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
(800) 447-0740
May 31, 1997
This report is not to be distributed unless preceded or accompanied by a
prospectus.
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STATE FARM MUNICIPAL BOND FUND, INC.
Dear Shareowner:
Interest rates on municipal bonds have risen slightly since our last
correspondence with you. Consequently, values of the municipal securities
held by your Fund declined a little causing its net asset value to fall to
$8.31 from $8.44 over the past six months, a 1.5% decrease. The total return,
which considers the reinvestment of dividends and change in net asset value,
was 6.5% for the past twelve months and 1.5% for the past six months.
Valuations of municipal bonds have fared better than those of their
taxable counterparts since November. Their superior relative performance
probably results primarily from heavy buying of municipal securities by
property and casualty insurance companies while the supply of new municipal
bond issues has lessened modestly from the levels of 1996. Relative yields on
municipal bonds, when compared to high quality taxable bonds, are now at the
lowest levels experienced in recent years.
The upward movement of general interest rates over the past six months
occurred as the U.S. economy exhibited significant, and probably
unsustainable, strength in the latter part of 1996 and early 1997. Concerned
that the rapid pace of general economic growth might lead to higher inflation,
the Federal Reserve increased the federal funds rate 25 basis points in late
March. Members of the Federal Reserve Board have repeatedly stated that
monetary policy will be tightened if evidence of inflationary pressure is on
their radar screens. Its action in March was a move in that direction even
though few definitive signs of rising inflation presently exist.
Growth of the U.S. economy has recently slowed from the heady pace of the
first quarter, but general economic conditions remain quite healthy. As this
letter is being written market interest rates are falling, which suggests that
investors are collectively thinking that the economy is slowing sufficiently
to keep inflationary tendencies at bay. We caution that volatility in bond
markets will likely persist as investors attempt to sort out whether general
economic growth is slowing down to a comfortable, sustainable pace or just
taking a pause before moving back to more rapid growth which will again spawn
concerns about inflation and higher interest rates.
We persist in encouraging you to view your investment in the Fund as a
genuinely long-term commitment and to accept market volatility as an
inevitable consequence of owning a municipal bond fund. Presently the Fund's
high quality portfolio of municipal bonds contains bonds with maturities
spread out over the next 15 years. It has an average weighted maturity of 7.8
years. Most of the time the intermediate maturity structure of your Fund's
portfolio should tend to keep fluctuations in net asset values more restrained
when interest rates change than would be the case if the Fund were heavily
invested in a portfolio of longer-term bonds.
2
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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,
/s/ Kurt G. Moser /s/ Julian R. Bucher
Kurt G. Moser Julian R. Bucher
Vice President Vice President
June 20, 1997
3
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STATE FARM MUNICIPAL BOND FUND, INC.
PORTFOLIO OF INVESTMENTS
MAY 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
RATINGS
PRINCIPAL (MOODY'S
AMOUNT ISSUER OR S & P) VALUE
LONG-TERM MUNICIPAL BONDS (97.0%):
SECURED BY U.S. TREASURY OBLIGATIONS (15.7%):
<S> <C> <C> <C>
$ 90,000 Grand River Dam Authority, Oklahoma Rev., Ser. 1978, 7.20%,
6-1-1998 (Prerefunded to 6-1-1997 @ 100) Aaa $ 90,008
500,000 Orlando Utilities Commission, Florida Water and Electric Rev., Ser.
1983, 9.60%, 10-1-1999 (Escrowed to maturity) Aaa 557,755
2,000,000 State of Washington Motor Vehicle Fuel Tax General Obligation Bonds
(State Route 90), Ser. CC-8, 7.10%, 3-1-2000 (Prerefunded
to 3-1-1999 @ 100) Aaa 2,095,560
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 1,058,870
2,840,000 Washington Suburban Sanitary District of Maryland, General Obligation
Bonds, 7.00%, 12-1-2001 (Prerefunded to 12-1-1998 @ 102) Aaa 3,013,268
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 2,427,525
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) A+ 3,172,680
550,000 Johnson County Water District No. 1, Kansas Water Rev., Ser. 1982A,
10.25%, 8-1-2002 (Escrowed to maturity) Aaa 675,004
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 929,889
1,750,000 State of Louisiana General Obligation Bonds, Series 1987 A,
7.00%, 8-1-2003 (Prerefunded to 8-1-1997 @ 102) Aaa 1,794,293
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 3,224,310
2,620,000 Cherry Creek School District No. 5, Arapahoe County,
Colorado General Obligation Improvement Bonds, Ser. 1990, 7.00%,
12-15-2003 (Prerefunded to 12-15-2000 @ 101) Aa2 2,854,542
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 2,084,880
2,000,000 Jackson, Mississippi General Obligation Bonds, Ser. 1988, 7.50%,
5-1-2004 (Prerefunded to 5-1-1998 @ 100) NR 2,064,820
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 3,811,255
4
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STATE FARM MUNICIPAL BOND FUND, INC.
PORTFOLIO OF INVESTMENTS
MAY 31, 1997
(UNAUDITED)
RATINGS
PRINCIPAL (MOODY'S
AMOUNT ISSUER OR S & P) VALUE
SECURED BY U.S. TREASURY OBLIGATIONS (Continued)
$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 $3,207,120
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) NR 2,611,850
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 1,978,109
2,600,000 Washington Public Power Supply System Nuclear Project No. 1,
Rev. Refunding Bonds, Ser. 1989A, 7.50%, 7-1-2007
(Prerefunded to 7-1-1999 @ 102) Aaa 2,812,316
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 2,061,920
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) Aaa 1,661,565
6,000,000 Omaha Public Power District, Nebraska Electric System Revenue Bonds,
1992, Series B, 6.15%, 2-1-2012 (Escrowed to Maturity) Aa2 6,504,780
-----------
50,692,319
GENERAL OBLIGATIONS (61.2%):
3,000,000 North Slope Borough, Alaska General Obligation School Construction
Bonds, Ser. Y, 7.10%, 7-1-1997 Aaa 3,008,430
300,000 Maryland State & Local Facility Loan of 1982 General Obligation Bonds,
1st Ser., 11.20%, 7-1-1997 Aaa 301,893
1,100,000 Stillwater, Minnesota Independent School District #834, General
Obligation School Building Bonds, Ser. 1991, 6.25%, 2-1-1998 Aaa 1,118,084
3,000,000 Scottsdale Unified School District No. 48 of Maricopa County, Arizona
Refunding Bonds, Ser. 1991, 6.75%, 7-1-1998 Aa 3,092,520
1,350,000 Stillwater, Minnesota Independent School District #834, General
Obligation School Building Bonds, Ser. 1991, 6.25%, 2-1-1999 Aaa 1,393,079
400,000 State of California, Variable Purpose General Obligation Bonds, 9.00%,
4-1-1999 A1 433,548
150,000 Oregon Veterans' Welfare General Obligation Bonds, Ser. LXIV, 9.00%,
4-1-1999 Aa2 162,525
2,500,000 Austin Independent School District, Texas Unlimited Tax Refunding
Bonds, Ser. 1991, 6.20%, 8-1-1999 Aaa 2,599,850
1,000,000 State of Texas Public Finance Authority General Obligation Bonds, Ser.
1990A, 7.00%, 10-1-1999 Aa 1,059,780
3,000,000 Washington Suburban Sanitary District, Maryland Water Supply Refunding
Bonds of 1991, 6.00%, 11-1-1999 Aa1 3,119,370
200,000 Charleston, Illinois Water Works Improvement Bonds, 8.00%, 1-1-2000 A 215,682
3,000,000 State of California Various Purpose General Obligation Bonds, 5.90%,
2-1-2000 A1 3,117,240
2,500,000 DuPage Water Commission, Illinois General Obligation Water Refunding
Bonds, Ser. 1992, 5.85%, 3-1-2000 Aaa 2,586,725
5
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STATE FARM MUNICIPAL BOND FUND, INC.
PORTFOLIO OF INVESTMENTS
MAY 31, 1997
(UNAUDITED)
RATINGS
PRINCIPAL (MOODY'S
AMOUNT ISSUER OR S & P) VALUE
GENERAL OBLIGATIONS (Continued)
$1,000,000 State of Texas Veterans' Land Board General Obligation Bonds,
Ser. 1984, 9.00%, 12-1-2000 Aa $ 1,109,900
1,885,000 Anoka County, Minnesota General Obligation Capital Improvement
Refunding Bonds, Ser. 1992C, 5.20%, 2-1-2001 A1 1,923,944
1,200,000 Shelby County, Tennessee General Obligation Refunding Bonds, 1992
Ser. B, 5.20%, 3-1-2001 Aa2 1,227,792
400,000 State of California General Obligation Veterans Bonds, Ser. AL, 9.60%,
4-1-2001 A1 470,852
2,200,000 City and County of Honolulu, Hawaii General Obligation Refunding
Bonds, 1992 Ser. 1, 5.60%, 6-1-2001 Aa 2,282,852
2,000,000 School District of Leon County, Florida General Obligation Refunding
Bonds, Ser. 1991, 5.85%, 7-1-2001 A1 2,095,100
2,000,000 Howard County, Maryland Consolidated Public Improvement Refunding
Bonds, Ser. 1991B, 5.80%, 8-15-2001 Aaa 2,099,300
2,110,000 State of Nevada General Obligation (Limited Tax) Hoover Uprating
Refunding Bonds, Ser. 1992, 6.00%, 10-1-2001 Aa2 2,225,628
900,000 Monroe County Jail, Indiana, First Mortgage Refunding Bonds, Series
1993, 4.90%, 1-1-2002 A1 902,898
1,535,000 Columbus, Ohio Sewer Improvement No. 27 Refunding Bonds, Ser. 1991,
5.90%, 2-15-2002 Aaa 1,618,489
1,000,000 Williamson County, Tennessee Public Works Refunding Bonds, Ser. 1992,
5.65%, 3-1-2002 Aa 1,043,420
1,500,000 City of Tulsa, Oklahoma General Obligation Refunding Bonds of 1993,
5.05%, 6-1-2002 Aa 1,528,515
925,000 Monroe County Jail, Indiana First Mortgage Refunding Bonds, Series 1993,
4.90%, 7-1-2002 A1 928,265
2,100,000 Jackson Public School District, Mississippi General Obligation School
Bonds, Ser. 1992, 5.80%, 7-1-2002 A1 2,198,490
1,000,000 Pima County, Arizona General Obligation Refunding Bonds, Ser. 1992,
6.30%, 7-1-2002 Aa 1,074,390
3,500,000 Milwaukee, Wisconsin Metropolitan Sewerage District General Obligation
Capital Purpose Bonds, Ser. 1990A, 6.70%, 10-1-2002 Aa 3,830,855
1,885,000 Federal Way School District No. 210, King County, Washington Unlimited
Tax General Obligation Refunding Bonds, Series 1987, 6.75%,
12-1-2002 A1 1,910,353
1,500,000 County of Ramsey, Minnesota General Obligation Capital Improvement
Refunding Bonds, Ser. 1992C, 5.40%, 12-1-2002 Aaa 1,553,325
1,505,000 Anchorage, Alaska General Obligation General Purpose Refunding Bonds,
4.60%, 2-1-2003 Aaa 1,482,064
2,000,000 Lake County, Illinois Forest Preserve District General Obligation
Refunding Bonds, Ser. 1992B, 5.70%, 2-1-2003 Aa2 2,090,280
1,050,000 Oklahoma City, Oklahoma General Obligation Bonds, Series 1993, 5.15%,
5-1-2003 Aa2 1,072,491
2,000,000 Nashville and Davidson County, Tennessee General Obligation Refunding
Bonds of 1993, 5.00%, 5-15-2003 Aa 2,027,720
2,000,000 State of Illinois General Obligation Refunding Bonds, Series of June 1993,
5.00%, 6-1-2003 Aa3 2,012,360
1,500,000 Municipality of Anchorage, Alaska 1993 General Obligation Refunding
School Bonds, Series B, 4.90%, 9-1-2003 Aaa 1,507,905
6
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STATE FARM MUNICIPAL BOND FUND, INC.
PORTFOLIO OF INVESTMENTS
MAY 31, 1997
(UNAUDITED)
RATINGS
PRINCIPAL (MOODY'S
AMOUNT ISSUER OR S & P) VALUE
GENERAL OBLIGATIONS (Continued)
$2,000,000 Texas Public Finance Authority, State of Texas General Obligation
Refunding Bonds, Ser. 1992A, 5.70%, 10-1-2003 Aa $2,103,880
2,000,000 State of Wisconsin General Obligation Refunding Bonds of 1993,
Series 1, 5.30%, 11-1-2003 Aa2 2,061,280
2,000,000 State of Wisconsin General Obligation Refunding Bonds of 1993,
Series 3, 4.75%, 11-1-2003 Aa2 2,001,020
2,520,000 Federal Way School District No. 210, King County, Washington Unlimited
Tax General Obligation and Refunding Bonds, Series 1993, 5.25%,
12-1-2003 Aaa 2,582,698
2,000,000 Jefferson County, Colorado School District No. R-1 General Obligation
Bonds, Ser. 1992, 5.75%, 12-15-2003 Aaa 2,112,440
2,025,000 County of DuPage, Illinois General Obligation Refunding Bonds
(Alternate Rev. Source - Stormwater Project), 5.10%, 1-1-2004 Aaa 2,053,168
2,000,000 Indianapolis, Indiana Local Public Improvement Bond Bank, Series 1993A
Bonds, 5.25%, 1-10-2004 Aaa 2,042,420
2,100,000 Cherokee County School Systems, Georgia General Obligation School
Series 1993, 4.90%, 2-1-2004 A1 2,106,972
2,300,000 Osseo Area Schools, Minnesota, General Obligation Refunding Bonds,
Series 1993, 4.60%, 2-1-2004 A1 2,262,533
2,300,000 Indianapolis, Indiana Local Public Improvement Bond Bank Refunding
Bonds, Series 1993 B, 4.70%, 2-15-2004 Aaa 2,262,970
1,600,000 County of Buncombe, North Carolina Refunding Bonds, Series 1993,
5.10%, 3-1-2004 Aa 1,630,976
1,050,000 Oklahoma City, Oklahoma General Obligation Bonds, Series 1993, 5.25%,
5-1-2004 Aa2 1,075,137
2,000,000 Davis County School District, Davis County, Utah General Obligation
Refunding Bonds, Series 1993A, 4.50%, 6-1-2004 Aaa 1,942,680
2,000,000 Alachua County School District, Alachua County, Florida General
Obligation Refunding Bonds, Series 1994, 4.50%, 7-1-2004 Aaa 1,947,840
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 2,042,180
1,205,000 DeKalb County School District, Georgia General Obligation Refunding
Bonds, Series 1993, 5.10%, 7-1-2004 Aa 1,227,895
1,000,000 Maricopa County, Arizona Unified School District No. 69, Paradise
Valley School Improvement Bonds, Ser. 1990A, 7.10%, 7-1-2004 A1 1,130,510
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 1,563,993
3,215,000 State of Minnesota General Obligation State Refunding Bonds, 5.125%,
8-1-2004 Aaa 3,268,305
2,000,000 Harris County, Texas Road and Refunding Bonds, Series 1993, 4.70%,
10-1-2004 Aa2 1,982,020
2,000,000 City of Seattle, Washington Unlimited Tax General Obligation Refunding
Bonds, 1993, 4.80%, 12-1-2004 Aa1 1,995,520
1,800,000 Nashville and Davidson County, Tennessee General Obligation Refunding
Bonds of 1993, 5.00%, 5-15-2005 Aa 1,818,792
1,625,000 Charleston County, South Carolina General Obligation Bonds of 1994
(ULT) 5.40%, 6-1-2005 Aa3 1,690,244
1,100,000 Municipality of Anchorage, Alaska 1994 General Obligation School Bonds,
5.40%, 7-1-2005 Aaa 1,132,604
7
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STATE FARM MUNICIPAL BOND FUND, INC.
PORTFOLIO OF INVESTMENTS
MAY 31, 1997
(UNAUDITED)
RATINGS
PRINCIPAL (MOODY'S
AMOUNT ISSUER OR S & P) VALUE
GENERAL OBLIGATIONS (Continued)
$ 2,000,000 Oklahoma City, Oklahoma General Obligation Refunding Bonds, Series
1993, 5.30%, 8-1-2005 Aa2 $2,062,700
1,600,000 Natrona County, Wyoming School District No. 1 General Obligation
Bonds, Ser. 1994, 5.45%, 7-1-2006 Aaa 1,647,248
2,340,000 City of Phoenix, Arizona General Obligation Refunding Bonds, Ser.
1993 A, 5.30%, 7-1-2006 Aa1 2,411,323
2,125,000 Southwest Allen, Indiana High School Building Corp. 1st Mortgage
Refunding Bonds, Series 1996B, 4.85%, 7-15-2006 Aaa 2,099,606
2,000,000 State of California Various Purpose General Obligation Bonds, 6.00%,
10-1-2006 A1 2,181,880
3,215,000 Forsyth County School District, Georgia, General Obligation Bonds,
Series 1995, 5.05%, 7-1-2007 Aaa 3,242,681
2,000,000 Arapahoe County School District #6, Colorado, Littleton Public Schools
General Obligation Improvement Bonds, Series 1995A, 5.00%, 12-1-2007 Aa 2,009,740
2,780,000 Salt Lake County, Utah General Obligation Jail Bonds, Series 1995,
5.00%, 12-15-2007 Aaa 2,801,072
2,355,000 Carrollton-Farmers Branch Independent School District (Dallas and
Denton Counties, Texas) School Building Unlimited Tax Bonds, Series
1996, 5.20%, 2-15-2008 Aaa 2,371,862
2,000,000 State of Wisconsin General Obligation Bonds of 1995, Series A, 6.00%,
5-1-2008 Aa2 2,124,000
2,000,000 State of Florida, State Board of Education, Public Education Capital
Outlay Refunding Bonds, 1995 Series C, 5.125%, 6-1-2008 Aa2 2,012,180
1,000,000 Maricopa County, Arizona Unified School District No.69, Paradise Valley
School Improvement Bonds, Ser. 1994A, 7.10%, 7-1-2008 A1 1,165,210
1,700,000 State of South Carolina General Obligation State Highway Bonds, Series
1995, 5.10%, 8-1-2008 Aaa 1,714,654
3,000,000 State of Texas Public Finance Authority General Obligation Refunding
Bonds, Series 1996B, 5.40%, 10-1-2008 Aa 3,077,190
4,000,000 County of Wake, North Carolina, General Obligation School Bonds,
Series 1997, 4.90%, 3-1-2009 Aaa 3,920,600
1,200,000 Maricopa County, Arizona Unified School District No.69, Paradise Valley
School Improvement Bonds, Ser. 1994A, 7.00%, 7-1-2009 A1 1,388,436
3,590,000 State of Georgia, General Obligation Bonds, 1996 C, 6.25%, 8-1-2009 Aaa 3,974,345
1,700,000 State of South Carolina General Obligation State Highway Bonds, Series
1995, 5.25%, 8-1-2009 Aaa 1,721,267
4,000,000 City and County of Honolulu, Hawaii, General Obligation Bonds,
Series 1996A, 5.40%, 9-1-2009 Aaa 4,074,000
4,000,000 State of Illinois, General Obligation Bonds, Series September 1996,
5.45%, 9-1-2009 Aaa 4,058,160
2,500,000 Maricopa County, Arizona Unified School District No.69, Paradise Valley
School Improvement Bonds, Ser. 1994A, 7.00%. 7-1-2010 Al 2,897,300
2,500,000 State of Wisconsin General Obligation Refunding Bonds of 1993, Ser. 2,
5.125%, 11-1-2010 Aa2 2,472,425
2,540,000 Mesa County Valley School District No. 51, County of Mesa, State
of Colorado, General Obligation Bonds, Series 1996, 5.30%, 12-1-2010 Aaa 2,549,347
3,000,000 State of Hawaii General Obligation Bonds of 1992, Series BW, 6.375%,
3-1-2011 Aa3 3,311,820
5,000,000 State of Louisiana, General Obligation Bonds, Series 1997A, 5.375%,
4-15-2001 Aaa 5,010,550
2,000,000 Washington and Clackamas Counties School District #23J
(Tigard-Tualatin), Oregon, General Obligation Bonds, Series 1995,
5.55%. 6-1-2011 A1 2,009,840
2,000,000 State of Georgia, General Obligation Bonds, Series 1995C, 5.70%,
7-1-2011 Aaa 2,092,360
1,125,000 The State of Delaware General Obligation Bonds, Series 1994B,
6.00%, 12-1-2011 Aa1 1,174,646
8
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
PORTFOLIO OF INVESTMENTS
MAY 31, 1997
(UNAUDITED)
RATINGS
PRINCIPAL (MOODY'S
AMOUNT ISSUER OR S & P) VALUE
GENERAL OBLIGATIONS (Continued)
$3,000,000 State of Georgia General Obligation Bonds, Series 1995B,
5,75%, 3-1-2012 Aaa $ 3,146,130
3,000,000 State of Georgia, General Obligation Bonds, 1997A, 6.25%,
4-1-2012 Aaa 3,303,000
5,000,000 State of Ohio, Full Faith & Credit General Obligation Infrastructure
Improvement Bonds, Series 1997, 5.35%, 8-1-2012 Aa1 4,997,550
4,500,000 State of Washington General Obligation Bonds, Series 1993A, 5.75%,
10-1-2012 Aa 4,691,160
1,125,000 The State of Delaware General Obligation Bonds, Series 1994B, 6.00%,
12-1-2012 Aa1 1,171,114
------------
197,349,387
MUNICIPAL REVENUE (19.1%):
2,000,000 City of St. Petersburg, Florida Public Utility Refunding Rev. Bonds,
Ser. 1991, 6.10%, 10-1-1998 Aa 2,053,600
3,000,000 City of Colorado Springs, Colorado Utilities System Refunding Rev.,
Ser. 1991A, 6.10%, 11-15-1998 Aa 3,088,740
1,490,000 San Antonio, Texas Water System Rev. Refunding Bonds, Ser. 1992,
5.80%, 5-15-1999 Aaa 1,532,361
1,250,000 Washington Public Power Supply System Nuclear Project No. 3,
Refunding Rev. Bonds, Ser. 1991A, 6.25%, 7-1-2000 Aa1 1,303,750
1,250,000 State of New York Power Authority General Purpose Bonds, Ser. Z,
6.00%, 1-1-2001 Aa 1,308,875
1,400,000 San Diego County Water Authority Water Rev. Certificates of
Participation, Ser. 1991A, 6.00%, 5-1-2001 Aa 1,473,094
2,000,000 Nashville and Davidson County, Tennessee Electric System Rev. Bonds,
1992 Series B, 5.50%, 5-15-2002 Aa 2,076,260
1,000,000 Washington Public Power Supply System Nuclear Project No. 1, Rev.
Refunding Bonds, Ser. 199OC, 7.70%, 7-1-2002 Aa1 1,120,730
1,080,000 Charleston, South Carolina Waterworks and Sewer Systems Rev.
Refunding Bonds, Sen 1986A, 6.90%, 1-1-2003 A1 1,098,630
2,000,000 City of Des Moines, Iowa Sewer Rev. Bonds, Ser. 1992D. 6.00%,
6-1-2003 Aaa 2,105,620
2,500,000 City of Albuquerque, New Mexico Joint Water and Sewer Refunding
Rev. Bonds, Ser. 1990B, 7.00%, 7-1-2003 Aa 2,723,950
2,000,000 Washington Public Power Supply System, Nuclear Project No.3
Refunding Revenue Bonds, Series 1993C, 4.80%, 7-1-2003 Aa1 1,968,440
2,000,000 City of Lincoln, Nebraska, Water Revenue and Refunding Bonds,
Series 1993, 4.90%, 8-15-2003 Aa 2,016,900
2,850,000 City of Lincoln, Nebraska. Electric System Revenue Refunding Bonds,
1993 Series A, 4.70%, 9-1-2003 Aa 2,839,113
2,000,000 Fargo, North Dakota Water Revenue of 1993, 5.00%. 1-1-2004 Aaa 2,011,060
1,500,000 Nashville and Davidson County, Tennessee Water and Sewer Revenue
Refunding Bonds, Series 1993, 4.90%, 1-1-2004 Aaa 1,510,005
1,710,000 Southern Minnesota Municipal Power Agency, Power Supply System
Revenue Bonds, Series 1993 B, 4.60%, 1-1-2004 A 1,656,665
1,500,000 Municipal Electric Authority of Georgia General Power Rev. Bonds,
1993A Series, 5.00%, 1-1-2004 A 1,494,945
2,000,000 City of Dallas, Texas Waterworks and Sewer System Rev. Refunding
Bonds, Series 1993, 4.90%, 4-1-2004 Aa2 2,004,900
2,045,000 City of Iowa City, Johnson County, Iowa Sewer Rev. Bonds,
5.875%, 7-1-2004 Aaa 2,138,375
2,000,000 City of Jackson, Mississippi Water and Sewer System Rev. Refunding
Bonds, Series 1993-A, 4.85%, 9-1-2004 Aaa 1,999,620
9
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
PORTFOLIO OF INVESTMENTS
MAY 31, 1997
(UNAUDITED)
RATINGS
PRINCIPAL (MOODY'S
AMOUNT ISSUER OR S & P) VALUE
MUNICIPAL REVENUE (Continued)
$1,685,000 Hampton Roads Sanitation District, Virginia Wastewater Refunding and
Capital Improvement Revenue Bonds, Series 1993, 4.70%, 10-1-2004 Aa $ 1,668,841
3,000,000 City of Los Angeles Department of Water and Power, Electric Plant
Refunding Revenue Bonds, Second Issue of 1993, 4.80%, 11-15-2004 Aa3 3,007,770
2,200,000 The Water Works and Sewer Board, Birmingham, Alabama Water and
Sewer Revenue Bonds, Series 1994, 4.75%, 1-1-2005 Aa 2,177,846
1,500,000 Omaha, Nebraska Public Power District Electric System Rev. Bonds,
1993, Series B, 5.10%, 2-1-2005 Aa2 1,524,645
1,325,000 Winston-Salem, North Carolina Water & Sewer System Revenue Bonds,
Series 1995B, 5.00%, 6-1-2007 Aa 1,335,375
2,830,000 Sacramento County, California Sanitary District Financing Authority
Revenue Bonds, 1995, 5.00%, 12-1-2007 Aa 2,871,601
4,500,000 Nashville and Davidson County, Tennessee Water & Sewer Revenue
Refunding Bonds, Series 1996, 5.25%, 1-1-2008 Aaa 4,583,970
1,665,000 Winston-Salem, North Carolina Water & Sewer System Revenue Bonds,
Series 1995B, 5.10%, 6-1-2008 Aa 1,677,970
1,500,000 Sacramento County, California Sanitary District Financing Authority
Revenue Bonds, 1995, 5.00%, 12-1-2008 Aa 1,506,090
1,840,000 City of Dallas, Texas Waterworks and Sewer System Revenue Bonds, Series
1994A, 6.375%, 10-1-2012 Aa2 1,950,050
-----------
61,829,791
INDUSTRIAL REVENUE - UTILITIES (1.0%):
3,000,000 Becker, Minnesota Pollution Control Rev. Refunding Bonds, Ser 1989A,
6.80%, 4-1-2007 (Northern States Power Co. - Sherburne Cnty.
Gen. Sta. Units 1 & 2 Proj.) A2 3,162,510
------------
Total long-term municipal bonds (cost: $301,432,681) 313,034,007
SHORT-TERM INVESTMENTS (2.4%):
6,000,000 U.S. Treasury bills, 5.02% to 5.14% effective yield, due June
to August, 1997 5,967,100
1,375,000 General Motors Acceptance Corp., 5.48%, 6-3-1997 1,375,628
400,000 General Motors Acceptance Corp., 5.62%, 6-10-1997 400,063
------------
Total short-term investments (cost: $7,738,024) 7,742,791
------------
TOTAL INVESTMENTS (99.4%) (cost: $309,170,705) 320,776,798
CASH AND OTHER ASSETS, LESS LIABILITIES (.6%) 1,820,181
------------
NET ASSETS (100.0%) $322,596,979
============
</TABLE>
Note: At May 31, 1996, net unrealized appreciation of $11,606,093
consisted of gross unrealized appreciation of $11,919,862 and gross
unrealized depreciation of $313,769 based on cost of $309,170,705
for federal income tax purposes.
10
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
Investments, at value (cost $309,170,705) $ 320,776,798
Cash 594,813
Receivable for:
Interest $ 5,681,028
Shares of the Fund Sold 55,612
Sundry 5,316 5,741,956
------------
Prepaid expenses 30,393
---------------
Total assets 327,143,960
LIABILITIES AND NET ASSETS
Payable for:
Securities purchased 400,000
Dividends to shareowners 3,234,021
Shares of the Fund redeemed 851,822
Other accounts payable (including $98,913 to Manager) 108,278
------------
Total liabilities 4,594,121
---------------
Net assets applicable to 38,812,753 shares outstanding of
$1 par value common stock (100,000,000 shares authorized) $ 322,549,839
===============
Net asset value, offering price and redemption
price per share $ 8.31
===============
ANALYSIS OF NET ASSETS
Excess of amounts received from sales of shares over
amounts paid on redemptions of shares on account of
capital $ 310,943,521
Undistributed net realized gain on sales of investments 225
Net unrealized appreciation of investments 11,606,093
---------------
Net assets applicable to shares outstanding $ 322,549,839
===============
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1997 NOVEMBER 30,
(UNAUDITED) 1996
<S> <C> <C>
INVESTMENT INCOME:
Tax-exempt interest $ 9,615,845 17,621,142
Taxable interest 214,843 735,320
------------ ------------
Total investment income 9,830,688 18,356,462
EXPENSES:
Investment advisory and management fees 197,790 385,258
Audit fees 11,213 21,106
Legal fees 811 3,006
Fidelity bond expense 2,060 4,433
Directors' fees 1,200 3,000
Reports to shareowners 1,929 5,141
Securities evaluation fees 9,085 19,874
Franchise taxes 9,011 16,602
Custodian fees 6,114 24,936
Other 9,484 18,775
------------ ------------
Total expenses 248,697 502,131
Less: custodian fees paid indirectly -- 18,709
------------ ------------
Net expenses 248,697 483,422
------------ ------------
Net investment income 9,581,991 17,873,040
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on sales of investments 225 121,825
Change in net unrealized appreciation (4,957,761) (1,805,995)
------------ ------------
Net realized and unrealized (loss) on investments (4,957,536) (1,684,170)
------------ ------------
Net change in net assets resulting
from operations $ 4,624,455 $ 16,188,870
============ ============
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED NOVEMBER 30,
MAY 31, 1997 1996 1995
(UNAUDITED)
<S> <C> <C> <C>
From operations:
Net investment income $ 9,581,991 17,873,040 16,906,435
Net realized gain on sales of
investments 225 121,825 264,519
Change in net unrealized
appreciation/depreciation (4,957,761) (1,805,995) 21,451,782
--------------- ------------- -------------
Net change in net assets resulting from
operations 4,624,455 16,188,870 38,622,736
Distributions to shareowners from:
Net investment income (per share $.25 in
in 1997, $.48 in 1996 and $.48 in
1995) (9,581,991) (17,873,040) (16,906,435)
Net realized gain (per share $.003
in 1997, $.006 in 1996) (121,825) (214,926) -
--------------- ------------- -------------
(9,703,816) (18,087,966) (16,906,435)
From Fund share transactions:
Proceeds from shares sold 13,108,645 27,900,088 25,292,645
Reinvestment of ordinary income dividends
and capital gain distributions 7,342,607 13,618,482 12,894,959
--------------- ------------- -------------
20,451,252 41,518,570 38,187,604
Less payments for shares redeemed 13,971,673 25,886,170 22,392,823
--------------- ------------- -------------
Net increase in net assets from Fund
share transactions 6,479,579 15,632,400 15,794,781
--------------- ------------- -------------
Total increase in net assets 1,400,218 13,733,304 37,511,082
Net assets:
Beginning of period 321,149,621 307,416,317 269,905,235
--------------- ------------- -------------
End of period $ 322,549,839 321,149,621 307,416,317
=============== ============= =============
</TABLE>
See accompanying notes to financial statements
13
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION - Long-term debt securities and U.S. Treasury bills are
valued using quotations provided by an independent pricing service. Short-term
debt securities, other than U.S. Treasury bills, 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 INVESTMENT 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 Revenue 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.
CUSTODIAN FEES - For the period ended May 31, 1997 the Fund no longer
receives fee reductions for balances maintained with the custodian, as
interest on cash balances is reflected as income rather than an offset to
custodian fees. Custodian fees for the year ended November 30, 1996 were
reduced based on the Fund's cash balances maintained with the custodian.
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,
14
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
NOTES TO FINANCIAL STATEMENTS
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 $197,790 for
the six months ended May 31, 1997 and $385,258 for the year ended November 30,
1996. 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, 1997 and the year ended November
30, 1996, except for directors' fees of $1,200 and $3,000, respectively, paid
to the Fund's independent directors.
3. INVESTMENT TRANSACTIONS
Investment transactions (exclusive of short-term instruments) are as
follows:
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED NOVEMBER 30,
MAY 31, 1997 1996
<S> <C> <C>
Purchases $ 17,866,902 30,463,407
Proceeds from sales 12,331,375 17,540,000
============ ===========
</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 30,
MAY 31, 1997 1996 1995
<S> <C> <C> <C>
Shares sold 1,574,282 3,324,581 3,052,147
Shares issued in reinvestment of ordinary
income dividends and capital gain
distributions 883,015 1,626,301 1,565,349
---------- ---------- ----------
2,457,297 4,950,882 4,617,496
Less shares redeemed 1,679,554 3,088,643 2,709,601
---------- ---------- ----------
Net increase in shares outstanding 777,743 1,862,239 1,907,895
========== ========== ==========
</TABLE>
15
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
FINANCIAL HIGHLIGHTS
PER SHARE INCOME AND CAPITAL CHANGES (For a share outstanding throughout the
period)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED NOVEMBER 30,
MAY 31, 1997 1996 1995 1994 1993 1992
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 8.44 8.50 7.88 8.59 8.34 8.15
Income from Investment
- ----------------------
Operations
----------
Net Investment Income .25 .48 .48 .48 .50 .53
Net Gains or Losses on
Securities (both realized
and unrealized) (.13) (.06) .62 (.69) .25 .19
-------------------------------------------------------------------
Total from Investment
Operations .12 .42 1.10 (.21) .75 .72
Less Distributions
- ------------------
Net investment income (.25) (.48) (.48) (.48) (.50) (.53)
Capital gains _ _ _ (.02) _ _
-------------------------------------------------------------------
Total Distributions (.25) (.48) (.48) (.50) (.50) (.53)
Net Asset Value, End of Period $ 8.31 8.44 8.50 7.88 8.59 8.34
===================================================================
Total Return 1.50% 5.21% 14.25% (2.55%) 9.17% 9.05%
- ------------
Ratios/Supplemental Data
- ------------------------
Net assets, end of period
(millions) $ 322.6 321.1 307.4 269.9 276.4 211.3
Ratio of expenses to average
net assets .16%(a) .16% .17%(b) .16% .18% .19%
Ratio of net investment income
to average net assets 5.95%(a) 5.76% 5.80% 5.80% 5.84% 6.36%
Portfolio turnover rate 4%(a) 6% 7% 8% 5% 4%
Number of shares outstanding
at end of period
(millions) 38.8 38.0 36.2 34.3 32.2 25.3
</TABLE>
Notes: (a) Determined on an annualized basis.
(b) The ratio based on net custodian expenses would have
been .16% in 1995.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000205926
<NAME> STATE FARM MUNICIPAL BOND FUND, INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> MAY-31-1997
<INVESTMENTS-AT-COST> 309170705
<INVESTMENTS-AT-VALUE> 320776798
<RECEIVABLES> 5741956
<ASSETS-OTHER> 625206
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 327143960
<PAYABLE-FOR-SECURITIES> 400000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4194121
<TOTAL-LIABILITIES> 4594121
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 310943521
<SHARES-COMMON-STOCK> 38812753
<SHARES-COMMON-PRIOR> 38035010
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 225
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 11606093
<NET-ASSETS> 322549839
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 9830688
<OTHER-INCOME> 0
<EXPENSES-NET> 248697
<NET-INVESTMENT-INCOME> 9581991
<REALIZED-GAINS-CURRENT> 225
<APPREC-INCREASE-CURRENT> (4957761)
<NET-CHANGE-FROM-OPS> 4624455
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 9581991<F1>
<DISTRIBUTIONS-OF-GAINS> 121825<F2>
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1574282
<NUMBER-OF-SHARES-REDEEMED> 1679554
<SHARES-REINVESTED> 883015
<NET-CHANGE-IN-ASSETS> 1400218
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 121825
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 197790
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 248697
<AVERAGE-NET-ASSETS> 320348545
<PER-SHARE-NAV-BEGIN> 8.44
<PER-SHARE-NII> .25
<PER-SHARE-GAIN-APPREC> (.13)
<PER-SHARE-DIVIDEND> .25
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.31
<EXPENSE-RATIO> .16
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Per share $.25
<F2>Per share $.003
</FN>
</TABLE>
