<PAGE>
SEMI-ANNUAL REPORT
STATE FARM MUNICIPAL BOND FUND, INC.
ONE STATE FARM PLAZA . BLOOMINGTON, ILLINOIS 61710
For Account Information and Shareowner
Services: (309) 766-2029
For Price Information ONLY:
1-800/447-0740
May 31, 1995
This report is not to be distributed unless preceded or accompanied by a
prospectus.
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
Dear Shareowner:
The sharp rise in market interest rates which occurred in 1994 has been
quickly reversed over the past six months. Yields on the municipal bonds held
by your Fund have dropped nearly 125 basis points (a basis point is .01%)
since November causing the values of the bonds to increase markedly.
Correspondingly, the net asset value of the Municipal Bond Fund rose to $8.39
from $7.88, a 6.5% increase.
Somewhat surprisingly, this decline in market interest rates has taken place
in a period where short-term interest rates which are established by the
Federal Reserve Board actually increased in February and have remained stable
since then. Market psychology has changed. Expectations of an abrupt slowdown
in U. S. economic growth have caused many market participants to conclude that
the Federal Reserve is likely done with its current phase of monetary
tightening, and its next move will be to reduce short-term interest rates.
Virtually all the economic data which has been released over the past couple
months or so indicates that a slowdown of some sort is now in progress. Nobody
really knows whether this is a pause in a long expansion or a pause which
presages a serious general decline. Since many of the telltale signs of
identifiable problems or excesses which typically accompany major declines in
the economy are not presently evident, we tend to believe the slowdown will be
moderate and short.
The present general economic environment suggests that the Federal Reserve
will not push short-term rates higher soon. However, interest rates
established in the market place may be another matter. Price movements in
modern capital markets tend to be much more sudden and anticipatory than in
the past. Consequently, changes in market yields tend to quickly reflect
expectations about the future direction of the economy, either upward or
downward.
Recent declines of interest rates on municipal securities have been
noticeably less than those experienced by their taxable counterparts. Demand
for municipal securities has been waning as talk of tax reform in Congress has
moved to the forefront. The flat tax is an idea which has been proposed by
Richard Armey, House Majority Leader. The desirability of tax exempt interest
income obviously is lessened if a flat tax is implemented at a significantly
reduced tax rate. Future interest rates, and consequently valuations, on
municipal bonds will be influenced by any changes in tax rates. Although
developments on this front are totally unpredictable, we doubt that the flat
tax will be enacted. However, if any radical change of federal income tax
rates become law, its full implementation is likely to be a few years down the
road. The present intermediate maturity structure of the Fund's portfolio
should permit you, as a shareowner, to cope reasonably well with radical tax
modifications if they are not put in place too rapidly.
The supply of municipal bonds available to investors is down this year
despite picking up a bit lately as lower interest rates have encouraged
issuers to float more refunding issues. New municipal bond volume for the
first five months of 1995 is down 36% from last year.
As you know, the Fund declares a dividend each day from its net investment
income which is payable on the last day of the calendar quarter. All dividends
are automatically invested in shares of the Fund unless you have advised State
Farm Investment Management Corp. otherwise in writing.
Sincerely,
Kurt G. Moser Julian R. Bucher
Vice President Vice President
June 20, 1995
1
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
PORTFOLIO OF INVESTMENTS
MAY 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
RATING(b)
PRINCIPAL (MOODY'S
AMOUNT ISSUER OR S & P) VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPAL BONDS (97.1%):
SECURED BY U.S. TREASURY OBLIGATIONS (21.3%):
$ 165,000 Grand River Dam Authority, Oklahoma Rev., Ser. 1978, 7.20%, 6-1-1998
(Prerefunded to 6-1-1997 @ 100) Aaa $ 173,927
500,000 Orlando Utilities Commission, Florida Water and Electric Rev., Ser.
1983, 9.60%, 10-1-1999 (Escrowed to maturity) Aaa 599,970
2,000,000 State of Washington Motor Vehicle Fuel Tax General Obligations Bonds
(State Route 90), Ser. CC-8, 7.10%, 3-1-2000 (Prerefunded to
3-1-1999 @ 100) AAA 2,177,400
1,000,000 State of Texas Public Finance Authority General Obligation Bonds,
Ser. 1990A, 7.00%, 10-1-2000 (Prerefunded to 10-1-1999 @ 100) AA 1,095,700
1,000,000 Rutherford County, Tennessee School Bonds, Series 1986, 7.00%,
4-1-2001 (Prerefunded to 4-1-1996 @ 102) Aa 1,043,860
2,840,000 Washington Suburban Sanitary District of Maryland, General
Obligation Bonds, 7.00%, 12-1-2001 (Prerefunded to 12-1-1998 @
102) Aaa 3,125,874
2,000,000 Jefferson County, Colorado School Dist. No. R-1, General Obligation
Bonds, Ser. 1985C, 8.70%, 12-15-2001 (Prerefunded to 12-15-1995
@ 100) AAA 2,050,620
250,000 Georgia Municipal Electric Authority Power Rev., Ser. H, 12.50%,
1-1-2002 (Prerefunded to 1-1-1997 @ 100) AAA 280,950
1,500,000 Gwinnett County, Georgia General Obligation Bonds, 7.25%, 1-1-2002
(Prerefunded to 1-1-1997 @ 102) AA 1,595,955
300,000 North Carolina Eastern Municipal Power Agency, Ser. 1982A, 13.25%,
1-1-2002 (Prerefunded to 1-1-1997 @ 100) AAA 340,545
1,000,000 City of Iowa City, Johnson County, Iowa Sewer Rev., 7.80%, 7-1-2002
(Prerefunded to 7-1-1995 @ 101.5) A 1,018,080
2,250,000 Pima County, Arizona Unified School District No. 1, Tucson School
Improvement Bonds, Ser. 1990 B, 6.90%, 7-1-2002 (Prerefunded to
7-1-2000 @ 101) A 2,492,392
3,000,000 Tempe Union High School District No. 213, Maricopa County, Arizona
School Improvement General Obligation Bonds, Project of 1989, Ser.
1992B, 5.875%, 7-1-2002 (Prerefunded to 7-1-2001 @ 101) A1 3,223,650
550,000 Johnson County Water District No. 1, Kansas Water Rev., Ser. 1982A,
10.25%, 8-1-2002 (Escrowed to maturity) Aaa 730,340
700,000 Jefferson Parish, Louisiana Drain Improvement Refunding Bonds,
9.60%, 9-1-2002 (Prerefunded to 9-1-1995 @ 102) Aaa 723,632
1,000,000 Orlando, Florida Utilities Commission Water and Electric Rev.
Refunding, Ser. 1985, 8.625%, 10-1-2002 (Prerefunded to 10-1-1995
@ 102) Aa1 1,035,650
900,000 Metropolitan Government of Nashville and Davidson County, Tennessee
Water and Sewer Rev., Ser. 1982, 10.50%, 12-1-2002 (Prerefunded to
12-1-1997 @ 100) Aaa 1,031,067
1,500,000 Bexar County, Texas, Unlimited Tax General Obligation, Ser. 1985A,
9.15%, 6-15-2003 (Prerefunded to 6-15-1995 @ 100) Aaa 1,502,985
2,000,000 City and County of Honolulu, Hawaii General Obligation Bonds, 1987
Ser. A, 8.10%, 10-1-2003 (Prerefunded to 10-1-1996 @ 101.5) AA 2,131,820
3,000,000 City of Lakeland, Florida Electric and Water Rev., Ser. 1989, 6.90%,
10-1-2003 (Prerefunded to 10-1-1999 @ 102) AA 3,337,320
1,000,000 City of Austin, Texas Utility System Rev., Ser. 1985, 10.25%,
11-15-2003 (Prerefunded to 11-15-1995 @ 102) AAA 1,048,040
</TABLE>
2
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
PORTFOLIO OF INVESTMENTS
MAY 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
RATING(b)
PRINCIPAL (MOODY'S
AMOUNT ISSUER OR S & P) VALUE
<C> <S> <C> <C>
SECURED BY U.S. TREASURY OBLIGATIONS (CONTINUED)
$2,000,000 City of Grand Rapids, Michigan Water Supply System Improvement Rev.
Bonds, Ser. 1988, 7.70%, 1-1-2004 (Prerefunded to 1-1-1998 @
102) Aaa $ 2,197,200
2,500,000 Columbus, Ohio General Obligation Refunding Bonds, No. 1-86, Ser. B,
7.60%, 5-1-2004 (Prerefunded to 5-1-1996 @ 102) Aaa 2,629,925
2,000,000 Jackson, Mississippi General Obligation Bonds, Ser. 1988, 7.50%,
5-1-2004 (Prerefunded to 5-1-1998 @ 100) A1 2,167,860
3,500,000 City of Los Angeles, California Wastewater System Rev. Bonds, Ser.
1990 B, 6.90%, 6-1-2004 (Prerefunded to 6-1-2000 @ 102) Aaa 3,928,400
2,000,000 City of Scottsdale, Arizona General Obligation Bonds, Project of
1986 (ULT), 6.80%, 7-1-2004 (Prerefunded to 7-1-1996 @ 102) Aa1 2,095,920
800,000 State of Florida, Broward County Expressway Authority Bonds, Ser.
1984-A, 9.125%, 7-1-2004 (Prerefunded to 7-1-1995 @ 102) AAA 819,432
3,000,000 Omaha Public Power District of Nebraska, Electric Systems Rev., Ser.
A, 6.70%, 2-1-2005 (Prerefunded to 2-1-2000 @ 101.5) AA 3,294,030
2,000,000 State of Wisconsin General Obligation Bonds, 1988 Series B, 7.40%,
5-1-2005 (Prerefunded to 5-1-1997 @ 101) Aa 2,132,720
1,000,000 Shawnee County, Kansas General Obligation Refunding and Improvement,
Ser. 1985-C (MBIA Insured), 9.125%, 9-1-2005 (Prerefunded to
9-1-1996 @ 100) AAA 1,060,640
1,250,000 State of Washington General Obligation Refunding Bonds, Ser. R-86D,
8.00%, 9-1-2005 (Prerefunded to 9-1-1996 @ 100) A1 1,308,812
2,500,000 King County, Washington, Health Care Capital Improvement Bonds
(Harborview Project), Ser. 1988 B, 7.30%, 12-1-2005 (Prerefunded
to 12-1-1998 @ 100) Aaa 2,729,425
1,900,000 Fort Worth Independent School District, Texas School Building
Unlimited Tax Bonds, Ser. 1989, 6.75%, 2-15-2006 (Prerefunded to
2-15-1999 @ 100) Aaa 2,045,578
1,500,000 Intermountain Power Agency, Utah Power Supply Rev. Refunding Bonds,
1986 Ser. F, 7.20%, 7-1-2006 (Prerefunded to 7-1-1996 @ 102) AAA 1,578,540
2,000,000 State of Texas Public Financial Authority General Obligation Bonds,
Ser. 1988A, 6.50%, 10-1-2007 (Prerefunded to 10-1-1998 @ 100) AA 2,128,100
1,500,000 Washington Public Power Supply System Nuclear Project No. 2, Rev.
Refunding Bonds, Ser. 1990 A, 7.625%, 7-1-2008 (Prerefunded to
7-1-2000 @ 102) Aa 1,726,575
-----------
62,602,934
GENERAL OBLIGATIONS (52.9%):
1,455,000 State of Louisiana General Obligation Bonds, Ser. 1986A, 7.375%,
5-1-1997 Baa1 1,524,563
3,000,000 North Slope Borough, Alaska General Obligation School Construction
Bonds, Ser. Y, 7.10%, 7-1-1997 AAA 3,157,560
300,000 Maryland State & Local Facility Loan of 1982 General Obligation
Bonds, 1st Ser., 11.20%, 7-1-1997 AAA 341,385
1,100,000 Stillwater, Minnesota Independent School District #834, General
Obligation School Building Bonds, Ser. 1991, 6.25%, 2-1-1998 AAA 1,150,028
3,000,000 Scottsdale Unified School District No. 48 of Maricopa County,
Arizona Refunding Bonds, Ser. 1991, 6.75%, 7-1-1998 AA 3,200,160
1,350,000 Stillwater, Minnesota Independent School District #834, General
Obligation School Building Bonds, Ser. 1991, 6.25%, 2-1-1999 AAA 1,427,531
400,000 State of California, Variable Purpose General Obligation Bonds,
9.00%, 4-1-1999 AA 459,648
150,000 Oregon Veterans' Welfare General Obligation Bonds, Ser. LXIV, 9.00%,
4-1-1999 AA 174,023
</TABLE>
3
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
PORTFOLIO OF INVESTMENTS
MAY 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
RATING(b)
PRINCIPAL (MOODY'S
AMOUNT ISSUER OR S & P) VALUE
<C> <S> <C> <C>
GENERAL OBLIGATIONS (CONTINUED)
$2,500,000 Austin Independent School District, Texas Unlimited Tax Refunding
Bonds, Ser. 1991, 6.20%, 8-1-1999 Aaa $2,655,750
1,000,000 State of Texas Public Finance Authority General Obligation Bonds,
Ser. 1990A, 7.00%, 10-1-1999 AA 1,099,820
3,000,000 Washington Suburban Sanitary District, Maryland Water Supply
Refunding Bonds of 1991, 6.00%, 11-1-1999 Aa1 3,184,440
200,000 Charleston, Illinois Water Works Improvement Bonds, 8.00%, 1-1-2000 A 224,640
3,000,000 State of California Various Purpose General Obligation Bonds, 5.90%,
2-1-2000 AA 3,140,070
2,500,000 DuPage Water Commission, Illinois General Obligation Water Refunding
Bonds, Ser. 1992, 5.85%, 3-1-2000 AAA 2,624,150
23,000 Alaska Housing Finance Corp. State Guaranteed Bonds, 1983 Ser. 1
(Veterans Mortgage Program), 9.00%, 12-1-2000 AA 23,701
1,000,000 State of Texas Veterans' Land Board General Obligation Bonds, Ser.
1984, 9.00%, 12-1-2000 AAA 1,186,040
1,885,000 Anoka County, Minnesota General Obligation Capital Improvement
Refunding Bonds, Ser. 1992C, 5.20%, 2-1-2001 A1 1,928,449
1,200,000 Shelby County, Tennessee General Obligation Refunding Bonds, 1992
Ser. B, 5.20%, 3-1-2001 Aa 1,235,316
400,000 State of California General Obligation Veterans Bonds, Ser. AL,
9.60%, 4-1-2001 AAA 493,192
2,200,000 City and County of Honolulu, Hawaii General Obligation Refunding
Bonds, 1992 Ser. 1, 5.60% 6-1-2001 AA 2,300,122
2,000,000 School District of Leon County, Florida General Obligation Refunding
Bonds, Ser. 1991, 5.85%, 7-1-2001 A1 2,109,540
2,000,000 Howard County, Maryland Consolidated Public Improvement Refunding
Bonds, Ser. 1991B, 5.80%, 8-15-2001 Aa 2,127,020
2,110,000 State of Nevada General Obligation (Limited Tax) Hoover Uprating
Refunding Bonds, Ser. 1992, 6.00%, 10-1-2001 AA 2,252,636
900,000 Monroe County Jail, Indiana First Mortgage Refunding Bonds, Series
1993, 4.90%, 1-1-2002 A1 890,496
1,535,000 Columbus, Ohio Sewer Improvement No. 27 Refunding Bonds, Ser. 1991,
5.90%, 2-15-2002 Aa1 1,644,323
1,000,000 Williamson County, Tennessee Public Works Refunding Bonds, Ser.
1992, 5.65%, 3-1-2002 Aa 1,053,140
1,500,000 City of Tulsa, Oklahoma General Obligation Refunding Bonds of 1993,
5.05%, 6-1-2002 Aa 1,524,735
925,000 Monroe County Jail, Indiana First Mortgage Refunding Bonds, Series
1993, 4.90%, 7-1-2002 A1 914,612
2,100,000 Jackson Public School District, Mississippi General Obligation
School Bonds, Ser. 1992, 5.80%, 7-1-2002 A1 2,206,722
1,000,000 Pima County, Arizona General Obligation Refunding Bonds, Ser. 1992,
6.30%, 7-1-2002 Aa 1,086,620
3,500,000 Milwaukee, Wisconsin Metropolitan Sewerage District General
Obligation Capital Purpose Bonds, Ser. 1990A, 6.70%, 10-1-2002 AA 3,883,880
1,885,000 Federal Way School District No. 210, King County, Washington
Unlimited Tax General Obligation Refunding Bonds, 1987, 6.75%,
12-1-2002 A 1,929,637
1,500,000 County of Ramsey, Minnesota General Obligation Capital Improvement
Refunding Bonds, Ser. 1992C, 5.40%, 12-1-2002 Aaa 1,569,570
1,505,000 Anchorage, Alaska General Obligation General Purpose Refunding
Bonds, 4.60%, 2-1-2003 Aaa 1,450,233
2,000,000 Lake County, Illinois Forest Preserve District General Obligation
Refunding Bonds, Ser. 1992B, 5.70%, 2-1-2003 Aa 2,098,480
2,000,000 Oregon General Obligation Veterans' Welfare Bonds, Ser. 74A, 7.75%,
3-1-2003 A1 2,147,980
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
STATE FARM MUNICIPAL BOND FUND, INC.
PORTFOLIO OF INVESTMENTS
MAY 31, 1995
(UNAUDITED)
RATING(b)
PRINCIPAL (MOODY'S
AMOUNT ISSUER OR S & P) VALUE
<C> <S> <C> <C>
GENERAL OBLIGATIONS (CONTINUED)
$1,050,000 Oklahoma City, Oklahoma General Obligation Bonds, Series 1993,
5.15%, 5-1-2003 Aa $1,067,692
2,000,000 Nashville and Davidson County, Tennessee General Obligation
Refunding Bonds of 1993, 5.00%, 5-15-2003 Aa 2,024,820
2,000,000 State of Illinois General Obligation Refunding Bonds, Series of June
1993, 5.00%, 6-1-2003 Aa 1,994,780
1,750,000 State of Louisiana General Obligation Bonds, Series 1987A, 7.00%,
8-1-2003 Baal 1,845,270
1,500,000 Municipality of Anchorage, Alaska 1993 General Obligation Refunding
School Bonds, Series B, 4.90%, 9-1-2003 Aaa 1,482,855
2,000,000 Texas Public Finance Authority, State of Texas General Obligation
Refunding Bonds, Ser. 1992A, 5.70%, 10-1-2003 Aa 2,119,460
2,000,000 State of Wisconsin General Obligation Refunding Bonds of 1993,
Series 1, 5.30%, 11-1-2003 Aa 2,053,160
2,000,000 State of Wisconsin General Obligation Refunding Bonds of 1993,
Series 3, 4.75%, 11-1-2003 Aa 1,965,900
2,520,000 Federal Way School District No. 210, King County, Washington
Unlimited Tax General Obligation and Refunding Bonds, 1993, 5.25%,
12-1-2003 Aaa 2,577,179
2,620,000 Cherry Creek School District No. 5, Arapahoe County, Colorado
General Obligation Improvement Bonds, Ser. 1990, 7.00%, 12-15-2003 AA 2,912,182
2,000,000 Jefferson County, Colorado School District No. R-1 General
Obligation Bonds, Ser. 1992, 5.75%, 12-15-2003 Aaa 2,128,880
2,025,000 County of DuPage, Illinois General Obligation Refunding Bonds
(Alternate Rev. Source - Stormwater Project), 5.10%, 1-1-2004 Aaa 2,037,494
2,000,000 Indianapolis, Indiana Local Public Improvement Bond Bank, Series
1993A Bonds, 5.25%, 1-10-2004 Aaa 2,033,120
2,100,000 Cherokee County School Systems, Georgia General Obligation School
Series 1993, 4.90%, 2-1-2004 A1 2,076,501
2,300,000 Osseo Area Schools, Minnesota General Obligation Refunding Bonds,
Series 1993, 4.60%, 2-1-2004 A1 2,207,632
2,300,000 Indianapolis, Indiana Local Public Improvement Bond Bank Refunding
Bonds, Series 1993 B, 4.70%, 2-15-2004 Aaa 2,210,783
1,600,000 County of Buncombe, North Carolina Refunding Bonds, Series 1993,
5.10%, 3-1-2004 Aa 1,628,112
1,050,000 Oklahoma City, Oklahoma General Obligation Bonds, Series 1993,
5.25%, 5-1-2004 Aa 1,067,619
2,000,000 Davis County School District, Davis County, Utah General Obligation
Refunding Bonds, Series 1993A, 4.50%, 6-1-2004 Aaa 1,894,860
2,000,000 Alachua County School District, Alachua County, Florida General
Obligation Refunding Bonds, Series 1994, 4.50%, 7-1-2004 Aaa 1,902,340
2,000,000 Deer Valley Unified School District No. 97 of Maricopa County,
Arizona School Improvement Bonds, Project of 1992, Series A
(1993), 5.125%, 7-1-2004 Aaa 2,016,520
1,205,000 DeKalb County School District, Georgia General Obligation Refunding
Bonds, Series 1993, 5.10%, 7-1-2004 Aa 1,221,557
1,000,000 Maricopa County, Arizona Unified School District No. 69, Paradise
Valley School Improvement Bonds, Ser. 1990A, 7.10%, 7-1-2004 A1 1,137,660
1,540,000 Joint School District No. 2, Ada and Canyon Counties, Idaho, General
Obligation School Bonds, Series 1994, 5.0%, 7-30-2004 Aa 1,541,001
3,215,000 State of Minnesota General Obligation State Refunding Bonds, 5.125%,
8-1-2004 Aa 3,275,988
2,000,000 Harris County, Texas Road and Refunding Bonds, Series 1993, 4.70%,
10-1-2004 Aa 1,942,480
2,000,000 City of Seattle, Washington Unlimited Tax General Obligation
Refunding Bonds, 1993, 4.80%, 12-1-2004 Aa1 1,955,260
</TABLE>
5
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
PORTFOLIO OF INVESTMENTS
MAY 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
RATING(b)
PRINCIPAL (MOODY'S
AMOUNT ISSUER OR S & P) VALUE
<C> <S> <C> <C>
GENERAL OBLIGATIONS (CONTINUED)
$1,000,000 Bismarck, North Dakota Public School District #1, Burleigh County
General Obligation Building Bonds of 1986, 7.00%, 4-1-2005 A1 $ 1,044,400
1,800,000 Nashville and Davidson County, Tennessee General Obligation
Refunding Bonds of 1993, 5.00%, 5-15-2005 Aa 1,798,542
1,625,000 Charleston County, South Carolina General Obligation Bonds of 1994
(ULT) 5.40%, 6-1-2005 Aa 1,671,784
1,100,000 Municipality of Anchorage, Alaska 1994 General Obligation School
Bonds, 5.40%, 7-1-2005 Aaa 1,115,312
2,000,000 Oklahoma City, Oklahoma General Obligation Refunding Bonds, Series
1993, 5.30%, 8-1-2005 Aa 2,032,860
1,000,000 State of Oregon General Obligation Veterans' Welfare Refunding
Bonds, Ser. 71, 9.125%, 8-15-2005 AA 1,032,500
2,500,000 State of Illinois General Obligation Refunding Bonds, Ser. 1987,
6.80%, 4-1-2006 Aa 2,650,225
2,000,000 Baltimore County, Maryland General Obligation Bonds, 1988 Ser.,
7.50%, 7-1-2006 Aaa 2,079,840
1,600,000 Natrona County, Wyoming School District No. 1 General Obligation
Bonds, Ser. 1994, 5.45%, 7-1-2006 Aaa 1,626,272
2,340,000 City of Phoenix, Arizona General Obligation Refunding Bonds, Ser.
1993 A, 5.30%, 7-1-2006 Aa 2,373,181
2,000,000 State of California Various Purpose General Ogligation Bonds, 6.00%,
10-1-2006 A1 2,112,720
2,000,000 State of Wisconsin General Obligation Bonds of 1995, Series A,
6.00%, 5-1-2008 Aa 2,089,520
1,000,000 Maricopa County, Arizona Unified School District No. 69, Paradise
Valley School Improvement Bonds, Ser. 1994A, 7.10%, 7-1-2008 A1 1,141,750
1,200,000 Maricopa County, Arizona Unified School District No. 69, Paradise
Valley School Improvement Bonds, Ser. 1994A, 7.00%, 7-1-2009 A1 1,355,820
2,500,000 Maricopa County, Arizona Unified School District No. 69, Paradise
Valley School Improvement Bonds, Ser. 1994A, 7.00%, 7-1-2010 A1 2,812,175
2,500,000 State of Wisconsin General Obligation Refunding Bonds of 1993, Ser.
2, 5.125%, 11-1-2010 Aa 2,375,825
3,000,000 State of Hawaii General Obligation Bonds of 1992, Series BW, 6.375%,
3-1-2011 Aa 3,260,610
1,125,000 The State of Delaware General Obligation Bonds, Series 1994B, 6.00%,
12-1-2011 Aa1 1,162,823
3,000,000 State of Georgia General Obligation Bonds, Series 1995B, 5.75%, 3-1-
2012 Aaa 3,091,080
4,500,000 State of Washington General Obligation Bonds, Series 1993A, 5.75%,
10-1-2012 Aa 4,583,835
1,125,000 The State of Delaware General Obligation Bonds, Series 1994B, 6.00%,
12-1-2012 Aa1 1,160,314
------------
155,312,705
MUNICIPAL REVENUE (21.6%):
2,000,000 City of St. Petersburg, Florida Public Utility Refunding Rev. Bonds,
Ser. 1991, 6.10%, 10-1-1998 Aa 2,104,800
3,000,000 City of Colorado Springs, Colorado Utilities System Refunding Rev.,
Ser. 1991A, 6.10%, 11-15-1998 AA 3,165,690
1,490,000 San Antonio, Texas Water System Rev. Refunding Bonds, Ser. 1992,
5.80%, 5-15-1999 AAA 1,557,780
1,250,000 Washington Public Power Supply System Nuclear Project No. 3,
Refunding Rev. Bonds, Ser. 1991A, 6.25%, 7-1-2000 Aa 1,325,050
1,250,000 State of New York Power Authority General Purpose Bonds, Ser. Z,
6.00%, 1-1-2001 Aa 1,326,412
</TABLE>
6
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
PORTFOLIO OF INVESTMENTS
MAY 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
RATING(b)
PRINCIPAL (MOODY'S
AMOUNT ISSUER OR S & P) VALUE
<C> <S> <C> <C>
MUNICIPAL REVENUE (CONTINUED)
$1,400,000 San Diego County Water Authority Water Rev. Certificates of
Participation, Ser. 1991A, 6.00%, 5-1-2001 AA $ 1,475,978
1,500,000 Intermountain Power Agency, Utah Power Supply Rev. Refunding Bonds,
1986 Ser. F, 7.00%, 7-1-2001 AA 1,568,610
1,250,000 Municipal Subdistrict, Northern Colorado Water Conservancy District
Water Rev., Ser. D, 7.60%, 12-1-2001 A1 1,333,038
2,000,000 Nashville and Davidson County, Tennessee Electric System Rev. Bonds,
1992 Series B, 5.50%, 5-15-2002 Aa 2,091,520
1,000,000 Washington Public Power Supply System Nuclear Project No. 1, Rev.
Refunding Bonds, Ser. 1990C, 7.70%, 7-1-2002 AA 1,153,580
1,080,000 Charleston, South Carolina Waterworks and Sewer Systems Rev.
Refunding Bonds, Ser. 1986A, 6.90%, 1-1-2003 A1 1,101,600
2,000,000 City of Des Moines, Iowa Sewer Rev. Bonds, Ser. 1992D, 6.00%, 6-1-
2003 Aaa 2,124,180
2,500,000 City of Albuquerque, New Mexico Joint Water and Sewer Refunding Rev.
Bonds, Ser. 1990B, 7.00%, 7-1-2003 A1 2,766,700
2,000,000 Washington Public Power Supply System, Nuclear Project No. 3
Refunding Revenue Bonds, Series 1993C, 4.80%, 7-1-2003 Aa 1,907,020
2,000,000 City of Lincoln, Nebraska, Water Revenue and Refunding Bonds, Series
1993, 4.90%, 8-15-2003 Aa 2,007,900
2,850,000 City of Lincoln, Nebraska, Electric System Revenue Refunding Bonds,
1993 Series A, 4.70%, 9-1-2003 Aa 2,796,335
2,000,000 Fargo, North Dakota Water Revenue of 1993, 5.00%, 1-1-2004 Aaa 1,998,520
1,500,000 Nashville and Davidson County, Tennessee Water and Sewer Revenue
Refunding Bonds, Series 1993, 4.90%, 1-1-2004 Aaa 1,495,770
1,710,000 Southern Minnesota Municipal Power Agency, Power Supply System
Revenue Bonds, Series 1993 B, 4.60%, 1-1-2004 A1 1,627,082
1,500,000 Municipal Electric Authority of Georgia General Power Rev. Bonds,
1993A Series, 5.00%, 1-1-2004 A1 1,473,270
2,000,000 City of Dallas, Texas Waterworks and Sewer System Rev. Refunding
Bonds, Series 1993, 4.90%, 4-1-2004 Aa 1,985,720
2,045,000 City of Iowa City, Johnson County, Iowa Sewer Rev. Bonds, 5.875%,
7-1-2004 Aaa 2,146,800
2,000,000 City of Jackson, Mississippi Water and Sewer System Rev. Refunding
Bonds, Series 1993-A, 4.85%, 9-1-2004 Aaa 1,969,120
1,685,000 Hampton Roads Sanitation District, Virginia Wastewater Refunding and
Capital Improvement Revenue Bonds, Series 1993, 4.70%, 10-1-2004 Aa 1,631,670
3,000,000 City of Los Angeles Department of Water and Power, California
Electric Plant Refunding Revenue Bonds, Second Issue of 1993,
4.80%, 11-15-2004 Aa 2,927,550
2,200,000 The Water Works and Sewer Board, Birmingham, Alabama Water and Sewer
Revenue Bonds, Series 1994, 4.75%, 1-1-2005 Aa 2,127,510
1,500,000 Omaha, Nebraska Public Power District Electric System Rev. Bonds,
1993, Series B, 5.10%, 2-1-2005 Aa 1,503,285
1,500,000 Colorado Springs, Colorado Utility System Rev. Bonds, Ser. 1985-A,
9.25%, 11-15-2005 Aa 1,538,955
2,600,000 Washington Public Power Supply System Nuclear Project No. 1, Rev.
Refunding Bonds, Ser. 1989A, 7.50%, 7-1-2007 AA 2,845,440
6,000,000 Omaha Public Power District, Nebraska Electric System Revenue Bonds,
1992, Series B, 6.15%, 2-1-2012 Aa 6,320,580
1,840,000 City of Dallas, Texas Waterworks and Sewer System Revenue Bonds,
Series 1994A, 6.375%, 10-1-2012 Aa 1,928,412
-----------
63,325,877
</TABLE>
7
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
PORTFOLIO OF INVESTMENTS
MAY 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
RATING(b)
PRINCIPAL (MOODY'S
AMOUNT ISSUER OR S & P) VALUE
<C> <S> <C> <C>
INDUSTRIAL REVENUE - UTILITIES (1.3%):
$ 300,000 Red River Authority of Texas Collateralized Pollution Control Rev. Bonds,
Ser. 1981, 13.50%, 10-1-2001 (Southwestern Public Service Co. Project) Aa2 $ 333,333
200,000 City of Joliet, Illinois Pollution Control Rev. Bonds, Ser. 1976,
6.80%, 7-1-2006 (Commonwealth Edison Company Project) Baa1 200,384
3,000,000 Becker, Minnesota Pollution Control Rev. Refunding Bonds, Ser.
1989A, 6.80%, 4-1-2007 (No. States Power Co. - Serberne Cnty. Gen.
Sta. Units 1 & 2 Proj.) Aa3 3,155,460
------------
3,689,177
------------
Total long-term municipal bonds (cost: $270,266,708) 284,930,693
SHORT-TERM INVESTMENTS (2.0%):
5,500,000 U.S. Treasury bills, due June to August 1995...................................... 5,467,526
285,000 General Motors Acceptance Corp., 6.03%, 6-6-1995.................................. 285,048
------------
Total short-term investments (cost: $5,752,574) 5,752,574
------------
TOTAL INVESTMENTS (99.1%) (cost: $276,019,282) 290,683,267
CASH AND OTHER ASSETS, LESS LIABILITIES (.9%) 2,690,280
------------
NET ASSETS (100.0%) $293,373,547
============
</TABLE>
Notes: (a) At May 31, 1995, net unrealized appreciation of $14,663,985
consisted of gross unrealized appreciation of $15,589,980 and gross
unrealized depreciation of $925,995 based on cost of $276,019,282
for federal income tax purposes.
(b) Ratings (not covered by the report of independent auditors)
8
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1995
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
Investments, at value (cost $276,019,282)............................ $290,683,267
Cash................................................................. 554,437
Receivable for:
Interest........................................................... $5,277,487
Sundry............................................................. 5,316 5,282,803
----------
Prepaid expenses..................................................... 35,732
------------
Total assets..................................................... 296,556,239
LIABILITIES AND NET ASSETS
Payable for:
Dividends to shareowners........................................... 2,816,187
Shares of the Fund redeemed........................................ 265,531
Other accounts payable (including $91,215 to Manager).............. 100,974
----------
Total liabilities................................................ 3,182,692
------------
Net assets applicable to 34,957,911 shares outstanding of
$1 par value common stock (100,000,000 shares authorized).......... $293,373,547
============
Net asset value, offering price and redemption price per
share.............................................................. $ 8.39
============
ANALYSIS OF NET ASSETS
Excess of amounts received from sales of shares over
amounts paid on redemptions of shares on account of
capital............................................................ $278,634,135
Undistributed net realized gain on
sales of investments............................................... 75,427
Unrealized appreciation of investments............................... 14,663,985
------------
Net assets applicable to shares outstanding.......................... $293,373,547
============
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1995 NOVEMBER 30,
(UNAUDITED) 1994
<S> <C> <C>
INVESTMENT INCOME:
Tax-exempt interest........................ $ 8,435,130 16,472,830
Taxable interest........................... 205,861 225,158
----------- -----------
Total investment income.................. 8,640,991 16,697,988
EXPENSES:
Investment advisory and management fees.... 179,273 355,000
Audit fees................................. 10,523 20,823
Legal fees................................. 3,075 5,283
Fidelity bond expense...................... 2,534 5,289
Directors' fees............................ 1,200 2,200
Reports to shareowners..................... 3,726 3,892
Securities evaluation fees................. 9,797 20,190
Taxes...................................... 7,764 15,299
Other...................................... 14,610 32,962
----------- -----------
Total expenses........................... 232,502 460,938
----------- -----------
Net investment income........................ 8,408,489 16,237,050
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on sales of investments.. 125,020 (49,593)
Net change in unrealized appreciation...... 17,745,918 (23,629,677)
----------- -----------
Net realized and unrealized gain/loss on
investments.............................. 17,870,938 (23,679,270)
----------- -----------
Net change in net assets
resulting from operations.................. $26,279,427 (7,442,220)
=========== ===========
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
MAY 31, YEAR ENDED NOVEMBER 30,
1995 1994 1993
(UNAUDITED)
<S> <C> <C> <C>
From operations:
Net investment income........................ $ 8,408,489 16,237,050 14,414,574
Net realized gain on sales of investments.... 125,020 (49,593) 551,997
Net change in unrealized appreciation........ 17,745,918 (23,629,677) 6,077,443
------------ -------------------------
Net change in net assets resulting from
operations.................................. 26,279,427 (7,442,220) 21,044,014
Dividends to shareowners from:
Net investment income (per share $.24 in
1995, $.48 in 1994, and $.50 in 1993)....... (8,408,489) (16,237,050) (14,414,574)
Net realized gain (per share $.017 in 1994
and $.001 in 1993).......................... -- (551,997) (36,501)
------------ -------------------------
(8,408,489) (16,789,047) (14,451,075)
From Fund share transactions:
Proceeds from shares sold.................... 12,185,510 37,360,622 62,394,181
Reinvestment of ordinary income dividends and
capital gain distributions.................. 6,446,170 13,048,768 11,121,264
------------ ------------------------
18,631,680 50,409,390 73,515,445
Less payments for shares redeemed............ 13,034,306 32,624,914 15,080,670
------------ -------------------------
Net increase in net assets from Fund share
transactions................................ 5,597,374 17,784,476 58,434,775
------------ -------------------------
Total increase in net assets................... 23,468,312 (6,446,791) 65,027,714
Net assets:
Beginning of period.......................... 269,905,235 276,352,026 211,324,312
------------ -------------------------
End of period................................ $293,373,547 269,905,235 276,352,026
============ =========================
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
SECURITIES VALUATION --
Municipal bonds and notes and other debt securities are valued using
quotations provided by an independent pricing service. Short-term debt
securities having a maturity of 60 days or less from the valuation date are
valued on an amortized cost basis. Any securities not valued as described
above are valued at fair value as determined in good faith by the Board of
Directors or its delegate.
SECURITY TRANSACTIONS AND INTEREST INCOME --
Security transactions are accounted for on the trade date (date the order
to buy or sell is executed). Interest income is recorded on the accrual basis;
premiums and original issue discounts on tax-exempt securities are amortized.
Realized gains and losses from security transactions are reported on an
identified cost basis.
SECURITIES PURCHASED ON A `WHEN-ISSUED' BASIS --
The Fund may purchase municipal bonds on a `when-issued' basis. Delivery
and payment for these securities may be a month or more after the purchase
date, during which time such securities are subject to market fluctuations. It
is possible that the securities will never be issued and the commitment
cancelled.
FUND SHARE VALUATION, DIVIDENDS AND DISTRIBUTIONS TO SHAREOWNERS --
Fund shares are sold and redeemed on a continuous basis at net asset value.
Net asset value per share is determined as of 1:00 p.m. Bloomington, Illinois
time on each business day other than customary weekend and holiday closings,
except that the Fund need not compute a net asset value on any day when no
purchase or redemption order has been received by the Fund. The net asset
value per share is computed by dividing the value of the Fund's investments
and other assets, less liabilities, by the number of Fund shares outstanding.
The Fund declares a daily dividend equal to its net investment income, and
distributions of such amounts are made at the end of each calendar quarter.
Net realized gains on sales of investments, if any, are distributed annually
after the close of the Fund's fiscal year.
Dividends and distributions payable to its shareowners are recorded by the
Fund on the ex-dividend date.
FEDERAL INCOME TAXES --
It is the Fund's policy to comply with the special provisions of the
Internal Rev. Code available to investment companies and, in the manner
provided therein, to distribute all of its taxable income, as well as any net
realized gain on sales of investments reportable for federal income tax
purposes. The Fund has complied with this policy and, accordingly, no
provision for federal income taxes is required.
The accumulated net realized loss on sales of investments at November 30,
1994, amounting to $49,593, is available to offset future taxable gains. If
not applied, the capital loss carryover expires in the year 2002.
12
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
2. TRANSACTIONS WITH AFFILIATES
The Fund has an investment advisory and management services agreement with
State Farm Investment Management Corp. (Manager) pursuant to which the Fund
pays the Manager an annual fee (computed on a daily basis and paid quarterly)
of .20% of the first $50 million of average net assets, .15% of the next $50
million of average net assets and .10% of average net assets in excess of $100
million. The Manager guarantees that all operating expenses of the Fund,
including compensation of the Manager but excluding taxes, interest,
extraordinary litigation expenses, brokerage commissions and other portfolio
transaction costs shall not exceed .40% of average net assets annually.
Under the terms of this agreement, the Fund incurred fees of $179,273 for
the six months ended May 31, 1995 and $355,000 for the year ended November 30,
1994. The Fund does not pay any discount, commission or other compensation for
transfer agent or underwriting services provided by the Manager.
Certain officers and/or directors of the Fund are also officers and/or
directors of the Manager. The Fund made no payments to its officers or
directors during the six months ended May 31, 1995 and the year ended November
30, 1994, except for directors' fees of $1,200 and $2,200, respectively, paid
to the Fund's independent directors.
3. INVESTMENT TRANSACTIONS
Investment transactions (exclusive of money market instruments) are as
follows:
<TABLE>
<CAPTION>
SIX MONTHS YEAR
ENDED ENDED
MAY 31, NOVEMBER 30,
1995 1994
<S> <C> <C>
Purchases...................................... $14,296,924 36,396,943
Proceeds from sales............................ 9,963,250 21,105,695
=========== ==========
</TABLE>
4. FUND SHARE TRANSACTIONS
Proceeds and payments on Fund shares as shown in the statement of changes
in net assets are in respect of the following number of shares:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED NOVEMBER
MAY 31, 30,
1995 1994 1993
<S> <C> <C> <C>
Shares sold............................ 1,494,827 4,463,884 7,299,988
Shares issued in reinvestment of
ordinary income dividends and
capital gain distributions........... 795,331 1,567,732 1,302,244
--------- ------------------------
2,290,158 6,031,616 8,602,232
Less shares redeemed................... 1,597,123 3,949,631 1,767,379
--------- ------------------------
Net increase in shares outstanding..... 693,035 2,081,985 6,834,853
========= ========================
</TABLE>
13
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
FINANCIAL HIGHLIGHTS <EM>
PER SHARE INCOME AND CAPITAL CHANGES (For a share outstanding throughout the
period)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED NOVEMBER 30,
MAY 31, 1995 1994 1993 1992 1991 1990
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period................. $ 7.88 8.59 8.34 8.15 7.98 7.96
Income from Investment
Operations
Net Investment Income............... .25 .48 .50 .53 .54 .58
Net Gains or Losses on
Securities (both
realized and unrealized).......... .51 (.69) .25 .19 .17 .02
----------------------------------------------------------------------
Total from Investment
Operations.......................... .76 (.21) .75 .72 .71 .60
Less Distributions
Dividends (from net
investment income)................. (.25) (.48) (.50) (.53) (.54) (.58)
Distributions (from capital
gains)............................. -- (.02) -- -- -- --
----------------------------------------------------------------------
Total Distributions................... (.25) (.50) (.50) (.53) (.54) (.58)
Net Asset Value, End of
Period.............................. $ 8.39 7.88 8.59 8.34 8.15 7.98
======================================================================
Total Return.......................... 9.66% (2.55%) 9.17% 9.05% 9.17% 7.78%
Ratios/Supplemental Data
Net assets, end of period
(millions).......................... $293.4 269.9 276.4 211.3 167.2 132.8
Ratio of expenses to average
net assets.......................... .16%(a) .16% .18% .19% .21% .23%
Ratio of net investment
income to average
net assets.......................... 5.93%(a) 5.80% 5.84% 6.36% 6.75% 7.30%
Portfolio turnover rate............... 9%(a) 8% 5% 4% 2% 8%
Number of shares out-
standing at end of period
(millions).......................... 35.0 34.3 32.2 25.3 20.5 16.6
</TABLE>
Notes: (a) Determined on an annualized basis.
14
