<PAGE>
[LOGO OF STATE BOND]
STATE BOND
Common Stock
Fund
State Bond
Common Stock
Fund
Semi-Annual Report
June 30, 1996
<PAGE>
State Bond Common Stock Fund
JULY 12, 1996
TO THE SHAREHOLDERS:
For the semi-annual reporting period ended June 30, 1996, the State Bond Common
Stock Fund (the "Fund") had total net assets of $69.8 million. The net asset
value per share at June 30, 1996 was $10.51, which compares to $9.45 at December
31, 1995. Additionally, the Fund declared and paid a dividend of 2.5 cents per
share in June of 1996.
Investment decisions to sell selected securities from the Fund's portfolio
resulted in a net realized gain of approximately 19 cents per share for the
first half of the year. The portfolio also reflects an unrealized gain on
investments in the portfolio of $37.2 million.
The investment portfolio, as shown in the "Schedule of Investments," shows that
as of June 30, 1996, the Fund held equity investments in 60 companies
representing 19 different industries. Equity securities represented 89.8%, and
short-term securities accounted for 10.2% of the Fund's portfolio. The emphasis
of these equity investments is in the electronic equipment, financial services
and household product industries. The Fund's five largest equity holdings are
General Electric Company, American International Group, Inc., Procter & Gamble
Company, Gillette Company, and Anheuser Busch Companies, Inc.
The equity market continued to set new records during the six-month reporting
period ended June 30, 1996. Fueled by record levels of cash flows into equity
mutual funds and relatively good first quarter corporate earnings reports, stock
prices generally marched upward. The economy during this period showed signs of
strength, specifically with regard to the creation of new non-farm jobs and the
low level of unemployment. This resulted in increased interest rate yields at
June 30, 1996 at all maturity levels, with the 30-year Treasury bond yield
increasing almost a full percent from its December 31, 1995 level. While the
Federal Reserve did not increase short-term interest rates at its July 1996
meeting, the expectation by many economists is that an increase could come soon.
Currently, higher interest rates coupled with the market's concern for second
quarter earnings reports have produced slightly lower equity prices than those
reported on June 30, 1996. Given the current volatility in the equity market,
the level of cash reserves in the Fund has been increased. The investment focus
remains on strong companies which are expected to produce increased earnings and
which ultimately could have higher stock prices.
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
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 June
30, 1996. 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.
- --Total value assuming reinvestment of all dividends and distributions-$254,624
- --Total value assuming reinvestment of distributions from net realized gain-
$140,547 (an additional $22,549 received in cash dividends)
- --Value of original shares-$40,038
[CHART APPEARS HERE]
May 22, 1962 (Inception Date)
$ 9,523.81 $ 9,523.81 $ 9,523.81
$ 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 $ 23,326.92 $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
1995 $228,396.00 $126,372.00 $36,000.00
June 30, 1996 $254,624.00 $140,547.00 $40,038.00
Initial Asset
Value $9,525
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 dividends and distributions. 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 1996, WAS 17.60%, 11.52%, AND 11.64%, 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 (A) DISTRIBUTIONS ONLY (B)
--------------------------------------- --------------------------------
YEAR NET NET REALIZED
ENDED ASSET GAIN DIVIDEND NET REALIZED CASH
DECEMBER 31 VALUE DISTRIBUTION INCOME GAIN (C) 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
1996 (d) 10.51 - .025 - 334.32
--------------------------------
$65,805.64 $22,548.79
================================
</TABLE>
(a) Per share amounts reflect a 2-for-1 stock split on March 11, 1966.
(b) Based upon an investment of $10,000 on May 22, 1962 (inception date).
(c) This amount represents each year's net realized gain distribution, assuming
all previous capital gain distributions were reinvested.
(d) For the six months ended June 30, 1996.
If all dividends and distributions had been taken in cash, the value of the
account on June 30, 1996, would have been $40,038. A total of $12,627 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
June 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
---------------------------
COMMON STOCKS (89.8%)
<S> <C> <C>
CHEMICALS AND ALLIED PRODUCTS (3.0%)
International Flavors and Fragrances, Inc. 21,000 $ 1,000,125
Morton International, Inc. 30,000 1,117,500
-----------
2,117,625
COMMUNICATIONS (5.3%)
Lin Television Corporation (a) 7,000 250,250
MCI Communications Corporation 40,000 1,022,500
Nextel Communications, Inc. (a) 20,000 381,250
Sprint Corporation 20,550 863,100
Telefonos de Mexico, S.A. 10,000 335,000
Telephone & Data Systems, Inc. 10,000 450,000
Vodafone Group 10,000 368,750
-----------
3,670,850
CONSUMER PRODUCTS (4.0%)
American Greetings Corporation 20,000 546,250
Anheuser-Busch Companies, Inc. 30,000 2,250,000
-----------
2,796,250
DEPOSITORY INSTITUTIONS (1.9%)
Mellon Bank Corporation 15,000 855,000
Signet Bank Corporation 20,000 465,000
-----------
1,320,000
DRUGS AND PHARMACEUTICALS (3.7%)
Bristol-Myers Squibb Company 15,000 1,350,000
Schering-Plough Corporation 20,000 1,255,000
-----------
2,605,000
ELECTRONIC AND OTHER ELECTRIC EQUIPMENT (10.7%)
Arrow Electronics, Inc. (a) 10,000 431,250
Cisco Systems, Inc. (a) 20,000 1,133,750
General Electric Company 40,000 3,460,000
General Instrument Corporation (a) 20,000 577,500
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------------------------
COMMON STOCKS (CONTINUED)
<S> <C> <C>
ELECTRONIC AND OTHER ELECTRIC EQUIPMENT
(10.7%) (CONTINUED)
Hewlett-Packard Company 6,000 $ 597,750
Motorola, Inc. 20,000 1,257,500
----------
7,457,750
ENERGY (6.4%)
Burlington Resources, Inc. 15,000 645,000
El Paso Natural Gas Company 25,000 962,500
Phillips Petroleum Company 25,000 1,046,875
Royal Dutch Petroleum Company 12,000 1,845,000
----------
4,499,375
FINANCIAL SERVICES (10.5%)
Capital One Financial 20,000 570,000
Federal National Mortgage Association 60,000 2,010,000
Green Tree Financial Corporation 60,000 1,875,000
MGIC Investment Corporation 20,000 1,122,500
Reuters Holding PLC 10,000 724,375
The Travelers Group, Inc. 22,500 1,026,562
----------
7,328,437
FOOD AND KINDRED PRODUCTS (5.9%)
Archer-Daniels-Midland Company 26,045 498,111
CPC International 20,000 1,440,000
ConAgra, Inc. 12,000 544,500
Sara Lee Corporation 50,000 1,618,750
----------
4,101,361
HOTELS (1.5%)
Marriott International, Inc. 20,000 1,075,000
HOUSEHOLD PRODUCTS (7.5%)
The Gillette Company 40,000 2,495,000
Procter & Gamble Company 30,000 2,718,750
----------
5,213,750
</TABLE>
5
<PAGE>
State Bond Common Stocks Fund
Schedule of Investments (Unaudited) (continued)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
-------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
INSURANCE CARRIERS (6.3%)
American International Group, Inc. 33,750 $ 3,328,594
MBIA, Inc. 8,000 623,000
Providian Corporation 10,000 428,750
-----------
4,380,344
LEISURE TIME (4.0%)
Carnival Corporation 10,000 288,750
Tele Communications Inc. (a) 15,000 270,937
Time Warner, Inc. 25,000 981,250
Walt Disney Company 20,000 1,257,500
-----------
2,798,437
MEDICAL PRODUCTS (5.1%)
Abbott Laboratories 30,000 1,305,000
Medtronic, Inc. 40,000 2,240,000
-----------
3,545,000
MISCELLANEOUS RETAIL (2.7%)
Dayton Hudson Corporation 11,000 1,134,375
Home Depot, Inc. 10,000 540,000
Wal-Mart Stores, Inc. 8,000 203,000
-----------
1,877,375
OFFICE EQUIPMENT AND TECHNOLOGY (5.2%)
Autodesk, Inc. 8,000 238,500
EMC Corporation (a) 10,000 186,250
Microsoft Corporation (a) 12,000 1,440,750
Oracle Systems Corporation (a) 45,000 1,774,688
-----------
3,640,188
PRINTING AND PUBLISHING (0.5%)
Tribune Company 5,000 363,125
</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 $ 532,500
Columbia HCA Healthcare Corporation 15,000 800,625
First Data Corporation 15,000 1,194,375
WMX Technologies, Inc. 30,000 982,500
----------
3,510,000
TRANSPORTATION (0.6%)
Goodyear Tire & Rubber Company 8,000 386,000
----------
TOTAL COMMON STOCK (Cost $25,462,079) 62,685,867
SHORT-TERM SECURITIES (10.2%)
American Express Credit Corporation, 5.60%,
due 07/03/96 $2,450,000 2,448,552
Chevron Oil Financing, 5.32%, due 07/05/96 2,100,000 2,099,376
Ford Motor Credit Company, 5.25%, due 07/02/96 2,050,000 2,049,701
Ford Motor Credit Company, 5.40%, due 07/09/96 560,000 559,328
----------
TOTAL SHORT-TERM SECURITIES
(Cost $7,156,957) 7,156,957
----------
TOTAL INVESTMENTS (100%)
(Cost $32,619,036) (b) $69,842,824
==========
</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, 1996 (Unaudited)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Investment in securities, at value (cost $32,619,036)
(Note 1) - See accompanying schedule $69,842,824
Dividends, interest and other receivables 52,809
-----------
TOTAL ASSETS 69,895,633
LIABILITIES
Payable to affiliates 51,264
Other payables and accrued expenses 36,560
-----------
TOTAL LIABILITIES 87,824
-----------
NET ASSETS $69,807,809
===========
Net Assets consist of:
Paid-in capital $31,247,477
Undistributed net investment income 41,605
Accumulated undistributed net realized gain from investments 1,294,939
Net unrealized appreciation on investments 37,223,788
-----------
NET ASSETS, for 6,641,045 shares outstanding $69,807,809
===========
NET ASSET VALUE and redemption price per share $ 10.51
===========
Maximum offering price per share (includes maximum sales charge
of 4.75% - reduced on purchases of $50,000 or more) $ 11.03
===========
</TABLE>
See accompanying notes.
8
<PAGE>
State Bond Common Stock Fund
Statement of Operations
Six Months Ended June 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
INVESTMENT INCOME
<S> <C>
Dividends $ 439,481
Interest 168,622
----------
Total investment income 608,103
EXPENSES
Investment advisory and management fees 217,199
Rule 12b-1 plan fees 83,538
Transfer agent fees 32,290
Printing expenses 20,548
Professional fees 17,044
Custodian fees 16,202
Other expenses 18,731
----------
Total expenses 405,552
----------
Net investment income 202,551
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments 1,294,939
Change in unrealized appreciation on investments 5,802,490
----------
Net gain on investments 7,097,429
----------
Net increase in net assets resulting from operations $7,299,980
==========
</TABLE>
See accompanying notes.
9
<PAGE>
State Bond Common Stock Fund
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1996 DECEMBER 31,
(UNAUDITED) 1995
--------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 202,551 $ 512,389
Net realized gain on investments 1,294,939 2,106,098
Change in net unrealized appreciation 5,802,490 11,820,148
--------------------------------
Net increase in net assets resulting from
operations 7,299,980 14,438,635
Distributions to shareholders from:
Net investment income (165,781) (507,344)
Net realized gain - (2,106,757)
--------------------------------
Total distributions to shareholders (165,781) (2,614,101)
Capital share transactions:
Proceeds from sales of shares 1,203,400 1,624,108
Proceeds from reinvested distributions 163,699 2,521,416
Cost of shares redeemed (2,534,779) (4,832,123)
--------------------------------
Net decrease in net assets resulting from
share transactions (1,167,680) (686,599)
--------------------------------
Total increase in net assets 5,966,519 11,137,935
NET ASSETS
Beginning of period 63,841,290 52,703,355
--------------------------------
End of period (including undistributed net
investment income of $41,605 and $4,835,
respectively) $69,807,809 $63,841,290
================================
OTHER INFORMATION
Shares:
Sold 119,930 186,971
Issued through reinvestment of distributions 15,633 266,744
Redeemed (251,431) (549,831)
--------------------------------
Net decrease (115,868) (96,116)
================================
</TABLE>
See accompanying notes.
10
<PAGE>
State Bond Common Stock Fund
Financial Highlights
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30,
1996 YEAR ENDED DECEMBER 31,
------------- -------------------------------------------------------
(UNAUDITED) 1995 1994 1993 1992 1991
------------- -------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value,
beginning of period $ 9.45 $ 7.69 $ 7.91 $ 8.71 $ 9.23 $ 7.34
Income from investment
operations:
Net investment income .03 .08 .09 .09 .10 .12
Net realized and un-
realized gain (loss)
on investments 1.06 2.08 .25 .07 (.03) 2.31
------------- -------------------------------------------------------
Total from investment
operations 1.09 2.16 .34 .16 .07 2.43
Less distributions:
From net investment
income (.03) (.08) (.09) (.09) (.10) (.12)
From net realized gain - (.32) (.47) (.87) (.49) (.42)
------------- -------------------------------------------------------
Total distributions (.03) (.40) (.56) (.96) (.59) (.54)
------------- -------------------------------------------------------
Net asset value, end of
period $ 10.51 $ 9.45 $ 7.69 $ 7.91 $ 8.71 $ 9.23
============= =======================================================
TOTAL RETURN (A) 11.48% 28.14% 4.32% 1.83% 0.74% 33.45%
RATIOS AND SUPPLEMENTAL
DATA (B)
Net assets, end of period
(in thousands) $69,808 $63,841 $52,703 $44,492 $46,331 $46,882
Ratio of expenses to
average net assets 1.21% 1.18% 1.22% 1.22% 1.21% 1.22%
Ratio of net investment
income to average net
assets 0.61% 0.87% 1.06% 1.05% 1.10% 1.45%
Portfolio turnover rate - 2% 16%(C) 26% 8% 9%
Average commission paid
per equity share traded $ .0757(D)
</TABLE>
(A) Total returns do not consider the effects of the onetime sales charge and
for periods of less than one year are not annualized.
(B) Data expressed as a percentage are annualized as appropriate.
(C) Does not include the effects of the acquisition of the State Bond Progress
Fund.
(D) Disclosure required for years beginning after September 1, 1995.
11
<PAGE>
State Bond Common Stock Fund
Notes to Financial Statements
June 30, 1996 (Unaudited)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
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.
ARM Financial Group, Inc. ("ARM") completed the acquisition of substantially all
of the assets and business operations of SBM Company ("SBM") on June 14, 1995.
As part of this acquisition, ARM Capital Advisors, Inc. ("ARM Capital
Advisors"), a subsidiary of ARM, assumed the responsibilities of SBM as manager
of the Fund. The Investment Advisory and Management Agreement between the Fund
and ARM Capital Advisors contains the same material terms and conditions
(including the fees payable to ARM Capital Advisors) as were contained in the
Fund's prior Investment Advisory and Management Agreement with SBM.
As part of the acquisition, ARM acquired all of the issued and outstanding
common stock of SBM Financial Services, Inc. ("SBM Financial Services"), the
Fund's distributor. Effective February 1, 1996, ARM Transfer Agency, Inc. ("ARM
Transfer Agency") replaced SBM Financial Services as transfer agent for the
Fund. ARM Transfer Agency assumed SBM Financial Services' responsibility
pursuant to a transfer agency agreement with the Fund. ARM Transfer Agency is a
wholly-owned subsidiary of ARM.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles for investment companies.
INVESTMENTS IN SECURITIES
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
12
<PAGE>
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENTS IN SECURITIES (CONTINUED)
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.
At June 30, 1996, net unrealized appreciation on a federal income tax basis was
$37,223,788, which is comprised of unrealized appreciation of $37,484,690 and
unrealized depreciation of $260,902.
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
semiannually. 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 $30,000,000 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, 1996.
13
<PAGE>
State Bond Common Stock Fund
Notes to Financial Statements (continued)
2. INVESTMENT ADVISORY AGREEMENT 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 $39,971 for the six months ended
June 30, 1996. 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.
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 proceeds from sales of securities, excluding short-term investments,
during the six months ended June 30, 1996, amounted to $2,677,382. There were no
purchases of securities during the six months ended June 30, 1996.
4. CAPITAL SHARES
At June 30, 1996, the Fund had authority to issue ten billion shares of common
stock, each with a par value of $.00001.
14
<PAGE>
BOARD OF DIRECTORS
William B. Faulkner
President, William Faulkner & Associates, 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 #001901
