<PAGE>
STATE BOND
Tax Exempt Fund
[LOGO]
State Bond
Tax Exempt Fund
Semi-Annual
Report
December 31, 1995
<PAGE>
State Bond Tax Exempt Fund
JANUARY 12, 1996
TO THE SHAREHOLDERS:
The State Bond Tax Exempt Fund (the "Fund") had total net assets at December 31,
1995 of $82.9 million. The Fund paid dividends totalling 29 cents per share
during this six month period.
Net asset value per share increased from $10.77 to $11.03 per share during the
six month period. Bond valuations increased as interest rates trended lower. In
July 1995, the Federal Reserve announced a decrease in the Fed Funds rate and
continued a moderating policy with another decrease in December 1995. These
decreases, totaling .5%, coupled with a slowing economy, resulted in lower
interest rates. This was evident by the 30-year Treasury bond which began the
period at 6.6% and closed the year just below 6.0%.
The portfolio continues to emphasize quality and diversification. The Schedule
of Investments in this report shows that the Fund owns 71 issues. The top five
holdings in the portfolio include New York State Environmental Pollution
Control, Indianapolis Public Improvement, City of Chicago Illinois Gas Supply,
Metropolitan Pier Exposition Authority, and Sweetwater County. Evidence of the
Fund's quality may be ascertained from the rating of each security by Moody's
Investor Services, Inc. and/or Standard and Poor's Corporation. By selecting the
higher rating from either service, tax exempt bonds comprising 38.3% of the
total portfolio are A rated, 22.7% are AA rated, and 37.1% are AAA rated. The
remaining portion of the portfolio is invested in short-term securities.
We appreciate your investment in the Fund and look forward to continuing to help
you meet your investment goals. Should you desire additional information, we
would welcome your inquiries.
Sincerely,
/s/ Keith O. Martens
Keith O. Martens
Vice President
<PAGE>
State Bond Tax Exempt Fund
Schedule of Investments (Unaudited)
December 31, 1995
<TABLE>
<CAPTION>
MOODY'S/S&P PRINCIPAL
RATING AMOUNT VALUE
-----------------------------------
<S> <C> <C> <C>
MUNICIPAL BONDS (98.1%)
ALASKA
Alaska Housing Finance Corp.,
Collateralized Veterans Mortgage
Program, Series 1991 B-1, 6.90% due
6/1/2032 Aaa/AAA $ 740,000 $ 774,343
Alaska Housing Finance Corp.,
Collateralized Home Mortgage Bonds,
1988 Series A-1, 7.625% due 2/1/2013 Aaa/AAA 325,000 340,558
ARIZONA
Arizona Industrial Development
Authority, 5.45% due 6/1/2009 A2/A 1,500,000 1,531,635
CALIFORNIA
Central Coast Water Authority Rev.
Bonds, Series 1992, 6.35% due 10/1/2007 Aaa/AAA 1,000,000 1,093,840
Walnut Valley, CA, Water District,
Certificate of Participation, 6.125%
due 2/1/2009 Aaa/AAA 1,000,000 1,055,420
COLORADO
Housing Finance Agency, Single Family
Housing Rev. Bonds, 1986 Series A,
8.00% due 3/1/2017 Aa/NR 260,000 269,461
DISTRICT OF COLUMBIA
District of Columbia University Rev.
Bonds, 6.30% due 10/1/2013 NR/AAA 1,250,000 1,329,450
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
MOODY'S/S&P PRINCIPAL
RATING AMOUNT VALUE
-----------------------------------
<S> <C> <C> <C>
MUNICIPAL BONDS (CONTINUED)
ILLINOIS
Chicago, Illinois, Water Rev. Bonds,
7.20% due 11/15/2016 A1/A+ $2,000,000 $ 2,251,940
Chicago, Illinois, Public District
Capital Improvement Bonds, 5.45% due Aaa/AAA 1,000,000 1,047,520
1/1/2004
City of Chicago, Illinois Gas Supply
Rev. Bonds, 7.50% due 3/1/2015 Aa3/AA- 2,580,000 2,865,013
Illinois State Dedicated Tax Rev.
Bonds, Civic Center Series A, 6.00%
due 12/15/2015 Aaa/AAA 1,000,000 1,024,470
Illinois State University Auxiliary
Facility System, Board of Regents Rev.
Bonds, Series 1989, 7.40% due 4/1/2014 Aaa/A+ 1,050,000 1,188,201
Illinois State University Auxiliary
Facility System, Board of Regents Rev.
Bonds, Series 1989, 7.40% due 4/1/2013 Aaa/A+ 500,000 565,810
Illinois School District #065, 5.875%
due 12/1/2008 Aaa/AAA 1,000,000 1,047,950
Metropolitan Pier Exposition Authority,
Illinois Dedicated State Tax Rev.,
6.00% due 6/1/2014 A/A+ 2,350,000 2,352,561
Rolling Meadows, Illinois Mortgage Rev.
Bonds Woodfield Garden, 7.75% due
2/1/2004 NR/A 2,000,000 2,169,560
INDIANA
Beech Grove, IN, IDR for Westvaco
Corp., 8.75% due 7/1/2010 A1/A 550,000 555,671
Highland, IN, School Building Corp.,
6.75% due 7/15/2012 NR/AAA 1,000,000 1,140,610
Indiana Municipal Power Agency, Series
1992 A, 6.00% due 1/1/2007 Aaa/AAA 1,300,000 1,399,190
</TABLE>
3
<PAGE>
State Bond Tax Exempt Fund
Schedule of Investments (Unaudited) (continued)
<TABLE>
<CAPTION>
MOODY'S/S&P PRINCIPAL
RATING AMOUNT VALUE
-----------------------------------
<S> <C> <C> <C>
MUNICIPAL BONDS (CONTINUED)
INDIANA (CONTINUED)
Indiana State Toll Roads, Revenue
Refunding Bond, 6.00% due 7/1/2013 A/A $1,100,000 $ 1,106,050
Indiana Transportation Finance
Authority, Series A, 6.25% due A/A 1,150,000 1,189,296
11/1/2016
Indianapolis, IN Public Improvement
Bonds, Bank Series C, 6.70% due
1/1/2017 A1/NR 3,225,000 3,658,730
Indianapolis, IN, Resource Recovery
Rev. Bonds, Series A, 7.90% due A/A+ 1,115,000 1,183,550
12/1/2008
Indianapolis, IN, Resource Recovery
Rev. Bonds, Series B, 7.90% due A/A+ 430,000 456,436
12/1/2008
LOUISIANA
Rapides Parish, LA, Housing & Mortgage
Finance Authority, Single Family
Mortgage, 7.25% due 8/1/2010 Aaa/AA- 750,000 843,750
MAINE
Maine State Housing Authority, Mortgage
Purchase Bonds, 1988 Series B, 8.00%
due 11/15/2015 A1/AA- 415,000 445,171
MARYLAND
Maryland City Housing Multi-Family,
FNMA, Series A, 7.25% due 7/1/2023 NR/AAA 750,000 789,495
MASSACHUSETTS
Massachusetts State Housing Finance
Agency, Housing Projects Rev. Series
A, 6.30% due 10/1/2013 A1/A+ 1,000,000 1,020,950
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
MOODY'S/S&P PRINCIPAL
RATING AMOUNT VALUE
-----------------------------------
<S> <C> <C> <C>
MUNICIPAL BONDS (CONTINUED)
MASSACHUSETTS (CONTINUED)
Massachusetts State Housing Finance
Agency, Housing Rev. Series A, 6.10%
due 12/1/2016 Aaa/AAA $1,000,000 $ 1,027,240
MICHIGAN
Michigan State Housing Development
Authority, Single Family, Series A,
7.55% due 12/1/2014 NR/AA+ 145,000 146,434
Michigan State Housing Development,
Series B, 6.95% due 12/1/2020 NR/AA+ 1,000,000 1,056,560
MINNESOTA
Burnsville, Minnesota, Multi-Family
Rev. Ref. Bonds, Coventry Court
Apartments Project, Series 1989, 7.50% NR/AAA 800,000 850,176
due 9/1/2027
City of Minnetonka, MN, Multi-Family
Rental Housing Rev. Bonds, 7.25% due
12/1/2002 NR/AAA 800,000 849,080
Minnesota Housing Finance Agency,
Single Family Mortgage, 6.25% due Aa/AA+ 1,300,000 1,347,034
1/1/2015
Minnesota Housing Finance Agency,
Single Family Mortgage Rev. Bonds 1989
Series D, 7.35% due 7/1/2016 Aa/AA+ 535,000 572,712
Minnesota Housing Finance Authority,
Series 1993 E, 6.00% due 2/1/2014 NR/AA 1,460,000 1,485,448
</TABLE>
5
<PAGE>
State Bond Tax Exempt Fund
Schedule of Investments (Unaudited) (continued)
<TABLE>
<CAPTION>
MOODY'S/S&P PRINCIPAL
RATING AMOUNT VALUE
-----------------------------------
<S> <C> <C> <C>
MUNICIPAL BONDS (CONTINUED)
NEVADA
Clark County, Nevada School District,
General Obligation Bonds, 5.30% due
5/1/2004 Aaa/AAA $1,000,000 $ 1,041,630
Clark County, NV, Improvement District,
Special Assessment, 5.85% due 10/1/2015 Aaa/AAA 350,000 360,500
Humboldt County, NV, Pollution Control
Rev. Bonds, Idaho Power Company, 8.30%
due 12/20/2014 NR/A 1,000,000 1,202,360
Lyon County, Nevada School District,
6.75% due 6/1/2011 Aaa/AAA 800,000 913,048
Washoe County, Nevada, General
Obligation Bonds, 6.00% due 7/1/2009 Aaa/AAA 585,000 620,650
NEW HAMPSHIRE
New Hampshire Municipal Bond Bank,
Series 91 J, Non-State Guaranteed,
6.90% due 1/15/2012 Aaa/A 1,080,000 1,220,897
State of New Hampshire Turnpike System
Rev. Bonds, 8.375% due 11/1/2017 Aaa/A 900,000 989,190
NEW YORK
New York State Environmental Pollution
Control Rev. Bonds, 7.25% due 6/15/2010 Aa/A 2,900,000 3,273,491
New York Local Government Assistance,
Series A Rev. Bonds, 6.00% due 4/1/2016 A/A 1,000,000 1,049,160
New York Metro Transit Authority, 5.10%
due 7/1/2004 Aaa/AAA 1,000,000 1,036,290
NORTH CAROLINA
Wake County, Ind. Facilities Pollution
Control, Carolina Power and Light,
6.90% due 4/1/2009 A2/A1 1,000,000 1,088,530
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
MOODY'S/S&P PRINCIPAL
RATING AMOUNT VALUE
-----------------------------------
<S> <C> <C> <C>
MUNICIPAL BONDS (CONTINUED)
NORTH DAKOTA
Mercer County, ND, PCR Basin, Electric
Power Co-op Series 84 C, 7.70% due
1/1/2019 A2/A- $1,695,000 $ 1,746,206
Mercer County, ND, PCR Basin, Electric
Power Co-op Series A, 7.70% due
1/1/2019 NR/A- 725,000 746,902
North Dakota Housing, Single Family
Mortgage, 1992 Series A, 6.75% due
7/1/2012 Aa/A+ 1,635,000 1,733,345
OREGON
Oregon Sewer System Rev. Bonds, Series
A, 6.05% due 2/1/2009 A1/A+ 500,000 536,865
PENNSYLVANIA
Erie County, PA, Industrial Development
Authority Pollution Control Rev. Ref.
Bonds, Series 1991, 7.15% due 9/1/2013 A3/A- 400,000 433,344
RHODE ISLAND
Rhode Island Depositors, Economic
Protection Corp. Bonds, 6.625% due Aaa/AAA 1,675,00 1,914,341
8/1/2019
SOUTH DAKOTA
South Dakota Housing Development,
Multi-Family Housing Rev. Bonds, 6.70%
due 4/1/2020 A1/A+ 1,400,000 1,428,826
South Dakota State Building Authority
Co-op, Series A, 7.50% due 12/1/2016 A1/A+ 950,000 995,334
</TABLE>
7
<PAGE>
State Bond Tax Exempt Fund
Schedule of Investments (Unaudited) (continued)
<TABLE>
<CAPTION>
MOODY'S/S&P PRINCIPAL
RATING AMOUNT VALUE
-----------------------------------
<S> <C> <C> <C>
MUNICIPAL BONDS (CONTINUED)
TEXAS
Houston, Texas, Water & Sewer Rev. Ref.
Bonds, 6.40% due 12/1/2009 A/A $1,545,000 $ 1,676,974
Texas Water Development Board Rev.,
State Revolving Fund Bonds, 6.40% due
7/15/2007 Aa/AAA 1,000,000 1,095,300
Texas State Public Property Finance
Corp., 5.10% due 9/1/2003 Aaa/AAA 890,000 910,924
Texas Utility System Revenue Bonds,
6.875% due 9/1/2020 Aaa/AAA 1,000,000 1,129,720
UTAH
Utah State Municipal Finance Co-op,
Government Revenue Bonds, 6.40% due
8/1/2009 A/A 1,000,000 1,044,070
Intermountain Power Agency Utah, Rev.
1987 Series B, 6.00% due 7/1/2016 Aa/AAA 1,000,000 1,007,840
Intermountain Power Agency Utah, Rev.
Series I, 6.00% due 7/1/2021 Aa/AA- 200,000 200,022
VIRGINIA
Virginia Housing Authority, Residential
Mortgage Rev. Bonds, Series B, 7.55%
due 9/1/2012 Aaa/A+ 1,000,000 1,010,040
Virginia Housing Development
Authority, Series C, 1992, 6.50% due Aa1/AA+ 500,000 533,360
7/1/2007
WASHINGTON
Washington State Municipal Finance
Co-op, Government Rev. Bonds, 5.60%
due 7/1/2007 Aa/AA 1,500,000 1,543,605
Washington School District #320,
General Obligation Bonds, 6.70% due Aaa/AAA 1,000,000 1,117,300
12/1/2007
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
MOODY'S/S&P PRINCIPAL
RATING AMOUNT VALUE
-----------------------------------
<S> <C> <C> <C>
MUNICIPAL BONDS (CONTINUED)
WISCONSIN
Wisconsin Housing and Economic
Development Authority, Series A, 7.10%
due 3/1/2023 Aa/AA $ 985,000 $ 1,054,295
Wisconsin Housing and Economic
Development Authority, Home Ownership
Single Family Mtg. Rev. Bonds, 9.125%
due 12/1/2011 Aa/AA- 15,000 15,445
Wisconsin Housing and Economic
Development Authority, Series C, 5.20%
due 11/1/2004 A1/A 1,000,000 1,007,260
WYOMING
Sweetwater County, WY, PCR for Idaho
Power, 7.625% due 12/1/2013 Aa2/A- 2,150,000 2,258,123
-----------
TOTAL MUNICIPAL BONDS
(Cost $74,614,918) 79,966,502
SHORT-TERM SECURITIES (1.9%)
Ford Motor Credit Corp., 5.92% due
1/03/96 475,000 474,922
Ford Motor Credit Corp., 5.77% due
1/05/96 1,050,000 1,049,495
-----------
TOTAL SHORT-TERM SECURITIES
(Cost $1,524,417) 1,524,417
-----------
TOTAL INVESTMENTS (100.0%)
(Cost $76,139,335*) $81,490,919
===========
</TABLE>
*Also represents cost for federal income tax purposes.
Ratings were provided by Moody's Investor Service, Inc. and Standard and Poor's
Corporation.
See accompanying notes
9
<PAGE>
<TABLE>
<CAPTION>
State Bond Tax Exempt Fund
Statement of Assets and Liabilities
December 31, 1995 (Unaudited)
<S> <C>
ASSETS
Investment in securities, at value (cost $76,139,335)
(Note 1)--See accompanying schedule $81,490,919
Cash 98,946
Interest receivable 1,434,691
-----------
TOTAL ASSETS 83,024,556
LIABILITIES
Dividends payable 59,138
Payable to affiliates 54,465
Accrued expenses 4,604
-----------
TOTAL LIABILITIES 118,207
-----------
NET ASSETS $82,906,349
===========
Net Assets consist of:
Paid-in capital $77,653,560
Undistributed net realized loss on investments (98,795)
Net unrealized appreciation on investment securities 5,351,584
-----------
NET ASSETS, for 7,517,093 shares outstanding $82,906,349
===========
NET ASSET VALUE and redemption price per share $ 11.03
===========
Maximum offering price per share (includes maximum sales charge of
4.5%--reduced on purchases of $50,000 or more) $ 11.55
===========
</TABLE>
See accompanying notes.
10
<PAGE>
<TABLE>
<CAPTION>
State Bond Tax Exempt Fund
Statement of Operations
Six Months Ended December 31, 1995 (Unaudited)
<S> <C>
INVESTMENT INCOME
Interest $ 2,539,629
EXPENSES (Note 2)
Investment advisory and management fees 204,096
Rule 12b-1 plan fees 102,297
Accounting and custodian fees 15,871
Transfer agent fees 15,687
Shareholders' reports 9,050
Professional fees 10,255
Other expenses 12,211
-----------
Total expenses 369,467
-----------
Net investment income 2,170,162
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (Note 1)
Net realized loss on investments (137,515)
Change in unrealized appreciation on investment securities 2,091,501
-----------
Net realized and unrealized gain on investments 1,953,986
-----------
Net increase in net assets resulting from operations $ 4,124,148
===========
</TABLE>
See accompanying notes.
11
<PAGE>
State Bond Tax Exempt Fund
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR
DECEMBER 31, ENDED
1995 JUNE 30,
(UNAUDITED) 1995
---------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 2,170,162 $ 4,457,677
Net realized gain (loss) on investments (137,515) 38,720
Net unrealized appreciation 2,091,501 1,466,299
---------------------------------
Net increase in net assets resulting from operations 4,124,148 5,962,696
Distributions to shareholders from:
Net investment income (2,170,162) (4,457,677)
Net realized gain -- --
---------------------------------
Total distributions to shareholders (2,170,162) (4,457,677)
Capital share transactions:
Proceeds from sales of shares 1,793,711 4,250,461
Proceeds from reinvested dividends 1,506,576 3,066,110
Cost of shares redeemed (3,990,295) (8,328,499)
---------------------------------
Net decrease in net assets resulting from share transactions (690,008) (1,011,928)
---------------------------------
Total increase in net assets 1,263,978 493,091
NET ASSETS
Beginning of period 81,642,371 81,149,280
---------------------------------
End of period $82,906,349 $81,642,371
=================================
OTHER INFORMATION
Shares:
Sold 165,227 404,927
Issued through reinvestment of dividends 138,697 291,063
Redeemed (365,685) (788,793)
---------------------------------
Net decrease (61,761) (92,803)
==================================
</TABLE>
See accompanying notes.
12
<PAGE>
State Bond Tax Exempt Fund
Financial Highlights
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
DECEMBER 31
(UNAUDITED) YEAR ENDED JUNE 30,
1995 1995 1994 1993 1992 1991
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 10.77 $ 10.58 $ 11.09 $ 10.86 $ 10.52 $ 10.39
Income from investment operations:
Net investment income .29 .58 .59 .63 .68 .71
Net realized and unrealized gain
(loss) on investments .26 .19 (.41) .34 .36 .13
--------------------------------------------------------------------
Total from investment operations .55 .77 .18 .97 1.04 .84
Less distributions:
From net investment income (.29) (.58) (.59) (.63) (.68) (.71)
From net realized gain -- -- (.10) (.11) (.02) --
--------------------------------------------------------------------
Total distributions (.29) (.58) (.69) (.74) (.70) (.71)
--------------------------------------------------------------------
Net asset value, end of period $ 11.03 $ 10.77 $ 10.58 $ 11.09 $ 10.86 $ 10.52
====================================================================
TOTAL RETURN(A) 5.16% 7.53% 1.55% 9.30% 10.18% 8.39%
RATIOS/SUPPLEMENTAL DATA(B)
Net assets, end of period (in
thousands) $82,906 $81,642 $81,149 $80,055 $70,565 $60,841
Ratio of expenses to average net
assets .91% .93% .94% .93% .87% .73%
Ratio of net investment income to
average net assets 5.32% 5.52% 5.37% 5.75% 6.33% 6.81%
Portfolio turnover rate 7% 15% 17% 21% 16% 8%
</TABLE>
(A) Total returns do not consider the effects of the one time sales charge and
periods less than one year are not annualized.
(B) Data expressed as a percentage are annualized as appropriate.
13
<PAGE>
State Bond Tax Exempt Fund
Notes to Financial Statements
December 31, 1995 (Unaudited)
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.
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.
14
<PAGE>
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 December 31, 1995, net unrealized appreciation on a Federal income tax basis
was $5,351,584, which is comprised of unrealized appreciation of $5,352,444 and
unrealized depreciation of $860.
INCOME TAX STATUS
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 taxes is required.
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 six months ended December 31, 1995.
Fees paid to SBM Financial Services for underwriting services in connection with
sales of the Fund's capital shares aggregated $50,014 for the six months ended
December 31, 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.
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 six months ended December 31, 1995 amounted to
$5,781,538 and $6,280,403, respectively.
4. CAPITAL SHARES
At December 31, 1995, the Fund had authority to issue ten billion shares of
common stock, each with a par value of $.00001.
15
<PAGE>
BOARD OF DIRECTORS
William B. Faulkner
President, William Faulkner & Associates, Inc.
Director, State Bond mutual funds
Patrick M. Finley
President, Universal Cooperatives, Inc.
Director, State Bond mutual funds
John Katz
Executive Vice President, Equitable Investment Corporation, retired 1991
Director, State Bond mutual funds
John R. Lindholm
Executive Vice President, ARM Financial Group, Inc.
Chairman, State Bond mutual funds
Chris L. Mahai
Senior Vice President, Strategic Integration, Star Tribune
Director, State Bond mutual funds
Theodore S. Rosky
Executive Vice President and Chief Financial Officer,
Providian Corporation, retired 1992
Director, State Bond mutual funds
----------------------------------------
INVESTMENT ADVISER
ARM Capital Advisors, Inc.
GENERAL DISTRIBUTOR
SBM Financial Services, Inc.
100 North Minnesota Street
P.O. Box 69
New Ulm, Minnesota 56073-0069
1-800-328-4735
CUSTODIAN
Investors Fiduciary Trust Company
Kansas City, Missouri
----------------------------------------
This report is intended for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless
accompanied or preceded by the offering prospectus of the Fund, which contains
details of sales commissions and other information.
Catalog #001723
