<PAGE>
STATE BOND
Common Stock Fund
State Bond
Common Stock
Fund
[LOGO]
Annual Report
December 31, 1995
<PAGE>
STATE BOND COMMON STOCK FUND
JANUARY 12, 1996
TO THE SHAREHOLDERS:
The State Bond Common Stock Fund (the "Fund") had total net assets at December
31, 1995 of $63.8 million. Investment decisions during the year to sell selected
securities from the Fund's portfolio resulted in net realized gains for the
Fund. Continuing the Fund's long-standing investment record, a long-term capital
gain distribution totaling 32 cents per share was declared and paid on December
29, 1995, along with a 4 cents per share dividend from net investment income.
This brought total dividends paid from net investment income for the year to 8
cents per share.
The net asset value per share closed the year at $9.45 compared to $7.69 on
December 31, 1994. On a total return basis, which includes the reinvestment of
dividends and capital gains, the Fund for the year produced a 28.14% increase in
value.
The Fund has equity investments in 64 companies representing 19 different
industries. The emphasis of these equity investments is in electronic equipment,
financial services, and household product industries. The Fund's five largest
equity holdings are American International Group, Inc., General Electric
Company, Procter & Gamble Company, Medtronic, Inc., and the Gillette Company. Of
the total investment securities, equities represent 91.2% with the remaining
invested in commercial paper.
Economic conditions of moderate growth and inflation, low unemployment,
declining interest rates, and very strong corporate earnings produced an
excellent year for the equity markets. We now are faced with the challenge of a
new year. Given current economic levels, increased equity valuations, and
expected moderating corporate profits, a greater emphasis will be placed on
stock selection. Ultimately the impasse that exists in Washington on the budget
deficit plan will be resolved. This could allow the Federal Reserve to continue
its moderating policy on interest rates. Lower rates and a further potential
stimulus from a capital gains tax cut should be beneficial to stock prices.
While stock markets do not grow indefinitely, and a correction could come at any
time, stock prices in 1996 appear to have the potential for higher levels.
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>
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 (inception date), to
December 31, 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.
[GRAPH APPEARS HERE]
All Dividends & Distributions from Value of
Date Distributions Net Realized Gain Original Shares
---- --------------- ------------------ ---------------
5/22/62 $ 9,523.81 $ 9,523.81 $ 9,523.81
12/31/62 10,866.67 10,819.05 10,819.05
12/31/63 13,152.61 12,935.94 12,742.86
12/31/64 15,441.41 15,027.71 14,514.29
12/31/65 18,637.87 17,949.00 16,800.00
12/31/66 18,409.74 17,527.66 15,847.62
12/31/67 24,533.18 23,136.01 20,190.48
12/31/68 28,923.25 27,050.55 21,523.81
12/31/69 26,943.11 24,858.32 19,200.00
12/31/70 25,719.03 23,181.37 17,904.76
12/31/71 30,859.22 27,423.07 21,180.95
12/31/72 34,781.93 30,674.76 22,895.24
12/31/73 27,528.31 23,326.92 16,914.29
12/31/74 18,753.89 15,983.26 11,276.19
12/31/75 25,087.16 20,951.03 14,780.95
12/31/76 30,598.02 25,108.84 17,714.29
12/31/77 27,104.35 21,707.00 15,314.29
12/31/78 29,815.46 23,110.93 16,304.76
12/31/79 35,294.97 26,674.77 18,819.05
12/31/80 45,388.45 33,370.46 23,542.86
12/31/81 42,414.96 29,939.74 20,685.72
12/31/82 50,446.94 34,289.75 21,638.10
12/31/83 53,962.94 35,782.14 22,171.43
12/31/84 50,749.01 32,978.19 19,390.48
12/31/85 65,334.86 41,669.16 24,000.00
12/31/86 74,443.51 46,816.84 24,190.48
12/31/87 79,028.14 48,863.69 23,276.19
12/31/88 86,822.51 52,706.52 23,733.33
12/31/89 123,674.40 73,672.93 30,857.14
12/31/90 124,816.82 72,944.62 27,961.91
12/31/91 166,569.01 96,010.03 35,161.91
12/31/92 167,792.73 95,652.77 33,180.95
12/31/93 170,866.80 96,354.86 30,133.33
12/31/94 178,236.74 99,435.50 29,295.24
12/31/95 228,396.00 126,372.00 36,000.00
- -Total value assuming reinvestment of all dividends and distributions--$228,396
- -Total value assuming reinvestment of distributions from net realized gain--
$126,372 (an additional $22,214 received in cash dividends)
- -Value of original shares--$36,000
The chart above and the table on the following 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
DECEMBER 31, 1995, WAS 22.11%, 11.74%, AND 12.79%, RESPECTIVELY. The performance
data quoted represents only past performances which is not predictive of future
performance. 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 $ - $.013 $ - $ 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 9.45 .323 .077 4,179.14 995.65
----------------------------
$65,805.64 $22,214.47
============================
</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 (inception date).
*** This amount represents each years net realized gain distribution assuming
all previous capital gain distributions were reinvested.
If all dividends and distributions had been taken in cash, the value of the
account on December 31, 1995, would have been $36,000. A total of $12,532 in net
investment income and $31,699 in net realized gains would have been paid to the
shareholders.
3
<PAGE>
State Bond Common Stock Fund
Schedule of Investments
December 31, 1995
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- -----------
<S> <C> <C>
COMMON STOCKS (91.2%)
CHEMICALS AND ALLIED PRODUCTS (3.3%)
International Flavors and Fragrances, Inc. 21,000 $ 1,008,000
Morton International, Inc. 30,000 1,076,250
-----------
2,084,250
COMMUNICATIONS (5.4%)
Lin Television Corporation (a) 7,000 210,000
MCI Communications Corporation 40,000 1,047,500
Nextel Communications, Inc. (a) 20,000 296,250
Sprint Corporation 20,550 819,431
Telefonos de Mexico, S.A. 10,000 318,750
Telephone & Data Systems, Inc. 10,000 395,000
Vodafone Group 10,000 352,500
-----------
3,439,431
CONSUMER PRODUCTS (4.0%)
American Greetings Corporation 20,000 553,750
Anheuser-Busch Companies, Inc. 30,000 2,006,250
-----------
2,560,000
DEPOSITORY INSTITUTIONS (2.0%)
Mellon Bank Corporation 15,000 806,250
Signet Bank Corporation 20,000 475,000
-----------
1,281,250
DRUGS AND PHARMACEUTICALS (3.7%)
Bristol-Meyers Squibb Company 15,000 1,288,125
Schering-Plough Corporation 20,000 1,095,000
-----------
2,383,125
ELECTRONIC AND OTHER ELECTRICAL EQUIPMENT (11.3%)
Arrow Electronics, Inc. (a) 10,000 431,250
Cisco Systems, Inc. (a) 10,000 746,875
DSC Communications Corporation (a) 20,000 740,000
General Electric Company 40,000 2,880,000
General Instrument Corporation (a) 20,000 467,500
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- -----------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
ELECTRONIC AND OTHER ELECTRICAL EQUIPMENT (11.3%)
(CONTINUED)
Hewlett-Packard Company 6,000 502,500
Motorola, Inc. 20,000 1,140,000
Newbridge Networks Corporation (a) 8,000 331,000
-----------
7,239,125
ENERGY (6.0%)
Burlington Resources, Inc. 15,000 588,750
El Paso Natural Gas Company 25,000 709,375
Phillips Petroleum Company 25,000 853,125
Royal Dutch Petroleum Company 12,000 1,693,500
-----------
3,844,750
FINANCIAL SERVICES (10.2%)
Capital One Financial 20,000 477,500
Federal National Mortgage Association 15,000 1,861,875
Green Tree Financial Corporation 60,000 1,582,500
MGIC Investment Corporation 20,000 1,085,000
Reuters Holding PLC 10,000 553,125
The Travelers Group, Inc. 15,000 943,125
-----------
6,503,125
FOOD AND KINDRED PRODUCTS (6.2%)
Archer-Daniels-Midland Company 26,045 468,810
CPC International 20,000 1,372,500
ConAgra, Inc. 12,000 495,000
Sara Lee Corporation 50,000 1,593,750
-----------
3,930,060
HOTELS (1.2%)
Marriott International, Inc. 20,000 765,000
HOUSEHOLD PRODUCTS (8.7%)
The Gillette Company 40,000 2,085,000
Procter & Gamble Company 30,000 2,490,000
Rubbermaid, Inc. 40,000 1,020,000
-----------
5,595,000
</TABLE>
5
<PAGE>
State Bond Common Stock Fund
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- -----------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
INSURANCE CARRIERS (6.5%)
American International Group, Inc. 33,750 $ 3,121,875
MBIA Inc. 8,000 600,000
Providian Corporation 10,000 407,500
-----------
4,129,375
LEISURE TIME (4.2%)
Carnival Corporation 10,000 243,750
Tele Communications Inc. 15,000 299,063
Time Warner, Inc. 25,000 946,875
Walt Disney Company 20,000 1,180,000
-----------
2,669,688
MEDICAL PRODUCTS (5.4%)
Abbott Laboratories 30,000 1,252,500
Medtronic, Inc. 40,000 2,235,000
-----------
3,487,500
MISCELLANEOUS RETAIL (2.7%)
Dayton Hudson Corporation 11,000 825,000
Fingerhut Companies, Inc. 20,000 277,500
Home Depot, Inc. 10,000 478,766
Wal-Mart Stores, Inc. 8,000 179,000
-----------
1,760,266
OFFICE EQUIPMENT AND TECHNOLOGY (4.3%)
Autodesk, Inc. 8,000 274,000
EMC Corporation (a) 10,000 153,750
Microsoft Corporation (a) 12,000 1,053,750
Oracle Systems Corporation (a) 30,000 1,271,250
-----------
2,752,750
PRINTING AND PUBLISHING (0.5%)
Tribune Company 5,000 305,625
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES OR
PRINCIPAL
AMOUNT VALUE
--------- -----------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
SERVICES (5.0%)
CUC International Inc. (a) 15,000 $ 511,875
Columbia HCA Healthcare Corporation 15,000 761,250
First Data Corporation 15,000 1,003,125
WMX Technologies Inc. 30,000 896,250
-----------
3,172,500
TRANSPORTATION (0.6%)
Goodyear Tire & Rubber Company 8,000 363,000
-----------
TOTAL COMMON STOCK
(Cost $26,844,522) 58,265,820
SHORT-TERM SECURITIES (8.8%)
American Express Credit Corporation, 5.60% due
01/03/96 $1,725,000 1,724,464
Ford Motor Credit Company, 5.92% due 01/05/96 1,500,000 1,499,013
Sears Roebuck Acceptance Corporation, 5.65% due
01/09/96 2,400,000 2,396,986
-----------
TOTAL SHORT-TERM SECURITIES
(Cost $5,620,463) 5,620,463
-----------
TOTAL INVESTMENTS (100.0%)
(Cost $32,464,985)(b) $63,886,283
===========
</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
December 31, 1995
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Investment in securities, at value (cost $32,464,985)
(Note 1)-See accompanying schedule $63,886,283
Dividends receivable 75,031
-----------
TOTAL ASSETS 63,961,314
LIABILITIES
Cash overdraft 56,229
Payable to affiliates 58,338
Other payables and accrued expenses 5,457
-----------
TOTAL LIABILITIES 120,024
-----------
NET ASSETS $63,841,290
===========
Net Assets consist of:
Paid-in capital $32,415,157
Undistributed net investment income 4,835
Net unrealized appreciation on investment securities 31,421,298
-----------
NET ASSETS, for 6,756,913 shares outstanding $63,841,290
===========
NET ASSET VALUE and redemption price per share $ 9.45
===========
Maximum offering per share (includes maximum sales
charge of 4.75%--reduced on purchases of $50,000
or more) $ 9.92
===========
</TABLE>
See accompanying notes.
8
<PAGE>
State Bond Common Stock Fund
Statement of Operations
Year Ended December 31, 1995
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME
Dividends $ 897,942
Interest 311,032
-----------
Total investment income 1,208,974
EXPENSES (Note 2)
Investment advisory and management fees 384,661
Rule 12b-1 plan fees 146,996
Transfer agent fees 76,928
Shareholders' reports 10,389
Professional fees 26,607
Custodian fees 17,842
Other expenses 33,162
-----------
Total expenses 696,585
-----------
Net investment income 512,389
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (Note 1)
Net realized gain on investments 2,106,098
Change in unrealized appreciation on investment
securities 11,820,148
-----------
Net realized and unrealized gain on investments 13,926,246
-----------
Net increase in net assets resulting from operations $14,438,635
===========
</TABLE>
See accompanying notes.
9
<PAGE>
State Bond Common Stock Fund
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994
--------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 512,389 $ 512,647
Net realized gain on investments 2,106,098 3,051,234
Net unrealized appreciation (depreciation) 11,820,148 (974,788)
--------------------------
Net increase in net assets resulting from operations 14,438,635 2,589,093
Distributions to shareholders from:
Net investment income (507,344) (509,988)
Net realized gain (2,106,757) (3,054,183)
--------------------------
Total distributions to shareholders (2,614,101) (3,564,171)
Capital share transactions:
Proceeds from sales of shares 1,624,108 1,409,259
Proceeds from reinvested dividends 2,521,416 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 (4,832,123) (4,248,413)
--------------------------
Net increase (decrease) in net assets resulting from
share transactions (686,599) 9,186,262
--------------------------
Total increase in net assets 11,137,935 8,211,184
NET ASSETS
Beginning of period 52,703,355 44,492,171
--------------------------
End of period (including undistributed net investment
income of $4,835 and overdistributed net investment
income of $425, respectively) $63,841,290 $52,703,355
==========================
OTHER INFORMATION
Shares:
Sold 186,971 177,547
Issued through reinvestment of dividends 266,744 444,355
Net shares from State Bond Progress Fund acquisition - 1,135,278
Redeemed (549,831) (531,348)
--------------------------
Net increase (decrease) (96,116) 1,225,832
==========================
</TABLE>
See accompanying notes.
10
<PAGE>
State Bond Common Stock Fund
Financial Highlights
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1995 1994 1993 1992 1991
---------------------------------------------------
SELECTED PER-SHARE DATA
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $ 7.69 $ 7.91 $ 8.71 $ 9.23 $ 7.34
Income from investment
operations:
Net investment income .08 .09 .09 .10 .12
Net realized and unrealized
gain (loss) on investments 2.08 .25 .07 (.03) 2.31
---------------------------------------------------
Total from investment
operations 2.16 .34 .16 .07 2.43
Less distributions:
From net investment income (.08) (.09) (.09) (.10) (.12)
From net realized gain (.32) (.47) (.87) (.49) (.42)
---------------------------------------------------
Total distributions (.40) (.56) (.96) (.59) (.54)
---------------------------------------------------
Net asset value, end of period $ 9.45 $ 7.69 $ 7.91 $ 8.71 $ 9.23
===================================================
TOTAL RETURN* 28.14% 4.32% 1.83% 0.74% 33.45%
RATIOS AND SUPPLEMENTAL
DATA
Net assets, end of period (in
thousands) $63,841 $52,703 $44,492 $46,331 $46,882
Ratio of expenses to average net
assets 1.18% 1.22% 1.22% 1.21% 1.22%
Ratio of net investment income
to average net assets .87% 1.06% 1.05% 1.10% 1.45%
Portfolio turnover rate 2% 16%** 26% 8% 9%
</TABLE>
* Total returns do not consider the effects of the one time sales charge.
** Does not include the effects of the acquisition of the State Bond Progress
Fund (Note 5).
11
<PAGE>
State Bond Common Stock Fund
Notes to Financial Statements
December 31, 1995
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 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
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 December 31, 1995, net unrealized appreciation on a Federal income tax basis
was $31,421,298, which is comprised of unrealized appreciation of $32,119,813
and unrealized depreciation of $698,515.
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 taxes is required.
Dividends paid by the Fund from net investment income are taxable as ordinary
income on the shareholder's tax return. The portion of the ordinary income
dividends (including net short-term capital gains) attributable to the fiscal
year ended December 31, 1995, that qualified for the dividends received
deduction for corporate shareholders was 100%. The Fund has designated
$2,106,098 as a capital gain dividend for the purpose of the dividends paid
deduction.
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 Fund's investment adviser. The investment advisory
fee is computed at the annual rate of .65% on the first $100 million of average
daily net assets of the Fund, .60% on the next $100 million of average daily net
assets of the Fund and .55% of the average daily net assets of the Fund in
excess of $200 million. 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 million of the average daily net assets of the Fund and 1.0% of the average
daily net assets in excess of $30 million. No such reimbursements were required
during the year ended December 31, 1995.
13
<PAGE>
State Bond Common Stock Fund
Notes to Financial Statements (continued)
2. INVESTMENT ADVISORY AGREEMENTS AND PAYMENTS TO RELATED PARTIES (CONTINUED)
Fees paid to SBM Financial Services for underwriting services in connection with
sales of the Fund's capital shares aggregated $47,941 for the fiscal year 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 fiscal year ended December 31, 1995, amounted to
$1,042,989 and $4,160,414, respectively.
4. CAPITAL SHARES
At December 31, 1995, the Fund had authority to issue ten billion shares of
common stock, with a par value of $.00001 each.
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 Fund's 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>
Report of Independent Auditors
The Board of Directors and Shareholders
State Bond Common Stock Fund
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments of the State Bond Common Stock Fund (the "Fund") as
of December 31, 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 December 31, 1994 and financial highlights for
each of the four years in the period ended December 31, 1994 of the State Bond
Common Stock Fund were audited by other auditors whose report dated January 23,
1995 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 December 31, 1995, by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
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 Common Stock Fund at December 31, 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
January 26, 1996
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
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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
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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.
Catalog #001721
