<PAGE>
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SEMI-ANNUAL REPORT
State Farm Growth 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, 1996
This report is not to be distributed unless preceded or accompanied by a
prospectus.
===============================================================================
<PAGE>
STATE FARM GROWTH FUND, INC.
Dear Shareowner:
The powerful rally in general common stock prices which occurred in 1995
has carried over into 1996. The S&P 500 Index has produced a total return of
28.4% for the twelve months ended May 31, 1996, while the Growth Fund yielded
24.8%. Obviously, returns of this magnitude are very satisfying but are not
sustainable over long periods of time.
In recent months the stock market has been led higher by the shares of
small capitalization companies and firms which tend to possess risky financial
characteristics. It is not too surprising that the Fund's more conservative
portfolio lags general market returns during times such as this when
speculative securities are quite popular with investors.
The increase in speculative investment activity is bothersome to us because
it often is a forerunner of general market difficulties. Speculative
conditions often last much longer than one would expect, but market forces
seem to eventually discipline the last of the speculators by handing them
significant losses on many risky securities as prices return to more rational
levels. We try to avoid knowingly investing the Fund's assets in highly
speculative securities. Consequently, the main vulnerability of the Fund's
portfolio if a setback of the market occurs should be any spillover effects
from the general speculative market behavior on the prices of stocks held by
the Fund. Philosophically, we feel shareowners are well served by our focus of
avoiding financial risk and seeking competitive long-term investment results
by investing in the shares of companies with relatively stable financial and
operating characteristics.
The fundamental underpinnings for financial markets are becoming more
complex. Undoubtedly, U.S. stock prices are being supported by an economy which
has bounced back smartly from last winter's weakness. Most sectors of the
economy are showing improvement at the moment. In this environment, corporate
profits are still rising at a healthy, but declining pace. In reaction to the
improving economy, market interest rates have risen significantly over the past
four months, even though the Federal Reserve Board has kept short term interest
rates stable. The U.S. and Russia are facing elections. It seems that more than
the typical amount of confusion now exists among investors regarding the
prospects for the global economy, interest rates, inflation, and the stability
of political situations throughout the world. Therefore, markets are likely to
become more volatile as conflicting points of view work their way through the
prices of securities.
Volatility of securities prices can be unnerving, but it is not something
that we focus on much as we manage the Fund's investment portfolio. Rather, we
spend our time attempting to build and maintain a portfolio of companies which
we believe are growing satisfactorily and have prospects for earning
reasonable returns. The share prices of these companies have and will
fluctuate widely under varying market conditions. Our approach to investing
has been consistent and has produced competitive returns for long-term
investors over the years. To profit fully from our orientation to investing,
we suggest that shareowners be patient and avoid having undue expectations for
investment results over short periods of time.
-2-
<PAGE>
The directors have declared a semi-annual dividend of $.265 per Growth Fund
share which will be used to purchase additional shares for your account at the
net asset value at the close of business on June 28, 1996 unless you have
elected to receive payment directly by check.
Sincerely,
Kurt G. Moser Paul N. Eckley
Vice President Vice President
June 21, 1996
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<PAGE>
STATE FARM GROWTH FUND, INC.
PORTFOLIO OF INVESTMENTS
MAY 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
SHARES <C> VALUE
COMMON STOCKS (91.8%)
AGRICULTURAL PRODUCTS (7.0%):
2,594,967 Archer-Daniels-Midland Company........................................ $ 50,601,857
465,000 Kellogg Company....................................................... 33,828,750
--------------
84,430,607
BANKS (9.8%):
382,537 Bancorp Hawaii, Inc. ................................................. 13,914,783
529,029 Banponce Corporation.................................................. 24,930,492
349,850 National Commerce Bancorporation...................................... 10,845,350
490,000 Norwest Corporation................................................... 17,088,750
530,000 PNC Bank Corp......................................................... 16,098,750
810,000 Wachovia Corporation.................................................. 34,728,750
--------------
117,606,875
CHEMICALS (12.1%):
540,000 Air Products and Chemicals, Inc....................................... 32,130,000
777,300 Great Lakes Chemical Corporation...................................... 50,135,850
561,000 International Flavors & Fragrances Inc. .............................. 27,278,625
630,600 Sigma-Aldrich Corporation............................................. 35,313,600
--------------
144,858,075
COMMUNICATIONS (5.7%):
400,000 AT&T Corp............................................................. 24,950,000
823,000 MCI Communications Corporation........................................ 23,969,875
153,500 Reuters Holdings PLC (ADR)............................................ 10,687,437
360,181 Scandinavian Broadcasting System SA................................... 9,004,525
--------------
68,611,837
COMPUTERS AND OTHER OFFICE
EQUIPMENT (11.1%):
800,000 Hewlett-Packard Company............................................... 85,400,000
719,600 Hon Industries Inc. .................................................. 20,148,800
255,100 International Business Machines Corporation........................... 27,231,925
--------------
132,780,725
CONSUMER PRODUCTS (6.5%):
593,200 Corning Incorporated.................................................. 22,689,900
414,728 Jostens, Inc. ........................................................ 9,383,221
589,000 Rubbermaid Incorporated............................................... 16,492,000
320,000 The Coca-Cola Company................................................. 14,720,000
250,000 The Gillette Company.................................................. 14,781,250
--------------
78,066,371
</TABLE>
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<PAGE>
STATE FARM GROWTH FUND, INC.
PORTFOLIO OF INVESTMENTS
MAY 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES VALUE
DRUGS AND MEDICAL SUPPLIES (16.2%):
<C> <S> <C>
820,000 Ballard Medical Products.............................................. $ 16,297,500
1,550,000 Biomet, Inc........................................................... 21,700,000
620,400 Johnson & Johnson..................................................... 60,411,450
473,600 Eli Lilly and Company................................................. 30,428,800
375,000 Medaphis Corporation.................................................. 14,156,250
480,000 Pfizer Inc............................................................ 33,960,000
266,794 Rhone-Poulenc Rorer Inc. ............................................. 17,274,911
--------------
194,228,911
ENTERTAINMENT (4.4%):
873,180 The Walt Disney Company............................................... 53,045,685
HOUSING AND CONSTRUCTION (1.7%):
346,400 Vulcan Materials Company.............................................. 19,918,000
MACHINERY AND EQUIPMENT (4.2%):
450,000 ADC Telecommunications, Inc. ......................................... 20,700,000
185,000 Caterpillar Inc. ..................................................... 12,140,625
264,000 Motorola, Inc......................................................... 17,622,000
--------------
50,462,625
MINING AND METALS (1.9%):
195,000 Nucor Corporation..................................................... 10,725,000
185,000 The RTZ Corporation PLC (ADR)......................................... 11,701,250
--------------
22,426,250
OIL AND GAS (7.1%):
440,400 Barrett Resources Corporation......................................... 11,505,450
530,000 Chevron Corporation................................................... 31,667,500
290,000 Exxon Corporation..................................................... 24,577,500
394,100 Pennzoil Company...................................................... 17,044,825
--------------
84,795,275
UTILITIES (2.5%):
596,100 SBC Communications Inc................................................ 29,432,438
MISCELLANEOUS (1.6%):
337,500 Osmonics, Inc. ....................................................... 8,015,625
425,000 Pall Corporation...................................................... 11,368,750
--------------
19,384,375
--------------
Total common stocks (cost: $472,356,513)............................ 1,100,048,049
</TABLE>
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<PAGE>
STATE FARM GROWTH FUND, INC.
PORTFOLIO OF INVESTMENTS
MAY 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Principal
amount VALUE
SHORT-TERM INVESTMENTS (8.3%)
<S> <C> <C>
$40,825,000 U.S. Treasury bills, 4.81% to 4.99% effective yield, due $ 40,585,008
June to August, 1996......................................
29,000,000 General Motors Acceptance Corp., 5.24%, 6-4-1996.......... 29,016,894
475,000 General Motors Acceptance Corp., 5.24%, 6-11-1996......... 475,208
26,010,000 Ford Motor Credit Co., 5.23%, 6-11-1996................... 26,025,123
100,000 Ford Motor Credit Co., 5.27%, 6-11-1996................... 100,029
2,845,000 General Electric Capital Corp., 5.3%, 6-11-1996........... 2,845,419
--------------
Total short-term investments (cost: $99,035,312)........ 99,047,681
--------------
TOTAL INVESTMENTS (100.1%) (cost: $571,391,825)........... 1,199,095,730
CASH AND OTHER ASSETS, LESS
LIABILITIES (-.1%)..................................... (1,020,265)
--------------
NET ASSETS (100.0%)....................................... $1,198,075,465
==============
</TABLE>
Note: At May 31, 1996, net unrealized appreciation of $627,703,905 consisted of
gross unrealized appreciation of $631,872,602 and gross unrealized
depreciation of $4,168,697 based on cost of $571,391,825 for federal
income tax purposes.
See accompanying notes to financial statements.
-6-
<PAGE>
STATE FARM GROWTH FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS
Investments, at value (cost $571,391,825)..................................... $1,199,095,730
Cash.......................................................................... 1,014,675
Receivable for:
Dividends and interest...................................................... $2,668,862
Shares of the Fund sold..................................................... 135,871
Sundry...................................................................... 8,859 2,813,592
----------
Prepaid expenses.............................................................. 43,962
--------------
Total assets.............................................................. 1,202,967,959
LIABILITIES AND NET ASSETS
Payable for:
Shares of the Fund redeemed................................................. 1,691,129
Securities purchased........................................................ 2,845,000
Other accounts payable (including $328,696 to Manager)...................... 356,365
----------
Total liabilities......................................................... 4,892,494
-------------
Net assets applicable to 38,228,273 shares outstanding
of $.50 par value common stock (100,000,000
shares authorized).......................................................... $1,198,075,465
==============
Net asset value, offering price and redemption
price per share............................................................. $ 31.34
==============
ANALYSIS OF NET ASSETS
Excess of amounts received from sales of shares
over amounts paid on redemptions of shares
on account of capital....................................................... $ 524,765,255
Accumulated net realized gain on sales of investments......................... 31,491,995
Unrealized appreciation of investments........................................ 627,703,905
Undistributed net investment income........................................... 14,114,310
--------------
Net assets applicable to shares outstanding................................... $1,198,075,465
==============
</TABLE>
See accompanying notes to financial statements.
-7-
<PAGE>
STATE FARM GROWTH FUND, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Six months Year ended
ended November 30,
May 31, 1996 1995
(Unaudited)
<S> <C> <C>
Investment income:
Dividends (net of foreign withholding taxes of
$38,117 in 1996 and $104,425 in 1995).................... $ 8,431,233 15,895,757
Interest.................................................. 2,734,002 3,218,409
-------------- -----------
Total investment income................................. 11,165,235 19,114,166
Expenses:
Investment advisory and management fees................... 639,918 1,068,973
Audit fees................................................ 12,986 25,817
Legal fees................................................ 7,604 13,287
Fidelity bond expense..................................... 4,564 7,334
Directors' fees........................................... 5,400 6,600
Reports to shareowners.................................... 7,607 47,298
Franchise Taxes........................................... 5,744 9,876
Custodian fees............................................ 15,609 35,212
Other..................................................... 41,920 57,951
-------------- -----------
Total expenses.......................................... 741,352 1,272,348
Less: custodian fees paid indirectly.................... 15,609 35,064
-------------- -----------
Net expenses............................................ 725,743 1,237,284
-------------- -----------
Net investment income....................................... 10,439,492 17,876,882
Realized and unrealized gain
on investments:
Net realized gain on sales of
investments.............................................. 31,491,995 6,015,663
Change in net unrealized appreciation..................... 45,113,924 238,933,861
-------------- -----------
Net realized and unrealized gain
on investments........................................... 76,605,919 244,949,524
-------------- -----------
Net change in net assets resulting
from operations.......................................... $ 87,045,411 262,826,406
============== ===========
</TABLE>
See accompanying notes to financial statements.
-8-
<PAGE>
STATE FARM GROWTH FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six months ended Year ended November 30,
May 31, 1996 1995 1994
(Unaudited)
<S> <C> <C> <C>
From operations:
Net investment income..................................... $ 10,439,492 17,876,882 14,853,453
Net realized gain on sales of investments................. 31,491,995 6,015,663 7,117,419
Net change in unrealized appreciation..................... 45,113,924 238,933,861 7,405,430
-------------- ------------------------------
Net change in net assets resulting from operations........ 87,045,411 262,826,406 29,376,302
Undistributed net investment income included in price of
shares issued and redeemed............................... 285,678 407,527 294,170
Distributions to shareowners from:
Net investment income (per share $.265 in 1996, $.52 in
1995 and $.45 in 1994)................................... (7,992,632) (18,125,076) (14,871,521)
Net realized gain (per share $.12 in 1996 and $.175 in
1995).................................................... (6,015,663) (5,860,346) --
-------------- ------------------------------
Total distributions to shareowners.......................... (14,008,295) (23,985,422) (14,871,521)
From Fund share transactions:
Proceeds from shares sold................................. 96,724,964 110,543,974 98,159,876
Reinvestment of ordinary income dividends and capital
gain distributions....................................... 13,660,367 23,301,462 14,438,092
-------------- ------------------------------
110,385,331 133,845,436 112,597,968
Less payments for shares redeemed......................... 54,280,374 76,138,727 80,845,641
-------------- ------------------------------
Net increase in net assets from Fund share transactions... 56,104,957 57,706,709 31,752,327
-------------- ------------------------------
Total increase in net assets................................ 129,427,751 296,955,220 46,551,278
Net assets:
Beginning of period....................................... 1,068,647,714 771,692,494 725,141,216
-------------- ------------------------------
End of period (including undistributed net investment
income of $14,114,310 in 1996, $11,381,772 in 1995 and
$11,222,439 in 1994)..................................... $1,198,075,465 1,068,647,714 771,692,494
============== ==============================
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
STATE FARM GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION -- Investments are stated at value. Stocks traded on
securities exchanges, or in the over-the-counter market in which transaction
prices are reported, are valued at the last sales prices on the day of
valuation or, if there are no reported sales on that day, at the mean of the
last bid and asked quotations. Other stocks traded over-the-counter are valued
at the mean of the last bid and asked prices. 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)
and dividend income is recorded on the ex-dividend date. Interest income is
recorded on the accrual basis. Realized gains and losses from security
transactions are reported on an identified cost basis.
FUND SHARE VALUATION -- Fund shares are sold and redeemed on a continuous
basis at net asset value. Net asset value per share is determined daily as of
3:00 p.m. Bloomington, Illinois time on each business day other than weekend
and holiday closing, 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 total value of the
Fund's investments and other assets, less liabilities, by the number of Fund
shares outstanding.
FEDERAL INCOME TAXES, DIVIDENDS AND DISTRIBUTIONS TO SHAREOWNERS -- 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.
On June 14, 1996 an ordinary income dividend of $.265 per share was
declared, payable June 28, 1996 (reinvestment date June 28, 1996) to
shareowners of record on June 14, 1996.
Dividends and distributions payable to its shareowners are recorded by the
Fund on the ex-dividend date.
EQUALIZATION ACCOUNTING -- A portion of proceeds from sales and payments on
redemptions of Fund shares is credited or charged to undistributed net
investment income. As a result, undistributed net investment income per share
is unaffected by sales or redemptions of shares.
CUSTODIAN FEES -- Custodian fees are reduced based on the Fund's cash
balances maintained with the custodian. Beginning in 1995, in accordance with
changes in the requirements of the Securities and Exchange Commission, both
gross custodian fees and the amount by which such fees are reduced, are
disclosed separately in the statement of operations. This presentation does
not affect the determination of net investment income.
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 of .20% of the first $100 million of average
net assets, .15% of the next $100 million of average net assets and .10% of
the average net assets in excess of $200 million. The Manager guarantees that
all
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<PAGE>
STATE FARM GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
expenses of the Fund, including the 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 $639,918, for
the six months ended May 31, 1996 and $1,068,973 for the year ended November
30, 1995. 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, 1996 or the year ended November
30, 1995, except for directors' fees of $5,400 for the six months ended May
31, 1996 and $6,600 for the year ended November 30, 1995 paid to the Fund's
independent directors.
3. INVESTMENT TRANSACTIONS
Investment transactions (exclusive of short-term instruments) are as
follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED NOVEMBER 30,
MAY 31, 1996 1995 1994
<S> <C> <C> <C>
Purchases......................................... $ 82,696,591 46,164,857 49,125,581
Proceeds from sales............................... 50,986,528 22,290,487 20,805,090
============ =========================
</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, 1996 1995 1994
<S> <C> <C> <C>
Shares sold....................................... 3,214,036 4,289,306 4,460,689
Shares issued in reinvestment of ordinary
income dividends and capital gain
distributions..................................... 467,341 966,452 670,054
----------- -------------------------
3,681,377 5,255,758 5,130,743
Less shares redeemed.............................. 1,803,593 3,008,177 3,678,175
----------- -------------------------
Net increase in shares
outstanding....................................... 1,877,784 2,247,581 1,452,568
=========== =========================
</TABLE>
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<PAGE>
STATE FARM GROWTH 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, 1996 1995 1994 1993 1992 1991
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period.............................. $ 29.40 22.63 22.21 23.05 20.33 16.77
Income from Investment
----------------------
Operations
----------
Net Investment Income.............. .32 .50 .44 .45 .43 .42
Net Gains or Losses on
Securities (both realized
and unrealized)................... 2.01 6.97 .43 (.60) 2.70 4.32
---------------------------------------------------------------------------
Total from Investment
Operations......................... 2.33 7.47 .87 (.15) 3.13 4.74
Less Distributions
------------------
Dividends (from net
investment income)................ (.27) (.52) (.45) (.45) (.41) (.54)
Distributions (from
capital gains).................... (.12) (.18) -- (.24) -- (.64)
---------------------------------------------------------------------------
Total Distributions................. (.39) (.70) (.45) (.69) (.41) (1.18)
Net Asset Value, End of Period....... $ 31.34 29.40 22.63 22.21 23.05 20.33
===========================================================================
Total Return 8.00% 33.67% 4.02% (.65%) 15.42% 29.79%
- ------------
Ratios/Supplemental Data
- ------------------------
Net assets, end of period
(millions).......................... $ 1,198.1 1,068.6 771.7 725.1 696.1 558.4
Ratio of expenses to average
net assets.......................... .13%(a) .14% .14% .14% .16% .19%
Ratio of net investment income
to average net assets............... 1.85%(a) 1.95% 2.00% 2.05% 1.99% 2.22%
Portfolio turnover rate.............. 10%(a) 3% 3% 2% 2% 1%
Number of shares outstanding
at end of period
(millions)......................... 38.2 36.4 34.1 32.7 30.2 27.5
</TABLE>
Average commission rate paid per share on stock transactions for the six
months ended May 31, 1996 was $.06.
(a) Determined on an annualized basis.
-12-
