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, 1998
This report is not to be distributed unless preceded or accompanied by a
prospectus.
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
Dear Shareowner:
U.S. capital markets have generally been pricing fixed-income securities
within a 25 basis point (a basis point is .01%) range in interest rates so far
this year. Yields have risen to the upper end of that range when investors
have displayed concerns about rapid economic growth and increasing
inflationary pressures which might lead the Federal Reserve Open Market
Committee to tighten monetary policy. Interest rates have fallen to the lower
end of the range at times when investor sentiment leans towards believing a
significant slowdown in the economy is likely or U.S. securities become
favored investments as investors flee the turbulence of foreign markets.
Presently interest rates on municipal securities are about in the middle
of this trading range. At May 31, yields on the municipal bonds owned by your
Fund stood at levels approximately 15 basis points lower than those which
existed last November. This decline in yields caused the Fund's net asset
value to increase slightly to $8.49 from $8.43 over the past six months. The
total return of the Fund, which considers the reinvestment of dividends and
change in net asset value, was 7.7% for the past twelve months and 3.4% for
the six months just ended.
The supply of municipal securities has been plentiful so far this year as
issuers take advantage of interest rates on municipal bonds which are at the
lowest levels since 1978. New issue volume for the first five months of 1998
is a sizeable 51% ahead of activity in the comparable period of 1997. Demand
for the securities has been a bit erratic. Property and casualty insurance
companies have been buyers of certain large issues but have been in and out of
the market. Mutual funds have been receiving little new cash flow for
investment, so their buying activity has been limited. Other investors, who do
not regularly buy municipal securities, are picking up the excess supply and
are major buyers of municipal bonds now because they apparently perceive
municipal securities to be attractive when compared to their taxable
fixed-income counterparts. The belief that municipal bonds are currently
relatively attractive seems well founded when their yields in recent years are
contrasted to those available on U.S. Treasury securities.
Our domestic economy continues to show persistent strength despite the
drag imposed on trade from Asia's crisis and the strong U.S. dollar. Investors
are vigilantly watching to determine if the strong economy will lead to a
resurgence in inflation. So far some inflationary pressures showing up in
wages have been more than offset by restrained pricing of goods and
productivity gains. Consequently, the investments of your Fund are presently
providing satisfactory levels of real investment income in a world where
domestic inflation seems to be increasing at an annual rate in the 2-3% range.
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 22, 1998
2
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
PORTFOLIO OF INVESTMENTS
MAY 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
RATING
PRINCIPAL (MOODY'S
AMOUNT ISSUER OR S&P) VALUE
<S> <C> <C> <C>
LONG-TERM MUNICIPAL BONDS (97.7%):
SECURED BY U.S. TREASURY OBLIGATIONS (15.2%):
$ 255,000 San Antonio, Texas Water System Rev. Refunding Bonds, Ser. 1992,
5.80%, 5-15-1999 (Escrowed to maturity) Aaa $ 259,944
500,000 Orlando Utilities Commission, Florida Water and Electric Rev., Ser. 1983,
9.60%, 10-1-1999 (Escrowed to maturity) Aaa 537,625
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 2,049,700
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 1,041,050
1,250,000 State of New York Power Authority General Purpose Bonds, Ser. Z,
6.00%, 1-1-2001 (Escrowed to maturity) Aa2 1,311,163
2,840,000 Washington Suburban Sanitary District of Maryland, General Obligation
Bonds, 7.00%, 12-1-2001 (Prerefunded to 12-1-1998 @ 102) Aaa 2,942,439
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 2,402,843
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+ 3,185,640
475,000 Johnson County Water District No. 1, Kansas Water Rev., Ser. 1982A,
10.25%, 8-1-2002 (Escrowed to maturity) Aaa 538,322
3,500,000 Milwaukee, Wisconsin Metropolitan Sewerage District General Obligation
Capital Purpose Bonds, Ser. 1990A, 6.70%, 10-1-2002 (Escrowed to
maturity) Aa1 3,853,710
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 3,177,450
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 2,834,106
2,000,000 Jefferson County, Colorado School District No. R-1 General Obligation
Bonds, Ser. 1992, 5.75%, 12-15-2003 (Prerefunded to 12-15-2002 @ 101) Aaa 2,153,880
2,000,000 Fargo, North Dakota Water Revenue of 1993, 5.00%, 1-1-2004 (Escrowed
to maturity) Aaa 2,081,920
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 3,767,435
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 3,174,510
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 2,544,300
3
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
PORTFOLIO OF INVESTMENTS
MAY 31, 1998
(UNAUDITED)
RATING
PRINCIPAL (MOODY'S
AMOUNT ISSUER OR S&P) VALUE
SECURED BY U.S. TREASURY OBLIGATIONS (Continued)
$ 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 $ 1,940,033
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 2,750,878
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 2,018,740
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 1,636,425
6,000,000 Omaha Public Power District, Nebraska Electric System Revenue Bonds,
1992, Series B, 6.15%, 2-1-2012 (Escrowed to maturity) Aa2 6,794,340
------------
52,996,453
GENERAL OBLIGATIONS (62.2%):
3,000,000 Scottsdale Unified School District No. 48 of Maricopa County, Arizona
Refunding Bonds, Ser. 1991, 6.75%, 7-1-1998 Aa2 3,007,590
1,350,000 Stillwater, Minnesota Independent School District #834, General
Obligation School Building Bonds, Ser. 1991, 6.25%, 2-1-1999 Aaa 1,372,464
400,000 State of California, Variable Purpose General Obligation Bonds, 9.00%,
4-1-1999 A1 417,248
150,000 Oregon Veterans' Welfare General Obligation Bonds, Ser. LXIV, 9.00%,
4-1-1999 Aa2 156,482
2,500,000 Austin Independent School District, Texas Unlimited Tax Refunding
Bonds, Ser. 1991, 6.20%, 8-1-1999 Aaa 2,569,200
1,000,000 State of Texas Public Finance Authority General Obligation Bonds, Ser.
1990A, 7.00%, 10-1-1999 Aa2 1,041,320
3,000,000 Washington Suburban Sanitary District, Maryland Water Supply Refunding
Bonds of 1991, 6.00%, 11-1-1999 Aa1 3,091,680
200,000 Charleston, Illinois Water Works Improvement Bonds, 8.00%, 1-1-2000 A 211,964
3,000,000 State of California Various Purpose General Obligation Bonds, 5.90%, 2-1-2000 A1 3,095,940
2,500,000 DuPage Water Commission, Illinois General Obligation Water Refunding
Bonds, Ser. 1992, 5.85%, 3-1-2000 Aaa 2,580,475
1,000,000 State of Texas Veterans' Land Board General Obligation Bonds, Ser. 1984,
9.00%, 12-1-2000 Aa2 1,073,110
1,885,000 Anoka County, Minnesota General Obligation Capital Improvement
Refunding Bonds, Ser. 1992C, 5.20%, 2-1-2001 A1 1,939,269
1,200,000 Shelby County, Tennessee General Obligation Refunding Bonds, 1992
Ser. B, 5.20%, 3-1-2001 Aa2 1,236,828
400,000 State of California General Obligation Veterans Bonds, Ser. AL, 9.60%,
4-1-2001 A1 458,676
2,200,000 City and County of Honolulu, Hawaii General Obligation Refunding
Bonds, 1992 Ser. 1, 5.60%, 6-1-2001 Aa2 2,293,060
4
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
PORTFOLIO OF INVESTMENTS
MAY 31, 1998
(UNAUDITED)
RATING
PRINCIPAL (MOODY'S
AMOUNT ISSUER OR S&P) VALUE
GENERAL OBLIGATIONS (Continued)
$ 2,000,000 School District of Leon County, Florida General Obligation Refunding
Bonds, Ser. 1991, 5.85%, 7-1-2001 A1 $ 2,108,220
2,000,000 Howard County, Maryland Consolidated Public Improvement Refunding
Bonds, Ser. 1991B, 5.80%, 8-15-2001 Aaa 2,109,800
2,110,000 State of Nevada General Obligation (Limited Tax) Hoover Uprating
Refunding Bonds, Ser. 1992, 6.00%, 10-1-2001 Aa2 2,238,520
900,000 Monroe County Jail, Indiana, First Mortgage Refunding Bonds, Series
1993, 4.90%, 1-1-2002 A1 919,548
1,535,000 Columbus, Ohio Sewer Improvement No. 27 Refunding Bonds, Ser. 1991,
5.90%, 2-15-2002 Aaa 1,630,630
1,000,000 Williamson County, Tennessee Public Works Refunding Bonds, Ser. 1992,
5.65%, 3-1-2002 Aa1 1,053,370
1,500,000 City of Tulsa, Oklahoma General Obligation Refunding Bonds of 1993,
5.05%, 6-1-2002 Aa2 1,552,140
925,000 Monroe County Jail, Indiana First Mortgage Refunding Bonds, Series 1993,
4.90%, 7-1-2002 A1 947,662
2,100,000 Jackson Public School District, Mississippi General Obligation School
Bonds, Ser. 1992, 5.80%, 7-1-2002 A1 2,227,365
1,000,000 Pima County, Arizona General Obligation Refunding Bonds, Ser. 1992,
6.30%, 7-1-2002 Aa1 1,082,000
1,500,000 County of Ramsey, Minnesota General Obligation Capital Improvement
Refunding Bonds, Ser. 1992C, 5.40%, 12-1-2002 Aaa 1,580,745
1,505,000 Anchorage, Alaska General Obligation General Purpose Refunding Bonds,
4.60%, 2-1-2003 Aaa 1,529,576
2,000,000 Lake County, Illinois Forest Preserve District General Obligation
Refunding Bonds, Ser. 1992B, 5.70%, 2-1-2003 Aa2 2,128,560
1,050,000 Oklahoma City, Oklahoma General Obligation Bonds, Series 1993, 5.15%,
5-1-2003 Aa2 1,095,329
2,000,000 Nashville and Davidson County, Tennessee General Obligation Refunding
Bonds of 1993, 5.00%, 5-15-2003 Aa2 2,077,300
2,000,000 State of Illinois General Obligation Refunding Bonds, Series of June 1993,
5.00%, 6-1-2003 Aa3 2,071,560
1,500,000 Municipality of Anchorage, Alaska 1993 General Obligation Refunding
School Bonds, Series B, 4.90%, 9-1-2003 Aaa 1,548,255
2,000,000 Texas Public Finance Authority, State of Texas General Obligation
Refunding Bonds, Ser. 1992A, 5.70%, 10-1-2003 Aa2 2,146,960
2,000,000 State of Wisconsin General Obligation Refunding Bonds of 1993, Series 1,
5.30%, 11-1-2003 Aa2 2,109,600
2,000,000 State of Wisconsin General Obligation Refunding Bonds of 1993, Series 3,
4.75%, 11-1-2003 Aa2 2,056,700
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 2,650,108
2,025,000 County of DuPage, Illinois General Obligation Refunding Bonds (Alternate
Rev. Source - Stormwater Project), 5.10%, 1-1-2004 Aaa 2,112,824
2,000,000 Indianapolis, Indiana Local Public Improvement Bond Bank, Series 1993A
Bonds, 5.25%, 1-10-2004 Aaa 2,103,960
5
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
PORTFOLIO OF INVESTMENTS
MAY 31, 1998
(UNAUDITED)
RATING
PRINCIPAL (MOODY'S
AMOUNT ISSUER OR S&P) VALUE
GENERAL OBLIGATIONS (Continued)
$ 2,100,000 Cherokee County School Systems, Georgia General Obligation School
Series 1993, 4.90%, 2-1-2004 A1 $ 2,171,253
2,300,000 Osseo Area Schools, Minnesota, General Obligation Refunding Bonds,
Series 1993, 4.60%, 2-1-2004 A1 2,344,712
2,300,000 Indianapolis, Indiana Local Public Improvement Bond Bank Refunding
Bonds, Series 1993 B, 4.70%, 2-15-2004 Aaa 2,355,384
1,600,000 County of Buncombe, North Carolina Refunding Bonds, Series 1993,
5.10%, 3-1-2004 Aa2 1,676,176
1,050,000 Oklahoma City, Oklahoma General Obligation Bonds, Series 1993, 5.25%,
5-1-2004 Aa2 1,097,576
2,000,000 Davis County School District, Davis County, Utah General Obligation
Refunding Bonds, Series 1993A, 4.50%, 6-1-2004 Aaa 2,028,380
2,000,000 Alachua County School District, Alachua County, Florida General
Obligation Refunding Bonds, Series 1994, 4.50%, 7-1-2004 Aaa 2,037,260
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 2,095,120
1,205,000 DeKalb County School District, Georgia General Obligation Refunding
Bonds, Series 1993, 5.10%, 7-1-2004 Aa 1,264,009
1,000,000 Maricopa County, Arizona Unified School District No. 69, Paradise Valley
School Improvement Bonds, Ser. 1990A, 7.10%, 7-1-2004 A1 1,150,170
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 1,609,670
3,215,000 State of Minnesota General Obligation State Refunding Bonds, 5.125%,
8-1-2004 Aaa 3,357,842
2,000,000 Harris County, Texas Road and Refunding Bonds, Series 1993, 4.70%,
10-1-2004 Aa2 2,053,920
2,000,000 City of Seattle, Washington Unlimited Tax General Obligation Refunding
Bonds, 1993, 4.80%, 12-1-2004 Aa1 2,047,140
1,800,000 Nashville and Davidson County, Tennessee General Obligation Refunding
Bonds of 1993, 5.00%, 5-15-2005 Aa2 1,877,274
1,625,000 Charleston County, South Carolina General Obligation Bonds of 1994
(ULT) 5.40%, 6-1-2005 Aa3 1,733,144
1,100,000 Municipality of Anchorage, Alaska 1994 General Obligation School Bonds,
5.40%, 7-1-2005 Aaa 1,169,069
2,000,000 Oklahoma City, Oklahoma General Obligation Refunding Bonds, Series
1993, 5.30%, 8-1-2005 Aa2 2,119,660
1,600,000 Natrona County, Wyoming School District No. 1 General Obligation
Bonds, Ser. 1994, 5.45%, 7-1-2006 Aaa 1,688,816
2,340,000 City of Phoenix, Arizona General Obligation Refunding Bonds, Ser. 1993 A,
5.30%, 7-1-2006 Aa1 2,496,710
2,125,000 Southwest Allen, Indiana High School Building Corp., 1st Mortgage
Refunding Bonds, Series 1996B, 4.85%, 7-15-2006 Aaa 2,185,265
2,000,000 State of California Various Purpose General Obligation Bonds, 6.00%,
10-1-2006 A1 2,228,600
3,215,000 Forsyth County School District, Georgia, General Obligation Bonds, Series
1995, 5.05%, 7-1-2007 Aaa 3,374,946
2,000,000 Arapahoe County School District #6, Colorado, Littleton Public Schools
General Obligation Improvement Bonds, Series 1995A, 5.00%, 12-1-2007 Aa2 2,097,140
6
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
PORTFOLIO OF INVESTMENTS
MAY 31, 1998
(UNAUDITED)
RATING
PRINCIPAL (MOODY'S
AMOUNT ISSUER OR S&P) VALUE
GENERAL OBLIGATIONS (Continued)
$ 2,780,000 Salt Lake County, Utah General Obligation Jail Bonds, Series 1995, 5.00%,
12-15-2007 Aaa $ 2,895,092
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 2,462,176
2,000,000 State of Wisconsin General Obligation Bonds of 1995, Series A, 6.00%,
5-1-2008 Aa2 2,180,380
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 2,096,940
1,000,000 Maricopa County, Arizona Unified School District No. 69, Paradise Valley
School Improvement Bonds, Ser. 1994A, 7.10%, 7-1-2008 A1 1,203,520
1,700,000 State of South Carolina General Obligation State Highway Bonds, Series
1995, 5.10%, 8-1-2008 Aaa 1,787,601
3,000,000 State of Texas Public Finance Authority General Obligation Refunding
Bonds, Series 1996B, 5.40%, 10-1-2008 Aa2 3,198,690
4,000,000 County of Wake, North Carolina, General Obligation School Bonds,
Series 1997, 4.90%, 3-1-2009 Aaa 4,143,280
1,200,000 Maricopa County, Arizona Unified School District No. 69, Paradise Valley
School Improvement Bonds, Ser. 1994A, 7.00%, 7-1-2009 A1 1,449,072
3,590,000 State of Georgia, General Obligation Bonds, 1996 C, 6.25%, 8-1-2009 Aaa 4,153,773
1,700,000 State of South Carolina General Obligation State Highway Bonds, Series
1995, 5.25%, 8-1-2009 Aaa 1,800,079
4,000,000 City and County of Honolulu, Hawaii, General Obligation Bonds,
Series 1996A, 5.40%, 9-1-2009 Aaa 4,273,160
4,000,000 State of Illinois, General Obligation Bonds, Series September 1996,
5.45%, 9-1-2009 Aaa 4,284,000
4,250,000 Mesa Unified School District No. 4 of Maricopa County, Arizona, School
Improvement Bonds, Project of 1995, Series D (1997), 4.75%,
7-1-2010 Aaa 4,281,025
2,500,000 Maricopa County, Arizona Unified School District No. 69, Paradise Valley
School Improvement Bonds, Ser. 1994A, 7.00%, 7-1-2010 A1 3,043,700
2,500,000 State of Wisconsin General Obligation Refunding Bonds of 1993, Ser. 2,
5.125%, 11-1-2010 Aa2 2,632,750
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 2,667,660
3,000,000 State of Hawaii General Obligation Bonds of 1992, Series BW, 6.375%, 3-1-2011 A1 3,468,360
5,000,000 State of Louisiana, General Obligation Bonds, Series 1997A, 5.375%, 4-15-2011 Aaa 5,258,450
3,800,000 Northville Public Schools, Michigan, 1997 Sch. Bldg. & Site & Ref., 5.10%,
5-1-2011 Aaa 3,890,098
2,000,000 Washington and Clackamas Counties School District #23J (Tigard-Tualatin),
Oregon, General Obligation Bonds, Series 1995, 5.55%, 6-1-2011 A1 2,091,960
2,000,000 State of Georgia, General Obligation Bonds, Series 1995C, 5.70%, 7-1-2011 Aaa 2,210,300
1,125,000 The State of Delaware General Obligation Bonds, Series 1994B, 6.00%,12-1-2011 Aa1 1,238,558
3,000,000 Wayzata Independent School District #284, Minnesota, General Obligation
School Building Ref. Serv. 1998A, 5.00%, 2-1-2012 Aa1 3,054,480
3,000,000 State of Georgia General Obligation Bonds, Series 1995B, 5.75%, 3-1-2012 Aaa 3,316,230
3,000,000 State of Georgia, General Obligation Bonds, 1997A, 6.25%, 4-1-2012 Aaa 3,468,960
2,465,000 Clarkston Community Schools, Michigan, General Obligation 1998 Ref.,
4.85%, 5-1-2012 Aaa 2,459,478
5,000,000 State of Ohio, Full Faith & Credit General Obligation Infrastructure
Improvement Bonds, Series 1997, 5.35%, 8-1-2012 Aa1 5,243,550
7
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
PORTFOLIO OF INVESTMENTS
MAY 31, 1998
(UNAUDITED)
RATING
PRINCIPAL (MOODY'S
AMOUNT ISSUER OR S&P) VALUE
GENERAL OBLIGATIONS (Continued)
$ 4,500,000 State of Washington General Obligation Bonds, Series 1993A, 5.75%, 10-1-2012 Aa1 $ 4,973,670
1,125,000 The State of Delaware General Obligation Bonds, Series 1994B, 6.00%, 12-1-2012 Aa1 1,238,558
3,135,000 St. Vrain School District #R3-1J, Colorado, General Obligation Ser.
1997, 5.00%, 12-15-2012 Aaa 3,170,802
5,750,000 Montgomery County, Maryland, General Obligation Cons. Pub. Impt. 1998
Ser A, 4.875%, 5-1-2013 Aaa 5,788,583
3,785,000 DuPage County Forest Preserve District, Illinois, General Obligation Ser. 1997,
4.90%, 10-1-2013 Aaa 3,806,726
------------
217,116,935
MUNICIPAL REVENUE (19.4%):
2,000,000 City of St. Petersburg, Florida Public Utility Refunding
Rev. Bonds, Ser. 1991, 6.10%, 10-1-1998 Aa 2,016,080
3,000,000 City of Colorado Springs, Colorado Utilities System Refunding Rev., Ser.
1991A, 6.10%, 11-15-1998 Aa2 3,032,940
1,235,000 San Antonio, Texas Water System Rev. Refunding Bonds, Ser. 1992, 5.80%,
5-15-1999 Aaa 1,258,613
1,250,000 Washington Public Power Supply System Nuclear Project No. 3, Refunding
Rev. Bonds, Ser. 1991A, 6.25%, 7-1-2000 Aa1 1,302,963
1,400,000 San Diego County Water Authority Water Rev. Certificates of Participation,
Ser. 1991A, 6.00%, 5-1-2001 Aa3 1,476,454
2,000,000 Nashville and Davidson County, Tennessee Electric System Rev. Bonds,
1992 Series B, 5.50%, 5-15-2002 Aa 2,099,880
1,000,000 Washington Public Power Supply System Nuclear Project No. 1, Rev.
Refunding Bonds, Ser. 1990C, 7.70%, 7-1-2002 Aa1 1,122,840
1,080,000 Charleston, South Carolina Waterworks and Sewer Systems Rev. Refunding
Bonds, Ser. 1986A, 6.90%, 1-1-2003 A1 1,093,165
2,000,000 City of Des Moines, Iowa Sewer Rev. Bonds, Ser. 1992D, 6.00%, 6-1-2003 Aaa 2,131,460
2,500,000 City of Albuquerque, New Mexico Joint Water and Sewer Refunding Rev.
Bonds, Ser. 1990B, 7.00%, 7-1-2003 Aa3 2,690,075
2,000,000 Washington Public Power Supply System, Nuclear Project No. 3 Refunding
Revenue Bonds, Series 1993C, 4.80%, 7-1-2003 Aa1 2,037,880
2,000,000 City of Lincoln, Nebraska, Water Revenue and Refunding Bonds, Series 1993,
4.90%, 8-15-2003 Aa2 2,069,520
2,850,000 City of Lincoln, Nebraska, Electric System Revenue Refunding Bonds,
1993 Series A, 4.70%, 9-1-2003 Aa2 2,917,745
1,500,000 Nashville and Davidson County, Tennessee Water and Sewer Revenue
Refunding Bonds, Series 1993, 4.90%, 1-1-2004 Aaa 1,550,265
1,710,000 Southern Minnesota Municipal Power Agency, Power Supply System
Revenue Bonds, Series 1993 B, 4.60%, 1-1-2004 A2 1,725,031
1,500,000 Municipal Electric Authority of Georgia General Power Rev. Bonds,
1993A Series, 5.00%, 1-1-2004 A3 1,542,615
2,000,000 City of Dallas, Texas Waterworks and Sewer System Rev. Refunding Bonds,
Series 1993, 4.90%, 4-1-2004 Aa2 2,056,200
2,045,000 City of Iowa City, Johnson County, Iowa Sewer Rev. Bonds, 5.875%, 7-1-2004 Aaa 2,169,234
2,000,000 City of Jackson, Mississippi Water and Sewer System Rev. Refunding Bonds,
Series 1993-A, 4.85%, 9-1-2004 Aaa 2,066,300
1,685,000 Hampton Roads Sanitation District, Virginia Wastewater Refunding and
Capital Improvement Revenue Bonds, Series 1993, 4.70%, 10-1-2004 Aa 1,731,371
8
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
PORTFOLIO OF INVESTMENTS
MAY 31, 1998
(UNAUDITED)
RATING
PRINCIPAL (MOODY'S
AMOUNT ISSUER OR S&P) VALUE
MUNICIPAL REVENUE (Continued)
$ 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 $ 3,095,730
2,200,000 The Water Works and Sewer Board, Birmingham, Alabama Water and
Sewer Revenue Bonds, Series 1994, 4.75%, 1-1-2005 Aa 2,252,404
1,500,000 Omaha, Nebraska Public Power District Electric System Rev. Bonds, 1993,
Series B, 5.10%, 2-1-2005 Aa2 1,567,995
1,325,000 Winston-Salem, North Carolina Water & Sewer System Revenue Bonds,
Series 1995B, 5.00%, 6-1-2007 Aa2 1,385,592
2,830,000 Sacramento County, California Sanitary District Financing Authority
Revenue Bonds, 1995, 5.00%, 12-1-2007 Aa3 2,960,746
4,500,000 Nashville and Davidson County, Tennessee Water & Sewer Revenue
Refunding Bonds, Series 1996, 5.25%, 1-1-2008 Aaa 4,771,125
1,665,000 Winston-Salem, North Carolina Water & Sewer System Revenue Bonds,
Series 1995B, 5.10%, 6-1-2008 Aa2 1,747,101
1,500,000 Sacramento County, California Sanitary District Financing Authority
Revenue Bonds, 1995, 5.00%, 12-1-2008 Aa3 1,562,190
4,000,000 City of Portland, Oregon, Sewer System Revenue Refunding Bonds, 1997
Series A, 5.00%, 6-1-2011 Aaa 4,084,320
4,000,000 Gwinnett County Water & Sewer Authority, Georgia, Revenue Series
1998, 5.00%, 8-1-2011 Aaa 4,125,000
1,840,000 City of Dallas, Texas Waterworks and Sewer System Revenue Bonds, Series
1994A, 6.375%, 10-1-2012 Aa2 1,983,170
------------
67,626,004
INDUSTRIAL REVENUE - UTILITIES (0.9%):
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.) A1 3,126,660
------------
Total long-term municipal bonds (cost: $322,371,313) 340,866,052
------------
SHORT-TERM INVESTMENTS (1.6%):
5,700,000 U.S. Treasury bills, 4.93% to 5.03% effective yield, due June to August, 1998 5,669,911
------------
TOTAL INVESTMENTS (99.3%) (cost: $328,038,250) 346,535,963
CASH AND OTHER ASSETS, LESS LIABILITIES (0.7%) 2,566,546
------------
NET ASSETS (100.0%) $349,102,509
============
</TABLE>
Note: At May 31, 1998, net unrealized appreciation of $18,497,713 consisted
entirely of gross unrealized appreciation based on cost of
$328,038,250 for federal income tax purposes.
9
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
Investments, at value (cost $328,038,250) $ 346,535,963
Cash 565,331
Receivable for:
Interest $ 5,689,778
Shares of the Fund Sold 91,307
Sundry 5,316 5,786,401
------------
Prepaid expenses 30,626
--------------
Total assets 352,918,321
LIABILITIES AND NET ASSETS
Payable for:
Dividends to shareowners 2,925,833
Shares of the Fund redeemed 773,532
Other accounts payable (including $107,792 to Manager) 116,447
------------
Total liabilities 3,815,812
--------------
Net assets applicable to 41,143,281 shares outstanding of
$1 par value common stock (100,000,000 shares authorized) $ 349,102,509
==============
Net asset value, offering price and redemption
price per share $ 8.49
==============
ANALYSIS OF NET ASSETS
Excess of amounts received from sales of shares over
amounts paid on redemptions of shares on account of
capital $ 330,667,764
Accumulated net realized loss on sales of investments (62,968)
Net unrealized appreciation of investments 18,497,713
--------------
Net assets applicable to shares outstanding $ 349,102,509
==============
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1998 NOVEMBER 30,
(UNAUDITED) 1997
<S> <C> <C>
INVESTMENT INCOME:
Tax-exempt interest $ 9,130,443 18,341,212
Taxable interest 291,976 450,856
------------ ----------
Total investment income 9,422,419 18,792,068
EXPENSES:
Investment advisory and management fees 209,328 400,859
Audit fees 11,429 22,724
Legal fees 2,363 1,984
ICI dues 4,985 12,133
Registration fees 3,294 5,627
Fidelity bond expense 2,026 4,158
Directors' fees 2,720 3,300
Reports to shareowners 1,652 3,204
Securities evaluation fees 9,450 18,314
Franchise taxes 9,550 17,859
Custodian fees 5,252 13,387
Proxy and mailing expenses 1,800 --
Other -- 113
------------ ----------
Total expenses 263,849 503,662
------------ ----------
Net investment income 9,158,570 18,288,406
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on sales of investments (62,968) --
Change in net unrealized appreciation 2,156,217 (222,358)
------------ ----------
Net realized and unrealized gain (loss) on investments 2,093,249 (222,358)
------------ ----------
Net change in net assets resulting
from operations $ 11,251,819 18,066,048
============ ==========
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED NOVEMBER 30,
MAY 31, 1998 1997 1996
(UNAUDITED)
<S> <C> <C> <C>
From operations:
Net investment income $ 9,158,570 18,288,406 17,873,040
Net realized gain (loss) on sales of
investments (62,968) -- 121,825
Change in net unrealized
appreciation/depreciation 2,156,217 (222,358) (1,805,995)
-------------- ----------- -----------
Net change in net assets resulting from
operations 11,251,819 18,066,048 16,188,870
Distributions to shareowners from:
Net investment income (per share $.23 in
in 1998, $.47 in 1997 and $.48 in
1996) (9,158,570) (18,288,406) (17,873,040)
Net realized gain (per share $.003
in 1997, $.006 in 1996) -- (121,825) (214,926)
-------------- ----------- -----------
(9,158,570) (18,410,231) (18,087,966)
From Fund share transactions:
Proceeds from shares sold 18,631,811 27,490,904 27,900,088
Reinvestment of ordinary income dividends
and capital gain distributions 6,730,917 14,256,886 13,618,482
-------------- ----------- -----------
25,362,728 41,747,790 41,518,570
Less payments for shares redeemed 14,716,097 26,190,599 25,886,170
-------------- ----------- -----------
Net increase in net assets from Fund
share transactions 10,646,631 15,557,191 15,632,400
-------------- ----------- -----------
Total increase in net assets 12,739,880 15,213,008 13,733,304
Net assets:
Beginning of period 336,362,629 321,149,621 307,416,317
-------------- ----------- -----------
End of period $ 349,102,509 336,362,629 321,149,621
============== =========== ===========
</TABLE>
See accompanying notes to financial statements
12
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. OBJECTIVE
The investment objective of the State Farm Municipal Bond Fund, Inc. (the
Fund) is to provide its shareowners with as high a rate of income exempt from
federal income taxes as is consistent with prudent investment management. The
Fund seeks to achieve its investment objective through investment primarily in
a diversified portfolio of long-term Municipal Bonds, including industrial
revenue bonds.
2. 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 at
amortized cost which approximates market value. 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 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. Distributions of net realized gains 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.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
13
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
3. 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 $209,328 for
the six months ended May 31, 1998 and $400,859 for the year ended November 30,
1997. 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, 1998 and the year ended November
30, 1997, except for directors' fees of $2,720 and $3,300, respectively, paid
to the Fund's independent directors.
4. INVESTMENT TRANSACTIONS
Investment transactions (exclusive of short-term instruments) are as
follows:
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED NOVEMBER 30,
MAY 31, 1998 1997
<S> <C> <C>
Purchases $ 26,506,742 28,925,145
Proceeds from sales 12,300,625 17,572,918
============ ==========
</TABLE>
5. 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, 1998 1997 1996
<S> <C> <C> <C>
Shares sold 2,191,371 3,283,948 3,324,581
Shares issued in reinvestment of ordinary
income dividends and capital gain
distributions 793,268 1,706,790 1,626,301
--------- --------- ---------
2,984,639 4,990,738 4,950,882
Less shares redeemed 1,734,760 3,132,346 3,088,643
--------- --------- ---------
Net increase in shares outstanding 1,249,879 1,858,392 1,862,239
========= ========= =========
</TABLE>
14
<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, 1998 1997 1996 1995 1994 1993
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 8.43 8.44 8.50 7.88 8.59 8.34
Income from Investment
- ----------------------
Operations
----------
Net Investment Income .23 .47 .48 .48 .48 .50
Net Gains or Losses on
Securities (both realized
and unrealized) .06 (.01) (.06) .62 (.69) .25
--------------------------------------------------------------------
Total from Investment
Operations .29 .46 .42 1.10 (.21) .75
Less Distributions
- ------------------
Net investment income (.23) (.47) (.48) (.48) (.48) (.50)
Capital gains (a) _ _ _ _ (.02) _
--------------------------------------------------------------------
Total Distributions (.23) (.47) (.48) (.48) (.50) (.50)
Net Asset Value, End of Period $ 8.49 8.43 8.44 8.50 7.88 8.59
====================================================================
Total Return 3.42% 5.68% 5.21% 14.25% (2.55%) 9.17%
- ------------
Ratios/Supplemental Data
- ------------------------
Net assets, end of period
(millions) $ 349.1 336.4 321.1 307.4 269.9 276.4
Ratio of expenses to average
net assets .15%(b) .15% .16% .17%(c) .16% .18%
Ratio of net investment income
to average net assets 5.33%(b) 5.61% 5.76% 5.80% 5.80% 5.84%
Portfolio turnover rate 7%(b) 6% 6% 7% 8% 5%
Number of shares outstanding
at end of period
(millions) 41.1 39.9 38.0 36.2 34.3 32.2
</TABLE>
Notes: (a) Distributions representing less than $.01 were made in 1997,
1996, and 1993.
(b) Determined on an annualized basis.
(c) The ratio based on net custodian expenses would have been .16% in
1995.
15
<PAGE>
VOTING RESULTS OF SPECIAL MEETING OF SHAREOWNERS
At a Special Meeting of Shareowners of the Fund held on March 13, 1998, the
following actions were taken:
A. The shareowners of the Fund elected the following individuals to serve on
the Board of Directors until the next meeting of shareowners called for
this purpose and until their successors shall be elected and qualified:
-------------------------------------------------------------------------
Name of Director Number of Votes For Number of Votes Withheld
-------------------------------------------------------------------------
Edward B. Rust, Jr. 26,962,265 15,011
Roger S. Joslin 27,098,693 15,011
Albert H. Hoopes 26,525,956 41,497
Davis U. Merwin 26,874,821 16,777
James A. Shirk 26,961,029 16,777
Thomas M. Mengler 26,742,039 28,412
-------------------------------------------------------------------------
B. The shareowners of the Fund approved the proposed bylaw amendment that
would permit the board of directors to adopt further amendments without
shareowner approval:
--------------------------------------------------------------------------
Number of Votes For Number of Votes Against Number of Votes Withheld
-------------------------------------------------------------------------
23,988,417 2,366,924 1,003,845
--------------------------------------------------------------------------
16
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000205926
<NAME> STATE FARM MUNICIPAL BOND FUND, INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 328038250
<INVESTMENTS-AT-VALUE> 346535963
<RECEIVABLES> 5786401
<ASSETS-OTHER> 595957
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 352918321
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3815812
<TOTAL-LIABILITIES> 3815812
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 330667764
<SHARES-COMMON-STOCK> 41143281
<SHARES-COMMON-PRIOR> 39893402
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (62968)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 18497713
<NET-ASSETS> 349102509
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 9422419
<OTHER-INCOME> 0
<EXPENSES-NET> 263849
<NET-INVESTMENT-INCOME> 9158570
<REALIZED-GAINS-CURRENT> (62968)
<APPREC-INCREASE-CURRENT> 2156217
<NET-CHANGE-FROM-OPS> 11251819
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (9158570)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2191371
<NUMBER-OF-SHARES-REDEEMED> 1734760
<SHARES-REINVESTED> 793268
<NET-CHANGE-IN-ASSETS> 12739880
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 209328
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 263849
<AVERAGE-NET-ASSETS> 343684912
<PER-SHARE-NAV-BEGIN> 8.43
<PER-SHARE-NII> .23
<PER-SHARE-GAIN-APPREC> .06
<PER-SHARE-DIVIDEND> (.23)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.49
<EXPENSE-RATIO> .15
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
