<PAGE>
STATE BOND
Common Stock Fund
A Member of the ARM Financial Group
[LOGO]
STATE BOND
Common Stock Fund
Semi-Annual Report
June 30, 1995
<PAGE>
State Bond Common Stock Fund
TO THE SHAREHOLDERS:
As of June 30, 1995, the State Bond Common Stock Fund (the "Fund") had total net
assets of $59.1 million and a net asset value per share of $8.86, which compares
to $7.69 at the beginning of the period. During this semi-annual period, the
Fund paid a dividend of 4 cents per share in June.
Investment decisions to sell selected securities from the Fund's portfolio
resulted in a net realized gain of approximately 14 cents per share for the
first half of the year.
The portfolio of investments, as shown in the "Schedule of Investments" of this
report, shows that the Fund has investments in 65 companies representing 20
different industries. Equities represented 91.9% and short-term securities
accounted for 8.1% of the Fund's portfolio. The emphasis of these equity
investments is in the communication, electrical equipment, and financial
services industries.
In February of this semi-annual reporting period, the Federal Reserve raised the
Fed Funds rate for the seventh time within a twelve-month period, to the 6%
level. Even as this restrictive monetary action was happening, the economy was
giving indications of slowing, as home sales, retail sales, and other economic
data suggested weakness. Long-term interest rates, as measured by the benchmark
30 year Treasury Bond yield, which had already begun to decline, were down over
1% from year-end levels. Declining interest rates proved beneficial to both
stocks and bonds as markets rallied strongly. The Fund, on a total return basis
which includes the reinvestment of dividends and net realized gain
distributions, showed a strong return of 15.7% for this six-month period.
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
1
<PAGE>
INVESTMENT RECORD
The chart below illustrates the annual changes in the value of an assumed
investment of $10,000 for the period from May 22, 1962, to June 30, 1995. This
period was one of fluctuating common stock prices. The results shown should not
be considered as a representation of the distributions from net investment
income or net realized gain which may be realized from an investment made in the
Fund today.
[INVESTMENT RECORD CHART APPEARS HERE]
Investment Record
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
Total value assuming
Total value assuming reinvestment of
reinvestment of all distributions from
dividends and net realized gain--$114,564
distributions-- (an additional $21,736 Value of original
$206,274 received in cash dividends) shares--$33,752
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Initial Asset Value at
May 22, 1962 $ 9,525.00 $ 9,525.00 $ 9,525.00
--------------------------------------------------------------------------------------------------
10,866.67 10,819.05 10,819.05
--------------------------------------------------------------------------------------------------
13,152.61 12,935.94 12,742.86
--------------------------------------------------------------------------------------------------
15,441.41 15,027.71 14,514.29
--------------------------------------------------------------------------------------------------
1965 18,637.87 17,949.00 16,800.00
--------------------------------------------------------------------------------------------------
18,409.74 17,527.66 15,847.62
--------------------------------------------------------------------------------------------------
24,533.18 23,136.01 20,190.48
--------------------------------------------------------------------------------------------------
28,923.25 27,050.55 21,523.81
--------------------------------------------------------------------------------------------------
26,943.11 24,858.32 19,200.00
--------------------------------------------------------------------------------------------------
1970 25,719.03 23,181.37 17,904.76
--------------------------------------------------------------------------------------------------
30,859.22 27,423.07 21,180.95
--------------------------------------------------------------------------------------------------
34,781.93 30,674.76 22,895.24
--------------------------------------------------------------------------------------------------
27,528.31 23,974.89 16,914.29
--------------------------------------------------------------------------------------------------
18,753.89 15,983.26 11,276.19
--------------------------------------------------------------------------------------------------
1975 25,087.16 20,951.03 14,780.95
--------------------------------------------------------------------------------------------------
30,598.02 25,108.84 17,714.29
--------------------------------------------------------------------------------------------------
27,104.35 21,707.00 15,314.29
--------------------------------------------------------------------------------------------------
29,815.46 23,110.93 16,304.76
--------------------------------------------------------------------------------------------------
35,294.97 26,674.77 18,819.05
--------------------------------------------------------------------------------------------------
1980 45,388.45 33,370.46 23,542.86
--------------------------------------------------------------------------------------------------
42,414.96 29,939.74 20,685.72
--------------------------------------------------------------------------------------------------
50,446.94 34,289.75 21,638.10
--------------------------------------------------------------------------------------------------
53,962.94 35,782.14 22,171.43
--------------------------------------------------------------------------------------------------
50,749.01 32,978.19 19,390.48
--------------------------------------------------------------------------------------------------
1985 65,334.86 41,669.16 24,000.00
--------------------------------------------------------------------------------------------------
74,443.51 46,816.84 24,190.48
--------------------------------------------------------------------------------------------------
79,028.14 48,863.69 23,276.19
--------------------------------------------------------------------------------------------------
86,822.51 52,706.52 23,733.33
--------------------------------------------------------------------------------------------------
123,674.40 73,672.93 30,857.14
--------------------------------------------------------------------------------------------------
1990 124,816.82 72,944.62 27,961.91
--------------------------------------------------------------------------------------------------
166,569.01 96,010.03 35,161.91
--------------------------------------------------------------------------------------------------
167,792.73 95,652.77 33,180.95
--------------------------------------------------------------------------------------------------
170,866.80 96,354.86 30,133.33
--------------------------------------------------------------------------------------------------
178,236.74 99,435.50 29,295.24
--------------------------------------------------------------------------------------------------
June 30, 1995 206,273.50 114,564.18 33,752.38
--------------------------------------------------------------------------------------------------
</TABLE>
The chart above and the table on the next page assume the applicability of the
current maximum sales charge of 4.75% throughout the life of the Fund, although
the maximum sales charge was higher prior to March 1, 1990. Future performance
of the Fund will be affected by the establishment of a Rule 12b-1 plan,
effective May 1, 1990, under which Fund assets may be used to pay distribution
costs. Initial net asset value is the amount received by the Fund after
deducting from the cost of investment the 4.75% sales charge described in the
prospectus. There is no sales charge on distributions taken in shares. No
adjustment has been made for any income taxes payable by shareholders on
distributions received in shares.
THE AVERAGE ANNUAL TOTAL RETURN FOR THE ONE, FIVE, AND TEN YEAR PERIODS ENDED
JUNE 30, 1995, WAS 19.03%, 8.43%, AND 13.06%, RESPECTIVELY. The performance data
quoted represents only past performances. The investment return and principal
value of an investment will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
2
<PAGE>
INVESTMENT RECORD
(CONTINUED)
<TABLE>
<CAPTION>
RESULTS ASSUMING REINVESTMENT
OF NET REALIZED GAIN
PER SHARE DATA* DISTRIBUTIONS ONLY**
----------------------------------------- ------------------------------
YEAR NET NET REALIZED
ENDED ASSET GAIN DIVIDEND NET REALIZED CASH
DECEMBER 31 VALUE DISTRIBUTION INCOME GAIN DIVIDENDS
----------------------------------------------------------- ------------------------------
<S> <C> <C> <C> <C> <C>
1962 $2.84 $ - $.125 $ - $ 47.62
1963 3.35 .050 .040 190.48 152.38
1964 3.81 .075 .040 290.04 154.69
1965 4.41 .140 .045 552.20 177.49
1966 4.16 .150 .050 610.51 203.50
1967 5.30 .190 .050 800.54 210.67
1968 5.65 .569 .050 2,483.85 218.27
1969 5.04 .150 .070 718.16 335.14
1970 4.70 - .100 - 493.22
1971 5.56 - .075 - 369.92
1972 6.01 .195 .045 961.78 229.68
1973 4.44 .306 .055 1,561.81 296.98
1974 2.96 - .070 - 377.98
1975 3.88 - .080 - 431.98
1976 4.65 - .080 - 431.98
1977 4.02 - .100 - 539.97
1978 4.28 - .140 - 755.97
1979 4.94 - .120 - 647.97
1980 6.18 - .160 - 863.97
1981 5.43 .125 .230 674.97 1,268.17
1982 5.68 .445 .190 2,453.63 1,147.01
1983 5.82 .105 .150 633.88 922.22
1984 5.09 .296 .100 1,819.85 647.90
1985 6.30 .107 .110 693.25 727.56
1986 6.35 .707 .100 4,789.83 683.88
1987 6.11 .510 .122 3,760.09 899.48
1988 6.23 .355 .118 2,877.37 955.48
1989 8.10 .597 .155 5,050.69 1,311.32
1990 7.34 .679 .157 6,175.79 1,427.98
1991 9.23 .416 .123 4,134.19 1,222.37
1992 8.71 .489 .097 5,086.56 1,008.99
1993 7.91 .868 .093 9,535.63 1,021.32
1994 7.69 .474 .085 5,771.40 1,035.76
1995*** 8.86 - .040 - 517.22
------------------------------
$61,626.50 $21,736.04
==============================
</TABLE>
* Per share amounts reflect a 2 for 1 stock split on March 11, 1966.
** Based upon an investment of $10,000 on May 22, 1962.
*** For the six months ended June 30, 1995.
If all dividends and distributions had been taken in cash, the value of the
account on June 30, 1995, would have been $33,752. A total of $12,391 in net
investment income and $30,468 in net realized gains would have been paid to the
shareholders.
3
<PAGE>
State Bond Common Stock Fund
Schedule of Investments
June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
---------------------------
<S> <C> <C>
COMMON STOCKS (91.9%)
CHEMICALS AND ALLIED PRODUCTS (3.3%)
International Flavors and Fragrances, Inc. 21,000 $ 1,044,750
Morton International, Inc. 30,000 877,500
-----------
1,922,250
COMMUNICATIONS (9.1%)
Lin Broadcasting Corporation (a) 7,000 886,375
Lin Televison Corporation 7,000 235,375
MCI Communications Corporation 40,000 877,520
Motorola, Inc. 20,000 1,342,500
Nextel Communications, Inc. 20,000 281,260
Sprint Corporation 20,550 690,994
Telefonos de Mexico, S.A. 10,000 296,250
Telephone & Data Systems, Inc. 10,000 363,750
Vodafone Group 10,000 378,750
-----------
5,352,774
CONSUMER PRODUCTS (3.9%)
American Greetings Corporation 20,000 586,260
Anheuser-Busch Companies, Inc. 30,000 1,706,250
-----------
2,292,510
DEPOSITORY INSTITUTIONS (1.8%)
Mellon Bank Corporation 15,000 624,375
Signet Bank Corporation 20,000 437,500
-----------
1,061,875
DRUGS (3.2%)
Bristol-Meyers Squibb Company 15,000 1,020,000
Schering-Plough Corporation 20,000 882,500
-----------
1,902,500
ELECTRONIC AND OTHER ELECTRIC EQUIPMENT (8.9%)
Arrow Electronics, Inc. (a) 10,000 497,500
Cisco Systems, Inc. 10,000 505,630
DSC Communications Corporation 20,000 931,260
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
---------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
ELECTRONIC AND OTHER ELECTRIC EQUIPMENT (8.9%) (CONTINUED)
General Electric Company 40,000 $ 2,255,000
General Instrument Corporation 20,000 765,000
Newbridge Networks Corporation 8,000 282,000
-----------
5,236,390
ENERGY (6.0%)
Burlington Resources, Inc. 15,000 553,125
El Paso Natural Gas Company 25,000 712,500
Phillips Petroleum Company 25,000 834,375
Royal Dutch Petroleum Company 12,000 1,462,500
-----------
3,562,500
FINANCIAL SERVICES (8.9%)
Capital One Financial 20,000 390,000
Federal National Mortgage Assn. 15,000 1,417,500
Green Tree Financial Corporation 30,000 1,331,250
MGIC Investment Corporation 20,000 937,500
Reuters Holding PLC 10,000 500,630
The Travelers Group, Inc. 15,000 656,250
-----------
5,233,130
FOOD AND KINDRED PRODUCTS (6.0%)
Archer-Daniel-Midland Company 24,805 461,993
CPC International 20,000 1,235,000
ConAgra, Inc. 12,000 418,500
Sara Lee Corporation 50,000 1,425,000
-----------
3,540,493
HOTELS AND OTHER LODGING PLACES (1.2%)
Marriott International, Inc. 20,000 717,500
HOUSEHOLD PRODUCTS (8.5%)
The Gillette Company 40,000 1,780,000
Procter & Gamble Company 30,000 2,156,250
Rubbermaid, Inc. 40,000 1,110,000
-----------
5,046,250
</TABLE>
5
<PAGE>
State Bond Common Stock Fund
Schedule of Investments (Unaudited) (continued)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
---------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
INSURANCE CARRIERS (5.9%)
American International Group, Inc. 22,500 $ 2,565,000
MBIA Inc. 8,000 532,000
Providian Corporation 10,000 362,500
-----------
3,459,500
LEISURE TIME (4.6%)
Carnival Corporation 10,000 232,500
Tel Communications Inc. 15,000 351,570
Time Warner, Inc. 25,000 1,031,250
Walt Disney Company 20,000 1,112,500
-----------
2,727,820
MEDICAL PRODUCTS (4.7%)
Abbott Laboratories 30,000 1,215,000
Medtronic, Inc. 20,000 1,542,500
-----------
2,757,500
RETAIL (2.9%)
Dayton Hudson Corporation 11,000 789,250
Fingerhut Companies, Inc. 20,000 312,500
Home Depot, Inc. 10,000 405,000
Wal-Mart Stores, Inc. 8,000 214,000
-----------
1,720,750
OFFICE EQUIPMENT AND TECHNOLOGY (4.8%)
Autodesk, Inc. 8,000 342,000
EMC Corporation 10,000 242,500
Microsoft Corporation 12,000 1,085,256
Oracle Systems Corporation (a) 30,000 1,156,890
-----------
2,826,646
PRINTING AND PUBLISHING (0.5%)
Tribune Company 5,000 306,875
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES OR
PRINCIPAL
AMOUNT VALUE
---------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
SERVICES (4.7%)
CUC International Inc. (a) 10,000 $ 421,250
Columbia HCA Healthcare Corporation 15,000 648,750
First Data Corporation 15,000 853,125
WMX Technologies Inc. 30,000 851,250
-----------
2,774,375
TOBACCO PRODUCTS (2.5%)
Philip Morris Companies Inc. 20,000 1,487,500
TRANSPORTATION (0.5%)
Goodyear Tire & Rubber Company 8,000 329,000
-----------
TOTAL COMMON STOCKS
(Cost $27,708,245) 54,258,138
SHORT-TERM SECURITIES (8.1%)
American Express Credit, 5.80%, 07/03/95 $1,350,000 1,348,913
Ford Motor Credit Company, 5.93%, 07/03/95 2,300,000 2,297,347
Sears Roebuck Acceptance Corporation, 6.00%,
07/07/95 1,140,000 1,138,670
-----------
TOTAL SHORT-TERM SECURITIES
(Cost $4,784,930) 4,784,930
-----------
TOTAL INVESTMENTS (100.0%)
(Cost $32,493,175)(b) $59,043,068
===========
</TABLE>
(a) Non-income producing.
(b) Also represents cost for federal income tax purposes.
See accompanying notes.
7
<PAGE>
State Bond Common Stock Fund
Statement of Assets and Liabilities
June 30, 1995 (Unaudited)
<TABLE>
<S> <C>
ASSETS
Investment in securities, at value (cost $32,493,175)
(Note 1)--See accompanying schedule $59,043,068
Cash 17,277
Dividends, interest and other receivables 87,036
-----------
TOTAL ASSETS 59,147,381
LIABILITIES
Payable for capital shares repurchased 26,884
Payable to affiliates 51,424
Other payables and accrued expenses 708
-----------
TOTAL LIABILITIES 79,016
-----------
NET ASSETS $59,068,365
===========
Net Assets consist of:
Paid-in capital $31,586,124
Undistributed net investment loss (14,401)
Undistributed net realized gain on investments 946,749
Net unrealized appreciation on investment securities 26,549,893
-----------
NET ASSETS, for 6,669,845 shares outstanding $59,068,365
===========
NET ASSET VALUE and redemption price per share $ 8.86
===========
Maximum offering per share (includes maximum sales charge of
4.75%--reduced on purchases of $50,000 or more) $ 9.30
===========
</TABLE>
See accompanying notes.
8
<PAGE>
State Bond Common Stock Fund
Statement of Operations
Six Months Ended June 30, 1995 (Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends $ 445,895
Interest 139,214
----------
Total investment income 585,109
EXPENSES (NOTE 2)
Investment advisory and management fees 180,923
12b-1 plan fees 68,600
Transfer agent fees 33,000
Shareholders' reports 14,000
Registration fees 13,154
Professional fees 8,700
Custodian fees 5,900
Directors' fees and expenses 2,600
Other expenses 6,046
----------
Total expenses 332,923
----------
Net investment income 252,186
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (Note 1)
Net realized gain on investments 946,749
Change in unrealized appreciation on investment securities 6,948,743
----------
Net realized and unrealized gain on investments 7,895,492
----------
Net increase in net assets resulting from operations $8,147,678
==========
</TABLE>
See accompanying notes.
9
<PAGE>
State Bond Common Stock Fund
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED
1995 DECEMBER 31,
(UNAUDITED) 1994
-----------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 252,186 $ 512,647
Net realized gain on investments 946,749 3,051,234
Net unrealized appreciation (depreciation) 6,948,743 (974,788)
----------------------------
Net increase in net assets resulting from
operations 8,147,678 2,589,093
Distributions to shareholders from:
Net investment income (266,162) (509,988)
Net realized gain - (3,054,183)
----------------------------
Total distributions to shareholders (266,162) (3,564,171)
Capital share transactions:
Proceeds from sales of shares 845,411 1,409,259
Proceeds from reinvested dividends 252,437 3,419,979
Net proceeds from 1,135,278 shares issued in
exchange for net assets of State Bond Progress
Fund (Note 5) - 8,605,437
Cost of shares redeemed (2,614,354) (4,248,413)
----------------------------
Net increase (decrease) in net assets
resulting from share transactions (1,516,506) 9,186,262
----------------------------
Total increase in net assets 6,365,010 8,211,184
NET ASSETS
Beginning of period 52,703,355 44,492,171
----------------------------
End of period (including excess undistributed
net investment loss of $14,401 and $425,
respectively) $59,068,365 $52,703,355
============================
OTHER INFORMATION
Shares:
Sold 103,193 177,547
Issued through reinvestment of dividends 28,237 444,355
Net proceeds from State Bond Progress Fund - 1,135,278
Redeemed (314,614) (531,348)
----------------------------
Net increase (decrease) (183,184) 1,225,832
============================
</TABLE>
See accompanying notes.
10
<PAGE>
State Bond Common Stock Fund
Financial Highlights
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
----------- --------------------------------------------------------
1995 1994 1993 1992 1991 1990
----------- --------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning
of period $ 7.69 $ 7.91 $ 8.71 $ 9.23 $ 7.34 $ 8.10
Income from investment operations:
Net investment income .04 .09 .09 .10 .12 .16
Net realized and unrealized gain
(loss) on investments 1.17 .25 .07 (.03) 2.31 (.08)
--------------------------------------------------------------------
Total from investment operations 1.21 .34 .16 .07 2.43 .08
Less distributions:
From net investment income (.04) (.09) (.09) (.10) (.12) (.16)
From net realized gain - (.47) (.87) (.49) (.42) (.68)
--------------------------------------------------------------------
Total distributions (.04) (0.56) (.96) (.59) (.54) (.84)
--------------------------------------------------------------------
Net asset value, end of period $ 8.86 $ 7.69 $ 7.91 $ 8.71 $ 9.23 $ 7.34
=====================================================================
TOTAL RETURN (A) 15.73% 4.32% 1.83% 0.74% 33.45% 0.92%
RATIOS AND SUPPLEMENTAL
DATA (B)
Net assets, end of period (in thousands) $59,068 $52,703 $44,492 $46,331 $46,882 $36,554
Ratio of expenses to average net assets 1.18% 1.22% 1.22% 1.21% 1.22% 1.19%
Ratio of net investment income to
average net assets 0.90% 1.06% 1.05% 1.10% 1.45% 1.97%
Portfolio turnover rate 2% 16% 26% 8% 9% 9%
</TABLE>
(A) Total returns do not consider the effects of the one time sales charge and
for periods of less than one year are not annualized.
(B) Data expressed as a percentage are annualized as appropriate.
11
<PAGE>
State Bond Common Stock Fund
Notes to Financial Statements
June 30, 1995 (Unaudited)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The State Bond Common Stock Fund (the "Fund") is the only investment portfolio
of State Bond Equity Funds, Inc. The Fund is registered under the Investment
Company Act of 1940, as amended, as a diversified open-end management investment
company. The Fund seeks to produce long-term capital appreciation by investing
primarily in common stocks.
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 are contained in the Funds 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
Securities listed on national securities exchanges are valued at closing market
quotations at the end of each day. Unlisted securities are valued at the mean
between bid and asked prices as quoted in the over-the-counter market. Short-
term securities are valued at cost plus accrued interest, which approximates
market value. Security transactions are accounted for on the date the order to
buy or sell is executed, and dividends declared but not received are accrued on
the ex-dividend date. Realized gains or losses from security transactions are
determined on the basis of specific identification.
12
<PAGE>
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
At June 30, 1995, gross unrealized appreciation of investments aggregated
$27,199,526 and unrealized depreciation of investments aggregated $649,633 for
tax purposes.
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 tax is required.
DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders from net investment income, if any, are paid semi-
annually. The Fund distributes substantially all of its taxable net realized
gain on investment securities annually. Dividends and distributions are recorded
on the ex-dividend date.
2. INVESTMENT ADVISORY AGREEMENT AND PAYMENTS TO RELATED PARTIES
ARM Capital Advisors is the Funds investment adviser. The investment advisory
fee is computed at the annual rate of .65% 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. ARM Capital
Advisors has voluntarily agreed to reimburse the Fund for expenses (including
the advisory fee but excluding taxes) in excess of 1.5% of the first $30,000,000
of the average daily net assets of the Fund and 1.0% of the average daily net
assets in excess of $30,000,000. No such reimbursements were required during the
six months ended June 30, 1995.
Fees paid to SBM Financial Services for underwriting services in connection with
sales of the Funds capital shares aggregated $25,421 for the six months 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.
13
<PAGE>
State Bond Common Stock Fund
Notes to Financial Statements (continued)
2. INVESTMENT ADVISORY AGREEMENTS AND PAYMENTS TO RELATED PARTIES (CONTINUED)
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 June 30, 1995, amounted to $581,350 and
$1,675,473, 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.
5. ACQUISITION OF STATE BOND PROGRESS FUND
On June 24, 1994, the State Bond Common Stock Fund acquired all the net assets
of the State Bond Progress Fund pursuant to a plan of reorganization approved by
the State Bond Progress Fund shareholders on June 24, 1994. The acquisition was
accomplished by a tax-free exchange of 1,135,278 shares of the State Bond Common
Stock Fund (valued at $8,605,437) for the 759,974 shares of the State Bond
Progress Fund outstanding on June 24, 1994. The State Bond Progress Funds net
assets at that date ($8,605,437), including $3,146,451 of unrealized
appreciation on investment securities, were combined with those of the State
Bond Common Stock Fund. The aggregate net assets of the State Bond Common Stock
Fund and the State Bond Progress Fund immediately before the acquisition were
$41,858,580 and $8,605,437, respectively.
14
<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
Arthur J. Gartland
Co-founder and President, Benedetto, Gartland & Greene, 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.
President, State Bond and Mortgage Life Insurance Company
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.
8400 Normandale Lake Blvd., Suite 1150
Minneapolis, Minnesota 55437-3807
612/835/0097
CUSTODIAN
First Bank National Association
St. Paul, Minnesota
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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.
