YOU "SELL" YOUR SHARES?
The procedure for redemption of Fund shares under ordinary circumstances is
set forth in the Prospectus.
In unusual circumstances, payment may be postponed if the orderly
liquidation of portfolio securities is prevented by the closing of, or
restricted trading on, the New York Stock Exchange during periods of emergency,
or such other periods as ordered by the Securities and Exchange Commission.
HOW IS NET ASSET VALUE PER SHARE DETERMINED?
Net asset value per Fund share is determined as of the close of the New
York Stock Exchange on each day that the New York Stock Exchange is open for
business. The New York Stock Exchange is closed on Saturdays and Sundays and
also is closed in observance of the following holidays: New Year's Day,
Washington's Birthday (Observed), Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day, and Christmas Day. Net asset value is determined by
dividing the value of the total assets of the Fund, less liabilities, by the
number of shares outstanding.
The securities in which the Fund invests are traded primarily in the
over-the-counter market. Tax Exempt Securities and other short-term holdings
maturing in more than 60 days are valued on the basis of valuations provided by
a pricing service, approved by the Directors, which uses information with
respect to transactions in bonds, quotations from bond dealers, market
transactions in comparable securities, and various relationships between
securities in determining value. In the absence of such valuations, the
valuations of such securities and holdings are based upon fair value as
determined by the Board of Directors. Taxable securities for which market
quotations are readily available are stated at market value, which currently is
determined using the last reported sale price or, if no sales are reported -as
in the case of most securities traded over-the-counter -- the last reported bid
price, except that U.S. government securities are stated as the mean between the
last reported bid and asked prices. Short-term holdings having remaining
maturities of 60 days or less are valued at cost plus accrued interest, which
approximates fair market value.
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.
GENERAL INFORMATION
The Fund was incorporated in Maryland on April 23, 1982. Originally, the
name of the Fund was "State Bond Government Securities Fund, Inc.", and its
investment goals were to produce high current income, preserve capital, and
maintain liquidity by investing in securities issued or guaranteed by the United
States Government and its agencies and instrumentalities, and repurchase
agreements secured by such securities. In May 1984, the Fund's sole shareholder
approved an amendment to its articles of incorporation to change its name to
"State Bond Tax Exempt Fund, Inc." and amendments to its investment goals and
policies to those stated herein. In March 1993, the Fund was reorganized as an
individual investment portfolio of a series fund, State Bond Municipal Funds,
Inc.
Under Maryland law, each director of State Bond Municipal Funds, Inc. owes
certain duties to the Fund and its shareholders. Maryland law provides that a
director shall "perform his duties as a director in good faith, in a manner he
reasonably believes to be in the best interests of the corporation and with the
care that an ordinarily prudent person in a like position would use under
similar circumstances." Fiduciary duties of a director of a Maryland corporation
include, therefore, both a duty of "loyalty" (to act in good faith and in a
manner reasonably believed to be in the best interest of the corporation) and a
duty of "care" (to act with the care an ordinarily prudent person in a like
position would use under similar circumstances). Maryland law allows Maryland
corporations to eliminate or limit the personal liability of a director or an
officer to the corporation or its shareholder for monetary damages for breach of
the fiduciary duty of "care".
The Amended and Restated Articles of Incorporation of State Bond Municipal
Funds, Inc. contain a provision eliminating liability of directors and officers
to the corporation or its shareholders to the fullest extent permitted by
Maryland law. Therefore, directors and officers of State Bond Municipal Funds,
Inc. will not be liable for monetary damages to the Fund or its shareholders for
breach of the duty of care. However, such elimination of Maryland law regarding
a director's duty of care does not permit the elimination or limitation of
liability (1) to the extent that it is proved that the person actually received
an improper benefit or profit in money, property or services for the amount of
the benefit or profit in money, property or services actually received; (2) to
the extent that a judgment or other final adjudication adverse to the person is
entered in a proceeding based on a finding in the proceeding that the person's
action, or failure to act, was the result of active and deliberate dishonesty
and was material to the cause of action adjudicated in the proceeding; or (3)
for any action or failure to act occurring prior to February 18, 1988. In
addition, due to the provisions of the Investment Company Act of 1940,
shareholders would still have a right to pursue monetary claims against
directors or officers for acts involving willful malfeasance, bad faith, gross
negligence or reckless disregard of their duties as directors or officers.
State Bond Tax Exempt Fund
Schedule of Investments
June 30, 1995
<TABLE>
<CAPTION>
MOODY'S/S&P PRINCIPAL
RATING AMOUNT VALUE
--------------------------------
MUNICIPAL BONDS (97.9%)
<S> <C> <C> <C>
ALASKA
Alaska Housing Finance Corp.,
Collateralized Veterans Mortgage
Program, Series 1991 B-1, 6.900%, due
2032 Aaa/AAA $ 810,000 $ 833,344
Alaska Housing Finance Corp.,
Collateralized Home Mortgage Bonds,
1988 Series A-1, 7.625%, due 2013 Aaa/AAA 325,000 344,851
ARIZONA
Arizona Industrial Development
Authority, 5.450%, due 2009 A3/A 1,500,000 1,447,440
CALIFORNIA
Central Coast Water Authority Rev.
Bonds, Series 1992, 6.350%, due 2007 Aaa/AAA 1,000,000 1,061,630
Walnut Valley, CA, Water District,
Certificate of Participation, 6.125%,
due 2009 Aaa/AAA 1,000,000 1,018,420
COLORADO
Housing Finance Agency, Single Family
Housing Rev. Bonds, 1986 Series A,
8.000%, due 2017 Aa/NR 320,000 332,662
DISTRICT OF COLUMBIA
District of Columbia University Rev.
Bonds, 6.300%, due 2013 NR/AAA 1,250,000 1,267,738
</TABLE>
<TABLE>
<CAPTION>
MOODY'S/S&P PRINCIPAL
RATING AMOUNT VALUE
--------------------------------
MUNICIPAL BONDS (CONTINUED)
<S> <C> <C> <C>
ILLINOIS
Chicago, Illinois, Water Rev. Bonds,
7.200%, due 2016 A1/A+ $2,000,000 $2,249,320
Chicago, Illinois, Public District
Capital Improvement Bonds, 5.450%, due
2004 Aaa/AAA 1,000,000 1,013,570
City of Chicago, Illinois, Gas Supply
Rev. Bonds, 7.500%, due 2015 Aa3/AA- 1,480,000 1,621,370
City of Chicago, Illinois, Gas Supply
Rev. Bonds, 7.500%, due 2015 Aa3/AA- 1,100,000 1,205,072
Illinois State University Auxiliary
Facility System, Board of Regents Rev.
Bonds, Series 1989, 7.400%, due 2014 A1/A 1,050,000 1,187,876
Illinois State University Auxiliary
Facility System, Board of Regents Rev.
Bonds, Series 1989, 7.400%, due 2013 A1/A 500,000 565,655
Illinois School District #065, 5.875%,
due 2008 Aaa/AAA 1,000,000 1,010,180
Metropolitan Pier Exposition Authority,
Illinois Dedicated State Tax Rev.
Bonds, 6.000%, due 2014 A/A+ 2,100,000 2,010,666
Rolling Meadows, Illinois Mortgage Rev.
Bonds Woodfield Garden, 7.750%, due
2004 NR/AA- 2,000,000 2,173,340
INDIANA
Beech Grove, IN, IDR for Westvaco
Corp., 8.750%, due 2010 A1/A 550,000 553,536
Highland, IN, School Building Corp.,
6.750%, due 2012 NR/A 1,000,000 1,126,010
Indiana Transportation Finance
Authority, Series A, 6.250%, due 2016 A/A 1,150,000 1,141,847
Indianapolis, IN, Public Improvement
Bonds, Bank Series C, 6.700%, due 2017 A1/A+ 3,225,000 3,338,939
</TABLE>
State Bond Tax Exempt Fund
Schedule of Investments (continued)
<TABLE>
<CAPTION>
MOODY'S/S&P PRINCIPAL
RATING AMOUNT VALUE
--------------------------------
MUNICIPAL BONDS (CONTINUED)
<S> <C> <C> <C>
INDIANA (CONTINUED)
Indianapolis, IN, Resource Recovery
Rev. Bonds, Series A, 7.900%, due 2008 A/A $1,115,000 $1,185,178
Indianapolis, IN, Resource Recovery
Rev. Bonds, Series B, 7.900%, due 2008 A/A 430,000 457,008
Indiana Municipal Power Agency, Series
1992 A, 6.000%, due 2007 Aaa/AAA 1,300,000 1,348,581
Indiana State Toll Roads, Revenue
Refunding Bond, 6.00%, due 2013 A/A 1,100,000 1,063,590
LOUISIANA
Rapides Parish, LA, Housing & Mortgage
Finance Authority, Single Family
Mortgage, 7.250%, due 2010 Aaa/AA- 750,000 804,248
MAINE
Maine State Housing Authority, Mortgage
Purchase Bonds, 1988 Series B, 8.000%,
due 2015 A1/AA- 455,000 487,400
MARYLAND
Maryland City Housing Multi-Family,
FNMA, Series A, 7.250%, due 2023 NR/AAA 750,000 789,998
</TABLE>
<TABLE>
<CAPTION>
MOODY'S/S&P PRINCIPAL
RATING AMOUNT VALUE
--------------------------------
MUNICIPAL BONDS (CONTINUED)
<S> <C> <C> <C>
MICHIGAN
Michigan State Housing Development
Authority, Single Family, Series A,
7.550%, due 2014 NR/AA $ 145,000 $ 155,195
Michigan State Housing Development,
Series B, 6.950%, due 2020 NR/AA+ 1,000,000 1,039,250
MINNESOTA
Burnsville, Minnesota, Multi-Family
Rev. Ref. Bonds, Coventry Court
Apartments Project, Series 1989,
7.500%, due 2027 NR/AAA 800,000 844,728
City of Minnetonka, MN, Multi-Family
Rental Housing Rev. Bonds, 7.250%, due
2002 NR/AAA 800,000 831,480
Minnesota Housing Finance Agency,
Single Family Mortgage, 6.250%, due
2015 Aa/NR 1,300,000 1,322,334
Minnesota Housing Finance Agency Single
Family Mortgage Rev. Bonds 1989 Series
D, 7.350%, due 2016 Aa/AA 640,000 677,165
Minnesota Housing Finance Authority,
Series 1993 E, 6.000%, due 2014 NR/A+ 1,460,000 1,451,794
NEBRASKA
Nebraska Public Power Agency, Series C
1993, 4.000%, due 1999 A1/A+ 555,000 545,215
</TABLE>
State Bond Tax Exempt Fund
Schedule of Investments (continued)
<TABLE>
<CAPTION>
MOODY'S/S&P PRINCIPAL
RATING AMOUNT VALUE
--------------------------------
MUNICIPAL BONDS (CONTINUED)
<S> <C> <C> <C>
NEVADA
Clark County, Nevada School District,
General Obligation Bonds, 5.300%, due
2004 Aaa/AAA $1,000,000 $1,006,230
Humboldt County, NV, Pollution Control
Rev. Bonds, Idaho Power Company,
8.300%, due 2014 NR/A 1,000,000 1,162,680
Lyon County, Nevada School District,
6.750%, due 2011 Aaa/AAA 800,000 863,488
Washoe County, Nevada, General
Obligation Bonds, 6.000%, due 2009 Aaa/AAA 585,000 592,014
NEW HAMPSHIRE
New Hampshire Municipal Bond Bank,
Series 91 J, Non-State Guaranteed,
6.900%, due 2012 A1/A 1,080,000 1,208,585
State of New Hampshire Turnpike System
Rev. Bonds, 8.375%, due 2017 Aaa/A 900,000 1,002,672
NEW YORK
New York State Environmental Pollution
Control Rev. Bonds, 7.250%, due 2010 Aa/A 2,900,000 3,199,947
New York Metro Transit Authority,
5.100%, due 2004 Aaa/AAA 1,000,000 1,004,290
NORTH CAROLINA
North Carolina Eastern Municipal Power
Agency, Series B, 6.000%, due 2013 A/A- 2,125,000 2,000,071
North Carolina Eastern Municipal Power
Agency, 8.000%, due 2021 A/A- 200,000 221,784
Wake County, Ind. Facilities Pollution
Control, Carolina Power and Light,
6.900%, due 2009 A2/A 1,000,000 1,043,260
</TABLE>
<TABLE>
<CAPTION>
MOODY'S/S&P PRINCIPAL
RATING AMOUNT VALUE
-----------------------------------
MUNICIPAL BONDS (CONTINUED)
<S> <C> <C> <C>
NORTH DAKOTA
Mercer County, ND, PCR Basin, Electric
Power Co-op, Series 84 C, 7.700%, due
2019 A2/A- $1,695,000 $1,773,445
Mercer County, ND, PCR Basin, Electric
Power Co-op, Series A, 7.700%, due 2019 A2/A- 725,000 758,517
North Dakota Housing, Single Family
Mortgage, 1992 Series A, 6.750%, due
2012 Aa/A+ 1,710,000 1,772,552
OREGON
Oregon Sewer System Revenue Bonds,
Series A, 6.050%, due 2009 A1/A+ 500,000 516,515
PENNSYLVANIA
Erie County, PA, Industrial Development
Auth., Pollution Control Rev. Ref.
Bonds, Series 1991, 7.150%, due 2013 A3/A- 400,000 424,260
Philadelphia Municipal Authority Lease,
Series C, 4.300%, due 1999 Aaa/AAA 2,175,000 2,151,858
RHODE ISLAND
Rhode Island Depositors, Economic
Protection Corp. Bonds, 6.625%, due
2019 Aaa/AAA 1,675,000 1,886,017
SOUTH DAKOTA
South Dakota Housing Development,
Multi-Family Housing Rev. Bonds,
6.700%, due 2020 A1/A+ 1,400,000 1,420,048
South Dakota State Building Authority
Co-op, Series A, 7.500%, due 2016 A1/A+ 950,000 996,379
</TABLE>
State Bond Tax Exempt Fund
Schedule of Investments (continued)
<TABLE>
<CAPTION>
MOODY'S/S&P PRINCIPAL
RATING AMOUNT VALUE
------------------------------------
MUNICIPAL BONDS (CONTINUED)
<S> <C> <C> <C>
TEXAS
Houston, Texas, Water & Sewer Rev. Ref.
Bonds, 6.400%, due 2009 A/A $1,545,000 $1,637,916
Texas Water Development Board Rev.,
State Revolving Fund Bonds, 6.400%,
due 2007 Aa/AAA 1,000,000 1,064,870
Texas State Public Property Finance
Corp., 5.100%, due 2003 Aaa/AAA 890,000 881,153
Texas Utility System Revenue Bonds,
6.875%, due 2020 Aaa/AAA 1,000,000 1,071,950
UTAH
Utah State Municipal Finance Co-op,
Government Revenue Bonds, 6.400%, due
2009 A/A 1,000,000 1,008,970
VIRGINIA
Virginia Housing Authority, Residential
Mortgage Rev. Bonds, Series B, 7.550%,
due 2012 Aa/A+ 1,000,000 1,022,660
Virginia Housing Development
Authority, Series C, 1992, 6.500%, due
2007 Aa/AA 500,000 520,300
WASHINGTON
Washington State Municipal Finance
Co-op, Government Revenue Bonds,
5.600%, due 2007 Aa/AA 1,500,000 1,457,910
Washington School District #320,
General Obligation Bonds, 6.700%, due
2007 Aaa/AAA 1,000,000 1,081,130
</TABLE>
<TABLE>
<CAPTION>
MOODY'S/S&P PRINCIPAL
RATING AMOUNT VALUE
---------------------------------
MUNICIPAL BONDS (CONTINUED)
<S> <C> <C> <C>
WISCONSIN
Wisconsin Housing and Economic
Development Authority, Series A,
7.100%, due 2023 Aa/A+ $ 985,000 $ 1,031,876
Wisconsin Housing and Economic
Development Authority, Home Ownership
Single Family Mtg. Rev. Bonds, 9.125%,
due 2011 Aa/AA- 20,000 20,823
Wisconsin Housing and Economic
Development Authority, Series C,
5.200%, due 2004 A1/A 2,000,000 1,947,940
WYOMING
Sweetwater County, WY, PCR for Idaho
Power, 7.625%, due 2013 A3/A- 2,150,000 2,252,641
----------
TOTAL MUNICIPAL BONDS
(Cost $75,251,298) 78,511,381
</TABLE>
State Bond Tax Exempt Fund
Schedule of Investments (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-------- -----------
<S> <C> <C>
SHORT-TERM SECURITIES (2.1%)
Ford Motor Credit Corp., 5.930%, due
07/03/95 $500,000 $ 499,423
Ford Motor Credit Corp., 5.920%, due
07/05/95 275,000 274,683
Sears Roebuck Acceptance Corp., 6.000%,
due 07/07/95 950,000 948,892
-----------
TOTAL SHORT-TERM SECURITIES
(Cost $1,722,998) 1,722,998
-----------
TOTAL INVESTMENTS (100.0%)
(Cost $76,974,296*) $80,234,379
===========
</TABLE>
* Also represents cost for federal income tax purposes.
Ratings were provided by Moody's Investors Service, Inc. and Standard and
Poor's Corporation and are not covered by the report of Ernst & Young LLP.
See accompanying notes.
State Bond Tax Exempt Fund
Statement of Assets and Liabilities
June 30, 1995
<TABLE>
<S> <C>
ASSETS
Investment in securities, at value
(cost $76,974,296)
(Note 1)--See accompanying schedule $80,234,379
Cash 22,297
Receivable for capital shares sold 11,730
Interest receivable 1,514,557
Prepaid expenses 2,460
-----------
TOTAL ASSETS 81,785,423
LIABILITIES
Dividends payable 62,890
Payable to affiliates 56,187
Accrued expenses 23,975
-----------
TOTAL LIABILITIES 143,052
-----------
NET ASSETS $81,642,371
===========
Net Assets consist of:
Paid-in capital $78,343,568
Undistributed net realized gain on
investments 38,720
Net unrealized appreciation on
investment securities 3,260,083
-----------
NET ASSETS, for 7,578,854 shares
outstanding $81,642,371
===========
NET ASSET VALUE and redemption price
per share $ 10.77
===========
Maximum offering price per share
(includes maximum sales charge of
4.5%--reduced on purchases of $50,000 or
more) $ 11.28
===========
</TABLE>
See accompanying notes.
State Bond Tax Exempt Fund
Statement of Operations
Year Ended June 30, 1995
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest $5,209,032
EXPENSES (NOTE 2)
Investment advisory and management fees 405,455
12b-1 plan fees 201,900
Accounting and pricing service fees 35,300
Transfer agent fees 31,100
Shareholders' reports 18,600
Custodian fees 15,000
Professional fees 15,600
Directors' fees and expenses 5,000
Other expenses 23,400
----------
Total expenses 751,355
----------
Net investment income 4,457,677
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS (NOTE 1)
Net realized gain on investments 38,720
Change in unrealized appreciation on
investment securities 1,466,299
----------
Net realized and unrealized gain on
investments 1,505,019
----------
Net increase in net assets resulting
from operations $5,962,696
==========
</TABLE>
See accompanying notes.
State Bond Tax Exempt Fund
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1995 1994
--------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 4,457,677 $ 4,386,528
Net realized gain on investments 38,720 299,486
Net unrealized appreciation
(depreciation) 1,466,299 (3,455,276)
--------------------------
Net increase in net assets resulting
from operations 5,962,696 1,230,738
Distributions to shareholders from:
Net investment income (4,457,677) (4,386,528)
Net realized gain -- (716,070)
--------------------------
Total distributions to shareholders (4,457,677) (5,102,598)
Capital share transactions:
Proceeds from sales of shares 4,250,461 5,968,218
Proceeds from reinvested dividends 3,066,110 3,701,210
Cost of shares redeemed (8,328,499) (4,703,122)
--------------------------
Net increase (decrease) in net assets
resulting from share transactions (1,011,928) 4,966,306
--------------------------
Total increase in net assets 493,091 1,094,446
NET ASSETS
Beginning of year 81,149,280 80,054,834
--------------------------
End of year $81,642,371 $81,149,280
==========================
OTHER INFORMATION
Shares:
Sold 404,927 542,800
Issued through reinvestment of
dividends 291,063 336,654
Redeemed (788,793) (428,059)
--------------------------
Net increase (decrease) (92,803) 451,395
==========================
</TABLE>
See accompanying notes.
State Bond Tax Exempt Fund
Financial Highlights
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------
1995 1994 1993 1992 1991
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of year $ 10.58 $ 11.09 $ 10.86 $ 10.52 $ 10.39
Income from investment operations:
Net investment income .58 .59 .63 .68 .71
Net realized and unrealized gain
(loss) on investments .19 (.41) .34 .36 .13
---------------------------------------------------
Total from investment operations .77 .18 .97 1.04 .84
Less distributions:
From net investment income (.58) (.59) (.63) (.68) (.71)
From net realized gain -- (.10) (.11) (.02) --
---------------------------------------------------
Total distributions (.58) (.69) (.74) (.70) (.71)
---------------------------------------------------
Net asset value, end of year $ 10.77 $ 10.58 $ 11.09 $ 10.86 $ 10.52
===================================================
TOTAL RETURN* 7.53% 1.55% 9.30% 10.18% 8.39%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of year (in thousands) $81,642 $81,149 $80,055 $70,565 $60,841
Ratio of expenses to average net assets .93% .94% .93% .87% .73%
Ratio of net investment income to
average net assets 5.52% 5.37% 5.75% 6.33% 6.81%
Portfolio turnover rate 15% 17% 21% 16% 8%
</TABLE>
* Total returns do not consider the effects of the one time sales charge.
State Bond Tax Exempt Fund
Notes to Financial Statements
June 30, 1995
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The State Bond Tax Exempt Fund (the "Fund") is the only investment portfolio of
State Bond Municipal Funds, Inc., which is registered under the Investment
Company Act of 1940, as amended, as an open-end diversified management
investment company. The primary investment objective of the Fund is to maximize
current income exempt from Federal income taxes to the extent consistent with
the preservation of capital, with consideration given to the opportunity for
capital gains by investing in tax-exempt securities. The ability of the issuers
of the securities held by the Fund to meet their obligations may be affected by
economic developments in a specific state, industry or region.
On June 14, 1995, ARM Financial Group, Inc. ("ARM") completed the acquisition of
substantially all of the assets and business operations of SBM Company ("SBM").
As part of the 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 June 14, 1995, SBM Financial Services also became
the transfer agent for the Fund. Prior to the acquisition SBM functioned as the
transfer agent for the Fund.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles for investment companies.
State Bond Tax Exempt Fund
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENTS IN SECURITIES
Investment securities are stated at aggregate market values. Market valuations
are furnished by a pricing service approved by the Board of Directors. The
pricing service values portfolio securities which have remaining maturities of
more than sixty days from the date of valuation at quoted bid prices. Such
securities for which quotations are not readily available (which constitute a
majority of the Fund's portfolio securities) are valued at fair value as
determined by the pricing service. Securities which have remaining maturities of
sixty days or less and short-term securities are valued at amortized cost which
approximates market value. The procedures of the pricing service and its
valuations are reviewed by the officers of the Fund under the general
supervision of the Board of Directors.
Security transactions are accounted for on trade date and interest income is
recorded on the accrual basis. Realized gains or losses from investment
transactions are determined on the basis of specific identification.
At June 30, 1995, unrealized appreciation of investments aggregated $3,664,924
and unrealized depreciation of investments aggregated $404,841 for tax purposes.
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 and net realized gains. Therefore, no provision for federal or state
income tax is required.
The Fund hereby designates $38,720 as capital gain dividends attributable to the
year ended June 30, 1995 for the purpose of the dividend paid deduction on the
Fund's federal income tax returns.
DISTRIBUTIONS TO SHAREHOLDERS
Exempt interest dividends from net investment income are declared daily and
distributed monthly. Distributions from taxable net realized investment gains,
if any, will be declared at least once a year. Dividends and distributions 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 .5% on the average daily net assets of the
Fund. In addition, the Fund pays .25% of the average daily net assets to SBM
Financial Services under a Rule 12b-1 plan of share distribution. The investment
adviser has voluntarily undertaken to reimburse the Fund for any expenses in
excess of 1% of the average daily net assets despite the fact that higher
expenses may be permitted by state law. No such reimbursement was required for
the fiscal year ended June 30, 1995.
Fees paid to SBM Financial Services for underwriting services in connection with
sales of the Fund's capital shares aggregated $138,549 for the fiscal year ended
June 30, 1995. Such fees are not an expense of the Fund and are excluded from
the proceeds received by the Fund for sales of its capital shares as shown in
the accompanying statements of changes in net assets. Fees paid to SBM for
accounting services for the fiscal year ended June 30, 1995 were $24,750.
Certain officers and directors of the Fund are also officers of ARM, ARM Capital
Advisors, and SBM Financial Services.
3. PURCHASES AND SALES OF SECURITIES
Aggregate purchases and proceeds from sales of securities, excluding short-term
investments, during the fiscal year ended June 30, 1995 amounted to $11,481,659
and $13,263,859, respectively.
4. CAPITAL SHARES
At June 30, 1995, the Fund had authority to issue ten billion shares of common
stock, each with a par value of $.00001.
Report of Independent Auditors
Board of Directors and Shareholders
State Bond Tax Exempt Fund
We have audited the accompanying statement of assets and liabilities including
the schedule of investments of the State Bond Tax Exempt Fund (the "Fund") as of
June 30, 1995 and the related statements of operations and changes in net assets
and financial highlights for the year 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 statement of changes in net assets
for the year ended June 30, 1994 and financial highlights for the four years
ended June 30, 1994 of the State Bond Tax Exempt Fund were audited by other
auditors whose report dated July 29, 1994 expressed an unqualified opinion.
We conducted our audit 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 June 30, 1995, by
correspondence with the custodian. As to uncompleted securities transactions, we
performed other auditing procedures. 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
audit provides 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 Tax Exempt Fund at June 30, 1995, and the results of its operations,
changes in its net assets and financial highlights for the year then ended in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
----------------------
Kansas City, Missouri
August 4, 1995
INDEPENDENT AUDITORS' REPORT
Board of Directors of State Bond Municipal Funds, Inc.
and Shareholders of State Bond Tax Exempt Fund:
We have audited the accompanying balance sheet and statement of net assets of
State Bond Minnesota Tax-Free Income fund (the Fund) as of June 30, 1994 and the
related statement of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the five 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
June 30, 1994 by correspondence with the custodian and brokers. 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 State
Bond Tax Exempt Fund as of June 30, 1994, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended, in conformity with generally accepted accounting
principles.
/s/Deloitte & Touche LLP
Minneapolis, Minnesota
July 29, 1994
APPENDIX A
DESCRIPTION OF TAX-EXEMPT SECURITIES RATINGS
TAX-EXEMPT BOND TAX-EXEMPT SECURITIES RATINGS
Moody's Investors Service, Inc.ities Ratings
Aaa: Tax-exempt bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa: Tax-exempt bonds which are rated Aa are judged to be a 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 the best bonds because
margins of protection may not be as large or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A: Tax-exempt bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa: Tax-exempt bonds which are rated Baa are considered as medium grade
obligations; i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba: Tax-exempt bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate, and thereby
not well safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class.
B: Tax-exempt bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
NOTE: Moody's applies numerical modifiers 1,2, and 3 in each generic rating
classification from Aa through B in its bond ratings. The modifier 1 indicates
that the security ranks in the higher end of its generic rating category. The
modifier 2 indicates a mid-range ranking; and modifier 3 indicates that the
issue ranks in the lower end of its generic rating category.
STANDARD & POOR'S CORPORATION
AAA: Tax-exempt bonds rated AAA are highest grade obligations. They possess
the ultimate degree of protection as to principal and interest. In the market
they move with interest rates, and hence provide the maximum safety on all
counts.
AA: Tax-exempt bonds rated AA also qualify as high-grade obligations, and
in the majority of instances differ from AAA issues only in small degree. Here,
too, prices move with the long-term money market.
A: Tax-exempt bonds rated A are regarded as upper medium grade. They have
considerable investment strength but are not entirely free from adverse effects
of changes in economic and trade conditions. Interest and principal are regarded
as safe. They predominantly reflect money rates in their market behavior, but
also to some extent, economic conditions.
BBB: Tax-exempt bonds rated BBB are regarded as having adequate capacity to
pay principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.
BB or B: Tax-exempt bonds rated BB or B are regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and B a higher degree of speculation. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
NOTE: The S&P ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within the major rating categories.
TAX-EXEMPT NOTES
MOODY'S
Moody's ratings for state, municipal and other short-term obligations are
designated Moody's Investment Grade ("MIG"). This distinction is in recognition
of the differences between short-term credit risk and long-term risk. Factors
affecting the liquidity of the borrower are uppermost in importance in
short-term borrowing, while various factors of primary importance in long-term
borrowing risk are of lesser importance in the short run. Symbols used are as
follows:
MIG-1: Notes are of the best quality enjoying strong protection from
established cash flows of funds for their servicing or from established and
broad-based access to the market for refinancing, or both.
MIG-2: Notes are of high quality, with margins of protection ample,
although not so large as in the preceding group.
MIG-3: Notes are of favorable quality, with all security elements accounted
for, but lacking the undeniable strength of the preceding grades. Market access
for refinancing, in particular, is likely to be less well established.
STANDARD & POOR'S
Until June 29, 1984, Standard & Poor's used the same rating symbols for
notes and bonds. After June 29, 1984, for new municipal note issues due in three
years or less the ratings below usually will be assigned. Notes maturing beyond
three years will most likely receive a bond rating of the type recited above.
SP-1: Issues carrying this designation have a very strong or strong
capacity to pay principal and interest. Issues determined to possess
overwhelming safety characteristics will be given a "plus" (+) designation.
SP-2: Issues carrying this designation have a satisfactory capacity to pay
principal and interest.
COMMERCIAL PAPER
MOODY'S
Moody's Commercial Paper ratings, which are also applicable to municipal
paper investments permitted to be made by the Fund, are opinions of the ability
of issuers to repay punctually their promissory obligations not having an
original maturity in excess of nine months. Moody's employs the following
designations, all judged to be investment grade, to indicate the relative
repayment capacity of rated Issuers:
P-1 (Prime-1): Superior capacity for repayment.
P-2 (Prime-2): Strong capacity for repayment.
STANDARD & POOR'S
S&P's ratings are a current assessment of the likelihood of timely payment
of debt having an original maturity of no more than 365 days. Ratings are graded
into four categories, ranging from "A" for the highest quality obligations to
"D" for the lowest. Issues with the "A" category are delineated with the numbers
1,2 and 3 to indicate the relative degree of safety, as follows:
A-1: This designation indicates the degree of safety regarding timely
payment is very strong. A "plus" (+) designation indicates an even stronger
likelihood of timely payment.
A-2: Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for issues
designated A-1.
PART C
OTHER INFORMATION
STATE BOND TAX EXEMPT FUND
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
Included in Part A:
Financial Highlights for each year in the ten year period ended
June 30, 1995
Included in Part B:
Schedule of Investments - June 30, 1995
Statement of Assets and Liabilities - June 30, 1995
Statement of Operations - Year ended June 30, 1995
Statements of Changes in Net Assets - Years ended June 30, 1995
and 1994
Financial Highlights for each period in the five year period
ended June 30, 1995
Note to Financial Statements
Independent Auditors' Reports
(b) Exhibits
(1) Articles of Incorporation, filed as an Exhibit hereto.
(2) Bylaws, filed as an Exhibit hereto.
(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 this
Registration Statement.
(5) Investment Advisory Contract, filed as an Exhibit hereto.
(6) (a) Underwriting Agreement, filed as an Exhibit hereto.
(b) Form of Agreement between principal underwriter and dealers,
filed as an Exhibit to Amendment No. 20 to Form N-1A
Registration Statement 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) Agency Agreement, filed as an Exhibit hereto.
(10) Opinion of Counsel, filed as an Exhibit hereto.
(11) (a) Consent of Ernst & Young LLP, dated August 24, 1995 and filed
as an Exhibit hereto.
(b) Consent of Deloitte & Touche LLP, dated August 24, 1995 and
filed as an Exhibit hereto.
(12) Not applicable.
(13) Agreement regarding initial capital, filed as an Exhibit to
Pre-Effective Amendment #1 to Form N-1 on June 30, 1982, File
#2-77156, and incorporated herein by reference.
(14) Not applicable.
(15) Plan of Distribution, filed as an Exhibit hereto.
(16) Schedule for Computation of Performance Data, filed as an Exhibit
hereto.
(17) (a)Power of attorney dated July 31, 1995, filed as an Exhibit
hereto.
(b)Financial Data Schedule - filed hereto electronically as
Exhibit 27 pursuant to Rule 401 of Regulation S-T .
(18) Not applicable.
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)
-------------- -----------------------
common - $.00001 par 2,050 as of July 31, 1995
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 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 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 clients.
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:
NAME AND PRINCIPAL BUSINESS ADDRESS POSITION AND OFFICES
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 and President
Since October 1994:
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.
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
John R. McGeeney Secretary
Co-General Counsel and Secretary
Peter S. Resnik Treasurer
Treasurer
Don W. Cummings Controller
Controller
Rose M. Culbertson Tax Officer
Tax Officer
Kevin Howard Assistant Secretary
Since January 1994: and Compliance Officer
Assistant General Counsel and
Compliance Officer
1992-January 1994:
Providian Corp.
Assistant General Counsel
400 West Market Street
Louisville KY 40202
*All addresses are ARM Financial Group, Inc., 239 S. Fifth Street, 12th 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 acts as principal underwriter for the Fund, and
for each of the following investment companies:
State Bond Investment Funds, Inc.
(State Bond Diversified Fund Portfolio)
State Bond Money Funds, Inc.
(State Bond Cash Management 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)
SBM Certificate Company
(b) The following table sets forth information concerning each director,
officer or partner of the principal underwriter.
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS & OFFICES
BUSINESS ADDRESS WITH UNDERWRITER WITH REGISTRANT
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
Richard M. Carlblom*** Vice President None
Gregory A. Erickson*** Vice President None
Ronald Geiger*** Vice President None
100 North Minnesota Street
New Ulm MN 56073
Peter S. Resnik* Treasurer Treasurer
Don W. Cummings* Controller Controller
William H. Guth** Operations Officer None
David L. Anders** Marketing Officer None
Rose M. Culbertson* Tax Officer None
Patricia L. Mack* Assistant Secretary None
* Address is 239 S. Fifth Street, 12th Floor, Louisville KY 40202
** Address is 200 East Wilson Bridge Road, Worthington OH 43085
*** Address is 8400 Normandale Lake Boulevard, Suite 1150, Minneapolis
MN 55437
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
SBM Financial Services, Inc.
8400 Normandale Lake Boulevard, Suite 1150
Minneapolis, Minnesota 55437-3807
ITEM 31. MANAGEMENT SERVICES
None
ITEM 32. UNDERTAKINGS
Not applicable.
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 28th day of August, 1995.
STATE BOND MUNICIPAL FUNDS, INC.
By: /s/Kevin 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.
SIGNATURES TITLE DATE
/s/Dale Bauman President August 28, 1995
- --------------------- (Principal Executive
Officer)
/s/Peter Resnik Treasurer August 28, 1995
- --------------------- (Principal Financial
Officer)
/s/Don Cummings Controller August 28, 1995
(Principal Accounting
Officer)
* Director
- ---------------------
(William B. Faulkner)
* Director
- ---------------------
(Patrick M. Finley)
* Director
- ---------------------
(Chris L. Mahai)
* Director
- ---------------------
(John R. Lindholm)
* Director
- ---------------------
(John Katz)
* Director
- ---------------------
(Theodore S. Rosky)
* This Amendment has been signed
by each of the persons so indicated
by the undersigned as Attorney-in-Fact.
*By: /s/Kevin Howard August 28, 1995
------------------
ARTICLES OF AMENDMENT AND RESTATEMENT
OF
STATE BOND TAX EXEMPT FUND, INC.
State Bond Tax Exempt Fund, Inc., a Maryland corporation, having its
principal office in Baltimore, Maryland (the "Corporation"), hereby certifies to
the State Department of Assessments and Taxation of Maryland that:
FIRST: The Articles of Incorporation of the Corporation are amended and
restated in their entirety to read as follows:
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
STATE BOND MUNICIPAL FUNDS, INC.
ARTICLE I
NAME
The name of the corporation (hereinafter referred to as the "Corporation")
is "State Bond Municipal Funds, Inc."
ARTICLE II
PURPOSES AND POWERS
The purposes for which the Corporation is formed are to act as an open-end
management investment company registered as such with the Securities and
Exchange Commission pursuant to the Investment Company Act of 1940 (as amended,
and together with the rules and regulations promulgated thereunder, the "1940
Act"), and to exercise and generally to enjoy all of the powers, rights, and
privileges granted to, or conferred upon, corporations by the General Laws of
the State of Maryland now or hereafter in force.
ARTICLE III
PRINCIPAL OFFICE AND RESIDENT AGENT
The address of the principal office of the corporation in the State of
Maryland is:
State Bond Municipal Funds, Inc.
c/o The Corporation Trust Incorporated
32 South Street
Baltimore, Maryland 21202
The name and address of the resident agent of the Corporation in the State
of Maryland is:
The Corporation Trust Incorporated
32 South Street
Baltimore, Maryland 21202
The resident agent is a corporation organized under the laws of the State
of Maryland.
ARTICLE IV
CAPITAL STOCK
Section 1. (a) The total number of shares of capital stock that the
Corporation has authority to issue is 10,000,000,000 shares of common stock
(individually, a "Share" and, collectively, the "Shares"), of the par value of
$.00001 per Share and of the aggregate par value of $100,000. Unless otherwise
prohibited by law, so long as the Corporation is registered as an open-end
investment company under the 1940 Act, the Board of Directors shall have the
power and authority, without the approval of the holders of any outstanding
Shares, to increase or decrease the number of shares of capital stock or the
number of shares of capital stock of any class or series that the Corporation
has authority to issue.
(b) Of the total authorized Shares, 2,000,000,000 Shares shall constitute
the class designated as "Class A Common Shares," and the remaining 8,000,000,000
authorized Shares shall initially be unclassified Shares. Any class of the
Shares, including the Class A Common Shares and each class hereafter created by
the Board of Directors, shall be referred to herein individually as a "Class"
and collectively as "Classes." The Board of Directors of the Corporation may
further classify or reclassify any unissued Shares into a Class or Series
thereof (whether or not such Shares have been previously classified or
reclassified into a Class or a Series thereof) from time to time by setting or
changing the preferences, conversion, or other rights, voting powers,
designations, restrictions, limitations as to dividends, qualifications, or
terms or conditions of redemption of such unissued Shares. Each currently issued
and outstanding share of the Corporation's common stock is hereby automatically
classified and designated as a Class A Common Share of the Corporation. The name
of each Class of Shares shall be as provided in the Bylaws of the Corporation.
The name ascribed to a Class of Shares shall be subject to amendment by the
Corporation's Board of Directors without approval by the shareholders of such
Class.
(c) The Shares of each Class may be further classified by the Board of
Directors into one or more series (individually a "Series" and collectively,
together with any other series within any Class, the "Series") with such
relative rights and preferences as shall be contained in Articles Supplementary
filed with the State Department of Assessments and Taxation of the State of
Maryland. All Series of a particular Class of the Corporation shall represent
the same interest in the Corporation and have identical voting, dividend,
liquidation, and other rights of any other Shares of such Class, except that the
shares of each Series within a Class may be subject to such charges and expenses
(including by way of example, but not by way of limitation, such front-end and
deferred sales charges as may be permitted in the 1940 Act and rules of the
National Association of Securities Dealers, Inc. ("NASD"), expenses under Rule
12b-1 plans, administration plans, service plans, or other plans or
arrangements, however designated) adopted from time to time by the Board of
Directors of the Corporation in accordance, to the extent applicable, with the
1940 Act, which charges and expenses may differ from those applicable to another
Series within such Class, and all of the charges and expenses to which a Series
is subject shall be borne by such Series and shall be appropriately reflected
(in the manner determined by the Board of Directors) in determining the net
asset value and the amounts payable with respect to dividends and distributions
on and redemptions or liquidations of, the Shares of such Series.
(d) A description of the relative preferences, conversion, and other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption of all Classes of Shares
is as follows, unless otherwise set forth in Articles Supplementary filed with
the State Department of Assessments and Taxation of the State of Maryland
describing any further Class or Classes from time to time created by the Board
of Directors of the Corporation:
(i) Assets Belonging to a Class. All consideration received by the
Corporation for the issue or sale of Shares of a particular Class, together
with all assets in which such consideration is invested or reinvested, all
income, earnings, profits, and proceeds thereof, including any proceeds
received from the sale, exchange, or liquidation of such assets, and any
funds or payments derived from any reinvestment of such proceeds in
whatever form the same may be, shall irrevocably belong to that Class for
all purposes, subject only to the rights of creditors, and shall be so
recorded upon the books of account of the Corporation. Such consideration,
assets, income, earnings, profits, and proceeds, including any proceeds
derived from the sale, exchange, or liquidation of such assets, and any
funds or payments derived from any reinvestment of such proceeds, in
whatever form the same may be, together with any General Assets (as
hereinafter defined) allocated to that Class as provided in the following
sentence, are herein referred to as "assets belonging to" that Class. In
the event that there are any assets, income, earnings, profits, or proceeds
thereof, funds or payments which are not readily identifiable as belonging
to any particular Class (collectively, "General Assets"), the Board of
Directors shall allocate such General Assets to and among any one or more
of the Classes created from time to time in the manner and on such basis as
the Board of Directors, in its sole discretion, deems fair and equitable;
and any General Assets so allocated to a particular Class shall belong to
that Class. Each such allocation by the Board of Directors shall be
conclusive and binding upon the stockholders of all Classes for all
purposes.
(ii) Liabilities Belonging to a Class. The assets belonging to each
particular Class shall be charged with the liabilities of the Corporation
in respect of that Class and with all expenses, costs, charges, and
reserves attributable to that Class, and such charges shall be so recorded
upon the books of account of the Corporation. Such liabilities, expenses,
costs, charges and reserves, together with any General Liabilities (as
hereinafter defined) allocated to that Class as provided in the following
sentence, so charged to that class are herein referred to as "liabilities
belonging to" that Class. In the event there are any general liabilities,
expenses, costs, charges, or reserves of the Corporation which are not
readily identifiable as belonging to any particular Class (collectively,
"General Liabilities"), the Board of Directors shall allocate and charge
such General Liabilities to and among any one or more of the Classes
created from time to time in such manner and on such basis as the Board of
Directors, in its sole discretion, deems fair and equitable; and any
General Liabilities so allocated and charged to a particular Class shall
belong to that Class. Each such allocation by the Board of Directors shall
be conclusive and binding upon the stockholders of all Classes for all
purposes.
(iii) Dividends and Distributions. Dividends and distributions on
Shares of a particular Class may be paid to the holders of Shares of that
Class at such times, in such manner and from such of the income and capital
gains, accrued or realized, from the assets belonging to that Class, after
providing for actual and accrued liabilities belonging to that Class, as
the Board of Directors may determine.
(iv) Liquidation. In the event of the liquidation or dissolution of
the Corporation, the stockholders of each Class that has been created shall
be entitled to receive, as a Class, when and as declared by the Board of
Directors, the excess of the assets belonging to that Class over the
liabilities belonging to that Class. The assets so distributable to the
stockholders of any particular Class shall be distributed among the
stockholders in proportion to the number of Shares of that Class held by
them and recorded on the books of the Corporation.
(v) Voting. On each matter submitted to a vote of the stockholders,
each holder of a Share shall be entitled to one vote for each such Share
standing in his name on the books of the Corporation, irrespective of the
Class thereof, and all Shares of all Classes shall vote as a single class
("Single Class Voting"); provided, however, that (A) as to any matter with
respect to which a separate vote of any Class is required by the 1940 Act
or would be required under the General Corporation Law of the State of
Maryland, such requirements as to a separate vote by that Class shall apply
in lieu of Single Class Voting as described above; (B) in the event that
the separate vote requirements referred to in (A) above apply with respect
to one or more Classes, then, subject to (C) below, the Shares of all other
Classes shall vote as a single class; (C) as to any matter which does not
affect the interest of a particular Class, only the holders of Shares of
the one or more affected Classes shall be entitled to vote; and (D) as to
any matter which affects only a particular Series, only the holders of the
Shares of the affected Series shall be entitled to vote and, if permitted
by the 1940 Act and any other applicable law, the Series of more than one
Class may vote together as a single class on any such matter which shall
have the same effect on each Series.
(vi) Equality. All Shares of each particular Class shall represent an
equal proportionate interest in the assets belonging to that Class (subject
to the liabilities belonging to that Class), and each Share of any
particular Class shall be equal to each other Share of that Class; but the
provisions of this sentence shall not restrict any distributions
permissible pursuant to subsection (iii) of this Section 1(d) of this
Article IV or otherwise under these Articles of Incorporation that may
exist with respect to stockholder elections to receive dividends or
distributions in cash or Shares of the same Class or that may otherwise
exist with respect to dividends and distributions on Shares of the same
Class.
(e) The Corporation shall not be obligated to issue certificates
representing shares of any Class or Series of capital stock. At the time of
issue or transfer of Shares without certificates, the Corporation shall
provide the stockholder with such information as may be required under the
Maryland General Corporation Law.
Section 2. Subject to compliance with the requirements of the 1940 Act, the
Board of Directors shall have the authority to provide that Shares of any Series
shall be convertible (automatically, optionally, or otherwise) into Shares of
one or more other Series in accordance with such requirements and procedures as
may be established by the Board of Directors.
Section 3. The presence in person or by proxy of the holders of record of
one-third of the Shares of all Classes issued and outstanding and entitled to
vote thereat shall constitute a quorum for the transaction of any business at
all meetings of the stockholders except as otherwise provided by law or in these
Articles of Incorporation and except that where the holders of Shares of any
Class or Series thereof are entitled to a separate vote as a Class or Series
(for purposes of this Section 3, such Series or Class, being referred to as a
"Separate Class") or where the holders of Shares of two or more (but not all)
Classes or Series thereof are required to vote as a single Class or Series for
purposes of this Section 3 (such Series or Classes being referred to as a
"Combined Class"), the presence in person or by proxy of the holders of
one-third of the Shares of that Separate Class or Combined Class, as the case
may be, issued and outstanding and entitled to vote thereat shall constitute a
quorum for such vote. If, however, a quorum with respect to all Classes, a
Separate Class or a Combined Class, as the case may be, shall not be present or
represented at any meeting of stockholders, the holders of a majority of the
Shares of all Classes, such Separate Class or such Combined Class, as the case
may be, present in person or by proxy and entitled to vote shall have power to
adjourn the meeting from time to time (to a date or dates not more than 120 days
after the original record date) as to all Classes, such Separate Class or such
Combined Class, as the case may be, without notice other than announcement at
the meeting, until the requisite number of Shares entitled to vote at such
meeting shall be present. At such adjourned meeting at which the requisite
number of Shares entitled to vote thereat shall be represented any business may
be transacted which might have been transacted at the meeting as originally
notified. The absence from any meeting of stockholders of the number of Shares
in excess of one-third of the Shares of all Classes or of the affected Class or
Classes or Series thereof, as the case may be, which may be required by the laws
of the State of Maryland, the 1940 Act, any other applicable law or these
Articles of Incorporation, for action upon any given matter shall not prevent
action at such meeting upon any other matter or matters which may properly come
before the meeting, if there shall be present thereat, in person or by proxy,
holders of the number of Shares required for action in respect of such other
matter or matters. Notwithstanding any provision of law requiring any action to
be taken or authorized by the holders of a greater proportion than a majority of
the Shares of all Classes or of the Shares of a particular Class or Classes, as
the case may be, entitled to vote thereon, such action shall be valid and
effective if taken or authorized by the affirmative vote of the holders of a
majority of the Shares of all Classes or of such Class or Classes, as the case
may be, outstanding and entitled to vote thereon.
Section 4. All Shares now or hereafter authorized shall be subject to
redemption and redeemable at the option of the stockholder, in the sense used in
the General Corporation Law of the State of Maryland. Each holder of a Share of
any Class (or Series thereof), upon request to the Corporation accompanied by
surrender of the appropriate stock certificate or certificates, if any, in
proper form for transfer, shall be entitled to require the Corporation to redeem
all or any part of the Shares of that Class (or Series thereof) standing in the
name of such holder on the books of the Corporation at a redemption price per
Share based on the net asset value per Share of that Class (or Series thereof)
determined in accordance with Section 4 of Article VI hereof. Nothing herein
shall prohibit the Corporation from imposing, at the time of the redemption of
Shares of any Class or Series thereof, a fee or sales charge provided that such
fee or sales charge has been duly adopted by the Board of Directors and is
permitted under the applicable provisions of the 1940 Act and applicable rules
of the NASD.
Section 5. Notwithstanding Section 4, the Board of Directors of the
Corporation may suspend the right of the holders of Shares to require the
Corporation to redeem such Shares or may suspend any voluntary purchase of such
Shares:
(a) for any period (i) during which the New York Stock Exchange is
closed other than customary weekend and holiday closings, or (ii) during
which trading on the New York Stock Exchange is restricted as determined by
the Securities and Exchange Commission or any successor thereto;
(b) for any period during which an emergency, as determined by the
Securities and Exchange Commission or any successor thereto, exists as a
result of which (i) disposal by the Corporation of securities owned by it
is not reasonably practicable, or (ii) it is not reasonably practicable for
the Corporation fairly to determine the value of its net assets; or
(c) for such other periods as the Securities and Exchange Commission
or any successor thereto may by order permit for the protection of
stockholders of the Corporation.
Section 6. All Shares now or hereafter authorized shall be subject to
redemption and redeemable at the option of the Corporation. The Board of
Directors may by resolution from time to time authorize the Corporation to
require the redemption of all or any part of the outstanding Shares of any Class
(or Series thereof) upon the sending of written notice thereof to each
stockholder any of whose Shares of that Class (or Series thereof) are so
redeemed and upon such terms and conditions as the Board of Directors shall deem
advisable, out of funds legally available therefor, at a redemption price per
Share based on the net asset value per Share of that Class (or Series thereof)
determined in accordance with Section 4 of Article VI hereof and to take all
other steps deemed necessary or advisable in connection therewith. The
Corporation shall have the right to require the redemption of all Shares owned
or held by any one stockholder and having an aggregate net asset value, as
determined at any time in accordance with Article VI hereof, of less than
$500.00; provided that the Corporation shall give any such stockholder at least
30 days' notice of the effective date of such redemption; and provided further
that, if prior to the effective date of such redemption, the aggregate net asset
value of the Shares owned or held by such stockholder shall increase to $500.00
or more, the redemption shall be automatically cancelled.
Section 7. The Board of Directors may by resolution from time to time
authorize the repurchase by the Corporation, either directly or through an
agent, of Shares of any Class upon such terms and conditions and for such
consideration as the Board of Directors shall deem advisable, out of funds
legally available therefor, at prices per Share not in excess of the net asset
value per Share of that Class determined in accordance with Section 4 of Article
VI hereof and to take all other steps deemed necessary or advisable in
connection therewith.
Section 8. Except as otherwise permitted by the 1940 Act, payment of the
redemption or repurchase price of Shares surrendered to the Corporation for
redemption pursuant to the provisions of Section 4 or 6 of this Article IV or
for repurchase by the Corporation pursuant to the provisions of Section 7 of
this Article IV shall be made by the Corporation within seven days after
surrender of such Shares to the Corporation for such purpose. Any such payment
may be made in whole or in part in portfolio securities or in cash, as the Board
of Directors shall deem advisable, and no stockholder shall have the right,
other than as determined by the Board of Directors, to have his Shares redeemed
or repurchased in portfolio securities.
Section 9. No holder of Shares shall, as such holder, have any preemptive
right to purchase or subscribe for any part of any new or additional issue of
stock of any Class, or of rights or options to purchase any stock, or of
securities convertible into, or carrying rights or options to purchase, stock of
any Class, whether now or hereafter authorized or whether issued for money, for
a consideration other than money or by way of a dividend or otherwise, and all
such rights are hereby waived by each holder of capital stock of any other Class
of stock or securities of the Corporation that may hereafter be created.
Section 10. All persons who shall acquire any of the Shares shall acquire
the same subject to the provisions of these Articles of Incorporation.
ARTICLE V
DIRECTORS
Section 1. The Board of Directors shall consist of three or more members.
The Bylaws of the Corporation, however, may fix the number of directors at a
number larger than three and may authorize the Board of Directors to increase or
decrease the number of directors within a limit specified by the Bylaws, and to
fill the vacancies created by any such increase in the number of directors.
Unless otherwise provided by the Bylaws of the Corporation, the directors of the
Corporation need not be stockholders.
Section 2. The Bylaws of the Corporation may divide the Directors of the
Corporation into classes and prescribe the tenure of office of the several
classes.
Section 3. Stockholders of the Corporation may remove a Director by the
affirmative vote of a majority of the Corporation's outstanding Shares.
Section 4. Currently there are nine directors of the Corporation, who are:
Robert H. Baker, Richard M. Evjen, William B. Faulkner, Patrick M. Finley, Alden
M. Hansen, Chris E. Mahai, Keith O. Martens, Kennon V. Rothchild, and Roman G.
Schmid.
ARTICLE VI
MANAGEMENT OF THE AFFAIRS OF THE CORPORATION
Section 1. The Board of Directors shall have the general management and
control of the business and property of the Corporation, and may exercise all
the powers of the Corporation, except such as are by statute or by these
Articles of Incorporation or by the Bylaws conferred upon or reserved to the
stockholders. The Corporation may in its Bylaws confer powers on the Board of
Directors in addition to the powers expressly conferred by statute.
Section 2. The Board of Directors shall have the power to adopt, alter, or
repeal the Bylaws of the Corporation except to the extent that the Bylaws
otherwise provide.
Section 3. The Board of Directors shall have the power from time to time to
determine whether and to what extent, at what times and places, and under what
conditions and regulations, the accounts and books of the Corporation or any of
them shall be open to the inspection of stockholders, and no stockholder shall
have any right to inspect any account, book or document of the Corporation
except to the extent required by statute or permitted by the Bylaws.
Section 4. The Board of Directors shall have the power to determine, as
provided in these Articles of Incorporation, or if provision is not made herein,
in accordance with generally accepted accounting principles, what constitutes
net income, total assets, and the net asset value of the Shares of each Class of
the Corporation, and of the Shares of each Series of such Class. Any such
determination made in good faith shall be final and conclusive, and shall be
binding upon the Corporation, and all holders of shares of each Series of each
Class (past, present, and future), and Shares of each Class are issued and sold
on the condition and undertaking, evidenced by acceptance of certificates for
such Shares by, or confirmation of such Shares being held for the account of,
any stockholder, that any and all such determinations shall be binding as
aforesaid. Nothing in this Section 4 shall be construed to protect any director
or officer of the Corporation against any liability to the Corporation or its
stockholders to which he 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
INDEMNIFICATION; LIABILITY
Section 1. The Corporation shall indemnify (i) its directors and officers,
whether serving the Corporation or at its request any other entity, to the full
extent required or permitted by the General Laws of the State of Maryland now or
hereafter in force, including the advance of expenses under the procedures and
to the full extent permitted by law, and (ii) other employees and agents to such
extent as shall be authorized by the Board of Directors or the Bylaws and as
permitted by law. Nothing contained herein shall be construed to protect any
director or officer of the Corporation against any liability to the Corporation
or its security holders to which he 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. The foregoing rights of
indemnifcation shall not be exclusive of any other rights to which those seeking
indemnification may be entitled. The Board of Directors may take such action as
is necessary to carry out these indemnification provisions and is expressly
empowered to adopt, approve, and amend from time to time such bylaws,
resolutions, or contracts implementing such provisions or such further
indemnification arrangements as may be permitted by law. No amendment of the
charter of the Corporation or repeal of any of its provisions shall limit or
eliminate the right of indemnification provided hereunder with respect to acts
or omissions occurring prior to such amendment or repeal.
Section 2. To the fullest extent permitted by Maryland statutory or
decisional law, as amended or interpreted, and the 1940 Act, no director or
officer of the Corporation shall be personally liable to the Corporation or its
security holders for money damages; provided, however, that nothing herein shall
be construed to protect any director or officer of the Corporation against any
liability to the Corporation or its security holders to which he 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. No
amendment of the charter of the Corporation or repeal of any of its provisions
shall limit or eliminate the limitation of liability provided to directors and
officers hereunder with respect to any acts or omissions occuring prior such
amendment or repeal.
ARTICLE VIII
PERPETUAL EXISTENCE
The duration of the Corporation shall be perpetual.
ARTICLE IX
AMENDMENTS
The Corporation reserves the right from time to time to make any amendments
of its charter which may now or hereafter be authorized by law, including any
amendments changing the terms or contract rights, as expressly set forth in its
charter, of any of its outstanding stock by classification, reclassification, or
otherwise. -------------------------
The terms "Articles of Incorporation" as used herein and in the Bylaws of
the Corporation shall be deemed to mean these Articles of Incorporation as from
time to time amended, restated, or supplemented. -------------------------
SECOND:
(a) As of immediately before the amendment, the total number of shares
of stock of all classes which the Corporation has authority to issue is
2,000,000,000 shares, all of which are shares of common stock (par value
$.01 per share).
(b) As amended, the total number of shares of stock of all classes
which the Corporation has authority to issue is 10,000,000,000 shares, all
of which are shares of common stock (par value $.00001 per share).
(c) The aggregate par value of all shares having a par value is
$20,000,000 before the amendment and $100,000 as amended.
(d) Because the amendment effects a change in the par value of each
authorized share of the Corporation's common stock from $.01 per share to
$.00001 per share, the Corporation's charter is hereby amended by changing
and reclassifying each of the shares of the Corporation's common stock (par
value $.01 per share) into one share of common stock (par value $.00001 per
share), and by transferring from the common stock account of the
Corporation to the capital in excess of par value account $.00999 for each
share of common stock which is issued and outstanding at the effective time
of this amendment.
THIRD:
The foregoing Articles of Amendment and Restatement have been advised by
the Board of Directors and approved by the stockholders of the Corporation.
IN WITNESS WHEREOF, the Corporation has caused these presents to be
signed in its name and on its behalf by its President and witnessed by its
Secretary on March 19, 1993.
STATE BOND MUNICIPAL FUNDS, INC.
WITNESS: By: -----------------------------
/s/Roman G. Schmid, President
- ---------------------------------
/s/Helen M. Wischstadt, Secretary
THE UNDERSIGNED, President of the Corporation, who executed on behalf of
the Corporation the foregoing Articles of Amendment and Restatement of which
this certificate is made a part, hereby acknowledges in the name and on behalf
of said Corporation the foregoing Articles of Amendment and Restatement to be
the corporate act of said Corporation and hereby certifies that to the best of
his knowledge, information, and belief the matters and facts set forth therein
with respect to the authorization and approval thereof are true in all material
respects under the penalties of perjury.
--------------------------
Roman G. Schmid, President
STATE BOND MUNICIPAL FUNDS, INC.
BY-LAWS
ARTICLE I
NAME
Section 1.01 Name. The name of the Corporation is State Bond Municipal
Funds, Inc. The name of the class represented by the Class A Common Shares shall
be State Bond Tax Exempt Fund.
ARTICLE II
STOCKHOLDERS
Section 2.01. Annual Meetings. The Corporation is not required to hold an
annual meeting of its stockholders in any year in which the election of
directors is not required to be acted upon under the Investment Company Act of
1940. If the Corporation is required by the Investment Company Act of 1940 to
hold a meeting of stockholders to elect directors, such meeting shall be held at
a date and time set by the Board of Directors in accordance with the Investment
Company Act of 1940 and no later than 120 days after the occurrence of the event
requiring the meeting. Any stockholders' meeting held in accordance with the
preceding sentence shall for all purposes constitute the annual meeting of
stockholders for the fiscal year of the Corporation in which the meeting is
held. Except as the charter or statute provides otherwise, any business may be
considered at an annual meeting without the purpose of the meeting having been
specified in the notice. Failure to hold an annual meeting does not invalidate
the Corporation's existence or affect any otherwise valid corporate acts.
Section 2.02. Special Meetings. At any time in the interval between annual
meetings, a special meeting of the stockholders may be called by the Chairman of
the Board or the President or by a majority of the Board of Directors by vote at
a meeting or in writing (addressed to the Secretary of the Corporation) with or
without a meeting. The Secretary of the Corporation shall call a special meeting
of stockholders on the written request of stockholders entitled to cast at least
25 percent of all the votes entitled to be cast at the meeting. A request for a
special meeting shall state the purpose of the meeting and the matters proposed
to be acted on at it. The Secretary shall inform the stockholders who make the
request of the reasonably estimated costs of preparing and mailing a notice of
the meeting and, on payment of these costs to the Corporation, notify each
stockholder entitled to notice of the meeting. Unless requested by stockholders
entitled to cast a majority of all the votes entitled to be cast at the meeting,
a special meeting need not be called to consider any matter which is
substantially the same as a matter voted on at any special meeting of
stockholders held in the preceding 12 months.
Section 2.03. Place of Meetings. Meetings of the stockholders shall be held
at such place in the United States as is set from time to time by the Board of
Directors.
Section 2.04. Notice of Meetings; Waiver of Notice. Not less than ten nor
more than 90 days before each stockholders' meeting, the Secretary shall give
written notice of the meeting to each stockholder entitled to vote at the
meeting and each other stockholder entitled to notice of the meeting. The notice
shall state the time and place of the meeting and, if the meeting is a special
meeting or notice of the purpose is required by statute, the purpose of the
meeting. Notice is given to a stockholder when it is personally delivered to
him, left at his residence or usual place of business, or mailed to him at his
address as it appears on the records of the Corporation. Notwithstanding the
foregoing provisions, each person who is entitled to notice waives notice if he
before or after the meeting signs a waiver of the notice which is filed with the
record of stockholders' meetings, or is present at the meeting in person or by
proxy.
Section 2.05. Quorum; Adjournment of Meetings. The presence in person or by
proxy of the holders of record of one-third of the shares of the capital stock
of the Corporation issued and outstanding and entitled to vote thereat, shall
constitute a quorum at all meetings of the stockholders. Where the holders of
shares of any series or class thereof are entitled to a separate vote as a
series or class (such series or class being referred to as a "Separate Class")
or where the holders of shares of two or more (but not all) series or classes
thereof are required to vote as a single series or class (such series or classes
being referred to as a "Combined Class"), the presence in person or by proxy of
the holders of one-third of the shares of that Separate Class or Combined Class,
as the case may be, issued and outstanding and entitled to vote thereat shall
constitute a quorum for such vote. If at any meeting of the stockholders there
shall be less than a quorum present, the stockholders present at such meeting
may, without further notice, adjourn the same from time to time until a quorum
shall attend. If a quorum with respect to a Separate Class or a Combined Class,
as the case may be, shall not be present, the holders of the shares of such
Separate Class or such Combined Class, as the case may be, present and entitled
to vote shall have power to adjourn the meeting from time to time as to such
Separate Class or such Combined Class, as the case may be, without notice other
than announcement at the meeting, until the requisite number of shares entitled
to vote at such meeting shall be present. No business shall be transacted at any
such adjourned meeting except such as might have been lawfully transacted had
the meeting not been adjourned. This Section 2.05 may be altered, amended, or
repealed only upon the affirmative vote of the holders of the majority of all
the shares of the capital stock of the Corporation at the time outstanding and
entitled to vote.
Section 2.06. Voting. A majority of all the votes cast at a meeting at
which a quorum is present is sufficient to approve any matter which properly
comes before the meeting, except that a plurality of all the votes cast at a
meeting at which a return quorum is present is sufficient to elect a director.
Section 2.07. General Right to Vote; Proxies. Unless the charter provides
for a greater or lesser number of votes per share or limits or denies voting
rights, each outstanding share of stock, regardless of class or series, is
entitled to one vote on each matter submitted to a vote at a meeting of
stockholders. In all elections of directors, each share of stock may be voted
for as many individuals as there are directors to be elected and for whose
election the share is entitled to be voted. A stockholder may vote the stock he
owns of record either in person or by written proxy signed by the stockholder or
by his duly authorized attorney in fact. Unless a proxy provides otherwise, it
shall not be valid for more than 11 months after its date. In addition to
written proxies and to the extent permitted by Maryland law, the Corporation may
permit stockholders to vote by proxies in the forms of telegrams, mailgrams,
proxygrams, facsimile transmission, or other form of electronic transmission
provided the stockholder complies with such procedures as the Corporation may
determine to be necessary or appropriate to determine the authenticity of such
proxies, which may include a requirement that such proxies set forth or are
submitted with information, as required by the Corporation, from which the
authenticity of the proxies can be determined.
Section 2.08. List of Stockholders. At each meeting of stockholders, a
full, true and complete list of all stockholders entitled to vote at such
meeting, showing the number and class or series of shares held by each, shall be
furnished by the Secretary.
Section 2.09. Conduct of Business and Voting. At all meetings of
stockholders, unless the voting is conducted by inspectors, the proxies and
ballots shall be received, and all questions touching the qualification of
voters and the validity of proxies, the acceptance or rejection of votes and
procedures for the conduct of business not otherwise specified by these By-Laws,
the charter or law, shall be decided or determined by the chairman of the
meeting. If demanded by stockholders, present in person or by proxy, entitled to
cast ten percent in number of votes entitled to be cast, or if ordered by the
chairman, the vote upon any election or question shall be taken by ballot and,
upon like demand or order, the voting shall be conducted by one or more
inspectors, in which event the proxies and ballots shall be received, and all
questions touching the qualification of voters and the validity of proxies and
the acceptance or rejection of votes shall be decided, by such inspectors.
Unless so demanded or ordered, no vote need be by ballot and voting need not be
conducted by inspectors. The stockholders at any meeting may choose an inspector
or inspectors to act at such meeting, and in default of such election the
chairman of the meeting may appoint an inspector or inspectors. No candidate for
election as a director at a meeting shall serve as an inspector thereat.
Section 2.10. Informal Action by Stockholders. Any action required or
permitted to be taken at a meeting of stockholders may be taken without a
meeting if there is filed with the record of stockholders' meetings a unanimous
written consent which sets forth the action and is signed by each stockholder
entitled to vote on the matter and a written waiver of any right to dissent
signed by each stockholder entitled to notice of the meeting but not entitled to
vote at it.
ARTICLE III
BOARD OF DIRECTORS
Section 3.01. Function of Directors. The business and affairs of the
Corporation shall be managed under the direction of its Board of Directors. All
powers of the Corporation may be exercised by or under authority of the Board of
Directors, except as conferred on or reserved to the stockholders by statute or
by the charter or By-Laws. The Board may delegate the duty of management of the
assets and the administration of the day-to-day operations of the Corporation to
one or more entities or individuals pursuant to a written contract or contracts
which have obtained the approvals, including the approval of renewals thereof,
required by the Investment Company Act of 1940.
Section 3.02. Number of Directors. The Corporation shall have at least
three directors; provided that, if there is no stock outstanding, the number of
directors may be less than three but not less than one, and if there is stock
outstanding and so long as there are fewer than three stockholders, the number
of directors may be less than three but not less than the number of
stockholders. The Corporation shall have the number of directors provided in its
charter until changed as herein provided. A majority of the entire Board of
Directors may alter the number of directors set by the charter to a number not
exceeding 25 nor less than the minimum number then permitted herein, but the
action may not affect the tenure of office of any director.
Section 3.03. Election and Tenure of Directors. At each annual meeting, the
stockholders shall elect directors to hold office until the next annual meeting
or special meeting at which directors are elected and until their successors are
elected and qualify. No director shall be qualified for election by the
stockholders if he or she has attained the age of 70.
Section 3.04. Removal of Directors. Unless statute or the charter provides
otherwise, the stockholders may remove any director, with or without cause, by
the affirmative vote of a majority of all the votes entitled to be cast for the
election of directors. The Board of Directors shall promptly call a meeting of
stockholders for the purpose of voting upon the question of removal of any
director or directors when requested in writing to do so by the record holders
of not less than ten percent of the outstanding shares.
Section 3.05. Vacancy on Board. The stockholders may elect a successor to
fill a vacancy on the Board of Directors which results from the removal of a
director by the stockholders. A director elected by the stockholders to fill a
vacancy which results from the removal of a director serves for the balance of
the term of the removed director. Unless otherwise provided by statute or the
charter, a majority of the remaining directors, whether or not sufficient to
constitute a quorum, may fill a vacancy on the Board of Directors which results
from any cause except an increase in the number of directors and a majority of
the entire Board of Directors may fill a vacancy which results from an increase
in the number of directors. A director elected by the Board of Directors to fill
a vacancy serves until the next annual meeting of stockholders or special
meeting at which directors are elected and until his successor is elected and
qualifies.
Section 3.06. Election of Entire New Board. If at any time after the first
annual meeting of stockholders of the Corporation a majority of the Directors in
office shall consist of Directors elected by the Board of Directors, a special
meeting of the stockholders shall be called forthwith for the purpose of
electing the entire Board of Directors, and the terms of office of the Directors
then in office shall terminate upon the election and qualification of such Board
of Directors. This Section 3.06 may be altered, amended or repealed only upon
the affirmative vote of the holders of a majority of all the shares of the
capital stock of the Corporation at the time outstanding and entitled to vote.
Section 3.07. Regular Meetings. After each meeting of stockholders at which
directors shall have been elected, the Board of Directors shall meet as soon as
practicable for the purpose of organization and the transaction of other
business. In the event that no other time and place are specified (in a notice
provided in accordance with Section 3.09) by the Board, the President or the
Chairman, the Board of Directors shall meet immediately following the close of,
and at the place of, such stockholders' meeting. Any other regular meeting of
the Board of Directors shall be held on such date and at any place as may be
designated from time to time by the Board of Directors.
Section 3.08 Special Meetings. Special meetings of the Board of Directors
may be called at any time by the Chairman of the Board or the President or by a
majority of the Board of Directors by vote at a meeting or in writing with or
without a meeting. A special meeting of the Board of Directors shall be held on
such date and at any place as may be designated from time to time by the Board
of Directors. In the absence of designation such meeting shall be held at such
place as may be designated in the call.
Section 3.09. Notice of Meetings; Waiver of Notice. Except as provided in
Section 3.07, the Secretary shall give notice to each director of each regular
and special meeting of the Board of Directors. The notice shall state the time
and place of the meeting. Notice is given to a director when it is delivered
personally to him, left at his residence or usual place of business, or sent by
telegraph, facsimile transmission or telephone, at least 24 hours before the
time of the meeting or, in the alternative, by mail to his address as it shall
appear on the records of the Corporation at least 72 hours before the time of
the meeting. Unless statute, the By-Laws or a resolution of the Board of
Directors provides otherwise, the notice need not state the business to be
transacted at or the purposes of any regular or special meeting of the Board of
Directors. No notice of any meeting of the Board of Directors need be given to
any director who attends, or to any director who, in a writing executed and
filed with the records of the meeting either before or after the holding
thereof, waives such notice. Any meeting of the Board of Directors, regular or
special, may adjourn from time to time to reconvene at the same or some other
place, and no notice need be given of any such adjourned meeting other than by
announcement.
Section 3.10. Action by Directors. Unless statute or the charter or the
By-Laws requires a greater proportion, the action of a majority of the directors
present at a meeting at which a quorum is present is action of the Board of
Directors. A majority of the entire Board of Directors shall constitute a quorum
for the transaction of business. In the absence of a quorum, the directors
present by majority vote and without notice other than by announcement may
adjourn the meeting from time to time until a quorum shall attend. At any such
adjourned meeting at which a quorum shall be present, any business may be
transacted which might have been transacted at the meeting as originally
notified. Unless otherwise provided by statute or regulation, any action
required or permitted to be taken at a meeting of the Board of Directors may be
taken without a meeting, if a unanimous written consent which sets forth the
action is signed by each member of the Board and filed with the minutes of
proceedings of the Board.
Section 3.11. Telephone Meetings. Members of the Board of Directors may
participate in a meeting by means of a conference telephone or similar
communications equipment if all persons participating in the meeting can hear
each other at the same time. Unless provided otherwise by statute or regulation,
participation in a meeting by these means constitutes presence in person at the
meeting.
Section 3.12 Compensation. By resolution of the Board of Directors a fixed
sum and expenses, if any, for attendance at each regular or special meeting of
the Board of Directors or of committees thereof, and other compensation for
their services as such or on committees of the Board of Directors, may be paid
to directors. A director who serves the Corporation in any other capacity also
may receive compensation for such other services, pursuant to a resolution of
the Board of Directors.
ARTICLE IV
COMMITTEES
Section 4.01. Committees. The Board of Directors may appoint from among its
members an Executive Committee and other committees composed of two or more
directors and delegate to these committees any of the powers of the Board of
Directors, except the power to declare dividends or other distributions on
stock, elect directors, issue stock other than as provided in the next sentence,
recommend to the stockholders any action which requires stockholder approval,
amend the By-Laws, or approve any merger or share exchange which does not
require stockholder approval. If the Board of Directors has given general
authorization for the issuance of stock, a committee of the Board, in accordance
with a general formula or method specified by the Board by resolution or by
adoption of a stock option or other plan, may fix the terms of stock subject to
classification or reclassification and the terms on which any stock may be
issued, including all terms and conditions required or permitted to be
established or authorized by the Board of Directors.
Section 4.02. Committee Procedure. Each committee may fix rules of
procedure for its business. A majority of the members of a committee shall
constitute a quorum for the transaction of business and the action of a majority
of those present at a meeting at which a quorum is present shall be action of
the committee. The members of a committee present at any meeting, whether or not
they constitute a quorum, may appoint a director to act in the place of an
absent member. Any action required or permitted to be taken at a meeting of a
committee may be taken without a meeting, if a unanimous written consent which
sets forth the action is signed by each member of the committee and filed with
the minutes of the committee. The members of a committee may conduct any meeting
thereof by telephone in accordance with the provisions of Section 3.11.
Section 4.03. Emergency. In the event of a state of disaster of sufficient
severity to prevent the conduct and management of the affairs and business of
the Corporation by its directors and officers as contemplated by the charter and
these By-Laws, any two or more available members of the then incumbent Executive
Committee shall constitute a quorum of that Committee for the full conduct and
management of the affairs and business of the Corporation in accordance with the
provisions of Section 4.01. In the event of the unavailability, at such time, of
a minimum of two members of the then incumbent Executive Committee, the
available directors shall elect an Executive Committee composed of any two
members of the Board of Directors, whether or not they be officers of the
Corporation, which two members shall constitute the Executive Committee for the
full conduct and management of the affairs of the Corporation in accordance with
the foregoing provisions of this Section. This Section shall be subject to
implementation by resolution of the Board of Directors passed from time to time
for that purpose, and any provisions of the By-Laws (other than this Section)
and any resolutions which are contrary to the provisions of this Section or to
the provisions of any such implementing resolutions shall be suspended until it
shall be determined by any interim Executive Committee acting under this Section
that it shall be to the advantage of the Corporation to resume the conduct and
management of its affairs and business under all the other provisions of these
By-Laws.
ARTICLE V
OFFICERS
Section 5.01. Executive and Other Officers. The Corporation shall have a
President, a Secretary, and a Treasurer. It may also have a Chairman of the
Board. The Board of Directors shall designate who shall serve as chief executive
officer, who shall have general supervision of the business and affairs of the
Corporation, and may designate a chief operating officer, who shall have
supervision of the operations of the Corporation. In the absence of any
designation the Chairman of the Board, if there be one, shall serve as chief
executive officer and the President shall serve as chief operating officer. In
the absence of the Chairman of the Board, or if there be none, the President
shall be the chief executive officer. The same person may hold both offices. The
Corporation may also have one or more Vice-Presidents, assistant officers, and
subordinate officers as may be established by the Board of Directors. A person
may hold more than one office in the Corporation except that no person may serve
concurrently as both President and Vice-President of the Corporation. The
Chairman of the Board shall be a director. The other officers may be directors.
Section 5.02. Chairman of the Board. The Chairman of the Board, if one be
elected, shall preside at all meetings of the Board of Directors and of the
stockholders at which he shall be present. Unless otherwise specified by the
Board of Directors, he shall be the chief executive officer of the Corporation
and perform the duties customarily performed by chief executive officers, and
may perform any duties of the President. In general, he shall perform all such
duties as are from time to time assigned to him by the Board of Directors.
Section 5.03. President. Unless otherwise provided by resolution of the
Board of Directors, the President, in the absence of the Chairman of the Board,
shall preside at all meetings of the Board of Directors and of the stockholders
at which he shall be present. Unless otherwise specified by the Board of
Directors, the President shall be the chief operating officer of the Corporation
and perform the duties customarily performed by chief operating officers. He may
sign and execute, in the name of the Corporation, all authorized deeds,
mortgages, bonds, contracts or other instruments, except in cases in which the
signing and execution thereof shall have been expressly delegated to some other
officer or agent of the Corporation. In general, he shall perform all duties
usually performed by a president of a corporation and such other duties as are
from time to time assigned to him by the Board of Directors or the chief
executive officer of the Corporation.
Section 5.04 Vice-Presidents. The Vice-President or Vice-Presidents, at the
request of the chief executive officer or the President, or in the President's
absence or during his inability to act, shall perform the duties and exercise
the functions of the President, and when so acting shall have the powers of the
President. If there be more than one Vice-President, the Board of Directors may
determine which one or more of the Vice-Presidents shall perform any of such
duties or exercise any of such functions, or if such determination is not made
by the Board of Directors, the chief executive officer or the President may make
such determination; otherwise any of the Vice-Presidents may perform any of such
duties or exercise any of such functions. The Vice-President or Vice-Presidents
shall have such other powers and perform such other duties, and have such
additional descriptive designations in their titles (if any), as are from time
to time assigned to them by the Board of Directors, the chief executive officer,
or the President.
Section 5.05. Secretary. The Secretary shall keep the minutes of the
meetings of the stockholders, of the Board of Directors and of any committees,
in books provided for that purpose; he shall see that all notices are duly given
in accordance with the provisions of the By-Laws or as required by law; he shall
be custodian of the records of the Corporation; he may witness any document on
behalf of the Corporation, the execution of which is duly authorized; and, in
general, he shall perform all duties incident to the office of a secretary of a
corporation, and such other duties as are from time to time assigned to him by
the Board of Directors, the chief executive officer, or the President.
Section 5.06. Treasurer. The Treasurer shall have charge of and be
responsible for all funds, securities, receipts, and disbursements of the
Corporation, and shall deposit, or cause to be deposited, in the name of the
Corporation, all moneys or other valuable effects in such banks, trust companies
or other depositories as shall, from time to time, be selected by the Board of
Directors; he shall render to the President and to the Board of Directors,
whenever requested, an account of the financial condition of the Corporation;
and, in general, he shall perform all the duties incident to the office of a
treasurer of a corporation, and such other duties as are from time to time
assigned to him by the Board of Directors, the chief executive officer, or the
President.
Section 5.07. Assistant and Subordinate Officers. The assistant and
subordinate officers of the Corporation are all officers below the office of
Vice-President, Secretary or Treasurer. The assistant or subordinate officers
shall have such duties as are from time to time assigned to them by the Board of
Directors, the chief executive officer, or the President.
Section 5.08. Election, Tenure and Removal of Officers. The Board of
Directors shall elect the officers of the Corporation. The Board of Directors
may from time to time authorize any committee or officer to appoint assistant
and subordinate officers. Election or appointment of an officer, employee or
agent shall not of itself create contract rights. All officers shall be
appointed to hold their offices, respectively, during the pleasure of the Board.
The Board of Directors (or, as to any assistant or subordinate officer, any
committee or officer authorized by the Board) may remove an officer at any time.
The removal of an officer does not prejudice any of his contract rights. The
Board of Directors (or, as to any assistant or subordinate officer, any
committee or officer authorized by the Board) may fill a vacancy which occurs in
any office for the unexpired portion of the term.
Section 5.09. Compensation. The Board of Directors shall have power to fix
the salaries and other compensation and remuneration, of whatever kind, of all
officers of the Corporation. It may authorize any committee or officer, upon
whom the power of appointing assistant and subordinate officers may have been
conferred, to fix the salaries, compensation, and remuneration of such assistant
and subordinate officers.
ARTICLE VI
INDEMNIFICATION
Section 6.01. Indemnification of Directors and Officers. The Corporation
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than a
proceeding by or in the right of the Corporation in which such person shall have
been adjudged to be liable to the Corporation), by reason of being or having
been a director or officer of the Corporation, or serving or having served at
the request of the Corporation as a director, officer, partner, trustee,
employee or agent of another entity in which the Corporation has an interest as
a shareholder, creditor or otherwise (a "Covered Person"), against all
liabilities, including but not limited to amounts paid in satisfaction of
judgments, in compromise or as fines 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 (any or all of the conduct
referred to in clauses (i) and (ii) being hereinafter referred to as "Disabling
Conduct").
Section 6.02. Procedure For Indemnification. Any indemnification under
Section 6.01 shall (unless ordered by a court) be made by the Corporation only
as authorized for a specific proceeding by (i) a final decision on the merits by
a court or other body before whom the proceeding was brought that the Covered
Person to be indemnified was not liable by reason of Disabling Conduct, (ii)
dismissal of the proceeding against the Covered Person for insufficiency of
evidence of any Disabling Conduct, or (iii) a reasonable determination, based
upon a review of the facts, by a majority of a quorum of the directors who are
neither "interested persons" of the Corporation as defined in the Investment
Company Act of 1940 nor parties to the proceeding ("disinterested, non-party
directors"), or an independent legal counsel in a written opinion, that the
Covered Person was not liable by reason of Disabling Conduct. The termination of
any proceeding by judgment, order or settlement shall not create a presumption
that the Covered Person did not meet the required standard of conduct; the
termination of any proceeding by conviction, or a plea of nolo contendere or its
equivalent, or any entry of an order of probation prior to judgment, shall
create a rebuttable presumption that the Covered Person did not meet the
required standard of conduct. Any determination pursuant to this Section 6.02
shall not prevent recovery from any Covered Person of any amount paid to him in
accordance with this By-Law as indemnification if such Covered Person is
subsequently adjudicated by a court of competent jurisdiction to be liable by
reason of Disabling Conduct.
Section 6.03. Advance Payment of Expenses. Reasonable expenses (including
attorney's fees) incurred by a Covered Person may be paid or reimbursed by the
Corporation in advance of the final disposition of an action, suit or proceeding
upon receipt by the Corporation of (i) a written affirmation by the Covered
Person of his good faith belief that the standard of conduct necessary for
indemnification under this By-Law has been met and (ii) a written undertaking by
or on behalf of the Covered Person to repay the amount if it is ultimately
determined that such standard of conduct has not been met, so long as either (A)
the Covered Person has provided a security for his undertaking, (B) the
Corporation is insured against losses arising by reason of any lawful advances,
or (C) a majority of a quorum of the disinterested, non-party directors, or an
independent legal counsel in a written opinion, has determined, based on a
review of readily available facts (as opposed to a full trial-type inquiry),
that there is reason to believe that the Covered Person ultimately will be found
entitled to indemnification.
Section 6.04. Exclusivity, Etc. The indemnification and advance of expenses
provided by this By-Law shall not be deemed exclusive of any other rights to
which a Covered Person seeking indemnification or advance of expenses may be
entitled under any law (common or statutory), or any agreement, vote of
stockholders or disinterested directors, or other provision that is consistent
with law, both as to action in an official capacity and as to action in another
capacity while holding office or while employed by or acting as agent for the
Corporation, and such indemnification shall continue in respect of all events
occurring while the Covered Person was a director or officer after such Covered
Person has ceased to be a director or officer, and shall inure to the benefit of
the estate, heirs, executors and administrators of such Covered Person. All
rights to indemnification and advance of expenses under the charter and
hereunder shall be deemed to be a contract between the Corporation and each
director or officer of the Corporation who serves or served in such capacity at
any time while this By-Law is in effect. Nothing herein shall prevent the
amendment of this By-Law, provided that no such amendment shall diminish the
rights of any Covered Person hereunder with respect to events occurring or
claims made before its adoption or as to claims made after its adoption in
respect of events occurring before its adoption. Any repeal or modification of
this By-Law shall not in any way diminish any rights to indemnification or
advance of expenses of a Covered Person or the obligations of the Corporation
arising hereunder with respect to events occurring, or claims made, while this
By-Law or any provision hereof is in force.
Section 6.05. Insurance. The Corporation may purchase and maintain
insurance on behalf of any Covered Person against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, to the full extent permitted by applicable law.
Section 6.06. Severability: Definitions. The invalidity or unenforceability
of any provision of this Article VI shall not affect the validity of
enforceability of any other provision hereof. The phrase "this By-Law" in this
Article VI means this Article VI in its entirety.
ARTICLE VII
STOCK
Section 7.01. Certificates for Stock. If the Board of Directors authorizes
the issue of a class or series of stock with certificates, each holder of shares
of that class or series, upon written request therefor in accordance with such
procedures as may be established by the Board from time to time, is entitled to
certificates which represent and certify the shares of that class or series he
holds in the Corporation. Each stock certificate shall include on its face the
name of the Corporation, the name of the stockholder or other person to whom it
is issued, and the class or series of stock and number of shares it represents.
It shall be in such form, not inconsistent with law or with the charter, as
shall be approved by the Board of Directors or any officer or officers
designated for such purpose by resolution of the Board of Directors. Each stock
certificate shall be signed by the Chairman of the Board, the President, or a
Vice-President, and countersigned by the Secretary, an Assistant Secretary, the
Treasurer, or an Assistant Treasurer. The signatures may be either manual or
facsimile signatures. A certificate is valid and may be issued whether or not an
officer who signed it is still an officer when it is issued. The Board of
Directors may authorize the issue of some or all of the shares of any or all
classes or series without certificates. Such authorization shall not affect
shares already represented by certificates until they are surrendered to the
Corporation. At the time of issue or transfer of shares without certificates the
Corporation shall send each stockholder a written statement of the information
required by the Maryland General Corporation Law.
Section 7.02. Transfers. The Board of Directors shall have power and
authority to make such rules and regulations as it may deem expedient concerning
the issue, transfer and registration of shares of stock; and may appoint
transfer agents and registrars thereof. The duties of transfer agent and
registrar may be combined.
Section 7.03. Record Date and Closing of Transfer Books. The Board of
Directors may set a record date or direct that the stock transfer books be
closed for a stated period for the purpose of making any proper determination
with respect to stockholders, including which stockholders are entitled to
receive notice of a meeting, to vote at a meeting, to receive a dividend, or to
be allotted other rights. The record date may not be prior to the close of
business on the day the record date is fixed nor, subject to Section 2.05, more
than 90 days before the date on which the action requiring the determination
will be taken; the transfer books may not be closed for a period longer than 20
days; and, in the case of a meeting of stockholders, the record date or the
closing of the transfer books shall be at least ten days before the date of the
meeting.
Section 7.04. Stock Ledger. The Corporation shall maintain a stock ledger
which contains the name and address of each stockholder and the number of shares
of stock of each class or series which the stockholder holds. The stock ledger
may be in written form or in any other form which can be converted within a
reasonable time into written form for visual inspection. The original or a
duplicate of the stock ledger shall be kept at the offices of a transfer agent
for the particular class or series of stock, or, if none, at the principal
office in the State of Maryland or the principal executive offices of the
Corporation.
Section 7.05. Certification of Beneficial Owners. The Board of Directors
may adopt by resolution a procedure by which a stockholder of the Corporation
may certify in writing to the Corporation that any shares of stock registered in
the name of the stockholder are held for the account of a specified person other
than the stockholder. The resolution shall set forth the class of stockholders
who may certify, the purpose for which the certification may be made, the form
of certification and the information to be contained in it, and, if the
certification is with respect to a record date or closing of the stock transfer
books, the time after the record date or closing of the stock transfer books
within which the certification must be received by the Corporation, and any
other provisions with respect to the procedure which the Board considers
necessary or desirable. On receipt of a certification which complies with the
procedure adopted by the Board in accordance with this Section, the person
specified in the certification is, for the purpose set forth in the
certification, the holder of record of the specified stock in place of the
stockholder who makes the certification.
Section 7.06. Lost Stock Certificates. The Board of Directors of the
Corporation may determine the conditions for issuing a new stock certificate in
place of one which is alleged to have been lost, stolen or destroyed, including
the requirement that the owner furnish a bond as indemnity against any claim
that may be made against the Corporation in respect of the lost, stolen or
destroyed certificate, or the Board of Directors may delegate such power to any
officer or officers of the Corporation. In their discretion, the Board of
Directors or such officer or officers may refuse to issue such new certificate
save upon the order of some court having jurisdiction in the premises.
ARTICLE VIII
FINANCE
Section 8.01. Annual Statement of Affairs. The President or chief
accounting officer shall prepare annually a full and correct statement of the
affairs of the Corporation, to include a statement of net assets and a financial
statement of operations for the preceding fiscal year. The statement of affairs
shall be placed on file at the Corporation's principal office within 120 days
after the end of the fiscal year.
Section 8.02. Fiscal Year. The fiscal year of the Corporation shall be the
twelve-calendar-month period ending June 30 in each year, unless otherwise
provided by the Board of Directors.
Section 8.03. Dividends. If declared by the Board of Directors at any
meeting thereof, the Corporation may pay dividends on its shares in cash,
property, or in shares of the capital stock of the Corporation, unless such
dividend is contrary to law or to a restriction contained in the charter of the
Corporation.
Section 8.04. Net Asset Value. The net asset value per share of each class
or series of stock of the Corporation shall be determined in good faith by or
under supervision of the officers of the Corporation as authorized by the Board
of Directors as often and on such days and at such time(s) as the Board of
Directors shall determine, or as otherwise may be required by law, rule,
regulation or order of the Securities and Exchange Commission.
Section 8.05. Employment of Custodian. The Corporation shall place and
maintain its securities and similar investments in the custody of one or more
custodians meeting the requirements of the Investment Company Act of 1940 or may
serve as its own custodian but only in accordance with such rules and
regulations or orders as the Securities and Exchange Commission may from time to
time prescribe for the protection of investors. Securities held by a custodian
may be registered in the name of the Corporation, including the designation of
the particular class or series to which such assets belong, or any such
custodian, or the nominee of either of them. Subject to such rules, regulations,
and orders as the Commission may adopt as necessary or appropriate for the
protection of investors, the Corporation or any custodian, with the consent of
the Corporation, may deposit all or any part of the securities owned by the
Corporation in a system for the central handling of securities, pursuant to
which system all securities of a particular class or series of any issuer
deposited within the system are treated as fungible and may be transferred or
pledged by bookkeeping entry without physical delivery of such securities.
ARTICLE IX
SUNDRY PROVISIONS
Section 9.01. Books and Records. The Corporation shall keep correct and
complete books and record of its accounts and transactions and minutes of the
proceedings of its stockholders and Board of Directors and of any executive or
other committee when exercising any of the powers of the Board of Directors. The
books and records of the Corporation may be in written form or in any other form
which can be converted within a reasonable time into written form for visual
inspection. Minutes shall be recorded in written form but may be maintained in
the form of a reproduction. The original or a certified copy of these By-Laws
shall be kept at the principal office of the Corporation.
Section 9.02. Corporate Seal. The Corporation shall have no corporate seal.
Section 9.03. Bonds. The Board of Directors may require any officer, agent
or employee of the Corporation to give a bond to the Corporation, conditioned
upon the faithful discharge of his duties, with one or more sureties and in such
amount as may be satisfactory to the Board of Directors.
Section 9.04. Voting Shares in Other Corporations. Shares of other
corporations or associations, registered in the name of the Corporation, may be
voted by the President, a Vice-President, or a proxy appointed by either of
them. The Board of Directors, however, may by resolution appoint some other
person to vote such shares, in which case such person shall be entitled to vote
such shares upon the production of a certified copy of such resolution.
Section 9.05. Mail. Any notice or other document which is required by these
By-Laws to be mailed shall be deposited in the United States mail, postage
prepaid.
Section 9.06. Execution of Documents. A person who holds more than one
office in the Corporation may not act in more than one capacity to execute,
acknowledge or verify an instrument required by law to be executed, acknowledged
or verified by more than one officer.
ARTICLE X
AMENDMENTS
Section 10.01. General. Except as provided in Section 10.02 hereof, all
By-Laws of the Corporation, whether adopted by the Board of Directors or the
stockholders, shall be subject to amendment, alteration or repeal, and new
By-Laws may be made, by the affirmative vote of a majority of either:
(a) the holders of record of the outstanding shares of stock of the
Corporation entitled to vote at any annual or special meeting, the notice
or waiver of notice of which shall have specified or summarized the
proposed amendment, alteration, repeal or new By-Law; or
(b) the entire Board of Directors at any regular or special meeting,
the notice or waiver of notice of which shall have specified or summarized
the proposed amendment, alteration, repeal or new By-Law.
Section 10.02. Amendment by Stockholders Only.
(a) No amendment of any Article of these By-Laws shall be made except
by the stockholders of the Corporation, if the By-Laws provide that such
Article may not be amended, altered or repealed except by the stockholders.
(b) From and after the issue of any shares of the capital stock of the
Corporation, no amendment of this Article X be made except by the
stockholders of the Corporation.
* * *
March 26, 1993
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
This MANAGEMENT AGREEMENT, made this 14th day of June, 1995, by and between
State Bond Municipal Funds, Inc., a Maryland corporation (hereinafter called the
"Fund"), and ARM Capital Advisors, Inc., a Delaware Corporation (hereinafter
called the "Manager"),
WITNESSETH:
WHEREAS, the Fund is registered as an open-end diversified management
investment company under the Investment Company Act of 1940, and wishes to make
use of the experience, sources of information, advice, assistance, and
facilities available to the manager, and to have the Manager perform for it
various management, statistical, accounting, and clerical services; and the
Manager is willing to furnish such advice, facilities, and services on the terms
and conditions hereinafter set forth;
NOW THEREFORE, in consideration of the premises and the mutual covenants
herein contained, it is agreed as follows:
1. The Fund at all times shall keep the Manager fully informed with regard
to the securities owned by it, its funds available, or to become available, for
investment, and generally as to the condition of its affairs. It shall furnish
the Manager with a certified copy of all financial statements, and a signed copy
of each report prepared by certified public accountants, and with such other
information with regard to its affairs as the Manager from time to time
reasonably may request.
2. The Manager shall furnish to the Board of Directors and officers of the
Fund advice and recommendations with respect to the acquisition, by purchase,
exchange, subscription or otherwise, and holding and disposal, through sale,
exchange or otherwise, of securities, and advise the business and affairs of the
Fund; and shall perform such functions of management and supervision as may be
directed by the Board of Directors of the Fund.
3. (a) The Manager shall at is expense supply the Board of Directors and
officers of the Fund with all statistical information reasonably required by
them and reasonably available to the manager; shall furnish the Fund with office
facilities, including space, furniture, and equipment and all personnel
reasonable necessary for the operation of the Fund; shall authorize and permit
any of its directors, officers, and employees, who may be elected as directors
or officers of the Fund, to serve in the capacities in which they are elected.
(b) Other than as herein specifically indicated, the Manager will not be
responsible for Fund expenses. Such Fund expenses include, by way of example but
not by way of limitation, all expenses incurred in the operation of the fund and
any public offering of its shares including, among others, distribution fees
payable pursuant to any plan of distribution pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended ("Rule 12b-1 Plan of Distribution");
legal, auditing, and accounting expenses; interest, taxes, governmental fees or
membership dues; brokerage commissions or charges; custodian, transfer agent or
registrar fees; expense of preparing share certificates and the expenses of
issue, sale, underwriting, and distribution of its shares; expenses of
redemption or repurchase of Fund shares; expenses of registering and
distributing reports, notices, and dividends to shareholders; costs and
stationery; costs of stockholder and other meetings; and traveling expenses of
officers, directors, and employees, if any.
4. No director, officer or employee of the Fund shall receive from the Fund
any salary or other compensation as such director, officer or employee while he
is at the same time a director, officer of employee of the Manager. This
paragraph shall not apply to directors, executive committee members,
consultants, and other persons who are not regular members of the Manager's
staff.
5. As compensation for the services performed and the facilities furnished
by the Manager, including the services of any consultants retained by the
Manager, the Fund shall pay the Manager, subject to the provisions of Paragraph
6 hereof, as promptly as possible after the last day of each month, a monthly
fee calculated daily of 1/24th of 1% (1/2 of 1% annually) of the average daily
net assets of the Fund. The first payment shall be made as promptly as possible
at the end of the month next succeeding the effective date of this Agreement,
and shall constitute a full payment of the fee due the Manager for all services
prior to that date. If this Agreement is terminated as of any date not the last
day of a month, such fee shall be paid as promptly as possible after such date
of termination, and shall be based on the average daily net assets of the Fund
in the period from the beginning of such month to such date of termination and
shall be that proportion of such average daily net assets as the number of
business days in such period bears to the number of business days in such month.
The average daily net assets of the Fund shall in all cases be based only on
business days and be computed as of the time as may be determined by the Board
of Directors of the Fund. Each such payment shall be accompanied by a report of
the Fund prepared either by the Fund or by a reputable firm of independent
accountants which shall show the amount properly payable to the Manager under
this Agreement and the detailed computation thereof.
6. Appropriate officers of the Manager shall provide the directors of the
Fund with such information as is required by any plan of distribution adopted by
the Fund pursuant to Rule 12b-1 under the Investment Company Act of 1940, as
amended.
7. The Manager assumes no responsibility under this Agreement other than to
render the services called for hereunder, in good faith, and shall not be
responsible for any action of the Board of Directors of the Fund in following or
declining to follow any advice or recommendations of the Manager; provided that
nothing in this Agreement shall protect the Manager against any liability to the
Fund or to its stockholders to which it otherwise would be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance of its
duties or by reasons of its reckless disregard of its obligations and duties
hereunder.
8. Nothing in this Agreement shall limit or restrict the right of any
director, officer or employee of the Manager who may also be a director, officer
or employee of the Fund to engage in any other business or to devote his time
and attention in part to the management or other aspects of any other business,
whether of a similar nature or a dissimilar nature, nor to limit or restrict the
right of the Manager to engage in any other business or to render services of
any kind including investment advisory and management services, to any other
corporation, firm, individual or association.
9. As used in this Agreement, the terms "assignment" and "majority of the
outstanding voting securities" shall have the meanings given to them by Section
2(a) of the Investment Company Act of 1940, subject to such exemptions as may be
granted by the Securities and Exchange Commission by any rule, regulation or
order.
10. This Agreement shall terminate automatically in the event of its
assignment by the Manager and shall not be assignable by the Fund without the
consent of the Manager.
11. This Agreement may be terminated at any time, without the payment of
any penalty, (a) by the Board of Directors of the Fund or by vote of a majority
of the outstanding voting securities of the Fund by sixty days' written notice
addressed to the manager at its principal place of business; and (b) by the
Manager by sixty days' written notice addressed to the fund at its principal
place of business.
12. This Agreement shall be submitted for approval to the Board of
Directors of the Fund annually and shall continue in effect only so long as
specifically approved annually by vote of a majority of the directors of the
Fund who are not parties to the Agreement or interested persons of such parties,
cast in person at a meeting called for that purpose, and either by vote of the
holders of a majority of the outstanding voting securities of the Fund or by a
majority of the Fund's Board of Directors.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers.
STATE BOND MUNICIPAL FUNDS, INC.
By ___________________________________
/s/ Stewart Gregg
Its _____________________________
/s/ Vice President
ARM CAPITAL ADVISORS, INC.
By ___________________________________
/s/ Martin H. Ruby
Its _____________________________
/s/CEO
a:\taxexempt\mngr
UNDERWRITING AGREEMENT
between
STATE BOND MUNICIPAL FUNDS, INC.
and
SBM FINANCIAL SERVICES, INC.
This Underwriting Agreement made this 14th day of June, 1995, by and
between State Bond Municipal Funds, Inc., a Maryland corporation (hereinafter
called the "Fund") and SBM Financial Services, Inc., a Minnesota corporation
(hereinafter called "Distributor").
WITNESSETH THAT:
1. The Fund hereby appoints Distributor as principal underwriter in
connection with the offering and sale of shares of the capital stock
of the Fund. The Fund authorizes Distributor, as agent for the Fund,
subject to applicable law and the Articles and By-laws of the Fund to
solicit orders for the purchase of its shares, satisfactory to the
Fund, and otherwise promote the Fund and, as agent for the Fund, to
accept orders from dealers with whom it has written agreements.
Distributor shall offer the Fund's shares only in states in which such
shares are qualified and in which Distributor is qualified as a
broker/dealer. Distributor shall distribute the Fund's shares on an
agency or "best efforts" basis under which the Fund shall only issue
such shares as are actually sold.
2. The public offering price of such shares shall be the net asset value
per share (as determined by the Fund) of the outstanding shares of the
Fund, plus the applicable sales charge as specified in the Fund's
Prospectus from time to time. Such net asset value shall be regularly
determined as set forth from time to time in the Fund's current
Prospectus. The Fund shall promptly furnish Distributor a statement of
each Computation of net asset value and of the details entering into
such computation.
3. Distributor shall receive, as compensation for the services it
performs under this Agreement, a sales charge for each investment in
the Fund's shares, which sales charge shall be as set forth in section
2 of this Agreement. The sales charge may be deducted by the
Distributor from the offering price when the Distributor makes payment
to the Fund hereunder for sales of the Fund's shares. The Distributor
may in its discretion allow concessions to dealers with whom the
Distributor has made arrangements and agreements to sell shares of the
Fund in its behalf.
In addition, the Fund shall pay to the Distributor a monthly
distribution fee equal to 1/12 of .25% of the average daily net assets
of the Company. The distributor shall use the distribution fee to
compensate those who sell Company shares, including the Distributor's
registered representatives, and to pay certain other expenses of
selling Company shares, as set forth in the Administration,
Shareholder Service, and Distribution Plan adopted by the Board of
Directors of the Company on May 16, 1991, as such may be amended from
tine to time, and any related agreements which shall comply with Rule
12b-1 under the Investment Company Act of 1940, as such rule may be
periodically amended.
4. Distributor, at no expense to the Fund, shall print and distribute to
prospective investors Prospectuses and Statements of Additional
Information, if any, and may print and distribute such other sales
literature, forms, and advertisements in connection with sale of the
shares of the Fund as comply with the applicable provisions of Federal
and State law. Except as specifically provided herein, the Fund shall
bear none of the expenses of Distributor in connection with its offer
and sale of shares of the Fund. Distributor shall, as agent for the
Fund, have the right to sell Fund shares to dealers or to the public
or both; provided, however, that in connection with the sale or
arranging for the sale of Fund shares, Distributor shall give only
such information and make only such statements or representations as
are contained in the Prospectus or in the Statement of Additional
Information, if any, or in such information as is furnished in writing
to Distributor pursuant to paragraph 5 below, and the Fund shall not
be responsible in any way for any other information, statements or
representations given or made by Distributor or its representatives or
agents.
5. The Fund shall keep Distributor fully informed with regard to its
affairs, and shall cooperate fully in the efforts of Distributor under
this Agreement.
6. The Fund agrees at its own expense to register its shares with the
Securities and Exchange Commission, State and other regulatory bodies
and to pay the related registration and filing fees therefor and to
file from time to time such amendments, reports and other documents as
may be necessary in order that there may be no untrue statements of a
material fact in the Registration Statement, Prospectus, or Statement
of Additional Information, if any, or necessary in order that there
may be no omission to state a material fact therein necessary in order
to make the statements therein, in the light of the circumstances
under which they were made, not misleading. As used in this Agreement,
the term "Registration Statement" shall mean from time to time the
Registration Statement most recently filed by the Fund with the
Securities and Exchange Commission and effective under the Securities
Act of 1933, as amended (hereinafter called the "Act"), as such
Registration Statement is amended by any amendments thereto at the
time in effect, and the term "Prospectus" and "Statement of Additional
Information" shall mean from time to time the form of prospectus and
Statement of Additional Information filed by the Fund as part of the
Registration Statement.
7. The Fund agrees to prepare, set in print, print and distribute
Prospectuses to shareholders of the Fund, and furnish Distributor from
time to time a copy of the Prospectus and Statement of Additional
Information, if any, in form as then most recently filed with the
Securities and Exchange Commission. The Fund authorizes Distributor to
print copies of and use such Prospectus and Statement of Additional
Information, if any, in connection with the sale of the Fund's shares.
The Fund agrees to indemnify, defend and hold Distributor, and any
person who controls Distributor within the meaning of Section 15 of
the Act, free and harmless 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 Distributor or any such
controlling person may incur, under the Act, or under common law or
otherwise, arising out of or based upon any alleged untrue statement
of a material fact contained in the Registration Statement,
Prospectus, or Statement of Additional Information, if any, or arising
out of or based upon any alleged omission to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading; provided, however, that this indemnity
agreement, to the extent that it might require indemnity of any person
who is such a controlling person and who is also a director of the
Fund, shall 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 Act; and further provided that
in no event shall anything herein contained by so construed as to
protect Distributor against any liability to the Fund or its security
holders to which Distributor 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
its obligations and duties under this Agreement.
The Fund's agreement to indemnify Distributor and any such controlling
person as aforesaid is expressly conditioned upon the Fund being
notified of any action brought against Distributor or any action
brought against Distributor or any such controlling person, such
notification to be given by letter or by telegram addressed to the
Fund at its principal office in Minneapolis, Minnesota, and sent to
the Fund by the person against whom such action is brought, within ten
days after the summons or other first legal process shall have been
served. The failure so to notify the Fund of any such action shall not
relieve the fund from any liability which the Fund may have to the
Person against whom such action is brought by reason of any such
alleged untrue statement or omission otherwise than on account of the
indemnity agreement contained in this paragraph 7. The fund will be
entitled to assume the defense of any suit brought to enforce any such
claim, demand or liability, but in such case, such defense shall be
conducted by counsel of good standing chosen by the Fund and approved
by Distributor. In the event the Fund does elect to assume the defense
of any such suit and retain counsel of good standing approved by
Distributor, the defendant or defendants in such suit shall bear the
fees and expenses of any additional counsel retained by any of them;
but in case the Fund does not elect to assume the defense of any such
suit, or in case Distributor does not approve of counsel chosen by the
Fund, the Fund will reimburse Distributor or the controlling person or
persons named as defendant or defendants in such suit, for the fees
and expenses of any counsel retained by Distributor or them.
The indemnification agreement contained in this paragraph 7 and the
Fund's representations and warranties in this Agreement shall remain
operative and in full force and effect regardless of any investigation
made by or on behalf of distributor or any controlling person. This
agreement of indemnity will inure exclusively to the benefit of
Distributor and its successors and their respective estates, and to
the benefit of any controlling persons and their successors. The Fund
agrees promptly to notify distributor of the commencement of any
litigation or proceedings against the Fund in connection with the
issue and sale of any of its capital stock.
8. Distributor agrees to indemnify, defend and hold the Fund, its several
officers and directors, and any person who controls within the meaning
of Section 15 of the Act, free and harmless 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 the Fund its
officers or directors, or any such controlling person may incur under
the Act or under common law or otherwise; but only to the extent that
such liability or expense incurred by the Fund, its officers or
directors or such controlling person resulting from such claims or
demands shall arise out of or be based upon any alleged untrue
statement of a material fact contained in information furnished in
writing by Distributor to the Fund for use in the Registration
Statement, Prospectus, or Statement of Additional Information, if any,
or shall arise out of or be based upon any alleged omission to state a
material fact in connection with such information required to be
stated in the Registration Statement or Prospectus or necessary to
make such information not misleading.
Distributor's agreement to indemnify the Fund, its officers and
directors, and any such controlling person as aforesaid is expressly
conditioned upon Distributor being notified of any action brought
against the Fund, its officers or directors or any such controlling
person, such notification to be given by letter or telegram addressed
to Distributor at its principal office in Minneapolis, Minnesota, and
sent to Distributor by the person against whom such action is brought,
within ten days after the summons or other first legal process shall
have been served. Distributor shall have a right to control the
defense of such action, with counsel of its own choosing, satisfactory
to the Fund, if such action is based solely upon such alleged
misstatement or omission on Distributor's part, and in any other event
Distributor or such controlling person shall each have the right to
participate in the defense or preparation of the defense of any such
action. The failure so to notify Distributor of any such action shall
not relieve Distributor from any liability which Distributor may have
to the Fund, its officers or directors or to such controlling person
by reason of any such untrue statement or omission on Distributor's
part otherwise than on account of the indemnity agreement contained in
this paragraph 8.
9. This Agreement may be terminated by either party upon sixty (60) days'
written notice to the other party and shall terminate automatically in
the event of its assignment. The term "assignment" for this purpose
shall have the meaning defined in Section 2(a)(4) of the Investment
Company Act of 1940.
10. This Agreement shall continue for successive annual periods, provided
that such continuance is specifically approved annually by the vote of
a majority of the Fund's Directors who are not "interested persons" of
the parties hereto as defined in the Investment Company Act of 1940,
cast in person at a meeting called for that purpose, and by either the
vote of a majority of the Board of Directors of the Fund or by the
vote of a majority of the outstanding voting securities of the Fund,
as defined in the Investment Company Act of 1940.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers thereunto duly authorized.
STATE BOND MUNICIPAL FUNDS, INC.
By: __________________________________________
/s/Stewart Gregg
Its: ___________________________________
/s/Vice President
SBM FINANCIAL SERVICES, INC.
By: __________________________________________
/s/John R. McGeeney
Its: ___________________________________
a:\taxexempt\undrag
AGREEMENT
THIS AGREEMENT made on MARCH 25, 1988 , between STATE BOND TAX-EXEMPT FUND,
INC., a Maryland Corporation, (hereinafter called the "Fund"), and FIRST BANK
NATIONAL ASSOCIATION, a corporation organized under the laws of the State of
Minnesota (hereinafter called the "Custodian"),
WITNESSETH:
WHEREAS, the Fund desires that its securities and cash shall be hereafter
held and administered by the Custodian pursuant to the terms of this Agreement:
Now, Therefore, in consideration of the mutual agreements herein made, the
Fund and Custodian agree as follows:
Sec. 1. Definitions
The word "securities" as used herein includes stocks, shares, bonds,
debentures, notes, mortgages or other obligations and any certificates,
receipts, warrants or other instruments representing rights to receive, purchase
or subscribe for the same, or evidencing or representing any other rights or
interests therein, or in any property or assets.
The words "officers' certificate" shall mean a request or direction or
certification in writing signed in the name of the Fund by any two of the
Chairman of the Executive Committee, the President, a Vice-President, the
Secretary and the Treasurer of the Fund, or any other persons duly authorized to
sign by the Board of Directors or the Executive Committee of the Fund.
Sec. 2. Names, Titles and Signatures of Fund's Officers
An officer of the Fund will certify to the Custodian the names and
signatures of the persons authorized to sign under Sec. 1 hereof, and the names
of the members of the Board of Directors and of the Executive Committee thereof,
together with any changes which may occur from time to time.
Sec. 3. Receipt and Disbursement of Money
A. The Custodian shall open and maintain a separate account or accounts in
the name of the Fund, subject only to draft or order by the Custodian acting
pursuant to the terms of this Agreement. The Custodian shall hold in such
account or accounts, subject to the provisions hereof, all cash received by it
from or for the account of the Fund. The Custodian shall make payments of cash
to, or for the account of, the Fund from such cash only (a) upon the purchase of
securities for the portfolio of the Fund and the delivery of such securities to
the Custodian, registered in the name of the Fund or of the nominee of the
Custodian referred to in Sec. 7 or in proper form for transfer, (b) for the
purchase or redemption of shares of the capital stock of the Fund, (c) for the
payment of interest, dividends, taxes, management or supervisory fees or
operating expenses
2
(including, without limitation thereto, fees for legal,
accounting and auditing services), (d) for payments in connection with the
conversion, exchange or surrender of securities owned or subscribed to by the
Fund held by or to be delivered to the Custodian, or (e) for other proper
corporate purposes. Before making any such payment the Custodian shall receive
(and may rely upon) an officers' certificate requesting such payment and stating
that it is for a purpose permitted under the terms of items (a), (b), (c) or (d)
of this subsection A, or upon receipt of a certified copy of a resolution of the
Board of Directors or of the Executive Committee of the Fund signed by an
officer of the Fund and certified by its Secretary or an Assistant Secretary,
specifying the amount of such payment, setting forth the purpose for which such
payment is to be made, declaring such purpose to be a proper corporate purpose,
and naming the person or persons to whom such payment is to be made, in respect
of item (e).
B. The Custodian is hereby authorized to endorse and collect all checks,
drafts or other orders for the payment of money received by the Custodian for
the account of the Fund.
Sec. 4. Receipt of Securities
Custodian shall hold in a separate account, and physically segregated at
all times from those of any other persons, firms or corporations, pursuant to
the provisions hereof, all securities received by it for or for the account of
the Fund. All such securities are to be held or disposed of by Custodian for,
and subject at all times to the instructions of, the Fund pursuant to the terms
of this Agreement. The Custodian shall have no power or authority to assign,
hypothecate, pledge or otherwise dispose of any such securities and investments,
except pursuant to the directive of the Fund and only for the account of the
Fund as set forth in Sec. 5 of this Agreement.
Sec. 5. Transfer, Exchange, Redelivery, etc. of Securities
The Custodian shall have sole power to release or deliver any securities of
the Fund held by it pursuant to this Agreement. The Custodian agrees to
transfer, exchange or deliver securities held by it hereunder only (a) upon
sales of such securities for the account of the Fund and receipt by the
Custodian of payment therefor, (b) when such securities are called, redeemed or
retired or otherwise become payable, (c) for examination by any broker selling
any such securities in accordance with "street delivery" custom, (d) in exchange
for or upon conversion into other securities alone or other securities and cash
whether pursuant to any plan of merger, consolidation, reorganization,
recapitalization or readjustment, or otherwise, (e) upon conversion of such
securities pursuant to their terms into other securities, (f) upon exercise of
subscription, purchase or other similar rights represented by such securities,
(g) for the purpose of exchanging interim receipts or temporary securities for
definitive securities, (h) for the purpose of redeeming in kind shares of
capital stock of the Fund, or (i) for other proper corporate purposes. As to any
deliveries made by the Custodian pursuant to items (b) (d), (e), (f) and (g),
securities or cash receivable in exchange therefor shall be deliverable to the
Custodian. Before making any
3
such transfer, exchange or delivery the Custodian shall receive (and may rely
upon) an officers' certificate requesting such transfer, exchange or delivery
and stating that it is for a purpose permitted under the terms of items (a),
(b), (c), (d), (e), (f), (g) or (h) of this Sec. 5 or upon receipt of a
certified copy of a resolution of the Board of Directors or of the Executive
Committee Signed by an officer of the Fund and certified by its Secretary or an
Assistant Secretary, specifying the securities to be delivered, setting forth
the purpose for which such delivery is to be made, declaring such purposes to be
proper corporate purposes, and naming the person or persons (each of whom shall
be stated in such resolution to be a properly bonded officer or employee of the
Fund) to whom delivery of such securities shall be made in addition to an
officers' certificate , in respect of item (i).
Sec. 6. The Custodian Acts Without Instructions
Unless and until the Custodian receives an officers' certificate to the
contrary, the Custodian shall:
(a) Present for payment all coupons and other income items held by it
for the account of the Fund which call for payment upon presentation and
hold the cash received by it upon such payment for the account of the Fund;
(b) Collect interest and cash dividends received, with notice to the
Fund, to the account of the Fund;
(c) Hold for the account of the Fund hereunder all stock dividends,
rights and similar securities issues with respect to any securities held by
it hereunder;
(d) Execute as agent on behalf of the Fund all necessary ownership
certificates required by the Internal Revenue Code or the Income Tax
Regulations of the United States Treasury Department or under the laws of
any State now or hereafter in effect, inserting the Fund's name on such
certificates as the owner of the securities covered thereby, to the extent
it may lawfully do so.
Sec. 7. Registration of Securities
Except as otherwise directed by an officers' certificate the Custodian
shall register all securities, except such as are in bearer form, in the name of
a registered nominee of the Custodian as defined in the Internal Revenue Code
and any Regulations of the Treasury Department issued thereunder or in any
provision of any subsequent Federal tax law exempting such transaction from
liability for stock transfer taxes, and shall execute and deliver all such
certificates in connection therewith as may be required by such laws or
Regulations or under the laws of any State. The Custodian shall use its best
efforts to the end that the specific securities held by it hereunder shall be at
all times identifiable in its records.
4
The Fund shall from time to time furnish to the Custodian appropriate
instruments to enable the Custodian to hold or deliver in proper form for
transfer, or to register in the name of its registered nominee, any securities
which it may hold for the account of the Fund and which may from time to time be
registered nominee, any securities which it may hold for the account of the Fund
and which may from time to time be registered in the name of the Fund.
Sec. 8. Voting and Other Action
Neither Custodian nor any nominee of Custodian shall vote any of the
securities held hereunder by or for the account of the Fund, except in
accordance with the instructions contained in an officers' certificate.
Custodian shall promptly deliver, or cause to be executed and delivered, to the
Fund all notices, proxies and proxy soliciting materials with relation to such
securities, such proxies to be executed by the registered holder of such
securities (if registered otherwise than in the name of the Fund), but without
indicating the manner in which such proxies are to be voted.
Custodian shall transmit promptly to the Fund all written information
(including, without limitation, pendency of calls and maturities of securities
and expirations of rights in connection therewith) received by Custodian from
issuers of the securities being held for the Fund. With respect to tender or
exchange offers, Custodian shall transmit promptly to the Fund all written
information received by the Custodian from issuers of the securities whose
tender or exchange is sought and from the party (or his agents) making the
tender or exchange offer.
Sec. 9. Deposits of Securities in Securities Depositories
The Custodian may deposit all or any part of the securities owned by the
Fund in a (1) clearing agency registered with the Securities Exchange Commission
under Sections 17A of the Securities Exchange Act of 1934 (clearing agency),
which acts as a securities depository, and/or (2) the book-entry system as
provided in Subpart 0 of Treasury Circular No. 300, CFR 306, Subpart B of 31 CFR
Part 350 and the book-entry regulations of federal agencies substantially in the
form of Subpart 0. For the purposes herein, a "securities depository" is a
system for the central handling of securities where all securities of any
particular class or series of any issuer deposited within the system are treated
as fungible and may be transferred or pledged by bookkeeping entry without
physical delivery of the securities. Any deposits made by the Custodian of the
Fund's securities in a clearing agency which acts as a securities depository or
the book-entry system, or both shall be under an arrangement that contains the
following elements:
(a) The Custodian may deposit the securities directly or through one or
more agents which are also qualified to act as custodians for
investment companies.
5
(b) The Custodian shall send the Fund a confirmation of any transfers to
or from the account of the Fund. Where securities are transferred to
that account, the Custodian shall also, by book-entry or otherwise,
identify as belonging to the Fund a quantity of securities in a
fungible bulk of securities (i) registered in the name of the
Custodian (or its nominee) or (ii) shown on the Custodian's account on
the books of the clearing agency, the book-entry system, or the
Custodian's agent. For this purpose, the term "confirmation" means
advise or give notice of a transaction; it is not intended to require
preparation by the Custodian of the confirmation required of
broker-dealer under the Securities Exchange Act of 1934.
(c) The Custodian, or its agent which deposits the securities, shall
promptly send to the Fund reports it receives from the appropriate
Federal Reserve Bank or clearing agency on its respective system of
the internal accounting control. The Custodian and all the agents
through which the securities are deposited shall send to the Fund such
reports on their own systems of internal accounting control as the
Fund may reasonably request from time to time.
(d) The underlying agreement between the Custodian and the clearing
agency, or the agreements between the Custodian and its agent and the
agreement of said agent and the clearing agency, and any amendments
thereto, shall be submitted to the Fund for its review and approval
prior to the Custodian making any deposits of the Fund's securities
with such clearing agencies.
Sec. 10. Transfer Tax and Other Disbursements
The Fund shall pay or reimburse the Custodian from time to time for any
transfer taxes payable upon transfers of securities made hereunder, and for all
other necessary and proper disbursements and expenses made or incurred by the
Custodian in the performance of this Agreement.
The Custodian shall execute and deliver such certificates in connection
with securities delivered to it or by it under this Agreement as may be required
under the provisions of the Internal Revenue Code and any Regulations of the
Treasury Department issued thereunder, or under the laws of any State, to exempt
from taxation any exemptable transfers and/or deliveries of any such securities.
Sec. 11. Concerning the Custodian
The Custodian shall be paid as compensation for its services pursuant to
this Agreement such compensation as may from time to time be agreed upon in
writing between the two parties.
6
The Custodian shall not be liable for any action taken in good faith upon
any certificate herein described or certified copy of any resolution of the
Board of Directors or of the Executive Committee, and may rely on the
genuineness of any such document which it may in good faith believe to have been
validly executed.
The Fund agrees to indemnify and hold harmless the Custodian and its
nominee from all taxes, charges, expenses, assessments, claims and liabilities
(including counsel fees) incurred or assessed against it or its nominee in
connection with the performance of this Agreement, except such as may arise from
its or its nominee's own negligent action, negligent failure to act or willful
misconduct. The Custodian is authorized to charge any account of the Fund for
such items other than those items which are associated with asserted claims and
liabilities of the Custodian for its conduct. Payment to the Custodian for items
which are associated with asserted claims and liabilities of the Custodian for
its conduct may only be charged against an account of the Fund by the Custodian
upon receipt of an officers' certificate from the Fund authorizing such payment.
In the event of any advance of cash for any purpose made by the Custodian
resulting from orders or instructions of the Fund, or in the event that the
Custodian or its nominee shall incur or be assessed any taxes, charges,
expenses, assessments, claims or liabilities in connection with the performance
of this Agreement, except such as may arise from its or its nominee's own
negligent action, negligent failure to act or willful misconduct, any property
at any time held for the account of the Fund shall be security therefor.
Sec. 12. Reports by the Custodian
The Custodian shall furnish the Fund regular statements of income and
principal transactions as of the last day of each month and a monthly list of
the portfolio securities at share or par value. The books and records of the
Custodian pertaining to its actions under this Agreement shall be open to
inspection and audit at reasonable times by officers of and auditors employed by
the Fund.
Sec. 13 Termination or Assignment
This Agreement may be terminated by the Fund, or by the Custodian, on sixty
days' notice, given in writing and sent by registered mail to the Custodian, at
First Trust Company, First Trust Center, 180 East 5th Street, Saint Paul,
Minnesota, 55101, or to the Fund at 100-106 North Minnesota Street, New Ulm,
Minnesota, 56073, as the case may be. Upon any termination of this Agreement,
pending appointment of a successor to the Custodian or a vote of the
shareholders of the Fund to dissolve or to function without a custodian of its
cash, securities and other property, the Custodian shall not deliver cash,
securities and other property of the Fund to the Fund, but may deliver them to a
bank or trust company in the City of Minneapolis of its own selection, having an
aggregate capital, surplus and undivided profits, as shown by its last published
report of not less than two million dollars ($2,000,000) as a custodian for the
Fund to be held under terms similar to those of this Agreement; provided,
however, that the Custodian shall not be required to make
7
any such delivery or payment until full payment shall have been made by the Fund
of all liabilities constituting a charge on or against the properties then held
by the Custodian or on or against the Custodian, and until full payment shall
have been made to the Custodian of all its fees, compensation, costs and
expenses, subject to the provisions of Sec. 10 of this Agreement.
This Agreement may not be assigned by the Custodian without the consent of
the Fund, authorized or approved by a resolutions of its Board of Directors.
Sec. 14. Sub-Custodians
Upon receipt of an officers' certificate, the Custodian shall appoint one
or more U. S. banking institutions as Sub-Custodian (including but not limited
to, U. S. banks located in foreign countries) of securities at any time owned by
the Fund. The Custodian shall advise the Fund in writing in advance of using the
services of any such Sub-Custodian and the fees and expenses to be charged by
such Sub-Custodian to the Fund. The Fund may by officers' certificate require
that the Custodian cease use of the services of any such Sub-Custodian. Any such
Sub-Custodian must have aggregate capital, surplus, and undivided profits of not
less than $2,000,000. Any such Sub-Custodian must agree to keep physically
segregated from the securities of other persons all securities received by it
for the Fund. The Fund shall pay all fees and expenses of any Sub-Custodian.
In Witness Whereof, the parties hereto have caused this
Agreement to be executed and their respective corporate seals to be affixed
hereto as of the date first above written by their respective officers thereunto
duly authorized.
Executed in several counterparts, each of which is an original.
STATE BOND TAX-EXEMPT FUND, INC.
by______________________________
/s/Roman G. Schmid, President
Attest:
______________________________
Helen M. Wischstadt, Secretary
FIRST BANK NATIONAL ASSOCIATION
by______________________________
ADMINISTRATION AGREEMENT
This Agreement, dated as of the 14th day of June, 1995, made by and between
State Bond Municipal 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 SBM Financial Services ( the "Agent"), a Minnesota
corporation;
WITNESSETH THAT:
NOW, THEREFORE, in consideration of the premises and mutual covenants contained
herein, the parties hereto, intending to be legally bound, do hereby amend and
restate such agreement 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 is the prospectus of the Fund, in form acceptable to the Agent,
which the fund may from time to time adopt and make available to its
Shareholders, including plans or account established for pension and
profit-sharing plans established by self-employed individuals or 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 Share
Certificates issued by the Agent upon surrender of outstanding Shall
Certificates (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 of 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 of collection of taxes.
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, and 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 Shares Certificates is deferred. The Agent is authorized to keep records,
which will be part of the stock transfer records, and 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 reasonably 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.
Section 14. Prior to the daily determination of net shall process all
payments by Shareholders and Planholders received 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 a existing account.
Immediately after the Fund's calculation of its net asset value 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 on that day. The Agent shall proceed to calculate the
amount available for investment in Shares at the quoted net asset value and the
number of Shares and fractional Shares to be purchased. The Agent, as agent for
the Shareholders and Planholders, shall place a purchase order on each day that
both the Fund and the 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.
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 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 follows:
(a) By check mailed to the Shareholder of Planholder at his 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 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, SBM
Financial Services, Inc. shall accompany the redemption request.
(b) By instructions to the Fund's Custodian to wire redemption proceeds on
the next business day to a designated bank upon telephone, telegraphic, or
written request, without signature guarantee, if such redemption procedure has
been requested by the Shareholder or Planholder on an authorized form filed with
the Agent and the redemption proceeds are $20,000 or more. Any change in the
designated bank account will be accepted by the Agent only if made in writing by
the Shareholder or Planholder 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 Fund and the Agent.
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 Shareholder's 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.
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 fourth business day
prior to the end of 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 the 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 Shares 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 Bank 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
Bank sufficient cash to pay and 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 with are reinvested in
additional Shares by crediting each Shareholder's or Planholder's account from
Shares purchased by them by means of reinvestment of such dividends or
distributions payable on Shares in their account. The Agent shall caused 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 the mailing Federal 1099 Forms,
mailing semi-annual reports of the Fund preparation of an annual list of
Shareholders and Planholders, mailing notices of Shareholder's meeting, 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 or 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.
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 is
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 supplies 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
time 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 Municipal Funds, Inc.
8400 Normandale Lake Boulevard
Suite 1150
Minneapolis, Minnesota 55437
If to the Agent:
SBM Financial Services, Inc.
8400 Normandale Lake Boulevard
Suite 1150
Minneapolis, Minnesota 55437
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 constitute 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 to and shall be binding upon the
parties hereto and their respective successors and assigns; provided, however,
that this Agreement shall not be assignable by the Fund without the written
constant 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 periods 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
and time upon proper demand. The Agent shall assist the Fund's independent
auditors, or upon approval of the Fund or upon demand, any regulatory 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 respective duly authorized officers as of the day and year
first above written.
STATE BOND MUNICIPAL FUNDS, INC.
By: __________________________________________
Its: ___________________________________
SBM FINANCIAL SERVICES, INC.
By: __________________________________________
Its: ___________________________________
August 24, 1995
State Bond Municipal Funds, Inc.
8400 Normandale Lake Blvd., Suite 1150
Minneapolis, Minnesota 55437-3807
Dear Sirs:
State Bond Municipal Funds, Inc. proposes to issue and sell an indefinite
number of shares (the "Shares") of its Common Stock par value $.00001 per share
(the "Common Stock") in the manner and on the terms set forth in its
Registration Statement on Form N-1A filed with the Securities and Exchange
Commission (File No. 2-77156).
I have, as counsel, participated in various corporate and other proceedings
relating to the Fund and to the Shares. I have examined copies, either certified
or otherwise proved to my satisfaction to be genuine, of its Articles of
Incorporation and By-Laws, as currently in effect, a certificate of good
standing issued by the State Department of Assessments and Taxation of the State
of Maryland and other documents relating to its organization and operation. I
have also reviewed the above-mentioned Registration Statement and all amendments
filed as of the date of this opinion and the documents filed as exhibits
thereto. I am generally familiar with the corporate affairs of the Fund.
Based upon the foregoing, it is my opinion that:
1. The Fund has been duly organized and is validly existing under the laws
of the state of Maryland.
2. The Fund is authorized to issue ten billion (10,000,000,000) shares of
Common Stock. Under Maryland law, shares of Common Stock which are issued and
subsequently redeemed by the Fund will be, by virtue of such redemption,
restored to the status of authorized and unissued shares.
3. Subject to the effectiveness of the above-mentioned Registration
Statement and compliance with applicable state securities laws, upon the
issuance of the Shares for a consideration not less than the par value thereof
as required by the laws of Maryland, and not less than the net asset value
thereof as required by the Investment Company Act of 1940 and in accordance with
the terms of the Registration Statement, such Shares will be legally issued and
outstanding and fully paid and non-assessable.
I hereby consent to the filing of this opinion with the Securities and
Exchange Commission as part of the above-mentioned Registration Statement and
with any state securities commission where such filing is required. In giving
this consent I do not admit that I come within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as amended.
I am a member of the Bar of the State of Kentucky and do not hold myself
out as being conversant with the laws of any jurisdiction other than those of
the United States of America and the State of Kentucky. I note that I am not
licensed to practice law in the State of Maryland, and to the extent that any
opinion expressed herein involves the law of Maryland, such opinion should be
understood to be based solely upon my review of the good standing certificate
referred to above, the published statues of that State and, where applicable,
published cases, rules or regulations or regulatory bodies of that State.
Very truly yours,
/s/Kevin L. Howard
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
4, 1995, in the Post-Effective Amendment No. 16 to the Registration Statement
(Form N-1A) and related Prospectus of the State Bond Tax Exempt Fund.
/s/Ernst & Young LLP
Ernst & Young LLP
Kansas City, Missouri
August 24, 1995
INDEPENDENT AUDITORS' CONSENT
Board of Directors of State Bond Municipal Funds, Inc.
and Shareholders of State Bond Tax Exempt Fund:
We consent to the use in the Post-Effective Amendment No. 16 to the Registration
Statement on Form N-1A of State Bond Tax Exempt Fund, filed under the Investment
Company Act of 1940 and Securities Act of 1933, respectively, of our report
dated July 29, 1994 accompanying the financial statements of State Bond Tax
Exempt Fund for the year ended June 30, 1994, as listed in Item 24(a) of such
Registration Statement, and to the reference to us under the heading "Condensed
Financial Information" appearing in the Prospectus which is part of such
Registration Statement.
/s/Deloitte & Touche LLP
Minneapolis, Minnesota
August 24, 1995
STATE BOND MUNICIPAL FUNDS, INC.
AMENDED AND RESTATED PLAN OF DISTRIBUTION
This Amended and Restated Plan of Distribution (the "Plan") is adopted
pursuant to Rule 12b-1 (the "Rule") under the Investment Company Act of 1940 (as
amended, the "1940 Act") by State Bond Municipal Funds, Inc., a Maryland
corporation (the "Company"), for and on behalf of each series (or class thereof)
of the Company's shares of common stock set forth below (each, a "Fund"):
State Bond Tax Exempt Fund
1. COMPENSATION.
The Fund will pay the principal underwriter of its shares (the
"Underwriter") a total fee in connection with the servicing of Fund shareholder
accounts and in connection with distribution related services provided in
respect of the Fund, calculated daily and paid monthly at the annual rate of
.25% of the value of the average daily net assets of the Fund.
A portion of such total fee may be payable as a Servicing Fee and a portion
may be payable as a Distribution Fee, as determined from time to time by the
Company's Board of Directors.
2. EXPENSES COVERED BY THE PLAN.
(a) The Servicing Fee may be used by the Underwriter to provide
compensation for ongoing servicing and/or maintenance of shareholder accounts
with the Company. Compensation may be paid by the Underwriter to persons,
including employees of the Underwriter, and institutions who respond to
inquiries of shareholders of each Fund regarding their ownership of shares or
their accounts with the Company or who provide other administrative or
accounting services not otherwise required to be provided by the Company's
investment adviser, transfer agent or other agent of the Company.
(b) The Distribution Fee may be used by the Underwriter to provide initial
and ongoing sales compensation to its investment executives and to other
broker-dealers in respect of sales of Fund shares and to pay for other
advertising and promotional expenses in connection with the distribution of Fund
shares. These advertising and promotional expenses include, 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 Underwriter related to
the distribution of Fund shares; and payments to, and expenses of, officers,
employees or representatives of the Underwriter, of other broker-dealers, banks
or other financial institutions, and of any other persons who provide support
services in connection with the distribution of Fund shares, including travel,
entertainment, and telephone expenses.
(c) Payments under the Plan are not tied exclusively to the expenses for
shareholder servicing and distribution related activities actually incurred by
the Underwriter, so that such payments may exceed expenses actually incurred by
the Underwriter. The Company's Board of Directors will evaluate the
appropriateness of the Plan and its payment terms on a continuing basis and in
doing so will consider all relevant factors, including expenses borne by the
Underwriter and amounts it receives under the Plan.
3. Payments by Adviser. The Company's investment adviser may, at its
option, make payments from its own resources to cover the costs of additional
distribution activities.
4. Approval by Shareholders. The Plan will not take effect with respect to
any Fund, and no fee will be payable in accordance with Section 1 of the Plan,
until the Plan has been approved by a vote of at least a majority of the
outstanding voting securities of such Fund.
5. Approval by Directors. Neither the Plan nor any related agreements will
take effect until approved by a majority vote of both (a) the full Board of
Directors of the Company and (b) those Directors who are not interested persons
of the Company and who have no direct or indirect financial interest in the
operation of the Plan or in any agreements related to it (the "Independent
Directors"), cast in person at a meeting called for the purpose of voting on the
Plan and the related agreements.
6. Continuance of the Plan. The Plan will continue in effect from year to
year so long as its continuance is specifically approved annually by vote of the
Company's Board of Directors in the manner described in Section 5 above.
7. Termination. The Plan may be terminated at any time with respect to any
Fund, without penalty, by vote of a majority of the Independent Directors or by
a vote of a majority of the outstanding voting securities of such Fund.
8. Amendments. The Plan may not be amended with respect to any Fund to
increase materially the amount of the fees payable pursuant to the Plan, as
described in Section 1 above, unless the amendment is approved by a vote of at
least a majority of the outstanding voting securities of that Fund, and all
material amendments to the Plan must also be approved by the Company's Board of
Directors in the manner described in Section 5 above.
9. Selection of Certain Directors. While the Plan is in effect, the
selection and nomination of the Company's Directors who are not interested
persons of the Company will be committed to the discretion of the Directors then
in office who are not interested persons of the Company.
10. Written Reports. In each year during which the Plan remains in effect,
the Underwriter and any person authorized to direct the disposition of monies
paid or payable by the Company pursuant to the Plan or any related agreement
will prepare and furnish to the Company's Board of Directors, and the Board will
review, at least quarterly, written reports, complying with the requirements of
the Rule, which set out the amounts expended under the Plan and the purposes for
which those expenditures were made.
11. Preservation of Materials. The Company will preserve copies of the
Plan, any agreement relating to the Plan and any report made pursuant to Section
10 above, for a period of not less than six years (the first two years in an
easily accessible place) from the date of the Plan, agreement or report.
12. Meaning of Certain Terms. As used in the Plan, the terms "interested
person" and "majority of the outstanding voting securities" will be deemed to
have the same meaning that those terms have under the 1940 Act and the rules and
regulations under the 1940 Act, subject to any exemption that may be granted to
the Company under the 1940 Act by the Securities and Exchange Commission.
13. Effective Date. The effective date of the Plan with respect to each
Fund is as follows:
State Bond Tax Exempt Fund: March 17, 1993
EXHIBIT 16
Computation of Performance Quotations
The Fund's 30-day yield for the period ended June 30, 1995 is calculated as
follows:
Formula:
6
YIELD = 2[(a-b + 1) -1
---
cd
Where: a= dividends and interest earned during the period
b= expenses accrued for the period (net of reimbursements)
c= the average daily number of shares outstanding during the
period that were entitled to receive dividends
d= the maximum offering price per share on the last day of the
period
6
4.74% = 2x[(386,001.55 - 52,235.24)/(7,565,002.33x11.28)+ 1) -1
AVERAGE ANNUAL TOTAL RETURN figures for the current one, five, and ten year
periods ending June 30, 1995 are calculated as follows:
1/n
Formula: P(1+T)n = ERV; or T = (ERV/p) -1
Where: P = hypothetical initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the period.
One year period:
2.68% = 1026.80 -1
-------
1000
Five year period:
1/5
6.36% = (1,361.29/1,000) -1
Ten year period:
1/10
7.86% = (2,131.63/1,000) - 1
TAX EQUIVALENT YIELD figure for the period ended June 30, 1995 is calculated as
follows:
Formula: Tax Equivalent Yield = Yield
-----
1-.396
7.63 = 4.74 x .9724
------------
.604
CUMULATIVE TOTAL RETURN FIGURES for the period beginning August 1, 1984 ending
June 30, 1995 are calculated as follows:
Formula: CTR = ERV - P x 100 P
Where: CTR = cummulative total return
ERV = ending redeemable value at the end of the period of a
hypothetical $1,000 payment made at the beginning of the
period
P = initial payment of $1,000
131.63% = 2,131.63 - $1,000
----------------- 100
$1,000
POWER OF ATTORNEY
The undersigned Director of the State Bond Tax Exempt Fund, a Maryland
corporation, hereby constitutes and appointed Kevin L. Howard, Richard M.
Carlblom, Peter S. Resnik and Don W. Cummings and each of them (with full power
to each of them to act alone), his true and lawful attorney-in-fact and agent,
with full power of substitution to each, for him and on his behalf and in his
name, place and stead, to execute and file any of the documents referred to
below relating to registrations under the Securities Act of 1933 or the
Investment Company Act of 1940 (the "Acts"): registration statements on any form
or forms under the Acts, and any and all amendments and supplements thereto
(including post-effective amendments), with all exhibits and all agreements,
consents, exemptive applications and other documents and instruments necessary
or appropriate in connection therewith, each of said attorneys-in-fact and
agents being empowered to act with or without the others or other, to have full
power and authority to do or cause to be done in the name and on behalf of the
undersigned each and every act and thing requisite and necessary or appropriate
with respect thereto to be done in and about the premises in order to effectuate
the same, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand, this 31st
day of July, 1995.
/s/William Faulkner
POWER OF ATTORNEY
The undersigned Director of the State Bond Tax Exempt Fund, a Maryland
corporation, hereby constitutes and appointed Kevin L. Howard, Richard M.
Carlblom, Peter S. Resnik and Don W. Cummings and each of them (with full power
to each of them to act alone), his true and lawful attorney-in-fact and agent,
with full power of substitution to each, for him and on his behalf and in his
name, place and stead, to execute and file any of the documents referred to
below relating to registrations under the Securities Act of 1933 or the
Investment Company Act of 1940 (the "Acts"): registration statements on any form
or forms under the Acts, and any and all amendments and supplements thereto
(including post-effective amendments), with all exhibits and all agreements,
consents, exemptive applications and other documents and instruments necessary
or appropriate in connection therewith, each of said attorneys-in-fact and
agents being empowered to act with or without the others or other, to have full
power and authority to do or cause to be done in the name and on behalf of the
undersigned each and every act and thing requisite and necessary or appropriate
with respect thereto to be done in and about the premises in order to effectuate
the same, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand, this 31st
day of July, 1995.
/s/Patrick M. Finley
POWER OF ATTORNEY
The undersigned Director of the State Bond Tax Exempt Fund, a Maryland
corporation, hereby constitutes and appointed Kevin L. Howard, Richard M.
Carlblom, Peter S. Resnik and Don W. Cummings and each of them (with full power
to each of them to act alone), his true and lawful attorney-in-fact and agent,
with full power of substitution to each, for him and on his behalf and in his
name, place and stead, to execute and file any of the documents referred to
below relating to registrations under the Securities Act of 1933 or the
Investment Company Act of 1940 (the "Acts"): registration statements on any form
or forms under the Acts, and any and all amendments and supplements thereto
(including post-effective amendments), with all exhibits and all agreements,
consents, exemptive applications and other documents and instruments necessary
or appropriate in connection therewith, each of said attorneys-in-fact and
agents being empowered to act with or without the others or other, to have full
power and authority to do or cause to be done in the name and on behalf of the
undersigned each and every act and thing requisite and necessary or appropriate
with respect thereto to be done in and about the premises in order to effectuate
the same, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand, this 31st
day of July, 1995.
/s/Chris L. Mahai
POWER OF ATTORNEY
The undersigned Director of the State Bond Tax Exempt Fund, a Maryland
corporation, hereby constitutes and appointed Kevin L. Howard, Richard M.
Carlblom, Peter S. Resnik and Don W. Cummings and each of them (with full power
to each of them to act alone), his true and lawful attorney-in-fact and agent,
with full power of substitution to each, for him and on his behalf and in his
name, place and stead, to execute and file any of the documents referred to
below relating to registrations under the Securities Act of 1933 or the
Investment Company Act of 1940 (the "Acts"): registration statements on any form
or forms under the Acts, and any and all amendments and supplements thereto
(including post-effective amendments), with all exhibits and all agreements,
consents, exemptive applications and other documents and instruments necessary
or appropriate in connection therewith, each of said attorneys-in-fact and
agents being empowered to act with or without the others or other, to have full
power and authority to do or cause to be done in the name and on behalf of the
undersigned each and every act and thing requisite and necessary or appropriate
with respect thereto to be done in and about the premises in order to effectuate
the same, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand, this 31st
day of July, 1995.
/s/John R. Lindholm
POWER OF ATTORNEY
The undersigned Director of the State Bond Tax Exempt Fund, a Maryland
corporation, hereby constitutes and appointed Kevin L. Howard, Richard M.
Carlblom, Peter S. Resnik and Don W. Cummings and each of them (with full power
to each of them to act alone), his true and lawful attorney-in-fact and agent,
with full power of substitution to each, for him and on his behalf and in his
name, place and stead, to execute and file any of the documents referred to
below relating to registrations under the Securities Act of 1933 or the
Investment Company Act of 1940 (the "Acts"): registration statements on any form
or forms under the Acts, and any and all amendments and supplements thereto
(including post-effective amendments), with all exhibits and all agreements,
consents, exemptive applications and other documents and instruments necessary
or appropriate in connection therewith, each of said attorneys-in-fact and
agents being empowered to act with or without the others or other, to have full
power and authority to do or cause to be done in the name and on behalf of the
undersigned each and every act and thing requisite and necessary or appropriate
with respect thereto to be done in and about the premises in order to effectuate
the same, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand, this 31st
day of July, 1995.
/s/John Katz
POWER OF ATTORNEY
The undersigned Director of the State Bond Tax Exempt Fund, a Maryland
corporation, hereby constitutes and appointed Kevin L. Howard, Richard M.
Carlblom, Peter S. Resnik and Don W. Cummings and each of them (with full power
to each of them to act alone), his true and lawful attorney-in-fact and agent,
with full power of substitution to each, for him and on his behalf and in his
name, place and stead, to execute and file any of the documents referred to
below relating to registrations under the Securities Act of 1933 or the
Investment Company Act of 1940 (the "Acts"): registration statements on any form
or forms under the Acts, and any and all amendments and supplements thereto
(including post-effective amendments), with all exhibits and all agreements,
consents, exemptive applications and other documents and instruments necessary
or appropriate in connection therewith, each of said attorneys-in-fact and
agents being empowered to act with or without the others or other, to have full
power and authority to do or cause to be done in the name and on behalf of the
undersigned each and every act and thing requisite and necessary or appropriate
with respect thereto to be done in and about the premises in order to effectuate
the same, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand, this 31st
day of July, 1995.
/s/Theodore S. Rosky
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT TO SHAREHOLDERS FOR THE STATE BOND TAX EXEMPT FUND AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000702133
<NAME> STATE BOND MUNICIPAL FUNDS, INC.
<SERIES>
<NUMBER> 1
<NAME> STATE BOND TAX EXEMPT FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 76,974,296
<INVESTMENTS-AT-VALUE> 80,234,379
<RECEIVABLES> 1,526,287
<ASSETS-OTHER> 24,757
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 81,785,423
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 143,052
<TOTAL-LIABILITIES> 143,052
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 78,343,568
<SHARES-COMMON-STOCK> 7,578,854
<SHARES-COMMON-PRIOR> 7,671,657
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 38,720
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,260,083
<NET-ASSETS> 81,642,371
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5,209,032
<OTHER-INCOME> 0
<EXPENSES-NET> 751,355
<NET-INVESTMENT-INCOME> 4,457,677
<REALIZED-GAINS-CURRENT> 38,720
<APPREC-INCREASE-CURRENT> 1,466,299
<NET-CHANGE-FROM-OPS> 5,962,696
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4,457,677
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 404,927
<NUMBER-OF-SHARES-REDEEMED> 788,793
<SHARES-REINVESTED> 291,063
<NET-CHANGE-IN-ASSETS> 493,091
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 119,262
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 405,455
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 751,355
<AVERAGE-NET-ASSETS> 81,091,000
<PER-SHARE-NAV-BEGIN> 10.58
<PER-SHARE-NII> .58
<PER-SHARE-GAIN-APPREC> .19
<PER-SHARE-DIVIDEND> .58
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.77
<EXPENSE-RATIO> .93
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
